EXECUTIVE COMMITTEE
AGENDA
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for the meeting to be held on 20 November 2014 in Room 501
Present: Paula Vennells (Chair), Gavin Lambert, Mark Davies, Lesley Sewell, Chris Day, Neil Hayward,
Nick Kennett, Martin George, Chris Aujard, Alwen Lyons, Kevin Gilliland, Henk Van Hulle
In Attendance: Dave Hulbert, Nick Sambridge, Geoff Smyth, Angela Van-Den-Bogerd, Fay Healey, Aidan
Alston
Apologies: David Ryan
Start time : 09.30hrs
End: 16.45hrs
Time Item ExCo Sponsor/Presenter
09.30 - 10.30 Finance Performance Pack Chris Day
10.30 - 11.00 IT Investment Decisions Dave Hulbert / Nick Sambridge
11.00 - 11.10 BREAK
11.10 - 11.40 Update on the Bol / Post Office Long Term Contract, Nick Kennett
taking into consideration Projects Titan and Hawk
11.40 - 12.40 Telephony deep dive Geoff Smyth
12.40 - 13.10 LUNCH
13.10 - 13.25 Funeral Plan Henk Van Halle
13.25 - 13.40 Commercial Committee - Verbal update Martin George
13.40 - 14.00 Industrial Relations - Verbal update Neil Hayward
14.00-14.10 I BREAK /
14.40 - 16.10 People update - SLT half year PDR performance review Fay Healey
(incl. lunch break)
¢ What we have achieved so far - future timeline
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16.10 - 16.25 Women’s Mentoring - Verbal update Alwen Lyons / Aidan Alston
16.25 - 16.40 Actions Log Alwen Lyons
16.40 - 16.45 AOB
16.45 CLOSE
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Strictly Confidential
e
POST OFFICE LIMITED
Performance Report
October 2014
Produced By : Financial Control
For Queries & Comments Contact : Sarah Hall or Kam Bassra
CONFIDENTIAL
Commercially Sensitive and not for onward circulation
ent of unauthorised dis:
and
a non-di:
Financ ls Office
Period 7 Performance Pack - Chris Day 18th November 2014 Page 1 of 26
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Strictly Confidential a
( Contents >)
Page
Headlines 3
Profit & Loss Statement 4
CFO High Level Profit Outlook At Period 7 5
Crown Profit & Loss Statement 6
Cost Management update 7
Cashflow Analysis. 8
Business Scorecard 9
Metrics To Focus On (ExCo remedial action discussion page) 10
Network Transformation Scorecard - Mains 11
Network Transformation Scorecard - Locals 12
Transformation Overview 13
Transformation Overview 2 14
Appendices
Income Report
Net Income By Pillar vs Budget 17
Cost Report
Staff Cost By Function 19
Non Staff Cost by Type 20
Transformation Expenditure Report
Project Costs (OpEx) 22
Project Costs (CapEx) 23
Supplementary Information
Cashflow Statement & Balance Sheet Summary 25
Income By Product Groups & Pillar 26
N 7
Period 7 Performance Pack - Chris Day 18th November 2014 Page 2 of 26
Headlines Strictly Confidential
October 2014
(Meadtines
Operating profit before exceptional items in the month was £5.5m, £4.8m adverse to budget, bringing year to date operating profit to
£29,0m and increasing the YTD shortfall versus budget to £23.4m (£36.0m adverse year on year, including NSP decrease of £23.9m)
~
Net income in P6 is adverse to budget by £6.7m and flat with last year. This reflects the continuing shortfall in Mails and Retail (mainly
labels and delayed rollout of ebay returns) of £3.9m. Telecoms was £2.9m adverse due primarily to lower customer numbers and lower
average revenue per customer. Government Services was £0.7m behind budget mainly due to fewer active POCA accounts than budgeted.
To achieve the FYF of £880m, net income for the remainder of the year needs to average no more than £2.7m adverse to budget each
month (and £3.4m better than prior year each month)
Net income year to date has worsened to £31.5m behind budget and £3.5m below this time last year (excluding NSP).
Total expenditure (before project costs) in the month was £0.7m favourable driven by the favourable subpostmaster costs relating to lower
income, but offset by higher staff and non staff costs.
Total expenditure (before project costs) year to date remains favourable to budget by £10.2m.
The £60m savings task remains challenging with £7.7m still to be underpinned and a further £1.5m still in the ‘hopper’ to be validated
(see page 7).
+ Subpostmasters’ Costs are favourable by £25.5m reflecting lower sales volumes and improved VAT recovery.
