Post Office Board Agenda
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24 May 2018
Finish Time
15.45hrs
41.45hrs
Location
Room 1.19 Wakefield
1. I PO Limited Board appointment
Present
Tim Parker ( Chai
* Paula Vennells
+ Ken McCall
* Alisdair Cameron
+ Tom Cooper
+ Tim Franklin
+ Shirine Khoury-Haq
+ Carla Stent
In Attendance
Jane MacLeod (Company Secretary)
Veronica Branton (Minute Secretary)
Micheal Passmore (Finance Director) (items 4. and 5.)
Debbie Smith (CEO — Retail) (item 7.)
Martin Kearsley (Banking Framework Manager) (item 7.)
‘Owen Woodley (CEO - FS&7) (item 8.)
Rob Houghton (CIO) (items 9. and 10.)
Jeff Lewis (IT procurement consultant) (item 9.)
Martin Hopcroft (Head of Health and Safety) (item 13.)
Approval
To approve the appointment of Shirine Khoury-Haq
as a Non-Executive Director of PO Limited for an
initial period of three years effective from 24 May
2018.
Tim Parker
Timings
11.15
Insurance via PO Limited subscribing for £5m of
Post Office Insurance shares, in order to maintain
Post Office Insurance’s FCA solvency requirements
in 2018/19.
2. Minutes of previous Board and Committee Approval Minutes formally agreed. Jane MacLeod 11.20
meetings including Status Report
3. CEO Report Notng and CEO to update the Board on the report. CEO 11.30
pl
4 Financial Performance Report ~ Noting and CFOO to update the Board on the report. CFOO/ Micheal Passmore 11.50
input
5. I Post Office Insurance Regulatory Capital Decision To approve a £5m capital injection to Post Office CFOO / Micheal Passmore 12.10
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6. Annual Report & Accounts Approval To seek the Board to approve the ARA in principle and I Carla Stent/ Al Cameron 12.15
delegate completion and signature to the Chair of the
Audit Committee, CEO and CFOO. i
j
Break 12.30
7. Future of Banking Framework Noting and input I To provide an update on the Banking Framework. Debbie Smith/ Martin 13.00
Kearsley
8. Peregrine update Noting and input I To provide an update on the negotiations with the Bank I Owen Woodley 13.30
of Ireland.
9. Everest Noting and input I To provide an update on negotiations with Fujitsu. Rob Houghton/ Jeff Lewis 14.00
10. Back office transformation Noting and input I To provide an update on back office transformation. Al Cameron/ Rob Houghton 14.20
11. Contracts
. To seek the Board’s approval to the award of a two
11.1 Print Management Contract Award Approval year contract for £5.519m with HH Global. Jane MacLeod
12. Postmaster Litigation Noting and input I To update the Board on the Postmaster litigation. Jane MacLeod 14.50
13. Performance Report - Health and Noting and input I To update the Board on health and safety Al Cameron/ Martin Hoperoft 15.00
Safety, including review of Robbery performance, including a review of robbery risk and
Risk and Violence violence in PO's and PO's approach to mitigating these
risks,
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Agenda item
Timing
14. Board Committee Chair updates Noting To update the Board.
(verbal)
Chairman
14.1 Nominations Committee Senior Independent
14.2 Remuneration Committee Director
15. items for Noting 18.30
15.1 Sealings Noting For the Board to be aware of the Jane MacLeod
affixing of the seal.
15.2 Future Meeting dates Noting For Board to note future meeting dates I Jane Macleod
for 2018.
15.3 Forward agendas Noting For Board to note. Jane Macleod
15. Any Other Business 15.40
CLOSE
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POST OFFICE LIMITED PAGELOF 1
BOARD DECISION PAPER
Post Office Limited Board
appointment
Author: Veronica Branton, Head of Secretariat Sponsor: Jane MacLeod, Company Secretary
Meeting date: 24 May 2018
Executive Summary
Following a recruitment process supported by Russell Reynolds the Nominations Committee
recommends the appointment of Shirine Khoury-Haq as a Non-Executive Director of
Post Office Limited.
The Secretary of State for Business, Energy & Industrial Strategy has approved the
appointment for recommendation to the Board.
Decision
The Board is asked to RESOLVE to APPROVE:
the appointment of Shirine Khoury-Haq as a Non-Executive Director of Post
Office Limited for an initial period of three years with effect from 24 May 2018.
The Board is asked to NOTE:
that, subject to confirmation from the Nominations Committee, Shirine Khoury-Haq
will be invited to become a member of the Nominations Committee and the
Remuneration Committee.
A list of Committee Membership is attached for information.
Committee Membership (from 24 May 2018)
Audit Risk & Compliance Committee
Carla Stent - Chair
Tom Cooper
Tim Franklin
Ken McCall
Nominations Committee
Tim Parker - Chair
Shirine Khoury-Haq
Ken McCall
Remuneration Committee
Ken McCall - Chair
Shirine Khoury-Haq
Tim Parker
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Post Office Limited
Board Meeting
MINUTES OF A MEETING OF THE BOARD OF DIRECTORS OF POST OFFICE LIMITED HELD ON
TUESDAY 27** MARCH 2018 AT 20 FINSBURY SREET, LONDON EC2Y 9AQ AT 11.20AM
Present: Tim Parker Chairman (TP)
Richard Callard Non-Executive Director (RC)
Tom Cooper Non-Executive Director (TC)
Tim Franklin Non-Executive Director (TF)
Ken McCall Senior Independent Director (KM)
Carla Stent Non-Executive Director (CS)
Virginia Holmes Non-Executive Director (VH)
Paula Vennells Group Chief Executive (CEO)
Alisdair Cameron Chief Financial and Operations Officer (CFOO)
In Attendance: Jane MacLeod General Counsel & Company Secretary (JM)
Veronica Branton Minute Secretary (VB)
Micheal Passmore Finance Director (MP) item 5
Cem Oztoprak Finance (CO) item 5
Mark Ellis Network Operations Director (ME) item 6
Russell Hancock Supply Chair Director (RH) item 6
Owen Woodley CEO - FS&T (OW) items 7&8
Colin Stuart Finance Director, FS&T (CS) item 7
Martin Edwards MD, Identity Services (ME) item 10
Elinor Hull Identity Services (EH) item 10
Bryn Robinson Identity Services (BRM) Item 10
Morgan
Chrysanthy Pispinis Head of Post Office Money (CP) item 8
Debbie Smith Chief Executive, Retail (DS) item 9
Andrew Goddard Head of Payment Services (AG) item 9
Paul Squire Programme Manager (PS) item 9
Mark Davies Group Director of Communications, Brand and Corporate Affairs item 9
Rob Houghton Group Chief Information Officer (RH) item 11
Catherine Hamilton IT Business Performance Manager (CH) item 11
Apologies: None ACTION
1. INTRODUCTION, CONFLICTS OF INTEREST, MINUTES OF THE PREVIOUS
11
1.2
1.3
1.4
2.1
BOARD MEETING INCLUDING STATUS REPORT
A quorum being present, the Chairman opened the meeting.
The Directors declared that they had no conflicts of interest in the matters to be
considered at the meeting in accordance with the requirements of section 177 of the
Companies Act 2006 and the Company's Articles of Association.
Minutes of the meeting of the Board held on 29% January 2018 were APPROVED and
AUTHORISED for signature by the Chairman.
The actions status report was NOTED as accurate.
POL Board and subsidiary board appointments
The Board NOTED the paper from the Company Secretary setting out
membership changes to the Boards of POL and POMS and RESOLVED to
RATIFY:
a) the appointment of Tom Cooper as a Non-Executive Director of POL with effect
from 27 March 2018 and until such as time as the Secretary of State BEIS shall
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2.2
2.3
3.1
3.2
determine. It was noted that the contractual terms of appointment remained to
be finalised
b) the appointment of Tim Franklin as a Non-Executive Director of Post Office
Management Services for a period of three years from 20 March 2018
c) the appointment of Andrew Torrance as Senior Independent Director of Post
Office Management Services for a period of three years from 20 March 2018
d) the appointment of Debbie Smith, CEO - Retail, as a POL Director of FRES for
the duration of her time in post
e) the appointment of Owen Woodley, CEO - FS &T, as:
- anon-independent Non-Executive Director of Post Office Management
Services for the duration of his time in post following FCA clearance
- a POL Director of the FRES Board for the duration of his time in post.
The Board RESOLVED to APPROVE:
the appointment of Tom Cooper as a member of the Audit and Risk Committee
for an initial period of three years with effect from 27 March 2018.
The Board NOTED the resignations of Virginia Holmes and Richard Callard with effect
from end of meeting and thanked them for their contribution.
CEO’s REPORT
The Board NOTED the CEO report.
The CEO updated the Board on a number of recent issues and answered a number of
questions:
a customer had been taken by ambulance from a post office branch in Paisley and
had died overnight on Sunday. Two employees from the retail outlet in which
the post office was situated has been arrested on a charge of murder; the
situation was being monitored
Conviviality was experiencing financial difficulties and seeking to raise additional
funds. The company ran 700 outlets which included 50 post offices for which
contracts were being novated; the position was being kept under review
PV had met with Andrew Griffiths, the new PO minister. The Minister had been
well briefed on the PO and had been supportive of progress made in the PO over
the past few years
PV had attended the first Financial Inclusion Policy Forum. The thinking across
DWP, HM Treasury and DCMS had been joined up and the three main items
discussed had been setting up basic bank accounts, affordable credit and
affordable insurance. There had also been discussion on whether insurance could
be tied into Housing Association fees and the use of funds from dormant bank
accounts. PV had flagged the PO’s role in financial inclusion, including the
proposed provision of digital identities. PV had written to the Treasury following
the meeting to find out what the next steps would be. It was noted that while PO
had the potential to play a useful role, the services we delivered needed to be
provided on commercial terms
the decision not to proceed with the second phase of branch technology
simplification at this stage was discussed. It was noted that the Board would be
considering the broader simplification agenda at its June away day which would
include HNGT. It was agreed that it was important not to lose the sight of the
main objective to create a simpler system that required fewer resources and less
money from PO, even if that required having a different system for small Post
Offices. Phase 1 of simplification had focussed on a number of transactional items
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4.1
4.2
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that did not take out cost and had been unpopular with Postmasters. It was now
proposed to pause development while considering the overall approach to
simplification. A number of points were raised in connection with the
simplification agenda:
- it was suggested that it would be helpful to understand better the different
types of post offices; how cash was distributed between different types of post
offices; the operational relationship between POL and small branch models;
the limits to the variable pay approach and the economics of smaller branches.
All of these issues fed into the white space discussion on what our ideal
network would look like
- we also needed to consider whether we were leveraging the size of our
network sufficiently e.g. the potential opportunities for shared usage. It would
be helpful to see a granular analysis of what sharing opportunities there were
and what the network would look like over the next 10 years
- it was noted that the CEO Retail was preparing a paper for the Board away
day in June, which would consider this issue.
it was noted that work was underway to review our data strategy and capability.
This work would enable better insight into branch operations, however, it was not
yet fully developed.
partnering opportunities with RM were discussed and it was noted that an update
on Mails Strategy would be discussed at the May Board. It was recognised that
whatever opportunities we sought to pursue we needed to be careful not to lose
the benefits of exclusivity within our deal with RM.
POL Non-Executive Directors would be sent the press cuttings.
FINANCIAL PERFORMANCE REPORT
AC and MP introduced the P11 financial performance report and Scorecard covering
February 2018 which the Board NOTED. A number of points were highlighted:
network numbers had been uncomfortably low but there had been a number of
branch openings over the last couple of weeks and we were on track to be over
11,500 at the end of March 2018. It was noted that failure to meet 11,500 figure
would result in a remediation plan to drive up numbers. Work was underway to
enhance branch reporting, as well as reviewing the rules and assumptions around
branch numbers
more audits had been undertaken this year, leading to more suspensions but the
position was reasonably stable. We signposted customers to other branches and
explored options for temporary Postmasters to be placed in store where this
happened; however, this was more difficult to do in retail stores than in stand-
alone post offices
we looked set to exceed the EBITDAS target for 2017/18 even taking into account
that £4m of this was the unspent sum from the Growth Fund.
A number of points were raised:
it would be preferable to see growth initiatives planned in advance and
disappointing that we hadn’t managed to spend all of the Growth Fund. With our
brand strength we should be able to invest money today in, say, PO Insurance
and grow that product well. We should re-consider an acquisition to increase
market share. This led to a broader discussion on PO Insurance and it was noted
that this was a topic for the June away day.
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PV would consider the issues raised to make sure that the away day delivered the PV
discussions needed on PO Insurance. Directors were asked to feed in any questions All
/challenges they had to be covered at the away day
e it was suggested that it would be helpful to include standing slots on material AC
projects in the report
e the continued decline in Government business was noted. The potential to offer
other services to Government was discussed and it was agreed that a recap of the
ideas we had considered previously (e.g. a prescription collection service) but had
decided not to pursue, and why, should be provided for the June away day. It was
noted that digital alternatives, including for POCa, were a potential growth area.
Other opportunities might be available but we would need to consider which would
generate profit and draw on our key assets of distribution and goodwill. We also
needed to consider whether to engage a senior business services strategist to get
traction on this and whether we needed to link up with senior people in government
to discuss growth opportunities
e the development of the banking framework was discussed and whether we should
be charging the banks more for use our services. There were some tactical timing
issues on charging but the service should offer a medium term profit opportunity.
ANNUAL STRATEGIC PLAN 2018/19 & QUARTERLY FUNDING
The CFOO presented the Annual Strategic Plan 2018/19 which was NOTED by the
Board. A number of points were raised:
e the EBITDAS target of £50m for 2018/19 was halfway to the objective of achieving
a £100m EBITDAS profit; this was encouraging, however, we needed to look at
growth opportunities at the away day in June as well as continuing to drive cost
out of the business. It was noted that costs would reduce as the number of DMBs
reduced; however, we were not driving big opex savings this year because we
needed to move off POLSAP and did not have bandwidth to drive major cost savings
in tandem. More resource was being secured in the finance area in the short term
but in future years we would be seeking to digitise more of the finance function
where possible to drive cost savings
e there had been discussions with UKGI about whether it was appropriate to exclude
Peregrine and Panther from the Annual Strategic Plan. The rationale for these
exclusions was that Panther would need to go through the CMA process and that
the deal for Peregrine had not been concluded. The figures in the plan would be
adjusted on conclusion of these deals
e we had not experienced a significant disruption to our market but agents’ pay was
a potential issue for us. We had a framework in place that allowed us to pay over
scale where we had difficulty appointing Postmasters; however, these individual
decisions were not part of a strategy
e our forecasting appeared to be robust but we faced the challenge of the pace of
change within the business. Focus needed to be given to executing our key projects
successfully. Planned changed included IT migrations and we also carried key
person risks
« the scope to expand PO services within the community was discussed. Leveraging
our goodwill and getting Government buy-in to do more within communities would
be beneficial. Part of the purpose of having a profitable PO was being able to plough
money back into communities. We needed to make sure that we were socialising
what we did already, such as putting money into community schemes; having a
UKGI appointed Board director gave us a beneficial feedback channel.
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5.2
6.1
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The Board APPROVED the Annual Strategic Plan for 2018/19 for submission to
Government.
The Board thanked the executive for a very good piece of work.
The CFOO presented the Quarterly Funding Request which was NOTED by the Board
and approved for submission to UKGI.
The Board APPROVED that a request of £35m of funding from Government be
submitted for Q1.
CASH EFFICIENCY
The CFOO introduced the paper which was NOTED by the Board. A significant
reduction in the amount of cash held in branch had been achieved over a short period
of time. The Board congratulated the executive on this achievement.
A number of points were raised:
we were looking at how to drive down the amount of cash held in branches. There
were longer term technical solutions that would enable us to reduce the handling
of cash significantly and minimise the risks of fraud and error. It was a question
of finding the right and most cost effective technical solutions for PO
from July branches would have to make a cash declaration to be able to log on to
the system each morning. This change required amendments to the “back end”
of Horizon which took time. We were also explaining to branches the impact of
holding too much cash in branch and what they needed to do to help avoid that
happening
it was noted that the numbers of identified frauds had increased through the
increased number of audits. The PO’s inherent risk profile was growing as access
to cash decreased generally. This made reducing the opportunities for fraud and
theft even more important
it was noted that there were some threats and uncertainties to the business that
meant seeking to tighten the headroom was not currently an objective.
It was proposed that we explore developing a small number of post offices “of the
future” in which we could pilot new technology solutions.
FS&T PERFORMANCE
OW introduced the paper which the Board NOTED. The format of the paper was being
developed and now included an individual P&L view to give more visibility of what the
businesses were delivering.
OW highlighted a number of points from the report:
there had been good growth in mortgages recently and telecoms sales had
increased. The strategic direction of FRES and TravelMoney was under discussion
and the decline in MoneyGram had led to a drag on performance. The overall
position was slightly above forecast
Customer Hub was on-track for launch in May. It was proving an effective way of
introducing agile working into the organisation and the Board would be shown the
app once it had been launched
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DS/RH -
todo
8.1
9.4
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e the relationship with Bol was developing and we were likely to come back to
Board in May with a revised deal. Bol’s position had shifted a long way, including
on exclusivity
A number of points were raised, including:
e the strategic options on the PO Insurance business. OW was requested to
consider what would drive a step change in ambition and this should feed into the
thinking and preparation for the June away day discussions.
INTERNATIONAL REMITTANCES
OW and CP introduced the paper, noting that the recommendation to extend the
contract with MoneyGram by two years had been finely balanced. The deal included
additional guaranteed payments totalling £6m gross to the end of the contract
extension in September 2021. MoneyGram would also remove its exclusivity
requirement from purely digital offerings.
A key driver was being able to develop a digital offering quickly. The digital market
had grown significantly over the last three years and it was important to move into
that space quickly. It would also make PO a more interesting partner for future
bidders when we went out to a request for proposal (RFP). The main potential
downside of extending the contract would be if we then failed to develop a digital
offering quickly. Management was requested to explore market options and come
back to Board with proposals.
The Board was advised that the contract was profitable and that there was
an existing £8m mutual indemnity within the extension of the contract would not
change.
The Board RESOLVED to APPROVE the extension of our existing agreement with
MoneyGram through to September 2021 and noted the next steps, as set out in the
paper.
PROJECT PANTHER
DS introduced the paper. It was noted that KPMG had reconfirmed the valuation of
the Payzone business. Heads of Terms had been agreed and work was underway on
the CMA submissions. The communications plan was being developed and we
expected to be in a position to exchange contracts by late April.
A number of points were raised:
e the Shareholder view of the acquisition was discussed. It was noted that the
Shareholder had wanted reassurance that we had a walk away right after phase
one if the CMA findings meant a deal was not viable. Tom Cooper reported that
the Shareholder was supportive of the transition, however, he had suggested that
the Subcommittee should have a session with the lawyers and transaction
specialists before agreeing that the contract be signed to ask them directly if they
had any issues to flag
e integration requirements were discussed and it was noted that the physical
estates would remain separate but there were integration issues are around
elements like bank accounts. The synergies we sought from the deal were
revenue driven rather than cost driven
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e it was noted that the utility companies’ reaction to the deal was important and,
ideally, we would like to be able to advise British Gas about the Payzone deal as
part of their tender process.
The Board NOTED the progress made in planning and negotiating the deal and
RESOLVED to APPROVE setting up a Board Subcommittee to which it delegated the PV/AC
authority to approve an exchange of contracts for the Payzone deal. The CEO and
CFOO would confirm the membership of the Subcommittee.
10. IDENTITY
10.1. ME and BRM introduced the paper which the Board NOTED. ME explained how the
product would work.
