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Group Executive Agenda
Remember (a+vei) (otw) (p&o) & (cit) !
Date reported as Present In Attendance Other Attendees Apologies
14!" September 2017 + Paula Vennells (Chair) + Natasha Wilson (item 2) None
+ Alisdair Cameron + Rob Clarkson (item 5)
Start Time Finish Time + Nick Kennett + Gill Tait (item 9)
08.30hrs 14.30hrs * Kevin Gilliland * Tom Moran (item 9)
5 + Jane MacLeod + Steve Norris (item 10)
Room 1.19 Wakefield * Martin Kirke
* Mark Davies
* Martin Edwards
Agenda Item Action Needed Purpose Lead Ti ig
4. Performance — Financial Results & For information & input To review the Financial Results & the Al 08.30 — 08.50
Review of Business Scorecard Business scorecard and discuss any areas
which are shown to have a RED status.
2. Accounting and Incentives For discussion & GE input To agree the LTIP targets for each of the next I Al/ Natasha Wilson 08.50 - 09.40
three years.
3. Performance Report - Retail SBU For information & input To review the Performance of Retail SBU. Kevin 09.40 — 10.10
4. Peregrine Update (verbal) For information To update GE on Peregrine. Nick 10.10 — 10.20
BREAK 10.20 — 10.30
5. POMS Update For noting To receive the POMS’ Shareholder report Nick / Rob Clarkson 10.30 - 10.40
ahead of its submission to the POL Board.
6. NFSP Strategy & Funding For discussion & GE input To update the GE on proposals regarding Kevin 10.40 - 11.00
future funding of and relationships with the
NFSP.
7. IT Strategy For discussion & GE input To update GE on IT Strategy pre-Board. Rob 11.00 - 11.55
8. Back Office Transformation For discussion & GE input To update GE on Back Office Transformation. I Al 11.55 — 12.15
9. Transaction Simplification Project For information & input To update the GE on the Transaction Gill Tait / Tom Moran 12.15 — 12.30
Changes Simplification Project Changes.
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Group Executive Agenda
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Agenda Item Action Needed Purpose Lead ‘1 ig
LUNCH 12.30 — 13.00
10. I Finsbury Dials Review For discussion and To finalise strategic direction on admin sites Steve Norris 13.00 - 13.15
approval specifically (1) London estate and FD and (2)
CTOs.
11. I Verbal update from Committees & For noting Chairs of Committees to update GE. 13.15 — 13.30
Steering Groups
11.1 IRSG Martin Kirke
11.2 Ops Board Al
11.3 CRG Al
12. I Contracts for Approval For approval For GE to approve the Contracts. Mark Dixon 13.30 - 14.00
12.1 Interest rate SWAPs
13. I Review of GE Minutes, Action Points and For noting and To update the GE on the actions taken and All 14.00 — 14.10
Updates provide any information requested .
14, I Items for Noting For noting For GE to note the papers. 14.10 - 14.15
14.1 Health & Safety
14.2 Forward Agendas
GE — October 2017
Board — September and October 2017
15. I AOB For input To discuss any other items of business not on All 14.15 — 14.25
the agenda.
16. I Feedback on meeting For input Review the agenda items and the effectiveness All 14.25 — 14.30
of the sessions.
CLOSE 14.30
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August 2017
Financial Performance
Amanda Radford
14 September 2017
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Trading performance continues in line with recent trends.
New Call launch delivers £1.5m revenue.
Context
. YTD P4 EBITDAS performance was £4.0m. £1.5m favourable to budget.
. At end of FY 16/17, cash in Network was £666m and balance sheet headroom was £189m
. P5 budget EBITDAS is £0.0m
Questions
. How is our scorecard performance in P5?
. What is the financial performance of the business in P5?
. Are we appropriately funded?
Assumptions
. For the purposes of this pack we have assumed a reversal of our impairment policy and depreciation charges have been applied.
Should we not have reversed impairment net liabilities would be £(78)m.
Conclusions
. Reporting EBITDAS of £0.5m in P5 (£0.5m favourable to budget) and YTD of £4.5m (£2.0m favourable to budget). However
favourable timing differences of £1.6m YTD means that in reality we are marginally ahead of budget by £0.4m.
. Trading performance in the month was in line with performance of prior months, uplifted for the impact of New Call coming on line
in P5. Some challenges remain in the cost base and a detailed review will be undertaken as part of the P5 forecast process.
. Balance sheet headroom in P5 was £81m, a decrease of £89m v prior month. The increase in RCF of £89m reflects lower client
funding (£56m) and a reduction in NRF usage (£32m). We anticipate that the client funding position will reverse in P6. Network
cash remains comparatively high as a result of summer forex demands and inward rems processing (which we continue to
monitor).
Input Sought
The GE is asked to note the financial performance.
(>>
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Branch numbers continue to track below targets
Key Perf Indi PS YTD Full Year
ey Performance Indicators Act Target Var. Act Target Var. Target
Growth
Total Gross Income (excl NSP) £m 73.3 71.4 391.0 385.1 945.0
EBITDAS £m 0.5 0.0 4.5 2.5 28.0
Headroom £m (vs Board minimum limit) 281 > 200 281 > 200 > 200
Digital Net Income £m (digital team) Bz 4.0 18.4 20.0 45.0
Net profit £m? TBC TBC
Customer
Customer Effort 82% 76% 78% 76% 76%
Net Promoter score Financial Services 25 25 25 25 25
Acceptable Wait Time % 95% 95% 93% 95% 95%
Branch Compliance - Financial Services - basket of 11 measures 10 <=50 30 <=50 <=50
People
Line Manager Engagement Index % (Once a year)? Same as YTD 61%
Representation (Senior Managers) - Gender 38% 37% 38% 37% 37%
Attendance 96.0% 96.7% 96.0% 96.7% 96.7%
IT Lost Time (Number of Sev1/Sev2 IT incidents) 11 13 37 65 <156
Safety LTIFR 0.166 0.180 0.303 0.180 0.180
Modernisation
Number of branches (one month in arrears) Same as YTD 11,574 11,633 >=11,700
NT and ND Branches Transformed in Year 32 40 214 177 400
IT Transformation (% of IT controls implemented) 59% 59% 59% 59% All high risk
gaps closed
1. Accounting estimate for impairment currently under review as part of FY 2016-17 year end process.
2. For comparison, prior year was 68%
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Digital Income below targets driven by Travel activity
* Digital Net Income
.
A better performance in Digital Income this month which was £(0.3)m adverse to target and is £(1.6)m adverse YTD.
The shortfalls in the month were again driven by Travel products which is £(0.5)m adverse in the month and £(2.1)m adverse
ytd.
For both Travel products paid marketing has been delivering against its agreed plans and the website has performed above
target. Anticipated uplifts in volumes due to natural search increases have not been delivered leading to budget shortfalls.
Strong performance in Motor and Home Insurance continues to over perform and fill some of the gap.
+ Attendance
There is an increasing trend of long term absence in Directly Managed Branches and Supply Chain. Short term absence has
also increased in Supply Chain in P5 but there is no single cause and absences are varied and are not related to mental health.
Causation for absences that have converted from short to long term over the past 60 days include a number of musculoskeletal
cases in Supply Chain and a number of stress related in Directly Managed however, a number of long term stress related
cases have returned to work early in P6 in DMBs. The Health & Safety team are working closely with Supply Chain to review
the daily tasks and impact of SSC, whilst further analysis of mental health related absences is also being undertaken with our
HR and OH providers.
+ Modernisation
Number of branches reduced by 8 in the month and is now 11,573, 60 behind the ytd target. Our Network Numbers continue to
be under pressure with a reduction in sites driven by two main factors, the increased number of postmaster suspensions this
year due to losses (88 branches ytd), together with a higher than anticipated level of churn in the Network overall.
The Field Team, together with the NNL Team, have developed a joint plan which through a number of interventions will take us
back to previous year’s numbers (11,624) by the end of Q4. The plan includes 4 x additional Mobile Post Offices, simplification
of the agent appointment process and additional funding being made available to assist postmasters in converting premises.
In the month 32 branches were transformed which is 8 below the monthly target. YTD however we continue to significantly
track ahead with 217 transformations against a target of 177. Transformations are slowing down as anticipated as we are
addressing more complex cases. Full year targets are still expected to be delivered.
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P5 EBITDAS is £0.5m favourable to budget.
P5
Var Var
£m Act} Bud PY
Gross Income 73.3 2.0 2.2
Direct Costs (9.8) 0.1 (1.6)
Net Income 63.6 2.1 0.6
Staff Costs (15.1) (1.7) 3.3
Agents Pay (28.6) (1.0) 0.4
Non-Staff Costs (22.2) 1.1 (0.1)
Expenditure (66.0) (1.6) 3.6
FRES - Share Of Profits 2.9 (0.0) (0.1)
EBITDAS 0.5 0.5 4.1
0.0
(0.5)
(1.0)
EBITDA Bridge v Budget
“ oe oS a “ - oe
e ¢ s ¥
Gross income — £2.0m favourable. Continuing
overperformance in Retail (+£2.6m). FS&T revenues
(+£0.7m) due to continuing strong performance in the
underlying business. New Call revenue (£1.5m) came
online in the month and performed in line with budget.
Shortfall in POMS (£1.3)m due to budget phasing. Further
details provided on slides 7&8.
Staff costs — £(1.7)m adverse. Overspends in Retail
£(0.9)m due to continuing delays in branch conversions and
ongoing Supply Chain challenges £(1.0)m. Further details
on slide 9.
Agents pay — £(1.0)m adverse and continuing to track in
line with YTD trends due to favourable revenue variances in
Retail and the channel/product mix.
Non-staff costs — £1.1m favourable including one-off
benefits:
+ £1.0m benefit from Property (£0.6m lease benefit
following the closure of 48 DMB’s and £0.4m rent rebate
on Old Street property)
+ £0.5m benefit from bad debt provision release as agents
are on payment plans to recover.
Continuing underspends in marketing £0.8m, which are
expected to reverse, are offset by other cost timing
variances. Marketing plans and spend phasing will be
reviewed as part of the P5 Forecast process.
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YTD EBITDAS is £2.0m favourable to budget. £0.3m on an
underlying basis.
YTD + Gross income — £5.9m favourable.
¢ Retail +£12.3m with strong performance in Parcelforce, RM
&m YTD! Var Var Signed for, Lottery and Government Services.
Act; = Bud PY «Significant year on year decline £(13.0)m driven by
Grccncone 391.0 5.9 (8.7) Government Services £(9.5)m.
Direct Costs (49.8) 3.4 (2.7) +» FS&T £(4.8)m adverse to budget driven by delays in New Call
— aaa aE — launch £(6.0)m ytd and declines in Moneygram revenues
Agents Pay (155.2) (4.6) 79 £(1.8)m due to drop in volumes following Brexit.
Non-Staff Costs (118.3) 1.7 3.2. + Strong performance in other Telco areas due to c.32,000
— — —_ er aE additional customers (driven by closing 2016/17 base)
rs are rorits . . . n ‘ H
EBITDAS 45 2.0 16.6 partially offsetting these declines.
; + Staff costs — £(3.8)m adverse. Overspends in Retail £(2.6)m
YTD EBITDA Bridge v Budget due to continuing delays in branch conversions and Supply
Chain challenges £(1.6)m.
+ Agents pay — £(4.6)m adverse and continuing to track in line
with YTD trends due to favourable revenue variances in Retail.
+ Non-staff costs — £1.7m favourable with significant
underspends in marketing £2.4m which are currently
anticipated to reverse over the remainder of the year. Marketing
plans and spend phasing will be reviewed as part of the P5
Forecast process.
we EF SF SE SE CS gS § + FRES-£(0.6)m shortfall ytd but action plans in place and
es # & Fo 4
eS
: currently expecting to deliver full year targets.
fw \
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Retail revenues +£12.3m favourable to budget. FS&T £(4.8)m
adverse with shortfalls in Moneygram and Telecoms
PS Revenue v Budget
a Retail + £2.6m Retail
—_— * Continued strong performance in the month following recent
” a I trends across all revenue pillars.
te + Ascalled out in the R&O, trends suggest there will be a
em
a nad -
560
£m
YTD Revenue v Budget
410 550
408 Retail + £12.3m
406
40
404
402
530
on
> oe .
394
& 392
revenue opportunity in the remainder of the year. Additional
revenues will be offset by continuing cost pressures.
Retail - Rolling Trends
Opportunity
Piz P20 PA PHPBSCPO P12 2s PAPHSCPBECPAO PAD
14/15 15/16 15/16 15/16 15/16 15/16 15/16 16/17 16/17 16/17 16/17 16/17 16/17
reat vce
386 Ls I FS&T - Further details provided on next slide
? POMS
LPL POLES
* Shortfall in the month due to budget phasing. YTD position
* & correct with a £1.4m gap v target but £2.0m y-o-y growth.
POMS still on track to deliver full year EBITDA target/“>
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Moneygram continues to suffer from post-Brexit uncertainty.
New Call launch in P5 delivers budgeted revenue.
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P5S YTD
£m Act Var Var YTD Var Var
Bud PY Actual Bud PY
Mortgages 0.3 0.0 0.2 il (0.6) (0.2)
Credit Cards and lending 0.1 (0.1) (0.1) 0.8 (0.5) (0.5)
Savings 3.4 (0.0) 0.0 16.8 (0.0) (1.6)
Travel Money xi} 0.2 0.3 12.5 0.3 0.5
MoneyGram ile) (0.6) (0.5) ‘lila (1.8) (1.5)
Post Office Money (35) (0.5) (0.1) 42.3 (2.6) (G52)
Banking Services 6.8 0.4 1.6 Eb) 1.2 10.0
Telecoms 12.6 LL 3.1 60.2 (2.6) 6.6
Postal Orders 1.1] (0.1) (0.2) 6.5] (0.6) (1.9)
Other Income id 0.0of (0.2) (0.0) (0.0)f (0.3) (0.1)
FS&T 29.0 0.7 4.3 144.9I (4.8) 11.5
POMS 4.5 (1.3) 11 2ilaZ? (1.4) 2.0
Total FS&T 33.5I (0.6) 5.3 166.6I (6.2) 13.4
Moneygram - £(0.6)m mth and £(1.8)m ytd
+ Continued post-Brexit impact with ongoing decline in send
transactions following decline in the £/Euro exchange rate.
+ Money laundering regulations came into effect in June
requiring ID to be requested for every transaction.
+ Measures to counter this trend include branch visits to assess
Banking Services - £0.4m mth and £1.2m ytd
+ Additional volumes driven by the Banking Framework
Telecoms - £1.1m mth and £(2.6)m ytd
+ New Call acquisition live in month delivering £1.5m of
revenue (in line with budget). YTD shortfall of £(6.0)m reflects
promotional opportunities, better customer retention and
targeted marketing spend.
timing of acquisition.
* Homephone and Dual continue to over perform +£1.1m due
to c. 32,000 additional customers and price rise impapt~
8
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Delay in branch conversions and challenges in supply chain
lead to overspend in staff costs
Total Month YTD Staff costs £(3.8)m adverse YTD:
£'m Actual Bud Var Actual Bud Var Retail F&O Other Total
Bud Bud
Wages & Salaries 10.2] 10.1 (0.1) 53.6] 55.2 15 A F
Overtime 05 03 (02) 20 17 (0.4) Salaries, NI& Pension (0.9) (0.3) 1.9 0.6
Contractors & Temporary Resource 0.6 0.0 (0.6) 2.2 03 (1.9) Contractors & Overtime (0.8) (0.5) (1.0) (2.3)
Employers NI 1.4 1.3 (0.2) 7.6 68 (0.8) Staff Costs - Run Rate (1.7) (0.9)” 0.9 (1.6)
a Run Rate a TA ck a a ce Borius - ~ Os oA
Bonus & Productivity os} 12 03 47] 6.1 14 Efficiency (0.9) (1.3) (0.4) (2.6)
Staff Costs Efficiency Target -I (08) (0.8) -I (3.4) __(3.4) Staff Costs - Total (2.6) (2.2) 1.0 (3.8)
Staff Costs - Total 164f 13.4 (4.7) 7.0f 73.1" (3.8) I P , F
Staff & Agency Related Costs 0.8 01 (0.7) 44) 38 (0.5) mare San ke, delay al branon conversions. _ he full '
Consultancy & Advisory Services (0.0) O85 05 08 01 (0.7) year there will be a partial mitigation in agents pay. The gap is
Brand & Marketing 0.91 16 08 63 87 24 anticipated to continue throughout the financial year.
Legal Costs 0.4 0.3 (0.1) 1.9 18 (0.1) +» Of the £(2.2)m variance ytd in F&O, £(1.6)m is due to Supply
Property & Facilites. Management 25 36 12 7.6) 18.8 17 Chain with budget task £(0.7)m not achieved, adverse
wetness of BS 40.1) 1 18 ot overtime costs £(0.3)m due to sick leave and £(0.3)m of
IT Infrastructure & IT Services 8.2) 8.6 0.4 43.5) 42.8 (0.6) . . .
Finance & Losses 19] «625 ©6005 I 1.0] 14.0~S 00 project costs to transferred.
Other Operating Costs 7.2 5.8 (1.4) 31.3 30.7 (0.6) + The remaining overspend in F&O is due to £(0.3)m payrise
Non staff Costs 22.2I 23.3 4.1) 148.3! _120.0 4.7 impact (budget held centrally) and £(0.2)m of contractor costs
Molalleosts) Ses) Leal iE) (ei) in financial control and change for vacancies.
+ £1.0m of benefits in Other include costs budgeted centrally for
pensions and payrise £0.7m which are currently absorbed
within the divisions.
Non-staff costs (excluding YTD marketing underspend of £2.4m)
are in line with budget
+ Benefits in property costs +£1.7m (leases and rebates) offset
overspends in other areas.
Phasing of marketing spend will be revisited as part of the P5F.
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Significant Capital and Investment cost in month following
the announcement to close 48 DMB
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£m
EBITDAS
Depreciation
Network Payment
EBIT pre exceptionals
Interest
Impairment
Capital & Investment
Government Grant Utilisation
Profit/(Loss) On Asset Sale
Profit/(Loss) Before Tax
P5 YTD
Act Var Var YTD Var Var
Bud PY Act Bud PY
0.5 0.5 4.1 4.5 2.0 16.6
(5.4) - (5.4) (17.8) - (17.6)
5.4 - (0.8) 29.6 (0.0) (4.2)
0.4/ 0.5 (2.1) 16.3 2.0 (5.2)
(0.4) 0.2 (0.5) (1.6) 1.3 (2.2)
- - 7.3 - - 41.5
(17.9)} (10.1) (8.5) (39.5) 0.7 8.9
5.8 - (51.4) 29.2 - (86.6)
(0.0) (0.0) 0.0 6.5 6.5 4.9
(12.0)I (9.4) (56.5) 10.9 10.6 (38.7)
Assumes that Post Office no longer impairs assets on acquisition, and that assets are depreciated over their
useful life.
Depreciation charge is £5.4m in the month and includes a ytd adjustment following the finalisation of the
accounting for fixed assets as part of the FY16/17 audit process.
Capital & Investment (previously exceptional) expenditure is £17.9m in the month following the creation of a
£13.0m Onerous Property provision in month following an announcement regarding the closure of 48 DMB.
In period spend on capital assets was £10.3m, £42.7m YTD.
A further breakdown of the capital and investment spend is provided on the next slide.
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Transformation is tracking below budget and is c.£83m ytd
PS YTD FY
Act} Bud Var Act} Bud Var Bud
Bud Bud
TT & Digital 5.4) 11.4 6.0 21.8) 43.9 22.0 112.7]
Network Development Programme 4.4] 4.4 (0.0) 18.4] 20.2 18 70.8
DMB Network Development 13.3] 1.6 (11.8) 17.3] 6.9 (10.4) 21.6
FS &T 0.5 9.4 8.8 7.0} 18.4 11.4 34.4)
Back Office Transformation 1.9 1.4 (0.5) 5.1 6.3 1.2 20.1
LEAN Centre 0.2) - (0.2) 2.9) 3.2 0.3 4.7
Retail 0.6) 1.8 1.1 2.6] 8.3 5.7 18.1
Supply Chain 0.2] 0.2 0.0 2.41 0.4 (2.0) 3.9
People and Engagement Transformation 0.7} 0.2 (0.5) 1.9) 26 0.7 5.0I
POMS 1.0 0.5 (0.5) 1.4 Ls 0.1 3.4
Property 0.4) 0.3 (0.1) 1.3} 1.1 (0.2) 4.0
Other Transformation 0.1 0.3 0.1 0.5] 1.3 0.8 3.0)
Corporate Services Transformation 0.0 0.1 0.1 0.2 0.6 0.4 2.3)
Identity - - 0.4 0.4 4.7
Finance 0.1 O14 0.3 0.3 0.5
Digital & marketing 0.2 0.2 0.7 0.7 2.3]
Network Operations - - - (0.0) 15 1S 1.8I
Central Adjustments (0.0) 0.0 (0.0) 0.0
Total 28.8[ 31.7” 2.9 I 82.7I/117.4" 34.7 [313.3
Capital 10.9) 23.9 13.0 43.2] 77.2 34.0 210.3
Investment 17.9] 7.8 (10.1) 39.5] 40.2 0.7 103.0}
Total 28.8I 31.7, 14.6 82.7/117.4 90.6 I 313.3
Prioritisation and phasing work is ongoing as part of the P5
forecast process.
Total Transformation Spend
a a er PSPS POLS
mmm Budget ——Actual
Transformation Spend
* IT & Digital continues to see delays in the rollout of a number of
projects as issues with programs and suppliers are worked
through. YTD spend is £22m behind budget.
« Network Development Programme includes £14.4m of agents
compensation costs ytd.
+ DMB spend in the month includes £13m provision for property
costs following the announcement to close 48 DMB.
+ FS&T includes £6.1m ytd for the acquisition of New Call v
budget of £10.3m. Project Finch and Peregrine delays drive
additional budget underspend.
+ YTD Back Office Transformation costs include £2.0m for the
Sales and Finance Transformation programmes and £1.3m for
Cash Processing.
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P5 balance sheet shows a net asset position assuming
reversal of impairment accounting policy
£m August 2017 Mar 2017 Variance
Fixed Assets 429 390 39
Debtors 326 335 (9)
Cash 790 680 110
Creditors (618) (583) (35)
Pension surplus 1 1 ie)
Provisions (74) (88) 14
Other 9 8 1
Loan (669) (561) (108)
Net Assets/ (Liabilities) 193 182 11
Capital and Reserves 193 182 11
As at P5 the balance sheet would be in an net liability position of £(78)m if the impairment accounting policy
were reinstated.
The increase in the cash balance since the year end (see slide 13) is largely offset by the increase in creditor
and loan balances.
Increase in creditors driven by the government grant which is received in April, recognised on the balance
sheet as a creditor and released to the income statement over the year.
Reduction in provisions balance due to OSOP and agents compensation payments. Additional provisions in
the month have been made for £13.0m following the DMB closure announcement.
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Network cash has increased by £68m since year end largely
funded by higher RCF balances
(1) Where was our cash?
Cash
£m Branches cviT
Centres
March 648 139 160
August 669 146 225
Variance 21 ig 65
(2) How was it funded?
—m RCF Clients "Network
Cash"
March 561 130 691
August 669 90 759
Variance 108 (40) 68
(3) What was our facility headroom on the RCF?
£m Cap Board Net Limit
Buffer
March 950 (200) 750
August 950 (200) 750
(4) What was our security headroom on the RCF?
Network Other Total
£m net 1.
cash Security
assets
March 691 227 918
August 759 227 986”
(5) What was our actual headroom?
Total
947
1,040
93
NRF
256
281
25
RCF
(561)
(669)
RCF
(561)
(669)
Total
947
1,040
25)
Facility
Headroom
189
81
Security
Headroom
357
cil)
Given we do not apply £200m buffer to Security headroom our actual headroom is £81m.
(lower of £81m facility and £317m security headroom)
Within branches, Foreign exchange holdings
have increased from £85m in March to £120m in
PS in line with summer demand.
Cash centre balances have increased since the
year end as we continue to see higher cash in
transit awaiting processing at the cash centres
(Inward Rems).
Inward Rems were £84m in March 2017, rising
to £144m in P3. Initiatives to reduce the inward
rems balance reduced the P5 closing balance to
£121m. We continue to monitor inward rems
closely.
Facility headroom has reduced by £108m since
March. This is due to higher network cash and
paydown of provisions, partially offset by the
receipt of the government grant.
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In P5 Gross Profit margin is on budget
PS YTD
Actual Var Actual Var
Retail FS&T Other Total Retail FS&T Other Total Retail FS&T Other Total Retail FS&T Other Total
Gross Income 38.8 33.5 1.0 73.3 2.6 (0.6) (0.1) 2.0 218.6 166.6 5.9 391.0 12.3 (6.2) (0.2) 5.9
Directly Attributable (2.6) (7.2) - (9.8) (0.2) 0.2 - 0.1 (12.9) (36.9) (0.0) (49.8) (0.3) 3.6 (0.0) 3.4
Supply Chain (2.3) (1.2) - (3.5) (0.3) (0.2) - (0.5) (10.9) (5.7) - (16.6) (0.8) (0.4) - (1.2)
DMB Costs (4.7) (1.4) - (6.1) (0.5) (0.2) - (0.7) (24.2) (7.1) - (31.2) (1.6) (0.5) - (2.0)
Agents Pay (22.4) (6.2) (0.0) (28.6) (1.0) 0.0 (0.0) (1.0) (123.8) (31.3) (0.0) (155.2) (6.8) 21 (0.0) (4.7)
Gross Profit 6.9 17.5 1.0 25.4 0.5 (0.6) (0.1) (0.1) 46.8 85.6 5.8 138.1 3.0 (1.3) (0.2) 1.5
Gross Margin % 17.7% 52.3% 34.6% 0.2% (0.9%) (1.1%) 21.4% 51.4% 35.3% 0.2% 1.1% (0.2%)
. Gross profit margin is on budget YTD at 35%. In P5;
. Retail gross margin is slightly favourable as gross income flows through,
. FS&T margin in P5 impacted by POMS revenue adjustment (c.2% impact). Excluding adjustment P65 is
inline with ytd trends.
. Supply Chain costs adverse to budget due to non-delivery of staff efficiency task.
° Other income relates to Supply Chain and Gamma.
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P5 and YTD EBITDAS by Area
Overheads Month YTD
Actual Var to Bud Actual Var to Bud
£m Staff Other Total Staff Other Total Staff Other Total Staff Other Total
Costs Costs Costs Costs
KG Retail 6.8 27 9.5 (0.9) 0.4 (0.5) 34.9 12.9 47.9 (2.6) 3.5 1.0
MK FS&T 11 2.6 3.7 (0.1) 0.6 0.5 5.0 17.2 22.2 0.0 (0.2) (0.1)
NK POMS 0.3 1.6 1.9 0.1 (0.0) 0.1 1.8 7.8 9.6 0.1 0.5 0.6
AC Finance & Ops 46 3.8 8.4) (1.0) 25 1.5 21.8 28.6 50.4 (2.2) 2.4 0.2
RH clo 0.4 8.5 8.9 (0.1) 0.1 (0.0) 1.7 43.0 44.8 (0.0) (0.6) (0.7)
JM LRG 0.4 0.4 0.8) (0.0) (0.2) (0.2) 21 1.2 3.4 0.3 0.0 0.3
MK HR 1.4 0.3 1.6 0.2 (0.2) 0.0 7.6 2.0 9.6 0.2 (0.0) 0.2
Central 0.0 2.4 2.5 0.1 (2.1) (2.0) 2.0 5.5 7.4 0.3 (3.9) (3.5)
Total 15.1 22.2 37.3 (1.7) 1.1 (0.6) 77.0 118.3 195.2 (3.8) 1.6 (2.1)
Retail - Staff variance driven by delays to branch conversions. Non-staff costs favourable due to timing of marketing spend, favourable card
processing and monetisation project spend.
FS&T - Non-staff costs adverse due to FX losses, Telecoms Ofcom strategy spend, and reversal of favourable marketing spend in prior
periods.
Finance and Ops - staff costs adverse driven by Supply Chain overtime and budgeted staff task. Non-staff costs are favourable in P5 due
to agents provision correction and property savings.
CIO - both P5 and YTD adverse due to Fujitsu delays on network transition and Verizon cost saving delays.
Central - P5 includes £0.9m accrual of PO’s released in Finance and Ops and reversal of £0.9m from P4 as we confirm the accounting
treatment.
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GROUP EXECUTIVE DISCUSSION PAPER
Targets and Incentives
Author/Sponsor: Al Cameron Meeting date: 14 September 2017
Executive Summary
Context
In recent years, the Board has focused us on delivering EBITDAS profit as a proxy for
progress towards commercial sustainability. LTIP targets were set at the time of the
last Strategic Plan and were not varied subsequently. STIP targets did vary but there
was always pressure to revert to the Strategic Plan if possible. As a result, 100% of
LTIP and 80% of STIP for 2017-18 is targeted on reaching £28m EBITDAS.
Following the agreement of principle on funding, we will seek Board approval for a new
Strategic Plan (2018-21) in November. We will also need to agree with RemCo the LTIP
targets for this period, recognizing that the traditional 3 year periods ending in 2019
and 2020 are already underway. The 2018-19 Annual Plan and STIP targets will be
discussed with the Board in January 2018 and finalized in March 2018.
We agreed that we would debate the approach at GE well in advance of the November
decisions, recognizing that we will have to live with the targets until 2021. Targets set
in November make have to be subject to changes in lease accounting.
Questions addressed in this report
1. What is the shape of our profit and loss account?
2. What sort of measures should we use for LTIP and STIP targets?
3. Do we want to balance a future focus on profit with a mix of targets?
Conclusion
Our profit and loss account now presents in columns, separating trading from
discontinued activities and capital and investment. The latter comprises the former
exceptional items of government grant and the more transformational change spend.
The third category of exceptional item, the write off of capital spend, will cease as we
capitalise the assets and increase the charge for Trading depreciation.
From 2018-19, we could treat Network Subsidy as a payment for services, moving
from a focus on EBITDAS to EBITDA (both within the Trading column) and simplifying
our narrative. This could signal to the business much earlier and easier achievement
of a “£100m goal” but we can define the £100m to mean something else, such as free
cash flow for investment.
