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Post Office Board Agenda
Present in Attendance . Apologies
318 October 2017 * Tim Parker ( Chairman) _ + Jane MacLeod None
: <= + Richard Callard _+ Marla Balicao (Minute Secretary)
Start Time Finish Time + Tim Franklin I + Martin Edwards (item 4 & 6)
09.30hrs 12.50hrs * Virginia Holmes I + Owen Woodley (item 5 & 8)
* Ken McCall I * Kevin Gilliland (item 5)
+ Carla Stent i * Henk Van Hulle (item 8)
Room 1.19 Wakefield + Paula Vennells I + Rob Houghton (item 8 & 10)
+ Alisdair Cameron I + Jeff Smyth (item 8)
I Jeff Lewis (item 9.1)
i
I + Mick Ebsworth (item 9.2)
I * Martin Hopcroft (item 10)
Agenda item Action Needed Purpose Lead Timing
1. Minutes of previous Board and Decision I Minutes formally agreed. Jane MacLeod 09.30 - 09.35
Committee meetings including L
Status Report ij
2. CEO Report (Including IR update) CEO report noted CEO to update the Board on the report. CEO 09.35 - 09.55
3. Financial Report For noting CFO to update the Board on the report. CFOO 09.55 - 10.10
4. Strategic Update For approval i To approve the 3 year Strategic Plan Martin Edwards 10.10 — 10.30
5. Chief Executive Financial Service & For noting I To update the Board on the Financial Services & Owen Woodley 10.30 - 10.50
Telecoms Performance Report I Telecoms Performance report.
6. Identity Strategy For noting I To update on progress developing the strategy for I Martin Edwards 11.00 - 11.30
I Identity verification services
7. Borrowing Limits over Christmas For approval I Board to support and approve to vary the cash CFOO 11.30 - 11.40
I headroom for Christmas.
8. Customer Hub and First Delivery For decision I For Board to approve the Customer Hub and First I Henk Van Hulle / 11.40-11.50
I Delivery. Owen Woodley /
i Rob Houghton /
I Jeff Smyth
Post Office Board Agenda
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Agenda item Action Needed Purpose
9. IT Update 11.50-12.15
9.1 Everest Update For approval To update on Project Everest negotiations, and Rob Houghton / Jeff Lewis
provide the Board assurance on the IT Strategy.
9.2 Security Operations Centre For approval I For Board to approve the SOC Business Case. Rob Houghton /
(SOC) Business Case I Mick Ebsworth
10. I Health & Safety Deep Dive For noting I To review Post Office’s approach to Health & CFOO / Martin Hopcroft 12.15 - 12.40
Safety.
11. I Items for noting I 12.40 - 12.45
t
11.1 Sealings For noting I Board aware of the affixing of the seal.
11.2 Meeting dates and forward For noting / For Board to note meeting dates and forward
agendas agenda.
12. AOB 12.45 — 12.50
_CLOSE & LUNCH 12.50
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POLB 17(6'")
POLB 17/65 - 17/79
POST OFFICE LIMITED
(Company no. 2154540)
(the ‘Company’)
Minutes of a meeting of the BOARD meeting
held at 10.30am on Tuesday 26" September 2017
at 20 Finsbury Street, London EC2Y 9AQ
Present:
Tim Parker Chairman (TP)
Richard Callard Non-Executive Director (RC)
Tim Franklin Non-Executive Director (TF)
Ken McCall Senior Independent Director (KM)
Carla Stent Non-Executive Director (CS)
Virginia Holmes Non-Executive Director (VH)
Paula Vennells Group Chief Executive (CEO)
Alisdair Cameron Chief Financial and Operations Officer (CFOO)
In Attendance:
Jane MacLeod General Counsel and Company Secretary (Secretary)
Steve Ashton Post Office Management Services Limited Chairman
Nick Kennett Chief Executive Financial Services and Telecommunications, and Chief
Executive Officer of Post Office Management Services Limited (NK)
Martin Edwards Group Strategy Director (ME)
Kevin Gilliland Chief Executive Retail (KG)
Rob Houghton Group Chief Information Officer (RH)
Owen Woodley Managing Director, Post Office Money (OW)
Paul Willmott & McKinsey & Co
Megha Kansal McKinsey & CO
Apologies for Absence: None
POLB 17/65 INTRODUCTION AND CONFLICTS OF INTEREST
(a) A quorum being present, the Chairman opened the meeting.
(b) The Directors declared that they had no conflicts of interest in
the matters to be considered at the meeting in accordance with
the requirements of section 177 of the Companies Act 2006 and
the Company's Articles of Association.
POLB 17/66 MINUTES OF THE PREVIOUS BOARD MEETING INCLUDING
STATUS REPORT
(a) The minutes of the Board meeting held on 25" July 2017 were
approved and the Chairman was authorised to sign them as a
true record.
(b) The actions status report was noted as accurate.
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POLB 17/67 CEO REPORT
(a)
(b)
(c)
(d)
(e)
POLB, 26 September 2017
The Board noted the CEO report. The CEO made the following
additional points:
Concern had been expressed to her by Board members as
to the bandwidth of Rob Houghton (CIO), whether he was
getting enough support and whether he was a flight risk.
The CEO noted those concerns and advised that the ClO
had recently finished recruiting his lead team. She
recognised that he was critical to the successful delivery of
IT transformational plans that were currently in flight. The
CEO confirmed that she did not believe that retention was
an issue, although if the ClO were offered a role with a
substantially increased remuneration package, we would
not be able to match that.
Industrial Action
The CWU were becoming more confident and bullish in the
behaviours — no doubt as a result of the heightened profile
of the Labour Party.
Following the Taylor Report they had written asserting that
postmasters were employees - an issue that was being
addressed more formally.
In addition they recently have raised allegations of bullying
in DMBs. A meeting was convened on Friday 22 September
to discuss these allegations, and it was stressed to the CWU
that Post Office does not tolerate bullying and that if they
had evidence then they should share it with us.
The CWU are balloting RMG employees regarding strike
action which could occur any time from 16 October onwards.
We are engaging with RMG to understand their contingency
plans, although historically RMG have settled with the
unions and that may still be an option for them. The main
impact on Post Office will be managing storage of mail given
that agency branches do not have much storage capacity,
and many would need to close if there had been no
collections for 2 days or more. This would obviously have an
impact on others sales and services. We have looked at out
contractual position, but it does not appear as if we have
many contractual levers.
3 year Strategy Implementation
In response to a question as to the strategic plans for the
use of the £210 million investment funding, the CEO
responded that the GE were meeting shortly to work through
these plans and that these would form part of the strategic
update to the October Board.
Security Operation Centre
In response to a question the CEO advised that Fujitsu had
been given the opportunity to bid for the SOC and
disappointingly, their proposal was substantially more
expensive than Verizon's.
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POLB 17/68 LITIGATION UPDATE
(a) I The Board received a verbal update on the Postmaster Litigation
from the General Counsel, noting that the Case Management
Conference would be held on 19 October, and the outcome of
the CMC would be directions given by the Court as to the
conduct of the case over the next 12-18 months. There were
key strategic issues to be decided as to Post Office’s
preferences for the sequence in which the legal arguments were
to be addressed, and Post Office had receive legal advice as to
the preferred sequence.
(b) The Board discussed the advice and its implications, and
approved the proposed strategy.
POLB 17/69 FINANCIAL PERFORMANCE REPORT
(a) I The CFOO presented the financial performance report for
September 2017.
(b) I The Board noted the financial performance report and in
discussion the CFOO made the following points:
« In branch travel money sales were doing well following a
lengthy period of under-performance, however on-line sales
were down. Work was underway to understand the drivers
of this, however there was a concern that FRES had
changed their pricing to protect margin. Additionally it was
thought that customers were leaving purchases until the last
minute in which case in branch sales were faster.
(c) e Performance across all FS businesses (FS &T, POMS &
FRES) was of concern.
« Conversions of DMBs were behind plan with a consequent
(a) impact on staff costs.
e Within Supply Chain and also DMB higher than normal
() illness levels have created operational issues. In the case
of Supply Chain they are under increased pressure for
collections as a result of higher cash levels in the network
* Cash losses have been a concern however additional audits
i) are being undertaken and the number of material losses
seem to be reducing. The resourcing model for branch
oversight is being reviewed to ensure that branch losses can
be monitored effectively and losses identified before they
become material. There have been 80 agency branches
shut since the beginning of the financial year of which 50
were due to suspensions (usually involving a loss > £10k).
The position has improved recently and the rate of large
losses seems to be declining. As part of the rollout of the
new branch equipment, cash audits are being undertaken
on a random basis of c 10% of branches. To date none of
these random audits have identified cash losses. The CFOO
also commented that compliance with the cash declaration
process was improving.
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On this point the Board stressed the importance of Post
Office being seen by the agency network to take action
proactively in relation to cash shortfalls.
e The 5+/7 reforecast was underway. There are a number of
challenges including benefits expected in the Retail BU
which will now be delayed until 2018-19. Nevertheless the
CFOO expected that the £28 million EBITDAS target would
still be achieved, although the factors contributing to that
outcome may change.
POLB 17/70 POMS PERFORMANCE AGAINST STRATEGY
(a)
(b)
(c)
(a)
(e)
()
POLB, 26 September 2017
The Chairman welcomed the POMS Chairman, Steve Ashton
and the POMS Managing Director Rob Clarkson to the meeting
to present their report on the performance of Post Office
Management Services Limited (POMS) for full year 2016/17,.
The Board noted the report and Mr Ashton and Mr Clarkson
made the following additional points:
« POMS is broadly on track with delivery of its longer term
strategy, however there are challenges including:
o Overspend and delay on implementation of the Zeus
(travel insurance) platform has caused slippage on
delivery of certain plans, however overall, the project
had delivered he planned benefits.
co There is increased regulatory attention on oversight
of Appointed Representatives by regulated entities
such as POMS which poses an increased pressure
for branch sales;
o The restructure of the marketing function has
impacted adversely;
o Changes to the branch distribution network through
Project Finch have also impacted adversely.
POMS is responding to these challenges by reviewing its
strategy — particularly around the car/van/home/ markets,
and the POMS Board is reviewing the strategy at its
November meeting. Among other issues, is the need to
change and improve the distribution options.
* There have been a series of successes and the transition to
Royal London and better negotiated outcomes with
Collinson have resulted in significantly increased margins.
« The consumer focussed strategy being developed by the
wider Post Office financial services business will assist in
framing the POMS strategy, and there will be common
challenges for IT, compliance and technology support.
« There continue to be challenges between the strategic goal
of building shareholder value, and the need to deliver in year
targets.
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During the subsequent discussion:
e The Chairman asked whether there was a clear enough
guidance from the shareholder as to how to balance long
and short term objectives. It was noted that there is
investment available for longer term strategic development,
however this will require identification of an investable
proposition, which could include acquisitions or joint
ventures.
« It was noted that the Post Office brand was well suited to a
general insurance proposition and the POMS team should
ensure there was a sufficiently ambitious plan to develop
that brand value. For example, there were opportunities for
home insurance as a result of increasing home automation.
e Digital channels need to become much stronger and the
new marketing strategy would substantially aid this,
although there are challenges to ensure that digital channels
support customer retention measures. To this end better
customer platforms and improved claims handling
performance will be key to retaining customers. Innovation
was needed as much in the distribution strategy as in
manufacturing.
The Chairman thanked Mr Ashton and Mr Clarkson for their
report.
POLB 17/71 ANNUAL REPORT AND ACCOUNTS 2016/17
(a)
(b)
POLB, 26 September 2017
The Committee received a report from the CFOO which included
a draft of the Annual Report and Accounts 2016/17 (‘ARA’). The
Board noted that the ARA had been considered by the Audit,
Risk and Compliance Committee on 25 September 2017 which
had recommended the ARA for onward submission and
approval to the Board. The Board recognised that given timing
the ARA was a living document and that changes continued to
be made.
The CFOO recognised that a significant amount of work had
gone into the preparation of the accounts to address changes
during the year, and that due to the delays in finalisation of the
funding, additional work had been required to address post
balance sheet events. In particular, since the last discussion of
the draft accounts in May:
« The pensions scheme having closed as at end March 2017,
the Trustees had arranged and effected a buy in of the
pensions liabilities with Rothesay Life;
« Agreement on the future funding from government was
necessary to establish the sustainability of Post Office;
« Significant work had been undertaken to establish that the
impairment of assets could be reversed and to undertake the
necessary work to validate the inclusion of those assets on
the balance sheet, as well as to determine that the future
approach to depreciation and amortisation was viable.
The combination of these had meant that significant work had
been undertaken on the subsequent events review.
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(c)
(a)
(e)
(9)
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The timetable for finalisation was as follows:
¢ Signing of the accounts targeted by the end of the week
(29/9/2017)
« Announcement of the further funding could happen during
the week commencing 2/10/2017
« Publication of the accounts could not occur until they had
been laid before Parliament and the earliest date for this was
in the week commencing 9 October.
The Chair of the Audit & Risk Committee confirmed that at the
Committee meeting the previous day, EY had confirmed the
process that had been undertaken by them to prove that Post
Office was sustainable going forward.
The Board noted that the Chairman’s and CEO's statements
remained outstanding and that further work was required to
ensure consistency between the various sections, and for EY to
finalise their technical and quality review.
The Board further noted that each director had been requested
to review and sign their respective Certificates of Director's
Remuneration and Interests in Shares, and that the details set
out in each certificate had been reviewed by both the Finance
and HR teams.
The Board approved the ARA subject to finalisation and
delegated authority to the Chairman, CEO and CFOO to finalise
all outstanding matters and the text of the front end, and once
done so to their satisfaction, to sign the accounts.
POLB 17/72 FUNDING DOCUMENTS.
(a)
(b)
(c)
POLB, 26 September 2017
The Chairman welcomed ME to the meeting to provide an
update on the status of the funding documents.
ME advised that the funding documents were substantially
similar to those relating to the current funding period, and that
once executed would replace the interim documents signed in
March 2017.
ME noted that there were two documents currently under
negotiation:
a) the Entrustment Letter which set out the access criteria
(including Services of General Economic Interest ‘SGEI’s);
and
b) the Funding Agreement under which the Network Subsidy
Payments for 2018-19, 2019020 and 2020-21 (totalling £160
million) , and the ‘investment funding’ of £210 million, would
be paid.
Together the two documents required Post Office to:
¢ maintain a network of at least 11,500 branches, of which at
least 11,000 must provide the SGEls. These services, which
are defined in the Entrustment Letter, include mails, access
to cash (banking and POCA), bill payments and access to
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(e)
(f)
(h)
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specific government services.
* meet the Access Criteria (as set out in the Entrustment Letter
and which have not changed) which are designed to ensure
a reasonable geographic spread of branches across the UK,
based on population and post code districts.
* prepare and deliver a 3 year Strategic Plan for the 2018-
2021 funding period by end November 2017;
prepare and provide annual strategic plans in an agreed
form before 31 March in each year during the funding period;
and
e provide quarterly reporting of progress against the annual
and 3 year Strategic plans.
The key changes between the current funding documents and
those under discussion relate to:
¢ payment mechanics as BEIS has indicated that it would
prefer quarterly drawdowns;
¢ ifthe number of branches falls below 11,500 then Post Office
would be required to develop a remediation plan for approval
by the Secretary of State and if Post Office wished to
withdraw SGEI services from the 11,000 branches Post
Office would need to seek the Secretary of State’s consent;
and
e Post Office’s quarterly reporting obligations to the Secretary
of State.
In addition ME advised that he had been discussing with BEIS
whether it would be possible to amend the terms of the Post
Office Credit Facility to review the commitment fee and rates,
rates, move from weekly to monthly reporting and potentially
introduce greater flexibility under the ‘event of default’ provisions
in certain scenarios relating to the security headroom.
ME advised that the State Aid process had begun and although
the timeframes were tight, BEIS had advised that they believed
it would be possible for the approval process to be completed in
time to allow drawdown of the first tranche of the Investment
Funding and the Network Subsidy Payment for 2018-19 in early
April 2018, subject to delivery of the 3 year Strategy by the end
of November 2017 and the Annual Strategic Plan by end March
2018.
RC confirmed that this summary was consistent with BEIS’
expectations.
RC left the meeting during the further discussion due to his
conflict as a representative of Post Office’s shareholder.
In response to a question ME confirmed that BEIS had
withdrawn their earlier proposals which would have given the
Secretary of State additional approval rights over the application
of funds.
The Board noted that should a Labour Government be elected,
then it was Labour party policy to nationalise Royal Mail Group,
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Action:
Martin Edwards
(k)
POLB 17/73
POLB, 26 September 2017
‘IRRELEVANT
Strictly Confidential
and it was likely that fundamental changes would be required to
the Post Office Board and operating strategy. The Board
requested management to develop plans to address the
possible scenario of an election and Labour victory.
The Board:
e noted the timetable for agreeing the revised funding
documents;
e approved the terms of, and the transactions contemplated
by, the following draft documents:
o Funding Agreement between the Secretary of State
and Post Office Limited contemplating a total of £160
million network subsidy payments for 2018/19,
2019/20 and 2020/21 and £210 million ‘investment
funding (the ‘Funding Agreement’);
o Entrustment Letter being a letter from the Secretary
of State for the Department of Business, Energy and
Industrial Strategy addressed to Paula Vennells as
Chief Executive Officer of Post Office Limited and
headed ‘Entrustment of Post Office Limited with the
Delivery of Certain Public Services’ (the ‘Entrustment
Letter’ as further described below);
(together: the ‘Funding Documents’)
e resolved to execute and perform each of the Funding
Documents;
e authorised any director or Authorised Signatory to execute
each of the Funding Documents on behalf of Post Office
Limited; and
e authorised any director, Authorised Signatory or the
Company Secretary to sign and/or dispatch all documents
and notices to be signed and/or dispatched by it under or in
connection with each of the Funding Documents.
¢ authorised the CEO and CFOO to negotiate and agree any
amendments to the POL Credit Facility which have the
purpose of improving pricing or giving POL greater
operational flexibility in the management of cash in its
operations, reviewing the interest rates, switching from
weekly to monthly reporting and introduce greater flexibility
around the use of proceeds and/or the authorised
investments and the segregation undertakings and
corresponding events of default , and
e authorised any director or Authorised Signatory to execute
any amendments to the POL Credit Facility for this purpose.
ME left the meeting.
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POLB 17/74 CHIEF EXECUTIVE RETAIL PERFORMANCE REPORT
(a) The Chairman welcomed Kevin Gilliland to the meeting to
introduce the commercial performance report for the Retail BU
for period 5 and noted the paper.
(b) KG reported:
« Retail had had 5 positive months trading which offset delays
in the implementation of DMB franchising and product
simplification. In branch footfall remained stable and
volumes and margins in mails continued to show good
performance;
* Competitor activity continues to be of concern however the
trial between Rymans and Doddle had ended after 3
months, and Rymans were now back in discussions with
Post Office;
e Launch of the eBay shipping platform had been delayed to
after Christmas and we were working with RMG to ensure
that both parties were able to participate; this work is helpful
in positioning future joint strategy work with RMG;
¢ Threatened industrial action at RMG remained of concern.
17 October was the likely earliest date for a strike. We are
working closely with the RMG team to develop contingency
plans. At this stage we believe that 24 hour rolling strikes
are most likely affecting collections and deliveries
alternatively.
« Product Simplification was launched this week which will be
worth £11 million to the bottom line once fully rolled out. At
the time of reporting over 5 million transactions have
occurred using the simplified product processes, with only
22 emails received mainly regarding requests for support or
complaints. Meetings have been held with multiples who
were supportive of the rationale for simplification but were
concerned about loss of remuneration. Transitional
payments are being offered to all postmasters and we will
work with postmasters — and particularly multiples, to
consider cost savings measures.
e ‘No Queues at Christmas ‘is underway with a range of
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Action: (c)
KG
Strictly Confidential
initiatives including increasing the number of Drop & Go
accounts; remote diagnostic and fixing of SSKs; social
media videos for customers; extra Christmas makers and
staff (including a new lower paid back office role), all of
which should have a positive impact on queues.
KG was requested to consider:
« the economics of products — both for Post Office and agents
given the declining volumes and margins, and have a view
as to which products were genuinely necessary to support
footfall;
e the implications of increasing use of Post Office supplied
cash.
The Board noted the report.
POLB 17/75 TECHNOLOGY STRATEGY UPDATE
(a)
(b)
(c)
(a)
(e)
POLB, 26 September 2017
The Chairman welcomed RH to the meeting to present his
report.
RH noted that this was the third in a series of presentations to
update the Board on the development and implementation of the
technology strategy. Focus at present was on:
e roll out of the branch technology upgrade which is
challenging both in terms of the number and scale of the
network, and the fact that was being delivered into third party
sites which creates unexpected issues. The target is to have
completed the hardware roll out by March 2018, and the
upgrade to HNGA by June 2018, in each case to avoid
increased costs arising from among other issues, failure
demand. Already we are seeing positive reports from agents
due to faster transaction processing. This will further
improve as we move to HNGT which can be accessed via
third party point of sale systems and which is particularly of
benefit to the large multiples.
e Upgrade of the communications network from BT to Verizon
and upgrade of ISDN lines. In branch routers are being
replaced in every branch; while we are trying to coordinate
engineer visits with the technology upgrade this is not
always possible.
In discussion, the Board noted that the combination of the
upgrades currently underway and in planning will result in
simpler processes, faster transaction times, and as a
consequence reduced in branch training time as the system is
more intuitive. This would assist in the discussions on agents’
remuneration as well as improve compliance.
RH also advised that his leadership team was now in place
although attracting and retaining IT architects was currently an
issue.
RH further commented on the work underway to develop the
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Digital Roadmap. FS was being prioritised although the
outcome of the discussions with Bol needed to be factored in.
the current focus was the customer journey for Travel Insurance
and this was a joint effort between POMS and the IT team. The
‘customer hub’ is a platform for products which will be accessed
through it, and therefore products and the platform needed to be
developed in parallel. The investment return of launching the
products on this platform will be carefully assessed.
RH noted that discussions with Fujitsu were ongoing and that he
would be reporting more specifically on these negotiations in
October. He noted that the shape of the deal is now broadly
agreed with a shift to a variable costs base, with savings
invested in change. There are opportunities to develop greater
digital capability and Fujitsu are keen to leverage their growing
cloud, security and retail capabilities, of which we will seek to
take advantage of cloud and retail technologies. Improved
personal relationships at a senior level have proved helpful in
moving the discussions forward.
RH then update on the discussions with Atos which he described
as ‘testing’; there is a revised deal under discussion and
although the revised position is not as good as he had hoped to
achieve, it is better than the current model.
Overall RH felt that as each of the programmes were developed
and rolled out, both operational risk and cost were being
reduced. Overall there was a better engagement between the
business and IT, however there was still a cultural challenge in
developing the mindset of ‘digital by design’.
The presentation concluded with a demonstration of the
changes resulting from the redesigned branch software.
The Board commented positively on the progress to date; noted
that there was significant amount at stake and were sympathetic
to temporary setbacks. They recognised the cultural challenge
(digital thinking/approach to business) and asked to be kept up
to date.
RH left the meeting.
POLB 17/76 BACK OFFICE TRANSFORMATION
(a)
(b)
POLB, 26 September 2017
The Board noted the paper and the CFOO commented on the
following:
e The replacement and transformation of POLSAP and
HRSAP was challenging. As had been previously discussed
with the Board, the systems were complicated and the
supporting infrastructure was fragile, and as a result and as
discussed at previous meetings, the overall cost of the
programme had increased. There was still further work to be
done to finalise the strategy - for example regarding Swindon
where the benefits case remained outstanding.
« While the plan was to continue with the current plans, there
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(a)
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was a risk that POLSAP would need to be stabilised on short
notice by way of upgrade. This is being monitored closely as
the cost of the upgrade would be c£6 million and the CFOO
noted that he was seeking delegated authority to incur this
expenditure if it proved unavoidable.
The CFOO also noted that he was seeking approval for
drawdown of £7.3 million to deliver the next phase of work which
would increase the cumulative investment in the Back Office
Transformation to £16.2m for the period to end February 2018
which a total expected cost of Phase 1 of £20.9 million (including
the contingency). Phase 2 will now include the changes to
procurement and the Swindon stock ordering systems. A
separate business case is under development in relation to
these, and the site strategy for Swindon is being reviewed.
The Board noted that the total project could therefore cost up to
£31.3 million and that further approvals would be sought once a
more detailed view of the Phase 2 costs had been obtained.
The Board approved the drawdown of £7.3 million as requested.
The Board noted that the potential stabilisation of POLSAP at a
cost of c £6 million was effectively an insurance policy and that
the objective was to get off the current infrastructure.
The Board therefore delegated authority to the CEO, CFOO and
ClO to approve and incur the additional costs to upgrade
POLSAP should that be required due to material increase in
operational risk, at a cost of up to £6m.
POLB 17/77 RATIFICATIONS.
(a)
Modern Slavery Transparency Statement
The Board approved the 2017/18 Modern Slavery Transparency
Statement (in respect of POL and POMS) as recommended by
the Audit, Risk and Compliance Committee (minute POLARC
17/60) but noted the need for training to enable field teams and
others to recognise the risks and indicia of modern slavery, as
well as the development of reporting processes.
POLB 17/78 ITEMS FOR NOTING
(a)
(b)
POLB, 26 September 2017
Register of Sealings
The Directors resolved that the affixing of the Common Seal of
the Company to documents numbered 1544 to 1575 inclusive in
the seal register was confirmed.
Health and Safety
The Board noted the paper and the CFOO noted the following
updates:
e Following the Grenfell Tower fire cladding on the four Post
Office owned and occupied multi-story buildings had been
tested with no adverse findings;
e Anincident had occurred at the Muswell Hill branch (a RMG
owned property) where signage had fallen down and injured
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(4)
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Secretary
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pedestrians. Following this, signage had been reviewed on
all RMG shared sites, and checks were ongoing in relation
to fabric quality at all owned or shared sites. The relevant
contractual obligations were being considered.
e An independent 3” party audit had been commissioned of
the Health & Safety Framework and the results of this were
expected before the end of the calendar year.
e Overall accidents rates were flat against the previous year
and were no discernible patterns as to causation. We are
monitoring measures such as LTIFR (Lost Time Injury
Frequency Rate) to ensure that changes resulting from the
reduction in workforce numbers was not resulting in
increased stress or other unintended outcomes which could
also impact injury and illness rates.
e The Road Travel Policy was being reviewed, and telemetry
trails were underway in Belfast. There was concern that we
had limited visibility of the ‘grey fleet’ (where employees
used their own car for business purposes) and work was
underway to understand the risks around such usage.
Health and Safety in the Agency Network
The Board noted the Directors’ Duties explained in the Health
and Safety in the Agency Network report.
Meeting Dates and Forward Agenda for September 2017
The Board noted the future meeting dates and proposed forward
agenda. Ms Holmes note that she had a conflict on 1 February,
2018 and the Chairman requested that the Secretary see if
an alternate date could be identified.