* Staff Costs are adverse by £2.5m reflecting under-delivery of savings tasks primarily in Supply Chain and Commercial.
* Non Staff Costs are £12.8m adverse driven by a £10m provision for client compensation, £4.5m shortfall in savings delivery, £3.0m for
the Mails Segregation penalty payment accrual and other increased costs including postage. This is partially offset by increased VAT
recovery of £11.0m.
* Project One Off Costs are adverse to budget by £2.4m reflecting unbudgeted spend for Sparrow and the ‘Journey to 2020’ strategy work.
CFO Forecast
The P7 CFO forecast remains the same as the half year forecast and projects net income of £880m (£45m below budget) and EBIT pre
exceptionals of £85m (£14m below budget). This includes a profit contingency of £5m (see page 5 for further details). Work continues to
identify and implement actions to recover the shortfall against target.
The task in the remaining 5 months is net income of £380m (compared to budget of £393m and prior year of £363m) and an EBITDAS
loss of £8m (compared to budget loss of £18m and prior year loss of £38m)
Crown Profit,
The YTD Crown profit is £8.8m adverse driven by lower Mails income and higher property costs due to the delayed savings for the new
Facilities Management contract as shown on page 6. The Q2 CFO Crown forecast is a loss of £13.8m which is £4.9m behind budget. This
is aligned to the assumptions used in the business CFO forecast but excludes the contingency.
Network Transformation
The programme is ahead of plan at P7 both for contracts signed and branches transformed. The Mains model is performing well and the
performance of the Locals model continues to improve steadily.
Ne
Period 7 Performance Pack - Chris Day 18th November 2014
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Cumulative EBIT pre exceptionals
£m
110 \ctual
90 get
70
50
30
10
-10
hm ye © 2 OO dy A
oF EEEEESESPS
£m Total Net Income - Budget to Actual Bridge
44
—— 34
(19.7) (65) —
531.6 05)
2014-15 Mails &Retall Financial Goverment Telecoms Other 2014-15
YTO Net Services Services YTD Net
income inoome
Budget ‘Actual
Year to Date
Financials Act Target__Var
Total Net Income (excl NSP) £m (Bonus 20%) 500.1 531.6
Operating profit £m (Bonus 25%) 29.0 52.4
Crown Profit (Loss) £m (Bonus 12.5%) (24.2) (5.4)
Non Financials
Queue time % < 5 minutes - Top 1k branches 778% I 831%
NT Branches Transformed In Year (Bonus 12.5%) 1,076 996
Page 3 of 26
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Profit & Loss Statement Strictly Confidential ’
October 2014
Current Month Prior Year Period Year to Date Prior Year YTD Full Year [Prior Year
‘£m Actual Budget Variance Actual Variance ‘Actual Budget Variance Actual Variance Fon cast Budget Variance Outturn
TOTAL GROSS INCOME 878 TS en I 885 On I 5037 5937 571275) ~I 9870 1,031.9 979.4
Cost of Sales (99) (9.9) (oo) _I Gos) 10 (63.6) (62.2) (675) 4.0 (206.8) (106.8) (112.7)
TOTAL NET INCOME 779 B46 e7) [777 03 5001 5316 5036 (35) I 8802 9254 866.7
staff Costs (217) (208) ~~ (8) I (22.2) 05 (246.0) (143.4) (526) 66 (233.6) (2387) (253.9)
[Subpostmaster Costs (41.5) (46.6) 51 (44.3) 28 (262.3) (287.7) (264.1) 18 (455.6) (492.0) (447.6)
Non-Staff Costs, (257) (236) (2a) I 482) 75) I 710) (58.2) (14676) (23.4) I (2806) (2735) (264.8)
Depreciation (0.0) (04) 0.0 (oo) (0.0) (03) (0.4) (0.2) (00) (0.6) (0.6) (0.4)
Total Expenditure (pre POOC) 39) (910) (7) (42)_‘[ 679.5) (689.7) 64.4) (15.4) I (970.4) (4,003.8) (966.6)
FRES - Share Of Operating Profits 28 27 0.1 2.6 02 26.6 26.2 25.3 13 35.0 35.0 33.1
