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Post Office Limited — Strictly Confidential
POLB (12)10"
POLB 12/99-12/113
POST OFFICE LIMITED
(Company no. 2154540)
Minutes of a Board meeting held on 23 October 2012
at 148 Old Street, London EC1V $HQ
Present:
Alice Perkins Chairman
Neil McCausland Senior Independent Director
Tim Franklin Non-Executive Director
Virginia Holmes Non-Executive Director
Alasdair Marnoch Non-Executive Director
Susannah Storey Non-Executive Director
Paula Vennells Chief Executive
Chris Day Chief Financial Officer
In attendance:
Alwen Lyons Company Secretary
Sue Barton Strategy Director (items 12/103 & 12/104)
Charles Colquhoun Head of Corporate Finance (item 12/110)
Susan Crichton HR and Corporate Services Director (items 12/101 & 12/109)
Mark Davies Communications Director (item 12/100)
Kevin Gilliland Network and Sales Director (item 12/100)
Tim Giles AON Hewitt (item 12/101)
Zoe Taylor AON Hewitt (item 12/101)
POLB 12/99 INTRODUCTION
(a) A quorum being present, the Chairman opened the meeting. She would
ask the Chief Executive to give an update on Project Rainbow later in
the meeting.
POLB 12/100 NETWORK TRANSFORMATION
(a) Kevin Gilliland joined the meeting to report on branch conversions under
the Network Transformation Programme, a key measurement for the
Post Office this year. He explained that the programme, which had
always been challenging because of its voluntary nature, was now
reporting as red status and thanked the Board for the opportunity to
explain why this was the case and the actions he had put in place to
rectify the position.
(b) It had become clear that the Programme was no longer on track and an
independent analysis had revealed the weaknesses in the programme
pipeline and the need to change the nature of the contacts with the sub-
postmasters to support them through the process. As the sub-
postmaster engagement was vital, a decision had been taken to use the
Field Change Advisors, who already support the branches, to
encourage the sub-postmasters and help them through the change.
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ACTION:KG
ACTION: KG
ACTION:CD
ACTION:KG
(c)
(d)
(e)
(f)
(g)
(hy
()
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More resource had been provided to ensure that the critical path
through the process was reduced to as short a time as possible,
focussing on the initial property reviews and the analysis of the branch
financial statements. Kevin Gilliland assured the Board that these
changes were already having a positive effect and that everything
possible was being done to get the programme back on track.
He explained changes to the new Mains pay model to reward the
branches for the “book” (customer accounts) they hold for telephony and
financial services products as well as the initial sale, as this would
promote a greater focus on customer retention and be a possible way of
mitigating the loss of fixed pay, thus making the proposition more
attractive.
The Chairman thanked him for his candour and re-emphasised that the
Business had to hit the Transformation target for the year as it gave our
stakeholders confidence that the business could deliver and provides
reassurance for future funding negotiations.
Mark Davies explained the proposed communications strategy which
would ensure proactive focal and regional coverage for branch
improvements giving more confidence to the customers and sub-
postmasters and creating advocates for the programme. This included
54 national face to face sub-postmaster events planned for January.
Kevin Gilliland gave details of an incentive scheme to be introduced for
the Field Change Advisors, who would receive £250 for each of the
contracts which they got signed. The Board supported this incentive and
asked for it to be paid immediately and not deferred until the year end or
made dependent on the business target reaching its 1200 target.
Kevin Gilliland circulated a supplementary paper highlighting the key
metrics for the programme. The Board discussed the 2012/13 target of
1200 and agreed that this target was for contracts signed before the end
of March 2013, and that progress against this target should be added to
the one page summary report going forward. However, the business
should push as many of these conversions to completion as possible in
this time period.
The Chairman referred to paragraph POLB 12/92(a) of the minutes of
the last meeting and asked the Business to consider how it would
ensure that the Shareholder recognised the definition of contracts
signed as “completed”, as was consistent with the past practice.