POLB 17/79 ANY OTHER BUSINESS
(a)
(b)
(c)
POLB, 26 September 2017
The Company Secretary advised the Board that at its meeting
ARC that moming, the ARC had reviewed the proposed
insurance renewal for Post Office Limited and summarised the
changes to the policy cover including:
e Aligned renewal dates across all policies
e Extended cyber insurance across Post Office, and
« No change to the other coverage including Directors &
Officers Insurance.
e The Company Secretary noted that the renwal was within
the CEO’s delegated authority and therefore would be
renewed, effective 1 October 2017.
.
Tim Fanklin noted that he had been requested to join the Board
of Topaz Finance Limited which was an FCA regulated provider
of mortgage services and part of the wider Computershare
Group. He also noted that he expected to step down from the
Land Registry Board in January.
There being no further business the Chairman closed the
meeting at 3.00pm.
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Strictly Confidential
Chairman Date
POLB, 26 September 2017 15 DRAFT
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Strictly Confidential
Status Report as at: 25/10/2017
Post Office Limited Board
31 January 2017 it Review Ken McCall/ Rob October 2017 IUnderway and there will be an independent review [To Close
POLB 17/11 (d) IReconsider the proposal for an independent advisor to Houghton Board presented at the October Board.
Ithe Board after the IT strategy presentation at the July
Board meeting.
28 March 2017 IFS Growth - POMS Nick Kennett Board Date TBC IThis is a long term strategic option and as such, a Open
/POLB 17/25 (j) IAs part of the long term financial services strategy, a Board date has not been assigned. Nick will revert in
potential future move into underwriting activities would \due course as/when POMS are ready to proceed.
be brought to the Board for further discussion at the
appropriate time.
.. [25 May 2017 ICEO Report - Identity Services Martin Edwards / KenI October 2017 Action originally assigned to Kevin Gilliland for iTo Close
= IPOLB 17/36 (d) IThe CEO explained the enhanced Verify product which McCall Board September Board but this falls within Martin Edward's
would be launched in June and was likely to include a remit and has been reassigned accordingly, and is on
digital driving licence product. The new product would Ithe agenda for October.
be helpful for vehicle rental companies and Ken McCall
loffered advice in accessing this market. Post Office as
Ithe Verify market leader had been chosen to launch this
new service in advance of other suppliers and this would
help cement the position in the market.
25 May 2017 ICEO Report - Industrial Relations Martin Kirke October 2017. ITo be addressed in Industrial Relations Project Jay —_ITo Close
POLB 17/36 (h) IThe CEO reported that the Company was still in dispute Board report at October Board.
with the CWU and UNITE unions although the UNITE
dispute was closer to resolution. The Board discussed
the reduction in number of CWU reps paid for by the
Business which had reduced from nineteen to six. The
Board challenged the practice of paying for any union
reps and asked the CEO to check why the union were
not paying for their reps.
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25 May 2017 _IMails Strategy Update Kevin Gilliland / Mark I November 2017 ITimescales for implementing our full next best Open
POLB 17/40 (e) IThe Board asked KG and MS to continue to develop the Board alternative (NBA) (including USO/captive core
) next best alternative work in parallel with an emphasis volumes) is in the region of 30 months, driven by
lon the technical integration, and to return to the Board procurement, organisation capabilities and IT
lwith a view on how quickly they could be implemented if integration. As set out in our May Board paper, the
the negotiation do not deliver what is needed. The Board decision to commence full NBA preparation would be
jasked the CEO to ensure she had the strongest needed by November 2017 in order to achieve a go
negotiation team possible. live of early 2020, the point exclusivity falls away.
Initiating the next phase of NBA preparation will entail
discussions with the market for the provision of
services and distribution. Given our recent progress
lwith Royal Mail with the acknowledgment of complex
interdependencies to deliver the USO, resulting in
increasing interest in renewing long term exclusive
arrangement (possibly by June 2018) such a decision
would send a strong negative signal to both RM and
Ithe market, and would therefore require careful
consideration. Update on the outcome from the Mid-
Term review to come to the November Board.
dey sr
26 Sept 2017 [Funding Documents Martin Edwards I November 2017 ITo be included in the Strategy update for November [Open
POLB 17/72 (j) IThe Board requested management to develop plans to Board
jaddress the possible scenario of an election and Labour
victory.
26 Sept 2017 [Chief Executive Retail November 2017 ITo be addressed in the CE Retail report for November. [Open
POLB 17/74 (c)_IKG was asked to consider (a) the economics of products Board
- both for Post Office and agents given the declining
volumes and margins, and have a view as to which
products were genuinely necessary to support footfall
land (b) the implications of the increasing use of Post
Office supplied cash.
26 Sept 2017 (Meetings Company Secretary I October 2017 [Meeting now moved to Monday 29 January Closed
17/78 (d) Noting that the meeting scheduled on 1 Feb 2018 would Board
create a schedule conflict for Virginia Holmes the
Chairman requested that the Secretary see if an
lalternate date could be identified.
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POST OFFICE BOARD
CEO’s Report
Author: Paula Vennells Meeting date: 31% October 2017
Executive Summary
Context
Our target for 2017/18 is to achieve EBITDAS of £28m. Our 3 year goals are to:
~ Accelerate the transformation of the Post Office.
+ Secure commercial sustainability for the long term.
— Establish a business that can ultimately fund investments and the social
purpose from profits rather than subsidy.
In summary, our strategy is to secure our position as the UK’s number one
parcels and letters retailer, grow in financial services and protect our network
and social purpose - all supported by a much leaner central organisation.
Questions this paper addresses
1. What is on my mind? (successes, challenges, opportunities and risks)
2. What are the implications for our outlook and plans?
Conclusions
Performance is on track and preparations where they should be as we approach
peak season. We need to keep an eye on costs, but at this stage I am
reassured that is the case.
Business planning is under way: we have finalised the strategic plan (to be
covered at this Board meeting) and we are now working on 18/19 Operating
plan.
Good progress is being made on IT strategy and in our negotiations with
suppliers; there is still no room for complacency. Rob is leading this well.
Input Sought
The Board is invited to note the report and highlight any issues where a future
discussion would be welcome.
Confidential
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The Report
Looking Back
WHAT HAS GONE WELL?
¢ Financial Performance - P6
— Reporting EBITDAS of £(0.1)m in P6 (£0.7m favourable to budget) and YTD of
£4.4m (£2.7m favourable to budget). Trading performance in the month was
in line with performance of prior months (marginally ahead of budget). We
are still on track to deliver £28m EBITDAS for the year, albeit the shape of
delivery is different.
— Balance sheet headroom in P6 was £36m, £71m lower than budget with
higher drawings on the loan offset by lower NRF usage (£70)m to ensure a
positive net capitalisation position with the Bank of England for the end of
their financial year.
e Revenue performance
— Sales performance continues to be strong and forecast for full year remains to
deliver income of £17m over plan. All areas of the Retail Business Unit are
currently ahead of plan, as is Telephony. Banking, POMs and Travel Money
continue to perform above forecast and above prior year.
e Branch simplification
— Phase 1 of simplification went live on 19 September. This involved simpler,
quicker Mails transactions across the whole network. We are sharing the
benefits of the efficiencies equally with postmasters, allowing us to realise
£11.65m of recurring P&L benefits across Phase 1 and 2 of simplification
(Phase 2 goes live in March 2018 and this will introduce faster printers in
branch). We are reducing workload by 7.4% and remuneration by 3.1%. We
had expected a negative reaction from some postmasters however the
response has been quieter than expected - our helpline has had fewer than
100 calls in 4 weeks.
¢ Government affairs
— I met with the Secretary of State for Scotland on 11th October and on 18th
October I hosted a drop-in session for MPs in Westminster. Without exception
each Minister and MP I spoke to recognised how critical post offices are to
communities and how as a business we are a beacon in government — run
commercially for the sole benefit of delivering a social purpose to
communities and great products and services for customers.
Confidential
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e IT
— Rob Houghton’s team ran a Hackathon with FJ for an agent portal on 18"
October - this was supported by NSPF and independent Postmasters. The
team delivered a demonstrable M.I mobile application delivered within 2 days.
Rob’s team is now progressing with this.
— We have finalised the contract changes with ATOS. This will reduce the Opex
costs by £1.2m p.a. saving in Opex achieved through the termination of
services deemed non-value and re-engineering efficiencies in service lines.
This saving will be back dated to 1st July 2017 to achieve current year
savings. In addition, we have significantly reshaped the delivery of change
and are saving money daily through insourcing the change process.
— The MoU with FJ is complete and will be discussed in October board.
e Corporate Affairs
— Asa result of our work following the publication of the Lords Committee report
on Financial Inclusion, Post Office was invited to a meeting with Margot James
MP and Guy Opperman (Minister for Pensions and Financial Inclusion, DWP), to
discuss how Government can assist Post Office in working with banks to mount
a major public awareness raising campaign in early 2018. This will both
stimulate transaction levels in branch, and ensure that the universal access to
the financial system the Banking Framework provides gains widespread
recognition. Post Office will also be meeting to discuss this with the Economic
Secretary to the Treasury over the Autumn period.
— Adrop-in session for MPs hosted by the CEO and the public affairs team took
place on 18 October in the House of Commons. This yearly event provides MPs
with a further opportunity to talk about both local and national Post Office
issues of interest and concern to them, and their constituents.
— The CEO met with the Secretary of State for Scotland. It was a positive
meeting with discussions around our plans for Scotland. This would help with
the ‘Trapped PO’s’. (see network paragraph, pg4)
« Colleague engagement
— Focus on improving internal engagement continues to be a key priority. This
month, we held a Chief Executive Question session giving people across the
business an opportunity to ask any questions they have. It was a well-
attended event with live stream option available for colleagues not based at
Finsbury Dials. Questions covered a range of areas, from our role in
communities, commercial experience of the Board, and future plans for the
DMB network.
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— Planning is now underway to develop an exciting and sustained
communications campaign for the Strategy for the funding period to
2020/2021.
— We held our second D&I event in Chesterfield in October with approx. 60
colleagues from across the business. It was a great day celebrating the
diversity of our people with colleagues sharing their stories, good debate and
many commitments made by colleagues to promote this across the business
even more. We were joined by Alwen Lyons who came back to present the
first of the Alwen Lyons Awards. Alex Clarke won the first award for his
contribution to D&I across the business, in particular setting up the Be You
Group for disability confidence in Post Office.
WHAT HAS NOT GONE WELL?
« Revenue performance
— Personal FS and Moneygram: all categories are behind budget and prior year.
« Network
— The number of branches reduced by 16 in the month and is now 11,558, 75
behind target. Network Numbers remain under pressure from the increased
number of postmaster suspensions for losses together with a higher than
anticipated level of churn in the Network overall. YTD we have had 102
unplanned closures of which 55% were due to suspension following losses
identified at audit.
— A number of interventions are underway to deliver white space premises and
a simpler appointment process. Additionally options are being reviewed to
assist postmasters in converting premises.
— Challenges are increasing from MPs and the NFSP re “Trapped Postmasters”.
We shall address this in the Network Strategy Plan for 18/19.
e IR
— Remains troubling as we plan to reduce full time union representatives with
the CWU and settle the 17/18 pay deals with Unite. CWU internal
uncertainties are making the union responses more volatile than previously.
We continue with our plans and remain within mandate.
e IT
— Since the last update we have managed to secure a critical extension to ISDN
until the end of November. Progress in fully eradicating ISDN is still
challenging due to a combination of factors. We have also selected a new
hardware device (Box Cielo) for rollout and built plans to continue some level
of deployment through the Christmas change freeze.
Confidential
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— Credence has again hit issues on transition and our current forecast is
November; if we are unable to deliver to this date then it will need to slip into
January due to the change freeze. We are spending significant time ensuring
its right as its fundamental to our reporting cycle.
Looking Ahead
FUTURE FOCUS
° IT strategy
— An independent review of the IT strategy was discussed at GE this month. The
review agreed with the overall direction of the strategy and provided useful
guidance in four main areas:
o Bring the Post Office Strategy to life linking it to the financial plans and
making it tangible to all Post Office colleagues.
o Improve the quality of portfolio management and change management
to flag likely risks and issues rather than just ‘keep score’.
Consider some other potential business enhancement opportunities.
Strengthen delivery of the IT Strategy to reduce delivery risk.
— Rob Houghton will provide a management response to the review along with
actions and any improvements to be made. This will be reported to the Board
in November.
¢ Interest rate increases
— We have agreed in principal with BOI that in the event of base interest rate
changes the mortgage back book will move up in line with any increases. On
the mortgage front book, swaps have already moved in anticipation of a
25bps move and we are repricing in line with that. We may make additional
adjustments if swaps move further.
— On the savings back book, we will move in line with the competition; if
competitors pass the full benefit on, then we will too. At the Partnership
Board on 24" October tactics were discussed as part of the wider agenda to
ensure we have the right focus on our reputational risks. On the savings
front book, we expect broadly to pass on the base rate change in product
pricing.
e Christmas planning
— We are making good progress with our planning in the lead up to Christmas.
All activities connected to our “No queues at Christmas” strategy remain on
track with a strong start to internal volunteer registration levels.
Confidential
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— SSK improvements for Confirmation of Posting no longer requiring host
intervention is due for testing on 24th October and is on track for roll out.
This will reduce waiting times for a majority of SSK customers, and removes
the need for colleague intervention.
+ Waiting times have improved in the pilot offering the streamlined Drop & Go
service. This incorporates the ‘test’ lower pay grade back office role, which
we plan to introduce post Christmas to improve ongoing efficiencies.
RISKS OR CONCERNS?
e Royal Mail industrial action
— Royal Mail were successful in their application for an injunction preventing the
CWU from undertaking strike action pending third party mediation. The
immediate threat of Industrial Action by CWU has receded until December 21*
at the very earliest (Note 21° is the last posting day before Christmas, if
industrial action went ahead it could have a big impact). Whilst this is good
news as it reduces risks over our peak period, until a deal is announced the risk
remains real into Q4.
— We have engaged closely with Royal Mail to ensure the necessary contingency
plans are in place to keep Post Offices open for business. We have had good
co-operation from RM and are confident that the delay until December will
allow RM to ensure suitable plans are in place. As a contingency, and a means
to free up their own resources, we have also worked with RM to explore the
options for Post Office to operate its own branch collection service using third
party agents. A further update to follow on this next month.
— Discussions continue with Royal Mail on the future relationship. These are
progressing positively with the focus shifting from a mid-term review to
renewal of the long term relationship. We will provide a full update to the
November Board.
° POca
~— Discussions with DXC and JPM continue with the aim of finalising the new POca
agreement.
— Negotiations have been more difficult than expected, driven mostly in response
to upcoming changes in the bank regulatory landscape (particularly the
Payment Services Regulations 2017 or PSR 2017). As a result, DXC/JPM have
changed the terms of the agreement we reached in July to pass additional cost
onto POL. These costs would be passed onto POL whether we agree a new
contract or extend under the terms of our current contract.
— The key issue is that PSR 2017 requires an increase in statement frequency
from two to twelve, at an estimated cost of £12m - £15m. We have approached
the FCA with the support of DWP and HMT to seek an exclusion to this
requirement.
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— Despite the change in terms we believe that, on balance, the certainty provided
by the new agreement is better for Post Office as opposed to extending under
the old agreement and beginning negotiations again (likely going into dispute
resolution). Increased revenue as a result of higher than anticipated LIBOR
forecasts is counter-balancing the additional PSR 2017 costs; and an exclusion
from the requirement for monthly statements would improve product
performance from the position presented to the Board in July.
— We are seeking to reach final agreement on the new contract as soon as
possible. If we are unable to reach agreement we are still able to extend the
current contract.
e UKVI
— We have recently agreed an extension to our contract with UKVI for the bio-
metric residency permit service until November 2018. At the same time, they
have launched their procurement exercise for the service beyond that date.
— Their procurement is based around outsourcing all visa application processing
in the UK for the next 5 years and is quite different from the service that we
currently provide. It includes all back office processing alongside subsuming
the scope of the ‘BRP’ service we currently provide for capturing biometrics
from visa applicants and is based in a small number of application centres
rather than a disperse network.
— The procurement has been beset by repeated delays and information to
inform potential bidders has been slow to emerge from UKVI.
— Although the new service is a poor fit with Post Office’s core activities, given
the uncertainty, we intentionally submitted a bid as a prime contractor to
keep our options open. This was unsuccessful as expected owing to our lack
of experience in scanning and processing documents.
— However, it has created the opportunity to partner with one of the world’s
largest visa processing companies (and UKVI’s incumbent supplier for visa
applications abroad) where Post Office would offer customers the opportunity
to pay a premium to make their application in a branch that would be more
conveniently located for them.
— This would have the benefit of continuing to offer customers a service they
value in a Post Office; utilising the AEI network; and supporting our wider
identity strategy. There may also be further benefits to be derived from a
partnership with a company that provides visa application services worldwide.
— Weare in the process of completing discussions with our potential partner to
allow for submission of a bid by 9 November.
« Postmaster Litigation
— Case Management Conference was held on 19 October in relation to the
Postmaster Litigation and a short update was provided to the Board following
the hearing. Work will now focus on preparing the disclosure materials,
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undertaking the work to identify the pool of 12 cases from which the 6 lead
cases will be selected, and generally commencing planning and preparatory
work for the trial. We will also review the likely costs over the next 13 months.
— A verbal update will be provided at the Board on 31 October and we have
scheduled a more detailed briefing for the Board in November.
Confidential
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@
September 2017
Financial Performance
Al Cameron
31 October 2017
©
Post Office” Post Office Limited — Commercial in Confidence
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Trading performance continues in line with recent trends. °
EBITDAS +£2.7m ahead of budget ytd. Full year forecast
maintained at £28.0m (in line with budget).
Context
° YTD P5 EBITDAS performance was £4.5m. £2.0m favourable to budget.
. At end of FY 16/17, cash in Network was £666m and balance sheet headroom was £189m
. P6 budget EBITDAS is £(0.8)m
Questions
. How is our scorecard performance in P6?
. What is the financial performance of the business in P6?
* Are we appropriately funded?
Assumptions
. For the purposes of this pack the reversal of our impairment policy has been applied and assets are now capitalised and depreciated on a
monthly basis in line with the 2016/17 annual report.
Conclusions
. Reporting EBITDAS of £(0.1)m in P6 (£0.7m favourable to budget) and YTD of £4.4m (£2.7m favourable to budget).
. Trading performance in the month was in line with performance of prior months (marginally ahead of budget).
. We are still on track to deliver £28m EBITDAS for the year, albeit the shape of delivery is different. An update is provided in this report.
. Balance sheet headroom in P6 was £36m, £71m lower than budget with higher drawings on the loan offset by lower NRF usage (£70)m
to ensure a positive net capitalisation position with the Bank of England for the end of their financial year.
Input Sought
. The Board is asked to note the financial performance.
. The Board agrees that from P7 we monitor Actuals v Forecast (5+7), with limited budget comparisons
©)
Post Office” Post Office Limited — Commercial in Confidence
Branch numbers continue to track below targets
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. P6 YTD Full Year
Key Performance Indicators Act Target Var. Act Target Var. Target
Growth
Total Gross Income (excl NSP) £m 72.3 71.0 463.3 456.0 945.0
EBITDAS £m (0.1) (0.8) 4.4 1.7 28.0
Headroom £m (vs Board minimum limit) 236 > 200 236 > 200 > 200
Digital Net Income £m (digital team) 3.3 3.6 21.5 23.6 45.0
Net profit £m* 0.6 0.6 6.9 6.9 8.3
Customer
Customer Effort 82% 76% 78% 76% 76%
Net Promoter score Financial Services 25 25 25 25 25
Acceptable Wait Time % 94% 95% 93% 95% 95%
Branch Compliance - Financial Services - basket of 11 measures 0 <=50 25 <=50 <=50
People
Representation (Senior Managers) - Gender 38% 37% 38% 37% 37%
Attendance 95.9% 96.7% 96.5% 96.7% 96.7%
IT Lost Time (Number of Sev1/Sev2 IT incidents) 3 13 40 78 <156
Safety LTIFR 0.000 _0.180 0.283 0.180 0.180
Modernisation
Number of branches (one month in arrears) Same as Y 11,558 11,633 >=11,700
NT and ND Branches Transformed in Year 43 40 257 217 400
HGNA Rollout 2 TBC 764 1,709 100%
Aug 18
IT Transformation (% of IT controls implemented) 63% 59% 63% 59% All high risk
gaps closed
(3)
wr
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Post Office Limited ~ Commercial in Confidence
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Branch numbers continue to decline and track below targets
Digital Net Income
.
Digital Income, £(0.3)m adverse to target and £(2.0)m adverse YTD.
The shortfalls in the month were again driven by Travel, £(0.3)m adverse in the month and £(2.4)m adverse YTD. Budget uplifts
in volumes due to natural search increases have not been delivered.
Acceptable Wait Time
Acceptable wait time in the month and YTD was 94%, (1)% adverse to target. This however represents a significant year on
year improvement of 1.5%.
A key focus in the forthcoming weeks will be the No Queues at Christmas initiative. Significant progress has been made in
resourcing DMBs, recruitment for Christmas casuals is progressing and 2,000 of the 2,900 Christmas were filled in 4 days.
Attendance
.
There is an emerging trend of long term absence in Directly Managed Branches and Supply Chain continues.
Absences continue to convert from short to long term including a number of musculoskeletal cases in Supply Chain. A detailed
review of the Supply Chain absence is underway and depot visits have commenced.
Network
Number of branches reduced by 16 in the month and is now 11,558, 75 behind target. Network Numbers remain under
pressure from the increased number of postmaster suspensions for losses together with a higher than anticipated level of churn
in the Network overall. YTD we have had 102 unplanned closures of which 55% were due to suspension following losses
identified at audit.
A number of interventions are underway to deliver white space premises and a simpler appointment process. Additionally
options are being reviewed to assist postmasters in converting premises.
(4)
ar
Post Office” Post Office Limited — Commercial in Confidence
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P6 EBITDAS is £0.7m favourable to budget. Underlying
performance in line with budget in the month
P6 * Gross income — £1.3m favourable. Continuing
overperformance in Retail (+£1.7m). FS&T revenues (+£0.3m)
8
driven by Telecoms (+£1.0m) due to strong performance in
£m Act ya “or underlying business. New Call revenues (£1.6m) track slightly
u ahead of budget in month following acquisition in P5. Shortfall in
Giese thesis 72.3 1.3 (0.1) POMS (£0.8)m with misses in Travel, Car, Home and Life
Direct Costs (10.0) (0.1) (0.9) insurance. Further details provided on slides 7 & 8.
Net Income 62.3 1.3 (1.0) + Staff costs — £(0.6)m adverse. Overspends in Retail £(0.6)m
Staff Costs (14.2) (0.6) 3.6 continue due to delays in branch conversions. Further details on
Agents Pay (28.3) (1.3) 0.3 slide 8.
Non- Staff Costs (22.7) 14 (14), Agents pay — £(1.3)m adverse and continuing to track in line
Expenditure (65.3) (0.5) 2.5 . . . .
FRES - Share Of Profits 2.9 (0.0) (0.5) with YTD trends due to favourable revenue variances in Retail
EBITDAS (0.1) 0.7 11 and the channel/product mix.
* Non-staff costs — £1.4m favourable includes:
EBITDA Bridge v Budget
ad * £0.3m benefit from brand and marketing spend. Spend has
been reviewed as part of the reforecast process.
sonenegiiontn
/ * £0.7m from property costs, part timing of spend and part cost
' I .
2) poston savings.
* £0.9m of in year IT cost benefit as a result of detailed cost
reviews undertaken as part of the forecast process.
5)
20)
Budget income Direct Costs Staff Costs Agents Pay Non Staff — Fres Actual
Costs
”)
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YTD EBITDAS is £2.7m favourable to budget
YTD + Gross income — £7.3m favourable. zZ
* Retail +£14.1m with strong performance in Parcelforce, Labels, §
fm YTD Var Var RM Signed for, Lottery and Government Services. Significant year
Act Bud PY on year decline £(14.5)m driven by Government Services
£(11.0)m.
Gross Income SOAs 7.3 (8-8) . FST £(4.6)m adverse to budget driven by delays in New Call
Direct Costs (59.8) 3.4 (3.6) launch £(6.0)m ytd and declines in Moneygram revenues £(2.1)m
Net Income 403.5 10.7 (12.4) ~ . - .
Staff Costs (91.2) (4.5) 23.9 due to drop in volumes following Brexit.
Agents Pay (183.5) (5.9) 8.3. + Strong performance in other Telco areas due to c.32,000
Non-Staff Costs (141.0) 3.1 1.8 additional customers (driven by closing 2016/17 base) partially
Expenditure (415.7)I (7.3) 34.0 offsetting these declines.
FRES - Shi Of Profit: 16.6 0.6 3.9
EBITDAS nthe ithe 4.4 ( ue G2 * Staff costs - £(4.5)m adverse. Overspends in Retail £(3.2)m due
to continuing delays in branch conversions and Supply Chain
ao YTD EBITDA Bridge v Budget challenges £(1.6)m.
+ Agents pay — £(5.9)m adverse and continuing to track in line with
YTD trends due to favourable revenue variances in Retail.
+ Non-staff costs — £3.1m favourable with significant underspends
in marketing £2.7m driving the variance. Following review, these
savings are now anticipated to be crystallised in the full year
outturn.
+ FRES — £(0.6)m shortfall ytd but full year expectations are that
FRES will deliver ahead of budget.
NOTED,
Budget income Direct Costs Staff Costs Agents Pay Non Stalf res Actual
Costs
(6)
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Retail revenues +£14.1m favourable to budget but declining year on
year
Ps yr Retail
tm Act var var YTD Var Var + Continued strong performance in the
Bud PY Actual) = Bud PY month following recent trends across all
Parcelforce 140.2 Ot 8.9 14 0.7 revenue pillars.
Special Delivery 3.6 0.1 (0.0) 24.2I 0.4 (0.2)
International Priority & Standard 0.8I 0.1 0.1 5.3) 0.7 0.6 . Revenue growth over the balance of year
Stamps (1st & 2nd) 1.3] (0.1) (0.2) 8.8] (0.6) (1.0) will however slow due to delays in launch
Labels (1st & 2nd Class) 6.6) 0.3 0.5 43.7 1.0 2.0 of Digital Check and Send.
RM Signed For 1.7I 0.2 0.0 11.2) 1.6 0.3
Home Shopping Returns 1.2I 0.1 0.2 8.3 0.4 1.2 * The Full Year Retail EBITDA performance
Other Trading 2.7) (0.1) 0.0 17.4) (0.3) (0.1) is expected to be c.£3.1m ahead of
Total Mail Trading 19.3 0.8 0.8 127.9 4.6 a6
Fixed fee 3.8 0.1 (0.2) 24.9 0.4 (1.6) budget.