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For profit measures we can target Trading EBITDA, focusing us on trading
performance, or we could target net profit. The latter would bonus us on how we deal
with Interest, Depreciation, Tax and the net spend on change projects - only
Discontinued Items would be excluded. As well as being a more complete view, it
would end the two-speed economy of BAU versus change. This would have to be
balanced with some evidence of change delivery to stop us gaming the cash flow,
would be harder to achieve and more complex.
It might be sensible to separate the LTIP and STIP goals: it is hard to defend the
separate value of LTIP if it has identical targets. One option would be to focus STIP on
trading (Trading EBITDA) and LTIP on net profit, which is similar to the sort of EPS
calculation used by many public companies. However, to define change spend 3 years
ahead might limit our flexibility and make our governance processes more complex.
An alternative would be to reverse the above approach and target net profit for STIP,
as it would be easier to set change priorities over the shorter term, retaining the
simplicity of EBITDA for LTIP. All of these have pros and cons and would benefit from
discussion: once we agree them, they are hard to change.
In the past we have also had gateway measures of Network Transformation (STIP)
and Network numbers (LTIP). We could replace these with access criteria as the
genuine gateway issue?
We should build a balanced scorecard for the GE of measures that we believe are
important for our progress as a business across the domains of Network & Agents;
Growth; Customers; Technology; People and Financial.
The Board has recently focused us on financial measures: profit and cash. Do we want
to be solely targeted on these measures, however important? The danger is that the
singular focus gives us too great a short-term focus. Having STIP based on net profit,
including the need for strategic change delivery and with LTIP targets requiring us to
improve Trading EBITDA by investing successfully in change might mitigate that risk,
at least in part.
The Board is unlikely to approve us moving to a balanced scorecard approach.
However, if we felt that there were 1 or 2 critical non-financial measures, we could
make the case, recognising that they are often harder to track and measure. For
example, would we be prepared to throw our caps over the wall by staking part of
LTIP on the number of customers with an active, digital relationship with POL?
Looking at other companies, the scorecard tends to be more associated with STIP
than LTIP but this may be an issue for the Board.
Input Sought
The GE is asked to recommend an approach to the Strategic Plan targets prior to the
RemCo and Board discussions.
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The Shape of our profit and loss account.
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1. In previous years, we have focused on EBITDAS. Our p/! account was structured as
follows:
2015-16, £m P/L EBITDAS
Turnover 981 981
Network Subsidy 130
Depreciation @
‘Other operating costs (1,040) (1,040)
Share of profit of joint ventures 35 35
Operating profit before exceptional items from continuing 105 (24)
operations/EBITDAS
Government Grant 150
Transformation Project Costs (283)
Impairment of Fixed Assets (136)
Total Exceptional Items (269)
‘Operating Loss from continuing operations (164)
Net Interest/Financing 3
Taxation 4
Discontinued Items (10)
Loss for the financial year (167)
2. For the 2016-17 we are amending the presentation. On a like for like basis, this
information will now be presented showing discontinued operations and what were
exceptional items in columns. In addition, from 2017-18 we are ceasing the
automatic impairment of fixed assets, resulting in a lower cost in the capital
column (reversing £136m in the example above), replaced by a higher charge in
trading depreciation. This does not affect EBITDAS.
3. So we might imagine a future version of this p/I looking more like:
Trading Closed Capital Total EBITDAS
Turnover 981 981 981
Network Subsidy 130 130
Depreciation (30) (30)
Other costs (1,040) (283) (1,323) (1,040)
Government Grant 150 150
Share of Joint Venture 35 35 35
Operating Loss/EBITDAS 76 (10) (133) (67) (24)
Net Interest/Financing 3 3
Taxation 4
Loss for the financial year 83 (10) (133) (60)
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4. From 2018-19, I would expect to see fewer items in the discontinued column: this
has been made up of pensions changes, the closure of the Supply Chain third party
operations; and the closure of Mobile.
What profit measure should we use for LTIP and STIP targets?
5. We have traditionally excluded Network Subsidy from our EBITDAS calculation
because it was temporary, rapidly reducing in size and its value was not connected
to the costs of maintaining loss-making branches.
6. Government has agreed to maintain these payments for another three years,
settling at £50m per annum, in recognition of loss-making branches and the value
is not inappropriate. I am therefore recommending that for 2018-19 we should re-
christen Network Subsidy as a Network Payment and recognise it in our trading
profit, moving from EBITDAS to EBITDA, which is more consistent with other
companies.
7. Maintaining a STIP profit target on EBITDA helps us to maintain a single, easily
understood target, focused on our trading - £76m in the example above.
8. The disadvantage is that it excludes the net change spend, depreciation, interest
costs and taxation. We know that the current exclusion of change spend has
created a constant pressure to have a two-speed economy where we starve BAU
and fund change. In future, depreciation will be significantly more material,
interest charges will increase as rates rise and POCA balances fall and we will move
to paying, and seeking to minimise Corporation Tax.
9. For LTIP I would therefore recommend that we therefore move to a fuller version
of the p/I, excluding only discontinued items: a loss of £50m in the example above
(60 less 10).
10. In isolation, this would be too easy to game: we could simply slow down change
spend to hit the target. It would therefore have to be balanced with some evidence
that we were delivering change activity in line with expectations.
Do we want to balance a future focus on profit with a mix of targets?
11.We have been overwhelmingly focused on profit targets in recent years as we have
driven the business to reduce its losses. We have loosely targeted c. £100m of
profit as giving commercial sustainability, by which we have probably meant
having c. £100m of free cash flow to invest in the business.
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12. This might look roughly as follows. Clearly, it assumes that our transformational
change spend, net of investment funding, averages c. £100m per annum:
£m Profit Cash
EBITDAS 75 75
Network Payment. 50 50
EBITDA — potential STIP target 125 125
Taxation (15) (15)
Interest (10) (10)
Depreciation (30) :
Profit/Cashflow 70 100
13.The question is whether we want this to be the vast bulk of what we target and
incentivise. A pure profit focus lends us to being short-term.
14.The recommendation is that the Finance Directors work with the business to create
a balanced scorecard for us as the Group Executive under the following headings:
Network & Agents (access criteria, urban penetration, churn); Growth (trading
cashflow, footfall, active digital customers, digital customer spend, sales, income);
Customers (NPS, complaints, queue times, digital completion rates, awareness,
brand and trust); Technology (operational risk, transaction costs, digital platform,
speed and cost of change); People (safety, wellbeing, attrition, absence,
engagement, gender balance, internal promotions) and Financial (profit, cashflow,
ROCE).
15.In addition, we could discuss with the Chairman and the RemCo whether there is
appetite to have one or two non-financial measures, especially for the LTIP. UKGI
has no objection in principle to such a move, if we chose to recommend it, and we
would seek private sector examples to support a change if there is appetite.
However, the target setting is harder to do, we tend to be less familiar with the
measures and they tend to be less within our control.
16.Any additional measures should therefore be strategic priorities where we consider
progress essential and are therefore prepared to put our money where our mouth
is. Possibilities for inclusion might be the number of active digital customers, the
value of digital transactions, urban penetration in the network, or the speed and
cost of change in IT.
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PERFORMANCE UPDATE
Retail CEO’s Report - September 2017
Author: Cathy Mayor Sponsor: Kevin Gilliland Meeting date: September 2017
Executive Summary
Context
The Period 5 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. Retail trading continues to perform ahead of budget with footfall remaining
consistently 16.7m +/- 0.1m for the last 12 months.
2. The decline in mail volumes has slowed over the last quarter. Variable income
continues stronger than expected from price effects (RPI and barcoding).
3. Competition continues to evolve in the mails and parcel market. Royal Mail reported
weak business confidence behind increased decline in letter volumes, while parcel
growth continues. Major operators, including Amazon and eBay, continue to evolve
their offerings with the need to differentiate in a crowded market.
4. As previously reported, delays to conversions in the DMB programme has caused a
£1.5m in year shortfall. We have advertised 46 more opportunities to strengthen the
pipeline to commence delivery of the targeted £17m recurring benefits as part of the
DMB Strategy.
5. There is a £4.0m in year shortfall against targeted savings of £6.3m arising from the
simplification programme.
6. Stronger income trends than budgeted offset the programme downsides so Retail is
confident it will meet or exceed budget.
Input Sought
For the Board review and note.
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The report
Overview of Financial performance
Gross Income (£m)
Actual Budget Var PY YoY Budget Lia I YoY%
Mails Fixed 25.2 25.4 (0.1) 27.8 (9.2)% 60.1 65.7 (8.5)%
Mails Variable 108.7 104.8 3.9 107.1 14% 264.7 270.9 (2.3)%
Government Services 42.2 36.4 5.8 51.8 (18.4)% 87.8 114.2 (23.1)%
Payment Services 24.5 24.3 0.2 27.3 (10.2)% 57.9 65.6 (11.8)%
Retail & Lottery 18.0 15.4 27 18.9 (4.6)% 40.9 46.3__(11.6)%
Retail Total [218.7 206.3 12.4 2329 _(6.1)%I [ 5113 562.7 _(9.1)%]
Actual Budget Var PY YoY Budget lind YoY%
Mails 60.6 60.8 (0.1) 64.0 (5.3)% 150.6 155.7 (3.3)%
Government Services 14.1 10.3 3.9 20.9 (32.4)% 26.1 44.5 (41.2)%
Payment Services 7.9 47 3.3 10.0 (20.6)% 1.1 23.6 (52.9)%
Retail & Lottery 5.3 44 0.9 52 1.8% 16.1 15.1 6.2%
Retail Total DPC [381 80.1 8.0 100.2 (12.1)%I [ 2039 238.9 (14.6)%]
Fixed Agents Pay (21.3) (20.7) (0.6) (27.1) 21.3% (52.0) (59.1) 12.0%
Sales and Trade Marketing (33.8) (31.8) (2.0) (38.7) 12.6% (73.6) (88.1) 16.5%
Retail Programme Costs (2.1) (2.0) (0.1) (1.9) (12.0)% (4.4) (2.8) (69.3)%
Retail Central Costs (1.2) (3.2) 2.0 (1.4) 16.2% (7.7) (2.9) (163.6)%
Retail Profit [297 22.4 73 312 (4.8)%I [661 85.9 _(23.0)%]
1. Whilst all areas are in volume decline, Retail continues to perform well versus budget.
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. Most
notably, digital take-up on passports has been far lower than predicted by HMPO and
we have maintained 41% market share (43% in July 2016).
sy
The income trends are projected to continue for the remainder of the year (subject to
strike risk at Royal Mail) and fully mitigate the £5.5m programme benefit in year
delivery gaps and other downsides, with Retail currently forecasting +£1m net R&O
upside.
Market Update
3. The convenience market in which most of our agents compete has seen recent trends
continue this quarter: growth; cost pressures and big plays in the market which tend
towards consolidation. IGD’s recent upgrade of their growth forecast for the UK food
and grocery market to 2021 from 9.9% to 18% is driven by the convenience, on-line
and discount sectors. The continued strength of convenience (c50,000 convenience
stores in the UK) is good news given our dependency on this market.
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4. Set against continued growth is an ever greater focus on costs. The CEO's of McColl
and OneStop both cited national living wage, rates and inflation as major concerns
when we met recently and want to work with us to improve profitability. Simplification
and automation will help here but this is also a clear indication that we should avoid
any further remuneration reductions that would make Post Office less profitable than
rival categories for space in stores such as Subway (which is now the UK’s largest
fast-food chain and intends to open a further 500 stores by 2020, all of which would
likely be in retailers suitable for Post Offices).
5. Fierce competition in the food and convenience market continues. Amazon acquired
Whole Foods in June for £10.7bn and Co-op have recently announced their intention
to bid for Nisa, a symbol group which operates 2,500 convenience stores and has
recently lost its wholesale contract for McColls stores to Morrisons. Tesco’s £3.7bn
takeover of Booker is still progressing, itself following Booker’s purchase of Musgrave’s
GB business (c2,000 Budgens and Londis stores) in 2016.
6. Royal Mail’s share price has been under sustained pressure since May reflecting
stronger than expected decline in letters (-9%), continued competitive pressure in
parcels and the risk of industrial action over pensions. This resulted in RM moving out
of the FTSE 100 on 30th August.
7. Ofcom's latest market report revealed that although 88% of people value the option
to use the post and the majority (64%) consider stamps as good value for money, the
use of mail continues to decline notably in younger demographics, presenting a long
term challenge to POL.
8. eBay's shipping platform is beginning to progress with signs of a likely launch before
Christmas 2017. Hermes have launched a £2 small parcel promotion on eBay and RM
are expected to launch their new retail Tracked product in mid-October in response.
This presents a potential risk to Post Office from income loss to competition or dilution
from sale to accept rates.
9. RM are undertaking a 3 month price promotion of medium parcels bought online (not
via POL). This is aimed at testing their ability to win back volume from competitors
who dominate the >2kg parcel market. myHermes responded with a similar summer
promotion. To date there has been no evidence of loss of POL volumes, reinforcing
the view this is impacting existing online customers.
Mails performance
10. Negotiations with Royal Mail have concluded with a £3m reduction to the Mailworks
annual fee.
11. The realisation of industrial action by the CWU may challenge mails performance over
peak subject to the type and timing of action taken. CWU will ballot on 6% Sept, RM
have started their contingency planning and we are engaged with them on the
minimising the impact on the network.
12. The long standing Drop and Go settle to cash (STC) issue has been successfully
resolved with instances of locked customer accounts reduced by >90%. This
facilitates the immediate increasing of the number of branches offering the service.
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Governments Services performance
13. Further to the discussion at July’s Board meeting, we have entered into detailed legal
and contractual discussions with DXC and JP Morgan in order to complete the ongoing
POca procurement. We aim to reach a conclusion on the new contract during
September 2017 although there is a risk of slippage to October given the need to take
account of forthcoming regulatory changes and their associated complexity.
Payment Services performance
14. We have processed 24.5m transactions to date, +1% ahead of budget.
15. We have retained the Welsh Water business on a direct dual supply arrangement with
Paypoint, securing c.1.2m transactions p.a. We are finalising the renewal of the BT
post-pay contract (5m transactions) and concluding the extension of the SSE energy
pre and post-pay contract (8m transactions), our 2" largest client after British Gas.
Contractual discussions with Payzone on Thames Water (0.3m new transactions,
ending PayPoint exclusivity) and Anglian Water (estimated 0.6m transactions tri-
supply) are being finalised.
16. We have agreed revised commercials terms and concluded technical and reseller
agreement for the provision of smart energy solutions with allpay (our largest reseller
with 21m transactions per annum). This will enable us to deliver the deployment of
smart energy pre-paid solutions for SSE in September and target new “challenger”
energy companies eg, Co-op Energy, Ovo Energy. We have detailed business planning
workshops during September and October with Capita and Santander, our two other
reseller partners.
17. Further to the discussion at the Board strategy sessions, we have commenced formal
due diligence of the Payzone business and a dedicated project team are working
through an assessment of their financial health, convenience network (14k locations),
IT infrastructure, bill payment content and capability, brand, organisation
competencies, alongside determining the optimum corporate structure. We will keep
the Board updated of progress.
Network Transformation Programme
18. The programme remains green and ahead of target with 7,382 branches transformed
to date. We have already over-delivered our contracts target for the year (106 against
a target of 93) and so far have delivered 212 NT branches, leaving 138 branches to
open to deliver this year’s target. The programme decommissioning remains on track
with three tranches of staff redundancies planned for September, December and
March 18. Employees will be redeployed to Network Development or elsewhere if
possible however the majority will take voluntary redundancy.
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Directly Managed Branches (DMB) Programme
19. We are on track to fully deliver the 17/18 in year benefits of £2.2m (£4m EBITDAS),
in line with the GE deep dive review and subsequent refreshed business case. The
programme needs to deliver a minimum of 27 activities in 2017/18 and 26 contracts
are now signed with a further 6 agreed subject to contract. The pipeline for 2018/19
(the final year for Network Shape business case) is well underway with 22 branches
in advanced planning to replace the DMB with 1 or more Main and Local and 8 branches
already in recruitment. This activity, along with 5 x 1:1 franchises to be carried forward
from 2017/18 activity put the programme in a good place to deliver next year’s 25
DMB closure target.
20. Activity has commenced for the new DMB Strategy with 46 adverts placed at the end
of July for Local or Main operators close to 46 DMB branches. Opening new branches
in the next year will facilitate the final closure of the 46 DMB over the next 2-3
years giving a £5.6m EBIT value. We have received 80 registrations of interest across
37 Post Districts. A Trade Marketing communications plan is in development to further
boost interest across the DMB estate in addition to the POL website advert.
Network Development Programme
21. To date we have identified 926 new locations without Post Offices and our field teams
are using our new pitch pack to engage with potential new operators. Of these, 668
have been contacted and made a decision with 229 progressing, a 34% conversion
rate to date compared to c20% using the old approach. 48 contracts have been signed
against a P5 cumulative target of 91 so we are behind and Amber on contracts signed.
22. The pipeline of potential new Postmasters is positive and we are urgently reviewing
how we can open branches more quickly. Practically this includes trialling replacing
the face-to-face interview process with a telephone interview which should reduce
timescale and improve the applicant journey, and reviewing all financial information
as it comes in rather than waiting until a full business plans is submitted.
23. On openings, we are on track for the year to date target of 20 with 11 scheduled and
9 open.
24. The plan to implement Phase 1 of Simplification (quicker mails transactions and
resulting remuneration reduction) on 31% August was hit by a Fujitsu error which result
in a delay to September and a £400k in-year benefit reduction, increasing the total
gap to £4m.
25. The initial response to simplification is likely to be negative, particularly from Multiples.
We have risk assessed and have a mitigation plan in place. Each Multiple will have
bespoke support with their branches and we have developed a new Retail Value
Proposition, to which Multiples have so far responded well, which demonstrates the
commercial value of Post Office. We are also engaging Multiples in our automation
plans, which will start with machines in selected trial branches before Christmas. Our
aim is to develop a fully automated solution and we will work with postmasters to
develop this.
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Customers
CURRENT LAST PS Last
KPIs PERIOD PERIOD Waar Target
a)
roe eo voc 82% 81% +1 78% 76% 76%
Easy to do business with)
Wait time Acceptability voc 95% 94% +1 93% 93% 95%
26. Network customer sessions continue to be stable at approximately 10.3m per week to
the end of P4. Year on year the decline in session numbers has slowed to about 2%
which continues to reflect the footfall reductions seen in Hi 16/17 but also the relative
stability we began to see from July 2016 and since when customer sessions have been
pretty consistent.
27. P5 has seen continued improvements in both the ‘Effort’ and ‘Waiting Times’, hitting
the period target for the latter for the first time this year. Network is now ahead of
the YTD target for Effort but still slightly behind on Waiting Times. The continued
focus on these aspects from the Task Force and ‘Customer Champions have driven
improvements in Effort scores of a further 1% vs P4, with waiting time performance
strong and improving in DMBs at 95% exactly as in Agency, and WHSmith also
improving by 1% to 93%.
28. The absolute wait time trial continues to roll out in 10 branches, with live data now
being collected. Cost indications per branch are expensive (£3-£10k) so we are
exploring a blend of options to include Take a Ticket branches, Voice of the Customer
programme and customer research before substantially extending the size of the trial.
29. The trial of the new role in 10 DMB branches as part of NQAC is underway. We have
had some teething issues which have reduced the number of branches in the trial to
7 but training is complete and marketing materials are in place. We are now increasing
the size of the trial to circa 50 branches so that we will have meaningful data, and we
are aiming to have the first of the increase in place by mid October.
30. The agreed improvements to some of the customer journeys on SSKs, such as
removing the need for host interventions when a customer requires confirmation of
posting, making it clearer how to buy a single stamp, and changes to Horizon are on
track for implementation before Christmas. We have also commissioned the
production of 5 short films for uploading to social media showing customers how to
‘help us to help them’, by, for example, explaining the Dangerous Goods restrictions
so they know what can be sent through the post and what cannot.
31. Following the Grenfell Tower tragedy, where we rapidly provided access to cash and
other government services for affected residents, we met with Central Government
officials and fed back the lessons learned and proposed solutions going forward. The
feedback was positively received and a meeting is scheduled for early September to
plan for any future disaster, and will include DCLG, BEIS, Cabinet Office CitA and POL.
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Performance Report - Full Year 2016/17
Results for Submission to the Shareholder
Author: Rob Clarkson Sponsor: Nick Kennett, Steve Ashton Meeting: September 2017
Executive Summary
Context
Post Office Management Services Limited (“POMS”) is a subsidiary of Post Office Limited
and undertakes the business of insurance intermediation. It is regulated as an insurance
intermediary by the Financial Conduct Authority (“FCA”). Under its Articles of
Association, POMS is required to submit a performance report every half year to its
shareholder. This paper is the report for the year 2016/17; as it is submitted after P5
we have included brief comments on current performance.
In June 2017 POMS presented to the Board an overview of long term strategic options.
Questions this paper addresses
e What are POMS’ strategic objectives and shorter term goals?
e Is POMS delivering what it said it would do?
e What are the constraints and considerations for future profit growth?
Conclusion
POMS’ strategy is to build a sustainable competitive advantage through delivering value
by understanding the needs of target customers, building propositions that meet those
needs, optimising the operating models and building long term profitable relationships.
POMS is now well established and performing broadly in line with business case
expectations; the key building blocks planned to date are in place and being embedded.
The business model has settled following Hawk and shown flexibility to respond to
market/sales conditions to deliver profitable outcomes.
In POMS, Post Office has a strategic asset that can generate significant value. In 2021
the current plan will generate Group returns of £35m and create a business with an
estimated value of c£200m‘. However there are challenges from evolving regulation
and changes to Post Office distribution. In light of these, and following the Post Office
Board strategy away day discussion in June, POMS is reviewing and will update its five
year plan.
In assessing the options, POMS is seeking guidance from its shareholder as to the
strategic and financial priorities that it is seeking from POMS; in particular the balance
between revenue growth and in-year EBIT, and long term value creation.
Input Sought
The Board is requested to review, note the report and provide guidance to the POMS
board.
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The Report
1. 2016-17 Financial delivery
1.1. POMS trading profit (“EBITDA”) was £7.8m, which was £(1.3)m adverse to Plan
and £0.2m better than the Forecast.
Full Year
£m Actual Var Var
to Plan to Forc
Gross Income 43.0 (5.0) (0.5)
Cost of Sales (5.5) 0.1 (0.1)
Net Income 37.5 (4.9) (0.6)
People Cost (3.3) 0.8 0.1
Marketing Costs (3.0) (0.4) (0.0)
Non Staff Costs (11.6) 1.6 0.5
IB Costs (11.8) Li 0.2
Total Expenditure (29.7) 3.6 0.8
EBITDA 7.8 (1.3) 0.2
Other (0.2) 0.6 0.2
EBT 7.7 (0.7) 0.5
Capex (6.6) (1.7) 0.1
* "IB costs” are Inter-business amounts for Commissions and Services paid to POL
* “Forecast” is the forecast outturn for the full year made at the end of the third quarter
1.2. Income was £(4.9)m lower than Plan, principally due to weak travel insurance
sales £(3.3)m in the first half of the year, the impact of project Finch (£0.4)m
and new initiatives not meeting the overlaid income target £(1.7)m:
¢ Travel insurance performance was a result of lower sales in branches in Q1.
This was reversed in Q2 by the introduction of a promotional discount
aligned to the purchase of travel money. However, there was an impact on
margins, which were c20% below plan.
e Travel insurance performance in the second half of the year was in-line with
budget.
1.3. Costs were £3.6m ahead of Plan, with:
e Staff costs £0.8m lower than Plan due to the release of a bonus provision
for 2015/16 and vacancies not being filled.
e Marketing costs were £0.4m higher than Plan from increased spend to
support the travel insurance on-line promotions.
e¢ Non-staff costs (excluding Marketing) were £1.6m lower than Plan, mainly
due to contact centre costs being £0.8m less following lower travel insurance
volumes and the renegotiation of the contract.
« Commissions payable to Post Office were £1.5m lower, reflecting lower sales
and reduced margins.
e Other costs were £0.7m less than Plan due to lower depreciation charges
from the later delivery of Zeus.
1.4. Capital expenditure was higher than Plan due to higher project costs.
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1.5. POMS is regulated by the FCA and in the year was required to maintain a
minimum £0.7m of qualifying capital at all times. At the year-end, POMS’
regulatory capital of £3.4m exceeded the FCA minimum by £2.7m?.
1.6. At the year-end POMS had cash of £13.4m, balanced by amounts due to Post
Office for commissions and recharges of £2.0m, £2.2m due to Insurance third
parties, £7.3m of reserves and £1.9m for working capital.
1.7. In 2016/17 as the business model has settled following Hawk, POMS has shown
flexibility to respond to market/sales conditions to deliver profitable outcomes.
1.8. 2017/18 EBITDA is targeted to be £7.3 m, with net income of £44.4m. After P5:
e POMS EBITDA of £2.8m, £0.8m adverse. £0.5m of the EBITDA variance
relates to timing (commissions & cost classifications) and £0.1m to
unbudgeted cost.
e¢ POMS’ regulatory capital of £5.5m exceeds target by £3.6m.
2. Building the future model
POMS strategic objectives
2.1. POMS’ strategy is to build a sustainable competitive advantage and grow market
share and value by:
e Engaging more effectively with target customers, ensuring that
propositions are relevant and they are aware of POMS and able to research,
purchase and manage their insurance products with us in the way they want.
¢ Optimising our business and operating models thorough harnessing
the power of the Post Office brand, its network, digital presence and data,
differentiating POMS from the open market, relentlessly increasing efficiency
and retaining value.
e¢ Building long term profitable relationships prioritising retention and
deepening our customer relationship by focussing on experience and using
intelligence to target relevant additional services. Our partnership
relationships will be developed to ensure aligned objectives and values.
The 5 year Growth Plan
2.2. The POMS Growth Plan is founded on building new business and operating
models, and aligned to the Post Office Money “New Normal” customer
positioning. These will provide the environment to enable POMS to provide its
customers with enhanced service, control, trust and value by:
e Securing end-to-end responsibility for delivery, balancing internal and
external resources, and increasing access to the value chain.
e Ensuring POMS meets the needs of more customers, by evolving and
adapting its products and increasing customer awareness.
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2.3. The result is an increase in EBITDA to £17m in 2020/21; when the value of the
sales commissions to Post Office is included, Group profits will be £35m (from
£19.5 in 2016/17).
2.4. A review of the 5 year growth plan is underway and due to be presented to the
POMS Board in November.
e As a result of market, regulator and distribution changes, an increase in
marketing spend is likely to be required to deliver optimal long term growth
as anticipated in the Titan/Hawk business cases. The impact on in-year
profitability will be assessed and discussed with the shareholder to confirm
that the resulting P&L shape is acceptable.
Significant progress has been made towards the strategic objectives
2.5. POMS has successfully integrated the general insurance business acquired from
Bank of Ireland in 2015 (Hawk) and this is outperforming the business case.
2.6. Internal risk and compliance capability and processes have been developed.
2.7. The deployment of the strategic technology platform (Zeus) has been
completed, opening the way for further expansion of POMS’ participation in the
general insurance value chain.
2.8. In Q4, Royal London was appointed as the provider of Life assurance business.
This new arrangement provides greater flexibility and higher commissions.
2.9. In Q4 the travel underwriting agreement was re-negotiated with the Collinsons
reducing product manufacturing costs by over 10% and providing full P&L
transparency.
Challenges ahead
2.10. While EBITDA is broadly in line with the trajectory set out in the 5 Year Growth
Plan, the actual shape of the plan is different. There are significant delivery
challenges, including:
e £2.7m revenue stretch in 2017/18 (and thereafter) following the removal of
Financial Specialists to maintain EBIT expectations;
e Higher distribution costs as POMS pivots to focus on digital sales, and
increased staff costs as some activities are transferred to POMS without
adjustment to the commission structures;
e¢ Managing the impact of political and economic change, particularly:
o The decline in Sterling - lower exchange rates will reduce foreign
travel and adversely impact net rates (majority of travel medical
claims are settled in Euros);
o Continued low interest rate impact investment returns and
consequently premiums and profitability of long term protection
products.
e Managing the impact of regulatory change, particularly relating to conduct
risk and the implementation of:
o Insurance Distribution Directive (IDD) and related FCA proposals are
live from February 2018;
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o General Data Protection regulation - systems access controls and
customer permission regarding use of data. Impact to be assessed
in conjunction with the Post Office GDPR programme;
o The Senior Managers' Certification Regime - extension to all regulated
firms in 2018, with increased scope of personal accountability for
POMS staff.
e Having the necessary resources, technology, operational and risk
management processes to enable POMS to take on more of the value chain.
e Ensuring that Post Office is able to deliver the level of branch oversight and
management required under its AR obligations.
2.11. In November the POMS board will review an update of the 5 year strategy to
take account of the changes. This will include an assessment of growth options
and their financial impact by year:
e Sales growth for general insurance products usually impact the P&L
negatively in the year of acquisition due to strain of marketing and pricing
costs (the “J-Curve”).
e Profit is only achieved through subsequent renewals, hence the focus on
retention and pricing management.
e There is therefore a clear balance between top- and bottom-line growth. In
the 2016/17 budgeting review, POMS curtailed top-line growth to ensure
that the cost profile met group objectives.
e As POMS finalises the strategy, it will seek confirmation from Post Office as
to the relative priority of the line management of income and cost over
profitability growth.
e In addition, the Board will consider whether acquisitions could deliver
transformative growth?.
2.12. POMS and Post Office are currently renegotiating the MSA and DA under which
certain services are provided by Post Office to POMS. This review does not
include the commission arrangements under which POMS pays Post Office 30%
of its net income.
3. Governance
3.1. A Board effectiveness review has been undertaken and the recommended
changes are being implemented.
4. Risk management
4.1. Risk management framework and governance structures are in place and
operational.
4.2. The relationship with Post Office as both AR and service provider is in place; as
tabled at the Post Office ARC, the biggest risk is the operational oversight of
branches. Progress has been made to improve the systems and controls. Actions
are being developed by both Post Office and POMS to further improve the levels
of conduct risk. The POMS Board regularly assesses whether enough progress
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has been made, or anticipated, for it to be comfortable to continue to allow Post
Office to sell POMS products in branches.
