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Post Office Board Agenda
Present In Attendance
25 September 2018 Tim Parker (Chairman) * ‘Tom Cooper ‘* Jane MacLeod (Company Secretary) . Martin Kearsley (Banking Framework
Start Time Finish Time © Paula Vennells © Tim Franklin ‘* Veronica Branton (Minute Secretary) ‘* Rob Houghton (CIO)
11.45hrs 16.00hrs * Ken McCall © Shirine Khoury-Haq I # Owen Woodley (CEO, FS&T) ‘* Mark Siviter (Director of Mails)
location * Alisdair Cameron * Carla Stent ‘© Debbie Smith (CEO - Retail)
1.19 Wakefield ‘* Tom Moran (Network Development
Director)
Agenda item Action Purpose lead Timings
Needed
1. I Welcome and conflicts of interest Noting To note any new declarations of conflicts of interest. Chairman 11.45 - 11.50
2. I Minutes of previous Board and Committee meetings Approval Minutes formally agreed. Jane MacLeod 11.50 - 11.55
including Status Report
3. I CEO Report Noting and Input Group CEO to update the Board on the report. CEO 11.55 - 12.15
4. I Financial Performance Report Noting and Input CFOO to update the Board on the report. CFOO 12.15 - 12.35
5. I Government Spending Review Discussion To discuss the Government Spending Review. Al Cameron 12.35 = 12.55
6. I FS&T Performance Report Noting and Input To update the Board on FS&T performance. Owen Woodley 12.55 - 13.15
Lunch 13.15 - 13.45
7. I Banking Framework 2 Noting and input To update the Board on the Banking Framework. Additional Debbie Smith / Martin Kearsley 13.45 -14.45
papers are located in the reading room.
8. I Project Solar Approval To seek the Board’s approval of the Project Solar Business Debbie Smith / Tom Moran 14.45 - 15.00
Case
9. I Mails Strategy Update Noting and Input To update the Board on the Mails Strategy. Debbie Smith / Mark Siviter 15.00 - 15.15
10.) Back Office Transformation Approval To seek the Board’s approval of the additional drawdown. Al Cameron/ Rob Houghton 15.15 - 15.35
11.) Modern Slavery Act Approval To seek the Board’s approval of PO Limited’s statement on Jane MacLeod 15.35-15.45
the Modern Slavery Act.
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Post Office Board Agenda
12.I Postmaster Litigation (Verbal) Noting and Input To update the Board on the Postmaster Litigation, including I Jane MacLeod 15.45 — 15.50
contingency planning.
13.) Items for Noting 15.50-15.55
13.1. Sealings Noting For the Board to be aware of the affixing of the Seal. Jane Macleod
13.2. Health & Safety Noting To update the Board on Health & Safety. Al Cameron
13.3. Future Meeting Dates Noting For the Board to note the future meeting dates for 2018. Jane MacLeod
13.4. Forward Agendas Noting For Board to note. Jane Macleod
14.) Any Other Business 15.55 — 16.00
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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 31 JULY
2018 AT 20 FINSBURY STREET, LONDON EC2Y 9AQ AT 11.45 AM
Present: Tim Parker Chairman (TP)
Paula Vennells Group Chief Executive (PV)
Ken McCall Senior Independent Director (KM)
Tom Cooper Non-Executive Director (TC)
Tim Franklin Non-Executive Director (TF)
Shirine Khoury-Haq Non-Executive Director (SK)
Carla Stent (by phone) Non-Executive Director (CS)
Alisdair Cameron Chief Financial and Operations Officer (AC)
In Attendance: Jane MacLeod General Counsel & Company Secretary (JM)
Veronica Branton Minute Secretary (VB)
Cathy Mayor Finance Director, Retail (CM) (items 8&9)
Roger Gale Network & Sales Director (RG) (item 8)
Martin Kearsley Banking Director (MK) (item 9)
Ben Foat Legal Director (BF) (item 10)
Jonathan Hill Compliance Director (JH) (item 10)
Angela Van-Den-Bogerd LRG (A VDB) (item 11)
Owen Woodley CEO — FS&T (OW) (item 12)
Jeff Lewis IT (JL) (item 13)
Apologies: None ACTION
INTRODUCTION AND CONFLICTS OF INTEREST
a) A quorum being present, the Chairman opened the meeting.
b) 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.
1. BOARD RE-APPOINTMENT
The Board NOTED the decision of the Department of Business, Energy and Industrial
Strategy (BEIS) to re-appoint Tim Parker as Chair of Post Office Limited for a four year term
until 30 September 2022.
The Board congratulated Tim on his reappointment.
2. ANNUAL REPORT AND ACCOUNTS 2017/18 (ARA):
a) Report from the Audit, Risk and Compliance Committee (ARC)
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Tim Franklin provided an overview of the discussion at the ARC meeting held earlier in the
day. Three adjustments had been approved and the EBITDAS figure for 2017/18 had been
confirmed as £35.46m. The wording of the group litigation statement had been discussed
and a slightly shortened CEO statement had been received. Discussions had taken place with
the auditors in the meeting and in the closed session.
The Board RESOLVED, on the recommendation of the ARC, to APPROVE the ARA 2017/18,
subject to finalisation of the CEO’s report and other minor changes, and to delegate signing
authority to the Chairman, Group CEO and CFOO.
Report from the Remuneration Committee (‘Remco’)
Ken McCall provided an overview of the discussion at the Remco meeting held earlier in the
day. The Committee had discussed the outturn of the annual (Short Term Incentive) bonuses
for 2017/18; outturn of the LTIP payments for 2015/18; and LTIP measures and targets for
the 2018/21 performance period noting the proposed EBITDAS “on target” figure for
2020/21 was £90m. The Committee had agreed also to submit the proposed base pay
increase (2.5%) for the CEO and CFOO to UKGI.
The Board
¢ NOTED the annual bonus outturn for 2017/18 and performance under the LTIP 2015/18
and the resulting payments for the Executive Directors based on an EBITDAS figure for
2017/18 of £35.46m (rounded up to £35.5m)
¢@ RESOLVED, on the recommendation of Remco:
to APPROVE the LTIP measures and targets for the 2018/21 performance period.
APPOINTMENT OF EXTERNAL AUDITORS
AC reported that EY had not participated in the tender process. Only PwC and Deloitte had
bid and based on the scoring criteria, PwC had ranked highest on both service quality and
cost. The Board noted the following potential conflicts and proposed mitigations:
¢ PwC were remuneration advisers to Remco — based on the advice of the Chairman
of Remco this was not considered to be a material conflict;
e The lead partner in the PwC team was also the lead partner at Morrisons where
Paula Vennells was a Non-Executive Director. To ensure that PwC retained sufficient
independence it had been agreed that an additional partner would attend some PO
Limited ARC meetings. PwC were also the auditors for each of Bol and FRES (where
Paula Vennells was the Chairman of the Board). It was noted that each of those
audits was undertaken by a separate team and accordingly the Board considered
that although there was a potential conflict, this could be managed.
It was reported that PwC were not on the government framework so potential conflicts with
other advisory work were limited.
The Board RESOLVED, on the recommendation of the ARC, to APPROVE the appointment of
PwC as the provider of Post Office Limited external audit services and to delegate authority
to the CFOO and Micheal Passmore, Finance Director, to resolve the minor outstanding
contractual issues prior to signing the contract, and authorised the signing of the Engagement
Agreement.
MINUTES OF PREVIOUS BOARD AND COMMITTEE MEETINGS INCLUDING STATUS REPORT
The minutes of the meeting of the Board held on 24" May 2018 were APPROVED and
AUTHORISED for signature by the Chairman and the notes taken of the discussions at the
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Strategy Day were NOTED.
5. CEO’s REPORT
a) Paula Vennells updated the Board on of the following recent issues:
the deployment of branch counter hardware was due to be completed in September
2018 in line with the current 95%+ roll-out success rate. Jason Black had driven through
much of this work and the Board and asked for their thanks to be conveyed to him
e the Everest discussions had moved forward and change control notices were being
prepared for signature. Work was underway to operationalise these changes.
© ameeting had taken place with the CEO of Verizon who had agreed service credits for
delivery failures
© performance for Travel products was behind plan largely due to the warm weather
resulting in increased ‘staycations’. Performance in August was not expected to be
impacted to the same extent as much of the business in that month related to pre-
booked family holidays
¢ we had advised Bol that we would not discuss the sale of the credit card book until we had
agreed the wider negotiations. Bol had agreed that we needed to have signed off a deal
by the end of October 2018
¢ Kelly Tolhurst MP had formally taken on the PO brief
@ PVhad met Andy Furey from CWU last week. CWU were keen to agree a pay deal and,
while they disagreed with DMB franchising, this was not the primary focus of their
current discussions with PO Limited.
b) A number of points were raised, including:
¢ The extent to which underperformance in Travel was linked to disruptors in the market
and whether Post Office could challenge market insurgents sufficiently. It was reported
that we did adjust rate to be competitive in identified branches. We did not seek to
adjust online rates to match firms like Revolut which had very low often zero profit
margins. However, our pricing was dynamic and we could adjust quickly when required.
This marketplace was changing rapidly and it was requested that the background
information provided for the away day should be updated and circulated to the Board.
next steps for the negotiations with RM. It was reported that Paula Vennells was going
to have a follow up meeting* with the new Chief Executive of RM to discuss opportunities
for developing the contract. PV was also meeting Sue Whalley, the UK Chief Executive of
RM, in the next week. RM had its next Board meeting in September 2018 and were keen
to have made progress with contract negotiations by then
* Mo Kang’s CV would be circulated to those Board Members who were not Members of
the Nominations Committee
e Martin Edwards should be invited to give a half hour demonstration on the digital identity
developments before the next Board Dinner
¢ whether there had been a full shut down test of the Belfast data centre. It was reported
that there had not been a full shut down test and that we did not wish to do this until we
had migrated off POLSAP. Shirine Khoury-Haq would discuss our hot back-up
arrangements with Rob Houghton
anitem on cyber security would be added to the Board agenda in October or November
2018
1 The Chairman and Chief Executive had meet the Chief Executive of RM following his appointment to the role.
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c) The Board NOTED the CEO’s report.
6. FINANCIAL PERFORMANCE REPORT
a) The CFOO introduced the report and highlighted a number of issues:
¢ trading figures were on target taking account of the Telco budgeting error. Mails were
holding up well. FS&T should come back on plan. The higher fees for POca had only just
been triggered. Verify was trading well but Government had flagged it wanted to reduce
the fee. The main concern was IT costs where it had proved harder to drive costs out
than we had initially estimated.
b) The Board NOTED the Financial Performance Report.
7. UKGI QUARTERLY REPORT
a) The CFOO introduced the report and highlighted a number of issues:
@ we were around £8m underspent against funding in the last quarter. We had involved
the Finance Directors from across the business in planning for the next quarter. The
nature of the portfolio was changing and we were aware of the need to improve our
change planning processes now that much of the work was cross silo
© funding for Payzone would come out of trading profit and not funds provided by UKGI.
b) The Board APPROVED the submission of a request for £50m of Q2 funding from UKGI.
8. CE PERFORMANCE REPORT - RETAIL
a) The Chairman welcomed Cathy Mayor and Roger Gale to the meeting. CM introduced the
report on behalf of Debbie Smith, Chief Executive Retail. The following were reported:
b) It was reported that overall Retail performance was holding up well. The following issues
were raised:
POca numbers had now reduced below the threshold at which higher fees were
triggered’.
e RMG had previously flagged that as a result of GDPR they expected mail volumes to
reduce (with a consequential impact on their UK trading profit) and it was queried
whether this had eventuated?
@ the Competition and Markets Authority (CMA) continued to raise questions in relation to
the panther acquisition, although the formal Merger Clearance process had not yet been
triggered. We continued to believe that the earliest we would receive clearance would
be towards the end of September 2018°. Market rumours suggested that Paypoint was
likely to challenge the acquisition on state aid grounds;
¢ Discussions with RMG continued and the focus was on loosening exclusivity. It was noted
that it would be helpful for the Board to understand what the opportunities might be if
this were to happen (for example, what we could do with Payzone, where there other
brands/products that may become available that we couldn’t engage with today etc.
«there was significant competition in the international mails market and we were
watching this closely
the Board was pleased to see very positive customer feedback. The target had been
increased from 78% last year to 82% this year and were running slightly ahead of the
new target. Feedback was collected primarily through Voice of the Customer, a service
which was managed for us. 36,000 individual pieces of customer feedback had been
collected but there was also some focus group feedback. Post Masters were encourage
to listen to what customers were telling them and respond to that.
2 It was reported that we had done an interest rate swap in the Spring so that around 50% of the impact of a rate change was
hedged; therefore, we would not gain as much from an interest rate rise as we would have done previously.
3 provided that we were not required to proceed to stage 2 of their process.
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c) The Board NOTED the report.
a) I
IRRELEVANT
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POST OFFICE LIMITED BOARD MEETING
The Board NOTED the report.
CORPORATE STRUCTURES I
The Chairman welcomed Ben Foat and Jonathan Hill to the meeting. Jane MacLeod
provided an overview of the rationale for changing the corporate structure and how this
might evolve. The proposal to set up a holding company above Post Office Limited was pre-
emptive to facilitate known strategic developments (such as Peregrine). Two parallel work
streams were proposed:
1) getting approvals to set up the holding company. This would be required from the
Special Shareholder, as would FCA approval because establishing a holding company
would lead to a technical change of control for PO Insurance
2) analysis of options for both the development of the group structure and the future
group operating model
A number of points were raised, including:
© whether there were any alternatives to setting up a holding company. It was reported
that theoretically Post Office’s current business operations could be hived down into one
or more subsidiaries or Post Office Limited itself could, in theory, become regulated, but
both of these options was less attractive
¢ the importance of ensuring that any resultant structure was ‘simpler to run’
e the need to replicate the protections the Special Shareholder currently had in place BF/JH
under the current corporate structure and it was AGREED that this would be added to
our design principles. Oversight of group activities had to remain with the holding
company
¢ ensuring that the current VAT arrangements remained in place was critically important
The Board RESOLVED to APPROVE, in principle:
¢ the creation, of a Holding Company above PO Limited, noting that further approval
would be sought before putting into operation the new structure, e.g. transferring /
restructuring employees, assets, governance, subsidiaries etc.
POSTMASTER LITIGATION (including contingency planning) —Subject to Legal Privilege
In relation to the Postmaster Litigation, the GC provided the following update:
¢ witness statements were being gathered and were due to be exchanged during early
August
« Following receipt and review of the witness statements our QCs would be able to
update the Merits Opinion
¢ The application for Security for Costs (arising from our view of the flawed terms in the
Claimants’ insurance policy) continued. We expected that this issues would be
addressed during September 2018
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© the two IT experts continued to review documents relating to the issues to be addressed
for the Horizon trial. We expected the scope of the Horizon trail to be agreed in the next
month.
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The GC referred to the development of a contingency planning paper — an example of which
was shown to the Board. This categorised four potential areas of response to each risk
identified: contractual changes; communications; operational changes (e.g. training); and
system changes (e.g. Horizon). The contingency planning would identify what responses
could and should be implemented ahead of receipt of the trial judgement irrespective of its
outcome, as well as those that would only be implemented following receipt of an adverse
judgement. The Board would be provided with updates at subsequent meetings.
c) The Board NOTED the update.
V2. jenn FRES UPDATE. oc ceeeinnnnennnnnn
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c) The Board NOTED the update and next steps.
13. EVEREST
a) The Chairman welcomed Jeff Lewis to the meeting. JL introduced the report and highlighted
the following:
© The objectives for Project Everest (being the re-negotiation of the Fujitsu relationship)
had been delivered and were now being operationalised. In particular:
@ g the decision to move from Fujitsu’s proposed K5 platform to Microsoft Azure. Change
notes had been signed which would begin to deliver savings
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* an update on the move from the Belfast Data Centre would come to the September
Board
Fujitsu had agreed to move £3m spend from opex to capex although we had been aiming
for £5m.
The following points were discussed:
e JL explained that we were working together with Fujitsu to develop digital delivery
capability. Fujitsu were not advanced in this area but were developing quickly and
bringing in new people with expertise in agile
¢ JLreported that we were having workshops with Fujitsu regarding the Belfast exit plan.
We had received a proposal from Fujitsu which set out a very cautious approach with a
long delivery time. We had asked to look at other options.
¢ The current contract continued until 2023 but the moving to cloud architecture and our
ownership of the intellectual property gave us much greater scope to choose a different
path in the future.
© whether the penalty measures for any failure by Fujitsu to deliver were appropriate and
sufficiently onerous. JL reported that we had built in penalty measures/ service credits
but that these were not perfect; however, we were in a good position on intellectual
property rights. The risk of non-renewal would become a more effective bargaining chip
over time
© whether we were ensuring a modular build such that we would transition more easily to Jt
one or more new suppliers over time, and whether there were exit provisions that
allowed this. It was noted that the exiting the Belfast data centre and moving onto the
cloud was a critical component of being able to move to a new provider in the longer
term.
The Board NOTED that we would:
© close Everest as a project, complete transition and embed the new service models and
operating processes
* separate out the Belfast data centre refresh/transition to cloud, and run this as a
programme for which would seek separate approval from the Board.
The Board had already agreed the principle of moving to variable cost and migration to
cloud architecture and the Belfast exit programme would set out how and when this should
take place.
BACK OFFICE TRANSFORMATION
AC introduced the report and highlighted a number of issues:
e@ we had said at the May Board that September 2018 was the earliest feasible migration
date from POLSAP and we were now targeting October 2018
integration testing was underway. Some elements including agents’ pay and cash
processing had already been transitioned from POLSAP and were now being run on
different systems. Issues identified in the internal audit report were being addressed.
DMW had not identified any red items and most ‘amber’ items were turning green. We
would be testing against 120% of our peak volumes. Prior to go-live we would be getting
additional assurance from Accenture’s QA team over the deployment plans and would
ask DMW to validate test results against our go/no-go criteria. The go live plan has
several roll back opportunities.
¢ Contingency planning was being addressed. POLSAP was not customer facing and would
not impact Horizon performance. There were already known manual work arounds in
place already to deal with specific types of failures. We therefore anticipated that
operational activity could continue through manual interventions and these would allow
key processes to continue albeit via labour intensive processes. Cash reconciliations
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across the Network would become more challenging and in all likelihood we would need
to further fund the network on a temporary basis in the event of issues. Increased
resources in the Bristol cash centre were also being considered, and we were working
with Accenture to review whether we could use their offshore resources to build a
reconciliation team
* Should it be determined that we could not safely migrate in October, it would be most
likely that migration would be delayed until January or February 2019. This was an
unattractive proposition as it would cost a further c£5m to run the project that long. We
had POLSAP spares for a period of time but would have to look at building more if we
were run to February 2019 and this would cost a further £5-6m.
e the report would be circulated to the Board. RH/ AC
b) The Board NOTED the report.
15. ITEMS FOR NOTING
15.1 Sealings
The Board RESOLVED that the affixing of the Common Seal of the Company to the
documents set out against items numbered 1682 to 1696 inclusive in the seal register
was confirmed.
15.2 Health and Safety
The Health and Safety report was NOTED.
15.3 Future Meeting Dates
The future meeting dates were NOTED.
15.3 Forward Agenda
The forward agenda was NOTED. An update on the Banking Framework would also be
included on the September agenda and Mails Strategy would be covered under the Retail
Strategy item.
Meeting closed at 3.30 pm.
Chairman
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BOARD
CEO’s Report
Author: Paula Vennelis Meeting date: 25'* September 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. Simplify the retailer proposition
2. Build flexible and secure IT
3. Modernise our products and services
4. Digitise and optimise the business
5. 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?
e Financial Performance
— P5 revenue was £73.9m, £0.6m favourable to plan in the month. Underlying
revenue is £0.5m adverse in period and £2.5m adverse YTD.
— P5 trading resulted in a profit of £3.1m, £1.6m better than plan. These have
been partially offset by one-off costs in the period of c. £1.3m. YTD trading
profit of £20.2m is £4.7m ahead of plan.
— Overall, we remain ahead of plan with underlying performance broadly in
line. A formal 2018-19 re-forecast will be completed in October. The
challenges will be Telco customer numbers, Verify re-pricing and H2 IT
costs.
e Annual report and accounts
— We published our Annual report and accounts on 13°" September which
confirmed we have made a profit for the second year running, increasing
our year on year trading profit in 2017/18 to £35m from £13m in
2016/17. We have increased turnover by £4m over the prior year, moving
from £957m in 2016/17 to £961m in 2017/18.
