Present:
In attendance:
EXECUTIVE COMMITTEE
AGENDA
for the meeting to be held on 19 November 2013
in The Dining Room , The Hoxton Hotel
POL00027506
POL00027506
Paula Vennells (Chair), Martin Edwards, Mark Davies, Lesley Sewell, Chris Day, Kevin Gilliland,
Sue Barton, Fay Healey, Nick Kennett, Alwen Lyons, Martin George, Chris Aujard
Dave Mason, Sarah Hall, Paul Brown, Martin Palimeris, Harry Clarke, Robin Gregory
Start time : 9.00
End: 16.00
Time Item ExCo Sponsor/Presenter
09.00 - 09.30 Update on Horizon Chris Aujard
e Draft settlement policy for mediation scheme
09.30 - 10.00 Project Wave Paul Brown/Martin George
10.00 - 10.45 Sub-postmasters survey results presentation Fay Healey/Martin Palimeris
Ipsos MORI will be presenting
10.45 - 11.00 BREAK
11.00 - 12.30 Risk review and appetite Dave Mason/Chris Aujard
12.30 - 13.00 LUNCH
13.00 - 13.45 Finance Performance Pack Sarah Hall/Chris Day
13.45-14.15 Industrial Relations update (verbal) Kevin Gilliland
14.15 -14.45 Strategy and Funding update (verbal) Sue Barton
14.45 -15.35 Noting papers (10mins per item)
e Post Office Energy Proposition Paul Brown
e Personal Injury Referral Fees update Nick Kennett
¢ —FS/Network Incentives for front line staff Nick Kennett/Kevin Gilliland
e Update on FM and Grapevine Procurement Harry Clarke/ Kevin Gilliland
e Use of Advisors Robin Gregory/Chris Day
15.35 -15.45 Actions Log All
15.45 - 16.00 AOB All
CLOSE
POL00027506
POL00027506
Confidential —- Subject to Legal Privilege
POST OFFICE EXECUTIVE COMMITTEE
Horizon - Settlement Policy for the Initial Complaint Review and Mediation Scheme
(the “Scheme”)
1. Purpose
The purpose of this paper is to:
1.1. request approval for a Settlement Policy which sets the framework for making
decisions about financial settlements of claims under the Scheme;
1.2. set out the strategy for managing the potential gap between Subpostmasters’
expectations about the value of settlements and the amount that Post Office
may be prepared to offer (the “Expectations Gap”); and
1.3. seek the Executive Committee’s views on this strategy could be developed
further.
2. Background
2.1. Following the publication of the Second Sight Report in July 2013, Post Office
announced a number of steps which it would take to address the issues raised
in the Report.
2.2. One step was to create the Scheme to help resolve the concerns of
Subpostmasters regarding the Horizon system and other associated issues.
Although the Scheme is primarily aimed at applicants who are no longer
Subpostmasters, it is also open to existing Subpostmasters provided they
have previously raised their complaint with us, and exhausted our internal
investigation processes.
2.3. At the time of writing, we have received 94 applications. This already exceeds
our original planning assumptions of 75 cases in total. The Scheme closes on
18 November 2013.
3. The Scheme
3.1. I The Scheme was designed, and is overseen by, a Working Group comprising
members of Post Office, JFSA and Second Sight. Sir Anthony Hooper was
appointed as the Independent Chair of the Working Group on 18 October
2013.
3.2. The objectives of the Scheme are to:
. provide a mechanism to investigate a Subpostmaster’s concerns
proportionately and effectively;
. try to achieve a mutual and final resolution of a Subpostmaster’s
legitimate concerns about Horizon and any associate issues, whether
through mediation or direct discussions.
Initial Complaint Review and Mediation Scheme Settlement Policy Chris Aujard
13 November 2013
Page 1 of 5
POL00027506
POL00027506
Confidential —- Subject to Legal Privilege
3.3. The role of the Working Group is to:
. monitor the fairness and efficiency of the Scheme in achieving its
objectives;
. ensure the cases progress through the Scheme in a timely manner;
and
. review Subpostmasters’ cases which may not be suitable for the
Scheme and decide whether and how those cases may proceed.
4. Ensuring the success of the Scheme
4.1. Post Office has invested time and money in creating the Scheme, and
positioned it with the media, MPs and JFSA as the response to the Second
Sight Report. It is therefore important that the Scheme achieves its objectives
and is generally acknowledged as being successful in answering the concerns
of Subpostmasters.
4.2. From the Post Office’s perspective the Scheme will have been a success if,
when it has completed:
. the media, MPs and JFSA consider that the Scheme fairly investigated
and, where appropriate, addressed the Subpostmaster concerns
identified in the Second Sight report, even if there is disagreement
over the outcome of individual cases;
. Post Office can more robustly defend its use of the Horizon system
against criticism by a minority of Subpostmasters who, despite best
efforts, remain entrenched in their dissatisfaction with Post Office;
. the cost to Post Office in terms of financial settlements is not
excessive, but proportionate and consistent with the proper use of
public money; and
° the general body of Subpostmasters retain their confidence in the
Horizon system.
4.3. Given there is currently no evidence of any systemic problem with the Horizon
system, Post Office’s view when designing the Scheme was that excessive
compensation payments would be unlikely and, for example, an apology may
be a more appropriate remedy. The Scheme documentation itself says that
‘compensation is one possible solution that could be agreed by the parties but
this will depend on what happened in [the individual] case’.
4.4. However, it is becoming apparent from some of the early cases coming into
the Scheme, and comments made by JFSA (in the media and to
Subpostmasters), that in some instances a “gap” is emerging between what
Initial Complaint Review and Mediation Scheme Settlement Policy Chris Aujard
13 November 2013
Page 2 of 5
POL00027506
POL00027506
Confidential —- Subject to Legal Privilege
applicants and JFSA may be expecting, and what Post Office might consider
to be an appropriate financial settlement, i.e. the Expectations Gap.
4.5. For the Scheme to provide a successful closure to the Horizon episode, we
need to manage both the costs and the Expectations Gap.
5. Managing costs
5.1. Each case will turn on its own facts. Whether compensation is appropriate
(and if so, how much) must therefore be assessed on a case-by-case basis,
and signed off by Post Office Finance.
5.2. It is not possible to accurately assess the overall costs to Post Office until all
cases have been investigated and we have a clearer idea of the approach the
Working Group will take on the suitability of cases for mediation. We will keep
the situation under review given that some mediations are likely to take place
before others have been fully investigated.
5.3. Nevertheless, we have always envisaged that some cases will result in a
financial settlement. It is therefore important that any payments are justifiable,
consistent and proportionate, and that we have an agreed policy in place to
facilitate this before we begin considering financial settlements for individual
cases.
5.4. The draft Settlement Policy attached at Annex 1 sets out a framework,
principles and process for considering cases where it is clear that the
applicant is seeking a financial settlement. Applying this policy will allow us
to:
° manage and control costs;
. approach financial settlements consistently; and
. provide the Post Office mediation team with a clear mandate for
settlement prior to entering mediation discussions (this is a pre-
requisite to mediation).
6. Managing the Expectations Gap
6.1. The fact that cases have been progressed through the Scheme should lend
credibility to their outcomes. Specifically:
. the Scheme was developed collaboratively with JFSA and Second
Sight, who are also on the Working Group overseeing the progress of
cases through the Scheme;
e the Working Group has an independent Chair with considerable
experience in overseeing complex cases;
° applicants are allowed up to £2,750 (plus VAT) towards the fees of a
professional advisor to help prepare their case and attend mediation;
Initial Complaint Review and Mediation Scheme Settlement Policy Chris Aujard
13 November 2013
Page 3 of 5
POL00027506
POL00027506
Confidential —- Subject to Legal Privilege
. by its very nature, mediation is designed to support parties in finding
common ground and therefore is, in itself, a mechanism for managing
expectations within the confidentiality of a mediation discussion.
6.2. Still, certain Subpostmasters are claiming millions of pounds, when Post
Office’s view of potential compensation is much more modest. However,
having established a Scheme with no express financial limits, and accepted
applications on that basis, we could be criticised for changing the goal-posts if
we start publicly suggesting limits at this stage.
6.3. Although confidentiality will be a feature of any settlement agreement, we
should expect some detail to find its way into the public domain. Although
Post Office could, rightly, be criticised if settlement figures were seen to be
high, public and political opinion is generally on the side of Subpostmasters.
6.4. To minimise the risk of Subpostmasters being dissatisfied having come
through the Scheme, we need to begin to manage expectations. As well as
wishing to avoid adverse publicity, we have a responsibility to help ensure that
Subpostmasters are not disappointed when they already feel they have been
let down by Post Office.
6.5. In considering how to manage the Expectations Gap it is important to maintain
the integrity of the Scheme. In particular we have to consider:
. legal privilege — the Settlement Policy is, and must remain, confidential
and privileged. Disclosing all or part of the Policy is likely to cause
privilege to be lost. There are therefore strict limits of what information
can be disclosed, and to whom;
. public impact on applicants, stakeholders and the media — a
perception that Post Office is trying to limit an applicant's freedom to
raise whatever complaints they see fit could lead to criticism;
. impact on the Working Group — managing the Expectations Gap may
create tensions within the Working Group which affect its collaborative
focus;
° evidence based decisions — making public statements about Post
Office's expected outcomes for the Scheme may appear to be pre-
supposing or undermining the process.
6.6. The Chair, with his judicial background, should understand the need for
settlements to be reasonable and based on properly evidenced facts. It is
also in his interest to have presided over a successful Scheme. We propose
to:
. open discussions with the Chair to take his views on how we might
approach the task of managing the Expectations Gap; and
. use opportunities presented in meetings with MPs and others, should
the subject arise, to restate our original position in relation to
resolutions not necessarily being financial.
Initial Complaint Review and Mediation Scheme Settlement Policy Chris Aujard
13 November 2013
Page 4 of 5
POL00027506
POL00027506
Confidential —- Subject to Legal Privilege
7. Examples
7.1. As set out in para’s 5.1 and 5.2 above, we do not have sufficient information
at this stage to assess the potential overall cost of financial settlements to
Post Office.
7.2. However we have worked through two live examples to illustrate how the
Settlement Policy might work in practice and how the Post Office approach to
settlement might compare with the expectations of individual Subpostmasters
(see Annex 2).
7.3. We cannot tell at this stage how typical these examples are, but have
provided them to help bring the Policy and proposals in this paper to life.
8. Communications
8.1. At present our media position is reactive, and we are avoiding giving regular
public updates on the Scheme and the number of applications.
8.2. We are developing a communications strategy to coincide with the first
mediation decisions. We will agree our approach with the Chair of the
Working Group, and possibly the Group itself. There is every indication that
the Chair does not favour media attention and already has plans to try to
restrict individual parties to the Working Group making comments about the
scheme to the media.
9. Conclusion
9.1. The Settlement Policy and an approach to managing expectations, agreed
with the Chair of the Working Group, will promote the success of the Scheme.
10. I Recommendations
The Executive Committee is asked to:
10.1. approve the Settlement Policy
10.2. note the arrangements for managing the Expectations Gap.
Chris Aujard
13 November 2013
Initial Complaint Review and Mediation Scheme Settlement Policy Chris Aujard
13 November 2013
Page 5 of 5
POL00027506
POL00027506
Confidential and legally privileged
Confidential and legally privileged
INITIAL COMPLAINT REVIEW AND MEDIATION SCHEME
[DRAFT] SETTLEMENT POLICY
Version 1.3
[...] November 2013
POL00027506
POL00027506
Confidential and legally privileged
Contents
Document Control
Objectives
General approach to settlements under the Scheme
Process for considering individual complaints
Settlement principles
5.1. Overarching principles
5.2. Criminal cases
5.3 Settlement thresholds
5.4 Settlement options
5.5 Compensation matrix
5.6 Goodwill payments
Glossary
Privilege
POL00027506
POL00027506
Confidential and legally privileged
1. Document control
1.1. This Policy has been prepared:
1.1.1
1.1.2
1.1.3
To assist Post Office in settling complaints raised through the
Scheme.
To manage the risk that a complaint could escalate to full litigation.
With the advice and assistance of both intemal and external
lawyers.
1.2 Accordingly, this Policy is subject to both legal advice privilege and litigation
privilege. It is also commercially sensitive and confidential to Post Office.
Circulation control
1.3. This Policy should:
1.3.1
1.3.2
1.3.3
Never be sent to or discussed with any person outside of Post
Office without the prior consent of POL Legal.
Be circulated inside POL unless it is strictly necessary to do so, for
which purpose the following may need to review this Policy:
. Board
. ExCo
° ARC
. The Steering Group
. Those employees and contractors involved with the Scheme.
Any FOIA or DPA request in respect of this document must be
immediately referred to POL Legal.
POL00027506
POL00027506
&
Confidential and legally privileged
Version history
Version Status Date
1 Draft 22 October 2013
11 Draft 30 October 2013
1.2 Draft 4 November 2013
1.3 Draft 9 November 2013
1.4 The first "Live" version of this Policy has been approved by the Steering
Committee and ExCo.
1.5 Any amendments to this Policy must be approved by the Steering
Committee.
POL00027506
POL00027506
Confidential and legally privileged
2. Objectives
Post Office's Objectives for the Scheme
21
2.2
2.3
2.4
2.5
2.6
Listen to Subpostmasters' concerns
Explain Post Office's position
Offer solutions where possible
Compensate if loss has been unfairly suffered
Demonstrate that Post Office is being transparent
Ensure that Post Office's decisions are defensible
Objectives of this Policy
27
2.8
29
2.10
2.11
2.12
2.13
Ensure that each applications is treated consistently
Ensure that Post Office complies with its criminal law / prosecution duties
Ensure that the outcomes of the Scheme are compliant with any
subsequent criminal appeal process
Help scope and control the size of the Scheme and costs of settlement
Assist Post Office in preparing for difficult mediations / decisions
Ensure that all internal stakeholders are consulted on the handling of
individual Complaints
Enable a Post Office representative to enter a mediation with a clear
mandate for settling (or not) each complaint
POL00027506
POL00027506
Confidential and legally privileged
3. General approach to settlements under the Scheme
This section sets out the methodology for monitoring and scoping the overall costs
and outcomes of settlements under the Scheme.
Settlement Principles
3.1. Aset of Settlement Principles will be drawn up that will guide the approach
to settling each Complaint.
3.2 The Settlement Principles will be set out in this Policy —- see section 5
3.3. The Settlement Principles will be reviewed regularly.
3.4 The Principles will be revised as necessary to address any changes in:
3.4.1. the Scheme
3.4.2 the number/nature of the Complaints
3.4.3 past mediations or settlements
3.4.4 The Outcome Assessment (see below)
Fix the number of complaints
3.5 Applications by Applicants to the Scheme must be received by 18
November 2013.
3.6 Following the application deadline, the total number of applications will be
known but the value of any complaints may still be unclear.
3.7 An initial review and assessment of the complaints will be undertaken at
this stage applying the Settlement Principles to test the efficacy of the
Principles in practice.
POL00027506
POL00027506
Confidential and legally privileged
Value the complaints
3.8
3.9
3.10
On receipt of an Applicant's applications and case questionnaire, Second
Sight will work with Post Office to investigate the Complaint.
This investigation should produce greater clarity as to the types of
settlement and compensation being sought by Applicants.
This information will be regularly reviewed to assess the possible outcome
and costs of settlements under the Scheme (the Outcome Assessment).
Set Settlement Parameters
3.11
3.12
Following the investigation phase, it should be possible to separately
assess the merits of each Complaint and produce a Recommendation for
Settlement (see section 4 below)
The Recommendations for Settlement will be reviewed holistically on a
regular basis and used to further update the Outcome Assessment.
Mediation
3.13
3.14
3.15
At mediation, a settlement will be sought within the parameters of the
Recommendation for Settlement.
The result of any Mediation (whether or not there is a settlement) will be
communicated to all internal key stakeholders.
The results of any mediations will be reviewed holistically on a regular basis
and used to further update the Outcome Assessment.
Reporting
3.16
3.17
The updated Outcome Assessment will be presented to the Steering Group
on a regular basis for their consideration.
The following management information about the Scheme will be tracked:
. Applications received
POL00027506
POL00027506
Confidential and legally privileged
° Applications accepted for funding
. Applications rejected (by grounds)
. Case Questionnaires received
. Cases investigated by POL
. Cases investigated by Second Sight
. Value of claims
. Cases approved / rejected for mediation (with reasons)
e Mediations completed (by outcomes)
. Cases settled
POL00027506
POL00027506
Confidential and legally privileged
4. Process for considering individual complaints
This section sets out the process for handling and trying to resolve each individual
Complaint.
Background
4.1 Following the investigation into a specific Complaint, the Working Group will
take a decision on whether the case is suitable for mediation.
4.2. Mediation is a consensual process so even if the Working Group decides
that a case is suitable for mediation, Post Office is not required to mediate
(though there may be negative consequences in refusing to do so).
4.3 It may be that some cases can be resolved before mediation through direct
engagement with the Applicant.
4.4 If asettlement is agreed through mediation, the mediator is likely to insist
that the parties sign a settlement agreement on the day of the mediation.
4.5 Those persons attending mediation (or engaging directly with an Applicant)
on behalf of Post Office therefore need a clear mandate as to the nature
and scope of any settlement that might be offered.
Suitability for mediation
4.6 Following the investigation into a specific Complaint but before the Working
Group decides whether a case is suitable for mediation, POL Legal will, in
consultation with other internal stakeholders, advise on whether POL
should:
46.1 Vote against mediation at the Working Group and refuse to mediate
even if the Working Group votes in favour of mediation.
46.2 Vote against mediation at the Working Group but allow mediation to
proceed if the Working Group votes in favour of mediation.
46.3 Vote in favour of mediation at the Working Group.
POL00027506
POL00027506
Confidential and legally privileged
47
This advice will be passed to Post Office's representatives on the Working
Group.
Recommendation for Settlement
48
49
4.10
4.11
4.12
If POL wishes to attempt to settle a Complaint (by mediation or direct
engagement), the Complaint and the investigation findings will be internally
reviewed in order to produce a Recommendation for Settlement.
Where the Applicant has been subject to a criminal conviction, the
investigation findings will be sent to POL's prosecution team to ensure that
Post Office is complying with its prosecution duties (in particular, its on-
going disclosure duties).
POL Legal (or external counsel) will be responsible for leading the process
of producing the Recommendation for Settlement in order to ensure that
legal privilege is preserved. The Recommendation for Settlement will
recommend:
4.10.1 Whether Post Office should attempt to resolve the Complaint
before mediation?
4.10.2 Possible settlement options
4.10.3. If applicable, the financial limits for a compensation payment.
Internal stakeholders will be consulted as appropriate on the
Recommendation for Settlement.
The Recommendation for Settlement will be revised and finalised by POL
Legal (or external counsel) and the communications team.
Approval to settle
4.13
The Recommendation for Settlement will be considered by Charles
Colquhoun (or a suitable alternative person nominated by Charles) who
will:
4.13.1 Ensure the Recommendation for Settlement complies with the
Settlement Principles and this Settlement Policy.
POL00027506
POL00027506
Confidential and legally privileged
4.13.2 Ensure that the Recommendation for Settlement is consistent with
the approach adopted in other Complaints.
4.13.3 Approve or propose changes to the Recommendation for
Settlement.
4.14 A mandate will be issued to those attending mediation or engaging directly
with Applicants confirming that they may settle the Complaint within the
scope of the approved Recommendation for Settlement.
Mediation
4.15 The attendees for mediation will be identified which shall include at least 1
lawyer and 1 representative of Post Office. The representative of Post
Office shall be:
4.15.1 Of appropriate seniority commensurate with the nature of the
Complaint and the level of settlement envisaged in the
Recommendation for Settlement.
4.15.2 From a part of the business that relates to the nature of the
complaint raised.
4.16 POL Legal (or external counsel) will liaise with CEDR (the mediation
provider) regarding the logistics of the mediation.
POL00027506
POL00027506
Confidential and legally privileged
5. Settlement Principles
This section sets out the Settlement Principles that will guide the scope of any
settlement offered to an Applicant.
A.
Overarching Principles
The following principles overarch the general approach to settlement:
5.1
5.2
5.3
5.4
5.5
Any settlement must take account of the risk that the settlement may set a
precedent that could (a) open the floodgates to more claims (both inside
and outside the Scheme) and/or (b) increase expectations for existing
claims.
Applicants will generally need to show that the matters that they are raising
actually led them to suffer a financial loss in their branch before a
settlement is offered.
Generally, settlements (including compensation) will only be offered for
alleged harm that arises directly out of, or was an obviously foreseeable
consequence of, a breakdown in the business relationship between the
Applicant and the Post Office.
The extent of any settlement (including the value of any compensation) will
be based on Post Office's "Risk Assessment" of the Complaint which shall
take account of:
5.4.1. The weight of the evidence adduced to demonstrate that the
Complaint and any harm suffered by an Applicant is true;
5.4.2 Post Office's culpability for the Complaint;
5.4.3. The extent to which the matters complained of caused the alleged
harm suffered by an Applicant; and
5.4.4 The extent to which the Applicant's own acts or omissions
contributed to the Complaint or harm suffered as a result.
Settlements involving convicted Applicants should only be offered where
there is clear evidence of a miscarriage of justice (see section 5.2 below).
POL00027506
POL00027506
Confidential and legally privileged
5.8
5.9
5.10
Settlements will generally be driven by commercial fairness rather than
legal principles, but legal risk will still be a factor.
Settlements should to take account of the reputational implications for the
Post Office arising from any adverse publicity or political reactions but that
should not be an overriding factor. The greater the value of the settlement,
the more public interest is likely to be attracted.
Settlements that involve commercial solutions, apologies and other non-
financial compromises are to be favoured over compensation.
Although settlements are likely to be subject to confidentiality agreements,
any settlement should take into account the risk that details of that
settlement may leak into the subpostmaster community and/or the media.
Settlements should reflect the fact that for the purposes of the Scheme,
Post Office will not be relying on any legal limitation or time-bar defence
and will consider all Complaints regardless of age.
POL00027506
POL00027506
Confidential and legally privileged
Criminal cases
Background
5.11
5.12
Offering a settlement to an Applicant who has been convicted could:
5.11.1 Be used as the basis for an appeal against that conviction; and/or
5.11.2 Cause that conviction to become unsafe.
As such, settlements involving convicted Applicants should only be offered
where there is clear evidence of a miscarriage of justice and the process
below has been followed.
Process
5.13
5.14
Where a Complaint relates to an Applicant who has been convicted, the
following additional processes should be followed:
5.13.1. The Applicant's application, case questionnaire and any
investigation findings should be forwarded to Post Office's criminal
lawyers (Cartwright King — "CK")
5.13.2 CK will review the above documents to determine whether any
disclosure is required under Post Office's prosecution duties.
5.13.3 CK will be consulted on any Recommendation for Settlement and
advise how the proposed settlement may affect the Applicant's
conviction.