4.3. The POMS-Post Office relationship structure is unusual as Post Office is both its
sole shareholder and Authorised Representative. POMS works closely with the
Post Office to ensure issues of regulatory concern are addressed and managed.
4.4. There have been no notifiable issues to the FCA in the period.
5. Performance of the “Titan” and “Hawk” projects
5.1. During recent discussions at the Post Office Board POMS was asked to provide
an update on the performance of the two core business builds to deliver the long
term insurance strategy — Titan and Hawk. The third component (the acquisition
of the activities undertaken by Junction) has been delayed to 2019 and our
approach to this will be set out in the updated strategy.
5.2. Following discussions at the Post Office Board from 2012-14, POMS was
established in late 2014 and from January 2015 took over the management of
travel insurance. Project Titan included the establishment of POMS as a trading
entity (including gaining FCA approval), the migration of travel insurance
business from AON to POMS; the establishment of a dedicated call centre; and
the building of the policy management system (Zeus).
5.3. Core components of Titan have been delivered and are operational; however
there have been challenges, in particular:
e Zeus delivery was delayed and project costs were higher;
e In branch sales of travel insurance has slowed, but the margin generated is
15% higher;
e The business case assumed an aggressive growth in online sales, in
particular through aggregators. This channel was delayed due to contractual
issues with the interim platform manager and the delay in launching Zeus.
The business case assumed 1.0m sales in 2017/18 against the current
budget/forecast of 700k.
5.4. The net impact has been that the business case is currently £2.3 million adverse,
although we are confident that that gap will be closed as digital sales grow.
Dye wa/IS —_2IS/16 _-aIG/i7_—_I7/AeP Total
Revenue fm 2a 7 8 BB ai
Actual Icost em “19 31 95 cas -20 297)
EBITDA £m “19 07 32 47 23 Fr
Bus.case [EBITDA Em Bt) “36 3a 65 a7 143)
Not Difference £m 00 28 19 “18 14 23
Performance of the “Hawk” business acquired from Bank of Ireland
5.5. In November 2015, POMS acquired Bank of Ireland’s interests in Post Office’s
general insurance business (Project Hawk). Since acquisition, the business has
performed ahead of the plan by £1.8 million:
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EBITDA 2015/16 —-2016/17_—‘Total
Actual £m 16 43 59I
Bus. Case £m 03 38 4]
Net £m 13 os 1.8]
5.6. The business case also incorporated further benefits in the years past 2016/17:
e The initiative to take on more of the value chain through buying-out main
general insurance supplier (“Junction”) now has lower gross benefits, but a
greater certainty of delivery. The net impact of these factors on the value
case was a drop in NPV of c£(10)m.
e Slower growth in existing business and slower growth in new products
versus the business case, but with an increased certainty of delivery for
both. These resulted in a £4m improvement in NPV.
5.7. As a result of the above, the review showed NPV incremental to the cost of
acquisition of NPV of £24m versus the original £29m.
5.8. The holding value of Hawk remains at £43.9m, the acquisition price.
6. Conclusion
6.1. POMS is now well established and performing broadly in line with expectations.
e The key building blocks that were planned are in place and being embedded.
e The five year plan forecasts income and profit outcomes that exceed the
original Hawk business case, confirming the significant opportunity that
POMS provides to its shareholder.
« POMS is undertaking a review of this strategy to reflect the impact of
market, regulatory and distribution changes. This is likely to result in a pivot
to a digital driven model, with concomitant increase in marketing and in-
year EBIT impact.
6.2. In POMS, Post Office has a strategic asset that will provide financial growth and
long term value to its shareholder. In assessing the strategic options, Post Office
should consider the strategic and financial outcome that it is seeking from POMS.
Should growth be based on:
e Lower long term revenue and EBIT growth delivered by a lower level of
marketing?
e A focus on revenue/sales growth, with higher marketing spend,
acknowledging that the J-Curve will impact short-term EBIT, but should
generate long term EBIT growth and the business value anticipated in the
creation of POMS?
6.3. POMS management and Board have focussed on the latter, as anticipated in the
original POMS business case. We are seeking feedback from our shareholder to
frame the strategic discussion in November.
Rob Clarkson, POMS Managing Director
Nick Kennett, POMS Deputy Chair
Steve Ashton, POMS Chair
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Appendix 1: POMS Balance Sheet
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£k Mar-16 Jun-16 Sep-16 Dec-16 Mar-17
Non-current assets
Intangible assets 45,789 46,979 48,369 49,621 52,196
45,789 46,979 48,369 49,621 52,196
Current assets
Amounts owed by group undertakings 202 381 0 i) 0
Other debtors 142 126 293 98 115
Accrued income 4,552 4,830 4,250 3,767 5,620
Prepayments 41 23 130 142 121
Cash at bank and in hand 14,576 13,483 17,170 12,999 _13,441
19,512 18,844 21,843 17,006 __19,298
Total assets 65,301 65,823 70,212 66,628 71,493
Creditors: amounts due within one year
Trade creditors (738) (663) (1,203) (611) (746)
Amounts owed to group undertakings (6,638) (3,231) (5,853) (2,208) (2,043)
Other creditors (1,082) (1,859) (1,880) (885) (1,525)
Accruals (4,115) (5,054) (3,537) (4,141) (6,797)
Provisions (994) (1,121) (1,182) (856) (991)
Tax Creditor 0 (432) (965) (1,265) (1,567).
(13,567) (12,361) (14,619) (9,966) (13,669)
Total assets less current liabilities 51,734 53,462 55,593 56,662 57,824
Creditors: amounts due in more than one year
Amounts owed to group undertakings (500) (500) (500) (500) (500)
(500) (500) (500) (500) (500)
Net assets 51,234 52,962 55,093 56,162 57,324
Capital and reserves
Share capital 50,000 50,000 50,000 50,000 50,000
Retained earnings 1,234 2,962 5,093 6,162 7,324
Total equity 51,234 52,962 55,093 56,162 57,324
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GROUP EXECUTIVE DISCUSSION PAPER
NFSP Review —- August 2017
Discussion Paper
Author: Nick Beal Sponsor: Kevin Gilliland Date: 14 September 2017
Executive Summary
Context
George Thomson’s recent announcement he will be standing down as CEO of the
National Federation of Sub-postmasters in June 2018 is an appropriate point at which
to assess all aspects of our relationship with the NFSP. The change of leadership
presents us with opportunities and risks and we need to have a strategic approach to
the transition period and the impending new era to make the most of it. In particular,
we need a clear view on the Post Office’s contractual and financial position regarding
the NFSP, as this underpins much of our current work with it.
Questions addressed in this report
1. What is our current arrangement with the NFSP and what controls and benefit
measurements do we have?
2. What are the alternatives to the NFSP?
3. What are the strategic risks in this situation?
4. What is our recommended approach and next steps?
Conclusion
1. We have a formal Grant Agreement with the NFSP that costs an annual £1.5m
(+£1m for projects). It is controlled via an Annual Plan/review process and
individual project cases. Additional benefits also arise from NFSP support for other
business initiatives.
2. We believe there will always be representation for postmasters. The alternatives -
CWU, ACS, NFRN - are not considered to be desirable to Post Office.
3. NFSP has restructured and modernised but we would like to see this happen faster
and have set clear milestones for the future. The NFSP reverting to an antagonistic
approach or losing influence with postmasters would create a vacuum for the CWU
or ACS to exploit.
4. We should push the NFSP to continue modernising within the current framework of
the Grant Agreement. Our comprehensive transition plan involving extensive work
with the current and new leadership will use the ‘Annual Plan’ to maximise influence.
Input Sought
To discuss the contents of this paper, provide feedback to the Post Office NFSP team,
and endorse the proposed approach.
Strictly Confidential
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The Report
What is our current arrangement with the NFSP and what controls and benefit
measurements do we have?
1.
We have formally managed NFSP via the Grant Agreement since 2015. This
framework was part of the wider discussions and agreements arising from the NT
funding decision made in 2013. The agreement runs for 15 years, subject to NFSP
meeting the conditions of the agreement, which are summarised in annex 3.
. The fundamental driver for Post Office supporting the concept of the NFSP as a
Trade Association was that we wished to ensure that there is effective engagement
between our branch operators and the management structures within our large,
complex organisation. This has not changed. Neither has the basic financial
rationale behind agreeing to fund NFSP - that their support enabled a cost
effective delivery of Network Transformation (NT) with its associated embedded
and recurring benefits. With NT drawing to a close, we need to consider whether
the first driver is sufficient and what additional benefits there are. A key additional
benefit to date, which we believe will continue to be beneficial, has been NFSP
support on a wider range of other initiatives such as ‘Sparrow’, remuneration
changes (£8.5m recurring benefit to date) and simplification (£11.65m further
recurring benefits pending roll-out).
. We measure the benefits against four key areas. Please see Appendix 4 which sets
out the milestones for each of these for the period 2015-2020. The areas are:
a) Company structure/transition;
b) Co-operation with Post Office;
c) Communications (including NFSP conference); and
d) Projects.
In summary, we have seen the benefits delivered to date in areas b-d, with NFSP’s
help with our stakeholder environment particularly relevant. On a (Company
Structure/transition), we have delivered a re-constituted trade association and a
new board which now includes non-elected members (WHS, Hendersons and
Ryman) representing multiple partners. The NFSP has also consistently
championed the importance of retail to postmasters, which is very helpful and
completely in line with our Retail Strategy. The NFSP also play an important role in
supporting Post Office's ability to defend the position of postmasters being self-
employed.
It was therefore disappointing that the NFSP chose an existing postmaster, Calum
Greenhow, as its new CEO rather than taking the next step on their journey and
recruiting a professional from outside the agent community. This was our
preferred option, privately shared with George (and advocated by him).
2
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6. Our milestone plan for the next 3 years covers all four areas. We formally measure
progress through an Annual Plan, which the NFSP has to submit and secure
agreement on every year to be awarded its full funding. This gives us a clear lever
with the NFSP.
What are the alternatives to the NFSP?
7. This is the most important point to consider, and can be reduced to three, key
questions. First, is it realistic to think we could withdraw from a formal relationship
with the NFSP and remove their influence without another organisation (or a
changed version of the NFSP) filling the vacuum? Second, if a trade association or
similar is at least unavoidable and at best desirable, is NFSP our preferred partner?
Third, how difficult would ending the current arrangement be simply for
convenience, should we wish to do so? We believe the answers to these questions
are ‘no’, ‘yes’ and ‘very’ respectively.
8. On the first question, Post Office has a history as a long standing, high profile
public organisation. It remains high on national and local political agendas. Other
organisations already compete with the NFSP for pre-eminence in being the ‘voice
of the postmaster’. If we stopped funding the NFSP, it is highly unlikely this would
mean the end for them immediately but it would be likely they would actively
lobby against us. It is also seems unlikely that the Post Office would simply
become a stakeholder/lobbying-free zone.
9. There are three potential alternative partners or lead stakeholders for agents:
1. CWU (either through the Postmasters Branch or directly): The CWU does not
have any alignment with Post Office on its strategic ambition. It is also a union
and would seek employee status for postmasters and attempt to join employee
and postmaster disputes together. The CWU Postmasters Branch (led by Mark
Baker) has also been fiercely critical of Post Office over ‘Sparrow’.
2. Association of Convenience Stores (ACS): Whilst professional and well
respected, and on occasions supportive of Post Office, the ACS is the paid
voice of Multiple partners and lobbies aggressively on issues such as
restrictions.
3. National Federation of Retail Newsagents (NFRN): An old-fashioned
organisation which bears comparison to the NFSP 10-15 years ago. It is more
traditionally focussed than NFSP ever was and has a poor understanding of the
wider retail environment.
10.The NFSP is unique among the groups listed above in having a genuine concern
and care for the sustainability of the Post Office and its agents - they understand
the importance of the overall network rather than just individual members
(reflected in their support for the restrictions policy).
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11.In addition, under the terms of the current agreement, the NFSP cannot merge
with any other organisation or revert to a Trade Union, nor can it undertake any
public activity which may prevent Post Office from implementing any of its
initiatives, policies or strategies or other activities which may be materially
detrimental to Post Office or induce agents to breach their contract.
12.Non-adherence to any of the above would allow us to terminate the GA. There are
no clauses which allow termination through convenience or give rise to automatic
re-negotiation of the agreement.
13.Any risk to the continuance of the Grant Agreement is an existential threat to
NFSP (should it fall, they are very unlikely to be able to re-recruit enough
subscription paying members to achieve the funding required and we would not
help). It is reasonable to assume that any attempt to terminate the agreement
outside of the breach conditions would be resisted on a legal basis. The exposure
to Post Office in the event of a successful claim by the NFSP could ultimately be a
settlement to the value of the remaining term of the agreement (currently £30m).
14.It is theoretically possible that we could increase our direct engagement with
agents to an extent that a representative organisation was unnecessary.
However, our key driver is that one is desirable given the complexity of our
organisation and such an outcome would create the vacuum that other
organisations strive to fill. That said, should the need arise, our approach would
be to consider a “Postmasters’ Communications & Engagement Forum” - a concept
considered as part of the original assessment made prior to the signing of the GA
in 2015, for which a draft high level TOR was produced (but no progressed) at the
time.
What are the strategic risks in this situation?
15.The key strategic risks and planned mitigations are as follows:
¢ That the current NFSP CEO acts irresponsibly and/or out of self-interest in his
remaining time in post (to June 2018) - we have little evidence of this apart
from the one recent incident over publication of an article about the Royal Mail
in the Subpostmaster. This risk is time-limited and our engagement transition
plan is designed to avoid this. We also have the lever of withholding part of the
NFSP’s annual funding in the event of further problems. We will also be looking
to influence the incoming CEO because of the implications of tis going forward.
e That the new leadership sees the NFSP revert to an antagonistic approach to
Post Office transformation - our engagement transition plan and leverage
through our funding of the NFSP’s annual plan are designed to make this as
unlikely as possible. We will keep this under review and, should it occur, we
would reconsider the other strategic options summarised in this paper.
e That the CWU Postmasters branch use this opportunity to increase membership
and influence - we continue to keep a very firm line against any attempt to
4
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recognise the CWU as a representative organisation for postmasters. This risk
would be most likely if a vacuum developed so supporting the NFSP in its
transition is critical. We do not consider this a material threat as most
postmasters, as business owners, would be naturally opposed to union
membership.
e That the new leadership loses influence and/or respect amongst postmasters or
multiple partners - our mitigating actions are largely covered above. We will
continue to particularly work with our Multiple partners which are actively
engaged with the NFSP (currently WHS, Ryman and Hendersons) to align as far
as possible. We want to keep the NFSP credible with retailers as a
counterweight to the Association of Convenience Stores (ACS).
What is our recommended approach and next steps?
16.We believe continuing the present arrangement whereby NFSP continues on its
modernisation journey is the best way forward and our plan reflects this.
17.Our plan is to engage intensely with Calum and George in the period prior to
George’s departure to ensure Calum understands our assessment of the situation
and our desire for the relationship to continue as now in the environment of a
modernising NFSP.
18.We will continue to manage NFSP within the framework of the Grant Agreement
ensuring that they demonstrate tangible evidence, both through their actions and
their Annual Plan that their direction of travel is as expected of a trade association.
Depending upon the wider environment, we will consider additional activity that
NFSP can undertake to support Post Office, particularly to re-inforce the self-
employed aspects of our relationship with postmasters.
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Appendix
dy
2
ds
4
Background to the change of leadership
. Calum Greenhow & West Linton post office
Summary of the Grant Agreement
. Modernising the NFSP - Progress and future milestones
1. Background to the change of leadership
George Thomson was elected NFSP General Secretary in 2007 and won a second,
5-year term in 2012. The process changed in 2015 as part of NFSP’s transition to
trade association status and George was appointed by the NFSP Board (consisting
of postmasters and, since 2016, 2 multiples) for a new 5-year term in 2015.
George's current position is strong and we believe he is leaving to concentrate on
his external interests including his wife’s post office business. George’s departure
(though not his replacement) had been an ‘open secret’ for the last few months.
The NFSP board has sole responsibility for appointing a replacement. We know
they considered the following ‘talent pools’ when considering a new CEO:
o The Postmaster network: inviting any PM to apply, potentially through an
election process;
o The NFSP Board: this would effectively have been an internal election
amongst Board members - this is the option they have taken by
appointing Calum Greenhow on (we believe) an initial 2-year contract;
o The NFSP senior management team: this now includes Troy Gardner and
his Retail Awareness team, largely funded by the Post Office and
representative of the more commercial approach we are promoting; and
o The market: finding the best candidate through an external
recruitment/headhunting process.
Our preferred option (also shared privately by George) was an external or internal
senior managerial appointment. The vast majority of trade associations, including
the ACS, recruit their leaders based on expertise in professional lobbying rather
than ‘skin in the game’ or longstanding experience of the trade they represent.
The NFSP Board has chosen to appoint from within the board - Calum Greenhow,
postmaster at West Linton post office. Annex 2 provides background to Calum and
his branch. Whilst this decision is somewhat disappointing, it is not a shock and
Calum is probably the best candidate from the NFSP board, albeit with some
unknowns.
Our view (supported by confidential conversations with George Thomson) is that
their board felt it was too early in their transition to risk an external appointee and
therefore have settled on the safe option.
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2. Calum Greenhow & West Linton Post Office
« Calum is personable and, by NFSP standards, ‘centrist’ but traditional. His branch
has been designated a transitional local, which is not ideal as these branches are
‘problem children’ under NT.
e We have limited information and background on Calum (though have made
discrete initial enquiries with the local operations manager). He only joined the
NFSP board a year ago and was elected to their Negotiating Committee (the group
we meet with on a monthly basis) at last April’s conference. Calum represents, in
NFSP terms, a ‘centrist’, being relatively young and forward thinking whilst having
a commitment to some of the traditions NFSP are trying to protect.
e Calum has run West Linton Post Office, 15 miles south of Edinburgh since 1998.
Calum also ran Biggar Post Office 2008-2013, exiting under NT. Under NFSP rules
Calum cannot run a Post Office while being CEO, something he will probably
achieve (as did George) by transferring the undertaking a transfer to his wife.
e Unfortunately, Calum’s engagement with Post Office from a personal branch
perspective is not ideal. His branch was, due the very low level of retail business,
designated a transitional local under NT i.e. we sought to compulsory convert the
branch to a local in another location in the community. We have been unable to
convert the branch as there are no willing retailers in the community, leaving
Calum on a SPSO contract until the branch either improves its retail or a
replacement retailer is identified. Both are unlikely - retail is £840 pw against a
target of £4000 and there is no viable retailer locally. Should the latter emerge,
the contract with the branch will be terminated and a leaver’s payment made.
e He has had limited engagement with our sales teams in the past due to the small
size of his branch. The discrete enquires with the local Post Office operations
manager team indicate that our assessment of his style and behaviour is accurate
and that Calum has concentrated on supporting members with individual issues
rather than displayed any strategic agenda. His recent visits to Western Isles are
indicative of his commitment but also of a focus on a particular type of
postmaster.
West Linton PO (Main Street, West Linton, EH46 7EE)
« West Linton post office is classified as a post office local+ but currently operating as
a SPSO as it has been designated as a transitional local. It has c600 CS per week
and is open ‘traditional’ hours (no evenings, Sat PM or Sundays). It has fixed
remuneration of £27k a year and a limited retail offer.
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3. Summary of the Grant Agreement
Term and value: The GA is a 15 year grant funding agreement for the NFSP with a
maximum spend of £37.5m over 15 years. If the GA runs for the full 15 years, the
range of expenditure is from £22.5m to £37.5m depending upon whether specific
projects are agreed.
Commencement: Start date is 1 April 2015.
Principles: The GA is based on the terms of the Memorandum of Understanding
(MoU) which were agreed in principle between the parties in November.
Status of NFSP: The NFSP is company incorporated in England following re-
constitution in 2016 from an unincorporated association.
Membership and data: Membership of the NFSP is free to all postmasters (including
Multiple operators). There are minimum membership levels required (which NFSP
are currently meeting) and since November 2016 membership has been facilitated
via automatic membership unless a postmaster explicitly opts out. Data to support
membership is shared between the NFSP and Post Office within the framework of
the Data Sharing agreement signed in December 2016.
Grants: Post Office will provide grant funding to the NFSP for 15 years. Funding is
split into annual grant and project specific funding:
o An annual grant payment in respect of the activities approved in the Annual
Plan (capped at £1.5m per annum in respect of organisational support (such as
the day to day operational costs of running the NFSP)) payable from FY
2015/16 onwards.
o Project specific grant funding for certain approved projects. This will be no less
than £1m per annum as long as the projects are approved by Post Office.
Projects will be subject to existing Post Office business case processes —
defined by Post Office finance in 2016 as budget authority devolved to Network
& Sales Director (now CEO Retail), subsequently Network Development
Director.
Termination: The GA has no right for either party to terminate for convenience
during the 15 year term. However, there are provisions allowing either party to
terminate for breach (including breach of the Conditions of Grant as set out in the
GA). The agreement sets out specific activities NFSP can and cannot undertake,
defining clear activities that would represent a breach of the GA which Post Office
could then, if it chose, seek to rely on to terminate. This includes, amongst other
things, any public activity which may prevent Post Office from implementing any of
its initiatives, policies or strategies or other activities which may be materially
detrimental to Post Office.
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4. Modernising the NFSP relationship — Progress and future milestones
Area 2015/16 2016/17 2017/18 2018/19 2019/20
Agreement Transition to a - New CEO appointed Apprenticeship scheme Build organisational
Company signed company incorporated I - Annual plan Build organisational capability
structure/ New board capability Develop commercial
transition established Gain recognition as partnerships
Multiples on board experts within the retail
CEO confirmed as a industry
board appointment
Annual plan
Free membership
NT support NT support - NT support ‘Sparrow’ support (as Retail strategy*
Co-operation ‘Sparrow’ Remuneration - Simplification acceptance necessary) Banking opps
with Post support reductions accepted - Segregation re- Implement other support Future technology
Office ‘Sparrow’ support structuring accepted areas implementation*
a - ‘Sparrow’ support Further simplification New network locations
(* anticipated - Identify with PO other Banking opps (whitespace)
Post Office
initiatives) support areas Future technology acceptance/support
- Banking opps development*
- New network locations New network locations
(whitespace) (whitespace)
acceptance/support acceptance/support
New Revised conference - New communications Launch “How To Guides” “How To Guides” series
Comms Subpostmaster format director appointed e.g. cash management Review & further improve
magazine - Revised conference Data & info sharing Subpostmaster magazine
launched format Parliamentary activity Parliamentary activity
- Parliamentary activity Implement other support
areas
Franchise Finance - Retail team resourced Retail workshops
Projects business support - Segregation team Develop & offer retail
project resourced “slot in” issues
Develop commercial
partnerships
9
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PAGE 1 OF 21
POST OFFICE GROUP EXECUTIVE DECISION PAPER
Technology Strategy Update
Author: Rob Houghton = Sponsor: Paula Vennells Meeting date: September 2017
Executive Summary
Context
This document is the third in a series of updates to the IT Strategy (previous updates
were presented in July 16 and January 17). We’re now deep into execution of the
strategy with course correction as appropriate. This update is more focussed on
business areas and has greater emphasis on digital transformation.
Questions addressed in this report
Is our operational risk profile improving?
What is the revised cost and benefits position?
What are our digital transformation plans?
Is the IT strategy on track to deliver the intended benefits for each business?
What is our architecture roadmap and technical strategy?
What is our plan and operating model to deliver?
QAuPwnr
Conclusion
e We have now moved solidly into execution across all the strategy areas; we
have passed 1,100 branches on branch technology change, strengthened our
security posture and started our digital transformation agenda
e Our focus remains to address areas that remain outside of risk appetite and we
continue to balance cost, risk and schedule decisions
e With better information from supplier negotiations, we have now refined our
cost scenarios and present a stretching but more realistic cost scenario
e We have gained further confidence from the architecture proving of thin client
which present a tremendous retail network transformation opportunity
e Our scale up of digital capability and investigations, now presents a business
opportunity to transform the way we work through digital enablement and
proposition development
e Our executive talent hiring is complete, ATOS discussions close to finalisation
and agreement to strengthen out our permanent capability is in progress
Input Sought
The GE is asked to support the direction set out in this document and approve
presentation to the POL board.
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The Report
Reminder of Key Strategy Messages
1. Since January we have refined the IT Strategy messages into the following core
objectives. These seek to transform the way that the business operates internally
and externally:
¢ Digital Transformation - deliver world-class digital services and
transform the way Post Office operates, from front-end to back-office, in a
oS Of id modern and efficient way. This requires re-architecting systems, cultural
we change, increased digital enablement of Business processes and driving
innovation
¢ Protect Service - we need to build secure and resilient systems by
default, ensuring that we create protection against service disruption and
cyber-crime through every stage of our digital transformation. This
requires our delivery of IT infrastructure change programmes, Security
Transformation programmes and improved Environment
Monitoring/Management
¢ Cost Reduction - we need to drive our cost base to a competitive level in
order for the business to reinvest in change. We do this through supplier
renegotiations, counter rationalisation and service differentiation. We need
to continuously rethink the engagement model between Post Office central
and Post Masters to drive a different cost profile
¢ Deliver with excellence - our intent is to drive fundamental change to
the delivery model whilst avoiding service disruption. The architecture
changes, operating model shifts and focus on agile delivery are key
enablers
¢ This is underpinned by developing and hiring great people within the
right Operating model - key to this is building our own strong technical
capability and helping non-digital specialists to understand the potential of
new or different ways of working
2. Since January 17; we have moved solidly into execution of the roadmap.
¢ The Senior team recruitment has completed
e We have delivered technology change to over 1100 branches with “HNGA”
and networks delivery in full progress. Very positive feedback.
¢ We continue to deliver to move us within Risk Appetite. Significant
improvements include the migration of Credence into cloud infrastructure
in the next month, a stronger control around Disaster Recovery, and the
strengthening of our IT Security Controls, including SOC selection.
e The control gaps are now understood and remediation activities underway
e AThin Client” proof of concept - was successfully proved in 4 months.
e Security Transformation execution is ongoing with BYOD, stronger
patching regime and Security Operations Centre selected.
e We have established solid negotiation positions with ATOS and Fujitsu
oo
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e We have outlined and made headway on a digital transformation agenda
e¢ We have initiated re-procurement of our digital hosting environment and
delivery partner.
3. I have validated the IT Strategy through a number of low cost, technical expert
“point” engagements since I joined to reassure the board that we are heading in
the right IT Strategy direction; findings are available as required:
¢ KPMG performed a financial cost base review in June 2016
e Deloittes performed an Information Security Review in November 16 which
formed the Security Transformation programme
e¢ TORI reviewed the Operating Model in Feb 17 which led to the letter of
intent with ATOS and subsequent changes
e Inasight (cloud specialists) performed a review of the Cloud direction and
FJs cloud architecture in May 17 which formed Pivot to Cloud design
e We engaged network specialists to perform network transformation review
to design the right network architecture and devices roll out
e« KPMG were engaged to set the Risks and Controls direction and analysis
e Business Transformation Experts (retail IT specialists) were engaged to
help develop the Retail IT strategy, peripherals and device strategy
4. We committed to a plan of activity which we are progressing against with many of
the ‘Get Control’ activities well underway or complete and “Predictive and
Enabling” now also underway.
5. To provide further assurance and challenge, POL CEO has instigated an
independent assessment of the IT strategy and this will be presented and
discussed in October board.
PREDICTIVE and
ENABLING
Medium term
»
* Joint business/ IT * Executing retail and * Integrated legacy
proposition development digital strategies — systems and strategic
© Architecture roadmaps build integration, roadmap for Horizon
© Supplier negotiations digital and branch platform
+ Operating Model dedi enablement « Flexible and dynamic
and solution * Post Office IT digital retail
«Genes powerteclll Operating Model! proposition
Past eto teet and . bul and ext retail
and FinTec
. eee systems « In-house digital innovation
a ee development and partnerships
copebiity ald services capability * Secure and preventive
* Transparent and capabilities
» Engaged FOL IT teem predictive operational ‘* High performing team
* Building trust in the capabilities SSeS
business * “On the road” to an business
agile change process
* Build security and risk
detection profile
* Performing POLIT
capability
S 4 S S -
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What progress are we making on our operational risk profile and has our risk
profile shifted?
6. In January, we outlined that we remain outside of our operational risk appetite. We
have made solid progress on moving towards a better risk profile.
7. Acore objective for the IT strategy for the organisation focuses on “Protect
Service” and this is consistently communicated across the organisation
8. Our main operational risk involves Fujitsu which is an original consequence of
Trinity decision:
¢ The hardware frames and network routers on which some of our critical
services exist (POLSAP/ HNGX) are significantly beyond life. Delivering
Back Office transformation, Data Centre Refresh and Branch Rollout
mitigates this risk.
e We have (today) sufficient spares to recover service in the event of a
failure. However, below a minimum criteria or increased outage will mean
we instigate emergency service recovery. We have already instigated
emergency measures on the routers to lower the risk profile.
e¢ We have a number of systems that haven’t successfully completed DR for
a period of time. The most concerning is the complete failure and failover
of the Horizon Data Centre - which is being scheduled. This cannot be
carried out whilst we have POLSAP and HNGX remaining on the old frames
- the frames are very susceptible to failure if you power down.
e We have increased the governance around all DR testing across our estate
and are constructing mitigation plans for all our critical systems.
9. These risks expose the business to the following critical risks. The potential for
these to materialise is high but we remain confident that we can recover service in
a reasonable time (albeit not within the Recovery Time objectives):
e Complete or partial failure of the branches operating on HNGX devices. As
of today 90% of the network but declining each month with HNGA rollout.
e Failure of the Supply Chain and, in particular, the Cash Management
processes operating on POLSAP.
10.The delivery of the IT infrastructure programmes are essential mitigating
strategies aimed at moving us within our risk appetite. Specifically, we are:
e Transitioning Horizon platform to modern and supplier supported operating
infrastructure that will migrate business systems to the cloud.
e Rolling out an integrated central and secure IT network core to mitigate
the potential loss of sensitive data.
e We have selected and chosen a Security Operations Centre, upgraded our
patching process and instigated BYOD/ Phishing protection.
