April 2015 Group Executive Agenda
Remember (a+vei) (otw) & (p&o) !
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Thursday 16! April 2015 + Paula Vennells (Chair) * Gavin Lambert * Alisdair Cameron
+ Neil Hayward + Steve Miller + Alwen Lyons
Start Ti Finish Ti + Martin George + Mark Davies
sn ti een ithe + Kevin Gillitand + Sarah Malone / Aidan Alston
09.30hrs 17.00hrs + Nick Kennett (plus visitors from Smith &
«Jane MacLeod ni Hay Group)
+ Harry Clarke
Papers are due 8" April 2015
Agenda Item Action Needed Purpose Lead
1. Talent - Capability Development To gain commitment to This is the third and final topic on Talent — having previously Neil & 09.30 - 10.15
the direction of travel and discussed how we attract and how we retain Talent. This Sarah
activities; and paper presents the actions required to create a robust Malone
sponsorship for the Post business-led capability plan and the mechanisms to develop
Office Learning Academy or source the capabilities required to deliver the business
strategy
2. IDA To request investment To understand how Post Office can win in identity. We are in Martin 10.15 - 10.45
and resource to develop a great position as the leading brand in an emerging market.
an Identity Services We need to invest now to understand how we can maximise
strategy for Post Office the capability we have and ensure we stay ahead our
competitors
BREAK 10.45 — 10.55
3. POL Top Risks Review top risks for GE to review the tops risks and be content that this Jane 10.55 — 11.55
annual report / Board represents the risk profile of POL
4. POMS POL Board Sign off Sign off POMS to set up as a principal for Insurance broking. Nick & 11.55 - 12.35
Jane
Post Office®
CONFIDENTIAL
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Agenda Item Action Needed Purpose Lead ing
5. Election To review risks and To ensure GE is sighted on general election and new Mark 12.35 — 12.55
opportunities presented by government influencing strategy and tactics
potential change of
government
6. Health & Safety Update and detailed debate 12 monthly detailed debate on Health & Safety ~ previously GE _——Neil &
Action Simon 12.55 - 13.15
Eldridge
LUNCH 13.15 — 13.45
7. Agent Engagement and To discuss with GE the To agree business priorities and actions in response to the Sarah 13.45 — 15.15
Results of the Employee headline from the 2015 survey. In advance of this each Director will have had a 1:1 Malone &
Survey Feedback postmaster survey and advise session to immerse themselves in the results and so the Aidan
on next steps to drive purpose of this session is to agree the business activity (that Alston
postmaster engagement will be collectively owned by GE) that will drive employee
throughout the year engagement across the business throughout the year.
BREAK 15.15 15.25
8. Crown Transformation Paper The GE is asked to note the To present and seek commitment from the GE on the proposed Kevin & 15.25 ~ 16.25
and Projected Year End P&L strategy, endorse a three year future strategy for the Crown Network. In advance of this all Harry
budget envelope for CTP2 directors will have had 1:1 meetings with the team involved. Clarke
against which individual Decisions from the GE are needed now in order to establish
business cases will the scope and scale of the CTP2 programme and begin
subsequently be developed, delivery this financial year. Inherent within the strategy are
and make decisions on the choices about breakeven, our pace of reaching a commercial
business appetite for the more tate of return, and political and delivery risk appetites
radical options available to
accelerate the breakeven
point.
9. GE Action Log All 16.25 — 16.35
Post Office®
CONFIDENTIAL
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Agenda Item
Purpose Lead
40. Noting Papers) :- 16.35 ~ 16.50
+ Significant Litigation Report
11. AOB 16.50 ~ 17.00
CLOSE 17.00
Post Office® CONFIDENTIAL
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MEMORANDUM FOR: The Group Executive of Post Office Limited
FROM: Sarah Malone, Head of Learning, Resourcing and Talent
SUBJECT: Talent — Developing Capability and Capacity
DATE: 16 April 2016
Executive Summary
1.
Assuring capability and capacity to deliver POLs business transformation has been
identified as a high priority issue on the overall principle risk register, and there are a
number of things that we need to do to ensure this risk is properly mitigated.
There is an opportunity to be bolder at this year-end such that we properly differentiate
and then recognize/reward for performance. The tone for this must be set from the
Group Executive (GE) downwards.
The quality of the leaders — their ability to nurture and reward talent is critical, and we
must ensure that we have the right leaders in place. We will identify ‘gaps’ and hire to
close those gaps where necessary at the most senior levels. We will also continue to
invest in training to ensure that leaders at all levels know how to create engaged and
motivated teams, who deliver more for them and us.
The Post Office Learning Academy will be the vehicle that enables us to offer
development aligned to progression, in a more cost-effective and digital way pan POL.
It will be created during the next year.
Sustainable change will be achieved through improvements to our talent and
performance processes longer term. We will build new processes this year ready for
implementation in the following financial year.
Recommendation
10.
There are a number of short term and longer term initiatives that the business will need
to undertake, supported by the People & Engagement function. These are set out
below;
Ensure that the year-end performance ratings for 14/15 and subsequent bonus
allocations reward the highest performers we have and take into account retention
risks, i.e. we properly differentiate and recognise/reward for performance.
At the most senior levels (GE -1/GE-2) complete an in depth review of the leadership
pipeline during 15/16, to ensure that succession plans are in place — on a contingency
basis, and a longer term, planned for basis. We anticipate that the gaps we identify will
continue to necessitate senior hires from the market in a number of areas to close
specific critical capability and knowledge gaps.
Design and create the Post Office Learning Academy, during 15/16, to improve the
efficiency and effectiveness of training delivery across POL.
Put in place a revised, integrated performance and talent cycle ready for the next
financial year 16/17 that better enables the surfacing of talent within POL, to ensure we
both retain individuals with scarce skills in the market, and better support higher
performing individuals, with longer term potential.
Whilst these four strands of activity will build capability and capacity across POL over
the longer term, in the next year we see two clear immediate priorities contained within
them. They are to complete the identification of capacity and capability gaps at the
most senior levels (and then hire to close those gaps); and run the year end
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performance process such that we do understand who our best performers are, and
that we actively retain them, to ensure business outcomes.
Financial Metrics
11.
Budget for development work (development of processes, for example) is included in
BAU budgets or has been accounted for in the “Ways of Working” Transformation
budget, and will be drawn down through the Clearing House process.
Previous Approvals
12.
13.
The proposals in this paper have been discussed with:
Nick Kennett
Alasdair Cameron
Neil Hayward
We have previously agreed to create the Post Office Academy covering learning and
training activities across POL. The detailed design work for this organisation will
complete over the next 8-10 weeks.
Background
14.
15.
16.
17.
18.
Workforce trends’ data reminds us that POL is fighting for talent in an ageing
population, with a growing skills and qualifications gap. Highly skilled individuals and
those with scarce skills are able to charge a premium for them, and, as a nation, our
requirements from work are changing - as are general career patterns. The market for
talent is more competitive than it ever has been, and UK employment is at its highest
since records began in 1971.”
We are reorganizing our business against this backdrop. Good people have choices in
the market, and attracting and retaining new hires remains challenging. For these
reasons, we have to be certain that we retain scarce skills as we evolve, and manage
those we identify as having the highest performance and potential levels more carefully.
The way we do this needs to become an embedded part of how we run our
organisation, not an afterthought. This is something to keep in mind immediately since
Wave 2 OD goes to consultation on 13 April 2015, and affects a further 94 roles across
the Post Office. The HRBPs are tasked with helping you ensure we implement Wave 2
in such a way that we achieve our cost outcomes, whilst keeping relevant skills and
knowledge inside the business.
We are already making significant workforce changes. Leaving the Business with
Dignity (LBD) across the Crown Network is refreshing capability at the frontline — and
we have planned for and are meeting the recruitment challenge this creates. Currently
only 10% of POLs workforce are under 30, compared to the UK working population of
approx. 21% for that age demographic®. LBD will start to address this imbalance.
Our current talent processes are patchy. In the last talent identification exercise that we
undertook in 13/14 we identified 20 high potential candidates from a pool of approx.
460 senior managers (4%). Of the 20 candidates identified, 18 joined the Senior
Management Talent programme, and 5 of those have since left the business. Our
approach to the identification and management of talent needs upgrading.
Some areas of the workforce are more critical than others. With significant growth
planned from Post Office Money and FS products, it is imperative that we immediately
address both the capability and capacity issues for FS — getting up to capacity through
a fast track recruitment campaign, and identifying both capability and process issues to
! Hay Group, Strategic Workforce Planning 2014
2 http:/Avww.bbc.co.uk/news/business-27406457
$ National Office of Statistics, 2015
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improve performance levels. Sean Leahy, who recently joined POL as Head of HR for
FS and Commercial, is already working on this. Having a stronger employer brand and
a pipeline for this particular part of our business will be critical for future growth.
Proposal
Differentiate and recognise/reward for performance
19.
20.
21.
22.
Our performance curves at mid-year (2014/15) showed that differentiation across the
whole performance rating spectrum was limited with 1 (0.8%) and 5 (0.1%) ratings
significantly below the normal distribution percentage expected (5%). At year end
(2013/14), only 1% of employees were awarded a 5 rating. This suggests that we
struggle to differentiate performance well enough.
A bonus multiplier approach was put in place in 2014/15 in order to allow for higher
levels of bonus to be awarded to higher performers — ensuring that those who
contributed the most were rewarded appropriately. This doesn’t work unless the range
of performance ratings is used in full. Correspondingly, those not delivering
performance should receive less than their higher performing peers.
Past experience/data would suggest that we struggle to differentiate, and therefore call
out both exceptional or under performance. Our engagement data tells us that only
50% of people agree that poor performance is dealt with effectively. Ensuring that we
allocate bonuses according to performance contribution is an essential part of this. We
have the opportunity to recognise our best performers through the 14/15 year end
performance cycle.
Whilst the business will not achieve all of its targets for 14/15, we have individuals who
contributed significantly to business performance and who should therefore be
recognised and rewarded accordingly.
Action:
GE to ensure under-performance and high performance is identified through the year
end processes. Aligned to the separate review of talent retention risks already
underway. The GE will be reviewing year end performance ratings/distribution on 7"
May.
Review of the Leadership Pipeline
23.
24.
25.
26.
We have made changes in the GE over the last year. The addition of our new Business
Transformation Director completes the permanent team. We are also considering
evolving the monthly Executive Team meeting (Performance and Transformation) into a
broader Management Board, with additional senior level invitees.
The next task is to be critically objective when assessing levels of capability just below
the GE (GE -1 and GE-2 layers). This work started as part of the Wave 2 OD, and
each GE member is now having 1:1 conversations with Neil Hayward/Fay Healey to
build the capability map, risks and resourcing requirements for their own functions. This
review will be completed by the end of April to finalise the hiring challenges, and some
potential exits.
When looking at the SLT data from a succession perspective, there are some
weaknesses and gaps in most teams. The design of our organisation is not yet stable,
and there may be further SLT changes in a potential Wave 3 OD (across Sales, Back
Office Support, Learning & Development). This will be, however, another opportunity to
ensure that we are placing internal talent into suitably stretching roles, whilst attracting
additional ‘big hitters’ to our organisation if needed.
The McKinsey OD work highlighted some specific critical capability and knowledge
gaps we are exploring via the 1:1 conversations:
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27.
28.
29.
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Digital
Account management
Sales Capability (FS and Network)
In life contract management
Assurance and risk management
Commercial and analytics
We have successfully launched a number of Leadership development programmes to
support the development of our most senior leaders (GE, SLT), and front line leaders
(e.g. Crown Leadership Excellence programme), and have plans to address other
leadership audiences through 2015-16.
These leadership programmes will ensure that we message what is required to be a
senior business leader in POL more clearly, and start to shift the focus and culture
(towards performance) from the top down.
In the short term, we will also agree critical roles across the GE-1 and GE-2 for
succession planning purposes, and through the OD work, agree which roles require
formal talent pools (critical skills).
Actions
In the short term, work with GE to have succession plans in place (GE, GE-1, GE-2
levels) by end of the calendar year.
Review (as a GE on a regular basis) the progress made in strengthening the GE -1
and GE -2 populations, openly discussing Performance, Talent and Potential, gaps
and risks, stretch moves and relevant plans to address identified risks.
Continue to roll out the Leadership development programmes and framework to
ensure that we change the culture of POL.
Design and create the Post Office Learning Academy
30.
31.
32.
The GE has already agreed to centralise learning resources to build the Post Office
Learning Academy as part of the Wave 2 OD commitments.
The detailed design of the Post Office Academy will be completed over the next 8-10
weeks, and it will need GE endorsement before its formal implementation. The outline
of what the Academy will do, and how, was contained in the work presented as part of
Wave 2 OD.
Some of the key capabilities that the Post Office Learning Academy will likely address
first are Digital skills (leadership and across the Network, including FS), customer
experience skills and selling skills. These will be looked at through an organisational
lens, rather than by channel or audience.
Action:
GE to support the short term diagnostic and design activity to create the Post Office
Learning Academy, and formally endorse this prior to its launch during 15/16.
Integrated performance and talent cycle
33.
The diagram below explains how related performance and talent processes can be
integrated into an annual cycle, and driven by a singular view of the organisation's
needs (a Strategic Workforce plan). Alignment and improvement of these processes
together is necessary to create sustainable change (thereby enabling the surfacing of
talent in POL).
During 15/16 we will review these core business processes, seeking to create those
that are missing, and integrate those that already exist, but separately. At least at the
most senior levels within POL, we will need to create a clear view of performance,
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35.
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talent and succession planning, in order to ensure that we are investing in higher
performing individuals with longer term potential.
We will build a business case for the technology investment needed to give us a single
view of performance, talent and succession for the organisation. We are working from a
legacy of antiquated technology that is not user friendly, or fit for purpose. This will
need to align with thinking on Back Office IT procurement.
[ Strategic Workforce Planning
Business Pan organisation view of capability required to deliver
Strategy strategy
Employee
Lifecycle Talent Processes:
Employer Brand Employee Value Proposition
Attraction (eee Resourcing Strategy
(3) nduction and onboarding
‘Onboarding futur)
(4) janaging Performance Who are our critical players?
Woiaules * Talent identification
*Leadership Development Talent mobility/stretch
*Personal Development Succession Planning
Development
(6) *Talent Retention
Exit * Attrition monitoring and exit interviews
36. Some of the key actions to create a more sustainable set of people processes are listed
below:
Action Planned Dates
Review of Performance Management Cycle and integration of Talent I April— Sept 2015
Identification processes
Sales capability diagnostic review — and subsequent plan of action to be I May 2015
I agreed by GE
Develop Employer Brand and Employee Value proposition. Working with I June 2015
the Brand team to ensure join up with Post Office brand and customer
experience
Define strategic workforce planning strategy and process April 2016
Re design and launch new on boarding/induction processes November 2015
Risks
37.
38.
One of POLs principle risks is that we do not have adequate people capability or
capacity to deliver transformational change and the strategic plan
Due to the scale of the risk, there are a number of other areas within the People &
Engagement strategy that are designed as mitigation to this but have
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in this paper. Without the mitigating actions specified in this paper, the likelihood of this
risk occurring will increase.
39. A summary of the breakdown of this risk as it relates to talent has been included in
Appendix 1.
Conclusion
40. The GE is asked to support the recommendations contained within this paper, and the
specific actions listed.
Sarah Malone
Head of Learning, Resourcing and Talent
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Appendix 1: Talent Risk Assessment
e Weare unable to recruit the right people resulting in business objectives not being
met (1 =3;L=3)
Mitigation:
- Build a strong Employer Brand
- Ensure adequate reward structure to be competitive and attract right people
- Ensure strong strategic narrative to attract
- Develop better ways to attract the right people to Post Office
« Weare unable to retain the right people (I = 3; L = 3)
o Implement retention strategy
o Ensure strong strategic narrative that outlines “reasons to believe”
o Focus on engagement
« Weare unable to develop the right capability (I = 4; L = 3)
o Build a centralised L&D team and run a stronger training offer
o Develop strategic workforce planning capability within Post Office and
associated systems
o Ensure adequate investment for skills
e Under performance is tolerated and the organisation runs at a sub-optimal level of
effectiveness (I = 3; L = 4)
o Increase focus on performance management as a key management skill
o Review performance management tools and techniques for effectiveness
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MEMORANDUM FOR: Post Office Limited Group Executive
FROM: Martin George, Commercial Director
SUBJECT: Identity Assurance (Verify)
DATE: 16" April 2015
Recommendation
41 The Group Executive are asked to note progress made to date with the Verify
service and the scale of the opportunity:
At a conservative estimate of the service volumes, Post Office have
assumed in the three year plan c £20m net revenue with a direct contribution
of over 90%.
At a more optimistic estimate of the services volumes, Post Office will
generate c £100m net revenue over three years with a direct contribution of
over 95%.
1.2 The Group Executive are asked to note the initiation of a project, and an intent to
request a budget of up to £500K, to:
Rapidly exploit the opportunity within Government.
Develop a wider strategy for identity assurance within Post Office.
Executive Summary
24 Post Office has recently signed the latest Verify framework contract with Cabinet
Office, allowing it to supply identity assurance services for the next three years. In
order to capitalise on this opportunity, it now needs to:
Create a product roadmap and go-to-market strategy that will maximise the
number of identities registered with Post Office.
Determine how Post Office can take advantage of Verify to market other
products and services to individuals.
Scope the wider identity assurance market and how Post Office can exploit it.
Recommend a supplier strategy for the Verify solution.
2.2 Government Digital Service (Cabinet Office) has an identified pipeline of 21.5m
Verify identities (11.5m in 15/16). Using a conservative estimate of between 10%
and 20% of the volumes that GDS predict, the Government market is estimated to
be worth c £20m over three years to the Post Office. Using a more optimistic
estimate of 75% of the volumes that GDS predict, the market would be worth c
£100m over three years. Direct contribution from both scenarios is over 90%.
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Post Office is one of only three suppliers with a working solution and currently holds
a 60% market share of the identities being registered. Government has indicated
that the Post Office currently has the best product and this, along with the Post
Office brand and its reputation as a trusted Government intermediary, gives it an
New suppliers will join the market in May, including Royal Mail, PayPal and
Barclays. We believe that it will take them several months to set up accredited
systems, so we need to act now to maximise our market share in the face of
Post Office owns those identities registered with it and is able to make use of them
commercially outside the government sector.
2.3
advantage in this market.
24
increasing competition.
2.5
2.6
Currently only 26% of people who start a Verify journey using the Post Office
service complete it successfully and urgent work on the customer journey is
underway to improve this.
Financial Metrics
3.1 At the conservative estimate of volumes, the following net revenue and direct
contribution will be generated.
2015/16 2016/17 2017/18
Net Revenue £2,116,000 £7,029,000 £10,871 ,000
Direct Contribution 90% 96% 98%
Previous Approvals
41 Not used.
5.1 Not used.
Proposal
Background
6.1
6.2
6.3
In order to deliver the forecast savings of £1.7b from its Digital by Default
programme, HMG must provide users with a way of accessing online services that
will not cause an increase in fraud as physical identity checks are removed.
HMG has established GOV.UK Verify; a new on-line service that gives UK citizens
the ability to securely set up and manage assured identities. A brief description of
the early stages of Verify can be found in Appendix A. Post Office launched its
service on Sth March 2015.
The contract term for Framework (1) is due to end in April 2015 and accordingly
GDS ran a new procurement for Framework (2), on which Post Office has been
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awarded a place. The new framework will come into effect in May 2015. It will run
for three years with the option of a one year extension.
6.4 Nine suppliers have been awarded a place on Framework (2). Five of these are
new suppliers; the strongest brands of which are Barclays, PayPal and Royal Mail.
A full list of providers can be found in Appendix B.
6.5 All of the main political parties support the Digital by Default programme and the
Verify service; no change in direction is expected post-election.
6.6 A short description of how Verify works can be found in Appendix C.
Post Office’s Verify Opportunity in Government
6.7 HMG'’s Digital by Default model is predicated on the ability to provide citizens with
secure, assured online identities that are relatively easy to acquire. For the past 15
years any large-scale on-line Government services have used the Government
Gateway for this functionality and the Gateway hosts 10m+ identities as a result
(e.g. 4m identities for those people who use HMRC’s Self-Assessment online to file
their tax returns). However, the Government Gateway is now end-of-life and will be
removed by 2017 at the latest. GDS has confirmed that Verify will be the
replacement solution.
6.8 GDS’ near-term volumes pipeline (Appendix D) suggests that 11.6m of GOV.UK
Verify identities will be required in 15/16. GDS anticipate c 650k identities by the
end of June 2015, with that number rising steeply over the following 9 months.
6.9 GDS have consistently overstated the volume of applications through the system
and up to April 2015 only 5% (c 30k) of their forecast volumes to June 2015 have
been completed.
6.10 Post Office have assumed income on the basis that between 10% and 20% of the
volumes that GDS have predicted will come through the Verify service over the next
three years.
6.11 Five services have connected to Verify (the most significant of which is HMRC’s
Self Assessment online) and a further five services will have connected by July.
However, these are all still in trial or pilot phases. Now GDS are more confident of
Verify's ability to manage identities successfully they are working with government
departments to make Verify the default identity provider for online services by.
6.12 It is estimated that only 40 — 50% of people will have enough data available online
(e.g. via a credit check) to successfully register an identity with Verify. (This is only
25% on the Post Office service, although this is likely to be because people are
dropping out before they get to the credit check). Whilst this will be improved, there
remains a significant additional opportunity for Post Office revenue, by providing an
in-branch verification journey for those individuals who will not pass an online credit
check. This will be of particular interest to DWP’s Universal Credit Programme, in
which a significant proportion of claimants will not be able to successfully pass
online credit checks.
6.13 Approximately 50% of people who begin to register an identity using the Post Office
service are dropping out before they complete it. We believe that the number of
people who drop out will reduce as Verify moves out of the trial phase for
Government services, and becomes the default option, motivating people to
complete the registration. However, we are also working with Digidentity to identify
where the customer journey can be improved to reduce the drop-out rate, e.g. the
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introduction of a mobile app targeted at younger people with limited or no financial
record.
Leveraging Verify Elsewhere within Post Office
6.14
6.15
Post Office can leverage the Verify identities we own to make our services more
accessible and increase our ability to cross-sell services to customers by:
¢ Saving the individual from entering the same information more than once,
making it more convenient for them to apply for new products.
¢ Saving the individual from having to prove their identity or creditworthiness as
part of a new product application, or pass the Know Your Customer or Anti-
Money Laundering requirements of FS products (and save the Post Office the
associated processing costs).
In addition to the above, Post Office can increase its ability to up-sell products via
direct marketing (with customer consent) to the identities that it owns.
Wider Market
6.16
6.17
6.18
The total costs of the effort required to assure identity in the UK are estimated to
currently exceed £3.3bn (industry white paper the Economics of Identity).
Additionally, the cost of fraud and identity theft is now estimated to be £52b
annually (NAO National Fraud Indicator Annual Report).
Given this, Post Office will explore a number of possible opportunities for re-using
Verify identities in the wider market, including:
e Selling data, anonymous or otherwise, to other organisations.
« Providing customer identity management services to other companies, either
directly or white-labelled.
e Providing assurance of identities, or their attributes, to other companies.
e Providing identity services to highly regulated organisations that need to
assure themselves of the integrity of their workforce.
Our Verify Supplier Arrangements
6.19
6.20
Post Office has a contract with Digidentity until October 2015 for the supply of a
white-labelled identity solution. There is the possibility of a one year extension, but
procurement have flagged a risk that the extension could be challenged if we flow
down the terms of the new framework contract. In any case, we will need to
complete a procurement for a new supplier before October 2016. There is a risk of
having to accept worse commercial terms under a new supplier contract, reducing
our profit margin for the Verify service.
Post Office needs to determine what its supplier strategy will be in the future, likely
choosing between:
* Continuing to use a white-label solution via procurement.
¢ Building our own solution in-house.
e Buying the provider of a solution.
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Next Steps
6.21
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¢ Using a subsidiary to control our solution/service.
Approval will be sought through the Post Office governance processes for a budget
of up to £500k to resource a project team that will:
Work with Digidentity to identify and implement improvements to the Verify
solution to increase the number of people successfully registering an identity.
Develop and begin to implement a go-to-market plan which will maximise the
number of people who choose Post Office as their Verify identity provider, in
particular enabling us to take advantage of our position as the leading brand
with a live service.
