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POST OFFICE LTD BOARD MEETING (Company Number 2154540)
Meeting to be held at 09.00 on 19 September 2012
at 148 Old Street, London, EC1V 9HQ in the Board Room
Appointment of Director
Strategic Cost Reduction
Financial Services update: putting Eagle into effect and
current account proposals
Break
Report of Pensions Committee and Pensions Strategy
“Project Robin”
Break for working lunch
Minutes of Previous Meeting and Matters Arising
Chief Executive’s Report including NT and Crown Update and
Health and Safety Report
Finance and Performance Report
Insurance Programme
British Postal Museum and Archive Funding
Any Other Business
Items for Noting
— Update on IT&C Transformation
— Risk/Resilience Review
- Horizon Evolution
— Significant Litigation Report
-— Register of Sealings
= Communications Action Group Meeting Minutes
— Health and Safety Committee Minutes
CLOSE
MUTUALISATION SUB-COMMITTEE MEETING
Attendees:
Alice Perkins (Chairman)
Neil McCausland (SID)
Alasdair Marnoch (NED)
Virginia Holmes (NED)
Susannah Storey (NED)
Tim Franklin (NED designate)
Paula Vennells (Chief Executive)
Chris Day (CFO)
Alwen Lyons (Company Secretary)
Alice Perkins
Chris Day/OC&C
Nick Kennett
Virginia Holmes/
Chris Day and
Susan Crichton
Alice Perkins
Paula Vennells
Chris Day
Chris Day/
Charles Colquhoun
Chris Day
Alice Perkins
Lesley Sewell
Lesley Sewell
Lesley Sewell
Susan Crichton
Alwen Lyons
Alana Renner
Susan Crichton
In Attendance:
Nick Kennett (item 3)
Ken Potter (item 5)
Charles Colquhoun
(items 10 and 11)
POST OFFICE LTD BOARD
Appointment of Non-Executive Director
The Board is asked to approve the appointment of Tim Franklin as a Director of
the Company and to authorise the Company Secretary to make all necessary
filings with Companies House.
Alwen Lyons
September 2012
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POST OFFICE LTD BOARD
Strategic Cost Reduction
1. Purpose
1.1 The purpose of this paper is to describe the approach that POL is taking to
Strategic Cost Reduction.
2. Background
2.1. The recent paper on Value for Money and Efficiency described how POL is
driving efficient operations through tactical improvements to the cost base.
Whilst this approach will produce incremental savings it will not deliver the
large-scale cost reduction that POL believes is required for long-term
commercial and financial sustainability. Therefore, POL is instigating a
Strategic Cost Reduction initiative, as part of the Strategy Review that is
about to commence.
2.2 Ensuring operations and resources are fully aligned to deliver the strategy is
integral to the Strategy Review. An initial diagnostic of the cost base and the
value potential of alternative operating approaches will be a vital input.
Ultimately, the Strategy Review will deliver the blueprint for an effective
operating model and associated cost base.
2.3 In anticipation of the fact that a Strategic Cost Reduction exercise will require
significant business process re-engineering, POL has undertaken initial
discussions with external experts to understand how to approach
incorporating a Strategic Cost Reduction programme within the overall
business strategy. The approach is described in this paper.
3. The current cost base
3.1. With income of £1,076m in 11/12, of which £180m was Network Subsidy
Payment, POL’s current £1.1bn cost base is not affordable, and is out of line
with potential competitors. As a result, it puts at risk POL’s ability to bid for
and win new business profitably and represents a significant challenge to
POL’s long term growth strategy.
3.2 The cost base is also predominantly fixed, so intervention is needed if it is to
be reduced. This needs to be achieved in a manner that makes the cost base
more flexible so that future fluctuations in income levels can be mirrored in the
costs without the need for further significant action.
3.3. Whilst POL continues to take tactical steps to reduce the cost base, these
alone will not deliver the significant reduction in POL’s costs that is required.
Similarly, POL’s current portfolio of transformation activity is not expected to
go far enough to achieve the necessary cost base reduction or flexibility; in
particular, POL is still likely to struggle to put up competitively priced bids (if
input costs are accurately incorporated) even following completion of these
programmes.
3.4 As aresult, POL Finance is proposing to initiate a sustainable cost
management initiative.
Strategic Cost Reduction Susan Barton & Chris Day, Sept 2012 Page I of 3
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Scale of the programme
Strategic cost reduction is a structured and targeted approach to cost
reduction. It is an integral part of the company’s strategy and examines the
resources and capabilities needed to deliver the strategy, looking at
alternative means for delivery to achieve the most cost effective approach.
In contrast to tactical cost reduction, strategic cost reduction is not about
reducing current costs but about changing the way things are done in a way
that changes and reduces the cost base. It may involve large-scale and
radical shifts in the company's operations.
In practice, this means considering anew how POL could operate in order to
achieve its strategic aims, initially unconstrained by the current operating
model. It will include consideration of whether POL should deliver activities
in-house or outsource them, so could result in POL’s operations
encompassing more or less than is currently the case. Key activities will also
be examined by type, such as retail operations, supply chain, head office,
property and alternative ways to deliver them explored; for example supplier
partnerships could be considered for third party costs.
The Executive Committee will need to consider what level of change can be
delivered, alongside the initiatives currently planned, and how fundamental
the changes will need to be. At one end of the spectrum POL could look to
optimise its existing operating model, or at the other end to completely re-
design the model.
With the Strategy Review just underway, the timing for a strategic cost review
is ideal. Therefore, it is in this context that POL Finance has sought initial
input into POL’s suitability for a strategic cost reduction programme from two
external companies.
Both stress that to be successful this type of change cannot be run as an
independent programme but needs to be integral to the business's strategy
and activities, and fully advocated and driven by the Executive Team.
This will be an important first step to instil a cost-focused culture throughout
the business, by embarking on a programme that results in an embedded set
of behavioural, policy and process changes that will ensure cost management
is sustained in all future strategic decision making and transformation activity,
as well as in business-as-usual operations.
The ambition is to create a sustainable cost management strategy which is
fully aligned with the overall POL Strategy. It is therefore recommended that
the strategic cost reduction programme should be run as part of the Strategy
Review, and also that this should not be a one-off exercise, but part of an
overall framework, which was described in the recent paper on Efficiency and
VFM.
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5. Programme Approach and Scope
5.1
5.2
5.3
5.4
5.5
The proposed approach comprises 4 main stages:
1. Initial Scoping — This will involve gaining a detailed understanding of
the current cost base, assessing the indicative value potential of the
exercise and forming a preliminary view of the costs, timescales and
resource requirements of the programme. This will provide a
valuable input to the strategy review.
2. Diagnostic & prioritisation — Includes identification of cost reduction
initiatives, prioritisation and developing the terms of reference for the
individual initiatives.
3. Planning/mobilisation — Setting up Governance, detailed
implementation planning, communication to the wider business.
4. Full scale programme execution to deliver the initiatives.
All areas of POL will be included in the initial stages to allow POL to develop
an ideal model for its cost base, and develop target costs across all areas.
However, it is recognised that given all the current pressures on POL it may
not be appropriate to subject every area and cost line to potential cost
restructuring immediately. Therefore, the prioritisation phase will involve
defining what is in and out of scope, and giving careful consideration to the
timing of the activities, particularly alongside current programmes.
Stages 2 and 3 will rely heavily on the senior managers in the relevant areas
and will be a business wide involved exercise. This will build buy-in to the
approach and improve on delivery. Clearly, the more radical the level of
change, the more difficult this and especially the subsequent delivery of the
changes will be.
The timetable for this exercise is aligned with our strategic plan, with stages 1
and 2 being completed by the end of December 2012 and stage 3 producing
the plans necessary for inclusion in our Strategic Plan submission for
Government.
Susan Barton and Chris Day
September 2012
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POST OFFICE LTD
Eagle Update
1. Purpose
11 This paper provides an update to the Board on Project Eagle.
2. Contract & Financials
21 The Project Eagle contract was signed by Post Office and the Bank of Ireland
(Bol) on Friday 3 August and completed on 31“ August 2012:
a) Post Office’s shares in Midasgrange (known as “POFS”) have been
transferred to Bol and Post Office has received the agreed consideration
of £2.0 million;
b) Post Office has invoiced Bol for £18 million, for the Gamma settlement,
and this should be settled shortly;
c) In September Post Office will invoice Bol for the additional and enhanced
commissions of £6.08 million, and will invoice under the new commission
rates.
3. People
3.1. The TUPE consultation process with Midasgrange employees has concluded
with 24 staff transferring to a Post Office contract (nine into sales
development and training, six as agency area sales managers, seven into
financial services marketing and two into financial service product
management’). All these new staff will be based in Post Office premises.
3.2 The Financial Services senior-lead team is in place, except for the Head of FS
Sales Strategy. A market search is continuing for this critical role.
4. Governance
44 The initial governance meeting of the Senior Executive Committee (SEC, the
highest formal governance body between the Parties) will be constituted on
12" September. This will set the governance parameters between the Parties
and establish the authorities of the subsidiary committees”.
4.2 The follow-up tri-partite meeting with the Bank of England and HM Treasury is
being arranged for the autumn.
5. Recommendations
5.1. The Board is asked to note this paper.
Nicholas Kennett
Director, Financial Services
September 2012
18 of those who have transferred were already seconded into our business.
A wider paper on the governance process between the Post Office and Bol will be tabled to the Post Office Audit,
Risk and Compliance Committee in November 2012.
Post-Completion Eagle Update Nicholas Kennett Page 1 of 1
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POST OFFICE LTD BOARD
Launching a Post Office Bank Account (Project Polo)
1. Purpose
11 The financial services vision is that the Post Office will be a leading player and a
credible alternative to the banks. A key enabler for delivering this vision is to
offer a current account (BCA). Establishing the primary banking relationship
through a transactional account would enable the Post Office to expand the
customer relationship by utilising enhanced customer data to build additional
cross-sales opportunities.
1.2 This paper provides the Board with an update on progress to deliver a BCA
(Project Polo’) and identifies the key risks that have been identified and
outstanding matters to be resolved. It is tabled for noting.
2. Market Opportunity
21 BCAs are the key entry point into financial services with over 95 percent of the
UK population having such an account®. The stock of UK accounts is c.66 million
with an annual flow of new account openings of c6.6 million®.
2.2 The big five banks dominate the market accounting for approximately 84 percent
of the stock and flow of UK BCAs. Notwithstanding the dominance of the big
banks Post Office research suggests that there is a good level of demand for a
BCA from Post Office’.
2.3 The launch of a BCA will help position Post Office as a credible alternative to the
banks. Importantly, it will also provide new income opportunities through the
proactive use of the data and contact opportunities to drive cross sales’. A BCA
can also assist the Post Office deliver a solution for Universal Credit, providing a
replacement to the Post Office Card Account (POCA).
3. Product and Customer Proposition
3.1 Project Polo market research confirmed that customers’ key requirements are
that BCAs are “simple and straight forward, fair and transparent, providing good
value for money, with “no catches””. This led to a BCA customer proposition that
‘Post Office makes it easy to manage your money’.
3.2 This positioning sort to address two challenges identified in the research:
a) The need for Post Office to establish its credibility by demonstrating product
expertise, confirming an understanding of the category and an ability to
create an attractive product;
Project Polo is a tri-lateral project of Post Office, Bank of Ireland and Midasgrange, led by Midasgrange.
2 Source: GfK NOP research
New flow is broken down as: 35 percent ‘second or more’ accounts; 28 percent switchers; 17 percent first ever; 16 percent
internal transfers; and 4 percent re-entrants (source GfK NOP).
Stated consideration is 25 percent for non POCA customers (focus in “old school traditionalists”, “work hard, play hard” and
“independent thinkers” segments). Very strong consideration from POCA customers - unbanked 68 percent, banked 49
percent. Source: Midasgrange market research
While Post Office is unlikely to match market cross-sell ratios, internal measures confirm that Post Office financial services
customers currently hold barely an average of 1.0 financial services products.
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b) The need for Post Office to exemplify good money management - the idea
that Post Office will make it easy for customers to manage their money.
3.3 The Post Office proposes to launch a range of three BCAs*:
a) Basic account with a monthly fee of £5, no overdraft and no other fees;
b) Standard account with a simple overdraft (on application), transparent fees of
£15 per unpaid item and no other charges;
c) Packaged account with strong benefits’ at a competitive £8 monthly fee.
3.4. These products will be supported by marketing messages reiterating that Post
Office will make it “easy to manage your money”, “all charges are clearly
explained, so no nasty surprises” and that the service is supported by “the
biggest branch network in the UK”.
3.5 In building these propositions the Post Office is seeking to leverage and
reinforce wider brand features, including:
a) Simple, straight forward and value products;
b) Simple, and transparent approach to overdrafts and charges, with no
“hidden” charges;
c) Amarket differentiation (appendix 2 provides competitor comparisons);
d) Asimple pricing structure that will enable the Post Office to offer accounts to
customers who would otherwise may be declined by other banks®, enhancing
the socially inclusive mandate;
e) An easy switching process to facilitate moving from another provider.
f) Flexibility to adapt the portfolio should the market shift to a fee-based
approach.
4. Proof of Concept (PoC)
41 To test the market demand and ensure that Post Office and Bank of Ireland
processes are effective, a PoC will be launched across 39 Crown and Agency
branches in East Anglia. The aim of the PoC is to confirm customer demand, the
type of customer attracted, their behaviour and to validate and subsequently
refine the sales and servicing operating models and business case. The PoC will
be supported by a local media campaign and direct marketing and has a sales
target of 3,000 accounts over six months.
42 The test market will be extended in April/October 2013 to encompass a small
trial in Manchester by DWP to test the new Universal Credit benefit payment
system with local authorities, employers and claimants.
43 Following a successful PoC and subject to separate approval, national rollout will
commence from October 2013°. If the program does not proceed all signed up
customers will have the option to revert to a Bank of Ireland (UK) pic (Bol) BCA,
with service access at Post Office branches.
Summary of the three accounts’ benefits and fees are in Appendix 4
The account conforms to FSA guideline CP11/20. Post Office does not provide advice (the features are explained with the
customer self-selecting), confirms that the customer is eligible to claim under each policy, and the customer will receive an
annual eligibility statement with the option to switch to an alternative product.
All UK residents will be eligible to open a Basic account irrespective of credit status, as long as the customer can prove
their identity and place of residence
The full rollout proposition will likely have additional features such as mobile access and budgeting,
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5. Business Case
5.1 Project Polo has developed an ‘enterprise’ business case covering the costs and
revenues of Post Office, Bol and Midasgrange'” from PoC, through rollout to
2023.
5.2 The key assumptions include:
a) Steady state of 185,000 new accounts sales per annum will be reached in
year 6'', equating to 2.8 percent of new accounts opened;
b) Stock of accounts will increase to 1.19 million accounts by year 10;
c) Standard accounts will account for 66 percent of sales with Packaged and
Basic accounts each accounting for 16-18 percent of sales;
d) Aggregate investment costs from rollout to Year 5 are:
* Bol - £137 million’?
« Post Office - £25 million covering agents’ fees, marketing and
investment in Horizon;
¢ Fee and credit interest income amounts to £123 million.
e) The enterprise business case does not include any cross-sale benefits.
5.3 The business case generates heavy losses in the early years primarily due to
customer acquisition, account opening and fulfilment costs (which are all
accounted for in-year), not being matched by revenue growth (particularly the
deposit growth’). These initial costs are particularly heavy for Bol.
5.4 Overall the enterprise business trades profitably from year 5 and cumulative
trading breakeven is achieved in Year 6, with cumulative profit reaching £208
million in Year 10.
5.5 Whilst the enterprise business case demonstrates that a BCA will create a
profitable new income line, a significant ‘J- Curve’ is created - the more
successful the launch, the higher the initial trading loss, compensated by higher
value in later years.
56 While Post Office has built its own business case", it is dependent on the
commissions and other benefits derived from Bol.
57 The Parties have commenced negotiations on the Post Office fee structure’®:
a) In line with Eagle principles, Post Office has proposed a commission
structure aligned to the matters to which it can influence or for which costs
are incurred. This reflects the long term value created and costs incurred in
delivering the customer proposition, particularly:
« Sales and branch transactions"®;
Midasgrange has driven the project; following Eagle only Post Office and Bol will be involved
Split - Crown 81,000; managed agency 41,000; non-managed agency (lead to contact centre) 17,000; direct 46,000.
Comprising depreciation of £25 million investment; account opening (£21.5 million) and on-going account servicing (£85.9
million); credit provisions and other costs £4.1 million;
13 Average balances tise from £750 to £3,404 by year 6 (Packaged); £500 to £2,436 (Standard); £180 to £509 (Basic)
The provisional Post Office business case is based on the enterprise case assumptions and overlays cross-sales and the
income to Post Office from sales and service activities.
The Parties agreed that the remuneration structure for Polo would not be included in Eagle as the enterprise business
model had not been completed, but that it would utilise the principles agreed within it.
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e Credit and overdraft balances;
e Fee Income (unpaid item fees; account fees; overdraft fees);
e Debit Card activity (interchange; overseas transactions; forex).
b) Due to the financial risks associated with their ‘J-Curve’ Bol’s negotiating
position is that the Parties should enter into a profit share structure (ie that
Post Office should share the early year losses). Such a structure would,
however, create additional complexity (which Eagle sort to eliminate), expose
Post Office to an unacceptable income’’ and cash flow risk, create additional
complexity to the Eagle termination value and would require Bol to cede
some control over areas such as credit risk.
5.8 Post Office’s commission proposal based on 5.7 (a) would deliver a break-even
Position to the Post Office after two years.
5.8 While negotiations with Bol are underway, the PoC will not commence until
agreement is reached and the impact on the remuneration structure is inputted
into Post Office’s business case"®.
5.10 Post Office management is also developing a contingency plan to ensure that
there is a credible offering to support DWP universal credit strategies.
6. Key Challenges and Risks
6.1 Launching a BCA will add strategic and financial risks to the Post Office.
6.2 ATM Interchange: Post Office and Bol operate a fleet of over 2,200 ATM's”
which generate interchange income” of c.£55 million per annum; of this amount
Post Office receives c.£32 million.
6.3 The level of interchange received at Post Office/Bol ATMs is governed by the
rules established by the LINK network?":
a) Post Office/Bol ATMs currently are classified as ‘non-branch” generating
interchange of 25.7p per transaction;
b) If Post Office ATMs are designated as being under a ‘branch status the
interchange rate would fall to 16.5p per transaction;
6.4 While Post Office and Bol are confident that the ‘non branch’ status will be
maintained, there is a risk that, following the launch of a BCA, a LINK member
may challenge Post Office’s status and potentially seek to create a new
classification.
6 Post Office will need to pay agents for sales and over-the-counter transactions.
v With implications inter alia on bringing Crown branches into profitability.
* Include confirming commissions payable to sub-postmasters for sales and transaction services.
@ Post Office has a long term agreement with Bol for ATMs services that is separate from the main agreement.
20 ATM interchange is the payment received by the provider of the ATM from the cardholder's bank for providing cash
withdrawal and balance enquiry services.
21 ‘The LINK Scheme (part of VocaLink) sets the rules for ATM operators who want their cash machines to be part of, or card
issuers who want their cardholders to be able to use, the UK ATM network.
22 The ATM is located at premises (Post Office branch) different from those at which staff employed by the Network Member
(Bol) is responsible for managing the ATM
a The ATM is located in premises at which staff employed by the LINK Member is responsible for the ATM business. A third
classification (‘common ownership’) applies where there is an ownership connection between the site operator and a
Network Member (interchange of 23.8p per transaction applies).
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6.5 To assess and mitigate the risk, the Post Office has engaged Edgar Dunn &
Company (EDC), a specialist payments consultancy, to provide advice on an
approach in discussions with the Payments Council and LINK.
Their
recommendations will be made in early September and will likely emphasise:
a) Separate contractual arrangements between Post Office and Bol and
between Post Office and sub-postmasters (reinforcing clear ‘non-branch’
characteristics);
b) Post Office ATMs provide financial inclusion access in deprived areas (and
therefore to engage appropriate political pressure to ensure that there is no
change to the ATM status);
c) Account opening process will focus on Crowns, which account for less than
20 percent of the ATM estate.
6.6 Whilst there are a wide range of scenarios, the most likely impact if a change
were to occur will be under £1 million per annum. EDC will provide an opinion in
their recommendations.
6.7 Partner Banks: Post Office provides over-the-counter transaction services to
over 80 percent” of other-bank’s BCA accounts”, generating annual income of
£25 million”. The introduction of a Post Office BCA may cause a partner bank to
cancel the service as it might be seen as providing a competitor offering with a
strategic advantage.
6.8 Post Office’s strategy to reduce this risk is to:
a) Position the launch as supporting a wider financial inclusion strategy, with the
product range providing a BCA to any UK adult;
b) Communicate with senior bank executives that Post Office does not intend to
proactively target customers of partner banks when they are completing a
banking transaction at a Post Office counter;
c) Seek support from the Department of Business, Innovation & Skills to
communicate to the relevant bank CEOs to maintain arrangements”.
Conclusions
71 The BCA represents a significant opportunity for Post Office to develop its
position as a credible financial services provider. A PoC will not be initiated,
however, without appropriate agreement with Bol on commission structures (and
hence the business case is completed) and that the risk to ATM interchange and
partner bank revenue is confirmed and ameliorating strategies finalised.
Recommendations
8.1 The Board is asked to note this paper. A final paper will be presented
matters set out in paragraph 7.1 are concluded.
once
Nicholas Kennett
September 2012
The significant remaining banks are HSBC and Santander's ex-Abbey portfolio,
Predominately cash deposits and withdrawals
Post Office is in advanced discussions with HSBC, which would generate an estimated additional £3 million income
BIS contacts have informally indicated that such an approach would likely be supported
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Appendix 1: Product Proposition Summary
Packaged Standard Basic
Core A package of benefits that the A straightforward and fair Ano frills bank account
Concepts} customer truly values in return bank account from a from a trusted brand
for a monthly fee. trusted brand that offers that offers everyday
free everyday banking with banking with a single
no hidden charges, coupled I monthly fee and no
with convenient access for other charges.
transactions.
Features I . Debit Card * Debit Card * Cash Card
e Overdraft at 14.9% e Overdraft at 14.9% ¢ No credit facility
e Cheque Book e Cheque Book e Monthly fee —- no
« Package of benefits: other charges
« Family travel insurance (EU)
from Post Office Travel
Insurance
¢ Car breakdown insurance
(UK recovery plus home
start) from Greenflag
¢ Credit management tools
and identity theft protection.
¢ Discounted Post Office
branded travel booking
service
Fees & I ¢ £8 monthly fee to cover Free in credit use ¢ £5 month fee
Charges benefits e £15 unpaid item fee e No unpaid item fee
e £15 unpaid item fee
Project POLO
Nicholas Kennett
September 2012
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Appendix 2: Comparison of the main UK banks' BCAs Source: company websites
Interest
Bank Credit Paid Unpaid Unarranged I Interest Unarrange I Comment
Fee Arranged q
£2 monthly fe (regardless of use)
antan 1% from 81K essay £500 pom credit required for 123 benefits,
fantander I 25 from £2K e.. cashback
123 3% from £3- £5item £10/item ~ (capped at 5iday £1000 pcm credit required to receive credit
25K 20 days) interest
Overdraft fee cap at £95!month
Etiday £5iday
Santander I ox, £26item £26\tem - (capped at I (capped at I Overdraft fee cap at £150/month
veryday 20 days) 20 days)
£100 interest free OVD on all accounts
£6 ftem max
NatWest £6/item max (€250 for top AVA).
