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Brief for Tim Parker meeting with Robert Swannell — 7 November
2017
1. Background
Six monthly meeting with the Chairman of UKGI; the previous meeting took
place on 30 March 2017.
Opportunity to:
- Maintain high level contact
- Record appreciation for decision on Government Funding
- Promote understanding of the Post Office’s development to date and its
strategy in the future
A short background biography of Robert Swannell (RS) is at Appendix 1, as well
as some key facts on the Post Office at Annex 2.
2. Post Office —- current trading position
Report and Accounts 2016/17 - to be issued shortly - shows EBITDAS improved
from a loss of £17m to a profit of £13m. Important milestone for the business.
Our revenue was largely flat at £957m (a small reduction of £7m from the
previous year). Network subsidy from Government reduced from £130m to
£80m (and is set to continue to reduce year on year to £50m in 2020/21).
The target for this year is £28m EBITDAS and current trading shows that we are
on track. At the end of Q2 income is £463.3m, up £7.3m against target, and
EBITDAS is £2.7m above target.
Also, a key focus this year is on hitting our cash target. We have a number of
projects underway to ensure that the cash we hold in our branches and cash
centres is kept as low as possible. This has a positive impact on the level of
Government loan that we utilise and at the half year point we are on track to hit
our cash target.
3. Funding to 2021
Although the decision is yet to be made public, Post Office is delighted that a
further tranche of investment funding (£210m) has been agreed by Government
to 2021 together with further network subsidy payment (£160m) over the same
period.
Our overall ambition over the coming years is to generate a sustainable profit of
over £100m so that we can invest in the business and grow Post Offices across
the UK. We want to ensure that the Post Office matters as much in the next
decade as it has in the last which means building a business that thinks
customer at every turn and delivering the delivering the digital innovation which
will enable us to offer the products and services customers want and need.
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4. Post Office - progress in key areas mentioned at last meeting
Significant progress in key areas:
Rationalisation of Central Functions - We've restructured the centre
of the business around the network/retail functions and the financial
services/digital functions - with the last announced changes reducing
headcount by 20%
NT Programme -— Programme has now delivered over 7400 branch
modernisations — improving premises, shifting to variable costs and
increasing opening hours and Sunday opening
Directly Managed Branches - Ongoing activity to improve the
performance of the larger city centre branches we run ourselves through
activity such as franchising (with eg WHSmith). This part of the network,
traditionally loss making, is now operating profitably
Banking framework — In January we announced our framework
agreement with all the UK banks - such that their customers can use Post
Offices for banking transactions. 99% personal banking customers in the
UK and 95% business banking customers, whatever their bank, can now
use our 11600 strong Post Office network. A key development for the
banking infrastructure in the UK.
Current Issues:
Postmaster litigation - The Case Management Conference was held in
late October in relation to the Postmaster Litigation. This was a procedural
hearing which addressed a range of issues, the most material of which
were:
A trial has been set for 5 November 2018 which is expected to last for 20
days to determine issues relating to the postmaster contracts.
The date for new Claimants to join the action has been extended until 24
November 2017. As a result we expect at least a further 70 applicants to
join the litigation.
Orders were made for the selection of 6 lead cases to be heard at the
trial, from a pool of 12.
The claimants are required to provide more information on the value of
their claims.
Stranded Postmasters - There are 575 Postmasters who have
expressed a preference to leave under the NT programme but cannot do
so as, under the terms of our government funding, we can only release a
leaver’s payment when we can replace their branch with another in the
same area. These ‘stranded’ or ‘hard to place’ branches represent 5% of
the network (a smaller proportion than we had feared at the start of NT)
and continue to receive fixed remuneration, opening traditional hours.
Operators are often demotivated and we are actively looking to reduce
their number. We are reviewing our approach to this group as a priority
and will step up our ‘whitespace’ activity to see whether we can find a
more creative solution which would enable us to let these stranded
branches close. We are also looking at whether we could replace these
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branches with mobile or outreach flexible services where there are low
customer sessions numbers, although in the majority of cases the service
is critical and the branch serves high levels of customers.
- Directly Managed branches (DMBs) - our current strategy is to
continue franchising DMBs and also replacing these with a combination of
Local and small Mains branches. An initial study and business case has
concluded that moving away from DMBs reduces our ongoing costs,
making these branches more sustainable going forward. By combining
Post Office services with a successful retail offer, we can also deliver
significant benefits for customers through improved opening hours,
allowing access to Post Office services outside of traditional core hours
and across 7 days a week. We are currently reviewing the potential to
move all DMBs to an Agency run model to simplify the business and offer
greater customer access and convenience. From the 227 DMB network
following current divestment plans, this new plan will leave between 0 to
92 branches in any residual DMB network, depending on the option
approved as part of our business case process.
