POLB 14(5")
POLB 14/64-14/83
Post Office Limited — Strictly Confidential
POL00027400
POL00027400
Aue
Srna cance heli.
Torts:
Khe
POST OFFICE LIMITED
(Company no, 2154540)
(the ‘Company’)
Minutes of a Board meeting held on 21 May 2014
Present:
Alice Perkins
Neil McCausland
Tim Franklin
Virginia Holmes
Alasdair Marnoch
Richard Callard
Paula Vennells
Chris Day
In Attendance:
Alwen Lyons
Nick Kennett
Paul Havenhand
Chris Aujard
Martin George
Kevin Gilliland
David Ryan
Lesley Sewell
Neil Hayward
Belinda Crowe
Jim Knox
John McAlister
Mark Davies
POLB 14/64
(a)
POLB 14/65
(a)
(b)
at 148 Old Street, London EC1V 9HQ
Chairman
Non-Executive Director
Non-Executive Director (minutes 14/64-68)
Non-Executive Director
Non-Executive Director
Non-Executive Director
Chief Executive (minutes 14/64-71 and 14/76-82)
Chief Financial Officer (minutes 14/64-71 and 14/76-82)
Company Secretary
Director, Financial Services (minutes 14/64-65)
Head of Travel and Insurance (minutes 14/64-65)
General Counsel (minutes 14/64-65 and 14/76)
Chief Marketing and Commercial Officer (minute 14/66)
Network & Sales Director (minutes 14/66-69)
Business Transformation Director (minutes 14/67-69)
Chief Information Officer (minutes 14/67-69 and 14/82)
Group People Director (minutes 14/67-69 and 14/72-75)
Programme Director, Project Sparrow (minute 14/76)
PA Consulting, Partner (minute 14/69)
PA Consulting, Partner (minute 14/69)
Communications & Corporate Affairs Director (minutes 14/70)
INTRODUCTION
A quorum being present, the Chairman opened the meeting and
welcomed Nick Kennett, Director, Financial Services, Chris Aujard,
General Counsel, and Paul Havenhand, Head of Travel and
Insurance.
PROJECT TITAN
The Board received an update on Project Titan, together with an
assurance paper regarding the status of risk analysis in Project Titan
from the General Counsel.
Nick Kennett reiterated the commercial case for the changes being
proposed and the Board discussed the benefits and risks in the
Project. It was noted that alternative operating models had been
considered in the report commissioned from Miller, which had
POL00027400
POL00027400
Post Office Limited — Strictly Confidential
concluded by supporting the proposal. Du Goat recon frml de
densin’ b pred mk Le reeinmemrel Metr , Shige & HAL
(c) The General Counsel explained the proposed Post ice} euy
Management Services Limited (POMS) governance model and the Ipy«
reporting lines as set out in the Board paper. The Board supported the phe.
proposition that POMS be set up with a separate POMS Audit and
Risk Committee, as although this added complexity to the structure it
provide a greater level of focus and scrutiny.
(d) The General Counsel highlighted the specific risks identified in the
Board paper regarding: governance and controls; conflicts of interest;
commercial risks; and reputational risks. He explained that Grant
Thornton had reviewed both this paper and the paper prepared by the
Business.
{e) The General Counsel described the possible conflicts of interest which
could occur between the two businesses and the importance of
agreeing robust SLAs before POMS was operational. He explained
ACTION: that work was underway to draft the Articles of Association and that
General Counsel the escalation process for SLA disputes was under consideration. The
Board recognised that creating the right SLAs would be critical and the
CEO explained that the Business would scenario mode! possible
disputes as part of the planning work. She also acknowledged that the
Business had a skills gap it would need to fill to enable it to manage
the POMS relationship effectively, although recognised the recent
progress made in managing the First Rate (FRES) and Bank of
Ireland relationships.
(f) The Board agreed that the appointments to the POMS Board would be
ACTION: made by the Post Office Board. These would be recommended by the
Company Post Office Nominations Committee, with remuneration recommended
Secretary by the Post Office Remuneration Committee. The Company Secretary
was asked to draft the necessary changes to the Terms of Reference.