Scope both the wider identity market and Post Office’s internal market for
Verify/Identity assurance, and create a strategy to exploit both these markets.
Determine the correct long-term supplier strategy for Verify.
6.22 A project team resource plan has been drawn up and we are working to
identify internal and external candidates for the roles before finalising our
budget.
Risks
Risk Mitigation
We fail to capitalise on our position as the
major brand with a live Verify solution,
limiting the number of identities we capture
and reducing our long-term source of profit.
We are working to create a go-to-market
strategy and believe we have at least four
months to begin implementation before
Verify volumes increase significantly.
We do not agree and implement product
improvements with Digidentity, resulting in a
high number of people failing to finish the
identity registration process.
We are working with Digidentity to identify
those improvements, and will be able to link
product improvements with any contract
extension.
Government withdraws support for Verify
after the election.
Government has publicly endorsed Verify as
the identity service of the future and the
service has cross-party support. Senior
figures within Cabinet Office are extremely
confident that this will not change.
Additionally, Verify has attracted international
attention and it would be very embarrassing
for Government to change direction now.
Our Verify competitors come to market with a
service more quickly than planned, or have a
superior solution to ours.
We are working at pace to improve our
solution and create a go-to-market strategy.
Government fails to deliver the predicted
pipeline of volumes through the system.
We are working with GDS to understand the
triggers that will release volumes into the
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system so that we can plan accordingly.
The system is seen by the public as being
unnecessarily difficult to © complete
successfully, resulting in it being unpopular
and negatively affecting Post Office’s brand.
Both GDS and suppliers are motivated to
make the solution as easy to use and
inclusive as possible.
Additionally, we have the opportunity to
provide an in-branch solution for customers
who find it difficult to complete the Verify
journey.
That we are unable to flow down all of the
new framework’s provisions to Digidentity
under the current contract, exposing us to
additional liabilities.
We are working with the legal and
procurement teams to flow down as much as
possible to Digidentity while minimising the
risk of an extension to Digidentity’s contract
being challenged by another potential
supplier.
That we are unable to secure the same IWe are looking at alternative supplier
commercial terms from a procurement to find
a new supplier of a white-labelled identity
solution from October 2016.
strategies for a Verify solution.
Conclusion
8.1
The Post Office’s Verify service represents an opportunity to generate a significant,
stable long-term revenue stream with an attractive profit margin.
8.2
Work is underway to maximise our market-share in the face of new competitors
entering the market and to ensure that we capitalise on the wider Verify
opportunities.
Martin George
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Appendix A — A brief history of the early stages of Verify
After the failure of the unpopular Citizen ID Cards programme in 2011, Cabinet Office
devised Verify, which uses private sector organisations as providers of identity services to
Government. Under Verify, private sector organisations will assert and manage individual
identities, charging Government for their use. They can also use those identities for their
commercial benefit outside of Government, reducing the cost of the service to Government
over time.
Accordingly, Cabinet Office (more specifically, Government Digital Services or GDS) ran a
procurement for a framework of suppliers in 2012, with the original Government customer
being DWP (for the Universal Credit programme). Post Office was successfully awarded a
place on the framework along with Experian, Digidentity, Verizon and Mydex.
The growth of Verify has not proceeded according to GDS’ original timescale, which was to
achieve millions of identities using the Verify service within two years. This is largely
because DWP’s Universal Credit programme has been significantly delayed. Additionally,
Cabinet Office has continuously evolved its requirements for the new system, making it
difficult for suppliers to achieve the necessary standards required to launch their live service.
Three suppliers (Digidentity, Experian and Post Office) are now live.
Appendix B - Suppliers on the Verify Framework
Identity Provider
Barclays
Digidentity
Experian
GB Group
Morpho
PayPal
Post Office
Royal Mail
Verizon
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Appendix C — How Verify Works
When a user seeks access to a Government service that is using Verify, they will be asked
to register an identity with one of the Verify suppliers. They will choose between the
suppliers from a Government controlled page. There is a limited ability for each supplier to
differentiate their service at this point. There is no other reason for a user to wish to register
an identity than to access a Government Service.
Once they have chosen, the user is transferred to the web application of their chosen
supplier. There they enter various details about themselves, with the Verify solution scoring
them across three categories: 1) Citizen, 2) Money and 3) Living. A credit check is also
performed to further assure the individual’s identity. If the individual fails the credit check
they will not be allowed to register an identity.
On successful registration the user returns to the Government service they wished to use to
continue their transaction. This triggers the registration payment of £25 to Post Office from
Government.
Subject to user consent, the identity data can be used by Post Office for other commercial
purposes, including cross-selling, up-selling and targeted marketing.
Each year that the identity is reused for a Government transaction, Post Office is paid a ‘re-
registration’ fee of £12.50. The user does not have to reassert that they wish Post Office to
manage their identity at any point.
Appendix D — Pipeline of Volumes
Rural
Payments
HMRC. PAYE 700,000 20,000 Connected February
(Change 2014; in beta
Company
Car Details)
HMRC Self- 3,000,000 50,000 Connected December
assessment 2014, in trial (limited
(trial)) numbers of people can
choose to use GOV.UK
Verify to access the
self-assessment
service)
BIS Redundancy I 100,000 15,000 Connected December
Payments 2014; in private beta
DWP Change of I tbc
address
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HMRC Claim an I 95,000 30,000 Due to connect by April
over 2015
payment of
tax (iforms
trial)
HMRC Tax credit I 2,000,000 300,000 Due to connect by April
renewals 2015
DwpP Universal tbc Due to connect by April
Credit 2015
HMRC. PAYE self- I 2,000,000 80,000 Connected February
service 2015; in private beta
HMRC. Transferable I 3,000,000 50,000 Due to connect by May
tax 2015
allowance
DfT/DVLA View Driving I 500,000 50,000 Due to connect by May
Licence 2015
PAGE 9
Annex 1: Principal Risks - I
Risk Title
A I Risks to
underperformance in
income
Threats to market share, sales, profitability, and cost base
rely for mitigation on managing a number of variables
with critical dependencies.
* FS growth targets are ambitious and entail additional
risk.
* Forecast sales / profitability may be inaccurate or
unachievable due to poor financial data used in
assessment
* Mis-aligned strategy with key partners; RMG, BOI
* Loss of market share in Mails; customer propositions
and experience fails to meet market expectations.
+ Network changes do not deliver expected increases in
profitability
Actions
Full life cycle review of FS / MS. Review Dialogue with
BOI
Project to develop short term financial Ml solution
Build RM negotiation strategy and modelling
Rollout CRM in agency
Improve customer experience proposition
Guiding coalition of agency mails specialists to be
deployed to increase mails sales
Common digital platform
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Underlying S
8.9; bby 1314:
16,17 I
PR2, PR4, PR7
B I Transformation not
delivered in full
Cost savings may be delayed or not achieved, or overall
service compromised.
+ IT replacements and upgrades not timely leading to
increased costs or infrastructure failure
* Inaccurate investment assessments lead to costly
errors in new product / customer solutions or structural
changes
* People capability / capacity inadequate to deliver plan
or compromised by industrial action
Embed risk management in programme.
Transformation assurance plan.
Create design framework for FO application
Review reward structure and develop PO vision and
change narrative
Re-invest in systems
Communicate change requirements and implement IRI
strategy
Project to develop short term financial MI solution
Roll out improved proposition across branch network
1, 2,3,4,7,9,
14, 17
PR1, PR2, PR3,
PR4, PRS, PR6,
PR7, PRO,
PR11, PR14
Annex 1: Principal Risks - I —
isk Title
Political
uncertainty
A change in political administration may change the shareholder's
view of POL.
Include solvency requirements for identified
critical risk exposures
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Underlying
risks
environmental
risks
* Response to market (product design and delivery) may not be
adequate or timely enough to prevent loss of market share
* BOI financial position may change and restrict support of POL
group
* Unable to attract quality partners due to market environment and
consumer behaviour.
* Uncertainty over the availability of funding beyond 2017/18 Communicate change requirement to PR5, PRO
+ Support required for changes in network transformation (‘Cliff’) stakeholders
may risk industrial action Implement IR strategy; secure Unite
agreement
Planning for new government with investment
case
Operational / Regulatory / legal breaches or failures in the operational control Upload historic contractual information into 6 10; 12, 15
Legal / Regulatory] framework lead to financial and / or reputational loss. new system and review
risks * Risk of aggressive FCA enforcement; potential for disaffected Clarify approach to policy setting and
‘whistle-blower’ in high change environment triggers FCA strengthen central compliance management
investigation. Review ISAG policy set and plan compliance
* High change environment may compromise manually based programme
control framework. Improved contract management
Market, macro- Strategy may be mis-directed or mis-aligned with market Work with BOI to minimise any limitations on I 11, 13, 14,
economic and developments, competitors response and changing consumer needs. growth 16, 17
Build negotiation strategy and modelling
Roll out CRM and develop improved customer
experience
Guiding coalition of agency mails specialists to
be deployed to increase mails sales
Roll out improved proposition across branch
network.
Highest rated risks from business area risk registers
Risk
Category
Score Owner
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Principal Risk
oOo NON PWN Ph
Delivery of new Front Office applicationdelayed Operational Lesley Sewell B
People capability and capacity are inadequate to deliver the strategic plan Strategic Neil Hayward B
Business transformation doesn't deliver objectives Strategic Transformation Cttee I B
Failure of infrastructure and application environments Operational Lesley Sewell B
Unintentional breach of contractual terms Legal Jane MacLeod D
Government funding is insufficient to enable POL to operate until 2018 Financial _I Al Cameron c
Risk of strike action Operational Neil Hayward B,C
Failure to deliver on FS growth targets and the risk of doing too much in a competitive : i :
: Strategic Nick Kennett A
field
Poor quality financial data and inadequate evaluation processes results in suboptimal
: a . Ne “ e e Financial 9 IAlCameron A,B
investment decisions i
Non-compliance with law and regulation Legal 9 IJane MacLeod D
Bol financial situation will not provide capability to support POL or willingness to support 3)
4 Ie z Re e we Strategic 8 ~~ ‘I Nick Kennett A,E
POMS
Inadequate controls around the management of information result in a breach of ye a
4 e Legal 8 Jane MacLeod D
company data a
Ineffective relations and agreement with Royal Mail External 6 {Martin George A,E
Parts of the network become nonviable Operational 6 I Kevin Gilliland A,B,E
FS mis-selling risk: non-compliant product distribution, design or marketing or tougher ey
“ 8 P P e e e Legal 6 ~~ I Nick Kennett D
regulation ‘I
Loss of market share in mails due to inability to respond quickly to market developments ‘ ‘
: 2 4 q 2 id Strategic 6 IMartin George A,E
leading to loss of revenue es
Delivering customer experience and propositions that customers want Operational 6 I Martin George A,B, E
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"Highest rated risks from business ar ea risk registers: Heat Map
woo Fs sks ' Tree iketinood
2]
ta
i
oO
Delivery of new Front Office application delayed _
[People capability and capacity inadequate to deliver plarjs_
Business transformation doesn't deliver objectives
Failure of infrastructure and application environments _
Unintentional breach of contract tens <
Gov't funding not sufficient to continue operations
Risk of strike action a
IIFailure to deliver FS growth targets.
_IFinancial data and evaluation gives Shona investindnt
10 INon compliance with law or regulation _
11 IBol financial situation not capable of. SDPO, POL
12 IBusiness continuity not fit for purpose
13 IInadequate control of information
14 IIneffective relations and agreerrent with RMG _
15 [Parts of network become non-viable ‘
16IFS miss-selling
17 ILoss of market share in Mails
_ [18 [Delivery of marketable customer propositions
coy
a
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part
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bel bal Da baba bebo al
Impact
wsfusfesfollaleIsIolBlufofulalalalala
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— frof{rtrolrIrotro{rtoofeoIcolw}co]oo}ooIuof afin
Likelihood _
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Highest rated risks from the Transformation Portfolio risk register
Risk Category Score Owner Principal Risk I
Transition Legacy IT Landscape Operational Lesley Sewell
Manage complexity of change (capability) Operational Neil Hayward B
CWU/Unite don't buy in to organisational change Stakeholder Neil Hayward BC
Strategic Objectives misalignment Strategic David Ryan B
Transformation function not designed and operating effectively Strategic David Ryan B
Benefit realisation (including Success Criteria) Strategic David Ryan B
Manage volume of change (capacity) Operational I Neil Hayward A,B
Competitive threat Strategic I Martin George A,B
Shareholder Agreement (Misalignment between programme and shareholder : ‘
ee Strategic David Ryan A,B
objectives)
National Federation Sub Postmaster (NFSP) disrupts service Stakeholder Neil Hayward BC
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_ Highest rated risks from the Transformation Portfolio risk a
Trl elie
Fonction ia Tans :
Manage complexity of change (Gpability)_
CWU/Lnite don't buy into organisational change _
Strategic Objectives misalignment . .
Ra onan hindio HE Gis ian EAN
Benefit realisation (including Success Criteria) :
Manage volume of eee (rey)
Competitive threat
Shareholder Agreement (Wilmer beeen progarre :
shareholder objectives) :
National Federation Sob Postrrster ) Bstrss ce
jwlwlsIalalalalw
Impact
i 3 fala pay
ES
Likelihood.
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MEMORANDUM FOR: Group Executive
FROM: Jane MacLeod, Group Counsel
SUBJECT: Principal risks assessment
DATE: 16 April 2015
Recommendation
1. The committee is requested to review the list of draft principal risks and be content that
they represent current Post Office risk profile. The committee is also asked to review
the actions and their adequacy in mitigating the exposures as shown in annex 1.
Executive Summary
2. A series of risk assessments have been conducted across all business areas using a
common format and rating mechanism. A portfolio risk register has been developed
and is being reviewed with theme leads/executives. Analysis of the highest rated risks
drew out a series of common themes to be used in the Annual Report. These are
summarized below:
Risk Title Risk Description
A I Risks to underperformance I Threats to market share, sales, profitability, and cost base
in income rely for mitigation on managing a number of variables with
critical dependencies.
B I Transformation not Cost savings may be delayed or not achieved, or overall
delivered in full service compromised.
C I Political uncertainty A change in political administration may change the
shareholder's view of POL.
D I Operational / Legal / Regulatory / legal breaches or failures in the operational
Regulatory risks control framework lead to financial and / or reputational
loss.
E I Market, macro-economic Strategy may be mis-directed or mis-aligned with market
and environmental risks developments, competitors’ response and changing
consumer needs.
3. Annex 1 provides a more detailed risk description and the main action plans to mitigate
the risks. It includes reference to linked business area risks and transformation portfolio
risk registers.
Previous Approvals
4. An initial draft of this paper was presented to Risk and Compliance Committee on 16
March. Feedback from the committee has been incorporated in the new draft of
principal risks.
Jane MacLeod
Group Counsel
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POST OFFICE LTD BOARD
Post Office Management Services (POMS) Accepting FCA Authorisation
1. Purpose
1.1. This paper seeks authority from the Board for POMS to operate under its own
authorisation with the FCA.
2. Background
2.1. Prior to the Board granting POMS authority to commence trading from January 2015, it
sought assurance from Grant Thornton (GT) that appropriate processes and controls
were in place’. The GT report tabled at the November 2014 meeting confirmed that,
while the necessary controls were in place for POMS to operate as an AR, it advised
that further actions needed to be completed ahead of POMS acting as a principal. The
Board required that these matters needed to be resolved ahead of it approving POMS
being authorisation as a principal.
2.2. As a result, since January 2015 POMS has been trading as an appointed
representative (AR) of Resolution Compliance Services (RCS) (for the sale of travel
insurance products via the website and the customer contact centre) and via Bank of
Ireland (UK) plc for branch-based sales.
2.3. At the November meeting the Board also required that POMS should have an
independent chair in place ahead of operating as a principal.
2.4. In March 2015, POMS received a ‘minded to approve’ notification from the FCA. This
confirmed that the FCA will approve POMS’s application to act as principal at a date
set by POMS and subject to POMS confirming certain matters.
3. POMS Operating as a Directly Authorised Firm
3.1. Upon accepting the FCA’s minded to approve and initiating activities under its own Part
V Permission, the regulatory licence to trade, POMS will be a directly regulated firm.
3.2. As a directly regulated entity POMS will be subject to direct oversight and supervision
by the FCA for all its regulated activities with those individuals performing controlled
functions under the FCA’s Approved Persons regime directly accountable”.
3.3. POMS will be required to demonstrate that it has and will continue to have an
appropriate framework of governance, resources and internal systems and controls in
place that reflect the size, nature and complexity of the business. This includes an
effective risk management framework, and a suite of appropriate policies, processes
and procedures to ensure it complies at all times with the FCA’s principles for business
and detailed handbook rules. The above requirements are to ensure that POMS is
appropriately governed, resourced and structured to deliver fair customer outcomes
from senior management decision making through to customer service delivery.
3.4. POMS has developed and implemented a Risk Management and Reporting
Framework to cover its main operational areas - Customer Contact Centre, The
Dalesridge platform and Collinsons Assistance and Claims Handling. In addition,
POMS has formulated a structure of internal governance, management reporting is
directed to the various governance forums.
The final GT report is available in the Board reading room.
Individuals that will be performing FCA Controlled Function within POMS will be: Nick Kennett, CEO (CF3); Al Cameron and
Jane McLeod, Directors (CF1)
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3.5. POMS has developed a suite of MI to report upon its performance in delivering against
its commercial and regulatory obligations and is developing a Conduct Risk Outcome
framework to provide further granular detail on performance. In addition, POMS, in
conjunction with Group Risk is developing a Risk Appetite Framework to further inform
on and understand management of risks within the business.
3.6. As a directly regulated entity, POMS will be required to ensure that it complies at all
times with the FCA’s financial resources requirements.
. POMS will continually track the performance of the business against the FCA’s
requirements and report on on-going compliance to senior management.
3.7. In operating as a directly regulated firm POMS will be responsible for adherence to the
FCA’s regulatory reporting requirements which include both the financial performance
of the business and key operational and customer aspects such as complaints
experience.
. POMS will initially use Thistle Initiatives, a sister company of RCS, to support
POMS's regulatory reporting and ad hoc requests from the FCA as well as
specialist support while POMS embeds the necessary processes in place
4. Update on the GT Review
4.1. An in-flight review of the Titan programme was commissioned, with the resulting report
highlighting a number of recommendations for the programme team resolve prior to
seeking full regulatory authorisation. The appendix provides a paper from Group Risk,
with the key highlights being:
Governance arrangements — POMS being able to demonstrate it has effective
governance arrangements in place.
« Governance arrangements are established and convening to include Risk and
Compliance, Executive Committee and POMS Board meetings. In addition,
regulatory approved person training and briefing sessions planned for new
directors.
Financial and regulatory reporting — Formulation of appropriate financial accounting
systems and mechanisms to support regulatory reporting.
. POMS has utilised the Post Office SAP system to support its finance processes
and through a process of intercompany transfers is using the Post Office
company system to pay invoices and track expenditure. A trial run of the
regulatory reporting format is currently underway.
Outsourced Arrangements — Formalisation of the agreement between Post Office
and POMS for the provision of services.
« Work has progressed on the Master Services Agreement which will be finalised
and signed shortly
Management information — POMS to have in place an effective suit of management
information and supporting framework to provide senior management insight on
business operational performance and the effectiveness of risk management.
* Operational and Conduct and Compliance Management information packs have
been developed and reviewed by the POMS Risk and Compliance Committee
Policies and Procedures — POMS has in place a suite of policies and procedures in
order to satisfy regulatory requirements
. All policies now drafted. Approvals being sought at the next Risk & Compliance
Committee.
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4.2. The conclusion from the Post Office Group Risk Report is that upon confirmation of the
completion of the outstanding actions from the GT Report that POMS is in a position to
act as its principal.
5. Update on other matters raised by the FCA
5.1. The FCA’s minded to approve was contingent upon POMS self-certifying and be able
to satisfy the FCA on four key areas, viz:
. Evidence of capitalisation of POMS; POMS has advised FCA that as at 6th March
2015, it had liquid reserves of £464,627.84, which exceeded requirements.
. Appropriate Professional Indemnity insurance cover for POMS; POMS has
advised FCA that it has cover placed by Miller (Post Office’s insurance broker)
with Lloyd’s for £5,000,000 for any one claim. This meets FCA’s requirements.
¢ — Confirmation that risk transfer agreements in place and that they cover all claims
monies and refunded premiums. POMS has advised FCA that in December 2014
POMS signed risk transfer agreements with Collinsons Group, covering these
issues.
5.2. As a result of these responses, FCA would be of the view that POMS is in a fit state to
commence as a principal.
6. Update on POMS independent Chair
6.1. It is proposed that Steve Ashton will be appointed as from 1st May.
6.2. Unfortunately it has not been possible to appoint Julie Hopes as a non-executive
director as she has accepted an alternative, and competing, position.
6.3. POMS management will work with the Chair to assess options for an additional NED.
7. Timing to stand up POMS as a principal
7.1. It was originally proposed that POMS would seek authorisation to assume direct
regulatory authorisation with effect from 1° May 2015.
7.2. While this is still achievable, due to the six week time taken to print and distribute
branch material it would risk some customer material in branches stating the wrong
principal (ie it would still refer to RCS and Bol rather than POMS). While the FCA would
accept some overlap of material, POMS management is concerned that this period of
overlap might be four weeks.
7.3. As a result POMS is recommending that the Company does not stand-up as a principal
until mid-June. This would provide sufficient time for all material to be updated.
7.4. This deferment would not impact the financial business case (except for an additional
fee of £10,000 to RCS to continue as principal), or have any impact on Hawk.
8. Key Risks/Mitigation to POMS
8.1. As a new enterprise and directly regulated firm POMS is subject to a number of key
risks. While operating as an Appointed Representatives many of these risks existed
though were bourne by RCS and Bol. The table below highlights the key risks and the
steps being taken by POMS to mitigate and manage them:
Key Risks/Issues Mitigating Controls
Direct Regulatory censure of POMS and I POMS has implemented a framework of
or its Approved Persons internal control to identify and respond to
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the range of wider risks, including:
¢ Expert Compliance and external
support employed
e Suite of Compliance MI
« Risk Management Framework
e Conduct Risk Policy in place
e Financial Promotions approval
framework
Key Person Risk — the agile and virtual
nature of the business means there are a
small number of experts delivering the
proposition. Some position are held by
contractors and consultants
Throughout the delivery the project team
have worked closely sharing information
around all aspect of the programmes
performance. Senior management
reporting on all activities. Resources will
be augmented on completion of Hawk.
FCA Financial Resources Requirements
Finance will monitoring the performance
of the business and report to senior
management on POMS ability to meet
the financial resources requirements.
Financial Systems in place but longer
terms solution(s) required
The current arrangements satisfy
regulatory requirements for finance and
accounting processes. Work will continue
on looking at a longer term solution.
Outsource Risk — risks associated with
the organisational structure of the
business
POMS has in place a risk management
framework which requires suppliers to
report on risks within each operational
area on a monthly basis. The results from
this are aggregated and reported to the
POMS R&CC monthly. SLAs are in place
which are reported and monitored.
Contagion Risk — FCA could consider
issues identified within POMS as a
reason to probe wider Group activities
impacting the brand and key relationships
e.g. Bank of Ireland
A framework of governance exists within
POMS and between POMS and Post
Office in order to ensure parental
understanding of risks and issues across
the brand. Both POMS and Post Office
have agreed mechanisms in place for
communicating and reporting to the Bank
on risk and issues facing the Group.
Operational and Compliance
responsibilities — the nature of operating
model means that there are a number of
stakeholders for delivery against
regulatory requirements — eg Financial
Promotions approval
Arrangements are in place for key
processes where collective input and
approval is needed. POMS maintains a
Financial Promotions Register to track
the development, review and appropriate
approval by all relevant parties.
Strictly Confidential
Financial Crime
The nature of the product offering and
operational structure and customer base
means that financial crime from
customers is a low risk. Sanctions checks
are performed for all policies sold and the
book is reviewed when new lists are
published. Contractual agreements with
suppliers have included the provision of
clauses around financial crime
awareness and responsibilities.
Systems Resilience
System stability is under constant review,
tracked and reported to management.
Steps have been taken by both Webhelp
(contact centre) and Dalesridge
(Insurance system) to secure additional
resources to further aid monitoring and
management of this.
