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Post Office Board Agenda
[Bate] 26 November 2019 [Time] 11.45-16.00 hrs I teeationI I 1.19 Wakefield
Present Co ; Cn
¢ Tim Parker (Chairman) Ie Tim Franklin © Veronica Branton Robin Nuttall and McKinsey
(Company Secretary) colleagues (Item 7.)
* Nick Read (CEO) * Alisdair Cameron (CFO) I ¢ Debbie Smith (CEO - Retail) (Item * Ben Foat (General Counsel) (Items 8.
10.) &9)
* Ken McCall (SID) © Zarin Patel Mark Siviter (MD - Mails) (Item 10.) * Alan Watts (Herbert Smith Freehills)
{Item 8.)
‘* Tom Cooper Dan Zinner (Chief Transformation
Officer) (Item 7.)
Apologies: Carla Stent
Lo eeepc ee RaRERNRRENE ee ee ay
Performance and current issues
1. I Appointment of Non-Executive Director Approval Chairman
2. I Welcome and Conflicts of Interest Noting Chairman
3. I Minutes of Previous Board meetings including I Approval Chairman/ 11.45 11.55 hrs
Status Report Veronica Branton
4. I Committee updates (verbal): Noting & Input
4.1 ARC Note of actions to be circulated
4.2 Remuneration Committee Ken McCall
4.3 Nominations Committee Tim Parker
5. I CEO Report Noting & Input Nick Read 11.55- 12.25 hrs
6. I Financial Al Cameron 12.25 - 13.20 hrs
6.1 Financial Performance Report Noting & Input
6.2 Cash Management and Facility Management I Noting & Input
6.3 Borrowing Limits Approval
Lunch 13.20 - 13.30 hrs
Strategy and updates
7. I Purpose, Strategy, Growth (presentation to Noting & Input Nick Read/Dan I 13.30-15.00 hrs
follow) Zinner/ Robin
Nuttall and
McKinsey
colleagues
8. I Group Litigation Update Noting & Input Ben Foat/Alan I 15.00 15.25 hrs
Watts
9. I Framework Document and Articles of Approval Ben Foat 15.25 — 15.35 hrs,
Association
10.I Royal Mail Update Noting & Input Debbie Smith/ 15.35 - 15.45 hrs
Mark Siviter
Approvals
11.] Telecoms routers ‘Approval 15.45 — 15.50 hrs
STRICTLY CONFIDENTIAL
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Post Office Board Agenda
I I
Noting and governance items
12.] 12.1 Health & Safety Report Noting All
12.2 Sealings
12.3 Future Meeting Dates
12.4 Forward Agenda
15.50 - 16.00 hrs
13.I Any Other Business Noting and Input Chairman
14.I Date of next meeting: Noting Chairman
- December date being sought for further PSG.
session
- 28 January 2020.
STRICTLY CONFIDENTIAL
Revised 4
[Bate] 26 November 2019
Post Office Board Agenda
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I 11.45-16.00 hrs I ecation’ I II 1.19 Wakefield
..
So
oo
© Tim Parker (Chairman) I «
Tim Franklin
Veronica Branton
(Company Secretary)
© Robin Nuttall and Stuart Shilson
(Mckinsey) (Item 8.)
HR) (Item 9.)
* Nick Read (CEO) * Alisdair Cameron (CFO) I © Debbie Smith (CEO — Retail) (Item * Ben Foat (General Counsel) (Items 7.
10.) &9)
* Ken McCall (SID) © Zarin Patel © Mark Siviter (MD - Mails) (Item 10.) © Alan Watts (Herbert Smith Freehills)
(Item 7.)
* Tom Cooper ‘© Lisa Cherry (Interim Group Head of II ¢ Helen Davies QC (Item 7.)
apreramenny
‘Apologies: Caria Stent
“NE
ce
.
Performance and current issues
6.1 Financial Performance Report
6.2 Cash Management and Facility Management
6.3 Borrowing Limits
Noting & Input
Noting & Input
Approval
1. I Appointment of Non-Executive Director Approval Chairman
2. I Welcome and Conflicts of Interest Noting Chairman
3. I Minutes of Previous Board meetings including I Approval Chairman/ 11.45 11.55 hrs
Status Report Veronica Branton
4. I Committee updates (verbal): Noting & Input
4.1 ARC Note of actions to be circulated
4.2 Remuneration Committee Ken McCall
4.3 Nominations Committee Tim Parker
5. I CEO Report Noting & Input Nick Read 11.55- 12.25 hrs
6. I Financial Al Cameron 12.25 - 13.20 hrs
Lunch
13.20 - 13.30 hrs
Strategy and updates
POL Board
7. I Group Litigation Update Noting & Input Ben Foat/ Alan 13.30 - 14.00 hrs
Watts/ Helen
Davies QC
8. I Purpose, Strategy, Growth Noting & Input Nick Read/ Robin I 14.00- 15.25 hrs
Nuttall/ Stuart
Shilson
9. I Framework Document and Articles of Approval Ben Foat 15.25 - 15.35 hrs
Association
10.I Royal Mail Update Noting & Input Debbie Smith/ 15.35 - 15.45 hrs
Mark Siviter
Approvals
11. I Telecoms routers Approval 15.45 ~ 15.50 hrs
STRICTLY CONFIDENTIAL
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Post Office Board Agenda
Noting and governance items
12.] 12.1 Health & Safety Report Noting All
12.2 Sealings
12.3 Future Meeting Dates
12.4 Forward Agenda
15.50 - 16.00 hrs
13.I Any Other Business Noting and Input Chairman
14.I Date of next meeting: Noting Chairman
- December date being sought for further PSG
session
=_ 28 January 2020.
STRICTLY CONFIDENTIAL
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BOARD DECISION PAPER
Non-Executive Director Appointment
Author: Veronica Branton, Company Secretary Meeting date: 26 Novernber 2019
Executive Summary
The Special Shareholder has approved the appointment of Zarin Patel as a Non-
Executive Director of Post Office Limited for a three year period‘. The Nominations
Committee recommends the appointment to the Board.
The Board is asked to RATIFY the appointment of Zarin Patel as a Non-Executive
Director for Post Office Limited for a period of three years from 26 November 2019 to
the nearest Board meeting three years from that date.
The Board is asked to APPROVE the appointment of Zarin Patel as a member of the
Audit, Risk and Compliance Committee on the recommendation of the Nominations
Committee.
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6. ‘Agents’ Remuneration
Debbie Smith provided an overview of the paper. The development of the retail strategy had
originally been discussed by the Board in July 2018 since when the Common Issues Trial Judgment
had been issued, the Select Committee hearing on the Post Office network had taken place and calls
for increases in agent remuneration had increased. The fragility of the network, the struggle to
attract new postmasters and churn all supported the need review agent remuneration. An additional
£17m funding into the network had already been announced, largely linked to the increased
transaction fees supported by Banking Framework 2. We had already communicated that there
would be further announcements on agents’ pay in November 2019.
The executive had been discussing options and were moving to the view that we should be spending
a further £20m now and retaining £10m for potential further spend which might to link to incentives
for postmasters. This was seen as a minimum requirement to stabilise the network in the short term
pending a more thorough review. The proposals had been informed by insight from 50 postmasters
from different parts of the network. We were attempting to focus the most benefit in the right
places.
A number of points were raised, including:
* were the proposals sufficiently targeted at securing our desired outcome of stabilising the
network? To what extent was this a network subsidy payment driven by wanting to avoid any
postmaster operating below the national minimum wage and to what extent something we were
funding to drive growth?
* there was a danger of trying to do too many small things (for example, spending money on store
standards) and careful design would be required to achieve the outcomes we wanted. It was
noted that we would need to measure the outcome of the investments and look at what was
going to provide sustainable value in the longer term
* our starting proposition appeared to be that we were paying postmasters too little but could this
be evidenced (for example, other franchises like PayPoint had much less generous arrangements
in place on the provision of equipment and we knew that we were overpaying for some
transactions)? An 8% increase in the overall bill was significant. It was reported that the adverse
feedback on remuneration/ value associated with running a Post Office was coming for our
multiples as well as individual postmasters
* how did the figures map across to the most vulnerable areas? We needed to remember that Post
Office created significant footfall for multiples like the Coop
* that the retail team was handicapped by a lack of data about branch profitability and the position
of our multiples. Employment costs were key and there was a step change in costs for agents if
they had to employ an additional employee
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* that we were not solving the issues systemically and there was nothing to stop ongoing requests
for additional funding when we were already failing to operate profitably
* that the proposals were focussed on stabilising the network over the next couple of years. Gaps
would emerge as Banking Framework volumes dropped. We needed to consider whether we
wanted to restructure the network
* that we still needed a deeper review on remuneration rates
‘* the paper needed to be clear whether any element of the remuneration increases were
dependent on BEIS funding
* _anefficiency lens would be helpful because our attractiveness as a franchise was not just about
remuneration but also about how we make things simpler for postmasters. It was noted that part
of PSG work was looking at the simplification of setting up and running a Post Office and linking
everything back to our attractiveness as a franchise
* we were working on the assumption that these measures would allow us to maintain the network
at its current level but could this be substantiated? It was noted that it was difficult to evidence a
“tipping point” that led to a postmaster leaving and if we had a better understanding of the
triggers this is what we would be targeting
‘© whether this work had been aligned with the work on Starling (workers’ rights case). It was
reported that this had been factored in, including when looking at potential arrangements for
leave cover
* we were not thinking sufficiently about the future shape of our network when setting postmaster
remuneration. We needed to strike a sustainable economic relationship with our postmasters
and could not yet identify the “tipping point” for leaving Post Office or for being an attractive
franchise proposition
* we were a franchise operation overlaid by a social purpose but we had to be clear that social
purpose linked to customers rather than postmasters
* the narrative and communications for the announcement on the additional investment and
agents’ remuneration would be critical.
Chairman’s summary:
The Board was concerned that we could be committing to investments which would not achieve the
desired outcome. There was a danger of a continuing demand for additional funds that we could not
afford. Agents’ remuneration and network stability needed to be analysed further. Post Office
needed to be attractive as a franchise and be able to attract the right postmasters but we did not
know enough about financial situation of postmasters. We needed to be paying the right fee for the
right transactions and understand the different segments of postmasters and the challenges they
faced. As a starting point the Board would like to see the workings behind the model. A/ NB
The Board APPROVED an additional £20m investment in agents’ remuneration and support for
changes which would be introduced from April 2020. The Board DELEGATED AUTHORITY to the
Group CEO and CFO to finalise the list of initiatives included. The Board APPROVED holding a further
£10m in the budget for potential additional spend on agents’ remuneration and support which might
include incentivising desired behaviours. Any additional spend would first need to be approved by
the Board. The Board APPROVED the announcement of the changes in November 2019.
It was noted that the Group Chief Executive would be briefing the Minister in advance of the public
announcement.
Payzone Bill Payments Limited
Strategy and Update
Debbie Smith introduced the paper, explained the drivers for the acquisition and how we were
looking at the network. Some income had been received later than expected, revenue from ticketing
was under performing and integration costs were higher than estimated. However, while the shape
of returns was different we anticipated that the benefits would be realised overall.
A number of points were raised, including:
© that a 7% growth in market share through a non-Royal Mail pick up and drop off service (PUDO)
seemed low? It was reported that the PUDO market comprised 160m items a year. We had
around a 33% market share with RM with click and collect
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* what impact would buying Doddle have on POL systems? It was reported that Doddle would
work outside Horizon. It was an application that would sit on the Payzone network and would
drive footfall
* that the acquisition had been rational and we were making progress in gaining market share but
we still had to consider whether this was an area we wanted to invest in when considering our
other investment options if the quantum was small
* were we committed to signing the contract with British Gas? It was reported that we had not
made an announcement but the position was already known publically because PayPoint had
reported its loss of the contract
how did we think PayPoint’s business would develop?
* that POL could not risk reputational damage linked to the operation of the Payzone business.
Therefore, the business and the risks needed to be managed in the right way with accountability
resting with its Managing Director
* would we make additional money from the BG contract? What were the incremental economics?
It was reported that the British Gas contract was an enabler and facilitator for future contracts
we needed to understand the future value we would be creating and understand all the
opportunities owning the network provided us. It was thought that we might be underplaying
these opportunities. It was noted that future value depended in part on IT costs because
development of the service hinged on us moving to the cloud
* the Board was being asked to take decisions without a full understanding of all the moving parts,
such as IT costs and it not been clear when we were bidding for the acquisition that we would
need to invest more to win additional contracts. It was noted that the risks of not moving to the
cloud were significant and the worst case outcome would be to sign up to the BG contract and
then only use Horizon integration Hub (HiH) for this, We would need to take a commercial view
‘on future deals and also consider how PayPoint was likely to react to Payzone acquiring additional
market share.
It was AGREED that a better explanation of how the integration costs had been developed compared AG
to the business case approved by the Board when the acquisition was made would be provided.
IRRELEVAN
Telecoms Strategy
Owen Woodley introduced the paper. A decision was sought from the Board to allow Fujitsu to
submit a de-unified bid and accept the risks associated with this approach. We were not bound by
full PCR (Public Contract Regulation) requirements but the process needed to be fair and transparent.
There was a possibility that we accepted the risk and Fujitsu nevertheless dropped out of the process.
If they were to drop out we would face exit and migration costs to a new supplier although the cost
savings might be significant. A further paper would be brought to the November Board meeting
with an update on initial bids received.
Meredith Sharples noted that there was a reasonable prospect that we would decide to sell the
business but that we would have no indication of sale price for some while and would need Fujitsu’s
ongoing co-operation. We had the option of stopping the RFP at any time but needed to inform
Fujitsu what we intended to do by 17 February 2020. Timings would be communicated to the bidders
today and as early December 2019 potential bidders would be notified of intention to seek a possible
sale. Bidders would be informed that we were seeking to maximise the value of the business on sale.
The Board noted that an ongoing involvement for POL in telecoms should only be considered if there
was a compelling offer from one of the bidders.
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Tom Cooper asked how robust our RFP process was. It was reported that the Telecoms Team had
worked closely with the procurement team on documenting the process.
The Board discussed the option of a possible extension to the current agreement with Fujitsu which
would be pursued, partly driven by the uncertainty on the timescales for Government approval to any
outcome
The Board APPROVED the acceptance of the procurement risk associated with inviting the submission
of a disaggregated bid and DELEGATED AUTHORITY to the CEO - FST& and the Telecoms Director to
make a counter offer to Fujitsu and invite them to make a disaggregated bid
Next Steps on the Digital Identity Strategy
Owen Woodley introduced the paper. The Board NOTED the proposed short term approach and
APPROVED a short-term extension with Digidentity, with sign-off of the terms delegated to the Group
CEO and CFO. The contract expired in November 2019 but there was an option of a one year
extension.
Group Litigation Update — subject to legal privilege
Ben Foat introduced the paper. The figures under consideration for the mediation would be discussed
at the Postmaster Litigation Subcommittee. We would need to make a reasonable offer? to show that
we were entering the mediation in good faith. Part 36 offers would be made if we were not
successful and we would then need to go to a second mediation. The Horizon Issues Trial judgment
would be issued shortly and we would receive 24 hours’ notice of the embargoed judgment being
released. An update on the known evidence logs (KELs) had been sent to the Board last weekend.
The Court hearing on leave to appeal was taking place on 12 November 2019 and if we were
successful the claimants were more likely to consider settlement. Mr Justice Fancourt had recently
ruled on the Sheffield United case and had disagreed with Mr Justice Fraser’s view on relational
contracts in the Common Issues Trial judgment.
A number of points were raised, including:
* we needed to look at the whole picture including what costs might be associated with the
convicted claimants. Delegated authority should be sought for the total mediation figure. Alan
Watts reported that it was not necessarily a question of making an offer but looking at the figures
based on a 12 month termination figure. We did not think the claimants’ solicitors would be in a
position to go through claimant by claimant and we were giving serious thought to what
information we could share on our analysis of the claimants’ cases without releasing all the work
we had done. Our limiting factor was what we thought we would pay if we went through a court
process, the other sides was their funding position. There was a potential to agree a number with
the claimants’ solicitors which covered all claimants and they could decide how to share this
money
* how would a mediator assess all of the elements of the case such as expectation damages and
stigma damages? It was reported that the mediator would have to look at the gap in the figures
between the two sides. The absence of clear figures from the claimants would make it difficult
for the mediator. The mediator’s role was to help each party see the case through the other's
lens
* we needed to reach a view on sums that might be associated with stigma damages and other
elements that were more difficult to define
* a review of convicted cases had been discussed at the last Postmaster Litigation Subcommittee
meeting, had any work taken place? BF reported that we were considering how this work might
be undertaken and by whom. Any consideration of reviewing how Post Office Limited dealt with
2 Post-meeting note: POL’s Articles of Association require that Shareholder consent is obtained for spend above
£50m. However, we have been advised that BEIS/ HMT’s view is, that in the case of settlement, approval would
be required for any figure. This is for a number of reasons, including that the potential settlement amount
being discussed is only for part of the claimant group and so the eventual number could exceed £50m and that
the expenditure could be considered to be “novel, contentious or repercussive” circumstances under which
Managing Public Money guidance requires prior approval to be sought.
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the convicted cases would need to be discussed with Ministers. AW noted that we would have to
satisfy ourselves that we had enough information to make those judgement calls and we were
unlikely to have enough information to consider that before the mediation. The Horizon Issues
Trial judgment would be issued shortly and the criminal claimants’ position would need to be
considered in light of that. Individual payments could not be made to convicted claimants. TC
noted that the primary concern of the convicted claimants was for their conviction to be
overturned. It was noted that these claimants had been convicted through the courts and we
could only seek to offer help if we had information to suggest that any of these convictions were
unsound.
The Board NOTED the updates in the paper including the approach being taken to mediation. The
Board AUTHORISED the Postmaster Litigation Subcommittee to delegate to the General Counsel
authority to make settlement offers at mediation on terms to be determined by the Subcommittee.
11. Starling (Workers’ rights case) Update
The Board NOTED the approach, update and next steps. It was reported that we were satisfied with
the 10 lead witnesses and our understanding of the risks associated with each case. Our witnesses
would be prepared properly.
The Board DELEGATED decisions (including instructions on settlement receipt of making offers) for
Starling to the Group Chief Executive Officer, CEO Retail and General Counsel. Significant decisions
should be referred back to the Board.
12. Noting and governance items
12.1 Horizon integration Hub
The Board NOTED the intention to continue with the development of the Horizon integration Hub in
order to deliver the next set of features that ensured delivery of services at scale to the appropriate
service levels.
It was noted that approval for the development of RPos had been granted as it was required for the
delivery of the British Gas contract. Self Service Kiosk development proposals (SSKs) had not yet been
considered because a number of Horizon system issues had first to be determined.
12.2
12.3
12.4
12.5
13.
X
»
Post Office Limited Board Actions as at 19.11.2019
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2. Future of Banking Framework
It would be useful to have a refresher on ATMS,
and the history of POca before coming back to
the Board on our developing strategy on these
issues.
Kearsley
Debbie Smith/ Martin I January2049
By end of financial
year
The ATM strategy is coming to a
conclusion with input from an OJEU
procurement process to gather
market data and costs. The strategy
evolution is being individually
briefed to all Board members in the
next two weeks, prior to a formal
presentation in Q4 at the
appropriate Board Meeting.
‘Open
1. Retail Strategy
The ATM Strategy should factor in our whole
Debbie Smith
The ATM strategy is coming to a
role now, who would be ready in 1-3 year time
Cash Strategy. Autumn 2019 conclusion with input from an OJEU
(We needed to analyse an investment in cash By end of financial I procurement process to gather
machines carefully looking at how far we would year market data and costs. The strategy
move to being a cashless society in the next 3-4 evolution is being individually
years). briefed to all Board members in the
next two weeks, prior to a formal
presentation in Q4 at the
‘ate Board Meeting.
Banking Framework 2 To include the impact of a drop in banking Martin Kearsley Forinclusionin-next I The ATM strategy is coming to a Open
transactions in the next Banking Framework Banking framework I conclusion with input from an OJEU
report to Board. report to Board, procurement process to gather
Autuma2019 market data and costs. The strategy
Byend of financial I evolution is being individually
year briefed to all Board members in the
next two weeks, prior to a formal
presentation in Q4 at the
appropriate Board Meeting.
Board Meeting 30 April 2019
4. Succession Planning To provide a grid showing the key roles inthe I Me-Kang daly 2019 Tobe inchided onthe Board.and/or ‘Open
organisation (and which will link to the future ber 201 N ipendas-for Septem
organisation structure), the “top talent”, Lisa Cherry/ Nick Autuma2019, 2019.
“corporate pillars”, who was ready for a bigger Read January 2020 Item deferred so that Nick Read has
the chance to consider the GE
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scale etc. once we had assessed the RAG status structure and align with work on
and decided what we needed to do to develop Purpose, Strategy and Growth.
these individuals.
1. Cash Utility A consultant would be engaged to review Executive March 2020 The Cash Forecasting Proof of ‘Open
operational processes/ efficiency to provide an Concept project is now scheduled to
independent test. Ken McCall would be happy start in early January 2020 and
to be involved in the process. conclude by the 1% week in March
2020. Once we have undertaken this
project we can then agree what the
next steps are from a logistics and
planning perspective. The ultimate
aim is that once we have a robust
cash forecasting solution that not
only tracks and updates branch cash
usage, but also product cash flows,
we can determine the best logistics
solution. The cash forecasting
solution provides the means to
create a more dynamic method of
distribution coupled to accurate and
robust cash data.
We continue to have dialogue with
third parties with regards to shared
cash logistics infrastructure and
possible localised outsource where
we believe this will add benefit.
2. Follow-up sessions/ The Board approved the immediate plans for I Insurance (Owen January 2019 Items scheduled for future Board Open
implementation of strategy I Insurance, Digital Identity and Telecoms but Woodley/ Ed Dutton) agendas.
asked for the executive to return with more
radical longer term proposals for Insurance (and _ I Digital Identity (Owen I October 2019 Update paper was provided in Open
an overview of how we were tackling each of the I Woedley/ Martin (update paper)/ October.
product lines in insurance) and Digital Identity I Edwards) January 2019
and bring a paper te Wout cotatens the I Teleo (Owen October 2019 Update paper was provided in Open
; Woodley/ Meredith October. A further paper is
auction process. Sharples)
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ION OWNER
aE
scheduled for Board in January
2020.
Financial Performance
RM in the contract negotiation, what a good
outcome would be for us and for RM and track
progress against these.
Report
c) Re-circulate the end-to-end cash process Al Cameron November 2019 Paper on Cash and Facility To close
Management included on the
November Board agenda.
8. Royal Mail Negotiations To set out all the points of issue between us and _I Mark Siviter November 2019 Paper included on November Board To close
agenda.
3. CEO Report To submit the STIP proposals for 2019/20 and] Al Cameron/ Lisa There will bea dry run of the plan at ‘Open
provisional LTIP proposals for 2020/2022 tothe I Cherry Board in January 2020.
Shareholder, in advance of the final Five Year
Pian being agreed by the Board in March 2020.
The recommendations would need to be
approved by the Remuneration Committee prior
to submission to the Shareholder.
CEO Report To contact our Minister, Kelly Tolhurst, to Tim Parker Done. Alex Chisholm contacted. To close
request that the approval of the POL Non- NED appointments approved by
Executive appointments were agreed as soon as Minister but second NED role will
possible. now need to be re-approved once
new administration is in place.
CEO Report To see the process map for how we soughtto _I Executive November 2019 Done. Paper appended to action To close
ensure compliance with the Dangerous Good log.
Act.
4.1 Finance: Financial It was AGREED that we would return to Board _I Executive November 2019 A paper on commercial partner To close
Performance Report with a network dependency strategy. contingency is on the ARC agenda
for 25 November 2019 (link to
Reading Room). Work is continuing
onnetwork numbers.
4.1 Finance: Financial To see and review the plan of exiting the Belfast I Executive November 2019 I Done. Paper appended to action To close
Performance Report Data Centre over the next year. This plan would log.
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be shared as part of the November CEO report
to the Board.
4.2 Finance: Quarterly Delivery _I Arrange for Tom Cooper to be taken through the I Al Cameron November 2019 Done. To close
and Funding Report Peregrine figures offline.
5. Purpose, Strategy, Growth A landscape overview on postal services (and ‘Mckinsey November 2019 Done. included on November Board To close
(PSG) presentation some analysis on disruptors) in other parts of the agenda,
world, including their networks, what subsidies
they received, how they sought to drive growth
etc., would be produced for the November
Board discussion.
6. Agents’ Remuneration To provide the workings behind the model ‘Amanda Jones, Nick I November 2019 Following Board authorisation and To close
looking at potential agent initiatives and Beal subsequent business announcement
support. of the additional Agents’
Remuneration funding, we are now
in the process of implementing the
changes from next April. We will
monitor and measure the impact of
these changes on branch network
numbers and product sales (in the
relevant areas) and update further
within the framework of business
reporting.
7.1 Payzone Bills Payments To provide a better explanation of how the ‘Andrew Goddard ‘Open
Limited: Strategy and Update integration costs had been developed compared
to the business case approved by the Board
when the acquisition was made.
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BOARD NOTING PAPER
Ensuring the compliance of
Dangerous Goods transactions
Author: Amanda Jones/Mark Siviter Sponsor: Debbie Smith Meeting date: 26" November 2019
EXE CUPIVE. SLUM AIM een .
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IRRELEVANT
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IRRELEVANT
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Dangerous Goods ~— penalties for non-conformance
There is no contractually agreed target or an agreed target between the CAA, Royal
Mail and POL. The ethos followed has been to seek continual improvement by P12 of
each year. There is no indication that this will change in the immediate future but
rules around the movement of items are tending to become stricter rather than
looser.
There is no financial penalty for mystery shop failure but Royal Mail reserve the right
to withdraw the authority for individual branches to transact any sales of parcels in
the event of non-compliance. This has so far not been implemented as POL have been
able to demonstrate that once a branch is identified as not complying there is a
process to engage with them and provide refresher training so that Dangerous Goods
acceptance improves.
Appendices - Dangerous Goods tools for acceptance
Appendix 1 ~ Prohibited and Restricted Items Reference
Appendix 2 - Prohibited and Restricted Items
Appendix 3 - Dangerous Goods Transaction Prompts
Appendix 4 - Prohibited and Restricted Items Compliance Workbook
All supporting material will be available in the Reading Room
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Audit, Risk and Compliance Committee Update 25/11/19
Carla Stent/David Parry
Key items of discussion
1. PCI Compliance
© PCI is still out of compliance and likely to be compliant in Q1 2021 (although this is not
guaranteed).
© Ingenico delivery is behind schedule.
© Action: Nick to hold CEO talks with Ingenico.
* Action: Shikha to deliver/circulate delivery plan within 2 weeks.
2. Contract Management
Contract Management is poor with supplier contracts out of governance (impact on GDPR
compliance).
© Committee approved a decentralised approach to contract management, where day to day
management of contracts is close to the business.
© Contracts to be reviewed by Procurement, Legal and Finance before being signed.
¢ Action: Al confirmed funding would be given, both financial and cultural.
3. Emerging risk
Branch level compliance appears to be slipping i.e. poor Telco, Travel and mystery shopping
results, Fit and Proper returns not being completed or being incomplete (100 branches).
* Action: ARC to complete a deep dive in this area.
4. Partner Contingency Planning (McColls)
© Reviewed contingency planning.
« Team to deliver next phase in March 2020 (post Christmas trading).
5. Policies Approved
© Change Management Policy
© Protecting Personal Data Policy
© Risk Policy
6. BEIS observer
¢ Nigel Boardman (BEIS ARC Chair) attended the meeting.
© Confirmed he felt the ARC was open, transparent, with good discussion on a number of
complex areas.
7. Jenny Ellwood
© The Committee thanked Jenny Ellwood for all her hard work and wished her well.
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POST OFFICE LIMITED
BOARD DISCUSSION PAPER
Group CEO Report - -
Author: Nick Read
Meeting date: 26 November 2019
In, Lik
The Board is invited to note the report and highlight any issues where a future
discussion would be welcome.
As referenced in last month’s report, and in light of some of my early observations
around driving accountability cross the business I have implemented a new operating
rhythm and meeting cadence which focuses on ensuring we have much more
emphasis and control around our delivery, costs, accountability and across our
product lines. This new model will take effect from w/c 18'" November and comprises
of the following:
« Weekly CEO Lead Team meeting - shorter and focused on the week ahead
and horizon scanning
e Weekly Trading & Business performance meeting - attendees are key product
owners and focus is purely on weekly sales and performance
e Monthly strategic GE meeting - key focus is strategic and forward looking
items, as well as key business and decisions with time for strategic forward
looking discussion
e L40 huddles —- renamed Leadership Council - now scheduled every fortnight,
as opposed to every three weeks. Key focus is groupwide issues across the
business as well as culture, purpose and ensuring cross functional alignment
e Monthly UK Operation meetings - key focus is lowering costs, delivery and
improving our productivity across our network
e¢ Monthly Customer Plan - key focus is improving our customer proposition and
strengthening our brand across the network
¢ 10@10 - a weekly all staff townhall huddle, on Wednesdays at 10am for 10
minutes. Key focus is on company performance and topical issues of the day
and an opportunity for me to answer questions from colleagues. Held
primarily in Finsbury Dials, but will be held in other locations across the year.
Each session will be filmed and highlights from the update will be uploaded
onto a dedicated intranet site and cascaded internally.
As part of this new model, a new engagement plan for GE and our Leadership Council
is being created, to ensure we rapidly increase and improve our interactions with
postmasters and spend more time outside Finsbury Dials, with our regional colleagues
and in our branches with customers. I will share more details about our plans at the
next Board meeting. As an example, December's GE meeting will be in Chesterfield
and all GE colleagues will be ‘on the road’ in Christmas week meeting Postmasters and
customers.
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Financial & Cash Performance
Trading Profit for the month closed £0.9m ahead of budget on an underlying basis,
swinging YTD performance £0.4m ahead of budget. Against the 6+6 forecast we are
£1.6m ahead, but the full year 6+6 falls around £3m short of target, and so further out
performance is required. Areas of focus include; whether we have the right balance
between short term Telco pricing and sale price, whether the results in protection
insurance will change our view of that business and re-assessing the network to seek
to stay above 11,600 branches this year.
Cash. NRF funding has returned to normal levels in Period 7, therefore we have
decreased our borrowing from BEIS accordingly by £152m from prior period, closing
the period with the government loan facility utilisation at £588m.
Key Business updates
Network & Christmas planning
Network development programme is still on track. Year to date we have delivered 54
DMB exits and almost 150 new network locations helping to maintain our network of
around 11,600 branches. We are also on track to deliver 15 of the new parcel shop
locations before Christmas with 14 already delivered. Early indications are mixed
regarding number of parcels being handled each week. We are now conducting a full
review of the initial pilots to inform future plans especially around branding and
operational execution.
We have now concluded Project Edgware. 72 branches have been delivered to date
with the remaining 2 branches on hold due to lease issues between WHS and their
landlord. (Gloucester and Chelmsford). £5.6m annual benefits will be delivered each
year over the 10 year contract term. We expect to have around 120 DMBs remaining
at the end of March and following GE discussion our plans for 20/21 will be to divest
as many as we can. The McKinsey analysis highlights how significantly loss making
the estate is and we must accelerate the divestment next year.
We continue to build on our contingency planning across the business as the political
landscape remains uncertain. There are various options currently being developed
which would enable Post Office to respond quickly to any emergency service issues
created in the network as a result of the GLO outcome or the potential collapse of a
large retail partner.
Five additional mobile vans are in the process of being equipped and are on track to
be ready for use by the 25th November. Additionally, the ‘Post Office in a box’ solution
(a smaller footprint, quicker and cheaper means of local service provision) is also on
track to be tested in five pilot locations across the UK by early December, in areas
where we are currently experiencing service issues. Following the pilot and
refinement, we plan to use this new concept more widely across the network as a
contingency.
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Launch of Captial One Credit Cards
We have successfully launched two new credit cards with Capital One, only four
months after signing the agreement. Our MVP went live online on 5'" November (soft
launch), with digital marketing following from the 12". So far, anecdotal feedback on
the customer experience has been positive; we will share the first performance
metrics next month. In parallel, we are working on delivering a small branch pilot in
Q4, driving a second release of journey enhancements, and building our customer
understanding to refine the proposition set and features from the current MVP.
New Identity proposition
We have initiated a trial in 15 branches for a tablet-based solution for Digital Check &
Send (DC&S) passport applications which will run until December. Unlike the existing
DC&S solution available in 700 branches with AEI booths, this will cover all passport
application types, not just adult renewals. Assuming the trial is successful, we will
then roll out the solution to c.1,500 branches during the first half of 2020, eventually
decommissioning the AEI service to reduce costs. Following the update provided at
the October Board, negotiations are underway for a short-term extension of our
contract with Digidentity, pending the conclusions of the wider strategy review to
determine if digital identity is one of our ‘big bets’.
Christmas planning
The Christmas Campaign landed in branches on the 11" of November and is centered
on the theme ‘It’s Post Office Season’. The marketing material comprises of posters
(for those branches with poster space available), leaflets, window vinyl and pin-pad
advertising.
We are supporting Postmasters and Area Managers with access to a central app for
social media content distribution. The app will store compliant, on-brand content that
Postmasters can easily post on their social media channels to drive engagement and
footfall to their branches. The initiative is in pilot with 500 app licenses and due to
launch before the Christmas period.
Banking Framework 2
BF2 is still fully on track to launch on January 1st 2020. Barclays have reversed their
decision, and we therefore have full 100% migration from BF1 to BF2. Following their
climb-down Barclays will now ‘agitate’ from the sides - including pressurising Govt
(HMT) and regulators (FCA) to put Post Office under tighter regulatory control and try
to galvanise other banks to highlight issues/raise ‘noise’ to underline their concerns
about the service (their main complaint being that we are - in their words - ‘semi-
monopolistic’ and now dominant). We are aware of this and are actively planning a
‘phase 2’ of our successful reversal campaign, to work with HMT and FCA, gain
assistance from BEIS and make sure any input from them is balanced and positive.
Our next step is to work with FCA and HMT to understand the regulatory umbrella and
to develop plans with BEIS, CA and others to ensure continued buy-in.