A number of points were raised:
the process PO used to create a digital identity was discussed and it was noted
that the criticism of Verify had been that the bar was set too high as not everyone
could comply with the system’s requirements
the points that differentiated PO’s digital identity service were discussed. It was
noted that PO did not sell its data and would be able to keep adding more sources
of identity. PO was a trusted brand and would be adding in the ability to set up a
digital identity in branch with an end-to-end verification process
the risks associated with providing the service were discussed. The principal risk
was seen as process failure. If an individual used a digital identity to claim to be
somebody else PO would not accept liability any more than DVLA would accept
liability for someone using a stolen or faked driving licence. The position could be
different if we had failed to follow our own processes when setting up an account
so we needed to be able to have robust process and be evidence compliance with
these
the current service provision was discussed. PO had a white label service from
Digidentity but had worked with them to develop the service as we wanted it
Verify had been a good market entry point, both low cost and low risk. It was
noted that DWP was interested in using digital identity for universal credit
the development of the service was discussed. This year we planned to get more
control over our data to be able to own the customer interface. More could be
plugged into the system but to make that work we needed to be a customer facing
brand and market that. We needed to develop the architecture and product, then
allow the customer to use the service as they wished, on-line or in branch, and
be able to use their digital identity in a range of situations (e.g. when needing to
prove age). This kind of service was not yet offered in the UK but digital services
were being used widely in the Nordic countries, including across Government
the advantage of speed was discussed. Early development would create first
mover advantage. We would need to market the advantages of the service
effectively, including security!, time savings and the ability to use a digital identity
multiple times in multiple situations. Education and marketing would be needed
on both the client and consumer side. PO had the advantage of providing a digital
identity service and needing to make use of digital identity services
the scope for generating profit was discussed. It was noted that customers would
not pay for their digital identity as this was provided by Government without
charge but there was a significant client market, for example in providing
1 PO had the advantage that it had not sold customer data which had tarnished the reputation of some providers.
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employment checks. Banks were seen as a significant source of new digital
identity business for PO.
The Board encouraged the executive to continue the work outlined in the paper and
to bring a recommendation to the Board on the investment required, covering supplier
engagement and the value model. To be convinced of the investment potential the
Board would need to receive robust assessments of where value could be created,
where PO could add value and how profit would be generated. Expert assessments
would be needed on how to ensure first mover advantage. Reasonable objectives
would be needed on value and market share.
11. MICROSOFT ENTERPRISE AGREEMENT RENEWAL
11.1 The Board RESOLVED to APPROVE the renewal of POL’s 3 year Microsoft
Enterprise Software Agreement at c. £2.5m per annum, noting the associated risks
and accepting the mitigations set out in the report.
12. POSTMASTER LITIGATION
12.1 The Board NOTED that the Subcommittee established at the previous meeting had
met the previous day and had been updated on the case.
12.2. The Board RESOLVED to APPROVE the terms of reference for the Postmaster
Litigation Subcommittee.
13. Board Governance items
13.1.1 Delegated Authorities and Authorised Signatories
The Board RESOLVED to APPROVE the following delegated authorities:
e CEO (£5m); CFOO (£4m); other GE members (£2m). GE members are able to
determine sub-delegations up to their individual limits
e the delegated authorities as set out in the Treasury Risk Framework Policy (as
approved by ARC on 27/03/2018 and as summarised in appendix 4 of the Board
paper)
e that the company may enter into unlimited indemnities and liabilities which
cannot be limited either as a matter of law or by market practice (“standard
practice”). Where there are contracts that require unlimited indemnities or
liabilities that are not standard practice, the CFOO together with the Group
Director of LRG be authorised to approve such clauses save for those exceptions
set out in the Board paper, which would need to be approved by the Board.
13.1.2 Terms of Reference
The Board NOTED the review of performance against terms of reference for the
ARC, Remuneration and Nominations Committee in the 2017/18 financial year.
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13.1.3 Register of Interests and Conflicts of Interest
The Board NOTED the register of interests for directors and changes advised at the
meeting would be made.
14. Items of Noting
14.1 Sealings
It was RESOLVED that the affixing of the Common Seal of the Company to documents
numbered 1637 to 1657 inclusive in the seal register was confirmed.
14.2 Health & Safety
The Board NOTED the report. Health and Safety audit had been very positive. The
only point raised was whether we did enough to protect staff from abuse.
14.3. Meeting Dates and Forward Agenda
The Board NOTED the future meeting dates and May’s draft agenda.
15. AOB
15.1. The Chairman thanked Richard Callard and Virginia Holmes for their excellent
contribution to Post Office.
15.2 There being no further business the Chairman declared the meeting closed at 15:30
pm.
chgigmgg re bate
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PO Limited Board Actions as at 17.05.18
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CEO'S REPORT To bring an update on the further Debbie Smith I 24" May 2018 I Slot included on May Board To close
development of the Banking Framework to I (Martin Kearsley) agenda.
the May Board.
2. FINANCIAL PERFORMANCE
REPORT
(a) To include the value of talking to Debbie Smith I 24° May 2018 _I Paper on the Banking To close
manufacturers and a review of location (Martin Kearsley) Framework included on May
strategy as part of the paper on cash Board agenda.
strategy coming to the May Board.
(b) To cover the issue of “trapped Debbie Smith I 26" & 27" June I Noted for inclusion in the June Open
Postmasters” and “white space” strategy 2018 Strategy paper.
within the review of retail strategy at the
June strategy session.
3. ANNUAL BUDGET 2018/19
(a) To provide an update on the PO Insurance I OwenWoodiey I 26% &27% June I PO Insurance will be Open
acquisition strategy (it was suggested that it 2018 presenting strategic growth
would be helpful to include wider options at the Strategy day in
background briefings from insurance June, including potential
experts). acquisition options.
(b) The CEO noted that the Mails strategy was Debbie Smith I 27% March Retail strategy coming to June Open
being reviewed by the new Chief Executive, 2018 away day and regular
Retail, and would be covered in June at the performance report to July
away days; however an update would also Board.
be provided at the March Board.
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4. ‘CE PERFORMANCE REPORT — I To look at agents’ pay and come back with Debbie Smith I 26 & 27% June I Noted for inclusion in the June Open
RETAIL SBU a strategy to the Board in June 2018. 2018 Strategy paper.
5. FINANCIAL PERFORMANCE
REPORT
(a) PO Limited Non-Executive Directors tobe I Veronica Branton I 24% May 2018 I Access to press cuttings To close
sent copies of the press cuttings. arranged
{b) The CEO to consider the issues raised in Paula Vennells 26" & 27" June I To be reflected in the June Open
discussion to ensure that the away day 2018 Strategy paper.
delivered the discussions needed on PO
Insurance.
(o) Directors to feed any questions / challenges I All 26" & 27" June I Questions/ challenges to be Open
they had to be covered at the away day. 2018 feed in as required.
(d) ‘Standing slot on material projects to be Alisdair Cameron I 31 July2018 I A section on material projects ‘Open
included in the Financial Performance will be included in the
report. Financial Performance Report
in P2 as the spend becomes
more material and we are
past year-end.
6. FS&T PERFORMANCE A point regarding the strategic options for I Owen Woodley I 26" & 27" June I To feed into the June Strategy Open
the PO Insurance business was raised. OW 2018 day.
was requested to consider what would
drive a step change in ambition and this
should feed into the thinking and
preparation for the June away day
discussions.
Strictly Confidential Page 2 of 3
PO Limited Board Actions as at 17.05.18
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2 PROJECT PANTHER
The CEO and CFOO to confirm that
membership of the Subcommittee being
set up to approve an exchange of contracts
for the Payzone deal.
Paula Vennells /
Alisdair Cameron
The Subcommittee was
established and at its meeting
on 15 May 2018 delegated
authority to the Chairman,
Group CEO and Group CFOO
for exchange of contracts for
the acquisition of P2's bill
payments business,
commencement of
preliminary, confidential
discussions with the CMA, and
initiation of communications
activities.
To close
Strictly Confidential
Page 3 of 3
POST OFFICE
POST OFFICE BOARD
CEO’s Report
Author: Paula Vennelis Meeting date: 24% May 2018
Executive Summary
Context
Our target for 2018/19 is to achieve EBITDAS of £50m. Our areas for future
focus will be:
Our key market ambitions
To remain number one in letter and parcels
To build our position as a major challenger brand in financial services
and telecoms
To be the UK’s main provider of cash services and remain #1 in
travel money
To lead the market for digital identity services
Our key measures of success
Grow our network, doubling the number in town and city centres
Become the partner of choice for convenience retailers
Demonstrate digital innovation in every transaction
Deliver £100m profit to reinvest in our business and communities
Our five priorities to deliver these outcomes
1
2
3.
4
5
. Simplify the retailer proposition
. Build flexible and secure IT
Modernise our products and services
. Digitise and optimise the business
. Trust our people to find the best way to do their jobs and help our
customers
Input Sought
The Board is invited to note the report and highlight any issues where a future
discussion would be welcome.
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The Report
Looking Back
WHAT HAS GONE WELL?
¢ Financial Performance
— A positive start to the year delivering a favourable variance to budget on EBITDAS,
driven by strong trading across all business units. Revenue was £88.4m, £1.2m
favourable to budget and represented 3.8% YoY growth.
«© FS&T
—» We have had a strong start to the year in Insurance, ahead of budget and growing
versus last year.
— The launch of the new mortgages campaign has been successful with 23 pieces of
national coverage and supportive messaging in The Daily Mail and The Sun. We
had c20k visits last week to the mortgages homepage which is over double the
average and leads have increased 4x to c800 per week. As a result, we expect to
see a significant uplift in applications next month.
e Network -Customer satisfaction, new openings & branch numbers
— Customer Service Performance “Ease of Doing Business” score was 82.2% vs LY
81% (data captured from 2 touch points, VoC and directly requesting customer
feedback where a customer has given permission to be contacted)
— This month saw two important milestones within our network, with the first
branch opening for a new Multiple partner (Motor Fuel Group, the UK’s largest
forecourt operator) and the 100* branch for Blakemore, which trades as Spar.
Forecourt is a major potential growth area for Post Office and we are already
planning more openings with MFG (the first was in St Albans, the next will likely
be near Newcastle).
— Our Network numbers have increased to 11,547 branches.
« Banking Framework
— Following an exchange with the Economic Secretary to the Treasury, we recently
announced an agreement with UK Finance on a five point action plan to raise the
profile of banking services available through the Post Office. The plan will
promote awareness of day-to-day banking services, including paying in and
withdrawing cash. Later this year, we will be launching a series of activities
including media campaigns, local community events and enhanced support for
vulnerable customers across the UK.
— Our plans around our banking framework continue at pace and current proposals
could result in Post Office taking on c.30% of banking transactions starting in
2019, and maturing over 3 years. More detail to be discussed at this meeting.
— We continue to work closely with UK Finance and HM Treasury as we implement
our plans.
¢ IT branch deployment
— Branch Counter deployment has accelerated now that we have transitioned the
branch network from Fujitsu to Verizon. We are scheduling 70 branches a day
with 10600 counters now complete, which is >40% of the targeted total we will
achieve by September 2018.
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¢ The Times - Top 50 Employer
— Post Office has been included in the list of the Times’ top 50 employers for
women - for the third year in a row. Post Office’s inclusion on the list follows a
successful 12 months for the business: it was recognised as a Disability Confident
Leader in 2017 and earlier this year, also won the Diversity and Inclusion award
at the Employee Engagement Awards.
WHAT HAS NOT GONE WELL?
¢ IT network incident
— There was a major network service outage on 9th May which resulted in c.4000
branches being unable to connect to the network. Branches were able to connect
using their secondary wireless connections and the issues steadily declined from
08:30hrs, with the majority of services restored by 09:30hrs and confirmed as
fully restored by 10:43hrs. The cause of the issue was related to a network
failover test by Verizon. As a precaution, any such changes impacting on the
branch network are currently being confined to the weekend to avoid a
recurrence. Verizon is failing to deliver a robust network solution and we are
pursuing remediation plans with them, requiring an additional 1 or 2 further
data/DR centres to spread the load.
¢ Telecoms Contact Centre data breach
— One of our agents at our Telecoms contact centre, inadvertently disclosed the
address of one of our vulnerable customers to the person alleged inflicting
domestic abuse on her.
— Since the breach, our priority has been to ensure the customer is well supported.
The customer and her family have been moved, temporarily, to a safe refuge
whilst the authorities and support services work out a more permanent solution.
We have remained in contact with her and will continue to be engaged and provide
support (e.g. reasonable expenses) during this difficult time.
~» Additional training and communications with all call centres and colleagues was
put in place immediately.
— As this is a data breach the ICO has been notified of the event but no further
information is available yet on reactions and next steps. However, it is likely that
we will face some sort of sanction but to what scale is difficult to judge at this
stage.
¢ McColls
~ McColls have raised concerns around the viability of their Post Office branches
with us and our Minister, Andrew Griffiths. We have written to Postmasters to let
them know we will not be implementing a number of planned cuts to
remuneration under simplification (as per our revised strategy) but will still be
undertaking most of the simplification measures to increase efficiency in branch.
We have an agency automation pilot about to trial which will save costs; we have
received confirmation from the Coop that our productivity work with them has
been well received. These are best practices to share across other partners and
we will continue to work closely with McColls. (We currently have 600 Post Offices
with McColls, our largest partner.)
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Looking Ahead
FUTURE FOCUS
¢ Government Affairs
— Irecently hosted a parliamentary dinner in the House of Commons. It was a
good opportunity to reposition the Post Office with MPs and stakeholders and was
exceptionally well received. Two successful entrepreneurial Post Masters spoke at
the event — their evidence spoke volumes.
— Al met with Simon Clarke MP who raised the issue of business rates with us:
pressures on small businesses/ retailers continue and with the continued decline
of the high street, we are keen to support.
e Bestway
— Bestway announced its acquisition of Conviviality's entire retail operation on 6
April and have indicated that they will continue to run all Conviviality brands (with
existing management team in place).
The 130+ Post Offices previously operated by, or in connection with, Conviviality
have remained open throughout.
Bestway is not currently one of the Post Office’s Commercial Partners and have no
‘company owned’ retail estate. However, we do have some Post Offices operating
in a number of Best-One branded stores (also owned by Bestway), and feedback
from those Postmasters is very positive.
Our initial take is that Post office and Bestway should be a good ‘fit’ as
commercial partners.
¢ GDPR - new legislation from 25% May
— Internal Audit and PWC have concluded their review of our GDPR
programme. The objective of this review was to assess the programme’s
confidence to achieve Post Office’s goal of ‘effective compliance’ with GDPR by 25
May 2018, when the legislation comes into force.
PWC concluded that having reviewed the progress made between October 2016
and February 2018, Post Office is significantly more progressed compared to its
peers, and the wider industry as a whole, putting the business in a good position.
Nonetheless, we are rated ‘Needs Improvement’, reflecting the risk that not all of
the remaining planned activities will be achieved by 25 May 2018. As discussed at
the ARC, appropriate actions are in place to reduce any risks, which are
considered low.
e IR update
>
Strietly Con
Unite: We have agreed a ‘negotiators agreement’ over a two year pay deal for
2018/19 and 2.5% 2019-20. Brian Scott has recommended acceptance to his
members in a consultative ballot which closes on 23 May.
CWU: POL recently received ACAS notification that the CWU intend to support an
employment tribunal claim to establish worker rights for at least 120 Postmasters.
Any claim is expected late June/early July 2018. (See Project Starling below.)
We met with CWU and Unite on 15 May to discuss a proposal from CWU for a
Collective Defined Contribution pension scheme. The meeting was informative and
interesting. No commitments could be made. We have agreed to arrange a further
meeting involving members of the GE in the near future.
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¢ Graduate proposals
— Each year I ask our ‘grads’ to tell me one thing they would improve if they were
CEO. We have had three exceptional responses this year - I hope we will share
them with you at the away day or July Board:
— Group one has already changed and improved our graduate recruitment process.
— Asecond group is working on proposals to increase Post Office’s appeal to a
younger customer audience in financial services.
— The third group has embraced the challenge to drive digital and agile working
across the organisation.
¢ Project Starling
— We have created a new project to oversee our responses to a number of linked
activities that may have implications for our business model: gig economy
challenges in the courts; responding to the Taylor review; a group of 120
postmasters sponsored by the CWU seeking assessment of whether they should
be categorised as workers; HMRC audit of our compliance with the National
Minimum Wage. The project will be initially sponsored by Jane MacLeod given the
potential legal implications.
— The work may lead us to consider changing aspects of our operating model, to
reflect on what ethical ‘red lines’ we have, and on strategic implications as we
evolve different post office models.
« Project Panther
— On May 15, a Board subcommittee approved the Panther business case and
granted delegation to CEO/CFOO for the formal exchange of acquisition contracts
and the issuance of documentation for the competition regulators (planned for w/c
28/5). An extensive communications programme is being finalised for an early
July announcement, and subject to CMA clearance, the Retail team is planning for
completion by the end of the summer.
¢ Identity Services
— Work is continuing with the Passport Office (HMPO), Gemalto and Accenture to
launch an assisted digital passport renewal service through our 730 branches with
an AEI booth. HMPO are concurrently undertaking a complex migration of their
back office system which has delayed the project by around 1 month. Subject to
any further delays on their side we are planning a phased roll-out of the new
service during the second half of June, reaching all 730 branches in July.
— We then intend to progress further passport innovations during the second half of
2018, including extending the range of application types and number of branches
and linking to our digital identity service (which amongst other things would make
it easier for customer to renew or replace their passport in the future and access
other travel services from the Post Office).
— As discussed with the Board last October, the Home Office have been undertaking
a procurement exercise to outsource all visa processing in the UK for the next five
years. This new contract subsumes the existing service we provide to capture
biometrics from customers in 115 branches, but also extends into back office
processing of the applications (including TUPE of Home Office staff). As such, the
new contract goes beyond our core competencies and the Home Office confirmed
in October that we would not be short listed to provide the new service. They
have now completed the procurement and will shortly be announcing the
appointment of Sopra Steria. Our existing contract is due to end in November of
this year, although we may be asked to extend by a number of months in order to
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give Sopra sufficient time to implement their solution. We are also progressing
direct sub-contracting discussions with Sopra about providing a premium service
through some of our branches for customers willing to pay a premium for the
convenience, although we will only pursue this if the financial benefits are clear.
— There are a number of broader opportunities with the Home Office in the identity
space. They are very keen for us to progress the work on passport innovations
noted above, we could potentially provide a solution to support the registration of
the ~3.5 million EU nationals post Brexit, and the new Home Secretary
(unprompted) raised the prospect of us playing a role in relation to the Windrush
follow-up at a session with the Home Affairs Select Committee on 15th May. I
have written to Sajid Javid, who we worked with previously when he was SofS at
BIS, to congratulate him on his new role and outline these opportunities. A
constructive dialogue is continuing with senior officials.
+ Wewill be presenting a full update to the Board on our strategy for identity
services in July, including the outcome of the work currently underway to develop
a more detailed commercial business plan for private sector expansion and our
recommendation on how to proceed with our preferred lead technology supplier.
« HNGT
— HNGT, our new counter software, is proving more complicated than initially
thought. We will present a Business Case to the Board in July, following the Retail
Strategy discussion. We are flagging today that we may exceed the £5m
approved spend before July (current forecast £4.9-£5.2m) and will update in
June.
RISKS OR CONCERNS?
e Postmaster Litigation
~— A-verbal update will be provided in the Board meeting.
e¢ Mails
— The Post Office requirement for online sales in the future contract has been
acknowledged and will be discussed at the RM June strategy day. With Moya
Greene retiring, it is likely RM will take a pause to review strategy. I am due to
meet with Rico Back, who replaces Moya Green as Group CEO and Tim and I will
meet Sue Whalley, recently promoted to UK CEO of Royal Mail next month.
— We will bring mails back to the September Board to discuss future strategy and
negotiation approach.
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BOARD DISCUSSION PAPER
Author: Cem Oztoprak Sponsor: Alisdair Cameron Meeting date: 24 May 2018
Executive Summary
Context
Approved 2018/19 budget aims to deliver £965m Revenue (1% growth YoY) and £50m
EBITDAS (38% YoY growth).
EBITDAS delivery is underpinned by £40m benefit realisation from change spend.
At the end of 2017/18, Cash in the Network was £645m and balance sheet headroom
was £127m.
P1 had budgeted revenue of £87.2m and EBITDAS of £5.7m
Questions this paper addresses
1. What is the financial performance in P1?
2. What are the key areas of over and underperformance against budget?
3. Does the performance highlights create any concerns for the future?
4. What scorecard do we want for 2018-19?
Conclusions
A positive start to the year delivering a favourable variance to budget on EBITDAS,
driven by strong trading across all business units.
Revenue was £88.4m, £1.2m favourable to budget, showing 3.8% YoY growth.
