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Personal & Confidential
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POST OFFICE BOARD
Minutes of the Meeting of the Board held
at 10 Courtney Place, Cobham, Surrey, at 7.30pm on Sunday
23 May 1999
Present
Neville Bain Chairman
John Roberts Chief Executive
Richard Close Managing Director Finance
Jerry Cope Managing Director Strategy & Personnel
Present by_conference phone facility from 8.00pm:
Mike Kinski Non-Executive
Rosemary Thorne = Non-Executive
Miles Templeman Non-Executive
Also Present
Stuart Sweetman Managing Director Post Office Counters Limited
Apology John Lloyd was unable to attend.
HORIZON
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The Chairman noted that a quorum was present and
that the purpose of the meeting was to consider the
request from Government that the Post Office Board
sign the Heads of Agreement negotiated by the
Treasury with ICL (and to which POCL had not been
party) by the ICL/Fujitsu deadline of midnight.
It was noted that the Secretary of State had, on 22
May, finally provided a written response to the
Chairman, clarifying certain aspects of the proposal. In
particular the letter (attached to this minute) made
plain that it is Government’s desire to pursue option
B3 and that all other alternatives, except for
termination were off the table. The following comfort
was given:
* the timing of the Benefits Agency move to
Automated Credit Transfer (ACT) would not start
before 2003
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* the Government would fund the £480m which
POCL would require to pay ICL on the scheduled
basis :
* that Ministers have “hopes” that The Post Office
Network wouid be utilised by Government
departments to deliver the benefits on the
“Modernising Government’ White Paper.
This proposal was then fully discussed, and clarified to
the extent possible, under the following headings:
Commercial Issues
It was clear that there was insufficient information in
the document negotiated by the Treasury, and
commended to the Board by the Secretary of State, to
enable a full financial evaluation to be carried out. On
the limited evidence available it appeared to be around
£700m NPY adverse to option A, but was still slightly
superior to termination.
While in normal circumstances this would lead the
Board to reject the B3 proposal on commercial
grounds, it was clear that the shareholder favoured it,
no other options (apart from forced termination) were
available and that Government, as a customer,
remained essential to POCL as a key driver of future
volume.
The proposal to take 3 months to turn the Heads of
Agreement into a real agreement could be used to
produce a full commercial evaluation which the Board
could then, if necessary, and appropriate, reject at a
cost of a £150m payment to ICL.
Funding
It was noted that the £480m of development funding
proposed by Government offset the staged payment
due to ICL. It appeared that a further £68m payment
for the core system would be left to POCL along with
annual running costs of around £80m.
It was noted that, as the vehicle for finding would be
the sale of gilts, approximately £25m of foregone
interest would impact the Post Office cash flow and
bottom line,
It was further noted that POCL would in addition
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need to fund the Banking development, not covered
within the ICL payments, which would result in a
further cash requirement of £100m.
Risks
It was noted that a significant risk transfer from ICL
to POCL was included in the Secretary of State’s
proposal
Impact on POCL Strategy
It was noted that, apart from termination, this was the
least beneficial option for Counters’ strategy.
However, it did provide for automation, it accelerated
Network Banking requirements, that there was no
migration to a Smart Card and that Government
Gateway was much harder. As it was the only option
Government were prepared to support, there was
merit in taking time to evaluate it further.
ICL Capability and Relationships
Despite the uncertainty and the difficulties caused by
Govemments intransigence, relations with ICL and
POCL were professional and satisfactory, There were
some concerns about their ability to deliver, which
would be addressed in the next 3 months should the
Board decide to proceed to sign the draft binding
heads of agreement.
White Paper
It was an absolute essential requirement of the Board
that any Horizon proposals should not impact on the
funding and other aspects of the White Paper.
The Chairman, with the agreement of the Board, then
outlined the two alternatives to be considered:
1. Refuse to sign as there is insufficient information at
this time, and the evidence available suggests that
the proposal is not necessarily in the best
commercial interests of The Post Office.
2. Sign subject to seeking substantial comfort from
Government to protect The Post Office and POCL
financial positions,
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After considerable discussion, the Board were
unanimous in empowering the Chairman to speak with
the Secretary of State and to confirm in writing the
following:
® based on the information currently available to the
Board, and bearing in mind its fiduciary
responsibilities, option B3 is likely to lead toa
deterioration in the financial position of The Post
Office, and is not the best use of shareholder funds.
* however, the Government had made it clear that it
believed it is the best way forward and The Post
Office did have the opportunity of the next three
months to fully understand the proposal and see if it
can be made workable
« in the light of this, the Board would be prepared to
sign the Heads of Agreement to meet the deadline
on the following conditions:
© while The Post Office will work positively to create
a success of the option, if the three months show
this is not possible, or the performance of ICL
causes further doubt about their ability to complete
their part of the deal, then the £150m cancellation
payment should be treated by Government in the
same way as the £480m
© in the case of both figures appropriate profit target
and EFL reductions would be made and payment is
made in a way that POCL ensures remains solvent
and able to pay its creditors as they fall due.
© that none of the figures mentioned in the Secretary
of State’s letter will in any way affect the
proposals, including funding for acquisitions so far
put forward in the Government approach to the
White Paper
© that because POCL is largely exempt from VAT,
Government will ensure that the VAT effects on
the payments to ICL are neutral to The Post Office.
The Board also registered its deep concern about the
way in which this issue has been handled and about the
relationship between the Secretary of State and the
Board. It therefore required an urgent meeting
between The Chairman the non-executives and the
Secretary of State.
The Board agreed that subject to a satisfactory
response to the issues listed above, that a Committee
of any three of the Board, including the Chairman and
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