¢ Deploying to branch a modern counter/desktop asset to replace HNGX and
prepare the counter for a new Thin Client Electronic Point of Sale (EPOS),
which will mitigate the potential for loss of front office counter applications
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e Transitioning our reporting systems (Credence) to cloud, transforming
supply chain, finance, and reporting systems to mitigate potential back
office platform failure
e Reviewing DR plans across core suppliers to mitigate potential loss of key
systems
11. The aim is to move us to within our risk appetite within the next 10-18 months.
12. In January, we also highlighted that, to achieve effective IT risk management,
required the use of well-defined controls and processes. Since then, to help
manage our key operational risks, we worked in partnership with KPMG to
implement the industry best practice control framework COBITS5.
13. Out of the 37 COBITS processes within scope, we identified 11 priority
processes and controls that have proved to be effective countermeasures in
reducing our exposure to both internal and external IT operational risks.
What is the progress on our run costs reductions and 5-year plan?
14. A core objective for the IT strategy for the organisation focuses on “Cost
Reduction” and this is consistently communicated across the organisation
15. The drivers of the IT cost base and rationale for difficulties in benchmarking
were outlined in January this year:
e Historic high, fixed level, contracts with “Tier 1” suppliers based on
assumed operating models and service levels.
e Asa retail business we have an extremely high number of users and
branches; a lot of retail businesses we compare against have low central IT
costs and move costs to every branch operating as independent P&Ls.
e Service Levels: price is informed by service levels and these are too
uniform across Post Offices; offering tiered/reduced/ improved service
levels would reduce/shift costs.
e Infrastructure provision: PO has been designed on dated and expensive
“fixed capacity” model in the infrastructure. Moving to “elastic compute”
with virtualised network, thin client and cloud based solutions significantly
matches cost to usage and reduces costs.
e¢ Operating model - the SIAM model has introduced complexity, overhead
and cost into every process.
16. Our view in January was based on FY16/17 IT OPEX figures of £107m. We
closed FY16/17 OPEX at £103m (underpinned by £1.5m one-off accrual
releases). An extremely aggressive and ambitious plan to reduce to around
£71m by FY20/21 (a reduction of 33%) was outlined with many assumptions
highlighted.
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5 Year Plan as at January 2017 OPEX
16/17 17/18 I 18/19 I 19/20 I 20/21
Underlying
Result Budget
£m £m £m £m £m
January 2017 Forecast] 104.5 102.9 94.0 94.8 95.3
LESS:
Expected savings from Supplier re-negotiations (7.2) (13.5) (14.1) (14.3)
Strategy to Plan initiatives 2.3 (2.8) I (12.2) I (12.1)
Shadow IT Costs 0.7 09 13 1.6
Revised Forecast} 104.5 98.7 78.6 70.8 70.5
% Change (Cumulative) 5.5% 24.7% I 32.3% I 32.5%
NB 17/18 includes additional budget tasking of £1.2m
17. We now have much better information and identified some flaws in the original
forecast model. We have refreshed the model and updated it in this paper.
18. The plan faces a number of risks, including:
e¢ Our most material supplier risks are the Fujitsu negotiations (paper in
October) and ATOS finalisation
e Risk with Computacenter and Verizon contractual assumptions and
expectations against the revised baseline
e Back Office Transformation projects incur delay, which in turn impacts our
Opex costs (not realising savings as expected); a SafeHaven delay may
impact our costs by £2.5m-£4m in F18/19.
e Branch Technology or Network rollout do not deliver to expectation which
has a material impact on Opex with the need to agree FJ and BT
extensions
e We have a severe service failure on the existing infrastructure and have to
spend unallocated funds to restore service
e There is a risk that conflicting or contentious Business Change will inhibit
IT's ability to enact change to deliver OPEx reductions eg Transaction
Simplification, Receipt Printer
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19. For each Tier 1 supplier, we made a series of operating assumptions. In the table below we outlined the initial forecast, and
now include what we now expect to achieve, with confidence indicator.
Forecast Spend and Opportunity
6 Month
Forecast
Update
Terminate contract. Tender Jan £35.9m £7.2m £0m-£4m Negotiations taken longer than
Run Contract to expiry date Aa High £28.7m-£35.9m Epiclsated
Run to termination date
August 17
Terminate & aggressive tender
process
F) allow a negotiated settlement
based on thin client, cloud
migration and re-architecting
No negotiated settlement -
F) sweat PO as cash cow
Sept
£15.1m I £82msavngateady
baxedin the base plan
£15.1m* _ I Retenderinprogress
£160m.
£142m*
£0m
off6m
£22m
nla
£om
£14,.8m-£15.1m
£0-£26.3m
1e135.4 - £163.9mI
£5m-£36.6m
Retender in progress
Negotiations are advanced, focus
on switching from 85% Fixed to
Variable model.
*The savings forecast has been incorporated into the Opex Forecast here (i.e. Atos 5 Year Forecast is £30.5m, incorporating £5.3m of savings)
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20. Our updated plan reflects status of supplier negotiations and our increased
understanding of underlying cost drivers; our investment profile to achieve
these savings is being reforecast currently and is aligned to the government
funding request:
5 Year Plan as at September 2017 ‘OPEX
16/17 17/18 I 18/19 I 19/20 I 20/21
Underlying
Result Fest
£m £m £m £m £m
September 2017 ForecastI 104.5 104.0 I 92.3 92.1 92.1
Less:
Expected savings from Supplier re-negotiations (2.4) I (65) I (9.0) I (10.7)
Strategy to Plan initiatives 0.3 (1.0) I (5.4) I (7.2)
Shadow IT Costs 0.0 0.9 13 16
Revised Forecast] 104.5 1019 I 35.8 79.0 I 75.8
% Change (Cumulative) 2.5% I 17.9% I 24.4% I 27.5%
21. We continue to focus on opportunities to reduce service costs; have estimated
£1m annual savings in the plan, and believe there is further opportunity with
helpdesk Self Service and Single-Sign on.
What is the progress on our Digital Transformation?
22. Technology sits at the heart of the wider business strategy set out in our 5 Year
Plan — both as a direct driver of financial benefits and as a critical enabler for
most of the other profit improvements envisaged in the plan. A core objective
for the IT strategy for the organisation focuses on “Digital Transformation”
23. The major change since January is further refinement of our digital
transformation agenda.
24. The tools, techniques, technology and approaches of the internet age give us
greater opportunities than ever before to help transform our delivery of
services, assemble services more quickly and at lower cost; and continuously
improve services based on data and evidence.
25. We have pivoted the organisation around three main digital experiences: the
agent, the customer and our employee experience
26. We believe that the opportunities delivered through the three areas have a
profound and deep transformation across several areas:
e Back Office service centres - the ability to systems think the processes and
digitise/ automate could fundamentally change the shape and size of
service centres whilst significantly improving service.
e Agent interaction - delivery of a digital self-service solution to automate
business processes and provide functionality to our agents.
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e¢ Customer engagement -creation of a single customer mobile application
(customer hub) that offers functionality for Post Office products.
27. We also continue our agenda of innovation and emerging technology. In
particular our focus remains on:
e Blockchain and distributed ledgers due to the opportunity within Identity
Services
e Predictive Analytics/ Machine learning/ AI due to both the huge consumer
disruption it will cause but also due to applicability in Back Office
28. A profound talent and cultural shift is required. We will make a significant
investment in internal digital IT permanent skill base to drive the pace and
breadth of expertise that we require to succeed across digital initiatives.
29. To deliver the digital transformation, we will also influence the capability and
culture “outside of IT”. The following roles and capabilities are essential:
e People that “think digital” - our preeminent mindset is based on traditional
leadership and analogue thinking models (both in operational and change
mindsets). Changing this is our greatest challenge.
e Agile and digital savvy product managers to lead functional prioritisation of
digital initiatives
e¢ Customer/User journey design specialists
e Digital Operations specialists to create and maintain fast changing content
e Mobile digital marketing specialists
30. We will develop plans in our overall digital “presence” capability. This includes
next generation multi-channel digital content management, web analytics,
Search Engine Optimisation and service location/reservation tools.
Is IT delivering against the intended business outcomes - Retail IT Strategy?
31. We have now developed our Retail IT Strategy which aligns the Mails, Payments
and Network Development goals to the 2017-2021 IT technology roadmap.
32. We have pivoted our strategy to enabling postmasters when serving the
customer and running their Post Office business.
“SERVING THE CUSTOMER”
33. Our strategic direction will reduce queue time/failure demand, make our
customer experience more enjoyable and improve efficiency of service
performance. It will also reduce cost.
34. Our "device strategy" is a critical part which will be ready 3Q17; this transitions
current legacy end of life branch hardware to an integrated IT environment
which befits a modern day retailer. Smaller counter EPOS and kiosks,
faster/higher quality receipt printers, 2D barcode scanners and refreshed
pinpads and AEI terminals are to be deployed
35. Acore enabler of this is the development of HNG-T (technology that allows us
to run a very modern “Horizon client” in the Post Office on a web browser i.e a
thin client version of the existing Horizon)
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36. We have increased confidence having proven our thin client concept in four
months through the HNGT development of our Telephony E-top up service. A
demo will be sent out separately.
37. Learning from past mistakes, we will build and deliver Thin Client (in parallel to
BAU) in short demonstrable, viable and repeatable stages. If it proves
successful, we will roll-out Thin Client to the entire network. If not, we have the
contingency to roll-back to deploy HNGA
38. We are also engaging with our multiple partners and have a reasonable degree
of confidence that they will want to take this solution in to their estates if we
get it right. Key to this is proving our ability to deliver, so an initial pilot with an
MVP in their existing PO estates is the right way forward.
39. We are deploying “new devices” into the estate — this is a difficult dynamic. We
will exhaust existing counter hardware stock by November 2017 and are to
procure the smaller footprint/lower cost device in September 2017. The new
devices must be compatible with and future proofed for HNGT deployment.
40. We have two outstanding areas which are significant and we need to partner
with the business on. They both drive increased cost into our estate and the
business strategy still in formation. These are:
« Self Service Kiosks - The business plan is to deploy circa 1,500 new self
service kiosks to our retail partners over the next 2 years on a lease basis.
The initial 50 machine pilot in agency is designed to mitigate a 6.5m cost
risk by proving enough staff savings to justify a profitable sub-lease rate.
e Passport/ Identity Services - The current plan for Digital Check and Send
(DC&D) is to implement the service at the circa 750 branches with biometric
booths, leaving the paper service as an option elsewhere. In the longer term
there is a consideration to withdraw the paper and extend DC&S to other
2,700 branches, if there is sufficient demand and it costs in for the less busy
sites. We need to ensure we're not exposed to significant higher cost;
however there is a risk that HMPO turn off the paper channel (perfectly
plausible against the Government digital strategy) and we risk losing the
income if we do not have a solution.
“RUNNING THE POST OFFICE BUSINESS”
41. We intend to digitise business processes critical to the running of retail branch
by implementing self-service capabilities. Many processes are manually
laborious and require intensive support with complex remediation. In addition
our service has, to date, been uniform, irrespective of the branch performance
and location Post Masters get the same service support.
42. Our first pilot application will be Horizon Self Service which will automate and
deliver agent sales and transactional MI in near real time; currently full data is
provided by CDROM to retail partners 3 months in arrears!
43. Subsequent business prioritised user stories include the raising of branch IT
incident tickets via the portal and providing real time service updates, the
ordering of cash/coins and stamp stock management.
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44. The Differentiated Service Proposition is targeted for go-live in 3Q17.
e This will deliver new service revenue, reduce operational costs and provide
enhanced customer propositions through a channel where IT has
previously been provided free of charge.
e The intent is to charge for “premium service” offerings which will provide
more choice and flexibility in the running of their business. See Appendix C
for Premium Service offering.
Is IT delivering against the intended business outcomes - Financial Services?
45.
Financial Services can be considered in two ways: the launch of consumer hub
for new digital journeys which is core to the Financials Services strategy and
how we support the business.
“CUSTOMER HUB”
46.
47.
48.
49.
50.
51.
The customer hub is a core enabler of the financial services strategy supporting
digital financial products and open banking framework. We believe that this will
be a key enabler for customers in the omni-channel environment
The foundational asset will be a reusable portable customer identity capability
linked to an easy purchasing experience for customers. In doing so, we enable
a fast track purchasing experience for all branch customers for all branch
transactional branch products and, in parallel, accomplish pre-branch data entry
steps for Drop and Go, International Mail or Bill Payment transactions
We are developing the roadmap and customer facing digital agenda by working
with the Financial Services and Identity teams to finalise the MVP for the hub.
We successfully ran a hackathon in June which built a retail mobile application
for the business in 48 hours. This proved our capability to rapidly prototype our
ideas using a Low Code Development tool and integrate a broad range of
external API services such as Open Banking and facial identity verification
The low code application development platform accelerates software delivery
and testing lifecycles facilitating rapid idea prototyping and robust production
solution delivery
We are going to build our “digital factory” around this capability and invest in
engineering skills to support scalable agile delivery, enterprise digital
architecture, enterprise cloud hosting, mobile application development and API
service engineering
“SUPPORTING THE BUSINESS”
52.
Key drivers and deliverables are:
e Salesforce; our customer acquisition platform for distribution partners
supporting prospect leads capture and mortgage sales development
e Banking Framework; a suite of retail and business banking services for UK
banks to utilise the Post Office branch network ecosystem to process
cheques, deposit/withdraw cash and execute change giving. Future options
are being explored to provide enhancements for eKYC checking services
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e Post Office Money next generation digital AML/eKYC services; to simplify
customer identity proving and optimise digital/branch experiences for
personal financial services and travel money transactions
¢ Marketing; Creating our future customer-product-service-insight platform
that will power customer personalisation, targeted 1:1 marketing and
whole of life customer relationship management
Is IT delivering against the intended business outcomes - our colleagues?
53. We have a profound cultural transformation to ensure our colleagues can think
Digital first both in the ways that we conduct our own business but also in the
products/ solutions. To assist that we also need to digitise ourselves.
54. We are changing our back end platforms which in itself will drive change in the
ways we do business.
e Consolidation of Back Office systems on to CFS and Transtrack providing a
stable and robust financial system.
e SuccessFactors migration will remove HR SAP fully from our environment
and will enable staff to update their own data, make requests and ensure
managers get better visibility of their team.
e Review of our MI and data warehouse capability (Credence) in a big-data
world is required to evaluate suitable analytics capability.
¢ Contact Centre Case management will enable web, phone and social
interaction with post masters, employee and clients for our call centres.
55. Concurrently we are investing in internal resource in our Process Centre of
Excellence; already we have a number of activities run by software robots,
processes brought online using workflow, e-signatures replacing paper and
structured sharepoint sites and forms replacing personal inboxes.
56. The GE will also plan our hiring, training and enabling of our teams. We need to
determine:
e¢ How we reprogram people to think and work digitally; despite the
investment in tools and capabilities, we have a workforce predominantly
working in a 90s mindset
e Internal culture and training on systems thinking
e Working with department leads to address issues, deploying our own
toolset to improve service or remove business challenges in 2-4 week
chunks (note, this is already beginning to happen).
How is the core Infrastructure changing to support the strategic outcomes?
57. Our target state remains to deliver an elastic, agile, secure, future proof, low
cost model for the Post Office without undue reliance on specific suppliers.
58. We are currently re-architecting to improve business delivery:
e Weare in the design phase and working with Fujitsu on migrating our
infrastructure to a cloud based architecture to provide a greater platform
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for business agility at a lower cost. This coupled with the Everest
negotiations allows a much greater flexibility of cost and service
e¢ We have published our tender on the Government Digital Outcomes
framework to re-procure our common digital platform which will continue
to be extensively used for our website and as a platform for Customer
Hub. We have adopted a hybrid approach to our digital development
activities (due to nascent contract and supplier limitations) and have a
digital platform convergence strategy for the future.
59. We have developed an Architecture roadmap to demonstrate the journey we
are on. This forthcoming year is essentially all about Risk and Cost Reduction
and a level of business enablement. Beyond there, our focus increasingly pivots
to business transformation.
What is our plan to achieve the strategy?
60. Our profile of spend in the last two years is predominantly on operational risk
and cost reduction.
61. Our submission for the government funding outlined the key areas for
investment which falls into three main areas:
e Branch IT investments — completion of rollout and pivot to a retail
transformation through thin client deployment
e Essential IT upgrades - continued investment on risk and resilience
activities, cyber security and back office transformation
e Enabling the business - replatforming onto cloud, building a digital
development capability and platform
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Infrastructure
Capability
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62. The roadmap presented in January, is aligned to the funding request and has
been updated to demonstrate in progress activities and some movement on the
plan. Broadly the plan remains both on track and relevant.
‘Modern Horizon “back end”
COBITSimplement’n
Ph2
a I
Pa I
ad I
oe I
Functioning OCC capability
I
What is our operating model for IT?
63. We previously outlined an operating model which includes PO taking back
control of business-critical services.
64. In addition, we discussed the negotiations with ATOS which have now
concluded with a letter of intent. The letter of intent outlines:
e Agreement for Atos to embark on an improvement plan to the service desk
services, which will have clearly defined set of measures
e Post Office taking back responsibility for managing change demand
services, with Atos providing a systems integration role where required
e Agreement on pricing adjustments that reflect redesigned service
requirements, providing full year cost reduction on FY17/18 costs of £1.2m
e Cessation and suspension of certain lines of services which have been
identified as no longer required.
65. We have also identified critical capability gaps in the operating model regarding
our digital transformation. We also anticipate medium term (<12 months)
needs in machine learning, predictive analytics and big data manipulation
domains. Critical gaps are:
e Architecture skills e Security skills
e Technical skills « Low code development
e Agile delivery skills
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66. Our strategy for developing this capability is:
e Making Post Office a leader in attracting a diverse workforce for digital,
data and technology roles;
e¢ Supporting non-digital specialists in understanding the potential of new or
different ways of working;
e Working to make sure that current and future leaders have the right
training and experience to manage digital projects effectively, work in an
agile way and manage digital-age organisations.
67. Our engagement survey results indicated the requirement to focus on four key
areas to improve engagement and buy-in to our strategy:
« Communication and decision making - increase collaboration between CIO
and other functions and increase visibility of CIO lead team;
e« Company strategy - deliver against our vision with speed and conviction;
e¢ Working environment - improve workplace processes with digital
solutions;
e Employee wellbeing - resource more effectively; improve PDR process.
68. We have taken the opportunity to define our new diversity agenda. Our
diversity agenda is made up of six key initiatives:
e Introduction of unbiased job descriptions with non-gendered language;
e« Mandatory unconscious bias training for all managers;
e Anonymised CV pilot to reduce unconscious bias;
e¢ 1in 4 female candidate shortlists for all vacancies;
e Utilising diversity forums as job channels, e.g. we have recently set up a
partnership with FDM Group, an IT talent supplier that work directly with
ex-Armed Forces individuals;
e Reintroduction of support networks into the CIO function, e.g. Women in
Leadership events.
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Appendix A: Progress against Measurement of IT Strategy
A ‘y July 2016 Sept 2017 Target 2020
im to meet budget in first year and
with target investment reduce costs by Current Year £70-£80M
Lower Cost 5-10% beyond that without increases. £104.8M Dependent on
- s Forecast
Note that business change (rightly) growth
£101.9m
increases IT cost
7 A 1 A In-house
Faster speed to Previous experience dictates that this Demand 3-6 months
requires end-to-end change. Aim to .
market (Flash 12-18 months I Management incremental
halve end to end cycle teams across - ‘
to bang): & Engineering I value
the system ‘
in progress
HNGT,
Requires end to end change but 7 Customer Hub 7
~ sated Expensive, . Agile,
Increased through agile and systems thinking the and Horizon '
a seme eats . layered, - cheaper, high
productivity process - from initial view; aim to save waterfall Self-Service ualit
at least 30-50% on cost of delivery all being q Y
established as
agile
Use a capability measure from ihe . Security High .
" pra . A vi Yi . understanding
Security Deloitte’s against 5 key risk areas to 4 Operations .
. limited . ; robustly
Effectiveness assess and gain an accurate measure teen Centre in . he
of IT/Cyber security maturit testing; low ogress tested; higher
¥ ¥ Ye risk profile; Prog} risk profile
Web site i ee
— Our current capability is well behind “brochure Agent & staan
Digital . 2 o capability;
leading retail peers. The development ware”; Customer . .
Capability \ . ' online/ offline
work over a year should be to get us immature; portal in . .
Maturity ene journeys;
amongst our peers limited progress .
transactions Myfesidircay
SME
Regular Sev
font (et 6 i High
Aim for a consistent reduction in lost Severity 20% reduction
“ months - A a
Always On business revenue year on year for key . Incidents = 30 I on critical
r " . Severity 1 = " "
service services and avoidance of lost hours Q2 High business
through predicting events. ud Severity hours lost
gh P 9 . Severity 2 = 5
Incidents = 21
67
Total = 83)
Aim to establish a mechanism across Low trust; .
, 4 High trust; IT
the company on how technology is business/ Engagement
Colleague h " . . as a partner
performing from a branch, end user supplier action plans in an
Feedback " " z . driving value
and business change perspective. attitude; low development . "
‘ and innovation
Improve and resolve root cause expectations
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B: IT Project In Flight & 5Yr Plan Capex & OPEX
IT Programmes currently in flight
Last Forecast
6 Year
Programme
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Estimate to
IT Programmes in Flight
EUC Branch Deployment
IT Networks
Project Chameleon
Safe Haven & TDC Exit
ePOS Capability in Branch Network/PCl Project
Replacement of Counter Receipt Slip Printers
Back Office Transformation
IT for ITRisk & Resilliance
IT for ITProject Everest
IT for ITProject Everest
IT for ITIT Operating Model
Common Digital Platform
IT for ITBuild SOC and Command Centre
1 Spend across 15/16 through to 20/21
2 Lifetime spend to date up to August 2017 (P5)
Spend Type
Capex
Capex
Capex
Capex
Capex
Capex
Capex
Capex
Capex
Exceptional
Capex
Capex
Capex
Better for the customer. Simpler to run. A great place to work
Last Signed Off Previously
Amount Presented
£49,600k £45,800k
£28,800k £30,900k
n/a n/a
n/a n/a
n/a n/a
n/a n/a
£29,200k £31,500k
£34,200k £33,700k
n/a n/a
n/a n/a
n/a n/a
£2,000k £1,800k
n/a n/a
£143,800k £143,700k
17
Forecast?
£49,246k
£33,355k
£8,247k
£2,742k
£8,370k
£6,914k
£33,013k
£44,451k
£15,000k
£26,397k
£1,635k
£6,217k
£8,655k
£244,243k
Spend to Date”
£26,541k
£11,636k
£806k
£494k
£13k
£4,785k
£25,651k
£534k
£653k
£3,117k
£918k
£75,148k
Complete
£22,705k
£21,719k
£7,441k
£2,248k
£8,357k
£6,914k
£28,228k
£18,800k
£15,000k
£25,863k
£982k
£3,100k
£7,737k
£169,095k
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5 Yr Plan CAPEX & OPEX
PAGE 18 OF 19
6 Year
Programme
Forecast
5 Year Planned Pipeline (£m)
IT for ITIT Operating Model Exceptional £9,900k
UEC Branch Overlay Exceptional £3,432k
IT for IT foundational architecture Capex £5,050k
£2,540k
3 Increase / (Decrease) in opex run rate.
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C: Differentiated Service Offering - Premium Services
Premium Service Offering I Description Suitability
Mobile counter (tablet) Provide the branch with a tablet capable oF Horizon transactions, accessing
email.
Branch Wi-Fi " Provide branch with Wi-Fi that could be accessed by staff and customers
Digital Signage Board I Provide screen in branch to promote both P ost Office/ local community content
Higher Quality Broadband Provide a higher quality of broadband connection e.g. Fibre
Bi-annual IT Health Checks Pro-active engineer visits to undertake health check and reduce downtime
Real time monitoring " Remote monitoring of PC, branch router, peripherals and self-service devices
devices I
4 Hour Service Level Capped number of quicker resolutions that the branch could utilise
(Bundle)
Consumables (Bundle) Consumables that would be included free to a branch as part of a bundle
Guaranteed kit refresh " Provision of new kit on a regular cycle, rather than waiting for failure
Post office Email & Web Provide a post office email account and web access via the tablet
VIP Service Desk line I Access to a VIP service desk line
MI Reporting Enhanced reporting on trends, peak times, employee ‘incentivised sales’, etc.
Peak planning assistance A dedicated SWAT team of engineers deployed provide prompt resolutions
D: Opex Forecast of Supplier Spend
These charts illustrate the changing spend per supplier, assuming we are able to
deliver all savings targets and spend re-profile.
Note, these only indicate Opex spend.
F 16/17 - Total Supplier Spend £98.3m
‘Network (87 &
LN
2 *Gemito 7s
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20/21 - Total Supplier Spend £70.9m
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POST OFFICE DECISION PAPER
GROUP EXECUTIVE
Back Office Transformation
Authors: Tim Collins Sponsor: Alisdair Cameron Meeting date: 14 September 2017
Executive Summary
Context
The Back Office Tower Transition Board Paper 29th September 2016 highlighted
operational and cost risk to two of our fundamental back office systems, HRSAP and
POLSAP. POLSAP is responsible for £60bn of client settlements annually and manages
over £500m of our physical cash.
On November 24th 2016, the Board approved a collection of projects grouped as Back
Office Transformation. These planned to avoid technical upgrades to the older instances
of SAP in favour of re-designing our operation, using modern standard processes that
largely exist within our other applications, such as the SAP CFS Finance system.
At the May Board meeting, it was agreed that the full transformation of CFS, changing
the way we pay agents, manage cash, procure, manage stock, process and report on
sales and settle with clients, could not be completed before we need to exit POLSAP.
The agreed proposal was to ensure exit from POLSAP (and HRSAP which also requires
changes in CFS) by June 2018, delivering as much transformation as possible. The
remainder of Transformation would follow. We would also seek to avoid expensive
upgrades to stabilise POLSAP.
The May Board approved a further £7m of funding (cumulative £8.9m) to continue until
the end of September.
By this September, we agreed to deliver several proof points including: a settlement
process working in CFS test; the upgrade of our CFS system to IS-Retail, enabling us
to organise our financial model around branch and product; a complete agent
remuneration cycle in test; and we would soon be live with the new way of processing
cash in one depot, Belfast. We would have a clear plan for POLSAP process migration
and an improved forecast for the subsequent transformation.
The rough estimate of the end to end project costs was £21-25m. Direct benefits,
primarily for exiting POLSAP, were estimated at £3.9m pa with indirect benefits of
£2.6m by enabling the replacement of HRSAP. Benefits had not been estimated for the
full transformation or for changes to procurement/Swindon.
Questions addressed in this report
1) Have we delivered as promised in May?
2) Are we on track to get off POLSAP and HRSAP?
3) Can we continue to avoid an upgrade of POLSAP?
4) What is our latest view of costs and benefits?
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Conclusions
We have delivered all of the promised proof-points due to date. However, we have re-
planned the live trial of cash processing in Belfast from October to January 2018. This
enables us to stabilise the hardware, which is due to be moved to Accenture hosting at
the end of October, before we go live. The length of the delay is because we try to avoid
significant change to Supply Chain in the run up to Christmas. We have spent £7.6m of
the £8.9m forecast, replacing planned Accenture resources with contractors.
We continue to recommend a two-stage process, with transformation completed after
we are off POLSAP. Our plan continues to enable us to be off both POLSAP and HRSAP.
by June 2018, enabling us to significantly reduce our operational risk. Decommissioning
would take place from July, realising the savings.
We are closely monitoring the risk to the resilience of POLSAP and HRSAP including the
usage of spares. If we decide at any point that the risk is too great, either because we
are using spares more frequently or because the project timelines extend, we can
upgrade POLSAP at 6 months’ notice for a cost of c. £6m. To date, we do not believe
we have to trigger that choice but are asking for delegated authority to do so if
circumstances change.
By June 2018, we plan to have delivered the following:
« POLSAP process and data migration to CFS
e Agent Remuneration process transformation & data migration from HRSAP to CFS
e Cash Processing functionality migrated from POLSAP to the Cash Web Community
application (CWC, a Transtrack product) and integrated with CFS
Cash Processing in CWC with Forecasting at initial capability stage
Improved management information and reporting in CFS
Product and Branch profitability reporting available
e Controls framework and security improvements
¢ Infrastructure transformation and relocation
« Integration with Success Factors
e SAP Industry Solution for Retail (IS-Retail) via a technical upgrade of CFS
oe
As per our previous recommendation, this is not the whole suite of Transformation.
Phase 2 which we would aim to deliver by end 2019, and which is not yet fully scoped
and planned or benefits identified includes:
e Billing automation in CFS. This will significantly reduce the amount of manual
intervention in our settlement with clients and our reporting, enabling the removal
of systems related spreadsheets from the financial reporting process
¢ Operational cash forecasting solution in CWC with full capability achieved
Agent debt linked to remuneration
Client simplification and automation
Changes to procurement processes
A new warehouse solution for stock management in Swindon
eee
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We are seeking the next tranche of funding, £7.3m, in addition to the previous approval
of £8.9m, to take us through to end February 2018, with cumulative project funding of
£16.2m.
While we are only seeking funding to February, it is important to flag changes to the
estimates of the full project economics. By June 2018, we are forecasting that we will
have spent £20.4m. The lower run rate after February reflects the fact that the design
and build teams will reduce, with the focus on testing and business implementation.
Including the costs of the optimisation support period (July-August) and de-
commissioning, the total cost of Phase 1 is estimated at £20.9m giving a NPV of £13.4m
with a payback period of 6 years. These forecasts assume we spend the £2.9m of
contingency originally included.
This is a deterioration from the very first, high level estimate of a £20m spend
generating £12.7m NPV with a 5 year payback. This reflects the delay in benefits to
September, higher costs arising as a result of that delay, a much more detailed
appreciation of the resources required, longer (5 months) of system and user testing
and parallel running tests to de-risk go live.
The original case included high level estimates for the costs and benefits of changes to
procurement and Swindon stock. These now form part of Phase 2. For procurement,
the preparation work for a separate business case is nearing completion. For Swindon
we are reviewing the site strategy.
Including procurement, Swindon and the full project could increase total project costs
to £31.3m. However, we are not seeking funding for these changes at this stage and
decisions can be taken later when a complete view of costs and benefits are available.