Internal Controls and Resources
The risk that as the business expands
and the control environment does not
maintain sufficient pace are real and will
be a key consideration for the FCA in a
growing business. Work is on-going with
senior management to ensure the
Customer Contact Centre has the
necessary first line resources to meet the
demands of the growing business.
Additional resource has been secured to
support POMS Compliance function and
this will remain under constant review
with additional resources added when
necessary.
Customer Conduct Risk — The risk
associated with the sales and service via
the distribution model e.g. Branch sales
process
Quality assurance is performed within the
contact centre to identify and respond to
process failures that may lead to
customer conduct risk. The resourcing
challenges of the growing business are
being addressed as above. Challenges
exist with the branch process which falls
under the responsibility of the bank of
Ireland, though where other channels i.e.
the contact centre may be impacted.
9. Conclusion
9.1.
9.2.
POMS is well progressed to resovle the final outstanding matters from the GT report,
with Group Risk confirming that, subject to their final closure POMS is positioned to
stand up as a principal.
POMS and Group Risk will monitor this progress, with an intention that POMS Board
will confirm its position ahead of it agreeing to act as principal.
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9.3. Other matters relating to POMS’s rediness by FCA and the appointment of the Chair
have, or are being resovled.
10. Recommendation
10.1. It is recommended that this paper is noted and that Post Office Board approves POMS
to operate under its own regulatory licence from June 2015, subject to confirmation
from the POMS Board that the outstanding matters in the GT report have been
resolved.
Nicholas Kennett
CEO POMS Ltd.,
April 2015
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Appendix
POST OFFICE LTD
Post Office Management Services (POMS) review of outstanding actions from the
Grant Thornton review
1. Purpose
The purpose of this paper is to provide an update ahead of POMS’s plan to proceed
as an FCA authorised firm. This paper is not an assessment of preparedness for
Hawk, where it is proposed that separate assurance will be required.
2. Background
At the November 2014 Board meeting, Chris Aujard General Counsel presented a
paper on the review and Grant Thornton presented their findings.
The review assessed POMS’s preparedness to operate in an FCA regulated
environment. Grant Thornton concluded that the critical factors required to ‘go live’ as
an Appointed Representative of Resolution Compliance Services on 1 January were
in place based on detail provided by the Titan project team. The report signposted
some areas that required further work post launch. The final report was placed into
the Board reading room in January 2015.
3. Risk Review of Progress on the Grant Thornton recommendations
Following launch, the risk team has worked with POMS to review progress. The
summary below reports, on an exception basis only, those items that require further
action prior to authorisation. With the exception of the interim financial systems item,
which will be an on-going item for development, the POMS team have confirmed that
all of these items will be completed prior to authorisation.
Category GT assessment as at Dec I Current assessment and
2014 impact for authorisation
Governance In place Two new Board members
have recently been
appointed; they will require
a detailed business and
governance briefing and
Approved Persons training.
Financial and Regulatory I In place Interim financial systems in
Reporting place but a longer term
solution required (see
below)
To report _ satisfactory
regulatory reporting test
run to prove regulatory
reporting capability prior to
authorisation
Strictly Confidential
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Balance Sheet/Solvency
summary now in place.
Outsourced arrangements
Not completely in place as
Master Service Agreement
with Post Office not
agreed
This is still outstanding but
currently expected to be in
place within the next two
weeks.
Management Information
Not in place and required
development
Business performance
suite in place and Conduct
and Compliance MI pack
has been developed with
supporting commentary.
This was reviewed by the
POMS RCC and will be
tabled at the POMS Board
prior to authorisation.
Policies and Procedures
Grant Thornton gave a
‘green’ rating on the basis
of POMS’s assessment
All policies now drafted.
Approvals being sought at
17/4/2015 POMS Risk &
that these would beICompliance Committee.
completed by December. I POMS Board will need to
be engaged in approval
and oversight.
Financial Systems and Regulatory Reporting
Grant Thornton noted that financial systems were ‘in place’ for launch but the project
team recognises that what is currently in place is a short term, interim solution.
POMS are currently using the POL SAP system to support its finance processes and
through a process of intercompany transfers is using the POL company system to
pay invoices and track expenditure. POMS are defining its full financial requirements
for Post Office which it has agreed to meet.
4. Next Steps
The risks of operating in an FCA environment have been previously discussed at
Financial Services Committee and Board. But it is worth re-iterating that proceeding
under our own FCA authorisation requires a high degree of vigilance from the Board
of POMS to ensure that systems and controls are in place to ensure compliance. The
FCA has little tolerance for breaches, particularly where they impact on customers or
relate to poor financial controls and will be quick to hold companies and individuals
(particularly FCA approved persons) to account for failures.
The risk team will follow up on the issues raised above and report to the POMS Board
its assessment on progress prior to authorisation ‘go live’.
At the March Risk and Compliance Committee the key responsibilities for Corporate
Risk and Internal Audit for POMS post FCA authorisation were outlined. These were
to enable Post Office to gain comfort, where required, on a proportionate basis,
regarding the control framework in POMS. These include;
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e Developing POMS Internal Audit Charter
¢ Work together on developing POMS risk appetite statements to be agreed by
POMS and POL Board.
* Staying close to POMS management team/1" line to understand risks,
developments and progress
« Reporting to POL ARC on risk and compliance issues and developments
e Internal Audit to report to POMS management and POMS ARC on its plans
and findings
5. Conclusion
Upon confirmation of the completion of the outstanding actions from the GT Report
POMS Board will report to PO Board to allow PO Board to grant POMS permission to
assume direct regulatory authorisation.
Paul Beaumont
Post Office Group Risk
April 2015
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MEMORANDUM FOR: Group Executive
FROM:
Mark Davies,
Communications and Corporate Affairs Director
SUBJECT: Influencing the new Government
DATE:
16 April 2015
Recommendation
1.
The Group Executive is invited to approve the approach for using the post-election
period to engage with a new Government with a view to ensuring a favourable policy
environment for current strategy implementation and to start framing the way in which
our relationship with Government might evolve over the next 5 years.
Executive Summary
2. Following the general election a new Government will be formed. This is a critical
period in the life of a new parliament, where ministers are both at their most powerful
and seeking to develop and shape new policy positions. This therefore presents the
Post Office with a window of opportunity within which to set out our position and to
influence ministers.
Our objective will be to use the opportunity of building links with the new government
to ensure our minister is fully sighted on the opportunities and challenges in relation
to our business. We should also see the post-election period as an opportunity to
actively shape the agenda with Government. This will necessitate a clear exposition
of some of the difficult issues ahead, as well as setting out the opportunities the new
minister's portfolio presents.
This paper and sets out in further detail:
The context for post-election engagement — particularly the position as to the
potential constitution of a new Government and the time it will take to be formed
Considerations for setting out our position with a new Government — covering the
issues that need to be raised
Opportunities to present to Government — the propositions that help underpin Post
Office future strategy which are attractive to a future Government policy
The suggested narrative to be used — building on our existing strategy — with the
approach to be taken, and the risks that need to be assessed, through this period.
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Financial Metrics
3.
Engagement and influencing a new Government will be undertaken by existing
resource within the Business and no additional finances are required. The approach
being taken is designed to assist the achievement of current financial strategy and
plans, and to create the most positive environment for future plans.
Previous Approvals
4. The approach presented in this paper is consistent with the work of the cross-
business Government Relations Steering Group attended by representatives from
People and Engagement, CEO office, Commercial, Financial Services and Strategy
teams.
Proposal
5. Background - the General Election
We are on the cusp of the most uncertain election for a generation with no one
confidently predicting the governmental outcome.
An uncertain, volatile and potentially prolonged policy-shaping environment may
ensue.
Current polling suggests that a two-party coalition will not be sufficient to achieve a
majority. Therefore a formal coalition could comprise three parties.
Any coalition agreement could be more detailed and lengthier than in 2010.
Assuming that any coalition partners are aiming to deliver another five year
government — and the Fixed Term Parliament Act will make another election before
2020 unlikely — parties (particularly the Lib Dems if they are at the table) may be
conscious of the pitfalls of running out of policy half way through.
Therefore it could take several weeks for coalition partners to reach an agreement,
delaying the formation of a new Government and the appointment of ministers.
Alternatively, the next administration could be a minority Government, with a supply
and confidence agreement, rather than a formal coalition.
Such a minority Government with less formal ‘issue based’ support from other parties
could lead to a less structured and more flexible forward agenda. Again this could
result in a relatively prolonged period of policy uncertainty.
Asingle party succeeding in achieving an overall majority seems unlikely: where
pollsters and other commentators see this as a possibility they point to a
Conservative majority being the most likely outcome.
Background - Manifestos and Policy
We expect the main parties to publish their manifestos the week commencing 13"
April. The manifestos will represent an opening gambit for any coalition negotiations.
Our positioning to date with the policy teams from the main parties has sought to
reinforce a general consensus of support for current Post Office strategy. We have
attempted through our lobbying to strike a balance between engaging with
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policymakers to ensure any manifesto commitments align with our strategy, while at
the same time not fuelling interest in a way that would result in anything unhelpful.
Our specific asks to date are summarised at Appendix 1. While we cannot directly
influence manifesto content, we can seek to shape it by raising issues and
challenges, and have engaged with key figures in the three main parties
There are a number of relevant policy areas that may feature. These include:
ownership/mutualisation (and potentially governance related to executive pay)
the Post Office agreement with the Royal Mail (a Labour priority driven by CWU
agenda)
the move to digital government
financial services and financial inclusion
Further detail of what we might expect with parties’ stated policy positions is at
Appendix 2.
. Context - Government Spending Review and potential funding negotiations -
Process and timescale
The priority for a new administration will be to continue to reduce the deficit (while
protecting key departments such as Health).
There are a number of possible permutations for the next spending review (SR),
both in terms of its timing and the period it covers. By Autumn 2015 the new
Government will need to set spending plans at the departmental level for the year
2016/17, given that Whitehall departments currently only have their budgets set up
to the end of 2015/16.
However, SRs in the UK typically cover longer time periods so it remains to be seen
whether the new Government is in a strong enough position (both politically and
economically) to conduct a longer-term review.
Given that we have agreed our funding with BIS (and the European Commission) up
to end 2017/18, there are two broad scenarios in which we could be pulled into the
next SR process:
a) the new government conducts an SR which extends beyond 2017/18, in
which case we would need to be ready to engage with Shex on updated
projections and options (and the underpinning evidence) to support their
negotiations with BIS Finance and HMT; and/or
b) there is pressure to reopen our existing funding agreement in 2016/17 or
2017/18. While the likelihood of a concerted effort to reduce this funding is
considered to be relatively low, pressure could come to bear on BIS from
Treasury officials. We are working with the Shex team to ensure they have
the arguments and evidence to explain the substantial legal, financial and
operational issues it would create.
In both scenarios it is critical that we set out a strong account of our commercial
performance and future plans to provide reassurance that we are doing everything
within our control to reduce the requirement for subsidy. Appendix 5 provides an
outline draft of the narrative intended to meet these objectives.
8.
10.
11.
Risks
12.
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Using the window after the election
There will be a period immediately after a new Government is formed where
ministers’ ability to instigate a change of direction or drive the formation of new policy
is at its peak. Even if there is a protracted period of inter-party discussions around
Government and policy formation, this essential dynamic remains — once senior
politicians commit to a path, the room for manoeuvre for change is limited. We will
brief ministers in this early window of opportunity with a view to protecting the current
funding envelope as the route towards commercial sustainability and lower subsidy in
the future, to prepare ministers to make the case to take tough future decisions and
to demonstrate the ways in which Post Office can help government deliver its agenda
and objectives.
Key Considerations within post-election influencing
We should set out issues and potential difficulties early on, thereby reducing
surprises, and any resulting political challenge, further down the line. Providing
ministers with an early and comprehensive picture of the commercial and stakeholder
context in which we operate will be key. We should assume limited prior knowledge.
Key issues upon which we will focus (or could be drawn into) include market
conditions, commercial performance, network development, mails and the RMG
relationship, mutualisation, Sparrow, the NFSP agenda (linked to the cliff and
extension) and the union agenda (most relevant should Labour come to power).
Detail on these considerations is provided at Appendix 3.
Key opportunities in the post-election influencing process
We will also use the post-election period to emphasise opportunities that promote
Post Office strategy through helping Government realise policy goals. Key areas
discussed by the Government Relations Steering Group include our role providing a
national infrastructure, as the default provider of over the counter services, as
enablers of the ‘digital by default’ strategy, financial services and partner banking and
support for SMEs.
Detail on these opportunities is provided at Appendix 4
POL narrative within influencing discussions
A draft narrative, drawn up through the Public Affairs, Policy and Strategy teams (and
work in progress requiring additional detail), is provided at Appendix 5. This is
primarily focused on the key requirement to protect our existing funding agreement to
end 2017/18. Information on the mechanics of the influencing process are provided
at Appendix 6.
There are a series of potential risks inherent in the post-election environment which
will have to be assessed in handling influencing of Government within this period.
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Notably:
«The post-election period of Government formation may be lengthier and more
uncertain than currently envisaged - carrying the risk of potential paralysis in
Government policy formation. Whilst the ‘business as usual’ of current Post Office
strategy implementation would continue in such an environment, opportunity to
influence may be more constrained in this immediate post-election environment.
e Other stakeholders may pursue an aggressive counter-narrative depending on
circumstances (e.g. NFSP, Unions, Paypoint). Whilst this will not deflect the
influencing approach outlined above, it will require more communication focus and
increase the requirement for more extensive public and media positioning.
« Network Transformation will be entering a potentially more controversial phase with
the Cliff as more reluctant postmasters are drawn into the Programme. The handling
of NT in these circumstances will need to be carefully co-ordinated with the
Government influencing strategy to avoid negative impacts
Whilst these are real risks, the handling of them within the overall influencing strategy is
considered to be within the company’s current risk appetite profile. In the immediate
post-election environment there will be further evaluation of these risks, their materiality
and impact on the influencing strategy.
Conclusion
13. The post-election period is likely to produce an unprecedented political/stakeholder
environment — but it is one which Post Office Ltd must use to promote its corporate
position and to create an environment to facilitate current strategy implementation
and future strategy formulation. The analysis and approach outlined in this paper,
implemented flexibly in the context of ongoing monitoring of the political and
governmental environment, represents a structured route to achieving the best
outcomes for the company.
Mark Davies - Communication and Corporate Affairs Director
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Appendices
Appendix 1 - Our ‘asks’ to date in pre-election party political influencing
Appendix 2 - Manifestos: Potential areas of policy interest
Appendix 3 - Detail on the key considerations within the post-election influencing
approach
Appendix 4 - Opportunities in post-election influencing
Appendix 5 - Outline narrative with supportive detail for use with new Government
Appendix 6 - Mechanics of Influencing in the post-election environment
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Appendix 1
Our ‘asks’ to date in pre-election party political influencing
1.
Provide the freedom and flexibility for the Post Office to compete in a fast-changing
marketplace, and to pursue its commercial strategy to 2020
Commit to the current Government's funding for the Post Office to 2018.
Leverage the branch network: use the Post Office as a Digital Front Office for
Government
Support POL mission to become a challenger brand in financial services through its
partnership with the Bank of Ireland, and to provide partner banking services
No binding commitment to a particular ownership model
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Appendix 2
Manifestos: Potential areas of policy interest (2015 Manifestos due mid-April)
Conservatives
The Post Office is unlikely to feature in the Conservative manifesto and we have not argued
against this state of affairs.
On mutualisation, the Conservatives are likely to offer warm words in support of a range of
ownership models “occupying the space between the public and private sectors” - an
agenda close to Francis Maude’s heart. However, the Post Office is not on Conservatives’
radar in this regard.
A Conservative government is more likely to stick to the current government’s spending
commitments. However all policy areas outside the protected departments of health,
education and international development are vulnerable to further cuts.
Lib Dems
We understand that the current draft of the Lib Dem manifesto contains few (if any)
references to the Post Office, apart from a list of achievements in Government. A general
commitment to mutual ownership models may well remain a key pillar of Lib Dem policy. So
it is not inconceivable that the final version of their manifesto reaffirms a commitment to take
forward ‘examination of the mutualisation of the Post Office.’
If Liberal Democrats form part of the next Government, they are likely to fight to ensure that
the current government's spending commitments are adhered to.
Labour
Labour has intimated they need to give something to the CWU that stops short of a
commitment to re-nationalise the Royal Mail. So far they have focused on the future of the
USO in the face of competition and support RMG's request to Ofcom to bring forward a
market review. It is also possible that Labour will pledge to secure the future of the link
between the Post Office and the Royal Mail. Although in private they admit they don’t know
how they would enforce this. Mutualisation is not a priority.
On spending, Labour policy teams have been told they will have to justify every pound of
every spending commitment. This includes the shadow BIS team who will have to make the
case with their Treasury colleagues for keeping to the current Government's spending
commitment for the Post Office to 2018. A40% cut to the BIS budget under a Labour
Government has been mooted.
We have made the case with lan Murray (Jo Swinson’s shadow) that current spending is
helping put the Post Office on a path to commercial sustainability, paving the way to a
reduction in subsidy.
Last year Chuka Umunna MP (Vince Cable’s shadow) raised with us the idea of a Post
Bank. We reminded him of our relationship with the Bank of Ireland, and that this is the best
way for the Post Office to become a challenger brand in FS, without the huge capitalization
requirements setting up a Post Bank would entail.
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Appendix 3 — Detail on the key considerations within the post-election influencing
approach
These considerations are ranked in order of importance in an assessment by the
Government Relations Steering Group. They cover those issues on which we will need to
influence Government proactively to support our position, and those which we will wish to
seek to shape Government policy into supportive positions [e.g. Sparrow].
3.1.1 Market conditions and commercial performance
We will need to highlight the tough and fast-changing market conditions in which we operate.
We should assume no prior knowledge of either the increased competition in the mails,
home shopping returns and bill payments markets, nor the impact that this has on our
business.
We should also highlight the negative impact on revenue from the drive to move more
government services online.
3.1.2 Future relationship with government
Beyond the end of 2017/18 there may be attractions to moving the relationship with
Government onto a more commercially-focused basis, including potentially exploring the
scope for a longer-term funding contract which would effectively take us out of the whims of
the departmental spending review process. However, given the uncertainty around our long-
term market and financial projections, there are dangers with this approach, particularly at
the current point in time. We will be assessing these options with the GE in more detail as
part of the work leading to the June Board, with a view to reaching an agreed hierarchy of
preferences.
In the meantime our early engagement with ministers should focus on: a) building
confidence in our progress towards commercial sustainability; b) highlighting the importance
of maintaining the existing funding to end 2017/18, explaining that there are no credible
options to reduce the subsidy more rapidly; and c) setting out in high level terms the
potential attractions for both sides of moving to a more contractual relationship in the future.
In parallel we will engage Shex officials on the emerging options during May on a ‘without
prejudice’ basis, to test and socialise our thinking before any more formal engagement.
3.1.3 Network Issues (Cliff and Extension)
There is likely to be increased local “noise” as we enter the remaining stages of the Network
Transformation programme. We will continue to mitigate this noise as far as possible.
However this could result in pressure on ministers to intervene and we should not regard the
election in isolation from current discussions with the NFSP.
We should stress the importance of sticking to our plans, and seek Government support for
this. The implications of a change in direction (on future funding and in terms of Government
detailed involvement) should be made clear.
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At the same time, we should seek to dissuade a new minister from a renewed focus on
network extension from a political viewpoint- our priority has to be investing in the existing
network and pursuing extension for commercial purposes
3.1.4 Mails/RMG relationship
In a fast-moving market, flexibility will be key to commercial success and, subject to the
conclusions of the mails strategy review underway, we should move to dissuade any future
(Labour) administration from attempting to bind us more closely to the Royal Mail, or for a
longer period.
3.1.5. Mutualisation
While it won't be a high priority, it is likely that mutualisation of the Post Office will remain on
the policy agenda.
We should continue to stress that commercial sustainability comes first, while providing
examples of ways in which we are working more mutually (new IR framework, Post Office
Advisory Council, Business User Forums, engagement activity). We want to avoid any knee-
jerk political commitments, or extended dialogue over ownership structures on the grounds
that they simply divert attention and resource from the task in hand — commercial and
financial sustainability.
3.1.6 Sparrow
There is likely to be continued, though limited, interest in Sparrow. The recent Select
Committee Inquiry concluded with a letter to the Secretary of State, and the response was
as helpful as we could have hoped for, drawing a line under that particular angle of interest.
Any continued interest will be driven by a small group of MPs with constituents in the
Scheme. The leaking of Second Sight’s Part Two report could act as a catalyst for
continued media and political interest.
So while we have had some success in removing Sparrow from spotlight, there is no
guarantee that a new minister won't seek to win some early political points by re-visiting the
issue and he or she will undoubtedly come under pressure to do so. We should warn about
the risks of this course of action.
3.1.7 NFSP agenda
The NFSP will be seeking to influence a new government as early as possible so we should
be aware how their agendas will play to ours. Their influence is likely to be greater with
Labour ministers.
The NFSP will argue for continued subsidy post 2018, for community branches at the very
least. They will highlight the risk of closures if this is not forthcoming or if agents pay does
not increase. It is likely to highlight competitive pressures faced by sub-postmasters and can
be expected to voice continued opposition to Network Extension.
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They may highlight the partner banking work undertaken by the current Government and the
BBA, using this to make the case for the banks pay more for partner banking services, and
for sub-postmasters to retain a greater share.
The NFSP will make it clear that, as far as they are concerned, the last Government failed to
meet its objective to make the Post Office network the “front office” for its services, pursuing
its agenda of placing services online instead. In the case of contracts the Post Office did
win, the NFSP are critical of the fact that many of these services were only available in a
limited number of branches, and are low-volume, one-off or in one or two local authority
areas. They will make clear the detrimental impact this has had on sub-postmaster income.
They will argue that sub-postmasters urgently need new revenue sources, without which “we
leave POL unable to operate as an independent business; and the UK with a hefty bill for the
smartest, emptiest post office network in Europe” (NFSP Annual Review 2014).
The NFSP position in a post-election environment will be strongly related to the
outcome position from the Grant agreement discussions. The NFSO has its annual
conference on 11 May and is likely to use this platform to commence its own attempt to
influence a new administration. Our aim is that it has positions aligned to our strategy, but
we will prepare contingency lines should we face a more negative position.
3.1.8 Union agenda
The unions will also seek to influence a new government and will be campaigning for Labour
(and preparing to put significant pressure on a Labour administration). On the broader
strategic issues affecting the Post Office, the CWU and Unite share similar public policy
priorities. Both unions are more interested in the future of the Royal Mail than the Post
Office.
However, we can expect the CWU to push for: a continuing government subsidy to the Post
Office as a ‘public service’, more government services contracts to be channelled through
the Crown network; and a commitment to retaining the present Crown network (i.e. no
further franchising).
Unite takes a similar position, although it is less strident on the public subsidy and, privately,
more realistic on the long-term viability of the Crown network given increasing digitisation
across government as well as the retail and postal sectors.
Neither Unite nor the CWU have any influence or links with the Conservatives or Liberal
Democrats. The same is true, in Scotland, for the SNP. Unite is, however, the largest single
donor to the Labour party and will expect to see its agenda implemented in large part if
Labour forms the next administration. The CWU is not as close to the Labour Party and may
become even less so if the current internal election for a CWU General Secretary results, as
expected, in a new leader.
We will have delivered the first phase of our new IR approach by the time a new government
is formed. We know that the Conservatives will enthusiastically back this, as well as further
moves to re-frame our union relationship: Labour less so but the party will also be reluctant
to be seen to be overtly supporting union agendas.
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Appendix 4 - Opportunities in post-election influencing
We should also set out some of the opportunities provided by the Post Office, both as
political wins that the minister can claim (saving Premium Bonds in Post Offices) as well as
ways in which the Post Office can help the Government deliver its wider agenda (e.g.
enabling digital government). The following are opportunities perceived by the Government
Relations Steering Group as those which meet Post Office objectives and could have
political and policy attraction to a new Government.
4.1 A national infrastructure
The post-election environment provides the opportunity to remind politicians and parties of
the value that a commercially successful and financially sound Post Office has as a key part
of national infrastructure which can enable desirable policy outcomes (economic growth
through SME's, efficient links between Government and citizens, financial and banking
reform, welfare reform, local retailing).
4.2 Post Office is the default provider of over the counter services.
Post Office has successfully provided in-branch services to government (Defra, DVLA, DWP
and the Home Office) for several years via DVLA’s Front Office Counter (FOCS)
frameworks.
