POLB 14(4")
POLB 14/48-14/63
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POST OFFICE LIMITED
(Company no. 2154540)
(the ‘Company’)
Minutes of a Board meeting held on 30 April 2014
Present:
Alice Perkins
Neil McCausland
Tim Franklin
Virginia Holmes
Alasdair Marnoch
Richard Callard
Paula Vennells
Chris Day
In Attendance:
Alwen Lyons
Nick Kennett
Chris Aujard
Paul Havenhand
Mark Davies
Martin George
Kevin Gilliland
Lesley Sewell
Gareth James
POLB 14/48
(a)
POLB 14/49
(a)
(b)
ACTION: Nick
Kennett
at 148 Old Street, London EC1V 9HQ
Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director (minutes 14/49-14/51)
Non-Executive Director
Non-Executive Director
Chief Executive
Chief Financial Officer
Company Secretary
Director, Financial Services (minutes 14/48-49, 14/51 and
14/53)
General Counsel (minutes 14/48-49 and 14/55)
Head of Travel and Insurance (minute 14/48-49)
Communications and Corporate Affairs Director (minutes
14/50 and 14/52)
Chief Marketing and Commercial Officer (minutes 14/53-54)
Network & Sales Director (minutes 14/53-54)
Chief Information Officer (minute 14/55)
Partner, Deloitte LLP (minute 14/55)
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. Virginia Holmes,
Chairman of the Board FS Sub Committee, explained that Titan had
been discussed at the recent Sub Committee and that there was
support for the project subject to the outcome of additional work on
governance and risk.
The Board acknowledged the importance of Titan in delivering the FS
strategy. However, it recognised the risks to the Post Office brand and
reputation of establishing the specialist subsidiary Managing General
Agent (MGA). The Business was asked to provide more detail of the
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financial impacts of the proposed model.
(c) Richard Callard supported the concept but asked to understand more
ACTION: Chris clearly the extent to which the MGA would in reality be free from
Aujard restrictions imposed on government entities, including procurement
law.
ACTION:
Company (d) Virginia Holmes suggested that the Miller Report used by the FS Sub
Secretary Committee be made available to the full Board.
(e) The Business was asked to provide a paper for the next Board
covering:
e the governance structure of the MGA. How the relationship,
controls and oversights between the MGA Board and the Post
Office Board would operate and link through to the Shareholder
Executive;
e the implications for the Business of operating the MGA
ACTION: including the change in the risk profile;
Nick Kennett/ ¢ an analysis of the financial impacts of the new operating
Chris Aujard/ model, including improved margins and higher costs and how
Chris Day these relate to the additional risk, bearing in mind all the other
changes that the Business was committed to implementing;
and
* an analysis of the Business’ current regulatory obligations
ACTION: (fy compared to a position of becoming directly regulated.
Chris Aujard
The General Counsel was asked to provide independent advice on the
efficacy of the governance proposals, and to invite the advisors to the
(9) next Board.
Without prejudice to the discussions at the next Board meeting, the
Board authorised the Business to:
(i) Utilise the Post Office Management Services Limited (“POMS”)
to be the Post Office Managing General Agent; and
(ii) Discuss with BIS the possible use of POMS and understand
(h) the governance for appointing Directors which would be
discussed at the next Board meeting.
Nick Kennett, Chris Aujard and Paul Havenhand left the meeting.
POLB 14/50 MILESTONES TO MUTUALISATION
(a) Mark Davies, Communications and Corporate Affairs Director, joined
the meeting.
(b) The Board discussed the Milestones to Mutualisation document, which
set out the conditions necessary before the mutualisation of Post
Office Limited could become a reality.
(c) Richard Callard explained the Ministers desire to publish this
document, by the end of the week, alongside the announcements of
the Community Fund and the Post Office Public Purpose.
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(d) Mark Davies pointed out that the Business had always planned to
announce the Milestones to Mutualisation in the first quarter of the
financial year 2014/15, but he had some reservations of doing so at
present because of the possible connection with the mutual model at
the Co-operative Group and the current publicity about them.
(e) The Board discussed the document and agreed some amendments.
(f) I The Board agreed that the document could be published alongside the
ACTION: Post Office Public Purpose and Community Fund announcement but
Richard Callard asked Richard Callard to feed back to BIS the Board’s view that the
emphasis in any statement be on the Community Funds and Public
Purpose Statement, as these were the current issues.
(g) Mark Davies left the meeting.
POLB 14/51 VARIOUS FINANCIAL SERVICES ISSUES
(a) Nick Kennett re-joined the meeting.
(b) The Board discussed the areas for debate with the guests from the
Bank of Ireland joining the meeting. The Chairman recognised the
commitment from the Bank and the strength of the relationship. It was
agreed to test the alignment of the two Business’ plans, the support for
the growth strategy and the appetite for investment products.