Post Office has no power to overturn a conviction. If, following the
investigation phase, grounds for appeal are identified, the standard
approach will be to:
5.14.1 Suspend the standard mediation process.
5.14.2 Disclose the information giving rise to the grounds for appeal to the
Applicant (via CK).
5.14.3 Consider whether Post Office will support or oppose any appeal.
POL00027506
POL00027506
Confidential and legally privileged
5.14.4 Consider whether Post Office might offer financial support to the
Applicant in order to conduct the appeal.
5.14.5 Consider whether it is more appropriate to conduct the mediation
before or after any appeal is heard. In most cases, it will be more
appropriate for the appeal to be heard first.
5.14.6 Write to the Applicant explaining Post Office's stance on the above
matters and seek their views on how they wish to proceed.
5.14.7. Where a conviction is overturned on appeal, mediation may
subsequently be used to resolve the Applicant's claims / losses that
flow from that wrongful conviction.
5.15
5.16
Settlement thresholds
POL00027506
POL00027506
Confidential and legally privileged
Complaints will have various degrees of credibility and will be supported by evidence of varying quality. To ensure
consistency, this section sets out guideline thresholds for when a Complaint may be considered to have sufficient
credibility/supporting evidence to merit a settlement.
The list of Complaints set out below is not exhaustive — where a Complaint is not on the list below, a case-by-case decision will
be required.
5.17 The Settlement Thresholds are for guidance only — settlements may be offered in other circumstances if good reasons exist.
Nature of complaint
Threshold of proof before offering a settlement
5.18
Horizon inaccurately
records data/transactions.
Horizon has a technical
problem that caused
branch losses.
Horizon suffered
communication and power
failures that caused losses
in a branch.
Second Sight's Interim Report found that there were no systemic errors in Horizon.
As such, very clear proof will be required of a technical defect in Horizon along with evidence
that that technical defect (i) caused a quantifiable financial loss in the Applicant's branch
accounts and (ii) had a material adverse effect on an Applicant.
Any case that is considering a settlement on this ground should be referred immediately to
the CIO for comment.
16
POL00027506
POL00027506
Confidential and legally privileged
5.19 I Defective hardware in the I The Applicant needs to produce very clear proof that a specific branch had defective
branch (pin pads, equipment which was not fit for purpose and that the defective equipment caused a
terminals, etc). quantifiable financial loss in the Applicant's branch accounts.
SPMRs may have issues with evidencing such complaints as POL often replaced equipment
following a complaint. However, evidence of loss must be provided before a settlement is
considered.
5.20 I Horizon is too complex. The Horizon system is being successfully used by thousands of users without complaint
Operating processes are
unclear.
about the usability of the system or that its processes are unclear / too complex.
As such, a general complaint that Horizon (or its related processes) is too difficult to operate
will therefore not be sufficient to warrant a settlement.
The Applicant needs to identify a specific problem transaction that did not have a clear or
established operating practice.
The facts of the case should be considered carefully as there may be circumstances where
Post Office has offered training but the SPMR has refused to attend or take up Post Office
on the offer of further training.
However, in circumstances where Post Office has allowed the issue to grow, by for example,
not addressing the issue in a timely manner, a settlement may be considered (but only if
there is a clear evidence of a failure/delay on Post Office's part).
17
POL00027506
POL00027506
Confidential and legally privileged
5.21
Lack of support for SPMR.
Helplines were unhelpful.
The Applicant needs show that they sought support from Post Office and that the support
provided did not solve the issue.
The facts of the case should be considered carefully as there may be circumstances where
Post Office has offered training but the SPMR has refused to attend or take Post Office up
on the offer of further training.
If, given the particular circumstances, there is evidence that Post Office has not properly
supported a SPMR in that Post Office:
(a) _ failed to follow its established practices in effect at the time of the events
complained about; or
(b) there was a manifest error in those practices that should have been remedied at
the time of the events complained about;
a settlement may be considered.
5.22
Poor/inadequate training
on Horizon system.
The Horizon system is being successfully used by thousands of users without complaint
about Post Office's training.
As such, general complaints about POL’s standard training are not sufficient.
The Applicant needs to identify specific circumstances that made his/her training inadequate.
18
POL00027506
POL00027506
Confidential and legally privileged
POL should consider the following:
e ls there an issue with guidance/training? i.e. does the Applicant's complaint relate to
an issue where there is little guidance/training?
e ls there any pattern in the Applicant's behaviour?
e Has the Applicant failed to take POL up on the offer of training?
5.23 I SPMR unable to General complaints about a lack of visibility of historic transactions are not sufficient.
investigate losses.
The Applicant needs to show a problem with the audit trail of a specific product/transaction
SPMR did not have and that a quantifiable financial loss in the Applicant's branch accounts has been suffered as
access to adequate a result.
transaction records.
The Applicant also needs to show reasonable attempts to investigate losses.
It should be considered whether it would have made a difference had a full audit trail been
available. In some cases even if the audit trail had been available it would not have resolved
the overall complaint.
5.24 I POL unfairly pursued The Applicant must show that Post office systemically failed to look into specific issues (not
losses/prosecution with a
bias against SPMR.
general complaints) raised by the Applicant or systemically failed to follow its processes that
were in effect at the time of the events complained of.
19
POL00027506
POL00027506
Confidential and legally privileged
Any remedy in response to a claim that a criminal investigation/prosecution is unsound must
be approved by POL’s criminal legal team (see section B above).
5.25
SPMR was "forced" to file
false accounts
POL does not accept that an Applicant can ever be forced to render false accounts.
No settlement will be offered where problems / losses were a result of (a) an Applicant filing
false accounts or (b) an Applicant's own deliberately wrong actions or decisions.
20
POL00027506
POL00027506
Confidential and legally privileged
D. Settlement Options
5.26 If a Complaint warrants a settlement (see section C) then, in general, Post Office will consider any type of settlement that is fair
and legally enforceable. The table below summarises the types of settlement that may, in Post Office's discretion, be offered.
The selection of an appropriate Settlement Option (or Options) will be assessed on the particular circumstances of each case
and in line with the Overarching Settlement Principles (see section A).
Support criminal appeal
In-post SPMR Ex-SPMR Ex-SPMR Ex-SPMR
No Conviction Convicted but Safe Conviction
overturned on
appeal
Explanation of issue v v v v
Apology v v v x
Compensation v v v x
POL pays legal costs v v v x
Branch / network improvements. v v v x
Individual branch solutions v x x x
x x v x
21
POL00027506
POL00027506
Confidential and legally privileged
ie)
E. Compensation matrix
5.27 Ifa Complaint meets a Settlement Threshold (see section C) and Post Office considers that compensation may be appropriate
(see section D), the level of compensation that may be offered to an Applicant will be guided by:
5.27.1 Post Office's Risk Assessment of the Complaint (see section A); and
5.27.2 The matrix below.
5.28 I Claimed head of loss Value / factors General position
Post Office's general position may be
departed from if there are good reasons
to do so.
5.29 ISPMR_ wrongfully repaid I Depends on level of loss suffered by the branch I Decided on the merits of the case (ie.
losses that were not due to SPMRs ability to prove that sums were
POL not properly due to Post Office).
5.30 ILoss of remuneration due to I Depends on SPMR's remuneration level. Loss I Compensation limited to a maximum of 3
contract termination probably capped at 3 month's remuneration as I months' remuneration.
POL always has a right to terminate on 3
months' notice (save if POL has acted in bad
22
POL00027506
POL00027506
Confidential and legally privileged
faith).
5.31 I Loss of retail business Depends on value of individual business Compensation for loss of retail business
will not be paid.
Difficult for SPMR to claim because POL could
always terminate on 3 months’ notice and so
loss of branch and subsequent loss of wider
retail business was always at risk.
Commercially, Post Office does not accept
responsibility for performance of retail business.
5.32 I Distress / loss reputation Difficult to value in cash terms. Compensation to be offered on a case-by-
These types of loss are generally irrecoverable
at law for most claims.
case basis — see Goodwill Payments
Policy at section F below.
23
POL00027506
POL00027506
Confidential and legally privileged
5.33
Costs / expenses related to
the mediation scheme
and/or other legal
proceedings
Depends on nature of legal support procured by
the SPMR.
SPMRs can spend more than the POL
contribution funding for legal support for the
mediation scheme.
Typically only reasonable and proportionate
legal costs are recoverable.
Decided on the merits of the case.
5.34
Losses relating to wrongful
prosecution / conviction
Depends on nature of sentence — usually
comprises a combination of loss of earnings and
reputation losses.
Wrongful convictions are usually compensated
by the state rather than the prosecutor (POL).
Only to be considered in the most
exceptional circumstances (see Criminal
Cases Policy section B above)
24
POL00027506
POL00027506
Confidential and legally privileged
F. Goodwill payments
5.35 Goodwill payments may be considered where an Applicant suffers harm
that cannot be quantified in pecuniary terms (eg. injury to feelings, distress,
social discredit, reputation damage, etc.). A goodwill payment may, in Post
Office's discretion, be offered if:
5.35.1 A settlement threshold has been met under section C; and
5.35.2 The Applicant has not deliberately caused the non-pecuniary harm
(eg. where the applicant has invited adverse media attention); and
5.35.3 The harm suffered is sufficiently serious to warrant a goodwill
payment in accordance with the thresholds below:
Type of harm Threshold
Distress / injured feelings The distress must be more than normal
commercial pressure that would be
experienced through loss of contract /
business.
Damage to reputation / social The damage to reputation requires
discredit evidence that the relevant events were
publicly known and led to public
criticism (eg. adverse press coverage).
5.36 If the above thresholds are met, the level of goodwill payment will be
dependent on the level of harm and Post Office's culpability for that harm in
accordance with the guidelines below. It is anticipated that where a
goodwill payment is appropriate, most cases will fall in the bottom band.
Band Goodwill payment
Bottom band for less serious cases, such as a one-off £600 - £6,000
incident or an isolated event, which has contributed to the
Applicant's distress or reputation damage. This band will
be appropriate where the Applicant has also contributed
to their own problems through negligence or
carelessness.
25
POL00027506
POL00027506
Confidential and legally privileged
Middle band for a serious failure by Post Office Limited
which has been the sole or predominant cause of
distress to the Applicant and/or damage to his/her
reputation.
£6,000 - £18,000
Top band for exceptional cases, such as where there
has been a lengthy campaign of repeated failures by
Post Office Limited or bad faith on the part of Post Office
Limited.
£18,000 - £30,000
26
Applicant
Complaint
Scheme
Steering Group
Working Group
POL00027506
POL00027506
Confidential and legally privileged
6. Glossary
Any applicant to the Scheme which can include
subpostmasters and crown employees.
The complaint raised by an Applicant in his/her application to
the Scheme
The Initial Complaint Review and Mediation Scheme
The internal Post Office steering group that supervises Post
Office's response to the criticisms of Horizon.
The group supervising the Scheme whose members include
Post Office, Second Sight, JFSA and the Independent
Chairman.
27
POL00027506
ed
001
{Applicant's assessment _IAssessment against Settlement Policy
Post Office Salary Loss
Payslip September 2003 £3,378
fAnnualised £40,541
{Year to retirement 33
Inflation 0.0262
£2,131,943] £10,135 Capped at 3 months
Private Education Lost by the Children
[Cost of School Fees for Child A £112,285
[Cost of School Fee for Child B £128,575
Loss £240,860) £0 Too remote / not caused by POL
iCourt case
Legal costs £32,760
Travel and subsistence £4,600
Potentially recoverable but subject to assessment ofI
£37,360] £37,360 the "reasonableness" of these costs
Mortgage
Due £260,000
JArrears £36,000
£296,000 £0 Too remote / not caused by POLI
Ishop Closure
Lost of shop salary for Applicant £693,000
Rental lost £396,000
Loss of profits £297,000
{Goodwill £75,000
£1,461,000 £0 No compensation for loss of retail businesssI
Post Office purchase/sale
Lost acquisition funds £101,000
Lost opporunity of sale £237,500
£338,500 £0 Capped at 3 month's - already claimed above
{Other
Loan for Father in Law £80,000 £0 Too remote / not caused by POL,
Bankruptcy (annulment) £350,000 £0 Unclear claim / not caused by POL
Capped at £30k for goodwill payments but most cases
{Compensation for personal impact £250,000 £6,000 will fall in the "bottom band" (£600 - £6,000)
Claim value pursuant to the Over-arching Principles /
Total £5,185,663] £53,495 Compensation MattixI
Less risk discount which is unknown until after]
Post Office settlement parameter 2 investigation is complete
[Cost to Post Office if settled at mediation 2 Depends on negotiations at mediation
POL00027506
POL00027506
Strictly Confidential
POST OFFICE LTD EXECUTIVE COMMITTEE
WAVE PROGRAMME UPDATE
1. Purpose
The purpose of this paper is to:
1.1. Update the Executive Committee (ExCo) on the status of the Mobile (Wave)
Programme.
1.2. Gain ExCo endorsement for the revised approach to Post office Limited (POL)
mobile market entry following the recent disengagement from Fujitsu.
2. Key Points
2.1. I POL has now disengaged from the process of developing a managed service
approach to mobile market entry through Fujitsu (Plan A).
2.2. POL has disengaged from Plan A as it has now become apparent that Fujitsu
could not meet the required deadlines, progress was slow and confidence was
lost that a viable offer could be established.
2.3. POL has investigated alternative routes to enter the mobile market and
recommends entering the market by integrating with several mobile providers
to provide a white-labelled mobile proposition (Plan B).
2.4. Plan B gives POL a greater likelihood of launching a mobile offering in July
2014 (the launch date for Plan A). In addition, Plan B increases POL’s profit to
forecast in this area by £11m for the period between launch and end of
financial year 2019/20. However, it is recognised that there is still a shortfall
when compared to the Strategic Plan targets due to missing the original
launch date of November 2013.
2.5. Plan B brings POL’s proposed operating model in-line with the mobile industry
and uses tried and tested partnerships.
3. Background
This paper is intended to be read along with Annex 1 where a full analysis is provided.
3.1. In 2012 POL conducted a supply market test and concluded that the mobile
wholesale market was well established and that there was a breadth of
suppliers willing to provide a full managed service.
3.2. I POL undertook consumer research which strongly indicated that POL would
be well placed to launch a mobile proposition.
3.3. A fully competitive supplier selection process started in January 2013.
However the number of providers narrowed as the process progressed,
resulting in Fujitsu receiving preferred bidder status in July 2013 (refer to
section 2 in Annex 1).
Wave Programme Update Martin George November 2013
POL00027506
POL00027506
Strictly Confidential
3.4. I Progress with Fujitsu was slow and confidence was lost that a viable offer
could be established within acceptable timescales. Despite high level
engagement, confidence could not be restored and as a result the
procurement was closed on 28" October 2013 (refer to section 2 in Annex 1).
3.5. As a result of disengaging with Fujitsu, the project team investigated
alternative routes to entering the mobile market. This investigation looked at
1) contracting directly with mobile partners and 2) entering the market as a
branded reseller.
Current Situation
4.1. The investigation of alternative routes to entering the mobile market focussed
on whether following Plan B would be feasible and what impact this would
have for POL.
4.2. Following Plan B means POL would partner with several mobile providers to
offer a white-labelled mobile proposition, with POL taking on the management
of the service. This differs from Plan A, where POL would employ a single
contractor to manage the service with several mobile subcontractors providing
the infrastructure (refer to sections 3 and 4 of Annex 1).
Options Considered
5.1. The options considered also included POL entering the market as a branded
reseller. However given the low level of commercial return associated with this
approach, this is not recommended (refer to appendix 1 in Annex 1).
Commercial Impact/Costs
6.1. Plan B reduces the entry costs from £11.7m to £6.9m for both pre-pay and
post-pay services.
6.2. Plan B also reduces the on-going costs due to 1) the removal of the mark-up
on supplier services added by Fujitsu and 2) the replacement of the Fujitsu
managed service cost with a POL full time equivalent overhead.
6.3. Section 6 of Annex 1 provides further detail.
Key Risks/Mitigation
7.1. The risks related to Plan B are covered in detail in Section 9 of Annex 1.
Confidence in Plan A had sunk to such a low level it was unlikely that the
mobile proposition could be launched in July 2014. Research into Plan B
strongly indicates that a mobile proposition with improved commercial benefits
can be delivered in July 2014.
Communications Impact
8.1. There is no specific communications impact at this time. A full
communications plan will be developed during the next stage of the
programme.
Wave Programme Update Martin George November 2013
POL00027506
POL00027506
Strictly Confidential
9. Recommendation
The Executive Committee is asked to:
9.1. I Approve the proposed revised market entry strategy and approach (plan B).
Martin George
November 2013
Wave Programme Update Martin George November 2013
POL00027506
POL00027506
Strictly Confidential
Wave Programme Update Martin George November 2013
Executive Summary
Background
Exploring Alternatives Routes to Market — ‘Plan B’
The Revised Operating Model and Sourcing Approach
The Launch Strategy
The Financials
The Market Context
Primary Research Shaping the Market Entry Strategy
Key Risks
Summary and Recommendations
POL00027506
POL00027506
co)
“tty
tty
Background
Exploring Alternatives Routes to Market — ‘Plan B’
The Revised Operating Model and Sourcing Approach
The Launch Strategy
The Financials
The Market Context
Primary Research Shaping the Market Entry Strategy
Key Risks
POL00027506
POL00027506
POL00027506
POL00027506
“tt
ip
“a, .
. _
Executive Summary ty
—
~~
. The purpose of this paper is to provide an update on the Wave Programme and to gain ExCo endorsement on the revised approach to 1]
service launch, referred to as ‘Plan B’, following the disengagement with Fujitsu.
. Following an investigation into the alternative routes to enter the market, a recommendation is being made to continue the programme
and enter the market by contracting directly with partners. This means Post Office integrating and managing the service . The revised
operating model gives the greatest chance of success with the added flexibility, control and ability to manage cost.
. The main implications of this revised approach are:
¥ Agreater likelihood of achieving the July 2014 service launch targeted with Fujitsu.
¥ — Significantly reduced entry costs and managed service overhead than quoted under the Fujitsu managed service model - entry
costs with Fujitsu would have been £11.7m; a direct approach is likely to be c.£6.9m
Y Greater flexibility and access to expertise
¥ — Anenhanced role for Post Office as service integrator
e The market opportunity has been endorsed through an extensive primary research programme and ongoing discussions with the
mobile networks. The optimal Pay as You Go (“PAYG”) customer proposition has been designed and tested through research and a
volume forecast generated.
POL00027506
; POL00027506
~~
¢
Executive Summary NS
I
y
Exploring Alternatives Routes to Market — ‘Plan B’
The Revised Operating Model and Sourcing Approach
The Launch Strategy
The Financials
The Market Context
Primary Research Shaping the Market Entry Strategy
Key Risks
POL00027506
POL00027506
¢
Background
The first steps to evaluate the mobile opportunity “thy
. Engaged the supply market to assess the market appetite to partner with Post Office on a managed service basis and provide costs “hy
to inform a business case y
° The conclusions:
* Entry into the mobile market could be a profitable diversification
. The wholesale market was well established and could offer the managed service operating model
. Market entry could be achieved at relatively low cost and within 6 months from contract signature
* Allocation of an income target in the strategic plan
The formal procurement
. On 9th January, Post Office went to market to source a partner. A fully competitive process was conducted. However for a variety of
reasons the number of providers narrowed as the process progressed, resulting in Fujitsu receiving preferred bidder status in July.
The specific reasons for the narrowing of the providers were:
. A decision by EE to offer their services under a Fujitsu managed service rather than direct
. O2 deciding not to bid due to concerns about the level of overlap between the market POL would be targeting and the market
Tesco (a JV with 02) operates in.
. A removal of support from Vodafone for two of their aggregator partners, resulting in them not bidding
* Adecision by POL not to pursue a Vodafone bid (following the shortlisting process) after a failure to resolve significant
commercial challenges
. Despite bringing together a ‘best in class’ supply chain, the Fujitsu proposal had a number of issues that could not be brought to a
satisfactory conclusion. Consequently, the procurement was closed on 28" October 2013. The concerns Post Office had with Fujitsu
were:
* — Alack of expertise, and no fully integrated solution
Limited flexibility
High fixed costs (set-up costs of £7.5.m and managed service costs of £10m over the contract)
Back tracking o on the managed service approach
POL00027506
POL00027506
Executive Summary NS
Background
The Revised Operating Model and Sourcing Approach
The Launch Strategy
The Financials
The Market Context
Primary Research Shaping the Market Entry Strategy
Key Risks
POL00027506
POL00027506
co)
The Alternatives Routes to Market — ‘Plan B’
. The focus has been to explore the ‘typical’ Mobile Virtual Network Operator (“MVNO”) approach to market entry in using
direct partnerships with suppliers
. The secondary focus has been to assess the returns available through a branded reseller agreement. This analysis has
shown low returns typically resulting from a one off commission payment and it is therefore not recommended that this
option is explored further at this time. Further information can be found in Appendix 1
Operating model Identify the components needed
Suppliers Identify potential providers (focussing on Fujitsu subcontractors)
Commercial proposals Obtain commercial proposals from the potential partners
The impact on Post Office
becoming service integrator Identify the support structure Post Office would need
The role of Atos Explore using Atos as service integrator and/or provider of a Service Desk
Business case Update the business case and compare it to the strategic plan.
Launch timescales Assess the likelihood of Post Office mitigating a July 2014 launch
Produce a risk analysis
fa é
fa =
oe
Executive Summary
Background
Exploring Alternatives Routes to Market — ‘Plan B’
The Launch Strategy
The Financials
The Market Context
Primary Research Shaping the Market Entry Strategy
Key Risks
POL00027506
POL00027506
POL00027506
POL00027506
“ti .
The Operating Model and Partnerships for ‘Plan B’
. The components required to support pre-pay services are relatively straightforward to bring together. To add post-pay or co! —_
services there is a requirement to add some complexity with the need for credit checking , post paid billing, and an enhanced Custo!
Relationship Management (“CRM”) platform.
” Atos have confirmed that they neither have the experience or the appetite to enter discussions about taking the integrator role for the
service
Prepaid Service (SIM only and PAYG) Additional for Post-pay (contracts)
Post Office Ltd — Service Integration and Service Management
, “IVA (lop ups q
andenguiries) # (fulfilment, self service
I. retums, faults) ri portals 4
Business Services (Credit checking,
fevenue assurance, payments)
{7 Services (Postpaid billing, Enhanced I
Customer Care MI/Business intelligence CRM)
Network & MVNE (prepaid CRM, real time billing, porting,
SIMs, voicemail, provisioning)
° Workshops have been held with the key suppliers in the Fujitsu led bid and others where the appropriateness of the operating model
has been fully endorsed
. This is the standard operating model in the industry, where all the suppliers have experience working together to deliver and manage
MVNOs
A high level of confidence has been obtained that Post Office can enter the pre-pay market with two key partnerships with EE
Nyy ty Network and MVNE)and 20:20 (Handsets, Portals, and Customer Care), with two more secondary contracts with Avnet (Busines:
i
‘
The Sourcing Plan and Risks .