Cabinet Office and BIS has previously promoted the FOCS framework to government
departments as the default contract for counter services, and we would like this to continue
and be strengthened in a policy sense.
4.3 Post Office as a Digital ‘Safety Net’
The Post Office can enable the Government to go Digital by Default by:
« Providing ‘step-out services’ to verify evidence, take photographs and other
biometrics allowing individuals to transact with Government digitally .
« Provide in-branch services for those who are unwilling or unable to transact digitally.
These could be self-service or face-to-face. For those unwilling the service could be
chargeable, for those unable it could be paid for by government. Either way,
government would still receive digital applications, allowing it to realise the savings
that accrue from moving to digital.
Post Office can enable government to move to universally digital services, by providing a
safety net for those who would otherwise be excluded from accessing digital government
services.
The FOCS framework could be used as a procurement vehicle for these services, and Post
Office would like the FOCS framework to be the default option for these services for
Departments.
4.4 Post Office can become the default Verify Identity Provider, particularly for
‘Difficult to Verify (DTV)’ customers.
The Post Office is well placed to become the default provider for Verify.
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« The reach of and trust in the Post Office brand means that Post Office is uniquely
placed to manage the public’s electronic identity.
« Post Office is alone amongst Verify suppliers in being able to reach out to those
individuals who may not have enough of an electronic ‘footprint’ (‘DTV customers) to
be able to get and maintain an electronic identity by assuring identity’s in branch.
We should ask Government to:
* Promote Post Office as the default partner for handling thin-file customers, either
through the Verify framework or FOCS.
e Work with us to ensure that we are closely associated with the use of identities
across Government. .
4.5 Providing Multi-Channel Services
Government should recognise that Post Office is a digital organisation, able to provide fully
digital services in addition to those provided in-branch. This allows us to offer complete
multi-channel services, in addition to or instead of Government, in a way that is cost-
effective.
4.6 Partner Banking
We would want to continue Government recognition of the Post Office as a fully-fledged
‘challenger bank’ which is a significant player in the reform of the UK banking system — as
well as the parallel position of the Post Office network as a part of the universal ‘UK banking
infrastructure’ enabling access to accounts with partner banks (at commercial contract rates
paid by the banks so that they can meet their infrastructure requirements).
4.7 Premium Bonds
Our current contract with NS&I ends in September 2015 and NS&l are looking to get a view
from HMT regarding the extension of the contract (as it was a year ago). The purdah period
means the decision (by HMT) cannot be taken until a new Government is in place. Therefore
NS&l are preparing their case for extension so that a decision can be made as soon as
possible thereafter.
Post Office will need a decision from HMT/BIS in May/June since Post Office cannot
continue to sell premium bonds without being remunerated (from August 2015).
We should therefore stress to BIS minsters the importance of an early, favourable decision.
4.9 SME support
All parties are committed to support SME growth, which in turn is recognised as a key motive
force in the development of the economy over the next five years. The positioning of the
Post Office as an essential infrastructure to help SME’s develop is attractive across the
political spectrum (all the smallest SME needs to grow is access to the internet and a nearby
Post Office and it can trade with a vastly enhanced customer base). Promoting Post Offices
as infrastructure that accelerates economic activity and opportunity is a critical part of a
growth narrative — necessary to counter perceptions amongst politicians of the Post Office
as a legacy outfit catering for a diminishing non-digital base.
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Appendix 5 — outline narrative for use with new government
KEY MESSAGES:
1.
We are making steady progress towards commercial sustainability, managing the
commercial challenges while safeguarding our trusted brand, social purpose and
network of over 11,500 branches
The Government can have confidence that we are a credible commercial entity that
is delivering against its plans, taking a strong line on costs and succeeding in a
tough competitive environment.
As a result, the financial support required from Government will continue to fall,
delivering strong value for money in policy terms
Beyond 2017/18 the Government has clear choices between moving towards a
purely commercial service with no government support versus protecting our social
role in return for a limited annual payment. We will deliver an approach which best
serves our customers and recognises the pressure on the public purse — our key
requirement is to have clarity and the commercial flexibility required to survive in
tough competitive markets.
These choices are not cheap and cannot sensibly be accelerated without incurring
disproportionate costs and substantial legal complexity.
ADDITIONAL DETAIL:
1.
We are making steady progress towards commercial sustainability, managing
the commercial challenges while safeguarding our trusted brand, social
purpose and network of over 11,500 branches
Post Office has agreed a strategy with Government designed to tackle the underlying
economic challenges facing the network while safeguarding the essential role we
play in communities.
The primary objective is to achieve commercial sustainability and the most significant
target is to break-even before network support (‘EBITDAS’).
To support the execution of this transformation the Government has provided £360m
in investment funding over the three years to March 2018, in addition to £280m over
the three years to support the non-commercial branches maintaining a network of
over 11,500 locations.
Four key planks to the transformation programme, set out below.
Firstly, modernising our network of over 11,500 branches in order to:
© move agents onto new contracts which: a) pay them on a variable basis to
incentivise stronger sales performance and make the business more resilient to
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market downturns, saving at least [£45m] pa; and b) remove the right to exit
compensation to ensure that future investment is focused on strengthening the
network rather than on those leaving the business;
o deliver a better experience for customers through longer opening hours (over
100,000 additional hours per week already) and brighter, more modern store
environments.
Secondly, overhauling our IT infrastructure, both in-branch and in the back office.
Existing system is over 20 years old, and is crippling our ability to compete because
of high operating costs and inflexibility. More importantly, without it, the PO will
simply stop functioning — out of support software, Fujistu data centre etc. New
infrastructure will save c£27m pa and enable us to respond more rapidly to new
requirements, supporting our ability to compete in dynamic markets.
Thirdly, reducing costs through a more streamlined operating model. Staff numbers
in central teams have reduced by 25 per cent; reduced central costs by £60m in
2014/15 and will increase this to £100m annualised savings by the end of 2015/16.
[Add more detail on what we've done and show the evidence]
Fourthly, re-establishing profitable revenue growth in the face of structural declines in
traditional areas such as mails (especially letters), government services and
payments. In particular we’re:
o establishing the Post Office as a major challenger brand in financial services,
delivering significant topline growth as well as building genuine asset value
particularly in insurance; [add more detail]
© ensuring we're positioned to benefit from the growth of parcels and e-
commerce [add further detail in light of mails strategy]; and
© supporting the government's shift to digital by default, including as one of the
approved providers of identity assurance — providing citizens with a
reassuring and trusted name to help them navigate the shift to online
interactions with government.
[Add further detail if required to recognise that some revenue streams have not
materialised as expected — highlight structural declines vs new growth separately to
show the headwinds we're facing.]
The transformation programme is already delivering remarkable results, despite
challenging market conditions:
o Inthe financial year just ended we reduced our pre-subsidy losses to [£64m],
down from £115m in 2012/13. [Hit our profit target in each of the three years
since separation];
© Crown network is on track to reach breakeven in the year ahead, having
suffered annual losses of around £40m just a couple of years ago;
o and by 2017/18 we expect to achieve the historic milestone of generating a
profit before subsidy for the business as a whole. (NB although this doesn’t
mean subsidy can therefore just be removed because we won't be sufficiently
cash generative to cover ongoing needs such as investment).
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« Sustained improvements in profitability is enabling us to reduce the network
subsidy payment rapidly, from £210m in 2012/13 to £70m in 2017/18 — equivalent
to an annual real terms decrease of over 20%.
¢ Show that EBITDAS has been delivered on plan to date in spite of income
challenges
e This has been achieved while maintaining over 11,500 branches and continuing to
meet our network access criteria, avoiding the closures that were required in
previous restructuring programs.
2. The Government can have confidence that we are a credible commercial entity
that is delivering against its plans, taking a strong line on costs and
succeeding in a tough competitive environment.
e Market challenges (particularly in mails and government services) mean that we
are now on track to achieve breakeven around a year later than envisage in the
Strategic Plan — but we are making steady progress and delivering against the
factors within our control
« While we have already made significant progress in transforming the business,
there is more to be done over the next 3 years to complete the job. We need the
Government's ongoing support in this regard — both in terms of backing the
difficult decisions we have to take (NT, workforce reform etc.) and maintaining the
existing agreed funding.
e [Add further detail to build on the proof points in the actual delivery to date, to
explain why the Government should be confident that that our plans will be
delivered:
Where are the next three years of cost savings coming from?
Where is the new income coming from?]
3. As aresult, the financial support required from government will continue to
fall, delivering strong value for money in policy terms
¢ Including investment funding, total payment from government is reducing from
£410m in 2012/13 to £140m in 2017/18.
e Provided we maintain this strong progress towards commercial sustainability,
would expect to be able to maintain the existing size of network with an annual
subsidy payment in the region of £50-70m pa, far lower than the historical run
rate.
¢ [NB will need defensive lines to respond to the potential suggestion that the Rol
has declined relative to Strategic Plan expectations.]
e Because the Post Office is primarily funded by commercial activities, the
Government gets a lot in return for this annual payment — we're a key part of the
national infrastructure:
a. acornerstone for communities in rural and urban deprived areas, supporting
social and economic inclusion in localities where services would otherwise be
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absent. 99.7% of UK population live within 3 miles of a Post Office;
b. this role encompasses both the direct services we provide (access to
cash/banking, mails and government services) and also the intangible but
crucial role we play in communities — social value estimated at £2.3-£10.2bn
pa according to 2009 NERA study; 85% of postmasters say they look out for
vulnerable customers on a regular basis;
c. supporting competition in the banking sector as one of the faster growing
challenger banks in our own right, with £3m customers and over £16bn in
savings — providing a trusted alternative to the high street banks;
d. playing a key role in supporting small businesses — around a third of SMEs
visit us each week to conduct banking, access the benefits of e-commerce or
interact with government. Also a network of local businesses in our own right,
with over 97% of the network run on a franchise basis;
e. we're the third largest distributor of cash in the UK — with c430 vehicles
shifting £33bn across the country each year, including in the remote areas not
serviced by our competitors. One of four members of the Bank of England’s
Note Circulation Scheme. We're also growing our cash services to other
retailers, providing much needed competition in a market that would
otherwise be dominated by just two nationwide players;
f. akey partner in the delivery of government services - including for DWP.
(POCA), Home Office (passports & biometric residence permits) and the
DVLA (driving licences). And we’re ready to support the shift to digital by
default both as one of the approved providers of identity assurance and also
as the only credible nationwide institution capable of providing assisted digital
services for those who need it.
e Besides these policy outcomes, this spending is arguably good value for money in
political terms, avoiding the need for another noisy and painful programme of
branch closures (last programme was met with substantial public opposition,
including a petition to No.10 signed by 4 million people).
Beyond 2017/18 the Government has clear choices between moving towards a
purely commercial service with no government support versus protecting our
social role in return for a limited annual payment. We will deliver an approach
which best serves customers and recognises the pressure on the public purse
— our key requirement is to have clarity and the commercial flexibility required
to survive in tough competitive markets.
e If we were running a purely commercial network, it would have around xxxx full
branches and xxx parcel points.
¢ Outlying communities would need to be serviced through lower cost operating
models, such as outreach vans.
e The run rate savings would be in the regions of £xm, which would enable us to
maintain a profitable business free of government support
¢ [Set out further detail on social and political impacts — numbers of branches
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closed, how many constituencies, service impacts etc]
¢ In addition to the social and political impacts, the restructuring costs to move to
this shape of network would be in the region of £xm. [add further detail on
comparative Rol vs ‘Plan A]
¢ There would also be a point at which the Government would need to consider the
ownership choices if the business were to move to a fully commercial basis.
5. These choices are not cheap and cannot sensibly be accelerated without
incurring disproportionate costs and substantial legal complexity.
¢ There are no credible quick wins to unpick the existing funding to 2017/18 that
wouldn't jeopardise our ability to achieve commercial sustainability and therefore
represent worse value for money for taxpayers in the long term.
e Pursuing an accelerated restructuring to get to a fully commercial network would
cost an additional £xm in transitional costs, worsening the Rol, and would raise a
number of significant legal and stakeholder issues [add details]. Even then we
couldn't feasibly execute such a plan in less than x years.
e Also need to take into account the fact that existing contractual funding
agreement has been approved by the European Commission and is taken into
account by our auditors and independent Board of Directors in assessing our
going concern status. If there were perceived to be a material threat that this
agreement would be reopened then it would raise serious issues for our directors
and commercial partners.
e If the government could do more to commercially underpin POL in the interim
period through profitable new revenue streams then our subsidy requirement
might reduce.
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Appendix 6 - Mechanics of Influencing in the post-election environment
How?
Briefing meeting with the new minister as soon as possible after this is
announced.
The new minister is also due to attend the Board Away Day on 17" June
Briefing meetings with other key ministers (HMT, Cabinet Office).
Fix visits to Kennington Park flagship (digital) and constituency branches for
ministers.
Parallel engagement strategy with MPs in new Parliament. To include: early
briefing for all MPs , offer introductory meetings with all new MPs, Westminster
drop-in session for all MPs in June, briefing meetings with key MPs (shadow
ministers, BIS select committee, All Party Group)
Build relationships with other channels across Government (Special Advisers,
key officials, Parliamentary Private Secretaries)
The Public Affairs team and other colleagues already have good links with key
contacts likely to feature in the new parliament and government. We will seek to
exploit these.
Who?
Assuming current departmental responsibilities:
Minister for Employment Relations and Consumer Affairs (BIS) and
advisers/allies
Secretary of State (BIS) and key officials
Chief Secretary to the Treasury and key advisers/officials
Minister for the Cabinet Office and key advisers/officials
Permanent Secretary, BIS and key advisers/officials
Key MPs (opinion formers, select committee members, opposition spokespeople)
Special Advisers across Govt including key departments (DWP, Home Office)
and including No 10
Key political commentators (media, thinktanks etc.)
When?
Immediate post-election window in which to influence, before Ministers are asked
to make departmental funding decisions in the summer.
General Election: Thursday 7" May. The next parliament will meet for the first
time on Monday 18" May to elect the Speaker and swear-in members. The state
opening of Parliament, which will feature the first Queen’s Speech for the new
Government, has been confirmed as due to take place on Wednesday 27" May.
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MEMORANDUM FOR: Post Office Ltd Group Executive
FROM: Neil Hayward
SUBJECT: Health and Safety Update
DATE: 16" April 2015
Recommendation
1.
The Group Executive is asked to:
1.1. Note the overall safety performance
1.2. Note the risk reduction activities
1.3. Note the residual risks
Executive Summary
2.
2014/15 Health & Safety performance built on improvements seen over the past 5
years in support of a rolling 3 year plan to drive health and safety compliance, and risk
reduction, through better understanding and application of the health and safety policy
and associated processes. The focus has been on increasing capability through
awareness, training/coaching, and identification of weaknesses through measurement
of performance through risk profiling and audit. This is supported by creating clarity
around everyone's health and safety roles and responsibilities, and measured against
the health and safety standard OHSAS 18001.
The Health & Safety Committee has looked at the performance and trends for POL in
recent years (not specifically discussed in this paper), and has requested that external
benchmarking is also built into the reporting of POL Health and Safety performance in
the next financial year.
Financial Metrics
3.
The impact of stronger Health & Safety performance does bring the business financial
and reduction of reputational risk benefits, and again these will be discussed at the
Health & Safety Committee during the next year. No further investment in the team or
processes is envisaged at this stage to improve Health & Safety performance pan POL.
BAU resources are judged fit for purpose, including trade union facility time.
Previous Approvals
4.
The Health and Safety performance indicators set out in this paper have previously
been presented to, discussed and endorsed by the Group Executive Health and Safety
Committee.
The Health and Safety performance indicators set out in this paper have been
discussed with the Post Office Health and Safety Consultative Committee with unions
(required by the Safety Representatives and Safety Committees Regulations).
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Proposal
6. Accidents - The majority of accidents fall into three main categories: lifting and
handling; stepping and striking; and outdoor falls. These are higher frequency events
with, in the majority of cases, relatively low severity. The lower frequency types of
incident can carry the potential for very high impact, for example, assaults and road
traffic collisions.
Performance during the past 11 months of 2014/15 indicates that the 5% continuous
improvement target for reducing all injury accidents will be met although the reduction
in absence accidents will not be achieved. (Table 1) The absence accident
performance should be considered in the context of the overall low number of absence
accidents and the adverse impact that an additional one or two absence accidents per
month has on the overall performance. The severity of those accidents, measured by
the related number of days lost, indicates that while volume has increased, severity has
significantly decreased with days lost from accidents well ahead of the target reduction
of 5% (Table 2).
Table 1 All Injury accidents and those resulting in absence (Cumulative)
300
I 250
o 200 —— 2013/14 All
5 2014/15 All
S$ 150
I 3 2013/14 Absence
< 100 2014/15 Absence
I 50 =
“rae
O + iitsiesiat
I P1 P2 P3 P4 P5 P6 P7 PB PO P10 P11 P12
Period
The number of days lost due to accidents is currently ahead of target and forecast to
outturn ahead of the 5% reduction target. (Table 2 below refers)
Table 2 Days lost resulting from injury accidents (Cumulative)
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600
500
400
o —o— 2013/14
= 300
a
200
100
P1 P2 P3 P4 PS P6 P7 PB PO PIO P11 P12
I
I
I Period
Injury claims - Personal injury compensation claims have fallen significantly in line
with the reduction in accidents that result in sick absence. Comparison with a similar
retail organisation indicates that the Post Office claim rate is significantly lower in
both public and employer's liability and of those claims the ‘denial’ or ‘defence’ rate is
significantly higher. The general level of claims is recognised by the insurers as
extremely low both in volume and value. This is reflected in the provision for ‘live’
claims reducing from £2,050,344 to £1,174,907 compared to year end 2013/14.There
has however been a recent spike of relatively low value injury claims related to dust
inhalation during the Crown uplift programme. This is currently being investigated by
Post Office insurers.
Insurance Policy Class I Claim I Total Paid I Recoveries Open I Gross
Year I Count Reserves Incurred
Oct 12 - Employers’ 7 £25,482 £0 £19,710 £45,192 £45,192
Sept 13 Liability
: General Liability 7 £43,176 £0 £81,425 £124,601 £124,601
Total 24 £68,659 0 NOL 35 £169,794 £169,794
Oct13- Employers’ 7 £16,489 £0 £88,939 £105,428 £105,428
Septi4 _Liability
: General Liability 19 £18,401 £0 £98,615 £117,016 £117,016
Total Ss 26 £34,890 £0 £187,554 £222,444 £222,444
Oct 14-to Employers’ B £0 £0 «£129,560 £129,560 «£129,560
date Liability
General Liability 2 £0 £0 £0 £0 £0
Total Teas £0 £0 £129,560 £129,560 £129,560
Road traffic incidents - The total number of road traffic collisions (RTCs) for the
past 11 months is up 40 on last year. While this is of concern it is believed that there
continues to be a more robust approach to the reporting of incidents, irrespective of
severity, and what appears to be an increase in minor damage incidents e.g. broken
mirrors and minor scrapes The number of incidents where the Post Office driver is ‘at
fault’ is also up compared to last year and accounts for 53.8% of the incidents. (Table
3 refers) Road risk reduction opportunities continue to be the subject of analysis at
the Road Risk Forum with a view to identifying improvement activities in addition to
those already in place. Reversing incidents remain a cause for concern and will be
the subject of additional attention. Injuries as a result of road traffic collisions are
extremely infrequent and road traffic collisions account for less than 3% of the overall
number of injury accidents, however they have the potential for high impact in terms
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of injury and loss. Currently the majority of incidents involve low speed manoeuvres —
less than 25mph.
There have been no further developments following the serious road traffic incident
involving a Post Office vehicle on 6" February as a result of which the driver of the
other vehicle involved was fatally injured. The Post Office driver, who received non-
life threatening injuries which required hospital treatment, continues to receive
support via line management and occupational health interventions.
Table 3 Road Traffic Collisions (cumulative)
Number of RTCs
300
250
200 ere —— 2013/14 All
2014/15 All
150
2013/14 ‘at fault’
100 3 : 2014/15 ‘at fault’
t)
P1 P2 P3 P4 P5 P6 P7 P8& PY P10 P11 P12
Period
Robbery - Robberies involving Post Office Cash and Valuables in Transit (CViT)
crews are down 11 on last year from 40 to 29 for the past 11 months with 8 of the
robberies involving no loss. Physical injuries during robberies, of which there have
been 9, 2 less than last year for the same period, remain relatively minor in severity.
The level of use of firearms remains consistent with last year with 5 of the 29
robberies (17.2%) enabled by the presence and/or threat of use of fire arms. There
has been one occasion where the fire arms were discharged (into the ceiling).
Support for those affected by robberies is provided by trained trauma supporters and
professional support resources available through the occupational health service
provision. Risk reduction activities are identified at 6 below. Following discussions at
the Group Executive H&S sub-committee the robbery risk assessment and the
business’ approach to body armour is now the subject of a formal 3 monthly review.
Robberies and attempted robberies on the Post Office network, up to and including
P11, are down 1 on last year to 102 of which 54.9% were successful. Injuries
sustained during robberies are down from 20 to 14. Robberies take place
predominantly at sub post offices leaving Crown branches largely unaffected.
Supporting activities have been introduced to continue to mitigate the robbery risk
and are identified at 6 below. Significant incidents are listed at appendix 1.
Overall the total number of robbery incidents at Post Office branches is 156
(including retail and ATM) of which 38 involved open plan branches and 118 ‘other’
branches/targets. There were a total of 21 injuries (all minor) of which 4 involved
open plan branches. 10.5% of open plan incidents have resulted in injury and 14.4%
of other branch incidents resulted in injury. Open plan branches (all types) make up
47% of the total branch network.
Health and Wellbeing - Healthcare interventions:
PAGE 4
Risks
7.
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* Second programme of visits to Crown branches, Supply Chain units and Admin
offices to offer health checks using equipment that provides a wide range of
indicators on physical wellbeing. The anonymised data is used to develop future
health and wellbeing campaigns and target interventions.
+The programme of visits is supported by an online ‘Wellbeing Zone’ health check
tool as a ‘self-help’ option, badged as Post Office ‘Lifestyle online’.
* Ongoing campaign of communications to promote a range of different wellbeing
issues
+ Wellbeing events to promote general health, exercise and dietary initiatives
+ Attendance levels are at 96.5% which compares very favourably with the public
sector and relatively favourably with the private sector
+ Mental health — A structured programme of activity has been running for the past 11
months to raise awareness of mental health conditions and the support available to
those affected and those supporting them through face to face workshops and team
talks. Mental health conditions remain the single most common cause of longer term
absence, however the trend is positive with related monthly absence (days lost)
down from a peak of 2274 in P5 to 1695 in P11 and occurrences (individuals
affected) down from 121 in P5 to 94 in P11.
Safety - The Post Office occupational health and safety management system
(OHSMS) is certified by external auditors to the standards required by British
Standard OHSAS 18001.
Road Risk - Driving activities have the potential for high impact/loss and therefore
remain as a significant residual risk. However, the actions listed below are aimed at
mitigating that risk and improving performance.
Current longer term activities to mitigate road risk are:
Road risk forum in place to scope and develop road risk reduction initiatives and
activities supported by the risk management division of our insurers
Analysis and deployment of interventions for reversing incidents to mitigate the
increased incidence rates, including yard assessments and technical accident
reduction interventions on new vehicles e.g. Reversing aids to reduce accidents
Analysis and evaluation of data including risk profiling to identify drivers who need
additional support and to determine further generic accident reduction
interventions
Safe driver of the year award to encourage and reward responsible driving
Weekly case conferences to ensure consistent approach to accident investigation,
follow up activity and sharing of good practice
Programme of driving and road risk communications to raise awareness of current
and emerging risks
On site coaching to improve slow manoeuvring skills e.g. reversing
Revised approach to incident management to be introduced in April including:
Driver welfare discussion
In depth incident analysis with driver and risk profiling
Training needs analysis and provision
Governance of all three areas of vehicle use — commercial, business car and
private vehicle — is being tightened to mitigate the associated risks.
Robbery Risk - Robberies have the potential for high impact/loss and therefore remain
as a significant residual risk. However the actions listed below are aimed at mitigating
that risk.