Mailwork & Mails non trading 0.8 (0.1) (0.3) 5.0 (0.5) (1.5)
Total Mail Non-Trading 4.7; (0.0) (0.5) 29.9] (0.2) (3.1)
Retail (Inc Gift cards & Other) 0.9} (0.1) 0.1 5.7 0.2 0.0
Lottery 2.4 0.4 (0.1) 15.7 2.9 (0.9)
Retail and Lottery ae 0.4 0.0 21.4 3.0 (0.9)
Payment Services 2.0} (0.1) 0.0 13.3 0.4 (1.7)
ATM 2.3} (0.2) (0.3) 15.5] (0.4) (1.3)
Payment Services 4.3) (0.2) (0.3) 28.8 (0.1) (3.1)
Motoring Services 0.5 0.1 (0.2) 3.7 0.4 (0.7)
Card Account 3.6 0.3 (1.4) 23.0) 1.9 (10.0)
Passport Services 1a 0.4 (0.1) 11.8 4.5 (0.8)
Digital ID Serv UKVI & Asylum 1.5] 0.3 0.2 7.2 1.0 0.5
ID - Assurance (Verify) 0.5 (0.3) 0.1 3.3 (1.1) 0.8
Other Government Services 0.0 (0.0) (0.1) 0.6 (0.1) (0.7)
Government Services 7.3) 0.8 (1.5) 49.6 6.7. (11.0)
Total Retail 38.9 1.7. (1.5) 257.5; 14.1 (14.5)
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FS&T £(4.6)m adverse with shortfalls in Moneygram £(2.1)m and
Telecoms £(1.6)m
rs “ FS&T
em actI Var Var YtDI var var Year on year Growth in Telecoms and Banking
Bud PY Actual} Bud PY Services offsetting declines in traditional banking
Total Retail 389) 1.7 (5) [as7S[ aaa Gas) Products.
Mortgages 0.2I (0.1) (0.0) 1.4) (0.7) (0.3) . . 7
Credit Cards and lending 0.2; (0.1) (0.0) 0.9{ (0.6) (0.5) Moneygram: A return to marginal year on year
Savings 3.4 0.0 (0.3) 20.2} (0.0) (1.9) growth for the first time since P1. Counteractive
Travel Money 2.4 0.2 O41 14.9 0.6 0.7 measures continue to try and drive increased
MoneyGram 2.4] (0.3) 0.4 13.5I (2.1) (1.4) i ici i
Bost Orrice HORRY gel (0.3) (0.2) 50.9] (2.8) (3.4) volumes with branch visits to assess promotional
Banking Services 6.6} (0.1) 12 42.5 11 11.2 opportunities, better customer retention and
Telecoms 12.4] 1.0 2.3 72.6I (1.6) 9.0 targeted marketing spend.
Postal Orders 1.1] (0.1) (0.3) 7.6] (0.7) (2.2) — I
Other Income 0.0I (0.2) _(0.0) 0.0} (0.5) (0.1) * Telecoms: Continuing overperformance in
Eset 28.7 23 3a a73:6' 4:8) 14.6 underlying business due to c. 32,000 additional
Total FSaT 32.21.(0.5) 3.2 798.8] (6.8) 16.6 customers v budget. New Call acquisition in the
‘Supply Chain 0.9 0.1 6.9 5.1I (0.2) (0.8) month delivered £1.6m of revenue and is
Other Income 0.3 0.0 _(8.7) 1.9 0.1 _(10.1) performing marginally ahead of budget (£1.4m).
Total Revenue 72.3 1.3 (0.1) 463.3 7.3 (8.8) Delay of New Call acquisition has led to c.£6.0m
ytd revenue shortfall against budget.
POMS
+ Shortfail in the month across (£0.8)m with misses
in Travel, Car, Home and Life insurance.
(8)
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Delay in branch conversions and challenges in supply chain
lead to overspend in staff costs
Total Month YTD Staff costs £(4.4)m adverse YTD:
em Actual) — Bud yar Fest} Bud ya * £(3.2)m due to Retail driven by delays in branch conversions.
Wages & Salaries toil 104 03 637I 656 18 The gap is anticipated to continue throughout the financial
Overtime 03 03 0.0 23 20 (0.3) year and this is partially mitigated by reductions in agents
Contractors & Temporary Resource 04 01 (0.4) 26 03 (2.3) Pay.
Employers NI 13) 13 (0.0) 89) 81 (0.8) « — £(1.6)mis due to Supply Chain with budget task £(0.8)m not
poe IRE ae as e 7 aes ee is 2 achieved, adverse overtime costs £(0.3)m due to sick leave
Bonus & Productivity 08 12 ‘ 0 4 64 63 { 77 “ and £(0.3)m of incremental cost post Iris implementation.
Staff Costs Efficiency Target -I 9) (09) I @3) 3) Supply Chain staff costs on budget in P6 but some challenges
Staff Costs - Total 142) 13.6 (0.6) 91.2) 869 (4.4) remain.
Staff & Agency Related Costs 14 1.0 (0.1) 55 48 (07) + Non-staff costs
Consultancy & Advisory Services 09} 12 © ©«©02 18) 13 (05) P F F
Brand & Merketing "y 171 203 sol 107 ( + £2.7m saving of savings from delays in spend. Plans have
Legal Costs 04 04 0.0 22! 22 (0.1) been revised and the ytd savings are anticipated to crystallise
Property & Facilities Management 29] 36 07 20.5] 229 24 in the full year outturn.
Vehicles 02) 03 (0.4 19) 24 02. Benefits in property costs +£2.4m (leases and rebates) offset
Losses 09 07 = (0.3) 53) 40 (13) * Finance Costs +£0.6m favourable to budget with savings in
Other Operating Costs 58] 58 0.0 37.0I 36.3 (0.7) payment card fee processing (Retail).
Non staff Costs 22.7I 24.4 44 [1410/1440 3.0 , F
penrraiers aa aig 08 I 23221 2309 (1.4) Losses £(1.3)m adverse to budget driven by former agents.
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Capital and Investment spend continues to track less than
budget
P6 YTD
Var Var YTD Var Var
£m Act Bud PY Act Bud PY
EBITDAS (0.1) 0.7 1.1 4.4 27 17.6
Network Subsidy 5.4 - (0.8) 35.0 (0.0) (5.0)
EBITDA 5.3 0.7 0.3 39.4 2.7 12.6
Depreciation (4.2) - (4.1) (22.0) - (21.7)
Interest (0.5) 0.1 (0.4) (2.1) 1.4 (2.6)
Discontinued Operations - - - - - -
Impairment - - 6.6 - - 48.1
Change Spend (7.3) 4.1 16.8 (46.8) 4.9 25.7
Investment Funding 5.8 - 51.6 35.0 - (35.0)
Profit/(Loss) On Asset Sale 1.4 1.4 0.0 3.3 3.3 1.6
Profit/(Loss) Before Tax 0.6 6.4 72.1 6.9 12.3 28.7
. Capital & Investment (previously exceptional) expenditure is £7.3m in the month and continues to spend below
budget expectations.
. In period spend on capital assets was £8.4m, £51.1m YTD (cost would previously have been expensed prior to
the change in accounting treatment).
. Profit on Disposal relates to Henley Street (Stratford) £1.3m and Perth £0.1m
:)
10
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Project Spend is currently tracking £52m below budget
PG YTD Total Transformation Spent
Act} Bud Var Act} Bud Var
Bud Bud
IT & Digital 49] 114 64 I 26.8] 55.2 28.5
Network Development Programme 4.5 9.4 5.0 22.9] 29.7 6.8
DMB Network Development 1.1 1.3 0.2 18.3 8.2 (10.2)
FS &T 15] 3.3 18 8.5I 21.7 13.2
Back Office Transformation 14] 25 44 65, 88 2.3
Retail 0.8} 1.8 0.9 3.4 10.0 6.6
LEAN Centre 0.3 - (0.3) 3.2) 3.2 0.0 ;
Supply Chain (0.0)} O01 O24 2.4] 0.5 (4.9) . eee he
People and Engagement Transformation 0.2] 05 03 22I 3.1 1.0 Transformation Spend
Propert 0.3; 04 0.0 1.6] 1.5 (0.2 - . ae
poms 7 0.5] 0.5 (0.0) 14 20 ( o ) « Transformation spend continues to track significantly
Other Transformation 0.1} 03 0.2 0.6} 1.5 0.9 below budget both in month and ytd.
Corporate Services Transformation 0.0; 0.4 0.4 0.2; 1.0 0.8 « Delays occur against planned spend across the whole
Identity “} 0.2 0.2 “I 06 0.6 — project portfolio. The £(10.2)m ytd overspend in DMB
Duta & marketing - oe oo - be be Network Development relates to a £13.0m unbudgeted
Network Operations . . - I coo] 15 15 onerous lease provision following the announcement to
Central Adjustments (0.0) 0.0 I (0.0) 0.0 close 48 DMBs in PS.
Z i “8 + IT & Digital continues to see delays in the rollout of a
weer . *4 Oo “ ee ao as number of projects as issues with programs and
ae : : ’ : " suppliers are worked through. YTD spend is £29m
behind budget with an expected increase in activity
over the remainder of the year.
+ FS&T includes £6.1m ytd for the acquisition of New
Call v budget of £10.3m. Project Finch and Peregrine
delays drive additional budget underspend. (ny
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P6 balance sheet shows a net asset position of £196m
Balance Sheet
£m Sept 2017 Mar 2017 Variance
Fixed Assets 437 391 46
Debtors 291 339 (48)
Cash 819 680 139
Creditors (577) (582) 5
Pension surplus 1 1 ie)
Provisions (70) (88) 18
Other 8 8 0
Loan (714) (561) (153)
Net Assets/ (Liabilities) 196 188 8
Capital and Reserves I 196 188 8]
. The increase in the cash balance since the year end (see slide 13) is offset by the increase in loan balances.
. Debtors reduction is due to statutory audit reclassification adjustment of £27.0m posted in P12 numbers only
(credit card receivables moved from Cash to Debtors).
. Creditors is line with March 2017, however the balance includes £70m of additional government creditors
offset by a reduction, trade payables (£20m), agents and staff pay (£12m), client creditors (£16m), bonus
accrual (£12m)
. Reduction in provisions balance due to OSOP and agents compensation payments.
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Managed short-term reduction in facility headroom due to
NRF CAP requirements
(1) Where was our cash?
+ Total cash at P6 was £1,012m, £69m higher than year end
3
Cash.
fm Branches = GVIT_ centres Total and £33m higher than Budget.
P6 - Actuals 647 139 227 1,012
p12 - Actuals 647 138 158 943 * The higher cash position versus year end of £69m is due to
Variance vs P12 - Actuals (0) 1 69 69 higher cash centre inventories. This includes stocks of old £1
P6 - Budget 979 coins (£6m), Inward Rems increase (£13m), Irish notes in
Variance vs P6 - Budget 33 process of repatriation to Belfast (6m) and (£9m) of BoE
notes being sold to Clydesdale which were in-transit at period
@) ? end. The remaining increase in cash of c.£34m represents
i "Network. sub-optimal holdings and initiatives are in place to reduce
£ RCF Clients vr (NRE Total i
= a - fash” a these holdings as well as the level of Inward Rems.
P6 - Actuals 714 92 806 206 1,012
P12 - Actuals 561 127 68s 255 943 + Inward Rems were £84m in March 2017, rising to £144m in
Variance vs P12 - Actuals 153 (38) 118 (49) 69 P3. Initiatives to reduce rems have resulted in P6 closing
P6 - Budget 643 60 703 276 979 balance of £97m.
Variance vs P6 - Budget 7t 32 103 (70) 33
+ Headroom under the loan was £36m, £71m lower than Budget
(3) What was our facility headroom on the RCF? due to lower NRF usage (£70m) to ensure a positive net cap
position with the BoE at year end.
Board. Facility.
£m cap NetLimit RCE
Buffer Headroom . i
P6 - Actuals 950 (200) 750 (a) 36 Since year end Headroom has fallen £153m partly due to
P12 - Actuals 950 (2003 750 (561) 189 funding mix (£49m) and partly due to funding an increase in
P6 - Budget 950 (290) 750 (643) 107 Network Cash (£69m). The remaining reduction in Headroom
is driven by Capital and Investment spend of £85m partly
What was our security headroom on the RCF:
“ ? offset by government funding.
tm Network Other Net. Total ace Security
Cash Assets = Security. Headroom
P6 - Actuals 806 189 995 (714) 281
P12 - Actuals 688 210 898 (561) 337
P6 - Budget 703 172 875 (643) 232
(5) What was our actual headroom?
Given we do not apply £200m buffer to Security headroom our actual headroom is £36m.
(lower of £36m facility and £281m security headroom)
(13)
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Full Year Forecast
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Full year EBITDA held at £28m but a different shape of delivery
YiD BOY Forecast
Act Bud Var Fest Bud Var Fest Bud Var
Gross Income 463.3 456.0 73 485.0) 489.1 (4.1) 948.3) 945.0 3.2
Direct Costs (59.8)I (63.2) 3.4 I (60.4)I (63.0) 2.5 I (120.2)! (126.1) 59
Net Income 403.5 392.8 10.7 424.6) 426.1 (1.5) 828.1) 818.9 9.2
Agents Pay (183.5)I (177.5) (5.9) I (185.0)I I (182.9) (2.1) I (368.5)} (360.5) (8.0)
Staff Costs (91.2)] (86.8) (4.4) (91.1)/ (85.0) (6.2) I (182.3)) (171.8) (10.6)
Non-Staff Costs (141.0)I (144.0) 3.0 I (143.3)] (149.0) 5.7 I (284.3)I (293.0) 8.7
Expenditure (415.7)I (408.4) (7.3) I (419.4)I (416.9) (2.5) I (835.1)I (825.3) (9.8)
FRES - Share Of Profits 16.6 17.2 (0.6) 18.4) 17.2 12 35.0) 34.4 0.6
EBITDAS 44) 16 28 23.6I 26.4 (2.8) 28.0) 28.0 0.0
+ Revenue: Strong performance in H1 but challenges in the remainder of the year
* Retail: Current underlying volume trends held but non delivery of planned growth restrict H2 growth. Shortfalls in Digital
Check and Send (£5m) and Monetisation Project (£2m).
+ FS&T: Telecoms overperformance in balance of year offsets shortfalls from Project Peregrine and BOI profit share.
* Agents Pay higher sales via the agency network and delays to simplification benefits (£4m) offset in part by a reduction in
fixed pay.
* Staff Costs: continue to be adverse but gap closing on BAU costs. Project spend of £1.9m in balance of year.
* Non Staff Costs: strong focus on cost base to offset trading underperformance.
* Growth Fund: £9m has been included in the Growth Fund for the forecast (Budget: £10m).
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Overperformance in Retail £3.1m offsets challenges in other
areas
P5F Variances 3
2 3
°
&B
= 2 g § - FEF
s e s ° 8 9 — = 8
@ $8 8 ¢ § § & © £€ 8 8 8
Gross Income 14.2 (9.0) (1.8) (0.2) - - - - - - - 3.2
Direct Costs 1.8 5.9 (1.7) - - - - - - - : 5.9
Net Income 16.0 (3.1) (3.5) (0.2) - - - - - - - 9.2
Agents Pay (6.7) (1.3) - - - - - - - - - (8.0)
Staff Costs (8.0) 06 03 (42) (00) (06) (01) (01) 02 0.0 13 (10.6)
Non-Staff Costs 19 3.2 2.2 43 0.0 06 (0.1) (03) (06) (01) (24) 87
Expenditure (12.8) 2.5 2.5 0.2 (0.0) (0.0) (0.2) (0.4) (0.5) (0.0) (1.1) = (9.8)
FRES - 0.6 - - - - - - - - - 0.6
EBITDAS 3.1 0.0 (1.0) 0.0 (0.0) (0.0) (0.2) (0.4) (0.5) (0.0) (1.1) — (0.0)
Notes:
+ £0.5m overspend in HR as only 50% of the Apprenticeship Levy assumed to be recovered in 2017/18.
+ £0.4m in LRG due to Postmaster litigation costs - £2.4m v £2.0m budget assumption.
+ £1.1m overspend in Central due to unbudgeted LTIP costs.
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woday aou
Appendix
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YTD Gross Profit margin is on budget
P6 Var YTD Var :
Retail FS&T Other Total Retail FS&T Other Total Retail FS&T Other Total Retail FS&T Other Total g
Gross Income 38.9 32.2 1.2 72.3 1.7 (0.5) 0.1 1.3 257.5 1988 7.0 463.3 14.1 (6.8) (0.1) 73
Directly Attributable (2.5) (7.4) - (10.0) (0.1) (0.0) - (0.1) (15.4) (44.4) (0.0) (59.8) (0.3) 3.6 (0.0) 3.4
Supply Chain (2.0) (1.0) - (3.0) (0.0) (0.0) - (0.0) (12.9) (6.7) - (19.7) (0.8) (0.4) - (1.2)
DMB Costs (4.3) (1.3) - (5.6) (0.5) (0.2) - (0.7) (28.5) (8.3) - (36.8) (2.1) (0.6) - (27)
Agents Pay (22.1) (6.2) 0.0 (28.3) (1.2) (0.2) 0.0 (1.3) (146.1) (37.4) (0.0) (183.5) (7.9) 1.9 (0.0) (6.0)
Gross Profit 79 163 4.2 25.4 (0.0) (0.9) 0.1 (0.8) 545 102.0 7.0 163.5 2.9 (2.2) (0.1) 08
Gross Margin % 20% 51% 35% (1%) (2%) (2%) 21% 51% 35% (0%) 1% (0%)
° Gross profit margin is on budget YTD at 35%. In P6;
. Retail gross margin is slightly adverse to budget as revenue growth is in products which generate
additional agents pay costs.
. FS&T margin continues to track in line with budget
° Supply Chain costs adverse to budget due to non-delivery of staff efficiency task.
. Other income relates to Supply Chain and Gamma.
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POST OFFICE PAGE 1 OF 6
POST OFFICE BOARD STRATEGY PAPER
Finalising the Strategic Plan 2018-21
Author: Martin Edwards, Al Cameron, Natasha Wilson Meeting date: 31° October 2017
Executive Summary
Context
As part of the funding process we are required to submit a final draft of our 2018-21
Strategic Plan to UKGI in November.
Questions addressed in this report
1. What is the role of the Strategic Plan in the context of our wider funding
governance?
2. How have the numbers changes since the May draft of the Plan?
3. What is our proposed approach to setting STIP and LTIP targets?
4, What are the next steps for developing our detailed plans?
Conclusion
1. The purpose of the Strategic Plan is to set out the overall financial and strategic
outcomes we expect to deliver over the three years in return for the funding from
Government. We have agreed with UKGI that this can be a short, high level
document, providing the flexibility to evolve the detail as part of each annual
planning round. The proposed draft accompanies this paper.
2. The most material change to our numbers since the May version of the Plan arises
from the current status of the negotiations with Bank of Ireland, discussed with the
Board last month. While our negotiating mandate protects the Post Office’s long-
term value in financial services, it puts at risk around £25m of annual profit over
the next three years relative to our assumptions in May.
3. We believe we can mitigate over half of this risk, reducing the profit gap against
our May plans to £10m by 2020/21 and ensuring we remain on track to reach
commercial sustainability by the end of the period, with a run rate EBITDAS in the
region of £100m pa.
4. The numbers included in the final approved Strategic Plan will form the basis of the
STIP targets that will be presented to the Board in January. For LTIP we propose
moving to free cash flow as the primary measure, ensuring the business remains
focussed on both trading performance and efficient use of investment funding to
drive long-term value.
Input sought
The Board is asked to approve the proposed Strategic Plan for submission to the
shareholder in November.
Strictly Co
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The Report
What is the role of the Strategic Plan in the context of our wider funding
governance?
1. Under the terms of our new funding agreement for the period April 2018 to March
2021 we are required to submit a final Strategic Plan by 30" November.
2. We have consulted with UKGI in the preparation of this document and have agreed
with them that it can be shorter and more high level than the papers submitted in
May, given that: a) the UKGI team have already seen our detailed underpinning
analysis; and b) the Strategic Plan will be supplemented (and to some extent
superseded) by the annual plans we are required to submit prior to the start of
each financial year.
3. This approach ensures that while the Plan provides a clear statement of our overall
strategic intent and financial targets for the period, we have the flexibility to revisit
the detail each year in consultation with the shareholder, responding to new
circumstances and opportunities like any normal commercial business. There is no
hypothecation of funding to individual investment lines in the plan.
How have the numbers changed since the May draft of the Plan?
4. While we have the flexibility to review the details of the Strategic Plan each year,
given that we are required to explain and reconcile any changes clearly we should
ensure that the final draft submitted in November reflects our latest forecasts.
5. We have therefore undertaken a full review of the May projections, with the
updated Plan incorporating the following material changes:
i. Final funding outcome: the investment funding agreed with the
Government amounts to £210m over the period, which is £30m less than
the £240m net request included in our May draft Plan. This reduction
therefore necessitates a greater degree of capital rationing, particularly in
the early years, with the key changes outlined further below.
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POST OFFICE PAGE 3 OF 6
iii. Implementing the telco profit recovery plan: the May draft Plan
incorporated the estimated impact of Ofcom’s review of landline pricing
currently underway, which is expected to reduce the underlying profitability
of our telco business by around £10m pa from 2018/19. However, the
strategy review discussed at the June Board identified a range of levers to
offset this impact by managing the yield on the existing business and
broadening our reach to new customer segments, leveraging the planned
investment in our digital platform (the ‘Customer Hub’). While the delivery
of these initiatives is not without risk, we have now included their impact in
the revised plan, thereby offsetting around £10m pa of the impact of the Bol
negotiations.
iv. The flow through of the updated forecast for 2017/18: as set out in
the separate performance report, our ‘5+7’ re-forecast maintains the £28m
EBITDAS target for this year but with a different shape compared to the
original budget, with net income over £9m ahead (primarily driven by mails
and other Retail) but costs adverse by a similar amount. Just over half of
these income and cost impacts flow through into the subsequent years. We
have also increased the allowance for Sparrow costs to £5m pa from
2018/19.
vy. Updated approach to further DMB franchising: in May we assumed that
we would franchise a further 100 directly managed branches (DMBs) over
the period, taking the residual network down to 127 branches by 2021. In
our updated plan we are now assuming that we will take a more decisive
step towards a fully retailer-hosted network by converting 177 DMBs over
the period, replacing them with over 300 agent-run Mains and Locals. In
addition to the customer benefits of more locations, this increases the net
savings by £12m to £27m pa by 2022/23, with an average payback of 5
years. The benefits in the first two years are slightly lower (by c£3m pa),
based on our strategy of initially focussing on opening additional agency
branches around large DMBs, to de-risk both the commercial and customer
impacts of the programme. We will be presenting an updated DMB strategy
and implementation plan to the Board in January, which will seek to
accelerate benefits delivery wherever possible.
vi. ‘Project Panther’ (Payzone acquisition): in the June Retail strategy
paper we set out our initial assessment of the opportunity for acquiring
Payzone’s bill payments business, outlining how this would accelerate the
improvements we need to make to our network, branch technology and
retailer product range. Further due diligence of the opportunity is currently
underway, and we are working towards providing a recommendation to the
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POST OFFICE PAGE 4 OF 6
Board in November. Given that we will either need to pursue this or
alternative similar investments to deliver our Retail strategy, at this stage
we have added £15m to cover the potential acquisition costs together with
£3m of annual benefits from 2018/19.
vii. Investment cost reductions: given the reduced Government funding and
the additional initiatives that we have accommodated in our plans, we have
had to find savings elsewhere to protect our cash position, in particular:
e Across financial services, mails and identity our May draft Plan
included around £80m of investment over the next three years to
build our digital and data capabilities. The further work we have
conducted since then on alternative delivery models (outlined at the
June Board session on the ‘Customer Hub’) has suggested that we
could reduce this by around £15m, while still delivering the desired
customer outcomes.
e¢ Our network plans included £10m for the development of a full
retailer cash solution to go alongside EPOS delivery. As set out in the
June network strategy paper we no longer see this initiative as a near
term priority, and have therefore reallocated the funding to help fund
Project Panther or similar investments. We are also taking a more
gradual approach to the conversion of small Mains and Community
branches to Locals, which we believe is preferable in both commercial
and stakeholder terms.
viii. Reclassification of some network change costs: our May plan included
£14m pa of network maintenance and refurbishment costs classified as
capex and what was previously known as exceptionals. We now believe that
£5m of these costs should be reclassified to opex, reflecting the need for
ongoing activity to maintain our >11,500 network beyond the Network
Transformation programme that ends this year. This is obviously just an
accounting change - it has no impact on our cash flow position or progress
towards commercial sustainability, nor does it diminish the underlying
improvement in profitability that we will be required to drive moving into the
new funding period.
6. The net impact of all these changes results in a c£20m pa worsening in our
EBITDAS position over the next three years (excluding the impact of the
classification switch noted above). The position with the Bank of Ireland is the
largest contributing factor - without this the other changes in our Plan result in a
small net improvement in our projections.
7. We propose setting an additional challenge for the business to close around half of
this remaining gap against the May plan, resulting in the revised EBITDAS
projections set out in the chart below. We will work through the detail of how we
meet this challenge as part of the forthcoming budget round, but for example it
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POST OFFICE PAGE 5 OF 6
could include driving additional products through the Customer Hub, expanding the
scope of the Banking Framework, accelerating the delivery of the network and cost
programmes wherever possible or revisiting the levels of agents’ remuneration in
the later years of the plan (linked to further simplification of the retailer
proposition).
EBITDAS projections for the next funding period
8. These adjustments to our plan still leave us on a trajectory to deliver our core
objective of securing commercially sustainability by the end of 2020/21,
generating sufficient free cash flow to fund future re-investment in the business.
The programmes completed prior to March 2021 will leave us on a run rate to
achieve EBITDAS of over £100m pa by the following year, with the DMB
programmes alone delivering an additional £15m of incremental annual benefits
beyond 2020/21.
What is our proposed approach to setting STIP and LTIP targets?
9. Following the discussion at RemCo, we will revert with STIP proposals in January
built around EBITDAS and cash headroom with clear indications of key individual
targets around other areas including IT transformation and digitisation.
10.We are reverting to seek the Board’s approval on the structure for LTIP for the
schemes completing in 2018-19, 2019-20 and 2020-21. Again, following
discussions at RemCo our proposal is that we should have a gateway measure,
being that we will always meet the national access criteria of 90% of the
population being within 1 mile of a Post Office and 99% within 3 miles.
11.The primary measure of success over the period is recommended to be free cash
flow, defined as trading cash flow generated (essentially EBITDAS) less
government investment funding drawn down. This retains the focus on trading
Strictly
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POST OFFICE PAGE 6 OF 6
performance and incentivises us to minimise the use of investment funding and to
use it effectively for benefit in future years.
12.Free cash flow would be 100% of the LTIP target for the schemes completing in
2018-19 and 2019-20 and 70% of the target for 2020-21: the other measure for
the 2020-21 scheme would be commercial sustainability, achieved by there being
no request for future Government investment funding. Minimum and stretch
targets would be set at plus and minus 20% of the Plan numbers.