RBS o* £60 I Per I 60 permontn I */day 19.80% 19.80% Theoretical” unarranged OVD max is
£126/month not including interest
Nationwide I 0% £18/tem £15item £20/month 16.90% 18.90% Max charges per month limited to £95
= £10 no
charge Free if not Need to pay in £500/month or may close
used in last 8- account
HSBC 0% 7 ‘£25, £10/item months: 19.90% 19.90% Arrangement Fees charged will never be
£25 higher than the overdraft requested
> £25, £25/tem
<£10= £0
Arranged fee does not apply within £10
Loyistss I ome I eiomiem max I >er0<225 I ES%menth — I esimonth overdratbuffer, ron AVA accounts
Vantane of Siday S/day paeeeen and 19.3% Interest free OVD on AVA (£100/£250/2500)
a Unarranged fee a maximum of 8/month
> £25 £10/day
Reward £6:2S/month gross if pay in
Halifax/BoS £5 per month - - - £t/day ‘£S/day £1K/month
Arranged OVD > £2.5K = £2Iday
£22 per 5 day Use Reserve’ concept
Barclays oe £6item £8/tem period 19.50% ov £300 Interest free OVD on AVA
‘Max £150 charges per quarter
No charges ifin cre fora year and then go
Co-op 0% £20/tem £15ftem £20/month 159% 15.9% No charges
£200 foe free OVD if credit £800/month
Post Office ‘Simple charging structure with no shadow
(standara’ I 0% na 15item 0 149% wa limits, unarranged overdraft and patd ftom
package) fees, Low arranged interest rate
Project POLO Nicholas Kennett Page 7 of 7
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PC 12/1-6
Present:
Apologies:
In Attendance:
Presenting:
PC12/1
ACTION:
Company
Secretary
PC 12/2
ACTION: SH
PC 12/3
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POST OFFICE LTD
PENSIONS SUB-COMMITTEE
Minutes of a meeting of the Pensions Sub-Committee
held at 148 Old Street, London EC1V 9HQ
on Thursday 2 August 2012
Virginia Holmes (VH)
Chris Day (CMD)
Susannah Storey
Ken Potter (KP) POL Pensions
Martin Lacey (ML) POL Pensions
Pauline Holroyd (PH) POL HR Director
Sarah Hall POL Finance
Robert Copeland POL Procurement (items 1-4)
AON Hewitt: Andy Cox, Tim Giles, Zoe Taylor
Lane Clark & Peacock (LCP): Stuart McKinnon, Gavin Orpin
Towers Watson: Laun Middleton, Oliver Rowlands, Mihir Shah
CONSTITUTION OF COMMITTEE AND TERMS OF REFERENCE
It was noted that the Committee had been duly constituted as a sub-
committee of the Board and would be chaired by VH.
A quorum of two directors being present, VH opened the meeting.
The Terms of Reference were agreed, subject to the Head of Finance and
Compliance (SH) being added to the list of attendees.
REVIEW OF CONSULTANCY SPEND
Consultancy fees paid to Towers Watson were noted. Further fees of £25,500
incurred for work between mid-March and July 2012 were also noted and
approved. A budget of between £15,000 and £30,000 was proposed at this
stage for Project Robin and this was agreed.
It was noted that it was difficult to estimate, at this stage, what level of fees
would become payable to the new investment advisers, ahead of scoping out
more fully the work to be undertaken by them. It was therefore agreed that a
figure of up to £100,000 should be budgeted
INVESTMENT ADVISER PRESENTATIONS
The Committee received three competing presentations in response to Post
Office’s invitation to tender for the appointment of a pensions investment
adviser:
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ACTION: RC
ACTION: VH
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a) AON Hewitt
It was noted that AON Hewitt had had experience of the Royal Mail Pension
Plan (RMPP) in the past which might be useful, but that they were not
conflicted in this respect.
Their presentation showed understanding of the tight timescales and of the
need to control pensionable pay, given the sensitivity to increases and impact
on funding.
The diagrammatic representation of risk on pages 8 to 12 of the presentation
brochure was considered potentially useful for the Board and both the
presentation and supporting documentation were agreed to be strong.
Clarification was requested on the liability cap in AON Hewitt’s terms and
conditions. AON Hewitt would revert to RC.
b) LCP
LCP’s presentation was received. The approach to educating the Board was
Not felt to be particularly clear and there was a greater concentration on
hedging strategy which was considered by the Committee to be less relevant
at this stage.
c) Towers Watson
The document circulated by Towers Watson was technical and very detailed in
style. Their approach to director education on pensions could potentially cost
more and take longer than other advisers’ suggestions.
Although stronger than the LCP bid, it was felt that the presentation had not
demonstrated a proactive and logical “flow” or highlighted sufficiently clearly
Towers Watson’s understanding of Post Office pensions issues.
The Committee and attendees completed a scoring process using previously
agreed measures. On the basis of such scoring, it was agreed unanimously
that AON Hewitt should be recommended for appointment.
RC would arrange for reference details to be sent to VH so she could make
contact at the appropriate level. As mentioned above, RC would also obtain
details on the liability cap for AON Hewitt to ensure it would be compliant with
Post Office policy.
VH would circulate the recommendation to the Board by email for approval,
pending formal ratification of the appointment at the next Board meeting. This
would allow the new investment adviser to begin work, in order to meet the
tight timetable for making recommendations to the full Board.
RC left the meeting.
PROJECT ROBIN
Representatives from Towers Watson rejoined the meeting to discuss the
analysis undertaken to date on Project Robin.
20f4
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KP summarised the paper, which had been provided to
(i) inform the Committee on how Post Office might manage pensions costs;
and
(ii) consider the impact on future pension costs of lower pensionable salary
increases, or of closure to full accrual (potentially offering the Royal Mail
Defined Contribution Plan as a future pension offering).
He noted that the timescale was largely driven by RMG, who wanted a
member consultation to take place in late October/November, with a view to
changes becoming effective in April 2013.
The approach understood to be favoured by RMG would be to limit increases
to pensionable salary in respect of pre-2008 salary linked pension to a
maximum of RPI, up to 5%. It was explained that the financial impact of a Rule
amendment and change to pensionable salary being held in line with RPI, up
to a maximum of 5%, was substantial and could give rise to the current
company contribution levels remaining in place (by “amortising” the surplus)
for a number of years, assuming the assumptions underlying the calculations
remained true.
It was agreed that this approach should be recommended to the Board at its
meeting in September. KP agreed to update the paper to reflect comments
received. The paper would not include full closure as a viable option at this
stage. The paper should, however, also include :
. Information about the potential impact for HR and industrial relations,
including Union consultation;
¢ The position of ShEx, including their likely views on use of the
Government asset allocation;
. Information on, and approaches to, RMG’s proposed 6 year period of no
pension change for members and what break clauses may be
applicable, such as the POL Government Funding Agreement ending in
2015;
. A note that RMG’s proposed changes to the defined contribution rate
and waiting period were not required for POL until 2017, so would be a
concession if given early. As a larger employer, RMG was required
under the Workplace Reform provisions to make these changes now. It
should be made clear that these changes were not directly linked to
Project Robin.
ACTION: KP. The paper would be circulated to the Committee in draft form for comment. It
was noted that any final alterations could still be made at the next Pensions
Committee meeting on 11" September.
POLPSC 12/5 ANY OTHER BUSINESS
ML updated the Committee on RMSEPP’s consultation with members in
connection with closing the scheme to future accrual, which closed on 31 July.
It was reported that the previous proposal by RMG to make a special employer
contribution to RMSEPP had nearly been finalised. The contribution was
expected to be £20 million in cash and £20 million in escrow. Details were
being worked on by RMG, prior to formal agreement with the Trustees. Post
Office would make a contribution of 7% of these amounts via an inter-
company re-charge, in due course.
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POLPSC 12/6 DATE OF NEXT MEETING
The next meeting would be held on Tuesday 11 September 2012 at 11.30am,
at 148 Old Street, London EC1V 9HQ.
There being no further business, the meeting was declared closed.
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POST OFFICE LTD BOARD
Proposed RMPP and RMDCP design amendments
(Project “Robin”)
1. Purpose
1.1 The purpose of this paper is to request approval for changes which have the support of
the Pensions Committee in relation to the Royal Mail Pension Plan (“RMPP’”).
1.2 Post Office Limited is a participating employer in the RMPP with its own assets and
liabilities, following the Pensions Solution as at April 4°, 2012. The Pensions Committee
has carried out its own analysis in conjunction with Towers Watson and is in agreement
with the proposal approved within RMG to amend the design of the salary-related service
pension accrual, following appropriate consultation. The Board is requested to approve
the approach for Post Office Ltd as below.
1.3 A further proposal relates to a change to the Royal Mail Defined Contribution Plan
(“RMDCP"), which is part of the Post Office pension approach “package” being discussed
in this paper. The Board is also requested to approve this change.
2. Introduction and summary
21 RMG has been working on a proposed change to the salary-linked part of pension within
RMPP for pensions accrual, relating to the pre-2008 service which is still linked to
pensionable salary. Post Office has been involved in this process from the outset as the
issues of pension costs and the sustainability of RMPP are very similar. Post Office has
also taken its own advice in connection with the Project.
2.2 The drivers behind the proposal are to reduce the long-term costs and maintain the
sustainability of RMPP, as well as to decrease volatility and uncertainty both in funding
and in the effect which this has on financial accounting for the employer. It is consistent
with the Post Office Funding arrangements which encourage keeping costs as low as
possible. If the proposal is not effected, given market conditions, it is anticipated by
Towers Watson that the Post Office employer contribution rate may rise from 17.1% to
around 30% of pensionable payroll as part of the valuation process underway and it will
be effective as at 1 April, 2012.
2.3 As at 1 April, 2012, the Pensions Solution transferred assets and liabilities for pensionable
service up to that date to the HMG-backed Royal Mail Statutory Pension Scheme.
However, the liability for increases to pensionable pay above RPI in the future rests with
RMG and Post Office, even in respect of past service. Both the RMG and Post Office
sections of the revised RMPP were left with sufficient assets as an “opening balance” to
allow for future salary growth of 1% above RPI. In the case of Post Office, this is
approximately £144 million (plus an allowance for expenses and provision for added year
AVCs).
Project Robin Chris Day, 12 Sept 2012 Page 1 of 4
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24 Post Office and RMG have each looked at a number of strategies for final salary pensions
and have focused on one preferred design option. This has already been approved in
principle within RMG and is now presented for the Post Office Board’s consideration.
3. Recommended change and other related issues
3.1 The principal change discussed by the Pensions Committee, and recommended to the
Post Office Board, is to limit increases to pensionable salary in respect of pre-2008
salary-linked pension to a maximum of RPI, up to a cap of 5%, rather than the full
increase to base pay.
So, for example, were an employee's salary to rise by 5% when inflation is running at 3%,
then 3% would be applied to defined benefit pensionable pay. Conversely, if salary
increases were 1.5%, then the increase to pensionable pay would be 3%. It is proposed
to give effect to this change by amending the scheme rules.
The proposal is also to impose such a cap on the career-average part of pension for post-
2008 service for employees; however this is subject to negotiation (see 3.4 below).
3.2 The approach of awarding pensionable increases at RPI up to 5% has the following
advantages:
e The change would potentially create a surplus in the Post Office Section of
RMPP for a period of time. In point 2.2 above, the pre-funding in the Post Office
Section allowed for salary growth of 1% above RPI and so the opening balance
would become surplus. This could be worth up to £144 million for the Post
Office Section. The buffer created by this margin will help in negotiations with
the Trustee over the amount of the fund invested in return-seeking assets and
the appropriate discount rate(s) used to value the liabilities in the forthcoming
valuation, as well as investment strategy.
e Attached is a financial summary prepared for Post Office by Towers Watson,
showing the potential impact of the change based upon different scenarios.
This demonstrates that the surplus in the Post Office Section is likely to be
sufficient for Post Office to be able to maintain the current level of employer
contributions (ie 17.1% of Pensionable Pay) to RMPP for a number of years —
potentially between 13 and 19 years depending on the investment and other
experience of the scheme.
e Each level of indicative employer contribution rates has some sensitivity
analysis. These are different withdrawal rates (DB scheme leavers) of 5% and
10% and also two assumed rates of investment return - gilts plus 1.5% and
gilts plus 0.75%. For the purpose of this paper, the projections assuming 10%
pa withdrawal rates have been ignored since this is not understood to be a
realistic scenario.
« The retained asset basis was used to determine the initial asset share for Post
Office following the Pensions Solution and may be considered to be a normal
“funding” basis for calculating employer contribution rates. However, the
Project Robin Chris Day, 12 Sept 2012 Page 2 of 4
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proposed funding basis for the current valuation will be subject to negotiation
with the trustees.
e The solvency basis is effectively a “worst-case” scenario and assumes that the
liabilities are taken on by an insurer — this basis also has to be disclosed to
members of all schemes each year.
e From an employee perspective, there is still an RPI link to pre-2008
pensionable salary even if actual salary rises are less than RPI. This would be
seen as advantageous for some employees and distinctly preferable to full
closure of the plan to future accrual.
« It provides more certainty for Post Office in terms of growth in pensionable pay.
e It should be relatively easy to implement from an administrative platform
viewpoint whereas many of the other alternatives considered would be difficult.
3.3 From an HR and IR perspective, it is anticipated that, to align with the RMG approach,
joint consultation would take place with the Unions about the change in late
September/October. Post Office would then issue its own consultation documents for
employees (but similar to the RMG wording) in late November/December. Assuming the
proposal is effected, this would give time for the necessary changes to systems and legal
work to be completed in time for an effective date of change in April, 2013.
3.4 It should be noted that the parameters of the proposal are not yet fully finalised — the
process of informal discussion with the Unions about the plans is only just underway (not
within Post Office yet). To date, the discussions have been facilitated by Jon Millidge in
RMG but Post Office will be involved shortly to represent its views. It is possible that some
parameters may change as the discussions evolve if necessary and it is possible that
Post Office will have differing approaches on some areas. For example, one approach
would be to consider increasing the RPI parameter to RPI + 0.5% for a given period as
part of negotiations. This has not yet been agreed and will become clearer as the
discussions progress. Any changes will be costed by Post Office and the Board informed
of any material changes.
3.5 It is proposed that, as part of the consultation process, there would be an assurance that
there would be no further substantive changes to pensions for a period of 6 years from
the change (which is 2 valuation periods for RMPP), with an exception for “force majeure”,
for example some significant change to pension funding regulations or the employer
pension contribution rates requested by the Trustee. This is still being evaluated.
3.6 ShEx have indicated in general terms to RMG that they would be supportive of the
proposal. Subject to Post Office Board approval of the proposal, Post Office will approach
ShEx to ensure that the proposals for change (particularly use of any surplus) are aligned
with the Shareholder’s thinking.
3.7 Recognising that the financial and risk issues are the drivers to the change, the Board is
being asked for approval but this will be subject to the creation of a full implementation
plan. This will cover the HR issues such as consultation with Unions and colleagues, legal
issues, liaison with the Trustee of RMPTL and other technical and administrative details.
Project Robin Chris Day, 12 Sept 2012 Page 3 of 4
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3.8 The proposed change is seen by RMG as an integrated approach to pensions and so, as
part of the consultation, they propose that the DC Plan employer contribution rates are
increased by 1%. If this were to be implemented for Post Office Limited members, the
impact would be to increase Post Office DC costs by an estimated initial £200,000 per
year (based on current membership). This cost is justified by the use of the surplus to
reduce DB pensions costs. It is recommended that Post Office Limited follows the same
approach for the DC Scheme as within RMG. The date of implementation of any changes
to the DC Scheme will be confirmed.
4. Recommendation
The Post Office Board is requested to:
44 approve in principle the approach as detailed above, subject to the creation of a detailed
implementation plan;
4.2 delegate authority to the Pensions Committee to implement the strategy in line with the
timings set out above and to agree with RMG, on behalf of the Board, any changes to
parameters as part of the on-going negotiations.
Project Robin Chris Day, 12 Sept 2012 Page 4 of 4
Period until RMPP funding level reduces to 100%
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e The table below shows the estimated period (in years) for which the RMPP would be in surplus, under
the assumptions adopted, if pensionable salary increases were in line with increases in the Retail
Prices Index (RPI), capped at 5% per annum. We show the analysis for:
e different investment returns. The higher the return on assets, the longer the surplus lasts
« RMPP employee turnover (5% or 10% per annum). The higher turnover is, the longer the surplus lasts
« Fixed POL contribution levels (held below the cost of funding RMPP benefits as they build up to POL employees).
The higher these fixed contribution rates, the longer the surplus lasts
RMPP contribution scenario
Period (years from 2012) until RMPP funding level reduces to 100%
investment return
@ gilts plus 1.5% pa
Retained Asset
basis
Solvency
investment return
= gilts plus 0.75% pa
Retained Asset
basis
Solvency
Turnover scenario 5% 10% 5% 10% 5% 10% 5% 10%
17.1% flat 19 Forever 7 11 13 28 7 8
18.3% flat Forever Forever 8 Forever 15 Forever 7 9
20% flat Forever Forever 9 Forever 17 Forever 8 11
22% flat Forever Forever 12 Forever 22 Forever 9 Forever
fowerswatson.com
© 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 1
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POLB(12)7"
POLB12/71-79
Post Office Limited
(company no. 2154540)
Minutes of the meeting of the Board of Directors held on 4" July 2012
at the Gatwick Mail Centre, James Watt Way, Crawley, West Sussex RH10 9AA
Present:
Alice Perkins Chairman
Neil McCausland Senior Independent Director
Virginia Holmes Non-Executive Director
Alasdair Marnoch Non-Executive Director
Susannah Storey Non-Executive Director
Paula Vennells Chief Executive
Chris Day Chief Financial Officer
In attendance:
Alwen Lyons Company Secretary
Kevin Gilliland Sales and Network Director
Martin Moran Commercial Director
POLB12/71 NETWORK TRANSFORMATION (NT) UPDATE
Agency Network Transformation
(a) Kevin Gilliland presented an update on NT progress. He reported that 217
new model branches were now live and the business was seeing a good
response to the model from the market and from the Post Office’s multiple
partners. He was confident that the target of 1,200 branch conversions
would be achieved this year but there was an ongoing risk if the
programme lost stakeholder support from the NFSP or Consumer Focus.
Kevin Gilliland explained that successful agents from Phase 1 of the
programme were now working with the business as advocates, presenting
at road shows and offering one to one visits with prospective branches.
(b) The Board asked at what point the business would be confident about
hitting the 3 year target. Kevin Gilliland explained this would probably be
in 2013/14 (after the next funding discussions); however, the results for
this year should give some confidence.
(c) The Board requested a quarterly report to understand the transformation
pipeline, showing the number of Postmasters interviewed; number
accepted; number in progress and the number completed against quarterly
targets.
Paula Vennells assured the Board that the Executive Team already
ACTION: monitored the programme at this level and would provide this information
Kevin Gilliland/Chris Day for the Board.
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(d) Alasdair Marnoch asked that a separate value for money NT scorecard be
ACTION: produced to show the number of branches converted; the investment
Kevin Gilliland/Chris Day made in their transformation and the benefits flowing from that investment.
Crown Transformation
(e) Kevin Gilliland presented the update on Crown Transformation and
assured the Board that he was now more confident the business would
achieve the breakeven target for Crowns. A new team was in place and
the Birmingham trial continued to be successful - delivering mail
automation rates of 78%; a reduction of staff; average queuing times of
95% served within 5 minutes and a reduction in the loss of over £200k per
annum, which should see the office back to profit by 2014. Paula Vennells
stressed that the big city centre branches were the biggest challenge for
the business, so the results at Birmingham were particularly encouraging.
(f) I Susannah Storey explained that the Crown Programme would be a focus
for the Government, especially as the business had moved away from the
original plan to buy down staff salaries. Paula Vennells confirmed that the
strategy had changed since the funding agreement but it had the same
target of breakeven by 2015.
(g) Chris Day explained the changes to the 2010/11 Crown P&L to align with
the overall business approach to depreciation and to take account of the
renewals and retention income generated by the Crown Branches.
He explained the changes in the 2011-12 targets driven by the Mails
Distribution Agreement move from fixed to variable income. The Board
agreed to the changes in the Crown P&L and the target of a deficit of
£40m for 2012-13, although they were concerned that this would leave an
additional improvement of £20 million to be made both in 2013-14 and
2014-15.
Kevin Gilliland explained that the plan focused on four areas: income; staff;
property and central costs and included critical activities for each area with
milestones which would trigger changes if they were missed, eg winning
the DVLA contract.
ACTION: (h) Neil McCausland asked for the original P&L in the Strategic Plan to be re-
Kevin Gilliland/ cut and a forecast P&L for the 5 years of the plan to be produced including
Chris Day the effect of the new initiatives.
(i) The Chairman asked for a Board quarterly update on Crown
Transformation to monitor against the revised P&L. Susannah Storey
stressed the importance of having a clear direction and results to share
with Government, to show the Post Office’s confidence in its ability to
ACTION: deliver on Crowns as part of the context of the next round of future funding
Kevin Gilliland/Chris Day discussions.
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Queuing
(j) I Kevin Gilliland summarised for the Board the recent results of feedback on
the queuing experience of Post Office customers and the improvement in
waiting times. The Board acknowledged the improvement but agreed this
was not the public perception, especially at peak times and at Christmas.
Kevin Gilliland explained that his benchmarking with other leading retailers
showed varying times for changes in perception after improvements in
queuing times, with 18 months to 2 years being the norm.
POLB12/72 DRIVING EFFICIENCES AND VALUE FOR MONEY
(a) Chris Day presented the Driving Efficiencies paper and explained the
information about how to increase efficiencies in the current funding period
without prejudicing the transformation programmes already under way.
He explained the approach of tightening up existing business processes,
such as investment and appraisal, whilst strengthening the commercial
financial capability in the business to introduce more rigour and challenge
through the quarterly performance review process.
(b) The Board asked if Chris Day had the right resource to deliver the
ACTION: Chris Day/ efficiencies work required. Alasdair Marnoch offered some possible
Alasdair Marnoch resource solutions which he would discuss with Chris Day.
(c) A paper detailing the approach to wider changes to the cost base would be
ACTION: Chris Day presented at the September Board.
POLB12/73 FRONT OFFICE OF GOVERNMENT (“FOoG”) UPDATE
Universal Credit
(a) Martin Moran explained the work underway with the DWP to introduce
Universal Credit (“UC”) from the Spring of 2015. The Post Office would
take part in a pilot in late Spring 2013.
The migration to UC requires identity verification provision, for which the
DWP has recently issued a tender. The Post Office is working with DWP
to help define the process and has put in a response to supply all three
parts of the tender: face to face; call centre and online solutions. (The face
to face part of the bid is worth £20 million).
The Board recognised that the most significant likely competitor for the
face to face solution would be Paypoint. Martin Moran expected 3 or 4
competitors to bid for the work and explained that the decision date was
currently September 2012.
Universal Credit could also have an impact on the development of the Post
Office’s current account business.
The Board recognised the importance of UC to the Post Office’s future
Front Office of Government role and asked for reassurance that the
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Post Office was building good enough relationships to be part of the
solution. Martin Moran confirmed this to be the case.
DVLA Tender
(b) The Board discussed the DVLA Tender and debated the pricing in the bid.
Martin Moran explained that 60% of the DVLA decision would be based on
technical capability and 40% on price. The Board asked Martin Moran to
update them before the final contract pricing decision was taken. Alasdair
ACTION: Marnoch offered to meet Martin Moran and Chris Day to ensure that all
Martin Moran/Chris Day angles had been explored.
A decision on the DVLA tender was expected in August. It was explained
that, if the Post Office were to be awarded the DVLA business, contractual
agreements would need to be drawn up and signed quickly. It was
therefore proposed that the Board should establish a Sub-Committee of
any two directors, to be able to act on behalf of the Board to agree and
sign any contract documentation required by DVLA if the bid were
successful. All Board members would receive the same information but
final decisions would be delegated to the Sub-Committee.
It was resolved that a Sub-Committee of any two directors, to include at
ACTION: Company least one Executive Director, be authorised to approve and sign any
Secretary documents necessary to formalise a contract with DVLA.
FOOG Sales Pipeline
(c) Martin Moran updated the Board on the sales pipeline and explained that
he was comfortable with the plan for 2012 through to 2014 but year 3
opportunities were less clear. He now had a new sales team in place,
targeting three areas; central government departments; government
agencies and local authorities. The proposition was to offer a network
spread, world class identity technology and cost savings for local
authorities.
The Board understood the challenges of resource and the difficulty of
pinning down precise opportunities but asked that Martin Moran update the
sales pipeline as a more focused work plan, concentrating on the areas of
ACTION: Martin Moran biggest opportunity.
POLB12/74 MINUTES OF THE PREVIOUS MEETING AND MATTERS ARISING
(a) The minutes of the Board meeting held on 23 May 2012 were agreed and
approved for signature by the Chairman subject to the following changes:
POLB12/65:
The Board agreed that the normal period 1 Performance Report would not
be suspended but be replaced by a “light” report. It was also noted that
ACTION: Chris Day specific timescales should be met when reports were requested.