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Current activities to mitigate robbery and burglary risk are:
Active liaison activities with the police to understand ‘at risk’ areas and to deploy
surveillance teams
Increased use of ‘advertising’ on vehicles of new deterrent technologies e.g. DNA
taggant — a solution that contains a unique identifier that is released automatically in
the event of a robbery, spraying those involved and enabling identification of the
individuals involved in the robberies
Piloting new point of transfer arrangements to reduce exposure at Post Office
counters - the majority of robberies take place at the point of transfer which in Post
Office’s is the counter where there is ready public access. The new arrangements
allow for the cross pavement protection box to be emptied / filled in a secure
location.
Significant reduction in opportunities for duress type robberies linked to the
introduction of single person vehicles — single person vehicles eliminate the
opportunities for Supply Chain employee duress type incidents which historically
have been the most violent and likely to involve significant injury.
Reduced access to ATM cassettes to mitigate the ‘high prize’ risk.
Conclusion
8. All indicators are that health and safety performance remains generally strong with
robust mitigating activities where significant residual risks exist.
Neil Hayward
Group People Director
PAGE 6
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Significant Incidents (Period 11)
Crowns and Network
Location
Loss
Hempshaw Lane
SPSO
470 Hempshaw
Lane, Stockport,
SK2 5SU
£95,210
Fiskerton, Outreach,
Village Hall,
Fiskerton, Lincoln,
LN3 4HW.
£3000
Firs Lane, LM
Leigh
WN7 5AG
£1,055
Shaftesbury Square
Crown
1-5 Botanic Avenue
Belfast, BT7 1JG
ENil
Supply Chain
Circumstances
Physical Injuries
Any further details
Nil
Nil
Nil
Nil
2 previous incidents, attempted
robberies both in Dec 2008
Location
Loss
Cromwell Bridge
SPSO
135 Gerald Road,
Salford,
M6 6BL
£26,000
PAGE 6
Physical Injuries
Any further details
Minor injury to
neck and leg.
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Simon Eldridge
April 2015
Performance summary
Safety
° Key indicators
Accidents down on last year
Absence accidents up on last year but from a very low base
Severity - measured by days lost - down on last year
Robberies and associated injuries down on last year
Employee and customer injury claims remain extremely low in volume and
value
Reflected in the claims exposure provision down from £2m to £1.2m
Defensibility of claims is high due to solid processes and documentation
Risk profile reflected in insurance premium reduction and insurer confidence
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Residual Risks and mitigation
Road and Robbery risk
¢ Risks associated with running an operational fleet
* no notice fleet audits
* improved incident reporting process
¢ driver profiling
* on site coaching for low speed manoeuvring operations
* Risks associated with business car and private car use
* Greater visibility of incidents
* Incident reporting process aligned with operational fleet process
* Revised policy aligning checks with operational fleet process
¢ Greater awareness of costs
¢ Robbery risk has greater unpredictable factors
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Performance summary
Health and wellbeing
¢ Health and wellbeing
* Attendance levels have remained robust (96.4%) despite a year of significant
challenges (Average for employers with 5000+ is 95.6%)
* Trauma days lost from robbery incidents down (32.6%)
* Occupational health service partner - OH Assist - customer satisfaction survey
overall satisfaction at 90.1%
¢ Programme of mental health awareness events
* Mental health monthly incidents and absences down 22.3% and 12.3%
respectively
¢ Programme of health checks
* Trialing a self serve digital health check facility
Free on-line wellbeing zone for self serve monitoring of health and wellbei
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Postmaster Opinion
Survey 2015
April 2015
© steven.frost (i. Ca
smith henderson www,smithhenderson.com
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i Background and Response Rates
[ ResultsSummary st”
(SF PostmasterSuppot
WW ProductAdvocacy
I} Growing Sales + Profitability o
8} Key Recommendations and Next Steps
smith+henderson 2 \e www.smithhenderson.com
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smith+henderson 3 \e www.smithhenderson.com
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« Smith & Henderson provide surveys for 90+ franchise / business partner networks
* Clients include McDonald’s, Domino’s Pizza, O2, British Gas and Stanley Black &
Decker
1. Health
Check
2. Better
Prioritise
3. Continuous
Improvement
smith+henderson
— Key trends since 2013 survey
-) 21/45 questions consistent with 2013
Identify the biggest barriers to improving performance
~ Actionable feedback for support functions and ASMs
—) Ownership of the survey results
~) Review performance and hold accountable
\e www.smithhenderson.com
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* Engagement has improved by 1% since 2013 survey
* However, below sector benchmark on 9 / 10 like-for-like questions
* Relatively low response rate — survey still largely paper based
* Postmasters gone through NT significantly more engaged
* Series of action planning workshops planned with key stakeholder groups (e.g.
Agency Sales, NT, NBSC). These workshops designed to establish an overall
Postmaster Action Plan that will be communicated back to GE by the end of May; and
then progressed throughout the year.
smith+henderson 5 \e www.smithhenderson.com
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« Survey open 26 January - 20 February 2015
¢ Most questions were on a five point scale e.g. The Post Office has a clear vision
for the future
Strongly
Disagree
Strongly
Disagree Agree
% Unfavourable % Neutral % Favourable
* 10/45 questions benchmarked against peer group of 8 franchise / partner
companies — all corporate or national retailers
¢ Shorter survey for Multiple Partners
smith+henderson 6 \e www.smithhenderson.com
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T4%
50%
26%
Postmasters Multiple Partners Benchmark
Postmasters survey statistically significant at a 99% confidence interval (N = 1,968)
smith+henderson 7 \e www.smithhenderson.com
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Response rate by Contract Name: Response rate by Location Type:
Part-time social service BAdaadadanaaaadadads 26% Rural EEE, 27%
(362 Completed Surveys) (1,175)
(1,376) (100)
i} 9
(549)
(6) Urban Deprived Inner Core VEE, 21%
(98)
smith+henderson 8 \e www.smithhenderson.com
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1. Survey more demanding (11,000 comments received vs c.2,000 in 2013)
2. Only 31% of Postmasters believe the Post Office will act on the survey feedback
(benchmark is 59%)
3. Communication channels — could not email survey links / reminders to Postmasters
(only 79 out of 1,968 (4%) completed the survey online)
Postmaster email addresses currently exist in range of formats (i.e. provided as part
of NT or membership to SubspaceOnline). Going forwards we will establish a
robust database of postmaster email addresses that can be utilised for future
survey, and wider business, communication.
Series of action planning workshops being held April — May
to generate meaningful actions
smith+henderson 9 \e www.smithhenderson.com
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smith+henderson 10 \e www.smithhenderson.com
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% Favourable % Neutral %Unfavourable
Favourable
Responses Vs Benchmark
Vs 2013
Leadership & Direction ¢ -31%
initial Training & Support 38% 34% 28% 38% - -
Communication 58% 10% 32% 58%
Products & Services 59% 59%
My Business
Engagement Index
smith+henderson 11 \e www.smithhenderson.com
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% Favourable *Neutral %Unfavourable
Question Vs 2013 Vs Benchmark
lunderstand the Post Office's future strategy
8 On the whole, how satisfied are you with the support I
that is available to you from the Post Office
20 Overall, would recommend the Post Office's products and I
services to a friend or family member
23 Iwould recommend operating a Post Office business
to a prospective postmaster
26 lintend to continue running my business with a Post
Office in 5 years’ time
smith+henderson 12 \e www.smithhenderson.com
63%
55%
Less than 6-12
6 months months
smith+henderson
52% 51%
I
1-2 years 3-5 years 6-10 years
13
43%
11-25
years
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42%
More than
25 years
\e www.smithhenderson.com
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Engagement Index - Contract Name:
Part-time social service 50%
Commercial eee, 20%
smith+henderson 14 \e www.smithhenderson.com
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Engagement Index — Location Type:
ian Deprived inner Gore eee “
Urban Deprived 48%
smith+henderson 15 \e www.smithhenderson.com
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m@ Highly Engaged
m Moderately Engaged
@ Disengaged
m Actively Disengaged
Based on Engagement Index: Highly Engaged mean answer > 4.0 (Agree); Moderately Engaged mean answer > 3.0
(Neutral), Disengaged mean answer > 2.0 (Disagree); and Actively Disengaged mean answer < 2.0 (Disagree)
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5 most improved questions:
SeFavourable %Neutral %Unfavourable faypucabic: I :
Question Responses Vs 2013
16d is subspaceonline.co.uk as a communication tool 57% 43% 57%
la eg epee ee
16 ig Subspace News email as a communication tool 51% 49% 51%
30 Post Office business 35% 28% 38% 35%
5 most declined questions:
Question % Favourable %Neutral %Unfavourable savoueae
9a the Network busttess Support Centre NSC) 62%
12a cocina SUDOOT SELVICES = 42% ETE 2.
42d Ben rote the following support services - Training 34% q 45% 21% 34%
12b Pease ast une following support services - Distance 46% 42% 11% 46%
27 How important is the Post Office to the future growth 76% 76%
of your wider business
Question
14a My Area Sales Manager - Helps me to grow my sales
14b My Area Sales Manager - Responds to me in a timely
manner
10 The support of other postmasters is strong and we
regularly communicate and share best practice
8 On the whole, how satisfied are you with the support that
is available to you from the Post Office
+ The Post Office has a clear vision for the future
5 i feel valued by the Post Office as a business partner
23 !would recommend operating a Post Office business to a
prospective postmaster
4 Itrust the Post Office's leadership team
30 How would you rate the long term prospects for your Post
Office business
18 lam encouraged to share ideas with the Post Office
smith+henderson
% Favourable
%Neutral
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%Unfavourable ieveucabic
Vs
Responses I Benchmark
53% 22% 24% 53%
57%
21%
22% 57%
38% 33% 29% 38%
38%
32%
30% 38%
37% 32% 31% 37%
21% 26% 53% 21%
38% 24% 38% 38%
-36%
25% -38%
38% 35% -40%
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Have you been through Network Transformation:
56%
x
Co) 43% 9
3 40% 42%
c
(3)
&
(o)
D
Oo
D
c
Lu
Yes-been through Yes - currently No- not eligible No - have opted out
underway
smith+henderson 19
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During the next 12 months, I expect the profitability of my business to:
Be Decline
Yes-beenthrough Yes- currently No -not eligible No- have opted out
underway
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3 in 10 understand Post Office’s strategy (NT = 41%)
1 in 5 feel valued (NT = 28%)
2 in 5 have plan to grow their business (NT = 67%)
3 in 10 rate their long term prospects of their business positively (NT = 47%)
Compounded if no ASM and cannot sell full product range
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How would you rate the initial training and support in terms of:
Preparing you to run the day-to-day .
operations of a Post Office aun 32h a
Growing a successful business e.g. business ‘. .
planning, retailing, sales 27% 37% 36%
Training your team(s) 39% 34% a 28%
“Training good (day-to-day operations) but no input given what so ever
(for growing a successful business)”
smith+henderson 23 \e www.smithhenderson.com
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If the Post Office was to offer me additional training/development opportunities, I would
select the following:
Sales skills
Financial planning/management Begoeeccseneanesosose] 43%
People management 20%
smith+henderson 24 \e www.smithhenderson.com
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How Satisfied are you with the support provided by:
Network Business Support Centre (NBSC)
Horizon Online Help
Multiple Partners more critical of head office support — called
“Strategic Partners” but feel support doesn’t reflect this
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“It takes time to find answers [on Horizon], so impossible with a
customer waiting in a queue. phoning NBSC is quicker!”
9%
Too slow Easy to use Incorrect / Out of
data information
Difficult to use /
navigate
Provides useful
information
Search function is
poor / can't find what
I'm looking for
Note. General or unrelated comments not included
smith+henderson 26 \e www.smithhenderson.com
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% Favourable Ne %Unfavourable
Question ; Responses V5 Benchmark
14a My Area Sales Manager - Helps me to grow my sales 53% . 22% 24% 53% 4%
14b My Area Sales Manager - Responds to me in a timely 57% 2196 20% 57% y a
14c My Area Sales Manager - Motivates me to give my best 52% 22% 26% 52%
15 Guiing Coalition - The coaching helped me improve Mails 58% “260% 16% 58%
“{The Guiding Coalition] helped me to understand how to make more money by selling
the same product by using a different approach”
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Question
The Post Office as a whole
Your Relationship Manager
Your Network Transformation Planning & implementation
Manager
The Network Business Support Centre (NBSC)
11 IT Help Desk 21% 64% - é 14% 21%
12 Cash Help Desk 14% : 71% : : 14% 14%
13 Property Projects/RLB 14% 29% 57% 14%
“RLB are a complete waste of money and in the main, rely on Multiple Partners Area
Managers to oversee the bulk of works completed on site. POL could save a great
deal of time and money by bringing this work in-house”
“EVERY letter that comes from POL, regardless of department, should come with a
direct line telephone number. Too often you get passed from pillar to post when you
have enquiries. Incredibly frustrating”
smith+henderson 28 ve www.smithhenderson.com
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I would recommend the following products:
Mails 81% 15% 4%
Travel 68% I 23% 9%
Broadband and Phone
Financial Services 52% 34% 14%
Driving 38% 45% 16%
3,700 comments for product teams
smith+henderson 30 \e www.smithhenderson.com
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Please explain why you would / would not recommend Post Office FS products:
40%
Hearts & Minds +
Training?
17%
0)
10% 9%
a
, 6% 5%
im
ELIZA
Good product/ Bad product/ New product Lack of training A sell Badservice Productisn't Cumbersome
rates rates suggestion financial from Bank of right / doesn't process
services lreland meet my local
market's needs
smith+henderson 31 \e www.smithhenderson.com
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The Post Office plans to invest in online learning/training. What areas would you like
us to prioritise:
Product training - Financial Sevicess i 53°
Less frequent / complex transactions i 40.
Balancing procedures and how to look. qq 35%,
Product training - Mail <i 29°
Sales Training x 23°.
Product training - Broadband and Phone [qq 24°
Product training - Travel [J 21%
Dangerous Goods [RR 17%
Product training - Identity & Licenses [RRR 11%
Product training - Driving [jj 5%
smith+henderson 32 \e www.smithhenderson.com
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I have a clear plan to grow my business:
20%+ 10%to O0%to9.9% D0%to9.9% 10% to
decline 19.9% decline improvement 19.9% I improvement
decline improveme'
Historic Year-on-Year Sales Change
smith+henderson 34 \e www.smithhenderson.com
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During the next 12 months, my target for the Post Office sales is to:
Stay the same w Grow 1-5% mGrow 6%+
—
Overall 20%+ decline 10% to19.9% O%to9.9% O0%to9.9% 10% to 19.9% 20%+
decline decline improvemenXjmprovement improvement
Historic Year-on-Year Sales Change
smith+henderson 35 \e www.smithhenderson.com
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=
Actively Disengaged (12% of network)
¢ Affecting morale?
¢ Looking to leave but often cannot find buyer for business — feel “trapped”
2. Top Performers
* 15% highly engaged
* 39% of those that have grown sales more than 20% in last year, would consider
opening another Post Office
Should we be promoting opportunities to become multi-location Postmasters?
Could this help leverage limited field support (ASM) resources?
smith+henderson 36 \e www.smithhenderson.com
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1. Align support with driving sales
Training for new Postmasters — focus more on growing business
¢ Build on Guiding Coalition work and NT
* Online training for financial services
* Ensure all Postmasters have a business plan with written goals
2. Head office support
Improve Horizon Online Help to reduce NBSC call volumes and free up resource
« Treat “Strategic Partners” as strategic partners
* Treat Postmasters as internal customers
3. Re-engaged or exit
* 32% disengaged — how can we build better relationships, especially if no ASM?
* 12% actively disengaged — how can we help these exit?
* 39% of top performers (20% year-on-year growth) want to expand
smith+henderson 38 \e www.smithhenderson.com
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Action and :
Wi} AAR Review Progress
Workshops with: weve ehh (Annual fa
« Multiple Partners * Postmaster Action * Worthy metric in
Plan to be shared with 2016/17 bonus
* NBSC GE by end of May
¢ Link to performance
* Sales * Postmaster Action agreements /
Plan communicated to appraisals of senior
¢ Network Transformation business in April managers
¢ Branch Support
smith+henderson 39 \e www.smithhenderson.com
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Postmaster Opinion
Survey 2015
April 2015
Thank you
smith henderson www.smithhenderson.com
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Post Office — Your Views Count
Results Presentation
APRIL 2015 I CONFIDENTIAL
Your vVi2ws (count .
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HayGroup’
Purpose of this session
¢ In advance of the GE on April 16, each Director has had a 1:1 to take them through the employee survey
results in detail. The focus of the GE session will therefore be on action planning rather than discussion
of results.
* As part of their 1:1 briefings, each Director has been asked to consider the 2-3 big ticket items that could
be included as part of an overall business action plan (collectively owned by GE) in response to the survey
* The aim of the GE session will therefore be to discuss and agree the priorities / potential actions that will
form the overall GE Action Plan
¢ The GE session on April 16 will be followed by two additional sessions in:
v 24 April SLT Session to engage the SLT with engagement priorities and highlight external best practice
v 7 May GE Session to finalise overall GE Action Plan
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HayGrouy
Key Messages
Post Office has achieved great improvement in the last year. However, there is still work
to do as scores remain low in some areas, with big gaps against industry benchmarks.
This level of annual improvement will not be sustainable without addressing core
performance drivers which are impacting employee effectiveness at Post Office.
Challenges to address in 2015:
Strategic 1. Buy-In / Engagement of Senior Managers
challenges
2. Create greater clarity around the strategy and direction
Operational 3. More efficient decision making processes
challenges
4. Improved performance management and more development opportunities
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HayGroup’
Key Drivers of Engagement and Enablement have
remained consistent this year
NEW
The only change is confidence in decisions made by senior management — this has become a more
important driver of engagement in the last year.
Post Office listens to the views of
its employees
I have confidence in the decisions
made by the Post Office senior
management team (the Executive
Committee and their lead teams) _)
Post Office is good at developing
employees to their full potential
J
I feel involved in decisions that
__ affect me and my work
Satisfaction with the equipment and
resources you require to do your job
\ a
ENGAGEMENT
EMPLOYEE
EFFECTIVENESS
ENABLEMENT
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The Crown Network Strategy 2015-2018
Version 1.3
10 April 2015
©)
Post Office® Strictly Confidential
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Background to this presentation
As part of the 2010 funding agreement with Government, the Post Office committed to invest in the Crown branch network
and bring it to a breakeven position by March 2015. To achieve this required one of our biggest change programmes in
recent years. The Crown Transformation Programme (CTP) has been a £130m programme with a wide-ranging scope
covering; physical property works in over 300 branches; development of the new estate of 500 self-service kiosks;
redundancy projects covering 1300 staff (c30% of the workforce); 15 branch relocations, mergers and closures; and the
franchising of 50 of the most loss-making branches to new agency-network operators. Colleague engagement has been a
major part of the change journey and this has been achieved through vision events; span of control changes; and the re-
training of 3200 staff. All CTP change has been done whilst growing income in the transformed branches as well as
maintaining their customer and wait time satisfaction scores.
Against the originally planned scope, a significant amount has already been achieved. At the start of CTP, the Crown
network comprised 373 branches which were losing c. £50m a year. Enormous progress has been made, however the
residual Crown network of 314 branches is not yet at break-even, hitting a run-rate of £6-7m losses at the end of FY14/15.
As we move towards the scheduled completion of CTP, there is a natural question of “what next” for the retained Crown
network. An initial set of proposals for the post-CTP Crown network were established in November 2014 as part of Business
Transformation. These proposed franchising c80 further Crowns, however these proposals were subsequently rejected by
the Board due to their poor ROI, delivery risk profile, and the need for a more comprehensive and compelling vision for the
remainder of the Crown network. As well as defining a long-term strategic direction and making choices about how this is
implemented, it is also important for the business to consider how to achieve the breakeven point in the residual network
as soon as possible, balancing this as part of the overall risk profile of the post-CTP Crown’s strategy.
The Crown network and Crown transformation management teams were set the task of setting out a vision and proposed
three year strategy for the Crown network, which is described in this presentation.
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Decisions required of April Group Executive meeting
The Group Executive is asked to note:
1)
2)
3)
4)
The three-year Crown network strategy as set out in this paper.
That this strategy is consistent with the work being undertaken to assess a potential WHS strategic partnership.
The incorporation of up to 7 branch merger (closure) projects within the base 15/16 scope in order to expedite breakeven, and that
detailed assessment of each will be conducted by CTP Meeting before moving into implementation.
The Transformation Management Group has approved an initial £1.1m of 15/16 funding to deliver a small portfolio of quick-win
initiatives to further improve Crown network profitability; as well as seed-fund the development of further CTP2 feasibility
assessments and business cases.
The Group Executive is asked to endorse that:
5)
6)
Further work is mobilised under CTP2 to develop full business cases and project plans for; POCA automation via SSK; proposals for a
new workforce management system; a programme of up to 7 branch closure/merger projects for 15/16; and proposals to further
monetise available space in the network including a new Crown retail offer. Funding would be released via business case approval at
Transformation Committee during Q1. Initial forecasts are that these initiatives will require a total three year budget envelope of
£24m, and each will offer a payback period of under three years.
Further work is mobilised under CTP2 to report to Transformation Committee during Q1 with a full business case on the forward view
of investment levels required for POL to respond to “forced” network change. Similar “BAU” changes were absorbed under the CTP1
programme (e.g. relocations forced upon the Crown network by evictions and other landlord acts outside of POL control). Funding
would be released via the Transformation Committee, with the CTP Meeting also working to ensure alignment to the CTP2 strategy.
Initial forecasts are that this will require a total three year budget envelope of a further £13m.
The Group Executive is asked to decide if:
7)
8)
Further work is required of CTP2 to fully feasibility assess the proposals for up to 26 reduced service offer branches and up to 59
further franchise, merger and closure projects. If so, the CTP2 team will mobilise work to complete this and report back to
Transformation Committee with full business cases during Q1. Initial forecasts are that these initiatives will require a total budget
envelope of a further £24m, and will offer a payback period of under three years.
Further work is required of CTP2 to complete a full assessment and develop a strategy to better align Crown labour costs to market
rates over the term of the strategy. Options would be developed as part of the CTP2 programme during Q1 of 15/16 in conjunction
with the P&E team and IR Steering Group, and then presented back to GE.
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Contents
Item Slide numbers
Our vision of the Crown network 4-6
Lessons learned from CTP and challenges still to face 7-9
Network fit against our vision 10-15
Proposed initiatives to further improve the network 16-20
Proposed implementation order, benefit phasing, and optionality 21-24
Scope packages, costs and benefits, next steps 25-27
Appendix 28 onwards
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Our vision of the Crown network
We want a flagship network where the customer comes first. It will comprise:
¢ Busy, strongly branded, branches in great retail locations
* at the heart of our large towns, boroughs and cities;
* with high footfall; and
* anincreased proportion of customer spending on discretionary products, particularly in FS.
¢ Profitable, and easy, ways for our customers to do business with us
* through a simplified product set, sold by motivated, knowledgeable staff;
* with great customer service;
* more technology-enabled customer journeys;
* and product ranges that better match the needs of the local customer base.
¢ Our largest scale branches
* where we can drive benefits of scale;
* with space to create professional-looking, always staffed, FS environments;
* with high quality retail, complimentary to our core products;
* and technology enablers such as self-service kiosks, which allow efficient staffing;
* but without underutilised or vacant space that could otherwise generate better returns,
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Our vision of the Crown network
The Crown network will benefit the wider Post Office business strategy. This is by:
Delivering a commercial rate of return for the Post Office P&L.
Providing a strong, positive, brand presence on the high street.
Supporting the business’ strategies to be the leading challenger bank in the UK and win in the mails market.
Particularly by creating the environments needed for highly professional Financial Services sales and
support, and by making us easy to do business with in terms of mails customer journeys.
Enabling the business to take new products, changes to branch formats, and new technology to market
quickly, proving them in Crowns before rolling out to the wider network .
Helping the business easily demonstrate the control environment needed for products where compliance is
crucial (e.g. FCA compliance in Financial Services, Home Office compliance for UKVI).
To deliver this vision will require further, programmatic, change. This will include:
Putting the customer at the centre of our change programme.
Changes to the Crown network’s size, locations and branch formats.
Further automation of high-workload customer journeys.
Increased monetisation of the physical space we have.
Ongoing discipline on staff and property cost.
Continued investment in our people to grow a workforce with the specialism and professionalism required
for our flagship branches.