Input Sought
We are asking approval for £7.3m of additional funding drawdown, taking the
cumulative investment to £16.2m, to progress the programme to 28 February 2018.
We are also asking for delegated authority to the CEO, CIO and CFOO to upgrade
POLSAP at a cost of £6m if the operational risk deteriorates.
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The Report
Have we delivered as promised in May?
1. The program committed to report back to the board on a number of proving points
(in the diagram below) that have been delivered since May ‘17.
ie Prec Go Live Miestone
_ - “proof Point” Milestone
Decision Timeline * nn ees
$x Decision oint
WK COMPLETED Milestone
2017 L 2018 i
Apr i May! Jun : Jul I Aug : Bept: Oct : Noi idan: Feb I Mar: Apr I May Jun :
peves gompletefy I Hk dev Fd compice i i
— juar ri Gopplete Sir We ubre2 conpicte I Ge Live stes JR
He cer ive — a Pres Cath Hocessing Lve-Befast
Pocyy Hx Ass horizon infelFace logic copied to CFS THst
Gerabenciae CFS Upgraded to js Retail Sr He 835c Horizon to CFS Interface Live
‘Bege State if
ranch Ofte loaded in Testyhr ie Branch Master Data ve
Hroduct Dpte loaded in Testy Ye Product Master Data ve
HK at briyProcdsses mojeato cra fe
poise ier: BIS Hears whrkingin $5 Tes ie Bui compete I fg easy for co uve
Mave HE Forms working ig fs Test Go uve T5C fk
Sfttiement pfbcess working in: CFS Test f)
Pe Demos tf business compete He 008! Running
Agent
Remuneration * vei sutton tess comply He co uve
27 interfaces crested in convact > POLSAP Migration ica tare
POLSAP test really for migration [ = . Infrastructure
Migreton end P
Uppede Decisian] point Yr"
POLSAP SAP Upgrade (completes in Aug)
Figure 1: Back Office Transformation Projects - Proving Points
2. Good progress has been made against the Proof Points planned by the team, with
100% of the points due, completed. However, the Belfast soft launch of cash
processing has been re-planned from October to January 2018, for 3 reasons:
e to de-risk the go-live by moving the infrastructure to new Accenture hosted
hardware first and then looking to go-live with the new solution for Belfast once
this has stabilised
e Slippage in the integration between CWC and SAP Central Finance System due
to resource mobilisation issues —- the team is now mobilised
e Longer than anticipated time to agree the infrastructure required to support the
CWC solution and associated contracting
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3. The status for each Prove Point is shown below:
Transformation Base State
Transformation Base State
Transformation Base State
Transformation Base State
Transformation Base State
POLSAP Process Migration
POLSAP Process Migration
POLSAP Process Migration
POLSAP Process Migration
POLSAP Process Migration
Agent Remuneration
Transformation
Agent Remuneration
Transformation
Cash Processing
Cash Processing
Cash Processing
Cash Processing
POC 9/S/17
As-Is Horizon interface logic copied to CFS 1/7/17
Branch Data loaded in Test 1/8/17
Product Data loaded in Test 1/8/17
CFS Upgraded to IS Retail 15/8/17
GL Only Processes moved to CFS Live 31/5/17
Forms working in CFS test 30/6/17
Settlement process working in CFS test 15/7/17
Retail Information System Reports in CFS 30/8/17
Pl Interfaces created in test ready for migration 19/17
Demos to business complete 19/5/17
Live data Simulation tests complete 31/7/17
Development Release 1 complete 30/06/17
Cash Processing Live - Belfast 15/09/17
UAT Complete 15/09/17
CViT Live — Alll sites (Migration to Accenture
Infrastructure)
13/10/17
4. Below is a summary of more detailed progress for each of the projects:
Project
Transformation Base
State
v
Status
SAP Industry Solution for Retail functionality upgrade of the
Central Finance System complete
Branch and Product master data resident in the Central Finance
System complete
Horizon and Credence interfaces built
POLSAP to Central
Finance System
Process Migration
vv
vv
On plan with to-be Central Finance System Design, Build and Unit
Test to incorporate POLSAP processes:
>
>
Horizon sales interface built and tested
Profitability Analysis As-Is proof of concept complete
Master data structures and hierarchies rationalised
Spreadsheet analysis (137)
37% of Business Process Designs Drafted, 16% in Review
91% Of Functional Designs Drafted and 52% Reviewed
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Project Status
> 70% of Reports, Interfaces, Enhancements, Forms and
Workflows Built and 63% Unit Tested
> 71% of Data Conversions Built and 50% Unit Tested
> Archiving and data residency analysis underway
> Technical preparations activities to support transition of
services for Safe Haven started (E.g. SAP Portal vs GUI,
Printing, Roles and Authorisations)
> Pilot Agent Remuneration process ready
> Agent Remuneration system build is 90% complete.
Completion is on target for November.
> Parallel Payroll calculations validated with 100% accuracy over
a period of two months.
Agent Remuneration
Transformation
>» Cash and Valuables in Transit (CViT) migration to Accenture
infrastructure planned for October - on track
> Pilot cash processing & forecasting process for Belfast - delayed
> Belfast solution design complete but due to delays in resourcing
and infrastructure agreements, plus a desire to go-live with
Belfast separately to the CViT migration above, this has now
been rescheduled for January
» Forecasting solution options being evaluated.
Cash Processing
>» On Hold pending a strategic review of the future of the Swindon
Swindon Stock site before we commit to £3m of IT spend
Procurement > Strategic review of options taking place.
5. Spend to date is £7.6m compared to the budget of £8.9m.
Are we on track to get off POLSAP and HRSAP?
6. Our plan shows us migrating fully off POLSAP and supporting the migration from
HRSAP by June 2018. This requires us to postpone some transformational activity,
Procurement and Swindon. The Finance migration is now due for completion by
June rather than March, reflecting the risks around migrating at year-end.
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7. We have set out below the status of the different elements of the project. A
description of the high-level processes and the associated changes for each
element is set out in Appendix 1.
Transformation Base State and POLSAP Process Migration v2.6 20170906
8. This is on track to go-live as planned. The first component IS Retail Upgrade of CFS
has now successfully gone live. The two remaining components Sales data from
Horizon and Product/Branch Master data live in the Central Finance System are
ready to go-live as planned. The deployment window to Production may change due
to the Credence/MDM migration project timeline shifts.
High Level PoaP ©@ Dependency with otherprojects YW “Proof Point” Milostone
@ completes nmestonerDepencency J COMPLETED Milestone
Transformation Base State STI Project Go tive Milestone &
Oct I
i @ wonwcresence Dev Env VS menor jertace (ART
: e @ os is Retat Live
é — —— @ azure Dev Env @ branes & Product master AR”
qi StS Retails
A =I
as CS ee
: I
$
E er
3g WE tots Horizon infettce in Test
: Build & Unit Test
a I_test Prep I A
5 I Data tive hr
Fe
a2 QUEEN sees tres le eetin te
e Pic fos)
‘ BE)
v2.6 06.09.2017
9. Migration of the processes from POLSAP to the Central Finance System remain on
track against the business and 3™ party resource loaded plan. Changes since May
are reflected to show a longer period to complete Design based on availability of
resources and to build in a “Business Freeze” period around year-end/audit.
10.In January 2018 Design and Build is planned to be completed with System
Integration Test and Training Material Testing started.
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POLSAP Process Migration [ indicates Complete I ie Project Go Live Milestone “
High Level PoaP @ Devendency with other projects YT “Proot Point” milestone
@ Competes ttiestone/ Dependency Yr COMPLETED Milestone
=
July I
Go Liye
Geers coronne I
Eig icon cote ap ses
Reco
Test
9 Develop.
smert
‘V2.6 06.09.2017
Agent Remuneration Transformation - Plan on a Page (v2.0 20170906)
11.Agent Remuneration has been approved by the Project Delivery Group to progress
from Build into System Integration Test. The plan between now and January will be
to conduct a series of parallel tests of the agent remuneration calculation utilising
real data from Production to reconcile and check the results achieved match. By
January this should give sufficient quantitative input to a go/no go decision.
Agent Remuneration Transformation *
High Level PoaP @ cependencywitnotherprojects Ye Pr
SST compictes nmestonedepensency JAC COMPLETED Mi
1 eiamen Femte
Dev
Chg
agent
V2.0 06.09.2017
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Cash Processing Transformation - Plan on a Page (v3.1 20170825)
12. The Cash Processing delivery is split in to three core deliveries:
1. Cash and Valuables in Transit Infrastructure migration for all cash centre - go-
live Oct 2017
2. Belfast Cash Processing and Forecasting soft launch - end of Jan 2018
3. All remaining cash centres go-live - June 2018
Belfast Soft Launch Plan
CFS Cash Processing — Belfast Soft Launch —& project
ESET @ completes ntiestonerDependency YW COMPLETED Milestone
High Level PoaP WD opendencywitn otherprojects JAE Project
WA] Gt Accountsmapped
[ irortace Tost
IK Finance Master Data ffralised
Note: Draft version ~ Test
% and Dev/ Conversion
ba dates to be aligned with
P Kate and Tim
a
>
é
chg
Mgmt
v2.6 06.09.2017
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All Remaining Cash Centres Plan on Page
Aa Milestone
f= is-hester cvmerinacan ite I nae
Predcion 1 n I
sits tent a a ae H
ew i I I
Pre} I
Test Phase? ‘Test Prep Ta fryuar2 I
Test Phase3 Test Prep Hi i = 1
est ee a H I
Can we continue to avoid an upgrade of POLSAP?
13.Two factors could trigger a need to upgrade POLSAP: deterioration in its stability; or
a delay in taking it out of operational use. The project is closely monitoring the
operational risk of POLSAP failure, an event which would, if prolonged, stop our
ability to trade. The table below describes the risk areas, mitigation strategy and
trigger points:
Risk Area
>» Monitor component failure rates and available spares, any
indication that failure rates are becoming more frequent is a
trigger point to move to Plan B - a POLSAP infrastructure
upgrade and migration.
Infrastructure I Conduct IT security penetration test and act on results as
Failure
(only POLSAP) appropriate
> Consider migrating to a more secure network within Fujistu
(pending the above)
>» Consider testing POLSAP on lower specification blades for which
more spares are available.
SAP Extended
Support
Ending
> Aservice review of the reduced support available has taken
place, reducing our view on the impact of this risk.
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Risk Area
In Strategy & Trigger Point
> SAP have been informed that if they cannot support us, we will
tender SAP support to 3" parties (e.g. Rimini street)
> Serious discussions have begun with SAP to provide some form
of cover between Dec ‘17 and our expected go-lives in Mar-Jun
“18.
> POLSAP Process Migration planning is incremental. As each
Business process moves the risk of POLSAP failure decreases.
Continuity for > Business continuity plans for key processes (with client
POLSAP settlement as top priority) are being reviewed and updated.
Robust and proven plans exist for a 1-2 day outage.
14.Given the progress since May, we have an increasing degree of delivery confidence:
e On-boarded twenty extremely seasoned programme professionals with fifteen to
twenty years of programme delivery experience, to improve planning, risk
mitigation, governance, application solutions and delivery, controls framework,
security and management information tool solutions
« Developed a detailed cross programme plan with interdependencies across
technologies, processes and 3 parties
e An extended period of four months testing built into each of the three projects i.e.
system testing, functional and non-functional testing and UAT
e Parallel testing between POLSAP/CFS, and HRSAP/CFS with ART to de-risk the go-
lives
e Three trial data loads within each project prior to go-lives
e Additional project management to drive a better delivery model and instil a “left to
right” philosophy i.e. plan an appropriate amount of time for each activity, as
opposed to forcing to a set date
e SAP Programme audit being planned to review the planning, risk mitigation and
capability
15.The programme is subject to a quarterly Accenture Quality Assurance Review and
will be the subject of an internal audit in November.
16.However, none of this can be taken as conclusive. We have the ability to stop the
programme and perform a six month POLSAP infrastructure migration to safeguard
the business if needed. If we conclude at any stage that we cannot be confident of
getting off POLSAP before its resilience deteriorates, we will upgrade it.
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What is our latest view of costs and benefits ?
17.Program Costs
1. BO Transformation Original Business Case
Budget Approved 20.0
Net Present Value 12.7
Payback Period 5.7
2. BO Transformation Forecast to August 2018
Project Sep-17_ Feb-18 Jun-18 I TOTAL
’ (£m) (€m) (£m) _I (£m)
Agent Remuneration 1.0 0.8 0.1 2.0
Cash Processing 3.0 18 0.6 5.4
Sales and Finance 49 4.6 4.0 13.5
TOTAL 8.9 7.3 47 20.9
Approved Drawdown 8.9
Net Present Value 13.4
Payback Period 6.0
3. BO Full Transformation Forecast
Agent Remuneration, Cash Processing & Sales and Finance 20.9
Swindon Stock Centre BL)
Procurement 0.8
Further Finance Transformation 6.7
TOTAL 31.3
Net Present Value 21.1
Payback Period 9.0
Notes
1. £2.9m Contingency in original budget built into the numbers
2. £6.7m Further Transformation starts Jul 18 for 12 Months
3. £2.9m Swindon Stock Centre starts in Nov 17 for 12 Months
4. £0.8m Procurement assumed to start in Jan 18 for 12 Months
5. Optimisation period July-August 2018
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Program Benefits
13.The benefits in the original case are expected to be crystallised as follows:
Jun Expec
Projects Benefit Generator ae 18 ted rans ent
(£m) I (£m)
> Cash Processing
> Transformation Base
State Decommission POLSAPI 1.2 La Sept 18
> POLSAP Process
Migration
> Cash Processing Remove CSC SAP
> Transformation Base Common Services 11 a Sept 18
State
. f Morton SAP Extended
is} . Maintenance & SAP
Wr Agent Remuneration active Embedded 0.4 0.4 Sept 18
a Maintenance charges
TransTrack moves off 0.1 0.1 Dec 17
Citirix
Cash Processing Cash Ordering
Helpdesk Headcount 0.4 0.4 Sept 18
Reduction
Warehouse Licence and 0.3 03" 2019
Support
Swindon Refresh
Improved Warehouse 0.4 0.4* 2019
Processing
Total Direct Benefit 3.9m 2.8m 1.1m
(5) Agent Remuneration Decommission HRSAP 2.0 2.0 June 18
we
a“
2
mi Sales & Finance FSC Headcount 0.6 0 0.6* TBA
Transformation Reduction
Total Indirect Benefit 2.6m 2.0m 0.6m
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Appendix One -Back Office Transformation Overview
POLSAP Process Migration
Degree
Process Description and advantages of change of
change
eee jr OOO
+ Process required to change as inventory and financial
Cash & 7
processes are currently in a single system (POLSAP)
Bureau ‘ 7 Process
Processin and will be split over Transtrack and CFS Changes
9 + New CFS flows include only standard SAP finance 9
(CFS . Required
Finance) processes that are already in use. GL accounts,
controls and end-to-end flows will be updated
. + Automated bank account reconciliation already exists
Banking and in CFS
mn ement + Additional POLSAP bank accounts need to be migrated ic
g + There is an opportunity to rationalise bank accounts
. + Tax codes are currently assigned in POLSAP, but all
Taxation -
(POLSAP tax processes occur in CFS None
map) + In future the tax code mapping will occur in CFS, but
the process is not anticipated to change.
F + Transaction Corrections, ATM accounts, open item Limited
Retail par nae
. managed accounts - anticipated to be similar to Process
Accounting
today. Changes
+ The settlement process will be simplified by making
Settlement more use of SAP standard. Process
+ The transactions used will remain the same for many I Changes
components
+ Over the counter income will be posted to accounts
Over the automatically. As sales orders are created the profit Limited
centre and GL will be derived from Product master
counter data Process
dg + Income will be re-mapped to fit with profitability Changes
analysis requirements
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+ Future transformation opportunity to integrate and to
automate Settlement and Billing using one source of ;
Not in
_ sales data and SAP standard processes
Billing scope of
+ Automated accruals Phase 1
+ Improves the granularity of profitability analysis and
sales and revenue reporting
+ Non Balance Sheet stock processes will be replicated I Limited
Stock a an
‘Accountin with minimal changes Process
9 + Reporting for Royal Mail likely requires re-design Changes
+ Opportunity for standardisation and simplification
+ Elimination of spreadsheets achieved through using
Profitability SAP standard COPA reporting (Product Costing in New
Phase 1) Process
+ Not required for POLSAP Process Migration, but
planned to be delivered
+ Updates to the Period End timetable
Record to + Update existing reports to include additional processes I Limited
Report * Opportunity to exploit additional standard SAP reports I Process
P as all transactions will be within one system, including I Changes
Branch/Product attributes
Agent Remuneration Transformation
Degree
Process Description of
Change
Calculation engine for Agent Remuneration will now
be calculated based on Contract Conditions and
Rates which will be maintained as Master Data
increasing the transparency, control and reporting
Agent directly within CFS Process
Remuneration P P . A Change
7 + Calculation of Agent Remuneration will remain the .
Processing Required
same
+ Integration with Success Factors to correctly
calculate the PAYE and NICs implications for an
Agents Remuneration
+ The financial processes will undergo element of a
i 5 F A aid shill Limited
Financial change increasing traceability and auditability
‘ ; oer i ‘ Process
Accounting + A foundation for Profitability Analysis by supporting Change
greater system led granularity of agent costs
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Outputs to Agents will see no change to their amount of
A ents Remuneration or the way in which they interact with I None
9 the Post Office
Cash Processing
Management of Cash Stock Material for both Sterling
and Foreign currencies in line with the Banking
Framework providing improved controls, reporting Process
Cash -
Processin and security Change
9 CViT audit and tracking of secure stock movements I Required
to and from the Branch Network, Cash Centres, and
Swindon Stock Centre.
Provides an improved forecasting solution using Process
Cash improved data meeting both treasury and supply Chanae:
Forecasting chain requirements Re nee d
Enablement of full benefits requires process change q
Currently managed manually Post Office provides a
sir - ii . Process
Cash new capability that will allow improved ordering
. fa Change
Ordering capability by the Branch network and the inventory -
Required
team
‘ - Limited
Integration to New CFS flows include only standard SAP finance Pr
. rocess
CFS processes that are already in use. Change
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POST OFFICE PAGE 1 OF 9
GROUP EXECUTIVE DECISION PAPER
Simplification Implementation
Author: Tom Moran Sponsor: Kevin Gilliland Meeting date: 14 September 2017
Executive Summary
Context
Our new, simpler Mails transactions are now ready to be implemented across the
network. The next phase of simplification (quicker printers and simpler branch
processes) will follow in Q4. The changes will result in an average workload reduction
of 7.2% and a commensurate reduction in agent remuneration of 3.1% on average. It
will deliver £11.65m of recurring benefit to Post Office. This is a material change
which is central to our Retail Strategy.
Questions addressed in this report
1. What do we propose to do and why?
2. What support are we offering to agents?
3. What do we need to do next to progress?
Conclusion
1. We intend to implement simplification in September now the plan is fully
developed. This is critical to avoiding any further reduction of in-year benefits.
2. Our approach is based on 3 principles agreed with the NFSP: sharing the benefits;
giving time to prepare (through transition payments); and offering support and
advice to agents on how to realise the benefits of simpler, quicker transactions.
3. Our plans are in place and the remaining work is in-hand to finalise and test the
new processes in branch. We require GE endorsement to move to implementation.
Input Sought Input Received
1. The GE is asked to note the 2. The simplification approach has been
proposed approach to implementing reviewed and signed-off by the
simplification and endorse the roll- Network Development SteerCo which
out includes Retail, Legal,
Communications, IT and Mails.
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POST OFFICE PAGE 2 OF 9
The Report
What is the need or opportunity and why now?
3. Simplification is core to our Retail Strategy and was re-endorsed by the Board in
July. The Board also noted and endorsed the independent benchmarking of our
retail proposition. This showed we have a good offer but are up against strong
competition and need to balance any reduction in remuneration with a
commensurate reduction in work. Simpler, quicker transactions and in-branch
processes allow us to do this and we are now in a position to implement.
4. There is also a clear financial need to deliver simplification as soon as possible. The
recurring benefits of simplification will be £11.65m from 2018/19 onwards. We
have already flagged a shortfall of £3.6m against our in-year benefits target of
£6.3m for 2017/18. In addition, an error in unrelated routine maintenance from
Fujitsu has resulted in a delay to our implementation timetable which has reduced
our in-year benefits by a further £400k.
5. We therefore now have £4m shortfall against our in-year benefits as a result of:
e High level assumptions on Postmaster usage and behaviours proved to be
invalid (eg incorrect transaction timings, use of PAF address, reading of Pop
Ups) - £1.9m
« RMG unsupportive of printing service barcodes on existing printers due to
print quality issues, resulting in dependency on new branch receipt printer
rollout in March 18 - £0.7m
e Printing labels on a roll initiative assumed there would be a single printer in
the market that could print receipts, Postal Orders and labels on a roll - this
proved invalid and it was unacceptable to implement 2 printers per branch
when our aim is to reduce our footprint - £1m
e Anerror in unrelated routine maintenance from Fujitsu has resulted in a delay
to our implementation - £0.4m
6. We reviewed all options for avoiding the £400k further reduction. This was driven
by the fact that, to deliver our in-year benefits, we need to be able to implement
by 31st August to claim the benefits from then. The only way to do this would have
been to significantly reduce the amount of testing and in-branch piloting of the
new transactions. Given the high profile nature of this change we believe this
would have created an unacceptably high level of risk - specifically an increased
risk that there would have been technical issues resulting from the changes and
also that we would have not had enough time to validate in branch that the
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POST OFFICE PAGE 3 OF 9
efficiencies were being made as planned. We therefore maintained our standard
timings for testing.
7. This test went live on 24 August in 97 branches and 398 counter positions
covering all model types and nations of the UK. This has included some of our
biggest branches such as Moorgate and Old Street and, overall, branches
completed 131,000 transactions in the first week of the trial. Initial feedback has
been positive - we have had no complaints or queries from branches and our
proactive engagement (telephone interviews) has been good. It is important to
note that 2 of the 3 major improvements we are making, Home Shopping Returns
and Parcelforce Contract (pre-paid), are already live in the network — the test
covers the other major change which is the simplification of the process to sell
Mails. We therefore have a high degree of confidence that the quicker transactions
are realisable from the first 2, limiting the risk here.
8. To further validate the efficiencies we have used our ‘Voice of the Agent’ group in
the model office replicating the branch trial in controlled conditions. This has
allowed us to have in-depth discussion and to video transactions (old and new)
which has also validated our detailed assumptions.
What is our approach to implementation?
9. Simplification will take place in 2 phases. We are making this clear with
postmasters in our communications:
e¢ “Simpler Mails transactions: From September 2017. This will reduce
workload by an average of 3%. Branch remuneration will reduce by an
average of 1.3% - but not until October 2018 (ie September 2018
transactions) due to the transition payment.
¢ Quicker printers - From March 2018. This will reduce workload by an
average of 4.2%. Remuneration will reduce by an average of 1.8%. Again,
we can confirm that there will be no change to remuneration before October
2018.”
10.We have a high degree of confidence that Phase 1 will deliver its (much reduced)
in-year benefits and subsequent recurring benefits. We are working through the
implementation of Phase 2 which is dependent on delivery of the new printers
and 2D Scanners across our branches - this is through joint working between
Retail and IT. We have a clear plan to deploy to all HNGA (the new Horizon
system) branches through the already set up implementation plan, which
minimises cost by combining visits with the Branch Technology Programme. Two
thirds of our counters are expected to be on HNGA by March 2018 with the final
tranche remaining on HNGX until July 2018.
11.A current risk to benefits in 2018/19 and recurring is that the printers have not
been proven to deliver the faster operations on the HNGX platform and the 2D
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PAGE 4 OF 9
Scanners have also to be proven on HNGxX. Fujitsu are working on this with us
and the ability to deliver both on the remaining HNGX estate is required to
protect 2018/2019 benefits.
12.We are very conscious of the need to avoid a repeat of the over-estimation of
simplification benefits which has occurred in 2017/18 and are reviewing these
benefits urgently. We have including a full benefits table below which breaks
down the benefits. We will quantify the benefits risk following the conclusion of
the benefits risk review later this month, however the risk could be in the range
of £0.2m-£2.98m.
Figure 1: Benefits Breakdown
Delivery
Initiative Month 18/19 I 17/18
Simplified journeys September 4.63 2.31
Phase 1 Sub-total (DELAYED)
Printing of Barcodes Mar 1.44 0.00
Printing Labels NOT on a Roll & COP_I Mar 4.52 0.00
Reading of 2D Barcodes Mar 0.56 0.00
Mails TOTAL 115: 2.31
ATM Balancing Feb 0.5 0
TOTAL 11.65 2.31
13.This section focuses on the implementation approach per se and particularly the
ways in which we are mitigating the risks to successful implementation, drawing
out the key aspects.
Overall assessment and mitigation of network and stakeholder reaction
14.The introduction of simplification and attendant announcement of pay reduction
across the network, in the current environment, creates a high potential for
adverse reaction / noise.
15.There are a number of corporate level risks related to timing in the current
environment, particularly if stakeholder momentum builds on a simplistic (and not
necessarily fair) counter narrative of ‘this is a pay cut being made at the worse
possible time’. The collateral issues we need to be aware of in considering this
business wide overlay are;
e Finalisation of NT - as the programme comes to an end, there will be
extensive political activity about ‘post implementation review’ and ‘value for
money’; these activities could affect wider sentiment about Post Office, and
views on business management approaches (and ongoing impact on future
funding).
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e Business moving into profitability (and potentially announcing this in the ARA
- this activity will take place as one of the first following the announcement of
moves into profitability.
e As anetwork wide ‘event’ - it can prompt a network wide response where
every constituency will have branches impacted.
16.We aim to mitigate the risk through an implementation approach that is based on
three principles, all of which have been agreed with the NFSP and will feature in all
communications:
e Sharing the benefits of simplification between postmasters and Post Office
- any reduction in overall remuneration for each product will reflect an
average 50% of the equivalent time saving;
e¢ Time to prepare for remuneration change, via transition payments; and
e Support to adjust ways of working and make the most of the opportunities
these changes offer.
17.To mitigate the reaction as effectively as possible we have already begun to
implement a comprehensive plan. This includes up front briefing and support from
BEIS; extensive and phased transition payments; and a support fund for specific
cases. We also already have a fully trained field team ready to provide assistance
to branches that request support (see Appendix A for Training Approach). We
have also worked with Comms to make sure our timetable is part of our wider
communications and business initiatives affected agents. We also have agreed PR
lines and have worked through the likely attack lines, including an assessment of
which branch model types are most likely to be critical (for example, we know that
small Mains without retail will find it hardest to achieve efficiencies). At the
detailed level, each Branch has been individually modelled -Appendix B details the
remuneration impact per branch model type.
18.Our approach to implementation and stakeholder management has been produced
by and with our Communications team. The recent positive news regarding
government funding is helpful in terms of managing our shareholder, but we need
to be clear that the introduction of simplification and attendant announcement of
pay reduction across the network, creates the potential for adverse reaction and
noise.
19.The implementation approach means agents will have time to prepare and we will
have time to support agents in how best they can take advantage of simplification.
Our field support team will be available to work with the operators to identify the
particular actions / levers available to the individual branch - these include support
with staff resource modelling, automation opportunities, time saving benefits which
can be repurposed for Retail growth. We will also be highlighting the benefits of
our investment in HNGA and the faster transaction times.
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POST OFFICE PAGE 6 OF 9
20.The field support team will play an important role in handling individual agent
reactions in person, as some of these may be emotional rather than rational - in
these cases, having someone to talk to who understands the details of how their
branch operates is useful as it will allow us not only to help these individuals, but
also to monitor the trend in how the network is responding.
Multiples
-This will be particularly important for our multiple partners - our approach is to
meet with the Multiple Operators to present the impact of Simplification, not just
at the operator level but at a branch by branch level. The bespoke approach to
Multiples is summarised below. In particular, each Multiple will be talked through a
per branch and whole Post Office estate impact assessment of the efficiencies and
associated income reductions.
2
rg
Figure 2: Implementation support approach for Multiple partners
Sep’17 Oct'17 Nov'l7
I I ua
Telephone contact Review Action Plan / review ‘Low Repeat review of actio pt 's
Begin F2F visits
risk’ population / Deeper review
(as they are formali
Retail Value Proposition meeting and
follow-up concluded in Sept
emaining "p
Basics
Review staffing Actual vs
NEXT STEPS
‘Mains to Local review for
Modelled to identify potential
estricted product
set / EUM help with efficiencies?
Automation?
Action plan
ighligh
strengthen conversations
Action plan
22.We have a specific risk with WH Smith as they already have automation in their
Post Offices, so one lever to achieve efficiencies is already in place (albeit not
optimised). We will be working through these details with WH Smith to emphasise
that they have already benefited from automation and can get more benefit; and
that we can work with them to identify and implement other ways to become more
efficient such as counter removal. Another key mitigation is the transition payment
approach we are adopting. WH Smith reacted badly to our reduction of Moneygram
remuneration last year because we gave very little notice. For simplification, there
will be no impact on any agent remuneration for 12 months (October 2018), giving
them time to prepare. It is also relevant that simplification will come shortly after
the conclusion of negotiations on our DMB Retail concession. This process saw
WHS reduce the value of the contract to Post Office, something which we have
made clear to WHS we saw as disappointing.
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Transition support fund
23.This agreed approach to transition payments allows for a support fund of £2.95m,
which we will use on a targeted basis to fund in-branch changes (particularly
counter removal). It also gives us the flexibility to respond to particular partners or
individual postmasters and to demonstrate to stakeholders that we are here to
support our network.
Automation
24.A key consideration is wage inflation as a key issue within the retail and
convenience sectors. Simplification is a sensible reaction to this and is typical of
what retailers are doing. Automation is another key trend and we are already
talking to our multiple partners about our plans.
25.We have identified the top 50 Multiple partner branches /Agent branches who
would most benefit from automation following the implementation of Simplification
and the associated remuneration reduction. The business case for this activity has
been approved and the machines are now on order so will be in branch in P8 in
time for Christmas peak trading. This is a necessary trial in order to prove the
commercial case to our agents and multiples as the basis for a wider roll-out.