The Board asked Kevin Gilliland what he considered the biggest risks to
achieving the target. He explained that the increase in properly surveys
and financial reviews necessary to enable the implementation in the
final quarter were the first critical points, and after this it was the actual
implementation through quarter 4 and the reliance on suppliers and
other factors like adverse weather conditions. The Chairman suggested
that the later stages in the process should be stress tested to ensure
that any prospective risks were identified and mitigated.
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(j) It was agreed that the Board should be kept informed of the Programme’s
progress. A further update would be provided at the next meeting and a
more detailed KPI report, including contracts signed, would be circulated
to the Board as soon as it was available. A full report on progress with
regard to the Crown offices, also a key measurement of success for
ACTION:KG Government, would be provided at the next meeting.
POLB 12/101 PENSIONS
(a) Project Robin implementation
Representatives from AON Hewitt joined the meeting.
ACTION: SC
ACTION:SC/SS
(b) Investment tisk strategy
Tim Giles (TG) presented AON Hewitt's recommendations on managing
investment risk for the Post Office sections of the RMPP. The
recommendations assumed that the buffer provided by Project Robin
would be available to help fund contributions and that increases in
pensionable pay would be controlled, as envisaged by the Robin
proposals.
The Board discussed the concept of extended hedging to protect
against increases in interest rates and inflation. The CEO asked for
assurance that AON Hewitt’s financial modelling assumptions were
reasonable and they assured the Board that they were.
The Board was informed that without proposed changes to investment
strategy the employer's pension contribution would need to rise from
17.1% to circa 30% (£33 million per annum) to maintain the current
pension benefits.
The Board agreed the following principles:
¢ £4150m from Project Robin to be utilised to reduce future pension
contributions and provide a buffer against adverse asset and
liability experience
¢ Post Office and employees continue at existing rates of
contribution (17.1% for the employer)
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« Assets are invested 50% in index-linked gilts and 50% in growth
assets,
e Extended hedging will be put in place
¢ Hedging will also be put in place if yields reach a lower limit
e Level of hedging to be kept under review as future plans become
more certain
e The allocation of growth assets could be reduced in the event of
strong performance to ‘lock in’ favourable returns
ACTION: The Chairman offered Board members a one to one with AON Hewitt if
Asst. Company they would find it helpful.
Secretary
The Chairman asked for a timeline for negotiations with the Pensions
ACTION: Trustee and a proposal on investment beliefs and asset allocation to be
CDISCIVH presented at the November Board
Virginia Holmes suggested that the investment strategy issues be taken
initially by the Pension Sub-Committee and a recommendation be
presented to the Board in November. It was recognised that the
Committee’s role was to consider investment strategy in the light of
decisions about pension provision taken by management;
implementation of Project Robin itself was the responsibility of the
executive team, reporting to the full Board.
ACTION:VH
POLB12/102 REVIEW OF HALF YEAR TRADING STATEMENT
(a) The CFO presented the trading statement including the consolidated
results for the half year. The Board agreed that the statement should be
balanced and contextualised to show how The Post Office is
progressing in a challenging market and in achieving its plans for
becoming a financially sustainable business. The Chairman asked the
ACTION: ALL Board to provide comments on the drafting to the CFO by 2 November.
(b) It was agreed that the Audit, Risk and Compliance Committee (ARC)
would undertake a more detailed review of the statement at its meeting
ACTION: AM on 13 November.
(c) It was further resolved that, subject to approval by the ARC, authority is
ACTION: delegated to a Sub-Committee of any two directors, to include the CFO,
Company to approve and sign off the final version of the half year Trading
Secretary Statement for publication.
POLB12/103 FINANCE AND PERFORMANCE UPDATE
(a) Two papers had been circulated to the Board; the Half Year Performance
Report (including a review of Funding Plan obligations to March 2015)
and the Quarter 2 Full Year Forecast for the financial year 2012/13.