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ATM's
We currently host just under 2,200 ATMs located across the Post Office network. Bol
has notified us that it is withdrawing from the ATM market, and we are working with
them towards a contract end date of March 2022 by which time all devices will have
been removed. Bol are beginning the process of removing out of licence devices,
however some of these we want to retain due to their profitability. This means that if
we intend to ‘remain’ we need to agree a retention package with Bol to avoid the
removal of ATMs that we want to keep. At this early stage we believe that the case to
‘remain’ in the ATM market is strong. Early financial analysis shows that remaining in
the market would generate £80m cash flow over an eight year period from 20/21,
compared to £14m if we exited the market. To help inform our decision making we
are undertaking an OJEU procurement process which is currently underway and on
track for completion in April 2020. We will update the board after Christmas and
deliver final recommendations in Q4 19/20.
British Gas
As you will be aware we have now signed the contract with British Gas securing an
exclusive 5.5yr deal to retain the service in Post Offices, include the addition of the
Payzone retail network, and remove the incumbent PayPoint service. The service will
go live in Payzone stores from 1%t December, with the full transition and exclusivity
effective on Jan 1st, 2020. The contract will generate 72m additional transactions p/a
and serve ~1.8m customers.
Paypoint have responded as expected, encouraging BG customers to move to other
energy providers & targeting Payzone agents around contract restrictions. British Gas
are considering how to respond as this is a breach of Paypoint’s current contract. We
are now stepping up our marketing and communications to both agents and
customers.
Agents’ Remuneration ~ well received
Following the announcement earlier this month of further increases to Agents’
Remuneration, we have been monitoring press coverage and postmaster feedback.
Postmaster feedback via Area Managers has been very positive in the vast majority of
cases inevitably wanting more detail and to understand the benefits for their
individual branches, but very welcoming and recognising this is meaningful and in the
right areas. The most prominent press was in the Daily Mail who led with a positive
headline about the amount, welcoming the increases and implying that they have
helped achieve this. This largely positive coverage, particularly using the 10%
increase as a lead, was the pattern in the other press coverage. Other articles have
appeared in Daily Mirror, Daily Record, Convenience Store, Talking Retail, The Grocer,
Asian Trader, Post & Parcel News, Retail Newsagent, Scottish Grocer and Convenience
Retailer. We will be writing to branches next week confirming the detail of the rate
changes and will update with further feedback following this.
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Hothouse Programme
The Hot housing programme to develop capability of Area Managers and Postmasters
to drive improved performance, has extended to a further 3 regions and will be
activated in 700 branches by the end of November. Results from branches in the 1%
two phases show a positive uplift in revenue relative to the control group. We are now
building a case for an accelerated programme to be on the ‘big bets’ list. The principle
of optimising our existing operation is increasingly looking like the best strategic
option. This is a reflection on core capability, our capacity to deliver change and our
culture of initiating something new, when results are hard to extract.
Change project spend
In P7 the Investment Committee approved additional spend for 2 large programmes:
Branch Hub (Agent Self Service) and RPOS (technology for whole estate deals). We
are noting this for the board but not seeking formal approval until we have completed
the strategic review (PSG Project) to understand if these programmes are aligned with
the long term strategy. For the moment, the programmes have approval to spend
until January Board. Spend and deliverables are as follows:
o Branch Hub has spent £9.6m to P7 of their current approved £9.7m
spend. The programme forecast £1.9m additionally to the end of
January to complete in anticipation of a full adoption plan at the end of
Q4.
o RPOS has spent £2.9m to P7. The programme forecasts spending £1.9m
to the end of January to obtain 70% product completion built on HIH, a
fully configured paystation device and clear Heads of Terms for The Co-
Op Group
Risks & Concerns
Royal Mail - Potential Industrial Action
On 13 November the High Court ruled that CWU's postal ballot of Royal Mail
employees for industrial action was unlawful, meaning no industrial action can take
place until a new ballot is completed. Whilst this means we can safely say that they
will not strike officially over the Black Friday, Cyber Monday weekend the CWU have
now appealed the judgement. If this fails they will likely re-ballot with the possibility
that if this is expedited then they could just feasibly take industrial action in mid to
late December. A verbal update will be provided in the Board meeting.
Post Office Industrial Action
A ballot for industrial action at Post Office for Christmas industrial action now looks
unlikely. Caution has been urged regarding any new DMB franchising announcements
in the General Election campaign period because CWU would likely make political and
industrial noise about this, however, with a 5 week lead in time from an
announcement of a ballot to a day of action, they would need to manufacture a trade
dispute by Nov 19th to call Industrial action on Christmas Eve (their traditional
target).
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GLO
We continue to await the outcome from our application for permission to appeal to the
Court of Appeal in respect of the Common Issues judgment and the Horizon
judgment. Contingency plans are in place for when the Horizon judgment is handed
down. Work is continuing on preparing our Defence in the Further Issues trial which
will be filed on Monday 25 November. The mediation remains in place for 27 and 28
November notwithstanding that the parties may not have received either or one of the
judgments by this time. It would be helpful for Post Office to participate in the without
prejudice mediation in any event as it will provide an opportunity to gain further
insight into the Claimants strategy and expectations. A verbal update will be provided
in the Board meeting.
Purpose, Strategy & Growth (PSG)
Progress on our PSG strategy plans is on the agenda for later in this Board meeting.
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POST OFFICE LIMITED PAGE 1 OF 3
BOARD DISCUSSION PAPER
October 2019 (P7) - Performance Overview
Author: Max Jacobi Sponsor: Alisdair Cameron Meeting date: 26 Novernber 2019
Executive Summary
Context
The purpose of this paper is to summarise our financial performance, with details in the
separate slide-deck.
Overview
Trading Profit for the month closed £0.9m ahead of budget on an underlying basis,
swinging YTD performance £0.4m ahead of budget. On a reported basis we are £4.6m
ahead YTD, before adjustments (mainly accounting change impacts, with details
summarised on Page 2 and 3 of the slides).
Against the 6+6 forecast we are £1.6m ahead, but the full year 6+6 falls around £3m
short of target, and so further over performance is required.
Underiying Underlying
Actual Budget Variance Varianceto Forecast = Variance YoY —Varianceto.
im Budget Forecast
ch, Payzone) 13 i3 34.9 Os 4% os
87 (inci. insurance} 12.8) (43) 276 OS 5% Os
io 19 62 {0.1} -20% (0.3)
Supply Chain/Other 12 ag o2 1a o2 12% o3
Total Revenue ce 2a (2.2) 14 Om 12
Cost OF Sates 3) 1a 45 Or -3% of
Net income 78.3 (2.3) (0.7) 120% 13
Agents Pay (36.7) 18.2) 02 (1.6) 12% (07)
Staff (24.5) oa {0.0) (03) -16% of
125.4) 28 13 16 7% oe
14 Os eo 23 O2 -22% O22
Other income 13 ia os os 43 (0.0) -10% feo}
Trading Profit 73 5.2 27 a9 62 LF -29% 16
Network Subsidy Payment 28 48 06 00 48 08-17% 0a
EBITDA 127 100 2 09 io LT 25%. fd
Depreciation G78) (113) (84) (64) 6.8} (80; 94% 18.0)
interest (1.8) (0.8) (20) (19) (0.9) (9) 176% 0.93
Change Spend (6.3) Lé 16 (Lap 15% 55
nent Funding 4a 40 00 a0 49 79% 02
Profit On Asset Sales G2 0.0 o.2 0.2 oD O2 -90% 02
Profit Before Tax G9} (5.0) {2.3} (4.7) (6.8) 4.8) -156% LES
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POST OFFICE PAGE 2 OF 3
Underlying Undertying
Actual Budget Variance Varianceto Forecast Variance YoY Variance to
£m Budget Forecast
ck Payzone} 3855 32 32 335.0 as 3% oS
FS8T fine! insurance) 186.2 (26.1) 1857 OS 2% os
ig ty 25.2 18 18 25.3 27% {6.1}
Supply Chain/Other 82 O4 os 80 rd 5% 03
Total Revenue 5552 5689 13.7) (206) 3541 1d 1% 12
Cost Of Sales G28) (80.4) Bi 53 (72.3) oa 356 Os
Net income 483.2 A887 {5.53 (5.3) 482.0 Lz D% 13
agents Pay (224.8) 40 (2238) 2 8% (07)
Staff Co: (0 (06) (033 8% oa
29} a4 18 2% 08
226 (24) oz 11% Oz
Other income 82 os BB 0) 08% ke
Trading Profit 325 o4 30.8 We o% 16
Network Subsidy Payment we a0 0g Be a0 17% 00
EBITDA 46 oa 9%
(75.7) (3.0) (10.0) 88%
(5.4 (2.23 (22 50%
Charge Spend (39.7 0.2 a2 33%
investment Funding oo 00 “17%
Profit On Ass 18 06 18 19 -38% 02
Profit Before Tax (43.2) (37.7) 15.4) (9.6) “162% (1.4)
Retail performed well against budget and forecast in Period 7, with slight upsides in
Lottery from high jackpots in month, and payment services helped by a one-off
Santander true up. Q4 remains key for payment services with opportunities such as
British Gas crystallising. Overall, weekly customer sessions are ahead of target and
have increased 1.9% YoY.
Identity’s forecasted over budgeted performance continues, boosted by a £0.5m one
off payment from agreeing a better backdated price for Vehicle tax with DVLA.
FS&T is broadly in line with forecast, with slight upsides from the recent MoneyGram
incentive and increased FRES margins. Travel money is starting to recover in the lower
season, and online margins were also reduced to increase sales.
Telco continues to underperform against budget, with high levels of fibre churn
persisting, with this being further discussed in slides 13-15. The overall market mix is
weighting more and more towards high speed (75Mb+) connections and away from
slower ADSL. This is putting pressure on the oppositely weighted Post Office customer
base, and is driving (and will likely continue to drive) further high levels of churn to
fibre.
ly Confidential
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POST OFFICE PAGE 3 OF 3
PO Insurance performed in line with 6+6 forecast, but continues to track below budget.
Protection cancellation levels remain an area of focus with Royal London.
Change expenditure continues to be incurred more slowly than budget and forecast,
£7m behind latest 6+6 re-forecast. In month Retail spend was particularly down
(against budget and forecast) due to slower than anticipated British Gas contract
agreement. Change benefits are (£6.3m) behind budget YTD, but on track compared
with latest re-forecast, where the impact of the Peregrine deal shift has been taken in
to account.
The full year change spend forecast still remains over budget, however, this is likely to
be driven down by prioritisation over the coming months, as the aim is to be below
budget for the year.
Cash. NRF funding has returned to normal levels in Period 7, therefore we have
decreased our borrowing from BEIS accordingly by £152m from prior period, closing
the period with the government loan facility utilisation at £588m. Working capital trends
are also being reviewed to further understand the impact the changes in withdrawals
and deposit profiles is having on our headroom.
We have ongoing communication with UKGI and BEIS regarding the receipt of the final
£42m investment funding sum.
Network numbers continued to decline, although at a slower rate, with new locations
ramping up after a slow H1, and a spike in temporary closures (further analysis provided
in slide 7). Whilst safely above our minimum requirement of 11,500, our current worst
case forecast for the year potentially trends slightly below our internal target of 11,600.
Further reviews have therefore been agreed to make sure we maintain at least 11,600
through next year.
Confidential
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Period 7 (October) 19/20
Financial Performance Review
26th November 2019
©
Post Office Limited -- Commercial in Confidence
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®
Overall Trading vs Budget
A good month has pushed us back above budget YTD on an underlying basis, but
there is still risk from a full year perspective.
Year to date
tm Actual Budget’ Veriance YoY ils Timing yo pitiele Actual Budget Variance YoY GLO ell ty Timing pe One off as
Retait none) 55.4 582 13 4% 13 3% a2
FS&qT {incl insurance) 8a 323 (3.8) 5% a4 {4.7} 2% 28 (26.2)
identity aa E EY 16 20% 19 27% ie
Supply Chain/Other CS 1% {2.2} oz 5% OL os
Total Revenue (24) We ol (6.2) Oo 2.2) aig OL oD Oo (30.6)
Net Income O% (0.2) 40.2) oa 10.7) aa or 80 oa (8.3)
Staff Co: 16% (9.2) 4 0.0} a? og Oe (8.8)
No ft Cost % {0.6} {8.9} (O.ap 2g (6.8) {2.23 40.8) 31
FRES 22% ag (ay
Gther income 10% OL os
Strong trading in Retail and one-off backdated vehicle tax price increase in Identity, have partially offset continued
underperformance in Telco.
+ Whilst there are signs that Travel is recovering, Insurance continues to suffer from very tough market conditions.
+ Property rebates and planned marketing savings have improved trading profit as part of a conscious push on costs, as the
current H2 forecast delivers a below target trading performance, necessitating tight cost control to improve full year profit.
(2)
LY
Post Office” Post Office Limited ~ Commercial in Confidence
o
=
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Overall Trading vs Forecast
October closed ahead of expectations, however, this is against a below target
forecast backdrop.
Year to date
iia I iilidale ‘Actual Forecast Variance YoY Timing "Udeet_ Underiving
‘Actual Forecast Variance YoY —Timiny
Ve aa Variance ‘Adj Variance
Em
Retail (inci. Payzon 549 05 4% Os 335.5 335.0 05 3% 0S
FS&T [incl Insurance} 27.8 05 -5% Os 186.2 185.7 os -2% oS
identity 4a 42 (4) -20% (0.2) 25.2 23.3 2% (0.1)
Supply Chain/Other 16 14 02 12% O21 os a2 80 5% a1 04
Total Revenue 89.2 88.2 ii 0% oa 0.0 a2 55952 554.1 1% O41 00 12
Cost Of Sales (14.3) {a4 O1 -3% O41 (72.0) (72.4) -3% OA
Net income 78.0 76.8 12 0% O4 00 13 0% OL 0.0 13
Agents Pay (36.33 (35.3) (19) 12% 03 (0.7) 8% 03 (07)
Staff Cost (18.4) (14.3 (0.3) -16% 02 ot O41 -6% 0.2 o4 0.0
Non staff Cost (22.5} (24.1) 160 7% {0.3} Of 9% (63) 10.1) O7
FRES 26 23 0.2 -22% 02 “11% 02
Other income 13 13 G2} -10% {0.0} 0% (0.0)
Trading Profit a 6.2 LI -29% (0.2) 00 is L? 0% @.2) 00 Lé
+ Slight positive trading upside (after Agents Pay), boosted by non-staff costs savings, especially within marketing.
* Whilst this is a positive start to H2, the 6+6 full year forecast fell circa £3m short of Budget, therefore we need to
maintain focus on cost savings to ensure we overachieve on this forecast and get back on track.
©
Post Office Limited -- Commercial in Confidence
o
=
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° POLS d ;
Improved but still mixed trading performance in period, and increased cash
headroom levels.
Area IUnitI Actual Target abe Actual Target ‘Actual Actual
Target Forecast taoet
Trading Prott ‘AL Tam] 78 o2 1 82 I wet 2 =
Customer Sessions per week Retail I # 104 102 102 4 100 H 40.2 105 at I @
a YoY Volume Growth in Labes Retail I % 11% 0.1% 0.1% 1 06% 01% 1 0.0% 3.1% @
& YoY Volume Growth in Withdrawals Retail I % 7.0% 05% 79% I 7.9% 32m 1 7.7% 94% lS, ®@
YoY Volume Growth in Deposits Retail I % 38.0% 22.4% 41.3% 1 36.8% 22.4% 1 40.0% 35.6% ° ®@
Travel Money Motket Snare -Branch* I Fat] % I 240% I 250% 1 250% I 240% I 250m I 250% I oom Sore bao
I i
Travel Money (ranch Sales Volumes) I Fat} # I 586643] 515.046! 573,020! 4320267) e207! e006] orz.ten] —_” \._ Ig The uneetainty round Brent and cotapse of Thomas coochas had
" ' ' restengnaroreinpmerttetioniateyemneener et
Ae Memes Sew coer x I ae) I te I ta I a I aa ian tor ty ee ntermec iostom adamries soit ears ont
aleatsepailien ! 1 ‘ the right time, with a FY expectation to reach the 1 4 target,
Five Customer Net Ads eset] ¢ sanI aes! 00! te27I—teas7! age] tar] I @
{ t / YTD variance v Budget is impacted by the effect of Brexit,aoplication
Total Passport Market Volume Identity I % 415,689 (389,746 447,850 I 3,590,628 3,722,094 t 409,024 §23698 } . <2 fenewals were brought forward in 18/19, having an adverse impact in
1 1 f 19/20
# Very Accounts identtyI # I 2,438,226 I 2,478,903 I 2.484,008 I 2.438.228 I 2478903 I 97,910 97,248 YTD variance less than 0.1% slightly behind target
= Total Sales & Renewals Polcy Volumes I PO! I #k 8 110 7 1 888 1003 I 107 105 . @ Travel market down and high-level of competition on all channels.
Net Promoter Score po: I # 82 8 se I 46 %® 1 62 46 ®
Cash Headroom AN I em 382 200 200 «I 362 20 I (28 328 ree, @
Net Funding Position ai fem I creo) I cos 7936) I (778.9) 938) 1 Bee (8192) @
Net Borrowing: Al im {598 0) (780.0) (750.0) i (5980) 17500) i 675.3) 628) Jou = 2
©
Post Office” Post Office Limited ~ Commercial in Confidence
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POL Scorecard continued
Network numbers continue to be lower than expectations, and representation
levels continue to be reviewed.
Post Office Balanced Scorecard - 19/20
are
Forecast
Area IUnitI Actual Target ‘Actual Target Actual Actual
Network and Customer
Number of Branches
Cost af loss makng branches against
11.840
116401
H
{
‘Seedy Ai I Em 61 42 i 42 ' 430
Postmaster Vanable Income ShareI Relat I % I o% oe I om I ow
GQuatrics Customer Feedback Ease I Reta I % ost com I gem I ot New supplier transtion lowered the metrics earier in the year, with
H i Scores now starting to improve.
Network Branch Churn # i ' 2
@ —_ Bathtems relate ta CWC cash management system Amanal
f faction Cor
of High Impact Traction Control Gans workaround is in place, with a permanent fix being prioritised
Sled a raen aime I ea ah er
BANE Representation in Senior Roles HR are working with the POEM network to analyse the data 10
HR 10.1% @
‘ identty the lowest representation areas,
= Abserce (36) HR I % 3.4% “ 8
© Lost Time byury Frequency Rete ur I # 0.000 @
Post Of
Post Office Limited -- Commercial in Confidence
POL00030884
POL00030884
Branch Numbers
Forecasting to continue the decline for FY, but still remain above 11,500.
work numbers Period 7 - BI Start of Var to
year Rolling rolling
Month Actual Feast Feast fcast MoM var
18/19 outturn 11660
PL 11658 72 11658
P2 11653 11651 ee) 11653
P3 11635 11640 ~18 11635
P4 11625 11636 =10 11625
BS: 11628 11606 has 11628
P6 11608 11621 -20 11608
P7 11603 11618 11608 a5 11603
PS 11601 11592
PQ 11616 11602
P10 11612 11594
Pit 11596. 11585
P12 11599 11587
In period 7 there have been 55 branches which were reported trading that did not in period 6 (e.g. NNL and reopening branches and
access point activity). These were fully offset by 60 branches which did not report a customer session in period 7. 41 of these were
branch closures, 15 branches were converting model, with the remainder driven by outreach / access points not recording trading
activity.
The end of year forecast is now below 11,600, as there are a number of closures planned in Q4 which are partly driven by multiple
partner resignations (McColl's and C) Lang). These are predicted to lessen the impact of the returning outreach services and remaining
Q4 delivery pipeline,
It is expected that there will be a increase toward period 9 as the mobile vans are re-established and the planned 26 ND branches are
opened.
(6 )
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POL00030884
POL00030884
Branch Numbers
New locations are ramping up after a slow H1, although a spike in temporary
closures has offset this recently.
Branch Numbers
PL Pa PS Lisl PS P& PT YID Average
Opening Branch Numbers 11,660 11,658 13,653 11,635, 11,625 11,628 11,608 11,638
New Network Locations a7 i? 8B id 18 26 31 ig
Resignation (i) (48) (24) (49) (22) (22) (2a) (49)
Suspension (14) {4} {6) (8) {a} (4) (8) (6)
Acesss Point Openings: 8 EJ 7 Es is as 7 it
Other (6) {2} {3} is} (5) (12) (6) 6}
Permanent Moves Subtotal (6) 2 (25) (2) 6 4 3 (2)
Reopening 26 24 22 as a5 a7 20
Temp Closure (8) (28) {8} (6) (35) (20) (22)
Conversions (28) (28) (12) (12) i (15) (4)
= Temporary Moves Subtotal 4 (7) a (3) (24) (8) (6)
Net Openings/(Closures) (2) (5) (18) {20} 3 {20} (5) {8}
Closing Branch Numbers 11,658 11,653 11,635 11,625 11,628 11,608 11,603 11,630
Whilst the low levels of new locations (and access points) in Q1 has stabilised in recent
months, the overall rest of year outlook looks relatively flat.
(7)
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Post Office” Post Office Limited ~ Commercial in Confidence
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POL00030884
POL00030884
8 Retail Scorecard ;
Generally good trading, with work ongoing to ramp up Payments in H2. :
Dangerous Goods performance has declined slightly.
Retail Scorecard - FY19/20 3-month 12-month
Rolling Rolfing Trend tine fu, Commentary/ Actions
Average Average
, 6
Area [Unit] Actual Target Forecast Actual Target ‘Actual Actual
Retail Gross Income. Retail I £m 554 54.2 fl 549 i 335.4 3323 ! 470
Retail Trading Profit Retail I £m 132 123 { 126 1 785 748 ! 29
, Customer Sessions per week newore] # I 04 I 12 { 02 $ 102 woo I 102
3 NolsRatittatery Grossincome I wan femI a8 I 354 I aes fa I 2192 I ato
YoY Volume Growth in Labels MRL I % 11% 0.1% H 01% 1 0.8% 24% 1 0.0%
Banking Gross income caB I Em Wt 5 fj M2 1 8745 8550 I 9.33
YoY Volume Growth in Withdrawals cap I % 7% 1% 1 8% 1 7% 32% 1 O% ~ J
YoY Volume Growth in Deposits CBB I % B% 22% { 41% H 37% 22% ! 40% iL ®
cayman Grace rcere ws lemI ae a tao tte I mp ks CO I q Opportunies (Brin Gas) mateasing ns which
i Hi ' ‘ y will offset the current variance
DNB Programme Benefits *** Prog I &k 637 649} 8371 3,133 3,331 515 534 I I ® — Project variance report against 6+6 forecast
OMB Programme Costs “** Prog I £k 1.561 4,133] 2.1014 14,400] 15.020} 2042 2,057 . @ Project variance report against 6+6 forecast
New Network Locations (#) Prog I # x Oy Bt 139 1004 25 27 galt @
i I
‘Quattics Customer Feedback Ease I Ro I % I 6% I som I sow I atm I sow I cam 84% \ > New suppiertranstion lowered the metic ear in
i Hi ' - the year, with scores now starting to improve.
* t Hi ‘ Horizon transactions are being reviewed and further
‘Mystery Shopper - Dangerous Goods Mails I % 58% 100% foo% I 6I% 100% I 58% 80% \ ® changes are being explored to imprave the overall
& i t H A —
ea ry eran nee ere aoe re % oo / z
CaB % 6 G6 6
PCCA Monthly Account Closures: cap I ak 20 28 132 at 7 ~
me ‘ 5% ATM availabilty impacted by the incentive to reduce
ATH Availability: C&R % 95 1% 94 6 94 4% e ‘cash holdings in high risk arees,
Cash & Banking Project Progress: C&B [RAG G €
Payment Services Proiect Progress PS IRAG 6 o
OMB Exits Prog I # 5 5 a neta @ Project variance repart against 6+6 forecast
“= YTD Variance based on 6+6 Forecast
(8)
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Post Office” Post Office Limited ~ Commercial in Confidence
POL00030884
POL00030884
Retail (inc. Payzone)
Good performance against forecast and strong YoY growth.
tm Underlying Underlying
‘Actual Budget Variance Forecast Variance YoY GLO Timing BudgetAd) Varianceto — Actual’ Budget Variance YoY GLO Timing Sudge:Adj variance to
Forecast
6 2S 03 4% (0.3
09 05) 8% 0.0
ao DG -1aa7% oe
AR Annu 26 (09) (09)
ras os (0.2)
¥ 28 oS
FOCE i (8.0)
Payment Services 26 03
Payzone 412 19.2)
ATMs 28
Banking aL 105
Othe: D2
Total Revenue 2 eo 00 oo oo oo ee
Cost OF Sales 5}
oa 80 00 00 00 a
83 23 63
O12 os
3 Trading Profit, 2 12.5 60 (bay ot 30 (18) oo
Trading broadly in line with forecast, with slight upsides in Lottery from high jackpots in month, and payment services from a
one-off Santander true up.
Mails trading down on forecast, but remains 4% up YoY, predominantly driven by growth in Home Shopping Returns. Year to
date increased mails income against budget has led to higher Mails Distribution Agreement VAT accrual. This is the main
driver of the non-staff costs overspend.
Agents Pay in period includes £0.2m accrual catch up and £0.3m timing.
©
Post Office” Post Office Limited ~ Commercial in Confidence
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POL00030884
POL00030884
FS&T, POI & Identity Scorecard
Signs of improvement in month for Travel, with Telco showing low average revenues
and high churn to fibre.
FSQx, POL Identity Scorecard - 19/20
Average Average ates
Achat
Tamget 645 Forecast
FS8T and identity and PO:
insurance
Meadcourt FTE) Excuéng Suits Gioup& I FST, Harkling, ne 2 «
‘Contractors Digital, Por ¢ty] Be ate 200
. ones . . The urcerainty arounc test arc calanse of Troma cock
"Travel Meng Market Share - Branch Potion * 2% i 2% 25% The uncanny aroun ra and cuaoes
‘Travel Menay— (Branch Sales volumes} Poweney * 584,503 573,000! 4320287 590867 eye “ ry 8 above
i 2s main evan by nwt POL. ales volumes
i
FRES PET pononey I em ry ss 64 aa ail, \ °
H {elatec to acltonal POL ind ta which was notincludesin
H trotareet
Netineresttergn PS) Potones . 8 «I Ea at 2 Ey «
Branch Sales Yolume oSusings Products I PO Money . 3308) oor; 284 2883) mn 3 901% aance sigh neinstarget
Savngs balances Power I em 13908! raese! —s3.g08 ren] I @
i i
ongage (Completions) * Powers I em wal sae} 28 e
MoneyGram ‘Sena & Recele} Tota VouriesI PO Woney ® 52,1624 1,675,540 aise2si 229,018 @
i
‘Wester Inion (website Visits) PO Money * 26,509; 13.922 @
‘Customer effort PO Money % 72% 4 72% Cf
Fore Customer Netads Telco * 510 I 2084 8
stan a” i Lower ARPU aue te lowor
Monthly ARPU Telco * i 213 s trading environment deving d
Felco Aas Teles ’ 14988 14300} rasee 25se 1200] °
i / Jo cum ane
telco Cham Yeleo * 11203 2800 j e134 3180 8768 Ky e "s
‘cor Complaints 01} * Taics ’ ® wo} a ® a] 8
SAT custome sasfacton? Tateo % oa 7% I ea a% oy 6
(10)
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Post Of
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POL00030884
POL00030884
FS&T, POI & Identity Scorecard z
Home insurance volumes temporarily hit by move to new business model. Although :
number of digital sales is slightly behind target, average value is above forecast.
¥S&1, POI & Identity Scorecard - 19/20 Lcd Wace
Period 7 D Reoiling Rolling Trend Line
Average Average
RAG
Stains
Commentary/ Actions
648 Forecast
Target
FS&7 and identity and PO.
identity * 415589 gaa7est 3.590.828 sizz0e1 — a0gaat sages) 7" ‘ applicabon renewals were bought fone
i an acverse impactin 3320
ont * os 96 2a00 I 71.9004 07780 95,701 ~ e
sontty a 2acsoe} 2438206 268) 7D vatense lass man 0.1% stent aenind target
Vert Market Share dently * 4% j 23% Eo ‘I @
PO Insurarce Group EBITDA Poi én 14 98 5 [em Please rotertodetatecrot sce
‘Overall Travel Insurance re amandin he
masket Shoda in month cessation of
"etal Sales & Renswais Pot volumes Pos * bad ws © Selng Hamre insurance va he aggregator channel anc the
Sitch ove othe new
“ Policies ic force are sitar Behn plan ae tothe arap in
U henabrtartl eons ihaheg hasta ea FoI We 36 133 Home PIF cause By not seling via aggregstors since
Home, Van 8 Annual Travel nsurance) Gdtodsr st
al Promara’ Sore P91 #
yor yourners and
i i
wa bye - » s Gevslopna move automated cross oe programme 0
fercelng * ey an i i “ mers need atthe right time, wit a FY expectation
i i Teach be {tig
i i
upset Dot Soles Dota . sovestI 23.200] © sanz0eI §—2eiseor aatovsI —asaoa TRY Uaincat ous ae Teco ardPerscnatueans Oral
performance sis sghty conn by leas fan 1% against plan
*Raported ene month n arrears
= Reportea Quarterly n arsars
©
Post Of
Post Office Limited -- Commercial in Confidence
FS&T
Broadly in line with forecast with slight upsides from MoneyGram incentive and
increased FRES margins.
POL00030884
POL00030884
cn Underlying Aecaunving Underiving
Actuai Budget Variance Forecast Variance YoY Timing Variance to fAcusi Budget Variance YoY Timing Variance to
Forecast Ad. Budget
PO Maney (Savings.Loans,
Mortgage: 28 34 og
credit Cards ao a3 ee
Western Union cl Cel 102)
‘Travel Money 33
153 07
12
Et) 08 a7 ao
‘ 2.9)
0a G3) 00
ol as
# & Agent Related Costs
Brand & Marketing 0
) 03
7
ce R losses
‘Omer Gpex et eu (14) O32) 02
FaES 23 022 oa as
Trading Profit Bay 32 03-23% 03 05 70S 780 7.5) a8) ig
MoneyGram branch incentive ran from September to mid October, resulting in increased volume sales.
Travel Money online margin was reduced to increase sales, driving an increase in our revenue from transactional fees.
POL margins on EUR & USD were increased by 1% in Branch during P7, which resulted in an uplift in FRES profit share of c.
£0.1m.
Broadly, staff & non-staff costs are in line with forecast in P7; Agent’s Pay is adverse due to an accrual catch up from prior
period and volume assumptions on MoneyGram.
YTD non-staff costs vs budget are £0.9m adverse from cost stretch in budget and £0.4m project opex spend that the budget
had assumed would be CapEx (including Youth Strategy write off).
Post Offi
Post Office Limited -- Commercial in Confidence
@
o
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Telco Churn — Q2 Retention Performance Summary
Churn continues to be a challenge, however customer save rates have increased
whilst reducing the cost per save.
POL00030884
POL00030884
Churn Trends up to Q2:
344K
Qt Oz 93 QF Ot Q2 Qs Qa Qi Qe
27AB 27.48 17.48 17.48 16.19 18.19 18.19 18.49 19.20 19.20
Cost of Saving Customer Trend:
Q 94 gt gs et gk
A7AS 17.48 1BAR IBIS 18.19 38.49 18.19 18.20
Overview:
+ Churn is 6% adverse to budget and 8% higher YOY.
* Call demand still remains challenging and is 17% higher YOY.
+ Customer save rate increased to 82% up 6% YOY.
+ Increased Fibre attachment rates from 8% to 18% supporting
our approach to future proof the base - see slides 14 and 15.
Cost of Saving Customer:
+ Average Cost Per Save continues to decline, however these
gains are offset by increased YOY demand to churn or re
negotiate their contract.
+ Weare expecting to see further cost per save reductions in
Q3.
s)
Post Office” Post Office Limited ~- Commercial in Confidence VY
POL00030884
POL00030884
Telco Churn — Market Moves to Fibre
Post Office mix is lagging behind wider market, which is putting pressure on future
fibre strategy.
ADSL market has shrunk by 20% YOY and lower fibre prices and higher speeds have encouraged more customers to switch.
What this means for the Post Office is, that we are unable to currently compete seriously in this space due to poor commercials (which is
being addressed in the RFP).
The Post Office’s change to faster fibre products may need to accelerate to ensure that we are not left behind.
Total Market Speed Mix @ Speed Mix
Upto 17Mb >T7Mb te 75Mb
Total Market Yokunes (The,
sos (1
Data source: FDM
Post Office” Post Office Limited ~ Commercial in Confidence
POL00030884
POL00030884
Telco Churn
POL’s future growth opportunity is in £20 to £30 market.
Low end market size is declining in line with the decline in ADSL demand.
Total Market Price Point Mix @® Price mix
Mid Range (£20.01 x igh End (£30.014)
‘Total Market Total Marke
Data source: FDM
5)
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Post Office” Post Office Limited ~ Commercial in Confidence
POL00030884
POL00030884
POI
Performance broadly in line with 6+6 Forecast.
fin Underiying
Actual Budget Variance Forecast Variance YoY I Actual Budget Variance YoY AcctAdj Variance to
Budget
Total Travel 1s 47 eu Le (0.2) 154 12.9)
Home insurance o8 14 186) 08 a0 86 oF ay
Car insurance 06 a8 05 al 5.0 13 10.5)
van insurance 82 02 on 0.0 14 03 (6.1)
Total General 1s 28 Lé Oz wl 23 127)
Life - Over 50s 10047 4a (0.4) 84 2.5)
Life - Str 03 698 03 (0.0) 3.2 129)
Total Protection i326 15 (a) 36 00 2)
‘Gadget insurance oo OL oo (0.0) 23 10.3)
Other insurance oo 00 oo (0.0) 04 (6.0)
Total Revenue a5) 8 a5 a0 ae a5 aay
Cost OF Sales (08) (23) 00) (9.3) 32
Het income 37 49 (oa) 310 1é 25
Stat Coats 04) (5) aa 85) 02
Staff & Agent Related Costs 02} (0.0) 0.0 (2.3) Ot
Brand & Marketing a2 (4a) (0.2) (5.8) os
Consultancy & Advisory Services 00 OA) ol (05) 10.2)
AT infrastructure & (7 Services 02 (2 ol aa) os
Finance & Losses 09) (1) oe (04) ot
nig Costs (08) (6.9) (02 (65) og
i320 (0.4) 126 (0.4) 25)
Travel Insurance income was slightly behind forecast in P7 due to market conditions e.g. competitors
bidding aggressively on our web search terms.
General Insurance income was ahead of forecast due to strong renewal performance on both Motor
and Home.
Protection income was slightly behind forecast in P7 due to prior month correction for an add-on and
higher provisioning rates.
Other Operating Costs were £0.1m higher than forecast due to a number of minor variances.