« Retail
— Post Office has retained its title as the ‘service that has the most positive
impact on the local area’ in the 2018 Local Shop Report, which was
published this month by the Association of Convenience Stores (ACS). We
were voted into the top three ‘most wanted services’, a useful reference
point for us as we seek locations for new Post Offices. (Specialist food shops
were voted 1* choice followed by banks as 2")
e Identity Services
-» Identity has had a positive start to the year +5% on prior year.
— Verify YOY volumes have more than doubled, primarily driven by Universal
Credit applicants who can now use Verify. Post Office continues to be the
market leader with 53% market share. See below for emerging pricing
issue.
e IT - Investing in digital capabilities
— We have completed a deal with Fujitsu resulting in £19m operational
saving, over 5 years. This will be channelled into capex to invest in
strengthening our cloud and digital services.
e IT / Branch network roll out
~ The Branch Counter programme has now deployed 23,053 counters in
9,519 branches and remains on schedule for completion by the end of
September, with over 90% of the network now complete.
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« ATMS
— ATM availability has been consistently improving — target is 96% (industry
standard). Our fleet has struggled to achieve better than 94%, but with
focussed attention in the past quarter, that has improved to 95%, and in
recent weeks has shown consistent daily figures at 96% showing continued
progress.
— Discussions with Bank of Ireland to move to a new partner are continuing,
likely outcome will be an OJEU tender in Q4 to seek potential new partners
to take over our estate and help us move to a new strategic model and
relationship.
— Continued change in the wider ATM market (reduced interchange now
having an impact) is seeing many ATM's now charging for withdrawals,
which will lead to more volume in our estate as we remain free to use.
WHAT HAS NOT GONE WELL?
° PCI
— Nettitude QSA raised concerns regarding our PCI data security as a result of
auditing Fujitsu and Comptercentre approaches. We have initiated a further PCI
data audit and review as a matter of urgency to explore and rectify any
security exposures. A joint IT & Business Steering Committee for PCI is
working through the recommendation for the ARC in October.
e Verfiy price reduction
— On Friday 14 September, GDS issued their new pricing for Verify to take effect
from 1% October: our current payment of £25 per customer falls to £6.79.
While we can still deliver our budget for this year as a result of strong
performance in H1, it creates significant challenges for the 2019/20 budget. We
are assessing a number of options to mitigate the impact. We will provide a full
update on the implications to the Board next week.
Chesterfield — water leak
— Due to a Seven Trent water board issue in Chesterfield, our office was without
water for 2-3 days. During the incident we arranged for colleagues to work
remotely where possible, and had a skeleton staff working in the building.
Colleagues displayed great resilience throughout and our business continuity
plans worked well with no visible impact on operations across all areas. I spent
a day there to show support, which was well received.
« Back Office /POLSAP
— Our testing and planning around the migration continues - we are not ina
position to migrate at present. Although initial testing has been encouraging,
there are still issues to be addressed for a seamless switch. This will be
discussed further in the board meeting.
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Looking Ahead
FUTURE FOCUS
¢ Government Affairs
— I met with Kelly Tolhurst, our new Minister, on 3rd September. The Minister
was engaged and showed interest in championing our interests in Government
and beyond.
— At the request of BEIS, there is a meeting with the Minister and the Permanent
Secretary on 17‘ October to provide an update on the Group Litigation Order
(GLO). Jane MacLeod will provide more detail in the Board meeting.
— Our DMB strategy is on track to deliver 80 exits this year as planned. We are
currently in negotiations with WH Smith (Project Edgware) and we have an
opportunity to secure a deal for further franchising which would deliver
significant P&L benefit through our DMB Programme and also address our
concerns regarding customer service across the WH Smith Post Office estate.
These negotiations are moving quickly and we will provide a verbal update in
the Board meeting.
— We have to strengthened the Retail Leadership through recent new external
appointments to include: Retail CIO, Liz Robson, (previously at Shop Direct and
Halfords); Network & Sales Director, Amanda Jones, (was COO at Conviviality
having also been at Nisa, John Lewis and Waitrose); Retail HR Director, Lisa
Cherry (formerly at Wyevale Garden Centres, WH Smith and Sainsbury); and
Head of Automation, Lisa Watkins, (who led the roll-out of self-service for
Tesco). We are also in the process of hiring for the new role of Franchise
Director.
Payzone: We have completed 8 weeks of pre-notification dialogue with CMA.
Key questions focused on mobile top market and parcel drop off/returns. This
has now progressed into Phase 1 which ends on 19 Oct. There will be 3
potential outcomes; i) unconditional approval, ii) conditional approval, iii)
request to progress to Phase 2. We have received positive endorsement from
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key bill payment clients and retailers, and the team remain confident in
receiving unconditional approval to the acquisition.
— Payzone trading performance is slightly behind 2018 forecasts with P10 YTD
(July) EBITDA at £2.9m (-1.8% / -£54k). This is driven by slightly lower than
planned mobile top-up revenue. Costs are in line with forecasts. In dialogue
with Payzone senior management, an additional 800 agents have been added
to the network and they anticipate performance to full year end (Sept) in line
with full year forecasts. The core program team are focused on Day 1 readiness
and all major work-streams are on track.
« Industrial Relations
— Pay talks with CWU are on-going. The pay anniversary date for non-managers
was 1* April 2018. Initially, their request was for an “RPI plus” pay award over
2 years. They are now proposing a 1 year deal at 3.2% (Indications are that
they would settle for 3%).
— Our position has been to offer the same 2 year deal we have agreed with Unite
for middle managers. (18/19 - 2.6% / 19/20 - 2.5%). We have been open
about considering flexing the proposed increase over the two year period but
working within the overall quantum that is on offer.
— In the event we are unable to reach a collective bargaining agreement we are
taking legal advice regarding the risks associated with imposing the deal.
Imposition of pay would lead to a ballot for industrial action.
— CWU also continue to encourage us to sign up to a Collective Defined
Contribution pension scheme, having made conference policy to deliver such an
agreement with PO. This proposed scheme has not yet been passed as
legislation; we are working with our Actuaries to understand how the CDC
scheme would operate in the Post Office before giving a full response to CWU.
— It is likely that CWU will attempt to join up issues over pay, pensions and
franchising. The IR team’s assessment is that CWU will want to cause
maximum PR damage to coincide with the Group Litigation in November.
— Should CWU ballot for Industrial Action (IA) it is unlikely to have too
detrimental an effect upon customers and the network; contingency plans are
currently in place to mitigate sporadic and discontinuous IA.
~—> If necessary and reluctantly, I would consider a different deal to avoid
significant IA during the GLO: protection of the overall business being most
important. At present, this is not looking necessary.
A
A
Mm
rr
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—_I
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IRRELEVANT
« New Leadership group & Strategic view
+ As part of the work started on culture, we have brought together the senior
leaders of the Post Office to form a small subset group of 50 comprising of
some of the direct reports of the Group Executive. Recognising the importance
of this group to delivering our North Star strategy, we initially plan to focus
efforts on this group to develop their Leadership capabilities and ensure that
they have a cohesive view of the business strategy and agenda. Some of the
activity we have already initiated with them includes regular leadership
huddles, 360° feedback process and our first two day Leadership event on 2/3
October, where we will look at future disrupters, a customer first culture, talent
and resource requirements, digital and data focus. Mo Kang will be leading
subsequent GE work on organisational shape.
RISKS OR CONCERNS?
e Group Litigation Order (GLO)
— A verbal update will be provided in the Board meeting.
e Brexit
~ Work is underway to assess impact of Brexit- particularly in light of the
possibility of a ‘hard Brexit’. This is being undertaken via a series of business
wide workshops coordinated through the Risk team and is considering
strategic, operational and financial risks as well as commercial
opportunities. We are liaising and sharing information with government, and
taking advantage of the work of other commercial organisations such as the
CBI. The output from these workshops will be incorporated into the Budget
planning cycle for 2019-20, and we will provide an update to the ARC in
October on key risks that have been identified, although assessment and
planning work will continue as greater detail emerges from government.
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BOARD DISCUSSION PAPER
August 2018 (P5) - Financial Performance
Author: Micheal Passmore Sponsor: Alisdair Cameron Meeting date: 25 September 2018
Context
The purpose of this paper is to summarise our financial performance in P5,
highlighting issues and implications. A more detailed slide-deck, used across the
Finance community, is attached.
What is our financial performance in P5 and YTD?
em
Actual Budget Variance YoY Actual Budget Variance YoY
Retail 4341 41s 16 3% 229.9 229.0 og 0%
FS&T (inci. insurance) 25.1 267 (7) 4% 135.6 140.1 (44) 5%
Telco overstatement 0.0 04 (0.4) nla 00 24 (2.4) nla
identity 47 35 12 37% 251 223 28 10%
Supply Chain/Other 1.0 V4 (0.0) 1% 55 58 (OA) 6%
Total Revenue 73.9 73.2 06 2% 396.1 399.2 (3.1) 2%
Cost Of Sales (9.6) (10.0) 04 1% (52.3) (83.3) 10 5%
Net income 64.2 63.2 44 2% 343.7 345.8 (2.1) 2%
Agents Pay (274) (28.0) 06 4% (147.7) (150.6) 29 5%
Staff Cost (16.3) (14.5) (1.7) 12% (78.2) (76.4) (1.8) 3%
Non staff Cost (23.3) (24.4) 1 3% (121.9) (126.6) 47 3%
FRES 46 42 04 60% 185 18.0 05 35%
Other Income 1.2 410 0.2 va 57 5.2 06 nla
Trading Profit 34 1.8 16 na 20.2 18.4 47 na
Network Subsidy Payment 46 46 00 -14% 25.4 25.4 00 -14%
EBITDA a7 6.1 16 37% 45.6 40.8 AT 36%
Depreciaton (4) (6.2) 0) a (28.4) (23.6) 5.9) wa
interest (0.7) (0.5) (0.2) 84% (5) (26) (09) 121%
Change Spend (4.0) (3.8) (0.2) -78% (28.6) (40.6) 120 -30%
investment Funding 16.9 169 0.0 na 734 73.4 0.0 na
Profit On Asset Sale 0.0 00 0.0 nla 08 00 os -55%
Profit Before Tax 17 13.5 (1.8) na 58.0 ATA 10.8 nla
P5 revenue was £73.9m, £0.6m favourable to plan in the month. This was driven by a
one-off accrual release of £1.5m following the successful conclusion of the RMG SSK
negotiations. Underlying revenue, when you also exclude the Telco budget
understatement, is £0.5m adverse in the period and £2.5m adverse YTD but 2% up
year on year; the main yoy growth areas are Banking, Mails, Telephony (New Call
acquisition timing) and Verify, with the key decline items being in POCa and Home
Office.
P5 trading profit was £3.1m, £1.6m better than plan. As with revenue, the result was
helped by the accrual release but we also saw one off costs including bonus catch up
within staff costs. YTD trading profit of £20.2m is £4.7m ahead of plan, despite the
£2.1m telco budget error.
YTD Mails is in line with budget and YoY growth expectations.
Travel money continues to track behind budget as Travel Money Online sales were 28%
short of budget. Although Travel Money Card shows a slight positive YoY trend in value
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terms, the 18/19 budget included a planned 22% increase in new card sales which has
not been achieved.
Travel insurance has suffered from the same trends, leaving PO Insurance trading profit
£0.5m adverse in the period in spite of lower marketing spend. Volumes from sales,
digital and branch combined were 23k adverse to plan; aggregators were 6k favourable
but attract higher costs of sale. A deep dive review is planned given the long term plan
is for Insurance to grow margin through marketing.
The Telco performance is under pressure. Underlying ARPU is down contributing to
£0.5m adverse variance in period; £2.1m YTD. Customers are now 11k behind plan at
497K: competitors are increasingly effective at saving customers we think we have won.
Aprice increase is planned in November to mitigate the ARPU gap but this could increase
pressure on customer numbers.
Banking services was adverse to plan in the period but remains favourable YTD due to
continued strong deposit growth (+18% on plan).
POCa revenue has started to recover as the higher price has been triggered.
Verify has continued its strong growth, exceeding budget by £0.6m in the month, and
£1.6m YTD. YoY volumes have more than doubled, primarily driven by Universal Credit
applicants who can now use Verify, and which commands the higher Level of Assurance
(LoA2) fee. Post Office continues to be the market leader with market share now at
53% and a conversion rate of 54% for LoA2s. However, we have now received the re-
pricing from GDS and it is very severe. We are reviewing the implications.
Non-staff costs was £4.7m favourable YTD and this was a result of reduced Post office
Insurance marketing spend and earlier delivery of IT cost saving initiatives which were
budgeted for in the second half.
Network numbers (July) were 11,561, being 61 above the commitment and an increase
of 14 compared to year end. The reduction of 31 from June driven by 63 temporary
closures, 23 re-openings and 9 new network locations. The scale of drop was greater
than expected by c. 10 as a result of higher audit closures and a mobile van off-line (6
branches).
Depreciation is higher than budgeted due to IT projects going Live following delivery,
earlier than expected. The full year impact is being assessed.
YTD Change spend (Capex and Exceptional) was £84.5m, £2.2m ahead of forecast
(£33.6m behind budget). Although the change spend was more or less in line with the
latest forecast, there was a delay of DMB provision calculation and accounting offset by
higher than expected spend in EUC branch deployment following settlement with
Computercenter.
Net funding position has increased by £70m from year end due to delay in £55m Q2
investment funding and FX growth for the summer campaign.
Conclusion
Overall, we remain ahead of plan with underlying performance broadly in line. However,
given the headwinds in Insurance and Identity and the expectation that Project Everest
will not deliver the planned reductions in IT costs, we now expect the ahead of plan
performance to reverse in H2. We will do a full re-forecast after the P6 results.
Input sought
The Board is asked to note the financial performance.
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Period 5 FY18/19
Financial Performance
25 September 2018
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P5 Scorecard
Pressure emerging on network numbers, change benefits and IT performance
Post Office Business Scorecard - FY18/19
Key Performance Indicators Period 5 Year to Date Full Year
Target
Measures BU Actual I Target I Var I RAG I I Actual I Target I Var I RAG Fv18/19
Deliver Profit
Total Gross Income (excl NSP) £m Al e@ 396.1 399.2 (3.4) 965.1
Htrading Profitem Al 202 184 a7 ® 500
Headroom £m (vs Board minimum limit) Al 269 200 69 6 > £200m
IChange benefit delivery £m (WIP) Al 13 23 (1.0) & 11.8 13.0 (1.2) 40.2
Mails - Total Labels Volume m Retail 13.6 13.9 (0.3) eo 154 764 (1.0) > 193.0
Mails - Home Shopping Returns Volume m Retail 37 3.2 05 @ 204 175 29 eo 45.0
Banking Volume (m) Retail 95 97 1) @ 54.1 53.9 02 @ 130.2
closing Telecoms Customer Base (#) rsat I 497.707 I 508,802 I (11.095) 494,823
Grow our Network - Customer
Number of Branches (mth in arrears) Retail 11,561 11,500 61 eS 11,500
Branch Availabilty FaoiT Tec Tec
Become the Partner of Choice - Customer
Ease of Doing Business with (Effort ) Retail 844% I 920% I 24% C 83.0% I 820% 1.0% ) 82%
No. of Horizon Customer Sessions Retail 399 00 2199 00 00
# of Sevt/Sev2 Incidents (Rolling average) T " 8 3) e <8
IOverall IT Supplier SLA Achievement (mth in arrears) T 976% I 990% I (4%) I 99%
[Actual incident Volumes (Rolling average to July) T 11109 I 10.000 I «109 I @ <10.000
Change benefit delivery - YTD variance in delivered benefits is mainly driven from DMB (£0.7m)
delays in onerous provision along with phasing of Network Delivery savings and POI (£0.5m) delay
in projects delivering. All programmes are committed to full benefit delivery in the year.
No. of Horizon Customer Sessions - there is currently no target set and historical data only
available for last 90 days. Exploring possibility of retrieving archived data in order to set
appropriate target.
# of Sevi/Sev 2 Incidents - 12 high severity incidents in July; decrease of 6 from June.
Actual Incident Volumes have increased to 10,356 in July from 10,283 in June.
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P5 Scorecard
Digital sales channel remains behind, absence has improved
Post Office Business Scorecard - FY18/19
Key Performance Indicators Period 5 Year to Date Full Year
Measures BU Actual I Target I var I RAG I I Actual I Target I var I RAG Target
FY18/19
Digital innovation - Customer
Trading income from customer Hub (£m) FS&T 00 01 (0.4) e 00 05 (0.5) e 1687
I# of Registered customers on app FS&T 27800 42579 (14.779) e 42674 99220 (56,546) @
\# of Ali Product pages website visits Al 2,845,968 I 2,071,137 I 774,831 Ss 11,043,019] 9,644,070 I 1,398,949 oS 20,461,075
Website Conversion ratio Al 1% I to7% I ao I @ ga% I 101% I oa I 10.0%
Care for our People ea
ILine Manager Index* Al 69% 62% 7% oe 62%
IFemale Representation in Senior Roles (3a & above)? Al 40.4% 41.0% (0.6%) ¢ 43.0%
IBAME Representation in Senior Roles (3a & above)® Al 9.0% 9.3% (0.3%) rey 11.1%
ISenior Vacancies filed by Internal Talent al 125% I soo% I a7su I @ II 499% I soo% I orm I o 50.0%
Jaosence AI 32% I 33% I om I @ 32% I s3% I om I @ 33%
Safety LTIFR: FRO 0.000 0.200 0.200 e 0.143 0.200 0.057 @ 0.200
T Line manager index calculation 1s based on the weighted average results
2. Our ambition is to achieve 50% by 2020. Full year target of 43% is based on a linear increase over 3 years; this equates to replacing 16 Males with Females in Year 1 based on 460 population,
Discussion to be held over changing Senior Roles to Level 4 and above (population would decrease 250 and female ratio would be 30%).
3. 0.14% is the percentage of people in the UK who describe themselves as BAME. (Source: Most recent ONS Census, 2011). Our ambition is to achieve 14% by 2020. Full year target of 11.1% is
based on a linear increase over 3 years; this equates to replacing 11 white to BAME in Year 1 based on 460 population. Discussion to be held over changing Senior Roles to Level 4 and above.
Absence - P5 absence split by short term (0.71%) and long term (2.47%). Monthly absence has
reduced from 3.36% in P4. YTD absence remains under target at 3.23%.
Safety LTIFR - There were 5 employee related accidents in Post Office during P5 compared to 11
during PS in prior year. There were zero lost time accidents in P5 and there have been a total of 5 YTD
against 10 YTD in FY17/18.
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P5 Trading Profit +£1.6m v Budget; YTD +£4.7m
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em Period 5
Actual Budget Variance YoY Actual Budget Variance YoY Timing One-off Underlying
Reiail 43.4 41s 16 3% 229.9 229.0 09 0% 1.5 (0.6)
FS&T (excl. Teico overstatement) 207 245 (0.8) 5% 141.5 114.0 (2.5) 4% (2.5)
Telco overstatement 00 04 (0.4) nla 00 24 (2.1) nia (2.1)
PO insurance 43 5.2 (0.9) -3% 24.4 26.41 (20) 11% (2.0)
identity 47 3.5 12 37% 25.1 22.3 28 10% 28
Supply Chain/Other 10 14 (0.0) 1% 55 58 (0.4) 6% (0.4)
Total Revenue 73.9 73.2 06 2% 396.1 399.2 Ga) 2% 0.0 18 (4.6)
Cost Of Saies (9.6) (10.0) 04 1% (52.3) (53.3) 1.0 5% 03 07
Net income 64.2 63.2 14 2% 343.7 345.8 (2.1) 2% 03 16 (3.9)
‘Agents Pay QTA) (28.0) 06 6% (147.7) (150.6) 29 8% 29
Staff Cost (16.3) (14.5) (17) 10% (78.2) (76.4) (1.8) 2% (0.7) (15) 04
Non staff Cost (23.3) (24.4) 14 3% (121.9) (126.6) 47 3% 14 (0.1) 37
FRES 46 42 04 60% 185 18.0 05 35% 0.5
Other Income 12 1.0 02 nla 57 5.2 06 nla 06
Trading Profit 34 15 16 nia 20.2 15.4 47 nla O7 (0.1) 44
£1.6m variance to budget driven by income one-off of £1.5m with RMG, offset by one-off costs of £1.3m.
Agents pay continues to benefit from new understanding on the system.