13.Subject to the Board’s approval of this approach, the next step would be to finalise
a submission to BEIS consistent with the targets set out elsewhere in this paper.
What are the next steps for developing our detailed plans?
14.Following approval of the overall Strategic Plan by the Board and UKGI, the focus
of the business will switch to developing the underpinning delivery plans and our
detailed budget for next year. The Group Executive will be reviewing the full
investment portfolio for 2018/19 in November, followed by the rest of the budget
in December prior to draft submission to the Board in January.
15.The table below provides a brief overview of the current shape of our investment
portfolio for the next three years, highlighting when the Board can expect to see
further detail on each area.
Investment I Benefits by When is it coming to
Al Cr it stati f initiati
oie 2018-24 em I 20/24émpaI oe the Board?
+ IT strategy reviewed Sept
rr investments 80-90 3 Strategy well advanced, now inI Everest decision in
delivery October
Simplification & white space in
delivery; new retaller propositions
Network development
Network development
- business case & Project
& simplification 405-120 24 & technology at design & testing Panther in November
stage
+ Strategy &
Approaching end of existing implementation pian for
DMBs ~85 12 programmes; developing strategy I semaining DMBs in
for remaining 227 branches January
Modernising our Most initiatives still at design + Identity strategy &
products & services 90-110 31 stage, although transitioning to Customer Hub in October
(FS, mails, identity & delivery of Customer Hub for + Mails & Banking
digital) spring 2018 launch Framework/ATMs in Nov
Further cost savings & operational
35-40 16 transformation currently at early
design phase
Digitising & optimising
the business
Updates in 2018
Strictl
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Strictly Private & Confidential
Post Office Strategic and
Financial Plan 2018-2021
October 2017
Post Office®
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Contents
the Post Office to commercial sustaina
ki Further detail on each area
‘@ Appendix: financial projections
Post Office® IN THE STRICTEST COMMERCIAL CONFIDENCE 4
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The business has delivered rapid progress since 2012, °
stabilising the network and delivering the first
operating profit for 15 years
FINANCIAL SUPPORT FROM THE GOVERNMENT FACILITATED BY SIGNIFICANT IMPROVEMENTS ee ee ee OR NUMEERS
ae CONTINUING TO MEET THE GOVERNMENT: Ss
HAS DECLINED STEADILY... I Co IN PROFITABILITY © I ACCESS CRITERIA. I
GOVERNMENT SUPPORT, EM EBITDAS PROFIT/LOSS, £M Total number of branches (at year end)
mNetwork Subsidy Payment # Investment funding
1
20,800
15,000
10,000 I
5,000
ViPS SOO a re
SEE Sees
PELL SH PPM AG MASAO
$0 :
2042/43 2013/14 20
945/16 2026/17 2017/18
In spite of a challenging operating environment, the success of the Post Office’s transformation programme to
_ date has enabled the business to deliver the strategic objectives set by the Government — maintaining a
_ network of over 11,500 branches, meeting the access criteria and reducing funding significantly over time.
Post Office® IN THE STRICTEST COMMERCIAL CONFIDENCE 2
However, the Post Office still faces major challenges °
that must be addressed to secure its long-term
sustainability
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Income is declining in our
core markets with more
work to do on costs
Our digital capabilities are
insufficient to meet
consumer expectations and
drive growth
We need to secure the right
retailers to host our
network
partnerships need to be
realigned
Our IT systems need
modernising to provide
greater stability, security
and flexibility
Our major commercial
+ Government services, payments and traditional mails products are all facing downward pressure
due to the continued shift to alternative channels and growing competition.
+ While we have reduced costs significantly since 2012, because of legacy operating systems across the
business we still have more work to do to reduce costs which otherwise drag on our profitability.
+ In the absence of further investment to complete the transformation we estimate that we will revert back
to an EBITDAS loss of nearly £30m by 2020/21, compounded by the fire sale of assets to generate cash.
+ Limited digital capabilities across our product range, with no single view of customer. We are at risk
of losing relevance to customers, with 60% of customers in our target segments saying they prefer to
access services online.
* This is particularly crucial for financial services and identity, but even in mails many customers want
to be able to start their journey online, accelerated by developments like the roll out of eBay’s online
shipping platform.
+ Retailers have more choice than ever for ancillary services which range from self-serve coffee machines
to parcel services.
- While retailers see the value of hosting a post office, for many this is offset by concerns around
the operational cost and complexity and the prospect of declining direct remuneration.
+ These issues are creating the potential for network instability, with 1,000-2,000 branches at risk
over the next few years if we don’t act.
+ We are approaching the sunset years of the current contract with Royal Mail, with an urgent need to
work more effectively together to respond to intensifying competitive pressures.
+ The current relationship with Bank of Ireland is no longer delivering decent growth prospects, due to
a combination of their balance sheet constraints and the wide ranging exclusivity which prevents us from
working with new suppliers better equipped to support our commercial plans.
» The core operating system used in the branch network (Horizon) was designed two decades ago ina
paper-based, non-networked world, and for a different purpose to the one we need today.
+ Both our branch and back office systems are at the end of their life, leaving us unsupported by suppliers or
exposed to unacceptable cost demands and operational risks. We have suffered several significant service
outages in recent months, and these incidents will continue if we do not invest.
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sme Where we are today
detail on each area
‘@ Appendix: financial projections
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We have identified five strategic priorities to address
these challenges and complete the transformation
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STRATEGIC
PRIORITY
Simplify the
retailer
proposition
Build innovative,
flexible and
secure IT
Modernise our
products and
services
Digitise and
optimise the
business
Modernise our
skills, culture, HR
policies and
processes
KEY INITIATIVES 2018/19 - 2020/21
Simplification of product transactions and branch operations
Network expansion in urban areas to meet customer demand
Further franchising of DMBs* (177 assumed in Plan)
Roll out of self service kiosks for agency branches, development of
more flexible POS solutions (via HNGT) and the creation of an
“agent hub’ to digitise and simplify services to postmasters
Replace end-of-life branch hardware and invest in improving
security and addressing recurring outages and system failures
Transition Horizon to cloud based architecture with increased
business flexibility via development of ‘thin client’
Restructure IT operating model to take back control of core
functions at lower operating cost
Creation of integrated digital platform (the ‘Customer Hub’) to
drive growth across financial services and our wider product range
Development of multi-channel mails services to deliver improved
convenience for both SMEs and consumers
Investment in capabilities to lead the market in digital identity
Further expansion of the Banking Framework
We will deliver a further 20% reduction in central staff costs by
streamlining and automating key processes across the
organisation and digitising our services to agents
Supported by transformation and replacement of back office
systems to deliver improves processes and the MI our people
need to run the business
Modernise and simplify our HR processes, policies and systems to
increase productivity while maintaining our values
Develop leaders who drive the culture which make the Post Office
a great place to work while delivering results
Attract, develop & retain the new skills required to grow business
Develop leaders who model our values and the culture
INVESTMENT
2018-2020 (£m)
£170 To
£210M
£80M To
£90mM
£90M To
£110M
£30m To
£35M
~£5M
BENEFITS & OUTCOMES
~£36m pa benefits by 2020/21
Increased retailer demand for post offices,
strengthening our ability to attract and retain
the best agents (at lower remuneration).
A better network for customers, with more
locations in areas of high demand.
~£23m pa benefits by 2020/21
Operational risk profile shifted to within
acceptable parameters.
Flexible IT architecture to enable better services
for customers, agents and staff
w£31im pa benefits by 2020/21
10% of revenue base from new products &
propositions, stabilising overall top line
Digital innovation used to improve every
possible product transaction
~£16m pa benefits by 2020/21
Our people are able to focus more of their time
on serving customers and adding strategic
value — not doing processes that are better
performed by machines.
Underpins delivery of the above benefits
Culture and talent in place to deliver the next
stage of the Post Office’s transformation
Improved staff engagement levels
50% of senior roles filled by internal candidates
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Delivering on these strategic priorities will secure the
commercial sustainability of the Post Office
Post OFFICE WILL BE ON A RUN RATE TO COMMERCIAL SUSTAINABILITY BY THE END OF THIS FUNDING PERIOD
FUNDING (NSP & INVESTMENT) AND EBITDAS Forecast (£ MILLION) + The plan puts the Post Office on a
trajectory to reach commercial
wom NSP Investment funding -@-EBITDAS forecast sustainability by the end of the funding
period, defined in terms of generating
150 450 the sustainable profits and free cash
flows needed to fund future re-
investment in the business.
New funding period:
+ As the next section sets out, the
100 majority of this profit improvement
350 4
comes from cost reductions across the
business.
300 * Overall revenue performance is
50 expected to remain broadly stable over
250 the period, but this masks a substantial
(c10%) shift in the revenue base from
200 legacy products to new propositions
0 that ensure our continued relevance to
customers.
150 + Total investment costs over the period
amount to around £445m (including
50 100 both the initiatives listed on the
. previous slide and maintenance capex).
50 Over half of this is funded from our
” own trading profits (post NSP), with
remainder coming from the £210m
-100 oO investment funding from Government.
2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21
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Contents &®
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sme Where we are today
yam Our plan to drive the Post Office to commercial sustainability
‘@ Appendix: financial projections
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The plan delivers growth in our overall revenue
position in spite of challenging markets
Torta Gross INcomeE (ExcLuDING FRES)*
Supply Chain & Other = Mails
Retail & Lottery Payments
Govt & ID “PO Money . oe
Banking & Postal Orders Telephony CAGR: Our strategy is centred around maintaining the
POMS (2017/18 - 2020/21) delivery of the SGEI services and delivering four
priority market ambitions:
Gross g948m £941m £947m £956m TOTAL: <> . .
INCOME: 1. To remain number one in letter and
1000 parcels.
49 59 70 80 POMS +1 8% I .
2. To build our position as a major challenger
soo #50 160 456 160. Telephony b 32% J brand in financial services and telecoms.
Banking & r+ 2% 3. To be the UK’s main provider of cash
Postal Orders services and remain #1 in travel money.
600 .
PoM F 40% we . .
eney cu 4. To lead the market for digital identity
Gov't &identity GEE services.
400 Payments 74% - .
Retail & Lottery ~0.5% The next two slides set out further details on the
key drivers and initiatives in each area.
200 Mails r -1% 9
0 “a
2017/18 2018/19 2019/20 2020/21
Post Office® *The numbers above do not include an £11m p/a EBITDAS challenge 8
Key income drivers, initiatives & investments (1)
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KEY INITIATIVES KEY DRIVERS
RISKS
MAILS
Traditional mails volumes declining by 2-
3% pa due to increased digitisation and
competition. Our plan seeks to offset this
by tapping into faster growing segments
of the parcels market as set out below.
Overall income also held up by RPI linked
fee mechanism with RMG.
Up to £40m invested to strengthen our
network coverage and multi-channel
capabilities, including through:
Drop & Go: growing the SME user base
and improving the online service with
additional features like loyalty discounts.
Click & Collect: improving the customer
journey for parcels collections and
potentially extending to other carriers and
platforms.
Significant uncertainty associated with
both the pace of market developments
(e.g. shift to eBay shipping platform) and
the outcome of negotiations with RMG -
impact of these events could worsen
mails income by £10-30m pa by 2020/21.
IDENTITY & GOVERNMENT
SERVICES
+ Legacy services in
continued decline, with net
income from POCA, DVLA,
UKVI & passports declining
from £62m to £33m. Plan
partly offsets this with
growth in digital identity.
» Launch of Digital Check
& Send for passports:
improving the customer
journey and supporting
HMPO’s aim to remove
paper. Delivers c£12m
income by 2020/21.
+ Identity services: building
the UK’s digital identity
market to improve security
& convenience for
customers and reduce costs
for clients. Underpinned by
c£20m investment in digital
platform and in-branch
technology.
+ Up to £15m pa profit at risk
by 20/21 if identity market
does not evolve as planed.
+ Potential for additional
regulatory costs of £5-10m
pa on POCA.
BANKING SERVICES
Continued bank branch
closures (nearly 500 in
2017 alone) and increased
awareness of Banking
Framework driving growth
of c5% pa.
Further enhancements to
the Banking Framework:
ongoing programme of
product innovation, such as
quicker deposit processes
for business customers.
Discussions underway
with major banks around
further extensions to the
I IRRELEVANT
New framework agreement
needs to be negotiated with
the banks before the end of
the plan period, presenting
both risks & opportunities.
Banking Framework to
PAYMENTS
Traditional bill payments
market declining by >5%
pa due to shift to
alternative channels,
although our strategy seeks
to drive outperformance vs
the market.
Targeting large clients
directly and enabling the
technical capability
required to leverage
growing segments such as
pre-pay smart metering and
transport ticketing.
Project Panther currently
being assessed — seeks to
accelerate improvements to
our network, retailer
technology & product range
(£10-15m investment).
ATMs: new contract
required during Plan period
- options under review.
Bill payments income and
volumes subject to
significant binary risk
associated with winning
large client contracts
against intense competition.
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9
Key income drivers, initiatives & investments (2)
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KEY INITIATIVES KEY DRIVERS
RISKS
PO MONEY
Bank of Ireland balance sheet constraints and
alignment of incentives are the major factors
influencing outlook for PO Money product range -
currently assuming £7m income drop from savings.
Offset by investment in own capabilities (see below).
Plan assumes we maintain our c25% share of a
broadly flat travel money market.
Negotiations with Bank of Ireland ongoing, with
aim to recalibrate FRES value share, establish greater
product sourcing flexibility and align sales incentives.
Outcome currently uncertain (see Sept 2017 Board
paper for further detail).
Building the digital platform (‘Customer Hub’)
required to support our future growth in financial
services and other B2C product lines, delivering an
integrated proposition to customers to meet their
needs. Requires investment of c£30m over the period.
Developing the product and proposition roadmap
to put through the new platform, starting with those
which are already within our control like travel,
identity & insurance. Intention to launch retail
investment products in 2019.
Inevitable uncertainty around our ability to gain
traction in new product areas like investments
(forecast to generate £8m pa revenue by 20/21).
As indicated above, relationship with Bank of Ireland
is the key swing factor over the plan period, with both
risks and opportunities against our baseline forecast.
POMS strategy review underway, reporting
POMS
Against the backdrop of a competitive
market, POMS plan seeks to deliver
c£20m profit increase by 2020/21, by
building on the investments to date to
increase control of the value chain and
improve distributional capabilities.
to POMS Board in Nov 2017 - assessing
range of options for dri
Deepening capabilities in pricing
management, digital sales and
analytics, leveraging the investment in
the wider Customer Hub.
Potential acquisition opportunities to
broaden distribution reach and move into
MGA / underwriting capabilities.
POMS plan is predicated on ambitious
profit growth ~ a combination of external
factors (regulation, Competition,
IRRELEVANT I
macroeconomics) and internal capability
dependencies could put some of this
£20m growth at risk.
TELECOMS
Fixed line net income -
traditionally the mainstay of the
PO telco business - is set to
decline, not least from impact of
Ofcom interventions. Our plan
seeks to offset this through growth
in new products & customers.
Improving the efficiency of the
current operations, driving
higher yield from more efficient
targeting of existing customers,
channels and pricing propositions.
Broadening the customer reach
to appeal to new customer
segments, leveraging the
investment in the Customer Hub.
Expanding the product portfolio
to capture greater revenue and
increase retention rates —
potentially including TV, energy
and mobile.
Precise impact of Ofcom review of
landline pricing currently unknown-
could add £5-10m pa risk.
Broadband market remains subject
to intense price-led competition.
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10
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The plan delivers substantial further cost reductions to
drive sustainable profit improvements
TOTAL OPERATING EXPENDITURE* AGENTS Pay: ASSUMPTIONS & INITIATIVES
+ Agents’ pay declines from £369m in 17/18 to £358m in 20/21.
+ Declines are primarily driven by: a) network development and simplification
» Cost of Sal A its P:
ost of sale gents Pay savings; and b) the changing product mix, with a shift towards digital
‘hannels.
Staff Cost Non Staff Cost : c
mStalt Cos! lon Staff Cos: CAGRE + From 2019/20 this is offset by the impact of the DMB strategy, as more
branches are converted into agency branches (increasing agents’ pay but by
Torat less than the savings in staff costs).
£956m £947m £933m £917m TOTAL:
cosTs:
1000 STAFF COSTS: ASSUMPTIONS & INITIATIVES.
900 + Staff costs decline from £183m in 17/18 to £152m in 20/21. This is
driven primarily by further DMB franchising and savings in operations and
Finsbury Dials staff costs.
+ Marginally offset by increase in staff costs associated with our growth
strategies in financial services, mails and identity, in addition to the delivery of
the new IT operating model.
a 266 282 270 Non-
Staff:
600
: 52 Staff: Non-sTarF Costs: ASSUMPTIONS & INITIATIVES
500
° + Non staff costs decline from £284m in 2017/18 to £270m in 2020/21,
400 primarily driven by the IT and DMB initiatives. Significant supplier
dependencies and risks associated with the IT savings (forecast at £23m pa by
2020/21).
+ Savings partially offset by capability builds required to deliver PO Money,
POMS, identity, mails and telco initiatives over the period.
Agents
Pay:
300-369 352 350 358
Cost of
Sale: Cost oF SALES: ASSUMPTIONS & INITIATIVES
* Changing product mix for telco results in CoS rising from £82m in 17/18 to
17/18 18/19 19/20 20/21 £101m in 20/21, partially offset by £5m decline in POCA CoS.
Post Office® *The numbers above do not include an £11m p/a EBITDAS challenge 1
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We will simplify the retailer offer to deliver a network °
that meets the changing needs of customers and
communities
THE NETWORK WILL GROW OVER THE LIFE OF THE Network INITIATIVES & INVESTMENTS
PLAN
Outreach 1. A more efficient agent network:
ts Communit + Transaction simplification of Customer Referrals and the vast majority of our Mails
vee Y products and services
Traditional
w Locals & N del + Operating simplification of ATM and Branch Balancing, will save each branch
ocals ew models between 1 hour and 3 hours 20 minutes of office admin per month (depending on
Mains whether the Branch has a self-filled ATM).
m Directly Managed + Cash Management: enhancing cash declaration controls in order to reduce cash
requirements across the Network
11,527 ~11,800 + Automation: extending self-service kiosks to agents to reduce their operating costs
50 to and improve customer convenience.
ee yy -"T00 + Strengthening the product range for retailers to generate the profitable footfall
2800 which sustains their businesses.
3300 2. Changing the shape of the network:
+ Shift away from directly managed branches to retailer hosted branches,
providing a more sustainable, cost effective and convenient service to meet customer
demand across more city centre locations.
+ Replace smaller Mains with Locals when they close or change ownership,
delivering an EBITDAS benefit of ~£6.5k per branch
50 + Manage down the Traditional and Community branches that do not have viable retail
0 offering, whilst opening new Post Offices in vibrant retail hubs where customers shop
3. Generating network headroom:
+ Retailer demand for Post Offices - and resulting headroom - is essential to enable the
change in shape of the network and sustain a nationwide network of around 12,000:
2018 2021 © Urban symbol group & multiple convenience stores in under-served towns and cities.
© Inner urban retailers to improve capacity & reduce demand in DMBs.
o Rural symbol group convenience stores.
o Rural viable independent and community-run shops which do not have a post office
1400 1400
We will continue to meet the network
access criteria set by Government
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Income Statement
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Income Statement
Total income 948 941 947 956
FRES profit share 35 35 35 35
Gross Income 983 976 982 991
Total Cost of Sales ~120 -131 -133 -137
Net income 863 845 849 853
Total Staff Costs -183 -178 -168 -152
Total Non Staff Costs -652 -638 -632 -629
Total expenditure -835 -816 -800 -780
EBITDAS Challenge i) 41 12 412
EDITDAS 28 40 60 85
PBIT BEFORE EXCEPTIONAL ITEMS 25 39 59 85
Network payment 70 60 50 50
Non-NSP funding 70 189 21 is)
investments -282 -187 -146 -112
Net interest (payable}/receivable -9 -11 -14 -18
Profit (Loss) on disposal of fixed assets 3
PROFIT/({LOSS) BEFORE TAX -123 89 -30 4
PROFIT/({LOSS} -123 89 -30 4
™ NB This slide is based on full impairment of capex — we are currently updating the income statement and the balance sheet to align with new accounting 4
approach in our 2016/17 accounts and will update this slide accordingly.
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Cash Flow Statement
Cashflow from Operations - TOTAL 25 39 59 85
Changes in Balance Sheet:
(increase) / Decrease in Business debtors (including Trade, accrued income) 33 10 0 0
(increase) / Decrease in Client debtors -20 -1 i} i)
(Increase) / Decrease in FRES accrued income oO oO ie} 0
(increase) / Decrease in Cash and Cash equivalents -68 0 0 0
(increase) / Decrease in inventory, pension surplus, PP&E oO oO 0 0
(Decrease) / Increase in Business creditors -2 -37 i?) 0
(Decrease) / increase in Client creditors 17 6 0 0
(Decrease) / increase in Provisions -44 -25 7 7
Changes in Balance Sheet - TOTAL -83 59 7 7
Cashflow from investing
Network payment 70 60 50 50
Non-NSP funding 70 189 21 0
investments -282 ~187 -146 -112
Profit/loss on disposal 3
Cashflow from investing - TOTAL -139 62 -75 -62
Cashflow from Financing activities
interest payable (Govt Facility) 9 “411 -14 -18
Tax losses receipt FRES oO oO 0 0
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Balance Sheet
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Balance Sheet
Total Non-current assets
Current assets
inventories
Total Trade and other receivables
Network cash
Non-Network cash
Total Cash and Cash equivalents
Total Current assets
Total Assets
Business creditors
Client creditors
Total trade and other payables
Provisions
External loans {Govt)
External loans {Commercial}
Total liabilities
120 120 120 120
8 8 8 8
312 303 303 303
734 734 734 734
i4 i4 i4 i4
748 748 748 748
1068 1059 1059 1059
1188 1179 1179 1179
-285 -248 -248 -248
~313 -307 -307 -307
-598 -555 -555 -555
AB -21 -14 7
-767 -736 “774 -776
ie) i?) 0 0
-1410 -1312 -1342 -1333
Equity
Share capital
Share premium
Retained earnings
in-year profit/loss
Other reserves
-465
690
Post Office®
IN THE STRICTEST COMMERCIAL CONFIDENCE
16
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Counterfactual analysis: °
Without further investment we face declining
profitability and network instability
EBITDAS AND NETWORK NUMBERS WITHOUT FURTHER INVESTMENT
FUNDING
100 name EBITDAS £m + Without investment to tackle the challenges
14,900 identified on slide 3 our income will drop more
~- « Network size (indicative) ‘ rapidly than we are able to reduce costs,
80 leading to an inevitable return to loss making
11,700 and growing subsidy requirements.
+ Furthermore, given that we are faced with a
number of non-discretionary, essential
investments (for example around IT security
and stability) we would have to sell assets (such
as our Telecoms business) to fund these
essential IT upgrades.
60
40
14,300
+ These forced disposals and sales would reduce
11,100 our profitability further, which would create a
downward spiral that would threaten our
continued commercial viability.
20
13
10,900
« Asa result of this downward spiral, network
numbers would start falling, perhaps ending
10,700 1,000 below today’s levels, as we fail to win
new business and strengthen our offer to
retailers.
-20
-40 10,500
2016/17 2017/18 2018/19 2019/20 2020/21
Post Office® IN THE STRICTEST COMMERCIAL CONFIDENCE 17
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FS&T CE Report —- October 2017
Author: Nick Kennett Meeting date: October 2017
Executive Summary
Context
Financial Services & Telecoms (FS&T) comprises Post Office’s “direct to customer”
products and the banking framework. This report provides an update to the Board on
performance and the key market and other challenges and opportunities.
Questions this paper addresses
1. How are our sales and revenues performing against targets?
2. What is the forecast financial outturn for the full year?
3. What are the risks to the delivery of the short and medium term plan?
4. How is the competitive environment evolving?
Executive summary
+ At Period 6, FS&T is slightly behind budget (£4.5m, 2.5%) mainly as a result of lower
MoneyGram transactions, poor mortgage/credit card sales and delays in completing
the New Call acquisition; Banking Framework transactions are well ahead of plan.
+ A full year reforecast, based on P5 data, puts FS&T back on track to meet full year
targets, representing a 7.7% year-on-year increase in income and 14.4% in
contribution; P6 performance is slightly ahead of the delivery run rate.
+ POMS is experiencing headwinds in car and home insurance markets, and lower
travel insurance sales, particularly in the Network; full year profit is forecast to be
c£1m adverse.
+ The competitive, customer and regulatory environments remain very competitive,
while the impact of Brexit and weak Sterling are hitting MoneyGram transactions.
+ The key risks are trading in MoneyGram and insurance; regulator actions; risks from
rejecting the Bol proposal.
+ Following the September Board we rejected the Bol proposal; reaction has been
muted and we continue BAU initiatives to optimise medium term value and flexibility.
+ The New Call acquisition has completed with customers successfully integrated to
the Post Office.
Conclusion
The portfolio of FS&T products and services continue to grow and deliver value to Post
Office; while we forecast meeting plan and slightly adverse for POMS there are a number
of risks that we will continue to manage.
Input Sought
The Board is requested to review and note the report.
Strictly C
al PSST Quar
October 2017
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The Report
Overview of financial performance
1. At the half year FS&T financial performance is slightly behind budget, with gross
income £4.5m and profit £0.9m adverse to Plan.
2. The key performance highlights are strong growth in Banking Services and Travel
Money Card sales, offset by continued poor performance in MoneyGram (as a result
of lower migrant numbers and falls in Sterling) and weak sales in Bol products.
3. The delay in closing the New Call/Fuel telephony acquisition has impacted income
by £6.2m but profit by only £0.6m due to lower variable costs. With the acquisition
having completed and trading to plan the variance will not reoccur.
Gross Income (£m)
6 YTD 4
Actual Budget Var YoY Fest Budget Var PY YoY
Mortgages 14-21 (0.7) (16.5)% 20 36 (16) 2.7 (24,7)%
Credit Cards and lending 16 (0.6) (33.6)% 173.7 (20) 3.0 (42.6)%
Savings 20.2 (0.0) (8.5)% 472 478 (0.6) 54.7 (13.7)%
Travel Money 4.8% 278 WA O04 223 18%
Post Office Money 107.4 1143" (6.9) 117.4 (8.5)%
Banking Services 35.9% 86.4 83.0 3.4 67.4 28.2%
Telecoms 14.2% 149.4 149.4 (0.0) 129.9 15.0%
Postal Orders (22.7)% 146 16.2 «= (16) 17.5 (16.6)%
Other income (4.0), (2.5)%
“Budget Var
Post Office Money 47.1 100.2 (6.4)
Banking Services 309 41
Telecoms 320, «Sa
Postal Orders 16.2 (1.6)
Other income 5.2 (4.0)
Variable agents’ pay
FST DPC
‘Fixed agents’ pay
Marketing and digital
FST Programme costs
(10.4)
(5.7) (6.4)
(2.0)
.