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Post Office Limited -- Commercial in Confidence
POL00030884
POL00030884
Identity
Forecasted over budget performance continues.
fm Actual Budget Variance Forecast Variance YoY Actual Budget Variance YoY
Home Office 1s 44 oD 15 (0.1) 106 (0.1)
DLA 16 OF og a? (0.9) 54 15
identity Services a1 oF 0.0 3g 03
Verify 0 a4 (0.0) 3.2 02
Enivroriment Agency (0.0) 60 (0.0) 03 (6.0)
Total Revenue Ae (04) 4 18
Cost Of Sales. (03) 0.0 i245 (0.1)
Net Income 39 (0.1) 210 La
Agents Pay (1.4) 0.1 16.5) (0.3)
Staff Costs (0.2) 00 {15} 04
Managed Services - Penalties {0.1} 00 (0.3) (0.0)
Postage {0.3} (o8 14} (0.2)
Other i) 0.0 (2.8) 0.2
Trading Profit 2.2 (0.0) 84 18
Home Office is slightly below forecast with residency permit volumes driving the downside due to
the end of student surge.
DVLA year to date over performance against Budget is driven predominantly by International
Driving Permit volumes upside (+£0.75m) due to Brexit, a one off payment from agreeing a better
backdated price for Vehicle tax (+£0.5m) with DVLA and an increase in 10 year renewal volumes
due to increased awareness and the renewal cycle (+£0.2m).
Identity Services year to date upside against Budget is driven by security authorisation and Post
Office Document Checking Service.
©
Post OfR« Post Office Limited -- Commercial in Confidence
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Operations & IT Scorecard
The period saw a spike in attacks against a low trend.
to decrease.
Audit related losses started
POL00030884
POL00030884
iperations 8 AF Seaeerint = R8ERD
Ne of Racks
esrb of Maxie Soke
CVT Gees
Gaxsh Pra Baeaog hen
Sich Lines Pie per Hee
Reto Cat eating:
Robbery ant Burglary Loanes
Robin Resins
Branch Lowors Mortiied at itt fin)
‘Teta enero 8 ee a at
Tetak fit ons
cena vale ot gro
Branch Avaartty
Bel Seat A Sent cider:
Riemer of tabed St
LUrsqut Ohsed eigen
Se Sueresatis Changes
So Emeeganey Changes
=
2
He
Forcast, MOM get Acta
co ree ee ee ee
Pred $735 00 aay
I i
I ‘
a a 4
cd “at co a
ado wf
I tam] ea]
_om
too
i
i
I
a
I
sed
‘
:
& a
: ;
'
reso!
16900 sass} eat
: :
a a ec.
ad 8:80 58%
Trend Line
ee
aie
& @8 &
&
e
@
SG eeee
Commentary/ Actions
There eee 2 eenpsayese PROS way saa BO CKIROES HY Sey Css
nF? eth und Oiost rat accents
There mre Dine aac the period ao ot Cheb, ane at Besninghiens
‘ae ae current ests es te worst tnae Be seiow ae ase Se
ory seen Bota
ATM 4 Cnt mses ae geeeeaty!
ATE cides Prckonin 67 ae a reo a a gis dtach, A eve
Robbery & Burglary ngrderes ox coated at the me yea
‘Son inside wih os EMS NN wie dreaond nth are,
as +998
Reker & Wee
ces bao Cage, Oe OE
ses 388 Carnes mow Sod as pS
pare 1% soca, sk TITY
4 mrcrienta n Scott ats ses ttating £12 Gh, pkon are ayant
436 branch alm ungeades coet@teted ms part of Seaoing programme
GP comphetes
eas vs comer one Bes peeA, Rh past 2 QR RINSE
greater an LK £2 Fen of cant Namen returned ale Be
‘The LP caer team have enpiemesbis! a peocess ths peng to
‘ean risk evels closer fa he stat dane tick Wit Dea
aduconermoe suit aptty whore rs eves. av Sow
See Beane one ected st mad
See earch tases identi at aut
Foownng the msggaton to Serica ny, ew Saw aevechacton the
ere 8 cae
Post Of
Post Office Limited -- Commercial in Confidence
(8)
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POL00030884
POL00030884
Supply Chain
YTD variance driven by increased costs on printer ink, with actions in place to
mitigate for H2.
. Underiyit Undertyil
Supply. Chain Actual Budget Variance Forecast Variance YoY Timing denied Actual Budget Variance YoY Timing Pleat
Forecast Budget
Total Revenue On 00 5.6 57 i032) 1 oo
Net income oa oo 56 5.7 {@.4) OL oo
Staff Costs ol i6.0) (6.2) 61 (0.0)
{6.0}
(6.0)
Staff & Agent Related ¢
Property & Facilities Management
& Losses
Vehicles
Other
Trading Profit 02 (2a) og a)
Trading Performance:
. Overall Supply Chain is broadly on track against updated forecast, with small timing impacts as outlined below.
. Stationery in line with adjusted 6+6 forecast phasing, with savings plans taking effect in Q4 we look to reduce branch
consumables and reduce ink waste.
. P7 includes additional Overtime costs to reduce unprocessed cash down from £38m to zero. This was achieved faster
than expected with costs forecast in P7 & 8.
. Higher costs related to Christmas stock distribution, reflected in higher income masking the impact on the new as yet
unsigned HVM contract.
Timing:
. Income - timing of HVMs contract signing. To be dealt with independently from wider Mails contract discussion to
ensure its signed by P8.
. £0.4m of Consultancy spend in relation to the ‘future of cash review’ by Reinvigoration — reviewing to move costs to
appropriate project.
. £0.2m of increased stock holding for Brexit Contingency. Expectation that this will be back to normal by year end, with
a risk depending on actual leaving date.
@
Post Of
Post Office Limited -- Commercial in Confidence
POL00030884
POL00030884
9
Network Operations & Finance
In line with forecast with further upside if losses trend continues.
Network Ops Underlying Underiying
Actual Budget Variance Forecast Variance YoY Timing Variance to Actual Budget Variance YoY GLO ‘Timing Variance to
Forecast Budget
Staff (08) (0.8) oo (0.0) Ol o1
Staif & Agent Related Costs 8.4) 0.4) OL sl oo 03 id) oz
Property & +s Management (1.3) O28 0.2) 05 10 {8.2} a7
Brand & Mi (9.0) oo Oo oa oi 0.2
(0.9) (8.3 (0) (0.3 (0.2)
Finance & Losses (0.8) & 03 07 O68 14
Other (0.2) (0.4) 1 82 {2.9} 2 o.5 a4 0.6
Total Operating Expenses (3.4) G5) (8.2) 03 {25.9} (28.3) 24 86 (0.2) 2.8
A number of rate rebates this month and no increase in agent debt provisions due to fewer terminations suggests that Network
Operations could exceed budget and forecast if this trend continues.
Finance Underlying Underiying
oe ‘Actual Budget Variance Forecast Variance YoY Timing Varianceto Actual Budget Variance YoY GLO Timing Variance to
Forecast Budget
OS! (8.8) 06 oD {4.9} (0.0) OS OSs
onsuitancy & Advisory Services OL 18.0) (8.05 {8.2} {6.8} 60
Finance & Losses 10.0) Ot OL ibd O2 O1
Agent Related! Costs rc oo oD {0.3} 03 03
Property & Facilities Management 0 oo oa {09} ao aa
Other 10.0) 2 {0.2} oo i8.5) o5 (G4) os
Tota! Operating Expenses 40.8) 83 {0.25 O41 A) 03 O68 {aay 14
Shared challenges included in Finarice but oo 03 0.3) oe oo oo Rix ag {L.9) nije 1.9)
Total included shared chatlenges 40.8) (0.8) sy q2.ay 0.3, (0.25 OL (6.7) 45.3) (8.3) 0% O86 (aay (0.5)
The YTD budget includes ungrounded challenges which are being achieved across Network Ops and Finance. There is no
ungrounded challenge included in the 6+6 forecast.
Post Office” Post Office Limited ~ Commercial in Confidence
POL00030884
POL00030884
clo
In line with forecast, with YTD upside against budget expected to be eroded by H2
tasking.
co Underlying Underlying
— Actual Budget Variance Forecast Variance YoY Timing Variance to Actual Budget Variance YoY Timing Variance to
Forecast Budget
Staff Costs {8.8} {0.8} 0.0 57% 00 (0.6)
Staff & Agent Related Co: oo (00) 00 102% sks] 00
Consultancy & Ad ry ‘s oo {0.1) O41 “737% oi oo
t rastructure & fT Se 1% a3 O68
Man “61% (0.9) 0.0
‘Other O5 107% {0.5} 1.5} 00
Tota! Operating Expenses {6.6} 46.3) 18% 0.0 {0.0} (54.2) (54.5) 0.0
Overall, in line with budget YTD, with staff costs adverse due to Arrow data excellence contractors in addition to under recovery
of security and architects resources.
Non-staff costs are favourable to budget resulting from lower licences costs due to re-negotiated contracts for SAP and Success
Factors, with full year flow through in 6+6 re-forecast. This is partially offset by adverse variance on the ATOS contract, due to
the timeline of termination in the budget different to actual termination date.
©
Post Office” Post Office Limited ~ Commercial in Confidence
o
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HR, LCG, Communications
Broadly in line with forecast for P7.
POL00030884
POL00030884
HR Variance Variance
Actual Budget Variance Forecast. [7 U., Yor Actual Budget 7 Yor
(09) (08) (00) “7% aa
Related Costs a1 2p a0 02
Finance & Losses oo 0 (0.2) (0.9)
Other Oo) 103) a1 Ee
Total Operating Expenses ea _2) ca a3
Log . Variance Variance
Actual dudget Variance Forecast [piu YoY Actual Budget ois YOY
Staft Cos! 0) (0.4) (2.63 (05) -i%
Staff & Agent Related Cos % eo (0.0) 03 D2 49%
Consultancy & Ad nices 0.1) 4) (1) 8 a2 62%
Legal ¢ 0.1) oo} (0.4) 6 (02) 5%
orne: eo & 60 (01) a4 ad 40%
“Tatat Operating Expenses 7) (0.6) 9) (0.6) (a5) (02) 7%
comms Actual Buoger Variance Forecast RN yoy Actual Bugger “EE voy
to Forecast to Budget
Staff Costs 0.2} 00 (0.2) 00 ire) a0
Staff & Agent Related Cc 00 a0 (0.0) (003 a0
Brand & Marketing e100 0 7 03
other é oo oo} (0.9) fea a0
“Total Onerating Exnenses (03) ai (0.2) 0.0 (2.2) oA
HR
YTD Favourable staff variance driven
by vacancies. Non-staff variances
driven by timing, with an underlying
favourable variance in Healthcare
costs.
LCG
YTD Staff variance predominantly
driven by unbudgeted one off costs.
Non-staff variance driven by timing
of Project Starling costs, with a
£0.1m underlying favourable
variance due to costs being
removed.
Comms
YTD Non-staff variance will partly
reverse due to activity being pushed
back. £0.2m underlying favourable
variance due to activity removed
following cost challenge.
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Group Digital, Group Marketing, Group Change and Central
Upside from agreed reduction in marketing levels to assist with wider cost challenge.
itt
Seow Diatal Actual Budget Variance Forecast Variance Aqua Budget Variance yor “ecaunting Underiying Variance to
Ad. Budget
Seatt 00) a5} (23)
ait 2 Agent Related Costs (a9)
TT infrastructure & 17 Services on ag)
other oD (08)
Total Operating Expenses (02) 05) on 8.4) 3.4)
‘Group Marketing ‘Accounting Underlying Variance to
Actual Budget Variance Forecast Variance YoY Actual Budget Variance YoY pale pilin
Staff Costs a1 oA} G1 78% 3) (2.8) 05
06 05 162% 60) 19.8) o8
s 90 a0 (a8) 00) (0. 02
Other (00) (6.9) 00 oo (0.0) fon) ou
Total Operating Expenses 20) 7) a7 G5 O5 158% (8A) (12.4) 2a} 2
Group Change A
Ste Fea ce areca aca (een vies
Statt Costs o4
Staft & ay
omer
Total Operating Expenses
oD
Period ?
Underiying Variance to
Actual Budget Variance Forecast Variance YoY Timing
Budget
staff Costs 03) OB
Finance & Losses 02 a0
th Fund op
Brand & Marketing 0 80
Other (0.4) 0.1)
Total (0.2) oF
GLO - held centrally BO ona 52
Blueprint - held centrally 23 03) nya 308
Total Operating Expenses 25 (51-40% 52
Group marketing are currently re-prioritising their rest of year spend in light of 6+6 forecast to budget gap.
Post Of
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GLO Summary _
Key initiatives still on track, with some possible savings around
policies and processes.
19/20 P7 YTD 19/20 Full Year oe
Actuals Committed/Forecasted A
committed
Opex
Agents Remuneration — increased rates for Banking and Fixed pay 3.5 28 35 -
Agents Remuneration for suspended Postmasters is 0.6 12 03
Agents Remuneration —deep dive Os 03 Os -
Lega! work regarding policies and processes 20 02 03 7
GLO Communications OS - O48 o4
Simpler business — training and engagement 12 03 12
impact on Change plan repricritisation OS - OS -
BAU impact of process changes (placeholder) 2.3 ic 2.0 0.3
Opex total 12.0 5.2 a3 27
Change : :
Horizon changes (quick wins) 2.2 0.2 2.2 0.0
Branch hub initiatives LS LS is -
Simpler Business —HotHousing to accelerate field structure benefits 3.0 2.3 29 O21
Design of new processes (including foss prevention) as 09 18 DO
POL workforce changes (Restructures etc.) io - - 10
Change total 3.5 43 84 41
Total aus 410.1 17.6 3.9
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Change Spend
Continued change underspend through conscious project decisions and
delayed agreement on detailed business cases.
Aaa budget O° : “ hous) Budge We ae po eeleas
Forecast Budget Forecast Forecast Budget Forecast Budget Forecast
Retait (39) 332 40.8 37.1 (7.6) —«(3.9) 78.5
Financial Services & Telecoms (12) 88 100 (36) (12) 2.4
Post Office Insurance (01) 90 94 (12) (0.3) 24
Identity 01 1a 10. (05) Ot 20
IT & Digital (05) 103 jos (10.5) (0.3) 23.8
Finance & Ops (3) 125 138 (26) (13) 23.2
Legal Compliance & Governance 97 io.1 (0.4) 183
Central (0.0) 0.6 10 (0.4) 17
Grand Total FY 2019/20Before Sale Of Assets 120156 7 (iba (968 ep isis is7a
Sale Of Assets (02) (0.2) (23) (5.0) (3.8) 08 (10.3) (10.5)
Total Change FY 2013/20 1g 56 Ba) #7 04 93.0 72) 17421869
o/w
Capex 66 103 79 (37) (4) 46,3708. 47.6 (245) (4.4) 100.5 917
Exceptional 52. 53 Wid (01) (59) 395 38.7 M53 (0.2)——(5.9) 77 95.2
+ Retail spend has been delayed (against budget and forecast) due to slower than anticipated agreement of British
Gas contract, delaying the corresponding recognition of commencement fees. This is expected to be caught up next
month.
+ CIO has consciously slowed down some works (e.g. Belfast Exit and PCI) in year, with a corresponding impact on
spend.
+ The FY forecast continues to be reviewed internally each month with a view to bringing spend below budget from a
full year perspective.
5
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Change Benefits
Broadly on forecast, with FY Peregrine impact versus budget being slightly
offset by Spans & Layers acceleration.
ID Benefits TY 1920
Vs Vs 66 Vs Vs Benefits Benefits
eee Ge fees ge eee ee coerce
Retail 24 27 26 (0.2) (0.2) 133 15.5 235 (2.2) (0.2) 28.5 27.2
Financial Services & Telecoms 091807. (03) 03 a4 124 a2 (39) 03 20.6 126
Post Oftice Insurance 0508 05 (0.3) : 25. 28 25 (03) : 69 69
identity 02 0.0 1s 4: 15. 01 00 25
IT & Digital 09 0.0 58
Finance & Ops 02 0.4
Human Resources 08 26
Legal Compliance & Governance a a ont OG 2 a A.
Central : : : : : : : : : : : :
Grand Total FY 2019/20 Before Sale Of Assets eee 346. «409 «24a (63) 56 685
Sale Of Assets - . - . - . . - . .
Total Change FY 2019/20 Ose ee an 346. 409 «ha (63)O 6 685
(06
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Balance Sheet & Headroom
NCS levels returned to normal, which alongside a decrease in network cash
has improved headroom levels.
Balance Sheet
Debtors 30} 4 350 2
Cash (158) ced) S72 413)
Creditors: 13 {52} 1558) (34)
Other 1 4 0) MM @
Loan (588) (749)I 152 {S70} (18)] 1565)
‘Net Assets / (Liabilities) 202 2 9) 24 {73}) 244
Net Funding Position
The £48 million lower Net Funding
fm Period 7 ye? I przevis an 1 lowe A
Government loan (ssal aa sesh 5.I Position was primarily driven by: (1) a
Demonetisation - NCS 203) rm) @7 227) 35 {200} =I higher than forecast decrease in Network
Cash at Bank - POL a o + i 0 é a a 2I Cash Inventory (Gross); and, (2) a higher
Net Funding Position (7a) {845)] Ga (734) (sa)I___tza] 9 (826) 43] than forecast increase in Client Creditors.
Balance Sheet Headroom
fm Period 7 Period 6 vee I pzevig yp? I przevig I vP12
At the end of P7 we had targeted to
utilise the NRF in line with the usage in
‘Government Leen - Available Amount 950 950 $50 = 950 the forecast. Actual NRF usage was £191
Government Loan - Srawn Amount (588) H 152 {5704 £18) £565)I 23) ili dtoa fe t of £200
Heedroom: 362 152 330 418)I 385, 233] mi ton compare 0 a forecast of}
Target Minimum Headroom 200 - 200 : 200 million. This means that the material
‘Headroom Above/{Below) Target 162 10 152 180 (28) 185, (23) part of the variance is reflected in the
variance on the drawdown on the
Government Loan and that the
‘Security Headroom
fm Poet I ene Seed ol eles explanation of variances for the Net
Network on = “ S48 Funding Position also explain the variance
cash at Bank - POL
Client Debte 134 160, 446. (2) 444 on the loan.
Trade & Other Debtors - Business OetrtarsI 198 202 205 fa 189 I .
Total Security 55 3,035 t2z0)I 906 i51)I Baa 867 22] The favourable variance on the Net
‘Government Loan (538) (740) 152 (570) i) 1565) (623) 33} Funding Position therefore also translates
Santander sen} 483) £4) @5 8 {95} (20) I into a favourable variance on the Balance
Total Obligations (675) {823} 148 4665) {10}) {569)I 1183] 17) 43 Sheet Headroom position.
‘Headroom 181 213 (32) 2at t62)] a me) 150 31 (on
VD
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Cash Holdings
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Network Cash inventory - Position Report - 7 Prior Your Reporting
Yen End Peied eaonoee
- Peiod? Friese Feeds I reios? I 26
Frees vane Frapeo I Fraga I ky Te
Network Cash inventory (before Demonet.)
Branch
© Cash Holdings ana er I ara] ay con ew
FX Cash Hottings 67 70 I 620 78 (140)
5557 we (4
Cosh Centres
Awaiting Processing
inward Rems - CVIT* 238 S07 B42 470 23.5 (373 (57.2)
jnward Rems - Awaiting Processing 4 415 4B 6a {26.4} (35.53 (35.8)
Invears Rems 49 S22 1060 530 1 £39.25 (3.0;
Outward Rems i Tranat we oa wrI ar] 69 ey 30
Machice Room - Awating Processing
~ London ze 14 A 10
+ Birriagham oa : 02
= Ghsgove 18 - -
FRES (London) - -
ie 4 Coins os ot on on
Other - Cash Centre - -
Total - Awaiting Processing (Cash Centres) 95.8 1S 1328 892
‘Total - Buffer (Cash Centres) 52S O46 58.2
Cheques, Debi Cards, ete 127 1
ATI Holdings - Cv es 154 10
Other 18
Network Cash (before Demonet,) 7188 468 734
Cash in BoE Bon 728 aes 7322
Total Cash Holdings 1avAT 4.5045 44463
Funded By:
= Cash Available to Toasury 1438 ul
Government Loan (S700) 65.0) 08.0)
= NRE (184.8) sit
Net Fur sition (733.2) (778.0)
WC Funding Network Cash inveriory 144 ats
(rte) (7458) 77Ta) I (ray
Network Cash Inventory (Gross) was £713
million at P7. The improvement versus
forecast reflects a lower level of inward rems in
Cash Centres.
The level of Network Cash Inventory continues
to track in line with both Budget and Forecast
(the gross inventory level has been within £10
million of our Budget since P4). Over the next
two period ends we expect to see increases in
our Network Cash Inventory (Gross) as we
move into the holiday season and winter fuel
payment period. Holdings are expected to
increase to £746 million at the end of P8 and
then to reach a peak of £819 million at the end
of P9. These increases will increase our
funding requirement and hence reduce facility
headroom but we anticipate remaining within
the £750 million limit on loan drawings set by
the Board.
Bonds holdings have also increased by £113
million since P6 and we continue to monitor
the position carefully.
Working capital trends are also being reviewed
to further understand the impact the changes
in withdrawals and deposit profiles is having on
our headroom.
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‘acitity
POST OFFICE PAGE 1 OF 7
THE BOARD OF DIRECTORS DISCUSSION PAPER
Cash and Facility Management
Author: Mark Dixon Sponsor: Ai Cameron Meeting date: 26 Novernber 2019
Executive Summary
Context
Post Office is funded by Government. We have been receiving investment funding to
pay for investment costs, network subsidy to keep unprofitable branches open and we
can borrow from BEIS and the Bank Of England to fund both our working capital and
branch cash holdings. Over recent years, as set out in the table below, there have
been a number of cashflow trends:
1. Trading profit has increased, offset by lower network subsidy.
2. We have deliberately invested more than our investment funding, especially in
2014-15 and 2015-16. Subsequently we have balanced this with cash efficiencies
and have reduced net borrowings in this 3YP period after a peak in 2017-18.
3. Working capital requirements have increased in each year.
£m 2013-14 2014-15 I 2015-16 I 2016-17 2017-18 I 2018-19 I 2019-20
EBITDAS (93) (57) (17) 13 35 60 74
Network Subsidy 200 160 130 80 70 60 50
Total earned 107 103 113 93 105 120 124
investment funding 215 170 150 140 70 168 42
Investment spend (203) (237) (259) (188) (116) (121) (113)
Capex spend (102) (147) (180) (117) (135) (177) (78)
Net investment spend (90) (214) (289) (165) (181) (130) (149)
Network cash mvt 192 (127) 42 53 32 106 53
Working capital mvts / other (9) (66) (88) (55) (24) (23) (12)
Net cash (borrowed)/returned 200 (304) (222) (74) (68) 73 16
Borrowing from BEIS - (310) (465) (561) (623) (565) (573)
Borrowing from BoE. (173) (300) (313) (246) (238) (227) (200)
Bank overdraft (50) - - - - -
Cash at bank ~ POL 30 113 59 14 - 4 1
Total borrowed at year-end {193) (497) (719) (793) (861) (788) (772)
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Going forward, investment funding will cease and network subsidy is not agreed. We
will be constrained in the amount we can invest. Managing our cash resources will
therefore become increasingly important.
Questions addressed in this report
1. How does cash and borrowing work?
2. What progress have we made?
3. What further efficiencies can be delivered?
4, Looking forward, what are the constraints and what can be done about them?
Conclusions
We supply the cash for branches as well as our own working capital.
Our borrowing capacity has three primary limits: a hard limit on what we can borrow
from BEIS, a security headroom limit which ensures that branch cash and client debtors
exceed borrowing from BEIS and a limit on BoE borrowing based on cash withdrawals.
This security headroom is important to Government as it means that our borrowing is
accounted for on their balance sheet as working capital not debt.
Previously, we increased borrowing significantly over a two-three year period by
investing more in the business than we were receiving in funding. In the current three-
year period to 2021 we are not seeking to borrow to invest and we have managed down
borrowing through efficiencies in supply chain.
Further efficiencies can be gained and these would enable us to fund a material GLO
settlement. This view is subject to completing funding agreements with Government
after March 2021 on the back of an agreed 5YP.
Looking forward, we should be able to manage ourselves so that trading profit and
network subsidy can be largely converted to investment spend. However, while we can
maintain a healthy facility headroom, security headroom will continue to fall, potentially
sharply and we will be operating on fine margins of headroom.
This needs to form part of the funding debate with Government for the period after
March 2021. Our focus is to
Seek to credibly incentivise the business on cash earned rather than profit
Deliver further cash efficiencies
Significantly improve our understanding and ability to forecast working capital
Significantly improve cash flow forecasting and strengthen the team. We are working
with Accenture on a proof of concept for cash forecasting. This will require some
investment funding.
e Consider the need to sell assets to increase capacity
eoeee
Input Sought
The Board is asked to note the progress made and comment on the next steps.
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Page I3
The Report
How does cash and borrowing work?
1. We issue c. £870m of cash a month to customers and recover a further £1,062m.
The trend is for falling withdrawals as declines in POCA and cash usage exceed
increases in our share of banking withdrawals. Deposits values are rising through a
higher banking share.
2. At 31 March 2019, a reasonably typical example day, we controlled £1,621m of
cash, of which £845m was held in our bonded warehouses and was owned and
funded by the Bank of England. We pay to insure this cash.
3, The remaining £776m was being used in our business: £524m held in branches,
including £52m of foreign currency, and £222m in cash centres, in branch safes
waiting to be picked up and in transit. The remainder, £33m, is other non-cash
methods of customer payment, mainly cheques, in the process of clearing.
4. We funded this from two sources: we borrowed from BEIS through our Revolving
Credit Facility (the “RCF”, £565m), and we borrowed “off-balance sheet” from the
Bank of England by moving cash onto their balance sheet overnight (the “NRF”,
£227m). The surplus funding was used to support our working capital and cash at
bank of £16m.
5. Our own working capital is relatively stable and relatively small, as you would
expect with £1b of commissions, monthly payrolls for agents and staff and supplier
costs.
6. The working capital flows in the underlying business are much larger and more
volatile. We set our borrowing under the RCF 2 days in advance and can access an
emergency facility of £50m for issues which arise in that 2 days. The RCF is
capped in three ways: the limit we can borrow is formally £950m. However, the
Board requires us to operate with a £200m buffer, reducing the limit to £750m.
Secondly, to protect its security, BEIS requires us not to borrow more than the
sum of Network cash, other cash and cash equivalents and client debtors less the
Santander creditor. Thirdly Santander requires the sum of our liability to them and
to BEIS to be less than cash, near cash and some additional assets.
7. At different points in the cycle, either the facility headroom or the security
headroom can be a greater constraint. In earlier years, we were holding at lot of
cash in branches and borrowing to fund investments. This increased the amount of
cash held and the borrowing, reducing headroom against both limits. As we have
reduced cash usage, we have widened the facility headroom which is just the
difference between our borrowing and £750m but not security headroom, where
reduced cash and borrowing net off.
8. The Bank of England Note Recirculation Facility (NRF) is a product of our
membership of the Note Circulation Scheme. We can place up to £350m overnight
on the Bank’s balance sheet rather than borrowing it as part of the RCF. We
average c. £210m because of an annual cap on usage relating to the amount of old
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Page I4
notes we process and issue. The £210m is down from £250m two years ago as
withdrawals reduce.
What progress have we made?
9. The development in cash can be summarised by year-end numbers as follows:
Cash and Funding, £m 2016-17 I2017-18/2018-19/2019-20
Forecast}
Cash in use
Sterling in branches 543 543 472I 470]
FX in branches 48 60) 52I 48
Total Cash in branches 591) 603) 524 518)
Total Cash outside branches 303) 275) 222I 107I
Direct debits and cards 19I 20) 33 19I
Total Cash in Use 913) 881) 776I 723)
Funded by:
Cash at Bank 14 + 4 1
RCF from BEIS (561)I _(623)/ _(565)I (573)
NRF from BoE (246)I (238), (227)I (200)
Funded by working capital (120) (20) 12I 49
Total funding of cash in use 913) 881) 776I 723)
Limit 1 Facility Headroom
RCF Facility Limit 950) 950 950 950)
Less: Board buffer (200) (200) (200) (200)
Revised facility Limit 750I 750I 750} 750I
RCF from BEIS (561) — (623)} ~—(565)] (573)
RCF Headroom 189 127 185) 177
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Page [5
Limit 2 Security Headroom
Total cash in use 913) 881) 776I 723
Less: NRF from BoE (246) (238) (227) (200)
Other assets (2) 338 321 335 330)
Less: Santander Liability (111) (100) (95)I (88)I
Security Limit 893 864 789) 765)
Borrowing from RCF (561)I (623) (565) (573)
Security Headroom 333) 241 224 192
(i) Based on current levels
(ii) Other - Cash at bank ~ POL, client debtors and business debtors
10.Comparing Total Cash in Use at the end of 2016-17 to the current position our
initiatives have resulted in c£200m of cash being taken out of the network
through efficiency which has protected facility headroom. However, security
headroom has fallen consistently.
What further efficiencies can be made
11.We believe that there are a number of further efficiencies possible totalling
£80-100m
e We have now received BoE permission to vary vault opening hours, enabling
us to remove inward and outward REMs at the cash centres by staying open
until 23.30 to process inward REMs and opening at 4am to process outward
REMs, removing both from our midnight balance sheet. This should be worth
around £30+m.
e We can be tougher on branches not returning excess cash and we believe
this could be worth up to £40m.
e Weare working to take more risk on “buffer stock” (i.e. the working stock
required (mainly coin because of lead times) to ensure that we can meet the
demands of the Network). Any reduction in this stock increases the risk that
a delay in obtaining stocks (due to stress in the industry or transport issues)
will result in branch orders not being fulfilled. The impact is expected to be
less significant than the first two actions above.
e We also need to understand working capital movements better so we can
refine our forecasts.
12. This will enable us to create an additional £80m+ of facility headroom which we
will retain for the GLO.
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Page I6
13.However, this does not create additional capacity in security headroom. Indeed,
it worsens security headroom because cash in branches is reduced while
borrowing is maintained after the forecast GLO spend.
Looking forward what are the constraints and what can be done
about them?
14.We have done a first piece of untested modelling. The assumptions were:
« We make £100m of cash efficiencies in 2019-20
e We spend £100m of cash on the GLO in 2020-21
e We make operating profit of £90m in 2020-21 rising to £120m for the next
few years
e Cash withdrawals drop sharply as we exit POCA March 2021 and withdraw
from ATMs on the same timetable. The latter is not agreed, is in fact unlikely
but tests our ability to manage.
e We receive £30m of network subsidy every year after 2021.
15.As the table below shows, with the fall in withdrawals, access to the NRF falls
sharply. However, the overall impact on reducing withdrawals so materially is
not in itself disastrous.
16.The Bank of England has agreed to consider allowing us to borrow consistently
until they have re-considered the basis of NCS funding: our argument is that
basis NRF capacity solely on withdrawals is archaic. RBS will support such a
change ~ we would have to let both earn interest - and it is within the rules of
the scheme but not the spirit.
17.Even without sustained NRF funding, we can manage within the facility
headroom limit and the Board could release some of the £200m buffer.
18.The issue is that security headroom will be severely reduced to a minimal buffer
of c. £30m and increased NRF capacity doesn’t help that. That would inevitably
mean that at certain points we would exceed the security headroom. It is not
clear what the implications would be.
19.To avoid this, part of the funding conversation may be to re-negotiate the exact
calculation of security headroom to exclude the Santander liability, for example.
This would be easier if Santander agreed to waive their security in exchange for
higher borrowing costs but to date they have not been keen.
20.Alternatively, we could seek to extend creditor terms with other banks, perhaps
paying every 2-3 days rather than next day.
nd Fac
Pa
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geI7
21.Otherwise, security headroom severely limits our room to invest in future and
this must form part of the conversation with Government and could force us
into asset sales.
Actual
Projections
Allin fm FYE FYB FYm FY FY? FY
swve 20am maaan zag means aaa
Trading profit (excl. NSP) 47 7 90 120 120 120
Network Subsidy Payment 60 50 50 30 «3030
Investment funding 168 42 : : - :
Other * (14) (8) (8) 8) (8) (8)
Tax 8 8 3 6 3 3
Interest @) 8. @m 6 6
‘Sub-total -Net cash from trading 261 «160 «129143, 139140
Branch cash efficiency : 40 : - : -
Cash centre efficiency
~ no inward rems in cash centres - 35 - - -
~ no outward rems in cash centres : 25 : : -
ATM decline
~ impact on network cash 102 - - -
~ impact on trade and other receivables 63 : : -
POCa ceases
~ impact on network cash - - -
- impact on trade and other receivables 54 - - -
‘Working capital impact on cash position 59 78 (19) (17), (44) (4)
‘Sub-total -Change in cash management and fundi 59 = 178 = 200, (17)_—s(14).—(11)
GLO cash payment - > (100) : - .
Cash eamed for investment 320 338229126128 129
Headroom: (before annual investment)
Security headroom 239° ©«202,=«212 156 158159
Facility headroom "* 135 287-360-304. 306.306
Available for investment 1350 202,212,126 128 129
Assumed investment 182126128129
Headroom: (reflecting assumed investment)
Security headroom 239° «202=*=—« 88's
Facility headroom ** 13500274 178-178 178178
For info:
Impact of ATM decline on NRF *"* (120) (120) (120) (120)
Impact of POCa ceases on NRF **** (23) (23) (23),—(23)
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POST OFFICE PAGE 1 OF 2
BOARD DECISION PAPER
Borrowing Limits
Author: Mark Dixon Sponsor: Alisdair Cameron Meeting date: 26 Novernber 2019
Executive Summary
Context
POL manages its liquidity and funding risks by ensuring it has access to sufficient
committed funding and then monitoring its funding usage against an agreed
headroom buffer.
The Board has agreed a £200 million headroom buffer on drawings on the
Government Loan.
POL proposes to temporarily reduce this buffer over the holiday period.
Questions addressed in the report
Proposed Changes to the Headroom Buffer
1. What changes are we proposing to the headroom buffer and why?
Conclusion
We wish to temporarily reduce the agreed headroom buffer from £200 million to
£100 million for the period from 27 November 2019 to 2 February 2020 in order
to provide funding flexibility over the holiday period through to the end of Period
10 when network cash inventory is higher.
Input Sought
The Board is asked to approve a derogation to draw the Government Loan up to
£850 million (i.e. to reduce the headroom buffer from £200 million to £100
million), subject to approval by the CFOO, for the period from 27 November 2019
to 2 February 2020.
