POLB(11)6"
POLB11/38-52
POL00030365
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Post Office Limited — Strictly Confidential
Post Office Limited
(company no. 2154540)
Minutes of the meeting of the Board of Directors
held at 148 Old Street, London EC1V 9HQ on 22nd September 2011
Present:
Donald Brydon
Alice Perkins
Les Owen
Paula Vennells
Chris Day
In attendance:
Neil McCausland
Alwen Lyons
Jon Millidge
Apologies:
Matthew Lester
POLB11/38
POLB11/39
ACTION:
Alice Perkins
ACTION:
Alwen Lyons
(a)
(b)
(a)
(b)
(c)
(d)
Chairman, Royal Mail Holdings plc
Non Executive Director, Post Office Ltd
Non Executive Director, Royal Mail Holdings plc
Managing Director, Post Office Ltd
Chief Financial Officer, Post Office Ltd
Company Secretary, Post Office Ltd
Company Secretary, Royal Mail Group
Chief Finance Officer, Royal Mail Group
MINUTES OF PREVIOUS MEETINGS
The minutes of the meeting of 4 July 2011 were agreed;
the minutes of the FRES Board, 28 July 2011 were noted.
MATTERS ARISING
The Chairman updated the Board on the changes to the RMG
structure and the POL Board which had been agreed with the
Shareholder. Paula Vennells will continue her current reporting
structure into the RMG CEO until the Spring of 2012. At this point,
the current RMG Holdings Board would become the RMG Board
and it is likely that a thin top company, consisting of the Chairmen of
both businesses would be put in place. The Shareholder has
agreed to the structure of a new POL Board and work is under way
to fill the NED positions;
the Chairman emphasised the need to ensure the new Articles
being drafted for POL were fit for purpose and that any draft was
reviewed by the new Chairman;
Les Owen asked that the BIS ‘Letter of Comfort’ (POLB11/30(b)) for
UKBA be circulated to the Board;
the pay review paper was noted and it was re-emphasised that
RMG CEO still needs to have sign-off of any agreement. The Board
noted that joint RMG pay negotiations were under way with Unite.
It was agreed that during Matthew Lester’s absence, Jon Millidge
ACTION: (e)
Alwen Lyons
ACTION: (f)
Paula Vennells
POLB11/40
ACTION:
Alwen Lyons
POLB11/41
(a)
(b)
(c)
ACTION: (d)
Paula Vennells
POLB11/42
(a)
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Post Office Limited — Strictly Confidential
would replace him on the Pay Subgroup;
the Board noted the Telephony Customer Survey results and it was
agreed that the Telephony Strategy should return to the Board in
November for a more detailed discussion before an award is made
following the tender process;
Les Owen asked for a wider strategic analysis of the POL brand and
its attributes to understand what markets the business should be in,
in the future. The Board agreed this should feed into a strategic
review session.
APPOINTMENT OF DIRECTORS
The Board approved the appointment of the following Directors:
e Alice Perkins;
¢ Chris Day;
e Neil McCausland (subject to final sign off by Shareholder)
and authorised the Company Secretary to file the necessary APO1
forms with Companies House.
HEALTH & SAFETY REPORT
The Board noted the Health and Safety report. Paula Vennells drew
attention to the area of Road Traffic Accidents where POL ‘drivers
were at fault’ and explained that additional research had taken place
over the last month. Drivers who were shown to be at risk had been
retrained and received additional coaching. This programme was
90% complete;
Paula Vennells informed the Board that a decision had been taken
not to insist on CiT drivers wearing protective body armour, but this
would be reviewed on a quarterly basis;
the Chairman asked if the recent riots would have changed the
statistics in the H&S report. Paula Vennells reassured the Board
that they would have had no effect;
Paula Vennells explained that a review of the Health and Safety
Report was underway to include a wider remit of monitoring the
safety of POL’s working environment including security. Paula
Vennells would agree the future structure of the report with the new
Chairman.