EBITDAS was £6.8m, £1.1m ahead of budget and £7.3m ahead of prior year. The year-
on-year movement was driven by income growth (£4.5m) and cost reductions
(£2.8m).
Balance sheet headroom in P1 was £239m above the minimum target of £200m.
Headroom has increased from 2017/18 P12 by £112m as cash was brought back from
branches after Easer, reducing barrowing.
Network numbers (March) were 11,547, 47 above the contractual commitment.
Change spend (Capex and Exceptional) was in line with budget but underlying spend
was £7.1m, being £8.5m below budget, due to delays in project mobilisation.
Input sought
The Board is asked to note the financial performance and provide feedback on the
Scorecard for 2018/19.
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The Report
Period 1 Financial Performance
em
Actual Budget Variance YoY Budget FY17/18 YoY
Retail $1.5 51.4 04 0% 568.6 563.5, 1%
FS&T (incl. insurance) 30.0 29.5 0.6 10% 334.7 325.3 3%
identity 57 54 0.3 3% 47.3 53.3 11%
Supply Chain/Other 42 1.3 (0.1) 74% 14.5 16.3 -11%
Revenue 88.4 87.2 12 4% 965.1 958.4 1%
Cost Of Sales (10.9) (41.9) 04 -2% (127.3) (421.2) 5%
Net income 774 76.2 13 5% 837.8 837.2 0%
Agents Pay (32.6) (32.6) (0.0) -3% (366.8) (372.6) -2%
Staff Cost (16.5) (16.4) (0.0) 1% (182.6) (188.0) -3%
Non staff Cost (26.2) (25.8) (0.3) 5% (284.1) (280.1) 1%
FRES 3.3 3.3 0.0 10% 33.8 34.4 -2%
Other Income 1.3 1.0 0.2 va 12.0 53 126%
EBITDAS 68 57 4.1 nia 50.0 36.2 38%
Network Subsidy. 5.8 58 0.0 -14% 60.0 70.0 -14%
EBITDA 12.6 U4 44 102% 410.0 106.2 4%
Depreciation (5.9) (4.3) (1.6) na (66.8) (56.8) 18%
interest (0.8) (0.5) (0.3) 53% 6.0) (5.2) 18%
Change Spend (7.2) (11.4) 43 na (95.0) (105.6) 10%
investment Funding 47 13.5 (1.8) 100% 168.0 70.0 140%
Profit On Asset Sale 07 0.0 0.7 84% 0.0 08 va
Profit Before Tax 4114 8.6 25 14% 110.2 9.4 na
Summary P1 Performance Overview
1. Retail revenue was £0.4m better than budget, (Appendix 1) predominantly driven
by increased lottery sales as a result of lottery rollovers.
2. FS&T (incl. PO Insurance) revenue performance was £0.6m and EBITDAS
performance was £1.3 favourable to budget. (Appendix 2) The P1 performance
upside was mainly delivered through an increase in telephony customers and
higher life and motor insurance sales, along with a favourable mix change in
Agents pay.
3. Identity EBITDAS performance was £0.2m favourable to budget. (Appendix 3)
The in-month over performance was revenue driven, due to HMPO Check and
Send volumes being 25,000 higher than budgeted albeit the volumes are
decreasing YoY by 85,000 due to migration to HMPO Digital Check and Send.
4. Staff and Non-Staff costs (Operating Expenses) were £42.6m which was 4% lower
than previous year.
5. Other income represents the interest income on POCA accounts and swap gain
on interest rate hedging.
6. Profit before tax is £2.5m favourable to budget, delivering £11.1m to the bottom
line. Pi last year excluded depreciation charges of c.£5m. Adjusting for
depreciation, the underlying growth is more than double.
Strictly Confi
POST OFFICE
Balance Sheet & Cash Position
7.
Net Asset increased by the retained profit of £11m.
Balance Sheet
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£m Period’ I Period 12FY17I Movement I Movement %
Fixed Assets 485 479 5 1%
Debtors 353 333 20 6%
Cash 567 656 (90) 14%
Creditors (628) (588) (40) 7%
Pension Surplus 3 3 0 2%I
Provisions (62) (66) 4 -6%I
Other 10 9 0 4%
Loan (611) (623) 112 -18%I
Net Assets / (Liabilities) 215 204 "1 6%
Net Funding Position
£m Period 1 Movement I Movement %
Government Loan (511) (623) 112 -18%I
Demonetisation - NCS (257) (238) (20) 8%
Cash at Bank - POL 1 0 1 225%
Net Funding Position (767) (860) 93 -14%I
Included in £567m cash balance is £552m of network cash, a reduction of £92m
(14%) from P12. The reduction in network cash delivers a corresponding
reduction in the Loan balance.
Balance sheet headroom has increased by £112m due to less cash being required
in the network after Easter. Balance sheet headroom is nearly back to the same
level as security headroom.
Balance Sheet Headroom
tm
Government Loan - Available Amount 950 950 : 0%I
Government Loan - Drawn Amount (511) (623) 112 ~18%I
Headroom 439 327 112 34%
Target Minimum Headroom 200 200 : 0%I
Headroom Above/(Below) Target 239 127 112 88%I
Security Headroom
tm
Network Cash 552 644 (92)I ~14%I
Cash at Bank - POL* 1 i) 1 225%
Client Debtors 140 132 8 6%I
Trade & Other Debtors - Business Debtors 193 173, 20 11%I
Total Security 887 950 (64) -7%I
Government Loan (511) (623)I 112 -18%I
Santander {104) {100)I (3) 3%I
Total Obligations (615) (723) 109 ~15%I
Headroom 272 227 45 20%
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Change Spend
Actual Budget Variance
Retail 7.0 4.2 2.8
Financial Services & Telecoms 1.7 18 (0.1)
POMS 0.0 06 (0.6)
identitiy 0.0 11 (1.1)
If & Digital 5.6 5.8 (0.2)
Finance & Ops 0.4 1.0 (0.6)
Human Resources 0.1 0.3 (0.2)
Legal Risk & Governance 0.3 0.3 (0.0)
Central Adjustments 0.5 0.6 (0.0)
Grand Total 15.7 15.6 O41
10. Programme spend for P1 is in line with the budget, however, £8.6m of the total
£15.7m is carry forward from previous year. £30m carry forward from last fiscal
year to this was anticipated but the P1 didn’t reflect this anticipation.
11. Therefore, the underlying spend is lower at £7.1m and the main variances are as
following:
A. DMB spend has been pulled forward into FY17/18 (£1.9m)
B. Identity projects are delayed due to business case preparation (£1.1m)
C. Project Everest delayed while the cloud business case is being finalised (£1.0m)
D. Low demand for Risk and Resilience investment (£1.2m)
E. Various small projects delayed due to project mobilisations
12. The newly formed Investment Committee is overseeing the change spend and
reviewing the major projects, delivery status and spend profiles on a monthly
basis. Currently, there no implications on in-year benefit delivery target based on
P1 underspend.
13. As per the agreement in the March Board Meeting, Q1 spend report will be
discussed at July Board including updates on major programme deliveries and Q2
forecast along with an update on future cash requirement from investment fund.
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Scorecard
GE is currently working on a revised scorecard for 2018/19, reporting measures that
we believe are significant to the development of the business.
Apart from tracking our bonus related measures that are targets: meeting the
national access criteria in the network - having more than 11,500 branches;
achieving EBITDAS of £50m; having two vertical businesses trading on Customer
Hub; and removing HNGX, HRSAP and POLSAP from Post Office.
We are considering the other measures we should incorporate with a preference for
leading other than lagging indicators where we can measure them. Ideas currently
under review include:
Trading income
Trading income from Customer Hub
Trading income from new, growth businesses - insurance and identity
Customers trading on Customer Hub
New Customers signed up on Customer Hub
Safety of our people: LTIFR
Diversity: proportion of new appointments at senior levels that are women and
or BAME
New customer satisfaction measure developed in Retail
Regulatory compliance basket in FS (as now)
Roll-out of HNGA
Number of branches not trading for IT or cash failures
Cash efficiency
The board’s views would be appreciated.
A P1 scorecard is included in Appendix 4.
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Appendices
1. Retail
2. Financial Services & Telecoms
3. Identity Services
4. P1 Scorecard
Strictly Confidential
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1. Retail
em
Actual Budget Variance YoY Budget FY17/18 YoY
Mails Trading 25.4 25.3 0.0 6% 289.1 274.4 8%
Mailwork 08 08 0.0 1% 10.0 10.0 0%
Fixed Fee 43 43 (0.0) -9% 45.8 49.8 -8%
Gift Cards O3 O03 0.0 12% 66 5.9 11%
Lottery 3.0 28 03 6% 27.8 31.2 -11%
POCa * 26 24 0.2 -30% 29.7 40.4 -26%
Payment Services 2.6 25 0.4 -3% 26.8 27.0 1%
ATVs 28 3.0 (0.3) “11% 34.2 30.0 4%
Banking Services 92 94 (0.2) 20% 97.0 87.8 10%
Other Retail OS 04 O4 58% 47 7.3 -37%
Total Revenue 515 514 04 0% 568.6 563.5 1%
Cost Of Sales (1.7) (1.7) 0.4 36% (19.3) (25.9) 26%
Net Income 49.8 49.3 0.5 2% 549.2 537.6 2%
Agents Pay (27.8) (277) (0.4) 17% (3146) (372.6) 16%
Staff Cost (7.3) (7.4) 04 2% (74.4) (82.4) 10%
Non staff Cost 28) (28) (0.2) -50% (42.9) (30.8) -39%
Other income 1.3 1.0 0.2 325% 12.0 5.3. 126%
EBITDAS 13.1 12.7 04 115% 129.3 57.4 127%
14. Mails trading performance was in line with budget with 6% YoY growth. Strong
performance on labels and home shopping returns offset lower performance in
stamps.
15. Lottery delivered £0.3m favourable revenue to budget due increased sales from
rollovers during the period.
16. POCA was £0.2m ahead of budget with 4% more accounts than budgeted.
17. Bill Payments has made a solid start to the year delivering £2.6m income in the
period against budget of £2.5m. This was driven by favourable performances in
both the reseller (Allpay and Santander) and direct channels.
18. ATMs revenue was (£0.3m) unfavourable to budget due to reduced volumes (-
8%) driven by availability rate at 93.9%.
19. Agents Pay was (£0.1m) adverse mainly due to increased lottery sales.
20. Operating expenses were broadly in line with budget.
* POCA Revenue for previous year has been adjusted to reflect the change of accounting
treatment and make revenue figures like for like comparable
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POST OFFICE
2. Financial Services & Telecoms (incl. PO Insurance)
em
Actual Budget Variance YoY Budget FY17/18 YoY
PO Money 8.8 87 04 7% 99.3 112.0 11%
Telephony 16.0 14.8 02 12% 165.4 152.0 9%
Postal Orders 1.3 1.2 O41 -16% 12.3 147 16%
insurance 49 48 O41 17% 57.9 478 21%
FS income Stretch 0.0 (0.0) 0.0 0.4 (1.2) -106%
Total Revenue 30.0 29.5 0.6 10% 334.7 325.3 3%
Cost Of Sales (8.7) (8.8) 0.4 6% (102.9) (91.6) 212%
Net income 21.3 20.7 O7 12% 231.8 233.8 A%
Agents Pay (3.4) (3.8) 0.4 -97906% (43.8) (0.0) -1267369%
Staff Cost (1.2) (1.3) 0.4 14% (16.8) (15.3) ~10%
Non staff Cost 67) (5.8) 0.4 6% (67.5) (63.5) 6%
FRES 33 3.3 0.0 10% 33.8 34.4 -2%
EBITDAS 14.3 13.0 1.3 -2% 137.5 189.4 27%
21. PO Money delivered £0.1m better revenue than budget due to improved trading.
A 7% YoY improvement, versus a full year expected decline of 11%.
22. Telecoms has grown by 12% YoY on the back of the New Call acquisition and
delivered £0.2m more revenue compared to budget as a result of higher number
of customers on the back of growth fund activity in 17/18
23. Insurance delivered £0.1m higher than planned income due to a combination of
higher Protection product sales; higher Car Insurance revenues due to improved
retention and management of aggregator costs; offset by lower Travel insurance
revenues due to a channel mix variance. Total Protection product sales were 30%
above budget and combined with increases in income per policy have led to a
75% year-on-year growth in total Protection income in P1.
24. Agents Pay was £0.4m favourable mainly due to lower travel insurance sales and
mix.
25. Operating expenses were 0.2m adverse vs. budget. This is due to delayed
marketing spend £0.3m offset by £0.4m costs which will be transferred to
capex/exceptional in due
Strictly Confi
POL00103335
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POST OFFICE
3. Identity
em
Actual Budget Variance YoY Budget FY18 YoY
Home Office 3.0 28 0.3} -19% 23.1 31.6 -27%
DOFT/DLA 07 06 0.0] -% 6.2 7.0 -11%
identity Services 05 04 0.0] 32% 44 42 4%
Verify 13 13 0.1] 94% 12.9 9.6 34%
Enivronment Agency 0.2 0.3 (0.1)I -41% 07 0.9 -23%
Total Revenue 5.7 5.4 0.3] 3% 473 53.3 “11%
Cost Of Sales (0.5) (0.5) (0.0)I 63% 6.1) (3.6) 40%
Net income 5.1 49 9.3] 1% 42.3 49.6 215%
Agents Pay (4.2) (1.4) (0.1) (8.4) 0.0
Staff Cost (0.1) (0.1) 0.0 (1.8) 0.0
Non staff Cost (0.4) (0.4) (0.0)I _-37% (48) (4.5) 9%
EBITDAS 34 3.2 0.2] -29% 27.2 45.2 40%
26. Identity has performed ahead of budget in the month and delivering £5.7m
revenue. Revenue has declined 3% YoY mainly due to Home Office’s new pricing
structure favouring the Digital Check and Send service.
27. The positive revenue variance against budget was driven by Home Office products
with higher volumes on non-digital HMPO check and send. Overall customer
migration to the HMPO digital channel has increased, but remains behind
expected levels.
28. UKVI volumes are also up by 7,000 improving revenue by £0.1m over budget.
The increase in enrolment volumes is understood to be due to customers applying
for residence earlier, it remains too early to assess if this is an effect of BREXIT.
29. Verify delivered £0.1m ahead of budget driven by high volumes of registrations
from Disclosure and Barring Service (to get a copy of criminal record) and
Universal credit retaining higher volumes.
30. Agent’s Pay moved in line with the increased revenue.
Strictly Confi
POST OFFICE
4. Scorecard
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K Perf Indicat P1 Full Year
ey Perrormance Indicators Act Target var. Target
Growth
Total Gross Income (excl NSP) £m 88.4 87.2 965.1
EBITDAS (excl. GLC) £m 6.8 5.7 50.0
Headroom £m (vs Board minimum limit) 439 > 200 > 200
Net profit £m * 11.4 8.6 110.2
Customer
Customer Effort 82% 76% 76%
Net Promoter score Financial Service (one month in arrea 26 25 25
Acceptable Wait Time % 95% 95% 95%
Branch Compliance (FS - basket of 11 measures) 80 <=50 <=50
People
Representation (Senior Managers) - Gender 39% 37% 37%
Attendance * 98.0% 96.7% 96.7%
IT Lost Time (Number of Sev1/Sev2 IT incidents) 6 6 <156
Safety LTIFR 0.270 TBD N/A TBD
Modernisation
Number of branches (one month in arrears) 11,547 11,500 TBD
NT and ND Branches Transformed in Year 67 51 400
HNGA Network Only Rollout N/A TBD N/A 4,000
IT Transformation (% of IT controls implemented) 90% TBD N/A TBD
Customer
1. Branch compliance was rated amber. The key issues raised relate to non-provision of the
‘summary box’ information for savings applications and colleagues not following
approved introductory conversations and out of date literature. The team is deploying a
series of activities to help improve summary box conformance. FS&T Risk & Network
Gateway have agreed to formalise the literature checklist into a standard monthly check.
Customer
2.
Attendance Reporting: Work has been undertaken on Success Factors to fix technical
issues that were identified and there is renewed confidence in the available hours
reported. The number of absences reported are lower than expected possibly due to the
collision between sick leave and annual leave on success factors and a requirement to
update weekly in some cases.
. Safety LTIFR: There were 6 employee related accidents on PO during P1 v 8 last year.
There were 4 employee related accidents in DMS, 1 in Supply Chain and 1 accident
reported across Network Operations and Support teams
Modernisation
4.
5.
Network: Network numbers reported (March) were 11,547, 47 above the contractual
minimum.
NT and DD Transformation: 67 Branches have been transformed in P1, 14 NT
conversions and 53 ND, the ND new network location is ahead of plan as a result of
clearing some of the back log caused by the Verizon issues at the end of the year.
. HNGA Branch Counter Rollouts: P1 information is not available
. IT Transformation (% of IT control implemented): A review of the TrAction tool
shows 100% of controls in operation have been assed as working effectively. Targets for
2018-19 have not been set.
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POST OFFICE LIMITED (the Company) PAGE 1 OF 4
BOARD DECISION PAPER
Capital Injection
Author: Michael Passmore — Sponsor: Alisdair Cameron Meeting date: 24 May 2018
Executive Summary
Context
Post Office Management Services Limited (POI) is a wholly owned subsidiary of Post
Office Limited (POL) and undertakes the business of insurance intermediation. POI is
regulated by the FCA and is required to maintain a minimum amount of capital at all
times. As a result of planned investments, a capital injection of £5m is required.
Questions addressed in this report
1. What is context to the POI capital requirement?
2. What is the quantum of the capital requirement for 18/19?
3. What is the preferred mechanism to meet this requirement?
Conclusion
To maintain POI’s FCA solvency in 2018/19, a £5m capital injection is required. We are
recommending that POL acquires £5m of new POI share capital.
Input Sought
The Board is invited to consider and, if thought fit, pass the following resolutions:
1. Grant written consent to the allotment by Post Office Management Services
Limited of 5,000,000 ordinary shares of £1.00 each.
2. Approve the subscription of 5,000,000 ordinary shares of £1.00 each in POI,
for a total consideration of £5,000,000.
3. Authorise any one Director or the Secretary to execute on behalf of the
Company any documentation in connection with the allotment of the shares.
Input Received
There has been extensive discussion with POI senior management and via POL’s
representation on POI's Board.
ty Confidential
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The Report
What is the need or opportunity and why now?
1. POI is an FCA regulated insurance intermediary. It is required to maintain a
regulatory capital balance above the minimum level required by the FCA. POI has a
policy of maintaining a “buffer” of twice the FCA requirement. Key features of the
FCA capital formula is that annual profits after tax can only be included once audited
and that there is a £1 per £1 deduction for capitalised intangible assets e.g. software.
2. In the 2018/19 budget (“Plan”) there is substantial intangible capital spend of
£11.3m (of which £5.7m is Nemesis) versus £3.2m in 17/18. This level of capital
spend creates a strain on regulatory capital in 18/19 requiring a capital injection to
maintain solvency.
3. The POI Board approved the 5 year Strategy in January. The first year of the 5 year
plan (subject to certain adjustments e.g. Mortgage specialist income) was submitted
to POL as part of the group planning process. The consolidated 2018/19 Plan
(including POI) was approved by the POL Board in March. This has triggered the
process of seeking a capital injection.
4. POL was aware that the execution of the POI strategy would require capital injections
in 18/19 and 19/20. This is followed by considerable capital surpluses in subsequent
years as capitalised costs reduce and profits increase.
5. Maintaining POI capital is a regulatory requirement. Failure to do so is a regulatory
breach resulting to FCA sanction and possible loss of licence to trade. £5m is
required in 18/19 followed by £2.5m in 19/20.
What do we propose to do and why?
6. It is proposed that the Company subscribe for 5,000,000 ordinary shares of £1.00
each in POI for a total consideration of £5,000,000.00. Under section 4.3(A) of the
Articles of Association of POI, the issue or allotment of any shares or granting of any
share rights by POI requires the prior written consent of POL.
ty Confidential
The SS Case
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7. A quarterly summary of POI 2018/19 Plan cash and regulatory capital (prior to any
injection) is shown below:
Cumulative / Period End
£m P3
Regulatory Capital
POMS Regulatory Capital 41
FCA requirement 1.0
POMS Target 2.0
Surplus (Short Fall}
VFCA 3.1
V POMS 21
Cashflow *
B/F 7.6
Cashflow {1.7)
C/F 5.9
* Excluding Trust Account
Confiden
P6
2.0
1.0
2.0
1.0
(0.0)
5.9
(2.2)
3.7
PS
(0.1)
10
2.0
(1.4)
(2a)
3.7
(2.6)
12
P12
(2.4)
10
2.0
(3.1)
(4.2)
12
(2.3)
(1.1)
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8. Due to the lagging effects of the FCA regulatory capital formula the strain on
regulatory capital leads that of cash.