Strictly Confide
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POST OFFICE PAGE 2 OF 2
The Report
What changes are we proposing to the headroom buffer and why?
1. In 2016, 2017 and 2018 the Board agreed temporary increases to the Headroom
limit from £750 million to £850 million for Periods 9 and 10, subject to approval by
the CFOO. In 2016/17 overnight drawdowns were above £750 million on 2 days, 5
January 2017 (£771 million) and 6 January 2017 (£775 million). All other drawings
were within the £750 million limit. In 2017/18 and 2018/19 drawings were kept
within the £750 million limit.
2. As anticipated, in the 2019/20 financial year, the peak deterioration in headroom is
in Period 9 as we invest in higher network cash holdings over the holiday period.
3. At the end of Period 7 drawings on the Government Loan were £588 million and
usage of the NRF was £191 million. This compared to Budget figures of £588 million
and £200 million respectively. Our overall headroom was therefore slightly better
than expectations at the time of the Budget.
4. As in previous years we expect headroom to reduce in Period 9 due to higher
network cash balances held in anticipation of higher outflows due to winter fuel
payments and higher cash withdrawals from ATMs and across counters prior to the
holiday period. In the 6 + 6 Forecast we expect network cash at the end of Period 9
(£819 million) to be more than £100 million higher than at the end of Period 7 (£713
million). Network cash then reduces significantly by the end of Period 10.
5. Given our position at the end of Period 7 and our projected cash usage over
subsequent periods through to Period 9, we do not expect to need to draw beyond the
£750 million Board approved limit on the Government Loan in Period 9. This position
will improve after Period 9 and we expect to also be within the £750 million limit at
the end of the financial year.
6. However, this position is dependent upon the timing of capital and investment
spend and the receipt of grants from Government and, in order to be prudent around
this critical period, we are therefore requesting a temporary derogation for Period 9
and Period 10 (through to 2 February 2020).
7. We are requesting a derogation to draw the Government Loan up to £850 million
(i.e. to reduce the headroom buffer from £200 million to £100 million), subject to
approval by the CFOO, for the period from 27 November 2019 to 2 February 2020.
Strictly Confide
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Group Litigation Update
Author: Ben Foat/Rodric Williams Sponsor: Ben Foat Meeting date: 26 November 2019
Executive Summary
Context
Post Office is awaiting decisions from the courts on the Horizon Issues trial (which is
now imminent), and on Post Office’s application for permission to appeal the March
2019 Common Issues judgment (which should be received on Friday 22 November
2019).
As reported to the Board on 8 November 2019, the “KEL Disclosure Issue” identified in
October 2019 has been resolved with the Court and the Claimants, and should not
impact delivery of the Horizon judgment.
On 25 October 2019 we received the Claimants’ individual Particulars of Claim (“IPOCs”)
for the third, Further Issues trial scheduled for March 2020. Post Office’s Defences
replying to the IPOCs must be filed by 25 November 2019.
Mediation to explore settlement with the Claimant group remains scheduled for 27-28
November 2019. On 29 October 2019 the Post Office Board authorised the Group
Litigation Subcommittee to delegate to the General Counsel authority to make
settlement offers at mediation, on terms determined by the Subcommittee.
Questions addressed in this report
1. What is the update on the Group Litigation (Horizon judgment; Common Issues trial;
Further Issues trial; future trials)?
2. What settlement authority has been provided for the mediation on 27-28 November
2019?
3. What are the next steps in the Group Litigation?
Conclusion
1. The Horizon judgment is now imminent. We expect to receive on 22 November 2019
the Court of Appeal’s decision on whether to grant Post Office permission to appeal
the Common Issues judgment. Post Office must file its Defences for the March 2020
“Further Issues” trial by 25 November 2019. The parties aim to exchange criteria
for selecting “Test Claimants” for future trials on 12 December 2019.
2. Post Office’s General Counsel has been authorised to make settlement offers up to
£65m, with shareholder approval required for any settlement above £50m.
3. The next key steps in the litigation are: attending to the courts’ decisions on the
Horizon trial and Post Office’s application for permission to appeal the Common
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Issues judgment once received; filing Post Office’s Defences for the Further Issues
trial by 25 November 2019; and attending mediation on 27-28 November 2019.
Input Sought Input Received
The Subcommittee is asked to NOTE the This paper has been prepared with
updates in this paper and the next steps to the assistance of external legal
be taken in the litigation. counsel.
The Board is reminded to exercise caution when communicating about potential levels
of settlement. Communications about settlement should therefore only be held oraily,
but if that is not possible, advice should be sought from Post Office’s lawyers.
Litigation Update
Horizon Judgment
We have still not received the draft Judgment on the Horizon Issues trial, which is now
imminent. On 6 November 2019 the Managing Judge emailed the parties advising that
“intended dates for distribution of the draft will be circulated in due course”. The Board
will be updated on the judgment’s content and outcomes once it has been received.
The Claimants may seek to postpone the mediation scheduled for 27-28 November
2019 if they do not feel they have sufficient time to consider the judgment ahead of the
mediation. However they have not yet asked for this.
KEL Disclosure Issue
As separately reported on 8 November 2019, we have resolved with the Claimants and
the Court the issue which came to light in October 2019 concerning disclosure of the
Horizon “Known Error Logs” (KELs) for the Horizon trial:
- the Claimants have informed us and the Court that they do not want to take any
further steps on this issue; and
- the audit we commissioned on the completeness of Fujitsu's KEL disclosure did
not identify any further KELs which need to be disclosed or require Post Office to
change the submissions we made about Horizon during the trial.
The KEL issue should not therefore have any direct impact on the Horizon trial or delay
delivery of the judgment.
Common Issues Appeal
The oral hearing of Post Office’s application for permission to appeal the Common Issues
judgment handed down in March 2019 took place on Tuesday 12 November 2019. We
should receive on Friday 22 November 2019 the Court of Appeal’s decision on whether
permission to appeal has been granted or refused. The Board will be updated on the
outcomes from the application once we have received that decision.
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Third / Further Issues Trial
On 25 October 2019 we received from the Claimants individual particulars of claim
(IPOCs) for four test cases (Abdulla, Bates, Stubbs and Stockdale, each a “Lead
Claimant” in the November 2018 Common Issues trial). The IPOCs set out the types of
loss each Claimant is claiming for the purposes of the March 2020 Further Issues trial,
which trial will determine whether those losses are recoverable in principle and, if so,
how they should be quantified.
The Claimants are seeking recovery of a very wide range of loss and damage, but have
not put any values on these claims in the IPOCs. The legal principles behind many of
the claims are not contentious, although the way which the Claimants seek to apply
them can be. The two claims we see as being most contentious are:
post-termination losses, which on the Claimants’ best case could be worth c.
£148m if payable up to the date of their retirement; and
litigation funding costs, which on Herbert Smith Freehills’ analysis could be
worth c. £72m (as at May 2020, assuming a 4x multiplier is applied to their
incurred legal costs).
Post Office must file its Defences to the IPOCs by 25 November 2019. Helen Davies QC
and Tony Robinson QC have been retained to lead this work. The Board Subcommittee
noted the approach being taken to the Defences at its 13 November 2019 meeting.
Future Trials
The parties have agreed to exchange on 12 December 2019 proposed criteria for
selecting “Test Claimants”, whose cases could be used as representative of the wider
Claimant group in a future trial on breach (i.e. whether Post Office acted wrongly),
causation (i.e. did that breach cause the Claimant's harm), and limitation (i.e. is a
Claimant's claim time-barred).
No other dates have been set for selecting Test Claimants, or for completing the
procedural steps required for trials on breach, causation and limitation. The parties will
be asking the Court to schedule a Case Management Conference in January 2020 for
this purpose.
Costs
As presented to the Board on 30 April 2019, £8m was initially included in the 19/20
Budget for the cost of the litigation. Since then, and as included in the October 2019
Quarterly Delivery Board Paper, this allocation in the 19/20 Budget has been increased
to £15m and as at P7, £7.7m has been spent. By the end of November 2019, we will
know whether we have permission to appeal the Common Issues judgment, the Horizon
judgment will have been received, and the first mediation meeting will have taken place.
A revised spend forecast will be provided at the January 2020 Board.
Mediation ~ Settlement Authority
Mediation with the Claimant group will take place at Herbert Smith Freehills’ London
offices on 27 and 28 November 2019, with Charles Flint QC and Stephen Ruttle QC
acting as mediators (whose profiles are available in the Reading Room). The key Post
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Office representatives at mediation will be General Counsel Ben Foat and Alan Watts
from Herbert Smith Freehills, with Post Office CEO Nick Read attending to make
introductory commercial remarks. We do not as yet know the make-up of the
Claimants’ mediation team.
On 13 November 2019 the Board Subcommittee considered advice from solicitors
Herbert Smith Freehills LLP that settlement at a level between £40m and £65m would
be a good result for Post Office, and authorised the General Counsel to make settlement
offers at mediation within that range, subject to shareholder approval for any offers
above £50m as set out below.
As Shareholder approval is required for any settlement above £50m, the Shareholder
is currently working through its approvals process, which it aims to complete prior to
the mediation. The Subcommittee has asked the Shareholder to put in place a
mechanism through which Post Office can seek its approval on an expedited basis
should that facilitate obtaining a settlement at an acceptable level during the mediation.
Next Steps
An overview of the main court and settlement-related activity in the Group Litigation
through to October 2020 is set out in the “Group Litigation Timetable” at Appendix 1.
Between now and December 2019 we will:
e attend to the Horizon judgment and Court of Appeal’s decision on our application
for permission to appeal the Common Issues Judgment once received;
e file Defences for the Further Issues trial by 25 November 2019;
e attend mediation on 27-28 November 2019; and
e draw up proposed criteria for selecting Test Claimants for later trials.
A timeline of the key milestones to January 2020 is set out at Appendix 2.
Operational responses to the Common Issues judgment and Contingency Planning for
the Horizon judgment are being reported separately.
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Appendices
1. Group Litigation Timetable
Oct Nov Dec Jan Feb March April May June July ‘Aug Sept Oct
2019 2019 2019 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020
2. Group Litigation Timetable
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1, I Imminent Horizon: court to deliver draft judgment to the parties .
2 22 November 2019 Common Issues: Court of Appeal to give reasons for granting or refusing permission to appeal Common Issues
judgment
3. 25 November 2019 Further Issues Trial: Deadline for Post Office to serve individual Defences
4 26 November 2019 Post Office Board Meeting
5. 27 — 28 November 2019 I Mediation: UKGI/BEIS authority to be obtained if required.
6. 2 December2019 Further Issues: Parties to set out assumed facts and issues to be decided at Further Issues Trial
7 4 December 2019 Case Management: Case Management Conference to resolve any disputes about issues to be dealt with at FIT
8. 9 December 2019 Further Issues Trial: Deadline for Claimants to serve Replies to Post Office’s Defences I
9. 10 December 2019 Post Office Board Subcommittee Meeting
10. I 12 December 2019 Further Issues: Proposed date for parties to serve and file their proposed Selection Criteria for Test Claimants
an) 22 January 2020 Post Office Board Subcommittee Meeting
12. I 23 January 2020 Further Issues Trial: Pre-trial Review
13. I 28 January 2020 Post Office Board Meeting
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@
Purpose, Strategy and Growth
Board presentation
26 November 2019
Contents
Where We Make Money
= Product profitability
= Channel profitability
Organisational Health Survey Results
Learnings from other post
Big Bets
Overall process update
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Executive summary ~ Where we make money é
= The PSG team has worked closely with Post Office Finance team to depict a picture of product and
channel profitability based on existing Post Office data
« As per last Board meeting, we are presenting product profitability using “Contribution”, a new
profitability view developed by the PO Finance team, which splits total overheads between “True”
overheads (e.g., finance, HR and legal) and Allocated Indirects (e.g., CIO and DMB costs, which are
otherwise part of total overheads)
» Channel profitability is presented on trading profit terms
« The analysis drives several insights:
& — Asof FY 2018-19, Post Office top revenue driver is Mails (35% of £1bn), while Financial
: Services is top contribution driver (46%, £65m) with best contribution margin (45%)
— Over the next two years, product contribution mix changes significantly: almost 50% of
contribution is expected to be driven by Cash & Banking (£84m), while only 25% (vs. 45%) is
driven by Financial Services. Mail contribution remains stable (~10% of total)
— From achannel perspective, online / non-branch channels drove ~£77m trading profit vs. a loss
of ~£16m from physical channels (e.g. Mains, Locals, traditional and DMB), for a total POL
trading profit of £60m in FY 2018-19 q
@.
Contents
Where We Make Money
= Product profitability
= Channel profitability
Organisational Health Survey Results
Learnings from other post
Big Bets
Overall process update
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Executive summary — Where we make money: Product profitability
= As areminder, in FY2018-19, Post Office generated ~£1bn of revenues and £60m trading profits, a 6% margin
= In FY2018-19 the top 4 drivers of revenues were Mail (35% of total revenues), Cash & Banking (17%),
Telecoms (15%) and Financial Services (14%)
= Over the next 2 years, baseline forecasted revenue is expected to grow 3% CAGR with Mails remaining flat,
Cash & Banking growing at 24% CAGR and Financial Services shrinking at -10% CAGR
= An analysis of the Direct Contribution shows every product category made a positive direct contribution in
FY2018-19; FS the highest direct contribution margin at 71%
= Overall, Direct Contribution is expected to remain stable over next 2 years (+1% CAGR) in PO Finance
baseline forecast at £434m as Cash & Banking growth is offset by shrinking Financial Services and Identity
= The POL Finance team worked to refine the profitability view by splitting Total Overheads between Allocated
Indirect Costs and “True” Overheads, providing a view on Contribution (14% of revenues)
= Allocated Indirect Costs include ClO, DMB, Network Ops, Agent Fixed Remuneration and Marketing. These
can be allocated to product categories using standard assumptions
= Compared to “Direct Contribution”, the “Contribution” proportion of Mails is significantly smaller (16% vs.
36%), FS is almost double (46% vs. 24%) and Payments is loss-making
= Contribution is expected to grow ~11% CAGR by FY2020-21 in PO baseline forecast, at which point Cash &
Banking expected to drive almost half of Contribution while Mails and FS shrink, and Identity increases its
loss
@.
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REMINDER: In FY2018-19, Post Office generated ~£1bn of revenues and £60m trading
profits, a 6% margin
FY 20
ep % of revenue
594
422
362
60
Revenue’ Direct costs? Direct contribution Total overheads Trading profit
1 Revenue before network subsidy payment. Differential with reported £972m revenue driven by accounting adjustments: inclusion of POCA as revenue (£14m), inclusion of FRES travel money
(£33m), exclusion of Payzone (-£4m)
2 Agent variable costs, processing costs, distribution and postage, postage costs, IT infrastructure & services, finance & losses, marketing; direct overheads and supply chain .
Source: POL Finance 6
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In FY2018-19 the top 4 drivers of revenues were Mail (35%), Cash & Banking (17%),
Telecoms (15%) and Financial Services (14%)
Identity
insurance
Other?
Payment services
FY2018-19
Revenues
2 Other relates to Supply Chain income predominantly for warehousing for Royal Mail stock, transport of high value mails, and the release of Bank of Ireland deferred income
4 Telecom and BGL insurance contribution margin appears lower as it operates on a full service income model rather than a 3" party commission model @
Source: POL Finance 7
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Over the next 2 years, baseline forecasted revenue is expected to grow 3% CAGR with
Mails remaining flat, Cash & Banking +24% CAGR and Financial Services -10% CAGR
£M, baseline forecast CAGR (FY2018-19 to 20-21)
1,015 1,034 1,083
351 (35%) 350 (34%) 349 (32%)
Servic
: I
/ +8%
Identity 6 (6% every 61 (6%
Re 58 (6%) “on 13 (1%) 39 (4%) 38 (4%) I -19%
23 (2% 23 (2%
FY2018-19 FY2019-20 FY2020-21 a
Revenues! Revenues' Revenues"
of Payzone (£4m). 2 Other relates to Supply Chain income predominantly for warehousing for Royal Mail stock, transport of high value mails, and the release of Bank of Ireland deferred income
1 Revenue before network subsidy payment. Differential with reported £972m revenue driven by accounting adjustments: inclusion of POCA as revenue (£14m), inclusion of FRES travel money (£33m), exclusion ee)
Source: POL Finance 8
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An analysis of the Direct Contribution shows every product category made a positive
direct contribution in FY2018-19; FS the highest direct contribution margin at 71%
£M
Direct Contribution
margin (% of rev)
351 153
(35%)
(36%)
Finan
Identity
a
13
Ri
Payment services
23
(2%)
FY2018-19 Revenue’
(2%)
FY2018-19 Direct Contribution?
1 Revenue before network subsidy payment. Differential with reported £972m revenue driven by accounting adjustments: inclusion of POCA as revenue (£14m), inclusion of FRES travel money (£33m), exclusion of
Payzone (£4m). 2 Direct contribution calculated as revenue minus direct costs per major project group. 3 Telecom and BGL insurance contribution margin appears lower as it operates on a full service income model
income. Source: POL Finance
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Overall, Direct Contribution expected to remain stable over next 2 years (+1% CAGR) at
£434m as Cash & Banking growth is offset by shrinking Financial Services and Identity
baseline forecast CAGR (FY2018-19 to 20-21)
Mails direct
153 (36%) 152 (36%) contribution
expected to
decrease as
revenue mix
shifts towards
PUDO and
special delivery
items that carry
a higher agents
remuneration
FY2018-19 FY2019-20 FY2020-21
Direct Contribution’ Direct Contribution’ Direct Contribution’
rather than a 3rd party commission model 3 Other relates to Supply Chain income predominantly for warehousing for Royal Mail stock, transport of high value mails, and the release of Bank of Ireland deferred income.
1 Direct contribution calculated as revenue minus direct costs per major project group. Excludes Pazyone. 2 Telecom and BGL insurance contribution margin appears lower as it operates on a full service income model ee)
3 Other relates to Supply Chain income predominantly for warehousing for Royal Mail stock, transport of high value mails, and the release of Bank of Ireland deferred income. Source: POL Finance 10
8
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The POL Finance team worked to refine the profitability view by splitting Total
Overheads between Allocated Indirect Costs and “True” Overheads, providing a
view on Contribution (14% of revenues)
FY 2018-19, £M @® % of revenue
1,015 Total Overheads (£362m)
were split between
I Allocated Indirect Costs
Hi
Hi
594 / and “True” Overheads
I i
422 ¢ I
i
142 y
82
Revenue’ Direct costs? Direct Allocated Contribution Overheads* Trading profit
contribution —_ indirect costs*
Resulting —
42% ) 14% ) “Contribution” view r 6%
1 Revenue before network subsidy payment. Differential with reported £972m revenue driven by accounting adjustments: inclusion of POCA as revenue (£14m), inclusion of FRES travel money
(£33m), exclusion of Payzone (-£4m)
2 Agent variable costs, processing costs, distribution and postage, postage costs, IT infrastructure & services, finance & losses, marketing; direct overheads and supply chain
3 Agent fixed costs (£47m), DMB costs, Marketing, network operations, CIO
4 Staff costs, finance and operations, legal, risk & governance, HR & people & engagement, communications & central @
Source: POL Finance 1"
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Allocated Indirect Costs include ClO, DMB, Network Ops, Agent Fixed Remuneration and
Marketing. These can be allocated to product categories using standard assumptions
1,015
Allocated Indirect Costs:
£280m
92
65
61 47 a 142
Revenue’ Direct costs? Direct clo DMB Network Agents fixed Marketing Contribution
contribution operations? remuneration
a> <@D
1 Revenue before network subsidy payment. Differential with reported £972m revenue driven by accounting adjustments: inclusion of POCA as revenue (£14m), inclusion of FRES travel money
(£33m), exclusion of Payzone (-£4m)
2 Agent variable costs, processing costs, distribution and postage, postage costs, IT infrastructure & services, finance & losses, marketing; direct overheads and supply chain q
3 Figures based on 18/19, and so excludes transfer of Retail Operations under Retail in 19/20 @
Source: POL Finance 12
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Compared to “Direct Contribution”: the “Contribution” proportion of Mails is significantly
smaller (16% vs. 36%), FS is almost double (46% vs. 24%), Payments is loss-making
Contribution
margin (% of rev)
£M
Identity
13
= 1%
23
(2%)
FY2018-19 Revenue’ FY2018-19 Direct Cont.? FY2018-19 Contribution?
1 Revenue before network subsidy payment. Differential with reported £972m revenue driven by accounting adjustments: inclusion of POCA as revenue (£14m), inclusion of FRES travel money (£33m), exclusion of
Payzone (£4m). 2 Direct contribution calculated as revenue minus direct costs per major project group. 3 Contribution calculated as revenue minus direct costs per major project group. 4 Telecom and BGL insurance
contribution margin appears lower as it operates on a full service income model rather than a 3" party commission model 5 Other relates to Supply Chain income predominantly for warehousing for Royal Mail stock,
transport of high value mails, and the release of Bank of Ireland deferred income Source: POL Finance
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Contribution to grow ~11% CAGR by FY2020-21, at which point Cash & Banking expected
to drive almost half of Contribution while Mails and FS shrink, Identity increases loss
£M, baseline forecast CAGR (FY2018-19 to 20-21)
Contribution
142
Hl growth driven by
20% decrease in
DMB staff cost
and 4% decrease
in network ops
costs
Mails contribution
decreases driven
by flat top-line
combined with
higher agent pay
due to product mix
18 (13%)
Other I 7 (5%)
Identity 12 (9%)
“1%
“1 (1%) oo :
(ETA -y2018-19 contribution! FY2019-20 Contributiont FY2020-21 Contribution’
= ontri ion by? ontribution an ontribution
4 Contribution calculated as revenue minus direct costs and unallocated overheads per major project group _2 Telecom and BGL insurance contribution margin appears lower as it operates on
2 full service income model rather than a 3rd party commission model 3 Other relates to Supply Chain income predominantly for warehousing for Royal Mail stock, transport of high value mails,
and the release of Bank of Ireland deferred income Source: POL Finance
17 (9%)
Contents
Where We Make Money
= Product profitability
= Channel profitability
Organisational Health Survey Results
Learnings from other post
Big Bets
Overall process update
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Executive summary — Where we make money: Channel profitability
= Channel split shows most product revenues driven at least partly by branches (vs.
non-branch, i.e. online and call centres), except for Telco and FS
= 7,400 of POL’s ~11,600 PO branches are Mains and Locals
® Online / non-branch channels (£77m) as well as Mains (£45m) and Locals (£17m)
are the engines of Post Office profits in FY2018-19
= Within the branch network, Mains and Locals are the engines of profits
accounting for £62m of profits in FY2018-19; DMBs and Traditional branches
respectively drive £43m and £19m of losses
= 50% of revenues driven by just 14% of branches (~1,600 branches)
= Last quartile of branches (ranked by profitability) drive losses almost as great as
profits from first 2 quartiles
= 63% of the top quartile branches (ranked by profitability) are Mains; 59% of bottom
quartile of branches are Traditional branches
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Channel split shows most product revenues driven at least partly by branches, except
for Telco and PO Money
£M revenuel, FY 2018-19
Home Office
Payment Services
Banking Framework 100%
POCA
Moneygram
Postal Orders.
Mails
Retail & Lottery
ATM
Other Identity
© Travel Money
Insurance
PO Money
Telco
Verify
Other
1 Revenue before network subsidy payment. Differential with reported £972m revenue driven by exclusion of Payzone (£4m) and Royal Mail fixed fee (£59m) @
SOURCE: POL, product split based on Credence database 7
7,400 of POL’s ~11,600 PO branches are Mains and Locals
Format
Description
Product / service range
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MINARY
Number of branches
Emm
:
Branches (DMBs)
TOTAL
POST OFFICE
Payzone
Larger branches with minimum of two counters
May be a dedicated Post Office or situated in another shop, e.g., WHSmith
Always situated within another shop, e.g., in a Nisa
Usually just has a combi counter
Branches not yet converted to Locals as per Network Transformation
Have protected status — remain on old contracts due to POL social purpose
Remain on old contracts, but are on notice until Local partner found
Often run from public buildings, e.g., village halls, libraries
Include mobile vans
Operate under reduced hours
Managed and staffed by POL
Real estate may be owned or leased
Provides card payment solutions
Accessed face-to-face, online or via telephone
4 Core services include Mails, POCA, Banking, Bill Payments, Travel Money, Click and Collect,
2 Full services include Mails, POCA, Banking, Bill Payments, Travel Money On Demand, Post Office Money, Broadband and Phone, Identity services
SOURCE: POL
Core services’
Exact range dependent on local
needs
Core services’
Exact range dependent on local
needs
Most services offered
Exact range dependent on local
needs
Core services’
Full?
Some do not offer full range of
Identity services
Card payment solutions
000
c
es
~13,500
18
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Online / non-branch channels (£77m) as well as Mains (£45m) and Locals (£17m) are the
engines of Post Office profits in FY2018-19 Revenue Profit margin
‘ 204
t FY 2018-19 * Online / non-branch
channels drive ~£77m
trading profit vs. ~-£16m
loss from branches
= DMB, followed by
traditional branches,
(which include community
branches) are the main
loss drivers
* Mains and Locals
branches are the engine
of profit in the branch
network
* Outreach loss is
Online Main Local Outreach Traditional DMB Closed TOTAL relatively (-8% of trading
/ non- branches profits)
branch
270 Dp 2
29% -250%
1 Revenue before network subsidy payment. Differential with reported £972m revenue driven by exclusion of Payzone (£4m) @
SOURCE: NSP model, POL Finance 19
45
77
61
» Closed branches drive
968" ~£11m (14%) of total
<> network losses
I 6% I
6%
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Detailed view of branch profitability shows DMB and Traditional accounting for the vast
majority of all losses generated by the branch network
Key takeaways
Profit-making Loss-making Total * Online channel is
the primary driver
of POL profit
Excluding DMB,
#ofbranches Trading #ofbranches — Trading #ofbranches Trading
Profit, A fe) Profit,
Channel Yi8/19 F
POL physical
Locals 22 1,004 (5) network will have a
positive profitability
Mains 51 705 (6) profile
On average, loss-
Outreach - ~1,6001 (5) ~1,6001 (5) making main and
local branches are
Traditional ~330 3 2,153 (22) 2,426 (19) close to break-
even
DMB 7 . 198 (43) 193 (43) +85% of traditional
branches are loss-
TOTAL? ~6,000 77 ~5,600 (82) ~11,600 (5) making driving
£22m of negative
profit
4 ~1,600 outreach branches are served by 500 units. These 500 units will be used in the analysis over the next pages; 2 Excludes profitability associated to closed branches @
SOURCE: NSP model, POL Finance 20
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50% of revenues driven by just 14% of branches (1,600 branches) PRELIMINARY
FY 2018-19
(100%)
510
(75%)
340
(50%)
= 170
© (25%)
~460 ~1,600 3,450 Branches ranked by revenue
(4%) (14%) (30%)
Analysis only includes open branches as of FY2018/19 &
21
SOURCE: NSP model, POL Finance
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Last quartile of branches (ranked by profitability) drive losses almost as great as profits
from first 2 quartiles
Revenue (% of total revenues) tx ] Profitability
TOTAL: £681m TOTAL: -£5m
Profit, £m
First quartile Second quartile Third quartile Fourth quartile
Branches ranked by profitability t
Analysis only includes open branches as of FY2018/19 @
SOURCE: NSP model, POL Finance 22
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63% of the top quartile branches (ranked by profitability) are Mains, 59% of bottom
quartile of branches are Traditional branches
FY 2018-19, % of branches by type Hi Main [ill Local OMB QD Protit margin
10%
traditional Outreach
17%
3%
First quartile of branches Second quartile of branches Third quartile of branches Fourth quartile of branches
ranked by profitability ranked by profitability ranked by profitability ranked by profitability
Analysis only includes open branches as of FY2018/19
SOURCE: NSP model, POL Finance
Contents
Where We Make Money
Organisational Health Survey Results
Learnings from other post
Big Bets
Overall process update
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Summary of OHI findings and their potential uses
Diagnostic headlines
* Impressive level of engagement with the survey
* Bottom quartile organisational health indicating significant opportunity for improvement
= Accountability, work environment and motivation relative strengths (though still third quartile): relatively more effective in creating a
sense of community and belonging; practices around openness, trust, engaging leadership and ownership amongst most emphasised
* Purpose and direction not clearly understood, reinforcing need for current work on Purpose, Strategy & Growth
= Lack of consistent measurement and management of business and risk, or acting to address problems
= Lack of institutional skills and talent, external orientation and innovation/learning
= Overall, senior managers’ views most critical (especially innovation and learning)
= Current values centre around community, being of service, care and respect, but also hierarchy and bureaucracy; whereas desired
values include competitiveness, accountability, efficiency and being well organised
= Main purpose themes at Post Office are about being a trusted brand, with access for all, serving customer's mails, parcel and cash
needs
Uses of the OHI findings
* Syndicate the results internally to increase understanding of the challenges (both generally and for particular parts of the organisation)
= Start to create a narrative about the required change building on the quantitative and qualitative detail of the survey results
* Use the detailed information about where practices need to change to inform concrete improvement initiatives
= Once Purpose, Strategy & Growth are clearer, use OHI results to inform what is needed to enable the new strategy
= Track progress and course correct where/if needed
Organisational health is related to — but different from — organisational performance
Performance
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Focus of the OHI survey
Health
What an enterprise
does to improve how it
develops compelling
products and services,
channels them
efficiently through its
network and sells them
into the market to drive
financial and
operational results
How an organisation
aligns itself, executes
with excellence, and
renews itself to
sustainably
achieve
performance
aspirations
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Organisations that focus on Org Health outperform their peers at every level
Within Companies
Across Companies
Across Industries
Health explains up to
Companies that focus on
Healthy
companies across health show an 5 0 of
industries outperform
their unhealthy peers in 1 8 of
0 of performance variation
the stock market’ by
increase in EBITA across units
3X between surveys
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The OHI survey digs deep to understand what’s happening under the surface and
provide a detailed picture of organisational health
Employee Engagement survey Organisational Health Index (OHI)
= Evaluates individual employee happiness / Evaluates an organisation’s long-term
attitudes (e.g. how employees feel) wie ie ie
* Helps identify employee “hot buttons”. Identifies eetoee ane opportunities
(e.g., satisfaction, happiness, morale, across a robust set of management
_ engagement, work environment) — practices Prove ie drive health
" Allows customisation and comparison Enables benehmarking across induetres,
based on unique questions / lines of inquiry tegions and a global database
= Focuses on manager level reporting vs. Focuses on enterprise-wide, functional
enterprise-wide focus areas and business unit insights to inform
actions to improve health
In practice, employee engagement and the OHI are complementary, however a healthy
organisation is not just about happy.employeés, but also aligning the workforce and
behaviors with the organisation goals
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The Organisational Health Index (OHI) offers proven insights and expert support to
build an enduring organization that can sustain performance
Developed the
Conducted an exhaustive Interviewed key leaders Organisational Health
academic review across our client base Index (OHI) Survey
800 100 cy 20
books & articles client executives minute survey
200 - 30 Re 3 -5
fact-based insights functional leaders. precise
recommendations
~5m , ~1,900
participants surveyed companies
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With 1+ billion data points, the OHI offers an unparalleled depth and breadth of
knowledge, across geographies and industries
OHI benchmarks
Global reach and relevance, Robust industry
* Global Energy & Materials
* Banking
TMT (High Tech-Media-Telecom)
Consumer/Retail
Advanced Industries
Healthcare Systems and Services
& € = Pharmaceuticals and Medical
Products
as
3
=
Public Sector
* Insurance
« Travel, Transport & Logistics
» Asset Management & Institutional
Investors
2 3 % «Infrastructure
fa) . . .
8 Yo Professional, Scientific, and
Technical Services
a i j * Social Sect
Surveys administered in 100+ countries cial Sector
* Multi-Sector Conglomerate
OHI statistics at Post Office
Safeh
2448 73%
Employees invited to Employees provided
participate in the survey responses to the survey
(excludes DMB)
Source: Post Office (n=1770); Benchmark: Global (n=2,877,871, no, surveys=878)
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>2000
Individual comments,
recommendations and
opinions as provided
by employees at all levels
Two major measurements in the OHI
9 Health Outcomes
« Interprets if what is happening on the
ground is working, and how well
= Agreement scale
* Example: “This Post Office colleague is
highly motivated"
37 Management Practices
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« Identifies colleagues’ perceptions of
what’s happening on the ground
= Frequency scale, from “almost always”
to “almost never”
= Example: “Managers in Post Office
provide praise, thanks, or other forms of
recognition to high performers”
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N
XN
3
es0dite
Employees’ sense of community and belonging provide a foundation to build on once
direction becomes clearer
% of respondents who selected ‘agree’ or ‘strongly agree’
Benchmark: Mi Top Quartile Second Quartile! Third Quartile Bottom Quartile
I Communicate a clear and compelling vision of
where the organisation is headed, how to get there,
and what it means for people Use effective leadership styles to shape
the actions of people in the organisation
to drive high performance
Direction
Ensure individuals understand what is 48
expected of them, have sufficient authority Bonsistently measure and qmanage
and feel accountable for delivering results i : Ae f— business and risk, and act to
9 ] Coordination & address problems when they arise
Control cl
; 48
ne
Engage with important external Encourage and harness new ideas,
Stakeholders (customers, External Orientation Leadership I Innovation & Learning including everything from radical
suppliers, partners, and others) to — ——— innovation to incremental improvement,
more effectively create and deliver 56 62 38 so the organisation can effectively
“© value — both now and in the future evolve and grow over time
Capabilities
Ensure the institutional skills and talent 63
are in place to execute the strategy
and create competitive advantage
7 Develop employee loyalty and enthusiasm,
and inspire people to exert extraordinary
effort to perform at their very best
Cultivate a clear, consistent set of
values and working norms that foster
effective workplace behaviour
Source: Post Office (n=1770); Benchmark: Global (n=2,877,871, no. surveys=878) @
33
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Direction, Capabilities and Innovation & Learning are lagging most vs. UK benchmark
Benchmark: 1 Top Quartile — %% Second Quartile Third Quartile Bottom Quartile
Difference: ® Significantly Stronger’
Comparable ® Significantly Weaker!