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Contents
Item Slide numbers
Our vision of the Crown network 4-6
Lessons learned from CTP and challenges still to face 7-9
Network fit against our vision 10-15
Proposed initiatives to further improve the network 16-20
Proposed implementation order, benefit phasing, and optionality 21-24
Scope packages, costs and benefits, next steps 25-27
Appendix 28 onwards
Post Office® Strictly Confidential
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Lessons learned from CTP
Relevant experiences from CTP have helped us shape the future Crown strategy.
Under CTP we have:
Made major changes to branch formats and customer journeys, taking colleagues and customers on the journey with us.
Retained and up-skilled the staff that want to stay with the Post Office while allowing those to exit that either don’t want to stay
or that we no longer want to retain.
Taken £20m of staff cost out of the retained branches, with the support of technology-enabled change.
Taken £7m of property cost out of the same branches through tight management of leases and supplier contracts.
Re-shaped the Crown network through more than 60 mergers, closures, franchises and re-locations, working together with
colleagues in the agency network to maintain or improve service provision in the local areas.
However we also know that:
Over-reliance on income growth as the basis of a strategy for improved profitability is too high risk. Over the three years of CTP,
over £15m of additional cost cutting scope had to be introduced to plug the gaps which emerged when successive commercial re-
plans showed the originally planned £18m of income growth would not materialise.
Staff cost savings, and the associated duty revisions, are very difficult to achieve without taking our people along with us. There is
a risk that any future headcount savings sought are likely to be bargained for in a wider collective agreement. POL will have to
take a strong line on pay control.
Externally presenting Crown network changes as a major, high-profile, change programme, invites us to make inflexible
commitments up front to stakeholders and staff, and adds scrutiny from other public bodies. Internally managing change in a
programmatic way is essential, but avoiding external, high-profile, labels has advantages.
Franchising poorly performing Crown branches onto Mains contracts is unattractive to partner organisations, who dislike the
diseconomies of scale; large footprints required; low income generated; TUPE risk; and public / political pressure against
franchising.
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Challenges still to be faced
To move from breakeven to a commercial return, three major hurdles remain
Staff costs
When benchmarked to other retailers who staff large branches, for example WHSmith, Crown counter staff are paid >20% (£5 - £8k p.a.)
more. Re-setting pay in line with other retailers, such as WHSmith, would theoretically see staff costs reduce by £15m- £20m (depending on
the approach taken to bonus and pension). If this could be effected without otherwise impacting income or other aspects of the network, it
would generate an operating profit margin for the Crowns of >10%. However this cannot be achieved in the short term as forced buy-downs
are not viable based on legal and IR advice, and the impact on employee engagement and IR would be severe.
Thus for the Crown model to reach a commercial rate of return, we must do more to assess and then implement appropriate levers on staff
cost such as; further automation and product simplification; regional pay bargaining; a lower starting salary for counter staff, with slower
and more gradated pay progression; and the creation of a lower paid support role. These need assessment and will be likely to rely on churn
and enforcement of the new performance management framework to deliver. In addition to this, consideration should be given to joint-
venture / managed service arrangements with other organisations supplying labour (which would have more drastic IR/ER implications).
Changing the pay structure of our Crown staff would face opposition, and likely industrial action, from employees and their unions. CTP was
unable to achieve this change. Strong, viable, alternative solutions to staffing would need to be feasibility assessed and ruled in or out —
whilst also dovetailing with wider POL work on IR and reward. This is not a short term task, but is an important one.
Customer offer and income growth
Our offer must be more relevant to the local markets each branch serves, backed up by strong local and national marketing and continual
improvement in branch service levels.
Based on commercial projections in the 3-year operating plan, year-on-year income growth in Crowns is anticipated to be 1.5% to 3% p.a.
over the three years from 15/16 to 17/18. Without other mitigating action, this rate of growth would only offset rent and wage inflation.
Considering the likelihood of modest growth from our core product set, it is clear that the Crown network must seek to drive additional
revenue, outside of the core Post Office product set, from the unique asset POL has here when compared to the agency network- ownership
of our own retail space. Increased monetisation of this square footage will be essential.
Network shape
The Crown network has evolved over a number of years and in many cases it is a network of default rather than by design. Earlier
franchising programmes (prior to CTP) let agency partners take on some major town and city centre branches that fitted our “flagship”
criteria, whilst leaving the Crown network with a tail of heavily loss-making branches in urban deprived communities. These are branches
which are commercially unattractive both to POL and to potential franchise partners. Unless these could draw new subsidy as part of our
settlement with Government (which is going to be hard to change before March 2018) then reductions in service are likely to be required.9
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Contents
Item Slide numbers
Our vision of the Crown network 4-6
Lessons learned from CTP and challenges still to face 7-9
Network fit against our vision 10-15
Proposed initiatives to further improve the network 16-20
Proposed implementation order, benefit phasing, and optionality 21-24
Scope packages, costs and benefits, next steps 25-27
Appendix 28 onwards
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Scoring the Crown network against our vision
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We have assessed every branch in the current Crown network against the vision we set out earlier in this presentation. To measure a
branch’s fit against vision we have used a 100 point scale, taking into account the quality of the branch’s customer base, its location and
physical environment, and income potential. The make-up of the scale is shown below:
Strategic fit score (max 100 points)
Customer factors (max 40 points)
Physical factors (max 30 points)
Income factors (max 30 points)
Demographics (max 20 points)
Relative wealth of population within 1km
of the branch. Expressed as % of people
above average affluence, as determined
by factors such as; house size, price and
ownership levels, car ownership,
qualifications, employment and industry
type, and leisure interests.
Branch capacity (max 20 points)
Physical space available in the branch,
taking into account front of house space
(including the counter). This ranges from a
maximum available space of 307 sq mtoa
minimum of 23 sqm.
Square metres IPointsI Square metres I Points
>125 20 65-85 8
105-125 16 45-65 4
85-105 12 <45 0
Income per customer session trajectory
(max 20 points)
This is the year-on-year trajectory of
income per customer session, excluding
UKVI income. (UKVI transactions are low
volume but high value and can skew a
branch’s performance). The highest
scoring branch is +46% and the lowest
scoring is -12%.
Current footfall (max 20 points)
Number of customer sessions per branch
per week, with highest footfall scoring
maximum points. The current range of
footfall in the Crown network is 8600
customer sessions per week in the
busiest branch down to 1600 in the
quietest.
Retail Vitality (max 10 points)
Strength of the retail offer in the local
retail centre. This is based on the number
and draw of other retailers there (e.g. a
John Lewis indexes 40, Debenhams 20,
Mobile phone store 10, Takeaway
restaurant 1). The sum of these is taken.
Vitality Score I PointsI VitalityScore I Points
>1350 10 >300 4
>820 8 >150 2
>510 6 <150 ie)
Income per customer session
(max 10 points)
Average income for each customer
session in the branch today, net of UKVI.
Highest scoring is £2.32 and the lowest
scoring is £0.76.
Post Office®
Strictly Confidential
Fit of the FY12/13 Crown network against our vision
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We can plot each Crown branch on a scatter graph, comparing its profitability (x axis) with a score for its strategic fit according to the 100
point scale we set out on the preceding slide (y axis). This allows us to segment the network into four, summary, quadrants.
The FY12/13 Crown network and the post-CTP branch network are plotted on the same axes over this and the following slide. The below
graph shows the distribution of the Crown network based on its F¥12/13 profitability and strategic fit.
Strategic Essential
branches fit our future
vision of the Crown
network well, but are
generally loss making,
most often due to high
local property costs.
Problem Branches are
both a poor strategic fit
and unprofitable. The
vast majority of the
FY12/13 Crown network
were Problem
Branches.
Strategic fit
{ Pre-CTP Position I
J
Profitability and strategic fit
Star Performers fit the
future vision of the
Crown network well,
and generate a profit.
Cash Cows are a worse
fit against our future
vision of the Crown
network, but are
nonetheless profitable.
90.0
00 Strategic Essential Star Performer
. . tu .
70.0 fo a . > _.
* . 2 + e *
oo I* $s s..¢ 8 oe :
° es, t ve * .
50.0 ry = - ¥ ry * Saaea aes
“ * oe ee ee a “fs he. .
40.0 fat fore tre? .
30.0 te st 8 ee ote, .
rs * *¢ . > Cc ba
+ cb ee Fete © o*
20.0 * % are yes +
soo Problem Branch Cash Cow
(200) (150) (100) (50) (a) 50 100 150 200
Indicative P&L (£k)
Post Office®
Strictly Confidential
@
Fit of today’s Crown network against our vision
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Today’s Crown network is one of much reduced losses, following the network-wide cost savings made under CTP, as well as removal of a
number of problem branches through CTP’s franchising and merger projects. Whilst it is clear there is still a sizeable population of Crown
branches that are both unprofitable and a poor strategic fit, significant progress has been made over the last three years. Some individual
branch examples that are typical of each group are shown.
Cambridge:
Pre-CTP -£263k
Post CTP -£103k ~~
High footfall,
demographics above
average, good income
per customer session,
but very high property
costs (£290k p.a. and
rising)
Dundee:
Pre-CTP -£161k
Post CTP -£46k
Average size, footfall,
and retail vitality but
poor demographics.
Springburn Way,
Glasgow:
Pre-CTP -£244k
Post CTP -£155k
Avge. Footfall, very poor
demographics, product
mix, and income per
customer session.
Strategic fit
Post-CTP Position
J
Profitability and strategic fit
Indicative P&L (£k)
90.0 =
wo I strategic Essential : Star Performer
70.0 I. . ok. + . 2
60.0 ¢ , - a . Lie s 2. 6 5
6 . Sey . % <
sce de Se ee
50.0 So ee tes
. ~~ ef Ls Sa sate C
. oto aS ®, ae Ss ¢
40.0 a0 * +h Pe .
”~ Tee lee ne
. * 4 :
. SF *% ee <<
30.0 wottye ee. :
. hy ied * «
20.0 —— ‘ oes” ~—
— Problem Branch Cash Cow ~
10.0
(200) (150) (100) (50) 0 50 100 150 200
Manchester Spring Gardens:
’ Pre-CTP -£186k
Post CTP £114k
High footfall (8600cs/wk)
drawn from a big, vibrant
retail centre. Good retail
vitality, good product mix.
Wealdstone:
Pre-CTP £104k
Post CTP £137k
Low footfall (2,600cs/wk);
demographics are average;
but good income per
customer and UKVI plays a
positive role in branch
profitability.
Bromsgrove:
Pre-CTP -£3k
Post CTP +£40k
Low income per customer
session, retail area is tiny
(44 sqm), very low property
costs sustain positive P&L.
(13)
Post Office® V2" :Five outlier branches have been removed from the scatter graph in the interests of scale. These include Birmingham (Star Performer, +£400k P&L); cdi Town
(Cash Cow, +£300k P&L), City of London (Strategic Essential -£340k P&L), Trafalgar Square (Strategic Essential, -£400k P&L) and Worlds End (Problem Branch -£230k)
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Common characteristics and profitability of each group of branches
It is possible to calculate a post-CTP Overall network Total Avg.
P&L both for the overall network 314 branches income 131,700 419
and also for each of the four Average P&L -£11k :
quadrants, to understand their Typically 3,500 weekly footfall ae soe ee
relative contribution to the overall Average branch size 91SqM Property -26,500 -84
Staff cost to income ratio 60%
Crown P&L. Allocations -29,100 O23
Property cost to income ratio 20%
T_T
P&L (Ek)
Strategic Essentials
« 44 branches
* Average P&L -£84k
* Typically 4,600 weekly footfall
* Average demographics
(I * Average size 150 SqM
+ Staff cost to income ratio 62%
* Property cost to income ratio
32%
Star Performers
56 branches
Average P&L +£71k
Typically 5,000 weekly footfall
Average demographics
Average size 141 SqM
Staff cost to income ratio 53%
Property cost to income ratio
15%
Income
Staff
Property
Allocations
P&L (£k)
Problem Branches
* 127 branches
* Average P&L -£54k
* Typically 2,800 weekly footfall
* Poor demographics
* Average size 63 SqM
+ Staff cost to income ratio 70%
* Property cost:income ratio 25%
* 35 of 127 have losses £0 - £25k
* These 35 have the potential to
move to breakeven.
Cash Cows
87 branches
Average P&L +£36k
Typically 3,100 weekly footfall
Below average demographics
Average size 70 SqM
Staff cost to income ratio 57%
Property cost to income ratio
11%
Income
Staff
c> Property
Allocations
38,400 686
-20,300 -363
-5,800 -104
-8,300 -148
30,500 351
-17,500 -201
-3,400 =39
-6,500 “15
(aay
Total Avg.
Income 25,800 586
Staff -15,900 -361
Property -8,200 -186 I
Allocations -5,400 -123
P&L (£k) -£3,700k £84k
Income 36,900 291
Staff -25,700 -202 I ,_I
Property -9,100 <f2 rm
Allocations -8,900 -70
P&L (£k) -£6,800k -£54k
Income 10,200 291
Staff -6,600 -189 <I
Property -1,800 “51
— Allocations -2,200 -63
Note :The above figures are exclusive of the full allocation of cost which will arise from the unwind of the variable distribution me Ag, gy for
FS resource cost between Crown P&L and the wider business’ P&L. Although this unwind will worsen the Crown P&L. by c£3m, the effects of FS
specialists’ cost distribution are not being considered in decisions as to whether to retain branches or not and are as such excluded.
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Common characteristics and profitability of each group of branches
Income 131,700 419 Whole network post-CTP
SE I SP Staff -79,500 -253 * 314 branches
Property -26,500 -84 * Direct branch costs of £106m and allocated costs of £29.1m on income of £131.7m
PB cc :
Allocations -29,100 -93 * Current loss of £3.4m
. in of -3%
P&L (Ek) -£3,400k I -£11k Margin of “3%
income 64,200 one “Strategic Essentials “and “Star Performers” only
SE I SP Staff “36,200 —-362 * 100 branches
Property -14,000 -140 * Direct branch costs of £50.2m and allocated costs of £13.7m on income of £64.2m
Allocations -13,700 -137 * Current profit of £0.3m
P&L (£k) £300k £3k + Margin of 0.5%
Income 68,900 482 “Star Performers” and “Cash Cows” only
sP Staff -37,800 -264 * 143 branches
Property -9,200 64 * Direct branch costs of £47m and allocated costs of £14.8m on income of £68.9m
cc . .
‘Allocations -14,800 103 Current profit of £7.1m
* Margin of 10%
P&L (£k) £7,100k £50k
jnceme 94,700 506 Branches where our recommendation is to retain as Crowns over the next three years
a ic E: ials”, “ Perf ” and “Cash ”
SE sp Staft -53,700 a ‘Strategic Essentials”, “Star Performers” and “Cash Cows
* 187 branches
Property -17,400 93
cc * Direct branch costs of £71.1m and allocated costs of £20.2m on income of £94.7m
Allocations -20,200 -108
* Current profit of £3.4m
P&L (£k) £3,400k £18k
+__Margin of 4%
Post Office®
Note :The above figures are exclusive of the full allocation of cost which will arise from the unwind of the variable distribution mehyd@iday for
FS resource cost between Crown P&L and the wider business’ P&L. Although this unwind will worsen the Crown P&L. by c£3m, the effects of FS
specialists’ cost distribution are not being considered in decisions as to whether to retain branches or not and are as such excluded.
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Contents
Item Slide numbers
Our vision of the Crown network 4-6
Lessons learned from CTP and challenges still to face 7-9
Network fit against our vision 10-15
Proposed initiatives to further improve the network 16-20
Proposed implementation order, benefit phasing, and optionality 21-24
Scope packages, costs and benefits, next steps 25-27
Appendix 28 onwards
(ae
16
we
Post Office® Strictly Confidential
Summary of initiatives to further improve the network
Levers available by quadrant
There are a number of different levers we will
need to use, branch-by-branch, to both increase
the profitability of the Crown network and to
increase the proportion of the network that is a
good strategic fit.
These initiatives can be delivered either by Post
Office working alone, or in a strategic partnership
between Post Office and a major retail partner.
Whilst wholesale franchising of “problem
branches” is very unlikely to be a win-win deal for
both parties under current franchising terms,
potential deal shapes will be explored.
On initial analysis, it is expected that a strategic
partnership could offer many other opportunities,
with better payback periods than franchising,
such as co-location of sites to share property and
staff costs and improved retail offers operating
within the sites of existing Crowns.
Overall network
People
* Support branch colleagues through new training and engagement programmes
* Reward staff for excellent customer service and sales behaviours
« Address labour cost disparity between Crowns and the agency network
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Strategic Essentials
Reduce and control cost
* Increase POCA automation
* Prioritise innovative solutions to reduce
the impact of property costs on P&L
Customer offer and income growth
+ Improve retail offer and monetise space
* Deliver great customer journeys & service
Shape the network
* Merge in services from problem/ cash
cow branches
Star Performers
Reduce and control cost
* Increase POCA automation
Customer offer and income growth
* Improve retail offer and monetise space
* Deliver great customer journeys & service
Shape the network
* Merge in services from problem branches
* Open new Crown branches in major retail
centres that are currently without a
flagship presence.
Problem Branches
Reduce and control cost
* Seek “social purpose” allocation of
network subsidy to cover running costs
Shape the network
* Of 127 branches:
Close /merge up to 7 in 15/16.
Reduce cost through POCA automation and other
initiatives to move 35 to break-even.
Reduce service offer dramatically in up to 26
branches once POCA is automated.
Franchise (but only if a viable, interested, partner
exists) or merge/ close the remaining 59.
Cash Cows
Reduce and control cost
* Increase POCA automation
Customer offer and income growth
* Improve retail offer and monetise space
* Deliver great customer journeys & service
Shape the network
* Consider franchising (but only if business
case is compelling, the more profitable the
less compelling)
* Merge in services from problem brapshes
Post Office®
Strictly Confidential
W7
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Summary of initiatives to further improve the network
Reducing and controlling cost
a) Near term cost out (pre-September 2015) — e.g. onerous contract provision for onerous leases based on future plans to exit problem
branches, adjusted facilities management contracts, transferring union representatives off the Crown P&L before a wider restructure,
further overtime budget reductions, innovative property initiatives to allow lease regears.
b) Post Office Card Account (POCA) automation — efficiencies through technology for a high effort (19%), low revenue (8%) workload.
c) Workforce management system — improving staff scheduling and supporting proactive manpower planning.
d) Pay & rewards — longer term strategy to modernise the overall reward package, moving us closer to the high street average.
Customer offer and income growth — create new income growth beyond the current product pillars by monetising our network asset.
Three year income forecast across product pillars Opportunities to monetise our network
14/15 FYF IEstimated budgets per year (£m) wee *Options Hay alamad ve :
mprove retail o arrangement; hosting other retailers in
for Crowns 6/17 17/18 Crowns; sourcing specific product lines
- *Proven source of revenue, with partner
In-branch Crown income* 88 90 93 97 Photo booths appetite to upgrade estate and expand
existing footprint
Growth vs FY14/15 +£2m +£5m +£9m
a *Opportunity to replace Post Office TV with
In-branch adverts AMScreens & sell complimentary adverts.
*in-branch Mails, Retail, Government Services, FS, & Telephony, excludes renewals and retentions, fixed
income and other Crown income beyond that generated annually by new sales in branch.
Network shape — There are a number tools available to us to further shape our network, in line with our vision
Relocations Co-locations ie roe HOSE - Franchising
service offer Two-in-Ones
(a9)
(3s)
Post Office® Further detail on the above initiatives is available in the Appendix
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Summary of initiatives to further improve the network
®
Motivated, engaged, knowledgeable staff: Controlling our cost base, monetising our physical asset and shaping our network provide the
platform for a successful Crown network. However only our people in branch can deliver this success. We must engage them with the
vision for the Crown network, and support them in delivering the best for our customers every day.
Branch teams will be engaged on the
following themes:
Vision - of a Crown network moving from
good to great over the next three years. We
will gain buy in for new concepts through
communication events, reinforced in branch
with weekly themed Team Talk sessions and
Area Manager Blogs, helping managers
engage the team.
Customer — bring to life the refreshed
standards and measures linked to the POL
scorecard through ongoing training and
engagement activities.
Performance and capability— Embed the
new Performance Management Process as
agreed with CWU. Continue to embed the
Crown Leadership Excellence programme,
extending this to Assistant BMs and our
managers of the future.
I The Sales Capability Programme (currently
I in diagnostic phase) will provide the
I structure to grow sales in a professional and
I focused way with the right incentives in
I place in support of great sales behaviours.
S, FRES, BOI and Royal Mail field teams are
I ngaged in a quarterly sales planning
I process to ensure that support is directed to
I We will use the new Crown structure to build
I Area P&L plans , optimising sales capability
efficien
Develop bonus schemes that incentivise
excellent sales behaviours within an
affordable cost envelope for the business.
Introduce increasingly variable, performance
related pay to incentivise our top performing
branches and individuals.
Create a sense of excitement, recognising
and rewarding the achievement of our best
performers through the closer working
relationships available through the new
cluster manager structure, building towards
the Network Sales Awards annually.
Post Office®
Strictly Confidential
©
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Summary of initiatives to further improve the network
Clear and coordinated communications: A full communications and stakeholder management strategy will be developed as part of the
mobilisation and delivery of the Crown strategy. While looking at communications across the programme, there will be four main themes
covering Colleagues, Customers, Unions and Stakeholders.
u
ve
AW Ke ,
theUNION
I Ske
Stakeholders
/
Recognising their
contributions to-date and
going forwards
Engaging and motivating
colleagues with our vision for
a successful network — ‘Good
to Great’
Focussing on our strengths —
leading in technology,
customer service and FS
Giving staff a voice
Maintaining leadership led
communication that has been
such a successful part of CTP
Highlighting successes and
investments to date
Recognising customer
satisfaction as a key driver for
change
Clear communication where
branch services will be
impacted, smoothing the
transition from present to
future state
Framing Crown change as part
of our wider network strategy
As with CTP1, there will be a
wide spectrum of internal and
external stakeholders to
manage
Providing reassurance on job
security and network shape,
wherever possible
Focussing on ensuring
branches have the right
resources to serve our
customers (people and
technology)
Clear and consistent
communications are essential
for these groups
Stakeholder groups will
Mitigating the impact of include:
future technology - ShEx
implementations,
- Local MP’s
closures/mergers and
initiatives that impact the
labour model through pro-
- Citizens Advice
- Internal Post Office teams
XN 7
active engagement
X y,
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Strictly Confidential
/
®
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Contents
Item Slide numbers
Our vision of the Crown network 4-6
Lessons learned from CTP and challenges still to face 7-9
Network fit against our vision 10-15
Proposed initiatives to further improve the network 16-20
Proposed implementation order, benefit phasing, and optionality 21-24
Scope packages, costs and benefits, next steps 25-27
Appendix 28 onwards
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21
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Proposed implementation and benefit phasing
There are a number of different approaches to implementing the future Crown strategy, dependent on the risk
profile the business wishes to accept. This risk profile must balance;
Financial risk
Political risk
People engagement risk
Industrial relations risk; and
Delivery risk
We have taken on board these considerations in order to develop what we believe is a programme of change which
balances the below considerations;
Breakeven: CTP targeted March 2015 to get to break even, this has not happened and we need to reach
breakeven as soon as possible.
People impact: Having been through a large change programme over the last three years it is vital that we
maintain engagement from our Crown staff.
Industrial relations: The impact of any changes to network shape, pay, or job roles will inevitably bring with it
union negotiations and the potential for unrest.
Cost to implement: The way in which the approach and ordering of activities impacts the cost of
implementation.
Benefits and return on investment: The sequence and pace at which we implement the strategy will bring with it
different benefits and returns on investment, but we target a 3 year payback on each element of optional
investment spend.
Our proposed implementation phasing is shown overleaf, followed by higher risk, higher benefit options to
accelerate P&L improvement.
Post Office® Strictly Confidential
@
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Key
Feasibility assessment
Proposed implementation and benefit phasing
z z Enabling project work
The below table is a forward projection of Crown P&L run rate, incorporating the scope options proposed Benefits delivery (and value in Em)
and all other known income and cost upsides or downsides over the next three years. All values are £m. Cost headwind (and value in £m)
The higher risk, higher benefit options at the bottom of the page are not included in the run rate estimate,
but instead represent opportunities available to accelerate benefits delivery (see subsequent slide).