Performance
(b) The CFO reported a strong profit performance in the first half of the year
with profit of £61.1m against a budget of £47.7m. He explained that this
performance was driven by upsides on revenue, particularly Mails, and
savings in operational spend, partially offset by a negative variance in
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project spend versus the original budget. Some of the areas of project
underspend are of concern as they represent delays and not true cost
savings. The CFO reported both the staff cost and non-staff cost
efficiency targets were on track to be delivered, and the Crown P&L
would reach its target loss of £40m for the year.
(c) The biggest revenue risks in the plan were the benefits in the FOoG
contracts.
(d) Business performance against Funding commitments
The Board reviewed the new report and asked that it be amended to
include the full year forecast for the next Board meeting and that, in
addition to PBIT, the Network Subsidy Payment (NSP) and net deficit be
ACTION: CD shown.
(e) Transformation Delivery
The Board appreciated the changes to the Transformation Delivery
Scorecard and asked how the growing risks were being managed. Sue
Barton reported that the Business Transformation Board, which
consisted of Executive Committee members, was now focusing on the
four or five areas of greatest risk as highlighted by the transformation
scorecard.
(f) Forecast
The Board noted the Full Year Forecast at the half year and the CFO
explained the movement over the two halves of the year. He explained
that the current financial year had always been envisaged to be the
most onerous for investment in the Network and wider transformation,
and therefore the deficit would reach its highest point of £126m. He
emphasised that he felt it was important for the business to reduce the
deficit from last year (of £119m) and that the Executive Committee had
agreed the new full year forecast for PBIT of £90m (deficit £120m),
which would come very close to achieving this aim.
POLB12/104 UPDATE ON COST MANAGEMENT REVIEW
(a) The Board noted the cost reduction work to date and agreed that the
CFO would include a quarterly update on cost reduction as part of his
ACTION:CD report to the Board.
(b) Sue Barton explained the four work-streams set up by the Business;
Ways of Working; Organisation Model; Organisation Structure and
Stakeholder Engagement.
The CEO suggested that the Business needed to produce 2-3 year
rolling business plan which would be used for funding but would focus
on revenue generation and cost reduction. The CFO stressed that from
next year the business would generate its budgets from a zero base as
there was a need to be much more radical. The Board applauded this
approach as an imperative to ensure the business becomes
competitive.
ACTION: SB/CD (c) The Board was encouraged by the paper and the debate and asked for
an update at its January meeting.
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POLB 12/105
POLB 12/106
ACTION:
Mark Davies
ACTION:
Martin Moran
(a)
(b)
(c)
(d)
{a)
(b)
()
(d)
(e)
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Post Office Limited — Strictly Confidential
MINUTES OF PREVIOUS MEETING AND MATTERS ARISING
The minutes of the Board meeting and Mutualisation Committee
meeting held on 19 September 2012 were approved for signature by the
Chairman
The Status Report, showing matters outstanding from previous Board
meetings, was noted.
The Board noted the minutes of the Pensions Committee meeting held
on 11 September 2012 and the FRES/H Board meeting held on 20
September 2012,
It was reported that minutes of the Remuneration Committee meeting
held on 4 October 2012 had been circulated to those members of the
Board who had no personal interest in the matters discussed,
CHIEF EXECUTIVE'S REPORT
Project Rainbow
The CEO and Chairman updated the Board on the meetings and
developments in Project Rainbow since the Conference call on the 19"
October. The Board asked for sight of the reactive communication lines
which would be used by the Business if required.
The Board asked the Business to check that the other businesses
involved had invoked their necessary disaster plans.
The Board noted the CEO's report and discussed the following specific
items:
Crown Transformation
The excellent improvements in the Birmingham Branch were
recognised, and the Business was encouraged to replicate this
approach elsewhere. The CEO explained the need for a further trial for
the Systems Thinking as although the Camden trial had been successful
in parts changes during the pilot had made the overall result
inconclusive.