(g) The Board agreed that the POMS Board should be Chaired by a Non-
Executive Director (NED) who should also sit as a NED on the Post
Office Board; this appointment would therefore need consent from the
Shareholder Executive. The Board discussed the possible need for an
interim Chairman to enable the FCA application to progress. It was
decided that the application would, if necessary, be made putting
forward three proposed Executive Directors, namely, Chris Day, CFO,
Chris Aujard, General Counsel, and Nick Kennett, Director Financial
Services, and explaining to the FCA that the position of Chairman was
in the process of being filled.
(h) The Board were asked to provide the names of possible candidates
ACTION: for the position of POMS Chairman to Neil Hayward, Group People
All/Neil Hayward Director, who would manage the recruitment process for the
Nominations Committee.
(i) The General Counse! and Neil Hayward were asked to provide a
ACTION: paper explaining the milestones to POMS approval, including, in
Chris Aujard/ particular, the effect on the Post Office Board Sub-Committees (with
Company input from the Chairman of the Financial Services Board Sub-
Secretary Committee) and the appointment and ShEx consent process for the
POL00027400
POL00027400
Post Office Limited — Strictly Confidential
POMS Chairman.
(i) The Board noted the update on Project Titan and thanked the
Business for the work to date.
(k) The Board authorised the Business to proceed to submit the
application to the FCA for POMS to be authorised to be a Managing
General Agent (MGA).
ACTION: (l) I The Board noted that the Business would submit a further paper in Q3
Nick Kennett 2014-2015 for ratification, prior to any market launch of the MGA
services.
(m) Nick Kennett, Chris Aujard and Paul Havenhand left the meeting.
POLB 14/66 MAILS DEEP DIVE
(a) The Board welcomed Martin George, Chief Marketing and
Commercial Officer and Kevin Gilliland, Network & Sales Director, to
the meeting.
(b) An update on the plans and activities required to deliver the Mails
income target for 2014-2015 was received.
(c) The Board discussed the major initiatives in place to deliver growth
and acknowledged the work that the Business was doing. However,
they were concerned that the results were not as yet coming through
and that the competitors in the Mails market were becoming more of a
threat.
(d) Martin George re-emphasised the importance and challenge of the
relationship with Royal Mail (RM) and its constraints when trying to
respond quickly to the market. The CEO reported her meeting with
Moya Greene, CEO RM at which the advantages of a joint strategy
had been discussed, She explained that a joint meeting was planned
ACTION: for the autumn with the Royal Mail Chairman and CEO.
Martin George
/General Counsel (e) The Board requested a recap of the Mails Distribution Agreement
(MDA) as part of the June Away Day papers, including the Material
Adverse Change (MAC) clause and when this might be applied.
(f) The Board asked if the focus on mails would have an adverse effect
Seden th on{other product areas where the returns were higher, but were
reassured that the Business believed that this was a risk which could
be managed.
(g) The Board noted the plans to deliver the required growth in Mails
income and achieve the target for the financial year of £376m, and
acknowledged that the Executive team were aiming for a very tougbh- x
and stretching target.
(h) Martin George left the meeting.
POL00027400
POL00027400
Post Office Limited — Strictly Confidential
POLB 14/67 BUSINESS TRANSFORMATION UPDATE
(a) The Board welcomed Neil Hayward, Group People Director, David
Ryan, Business Transformation Director, and Lesley Sewell, Chief
Information Officer, to the meeting.
(b) The CFO explained that the three areas of transformation were being
presented together as they now formed part of the wider scope being
considered for Business Transformation.
(c) The Board received an update on the Business Transformation
Programme. David Ryan explained that the Programme was entering
into the design phase which consisted of three parts: diagnostics of
the cost base; an exercise to determine the target operating model
(TOM) fit for the business in 2018-20; and development of the
transformation blueprint which will describe the plan and journey to
deliver this operating model.