Specifically, the trial is intended to validate that agents will be able to save enough
money from staff reductions (based on migrating trade from the counter to the
SSK) to fund the cost of sub-leasing the machines from Post Office. This will
provide a clear way for retailers to reduce the resource costs of running a Post
Office and it is important we ‘paint the picture’ of our longer term push for greater
simplification and technology improvements.
What do we need to do next to progress?
26.Our plans are in place and the remaining work is in-hand to finalise and test the
new processes in branch. The Network Development SteerCo provides the forum
for the technical ‘go/no-go’ decisions on the new transactions, we require GE
endorsement to move to implementation. Given the sensitivity, we will also update
GE regularly as we roll-out to track agent and stakeholder reaction.
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Appendix A
Field Team & Central Admin Team
An all day session on the 8*" August was held with the field team to train them on the
following:
Simplification overview (Business drivers and key messages, Mails Simplified
journeys (before and after) and overall approach)
Walkthrough of the letters the branches will receive
Daily reporting requirements and walkthrough of the E2E Process
What to prepare prior to visiting the branch
Revised remuneration rates and transition payment
Data pack walkthrough and use
Postmasters presentation walkthrough and presentation practise exercises
Additional sessions on how to use the datapacks with the postmaster were also
conducted with the field team.
Sales Team / NBSC /HRSC / Network Ops
A briefing session was held with Andy Kingham’s Sales team in August (MSAs,
ASPMs, MSMs)
Kendra Dickenson (NBSC) has been engaged, briefed and provided the
operational changes and all communications
Tracy Wilkes (HRSC) has been engaged, briefed and provided the operational
changes and all communications
All were provided the contact points to the Admin team
Pam Heap, Steve Blampied, Colette MacAteer (Network Ops) have been briefed
via Network Gateway process
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Appendix B
Remuneration Impact per Branch Type Model
Branch Type
Branch Name
Max /Min Impact
Current Pay
Workload
Reduction
Pay Reduction % Pay Reduction
413201 _IMain The Jewellery Quarter Maximum £212,938 8.8% 6.54% £13,923
352832 [Main Castlemilk Minimum £40,702 2.5% 1.7% £698
090033 IMedium Main The Pond Maximum £61,406 11.1% 6.8% £4,151
187704 IMedium Main Lagmore Minimum £34,454 2.6% 71.3% £451
104026 [Small Main North Street Maximum £31,183 10.6% 5.79% £1,806
197327 ISmall Main Marshall Avenue Minimum £21,618 1.7% 71.2% £259
287227 _IVery Small Main Oakdale Road Maximum £36,323 9.4% 5.8% £2,124
298704 _IVery Small Main Turf Lodge Minimum £26,277 1.7% 70.9% £246
128611 _I Local Park Place Maximum £4,096 12.3% -7.5% -£308
459611 _I Local Glenboi Minimum £15,905 0.8% 0.2% £24
188337 ICommunity Middleton Maximum £8,868 12.7% -7.1% £630
208552 ICommunity Diptford Minimum £666 3.4% 0.1% £0.36
293504 IUnconverted The University Maximum £16,996 12.2% 6.2% -£1,049
168702 _IUnconverted Glenravel Minimum £3,616 3.1% 0.0% -£2
Strictly Confidential
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DRAFT PROPOSAL — FOR CONSULTATION PURPOSES
Administration Site Strategy
Steve Norris
5 Sept 2017
Highly Confidential — Not for Distribution
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Contents
1. Context, questions and conclusions
2. Training and meeting centre overview
3. London overview
4. Other dedicated admin sites
5. Fit with POL strategy
6. Next steps
Appendices
1,
2
3.
4
London satellite sites sublet analysis
Additional FD apace requirement
Tech enabled new ways of remote working
Longer term location potential of Chesterfield
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1. Context and Questions
Context
There are 31 recognised admin sites of which 14 are part of building freehold/long leases valued at £12m and £7m opex p.a.
There are 3 segments, some occupying the same site;
1. 4 Dedicated, Finsbury Dials (FD), Future Walk (FW), Bolton Bark St, Glasgow Guild Hall
2. 5 Admin sites shared with Directly Managed Branches (DMBs) in London
3. 22 Counter Training Offices (CTOs), 18 are attached to operational DMBs
Small mothballed admin space is scattered across our DMB estate. Some IT projects rent admin space from their suppliers.
Questions
1. What is the meeting/training centre strategy?
2 What is the London estates strategy including Finsbury Dials?
3. I What is the strategy and progress on remaining admin sites (Guild Hall Glasgow, Bark Street Bolton)?
4 How does this enable’s POL strategy?
The purpose of this report is to gain buy into the strategic objectives from the GE so we can move to detailed
design and business planning
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1. Summary of Conclusions and Proposals
What is the meeting/training centre strategy?
Agree in principle the strategic objectives of :
+ Invest £1-£1.5m in 14 flagship training offices around the UK
+ Flagship site footprint as it matches major population centres and has been agreed by Property, IT, Learning and Development and
Network Operations
* High facilities and technology fit out standard has been proposed by Property, IT, Learning and Development and Network Operations
* Proceed to detailed business case and execution planning
What is the London estates strategy including Finsbury Dials?
. Decision between Option A (exit 2"4 floor), or Option B (consolidate into FD)
+ Agree the refreshed design principles for FD and approve relaunch (Appendix 5)
+ Agree uplift proposals and changes at FD on a case by case basis...
£113k to move security and receptions to front of building and create 20 more desks in café and 2 meeting zones
£86k to in increasing capacity by 66 desks
£114k to closure model office and move test facility to create 2 more meeting rooks
£140k to close canteen but saving £90k p.a. subsidy
£11k to create 2 meeting rooms from Servest room and media room
What is the strategy and progress on remaining admin sites (Guild Hall Glasgow, Bark Street Bolton)?
* Agree date for Bark Street move of HRSC to FW and should it be tied into the lease extension period we are able to negotiate
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2. Training & Meeting Centre Overview
1. Objectives
Rebrand as training/meeting centres and reduce the CTO estate from 22 to 14 flagships
with a national UK footprint near large population centres. Invest in the remaining
centres to uplift their décor, capacity, meeting room availability and IT including video
conferencing to make them meeting places of choice. Deliver the following benefits:
* Reduction of £500k-£1m of £4m T&S, by reducing travel to London and Chesterfield
for face meetings. Stop external meeting room bookings except large gatherings
+ Welfare of staff by reducing away from home working and long travelling days
* Staff output by reducing inefficient travel
* Safety and carbon emissions resulting from less travel
* Enable the digital remote way of working, engaging with staff, customers and suppliers
* Reduce POL property CTO estate by 50% and uplift its utilisation from 20% to over 50%
* Reduce longer term reliance on FD, enabling a smaller premises upon lease expiry in
2023
* Brings POL into line with other dispersed organisations (checked PWC, BNP who
successfully achieved T&S reductions through video conferencing use).
2. Training/meeting centres design standard
The design standard of the 14 flagship centres will make them attractive places of work:
* CTO meeting room with minimum 8 seat capacity
* Atleast one adjoining meeting room with a minimum1 people
* IT including IP phones, workstations, fast fibre broadband, Wi-Fi, remote networked
into POL core systems, video conferencing and “bring your own device” integration
for agents
+ Uplift FW and FD with 4 video conferencing facilities in each
* Condeco bookable with secure card access
* Good decor standard, desks and welfare
* Disability Discrimination Act (DDA) compliant
* This will require investment in the region of £1-£1.5m in refurbishment and I.T. fit out
5
3. Business case
The detailed case will be developed if this strategic case agreed in principle:
* Circa £1-1.5m investment in 14 flagship meeting/training centres and FD/FW uplift
* Increased opex costs of £300k p.a. for IT and maintenance costs
* Supports the T&S reduction T&S of £500k to £1m p.a, in the IT video conferencing case
* Increase in staff engagement score index on wellbeing
Note: Site disposal proceeds and Opex savings already included in CND case.
4. Strategic fit with business strategy
Astrong fit exists with POL’s strategic objective:
* Reduces Opex costs (T&S), but this requires an enabling cultural change
* Improved staff engagement and welfare
* Reduce risk and carbon footprint
* Long term reduction of some high cost London based which be regionally based
* Contributes to IT strategy to develop digital ways of working
5. Keyrisks and concerns
* Additional Agents travel costs as POL reduces footprint from 22 to 14
* High communications bandwidth availability
* Making cultural changes stick
* Ensuring the optimal IT and décor fit out, balancing between a simple uplift to high end
décor and IT refit
6. Next steps
* GE approve strategy to move to detailed business case and planning
* Approve the location footprint and decide on location London
* Build the detailed business case with costed design standard hard and soft benefits
* Align the implementation plan to DMB exit plan
* Pilot sites at Dunfermline, Bromsgrove and Springburn
* Action T&S polices to control external spend and travel to FD/FW
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. . .
2. As-is situation
22:sites (18 with 16 trading DMBs)
average 20% utilisation
158 seats
Poor facilities, IT and Poor facilites, T and decor
Bere oI PALS Es OS as Sc aN This has already reduced from 28 to 22 over 18 months in agreement with the Agent Training Team
Non DMB site
p of uk black and white color ao es a ee as pameel ease agi
1]Ashford low 6 11% I 05/04/2075] 2 2-Feb-20)No
[Belfast {Stand alone 8 cd Licensed} E) Nota DMB - a property we lease on licencelYes
3)pistot lows 6 I 30% I anoe/zus 133 H-Dec-2es
4]icomsgrove 1 [ows 8 I 25% [Freehold] 235] 48] DMB shut-lookat alternative site for CTO and sell propertyI Replace
]Beomsgrove 2 lows s Ie I Freehold ; DMB shut-lookat alternative ste for TO and sell propertyINo
[Cambridge [oma 8 2ex I 12/12/2020) an 31-Mat-21INo
TTchester lows 6 I ax I Freehold mol 57) BFeb-dalves
8IChesterfielé [Adenin site 6 1h Freehold} Ie ‘Nota DMB IYes
‘5ICroydon [oma & 20% I 24/03/2020] Bs 30-Jun-20INO
‘10}Dartford 1 OMe 6 4% I 25/12/2062} 101) 30-Apr-19/NO
11)Dartford 2 love 8 14% I 26/12/2062] - 30-Apr-19INo
12[duntermine [ows 6 I 2% I Freehold] 31o] 76] __done-lookat alternative sit for CTO and sell propertyIYes
13} Glasgow lowe 8 13%__I 01/04/2024] 135] 25-Mar-18}Yes
14\ Guildford jome 8 2% I 24/03/2001] ua} Not listed on DMB planIYes
15IKensington Church Street [Franchise 8 4% I o7/1i/2017I 212 Not a DMB - [Replace
1lleeds lowe a I a I Freehold ss] ‘Any disposal Petlstedon DNB planINo
17th (Phymouth) lows 6 I wx I Freehold] 350) benefits will be 31-May-20)No
18INewport lows 6 32% I 21/05/2024] 4 attributed to the 31-Jull9}¥es
18}Portsmouth lowe a I sex I sojoayaoaa 8 branch and otlisted on DM planIves
20) South shields [oma 6 tes I 20/03/3012] 10 a transformation 31ub20)Yes
2i[stadport lowe I _¥x I o7/06/z6I ~ J“ 3L-Mar2ilves
{swindon upolychain] 8 I 6x I Freehold Nota DMB [Yes
[average 13 I ax a)
mapsengland.blogspot.com
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2. To-be footprint
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A to-be footprint has been proposed with Property, Network Operations and Learning People and Development teams
ip of uk black and white color
mapsengland.blogspot.com
14 to be sites required...
+ Sat sites long term future
+ 3:new sites needed soon (Perth, London, Bromsgrove)
+ 6new sites will be needed if POL deliver it plan to exit the site due to DMB closure, lease expiry or freehold sale, Upgrading to
flagship status will only occur at replacement sites
We are additionally looking at a site between Manchester and Glasgow (Penrith) which if agreed would mean 15 CTOs.
As we have done with Bromsgrove and Dunfermline, should a CTO closure (upon DMB exit) cause excessive Agent T&S costs, we
would look at the case for acquiring a local replacement site. This will be analysed in the business case.
i[betast Standalone] 8 o Poor I Uicensed 2 Nota OMB-a property we lease on licence
2[sristl lows 6 0 oor _[2agrauis 193 si-dec2d
3 Bromsgrove new(Colesil) [Newsite I 8 5 lease x branch closed 08 February 2017
‘chester lows 6 0 Poor I mH I 700 I 37 a9Feb-2]
sIchesterielé faminsite [6 e Good I Adin i
[Dunermiinenen (Perth) INewsite I 8 5 lease 20 branch closed 02 March 2007
7Islasgow Springburn Way [OMB o 0 Poor [01/04/2008 25 25-Mar-18]
1 ouleord lows 8 0 Poor _[2yosy2021 7 Not listed on DMB planI
sflondon new Newsite 8 2 lease 150 site tobe secured]
10] Newport lows 6 0 Poor I 24/osjaoze a siwhsI
11]Portsmoth lows 8 ° Good_[ 30/05/2035 8 Not listed on OMB pla]
12 [South Shields lows 6 2 Poor [aojoasoi2I 70 I 26 s1l29]
13 [Stockport lows 8 ° Poor [07/06/2006 136 31-Mer2iI
1 Swindon Supply chai, _8 0 Poor I Fa Supply chai]
average 102 a s70_I 1009
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3. Two options exist for POL’s future London Admin Estate
Option A - exit FD 2" floor x
Overview
* Close second floor & move teams around or out of FD to enable space reduction
+ Increase use of London satellites which have good South, East, West spread
+ Ensure behaviours on future use (demand smoothing/3day use/satellite site use)
+ Close canteen. Coffee vending
+ 60 more desks on grnd and 1st floors open areas & more “soft” meeting areas
* Demand for London desks can be reduced over the period of the FD lease to 2023
when a smaller lease could be taken
Business case
The business case has been competed. The key highlights are:
+ FD lease expires on 30 June 2023
+ Asub tenant could be in place by April 2018
+ The overall income would be £5.6m June 2023 (inc 12 mths rent free)
* Costs of circa £350k includes agents fees, refit and managing the project
* NPV £2.4m, payback 1.75 years
Concerns
+ Executive emotional preference to increase a London focal point in FD rather than
dispersing to lower standard sites
+ Difficult building use behavioural changes needed to exit 2 floor and large people
moves
+ Meeting room space would be critical
+ Some teams and projects re requesting more space for 60 desks in FD
+ Most London satellites will be closed as part on DMB closure plans over next 4 years
Option B — Exit 5 London satellite sites J
(Clapham, Camden, St Alban, Whealdstone, Colchester)
Overview — 5 London satellites
+ Exit the 5 satellite sites upon lease expiry/DMB closure and move staff into FD
+ Subletting space prior to closure is not viable:
- Rentable income after marketing and rent free would be too short averaging 12
months or the income level too low (Appendix 1)
— It would not justify £130k separation costs of the admin space from the DMBs
— The standard of the space, apart from Clapham is low quality, yielding low rent.
+ Possible 50+ people would be moved to FD from satellite sites
+ Enables POL to reconsider its space in London in 2023 when FD lease expires (See
Appendix 3 for London core roles analysis by 2023.
Business case
+ The income is negligible due to subletting not being viable.
+ The sale proceeds and opex reduction benefits are already in the Crown Network
Development (CND) case.
* Options to invest in FD to accommodate improved security and demand for 60 new
desks and 80 moving in from satellites:
— £85k to create 66 more desks mainly on 1* floor
— £113k to decommission model office to crate 2 meeting rooms
— £113k to move reception and security to front and create 20 new desks
— £140k to close canteen and save £90k subsidy
Concerns
+ This Option gives no financial benefits compared to considerable benefits of Option A
Conclusion:
The only viable option to deliver material cost reductions is Option A, exit 2" floor at FD, where we could reduce FD “presentism” by moving some roles to more home
based and other locations including Clapham and Camden to early 2022. Option B would instead focus on consolidating people in FD. There are several options to uplift FD
which are covered on the following slide and require discussion.
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3. Short term options at FD under any scenario
As demand at FD remains strong in the short to medium term, the property could be uplifted in terms of its
capacity, security, working culture through a set of discrete stand alone initiatives...
‘Overall
£k
Initiative
2" Floor
Bnew perm desks in gaps 10
a A suitable location
status
48 new perm desks in gaps oo will be found in FD
Convert broadcast room into meeting room 6 for the testing
facilities currently
Ground Floor within the model
Decommission/Remodelling of Model Office. 4 office. This could
Decommission canteen area and partition off and lay off staff 190 be a smaller room
Servest room converted to meeting room. 5 within its current
Remove reception and move to front of building, install a turnstile security barrier system I 33, location or in the
20 new perm desks/meeting rooms in café area by moving reception 80 canteen serving
10 new perm desks in gaps 16 area if the FD
canteen is closed.
Total 464
summary
Move security, reception to front, 20 new desks in café with 2 meeting rooms Going ahead
Create 66 new desks in worskpace gaps Recommended
Close model office and create 2 meeting rooms Tobe dissussed
Close canteen To be dissussed
Craata maatine raams [To be dissussed
464
Other short terms considerations:
+ There have been requests for 60 more desks, a meeting room and 2 breakout areas in FD (Appendix 2)
* 50+ people could move to FD when the satellites close
* The café area could be more fundamentally redesigned as a Tech Garage for a similar cost (Appendix 3)
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3. Longer term property fit with people location strategy
Some work has been undertaken by HR on the longer term people location strategy which has been considered in the the admin property
strategy:
The HR view of people location longer term strategy is in line with the property admin strategy as;
1. POL will always need a the London office to attract scarce skills and for a small number of jobs 60-70 * which need to be central
London based for BEls, media, BOI etc., because;
* Skill base predominantly exists in London
* Need to be near London stakeholders
* Need for a co-located team based in London
2. When we are recruiting scarce skills we are flexible on the base ( the normal place of work in the contract) provided they will travel as
required. Base can be home, nearest POL site to home, London, Chesterfield etc.
3. Change the culture by reducing “ presentism” i.e. some leaders still want team members to be physically in the same place as them
4. Improve the technology to enable more flexible remote working-Skype and team collaboration tools to reduce travel time and cost
Other considerations
1. Agree the refreshed the FD design principles (Appendix 5) and relaunch and moitor them in life
2. Chesterfield could be considered more as a location for recruiting non critical London skills and could reduce both pay,
accommodation costs and churn rates. A macro overview of Chesterfield shows this could be advantageous to POL (Appendix 4):
* Large population towns/cities exist within 30 miles including Sheffield (UK’s third largest district)
* There are several blue chip employers based nearby, 5 major universities and an approved HS2 link
* The skill base is good for finance, procurement, shared services and HR but less so for digital
2. The FD lease expires in 2023 which allows sufficient time to migrate recruitment to other locations and allow the acquisition of
smaller London based remises in 2023
3. In the short to medium term demand at FD will remain high as projects and teams expand
* Note: this this is not proposing POL moves roles to Chesterfield of other site. It is the number or roles which would need to be London based to do their job
using a zero based approach. A precise number would require further work with each GE member
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4. Other dedicated admin sites
Background
There are 4 dedicated admin only sites:
Finsbury Dials LH, to 20 Jun 2023 £3.5m
Future Walk F.H. value £3.3m £0.7m 513
Bark St, Bolton LH. to 20 Jun 2018 £0.4m 157
Guild Hall, Glasgow LH, to 20 Sept 2017 £0.1m 21
Already discussed... maintain and invest in higher space yield
Long term strategic site. Heavy investment made in facilities, energy efficiency and welfare
Lease expires 20 Jun 2018. Attempting to negotiate 2 year lease for 1 floor to Jun 2020
Decision taken to exit Guild Hall 30 Sep 17. Move to Springburn going to plan
Bark Street
+ 115 desks on 3° floor and 42 on 4* floor
+ There are now 113 employees on site both perms
and hot-deskers
+ 4t" floor accommodates
+ 13 people from Security/Fleet (substantive)
* archiving and server space Qs
+ 34 floor accommodates
+ Finance 12 HRSC have requested to move to
Chesterfield around June 2020. We are
HRGC 57 have started landlord and the lease
+ Agents 31 period we can agreed will be a key factor
in timing of this move
Future Walk
+ The site is a freehold and has a long term strategic
future
+ Investment continue on the site; new power
system, redecoration, new canteen and power
efficiency costing over £1m.
+ Spare capacity of 80 desks exists with further
potential if the gym space is used (replaced by
external provider eg Nuffield) for example as a Tech
Garage (see Appendix 3)
+ The future people location strategy could migrate
roles to the area. There is a good skill pool
(Appendix 4). This which would save employment
costs, and accommodation costs vs London
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5. Fit with POL strategic initiatives
Environmental
Reduced greenhouse emission from 10-20% less travel
Cost
10-20% reduction in £4m T&S budget, but circa £1.5m investment required
Risk, Health and Safety
Less risk from people excessively travelling reviewed with Capita
Reduces estate in London and CTOs
People/Engagement
Acquiring skills in other regions outside London
Commit to regional investment
Aligned with possible future location strategy reviewed with HR
IT
Digital Transformation — using new technology whilst exploiting the current platforms.
Cost Reduction — increased use of Skype as opposed to business phones.
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1
2
w
6. Next steps
. Meeting/training centre strategy
Approve strategic objective (GE)
Detailed business case and benefits analysis
Impact on T&S, both Agents and staff and interaction with benefits from other projects with IT and Angela Van-Den Bogerd
Launch pilot sites at Bromsgrove and South Shields and FW
Build detailed delivery plan
. London estates strategy including Finsbury Dials
Agree Option A (Exit 2" floor FD) vs Option B (consolidate into FD and uplift)
Agree refreshed design principles.
Produce deployment plan for design principles
Detailed design for FD especially safe area and tech garage with detailed costing
Agree each proposed uplift initiative for FD and build detailed costed business case and delivery plans
. Strategy and progress on remaining admin sites (Bark Street Bolton)?
Agree the ambition for moving the HRSC into Chesterfield
Agree new lease extension to 1 floor with landlords and attempt to obtain a 2 year extension
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Contents
1. Context and questions
2. Training and Meeting Centre Overview
3. London Overview
4. Other dedicated admin sites
5. Fit with POL strategy
6. Next steps
Appendices
London Satellites Sites Sublet Analysis
Additional FD Space Requirement
Tech Enabled New Ways of Remote Working
rPrY s+
Longer Term Location Potential of Chesterfield
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Appendix 1 — London Satellites Sublet Analysis
Property Planned = ILease IPostcode IRent per IService [Rates per [Marketing IRent ‘Sale IComments
lomBexit expiry annum Icharge Iannum void Free I Price Indicative
date Yee (months) Potential works required Faas
‘St Peters Street /31/12/2020 IFreehold [ALL £30,000 IrYa £ 7,651 6 6 }£1.25m I Separate access, however works [Recommiszion right hand entrance to site and utilise existing,
lwouldberequiredtoseparate ——_Iintcmatwascessto2ndtoor Mack docrenrvtsingPOl
offices from welfare area in Repronde commato OL amin st curerlyon 2naae.
peorans ve arm power & asta wens
Wealdstone 131/10/2019 IFreehold IHA3: £50,000 In/al € 32,785 6 6 }€0.95m I Separate access, however the offices
are inatired state, Potential to. [tsctvfreexidor rom Sat orto POL were. Create ners
develop upper parts as residential =——_eeneadee nena mel i £10k - £20k
ccnp it oar fam abby POL wren Crate aerate
Camden High Street [30/09/2020 I03/01/2022I eae £30,000 al € 11,614 6 12 [n/a er ‘Some hema nheanen plat grape —
works required. Jeers
ClaphamCommon I20/09/2018 IFreehold Iswa 4st I € 70,000 In/i € 32575 6 9 I€2.3m__ Separate access, offices recently -
~s refreshed. Potential to convert Debrand: fire/security slarm works, power & date works. £53k - £10k
lupper parts to residential A
Colchester [24/12/2021 J24/12/2021Ic01 1PA\I € 20,000 A/a £ 3587} 6 12 [n/a nara ‘Space is in fair is ccueaume puna tt eeeae
St Peters Street =
Wealdstone
Se Show stoppers
Clapham Common + Average rental period 18 months
Colchester
Branch vacation date
Lease Expiry
‘Marketing period
Rent Free period
+ Low rent average c. £40k p.a.
* Separation costs of £135k
+ — Insitu tenant could frustrate vacant
possession freehold value of £4.5m
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Appendix 2 -— Additional FD Space Requests
Project Chameleon
Caroline Austin
23 (Hot basis) - Incl B/Bar
Reserved
33 Desks from 1/9/17 (in three scrum units)
25 Desks/1 x Large
Dept POMS Russell Tavener Meeting Room [15 Desks and 1 Small Meeting Room from ASAP
IT Dept/Projects Sharon Gilkes 32 Desks [18 Desksand 2 Breakout Tables from ASAP.
[4 Desks (forms part of increase to ground floor)
Corporate Services Dept Mark Underwood TBC Required ASAP
[Total 70 more desks , 1 meeting room , 2
breakout tables
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Appendix 3 -— Tech-Enabled New Ways of Remote Working
POL could create a “Digital Garage” in the FD canteen space and/or the Chesterfield Gym Space
s” Video & Voice Conferencing
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POL-( 002391 7
Appendix 3 -— Tech-Enabled New Ways of Remote Working
“We have access to the tools and services that I need to work effectively”
“We are able to communicate & collaborate more effectively”
“We work in what we would class as a modern working environment which evolves with us”
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Individual “We are able to provide appropriate access to sensitive data and assets,
without being location or time dependent”
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Appendix 4 - Longer Location Potential of Chesterfield
Chesterfield has attractive characteristics for locating more roles to
Peak
District
Dist: 13 miles
Drive: 24 mins Sheffield
‘Comm: 12 mins RemREES
Other: 2x Uni; HS2
Dist: 30 miles
Drive: 40 mins
Derby
Pop: 256k
Comm: 20 mins
Other: 1x Uni
Dist: 20 miles
Drive: 26 mit
Rotherham Tes omin’
Pop: 262k
Comm: 35 mins
Other: N/a
Dist: 25 miles
: Drive: 40 mi
Nottingham scat
Ree Comm: 35 mins
Other: 2x Uni
Dist: 32 miles
Drive: 40 mins
Doncaster
Pop: 306k
Comm: 40 mins
Other: Business School
Summary
* There are five major cities/towns
around Chesterfield, all within
commutable distance.
* Sheffield the third largest ‘district’ in
England.
* There are five major universities in
surrounding areas.
* HS2 will go through Chesterfield,
improving transport links.
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Appendix 4 - Longer Location Potential of Chesterfield
Many blue chips organisation based in the region
Based in the area (i.e. HQ) Major presence (i.e. call centres)
ABU P 6 C/horntons) pl
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SPORTS AVIVA CONTUTTING.AECHNGTORT OUTSOURCING
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Appendix 4 - Longer Location Potential of Chesterfield
What recruitment agencies have to Say...
What roles are can be recruited for?
Finance, Procurement, HR
What roles are challenging to recruit for?
Digital marketing because it is a relatively new skill, so requires moving fast
What are candidates seeking in the area?
Challenging work, career progression and work-life balance
Recruitment in different levels?
Experienced hires easier as people are willing to commute and value work-life balance
Early career talent mixed bag, some want to get on property ladders, whilst others have commitment to training contracts
What would be Post Office’s advantage in the area?
Prestigious brand, work-life balance, pays well relative to other organisations
Other comments
There are some big organisations within Derbyshire area which recruitment agencies would approach for talent
221 Source: Distinct Recruitment
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Appendix 5 - FD Design Principles refreshed
Proposed Refreshed FD Design Principles
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This document is mainly a refresh of the original design principles for FD, which we have drifted away from. It has been enhanced with additional principles, based upon our experience
of operating from FD and a review of other businesses corporate centres in London.
Reviewers: Mark Ellis, Martin Kirk, Angela Van-Den Bogerd, Sharon Gilkes, Bob Hammond, Steve Norris, Joe Connor
Assumption that the 2°¢ Floor will not be sublet
Meeting room use principles
* 6 new meeting rooms and screened zones (and possibly more privacy booths) will be created from layout changes on the 1** 24 and ground floors such as the Servest Room, Video
Room, and creating screened off areas or a tech garage in thew café area on the ground floor
* No meeting rooms for single occupancy (subject to special circumstances)
* Stop unused block bookings by exec and stop removing rooms from Condeco
* Conference call meetings will be encourage as an alternative to face meetings
* Block booked meetings room space should primarily be at satellite offices or FW
* Meetings rooms across the London estate will be visible for booking
+ Anumber of meeting rooms will be short stay— 30 mins max
* Meeting room booking will be encouraged on non-peak days (Monday and Friday)
* Meetings will be encouraged more at suppliers’ sites
* Contractors (not interims) and outside parties will be restricted from booking meeting rooms
* Meeting rooms at FD used for training will be encouraged on Fridays
* Projects using meeting rooms will be reviewed to be moved to move to London satellite sites
* All project mobilisation decisions will include a location review
* Offsite 1-1, 1-2 meetings such as in Costa and Baristas will be promoted unless meetings are confidential
* Misuse such as logging in but then not using will be chased up and addressed immediately
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Culture principles
* Video conferencing enables less f-f meetings and meetings will be held in optimal locations rather than default to FD
* FD staff will be encouraged to work out in the network more to increase front line engagement by using the FS rooms
* 66 additional desks will be added in obvious places where gaps exist on the ground ,1** and 2" floors. This swill not have a significant visual effect on the floors
* Neighbourhoods will be redefined with a mix of perm and hot desks clearly identified. Signage implemented to clearly mark out zones/desks with daily sign in sheets available at
desks/zones.
* Perm desk based people at FD (1/3rd) will work in “activity zones” and defined on the business need necessity to be permanently and daily near Moorgate stakeholders or special
needs and not on personal preference
* Projects will be encouraged to be hosted at other sites including FW, with location controls in place unless there is a proven case for permanent daily Moorgate stakeholder access by
the full team
* Remaining 2/3rd of employees should work from alternative locations or LiW and hot desk when stakeholder access is needed
* LiW and field based people will not be allocated perm desks and reviewed to increase work from home more
* A hot desking culture will be re-launched, they will be clearly marked and used on first come first served basis
* Building use will be encouraged more on Fridays and Mondays to smooth demand across the week
* Create a space where P.O.L identity and values are reflected and further echoed. Ground Floor redesign with more café style working will create this. Ground Floor redesign/changes
to more café style or “tech garage’.
