POLB 16(3"%)
POLB 16/16 - 16/25
Post Office Limited — Strictly Confidential
POST OFFICE LIMITED
(Company no. 2154540)
(the ‘Company’)
Minutes of a Board meeting held at 9.00am on 21 March 2016
at 20 Finsbury Street, London EC2Y 9AQ.
Present:
Tim Parker
Richard Callard
Alisdair Cameron
Tim Franklin
Virginia Holmes
Ken McCall
Carla Stent
Paula Vennells
In Attendance:
Alwen Lyons
Martin Edwards
Dave Carter
Mark Ellis
Nick Kennett
POLB 16/16
POLB 16/17
POL Board minutes, 21 March 2016
Chairman (Minutes POLB 16/19-16/25)
Non-Executive Director
Chief Financial Officer
Non-Executive Director
Non-Executive Director
Senior Independent Director
Non-Executive Director
Chief Executive
Company Secretary
Director of Strategy (Minute POLB 16/19 only)
Group Financial Controller (Minute POLB 16/19 only)
Supply Chain Director (Minute POLB 16/20 only)
Financial Services Director (Minute POLB 16/22 only)
INTRODUCTION
(a)
(b)
In the absence of the Chairman Ken McCall,
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Senior
Independent Director took the Chair, noted that a quorum
was present and opened the meeting.
Each Director confirmed that they had no conflicts of
interest in relation to the business to be considered at the
meeting.
MINUTES OF THE PREVIOUS BOARD AND COMMITTEE
MEETINGS INCLUDING STATUS REPORT
(a)
(b)
Minutes
The minutes of the meeting of the Board held on 22"¢
January 2015 were approved as accurate records and the
Chairman was authorised to sign them.
The minutes of the Audit, Risk and Compliance Committee
meeting held on 10% November 2015 were noted.
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Status Report
(c) POLB 16/10 (c) - The Board noted the options set out in
the Prosecutions Policy paper and endorsed the publication
of the policy on the Post Office’s website.
(d) I POLB 15/102 (d) - The Board noted the paper provided.
The CFO said that the approach to suppliers covered cyber
security as a whole and not purely Distributed Denial of
Service (DDoS) risk.
ACTION: CFO Provide a list of the Top 20 suppliers to the ARC
The CEO proposed that a supplier strategy be
presented at a future ARC covering the Top 20
ACTION: CFO Supplier relationships and Supplier compliance.
(e) The Board noted the Status Report dated 14/03/2016.
POLB 16/18 CEO REPORT
CEO Report
(a) The CEO introduced the CEO Report, focusing on the
following key points:
Scorecard performance
(b) The CEO believed that the Business was now well placed to
hit the financial target for the year and that the 6000
transformed branch would be opened before the Easter
break.
ACTION: CEO The Board asked the CEO to pass on their
congratulations to Kevin Gilliland and the Network
Transformation team for the excellent result.
Project Paddington
(c) I The CEO explained that Project Paddington, the proposal to
continue the relationship with WHSmith for further Crown
franchising and hosting, would need email approval by the
Board within the next three weeks. The CEO assured the
Board that this was a no regrets decision and that the
hosted branches option did not prevent a future more
radical Crown solution.
Project Pathfinder
(d) I The CEO explained that the pension consultation period had
been extended by a month to take account of a request for
more time from individuals affected; the timing of triannual
scheme evaluation; and to enable a considered view on the
effect of any IRIS announcement.
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(e) The CFO clarified that the consultation extension did not
necessarily lead to changing the August implementation
date if the proposal was accepted by the Trustee. He
explained that the Business needed to be sure that the IRIS
redundancies did not have a significant effect on the
consultation. The Board acknowledged that the timing was
complex and asked Virginia Holmes to review Pathfinder in
light of IRIS, and to opine on how the Trustee is likely to
respond.
ACTION: NH Neil Hayward to consult Virginia Holmes on
Pathfinder in light of IRIS, and to opine on how the
Trustee is likely to respond.