(d) He explained that the Business had chosen McKinsey as the design
partner from six possible candidates and that the contract would be
agreed before the end of the week. It had been agreed as part of the
contract that the Programme would drive costs out of the Business as
quickly as possible, without compromising the long term benefits.
(e) The Board were reassured that sensible assumptions would be taken
in areas where the TOM was less clear, maintaining as much flexibility
as possible in the design.
(f) I David Ryan explained that it would not be clear until further into the
design phase whether the Business needed one or multiple delivery
partners, although possible partners were already helping with the
Programme.
(g) The Board sought assurance that the Programme was supported by
the best resource in the Business and David Ryan, backed by the
CEO, promised that this was the case.
(h) The Board noted the progress of the Business Transformation
Programme and thanked David Ryan for his work to date.
POLB 14/68 IT TRANSFORMATION PROGRAMME
(a) The Board considered an update on the status of the IT
Transformation Programme.
(b) Lesley Sewell explained that the Business and Royal Mail were
working well together on IT separation. She stressed that this was a
complicated process, and that the risks were being closely monitored.
Both businesses were moving to new suppliers and once these
suppliers were known the process would be clearer.
{c) Alasdair Marnoch, Chairman of the ARC, reported that a paper on the
lessons learned after the cancelled Data Centre procurement had
been discussed at the ARC and that a number of changes had already
been implemented.
POL00027400
POL00027400
Post Office Limited ~ Strictly Confidential
({d) Lesley Sewell believed that the decision to withdraw the procurement
had been correct and stressed that none of the bidders had needed to
be compensated. The lessons learned review has highlighted a skills
ACTION: gap in the Business and Neil Hayward reported that he was reviewing
Neil Hayward the vacancies with Lesley Sewell, which may need to be discussed at
the Remuneration Committee, if the appointments were constrained
by the salary being offered. He Nat Keep a revo J can We
Vaalle dInKo tee woe dened b Le Rimaren, a fe:
(e) Lesley Sewell assured the Board that the IT Transformation
Programme was fully aligned with the wider Business Transformation
Programme and that any changes to the IT architecture would
continue to be checked for flexibility to ensure they were consistent
with the new operating model.
ACTION:
Lesley Sewell (f) She confirmed that each contract would return to the Board for sign off
at the point when a preferred bidder had been identified.
(g} The Board noted the progress of the IT Transformation Programme.
(h) Tim Franklin feft the meeting.
POLB 14/69 SUPPLY CHAIN REVIEW
(a) The Board welcomed Jim Knox and John McAlister, PA Consulting, to
the meeting.
(b) The Board received the PA review of Supply Chain and the possible
options available to the Business. It discussed the complexity of the
Supply Chain Function and agreed that this was not a future core
competency for the Business, although having reliable cash supply
was a core requirement.
(c) The Board discussed the proposed options and the likely effect of
implementation on the industrial relations environment. It was
recognised that these proposals would be unpopular with the unions
and employees and Kevin Gilliland reported that a similar proposal
had been suggested and withdrawn in the past.
(d) The Board considered the political environment, the reaction to the
options discussed and the timing of any decision.
(e) The CFO acknowledged_that,retwithstanding the. c thallenge.in_the —
ACTION: Supply-Chain-Bi ere was a Critical path to short and medium
CFO term value maximisation. Irrespective of any decision to manage or
outsource, it would be necessary to deliver a separate and accurate
P&L account and balance sheet for the Supply Chain Business. This
would lead to a greater understanding of the profitability of individual
external contracts and internal efficiencies.
(f) The Business recognised the need to review the management
structure and capability in this area. The CEO reported that a potential
individual had been identified to lead the Supply Chain Business; this
person was currently being assessed. In parallel an external search
had also identified a candidate who will be put through the Hay
POL00027400
POL00027400
Post Office Limited — Strictly Confidential
. ted
fax toed Gate assessment.
j , (g) The Board noted the update.
head °
“h (h) Neil Hayward, Kevin Gilliland, David Ryan, Lesley Sewell, Jim Knox
and John McAlister left the meeting.
POLB 14/70 ANNUAL REPORT AND ACCOUNTS
(a) Mark Davies, Communications and Corporate Affairs Director, joined
the meeting.