* While celebrating its heritage, creating a dynamic, modern and an inspiring workplace and visitor centre.
+ Warm and inviting feel with increased capacity in the café area, open and natural but with more practical furniture for meeting use
* Managers and leaders will be requested embed more flexible working for their teams
* Spare unused FS offices in branches should be encouraged both for the use of space and to “get HO people out into the business more”
These principles will be taken to GE members for consultation and agreement. Leaders will be asked to apply these principles to assess the impact of reduced demand levels at FD in the
following order of priority...
* Hosting projects at other sites
+ LiW workers not being based at FD
+ Smoothing out demand to make more use of Fridays and Mondays space at FD
* Contractors (who aren’t filling interims) reducing their demand at FD (IR35)
* Where managers could allow more flexibility and agile working in their team
* Relocating some teams to Camden until 2022 and Clapham until closure
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Security
* Move reception to front of building
* Install turnstile barriers at front of building
Facilities
* The Directors (G.E.) Hub will be retained
+ If canteen is closed coffee and self-serve drinks and snack facilities will be available.
* Simple increases of 66 desks on 1* and ground floor will be actioned where possible
* Desk types (perm, hot or touchdown) and neighbourhoods will be more clearly identified
* Video conference enables in some meeting rooms
* The café area design will be to be more “tech garage” and have at least 20 more seats
Making change stick (do we need an enforcement culture?)
* We have to enforce the policy. As could be seen from the presentations at L300 event — some people have not done money laundering to timescale — what are the consequences of
that for the people — this was meant to be mandatory.
* Meeting rooms - booking restricted to a smaller community such as PAs who control optimal use
* Managers will be tasked to do a full re-assessment of their team locations and ways of working in accordance with these design principles
* Quarterly reviews of building and meeting room use will be reviewed for non-compliance to the design principles
* Communications will be developed that show we are considering the wider business which includes cost efficiencies at FD
* All department heads will be asked to fully review their staff working locations based on applying these principles in order to assess the reduction in demand at FD
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Appendix 5 - FD Design Principles refreshed
Original FD Design Principles
10 Ways of Working Principles
‘they willbe responsible for determining the allocation of desks using the principles evened inthis document
thes own eaightourhood which will include space for personal assatarcs
2. Work Location: Employees who arehhome based, field based or non-London based will not have a permanent desk
3. Hot-desking’ The majoray cfempleyees wile required wo hot-desk Qusiness wide expectation shat pemanene desks
willbe the exception witha minimum of 2/2rds hoe-desking). Huggers® wil have a permanare desks and Hoppers® will be
mobile (both wil sill have Finsbury Dials as contractual location)
4. Permanent Desks: Huggers willbe detmined using transparent crterla based on business or personal
requirement. Lead teams to dcarmine whicheoles are hugger (incuding SLT) as part of a mapping exercas in Saptambye
‘Seem ming ppt a anemetnyemanenind mide ohn henry er
(errata gps bgp
ey)
10 Ways of Working Principles (contd)
a Proper
space Project work wil reed tw ince aspace request as patofaseparate busines case submmasion (including existing
popes)
6 Storage’ Huggers wil have permanent storage (slim pedestals) while hoppers wil have access to individual personal
locks. Thar willl be separate tam sage wbave aquired (algal equramancs for confer) but the emphasis
willbe on becoming more Giga (ie. ice ew our days)
7. Costing: Desks willbe coss-charged ta functions. Additional vaguest for space willbe factored ito businass casas
which hu peoparty wam will suppor as apprpslate. Convery, ams canhandback ipaca as appropriate and ual a cot
savieg
8. Desk Booking: Desks willne be pre-bookable
9. Touch-down desks; Touch-down desks (70) willbe avilable on afexecome fist served bais
10. Clear Desk Policy: This willbe a daar desk policy (no towels on sun loungers)
—
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POST OFFICE PAGE 1 OF 8
GROUP EXECUTIVE DECISION PAPER
POca Interest Rate Swap
Author: Mark Dixon Sponsor: Alisdair Cameron Meeting date: 14 September 2017
Executive Summary
Context
The Department for Work and Pensions (“DWP”) engaged POL to set up and run the Post
Office card account service (“POca”) in 2002. Claimants are able to receive benefit payments
into a POca which they can then withdraw in cash either in branch or viaa PO ATM. POL
receives a fee for providing this service. The current suppliers contracted by POL to provide
this service are DXC and JP Morgan. JP Morgan hold POca cash (in anticipation of
withdrawals by claimants ) and pay interest on the balance to POL at 1 month GBP Libor less a
12.5 bps management fee. This arrangement exposes POL to changes in 1 -month LIBOR.
At the July Board meeting a paper was presented asking the Board to give
consideration to entering into a 3-year amortizing interest rate swap under which POL
would pay 1 month GBP Libor and receive a fixed rate. This effectively “locks in” the
interest income on a portion of the POca balances at a fixed rate for a three-year
period would provide certainty around a portion of the interest component of the POca
income statement.
The Board authorized the Group CFOO, following ARC approval, to execute an interest
rate swap if considered advantageous.
This paper sets out the steps required to execute an interest rate swap and considers
how we plan to manage the risks associated with that swap execution.
Question addressed in this report
1. What transaction is being proposed; how would it be structured; and what pricing
is hoped to be achieved?
2. What steps need to be taken to execute the swap?
3. How will POL manage the execution risks around this transaction to ensure tightest
possible pricing?
4. What is the accounting treatment for the transaction?
5. What documentation is required to execute the swap?
6. What are the implications for POL if interest rates differ from those currently
expected over the three year term of the swap?
7. What are the economic and accounting implications if the swap has to be unwound
before maturity?
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8. What other considerations need to be taken into account when executing the
swap?
Conclusion
We believe that it is advantageous for POL to enter into a 3-year amortising interest
rate swap under which it pays 1-month GBP Libor and receives a fixed rate.
This swap simply “locks in” interest income over the three year period at current rates
to give certainty around a portion of the interest component of the POca income
statement over the next three years. It should not be seen as a bet on future interest
rates or as a way of securing a higher interest income in any given year.
We believe that the steps set out in this paper will allow us to appropriately address
execution risks around the transaction and that execution and documentation can be
completed in the timescales envisaged.
We will ask approval from the ARC at its meeting on 25 September to go ahead with
the transaction as described with delegation of authority to the CFOO to: (i) agree
the choice of swap co-ordinator bank; (ii) agree a range of pre-agreed pricing within
which the Head of Treasury can execute the transactions; and (iii) execute any
documentation required in connection with the transaction, including ISDAs and
novation confirmations.
Input Sought
The GE is asked to approve the execution of an interest rate swap and
subsequent submission to the ARC for approval.
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The Report
What transaction is being proposed; how would it be structured; and what
pricing is hoped to be achieved?
1. Transaction - We are looking to enter into a 3-year amortising interest rate swap
(the “swap”). POL will pay 1 month GBP Libor and receive a fixed rate.
The net exposure to variable rates and hence the amortisation profile for the swap has
been prepared by the POca team with the help of Rothschild. It has been calculated
by:
a) estimating the gross POca cash balance over the next three years building in a
month-on-month reduction to allow for the decline in the business over the period;
b) adjusting this down to allow a buffer which reaches 20% by April 2020;
c) reducing this by the projected amount of the variable rate debt (i.e. the Working
Capital Facility and the NRF);
d).
The notional value therefore reduces from £1,200m at inception to £627m at maturity
in September 2020.
2. Structure - Given the size of the notional value of the swap and the requirement
for the derivative counterparties to take credit risk on POL we propose to execute the
swap with a group of 2 to 3 banks.
We have asked RBS, Barclays and Lloyds to participate. The transaction can be
completed with two banks but having a third bank allows pricing competition. Having
three banks would be ideal because it allows access to ancillary business for a wider
group of our relationship banks.
3. Pricing — Final pricing (i.e. the fixed rate received on the swap) will be a
combination of: (i) the mid-market rate at execution; (ii) a market execution cost;
(iii) and, the credit and capital charges imposed by the banks.
The mid-market rate will be the rate that is obtained in the market when the swap is
executed. We aim to optimise this with our execution strategy (see later). As at the
6 September the mid-market rate on the proposed swap was 0.451%.
The market execution cost is effectively the fee that the bank is earning for the
transaction. We estimate that this will be between 0.75bps and 1.5 bps depending on
execution strategy adopted. This cost will be pre-agreed with the co-ordinator bank.
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We will seek to minimise this by having three banks quote for the market co-ordinator
role (see below).
Credit and capital charges will also be pre-agreed. We can seek to minimise these
through negotiation and the auction process. We estimate that these will be in the
range 2.0 to 2.5 bps.(i.e. 0.02% to 0.025%).
Based upon the mid-market rate of 0.451% at 6 September the all-in rate would have
been between 0.423% and 0.411%.
How will POL manage the execution risks around this transaction to ensure
tightest possible pricing?
4. Pricing Transparency - because the swap is amortising and is against 1 month
rather than 6-month Libor it is non-market standard and therefore the mid-market
price cannot be seen directly on market information screens. POL do not have direct
access to Bloomberg or Reuters pricing tools.
There is therefore a risk that we do not achieve the correct mid-market pricing
prevailing in the market at execution.
We will manage this risk by requiring the co-ordinator bank to provide screenshots of
pricing models from Bloomberg at execution and by holding dry runs of the pricing
and execution process.
5. Execution Strategy — the notional size of the swap is large for a single trade. There
is a risk that such a size of trade itself causes the market to move against POL during
execution.
To manage this risk we will appoint a market hedge co-ordinator. The co-ordinator
will execute a market hedge and will then sell down participations to other banks
through an auction process.
The choice of market hedge co-ordinator depends on (i) market execution fee quoted
by the bank and (ii) bank’s ability to execute the trade.
RBS, Barclays and Lloyds have all indicated their interest in performing this role. We
believe that RBS, Barclays and Lloyds all have the necessary credentials to execute a
swap of this size on behalf of POL. The choice of market co-ordinator will therefore be
a function of market execution cost fees.
As part of its delegated authority to the CFOO we will ask the ARC to delegate
authority to approve the choice of co-ordinator bank proposed by Treasury.
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We will agree a final execution strategy with the co-ordinator bank that minimises
execution risk to POL (e.g. breaking the trade down into several “clips”). Execution
charges will vary depending upon the execution strategy adopted.
6. Execution Steps - the proposed swap will not be executed until contracts with
current suppliers, JP Morgan and DXC, have been finalised and executed. In order to
execute the swap the following steps need to be completed:
- Execute ISDA Agreements with RBS, Barclays and Lloyds
- Obtain confirmation from banks that they are credit approved for transaction
- Complete banks on-boarding documentation
- Based on preliminary term sheet request indication of (i) market execution
costs, (ii) credit and capital spread and (iii) size of appetite for final hold
position on the swap
- Appoint swap co-ordinator bank
- Agree final market execution strategy with co-ordinator bank
- Perform dry runs for pricing and execution
- Execute market hedge
- Use auction to sell down participations to other banks
-— Complete novation confirmation documentation
We have asked each bank to obtain credit approval to hold up to 50% of the
transaction. In this way we can complete the transaction with either two or three
banks depending on pricing.
Treasury will provide a recommendation on the market co-ordinator role for CFOO
approval.
To ensure efficient execution on the day(s) that the swap is transacted, Treasury will
obtain approval for pre-agreed range of pricing from the CFOO within which it can
execute trades together with agreement of periods for which this pre-agreed range
will remain in place.
What is the accounting treatment for the transaction?
7. The Financial Control team has prepared a paper setting out the accounting
treatment for this transaction. The position paper is with EY, our external auditors,
for sign off. We anticipate obtaining agreement on this position before the ARC
Papers are finalised.
The swap is hedging a portion of the interest cash receipts from the POca balances.
Since the cash flows are deemed to be highly probable, and provided the swap is
correctly designated and it therefore provides very little hedge ineffectiveness, it can
be designated as a cash flow hedge.
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The portion of the gain or loss on the hedging instrument that is determined to be an
effective hedge should be recognised directly through reserves in Other
Comprehensive Income (OCI). These gains or losses can then be recycled through
the income statement in the same period in which the hedged interest income is
recognised. Any ineffective portion must be recognised immediately through the
income statement.
What documentation is required to execute the swap?
8. ISDA Master Agreement and Schedule - POL will need to execute ISDA agreements
with each participating bank in advance of any transaction. An ISDA Agreement is a
standardised agreement under which market participants execute derivative
transactions.
Although the agreement is standardised it still requires negotiation in certain areas
and Linklaters have been providing advice during this process.
The ISDA will remain in place and will allow POL to execute other derivative
transactions should it wish to in future.
In anticipation of the transaction we are putting in place ISDAs with three banks
(RBS, Barclays and Lloyds). The ARC will be asked to delegate authority to the CFOO
to execute these ISDAs on behalf of POL. We anticipate executing the three ISDAs
shortly after the ARC meeting.
It should be noted that the ISDA documentation contains change of control wording.
If the Post Office is no longer owned by government this would constitute an event of
default under the ISDA. Such language does not appear unreasonable and allows the
banks to better evaluate POL from a credit perspective.
9. Other Documentation - various other documentation will need to be signed in order
to execute the swaps, including the banks’ on-boarding documentation for trading and
the novation confirmation documentation for the sell down of the swaps to the
participating banks. We will ask the ARC to delegate authority to the CFOO to execute
this documentation.
What are the implications for POL if interest rates differ from those currently
expected over the three year term of the swap?
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10. Over the term of the swap:
a) If 1-month GBP Libor is less than the fixed rate on the swap then the bank will pay
POL the difference between the fixed rate on the swap and 1-month GBP Libor.
b) If 1-month GBP Libor is more than the fixed rate on the swap then POL will be
required to pay the bank the difference between 1-month GBP Libor and the fixed
rate.
11. Since the yield curve is upward sloping POL would expect to receive cash in
from the swap during the initial period of the swap and then pay cash out to the bank
over the latter period of the swap.
12. If actual out-turn rates follow the yield curve when the swap is put in place
there is no benefit to POL. POL is simply fixing in its interest receipt. (There is of
course the cost to POL of the swap in the form of the credit and capital charges and
the market execution cost.)
13. If interest rates rise at a faster rate than that implied by the yield curve when
the swap is entered into then there is an opportunity loss to POL. POL would not
benefit from the higher interest income from the POca balances because it pays this
across to the swap counterparties in the form of higher payments (or lower receipts)
on the swap.
14. The opposite is true if rates rise at a slower rate than that implied by the yield
curve when the swap is transacted.
What are the economic and accounting implications if the swap has to be partly
or wholly unwound before maturity?
15. There is a risk that POL may want, or need, to unwind the swap in whole, or in
part, before its maturity date. This may be as a consequence of all or part of the
POca balance no longer being in place to be hedged. Account volumes are set to
reduce significantly over the course of the contract as DWP migrate working-age
account holders to mainstream bank accounts and as the pension customer base
shrinks.
Depending on prevailing market conditions there may be a cost to unwinding the
swap. This may be substantial.
We have conservatively estimated this breakage cost to be £13.75m in the scenario
when the swap needs to be immediately terminated and prevailing Libor rates have
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increased to 1.00% (compared to 0.25% at present). Given the current 1-month
Libor we believe that this is an appropriate stress test for a potential unwind.
In this scenario the full value of the breakage cost would be taken to POL’s income
statement on termination.
16. Weare managing this risk by executing a 3-year swap through to September
2020, rather than a longer dated swap, and by allowing for a 20% contingency when
estimating our net exposure to variable rates.
POL signed a new contract with DWP in 2015 to provide POca until November 2021
(with 3 one year extensions to 2024 at DWP’s discretion).
The POCA team believe that, given the time that it would take for customers to be
migrated to other products, they have sufficient visibility over the balance (after
allowing for the 20% contingency) to justify this risk over a three-year period.
What other considerations need to be taken into account when executing the
swap?
17. Managing Counterparty Risk - in entering into an interest rate swap POL takes
a credit risk on the counterparty bank. At inception the fair value of the swap will be
zero but if market rates move in favour of POL it may be in a position such that the
mark-to-market results in POL being owed money by its bank counterparties.
It should be noted that the risk is around the mark-to-market value of the swap
rather than its notional value.
POL will manage this risk by spreading the hold positions over 2 to 3 banks.
18. EMIR Trade Reporting - on entering into the swap POL will assume certain
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Post Office Ltd - Confidential
GROUP EXECUTIVE Reference: GE 17.08.17
Date: 17.08.17 I Venue: Finsbury Dials Time: 09.30hrs to 12.30hrs
Present: In Attendance Apologies
Jane MacLeod (Chair) (JM) Amanda Radford (AR) Paula Vennells (PV)
Kevin Gilliland (KG) Paul Swanton (Ps) Alisdair Cameron (AC)
Nick Kennett (NK) Ann Miller {item 2) (AM) Martin Edwards (ME)
Alwen Lyons (AL) Sean Leahy {item 2) (SL) Mark Davies (MD)
Rob Houghton (RH) Steve Norris (item 3) (SN)
Martin Kirke (MK)
Agenda Item 1
To review the Financial Results and the Business Scorecard and discuss any areas which are shown to have a
RED status.
. Financial performance continues to see the trends from the first quarter.
. Overall EBITDAS in P4 is £2.5m (£0.3m favourable to budget) and YTD EBITDAS is £4.0m (£1.5m
favourable to budget).
° Balance sheet headroom was £170m (with a loan balance of £580m)
. On the scorecard, the most notable adverse variance is the number of branches which stand at 11,581 at
the end of P4. We're required to be at 11,500 under the current funding arrangements. Noted that BEIS
had raised as a concern in their last financial review.
. Ongoing discussion about opening hours and contracts. Linked to the issues with branch finder and
accurate information for customers. Bring back to the GE for discussion. Need to be pragmatic about high
profile branches but must not set a precedent. Include this debate in the session on Retail strategy in
October.
. KG believed that we would get close to the 11,500 but not breach it.
. The target was not in the funding agreement but would been seen as symbolic by stakeholders if it was
breached. The 11,500 gateway target for the LTIP was a yearend measure, as clarified to GE by Natasha
Wilson in an email.
. Digital measure on the scorecard uses income factors to report and has been affected by the decision to
focus on the yield of insurance products rather than the volume sold. The use of income factors makes the
measure ineffective as it does not take account of the POMS decision to optimise value. Need to ensure
this measure is changed when the scorecard is reviewed.
° The line-manger engagement score of 61% is now showing but there can be no target set for this because
of the change in the survey in 2017.
. KG challenged the narrative on slide 4 of the pack pointing out that branch compliance had not
deteriorated with the expansion of the CRM programme. The branch compliance was a basket of 13
measures and the worsening to amber had been affected by the increase in the number of visits. NK was
not concerned by the result, although agreed it was confusing and more detail would be provided at RCC
and ARC.
° NK asked that POMS profit be reported on a separate line in future packs
. Retail income continues to perform better that budget with Mails, Retail & Lottery and Govt. Services all
contributing above target
. Telecoms income was behind because of delay in the New Call deal, but a higher than budgeted HP &
Dual customer base and lower attributable costs have delivered £0.1m favourable to budget.
. FS almost on target, insurance and banking favourable. MoneyGram is a concern especially sales to
Eastern Europe. Bring MoneyGram strategy back to GE in November as part of the wider Payments
business
. The 5+7 forecasts will be led by the Finance Directors in the first week of September working towards
taking the reforecast to the Board in October.
. The GE receives monthly details of the operational performance and asked that the pack in future include
the change and investment spend.
. JM reported from a meeting with the Govt. that they are considering whether future funding should be
provided through equity, although there is no clarity on what this would mean. Govt. have an appetite for
more reporting: a 3 year strategic plan — which they already sign off; an annual statement; and quarterly
reporting of delivery against the strategy. They accept that POL operates with an independent Board and
Govt. do not want to hypothecate the funding but want to be able to track the spending against outcomes.
The Board will need a discussion on how they respond to any changes.
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At the moment all discussions were directional.
The GE agreed the following actions:
. Add Retail strategy to the October GE agenda AL/KG
* Include MoneyGram in the paper for November GE NK
. Report POMS profit as a separate in future packs AR
. The financial performance pack in future to include the change and investment spend
Agenda Item 2
Product Manager Role (PM)
Feedback on work to date for the Product Manager Role.
SL & AM joined the meeting
. The PM role varies depending on the product and the upstream supplier. There is a significant difference
between managing a partnership with RMG or Bol and the distribution of their products, or the tendering
and sales component of bill payment contract.
Need to be clear about what we are asking people to do and what they are accountable for.
. Recent hires into FS have seen an improvement in capability and the same is planned for Retail.
Do we have the right skills to go out to get new business, and is this a PM role? However we are not
competing for business on a regular basis across the whole business. Mainly in bill payments, need to
make sure we have the capability to bid for work in that team.
. AM explained the diagnostic work with Cranfield to identify what is relevant for the roles and what training
modules could be available for individuals. The modules would include one on customer.
. RH asked if the training would include a focus on; digital thinking; digital leadership and customer
(systems thinking). It was suggested that Dr Sue Holt meet KG/NK&RH to discuss the Cranfield input.
. PM need to have end to end accountability for the product in the business irrespective of the supplier.
However this will have implications across the business, as could affect Chesterfield, Supply Chain etc.
. JM - this ties to the work on accountabilities. The RCC in September are looking at regulatory
accountabilities but the two pieces of work need to align.
. The GE discussed how the Cranfield work would be paid for. LS explained that the work could be funded
from existing Retail and FS&T budgets and the cost of the diagnostics and developing the modules would
be below OJEU threshold.
. Work would be undertaken to see if the courses could be funded using the apprenticeship levy as this was
still unclear, but if it could be used legitimately this would be done.
. Need to be honest with employees who sign up for this development about the commitment it will take and
the expectations of the business in return.
MK was asked to include an update on this development as part of a future HR strategy update
AM and SL left the meeting
The GE agreed the following actions:
. Organise for Dr Sue Holt to meet KG/NK&RH to discuss the Cranfield input. AM/KG/NK/RH
* Include an update on L&D training work with Cranfield as part of a future HR strategy MK
update.
Agenda Item 3
Finsbury Dials (FD) Review (verbal)
To update the GE on the Finsbury Dials review.
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SN joined the meeting
° FD discussion needs to be part of a longer term, wider discussion on people strategy and where we need
people to work, however there is a tactical issue now as we are short of space.
. Might save £1.7m by releasing a floor but what would be the consequences of such a decision?
° SN explained that he had been looking at admin sites including FD, Bolton, Glasgow and CTOs (Counter
Training Offices). Glasgow was to be vacated at the end of September with people moving to
homeworking. In Bolton looking for a 2 year lease for 1 floor after which time the work would move to
Chesterfield. CTOs are under-utilised and could provide space for meetings and training facilities, which
would reduce the need to travel long distances, especially to FD.
. If people used technology instead of travelling to FD there could be a reduction in T&S. 73% of T&S is for
travel to internal meetings.
° RH stressed that Skype should work for meetings, but is compromised by poor wifi at external locations.
° There are also behavioural and cultural barriers, eg long meetings, requirement for people to be in the
room. Have to make a step change to working remotely. We could use part of the estate at very little cost.
. SN will involve RH and bring a proposal back to September for discussion.
° There is a proposal that we could reduce the capacity at FD by one floor saving £1.4m, or alternatively
keep this floor and bring people in to FD from other London sites saving £0.7m. However there is a
challenge that FD already feels crowded.
° One quick action would be challenge the need to have contractors to be based in FD. To not be caught by
IR35 contractors should not be ‘based’ at FD
. The FD lease is up in 2023. May need to develop the people location strategy: assess which small number
of jobs need to be in the London office; where do we need to be to attract talent; change in cultural
behaviour to allow people to work elsewhere; move Bolton work into Chesterfield; how easy is it to recruit
talent in Chesterfield. If end up with a smaller London office need capacity to house people where we need
them.
° What about a more innovative space? Could we create a digital garage, a customer/digital hub, with
flexible work areas
. The BCP test on Friday 25" should test people capability to cope with technology off site. Need to advise
people what to do if they do not have the facilities to work from home
SN left the meetin:
The GE agreed the following actions:
° GE need help to ensure they are getting the best out of the technology available for RH
meetings (eg SKYPE)
° Ensure that people know where the office sites are which can be used for skype SN/PS
meetings
. Introduce a control mechanism into the change programmes to define where
contractors will be based (mindful of the IR35 implications if they are based at FD), AVDB
should there be a desk charge to the programme for any FD desks?
° SN will bring back a decision paper in September after involving RH for technology,
MK for people and KG for CTO strategy. To include: CTO strategy, Plan for FD and SN/RH/MK/KG
London including a flexible innovative area/ digital garage hub option.
. The BCP test on Friday 25'" would test people capability to cope with technology off
site. Need to advise people what to do if they do not have the facilities to work from Ps
home
Agenda Item 4
The proposal to reduce full time reps is on track, this issue dominated the recent meeting between the
CEO and the CWU. CWU may put in a legal challenge based on discrimination for trade union activity and
sex discrimination.
CWU making it difficult as they will not respond or co-operate with discussions
Right that the business hold its line on the issue as we now have less staff and need less union reps.
RMG involving POL in their IA contingency planning although they still believe it will not happen. The plan
includes reducing collections to one a day from branches which would cause real operational problems,
especially where there is no space for storage
Decided to leave project Jay until after Christmas as do not want CWU to conflate this with any RMG
issues
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. Any planning for a Mails Christmas marketing campaign needs to be mindful of any possible RMG strike.
KG explained that the campaign is in the planning phase but no spend has been committed to date.
. Would any strike affect cash deliveries using RMG? This will be covered in the IA planning.
Verbal Update from Committees & Steering Groups
5.1 IRSG covered in item 4 above
5.2 CRG
Chair of Committees to update GE
AR updated.
. A gap of £8.5m now exists in delivering the £28m target. Need to focus on the cost reductions that can be
delivered.
. A new document is being introduced which will improve the reporting and controls.
. The apprenticeship levy is due for discussion on Monday 21*t August
Review of GE Minutes, Action Points and Updates
To update the GE on the actions taken and provide any information requested.
. Three actions were due:
13/07/17 H&S — check the fire escapes in the 4 clad buildings SN to respond
13/07/17 AOB — GE to let SN have additional desk requirements - CLOSED
13/07/17 AOB — FD accommodation - CLOSED
. GE Minutes for the meeting on the 13 July were approved.
For Noting
7.1 H&S Report
7.2 Forward Agendas :
© GE - September 2017 and Board - September 2017
For GE to note the papers.
H&S — KG updated the meeting on the Muswell Hill incident, nobody had been seriously injured, although a
claim was expected from a _ who had sustained bruising
Changes to Forward agendas
GE September
. Change ‘POMS and Strategy Update’ change to ‘POMS Update’
. MK to circulate update on Taylor report to GE, and pick any implications in
September
. ‘HR Strategy — regulations, accountability and cost including Senior Manager
Regime’ change to ‘Senior Manager Regime’
. ‘Product Simplification’ now added JM
. ‘Peregrine’ need 60-90 minutes added to the agenda
BOARD September
. ‘Modern Slavery’ does need to be approved by the Board — check minutes and if
not already done leave on the agenda but move to ratification
° ‘Peregrine’ need 60 minutes added to the agenda
. Change ‘POMS strategy’ to ‘POMS performance against strategy’
. Add ‘Annual Report and Accounts Approval’ (decision following ARC
recommendation)
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GE October
° ‘Health & Safety Deep Dive’
BOARD October
. ‘Health & Safety Deep Dive’
. ‘Project Jay’
Agenda Item 8
AOB
To discuss any additional items raised.
Data Issue
. NK reported that as part of the New Call migration a customer email had been addressed to the wrong
customer. This had occurred because he customer had two email addresses. Of the 60,000 customers
involved in the migration it was thought that 447 could be at risk, however after investigation it appears to
have been only one customer involved. Verbal advice suggests this does not need to be reported to the
information commissioner. NK to discuss any further action with JM
HNGA
. 1000 HNGA counters have now been rolled out. By September the run rate will be up to 70 a day. The
reconciliations are working well.
BCP Friday 25" August
. To ensure that the Business Continuity test is effective we need the comms to stress the need to maintain
as much BAU activity as possible
New ATOS account Director
e RH reported that the new ATOS account director was the father of Ben Cooke, Post Office Head of IT
Service Delivery.
e The two roles would not be involved in any negotiations between the two businesses
e GE asked RH to ensure that the Business was not compromised by their relationship, and that it is made to
clear to them both that they need to inform RH if any conflicts arise, as this is not an ideal situation.
Grenville Tower
. KG reported a meeting with DCLG, BEIS, Cabinet Office and the Gold Team following the Grenville Tower
disaster. BEIS were pleased with the support provided by Post Office, and have asked for a set of
standard procedures which could be used if required in the future. The aim is to have these procedures in
place by the end of the calendar year. The work has been appreciated and has emphasised the value in
the roll Post Office plays.
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Key
Outstanding actions for discussion at GE
Completed and action closed
Post Office Limited Group Executive Action Log Actions in white not due
REFERENCE ACTION Action Owner Due Date ‘ATUS
(GE Member)
IGE on 17th January 2017
17/01/2017: IT [Set up a skype GE meeting. Rob Houghton / [GE on 13th November [Still ongoing - challenges with network bandwith being investigated. ‘OpenI
Strategy / Action 10 Jane Macleod 2017
27/02/17: RH to consider how to address the need to review and I Jules Harris / Rob I29th September 2017 IDiscussed at Security Committee and Comms being owned by Julie Harris. Open
Operations / Action S Icommurnicate to staff what was and was not Houghton Update 08.05.17 - The code of business standards will be the vehicle.
permissible on the Post Office IT systems. Acceptable use is one of the chapters.
The standards are being worked on at present. Suspect it will be end of June
before they are issued as there are-lots of different departments involved.