(b) The status report was noted.
ACTION: Lesley Sewell
POLB12/75
POLB12/76
ACTION:
Nick Kennett / Chris Day
ACTION: Company
Secretary
ACTION: Nick Kennett
(a)
(b)
(c)
(d)
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POLB12/42:
The Horizon risk and timeline review including the use of “hot and cold”
back up systems would return to the Board as part of the Horizon update
in September.
MINUTES FOR NOTING
The Board noted:
(i) the minutes of a meeting of the Audit, Risk and Compliance Sub-
Committee held on 23 May 2012
(ii) a record of the formal approval of the annual accounts by two
directors on 27 June 2012.
CHIEF EXECUTIVE’S REPORT
Project Eagle
Paula Vennells explained that the negotiations were progressing with one
final issue to resolve, that being the level of capital the Bank would need to
fulfil the contract requirement and not trigger termination.
This was clear for the years until 2016 but, as regulatory requirements will
change after that date and details remain as yet undefined, it is difficult to
reach agreement on the level of capital required post 2016. Therefore, the
Post Office has suggested the improved base through to 2016 be carried
forward, with a review point at 2016 as an added protection.
Alasdair Marnoch asked the business to check that the governance
arrangements for monitoring performance were agreed and written into the
contract.
The actions from the Board Eagle Update would be circulated to the
Board.
The Board accepted the update and asked for a briefing note confirming
the details, once the wording for the review date had been drafted.
Segregation
Paula Vennells explained that the Business was not achieving the
segregation targets set out in the Mails Distribution Agreement; however,
there were some issues with the testing which were being discussed with
Royal Mail. The risk of missing all the targets in 2013-14 was £6 million
and this would be built into the Risk Register if necessary.
The Board noted the latest Health and Safety report and the Appendix
showing the most significant recent incidents.
POLB12/77
ACTION: Chris Day
ACTION: Chris Day
POLB12/78
ACTION: Company
Secretary
(9)
(a)
(b)
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James Arbuthnot
The Chairman updated the Board on the meeting taking place on 4 July
between James Arbuthnot and 2™ Sight, Forensic Accountants. She
promised to keep them informed.
FINANCE/PERFORMANCE REVIEW
The Board noted the Period 2 finance and performance update.
Chris Day presented the “flash results” for period 3 which showed net
income £6.1 million favourable to budget and cash flow of £39 million.
The Board discussed the investment expenditure which at period 3 was
£6.5 million above budget. Chris Day assured the Board that this would be
reviewed with each function at their quarterly performance review but that
he did not expect any additional action to have to be taken.
He provided some insight into P3’s results which would be explained in
more detail at the next Board meeting.
Chris Day recognised the need to report on the Strategic Programmes and
on Business as Usual together, to give the Board a clear view of the
current year’s position and its effect on the strategic plan.
A suggested report would be circulated to the Board for feedback.
ANY OTHER BUSINESS
Update on Strategy Away Day
The Board agreed the strategy away day actions and the rolling agenda.
with the inclusion of the digital strategy. The Chairman suggested that
quarterly business updates, eg on NT or FOoG, could be covered by the
Chief Executive's Report at future meetings. The Board agreed the need
for effective reporting on the programmes, as discussed during the
Network Transformation, Crowns, and Finance and Performance Updates.
Mutualisation Sub-Committee
A proposal was received for establishment of a formal Sub-Committee of
the Board to oversee the progress of workstreams within the Post Office
looking at Mutualisation. Draft Terms of Reference for the Committee were
discussed. It was proposed that the Sub-Committee should meet for the
first time following the Board meeting.
Regular updates would also be provided by Paula Vennells, as Chair of
the Stakeholder Forum which would be established following the
Government’s recommendations.
After discussion, it was resolved that a Mutualisation Sub-Committee be
established, to be chaired by Alice Perkins under the Terms of Reference
ACTION: Company
Secretary
ACTION: Company
Secretary
POLB12/79
(c)
(d)
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presented to the Board, except that the Committee would consist of all the
Board Members.
Pensions Sub-Committee
A proposal was also received for establishment of a Pensions Sub-
Committee. There would be important decisions to be made over the
coming six months about the future of pension provision for Post Office
employees. It was noted that Virginia Holmes had relevant experience of
pension investment matters.
It was resolved that a Pensions Sub-Committee be established, to be
chaired by Virginia Holmes and with the Terms of Reference presented to
the Board. The other members of the Committee would be Susannah
Storey and Chris Day.
Board calendar
The Board then discussed the draft Board calendar and formation of other
Sub-Committees to consider senior level remuneration and future senior
level appointments. The Chairman would discuss membership of these
committees further with the Company Secretary and with the directors. A
simpler form of calendar would be produced, as well as an overall
Executive Business calendar.
It was agreed that the Company Secretary would communicate Committee
memberships and set a calendar of dates for each relevant Committee,
before the next Board meeting.
NOTING PAPERS
The Significant Litigation Report (POLB(12)96) was noted.
The Register of Sealings (POLB(12)97) was noted. The Board resolved
that the affixing of the Common Seal of the Company to the documents
set out under numbers 797 to 801 inclusive in the Register of Sealings is
hereby confirmed.
The minutes of the Communication Action Group (POLB(12)98) were
noted.
The latest employee engagement scores (POLB(12)99) were noted.
The amended Crown Loss measure to be included in the Bonus
Scorecard for 2012/13 (POLB(12)100) was noted.
There being no further business, the meeting was then closed.
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POST OFFICE LIMITED BOARD.
Status Report
No. I REFERENCE I ACTION BY WHOM STATUS
_I1. Actions Appertaining to Network Transformation and Crown Offices I
ta I July 2012 The Board requested a quarterly report to understand the transformation Kevin Gilliland Sample “pipeline” report included as
POLB12/71(c) I pipeline, showing the number of Postmasters interviewed; number accepted; Appendix A to Chief Executive’s
number in progress and the number completed against quarterly targets. report.
The Chairman also asked for a Board quarterly update on Crown
Transformation to monitor against the revised P&L
1b I July 2012 Alasdair Marnoch asked that a separate value for money NT scorecard be I Kevin Gilliland/ Will be developed in Q4 2012 and
POLB12/71(d) I produced to show the number of branches converted; the investment made I Chris Day implemented in Q1 2013, as the
in their transformation and the benefits flowing from that investment. outcomes from converted branches
begin to flow through.
1c I July 2012 Neil McCausland asked for the original P&L in the Strategic Plan to be re-cutI Kevin Gilliland/ 3-year Crown P&L will be included in
POLB12/71(h) I and a forecast P&L for the 5 years of the plan to be produced including the I Chris Day Finance and Performance update for
effect of new initiatives. October Board meeting.
4d I July 2012 Susannah Storey stressed the importance of having a clear direction and Kevin Gilliland/ Funding discussion being planned
POLB12/71(i) results to share with Government, to show the Post Office’s confidence in its I Chris Day for November, to include 2012/13
ability to deliver on Crowns as part of the context of the next round of future half year Crown results.
funding discussions.
te I June 2012 The business was asked to undertake further thinking on how it would ideally} Martin Moran/ Paper to come to Board in
(Strategy Day) I expand the Network (through “locals” or “basics”) and return to the Board with Kevin Gilliland November.
options for future network size and shape, noting what are the opportunities,
the costs and any possible political implications.
4 2. Actions Appertaining to Efficiencies ! : ! ui i
2a I July 2012 The Board asked if Chris Day had the right resource to deliver the Chris Day/ Finance Business Manager has
POLB12/72(b) I efficiencies work required. Alasdair Marnoch offered some possible Alasdair Marnoch I been appointed to co-ordinate
resource solutions which he would discuss with Chris Day. current year efficiency monitoring
and the approach to strategic cost
reductions; external consultancy
partners have been engaged.
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12 September 2012
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3. Actions Appertaining to Financial Services
3a I June 2012 The Audit, Risk and Compliance Committee was asked to consider how Nick Kennett/ To be reviewed by ARC in
Alasdair Marnoch I November.
(Strategy Day) I best to mitigate risk in regard to the relationship with the Bank of Ireland
II 4. Actions Appertaining to Board Reports __
4a I July 2012 The Board asked to be given more notice of forthcoming meetings and Alwen Lyons A calendar of Board dates has been
POLB12/78(d) I events. It was agreed that the Company Secretary would communicate drafted and will be finalised shortly.
Committee memberships and set a calendar of dates for each relevant Mark Davies is working on a more
Committee, before the next Board meeting. A simple form of calendar would detailed Executive Calendar.
be produced, as well as an overall Executive Business calendar.
4b I May 2012 Virginia Holmes asked for a more detailed briefing on the data behind the Chris Day A transformation scorecard and
POLB 12/65(d) I scorecard. Paula Vennells agreed that, for the next meeting, both the explanation are included in the
scorecard and a transformation programme RAG report should be provided. performance report.
4c I July 2012 P3’s results to be explained in more detail at the September Board meeting
POLB12/77(d)
4d I July 2012 Chris Day recognised the need to report on the Strategic Programmes and I Chris Day Performance pack now includes
POLB12/77(e) I on Business as Usual together, to give the Board a clear view of the current Strategic Performance reporting,
year’s position and its effect on the strategic plan. Crown P&L and network
conversions.
A suggested report would be circulated to the Board for feedback.
June 2012 The business was asked to consider what we mean by Chris Day Work is ongoing within the
(Strategy Day) I sustainability” including the working capital requirements. mutualisation finance workstream.
An update is provided in a paper to
the Mutualisation Sub-Committee.
5b I June 2012 The business was asked to scope POL’s future offer to SMEs including the I Sue Barton To be included in the papers for the
(Strategy Day) I self-employed and to consider whether the structure within the business November meeting.
supports the new focus on this customer segment.
5c I June 2012 The Business was asked to develop a customer strategy including the use of] Sue Barton To be included in the papers for the
(Strategy Day) I customer data. November meeting.
5d I June 2012 Chris Day to lead on updating and prioritising the funding obligations Chris Day/ Noted for Performance Report.
(Strategy Day) I showing clearly what, if anything, was not on track. The Board asked that Alwen Lyons Board discussion on funding to be
future performance reporting should include updates on priority funding arranged for November.
obligations, including narrowing the dependency on NSP, and cashflow.
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5e I June 2012 It was agreed that the work on the next Funding Proposition should be Chris Day Included in paper for Mutualisation
(Strategy Day) I starting now. The business was asked to consider alternative scenarios, Sub-Committee. Board discussion
including the counter factual if no funding is received. A proposition should on funding to be arranged for
come to the Board highlighting how the Board will be involved in the November.
process and where it can add support.
Sf I June 2012 The business was asked to evaluate RMG’s commitment to C& R Martin Moran Martin Moran to report back to Board
(Strategy Day) I developments and put in place internal milestones and trigger points to following discussions with RMG in
monitor progress. POL should also consider a “Plan B” if C&R November.
developments were delayed
5g I June 2012 POL should consider possible strategies to combat the Paypoint threat, Sue Barton Will be considered as part of
(Strategy Day) I including possible partnerships with a 3" party (eg Camelot). strategy discussions in November.
5h I June 2012 The business was asked to consider how it would develop its digital plan Sue Barton Digital strategy included on Board
(Strategy Day) I and whether it needed new internal or external resource to scope out its agenda for November.
E-commerce plan.
$i July 2012 The Board agreed the strategy away day actions and the rolling agenda, Alwen Lyons Noted for Chief Executive’s Report
POLB12/78 (a) I with the inclusion of the digital strategy. The Chairman suggested that and Finance and Performance
quarterly business updates, eg on NT or FO0G, could be covered by the Update. Digital strategy included on
Chief Executive’s Report at future meetings. The Board agreed the need for agenda for November 2012.
effective reporting on the programmes, as discussed during the Network
Transformation, Crowns, and Finance and Performance Updates.
6. Actions Appertaining to People and Remuneration
6a I May 2012 Final matrix plotting performance and potential of the SLT to be circulated, Susan Crichton Final matrix awaiting completion of
POLB12/59(b) I once the assessment exercise has been completed. assessment process.
6b I May 2012 Reward principles to be discussed at first Remuneration Committee Alwen Lyons Meeting proposed for 4 October.
POLB12/59(d) I meeting. (See also 4g below)
6c I May 2012 The Chairman asked the business to ensure that its recruitment and Susan Crichton Diversity update will be discussed by
POLB12/59(e) I promotion processes produced a more diverse population. The Chairman’s Nominations Committee at its first
hope would be a very different feel to the SLT in the next couple of years. meeting in November.
6d I May 2012 The HR Director would come back to the Board with a note setting out Susan Crichton Progress will be discussed by the
POLB12/59(g) I timelines and milestones for implementation of the above changes. Nominations Committee and reported
to the Board in November.
6e I May 2012 Bonus payments for POL senior employees in future would be determined Alwen Lyons Remuneration Committee meeting
POLB12/59(I) I by the Remuneration Committee. The Company Secretary was asked to proposed for 4 October.
set up a meeting of the Remuneration Committee for this purpose.
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Alwen Lyons
12 September 2012
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April 2012
POLB 12/28(e)
The Board to convene a meeting to take stock of the position on IT
procurement and strategy.
Alwen Lyons
An IT workshop is being planned for
November 2012.
sales pipeline as a more focused work plan, concentrating on the areas of
biggest opportunity.
8a I July 2012 Alasdair Marnoch offered to meet Martin Moran and Chris Day to ensure that] Martin Moran/ Timetable has moved. A meeting will
POLB12/73(b) I all angles had been explored re the DVLA tender Chris Day be arranged in September, before a
pricing proposal is submitted to
DVLA.
8b I July 2012 The Board understood the challenges of resource and the difficulty of Martin Moran The sales pipeline is being updated.
POLB12/73(c) I pinning down precise opportunities but asked that Martin Moran update the A summary of the latest position and
the top opportunities by value is
attached to the Actions Log.
Qa I Feb 2012 Nick Kennett to investigate the flow of fees to ensure there is no Nick Kennett A request for some further
March 2012 inducement of wrong behaviours, after which Paula Vennells would review confirmations was made to Junction
POLB 12/32 to enable her to give comfort to the Board. and Rob Clarkson produced a brief
Neil McCausland/ I for discussion with Neil McCausland
Neil McCausland to take ownership of this issue going forward to ensure Nick Kennett in July 2012. Nick Kennett will
the business was getting the required information and challenging Junction discuss with Neil.
to ensure that the Post Office was beyond criticism.
10. Actions Appertaining to Pensions — Next Steps
10a I March 2012 Work in respect of risk appetite and the financial impact of various pensions I Susan Crichton A paper on investment risk will come
POLB 12/39 options to be deferred, after input from Virginia Holmes. to the Board in October 2012
10b I March 2012 Proposal to be circulated concerning RM making a lump sum contribution to I Chris Day A ccontribution of £20 million with a
POLB 12/39 the RMSEPP Trustees. further £20 million in escrow was
agreed by RMG and has been noted
by the Pensions Committee. A 7%
re-charge will be made to Post
Office in due course.
Status Report
Alwen Lyons
12 September 2012
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Front Office of Government Update on Priority Opportunities
DVLA Front Office Services ( £420m). There have been further delays but nothing out of the ordinary. The pricing remains the critical element.
IPS online passport applications (AEI)( £136m) - This opportunity has been delayed by the updates to their back office system which are the responsibility of
their current supplier. IPS have issued a one year extension to the current paper check and send solution whilst the current supplier updates their systems and
they work out their strategy to deliver the online service.
DWP Universal Credit Identity Assurance (£100m). The client has held a series of sessions with the eight bidders. The final sessions focused on affordability
which is thought to be a serious issue for the programme. We have received assurance that the framework will be awarded on the 28" of September with the
call off for Universal Credit issued after more detailed discussion amongst the selected bidders to ensure the scheme works.
DVLA Assisted Digital (Print on Demand) (£100m). This procurement is effectively on hold whilst the Front Office Services competition is run. The
procurement will also need to be coordinated by the Cabinet Office. It is not clear that whether DVLA will lead on this for Government or another Government
department or agency.
HMRC Identity Assurance one click (27m). We have submitted a paper to the HMRC team as part of their market sounding. HMRC are keeping a watching
brief on the DWP and Cabinet Office activities in this area before they commit to a strategy. We are currently focusing our investment on DWP, as the result
of that procurement will inform the investment for the HMRC response.
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POST OFFICE LTD BOARD
Chief Executive’s Report
Strategic Programmes:
1. Network Transformation
e We have now engaged with enough agents to give us confidence that we can deliver
our target numbers for 2012/2013. A potential risk to delivery does exist with agents
not completing and returning their financial assessments as quickly as we require.
Remedial actions are in place and progress is being monitored.
e Two outstanding obstacles to implementation are now resolved: the new code of
practice and the approach to customer engagement for onsite local conversions have
been agreed with Consumer Focus; and the final versions of the new main and local
contracts have been agreed with the NFSP.
e Board Quarterly Update: See Appendix A.
2. Crown
e Transformation:
o The programme is in the design and pilot phase. The blueprint design for branches
has been agreed and will be used in the Nottingham and Peterborough pilots to go
live in early November. The pilots will test how the new operating model and branch
design will impact on customer experience, operating costs, and sales.
o Five Post and Go pilots are live, testing whether we can ‘migrate’ 40% of all mails
transactions from the counter to the new kiosks. Automation should allow for a total
reduction of 420 FTE over the course of the programme. The pilots will be
evaluated in October.
o Phase 1 of the VR exercise is progressing to plan with 115 FTE exiting the business
by the end of October. This is a key part of our work to reduce the staffing
requirement by the equivalent of 230 FTE roles by end October 2012. Furthermore,
we are reviewing duty schedules in collaboration with the CWU, to match the
working hours to customer demand, including promotion of flexible working
arrangements.
o Phase 2 of the VR exercise (including branch managers) is underway with a
planned exit of 144 staff in January 2013. We are working with unions to maximise
numbers and are looking to release more branch managers than previously
planned. This will result in a greater than projected full year saving for 2012/13.
o The Systems Thinking pilot commenced at Camden Crown Office in July 2012 for 8
weeks, focussed on redesigning current processes to deliver improvements in
Service, Efficiency, Revenue, and Morale.
e Union Partnership:
o As outlined above, both unions are working collaboratively on various store pilots.
The fact that neither have lodged a formal pay offer is helpful. However, the CWU is
beginning to apply more pressure — an update will be given at the Board meeting.
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o The CWU maintains its requirement for a 3.5% consolidated pay increase for
2012/13 with non-consolidated payments in each of the subsequent two years. The
CMA prefers a 1 year deal.
o Further meetings are in place with the CWU and CMA to share the impact that
increased costs will have both on the P&L and the shape of the Crown network in
the future.
3. IT Landscape
Agenda item — noting papers.
Following a period of planning between RMG and Post Office, we are now in a position to
serve notice on the IT services that RMG currently provide to Post Office. The estimated
cost of separating the IT services is in line with what has previously been reported to Board,
around £21m. This estimate is based on the information currently available and could
change as more information becomes available. We will formally issue notice at the MSA
board scheduled for 3rd October and this will initiate a 6 month detailed planning phase.
4. Business Efficiencies
Agenda item
5. Mutualisation
Sub-Committee item
Business Report:
1. Mails
e Joint RMB/POL Board Update:
The joint Royal Mail Board/POL Board update, to review the progress that has been
made with regard to the joint developments in the Returns and Collections market
(Returns, Click and Collect and Failed Deliveries), will now take place in November, not
September as previously planned. It is likely that the delay has been partially caused as
a result of the Royal Mail Chief Executive not being satisfied with the speed of progress
within Royal Mail, particularly in the Failed Deliveries (see below) area.
¢ Collections and Returns:
o Developments around online shopping: Returns are on track and progressing well,
the intelligent returns proposition is on target to launch in January. The launch
appears well timed as Returns volume is 4% up versus last year.
o The Click and Collect developments are progressing well. RMG are progressing
the development of their API (the software build that allows different web platforms
to communicate — this will allow Retailers Web platforms to offer Post Offices as a
collection point) these appear to be on track for launch early next year.
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However, there is some concern from within the Post Office team that Royal Mail
may regard customer collection from a Post Office as being an added cost to their
business unless consumers or a retailer cover the addition charge that Post Office
would levy for the service.
o Failed deliveries planning is still in the feasibility stage, although some good
progress has been made over the last week or so. There will need to be a
negotiation over price which might prove difficult. Strategic conversations are due
to take place in the next week to scope requirements from both parties.
« Small Business:
o ‘Drop and Go’ has rolled out to a total of 2k branches giving the branches the option
to offer small businesses a much enhanced customer experience service.
o In-depth customer research into small business loyalty activity is due back
imminently to support the launch of loyalty activity later this year. We are scoping a
solution which will remove the dependency on Project Penguin (the delivery of a
Financial Services Pre Paid Card platform) and allow us to press ahead within the
planned timescales.
e Segregation In branch
Although there was some improvement, overall performance on 1st and 2nd class
remains disappointing. Period 5 actual performance was 56% against a target of 95%.
Network teams are progressing with plans to address this including the Horizon solution
to flag to the counter colleague the correct bag to be used at the point of sale.
2. Financial Services
Agenda item
3. Front Office of Government (FOoG)
e The DVLA Competitive Dialogue phase completed on 30 August and the Invitation to
Submit a Final Tender (ISFT) was issued on 14 September. The completed Submission
is due by 28 September and the Contract award is expected around 12 October 2012.
e The DWP Identity Procurement has slipped because the DWP appear to have a
number of bids that would exceed the money they have available to pay for the
solution; consequently they are talking to all bidders about lower cost solutions. The
Team are now engaged in detailed dialogue looking at volumes, cost drivers and the
Terms and Conditions in the proposed contract.
Paula Vennells
September 2012
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Chief Executive's Report September 2012
Appendix A
Network Transformation Programme Update
The Board requested a quarterly report to highlight the transformation pipeline, showing
the number of postmasters interviewed; number accepted; number in progress and the
number completed against quarterly target
This update has two sections:
e Section one shows a snapshot of where branches are throughout the end to end
implementation process and provides an explanation of the process’ component parts
¢ Section two provides an overview of the three year delivery plan, with supporting
commentary
©)
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Status Report as at 05/09/2012: The Programme remains on target with sufficient .
volunteers. Work continues to deliver the year one target but there is a bottleneck caused by Agent
delays in returning their completed financial assessments. A number of activities are in place to
reduce the bottlenecks and ensure sufficient future volunteers
5067 The population of branches that wish to convert to a new model or leave the
business as at period 6. This includes multiple partner branches and service
issues os
\ 5067
Branches awaiting their first visit. These include branches that want to change \
later in the programme, high security branches, some very small branches ~y I sie [ea
and those currently on a final written warning >I 387 I 8
1357
Branches awaiting their second visit. Includes branches currently with the
2442 property team, those agents who are undecided and those multiple » Mains I Local
branches in the plan for years 2 & 3. It also includes potential leavers
whose branches are advertised
350 Branches have had their property visits and POL are awaiting
completed financial assessments to be returned
60 Branches that have passed the financial assessment stage and have > on ee sitane I teca
been sent contracts 7 o
22 Contracts signed and awaiting
implementation
* Percentage of branches currently not progressing currently stands at
12.4%, versus a target position of 33%
Post Office® — Chief Executive's Report Appendix A September 2012
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A number of actions are in place to streamline the current process and
ensure delivery in year one. There are also a number of activities planned
to generate sufficient agent interest for years two and three:
Actions being taken to remove barriers to Implementation in year one
* Field Change Advisors are visiting agents who have not yet completed their financial assessments in order to assist them with this step of
the process and ensure quick returns of documentation
* We have also assigned a dedicated FCA to each branch who will ‘hand hold’ the agents through all stages of the process
¢ Our property consultants (RLB) are now visiting all branches to discuss the physical implementation works required on a more detailed
basis and assist agents in their understanding of their roles and responsibilities
Activities to generate additional volunteers
+ Subpostmasters will be able to find out more about the benefits of the new models by attending events hosted by existing main and local
operators. The first event took place at Twickenham branch in early August where the operator spoke about his experiences answered
questions from subpostmasters. Feedback was extremely positive and more events are planned
¢ Further Agent road shows will be held in November. providing agents with updates on the programme and wider business initiatives.