Virginia Holmes left the meeting.
(c)
The Board noted the Analysis of the Post Office relationship with the
(d) Co-operative Group, which had been circulated as a noting paper.
The Board asked if there was any more the Business could do to
(e) protect itself from the current exposure to the Co-operative Group. The
CFO explained that he had commissioned a piece of work from
Thomson Reuters to evaluate the current position and propose an
appropriate approach to give the Business financial protection. The
Board asked the CFO to share the outcome of the report and the
ACTION: CFO actions he decides to take with Alasdair Marnoch, Chairman of the
Audit Committee and the General Counsel.
The Board noted the update on various risk matters, including Bank of
(f) Ireland (UK) plc capital & liquidity and the progress on the launch of a
Financial Services Sub-Brand. The Board discussed the Sub Brand
options and supported the proposal of Post Office Money.
Nick Kennett left the meeting.
(g)
PUBLICATION OF ANNUAL REPORT AND FINANCIAL
POLB 14/52 STATEMENTS
(a) Mark Davies re-joined the meeting.
(b) The Board considered the plans for publication of the Post Office's
Annual Report and Financial Statements for the financial year 2013-
2014. A detailed review would be carried out at the May ARC.
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(c) The Board discussed the themes to be included in the Chairman’s
foreword and CEO's review and the desire to ensure that the whole
report is fair, balanced and understandable, in line with best practice in
ACTION: Mark corporate governance. Mark Davies would draft and agree these
Davies/Chairman/ before the ARC meeting.
cro The CFO agreed to circulate a more detailed timetable to the Board.
ACTION: CFO (d) Mark Davies left the meeting.
(e)
POLB 14/53 COMMERCIAL UPDATE
(a) The Board welcomed Martin George, Chief Marketing and Commercial
Officer and Kevin Gilliland, Network & Sales Director. Nick Kennett
also re-joined the meeting.
(b) The Board congratulated Kevin Gilliland on the resolution of the CWU
pay dispute and recognised his personal commitment and that of his
team in delivering the agreement.
(c) Martin George updated the Board on the trading outlook and explained
the new governance now in place in the Business to drive the
commercial agenda. He reported changes in his team and promised a
greater focus on mails and a more robust engagement with Royal Mail
Group (RMG).
(d) The Board challenged the number and complexity of the products
which the Business sold. Whilst Kevin Gilliland agreed that simpler,
more automated products which were to the relevant to customer
would help his sales team, he did not advocate reducing products per
say.
ACTION: CFO (e) The Board asked the CFO to provide the product profitability analysis
for the next meeting.
(f) I Martin George emphasised the importance of mails to delivering this
ACTION: year’s income targets and suggested the he lead a deep dive into
Martin George mails at the May Board. This would include the relationship with RMG,
our response to changes in the market and how we can respond more
quickly.
(g) Martin George was confident in delivering the Government income in
2014/15. However, the current POCA negotiations could make future
years more difficult. The CFO stressed that any POCA contract would
need to have a long term positive margin and that the Business would
not agree a contract which was uneconomic. The CEO acknowledged
that the Department for Work and Pensions were in a difficult position
and reported that she had a meeting planned with the Pensions
Minister.
(h) Martin George was also confident in delivering the telephony income.
The Board asked for clarity on the reasons for the increase in the cost
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ACTION: of sale versus the budget in the new telephony contract and the
Martin George reason why the Business has not been able to pass this on to the
supplier.
(i) I Nick Kennett reported a strong final quarter in 2013/14 for Financial
Services which was generating a healthy pipeline for products in
2014/15. However the Life Assurance campaign was still being
analysed as this was an area which may need more work. He stressed
the reliance on delivering project such as Titan to support this year’s
income.
(j) Nick Kennett left the meeting.
POLB 14/54 NETWORK AND SALES
(a) The Board received an update on the progress of Network
Transformation, discussions with the NFSP and Crown
Transformation, together with an update on Project Ivy.
(b) NETWORK TRANSFORMATION
The Board discussed the costs of onsite and offsite conversions and
the impact on sales. Kevin Gilliland explained that because of the
change of premises, offsite conversions were understandably taking
longer to recover lost sales as a result of the change than onsite
conversions. The Business was trialling different initiatives to support
the new branches and he was very hopeful that this would improve the
sales. However, even with the initial loss of sales these branches
increased the profitability for the Post Office because of the savings in
fixed costs. The big opportunity for these branches was _ their
availability outside core Post Office hours and the Business needed to
promote that more effectively, as well as provide the right products
such as collections and returns.
ACTION: Kevin
as (c) The Board asked for a further update on the economics of transformed
Gilliland
branches (onsite versus offsite) as part of the quarterly Network
update.