(b) The Board received the Annual Report and Financial Statements for
the 2013-2014 financial year and ancillary documents. Alasdair
Marnoch, Chairman of the ARC, recommended the Financial
Statements to the Board. He reported that there were no substantial
issues in the External auditors report; that the Business had received
a completely clean bill of health from Ernst & Young; and that the
Financial Statements were robust.
(c) The Board asked for a final review of the first three sections of the
report to ensure that the style was consistent with no duplication. it
was suggested that the Financial Services page of the Business
ACTION: Review be used as an exemplar for the other sections and that the
All/CFO/MD Mails page needed a considerable rewrite. The Chairman of the ARC
asked the Business to ensure that the clarity and objectivity of the
Budget Briefing Book was carried forward into the front half of the
report as this would help give a clearer message of the Business’
performance.
(d) The Board agreed that this year's report would encapsulate the ‘spirit
of fair, balanced and understandable without making a formal
statement, but that the Business would work towards achieving this
standard next year.
(e) The Board were asked to provide any individual feedback to the CFO.
(f) The Board discussed the inclusion of Sparrow in the report and
agreed that it should be excluded. However the Business agreed that
it would be appropriate to include a paragraph in the CEO overview to
explain the size of the enterprise risk and the major transformation
ACTION: programmes being undertaken, referring back to the risks already
Mark Davies highlighted in the CFO report.
(g) With due regard to their individual duties and liabilities, the Board:
* approved the approach to Going Concern and agreed the
Going Concern status for Post Office Limited at the full year;
* agreed that it was appropriate for the Directors of Post @ffice ~
Limited to make the undertakings and statements in the
financial statements;
* confirmed that, as individual directors, so far as they were
POL00027400
POL00027400
Post Office Limited — Strictly Confidential
aware, there was no relevant audit information of which the
auditor was unaware and that each director had taken all
reasonable steps to make themselves aware of any relevant
audit information and to establish that the auditor was aware of
that information;
e approved the financial statements;
« delegated authority for reviewing final amendments and
completing the Annual Report and Financial Statements on
behalf of Post Office Limited to a Sub-Committee, the quorum
for which to comprise any three of Alice Perkins, Paula
Vennells, Chris Day and Alasdair Marnoch;
« authorised Alwen Lyons to sign the Directors’ Report and Chris
Day and Paula Vennells (or, in either’s absence, Alice Perkins)
to sign the balance sheet, each acting on behalf of the Board;
and
* approved the Letter of Representation to the auditor and
authorised Paula Vennelis or Chris Day to sign and issue it on
behalf of the Board.
POLB 14/71 SEPARATION FACILITIES MANAGEMENT CONTRACT
{a) The Board considered the proposal to provide delegated authority to
the CEO and CFO to approve and sign the contracts for the Facilities
Management contracts, as well as the security and alarm (Grapevine)
services.
(b) The Board approved the delegation of authority to the CEO and CFO
ACTION: as outlined in the paper, and asked for an update note to the Board
Chris Day when the contracts were signed.
(c) The CEO and CFO left the meeting.
POLB 14/72 POST OFFICE SHORT TERM INCENTIVE PLAN (STIP) OUTTURN
AND PAYMENTS FOR 2013-2014
(a) Neil Hayward, Group People Director, joined the meeting.
(b) Neil McCausland, Chairman of the Remuneration Committee,
presented the Board with the proposed STIP payments for the CEO
and CFO. It was noted that the Remuneration Committee had met,
reviewed and endorsed these recommendations.
(c) The Board approved the STIP payments for the CEO and CFO.
POLB 14/73 POST OFFICE LONG TERM INCENTIVE PLAN (LTIP) OUTTURN
AND PAYMENTS FOR 2013-2014
(a) Neil McCausland, Chairman of the Remuneration Committee,
presented the Board with the proposed LTIP payments for the CEO
and CFO. It was noted that the Remuneration Committee had met,
POL00027400
POL00027400
Post Office Limited — Strictly Confidential
reviewed and endorsed these recommendations.