Actual Budget Var Fest Budget
POMS Company EBITDA 35 42 {0.7) 71 73
Plus Commissions to POL 6.5 TA {0. 9) 13.2 14.0
POMS (Group contribution) I “100 116 (1.6) I
ential PSST Quart
October 2017
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4. Based on data as at P5 we completed a detailed re-forecast to the year-end, taking
account of performance to date, initiatives and emerging factors. As set out above,
this concludes that FS&T (excluding POMS) will achieve the full year budget.
5. By year-end gross income will be £9.2m behind plan at £359m, an increase of
£25.6m or 7.7% year-on-year. The core assumptions are that:
. Mortgages, credit cards, postal orders and MoneyGram will continue at
broadly current run-rates, with some limited upside from new initiatives; we
expect not to receive any profit share from credit cards (budget £0.9m); and
we have assumed that the savings value share will not achieve the final one
basis-point reduction as the market yield curve rises (£0.6m).
. The £3.0m anticipated from Peregrine will not materialise and agent’s pay
increases by £1.9m, as a result of higher banking transactions and incorrect
budgeting.
¢ These under-performances will be countered by continued growth in banking
services, supported by an in-branch marketing campaign and the benefit of
Lloyds Business Banking joining in the autumn. Telecoms income will also
recover with the full impact of New Call, higher customer numbers and the
benefit of various yield initiatives.
. Ofcom has delayed the implementation of end-market pricing changes to the
telecoms fixed-line market to beyond 2017/18.
6. While FS&T profit is £0.9m adverse to budget, we are targeting to achieve the full
year budget, a £1.8m swing, based on:
° Further positive growth in banking services (£1.3m); FRES budget phasing
(£1.1m); updates to reflect the opex/capex split of planned projects (£1.2m);
and FS&T central costs (£1.9m), reflecting slower Mortgage Specialist
headcount and strict control of overheads.
. The key risks in the short/medium term are:
- Trading performance in MoneyGram and insurance;
- The potential impact of new regulations in travel money, insurance
and telecoms;
- The risks from the rejection of the Bol proposal (particularly on the
realignment of profit share in Travel Money/FRES; and
- Delays to the deployment of the Customer Hub.
Post Office Money
Markets
7.
The Savings market remains flat as a result of the extended period of very low
interest rates, pressurising margins; however rising yield curves ahead of a
potential base rate increase in November and competitive pressures are driving a
number of smaller banks to offer high pricing, particularly in fixed rate products.
With house prices inflation flat (and in some markets declining), mortgage activity
has been modest in 2017, with the mix shifting from buy-to-let and cash buyers
to first-time buyers. Mortgage competition remains very high.
October 2017
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Performance
9. Travel Money is performing to plan, mainly driven by the strong performance of
10.
11.
12.
Travel Money Card - our Multi-currency Travel Money Card recently won Best
Customer Loaded Programme at the prestigious Emerging Payments Awards.
. Branch sales are showing positive signs of improvement and are beginning to
re-align with last year.
. Travel Money Online is very sensitive to currency rates and underperformed
over the peak season as Sterling fell against the Euro. While trading has
improved, it is unlikely to meet the annual target.
Savings income is based on hitting a balance sheet and Net Interest Margin (NIM)
target. We are forecasting to meet the balance sheet target, but not the final one
basis-point reduction in NIM as the yield curve rises. A back-book re-price has
been implemented improving NIM, but has not yet had a significant impact.
Mortgages applications and completions are both ahead YOY, albeit behind income
target, with completions up 54%. A new product range went live in September
improving our competitive position. A mortgage awareness week in branch (in key
locations supported by Mortgage Specialists) drove a doubling in weekly leads (654
to 1,417), providing a strong pipeline. We are strengthening the First Time Buyer
offer in October.
Cards & Lending: Approval rates, applications and sales are all increasing; whilst
we are behind plan, momentum is building due to a number of initiatives and
customer journey improvements. These include using the information from the
Fast Checker tool to pre-populate the credit card application; this places us
amongst the leading players and reduces the number of customer entries in the
application by over 40% from 29 down to 16 fields.
Developments
13.
14,
Following the September Board meeting, we rejected Bol’s proposal; reaction to
date has been muted and we continue BAU initiatives. In the absence of agreement
on a contract extension, we are now discussing options to secure a new value
share arrangement to protect our savings book and associated income stream and
maintain the launch of the new mortgage propositions in 2018. We are aiming to
conclude these short-term negotiations by November while we continue to
examine options on the future management of FRES.
Following the presentation and demonstration of the Customer Hub at the Board
strategy away-day, the customer proposition, deployment plan and business case
are being finalised for GE support. The initial minimal viable proposition will focus
on travel including integrating with POMS and FRES and is targeting to be in market
ahead of the summer 2018 holiday season.
MoneyGram
15.
16.
MoneyGram transactions are behind last year and tracking well behind plan,
creating a £2.1m income shortfall versus budget YTD and a forecast of £3.0m
adverse for the full year (down 3.6% YoY). As requested, we have set out more
detail on the reasons for this decline and the outlook.
The Brexit vote and the fall in Sterling have impacted the remittance market, with
migration levels into the UK substantially down; this combined with the fall in
Sterling is significantly impacting all UK money transmission providers.
October 2017
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17.
18.
19.
20.
This has been further exacerbated by the introduction in June of tighter AML
identity requirements by HMRC for transactions over £800. This has required Post
Office customers to provide full identification through an on-line or app process
before the transaction can be completed; while the AML requirements should have
been implemented by all market participants, we are concerned that many smaller
businesses are not yet following the new rules.
The changes have impacted our trading volumes, with transactions over £800
falling c.56% after the new threshold was introduced and Suspicious Activity
Reports down by 50%, suggesting AML processes are having a positive impact on
stopping potentially fraudulent transactions. Transactions over the threshold have
recently stabilised and now seem to be improving as customers become familiar
with the ID upload process.
Looking forward, although the AML impact is easing, the current volume trend is
expected to continue. In mitigation we have a number of actions:
e Site Visits - 50 completed; additional signage orders taken from 44 branches.
e Customer Strategy - Following a review, the messages we regularly send to
customers will be updated.
* Sales Team - New sales team structure under review. 17 DMB locations in the
London area have been put forward for Team Support.
e Cross Marketing - The Post Office brand continues to be promoted in Romania
and Bulgaria. Further corridors are being investigated with MoneyGram.
e New cash to account corridors are being introduced into key corridors, such as
Romania, Lithuania, Bulgaria, Dominican Republic & Zimbabwe.
e More broadly, we are reviewing the wider remittance market, including
changing consumer needs, market convergence and digitisation.
We are also following up with HMRC to encourage a consistent enforcement across
the market.
Telecoms
21.
22.
23.
24,
25.
The broadband market continues aggressive price-led competition, with some
significant pricing floors being broken on both standard broadband (ADSL) and
fibre broadband. BT has responded with the re-launch of a data usage capped
product to achieve a price of £24.99pm for fibre.
We are currently promoting an aggressive offer on ADSL at £19pm, which is
starting to deliver sales (particularly online), supported by marketing.
Customer migration from New Call/Fuel to Post Office has successfully completed.
Churn for the transferring customers has been above forecast (~2k), but the
financial impact of this has been offset by lower than forecasted uptake of the
welcome offer (40% vs 100%) and NPV remains in line with the business case.
The business is in a strong position and is forecast to over achieve budget with
16% year-on-year income growth, of which c10% is organic. However, trading
continues to be challenging and gross customer additions are below budget,
especially in agency branches.
Ofcom have informally communicated a delay to the proposed reductions to
market pricing for landline services to at least April 2018.
jal PSST Quar October 2017
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Banking Services
26.
27.
28.
29.
30.
Banking Framework transactions are performing ahead of budget and this trend is
expected to continue, with Lloyds Business Bank joining shortly. In addition,
following successful trials in Belfast, 7,000 branches are receiving local, directed
and ‘punchy’ campaign material, to run to early November.
The growth has in, in part, been driven by bank branch closure; c750 will close in
2017 and the trend rate is expected to continue through 2018. The apparent
strategy for banks is to become ‘cashless’, with remaining branches focusing only
on value-added sales and service activities.
Post Office has an opportunity to capitalise on that process to become “The cash
provider for UK Banking”. We are assessing the opportunity and potential impact:
e We are working with Lloyds Bank to understand their entire cash delivery
service and transaction profile to assess how we could accommodate their
volumes to be Lloyds’ national cash provider.
New products have been launched or are in development (Change Giving Lite,
Business Cheque Encashment and Deferred Checking) which will further enhance
trading. Change giving has been offered informally by Postmasters; the new model
will charge for the service and remunerate PM’s accordingly.
To improve the customer and branch experience, Santander ‘paper’ transactions
have been replaced with automated alternatives. This is expected to increase
service speed and customer satisfaction.
POMS
31.
32.
33.
Strong competition continues across the core insurance products. Following
changes in the FCA’s renewal rules we are seeing a significant increase in
customers using price comparison websites for annually renewable products.
e Volumes are below budget for travel insurance (particularly network sales -
down 18% YoY) and from regulatory changes impacting car and home policies.
Despite these POMS continues to grow, with revenues up year-on-year by 4%.
¢ Asa result of the weak travel sales and the removal of an unallocated income
stretch of £2.6m which will not be delivered, POMS is forecasting to deliver
Group EBITDA of £20.2m for 2017/18; this is £1.0m adverse to Plan.
POMS is working with Group to identify investable opportunities to accelerate
growth while recognising that investment will often impact short-term profitability.
POMS has received a challenge from the FCA as to whether communication to
certain travel insurance customers ahead of policy expiry meets new rules. POMS
ARC has discussed the matter and POMS’ Director of Risk is working with the FCA
to agree remediation actions.
Customers & Digital
34.
35.
Although still 9% behind the revenue target YTD, we have seen some positive
trends in recent weeks with the implementation of mortgage and loan action plans
jointly developed with Bol.
Natural search rankings have dropped for some products following changes to
Google algorithms and we are making changes to our site to remediate. Activity
to improve our Telecoms and Travel Money Online customer journeys has driven
performance improvements.
October 2017
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36.
37.
38.
39.
The positive trend in the FS Net Promoter Score has continued and is on target at
+25, with an ambition to exceed the full year target.
e A key driver of the improvement has been to reduce the number of days a
savings account is frozen after a customer makes a change to their personal
or banking details from five days to one.
Recently Telecoms complaints have been at record low levels, driven by various
customer satisfaction initiatives. However, in August complaint volumes rose,
principally from New Call/Fuel customer migrations.
Ofcom published its quarterly industry complaint report on 27" September, which
showed an improvement in the volume of fixed line complaints from Post Office
customers, falling from 21 complaints/100k customers to 17/100k. However, the
report has shown that the overall industry improved at a faster rate, leaving Post
Office at the top of the list’. We are engaging with Ofcom to address how the data
is compiled and also with Fujitsu to improve the customer experience. Post Office
is not referenced in the Ofcom broadband complaints report.
Following the presentation and demonstration at the Board strategy meeting, we
are finalising the Customer Hub customer propositions, deployment plan and
business case for executive sign off. The initial proposition will be travel focused
and integrate POMS and FRES offerings and target to launch ahead of the 2018
summer period.
Risk
40.
41.
42.
We presented a report to the Audit & Risk Committee in September, updating
conduct risk performance and giving a view of upcoming regulatory initiatives. This
update includes further developments and other non-conduct risk matters.
AML and Travel Money: HMRC has indicated that a penalty of c£350K is likely in
relation to “breaches” in AML/CTF controls in our Travel Money business. This fine
is not required to be publicised by the HMRC. We have submitted an action plan to
improve our controls and we are working towards the agreed timescales.
EUM: The programme will ensure that counter colleagues are both vetted and
trained prior to accessing Horizon. This is a key regulatory requirement for our
businesses. This programme is being piloted in 24 branches. The objective is to
have EUM installed in the largest 500 FS branches by November and implemented
across the whole network in 2018.
Nicholas Kennett
Chief Executive, Financial Services & Telecoms
October 2017
PS&T Quar October 2017
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POST OFFICE BOARD STRATEGY PAPER
Building our identity services business
Authors: Martin Edwards, Jonathan Evans Meeting date: 31%
tober 2017
Executive Summary
Context
At the June Board we discussed the Post Office's opportunity to lead the market for
digital identity services. This paper sets out how we propose to seize this opportunity
through a co-ordinated series of actions to accelerate consumer and client adoption.
Questions addressed in this report
1. What is the proposition for customers?
What are the opportunities within the Post Office to embed our identity platform?
What are the priority external market opportunities beyond government?
What role should we play in the value chain to manage the market?
What are the next steps to execute this strategy and how do we define success?
“PWN
Conclusion
1. The market for re-usable digital identities like Verify remains in its infancy in the
UK, although the opportunities are enormous. The central challenge is to gain a
critical mass of consumers and businesses signed up to use the service. In the
absence of a proactive role from Government, we believe the Post Office is better
placed than any other organisation to lead the development of the market.
2. There are four central planks to our strategy to pursue this vision:
a. Integrating our identity platform into the Customer Hub launching
next May, creating a service that puts customers in control by enabling them
to securely store, manage and share their personal data.
b. Making our identity platform the default (and easiest) way for
customers to access all Post Office products and services online and
in-branch, such as AML checks for travel money.
c. Expanding the use of Verify beyond government to create a service
that is genuinely valuable to customers on a day-to-day basis. In the near
term we will be prioritising two particular sectors with strong synergies with
the Post Office’s core business lines - banking and travel.
d. Taking a more controlling role in the value chain, by in-sourcing the
functions currently performed by Digidentity, potentially via a JV, and taking
a proactive role in the creation of the ‘hubs’ required to connect new private
sector clients to multiple identity providers.
Input sought
The Board is asked to approve the overall direction of this strategy so we can
transition rapidly into execution.
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The Report
Introduction
1. At the June Board we discussed the Post Office’s opportunity to lead the market for
digital identity services, disrupting the current siloed approach where the same
identity checks are performed repeatedly for each individual by multiple
organisations, at an estimated annual cost of over £3bn. Building our role in
identity services should reinforce both our social and commercial objectives,
promoting digital inclusion and consumer empowerment while generating £14m pa
of additional profits by 2020/21 (based on the projections in our Strategic Plan).
2. This paper sets out our strategy for delivering this opportunity. The core challenge
is how to achieve critical mass of consumers and clients. Digital identity is a classic
example of a two-sided market - an economic platform with two distinct sets of
users who provide benefits to each other. Such markets are notoriously difficult to
get started because of the inescapable fact that without one side of the market
there is simply no value to the other side (like Uber without any taxi drivers).
Growth therefore tends to be painfully slow in the early stages, but can then
accelerate exponentially once a tipping point is reached on one or both sides.
Currently just 2% of the UK population have a reusable digital identity, despite the
concept being around for nearly two decades.
3. As this paper sets out, to overcome this challenge the Post Office will need to take
a more proactive role in stimulating adoption on both sides of the market, in
contrast to our passive role under Verify where essentially we are waiting for the
business to come to us. Once we have built momentum in the market, the task of
attracting further customers and clients should become much easier.
4. Given the challenges and complexity of this market, we have acted on the Board’s
request to ensure our thinking is informed by extensive external input. We have
engaged the services of two of the leading specialist consultancies in this area, met
with over 30 different organisations - prospective clients, partners and competitors
- and run three workshops with the support of McKinsey.
What is the proposition to customers?
5. Identity services are a means to an end, and customers will only engage with our
platform if it enables them to access services they value with greater ease and
security than their alternative options. The existing suite of infrequently used
Government services connected to Verify is not sufficient to provide a compelling
proposition to customers, and therefore the next two sections of this paper set
out: a) the Post Office products and services which we are proposing to connect to
the identity platform; and b) the external services beyond government which we
are seeking to integrate.
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6. While these end services drive the primary value to customers of our identity
platform, to accelerate adoption we believe we also need to invest in creating a
more compelling and engaging customer interface than the current Post Office
Verify app (which is limited in functionality and basically just enables customers to
upload their data).
7. As part of the wider Customer Hub launching next May, we are therefore planning
to include an ‘identity wallet’ with the following enhanced functionality:
e A ‘Personal Data Store’ (PDS), which, as the name suggests, enables the
customer to collect, securely store and control access to their identity
‘attributes’ such as name, address, date of birth, biometrics and passport
number, together with any attestations from 3" parties (for example
confirmation from the Post Office that they have passed through a full Verify
check, or confirmation from the DBS that they have passed a criminal
records check). This would firmly position the Post Office as a consumer-
centric identity provider, promoting individual ownership of personal data in
contrast to the Credit Reference Agencies for example who share (and leak)
without the customer's consent. The PDS also potentially provides additional
benefits in terms of GDPR compliance for the Post Office and an additional
route to help customers pass through the full Verify checks by aggregating
wider data sources such as their bank account or Government Gateway
records, all under their control.
¢ Tools to share selected data from the PDS with chosen individuals or
businesses, either app to app or via an API. There are a multitude of
potential customer uses, for example purchasing age restricted products
without the need for photo ID, a childminder proving to a prospective client
that they are DBS checked, peer to peer platforms or proof of identity to
collect secure items from a Post Office or hire a car.
¢ A digital signature for use in contracts and other documents. Digital
signatures have been legally acceptable in the UK since 2000, but are now
expected to grow in usage as more organisations seek to digitise processes.
¢ The ability to view what other services they can access effortlessly
using their digital identity - this is important to raise customer awareness
of the wider value of the platform and encourage deeper engagement.
8. Some illustrative screen shots of what the app might look like are provided at
Annex B. We will ensure the design of these services is informed and iterated
through a continuous process of user testing and feedback. The PDS in particular is
likely to be kept simple in the first instance as customers get used to the concept
of managing their own data, with further functionality and sophistication added
over time.
9. Our expectation is that these services will be provided free to consumers, certainly
in the early stages when we do not want to create any additional disincentives to
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mass adoption. The revenue model is predicated on the assumption that this
investment in consumer functionality is then repaid by charging government and
private sector clients for access to our APIs and Verify-level certificates of
assurance, enabling them to reduce the costs and friction of their own customer
on-boarding processes. Further details on the external market opportunity is set
out below.
What are the opportunities within Post Office to embed our identity platform?
10.Making our identity services platform the default way for customers (and
employees) to access Post Office products and services is a vital component of our
strategy for four main reasons:
e It will improve the customer experience for accessing our services,
with faster on-boarding processes and the elimination of the need to make
customers repeatedly provide the same information and identity
documentation to access different services;
e It should reduce costs by moving to a standardised process across all
areas rather than the fragmentation we have today (often using our Verify
competitors like Experian and GB Group);
e It demonstrates to external clients that we have complete
confidence in our identity platform, trusting it with own customers and
employees; and
e It addresses our key weakness as an identity provider, which is our
lack of existing digital customer relationships to cross-sell into Verify.
Amongst the 7 Verify providers, both Experian and Barclays have large
customer datasets (15 million accounts in the case of the latter) and are
starting to think about how they can leverage these relationships for Verify.
GDS have also indicated that they are prepared to incentivise this form of
cross-sell through pre-registration payments of around £3 for each customer
signing up to the basic level of Verify.
11.The integration of services onto the Customer Hub from next May provides the
opportunity to start closing this gap. Our travel products represent the most
significant near-term opportunity - we have 800,000 travel insurance customers,
we perform 700,000 Travel Money online transactions per year and under the
tighter HMRC rules we may have to perform up to 7 million in-branch AML checks
each year (in a worse case scenario). Linking these checks to a re-usable digital
identity will mean these customers are not asked to re-present the same identity
documentation each time they want to pick-up travel money.
12.We will look to apply the same principles to all our products and services with a
digital component, including the telco customer base, Drop & Go and the wider
insurance range. We are also working with HR to change the employee on-
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boarding process so it uses our Verify service, ensuring our people are both users
and advocates.
13.We are also working on three other opportunities to increase the volume of users
onto our identity platform from existing Post Office services:
e The launch of the digital passport service next March creates the opportunity
to target 2 million customers a year coming into our branches with their
identity documentation in hand;
e We have initiated a project with GDS and Mydex (a provider of Personal
Data Stores) to explore how we can take the 2m POca customers through
the Verify process, meaning they are ready to access Universal Credit and
apply for basic bank accounts and other financial services from the Post
Office or other providers.
e Over 1 million customers a year pay at least £34 for the Royal Mail
redirections service, with around a third of them applying via the Post Office
network. Our identity platform provides the opportunity to combine this
with an additional service to enable customers to share their updated
address details with service providers. Previous customer research
suggested that over 70% would find this service appealing (based on a
sample of 300). The service would be more powerful if offered in partnership
with RMG‘s redirections service (rather than competing against), and so we
are exploring whether there is a collaborative approach we could take to this
idea without sacrificing ownership of the identity assets.
What are the priority external market opportunities beyond government?
14.While government services remain the cornerstone of Verify, the clear lesson from
the past three years is that: a) we shouldn’t passively just wait for the pipeline to
flow; and b) the services that are currently available are too infrequently used to
stimulate consumer momentum. The Cabinet Office is now reaching largely the
same conclusion, and is actively encouraging the Verify providers to generate
external demand.
15.The potential applications across the private sector are enormous. The following
table provides a list of the main potential areas of demand for high assurance
identity services. These are consumer facing services that are regulated and where
there are significant costs associated with identity checking, fraud and error.
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a # of Revenues
Opportunity Transactions (£m)
Bank Account Opening (Churn and Cross-border) 2m 134
Travel (includes pre-flight checks and car hire) 78m 102
Age (Gambling, Dating, Adult content, age-restricted goods) 245m 513
Gambling (ID and Self-exclusion) 20m 95
Property Rental 23m 151
Retail (Address, Age) 1,773m 44
Health (Access to health records, Home care worker ID) 914m 138
Sharing economy 4m 21
Legal (Conveyancing, Divorce, Wills) 3m 15
Insurance (Home, Motor, Medical, Life) 60m 45
Pensions 40m 105
Asset Management (Share certificates, Corporate voting) 32m 16
Employment (Temp, Permanent, DBS, DVLA) 38m 206
16.As our identity services business and the wider market reaches greater maturity
we would view all of these sectors as viable targets, with the network effects
increasing as more consumers and clients use our platform. However, in the near
term we believe it would be better to focus our resources on gaining traction in a
few key markets.
17.We have therefore identified two priority external market opportunities, selected
on the basis of: a) their potential to accelerate adoption of digital identity; b) the
risk of competitor solutions emerging if we don’t move quickly; and c) the
synergies with the Post Office’s existing business lines:
e Financial services - KYC/AML costs can range up to £100 per customers,
constituting a major cost of retail banks. Through the Banking Framework
the Post Office has already established itself as a trusted and neutral service
provider, and we therefore have a clear opportunity to expand this into
document verification and digital identity services. Across the industry this
could represent a c£200m market opportunity, which the Cabinet Office is
encouraging identity providers to pursue based on the international evidence
that shows that most flourishing digital identity systems are built around the
combination of both government and banking services. We are pursuing a
twin track approach of engaging with UK Finance and Cabinet Office in the
development of a sector wide approach, while also pursuing more
accelerated engagement with a few individual banks (with HSBC showing
the most appetite to date).
e Travel-related identity services — the International Air Transport
Association (IATA, the trade body for the airlines) and IAG (the owners of
British Airways) have both expressed in interest is using digital identities
(and Verify in particular) to help streamline the process for Advance
Passenger Information (which requires customers to submit their personal
details and passport number prior to travel). Their research estimates that
half of all customers make errors when providing this information, creating
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additional overheads of around 40p per customer. We therefore estimate a
UK market opportunity of up to £100m pa for the consumption of digital
identities offering greater accuracy and security. Given the synergies with
our core travel business, we view this as an obvious opportunity to
prioritise, alongside other travel related services where customer checking is
required, such as car hire and home sharing (Airbnb). Initial discussions
with prospective clients are underway.
18.We are also in early discussions with Call Credit (the UK’s third largest credit
reference agency) around the potential to offer their 3.6 million Noddle customers
an accelerated sign-on to Verify via the Post Office.
What role should we play in the value chain to manage the market?
19.The UK's digital identity market remains highly unstructured at present, with a
complex web of players on the supply side performing incomplete roles, and
fundamentally no mature mechanism for matching these suppliers to the myriad
potential clients on the demand side. Annex A provides further detail on this
market landscape, highlighting the key competitors and prospective partners who
we need to be watching or engaging.
20.Our challenge in this context is to create some order and momentum from this
amorphous market, leveraging the strengths of our brand and market reach. The
table and diagram below summarises our recommendations on the three key roles
in the identity services value chain that we propose to take on in order to stimulate
and lead the market.
Post Office’s current
Role in value chain Recommended position
position
1. Identity provider (IdP): Jn-sourcing of identity
gathers the data from customers Just a branded white label assurance function from
and performs the necessary service Digidentity, either directly or
assurance checks via a JV
2. Relying party (RP): the
service providers (like government
or banks) who need to validate a
customer’s identity before offering
them the service
3. Hub provider: manages the Play leading role in the creation
technical and commercial interface of a private sector hub, either
. No role at present . 7 .
between multiple IdPs and multiple owning directly or co-owning
RPs - the key market maker with relevant market players
Not using our own identity
service, instead paying
companies like Experian to do
customer & employee checks
As outlined earlier in the paper,
use our own identity service to
accelerate adoption
OFFICE
Identity Provider
I Identity Provider
Identity Provider
c
- ek
Relying Party
I
Relying Party
Relying Party
Stri
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21.Further details on these recommendations are set out below.
22.At present the Post Office is a pure brand player in digital identity services, relying
entirely on our Dutch partner Digidentity who perform all of the identity checking
and storage, manage the customer platform and the interface with GDS and
handle customer enquiries.
23.This relationship with Digidentity has served us well. They have consistently
proved themselves to be the most effective and agile provider on the Verify
platform, enabling us to achieve market leading customer conversion statistics
(although this is also partly explained by the strength of our brand enabling us to
implicitly ‘cream skim’ the easiest customers to validate). Despite the fact that we
do little more than lend our brand to their operation, we retain 60% of the gross
revenues and around 80% of the total profit margin from Verify.
24.However, if we intend to become the UK’s major player in digital identity services
we believe we need to put the relationship with Digidentity on a different footing,
establishing a commercial arrangement which provides us with increased control,
scalability and flexibility over these core competencies. A straight acquisition would
be the simplest option, but is unlikely to be financially compelling. They were
purchased for an undisclosed sum by US firm Solera a year ago as a strategic
acquisition; informally we understand that they are unlikely to sell the business for
less than £50-75m (Digidentity’s primary market is the Netherlands, and they also
have ambitions to expand internationally).
25.The alternative option would be to form a UK based JV with Digidentity, with them
as minority shareholders. Informally they have confirmed an interest in this idea.