Agents that have not yet completed the estate survey will be targeted to attend
* Proactive engagement with agents who have not completed the estate survey will shortly begin. All available field resources including the
agency sales team will be utilised to prompt agents to express their interest via the survey
¢ The branch advertising pages on our website are being refreshed with the aim of attracting more potential operators. The website is due to
go live in November
« POL will have a presence at the Independent Retail show in October - existing agents and potential new operators will have the opportunity
to learn more about our new models and the programme
* POL will also have a presence at various Multiple Partner trade shows throughout the year in order to generate additional interest
(>
Post Office® Chief Executive's Report Appendix A September 2012 (2)
POL(
The Network Transformation Programme is being managed in a way that
fully integrates with the wider network strategy and funding agreement:
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Over the three year plan period the Network Transformation Programme will deliver 7039 activities, as follows:
* Delivery of 4000 Main branches
* Delivery of 2000 Local branches
¢ Delivery of 750 new outreaches, and
* Delivery of 300 Crown transformations to Premier
Whilst Network Transformation is a voluntary programme and is largely dependent on independent Agents and Multiple
Partners expressing an interest in change, activities will arise fron alternative sources:
» We estimate that around 900 changes to new models will arise through the commercial transfer process
* Around 1500 activities will be delivered as a result of network service issues such as force majeure closures,
conversion of temporary managed branches to a new model type, and contract termination cases
* There is also an opportunity to convert WH Smith franchise branches to the main model on expiry of their
existing contracts
Post Office® Chief Executive's Report Appendix A September 2012
@)
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Year 1 (12/13) Year 2 (13/14) Year 3 (14/15)
{Qtr 2 Qtr 3 Qtr 4 jQtra Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total
lactual [Target IActual {Target [Actual [Target [Actual [Target [Actual [Target IActual {Target IActual [Target [Actual ITarget [Actual [Target IActual {Target IActual [Target
eeiae 2083] 26 613] 90 1200) 1300) 1550) 1800} 1851 2050) 2222I
Independent
12a 143] 154 181 38 500] 550) 700] 800] 90 955] 1055) 3277I
2 4 2 100] 15 200] 220) 270) 320] 37 390] 450]
si] 6 9 170] 20 250] 270 320 370 42 440] 495) 945]
Commercial I 5 55] 125] ws 300] 400] 50 575] 700)
Transfers o 5 2 50] 70 100] 125] 154 175] 200) 9
1oI 10) 33] 2 12 170) 200] 250) 310] 370] 410] 500]
BAU Service
tesuee 2al__ 264 35I 4s 95] 120] 135 160] 190] 220] 230] 250
33,25 61 n sail 24 244] 341] 424] sual sai 750 154
o} o o} 0, 6 G 4 18) 39I 53 sal
2 e 7 5 1 50] 30) 150] 210) 27 300] 300)
o} o o} 20) 25 55] 70 7 70 70 37
32I__ al 333] oI__799 of 1225) 4705 I of 39264 2431 of _ 2906] ol 3179 oI _ 3534] 0} _ 4000)
209] _228I of 275 oO 40 __s95 920) of _ 202s of 1280) of _ 1485] I _ 1690 oI _ 1260] I 2006, I_6000
33,25] 61 om of tail 211 of 2a 341 ol aaa osu oI svi I _750)
7 p 2 0, gl Ce 50] oI 90) 150] of 210) oan I __300I I __ 300)
[ard af od ossl_ oo) ard) aor!) need] nome) wood sox seed s20s]___oI_70s0)
* Conversions of WH Smith branches to the Main model will align to contract expiry dates. Only 58 of the 70 WH Smith branches have
705
contract expiry dates over the pian period (3
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POST OFFICE LTD BOARD
Health & Safety Report
1. Purpose
The purpose of this paper is to:
.1_ Provide an update on safety performance.
1.2 Outline risk reduction activities.
2. Current Situation
2.1 Injury accidents, up to and including period 5, are showing an increase against last year
and therefore unfavourable against the target reduction of 5% on last year. Accidents
involving absence have also increased against last year. This is primarily due to a
significant increase in slips and falls due to the adverse weather and an increase in manual
handling incidents. A manual handling work time listen and learn has been scheduled to
mitigate the increase in numbers. The “per 1000 staff in post” comparison indicator, which
takes account of head count fluctuation year on year, is showing a slightly less
unfavourable increase for all accidents.
Table 1 All Injury accidents and those resulting in absence (Cumulative)
350
300
250
o 2011712 All
§ 200 ~~ 2012/13 All
3 150 2011/12 Absence
< 2012/13 Absence
100
pe
P1 P2 P3 P4 P5 PG P7 P8 PO P10 P11 P12
Period
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2.2
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The number of days lost due to accidents is ahead of target showing an 11%
reduction against a target reduction of 5% (Table 2), indicating that while the
frequency of accidents has increased the severity has decreased.
Table 2 Days lost resulting from injury accidents (Cumulative)
oe 201112
it 2012/13
P1 P2 P38 P4 PS PE P7 PB PO PIO PIT P12
Period
23
The number of road traffic collisions (RTCs) cumulative to period 5 is trending
similarly to last year however ‘at fault’ collisions, where the Post Office driver is
deemed to be at fault, are showing a significant improvement on last year,
down from 55 to 44. Road traffic collisions account for less than 3% of the
overall number of injury accidents, however they have the potential for high
impact in terms of injury and loss. The activities that are contributing to the
improved performance are identified in 3.1 below.
Table 3 Road Traffic Collisions (cumulative)
Number of RTCs
300
250
200 2014/12 All
2012/13 All
150
2011/12 ‘at fault’
400 2012/13 ‘at fault
50
ie Eieseeseeseeeie Hees ae esi ueieuemerseeenesumcnere Hee
P1 P2 P3 P4 PS PE P7 PB PO P10 P11 P12
Period
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24 Robberies on Post Office Cash and Valuables in Transit (CViT) crews are
significantly up on the same year to date period as last year, from 8 to19. This
is in line with industry trends. Physical injuries during robberies, of which there
have been 6 compared to 4 last year, remain relatively minor in severity. Fire
arms continue to not play a significant part in CViT robberies with two of the 19
robberies being enabled by the presence and/or threat of use of fire arms. On
neither occasion were the guns discharged. Risk reduction activities are
identified at 3.2. (Appendix 1 — Significant Incidents refers)
2.5 Robberies and attempted robberies on the Post Office network so far this year
are up from 32 to 42 compared to last year. Supporting activities have been
introduced to mitigate this increased risk. Risk reduction activities are identified
at 3.2. (Appendix 1 — Significant Incidents refers)
Burglaries and attempted burglaries (which do not involve personal attack) are
down from 67 to 28 compared to the same year to date period.
26 The majority of accidents currently fall into three main categories: lifting and
handling, stepping and striking and outdoor falls. These are high frequency
events with, in the majority, relatively low impact. The lower frequency types of
incident carry the potential for very high impact, for example, assaults and road
traffic collisions.
Table 4. Types of accident
Assaults
Animals
Handtools
Lifting/handling
Objects falling
Stepping/striking
Accidents:
@Accidents with absence
Fails outdoors
Falls indoors
Fire, Elec etc.
Vehicles RTA
Machinery
3. Activities
3.1 Road Risk
Current activities to mitigate road risk are:
« Road risk forum established to scope and develop road risk reduction initiatives
and activities
e Analysis of effectiveness of face to face training given to top 50 high risk drivers
has indicated that accidents amongst this community have reduced significantly
following the refresher training
e Eye sight checks for operational drivers are in place
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Confidential
Technical accident reduction interventions on new vehicles e.g. Reversing aids
Analysis and evaluation of data (e.g. risk profiles) to determine further accident
reduction interventions
Piloting the introduction of high visibility seat belt sleeves
Safety team input to vehicle specification
Safe driver of the year award introduced
Weekly case conferences to ensure consistent approach to accident
investigation, follow up activity and sharing of best practice
oe
ocee
3.2 Robbery/Burglary Risk
Current activities to mitigate robbery and burglary risk are:
e Active liaison activities with the police and increased police support activity
¢ Introduction of new deterrent technologies e.g. Smartwater — a solution that
contains a unique identifier that is released automatically in the event of a
robbery, spraying those involved and enabling identification of the individuals
involved in the robberies
e Significant reduction in opportunities for duress type robberies linked to the
introduction of single person vehicles
Increased security support visits to Post Offices in ‘hotspot’ areas
Increased use of crime alert communication techniques to Post Offices
Trialling new point of transfer arrangements to reduce exposure
Increased use of surveillance vehicles
eooee
3.3 Health and Wellbeing
Current activities to enhance wellbeing
* Programme of visits to Crown offices to offer and encourage the use of health
check equipment that provides a wide range of indicators on physical wellbeing
« Plans in place to extend the programme of visits to Supply Chain units
e Plans in place to visit all Post Office Crown Branches and Supply Chain sites
within 12 — 18 months
e Development of a wellbeing intranet landing page
e Development of a wellbeing booklet and associated communications
4. Residual Risks
44 Driving activities have the potential for high impact/loss and remain a significant
residual risk. However, the actions identified above are aimed at mitigating that
risk and improving performance.
5. Recommendation
The Post Office Ltd Board is asked to:
5.1 Note the overall safety performance
5.2 Note the risk reduction activities.
Simon Eldridge
September 2012
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Appendix 1
Significant Incidents (Period 5)
Crowns and Network
Location Loss Circumstances Injuries Any further details
Hamstead, B42 Nil Male not masked or carrying a weapon gave I Nil
staff a note demanding money and claiming
he had a bomb. The sub postmaster
activated the alarm and hid behind the
counter, when she looked up he had left the
office.
Trent Boulevard, £68k Two masked males armed with a handgun Nil Police have since made seven
NG2 smashed the secure area door and stole arrests for this and other non-Post
recently delivered rem. No injuries reported. Office related crimes. Three
people have now been charged
and one person is on bail.
Supply Chain (Cash, delivery and collection)
Lozells SPSO, B19 I Nil At point of transfer, one male wearing Bruising
traditional robes with face covered
demanded the i box, when the delivery
officer refused hit the delivery officer on the
arm with a bar forcing him to let go of the
case. He fled on waiting motorbike which
stopped nearby. An attempt was made to
open the i box, however it activated and
discarded with full recovery (£25k.)
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Strictly Confidential
POST OFFICE LIMITED
Performance Report
August 2012
Produced By : Central Reporting Finance Team
For Queries & Comments Contact : Sarah Hall or Kam Bassra
ONFIDENTIAL
Commercially Sensitive and not for onward circulation
information thai kely to cause damage in the event of unauthorised dist
ternal peopl
It is normally ulated to the Senior L:
Period 5 Performance Pack - Chris Day 12th September 2012 Page 1 of 16
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Strictly Confidential ee)
( Contents )
Page
Headlines 3
Profit & Loss Statement 4
Cashflow Analysis & Balance Sheet Summary 5
Net Income By Pillar 6
Staff Cost by Directorate 7
Non Staff Cost by Directorate & Type 8
Business Scorecard 9
Crown Profit & Loss Statement 10
Transformation
Transformation Summary 12
Transformation Delivery - Full Year 13
Appendices
Cashflow Statement 15
Income By Product Groups & Pillar 16
XN J
Period 5 Performance Pack - Chris Day 12th September 2012 Page 2 of 16
Headlines
August 2012
(Financials -YTD Dy
Profit
Period 5 YTD operating profit was £45.2m against the budget of £43.0m, giving a favourable variance of
£2.2m.
* Net Income was £373.8m which was £6.7m favourable to budget and £13.0m favourable to prior
year - this was driven primarily by stamp sales ahead of the May price increase. Underlying Mails pillar
performance is strong as Special Delivery, Parcelforce. Lottery and retail sales are all ahead of budget.
* YTD staff costs were £7.0m favourable to budget and £3.8m adverse to prior year. Strong YTD
performance with majority of efficiencies identified and reduced strengthening requirements. There also
remain a number of vacancies, specifically in the Network. The variance against prior year is due to pay
awards.
‘* Agents’ cost were marginally favourable - £0.2m YTD and hence as a proportion of the increased
revenue equate to a good performance.
* YTD non people costs were £2.2m favourable to budget, but £3.3m adverse to prior year. The YTD
underspend is driven by the reduced costs for Mails Dangerous Goods and this masks the underlying
adverse variance, which is as a result of fewer efficiency savings.
* Interbusiness expenditure was on budget and £1.2m favourable to prior year due to property contract
renegotiations.
# At period 5, project costs were £13.5m over spent against the original budget. The ExCo has agreed a
series of mitigating actions which will be included in the Q2 reforecast.
Cashflow
The YTD cashflow was an inflow of £236m which was £8m adverse to the budget of £244m (period 4 -
£52m favourable).
The relatively small variance was due to high levels of branch remittances into cash centres including,
difficult to plan for, deposits relating to the Olympics.
Crown Profit - YTO
The Crown profit is £2.2m ahead of plan at period 5, with income on target and staff and property
related costs below budget. Both of these variance are expected to reverse when the staff duty and
property maintenance requirement reviews are completed, The Q2 reforecast is therefore likely to be in
line with the full year budget.
Non financials - YTD
‘* Queue time in branches (less than 5 minutes) is marginally above target.
* Network conversions are also close to plan.
Strictly Confidential
\ /
Period 5 Performance Pack - Chris Day
12th September 2012
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Cumulative EBIT pre exceptionals
£m
90
7 Actual — sme Budget
60
45
30
15
0+
SY bh OD Y © 6 2 Ny ov
SE EEEESEEESSF
Total Net Income - Budget to Actual Bridge
£m 9.1
ed eo
(3.3) .
I 33) (07) 0.1) 373.8
367.4
2012-13 YTD Mails & Reta Financial Government I Telephony: Other — 2012-13 YTD
Financials
Total Revenue (excluding NSP) £m (Bonus)
Operating profit £m (Bonus)
Free cashflow £m
Crown Profit (Loss) £m (Bonus)
Non Financials
Queue time % < 5 minutes - Top 1k branches (Bonus)
Network Conversions (Mains & Locals) (Bonus)
Page 3 of 16
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Profit & Loss Statement Strictly Confidential
August 2012
Current Month Prior Year Period Year to Date Prior Year YTD. Full Year Prior Year
[Em ‘Actual Budget Variance I Actual Variance I Actual Budget Variance I Actual Variance] Forecast Budget Variance I Outturn
External Income 524 50.2 22 481 43 276.6 2805 264.9 117 673.4 6686 Sg] 6212
Interbusiness Income 24.8 25.4 (05) 255 (0.6) 1467 135.6 143.2 35 350.0 347.2 358.6
TOTAL GROSS INCOME 712 755 17 73.6 37 4233. 4164 4081 152 I 10234 10158 979.7
Cost of Sales (9.5) {9.3) (0.3) (7.7) (1.9) (49.5) (49.0) (47.3) (2.2) (119.6) (117.9) (124.4)
TOTAL NET INCOME 677 663 14 65.9 18 37383671 I 3608 ~~ 13.0 903.8 897.959 I 8653
Staff Costs (20.4) (24.4) 10 (19.0) (1.4) (106.5) 213.5) 70 I (1027) (3.8) (269.5) (268.9) (254.3)
Agents Costs (34.7) (36.4) 17 (36.7) 19 (499.9) (2001) I (2043) 44 (484.9) (4228) (482.9)
Non-Staff Costs (13.4) (2.8) (6) (11.0) (2.4) (628) (65.0) I 695) (3.3) I (2698) (166.2) (249.2)
Interbusiness Expenditure (7.0) (6.5) (05) (69) (0.1) (34.8) (34.8) (360) 12 (3.4) (3.3) 2s] (84.9)
Depreciation (0.2) (0.14) (0.0) (0.0) (0.0) (0.4) (0.3) (0.2) (0.2) (0.8) (0.8) (0.4)
Total Expenditure (pre POOC) (75.6) (7.4) 15 (73.5) (2a) I 04.5) (413.7) 402.7) (1.8) -I (4.0080) (7,002.0) (968.7)
POFS - Share Of Operating Profits (02) 00 (0.1) 00 (0.1) (0.4) 00 (0.6) 0.2 00 00 = 8G) (0.6)
FRES - Share Of Operating Profits 48 5.2 (0.4) 40 08 18.5 19.4 17.5 14 32.6 326 90 I 314
EBIT Pre Overhead Allocations 64) 25 G4) 05 12.5) (27.2) a 125 T1.6) Ti5) 72.6)
Group Overhead allocations (4.2) (1.4) 02 (1.7) 0.4 (6.2) 72) (8.5) 2.2 (14.6) (16.8) (19.6)
637 i
One off Project costs (POC) (4.6) (23) (23) (2) (3.3) (23.2) (9.7) 2 (19.0) I (39.8) (37.7) (26.5)
IEBIT = Post Project Costs ay 22 {7 (37.7) i X
Network Payment 15.8 15.8 0.0 138 2.0 87.2 872 OO I 762 11.0 210.0 2100 [7 00 1] 1800
itp kaninb ae Poe a eae aegT Oe eee ee TOT aT nee a Oy ase we Oe 22) Pak ee a Tae Te EO es (OO) e eee eT
Interest 0.0 (0.8) 08 (0.4) 0.1 {0.3} {2.7} (G.2) 27 (8.0) (8.0) (6.4)
Impairment (23) @7) 64 a9) (os) I (282) (268) (66) (22.2) I 0335) 327) (36.2)
Exceptionals & Redundancy & Severance Costs 24 5.0 (26) (05) 29 176 162 [Eda] (05) = 181 55.1 916 03
Profit/(Loss) On Asset Sale 0.0 Oo 00 (0.0) 0.0 0.0 Oo I 0) 0.0 00 oo I 0G I 13
Colleague Share/ Business Transformation Payments 00 0 00 (0.0) oo 00 oo 60 I (00) 00 0.0 00 poo (28)
Pe Pe ee ed ee ee ed ed eee
(Period 5 vs. Prior Year >)
Period 5 vs. Budget
EBIT pre exceptionals of £6.9m was £0.4m adverse to prior year despite £2.0m of increased Network Subsidy
EBIT pre exceptionals of £6.9m was £0.4m favourable to budget. Payment
‘The main variances were: Like for like variance of £0.9m favourable was mainly due to:
+ Higher net income of £1.4m driven by higher Lottery and retail income and part of the delayed Eagle contract * Higher net income of £1.8m driven by Financial Services (Eagle and savings products) and Mails (Lottery) offset by
related income which will be shown in full at the half year. Government Services (Card Account and ID) and Telephony,
* Lower agents cost of £1.9m, due to the in period adjustment this year,
* Higher JV income of £0.7m driven by FRES, and
* Lower group overheads of £0.4m due to Separation,
+ Lower staff cost of £1,0m due to efficiency savings and the number of vacancies, and
* Lower agents costs of £1.7m due to timing, but YTD is new on budget.
Offset by;
Offset by;
* Higher non staff costs of £0,6m due to small timing variances including ROMEC charges, « Higher staff costs of 1.4m due to pay awards and separation related recruitment,
* Higher IB expenditure of £0.5m due to catch up of previous months charges. YTD now on target, * Higher non staff costs of £2.4m due to a cost catch up of activities now completed by POL and not Royal Mail post
* Lower JV income of £0.5m, and separation and separation related legal and consultancy costs - YTD is £3.3m adverse, and
* Higher than budgeted project costs (£2.3m adverse) ‘Higher IB of £01m due to catch up in current month actuals.
Non tike for like variance of £1.3m adverse was due to:
* Higher project costs of £3.3m,
Offset by;
S
Period 5 Performance Pack - Chris Day 12th September 2012 Page 4 of 16
Cashflow Analysis & Balance Sheet Summary
August 2012
Strictly Confidential
Period 5 YTD cashflow was £8m adverse to budget due to the increased impact relating to the Olympic and Paralympic games.
rc
YTD Cashflow
200
o [=
eo =
2 =
123
=)
“
£m
YTD Cashflow Variances
£m 2
a ;
— Pa
‘
hh i
(36)
YTD Budget Operating rere Cler
‘Operating profit — Network Client & © Govt Funding “Wereng Capita Capital Redundancy, Interest. tax, Free ca
ccwpanse
J
Balance Sheet PS (Cashflow >
£m Budget Variance The YTD cashflow was an inflow of £236m which was £8m adverse to the budget of £244m (period 4 -
Fixed Assets: 131 a4 £52m favourable).
Debtors 7h 10 The €8m variance to budget was mainly due to:
Cash 765 60 * Client balances and Network Cash combined - £36m adverse. Separately, client balances were £24m
Client Balances (483) (24) favourable driven by a decreasing IPS balance arising from their system difficulties and under-invoicing
Trade Creditors (500) (36) to POL. Network Cash was overall £60m over budget due to very high cash centre holdings, which were
* bea) . £86m adverse due to high levels of remittances from branches which included deposits relating to the
Pension deficit (299) (6) Olympics,
Provisions (14) Offset by,
Investments, Funding
* Working Capital was £16m favourable to budget. This included business creditors which were £28m
Loan favourable reflecting the ongoing project activity in the business and which is significantly higher than the
Net Assets prior year. Offset by trade debtors which were £10m adverse and include the first payment to Fujitsu for
setting up work in advance of the new telephony contract.
Reserves Mar-i2 Actual Budget I Variance II * Capital expenditure includes the unbudgeted £11m investment in Midasgrange (POFS associate) offset
Capital and Reserves 70 Tie) 72) 7s) by £9m lower than budgeted other capital expenditure.
7) Ge) (8) (8) Exceptionals are £9m favourable primarily due to lower than planned Network Transformation
Cash Management Table SY
£m Prior Year I Mar-12 PS (Cash Management
‘Aug-41 I Opening I Actual I Budget var II» Retail and Cash Centre cash (manageable cost) - £67m adverse to budget, and £74m
Retail, Cash Centres 546 614 620 553 7) ladverse to prior year. Of this variance, Cash Centres were £86m adverse and branches
Bureau 92 54 103 92 (11) _ I }were £19m favourable. Cash levels are high-currently being distorted by the impact of the
Cheques, debit cards 132 ot 202 120 a8 i ee (manageable cost) - £111m adverse to budget and prior year.
NetwircGasit Ae 52, E25 785 CO I cheques and debit cards (customer driven) - £18m favourable to budget and £30m
favourable to prior year. P4 was a “tax receipts month’, but as the period end was 2 days
before the month end, some of the receipts have fallen into P5.
Headroom (£m) 509 680
* The balance sheet does not yet reflect the impact of the pension solution as numbers are being finalised before the entries are made by Group finance.
Period 5 Performance Pack ~ Chris Day
12th September 2012
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Net Income By Pillar ‘Strictly Confidential a
August 2012
Prior Year Period Prior Year YTD Full Year Prior Year
Net Income (£m) Actual Variance Actual Variance Actual Variance Actual Variance FYF Budget, Variance Outturn Variance
Mails & Retail 28.5 08 274 94 155.7 407.2 403.8 34 387.5 19.7
Financial Services 23.2 10 20.9 (3.3) 1105 276.9 2747 22 2615 15.4
Government Services 94 (0.9) 10.4 (0.7) 60.7 140.2 139.9 03 135.7 45
[Telephony 35 (0.0) 43 (0.4) 18.6 45.7 45.7 (0.0) 414 43
Other 29 17 338 39.3
TOTAL NET INCOME
(Pittar Performance vs YTD Budget
Mails & Retail Services Financial Services
£m =m Mails & Retail Services - £9.1m Fav
1.3 08 of 1.4 Ast and 2nd Class Stamps £3.3m fav due to the
14 : om 20 a oe buy forward experienced in period 1 prior to the
24 eg i I os) ae price increase. This favourable variance is expected
(0.9)
“ (1.0) to de the th:
— 164.8 « Fo decrease over the coming months
E : I 117.5 2nd Class Labels £1.8m fav driven by higher
volumes than planned.
62 fg Special Delivery £1.4m fav driven by 3.6% higher
155.7 110 volumes than plan and 0.8% higher than prior year.
Lottery & Retail £2.4m fav. Lottery £1.4m fav due
to recent rollovers and Retail €1.0m fav due to
Jubilee and Olympic collectibles as well as new
lines.