Ministerial Meeting.
(f) Richard Callard reported that the Minister had recently met
Brian Scott, Unite, and that they had discussed both
franchising and pensions. The Minister had taken the line
that these were commercial decisions for the Board and the
Executive.
(g) Transformation Report
The CEO explained that the transformation plans were being
rebased after the Trinity project. It was agreed that the IT
strategy would be presented at the July Board.
ACTION: CFO The IT Strategy would be a topic for discussion at the
July Board meeting.
(f) I The Board noted the CEO report.
POLB 16/19 APPROVAL OF ONE YEAR OPERATING PLAN AND BUDGET
2016/17, THREE YEAR PLAN AND APPROVAL OF RELEASE
OF BUDGET INFORMATION TO SHEX FOR FUNDING
OBLIGATION
(a) The Chairman welcomed Martin Edwards, Director of
Strategy, and Dave Carter, Group Financial Controller, to
the meeting.
Period 11 Financial Results
(b) The CFO introduced the Period 11 Financial Results. The
Board acknowledged the EBITDAS performance for
2015/16, recognised that this had been driven by cost
reduction and asked whether this delivered the necessary
growth and run rate for 2016/17. The CFO explained that
over the next two years he expected slight income decline
during a period of right sizing the cost base, but that the
year-end run rate for 2015/16 was consistent with the
budget for 2016/17.
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(c) The Board noted the Period 11 Financial Results.
2016/17 Budget and 3 Year Plan
(d) I The CFO introduced the 2016/17 budget and 3 year plan.
(e) The proposed budget and year 2 of the three year plan were
aligned with the rebased funding targets agreed with ShEx,
being an EBITDAS targets of -£10m in 2016/17 and +£28m
in 2017/18. Year 3 of the plan was outside of the existing
funding agreement.
(f) Tim Parker joined the meeting.
(g) The Board questioned the shape of the income in the 3 year
plan which remained flat for 2 years and then showed
significant Financial Services (FS) growth. Martin Edwards
explained that year 3 of the plan included £15m FS income
from the buyout of Junction.
(h) The CFO explained that the next 2 years were the main
focus of the plan as these years aligned to the current
Government funding agreement. The Executive and ShEx
would start to consider the next funding agreement in the
summer after the Board strategy day.
(i) I The CFO noted that there was considerable risk in achieving
the -£10m target in 2016/17 and therefore the Group
Executive was in the final stage of agreeing more stretching
cost targets to mitigate that risk.
(j) I The Board approved the 2016/17 budget.
(k) I The Board approved the 3 year plan and noted that the plan
would be overlaid by the new Strategic Plan.
(1) The Board discussed the 2016/17 scorecard and the
proposal to have EBITDAS as the only target aligned to the
STIP (Short Term Incentive Payment). The CFO explained
that the GE had discussed this proposal and agreed that it
should be recommended to the Board as a 1 year proposal
to support the rightsizing of the cost base.
(m) The CEO assured the Board that she and the Executive
recognised the need for a balanced scorecard including
customer, people and operations targets and that GE
personal objectives for 2016/17 would also include
attestation for the areas of risk for which they are
accountable.
(n) Richard Callard reminded the Board that the Government
had to approve STIP measures and targets and that they
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may prefer to continue with a Network Transformation
element as this related directly to the funding.
(0) The Board approved the 2016/17 scorecard and noted that
the bonus structure, thresholds and targets would be
discussed at the Remuneration Committee on 12 April.
Release of Budget information to ShEx to fulfil the
funding obligation
(p) The Board approved the release of the 2016/17 budget
information submission to ShEx in order to release the
Government funding.
(q) Martin Edwards and Dave Carter left the meeting.
(r) Tim Parker took over the role of Chair.
POLB 16/20 PROJECT IRIS
(a) IThe Chairman welcomed Mark Ellis, Supply Chain Director,
to the meeting.