Frias FY erie punctate FY IGN run-rare Frimeran—ate Ty vate ;
Botivity FY out> hromuens Choices! notes
nat Gt) 02 193 as ta I a2) as I ae
Delivers CTPTs forward commitments on run rate (e.g.
ar) Complete CTP franchising I
25 mergers, relocations and} nla _I franchise contracts signed in 14/15 and in run rate but
=s transformations branches not going live until 15/16).
5 Leaving the Business with Dignity Delivers business commitments on managing under
& feo) 0.6 —_ I performance that were made with CWU under 14/15 pay deal
= andto seoure end of 1314 dispute.
Inclades assumed € im in Gifor onerous contract provision
‘ for properties which will be exited over the life of CTP2, as
3 Guick-wins 28 well asl egears, Photo booths, union rep off-charges,
3 2 FM and other budget savings
3 POCA automation 4.0 ___ [Assumed enabled through VA. tied with 1/17 pay deal.
© SB [Workorce management system 0.5 I Assumed enabled through overtime reduction.
r= a Up to 7 closures and mergers Os Branches where wider network can absorb closure with
— = minimal improvement required to existing branches.
2 ‘Thied panty retail rated offer 25 New lines, WHS partnering, concession style arrangements
improvements]
Forced network changeI 0.5 [Branches where landlord actions farce relocation
[ Benefits by quartey io] 1 I 20] o2 [a2] 11] oo] oo] 25] 00] oo] oo
Cumulative base-scope benefitsI zo I 21 [41 [43 [rsl[eclo6la6] nif ni] mil ni
‘As per 3 year operating plan. However if income growth does:
not materialise for 16/17 and 17/18 then more radical actions
3.0 will need to be considered on network size and labour cost,
thus reducing the impact of the below costs of pay aw ards
Budgeted income growth from
commercial teams, with salesI
management from Crown teamI
and FS staff cost
CMA pay awardsI =-S___[Assumes continual pay awards comparable to those under
CWU pay awardsI =3.0__ I consideration for 15/6 in the Crown netwark.
Proposed unwind of the variable distribution of FS resource:
cost between Crown and the wider business’ P&L. Originally
Full allocation of FS staff costs to} Introduced during CTP to cushion Crown P&L from the
BAU upsides & downsides
CrownsI 3.0 I period of FS specialists completing their training and then
taking time to establish and grow tow ards their target s.
performance as required in line with FS strategy.
[ Upsides & downsides by quarter] -1.0 as Os os 10] OS 10 10] -O5] 10 10 10
Cumulative upsides & downsides} -10 I -0.5 0.0 O.5 [-0.5I 0.0I 10I20]/15I25I35I45
[Est. Crown P&L run-rate (£m)] -11.6I -6.4 I -6.4 I -4.8 I -2.3 I -1.6]0.6[2.2]3.2]4.2]6.2]7.2[8.2[9.2]
Up to 26 reduced service offer it ors i 16 Assumed could be enabled through POCA automation,
branches}
settlement agreements, and 16/17 pay deal
Could be accelerated (with poorer payback period due to
increased property holdover costs, and increased IR risk),
Dne alternative is to avoid and to seek an ongoing
4.3. I government subsidy for cunning costs af “problem” branches
which exist only for their social purpose and have no
franchise partner interest- but the first opportunity for this is
likely to be March 2018.
Thanges to Crown pay structure} No benefit yet assigned. Would require further HR strategy
andor labour model] E work and lity sment during 15/16.
Up to 59 Franchises ! Mergers j
ClosuresI
Higher risk, higher
benefit scope options
Levers available to accelerate benefits delivery
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Under the base scope scenario, a breakeven point would now not be reached until the end of Q1 16/17, and this itself would be dependent on
all budgeted income growth being achieved in 15/16. Cumulatively, £9m of the £9.2m estimated run rate at the end of 17/18 is delivered
through income growth. Taking the lessons of CTP on board at this early stage, we recommend establishing strategies now which have the
potential to deliver much further benefit and offset the risk of flat or declining income jeopardising the plan. These levers are shown below.
Fvimeniate Totalrun-rate Commit to a “basic public service only” branch model wherever
I a2 I os I a I the branch is a Problem Branch with >60% of services
z E] ere e ecwer ee nla automatable.
Fel 7 —— * 26 candidate branches to automate mails, cash withdrawal,
5 5 Saving ne mueness fe 06 POCA and bill pay only. No counter service available in branch.
All other services migrate to other nearby branches.
§ Quick-winsI * Dependent on POCA automation.
75
3 3 POCA automation] 4.0 Commence work immediately via CTP2 to complete full impact
§ VWarkdorse management syster Os
E § assessments on a further 59 merger/ closures of Problem
Upto 7 closures and mergers os s : :
5 Trad puny erally] Branches, whilst concurrently seeking to secure franchise deals
é improvements} 28 on as many as possible
Foroed network change} os
[ Benefits by quartey]
oof 25] 00] oo] 00
Cumulative base-scope benefitsI
* Would be above 7 merger/ closures proposed in base scope.
+ Franchising is troublesome, but initial WHS interest in up to 15}
would suggest there are at least some realistic prospects.
* Keep option to accelerate branch closures to mid 15/16 if
required income growth is not on track, or if GE want faster
delivery of benefit.
* Closures would create service, I.R. and political impacts.
andlor labour model
3 Budgetedincome growth from}
3 ‘commercial teams. with sales
c management from Crown team
g CMA pay awards}
~ CWU pay awardsI
i Ba
Full allocation of FS staff costs to}
3 Crowns Le I -3.0
[Up sides & downsides by quartey] ~0s] 10] 10 I 10
Cumulative upsides & downsidesI A 15 I25/3.5)45
lEst. Crown P&L run-rate (Em)] -11,6{ -6.4 I -6.4 I -4.8 I -2,3}-1.6 0.6] 2.2[3.2I4.2]6.2I7.2]8.2[9.2]
a Upto 26 reduced sevice offed 16
5 § rancher ’
#8
=
Upto 59 Franchises ! Mergers i
3 H ClosuresI 43
ee
Pe
=
3 Changes to Crown pay structural the
Commence work immediately via CTP2 to define the strategy
and approach to reducing total Crown labour cost from 16/17
* Likely too soon to introduce change in 15/16 pay deal, but will
accelerate introduction of change if at all possible.
* Needs fully costed, credible alternatives to the as-is before
entering negotiation, otherwise we risk failure.
+ _IR/HR impact and high risk of industrial action
Post Office®
Reduce near term staff cost in response to worse than expected
run-rate position,
* Consider increased conditionality and variability in 15/16 CWU
pay deal if GE have appetite.
* Introduce increased in-year performance management of FS.
specialists if 15/16 FS growth does not materialise inyear.
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Contents
Item Slide numbers
Our vision of the Crown network 4-6
Lessons learned from CTP and challenges still to face 7-9
Network fit against our vision 10-15
Proposed initiatives to further improve the network 16-20
Proposed implementation order, benefit phasing, and optionality 21-24
Scope packages, costs and benefits, next steps 25-27
Appendix 28 onwards
(50
25
ey
Post Office® Strictly Confidential
Scope packages, with associated costs and benefits
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* The below table is a summary of forward spend and benefits for all individual projects proposed.
* All values are £m. Benefits are full POL EBITDAS benefit, and the five year costs and benefits of proposed scope items are shown.
* Each individual project has a payback period within 3 years, with the exception of the “forced network change” projects.
* The table excludes already budgeted 15/16 costs for any delayed, non-optional, expense that will be incurred under pre-existing
commitments made by the CTP1 and Leaving the Business with Dignity programmes. Budget is already in place for 15/16 to complete on
these commitments under previous business cases. The below table therefore covers the costs and benefits of newly proposed scope only.
All values are £m
Package
What is included
One off exceptional costs
POL EBITDAS
improvement vs 14/15
a
Fa
16/17
17/18
a
ES
a
a
Total
15/16
16/17
17/18
2/8
s;9a
5 year
cumulative
Quick wins package
Includes turther lease re-gears; establishing an onerous contract provision for
branches where rents are outside of market rates; increasing branch income via
the rollout of a new, expanded, Photo Me offer; and pursuing additional property
cost savings.
Funding already approved.
os
Os
11
13
13)13
Base scope package
Assessment, business case development and initial estimates of full costs to
deliver:
~POCA automation
-Workforce management staff scheduling system
-Improved retail offer
-Up to 7 closuresimergers
Costs will be refined at full business case stage
16
os
23.5
11
5.9
31
Higher risk, higher
benefits scope
package
Assessment, business case development and initial estimates of full costs to
deliver:
-59 additional closures, mergers and franchises over 16/17 and 17/18 to tackle
“Problem” branches
- 26 “problem” branches moved onto a fully automated, reduced service offer
EBITDAS benefits include value of migrated income to agency network.
25
12
23.5
78
10
10] 10
Forced Network
change
Assessment, business case development and initial estimates of costs to deliver
change in branches where the actions of our landlords will force POL into
making choices on retention, relocation, or franchising of the branch. This
“forced hand” comes from eviction notices, redevelopments and excessive rent
increases. This type of work was absorbed under CTP1 and similarly needs a
home under CTP2. Payback periods are poorer than optional relocations, and
as such each case will need assessment against the CTP2 strategy such that
only those branches with a good strategic fit and profitability are relocated under
a forced hand scenario.
43
43
43
13
03
09
Ls
17/17
Totals
23
23
14I 0
2.5
16
21
21 I 21
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Next steps
1. CTP Meeting Terms of Reference and membership to be refreshed to reflect the nature of CTP2 scope.
CTP governance to be combined with the required business governance regarding feasibility
assessment of an increased strategic partnership with WHS.
2. CTP2 team to continue with delivery of “quick wins” scope package (funding already approved by
Transformation Management Group in March 2015).
3. CTP2 team to assign additional resource to develop full feasibility assessments, business cases and
detailed project plans for; POCA automation; the workforce management system; 7 branch
closure/merger projects for 15/16; proposals to further monetise available space in the network
including a new Crown retail offer; and the portfolio of 15/16 forced network change projects. Full
business cases will be shared during May and June with TMG and Transformation Committee.
4. Dependent on GE approval, the CTP2 team will also assign further resources to develop full feasibility
assessments and business cases for; up to 26 reduced service offer branches; and up to 59 closures/
mergers and franchises. These will be shared during June with Transformation Committee.
5. Dependent on GE approval, the CTP2 team will also assign further resource, working in conjunction
with the HR, IR and Reward teams, to further develop the strategy to reduce / better variabilise the
cost of the Crowns labour model and report back to GE.
6. The agreed (and quantified) outputs of 2 to 5 above will inform the updated draft of the 3 year plan to
be signed off with the Board in July, and will also be reflected in the network strategy session at the
June Board Away Day (with both products shared in advance with the GE).
Strictly Confidential (27) —
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Appendix
Additional detail on proposed initiatives and governance
@)
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1) Reducing and controlling cost within the current Crown estate
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©)
Beyond those staff cost savings delivered by CTP, there are other cost opportunities to exploit. This is in part enabled by a closer focus on
costs possible as a result of the new Area / Cluster Manager structure. However, all staff savings have an Industrial Relations risk profile.
eal A) Quick wins j
¢ Union representatives. Transferring the cost of Crown union representatives from the Crown P&L to the IR
budget will realise an immediate benefit ahead of the current plans, being led by IR, to review and reduce the
total cost of union facility time across the business. Est. benefit £0.5m
¢ Budget savings. BMs will be set an additional stretch target to reduce the overtime and casual labour spending,
with controls put in place as a result of the new Crown structure. Est benefit £0.2m.
¢ Facilities management. Adjusting SLAs and further re-negotiation of supplier contracts. Est benefit £0.4m.
* Photo booths. Roll out of a larger estate and higher retained share of income for POL. Est benefit £0.4m.
¢ Onerous contract provision. For branches where we have a clear strategy to exit our current site, and where
property costs are above market rates, an onerous contract provision will be established. Est. benefit up to £1m.
aaa B) Post Office Card Account (POCA) automation
¢ As demonstrated by CTP’s Self Service Kiosk project, it is possible to improve profitability via automation,
without damaging customer satisfaction or wait times.
¢ POCA and bill pay transactions are closely linked, labour intensive and low revenue.
¢ They require 19% of branch effort for 8% of revenue.
¢ The pure POCA transaction has a simple customer journey (balance check, cash withdrawal) but is most
commonly coupled with bill payment and some mails products.
¢ Through software and hardware development, then a larger estate of self-service machines (c.300 new
machines), we would automate the POCA customer journey, offering cash withdrawal (incl. coins), bill payment,
mails and retail.
* Automating POCA will also move some existing non-SSK branches beyond the “tipping point” of counter hours
removal that is required for net staff benefits to be unlocked through introduction of self-service.
Post Office® Strictly Confidential
1) Reducing and controlling cost within the current Crown estate
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-——{__C) Workforce management system
«New software tools are currently being assessed which would improve staff scheduling and support more proactive
manpower planning, in both the Crown network and Supply Chain.
¢This would result in an ability to reduce costs quicker when changing staff rotas, and reduce overtime costs .
Staff would declare shift preferences themselves in advance of duties changing, including any particular days/ times when
they are available or unavailable for overtime. This will reduce timesheet inaccuracies and drive further savings.
With such a system, the Crown Office Staffing Agreement (COSA), which guarantees fixed duties and max 6 weeks notice of
any change, would be anachronistic as staff could — in theory — be engaged weekly on availability. To realise the full benefits
of this, we would need to secure union agreement to the removal or significant amendment of COSA, which would be
unlikely, so unilateral removal would have to be an option.
¢Branch Managers could automatically draw from a pool of counter staff available within the local area if overtime is required,
selecting the cheapest way of filling the hours, other than just from those resources currently assigned to that branch. Again,
this would be a fundamental change to current staffing arrangements and would likely be opposed by colleagues and unions.
-——{__D) Pay and reward }
¢ Moves to normalise pay closer to the high street average would be undertaken. This could include;
¢ setting pay at regional levels to reflect the differing market rates across the country;
* creation of entry-level and intermediate-level roles with lower pay and more challenging progression between;
* presentation to staff ofvoluntary pay variablisation options as an alternative to the franchise or closure of a branch;
¢ creation of an apprenticeship scheme, running on lower rates of pay; and
¢ increased variablisation of pay in line with income performance.
CTP initially attempted to, and was unable to, secure CWU agreement to a new entry-level role with a lower pay
rate. Any of the above options will meet with strong union opposition and probable industrial action, but there is
not a “do nothing” option if our objective is to reach a commercially sustainable Crown network.
To achieve a strong enough negotiating position before commencing negotiations, the business will need credible
alternative models in terms of staffing. We recommend investing the necessary time and resources during 15/16 in
a joint Crown-Finance-IR/Reward team taking time to build up alternatives such as;
* options to staff fully automated branches via a managed service / Joint Venture with a technology partner;
* arange of sizes for a potential franchise deal or other strategic partnership with one or more retail partners;
© arange of options for potentialshared-staff stores with a Crown site hosting a separate retailer or viceversa; and
© amature set of proposals for an apprenticeship scheme and other alternatives as described above.
@
7
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2) Generating income growth
* How to accelerate income growth through an improved and more profitable customer offer is a business-wide challenge and one that the
Crowns team will work on together with and in support of our Commercial colleagues.
* Financial services growth will be essential to achieving commercial sustainability in the Crown network. An ambitious, positive, go-getting FS
growth plan for the Crowns is essential for them to be the challenger banks in their communities. A major joined up, local advertising,
prospecting, leafleting, hub and spoke campaign with local agency branches as well as a complete focus on maintaining the complement and
competence of FS and MS staff is essential.
* However, considering the likelihood of only modest growth from our core product set, it is clear that the Crown network must seek to drive
additional revenue, on top of this, from the unique asset POL has here when compared to the Agency network- ownership of our own retail
space. Increased monetisation of this square footage will be essential.
Latest 3-year view from product teams Network monetisation opportunities
14/15 FYF I Estimated budgets per ye *Options include a concession style arrangement,
for Crowns (£m) Improve perhaps hosting other retailers in Crowns, as well as
retail sourcing specific product lines for Crowns.
16/17 17/18 offer *lmprovements to allocation and replenishment
Mails 1% 36 36 35 35 processes can reduce out-of stock periods.
Government -8% 20 18 17 16 Proven source of revenue, with partner appetite to
Telephony 0% 1 1 1 1 Photo upgrade estate and expand existing footprint
ooths Would see a larger estate and higher retained share
Would I d high ined shi
Financial +14% 31 35 40 46 of income for POL
Services
*Current estate of Post Office TV screens are due for
Renewals 0% 16 16 16 16 In- replacement. There is an opportunity to replace
&retentions branch them with AMScreens, which gather customer data.
Fixed Income 0% 21 21 21 21 adverts eThis opens opportunity to sell POL or other partner
advertising in branch and/ or in branch windows.
Other 0% 7 7 7. 7
Total £1321 £1341 £137 £141 *e.g. Safety Deposit — In the right locations, returns
Ne au a AL i Other can be generated from offering safety deposit box
Income growth vs FY14/15 +£2m +£5m +£9m options services, exploiting the existing high-security
characteristics of our branches.
*channel view taken from 3 year operating plan
3) Available tools to re-shape the network
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Relocations
¢ Relocation to
better pitch sites
but only as and
when leases expire
or breaks arise
Relocation into
council premises
if/where available
and unsustainable
at commercial
rents (e.g. Mount
St, Manchester,
Lower Edmonton)
Consider off-P&L
onerous contract
provisions for
branches with
unsustainable rents
until such time
they can relocate
Co-locations
¢ Share space with
another retailer,
maybe extending
as far as co-
branding
Branch would
remain as a Crown,
but either another
retailer would
move in to Crown
site, or vice-versa
(e.g. WHS appetite
for co-location and
shared SSK units,
Coffee unit at
Trafalgar Square,
Sainsburys at Lupus
St)
Reduced
service offer
° To use if a
“Problem” branch
is unsustainable,
unfranchisable, and
the wider local
network cannot
cope with a
closure.
Strip branch service
offer back to an
automated mails,
bill pay, ATM, and
POCA offer, with no
counter service and
very limited
staffing.
¢ Will face
opposition on job
losses /
outsourcing and on
reduction in service
range in branch.
Mergers and
Two-into-
Ones
Politically
challenging, with
accusations of
“closure by another
name”
Opportunity to
consolidate
services & improve
profitability of
combined branch
through staff
efficiencies and
reduced property
costs (e.g. Derby,
Islington, Sutton
under CTP)
If a nearby Main
has sufficient
space, there is the
option to develop a
variant to relocate
staff out of the
Crown and merge
service into a
nearby main (e.g.
Rye Lane)
Franchising
¢ Politically
challenging , and
limited appetite
from any multiple
partners (other
than WHS) to take
on large ex-Crowns
as Mains. Partners
more interested in
taking strategic
Crowns than our
“Problem”
branches.
¢ Very high cost of
transition means
long payback
period on
franchising projects
(> 3yrs).
¢ Politically
challenging, with
union and local
campaigning very
likely
Only viable without
compromising
service if wider
network can
already cope with
migrated traffic, or
if it can be
modified to do so
with simple
improvements to
existing sites.
—(2)—
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Recommended Governance Model from April 2015 onwards
Delegated authority sought Supporting information provided
Noting update provided to Board at June 2015 away day,
describing the Group Executive’s Crowns strategy for 2015-18.
* Approval sought from April 2015 GE Meeting to mobilise work to * Programme team presentation to
Grou p deliver 2015-18 strategy, and to set an overall funding envelope for April 2015 GE meeting.
Executive the associated CTP2 programme of change. * Review of papers to June Board.
* GE will be asked to recommend strategy to June 2015 Board.
‘ * Authority delegated from GE to govern delivery of CTP2 in the * Monthly status meeting between
Transformation context of the business-wide change portfolio. Change Management and CTP
Committee * Will review and approve the top-level business cases required to Programme Management.
allocate funds for the component projects of CTP2, within the * Monthly status report slide
overall funding envelope set by GE. produced for review and discussion
BO
* Authority delegated from Transformation Committee (TC) to .
CT Programme govern delivery of the CTP2 programme. . Monthly presentation produced on
Meeting * Will review individual branch cases for change, in the context of delivery progress in advance of
the top-level business cases approved by TC. Programme board meeting.
* Will operate under a similar ToR to CTP1 programme governance. * Summaries of consultation feedback
* Meeting members will support CTP2 objectives through their for individual branches documented
work within their own functions, as well as providing challenge for CTP Meeting to make decisions.
and support to CTP programme management.
* Day to day management of programme delivery.
* Delegated authority to represent Crown Strategy and CTP2 to
Management external bodies including Citizens Advice, ShEx, MPs, Councils and
trade unions as required.
CT Programme
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MEMORANDUM FOR: The Group Executive Meeting
FROM: Kevin Gilliland, Network & Sales Director
SUBJECT: The Crown Network Strategy 2015-2018
DATE: 16" April 2015
Recommendation
1.
The Group Executive are asked to:
Note the three-year Crown network strategy set out in this paper.
Note that this strategy is consistent with the work being undertaken to assess a
potential strategic partnership with WHS.
Note that the strategy calls for up to 7 branch merger (closure) projects within the
base FY15/16 scope in order to expedite breakeven, and that detailed
assessment of each will be conducted by the CTP Meeting before moving into
implementation.
Endorse the mobilisation of further work under CTP2 to develop full business cases
and project plans for the core programme scope. Funding would only be
released via business case approval at Transformation Committee during Q1.
Initial forecasts are that these initiatives will require a total three year budget
envelope of £24m, and each will offer a payback period of under three years.
Endorse the mobilisation of work to develop business cases for all “forced” network
change. Similar “BAU” changes were absorbed under the CTP1 programme
(e.g. relocations forced upon the Crown network by evictions and other landlord
acts outside of POL control). Funding would be released via the Transformation
Committee, with the CTP Meeting also working to ensure alignment to the
CTP2 strategy. Initial forecasts are that this will require a total three year
budget envelope of a further £13m.
Decide if further work is required of CTP2 to fully feasibility assess the proposals for
up to 26 reduced service offer branches and up to 59 further franchise, merger
and closure projects. If so, the CTP2 team will mobilise work to complete this
and report back to Transformation Committee with full business cases during
Q1. Initial forecasts are that these initiatives will require a total budget
envelope of a further £24m, and will offer a payback period of under three
years.
Decide if further work is required of CTP2 to assess and develop an approach to
better align Crown labour costs to market rates over the term of the strategy.
Options would be developed as part of the CTP2 programme during Q1 of
15/16 in conjunction with the P&E team and IR Steering Group, and then
presented back to GE.
Financial Metrics
2.
The estimated financial impact of the “base scope” of the proposed Crown network
strategy is set out below. There remains optionality in scope, and the costs and benefits
of taking on the more significant scope options are shown in section 5.15.
Financial metric IMPACT
2015/16 I 2016/17 I 2017/18 I 2018/19 I 2019/20
EBITDAS impact £2.2m I £7.2m__ I £9.3m__ I £9.3m_I £9.3m
Investment (capex + exceptionals)
£16.5m
£7m
£0.5m
£0m
£0m
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Payback period (months) 27
NPV (at 12% discount rate) £5m
Previous Approvals
3. The proposals set out in this paper have previously been presented to and endorsed by
the CTP Meeting and Transformation Management Group (TMG). The TMG has
approved an initial £1.1m of 15/16 funding to deliver a small portfolio of quick-win
initiatives to further improve Crown network profitability as part of a “base scope”; as
well as seed-fund the development of further CTP2 feasibility assessments and
business cases.
4. The proposals in this paper have been discussed and developed over the last two
months in conjunction with the leadership of the following business functions:
Commercial, Financial Services, Human Resources, Industrial Relations,
Communications, Finance, Change Management, Information Technology and Legal.
As the strategy has evolved the key themes have been discussed with each member of
the Group Executive in 1:1 sessions, with their feedback sought and incorporated.
Proposal
5.1 The Crown network and Crown transformation management teams were set the task of
developing a vision and proposed three year strategy for the Crown network. Our vision is
one of a flagship network where the customer comes first. It will comprise:
« Busy, strongly branded, branches in great retail locations
oat the heart of our large towns, boroughs and cities;
o with high footfall;
© and an increased proportion of customer spending on discretionary products,
particularly in Financial Services.
e Profitable, and easy, ways for our customers to do business with us
co through a simplified product set, sold by motivated, knowledgeable staff;
o with great customer service;
© more technology-enabled customer journeys;
co and product ranges that better match the needs of the local customer base.
e Our largest scale branches
o where we can drive benefits of scale;
o with space to create professional-looking, always staffed, FS environments;
© with high quality retail, complimentary to our core products;
© and technology enablers such as self-service kiosks, which allow efficient
staffing;
o but without underutilised or vacant space that could otherwise generate better
returns.