MANAGING DIRECTOR’S UPDATE
Paula Vennells updated the Board on the pensions overpayments
(noting paper POLB(11)43) explaining that whilst awaiting the
Internal Audit report, manual checks were being undertaken to
ensure that the process problem could not recur. The estimated
exposure was less than £300k and more detail would be available in
ACTION:
Paula Vennells
ACTION:
Chris Day
ACTION:
Alwen Lyons
(b)
(c)
(d)
(f)
(9)
(h)
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Post Office Limited — Strictly Confidential
mid October;
the Board was also informed of a loan for £3m from POL to the
charity responsible for running the Postal Museum. The Chairman
stressed that there was an obligation on RMG to maintain an
archive but that repayment of the loan would force some financial
rigour onto the charity;
the Board was updated on POL Separation (noting paper
POLB(11)44). It was noted that the Directors will need a full brief
for both the Distribution Agreement and the Master Services
Agreement and their effect on the strategic plan. The Chairman
stressed that progress should be made as soon as possible but that
the Board should ensure it had time to give both agreements due
diligence, with a signing before Christmas. Alice Perkins would like
the POL Chair of Audit to be appointed before the agreements were
finalised;
POL are carrying out a piece of work to define how the Business
needs to change as it moves from a subsidiary to an autonomous
Business, including the shape of the Executive Team. The standard
format and forms of reporting is to be reviewed by the CFO. This
would be brought back to the Board for discussions;
Paula Vennells informed the Board that POL are working on a long
term incentive plan for senior employees, hoping to replicate the
RMG LTip which has now been agreed by Government. Les Owen
questioned whether ShEx would agree such a scheme, although the
Board agreed that there needed to be some form of incentive to
retain and attract new talent. Jon Millidge pointed out that POL
would have to check any scheme was permissible within the funding
agreement. Alice Perkins asked for a note to the Board explaining
the current arrangement, what is proposed and any funding
implications;
the Minister's speech at the Liberal Democrats conference and his
launch of the Mutualisation consultation was discussed. The Post
Office stand and AEI demonstration had been well received. A
similar presence is planned for the Labour and Conservative
conferences;
Paula Vennells emphasised the need for greater publicity to support
the Front Office of Government debate and hoped to have an AEI
and Post & Go machine available in Portcullis House, and possibly
a PO Local in the café next door;
Consumer Focus have started a campaign about the complexity of
travel money markets commission and charging. POL is using this
as an opportunity to show that the Post Office is a market leader for
transparency. Paula Vennells thanked Shane O’ Riordain and the
RMG Communications team for their support in countering any
negative publicity;
ACTION:
Martin Moran /
Susan Crichton
ACTION:
Paula Vennells
POLB11/43
ACTION:
Chris Day
ACTION:
Paula Vennells
ACTION:
Chris Day
POLB11/44
(i)
(k)
(1)
(a)
(b)
(c)
(d)
(e)
(a)
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the Board was informed that the business continues to focus on
Government contracts and is working on a supplier framework with
DVLA which could be used across other departments. The
Chairman asked that POL take the initiative in reviewing the
procurement procedure to see if there is any way to challenge its
application across all Government departments;
it was reported that Camelot had approached the Post Office with
an offer to work in a joint venture for bill payments. This would
present an opportunity to extend Lottery sales across the Network
and a possible replacement for 15,000 paystations over the next
two years. The Chairman asked that an analysis of the Paypoint
Strategy be brought back to the Board. This will also be
incorporated into a strategy day early in the New Year;
Paula Vennells updated the Board on the effects of the recent civil
unrest. Six offices had been closed by the riots but all except
Tottenham are now reopened. Following a suggestion from the
Chairman, some financial support has been given to those
subpostmasters who lost their businesses and homes. The total
cost of the riots would be £350k;
the Board was informed that the Executive Team were spending the
following day at a Customer Experience workshop and that the
outcome would be fed into the strategy day.
FINANCE PERFORMANCE
The Board noted the Performance Report;
Chris Day explained that the Full Year Forecast would be updated
at the next Board;
Les Owen asked if the business had received any compensation for
DVLA not marketing their product whilst in dispute with another third
party. Chris Day agreed to look at the contract to see if this was a
claim we could pursue;
the Chairman highlighted that the Telephony numbers had
worsened significantly since the last Board and emphasised the
need to review the strategy;
the good performance on operating profit was noted and Chris Day
reported that his first impressions of the Business’ financial controls
were good and certainly fit for purpose; its people were competent
but its commercial finance capability was an area for development.
IT AUDIT (SAS70)
The IT Audit paper was noted but Les Owen clarified that the
original question from the ARC was questioning why Fujitsu did not
have a SAS70 audit. The ARC was not suggesting we should push
Fujitsu to do a SAS70 audit if it meant POL would pick up the costs;
ACTION:
Chris Day
ACTION:
Mike Young /
Chris Day
POLB11/45
ACTION:
Mike Young
ACTION:
Mike Young
POLB11/46
ACTION:
Mike Young
ACTION:
Mike Young
POLB11/47
ACTION:
Kevin Gilliland
(b)
(d)
(a)
(b)
(c)
(a)
(b)
(c)
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Chris Day emphasised that Fujitsu do not undertake a SAS70 audit
but they recognise customers, including POL, would expect it. He
explained that POL were looking at any costs which would be
passed on from Fujitsu before going down this route;
the Chairman suggested that we should align ourselves with other
Fujitsu customers to ensure Fujitsu realised this standard was a
customer requirement;
Alice Perkins stressed that the Business needed to be influenced by
the cost as to which route was pursued. Further clarification is
required as to POL’s recommendation and a noting paper needs to
go to the next Board;
TECHNOLOGY UPDATE INCLUDING TACTICAL AND
STRATEGIC RELATIONSHIP WITH FUJITSU
The Board noted the paper. Neil McCausland asked if the IT
architecture for supporting Network Transformation was clearly
defined. Les Owen stressed the need to be confident in the
economics of the new branch models before investing in the IT
infrastructure. Mike Young explained that the Network would need
an integrated EPOS system and that the pilots currently being run
would help shape the solution;
Neil McCausland asked that the IP ownership issue be checked to
ensure there is no risk in the Fujitsu contract;
The Chairman asked that an integrated Network & IT strategy be
presented at a future Board, following a discussion about the future
strategy of the business.