+00 4 Financial Services ~ (€3.3) Adv
21219 YTD 2ndalass Reta & Spaced stlass PFW Ohara 2012-19 YTD 2012-13 I Biling I Banking I ATMs I Payment Gureau —-POFS 2012.13 POFS Products (€3.2m) adv due to the delay in
Sicer " er YT Net Services VID Net implementing Eagle. Once implemented (half year)
Budget ‘Actual the variances will reduce by circa £2m.
Billing £1.6m fav driven by higher volumes and
delay to lower pricing,
Banking Services £1.4m fav driven by prior year
Telephony Services adjustments and some volume increases (RBS)
Bureau (£1.3m) adv due to primarily to the travel
market.
Government Services
£m fr
47 08
m
© Government Services (E0.7m) Adv
ra =o) Motoring £1.7m fav primarily due to price increase.
(1) I Passports £0.8m fav due to increased volumes of
81 and price increase.
(1.9) POCA (E1.1m) adv due primarily to LIBOR impact
and partially to the fall in number of accounts and
increased ATM usage (higher cost)
ID Services (£1.9m) adv due to lower DVLA
volumes. UKBA rollout of 104 units now complete.
Telephony Services - on budget
Homephone on budget - higher customer numbers
than budget but offset by lower revenue per
‘customer due to competitive inclusive call packages
Current customer numbers stand at 486k (period 4
2012-13 YTD Net Income Budget 2012-13 YTD Net Income Actual 135K)
2012-13 YTD Motoring Passports OtherGovt_ POCA —_ID Services 2012-13 YTD
Net Income Net Income
Budget ‘Actual
Period 5 Performance Pack - Chris Day 12th September 2012 Page 6 of 16
Staff Cost by Directorate
August 2012
Strictly Confidential
[Em Year to Date Prior Year YTD Full Year YTD Headcount
[Staff Cost by Directorate Actual Budget Variance I Actual Variance I Forecast Budget VarianceI I Actual Budget Variance
[Central (incl. MD's office) 9) (62) 43 @ on 3) 11 28 a7 I*
Commercial (2.6) (27) 01 (24) (0.5) (0.2) 94 104 10
Communications (0.7) {0.8) 0.0 (0.2) (0.5) {0.0} 24 25 1
Human Resources (2.0) (2.2) o4 (2.0) (0.1) (00) 119 124 5
IHR - Centrally Held Bonus Payments (7.4) (7.4) (0.4) (67) (0.7) 0.0 - - -
Financial Services (07) (2.0) 13 (06) (0.4) 12 23 4“ 18
Finance (4.4) (44) o4 (3.9) (0.2) 04 224 228 4
Network (79.7) (80.3) 0.6 (790) (0.8) 02 7,097 7,165 68
Supply Chain (233) (23.3) ao I (218) (45) 09 1581 1566 (45)
Crowns (48.4) (49.6) 13 48.9) 06 a9 4,767 4,759 )
Other Network (8.1) (4) (0.7) (8.2) 02 (1.6) 749 840 a I
Legal (2.0) (2.3) 03 (1.7) (0.3) 02 81 89 8
Programme costs (0.1) 0.0 (0.1) (0.0) (0.0) 0.0 - - -
Strategy (5.2) (5.6) 03 (42) (0.4) 07 220 215 (5)
C&IS / Managed Services (5.0) 64) O41 (4.5) (05) 03 216 211 6)
Strategy / Programme office (0.2) (0.5) a2 (0.3) 00 04 4 4 0
Total StaffCosts === I «sf406.5) =.) = 70 I (102.7) (3.8) I (269.5) (268.9) (0.6) I I 7,893 8019 126
Staff Cost by Directorate
Strategy
5%,
Period 5 Performance Pack - Chris Day
Finance
4%
Commercjél
2%
* Includes CTP and NTP Heads
** Budget includes 20 heads for strengthening
YTD Staff Costs were £7.0m favourable to budget due to
efficiencies identified and reduced strengthening
requirements (Central) as well as the high level of vacancies
in the business. Against prior year the staff costs are £3.8m.
adverse, due to the increases from the pay awards and
increased headcount post Independence from Royal Mail
Headcount of 7,893 is 126 below Plan due primarily to
Network vacancies, of which the majority relate to the
Network Transformation Programme.
12th September 2012
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Page 7 of 16
Non Staff Cost by Directorate & Type
August 2012
Strictly Confidential
[Em Year to Date Prior Year YTD Full Year [Em Year to Date Prior Year YTD Full Year
Non- Staff Cost by Actual Budget Variance I Actual Variance] Forecast Budget Variance] Actual Budget Variance] Actual VarianceI Forecast Budget Variance
Directorate Non- Staff Cost by Type
(Central - Centrally Held inc. i 5 nal = > Computers & Telephones B02) 32.2) Gis) 13 [ 4a) @a2)
Strengthening (04) 26 BO) I 05 09) I (8) 02 47) Other Operating Costs 79) (72) (83) 04 I @07) 7.4)
Commercial 43 (27) I (213) (219) 05 Consultancy, Marketing & Legal Fees (20.5) (7.6) (44) (64) I (484) (185)
{Communications (0.0) 3} I 46 6) 00 * Skils Group external contractors 69 (a7) 69 I 44) 44) 0
Finance (0.2) (og) I (85) (82) (0.3) Remainder 66) (69) 5) I (170) (470) 04
Financial Services 06 o1 I (72) (76) Ou Finance (a) (5.7) (05) I (16.7) (463) (0.4)
Human Resources oa 03 I 37) 87) (0) Property Facilites (27) (27) (20) I (72) 73) ot
Network 13 (oa) I G26 G24) © Property Maintenance (26) (23) 7) I 65) 62 03)
Supply Chain a9 03 I (168) (168) 00 Vehicles (2.0) (4.0) 2 I 23) (23) 0)
Crowns 03 a2 65) 03 Compensation (0.6) (0.4) 07) I @0) 0) (0)
Other Network Ot 43) I (416) (111) (05) Collection, Delivery & Conveyance Charges (05) (0.4) (02) I (09) (06) = (0.3)
Legal 06 o1 I (577) (553) (0.2) Staff & Agent Related Costs & Consumables I 0.2 (5.6) 45 I 429) (34) 05
Programme costs 03 0s 0 0 ) * Skills Group off-charges to projects 66 «17 45 I 67 46 O38
Strategy (a7) a1 I (846) (855) 09 Remainder 64) (73) 00 I (476) (478) 02
CSIS/ Managed Services a4 14 I (845) (853) 09
Strategy/Programme office (03) (03) (01) (00)
[Total Non Staff Costs 3) [Total Non Staff Costs
Non Staff by Directorate
Commercial
10%
Financial Services
Finance
%
renting
The Central directorate has a positive budget which incorporates
central provisions and budgets, including elements of the savings task
Period 5 Performance Pack ~ Chris Day
Variance
YTD non people costs were £2.2m favourable to budget and
£3.3m adverse to prior year.
By Directorate
Vs. Budget
The Commercial directorate was £4.3m favourable due primarily
to by the reduced Mails Dangerous Goods costs and this masks
the underlying adverse variance, which is as a result of fewer
efficiency savings. The Strategy (IT&C) directorate was £1.7m
adverse due primarily to their share of the £10m business wide
efficiency savings challenge yet to be identified,
Vs Prior Year
The £3.3m adverse variance is driven primarily by the
Commercial directorate with increased consulatncy, marketing
and legal costs.
By Type
Vs. Budget
The YTD variances was driven by lower IT, legal and printing
cost.
Vs Prior Year
The YTD variance was driven by increased legal fees relating to
seperation and costs for BAU services no longer provided by
Royal Mail
12th September 2012
Sata gent reted Costs
* Skills group is the internal ‘consultancy’ providing project resource
made up of a mixture of employees and some contractors. If demand
is high the contractor spend increases but is offset by the higher off-
charge to projects within staff and agent related costs line.
Page 8 of 16
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Business Scorecard Strictly Confidential @
August 2012
Key Performance Indicators Current Month Year to Date Full Year 2011-12
Act. Target Var Act. Target Var Prior YearI F'cast Target Var Outturn
Growth
Total Revenue (excluding NSP) £m (Bonus) 77.2 75.5 423.3 416.1 408.1 1,023.4 1,015.8 76 979.7
Total Net Income (excl NSP) £m 67.7 66.3 373.8 367.1 360.8 903.8 897.9 59 865.3
Operating profit £m (Bonus) 69 65 45.2 43.0 38.4 84.0 84.0 0.0 61.3
Free cashflow £m (32.0) 27.8 235.7 243.5 35.8 (85.3) (85.3) 0.0 (15.0)
Collections & Returns ability to serve RM (Milestones) 1 is) 1 2 N/A 8 8 is} N/A
FOoG bid wins (value won) (Rev £m) 0.5 1.0 2.5 49 N/A 10.7 14.7 (4.0) N/A
Customer
Customer Satisfaction 86.0% 88.0% 86.2% 88.0% 86.6% 88.0% 88.0% 0.0% 86.9%
Queue time % < 5 minutes - Top 1k branches (Bonus) 81.8% 80.7% 77.9% 77.5% 76.3% 78.9% 78.9% 0.0% 77.8%
Welcome & Farewell - (mystery shopped) - Top 1k branches 82.4% 85.9% 83.4% 85.9% 80.2% 85.9% 85.9% 0.0% 81.5%
Call Centres 3D (Bonus) 107.6% 100.0% 106.0% 100.0% 103.1% 100.0% 100.0% 0.0% 105.5%
Retail Standards (actual) - Top 1k branches 84.6% 84.9% 85.3% 84.9% 83.4% 84.9% 84.9% 0.0% 84.1%
Horizon availability 99.7% 99.6% 99.8% 99.6% 99.9% 99.6% 99.6% 0.0% 99.5%
Branch - Compliance (new basket) 98.8% 95.0% 97.8% 95.0% N/A 95.0% 95.0% 0.0% N/A
Modernisation
Crown Profit (Loss) £m (Bonus) (2.2) (3.0) {14.7} (16.9) N/A (40.3) (40.3) 0.0 (46.4)
Engagement Index % (Once a year) 64% 65% 64% 65% 58% 65% 65% 0% 64%
Network Conversions (Mains & Locals) (Bonus) 18 20 243 250 N/A 1200 1200 0 184
IT Transformation (Milestones) 1 0 8 8 N/A 12 12 0 N/A,
Bonus worthy metrics
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12th September 2012
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August 2012
Year To Date Prior Year YTD Full Year Prior Year
£m Actual Budget__ Variance Actual Variance I Forecast Budget___ Variance Outturn
Income and Distributions
Variable income
~ Mails 16.0 40.1 37.6
- Financial Services 13.6 30.2 31.9
- Government Services 11.2 26.6 20.3
- Telephony 07 1.6 16
Fixed income 11.2 30.0 40.2
Gamma/ Other 48 12.2 114
Renewals and Retentions 5.4 11.2 44
Te come including Gamma/othe
Direct Product Costs
Branch costs
~ Staff
- Property
- Other branch costs
Infrastructure costs
Allocated central costs
(3.3)
(49.2)
(14.5)
(2.6)
(9.2)
(50.3)
(45.9)
(2.9)
(9.3)
(2.4)
JV Share of Profits
Summary
+ Income is on target:
» Costs are lower than plan:
XN
* The £1.9m favourable Pillar income position is driven by Mails (Stamps) sales earlier in the year ahead of the price increase and a much stronger performance on
Special Delivery and Olympic philatelic items.
+ Fixed and Retention income is £1.9m adverse and both are impacted by project Eagle, the overall financial impact of which will be evident in P6 once the one-off
payments have been received and accounted for.
+ Crown Staff costs are £1.1m favourable due to savings being generated earlier than planned and in advance of the full duty reviews. This variance will reduce
over the year as the budget and actuals are expected to align
+ Property costs are £1.4m favourable. This variance was due to the delay in expenditure pending the full review of maintenance requirements in branch, which
has now been completed. Maintenance spend has now recommenced and is expected to be in line with the full year budget.
+ Allocated central costs are £1.2m adverse, mainly due to the overspend on programme costs.
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12th September 2012
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Transformation
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August 2012
Summary
Continued progress across the transformation agenda, with some delivery risk which is being proactively managed
Detaited SPMO and Transformation Board challenge on key programmes to increase levels of confidence in spend forecasts for the current financial year.
Key Achievernents
Crown layout design for pilot sites agreed
Drop and Go functionality deployed to Horizon
First phase of salesforce solution launched to all Financial Specialists in branch.
L
Key challenges Impact
Delay to Finance Transformation systems procurement to allow confirmation of IT platform Potential delay to overall delivery of Finance Transformation
strategy decision and completion of ExCo separation approach discussion
Delay to serving of notice to RM for IT services to allow ExCo discussion on separation
Delay to provision of notice against current plan.
approach,
Progression of Network Transformation rellout at required pace continues to require
management focus.
\
Key changes to plans
Potential change to Finance Transformation plan
Delay to separation plan.
Penguin replanning underway in line with development of revised procurement approach.
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Transformation Delivery - Full Year
August 2012
Strictly Confidential
Programme / Project
I [ Plan l Spend [ Benes I [Headlines
IFO0G Implementation
FO0G Sales Pipeline
Network Transformation
[Crown Transformation
IUKBA P2 completion delayed by dependency on UKBA IT supplier. Replanning under way to fit with Christmas freeze. Current UKBA revenue at 65% of plan although growing
Delay in DVLA licensing CR from 03 to 04 will reduce FY12-13 benefits by £0.5m.
DVLA competitive dialogue process progressing with decision expected 2nd week of October.
IDA team continue to respond to clarification questions. Award now likely early October.
lAgreement reached with Consumer Focus on “Locals” model engagement. Contracts for full rollout now cleared with NFSP. Continued focus on speeding up completion of financial assessments,
to enable rollout to ramp up. Overal rik against FY12~13 rollout target being assessed by NT Board. Significant likely exceptional underspend being confirmed by programme this month,
Blueprint for the future Crown branch design agreed for plating in Nottingham. VR preference exercise for Branch Managers and 2nd phase of staff commenced. issue of Post and Go
Jautomation tender delayed to mid September to allow finalisation of requirements and procurement approach.
IT&C Transformation IT Solution Detivery framework launched on 23th August. in good time to be used in September by Crown and Finance roadmap programmes. Revised plan now baselined.
[Channel Integration: Discussions continue on how to meet the challenge of Crown's aspirational testing dates: baselined plan net yet in place
IT Delivery POMS: plan on schedule.
Salesforce: Core solution live with FSs trained and using tool. Small delays to rollout of additional email / Brands extract functionality
Fs: Contract became effective on 3rd September, with staff transfer complete from POFS to Bol and POL. Fist joint governance forum scheduled for 17th Sep. Post fice programme governance
Eagle to follow.
Bol and PO working towards proof of concept launch in w/e Sth November with plan remining very challenging, Negotiations have begun on remuneration for both proof of concept and
FS: Polo
rollout, inital thinking under way from Bank on the plan to ful rollout,
Fs: Pen Decision made to progress with a general spend card-only proposition, subject to market validation and proposition development to confirm assumptions. New approach - with PO as an agent
‘aun to distribute products on behalf of provider being assessed & should allow launch by Jul~13 and earlier benefits realisation. Plan to be rebaselined on agreement of approach
Mails Collections & overall, project remains high risk. Delivery plan incorporating Ingenico / Fujtsufeasibilty assessments, will be re-baselined at September Mails board
Returns Significant uncertainty remains over interface with retailers with discussions with RMG escalated to define approach.
Mails: Drop & Go [Technical solution deployed on 20th August. with small fixes being put in place. Information packs issued to 1630 agency branches and programme of branch engagement initiated
Mails : Small Bus Club
Feasibility study extended to include discovery phase with incorporation of supplier ROM costs. New plan and costs were baselined at the September steering board.
Independence &
Separation
NA 12/23
MSA board not held this week to allow more time for ExCo to discuss strategic approach to separation activity and associated multi year costs. MSA board ta be held late September / early Oct.
Finance Transformation
Nya 12/23
Procurement pracess delayed by programme board to allow both related ExCo discussion on separation and IT platform strategy discussions to take place.
[Telephony
Nya 12/23
PID & baseline plan delayed to end September to accommodate BT/ Fujitsu date misalignment, but no impact on overall plan. Governance established: monthly project board & quarterly Exec
steering group. Offer made to full time Project Manager.
Brand
NA 12/23
\Stronger programme management now in place. Advertising and internal communications on schedule. Key issue around capacity of the Bol compliance team to agree all brand content. Issue
being escalated and resolved.
Na 12/13
IGood progress made with web re-design development: on schedule for completion by 1th October but with little contingency. Bank of Ireland compliance approval of web page content is on
the critical path and at risk but receiving escalation to resolve.
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12th September 2012
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Appendices
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Cashflow Statement Strictly Confidential °
August 2012 >
YTD Full Year
Actual Budget Variance Forecast Budget Variance
Operating Profit 45.3 434 2.2 84.1 84.1 0.0
Depreciation 0.4 0.3 O41 08 08 0.0
Working Capital (10.7) (26.0) 15.3 (60.2) (47.4) (12.8)
Client Balances (6.9) (30.9) 24.0 73.2 73.2 0.0
Network Cash (66.1) (5.8) (60.3) (147.5) (147.5) 0.0
Dividends (18.1) (19.4) 13 (7.6) (7.6) 0.0
Capital Expenditure (28.8) (26.8) (2.0) (113.5) (132.7) 19.2
Government funding 200.0 200.0 0.0 200.0 200.0 0.0
NSP in advance 122.8 122.8 0.0 0.0 0.0 0.0
Exceptional Items (12.2) (21.3) 5.6 (131.4) (112.4) (19.0)
Pensions 04 08 (0.4) 18 18 0.0
Free cashflow before interest, tax 226.1 2368 (10.7) (100.3) (87.7) (12.6)
Interest (1.6) (2.7) 141 (5.0) (8.0) 3.0
Tax 11.2 94 18 20.0 10.4 9.6
Free Cashflow 235.7 243.5 (7.8) (85.3) (85.3) 0.0
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Income By Product Groups & Pillar Strictly Confidential °
All pillars are performing adverse to budget, bar Mails which is £9.1m favourable.
August 2012 Financial Services is the most adverse (£3.3m) due to the delay to Eagle.
Net Income Current Month Prior Year Year to date Prior Year Full Year Prior Year
£m Actuals Budget Variance Period Monty Actuals Budget Variance IYTD Actual vow OF! Forecast Budget Variance aoe
Parcelforce i3 ia 13 00 75 36 08 7a 04 ii ave 09 183
Special Delivery 38 36 38 (0.0) 219 205 14 02 514 505 09 533
International Priority & Standard 221 24 2.00 oz I 1353 © 139 (0.4) 209 I 3685 366 03 299
IStamps (1st & 2nd Class) 16 24 19 (0.3) 153 123 3.0 44 354 354 0 318
Labels (1st & 2nd Class) 6.40 69 5.88 052 I 4076 396 12 739 I 100.44 100.4 0 83.9
RM Mail Fixed 44 44 68 (2.4) 24.0 240 00 3.2 I 636 636 0 881
Retail & Lottery 38 34 29 a9 194 167 24 13 434 425 06 42.2
Mails Other 5.0 40 29 22 228 220 08 7.0 584 57.6 as 39.9
Total Mall Services 2 ie oa DEE eee ee) 5 BC SE 3875
Total Telephony Services 8 19.0 19.0. 0. a
Motoring Services 23 20 03 21 02 143 127 17 145 01 31696 20 323
Card Account 55 57 (03) 58 (0.4) 28.4 295 aa 298 (2.4) 684 693. (09) 70.2
Passport 13 12 04 42 04 106 98 08 97 08 195-190 0s 188
JAEI (DVLA & UKBA) 02 44 0) a9 (0.71 44 62 G3) 45 (02) 17200472 0 11.0
Other Government Services 02 02 (04) 03 (0.2) 12 15 (02) 22 (0.9) 36 49 a4) 34
Bil Payer Tne Ticket & Travel 29 27 02 31 (0.2) 169 153 16 i714 (0.5) 396 S77 19 405
Payout 02 0.0 04 (0.0) 04 (0.0) 02 2 (0.0) 0.0 09 04 0s (0.4)
Postal Orders 47 18 (0.1) 20 (03) 96 404 (05) 104 (a8) 38 38 0 256
Fin Servs opportunities and projects 0 0.0 (00) a0 00 0 04 (01) 0.0 00 12 02 1.0 0
MoneyGram a9 14 (0.2) 1.0 (0.0) 56 58 (02) 70 3) 156 98 58 109
Gift Voucher oa 04 (00) 04 0.0 06 06 (01) 04 02 29 29 0 09
Banking Services 2a 20 01 24 (0.0) 119 108 44 106 13 28.2 25.9 24 253
we 03 03 00 07 (0.4) 18 15 03 33 (a5) 40 27 13 79
NSB 10 1.0 0 14 (0.4) 56 54 04 70 (2.4) 2330132 04 166
JASL Business Banking 26 26 0.0 27 (0.1) 144 144 (0.0) 146 (0.2) 343 343 0 34.2
ATM 23 24 (01) 24 01 126 134 (09) 123 03 317, 3240.7) 293
Bureau (excl profit share) 24 27 (03) 26 (on) 114 124 07) 116 (02) 235 237 (02) 244
Travel insurance a9 1.0 (0.1) os 01 54 53 04 58 (0.4) 87 85 02 89
POFS - Savings 32 34 04 47 15 95 150 65) 68 27 31937253) 15.7
POFS - insurance 03 03 (0.0) a2 04 18 15 03 19 (0.4) 49 42 07 46
POFS - Lending 03 03 (01) 02 01 12 18 (06) 09 03 44 37 07 18
POFS Other 14 02 42 02 117 26 x0 26 1.0 29 40 25 15 0
Miscellaneous (A&I - CLS, Debit Card, Bureau kiosks) I __0.7 05 02 05 (07 (0.5) 40 16 (7.6) 15.2
meal Sonics ea aaa ao as i Fa EE “405” =a EEE ers
(Other Income 07 02 05 37 35 35 10.9
Supply Chain 25 23 02 os oe Sy a 20 216 tt 303303 3 28.4
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POST OFFICE LIMITED BOARD
Post Office Limited’s insurance programme
1. Purpose
The purpose of this paper is to:
1.1. Seek approval for Post Office Limited to put in place its own insurance
programme
1.2 Confirm Post Office’s annual insurance requirements, for the period from
October 1° 2012 to September 30" 2013.
2. Background
21 Post Office has historically been part of the RMG Insurance Programme. The
current policies within the programme expire on September 30" 2012. Royal
Mail (RMG) have historically led the strategy and approach for risk financing
for these programmes. On most lines of business there has been a £1m self-
insured retention with RMG’s captive insurance company (PostCap) providing
an additional £4m. External insurance companies have provided insurance
cover, in excess of the total £5m retention, with the cover limits varying
according to the type of policy.
2.2 Post Office has been charged an allocation of the total insurance cost, based
on metrics which are not driven by typical Insurance market formulas. This
creates complications in terms of showing ‘like for like’ pricing comparisons
going forward.
For the 2011/12 insurance period, the allocation for Post Office for all external
tisk transfer premiums totalled £488,473, and the allocation for PostCap
premiums was £182,452, giving a total premiums cost for insurance of
£670,925. In addition, Post Office remains responsible for all claims below
£1m, with an average retained claims cost of circa £1.88m per annum.
2.3 The current RMG/ Post Office allocation formula model will expire on 30
September 2012, at the end of the current 2011/12 insurance period. This
formula has clearly been financially beneficial to Post Office (particularly in
respect of the PostCap allocation and the Crime programme premium). We
understand that, if Post Office chose to retain shared insurance programmes
with RMG in 2012/13, the allocation model would change to an ‘Insurance
Market Rate’ split, which would result in a greatly increased share of the costs
for Post Office. Later in this paper we show the costs to Post Office if the
current 2011/12 programmes had been at a market rate allocation, rather
than the existing allocation. This should be viewed as the cost benchmark
when making 2012/13 programme decisions.
24 As part of separation, Post Office appointed its own insurance broker — Miller
—on July 1* 2012, following a competitive tender process. Miller have worked
with Post Office to review the various covers and renewal options.
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3. Options
3.1 Continue to share RM’s insurance policy
Given the favourable allocation from RMG (circa 7% of the total insurance
costs) there is an argument to continue with the current arrangements within
the RMG programme.