Post Office™
Post Office Limited
Commercial in Confidence
(4)
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Retail Scorecard
Mails volumes are holding up
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Actual Budget Variance RAG Actual Budget Variance RAG Budget
[Gross income Em at 415 16 2208 2290 09 Q 568.6
Trading Prost £m 118 19 a7 548 486 ae @ 128.2
bails - Priority Volume m 86 89 03) @ 483 496 e 124.0
Mails - Total Labels Volume m 368 1393) 154 784 ry 1930
Mails - Click & Coltect Volume m 03 03 oo 16 14 ry 44
Mails - Home Shopping Returns Volume m a7 32 06 6 204 175 @ 450
Banking Ai Transactions Volume m 95 97 @a) 541 539 ry 130.2
Payments Volume m 00 [) 00 oo 00
No. of Horizon Customer Sessions 399 00 220 00 00
No. of Retail Transactions per session 16 00 00 00 00
Ease of Doing Business with (Eto } 844% 620% 2.4% e 83.0% — 820% 10% 8 82.0%
customer Drivers 880% — 0.0% 87.0% — 00% 0.0%
No. Complaints” 3318 io) 10.9750 00 00
Number of Branches (mth in arrears) 11,561 14,500 61 @ 1.500
rant. Buitds 18 6 2 @ 15 113 2 @ 338
Branch standards -Losses Meatified in Aucit™ 08 00 29 00 00.
“month in arrears
Post Office”
Post Office Limited ~ Commercial in Confidence
©
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®
Retail: P5 Trading Profit £3.7m favourable to budget; YTD +£6.2m
£1.5m SSK accrual release; POCa continues to recover; DMB pay award accrual catch up
YTD
fm ‘Actual Budget Variance YoY ‘Actual. Budget Variance YoY © SSK accrual release.
Mails Trading 205 204 on 5% 1126 1435 (0.9) 4%
see te ok ey Oe “2 43 (G8 BSG) Payment services was adverse in period
RMAnnual Fee & Count 36 35 on 1% 197 190 07 due to Co-op volumes which were
oneees 3 s Ue oe ae 88 expected to come through other
pose be 28 28 aa (08) resellers not materialising.
Payment Seraces WT 19 40.4 10.5 (0.3)
ATMs: 24 24 123 13.2 (0.8) 7% ,
Banking Services 72 72 soa 402 ‘09. we_-~ @ ATMs’ performance adverse to budget
Other Retail 02 03 14 18 (04) driven by below budget volumes (-
nea —— ote eee 0.8m) and availability rates below
Cost Of Saies GD i (8.8) )
44387 242198 43 budget at 94.4%.
(24.6) (23.3) (124.4) (126.6) 25
Staff Cost (6.6) (58) (33.0) (32.2) (0.8) a ‘ . .
Staff & Agent Related Costs 02) 02) (08) (1.0) oot Banking services adverse in period due
1d & Marketing 1) (0.2) of 63% 04) (0.9) 08 to seasonal activity. YTD remains
Consultancy & Advisory Services (00) 00) 0.0. 15948% (2) (01) 1) favourable due to continued strong
4) (02) 10.2) 97% (1.4) (0.8) (0.6) ,
Manage: Penalties 04) (4) @.0)_—--100%. (20) (20) 9) deposit volumes (+18% on plan).
Postage (0.6) (0.5) (0.0) 61% (2.7) (2.7) (0.0)
Finance & Losses 40.8) (a) 06 87% (4) (6.6) 12 .
Change Opex 30 (04) o nla 00 (2.0) 20 Staff costs are adverse to budget in
Other Non-Staff Cost (0.3) (03) 10.0) 18% (18) (4.5) 0.3) period due to catch up of DMB pay
Other income 1210 02a 575208 ;
Trading Profit i679 37a Sa 4068 62 aeistos to thang oF Stacloney savings in
network and sales.
© Non staff costs are favourable due to
release of card processing fee accrual
due to lower than anticipated average
transaction value.
Post Office” Post Office Limited ~ Commercial in Confidence
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FS&T Scorecard
Telco and Travel Money under pressure
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Actual Budget Variance RAG Actual Budget Variance RAG Budget
(Value of Mortgage Appiicabons (Em) 229 287 68) @ Ter 1050 ——«(263)—«@® 3,050
Value of Mortgage Completions (Em) 66 201 (138) @ 365735370) @ 2.135
Totat vaiue of Savings balances {£m} 14,300 14,100 200 @ 14300 14,100 200 @ TBC
Number of new Credit Card applications 7816 7.084 82 @ 27631 38.740 (14,109) @ 91,568
Credit Card application accept rate 77% 58% 19% @ 73% 58% «= 6% @ 58%
Number of new Loan applications $902 5,404 493 @ 34535 29728 «4811 @ 71,608
Loan application accept rate 52% 58% 6% @ 58% 58% 1%» © 58%
‘Travel Money On Demand sales transaction volume TB TBC Tec Tec. 7016
[Travel Money On Demand sales transaction ATV 306 266 40 @ 306 266 40 © 286
Number of MoneyGram Send transactions 196,109 209,096 (12,987) @ 1,155,974 1.169.811 (13837) @ 2,895,484
closing Telecoms Customer Base (#) 497,707 $08,802 (11,098)" © 497,707 508.802 (11,095) 494,823
[Velecoms ARPU 25.46 2564 48) @ 2576 56s 8) G 27.40
[Telecoms Customer Chum (1.93% —(1.6)% —0.3)% «— @ CN% 74% 13% F (17.8)%
Nei Telecoms customer additions (722) 1776 (2,498) @ 6668) 9.389 (18,257) @ (4,590)
Net Promotor Score (Telecoms) To TBC ’ qec__ tee. " TBC,
Number of Postal Oriers soid 213.270 217,096 (3.826) @ 4.217.126 1.241.126 (24000) @ 2,800,000
Policies Soid: Post cooling off period (k) 409 121 a2 @ 54555813) 997
Policies Renewed (k) 22 2 0 @ 123 123 0 @ 275
Policies in-Force “tive* (k} 689 704 74 @ 689 708 74 684
Net Promotor Score (Post Office insurance) 36 36, 36 @ 36 36 36 36
Post Office™
Post Office Limited ~ Commercial in Confidence
GC)
YY
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FS&T: P5 Trading Profit (2.0m) adverse to budget; YTD (£2.1m)
Travel money and Telephony continue to track below budget due to lower value of sales and reduced customer
numbers
Periods 7
fm ‘Actual Budget Variance YoY ‘Actual Budget Variance YoY (@) Travel money continues to underperform
Po Money aungs.Loane) a4 82 ea as er ire 02 ae due to lower value of sales.
ravel Money, 29 3 5) Ye 3. 4 (1.2) 9%
Telephony 16 120 (05) “5% 633653 ~~ @1)~— 9% @) MoneyGram Average Rate per Transaction
Telephony Overstatement 00 04 (0.4) nia 00 24 Ay nla j i i j
Postel Orders 100800 tate 858108 15, continues to come in below plan which is
Total Revenue 207 Re aye 41s) Aiea ay ae driving a potential risk to income.
Cast Of Sales. (6.7) (Py 04 5% (36.6) (38.4) 15 12%
wv ONO SE © Cost of sales favourable in period due to
11) 8) 0.305525 44) 40) 4) 8% reduced take up of Galaxy offer together
Stal & Agent Reiatec Costs 00000) 3) 4) @2) 47% i
Brand & Marketing (0.7) (0.7) 0.0 (3.9) (3.5) (0.4) 28% with lower Telecoms customer number
Consultancy & Advisory Services 4) @4) 02 9) (1.7) 08 96% than expected.
ITinfiastructure & IT Serices 02 © 01) 02 136% (03) @4) 0.4 128%
Managed Services 24) (22) 03) 12% ( a 059% 1, . .
Postage 02 2) (00) som “3; @1 2% @ Agent's Pay includes remains favourable
Finance & Losses (07) (0.3) (0.4)(6 Jo3% (1.4) (0.2) 4% YTD, reflecting the lower value of sales
‘Other Non Staff Cost 0.9) 10.0) (0.0) 131% of (0.2) 64%
PRES 4842 0a o0% so os 36, than expected.
Trading Profit 3310320) 43% 0452.5 (i) 24%
©® Permanent staff costs are on budget. Staff
costs also includes skills group contractors
which is driving adverse variance.
© Operating expenses adverse in period to
due foreign exchange revaluation.
FRES profit share reflects FRES’ actual
position.
Post Office”
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Commercial in Confidence
©
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Post Office Travel App ©
YTD income from Travel App top-ups £330k below budget; extrapolated at current rate YTG risk of £770k
although revised targets are being worked on
Top-Up Volume Top-Up Value Top-Up Revenue Agent's Pay
Period Week Top-Up Volume Bud Var Act Bud Var Act Bud Var Act Bud Var
3 Total 233 78,203 _ (77,970) 59,716 18,925,170 (18,865,453) 373 118,282 (117,909) (746) i!) (746)
4 Total 6,053 78,203 _(72,150)I 1,523,405 18,925,170 (17,401,765)I 9,521 118,282 (108,761)I (19,043) 0 (19,043)
5 19] 1,785 19,551 (17,766)} 452,558 4,731,292 (4,278,734)I 2,828 29,571 (26,742)I (5,657) 0 (5,657)
5 20 1,858 19,551 (17,693)} 456,559 4,731,292 (4,274,733)} 2,853 29,571 (26,717)I (5,707) 0 (5,707)
5 21 2,443 19,551 (17,108) 593,512 4,731,292 (4,137,780)} 3,709 29,571 (25,861)I (7,419) 0 (7,419)
5 22I 3,781__ 19,551 _(15,770)I 883,979 __ 4,731,292 __(3,847,313)} 5,525 29,571 _(24,046)I (11,050) _O (11,050)
5 Total 9,867 78,203 _(68,336)I 2,386,608 18,925,170 (16,538,562)I 14,916 118,282 (103,366)I (29,833) 0 (29,833)
YTD 16,153 234,610 (218,457)I 3,969,729 56,775,509 (52,805,780)I 24,811 354,847 (330,036)I (49,622) 0 (49,622)
(0) (o)
Financial Performance
The Post Office Travel App was launched on 21st June. To date
(3/9) there are 45k unique registered users with 65k linked
cards and 900 Travel Insurance policies sold.
There were 10k TMC top-ups in P5 with a value of £2.3m,
earning POL commission of £15k.
\ ceesvstens A weekly Hub trading committee has been set up and
mr initiatives have been identified to increase traffic, downloads
and sales, The main focus is to increase the app download
ratio which is currently 27% vs the old TMC app.
© Customers are still referred in branch so there is agents
pay due on the Top ups. Revenue is earned at 0.625%
of top up value; agents pay is paid at 1.25%.
envvertemanacacssonssinscinne a
415 1617 18 19 20 21 22 23 24 25 26 27 28 29
flue
ommmnom ACTUAL VALLE — meme Budget
fo \
ar
Post Office” Post Office Limited ~ Commercial in Confidence
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Travel Money Sales
TMO sales short of target; TMC positive YoY trend but remains below budget
PS P5 YTD
Actual Target % FY17/18 TYVLY% Actual Target % FY17/18 TYVLY%
TMC £53m £58m 92% £49m 109% £198m £238m 83% £188m 105%
On Demand £192m £203m 94% £216m 89% £846m £863m 98% £947m 89%
TMO. £69m £96m 72% £71m 98% £258m £369m 70% £282m 91%
Total £314m £357m 88% £335m 94% £1,301m £1,474m 88% £1,416m 92%
Network Turnover
I Sales Performance
The assumed growth of TMC and revived growth of TMO sales continue
to fall short of expectations and as a result P5 turnover is currently
short of budget by £10m (13%)
308m
280m
Although TMC shows a slight positive YoY trend in value terms, the
18/19 budget included a planned 22% increase in new card sales. We
are currently tracking 9% behind YTD value target and 62k below in
new cards volumes.
PB oOPS OPT PR OPO PIG Ht PIR
uy
TMO sales were £36m, or (28)% short of target so far in in P5 with
turnover currently trending c.31% behind target. The full year target
assumed a 25% increase in turnover from £497m to £618m, however
volumes are tracking 6% down YoY.
TMO Turnover
Note: Network sales figures include Click & Collect, however C&C
targets are included in Online.
a a ee es
sos TY TW Tot
LY
Nard
Post Office” Post Office Limited ~ Commercial in Confidence
POL-0102928
Telephony Analysis
Customer gap is expanding; potential YTG risk of c. £285k
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PL P2 P3 Pa PS yp
[end of period customer 502,996 501,222 «499,367 «498,429 ~—~—«497,707
5 Iavg. customer 504,785 502,109 500,295 498,898 © 498,068] 847,715
= IARPU 25.7 23.7 25.0 24.5 25.2 24.8
Revenue 14,939,259 10,976,713 11,518,232 14,079,313 11,535,746] 63,049,264
P1 impact (adjusted in
P2, Pa) (754,000) 600,000 0 177,889 0 23,889
lUnderlying Revenue 14,185,259 11,576,713 11,518,232 14,257,202 11,535,746] 63,073,152
[Underlying ARPU 24.4 25.0 25.0 2408 25.2 20.8
__ [end of period customer 501,588 502,652 504,617 507,026 508,802
& IAvg. customer 498,205 502,120 503,635 505,821 507,914] 851,908
2 IaRpu 25.6 26.5 265 26.6 26.4 26
Revenue 14,696,979 12,246,631 12,275,725 15,456,042 12,357,584] 67,032,961
impact in budget (432,499) (360,174) (375,550) (488,827) {406,504}} {2,063,543}
Restated Revenue 14,264,480 11,886,457 11,900,176 14,967,225 11,951,080] 64,969,417
Restated ARPU 24.9 25.7 25.7 25.7 25.6 25.4
lUnderlying customerGap 1,408.0 (1,430.2) (5,250.0) (8,596.9) (1,094.7) (4,192.8)
Underlying ARPU Gap 08 (2.0) (07) 41.2) (0.)I (0.6)
lUnderlyingRevenue gap (79,221) (309,744) (381,943) (710,022) (415,33a)] (1,896,265)
lo/w volume 40,314 (33,857) (124,050) (254,381) (261,056}] (633,029)
lo/wrate (219,535) (275,887) (257,893) (455,642) _—_(354,278)} (1,263,236)
P5 gap predominantly from volume -
c. 11k customer gap (£260k)
YTD gap predominantly from rate -
c. £1.3m
YTG risk of c. £285k based on
underlying customer gap at P5 and
restated budget ARPU (11,094 x £25.6)
Planned pricing increase to mitigate
ARPU could accelerate the widening
customer number gap
Post Office™
Post Office Limited
Commercial in Confidence
(7)
a
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Telephony Base Summary
Improved acquisitions and retention rates has slowed base decline
514.1K 510.4K 508.8K ~~
464.7K 463.1K 461.5K 500.1K 498.7K 498.1K
Average Base Size Since April 17
+ In July last year the Post Office acquired the Fuel Telecoms base of 57k customers*
+ Since migration to the Post Office we have lost 18k Fuel Telecoms customers leaving 39k remaining on the
base
+ In late Q3 & Q4 17.18 the introduction of growth fund allowed us to stabilise the base by increasing adds
# = Galaxy and Price rise has had further negative impacts on base volumes of around 4k to 5k
. In the last three months the base has stabilised and is now only marginally declining... but still declining
+ Further investment may be requested to grow the base.
*51k customers were paid for.
Post Office” Post Office Limited ~ Commercial in Confidence
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Telephony Acquisitions
Orders up 27% YOY but adds up only 18% due to competitor retention activity
Order Volumes: 25K 32.0K FC 57.0K Adds Volumes 20.9K 23.0K FC 43.9K
Budget 35.1K 35.6K 70.6K Budget 27.5K 27.6K 55.1K
17.18 Performance 20.6K 21.0K 41.6K 17.18 Performance 17.9K 18.3K 36.2K
Variance to Budget -10.0K -3.6K -13.6K Variance to Budget 6.6K 46K -11,.2K
YOY Variance 4.4K 11.0K 15.4K YOY Variance 3.0K 4.7K 7.7K
vs Budget -29% -10% 19% vs Budget -24% 17% -20%
vs YOY 18% 34% 27% vs YOY 14% 20% 18%
Order volumes are up 27% YOY (34% in Q2) but adds are only up by 18% YOY.
The variance in uplift from our gross orders and net adds positon is due to increased competitor retention activity
from the likes of Sky, Talk Talk and Plus Net (BT). This has meant we have lost between 4k to 5k of adds in H1.
At a channel level:
+ Contact Centre: conversion is running 65% higher YOY but calls are down 17% YOY.
+ Online: conversion nearly double YOY and traffic up 30% YOY
Branch: adds are down 30% YOY but we have seen improvements since we introduced ‘managers specials’
Overall a strong YOY performance but work to do to get back to budgeted levels
Post Office” Post Office Limited ~ Commercial in Confidence
POL-0102928
Telephony Churn
H1 churn 15% down on budget but flat YOY, for which price rise was the key contributor
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Churn Volumes: 27.3K 23.8K 51.1K “
Budget 19.3K 25.0K 44.3K
17.18 Performance 21.8K 28.3K 50.1K
Variance to Budget 8.1K 12K 6.7K
YOY Variance 5.5K 4.5K “1.0K
vs Budget 42% 5% 15%
vs YOY 20% 19% 2%
Galaxy and price rise have been key contributors to the churn miss YOY (circa 5k) of the remaining 1.7k deficit we
are closing through improved contact centre conversion (up 12% YOY)
40% of our customers are moving to the major triple play providers (Sky, BT & Virgin), however only 1% move to
Virgin which perhaps suggests that TV is the driver rather than Fibre or price.
The remaining 60% are moving to value players who are not major players in the TV space although may have an
offering. In terms of product We believe that it will be a like for like product in the main but with fibre pricing
coming down we would expect to see more customers move to fibre.
Our key point of leverage in this space is price which we hope to take advantage of through the new toolkit design.
Post Office™
Post Office Limited ~ Commercial in Confidence
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Telephony Q3 Core Trading Plan
UTES Eo Tt nd uo
September October December
Outbound Telemarketing Launch Phase 1 HGS - WK27
Cross Sell
Direct Mail to Existing Post Office Customers WK23
Cross Sell
New Retention Toolkit WK27
Newly designed toolkit to reduce in life churn
Growth Fund TBC
Aiming to Pitch for funds in September.
Price Rise WK32
Base price rise
Post Office” Post Office Limited ~ Commercial in Confidence
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PO Insurance: P5 Trading Profit (0.5m) adverse to budget; YTD
(£0.1m)
Poor travel insurance performance; reduced brand and marketing spend but trading profit loss in period
‘Actual Budget Variance YoY ‘Actual Budget Variance YoY
Travel Insurance 19 27 oC) -11% 109 1232.3} 19%
Car insurance 08 08 3% 46044 02 10%
Van insurance 02 02 00 1 rr 00 7%
Home Insurance 08 = 08 0) 8% 4000 41) 8%
Life - Over 50s oa 05 1) 22% 32 32 00) 43%
Lite - St! 02 02 (0.0) 99% 10 10 (00) 20%
Otter insurance 09 0000 _—-t1% 03 02 1%
Tolal Revenue Se wee 2a Gm
Cost otSales 08) 7) 00) 12% 44) 05; 19%
Netincome EC 198 (25) 10%
StaffCost @5) 6) 01 88% an 0a 48%
Brand & Marketing 03 8) 03 G 20% 2 12 (0%)
Consultancy 8 Advisory Services ©) @t) 0.0 "130% oA) (00) 43%
IT infiastructure & IT Services 2) 2) 1) 7%) en 02 © 13%
Managed Services 08) @8) 00% 40) 03 8%
otter 2 2) 001% 5) 03 21%
Trading Profit 14 19 (05) 22% 92 (ay %
180,000
Sales Volumes ~ Actuals vs Plan
80,000
008
cy Pa
wm PY wPlan w Actual
@ Ps underperformance predominantly from
Travel Insurance due to a combination of
volume (60%), mix and margin (40%).
Volumes from sales, digital and branch
combined are 23k adverse to plan;
aggregators are 6k favourable but attract
higher cost of sale, hence lower income
per policy (IPP). Travel margins are lower
as a result of the increase discount
supporting the summer campaign.
Total volumes for all products of 109k
were 16k (17%) higher than prior year.
Non staff costs favourable due to reduced
brand and marketing spend. Risk of
ineffective marketing spend hindering
future growth.