Travel, Transport
Post Office results United Kingdom & Logistics Public sector Retail
{4 d Difference b : e
OHI Score I
Direction
Leadership
Work Environment
Accountability
Coordination & Control I
Capabilities I
Motivation
innovation & Learning
External Orientation
I
56 iQ
1 The significance level is at p = .05. Statistical significance is calculated based on outcome distribution, size of population and size of point difference
Source: Post Office UK (n=1770); Benchmark: Global
Travel, Transport & Logistics (n= 136,237, no. surveys:
877,871, no. surveys=878); United Kingdom (n=50,623, no. surveys=26); Public Sector (n=96,288, no. surveys=37); @
}; Retail (n=155,238, no. surveys=39) 34
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Survey scores across 9 health outcomes and 37 management practices
% of respondents who selected ‘often’ or ‘almost always’
Benchmark: [ll Top Quartile
@ Second Quartile Third Quartile Bottom Quartile
Power practice — practice that needs to be prioritised if in bottom quartile
Direction
Accountability 40 37 Coordination & Control
48 35 wes mame emmowe «I WO, 85. I 52 (gall I 56
SE Vision Clarity Involvement — . ~
Role Clarity Performance Consequence Personal People perf. Operational Financial Professional Risk
Contracts © Management Ownership review Management Mngmnt. Standards Management
External Orientation Leadership Innovation & Learning
an
47 51 64 47 I 33 31 33 28
SE
Customer Competitive Business . Authoritative Consultative Supportive Challenging Top-down Bottom-up Knowledge Capturing
= Focus Insights Partnerships Gommunty Leadership Leadership Leadership Leadership Innovation Innovation Sharing External Ideas
‘elations
Capabilities Motivation
I I 1 i Work Environment
I Ag I ‘ 40 42 26
__ _.. : : .
Talent Talent Process based Outsourced I 66 I 34 Meaningful Inspirational Career Financial Rewards &
Acquisition Development Capabilities Expertise su Values Leaders Oppor- Incentives Recognition
Open and Performance Operationally Creative & tunities
Trusting Transparency Disciplined Entrepreneurial
Source: Post Office (n=1770); Benchmark: Global (n=2,877,871, no. surveys=878) @ 35
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Survey scores are supported by a set of related questions: “Accountability” example
Accountability outcome questions’ W@ Disagree ™ Neutral @ Agree
Employees clearly understand what is expected of them
Employees are held accountable for the results they are expected to deliver
Employees within Post Office have sufficient authority to make decisions
Accountability practice questions’ @ Infrequently & Sometimes Frequently
Post Office’s organisational structure helps create clear accountability
ROLE CLARITY <
Jobs in Post Office are designed to have clear objectives and accountabilities for results
r Employees have written performance goals that clearly define what they are expected to
PERFORMANCE J deliver
CONTRACTS 5
Post Office sets performance goals for individuals that are challenging
Post Office provides attractive incentives to high performing employees
CONSEQUENCE
MANAGEMENT
Post Office has created clear links between performance and consequences
Line managers create a sense of belonging to Post Office
PERSONAL OWNERSHIP
Line managers encourage employees to take a personal stake in their jobs
1 Percent of employees
Source: Post Office (n=1770)
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Gap between Post Office scores and next best quartiles is key in understanding scores
Percentage points Sith Point increase required to achieve next quartile
Benchmark: [MM] Top Quartile {§ Second Quartile Third Quartile Bottom Quartile
io I I Operational Management = 85 NE
‘Financial Management = (as its RR
6 : ere
B46] i el
accel I Motvatio: Meaningful Values m6 I
En ‘Career Opportunities. Ea
Sic I
== 8
Innovation & Top-down Innovation 4 I
me ee
moo I heme, Bottom-up Innovation m 833
os 6-10
be “Consequence Management «= 95 NEAT sie dalatla
mE ee Capturing External Ideas mo I
Frovese raed Capabatiog (11 ee I
Source: Post Office (n=1770); Benchmark: Global (n=2,877,871, no. surveys=878) @ 37
Next steps on OHI
= Continue sharing survey results with relevant Post Office groups
* Start shaping the interventions to improve organisational health by
identifying which management practices can be improved via
workshops with L40 (session on 10 December), GE, etc.
" As the strategy work continues to be refined, ensure focus on
improving the management practices that are most relevant to
delivering that strategy
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Contents
Where We Make Money
Organisational Health Survey Results
Learnings from other post
= Review of postal context
= Learnings
Big Bets
Overall process update
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Executive summary — postal market overview
« Postal players have been under increasing pressure. Several trends contribute to this:
« Structural and irreversible decline of the mail business
« Customers demanding higher convenience and service in the core products offered by postal
players, while often not being willing to pay higher prices (especially B2C e-commerce parcel
senders)
: » Disruptors are winning the postal players’ natural new growth segments (e.g. parcels and
2 financial services), in particular Amazon
« Regulatory pressure to maintain retail network coverage and USO requirements continue
impacting postal players’ economics; although most European players still enjoy some form of
subsidy
Postal players have been under increasing pressure which impacts branch networks
o=h
o
Volume
decline
+s
(Oo
Declining volumes in both
cash and letters
due to e-substitution
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2)
Growth products with
different customer
expectations
Q
Coa
Parcel volumes and postal
financial
service sales
are increasing
but customers require more
service, higher convenience
3) (4)
Accelerating
competiton
©
New growth segments are
very competitive and
competitors are often
disruptors. Postal players
suffer from legacy costs and
innovation gap
Performance
pressure
Increased pressure
from shareholders
to improve economics, but
high (USO) requirements
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The world of post is changing fast in the face of megatrends that generate both threats
and opportunities
Digitisation E-commerce (Gs) Disruptive innovators The gig economy
of letters and parcels * Amazon: “Marketplace” * Much lower labour cost
* World going paperless growth and “Fulfilment by Amazon” structure
* Advertising going digital * Shopping at your fingertips * Different motivations from
‘lifestyle couriers’
Disruption in
financial services
Digital
government
* Cashless, online and Megatrends impacting global postal * Online
mobile banking markets management of national and
= Trust deficit municipal services, benefits,
and taxes
= Withdrawal from the high street
The mobile © The poly- Y) The privatisation wave GS) Convenience (=)
economy morphous world » European posts under retail
* ‘Uberfication’ of services * Emerging social and economic private ownership * Growth in convenience and
* Changing customer interaction divides driving political * Peak in government sales discounter retail
models. disruption (Brexit, Trump) = Big box retailers entering the
market
G22 1 O24
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Mail and parcel are set to reach volume parity by 2025
2005 2015 2025
13:1 4:1 1:1
Overall market
=a] xelpxa] xe Pa
SRR S Bx SP ne
ipxapexalpxapexalxa x<pxa bx
30:1 10:1 3:1
px<Pexalpxa)exel=a P=
Ty I tal
Hees SISSIES) =
ipxapexalpxa[>xel=l Px<P=
MRIS Sab<I Pal
PIRICIEIES pape BS Pa ne
pz<ppxalpxeppxalp=] SacI
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The decline of the mail business is structural and irreversible
Addressed domestic letter volumes in selected markets!
Indexed, 2003=100 A few observations and
420 additional facts ...
110 - * Drop in mail volumes in key
“ooo. European postal markets —
100 ~ ah speed of decline driven by local
habits and regulation
90
= 80% drop in mail volume in
80 I Germany Denmark since 2003 —
70 © eGovernment initiatives since
2007 accelerated decline
60 = <20% drop in mail volume in
50 I mn UK Germany -— least affected market
in the analyzed set
400 = Most of key postal markets
30 - increased stamp prices since
2010, only Switzerland kept
20 Denmark prices stable
10 ; .
2002 2004 2006 2008 2010 2012 2014 2016 2018
1 Austria, Belgium, Canada, Denmark, France, Germany, Ireland, Netherlands, Norway, Spain, Sweden, Switzerland, UK, US @
SOURCE: Operators’ website and annual report; Regulators; UPU; Press 45
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E-commerce is currently a ~ USD 3 tr market, quadrupling to ~ USD 8 tr by 2025
E-comn e market worldwide USD ons
Based on observation of historic growth of most mature e-commerce markets (e.g.,
UK, US), our assumption is that growth rate will decline from 2020 onwards and
further from 2025
A few additional facts ...
20X increase in global e-commerce
since 2000
5x growth differential between
online and brick and mortar retail
expected in 2016-21
30% share of total retail to happen
online by 2030
70-80% of all e-commerce
purchases delivered via networks
'
' i
:
} '
4.9 t ' 36bn e-commerce (B2C) parcels
joc ee ee eee \ ! ' handled globally p.a.
i 2.9 { { New geographies, consumer
1.5 ' ' ' i segments, product verticals,
' t ' i channels and occasions as drivers
4 4 4. 5
2015 ' 18 ' 21F ' 25F 2030F
SOURCE: eMarketer 2016 @ 46
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Differences in e-commerce parcel penetration highlight growth opportunities
E-commerce relevant par
in parcels per capita, per
penetration
>70
24
241 22
<1 1 1 1 2 2
Vietnam india ~~ Malaysia ‘Thailand Indonesia ireland UK Germany Chi
tier 4)
= —" ( y ( ) Td eer wa ( y ot w
Less mature markets : Moderately mature markets : Mature markets
~1-2parcels/capita ~10 parcelsicapita : > 20 parcels/capita
1“E-commerce-relevant’ is defined as domestic B2C parcels, with speed typical for e-commerce shipments in the given country2 Shanghai and Beijing, assuming 70% B2C share @
SOURCE: Research, various reports 47
4 universal truths
of parcel market share for
typical incumbent
Australia with dominating
incumbent share in B2C"
parcel delivery (75%2),
particularly outside major
population areas
Competition is aggressive
and increasing, e.g., e-
tailers such as Amazon
are already insourcing
logistics
1. 30% market share in B2B; 2 Based on percent of total volumes in 2015; 3 Consumer survey across US, China and Germany (n= 4,700), conducted 2016
Source: IPC; APA/Branchenradar
Customer expectations
70%
prefer price over speed
44% of customers have
no willingness to pay extra
for same-day parcel
delivery, 40% only <1
EUR?’
Currently 90% of parcel
deliveries are same-day or
next-day deliveries
Legacy costs
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Innovation gap
~20%
higher unit costs vs.
competitors in urban areas
Labor represents 80% of
parcel production costs
In urban areas labor cost
disadvantage of up to 30%
- without benefit of
network effects
10x
less IT jobs
No postal incumbent listed
in Forbes top 100 list of
digital companies 2018
Postal incumbents are
often stuck with rigid
corporate cultures that are
slow moving and risk
averse
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Domestic volumes dominated by local players — various competitor types attacking
with sharp value propositions Wi Postal Incumbent if 2 main competitors) Other
Tough competition - postal incumbents are #1 in most parcel markets, but face
strong rivalry ... _.. with 3 types of competitors attacking with sharp value propositions
Domestic pai
Competitor type Strengths Examples
@ Transferrable expertise from B2B operations US UPS. eG
(eg., time-window delivery)
B2B-focused parcel ~ noes sees Sone
specialists and express Network synergies due toB2B baseloadand EU — DPD Bape
integrators factor cost advantages
>) Stronger brands in some markets CN SF Express
High agility and innovative power US Postmates
(digital first’, "10X better’ mindset)
Ability to cherry-pick and tailor offering to EU Ocado Meocade
BAO Gerery cranes coverage areas or verticals
Ability to ‘buy market growth’ CN Eleme = lane
on the back of growth financing
High agility and innovative power US Amazon = ##azOnR
(digital first’, greenfield)
Forward-integrating Superior consumer insight and access EU Amazon = 8™azon
e-tailers (‘what's inside the box’)
CB) Ability to cross-subsidize with other revenue CN — Alibaba
streams (e.g., commissions)
1 Revenue-based for BE, DK, FR; 2 Includes Coliposte, Chronopost, Exapaq; 3 Poste Italiane is not in top 3
Two main competitors include: DPD and DHL in SW; UPS and DHL in BE; GLS and local player in DK; FedEx and UPS in FR; Hermes and DPD in DE and UK; DHL and GLS in NL;
Top 3 in IT: Bartolini, FedEx and UPS @
SOURCE: IPC 49
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Legacy costs — parcel production costs are a function of labor costs on the last mile
where incumbents have a major handicap vs. low-cost attackers Low-cost attacker! Incumbent
Legacy costs ~ parcel production costs are a
function of labor costs on the last mile ... ... Where incumbents have a major handicap vs. low-cost attackers
per
Parcel production costs by process step, Comparison of labor cost between incumbent and attacker, Lab
bent exa:
Material costs,
labor costs 0.43
onother processes, (31%)
other costs
Global
average
Labor costs on e
the last mile
Country 1 Country 2 Country 3 Country 4
_Laborrepresents _
80% of all costs
af More rigid labor terms and conditions (working hours, scheduling flexibility, ...)
1 Case example for delivery of 1 parcel in Berlin through a parcel network with 125,000 parcels per day &
SOURCE: Press 50
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Innovation gap — postal incumbents find it harder to innovate than their ‘digital first’
attackers
Amazon, Alibaba and JD.com all listed
0 Postal incumbents appear on Forbes'
within Top 50
Top 100 Digital companies list
#1 0 FedEx as first Postal/Parcel company
on most admired companies list
Amazon ranking
. = Jobs offered by Amazon within the
IT Jobs open worldwide for Deutsche a .
category of Operations, IT & Support-
<200 Post DHL! (vs) Engineering’
Year median tenure at Amazon
60 o% Of FTEs are longer than 10 years with
(8) and Google
their firm
Capital expenditure as a share of total
4 T% revenue in 2017 by Postal companies
Capital expenditure on average by
Amazon, Alibaba, JD.com
1 May 2019 @
SOURCE: Forbes, IPC, Fortune 51
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E-commerce and financial services are important drivers of growth in postal business
industry revenue share ‘
Percentage
Other 6
Logistics & Freight 1
Parcels & Express
Mail 47 44
2012 2017
1 Includes IPC members (postal operators from Europe, North America and the Asia-Pacific region). Collectively, their operations deliver 80% of global mail volumes @
SOURCE: IPC 52
E-commerce shoppers’ need for convenient receiving drives explosive growth of parcel
retail networks
Post and parcel retail network expansion
# of offices
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Aye.
4p 45,783 ( ) 4.407
4,800 Others ' DPD
1,300 Amazon Locker 20 eh
, 2,600 DHL
2,600 Parcelly oy GLS/Mondial
oon DPD Relais
oe UPS Access Point 900 Kiala/UPS
: Hub-box PostNL2
5,000 DHL Service Point 1,820 ;
15,405 Kariboot
" 7,436 myHermes 330
3,500 CollectPlus bpost -
post points
11,905 41,547 Post office 1,300
bpost - POs
2010 2018 2005e 2018e
~7 new branches opened every day in the UK between bpost increased its network relying on postal points
2010 and 2017 and non-exclusive parcel shops
1 Kariboo points serve as non-exclusive parcelshops (for post and some for competitor PostNL too); 2 PostNL relies on Kariboo and additional own points @
SOURCE: UPU; Company Web sites; Press search 53
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E-commerce supergiants are entering the battle for B2C logistics
Starting to insource ee Insourcing at scale @ Offering to other parties
Size of the global e- . .
commerce revenue pool! Supergiant activity
Value pool USD billions Amazon Alibaba, Cainiao JD.com
_I _I
_! I
E-fulfillment ~ 90 I vy
Linehaul domestic ~ 15
Outbound B2C
Linehaul international ~10
logistics ; ; :
incl. cross- .
i Last mile ~115 i @ ny
Returns ~ 40 I
7 ~ 270 Already offering last
mile services at scale
to e-tailers
1 Total costs of e-commerce merchants, both in- and outsourced @
SOURCE: Industry experts 54
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Example Amazon: broad fulfilment network as basis for fast delivery across regions
Amazon's fulfilment network and delivery speeds Implications
Amazon's footprint gf Amazon has a broad network
@ Fulfilment centers of fulfillment center across
Europe to enable both scale
Current delivery stations
and speed
® Current prime now hubs
Amazon's delivery speed
@ Same-day in
metropolitan areas, MM Amazon already has a
otherwise next-day consistent same-day offering
” Next day in metropolitan areas in main
4-2 days countries
2+ days
© ff Amazon also leverages its
broad fulfillment network to
offer fast cross-border
deliveries (e.g., Belgium,
Portugal, Poland)
1 Best available delivery speed for Amazon Prime customers, delivery speeds for some products and areas may vary @
Source: Web search 55
Amazon's value proposition is built on operational excellence, scale-induced quality
improvements and an integrated offering
What amazon offers...
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..and what is needed to match it
Operational
Excellence
Scale and
Consolidation
of
Integration
Best-in-class fulfillment, fast
delivery and customer-friendly
returns fulfillment
Branding that drives end-
consumer trust in fast and
reliable service
Superior service levels currently
unavailable to eCommerce
merchants
Scale effects for eCommerce
merchants
Integrated domestic and
international carrier
management
End-to-End tracking across
entire value chain
»
Inventory
Intelligence
wo
o
eFulfillment
Int'l Mid
Mile
Parcel
delivery
Reverse
logistics
zt
~é
Ld
fia.
O
Distributed Order Management system with
integrated optimization algorithm for cost and
speed in FC network
Integrated fulfillment center network to allow fast
shipping and easy localization
Late cutoffs, rigorous cutoff manage-ment and
service promise transparency
Direct Injections into foreign networks to limit
quality losses
IT-Integration with and optimized use of
international deferred carrier network
Priority processes to ensure fastest delivery in
deferred network (i.e. at affordable cost)
Integrated white-label returns portal for direct
connection between returns, inventory and
payment
@.
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Logistics partners can enable a consistent next day service promise across Europe for
retailers — matching Amazon on fulfilment center density not a requirement
Amazon's current fulfilment center amazon Theoretical requirements for consistent eg
footprint in Europe ee next-day-shipping in Europe x
“Possible next day coverage via
ground shipping per fulfilment center
# Number of fulfillment center per
country
72 FF center ~9 FF center
~87% of Amazon's 72 fulfillment center in Europe are only required due to the immense scale of the business
and are strategically located to service high density areas
1 For ground shipping @
57
Source: MWPVL.com
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Governments are increasingly digitising their services, reducing the need for both mail
and a physical footprint
Public Sector examples
Strong digital agendas in social insurance and tax:
* Social insurance agency: eliminating paper forms and manual handling processes
« Tax : authorisation of annual tax declaration through text message response to pre-filled tax form
4 Top down digitisation agenda spearheaded by the central digitisation agency:
Denmark ~@
Digitising 80% of all government communication: non-digital communications to citizens are banned except in rare exception cases
Service New South Wales developed a unified, single point of contact for residents and businesses for more than 800 transactions, including:
* Driver licenses
Australia " Birth certificates
= Seniors1 Cards
« Fair Trading licenses i
=
i
Core services now predominantly online:
« Tax return submission
« Passport renewal
UK = Car tax renewal, including abolition of physical tax disc
= Renewal of driving licenses
« Booking driving tests (over 98% booked online)
* Parking fines payment
As volumes decline, operators obtain more important USO scope modification.
Bulgaria: removed postal money
orders and direct mail
Slovenia: reduced parcel weight
Italy: changed from 6
@ Portugal:
reduced weight
to 10kg for parcels;
removed direct mail;
Start of XY delivery
pilot in deep rural
New Zealand: 3 day
urban delivery, 5 days
in rural; changed
service outlet specifi-
cations (e.g., allow self-
<3 Denmark: D+1 mail
removed from USO
and becomes priority
product delivered with
service kiosks)
© Nethertands:
parcels; shift to
“flower” rolling model
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t& Finland: Postal Act was
approved which allows
discontinuation of
Tuesday delivery of USO
letters, advertisements
and magazines; Non
to 10kg to 5 days of delivery areas adjustment to reduce for standard mail USO mail delivery three
* Croatia: changed existing services per week; removed 4B Icetand: Split into A- number of post offices now with D+5 days per week in large
scope and weight limits direct mail and B-Mail and letterboxes specification cities
2000 2010 2011 2012 2013 2014 2015 2016 2017 2018
e @. @ @ @ @. @ @
Austria: reduced parcel limit
to 10kg, and included
newspapers
Finland: redefined coverage
of the USO scope
() France: added a new single
~" piece product in D+2 to USO;
deletion of second class letter
for outbound international
mail
© treiana: specified minimum
set of services
@ UK: removed bulk mail
from USO
1 Coverage: 85% of the population. This measure is not yet implemented, 2 Delivery standard of 2-13 days depend on distance, product, and urbanization
and review
Czech Rep: reduced parcel
and insured items weight
to 10kg
@® Latvia: reduced weight
to 10kg for domestic parcels
(@ Lithuania: removed bulk
and direct mail
‘tw Poland: removed bulk mail
» Romania: excluded direct
mail; included mail
for the blind; new parcel
quality provisions
Source: Press, academic literature search, operators’ reporting
&, Netherlands: reduced
delivery from 6 to 5
days a week (with minor
exceptions)
(#} Canada: will introduce
community mailboxes to
all households that stil
receive door-to-door
delivery over
5-year period?
i=] Austratia:
de Finland: discontinuation of two
introduced mail classes (2nd class ended)
a2" class as of Jan, 2017. Plan to reduce
service delivery from 5 to 3 days
with slower in urban regions"; mail
delivery times delivered to flat houses can
for existing be left in boxes by the entrance
USO service; () italy: from 6 to 5 days, gradual
existing delivery implementation of <5 delivery
times moved days in alternate-delivery-day
to premium system; staged implementation
service
plan, eventual impact on 25%
of population?
Norway: discontinuation of
mail delivery on Saturdays
ae iceland: delivery in most rural
Stew
areas every other day
3 Halted after government change
f=: Norway: discontinuation of two
mail classes with two day
delivery
a
4 Sweden: reduction in delivery
quality to D+2
& Finiand: delivery speed
requirement from D+2 to D+4
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8
Though, regulatory pressures on network coverage have been increasing in some
markets
4
Portugal Netherlands ‘en
Anacom reviewing minimum required coverage The State allowed several USO modifications,
on each municipality, likely to result in increased \ including halving number of post offices and
(branch-like) coverage in 33 locations for CTT vs letter boxes
z 1,000 = 8,700
3 3 —) ,
2 +) pe 3 ' fa offices ‘ ji postboxes
° ‘ 1,000 down ‘9,300 down from
from 2,000 ‘ 18,000
SOURCE: Anacom @ 60
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3 “esod:
Regulatory debate will stay key lever on the long-run
Themes to address in regulatory
management Peer examples _ . .
Fo Optimization within the current oe. Stable network size, but
S requirement bpost outsourcing of operation
Regulatory
negotiation @
stays key for i" Renegotiation of constraint to ; ,
postal services Gill decrease service cost Network size adaption
entrusted with
USO, branch
requirement
Negotiation of the financing or Tax exemption for territorial
alternative delivery of the aed! presence and joint post-
public service “A Poste townhall operation of branches
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8
Regulatory requirement on network size and proximity is a key lever
Minimum branch number Distance criteria
12,000 fixed location facilities
Atleast 1 permanent facility in any municipality with
more than 2,000 residents,
Customers in any municipality with more than 4,000 residents or in adjoining built-up areas shall in general be able to reach a permanent facility within no more
than 2,000 m. Additionally, in every district 1 permanent facility shall be located per 80 km*.All other locations must be served by mobile postal service units
Atleast 1 facility in each municipality’ af Service points shall be placed so thal users have access to a service point within a reasonable distance
Atleast 95% ofthe national population should have access to a complete assortment of postal services within a 5 km reach from where they lve.
x 8 The distribution of service points, with a complete assortment outside residential areas of more than 5,000 inhabitants, shall provide access to at least 85% of
the non-urban population within a 5 km radius
Under the regulatory conditions, Royal Mail must ensure facilities are provided such that the premises of not less than 95% of users or potential users are within
5km of an access point capable of receiving the largest relevant postal packets and registered mail, and that the premises of not less than 95% of users in each
postcode area are within 10 km of such access points
Atleast 90% of the population must be able to reach this network within 20 minutes on foot or by public transport (30 minutes if a doorstep collection service
x 4 exists), n addition, atleast one post office in every For financial services included inthe USO, at least 90% of the population must have access tothe services
within 30 minutes by foot or by public transport on average
Postal Law requires one facility by municipality
The Sixth Management Contract provides that
boost must mantan 2 etal netuork SGEI of at x
least 1,300 postal service points, including post
offices and third-party-run postal shops.
x eServices must be accessible to everyone and be provided at a reasonable distance from one’s home or workplace, The density of the access points must take
“into account the needs of users
‘At least 99% of the national population and at least 95% of the population in each department must be less than 10 km from a post office branch. All
,, Municipalities with over 10,000 inhabitants must have at least 1 post office branch per 20,000 inhabitants. Additional post office network requirements (following
( » x </ _the requirements of La Poste’s public service mission of regional planning) do not permit more than 10% of a department's population to be further than 5 km or
more than 20 minutes by car under normal driving conditions for the area concerned from the closest La Poste point of contact. The 2010 postal act requires
that the postal network consists of at least 17,000 contact points
Density criteria newly introduced. Austrian Post must ensure that all municipalities with over 10,000 inhabitants as well as 90% of the people living in the urban
areas of all provincial capitals must have access to a postal service point within a radius of two kilometers. In all other regions, the prescribed maximum distance
to a postal service point is ten kilometers
The Postal Market Act prescribes a minimum of
1,650 postal service points.
1 Service points shall be placed so that users of a universal service have access to a service point within a reasonable distance of their permanent residence. It is also possible to operate a
service point that is not at a fixed location &
SOURCE: Regulators, Opretators' reporting, Press 62
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In light of sector trends, postal players have been optimizing their retail network —
example of North American postal player
Key actions }) BIT impact, smn
. . Current -100
= Review of product portfolio
* Simplifications of retail products and processes New rural
Full clean sheet redesign of branch formats, pricing corporate offices iy
and third-party contracts
— Urban office conversion/closure (~400) Outsourcing of rural 60
~ Rural office conversion to co-located (~900) corporate offices
* Optimized retail footprint exploiting new-gained Outsourcing of urban 20
flexibility in USO regulation offices
Improved contract terms 20
Incremental delivery costs 40
due to less density
Future retail vision 35
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8
Throughout Europe postal companies receive (in)direct subsidies for sustaining the
USO
National subisidies postal companies in Europe,
EUR
2015
016 Wl 2017 Ml 2018
Description
Indirect subsidy through favorable pension arrangements; replacement of standard pension system for
system where government pays part of pensions
# Deutsche Post I Indirect subsidy
Subsidies for providing services of general economic interest (SGEI}, compensation based on net cost of
providing these serivces (e.g. Network density, press distribution, basic banking access)
( ) Bpost
General subsidy for providing USO
am
Correos General subsidy for providing USO
( ) La Poste! SGEI subsidy for transport and distribution of press and to guarantee network for delivery of financial
products (latter given in the form of tax excepmtion)
General subsidy for providing USO, compensation based on reimbursement for loss-making services that are
required by the USO
Ca Posten Norge?
1 Excluding compensation for providing banking services, 2 Based on exchange rate of 1,13 EUR per GBP; network subsidy payment to Post Office Limited
3 Based on exchange rate of 0,10 EUR per NOK @
Source: Annual reports postal companies, national supervisors 64
Contents
Where We Make Money
Organisational Health Survey Results
Learnings from other post
= Review of postal context
= Learnings
Big Bets
Overall process update
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N
Executive summary — learnings from postal players
There are three pillars of learnings from other post players:
1. Winning in competitive growth areas requires adapting the retail network structure to better serve consumers
(e.g., DHL’s dense parcelshop network provides convenience to its e-commerce receivers)
~ Multi-tiered networks allow for improved economics without compromising on sales and convenience
2. Growing the top-line through non-core, third-party products usually fails to create sizeable revenue
streams. Most sizable growth areas are parcels and financial services. Sales performance programmes as
well as targeted incentives can be effective growth levers
3. Remaining competitive with a lean cost base requires consolidating footprint and different approaches to
ownership (e.g., franchise, dealers)
— Automation in selected areas, both in customer-facing activities and in in-store operations, is a key
lever to improve customer experience in a cost-effective manner, culminating in the “unmanned branch”
(Singapore, Finland)
— Strong partnerships with retailers (e.g. in Canada) have been successful, based on standardised
master franchise arrangements and clear understanding of economic benefits of having a post office (e.g.
15% sales uplift for retail)
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We have reviewed over 40 posts globally to identify learnings for postal retail networks
@0O Posteitaliane
[=]. = posten swissposr/y =
Post
] =x
ye I Scoxncos tl EATA >)
Europe
Poczta MY Polska
Loe F mown
“eer Mail poceun
®
Americas
Africa/Middle-East Asia/Pacific
KOREA POST (SE) oorwss
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822 10 vL
esods
Three main groups of questions to be addressed
Retail network strategy I Product&sales =I Operations & economics
How can stores help win in What further products What ownership model
growth segments such as : should be commercialized : work to control costs while
= e-commerce and FS? i and how? i delivering excellence?
What is the right branch I @ How sales in branches can I @ Whatis the ideal store
segmentation to ensure ‘ become more efficient? : coverage and operational
appropriate and efficient : i model?
service? : :
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@ DHL is building a dense parcelshop network to provide convenience to its
e-commerce receivers
Deutsche Post Q
" Offers proximity access to parcel sending for individual
customers
= At target state, DHL aims to have 20,000 parcelshops
(today ~11,000 parcelshops, 13,000 retail outlets and
3,700 parcel lockers)
= Low and variable cost operations
= Basic product offering - parcel receipt, send and returns,
domestic stamps
= Only needs basic equipment (a handheld scanner, label
printer) and inventory is minimal
SOURCE: DP DHL; Press @ 69
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@ SingPost redesigned branches to reflect e-commerce ambition
OF ii
From... » To...
Post Office as key customer touchpoint does not H New branch with 60% less overall space, but 24/7
reflect SingPost’s vision and transformation ‘ self service zone occupies 48% of total space
ss
Ot ps
SOURCE: SingPost
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@ Canada Post tests a concept store to meet online shoppers’ needs
CANADA
POST
>
_.
* Drive-thru parcel pickup
* All-in-one self-serve shipping station
= A fitting room where customers can try on the outfit they bought online and if needed, return it
immediately
* Self-serve vending kiosk
* Extended hours: self-serve 24/7, opening 9-9 on weekdays, 9-5 weekends
SOURCE: Canada Post @ 71
@ Poste Italiane has established a leading FS business through BancoPosta
BancoPosta starting position
= Large incumbent utility with 8m
customer, 150k employees and €0.5tn
in assets
= BancoPosta can offer a full suite of
products without a banking license
~ BancoPosta cannot lend to the
public directly, but can be an
intermediary
= BancoPosta is, however, required to
maintain ring fenced capital
SOURCE: Poste Italiane
» Since 2001, BancoPosta has innovated and
grown its product range in a steady and
managed way
-— They moved from current accounts and
payments, to prepaid cards, and on to mobile
payments
— Other products include lending, mutual
funds, insurance
= BancoPosta has managed this growth through
numerous partnerships
= Banking clients receive several advantages
~ Priority postal branch services; Discounts on
postal and other products; Easier online
money transfers
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BancoPosta
= In 10 years, BancoPosta more than
doubled the market share in terms of
number current accounts
= Moving to expand wealth
management and increase
distribution of loans, mortgages and
P&C insurance
~ Strongly positive market
reception to renewed 5-year
strategic vision: double digit share
price increase
= The postal networks allows for nearly
3x the number of branches versus
the next largest bank
@ Poste Italiane created a competitive advantage in financial services with its large
branch network
Coverage of Italian population, Sranche
nk
Italy
a
23
North Italy
20
Center Italy
20
South Italy
Poste
Italiane
SOURCE: Poste Italiane investor presentation
1st Italian
Bank
»
Italy’s leading customer distribution network
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Posteitaliane
M tf
o
Payments, mobile &
Mail & parcel digital
~eee)
Financial & insurance
* Unrivalled physical
distribution network champion
« Advanced customer
data capabilities
* Leading financial
* Italian payments
web and app
platforms
» Market leading
product distribution
network
Poste has nearly 50% of population as a customer, 18% share in savings
accounts, 8% in consumer loans and outperforms peers on ROE (~23%)
@ Poste italiane : The FS play
2017
Main business
units
Mail and parcel
Financial services
Payments, mobile
and digital
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Posteitaliane
Insurance
Revenues,
Key EBIT,
financials €Bn
TFA
Commercial
figures
1 Total financial assets
~110m
parcels/year
~30% B2C
market store
« ~34m customers
* ~13k post offices
» 15m daily visits
=p
0.2)
~25%
e-commerce
payments
~25m cards
issued
~104bn1 pay-
ments
transactions
3m Telco
customers
6 24.4 I
ep
* ~22% market
share on life
GwpP
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@ La Poste is expanding financial product portfolio and adjusts the branch
environment
©"
LA POSTE
= La Poste Bank and BPE collaborate to offer private banking services
targeting the postal bank’s 600,000 affluent clients
= Early 2019, BPE has 75 offices, BPE-spaces in 45 post offices
complement its own branches deploying private banking spaces in
some of its post offices
SOURCE: La Poste; Press @ 75
@ Portugal’s CTT has moved up the FS value chain from distribution to creating
and broadening the product offering
Where CTT started
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pe. ctt
* In 2015, Banco CTT was created as legal
entity with banking license provided by Bank
of Portugal
* Prior to this, CTT offered very limited
financial services
= CTT had a very strong existing mass market
postal customer base
* The initial approach was for a low risk
balance sheet strategy
i il
Dedicated counter space
) Key developments
The bank focuses on the mass market,
offering simple, transactional products
~ Principles of fairness, transparency,
low cost
Lending began as an intermediary, in
partnership with Cetelem
~ Itis gradually increasing its
exposure to credit risk and
broadening the product range
The initial 51 branches have expanded to
~200, built off CTT’s postal network
~ Branches have either multifunction
counters (with postal), dedicated
counters, or dedicated space
Digital focused
) Outcome
= Strong customer growth, and move to breakeven (2015
v 3Q16):
Net loans 3.0
Deposits 182.3
ێm 0.1
Net profits N/A
em -0.6
* Aggressive branch growth MB Dedicated space
I Dedicated counter
Multifunctional counters
402 379
@ Within FS we see different strategies for posts
Traditional approach
Description
Potential
co operating
model
Example
players
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Radical moves
@ Classic Postal Bank
Fee-based partnership
with banks
B® vores
terms
= JV with traditional
banking to act
as intermediary
AN CUE
BancoPasta
© Last Mile Utility model with @ Digital Customer @® Become @ Ecosystem covering
for all F2F needs Distribution only Interface provider Ethical Bank FS (Fintech) + non-FS
Offer branch services * Expand current offering * Actas aggregator of all * Build a fair ethical bank * Become key gateway
for existing banks (e.g., credit cards, financial relationships based that spans FS
Expand into KYC/ ID loans) (PSD2 play) on brand trust and related sectors
verification for credit = Negotiate * Offer 3 party and own = Fair and transparent * Partner with Fintech
checks etc best possible distributor products themed * Build ecosystem
Multiple models possible depending on product choice — opportunity
to take origination revenues either directly as a bank or in JVs
E” Alipa
@ Nationwide Sam ANPAY
Building Society 33 ideaBank
yon
2) Retail networks have to be adapted to maximize customer convenience
European post and parcel player example
+680
Agent based parcel
shops
+450
Smart parcel lockers in
partnership models
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Key considerations
.
