POLB 15(2"*)
POLB 15/24 - 15/44
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Post Office Limited — Strictly Confidential
POST OFFICE LIMITED
(Company no. 2154540)
(the ‘Company’)
Minutes of a Board meeting held at 9.45am on 25 March 2015
at 20 Finsbury Street, London EC2Y SAQ
Present:
Alice Perkins
Neil McCausland
Tim Franklin
Virginia Holmes
Alasdair Marnoch
Richard Callard
Paula Vennells
Alisdair Cameron
In Attendance:
Alwen Lyons
Jane MacLeod
Nick Kennett
Martin George
Geoff Smyth
Mark Davies
POLB 15/24
POLB 15/25
(a)
(b)
(a)
Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Chief Executive
Chief Financial Officer
Company Secretary
General Counsel
Director, Financial Services (minute POLB 15/26 & 15/27)
Director, Commercial (minute POLB 15/30 only)
Head of Telecoms (minute POLB 15/30 only)
Director, Communications & Corporate Affairs (minute POLB
15/32 only)
INTRODUCTION
A quorum being present, the Chairman opened the meeting and
welcomed Jane MacLeod, General Counsel, who had been invited
to join the meeting as an observer.
The Chairman asked for recognition and thanks to be passed on to
Chris Aujard, the interim General Counsel and Belinda Crowe,
Head of the Sparrow project, as both were leaving Post Office
Limited (POL).
CEO’S REPORT
The CEO introduced her report and focused on the following key
areas:
e POL had signed a framework agreement with the
Government to ensure that POL continued to be one of the
providers of Verify, the new Identity Assurance service.
e The Secretary of State’s visit to a Post Office in Hackney on
the 26" March to announce the protocol for future Banking
Services. Whilst POL welcomed this initiative it had made it
clear that the work needed to be properly remunerated.
« POL had signed a new seven year extension to the POca
contract.
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« The engagement survey had shown an improvement in both
employee and subpostmaster results, with a 10 per cent
improvement from subpostmasters running the transformed
local and main branches.
e The CEO recognised Kevin Gilliland, Network and Sales
Director, for delivering the Network Transformation targets,
and the Board acknowledged the outstanding performance.
e The CEO thanked the General Counsel, the Director of
Communications & Corporate Affairs, and their teams for
the progress with Sparrow.
(b) The first anniversary meeting of the Post Office Advisory Council
(POAC) had taken place on the 19" March, and the CEO thanked
Tim Franklin, the POAC Chairman, for an excellent meeting. Tim
Franklin agreed that the POAC was working well and that there had
been extremely helpful contributions from the Minister and the CEO
as well as a plenary session on the Post Office Vision. It was
agreed that now that POAC was well established, POL should
consider how to get best use out of the Council. Board members
were invited to attend a future POAC and the Company Secretary
ACTION: CoSec would circulate the dates.
(c) The CEO and the Chairman had attended a meeting with
Christopher Fisher, Chairman, and Des Crowley, CEO, of the Retail
UK Division of the Bank of Ireland. Both had been very positive
about the relationship with POL and thinking about the long term
strategy post 2023. The CEO would circulate to the Board the note
ACTION: CEO of the meeting.
(4) The CEO was hopeful, after a more positive meeting between
herself and the CFO with Moya Greene, CEO, and Matthew Lester,
CFO, Royal Mail Group (RMG), that RMG had recognised the
effect on their business of the changes in the retail mails market. It
was made clear that RMG would like to renegotiate the MDA and
discuss exclusivity, and RMG was under pressure from the
regulator as well as from competitors. The POL team had reserved
its position on renegotiating the MDA and would not agree to this
unless and until they were ready to do so.
(e€) The CEO reported that David Hussey would be joining POL in the
third week of April as the new Transformation Director, enabling a
handover period with David Ryan. The Board asked for a structure
chart showing how all the Business Transformation activities and
big projects linked together, explaining how they would be
ACTION: managed and resourced in the context of the new change
David Ryan management process.