Post Office” Post Office Limited ~ Commercial in Confidence
io
Wo
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Identity Scorecard
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Actual Budget Variance RAG Actual Budget Variance RAG Budget
Gross Income £m 47 35 12 ry 25.4 22.3, 28 ry 473
Trading Profit€m 27 24 or @ 15.2 427 25 @ 270
Paper Passport Volumes: 108,280 73,249 35,037 fy 892,218 709,273 182,945 ry 4,325,118
Paper Passport Market Share. 31% 28% 3% @ 26%
UKVI Volumes 42,963 36,730 6,233 e 237,962 203,695 34,267 eo 402,998
Secure Collect Volumes (24,469 23,336 1,433 e 110,675 100,775 9,900 s 301,080
‘Tax Renewal volumes 577,106 566.146 10,960 oe 3,279,536 3,136,843 142,693 ry 6,957,814
10yr Renewal Volumes (29,464 30,359 (895) ‘Zz 137491 159.592 (22,101) 6 289.504
‘Service Penaities £ 65,363 44,000 24,363 ca 215,661 205,000 10,661 oS 500,000
LoA2 Volumes 57,601 30,220 27,382 Ey 271,168 190,988 80,181 eo 390,408
LoA2 Market Share. 55% 50% 5% @ 53% 50% 3% eS 50%
LOA 2 Conversion rate 54% 55% (%) eS 54% 55% (4%) e 55%
LoA1 Volumes 9.598 12,395 (2,797)" e 35,422 61,461 (26,039) 6 480.211
LoA1 Market Share. 28% 40% (12%) e 34% 40% 9 e 40%
LoA1 Conversion rate 78% 74% 4% @ 73% 74% rs 74%
Re-Registration Volumes 3,000 1346 1,654 e 19,659 7,246 eS 30,790
Services Live 19 20 a) oO 19 20 > 20
Post Office”
Post Office Limited
Commercial in Confidence
©
POL-0102928
Identity: P5 Trading Profit £0.7m favourable to budget; YTD +£2.5m
Verify continues strong growth; passport volumes above budget
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®
© Passport volumes are running 10% higher than
budget, overall income is just £0.05m ahead, as
they are derived wholly from the paper channel
which carries a lower fee than digital. YoY,
volumes have dropped by 30% and market
share has dropped 12% (to 31%) as HMPO
Digital Channel volumes continue to grow. PO
Digital Check & Send is set to launch in Q3 to
address this area.
Verify YoY volumes have more than doubled,
primarily driven by Universal Credit applicants
who can now use Verify, and which commands a
the higher Level of Assurance (LoA2) fee. Post
Office continues to be the market leader with
53% market share and a conversion rate of 54%
for LoA2s. Marketing and User Experience
activities are being implemented to enhance
performance further.
Recent discussions with GDS have highlighted
Treasury's endorsement for the Verify service,
which should help drive volume, but alongside
expected downward pressure on price, as the
service matures. We are working on pushing
back in any price reduction for the current
financial year. Any further developments are
expected in P6.
DVLA penalties reclassified to non-staff costs
hence adverse in period (£nil trading profit
impact).
tm
‘Actual Budget Variance YoY ‘Actual Budget Variance
Home Office 17 18 91 G5 120 413 08
DFTIDLA 08 05 024 30 29 04
Identity o4 04 ot 23 20 02
verity 15 09 96@) 7A 55 16
Enivronment Agency 03 04 02 nla oF 05 O41
Total Revenue ar 35 12 ate wee 28
Cost Of Sales (0.5) (0.4) (0.4) 19% (2.6) (2.2) (0.5)
Net income 42 32 1.040% 225 204 24
Agents Pay @7) 06) 0.0) ala 3) 42) @.1)
Stat C 2) 2) 0.0) 0% (08) 8) 00
Man Services - Penaities (0.3) (0.1) (0.2) 0% (0.3) (0.3) 04
03) 2) 0)” 12% (14) (44) 00
Other Non Staff Cost (0.1) (0.0) (0.0) 89% (04) (0.6) 04
Trading Profit 27 24 07 34% 152127 25
Post Office” Post Office Limited ~ Commercial in Confidence
@
POL-0102928
Verify: Income & Volumes
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Verify Income
1,500,000
§
4,000,000 AN
Arn,
500,000 . —e + —_
°
Period 1 Period 3. Period S = Period 7 Period 9—~Period 11
emma Verify Net Income «==» Budget 1819
Verify is performing strongly against budget (£0.4m). This is a result of LoA2 (£0.4m)
volumes continuing to be above budget by 33%. YoY volumes have more than doubled
(165%) and are driven by Universal Credit applicants who can now use Verify. Also DBS
Users are contributing towards this uplift. Through social media, we will be running a
Universal Credit campaign to remind people that using Verify reduces the amount of time
needed in branch and will be followed up with more awareness campaigns and a refreshed
POL website In order to help capitalise on the new volumes.
Post Office continues to be the market leader with 53% Market share and a conversion rate
of 54% for LoA2s. The strong YTD performance (£1.2m) will be offset after P6 when the new
Cail off with GDS will be signed. GDS have stated that they will pursue a significant price
reduction in order to achieve savings in accordance to Treasury guidelines. The actual effect
on the Verify numbers is being looked into and more clarity will be avallable after initial
feedback from GOS.
LoA1 volumes are not performing as expected (-£0.01m), as there are not so many outages
at DVLA. We are hoping for more information from GDS on further outages. Get your state
pension has-gonelive-as'a'new’service; but GDS estimate only-4% of service users wilt use
the Verify route (LOA service). The impact from this set back is not significant compared to
LoA2 as net price is 1/3 of LoA2s and volumes just 25% of LoA2.
80,000 LoA 2 Volume
60,000
40,000
20,000 \
0
Period Period 3. Period ~—Period 7 Period9_~—Period 11
Aime LOA 2. mee LOA 21718. onde Budget 1819
25,000 LoA 1 Volume
20,000
LN
15,000 fon,
Prag fo “pen
10,000 poo
5,000
> fan
Period1 Period3 Period S Period? Period 9_——Period 11
SateiN LOA 1 omg LOA 11718 omd>uwBudget 1819
Post Office”
Post Office Limited ~ Commercial in Confidence
Cs)
Y
POL-0102928
Home Office: Income & Volumes
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Home Office
Period 5 income for all Home Office and related services was £0.1m ahead of
Budget. This positive variance was driven by the UKVI BRP service (£0.05m).
BRP services is seeing the early signs of BREXIT with applications through the
Home Office slightly ahead of the same period last year and the Home Office
seeking to clear backlogs in advance of student surge. YTD UKVI is ahead of
budget by £0.54m but the contract with Home Office will expire in P9 creating a
risk of £0.9m (EBITDAS £0.8m) which might be partially offset by higher than
budget volumes continuing in Q2 and Q3.
Passports are marginally higher than budget for P5 (£0.05m). Volumes are
higher than budget (8%), but due to them coming from our Paper Channel
rather than both Digital and Paper our overall income is flat (due to £4 price
difference). YoY volumes have dropped by 30%. The price differentiation that
Home Office implemented earlier this year to. its Digital Channel has lifted its
market share YoY by 22%* (YoY , YTD figure) whilst Post Office Paper channel
has dropped to 31%* ( YoY/YTD drop 12%). PO Digital Check and send is set to
launch in Q3.
400,000.00
300,000.00
200,000.00
100,000.00
80,000
60,000
40,000
20,000
od 4 Periag 2Period 3Period 4Period SPeriod 6Period 7Period BPeriod 9 Period Pe
sme Si A besecre Chee OER TORU S-Secyge Collect
Passports Volume
Period Period Period Period Period Period Period Period Period Period Period Period
1 0200306 4 8 Gta
@OERPassports mgm» Passport Budget Passports 1718
UKVI Volumes
prongs
fod I Period
Post Office™
Post Office Limited ~ Commercial in Confidence
(30
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Finance & Operations: P5 Trading Profit (0.4m) adverse to budget; YTD “
(£1.3m)
YTD trading profit adverse by £0.7m excluding one-off costs for £0.3m EY audit fees overruns and £0.3m custome!
compensation
em @ Rent & rates favourable - some one off
Actual Budget Variance YoY ‘Actual Budget Variance YoY credits, various rent reviews not seen an
08 08 (0.0) 0% 40 43 (03) 6% , : :
os 00 00 00 la on 00 ot ia increase and have exited properties (not
Net Income 08 08 40.0) 1% 44 43 40.2) 3% onerous lease)
Staff Cost (4.2) (4.2) (0.0) A MYiy (21.3) (214) On 2%
Staff & Agent Related Costs (02) 2) (0.0) 168% ce) aay (0.4) ™% © Printer cartridges £0.4m this month;
Property Facilities Management (25) 8.0) 05 G@) 3% (15.5) (158) 03 13% £0.8m YTD also from 24% price increase
Postage (06) 06) 00 ~ 25% Go) & (0.0) (12%)
4 3) @ @) 11% ey ¢ (0.6) (15%) for Paper and delayed benefits from
(08) 7) (1) ~ -112% 3) (38) 0.4) G)e2%) receipt reduction initiative
Venicies 02) @3) O41 81% (13) 48) 0.2 10%
other (12) (05) (0.8) 93% (a) (24) (0.7) (27%) © Former agents losses that continue to be
Trading profit (94) (9.0) (0-4) 20% {472) (459) (4.3) 2% identified - full year risk as there is as yet
no detailed assessment of what is as yet
unidentified - provision release could
cover this
Post Office™ Post Office Limited — Commercial in Confidence
POL-0102928
Operating expenses: IT
£1.2m YTD favourable variance will be used to offset cost challenges in future periods
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Period 5 YTD
Actual Budget Variance YoY ‘Actual Budget Variance YoY
Staff Costs 07 05 = (0.2) (46%) 24 25 0.1 (32%)
Staff & Agent Related Costs 00 0.0 (0.0) (71%) 02 03 0.1 (85%)
IT infrastructure & IT Services 69 76 07 18% 359 385 26 15%
Managed Services 02 03 0.1 136% 19-16 © @.3) (2%)
Consultancy & Advisory Services (0.0) Of 0.1 1085% 06 0.5 (0.1) (86%)
Other 00 4) (4) 80% 0.0 (1) (1.2) 160%
Total Operating Expenses 79 8203 —~18% Ho 42 12 —«o%
P5 Variances:
Fujitsu savings £0.16m due to ceased services (branch network services)
Security savings due to SOC delay £0.15m
Staff cost savings due to catch up on recoveries of project recharges and vacancies not filled
ATOS higher volumetrics (£0.05m).
ATOS prior year accrual released on disputed invoices not required £0.1m offset by cost challenge
not met
YTD Variances:
FJ savings from ceased BNS - £0.36m
CTO Arch Staff costs recovery from projects £0.1m
CVM £0.3m savings in recruitment and vacancies.
Licences underspend of £0.4m
Gemalto negotiated lower variable service management costs £0.17m
Safehaven £0.38m savings;
Security SOC delay £0.43m
Post Office™
(22)
ar
Post Office Limited ~ Commercial in Confidence
POL-0102928
Operating Expenses: HR, Communications, LRG, Central
HR staff costs adverse variance relates to net impact of FY17/18 bonus.
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YTD
‘Actual Budget Variance YoY ‘Actual Budget Variance YoY
Staff Costs 22 14 (0.8) € 81 7.2 (0.9) (6%)
Staff & Agent Related Costs of 02 O41 09 11 © 0.2 (20%)
Finance & Losses. 0.2 03 0.0 1.3 1.3 0.0 (34%)
Other 0.4 O41 0.0 (35%) 04 03 0.0) 5%
Total Operating Expenses 26 Ts 7) GH 07 100 (7) (tim
Period 5 YTD
‘Actual Budget Variance YoY Actual Budget Variance YoY
Staff Costs 0.6 06 0.0 (20%) 29 29 0.0 = (21%)
Staff & Agent Related Costs 0.0 0.0 00 344% 01 03 02 79%
Consultancy & Advisory Services 0.0 0.0 0.0 959% 02 04 0.1 55%
Legal Costs 0.3 O41 (0.1) (63%) Os 07 0.2 37%
Other 0.14 0.0 (0.0) 30% 03 02 (0.0) (61%)
Total Operating Expenses x) 08 4) 0%) 40 45 05 (10%
Period 5 YTD
‘Actual Budget Variance YoY ‘Actual Budget Variance YoY
Staff Costs 0.2 02 0.0 (63%) 07 08 0.0 (7%)
Staff & Agent Related Costs 0.0 00 0.0 © 217% 01 0.0 © 0.0) 72%
Brand & Marketing 0.0 03 02 © (34%) 15 16 © 0.2 (23%)
Other (0.0) 2) 1) _(172%) 01 (0.3) 4) (57%)
Total Operating Expenses 02 03 Oo G7, 23 24 02 (7%
Period § YTD
Actual Budget Variance YoY Actual Budget Variance YoY
Staff C (0.1) 03 05 (64%) 1.6 16 {0.0} (25%)
Finance & Lo: Ss (0.3) (0.3) 0.0 (172%) (0.8) (1.3) (0.4) (37%)
Growth Fund 08 08 (G.0} (100%) 4.0 4.0 {0.0} (100%)
Brand & Marketing 0.0 0.0 0.0 0% 03 03 (0.0) (2%)
Other (0.4) 0.0 0.1 (2782%) 04 0.1 (0.4) 656%
Total Operating Expenses 03 08 05 643% Ex 46 (08) (nm
~)
)
Post Office™
Post Office L
Commercial in Confidence
(
POL-0102928
Change Spend
YTD spend £2.2m ahead albeit £15m DMB spend has been missed by 1 month
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Po benefits
Total
aut petal V8 Commitment 5 YTD Vs Budget FY
Forecast Forecast (Incl. open Actual Budget 1819
PO's)
Retail 23 {4.4) 212 (48.8) 33.0 Ad 40.7) 12.3
‘Mails Programmes oo (0.1) oa (0.1) 05 :
Cash & Banking Services (0.3) on
Bill Payments Projects (0.0) (0.6) 17 {06} 28 - : :
Automation C4 (0.1) 13 {0.2} 14 ~ - On
pms 0.9 uy} 52 14a 1 35 (0.7) 97
Network Development la {0.3) 6.0 78 oO? oo 20
Network Transformation 01 (40) 4a on
‘Other Retail 0.2 {0.7} 27 3.5 . a Os
Financial Services & Telecoms 16 O4 Ala 14.9 62 83 12.5
Eagle e204) OL 7
Telecoms. o3 {0.3) 48 5.4 6.2 os 116
Other Lz o4 6.2 8.9 O68 {0.3} 09
Po! 63 (0.7) 42 (0.2) 20 - 05) 4.6
identity oa (0.9) og (0aXs} 1a = : 2
1 & Digital 95 (05) _383 48 36. (03) 73
EUC Branch Deployment 34 oy oa. (6 148 os
IT Back Office 200 Ot a9 OF 134 15.2 : : os
FT Networks (oa) (08) 05) (033) 09 oa - : :
Other IT 19 (0.3) 39 Oe 83 218 43
Project Everest 0.3 02 2.2 On 28 142 {0.3} 40
R&R 4a ot 56 22 76 oa
Replacement of Counter ReceiptSlip = ——(1.0) 32 (13K8) 39 57 - os
Solar 4s 0s 38 (0.1) 44 ua O48
Finance & Ops Os {0.5) 22 {@.7) 78 274 : : =
Finance 1 (0.0) 1O OA 14 8S : . p
Operations o7 0.0 a1 (0.4) 45 66
Property 02 {0.2) 04 {0.5} 47 5.6
Supply Chain 03) 0.3) 3) 03) 03 a4 : - :
Human Resources oo (42) _2a (0.6) 3a 58 4s : 35
Legal Risk & Governance 45. {3.0) 73 G2 8.0 14.3 : : -
Central 0302 0304 03 19 : :
‘Grand Total ies Gos) Teas Gay ea ayaa iia) Gay ao
Anticipated savings or slippages to FY19/20 77 15.4 (22.4)
‘Total Change FY 2018/19 ies 3a) as ae 1262 255.0 ais (2) GJaaz
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Exceptional 40 (ii) 286 (89) 95.0
© Vatiance is mainly driven from DMBs provision
recalculation one-off cost expected to be signed off in
July but postponed for later in Q2
@ YTD underspend against forecast is mainly driven by
the redundancy provision and bonus payment release
and partially driven by phasing/cost saving
opportunities
© Underspend is mainly driven from EUM project which
is behind plan in the month and now behind YTD.
target and partially driven from general phasing
underspend with saving option to be investigated
G) YTD overspend is mainly driven from project Travel Hub
tracking ahead against forecast (due to PO's reviewed
& GR’ed) which is now in line with the latest view and
P12 balance sheet review adjustments for Project
Peregrine
Underspend is due to the wider Identity Business
case submission being rescheduled for September
rather than August according to the original
planning
io}
Overspend relates to accrual for final
Computacenter milestone payments and payment
of settlement in the month
Overspend against forecast relates to catching
up in previous months on cloud platform project
costs
Project is underspending YTD with no cost in month
as final costs and roll out is being agreed with
Computacenter, catch-up is expected in next month
YTD variance in delivered benefits is mainly
driven from DMB delays in onerous provision
along with phasing of Network Delivery savings
and PO! delay in projects delivering, All
programmes committed to full benefit arnt
24
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®
Balance Sheet & Cash Position
Net funding position up by £70m from year end
Balance Sheet Headroom
Balance Sheet £m Periods I PA2FYI7 I vPI2 I Period SFYI7 I vPY
£m vPy [Government toan - Available Amount 950 950 - 950 -
Fixed Assets 100 [Government Loan - Orawn Amount (681)I (623) (58)I (669)I {12))
[Debtors 17 Headroom, 269 327 (58)I 281 (22)
ICash (145)I Target Minimum Headroom 200 200 - 200 a
[Creditors (529)I (589)I 60 (618)I 89 [Headroom Above/ (Below) Target 69 127 (s8)I 81 (22)
Pension Surplus 3 3 0 1 2
Provisions (48)} (66)} 17 (74)I 26 Security Headroom
joer 10 2 1 2 1 ém Periods I PA2zFY17 I vP12. I PeriodSFYI7 I PY
Loan (681) (623)] a) (669) (12) Network Cash 621 644 23)I 760 I _(138)
Net Assets / (Liabilities) 270 204 66 193 7 cash at Bank - POL* 2 ry Py 30 2a)
Client Debtors 165 132 32, 170 (5)
Net Funding Position Trade & Other Debtors - Business DebtorsI 174 188 (14) 152 23
em I Periods I Pazert7 I vPi2 I PeriodSFYI7 I VPY [Total Security 962 964 (2) 1,112 (149)I
IGovernment Loan (681) (623) (58)I (669)I (12) IGovernment Loan (681) (623)I (58)I (669)I (12))
IDemonetisation - NCS (252)) (238)I (14)] (265)I 13 Santander (99) (100)I 2 (116) 17
Icash at Bank - POL 2 0 2 30 (28) Total Obligations (780)I (723) 67) (785) 5
Net Funding Position (934) (861)I {70)) (904)I (27)I [Headroom 182 2a (59)I 327 (14a)I
Net funding position has increased by £70m from year
end due to delay in investment funding and FX growth
for the summer campaign. Network cash after
demonetisation has reduced £138m from P5 in prior
year; £23m reduction from year end.
Balance sheet headroom of 69m, £58m decrease from
P12 and £12m down on prior year P5.
@)
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BOARD
PAGE 1 OF
FS&T Board Report - Sept 2018
Author: Owen Woodley Meeting Date: 25" September 2018
Executive Summary
Context
This report provides an update to GE on the current performance of the products across
FS&T together with a full year outlook and an update on strategic initiatives.
Questions this paper addresses
1. How is the FS&T strategy evolving?
2. What is the progress in Customer Hub?
3. How is our balance sheet product set performing?
4. How is our transactional product set performing?
5. How is our Telecoms business performing?
6. How is our Insurance business performing?
Conclusion
Gross income is £6.6m adverse to budget at P5 YTD - this includes the £2.1m
overstatement in the budget due to the Telecoms FIN11 report error. Direct profit is £2.2m
adverse to budget YTD P5, and full year out-turn is currently forecast to be £1.8m behind
budget. Without the Fin11 report error, the profit out-turn estimate would be £3.9m ahead
but further action will be required to address the Telco-related gap.
FS&T 111.4 113.7. (2.2) 268.3 271.0 (2.7)
PO Insurance 24.1 26.1 (2.0) 58.0 57.9 0.1
Telco Fint1 0.0 2.1 (2.1) 0.0 5.7 (5.7)
Other Income 0.0 0.3 (0.3) O.1 0.1 0.0
Total 135.5 142.1 (6.6) 326.4 334.7 (8.3)
Actual Budget Var Out-turn Budget Var
FS&T 56.9 56.3 0.6 131.8 129.0 2.9
PO Insurance (Group Contbn) 7.9 8.1 (0.2) 18.3 18.1 0.2
Telco Fin11 0.0 2.1 (2.1) 0.0 5.7 (5.7)
Other 0.4 0.9 (0.8) (0.9) (4.7) 0.8
Central Marketing (5.3) (56) 03 (12.2) (12.2) 0.0
Total 59.6 61.8 (2.2) 137.0 138.8 (1.8)
Input Sought
The Board is requested to review and note the report.
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The Report
How is the FS&T strategy evolving?