HR Director
The Board asked if the loss of the HR Director had compromised the
Business in any way. The CEO assured the Board that it had not
although there were areas where difficult conversation with the unions
had not taken place.
Stakeholder Forum
The CEO reported on a very positive meeting with good challenge and
debate. Further meetings were planned for November and December
with a report back expected to the Board in March.
DVLA Pricing
The DVLA contract decision should soon be made public. The pricing in
the Post Office bid had been challenging and the CEO explained that
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the reduced price was only possible because of a proposed reduction in
pay to be passed on to the sub-postmasters. Although the price has
been significantly reduced from that in the current contract the Business
recognised that it needed to price competitively. The CEO thanked the
Non-Executives involved for their support in the pricing debate.
(f) The Health and Safety Report appended to the CEO's Report was
noted.
POLB 12/107 COMMUNICATION AND STAKEHOLDER PLAN
The Communications and Stakeholder plan was noted. The CEO
reported that tracking information for the TV advertisement should be
available in mid-November
POLB12/108 BANKING AND TREASURY AUTHORITIES
(a) The Board noted the paper on banking and treasury authorities and
after discussion delegated the authority to approve the arrangements to
the ARC.
{b) The ARC was asked to:
(i) agree the arrangements for control of treasury operations and
investment with banks and financial institutions;
(ii) agree the limits of authority designated to specified positions of
responsibility within the Company and the types and maximum
amount of obligations which can be approved by individuals; and
(ili) agree arrangements for reporting on banking and treasury activities.
ACTION:AM/CD
(c) The Board requested that the paper approving the uncommitted loan
facility be considered at the ARC and delegated authority to the ARC to
ACTION : AM/CD confirm the approvals.
POLB 12/109 APPROVAL OF POLICIES
(a) The Freedom of Information Policy and Publication Scheme and the
Anti-Money Laundering Policy circulated before the meeting were
approved.
(b) It was resolved that the Freedom of Information Policy and Publication
Scheme (version dated September 2012) and the Anti-Money
ACTION: Laundering Policy (version dated 5 October 2012) are adopted by the
Company Board as formal policies to be disseminated within the business and
Secretary provided to external regulators and agencies on request.
POLB 12/110 PROPOSALS FOR INCORPORATION OF COMPANIES
The papers proposing incorporation of a dormant subsidiary and a
captive insurance “cell” were discussed.
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(a) The Board resolved that:
(i) I anew company should be incorporated under the name “Post
Office Group Services Limited” as a dormant subsidiary, to
enable Post Office to produce consolidated accounts;
(ii) any proposal for the above company to begin trading will
require separate Board approval;
(ili) Post Office Limited will agree to subscribe initial share capital,
up to a maximum of £100;
ACTION: CD/ (iv) Chris Day and Susan Crichton will act as directors of the
SC/ Company subsidiary, with Alwen Lyons as Company Secreta
Secretary " pany "
(b) The Board declined the proposal to establish a captive insurance “cell”.
POLB12/111 ANY OTHER BUSINESS
(a) The Chairman asked all directors to check the Board and Committee
dates for 2013 and advise the Company Secretary by November 2" if
there were any problems. Meeting dates for October 2013 would
ACTION: ALL depend on confirmation of half term dates.
(b) The Chairman circulated the proposed agenda for the Strategy session
‘on the 20" November and asked for any feedback to be provided to the
ACTION : ALL Company Secretary.
POLB 12/112 ITEMS FOR NOTING
(a) The Significant Litigation report was noted
{b) The Board noted the Report on Sealings and resolved that the
affixing of the Common Seal of the Company to the documents set
out against items numbered 818 to 822 inclusive in the seal register
is hereby confirmed.
(c) The minutes of the August meeting of the Communications Action
Group were received
POLB12/113 CLOSE
There being no further business, the meeting was then closed.
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