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IRRELEVANT
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POLB 15/27 STATUTORY REPORTING REQUIREMENTS FOR POST
OFFICE MANAGEMENT SERVICES LIMITED
(a) Nick Kennett, CEO POMS, presented to the Board the rationale
behind the request to shorten the Accounting Reference Date
(ARD) for the second Post Office Management Services Limited
(POMS) accounting period to 30 November 2014 and then to
extend the ARD for the third POMS accounting period to 27 March
2016.
(b) The Board challenged whether the misaligned year end dates
would add complexity into the financial reporting. It was
acknowledged that this would save on audit fees for POMS. The
CFO supported the proposal.
(c) The Board agreed, pursuant to article 4.3(P) of the Articles of
Association of Post Office Management Services (POMS), that
POMS should:
e shorten its Accounting Reference Date (ARD) for the
second POMS accounting period to 30 November 2014;
and
e extend the ARD for the third POMS accounting period to 27
March 2016.
(d) Nick Kennett left the meeting.
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POLB 15/28 FINANCIAL PERFORMANCE
(a) The Chief Financial Officer (CFO), updated the Board on the
2014/15 financial performance and the scorecard for period 11. He
reported that he was slightly more positive about hitting the
EBITDAS target of £99m, subject to the period 12 trading number
and the final audit. This was predicated on delivering some of the
risks and opportunities.
(b) The Board discussed the period 11 results and asked that future
reports include: a greater focus on non-staff costs as well as staff
costs; a summary high level analysis on cash; and the inclusion of
ACTION: CFO product profitability when it becomes available during the year.
(c) The Board noted the update on the 2014/15 financial performance
and the scorecard for period 11.
POLB 15/29 APPROVAL OF 2015/16 FINANCIAL PLAN AND SCORECARD
(a) The Chief Financial Officer (CFO), presented to the Board for its
approval the financial plan for 2015/16 and the key performance
indicators (KPI) scorecard and short term incentive plan (STIP)
bonus measures for 2015/16.
(b) The Board was disappointed by the proposed plan and expressed
its preference for a budget which included a flat year on year
income target. There was concerned that the plan no longer
aligned to the growth strategy. The CFO noted that in his view this
was a realistic and stretching budget.
(c) The CFO reminded the Board that the current year had seen
significant variance against plan and that the Board had asked for a
more realistic budget for 2015/16. However, the Board asked the
CFO to reconsider the income target and to hold it flat against this
year’s outturn, if necessary using some of the contingency in the
plan. The CFO accepted the challenge and would revert on the
matter after period 12 income results were available.
ACTION: CFO Richard Callard explained that continued failure to hit budget would
(d) be problematic and harder to explain to the Minister than a slight
year on year decline in income. In his view EBITDAS was the more
important measure.
The Board recognised that EBITDAS was the most significant
(e) measure for commercial sustainability and that the income target
was being set on the current strategy.
The Board noted that it would discuss the three year operating plan
(f) in May and asked the CFO to consider a target of a zero EBITDAS
and a flat cost base for 2016/17 as part of that plan.
ACTION: CFO The CFO also explained that POL was preparing for the new
(g) government and the possible requirements of a funding review.
This work would form part of the first afternoon of the June away
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day and would consider the options if the current funding was
threatened, and any new funding requirement post 2018. He
promised to circulate the review plan for discussion at the June
Away day.
ACTION: CFO The Board questioned the slowdown of NT conversions in 2015/16.
(h) The CEO explained that the Executive had wanted to continue with
the current run rate, but had been asked by the Shareholder
Executive to protect the promise made by the Minister that the ‘cliff’
would not be enforced until September 2015, Richard Callard
confirmed that this was the case. It was acknowledged that an
opportunity might exist with multiples and non-NFSP branches and
that this would be investigated, and a note justifying the NT target
circulated to the Board.
ACTION:
Kevin Gilliland 2015/16 SCORECARD
The Board discussed the scorecard measures and proposed bonus
(i) I worthy targets. The Executive had proposed threshold targets for
Income and EBITDAS. It was acknowledged that whilst some
businesses had threshold targets, these were not normal in the FS
Industry and were becoming less prevalent in other organisations.
Richard Callard understood why the Executive would like threshold
targets but explained that Minsters and the Treasury did not like the
concept as it was perceived as paying for failure. The Executive
agreed to reconsider the use of thresholds in the scorecard.