What options did we consider?
9. Assuming on Plan performance the only option is around the mechanism to make
the capital injection. In addition to the subscription of shares two other options were
considered: Subordinated Loan which would increase cost and complexity; or a
variation to the POI 30% sales commission to POL which would confuse trading
performance.
What do we need to do next to progress?
10. At a meeting held on 22 May 2018, the Board of POI shall resolve to allot 5,000,000
ordinary shares of £1.00 each to the Company, subject to receipt from the Company
of prior written consent to the allotment, a letter of subscription and payment. A
request for written consent to allot the shares shall then be made by POI to the
Company.
11. In order to proceed, the Board is required to provide written consent to the
allotment of shares, and to approve the subscription of 5,000,000 ordinary shares
of £1.00 each in POI for a total consideration of £5,000,000.00. A draft letter from
the Company to the directors of POI providing consent to the allotment of shares,
and subscribing for the shares, is attached as Appendix 1.
ty Confidential
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Appendix 1
The Directors
Post Office Management Services Limited
Finsbury Dials
20 Finsbury Street
London
EC2Y 9AQ
United Kingdom
XX May 2018
Dear Sirs
Post Office Management Services Limited
We consent to the proposed allotment of shares as detailed in your letter of XX May 2018 and hereby
apply for the allotment to us of five million ordinary shares of £1.00 each in Post Office Management
Services Limited, fully paid, for a total consideration of £5,000,000.00, on XXpr1] May 2018.
We undertake to pay the sum of £5,000,000.00 by transfer to the bank account you have nominated.
Yours faithfully
Paula Vennells
Group Chief Executive
For and on behalf of Post Office Limited
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POST OFFICE PAGE 1 OF 8
BOARD PAPER
Future of Banking Framework
Author: Martin Kearsley Sponsor: Debbie Smith Meeting date: 24" May 2018
Executive Summary
Context
1. Conversations with Tier 1 banks in summer 2017 led to strong engagement from
Lloyds and others regarding migrating significant further volumes of transactions to
Post Office to support their branch closure and restructuring strategies.
2. Lloyds will lead the change, offering a ‘mixed’ model for their future customer service
- continued branch closures, some branch restructuring (to become cashless) and
others offering full service. This could result in Post Office taking on c.30% of their
transactions starting in 2019, and maturing over 3 years. Other banks will follow.
3. Based on this direction, taking on 30% of all bank transactions has been assessed,
as all banks are raising public awareness of Post Office banking services in response
to Government pressure.
4. Several scenarios of this combined accelerated growth have now been modelled by
KPMG and Post Office to ensure all existing systems, processes and capabilities can
cope with the increase profitably, securely and sustainably over the longer term.
Questions addressed in this report
1. What growth scenarios have been explored?
2. What is the impact of this growth on every area of the business?
3. What is the EBITDAS impact of that additional growth?
Conclusion
1. Post Office IT, back office and treasury systems can support the projected continued
growth of the Banking Framework through to 2023.
2. Additional revenue can be profitably achieved from existing assets without major
structural or investment challenges.
3. Formal discussions with Lloyds (initially) to take on extra volume should begin, as
part of a wider renegotiation of Banking Framework fees for 31.12.18.
4. Supply chain investment will be required in transportation and operations for BAU
growth and under both banking growth scenarios. Under an ‘all bank’ scenario
structural changes and/or partnerships would be required.
5. Limited, revenue-funded and balanced investments are required in supporting areas.
Future of Cash - Banking Framework
I
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nput Sought
1. To note the positive NPV in all
Input Received
7. GE, IC and CAG and DA have all
tested scenarios and the evaluation
process used to assess the impact
of accelerated growth in the
Banking Framework.
reviewed these linked ‘Future of
Cash’ documents.
. All business areas have been
engaged in a 3 month process to
2. To note the linkage of ATM and evaluate the impact of growth. Key
POca evolving cash strategies, the colleagues formed a Steerco from
mutual interest and benefit of which direction and nominated
having brought these areas Subject Matter Experts were
together within Retail. deployed to contribute.
3. To endorse positive engagement . KPMG were engaged to model the
with the banks to develop the impacts using previously proven
growth opportunities. techniques (from Project Iris) to
4. To note that the Note Recirculation ensure cash flows, volume impacts
Facility is fully supported as and process challenges can be
investment is made in Supply accommodated.
Chain infrastructure in outer years 10.PA were engaged to review the end
to cope with increased volumes. to end IT stack to model and test
5. To note a further KPMG spend of c. capacity.
£131k to refine and model detailed
LBG transaction data with the
Lloyds team.
6. To note formal renegotiation of
pricing for Framework2 to be
completed by 31.12.18
The Report
What is the need or opportunity and why now?
1.
The Banking Framework has been well received by all stakeholders. With every
major bank and almost all others now participants in the Framework, the profitable
delivery of continued solid growth, increased revenues and profitability is the major
strategic focus.
. Continued disruption and closures in the Bank branch estate will see significant
volume growth in the Banking Framework. With these closures, an identifiable
strategic theme became evident through summer 2017 in conversation with the tier
1 banks. On completion of the current closure programmes, they all plan to change
their remaining branch estate into a mixed model - some branches becoming
cashless, others being full service.
Future of Cash - Banking Framework
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3. The mixed model will be most prevalent in the outlying, more rural areas, as the
banks consolidate into town and city centres.
4. With these plans being implemented in 2018-20, and as we head towards the end
of Frameworki (December 31% 2019) into Framework2, our opportunity is to re-
price the Framework by the end of 2018. Our commercial strategy will reflect
transaction trends and the movement of much larger sums of cash.
5. Lloyds supplied us with their annual counter transaction records to aid analysis, from
which we agreed a headline migration figure of 30% of that volume — customers
assumed to move to using Post Offices for cash banking service by 2023. We then
modelled an additional migration scenario of 30% of ‘all bank’ transactions following
on from Lloyd’s lead.
6. The cross-company assessment of all affected areas was undertaken to ensure that
the increased volume could be effectively handled by each department as it
materialises, and any investment has been factored into the emerging commercial
strategy.
What do we propose to do and why?
7. Engage with Lloyds first, then other tier 1 banks, to migrate customer groups (by
geography as well as by account type) to use Post Office branches for daily cash
services.
8. Ensure the impact of the migration is clearly understood and the following areas are
fully incorporated:
a. The Note Recirculation Facility (NRF)
b. The emerging ATM and Future of POca strategies
c. The total cash inflow/outflow position from 2019 onwards - ensuring that
areas such as Supply Chain, Treasury, Network, Security, IT, and FSC are all
scaled to handle the volume
d. The Retail Strategy (for June Board) incorporates the assessed security,
remuneration and branch model changes to accommodate the increase in
cash volumes
e. The commercial strategy for Framework 2 incorporates additional revenue
from the banks for:
i. Increasing Business Deposits as a proportion of total transactions
ii. Increasing cash in the short/medium term, eventual decline as cash in
the economy begins to decrease post 2025.
9. Hold off any commitment to invest further funds until:
a. Clear evaluation of Supply Chain requirements to support BAU banking growth
b. Further proposals to Lloyds is completed and agreed
c. Lloyds have contracted to increase the volumes
d. Programme team is put in place to implement changes effectively
Strictly Con Future of Cash ~ Banking Framework
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What growth scenarios have been explored?
10. Using full year records provided by Lloyds of all 60m counter transactions in
2016/17 in their network, the below scenarios were agreed with them and modelled.
SIN
a. If POL were to take 30% of Lloyds cash transactions, the branch impact would
be:-
i. 2567 (26% of our 9731) branches will be impacted by allocating 11.2m
Lloyds transactions. These impacted branches include 60 Crowns, 781
Mains and 1726 other including Locals. Approx. £7.5bn deposits and
£1.4bn withdrawals are apportioned.
b. If POL were to take 30% of all banks transactions the branch impact would
be:-
i. 4181 (41% of our 9731) branches will be impacted by allocating 28.2m
of all banks transactions. These impacted branches include 68 Crowns,
1259 Mains and 2854 other including Locals. Approx. £20bn deposits
and £3.5bn withdrawals are apportioned.
What is the impact of this growth on every area of the business?
Horizon Architecture and capacity review
11.The concluding assessment by PA Consulting of the Horizon IT platform is that no IT
changes are required to support the proposed additional volume.
12.The key findings are;
a. Architecture - the platform is designed for scalability, resilience and
robustness and can support the proposed transaction volumes.
b. Capacity - there is sufficient capacity within the Horizon system and
connectivity to Vocalink to deliver the uplift in volumes. Capacity management
processes are robust on an on-going basis.
c. Testing - functional testing is thorough and catches issues/defects before full
deployment. Enhanced Disaster Recovery testing needs to continue to prove
the processes and design support the Recovery Point Objective (RPO)/
Recovery Time Objective (RTO) requirements.
d. Service Management - Fujitsu’s operating model is fit for purpose in the key
areas of service operations, capacity management (including proactive
monitoring) and release management.
Supply Chain capacity
13.Post Office will continue to see volumes increase through BAU growth in the
Banking Framework (between 5-7% p.a). This will happen irrespective of any new
Future of Cash ~ Banking Fram
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agreements with the banks and investment will be needed within the Supply
Chain, which has previously assumed a lower level of transactions.
14.Modelling for current SC operations suggests the routing and scheduling are well
optimised with a 1.2% potential improvement identified. These types of
opportunities are directly competing for SC resource against other on-going SC
projects such as the targeted reduction in network cash inventory levels.
15.Under a Lloyds scenario, additional banking volumes result in increased operating
costs of c. £5m annually, with 88 extra staff required and a capital investment of c.
£2.7m (extra 28 vehicles). The increased annual managed value of £30bn presents
no structural challenges.
16.Under an All Bank scenario operating costs will increase c. £14m annually
(potential 312 extra staff), and an £8.7m one off capital investment (extra 81
vehicles). Assuming higher customer deposits, the value of inward processed cash
increases by c.260%, breaching maximum processing capacity. A move to 24x7
processing would increase site capacity by c.200% meaning structural changes
would be required.
17.The speed of change in the market is inexact and therefore Post Office needs to be
able to adapt quickly to changes in the most cost effective way without over
investing in a short-term solution, noting that lead times on vehicles are estimated
between 10-15 months.
18.Further work will continue to assess whether 3% party resource (Loomis, G4S) can
be effectively used to support volume above c. 80%. This would ensure that PO
fixed and variable SC costs can be augmented by external flexible support.
Branch Security
19.The potential increase in cash, combined with the fact there will be fewer other cash
targets on the high street, means an increased Robbery and Burglary risk.
20.Branch safes could in theory hold much more cash than the level set as per the safe
grading, requiring enhanced security protection investment is needed.
21.Based on these a likelihood vs risk calculation, the level of potential investment to
ensure branches are equipped to the right standard has been assessed across the
entire branch network.
22.Branches requiring safe works will require the most work - 91 branches will require
physical enabling works to upgrade.
23.The outcome of the security assessment shows:
e 140 Branches need Monitored Alarm + Safe Timelocks + TDLC + Fogging
e 29 Branches need the above plus IP Camera
e 129 Branches require safe upgrades, and cost assessments have been made for
each site.
Network
24.Banking, both business and personal, is an increasingly important part of all Post
Office models. Banking stretches far ‘deeper’ into the network than other products
and is one of the few products showing growth in the network.
Strictly Con Future of Cash ~ Banking Framework
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POST OFFICE PAGE 6 OF 8
25.The majority of Post Office traditional products are in structural decline - most
individual post offices have the capacity to take on the extra transactions that
banking is creating. Post Office Card Account withdrawals are half the value they
were in 2012, and in spite of the growth in the value of business deposits recently,
cash levels in the network are still lower than they were then.
26.The network can absorb significantly higher banking levels in line with the current
growth.
27.Individual branches will need assessing as the local volume increases, depending on
their unique circumstances and what happens to banks around them. This is
particularly true for Locals models, where without dedicated staffing and queueing
there is a limit to the level of extra volume that can be absorbed.
28.Many SME customers are ‘located’ to an individual Post Office (at the request of the
SME's bank), so Post Office has direct control over how and where high-volume SME
customers can be best served. This has helped spread any ‘local load’ that might
stretch the smaller local branches.
Remuneration
29.The original Banking Framework business case proposed that the Framework Fee
made banking services profitable for Post Office Limited - replacing any reliance on
Government subsidy. The Transaction Rate then makes each transaction individually
profitable, and the overall business is therefore highly scalable.
30.None of that Framework Fee was allocated to remuneration, and Post Office Limited
maintained the then existing remuneration rate.
31.Banking currently accounts for 10.5% of Post Office’s footfall, and 11.5% of income,
but pays only 7.8% of agents’ remuneration.
32.This imbalance has caused many Postmasters to question the value (and deter
further custom) from Business Deposits. This situation is impacting growth of
Business Banking deposits.
33.The remuneration challenge for our Postmasters has been addressed in this business
case.
34.The revised product timings for deposits indicates an additional £2m required for
enhanced, balanced remuneration above the existing rate of £13.6m, the increase
being funded from transaction revenue and cash handling charges to the banks.
Financial Service Centre
35.The transaction types will remain the same as the current banking framework and
the transaction complexity will gradually simplify (with the removal of paper etc)
therefore the modelled increase in transactions can be covered by redeploying
existing resources in the short-term and a maximum of two additional resources
required in the medium/long-term.
36.The additional staff would be required to cover a linear anticipated increase in
enquiries received.
37.It is anticipated that there will be no impact on the completion of settlements and
associated client accounts unless additional clients are taken on.
Strictly Con Future of Cash ~ Banking Framework
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POST OFFICE PAGE 7 OF 8
Appendix 1
What is the EBITDAS impact of that additional growth?
Investment
£k seu 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 Total
Capex i ie) 0} 1,289) 1,857] 1,857] 1,138) 6,141
Exceptional te) ) ) fe) te) ie) 0 o
Opex 941 ce) 131 979 1,411 1,411 864 5,738
Client Funded 0 i) ie) 0 ie) 0 0 oO
Tet eee ° 2,268 3,269
Investment
11,879
Drawdown Request
Approved 4. vioved New New
17/18 17/18 ~—-18/19
Capex 0 I ° Q
Exceptional ° ° 0 Q
Opex 0 I I 131]
Client Funded ° ° 0 Q
Total Drawdown
Request
Total New Request
Impact on EBITDAS:
2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23
Total
Net Income 3,891] 13,509} 24,734] 32,699]
Direct Product
Costs
(2,874)I (10,671)} (19,074)I (25,493)I
Cost Saving oO fC) O} qI
Recurring Costs oO ° ol
i)
Total Impact on
74,834
(88,112)
EBITDAS 1,016 2,839 5,660 7,206
Other cash items oO oO o o oO a Oo
Total Cashflow (941) o (431) (1,281) (430) 2,391 5,204 4,842
NPV @ .
Economics 12% over 5 lease EBITDAS Se oe
eee years EBITDA State - Yr
>£2m pa
incremental
Hurdle Rate: +e 3 years @steady N/A N/A
state
eusiness ot 3.8 13.5 FY25/26
Appendix 2
Security Impact - Methodology
Future of Cash ~ Bai
ng Framework
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1. Existing and potential safe capacity has been compared to the average overnight
cash holdings (N TONCH) in branch under each of the Lloyds and All Bank scenarios,
to assess where security upgrades will be required.
2. For each scenario the additional holdings and Safe limits have been assessed.
3. Additionally, assumptions have been made that where local branches are impacted
there is potential requirement for further upgrades:
a. Fortress - 30% of impacted local branches at an estimated average cost of
£15k
b. Relocation (where upgrades are not possible) - 10% of impacted local
branches, at an estimated average cost of £35k
Outputs
Fig. 2 Security Impact output
Bee “Lloyds 30% scenario All bank 30% scenario
is! % .
Score Cost* #impacted Cost # impacted Cost
branches i branches
0 1747 : 3103 =
3 230 = $17 =
is) 38 - 86 =
15 £3,750 79 £296,250 140 £525,000
25 £5,000 15 £75,000 29 £145,000
Safe Issue £12,500 52 £650,000 129 £1,612,500
Sub Total 2,161 £1,021,250 4,004 £2,282,500
Local branches impacted 178 433
30% Fortress 59 £890,000 144 £2,165,000
10% Relocation 18 £623,000 43 £1,515,500
Total Cost I £2,534,250 I £5,963,000
*(includes a 25% contingency)
Appendix 3
All Banks
End State £m #_- Comments
INVESTMENT
Capex 7.8 I 82 I 82additional supply chain vehicles at average unit price of c£96k (18 month lead time due to design
specifications)
Opex 57 ‘Sunk costs (£0.9m) and additional implementation team costs (£0.1m) for consultants, PM and
Business Analyst and £4.7m of security upgrades
Total POL 13.6
Investment
Future of Cash - Banking Framework
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BOARD
Peregrine Update - Current State of Play
Authors: Chrysanthy Pispinis & Colin Stuart Sponsor: Owen Woodley Meeting date: 24 May 2018
Executive Summary
Context
1. At the September 2017 Board Meeting, it was agreed to reject Bank of Ireland's
("Bol") long-awaited proposal to address our commercial concerns. The Board
agreed that the proposal was too far away from acceptability to be worth negotiating
and therefore we should confirm to Bol that we wanted to focus on operating under
the terms of the FSJVA as effectively as possible for our customers.
2. Bol Group appointed a new Group CEO in October, Francesca McDonagh, who
requested that a new effort be made to reach long term agreement —- promising
flexibility in BoI's negotiating position. This latest process started in December.
3. POL’s original expectation was that BoI would submit a formal proposal, ahead of
the May Board meeting, with a view to the parties agreeing to Heads of Terms ahead
of Bol’s investor day on 18 June. BoI subsequently indicated it could only submit
a full, firm proposal if it had reasonable certainty that it would be accepted by POL.
4. This paper is an update on the material developments from the ongoing
negotiations, and tactics to consider moving forward in light of the FS strategy.
Questions addressed in this report
What does Post Office want to achieve in retail Financial Services (FS)?
What could this ambition look like? What is the role of the Bol relationship?
What position have we reached in the Bol negotiations to date?
What are our potential routes in the context of the current negotiations? What are
the implications (financial and other) of each of these routes?
5. What are our proposed negotiating tactics and next steps?
PWNE
Conclusion
1. Owning and driving value from its customer relationships is the key way in which
POL will derive competitive advantage and grow value in FS. The customer-centric
and digital first model is supported by the development of our Customer Hub,
allowing POL to interface with ‘best of breed’ providers, leveraging new industry
standards such as Open Banking and PSD2, and building on the trust in our brand.
2. On balance, a focused, more-limited Bol relationship, with equitable and aligned
commercial returns, could fit with and benefit our wider FS strategy.
3. Whilst negotiations have not advanced as quickly as we would like, we have made
significant progress in a number of areas; in particular, Bol’s position on FRES has
shifted towards us.
4. There are a number of specific options that could be pursued with Bol in the context
of the current negotiations, and new opportunities available to us.
5. Given that Bol’s position has continued to shift gradually towards addressing our
original concerns, we recommend continuing the discussions, acknowledging the
process could take a few more months. We may also wish to consider sequencing
our approach to the negotiations.
Strictly Confidential Peregrine Update ~ Current State of Play May 2018
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Input Sought
The Board is asked to:
= give its steers and challenges
= give us more time to conclude this process
= give us a mandate to agree a 9-month value share
= support further advisory firm engagement
The Report
FS Strategy
1. Owning and driving value from its customer relationships is the key way in which
POL will drive competitive advantage and grow value in FS. To that end, we continue
developing targeted, distinctive propositions, which will be increasingly underpinned
by customer lifetime management.