(b) Mark Ellis explained the work undertaken since the January
Board to finalise the options considered, confirm the
business case benefits, and build and test the contingency
plans. The implementation plan had been shortened from
10 to 7 months.
(c) The Board recognised that implementation of IRIS was
going to be difficult and asked, in the event of Industrial
Action (IA), if there were other areas, such as marginal
outsourcing which should be included in the proposal. Mark
Ellis accepted that there were other changes to ways of
working which could have been considered. However he
recommended that these be implemented at a later stage
as no guarantees were being given for future ways of
working.
(d) The CFO stressed that if IA led to changes such as
postmasters managing their own cash, this may be a
template for the future and could lead to completely new
ways of working.
(e) The Board asked if consideration had been given to further
reducing the number of depots and closing the difficult sites
in London. Mark Ellis explained that modelling had shown
the optimal number of sites to be 14-16 and that the plan
was to keep 15 depots. A proposal for fewer, larger depots
had been considered but discounted because of the capital
expenditure required. The Business needed a depot in
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London and had chosen to close Dartford and keep East
London open.
(f) Mark Ellis explained that any IA would put pressure on the
quality of service to the largest 30 external customers, who
make up 75% of the revenue. It was expected that this
revenue would be lost quickly.
(g) The Board discussed the pension consultation and IRIS
announcement timings as debated earlier in the meeting,
with the action for Virginia Holmes to opine.
(h) Mark Ellis assured the Board that Security and Health &
Safety issues had been considered and addressed in the
contingency planning.
(i) The CEO stressed that ShEx and the Minister were sighted
on the plans and were supportive. Richard Callard
suggested that the Executive include briefing DWP as part
of the stakeholder plan.
ACTION: ME Include DWP briefing in the IRIS stakeholder plan.
(j) I The Board_approved the recommendation to restructure the
Supply Chain and exit the external market whilst noting that
this was likely to trigger prolonged, public industrial action.
(k) The Board approved the immediate next steps including
contingency preparations, conversations with Government
and a scene setting conversation with the Unions. Subject
to discussions regarding the pension consultation.
(I) The Board approved the proposed negotiating mandate.
(m) ME left the meeting
POLB 16/21 ITEMS FOR NOTING
Cash and Working Capital
(a) The CFO introduced the Cash, Working Capital and
Headroom paper. The Board discussed the paper and
agreed that more focus would be required on cash in the
future with the possibility of it becoming a bonus worthy
objective as headroom tightened.
(b) The Board noted the paper.
Trinity Contract
(c) The CFO introduced the project Trinity paper and updated
the Board on a FOI request received from a legal firm. The
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GC would lead on the response to the request ensuring any
commercial information was redacted.
(d) The Board noted the progress made.
Sealings
(e) The Board resolved that the affixing of the Common Seal of
the Company to the documents set out against items
numbered 1379 to 1399 inclusive in the seal register is
hereby confirmed.
POLB 16/22 ITEMS FOR RATIFICATION
CSC Contract Extension
(a) The CFO introduced the CSC Contract Extension paper and
explained the rationale behind extending the CSC contract
for two years.
(b) The Board approved the award of a two year contract
extension to CSC at a cost of £9m, delegating authority to
the CEO or the CFO to sign the contract.
Fuel Contract
(c) The Board approved a new contract with a maximum term
of five years and a maximum cost of £10m and delegated
authority to the CEO and CFO to sign a contract within these
parameters.
Bank of Ireland (BoI) Contract
(d) The Chairman welcomed Nick Kennett, Financial Services
Director to the meeting.
(e) Nick Kennett explained the short term agreement
negotiated with the Bank of Ireland (Bol) which is targeting
to generate an additional £9.5m income to Post Office in
2016/17; in receiving this payment, Post Office will support
Bol reduce the size and cost of its liability balance sheet.
The additional income is included in the 2016/17 AOP.