ACTION: CFO The Board supported the inclusion of a cash measure in the
(j) I scorecard and asked the Executive to define the measure and to
introduce a clear report on the movements in working capital,
although there would not be a specific improvement target in
2015/16. The Board asked that cashflow target be included as one
of the personal objectives for the CFO.
ACTION: CEO The Board acknowledged that the digital net income measure
(k) would be an extrapolated figure based on volume and that the
Executive would clarify the target.
ACTION: CFO The Board asked that the FS compliance score be included as one
(1) of the personal objectives for Nick Kennett and Kevin Gilliland.
ACTION: CEO The Board accepted that the subpostmaster engagement score
(m) should not be included as part of the bonus worthy targets until the
number of surveys completed increased and the measure was
more robust. The Board asked that an effective subpostmaster
survey be included as one of the personal objectives for Neil
Hayward.
ACTION: CEO The Board asked that Richard Callard, Neil McCausland, Neil
(n) Hayward and the CFO reconsider the scorecard and targets in the
light of the discussion and the 2014/15 outturn. Their proposal
would be circulated to the RemCo and Board before formal
submission to the Shareholder Executive.
ACTION:
RC/NM/NH/CFO
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POLB 15/31 BOARD EFFECTIVENESS REVIEW
(a) The Chairman updated the Board on the evaluation of its
effectiveness carried out in January and February 2015.
(b) The Board discussed the quality of the Board papers and the CEO
stressed that those members of the Group Executive (GE)
presenting papers realised that they were responsible for the
quality of those papers. She acknowledged that there were
inconsistencies in the quality and that papers were not always
clear.
(c) The Board asked that papers be more balanced, explaining the
options available as well as the recommendations from the GE.
Papers should not be presented for noting if they required a
decision or comment from the Board.
(d) The General Counsel proposed that that she and the Company
Secretary take responsibility for the structure of the papers,
ACTION: GC/ ensuring clarity of purpose, an audit trail to previous Board
CoSec discussions and links to the Board risk appetite.
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(e) The Company Secretary would also provide a rolling forward
agenda with each Board pack and detailed agendas for the next
ACTION: CoSec two meetings.
(f) The Board discussed the proposal to disband the FS Committee
once the full POMS Board was up and running and to move the
Committee’s responsibilities to the POMS Board, the ARC and the
Board as appropriate. This was agreed in principle, subject to
recommendations from the General Counsel, to be based on best
practice in other companies which had a FS business as part of a
wider portfolio of businesses. These recommendations, validated
by a third party, would be presented to the Board at its April 2015
ACTION: GC meeting when it would consider the POMS go live decision.
ACTION: CoSec/ (g) In due course, the Terms of Reference for the ARC would be
Alasdair Marnoch amended to reflect the changes.
ACTION: (h) Other issues which had been identified as part of the review would
Chairman/CoSec be taken forward by the Chairman and Company Secretary as
appropriate.
POLB 15/32 SPARROW UPDATE (VERBAL)
(a) The Board welcomed Mark Davies, Director of Communications
and Corporate Affairs, to the meeting and received a verbal update
from him and the General Counsel on Project Sparrow.
(b) The Board thanked the Executive for progress being made and
noted the verbal update on Project Sparrow.
(c) Mark Davies left the meeting.
POLB 15/33 IT PROCUREMENT
(a) The CFO explained that a paper would be presented at the May
Board requesting authority for a significant IT procurement project
and that the proposal in the noting paper had been for NED
engagement to help the Executive understand any questions or
concerns before the Board meeting.
ACTION: CoSec/ (b) The Board agreed that it would prefer a short written update
Chief Information followed by an optional call which NEDs would join if they wanted
Officer further clarification.
(c) The Board noted the IT Procurement report.
POLB 15/34 PENSIONS
(a) Virginia Holmes, Chairman of the Pensions Committee, asked for a
discussion on the Pensions paper presented to the Board for
noting.