EBIT - BAU 2 G8) 4) I Ge) 3.7) I 28) G19) 135.5) (47.2) I (55.2) (43.7) 166.9)
[One off Project costs (POOC) (1.6) (1.3) (0.4) (2.9) 13 035) (11.1) (48.7) 51 997) (17.3) (26.0)
EBIT - Post Project Costs. (9.8) (5.0) (4.8) (7.3) (2.5) (66.3) (43.0) 54.2) (12.4) 9)
[Network Payment 153 15.4 (0.1) 19.2 (3.9) 953 95.4 1192 (23.9) I 160.0
IEBIT pre exceptionals items 55 10.6 Ga)_I 119 (a)_[_29.0 2b 65.0 (36.0) I 85.4
Interest 06 (0.3) 09 O4 02 3.6 (1.2) 19 17 00
Impairment (339) (48.1) 42 (74) (68) I (804) (1328) (422) (382) I (4833)
Exceptionals (incl BT) & Redundancy & Severance Costs I (113) (14.3) 3.0 (22.0) 07 (1183) (137.6) 254 (143.7)
Government Grant Utilisation 00 00 0.0 188 (gs) I 1700 1700 1480 220
Profit/(Loss) On Asset Sale (0.2) 0.0 (0.2) 0.0 (0.2) 0.0 0.0 25
[Total Profit/(Loss) Before Tax 92) 223) 3d i203) I 39 9.2)
Period vs. Budget (m0 vs. Budget »
Operating profit (EBIT) of £5.5m was £4.8m. Operating profit (EBIT) of £29,.0m was £23.4m adverse to budget. Operating profit (EBIT) of £29,0m was £36.0m adverse to prior
adverse to budget. year.
BAU was £5.9m adverse: BAU was! 20.9m advetes Like for like BAU adverse variance of £17.2m was mainly due to:
. + Lower net income of £31.5m due primarily to the continuing adverse income trend; Mails (£19.7m), . ;
tower net income of 6.7m ue primarily fo specifically labels, Home Shopping Returns (HSR) and Lottery, Telecoms (£9.5m), Government Services Laan Reet da ces ebro ys near preceecy
ower Malis: ang Telecoms income. (€6.5m), mainly POCA, offset by favourable FS income (£1.6m), specifically banking, Premium Bonds and i
+ Higher staff costs of £0.8m in the month. This MoneyGram. * Lower Subpostmaster costs of £1.8m which are almost flat year
is mainly due to Crown pay award + Higher staff costs of £2.5m mainly due to the savings task not being achieved (E2.4m from Supply Chain and I] _ 7 ¥°2"
‘+ Higher non staff costs of £2.1m, driven by [T £0.6m from Commercial), the Crown pay deal and the CMA pay award, offset by a lower bonus accrual. Offset by:
savings task yet to be achived. + Higher non staff costs of £12.8m, driven by the £10m provision for client compensation, impact of the + Lower net income of £3.5m. The variance versus prior year is
Offset by: centrally held savings task of £4.5m not being achieved, £3,0m accrued for Mails Segregation penalty ooce Leber by lover ees Serves: income, mainly
, It task yet to be achieved and higher postage costs offset by sd VAT f and Telecoms offset by higher Financial Services
+ Lower Subpostmaster costs of £5.1m due Etim relating tothe proryeat) nee enone (Moneygram, Mortgages, Savings and Insurance) revenue.
primarily to lower sales/ product mix.
Offset by: + Higher non staff costs of £23.4m due to £10m client
ti thi od IT costs (1 ly
One-off Project Costs variance of £0.4.m fav. “tower ; Subposastr cats of £25 5m de primarily to laver income ad sales mix (€416.8m), VAT recovery II Fo7Pon and ATOS) and higher marketing spend (including come
Below EBIT 'm] and other small variances relating to NT changes, ‘switched from POOC) offset by improved VAT recovery.
The impairment favourable variance is mainly Onesof Propet Costs alae oF £2, an adverse mainly due to unbudgeted project Sparrow (FYF c. £7m) and Non like for like adverse variance of £18.8m was due to:
driven by lower than budgeted capex unbudigeted strategy consultancy costs. * Lower Network payment of £23.9m, offset by
expenditure, Below EBIT * Lower project costs of £5.1m.