5.2 The Crown network will benefit the wider Post Office business strategy. This is by:
© Delivering a commercial rate of return for the Post Office P&L.
o Providing a strong, positive, brand presence on the high street.
o Supporting the business’ strategies to be the leading challenger bank in the UK
and win in the mails market. Particularly by creating the environments needed for
highly professional Financial Services sales and support, and by making us easy
to do business with in terms of mails customer journeys.
o Enabling the business to take new products, changes to branch formats, and new
technology to market quickly, proving them in Crowns before rolling out to the
wider network
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o Helping the business easily demonstrate the control environment needed for
products where compliance is crucial (e.g. FCA compliance in Financial Services,
Home Office compliance for UKVI).
5.3 To deliver this vision will require further, programmatic, change. This will include:
o Putting the customer at the centre of our branch offer.
Changes to the Crown network’s size, locations and branch formats.
Further automation of high-workload customer journeys.
Increased monetisation of the physical space we have.
On-going discipline on staff and property cost.
Continued investment in our people to grow a workforce with the specialism and
professionalism required for our flagship branches.
00000
5.4 Today’s Crown network is one of much reduced losses, following the network -wide cost
savings made under CTP, as well as the removal of a number of problem branches through
CTP’s franchising and merger projects. Whilst it is clear there is still a sizeable population of
Crown branches that are both unprofitable and a poor strategic fit, significant progress has
been made over the last three years. Although the 14/15 Crown P&L run-rate is currently
being finalised as part of year-end process, we anticipate this to be a c£6.4m loss. This is a
worse position than anticipated earlier in the year, as the run-rate now takes into account an
additional £3m cost to be incurred on the Crown P&L. This follows the recent reversal of cost
distribution changes that were introduced for FS specialist resources working from Crown
branches.
5.5 We have assessed every branch in the current Crown network against the vision we set
out. To measure a branch's fit against vision we have used a numerical scale, taking into
account the quality of the branch’s customer base, its location and physical environment,
and income potential. The below scatter graph summarises the results, plotting branch
profitability (x-axis) vs strategic fit (y-axis).
Post-CTP Position
Profitability and strategic fit
90 =
wo Strategic Essential Star Performer
Springburn Woy,
Glasgow
Pre-ctt
Post CTP
Indicative PBL (Ek)
(43) —
Post Office®
5.6 We have summarised the post-CTP network into four categories, defined by their
strategic fit (high or low) and their profitability (profitable or not). We recommended an
overall strategy of retention of 187 “star performer’, “strategic essential” and “cash cow”
branches over the next three years. This is our ideal Crown network size. Post-CTP, these
groups of branches generate £3.4m of profit on an income of £94.7m, a margin, after
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allocations, of 4%. In terms of the direct contribution delivered, these branches are already
comparable with the new mains models.
5.7 Of the remaining 127 “problem branches” branches in the post-CTP network:
o 35 can be moved to a breakeven position through proposed initiatives under
CTP2.
o 26 could be reconfigured, during 16/17, to provide a profitable, counterless,
assisted-automated branch model, with a reduced service offer concentrating on
mails, POCA, cash withdrawal, limited retail and bill payment.
o 7 can be closed during 15/16, with capacity available in nearby branches to
accommodate the displaced demand.
o 59 should be considered for merger/ closure or alternatively franchise (but only if
a viable, interested, partner exists). Franchising has proven challenging under
CTP, and the dynamics of a large number of these branches mean they are
unlikely to be attractive to agency operators. In the event of closures, we can still
maintain a network size of over 11,500 by introducing new locals, mains or even
Crowns in more viable locations elsewhere.
o Initial interest in franchising has been shown from WHSmith in up to 45 of these
127 branches (including up to 19 of those we might otherwise consider closing)
but this is at a very early stage of negotiation and previous experience would
suggest a lower number will prove to be viable deals for both parties after due
diligence completes.
The first two points above form part of the “base scope” proposed for CTP2, with
optionality on the latter two, dependent on GE appetite.
In terms of how many Crowns we recommend remain at the end of FY17/18, it will
therefore be up to 248. These are the 187 “star performer”, “strategic essential” and
“cash cow” branches, plus up to 61 of the “problem branches” (35+26 from above)
that we believe can be moved to a breakeven position with a better return on
investment, and lower service impact, than closure or franchising. Franchising will not
be ruled out on “problem” branches, or even those “strategic essential” branches that
are borderline cases, but these would need to be under deal terms that offer an
acceptable payback period to POL (which we are setting at 3 years).
5.8 Changes to network shape are not the only initiative proposed under CTP2, the
recommended “base scope” of CTP2 also includes mobilising projects to:
o Automate POCA transactions, which, following the efficiencies made on mails
processing with self-service under CTP, account for 19% of the remaining
counter effort for just 8% of revenue generated.
o Introduce changes to workforce management tools, allowing staff to better
declare shift preferences, reducing time inaccuracies and simplifying the process
of allocating additional hours to most cost effective resources.
o Improve the retail offer in Crowns, better taking into account the needs of the
local customer base. This will range from improved management and control of
the as-is retail range, taking on new lines and re-invigorating the Photo-Me
estate; through to allowing a separate, complimentary, concession (for example
WHSmith local) to operate in available space within a Crown branch.
5.9 Under the proposals set out, the Crown network would not reach a breakeven run-rate
until the end of Q1 16/17. This is later than previously forecast. The base scope proposed for
CTP2, coupled with inflationary pay rises over the three years of the programme, and
budgeted income growth of £9m over three years (in line with the three year operating plan)
would see the Crown network reach a £9.2m profit run rate by the end of 17/18, a margin of
6-7%. The Crown network receives no subsidy and bears a full share of central allocations,
so this would be quite an achievement in comparison to where we have come from and with
the wider agency network.
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5.10 We appreciate the Group Executive may either wish to expedite the breakeven point, or
mitigate further against the risk of flat or declining income by taking on a greater risk appetite
for CTP2. The levers available to do this are shown in the schematic below.
[ Commit tow "basic public service only” branch model wherever
I the branch is a Problem Branch with »60% of services
I pctonotabie:
I I= Dependent on POCA automation.
[ Commence work immediately wa C1P2 to complete full mnpact
I assessments on a further 59 merger/ dosures of Problem
I Branches, whilst concurrently seeking tosecure franchise deals
I I onas many as possible
to introduce change in 15/26 pay deal, but wi
GPHERICFICHIEAIE -
Post Office® — 1
5.11 We also recommend that under CTP2, a full feasibility assessment is undertaken and
strategy developed to move total Crown labour cost closer to the high street average. This
would consider;
o setting pay at regional levels to reflect the differing market rates across the
country;
© creation of entry-level and intermediate-level roles with lower pay and more
challenging progression between them;
© presentation to staff of voluntary pay variablisation options as an alternative to
the franchise or closure of a branch;
o creation of an apprenticeship scheme, running on lower rates of pay;
© increased variablisation of pay in line with income performance;
© options to staff fully automated branches via a managed service / joint venture
with a technology partner; and
© a range of options for potential shared-staff stores with a Crown site hosting a
separate retailer or vice-versa.
5.12 CTP initially attempted, and was unable, to secure CWU agreement to a new entry-
level role with a lower pay rate. Any of the above options will meet with strong union
opposition and probable industrial action, but there is not a “do nothing” option if our
objective is to reach a commercially sustainable Crown network. To achieve a strong enough
negotiating position before commencing negotiations, the business will need credible
alternative models in terms of staffing. We recommend investing the necessary time and
resources during 15/16 in a joint Crown-Finance-IR/Reward team taking time to build up
alternatives.
5.13 Controlling our cost base, monetising our physical asset and shaping our network
provide the platform for a successful Crown network. Only our people in branch can deliver
this success. Although we have challenges on sustainability of labour cost, we must engage
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colleagues with the vision for the Crown network, and support them in delivering the best for
our customers every day. The new cluster manager structure supports this and CTP2 will
also encompass a comprehensive range of initiatives to
© engage our staff in our vision, drive standards and set clear performance
expectations
© support our staff to improve sales capability, with top-class training and planning
programmes building on the good work undertaken during the life of CTP.
o reward our staff through greater incentivisation in pay and greater focus on
recognition.
5.14 The alternative option of franchising the entire estate has been considered and
rejected. The improved profitability of the network under CTP, and the high costs of
franchising, mean that there would be no financial benefit in franchising any “star performer”
or “cash cow” Crown branches, particularly when considering the very high costs incurred for
franchising and the payback periods required. Whilst there could be financial benefit in
franchising selected “strategic essential’ branches, to do so would undermine the vision set
out for the Crown network, and franchising would be less attractive to agency partners
considering the physical scale of such branches.
5.15 Dependent on the level of scope taken on, we forecast a need for up to £60m of new
investment over the next three years. This is split out into four separate scope packages as
per the table below:
All values ore £m
POLEBITDAS
One off exceptional costs
: improvement vs 14/15,
Package ‘What is included
2/212/2]8 I rom] 2/2/2/2/8 I oem
8/S)/5/s81a 4/8/)5 I SI & jcumutative
asa tyopoe
rimprovedreta fer
Upto 7 closuestnecgers
Cort wilberefined atu business care stage
esersmert. busners case development andtwaleninares ThA onT@
Higher risk, higher [delve
nett -53 addtional closutes, meigets andiranchises over T6217 and 178 totackle
benefits scope Potent beaches 2sI12I 9 235 78I 10/10] 10] 38
package
26 “problem” branches moved onto afully automated, reduced service offer
IEBITDAS benefits include value of migrated income to agency network
Assessment. business case development andiniial estimates of costs to deliver
[change inbranches where the actions of out landlords wilforce POL into
making choices on retention, relocation, of franchising ofthe branch, This
Forced Network +forcedhand* comes ftom eviction notices. tedevelopments and excessive rent
. increases. This type of work waz absorbed under CTP and simlarlyneedsa 43/43 I 4.3 13 JosjosIisIi7ji7I 6
jenange home under CTP2 Payback petiods are poorer than opionalrelocations, and
[as such each case wilneed assessment against the CTP2 strategy such hat
Joniythose branches with a good strategic ft and profitably are velocsted under
aforoedhand soenatio,
Towels Blelietelol ow [estiela ta tay
Benefits shown above are POL-wide EBITDAS benefit, and the five year costs and benefits
of proposed scope items are shown. Each individual project has a payback period within 3
years, with the exception of the “forced network change” projects. The table excludes
already budgeted 15/16 costs for any delayed, non-optional, expense that will be incurred
under pre-existing commitments made by the CTP1 and Leaving the Business with Dignity
programmes. Budget is already in place for 15/16 to complete on these commitments under
previous business cases. The above table therefore covers the costs and benefits of newly
proposed scope only.
5.16 As next steps, it is proposed that;
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1. The CTP Meeting Terms of Reference and membership is refreshed to reflect the
nature of CTP2 scope.
2. The CTP2 team will continue with delivery of the “quick wins” CTP2 scope package.
3. The CTP2 team will assign additional resource to develop full feasibility
assessments, business cases and detailed project plans for; POCA automation; the
workforce management system; 7 branch closure/merger projects for 15/16;
proposals to further monetise available space in the network including a new Crown
retail offer; and the portfolio of 15/16 forced network change projects. Full business
cases will be shared during May and June with TMG and Transformation Committee.
4. Dependent on GE approval, the CTP2 team will also assign further resources to
develop full feasibility assessments and business cases for; up to 26 reduced service
offer branches; and up to 59 closures/ mergers and franchises. These will be shared
during June with Transformation Committee.
5. Dependent on GE approval, the CTP2 team will also assign further resource, working
in conjunction with the HR, IR and Reward teams, to further develop the strategy to
reduce / better variabilise the cost of the Crowns labour model and report back to
GE.
6. The agreed (and quantified) outputs of 2 to 5 above will inform the updated draft of
the 3 year plan to be signed off with the Board in July, and will also be reflected in the
network strategy session at the June Board Away Day (with both products shared in
advance with the GE).
Further detail on all aspects of the proposed strategy and associated CTP2 programme of
change can be found in the accompanying slide pack.
Risks
6.1 There are a number of different approaches to implementing the future Crown strategy,
dependent on the risk profile the business wishes to accept. This risk profile must effectively
balance financial, political, people engagement, industrial relations and delivery risk. We
have taken on board these considerations in order to develop what we believe is a base
programme of change shown in 5.9 above which balances the below considerations;
+ Breakeven: CTP targeted March 2015 to get to break even, this has not happened
and we need to reach breakeven as soon as possible.
+ People impact: Having been through a large change programme over the last
three years it is vital that we maintain engagement from our Crown staff.
+ Industrial relations: The impact of any changes to network shape, pay, or job roles
will inevitably bring with it union negotiations and the potential for unrest.
+ Cost to implement: The way in which the approach and ordering of activities
impacts the cost of implementation.
+ Benefits and return on investment: The sequence and pace at which we
implement the strategy will bring with it different benefits and returns on investment,
but we target a 3 year payback on each element of optional investment spend.
6.2 However the risk of over-dependence on income growth for the Crown network to reach
a position of commercial sustainability is a material one, and as such we have presented
alternative levers in section 5.10. Whilst these scope options will deliver significant financial
benefits, they represent a more significant risk to Industrial Relations, Employee
Engagement and external stakeholder perceptions of the Post Office.
Kevin Gilliland
Network and Sales Director
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GE & ExCo - Current Actions and Decisions Log
ExCo Meeting 3 July - Actions and Decisions
Significant Litigation
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[03/07/05 [Action 1 [Schedule an ExCo discussion on prosecution policy [JM/AL
[31° March
ExCo meeting 16" December 2014 - Actions and Decisions
OD Wave 2
16/12/2014 Action 4 Review the delegated authority levels and any changes needed to align with Waves I AL/ AC
1&2 and circulate.
After Wave 2
Risk Framework & Risk Data
[26/12/2014 I Action 1 [Provide a risk scorecard with metrics to measure the risk appetite statements [JM [30" April
ExCo meeting 20" January 2015 - Actions and Decisions
SLT Event
20/01/2015 Action 1 Timetable and agenda for SLT Events for the next year to be discussed at GE NH 16" April
On Agenda for 12" Feb GE
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GE on 12" February 2015
Resourcing update — Talent Attraction
12/02/2015 Action 2 Include frontline retention (especially FS) and any geographical issues (e.g. London) I NH 16” April
in the GE slot on retention.
Update: in progress on track for 16" April
12/02/2015 Action 3 Consider graduate proposition, and how we build relationships with universities; the I NH 7° May
timing of the graduate recruitment. To include in the Board paper.
SLT Events — Communications Calendar
12/02/2015 Action 1 Mark Davies to review the Teamtalk proposal to consider: Mark Davies / NH GE on 16™ April
messages for different audiences;
e the different purpose and outcomes required;
how they align with the channels which already exist in network and supply
chain; how they align with SLT briefings;
© how they could be supported by visibility (GE & SLT?);
e the metrics by which we would measure.
As part of the analysis go out to SLT to ask if Teamtalk is working for them, if they
use it to update their teams, and if not why not. To return to GE for further debate.
MD update: review in progress and to return to GE for further debate
12/02/2015 Action 2 MD to discuss proposed changes to operational comms with Angela VDB, to ensure I Mark Davies / 31° March
they align with the Branch Improvements planned. Angela Van Den
MD update: in discussions with Angela Bogerd
12/02/2015 Action 3 SLT Events — produce a paper for GE on the purpose and expected outcomes from Mark Davies / GE on 16" April
SLT events. And the planned themes and agenda items for the year ahead. Gabriella Driver
MD update: in discussions with Gabriella Driver who is producing a paper focussing
on development days
POMS
12/02/2015 Action 2 Ensure the POMs process and meetings are included in the POL business planning. AC On-going
Update 03/03/15: Will be included once finalised.
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12/02/2015 Action 5 POMS MDA included an commercial agreement on services provided by POL to be AC On-going
charged at a margin. Report back to GE when the margin is agreed.
Update 03/03/15: In hand — the likely structure will be a mark-up on costs.
12/02/2015 Action 6 Circulate POMS Articles and Board TOR to GE for information AL 31° March
Update 23.03.15 : POMS Board ToR still under discussion
12/02/2015 Action 7 Provide a document explaining the timelines for establishing POMS including Board I NK 20" March
sign off. 22" April
Update 4/3/15: POMS established FCA Authorisation ‘minded to approve’.
Implementation target date 1 May.
Update 9/4/15: Paper being submitted to special April Board for authorisation to act
as a principal.
Second Sight Thematic Report
12/02/2015 Action 1 Consider how we should test the contract managers engagement with sub Angela Van Den 30" April
postmasters to see if new approach is working Bogerd
12/02/2015 Action 2 PV & JM to go through the Sparrow criminal cases PV/JM 31° March
GE on 12" March 2015
2015/16 Scorecard
12/03/2015 Action2 Circulate a paper to the GE to explain the FS acceleration activity and its Henk Van Hulle June Board AwayDay
incremental effect on the plan
Update 9/4/15: Paper being taken to the June Strategy Board Away Day
Telco Strategy
12/03/2015 Action 1 Clarify whether the mobile proposition requires a Consumer Credit Licence Geoff Smyth/JM 20" March
12/03/2015 Action 3 If the trial does go ahead ensure there are clear metrics in place to enable a final Geoff Smyth/AC Before trial starts
decision on roll-out after the first 3 months.
HAWK
12/03/2015 Action 1 Check whether the decision to situate Hawk within POMS has been agreed by the AL 18” March
Board — Options discussed at Board on 25" March
12/03/2015 Action 2 POMS to advice FCA of the changes to POMS to include Hawk asap JM/NK 20" March
Update 9/4/15: Awaiting submission of JM & AC Long Form:
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12/03/2015 Action 3 Include as an appendix to the Board paper the assurance which POMS will NK/JM 18" March
undertake before it can incorporate the Hawk work into POMs 22" April
Update 9/4/15: To be included in April special Board meeting.
12/03/2015 Action 4 Circulate a note to the GE to explain the Bol exclusivity clause and how this effects NK 18” March
investments and the Hawk recommendation to the Board
Banking Services
12/03/2015 Action 1 Alan Smith to discuss the proposal and scope with Kevin & Jane to get their input Alan Smith/KG/JM 20" March
before the commercial discussions
12/03/2015 Action 2 Circulate to the GE a paper setting out the strategic questions which need to be Alan Smith 20" March
considered and the approach being taken to reach commercials which make the
proposition attractive
Digital
12/03/2015 Action 3 Work up the business case for phase two of the digital plan, to own the customer MG/AC April 30th
relationship. Martin and Al to decide when it is ready to come back to the GE
NFSP
12/03/2015 Action 1 Document what the £25m might be used for and agree with Al & Jane how it might Nick Beal/AC/JM 31° March
be drawn down and signed off if specific criteria were reached
Update: In progress, dependency with continuing discussion with NFSP
12/03/2015 Action 2 Circulate a list to the GE of specific issues for the next 2-3 years which we would Nick Beal 31° March
schedule and expect NFSP to support for the additional payment
Update: In progress, dependency with continuing discussion with NFSP
Talent Retention
[ 12/03/2015 l Action 1 Gabriella to circulate to the GE the next plan for SLT development NH 30" April
Drop & Go
[12/03/2015 I Action 1 Drop & Go risk to be discussed at the R&CC [sM/mG 30" April
April 2015
Strictly Confidential
POST OFFICE LIMITED MATTERS — DISPUTE RESOLUTION
PRIVILEGED AND CONFIDENTIAL — CLAIMS OVER £500K OR THOSE OF A SENSITIVE NATURE
PART (A) - CIVIL LITIGATION
Horizon claims Rodric Patrick
(aka “Project I Williams Angela
Sparrow’) Bogerd
Bourke/
van
den
Post Office has received various claims from
subpostmasters (SPMs) alleging defects in the
Horizon system and POL’s internal processes.
These allegations were initially made in 5
claims brought through solicitors Shoosmiths.
Similar allegations have been made by the
“Justice for Subpostmasters Alliance” UFSA)
and advanced through SPMs’ MPs.
Following discussions with James Arbuthnot
MP and JFSA, independent investigator Second
Sight Support Services Ltd (Second Sight) was
appointed in July 2012 to carry out a review
into these allegations.
On 08.07.13, Second Sight published a Report
finding shortcomings in Post Office's internal
training and support to SPMs on the Horizon
system, but no systemic problems with Horizon
itself.
Following the Second Sight Report, on
27.08.13 Post Office launched a Mediation
Scheme (Scheme) aimed at resolving individual
complaints made about Horizon.
This matter is the subject of separate
updates to senior management and the
Board.
The Scheme received 150 applications,
which have been progressed under the
direction of a Working Group comprising
retired Court of Appeal Judge Sir Anthony
Hooper (as Chair), Post Office, Second Sight,
and JFSA. 80 cases are still being
progressed through the Scheme.
On 03.03.15 the Board approved a course of
action by which Post Office would presume
to mediate all non-criminal cases within the
Scheme, the Working Group would be closed,
and the current engagement with Second
Sight would be terminated. Post Office's
project team is acting in accordance with the
Board's direction.
To date, no claim has been made against
Post Office in the civil courts, and no appeal
has been made against any conviction in the
criminal courts, following Second Sight’'s
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March 2015
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Report. However, Post Office is now in
discussion with the Criminal Cases Review
Commission about its past prosecution
practices and in relation to 14 applications it
has received, though not yet accepted, from
Applicants to the Scheme for a review of
their convictions. A 15th application from a
convicted former subpostmaster has also
been raised with us, though he is not an
Applicant to the Scheme.
There has also been significant media and
political activity concerning the Scheme,
which is likely to continue in the immediate
future. Post Office's Communications team
is fully engaged on this activity.
Employment
Nisha
Marwaha
Colin Stretch
The Employment Tribunal has held a former
SPM to be an ‘employee’ at a Preliminary
Hearing.
A former SPM has brought a whistleblowing
and unfair dismissal claim against Post Office
in the Employment Tribunal.
On 17.06.14, the Tribunal held that the SPM
was an employee of Post Office between
24.08.12 and 12.07.13, even though she
had signed a Temporary Sub-Postmaster
(T-SPM) Contract.
The Tribunal’s finding can be confined to the
specific facts of this case, in particular to
specific pre-contract oral negotiations,
without which the Tribunal acknowledges
there would be no employment relationship.
As an “employee”, the SPM can continue
with her claim that Post Office dismissed her
Eversheds
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March 2015
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for whistleblowing. The Tribunal has not yet
determined whether or not the SPM was in
fact unfairly dismissed. Post Office's position
is that her T-SPM Contract was properly
terminated because of substantial rent
arrears.
Eversheds has been instructed to try to settle
the matter. However, Post Office's financial
offers (the latest being £15,000) have so far
been rejected. The Tribunal Hearing has
been listed for 7 days, provisionally at the
start of September 2015.
The SPM is active on social media and has
been making comments about the litigation.
This is being monitored and Post Office's
Communications team is engaged.
Employment POL/NM Colin Stretch
In addition to the claim noted above, there are
three claims against POL proceeding before the
Employment Tribunals. The Claims. allege
unfair dismissal, race discrimination and
unlawful deduction of wages.
Potential exposure to Post Office in respect of
two claims is approx. £18,000with one claim
yet to be valued.
Significant claims continue to be monitored
(both internally and with external counsel)
and risk assessed as they progress.
Post Office's Communications team is
engaged in the event these claims are of
interest to the media.
Weightmans
and Ashfords
PART (B) - CRIMINAL LITIGATION
PROSECUTION POLICY
Post Office is in the process of finalising a new prosecution policy drafted by former First Senior Treasury Counsel Brian Altman QC.
Significant Litigation Report
March 2015
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PROSECUTION CASES
Post Office is not currently pursuing any live prosecutions in England and Wales, although there are 5 cases being dealt with by the national prosecutors
in each of Scotland and Northern Ireland. A number of security investigations are being reviewed as to whether a prosecution could be commenced
(supported by an independent expert report on the Horizon branch accounting system if appropriate - see below).
EXPERT REPORT
Steps continue to be taken to determine the basis on which Imperial College London may be able to provide expert evidence to support prosecutions
which involve data obtained from the Horizon system.
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March 2015 Page 4 of 4