Awilling supply base with industry leading proposals
¥ The suppliers that would have sat behind Fujitsu and are willing to contract with Post Office directly for services.
v¥ The competitive tension from the previous process had resulted in industry leading headline prices for airtime
under the Fujitsu led bid (EE versus Vodafone). This makes up the majority of the cost base.
¥ We have received commercial proposals from the key potential partners and all have provided indicative
pricing and contract terms which in some cases are improvements on the terms provided to Fujitsu under the
previous process. In the case of EE, the rates are 10% lower which reflects the Fujitsu margin.
¥ Post Office now has a great opportunity to obtain a cost base from its suppliers to give the service the best
chance of success, without the heavy fixed costs levied under the deal tabled by Fujitsu.
Procurement Approach
¥ — Subject to endorsement on this ‘Plan B’ approach, the team will work with the providers to negotiate suitable
services and associated commercials, with a view to signing contracts in Q4 2013/14
v
For the additional service elements required to deliver post —pay services, Post Office would most likely run
competitive procurements in Q1 2014/15.
Procurement Risk
The previous procurement relied upon the telecoms exception from Public Contract Regulations.
The ‘Plan B’ approach can still rely upon this exception (“Where the principle purpose of the contract is to is to
provide or exploit public telecommunications networks or provide a telecommunications service to the public”.)
The risk is slightly higher under ‘Plan B’, due to Post Office procuring some individual components that could be
deemed non telecoms specific, but the risk is not deemed as material.
POL00027506
POL00027506
co)
POL00027506
POL00027506
7
@
The enhanced role of Post Office in the Operating Model
Additional complexity in bringing together and managing the service..... “wt,
‘tty
~ The service delivery will be more complex for Post Office, with more services to integrate and end to end business processes
to create.
~ Astrong and experienced delivery team will be required, with the likelihood that Post Office will need to hire externally fa
some experienced programme resource.
- The Managed Service Team has advised that two FTE heads would be required to run the service.
- Atos would be need to be incorporated into the solution to provide the Service Desk.
The implications of Post Office owning the solution architecture......
- Post Office will have the responsibility of bringing the end to end solution together to ensure that it is scalable, and
comprehensive.
~ The solution can be developed to accommodate wider Post Office strategic developments such as the ‘Common Digital
Platform’.
~ Whilst some level of integration with the Post Office Broadband and Phone service is possible, integration will be less
straight forward and less far reaching than would have been available under the Fujitsu managed service. However, research
has shown this is less important to customers than originally thought.
~ The solution will have to be designed to be flexible enough to integrate with other Post Office services to ensure that the
value from our unique product offerings can be incorporated into a differentiated mobile product.
et »
Y a
ra
soit
POL00027506
POL00027506
Executive Summary NS
Background
Exploring Alternatives Routes to Market — ‘Plan B’
The Revised Operating Model and Sourcing Approach
The Financials
The Market Context
Primary Research Shaping the Market Entry Strategy
Key Risks
POL00027506
POL00027506
i
I ¢
Under ‘Plan B’ the Launch Strategy Remains Unchanged ‘
The launch dates detailed below remain aspirational, but all suppliers have confirmed that this is achievable but dependent
on a procurement process being completed by February 2014. Should the initial ‘soft launch’ be delayed beyond late
August, it will be unlikely that a national rollout can happen before January 2015 due to Christmas.
. Launch a simple SIM only & PAYG service as a ‘soft launch’ in July 2014, followed by a national launch in October 2014.
. Launch a ‘30 day rolling’ SIM only contract quickly after a pre-pay launch.
. A full contract service would launch in June 2015, as the services are much more likely to require an ‘assisted sales’
approach and therefore more appropriate to larger branches, where a ‘shop in shop’ approach may be considered.
Pre-pay SIMO/ PAYG (i.e.
with a handset) Ab Aas.
“Soft Launch
Launch’
Post-pay SIMO 7 N
Post-pay with handsets 7%
Value Adds
SIM only services sold from ALL branches.
E.g. Phone recycling, Handset insurance, wallet
Handsets will be offered through the majority of branches, on the basis of ‘order today, delivered tomorrow’ .
Customer sup
contact centre.
Executive Summary
Background
Exploring Alternatives Routes to Market — ‘Plan B’
The Revised Operating Model and Sourcing Approach
The Launch Strategy
The Market Context
Primary Research Shaping the Market Entry Strategy
Key Risks
POL00027506
POL00027506
POL00027506
POL00027506
~~
—
Financials —- The Revised Costs of Market Entry
* The indicative market entry costs for the ‘Plan B’ approach are significantly less than under a Fujitsu managed service:
* Under a ‘Plan B’ direct approach indicative costs are £6.9m (£4.5m pre-pay and £2.4m post-pay)
+ Under a Fujitsu managed service the costs would have been £11.7m (pre-pay & post-pay)
Cost breakdown “Plan B’ Fujitsu
direct
Sunk costs to date £0.8m £0.8m
Requirement to contract signature £0.5m £0.2m
Post Office pre-pay Launch costs (consisting of) £2.0m £1.5m
Post Office
Costs - IT integration (mainly Horizon) £0.4m £0.2m
- Skills group /external resource £0.6m £0.3m
- Launch support (Branch PoS, training, T&Cs etc) £0.5m £0.5m
- Basic marketing launch campaign £0.5m £0.5m
Post Office costs to introduce Post-pay services £1.8m £1.7m
(Consisting of IT, programme and marketing costs)
Supplier Establishment costs (consisting of) £1.8m £7.5m
- Pre-pay service establishment £1.2m £5.5m
- Post-pay service establishment £0.6m £2.0m
Supplier
Costs
POL00027506
POL00027506
~ttea
co)
Financials - Comparing the Returns
Due to the reduction in a number of cost areas, the returns under a direct approach are significantly better than under a
Fujitsu managed service. However, the delays mean that we are behind achieving its strategic plan income targets.
£k 2013/14 2014/15 2015/16 2016/17 I 2017/18 + 2018/19 2019/20
PAYG Y/E Subscribers 64,147 122,872 «159,940 181,826 += 193,068 +~—-200,949 * The delay and increased
PAYM Y/E Subscribers 14,813 69,901 118,391 161,209 199,148 231,772 costs versus the strategic
plan result in a longer
POL Managed Service - Direct Contracts period to breakeven.
Revenue - 2,957 20,466 37,898 52,840 64,846 74,694
Cost of Sales - 513 4,390 8,462 11,815 14,655 16,583 * Entry into the post-pay
Net Income - 2,445 16,075 29,436 41,025 50,190 58,111 market is more profitable,
POL Ongoing Costs 1,091 2,197 3,433 4,453 5,290 5,990 but requires upfront
Other Ongoing Costs - 4,047 15,624 18,272 22,954 25,777 27,442 handset funding which
POL Set Up Costs 1,330 3,826 - - - - - pushes back the payback
Supplier Set Up Costs 1,694 150 - - - - period. Entry could be
Net Contribution - 1,330 - _8,214 - _—1,896 7,730 13,618 19,123 24,679
Cumulative Contribution - 1330 - 9,544- 11,439 - 3,709 9,909 29,032 53,711 delayed to bring forward
the payback period, but
Fujitsu Managed Service return in 2020 would be
Revenue - 2,957 20,466 37,898 52,840 64,846 74,694 reduced.
Cost of Sales - 552 4,573 8,913 12,504 15,527 18,132
Net Income - 2,405 15,893 28,985 40,335 49,318 56,562
POL Ongoing Costs 983 1,863 2,998 3,992 4,804 5,476
Other Ongoing Costs - 4,646 16,391 19,153 23,853 26,703 28,351
POL Set Up Costs 1,330 2,844 - - - - -
Supplier Set Up Costs 3,752 3,752 - - - - -
Net Contribution - 5,082 - 9,820 - _—2,361 6,833 12,490 17,811 22,734
Cumulative Contribution - 5,082 10,429
800 8600 24,700 «39,100 47,700_—51,100_—_—51,100
i = 2,500 400 6200 14500 19,400 _—-20,900__—20,900,
tritutiol ist 2,500 2,100" 4,100" + 18,600" 38,000" 58,900 79,800
Net i
Cumulative Co:
“ — ‘en
Executive Summary
Background
Exploring Alternatives Routes to Market — ‘Plan B’
The Revised Operating Model and Sourcing Approach
The Launch Strategy
The Financials
Primary Research Shaping the Market Entry Strategy
Key Risks
POL00027506
POL00027506
A mature market close to it’s maximum, but with increasing numbers
of customers looking to switch to an MVNO; 14% in 2009 up to 32% in 2012 -
MARKET INSIGHT COMPETITIVE LANDSCAPE
= Market is split 56% post-pay & 44% pre-pay
= Pre-pay connections continue to decline as post-pay SIM
only and post-pay handset contracts attract customers
looking to seek better value
= 30% of pre-pay adds are now SIM only as customers save
money by keeping hold of existing handsets for longer
= Within the pre-pay category disengaged customers result in
switching inertia
= MVNO share is growing with entrants such as Tesco, Lyca
Mobile and Asda. They are finding success with targeted
and unique propositions, and extensive distribution
= Cheaper tariffs and fashionable phones are key hooks to
disengaged consumers
POL00027506
POL00027506
co)
ASDA mobile was launched in April 2007 and currently
represents 1% of the market (460,000 customers)
ASDA have relied mainly on in-store presence, stocking
SIMs at till points. The proposition is based on a simple
low cost tariff
Tesco mobile was launched late 2003 as part of a joint
venture with O2. It currently represents 6% of the market
(=2.7 m customers) spending £12m on communication in
2012. The complexity of the Tesco mobile tariff and.
handset range has expanded over time
Over the last two decades, the network provider competitive landscape has evolved dramatically, with ever more new
entrants, competing on price and aggressive offers
POL00027506
POL00027506
,
ae @
Market Context - what are the reasons to believe POL “ti
can successfully acquire and retain customers
ty,
* Within the pre-pay category disengaged customers cause strong switching inertia, however our research suggests “ty
that 1.4M (3%) of customers are looking to switch to a pre-pay service in the next 12 months.
* Post Office has a great opportunity to disrupt the passive loyalty in the pre-pay market through its ability to have face
to face conversations on the back of relevant cross sell opportunities e.g. Top up, bill payments, POca transactions.
When combined with good levels of consideration for a Post Office mobile service, conversion rates should be good.
¢ Adifferentiated customer proposition giving great value for money and bringing in tactical offers to fit with other
portfolio services e.g. roaming bundles for Travel customers.
* There is a gap in the market for simple, transparent offers, offering genuine value for money. The Post Office brand
can naturally fit into this space.
* Wide distribution — with PAYG and SIM only services available across the entire network, and a compelling revenue
share deal with sub-postmasters to share in the ongoing success.
_
Y _
. aan
soit
POL00027506
POL00027506
Executive Summary NS
Background
Exploring Alternatives Routes to Market — ‘Plan B’
The Revised Operating Model and Sourcing Approach
The Launch Strategy
The Financials
The Market Context
POL00027506
POL00027506
cc
The Research Programme & Customer Consideration
Stages of research undertaken: “iy,
“iy
1. Explore the existing market to identify and size the opportunity landscape for the entry of Post Office into the mobile market.
Assessing the initial openness of the different target audiences to a Post Office pre-pay mobile service.
2. Secondly, identify the levers and hooks (features and servicing) which maximise the demand for a Post Office mobile offering
across the different potential customer audiences.
3. Volume forecast to understand what Post Office can achieve in the pre-pay market.
Consideration levels are extremely encouraging, and in the same ballpark as Sky and Sainsbury’ s
Post Office as a
mobile service
provider
+
FS nnn
&
John Lewis
8
Opportunity to improve I
consideration by
leveraging the POL
brand with a simple,
fair and transparent
BUILD CREDABILITY
Post Office Pay as you go PAYG) 6 a caw od
pect way bo ala ie coectref of your
fice, aa belive m. ging PAYS
65.9 siege, for aod Iraragarent
Aer
~ Potential PAYG ~
Switchers and
considerers
55%
of total mobile
phone users
(25.3M)
Parent
shoppers
20%
5.1m customers will need to be converted by a clear
proposition and offer
Customer Research - The Target Market
~~
Target customers are more engaged in the category, more likely to switch and are frequent branch
visitors
* These potential customers represent the stronger
opportunity.
* More engaged with the category, reviewing and
switching offers more regularly.
* More valuable prospects due to their higher mobile
usage and frequent top-up behaviors.
* Easier audiences to reach as they are most frequent
branch and Post Office website visitors.
* More tactical audience to start the conversation via
cross-selling opportunity. Many already use Post Office
for non-mailing needs such as Travel, Government
services, bill payments and mobile top up.
But we will need to anticipate the risks inherent to these
two groups:
* Enable them to make confident decision about handset
as most would get handset and SIM at the same time.
* Less loyal and more price sensitive groups require
investment to ensure retention.
POL00027506
POL00027506
_
; y CE
a oe i”
POL00027506
POL00027506
The Initial Customer Proposition for PAYG
_ Asimple, fair and good value offer which gives customers an attractive headline offer, delivers a
competitive underlying tariff, rewards customers for their loyalty and delivers the optimum launch _
I Proposition ss ~~ I
SIMO & PAYG with handset
FAMILY (Child PAYG Initially)
TALK TEXT
ibe ip
DATA 20p oer MB data Family calling bundie £2: Call home even
with £0 credit ~- 37% of parents say this
would be essential & willing to pay for
this
Other features popular but not
customers are less willing to pay such as
capping usage / blocking calls to certain
numbers so these feature would be
linked to top-up: Top-up £10 a month to
receive ‘Family’
£5
150 mins or..
500 texts or...
500MB Data
£10
100 mins
100 MB
Unlimited texts
ROAMING
£15 £20 . . Travel: 63% key target segment
200 mins 500 mins I fer — interested in a PAYG SIM when
200 MB 500 MB oo i travelling abroad
Unlimited texts Unlimited texts Co ae : Tactical opportunity to introduce
customers to Post Office as a mobile
provider
Target audience has a high usage of
Post Office Travel Money & tn,
: oe
insurance —
4
@
oe
POL00027506
POL00027506
co)
All branches SIMO sale: Self serve approach > Pick up, Pay and walk away ty
Select branches PAYG with Handset: Range display, Pick up, Pay > next day delivery
As long as consumers can interact with 7 I Fle
knowledgeable staff in branch they are happy to ; cus
order handsets remotely Range
Key findings creating a simple sales process i 6 call centre will be the handset experts
+ Itis not essential for over 70% of customers to see handsets I Ce ee LOETD aac
in-branch amongst key target segments SUDDD
* Customers savvy with SIMs and handset unlocking
* Only 3% need help inserting a SIM
* 76% comfortable finding out if a handset was locked /
unlocked
>
POL00027506
POL00027506
se
Insight driven sales forecast for pre-pay (Source: Truth Wave Research)
main phone will be the NS
ven adi yhones are
giver :
ack-Hp. thy
ao
Post Office PAYG mobile could attractup to © RY inly used ¢
(4 ~ amaximum of 448,139 potential trialists }
st Office's
ined from ‘oO maximise
these reau!
46,693,
2085 2016 xt? toe pon 220 Methodology: This forecast model is based on a range of assumptions and
This iv an acquisition model, which dees net take inte
consideration churn of PO customers e
a ie, equally %
Bere enetwork a
x n with a POL oolne: e
the
Stable iobranch traffic
MYND °
i ‘
¢ : 2 external cal
‘GOL OVE casts + youths)
represent 6% of the m
TEQ9 X spending bebween Cem a VY wach ye ince &
OG 1 SUED ts noble offer. Clres 2.7 a customers *
tg
POL00027506
POL00027506
——
co)
Executive Summary NS
‘ay
Background
Exploring Alternatives Routes to Market — ‘Plan B’
The Revised Operating Model and Sourcing Approach
The Launch Strategy
The Financials
The Market Context
Primary Research Shaping the Market Entry Strategy
POL00027506
I POL00027506
“ati
—
The Key Risks
ty
_*
The informal costs supplied do not materialise ina formal Detailed negotiations, scope rationalisation,
procurement process introduction of competition
The timescales to extend due to delay in the contracting Focus on “out of the box” services
or build process resulting in escalating costs and lost Revision of propositions and / or sub contract services.
income Contractual remedies against sub-contractors
Post Office fails to bring together the end to end service Ensure appropriately skilled team established.
effectively resulting in gaps and customer experience or Processes and procedures are robust and in place prior
service issues. to launch. Soft launch to help identify issues prior to
national roll out
Take up of the service is significantly less than anticipated Soft launch to test viability and minimise risk and cost
POL00027506
POL00027506
Executive Summary NS
Background
Exploring Alternatives Routes to Market — ‘Plan B’
The Revised Operating Model and Sourcing Approach
The Launch Strategy
The Financials
The Market Context
Primary Research Shaping the Market Entry Strategy
Key Risks
POL00027506
POL00027506
a .
—
“a, ¢
~ tp
. ey
Summary and recommendations “
~~,
. The research programme and engagement with market intelligence experts at EE strongly supports Post “ty,
Office’s entry in to the mobile market %
° Industry experts advise that the Post Office brand, scale and network reach leaves it as one of the few “un-
launched” MVNOs likely to be successful in the UK. Both the French (750k subs) and Italian (>3m subs) Post
Offices have launched similar services in recent years and have significantly over achieved
. The revised operating model gives Post Office the greatest chance of success with the added flexibility,
control and ability to manage cost and aligns with standard industry practice
. It is recommended therefore that the Executive Committee approves the continuation with the product
development and supplier engagement under the revised ‘Plan B’ approach.
POL00027506
POL00027506
~~
¢
Executive Summary NS
I
y
Background
Exploring Alternatives Routes to Market — ‘Plan B’
The Revised Operating Model and Sourcing Approach
The Launch Strategy
The Financials
The Market Context
Primary Research Shaping the Market Entry Strategy
Key Risks
POL00027506
POL00027506
¢
Appendix 1 — the branded reseller market entry option
Proposition/Solution Ney,
a o
_
. Mobile solution is provided by the mobile operator, including billing, proposition development and pricing, and customer care
. Post Office would be responsible for selling the services and would earn a commission for doing this — one off for PAYG, and
potentially also a recurring revenue share for PAYM
. Any bad debt from a Post Office generated customer would result in a claw back of commission by the Mobile Operator
. The Mobile Operator would retain ownership of the customer, and they have a reputation of continually changing commercials.
. Launch costs would be lower, but Horizon integration costs would still be incurred
* This model is common in the SME segment, but is increasingly less common in the consumer segment
High level Indicative Commercials — Indicative return of 10.25m
Pre-paid
. Commercials received from Elite Mobile, one of the UK’s leading SIM distributors provided the retailer a one off commission of
£3.00, with Post Office receiving an additional 0.75p.
. Based on 10,000 gross prepaid connections a month, that equates to an income stream (after branch commissions) of £90,000 per
year, or £0.45m over five years
Post-paid
° Typical commercials provide resellers with an approximate 25% revenue share plus a connection bonus of £50-£100, with the
reseller having to fund the (ever more expensive) handset.
Indicative calculations show that a £15/month connection may generate a return of £18 over 24 months, with a £20/month
connection returning £53 over 24 months and a £30/month connection returning £166 over 24 months.
is expected that POL customers would tend to be at the lower end of the post-paid spectrum.
ssuurting 5,000 connections each month, and a return of £35 per connection (50% £15 & 50% £20 connections), POL's incor
~r ‘(afte e
POL00027506
POL00027506
Confidential
POST OFFICE LTD EXECUTIVE COMMITTEE
Business risks evaluation November 19" 2013
1. Purpose
The purpose of this paper is to set out the agenda for the risk session at the November ExCo.
2. Background
The Audit, Risk & Compliance Committee (ARC) approved the Post Office risk management
strategy to consider risks from a top-down perspective. A paper has been drafted for the ARC
setting out the ExCo view of critical risks as derived from the current ExCo risk map and profile
which will be discussed later on the same day as this meeting.
Management of risks is a continuous part of BAU process and it is important that ExCo:
«Refresh the view of critical risks for the Board/ARC attention;
e Define the risk appetite, particularly for critical risks; and
e Develop action plans to move risks to their desired ‘target state’.
The objective of this session is to complete the above tasks for those risks defined as critical
and likely in the paper going to the ARC (top 5 risks).
3. Session structure
To achieve this objective we will look at each of the five risks identified and:
« Consider the causes and consequences of the specific risk;
e Define the risk appetite and target level of risk; and
e Propose actions to achieve the target level of risk.
The session will be facilitated by the Head of Risk Governance.
4. Pre-work
ExCo members are asked to reflect on the current risk map and the ARC paper and formulate
their views around the above aims.
Chris Aujard
14" November 2013
Business risks evaluation Nov 2013 Chris Aujard Page 1of1 14/11/2013
POL00027506
POL00027506
Strictly Confidential
POST OFFICE LIMITED
Performance Report
October 2013
Produced By : Financial Control and Compliance Team
For Queries & Comments Contact : Sarah Hall or Kam Bassra
CONFIDENTIAL
Commercially Sensitive and not for onward circulation
This document contains commercially sensitive mformat 5 likely to cause damage in the event of unaut
it should not be copied or forwarded in its entirety unless for a specific business purpose and only to internal people who u
disc external people who have signed a non-disclosure agreement,
it is normally only circulated to the Senior Leadership Team and Finance Pro
Period 7 Performance Pack - Chris Day 19th November 2013 Page 1 of 26
POL00027506
POL00027506
Strictly Confidential e
(— Contents >)
Page
Headlines 3
Profit & Loss Statement 4
CFO High Level Profit Forecast At Period 7 5
Crown Profit & Loss Statement 6
Cost Management update 7
Cashflow Analysis 8
Business Scorecard 9
Network Transformation Scorecard 10
Transformation Delivery Heat-map 11
Appendices
Income Report
Net Income By Pillar vs Budget 14
Net Income By Channel 15
Cost Report
Staff Cost By Directorate 17
Non Staff Cost by Directorate & Type 18
Transformation Report 20
Transformation Board Scorecard 21
Network Transformation Scorecard Metric Definitions/ Rationale 22
Project Costs (OpEx) 23
Project Costs (CapEx and Exceptionals) 24
Supplimentary Information
Cashflow Statement & Balance Sheet Summary 25
Income By Product Groups & Pillar 26
Ne wy,
Period 7 Performance Pack - Chris Day 19th November 2013 Page 2 of 26
Headlines Strictly Confidential
October 2013
Va
This report has been restructured to prioritise the key information in the first 9 pages. The focus of the ExCo meeting
will be on the latest projections and remedial action required rather than an update of recent performance. The more
detailed pages are now in the Appendices for reference but they are not required pre-reading
Profit & Loss - YTD
© Profit at P7 was £65.0m, which was £5.8m favourable to budget of £59.2m, and £7.3m adverse to prior year of
£72.3m. The month is £0.7m favourable, but within this, income was £6.9m adverse, offset by favourable costs which
are largely driven by £3.7m VAT resulting from a change in the recovery rate and £1.8m agents pay benefit relating to
lower sales. The CFO forecast view is still to achieve the full year profit target despite the increasing income gap.