Our contract with Digidentity is due to expire in 2018 in any case (with the option
of a one year extension), so now is the right time to be considering an alternative
arrangement. Clearly we would want some competitive tension around this
process, and therefore we would propose to run a quick tender exercise
(potentially via a subsidiary), with a JV arrangement explicitly highlighted as a
likely outcome. This would enable us to benchmark Digidentity against the 2-3
competitors who we believe are in a position to play a similar role. Our assumption
is that the strength of our brand and existing Verify market share would provoke
significant interest amongst prospective partners.
26.Given the structure of the UK identity market with multiple providers on the supply
side, there is likely to be a central role for ‘hub’ providers — the entity responsible
for providing the technology platform the connects multiple identity providers to
multiple clients (or ‘relying parties’ to use the industry term), managing the
scheme rules and standards and negotiating the commercial relationships with
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both sides. This is the role performed by GDS for Verify for government services;
they have no intention to do the same for commercial use cases, and are instead
encouraging private sector companies to take on this role to extend the usage of
Verify credentials. Once this model is proven GDS have indicated informally that
they may also outsource their role as a hub provider.
27.To date around six companies have expressed an interest in taking on this hub role
for the private sector, with each of them in the very early stages of attempting to
marshal a quorum of identity providers and relying parties. None have launched a
live service yet, although IDEMIA - a EUR3 billion French based identity services
company, who are also an identity provider under Verify - are probably the most
far advanced in terms of being ready to trial a service.
28.Our previous thinking assumed that we would remain focussed on the consumer
facing role of being an identity provider, leaving the specialist technology
companies to vie for the role of hub provider. However, we have now reached the
conclusion that we should seek to take a more proactive role as a hub provider in
our own right, for four main reasons:
e It enables us to play a central role in the development of the market
ecosystem, rather than passively waiting for someone else to make things
happen (which as we have seen with GDS and Verify is an unsatisfactory
position);
e The evidence from other countries and comparative markets like payments
suggests that the hub role tends to be the most profitable link in the value
chain;
e We believe our brand has value as a trusted, neutral B2B service provider,
particularly with the banks by virtue of the Banking Framework; and
e It compensates for our current key weakness as an identity provider, which
is our lack of existing digital relationships. If the banks or one of the major
consumer technology companies like Apple were able to leverage their
customer relationships, as a hub provider we would still be able to work with
them while also preserving our role as a major identity provider in our own
right.
29.Clearly we would need a technology partner to perform the hub role, either using
one of the half a dozen specialist providers in this market or (less likely) one of our
major IT suppliers like Fujitsu. The technology platform is probably less important
as a USP in this market - the most successful hubs will be the ones which combine
technical competence with an effective and well-resourced B2B sales capability.
30.There are a number of commercial models we could pursue with these partners —
an acquisition might be feasible for some of the smaller technology outfits, but for
the larger firms a JV or service contract is more realistic. As with the approach to
Digidentity outlined above, we would expect to test these options through a short
tender process, preceded by further bilateral conversations with key players.
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31.Digidentity are themselves a hub provider in the Netherlands, and have said they
would be in a position to set up a UK-based hub for us rapidly. IDEMIA would also
be a prime partner for the opportunities in travel identity explained above, because
of their existing strengths in border control systems and the fact that (we
understand) they have persuaded British Airways to test a trial service using
Verify.
32.We may also need to think more creatively about alternative shared ownership
arrangements if we wanted to reduce our investment costs or create stronger
incentives for relevant stakeholders. For example, in order to persuade the banks
to buy into a shared digital identity scheme we might want to give them the option
of partial ownership. We are also exploring a recently announced scheme in
Germany where seven leading companies from across different sectors have
grouped together to create a shared digital identity scheme in order to improve
their customer onboarding processes.
What are the financials?
33.The table below summarises the financials that were included for incremental
investment and growth in our Strategic Plan.
£ million 2017/18 2018/19 2019/20 2020/21
Digital Check & Send 4.8 6.6 11.8 11.9
GOV.UK Verify and new identity services 1.8 6.2 11.1 11.2
Total net income 6.6 12.8 22.9 23.1
Direct product costs (2.8) (4.9) (9.1) (9.3)
EBITDAS 3.8 7.9 13.7 13.8
Investment costs (assumed capex) (4.2) (12.2) (4.4) (3.3)
34.While this represents a stretching set of targets for new income and profit growth,
(particularly in the early years where we may need to subsidise pricing), if we
successfully execute the strategy outlined in this paper and secure a growing range
of clients then overall the figures should be achievable, with the potential for
upside opportunity once we build real momentum in the market.
35.The projected capex of £20m over the next three years is intended to cover the
technology platform costs and in-branch hardware to capture biometrics and
documents. The actual costs will depend on the precise nature of the commercial
models we form with partners, with options to reduce the upfront costs to the Post
Office but with the inevitable trade-off of diluting our share of the subsequent
value that is generated. We will revert to be Board with more detailed business
cases for investment once we are further progressed in these commercial
discussions.
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What are the next steps to execute this strategy and how do we define success?
36.While we have a unique set of assets to lead in digital identity, these advantages
will erode if we don’t act quickly and cede the ground to others. Subject to the
Board's approval of the broad direction of this strategy, we would propose rapidly
transitioning into execution with the following priority actions over the next 2-3
months:
e Resourcing the Customer Hub digital development team with the capabilities
needed to deliver the features explained in the first section of this paper,
ready for user testing in early 2018 followed by full launch in May. As part of
this we will also be sourcing a provider of the Personal Data Store capability,
with at least one company (Mydex) available for rapid deployment via the G-
Cloud.
e« Commencing the tendering process and commercial negotiations for the
proposed in-sourcing of the Digidentity capabilities and the development of
the industry ‘hub’ function explained in the prior section.
e Resourcing the wider capabilities needed to deliver our ambitions in identity
services. In the short term we are recruiting for an additional B2B sales
lead and dedicated project managers and business analysts to supplement
the team’s bandwidth in designing and delivering new client propositions.
The wider shape of the function and the roles which need to be filled will be
partly dependent on the nature of the partnerships we form (point ii. above)
— for example if we form a JV with Digidentity this is likely to involve the
transfer of some of their customer service team, and other prospective
partners may bring strong B2B sales capabilities, reducing the need for us to
recruit directly into these roles.
e Running more detailed workshops with prospective clients in our priority
sectors of banking and travel, to understand their identity pain points in
more detail and co-create the solutions we can provide to address these
issues. We already have follow-ups planned with at least two clients, and
are working to expand this list over the coming weeks.
¢ Continuing with the delivery of the digital passport application service from
next March using our existing AEI estate in the first instance, which
represents a strategically important step to secure our relationship with
HMPO and accelerate our wider identity ambitions. In parallel we are
exploring longer-term alternatives to the AEI booths, including potentially
forming a partnership with PhotoMe.
¢ Intensifying our lobbying activities with senior Government stakeholders and
external influencers to highlight the much bigger role which the Post Office
could play in identity services, reducing costs for taxpayers and increasing
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digital inclusion. While at present the Government has shown no intention of
moving away from the Verify model of multiple private sector identity
providers, we need to be ready to capitalise on any opportunities to shift the
policy debate in favour of a more extensive role for the Post Office, for
example a change of administration or a decision on whether to re-procure
the Verify framework contract.
37.Beyond these immediate activities, based on the strategy outlined in this paper we
would define success for our identity services business over the next three years
as delivering the milestones and outcomes set out in the box below.
v Radically improved consumer platform launched May 2018 as part of wider
Customer Hub.
v Our identity service used to meet AML/KYC requirements for Post Office travel
money transactions by spring 2018, then extended to all Post Office customer and
employee checking by 2019.
¥ Digital passports service launched by April 2018, supporting cross-sell into
identity platform and protecting wider travel business.
vy Major bank and travel company signed up to use our identity service in 2018,
becoming their default route for all their customer checks by 2019.
¥ Solution for replacing existing AEI estate defined by spring 2018, ready to ensure
smooth (and ideally accelerated) transition prior to contract end in March 2020.
v Industry leading customer completion rates maintained, demonstrating superior
conversion rates to external clients.
v Market leading share of Verify maintained, proactively supporting the Government.
to hit its target of 25 million users.
v Rigorous data security standards maintained (and externally accredited) at all
times — no acceptance of breach risks.
¥ On track to deliver the profit growth targets set out in our Strategic Plan.
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Annex A: overview of the identity services market landscape
Full stack IDP Ecosystem
(e.g. Experian, Focused (e.g.
Yoti) IDEMIA)
Point Solution
Provider
(e.g. Mitek)
Data Sources
Ras
olan
Sector focused
(e.g. VixVerify)
—_—_ = 1 Social Media
Platform focused
(e.g. Digidentity,
Avoco, MyDex)
In Person
ree
Government Operated
‘as Hub
Public Sector
‘Central Goverment
Private Sector Hub
Providers
Based on GOS Hub
Distnbuted Ledger
Private Sector Networks
Payment Networks
Financial Services
Travel
‘Age Verification
others
Type
Collaborators
Competitors
Data Sources
Sources of evidence to corroborate the
identity being claimed.
Banks via PSD2
Those that bring
B2C relationships,
e.g. Callcredit’s 3m
Noddle customers.*
Banks and CRAs if
they try to become
identity bands, e.g.
Barclays, Experian.
Identity Provider Brands
Consumer facing brand for identity.
The service the user has a direct
relationship with for the management
of their identity. Includes the 7
GOV.UK Verify IDPs and emerging
private sector brands such as Yoti and
potentially banks.
Onfido, GB Group)
who have no B2C
brand.
Manufacturers (e.g.
Banks, Mobile
Operators, Start-up
brands (e.g. Yoti),
Experian and
possibly Callcredit.
Manufacturers
Service to build assured identities by
aggregating and correlating data from
multiple sources. Traditionally the role
of CRAs, other providers (e.g. Onfido)
combine CRA data with other sources.
Onfido, Digidentity
etc.
Those that could be
identity brands, e.g.
Experian.
POST OFFICE
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Some players (e.g. VixVerify) target
KYC for financial services.
Platforms
The underlying technology platform
for managing digital identity and the
associated personal data.
TAM solutions such
as Digidentity,
Avoco, Forgerock.
PDS solution such as
MyDex.
No direct
competitors with
Post Office.
Government operated hubs
The GDS hub that is part of GOV.UK
Verify primarily.
Have no choice but
to work with Verify
for now. Could
change, depending
on future of Verify.
Not currently but
could change,
depending on future
of Verify.
Private sector hub providers
Several vendors with hub propositions
including IDEMIA, Mvine, Signicat,
Digidentity.
IDEMIA to achieve
joined up approach
to Airline and
Financial Services.
IDEMIA if they seek
to gain too much
control. Other hub
providers depending
on their focus.
Private sector networks
Potential threat if card networks or
Vocalink sought to develop identity
services over their networks.
GSMA Mobile Connect, which is the
mobile operator identity network
proposition.
GSMA because for
now MNOs cannot
make a strong
assured identity
proposition but
provide a useful
data source.
Card networks and
Vocalink particular if
they seek to offer
ID&V capabilities for
financial services.
Public sector RPs
Public sectors users of identity
services.
DWP - strong links
with Post Office and
volumes.
HMRC? ~ few links
to Post Office, could
go in a direction
detrimental Post
Office proposition.
Private sector RPs
Any potential user of identity services.
Retail banks -
should include tier 2
banks and building
societies who have
less ability to solve
this themselves.
Retail - can be
difficult to work
with. Will be
protective of “their”
customer data.
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Annex B: Customer Hub ‘My ID‘
The following is an illustration of how the Customer Hub ‘My ID’ could be used for
peer-to-peer identity assurance such as purchasing age restricted products without
the need for photo ID, a childminder proving to a prospective client that they are DBS
checked. These transactions may be single use interactions sharing only the minimum
acceptable data or could be used to establish a more permanent and trusted
connection such as with your bank, credit reference agency and Post Office.
MM: Bana Nasnas
et i
Customer Hub ‘My ID’ being used for a Travel Money Online collection from branch.
The customer uses the app to track their order, then once in branch a digital identity
token is generated and provided to the counter staff by barcode or using contactless
technology.
op Pose Oi
tn aa
Strictl
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BOARD DECISION PAPER
Borrowing Limits - P9/P10
Author: Mark Dixon Sponsor: Alisdair Cameron Meeting date: 31 October 2017
Context
The Board has agreed a £200 million headroom buffer on drawings on the
Government Loan. We wish to temporarily reduce this to £100 million in order to
fund higher network cash over the holiday period.
There are currently a number of initiatives in place to reduce the level of network cash
and promote cash efficiency. These initiatives will ensure that we remain within the
Board approved limit at the financial year end. We will provide an update to the
Board on these initiatives in November.
Conclusion
In December 2016, the Board agreed a temporary increase to the Headroom limit
from £750 million to £850 million through to 29 January 2017, subject to approval by
the Group Finance Director. Overnight drawdowns were above £750 million on 2
days, 5 January (£771 million) and 6 January (£775 million). All other drawings were
within the £750 million limit.
Although we expect headroom to deteriorate over the 2017/18 financial year, the
peak deterioration is in Period 9 as we invest in higher network cash holdings over the
holiday period.
At the end of Period 6 drawings on the Government Loan were £714 million and usage
of the NRF was £207 million. Our overall headroom was in line with expectations at
the time of the Budget.
Although Overall Headroom is in line with Budget, this is mainly because the impact of
higher network cash inventory (£32 million) is offset by lower capital and investment
spend (£47 million).
As in previous years we expect headroom to reduce significantly in Period 9 due to
higher network cash balances held in anticipation of higher outflows due to winter fuel
payments and higher cash withdrawals from ATMs and across counters prior to the
holiday period. In the 5 + 7 Forecast we expect network cash at the end of Period 9
to be nearly £170 million higher than at the beginning of the financial year. Network
cash then reduces significantly by the end of Period 10.
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From end of Period 6 to the end of Period 9 we expect to invest £101 million in higher
network cash balances and spend £87 million on capital and investment. Other net
inflows over the period result in an overall net outflow of £170 million.
Given our position at the end of Period 6, cash usage over subsequent periods
through to Period 9, and allowing for significant swings in funding requirement intra-
month of up to £100 million due to variations in client-related working capital, we
therefore expect to need to draw beyond the £750 million Board approved limit on the
Government Loan in Period 9.
This position will improve after Period 9 and we expect to be within the £750 million
limit at the end of the financial year.
We are therefore requesting a temporary derogation for Period 9 and Period 10.
Input Sought
The Board is asked to approve a derogation to draw the Government Loan
up to £850 million (i.e. to reduce the headroom buffer from £200 million
to £100 million), subject to approval by the CFOO, for the period from 27
November 2017 (beginning of Period 9) to 29 January 2018 (end of Period
10).
Strictly Confide
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BOARD DECISION PAPER
Customer Hub and first delivery
Authors: Henk van Hulle & Jeff Smyth Sponsor: Nicholas Kennett Meeting date:
* October 2017
Executive Summary
Context
1.
At the October 2016 meeting, the Board confirmed its approval of the “digital first”
Post Office Money strategy, which brings together the New Normal customer
positioning and the ‘Strong Integrator’ (SI) business model (Project Falcon). The
Board agreed also to £72.3 million five year investment (£37.4 million capex) on
a “test and learn” basis, releasing funding in stages, subject to appropriate
governance.
The business plan has been updated following the outcome of the Peregrine and
government funding conversations.
This paper seeks authorisation from the Board to release £5.5m to build and launch
the first release of the Hub, targeting travel.
Questions addressed in this report
1.
2.
3.
4
5
What is the Customer Hub?
Why will customers engage with it and how will we drive customers to it?
What is the first release?
What is the business case?
What are the risks?
Conclusion
1.
The Customer Hub is the digital customer platform which facilitates a single
customer experience primarily managed by a mobile app. It enables customers to
access accounts and services wherever and whenever they need in a single journey
mainly: ‘Post Office in my pocket’, eliminating the disjointed journeys associated
with multiple partners.
By ‘owning’ the customer relationship and controlling the end-to-end customer
journeys Post Office will be able to build deeper relationships and deploy/enhance
capabilities such as data analytics, digital campaign management, customer
targeting and app notifications.
The development of the Hub consists of the core infrastructure with a suite of
generic enablers. They act as an integrator/facilitator of product solutions.
The first delivery is Travel (May 2018), bringing together POMS’ insurance products
and foreign exchange, including Travel Money Card and its mobile app.
The infrastructure cost over five years to build the Customer Hub, including the
delivery of four businesses is £26.3 million, with the Travel component costing £5.5
million to launch with estimated running/updating costs of £1.2 million per annum
and marketing costs of £2.5 million per annum for driving customers to the Hub.
Strictly Confidential Customer Hub October 2017
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6. The Travel Hub targets to deliver £50.6 million gross revenues and EBITDA of £32.5
million over five years.
Input Sought Input Received
1. The Board is asked to support the 2. The Post Office Group Executive and
Customer Hub delivery plan and the Executive Cost Group in October
authorise the release of £5.5 million 2017 have approved the approach,
to build and launch the Travel business case and funding subject to
proposition. Post Office Board approval.
Strictly Confidential Customer Hub October 2017
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The Report
What is the Customer Hub?
1.
Our current digital offering is fragmented and disconnected, principally because we
have no single sales and servicing capability. This is driven by the siloed product
manufacturing and sourcing model with multiple partners. As a consequence there
is no brand consistency and single customer experience.
The Customer Hub is the digital customer platform which facilitates a single Post
Office brand and customer experience. It enables customers to manage their needs
securely; researching, buying and servicing online. The Post Office will provide the
customer with access to accounts and services wherever and whenever he/she
needs: ‘Post Office in my pocket’, which includes a mobile app.
By providing a single interface, integrating products together, Post Office will be
able to leverage data-analytics to support cross-selling of other services.
Why will customers engage with the Hub and how will we drive customers
to it?
4.
Post Office already has a sizeable online customer base engaging with us digitally:
e Over 1 million savings customers, of whom c80% were acquired online;
e Over 2 million Travel Money Online customers;
e 670,000 credit card customers, of whom c.60% were acquired online;
« 620,000 Travel Money Card holders, of which c.15% were acquired online and
c80% are topping up online or through the dedicated mobile app;
e Over 600,000 travel insurance policies sold in 2016/17, 45% online;
e Over 1.2 million insurance policyholders.
60% of the UK population prefer to deal with companies online on a day-to-day
matters!. Our target customers want to do more with us, but want us to make it
easier for them to interact with us and to be more relevant. Market research across
Mortgages, Savings, Cards and Loans has confirmed that c60% of our existing
customers are open to another product?.
There are three characteristics critical to the success of the Customer Hub:
e The level of personalisation by which relevant experiences will be created;
« The immediacy of engagement, nudging and transacting; and
« The velocity by which customer experiences are created (e.g., regular mobile
app updates).
The Hub acts as a channel through which to engage customers. Those customers
who bought before are 4-6 times more likely to buy again and yet we can only
treat them today as new prospects.
Customers will be encouraged to access the Hub to activate, renew services or
self-serve. Customers will be able to manage all their travel administration in one
place and without having to re-key the same information all over again. The
ly Confidential Customer Hub October 2!
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10.
experience to get travel insurance and Travel Money will be joined up and
effortless. Adding policyholders, renewing insurance policies, adding additional
insurances such as gadget insurance, topping up or blocking the TMC card,
ordering Click&Collect in branch or at home will be all be available, anytime and
anywhere.
Building the Hub will take Post Office further up the value chain, enabling us to
command a greater share of the value generated.
Colleagues in branch, CRM tablets, contact centres or online will have secure
access to a single view of the customer’s history, which will help in serving
customers better and building better relationships.
What is the first release?
11.
12.
13.
14.
The order by which businesses will be integrated will be defined by profit potential,
impact on digital footfall, technical integration/complexity and supplier
dependencies. It is through the sale of these products where we drive the actual
benefits of the Hub (e.g., effective cross-sales, increased customer retention, lower
costs of acquisition/ cross-sales and higher numbers of product holdings per
customer).
POL is already a destination for Travel services and over 70% of the digital footfall
on our website is related to Travel.
The first delivery, the Travel Hub, aligns with the POMS travel insurance strategy
and integrates with FRES, into a single travel service, enabling customers to self-
serve the products and offer add-on products such as gadget insurance. The
capabilities that make up the Travel Hub? comprise:
a. Travel Money and Multi-Currency Card - ability to order Travel Money
online, enhanced journeys to current web journeys, in-app onboarding, top-up
and card management.
b. Travel Insurance - in-app purchase, quotes, documents, renewals and claims
management.
c. Branch Bureau Integration - Ability to link the digital with the physical.
Allows for click and collect and other branch services, provided digitally.
Travel represents multiple opportunities not only for Travel Money Online and
Travel Money Card but also Travel Insurance. Enhancing our digital capabilities to
align with ‘The New Normal’ and leveraging our physical branches gives Post Office
the ability to strengthen the position as market leader in Travel Money.
What is the business case?
15.
The total infrastructure over five years to build the Customer Hub, including the
delivery of four businesses, is now estimated at £26.3 million, with estimated
running/updating costs of £1.2 million per annum for the first delivery and
marketing costs of £2.5 million per annum for driving customers to the Hub,
notifications and personalisation.
Customer Hub October 2!
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16.
17.
18.
19.
20.
21.
Four components explain the difference from the original £72.3 million business
case:
a. We are not building from scratch (original case) but applying a ‘pay-as-you-
grow’ and ‘best of breed’ model
b. The marketing cost in the old business case was £20 million (versus £12.5m)
c. The new business case incorporates 4 businesses (versus 5)
d. At this stage we have not budgeted to become a regulated company (£1.5m)
The table below sets out the key financials:
id iii /
Gross Revenues:
Travel Hub 50.6
Other Hubs (businesses) TBC
EBITDA 32.5
Total infrastructure cost (all businesses) (26.3)
e Launch Travel Hub (build) (5.5)
« Ongoing support Travel Hub (£1.2m p.a.) (6.0)
Marketing and data analytics (£2.5m p.a.) (12.5)
The Hub investment is targeted to deliver gross income of £50.6 million over 5
years with an EBITDA of £32.5 million (of which POMS and Travel Money have
already assumed £17.8 million in their existing plans as the Hub is an enabler for
their growth). The revenue generated from the Hub, is a mixture of additional
value on top of existing plans (including Gadget insurance, subject to product
development, with gross income of £11.4 million over 5 years), and sales already
assumed in existing plans (travel insurance).
To launch subsequent businesses we have assumed costs of £3-£5 million.
Additional deliveries will be subject to individual business cases.
Authority is sought to release £5.5 million to build and launch the Travel Hub with
a delivery date ahead of the summer 2018 travel season. A summary of the
investment timeline and a breakdown of the costs and benefits are set out in
Appendix B.
Subsequent cases will be presented to cover the ongoing support, marketing and
data analytics for the Customer Hub over five years.
What are the risks?
22.
23.
24.
25.
GDPR Design Compliance - The Customer Hub will need to consider GDPR in its
design approach to be both compliant and mitigate against any potential re-work
together with its partners.
A delay of launch to the project - This means that the go-to market of the Travel
Hub will fall outside the ideal peak travel season.
The risk that FRES might not engage fully or will not have the capacity to co-
operate. We need to create a working model with FRES.
The risk that permanent resource might not be recruited quickly enough.
ly Confidential Customer Hub October 2!
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26.
27.
28.
The risk that the Hub will not enable the growth for POMS (e.g. gadget insurance
sales).
The risk that not enough will be invested to increase the awareness of the
proposition in the market.
The long term risk is our ability to build a high level of customer engagement. The
level of personalisation, velocity and immediacy of creating distinctive propositions
are ways to maintain high levels of customer engagement.
Conclusion
29.
30.
31.
The infrastructure cost over five years to build the Customer Hub, including the
delivery of four businesses is £26.3 million, with the Travel component costing
£5.5 million to launch with estimated running/updating costs of £1.2 million per
annum and marketing costs of £2.5 million per annum.
The Travel Hub targets to deliver £50.6 million gross revenues and EBITDA of
£32.5 million over five years.
The Board is asked to support the Customer Hub delivery plan and authorise the
release of £5.5m to build and launch the Travel Hub (May 2018).
ly Confidential Customer Hub October 2!
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Appendix
A. Travel Hub screenshots
B. Summary of the business case
ly Confidential Customer Hub October 2017
POST OFFICE
Appendix A
Strictly Confidential
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PAGE 8 OF 12
- Travel Hub screenshots
1. Existing customer returning to app home and away
Abroad - Travel Money Card is the default
eavel Money Cad
Teal octane
msi oe
2. Utility menu and additional travel services
Utility menu Additional services
More Travel Services
@- Ge
sone
Hy teers
EBD rave ttre
ay
Fete tech
Customer Hub October 2017
08 Board-31
1ONT
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3. Click & collect pick-up with identification
Existing orders ‘Order and identification Branch information
6 ogee OE
€544.00
PRoliomse Post Oe
Prater eaecton te on
04 Aungu 2017 Coleco ster pen,
Branch decal
eo & e
i
I
I
I
" I
i
I
I
I
I
i
4. Gadget Insurance Cross-sell
Product Proposition Quick quote (interrogate phone) Payment options
Apple iPhone 7 - 32GB
£458
2enowiths free
with arowal gadget cover
Strictly Confidential Customer Hub October 2017
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4, Gadget insurance Continued
Singer crane Peat
Panto thane t Oe
7
i
i
Pages xa tiling adds
Payee cand
Strictly Confidential Customer Hub October 2017
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Appendix B. Summary of the business case
1. The build of the Hub requires a five year investment of £26.3 million, comprising
£18.3 million CAPEX and £8 million OPEX.
—£M Capex Opex Total
In ment Investment
Total £18.3M £8.0M £26.3M
The table below shows the investments and the decision points.
Nov Dec Jan Feb Mar Apr May Junis- 19-
17 i718 18 8 i8 18 Mari9 20
Release 1
Release 2
Release 3
Release 4
Maintenance &
enhancements
2. The agile approach allows management to be flexible about funding decision points.
3. Ongoing costs after launch relate to the maintenance of the digital platform, feature
enhancements, SaaS licencing, API costs and technical/business resources
managing the capability as a live service in BAU.
4. The Travel Hub, costs £5.5 million to launch with estimated running/updating costs
of £1.2 million per annum and marketing costs of £2.5 million per annum for driving
customers to the Hub. It targets to deliver £50.6 million gross revenues and
generates a positive NPV of £9.8 million.
5. It should be noted that the budget and plan to 2020/21 anticipate that the digital
investment will be capitalised. The updated plan expects now that the 2017/18 and
2018/19 investment could be treated as exceptional.
6. The financial summary is as follows:
Customer Hub October 2!