However, whilst in theory Post Office could carry on sharing RMG’s insurance
policy because the two companies are part of the same group, it is now
known that the favourable allocation would not continue into the new policy
period. The MSA would allow RMG to charge the “Insurance Market Rate”
going forward, which would see considerable increases against the expiring
premiums.
Notwithstanding this, the ownership, control and strategy of the insurance
programme would all remain within RMG, which may well not compliment or
support Post Office’s desired approach. As the two companies diverge in
business approach and strategy, the nature and level of risks will also differ.
It is our understanding that RMG will continue with the strategy of using
PostCap, but there is considerable uncertainty over whether RMG would
agree to continue to include Post Office exposures in PostCap.
If they would not, in order to maintain the current position, Post Office would
be forced to add another £4m to its own self-insured retention or provide that
£4m of cover though the external insurance market. Either way, this
approach creates significant complication and dislocation.
For all the above reasons, this option is not recommended. In any case, the
corporate strategy of RMG would only allow sharing of insurances for 2012/13
and no longer. A break from RMG is therefore inevitable.
3.2. POL to have its own insurance programme
The view of Miller is that insurance market conditions will be more favourable
in 2012 than in to institute a stand-alone programme. The general
commercial insurance market is currently at its most competitive level for over
10 years but the market is expected to harden, and premiums are likely to
increase, from 2013. Establishing an independent insurance programme
would give us control of coverage and costs and allow us to develop a risk
management strategy which aligns with our longer term commercial strategy.
The Board is therefore asked to endorse the proposal for Post Office to
establish its own insurance programme with effect from 1 October 2012.
4. Fundamental decisions
4.1 There are a number of fundamental decisions to be made in setting up an
independent insurance programme, namely
. the level of risk we are prepared to take (excess), against the cost of
purchasing external insurance coverage
. whether Post Office should set up its own insurance Captive to provide
better balance between self-retention and external premium costs
. the type of business insurances we buy (Directors’ and Officers’
liability insurance is being considered separately).
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5. Structure, Costs and benefits
The structure and costs of the various options are shown in Appendix 1.
5.1
5.2
5.3
5.4
5.5
The levels of excess considered for a stand-alone programme were £10k for
all business policies (except Crime for which the market norm is at £1m), or
the existing level of £1m for all policies. D&O cover is considered in a
separate paper.
Option A shows the historic position and option B the likely position if we
continued to share with RM. Option C shows indicative costs on the basis of
a deductible of £1 million; option D shows the comparison for lower levels of
deductible. The deductible is what is typically classed as the “excess” - i.e. the
amount of the claim which the company would have to fund itself.
There is likely to be good competition in the market for Post Office business,
and the option will remain to reduce premium costs in future by accepting a
higher deductible and demonstrating strong risk management and a good
claims record.
For this initial period, while the level of claims becomes clearer, the Board is
asked to agree that Miller should be instructed to go out to the market on the
basis of option C. This is estimated to be £0.1m pa cheaper than sharing with
RM and £0.4m pa cheaper than having a lower deductible.
The insurance policy will cover as follows:
Property - £250m
Business Interruption - £10m
Employers Liability - £25m
Public Liability - £50m
Motor - Comprehensive Full Cover
Crime - £400m
Kidnap and Ransom - £20m
Directors’ and Officers’ Liability - £20 million
6. Setting up a Post Office Captive Insurance Company
6.1
There are short and long term advantages for Post Office in setting up its own
offshore captive insurance company to self-insure. These include:
(a) The captive can operate as a vehicle to smooth the impact of different
self-insurance levels that may be required by the external Insurance
market (this is particularly true in respect of the Crime programme
which will require a higher self-insurance level than other lines of
business).
(b) I The captive can be used to help mitigate the impact of premium
increases which may result from the expected ‘Hard Market Cycle’
which will lead to general insurance rates increasing from 2013.
(c) The captive could potentially be used as a profit generator in the future
by utilising it in respect of the affinity insurance products sold by Post
Office or to develop products for franchise/agent Post Office
operations.
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6.2 There are different types of captive insurance company. Post Office could
establish its own insurance subsidiary or set up a Cell Captive which is a more
cost-effective means of providing self-insurance, by keeping separate legal
“cells” which can only be used for one entity.
6.3 Depending upon which type of captive vehicle is chosen there will be set up
and administration costs. Miller estimates that the costs for set up and first
year running and administration of a Cell Captive (including their own project
management fee of £25k) would be in the region of £60k, increasing to £125k
for a wholly owned new captive. The set-up of a Cell Captive is favoured as
this mitigates initial set up costs, but can be transitioned into a wholly owned
captive in the future, if needed.
7. Appendices
See appendix 1 for options available to Post Office
8. Recommendations
The Board is asked:
8.1 To agree that Post Office Limited should establish its own insurance
programme with effect from 1 October 2012;
8.2 To instruct Miller to obtain quotes in the market on the basis of option C
(estimated cost to the business £3.3m p.a.) for the insurance period to 30
September 2013; and
8.3 To approve the setting up of a Post Office captive Insurance Company at a
cost of £60k.
Chris Day
September 2012
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Appendix 1
POST OFFICE PREMIUM COMPARISON 2011 - 2013
2011/2012 ACTUAL 2011/2012 Rebased for "market priced” 2012/13 External Indicative £1m dedctible 2012/13 External Indicative £10k/£50k dedctibles
£4m xs £1m and removing beneficial
allocation model
Externe! Risk Troader ailocation Extermal Risk trans#er allocation. External indicative Pricing for POL with a Extemal indicalive Picing for POL only
IG8Pim dedvelibie acios all lines
GOP 488,473 GBP 950000 I GBP 3,428,000 GBP 2.062
Internal Captive Allocation internal Captive Allocation
GBP 182,452 IGBP 555,000
fea Retained Losses Retained Losses ergy Relained/Self insured
GBP1.828,684 Sate Reiained/Self insured GBP1.4m
Total costot isk - GBP 2,499,607 Total costo sk - GBF
333,000 Total costof isk - GBP3.253,684 Total costo sk - GBPS,662,000
Notes
1 The 2012/13 structure is for POL stand alone policies only
2 2012/13 inldcatve pricing Is achelvable
3 The 2011/12 RMG allocation would NOT be replicated going forward - his wil increase substantially,
4 Whilst the total cost of risk for (D) above Is higher than (C) It must be noted that here Is substantially increased volatilty
for retained claims in (C),The retained/self insured amounts shown are based on historic amounts and actas.a
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POST OFFICE LTD BOARD
Directors’ and Officers’ Liability Insurance
1. Purpose
The purpose of this paper is to:
1.1 Set out the options for continuing directors’ and officers’ liability insurance cover
(‘D&O”) after 30 September 2012;
1.2 Agree the policy on obtaining D&O cover for the year to 30 September 2013.
2. Background
2.1 D&O cover has, to date, been available to Post Office Limited directors and
senior managers through a Royal Mail Group policy, with aggregate cover of £60
million for a premium of £144k. Post Office was recharged c£12k of the premium
cost by Royal Mail, meaning that the cost to the Company of the cover was much
lower than if Post Office had held its own D&O insurance.
2.2 Separation means that Post Office will have to take responsibility for its own
insurance programme. A separate paper discusses proposals for the wider
insurance programme.
2.3 At the allocation rate previously charged by RMG, the cost of cover to Post
Office was very low and all administration, in terms of renewal, notification of any
relevant changes in business activity and any claims handling, was undertaken
by the RMG insurance team. RMG have indicated that they would now wish to
recover costs “at market rate” and their insurers will certainly advise them to
establish a clear and independent claims profile if a sale or market listing
becomes imminent.
2.4 It is therefore sensible to look at the option of entering into a D&O policy for Post
Office as a stand-alone entity. While the cost would inevitably be higher than the
current arrangement, Post Office would be able to take control of its own policy,
set its own cover limit and deal with any potential claims on its own account.
Post Office’s strong brand reputation and zero claims history is expected to
generate a good level of competition among “A” rated insurers in the D&O
market. There are also market indications that costs are likely to be higher for
new entrants in 2013/14 than in 2012/13.
3. Company Indemnities
3.1. Many companies provide an indemnity for directors, by way of a Deed between
the individual and the Company, whereby the company will reimburse a director
for costs incurred in defending a claim brought by a third party. This
arrangement is personal to the individual.
3.2 Post Office does not have such Deeds in place but the Articles of Association
allow for indemnification and this will be considered further with external lawyers.
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3.3 However, insurance provides much wider cover: there may be cases where the
costs would be so great as to exceed the company’s own resources — an
indemnity would be worthless if the company giving it were to become insolvent.
An indemnity may not cover the costs of travel and subsistence for family
members in the case of a court case away from home. Finally, there may be
instances where a company cannot or will not pay. A D&O policy is the only
option available where legal action is brought against a director by the company
itself (as happened in the notable Equitable Life Assurance Society action).
4. Features of a D&O policy
41 A D&O policy is intended to protect directors and officers, both executive and
non-executive, against allegations of wrongful conduct when they are acting as
company executives.
4.2 A D&O policy will generally either pay directly, or reimburse to the company, the
costs associated with the defence, investigation, negotiation and settlement
(whether by a court judgment or otherwise) of a covered claim. This includes
lawyers’ fees, court awards and costs. “Side A” cover means individual cover for
directors; “side B”, which has been growing in importance over recent years,
gives protection for the Company for reimbursement of amounts it may be
obliged to cover for directors and senior employees, where legal action is
brought against them because of their position in the Company.
4.3 As well as “statutory” directors and officers (such as the Company Secretary), a
D&O policy typically also includes senior management levels and other
employees who are deemed to be acting in a managerial or supervisory
capacity. The policy may also include spouses of insured persons and all other
employees as co-defendants if they are joined into an action.
44 The codification of directors’ duties in the Companies Act 2006, the first
prosecutions for Corporate Manslaughter, the individual penalties which could
result from breach of the Bribery Act 2010 and the increasing willingness of
regulatory bodies, such as the FSA, to pursue individuals personally have all
increased directors’ calls for adequate insurance cover.
4.5 The UK Corporate Governance Code now requires listed companies to arrange
insurance cover for their directors, recognising the potential otherwise for
companies and their shareholders to be damaged by the costs of defending
claims.
46 While there are many companies which never face a D& O claim, a recent
survey revealed that 20% of its respondents had already had experience of a
claim or investigation involving a director of their company, with regulatory
investigations and enquiries being the area of greatest concern.
5. Options Considered
5.1 Option 1 would be to continue with a shared joint policy for Royal Mail Holdings
plc and all its subsidiaries. As is the case for other insurance policies, there is
no guarantee that the existing low allocation rate would continue to apply. This
option has been discounted because RM would control the cover which could
possibly leave Post Office exposed — e.g. RM may be concerned that the cover
could be insufficient to meet actions against them.
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5.2 Option 2 would give joint cover, with a separate layer allocated only to Post
Office; option 3 similarly would give a separate initial cover, with an additional
layer accessible to both Post Office and Royal Mail. Neither of these options
would provide true separation and Royal Mail would still retain control of the
policy as in Option 1 so these options have been discounted for the same
reason.
5.3. Option 4 would be to set up a new policy, including an “outside board” extension
to provide cover for the Chairman in her role as a director of Royal Mail Holdings
plc. However, directors and senior management would want to be sure that
claims relating to events which took place while they were still part of the Royal
Mail Group were adequately covered. For this reason this option has been
discounted.
5.4 Option 5 therefore recommends that a new policy be established for Post Office,
but the existing Group policy continues as a run-off policy, to cover a 6 year
period. It might be argued that the c 7% allocation rate should still apply to
premiums for this policy as it would relate to activities which happened when the
companies were joined. The estimated one-off cost for a run-off policy of this
type would be about £290k (shared with RM) so it is not the cheapest alternative
but it would provide protection for past actions and cover the Chairman in
respect of Royal Mail Holdings plc Board responsibilities.
However, Royal Mail have indicated that this would not be acceptable, which
may mean that sharing this policy would become uneconomic for Post Office.
5.5 The nature of risk for Post Office is different from Royal Mail, in that there are
very few subsidiaries and there is currently no business outside the UK, so cover
of £60 million is felt to be excessive. Therefore cover of £20m is recommended
by Miller.
6. Comparative Costs
6.1 Indicative costs are £20k pa plus a share of the one-off premium of £290k
7. Recommendations
The Board is asked to:
7.1 Approve the proposal for entry into a new D&O policy in the name of Post Office
Limited with cover up to £20m at a cost of c£20k pa
7.2. Agree to conversion of the existing policy into run-off, providing continued cover
for a period of 6 years for actions arising from events during the period of
ownership by Royal Mail, with Post Office paying a share of the one-off total cost
of £290k. If the allocation determined by Royal Mail would make this option
uneconomic for Post Office, a stand-alone run-off policy would need to be
purchased.
Chris Day
September 2012
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POST OFFICE LTD BOARD
BRITISH POSTAL MUSEUM AND ARCHIVE (BPMA) ONGOING FUNDING
1. Purpose
The purpose of this paper is to:
11
Request that the Board approves an increase of £0.26m in Post Office’s annual
funding of the BPMA, bringing Post Office’s total annual funding commitment to
£1.26m a year for 25 years. A similar request for an equal commitment from
RMG was submitted to the RMG board for approval on Sept 12th.
2. Background
21
2.2
2.2
2.3
2.4
In December 2011 the Board noted proposals for long-term funding, including an
amount by way of loan to the BPMA, to fund a new site for the archive (paper
POLB(11)69). The £6m loan was split equally between POL and RMG and will be
repaid from revenues from the new museum.
In February 2012 Post Office provided the Trustees of the BPMA with a letter of
comfort confirming that we intended to fund the BPMA into the future with
payments founded on a commercial basis for services related to the discharge of
obligations under the Public Records Act and the Postal Services Act.
In January 2012 the Board approved an annual payment to the BPMA of £1m,
for a term of 20 years, to provide the archive services which we are bound to
provide under the Postal Services Act and the Public Records Act. RMG
committed to pay the same amount, as the total cost of supporting the BPMA is
split evenly between the two companies.
Public Records Act 1958 (PRA) — Archive Obligation
We are bound by the PRA to retain and manage our records in a particular way
because some of them must be made public after 20 years.
BPMA co-ordinates the initial receipt of records to be considered for permanent
preservation and carries out a series of reviews, to the standard defined by
National Archives to identify those that will be selected for publication after 20
years.
The material that is published is used by BPMA at their exhibitions, is available
on the internet and can be viewed by members of the public at Freeling House.
Postal Services Act 2011 (PSA) - Heritage Obligation
There is a reporting “heritage obligation” set out in section 12 of the PSA, to
report to the Secretary of State on the British Postal Museum and the Royal Mail
Archive. Both are cared for by the BPMA. The Secretary of State will then
present the report on the collection to Parliament.
This provision was included in the PSA 2011 to continue public visibility and
accountability for the heritage of RMG and POL after privatisation. These
different functions have been outsourced to BPMA, but the statutory obligations
cannot be transferred to a third party and continue to sit with the organisation.
Early repayment of the outstanding loans provides a means of recovery in the
event BPMA becomes over-funded.
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2.5 The BMPA provides a specialist, dedicated service which allows Post Office to
discharge its obligations. Failure to support the BPMA could put Post Office at
risk of non-compliance with the Public Records Act and the heritage obligations
of the Postal Services Act.
3. Proposal
3.1. The annual payment required from Post Office has increased by £0.26m to
£1.26m over a term of 25 years. RMG is required to pay the same increase, as
the costs are split evenly between both businesses. The change is because:
¢ The term of the long term loan is 25 years and the annual payment is required to
support the loan. The loan period was not confirmed in January 2012 when the
Board approved the 20 year term for the annual payment.
e The business plan of the BPMA demonstrates that the increased amount is
necessary in order to make the archive services contract commercial for services
related to the discharge of obligations under the Public Records Act and the
Postal Services Act.
e Early repayment of the outstanding loans from POL and RM provides a means of
recovery in the event BPMA becomes over-funded
4. Recommendations
The Board is asked to:
44 Note the substantial increase requested by BPMA.
4.2. Approve an increase of £0.26m in Post Office's annual funding of the BMPA,
bringing the total annual funding commitment to £1.26m a year for 25 years.
4.3 Request that the Chief Financial Officer nominates a member of his Senior
Leadership Team to monitor BPMA’s financial performance on a regular basis to
minimise the likelihood of there being further requests for increased funding.
Chris Day
12 September 2012
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POST OFFICE LTD BOARD
Information Technology and Change Transformation Programme Update
1 Purpose
The purpose of this paper is to:
14
Provide an update on the progress of the Information Technology and Change
(IT&C) Transformation Programme.
2 Background
2.1
2.2
23
The IT&C Transformation Programme provides the foundation to deliver the
significant business and technological transformation which underpins the
strategic priorities of Post Office for the next three years.
On completion of the IT&C Transformation Programme the Post Office will have:
« A more capable, efficient organisation and mechanism to increase capacity
within IT&C
e Invested in our people to ensure we have the skills and tools to deliver future
business capabilities
e Strategically re-procured our key IT contracts through establishing a
reconfigured supplier chain
« Reshaped our supplier relationships to ensure that we effectively support the
business going forward
« Created supplier frameworks that enable faster procurement of IT solutions,
increasing speed to market, enabling us to be more responsive, and ensure
effective competition across our supplier base
e Driven efficiency, innovation and a reduced cost of operation.
£13.37m was approved for the IT&C Transformation Programme at the Board
meeting in March 2012. The programme is on course to deliver within budget. The
Programme is governed by the Transformation Board with its own Programme
Board and Delivery Working Group.
3. Progress Update
3.1 IT Frameworks Procurement
The IT Frameworks project was established in July 2011 to enable Post Office to
deliver against the 5 year plan, given the constraints of Public Procurement Law
(PPL) and our impending separation from RMG (Royal Mail Group). The key
objectives for Frameworks are to provide:
« Speed to market, without having to undertake a lengthy public procurement
process
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e Supply chain flexibility, providing choice and reducing reliance on a single
supplier
e Increased competition to drive innovation and value for money.
The three frameworks have been launched and are ready for use by Post Office.
We are currently embedding the processes to ensure the frameworks are
exploited and used across Post Office. The IT Solutions Delivery framework is now
being used by other programmes including Crown Transformation for Self Service
and Finance Transformation.
3.1.1 IT Consultancy
The framework was launched July 2012 and will deliver a wide range of IT
related Consultancy services including IT Strategy, Business Case
Development, Enterprise Architecture and Business Process Design
amongst others. The chosen suppliers are:
Qedis
HP.
CSC
Deloitte
Cognizant
Axon
Atos
PA Consulting
3.1.2 IT Products
The framework was launched July 2012 and will be used to source
commodity IT products and related services as required by Post Office.
These include the supply of hardware, software, logistics and after sales
support. The chosen suppliers are:
= Fujitsu
= NCR
The initial intent was to establish a framework with a minimum of 6
suppliers. Both of the chosen suppliers are able to competitively provide
the range of services needed. Where necessary we are also able to
leverage the IT Solutions’ Delivery framework and Workplace Tower’
should these suit our purposes better.
3.1.3 IT Solutions Delivery
The framework was launched in August 2012 and will be used to provide a
range of services linked to solutions delivery, including but not limited to,
project management, bespoke development, implementation and rollout.
The chosen suppliers are:
Logica
Fujitsu
Steria
Cognizant
Atos
” Tower: An clement of our new IT supply chain which will provide and run operational IT services for the
business. These currently include Towers for: a) Data Centres, b) Network, c) Workplace, d) Applications and
Infrastructure.
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= Accenture
3.1.4 Delivery of the Frameworks was delayed by 5 weeks, without any impact
on the wider programme, budget or benefits. The key reasons for the
delay were:
e Some constraints in the availability of BAU resources. For future IT&C
Transformation projects we have now agreed our resource profile with
business area leads, which has provided an early view of our
requirement
e Lengthy governance process for approvals. We have subsequently
streamlined our governance process and identified a clear set of
reviewers and approvers for each deliverable.
3.2. IT Supplier Procurement
Our key IT contracts are due to expire during 2012-15. Our strategy is to contract
with a number of prime suppliers’ who will sub-contract services as necessary to
meet demand. This will provide Post Office with an appropriate and simplified
supplier model.
3.2.1 SI/SD (Service Integrator and Service Desk) Procurement
The SISD OJEU? and Pre-Qualification Questionnaire (PQQ) were issued
mid-April. A total of 12 responses were received of which 6 suppliers were
shortlisted. Fujitsu have since withdrawn from this procurement process to
concentrate upon the Towers. An Invitation to Participate in Dialogue
(ITPD) has been issued to the shortlisted suppliers:
Atos
Capgemini
Capita
HP.
Logica
We are now entering the first phase of competitive dialogue (negotiation)
due to complete October when a firm ISOS (Invitation to Submit Outline
Solution) will be issued. Following evaluation of ISOS responses, we plan
to reduce our shortlist to three by the end of November 2012.
Post November 2012 we will enter a further competitive dialogue phase
with the remaining three and receive final tenders. The SISD contract
award to our preferred supplier is planned for the end April 2013.
3.2.2 Towers Procurement
The OJEU and PQQ notices for the Workplace, Applications/Infrastructure
and Data Centre towers were issued in August 2012. The release of the
Networks Tower OJEU and PQQ is on hold until further assessment is
complete on the potential extension of the existing BT contract and the use
of the cross-Government Public Sector Network (PSN) framework.
Whilst it was initially thought that we would have a single AID (Applications,
Infrastructure and Data Centre) Tower, following feedback from the Market
? OJEU: Official Journal of European Union: the means by which contracts governed by Public Procurement
Law are offered to the market.
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Engagement Day and independent advice we have decided to separate
Applications & Infrastructure from the Data Centre creating two towers. The
key benefits of this separation are:
¢ Simpler procurement: Data Centre contract award can now be brought
forward to Q1 FY13
¢ Increase in competition: Specialist Data Centre providers can now
participate in the procurement process
e Reduction in the cost of delivery during 2013: earlier delivery of Data
Centres will enable projects being delivered through frameworks to be
hosted in our strategic data centre.
The key activities going forward are®:
¢ Review the Networks proposition in advance of the planned OJEU and
PQQ (circa September 2012)
e Evaluate PQQ responses from the participating bidders and shortlist
4-6 suppliers for each of the Towers
e Prepare and issue the ISOS (Invitation to Submit Outline Solution) to
the shortlisted suppliers and enter the first phase of competitive
dialogues to shortlist 3 suppliers for each Tower
e Prepare and issue the ISDS (Invitation to Submit Detailed Solution) to
the 3 shortlisted bidders and enter the second round of dialogues for
each of the Towers
e Prepare and issue the ISFT (Invitation to Submit Final Tender), select
the preferred supplier for each of the Towers and award contracts.
¢ Planned dates for each phase of the Tower procurements are given in
Appendix A.
3.3. IT&C Operating Model
To support the delivery of Post Office business objectives it was identified that the
capabilities’ of the current IT&C operating model would need improvement. In
particular, two key areas were identified:
« Management of third party supplier base to deliver IT services
¢ Existing gaps in internal Post Office Service Management capability.
The project is divided into the following three work streams:
* Dates are indicative subject to re-planning currently in progress to factor in the split of the AID tower into AI
and D. Plan to be confirmed during September 2012
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3.3.1. Organisation Structure and IT&C Governance
¢ The top level IT&C organisation structure has been designed and
implemented. Two key roles are currently being recruited for; a
Technology Officer and a Head of Business Change Delivery
e The IT&C governance boards have been designed at strategic,
operational and programme/project levels to complement the target
structure
e The full structure will be communicated by the end of September 2012
e Further changes to leverage the full benefits of our strategy will occur
once we have appointed and engaged the Services Integrator.
3.3.2 Process Design and Ways of Working
* The current state has been reviewed and we have improved the key
IT&C processes including change management
¢ We are continuing to refine our change process following feedback from
Post Office business units, prior to full implementation as part of our
transition planning
¢ Our plan includes a range of activities focussed on enhancing and
motivating our people. These include focussing on improving career
paths, leadership development, performance management and cultural
change.
3.3.3. Incumbent IT Supplier Management
¢ The purpose of this work stream is to understand the current contractual
obligations with our incumbent suppliers and plan our exit strategy to
enable a smooth transition.