Net income performance of £503.9m remains the key concern with an adverse variance of £24.9m compared to
budget (mainly Mails £16.0m and Lottery £4.3m). The risk on the Sales Recovery plan has increased - a risk of £5-
410m was highlighted through the Q2 FYF review and the P7 results have led to a refinement of the CFO forecast to
reflect the continued adverse performance in Mails and Lottery.
Staff costs have returned to budget in P7 mainly because the Q2 sales bonus was below budget reflecting lower sales.
The budget for the managers’ lump sum pay award is covering the shortfall in efficiency savings but this will unwind if
a pay offer is made, The Cost Reduction Programme is implementing a series of savings activities to drive the cost
down - most will impact on 2014-15 with minor savings coming through in 2013-14.
* Agents’ costs were £20.7m favourable to budget, mainly due to lower sales income £11.9m, sales mix (parcels) £2.3m
and £1.6m due to WHS provision utilisation (relating to the original contract). The favourable agents’ costs are
projected to be largely maintained but with anticipated mails segregation payments (£1.1m) and delays to locals
conversions reducing the full year upside,
Non people costs were £1.4m favourable to budget. The favourable position is driven by £3.7m VAT recovery relating
to H1 for changes in the VAT recovery rate, but masks the underlying adverse variance due to Horizon costs originally
budgeted for in the prior year. RM costs are now treated as non staff following the IPO and we believe there are still
some costs to come through. The VAT recovery has been taken to the CFO forecast (previously in opportunities).
Interbusiness expenditure was £4.7m lower than budget, driven by lower Official Mail costs and property costs. IB
charging ceased from 16th October 2013 following the RM IPO although some catch up costs may still be incurred.
Project costs were £1.5m favourable YTD with the underspend driven by the movement of separation costs to
exceptional items. The current year customer engagement budget continues to cover the spend delayed from 2012-
13 into this year.
Cashflow
The YTD cashflow was an inflow of £197m which was £94m favourable to the £103m inflow budget (Period 6 was
£24m favourable), mostly driven by delays to NTP expenditure.
Crown P&L - YTD
The Crown loss is £0.9m adverse to budget. Income was £2.7m adverse driven primarily by Mails, partially offset by
Government Services. Costs are £1.5m favourable and share of JV is £0.4m favourable,
Ne S
Period 7 Performance Pack - Chris Day 19th November 2013
POL00027506
POL00027506
Cumulative EBIT pre exceptionals
£m
Actual
weeeeBudget I
100
80
60
40
20
SEEEEEEE
See
es
Total Net Income - Budget to Actual Bridge
£m
2013-14 YTDMails & Retail Financial
Net Income Services
Budget
Services
Financials
Total Net Income (excl NSP) £m (Bonus)
Operating profit £m (Bonus)
Free cashflow £m
Crown Profit (Loss) £m (Bonus)
Non Financials
Queue time < 5 minutes - Top 1k branches
NT Conversions - (Mains & Locals) (Bonus) ***
Government Telephony
0.4 08
503.5 528.8
65.0 59.2
1968 103.0
(18.8) (27.7)
84.1% 79.5%
2113 2025
Page 3 of 26
Profit & Loss Statement Sirictly Confidential
October 2013
Current Month Prior Year Period Year to Date Prior Year YTD Full Year Prior Vear [Prior Year
lem Actual Budget Variance I Actual Variance I Actual Budget Variance I Actual Variance] 0, Budget Variance I utturn I Variance
FTOTAL GROSS INCOME m5 9a 6) I 933. a) I S7a2 5966 3905 aaa) ] 9988 10122 70236
Cost of Sales os) 05) 03) I Gia) 02 (73) 167.6) 93) 20 I Gin i22) (424.2)
FrOTAL NET INCOME T7846 169) I 823 (a6) I 5039 5288 525.2 (easy I 8876 900.0 902.4
staff Casts (2 230) I 30) I tas26) (2526) (249.7) (29) I (259.2) (256.2) (257.4)
Agents Costs (43) et) 8] 39) 4) I (64) (2848) (2790) 150 I (4689) — (wa00) (4784)
Non-Staf Costs G25) asa) 26] 5a) (955) (96.9) 899) (54) I (464.7) (2600) (4623)
Interbusiness Expenditure (3) a) 24 (449) (49.7) (a) 32 I 27) (63.9) (935)
Depreciation (oo) oa) ot (2) (06) 2) oo) I tos) (09) (04)
Frotal Expenditure (pre POOC) a2) (92a) 78 573) 6065) paamayy Gos) 97 I 0763) (9808) Bai.
ES ~ Share Of Operating Profits 26 25 4 253 239 4g 45 08 33.0 315
IEBIT Pre Overhead Allocations By us 20 32) 318) pape C7) cos] 65.7
IGroup Overhead allocations fos) (2.4) 06 (7.4) iso) (ogg I 25) 12 03.8)
[One off Project costs (POOC) (29) 9) (0.9) (48.7) (247) 6.0.
fest tes [ey Tan REE TE CE) EEE OO EET TIF 0s).
Network Payment 192192 00 119.2 1228 (3.6)
interest os) 09 19 26
impairment (64) 9.0 (22) (800) I 37B I 55) (67)
Exceptionals & Redundancy & Severance Costs G13) 492 254 (2039) @75) 528
Government Grant Utilization 365 (175) 84 -202.4
Profil(Loss) On Asset Sale 00 09 25 00 n
Colleague Share/ Business Transformation Payments 0.0 09 00 00 a
[Before Tax a dE 200852 4258.6 I ate
Period vs. Budget
Operating profit (EBIT) of €21.9m was
£0.7m favourable to budget
BAU was €1.6m favourable:
* Lower staff costs of £0.9m the favourable
in the month is mainly due to lower 02
sales bonuses reflecting lower sales.
+ Lower Agents costs of £1.8m mainly due
to reduced income,
* Lower non staff costs of £2.6m due to VAT
recovery rate changes resulting in a £3.7m
benefit. and
* Lower interbusiness costs due te lower
Property charges from RM and IB ceasing
following the RM IPO.
Offset by:
* Lower income of £6.9m due primarily to
the continuation of the trend in Mails and
Retail and in P7 an adverse variance for
Fs,
One-off variance of £0.9m adverse relates
to the brand expenditure being incurred later
than planned,
Below SIT
Impairments were favourable due to slower
progress than plan on NTP.
(EBIT) of £65.0m was £5.8m favourable to budget
BAU variance of £4.3m favourable was mainly due to:
* Lower agents costs of £20.7m mainly due to: £11.9m relates to lower sales income, £23m
sales mix (parcels). £1.6m WHS provision.
* Lower non staff costs of £1.4m due to VAT recovery rate changes resuiting in @ £3.7m
favourable variance offset by Horizon costs originally budgeted for in prior year, but incurred
this year,
+ Lower IB of £5.4m driven by lower Official Mail and Property costs and separation impacts for
actuals moving to non staff, and
‘ Higher FRES JV income of £1.3m.
Offset by
* Lower income of £24.9m, mainly Mails €16.0m and Lottery £4.3m, Mails performance
continues to be impacted by lower parcel volumes following the RM price changes in Apri
New parcel formats have been introduced at the end of October which should reverse this
trend. Lottery continues to underperform, though the Camelat price increase was effective
from October and the Health Lottery was introduced curing September.
Project One-off variance of £1.5m favourable. The underspend is driven by the movement of
‘Separation costs to exceptional
Below EBIT
Exceptional costs are favourable mainly due to a £102m credit relating to the change in
pencions terms. The underlying variance is due to slower pace of capital spend and operating
‘exceptionals. including agents compensation. compared to budget. Government grant utilisation
follows this trend, but also included utilisation against the remaining 2012/13 exceptional costs.
The profit on sale related to the lease surrender of Midway House.
(or
Ne y,
Operating profit (EBIT) of £65,0m was £7.3m adverse to prior year.
Like for like adverse variance of £9,7m was mainly due to:
+ Lower net income of £21.3m. The variance versus prior year is driven primarily by the
stamps buy forward last year and lower parcel volumes. Government Services also
decreased as a result of lower rates from the new DVLA contract and falling Card Account
customers. NS&I income fell as mare customers have moved away fram POL.
* Higher staff cost of €2.9m adverse to prior year due to higher pension costs, pay awards
and increased headcount. and
* Higher non staff costs of £5.6m due to increased IT costs mainly Horizon, timing of
‘marketing spend, and the removal of the FX bureau rebate received in H1 last year partially
offeet by the increaced VAT recovery rate this year.
Offset by:
+ Agents costs £15,0m favourable variance to POL: £9.3m due to lower sales, predominantly
Mails buy forward pre price increase, £2.5m lower fixed pay from unfreezing the Core Tier
Payment and rall aut of Locals and £3.2m accrual release relating to the DVLA rate
changes,
+ Lower IB of £4.4m favourable to prior year, due to services switching into POL from RM.
and,
* Higher JV income of £0.8m,
Non like for like favourable variance of £2.4m was due to:
* Lower project costs of £6.0m, and
* Lower Network payment of £3.6m.
Below E8IT
NT exceptionals including compensation were ahead of the equivalent pace in 2012/13,
2013/14 grant utilisation includes £30m against 2012/13 exceptional costs not covered by
the 2012/13 grant
Period 7 Performance Pack - Chris Day
19th November 2013
POL00027506
PoL.00027506
Page 4 of 26
POL00027506
POL00027506
Strictly Confidential °
CFO High Level Profit Forecast At Period 7
October 2013
£m Income JV Income Costs NSP EBIT
Downsides
Mails income (34) (34)
Gov't Services income (3) (3)
Telephony income 0 0
FS income (5) (5)
Other income/ POOC contingency (5) 5 0
Staff efficiency (2) (2)
Fujitsu costs (2) (2)
IT&C efficiency task (3) (3)
Interbusiness
Mails segregation penalty (4) (1)
Bonuses i) (0)
Agents pay - sales impact 20 20
NT Locals delays {2) (2)
Agents segregation payments (a) ()
POOC overspend {2) (2)
Non staff savings task 4) (a)
(er) 0 10 0 G4]
Mitigating actions
Mails income - dangerous goods 7 7
Mails income ~ format changes/campaigns 6 6
Lottery price rise 2 2
Gov't - UKBA Cost of Sales correction 1 1
Gov't - volume trends 2 2
FS income - Santander volurnes 2 2
FS income - Junction deal 3 3
FRES upside (higher ATV's) 1 1
PhotoMe income 1 1
IT&C savings 3 3
Telephony implementation 2 2
Agents mix 4 4
Agents DVLA timing 3 3
POOC 5 5
Contingency (3) (3)
Agents pay - sales recovery (8) (8)
Pay award 12/13 not consolidated 0
No pay award for 13/14 0
VAT upside 3 3
Bonus upside (for target failure) 0
rz 1 9 0 34__ I
Variance to budget
Period 7 Performance Pack - Chris Day 19th November 2013 Page 5 of 26
Crown Profit & Loss Statement
October 2013
Strictly Confidential
POL00027506
POL00027506
JV Share of Profits
Period Prior Year Period Year To Date Prior Year YTD Full Year Prior Year
Em Actual Budget Variance I Actual Variance Actual Budget Variance I Actual Variance Q2 Forecast Budget Variance Outturn
income and Distributions
Variable income
~ Mails 37 42 (0.5) 40 {0.3) 22.4 248 (2.4) 261 (3.7) 412 43.2 (2.4) 448
- Financial Services 27 27 (oo) I 29 (0.3) 176 175 oa I 188 (1.2) 289 296 (07) 30.4
- Government Services 20 17 03 23 (0.2) 13.0 120. 10 «I 152 (22) 208 199 09 26.4
- Telephony 01 o1 (0.4) 01 (0.0) 05 0.6 (0.2) 08 (0.4) 10 13 (0.3) 13
Fixed income 23 22 0.0 26 (0.3) 143 146 (0.3) 170 (2.7) 25.5 248 07 28.2
Gamma/ Other 10 12 (a2) I 14 (0.1) 59 72 (a3) I 62 (0.4) 13 148 (3.5) 109
Renewals and Retentions 14 14 0.0 08 06 113 98 16 46 68 18.7 165 22 1141
[Total Income including Gamma/other I 13.2 13.6 Cy Ea 85.0 865 (45) I 887 (3.8) 1076 5012.7) I 3532
Direct Product Costs 7) 06) on I @4) 02) 8) 38) 00 2) 03 68) 60) O41 63)
Branch costs
~ Staff (20.3) (10.0) 3) I Gos) 06 (03) I (9.2) 48 (2058) (1060) 02 (117.9)
~ Property 3.4) 3.8) 03 (24) (1.0) 03 15.3) (10.2) (35.2) (35.4) OO (36.9)
~ Other branch costs (0.4) (0.4) (oo) I (4) 02 2) I @5) 10 (43) 7 04 (63)
Infrastructure costs (1.7) (1.9) 01 (2.3) 06 03 13.0) 09 (22.7) (22.9) o1 (22.5)
Allocated central costs
Summary
+ Income £2.7m less than plan.
+ Costs are £0.1m less than plan:
+ FYF is £2.0m adverse to budget reflecting the lower Mails income.
+ Staff overspend due to delays in CTP partially offset by savings from industrial action,
+ Other Mainly driven by favourable variance in POOC as a result of separation costs moving to exceptional spend.
The impact of size based pricing has adversely impacted Mails as follows: Priority Mails £0.3m, 1st class and 2nd class £1.0m, International Standard £0.6m are products most impacted by PIP. Retail
sales are also underperforming against target by £0.1m. The expectation is that the gap will reduce with the roll out of remedial actions, including the delivery of the ‘shoebox’.
Main drivers of favourable Government income are UK Visa & Immigration (UKVI) (due to backlog in applications) £0.8m, ID Services £0.3m and Passports £0.2m, offset by Motorist services (DVLA Licences
and AEl) which are £0.4m behind target.
Financial Services now performing just above target following reduction in savings budget.
Period 7 Performance Pack - Chris Day
19th November 2013
Page 6 of 26
Cost Management update
October 2013
Progress since Pé update
Value and confidence
+ Work in the month has identified new opportunities, firmed-up values, developed
implementation plans and resulted in confidence,
+ The net impact on Value and Confidence is an upward movement in FY13/14 (£0.3m) and in
FY14/15 (£3.6m). Confidence has increased for both years.
Delivery and governance
Strictly Confidential
Cost reduction opportunities: Confidence and value FY14/15
I
£40m 4 om al
ial
630m ;) 9) ee mlow
+ Additional opportunities identified include: . ss & Mediurn
i. Weighing scales - there is an opportunity to reduce costs (up to £1m pa) by adopting a £20m I High
“replace” rather than “repair” approach. Further savings are anticipated (c£1.5m pa) by a 3
moving to industry standard dimensions for scales, rather than our current custor-
made requirement. ’ /
ii. Negotiations with Royal Mail to deliver lower Official Mail rates suggest a further £0.5m £0m 4 :
of savings are available. Sep 13 Oct13 Nov13 Dec13 Jant4 Febid Marlé Apri4 Mayi4 OlJun
+ Announcements have been in the HR service centre regarding staff reductions and delivery is
on track.
+ FY13/14 benefits are built into the latest Q2 Forecast andare in delivery. FY14/15 initiatives Cost reduction opportunities: Confidence and value FY13/14
have been included in the Directorate level budget planning targets. £m 9
Enablers ad
A recommended approach to staff cost reductions has been agreed by ExCo, enabling work to fam ' a = on
proceed on delivering staff cost reductions of £9m in FY14/15. i @Low
Strategic initiatives for FY15/16 and beyond £3m I — I / Medium
Work has continued within the Directorate teams and Finance to develop the strategic cost
management initiatives that will deliver the goals for FY15/16 and beyond. Development of the £2m I - - High
new Operating Model continues and ExCo has agreed a plan of action to progress this. It is
anticipated that the two work streams will come together as the requirements of the Operating £1m I - -
Model become more defined. I
£0m +— -
Sep13 Oct13 Nov13 Deci3 Jan14 Feb14 Mari4 Apri4. May14 O1Jun
Overview of high impact initiatives Directorate I FT Pvaa/ts (Em) Significant changes since P6 update
excluding CTP) impact{ t I M_I_H_I Total
- Procurement savings in Network and Supply Chain Network & 35 I 25 I 6.0 Iincrease in £0.5m from Official Mail rate reductions.
(£2.6m Facilities Management; £2.0m Fleet Maintenance; £1.0m Official Mails) Supply Chain Increased confidence (from M to H) on Fleet
Maintenance procurement
- Reduce cash delivery frequency and move to single person operation Supply Chain I 50 18 18
- Marketing spend efficiencies Commercial 16 16
- Reduce cost and volume of Official Mail Finance 1s 1.5. Iincreased confidenced (to M) from volume reduction
- Restructure product and marketing to reduce duplication and increase customer focus I Commercial I 8 07 0.7
- Manchester Cash Centre Closure Supply Chain I 20 07 I 07
- Restructure Audit and Training team in the Agency network Network 20 07 0.7
- Deliver remainder of Finance Roadmap Programme savings Finance 15 0.7 I 0.7. IRe-phased programme agreed. Savings still targeted
I Restructure call centres transferring from Royal Mail and improve efficiency Network 20 06 I 06
Period 7 Performance Pack - Chris Day
19th November 2013
POL00027506
POL00027506
Page 7 of 26
POL00027506
POL00027506
Cashflow Analysis Strictly Confidential
October 2013
r (Cashfiow
YTD Cashflow 2s
em The YTD cashflow was an inflow of £197m which was £94m favourable to the £103m
budgeted. The main variances are:
197
200 I © Capital expenditure and exceptionals were a combined £67m favourable due to lower
= : : I I than planned NTP and CTP expenditure.
(54) 8) i I [ * Working capital is £9m adverse to budget.
co = (218)
(42) i * Client and Network Cash balances are £2m favourable to budget, and profit is £6m
fa favourable
Sas Gene nwtorivosng apt Canal Relining, Canfowtdive Mates Goa findra Feecetiw I I'4 There ig a favourable variance of £33m attributable to timing of the receipt of the FRES
es ersions, other ie dividend, budgeted for in P8.
YTD Cashflow Variances Full Year
Em. Q2Forecast_ Budget Variance
£m [Working Capital 102.0 102.0 00
‘7 Depreciation 09 09 00
Working Capital (41.2) (41.2) 00
33 Client Balances (41.4) (44.4) 33.0
6 Network Cash 1146 114.6 00
— oe at Dividends (4.5) (4.5) 0.0
Capital Expenditure (140.0) (267.5) 275
Government funding 215.0 215.0 00
NSP in advance 00 0.0 00
ID Guiget persia oft wore 7 walters I TOA Exceptional Items (144.8) (298.8) 54.0
Pensions 23 23 00
R Proceeds from asset sales 25 0.0 25
00 00 0.0
Free cashflow before interest, tax 95.4 (21.6) 117.0
Network Cash Interest (2.0) 60) 3.0
£m Prior Year I _Mar-13 P7 led 103 103 00
P7 Opening I Actual Budget var Free Cashflow 1037 63) 1200
Retail, Cash Centres 514 650 696 602 (94)
Bureau 67 59 70 66 (4)
Cheques, debit cards 119 161 117 125 8
Network Cash 700 870 883 793 (90)
[Opening [P7 I
Headroom (£m) 838 944
Period 7 Performance Pack - Chris Day 19th November 2013 Page 8 of 26
Business Scorecard
October 2013
Strictly Confidential
POL00027506
POL00027506
Key Performance Indicators Current Month Year to Date Prior Full Year 2012-13
Act___ Target _‘Var Act___Target_—_Var Year I Q2F'cast_ Target _‘Var_I Outturn
Growth
Total Net Income (excl NSP) £m (Bonus) 7784.6 BRM 50355288 5252 I 887.6 9000 902.4
Operating profit £m (Bonus) 11.9 11.2 65.0 59.2 723 102.0 102.0 94.2
Earnings before ITDA and Subsidy £m* (7.3) (7.9) (54.0) (59.4) (60.3) (97.2) (97.2) (115.4)
Free cashflow £m 4.0 (69.0) 196.8 103.0 352.3 103.7 (16.3) 132.2
Customer
Customer Satisfaction** 86% 88% 88% 88% 86% 88% 88% 87%
Easy to do business with (Bonus)** 37% 4a% 44% N/A 44% 4a% N/A
Net Promoter score** (5) 5 5 N/A 0 5 N/A
Queue time % < 5 minutes - Top 1k branches 87.9% 84.7% 79.5% 79.8% 81.0% 81.0% 80.7%
Horizon availability 99.9% 99.7% 99.7% 99.8% 99.7% 99.7% 99.8%
Branch - Compliance (new basket) 99.6% __ 98.0% 98.0% 98.2% 97.9% 98.0% 97.8%
People
Engagement index % (Once a year) (Bonus) 55% 56% 55% 56% 55% 56% 56% 55%
(No.) % of BME appointments over total recruits at senior leadership 20% “% 12% it N/A is N/A
and senior manager
(No.) % of Female appointments over total recruits at senior 60% 40% 54% 40% NVA 40% 40% NA
leadership and senior manager
Modernisation
Crown Profit (Loss) £m (Bonus) (2.4) (2.6) (18.8) (24.9) (23.0) (37.0)
NT Conversions - contract signatures(Mains & Locals) (Bonus) *** 243 172 2,413 3,000 3,000 1,450
NT Branches Open (Mains & Locals)*** 179 158 1,274 1,950 1,950 507
Bonus worthy metrics
* ITDA Interest, Tax, Depreciation, Amortisation
** Monthly = 3 month average. YTD = 12 month average
*** YTD and FY = cumulative including prior years
Period 7 Performance Pack - Chris Day 19th November 2013 Page 9 of 26
Network Transformation Scorecard
Strictly Confidential
October 2013 Reporting prior months data (i.e. one month in arrears)
Sample size is still small but provides a starting point to build on. All branches in the financial section have been operating for greater than 12 months to allow for
steady state, and branches that had previously received overscale / one off payments have been removed to provide a clean baseline.
Key Performance Indicators ‘Actual Target. ‘Var vt Commentary
MAINS
Converted > 6 months Tame
Finance Approved Investment per Mains £000 Ge (39) 0 8
Financial performance
[Total income: Post vs Pre Conversion
* Going forward branches live from 6 months will now be included in this
Branches lve 6-12 months (x Rk 126 scorecard as we now have a greater number of branches,
ranches ve 22-26 monthe oe GeO > Total Income -Income has either increased or remained flat in branches
ranches lve 22-24 months (oh a ak between 6-12 months and branches over 24 months, This month has seen a
POL, Branches ve 24-36 months o% Ox 8 6 deciine for the branches live 12-24 mths, however as this is a much smaller
. post ve P sample size itis as a result of only 1 branch
‘cus Income: Post vs Pre Conversion Focus income Branches live between 6-12 months appear to be doing well
Branches lve 6-22 months Fer at 5 124 against focus products however the control group is performing better against
4 ' a products such as insurance and international priority when compared to
Branches lve 12-24 months (ie BR 2H 2 branches opened for longer than 12 months. The demographics of the branch
Branches lve 24-36 months 2 me 6 will have an_ impact on the result.