Maximizing convenience through
longer opening hours and
additional (community) services
improving accessibility for
pickup and returns through more
access points
Creating lock-in effect with e-
commerce customers through
parcel lockers
Providing attractive agent
incentives in a post-mail
environment
@ ..
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2) Successful postal peers transformed their branches in multi- tiered networks to
allow sales, convenience and lower cost
@ Sales focus
Large offices with a wide range of services
Primary goal is to provide the highest quality service and ensure a positive
brand perception
@ Service focus
Mid-sized offices with an optimal set of services
Primary goal is to provide fast, efficient and high-quality of large volumes of
transactions
© Local Access
Small offices with a narrow range of core services
Primary goal is meet the accessibility criteria/social needs or provide a response
to the competition
© Direct Channels
A set of alternative channels provides more options to the customer and increases the
quality of customer service — mainly websites, mobile applications, call centers
2) For example, La Poste has 3 outlet formats, to which DPD adds parcel
shop and locker network
Own operated office
* ~8,700 outlets
* 4-2, 3-5, 7-8 counters,
banking dedicated office or
counter in medium and large
offices
«Private customers, SME and
corporate
* Service offers
— Full range postal
~ Full range financial
services
~ Full range of mobile and
digital services
— Third party services
3rd-party municipality outlet
1 Or SMEs behaving like private customers
SOURCE: La Poste; Press
~6,500 outlets
1-2, 3-5 counter, banking
dedicated counter in medium
‘ones
Municipality branches are
operated partnership with a
town hall or group of
municipalities
Private customers1
Service offers
-~ Large scale of post,
parcel services
Most commonly used FS
3rd-party retail outlet _
~2,000 outlets
4(-2) counter at retailer
Framework agreements with
a few large retailers
(Franprix, Total, Carrefour)
but also individual retail
contracts
Private customers1
Service offers
— Most commonly used
post, parcel and basic
financial service
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LA POSTE
DPD Pickup Station (parcel
DPD Pickup (parcel shop) - locker)
~350 (250 in stations, 150 in
* ~7,800 in France .
(31,200 in Europe) post offices)
= 1 counter » Private customers
* Equipment: handheld * Service offers
scanner, label printer, scale ~
= Private customers, SME
Service offers
— Parcel sending, return
and receiving (direct
order to shop or failed
home delivery)
— Product exchange,
sending and receipt of
equipment for repair
(e.g., set-top box)
— Parcel shop to parcel
shop sending France
and international within
DPD European network
Parcel receipt on choice
of customer to order in
locker
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“4
Three main groups of questions to be addressed
q
Retail network strategy I Product & sales I Operations &economics
How can stores help win in What further products What ownership model
growth segments such as ‘ should be commercialized : work to control costs while
= e-commerce and FS? ! and how? I delivering excellence?
7 What is the right branch — @ How sales in branches can @ Whats the ideal store
segmentation to ensure H become more efficient? : coverage and operational
appropriate and efficient : i model?
service?
3) Postal players have attempted to sell various non-core, third-party products in
offices
Description
Mobile phones, prepaid cards and subscriptions
Fixed line and internet subscriptions
Stationery
Personal computers and other electronic items
Various items (e.g. consumer electronics) via mail order
Books/CDs/DVDs
Gift vouchers
Public transport tickets/subscription
Event tickets
Flight ticket booking & payment (Jetstar airlines)
Cinema ticket booking & payment
Toys and games
ID photo service
Copy and fax services
Drop off and pickup point for computer repair services
Travel services, e.g., rental car, airline and hotel booking
SOURCE: Press; Operators; Interviews.
Example operator
Various operators
UK Post Office
Commonly offered
Swiss Post in the past, Austrian Post
Poste Italiane
Commonly offered
UK
Czech Post
China Post for Expo
SingPost
SingPost
Australia Post
Australia Post
Austrian Post
SingPost
UK Post Office
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3) What are the services you see being the most important to success over the next 5
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years?
90%
83%
50%
44%
35%
25%
10%
Mails Parcels Digital and/or eCommerce Reverse Loyalty Financial
Hybrid mail logistics services
NOTE: Multiple answers were allowed
SOURCE: Escher
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3) EU peers offer varied level of government services and often decoupled
from branch network
© Service provided outside post office
1D verification, authentic- Official document
Country Payment services cation, enrolment E-government services applications and renewals‘ Other government services
* Reimbursement requests * Notarial or judiciary certificates * n/a * Driving license renewal * Scheduling appointments at the
af. concerning health expenses _* Real estate, civil or * Residence permit renewal hospital or healthcare center
ett * Utility payments commercial certificates « Registering foreign
Citizen * Toll road payments requests workers’ contracts
Bureau Areas? Registering intellectual property
* Vehicle tax * PostelD application = With Postel, ose * Passport services :
* Social welfare payments * Health card application
* State pension payments * Application for cards of welfare
* Payment services for benefits
aeaunuuRE unbanked citizens uf * 5700 offices operate citizen help .
* Electron payment f poval security tion, 8 desk, which allows multiple services,
e.g. land registry, residence permit
personal certificates applications
. . . . s fealth "nla . 0
* Cash transactions for “nla .
% unbanked citizens
bpost
1 Typically, not all services offered in all States/Counties/Regions and all Pos, 2 In 300 POs
SOURCE: Operators’ websites and reporting; Press
Fishing permit
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3) “Lessons learned” from other postal services companies yield several insights for
POL direction
@ Every post has made attempts to grow outside the core in “adjacent” markets. The vast majority of these
efforts has failed to create either sizeable revenue streams (more than £20m per annum) or profits. E.g.,
mailroom management, ID validation, secure email, digital letterbox, document archiving, warehousing, postie
add on services (meter reading) etc
@ The successes have been primarily from legacy assets, in particular growth of financial services and
mobile (e.g., Poste Italiane), as well as parcel markets
® Other posts have, in general, failed to incubate new businesses organically. There have been some
successes in making acquisitions, especially in two areas:
* Rollup of other express or parcel operators (DHL Express in Europe, UPS and Fedex globally)
* Acquisition of businesses which have subsequently been run at arm’s length in order to preserve different
culture and people processes e.g. Deutsche Post acquisition of digital marketing boutiques Nugg and Admail
SOURCE: Press; Operators; Interviews. @ 85
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© Sales scripts, tools can boost in-branch sales
Best practices from retail and banking environment Counter clerk trigger-selling chart example
» Standard and well-known to staff scripts for basic eae sacs SSE ny PAIMENTS
Mort- Personal
products is use Qos Par) Sera I Travel Home I Motor I ISiSing I Bonds giving I I'ae"™
ol alia Do yeu ave you gat home
eaten urea x yur
« Aheatmap of potential cross and up-sell situation seo é
identified and staffed trained on transitions if recognizing Ff nail
any of the triggers eon a : Sarme
* Staff is coached on translating products knowledge to a a a ‘Sones ya
ieee: coud sarge
language understandable by any customer
‘inancing
» Adequate training and coaching e.g., via role plays
providing experience on how to deal with different
customers
Simple visual and IT tools help track process and progress
« Regular monitoring, feedback and performance
dialogues are provided to staff
Visual sales performance Branch manager’s CRM tool
management board
SOURCE: POL; Postbank; Hitachi Dynamics CRM @ 86
© Branch-specific incentive practices can lift sales
Best practices atretailbanks
* Pay out incentives frequently and more often to create
right frontline motivation
= Create gradual incentives to drive growth — don’t create
strong step function
* Ensure employees clearly understand how their
incentives tie to overall goals of the institution
* Prioritize strategic objectives (e.g., tiered quotas)
* Drive collaboration amongst sales teams (e.g., group
bonus)
« Use leverage in financial incentives to drive appropriate a
employee behavior 1 Post
* Provide attractive non-cash incentives to conveys
importance and special appreciation
* Build loyalty to the company through unique and culture-
specific awards
EU postal
incumbent
Examples at postal operators
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Incentivizes to postal clerks by providing possibility to become
financial advisor in case of stellar performance
Recruits and manages postal banking staff as in banks:
employees specialize in products, they are in charge of a client
portfolio, there is separation of staff for retail and corporate
banking staff, incentivized for sales
Luxembourgish Post provides incentive-pay for both financial
services and telecommunication sales staff
Team incentive for most successful office in sales of third-party
product
G22 4 99h
Retail network strategy
How can stores help win in
growth segments such as
e-commerce and FS?
What is the right branch
segmentation to ensure
appropriate and efficient
service?
Three main groups of questions to be addressed
Product & sales
What further products
should be commercialized
and how?
How sales in branches can
become more efficient?
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Operations & economics
What ownership model
work to control costs while
delivering excellence?
What is the ideal store
coverage and operational
model?
esods
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5) Typically only 1/3 of own-operated branches are profitable...
Profit (loss) per branch’
€ thou I
Small group of relatively profitable outlets — typically
very busy commercial agency outlets
200
4 ~60%-75%
fe)
~25%-40%
(200) 4 Large number of “marginal branches”
(400) 4
Long tail of highly loss- +
making branches —
(600) 4 typically rural areas
(800) 4
1 Net profit per branch includes income Idss direct and attributable costs of network provision @
SOURCE: Typical experience across mufiple European postal counters networks 89
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5) ... which leads to a strong trend of outsourcing offices
Outsourced [fil] Own
Postal retail network size and ownership
2005
100%= 133 13.881 10,081 37,142 17,000 1.947 12.671 4.511 2.234 2.100 14.376
0 6 1 18 31
[ 81 81
88 97
82
45
oma 123
2017
100%= 124 12.822 35,005 17,100 1.802 13.167 4.356 1.851 1.670 11.547
0 wy 10
= 51 *
100 a a 100 98
55 49
vac ‘cement 1° yO 2
Hong Kong Italy Spain Switzerland US France Austria Germany Australia Sweden Netherlands UK
1 PostNL owns offices, but provide services only to corporate clients and were excluded for benchmark purposes @
SOURCE: Company websites and annual reports; Regulator reports; Press 90
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5) Achieving best strategy typically requires relocating many postal branches and
innovative approach to partnerships
Where different partners could support the network
Sales
focus
Service
focus
Local
access,
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© Example - Canada Post has transitioned from a fully Direct to more of a Master
Franchise model over time
Overview ofCanadaPost: __ Overview of transition to Master Franchise model
© Directly managed
* Canada Post Current state
operates 6,200
branches
= 98% of Canadians §
live within 15km
of a Canada Post
branch
= Canada Post
delivers mails and §
parcels to around *
~16M addresses
Early years of
franchise model
= Removal of territory
Before franchise model rights
re-1987)
7 ) = Consistent split of
at franchised and directly
* Franchisees were granted — managed branches over
exclusive territory rights time (~40% franchised,
per year Directly-managed : = Canada Post opened a 80% directly managed)
* Canada Post branch = Canada Post managed franchised store for * The organisation has
generates ~$8.2B 100% stores directly every directly managed moved from owned stores
annual revenue store it closed to a ‘store-in-store’
S = Canada Post sought i
franchise model to: * Post offices were ee Pencuiery
standalone branches, ileal alfa)
~ Improve customer
access
— Reduce costs
~ Leverage the retail
know-how of the
private sector
rather than store-in-stores
Total number
of branches
SOURCE: Canada Post @ 92
(store-in-store format)
5) Example - Canada Post’s Master Franchise model enables a lean
organisation structure with standardised, fixed-period contract terms
Overview of Canada Post franchising model
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Relationship with Shoppers Drug Mart
* Sub-franchisee owns and operates a Post Office within an existing
retail store, e.g., a drugstore
= No exclusive territory rights
= Blended margin of ~20% for Master Franchisees and additional
economic benefits driven by increased customer footfall generated
by Post Office products (~15% sales uplift)
* Contract term of 5 years with option for a further 5-year renewal
* Minimum of 76 opening hours per week and 7 days per week
* No management of store operations, performance management of
stores conducted on a quarterly basis
« Explicit preference for household brand names as partners, as
quality is perceived to be better
Example partnerships
SHOPPERS ©) lobes QED Lobey [ZI
SOURCE: Canada Post
Overview
Q
Insights
for POL
* Shoppers Drug Mart, a franchised organisation itself,
owns ~50% of Canada Post franchised branches
= Canada Post agrees a framework with Shoppers Drug
Mart but actual contract is signed on a store-by-store
basis — very specific formal contract with standard
terms and pricing
= The Master Franchisee is responsible for paying most of
the setup cost, i.e., standard fit-out, staging and
equipment
* The relationship between Canada Post and Shoppers
Drug Mart is renewed every 5 years
» Although Master Franchise models create a leaner agent
servicing structure, larger contract management teams
are required to ensure consistency among franchisees
= Fixed period contracts allow the franchised
organisation to update arrangement terms if desired,
making it easier to change franchise strategy
SHOPPERS (
DRUG MART
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5) Increasing automation plays an important role in transforming network economics
and driving future customer satisfaction
Counter automation mentioned as #1 factor in branch Younger generations use significantly more automated delivery
productivi method
«. 4 dd
responses y
® Home [Lockers [MM Workplace —— Store pick-up —_-Friend/family
e
e
°
*
Sod
6
*
3
Millennials GEN X Baby Boomers Seniors
1 Survey conducted between July and September 2018. Online survey of Postal leaders worldwide, with 76 total responses from 32 countries @
SOURCE: Escher — Future of the post, 2019 report, Doddle - UK presentation on World Mail and Express Europe conference, June 2019 94
5) Example - Singapore Post introduced self-service postal machines as early as 1997
and also built up the world’s densest parcel locker network
Self-service
Automated Machines
(SAM) were
introduced in 1997 by
SingPost
In 2010, two thirds of
the counter network is
composed of SAMs.
In 2016, only 3 post
offices were not
equiped with a SAM
SingPost introduced
Popstations
(automated parcel
terminals) in 2013 for
convenient parcel
receipt and return
Both services are
especially
appreciated by
younger generation
due to convenience
They allow easy
access to services
without queuing and
also outside of office
opening hours and
often 24/7
Wide range of
products and services
include: bill payments,
government services,
top ups and gaming
ete.
Network is composed
of 139 machines
today, with expansion
plan of doubling the
network on mid-term
In 2018, 29 Pos have
been renovated all
allowing digital
access, 24/7 letter, bill
payment and parcel
services
Source: Singapore Post; Press
SAM specially started
to be popular in the
early 2000s with
introduction 24/7
machines
Machines allow parcel
sending, receiving
and returning and
customers can also
rent a box for peer to
peer e-commerce
sending
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SingPost retail Network
# of access locations I
@ sam ird party operated post office
{i Popstations Own operated post office
519
300
2003 2005 2010 2016 2017 2018
5) Example — Posti starts roll-out of unmanned post offices
= Posti has completed its second unmanned : ae.
postal kiosk, located outside Posti’s % ay
headquarters in Helsinki.
= The kiosk features parcel lockers for
collection of parcels and lodging e-
commerce returns. Customers can also
send domestic and international parcels.
= Customers can contact Posti customer :
service personnel via a video link for help oo i
and advice.
SOURCE: Posti, Press
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5) Parcel lockers gain in popularity and some operators make aggressive bet towards
this delivery mode
Overall trend towards expansion
of locker networks continues ...
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Lockers introduced as early as 2001
Multiple generations of technology tested
Over 10% of population are registered regular users
Plans to roll out 7,000 by 2021
40% of the Finns are covered by a seven day parcel
distribution via lockers
Target of 1500 terminals by end 2019, most dense EU
# of terminals of [PC members, .. with pronounced strategy towards lockers at a few operators
160 : ~3700 .
: terminals .
across .
100 : Germany .
posti — ~1,600 .
terminals in
2018 "
2013 2017
SOURCE: IPC Global Postal Industry report, 2018, Operators’ website and reporting
network at target state
Contents
Where We Make Money
Organisational Health Survey Results
Learnings from other post
Big Bets
= Approach to building a portfolio of Big Bets
« Latest list of Big Bets considered and discarded
Overall process update
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REMINDER: Big Bets will help shape the future of the Post Office
Research found that a significant and flexible reallocation of
resources to support “big bets” is one of the most important
drivers of revenue growth and profitability improvement
“Big bets” are initiatives that require significant resources and
investment (£10m+ of total CAPEX and exceptional spend over the
entire duration of the project) and will materially impact the strategy
and/or operating model of the Post Office
We developed a methodology by which we propose to assess and
choose a portfolio of “big bets” using 3 dimensions: financial
returns, ease of value capture and fit with the purpose of the Post
Office
Since the previous Board meeting, we have:
— Further developed our long list of potential Big Bets
— Assessed the Big Bets against the 3 said dimensions
— Started ruling out some Big Bets on the basis of poor
financials or low feasibility
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gTRATESY
wockeY STICK
We are currently in the 3° and final stage of our approach to building a Big Bet portfolio
=
Ideation -
= Generate Big Bet ideas
= Structure into
categories
= Refine Big Bet
definitions
Activities
= Assign primary source
of content for evaluation
= Agreed long list of Big
Outputs Bets
Evaluation
Build fact base to level needed to
decide on Big Bets:
— Financial estimates (benefits,
investment, terminal value when
insightful)
— Feasibility assessment
— Fit with PO Purpose
Cut Big Bets weak on financials,
feasibility or fit with purpose
Make decisions aggressively on
weak big-bets to focus on better
candidates
List of excluded Big Bets
List of shortlisted Big Bets with
summary 1-pager
Finish wic25Nov
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Continue to pressure test / refine
big-bets, maturing financial
estimates and feasibility assessment
Cut weakest individual projects by
financial / feasibility rankings
Select a portfolio from the
individual Big Bets based on:
affordability, timing, risk profile,
interdependencies, PO capacity and
capability for change
Step-back and test: can we make
these bolder, more ambitious?
Sequence of Big Bets that will
shape the Post Office for next 5
years
@ 101
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(6) Big Bet selection is first done at a project level, then at a portfolio level
roject-level assessment @B) Portfolio-level assessment
Evaluate Big Bets under 3 dimensions: = Bring all remaining potential Big Bets in a single list
= Investment required and contribution = Refine high-level financial as relevant
* Level of granularity: as much as relevant I = Construct Big Bet portfolio options taking into
High-level for selection : account:
financials ' "
. nome by external market view when I = Affordability of investment cash flows required
relevan' i
— Timing and Risk profile of overall portfolio:
= How likely is POL to succeed in © Does the portfolio offer a healthy balance
implementing and capturing the value ; between higher-certainty and higher-
Feasibility ; i risk/potential payoff Big Bets, and between
= Informed by external market view when : shorter- and longer-term payoffs?
relevant ; :
» What is the potential correlation between risk
profiles of the higher-risk Big Bets?
Fit with = Will it increase convenience, access for : orgs .
POL’s all, ability to help our end customers PO capabilities and capacity for change
purpose with everyday tasks, etc.? I — Potential interdependencies between projects
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G22 1 GLb
Big Bet are submitted to a “decision tree” that underlines a rigorous selection process
Completely * Preliminary Big Bet case is weak
discard Big Bet» Any further effort on it should be stopped
> B1
Move to * Big Bet case is strong, but total investment
“> B2 “Small Bet” list <£10m, therefore moved to “Small Bet” list to be
owned by relevant function lead
* Preliminary case is not sufficiently
developed at this stage to make a decision
Big Bets -
considered * Clear next steps and owners to be identified
and Big Bet to be discussed again
* Preliminary case for Big Bet is strong
= Case to be further developed in next couple
of weeks in preparation for “Final Round”
« Big Bet is a “must do” that can be approved
without any further discussion .
@ 103
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The result is an iterative process that gets us progressively closer to the recommended
Big Bet portfolio
~. Project-level ;
. selection 4
= No decision at this = Rule out those Big Bets = Through an iterative * Select Big Bet portfolio
stage whose high-level process, reduce the options based on:
financials, feasibility or list to a manageable _ Affordability
purpose fit are clearly size by ruling out .
Decision- weak those Big Bets that - Timing
making have the weakest ~ Risk profile
activities financials and — Interdependencies
feasibility
— POcapacity and
capability for change
# of
potential ~40 20 ~15-20 ~10-15
Big Bets
104
Contents
Where We Make Money
Organisational Health Survey Results
Learnings from other post
Big Bets
= Approach to building a portfolio of Big Bets
« Latest list of Big Bets considered and discarded
Overall process update
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4 Big Bet categories g
Examples of Potential Big Bets 3
_. . * Sell Telco business
Optimise the product portfolio and grow revenues from the = Digitise parcel journey
existing product categories * Replace Bol ATMs with POL ATMs
. . I = Redefine the network
Transform the network and its operations to ensure its » Improve customer experience through
sustainability branch automation
. i siece = Modernise Horizon
Build technology and digital capabilities to support the * Build digital and analytics capabilities to
business support other Big Bets
« Right-size the central functions
Right-size the central functions
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Big Bets: Optimise the product portfolio & grow revenues from the existing product cat.
Big bets
Example of initiatives
Optimise
the product
portfolio
and grow
revenues
from the
existing
product
categories
Mails and Digitise the parcel journey
parcels
Bill Pay
Extend the PUDO network
Expand the Bill Pay network
Telco: divest or keep
Replace BO! ATMs with POL ATMs
Grow banking framework business
Grow Identity business
Build an FX transactional
proposition
Develop an online investment
FS service
Develop an SME proposition in FS
or more broadly
Develop Large Corporates’
proposition
Marketing / Branding investment
Enter the subscription drug
fulfilment market
Business
model Move to a platform business model
Implement an online parcels business connected to the branch journeys
Increase the PUDO points through Payzone and Parcelshop
Expand the bill payment network through contract wins and whole estate convenience
retailers deals
Divest Telco, or keep Telco & reduce cost base through RFP and potential supplier change
Invest in infrastructure to replace current Bol ATMs by POL ATMs
Invest in marketing campaign to increase awareness
Take a partnership lead approach to develop new services for banks
Invest to develop Identify service and seek partnership with a bank
Expand current FX offering to capitalise on market growth within travel Credit/Debit card
market
Develop a white label investment service
Build an FS SME proposition offering (lending, working cap & invoice finance, international
payments, insurance)
Develop SME online platform
Monetise customer relationships by introducing large corporates
Invest in developing a Post Office campaign to reinvigorate its brand
Develop a “click-and-collect” service for non-liquid renewal subscriptions
Offer “community pharmacy” service
Move the business towards a consistent white label platform business with maximum
outsourcing long term &
107
Big Bets: Transform the network and its operations to ensure its sustainability
Big bets
Example of initiatives
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Transform the
network and its
operations to
ensure its
sustainability
Redefine the
network based on
customer needs
In-branch cash
automation
In-branch mails
automation
Improve agents’
experience
improve supply
chain efficiency
Develop agents’
capabilities
= Continue DMB closure program at accelerated pace
= Continue Mains to Locals program
« Continue New Network Locations program
Invest in cash automation through TCRs and automated
deposit machines
Invest in automating in-branch mails customer journey
through deploying SSKs
Modernise agent support (e.g., Branch Hub)
Digitise agent journeys (e.g., training)
Optimise the channel mix and ROI for the agent package
taking into account pay, alarms & security, building spend,
cash, field teams...
Change Horizon and processes to simplify customer journeys
in branches, reducing errors & queues
Optimise supply chain efficiency, ownership and systems
Outsource cash supply chain
Apply advanced analytics to optimise supply chain logistics
“Super-size” hot housing
Build sales competencies of postmasters
Big Bets: Build technology and digital capabilities to support the business
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Big bets Example of initiatives
= Invest to move the Horizon technology onto modern architecture and without
Modernise any supplier lock-in
Horizon = Review the business needs that drive complexity into what the future Horizon
must do
Enable
management «= Build a MI strategy that enables data-led decision making
Build technology information
and digital across POL
capabilities to
support the Build
business customer data = Build a customer loyalty program underpinned by data & analytics capabilities
and loyalty
approach
Platform « Build a POL own platform that allows owning customer data across POL online
capability businesses
building
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Big Bets: Right-size the central functions
Big bets Example of initiatives
« Zero-base lowest run cost for staff costs and non-staff costs that will support the business
* Leverage tools such as digitisation, automation and spans & layers to transform and right size
the central functions for:
fied ve -SLP-grade managers
4 -Supply chain
functions -(not DMBs)
Right-size the
central functions
Undertake » Undertake review of employees Ts&Cs to close the gap with market average metrics
review of
Ts&Cs
challenges
such as MTSF
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Discarded Big Bets
Big bets Example of initiatives
= We should not divest insurance because it is an important profit contributor (13% of total
PO contribution in FY2018-19)
« Equally, there is currently no case to invest materially in Insurance given the Post Office
has recently done this
« Therefore the recommendation is to carry on growing Insurance as BAU
Insurance: divest or
grow faster
Build a retail banking = The feasibility of such an initiative is very low for the Post Office: the cost would be high,
customer hub new capabilities would be required, and the benefits are highly uncertain
« The feasibility of such an initiative is very low: This has been tried by multiple posts in
Build a B2B cash the past and none of them have succeeded. This is due in part by typically bespoke
handling business customer needs that are difficult to satisfy at scale
* High brand risk (e.g., wholesale price increase) with limited benefit upside
Enter the energy « An option to enter this market by playing the role of an aggregator (e.g., Uswitch) is also
market unattractive given a very high competitive space
= Post Office would not have strong delivery economics, especially when compared with
Stand up last mile dedicated delivery players, e.g. the Royal Mail
delivery proposition
Contents
Where We Make Money
Organisational Health Survey Results
Learnings from other post
Big Bets
Overall process update
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PSG: Overall Project Plan
PHASE I: Baseline and Theme
4 weeks (30 Sep to 25 Oct)
Workstreams
Phase II: Strategy Development
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Phase II: Syndication and Iteration
Provide a fact base to assess POL’s
markets and customers
Start assessing the “strategic balance
sheet” of POL
Brainstorm alternative Purposes
Identify emerging themes that would
inform the future strategic “Big Bets”
Design a Customer Insight survey
Launch the Organisational Health
Index (OHI) survey
Provide targeted expert support to the
Zero-Based review of the organisation
Identify major problems posing a threat
to continuity of the business (“lights
out” risk)
29 October 2019
7 weeks (28 Oct to 13 Dec)
Articulate Post Office purpose
Define the future strategy and start
answering the strategic questions listed
earlier, e.g.: H
— “Big bets” '
— Markets should we play in
— Attractive growth opportunities
— Strategy financials / economics
Launch the Customer Insight survey
Playback the results of the OHI survey
Identify the leadership steps to shape
the actions informing the strategy
Continue ZBB acceleration
Baseline technology
Identify implications for the business
strategy I
26 November 2019
19 December
5 weeks (6 Jan to 7 Feb)
Syndicate and refine the strategic
choices, and finalise the answer to the
strategic questions
Articulate the 2-3 “Big Bets”, including
resources needed to support them
Prioritise initiatives to embed Purpose
and Strategy
Integrate with 5 year plan
Drive OHI survey results into target
behaviours and interventions
Prioritise technology initiatives to
deliver strategy
28 January 2020
Overall PSG plan: several workstreams come together to feed into Big Bets over next 4 weeks
Output
November
December
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January
Purpose
Customers &
Postmasters
Big Bets
Financials &
Markets
Org capabilities
Technology
Arefreshed statement of our
purpose that states what
POL stands for and...
Resonates with our
customers and our
Postmasters
Captures the coherent set of
services we will invest
money and effort into
Aligns us to where POL can
be profitable within our
investment envelope
Fits our capabilities and
motivates our people
Is supported by a funded set
of technology changes
Brings together all the above
in board papers + unified plans
Gather inputs from wide group
of stakeholders
Understand what customers
and postmasters think through
engagement and surveys
Create long-list with
estimated financials and
feasibility; shortlist best
Estimate product and channel
profitability; analyse markets
for difficult Big Bet decisions
Baseline the organisation to
understand changes needed to
deliver Big Bets
Diagnose issues with
technology and identify what it
takes to move forwards
Feed Purpose, Customers &
Postmasters and Financial &
Markets inputs into Big Bets
Test early purpose statements
Feed results into iterations of
the Big Bets
Iterate portfolio of Big Bets
with learnings from Purpose,
Customer and Financials
Improve financial forecasts and
feasibility assessments where
required for shortlisted Big Bets
Review ways to strengthen
effectiveness of Product and
Partnership
ITLT works on addressing
issues and designs project to
identify Horizon way forwards
Ensure coherence of Big Bet
iterations with Purpose and
Customers & Postmasters view
Finalise purpose statement
Engage postmasters with
findings (may be later)
Select portfolio and engage
stakeholders to confirm _
Build PO financial forecasts
Identify leadership actions to
shape the culture needed to
support Big Bets I
ITLT starts project to under-
stand Horizon and identify a
costed way forwards Q1 2020
Feed Big Bet choices into _
financial forecast
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We are engaging postmasters through “curry nights”, 1-on-1s and an online survey
Curry Nights and 1-on-1s
Engaged over 80 postmasters at “curry nights”, including:
= Diverse blend of branch formats/ locations (rural, suburban, urban)
» Varying tenures ranging from <1 year to 33+ years
= The youngest postmaster in the UK at 22 years old
* Postmaster for the only Post Office run by a town council
* Third generation postmaster, handed down in the family since 1932
Current
pro-
gress
* Final “curry night” with ~15 London area postmasters
* 10+ 1-on-1 conversations with high performing postmasters
scheduled for w/c 25 Nov
Location Date
Eastbourne Mon 4h
Burton-on-Trent Tue 12h wv
Curry Weston-super-Mare Thu 14!"
nights Cambridge Mon 18" ~
Manchester Tue 19" ¥
Guildford Thu 218
London Tue 26!"
@ =~ England
One- @ Wales 10+ post-
on- ~ masters;
ones © > Scotland wie 25th
@ Northern Ireland
1 ~6,000 represents postmasters that opted in to communications per GDPR restrictions; DMBs were excluded from this survey as their input was taken in the OHI survey
* Sent to ~6,0001 postmasters at 18:00 on Friday 15 Nov
= 6% response rate by end of first week of survey being live
» Reminder email sent Friday 22 Nov
Current
progress
« Area Managers will follow-up to encourage people to
complete survey during routine branch visits
* Close survey Friday 29 Nov and analyse results
Early results
ie] Serving our communities
Atrusted brand
Part of the social fabric in our communities
Care for our customers
215
213
203
135
Consistent, friendly service 129
Middle 25 ranked themes
Value for money 81
Enabling lives and businesses to move forward
Convenient online presence
Helping businesses grow
ley Moving the UK forward
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PAPER
Framework Document & Articles of Association Update
Author; Mark Underwood Sponsor: Ben Foat Meeting date: 26 November 2019
Context
At the July Board, the CEO or CFO and General Counsel (GC) were given authority to finalise the
Articles of Association (AoA) and Framework Document (FD), subject to any further material
changes. In September 2019, the Board subsequently approved the outstanding Group Reserved
Matters in the draft AoA and for the FD to include a commitment for POL to comply with the
relevant guidance of the Public Sector Pay and Terms (PSP&T) as set out in a note from UKGI,
which had been discussed at the Remuneration Committee (RemCo) ahead of Board. In practical
terms and once the FD is adopted, this means POL will not offer private medical insurance (PMI)
to new joiners although, as was flagged at RemCo, the FD provides an open ended mechanism
for UKGI to apply further public sector guidance and seek a far wider application of the PSP&T.
Subject to confirmation from UKGI (and the subsequent HMG approval process), we now believe
the AoA to be final and in agreed form.
In respect of the FD, UKGI has since informed POL that it also wants the FD to include:
. The requirement to comply with the principles and provisions of the Financial Reporting
Council’s UK Corporate Governance Code (‘The Code’) and, to the extent that POL does
not intend to observe the Code, that the Shareholder Representative be notified in
advance. In large, and to the extent they are applicable to POL as a limited company, POL
already adheres to the standards set out within the Code and subsequent to being
discussed at GE on 28 September, we are comfortable with the inclusion as proposed by
UKGI.
. Two additional appendices that set out i) a detailed description of the Shareholder
Representative’s role which, as currently drafted, could be considered to extend into
executive territory and embeds the role further in the company’s constitution and
governance; and ii) POL will “observe” the PSP&T.
Questions addressed in this Report
1. Does the proposed description of the Shareholder Representative’s role reflect typical
shareholder rights within a government context and what are the recommended
amendments to the proposed draft?
2. How should POL’s commitment to comply with the relevant guidance of the PSP&T be
reflected in the FD?
Conclusion
1. Subject to the proposed amendments being accepted, the activities included within the
description of the Shareholder Representative’s role are not dissimilar to what one would
expect to see for other wholly owned subsidiaries with sole shareholders (particularly within
a government context). It is recommended that POL make some changes to the drafting
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POST OFFICE LIMITED BOARD PAGE 2 OF 14
PAPER
proposed by UKGI to ensure these rights do not extend into executive management. Annex
1 sets out the proposed amended wording.
2. The inclusion of an additional standalone appendix in the FD, specifically for the PSP&T,
seems unnecessary given all other pieces of Corporate Guidance applicable to Public
Corporations are listed within Appendix 2 of the FD. Although the UKGI RemCo paper makes.
it clear that the PSP&T applies to POL in its entirety and that this was accepted at the
September POL Board - in practical terms the UKGI RemCo paper describes the current
‘enforcement’ or approach of this guidance to be limited to POL not offering private medical
insurance to future employees. The risk of enforcement of further requirements in respect.
of any public sector guidance (and a far wider application of the PSP&T than the pragmatic
limited impact set out in the UKGI RemCo paper) was discussed at the September RemCo.
The options are:
(a) Accepting the additional appendix (and its wording) proposed by UKGI (see annex
3 of this paper); or
(b) Refusing the additional appendix (and its wording), reverting back to the UKGI
with a request for the PSP&T to be re-inserted in Appendix 2 of the FD, along
with a footnote which limits the application or practical effect of the PSP&T to
private medical insurance (see annex 4 of this paper);
Input Sought Input Received
The Board is asked to: Linklaters LLP
- Approve the description of the Shareholder
Representative’s role and, its inclusion within the FD.