(d) Kevin Gilliland explained that, despite the success of hitting both the
number of contracts signed and branches open targets for 2013/14,
there was still considerable risk in this year’s target as the majority of
both contract signatures and openings would be Locals, particularly
onsite independent Locals, where this approach was largely untested
and could potentially take longer to deliver. He reported that he was
also working with the NFSP on a trial of ‘guided leavers’ using a
representative sample of 50 subpostmasters to show how we will
manage compulsory exits.
(e) CROWNS
Kevin Gilliland explained that the Business was now very clear about
the run rate required at March 2015 to deliver the target of a
breakeven Crown network. He stressed that the main risk to delivery
was the income line in the P&L, which required a 7% increase year on
year.
(f) The Board recognised the ambition in the plans and asked the
ACTION: CFO
POLB 14/55
ACTION:
Lesley Sewell/
Chris Aujard
POLB 14/56
(h)
(i)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(b)
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Business to work on a contingency to cover the risk of not achieving
the income target. The CFO explained that work was already
underway and a plan would be in place by the end of the first quarter.
The Board asked for sight of the work to date at the May meeting
Chris Day reported that this methodology for calculating the exit run
rate for Crowns and therefore the breakeven point had been agreed
with BIS.
PROJECT IVY
The Board noted the updates and the next steps for Project Ivy.
Martin George and Kevin Gilliland left the meeting.
HORIZON — DELOITTE REPORT
The Board welcomed Lesley Sewell, Chief Information Officer, and
Gareth James, Partner, Deloitte, to the meeting. Chris Aujard also re-
joined the meeting.
The Chairman thanked Gareth James for his draft report and
explained that there were a number of people who were sceptical
about Horizon. The Board were concerned to know the truth about the
reliability of the system. Deloitte’s views would need to be expressed
in such a way that they would persuade reasonable lay people.
Lesley Sewell explained that the first piece of work Deloitte had been
asked to undertake was to give assurance that the control framework,
including the security and processes for changes in the system, were
robust from an IT perspective.
Gareth James reported that all the work to date showed that the
system had strong areas of control and that its testing and
implementation were in line with best practice. Work was still needed
to assure the controls and access at the Finance Service Centre.
Chris Aujard explained that several of the subpostmasters who were
challenging Horizon had made allegations about ‘phantom’
transactions which were non-traceable. Assurance from Deloitte about
the integrity of the system records logs would be very valuable.
The Board asked what assurance could be given pre 2010 when the
different Horizon system was in use. It was agreed that Gareth James
would produce and cost a proposal for additional work to enable
assurance for the wider system, including pre 2010.
Lesley Sewell, Gareth James and Chris Aujard left the meeting.
CHIEF EXECUTIVE’S REPORT
The Board noted the Chief Executive's report.
The CEO reported that an employee engagement score of 57% had
been achieved for the full year, which meant that the Business had
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ACTION: CFO
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(a)
(a)
(b)
(a)
(a)
(b)
(a)
(b)
(c)
(d)
(e)
(f)
achieved its stretch target.
FINANCIAL PERFORMANCE UPDATE
The Board received a financial performance update for March 2014.
MINUTES OF PREVIOUS MEETING AND MATTERS ARISING
The minutes of the Board meeting held on 26 March 2014 were
approved for signature by the Chairman.
There were no matters arising
COMMITTEE MEETING MINUTES FOR NOTING
The Board noted the minutes of:
e the Audit, Risk and Compliance Committee meeting held on 6
March 2014;
e the Nominations Committee meeting held on 11 February
2014;
e the Pensions Committee meeting held on 5 March 2014; and
e the Remuneration Committee meeting held on 11 March 2014.
STATUS REPORT
The Status Report, showing matters outstanding from previous Board
meetings, including an update on the Wave programme, was noted.
It was noted that the Sparrow Lessons Learned review would be
discussed in more detail at the May ARC.
ITEMS FOR NOTING
The Board noted the Separation update.
The Board noted the Head Office relocation update. The Board asked
the Business to ensure it had negotiated the best rent available
including asking the landlord for rent free periods to vacant the old
building or for taking on the new lease. It was also suggested that the
Business should check the broadband capability of the new building.
The Board noted the Significant Litigation report.
The Board noted the Health & Safety report.
The Board noted the update on Cyber Security and Information
Assurance.
The Board noted the Report on Sealings and resolved that the
affixing of the Common Seal of the Company to the documents
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set out against items numbered 1141 to 1159 inclusive in the seal
register was hereby confirmed.
POLB 14/62 ANY OTHER BUSINESS
(a) There being no other business the meeting was closed
POLB 14/63 DATE OF NEXT MEETING
(a) It was noted that the next Board meeting would be held on 21 May
2014.