¢ Legal review of 21 key supplier contracts was completed by our legal
advisors, DAC Beachcroft, in June 2012.
e Initial engagement with all suppliers is complete. We have
communicated our strategy, planned timescales and the support we
need from our suppliers.
e Extensive engagement with Fujitsu has been undertaken to ensure we
continue to work effectively to deliver change across the Post Office.
3.3.4 We are in the process of defining supplier specific negotiation strategies.
3.4 Transition Planning
We have brought forward transition planning to better understand the approach,
plan and costs in order to effectively manage the risk of moving to new suppliers.
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The work has focused on producing:
3.4.1 A draft, integrated plan covering transition of our IT services and the IT
elements of our Separation from Royal Mail. This plan will continue to
evolve as we gather more detailed information of the in-scope services;
3.4.2 Detailed, granular cost estimates, to understand the likely cost of transition
and IT separation.
Transition will be subject to the approval of future programme activities.
4 Risks/Mitigation
Top programme risks and mitigating actions are summarised below:
4.1 Increased re-tendering of IT contracts in the marketplace could result in fewer
than expected responses from suppliers and/or the suppliers with the “best
capability” bidding for other contracts.
Mitigation: there will be close engagement with all suppliers, including timely
communication of our procurement process and timelines. The procurement
process is already streamlined to provide suppliers sufficient time to respond.
4.2 There is a significant volume of transformation across Post Office that will require
support from our internal Subject Matter Experts (SME). The required level of
SME support may not be available due to the need to support several change
initiatives simultaneously
Mitigation: Detailed planning of resource requirements has been completed and
agreed across all business areas. Where necessary we may backfill resources
using external resources.
The early procurement of the Service Integrator will help us to mitigate capability
and capacity constraints.
5 Recommendations
The Board is asked to note the progress to date and that we continue to deliver against
plan and budget.
Lesley Sewell
September 2012
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6 Appendix A: Key Milestones
Strictly Confidential
The following table outlines the expected key milestones for the procurement and award of our IT contracts.
Services Integrator I Workplace
Paq' April 2012
isos? Oct 2012
isFTS Dec 2012
Award April 2013
Term 44144
Comments Down selected to the
following suppliers:
+ ATOS,
+ Capgemini,
+ Capita,
* HP,
+ Logica
4 PQQ: (Pre Qualification Questionnaire)
IT&C Transformation Programme.
Aug 2012 On Hold
Oct 2012 On Hold
April 2073 On Hold
duly 2013 On Hold
4ei+ 44144
‘On hold until further
assessment is made
ef any potential
extension of the
existing BT centract
and the suitability of
the cross-Government
PSN (Public Sector
Network).
2180S, (invitation to Submit Outin
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Applications &
infrastructure
Aug 2012
Oct 2012
July 2013
Oct 2013
54141
Longer expected
contractual term due
to:
+ Greater and longer
term investment
+ More difficult and
complex to
transition.
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I Data Centre
Aug 2012
Circa Oct 2012
Cirea Apr 2013
Q1 2013-14 FY
421+1
+ Simpler
procurement allows
earlier award.
+ increase in
competition through
participation of
Specialist Data
Centre providers.
+ Enables projects
delivered through
framewerks to be
hosted in our
strategic data
centre.
“ISFT: (invilation 10 Submit Final Tender)
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POST OFFICE LTD BOARD
Post Office Technology
Risk and Resilience Review
1. Purpose
The purpose of this paper is to update the Board on the findings and activities being taken
in response to the recently commissioned KPMG Risk and Resilience report.
2. Background/Key Findings
2.1 Over the past 12 months our counter capability has experienced five major incidents.
As part of the response Post Office commissioned KPMG to investigate our overall
IT service landscape with a review of the current risk and resiliency of our services.
2.2 The review was wide and covered all Post Office services; however the assignment
focused primarily on those with the potential for greatest impact on business and
reputation.
2.3 Horizon received the greatest focus due to the critical nature of the service and its
high public profile. Availability of Horizon Data Centre is critical as when unavailable
the branch counter is unable to transact business.
2.4 The investigation was time boxed to one month to provide greatest benefit and
responsiveness.
2.5 We have reviewed our IT roadmap and propose that as part of IT Transformation
programme we will establish the business requirements, appetite for risk and
associated costs to enhance our service availability. Implementation of any changes
to our service availability would form part of our new IT Supply Chain and through
the procurement of our IT Towers and Service Integrator.
2.6 Re-confirming with Post Office business stakeholders their expected business
service levels over the 12-15 strategic period is being undertaken as part of our
Towers procurement. This drives requirements and planning for:
2.6.1 Future Disaster Recovery and Systems Resilience capabilities which are being
integrated into our IT procurement and refresh activities
2.6.2 Articulating the acceptable level of risk for the business
2.6.3 Accommodating essential improvements, with strong cost benefit cases, into
the roadmaps for our legacy systems.
2.7 In the future, our chosen Services Integrator will as part of its BAU activities:
2.7.1Undertake an annual Risk & Resilience review focussing on changes made
and new areas of interest.
2.7.2Ensure and maintain the readiness of our disaster recovery capabilities through
amongst other activities scheduled testing.
3. Resilience Terminology
The terminology commonly used in considering the level of resilience of systems are
detailed in the attached Annex.
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4. Horizon Review Findings
4.1 Horizon’s centralised Data Centre has resilience similarities with major UK
organisations.
4.1.1 Retail
Retailers are focussed on the ability to continue trading even when their
central Data Centre is unavailable. Retail POS systems are designed to
continue to trade irrespective of Data Centre availability.
4.1.2 Banking
The Horizon Data Centre offers a lower level of resilience than those
commonly found in the Banking sector.
4.2 The original Horizon system prior to HNG-x being implemented could transact non-
banking functions without the Data Centre being available, similar to current retail
systems.
4.3. Post & Go and ATM's will continue to offer customer service irrespective of Horizon
Data Centre availability.
44 Whilst Post & Go can continue to trade end of day reconciliation would be affected
as these transactions are reconciled via systems operated from the Horizon Data
Centre.
4.5 Branches additionally have manual business continuity procedures for mails service
(e.g. manual sale of stamps).
4.6 Horizon operates out of two physically separate data centres (Primary and
Secondary) both located in Northern Ireland.
4.7 The Horizon Data Centre hosts multiple systems; the Horizon Counter Application,
POLSAP", Credence’, Post Office Data Gateway’ and others.
4.8 As part of the renegotiation of Horizon in 2006 Fujitsu were contracted to manually
recover the system to the secondary Data Centre in the event of a (“disaster”)
catastrophic event.
4.9 When not being used for a disaster situation the facilities of the secondary Data
Centre are used to support testing of business changes requested by Post Office
Ltd. This ensures we maximise value from our contracted assets.
4.10 Data Centre Failover
4.10.1 Any data centre failover event is operationally disruptive.
4.10.2 The Horizon business continuity plan identifies circa 70 events which will effect
a failover.
4.10.3 Failover is an “all or nothing” activity.
4 POLSAP: Provides support for finance.
? CREDENCE: Data Warehouse which is also used in the settlement of 3” party Client and Agent rernuneration
° Post Office Data Gateway: Used to securely transfer settlement and other information between Post Office and
3™ Party clients (e.g. EON, AXA, Aviva, etc).
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4.10.4 Currently all business services provided by the Data Centre must be failed
over at the same time. (i.e. Horizon, POLSAP, Credence, Post Office Data
Gateway, etc would all need to failed over together should any one require
failover).
4.11 From the point of the decision to invoke disaster recovery (not the start of the
incident) Fujitsu have to meet the following service level targets as agreed in the
contract:
4.11.1 Restore counter banking services on Horizon within 2 hours
4.11.2 Restore all other Horizon services e.g. remainder of the counter services,
web and Automated Payment Out-payment (APOP*) within 5 hours
4.11.3 Restore all other non-Horizon services e.g. POLSAP and Credence within 48
hours.
4.12 The currently contracted Horizon service availability target of 99.56% accepts
that an average of two or three major service failures or 12 hours lost service
time may occur per year.
4.13 Two out of the five Horizon service outages over the past twelve months were
related to process rather than technical resilience.
Date Incident Cause
27/07/2011 I PIN Pad transactions were unavailable Reference
between 08:00 and 14:30. Data delivery
12/12/2011 I Banking Transactions were unavailable I Hardware
between 12:54 and 14:30. failure
01/02/2012 I Post Office Card Account (POca) Release
transactions were unable to complete. Management
In some branches Automated Payments I process failure
(e.g. utility bill payments), E Top Up and
a small number of Banking transactions
were also affected. The service was
impacted between 08:00 and 11:15.
01/03/2012 I 95% of transactions were unable to Hardware
complete between 11:00 and 14:30. failure
16/07/2012 I Full service failure for 11 minutes, Hardware
followed by a partial service for the next I failure
35 minutes as the network restored itself.
This was a result of a hardware failure
within a network router switch.
4.14 Only the incident on 12/12/2011 may have been preventable through additional
investment in technology, or the move to an automatic failover.
4.15 While the architecture is generally designed for resilience, cost/risk trade-offs
were agreed in the move from the original Horizon system to the new HNG-x one
which mean that the service is not truly high availability.
* APOP (Automated Payment Qut-Payment}: a service provided by Horizon to enable various products to be sold and paid out from Post
Office counters, on the instruction of our commercial clients (e.g. Postal Orders, NS&i, Payout, Stock Order, Bureau Pre-Order, Camelot
Cheques, etc.)
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4.16 Following the tactical review during April/May a programme of activities was
undertaken to address improvements in infrastructure resilience, process
robustness and service monitoring. All key actions have been completed, the
remainder either require major release windows and have been scheduled, or are
in the process of being prioritised with Post Office. On-going actions are being
monitored through the joint Service Improvement Plan.
4.17 The latest incident has benefitted from the tactical changes made in response to
previous outages, with Fujitsu being able to find and respond more quickly to the
network incident on 16" July 2012 therefore reducing the overall business
impact.
4.18 Moving to banking service levels within the current Data Centre capability
(99.99% equating to circa 50 minutes service loss per year), was estimated by
KPMG to require investment in excess of £50-70m* with a subsequent increased
on going operational costs.
4.19 Channel Integration challenges the current risk/resilience profile as it increases
the number of business services dependent on the Horizon architecture. The
proposed architecture is currently being reviewed to ensure no degradation of the
overall risk/resilience profile.
5. Web Findings
5.1 Post Office current web capability is provided through services contracted by Royal
Mail Group with Capgemini and provided under the MSA agreed this year.
5.2 In the allotted time our consultants were unable to directly engage with Capgemini
due to Royal Mail Group operational priorities.
5.3. The currently contracted service availability target of 98% accepts up to 170 hours of
lost service time per year.
5.4 Although the Post Office Website does have a disaster recovery service in place, it is
believed that this has limited capacity. In the event of a failover to the disaster
recovery site it is not understood whether this would be adequate for POL’s business
requirements.
5.5 Any downtime is visible and also costly due to the number of high value financial
services which are transacted though this channel.
5.6 We are continuing to engage with Royal Mail Group to understand the full
capabilities of the Capgemini solution and expect to be able to provide an updated
report at the beginning of October 2012.
5.7 As part of our separation activities we are working to determine the current and
future business availability requirements which will be included in our future IT
Supply Chain procurements.
The Board is asked to note the contents of the paper.
Lesley Sewell
September 2012
5 Estimate by KPMG using industry standard Data Centre cost measures. These include Kw (kilowatt) power consumption, unit storage costs
(per Terabyte), based on their experience of similar industry Data Centres. These figures do not include upgrade costs for hardware which
might become end of life before the end of March 2015.
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Appendix
Terminology:
Terminology Description
Active/ Standby I« Describes a model where the primary data centre runs the service
and a second data centre is available to manually move the service
to in the event of a disaster.
e The Post Office system provided by Fujitsu Services Ltd currently
adopts this model.
Active / Active * Describes a model where both data centres are active at the same
time. Whilst normally the business transactions run on the primary
Data centre the second data centre is kept up to date (typically a
few minutes).
¢ Should the primary data centre fail the business load would be
automatically switch (no manual intervention) to the second data
centre. This would occur immediately with minimal or no perceived
loss of service.
Disaster e Typically occurs following a catastrophic event at the primary Data
Recovery (DR): Centre and it is deemed necessary to fallback to a second site.
Examples typically include flood, civil disturbance or other “acts of
God’.
«This is a major event and our currently contracted levels for Horizon
are typical in the industry. See below for contracted service levels.
Systems e Redundancy built into systems to ensure that the system continues
Resilience to run in the event of hardware or software failures.
e Whilst these are significant events in their own right the system
would be expected to continue to run at the primary Data Centre.
Examples may be single server or disk failures.
Risk & Resilience Review Lesley Sewell Page 5 of 5
September 2012
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POST OFFICE LTD BOARD
Noting Paper
Horizon Evolution Update
1. Purpose
The purpose of this paper is to update the Board on:
1.1 the current state of the Horizon Counter system and underlying Fujitsu HNG-x'
contract;
1.2 the review that was conducted with Fujitsu earlier this year and the work we are
continuing to undertake to ensure we minimise risk and cost to the business through
transition planning;
1.3. the approach being taken to identify the options for the provision of Post Office
counter’s services for 2015 and beyond.
2. Background
21 The Fujitsu HNG-X contract terminates at 31° March 2015.
2.2 The current Horizon system has fundamentally changed little since it was originally
designed in 1995.
2.3. Many of the components of the current HNG-x service will have reached end of life by
March 2015.
24 Fujitsu have estimated the cost of extending the service life to 2020 would be circa
£70m of investment during 2012-15, with on-going operational costs similar to today's
charges.
2.5 The Post Office business requires moving to a more flexible counter service than can
currently be provided through the current or proposed Horizon counter application.
Currently adding new facilities and changing existing ones is slow and expensive
when compared with industry norms.
26 To compete successfully in the commercial marketplace, our future business strategy
recognised the need for improved speed to market and cost efficiencies.
27 Under Public Procurement Law, Post Office is required to competitively tender the full
scope of the existing HNG-x contract.
2.8 In May 2012 Fujitsu approached Post Office requesting the opportunity to engage and
bring to the table a compelling proposition for the future provision of counter services
through to 2020.
! HING-x: The contractual means through which Fujitsu provide the Horizon counter system and other IT services
(c.g, finance and management information systems, etc.) to Post Office
Horizon Evolution Update Lesley Sewell Page 1 of 4
12 September 2012
29
2.10
2.11
2.12
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Through June and July 2012, Fujitsu and Post Office Information Technology and
Change (IT&C) worked together on an in-depth study into the opportunities for
renewing and extending the current HNG-x contract for up to five years. The outcome
of this investigation was reported to the Executive Committee of Post Office Limited
during July, fully explored and declined based on a number of criteria including:
2.9.1 legal advice based on Public Procurement Law
2.9.2 insufficient value for money over the strategic term
2.9.3 lacking the flexibility required by our business
2.9.4 it did not provide a compelling future vision of how to satisfy the business need,
focussing largely on a significant technology refresh during 2012-15.
Post Office are moving to a new IT Supply Chain model providing increased flexibility,
speed to market and improved cost savings.
Under the new IT Supply Chain the capabilities provided through the current
monolithic HNG-x contract will be provided through our Tower” suppliers.
Fujitsu have the opportunity to competitively win work under the new IT Supply chain
model.
3 Strategic Landscape
3.1
3.2
3.3
3.4
3.5
There will never be a good time to migrate to a new counter solution.
All solutions will require significant business activity and investment.
Any future counter capability will be likely to have a minimum expected lifetime of ten
operational years following its introduction, equating to an end of life circa 2025. This
is based on industry norms for e-POS* longevity.
Post Office will need to negotiate an extension to the existing Fujitsu HNG-x contract
of circa 12 and 18 months to ensure we continue to provide the stable business
platform demanded by:
3.4.1. Successful completion of the current Network and Crown Transformation
plans over the 2012-15 period.
3.4.2 Separation: with many supporting systems provided under the RMG CSC
contract with the majority of transition activities taking place in 2013-15
3.4.3. Embarking on the 2015-2020 strategic period with clarity on our strategic
intent through to 2020, ensuring alignment with the business.
Post Office will migrate services from HNG-x to our new contractual environment as
early as it is prudent to do so, enabling us to reduce the overall scope, risks and costs
of any extension period.
? Towers: Elements of our new IT supply chain which will provide and run operational IT services for the business. These
currently include Towers for: a) Data Centres, b) Network, c) Workplace, d) Applications and Infrastructure.
? e-POS: Electronic Point of Service, a system able to provide sales and service capabilities to meet customer needs.
Horizon Evolution Update Lesley Sewell Page 2 of 4
12 September 2012
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3.6 I Weare currently working to establish the precise nature of the terms and scope of the
extension required including the scale of the overall costing.
4. Activities/Current Situation
4.1. To reduce the risk to the business transformation programme we are working with
Fujitsu to package a programme of work to manage all of the activities’ and changes
required to the Horizon counter application over the 2012-15 term.
4.2 Included within this programme of work, for the existing Horizon application, are the
following update activities:
4.2.1. Extended Hours: providing support for extended branch opening hours, with
the added benefit of improving our operational capabilities through reducing
the duration of the overnight batch run.
4.2.2. Channel Integration: enabling other suppliers to access the capabilities of the
Horizon counter system, providing industry standard interfaces for a range of
key capabilities. This will enhance flexibility, speed to market and start to
reduce the bespoke nature of the current Horizon system.
4.2.3 Improved IPR‘ Position: By undertaking new developments we reduce the
IPR vested in Fujitsu, as under the terms and conditions of the HNG-x contract
new capabilities belong to Post Office.
4.3 We are continuing to shape this package of work to ensure where possible the
activities ease any future transition away from the HNG-x contract. An example is
Channel Integration which makes the current system more open and flexible.
4.4 Arisk and resilience review has been undertaken giving rise to a programme of
planned improvement activities. This is the subject of a separate paper made to this
Board.
4.5 The findings from the risk and resilience review are being input to the procurement
activities being undertaken to secure our Frameworks and Towers. This will ensure
that we procure (subject to cost benefit analysis) solutions which are able to deliver
availability in line with our future business needs.
5. Options
5.1 Over this financial year we have explored the full range of potential options within the
Post Office and with our suppliers.
5.2 In response to the procurement activities Information Technology & Change (IT&C)
are continuing to consider a number of options for progressing the evolution of the
Horizon counter application.
5.3 There is no ideal option which satisfactorily meets all of the aspirations of Post Office
in terms of time, cost and business capabilities for the 2012-15 strategic period and
beyond.
* TPR: Intellectual Property Rights.
Horizon Evolution Update Lesley Sewell Page 3 of 4
12 September 2012
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5.4 We continue to assess available options as part of our strategic planning for activities
for 2012-15 and 2015-20. As we progress our thinking we will consider new options
which might become apparent to ensure we select the most best available solution.
6. Progress Update
6.1. Weare adopting a phased approach to providing the capabilities required by the
business over the strategic term and beyond.
6.2 Our approach will enable Post Office:
6.2.1 to secure the 2012-15 network and business transformation
6.2.2 _ to transition the counter and other “front line” services safely to a new
capability beyond 2015.
6.2.3 to minimise the duration of an extension to HNG-x for the provision of
Horizon counter services, reducing risk and cost.
6.3. Weare adopting an incremental plan based on clear manageable steps which will
intimately engage and involve all areas of the business. Our intent is to ensure:
6.3.1 our process and decisions are clearly demonstrable to business owners
6.3.2 we can be guided by the knowledge, skill and understanding of our
Directorate’s key personnel
6.3.3. our plans are independently reviewed by industry specialists
6.3.3 our plans are consistent with and take account of our strategic plans for the
2012-15 and 2015-20 terms.
7. Recommendation
The Board is asked to note:
7.1. The actions being taken to secure continued and successful counter service
provision:
7.1.1 over the 2012-15 business transformation, through a package of agreed work
with Fujitsu and the Post Office business
7.1.2 as a flexible and responsive platform for the next strategic term 2015-2020.
7.2 Weare working with Fujitsu to establish the details of an extension beyond March
2015 for a period of circa 12-18 months. This is in advance of the formal contract
termination notification date of October 2013. We will formally update the Board on
progress during 4 of the 2012-13 financial year.
7.3. We expect to understand more fully the details and structure of the proposed
extension by the end of 2012.
Lesley Sewell
September 2012
Horizon Evolution Update Lesley Sewell Page 4 of 4
12 September 2012
Strictly Confidential
POST OFFICE LIMITED — SIGNIFICANT LITIGATION CLAIMS
PRIVILEGED AND CONFIDENTIAL
PART (A) — CIVIL CLAIMS
CLAIMS OVER £500K OR THOSE OF A SENSITIVE NATURE
F CASE
RIPTION
CONTACT.
1
Claim for POL/HF/RW
Judicial Review
Angela
Van-Den-Bogerd
A former subpostmaster (SPM) is
seeking a judicial review of POL's
decision to terminate his contract.
This decision was reviewed through
the appeal process in the SPM
Contract and upheld by the Appeals
Manager.
The SPM alleges:
- the Appeal Manager's
decision was flawed; and
- the appeal process in the
SPM Contract is unfair and
breaches his right to a fair
trial as guaranteed by the
European Convention on
Human Rights, including that
the appeal process does not
allow for legal representation
at the appeal hearing.
The SPM has _ filed Court
proceedings seeking the Court's
permission to bring his claim.
POL has asked the Court to refuse
permission on the grounds that the
decision is a commercial one which
is not amenable to judicial review.
The Court will now decide whether
or not to grant permission. No
further steps are required pending
that determination.
DAC Beachcrofts
Significant Litigation Report
Susan Crichton
12 September 2012
Page 1 of 5
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If the Court agrees to judicially
review the decision to terminate
and finds that the appeal process is
unfair, this is likely to impact on the
appeal process and how it is
operated generally.
If the Court refuses to judicially
review the decision, the SPM may
still seek to bring a separate claim
for wrongful termination of his
contract and damages.
POL/HF/RW
Customer
Complaint -
Angela Van-Den-
Bogerd
An individual has started court
proceedings under the Equality Act
and Human Rights Act alleging
disability and age discrimination
against Shieldex Limited (the
franchisee of the branch) and POL.
The complaint arises out of issues
with customer access at the branch
and with customer service.
Damages are claimed, but not
quantified. The estimated potential
exposure (if the claim succeeds) is
likely to be in the region of £6,000
to £18,000, plus legal costs.
If POL is found to be a service
provider under the Equality Act, and
therefore liable to make reasonable
adjustments to premises, this is
likely to have implications across
the Network.
POL and Shieldex
Defences to the claim.
have filed
POL has also made a claim against
Shieldex under the indemnity set out
in the franchise agreement
governing the operation of the
branch. This gives POL the option of
recovering from Shieldex any
damages which the Court may
ultimately order POL to pay to the
claimant as a result of Shieldex's
actions.
Bond Pearce is currently seeking to
arrange a “without prejudice”
meeting with the claimant and
Shieldex at the branch this month
with a view to negotiating a
settlement of the claim.
Bond Pearce
Significant Litigation Report
Susan Crichton
12 September 2012
Page 2 of 5
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Horizon claims
POL/HF/RW
Rod Ismay
POL has received notification of a
total of five (5) claims from former
SPMs. Each SPM has alleged
wrongful termination of contract
based on:
- (1) alleged defects in POL’s
internal processes; and
- (2) alleged defects with the
Horizon system.
Each SPM is seeking damages of
c.£150,000.
Despite reports in the media that
Shoosmiths solicitors have
consulted on a further 85 cases,
POL has not been notified of any
additional claims.
A third party fraud investigator has
been appointed (following
consultation with various MPs) to
review up to 10 cases where
Horizon is alleged to have caused
the losses. It is anticipated that no
further court action will be taken
pending the outcome of that
investigation.
In respect of four of the five claims,
Shoosmiths have not taken any
further action to date to progress the
claim. There is no litigation before
the Courts in progress in respect of
these four claims.
POL has successfully had the Court
strike out the fifth claim and has
recovered costs from the claimant.
Bond Pearce
Significant Litigation Report
Susan Crichton
12 September 2012
Page 3 of 5
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Employment
Claims
POL/HF.RW
Colin Stretch
Eight claims against POL are
currently proceeding before the
Employment Tribunals.
Claims allege unfair dismissal for
conduct, unfair dismissal for
capability, sex and race
discrimination, and victimisation.
Potential exposure to POL over
three cases is c.£200k, with five
cases yet to be valued.