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Financial Summary £m
2017/18 2018/19 2019/20 2020/21 2021/22 2022/23
Impact on EBITDA
Gross Income i oO
TMC 1.2 1.6 2.4 2.8 3.7 11.4
Travel Ins 2.7 41 4.5 4.8 5.4 214
T™O 0.2 0.4 0.5 0.6 I 0.7 2.3
Gadget Ins 11 2.0 2.4 2.7 3.1 11.4
Identity 0.4 0.7 0.9 iit 1.2 4.4
Direct Product
Costs
TMC (1.5) (1.5) (1.6) (1.9) (2.1) Gea
T™O (0.1) (0.2) (0.2) (0.2) (0.3) eRe)
Travel Ins (1.0) (1.1) (1.0) (1.0) (1.1) ea)
Identity (0.3) (0.6) (0.7) (0.8) (0.9) (3.2)
Impact on EBITDA
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PAGE 1 OF 10
POST OFFICE BOARD DECISION PAPER
Restructuring the Fujitsu Horizon Agreement
Author: Jeff Lewis Sponsor: Rob Houghton Meeting date: October 17
Executive Summary
Context
This document provides an overview of the proposed realignment of the Post Office
relationship with Fujitsu through the signature of a Memorandum of Understanding
(MoU). It focusses on the output of negotiations, its transformational commitments
and the benefits that the agreed changes, once implemented, will deliver.
Questions addressed in this report
1. Why was the restructuring of the Fujitsu Horizon Agreement needed?
What options were considered and what do we propose to do?
Why have Fujitsu agreed to the proposals?
What are the benefits to Post Office and how does it support the IT Strategy?
What are the risks for Post Office and how are these to be mitigated?
What are the next steps and time lines for completion?
DAWN
Conclusion
e« The convergence of Post Office and Fujitsu business and technology goals has
enabled the successful restructuring and resetting of the Horizon system contract
without an increased financial commitment requirement.
* The MoU has three key components within its framework:
° Re-directing existing contractually committed spend to invest in our Digital
Transformation agenda, in particular cloud infrastructure and thin client;
e Altering the current financial model of predominantly fixed price to demand
driven, consumption based pricing; and
* Guaranteeing that the total contracted spend will be at least equal to the
current contractual commitments and a commitment to act as a reference
customer for Fujitsu digital and cloud capabilities.
e The successful outcome of these two elements will deliver forecasted operating
expense savings of between £15 - 30m over the term of the agreement to support
the target IT operating expenses for 2018 onwards.
Input Sought
The Board is asked to approve signature of the MoU and authorise negotiation of the
detailed contract changes to support the agreed principles, including creation of the
Digital Delivery Services.
1I
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The Report
Reminder of the background for negotiation - why it was needed.
1.
In March 2016 Post Office signed a 6 year extension to the Horizon Agreement
commencing April 2017 to secure the stability of front office services.
The agreement is predominantly fixed price (circa 90%) with guaranteed
revenue for Fujitsu of circa £195mm, excluding regulatory risk and resilience
change spend.) The extension contemplated further changes in relation to
technology, but the introduction of transformational digital software and revised
pricing approach would require a renegotiation of the terms of the extension.
Due to the circumstances leading up to signature of the extension, the
relationship had become strained, there was a lack of trust and Fujitsu were slow
to move out of “exit mode.”
In March 2017 we informed the GE that Fujitsu, whilst supportive of
implementing such changes, were expecting significant additional benefits to
move away from the fixed price nature of the contract and introduce agile
transformation. There was sufficient common ground however to warrant further
negotiations.
The negotiations since then have focussed on finding an acceptable commitment
from both sides, with sufficient detail to both ensure clear understanding of
intent and confidence that the risks are understood and can be addressed.
The estimated investment required to underpin the digital journey to support the
business strategy is £30 - 50m over 5 years.
What options have we considered and what do we propose to do?
7.
In order to be in a position to exit Fujitsu in 2023 - we need to re-architect the
system. We have adopted a layered architecture approach - determining to
change the front end architecture (that seen by the postmaster) first whilst
retaining the back end architecture (the Horizon database) for a period. In
addition, we plan to move to a cloud architecture for resilience and cost.
The alternative to renegotiation is to perform the digital transformation (front
end rewrite) and cloud migration with other suppliers. This would necessitate
incremental change spend of 15-30m over and above existing FJ contracted
spend. The risks associated with this approach are high both in terms of selecting
a new partner but also in getting FJ to cooperate on essential technical
collaboration activities. We have demonstrated to Fujitsu that, as difficult as this
alternative may prove, the Post Office would not sign a revised contract at any
cost.
In March we set out the Post Office objectives for the negotiations. The table
below shows the extent to which we have met these objectives in the MoU.
(Green indicates a binding commitment, amber a non-binding commitment and
red means it was not addressed or not met.)
10.
11.
12.
13.
14.
15.
16.
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Extent
Objective Objective
Protection of POL IP in new
development work
Improved contract governance
Assisted Transformation
Thin Client version of front end
Cloud hosting with utility based
pricing
Move from fixed to variable pricing
Effective Relationship at all levels
Faster change process
Benchmarking
procurement position that will enable
POL to remove its long term
dependency on Fujitsu
Reduced Operating expenses (BAU)
As indicated above, the MoU directly or indirectly meets all the original goals. It
contains clear principles to enable Post Office to implement the changes to the
Horizon contract that will position IT to deliver the digital and cost outcomes
detailed in the IT Strategy paper.
In return for Fujitsu breaking the financial charging model, which will allow the
move to a lower cost base for Post Office, we will guarantee the minimum spend
already in the contract.
This will be achieved through what we call a “Revenue Switch” mechanism. For
every pound that the operating expenses are reduced, the Post Office will either
invest in targeted transformational change or compliantly procure new services
from Fujitsu.
As detailed further below Post Office expects to save between £15 - 30m on
operating expenses over the term through new technologies and a demand
driven charging mechanism.
Additionally, the Post Office would not need to spend £15m on a further data
centre refresh and resilience programme (required to maintain old
infrastructure.)
The total potential “operational savings” means that Post Office would need to
place between £30 - 45m new orders. Although a large portion, or possibly all,
of this value would be ordered under the Horizon Agreement for cloud and digital
journey, Post Office also has the ability to compliantly award new business to
Fujitsu to count towards the revenue baseline.
The MoU addresses key delivery issues giving the Post Office;
the ownership of all new software intellectual property rights. The Change Note
for this has been signed and gives Post Office full rights to use through
ownership or enhanced licencing at no extra cost to existing Agreement;
subject to business case approval, it commits both parties to migrate the
infrastructure from Belfast data centres to new cloud technology;
it sets out the principles by which Fujitsu will cooperate to create a lower cost
application support model, based on transparent metric to enable continuous
operational improvement; and
17.
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it commits both parties to investigate and implement faster and more efficient
delivery practices, based on an agile mind-set, as opposed to process driven
methodologies.
The MoU also identifies the need for improved ways of working within the
governance of the relationship, building on the goodwill and collaborative
approach witch the parties have created at the management level.
How does the MoU benefit the Post Office
18.
19.
20.
21.
Implementing the MoU creates value for the Post Office from perspectives of
reduced cost and risk.
From a cost perspective
Cost Avoidance of £30 - £45m for incremental infrastructure and digital
transformation, as this will come from within committed spend with Fujitsu;
It will deliver a lower unit cost for data centre and associated service
management charges through the cloud technology;
It will deliver volume based charges, which means that we will only pay for
what we use, as opposed to the capacity of the Horizon system being scaled
for the busiest periods at Christmas;
It provides the opportunity for Post Office to benchmark elements of the
charges earlier than currently allowed in the Agreement;
It will deliver change at a lower cost base, subject to the agreed location
strategy; and
It will introduce transparency in the software support allowing Post Office and
Fujitsu to identify and eliminate cost drivers.
From a risk perspective
It will move the data centre infrastructure to a supported platform and
software, and through “evergreening” (continuous maintenance through the
operational charges) remain current;
In moving the technology to new digital environments and code it reduces the
dependence on a limited number of Fujitsu resources;
Post Office will own all new IPR created in HNGT and other digital software
created from 1 October 2017; and
It will greatly increase the Post Office's flexibility and ability to run an open and
competitive tender at the end of the Agreement.
At this stage it is not possible to definitively identify the operating expense
reductions. However, we have run a number of scenarios, looking at speed of
change, scope of services which can be affected and the potential reduction in
charges once complete. The outcome is a saving of £15 -30m commencing in
2018/19. This does not include potential savings from lower cost of ownership of
counter hardware and other IT network charges as a result of HNGT, which are
yet to be assessed.
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What are the benefits for Fujitsu
22. We have negotiated away from Fujitsu's initial ask to extend the term of the
contract. Commitment to the relationship and recognition of future potential
have helped shape Fujistu’s final position.
23. Fujitsu have stated that its primary benefits are
e Post Office commitment to pound for pound revenue guarantee;
e Becoming the Post Office’s digital delivery partner (not exclusive position);
e Post Office move into Fujitsu K5 technology;
e Post Office agreeing to become a reference client for these technologies; and
e The opportunities that continuing the relationship should bring them.
What are the risks associated with this approach and how are they being
mitigated?
24. Internal and external legal have been engaged throughout to consider any
impact on existing PCR levels of risk. By adhering to the wording and context of
both the modification notice issued in February 2016 and CCN1600 (the
extension to Horizon in March 2016), the legal procurement advice is that there
is little or no increase in the underlying procurement risk. (Full legal risk report
available on request.)
25. Legal have raised concerns that inclusion of new contracts awarded to Fujitsu
outside of the Horizon Agreement within the Revenue Switch mechanism (“New
Services”) could increase the procurement risk. This would manifest itself if an
award was made to Fujitsu and a losing supplier used the existence of the MoU
arrangements to support a challenge to such award.
26. We believe this risk can be mitigated through the confidentiality of the MoU and
clear and transparent procedures and evaluation criteria being used for all
procurements. The benefit of including these New Services is that it reduces the
risk of any shortfall against the reduced Fujitsu committed spend. Having
weighed the advice, the mitigation and the benefits the recommendation is that
this level of risk is acceptable.
27. The financial risk relates to the Revenue Switch Model. This would be if Post
Office is unable to compliantly award sufficient new services or business to
Fujitsu to cover the reduced revenue as the operating charges fall post
transformation. In this event there is a risk that Post Office would have to make
up the shortfall in 2023.
28. The likelihood of this scenario is low for two reasons. Firstly, we believe there is
sufficient additional business in the pipeline to meet the top end of the saving
predictions that is £45m over the 5 years remaining of the Agreement.
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£m excluding iVAT Low High Reason Comment
HNGT 5 Year Projection £ 5.0 £ 100 [Business Driver _ Unbudgeted, 2 scrum teams
Pivot to Cloud Phase 1-2 £ 8.0 £ 12.0 Effici ___ Included in Zz
Self service Portal £ 30£ Inbuc rum t
Pivot to Cloud Phase 3 ‘£ 5.0 £ 8.0 Efficiency I __Unbudgeted-BRDB migration _
Service protection during cloud
Pivot to Cloud dual running © £ 4.0 €_ 8.0 Essential migration - 7
Horizon Change Team £ 5.0 £ 10.0 Business Driver _ Budgeted through other change
Identified Church Fund £ 30.0 £55.5 I
Secondly, in the event that a shortfall was predicted both parties would look to
negotiate a solution which did not involve cash settlement.
29. There is a risk that the historical mutual distrust will hamper progress. Good
progress has been made through changing personnel and some processes.
Enduring success will require further commitment to this cultural transformation
which will be managed at an executive level.
Next Steps
30. Project Everest will continue through to the end of March 2018 to execute the
necessary changes to the contract. Planning has already commenced so that
upon approval and execution of the MoU workstreams will start delivery.
31. Contract changes and project work orders will be submitted through exist
corporate governance as will Business Cases for the investment programmes.
32. The target timetable is as follows:
Change Notes for Revenue Switch, 31 December 2017
variable pricing framework
Digital Development Services Change 31 January 2018
Note & Go Live
Pivot to Cloud Work Order 31 March 2018
Application Support Change Note 31 March 2018
K5 Pricing Change Note 31 March 2018
Appendix A: List of Risks and Mitigations
Scenario
Post Office decides not to migrate
all of Horizon to the Cloud
Business
/ Prog
Risk
Yes
Mitigation
Not an FJ issue. Business case
would need to reflect if this is an
option
up
Pivot to Cloud takes longer than Yes Full planning is completed prior
planned through non-attributable to commencement, strong
reasons programme governance
Pivot to Cloud takes longer than Yes Strong programme governance
planned due to problems with the and use of existing remedies
K5 environments all within Fujitsu within the contract.
responsibility
Pivot to Cloud fails to deliver the Yes Ensure understanding of range of
minimum expected like for like benefits prior to start
cost reductions
Later than planned realisation of Yes Strong project governance to
benefits provide visibility of progress and
risk to enable early corrective
action
HNGT does not work because of Yes Determine early in lifecycle and
unresolvable technical kill development
complexities
HNGT takes longer to roll out to Yes Not really an FJ Issue; this would
Branches than planned due to Post be spend with CC and internal
office team if HNGT was ready.
HNGT takes longer to roll out to Yes Missed obligations will be
Branches than planned due to managed through the project
Fujitsu Services governance and existing contract
mechanism
Fujitsu material failure to deliver Yes Such breach would lead to full
programmes due to corporate contractual remedial action
technical shortcomings
Service and Security Management I Yes Service transition embedded in
etc. remain highly bespoked. delivery team, managed through
key objectives
K5 capability does not exist Yes Architectural roadmap that
provides a feasible approach to
delivery prior to commitment.
(Note this risk prevents any
move to cloud environment - the
main challenge)
Increased complexity drives costs I Yes Identification of appropriate risk
share and business case will be
71°
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based on a combination of cost
and timescales for migration
against the expected benefits
within the Business Case
timeline. Additional costs would
impact the Business case.
Post Office operational costs No Not a Fujitsu problem. Demand
increase post P2C due to could increase due to business,
increased demand positive outcome. Controls
required through service and
demand management for
negative increases where no
business drivers.
Fujitsu increase pricing on K5 No Contract agreement post MoU
will provide guaranteed unit
pricing against clear criteria
All initiatives deliver cost savings No POL would have to find a way to
greater than the maximum award new business to Fujitsu to
anticipated avoid making a financial
settlement
Insufficient additional contract to I No As Above
compliantly award to Fujitsu
POL is unable to invest in No Impact would need to be
accordance with its plans due to
funding considerations.
considered in the overall POL
response to this situation. Any
impact on terminating
contractual commitments would
be managed in accordance with
the Fujitsu Agreement.
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Appendix B: Achievement of Post Office Objectives
POL Objective as per GE March Paper MoU Position
Extent Achieved
Green= binding
Title Description/ Comment agreement, Amber = Comment
principle agreed, Red =
not agreed / covered
Re-directing future probable spend on discretionary
Capex into strategy CapEx investment to deliver
thin client and cloud technology
‘ey to the future pricing model and the agreement is that POL will
se existing contractually committed spend to deliver a
Assisted Transformation ransformed Horizon system
in Client will be the lead project which will frame future digital
oftware direction and services
is approach will be delivered in conjunction with new digital
rchitecture. External due diligence confirmed suitability of Fujitsu
‘5 Cloud enterprise solution.
ere is a binding agreement to move to a variabilised pricing
model. The extent to which this can be achieved is subject to
uccess of HNGT and cloud transformation.
Thin Client version of front Subject to Proof of Concept work and agreeing
end ways of working for agile development
Subject to final architecture and commercial pricing
Cloud hosting with utility rode! against market benchmark
based pricing
This is inherent in utility pricing. The degree of the
Move from fixed to variable variable pricing component as a percentage of total
pricing pricing is subject to negotiation
There is commitment on both sides to improve
relationships. Fujitsu acknowledge some Fujitsu
behaviours had been driven by the “sun-set” status
of the POL account. Fujitsu’s willingness to address
The MoU recognises the need for improved relationship, but any
pecific changes will need to be incorporated via the Change Note
Effective Relationship at all (Ss) required to enact the MoU provisions
levels issues of transparency and perceived duplication of
charges will be essential in promoting trust at all
levels in POL.
Subject to POL clearly specifying the processes it e introduction of new Digital Development Services will include
Faster change process _needs to be adopted. mechanism for faster implementation of change
The re-architecture and cloud hosting will reduce
operating expenses, but the extent to which POL is
able to meet its objectives is to be determined by
other service and contractual considerations
@ MoU includes specific principles and goals. Whilst scenario
lanning has been done that indicates savings within the target
gion of £15-£30m over the remaining term of the Agreement,
there are no guaranteed reductions. OPEX reductions are subject
to the final system design, service model and ongoing utilisation
ngoing means costs may go up as well as down. The design
hase output (due circa 12/17) will give more clarity.
Reduced Operating
expenses (BAU)
9IPage
POL Objective as per GE March Paper
Description/ Comment
All new work must be completed under the correct
IP provisions in the existing contract. The risk is
that Fujitsu may try to link to software for which it
owns IP. Notwithstanding this the licence payment
for Fujitsu IP will remove residual risk at the time of
exit from the contract.
The tower model has introduced additional
complexity in managing service and project change.
Negotiations will look to simplify as far as possible
Protection of POL IP in new
development work
Improved contract
governance and potentially reduce Fujitsu costs of service.
It will be difficult to remove existing limitation on
POL’s ability to benchmark. Clear articulation of
revised charging structure will enable benchmarking
Benchmarking / market testing prior to signature of a revised
agreement.
Acceptable PCR Risk See statement below
Meets the CCN 1600 legal /
procurement position that
will enable POL to remove its
long term dependency on
Fujitsu
As part of the compliance review legal will assess
the extent that any contemplated changes are PCR
compliant and fit with the PCR advice and technical
arguments POL relied on for signature of CCN1600
(Trinity.)
The Trinity change included explicit provisions
relating to stranded costs for the Belfast data
centres. As the pivot to cloud programme will not
complete prior to the end of the existing Belfast
lease in December 2018 POL is negotiating that the
length and terms of any extension Fujitsu
negotiates does not leave POL with any stranded
costs that it must pay on final exit from Belfast.
No Belfast exit fees
10 I Page
MoU Position
Extent Achieved
Green= binding
agreement, Amber =
principle agreed, Red =
not agreed / covered
Comment
successful negotiation of a new category of IP for digital software
jevelopment. In addition to owning all new software there are
improved licencing provisions and a new IPR indemnity protection
fe MoU recognises the need for improved relationship, but any
pecific changes will need to be incorporated via the Change Note
(s) required to enact the MoU provisions
infrastructure and related services within the Fujitsu cloud
ffering include an option for ongoing benchmarked pricing.
onversations are ongoing to ensure changes to the software
upport model would enable POL to assess vale for money prior
0 signature
e legal assessment (internal and CMS) is that the MoU
pproach does not add any additional significant PCR risk. Some
isk has been identified with rgard to the inclusion of non Horizon
contracts within the "Revenue Switch” Mechanism.
urther analysis of the Belfast exit provisions indicate that the
isk of excessive stranded costs for POL is lower than initially
sessed. The principle to minimise these is included in the MoU,
ut the level of any decommissioning costs will be dependent on
he transformation approach adopted by POL.
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POST OFFICE BOARD PAGE 1 OF 5
DECISION PAPER
Business Case — Security Operations Centre
Author: Mick Ebsworth — Exco Sponsor: Rob Houghton Meeting Date: 31 October 2017
Executive Summary
Context
The 2016 Deloitte review of Information Security found that IT Security wasn’t
centrally managed and that PO does not have a consolidated view of IT Security
threats, vulnerabilities and events. Today, most 3 parties in our supply chain have
an element of security control and monitoring capability, and are contracted to
provide PO with security controls assurance. The current solutions do not sufficiently
correlate security events and incidents to determine in a timely manner if PO has a
cyber security exposure.
Questions addressed in this report
e What do we propose to do and why?
e What options did we consider?
e What is the performance against the business hurdle rates?
« What do we need to do next to progress?
Conclusion
« Implementing a Security Operations Centre (SOC) will enable PO to develop and
deploy cybersecurity capability across the entire IT estate, including all of the
outsourced IT and Network supply chain. The SOC will proactively protect PO
against any cybersecurity threat, and enable timely identification and
management of IT Security events and incidents.
e We determined that a hybrid operating model enables PO to have 24x7 cover
from a mix of Verizon and PO staff managing critical issues relating to PO
systems and services. We concluded that the proposal from Verizon offered the
best solution with regards to technology, services offered and price.
* This business case does not meet business hurdle rates. This is a risk prevention
business case against the risk of cyber security exposure for PO.
e The SOC requires £6.6m investment over 3 years, of which £2.2m will be Capex
in Year 1, and £2.2m Opex in each of years 2 and 3, which is included in the IT 5
Year Plan forecast.
Input Sought
The board is asked to approve the business case to proceed.
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The proposal has previously been approved by the Executive Change Group.
The Report
What is the need or opportunity and why now?
1. Post Office needs to increase its IT Security maturity to meet today’s ever
increasing cyber security threats, as outlined in the Deloitte findings. The SOC will
provide increased cyber protection by overseeing all security controls from all
sources;and centralise and aggregate events and incidents to enable PO to react
against security issues efficiently and effectively, reducing our risk exposure.
2. Centralising the security controls into a SOC will enable PO to correlate the output
and provide a ‘single pane of glass’ view of security priorities that need to be
addressed, providing increased protection to PO customers, data and systems.
3. This activity is included within the Security 3 Year Plan to increase PO IT security
capabilities through the Security Transformation Steering Committee.
Besides the Loss of Sensitive Data Operational Risk, which is outside our risk
appetite, PO are subject to regular attempts to disrupt service or steal
funds. Implementing the SOC is part of the programme to bring us within risk
appetite, the tooling within the SOC solution will reduce the risk of service
disruption or financial loss. The Security Operations Centre will also align to the
industry standard of the Cobit 5 controls model as part of the IT Controls
I Framework programme.
The proposal
4. We will develop SOC capability using a hybrid solution of internal analysts
supported by outsourced technical capability.
5. The SOC will have these core capabilities:
e Security Information and Event Management (SIEM) platform to correlate
security data from across the PO infrastructure
e Governance Risk and Compliance platform to manage incidents and risks
e Firewall Assurance platform to interrogate PO Firewalls to ensure they are
configured correctly
e Vulnerability Management correlation to determine the severity of vulnerability
exposure across the infrastructure
e Anti-Phishing and education platform to activily protect against Phishing attacks
and raise awareness throughout the organisation
e Threat identification to identify where the PO is being targeted
Key Benefits
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6. The key benefits from a SOC include, but are not limited to, the following;
. Greater protection of PO sensitive information and data
. Greater insight into security related events and trending capabilities
. A business focused solution with people, process and systems addressing many
of the existing concerns and recent audit findings relating to IT Security
improvement.
. A single source of security related information and alerts
. Correlation of IT Security incidents and events across the PO estate resulting in
more effective detection and prevention
. The ability to conduct security awareness and training to protect against phishing
attacks
. Early identification of threats and credential/sensitive data leakage
. A single source to manage and report on all server cerfificates, ensuring no loss
of service
° Greater control and visibility of PO assets
. A central team to manage and enforce security policy and process for PO
Information Security
° Ability to manage potential incidents inline with GDPR requirements meeting the
need to formally report incidents within 72 hours should they occur
° Centralised Governance, Risk and Compliance (GRC) platform providing tailored
dashboards and reporting by business unit
. Support for audit and compliance objectives
The business case
7. The business case is to develop and deploy a SOC including an operational team
focused on IT security and a Governance Risk and Compliance (GRC) capability
to correlate output from all identified 3" party suppliers where IT service or
infrastructure is provided into a single SIEM platform allowing for increased
control and visibility. This business case supports development and delivery of
the Post Office SOC. The scope includes (software/hardware/licences), the
operational team to support the SOC processes, a single SIEM platform in which
we will correlate IT security data from our IT Supply Chain.
8. We will implement capability via a phased approach, building the tooling within
the Verizon cloud environment first, migrating Tower logs and gaining quick
visibility of the IT Security controls in place, maximising value at earliest points.
9. This solution mature PO IT security and reduce our risk exposure, which in turn
will help to protect PO assets, enable compliance to regulatory requirements,
protect PO customer data and PO reputation.
10. Once the SOC has been implemented, PO will have an ongoing capability to
manage and control IT security events and incidents in a timely fashion and have
the ability to easily demonstrate compliance to multiple Information Security
standards, such as IS027001 and PCI. We will achieve this through a small on-
site PO and 3'¢ Party team who will manage the SOC environment and provide
24x7 protection.
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11. Through the ability to demonstrate compliance, the solution also supports the PO
General Data Protection Regulations (GDPR) project, which requires the ability to
identify and manage Information Security incidents within 72 hours, as well
demonstrating compliance to the expected controls.
12. As the SOC matures, PO will be able to be more vocal about our Information
Security capability to customers and partners.
Why Verizon
13. All existing suppliers were reviewed against an agreed set of requirements,
following a standard procurement process and the Verizon service offered the
best fit with regards to technical solution, services offered and price against PO
requirements.
14. Concerns exist about Verizons delivery capability on Network rollout (especially
with its weak European presence and capability) and their ability to manage SOC
delivery alongside their existing challenging plan. They have demonstrated:
« The team respoinsible for delivering the SOC are separate from the
existing teams providing current delivery to PO
e They have the skill to deliver the proposed solution
« The SOC will be hosted within the UK, it will be managed from Germany
which is inline with Government directives, furthermore should
requirements following Brexit dictate the management of the SOC can
easily moved to the UK
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Appendix 1 - Financial Summary
Investment
tk Sunk costs 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 Totat
Capex 249 J q c a 9] 2454
Exceptional a Fl a q 0 q qI °
‘Opes a] 9 a I A a 4] °
Client Funded A a , 7 5 a a] e
Total POL
Investinent
‘Drawdown Request
ek 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 ‘Total
Capex 7 y zac q a q J 2136
Exceptional d Q I q ql 9I e
Opex I a a q cl a 4 e
‘Ghent Funded 5 9 5 5 A a 5 °
Total Drawdown
Request
Tota! New Request
Tmnpact on EBITDA
£k 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 __‘Totat ee I
Net income J zi q J q 4]
Direct Product Costs ql z 4 zi a a
Coat Saving A 5 ri a 4]
Recurring Costs: (2,475)
‘otal impact on TE
bebdlaiudue peurring
> eect yous Garroas Sammi
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Health and Safety Deep Dive Review
Authors: Martin Hoperoft_ Sponsor: Al Cameron Meeting date: 31* October 2017
Executive Summary
Context
The Board received updates on its legal responsibilities for health and safety in
July and September. In summary, the Board should ensure there is strong and
active leadership from the top; that workers are involved; that we undertake
assessments of health and safety risks; and that we review our performance.
The Health and Safety Executive advises that Boards are able to demonstrate
that they have actively sought to understand the risks posed by the business’
operating model and have required regular assurance from management to
demonstrate that the company has implemented safe systems of work.
Questions this paper addresses:
. Do we enable the Board to fulfil its duties?
. How safe and well have we become?
. What issues are we currently working on?