2. This customer-centric and digital-enabled model is supported by the development
of our Customer Hub capabilities; the model allows POL to interface with ‘best of
breed’ providers, leverage new industry standards (e.g. Open Banking, PSD2), and
build on the trust in our brand - modernising customer perceptions of POL and
driving increased brand relevance.
What does it look like? What is the role of the Bol relationship in the FS strategy?
3. The FS strategy is aligned to our North Star ambition and will help to ensure that
the Post Office matters even more tomorrow than today. In particular, it drives
more profitable, sustainable growth, partly by reducing our reliance on third-party
provider pricing strategies.
4. We have set out below a number of alternatives for how POL’s FS strategy could be
delivered going forward. Some of these assume POL pursues a partnership model
leveraging its brand, distribution and improved digital capabilities (as previously
laid out). We have also included an ‘aggregator’ and a ‘manufacturer’ scenario. We
have presented a high-level, illustrative financial snapshot for POL under five long
term scenarios and assessed the qualitative aspects of each of these scenarios. The
financial snapshot and associated assumptions are notional and intended to give a
rough order of magnitude to help compare the respective benefits of each route.
Table 1: Scenario description
Scenario Description
Status Quo Current arrangements between POL and BOI remain in place for the FSJVA
Current rate card for lending volumes and deposit balances
Credit cards and investments remain within scope of FSJVA
Current arrangements of FRES remain in place
New BOI Package = New package agreed between POL and BOI based on latest negotiations with a
term extension to 2035
New rate card plus value share payments to POL
Credit cards and investments taken outside scope of FSJVA
FRES economics resolved through commission uplift for POL.
Strictly Confidential Pere,
pdate ~ Current State of Play May 2018
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Banking
partner(s)
model
New arrangements between POL and new partner(s)
New rate cards agreed assumed to be 25% higher than the current BOI rates
Originations of mortgages and loans assumed to be double vs. status quo
Deposit balances assumed to be 25% higher vs. status quo
Credit cards and investments outside scope of FSJVA
Current arrangements of FRES remain in place
POL refers customers to product providers through a mainly online offering
Rate card assumes POL earns a fixed fee per application
— Estimated based on current rate card between POL and MSM
= Assumed increase in volumes vs. current arrangements - 60k of mortgage
apps, 100k of loan apps and c.500k of deposit applications (equivalent to
doubling volume in mortgages, loans and cards
= Assumed run-rate Cost:Income (C:1) ratio of 65% for POL (per MSM as best-
in-class)
= Current arrangements on FRES remain in place
POL pursues a manufacturer model via a banking licence
Assumed loan book size of c.£12bn with matched deposits
Interest margin on products based on current market rates
Operating costs based on c.60% C:I ratio (vs BOI UK's 70% C:I ratio)
Assumed credit card portfolio written on POL balance sheet
Current arrangements on FRES remain in place
‘Aggregator
model
Illustrative Alternatives
Manufacturer
model
Table 2: Financial analysis, Illustrative P&L of each scenario (run-rate snapshot,
2022/23 and excluding capital requirements for a Manufacturer model):
Illustrative Alternatives
New BOI “(a) Banking ”(b) Aggregator” (c) Manufacturer
Component (2022) Status Quo package partner(s) model model
£4.6m. £3.0m £11.5m £4.8m £255.9m
core retail £1.8m £2.2m £4.5m. £7.5m £58.9m
banking £42.3m £20.0m £66.2m £18.7m -£58.9m
aes f £0.0m £32.8m na, na. naa.
FENA) Income £48.7m £58.0m #82.1m 1.0m £255.8m
Costs”)
Net profit
d -£L4m £0.5m £0.5m £2.9m £4.7m
£0.0m £2.5m £2.5m £2.5m £2.5m
£34,0m £50.0m £34.0m £34.0m £34.0m
-£48.9m -£48.9m ~£48.9m -£48.9m -£48.9m
£36.6m £30.1m £36.6m £36.6m £36.6m
FRES Total 227m #31.2m £21.7m 221.7m 221.7m
GrandTotal I £46.im_ I £69.3m_ £79.0m £37.9m filism
Difference vs. Scenario 1 $£23m, $233, “fom, $£65m
Notes:
(1) Aggregator mode! could be expanded to other products however existing retail banking focus assumed for the purposes of this analysis
(2) Costs / net profit figures include allocation of POL fixed overheads
Table 3: Summary of key Attractions and Considerations
Scenario
Key Attractions
Execution certainty over the I ? Significant term extension, reducing
longer term and uplift in I optionality for POL over the long term
I
I
Key Considerations
New BOI
Package
commissions earned from ?. Substantial portion of income from FSJVA is
FSIVA variable and contingent on performance
vy Re-alignment of interests in ? Framework for value share includes items that
FSIVA I are outside of POL’s control (e.g. BOI’s
¥ Resolve imbalance on FRES I operating costs, costs of capital)
Strictly Confid
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Banking vy Opportunity to seek new ? No resolution on imbalance of FRES economics
partner(s) partners who may help to on an evergreen basis
model deliver increased mortgage ? Significant execution risk associated with
and loan originations and seeking new arrangements
deposits ? Need to believe no adverse change in market
y Potential to launch other conditions & improved financial terms
products outside FSJVA
Aggregator ¥ Broader offering for customers I ? Likely to require one-off investment in POL’s
model across a spectrum of providers digital capabilities and higher on-going
v Potential to increase number marketing spend
of FS customers in POL ? No ownership of customer relationships
Manufacturer I ~ POL would own customer 2 Significant on-going capital requirements
model relationship associated with a banking licence
v Able to develop new products / I ? POL would require substantial investment to
services for customers set up in-house banking capabilities
v Operating efficiencies ? May be challenging to secure UKGI support
? POL would incur loan losses
5. The above would suggest there may be a role for Bol to play in our strategy, through
a focused, more limited relationship, with equitable and aligned commercial returns.
6. The anticipated new Bol package outlined, and the current joint effort in developing
distinctive, customer-centric propositions, support this:
a. The two new mortgage propositions launched in April 2018 are strong
evidence of a more customer-centric and digital-enabled model. In the 5
weeks since launch, leads have increased 4x.
b. Bol are now supporting similar proposition work for unsecured lending and
savings — all balance sheet areas where Bol’s capabilities are broadly aligned
to the market’s and customers’ expectations.
Position reached in the negotiations
7. Whilst negotiations have not progressed as quickly as anticipated, we have made
significant progress in a number of core areas.
8. Notably, BolI’s position on FRES has continued to shift towards us through this
process. Specifically, BoI is now acknowledging the level of the FRES imbalance
(requiring an £8m p.a. transfer from Bol to POL). Discussions are still in progress to
agree mechanics:
a. POL’s position is to move some of its existing costs into FRES and seek a fixed
annual amount for the balancing number
b. Bol’s position is to link the balancing number to performance metrics
c. We remain in discussions to ensure that whatever mechanism is agreed, it
addresses the cost imbalance in a permanent way
9. In addition, BoI has indicated it would be open to an offer from POL for its 50%
share in FRES at this point in time.
10.There is a Russian Roulette clause in the current FRES agreement which could allow
POL to buy out Bol’s 50% stake at a reduced valuation based on FRES’s 5-year
business plan without a terminal value. However, preliminary legal advice suggests
this would be very challenging to apply; it would drive a breakdown in the POL/Bol
relationship and could lead to extended legal action.
11.0n credit cards, Bol is exploring a sale of its whole credit card portfolio in the UK
and NI (in part triggered by our request to remove cards from exclusivity). BoI has
appointed external advisors on this process, and we believe it now wishes to proceed
with the sale process regardless of our wider ongoing discussions.
Strictly Confidential Peregrine Update ~ Current State of Play May 2018
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12.Discussions are ongoing around the commercial terms of the sale; POL’s current
Position is not to have any downside exposure but only share in the upside above a
‘puffer’ over the net premium achieved (i.e. over one-off and migration costs).
13.Other credit card sale principles include:
a. POL jointly driving the process and choice of new partner(s), and having the
right to negotiate its own financial terms with a new partner(s)
b. POL and Bol having the right to step away from the transaction, in which case
credit cards revert to the FSJVA
14.0n the FSJVA economics, Bol has now outlined an alternative proposal of a value
share mechanism to incentivise POL for achieving lower cost of funds for Bol,
compensating POL on a ‘stock’ basis for assets and liabilities. We require further
detail and clarification from Bol in order to fully assess the proposed mechanism;
high-level estimates would suggest higher income flows to POL vs. current
arrangements (see Table 2 above).
15.In the interim, and as clear evidence of their desire to keep us engaged in these
conversations, Bol has also outlined a 9-month Savings value share deal for
2018/19, which it is making conditional on POL agreeing to issue RFPs to the market
on the sale of credit cards by mid-June. Subject to base rate movements, this could
drive c.£2m-£3.4m benefit vs. budget.
16.0n exclusivity, Bol has moved in our direction, now accepting the principle of only
defining what is within scope of exclusivity. Moreover, Bol has conceded
Investments will not be in scope (along with cards); discussions on current accounts
and non-retail balance sheet products (incl. SME banking and deposits) are ongoing.
17.In parallel to these negotiations, Bol has also expressed its desire to exit the current
ATM agreement with POL earlier. This is likely to be attractive to us.
Potential routes in the current negotiations, impact and consequences
18.There are a number of specific options that could be pursued with Bol in the context
of the current negotiations. Below, we have considered three realistic outcomes for
the remaining period of the current arrangements (2019 - 2023)
19.The outcome we achieve will require a clear implementation plan, which we will
consider as we firm up the commercial position.
Table 4: Description of realistic outcomes in negotiations
Option 2
Agree a strategic package .
Option 1
Option 3
Agree a tactical package
* Continue with current
arrangements between POL
and Bol
= Pessimistic view that BOI
winds down asset and liability
books as POL tests the market
for new partners from 2020
- Loan book reduced from
c.£8bn to c.£4bn
~ Deposit book reduced from
c.£13bn to c.£6bn
* No resolution on imbalance of
FRES economics
deal with BOI
New rate card agreed for
the FSJVA based on current
proposal including value
share mechanism
Credit cards and
investments moved outside
of the scope of BOI
relationship
Imbalance in FRES
economics resolved
deal with BOI
Short term value share
mechanism agreed for
2018/19
Credit cards and
investments moved
outside the scope of BOI
relationship
No resolution on
imbalance of FRES
economics
Strictiy
fiddential
ate - Current State of Play
May 2018
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Table 5: Financial analysis — Illustrative total undiscounted profits of each scenario
2019-23
Component of Total Profits
(2019 - 2023)
FSJVA Income
FSJVA Costs
FSJVA net profit
FRES Total
Grand Total
‘Status Quo Option 1 Option 2 Option 3
£20m £2m £20m £20m
£8m £1m £8m £8m
£207m £125m £207m £207m
£0m £47m £3m
£128m £282m £239m
Lo 94m -£112m filam
£34m £170m £126m
-£11m -£3m -£3m
£0m £6m £6m
£162m £242m £162m
-£245m -£245m -£245m
£177m £145m £177
£95m_
£21im £118m £224m
~£93m +£13m I
Difference vs. Status Quo:
*Status Quo as per Table 1
Table 6: Key outcome observation:
Si
Option 1
Option 2
Option 3
= Pessimistic outcome .
assuming BOI winds down
FSJVA book
= Potential to mitigate .
downside through
management actions on
cost reductions
* Short term downside to .
profitability vs. status quo,
however would allow POL
to potentially access
higher profits in the under
new arrangements with
one or more partners
Illustrative position based
on current negotiations with
BOI
Short term gain in
profitability for POL and
long-term upside vs. status
quo
However, POL would lose
the ability to explore
alternative arrangements in
2021, which might deliver
further upside vs. BOI’s new
package
Possible outcome if POL/
BOI reach agreement on
credit cards, investments,
short term value share
with wider FSJVA and
FRES discussions paused
However, need to believe
that BOI does not wind
down the FSJVA book
Some upside over the
short term vs status quo
Allows POL to potentially
access higher profits in
the future
20.We recommend continuing with Option 2, whilst exploring Option 3 in the short term.
21.As part of the negotiations with BOI, POL has been asked to consider a buy-out of
BOI’s 50% stake in FRES, which would give POL 100% ownership of FRES.
22.Substantial further work is required in order to conclude on the attractiveness of this
option - and the fit with the wider Peregrine negotiations.
23.There is a brief preliminary assessment in Appendix 2 and we propose to engage
advisors to work with us on detailed recommendations to Board in due course.
24.We believe there may be significant potential benefits in this option at the right
acquisition price. It would move POL further up the value chain and would drive
synergies but needs to be balanced against the long-term potential of cash forex.
Proposed negotiating tactics and next steps
25.Our original proposal to Bol in 2016 had four pillars, aimed at giving a balanced
outcome for POL and Bol. These pillars remain our main objectives, namely:
Strictiy Confidential
Peregrine Update ~ Current State of Play May 2018
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a. Realigning interests for mortgages and savings with clear evidence from Bol
of an appetite to grow their UK balance sheet.
b. Removing exclusivity restrictions for products that are not part of Bol’s core
expertise or strategy e.g. investments, credit cards etc.
c. Aligning the core economics of FRES to deliver appropriate returns to POL.
d. In turn, providing greater balance sheet certainty to Bol by offering a
significant extension to the current agreement term for mortgages and
savings.
26.Over recent months, BoI’s position has continued to shift towards us,
gradually addressing our main objectives.
27.As such, we recommend continuing the discussions (Option 2 above),
acknowledging that the process could take a few more months. We do not propose
allowing an open-ended conclusion to the these discussions and will continue to
apply pressure to Bol, but POL’s negotiating position is strengthening, not least
given the urgent desire for BOI to progress certain items.
28.It has become very clear that the pace has been hindered by BOI Group’s heavy
involvement and the linkage to the wider Group strategy work there. To drive
momentum, we propose to now insist on formal face-to-face engagement
with the Group in Dublin to seek a conclusion.
29.Whilst this remains a discussion about an overall package of measures, there may
be value in POL progressing some areas sequentially. Specifically, agreeing to
proceed with the RFP on credit cards in exchange for a short-term value share deal
on Savings gives us the potential for near-term financial benefit and potentially
increases our leverage. We will not be committing to the commercial terms on the
sale of the book until later in the process.
30.In parallel, we will explore the FRES buy-out option in more detail, and revert
to the Board in due course.
Strictly Confidential Peres
ipdate - Current State of Play May 2018
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Appendix 1: Detailed Financial Analysis for Table 2
‘Scenario 3: Alternative models.
533,333 €35/app 18.7
Net interest and fee margin achieved by
scenario I __Seenario 2: New Bor desl (@) Banking partner(s) model (b) Aggregator model (©) Manufacturer model
Koy Drivers of Basis of po. xRected Current f mpected Expected New proforma I No.of MM proforma I IMC Interest Proforma
Value Commissions Yokes Rate orcs I Yohimes wolumes Rate Economics I appe RAE gronamice”” I 2hCCE "Margin Economics
zor ard » noze inzozz__ ard Gara (2022)
(PegHGe ps onconpetons €3.0bn 1530p Am—«=I«ERGIN (Ss) «3.0m —«I«ESGOn 18s EAL. I 60,000 Japp «ERBM-—«I«ETN.Gb— 2.3% 255m
Personabars psonrnew bens gocon 45,0095 exam I 00 {SSbps] _—«EDIm I O.8onS6.2bps «EAS «100000 e75/app __é7.5m_I EDN _——7.40% —_—~S.IM
tea an co einai I “Ban Bi
:
tranchvacube >>andepst P eattn 223% 663bo8 5.8m
nde varube ORO poet 16.500 8.100 325809 253m
raed PRON EROS esaon 2.0% _175t—8 —_e14.0m
i
i
i
:
i
'
‘
i
i
i
i
i
A
i
i
:
i
i
:
Te e26m I
i
i
i
i
i
Hi
i
:
i
i
;
‘
i
i
i
fl
i
i
“Yate ones ron na. €0.0m na,
FSJVA total Income ~ SIVA Total Income ‘Total Income ‘Total Income ” Net interest income £255.8m
SIVA total costs : FSOVA Total Cont Total Cont “tal Cons Operating coats
FSIVA net profit [Fsavanet prof """E35.0m Net profit Not prot Net profit" E83.6m
i
a Prime credit cards net profit/ (loss) -£1.4m_ H £0.5m £0.5m £2.9m £47
Products 4
Investments net profit/ (loss) €0.0m £25m 225m 225m £25m
Comrisson income Transacton voles, No.of POL branches, i
from RES Travel Money card sales &upbads Bon I sa.om Aon hon on
costs cures Agent fees, FX product ost, t
FRES. ‘outside of FRES- ‘overhead cost allocations: £48.97 “£52.5m_ “£48.9m £48.91, “48.9
i
S0hel FES pee r 830.1m, £36.6m_ £36.6m_ £36.6m
tax pofte i
FRES Total H FRES Total ~— £27.7m ‘21.7 FRESTotal — £21.7m FRES Total £21.?7m
Grand Total” j Grand Total “E68 E80 Grand Total “£97 9 Grand Total "#4 Sn
(G) Caleulaton of proforma revised ecanomts based on md point vale of range provided by BO!
(2) Aggregator model could be expanded to other products however exsting etal banking focus assumed for the purposes ofthis analysis
(3) Manufacturer model does not include ongoing capital requirement costs
Strictly Confidential Peregrine Updat
rent State of Play May 2018
Appendix 2: FRES buy-out preliminary assessment
Attractions
Strategic ~ Gives POL control over FRES, and is aligned to
strategic intent to move up the value chain
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Considerations
? Future growth of FRES may be challenging to achieve over the
longer term
— E.g. reduced importance of physical currency FX
Financial Y Access full value chain
v POL receives 100% of the profits from FRES
vy Value creation opportunities through cost
synergies in areas of overlap with POL’s existing
operations
— Initial estimates of £10m annual net savings
~ One-off costs to achieve of c.£7m
? Need to consider POL’s ability to fund an acquisition
- Work is being performed to determine a value range for BOI’s
50% stake
— Range of funding options and their feasibility will need to be
explored
Operational I “ POL is familiar with the operations of FRES as
an existing 50% shareholder
? Need to enter into third party arrangements with a bank to
support wholesale currency supply to FRES, relationships with
central banks, trading systems, etc.
— Estimated additional cost of £1m p.a. included in net synergies
? Consider target operating model post acquisition
? Consider any separation issues following 100% acquisition by POL
Strictly Confidential Peregrine Update - Current State of Play
May 2018
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POST OFFICE LIMITED DECISION PAPER
BOARD
Update on Project Everest
Author: Jeff Lewis Sponsor: Rob Houghton Meeting date: May 24 2018
Context
Everest is the Fujitsu renegotiation strategy constituting a revenue swap agreement
which reduces operating expenses in return for committing our cloud and digital
development strategy for the upgrade of the Horizon platform with Fujitsu. A
Memorandum of Understanding (MoU) was signed with Fujitsu, November 2017. The
MoU enables Post Office to break the fixed price nature of the Horizon Agreement,
reduce operating expenses and reinvest the savings in strategic cloud and digital
technology. This paper details the progress on implementation of the MoU principles,
the anticipated benefits from the workstreams and associated implementation costs,
including investment
Questions addressed in this report
What has been achieved since signing the MoU?
What is the do nothing situation?
How does the Everest plan deliver operating expense savings?
What investment is required to deliver the savings?
What are the risks and how are these to be mitigated?
OUBRWNe
Conclusion
Contract Change Notes have been signed which embed the overarching principles of
the MoU into the Horizon Agreement. Initial changes have also been agreed which
enable the first ongoing opex reduction from June 2018. The challenges identified in
Fujitsu’s cloud and digital capability are being addressed and the foundation and
parameters for the next phase of negotiations has been agreed. In order to deliver
the aggressive opex reductions identified in this paper Post Office will have to contract
for new capex investments or new services in line with the “revenue switch”
mechanisms. These new services could include leveraging potential additional spend
with Fujitsu within the Telecoms contract. The potential savings on the like for like
operating expenses for 2018 - 2023 are more than 30%. We believe the relationship
has matured and improved to a place where achievement of this objective is possible.