(b) The Board approved the LTIP payments for the CEO and CFO.
POLB 14/74 POST OFFICE SHORT TERM INCENTIVE PLAN (STIP)
MEASURES 2014-2015
(a) Neil Hayward presented the Board with the recommended bonus
worthy measures in the Post Office scorecard for 2014-2015 which
forms part of the STIP for Executive Directors. He explained the
greater emphasis on engagement and the debate at the
Remuneration Committee about the targets.
(b) Neil McCausland explained that the targets had #6 tightened
——significantly it 2073-2014 and) that_this—year the focus was on
tightening targets slightly further and taking away some thresholds,
but éhat the Remuneration Committee did not want to tighten targets
any further, as-they-hac-te-fexibilityto-move-the-basic-pay-for-either
the CEO. or. CEQ,
(c) The Board discussed the proposed personal objectives.
(d) Richard Callard explained the ShEx process for approval and
promised to deal with the request for consent as quickly as possible.
(e) The Board approved the STIP Measures for 2014-15 and
recommended that they be presented to the Shareholder for consent.
POLB 14/75 POST OFFICE LIMITED LONG TERM INCENTIVE PLAN (LTIP)
AWARD DATE APRIL 2014-2017
(a) The Board received a paper on the recommended performance
measures of Access Criteria, and Earnings Before Interest and Tax,
Depreciation, Amortisation and Subsidy (EBITDAS) for the LTIP
award 2014-2017. It was noted that the performance conditions would
be tested during the financial year 2016-2017.
(b) The Board approved the performance conditions of Access Criteria
and EBITDAS for the 2014-2017 LTIP award and recommended that
they be presented to the Shareholder for consent.
(c) Neil Hayward left the meeting. Paula Vennells and Chris Day re-
joined the meeting.
POLB 14/76 CHIEF EXECUTIVE’S REPORT
(a) The Board noted the Chief Executive's report and discussed the
following specific items:
(b) SEPARATION
The CEO reported a meeting with Moya Greene, CEO of Royal Mail
plc, who was concerned about the separation of the two businesses.
J trahyerd To ensure any potéiitial~problems”aréfundersteet: she has asked
David Ryan to have a look at separation in the context of Business
Transformation. Paula Vennells explained that the Business may need
POL00027400
POL00027400
Post Office Limited — Strictly Confidential
a COO role whilst separation was finalised and was considering
possible options for that role.
{c) NFSP CONFERENCE
The CEO told the Board that she had received good feedback from
the NFSP conference and that the relationship was in a different place
to last year. Richard Callard concurred that the conference had gone
well but explained that there had been challenge to the Minister
regarding Government Services work, especially DVLA and POCA.
(d) CURRENT ACCOUNT
The Bank Of Ireland had agreed to extend the current account to an
additional 100 branches, but the Business was asking for an additional
500.
(e) BBC DOCUMENTARY
The Business had agreed the filming of a BBC documentary to be
aired in the spring. The CEO recognised that any such work had an
ACTION: element of risk but the Business had been reassured by the editorial
Mark Davies constraints negotiated by Mark Davies. The Board asked the CEO to
ascertain if the broadcast could be timed for after the election. The
CEO offered to circulate a brief and film trailer to the Board
(f) SPARROW
Chris Aujard, General Counsel, and Belinda Crowe, Programme
Director Project Sparrow, joined the meeting.
t-was-reported—that The draft executive summary of the Horizon
ACTION: Assurance Review, prepared by Deloitte, had been circulated to the
General Counsel Board. The General Counsel advised that t-was the full Review
should be available to the Business on Friday 23 May. He would
circulate it to the full Board as soon as possible, once he was satisfied
with its drafting and the clarity of expression. It was agreed that he
would escalate within Deloitte if he had concerns about the quality of
the product. The Chairman stressed the importance of this Review
and the need for it to give the Board assurance that there were (if that
be the case) no issues with the system. She also stressed the need
for the Review to be written clearly so that it could be used to give
assurance to a wider audience. The Review would be considered at
the next Board Sparrow Sub Committee (BSSC).