. How do we get assurance that we are doing everything we should be?
RWNe
Conclusions:
We believe that our structures and reporting enable the Board to fulfil its duties
and that strong and active leadership is maintained from the top.
Safety performance has improved significantly over the last 5-6 years and
wellbeing, measured in terms of absence, appears to be at acceptable levels. Work
is continually underway to maintain safety and wellbeing across the organisation.
Priority areas for focus include fabric checks on buildings, especially vacant
properties, a review of road risk and increasing training to identify and manage
mental health issues. We are currently commissioning an expert, third party audit
of our management of safety to provide assurance.
Input Sought
The Board is asked to consider and challenge our approach to safety, agreeing to
provide ongoing support for the work proposed.
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The Report
How do we enable the Board to fulfil its duties?
1. The high level structure of our approach to safety supports the guidance:
Requirement Approach
Strong and active Executive accountabilities changed at the start of 2017 with the CFOO
leadership accountable for safety, reflecting the risk focus on operations and property,
and the HRD accountable for health and wellbeing. Performance is reviewed
monthly at Operations Board and a sub-committee of the GE meets to deep
dive on specific issues and to consider risks assessments. A specialist team
supporting and challenging health and safety has a reporting line through to
the CFOO. Monthly reports are received at GE and Board and a safety metric
is included on the GE’s monthly scorecard.
Workers involved Many operational teams are actively engaged and accountable for the
health and safety of their people and affected third parties, including Supply
Chain and Property. The Union has designated health and safety
representatives who work closely with our specialist team.
Undertake risk Risks are monitored continuously for some areas, either through outcome
assessments measures or activity measures such as property compliance. Other risk
assessments are either undertaken on a periodic basis (fabric checks) or as a
concern is identified. A GE sub-committee risk workshop was held earlier in
2017 to consider any additional risks that we should be managing that don’t
appear in outcome reporting.
Monitor, review I The GE and the Board receive a monthly performance report and an annual
and report deep dive.
How safe and well have we become?
2. Safety performance has improved substantially. We are experiencing fewer
and less severe accidents than at any time over the last six years. However,
the overall trajectory seems to have flattened in 2017-18 and we need to
consider what will create further improvement.
Year 12/13 I 13/14 I 14/15 I 15/16 I 16/17 I 17/18
to date
All accidents 301 267 238 198 129 65
All accidents/1000 38.21 33.49 32.03 29.29 21.02 25.7
employees
Lost Time accidents 47 33 41 38 16 11
Lost Time accidents/1000 5.97 4.14 5.52 5.62 2.61 2.17
employees
Lost Time Injury 0.40 0.28 0.37 0.37 0.16 0.28
Frequency Rate (LTIFR)
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. Whilst it is difficult to get comparable information to benchmark this
performance on a like-for-like basis, we have obtained information for a
number of large organisations (see appendix 3). While our overall performance
is satisfactory, we believe that it can be improved. In particular, Supply Chain
LTIFR appears to be settling at c. 0.6, down from 1.04, when 0.3 is world class:
we are targeting 0.3 by 2021. As members of the Home Office sponsored BSIA,
we are participating in a benchmarking exercise for security carriers to help
identify and adopt best practice across the Industry. To understand
performance we should also compare accidents and lost time accidents per 000
employees. (See table above).
. Robberies are more variable, with “fashions” emerging for attacks on Supply
Chain staff, branches and ATMs. Overall, the trends are as set out below. This
remains a continuous area of focus as we try and equip our people and our
agents with the appropriate protection. All of the robberies in Supply Chain this
year have been snatches as the cash is being carried between the van and the
shop — a departure from last year where there was greater focus on the hand
over within the shop. We are trialling body cameras for the drivers to see if
this is an effective deterrent:
Year 14/15 15/16 16/17 17/18 to
date
Attacks 104 108 150 82
Injuries 17 15 15 7
. As set out in the monthly report, the best measure of wellbeing remains
absence, which YTD is at 3.5% versus a budget of 3.4%. This compares
reasonably well with other companies and with previous years. We have seen
some summer spikes in DMBs and Supply Chain which are under detailed
review. The single greatest driver of longer term absence is mental health
and this is an area of much increased activity as set out below.
Apr_I May I Jun I Jul Aug I Sep I Oct I Nov I Dec I Jan _I Feb I Mar
2013/
14 3.2% I 3.1% I 3.4% I 3.2% I 3.0% I 3.3% I 3.6% I 3.4% I 41% I 3.8% I 3.4% I 3.30%
20147
35 3.20% I 3.20% I 3.20% I 3.60% I 3.70% I 3.70% I 3.70% I 3.70% I 4.00% I 3.80% I 3.70% I 3.40%
2015/7
16 3.00% I 2.90% I 3.00% I 3.00% I 3.10% I 3.20% I 3.00% I 3.40% I 3.60% I 3.60% I 3.90% I 3.50%
20167
17 3.20% I 2.90% I 3.00% I 3.40% I 3.40% I 3.60% I 4.10% I 3.90% I 4.20% I 3.80% I 3.80% I 3.30%
20177
18 3.30% I 3.00% I 3.20% I 3.70% I 4.00% I 4.10%
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6. A considerable amount of day to day activity and compliance checking goes
on across the business. A summary of this is set out in Appendix One. In
addition, we are working on a number of priority areas either because an
incident review has led to additional activity or because our own risk
assessment process has identified a gap. Details of these activities are
summarised in the table below:
issue Plan Completion Timescale
High risk incident involving loose I CBRE have risk profiled the fabric of I High risk—Dec 2017
signage at Muswell Hill I properties including signage, guttering, I Medium Risk - Mar 2018
highlighted the need to carry out
some additional fabric checks on
our buildings
downpipes etc and identified 9 high risk and
56 medium risk properties. We have gone
out to tender for remedial works.
The length of time we maintain
vacant properties presents an
‘ongoing risk. There is concern
that a number of empty
buildings are not receiving
frequent and sufficient fabric
surveys and therefore may be
deteriorating.
BNP Paribas have agreed to reduce this by a
further 39 properties by FY end and
monthly inspections are carried out to
mitigate potential risk.
Mar 18
Grenfell Fire Incident
Cladding checks have been undertaken
across the estate following Grenfell and the
4 higher risk sites have been cleared with no
remedial actions required.
Sept 17
Asbestos Removal
CAPEX approval for 17/18 works has been
agreed and 8 high risk sites have been
identified for asbestos removal. The risk is
being managed in these sites
Feb 2018
Risk of terrorist attack
Security arrangements are being reviewed
at all Support Centres and a proposal to
upgrade at Finsbury Dials has been agreed.
Anew barrier will be installed at the front of
the entrance to the building and a joint
reception created. Security guidance and
lone working guidance will be issued shortly
afterwards.
Nov 2017 (completion of
remedial works at FD is
dependent on landlord
agreement.)
Risk of Acid Attacks Guidance is being drawn up on how to I Nov 2017
respond to acid attacks and equipment is
being reviewed
Road Risk — we supply reducing I Developing a complete road risk policyI Nov 2017 for draft
levels of support and checking
including a strategy to reduce business
policy. Telemetry roll-
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from supply chain vehicles to
company cars to people using
their PO
own vehicles for
business
travel and mileage and delivery of a Drivers
Safety Training module through SF, covering
vehicle safety, personal safety,
phone policy etc. Telemetry is being
introduced across supply chain vehicles to
improve driving behaviours.
mobile
out subject to Belfast
trail results.
Ensuring Supply Chain drivers
are sober to drive: a driver lost
Working with Alco-lock to test device that
will not release keys if the driver is over a
Possible trial of device in
Jan 2018 dependant on
his licence but there was no I pre-set limit. outcome of meeting
evidence anyone has driven with union on
whilst intoxicated at work. 24/10/2017
Due to the volume of new I Health & Safety Team will continue to I Mar 2018
colleagues joining the business, I attend Lead Team meetings to ensure that
including the use of Contractors, I all managers, PiCs and their teams are
assurance is required that line I aware of their responsibilities and
managers are following the I completing H&S activities.
business and building induction I Checklists will be summarised by the HRSC
processes and providing ongoing I and shared with the H&S Team.
support.
Lone Working Lone workers risk assessment for support I Jan 18
teams being incorporated into Local Risk
Assessments and supporting _ training
package developed
Increasing sick absence levels in I A review is being undertaken by the Health I Results Nov 17
Supply Chain
Mental Health
tly Confidential
& Safety Business Partners to assess the
impact of change on working arrangements
and health and wellbeing of colleagues.
This includes analysis of accident and
absence data and trends together with a
survey questionnaire and summary to the
Operations Board.
OH Assist ™ are preparing a range of tools
and guidance to support the roll out of
positive mental health ‘first aid’ to all parts
of the business with 60 First Aiders being
identified. Training scheduled for Nov 17.
There has been a successful pilot of Mental
Health Awareness workshops for Managers
provided by the HR Advice and Guidance
partner Adviser Plus. These will continue to
roll out during Q3 and Q4.
From Nov 17
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How do we get assurance that we are doing everything we should
be?
7. We are setting up two formal audits to give us comfort that our approach and
focus is complete and appropriate, one on property specifically and an overall
piece of assurance on our approach to safety. The safety audit has been
narrowed down to two providers, the HSL or the British Safety Council. We are
looking to complete the first phase during Q3.
Appendix 1 Compliance and Wellbeing Initiatives
Health & Safety Policy, Organisation and Arrangements.
A full review has been undertaken and all parts of the Policy were found to be
suitable and sufficient.
Risk Assessment
- Generic Risk Assessments have been reviewed and updated for 2017/18
- Local Risk Assessments have been simplified, updated and issued.
Training
Refresher Training has been provided to all Person’s in Control and their
deputies. Property H&S workshops have been provided to Directly Managed
Branch Managers and Supply Chain Shift Managers and Support Centre PiCs.
Compliance
Compliance is being measured in a number of ways.
- Through receipt of the Certificate of Compliance from all line managers
- Completion of all calendarised H&S activities
- Results of H&S Business Partner Audits
- Results of Property Building Hazard Risk Assessments (Fabric)
- Summary reports from FM Providers, CBRE and Servest
- Results of Trade Union Inspection Reports
- Accident investigations
- Checks undertaken by Vehicle fleet providers
- Audit results from the Supply Chain Compliance Team
Property
All fire risks assessment actions have been closed out. Our site audits have
evidenced that in the main we are managing our buildings and housekeeping is
improving.
e The Statutory Compliance Dashboard can be viewed at Appendix 2
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e New Site Log Books have been distributed to the sites and training workshops
have been provided by the Property and H&S Teams to upskill PiCs in the
Directly Managed Branches, Supply Chain sites and Support Centres.
e Previous concerns on how we dispose of IT hazardous waste, in particular
printer cartridges are currently being addressed by IT with a new supplier being
procured.
« Waste Management - Between June 16 and July 17 Servest managed 1404.70
tonnes of waste compared to the previous 12 months rolling period of 1381.69
tonnes of waste. This represents an increase of 1.66% in waste produced,
however, 98% of this waste continues to be successfully diverted from landfill.
Hosted Sites
e Guidelines were issued to PICs in hosted sites to help facilitate their
relationship with WH Smith’s store managers
e A positive relationship is developing between Post Office and WH Smith’s
Director of Risk and Health & Safety Managers.
ly Chain
e Prior to the Simplifying Supply Chain Programme, all Persons in Control were
trained to the BSI OHSAS 18001 standard and audited by the Compliance Team
with support from Health & Safety Business Partners.
e Additional support was provided during the transitional phases including a
review of lone working with risk assessments undertaken for all depots.
Security
e CViT - Supply Chain Risk Assessments, Robbery (including body armour),
Premises and Vehicle Risk Assessments have been reviewed by the Security
Programme Manager and Head of Health & Safety. The risk assessments are
still relevant with sufficient controls.
* Post Office Robberies - There was an increase in volume towards the second
half of 2016/17 and a number of interventions agreed to reduce risk. A security
scan across the organisation has been undertaken. Following the recent ONS
report suggesting shop theft has increased by 11%, a review will be
undertaken to understand whether there is a correlation with higher losses and
robberies.
Road Risk
The number of Road Traffic Collisions has continued to reduce following a number
of initiatives being implemented over the last couple of years.
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e Road risk forum held to monitor, review and develop initiatives
e For Supply Chain Commercial drivers
- On-site coaching focused on reversing techniques.
- Case conferences to ensure consistent approach to accident
investigation
- Revised approach to incident management introduced
including: Driver welfare discussion; In depth incident analysis
with driver and risk profiling; Training needs analysis and
provision;
e For Company Car Drivers, Programme of driving and road risk communications
(Driver Focus)
Wellbeing and Health
The Health & Safety team are raising awareness of the Occupational Health
resources available by:
e Attending Team Meetings
e Providing personal health checks to employees across the business.
e Soft launch of the Post Office Wellbeing Portal, formal launch October 2017.
e Extension of the absence ‘case management’ pilot, OH Assist™ Advice Plus,
providing additional support for line managers with limited or no experience of
managing an absence referral.
e Encouraging proactive ‘at work’ referrals and targeted interventions in line with
absence causation.
e Mental Health Awareness workshops for managers have been successfully
piloted and will continue to year end.
e A ‘positive’ mental health awareness approach has been successfully utilised
in Chesterfield FSC and Birmingham Cash Centre.
e Health Checks through the Self Service Kiosk have been offered to large sites
and these will continue to be offered across the business (either Kiosk or
Mobile) with ongoing analysis of data to inform future intervention and support.
¢ Communication of monthly ‘health’ related campaigns via Intranet (posters
and handouts)
e Extension of Employee Assistance Programme ‘Trauma Support’ coaching,
including training Customer Service and HRSC helpline advisers to handle and
cope with difficult calls. This bespoke coaching, provided by an OH Assist
Psychotherapist, will be extended further to managers including guidance
through the provision of a ‘Suicide Policy’. Will also extend to Contract
Advisers, Security Managers and specific Network Operations Managers.
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APPENDIX 2 - Statutory Compliance Dashboard
homberof Noof TolalProperty Number of I Tola Prop
Property Pslialiy Property Unis Service Property Unis Sevice
Sevice Line Statutory Compiinace inspection's Unit te, Unis wth Line wih; Unis witn Lhe with ne
Appicabieto I 7 rscecions dale Detect Detects
Service Une MSPPPP’ Ouistanding Inspections % Ouistandiag outslandng %
a
LUGHTINING PROTECTION SYSTEM INSPECTIONS
lear
leuec Fwrcerr
HV SWITCHGEAR INSPECTIONS
LV SWITCHGEAR INSPECTIONS
IRCD / RCBO OPERATIONAL TEST
IGENERATOR MAINT
luPs MAINT
L8-RA INSPECTION (Legionella Risk Assessment)
LEGIONELLA SAMPLING
HVC INC E-COU & COUFORMS SAMPLING
IPASS / GOODS UFTS MAINT (6 MTHLY)
[GOODS UFTS (Inc Lifting Bearns) MAINT (12 MTHLY)
IPASS/GOODS PLATFORM LIFTS MAINT(6 MTHLY)
IGOODS ONLY PLATFORM LIFTS MAINT (12 MTHLY)
IESCALATORS MAINT (6 MTHLY)
IPASS / GOODS UFTS EXAM (6 MTHLY)
IGOODS LIFTS {Inc Lifting Bearns) EXAM (12 MTHLY)
IPASS/GOODS PLATFORM LIFTS EXAM(6 MTHLY)
IGOODS ONLY PLATFORM LIFTS EXAM (12 MTHLY)
IESCALATORS EXAM (6 MTHLY)
IGAS (HTG) SYSTEMS SAFETY INSPECTIONS
IGAS - CATERING EQUIPMENT MAINT
IFGAS - SYSTEMS REGISTER
IFGAS MAINTENANCE INSPECTIONSI 12 MONTHLY)
IFGAS MAINTENANCE INSPECTIONS(6 MONTHLY)
IAIR PRESSURE SYSTEMS - WSE
IFUEL ISLAND SYSTEMS (STORAGE & DELIVERY)
IAD BLUE - FUEL ADDITIVES (STORAGE & DELIVERY)
INTERCEPTOR / OIL SEPERATOR INSPECTIONS
IASBESTOS REGISTERS & SURVEYS.
IRADON GAS MONITORING
LEV EXAM-MAINT INSPECTIONS,
IACCESSABLE - POWERED DOORS
MAINT INSPECTIONS
IROLLER SHUTTER DOORS
IMAINT INSPECTIONS
IGREASE TRAP INSPECTIONS
[TlMiaa (ACI) INSPECTIONS
B eoovccce ker Zoococ care mocoongwogor
bh PokeoucosonpouwrpoonuecofuorgeBou
lDecs
IFIRE RA (Risk Assessment) SURVEY
IEML ANN INSPECTION
IFIRE DETECTION & ALARM SYS INSPECTIONS
IFIRE EXTINGUISHERS
Ne Boo oo &
°
o
1
a
0
40
7
1
Number of Property Units, Applicable to all Gervice Line's
Number of Property Unis inspections w-date
Number af Property Unite with outelanding Inspections.
Number of Pronert Unsts with defects outstanding
Nubiber of Property Units with no defects outstanding
Totes number of Property Unils wthin the vispection date %
Tote: number of Property Unite wih no defects oulstand.ng %
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APPENDIX 3 - Benchmark Data ~ Lost Time Accident Frequency Ratio
s I jounod Yyoiwesey [eolpaw,
s
3 i PHO jEUCHEN
3
2
3 PB orem usmoos
Koueby jUeWUOIAUg
009
I
BLIZL Ed SOWO ISOd
®OWO 180d
PY JaqeAA UBLIQUINUYON
0.28
I E 0.17
0.48
0.28
0.49
BLIZL Ed Cd) HEW 1eh0N
LTIFR per 100,000 hours 2016/17
(Uday) WHEW 1eAoy
0.53
0.66
sesvies Jayeyy uelbuy
pr] sw BAouU
sjeueg ysnioos
4.00
1.20
1.00
0.80
0.60
0.40
0.20
0.00
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APPENDIX 4 — Benchmark Data ~ Sick Absence Rates
(Loz
faning 2010-4 inoge))
suonednso9 oped Polls
19
(910z,
+ faring 29104 inoqe})
Ns seaneiedg eulypeW,
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2017
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POST OFFICE BOARD PAGE 1 OF 3
Post Office Limited Sealings
Author: Jane MacLeod Meeting date: 31 October 2017
Executive Summary
Context
The Directors are invited to consider the seal register and to approve the affixing of
the Common Seal of the Company to the documents set out against items number
1576 to 1591 inclusive in the seal register.
Input Sought
For the Directors to resolve that the affixing of the Common Seal of the Company to the
documents set out against items numbered 1576 to 1591 inclusive in the seal register
is hereby confirmed.
Strictly confidential
POST OFFICE LIMITED
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Date Register of Sealings Company Number
25.10.2017 21554540
‘Seal Number Date of Date of Persons Attesting Destination of
i File Ref. Sealing Authority Description of Document To Document Document
1576 / Deed of 25/09/2017 22/09/2017 I Deed of Rectification between The Post Office Limited (Parly 1) and RT I Victoria Moss, Deputy Company Jean Reynolds
Rectification Incorporated (Party 2) and Property Network (Balham) Limited (Party 3). I Secretary
This deed is supplemental and collateral to the Original Document. The
Original Document did not correctly reflect the intentions of Party 1, Party
2 and Party 3. Party 1, Party 2 and Party 3 have agreed to rectify the
Original Document on the terms set out in this deed. Seal (x1)
1877 /TR 25/09/2017 22/09/2017 I Transfer of whole registered title in respect of property 83b Keppel Street, I Victoria Moss, Deputy Company Jean Reynolds
‘South Shields, NE33 1AA (Title no TY510085). Transferor: Post Office I Secretary
Limited; Transferee: South Tyneside Council. Seal x1 I
1878 / Deed of 26/08/2017 22/08/2017 I Deed of Surrender relating to Post Office premises at Salisbury FPO, 24- I Victoria Moss, Deputy Company Jean Reynolds
Surrender 36 Castle Street. Salisbury, SP1 1AA. This deed (Title Number Secretary
WT267172) is between (Landlord) Bristow Croysdill LLP and (Tenant)
Post Office Limited. (x1) i
18797 28/09/2017 28/09/2017 I Underlease of forming part of the premises known as 20 High Street, Victoria Moss, Deputy Company Jean Reynolds
Underlease of Denbigh, Denbighshire, LL16 3RY between Royal mail Group Limited Secretary
Denbigh (Head Landlord), Post Office Limited (Landlord) and IR Dim Limited. Seal
xt
1880/Lease of 03/10/2017 27/08/2017 I Lease relating to property of Unit 3, Union Glen, Aberdeen, AB11 6ER, Victoria Moss, Deputy Company Jean Reynolds
Union Glen, which is between OCM Luxembourg Aberdeen Union Glen Apart-Hotel___I Secretary and Diane Blanchard,
Aberdeen SARL. (Landlord) and Post Office Limited (Tenant). Seal x1 Executive Assistant
1581 / Lease 03/10/2017 03/10/2017 I Lease relating to the property of 879 - 881 Finchley Road, Golders Green, I Victoria Moss, Deputy Company Jean Reynolds
879 - 881 NW11 8RT, between Kim Martin Jordan Lewison & Lindsey Frances Secretary
Finchley Road Brock (Landlord) and Post Office Limited (Tenant). Seal x1. I
1582 / Transfer 44/10/2017 11/10/2017 I Transfer of Freehold in regards to Post Office Catford, 187 - 189 Rushey Victoria Moss, Deputy Company Jean Reynolds
of Freehold - Green, London SE6 4BD and 1, 2, 3 and 4 Blackshaw's Alley, Rushey Secretary
Catford Green. Title Numbers: 387180, LN5718, 365454 and LN60106
Transferor: Post Office Limited; Transferee: Such Limited. Seal x1
1583/7 RE- 16/10/2017 271072017 I Re-Execution of the Settlement Agreement between New Call Telecom I Victoria Moss, Deputy Company CoSec
EXECUTION Limited (Employer) and The Post office Limited and Julie Berry Secretary Depository
‘SEALING (Employee). CAF no. 744, Original Seal (1562 x3) Date: 18/08/2017
(Seal x3)
15847 RE- 16/10/2017 27I07/2017 I Re-Execution of the Settlement Agreement between New Call Telecom I Victoria Moss, Deputy Company CoSec
EXCUTION Limited (Employer) and The Post office Limited and Craig McMillan Secretary Depository
‘SEALING (Employee). CAF no. 744. Original Seal (1551 x2) Date: 16/08/2017
(Seal x2)
15857 RE- 16/10/2017 2710712017 I Re-Execution of the Settlement Agreement between New Call Telecom I Victoria Moss, Deputy Company CoSec Contact
EXECUTION Limited (Employer) and The Post office Limited and Emma Moir Secretary Depository
‘SEALING (Employee). CAF no. 744, Original Seal (1549 x2) Date: 16/08/2017
(Seal x2)
Register of Sealings
Jane MacLeod
Page 2
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POST OFFICE LIMITED
Date Register of Sealings Company Number
25.10.2017 21554540
‘Seal Number Date of Date of Persons Attesting Destination of
1 File Ref. Sealing Authority Description of Document To Document Document
1586 / RE- 16/10/2017 2710712017 I Re-Execution of the Settlement Agreement between New Call Telecom I Victoria Moss, Deputy Company CoSec Contact
EXECUTION Limited (Employer) and The Post office Limited and Noreht Viljoen Secretary Depository
‘SEALING (Employee). CAF no. 744. Original Seal (1550 x3) Date: 16/08/2017
(Seal x3)
1587 RE- 16/10/2017 2710712017 I Re-Execution of the Settlement Agreement between New Call Telecom _I Victoria Moss, Deputy Company CoSec Contact
EXECUTION Limited (Employer) and The Post office Limited and Katie Crook Secretary Depository
‘SEALING (Employee). CAF no. 744. Original Seal (1563 x2) Date: 16/08/2017 (Seal
x2) i
1588 / RE- 16/10/2017 2710712017 I Re-Execution of the Settlement Agreement between New Call Telecom I Victoria Moss, Deputy Company CoSec Contact
EXECUTION Limited (Employer) and The Post office Limited and Stuart Jackson Secretary Depository
SEALING (Employee). CAF no. 744. Original Seal (1554 x3) Date: 16/08/2017 (Seal
x3)
1589 / Deed of 18/10/2017 17/10/2017 I Deed of Covenant relating to The Old Post Office premises at Post Office Victoria Moss, Deputy Company Jean Reynolds
Covenant Road, Bournemouth, Dorset BH1 18B. This deed is between Secretary
(Covenantor) Lambton Property Share Company Limited and
(Covenantee) Post Office Limited. (x1)
1590 / Deed of 20/10/2017 17/10/2017 I Deed of Appointment and Removal between (1) Multiplex Financial Victoria Moss, Deputy Company CoSec
Appointment & Trustees Limited (Continuing Trustees), (2) Youssef Daniel Arakji (New I Secretary Depository
Removal Trustee), (3) Harpreet Singh (Outgoing Trustee) and (4) Post Office
Limited (Appointer),
1591 / Licence 25/10/2017 10/10/2017 I Licence for Alterations and Retention (NYK314576) relating to 22 Lendal, I Jane MacLeod, Company Secretary I Jean Reynolds
Alterations/ York, YO1 BAA between Post Office Limited (Licensor) and York BID
Retention Company Ltd (Licensee). Sealing x1
Register of Sealings Jane MacLeod Page 3
POST OFFICE BOARD
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PAGE 1 OF 1
Post Office Limited Board Meetings
Author: Jane MacLeod — Meeting date: 31 October 2017
Executive Summary
Context
The Directors are requested to note the future meetings dates scheduled in respect of
Post Office Limited Board meetings.
Input Sought
The Board is requested to note the future meeting dates.
The Report
2017
Thursday 23 November 2017 13.30 - 17.00
2018
Thursday 29 January 2018 11.45 - 16.30
Tuesday 27 March 2018 11.45 - 16.30
Thursday 24 May 2018 11.15 - 16.00
Tuesday 26 June 2018 TBA Board Away Day
Wednesday 27 June 2018 TBA Board Away Day
Tuesday 31 July 2018 11.45 - 16.30
Tuesday 25 September 2018 11.45 - 16.30
Tuesday 30 October 2018 11.45 - 16.30
Tuesday 27 November 2018 11.45 - 16.30
Board October 2017
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Post Office Ltd
Post Office Board
34 October 2017
Location:
Room 1.19 Wakefield, Finsbury Dials, 20 Finsbury Street, London, EC2Y 9AQ, United Kingdom
ATTENDANCE LIST
ATTENDEES SIGNATURE
Parker, Tim
Callard, Richard
Cameron, Alisdair
McCall, Ken
Paula, Vennells
Stent, Carla
Tim, Franklin
Virginia, Holmes
Also in attendance
Balicao, Marla
MacLeod, Jane
Additional access
Regan, Avene