Input Sought
In order to secure net operating expense reductions of £30m over the period 2018/19
to 2022/23, approval is requested to negotiate the following:
1. sign contract change notes, in June, with Fujitsu to “switch” £30m of operating
expenses to capital investment and
2. sign incremental contracts change commitment of up to £10m (subject to
telecoms review and negotiation)
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The Report
What has been achieved since signing the MoU?
1.
2.
Contract Change Notes have been signed which have built on the MoU and
delivered the objectives set out in March 2017 (see Appendix B).
Specifically the following contract change Notes have been signed:
Intellectual Property Rights - all new IPR created by Fujitsu for Horizon since
October 2017 belongs to Post Office, as per new IPR provisions agreed with
Fujitsu. Where pre-existing IPR is being used with Post Office’s express
agreement (e.g. Open Source code), the new IPR provisions help ensure that
Post Office has sufficient rights to use such IPR going forward independent of
Fujitsu;
Invest to Save - a reprofiling of the implementation of the mechanism to
accelerate operational savings;
Revenue Switch - the overarching mechanism which allows Post Office to
redirect committed contractual spend out of operating expenses into new
capital expenditure for development of the Horizon platform on strategic
technologies, whilst protecting Fujitsu's total existing contractual revenues;
Variabilisation - Altering the current financial model of predominantly fixed
price to demand driven, consumption based pricing; and
Application Support (AS&M) -— implementation of the revenue switch principles
into AS&M service, to generate a switch from Opex to Capex for development
capacity within the existing BAU charges.
The relationship with Fujitsu has improved. Both management teams have
championed a more collaborative approach to challenges, reducing the number
of escalations.
Key challenges remain with respect to digital technology capabilities and
contractual terms for the operation of Fujitsu cloud, although progress has been
made in these areas.
What happens if we do not proceed to implement the MoU?
5.
If Post office does not proceed with this investment, existing fixed price
operating expenses continue for Belfast data centres and associated services.
The technology refresh HDCR2 (Horizon Data Centre Refresh) of £15m would still
be required. It should be noted that HDCR 1 cost significantly more than this
(c£32m).
The total Fujitsu base costs are in Table 1 below?:
Contractually Committed 2047/48 2018/19 2019/20 2020/21 2021/22 2022/23 Total
Contracted Opex
Contracted Capex
Total Fujitsu (Horizon) Spend
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8. Post Office would also need a new procurement for an alternative cloud provider.
The procurement, build and migration would likely take longer than the planned
22 month project. The cost would be higher than the Fujitsu migration from
Belfast, as Fujitsu would still need to be engaged on top of new cloud provider.
This cost would be £20 -30m Capex plus additional operating expenses.
9. Similarly, a new digital development provider would be required. Subject to PCR
review, it may be compliant to commission some development work with another
Post Office IT services provider, however both routes would require time to effect
and cost of development would be new investment.
10. Points 8 and 9 are represented in Table 2 below
Non Everest Option 2047/48 2018/19 2019/20 2020/21 2021/22 2022/23 Total
im £m £m £m £m £m £m
Contracted Opex
Contracted Capex
Total Fujitsu (Horizon) Spend
Estimated New Supplier Spend
Revised Total
How will the Everest implementation affect operating expenses?
11. Everest enables Post Office to reduce its operating expenses by
e investing in new technology to drive lower cost of service;
e moving from fixed price to variable consumption based pricing; and
e Identifying, with Fujitsu, more efficient delivery of service, through
standardising services and removing bespoke resource intensive activities.
12. The collaborative approach has already enabled the AS&M revenue switch
reducing operating expenses by approximately £3m per year from June 2018.
The equivalent capital expenditure will be used to deliver service related
improvements in the Horizon platform which would otherwise require new
investment.
13. Another element of the forecast Everest savings are through the move to Cloud
Technology. The exact reductions are dependent on the K5/Azure cloud solution
and the extent to which Post Office can utilise a standard shared service model,
including off-shoring (see risks.) This will generate between £14-20m over the
Agreement.
14. Negotiations are ongoing to reduce the remaining element of the AS&M annual
charges. The fee paid by Post Office is in effect an insurance premium, and not
calculated based on costs of service. We will target aggressive restructuring of
the service which would accelerate further savings in operating charges.
15. This would mean that as new services are brought live (HNGT, Agents’ Portal and
Operational Control Centre (OCC)) the overall operating charges would still be
significantly lower than pre-Everest.
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Table 3 - Pre-negotiation Target Opex Profile
Everest Target Opex 2097/48 2018/19 2019/20 2020/21 2021/22 2022/23 Total
em £m ém £m ém £m £m
Contracted Opex
AS&M Opex to Capex (signed)
Cloud Savings (Post Office Model)
Aggressive AS&M Savings
Existing Services Sub Total
HNGT
Agents Portal
occ
Forecast Opex All Services
16. If all negotiations are successful the like for like reduction will be over £40m over
the term of the Agreement. Appendix A has a waterfall graph showing a more
detailed picture of the Opex movements.
What capital expenditure is required to deliver these savings?
17. The MoU enables Post Office to reallocate contractually committed Capex and
savings from reductions in Opex to support the delivery of strategic technology
developments on the Horizon platform.
18. The potential capital commitment increases by £40m, of which £30m is offset
from the Opex savings.
Table 4 - Pre-negotiation Target Capex Profile?
Pre-Negotiation Target Capex 9947/4 2018/19 2019/20 2020/21 2021/22 2022/23 Total
=m £m £m &m £m &m £m
Contracted Capex 64 6.3 12.5 12.0 30 13.7. S47
Increase for Opex reductions 20.0 3.0 3.0 20 20 30.0
Additional increase for aggressive savings 2.0 20 20 20 20° 100
Revised target Capex o4 28.3 176 17.0 a7 177) 947
19. Contracted Capex includes Invest to Save, test rigs, hardware refresh (HDCR2),
HNGA core team and the IP Licence payment.
Table 5 - Known Projects?
Known Projects 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 Total
=m £m £m £m £m £m £m
Pivot to Cloud/Belfast Exit 14 16.9 78 - - - 25.9
HNGT/DDS 38 5.0 3.0 3.0 3.0 3.0 20.9
Agents Portal 3.0 2.0 2.0 - - 7.0
IPR - - - - 10.0 10.0
Test Infrastructure 2 1.6 1.2 09 09 09 7.7
Core Team/HNGA/Invest to Save 1.0 1.0 1.0 1.0 1.0 9.3
Service Risk & resiliance 24 3.0 3.0 3.0 3.0 14.4
Projects Forecast 418 29.9 18.0 39 13 179 954
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20. The estimated costs for the Belfast Exit and migration is £15-£20m. In addition
it is necessary to do a major Oracle Database upgrade, which would have been
required to maintain service irrespective of the Belfast exit, at a cost of £3-4m.
21. Fujitsu have addressed the Post Office concerns over the maturity of the full
Fujitsu K5 solution by recommending a Fujitsu managed solution using Microsoft
Azure. The operating cost reductions generated by this alternate approach will
be no worse and potentially more than the data shown in Table 3 above. The
revised capital costs are still to be validated but not anticipated to be
significantly different to the value indicated in Table 5.
22. The AS&M revenue switch investment will be focussed on service risk and
resilience, and will drive cost avoidance and potentially further cost reductions.
23. The HNGT and Agent’s Portal projects will be the first to be delivered through the
new agile digital development service (DDS). Post Office will need to commit to
a minimum base capacity to create the core competency required and secure
competitive pricing. Each investment (HNGT, Agent’s Portal and other future
developments) will have their own business case and formal investment
approval.
What other actions are required to implement the MoU and secure the
Operating expense reductions
24. In order to negotiate the aggressive AS&M reductions identified in paragraph 14
above, Post Office would need to offer additional value to Fujitsu.
25. Option 1 would be to work within the existing Horizon framework and increase
the value of DDS or other services ordered in 2018/19 by up to £10m. :
26. Option 2 would be to leverage discussions on Home Phone and Broadband and
conduct a joint negotiation. Historically these relationships have been separate
but consideration is being given to whether Telecoms and IT could benefit from
this approach.
27. Weare still investigating option 2 which is more complex and we are requesting
negotiation approval for option 1 and this is included in Table 4 above.
What are the risks for Post Office and how are these to be mitigated?
Risk Mitigation Owner
Post office are unable to utilise standard * Joint team to analyse the data and Mick
KS / Azure service as it requires offshore information impact (VM/ Legal / InfoSec) Mitchell
support and potentially transfers of Post —_« present to Post Office business any
office data out of the UK/EEA. requirements for changes to existing product Jeff Lewis
Implementing a more bespoke on-shore
contracts which will need to be negotiated
support model
with Government / Banking Framework and
other customers
There is a risk that Post Office is unable The process for identifying and managing Mick
to fully utilise the AS&M service risk and projects has been established with Fujitsu. Mitchell
resilience fund, which would increase the « Service and commercial management of the
operating expenses spend will be on a quarterly basis.
Fujitsu will have insufficient Cloud
capability and competence to meet Post
Office demand for aggressive and
accelerated Transition to Cloud
Fujitsu cost of Belfast migration erodes
potential business case
Fujitsu UK has insufficient digital
capacity and experience to deliver DDS
projects at value for money to Post
Office
Post Office does not have sufficient agile
experience to support the new DDS
delivery model
There is a risk that the K5 terms and
conditions with regards to IP indemnity
exclusions will be unacceptable to the
Post Office.
There is a risk that there will be
insufficient additional spend to cover the
savings made to operational
expenditure, as required under the
Revenue Switch provisions.
6I Page
* Transition to a devops AS&M model (post
HNGT) will reduce risk further as it ties to the
new DDS service
« Use 3rd party to validate Fujitsu proposal
* Microsoft Azure recommended as alternative
to KS
« Executive engagement to maintain pressure
at Fujitsu EMEA level
« Fujitsu investment in process being
discussed to share some costs
Delivery of the Belfast migration project will
include commercial risk for Fujitsu
« Implementation will be phased to allow
tighter Post Office management and proving
of migration processes.
NOTE
The move from Belfast onto modern and
transferable technology funded through the
revenue switch mechanisms is a core benefit of
Everest.
« Fujitsu have proposed partnering with a
specialist agile firm to supplement its
existing capability.
« HNGT development for Booker pilot will be
used to validate the approach.
« Executive engagement to maintain pressure
at Fujitsu EMEA level
« We will leverage Fujitsu’s specialist agile firm
to identify gaps and make recommendations
* Continue to negotiate. Fujitsu have indicated
a willingness to compromise.
« Investigate the cost of insuring against any
claim against Post Office.
« A move to Microsoft Azure would limit any
exposure to the transition period. However
this will likely create additional legal
challenges as we expect Fujitsu to flow down
Azure standard terms which will have limited
ability to be amended and which will conflict
with existing Horizon Agreement terms.
« The calculated reprofiling of spend as
indicated above is sufficient to cover this
risk.
« The contract management forums will
monitor spend on a six monthly basis
providing guidance to executives of any
possible shortfall.
« Possibility to pay the “IP Licence” early
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Jason
Black
Jason
Black
Andy
Garner
Andy
Garner
Jeff Lewis
Jeff Lewis
/ Alistair
Roman
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7 [Page
Appendix B: Achievement of Post Office Objectives
Post Office Objective - March '17 GE Paper
Extent Achieved
Blue=complete and CCN signed
Description/ Comment
Amber
‘Red
Re-directing future probable spend on
Green= principles agreed
patially achieved
not agreed / covered
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Current Position
Comment
evenue Switch Contract Change Note (CCN)
discretionary CapEx into strategy CapEx
investment to deliver thin client and cloud
technology
Assisted Transformation
Subject to Proof of Concept work and agreeing
‘Thin Client version of front end ways of working for agile development
Subject to final architecture and commercial
Cloud hosting with utility based rising model against market benchmark
pricing
This is inherent in utility pricing. The degree of
, the variable pricing component as a percentage _
Move from fixed to variable pricing oF total pricing is subject to negotiation.
There is commitment on both sides to improve
relationships. Fujitsu acknowledge some
Fujitsu behaviours had been driven by the "sun-_
Effective Relationship at all levels set” status of the Post Office account. Fujitsu's
willingness to address issues of transparency
and perceived duplication of charges will be
essential in promoting trust at alll levels in Post
Office.
Subject to Post Office clearly specifying the
Faster change process processes it needs to be adopted.
signed delivering the ability to switch Opex to
Capex whilst protecting Fujitsu's existing total
contractually committed revenue.
Creation of agile delivery capability is delivering
HNGT. Full service will be contracted in June
This approach will be delivered in conjunction
with new digital architecture. Recommendation
is a Fujitsu managed service using Azure
platform.
This principle has been agreed in a CCN.
Improved relationships demonstrated through
educed escalations and collaborative working
on BAU and programmes.
The introduction of new Digital Development
ervices will include mechanism for faster
implementation of change.
The re-architecture and cloud hosting will
Initial Reduction in AS&M operating expenses
reduce operating expenses, but the extent to
already achieved and CCN signed. Cloud
related savings have been modelled and
which Post Office is able to meet its objectives
Reduced Operating expenses (BAU)
is to be determined by other service and
further aggressive AS&M reductions under
contractual considerations
8I Page
discussion.
Post Office Objective - March '17 GE Paper
Protection of Post Office IP in new
development work
Improved contract governance
Benchmarking
Acceptable PCR Risk
Meets the CCN 1600 legal /
procurement position that will
enable Post Office to remove its
long term dependency on Fujitsu
No Belfast exit fees
9IPage
Description/ Comment
All new work must be completed under the
correct IP provisions in the existing contract.
The risk is that Fujitsu may try to link to
software for which it owns IP. Notwithstanding —
this the licence payment for Fujitsu IP will
remove residual risk at the time of exit from the
contract.
The tower model has introduced additional
complexity in managing service and project
change. Negotiations will look to simplify as far
as possible and potentially reduce Fujitsu costs _
of service.
It will be difficult to remove existing limitation o
Post Office’s ability to benchmark. Clear
articulation of revised charging structure will
enable benchmarking / market testing prior to
signature of a revised agreement.
See statement below
As part of the compliance review legal will
assess the extent that any contemplated
changes are PCR compliant and fit with the PCR
advice and technical arguments Post Office
relied on for signature of CCN1600 (Trinity.)
The Trinity change included explicit provisions
relating to stranded costs for the Belfast data
centres, As the pivot to cloud programme will
not complete prior to the end of the existing
Belfast lease in December 2018 Post Office is
negotiating that the length and terms of any
extension Fujitsu negotiates does not leave
Post Office with any stranded costs that it must _
Pay on final exit from Belfast.
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Current Position
Extent Achieved
Blue=complete and CCN signed
Green= principles agreed
Amber = patially achieved
Comment
Red = not agreed / covered
ACCN has been signed creating a new
ategory of IP for digital software development.
1 addition to owning all new software there
are improved licencing provisions and a new
IPR indemnity protection for Post Office.
Improvements have been implemented through
existing vendor and finance teams.
Restructuring of the operating expenses has
_ enabled Post Office to market test pricing prior
to agreeing the contract changes. Use of Azure
in the cloud services will also drive a more
competitive price. However existing restrictions
on contractual benchmarking remain.
\n initial assessment has been made with legal
(internal and CMS) and the MoU approach does
not add any additional significant PCR risk.
Reviews have taken place for each CCN which
have not altered this position. This process will
continue until all CCNs have been signed.
The Revenue Switch CCN confirmed that the
nly Belfast Exit fees which apply are
decommissioning of equipment. The lease
xtension will be agreed with the Belfast Exit
rogramme to align to the end date of the
rogramme.
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POST OFFICE LIMITED DECISION PAPER
BOARD
Back Office Transformation
Authors: Michael Clements Sponsor: Alisdair Cameron Meeting date: 24 May 2018
Executive Summary
Context
Back Office Transformation comprises the following projects:
e Agent Remuneration - moving agent payment processes from HRSAP to CFS,
automating the process, improving data accuracy and visibility
e Cash Processing Transformation - moving cash processing from POLSAP to CWC
improving ordering, inventory management, vault and stock management and
forecasting processes
e POLSAP Process Migration - migrating the Post Office back office sales and finance
processes onto CFS, delivering settlement, billing and reporting from a single set of
data and providing a system based view of product profitability
The purpose of this paper is to provide an update on the progress of Back Office
Transformation since the January update and a request for further funding.
The strategic importance of the transformation is defined in four key areas:
e Risk avoidance - To remove POLSAP before it stops working. Spare parts are
increasingly unavailable for our POLSAP system. If it fails, we cannot trade.
e Improvements in information and control - A single view of financial activity
that will give us one version of the truth; sales data that is accurate and reliable.
e Reduce OPEX - The bulk of the benefits from getting off POLSAP is an IT OPEX
reduction of £3m with £0.4m business simplification.
e Simplification of systems and processes - fewer systems and simpler processes
will reduce manual data processing in spreadsheets and improve controls.
In January, the Board approved a cumulative investment of £21.2m to enable the
programme to deliver a June Go Live.
Questions addressed in this report
1) What progress has been made since January?
2) What lessons have we learned from other back office IT change and from the recent
TSB experience?
3) What is the impact on the timescales and cost of Back Office Transformation?
4) Can we continue trading until we deliver?
5) What comfort do we have that progress will not deteriorate further?
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Conclusions
1. The programme has completed its key deliverables since January: agent
remuneration is off POLSAP and functioning well, we have exited our contract with
DXC and have launched cash management on new systems in Belfast. However,
both the DXC and cash changes were late and problematic.
2. Other back office IT changes have been consistently late and over budget
including, as the Board is aware, Success Factors and Transition. Internal Audit
has reported on lessons learned from these programmes to the ARC.
3. We have sought to understand the lessons for the remainder of Back Office
Transformation, recognising that because cash management, sales reporting and
settlement are so fundamental to our business we cannot afford a “TSB moment”.
4. Critical lessons are about the degree and scope of testing and the importance of
front line user testing. We have re-baselined our plan. We have increased the
number of test cycles; created space to demonstrate a “clean run” of the solution;
introduced more rigour in design control; allowed for significantly more time to
prepare for and complete User Acceptance Testing; added comparison tests
between POLSAP and CFS for settlement, billing and cash forecasting processes;
increased the performance testing at scale in POLSAP Process Migration and Cash
Processing and added resources to ensure we adequately prepare for and execute
the systems cutover.
5. As aresult, we are now recommending go-live on 23 September, a three month
delay and with no contingency. The total cost of Phase 1 is now estimated at
£26.1m, an increase of £4.9m. Internal Audit is currently assessing this plan to
ensure we do everything we can now to prevent further delay. If a further delay
of one month takes place the additional cost would be £1.7m.
6. Weare confident that the current infrastructure will be robust for this period. This
does, however, mean that full testing of Belfast disaster recovery must be
postponed again to Spring 2019.
7. Weare working through contingency plans to avoid going beyond Christmas even
if further issues emerge during testing, because the risk of remaining on POLSAP
into 2019 becomes too great.
Input Sought
The Board is asked to approve the additional £4.9m drawdown plus a potential £1.7m
to enable the completion of Phase 1.
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The Report
What progress has been made since January?
1. We have delivered all of the promised proof-points due between January and
March:
e Agent Remuneration process transformation and data migration from HRSAP to
CFS
e¢ HRSAP system migrated as a read only archive to the Accenture data centre
e Cash Processing functionality migrated from POLSAP to TransTrack for Belfast
cash centre (soft launch)
e Supported the transition of services and associated business activities from the
Safe Haven (DXC) contract to Accenture. However, printing and the end user
transition were later than planned because of testing and user engagement
issues.
2. We have set out a high level view of the stages of the programme in Appendix 2.
What lessons have we learned from Back Office change and from the
recent TSB experience?
3. We have sought to learn the lessons of recent back office projects, including the
Internal Audit review of Back Office Transition and Success Factors which was
report to the Audit Committee. Back Office programmes have consistently
delivered late due to our lack of documented understanding of the legacy systems.
This has, in every case, caused testing to overrun significantly against the plan
and led to more defects emerging after Go Live. Another key factor common to all
was having too few dedicated business SME knowledge into design and testing
scenarios.
4. Specific lessons include:
e SuccessFactors - Multiple challenges delaying Go Live by 6 months. Problems
included building the design based on a lack of legacy documentation and
requirements; no formal design review structure; poor change management
skills; incomplete testing with migrated data leading to post Go Live defects;
data migration disrupted by poor data quality/cleansing.