Agents pay - Higher than the control group in line with increased rates for main
[agents Remuneration: Post vs Pre Conversion 5 OF 5 126 branches
Agee Non financial performance
operator Feedback on Retail Sales Performance 12 % 38 109 Customer satisfaction consistently above 90% for both Mains and Locals.
[average Increase in Opening Hours 30h 580
Customer
customer Satisfaction 9% tt 1.678
LOCALS
Converted> 6 Months 129 Locals
Finance Approved Investment per Local £000 a Ga 0 0 Financial performance
Income - The Local model assumption was that income would reduce by c5%
[Total Income: Post vs Pre Conversion 0 due to the removal or certain products. 35 branches that have been live for 6
Branches lve 6-42 months ox Gk oe 60 ‘months or longer are performing better than. Products such as bill payment
POL . appear to be consistently stronger in the branches opened for longer than 6
Branches lve 12-24 months (28 GR 8 ‘months. This appears to be consistent with analysis done for locals on out of
Branches lve 26-36 months Qe eae 7 hours.
Agents pay fixed savings - Savings inline with strategic plan target.
[annualised Agents Fixed Pay savings per conversion £000 10 10 0 0
Non financial performance
[Customer Sessions 12- 26 months EJ (on on et Customer sessions - Strong performance which implies greater footfall but
Agent [customer Sessions 24- 36 months a ek ‘ lower value transactions. For example bill payments appears to be stronger in
these branches however this is a much lower value transaction when compared
Operator Feedback on Retail Sales Performance ko 3h Ea with some of our focus products,
Cutsomer Satisfaction ~ Aug 12 - Sept 13 Data
faverage increase in Opening Hours ust 80k SR “65
Customer
Customer Satisfaction 90h 1.463
Financial targets reflect the equivalent performance of the control group (2519 Mains and 4918 Locals)
11028 live branches within the 1870 contracts signed - September 2013
(0212 Months (Oct 12 - Sept 13) - 840
12-24 Months (Oct 41- Sept 12) - 152
+24 Months (prior to Oct 2011) - 37
Note: The scorecard includes 64 branches of the 151 (12-24 months) and 13 branches of the 37 (24-36 months).
Branches with a break in customer session or branches that had previously received overscale payments have been excluded
Period 7 Performance Pack - Chris Day
49th November 2013
Page 10 of 26
POL00027506
PoL00027506
Transformation Delivery Heat-map Strictly Confidential
October 2013
Highlights heatmap status of key transformation programmes, and points of escalation to Transformation Board on selected projects including resulting TransformationBoard action
/ guidance. Also highlights wider points of discussion / action
Red
Programme Spend
Amber
-
-
_
_
_.
Amber
Delivery to Baseline Milestones
Colour of Circle reflects 13-14 financial benefits
O
Shows movement from last period
Period 7 Performance Pack - Chris Day 19th November 2013
POL00027506
POL00027506
Transformation Board (78)- Key Poinis of Focus
Wave - Fujitsu have been informed that POL will not be progressing the mobile opportunity with them.
Positive meetings have been undertaken with EE, 20:20, Lifecycle, AVNet about delivering mobile via an
altemative model with direct relationships with the suppliers. The team have received indicative proposals
from potential suppliers and these, along with the implications of the change in operating model, have been
-d and will be presented to the ExCo on 19th November
‘Separation ~ The Separation team continue to develop conclusions and recommendations following a joint
Post Office and Royal Mail review of the existing delivery approaches for the Separation projects. Meeting also
heid with Catherine Doran to agree output. A review of the existing delivery structure and governance with
recommendations on revisions will be made late November
‘Smail Business & Online Mails ~ Online Mails procurement naw integrated ito Common Digital Platform
activity and is pianned to form part of the first iteration of CDP capability. Three bidders have responded and
reviews are currently taking place. There are concerns from the Mails team that the bidders may not be able
{to deliver Online Mails via CDP by March. with two out of the three bidders stating that to meet the March.
delivery a ‘tactical solution’ needs to be in place. Further review of options with suppliers underway to
consider timelines versus costs and benefits for Online Mais.
Post Office Operating Model - ExCo meeting held to disc
development and proposed next steps, with agreement to d
working team to progress and engage the market for a suitabl
5 market testing of approach to operating model
1p a short form business case to establish a
stner to support.
Payments Strategy ~ PSP services in partnership with Worldpay lau TPR and mternal
jons, Special promotion for Sub-postmasters planned to switch their own card services for the
retail section of their business.
ped, with exter
jcommunic
Foo: Maypole (POCA) ~ further to BWP discussions POL Board paper presented and approved to move
forward to fully costed proposal by the end of the Financial Year. Resource costs are being revisited as the
scale of the work has indicated a Programmatic approach is required to manage the complexity. However set
‘up cost will be recovered fromm DWE.
FooG: 1DA - GDS have informed all IDPs that the Government Departments lined up for the Beta pilot (HMRC
& DVLA) have slipped their go-live dates to January.
Crown Transformation - 14 branches have been transformed under the programme with works underway in
all branches pre-Christmas . However the Self Service kiosks will not be piloted before Christmas - Royal Mail
concurrence 's outstanding and is required in advance of rollout. The forecast for the 2013-14 finan
is also over budget, driven by increases to the automation spend relating to the connection to Chann
Integr this is going to be partially offset by other costs moving into 2014-1
forecast property. VR and Compromise Agreement costs)
jon ~ howev
9. some
Page 11 of 26
POL00027506
POL00027506
Strictly Confidential
Appendices
Period 7 Performance Pack - Chris Day 19th November 2013 Page 12 of 26
POL00027506
POL00027506
Strictly Confidential
Income Report
Period 7 Performance Pack - Chris Day 19th November 2013 Page 13 of 26
Net Income By Pillar vs Budget
October 2013
Net Income (£m)
Stictly Confidential
Period Prior Year Period.
Year to Date Prior Year YTD
Full Year
Prior Year
Actual I Budget I Variance I Actual I Variance
Actual
Budget I Variance I Actual I Variance
2 Forecast I Budget
Variance
Outturn I Variance
Mails & Retail
Financial Services
IGovernment Services
[Telephony
other
TOTAL NET INCOME
JFRES - Share Of Operating Profits
32
26.0
117
49
35
82.3
26
oO)
a2)
an
ao)
08
(66)
00
a7
268
90
39
43
11
26
700
268
95
46
38
84.6
25
)
(20)
(05)
(6)
05
(6.9)
ot
Zee
163.5
687
294
24.2
503.9
253
2389
167.9
69.9
287
23.4
528.8
23.9
(205)
(44)
a2)
2294
1638
80.6
04 277
08 237
(24.9) 528
13 245
G09
(03)
an9)
14
Cr
as
(21.3) 88;
Wine
2774
115.9
504
“a7
900.0
315
7069
2774
1155
50.7
374
33.0
ay
(0.0)
(04)
03
(4.6)
(22.4)
0
404.0
279.6
133.2
45.0
407
902.4
319
29
(22)
ann
57
(3.6)
(14.8)
14
(0.4)
2019-14 YTD PFW
Net ncome
Budget
Special
Datvery
Mails & Retail Services
ae
2) es) “en
218.4
‘Stamps (Ist Ofer Mais Inlomatonal Fetal Labols (1st & 2013-14 YTD
‘nd Class) totlry “Bnd Class) Nt income:
ass) Net
‘cul
167.9
201214 YTD
Nat come
Budget
Financial Services
34 7
(or) (1A)
enking Pes ATMs
Sonvicot
‘Payment Payne
—
(1.4)
(26)
(4.8)
‘rave! Sensces Ofer
MoneySeam)
163.5
2019-14 YTD
Not income
‘oul
£m
2019-14 YTD Net Check and Send
Income Budget
Government Services
oa) (1.0)
(1.2)
68.7
(other Govt 201244 YTD Net
Tnoome Ae
ID Senvieas Motoring
Period 7 Performance Pack - Chris Day
Telephony Services
4
DIMI VION Bip” Hovering & oat
10th November 2013
Pillar Performance vs YTD Budget
Mails & Retaa Services - (£20.5m) Ad
Labels - (€8.6m) adv driven by lower parcel volumes since
the RM price changes in Apri
Lottery ~ (€4.3m) adv due primarily to lower than planned
volumes. The recent Camelat price increase is expected to
reverse the revenue shortfall
International -(£2.7m) adv due to lower volumes.
Other Mais - (€2.6m) adv due to unallocated stretch and.
lower than planned volumes across the Mails product
range.
‘Stamps - (£2,0m) adv - due to lower volumes vs. budget,
Financial Services ~ (£6, 6m) Ady (€2,0m due to timing)
Other ~ (£4 8m) adv due to unassigned income targets
including Sales Effectiveness stretch target stil to be
allocated to products.
‘Travel Services ~ (€2.6m) adv driven by phasing of bureau
income. £0.5m timing to be reversed in PS.
[ATMs ~ (€1.4m) adv driven by lower volumes than planned
‘and delayed rall out of new ATM's. £0.4m timing to be
reversed in PB
Payment Services - (€1.1m) adv driven by lower gift
Voucher volumes,
Offset by:
Banking Services - £3.1m fav driven by higher personal
banking and higher business banking volumes.
Bill Payment - £2.5m fav driven by lower decline than
expected, specifically in Housing
Government Services -(€4.2m} Ady
Gov. Services Other = (€1.2m) adv driven by delayed
implementation of new ID Services
Motoring ~ (€1.0m) adv due to lower than planned
Volumes inline with latest DVLA forecasts,
Offset by:
Passport Check & Send ~£1.1m fav due to higher volumes,
Telephony Services - £0.4m Fav
Homephone - £0.4m fay due to higher than planned
‘customer numbers and higher revenue per user.
Other - £0.8m Fav
Higher Supply Chain income for services provided to RM.
FRES Profit Share - £1.3m Fav.
In ine with latest profit forecast from FRES.
Page 14 of 26,
POL00027506
P0L00027506
Strictly Confidential
Net Income By Channel
Period 7 YTD - Focus products were £0.4m favourable to target and Standard products were £16.3m adverse (mainly Mails and
October 2013 Lottery), with the Agency network driving the variance. The favourable Direct channel performance is driven by mortgage phasing as
targets started to ramp up from period 4.
£m Month Year to date Full Year
Targeted Income Actual Budget Variance Actual Budget Variance Budget
Focus Products ;
Crown Offices 34 33 (0.2) 224 22.7 (0.6) 39.0
WHS 06 05 01 42 41 01 67
Agents - Managed 68 6.6 02 45.0 hh 06 74.0
Centrally Supported 36 36 (0.0) 267 27.0 (0.2) 49.6
Direct Sales 07 0.6 01 6.2 56 06 9.0
Central (0.0) 0.14 (0.2) 02 03 0.4) 05
Focus Products Total 16.7 16.7 0.0 104.% 104.7 0.6 178.8
Standard Products
Crown Offices 54 55 (0.1) 31.6 32.2 (0.6) 58.4
WHS 10 1.0 (0.0) 61 63 (0.1) 10.6
Agents - Managed 19.3 224 (2.8) 112.6 119.8 (7.2) 191.2
Centrally Supported 13.3 16.1 (28) 101.4 109.0 (8.0) 198.4
Direct Sales 07 0.0 37 37 (0.2) 65
Central 01 (0.1) 01 04 (0.3) 06
Standard Product Total 25. 6.9 255.2 274.5 (16.3) 265.3
TOTAL TARGETED INCOME ]
Other Income
Cash Services 01 13.2 128 04 22.0
Gamma (0.1) 43 45 (0.1) 75
Fixed Income & Other (0.5) 102.2 1125 (20.2) 185.9
Retentions (0:
TOTAL POL NET INCOME
119.2
TOTAL POL NET INCOME
Centrally Supported Net
503.9
623.1
Account Mgd Net Income YTD. Crown Offices Net Income Direct Sales Net Income YTD WHS Net Income
Income YTD (£m) (Em) YTD (£m) (Em) * YTD (£m)
150 200 60 125 12
50 - 10 10
wus 99% I ad vy 2
100 * 180 40 fun 40 ni a @ 8. 110° 8 2 103°
93% 00 * 8% val s
108.0 I
50 PRM 26 Ey 1198 20 us 22 4 98% 4 o
10 2 2
o+ : 0 + 0 ° 0 :
Actual Target Actual Target Actual Target Actual Target ‘Actual Target
=Standard Focus %ottarget I [=Standard Focus %oftarget] [ mStandard Focus tof target I [[sStandard =Foous % oftarget] [TwStandard Focus _ % of target
Period 7 Performance Pack - Chris Day
* Both target and actual exclude lead
generation income
19th November 2013.
POL00027506
POL00027506
Page 15 of 26
POL00027506
POL00027506
Strictly Confidential
Cost Report
Period 7 Performance Pack - Chris Day 19th November 2013 Page 16 of 26
Staff Cost By Directorate Strictly Confidential
October 2013
em Year to Date Prior Year YTD Full Year YTD Headcount
Staff Cost by Directorate Actual Budget Variance I Actual Variance Fon act Budget Variance % I Actual Budget Variance
Central (incl. MD's office) 2) 66) oy 22 oy I By 64 Ba OF Ts 15 T
Commercial (64) (4.3) (02) (3.7) (06) (7.4) (7.4) 03 ae} 120 aa1 (9)
Communications (2.3) {1.3) o4 {1.4} (0.2) (2.2) (2.3) 01 dt 48 35 (43)
Human Resources (28) (28) O41 (2.5) (0.3) (4.7) (3.3) (1.4) ae] 116 110 (O)
IHR - Centrally Held Bonus Payments (10.5) (105) (00) I (05) ©0) I G95) (495) 00 - - -
Financial Services (27) (2.6) (0.4) (1.2) (45) (66) (4.5) (04) 4x I 307 272 (35)
Finance (65) (6.9) 03 (5.7) (os) I G09) (11.8) 09 Be I 245 264 19
Network (1070) (2073) = o3- I 424) 5.3] 784) 4785) Ow 85% I 6850 6,939 89
Supply Chain (33.4) (329) (05) I (328) (0.6) I (60) = (551) 0.9) 20% I 1591 1,574
Crowns (62.2) (620) (0.2) I (68.4) 62 I (4022) (4024) (0.0) 53t I 4276 4,225
Other Network (11.4) (12.4) 10 412) (0.3) I (200) (24.3) 13 5% I 409 501
ICTP and NTP Heads (Costs in exceptionals) 7m I 574 639
Legat (1.4) (1.4) 0.0 (13) (02) (2.4) O41 1% 47 30
Security (1.6) (1.6) (0.0) (1.6) 00 (2.7) O41 18 52 57
Strategy (8.3) (2.2) (04) (7.5) (os) 14.2) (0.3)
(2
Period 7 Performance Pack - Chris Day
%
Financial Services
2%
PY Actual
PY Variance
YTD Staff Costs are on budget
Staff costs have returned to budget in P7 mainly because the Q2 sales bonus was below
budget reflecting lower sales. The budget for the managers’ lump sum pay award is covering
the shortfall in efficiency savings but this will unwind if a pay offer is made. The Cost
Reduction Programme is implementing a series of savings activities to drive the cost down ~
most will impact on 2014-15 with minor savings coming through in 2013-14.
Vs. Prior Year
‘The staff costs are £2,9m adverse to prior year including the impact of the higher IAS19
pension rate reflecting market conditions at March 2013, pay increases and higher bonus,
incentives costs.
Headcount of 8,028 is 44 below plan and is due to vacancies within the Network directorate,
both Crowns and transformation projects. The adverse variance in Financial Services continues
as the remaining FSs should all move over from Network by the end of period 8.
Vs. prior year headcount has increased by 179 primarily due to NTP and separation
strengthening,
Note: The budget is flat for all directorates, with only the Crown savings being the difference
between each month,
19th November 2013
POL00027506
POL00027506
Page 17 of 26
POL00027506
POL00027506
Non Staff Cost by Directorate & Type Strictly Confidential
October 2013
fem Year to Date Prior Year YTD Full Year lem Year to Date Prior Year YTD Full Year
INon- Staff Cost by Directorate ‘Actual Budget Variance I Actual VarianceI ro vast Budget Variance] INon- Staff Cost by Type ‘Actual Budget Variancel Actual VarianceI Foscast Budget Variance
{Central - Centrally Held incl. Computers & Telephones (43.4) (43.2) (0.2) (42.6) (0.8) (75.6) {75.9) 03
strenathening 38 G5) 73 I Ba) bt I 22 ot 28 Other Operating Costs 032) G07) (25) Iu22 Go I Gea) 56) (2.7)
[Commercial (9.4) (9.3) 02 (9.8) 07 (47.9) (45.4) (2.54) Consultancy, Marketing & Legal Fees (47.5) (47.7) o1 (15.1) (2.4) (32.8) (29.5) (3.3)
Communications as as 2 I ao 5) I &9 a) 0.23 I] * Skits Group external contractors 79) 70) 039) I vo (09) I G19) G29) 00
Finance (8.1) (7.2) (1.0) (3.6) (45) (13.9) (12.6) (1.33) Remainder 9.7) (10.7) 10 (8.2) (1.5) (20.9) (17.6) (3.3)
Financial Services {2.3} (3.6) 13 (2.8) 05 (4.9) (5.3) 0.43 Finance (9.7) (23.2) 35 (10.4) 06 (26.4) (17.2) 08
Human Resources 64 66 01 I 2 G2 I 62 62) (003) I] Propery Facies #2 62 an]en on] @ 62 (06
Network (03) 57) 6) I 74 (29) I a7) (276) G22) I] Property Maintenance # @o @2] 64 oa] 62 69) 06
‘Supply Chain (9.4) (8.7) (0.4) (9.3) 02 (15.3) (45.3) {0.03} Vehicles: (2.5) (1.4) (0.1) (4.5) (0.0) (2.4) (2.4) 00
Crowns as a6) 03) I Go ot: I Be —24)_—(0.49) I] Compensation os) a o7 I on oo] 6 8 Go
‘Other Network (9.3) (5.4) (3.8) (6.2) (3.4) (10.9) (20.3) (0.59) Collection, Delivery & Conveyance Charges {0.1} (0.2) o1 (0.7) 06 {0.4} (0.3) (0.2)
jLegal (2.4) (1.04) (0.0) (a8) (0.3) (2.0) (1.9) (0.09) Staff & Agent Related Costs & Consumables (os) (2.0) 12 08 (1.6) (2.1) (3.4) 13
Security (3) (1.28) (0.0) (1.5) 02 (2.7) (2.4) (0.23) * Skills Group off-charges to projects. 98 88 141 99 (0.0) 00 00 0.0
Programme costs 6 00 6) I a) 3 I 0 0 © 00 Remainder aos Gos) 02 I 62 Gs) I 20 Ba 23
Strategy (54.3) (50.2) (1.2) (48.0) (3.3) (88.7) (86.7) (2.4)
[Fetal Non Staff Costs 95.5) (96.9) a4 (069.9) (5.6) I 64.7) (160.0) (4.7) I [TotalNon Staff Costs —=C=“‘(Cétt*O*d OSSD OOS) ae [OOD GO) I GEE 60O) er
Variance Non Staff by Type
Non Staff by Directorate YTD non people costs were £1.4m favourable to budget
commer and £5,6m adverse to prior year.
*
‘ther Operating Costs
ee
Vs. Budget
‘The favourable position is driven by £3.7m VAT recovery
relating to H1 for changes in the VAT recovery rate, but
‘masks the underiying adverse variance due to Horizon
costs originally budgeted for in the prior year and adverse
property costs. RM costs are now treated as non staff
following the IPO and we believe there are still some costs
to come through. The adverse Network costs are Property
costs which are no longer within IB, but now non staff.
Vs. Prior Year
Higher non staff costs of £5.6m due to increased IT costs
‘mainly Horizon, timing of marketing spend, and the
removal of the FX bureau rebate received in H1 last year
partially offset by the increased VAT recovery rate this
year.
* Skills group is the internal ‘consultancy’ providing project resource made up of a
mixture of employees topped up with contractors. If demand is high the contractor
spend increases but this is offset by higher recharges to projects.
Period 7 Performance Pack - Chris Day 19th November 2013 Page 18 of 26
POL00027506
POL00027506
Strictly Confidential
Transformation Report
Period 7 Performance Pack - Chris Day 19th November 2013 Page 19 of 26
POL00027506
Povov0z7s06
Transformation Board Scorecard ‘Sticty Contisotat °
October 2013,
Tamulatve ta Po Fal Year Contam
2 Full Year Full Year
I Business Owner I Programme / Project Business Capability Taroet I pcruat I I target I BUY®" I] gusiness Outcomes fn yar) Target I gual I Target I Ful Year ome
id (eas) (eae I Forecast (a6) tracy I Forecast Mabie optimised te
slipped due to CAP
Germ request for
- _ a ational egretion
wun Mobile opumzad we = oe eduction n srariphone bounce rate testing Carer release
le [nerin Mobie opmised Norts Now! I T Net increase in digital sales 0 ¥67K planned fr mid-Nov.
}& I Spencer Champan I Digital & Multi Channel [Common digital platform initial functionality lve Marea I Mar-14 I I Reduction in running costs from 24/5) NA I Ni NA NA i
[ie ces tose comer view nine Co [oc-16 I [ cose telnsl ster ruth [pe [oe] o I o Esme Sevns
: month for mortgage
Tea caw] FS superssory sacar par oF Sues Eshanced Salar Tales pe FS per wee Sy 22 Comarbvon ham nersased sles cro valee applications with 106 per
gp err Cepabisty) [Customer Appointments per FS per day F357] 28 “ an branch but stil tacking
5 I Jo Wileoc— I MMR ana Warigae Ralout vik compiance & addtional sales per HS par month 42 nib Gn year tage behind target
fa POC tauncned May-23 umber of acount applications POLO Proof af
BI_ Zorn Wilcock I POLO National Rot Out 2016 TEC umber of acount sles be extended wh
§ I Paci laveshand I Travel ineurance (Tan internal insurance product capably lace FS revenue growth (no in year hep to dive numbers
II Alan Smith I General Spend Card Product rollout (in 200 branches) o[3 contribution fom new product from 0
‘Alan Smith I Payments Svat ul suite of card payments fr SMES ontnibuton Fram new product Payments project went
ive on 26 October.