Claims could require policy
changes if upheld (e.g. with respect
to race or sex discrimination).
Significant claims continue to be
monitored (both internally and with
external counsel) and risk assessed
as they progress.
Weightmans
PART (B) — PRINCIPAL CRIMINAL CASES BROUGHT BY POST OFFICE LIMITED
Subpostmaster accused of theft (£85,872.07) plus fraud. Restraint order applied for.
Committal hearing 13/09/12.
Officer in charge at Crown office found guilty on 2 counts of theft (total £46500).
On 23/08/12 the court ordered payment of £46500 to Post
Office within 28 days from pension pot ie Full Recovery.
Manager employed at post office accused of theft (£27,824.51).
Plea case management hearing due to take place at
Reading crown court.
Subpostmaster accused of fraud (£38,284.68).
Committal hearing held at Stevenage magistrates’ court
24/08/12 (adjourned).
Significant Litigation Report
Susan Crichton
12 September 2012
Page 4 of 5
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Subpostmaster pleaded guilty to theft/fraud
Defendant sentenced to 2 years imprisonment concurrent
with award of £10,750 payable to Post Office by 1/12/12.
9 month imprisonment if in default. Case completed.
Subpostmaster pleaded guilty to theft
Hearing 6/07/12. Confiscation compensation order for
£273,367.64 payable to Post Office within 6 months.2
years’ imprisonment in default. Case completed.
Nominated subpostmaster pleaded guilty to theft (£114,095)
Sentenced to 20 months’ imprisonment, Confiscation time
table set to recover £114,095 with a further court hearing
due on 5/09/12.
Subpostmaster pleaded guilty to fraud (£9,425.90)
Following committal for sentence 24/08/12, full amount
was repaid ie Full Recovery of £9425.90 Individual
sentenced to 26 weeks’ imprisonment suspended for 2
years plus 120 hours’ unpaid work and costs of £500
payable within 28 days.
Two sub post office assistants admitted covering shortages by delaying the processing of
40 business deposits to Santander (total value of £34,115.50).
Hearing at Liverpool crown court 13/09/12.
Two brothers in partnership as subpostmasters accused of theft/fraud (£237,240.64)
Trial at Wood Green crown court on 8/10/12.
Subpostmaster accused of theft (£79,440)
Individual pleaded guilty and offered to repay £79,440
plus £17,500 investigation and legal costs. Full amount of
£96,940 must be paid within 4 weeks. Full Recovery.
Significant Litigation Report
Susan Crichton
12 September 2012
Page 5 of 5
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POST OFFICE LTD BOARD
Sealings 26 June — 12 September 2012
Seal Register
The Directors are invited to consider the seal register and approve the affixing of the Common
Seal of the Company to the documents set out against items numbered 802 to 817 inclusive in
the seal register.
“The Directors resolve that the affixing of the Common Seal of the Company to the documents
set out against items numbered 802 to 817 inclusive in the seal register is hereby confirmed.”
Alwen Lyons
Company Secretary
12 September 2012
Seal Register Alwen Lyons Page 1 of 3
September 2012
POST OFFICE LIMITED REGISTER OF SEALINGS
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Seal
Number
/ File Ref.
Date of
Sealing
Date of
Authority
Description of Document
Persons
Attesting
To Document
Destination of
Document
802
29/06/2012
29/06/2012
Deed of Covenant re Property
at 42-48 High Street,
Ramsgate, Kent CT11 9AA
Helen Perkins
to Jean
Reynolds
803
29/06/2012
29/06/2012
Deed of Variation relating to
42-48 High Street, Ramsgate,
Kent CT11 9AA
Helen Perkins
to Jean
Reynolds
804
02/07/2012
02/07/2012
Deed of Variation in respect of
lease of premises at ground
floor and part first floor, 47
Upper Parliament Street,
Nottingham.
Helen Perkins
to Jean
Reynolds
805
806
807
808
809
26/07/2012
26/07/2012
26/07/2012
23/08/2012
© 24/08/2012
26/07/2012
26/07/2012
26/07/2012
23/08/2012
24/08/2012
Deed of Novation between The
Governor and Company of the
Bank of Ireland (Transferor),
Bank of Ireland (UK) PLC
(Transferee) and Post Office
Limited concerning the change
of authority to issue bank notes
in Northern Ireland from the
Transferor to the Transferee
under the Bank of Ireland (UK)
plc Act 2012.
Licence to Alter (in triplicate) re
part of premises at 340 Park
Road, Dingle, Liverpool L8
between Maidstill Limited,
Somerfield Stores Limited and
Post Office Limited.
Counterpart Lease relating to
Lease of Units 22 and 23
Westgate Shopping Centre,
_ Stevenage, Hertfordshire.
Lease of premises relating to
part of the forecourt at 92a
Balham High Road, London
SW 12 9AF to Greene King
Brewing and Retailing Limited.
Transfer of property at 99 High
Street and 37 and 39 Lugley
Street, Newport, Isle of Wight
from Post Office Limited to
Primeco Limited, 19 The
Terrace, Torquay, Devon TQ1
1BN
Helen Perkins
Helen Perkins
Helen Perkins
Helen Perkins
Helen Perkins
to Keith Rann
to Jean
Reynolds
to Jean
Reynolds
to Jean
Reynolds
to Jean
Reynolds
810
24/08/2012
24/08/2012
Licence for Alterations re 1-7
South Mall, Edmonton Green
Shopping Centre, London N9,
granted to Post Office Limited
by St Modwen Developments
(Edmonton) Limited
Helen Perkins
to Jean
Reynolds
24/08/2012
24/08/2012
Transfer of property at 89
Sidcup High Street, Sidcup,
Kent DA14 6DJ from Post
Office Limited to Stringer
Communication Services
Limited.
Helen Perkins
to Jean
Reynolds
Seal Register
Alwen Lyons
September 2012
Page 2 of 3
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Seal Date of Date of Persons Destination of
Number Sealing Authority Attesting Document
/ File Ref. Description of Document To Document
812 24/08/2012 I 24/08/2012 Counterpart Lease relating to Helen Perkins to Jean
Ground Floor Premises at 14 Reynolds
College Road, Harrow between
O&H Q1 Limited and Post
_Office Limited
813 24/08/2012 I 24/08/2012 Short Term Tenancy Helen Perkins to Jean
Agreement relating to 354-356 Reynolds
Edgware Road, London W2
1BG, between Post Office
Limited and Shieldex Limited
814 29/08/2012 I 29/08/2012 Power of Attorney in favour of I P Vennells, C to Linklaters
Bank of Ireland (UK) pic to Day for
effect the completion of the transmission to
sale of shares in Midasgrange Bank of Ireland
Limited by Post Office Limited
to Bank of Ireland (UK) plc with
__effect from 31 August 2012.
815 06/09/2012 I 06/09/2012 Lease of premises at 14 High Helen Perkins to Jean
Street, Eastleigh SOSO 5TA Reynolds
between Post Office Limited
and Eastleigh Borough Council
816 11/09/2012 I 11/09/2012 Short Term Commercial Lease I Alwen Lyons to Jean
between The Prudential Reynolds
Assurance Company Limited
and the Post Office Limited re
Part Ground Floor of Unit 35C
The Galleries, Washington,
_ Tyne and Wear.
817 12/09/2012 I 12/09/2012 Transfer of registered title Helen Perkins to Martyn
number SY205138 (Post Needham,
Office, Market Square, Woking Olswang (in
GU21 6DG) to Bandstand absence of
Square Developments Limited. Jean
Reynolds)
Seal Register Alwen Lyons Page 3 of 3
September 2012
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POLCAG0612
Post Office Limited
(company no: 2154540)
Notes of the Post Office Commu ions Action Group Meeting
held at 148 Old Street, London
on 21 June 2012
Present:
Alana Renner (AR) Communications Director (Chair)
Kevin Gilliland (KG) Network & Sales Director
Mike Granville (MG) Head of Stakeholder Relations
Ronan Kelleher (RK) Head of PR & Media
Stuart Taylor (ST) Head of External Relations, Wales
Apologies:
Paula Vennells (PV) Chief Executive
Nick Kennett (NK) _ Director of Financial Services
Kevin Seller (KS) Head of Government Services
Sue Huggins (SH) GM Network Services & Transformation
Martin Moran (MM) Commercial Director
Shane O’Riordain (SOR) Communications Director RUG
Guests:
Paul Swanton (PS) Senior Communications Specialist
David Gold (DG) RM Communications (Dial-in)
Mish Tullar (MT) RM Communications (Dial-in)
POLCAG01/06 I Previous Meeting Notes
The notes from the previous meeting were agreed.
POLCAG02/06 I Previous Action Points
Please refer to the CAG Meeting Action Point Log to note the Action Point
status.
POLCAG03/06 I Post Office Integrated Comms Plan
The CAG noted and reviewed the Integrated Communications Plan
(June — November 2012). The meeting discussed the following;
AR advised that a survey of MPs is underway. This is aimed at providing
a baseline for key stakeholders’ perception of the Post Office. The CAG
will be updated once results are available.
AR provided an update on the media coverage resulting from the
Contactless Pinpad story. The story generated excellent coverage across
print and broadcast media outlets, and provided another reminder of the
power of the Post Office
brand, whilst underpinning the Post Office is changing story.
MG reminded the meeting that the business has been at the forefront in
terms of UK roll-out of new technology across our network, with chip and
pin being a relatively recent example.
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RK advised that a story to recognise one million AEI transactions is being
prepared for issue in the near future.
KG provided a brief resume of the recent Consumer Focus meeting in
which the Network Transformation Programme was a key agenda item.
There was some mounting pressure from CF to identify a start of ‘go-live’
date. We have not confirmed an actual date, but referred to go-live from
Summer 2012, as we build upon ongoing learning from the pilots.
KG advised the CAG that there was good synergy between the Post
Office Board and SHeX on the key ticket issues for the business over the
next three years, namely;
- Crown Office to break even
- Deliver on NT Programme
- Hit strapline financial numbers
AR — reminded the CAG that there is a need to meet early to develop a
communications strategy around the future Crown Transformation Plan
1. Action — AR to invite the relevant colleagues to a comms’
strategy scoping meeting
KG -— shared that the view of BIS is that the Minister should be briefed on
the wider Post Office strategy. KG shared that the Minister feels more
should be done around providing reassurance amongst customers and
stakeholders around our service in rural areas.
2. Action — MG to build contact into the wider external
stakeholder engagement programme.
POLCAG05/06 I Projects Eagle and Polo (Verbal Update)
Neither NK nor JW could attend the CAG on this occasion. An update will
be provided at the July meeting.
POLCAG06/06 I Vision Launch Event Feedback
AR shared with the CAG the key findings from the post Vision Launch
event feedback exercise. AR highlighted the pre and post event results.
The CAG were pleased to note a high level of satisfaction amongst
delegates, with all measures for ‘strongly agree’ having increased in the
post survey period.
The CAG noted the results and asked AR to circulate the results as an
AOB item for the next Ex Co meeting and to provide a next steps update
to the July meeting.
e¢ 3a. Action — AR to provide the Vision Launch feedback results
to all Ex Co members.
* 3b. Action — AR to prepare a Vision ‘next steps’ paper for the
July meeting.
POLCAG07/06 I Stakeholder Engagement Approach — Central Gov’t
MG took the CAG through his paper which looks at the approach to be
taken to engage with BIS, Westminster and other central gov't
departments.
The CAG endorsed the approach.
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POLCAG08/06 I July Meeting Agenda
The following items will be added to the CAG meeting standing agenda for
July;
e Vision — ‘next steps’ update - AR
e An update on the Handle with Care PR Approach, including comms’
risks - Ronan Kelleher
« An update on the plans for Subpostmaster events — Richard
Weaver
¢ An update on the Olympics PR approach — Ruth Barker
POLCAG9/06_I Agenda Standing Items
The CAG agreed that the following should be standing items on future
meeting agendas:
- Integrated Communication Plan Update (Alana Renner)
- FS Update on Financial Services Projects (Nick Kennett)
- RMG Communications Update (Shane O’Riordain)
POLCAG10/06 I AOB
No items of AOB were raised at the meeting.
POLCAG11/06 I DONM: The next meeting will be held at 12 noon on Wednesday 18 July
in Room 107.
Confidential
POLCAG0712
Post Office Limited
(company no: 2154540)
Notes of the Post Office Commu ions Action Group Meeting
Present:
Alana Renner
Mark Davies
Kevin Gilliland
Nick Kennett
Martin Moran
Mike Granville
Ronan Kelleher
Stuart Taylor
Leigh Parks
Apologies:
Paula Vennells
Kevin Seller
Sue Huggins
Shane O’Riordain
Guests:
Neil Ennis
Richard Weaver
Ruth Barker
Tim Cowen
POLCAG01/07
POLCAG02/07
POLCAG03/07
held at 148 Old Street, London
on 18 July 2012
(AR) (Chair)
(MD) Communications Director
(KG) Network & Sales Director (dial-in)
(NK) Director of Financial Services
(MM) Commercial Director
(MG) Head of Stakeholder Relations
(RK) Head of PR & Media
(ST) Head of External Relations, Wales
(LP) Communications Planning Manager
(PV) Chief Executive
(KS) Head of Government Services
(SH) GM Network Services & Transformation
(SOR) Communications Director RMG
(NE) NT Programme Director
(RW) Senior Communications Manager
(RB) Senior Media Relations Manager
(TC) RM Communications
Previous Meeting Notes
The notes from the previous meeting were agreed.
Previous Action Points
ST summarised the position with actions outstanding. Please
refer to the CAG Meeting Action Point Log to note the Action
Point status.
Post Office Integrated Comms Plan
The CAG noted and reviewed the Integrated
Communications Plan (July - December 2012). The meeting
discussed the following;
AR advised that there had been a good response from
colleagues to the ‘Make Christmas Special’ campaign.
MM raised the challenge of how we would handle a situation
whereby Post Office did not make the changes necessary for
them to be noticed by our customers. AR agreed that this
potential situation should be factored into our campaign
planning.
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MM asked for confirmation of who from Post Office will be
attending the Credit Union APPG meeting in September?
Action - MG to check and get back to MM.
AR advised that a press statement had been issued to
support the production of the recently published Network
Report. RK added that the media pick-up of the story at the
time of the meeting had been quiet.
AR confirmed that an update paper on our approach to the
Party Political Conferences would be provided for the August
meeting. Action — AR to arrange.
ST raised the issue of the need for an external statement to
be made about the move from pilot to roll-out phase of the NT
Programme. Mindful of the assurances we have previously
provided on capturing the learnings from the pilot branches,
then there will be an expectation from Gov't, Consumer Focus
and others of some external positioning. NE said that a pilot
learning report is being prepared and this will provide the key
messages for any statement. KG said that is important that
both the CAG and the NT Programme Board sign-off the
learnings log. KG raised the issue of the need for a reactive
statement to be prepared as soon as possible to handle
media / stakeholder interest.
Action — RK to draft and agree with KG.
Action — NE to circulate the learning report to CAG
members
KG informed the CAG that in order to support the Christmas
operation in Crown branches then a decision has been taken
to only trigger 50% of VR applications under the Crown
Transformation Programme in the run-up to the Christmas
period.
RMG Comms Update (Verbal Update)
TC joined the meeting to provide a brief update on key Royal
Mail communication matters.
Olympic Gold Medal Stamps PR Campaign — a detailed
communication plan has been prepared for the Olympic
Stamp campaign, which will see next day stamps for each
Team GB winner available at a designated group of 500 Post
Office branches nationwide. In addition, the closest post box
to the winner's home town will be painted gold to recognise
their success. The expectation is that the national media is
likely to pick-up the initial clutch of winners, with the story
securing ongoing traction in regional / local media for
subsequent winners. A wide range of communication
channels are being used to raise awareness of the special
stamps and gold post boxes, with greater emphasis on social
media platforms. TC confirmed that six stamp printers from
across the UK are supporting the campaign.
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NE suggested that if RM would like to make the stamps
available at the small branches that are the closest to where
the winners live, then this could be arranged using the RMSD
service. TC — took this away to consider.
OFCOM Market Report - OFCOM are scheduled to produce
a market report in mid July. A reactive statement is being
prepared and this will be sent to the Post Office
Communications team, for information.
Post Office Olympic Stamps Campaign — Ruth Barker
RB talked the CAG through her update paper on how Post
Office branches are contributing to the RM Olympic Gold
Media Winners Stamps campaign. She highlighted the pr
opportunities for branches and confirmed that the RM and PO
media teams have been working very closely in planning the
initiative.
The CAG noted and endorsed the approach.
Projects Eagle and Polo (Verbal Update)
NK provided a verbal update on the two key FS projects.
Eagle — the plan is to have a contract to review by the end of
July. There is still no firm date agreed for communicating the
key messages, but the expectation is that this will happen in
August, supported by a comprehensive internal / external
communications plan.
Polo — we are working to an end of October date for the
launch of the proof of pilot stage. This will be a ‘soft’ launch
aimed at colleagues, friends and families. Detailed planning
and systems testing continues.
Autumn Subpostmaster Events - Richard Weaver
RW took the CAG through his paper which looks at the
autumn programme of subpostmaster events. The aim of the
events is to target those Spmrs who have not completed the
NT survey. The content of the sessions will include, in
addition to key NT Programme messages, a section on the
new Vision and the business's FOoG ambitions / current
successes. Given the timing, then we are planning to include
some visuals from the brand advertising campaign.
NE - stated that it is crucial that the sessions are again co-
hosted by the NFSP. This worked well in last year’s
roadshow events and their absence this time would send a
negative signal to agents who attend the sessions.
KG - said that whilst he welcomed the inclusion of the wider
Post Office story content (Vision, FS, FOoG), he said it was
imperative that the communication messages are adapted to
reflect the audience.
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KG - stated that work should be done to identify those Spmrs
who have been through the process and to ask them to play a
role in the autumn events. He felt that the sharing of a
positive experience from existing Spmrs would add greatly to
the impactfulness of the sessions. He felt that the aim should
be to get a relevant Spmr along to each session held.
NE - added that the sessions will be used to capture and
process warm leads on the day from attendees. He also
informed the CAG that to date the NT Helpline has responded
to over 4000 inquiries, since inception.
The CAG noted and endorsed the approach.
August Meeting Agenda
The following items will be added to the CAG meeting
standing agenda for August;
« A paper and agenda item on the Communication
Strategy to support the Crown Transformation
Programme — Alana Renner
« An update on the Handle with Care PR Approach,
including comms’ risks - Ronan Kelleher
e An update and agenda item on the plans for the Post
Office presence at the autumn Party Political
Conferences — Alana Renner
e A paper and agenda item on the Post Office Christmas
PR Campaign — Alana Renner
Agenda Standing Items
The CAG agreed that the following should be standing items
on future meeting agendas:
- Integrated Communication Plan Update (Alana
Renner)
- FS Update on Financial Services Projects (Nick
Kennett)
- RMG Communications Update (Shane O’Riordain)
AOB
No items of AOB were raised at the meeting.
DONM: The next meeting will be held at 9.30am on
Thursday, 16 August in Room 107.
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POLBSC-HS(12) 3rd
Post Office Limited
(company no: 2154540)
Minutes of the meeting of the Health and Safety Sub-Committee
held at 148 Old Street, London
on 9" July 2012
Present:
Susan Crichton (SC) Legal and Compliance Director (Chair)
Kevin Gilliland (KG) Network and Sales Director
Keith Rann (KR) for Lesley Sewell — It and Change
Simon Eldridge (SE) National Safety, Environment and Wellbeing Manager
Apologies:
Pauline Holroyd (PH) HR Director
POLHS12/21 Previous meeting minutes
The minutes from the previous meeting were agreed.
POLHS12/22 Previous Action Points
A presentation was delivered by Rob Leslie — Fleet Contracts
Manager — on the requirements of Fleet legislation and the
processes and controls that Post Office had in place to meet
those requirements. The committee agreed that the
presentation was both informative and reassuring and that
business risks like fleet management, particularly in the
context of Corporate Manslaughter, should be given a wider
audience to ExCo/Board members.
The committee noted the current position on the management
of personal injury claims and that further action on identifying
a solution was included in the broader separation from RMG
arrangements project plan.
The committee noted that the safety management system
included a risk assessment for non-operational driving and
agreed that a communication should go to ExCo members to
ensure that application of the risk assessments, in particular,
for higher mileage drivers (>10k miles) were robust.
Action: Note to be sent to ExCo members.
The committee noted that further activity was underway to
firm up the management and control of Mobile Post Offices
and that a further update would be provided at the next
meeting.
Action: SE to provide update at next meeting
POLHS12/23 Safety Performance
The Committee noted the current safety performance and that
some indicators were showing amber against last year but
that the year end forecast remained on target. The poor
weather had contributed to the adverse performance against
last year. A reduction in ‘major’ injuries as defined by
RIDDOR has contributed to the reduction in days year on
year.
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Road Risk
The Committee noted the current positive performance and
the improvement activities that were being developed and
deployed to mitigate the risk associated with operating a fleet
of vehicles.
Personal Injury (P!) Claims
The committee noted the current estimated liability of
personal injury claims and noted that the majority of claims
are relatively low value.
CViT Robbery and Injury
The Committee noted the adverse trend in robbery
performance and KR confirmed that it was not out of line with
industry trends. The committee also noted the very low
incidence of gun enabled events and that injuries during
robberies remain relatively minor. The committee requested
an industry comparator to be included in future reports.
The committee discussed the content and outcome of the
robbery risk assessment and agreed that the assessment
indicated that the approach to the current provision of
personal protective equipment was appropriate.SE confirmed
that the robbery risk assessment was formerly reviewed
annually and that additional reviews were undertaken more
frequently. The committee also discussed the risk profile
associated with ATM servicing in relation to the current risk
assessment outcomes and future reviews.
Wellbeing
The committee noted the current continued improving trend in
sick absence rates and the positive performance to date. SE
reaffirmed the strategy of robust application of existing
policies and standards, in particular in relation to long term
sickness, coupled with active wellbeing interventions e.g.
health checks. SE confirmed that the schedule of health
check visits which commenced in Crown Branches in June
has, so far, received very positive feedback.
Environment
The committee noted the continuing improving trend in
recycling performance and agreed that corporate membership
of Woodland Trust should be considered as recognition if the
stretch target is achieved.
Residual Risks
The Committee noted the residual risks and the activities in
place to mitigate them.
Close
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AEI
ARC
ATMs
BAU
BIS
Bol
CAG
CMA
cwu
DVLA
Dwe
Eagle
EBIT
ExCo
FOoG
FRES
FRESH
IDA
IPS
Junction
LDF
MDA
MSA
Mulberry
NFSP
NSP
NT
NTP
Penguin
PID
PO
POCa
POFS
POL
POLIC
Polo
Remco
RMG
RMHB
ShEx
SIA
sLP
SLT
sPMO
UKBA
POST OFFICE LIMITED
GLOSSARY OF TERMS
Application, Enrolment and Identity
Audit, Risk and Compliance Committee
Cash machines
Business As Usual
Department for Business, Innovation and Skills (formerly DT!)
Bank of Ireland (joint venture partner)
Communications Action Group
Communication Managers Association
Communication Workers' Union
Driver and Vehicle Licensing Agency
Department for Work and Pensions
Bol contract negotiations
Eamings Before Interest and Tax
Executive Committee
Front Office of Government
First Rate Exchange Services
First Rate Exchange Services Holdings
Identity Assurance (Services)
Identity and Passport Services (Passport "Check and Send")
Call centre for Travel Insurance product
Leadership Development Forum
Master Distribution Agreement
Master Services Agreement
Crown Offices’ Profitability Project
National Federation of Sub-Postmasters
Network Subsidy Payment
Network Transformation
Network Transformation Programme
Proposal for pre-paid card platform
Project Initiation Document
Purchase Order
Post Office Card Account (designed for receiving benefit, state pensions and tax credit payments)
Post Office Financial Services
Post Office Limited
Post Office Investment Committee
Proposal for Post Office Current Accounts
Directors and senior managers with pay terms previously set by the RMG Remuneration Committee
Royal Mail Group
Royal Mail Holdings Board
Shareholder Executive
Security Investment Authority
Senior Leadership Population - senior managers at the grade below Remco
Senior Leadership Team - top managers within POL (may include Remco, SLP and other grades)
Strategic Project Management Office
UK Border Agency
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