¢ Back Office Transition - The original strategy was far harder to implement than
was foreseen, including defects emerging at Go Live. Causes of the problems
include lack of business understanding of the data held in Credence and not
testing comprehensively.
e DXC exit - delayed transition with significant defects found at Go Live. This led
to business disruption. This was caused by missed requirements, incomplete
testing with migrated data and limited end user engagement.
e Belfast soft launch - 4 month delayed transition off POLSAP due to many
significant defects found during testing, which doubled the test effort. This was
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caused by incomplete planning rigour and partial end user engagement in test
execution. Incomplete communications and engagement led to confusion at Go
Live.
e TSB - an unfolding crisis for the Bank. Seemingly, they had not tested the
system sufficiently with migrated data nor tested system performance at scale.
Given that rollback to the legacy system was infeasible by the end of day 1,
testing was insufficient. The business recovery scenario for this was badly
handled by TSB.
What is the impact on the timescales and cost of Back Office
Transformation?
5. In the light of the above, we have reassessed the programme including: a full
bottom up review of current activity, a root cause analysis of testing delays for
both Cash Processing and POLSAP Process Migration and reviewed all known risks
and issues. The plan now takes into account:
e A revised Test Strategy with multiple test cycles, allowing more time to
prepare and to fix defects and the demonstration of a “clean run” of the
solution. This has doubled the overall test effort.
e Created integrated teams from business process SME, systems configuration
and testing resources that are held accountable for the joint delivery of test
progress.
e Tight control of the scope and design change through the rigour of a new
Technical Design Authority.
e A greater emphasis on business readiness testing, with significantly more
time to prepare for and complete User Acceptance Testing. This includes
more emphasis on real world scenarios and negative testing of the solution.
e Added SME resources in Finance and Cash Processing in order to close the
open design issues and complete outstanding business process documents.
e A more comprehensive business change strategy. This includes a dedicated
communications resource, greater leadership engagement in change
activities and a new learning strategy incorporating computer based learning
modules, video playbacks and quick reference guides.
e Comparing the calculations from the new system over multiple months to the
legacy system in settlement, billing and cash forecasting processes.
e New phases of performance testing in POLSAP Process Migration and Cash
Processing to ensure the system is sized to perform correctly and meet the
business’ expectations.
e Additions to the team in order to increase test capacity, perform new phases
of testing.
e A focus on existing manual scenarios/ workarounds that exist around POLSAP
to ensure the test scenarios are comprehensive.
e A Deployment workstream will coordinate the planning, preparation,
rehearsal and final cutover. This will prove the migration approach, detailed
steps and actions of every individual multiple times before final execution,
including the rollback plan, timings and detailed activities across the cutover
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weekend. Dependent on this, additional effort has been provided to ensure
we minimise the open item data we have to migrate on the cutover weekend.
a. Governance changes including a revised Steering Group that has moved to
fortnightly updates on programme progress, risks and issues.
6. The consequence is a delay, taking into account summer holidays, of three months
to a 24" September Go Live. The total cost of Phase 1 is now estimated at £26.1m,
an increase of £4.9m (see Appendix 1). This includes the costs of early life support
(September-November) and de-commissioning of POLSAP. This revises the NPV to
-£16.6m with a payback period of 8.3 years. The increase is broken down into:
the 3 month delay of the programme - 3,800 man days or £3.5m; additional test
phases / capacity increase - 1,550 man days or £0.6m; infrastructure costs of the
delay - £0.5m; and additional resource for cutover preparation - £0.3m
Can we continue trading until we deliver?
7. We continually review the risks and support arrangements for POLSAP. Based on
the current rate of usage, we have checked with Fujitsu and have sufficient spare
blades to cope with this delay. This situation is continually reviewed.
8. One key impact of the move to September is it does mean we cannot run a DR
test again in the data centre as this was planned for the August bank holiday
weekend, right in the middle of our cutover preparation activities. The next DR
would have to be Easter 2019.
What comfort do we have that progress will not deteriorate further?
9. Whilst the entire programme team is confident in our re-baselined plan and
committed to 24** September, we have commissioned an independent audit of our
detailed programme plan in order to validate our planning assumptions and
resources. We will also be monitoring this situation monthly at the SteerCo to
provide early indications of our confidence in holding to 24" September.
10. Although we have doubled the testing effort, it is still possible we could encounter
a testing issue. If this has a material impact on the design, the fix to could require
us to re-run completed tests. Should we encounter such an unforeseen delay in
testing, it is possible to Go Live on 29*" October. As we cannot yet guarantee 24"
September, we seek a delegated level of authority to delay by an additional month
if this circumstance arises. The effect of this would be a further £1.7m increase to
our budget to complete.
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11. We have considered the implementation options if an October Go Live proved
impossible. In looking at an end November date, the major constraint is Supply
Chain, who could not accommodate that alongside normal seasonal business
volumes. This would suggest a go live at the end of January but this simply
represents too much risk on POLSAP. We are therefore working through a
contingency plan to enable Supply Chain to support the change in November while
delivering cash and stock for Christmas.
What funding is the programme requesting to complete Phase 1?
12. The programme is asking for additional funding to deliver the replacement for
POLSAP in September and in doing so will remove the trading risk POLSAP
represents to the business. We are asking approval for £4.9m of additional funding
drawdown, taking the cumulative investment to £26.1m. In addition we seek a
delegated level of authority to increase this by a further £1.7m if we encounter
un-forecasted issues that drive our Go Live to 29" October.
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Appendix 1
Cost and Benefits - Summary
GE Update Board Option 1 Option 2
Business I Go Live Jun I Go Live Jun
Project Case 18 18 Go Live Go Live Oct
a Budget (Sept 17 (Jan 18 Sept 18 18
Approved Update) Update)
Underlying programme 20.0 20.9 21.2 21.2 26.1
Delay cost - - - 3.5 1.2
Additional testing - - - 0.6 0.2
Infrastructure costs - - - 0.5 0.3
Cutover preparation - - - 0.3 -
Total 20.0 20.9 21.2 26.1 27.8
Annualised Direct Benefits (£m) 3.5 3.9 3.1 3.1 3.1
NPV (£m) (12.7) (13.4) (15.5) (16.6) (17.8)
Payback 5.7 yrs. 6.0 yrs. 6.8 yrs. 8.3 yrs. 8.9 yrs.
Cost Movement (£m) 0.3 4.9 1.7
NPV Movement 15.5% 6.9% 7.3%
Payback Movement 13.0% 22.8% 6.5%
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Appendix 2
Programme timelines
17 Dec-17 I Jan-18 Feb-18 I Mar 18
10. Back Office Transformation - The Board May 2018 v1.0
I Apr-18 I May-18 = Jun-18
.
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AL completed Mitesione
A. Outstanding Milestone
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POST OFFICE LIMITED PAGE 1 OF 8
BOARD DECISION PAPER
Print Management Contract Award
Author: Susy Page Sponsor: Owen Woodley Meeting date: 24 May 2018
Executive Summary
Context
The Post Office contract for the provision of printed materials for marketing and
branch expires on 30 July 2018. This has been tendered using a CCS Framework and
won by the incumbent HH Global. All six vendors on the panel were invited to bid and
four responded. This paper asks the Board to approve the award of a two year
contract with a compliant option to extend for two further one year periods with an
expected value of £5.519m ex VAT over Initial Term of two years. It is anticipated
there will be significant savings over the contract duration (estimated at up to 28%
based on 2017 spend) but these are currently difficult to quantify. Savings are driven
by a new rate card for an expanded range of marketing products, however the
savings are dependent on demand / usage by POL over the contract period and
funding from POL partners. Additionally, Marketing will need to implement changes to
operating model resulting in on-site supplier staff reductions over time.
Procurement would therefore recommend that £100k of this anticipated saving is ring
fenced for the recruitment of an administrative resource in Marketing.
Questions addressed in this report
1. How did we select the new supplier of this requirement?
2. What is the new supplier proposing to do and why?
3. What do we need to do next to progress this?
Conclusion
1. A tender was conducted against a CCS Framework and HH scored the highest marks
against the evaluation criteria of Quality and Price.
2. The supplier is proposing more rate card driven pricing utilising an online catalogue
of frequently purchased materials which allows for reduction of the HH account
management team and delivers up to 28% savings during year one dependent on
POL product demand over that year.
3. To establish a new call off contract before 30 July 2018 Board approval of the award
of the contract to HH Global is required.
ty Confidential
Input Sought
The Board is asked to approve the award of a two year
contract for £5.519m with HH Global including ring fencing
£100k of the saving for the recruitment of additional
resource in Marketing.
Strictly Confidential
2o0f 8
Input
Received
Procurement
Marketing
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The Report
What is the need or opportunity and why now?
The Post Office has a requirement for the provision of printed materials. The spend
last year (2017/18) was £3.89m of which about 70% was for marketing materials that
appear in branches including those for campaigns and 20% on Managed Goods which
are the printed items that the Post Office Distribution Centre in Swindon orders for
branches. The remaining spend is for Direct Mail, POCA, Network Transformation,
Network Transformation Marketing, Opening Hours, Transactional (HR) and Security
Print (see Appendix 1 for the spend is per area).
Currently, Managed Goods and Network Transformation have a catalogue, rate card
and online proofing in place for their goods but Marketing does not. The Marketing
team have been obtaining bespoke quotes for each purchase.
There is an onsite account management team provided by the supplier currently
consisting of 4 staff. This is included in the cost of the print items and is not shown as
a separate cost.
The current print management contract is with HH Global and there is a noncompliant
four month extension to the existing contract to allow for the completion of the tender
process, which expires on 30 July 2018. To bring POL back into compliance, a tender
was issued in February 2018 inviting the six suppliers on the CCS Framework RM3785
for Managed Print and Digital Solutions to participate.
How did we select the new supplier of this requirement?
Four suppliers responded to the tender - HH Global, Williams Lea, Granby Marketing
and Xerox.
The responses were evaluated by Marketing, Supply Chain and Procurement against
the criteria of Quality and Price with 50% of the marks going to each. HH, the
incumbent supplier, achieved the highest marks (see Appendix 2 for a summary of
tenderers and scores).
What is the new supplier proposing to do?
There is no commitment to a minimum level of spend or volumes. The spend is
completely demand driven.
HH Global are offering pricing that is fixed for 2 years even if paper costs increase.
Based on no change in current volumes, the new prices achieved will deliver an
anticipated 28% saving however the savings are demand driven and therefore savings
achieved will be variable across departments depending on usage.
The saving also takes into account a Managed Goods increase in price as a new fixed
price rate card is introduced. This was forecast in 2017 and a project commenced with
HH to help mitigate this increase through a product and specification review. This
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project is still being delivered so HH has shown the full impact of the unmitigated
increase in their tender response.
In addition HH are offering an additional 3% saving in year two.
Year Saving Percentage
Year One (2018/19) Up to 28% across the whole
portfolio based on product
demand
Year Two (2019/20) An additional 3% reduction
against Year One spend
Total Potential Two year Spend I £5,519,138
What do we need to do next to progress this?
The current contract ends on 30 July 2018 and we need to agree a new call off
contract against the CCS Framework contract RM 3785 before this date.
To progress this, we need Board approval to award a two year contract with the
option to extend for two further one year periods to HH Global. This will allow Legal
to commence work on the call off contract and ensure it is in place before 30 July.
There is also an intention to negotiate capped pricing for the two one year extensions.
The forecast savings are only achievable via a change in working practices within
Marketing, moving to a rate card and self-service quotation model across a range of
standardised frequently purchased material types.
Therefore, Procurement would recommend that Marketing make provision for
additional support in using the new tools provided by HH as the account management
is reduced, ring-fencing £100k of the savings to recruit an additional resource to
support Marketing not just on print but also creative and media in relation to ordering,
systems admin, billing etc.
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Appendix
1. Appendix item 1: Print Spend by Area 2017/18
2. Appendix item 2 : Summary of Tenderers and Scores
3. Appendix item 3 : Savings Delivery Mechanisms
ictly Confidential
Appendix Item 1: Print Spend by Area 2017/18
Area Print Spend 2017/18
POS and Internal Comms £2,715,643
Managed Goods £783,452
Direct Mail £127,464
Security £1,724
Transactional (HR) £12,533
POCA £33,866
NT Marketing £76,705
Network Transformation £129,455
Opening Hours £8,242
Totals £3,891,102
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Appendix Item 2 : Summary of Tenderers and Scores
Scoring Marks I Marks Marks Marks
Williams
Weighting I HH Lea Granby I Xerox
Quality
Account Management 15% 12.00 11.06 6.84 6.38
Provision of Services 15% 11.81 10.88 7.88 6.09
Delivery, Packaging and Lead Times 10% 8.31 6.75 5.63 3.50
Quality Assurance 7.50% 5.72 5.53 4.50 2.16
Management Information 2.50% 2.34 1.78 1.38 1.06
Quality Total 40.19 36.00 26.23 19.19
Price
Price against indicative volumes 25% 24.83 23.71 16.08 20.73
Price against volume bands 15% 11.00 12.00 12.00 7.00
Gainshare 10% 8.00 7.00 6.00 6.00
Price Total 43.83 42.71 34.08 33.73
Overall 84.02 78.71 60.31 52.92
Evaluators :
Procurement : Susy Page
Marketing : Mick di Stazio
Barbara Kuhr
Simon Phillips
Tim Dixon
Emma Partridge
Supply Chain : Cheryl Wingfield
Vanessa Nicholson
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Appendix Item 3 :Savings Delivery Mechanisms
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Introducing rate card
pricing for up to 80%
of the current product
lines ordered by
Marketing for use in
branch
This allows HH to:
e Drive more spend with fewer suppliers,
* Hedge paper cost increases
e Offer fixed pricing for two years.
e Improve lead times.
Introducing a
catalogue and rate
card pricing for POCA
items
This will :
e reduce time in obtaining quotes
e Give fixed pricing for two years.
Reduction of HH
account management
team by 2 account
managers (out of 4)
during the two year
contract.
This is achieved through the introduction of :
e Quick quote tool to obtain budgets and quotes
for marketing campaigns
e Catalogues and rate cards to order for
commonly used Marketing items and the POCA
items.
« Online proofing allowing better compliance and
version control.
These tools reduce the amount of account management
time required as currently quotes are obtained by the
account management team on a job by job basis to
establish budget and for purchase of the items and this
can take time (24 hours whereas using the tools can
reduce this to under 3 hours) but Marketing may need
support in using the tools.
Increase in Managed
Goods prices
These goods are already catalogued and rate carded.
Points to note :
e Pricing will increase as a new rate card is
established but the pricing will be fixed for two
years
e In 2017 it was anticipated that an increase
would occur in Managed Goods prices at
retender so a project was established with HH to
help mitigate this - this is still being delivered
and is not included in the tender costs.
* HH will undertake a full review of all rate card
products at the end of year one to check if any
need to be changed or removed.
e HH did offer the most competitive pricing for
these goods in their tender response
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POST OFFICE BOARD
Performance Review — Health & Safety
and Review of Robbery Risk & Violence
Authors: Martin Hopcroft, Steve Norris, Mark Ellis Sponsor: Al Cameron Meeting date: 24 May 2018
Executive Summary
Context
Keeping our employees healthy and safe is our legal responsibility and is fundamental
to our success.
Our Health & Safety performance has improved significantly over the past 6 years. 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 is measured against the externally
recognised standard, OHSAS 18001.
This paper includes a response to the request for a review of violence in our business.
Questions addressed in this report
1. What was the outcome of the HSL audit?
2. How did we perform in 2017/18?
3. How much violence are we seeing, how does that compare with other retailers, is
it getting worse and what are we going to about it?
4. What are the priorities for 2018-19?
Conclusion
At our request, the commercial function of the Health & Safety Executive, HSL
undertook an independent audit of our approach to safety management. The full report
has been placed in the Reading Room. Its conclusion is that we have a robust Safety
Management System with strong governance, leadership and compliance and a
maturing safety culture. We perform well when benchmarked against similar
businesses. We have agreed that we have further work to do and a full set of
management actions will be agreed during May and tracked to completion.
In 2017/18 we had 112 accidents, fewer than in previous years. However, our
accidents/100 employees and the Lost Time associated (LTIFR) increased, although
they remained below 2015/16.
The increase largely took place in H1 in Supply Chain, possibly associated with bedding
down new ways of working. While this improved again in H2, driving a safety culture
that ensures people take care is a priority.
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We generally see fewer robberies and less violence than other retailers, both as a result
of our activity and because we have fewer trigger points.
Threats of violence are rising while injuries have fallen, reflecting better outcomes from
open plan branches and better security. In c. 1/3" of cases where a member of staff
is injured, our person fought back.
We are looking to improve our intelligence sharing, rollout body cameras on CViT staff
in city centres, give further guidance on fighting back and seek funding to improve the
use of fogging and other technology in higher risk branches.
Input Sought
The Post Office Board is asked to comment on the report.
The Report
What was the outcome of the HSL audit?
1. Formal feedback has been received from HSL / HSE following their audit of the
Post Office Safety Management System. Their conclusion is that we have a strong
safety culture and governance with effective procedures in place. There are a few
areas we can strengthen and we will work on these during 2018/19:
e Recognition - we should celebrate where we do well and there should be more
discussion and visibility in 1-2-1 meetings.
e Broader training to raise competence across the business, aligned to level of
risk.
e Greater awareness of policy and procedures for dealing with verbal abuse and
violence in stores.
e Investment in digital tools to simplify reporting of incidents and near misses.
e Develop a proactive ‘hearts and minds’ safety culture.
How did we perform in 2017-18?
2. In 2017/18, we had 112 accidents, 15% fewer than in 2016/17 and 43% lower
than 2015/16. However, we also had fewer people working less hours.
Accidents/000 employees and Lost Time/hours worked (LTIFR) both increased last
year compared to 2016/17 although they remained lower than in 2015/16 (see
Appendix 1 - Table 1).
3. Although LTIFR increased across the business, the sharpest increase took place in
Supply Chain which suffered 78 accidents / 000 employees compared to 48 the
previous year. Supply Chain’s LTIFR increased to 0.820 (0.586). There was no
systemic pattern or cause other than a general tendency not to pay attention,
especially in cash centres and in the stock centre. The slightly better news is that
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the number of accidents falling from 65 in H1 to 47, lower than H2 2016/17. LTIFR
fell in Supply Chain from 1.03 in H1 to 0.612 in H2. We believe 0.3 is world class.
4. Whilst there has been progress during H2, there have also been some serious near
misses and a member of staff is facing a charge of gross misconduct for his failure
to follow policy. We are concerned there has been a loss of focus on day to day
safety management and as a result we are making the following interventions: the
introduction of local Safety Champions, local safety forums planned for May and
June, more training on investigating and reporting accidents and a review of local
risk assessments.
5. Elsewhere we have seen a reduction in road traffic accidents in line with the 41%
fall in fleet size. We are hoping to see further improvement through the
introduction in Supply Chain of Telemetry which is now in place (tracking and
analysis of driving performance) and Alcolock (breathalyser integration with key
management). Online awareness training has been issued via Success Factors for
those driving for work. A draft overarching Road Risk Policy is being developed.
6. A recent risk has emerged in respect of the Company Car Vauxhall fleet with
concerns that a safety mechanism in the engine management system creates
unacceptable risk for drivers whose cars lose power, sometimes at high speed.
Vauxhall has investigated and provided reassurance, however, confidence still
remains low and diagnostic checks are being arranged by Leaseplan for all Vauxhall
vehicles. Other manufacturers are also being considered for future replacements
or even an early transition.
7. The overall level of Property risk is predominantly low. An Independent Audit of
Property Statutory Compliance is being arranged for 2018/19. Current property
statutory compliance is good at 96.70%. An Independent Assessment of high risk
building fabric and follow up remedial work has been completed. There were two
high risk near miss incidents. Following the gas explosion at Harold Hill DMB, all
gas cookers have now been removed from our branch premises.
How much violence are we seeing, how does that compare with
other retailers, is it getting worse and what are we going to do
about it?
8. The Board has asked for a focus on violence and details of incidents are set out in
Appendix 2. Overall, we are seeing more attempted robberies with similar levels
of violence and fewer injuries.