Our competitive landscape is evolving rapidly with digital innovators like Revolut and
Monzo becoming increasingly prominent and aggressive in the financial services market.
We therefore need to ensure that our business is orientated relentlessly around changing
customer needs and service expectations and our approach to our markets needs to
continually leverage the unique attributes of the Post Office brand. That demands a
strategic vision for FS&T which is much more integrated and joined up at a customer level
than the previously more federal strategic positioning of the FS&T product lines.
We are therefore now in the middle of a programme of work to define a new strategy for
the FS&T business. This will include a specific (external) piece of work on the strategic
options for our Telco business. The outputs will be brought to GE and, as appropriate, to
the Board for discussion and challenge. That will include the identification of a clear set of
critical capabilities to underpin the delivery of the strategy and our proposed approach to
building those capabilities over the next three years. The early emerging view of the key
themes is as follows:
« Fewer activities at greater scale to have genuine market impact
+ A drive to take more control of the value chain in each of our business areas to
enable more control over the customer proposition and experience
A culture that has continual innovation and digitisation at its heart
A business that uses brand heritage and trust to be a real market disruptor
Being significantly more relevant to younger audiences
Focusing continuously on efficiency, ease and pace
A critical part of our success will be the development of our people and the attraction of
new talent in every part of our business. As a start to that journey, we have now appointed
a new Group Marketing Director who brings deep experience and credibility to the Post
Office and we will shortly be implementing organisational changes to significantly increase
the depth and focus of our digital activities for customers. We also have activity in train to
increase the talent bench strength in some other parts of the FS&T business portfolio as
well.
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How is our Balance Sheet product set performing?
1. The Market
Competitive pressures in the retail banking market remain. The continuing low interest
rate environment (notwithstanding recent base rate increases) and the BoE funding
schemes have put major pressure on mortgage margins and kept savings rates depressed.
2. Product P&L P5 YTD
Mortgages
Cards & Lending
Savings
Balance Sheet Products
Profit Contribution
Actual Budget Var Out-turn Budget Var
Mortgages 0.8 0.7 1.8 1.6 0.2
Cards & Lending 0.8 0.7 1.8 1.6 0.1
Savings 13.6 13.6 36.6 35.9 0.7
Balance Sheet Products 15.2 15.0 40.1 39.1
There are four key customer projects underway in Post Office Money:
« Customer Advocacy Programme which aims to enhance end to end customer
journey experiences - NPS continues positive upwards trend
e External Benchmarking Survey to highlight areas for improvement vs peer group —
results due later this year
« Customer Research Panel to support new product markets & innovation
« Post Office Money ‘North Star’ Metric to identify a customer centric indicator of
performance that fits across both ‘Customer’ and ‘Commercial’ metrics.
5. Year End Outlook
We expect to exceed full year income and profit targets.
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How our Transactional product is set performing?
1. The Market
The good weather this summer has had a significant impact on UK “staycations”, by c40%
based on the top two UK holiday providers (Hoseasons and Parkdean). The UK travel
money market has been running c9% down YoY based on competitor feedback and so
whilst our numbers are lower than expected, they appear to be in line with the market.
The predicted natural decline in Postal Orders in 18/19 has not been as sharp as initially
thought, running at c.18% YoY vs 21% in 17/18.
2. Product P&L P5 YTD
Actual Budget Var Out-turn Budget Var
Travel Money 13.6 14.8 (1.2) 29.3 30.9 (1.6)
MoneyGram 11.0 10.6 0.5 26.8 25.5 1.3
Postal Orders 5.5 5.1 0.3 12.9 12.3 0.6
Transactional Products 30.1 30.5 (0.4) 69.0 68.7 0.3
Profit Contribution
Actual Budget Var Out-turn Budget Var
Travel Money 1.0 2.2 (4.1) 2.9 3.8 (0.9)
FRES Profit Share 18.5 18.0 0.5 34.4 33.8 0.6
MoneyGram 6.1 5.4 0.7 14.6 13.0 1.6
Postal Orders 4.2 3.8 0.3 9.9 9.2 0.6
Transactional Products 29.8 29.4 0.4 61.7 59.8 1.9
3. Review of Performance
Travel Money gross income has fallen behind budget for the reasons set out above. The
MoneyGram contract has been re-negotiated resulting in £6m additional fixed income for
the remainder of the contract (£2.4m in 18/19 of which £1m has been recognised P5 YTD).
Postal Orders are a profitable product with a low level of costs. Volumes are declining but
as stated, less steeply than predicted.
4. Customers
MoneyGram customers are holding but Revenue Per Transaction (“RPT”) remains under
pressure. New pricing for India to drive transactions was introduced in July as were local
advertising campaigns in key markets like Romania to drive Post Office awareness as a
destination to send/receive. Postal Orders are paper based with associated increasing AML
risks and therefore interest from some areas is declining. The Mo) has indicated they will
stop accepting Postal Orders but are yet to confirm a date.
5. Year End Outlook
We expect the renegotiated deal with MoneyGram to provide an upside to the overall full
year Travel Money & MoneyGram results. However MoneyGram revenue is currently
missing budgeted RPT values by 14% causing a risk of £1.1m before the additional
commissions. TMC & TMO value of sales are currently £172m behind budget, posing a
year-end profit risk of £(0.9)m. Postal Orders are on track to outperform 18/19 budget
profit.
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How is our Telecoms business performing?
1. The Market
The industry continues to focus on Fibre with BT Openreach (the main network provider)
looking to incentivise further uptake on this product, enabling the long term strategy of
retiring the ADSL (Broadband) network. There are a number of small challengers in the
market (e.g. Cityfibre, Hyperoptic, GigaClear) who are working with partners to rollout a
competing high speed network (up to 1Gbps) based on a Fibre to the Premise (FTTP)
technology. Post Office is working to secure a long term competitive pricing position on
fibre to ensure continued relevance.
2. Product P&L P5 YTD
Gross Income (£m
Actual Budget Var Out-turn Budget Var
Telecoms 63.3 65.3 (2.1) 154.6 159.4 (4.8)
Telecoms / ) 30.0 30.0
3. Review of Performance
The above P&L shows the underlying Telecoms performance, with the Fin11 budget
overstatement having been moved to the Other Income line in our P&L. Gross revenue is
behind budget expectations due to both lower ARPU than expected, partly driven by less
calls being made over the summer period, and lower customer numbers. We are launching
more aggressive acquisition and retention offers in October to address the market and
mitigate leakage. Cost of Sales are favourable to budget due to the take up of Project
Galaxy and overall, direct profit is in line with budget excluding Fin11.
4. Customers
Customer Satisfaction (“CSAT”) is showing a positive trend and is now embedded in the
Customer First Programme. Month to date score is 77% overall CSAT which is our best-
ever level. Consistent improvements are being seen with tNPS and the latest Ofcom
numbers show a best-ever performance on published Landline complaints.
5. Year End Outlook
Customer numbers are behind where we expected them to be. ARPU is also lagging behind
the budget, even after adjusting the budget for the FIN11 overstatement. Plans are
underway to implement a price increase in H2 which will partly mitigate the downward
ARPU trend.
How is our Insurance business performing?
1. The Market
The Travel Insurance market is expected to shrink over the next 5 years, leading to the
continuation of intensified price competition from a crowded market (current market share
is 7.6%). There is market uncertainty in relation to Brexit, with the outcome potentially
impacting on how the EHIC operates, foreign exchange and passporting, all of which could
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have positive or negative impacts on the market. The Motor Insurance market is expected
to grow 1%pa to 2020, with POI current market share 0.4%. The short term outlook for
this market is favourable with a short/shallow drop in rates expected as some providers
move for growth. The Home Insurance market is expected to fall by 2%pa over the next
three years driven by changes in home ownership.
2. Product P&L P5 YTD
Gross Income (£m
Actual Budget Var Out-turn Budget Var
Travel Insurance 10.0 12.3 (2.3) 23.4 23.6 (0.2)
Life & Over 50s 4.1 4.2 (0.1) 12.5 11.3 1.2
Home, Van, Car & Other 10.0 9.6 0.4 22.1 23.0 (0.9)
PO Insurance 24.1 26.1 (2.0) 58.0 57.9 0.1
Profit Contribution
Actual Budget Var Out-turn Budget Var
Travel Insurance 5.7 7.1 (1.4) 14.0 14.5 (0.5)
Life & Over 50s 2.0 2.2 (0.2) 5.9 5.9 0.0
Home, Van, Car & Other 5.4 4.2 1.2 11.2 10.3 0.9
Agent's Pay (1.3) (1.2) (0.1) (2.2) (2.2) 0.0
Other Operating Costs (3.9) (4.2) 0.3 (10.6) (10.4) (0.2)
PO Insurance 7.9 8.1 (0.2) 18.3 18.1 0.2
3. Review of Performance
Travel Insurance is currently running 14% behind with trading impacted by Post Office
Travel App performance and market conditions. Despite this, total travel sales are up 27%
on 2017/18 and digital sales up 13% on prior year following investment in SEO. Protection
trading is 5% ahead following two successful branch offer weeks. A DRTV campaign will
run from week 26. We are also expanding distribution of protection products to price
comparison websites during Period 6. General Insurance outlook is favourable, driven by
particularly strong renewals performance for Car, Van & Home.
4. Customers
Net Promoter Score is currently running ahead of plan at 38 and Customer Effort Score is
currently at 80, slightly below plan but on an upward trajectory.
5. Year End Outlook
The PO Insurance 3+9F projected group profit stands at £20.5m (before Agent's Pay), up
£0.2m on budget. PO Insurance is progressing its 6+6F for finalisation and submission in
early October alongside the rest of the business.
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In H1 2018/19 we launched our most competitive Standard Broadband (ADSL)
price point at £17pm and improved Fibre retail prices to £31pm on our most
popular tariffs (supported through wholesale cost reductions negotiated with
TalkTalk).
Travel Insurance Revenue is earned through commission, with 84% from single
trip policies with one-off revenue. The remaining revenue comes from Annual
Multi-Trip (AMT) policies which builds annuity income. AMT retention is c.18%.
There is also an underwriting profit share, returned as revenue or rate reduction.
Life & Over 50s Revenue is earned through commission, reflecting the lifetime
value of the sale to POI and is subject to clawback for policies cancelling within
the indemnified period (up to 48 months). An annuity income stream is received
monthly for all policies that continue beyond the indemnity period and a monthly
income stream of 2.5% of premiums is paid to POI as commission on these
policies.
Home, Car & Van Revenue is generated through a combination of commission,
add-on margins (eg legal expenses, roadside assistance etc), service fees,
instalment income and First Notification of Loss income. Policies generate an
annuity income stream from both new sales and renewals, plus a profit share.
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POST OFFICE PAGE 1 OF 4
POST OFFICE BOARD
Author: Patrick Bourke Sponsor: Al Cameron Meeting date: 25 September 2018
Executive Summary
Context
We have been contacted by BEIS and UKGI ahead of an anticipated Government
Comprehensive Spending Review (CSR) in 2019 that may extend beyond 2021. In
principle, our funding cycle needs to be aligned to the CSR, in which Departmental
allocations are negotiated with HMT. Our own experience in securing funding to 2021
showed that misalignment with the CSR creates substantial difficulty and
unpredictably, to the satisfaction of no-one. We are therefore working with BEIS
Finance and UKGI to make this happen.
One of the more challenging consequences of this work is that the 2019 CSR is
currently anticipated to cover a 4 year period to 2023, taking us substantially beyond
our current funding settlement and, critically, our current forecasts. While BEIS
Finance/HMT's immediate requirement of us is to paint a picture for them of our
critical path to 2021, which we are clearly able to do on the basis of our current
planning, they are keen that we rapidly sketch out our likely funding requirements
beyond 2021. Our current funding agreements are as follows:
We have a BEIS working capital facility enabling us to borrow up to £950m subject
to us demonstrating via a formula that we use this money for funding the network’s
cash needs. This is committed until March 2021.
We have an annual Network Subsidy payment from BEIS. That is agreed at £60m
this year and £50m in each of 2019-20 and 2020-21. We are required to
demonstrate each year that the cost of providing the Services of General Economic
Interest (SGEIs) exceeds the value of the payment.
We have investment funding of up to £210m provided it is spent this year and next
year: no investment funding is available in 2020-21.
We have a facility with the Bank of England to borrow under the Note Circulation
Scheme arrangements, through which we can borrow more based on the value of
cash distributed from cash centres. This has no end date but its value is reducing as
we get more cash coming in rather than going out (POCA falling, deposits increasing
faster than withdrawals, more recycling of Polymer notes).
We did not make specific commitments for the period beyond 2021 at the time of our
last funding round. However, there was a clear shared perspective that having
completed major network transformation and IT programmes, and we were delivering
£100m plus of EBITDAS, we should be able to fund our BAU investments from free
cash flow and would not therefore need systemic, annual, investment funding. In
addition, there was discussion during the funding round that we might waive a
request for additional borrowing in exchange for an extension of the NSP for a further
three years at £50m pa. In the event, neither was forthcoming.
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Questions addressed in this report
1. Despite the obvious difficulty in looking beyond 2021 with any degree of
certainty, are we comfortable that we provide BEIS/HMT with some broad
indications in relation our investment funding and network subsidy requirements
beyond our current funding envelope?
2. Are we right not to be seeking further traditional investment funding?
3. Will a Network Subsidy Payment continue to be required beyond 2021 and, if so,
at what level?
4. What are the major risks and opportunities to our current three year plan?
5. Assuming that our forecast EBITDA will remove the need for any systemic,
annual, Government investment funding, what further flexibility in our ability to
raise investment finance should we be seeking?
6. Should we take steps now to redress the falling value of the Notes Circulation
Scheme facility we have in place with the Bank of England?
7. What information are we planning to share now and what are the next steps?
Conclusion
There are clear advantages to being aligned with the CSR, provided that we can agree
a flexible set of arrangements in respect of what the business may need. However,
there is considerable uncertainty: we are only five months into the current three-year
period; and we may be landed with a rationing that may prove unsustainable later.
We therefore recommend working closely with UKGI and BEIS Finance to secure
sensible arrangements with HMT, recognising that we may have to call out the
dangers and uncertainties in any settlement imposed on BEIS.
In principle, we are still expecting to exit this three-year period on c. £100m
EBITDAS. In the light of the request from Government, we have kicked off work
across the business to establish whether the free cash flow arising from £100m
EBITDAS is sufficient to fund the typical needs of a self-sustaining business. So, for
example, assuming that Belfast is exited and on the Cloud, how much would it cost to
upgrade, support and reinvent the IT estate, and what budget will we need for digital
and future innovation? Similarly, there will be a continuing need to refresh our
branches to sustain our brand profile, and maintain/improve customer experience: a
5-7 year refresh cycle is typical in the retail sector.
Our expectation, without having done the work, is that we will still be supporting loss-
making branches and that the cost of doing so will undermine our commercial
sustainability unless we have an ongoing Network Payment of some sort. We briefly
explored with BEIS moving the current arrangement to a straight payment for
services but they were not enthusiastic about the work that might involve for them. It
seems likely that we will therefore align around some continuation of the current
arrangements. In response to their hope that the value of that payment would be in
the range of £0-25m, we responded that this was unlikely and that we should assume
an ongoing £50m based on what we have seen in the retail strategy. Since we have to
prove that the costs exceed the payment, there is an in-built protection for them in
this in any event.
Customer innovation, changes to the markets we are operating in, partnership
changes, Brexit, and evolving technology all create enormous uncertainty for 2021-23
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if that does prove to be the period under consideration. More specifically, the risks in
our Three-Year Plan we would now call out would include the Group Litigation and its
potential impacts, Insurance growth, the future of Identity (especially with the very
aggressive Government fee cut), delivery of the DMB programme, and the future
shape of agents’ pay. The latter may prove to be an opportunity, alongside Banking
Framework 2 and the potential for the Payzone acquisition if completed.
Even if we can sensibly estimate and agree a level of EBITDA, including Network
Subsidy, that should sustain us, every commercial business would in addition expect
to have arrangements in place that would support us in the event of contingencies
and enable us to borrow to take advantage of commercial opportunities. This would in
no way give us “freedom” in the conventional sense: Government approves our plans,
approves material spend etc. But without some flexible borrowing arrangement, we
know that opportunities would be lost because of the time-lag involved in securing out
of cycle approval. The simplest approach might be to agree an amount held as a
recognised contingency subject to drawdown approval — of, say, £300m. However, we
would also consider viewing this as a loan, not funding, swapping it for the
commercial freedom to borrow from the market, or encouraging Government to
convert debt to equity and open up a potential future dividend stream in exchange for
the future funding of commercial opportunities. We have started to raise these
possibilities. However, only Government and especially HMT can determine what may
be possible or desirable from their point of view.
We are kicking off a piece of work to re-forecast the value of the Note Circulation
Scheme under different scenarios and have already signalled to the Bank of England
that we will be recommending changes. Fundamentally, we would like to shift the
driver of the value we can borrow away from the volume and denomination of notes
sent out from cash centres to the number of locations where we provide cash as this
is a greater driver of financial inclusion. The Bank is open to starting a conversation
but we are not the only members and no start date or commitment has been set.
The other question we were asked by BEIS Finance was the money that could be
saved by shutting uncommercial branches. We agreed that we could provide analysis
- it is essentially the work that underpins the Network Subsidy. However, we did
indicate that closing branches would be extraordinarily controversial politically. In this
context, the appetite for, and likelihood of, any discussion over potential alternative
ownership models also seem remote.
We have now begun work developing appropriate materials to be shared with BEIS
Finance, indicating the journey to 2020-21, with our current appreciation of principal
risks and opportunities. Our immediate next step is validating the assumptions around
EBITDA.
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Input Sought
1. The Board is asked to support us in
having open conversations with
BEIS and HMT to seek longer term
alignment around future
government support while
recognising that this may prove
impossible. The timing of any
cabinet paper may be helpful in
setting out our broader value and
case. We will continue to keep the
Board informed of our work and the
conversations with Government.
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BOARD
Banking Framework 2
Author: Martin Kearsley Sponsor: Debbie Smith Meeting date: 25 September 2018
Executive Summary
Context
1. The Banking Framework (BF) is a rolling contract covering counter-based
transactions, with a single re-pricing point by the end of November 2018,
giving a termination right by the end of 2018 prior to continuing beyond
1/1/20 giving a 12 month notice period should Banks wish to withdraw.
2. Deposit transaction growth is placing increased strain upon existing PO
infrastructure and all banking transactions now represent c.18% of counter
workload but only 10% of postmaster fees.
3. Automation of cash services to ease pressure on branch counters requires
investment, which needs to be coordinated with all other branch
automation programmes to ensure that a coherent, aligned and detailed
plan can be presented to the banks.
4. A negotiation strategy has been developed to ensure Banking Framework 2
(BF2) pricing gives POL options regarding what and how to invest in
automation, either with or on behalf of banks.
Questions addressed in this report
5. The value the BF counter services deliver to the Banks.
6. The alternatives that Banks are developing and what limitations they might
impose on our ability to maximise our revenue.
7. What range of BF2 fee options are available, what incremental income do
they raise and what impacts do they have on participating banks.
8. How forecast transaction growth affects income and trading profit growth
9. Approach to cash automation and self-service and integration into POL wide
automation discussions.
10. The resources and team structure required.
11. The time frame for completion of the repricing exercise.
12. Our proposed BF2 negotiating approach with the Banks.
Conclusion
13. BF2 re-pricing scenarios will generate between £141m and £171m per
annum from 1.1.20 based on FY18/19 volumes not including growth (vs
baseline of £97m in FY18/19).
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14. When considering likely growth scenarios the resulting Revenue and
Trading Profit could deliver c.£244m and c.£106m p.a. respectively in
2022, and provides a base for investment and agent remuneration change.
15. A negotiation strategy and team structure is recommended.
Input sought
16. Discussion regarding BF2 pricing and points at which we should be
prepared to walk away or modify our approach with the Banks.
17. Discussion on timing of negotiating meetings with the banks and potential
to give banks until 31/3/19 to confirm or terminate.
The Report
The value of the Banking Framework to the Banks
18. The sustainable fee level for BF2 has been assessed from three
perspectives:
a. Bank’s annual savings from existing and future branch closures
i. Since 2014 the UK branch network of the big 5 banks has
shrunk by 3800 (42%) to circa 5170. Estimated savings to
Banks of circa £950m p.a.
ii. Optimising their networks to a maximum of 600 branches
per brand could see another 1169 closures by 2025 and
further savings of up to £290m p.a.
iii. Banks fully loaded costs, per transaction, are between £4
and £5
b. The feasibility and cost of alternative channels
i. Three possible competitor channels to the Post Office
banking proposition have been identified:
1. Mobile van branches - which have limited reach and high
associated costs and are therefore discounted
2. Alternative counter services such as the PayPoint/LINK
tie up.
a. Enables cash withdrawals and deposits using Chip &
Pin, currently under trial at 15 locations and could
provide a ready-made network with reach exceeding
the Post Office.
b. Mainly small scale and incomplete banking service
proposition unsuitable for Business customers.