Kevin Seller] DVLA Service extension [une go lve (extended services implemented 24 June 13) a on -2 ‘ontribution from new services Foes
6g I kein Saier I identity Assure Ready to enter 0A market Eoninbuton from new sacs Fe csartments inthe
{SI “Kevin Seer I Stateholier and Comme Dslnary Blan — [Govt Commit to POCR exerion Tan I TEE] [unas I TEC] [Wider Use of OVA Framewori (Daoist taueeayes
in Sele I UKBA Product launched in por year Soles Reverue PEM] 3.108 (TESA) 0.432% (poh cous &
benefits slipped to
[__Eaman Pree I Smal Busines Cub onine mals] [Small Buses anne payment and ace mgt ] Tare] [nevemental contrbaton Fom onine mals oo o_ I= January
[amon Price I Collections and Returns [ful functonaity = capacty planing and ou of Fours as Juict3 —} [Contin fom new product (0 I s1.0006 I €000% I
Mate
[ leremy Woodrow I Wave (Wobie propesion] I Wobie papastion plat need ] Tana] [Gertcbaton Fam new pada a 7] Some rick to benefits but
[Cleremy Woodrow [Home Phone & Broad Band Migration I Successful mgraton of customers Fujitsu SI Sep-13I [hereced contribution (con eavings Sgronth) I 0 I Oo] working to mitgate.
(Clever Foci I Wartatng [Ret Bromter Scare —oing 12 mone re) ee I I I I 1 Telephony
Revised proposal or
= [ranch ranchice 7 TOD 26 I [Cot reduction From ranching TO] Fok PEROOGEL] CONT TO) wave due end of
8 I Harry clarke I Crown Transformation New Sef Senice machines roled ov 0 180 _I I Staff savings supported by automation £0k $546k November
Ss Number af ne format branches role ut 1 Bay I 117 I I Cost reduction from ater programme acti 7i163k I 528 I £53484 II vor
arketing
Contracts signed - Target Boos) 2113 OOO] 3.000 I [Average queuing time in new format branches, Bway] 011) [Snel] 5 Mins ws ee covered Hom
=I Net Ennis I Network Transformation Programme {Branches open - Plan 27 71950] [ Customer eatiaction a in foloweng mals pce
2 a I ‘ve inreac in opening hours aoe I sx I aoe I to changes
I I in I Cet reduction R52 I 200: Sr ef ck
safe, bat taf caving
omuton & Tan SSD n pace 3750 T T ] Da_] [Test veducton a a I cut
[_ treater] i artmtn 6 tanston [at owers awarded ! I J aC] [alu of contracts in towers a feaneivorlonanha
nte
“I NeiWitison I Seprton Separation of bane & Tatars aries By aan o 1.8 Ae WA [NA] WA] WA Cost eduction forcast
FT sero Goodman’ I finance Tranformation Programme [ear Fnaneesyrtem implemented iets I ia vetacton lower because of lover
Peter Goodman I Finance Transformation Programme proces improvements implemented numba a) ed a 5] LUesssount resto tcl a broporian of teas
&
if
(Bains Crowe
Mauatzaton [Fite parpare of PO agreed by BS 6 Board ie] [ I I I
Benefits shown as income pending estabichment of cntribution measure Ne S
** Boing reviewed in ine with annual planning
evi 7 Pesfomance Pack - Chis Day +90» November 2013, Page 20 of 6
Network Transformation Scorecard Metric Definitions/ Rationale
October 2013
Reporting Prior Months data (one month in arrears)
Strictly Confidential
POL00027506
POL00027506
Key Performance Indicators Metric Rationale
MAINS
Converted » 22 months Source: NTP database Source: NTP database
Finance Approved Investment per Mains £000 [average investment spend approved for number of branches Recognise investment spend
Total Income: Post vs Pre Conversion
Branches lve 12-24 months [Total Variable Income - Source: Credence* Review impact on POL income as a result of converting to new models
POL Branches le 24-36 months Current month vs same period pre conversion
Focus income: Post vs Pre Conversion
Branches le 12-24 months [Total Focus Income - Source: Credence” Review impact on POL focus income to assess the sales model post conversion
Branches le 24-36 months Current month vs same period pre conversion
[Total agents remuneration excluding overscale and NUVAT, Current month vs same pena
Jagents Remuneration: Post vs Pre Conversion otal age) eration excluding overscale and NUVAT. Current month vs same period La... the impact on income for our agents asa result of POL business
Agent i .
Operator Feedback on Retail Sales Performance JSource: Operator survey issued to branches 2 months after opening starting in Aug 12 Indicative retail performance for Agents
average Increase in Opening Hours Based on systems data of open hours JAssess the impact of extended hours for our customers
Customer
Customer Satisfaction Exit interviews conducted by research company Brass at recently transformed branches Indication of customer experience
LOCALS
Converted » 12 Months Branches converted greater than 12 months Branches converted greater than 12 months
Finance Approved Investment per Local £000 JAverage investment spend approved for number of branches [Assessment of investment spend
[Total Income: Post vs Pre Conversion
POL Branches le 12-24 months [Total Variable Income - Source: Credence* Review impact on POL income as a result of converting to new models
Branches lve 24-36 months Current month vs same period pre conversion
JAnnualsed Agents Fixed Pay savings per conversion £000 Fixed pay saving per branch vs the strategic plan assumptions [Assess the savings to POL
Customer Sessions 12- 24 months JSource: Mi Database Measurement of footfall for an Agent
Agent [Customer Sessions 24- 36 monthe
Operator Feedback on Retail Sales Performance JSource: Operator survey issued to branches 2 months after opening starting in Aug 12 JAssess impact of increased revenue from retail
average Increase in Opening Hours Based on systems data of open hours JAssess the impact of extended hours for our customers
Customer
Customer Satisfaction Exit interviews conducted by research company Brass at recently transformed branches Indication of customer experience
* Same income factor used for each year. Performance is impacted by sales and product rix.
Period 7 Performance Pack - Chris Day
19th November 2013
Page 21 of 26
Project Costs (OpEx) Strictly Confidential
October 2013
The overall YTD expenditure is lower than budget, but with variances between projects.
£m Current Month Year To date Full Year
Directorate POLIC
Programme Actual Budget Var Actual Budget Var I Forecast Budget Approved to
Date
[Commercial Brand Marketing (04) 00 04) (03) 00 (08) 5) 00 00
(0) 00 (06) 6.0) (5.8) 08 67) (58) 00
Digital & Multi Channel (01) (0.0) (02) (0.6) (0.4) (02) 07 (06) (05)
FOoG (0.2) (0.2) 0.0 (1.5) (1.4) (0.4) (2.0) (2.3) (1.4)
Mails 02 (01) 03 (0.6) (07) (0.5) (20) (07)
[Telephony (2.4) (03) 1.4) (3.2) (25) (7) (3.6) (09)
Financial Services [Financial Services (on (4) 03 (9) ) ed G5) G3)
[Communications [Communications (0.0) (on Ot (oo) (0.6) (06) (0) (0.6)
Network & Sales Network Other (00) 00 (0.0) a) 00 (2) 00 00
Property (02) (0.0) (02) (05) (03) (0.4) (05) 03)
[Supply Chain (0.0) oo (0.0) (05) 00 (07) ) (06)
IT & Change IT Delivery (0.2) (0.4) (0.4) (0.7) (0.7) (0.9) (2.4) (0.8)
(Corporate Services I Corporate Services, (01) (03) 03 (CR) (06) G3) (a) 09
Independence & Separation 00 oe) 00 00 00 (0.2) (4.2)
Finance Finance (00) 00 (0) (3) 00 (03) 00
Strategy Independence & Separation 00 (on Ot (02) (or) (cr) (05)
[Centrally Held [Centrally Held 0.0 (0.4) Ob 0.0 (5.3) (0.5) (48)
Ola Projects Old Projects 00 (02) 00 00 00
Financial Services
IC Total
and Total
FS_Eagle 2013/14 (Provision)
(20)
00 (20)
(3.5)
(4.0)
(35.0)
Financial Services
FS_Eagle 2012/13 (Provision)
00
(2.9)
(2.4) 03
oo
(3.0)
POL00027506
POL00027506
OpEx £1.5m under investment
Brand Marketing
£0.8m adverse YTD is offset against the underspend in
Customer Engagement net position zero.
Customer Engagement
£0.8m favourable ytd offsetting Brand Marketing.
FOoG
£0.4m adverse YTD relating to unbudgeted projects.
Telephony
£0.7m adverse YTD relating to BT Migration TUPE costs
Supply Chain
£0.5m adverse YTD relates to the North West Cash centre
move, where the spend was budgeted has Capex.
Corporate Services
£1m adverse ytd due to the £0.5m Fraud Software analysis
project which had approval spend in 2012-13, but was
delivered in 2013-14, unbudgeted, and £0.5m unbudgeted
activities.
Independence & Separation : Now Exceptional
Finance
£0.3m adverse YTD relates to FRM to be transferd to Capex in
PB.
S
FS Capabilities
£3m YTD now utilised against the £3m 2012/13 provision
Period 7 Performance Pack - Chris Day
19th November 2013
Page 22 of 26
POL00027506
POL00027506
Project Costs (CapEx and Exceptionals) Strictly Confidential °
October 2013
Both CapEx and Exceptional costs are underspent against budget, driven by NT and CTP.
CapEx &m Current Month Year To date Full Year CapEx - £37.8m under investment
Directorate POLIC
Programme Actual Budget Var Actual Budget Var I Forecast Budget Approved to II The favourable variance in the month & YTD is
Date mainly driven by Crown (£18.9m) & Network
Commercial Customer Engagement 00 (0.1) 01 0.0 (0.5) 05 (4.4) (1.4) 0.0 Transformation (£19.1m) Programmes tracking
Digital & Multi Channel (0.1) (01) (0.6) 0.0 (0.6) (23) (1.6) ( behind planned activities.
FOoG (0.0) 02 (1.7) (2.3) 05 (3.9) )
Mails (03) (03) (08) (02) (os) (2.6) ) Property
{Telephony oo ot (05) (0.1) (03) (07) .2) £2 3m favourable VID due fo fem of costs
Financial Services _ [Financial Services, (0.0) 05 (0.0) (2.4) 2h (0) ? .
Network & Sales ICrown Transformation (02) 28 (2a) (219) 189 (268) IT Delivery
Network Transformation (2.4) 24 (129) (320) 194 (53.7) £1.8m adverse ytd mainly due to phasing of Risk
Property (0.8) (0.4) (2.0) (3.3) 13 (62) & Resilience.
Supply Chain (2.0) (4.1) 6.0) (5.3) 03 (12.0)
IT & Change IT Delivery (24) 17 (3) ——(13.0) 18 (29.4) Corporate Services
IT Transformation 06 06 03 00 03 (02) £0.8m adverse YTD relating to unbudgeted
Corporate Services [Corporate Services (05) (05) (08) 00 (08) oe) projects.
Independence & Separation (0.2) 15 (25) (7.0) 45 (47.6)
- - Independence & Separation
i Fi y
Finance inance (0.4) (a) (24) (2.0) (08) G8) YTD is £4.5m favourable. This mainly due to a
(Centrally Held (Centrally Held 00 it 00 92 (92) 00 combination of projects (E-Business, HR
Old Projects Old Projects 07 0.0 0.2 (0.4) Systems and IT Towers ) behind schedule.
XN
Exceptional Current Month Year To Date Full Year
POLIC Exceptional - £38.9m under investment
Directorate Programme Actual Budget Var Actual Budget Var I Forecast Budget Approved to
Date Current month £7.9m & Year to Date £38.9m
Other (Cost reduction 00 (5) 05 00 (28) 18 G6) 60) 00 favourable.
Network & Sales Crown Transformation (2.3) (2.5) 0.2 (10.1) (16.0) 60 (40.4) (29.4) (29.4)
Network Transformation (6.6) (135) 68 (395) (68.0) 285 (70.8) (128.7) (128.7) The favourable variance in the month & YTD is
Supply Chain 09 (13) 13 00 (4.2) 4a (46) (6.1) (1.4) mainly driven by Network transformation
IT & Change IT Transformation (2.3) (1.6) (07) (6.9) (7.4) 03 (19.4) (25.0) (48.0) programme & Supply Chain (North West Cash
Centre & Supply Chain Strategy) tracking
(
(0.1) behind planned activities.
(1.5) (6.9) (0.2)
(184.4)
[Corporate Services —_Iindependence & Separation (3.9)
al Total
(0.4) (3.4)
Finance VR
IWHS Contract 0.0 0.0
Pensions 0.0 0.0
JAgents Compensation
Exceptional Grane
Period 7 Performance Pack - Chris Day 19th November 2013 Page 23 of 26
POL00027506
POL00027506
Strictly Confidential
Supplementary Information
Period 7 Performance Pack - Chris Day 19th November 2013 Page 24 of 26
POL00027506
POL00027506
Cashflow Statement & Balance Sheet Summary = St” Conteentia
October 2013
Balance Sheet Cashflow Statement
P7 YTD Full Year
£m Mar-13 Actual Budget Variance £m Actual Budget Variance Forecast Budget Variance
Fixed Assets iz 63 36 3a) (Operating Prot $50 min eoa ss 1020 1020 000
Debtors 122 155 107 48 Depreciation 02 05 10.3) 09 09 00
Cash 870 883 793 90 Working Capital 36) 46.2) 24) I] 412) 12) 00
Client Balances (288) (293) (205) (88) Client Balances 61 (82.4) «885 (14) (44.4) 33.0
Trade Creditors (362) (493) (414) (79) Network Cash 37) 766 (03) II 1146 11466 00
Pension (deficit)/surplus 97 145 71 74 Dividends 72 (23.9) 311 (4.5) (4.5) 0.0
Provisions (26) (26) (25) (a) Capital Expenditure 422) (00) 378 II @4oo) (675) 275
Investments, Funding 5 109 87 2 Government funding 2150 2150 «= 00 2150 2150 00
Loan (293) (110) (280) 70 NSP in advance 80s 808 00 00 00 00
Net Assets 288 433 328 105 Exceptional Items (762) (2056) 288 II (@4as) (988) 540
Pensions 22 13 09 23 23 00
Reserves Mar-43_I Actual I Budget I Variance Proceeds from asset sales 24 00 24 25 00 25
(Capital and Reserves (288) 633) 328) (205) 00 00 00
(288) 433) (328) (205) Free cashflow before interest tax Tero Muss noes 954 ele 4170
interest 0) (25) +415 (20) 0) 30
Tax 10210200 103 103 00
Free Cashflow 1968] 030938] [Taos 7 dea 200
Cash Management Table
£m Prior Year Mar-13 P7
P7 Opening I Actual] Budget I var
Retail, Cash Centres 514 650 696 602 (94)
Bureau 67 59 70 66 4)
Cheques, debit cards 119 461 107 125 8
Network Cash
Headroom (£m) 838 914
Period 7 Performance Pack - Chris Day 19th November 2013 Page 25 of 26
POL00027506
POL00027506
Income By Product Groups & Pillar Strety Confident y
October 2013 Adverse; Mails is £20.5m, Financial Services is £4.4m, other income is £0.1m and Government Services is £1.2m
adverse. Favourable; Telephony is £0.4m and Supply Chain £0.9m favourable.
Current Month Prior Year Year to date Prior Year Full Year Prior Year
Net Income £m Actuals Budget Variance I Period Monn ) Actuals Budget Variance IYTD Actual von OF sae sge Budget Variance ei
Parcelforce 24 24 (03) 19 03 129 «133 (0.4) 10.7 22 23.2 245 (1.40) 19.9
Special Delivery 5.0 49 01 5.0 0.0 303 300 03 30.6 (0.4) 500 500 0.00 53.2
International Priority & Standard 3.0 34 (0.4) 30 0.0 186 213 (2.7) 18.9 (0.3) 327-373 (4.60) 34.9
Stamps (1st & 2nd Class plus other stamps) 25 29 (0.5) 23 0.2 146 166 (2.0) 19.4 (48) 338 338 0.0 35.2
Labels (1st & 2nd Class) 85 105 (2.0) 93 (0.8) 530 616 (8.6) 571 (4.4) 948 106.2 = (41.40) I 100.2
RM Mail Fixed 55 5.4 0.09 55 0.0 335 33.4 O1 33.9 (0.4) 560 56.0 0.0 57.9
Retail & Lottery 4.2 5.0 (08) 42 (0.0) 257 302 (4.5) 26.6 (0.9) 519516 0.30 45.7
Mails Other 49 5.4 (0.5) 54 (0.1) 299 326 (2.7) 322 (2.3) 647 553 9.34 57.0
Foul Mal sevias as aU ae I isee OST ish) Bak ot eos) I enema I ade he TEL I aoe
rotal Telephony Series I 8 oe 06) I OO) pot ek ok arg ak Oe 0k OS I as
Motoring Services, 16 19 (0.2) 3.0 (1.4) 116 (126 (1.0) 19.9 8.2) 207-0 «214 (0.73) 318
Card Account 48 5.0 (c.2) 53 (0.5) 35.1 35.5 (0.4) 39.5 (4.4) 59.1 59.4 (0.3) 65.8
Check and Send 13 12 01 13 0.0 140129 4a 134 09 222 204 1.84 214
JAEI (DVLA & UKBA) 09 os 01 09 (0.0) 47 45 02 54 (0.4) 94 79 15 101
(Other Government Services, 0.4 0.6 (0.2) 44 (0.7) 3.2 4h (1.2) 3.0 02 4a 67 (2.6) 4.2
ie Tenn See ns Twos oe ase
Bill Payment Services Direct 12 1.0 (0.1) 63 64 0.2 (0.3) 109 111——(0.22) 118
Bill Payment Services Reseller 27 24 ba 2 F 4 168 14.44 23 Pr 4 (0.4) 262 249 1.26 27.6
Postal Orders, 2.0 24 (0.0) 2.4 (0.4) 124 9 124 o1 14.0 (1.5) 202 © 202 0.04 23.4
Payment Services 05 os (0.3) 0.20 03 3.0 43 (1.2) 28 02 7a 89 (1.7) 63
Personal Banking Clients 3.2 25 07 25 07 166 9151 15 15.5 1.0 275 25.4 24 26.4
DWP Exceptions (0.0) 0 (00) 04 (0.4) 0.0 01 (0.1) 26 (2.6) 0 O41 (0.07) 39
Business Banking 28 25 03 32 (0.4) 17300157 17 205 (3.2) 288 266 2.27 34.8
ATM 26 33 (0.7) 29 (0.3) 181 196 (1.4) 178 04 320 332 = (1.20) 30.2
PFS-Savings bb 5.0 (0.6) 37 07 294 © 297 (0.3) 20.7 87 500 505 (0.54) 40.6
PFS-Insurance 05 07 (0.2) os (0.3) 37 4a (0.4) 29 07 9.2 67 2.41 53
PFS-Lending 06 05 01 03 0.4 32 27 06 19 13 66 49 1.70 47
Bureau (excl profit share) (incl Travel Money Card) 17 23 (0.5) 23 (0.6) 161 185 (2.4) 165 (0.4) 244 250 (0.60) 2.4
Travel insurance 03 07 (03) 04 (0.4) 69 7.0 (0.1) 67 01 90 9.0 0.0 94
MoneyGram 15 16 (0.4) 15 0.0 9.6 9.7 (0.4) 88 os 166 = 166 (0.02) 15.4
INS&I o8 08 0.0 13 oo 25 25 0.0 78 63) 39 39 0.0 13.3
Other (0.8) 0.2 15 (4.7) 15 104 (5.36) 25
[Total Financial Services C=‘“s*‘“‘s~‘s‘“‘“‘“‘*r ee Eee 26.0 aa EES ED aC Ee “(00) I 2796
(Other income 12 12 00 09 0.32 63 6.4 (0.1) 60 03 84 125 (4.1) 10.7
Supply Chain 34 2.7 0.4 2.6 0.47 179 170 0.9 17.7 01 287292 (0.50) 30.0
Net Income
Period 7 Performance Pack - Chris Day
19th November 2013
Page 26 of 26
POL00027506
POL00027506
ExCo Trading Board
Update
19" November 2013
Week 31 YTD Performance 2013'14 E>
POL00027506
POL00027506
POL Income
andard
100% 94%
0.42 -16.31 ~15.89
Channel Focus and Standard performance against target YTD
Crown ae I Age Network Contact A
WH Smith I 2 e Onli
Branches I Branch Channels Centre
97h 103% 101% 100% 107% 109%
98% 98% 93% 94% 86% 103%
98% 100% 95% 96% 99% 107%
1. Financial Services Pillar update
Financial vel I Focus I Standard Total I savings Book
% Income YTD I 103% 104% 103% 16.06bn
Income Variance £m 113 3.05 4.18 16.01bn @9th Oct
Savings - In October the book increased to £16.06bn, a slight increase on September. On 18" October we
launched “hero” rate Premier Cash Isa (1.80%) and Reward Saver (1.60%) products with fixed tranches of
£500m and £250m respectively; these are appearing in best-buy tables and rates should not change until the
tranche is filled. This launch has coincided with our fixed rates also becoming best buy generating a very
noticeable uplift in branch volumes. There will be media and branch support through November to support
drive branch volumes for PCISA and Reward Saver.
Mortgages
We achieved £166m of mortgage applications in October, (YTD £806m of applications) the best performance in
18 months. Mortgage Specialists contributed £10.7m of applications which was their strongest monthly
performance to date. We anticipate strong growth in mortgage applications through Mortgage Specialists in
January when the majority of our new sales team will have completed their training and we are through the
seasonal decline in December.
Credit Card
Whilst still behind YTD target the performance of credit card has started to show some signs of improvement
and is now 90% of target and 107% against previous year. The recent improvement has been across all
channels but predominantly via the online channel where the start to submit rate has improved from
approximately 38% pre-launch of new online application form to 54% and is still growing. The key issue is that
the traffic to the credit card site has been in dedine for a number of months. We have increased marketing
support, particularly through online channels; however, our new credit card balance transfer (BT) offer of 18
months is not competitive enough. Over a number of months our competitors have improved their BT offers,
but in the last month alone we have seen Barclaycard increase their BT offer to 30 months and Tesco Bank,
Nat West and Halifax to 28 months
POL00027506
POL00027506
Life Insurance - sales remain below budget and consequently actions are required if we are to achieve our
income plan. A DRTV Press and In Branch campaign will run in Q4 with a central theme of “always paying your
way and settling your tab”.
General Insurance - Motor Insurance sales volumes remain ahead of target but reliance on aggregators
continues to impact income, while improved retention rates offset some of the additional aggregator costs.
Home Insurance sales are down year to date due to aggressive competitor pricing through aggregators.
Profitability of our general insurance business has been significantly enhanced following the conclusion of a new
supply agreement with BISL.
Travel Money - sales income is below target due to lower than plan transactional volumes. The average
transaction value, however, is higher than budget so this will result in a higher profit share from FRES. The
channel sales performance remains on target as these are based upon sales value (benefiting from increased
ATV) rather than the sales volume.
Current Account
As at 8 November the proof of concept generated 1,722 applications which have converted to 883 sales (with
a further c.85 currently in referral). Last week was our best week for Current Account sales since launch, with
57 sales representing a 90% increase on the previous 5 weeks (average of 30 sales). This performance was
driven by the current marketing campaign and increased focus from the sales team. With this momentum we
expect sales volume will reach 1,000 in December.