9. Our robberies/attempts per 000 stores increased year on year to 2.19% in 2017-
18 compared to 1.97% and 1.47% from the previous two years. We forecast an
increase to 2.6% (2018/19) based on this trend.
10. Violence with and without injury, with the target of violence including both people
and property, is broadly flat at around 0.22%. Violence with injury has seen a 36%
decrease over the last 3 years of all robberies committed. About one-third of
injuries can be associated with staff fighting back.
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11. The level of general, aggressive behaviour is inconclusive and certainly under-
reported. As guided by HSL we are considering how to tackle this. There were 35
cases of ‘harassment by customers’ reported by Directly Managed Branches in
17/18. This compares to 24 (16/17) and 33 (15/16).
12. This contrasts with other retailers. The British Retail Consortium (BRC) reported a
national increase in violence / abuse of 40% in 2015/16 with violence without
injury increasing from 1.4% to 2.8% and marginal increase in violence with injury
0.2% to 0.3%.
13. Overall the amount of violence experienced in POs appears to be significantly less
than in other retailers: 0.22% for violence compares to 2.8% in the BRC figures.
14. While some of this is due to our security procedures, we are also less likely to
experience the factors that trigger violence elsewhere. The Association of
Convenience Stores (ACS) note the top causes of abuse and aggressive behaviour
as; age restricted sales, refusal to serve people ‘under the influence of alcohol,’
and preventing shop theft.
15. Our performance has been affected by branch changes, with the move to open
plan counter formats, where far less cash is out of the safe, considered the primary
reason for a reduction in injuries. We have also seen a reduction of guns being
carried (27% 2014/15 down to 17% 2017/18). However we are seeing an increase
in knives being carried (31% 14/15 to 49% 17/18). Whilst easier to obtain, like
guns they are rarely used, but simply carried to intimidate as evidenced in the
reducing level of injuries.
16. This favourable position could come under pressure as a result of increasing risk
as we become the last provider of increasing amounts of cash with longer opening
hours.
17. Our risk models focus on current risk informed by lag measures. There is no
industry standard for risk modelling. We utilises risk models developed by UCL/ Jill
Dando Institute, and crime mapping provided by KIS (Kings Intelligence Services).
18. Intelligence is additionally gathered from:
a. In-house experts in the security field and bespoke analysis and reporting.
b. CPNI (Centre for the Protection of National Infrastructure), the UK’s
government authority that provides protective security advice to businesses.
c. Continuous news scanning on keywords to create immediate threat alerts and
intelligence sharing with retailers though Grapevine to determine trends,
patterns and emerging threats as well as law enforcement social media.
f. Harassment by Customer incidents reported via POL incident database.
19. The branch risk assessment models inform what mitigations are required. There
are a number of standard security items such as safes, alarms and cash funding
units, however the models identify more enhanced solutions on a bespoke basis.
For example, at our highest risk branches, a fortress would be our recommended
solution, this is c.57 branches (0.5%). Fogging, IP cameras, CCTV, endgates and
flip top tills are deployed for medium risk branches. (See Appendix 3).
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20. We plan to improve the insight into the level of aggressive behaviour and enhance
risk assessments with a 2-3 years horizon scan by engaging with third party
agencies BRC, BSIA (including banks), and ASC and Kings Intelligence Service
‘KIS’ (Grapevine) to obtain a dynamic overview of all incidents and instances of
aggression, allowing analysis and better response activities.
21. We will request funding of up to £2.6m to extend some of the stronger security
measures such as fogging to more branches in higher risk categories.
22. We will roll-out the body worn camera trial to all high risk CViT routes at a cost of
£50K, extend remote vehicle monitoring and extend the roll out of cameras in high
risk branches to alert Grapevine and enable real time monitoring when aggressive
behaviour is detected.
23. We will also review, update and reissue ‘Harassment by Customers’ training for
employees and signpost Agents to HSE guidance and our best practice and provide
guidance on not fighting back.
What are the priorities for 2018-19?
24. To develop the Safety Plan for Supply Chain with an introduction of Safety
Champions and a Safety Forum to develop a ‘hearts and minds’ culture, share best
practice, videos and visuals.
25. To continue the development of DMB Branch Managers, Area Managers, BDMs and
Network Ops managers to ensure compliance with safety calendar activities and
completion of training, local risk assessments and hazard checks.
26. To progress the recommendations from the Robbery and Violence review and the
HSL audit.
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Appendix 1
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Summary of Safety Performance - Year on Year Comparison
TABLE 1
Confidential
Year/KPI 15/16 I 16/17 I 17/18
All accidents 198 129 112
All accidents/1000 29.3 21.0 22.0
Absence accidents 38 16 21
Absence Accs/1000 5.62 2.61 4.13
LTIFR 0.367 I 0.168 I 0.271
Days lost due to 792 I 259 I 480
Days lost/1000 117 36 43
RIDDOR 14 9 14
Supply Chain
All accidents 104 60 64
All accidents/1000 74.8 48.4 78.8
Absence accidents 24 12 11
Absence Accs/1000 17.26 9.68 13.54
LTIFR 1.04 0.586 0.82
Days lost due to 470 I 157 I 219
Days lost/1000 338 140 270
Days lost trauma 288 144 4
DMBs
All accidents 84 62 44
All accidents/1000 23.1 19.0 15.6
Absence accidents 13 4 8
Absence Accs/1000 3.58 1.22 2.84
LTIFR 0.307 I 0.103 I 0.206
Days lost/1000 86.91 14 89
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Appendix 2
Rolling Robbery Incidents
25
20
is
10
5 4
oO
PL PZ P30 OPA P5 PG PF PB PO PIO PAL PAZ
m= Current Rolling 12 Months Last Rolling 12 Months
Rolling Number of Weapons Rolling Number of Injuries
Co 3
PL oP P38 Ph OPS PGORTOPROPD LOPS OP
Current Raling 2Months Last Roling 12 Months I ‘sCurrent Rolling 12 Months —_ % Last Rolling 12 Months
PL P2 P38 PGS PGP? PROPS PLL PAZ
Post Office Robberies - 2017/18
1. There were 252 robberies (POL and Retail) in 2017/18 vs an historic average of
198 (2015/16 to 2016/17). The 2018/19 forecast is 299, a 16% increase.
2. The average nightly cash held in the network increased from £530m 2015/16 to
£674m in 2016/17. Despite a 27% increase, this has not been reflected to the
same scale in the number of robberies and attempts.
3. There were:
o 142 robberies in Post Office 2017/18 v 149 in 2016/17.
o 12 injuries in Post Office in 2017/18 v 14 in 2016/17.
o 116 incidents involved weapons (59 blades) v 118 (60 blades) in 16/17.
4. Trend is downwards over last quarter with 33 incidents v 50 incidents in 16/17.
5. Furthermore injuries show favourable downward trends over the past 4 years.
o 7.5% incidents resulting in injury in both 2017/18 & 16/17 compared to
11.8% during 2015/16 and 14% 2014/15 (Retail and POL incidents).
o Of the 75 incidents resulting in injuries from the past 4 years, only one
branch has suffered a repeat robbery, illustrating incident response
procedures are effective.
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6. Incidents involving blades are increasing. If this trend continues, 53% of the
robberies will involve a blade next year (18/19). Although injuries sustained are
on a downward trend, further procedural or physical mitigation will need to be
considered to combat such a (blade) threat.
7. The percentage of attacks targeting open plan remains at a similar level to last
year, 55% vs 60% and 76% of these involving weapons. Although the number
of robbery incidents involving weapons has dropped slightly, weapons have been
reported in more robbery incidents. Of the 142 robbery incidents weapons were
reported in 116. This equates to 81% against 79% the previous year.
8. Of the 12 incidents of injury year to date 4 were due to staff fighting back, 4
were due to staff being directly attacked by the offender, 2 due to staff resisting.
TABLE 2
Injury Type Post Office Retail
Staff Fighting Back 4 5
Customer Fighting Back i} 1
Staff Resisting (preventing access through the 2 ie}
secure door which was left open)
Staff Assaulted (Hit for no reason) 4 2
Other (Staff fell over or banged an arm etc. 2 1
with no direct contact with assailant)
Total Injury 12 9
Post Office CViT Robberies ~- 2017/18
Rolling CViT Incidents
mal
P2 Pa Pa PS PS P7 PB Po P10 OP:
[mw current Rolling 12 Months Last Rolling 12 Months I
. CVIT robbery incidents have reduced by 60% from 52 in 2012/13 to 22 in 17/18.
. Trend is being monitored closely.
. Violence has been used in 7 incidents this year with 4 injuries incurred. 8 used
weapons v 6 in 2017/18 YTD.
4. Within the CViT area, the incidences of blades are low, with 3 occurring in 17/18
(no change from 16/17) and no knife related injuries.
WNe
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Appendix 3
Physical solutions deployed by POL to mitigate risk.
1. There is a minimum security equipment standard for every branch which is outlined
in the various policy and process documents for each branch format. Ordinarily,
these will include safes, safe timelocks, monitored alarms and cash funding units
(if open plan), as a minimum.
2. In addition to the Robbery & Burglary Risk Model, the Security team deploys two
additional dynamic statistical models to determine proactive security equipment
measures for future branch refurbishment, including Whitespace and a repeat
incident model. Both use up to the minute crime levels in determining the most
appropriate crime response.
3. The following are examples of some of the equipment deployed by the Security
team, both reactively and proactively;
a) IP Camera - Upon activation, Grapevine can view remotely live footage (in
addition to all footage being streamed to the cloud). Additionally, successful
extensions of the IP Camera include the use of software analytics to spot loitering
outside an ATM for example (4 arrests to date using this method), and more
recently automatically activate based upon aggression levels being increased in
branch.
Fogging - Connected to the panic alarm (PA), when activated creates a curtain of
fog to immediately break eye contact between Operator and criminal, causing them
(in theory) to flee. Designed not to disorientate or trap criminal or customers. 3
successful activations to date, no injury, no loss.
c) SILF - This is a polycarbonate screen that can be retrospectively fixed to an open
plan counter, although was initially designed to prevent jump-over attacks (and
extend across both retail and POL counter). Incredibly robust and effective, and
retains the open counter ambience.
Compact Safe - This is designed for Whitespace locations, but will doubtless be
used elsewhere due to the flexibility of operation it provides. It incorporates a drop
safe straight into the safes main compartment for deposits / remittances, and a
time delayed drawer for outward remittances, thereby keeping the bulk cash
secure without the need for a fortress.
b
d
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POST OFFICE BOARD PAGE 1OF 3
Post Office Limited Sealings
Author: Jane MacLeod = Meeting date: 24 May 2018
Executive Summary
Context
The Directors are invited to consider the seal register and to approve the affixing of
the Common Seal of the Company to the documents set out against items number
1658 to 1681 inclusive in the seal register.
Input Sought
For the Directors to resolve that the affixing of the Common Seal of the Company tothe
documents set out against items numbered 1658 to 1681 inclusive in the seal register
is hereby confirmed.
Strictly confidential
POST OFFICE LIMITED
POL00103335
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Lease by Ref
LS15 8QS. Landlord = Dyson Properties Limited. Post Office Limited =
tenant.
Secretary
Date Register of Sealings Company Number
17.05.2018 21554540
‘Seal Number Date of Date of Persons Attesting Destination of
1File Ref. Sealing Authority Description of Document To Document Document
1658 / Deed of 15/03/2018 15/03/2018 I Deed of novation dated ist March 2018 between Post Office Limited and I Jane MacLeod, Company Secretary CoSec
Novation BBA FCAS Limited and NewTA Limited trading as UK Finance.
- CAF no 911
-CT no 986
1659// Deed of 16/03/2018 15/03/2018 I Deed of Settlement between Brelis Limited (the freehold proprietor), Peter Jane Fahey, Deputy Company Jean Reynolds
Settlement Flemin Jackson McDonnell (the former landlord) and Post Office Limited Secretary
I (the tenant) I
1660/ 22/03/2018 21/03/2018 —_Underlease of whole of whole relating to Ground Floor Shop and Jane Fahey, Deputy Company Jean Reynolds
Underlease Mezzanine Floor 234/236 Walworth Road, London SE17 1JE. POL = Secretary
Landlord. OM SA\ Enterprise (London) Limited = tenant.
7661/Licenseto I 22/03/2018 21/03/2018 Underlet relating to Ground Floor Shop and Mezzanine Floor 234/236 Jane Fahey, Deputy Company Jean Reynolds
Underlet Walworth Road, London SE17 1JE. POL = Landlord. OM SAI Enterprise Secretary
(London) Limited = tenant.
16627 22/03/2018 21/03/2018 I Supplemental lease relating to Ground Floor Shop and Mezzanine Floor I Jane Fahey, Deputy Company Jean Reynolds
Supplemental 234/236 Walworth Road, London SE17 1JE. POL = Landlord. OM SAI Secretary
I Lease I_Enterprise (London) Limited = tenant. i I I
1663 /License to I 22/03/2018 21/03/2018 License to alter relating to Ground Floor Shop and Mezzanine Floor Jane Fahey, Deputy Company Jean Reynolds
alter 234/236 Walworth Road, London SE17 1JE. POL = Landlord. OM SAI Secretary
Enterprise (London) Limited = tenant. I
1664/ 27/03/2018 23/03/2018 Underlease of whole relating to 5 Towngate, Ossett, WF5 9AA between Jane Fahey, Deputy Company Jean Reynolds
Underlease of Post Office Limited and Mohammed Jassat. 1664x2 Secretary
whole
1666 / Transfer 27/03/2018 23/03/2018 Transfer of whole registered tle: title numbers of property 243394, ‘Jane Fahey, Deputy Company Jean Reynolds
of whole reg title 241202 and 242607 relating to 223m 225 and 227, Bethnal Green Road, Secretary
Bethnal Green, London E2 6AF. Between Post Office Limited (Transferor)
i and Rajan Sood (Transferee for the register). i
1667 /License to I 28/03/2018 27/03/2018 License to alter in relation to 290 and 292 Seven Sisters Road Finsbury Veronica Branton, Head of Jean Reynolds
Alter park London N4 2AB. The Ancient Order of Foresters Friendly Society Secretariat
Limited is the landlord. Post Office Limited is the Tenant. Rizwan
Salahuddin is the under tenant. Chaudhry Zulfiqar Ali Cheema and
Vasantikumari Daman Patel are the under tenants guarantors.
1668 / Lease 29/03/2018 29/03/2018 Agreement for the Assignment of an existing lease and Grant of New Until I Jane Fahey, Deputy Company Jean Reynolds
Assignment with Landlord's Works and Tenant Carrying Out Fit-Out Works. Parties Secretary
are Post Office Limited, Chrisp Street Developments Limited and Chrisp
Street Management Limited
1669/ Lease 29/03/2018 29/03/2018 Lease between Chrisp Street Developments Limited and Post Office Jane Fahey, Deputy Company Jean Reynolds
Limited Secretary I I
1670/ TRI in 29/03/2018 29/03/2018 TR1 in relation to Post Office Limited and Chrisp Street Developments Jane Fahey, Deputy Company Jean Reynolds
relation to lease Limited. Secretary
1671 / Renewal 04/04/2018 03/04/2018 Renewal of Lease by Reference of 9 Austhorpe Road Crossgates Leeds I Jane Fahey, Deputy Company Jean Reynolds
Register of Sealings
Jane MacLeod
Page 2
POST OFFICE LIMITED
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Date Register of Sealings Company Number
17.05.2018 21554540
‘Seal Number Date of Date of Persons Attesting Destination of
1 File Ref. Sealing Authority Description of Document To Document Document
1672/ 71/04/2018 09/04/2018 Counterpart lease of Suite GB, Ground Floor (Rear Wing) Coleshill Jane Fahey, Deputy Company Jean Reynolds
Counterpart House, 1 Station Road Coleshill, B46 1 HT. Loxton Developments Limited Secretary
Lease is the landlord. POL is the tenant.
1673 / License 11/04/2018 09/04/2018 License for Alterations in relation to Ground Floor of 44 Sydenham, Jane Fahey, Deputy Company Jean Reynolds
for alterations Lewisham, London, SE26 5QX between the Mayor and Burgesses of the Secretary
London Borough of Lewisham and Post Office Limited
1674/ Lease 11/04/2018 09/04/2018 Lease relating to Ground Floor of 44 Sydenham Road, Lewisham London, I Jane Fahey, Deputy Company Jean Reynolds
‘SE26 5AQ between the Mayor and Burgesses of London Borough of Secretary
I Lewisham and Post Office Limited
1675/ Deed of 16/04/2018 {3/04/2018 Deed of Confirmation between Post Office Limited and the Wardens and Jane MacLeod, Company Secretary Jean Reynolds
Confirmation ‘Commonallty of the Mystery of Goldsmiths of the City of London in
relation to 5-7 London Street, Basingstoke, RG21 7AB I I
1676 / Deed of 46/04/2018 13/04/2018 I Deed of Surrender relating to Malvern Post Office, 1 Abbey Road, Jane MacLeod, Company Secretary I Jean Reynolds
Surrender Malvern between Post Office Limited and Nigel Morris.
1677 / Lease 16/04/2018 13/04/2018 I Lease relating to The Post Office forming part of the premises known as 1 Jane MacLeod, Company Secretary Jean Reynolds
Abbey Road, Malvery, Worcestershire WR14 3HJ between Post Office
Limited and Caters Malvern Ltd and Mohammed Chand and Rukshana
Chand.
1678 / Capital 19/04/2018 01/03/2018 Capital Aliowances Election relating to Galatea House, 1 Narvick Road, I Jane MacLeod, Company Secretary Jean Reynolds
Allowances Kingston Upon Hull
Election
1679/ Lease 19/04/2018 18/04/2018 I Lease between Castlecroft Securities Limited and Post Office Limited in Jane MacLeod, Company Secretary Jean Reynolds
relation to Suite A, Riverview House, Friarton Road, Perth, PH2 8DF.
1680 / Renewal 15/05/2018 09/05/2018 Renewal lease in respect of 3-5 Bridgegate, Cascades Centre, Jane MacLeod, Company Secretary Jean Reynolds
Lease Rotherham S60 1PJ between Post Office Limited and Mr Jagir Singh
Athwal, Mr Amarjit Singh Athwal, Mrs Bakhsho Kaur Athwal and Mrs
I Santinder Kaur Athwal I I I
1681 / Tenancy 15/05/2018 08/05/2018 ~~’ Tenancy Agreement relating to 138 Stoke Newington High Street, Jane MacLeod, Company Secretary I Jean Reynolds
‘Agreement
London, N16 7JN between Post Office Limited and Universal Office
Equipment (UK) Limited
Register of Sealings
Jane MacLeod
Page 3
POST OFFICE
BOARD
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PAGE 1 OF 1
Post Office Limited Board Meetings
Author: Jane MacLeod
Executive Summary
Context
Meeting date: 24 May 2018
The Directors are requested to note the future meetings dates scheduled in respect of
Post Office Limited Board meetings.
Input Soug
ht
The Board is requested to note the future meeting dates.
The Report
2018
Date : ates
Tuesday 26 June 2018 From 12 noon Board Away Day
Wednesday 27 June 2018 Due to finish at Board Away Day
lunchtime
Tuesday 31 July 2018 11.45 - 16.30
Tuesday 25 September 2018 11.45 - 16.30
Tuesday 30 October 2018 11.45 - 16.30
Tuesday 27 November 2018 11.45 - 16.30
Board May 2018
Draft Board Agenda for meeting on 31° July 2018
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Board action from
Minutes of previous Board and Committee meetings 5 Jane MacLeod Jane MacLeod For noting
including Status Report previous meeting
CEO Report 20 Standing item CEO Paula Vennells, CEO For Noting
Financial Performance Report 20 Standing item CFOO Al Cameron, CFOO For Noting
UKGI Quarterly Report 20 Quarterly CFOO Al Cameron, CFOO For Decision
CE Performance Report - Retail 30 Standing item Debbie Smith Debbie Smith For Noting
Digital identity 30 Board action from Martin Edwards sci
I For Decision
previous meeting
Everest (including Belfast Business case) 30 Reserved decision Rob Houghton For Decision
Postmaster Litigation 10 Standing item Jane MacLeod Jane MacLeod For Noting
Noting items: 10 Standing item For Noting
- Health & Safety
- Sealings
- Future meeting dates
- Forward agenda
= holding slot. Timeline subject to change.