PIN PAD REPLACEMENT BUSINESS CASE
The Chairman explained that in the current Group structure,
approval for the Pin Pads would be made at the Group Investment
Committee;
Neil McCausland asked that the Investment Committee paper be
circulated;
Neil McCausland asked for assurance that we were not over
specifying the product and if a differentiated solution for various
types of branches had been considered.
NETWORK TRANSFORMATION PROGRAMME UPDATE
The Board noted the paper and asked for a paper explaining the
economic benefits of the new branch models for the Business and
Subpostmaster;
POLB11/48
ACTION:
Nick Kennett
ACTION:
Nick Kennett
ACTION:
Nick Kennett
ACTION:
Chris Day
POLB11/49
ACTION:
Alwen Lyons
ACTION:
Alice Perkins
(b)
(c)
(d)
(a)
(b)
(c)
(d)
(e)
(a)
(b)
(c)
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Post Office Limited — Strictly Confidential
Kevin Gilliland explained that the pilots would provide case studies
which would enable the Business to explain the benefits to the wider
network, which it planned to do at a series of roadshows in
November alongside the NFSP;
Kevin Gilliland emphasised the need to keep a positive relationship
with the NFSP as their support for the Network Transformation is
vital;
Alice Perkins stressed the need to maintain the positive story on
Network Transformation and its effects as it would need to continue
to be funded by Government beyond the current funding agreement.
FIRST IMPRESSIONS OF FINANCIAL SERVICES BUSINESS
The Board noted the first impressions paper and Nick Kennett
explained that he saw a big opportunity in Financial Services but
only if the Business had an effective sales model. His proposal
would be to have qualified Financial Services Specialists in branch
who advise customers;
the Chairman emphasised that this would require significant training
and queried whether an on-line strategy would be easier to
implement. Nick Kennett suggested that the sales model would be
most effective with a mix of both channels;
Nick Kennett discussed the NS&I Premium Bond issue and was
asked whether the Bol agreement enabled POL to provide a white
label Premium Bond from another provider;
Nick Kennett supported the introduction of a Current Account, as
this was the product which gave the Business the relationship with
the customer. The target for introduction was 2013. A full
proposition needed to be presented to the Board;
Nick Kennett updated the Board on the Insurance product risk if the
number of policies falls below 300k. At this point, a penalty could
be enforced by Junction which could cost the Business £21m. The
Business has put measures in place to reduce the customer attrition
and the decline has flattened. This is reviewed on a weekly basis.
Neil McCausland asked for the metric to be added to the Board
Performance pack.
PROJECT EAGLE UPDATE
Les Owen reported that he had been through the Project Eagle
analysis with Nick Kennett and was in agreement with the approach;
an update paper was circulated at the Board and will also be
attached to these minutes;
the Board noted the approach and agreed to form a sub-committee
to ratify this. Alice Perkins and Les Owen would agree on the
members of the sub-committee.
POLB11/50
ACTION: (a)
Alwen Lyons
POLB11/51
(a)
POLB11/52
(a)
(b)
POLB11/53
(a)
POLB11/52
(a)
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Post Office Limited — Strictly Confidential
BOARD RESOLUTION: APPOINTMENT OF HSBC BANK PLC
AS BANKERS TO POST OFFICE LIMITED
The Board approved the appointment of HSBC Bank Plc, however,
the Chairman asked that Shane O’Riordain (RMG Director of
Communications) be advised as this appointment could trigger
press interest after Edward Davey’s conference speech.
POST OFFICE LIMITED — SEALINGS
The Board noted the Sealings Register.
RESIGNATION AND APPOINTMENT OF BOARD CHAIRMAN
The Board noted the resignation of Donald Brydon as Chairman and
Director of the Board, with effect from 22 September 2011. The
Board approved the appointment of Alice Perkins as Chairman of
the Board, with effect from 22 September 2011;
Paula Vennells thanked Donald Brydon for his time as POL
Chairman.
ANY OTHER BUSINESS
The following papers were noted;
Multi Growth Bond
BT Termination Notice - Summary
Pensions Overpayment Report
POL Separation - RMH(11)88
Travel Money Card — Fraud Update
POL Board — Devolved Powers
CLOSE
There being no other business, the Chairman closed the meeting.