5. Overall strategy
We've identified 5 strategic priorities for the next phase in our development:
« Simplify the retailer proposition - to increase retailer demand for
post offices
e Build innovative, flexible and secure IT - to enable better services
for customers, agents and staff
« Modernise our products and services - deliver substantial revenue
from new products
e Digitise and optimise the business - free our people to add
strategic value by automating wherever possible; and
e Modernise our skills, culture and HR policies - rights skills and
talent to support next phase in development and drive up employee
engagement.
Through these measures, we will deliver a significant step change in our
profitability, enabling us to reinvest in the business and support our social
purpose.
Our performance of delivering change and financial improvements in 2016/17
and into this current year shows both the capability and determination to
achieve this strategy.
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6. The Post Office Journey
The continued importance of the Post Office:
there is a branch within a mile of 93% of the population;
17 million customer visits, including a third of all SMEs, per week;
it is the market leader for mails, travel money, identity checks (both online
and in-branch) and banking;
in over 3,000 communities the Post Office is the only retail outlet;
the business creates up to £9bn of social value every year according to
independent research (YouGov 2016).
Our progress:
After decades of neglect, recent years have seen the delivery of one of the
largest transformation programmes in UK business history.
the branch network has stabilised around 11600, with over 7,000
branches modernised providing a million additional opening hours a
month;
the new banking framework gives universal UK bank account access at
Post Offices;
just five years ago we were losing £119m, we delivered a profit of £13m
in 2016/17, the first profit for 16 years.
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A ndix 1 - Background on R rt Swannell
Robert Swannell - Chairman of UK Government Investments (UKGI).
Robert (born: “} is the Chairman of UK Government Investments
(UKGI) having been Chairman of the Shareholder Executive from 2014 -2016.
UKGI is the UK Government's centre of excellence in corporate finance and
corporate governance.
Robert Swannell was appointed a Non-Executive Director of Marks & Spencer in
October 2010 and became its Chairman in January 2011 taking over from Sir
Stuart Rose. He has announced that he will retire in 2017.
Until 2010, Robert spent over 30 years in investment banking with
Schroders/Citigroup. He was formerly Vice-Chairman of Citi Europe and
Chairman of Citi’s European Investment Bank.
Robert was Senior Independent Director of both The British Land Company plc
(NED 1999-2010) and of 3i Group plc (NED, 2006-2010). Robert was Chairman
of HMV Group plc from February 2009 until March 2011. He was also Chairman
and a Member of the Governing Body of Rugby School from 2004-2014. Robert's
regulatory and government department experience includes the Regulatory
Decisions Committee of the FSA, the Takeover Panel Appeal Board and the
Industrial Development Advisory Board of BEIS (Department for Business,
Energy and Industrial Strategy).
He is an Advisory Board Member of The Sutton Trust, a founder and Trustee of
the SpringBoard Boarding Bursary Foundation, a Trustee of Teach First and a
Trustee of the Kew Foundation. He is also a Director of the Investor
Forum. Robert qualified both as a chartered accountant and barrister.
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A
ndix 2 -K kground f.
11,659 branches across the UK (end March 2017)
95% of the population say they use the Post Office at least once a year —
with millions of customers and small businesses visiting every day.
Operates in commercially competitive and fast changing markets - the
retail mails, banking and financial services, government services and
telecoms. 97% of post offices are operated in conjunction with local
businesses, increasingly alongside convenience retail
Essential services are provided for people throughout UK - mails,
banking, pensions, bill payment, and Government services. Post Offices
enable unique levels of cash accessibility in local communities.
Research shows that communities want a post office, bank and shop to
survive and thrive. Post Offices are increasingly providing all three
services under one roof.
Post Office financial services (mortgages, insurance, travel) grew by 6%
last year
The Post Office is the number one provider of travel money in the UK
Provision of banking services for customers of other banks is now
running at over 110m transactions a year. 99% personal banking
customers in the UK and 95% of business banking customers can use the
Post Office for banking transactions
Post Office leads the market in the provision of ‘identity services’ through
the Governments ‘Verify’ initiative.
Post Office is handling around £60bn each year in payments and receipts
through its network - playing a major role in cash distribution into local
economies.
Post Office offers widespread service provision with over 6000 branches
in rural areas and around 1400 in urban deprived areas and continues to
develop sustainable and innovative service arrangements such as mobile
Post Offices or partnerships with community run shops.
Social Value - Recent independent research shows that the Post Office
delivers social value in the range of over £4bn to £9bn each year to
people and businesses throughout the UK.
Provides unique physical accessibility across the UK - the Post Office
continues to maintain the size of its network and meet all the
Government's accessibility criteria
Network size Accessibility performance
2013/14 11696
2014/15 11634 Minimum 99% 90%
requirement
2015/16 11643 Performance 99.7% 92.9%
2016/17 11659
Note the network is further supplemented for cash
access by ¢2,000 ‘free to use’ external cash machines
(ATMs) across the UK