- Consider and decide how PSP&T should be reflected in
the FD, namely:
« Accepting the additional appendix (and its wording)
proposed by UKGI (see annex 3 of this paper); or
e Refusing the additional appendix (and its wording),
reverting back to the UKGI with a request for the
PSP&T to be re-inserted in Appendix 2 of the FD,
along with a footnote which narrows the recognition
of the current practical effect of the PSP&T to in
relation to the private medical insurance (see
annex 4 of this paper).
Strictly
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PAPER
UKGI's Proposed Inclusion of a Description of the Shareholder Representative’s
Role within the Framework Document
1. The FD, as currently proposed by UKGI, now includes a detailed description of what they
believe to be the role of the Shareholder Representative. Once the wording is agreed, its
inclusion will formalise the role and responsibilities of the Shareholder Representative and
bring clarity but also a degree of permanence to the scope of the role.
2. Broadly speaking, the activities included within the description of the Shareholder
Representative’s role are not dissimilar to what one would expect to see for other wholly
owned subsidiaries with sole shareholders (particularly within a government context).
However, POL will need make some changes to the drafting proposed by UKGI to ensure
these rights do not extend into executive management. A mark-up is included in Annex 1
of this paper.
3. If the Board is comfortable that the description of the Shareholder Representative’s role
reflects the intended ongoing relationship with the Shareholder Representative, it can be
included as an annex to the FD - subject to confirmation from UKGI.
UKGI's Proposed Inclusion of an Additional Standalone Appendix Setting out the
Application of the Public Sector Pay & Terms to POL
1. While the FD is not legally binding, given that it will be a public document, it will be difficult
for UKGI and POL to step away from its terms which govern the relationship between the
parties.
2. The current draft of the FD requires POL to have regard to the government wide corporate
guidance applicable to public corporations listed in an appendix to the FD and any future
relevant guidance as specified by Government to the extent that such guidance is applicable
to POL as a Public Non-Financial Corporation. This is a very broad obligation on POL and the
Board has been previously briefed on the risk that the Government will expect certain current
and future guidance to apply to POL despite the fact that legally POL may not be required
to apply this guidance.
3. This risk has been highlighted by the PSP&T which covers pay setting arrangements for
public sector employees, including departments, non-ministerial departments and agencies,
as well as for public sector workers in non-departmental public bodies and other arm’s length
bodies. The guidance provides a framework within which all departments will set pay, and
for departmental pay strategies and pay reporting, unless there is an existing multi-year or
other agreement in place. The guidance, which was updated on 22 July 2019, is expressed
to be a “reminder of the cross-cutting public sector pay and terms rules that are in place,
and the government's expectations on public sector employers".
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4. Whether POL is subject to PSP&T has been a live question since at least October 2018. It
was suggested three key documents could apply to POL:
a. The Senior Pay Guidance - Requires Chief Secretary to the Treasury approval for any
packages of £150k or above or bonuses of more than £17,500.
b. Civil Service Pay Guidance - Confers a power to make pay awards within the range of
1% to 1.5% (but not more).
c. Pay and Terms Guidance - Contains a reminder of the Senior Pay Controls, a restriction
against using contractors, a marker that the Government intends to cap exit payments
at £95k, limits use of confidentiality clauses, restricts use of salary sacrifice schemes,
requires prudent staff travel expenses, employment contracts of high earners to contain
an expectation that salaries will be published, restricts certain benefits including private
medical insurance.
POL took advice from Martin Chamberlain QC on 7 December 2018. Counsel’s view was: the
Senior Pay Guidance applied to POL but only to roles subject to ministerial approval, i.e. the
Chief Executive, Chairman and Directors; the Civil Service Pay Guidance did not apply; and
he did not believe the PSP&T currently applied to POL. UKGI was provided with this opinion
and POL’s view and POL invited the Government to indicate whether it agreed. POL is still
waiting on a response from HMT who have advised that they are taking legal advice on the
issue.
On 4 Sept 2019, UKGI, wrote to POL to confirm that the Senior Pay Guidance only applied
to ministerial appointments (ie Board directors) but not otherwise (ie no other employees),
and that the Civil Service Pay guidance did not apply to POL. They were of the opinion that
the PSP&T did apply to POL but explained, informally, what UKGI felt the pragmatic approach
would be, i.e. POL should not offer PMI to new joiners. Separately, pay in lieu of pension or
car allowances should not be offered to the CEO and CFO.
The September POL Board agreed to the FD including a commitment for POL to comply with
the relevant guidance of the PSP&T and that in practical terms, this meant POL would not
offer private medical insurance to new joiners (but that the cash equivalent could be built
into base salaries and employees could still participate in the private healthcare scheme
offered through the company at a charge). This commitment and what it means in ‘practical
terms’ for POL was set out in a UKGI Paper which was discussed at the RemCo ahead of the
September Board.
During a call with UKGI it was initially suggested by UKGI that the UKGI RemCo paper could
be appended to the FD in its entirety, but it was subsequently agreed that a footnote
describing how, in practical terms, the PSP&T would apply to POL would suffice.
On 6 November 2019, UKGI shared with POL a revised version of the FD, highlighting that
they had removed the reference to the PSP&T in Appendix 2 of the FD (which is where all of
the other various pieces of Corporate Guidance applicable to Public Corporations are listed)
and had inserted an additional Appendix, solely, to set out how POL will observe the PSP&T.
Strictly
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going forward. This proposed appendix and the UKGI RemCo paper are included in Annex
2 and 3 of this paper respectively.
8. Although the UKGI RemCo paper makes it clear that the PSP&T applies to POL in its entirety
and that this was accepted - in practical terms the UKGI RemCo paper describes the current
‘enforcement’ of this guidance to be limited to POL not offering private medical insurance to
future employees. The risk to accepting that POL was subject to the PSP&T, as was socialised
at RemCo, was that a far wider application of the PSP&T could be sought in the future,
including in relation to £95k cap on exit payments.
9. The Board is asked to confirm its position in respect of the application of PSP&T.
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Annex 1 ~ UKGI’s Proposed Appendix 4 to the Framework Document
Description of the Role of the Shareholder Representative
The role of the Shareholder Representative, as performed by UKGI, -consists of the activities
set out below. -In relation to these activities. the Shareholder Representative will provide
advice to the relevant ministers and Principal Accounting Officer, in consultation with BEIS
officials.
Establish.and-mMaintain appropriate and effective corporate governance foundations
which govern the department-asset relationship
1. work with BEIS and POL to establish.and—maintain appropriate corporate
governance documents and systems which will govern the relationship between BEIS
and POL, through up to date and fit for purpose governance documents, including
Framework Documents, Articles of Association where relevant, board Terms of
Reference, chair fetter,
Review and provide oversight ofPremete effective objectives, business planning and
performance against business plan
2. monitor and assess-and-challenge from an owner's perspective the POL’s Group Plans,
the clarity of the objectives, the quality of the Group Plans and the financial, and where
relevant commercial, strength underpinning it, and its effectiveness as a tool for POL.
3. monitor and assessehallenge POL’s-~and-te-Board-as-ie-the performance against its
Group Plans or equivalent document, in terms of how POL is performing as an
organisation (as opposed to monitoring the success of the policy delivery itself}.
4. if there is a UKGI Shareholder NED on the POL Board, assessehatlenge POL's Business
Cases, and other HMG approvals outside POL’s executive delegations, through that
NED position on POL’s Board only (this will be limited to the degree of
assessmentehalienge that any non-executive board member can provide). Provide
advice to BEIS and ministers on HMG approvals outside POL's executive delegations,
working closely with BEIS Finance.
Oversee the promotion ofPromete strong corporate capability
5. through the UKGI shareholder team, as well as the UKGI Shareholder NED on POL’s
Board, promote the strength of POL’s governance systems which support
organisational performance, by assessingpreviding-high-ievel-challengete POL4and
its. Beard} on:
@ governance framework compliance ~ defined as POL’s view on its compliance
with its governance framework (as set out in its Framework Document, delegated
authorities, and any other specified governance dacuments); and
b. the adequacy and strength of POL's reporting to the department on these issues.
Strictly Confidentia!
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Review and provide oversight ofPromote effective leadership (high quality boards and
senior management)
6. promote the effectiveness of POL’s leadership, specifically through:
@. promoting high quality and diverse boards, shalleaging—the~assessing POL
Board's capability and effectiveness, and monitoring POL's succession planning:
b, promoting the implementation of effective board composition, recruitment,
remuneration and appointment processes;
c. providing a UKGlacting-as-the Shareholder NED on POL Board_in accordance
with paragraph 8 below: and
d. giving a view on POL’s Board level executive capability in relation to its
responsibilities, and remuneration.
Promote effective relationships between BEIS and POL
7. support effective relationships between BEIS and POL, including through:
a. (UKGI)-building effective relationships through the UKGI Shareholder NED with
POL Board and senior management;
b, promoting effective interfaces and communications between the department and
POL, including through regular shareholder meetings; and
¢. maiataining~promoting an effective regular meeting “rhythm” betweenwith the
POL chair, Board and executive to ensure appropriate flow of information
(management information) between POL, UKGI and BEIS, including effective
reporting to BEIS.
Supporting and supplementing the activities above by providing a UKG/ Sharehofder
NED on POL’s board
8—acstas-g a id es " the POL-Beard-through:
&8._provideing an appropriate board member to carry out the non-executive director role
effectively, drawing on the support and analysis from the UKGI shareholder team, The
UKG! Shareholder NED to be::
@ being-a member of POL’s Remuneration Committee, Audit and Risk Committee,
and Nominations Committee;
b. actieg as an interlocutor between the department and the POL Board; and
gd. provideing a view to the department on the strength of the POL Board,
Strictly Cont
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Annex 2 — UKGI’s RemCo Paper
Public sector pay and terms: application to POL
HM Treasury looks to control and influence pay across the entire public sector to safeguard public
money and ensure that senior pay is proportionate and justifiable. The degree of control varies
across organisations but in general the trend has been for HMT to increase oversight and reduce
the degree of freedom that public sector entities are given to set their own policies.
Senior appointments
The Articles of Association require the Shareholder to approve the remuneration, terms and
conditions of ministerial appointments. This covers the CEO, CFO, Chair and Non-Executive
Directors. All aspects of pay and terms and conditions are subject to approval including
contractual terms, salary and salary increases, benefits, pension arrangements, performance
related pay (STIP and LTIP) and termination payments need to be approved.
CST is expected to continue to reject remuneration for ministerial appointments that include PMI
(see below), cash allowances and pay in lieu of pension.
Other staff
Historically, POL has had pay freedom in relation to other staff. HM Treasury has now made it
clear that they expect all public sector bodies to comply with Public Sector Pay guidance. This
guidance is attached (see Annex 5). It is distinct from the Civil Service Pay guidance, which
applies to a more limited set of public sector bodies, and not the Post Office.
It is worth reading the guidance in full. Some of the key points are:
- Private medical insurance (PMI) should not be offered to employees at any level of the
organisation. HMT understand that it is problematic to unwind this for current employees,
and that a pragmatic solution is not to offer PMI for new joiners.
- The 95k cap on exit payments does not currently apply to POL. HMT’s public position is that
they wish to extend this rule to the entire public sector in future. Any change would require
further consultation and legislation and we can engage with you as and when this is brought
forward.
- The government expects every part of the public sector to demonstrate that it is using public
money efficiently and responsibly and to ensure that pay and terms are always
proportionate, justifiable and deliver value for money for taxpayers
- The application of these rules should be reflected in ALBs’ Framework Documents
It continues to be the case that the Civil Service Pay guidance (which caps pay growth for the
whole organisation) does not apply to POL.
On a practical level, the consequences are as follows:
- That POL should not offer PMI for new joiners.
- The Framework document will need to include a commitment from POL to comply with the
relevant guidance on public sector pay and terms.
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Annex 3 ~ UKGI’s Proposed Additional Appendix 5 to the Framework Document
APPENDIX 54 TO SHAREHOLDER RELATIONSHIP FRAMEWORK DOCUMENT
POL's observance of the Public Sector Pay and Terms
Strictly Confidentia!
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Annex 4 ~ POL’s Proposed Footnote to Appendix 2 of the FD
APPENDIX 2 TO SHAREHOLDER RELATIONSHIP FRAMEWORK DOCUMENT
Government-wide Corporate Guidance Applicable to Public Corporations.
POL shall have regard to the principles set out in relevant sections of the following guidance
documents:
Corporate Governance
» Corporate Governance Code for Central Government Departments (April 2017)
gov u/government/publications/corperate-governance-code-for-central.
* Guidance note that f supports the Corporate Governance Code (April 2017)
i LDligt £2 Yuploads’system/uploads/attachment da
e/BO9EBE/PUZ oor; porate governance guidance pdf
+ Code of Conduct for Board Members of Public Bodies (June 2019)
ww gov .tuk/qovernment/publications/Board-members-of public-hodies-code-of-
gov .uk/government/publications/orange-book
Financial Management
* Managing Public Money (MPM) (March 2018)
assets. publishing service gov ul/government/uploads/system/uploads/attachment da
89/Managing Public Money MPM _ with annexes 2018 pdf
+ HM Treasury and NAO Guidance on Tackling Fraud (2013)
hitps:/www_ nao.org.uk/wp-content/upioads/2013/O2/Tackling External Eraud.pdf
+ HM Treasury Consolidated Budget Guidance (particularly Chapter 11) (March 2079)
Hips: www. gov uk/qovernment/publ cations/consolidated-budaeting-quidance-207 9-to-2020
Senior Appointments and Remuneration
* Governance Code on Public Appointments (December 2076)
bins: /assets. publish:ng service gov uk/government/uploads/system/uploads/attachment_ da
faffile/57S49a/governance code on public appointments 18 12 2016.pdf
+ HM Treasury Guidance for approval of Senior Pay (January 2018)
w.soy uk/government/publications/senior-clyil-service-pay-and-reward
+ Public Sector Pay and Terms: Guidance Note (July 2019) (as noted in the footnote below)’
https assets publishing service gov ul/governmentuploads/system/uploads/attachment da
taffile/819562/180702 Public sector pay and terms. odf
Other
-Whistleblowing Guidance and Code of Practice (March 2015)
t ww. gov. ui/qovernment/ publications/whistleblowing-cuidance:
for-employvers
d-code-of-practice-
1 in practical terms. POL shall have regard to the principles in the Public Sector Pay and Terms:
Guidance Note which relate to private medica’ insurance. Namely. the restriction on offering private medical
insurance to new employees (although this will not restrict POL from in ling a cash equivalent into base
salaries to allow POL’s employees to participate in the private medical insurance scheme offered through POL at
a charge).
Strictly Conti
8
8
3
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Annex 5 ~ Public Sector Pay & Terms Guidance Note
Public sector pay and terms: guidance
note
Details
This guidance note is a reminder of the cross-cutting public sector pay and terms rules that
are in place, and the government’s expectations on public sector employers
There may be additional rules and processes in place for determining other elements of public
sector remuneration, such as the setting of average pay increases through the Pay Review
Bodies process or Civil Service Pay Guidance. Where appropriate and required. public sector
organisations should continue to operate within these rules
1. Guidance
1.1 Senior pay controls
The approval of the Chief Secretary to the Treasury (CST) is required for civil service
appointments and appointments to public sector bodies which are subject to Ministerial
approval where the pay and remuneration package is £150,000 or above. CST sign-off is also
required for bonus arrangements worth more than £17,500. Any breach of the control process
may result in a deduction from the departmental budget or an increase in spending controls.
Further details can be found in the senior pay guidance.*
More generally, public sector employers should always ensure that senior pay
proportionate and justifiable and that terms and conditions are in line with other staff.
Contracts for senior staff should include the expectation that salaries will be published. For
local government, where decisions are for locally-elected members, ministers have said that
proposals to appoint staff on salaries of £100.000 or more should be subject to a vote of full
council
The government is committed to tackling all forms of tax avoidance and have taken forward a
wide range of measures to close down tax loopholes. It is essential that public sector
employers are able to assure themselves that their staff are meeting their tax obligations.
Arrangements set up explicitly to avoid tax would normally breach the principles set out in
Managing Public Money. *
Public sector organisations should not engage in. or connive at, tax evasion, tax avoidance or
tax planning. If a public sector organisation were to obtain financial advantage by moderating
the tax paid by a contractor, supplier or other counterparty, it would usually mean that the
Exchequer as a whole would be worse off - thus conflicting with the accounting officer’s
duties.
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Since 2017, public sector employers have been required by 1R35 legislation to deduct income
tax and National Insurance Contributions, where an individual would have been an employee
if they were providing their services directly and where the employer is the fee-payer to
individual. In addition to this, departments must abide by HM Treasury's off-payroll rule:
which are clear that the most senior staff should be on the payroll, unless there are
exceptional temporary circumstances.
13
xii payments
The government has legislated to cap public sector exit payments at £95,000 and to ensure
that high earning public sector workers who take a new job in the same part of the public
sector within twelve months of leaving will have to repay some of their exit payment.
Secondary legislation is required to bring these policies into force and the government is
currently considering options for implementation,
1.4 Confidentiality clauses
Confidentiality clauses should only be used in exceptional circumstances and not as a matter
of course. These clauses should not be used to stop, stifle or control individuals from raising
concems or to cover up cases of individual or organisational failure, As set out in annex 4.13
of Managing Public Money “any proposal to keep a special payment confidential must be
justified especially carefully since confidentiality could appear to mask underhand dealing.
Also, financial reporting requirements and Freedom of Information legislation should be
complied with”.
Guidance has been published for the Civil Service and Arm Length Bodies (ALBs)”* and for
local government.’ The government expects other parts of the public sector to follow a
similar approach where specific requirements have not been set out.
1.5 Salary sacrifice
Salary sacrifice arrangements mean employees and employers paying less income tax and
National Insurance on remuneration.
Public sector employers should consider their use of these schemes carefully, particularly
when considering any new schemes. New schemes are likely to be considered novel or
contentious and, for those bodies covered by Managing Public Money, Treasury approval
will generally be required before they are established.
1.6 Travel
Public sector employees should make sure that public money and other resources are used
properly and efficiently and that expenditure is reasonable and defensible. This principle
forms part of the Civil Service Code," and all employees across the public sector should take
a similar approach. Public sector employers should ensure that all travel is necessary and staff
use the most efficient and economic means of travel in the circumstances.
Travel by business or first class is only permitted if there is a strong business need to do so.
Government departments are required to be transparent about spend in this area, for example
by publishing details of senior officials’ business expenses, hospitality and meetings with
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external organisations, The wider public sector should take a similar approach to enable
taxpayers to see how public money is being spent.
1.7 Transparency
Openness and transparency have an important role to play in strengthening public
accountability and supporting public service improvement. As part of the government’s
transparency agenda, there are a range of requirements on public sector employers to publish
information to enable the public to hold them to account on senior salaries and expenses.
For example, the Cabinet Office publishes an annual central ‘high earners’ list"’ of
individuals in departments, agencies and Non-Departmental Public Bodies earning a full-time
total pay rate of £150,000 and above. Contracts for senior staff should include the expectation
that salaries will be published.
Public sector employers are also required to assure themselves that they are acting in
compliance with the General Data Protection Regulation (GDPR)
1.8 Other benefits
When considering offering other types of pay and terms which are not covered above, public
sector employers should take into account paragraph 2.3.4 of Managing Public Money, which
makes clear that Treasury delegation ‘cannot extend to transactions which set precedents, are
novel, contentious or could cause repercussions elsewhere in the public sector’, alongside any
guidance specific to their workforce.
In particular, the government is clear that public sector employers should not offer private
medical insurance.
1.9 Complying with this guidance
As set out throughout the guidance, the government expects every part of the public sector to.
demonstrate that it is using public money efficiently and responsibly and to ensure that pay
and terms are always proportionate, justifiable and deliver value for money for taxpayers.
This guidance reflects rules which have been issued by the Treasury and form part of the
delegation framework for government departments and their arm’s length bodies. In central
government departments and their ALBs, primary responsibility for ensuring that these rules
are followed falls to the Principal Accounting Officers, who should also make arrangements
to satisfy themselves that their ALBs have systems adequate to meet the standards,
The application of these rules should be reflected in ALBs* Framework Documents, and any
proposal for public spending outside the agreed approach would be considered a breach of the
regularity requirements of Managing Public Money.
While loca! authorities, including fire and rescue authorities, are not covered by Managing
Public Money, the government is clear that they should operate to the same standards as the
rest of the public sector in relation to decisions on senior pay and reward.
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Each authority must publish an annual pay policy statement setting out its approach to
range of matters on pay and reward, particularly for senior staff, including matters cove
this guidance. Pay policy statements must be approved by full council and published or
Tt is the responsibility of local elected members to put in place local arrangements on s«
pay and reward that are fair, accountable and deliver best value for tax payers.
This guidance will be updated to reflect any changes in government policy.
Guidance for the approval of senior pay
Managing Public Money
* Review of the tax arrangements of public sector appointees
’ Civil Service settlement agreements special severance payments and confidentiality clauses
’ Use of severance agreements and off payroll arrangements
” Civil Service code
“' Senior officials high earners salaries
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BOARD PAPER NOTING PAPER
Royal Mail (RM) MDA Negotiations
Author: Mark Siviter Sponsor: Debbie Smith Meeting Date: 26 November 2019
Executive Summary
Context
Since our update to the board in September we have completed a further, more
intensive round of negotiations with RM which have been both productive and held
in the spirit of collaboration with the aim of getting to a deal by 18 January 2020.
We now have a more detailed picture of the shape of an available deal.
Questions addressed in this report
1. What has changed since the September board update?
2. What have we achieved in the latest round of negotiations?
3. What are the remaining sticking points?
4. What are our recommended next steps?
Conclusion
1. On Tuesday 12'" November RM failed to have a record £50m fine from Ofcom for
abuse of dominance overturned, and on Wednesday 13'" November Royal Mail won
its legal challenge to prevent a postal strike after the High Court backed its
application for an injunction. On Thursday 215* November RM Half Year results will
be published and we forecast a positive top line story, but bottom line continued
headwinds that may add to investor and share price pressure.
2. We have agreed term, renegotiation events and exit, no restrictions in the new deal,
online subject to the details, and have closed the gap on the money to within 2%
like-for-like, taking the c£54m proposed discount from RM off the table.
3. The primary sticking points relate to the detail behind the money and closing the
2% gap, Post Office ability to sell RM products online on the basis of a level playing
field, and the approach to change management as RM are seeking to limit our ability
to refuse change requests.
4, We will continue with negotiations with a view to locking down an available deal for
the board to consider as soon as possible, and if required agreeing a short term
extension of up to 3 months to allow the deal to be done avoiding triggering the 2
year exit phase of the current MDA.
Input Sought Input Received
The Board to note progress we have made with Finance and Network Development,
the negotiations and the proposed timelines. Internal Legal and Linklater’s
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The Report
1. What has changed since the September board update?
On Tuesday 12 November RM failed to have a record £50m fine from Ofcom
overturned. The fine, announced in August 2018 related to its actions in 2014 when
Whistl, then known as TNT was trying to become its first competitor in wholesale mail
delivery.
Ofcom’s investigation followed a complaint by Whistl that RM had abused its dominant
market position.
RM challenged the fine, but on the 12"" November 2019 the Competition Appeal Tribunal
dismissed its application sighting that RM had pursued a deliberate strategy of pricing
discrimination against Whistl, which was its only major competitor for delivering
business mail.
In addition to the fine, press coverage suggests Whistl are now looking at options to
decide whether to seek damages.
Royal Mail won its legal challenge to prevent a postal strike after the High Court
backed its application for an injunction on Wednesday 13" November. The grounds for
an appeal are difficult to see, and whilst not impossible it is now increasingly unlikely
that industrial action will take place before Christmas. We do not see this topic
impacting our negotiations at this time.
Royal Mail half year results were announced on 21st November. Group revenue was
up 5.1% and UKPIL revenue up 1.8%, however, adjusted Group operating profit was
down 13.2% to £165m, primarily due to a decline in UKPIL profitability. UKPIL Parcel
revenue was up 5.6%, and volumes up 5%, with Tracked (incl Returns) up 20%.
However, addressed letter volumes were down 5%, and down 8% if you exclude
European parliamentary election mailings. This is outside their forecast range of 5-7%
decline. RMG Share Price initially sunk 17% on the previous day’s trading, losing over
£400m in their market capitalisation. It has since recovered some of those losses, but
it is still down 13% post-H1 Results announcement. These results are likely to place
increased price pressure on our negotiations with RM.
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2. What have we achieved in the latest round of negotiations?
Our previously stated minimum requirements for a deal, set out in the May and
September Board paper were;
1. Along term deal with relaxed restrictions in Click and Collect and returns
2. The right to sell RM products online on PO website
3. Any new agreement to contain a level of fixed fee
4. The overall shape of the money to be no less than the current baseline
We have now agreed terms on a range of largely non contentious topics set out in the
table below, with some minor trades of order of magnitude of less than £1m impact
p.a.
Available shape of a possible deal - AGREED TOPICS
Right to sell RM Principle agreed, but working through the detail, and
products online on _ specifically a parity topic on product and proposition to
PO website ensure a level playing with RM for the online channel
Shape of money Agreed no change on money like-for-like principle and RM
c£54m discount withdrawn and latest RM offer within 2%
like-for-like of today’s price
Agreed PO to take on some limited liability for miss-selling
capped at £1m p.a. and traded for lower targets on
segregation, creating opportunity to reduce our exposure on
segregation service credits
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Agents’ pay Work in progress, RM seeking increased
alignment/transparency
3. What are the remaining sticking points?
The primary sticking points relate to the detail behind the money, Post Office ability to
sell RM products online on the basis of a level playing field, and the approach to change
management
a. The money
The detailed structure behind the proposed move to commission fees for sales and per
item for acceptance is still in discussion, as RM’s proposal presents challenging edge
cases for the Network which would have to be resolved.
We have taken the circa £54m discount RM sought in their opening position off the
table, and are within 2% like-for-like, however through the detailed negotiations we
are looking to close that gap.
Royal Mail wanted to move to a totally variable fee linked to transactions, taking away
the fixed fee element we have today. We have now agreed in principle to support a
move from a Fixed Fee to a Network Access Fee tied to Network size which provides
some variability, but only if a) annual efficiencies that exist today in the Fixed Fee are
removed in the new agreement, and b) that there is no exposure to any discount in
the Access Fee unless our Network reduces to below circa 9,000 branches.
b. Online
In principle we can sell RM products online, but there are ongoing discussions as to
parity on product and proposition. For example if RM moves to offering an integrated
online tracking solution for customers then Post Office must have access to that
proposition. This is to avoid us being tied to an inferior online proposition to RM which
would disadvantage us, and similarly any product RM chooses to sell online that is
available to our customers, we must be able to also sell online, not just the products
we sell today in branch.
c. Change Management
Today the MDA has reasonableness clauses relating to Post Office accepting new
products or changes in its network, allowing sufficient control to protect our network.
Royal Mail is looking to limit Post Office ability to refuse any change requests,
particularly where their driver for a change is driven by regulatory requirements on
them. RM’s opening position was for us to provide any new products or customer
service improvements they require with no ability to refuse.
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4. What are our recommended next steps?
We will continue with negotiations with a view to locking down an available deal
for the board to consider as soon as possible.
However to secure the best outcome for Post Office we may need time beyond
the 18'" January 2020 to get to an acceptable deal. In this event we would be
seeking support from the board to postpone the operation of the MDA exit
provisions (which remove restrictions and trigger the exit period) for up to 3
months.
In order to achieve this RM and Post Office would need to agree to an amendment to
the MDA.
For clarity even with a 3 month postponement of the exit provisions we will not allow
that timing to frustrate the opportunity of taking as long as is necessary to get the
best possible deal for Post Office.
BOARD PAPER 26!" Novemb
STRICTLY CONFIDEN
POST OFFICE
Appendix 1. Risks and Mitigations
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RISKS
MITIGATIONS
Reaching a deal within the
renegotiation window set out in the
MDA - The exit provisions of the MDA will
enter into force in 2 months from now
(19'* January 2020), unless RM and PO
agree otherwise by amending the MDA, or
entering into an agreement replacing the
MDA before then.
In the event the exit provisions enter into
force the contract still has two years to run
without restrictions
Not reaching a deal by 18" January 2020
looks increasingly possible, and to mitigate
any risk Post Office proposes if required
extending the current MDA for up to 3
months to the middle of April to support
getting the deal done and avoiding
triggering the 2 year exit phase and the
removal of restrictions.
However Post Office only proposes doing
this where we believe there is sufficient
evidence and confidence that an
acceptable deal is available, as the 18* of
January date has helped provide some
leverage and a burning platform for the
parties to get the deal done.
Unintended consequences of signing
up to a long term deal — A number of
potential risks exist over the longer term,
examples including structural decline in
letters, changes to postal regulation,
increased competition, uncertainty over
future funding of Post Office, Brexit, anda
change of Government.
All these risks have been considered and
some mitigations are already in place,
however for certain risks outside of our
control it is difficult at this time to be clear
about the potential implications e.g. Brexit
or to be able to offer mitigations for those
risks.
However in support of any proposed deal
that we take to the Board for ratification
we will provide a detailed supporting paper
that will set out in detail all the risks and
available mitigations associated with
signing up to a long term deal together
with clear explanation as to why we are
still recommending a long term deal.
STRICTLY CONFIDENTIAL
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Appendix 2. Scope and negotiation topics
Scope Topies
Term and termination
Term Duration
Start date
Structure
Review points Renegotiation events (triggers)
Specific renegotiation events (e.g. PO funding
and regulatory review)
Implementation period Transition to new/extended deal
Pre- / post-2022
Business continuity (IA 3'¢ party carriers
contingency) Costs
Compensation
Contract review triggers
Consequential damages
Ways of working Account models
Strategic framework for change
Commercial framework for change
Joint Ventures
Business development Low value account, customer lifecycle
Growth targets
End-to-end efficiencies
Products and pricing
RM Customer Service Points (CSPs)
Customer lifecycle referral fees.
Joint discussions
Restrictions
Post Office restrictions Returns
Click and Collect
New RM product (Retail and pre-account only)
Working with 3" parties Non-solicit
Notification
Access terms to 3” parties
RMG restrictions 3rd party physical retail sales / accept network
Retail sales or accept network
Automated acceptance networks
Collar
RM sales team / poaching
Online
Sell online Platform / IT
Product provider
Agents v Reseller
Product range
Customer relationship and data
Customer pricing
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POST OFFICE
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PAGE 8 OF 9
Migration Safety Net
Collar
Track and Trace consolidation
Online pricing
Fees structure
Fees level
Commercials
Variable fees
Local collect rates
Local collect social rates
P739 rates
Return fees
Accept fees
Rebalancing
New product fees
Non-USO products
Completed transactions
Sales commission
Fixed fee Level
Annual reductions
Inflation Variable fees
Fixed fee
Annual count
Metered pouches
Annual count process
Branch access fee Level of fee
Trigger for payment
Network fee Level of fee
Trigger for payment
Agents’ terms
Service requirements
Agent pay
Transparency and alignment
Other commercials
Existing branch relocation billing
DMB incentive structure
Dangerous Goods compliance investment
Volume-based pricing (letters)
Parcelforce fees
Labels2Go
PPI
Tracked 24 / 48 (eBay)
Returns
Online postage / OLP
Rates
Rate for accepting 3rd party reseller OLP
Network development
Investment
Number of branches (sites)
Additional branches
Sunday opening hours
Access to Sunday opening hours
Funding
Network investment reporting
Reporting
Service provision
Segregation
Service credits
BOARD PAPER 26!" November 2019
STRICTLY CONFIDENTIAL
POST OFFICE
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PAGE 9 OF 9
Service credits cap
Requirements
Scope
Targets: level and period
Customer complaints
Responsibility
Mails integrity
Stamps
Interoperability
Safe storage
'Top-up stamps sales
Stamps model
Agent vs Reseller (ownership)
VAT de-coupling clause
Manned counters
Dedicated RMG counters
Marketing activity levels
Rectification of incorrect bagging
MAU's (drop boxes) for RM
Collection charges
Consumables
Revenue protection / leakage
Revenue protection
Incorrect products
Stamps and labels
Stock
Horizon transactions report
Audit rights
Audit costs
Legal recourse
Legal recourse - agents
False claim liability
RM collections
BOARD PAPER 26!" November 2019
Scope
Cost
STRICTLY CONFIDEN
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POST OFFICE BOARD PAGE 1 of 1
Decision Paper
Approval of Capex for Telecoms
Customer Routers
Author: Colin Stuart, Finance Director FS&T Meeting date: 26 November 2019
Executive Summary
Context
As part of its Dual ADSL and Dual Fibre customer packages, Post Office provides new
customers with broadband routers and replaces damaged or obsolete ones. Post Office
retains ownership of those routers and requires customers to return them when their
contract ends.
For accounting purposes, the routers are capitalised and treated as fixed assets. This
treatment was put in place in 2013 when the Dual ADSL product was introduced and
extended to Fibre routers when Dual Fibre was introduced in January 2017. The
continued treatment of the routers as fixed assets has been confirmed by the Group
Financial Accounting team.
The Telecoms Budget for 2019/20 was approved by the Board in April 2019 as part of
its approval of the wider Post Office Budget. The Telecoms element of the budget was
for gross income of £158.5m and direct profit contribution of £28.4m. The associated
expenditure on customer routers of £4.83m was included in the capital expenditure
budget presented to the Board in May 2019 as part of the £7.3m “Telco investments”
line. The main drivers of this expenditure on customer routers were gross new Dual
ADSL customers of 112,127 and Dual Fibre customers of 6,857.
To the end of P7 we have spent £2.84m on customer routers, which is £0.22m higher
than budget due to more new Dual Fibre customers being added than budgeted. New
Dual Fibre customers are expected to be added at the current rate for the rest of the
year and, as a result, we expect to spend a further £2.72m on routers, making a total
of £5.56m for the year. This is £0.74m (15%) higher than the budget because more
effective customer acquisition activity is expected to deliver 21,085 new Dual Fibre
customers in the year versus the budget of 6,857.
Following internal audit recommendations made in the first half of 2019/20, the SPO
Governance Team tightened the controls and processes around the approval and
monitoring of funding for all change projects and all Capex and Exceptional Spend. As
a result of those changes and given that the expenditure exceeds £5m, specific Board
approval is required for the expenditure on customer routers.
Approval Sought
We seek specific approval from the Board for the forecast capex spend of £5.56m on
customer routers, which is £0.74m (15%) in excess of the budget amount which the
Board approved in April and May 2019.
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POST OFFICE BOARD
Performance Review — Health & Safety
Author: Martin Hopcroft. Sponsor: Lisa Cherry Meeting date: 26 November 2019
Executive Summary
Context
Keeping our employees healthy and safe is fundamental to our success. This is reflected
in the Post Office Board’s legal responsibilities: members of the board have both
collective and individual responsibility for health and safety.