Useful ‘convenience cash’ role for ad hoc personal
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sector withdrawals, and could therefore draw some
volume from Post Office counters
3. A ‘shared service’ automated offer in dedicated premises
such as:
a. Cardtronics and Vaultex (collaborating with RBS,
LBG and Barclays) to pilot a self-service branch
capability for businesses. Concept due to pilot
January 2019
b. Banks have ring fenced capital for up to 750
locations. Estimated cost up to £250k / site
(£187.5m total) with annual operating costs per site
up to £200k p.a. (£150m p.a. total)
c. Cardtronics are also proposing to set up a parallel
network in conjunction with Retail partners
c. The transactions fees Banks charge their own customers:
i. Transaction charges are rarely applied to mainstream
personal accounts; often waived for new Business
customers; and larger Commercial and Corporate customers
negotiate individual arrangements.
ii. Published fee tariffs remain the benchmark against which
BF2 fees are compared despite those fee levels often being
disconnected from cost to serve
iii. Most current BF fees align with Bank tariffs but the variable
(ad valorem) elements for cash withdrawals and deposits are
set at levels far below published bank tariffs.
Framework 2 fee options
19.A range of potential fee levels for each category have been considered
against the constraints identified (Major fees only detailed in table below):
a. Aggressive - a supportable starting point for presentation (6x increase)
b. Target - an acceptable negotiated end point (4x increase)
20.Both potential fee levels feature substantial increases in deposit fees
a. Ad valorem rates move from 65p per £1000 to £2.60 (target) or £3.90
(aggressive)
b. Fixed fee rates move:
i.. manual deposit transaction from 74p to £1.14 (target) or
£1.24 (aggressive)
ii. card deposit from 74p to 76p (target) or 77p (aggressive)
21.There are wide variances in income between key parties in the deposit
transaction
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DEPOSITS
Example Bank charges to PO charges to PO pays agent
transaction values I business customer banks (non-main)
£2.05 £0.87 £0.18
£200 (£0.75 fixed plus £1.30 I (£0.74 fixed plus £0.13
ad valorem) ad valorem)
£7.25 £1.39 £0.37
£1000 (£0.75 fixed plus £6.50 I (£0.74 fixed plus £0.65
ad valorem) ad valorem)
Impact of
suggested
increases
£1000 £7.25 £3.34 (target) £0.37
£1000 £7.25 £4.64 (aggressive) £0.37
22.The resultant incremental fees, based on 2018 transaction volumes for each
scenario would be:
£18
E74.im
£171,010,
£i4him £44,300, AGM
23.Over 80% of the fee increase comes from cash deposit transactions. This
reflects the need to address an historic under-pricing of the transaction
Fee Increase Scenarios (£m)
Aggressive £’m Aggressive % Target £’m Target %
increase increase
Membership Fee £6.2 28% £4.1 18%
Cash withdrawal £2.5 8% £1.6 6%
Cash deposit £62.2 207% £37.7 126%
Other fees £3.2 30% £0.8 8%
TOTAL £74.1 76% £44.2 46%
24.Without a substantial deposit fee rate increase it is likely that our fee for a
counter transaction will be less than the cost of providing self-service
transactions.
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25.Without the implementation of self-service and further cash automation we
will be unable to efficiently manage increasing SME deposit volumes as the
network, customers and the supply chain are adversely impacted as:
a. Postmasters workload at branch counters (and back office) increases -
primarily driven by high value cash deposits
b. Customer service experience in branch suffers if queues are created
behind time consuming BF transactions
c. Supply chain capacity and efficiency is stretched as increased cash
deposit volumes turn branches cash positive
26.The cost implications from these issues was addressed in the May 2018
Future of Cash board paper
Impact of growth on framework income
27.Framework volumes are forecast to increase over the next 5 years before
starting to decline. The forecast is primarily driven by four elements
a. Contactless and online driving out cash
b. Alternative channels displacing Post Office
c. Continuing Bank branch and counter closures
d. Automation of LBG and RBS deposit transactions
28.Three scenarios have been modelled; Expected; Optimistic and Pessimistic
Volume Forecasts
29. When volume increases are combined with framework fee increases, in the:
a. most optimistic scenario income would peak at £352m in 2022
b. most pessimistic scenario income would peak at £115m in 2022
c. expected scenario income would peak at £243m in 2022
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Voifinc. (m) 2017 2018
119.9 131.9 45.5 45.3 147.2 139.0
Pessimistic £115.6m £1105 £99.4m
£176.4m €166.6m €157.2m
Aggressive Rates EL7L.Sm_£175.0m, £218.2m _£204.1m_ £1
Volumes 99 «1319 1S2a
income
1926 (1887 1Sae
Expected
213.3
£97.0m £136.5m £157.8m £171.8m £170.00
€i4Lem £ £214.9m £260.2m £284.8m £281.9m
£471.50 £261.2m_£ m £352.2m £351.4m_£347.2m_£344.2m
30.At expected volumes and target BF2 pricing income peaks at £244m and
trading profit at £106m in 2022 - assumes all costs fixed/variable
income and Trading Profit at Target BF2 rates - Expected volumes forecast
£200 BFL BF2 BF3
£248
£250 £228 £234 £230
£106 =I e104 £102
income (£m)
Se A a eh a te
£56
2018 2019 2020 2024 2022 2023 7024 2025
31.Trading profit forecasts above exclude the cost of additional supply chain
capacity fixed investment, network security upgrades, cash automation and
additional increases in agent remuneration
Approach to Self-service and cash automation
32. Adoption of branch automation technology, either as automated cash
handling at the counter or as full self-service mail and banking, is under
strategic review and will provide output and strategic direction by Q2’19
33. POL will not have a single, coherent view of Branch automation in time for
the bank automation component of that to be included into BF2 pricing
presentation at the level of detail that every bank will require.
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34. It is therefore recommended that any negotiations around providing
banking self-service functionality are separated from the BF2 fee repricing.
35. We will indicate to the Banks our intent to engage them in a mutually
beneficial proposition by middle of 2019 with a set of transactions fees that
reflect the operational benefits self-service brings to all parties.
Project team structure and resources required
36. An internal team comprising of Martin Kearsley, Nigel Bascombe and Nicole
Calder (Finance analyst) lead the analysis work. Supported in negotiation
by Andrew Clatworthy. Full engagement with Retail Strategy, Supply Chain
and Automation work streams to ensure integrated approach.
Project timeframe
37. BF2 repricing
a. Work in progress to define new BF2 fees to banks by end of October
b. Engage banks now, with delivery of final BF2 pricing by end November
c. Banks responses - accept or terminate by end of Dec
d. New BF2 terms apply 1/1/2020
38. Self-service / automation proposals
a. Complete POL-wide automation strategy by end Q1 2019
b. Develop detailed pricing, service SLA and proposition details for
banking automation through Q2 2019
c. Detailed Banking cash automation and self-service proposition
proposals to Banks by end Q2 2019
Proposed negotiating approach
39. Between now and end of October:
a. Engage with Banks’ operational teams to prepare way for BF2
b. Use high level connections within banks to socialise proposals and
gauge response at C-level.
c. Corporate Affairs to galvanise governmental support to reinforce the
universality of PO offer and its community support role, social inclusion
agenda, and continued access to cash in every High St.
40. Post October (based on assumed agreement on BF2 pricing at PO Board):
a. Declare formal pricing to banks
b. Maintain communication channels as above on responses and progress
c. Amend BF2 proposals if deemed necessary during negotiation
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BOARD DECISION PAPER
Solar — Building an integrated EPOS
Authors: Tom Moran Sponsor: Rob Houghton/Debbie Smith Meeting date: 25" September 2018
Executive Summary
Context
We have identified ‘Solar’ (aka HNGT) as a critical part of developing our Retail and IT
Strategies. With it, we can have the flexible, open IT architecture we need to become
a more attractive retail proposition for our customers and our agents, respond quickly
to threats and opportunities and, in due course, reduce our IT costs by replacing the
need for counters with services integrated on retailers’ tills, self-service or deliver
through customers’ own devices.
Questions addressed in this report
1. What is Solar and why is it important?
2. What has the cost been so far and what have we delivered?
3. What are the risks?
Conclusion
1. Project Solar is a strategic initiative to deliver greater access to Post Office products
and services through a range of devices owned and operated by retailers,
customers and the Post Office. Successful deployment is a key enabler of the Retail
Strategy and North Star aims - we need it to be better for customers, be a partner
of choice for retailers, grow our network and to digitise and optimise our business.
2. Our development so far has cost just under £6m and we are therefore raising this
as we need to secure Board endorsement to be within governance. With this
funding we have developed the essential microservices needed as foundations for
product development, a Bill Payment pilot and are currently developing a Lottery
Transaction Tracking product on retailers’ tills, an initiative that has a clear
business case and is a priority for agents.
3. Our new approach to joint working with Fujitsu and close working with Retail
product owners and agents in developing Solar are designed to mitigate the key
risks of a) failing to deliver to time, cost & quality, and b) retailers not taking up
the new proposition(s).
Input Sought Input Received
1. The Board is asked to approve the 2. Each stage of Solar has been
money spent to date and note the approved by the Group Executive in
. the last year following extensive
lan to return to Board with a fuller,
p ' ’ input from Retail and IT. The
costed paper once the product business case has been reviewed
roadmap has been more fully and validated independently by
developed. KPMG, and Solar has been endorsed
from a strategic perspective by the
Board at the June Away Day.
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The Report
What is Solar and why does the Post Office need it?
1. Our current Post Office transaction engine, ‘Horizon’, is highly robust, monolithic
and over 20 years old. It is based on a ‘thick client’ running on Windows counter
hardware, with business logic and reference data downloaded to the client.
Transaction workflow takes place at the branch, with real time interaction with
back-end systems before committal takes place. It is a ‘one size fits all’ solution.
2. We have nearly completed the substantial task of replacing end-of-life ‘HNGX’
hardware (Windows NT4) with a newer ‘HNGA’ system running on Windows 10.
The renewal programme is over 90% complete and we will have installed the
new equipment in all branches by mid-October. Architecturally, HNGX and HNGA
are the same.
3. HNGA/X is designed as a stand-alone system and does not lend itself to
integration on third-party IT. This requires us to own and maintain a large IT
estate on behalf of Agents and Partners. In the vast majority of our estate (all
3700 Locals, the vast majority of our c3400 Mains and most of our c2700
Community branches) this results in separate Post Office and retailer POS
equipment, with consequences for retail space, training and rostering of staff and
the need for customers to queue twice for Post Office and grocery baskets.!
4. The core of Project Solar is the ‘Horizon Integration Hub’ (HIH). HIH uses a
Web-Services architecture to connect browser-based, ‘thin client’, end user
devices such as a retailers’ till, via a common service interface or ‘API’, to
Horizon. Each microservice performs a specific role in fulfilling the basic ‘basket-
building’ process that is common to e-commerce systems. The generic basket-
build process in Horizon, exposed through HIH, is shown below.
5. HIH gives Post Office the ability to innovate, develop and deploy new and
existing products more rapidly and at lower cost than would ever be possible
with the current HNGA/X system. As such it is critical to the future sustainability
of our Retail network as it enables the new formats we need to develop and roll-
out, reduces our IT operating costs and increases our ability to change products
and services quickly, as other retailers do (see paragraph 8 below).
Generic Product Journey
BROWSER-BASED ACCESS
6. Having the business logic, reference data and transaction workflow in HIH, rather
than in the client as in HNGA/X, allows the use of a simple browser to connect
user devices, minimising the integration effort by third-party IT developer teams.
att
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Figure 1: How Solar will allow us to link our Horizon system to multiple channels
BAdAinde Acces “Chennets* ¢
Omrdcharmet {Enabler of wider § Enabtor of cost.
enabler
Theos arr affect
diferane fornate Gypically” ve aukemation:
low cost
porros I =
CHNGT) ] Machine
7. This makes Retailer-POS integration an attractive proposition which should allow
Post Office to increase accessibility (for example in PO Express) at low cost and
at a high velocity.
WHY POST OFFICE NEEDS SOLAR
8. Solar will allow us to do the following, none of which are possible through HGNA:
«access Post Office services on an omnichannel basis through a range of
devices owned/ operated by retailers, by customers and by the Post Office;
e segment product offer by branch type, location, time of day, operator skill or
other factors; and
« innovate and deploy new products rapidly, including those for new strategic
partners, as well as to change or improve existing products (for example,
price changes).
9. The Retail Strategy describes a segmented customer proposition which moves
away from the existing and limited Locals and Mains offers, which are not
sufficient to meet customer or agent expectations. Our Retail Strategy stated
that “without mitigating action, our 3YP could potentially be negatively impacted
by up to £22m EBITDAS...due to the challenges we are finding in recruiting
agents...[which would result in more outreach and temporary-managed
branches].” Solar is needed to enable the new formats set out in the table below
and is particularly critical to developing the new proposed ‘Kiosk’ and ‘Express’
formats.
10. The approach of the Integration Hub and Post Office retaining the IPR of the
development gives us future sourcing options away from Fujitsu. The proprietary
HNGA/X application and the Horizon back-end systems are complex and make it
impossible for Post Office to access Category procurement savings from the
market.
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USE OF PAYZONE
11. We are working closely with colleagues responsible for ‘Panther’ to ensure we are
aligned, as acquiring Payzone would give us a new capability and bill payment
and other simple ‘scan a bar code' transactions could be developed within the
Payzone mobile device and systems.
12. Payzone already has a similar target architecture with regards to its development
of bill payment microservices and it is expected that these can be integrated into
the Post Office architecture in the future through a single API Gateway.
13. The integration planning of the two IT eco-systems continues, with the most cost
effective and efficient outcome likely to be an integration of both existing
microservice assets rather than one technology replacing the other.
What has the cost been so far and what have we delivered?
1. The work to date (previously referred to as ‘HNGT Lite’) developed the key
foundation components - known as microservices - of the new HIH (Horizon
Integration Hub) architecture. This has been critical work which we had to do
before developing the new product journeys, which can then be developed using
our Agile delivery approach.
2. This foundation development represents 90% of the £5,995m expenditure in
HNGT Lite, and forms the essential basis for development of the roadmap in the
coming Programme Increments. This funding has been approved in stages over
the last 12 months through our Investment Committee, which the Group
Executive uses to review and approve strategic investments. As the total now
exceeds the £5m for which Board approval is required, we are requesting
approval for the £5,995m through this paper.
3. We are not requesting funding for subsequent ‘increments’ or for Solar as a
whole in this paper. We will be returning to Board with a fuller, costed
explanation of the programme once we have developed the product roadmap
more fully over the next few months. We will ensure all future business cases are
subject to the relevant governance approval processes in future.
4. Our partners for this work are Fujitsu (as well as Retail Data Partnerships, EPOS
specialists who operate in the Booker network) and, up to August, we were
under the terms of the previous contractual arrangement with Fujitsu. The new
Lottery increment is the first major initiative to be delivered as part of the new
approach agreed through Project Everest and is intended to set a new standard
in joint working and Agile delivery.
SUMMARY OF ROADMAP TO DATE ~ LOTTERY, BILL PAYMENT AND MAILS
5. Having developed the necessary microservices to start adding products, we have
started our product roadmap. The current work (Increment 1) is developing and
deploying Lottery Transaction Tracking in all c1200 Multiple retail partner
branches and which will improve the management of Lottery through Post Office
to align with contracting direct with Camelot. This will protect £4.1m of at-risk
EBITDAS and prove our credibility to our network for reasons set out below. We
are working closely with McColls on this (as our largest partner with over 600
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Post Offices, McColls have consistently called for EPOS integration and securing
their support, which we have done, is crucial to our wider credibility).
The prioritisation of products is a business decision driven by our key senior
product owners in Retail to align with commercial priorities and our Retail
Strategy. The current product roadmap, which we fully expect to be modified on
a regular basis, as we review it over the coming months, is below. We have also
set out the business case we have identified for each increment at Appendix A.
Figure 2: Solar Product Roadmap as at 17 September 2018
Roadmap
om enaaelaa
“nicetce functions
compe
Reuse of previous Development
Banking 8 Pca
1 Drawdown *
t fmding — 4
L request of t
1 £2,9m
is cis
bed
Sra neces
’
‘
i
'
1
'
4
’
‘ike Setlement I? ‘ata Settement
ottery PO Express PO Kiosks
Direct Settio {Rewwil POS) ——_(Auts POS)
‘(Retail Pos) #
Mails products appear later in the product roadmap (see above) as the full Mails
suite already exists in the current Mains and Local format which, supported by
the deployment of HNGA, satisfies the requirement of the new PO Local and PO
Plus model referred to in the Retail Strategy. However, we continue to review
the opportunity to bring forward the Collects component, as a minimum.
We are also developing the ‘Mails App’ demonstrated to the Board in June
through the Customer Hub. This complements the Solar work and means we can
deliver to market quicker - the ambition is to launch Version 1 of the Mails App
through Customer Hub prior to peak season whilst in parallel developing further
enhancements for launch in Q4.
What are the risks?
1.
The Post Office becomes locked into the current Horizon architecture - this would
be likely if we do not deliver Solar and would make us increasingly inflexible,
increase costs and make us less attractive as a partner. Solar is designed to
open up our architecture to 3% parties and devices such as retailer tills and
tablets to increase our options.
fidentia
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2. Partners will not take up the new technology —- we are confident there is a clear
need from partners, particularly Multiples and Symbols, for EPOS integration and
for the new formats it will enable. Developing this with them is crucial to avoid
wasted effort and we are involving them in the development (to date principally
Spar on Bill Payment, McColls on Lotto and a range of agents in developing our
microservices.
3. Fujitsu will be unable to deliver to the time and cost we need - our new
contractual position incentivises Fujitsu is deliver through Agile quickly and
efficiently. We must also accept our part as a partner and develop the product
requirements needed to deliver.
4. — Solar will result in a GDPR-related issue or incident - we need to consider GDPR
in our design approach to be both compliant and mitigate against any potential
re-work together with its partners. We have not identified any major issues to
date and will keep this under close review.
Conclusion
1. We have identified ‘Solar’ (aka HNGT) as a critical part of developing our Retail
and IT Strategies. With it, we can have the flexible, open IT architecture we need
to become a more attractive retail proposition, respond quickly to threats and
opportunities and, in due course, reduce our IT costs by replacing the need for
counters with services integrated on retailers’ tills, self-service or deliver through
customers’ own device.
2. So far we have developed the essential microservices needed as foundations for
product development, a Bill Payment pilot and are currently developing a Lottery
Transaction Tracking product on retailers’ tills, an initiative that has a clear
business case and is a priority for agents. Feedback from independent and
Multiple agents has been very positive, giving us confidence we are taking the
right approach. Our next increments will focus on Bill Payment and Mails, these
being the priority products to address customer and agent needs.
3. As the total now exceeds the £5m for which Board approval is required, we are
requesting approval for the £5,995m through this paper. The Board is asked to
approve the money spent to date and note the plan to return to Board with a
fuller, costed paper once the product roadmap has been more fully developed.
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Appendix A: High-level business cases for future Solar Product Increments
Use case/business case OPEX EBITDAS EBITDAS CAPEX Timing
driver/benefit reduced increased maintained avoided
UC1: Enable PO Express : L E £4.0-13.0m IFull benefits achieved over
format on Retailer POS in total 5 years starting FY2020
UC2: Displace PayPoint . £1.2-4.5m . . Full run rate achieved over
from multiples/ symbols p.a. 3 years starting Sep 2019
UC3: Reduce cost of £4.5-9.0m Roll out start in FY2021
Automation E a . . - and full run rate achieved
Pa by FY27
UC4: Enable Digital mail . . . £2.5-5.0m . ;
back end integration in total CAPEX avoided In FY19
UCS5: Enable direct Excludes £1m OPEX saving
settlement of lottery for multiples partners.
transactions a : £4.1m E EBITDAS estimate is for
p.a. FY2020 assuming FY2018
EBITDAS of £5.1m and
10% yoy decline
TOTAL £4,.5-9.0m £1.2-4.5m £4.1m £6.5-18.0m
p.a. p.a. p.a. in total
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Appendix B: Solar benefit map linked to Retail Strategy
Our Customers
Our Agents
9 integrate
app protisete
Post Office
We can evatuate
the benefitor
RPOS
ean save my
from Lottery
operating cost
We can gat our
first service
SSK S/W POC
waxzhn
Expres
Counter POC
1 use lows
stat? te
My Post Office
ners
We can av
fel our We can extend
Our network jay
whole estates
gransaetionst
products inte
Retailer POSS
‘SSK Full
SAW Solution
SSK S/W Lite
Express
Counter
HINGA Replaceable
{SGEI only}
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We can remove
the cost of
wparating HNGA
“2 Branch POC
Back Office
Interface
Lottery Nx
Whole" estate
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BOARD UPDATE PAPER
IRRELEVANT
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Annex 1. Financial projections of very ambitious asks
The cumulative effect of our very ambitious aspirations adds significant value over the
current projected baseline income, although our minimum targets would see some
reduction the increase in contract cost to RM would need to be supported by clear
benefits from our market leading network.