2. Government Pillar update
- Income YTD. - hb 9% .
Income Variance £m 0.91 -0.55 0.35
Passport Check and Send continues with a strong performance and volumes remain at 107% of forecast YTD.
After a spike of applications at the beginning of the year sales have returned close to forecast volumes. Despite
there being more than 200,000 additional passport applications YTD over last year market share YTD is down
on last year’s. In short Post Office is not exploiting the increased number of overall applications this year but
artificially doing well against forecast because of them. A Google paid advertising campaign was undertaken
throughout October and other marketing activities are being planned for Q3 and Q4. However, with Network
Field Team Support, the biggest impact on transaction volumes will be achieved by utilising the “Check & Send
Sales Conversation” to uplift conversions at Point of Sale.
3. Mails and Retail Pillar update
Standard I Total
% Income YTD i 98% 87% 90%
Income Variance £m 7943 18-71 19.84
Mails
Our Standard income is down by 13% against target, As of Week 31, the new smal parcel sizing has been in
place for one week and we are expecting to see volume steadily increase with an anticipated 225k parcels
coming back to POL per week to help hit our Standard income targets. The new sizing is currently being
POL00027506
POL00027506
advertised through online seller websites (eBay and Amazon) and Out Of Home advertising, targeting specific
high performing Mails branches that have dipped in performance since April.
Focus products income has remained steady with 3 out of our 4 Focus products (express24&48, International
Express, International Priority) increasing sales volumes compared to the previous year. Currently we are
slightly behind our Focus products target income, to mitigate this impact we have put in place product branch
promotions, ATL advertising alongside staff incentives to get this back on track over Christmas.
Lottery - down by -£3.8m vs. budget and last year, driven by Camelot’s decline in market sales and poor
performance of the new terminals following their 3rd licence extension. Since the recent Lotto game re-launch,
Lotto sales have increased by +33% versus the average 13 weeks prior to launch, although this is in the context
of a game in decline, so the sales growth has been low. Post Office has requested for Camelot to support with
specific Post Office promotions and unique products to drive sales growth through the branch network. Camelot
has declined to support Post Office with this initiative, rather focusing on their Camelot ‘brand’ activity. Post.
Office will roll out new ‘jackpot’ posters into agency branches, along with running POTV ‘jackpot’ ads in Crown
branches from late November.
Post Office launched The Health Lottery in mid-September, delivering average weekly sales revenue of £130k,
£6.5k income.
Retail (Crown only) - down by -£146k versus budget. Retail is down due to a decline in packaging sales, in line
with the decline in standard mails volumes. Strong promotional plans will be delivered in November and
December through a Collectibles catalogue proposition, new PostPak packaging and a seasonal Christmas wrap,
tags and cards offer.
4. Telecoms Pillar update
Income
Income Variance £m 0.49 0.09059 I Tbh Stner pAb eveHte is 460,245
The YTD HomePhone, HomePhone Combined and Broadband performance continues to be behind target.
The targets continue to ramp up as it was intended that post-migration we would be in a position to take
advantage of the new products we have available and drive an uplift in sales. Given the continued issues within
the call centre that are particularly impacting existing customers’ experience, the network are not actively
promoting the product and sales therefore continue to be behind plan. However, we are seeing a small increase
in the underlying run-rate. The focus continues to be on stabilising the customer experience for our existing
customers to maintain the customer base. Given the current issues and the other commercial imperatives
within the wider portfolio, it has been decided that we will not run a campaign in Q4 but will work with
Marketing Communications to deliver a re-launch of the product in Q1. This will not have a material impact on
2013/14 income but will have an impact in 2014/15.
E Top-up performance is running at 8% below target and is in line with market performance. There is no
appetite from the mobile networks to promote the category at the moment. At an income level, we continue to
be slightly ahead of plan due to a higher than planned average commission rate.
POL00027506
POL00027506
Confidential
POST OFFICE LTD EXECUTIVE COMMITTEE
Energy — Noting Paper
1. Purpose
The purpose of this paper is to:
1.1. Update the Executive Committee (ExCo) on the development of the Post
Office Ltd (POL) energy proposition.
1.2. Seek agreement from ExCo on the recommended way forward.
2. Background
2.1. POL explored options for entry into the energy market in 2012. This is part of
our broader strategy to become a retailer of Post Office branded products and
services, which will extend to Mobile phones and developing our HomePhone
offering. Energy will become a key part of the HomeServices proposition that
we will offer under the Customer Value Proposition structure.
2.2. I Options for market entry included POL acting as an online aggregator across
the home energy market and/or POL options for partnering with one of the big
six energy companies to sell energy including a white label arrangement As it
stands our white-label proposition will deliver contribution in-line with the
Strategy Plan and provides the flexibility to enter into other arrangements with
the partner including POL having its own energy licence.
2.3. In June 2013 ExCo decided to support the white-label option. (See Annex 1
and 2 for P&L and commercials). As a white label provider POL could earn up
to £14m per year in revenue (revenue which is baked in to the strategic plan
and expected to rise to £24m by 2020 subject to future development of the
proposition). The overall cost of developing this solution is £1.05m.
2.4. I Since then, we have initiated a sourcing process and have progressed to a
shortlist of three potential energy providers with whom POL intends to have
more detailed discussions over the next few weeks.
2.5. Our plan has been to identify a preferred partner in December 2013 and then
launching a proposition in July 2014.
2.6. To date we have invested £83k in developing the energy proposition and have
a clear process in place.
3. Recent Developments
3.1. Whilst there is negative press about above-inflation energy price increases
every year (typically in the autumn), this year the volume of press coverage
and the public discontent has been stoked by growing political dissatisfaction
with the situation.
Post Office Energy Martin George Page 1 of 5 November 2013
POL00027506
POL00027506
Confidential
3.2. Having progressed the selection process to this point, we have identified that
the sales compliance obligations are more onerous than initially anticipated.
3.3. In addition POL has been directly approached by government to consider
assisting them by participating in the energy market.
4. Implications of recent developments
4.1. POL has become more concerned about brand reputational risks given limited
control around pricing.
° For example, if our partner decided to increase prices, then we in turn
would have to increase prices to our customers.
4.2. Increased clarity around sales compliance and the training required has called
into question our ability to sell this product end-to-end or promote and quote in
branch outside of the FS Specialists.
5. Proposed way forward
5.1. Asa result of this we are going to pursue two parallel streams of activity:
5.2. _ The first stream of activity is to continue with the white-label option and to find
ways to overcome the two challenges previously stated, reputational risk and
sales compliance.
5.3. I The second stream of activity will be to further investigate alternative options
for entering the energy market.
5.4. I White label: We are evaluating a number of options that will help us mitigate
the potential risks of adverse publicity caused by the white-label option. These
include:
. Partner Selection: In selecting our partner we are looking for the
energy company that has the greatest pricing discipline, is transparent,
and offers the best customer service.
° Education: We can use our face-to-face capability to educate
customers around energy savings, access to Eco (help with insulating
the home for the vulnerable in society), etc.
e Developing excellent customer service: Unlike any other energy
retailer we will be able to offer a face-to-face customer experience,
coupled with excellent online and phone customer service.
. Product Bundling: Whilst the regulations do not allow us to offer a
discount, we will look to bundle products together (as per the CVPs) to
offer customers excellent value for money.
. Gaining a Licence: Building flexibility into the contract to allow POL at
some point in the future to apply for an energy licence, which would
give us control over pricing.
. Customer Insight: All of this will be supported by customer research
that will provide insight into the key drivers of satisfaction, helping us to
shape a proposition that is genuinely different and meets customers’
needs.
5.5. We are also evaluating a number of approaches to mitigate the risks around
selling in branch: These include:
Post Office Energy Martin George Page 2 of 5 November 2013
POL00027506
POL00027506
Confidential
. Sales Compliance: We will continue to work closely with potential
suppliers to understand the ways that they can help us to ensure sales
compliance in branch. This includes what training they can provide,
scripting sales on Horizon and other systems—based measures to
ensure compliance.
. Mystery Shopping: Conduct mystery shopping in conjunction with our
partner to ensure compliance.
. Risk: We will discuss with partners how we share the risk associated
with selling energy in branch.
Alternative options: We will investigate other options for entering the energy
market. The aggregator model is an option that we will be exploring in detail.
5.6. HMG approached POL to ask for support in hosting independent energy
advisors in some of its branches while also stocking leaflets which advise
customers how to switch to cheaper energy tariffs. POL responded positively
to this request and promised to investigate the possibility of doing both. POL
recognised an opportunity to go much further than the initial request from
HMG by potentially acting as an aggregator across all of the main energy
companies helping to ensure that customers can easily act upon the advice
they get from the energy advisors by switching their provider through POL, in
branch or online. POL suggested this to HMG to gauge an initial response.
The response was encouraging.
5.7. In brief POL with a suitable partner would build a comparison engine which
would allow it to identify the cheapest available tariff for a customer and help
make it easier for customers to switch. We would initially offer an online
service with the possibility of using tablets or FS laptops in branch for branch
sales. POL would also gather expressions of interest from customers in
branch who could then receive a call back from a call centre or an email link to
the online service. The branch offer could dovetail nicely with the independent
energy advisors. POL could also seek to train its FS population in making end
to end sales and acting as independent advisors. POL would be paid by the
energy company every time a switch is made to their tariff.
5.8. I This type of service would allow POL to become the customer champion in
the energy market as POL would be independently finding the best price for
the customer. HMG could mandate all of the energy companies to make their
products available through POL as a way of achieving their stated aim of
increasing competition and holding down prices. Were these scenarios to play
out POL would have a compelling offer to step into the market combined with
greatly reduced risk around brand and reputational damage.
6. Risks
6.1. Risks with the aggregator approach:
. Energy companies may seek to remove bill payment from POL to try
and prevent customers from entering branch and making a switch.
e HMG may not be prepared to mandate the energy companies to sell
through the POL aggregator service; this could reduce the compelling
nature of the proposition.
. There may be competition issues with existing switching services,
these will need to be investigated and understood.
Post Office Energy Martin George Page 3 of 5 November 2013
POL00027506
POL00027506
Confidential
. Need to reach agreement on referral fees with each of the six energy
companies.
6.2. Risks with the white-label option:
. As highlighted, there are a number of risks with POL launching an
energy product. These include the potential that it might attract
negative publicity and brand reputational risk combined with issues
around sales compliance.
7. Next Steps
7.1... We have given ourselves four weeks to consider options and provide a
recommended way forward.
7.2. At this point we will have a greater understanding of the ways to mitigate the
risks associated with the white-label options and the potential that other
options might offer.
7.3. We will then provide a recommendation on the best way forward via the Spark
Programme Board and update ExCo accordingly.
8. Recommendations
The Executive Committee is asked to:
8.1. Support the recommended approach.
Martin George
November 2013
Post Office Energy Martin George Page 4 of 5 November 2013
Confidential
Annex 1: White label option profit and loss
Estimated Profit
POL00027506
POL00027506
Recurring Income - Commission 42 71 95 11.4 12.8 14.0
Recurring Costs ~ Staff 12 2.2 3.0 3.6 41 55
Recurring Costs - Non Staff 15 15 15 15 15 15
One-off costs Set-U;
Variance from Plan
Annex 2: White label option fee structure*
EDF sP BG
Rates:
Total Acquisition 20,386,080 18,267,163 22,239,360
Total Retention 17843614 44,729,050 5,201,635.
Total Energy Commision 38,229,694 32,996,213 27,441,196
Total Non Energy Acquisition 2,337,500 2,593,891 40,731,658
Total Non Energy Retention 554,396 2,604,278
“Total Other Payments 4,700,000 "2,075,000 “4,800,000
Total Payments 45,267,194 38,219,500 45,607,131
*Payments are over 6 years showing the comparison between the energy providers still active in the
procurement process. These numbers are still subject to negotiation. (SP — Scottish Power, BG —
British Gas)
Post Office Energy
Martin George
Page 5 of 5
November 2013
POL00027506
POL00027506
Post Office Ltd — Strictly Confidential
POST OFFICE LTD BOARD
Personal Injury Referral Fees Update
Purpose
1.1. The Board asked management to provide an update on the impact of the ban on
referral fees for Personal Injury (Pl) claims, how this has affected Post Office
customers and the market and how the changes are managed within BGL/Junction,
Post Office’s motor insurance broker.
1.2. The Paper is tabled for noting.
2. Background
2.1. In September 2011 the Government announced a ban on referral fees in relation to
personal injury claims in an attempt to curb the “compensation culture” and reduce
motor insurance premium inflation.
2.2. In anticipation of these changes Post Office Insurance undertook a review of the
practices employed by BGL and its legal firm, Minster Law, to ensure that Post Office
customers were receiving the appropriate service and that agents were not
incentivised to make inappropriate referrals. The review concluded that:
° Incentives were effectively monitored and dis-incentives were in place for
inappropriate referrals;
° Call quality monitoring was in place that provided effective and consistent on-
going evaluation of call centre agent performance.
2.3. Aseparate audit completed by Post Office Insurance concluded that:
. Appropriate controls were in place, and these controls are being managed
effectively so the risk of inappropriate referrals as a direct result of the incentive
program was felt to be low and managed;
° Further audit and monitoring activity would be conducted on a regular basis to
provide on-going assurance. These have occurred and no issues have arisen.
3. Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO)
3.1. In April 2013 the ban of referral fees was implemented under LASPO. Provisions in
part two of LASPO make it a regulatory offence to pay or receive referral fees in
personal injury cases. This directly affects insurers, solicitors and claims
management businesses and is under the monitoring of the Solicitors Regulation
Authority, Financial Conduct Authority and Claims Management Authority.
3.2. Since the implementation of LASPO, The AA British Insurance Premium Index has
reported a decline in car premiums of c10 percent. This is the largest and most
prolonged (6 consecutive months) fall in car insurance premiums since the index
began in 1994 and is heavily influenced by the changes to Pl management. This
suggests that the market has responded as anticipated to the regulatory changes.
3.3. Over the same period, the percentage of reported Post Office motor insurance
claims resulting in a PI claim has remained relatively static - supporting the good
working practises noted at BGL. The income per motor insurance policy to Post
Office in respect of the claims service has, however, declined from £10 to £3,
equating to c£1.5 million of lost revenue to Post Office in 2013/14.
3.4. The reduction in market premiums has led to improving retention rates to Post Office
(up 3 percent) and margins ameliorating to some extent the decline in income.
Personal Injury Referral Fees Nick Kennett Page 2 of 2
12 November 2013
POL00027506
POL00027506
Post Office Ltd — Strictly Confidential
4. Audit of Junction/BGL
4.1. Recent audits have confirmed that the incentive programs used by BGL/Minster Law
remain unchanged following LAPSO and based upon previous work Post Office
remains satisfied that they do not unduly influence referral rates.
4.2. In October, Post Office Insurance concluded a re-negotiation of the contract with
BGL. The new arrangements enshrined specific provisions to enable audits of the
BGL operations and work practises. This will enable Post Office to ensure that
customers continue to receive an appropriate and relevant service.
5. Conclusion
5.1. The consequence of changes in regulation pertaining to referral fees has had the
desired effect on the market. The impact on income from claims management has
diminished leading to a decline in the number of claims management firms.
5.2. Insurers have lowered rates, allowing consumers to enjoy lower car insurance
premiums.
5.3. A reduction in Post Office income has largely been recovered by increasing volumes
and margins.
5.4. Audits of BGL/Junction incentive schemes and operating model confirm that Post
Office customers are not being incentivised to unnecessarily seek PI referrals.
6. Recommendation
6.1. The Board is asked to note the paper.
Nicholas Kennett
Director, Financial Services
November 2013
Personal Injury Referral Fees Nick Kennett Page 2 of 2
12 November 2013
POL00027506
POL00027506
Strictly Confidential
POST OFFICE LTD BOARD
Financial Services and Crown Incentive Schemes
1. Purpose
1.1 At the meeting of the Board in July 2013, directors asked management to
provide an overview of the review by Mercer Ltd (“Mercers”) of the financial
services branch incentive program, and provide an update on actions. The
review was subsequently extended to cover all Crown incentive schemes, and
other relevant Network Sales schemes.
1.2 The paper provides this update and also sets out the overall incentive proposals
across Financial Services (FS) and Crown sales (Crown).
1.3 This is a joint FS and Network & Sales paper and is tabled for noting.
2. Background
21 Key to building FS sales capability is that the incentives for their sale promote
and reward appropriate behaviour and compliant selling.
2.2 It is also critical to ensure that the incentive scheme meets the increasing
requirements of the Financial Conduct Authority (FCA) that such programs drive
outcomes that satisfy customers’ needs.
2.3 Post Office employed Mercers, a specialist remunerations consulting firm, to
review the current incentive schemes and make appropriate recommendations.
While the initial work related specifically to Financial Specialists (FSs), due to the
inter-relationship with the Crown Network, the scope was widened to cover
Crown incentives and the wider Network where financial services sales occur.
24 There are currently incentive schemes running in the FS network; the Crown
network; and the Agency network and WHSmiths for the Sales Managers
employed by POL.
2.5 We looked to make changes to the FS scheme last year. Whilst the Union
(CWU) supported these changes, it was rejected by the FS under ballot.
3. Key Findings from Mercers
3.1 Mercers concluded that the current FS sales incentive program is not fit-for-
purpose and does not recognise or differentiate between effective and non-
effective performance (either in the quality of the sales process or in its
outcome). For example:
. FSs can receive a bonus despite not having hit their targets based on the
wider branch performance; only 5 percent of the 2012/13 incentive paid
related to financial services sales;
. Strong and weak individual performance does not result in a materially
different bonus outcome;
° The current structure is focused solely on sales volumes, with no
requirement for compliance or customer satisfaction;
. FSs are part of a number of schemes and they generally do not understand
the logic of all the schemes they are in and how their performance can
result in each of the bonus payments.
3.2 Mercers are of the view that the current incentive program would likely be
deemed non-compliant by the FCA. However, it is so in-effective that it does not
encourage appropriate selling.
FS Incentive Scheme Prepared by Nick Kennett Page 1 of 5 13 November 2013
POL00027506
POL00027506
Strictly Confidential
3.3. The weakness of the current program has been evident in savings:
° Over 54 percent of all FS’ sales are savings products, which are rate
dependent and often ‘sell themselves’;
. When interest rates are less competitive, overall FS sales performance
falls significantly, confirming that FSs focus on this ‘easy sell’, rather than
engaging with customers on their wider needs.
3.4 Mercers strongly recommended that the current program be withdrawn and
replaced. They were also of the view that their conclusions and concerns were
applicable to other schemes operating in the Network.
4. New incentive schemes
41 The Financial Conduct Authority (FCA) has indicated that it is looking for financial
institutions to set incentive schemes to be focused on behaviours or satisfaction.
While some banks (e.g. Barclays) have stated that they are implementing a
model based solely on customer satisfaction, this would not be appropriate for
the Post Office as the business has little history of driving sales outcomes. A
hybrid model was therefore proposed by Mercers and is being implemented.
4.2 The new incentive schemes have been developed in conjunction with Mercers;
they will be aligned and implemented across the new financial services sales
network, into Crown branches and across the broader Network where
appropriate.
4.3 The key components of the scheme are:
. Financial services compliance and quality of sales will be a ‘gateway’; if
compliance standards are not met no bonus will be payable for the period.
. Area level roles will be scorecard driven. Whilst scorecards are already
used for Crown Area Managers, we are significantly changing the
weighting and aligning them for all Area teams. The scorecard itself covers
three components — customer services delivery, profit (both 40 percent)
and staff engagement (20 percent). Each individual on a score card
scheme is given a score out of 100 percent. They are then ranked against
their applicable peers and then given a PDR rating accordingly, which will
determine their incentive payment.
° Branch manager roles will also continue to align to customer service
delivery, profit outcomes and staff engagement. The weightings of these
will change significantly.
. Individual seller roles will operate on a matrix payment structure and be
aligned to customer service delivery and relevant sales outcomes.
. The non-financial services schemes (e.g. Mails specialists) will have a
compliance gateway and then operate on a matrix payment structure,
driven by performance and customer service.
. For the Crown network, appropriate schemes will be aligned to the Crown
P&L objectives and will be factored up or down based on Crown P&L
performance. Currently Crown Area Managers are factored up or down
based on POL profitability.
. Incentive rewards will be paid as a fixed amount and not a percentage at
the end of each quarter for individual sellers and at the end of the financial
year for Area level roles.
4.4 The key measure are:
FS Incentive Scheme Prepared by Nick Kennett Page 2 of 5 13 November 2013
POL00027506
POL00027506
Strictly Confidential
. A number of the following measures already exist for Crown Area
Managers and Branch Managers, however this is about ensuring they are
aligned across roles and the weighting is significantly changed.
° Customer service delivery will assess customers satisfaction based on
Voice of the customer (VOC), Customer waiting time and retail standards.
The weightings on these vary across the different schemes. These have
been measures in some schemes previously and they will now be used
across all schemes and have a greater weighting.
. Profit is measured using controllable costs and income generated from
sales performance. This measure is used in all relevant schemes.
e Rather than measuring sales targets, individuals are targeted with
customer benefit measures (CBMs). The CBM targets will be set and the
number will be achieved by adding multipliers to each product set. The
higher multipliers are a reflection of a number of factors including income to
the business, product journey time for the FS and customer and the go-
forward strategy of the business. It is envisaged that this will change and
drive appropriate selling behaviours, improving the customer experience
whilst returning the business to a profitable, self-financing structure.
. Employee engagement; all Post Office employees complete the annual
team engagement survey and area/regional managers will receive a score
based on their team feedback from the survey.
45 An example of an individual seller scheme is:
. If the quarterly CBM for an FS is 242 points and 150% of sales target
achieved and the 150% customer stretch target met, the FS could earn up
to £1,875 for that quarter (potentially £7,500 for the year against a salary of
circa £21,000- £23,000).
Emme atone’
strech
coftagget
2008
Stretch
4.6 Whilst the final payment levels have not been agreed/signed-off, the basic
principle is that we are looking to stretch the performance curve so that top
performers get greater rewards and under performers are not rewarded. Whilst
we have not yet agreed payment amounts, we are currently modelling to reward
individuals on the following basis:
° Area roles - between £0 - £25,000 per year.
. Branch manager — between £0 - £12,500 per year.
. Individual seller roles FS - between £0 - £12,000 per year.
. Product specialist roles - between £0 - £2,750 per year.
FS Incentive Scheme Prepared by Nick Kennett Page 3 of S 13 November 2013
POL00027506
POL00027506
Strictly Confidential
. Customer Service Consultants - between £0 - £2,500 per year.
47 The schemes have been shared with the Bank of Ireland (UK) plc, who as Post
Office’s principal has shared the key components with the FCA.
5. Governance
5.1 The schemes are being signed-off by a project Steering Group and an ExCo
Sub-Group.
5.2 Once the schemes are implemented it is important that they are reviewed
regularly to ensure they are meeting their objectives.