We have a rolling 3-year plan to drive compliance, targeting a reduction in safety
metrics including accidents; lost time accidents (LTIFR); days lost; and personal injury
claims. Our H&S reporting and safety management system has been externally audited
and we also recognise the importance that wellbeing can play in creating engaged and
motivated employees.
Questions addressed in this report
1. What are the trends on accidents and on violence across the Post Office?
2. Are there any significant risks emerging and what are we doing to mitigate?
Conclusion
Following last year’s increase in violent robberies and ATM rip-outs, we have invested
£2.5m in additional fogging and IP camera installations and £0.7m in gas suppression
kit for ATMs. Alarm upgrades are due to be completed by March 2020. The business
has seen a decline in the number of robberies over the last 6 months to Period 7 (50)
compared to the previous six months (93). We have also seen a fall in ATM rip outs and
a fall in losses as the suppression kit has proved effective. There have been 18 ATM
incidents during the 6 months to Period 7 (October) compared to 42 in the previous 6
months. We have two concerns: one immediate and one forecast. There have been 35
incidents so far this year where knives have been carried compared to 23 incidents last
year. We are working urgently through our response, which may require more fogging
equipment, and additional guidance provided to Postmasters. We are also meeting
industry experts to benchmark good practice and mitigation and to review our training
and guidance. In addition, following trends on the continent we are forecasting a shift
from gas attacks on ATMs to dynamite. Destroying cash is the best remedy and we are
close to testing a solution with a supplier.
Safety Performance. (see 5yr perf chart on page 1 of report).
Overall total accidents are down at 43 year to date, compared to 51 in 2018/19 (DMBs
are lower at 16 (25), Support teams are higher at 9 (3), and Supply Chain are down at
18 (23)). Whilst the volume of lost time accidents remain relatively low, 6 in 19/20 v
Strictly Confides Health &
y Report Nov 2019
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POST OFFICE PAGE 2 OF 4
7 in 18/19, a serious accident involving an employee who slipped in a hotel bath (61
days), two physical injuries in Supply Chain due to assaults (15 days) and a broken
wrist following a bracelet catching on a van door (20 days), have led to an increase in
total lost days (121 v 110). Action has been taken to remind colleagues to take care
and we have refreshed lone worker training in H&S Essentials. Lost days due to trauma
following an attack have reduced to 28 days YTD from 141 at the same point last year.
The Supply Chain Safety Plan is progressing well with safety champions sharing best
practice and improvement opportunities at their safety forums. Local risk assessments,
safe systems of work and training continue to be reviewed and strengthened. The BSIA
and Mitie have visited Midway and shared best their approach to ‘hearts and minds’
campaigns and H&S tools and will work with us in November to develop a campaign
which they will share with their wider membership. We met with the Occupational
Health MSK expert to commence an ergonomic review of handling coin and manual
handling activity to identify initiatives to reduce risks facing the ageing workforce.
Property Statutory Compliance (risk assessments / inspections) The overall position
is still being reported as minimal risk, with completed inspections at 96.24%, this
percentage has consistently stayed above 95% since the last quarterly report. The
latest CBRE engineer fabric surveys still suggest a satisfactory (low risk) outcome with
the principal areas still being water ingress through slipped roof tiles, failed flat roofs
and rotten windows. Severe weather in September caused a number of roof leaks,
internal flooding, and plaster and/or ceiling tile failures. We have communicated to
Postmasters, reminding them to check their signage and fascia ahead of the more
extreme winter weather. The latest external Fire Risk Assessments demonstrated
significant improvement in compliance and discussions are continuing with fire experts
Metro Safety to improve our local risk assessment. The latest external fabric surveys
(low risk) still suggest a satisfactory outcome.
Line Managers of support teams are currently completing local risk assessments ie.
workstation, driving and lone worker, to ensure their teams are working compliantly
and any known risks and concerns are mitigated through adjustments and / or provision
of appropriate equipment. The annual H&S module content has been reviewed for
Supply Chain with face to face training introduced for higher risk activities including
manual handling of coin, cages and correct use of equipment.
We have been able to analyse Supply Chain commercial driver telemetry data and
driving behaviour and drive improvement through 121 discussions and coaching. We
are developing a road risk ‘roadmap’ for Company Car drivers, checking licences twice
a year and introducing driver safety packs. Road traffic collisions are slightly down from
59 in 19/20 from 64 (18/19) with blameworthy at 36 (35), 10 of which have been
incurred by Mobile Post Office fleet drivers. Together with audit results, this has given
cause for concern. The fleet team are working with Network colleagues to improve.
Input Sought
The Board are requested to note the current safety performance.
Heaith & Safety Ri Nov 2019
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Report
Year/KPI 15/16 I 16/17 I 17/18 I 18/19 I 19/20
P7 YTD
All accidents 198 129 112 81 43
All accidents / 1000 employees 29.3 21.0 22.0 16.9 11.03
Absence accidents 38 16 21 15 6
Absence Accs / 1000 employees 5.62 2.61 4.13 3.14 1.54
LTIFR (lost time accidents/100,000hrs) I 0.367 I 0.168 I 0.271 I 0.184 0.149
Days lost due to accidents 792 259 480 245 121
Days lost / 1000 employees 117 36 94 51 31
LTR (Days lost/100,000 hrs) 3.01 3.02
RIDDORS. 14 9 14 7 1
Following an increase in violent robberies, the presence of firearms and a number of
ATM rip-outs earlier last year, funding was approved to install additional fogging kits
and CCTV. A further review of robberies and violence has been undertaken to help us
understand current trends, whether our approach to profiling risk and the current level
of intervention is sufficient, and whether our plan for upgrading branch security and
equipment is robust. Conclusions were shared with PO Board in September.
The British Retail Consortium (BRC) and Association of Convenience Stores (ACS)
continue to highlight the increasing threat from violence and abuse in robbery incidents.
In addition to the general crime risk increase, we believe POL will become a more
attractive target as we continue to increase our banking framework due to us
concentrating cash in a number of POL locations on high streets.
Post Office Network robberies currently show a 20% increase YOY (12 month rolling,
143 v 119), however, there has been a reducing trend over the most recent 6 months
(50) compared to the previous 6 months (93). Injuries have been minor and have
slightly reduced from last year YTD (7 vs 9), with approx. 1 injury per 7 incidents.
We continue to see positive results in the ‘High Risk’ robbery programme where we are
installing fogging and IP cameras. Anti-robbery fogging (where activated) and gas
suppression continue to be 100% successful and evidence so far confirms where
activated, criminals will generally flee. Alongside this project, we are at the early stages
of developing a number of cash storage solutions to secure banking deposits simply,
quickly and safely potentially from Nov 19.
ATM gas attacks continue to show signs of slowing partly due to successful gas
suppression activations and lower cash holdings. A number of arrests / convictions
have been made in recent months. Industry and Police are working together to target
ATM crime as this if usually undertaken by Criminal Gangs who are involved in other
criminality (drugs) which ultimately affects the nation’s security. Significant trends
on the continent include using solid explosives, a trend likely to increase in the
Heaith & Safety Ri Nov 2019
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POST OFFICE PAGE 4 OF 4
UK which makes our roll-out of cash destruction (ink & glue) critical. If this
type of crime targets POL in the future our proposed cash destruction solution can be
upgraded to ensure criminals will not be successful in obtaining useable cash.
CViT robberies have reduced from last year, 35% down YOY (13 v 20) over the rolling
12 month period, and 33% down YTD (8 v 12). However, there were 3 incidents during
period 7. We have rolled out 116 body cameras, 65 CCTV vehicle streaming and 20
tracked I-boxes and our provider is currently developing a glue and ink method of cash
destruction. We are planning to pilot 50 of these across the Chester and Birmingham
areas. A risk assessment is currently being undertaken for the ‘case across counter’
procedure and an approach is being developed by Security, Health & Safety and Supply
Chain to strengthen the secure delivery / collection method at high and medium risk
branches, whilst allowing some flexibility for low risk and rural branches.
We continue to engage with the industry, and recent membership of Safercash will
provide greater access to both CViT and ATM crime data. Grapevine continue to scan
media and social media and we are working closely with the BSIA and other carriers to
review trend data and risk. We review our cross pavement risk assessment annually
and are working with our providers to source and pilot a suitable stab proof vest in
order to respond swiftly should the risk profile change in any particular area.
In response to abusive and aggressive behaviour, temporary IP cameras with automatic
aggression detection will be made on a case by case basis. We are also working closely
with the British Security Industry Association (BSIA) and in November will be meeting
their training partner who are supporting a Met Police programme to share best practice
and guidance across the industry.
What are our Health & Safety priorities for 2019/20
1. To progress the Safety Plan for Supply Chain, development of Safety Champions and
a Safety Forum to develop a ‘hearts and minds’ culture and share best practice.
2. Complete an ergonomic review of lifting and handling in Supply Chain and implement
a range of intervention to mitigate risk to the ageing workforce.
3. To continue the development of our Managers to ensure compliance with safety
calendar activities, completion of training and local risk assessments.
4. To develop branch risk profiling and progress the recommendations from the
Robbery and Violence review and Road Risk Action Plan.
5. Digitalise H&S tools including Accident reporting (ERICA) and the Safety Calendar.
6. Update training content and support the deployment of Harassment by Customers
policy, implementing procedures to reduce risk and likelihood and impact of violence.
7. To review lone working guidelines for Support Centres, guidance to alleviate driver
fatigue and compliance to the mobile phone whist driving policy.
8. Undertake an independent audit of the Property Compliance Framework with support
from HSL/HSE, building on our previous H&S audit.
9. To expand the ‘mental health first aid’ network to provide support to all colleagues.
10.Reintroduce mobile health checks for DMB and Supply Chain colleagues during Q4
and offer flu vaccinations to all colleagues across the business during Q3.
Health & Safety R
Nov 2019
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POST OFFICE LIMITED PAGE 1 OF 2
BOARD
Post Office Limited Sealings
Strictly Confidential
N
x
3
az.
3
POST OFFICE LIMITED
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Date Register of Sealings Company Number
14.11.2019 21554540
Seal Number Date of Date of Persons Attesting Destination of
1 File Ref. Sealing Authority __I Description of Document. To Document Document
1842/ Tenancy 22/10/2019 21/10/2019 I Tenancy Agreement relating to 18 Church Street, Llangefni, LL77 7DY David Parry, Senior Assistant Karima Karger
‘Agreement between Post Office Limited (Landlord) and ZCO Limited (Tenant), Company Secretary
1843/ 22/10/2019 21/10/2019 I Dilapidation’s Settlement Agreement relating to the Reference Room Veronica Branton, Company Karima Karger
Settlement being part of the ground floor and first two floors situated at Central Secretary
Agreement Library, High Street, Walthamstow, London £17 between the Mayor and
Burgesses of the London Borough of Waltham Forest (Landlord) and Post
Office Lid (Tenant), Executed under signature by the Company
I Secretary I
18447 23/10/2019 02/10/2018 I Settlement Agreement - £28, 653.02 in settlement of the dilapidations Veronica Branton, Company Karima Karger
Settlement claim between Norwich Limited (Landlord) and the Post Office Limited Secretary
Agreement (Tenant) in relation to the Ground and First Floors and Rear Yard of 212-
216 Kentish Town Road and 407 Wolsey Mews, London, NWS in the
London Borough of Camden. Execution under signature.
1845 / Tenancy 29/10/2019 28/10/2019 I Tenancy Agreement relating to 50 High Street, Holywell, CH8 7AA David Parry, Senior Assistant Karima Karger
‘Agreement between the Post Office Limited (Landlord) and ZCO Limited (Tenant). ‘Company Secretary
Property title nos. CYM269296 and CYM282337.
1846 / Tenancy 29/10/2019 28/10/2018 I Tenancy Agreement relating to 1 Market Place, Thetford, P24 2AA David Parry, Senior Assistant Karima Karger
‘Agreement between Post Office Limited (Landlord) and ZCO Limited (Tenant). Title Company Secretary
I_No. NK428541
1847 30/10/2019 30/10/2018 I Deed of novation between Post Office Limited, Computacenter (UK) David Parry, Senior Assistant iT
Limited & IE Limited. eCAF 258, Contract no. 104.10 x 3 Company Secretary
1848 / Deed of 04/11/2019 01/14/2019 I Deed of Surrender of Lease at Bognor Regis CO, High Street, Bognor David Parry, Senior Assistant Karima Karger
Surrender Regis, PO21 1RG between the Post Office Limited (Tenant) and the Company Secretary
_ Royal Mail Group Limited (Landlord). Property title no. WSX357120.
1849 / Deed of 04/41/2019 01/14/2019 I Deed of Surrender of Lease at Kingswood CO Hanham Road, Bristol, David Parry, Senior Assistant Karima Karger
Surrender BS15 8PN between Post Office Limited (Tenant) and the Royal Mail Company Secretary
Group Limited (Landlord). Property reference no. GR288274.
1850 / Deed of 04/41/2019 01/11/2019 I Deed of Surrender of Lease at Bishops Stortford CO, 102 South Street, I David Parry, Senior Assistant Karima Karger
Surrender Bishops Stortford, CM23 3A between the Post Office Limited (Tenant) I Company Secretary
I_and the Royal Mail Group Limited (the Landlord).
18517 12/11/2019 11/11/2019 I Agreement for Lease relating to Unit 1, Babington Court, Gower Street, David Parry, Senior Assistant Karima Karger
Agreement for Derby, DE1 1SD between Post Office Limited (Landlord), ZCO Limited Company Secretary
Lease (Tenant) and Potent Solutions Limited (Guarantor). Property Title
Reference Number: DY477495
18527 12/11/2019 11/11/2019 I Underlease of whole relating to Unit 1, Babington Court, Gower Street, David Parry, Senior Assistant Karima Karger
Underlease of Derby DE1 1SD between Post Office Limited (Landlord), ZCO Limited ‘Company Secretary
whole (Tenant) and Potent Solutions Limited (Guarantor). Property title number:
by477495,
1853 / Sale of 12/11/2019 08/14/2013 I Agreement for the Sale of Leasehold Land with vacant possession known I David Parry, Senior Assistant Karima Karger
Leasehold as the Post Office, Vinson Close, High Street, Orpington, BR6 OPJ Company Secretary
between Post Office Limited (Seller) and Walker Westlake Ltd (Buyer).
I Property title no. SGL738799.
Strictly Confidential
Page 2 of 2
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BOARD
Post Office Limited Board Meetings
Author: Rubia Khanom Meeting date: 26 November 2019
Executive Summary
Context
The Directors are requested to note the future meetings dates scheduled in respect of Post
Office Limited Board and Committee meetings.
The Report
2019
Date being December 2019 oo
sought for
PSG session
Tuesday 10 December 2019 11:00 - 12:00 Postmaster Litigation
Subcommittee (GLO)
2020
Wednesday 22 January 2020 16.00 - 17.00 Postmaster Litigation
Subcommittee (GLO)
Tuesday 28 January 2020 09.30 - 12.00 ARC
Tuesday 28 January 2020 12.30 - 17.30 Board
Tuesday 11 February 2020 10.00 - 11.00 Nominations Committee
Tuesday 11 February 2020 11.00 - 12.00 Remuneration Committee
Tuesday 18 February 2020 10.00 - 11.00 Postmaster Litigation
Subcommittee (GLO)
Tuesday 17 March 2020 11.00 - 12.00 Postmaster Litigation
Subcommittee (GLO)
Tuesday 24 March 2020 09,00 - 11.30 ARC
Tuesday 24 March 2020 11.45 - 16.30 Board
Tuesday 19 May 2020 09.30 - 12.00 ARC
Tuesday 26 May 2020 11.00 - 16.00 Board
Tuesday 26 May 2020 16.00 - 16.30 Nominations Committee
Tuesday 26 May 2020 16.30 - 17.30 Remuneration Committee
Strictly Confidential
POL Board - 26
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Monday 27 July 2020 14.30 - 17.00 ARC
Tuesday 28 July 2020 09.00 - 14.00 Board
Tuesday 28 July 2020 14.30 - 19.00 Board Strategy Away Day - 1
Wednesday 29 July 2020 09.00 - 18.00 Board Strategy Away Day - 2
Tuesday 22 September 2020 09.00 - 11.30 ARC
Tuesday 22 September 2020 11.30 - 12.00 Nominations Committee
Tuesday 22 September 2020 12.00 - 13.00 Remuneration Committee
Tuesday 22 September 2020 13.30 - 18.30 Board
Tuesday 27 October 2020 09.30 - 14.00 Board
Tuesday 24 November 2020 09.00 - 11.30 ARC
Tuesday 24 November 2020 11.30 - 12.00 Nominations Committee
Tuesday 24 November 2020 12.00 - 13.00 Remuneration Committee
Tuesday 24 November 2020 13.30 - 17.30 Board
2021
ban L . ting
Tuesday 26 January 2021 09.00 - 11.30 ARC
Tuesday 26 January 2021 11.45 - 16.30 Board
Tuesday 9 February 2021 10.00 - 11.00 Nominations Committee
Tuesday 9 February 2021 11.00 - 12.00 Remuneration Committee
Tuesday 30 March 2021 09.00 - 11.30 ARC
Tuesday 30 March 2021 11.45 - 16.30 Board
POL Board
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gendas
6.
Post Office Board Agenda
II [22.30 - 17.30 hrs} I Lecation
(I 1.19 Wakefield
[Bate] 28 January 2020
ie i: Pre ‘ A
© Tim Parker (Chairman) Ie Carla Stent * Veronica Branton * Robin Nuttall and McKinsey
(Company Secretary) colleagues (Item x.)
* Nick Read (CEO) * Alisdair Cameron (CFO) I © Debbie Smith (CEO - Retail) (Item x) _I _¢ Ben Foat (General Counsel) (Item x)
* Ken McCall (SID) * Zarin Patel @ Mark Siviter (MD - Mails) (Item x.) © Alan Watts (Herbert Smith Freehills)
(Iter x)
© Tom Cooper * Dan Zinner (Chief Transformation © Owen Woodley (CEO ~ FST&i) (Item
Officer) (Item x.) x)
«Cathy Mayor #__ Kathryn Sherratt
© Meredith Sharples * Ed Dutton
«Lisa Cherry
Performance and current issues
1. I Welcome and Conflicts of Interest Noting Chairman
2. I Minutes of Previous Board meetings including I Approval Chairman/
Status Report Veronica Branton
10 mi
3. I Committee updates (verbal): Noting & Input mins
3.1 ARC Carla Stent
3.2 Remuneration Committee Ken McCall
3.3 Nominations Committee Tim Parker
4. I CEO Report Noting & Input Nick Read 30 mins
5. I Financial Al Cameron 60 mins
5.1 Financial Performance Report Noting & Input
5.2 Draft Five Year Plan Noting & Input
6. I Quarterly Performance Reports: FST&l and Noting & Input ‘Owen Woodley/ I 30 mins
Retail Kathryn Sherratt
Debbie Smith/
Cathy Mayor
Lunch
Strategy and updates
7. I Purpose, Strategy,Growth Noting & Input Nick Read/Dan I 60 mins
Zinner/ Robin
Nuttall and
McKinsey
colleagues
8. I Telecoms Strategy Decision Owen Woodley/ I 45 mins
Meredith
Sharples
9. I Insurance Strategy Placeholder following July I Owen Woodley/
Strategy sessions Ed Dutton
10. I Digital Identity Strategy Placeholder following July I Owen Woodley]
Strategy sessions
STRICTLY CONFIDENTIAL
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Post Office Board Agenda
11.I Group Litigation Update Noting & Input Ben Foat/ Alan 15 mins
Watts
12.I Royal Mail Update Placeholder depending on I Debbie Smith/
stage of negotiations Mark Siviter
13.I Succession Planning Placeholder — originally due I Nick Read/ Lisa
to come back to Board in Cherry
July/ September 2019 but
deferred with new CEO
joining, work on PSG etc.
Approvals
14.] I I [5 mins
Noting and governance items
15.I 15.1 Health & Safety Report Noting All 10 mins
15.2 Sealings
15.3 Future Meeting Dates
15.4 Forward Agenda
16.I Any Other Business Noting and Input Chairman
17.I Date of next meeting: Noting Chairman
24 March 2020.
STRICTLY CONFIDENTIAL
Board decision log 2019/20 financial year
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Financial Year I Meeting Date I Topic Resolution
2019/20 30/04/2019 I Annual Strategic Plan & I The Board APPROVED the proposed budget with a trading profit for 2019/20 of £77m. This was subject to
Budget confirmation with UKGI, as we shared the detailed plans for the recommended changes and agreement at
Remuneration Committee on the final STIP targets.
2019/20 28/05/2019 I Minutes of Previous The Board APPROVED for signature the minutes of the Board meetings held on 19 November 2018, 23 January
Board meetings 2019, 18 March 2019, 20 March 2019, 25 March 2019 and 30 April 2019.
2019/20 28/05/2019 I Appointment of The Board RATIFIED the appointment of Alisdair Cameron as Interim Group Chief Executive Officer with effect
Interim Group Chief from 5 April 2019.
Executive, Post Office
Limited
2019/20 28/05/2019 I Change Funding Report I The Board:
NOTED the contents of the paper, including the FY19/20 Budget for Change Spend
APPROVED the request for £35m funding for Q1 to be submitted to UKGI; and,
DELEGATED authority to Al Cameron to finalise the report and supporting documents with UKGI.
2019/20 28/05/2019 I Annual Report and The Board APPROVED the Annual Report and Accounts 2018/19 and DELEGATED SIGNING AUTHORITY to the
Accounts Chairman and Interim CEO, subject to the completion of PwC's work and review by the ARC at its meeting on 29
May 2019.
2019/20 28/05/2019 I Group Litigation Order I The Board RESOLVED to authorise the payment of the legal costs associated with the claimants’ costs for the
Common Issues Trial and the recusal application.
2019/20 28/05/2019 I Bank of Ireland Deal —_I The Board:
NOTED the updates on the Bol negotiations and the new credit card partnership
APPROVED the total spend related to the Bol negotiations of £5.4m, which included the sunk costs detailed in the
paper
DELEGATED AUTHORITY to the Board sub-group for the approval of the signing of the amended FSJVA and FRES
contracts on the basis presented once finalised.
2019/20 28/05/2019 I Contract approval 13.1 Home Re-engineering capital deployment: The Board APPROVED the deployment of capital to complete the
PO Insurance build of the home insurance reengineering programme. The total costs of the project were £14.4m
(Discovery- £0.9m, Investment-£12m, BGL Exit costs-£1.5m). 13.2 DMB franchising and Network Development:
The Board APPROVED funding of £27.7m in 2019/20 to deliver the DMB programme of 69 targeted exits. 13.3
New Network Location (NNL) activity over the coming year. The Board APPROVED a total investment is £7.56m
for 2019/20 to support the delivery of 220 new branches
2019/20 28/05/2019 I Governance report The Board:
APPROVED the following DELEGATED AUTHORITIES for financial spend: Chief Executive Officer (up to £5 million);
Chief Finance Officer (up to £4 million); Group Executive Members (up to £2 million); and, Group Executive
Members to have authority to sub-delegate up to the limit of their delegated authority.
APPROVED the list of authorised signatories as set out in appendix 2 of the paper
APPROVED the affixing of the Company Seal as set out in paragraph 4.5 of the paper
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NOTED the Nominations and Remuneration Committees’ evaluation of performance against their terms of
reference. The ARC would be reviewing its evaluation at its meeting on 29 May 2019
NOTED the information held on the register of interests
APPROVED the Conflicts of Interest Policy.
2019/20 28/05/2019 I Sealings The Board APPROVED the affixing of the Common Seal of the Company to the documents set out against items
number 1760 to 1781 inclusive in the seal register.
2019/20 25/06/2019 I Sub-group: approval to I Asa Director of Post Office Limited, in accordance with the authority delegated by the Board on 29 January 2019
enter contract for and based on the information provided to the Directors therein, I APPROVE Post Office Limited entering a
CapitalOne to provide I contract with Capital One for the provision of credit a card service for its front book customers
credit cards to Post
Office front book
customers
2019/20 17/07/2019 I Appointment of Group I As a director of Post Office Limited, I APPROVE the appointment of Nick Read as Chief Executive Officer of Post
(circulated by I Chief Executive, Post I Office Limited.
email) I Office Limited
2019/20 30/07/2019 I Minutes of previous I The Board APPROVED the minutes of the Board meeting held on 28 May 2019.
(Board I board meetings.
meeting)
2019/20 30/07/2019 I Annual Report and The Board:
(Board I Accounts 2018/19 APPROVED the statements on the group litigation and workers’ rights cases (Starling) for inclusion in the ARA
meeting) I (ARA 2018/19) 2018/19
APPROVED and DELEGATED to the Chairman and Interim CEO the signing of the Annual Report and Accounts for
the year ended 31 March 2019.
2019/20 30/07/2019 I Group Litigation Order I Legally privileged. The Board ENDORSED the approach set out in the paper in relation to the mediation and
(Board operational activities to address the requirements flowing from the Common Issues Trial Judgment, prepare for
meeting) the Horizon Issues Trial Judgment and achieve the delivery of better support to agents.
The Board AGREED that a paper should be included on the September Board agenda setting out proposals for a
starting figure for mediation and an upper limit. The legal team would then be delegated authority to settle the
matter in accordance with the Board’s instructions.
2019/20 30/07/2019 I Starling (Workers' Legally privileged. The Board ENDORSED the approach to the case set out in the paper which was to continue to
(Board I rights case) defend the claim on the basis of POL’s current legal rights; avoid aggressive litigation tactics; consider whether
meeting) resolution without recourse to employment tribunal was possible, including whether there was a group of agents
within the network for whom “worker” or “employee” status should be considered; and, decline CWU’s request
for full recognition and bargaining rights.
The Board AGREED that updates should be provided to the Board rather than setting up a Board Subcommittee at
this stage. We also needed to make sure that UKGI/ BEIS were fully briefed on the case and how we proposed to
manage it.
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2019/20 30/07/2019 I Legal Entity The Board AGREED:
(Board I Optimisation « that a paper should be prepared for the September Board meeting setting out the reasons for the changed
meeting) approach on corporate restructuring and the ramifications of moving from the current position to the new
position
* to DELEGATE AUTHORITY to the CEO or CFO and General Counsel to agree the final versions of the draft Articles
of Association and Framework Agreement, subject to there being no further material change.
2019/20 30/07/2019 I Bank of Ireland Deal The Board:
(Board * CONSIDERED and AGREED the final construct of our refreshed relationship with Bol
meeting) * DELEGATED AUTHORITY to the Interim CEO and Chief Executive FST&I to proceed to signature on the basis
presented once the contractual legal drafting is concluded.
* APPROVED the total spend of £5.6m related to these negotiations.
2019/20 30/07/2019 I Parent Company The Board APPROVED the delegation of authority to the CEO and the General Counsel to finalise and approve the
(Board I Guarantee: Payzone terms of the parent guarantee in relation to the British Gas contract as set out in the paper. Should any material
meeting) I Bills Payments Limited I variances to this be proposed we would revert to the Board for approval.
2019/20 30/07/2019 I Sealings The Board APPROVED the affixing of the Common Seal of the Company to the documents set out against items
(Board numbered 1782 to 1801 inclusive in the seal register.
meeting)
2019/20 30/07/2019; I Insurance Strategy The Board SUPPORTED the short term recommendations for the PO Insurance Strategy but requested a radical
31/07/2019 look at how we could unlock the true potential of the brand in the insurance market.
(Strategy
Sessions)
2019/20 30/07/2019; I Delivering the Identity I The Board SUPPORTED the proposals for immediate execution, including extending the Verify contract with
31/07/2019 I Growth Plans Government beyond March 2020 on current loss-making terms in order to build volume. We then needed to
(Strategy establish what this market was going to be worth, if the costs associated with getting to scale were merited and if
Sessions) we needed to own the platform to obtain real value. Market share and end-to-end integration would be critical.
2019/20 30/07/2019; I Travel Money Strategic I Board APPROVED the immediate execution recommendations but needed to understand what would drive the
31/07/2019 I Options longer term profitability of the travel money business, including whether we were equipped to build market
(Strategy share.
Sessions)
2019/20 23/09/2019 I Term of Office The Board APPROVED the extension to Tim Franklin’s term of office as a Non-Executive Director for a period of
(Board I Extension up to three months from 23 September 2019.
meeting)
2019/20 23/09/2019 I Minutes of Previous The Board APPROVED the minutes of the Board meeting held on 30 July 2019 and the notes of the strategy
(Board I Board meetings sessions held on 30 and 31 July 2019.
meeting)
2019/20 23/09/2019 I Network: Services of The Board APPROVED the 2019 Network Report and NOTED confirmation of compliance with the Entrustment
(Board I General Economic Letter and Funding Agreement with respect of Services of General Economic Interest (SGEI) provision as at March
meeting) 2019.
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Interest Compliance
and Network Report
2019/20 23/09/2019 I Royal Mail The Board APPROVED that the executive continue negotiations with Royal Mail (RM) within the following
(Board I Negotiations parameters (as set out in the paper to Board in May):
meeting) -a long term deal with relaxed restrictions in Click and Collect and returns
- the right to sell RM products online on PO website before 2022
- any new agreement to contain a level of fixed fee
- the overall shape of the money to be no less than the current baseline.
2019/20 23/09/2019 I Group Litigation Order I Legally privileged. The Board APPROVED the approach to settlement outlined in the paper.
(Board I (including mediation
meeting) I issues)
2019/20 23/09/2019 I Legal Entity The Board AGREED:
(Board I Optimisation (LEO) * that the POL should accept the approach proposed by UKGI on the application of the PSP&TG to POL which
meeting) would be referenced in the Framework Document
* that POL should have regard to the Government wide corporate guidance applicable to public corporations
listed in an appendix to the FD and any future relevant guidance as specified by Government to the extent that
such guidance is applicable to POL as a Public Non-Financial Corporation
* that the introduction of a group reserved matters should be accepted in the Articles of Association as described
in the paper and discussed with UKGI.
2019/20 23/09/2019 I Approvals: Modern The Board APPROVED the 2018/2019 Modern Slavery Act Statement and ENDORSED the proposed actions for the
(Board I Slavery Statement business to take forward in the 2019/2020 financial year.
meeting) I 2018/19
2019/20 23/09/2019 I Approvals: Partial The Board:
(Board I Pensions Buy-out + SUPPORTED the Trustee decision to buyout the main policy liabilities of the pension scheme with Rothesay Life
meeting) Pic, (reiterating the support given in 2017). Whilst not required under the Articles of Association, the Board was
content that we obtain government feedback on the proposed partial buy-out
+ SUPPORTED the exploration of how, when and if full buyout (of the margin policy liabilities) could be achieved
ata later date
+ NOTED Trustee proposals for the latest triennial valuation of the Plan and DELEGATED AUTHORITY to Al
Cameron, CFO, to approve on behalf of Post Office Limited
2019/20 23/09/2019 I Approvals: Business The Board APPROVED the new Business Travel contract with Capita at a value of £10 m (non-committed spend)
(Board I Travel Contract until 28/02/2021 including a termination period of 12 additional months.
meeting)
2019/20 23/09/2019 I Sealings The Board RESOLVED that the affixing of the Common Seal of the Company to the documents set out against
(Board items numbered 1802 to 1826 inclusive in the seal register was hereby confirmed.
meeting)
2019/20 03/10/2019 I Board Call - GLO Legally privileged. The Board AGREED the proposed next steps. ACTIONS:
* To review Insurance position.
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* APOL CEO to FJ CEO conversation to take place and followed by a reservation of rights letter. (Legal to provide
both script and letter.)
* To consider management controls in place with FJ.
* To audit F's disclosures.
* The Board and UKGI to be continually updated and to be advised of ETA for the KELs.
* To consider broader outsourcing arrangements at a later date.
2019/20 29/10/2019 I Minutes of Previous I The Board APPROVED the minutes of the Board meetings held on 23 September 2019 and 3 October 2019.
Board meetings
including Status Report
2019/20 29/10/2019 I Finance: Quarterly The Board NOTED the contents of the paper, including the approach of FY19/20 Budget for Change Spend, and
Delivery and Funding I DELEGATED AUTHORITY to Al Cameron to finalise the precise details and supporting documents with UKGI.
Report
2019/20 29/10/2019 I Agents’ Remuneration I The Board APPROVED an additional £20m investment in agents’ remuneration and support for changes which would be
introduced from April 2020. The Board DELEGATED AUTHORITY to the Group CEO and CFO to finalise the list of initiatives
included. The Board APPROVED holding a further £10m in the budget for potential additional spend on agents’
remuneration and support which might include incentivising desired behaviours. Any additional spend would first need to
be approved by the Board. The Board APPROVED the announcement of the changes in November 2019.
2019/20 29/10/2019 I British Gas Contract _I The Board APPROVED the request for £5.6m Project Authority to facilitate Payzone’s delivery of the British Gas contract.
2019/20 29/10/2019 I Panther (Payzone) The Board APPROVED the request for £8.96m Project Authority for the 2019/20 post-acquisition funding within the
Change Request Panther business case required for separating (from prior owners), stabilising, securing and integrating Payzone with Post
Office.
2019/20 29/10/2019 I Telcoms Strategy The Board APPROVED the acceptance of the procurement risk associated with inviting the submission of a disaggregated
bid and DELEGATED AUTHORITY to the CEO — FST& and the Telecoms Director to make a counter offer to Fujitsu and
invite them to make a disaggregated bid.
2019/20 29/10/2019 I Next Steps on the The Board NOTED the proposed short term approach and APPROVED a short-term extension with Digidentity, with sign-
Digital Identity off of the terms delegated to the Group CEO and CFO. The contract expired in November 2019 but there was an option of
Strategy a one year extension.
2019/20 29/10/2019 I Group Litigation The Board NOTED the updates in the paper including the approach being taken to mediation. The Board AUTHORISED the
Update — subject to Postmaster Litigation Subcommittee to delegate to the General Counsel authority to make settlement offers at mediation
legal privilege on terms to be determined by the Subcommittee.
2019/20 29/10/2019 I Starling (Workers’ The Board NOTED the approach, update and next steps. It was reported that we were satisfied with the 10 lead witnesses
rights case) Update and our understanding of the risks associated with each case. Our witnesses would be prepared properly.
The Board DELEGATED decisions (including instructions on settlement receipt of making offers) for Starling to the Group
Chief Executive Officer, CEO Retail and General Counsel. Significant decisions should be referred back to the Board.
2019/20 29/10/2019 I Sealings The Board APPROVED the affixing of the Common Seal of the Company to the documents set out against items number
1827 to 1841 inclusive in the seal register.
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