Aspirations Minimum targets
Achieving all aspirations is Achieving our
not realistic, but these minimum targets
figures indicate the vid provide an
inerease in our averat ceptable deal
seale of am financially
Post Office 328 407
23 wi
zs ahem ft ve
The value of relaxing restrictions in e-commerce are minimal in the initial years as the
market values remain relatively small and time will be required to increase our market
share significantly. They do represent a source of new income as RM’s volumes
decline reflecting continued e-substitution and loss of market share by RM.
AJ
AJ
Tl
rr
<
>
Zz
—
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BOARD
PAGE 1 OF 6
Back Office Transformation
Authors: Michael Clements Sponsor: Alisdair Cameron Meeting date: 25 September 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 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 May, the Board approved a cumulative investment of £26.2m to enable the
programme to deliver a September Go Live or £27.9m for an October Go Live. In July
we confirmed that October was the first possible go-live date.
Questions addressed in this report
1) What has happened since the last update?
2) What Go Live date are we recommending?
3) What is our confidence level?
4) Can POLSAP last?
5) What does this mean for contingency plans?
6) What are the financial implications?
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Conclusions
1. The completed agents pay process is operating effectively. The Belfast cash
processing trial is stable and operating efficiently. All master data changes and
integration are live. We have completed a full dress-rehearsal of Go Live. POLSAP.
Process Migration has almost completed it’s 3 integration test, run higher than x-
mas volumes through the sale-settle-bill process and were it a stand-a-lone
project, we would have been confident taking it live in October.
2. In Cash Processing, testing and correcting defects is taking longer than expected.
In Transtrack, system changes that we require (there is no off the shelf system
that meets our needs) are changed in the core product available to all customers.
While this means we avoid a bespoke solution with future upgrade complexity,
changes are slow. We are also continuing to create the Cash Forecasting solution.
We cannot therefore complete full integration testing or testing Forecasting at
volume by October, hence reviewed November and January go-live dates.
3. The additional cost of delaying go-live from November to January is £1.3m.
However, for November we would go-live having compromised testing at volume
for Cash Processing, with less well designed and delivered training in Supply Chain,
and with a less effective Cash Forecasting solution than we have today. In total,
November go-live is likely to require an additional £300m of cash outside the
vaults, stretching our borrowing facilities to their limits.
4. We are recommending go-live on 28* January, a further three-month delay. The
total cost of Phase 1 is now estimated at £37.3m, an increase of £9.4m on the
October value of £27.9m. The difference between November and January is
smaller than pro-rata because it covers the Christmas period and requires work to
be delayed post go-live.
5. Weare confident that January can be delivered and that the current infrastructure
will be robust for this period.
Input Sought
The Board is asked to approve the additional £9.4m drawdown.
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The Report
What has happened since last update?
1. In the last update we flagged three issues preventing a September Go-Live:
Horizon interfaces, CFS high volume performance and Cash Forecasting. Two
resolved as hoped:
e¢ Horizon interfaces: All interfaces delivered to test broadly on their
revised schedule but the delay has affected Cash Processing and Cash
Forecasting.
e CFS high-volume performance: Our original design was to operate a
monthly billing process. This has proved to be infeasible due to our data
volumes. We therefore developed a daily billing process and have
subjected that to both integration and volume testing. Having added two
more testing cycles, the Sale-Settle-Bill process is in the final stages of
testing at peak volumes and will now complete well before morning
settlement deadlines.
2. Unfortunately the 3% remains a challenge, and an accumulation of issues caused
a 4" challenge:
e Cash Forecasting: The logic behind the new TransTrack forecasting
module is widely used but significantly different to how we currently
operate. Whilst the technical delivery and new functionality is
comprehensive, there were some key areas where a late change was
needed. This required changes to the Horizon interfaces. As a result of this
delay, we are unable to confirm performance, or ensure we will not have
a branch cash out nor any increases in inventory. While we finalise the
solution, the project is concurrently building a “Plan B” forecasting tool
that replicates the current approach. Whilst Plan B does not add value over
our current forecasting solution this ensures we can allow the rest of the
project to go-live without degradation to our ability to manage Network
cash. This de-risks January go-live.
e Cash Processing: We have made significant progress with defect
resolution times in conjunction with TransTrack. However, as we want to
avoid a bespoke solution, this does mean we encounter delays as
TransTrack test the fixes with other clients. As noted the Horizon interfaces
were delivered 2 months later than originally planned (due to incorrect
requirements) and the forecasting components are as a result still
undergoing unit testing. The technical integration of Transtrack to our high
speed note counters (fundamental to all in-bound cash scripts) contained
critical defects resolved 8 weeks late and Transtrack to SAP integration
suffered due to late (but mandatory) design specification changes.
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3. Asa result of the delayed integration testing in Cash Processing (new target 28"
September), we do not have sufficient elapsed time to complete user acceptance
testing, prepare the training materials and deliver the training the full Supply
Chain organisation by 26" October.
4. Whilst it is still possible to Go Live with POLSAP Process Migration, we have re-
confirmed that we cannot separate the projects. Whilst theoretically possible, it
would require a number of interim interfaces to ensure the ongoing systems
alignment. These would require substantial testing and mean a longer delay than
for a joint go-live.
What Go Live date are we recommending?
5. In the last update we were evaluating Go-Live dates from October to January.
October is no longer feasible. The steering committee recently reviewed detailed
options for November and January.
6. We are recommending Back Office Transformation Go Live in January. Across the
programme there was unanimous support for January rather than November,
reflecting more certainty on cash processing, a better cash forecasting solution,
better training for Supply Chain and a reduction in cash usage of some £300m at
peak.
November
January
Benefit Impact
Cash impact
Quality of training -
PPM
Quality of training -
Cash Processing
Process
PPM
readiness -
Process readiness -
Cash Processing
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£0.2m reduction for 2019
Additional £300m in
borrowing
Delivered as planned to the
user base
Lower quality as training is
delivered before user testing
is completed.
Delivered during capacity
peak, will require 40 FTE
backfill
All processes ready to
implement. Workarounds in
Billing
All Cash Processing processes
ready
Backfill required to process
delayed collections — and
maintain Christmas output
after Go Live
Cash Forecasting uses
temporary and basic standard
replenishment process
£0.2m reduction for 2019
Expected nil impact year on
year
Delivered as planned to the
user base
Higher quality as training is
delivered after user testing
ended.
Delivered in January quiet
period, may require 20 FTE
backfill
All processes
implement.
workarounds in Billing
All Cash Processing processes
ready
Backfill required to process
any collections before Go Live
Full Cash Forecasting process.
either by TransTrack or
alternative Plan B solution
ready to
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What is our confidence level?
7. The full Back Office Transformation Steering Committee unanimously agreed the
January Go Live option based on the following:
e We will implement a full-capability Cash Forecasting solution (either from
TransTrack or from the alternative “Plan B”) that we expect to have a minimal
impact on service or network funding.
e Volume testing and POLSAP comparison of the full Cash Forecasting solution
will be complete.
e Training materials for Cash Processing will be ready and we will have the
maximum possible attendance
e It has the lowest overall cash impact with the minimum of borrowing and
does not require us to delay cash collections during the Go Live period
In summary we are:
e Very confident of achieving January for Sales & Finance
e Very confident of achieving January for Cash Processing
e Hopeful of achieving January for improved Cash Forecasting, confident of a
solution similar to POLSAP in its outcome, and very confident of a workable
but not optimal solution that would allow the remainder of the project to Go-
Live whilst forecast testing continued.
Can POLSAP last until January?
8. We continually review the risks and support arrangements for POLSAP. We had a
hardware failure on 11% September. This was reasonably expected based on the
volume and age of equipment. It does not lead us to believe the failure rate is
accelerating. POLSAP is now running at marginally reduced resilience until the part
is swapped and the service is failed back in a planned change window. The failed
part will then be returned, internationally, for attempted repair. Our suppliers have
confirmed that we are not seeing any systematic deterioration.
What does this mean for contingency plans?
9. Contingency plans largely remain similar to those submitted in last month’s board
paper. DMW are returning to review our plans with business continuity, project
deployment and departmental heads over the coming month.
10. The most significant difference of moving to January is the change in approach to
cash collection processing around Go Live. We were (for October or November)
going to postpone collections for 3 days which had a temporary borrowing impact
of approximately £140m. For January, this is not required and we will work in the
first two weeks of 2019 to clear all collections from the network.
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11. We will deploy additional support staff between the Supply Chain and Finance
teams so that we have sufficient capacity to execute transaction corrections
between TransTrack and CFS as a direct learning from the Belfast Go Live.
Financial and other implications?
12. As a result of the plan updates and recommendations per commentary in this
paper, an approval of an additional £9.4m of additional funding taking the
cumulative investment to £37.3m. The 2019 benefits will reduce by £0.2m as a
result of the delayed decommissioning of POLSAP. This £9.4m increase from
October is comprised of:
£m Description Comments
£2.8m Cash Processing Introduction of Agile Forecasting workstream,, Arrow Plan
B Forecasting solution, Optimising Cash Forecasting, Cash
Processing Training (by Vaultex) and Transtrack additional
testing resources
£5.8m Programme Additional resource the programme has added
Resources predominately due to the accelerating September delivery
plans. Resources added for integration and performance
testing, business intelligence and change management.
Monthly run-rate will reduce from a £2m peak from
December to under £1.5m
£0.4m SAP Buyback Contractual obligations under discussion; Provision to buy
back order form 9 if termination / negotiation is on plan
£0.4m Infrastructure Delay costs from going live with new services opex.
and Application Downsizing of project environments
support Performance Testing uplift
£9.4m Total
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Appendix 1 (Waterfall sent separately)
GE Update Board June Board June I Board June Current Current
Business Go Live p
Project Case June 18 Go Live Go Live Go Live Go Live I Go Live
3 Budget (Sept 17 June 18 Sept 18 [DLA] Nov 18 I Jan19
Approved Update)
Total 20.0 20.9 21.2 26.2 27.9 36.0 37.3
Annualised Direct Benefits
(£m) 35 3.9 3.4 3a 3a 2.9 2.9
NPV (£m) (12.7) (13.4) (15.5) (16.7) (17.9) (23.3) (24.1)
Payback 5.7 yrs 6.0 yrs 6.8 yrs 8.4 yrs 8.9 yrs 12.6 yrs I 13.0 yrs
Cost Movement (£m) 0.3 5.0 1.7 8.2 9.4
NPV Movement 15.5% 7.6% 7.2% 30.3% 34.6%
Payback Movement 13.0% 23.5% 6.4% 41.8% 46.1%
Movement to Oct
DLA
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Appendix 2
Programme timelines
A. completed Milestone i
A. outstanding Miestone i
I Remuneration
GoLive
(28/01)
—
Fairing Early life Support
Fa
2
Ps
&. ‘= ss +
8 — Golive I
Se (28/01) 4
gs 1
& :
a8 a
=
3} i Training Early life Supsort
La
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POST OFFICE PAGE 1 OF 3
BOARD
Modern Slavery Act Statement
Author: Janene Mellor & Laurence O'Neill Sponsor: Mohinder Kang Meeting date: 25th September
Executive Summary
Context
The Modern Slavery Act 2015 (the Act) challenges slavery, domestic servitude, forced and
compulsory labour and human trafficking. Post Office is required to produce an annual slavery
and human trafficking statement (Statement) setting out what steps have been taken to
ensure its business and supply chains are slavery free. This paper attaches the second
Statement which documents progress on our previous year’s commitments and outlines the
actions that we commit to take in the year ahead.
Questions addressed in this paper
1.Why do we need a Statement?
2.What are the key points to note about our Statement?
3.What are the implications for the board and the business?
Conclusion
1. Post Office has undertaken due diligence on its business and supply chains to identify
any risk areas.
2. Post Office has prepared a new Statement for 2017/2018 in line with the Act. The
Statement must be published on Post Office’s website within 6 months of year end.
3. A steering group was appointed in January 2016 and is responsible for proposing
actions, creating relevant project plans and continuing to develop and monitor our
approach to the Act.
4, The steering group identified that the highest level of risk is within our Agency network.
We have already begun to take action to address this risk including amending our
contracts with Postmasters to require compliance with the Act and issuing Postmaster
guidelines.
5. The nature of the Act allows for Post Office to build a robust approach to tackling modern
slavery. The Act requires that a statement is published which records the steps taken
to tackle modern slavery in the previous financial year, although it is common practice
for organisations to publish its commitments to tackle modern slavery in the financial
year ahead.
6. Although the legal requirement is only to publish a statement, the desire to clearly show
the material commitment we are making to tackling modern slavery comes from the
scrutiny to which our statement will be subject from the public, the media and from
pressure groups.
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POST OFFICE PAGE 2 OF 3
Input Sought Input Received
The ARC are asked to approve the We consulted all members of the MSA
2017/2018 Statement and endorse the Steering Group which comprises of
Proposed actions for the business to take representatives across functions including
forward in the 2018 /2019 financial year. Legal, Postmaster Contracts, Procurement,
Risk, Employee Relations and Learning and
Development.
The Report
Why do we need Modern Slavery Act Statement?
1. The requirement to publish a Statement applies to “commercial organisations” which (a)
supply goods or services and (b) have a total turnover of not less than £36 million. It
will therefore not apply directly to Postmasters if their annual turnover is less than £36
million. As Postmasters are part of the Post Office supply chain Post Office must state
what steps it has taken to ensure that slavery and human trafficking is not taking place
in any of its supply chains or its business.
2. Post Office is required under s.54 of the Act to produce an annual slavery and human
trafficking statement listing the steps taken to ensure its business and supply chains are
slavery free. This paper attaches the second Statement (Appendix 1) which records what
steps we have taken in 2017/2018 and outlines the actions we commit to take in
2018/2019. The Statement must be approved by the Post Office Board and signed by a
Director.
3. The due diligence undertaken so far indicates that there is a potential risk of non-
compliance within our agency network. This is because there are a large number of
people employed by Postmasters (including multiple partners) who are not employees
of Post Office or POMS. They work directly for the Postmasters. We do not have
visibility on how they are engaged. We have already taken action to begin to address
this risk including reviewing our contracts with our Postmasters to require compliance
with the Act and raising awareness of their responsibility by communicating Postmaster
guidelines on Modern Slavery during December 2017.
What are the key points to note about our updated Modern Slavery Act Statement?
1. Our 2017/2018 statement records the progress we have made against those
commitments and lists our commitments to tackle modern slavery across POL and POI
for the financial year 2018/2019. The commitments were developed by the MSA Steering
Group which includes representatives from Legal, Postmaster Contracts, Procurement,
Risk, Employee Relations and Learning and Development. Our commitments are:
= Raise awareness of Modern Slavery across our supply base.
= Improve the due diligence assessment for onboarding new suppliers to our systems.
= Raise awareness of Modern Slavery across Post Office, its suppliers and within the
agency network.
« Educate field teams out in the agency network on spotting the signs of Modern
Slavery.
. Review our supply base and revise our supplier management processes.
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POST OFFICE PAGE 3 OF 3
2.In formulating our commitments for 2018/2019 we reviewed the commitments made by
other organisations in this area and looked at a variety of statements to ensure our
approach is consistent. By way of an example:
ACAS [for 2018/2019]
Continue to develop a staff awareness strategy for the Act and reporting mechanisms if
a case of slavery or human trafficking is suspected.
2. Develop measures (e.g. KPI, assurance) to evidence our commitment to the principles of
the Act.
Embed the Act into our Whistleblowing Policy and processes.
4. Incorporate the finding and guidance from the UKSBS and BEIS supplier assessment pilot
into our procurement process.
5. There are no significant costs identified in fulfilling our commitments for 2018-19.
we
What are the implications for the board and the business?
1. Aside from the statutory sanctions, one consequence that may result if a business fails
to comply or reports in its statement that it has taken no steps to ensure that slavery is
not taking place, is damage to the organisation's reputation and brand.
2. Provided our annual statement continues to show a material commitment to tackling
modern slavery, we should ensure that we minimise the risks of modern slavery occurring
within our business or supply chain and safeguard our reputation.
3. We are confident that the detail in our 2017/2018 statement recording our progress on
last year and our proposed actions for the financial year 2018/2019 are appropriate. We
will monitor developments, and keep the adequacy of the Statement under review.
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POST OFFICE PAGE 1
Appendix
1. Modern Slavery Statement 2017/2018
MODERN SLAVERY ACT TRANSPARENCY STATEMENT 2017/18
Post Office Limited (Post Office) & Post Office Management Services Limited (POMS).
This statement is made pursuant to section 54(1) of the Act. It sets out the steps taken by
Post Office & POMS during year ending 31%* March 2018 to prevent modern slavery and human
trafficking in its business and supply chains.
Post Office and POMS are committed to combating the risk of modern slavery or human
trafficking in our supply chain and business operations. We are committed to taking
appropriate steps to ensure that everyone who works for Post Office in any capacity, benefits
from a working environment in which their fundamental rights and freedoms are respected.
While this is only the second statement in which we report on our efforts to prevent modern
slavery in line with the requirements of the Act, we have focused on the rights and wellbeing
of the people who work for Post Office and for our suppliers for many years. Our statement
provides details of our policies, our approach and the actions we have taken in the 2017/18
financial year to strengthen our programme and commitment to respect and uphold people’s
fundamental rights and freedoms.
OUR BUSINESS AND SUPPLY CHAIN
Post Office is the UK’s largest retail network and the largest financial services chain in the UK.
We have provided services for more than 370 years and currently supply more than 170
products and services Post Office directly manages around 2% of the Network branches. The
remainder of the branches are managed on an agency basis by Postmasters and multiple
partners. We operate throughout the UK, however our supply chains connect with suppliers
with a global reach.
Banking services
Post Office banking services are provided in Post Office branches on behalf of the customers of
UK banks.
Postmasters
Postmasters can operate one or more branches. As agent’s they have control over how their
branches are run on a daily basis. All those working in an agency Post Office branch are
employed directly by the Postmaster. The Postmaster is self-employed and typically takes on a
Post Office as an adjunct to their own retail business.
Multiple partners
A large proportion of the agency part of our network is run by multiple partners - corporate
retail organisations who themselves have a multiple number of high street stores, some with
Post Offices.
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POST OFFICE PAGE 2
Trade Unions
In our directly managed branch network, we work closely with the Communications Workers
Union (CWU) and Unite (CMA) Communications Managers Association.
Third Party Suppliers
We also procure products and services from a wide range of suppliers, ranging from small and
medium enterprises to large multinationals, each one of which has its own supply chain. The
majority of the purchasing is controlled centrally by the Procurement team who also set the
Supplier Relationship Management standards to ensure our teams maintain a consistent
approach to supplier management across Post Office.
OUR BELIEFS AND PRINCIPLES
Respect for the dignity of the individual and the importance of each individual’s human rights
form the basis of the behaviours we expect in every workplace and are communicated through
our Code of Business Standards. We will not accept any form of discrimination, bullying or
harassment. We require all our managers to implement policies designed to ensure equality of
opportunity and inclusion for all Post Office employees.
OUR POLICIES
We operate a number of policies to ensure we are conducting business in an ethical and
transparent manner. These include:
CODE OF BUSINESS STANDARDS
We have a Code of Business Standards which underpins everything we do. The Code is
mandatory and extends to everyone employed by Post Office. It requires all of us to act
ethically and comply with legal requirements at all times, putting our principles into practice in
everything we do. The Code of Business Standards was updated during the 2017 financial year
to include references to Modern Slavery.
WHISTLEBLOWING
We operate a Whistleblowing Policy so that all employees know how to raise concerns
regarding wrongdoing or dangerous practices. The policy was updated during the 2017
financial year to include references to concerns about Modern Slavery.
There are a number of ways people can report any concerns regarding slavery or human
trafficking within Post Office, by either contacting the Whistleblowing Officer or via our
anonymous external confidential reporting service ‘Speak Up’ which is regularly communicated
to all employees, suppliers and contractors. This is overseen by our General Counsel
(Whistleblowing Officer). Every report submitted is assessed and investigated.