5.3 A terms of reference is being created for a review steering group (ExCo Sub-
Group) to meet quarterly.
6. Implementation timings
6.1 The aspirational timing of scheme launches has been prioritized as follows:
. 1 October 2103 - FS & Crown Area Mangers and Mortgage Specialists
(done).
. 1 January 2014 — remaining Crown & FS roles.
. 1 April 2014 - Agency Area Sales teams and WHSmiths Area teams.
6.2 The above timings will be reviewed in light of the IR landscape.
7. Commercial Impact/Costs
7.1 In the first year of operation aggregate payments on the new incentive scheme
will be similar to the current business plan. Thereafter the scheme will be self-
financing as it drives increased sales, while poor performance is un-rewarded.
7.2 If the scheme were to pay out considerably more it would be due to a significant
over performance and the uplift in income would significantly outweigh the cost.
8. Industrial Relations
8.1 We looked to make changes to the FS scheme last year. Whilst the Union
(CWU) supported these changes, it was rejected by the FS under ballot.
8.2 We have sought to actively engage both the CMA and the CWU on these
changes:
. CWU has collective bargaining rights over: Financial Specialists, Product
Specialists and Customer Service Consultants;
. CMA has collective bargaining rights over: FS Area Managers, Mortgage
Specialists, Branch Managers and Assistant Branch Managers.
. FS Regional Managers and Crown Area Managers and not covered by
collective bargaining.
8.3. The CMA is fully engaged and a joint statement with Post Office for the schemes
launched on 1° October. Post Office and CMA have agreed to engage in regular
meetings to ensure that the schemes meet business and staff needs.
8.4 To date the CWU has refused to respond to requests to meet on incentive
schemes. We continue to seek to arrange meeting are send them the
appropriate documentation that we would have given them if we had met.
FS Incentive Scheme Prepared by Nick Kennett Page 4 of 5 13 November 2013
POL00027506
POL00027506
Strictly Confidential
8. Key Risks
8.1 Under the existing collective arrangements, a new incentive scheme requires
concurrence from the trade unions.
8.2 While the CWU continues to refuse to engage on incentive programs,
management is considering whether it can and should deploy the schemes
identified in 6 above, ahead of engagement with CWU. This will be determined
by the wider IR implications.
9. Conclusion
9.1 Existing incentive schemes are not fit-for-purpose and need to be replaced.
9.2 The new schemes will create a best-practice structure, putting the needs of the
customer at the heart of sales measurement; it will recognise and reward strong
sales performance, discriminating against poor performance and will align Crown
branches to the delivery of the financial services and wider business strategies.
10. I Recommendations
10.1. The Board is asked to note the paper.
Nicholas Kennett Kevin Gilliland
Director, Financial Services Director, Network & Sales
November 2013 November 2013
FS Incentive Scheme Prepared by Nick Kennett Page 5 of 5 13 November 2013
POL00027506
POL00027506
Strictly Confidential
POST OFFICE LTD BOARD
Update on FM and Grapevine Procurement
1. Purpose
The Post Office board are asked to note that:
1.1. Post Office Ltd (POL) intends to progress to the next stage of procuring Facilities
Management (FM) and security and alarm (Grapevine) services by issuing an
Invitation To Tender (ITT) to the market on 29 November 2013. This will facilitate
separation from Royal Mail (RM) in accordance with the Master Services
Agreement (MSA) with RM.
2. Background
2.1. The MSA places an obligation on POL to source separate FM and Grapevine
services which are currently provided by RM through circa 100 separate RM
contracts. Romec (a joint venture between RM and Balfour Beatty Workplace’) is
the predominant supplier.
2.2 POL pays £29.5m p.a. for these services: £26m for FM; £3.5m for Grapevine
services; and an overhead/management charge to Royal Mail of £1.1m.
2.3 It is anticipated that securing new contracts will save POL c20% against current
costs.
2.4 Although POL has completed the Pre-Qualification Questionnaire (PQQ) stage of
procurement it has been unable to inform the market of short-listed bidders or to
issue ITTs. This is due to RM’s delay in the provision of detailed information
required to assess potential liabilities (including pension liabilities) under TUPE
(Transfer of Undertakings [Protection of Employment]) legislation.
2.5 Following escalation to, and various discussions at, director level, RM have
recently released the information enabling POL to go to market on 29 November
2013 with an anticipated start date for the new contract(s) of 14 July 2014.
2.5 The data from RM indicates that c400 personnel are deployed in support of POL.
The MSA limits POL’s exposure to liabilities related to TUPE to 116 staff providing
FM and Grapevine services with POL indemnified by RM for the remainder.
3. Activities/Current Situation
3.1 The FM tender offers lots as follows:
e Lot 1 Hard services (maintenance / engineering, and fabric maintenance) -
current charge is c£20m pa.
e¢ Lot 2 Soft services (cleaning, security, pest control, grounds maintenance,
waste, office management services) - current estimated charge is c£5m.
Lot 3 Catering (including vending and hospitality) - current charge is c£500k.
Lot 4 Helpdesk (including room booking services) - current charge is c£500k.
Lot 5 All above services combined.
Grapevine is offered to the market as a single lot including alarm monitoring,
key holding and intelligence services.
Note 1 : GDF Suez have acquired the Balfour Beatty Workplace interest in Romec subject to ongoing Competition Commission review
FM and Grapevine procurement Kevin Gilliland Page 1 of 3
13” November 2013
POL00027506
POL00027506
Strictly Confidential
3.2 It is envisaged the minimum contract term will be 3 years plus 2 extensions of 2
years and bidders will be asked to provide costings on this basis.
3.3 POL will progress to market on the basis that bidders can rely on an element of
indemnification from POL with regard to liabilities on the basis that the risk will be
shared with the supplier. POL will rely on the indemnity provided by the MSA to
manage this risk although the administration of this activity has the potential to be
onerous and costly for POL. NB: The MSA limits the availability of the RM
indemnity in respect of liabilities associated with staff exits to a period of 3 months
following commencement of the new service.
3.4 Total potential liabilities for POL and RM are around £12m although the indications
are that the new provider will need to retain between 60% to 80% of existing staff,
suggesting liabilities of between £2.4m and £4.8m.
3.5 The delay in securing new contracts may result in a loss of benefits of £1.3m in FY
14/15. In this case POL will seek to negotiate to recover the loss from RM although
it should be noted there is no provision in the MSA that permits this course of
action. There is also a danger of reciprocal action so any negotiations on this
matter will proceed cautiously and with the broader context in mind.
4. Options Considered
4.1 Do Nothing. The MSA mandates separation from RM and therefore we are unable
to continue to draw services from RM.
4.2 Agree an extension of service with RM. RM is unwilling to extend service provision
beyond that which has been caused by the delay in providing data and to which
POL is entitled under the MSA.
5. Risks/Mitigation
5.1. RM may contest POL’s position on the indemnification of liabilities as specified in
the MSA leaving POL with a potential risk of £4.8m. POL believes the MSA is clear
and will defend this position robustly. However negotiations are underway with a
view to RM buying out its liability and indemnity in the MSA. This will make the
administration of indemnification easier and more cost effective for all parties. POL
is aiming to conclude this negotiation by the end of November 2013.
5.2 Suppliers choose not to bid when the details and constraints of the indemnification
under the MSA are understood. The /TT will be structured to encourage suppliers
to manage the re-organisation in such a way as to enable POL to enforce the
MSA. However, in the event that the supplier finds it is unable to work under the
constraints of the MSA then POL could accept a greater share of the potential
liability. In addition, the shortlisted bidders are long-standing and reputable
providers in the industry fully aware of the mechanisms available to them to
ensure compliance with the relevant legislation and achieve the aims of POL
under the MSA.
5.3 Romec re-organises to increase the resource associated with the provision of
service to POL and in turn increases the TUPE liabilities. POL has put in place a
Change Control regime with RMG/Romec to prevent this. Additionally, under the
MSA the liabilities for POL are limited to 116 staff. Therefore RM will simply be
increasing their own liabilities if staff numbers in support of POL are increased.
5.4 Service levels will diminish when Romec are informed of their failure to progress to
the next stage of the procurement. POL has received assurances from RM that in
the event Romec are not confirmed as a shortlisted bidder service levels will be
maintained.
5.5 There are further delays in the procurement process. POL has a robust plan which
will be tightly managed and controlled.
FM and Grapevine procurement Kevin Gilliland Page 2 of 3
13” November 2013
POL00027506
POL00027506
Strictly Confidential
5.6 Reputational damage / industrial action could result from the exit of staff as a
consequence of the new contract(s). The risk of reputational damage results from
the provisions within the MSA relating to the timescales for staff exit and RM
funding for those exits. The risk lies primarily with RM rather than POL as the
Romec staff are part of an RM JV. Equally, any industrial action would be more
likely to be taken against RM / Romec rather than POL as POL has no direct
relationship with Romec staff. However, depending on the nature of any potential
industrial action taken by Romec staff, POL may suffer some operational
disruption. In this circumstance POL would work closely with Romec on initiating
its contingency plan.
6. Request of the Board
6.1. POL is obliged to separate the FM and Grapevine services from RM and needs to
progress to market to achieve savings against current RM charges. Despite the
delays caused by RM, POL will progress to market in November 2013 due to the
lack of realistic alternatives. The Board is asked to note the plan to issue ITTs for
the FM and Grapevine tenders at the end of November 2013.
Kevin Gilliland
13" November 2013
FM and Grapevine procurement Kevin Gilliland Page 3 of 3
13” November 2013
Current Actions and Decisions Log
ExCo Meeting 23 April - Actions and Decisions
POL00027506
POL00027506
23/04/02
Action 1
Pay Strategy
Fay Healey to work with Sue Barton to produce a 2 page summary of
pay principles required to support the 5 year strategic plan and
incentivise a commercial business. Update 16/5/13: Meeting on 17
May to progress. Update 1/7/13: Another meeting to progress further
FH Update 19/8/13: Workshop has been delayed due to annual leave.
The Workshop is being held to develop the Reward Principles which
relate to the 20/20 Strategy. SB Update 9/9/13: FH and SB will have
a catch up on the 17" Sept at 9am to progress this action.
FH/SB
Deferred to
Mid-November
23/04/13
Action 2
Risk
e Redefine TOR for RCC to cover FS risk
e Consider the training necessary for the RCC with heightened
awareness for FS as the Business moves into Current Accounts
e Define compliance in FS and the relationship with the bank.
Update 27/06/13: Ongoing - in progress.
Sc
SC/FH/NK
SC/NK
End of Oct.
23/04/23
Action 7
Explore the opportunity using the Alarm response centre to provide
care for customers; possibly as part of the home insurance market.
Update 07.08.13 - currently in discussion - NK to be involved
HC to meet with SC
Update 08.11.13 - Alarm monitoring - discussions can take place
once contracts have been signed with the selected vendor for the
provision of Grapevine and alarm monitoring services as part of the
separation from RMG. This is likely to be April 2014.
HC/MM (PB)
Ongoing
ExCo 18 June - Actions and Decisions
POL00027506
POL00027506
18/06/06
Action 1
Policies need to come back to ExCo for review and agreement with
solutions for areas where compliance is difficult. E.g. acceptable use
policy.
LS Update: 01/07/13 The Head of Information Security will be
contacting each ExCo member to discuss the Policies and identify area
where compliance will prove difficult.
LS Update: 07/08/13 All but 1 Policy (Acceptable Use) are now on the
Intranet and are part of an Information Security and Assurance
communication plan along with the Information Security Handbook
and on-going training and awareness. The Acceptable Use Policy was
raised as a potential non-compliance issue by several ExCo members
and therefore has not been published; a Corrective Action Plan has
been drafted to mitigate any potential risks of non-compliance. The
Corrective Action Plan will be provided to ExCo for agreement during
the week ending 9 August 13, members will be asked to provide their
response by 27 August 13
The Information Security Training, Awareness and Communications
plan is on target, with specific Information Security requirements
being tailored for Central Support Tea, Branch (Crown) Branch
(Network) and Supply Chain every month. Branch Training will be
completed, in September, and includes online learning and
Workbooks, with additional communications on Branch Focus and
Grapevine.
LS Updated 30/10/13: Proposed solution presented on 15" October
didn’t provide enough flexibility for individual members to email each
other within a secure community (i.e. a community being EXCo or the
Board).
Information Security and Assurance Group are providing a list of
Ls
Completed
All but
acceptable use
- solution to
come to ExCo
Corrective
Action Plan for
this Policy has
been compiled
with a
proposed
solution to be
presented on
15 October
due to diary
coordination.
POL00027506
POL00027506
[ options for EXCo to consider, by End of November.
ExCo 23 July - Actions and Decisions
23/07/16 Action 2 Forecast
After decisions are taken on 1 August, announce the big decisions MD/FH/CD Ongoing
about cost reduction and changing the business, small central function
(ways of working - new HQ), then position the cost reductions which Series of
will affect people e.g. Christmas stamps. comms
Update 30/10 in progress - ongoing underway (MD
17/10)
ExCo 20 August - Actions and Decisions
20/08/17 Action 1 ExCo Cascade MD/AL/AR Ongoing
Put in place a process for cascade of ExCo decisions and update on
discussions.
Update 30/10 in progress - ongoing
ExCo 10 September - Actions and Decisions
10/09/04 Action 4 Supply Chain cD End Nov
Need to produce a supply chain P&L to help highlight the cost drivers
to the customers and help reduce demand.
10/09/09 Action 3 Strategy and Funding SB End of Oct.
Work to continue network expansion including effect on P&L Action
superseded by
Action
POL00027506
POL00027506
15/10/02 -
due End Nov.
10/09/11 Action 1
Sparrow
Paper to come to ExCo and the Board on the future of the Post
Office’s position as a prosecuting authority
sc
Mid Nov
10/09/12 Action 2
Sparrow
Communications team to continue contact with MPs involved in
Sparrow to build the relationship and build in good news e.g. NT.
Next contact before JA letter (likely 1** week Oct).
Update 30/10 in progress - ongoing
MD
Ongoing
ExCo 16 September - Actions
and Decisions
16/09/06 Action 6
Cost Management/Value for Money
Set up a cost workshop to identify costs/wastage in the business.
cD
November
16/09/07 Action 7
Cost Management/Value for Money
Communication needed to explain what we are trying to achieve
through Cost Management, growth, investment, commercial culture
message to come from Paula then quarterly briefing set up.
Update 30/10 QBU arranged and Comms underway.
KG/FH/HD/MD
End Oct
16/09/11 Action 1
IT Strategy Update
LS to return to ExCo with a proposal on standardising the IT
equipment provided by the Business. To highlight opportunity to
reduce cost and fixed/variable costs. Updated 29/10/13 on-going - A
proposal is being developed which looks at the introduction of a
catalogue of services, the cost transparency required to allow sensible
commercial decisions to be made and the control mechanisms
Ls
Ongoing
POL00027506
POL00027506
required to reduce demand and costs. This will go to EXCo Jan 2014.
16/09/23 Action 3 Strategy & Funding ongoing
Need to start to reconsider targets for this year STIP & LTIP - ME/FH/CD/SB
because of the delay in getting agreement. Start to communicate this
with Will & Tim.
- Also need to consider communication to colleagues for STIP.
16/09/29 Action 6 Business performance NK/KG End Oct
Need to consider if we could replace Branch Compliance with FS
compliance. Define how this could be measured.
ExCo 15 October - Actions and Decisions
15/10/02 Action 1 Looking Beyond Network Transformation
Return to ExCo with a defined proposal and timeline, (including
resource plan to be agreed with Chris Day and Fay Healey).
SB End Nov
Terms of Reference to cover (1) customer and growth; (2) models;
(3)ownership and efficiency (including product portfolio) and to be
agreed by a sub-group of NK.MG,KG,SB
15/10/03 Action 1 Q2 Full Year Forecast and Budget
Pick up the staffing levels with Fujitsu to ensure service levels can be I MG End Oct
achieved for Q4 telephony campaign.
15/10/04 Action 2 Q2 Full Year Forecast and Budget
Reconsider the mobile strategy as Fujitsu are unable to deliver. MG End Oct
POL00027506
POL00027506
15/10/06 Action 4 Q2 Full Year Forecast and Budget
Build a plan to ensure any overachievement in EBIT is invested to KG/PB/MG/NK Mid Nov
drive current year revenue growth - to be considered at Trading
meeting.
Update from NK: 4 November: In progress
15/10/07 Action 5 Q2 Full Year Forecast and Budget
Consider any additional FYF risk to FS and telephony sales as a result I NK/MG/SH End Nov
of ‘Action Short of a Strike’ and feed into Sarah Hall.
Update from NK: 4 November: In progress
15/10/08 Action 6 Q2 Full Year Forecast and Budget
Undertake initial debate on the top-line of next year’s budgets - to SB/CD/MG/NK/PB/KG I Mid Nov
understand the challenge eg high level income targets relating back
to FYF and exit rates.
Update from NK: 4 November: Jono to action
15/10/09 Action 7 Q2 Full Year Forecast and Budget
Fay and Colin to return to ExCo with a cost/headcount reduction FH/CD 12 Nov
proposal including CR as one of the tools. All teams to assume CR as
a tool to achieving cost reductions.
15/10/10 Decision 1 I Q2 Full Year Forecast and Budget
All ExCo members to ensure their plans hit the numbers in the
budget allocation and highlight any risks as appropriate.
15/10/11 Action 1 FS Investment Products
Nick to bring the FS Investment product options back to ExCo after NK Jan 2014
completion of the market research for decision on progressing
further.
ExCo Meeting 22 October - Actions and Decisions
22/10/01 Decision 1 I Maypole
lf DWP accept the future interest rate as per the proposal, it was
decided that POL would take the interest rate risk. If however, the
assumed interest rates change during the negotiations this would
need to return to ExCo for further debate.
22/10/02 Decision 2. I Maypole
Support for holding agents pay flat and including the cost of doing so
in the costs to DWP.
22/10/03 Action 1 Maypole KS/SB End Oct
Model the effect of the POCA changes being proposed on the mains
and locals models including consideration of income and footfall and
highlight any move away from the assumptions in the strategic plan.
Update: We estimate that there could be 6.15m fewer POca
transactions in 2015/16, 28.8m fewer in 2016/17 and 11.6m fewer
in 2017/18. After this, our proposal is broadly in line with, or slightly
above, the Strategy Plan. This assumes that DWP migrates all
Universal Credit working age customers in that period. The preferred
option does not change the overall assumptions made in our Strategy
Plan in relation to Network Transformation, i.e. we do not envisage
POL00027506
POL00027506
POL00027506
POL00027506
that our proposed approach will have a specific impact on our roll-out
of Locals and Mains models over the longer term. However, this will
need to be further reviewed when the final picture emerges to test
the implications on the models, especially as the Locals model relies
on the Post Office generating footfall that delivers retail spend.
22/10/04 Action 2 Maypole KS/CA 24/10
Flag risks of procuring under framework agreement and possible state
aid challenge in the Board paper
Included in Board Paper
22/10/05 Action 3 Maypole LS/KG End Oct
Investigate the most effective structure for a direct line into ATOS to
ensure the most effective supplier relationship.
Update: We have engaged with the IT team to ensure any required
escalation can be managed quickly and effectively. The team
managing the Atos relationship will kept updated as the proposal
moves from proposition to delivery
22/10/06 Action 4 Maypole CD, KG, SB, CA, MG, I ongoing
NK, KS
Need to return to ExCo for final sign off of the approach and delivery
plan. Use the ExCo subgroup for governance.
Update: DWP have advised that they would like to make a joint
announcement in December although BIS are pushing for an earlier
announcement
22/10/07 Action 5 Maypole SB ongoing
Ensure that the maypole and supply chain ExCo subgroups are
aligned.
POL00027506
POL00027506
22/10/08
Action 6
Maypole
Carry out a contract comparison between the existing POCA contract
and FOCS contract to assess any implications and risks.
Update: Work in progress
KG/CA
Mid Nov
22/10/09
Action 7
Maypole
Include updates at Monday ExCo on a fortnightly basis.
Noted
MG
ongoing
22/10/10
Action 1
Financial Performance
Quarter 2 year end full year forecast to be included in the
performance pack.
SH
30/10
22/10/11
Action 2
Financial Performance
Headline page of performance pack to be changed to include trends
and analysis. Need to ensure the pack highlights the actions in place to
drive the results and gives a commentary on progress.
SH
Nov
22/10/12
Action 3
Financial Performance
Produce analysis of full year forecast exit rate to feed into next year's
target setting and give comfort to the Board.
SH
30/10
22/10/13
Action 4
Financial Performance
Produce an ‘in branch’ leaflet for dangerous goods and an agreed
PB
Mid Nov
form of words for the transaction. Also provide information to explain
the income and agents pay being lost through non-compliance
(possibly an additional payslip).
POL00027506
POL00027506
22/10/14 Action 5 Financial Performance All End Oct
Feedback questions and observations to Colin on page 16 of the pack
- cost management.
22/10/15 Action 6 Financial Performance MG 7 Nov
Provide the ExCo with the drivers and actions to improve the ‘easy to
do business with’ customer measure. To be circulated.
22/10/16 Action 7 Financial Performance MG/NK 19 Nov
Produce an action plan to drive income this year - including a
breakdown of what needs to happen e.g. sell extra X per week to
improve income by Y.
Call to action: to be discussed at Trading Board and reported back to
ExCo in the Trading Board update next month.
22/10/17 Action 8 Financial Performance All 23/10
Circulate the latest draft interim report to ExCo - feedback to Sarah by CLOSED
midday 23/10
22/10/18 Action 1 CTP Implementation AL 24/10
Check is CTP engagement video is still relevant if so to be used as a CLOSED
link for the Board.
22/10/19 Action 2 CTP Implementation All 23/10
POL00027506
POL00027506
Feedback questions to Sharon re CTP/Camden Board pack CLOSED
22/10/20 Action 3 CTP Implementation AL/HC 23/10
Decide with Harry if any information about NT process can go to
reading room.
22/10/21 Action 4 Horizon FH/AVDB End Oct
Consider how we could provide ‘welfare support’ for subpostmasters.
22/10/22 Action 2 Horizon AVDB/FH/SB End Dec
Wider piece of work to understand the costs and implications of
providing ‘welfare support’ to feed into AVDB work and NFSP MOU
22/10/23 Action 3 Horizon AVDB Mid Nov
Need to get agreement that the mediation scheme is closed to future
new claims before the first settlement is agreed.
Confirmation to be included in the next ExCo Horizon update paper.
22/10/24 Action 4 Horizon CA Mid Nov
Check on the legality of closing the scheme and refusing future new
claims.
22/10/25 Action 5 Horizon AVDB End Nov
Include a risk assessment of introducing the local’s model in the
process improvement work being undertaken as staff subpostmaster
relationships may be different.
22/10/29 Action 1 Graduates FH Jan
POL00027506
POL00027506
Leadership and development forum to consider the proposition on
future graduate recruitment, a paper to return to the ExCo for sign
off.