(f) I The agreement also included an extension from two to four
years of the run-off processes in the FSJVA contract if Post
Office were to advise Bol from 2021 that it is exiting
Financial Services. This extension supports Bol Treasury
manage the risks associated with Post Office exiting, with
the impact on Post Office being negligible as it pre-supposes
that Post Office had made the strategic decision to exit the
personal financial services market. Post Office would
receive income over four, rather than two, years.
(g) Nick Kennett also assured the Board that this agreement
did not affect any negotiation regarding FRES or the wider
FSJVA; he confirmed that the core exit/termination
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provisions, were Post Office to remain in Financial Services,
are unchanged.
(h) The Board approved the proposed agreement with Bol and
authorised the CFO and Director of Financial Services to
finalise the terms of the arrangement with Bol and FRES,
approve the form of legal agreement to give effect to the
arrangement and sign any such agreement(s) in accordance
with Post Office’s usual procedures.
(Gj) ‘Nick Kennett left the meeting
POMS Articles
(k) I The Board approved the specified amendments to the POMS
articles as set out in Appendix A of the paper.
POLB 16/23 VERBAL UPDATES FROM BOARD COMMITTEE CHAIRS
Remuneration Committee (RemCo) Update
(a) Ken McCall gave a verbal update from the RemCo meeting
held on the 9* February 2016.
The main areas the meeting covered were:
e The letter to the Minister regarding bonus claw-back
for the Postmaster Compensation provision error.
e Directors’ remuneration report and key trends in the
market.
e LTIP trends in the market place and design
principles.
« The need to recalibrate the LTIP to provide
meaningful incentives.
The Board noted the update.
Nomination Committee (NomCo) Update
(b) The Chairman gave a verbal update from the NomCo
meetings of 25° November 2015 and 9" February 2016.
The main areas the meetings covered were:
e Appointment of two new NEDs.
e Confirmation of Board Committee membership.
e Recruitment of a Digital Director and Sales Director.
e Changes to the senior leadership population and
introduction of the L300 group.
The Board noted the update.
Audit, Risk and Compliance Committee (ARC) Update
(c) Carla Stent gave a verbal update from the ARC meeting held
on the 17" March 2016.
The main areas the meeting covered were:
e Update from the POMS ARC Chair and the
relationship with POMS.
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* Risk & Controls framework update. Two new risks
were included; Health & Safely and Pensions.
« Report & Accounts corporate governance statement
agreed.
¢ Approved the internal audit plan including a cyber-
security audit.
¢ Year end audit discussed with Ernst & Young (EY) and
the audit partner challenged to explain how the audit
would be more effective this year.
The Board asked what Health & Safety issues had moved
the risk to Amber on the risk register. The CFO explained
that the new Director of Property was putting new processes
in place to manage 3" parties, the issues raised by these
processes had been included on the agenda of the Executive
Health & Safety Committee. Until this was complete the risk
should remain as Amber.
The Board noted the update.
Post Office Advisory Council (POAC) Update
(d) Tim Franklin gave a verbal update from the POAC meeting
help on the 17% March 2016.
The main areas the meeting covered were:
e The network branch proposition was debated with
input from the Business, Onestop and an
independent postmaster.
e Input from the Council on customer and retailer
proposition.
e Review of Council membership ~ everyone has asked
to stay on the Council — they are invaluable source of
feedback.
ACTION: CoSec Circulate the POAC minutes to the Board
The Board noted the update and that POAC is an agenda
item at the next Board meeting.
POLB 16/24 ANY OTHER BUSINESS
Sale of tax losses to FRES
(a) The CFO explained the opportunity to sell £50m of Post
Office tax losses to FRES which would generate £10m of
income. This was the limit which could be sold under HMRC
rules.
(b) The Board approved the sales of tax losses to FRES.
POLB 16/25 CLOSE
(a) There being no further business, the Chairman declared the
meeting close.
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‘Tim Parker
Chairman Date
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