Update 03/07/17 — still waiting for the code to be issued — the suggested
changes from other areas were complex. However, the annual Information
security and Data Protection training was brought forward which contains
relevant information on the subject. It was released 2 weeks ago. Currently
50% of support offices have completed it. Update 03/07/17 - Code of
Business Standards is being redrafted and final version will be ratified by GE
later this month. Current status of staff completing the Security and Data
Protection training is currently at 89.98%. Emails to line managers of those
who haven't completed is being sent w/c 14th August to close the gap.
Update 03/07/17 — Code of Business Standards is being presented at RCC on
13th September. Once agreed and signed off, this action can be closed.
IGE on 17th May 2017
17/05/17 : HR IBring a session on regulation, the timetable and effect [Martin Kirke / SeanIGE on 13th November ISuggest GE discussion on ownership. Open
Strategy (Part 1) / lof new regulation, accountability and cost back to the Leahy 12017
Action IGE.
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REFERENCE CTION Action Owner Due Date TUS
(GE Member)
GE on 14th June 2017
14/06/17 : Include KG and NK in the work on product profitability, [Al Cameron / Kevin]31st October 2017 [Due to fixed asset reinstatement work and ongoing audit work, product OpenI
Performance - Financial Iwith FDs and Amanda Radford. Gilliland / Nick profitability in current state system environment has been delayed and will
Results & Review of Kennett start again in early September. This will run concurrently with the hierarchy
Business Scorecard / land chart of accounts work in back office transformation. Update in October.
Action 2
14/06/17 : Include Brand and Brand marketing on the GE agenda. Mark Davies / IGE on 19th October [This has been agreed to move from July, now scheduled on the agenda for Closed)
Performance - Financial Kevin Gilliland 2017 JOctober 2017.
Results & Review of
Business Scorecard /
lAction 3
14/06/17: [Set up a review on the Santander security rules towards] AlCameron [30th November 2017 IUnderway. Open]
Cash Management / _Ithe end of the calendar year.
Action 1
Performance - Financial
Results & Review of
Business Scorecard /
lAction 2
the funding agreement and if so clarify the target and
Ithe consequence of any breach.
14/06/17 : Bring Cash product strategy back to the October GE. I Martin Edwards / [GE on 19th October update: This will be discussed at the October GE. Closed
Cash Management / AlCameron [2017
Action 4
14/06/17 : For IFuture GE agenda to include H&S Deep Dive. Al Cameron / IGE on 19th October [Scheduled on the agenda for the 19th October 2017. Closed
Noting - H&S Report / Alwen Lyons I2017
[Action 1
GE on 13th July 2017
13/07/17 : MK to provide a briefing note to the GE on the effect of I Martin Kirke — I11th September 2017 ICirculated to GE by John Whitefoot on Friday 8th September 2017. Closed
ICEO Update / Action1 Ithe Taylor report on ‘modern workplace practices’ on
mainstream employment.
[13/07/47 : Bring a paper on the new Marketing structure and Nick Kennett [GE on 19th October I Scheduled on the agenda for the 19th October 2017. Closed
ICEO Update / Action 2 strategy to a future GE. 2017
13/07/17 : Check if the number of branches is a requirement for Martin Edwards I31st August 2017 Confirmed that requirement to have 11500 branches is in the funding Closed
lagreement, with provisions to enable BEIS to reduce funding if we fall short
of this target. Similar provisions expected in new funding agreement,
although we have negotiated some additional flexibility to allow for
ltemporary shortfalls.
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REFERENCE
ACTION
Action Owner
(GE Member)
Due Date
STATUS
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Digital Roadmap and
IATOS TOM Update /
Action 2
the cause, effect and value for PO social media work.
12017
13/07/17: RH, MK, ME work out what is required to embed digital] Rob Houghton / IGE on 13th November [Ongoing — suggest a GE discussion at a future GE session.
Digital Roadmap and _Isystems thinking into the organisation. Martin Edwards / I2017
IATOS TOM Update / Martin Kirke
Action 1
13/07/17: IT IGE session on social media landscape, to understand Mark Davies _ [GE on 13th NovemberIOn the agenda.
[13/07/17 :
Crown Network
Development / Action
2
Return to GE with the plan on how the white space
initiative will be taken forward,
Tom Moran / Julie
Thomas
29th September 2017
13/07/17 :
Sparrow Update /
Action 1
IGE noted the briefing and requested that a further
update be provided to GE and the Board following the
case Management Conference. This update should
include an assessment of the potential impact on Post
lOffice and its business and operations of the range of
possible outcomes, based on the issues to be
lconsidered through the Lead Cases.
Jane MacLeod
IGE on 13th November
12017
Financial Results &
Review of Business
Scorecard / Action 2
IGE is on 17th August 2017
17/08/17 : Retail strategy to be added to the October GE agenda. Kevin Gilliland IGE on 19th October IScheduled on the agenda for the 19th October 2017. ClosedI
Performance — 12017
Financial Results &
Review of Business
Scorecard / Action 1
17/08/17 : Include MoneyGram in the paper for November GE. Nick Kennett — [GE on 13th November Open
Performance — 12017
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REFERENCE ACTION Action Owner Due Date ‘ATUS
(GE Member)
17/08/17 : Report POMS profit as a separate in future packs. Amanda Radford IGE on 14th POMS EBITDAS performance will be shown separately in the P5 pack (for 14
Performance — ISeptember 2017 September GE).
Financial Results &
Review of Business
IScorecard / Action 3
[17/08/17 : [The financial performance pack in future to include the I Amanda Radford IGE on 14th The change and investment analysis will be changing for the PS pack although Closed
Performance — Ichange and investment spend. lSeptember 2017 lwe expect this to evolve over coming periods.
Financial Results &
Review of Business
IScorecard / Action 4
17/08/17 : Include an update on L&D training work with Cranfield I Martin Kirke [31st October 2017 OpenI
Product Manager Role as part of a future HR strategy update.
/ Action 2
17/08/17: Introduce a control mechanism into the change AngelaVanDen I3ist October 2017 _ [Ongoing. OpenI
Finsbury Dials Review /
Action 3
programmes to define where contractors will be based
(mindful of the IR35 implications if they are based at
FD), should there be a desk charge to the programme
for any FD desks?
Bogerd
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POST OFFICE PAGE 1 OF 7
POST OFFICE GROUP EXECUTIVE
Performance Review — Health and Safety
Authors: Martin Hopcroft Sponsor: Al Cameron Meeting date: 14 September 2017
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:
2.1 What is going well across health and safety and what are the current activities?
2.2 What are we doing to mitigate the key risks, including driving and robberies?
2.3 Are there any significant emerging risks?
Conclusion:
1. Accident Performance, including absence accidents and lost days have returned
to normal in July and August (see Report-H&S Metrics). Benchmark data has
also been requested from suppliers/insurers for reporting in October to GE & ARC.
2. Mitigating action has reduced road risk which remains at a low level. The Road
Risk Policy is being reviewed and an overarching policy will be developed for all
business drivers (including those using personal cars).
3. Whilst there were only two CViT attacks in P5 and P6, Post Office robberies
remain high with a number of initiatives being deployed in hot spot areas,
however trend is now downward.
4. The overall level of Property risk at 31st August was 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. A
serious signage incident on the 3rd August has increased the current ‘building
fabric’ risk to high, whilst measures are put in place. Signage checks are being
undertaken by CBRE across the whole estate and will be completed. Current
property statutory compliance is good at 95.63 and we are now tracking
remedials with 80.24% completed. Current fabric cladding checks have been
reported ‘clear’ with no remedial work required.
5. Following the H&S deep dive review, a number of actions are progressing (see
final page), including a review of road policy, guidance for lone workers, safety
of vacated buildings, competency and statutory compliance. A 3 Party Audit
will be arranged in Q3 to review the Post Office Safety Management System.
6. Anumber of initiatives are being developed to raise awareness of mental health
support and resources, including MH Awareness Workshops, and 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 and content of this
report.
Strictly Confidential Health & Safety Report Aug 2017
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Summary of Safety Performance - YTD Period 5 (Aug 2017)
All Accidents — Monthly - Period 5
(Target to achieve a 5% year on year reduction)
Directly Managed Branch
Accidents PS YTD
25
20
15
10
0
PL P2 P3 P4 PS
2016/17 2017/18
Accidents have returned to normal levels and are consistent with 2016/17.
There have been 62 accidents YTD compared to 61 in 2016/17.
Causation is consistent with previous years in DMBs and due to falls indoors,
lifting and handling and stepping and striking. Whilst stepping and striking
and non RTA vehicle related accidents have increased in Supply Chain
recently, lifting and handling related incidents have reduced.
‘There was 1 lost time accidents reported in P5 with 10 lost time accidents
YTD 2017/18 and 277 total lost days which is a 5% decrease compared to
2016/17 but a 17% decrease compared to 2015/16, Cumulative Trends can
be seen per 000 employees in the graph below. Total lost time / 000
employees has risen by 20%. Trauma related total lost days, following an
attack, are 60% down (36 days 17/18 v 86 in 16/17).
Days lost due to accident / 000 employees -
Cumulative
PL P2 P3 P4 PS
—2015/16 ——2016/17 ——2017/18
60.0
50.0
40.0
30.0
20.0
10.0
0.0
Post Office total lost days: 33 in Period 5 due to an ongoing absence in DMB.
DMB total lost days P5 YTD : 153 (96 in 16/17) - 1 slip/trip, 1 lifting, 1 fall
Supply Chain tot lost days P5 YTD: 141 (109 in 16/17) 1 RTA, 3 falls, 1 lifting
Support total lost days P5 YTD : 6 (6 in 16/17)
Post Office CViT Robberies — P4 (July 17)
There was 1 incidents reported in July v 5 in 2016/17 and 8 YTD v 14 YTD in
16/17. Trend is being monitored closely, Task Force vehicles deployed in usual
hot spots with cross pavement observations. Merseyside identified as current
industry hot spot area. Regular Security team attendance at monthly
‘Operation Guardian’ meeting to highlight and mitigate against CViT criminality
in the area.
30
25
20
15
10
5
tt)
Year to Date
15/16 31
16/17 22
a17/18 23
Supply Chain
Accidents P5 YTD
30
25
20
15
10
5
0
Year to Date
15/16 31
916/17 21
@17/18 36
Post Office (All branch types)
Robberies ~ P4 (July 17)
There were:
(152 incidents in 16/17 v 104 in 15/16)
13 incidents in April v 3 (16/17)
15 incidents in May v 7 (16/17)
8 incidents in June v 11 (16/17)
4 incidents in July v 8 (16/17)
22 burglaries YTD v 34 in 2016/17
69 compared to 129 rolling 12 mth
Recent trend is reversing.
A review of causation and mitigating
activity has been undertaken by the
Security Team including TORCH visits to
hot spot branches to verify for compliance
to security standards.
2017/18 P4
Violence - 1 vs 2 last year
Injuries - 0 vs 2 last year
Weapons - 12 (6 firearm) vs 9 last year (3
firearms)
Strictly Confidential
Health & Safety Report Aug 2017
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1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
LTIFR - Lost Time Incident Freq Rate
PL
——<LTIFR DMB) —==—=LTIFR Supply Chain —=eLTIFR Post Office —meLTIFR Target
P3 Pa PS
Lost Time Injury Frequency Rate (LTIFR) - Period 5 YTD
Supply Chain
YTD P5 - 0.704
2016/17 out turn - 0.586
2017/18 target - 0.500
All Post Office - Employee
YTD P5 - 0.303
2016/17 out turn - 0.168
2017/18 target - 0.180
Road Risk
P4 YTD Road Traffic Collisions
* 33 RTC's - YTD.
+ Sat fault, 3 not at fault
* 4 minor RTC’s, 4 major in
respect of damage costs.
* Some additional analysis is being
done regarding fleet size, staff
hours and headcount for future
reporting.
Comparing 2016 v 2017
* There were 77 RTCs YTD in
2016/17 v 33 this year (17/18),
a 57% reduction YTD.
* At fault RTC’s were 42 in
2016/17 and have reduced to 20
in 2017/18, a 52% YTD
improvement
Enhanced MI and accident analysis is
starting to be provided and shared and
will be included in future H&S reports.
An overarching Road Risk Policy, with
improved training and compliance checks
is being developed by the Fleet
Management team to cover Commercial
Fleet, Business Cars and Personal Car
use.
Driver Training is being developed and
will be launched on Success Factors asap.
90
oC
5
0
0
y
Pi P2 P3 P4
Road Traffic Incidents - Cumulative
WAI 16/17 MAI17/18 MAC Fault 16/17 mAt Fault 17/18
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Summary of Wellbeing Performance - YTD Period 5 (Aug 2017/18)
« The overall attendance level remains stable at 96.8% YTD P5 (August 2017/18). Short Term absence
is 1.0% YTD and long term absence has increased to 2.4% YTD. Supply Chain Long term sick
absence has increased to 3.1% and DMB LTS increased to 2.9%
+ Mental health related absence remains the most common cause of long term absence and there is an
increase in lost days in Directly Managed Branches. Some additional analysis is being undertaken by
our Occupational Health and HR Service Providers to understand trends and areas of concern to
target intervention.
+ Proactive activity across the business, includes ‘positive mental health awareness’ sessions for
colleagues, additional awareness training being piloted for line managers and the introduction of
Mental Health First Aid initiatives. The recruitment approach for MHFA is being developed with the
HR Business Partners and OH Assist ™ and training courses planned for September and October.
There is a GE sub-committee meeting planned 5'" Sep to discuss and agree support for the Mental
Health and Wellbeing Plan and initiatives.
Business Area Absence Performance v Target - P5 YTD 2017/18
2017/2018
Sick Absence %ge
Period
o1
Period
02
Period
03
Period
04
Period
os
Y.T.0
Totals
(centRay T0096 I" 0.090) 5.09%] 0.09%] “0.0941 0.996]
[GHIEF FINANCE & OPERATIONS OFFICE I 3.4%[ 3.30%] 3.20%] 3.60%] 4.0%] 3.5%[ 3.40%]
FIN: FINANCIAL CONTROL ML 0.2%I 2.3% I __3.7%] _1.9%] _2.0%I_1,9%I__3. 3%]
FIN: SUPPLY CHAIN 4.0%I 3.7% I 3.9%] 4.1%] 5.0%] 4.1%] __3. 6%
FIN: HRSC 0.8%] 3.6% 1.1%] 2.6%] 6.1%] 2.7%] 3.3%]
IFIN: NO CONTACT CENTRES. 3.7%I 1.9%I 2.5%] 5.4%] 3.9%] 3.2%] 4.2%
FIN: NETWORK OPERATIONS 2.1%I_3.6%I 2.0%] 2.1%] 1.9%] 2.4%] _3.3%I
FIN: FSC 4.0%] 1.7% I 2.1%] 1.9%] 2.2%] 2.4%I 3.49%]
Re . 3.8%I__3.3%I 3.7%] 4.6%] __4.8%I__4.1%I__ 3.796]
IRO:CS: NETWORK AGENCY SALES, SVCES & TRAIL 5.0%} _ 5.19% __4.296]__1.5%61_2.6%I _3.70%}_3. 3%
RO: NETWORK DEVELOPMENT. 0.7%] 0.9% I 1.2%] 1.3%] 1.5%] 1.1%] 3.3%I
I 0.0%] 0.3%
fauwannesounces ecw o.s9el_a.avela.sel t-aeel 9.9% 3.294
IHR: ENGAGEMENT 0.0%] _0.6%I __3.5%] __2.5%] _2.49%)__1.8%I
[GENERAL COUNSEL. a96[ 0.02%] 0.09%] 0.70%] 2.50¢] 0.5%6[ 2.5%]
IGC: INFORMATION, SECURITY & ASSURANCE 0.0%] 0.0%I 0.0%] 0.0%] 0.0%) __0.0%I
IGC: PORTFOLIO. 0.0%] 0.0% I 0.0%] 7.8%] 17.6%) __5.0%I
IGC: SECURITY & FINANCIAL CRIME 0.4%] 0.0% I 0.0%] 0.0%] 0.0%] 0.1%] _ 1.0%}
2. 1.9%]
FST; PO MONEY PRODUCTS. 6.0%I_ 4.5%I 3.8%] __ 4.1%] __3.3%I _4.4%I__3. 7%]
Strictly Confidential
Health & Safety Report Aug 2017
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The Report
2.1 What is going well across health and safety and what are the current activities?
2.2 What are we doing to mitigate the key risks, including driving and robberies?
SAFETY and ENVIRONMENT
Performance remains strong across key health & safety metrics, including road risk and
CiT related robberies (see Report-H&S Metrics). Current activities include:
1. Person in Control (PiC) Training — The H&S team are continuing to support all
recently trained PiCs and ensure that all have received suitable training.
2. Fire Training — all colleagues and DMB and SC managers have undertaken training
on Success Factors with ongoing support from Supply Chain.
3. Property related risk (As reported in the Property Compliance Report)
¢ Current overall compliance, measured by up to date inspections is 95.63%.
e Fire risks have been closed out and this year’s programme will commence in Q3.
¢ Electrical 5 year inspections are now BAU and remedial actions rectified following
inspection.
e Fabric projects for 17/18 are under review to ensure we optimise the capital budget
on the higher priority sites.
e Objectives next 2 months include; further fabric inspections and site audits to
prioritise capital spend; an inspection of all shared site signage has being carried
out with reports provided and all sites by end of October.
4. Health & Safety Activity Calendars - To ensure Health & Safety activities are
undertaken, H&S BPs are attending Lead Team meetings to help raise awareness
and compliance and this is being extended across all areas of the business in 17/18.
5. Road Risk - The volume of road traffic incidents continues to reduce. The Fleet
Management Team and H&S Team are developing an overall Road Risk Policy.
6. Security / Robbery Risk - To mitigate risk following the recent increase in Post
Office robberies additional TORCH surveillance visits are being undertaken. CViT
related incidents have remained low.
7. 3" Party Audit - Head of H&S is in discussion with a number of providers including
the British Safety Council, HSL and NSI in preparation for an independent audit of
Post Office Health & Safety Management System in Q3 to identify weaknesses,
improvement opportunities and receive guidance and support to achieve world class
status. An update will be provided to GE at the deep dive in October.
8. Environment - The Environmental Tactical Group has reviewed policy and plans
and reviewing energy, recycling and carbon data received from CBRE for year-end.
HEALTH & WELLBEING
1. The Health & Safety team are raising awareness of resources that are available to
colleagues at Support Centre, Supply Chain & Directly Managed team meetings.
2. Mental Health awareness ‘Time to Talk’ sessions continue to be supported.
3. OH Assist have provided guidance for ‘Mental Health First Aid’ training for volunteers
and a selection criteria has been agreed with HR BPs for recruitment during late
September. Training is being scheduled for Sept / October.
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4. A new MH Awareness training workshop has been piloted with a group of line
managers with very positive feedback and a roll out programme has been agreed
from September.
5. Health Checks will continue to be offered to all employees (either Kiosk or Mobile)
6. The range of available OH services has been extended and current activity includes:
o Launch of the Post Office Wellbeing Portal, enabling access to all services and
resources through one landing page from PO and personal devices.
o Extension of the absence ‘case management’ pilot, OH Assist™ Advice Plus.
7. A GE H&S Sub Committee review of Mental Health Initiatives is planned for 5‘ Sep.
What additional activity has been undertaken to address specific risks?
1. Compliance to Driving and Mobile Phone Policy
A check has been incorporated into the local risk assessment undertaken by all line
managers who have staff who drive for work. A new online training module is being
developed and will be issued via Success Factors in Q3.
2. Environmental Policy
The Property Compliance and H&S teams are working closely with Legal, Servest
and IT to minimise risk associated with waste, especially hazardous. Guidance has
been issued to Persons in Control to minimise the risk of waste reaching landfill sites.
3. Security and lone working in Support Centres
H&S, Property & Security Managers are reviewing personal security arrangements
in place at Support Centres & satellite offices to be implemented following the
upgrade of security & access arrangements at Finsbury Dials that have been agreed.
4. Fire Training and Evacuation Plans — Finsbury Dials
Additional Fire Wardens and First Aiders have received trained at Finsbury Dials and
an evacuation plan worked through and reviewed in conjunction with Business
Continuity Plan. Communications will be issued to remind staff of the evacuation
plan. Online Fire Training was also issued in July and August via Success Factors.
2.3 Are there any significant emerging risks for 2017?
1. Change Programmes - H&S Business Partners continue to monitor absence,
accident causation and working closely with lead teams, providing training and
improving the focus on safety, attendance management and wellbeing to improve
competence and compliance. Will work across the Network Operations
2. Property / IT - Disposal of hazardous waste - Whilst Inherent risk is low
hazardous waste Horizon printer cartridges are being addressed by IT and a solution
sourced by Procurement. Current Objectives include: Closure of outstanding
remedial actions from previous ‘5 Year Electrical Inspections’, further fabric
inspections and site audits (see below).
Property —- Incident - A specific high risk issue has emerged for the fabric of our
buildings, as reflected by the recent incident at Muswell Hill DMB. The incident was
managed very well locally with no escalation to local authority or HSE necessary or
likely. All signage has been checked at Royal Mail shared buildings and is continuing
across the estate. Guidance was issued to Agents in April and will be reissued in
September. There is an ongoing internal investigation by POL Property & Health &
Safety to assess the current maintenance and contractual arrangements in place
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with our preferred FM partner (CBRE) to check that all of the fabric checks have
been / will be undertaken and to include signage.
In addition we are
a. Checking the obligations of our partner CBRE are both understood and
fulfilled and checking where provision may have been switched off following
previous contract reviews, exposing Post Office to additional risk.
b. CBRE are checking all signs affixed to POL buildings and shared buildings
c. Undertaking a profiling of fabric risk across the estate with urgency and the
forward maintenance plan updated
The investigation has identified a causation of substandard plywood materials being
used for fixing signage and whilst the current priority is to control the risk and
check the rest of our estate, ongoing investigation will help us understand the
extent of the problem.
3. An annual Health & Safety ‘deep dive review’ has been undertaken by the GE
H&S Sub Committee (Safety Board).
Areas carrying a higher risk of fatality or serious injury were reviewed including:
a. Property (Fire, Electrical, Fabric and Asbestos, Legionella, behaviour)
b. Security (ATMs, Agents robberies, Supply Chain attacks)
c. Road Risk for Commercial and Business Drivers (maintenance, fatigue and
distraction, alcohol and drugs, mobile phone use, working hours and travel
policy, lone working).
A review of H&S in Supply Chain, Directly Managed branches and Support teams
also took place. GE Committee members and senior leaders for each function
discussed and reviewed the risks and considered the current controls, agreeing
areas for prioritisation and attention during 2017/18. These include:
a) Implementation of a single road risk policy for all business drivers and to
monitor its application, including document checks and risk assessments
b) Identifying and then providing guidance and training to all lone workers
c) Improving safety of our vacated buildings, to include surveys of external fabric
d) Review and reissue personal security guidance for agents and consider best
ways to share guidance for H&S and Business Continuity related matters.
e) Improve H&S competency of new line managers and PiCs across the business
f) Monitor compliance to H&S Activity Calendars and procedures and provide
reports to GE, Safety Board and Senior Leaders to enable them to support
and satisfy their business areas are compliant.
g) Consider an external audit of H&S governance, procedures and compliance
during the second half of the year.
h) Urgently increase the number of Fire Wardens and First Aiders at Finsbury
Dials and review provision at all largely populated sites.
i) Summarise and review the business crisis plan updates and evacuation plans.
j) Review Stay Calm manuals, update contents, simplify instruction and
guidance and develop a consistent process that is fit for purpose.
An action plan has been developed and an update will be provided to the GE in October
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®
Group Executive Agenda - Draft
Remember (a+vei) (otw) (p&o) & (cit) !
Date reported as Present In Attendance Other Attendees Apologies
19 October 2017 + Paula Vennells (Chair) + John Whitefoot (item 3)
+ Alisdair Cameron + Mark Siviter (item 8)
SLeu SUR (Alien uti + Nick Kennett + Tom Wechsler (item 9 & 10)
09.30hrs 15.30hrs * Kevin Gilliland
+ Jane MacLeod
+ Rob Houghton
Papers are due 12' October 2017 * Martin Kirke
* Mark Davies
* Martin Edwards
Agenda Item Action Needed Purpose Lead Tim
ls Performance — Financial Results & Review For information & To review the Financial Results & the Al 09.30 — 09.50
of Business Scorecard input Business scorecard and discuss any areas
which are show to have a RED status.
2. Performance Report — FS&T SBU For information & To review the Performance of FS&T SBU. Nick 09.50 — 10.20
input
3. Project Jay For discussion & TBA Martin E / 10.20 — 10.50
GE input John Whitefoot
BREAK 10.50 — 11.00
4. Identity Strategy For discussion & TBA Kevin 11.00 - 11.30
GE input
5. Cash Product Strategy (GE action from 14%" For discussion & TBA Al/ Martin Edwards 11.30 - 12.00
June) GE input
6. ATM Strategy For discussion & TBA Nick 12.00 — 12.30
GE input
7. Brand & Brand Marketing (GE action from For discussion & TBA Kevin / Mark 12.30 — 13.00
14% June) GE input
LUNCH 13.00 — 13.30
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®
8. Update on Royal Mail Negotiations TBA TBA Mark Siviter 13.30 — 14.00
9. POCA/ Universal credit TBA TBA Tom Wechsler / 14.00 — 14.30
Kevin
10. I Government Services Opportunities TBA TBA Tom Wechsler / 14.30 — 15.00
Kevin
11. I Everest Update TBA TBA Rob 15.00 — 15.30
BREAK 15.30 — 15.40
12. I Verbal update from Committees & For noting Chairs of Committees to update GE. 15.40 - 15.55
Steering Groups
12.1 IRSG Martin Kirke
12.2 Ops Board Al
12.3 CRG Al
13. I Contracts for Approval. For approval For GE to approve the Contracts. 15.55 — 16.05
13.1
14. I Review of GE Minutes, Action Points and For noting and input I To update the GE on the actions taken and All 16.05 - 16.15
Updates provide any information requested.
15. I Items for Noting For noting For GE to note the papers. 16.15 — 16.20
15.1 Health & Safety
15.2 Forward Agendas
GE — November 2017
Board — November 2017
16. I AOB 16.20 — 16.25
17. I Feedback on meeting For input Review the agenda items and the effectiveness 16.25 — 16.30
of the sessions.
CLOSE 16.30
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Post Office Board Agenda
26 September 2017 + Tim Parker (Chairman) + Jane MacLeod None
+ Richard Callard * Steve Ashton (item 4)
Start Time Finish Time + Tim Franklin + Nick Kennett (item 4, 6 & 8)
10.30hrs 15.00hrs + Virginia Holmes + Kevin Gilliland (item 6)
+ Ken McCall + Rob Houghton (item 7)
+ Carla Stent + Owen Woodley (item 8)
Papers are due 19" September 2017 + Paula Vennells + Representatives from McKinsey (item 8)
+ Alisdair Cameron
Agenda Item Action Needed Purpose Lead Timing
1. Minutes of previous Board and Decision Minutes formally agreed. Jane MacLeod 10.30 - 10.35
Committee meetings including
Status Report
2, CEO Report CEO report noted CEO to update the Board on the report. CEO 10.35 -— 10.55
3. Financial Report For noting CFOO to update the Board on the report. CFOO 10.55 — 11.10
4. POMS Performance against For noting To update the Board on POMS’ performance Steve Ashton / 11.10 — 11.25
Strategy against strategy. Nick Kennett
5. Approve Report & Accounts after For approval For Board to approve the Annual Report and CFOO 11.25 — 11.50
recommendations from the ARC Accounts.
BREAK 11.50 — 12.00
6. Chief Executive Retail Performance For noting To update the Board. Kevin Gilliland 12.00 — 12.25
Report
7. IT Strategy For information and To review the IT Strategy. Rob Houghton 12.25 — 13.15
input
LUNCH 13.15 — 13.45
8. Peregrine Update For discussion and To update the Board on negotiations with the Bol Nick Kennett / 13.45 - 14.45
potential decision and the options for 2023. Owen Woodley /
McKinsey Representatives
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Post Office Board Agenda
9. Ratifications of decisions made by Ratification of The ARC approved the statement at its meeting in Jane MacLeod 14.45 - 14.50
correspondence statement may but this was not brought to the Board for
9.1 Modem Slavery approval. Accordingly ratification is now required.
10. Items for noting 14.50 - 14.55
10.1 Sealings For noting Board aware of the affixing of the seal
10.2 Health & Safety For noting To update Board
10.3 Meeting dates and forward
agendas
11. AOB 14.55 — 15.00
CLOSE 15.00
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Post Office Board Agenda - Draft
31st October 2017 + Tim Parker ( Chairman) + Jane MacLeod None
+ Richard Callard + Nick Kennett (item 4)
SLEUSUiS Bins nauine + Tim Franklin + Kevin Gilliland (item 4 & 7)
09.30hrs 14.00hrs + Virginia Holmes + Martin Edwards (item 6)
* Ken McCall + John Whitefoot (item 6)
+ Carla Stent + Rob Houghton (item 8)
Papers are due 24 October 2017 + Paula Vennells + Martin Hopcroft (item 9)
+ Alisdair Cameron
41. Minutes of previous Board and Decision Minutes formally agreed. Alwen Lyons 5 mins
Committee meetings including
Status Report
2 CEO Report CEO report noted CEO to update the Board on the report. CEO 20 mins
Including IR update
3. Financial Report For noting CFO to update the Board on the report. CFOO 20 mins
4. Chief Executive Financial Service & For noting To update the Board. Nick Kennett 25 mins
Telecoms Performance Report
5. Cash Efficiency CFOO 30 mins
BREAK 10 mins
6. Project Jay Martin Edwards / 30 mins
John Whitefoot
7. Identity Strategy Kevin Gilliland 30 mins
8. Everest Update Rob Houghton 30 mins
9. Health & Safety Deep Dive CFOO / Martin Hopcroft 30 mins
LUNCH 30 mins
10. I Back Office Transformation For noting To update Board on Back Office Transformation. CFOO 30 mins
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Post Office Board Agenda - Draft
11.
12.
13.
14. I Board Committee Chair updates For noting To update Board 15 mins
(verbal)
15. — Ratifications of decisions made by 10 mins
correspondence
16. Items for noting 10 mins
16.1 Sealings For noting Board aware of the affixing of the seal
16.2 Health & Safety For noting To update Board
16.3 Meeting dates and forward
agendas
17. AOB 10 mins
CLOSE
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