Both impairment and exceptionals are under budget due to underspends in NT, CT and IT& Change. Although
lower than budget, these are both twice last year's spend. The exceptionals budget also includes £8m ATOS Below EBIT
contract set up payment incurred in 2013-14 but budgeted for 2014~15. Government grants have now been Incuded in grant utilisation this year Is £77m of 2013-14
\fuly utilised. ‘exceptional spend for which there was insufficient grant last year)
Period 7 Performance Pack - Chris Day 18th November 2014 Page 4 of 26
CFO High Level Profit Outlook At Period 7
October 2014
Strictly Confidential
Comments
FYF of £345m including £2m uplift for Christmas campaign
Camelot volumes £3.2m; Health lottery fixed fee £0,4m; Retail €0.4m
Max penalty under MDA of £6m, assume negotiate down as in 13/14
'Non-receipt of £10m one-off from DWP; £0.5m LIBOR
Volume upsides on tax diss and AEI €1.3m; one-off change control for EVL's £1.0m
Delayed launch. Stil reliant on Cabinet fice committing to volumes
Digital passports delay, partially offset by paper passports volumes and price increase
Lower customer numbers and ARPU's higher wholesale costs; partially offset by FJ claim
Launch delayed and budget included ‘stretch’ volumes. Proposition not being launched this year
New Commercial structure does not deliver budgeted savings task
£2m savings budgeted. IR delayed implementation of new ways of working
Risk from delays to franchising
Updated October forecast which includes £3.8m for Christmas campaign
Cheque pouches nat budgeted £2m: Passports check and send volumes £m
Release all of income contingency
Max penalty under MDA is £6m, assume can negotiate down as in 13/14
‘Bonus provision reduced from 90% to 50% payout (assumes miss ETDBW, Income, Crown proft)
Additional opps identified by the functions against the August cost target
2.5m budget challenge achieved except VAT impact not cvered
‘SSK maintenance £0,9m; FRP support costs €0,6m: Fujitsu Ter 2/3 Helpdesk £0.6m; RM Projects PY depreciation charge
£0.7m
Savings task not underpinned in budget
0.5m Staff Costs; £4 Am small change budget £1.7m IT Services supplier opps: £0.8m ATOS savings
2m Horizon discount agreed as part of HPBB contact for POL not undertaking a competitive procurement
Agreed £800k 2014-16, £200k to applied to change works and €1m for 2015-16
Savings identified from LED budget €0.5m offeet by higher recruitment costs, Various savings identified from Comms budget
‘Budget tasks included in Central, including £m Official Mail. Included in Central budget, not underpinned by any initiatives
un rate risk
Full cost estimate £5.3m covering mediation on c:140 cases, Only £0:3m considered exceptional
“Mekinseys costs already incurred for Journey to 2020 work + £0 5m for FS strategy work
Latest forecast from Commercial and FS, Acsumes Project Wave delayed
Taken in HI
Total VAT recoveries of c£30m, budget already included £7m
£m Income JV Income Staff Costs fens Non-staff_ POOC Costs NSP BIT
[Budget 3s au) em) aoa)
Mails and Retail
Mails (32.0) 19.5 19.5 (11.5)
Lottery and retail (4.0) 25 25 (1.5)
Mais segregation penalty Go Go) (30)
Government Services
POCA (195) 00 (205)
DVLA 23 (0.4) (0.4) 19
IDA (2.0) os os (0.5)
Passports 22) 09 09 (13)
Telephony
Homephone 49) 03 03 (46)
Mobile & Energy (4.5) 23 23 (23)
Financial Services 20 (0 (02) 19
Staff Costs
‘Commercial (1.5) (15) (1.5)
‘Supply Chain (20) (20) (20)
CTP franchising (05) (05) (05)
Non-staff cost savings
Marketing 20 20 20
Official Mail (3.0) (3.0) (3.0)
Central
Release of contingencies 90 oo 90
(44.8) 0.0 (4.0) 25.5 (4.0) 00 17.5 0.0 @73)_]
[Trading forecast at P6 035 aes) OOND I
Further Trading’ risks
Client Compensation (20.3) (20.3) (20.3)
Additional Mails segregation penalty 00 09
Agents costs
Locate 10 10 19
NESP members subs 08 08 os
‘Staff Costs
Central bonus release 16 16 16
Non-staff
Additional savings opps identified 19 49 59 59
VAT on RM IT charges (05) (05) (05)
New IT services not budgeted (28) (28) (28)
IT Savings task Go Go) (30)
IT Opportunities identified agains task os 53 58 58
Homephone discount os 08 os
HR costs & Communications costs 10 10 10