RECRUITMENT POLICY
Our recruitment policy sets out the overarching principles and controls to be followed and
applied to ensure that personnel resourcing is conducted in a fair, open and transparent
manner, including conducting eligibility to work in the UK checks for all employees.
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POST OFFICE PAGE 3
DUE DILLIGENCE PROCEDURES IN RELATION TO SLAVERY AND HUMAN
TRAFFICKING IN OUR BUSINESS AND SUPPLY CHAIN.
Post Office/POMS employs solely within the UK.
Our recruitment procedures ensure that all prospective employees are legally entitled to work
in the UK. All successful applicants must produce, on their first day, one of the following: their
original passport, driving license or birth certificate. Additionally, to comply with the Asylum
and Immigration Act 1996 requirements, if they are from a non-European Economic Area
(EEA) country, evidence of a right to reside and work in the UK must be produced.
We carry out reasonable and practical due diligence in the sourcing of goods and services and
ensuring that the Act's obligations form part of the procurement process. As part of this
process we have conducted a review of the criteria used by Post Office to evaluate whether
suppliers meet Post Office’s minimum tendering requirements. We have also reviewed our
standard form procurement contracts to ensure that they make explicit reference to the Act.
Additionally our supplier pre-qualification process requests information from potential suppliers
to assess their suitability as a supplier and provide evidence of their compliance with the Act,
as well as covering other areas of company information, policies and procedures. This enables
the procurement team to assist Business Units to identify and assess any potential risks
relating to the goods or services being procured.
IDENTIFYING, ASSESSING AND MANAGING RISK
WHERE ARE THE RISKS OF MODERN SLAVERY AT POST OFFICE/POMS
Post Office understands that our third party supply chains carry with it the risk of modern
slavery and human trafficking.
The due diligence we have undertaken so far indicates that there could be a risk of non-
compliance within our agency network as there are a large number of people employed by
Postmasters (including multiple partners) who are not employees of Post Office or POMS. They
work directly for the Postmasters. During 2017 we reviewed the Postmaster Contract of
Engagement and have written Guidelines to assist them in complying with MSA legislation.
These guidelines were issued December 2017.
GOVERNANCE
We have established a cross-functional steering group through which we develop and
coordinate our approach to addressing modern slavery risks within our operations and supply
chain. This group consists of expertise from the legal, procurement, compliance and
operational functions in Post Office.
TRAINING
We provide annual Compliance Awareness Training to all our employees and postmasters,
which is tailored to ensure an appropriate level of understanding of issues such as modern
slavery and the Act's requirements.
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WHAT DID WE DO THIS YEAR
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PAGE 4
Proposals from 2017 Statement
Progress on 2017 proposals
Update Postmaster selection and
appointment process to address MSA
requirements.
We reviewed the Postmaster contract and
believe it is robust enough to cover the Act.
We also supplemented the contract process
with a set of Guidelines for Postmasters.
Amend our standard form procurement
contracts.
We reviewed our standard form procurement
contracts and believe our ‘applicable laws’
clause covers POL for breaches of MSA. Our
PQQ process has also been amended to take
account of MSA and suppliers must confirm
that they comply with their obligations under
the MSA and provide a copy of their MSA
Statement.
Develop a communication plan to ensure our
suppliers, staff and agents are aware of Post
Office’s obligations in relation to Modern
Slavery and informing them about the
Modern Slavery Helpline.
We sent multiple communications regarding
Modern Slavery during 2017/18, including
communications to Postmasters.
The MSA is referenced in our Whistleblowing
Policy and was added to our Code of
Business Standards during 2017.
Review of audit and compliance, to develop a
relevant Training Plan.
A training plan remains under development.
This year, our commitments are focussed on
raising awareness. The Steering Group
anticipate the training requirement to
increase as we move towards 2019/20 as we
begin to build a suitable due diligence and
compliance capability.
We do however provide annual Compliance
Awareness Training to all our employees and
postmasters, which is tailored to ensure an
appropriate level of understanding of issues
such as modern slavery and on the
requirements of the Act.
WHAT COMMITMENTS ARE WE MAKING TO TACKLE MODERN SLAVERY IN THE
YEAR AHEAD
As part of our initiative to identify and mitigate risk throughout 2018/19 we are committed to:
agency network.
Improve the due diligence assessment for onboarding new suppliers to our systems
Review our supply base and revise our supplier management processes
Raise awareness of Modern Slavery across our supply base
Raise awareness of Modern Slavery across Post Office, its suppliers and within the
« Educate field teams out in the agency network on spotting signs of Modern Slavery.
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POST OFFICE PAGE 5
REMEDIATION PROCESSES
If you have any concerns about the issues raised in this statement or if you think you have
identified signs of Modern Slavery then please contact us on the below contacts:
«Post Office’s Whistleblowing Officer: whistleblowing@postoffice.co.uk or by telephone
on: 07900 216851.
=» The Government’s Modern Slavery Helpline on 0800 0121 700.
We encourage any individual who has concerns about unethical behaviour in any part of our
business or operations to speak up and to do so without fear of retaliation. We will review all
instances of non-compliance, on a case-by-case basis and will implement appropriate remedial
action.
REVIEW
This statement shall be reviewed and published annually
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POST OFFICE LIMITED PAGE 1 OF 2
BOARD
Post Office Limited Sealings
Author: Veronica Branton Sponsor; Jane MacLeod Meeting date: 25 September 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
1697 to 1710 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 1697 to 1710 inclusive in the seal register
is hereby confirmed.
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POST OFFICE LIMITED
Date Register of Sealings Company Number
18.09.2018 21554540
Seal Number Date of Date of y Persons Attesting Destination of
J File Ref. Sealing Authority Description of Document To Document Document
1697 01/08/2018 31/07/2018 Licence to Occupy - Post Office, 3 Crown Buildings, Billingham Jane MacLeod, Company Secretary Legal
1698 01/08/2018 30/07/2018 I Sale of 131 Brent Street, London Jane MacLeod, Company Secretary I Legal
1699 03/08/2018 01/08/2018 I Sale of freehold - 16-18 East Street, Ilminster, TA19 OAJ Jane MacLeod, Company Secretary I Legal
1700 20/08/2018 20/08/2018 I Agreement for surrender relating to part ground floor, basement floor and I Jane MacLeod Company Secretary Jean Reynolds
mezzanine floors, 7/8 St Martin's Place, London between Best Effort
Ventures Limited (Landlord) and Post Office Limited (Tenant).
1701 20/08/2018 20/08/2018 I Deed of surrender and release relating to part ground floor, basement Jane MacLeod, Company Secretary Jean Reynolds
floor and mezzanine floors, 7/8 St Martin's Place, London between Best
Effort Ventures Limited (Landlord) and Post Office Limited (Tenant).
I I_GROUD FLOOR SURRENDER DEED.
1702 20/08/2018 20/08/2018 ~~ I Deed of surrender and release relating to part ground floor, basement Jane MacLeod, Company Secretary Jean Reynolds
floor and mezzanine floors, 7/8 St Martin's Place, London between Best
Effort Ventures Limited (Landlord) and Post Office Limited (Tenant).
BASEMENT FLOOR SURRENDER DEED.
1703 20/08/2018 20/08/2018 I Deed of variation relating to part ground floor, basement floor and Jane MacLeod, Company Secretary Jean Reynolds
mezzanine floors, 7/8 St Martin's Place, London between Best Effort
\ I_Ventures Limited (Landlord) and Post Office Limited (Tenant). I
1704 04/09/2018 04/09/2018 ~~ Agreement for sale relating to 117-121 High Street, Bromsgrove, B61 8AA I Al Cameron, Group Chief Financial Legal
i _ I - Operating Officer I
1705 04/09/2018 04/09/2018 I Transfer of whole of registered titles relating to 117-121 High Road, ‘Al Cameron, Chief Financial Legal
I I Bromsgrove, B61 BAA Operating Officer I
1706 04/09/2018 04/09/2018 I Notice of an election to use an alternative apportionment relating to 117-_I Al Cameron, Chief Financial Legal
121 High Street, Bromsgrove, B61 8AA Operating Officer
1707 14/09/2018 11/09/2018 I Deed of release of dilapidations relating to Barry Crown Post Office (3-5 I Jane MacLeod, Company Secretary Legal
I Holton Road, Barry, Glamorgan, CF63 422)
1708 11/09/2018 11/09/2018 Deed of surrender and release relating to a lease of premises known as Jane MacLeod, Company Secretary Legal
Great Dunmow Crown Post Office, High Street, Great Dunmow, CM6 1AL
1709 13/09/2018 13/09/2018 Deed of surrender and release relating to a sub-underlease of premises I Jane MacLeod, Company Secretary Legal
known as Ground Floor, 377 Harrow Road, London, W9 3ND.
Seal x 2
1710 13/09/2018 13/09/2018 Transfer of whole of registered title relating to 377 Harrow Road, London, I Jane MacLeod, Company Secretary Legal
wa 3ND
Register of Sealings Strictly Confidential Page 2
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POST OFFICE PAGE 1 OF 2
POST OFFICE BOARD
Performance Review — Health & Safety
Author: Martin Hopcroft Sponsor: Al Cameron Meeting date: 25" Sept 2018
Executive Summary
Context
Keeping our employees healthy and safe is fundamental to Post Office success. This is
reflected in the Post Office Board’s legal responsibilities and members of the board have
both collective and individual responsibility for health and safety.
We have a rolling 3-year plan to drive compliance, targeting a reduction in safety
metrics including accidents; lost time accidents (LTIFR); days lost; and personal injury
claims. Our H&S reporting and safety management system has been externally
audited and we also recognise the importance that wellbeing can play in creating
engaged and motivated employees.
Questions addressed in this report
What are the trends on accidents and on violence across Post Office?
Conclusion
The prevention of accidents has improved materially year in year. However, we are
seeing a recent increase in robberies, especially around CViT in Liverpool and in ATM
rip-outs. Most worryingly we have seen two recent attacks on Post Offices with a
machete and a gun respectively. One was foiled with fogging technology.
There is a 47% reduction in accidents reported YTD to P5 (Aug) compared to 2017/18
(33 v 62) mainly due to a 69% decrease in Supply Chain (11 v 35). Accidents per 1000
employees have reduced by 55% with Supply Chain reducing to 13.5 from 42.9 (69%).
Lost time accidents have also reduced and the P5 YTD LTIFR is 0.143 compared to 0.303
in 2017/18. Total lost days are 68 compared to 276 in 17/18, a reduction of 75%.
The Supply Chain safety plan is progressing well with the introduction of safety
champions, safety forums and a review of local risk assessments and safe systems of
work. Further workshops are planned to support development and share best practice.
Additional Health & Safety training workshops have been provided to DMB and Supply
Chain Managers and a plan is being developed to provide similar training and support
to Network Operations and Retail support teams.
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We have seen a reduction in road traffic accidents in line with the 41% fall in fleet size.
Support is being provided to teams adopting the mobile phone whilst driving policy
and online driver safety training. Advice and guidance to alleviate fatigue whilst
driving is being pulled together for our drivers,
CViT attacks have increased with 24 incidents occurring over the last rolling 12 months
compared to 15 during the previous 12 months. There was 1 incident in August with no
injury. A review meeting has been held with all parties across supply chain, physical,
intel and security operations to deal specifically with the increased risk to CViT in
Merseyside. Unfortunately there is little intelligence from Police, who believe that
numerous gangs are responsible. The Serious Crime Group NW Police are attending
Chester to address crew and management.
Whilst Post Office robberies have been lower over the most recent 12 mths at 117 (v
170), there has been a very recent spike (10 successful and 3 unsuccessful, 5 using
fire arms, 2 blades including a machete and 3 blunt instrument with one injury,
bruising and cuts to head) and ATM crime (there have been 3 very recent cases that
have used vehicle ram raids to access the ATMs). We are about to assess a business
case on rolling out additional fogging in branches. We have now introduced an ATM
risk model and early indications suggest a positive impact.
The overall risk for property statutory compliance risk assessments remains low at
96.95%.
External Fire Risk Assessments have been completed for 2018 and actions are in the
process of being closed out. The risk profile has reduced significantly when compared
with the number of identified actions reducing by 71%.
Input Sought
The Post Office Board are requested to note the current health safety performance
and content of this report.
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Appendix 1
The Report - H&S Metrics - P5 (August) 2018/19
Number of Employee Accidents - Monthly - Period 5 Directly Managed Branch
(Target to achieve a year on year reduction) Accidents P5 YTD
3B
25 ~
20 .
20 5
45 10
10 7 5 —
0
5 pb bh L Year to Date
° 8 8 wio/17 2
P3 PA PS PG OPTS PLO PLA PAZ @ir/i8 3
2016/17 2017/18 2018/19 a 18/19 19
Supply Chain
Accidents P5 YTD
There were 5 employee accidents in P5 18/19 compared to 11 in P5 17/18 0
35
DMBs - There has been a 17% reduction in DMB accidents to 19 YTD 2018/19. 30
Causation is due to stepping/striking objects. However, there has been a marked
reduction in lifting / handling related accidents and falls on the premises.
Supply Chain ~ There has been a marked reduction in Supply Chain accidents to io
11 YTD 2018/19 from 35 in 17/18, a reduction in vehicle related accidents (non 5
RTA) and stepping/striking related accidents with a slight increase in 0
lifting/handling related incidents and injuries following attack. The H&S and L&D ‘Year to Date
teams are updating the H&S training modules, inc Manual handling for issue to 16/17 21
Supply Chain colleagues from Q3. w17/18 35
The Supply Chain Safety Plan is also progressing and 3 workshops have been 18/19 WW
attended by Safety Champions to share best practice, lessons learnt and
promote safety culture. IOSH Managing Safely training courses are being
attended in Q2 and self-audit tools are being developed for champions to use to I Road Risk
support their local PiCs. A number of improvement opportunities have been I P5 18/19 - A total of 5 RTCs
identified by the Champions eg tail lift and loading and unloading.
Blameworthy ~ 2
There has been a 35% reduction in
blameworthy road traffic collisions in
18/19 compared to 17/18
Overall, there have been 5 lost time accidents in POL in 2018/19, incurring a
total of 68 lost days, a 75% reduction when compared with 2017/18.
Days lost due to accident / 000 employees - Cumulative Non Blameworthy - 3
106.0
Initiatives include:
80.0 - A new overarching Road Risk Policy
is being developed, with improved
60.0
ss . training and compliance checks and
maintenance checks to cover
40.0 . Commercial Fleet, Business Cars &
Personal Car use.
20.0 a - Road Risk and H&S teams are
a ee] Bulle ha ‘a I scoping products to alleviate fatigue
Ps P5
00 and improve journey planning.
Pt UP. . . P6 - Online driver training has been
2015/16 42016/17_w2017/18 2018/19 provided to employees who drive on
NEAR MISSES - A total of 6 in P5 (Aug). DMBs - Nil reported business with ongoing support from
the H&S BPs.
Supply Chain - 6 near misses recorded in Aug. These are occurring in bullion
and coin sorting areas where we are using lifting equipment and moving cages.
Action taken: management action, H&S team have updated Vehicle Tail Lift
SSOW and all crew retrained, briefing to all Managers and staff at London CViT
and Swindon Stock Centre. Faulty items removed for repair by engineers.
- Crash investigation courses have
been provided to Transport
Managers and H&S BPs.
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0.00
LTIFR - Lost Time Incident Freq Rate
2.00
1.50
1.00
0.50
ese
PL P2 P3 P4 PS P6
somes LTIER DMB somes LTIER Supply Chain sme LTIER Post Office mmm LTIER Target
All Post Office - Employee
LTIFR P5 YTD
YTD P5 - 0.143
2017/18 out turn - 0.271
2018/19 target - 0.200
Benchmark - 0.300
Absence accidents/000 SiP:
1.02 P5 YTD v 1.97 (17/18)
Supply Chain - Employee
LTIFR P5 YTD
YTD P5 - 0.615
2017/18 out turn - 0.820
Post Office CViT Robberies - P4
There were 3 incidents reported in July v 1 in 2017/18 and there have been 24
incidents v 12 over previous 12 rolling months. Trend is being monitored closely.
There was no use of violence or injuries incurred. 1 used weapons v 1 in 2017/18.
Current mitigating activity:
Ongoing concerns in relation to recent spike in incidents on Merseyside. A
number of Depot visits undertaken by Security Manager to discuss best
practise with crews, and overt CPOs conducted by Security team to better
protect and reassure crews in the area.
Attendance at Operation Guardian CViT industry meeting in Liverpool to
engage with law enforcement about further mitigating actions to deter
criminality in this area
New iBoxes to be deployed on high risk routes around Merseyside, with
facility to remotely detonate box (via Grapevine) if stolen.
Security Manager arranged for Supply Chain managers to attend briefing
and demonstration by Met Police Flying Squad aimed at providing
reassurance as to both intelligence gathering work undertaken and
reactionary capabilities and strategy in event of CViT incidents.
Rolling CVIT Incidents
76 OPT PR
‘current ting 12 Months Sst oting 12 Monts]
Rolling Robbery incidents
2s
Pa
[_ Seurrent Rotting 22 Months last Roling 22Monthe I
2018/19 target - 0.500
Benchmark 0.600 (BSIA update Q2)
Absence accidents/000 SiP
4.91 PS YTD v 6.13 (17/18)
Post Office (AN branch
Robberies - last 6 months:
Feb ~ 12 incidents v 15 (16/17)
Mar - 9 incidents v 11 (16/17)
Apr ~ 6 incidents v 12 (17/18)
May - 7 incidents v 14 (17/18)
June - 8 incidents v 11 (17/18)
July - 6 incidents v 18 (17/18)
117 robberies current rolling 12 mths v
170 previous rolling 12 mths
types)
P4 2018/19
Violence - 3 vs 1 last year
Injuries - 2 vs 0 last year
Weapons - 5 (1 firearms, 3 blades) vs
12 last year (6 firearms, 5 blades).
‘There were 11 injuries compared to 16
in previous 12 months.
- 53 Operation Torch unannounced
security audits/visits conducted by
Security Managers in period,
targeting branches primarily in high
risk areas.
~ 13 DMB Security visits during period
with full toolkit undertaken, including
focus on ATM and SSK security and
compliance
= YTD the number of robbery incidents
involving a weapon has remained the
same at 84%,
- In P4 there was 2 injuries; one
incident involved PM being hit on the
back with a crow bar and one
incident involved the PM being
punched in the face. Neither resulted
in hospital attendance.
= The deployment of fogging and IP
cameras is aimed to reduce robberies
and the associated risks, as noted
zero injuries, where activated.
Strictly Confidential
Health & Safety Report Sept 2018
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BOARD
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PAGE 1 OF I
Post Office Limited Board Meetings
Author: Veronica Branton
Executive Summary
Context
Meeting date: 25 September 2018
The Directors are requested to note the future meetings dates scheduled in respect of
Post Office Limited Board meetings.
Input Sought
The Board is requested to note the future meeting dates.
The Report
2018/2019
Tuesday 30 October 2018 11.45 - 16.30
Tuesday 27 November 2018 11.45 - 16.30
Tuesday 29 January 2019 11.45 - 16.30
Tuesday 26 March 2019 11.45 - 16.30
Tuesday 28 May 2019 11.45 - 16.30
Tuesday 25 June 2019 13.00 - 18.00 Away Day*
Wednesday 26 June 2019 08.30 - 16.00 Away Day*
Tuesday 30 July 2019 11.45 - 16.30
Tuesday 24 September 2019 11.45 - 16.30
Tuesday 29 October 2019 11.45 - 16.30
Tuesday 26 November 2019 11.45 - 16.30
* The away day will be moving to July
Strictly Confidential
Board September 2018
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Draft Board Agenda for meeting on 30" October 2018
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q
a ce ue
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Minutes of previous Board and Committee meetings
5 Board action from Jane MacLeod
including Status Report. previous meeting
CEO Report 20 Standing item CEO For Noting
Financial Report 20 Standing item CFOO For Noting
UKGI Quarterly Report 20 Standing item ‘Al Cameron Cem Oztoprak Approval
Retail Performance Report 30 Standing item Debbie Smith Cathy Mayor For Noting
Postmaster Litigation 10 Update Jane MacLeod For Noting
Conflicts of Interest Policy 5 For Noting Jane MacLeod For Noting
Corporate Structures II 30 Decision Jane MacLeod Ben Foat/Jono Hill/David Decision
Gemmell
Belfast Exit Business Case 30 Reserved decision Rob Houghton clo Decision
Peregrine Proposals 30 Decision ‘Owen Woodley Decision
Health and Safety 10 Standing item Al Cameron For Noting
ATM and Cash Strategy 30 Standing item Debbie Smith Martin Kearsley For noting
[Holding slot
Strictly Confidential
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