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(b) The CFO explained that the pension trustees were due to
undertake their triennial evaluation of the scheme and that this was
likely to show a significant worsening of the fund and a likely deficit
position within the next two to three years. POL could not
materially increase its contribution to enable the scheme to remain
fully funded and therefore needed to work through the options. The
ACTION: Executive was asked to ensure there was sufficient capability and
Neil Hayward resource to manage the pension changes.
(c) The Board noted the Post Office Pensions update.
POLB 15/35 MINUTES OF THE PREVIOUS MEETING AND MATTERS
ARISING
(a) The minutes of the Board meeting held on 28 January 2015 were
approved for signature by the Chairman.
POLB 15/36 COMMITTEE MEETING MINUTES FOR NOTING
(a) The Board noted the minutes of:
e the meeting of the Audit, Risk and Compliance Committee
held on 12 January 2015; and
e the meeting of the Remuneration Committee held on 25
February 2015.
POLB 15/37 STATUS REPORT
(a) The Status Report, showing matters outstanding from previous
Board meetings, was noted and the Chairman asked that any late
ACTION: CoSec actions be followed up by the Executive.
POLB 15/38 UPDATE FROM THE NOMINATIONS COMMITTEE
(a) The Board agreed to the revised terms of reference for the
Nominations Committee, as provided.
POLB 15/39 UPDATE FROM THE REMUNERATION COMMITTEE
(a) The Board agreed to the revised terms of reference for the
Remuneration Committee, as provided.
POLB 15/40 UPDATE FROM THE FINANCIAL SERVICES COMMITTEE
(a) The Board received an update from Virginia Holmes, Chairman of
the Financial Services Committee.
(b) Following Alisdair Cameron’s appointment as Chief Financial
Officer, the Board agreed that he should be appointed to the
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ACTION: CoSec
POLB 15/41
(a)
ACTION:
Neil Hayward
(b)
ACTION: CoSec
POLB 15/42
(a)
(b)
(c)
(d)
ACTION:
Mark Davies
POLB 15/43
(a)
(b)
ACTION: CoSec
(c)
(d)
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Financial Services Committee with immediate effect.
The Board
authorised the Company Secretary to make any necessary
amendments to the Committee's terms of reference to reflect
appointment.
UPDATE FROM THE PENSIONS COMMITTEE
this
The Board received an update from Virginia Holmes, Chairman of
the Pensions Committee. The Committee had undertaken
effectiveness review and the main issue raised had been that
an
the
Committee was over reliant on the expertise of the Chairman. The
Executive was asked to source training opportunities for the other
Committee members. It was agreed that the outcome of
the
effectiveness review did not require the Committee to refresh its
terms of reference.
Following Alisdair Cameron’s appointment as Chief Finan
Officer, the Board agreed that he should be appointed to
Pensions Committee with immediate effect.
the Company Secretary to make any necessary amendments to
Committee’s terms of reference to reflect this appointment.
ITEMS FOR NOTING
The Board noted the Significant Litigation report.
The Board noted the Health and Safety report.
The Board noted the Report on Sealings and resolved that the
affixing of the Common Seal of the Company to the documents
set out against items numbered 1262 to 1286 inclusive in the
seal register was hereby confirmed.
The Board noted the information regarding publication of
POL’sReport and Accounts for 2014/15, and asked the
Executive to ensure that the Board was given enough time to
contribute to the key messages. Richard Callard asked for the
ShEx to be given sight of the Report and Accounts as early as
possible.
ANY OTHER BUSINESS
The Company Secretary circulated the proposed agenda for the
Board away day in June.
The Board proposed that the POMS NEDs be invited to join the
Board for lunch and the afternoon sessions of the away day.
It was agreed that the day would start with Mails and FS strategi
and conclude with the Network and Channel session.
The NEDs were asked to let the Company Secretary have their
10
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The Board authori:
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thoughts on what would make the discussions at the away day
effective from their perspective and how the Executive could
ensure the NEDs were confident about the outputs and proposed
ACTION: NEDs strategy.
(e) There being no further business, the meeting closed.
POLB 15/44 DATE OF THE NEXT MEETING
(a) It was noted that the next Board meeting would be held on 21 May
2015.
(b) It was further noted that prior to May there would be an additional
Board meeting at 8.00am on 22 April 2015, to discuss POMS.
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