Central task not underpinned (6.0) (60) (6.0)
Bank charges (20) (20) (20)
Projects
‘Sparrow (5.0) (5.0) (5.0)
‘Strategy consultancy (1.5) (15) (1.5)
POOC savings (FS and Commercial) 3737 37
Central
VAT recovery rte prior year 0 110 110
VAT recovery rte ~ current year 80 40 120 120
CONTINGENCY, (5.0) (5.0) (5.0)
[Fo Outlook at P6 3035S) tea) O90) 8s)
Pariod 7 Performance Pack - Chris Day
‘18th November 2014
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Crown Profit & Loss Statement Strictly Confidential °
October 2014
Period Prior Year Period YTD Prior Year YTD Full Year Prior Year
£m Actual Budget Variance I Actual ©» Variance I Actual Budget Variance I Actual Variance I 2 Forecast Budget Variance I Outturn
income and Distributions
Variable income
= Mails 33 38 (0.5) 37 (05) I 202 = 225 (23) I 224 (22) 392 392 00 396
~ Financial Services 29 32 (0.3) 27 02 193, 203 (10) I 176 18 320 320 00 28.2
~ Government Services 20 17 03 20 (oo) I 126 © 117 10 I 130 (03) 18.1 181 00 219
= Telecoms o4 o4 (0.0) o4 00 06 09 (03) I 05 O4 13 13 00 08
Fixed income 24a 24 (0.0) 23 (02) I 133° 136 © (03) _ I 143 (12) 220 220 00 253
Gamma/ Other 07 06 o4 10 (03) I 35 47 a2) I 59 (24) 93 93 00 128
Renewals and Retentions 12 18 (0.6) 14 (0.2) 97 106 (10) ‘I 113 (17) 175 175 00 169
[Total Income including Gamma/other 2230434 (1.4) 13.2 (2.0) I 79.2 843 (5.4) I 85.0 (5.8) 132.5 139.5 (7.0) 145.5
Branch costs -
- Staff (88) (79) (0.9) (10.3) 15 (584) (568) (1.6) I (64.4) 60 (88.8) (90.0) 12 (106.0)
= Property (23) (23) (0.0) (3.4) a4 (ag4) (47.3) = (aa) I (255) 7a (295) (30.1) 06 (34.4)
= Other branch costs (01) (0.2) 02 (0.4) 03 a3) 45) 03 (24) 12 (2.4) (24) 00 (43)
Infrastructure costs a9) @s8) (00) (17) (02) I G36) 33) (03) I 42a) aa) (19.9) (20.6) 07 (22.4)
Allocated central costs (1.4) (1.2) (0.2) (0.6) (0.8) (8.9) (7.9) (1.0) (6.6) (2.3) (14.6) (14.2) (0.4) (13.6)
[Total Expenditure (16.5) (3.5) (2.0) (16.4) a9 I 006) (96.8) (3.8) [ (211.2) 105 (155.2) (457.3) Ex (180.8)
IV Share of Profits 08 07 00 08 (00) 72 7A 01 73 (0.2) 90 9.0 00 96
[Statutory PBIT (4.5) 05 (2.1) (2.4) 0.9 (14.2) (5.4) (8.8) _I (18.8) 46 (43.8) (8.9) (4.9) (25.7)
(Summary >)
Income:
Income is £5.1m less than plan.
At a business level this is predorninantly driven by adverse variances in Mails, including Labels, Home Shopping Returns and Lottery, Government Services and Telecoms, with a favourable variance in Financial Services,
Line by Line variances are as follows:
Variable sales income is £2.6m less than plan principally due to (i) Mails - Lower parcel volumes, Retail sales and Home Shopping Returns, (i) Financial Services - shortfall from Life Insurance, Home Insurance and variable
sales of Savings products. There is a corresponding upside in savings retention income due to the income guarantee with Bank of Ireland. Premium Bonds and Mortgages are also performing above target. (ii) Government
Services - predominantly due to higher Passport check & send transactions. However, there is a variance in ‘Other Income’ that partially offsets this due to an element of the Passports target being held centrally in Other
Income.
Fixed income is adverse due to lower than planned LIBOR rates for Card Account commissions.
Retention income is adverse due to a lower customer base and Averaged Revenue Per User for HomePhone, partially offset by favourable Savings retention income
Other income is adverse due to the delay or phasing of new products, predominantly Energy. Passport Check & Send (actual income in variable sales) is the other key driver. There was also a central Financial Services target
that is held here and being delivered within Financial services variable income
Costs:
Costs are £3.8m higher than plan.
Staff costs £1.6m adverse primarily due to timing of the roll out of Franchising and the impact of the pay review settlement where associated efficiencies will be achieved in future months, this is. partially offset by Crown
branches vacancies, mainly Financial and Mortgage specialist
Other branch costs are favourable to plan due to lower than expected losses although these may reverse in the coming months.