The CEO reported that she and the General Counsel had met Sir
Anthony Hooper to understand his appetite for changing the Scheme.
Sir Anthony Hooper stressed that the Post Office had agreed to the
mediation scheme and believed they now needed to let it run over the
next 12-18 months. With this in mind, the Chairman asked the BSSC
to decide whether there was an’ option to change the scheme, before
the first case was mediated, which could be as early as the next 4-8
weeks.
ACTION:
Board Sparrow SC
The General Counsel! explained that ten cases, where the claimant
was an existing sub postmaster, had already been resolved outside
POL00027400
POL00027400
Post Office Limited — Strictly Confidential
the scheme at very low cost to the Business. The team were
continuing to identify and attempting to resolve cases under the
business as usual processes — this included making settlement
payments, where doing so was unlikely to set precedents or create
problems with either the Working Group or the Network. It was
possible that the first case going through the Scheme could also be
settled prior to mediation.
The Board asked for a paper to the BSSC explaining the caseload, to
ACTION: include:
Belinda Crowe
the original number of cases;
« those already resolved outside the Scheme;
* an assessment based on information available (as only 22
have been fully investigated) as to how many cases have so
far been identified which could potentially be settled under
business as usual without going to mediation;
e identifying the number of criminal cases which Post Office is
unlikely to agree to mediate; and
e highlighting how many applications in the Scheme cite issues
which relate specifically to the Horizon system.
The CFO explained the cost to the Business of the Sparrow was
running at circa £700k a month, excluding payments to claimants.
This expenditure was in line with the budget but still a challenge for
the Business.
The Chairman asked that the next BSSC to consider:
ACTION:
General Counsel/
Belinda Crowe
« the options available for the Scheme;
* how cases could be removed from the Scheme into business
Mark Davies
as usual, based on a narrow definition of Horizon, and how this
would be explained to the sub postmasters and other
stakeholders;
e the likely response from Sir Anthony Hooper, JFSA and
Second Sight to any change; and
e PR scenario planning for all the options being considered.
POLB 14/77 FINANCIAL PERFORMANCE UPDATE
(a) The Board received a financial performance update for April 2014.
POLB 14/78 MINUTES OF PREVIOUS MEETING AND MATTERS ARISING
(a) The minutes of the Board meeting held on 30 April 2014 were
approved for signature by the Chairman.
POLB 14/79 COMMITTEE MEETING MINUTES FOR NOTING
POL00027400
POL00027400
Post Office Limited — Strictly Confidential
(a) The Board noted the minutes of the Project Sparrow Sub-Committee
meeting held on 9 April 2014.
POLB 14/80 STATUS REPORT
(a) The Status Report, showing matters outstanding from previous Board
meetings, including an update on Telephony, was noted.
POLB 14/81 ITEMS FOR NOTING
{a) The Board noted the Project Maypole update.
The CFO reported that the DWP had asked for a 10 per cent price
reduction in the Maypole contract. The Business has responded by
explaining that it cannot take a 10 per cent hit on the income and that
what has been proposed is the final offer. The CFO warned the Board
that the DWP_may-have-alternative-options and-the Business may not %
be able to negotiate an economic deal.
(b) The Board noted the Significant Litigation report.
(c) The Board noted the Health & Safety report.
(d) The Board noted the update on Cyber Security and Information
Assurance.
(e) 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 1160 to 1167 inclusive in the seal
register was hereby confirmed.
POLB 14/82 ANY OTHER BUSINESS
(a) The Board considered a proposal to separate IT Network Services
from Royal Mail.
(b) The Board agreed that the Business should proceed to award a direct
contract between Post Office and British Telecommunications as
outlined in the paper, and authorised the Business to enter into a
Transitional Services Agreement with Royal Mail covering joint
activities and services necessary to support the commercial
separation.
POLB 14/83 DATES OF NEXT MEETINGS
(a) It was noted that the next Board meeting would be held on 16 July
2014, and that the Board Strategy Awaydays would be held on 10-11
June 2014