Property costs £1.1m adverse due to the delayed savings for the new Facilities Management contract, which started in October , however POL have not yet received an invoice from the new supplier.
Central Costs are £1.0m adverse due to a provision for client compensation, impact of centrally held savings not being achieved, accrual for Mails Segregation penalty and higher postage cost, partially offset by improved
VAT recovery rates.
Period 7 Performance Pack - Chris Day 18th November 2014 Page 6 of 26
Cost Management update
October 2014
Progress since P6 update
Value and confidence
The Cost Reduction Group (CRG) has continued to drive focus on cost management and
after further assessment of opportunities the gap between the in-year delivery of ‘line of
sight’ initiatives and the total cost reduction challenge has reduced to £9.2m (from P6
report of £14.9m),
Original Cost Management Programme £34.2m
Additional Cost Challenge to achieve budget £ 60m
Central Stretch to achieve budget £ 5.9m
Total Budget Cost Challenge £46.4m
Additional Challenge from Q1 EBITDAS gap £ 7.0m
02 underperformance adjustment £ 69m
Total Current Cost Challenge £60.0m
Current “Line of Sight’ forecast £50.8m
Gap to £60.0m £9.2m
Delivery and governance
Regular 124 meetings continue to drive focus on in-year cost management opportunites
and delivery of existing initiatives. Central business wide opportunities identified during
September and October including the acceleration of McKinsey identified savings have
provided further potential in-year value but more ideas are required to fil the current gap to
target.
Strategic initiatives for FY15/16 and beyond
apsgveral Programme has progressed through Stage 3. designing the financial glidepath to
Work is ongoing to:
1) Identify a portfolio of incremental cost saving opportunities to achieve the £60m in-year
improvement target placing all the cost saving initiatives under the scrutiny of the
pypatarame to ensure the expected improvement has the requisite effect on the 2014/15
outturn.
2), Ensure the benefits from these opportunities are sustainable in order to meet 2015/16
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Strictly Confidential °
Current Position (Week 32)
Delivered: £12.6m Saving™
Budget: £25.4m Saving
Variance: £12.9m
t
Hi
t
SELL PLL LS LL PSII SPSS IIPS PLL ESP PP Pes
LLL EEE EP PPLE EEE EE PEP PEPE PE PEEP P PSS
“saving assessed as “delivere from dscusion with delivery leads and Finance team - to obtain final ratification
EBITOAS targets, moving towards £100m of sustainable run-rate saving by
March 201
3) Deliver the target operating model that will ensure the cost efficiency targets for the
programme (to 2019/20) are realised;
Period 7 Performance Pack - Chris Day
£70,000
£60,000
£50,000
£40,000
£30,000 + I cavngagents costs)
£20,000
£10,000
£0
Total "On-Track" Hopper Gap to £60m target 14/15 In Year Target
18th November 2014 Page 7 of 26
Cashflow Analysis
October 2014
YTD Cashflow
Strictly Confidential
(Cashfiow
The £330m of government grant was received on 1st April which is the last payment of the 2010
funding agreement with BIS.
P7 cash outflow of £214m is £189m adverse to budget of £25m outflow.
The adverse variance is mainly due to:
‘* Network Cash was £232m adverse mainly due to winter fuel payments being advanced into P7
(€133m adverse), Cash Centres and bureau (£83m adverse). The other large adverse variance is
in cheques (£23m adverse).
* Operating profit is £23m adverse to budget.
* Working capital was £20m adverse
* Client balances were £6m adverse.
Offset by:
* Capital and exceptionals continue to be favourable (capital £52m and exceptionals £39) due to
(214)
370
coe I 12
o
(544)
EBITOAS Cnet rng apa) capt ewer Sot Fung Fees ow
vere rope Pome
em YTD Cashflow Variances
(23)
(214)
1
(232) = __ I
(20) (6)
TD Buibet —Opeatngpet—NetnrkCesh rng apne Cape Benes capBkand YTD Aa
ret cptonas bly
poh v7
Network Cash
£m Mar-14 P7
Prior YearI Opening I Actual I Budget var
Retail, Cash Centres 696 522 728 527 (202)
Bureau 70 58 68 53 (15)
Cheques, debit cards 119 129 146 131 (15)
Network Cash
Headroom (£m)
854
975
Period 7 Performance Pack - Chris Day
lower than planned NT, CT and IT spend.
~
XN J
YTD Full Year
- a2
£m Actual Budget Variance I a, I Budget
EBIT (66.3) (43.0) (23.3) 85.0 (61.0)
Working Capital (72.4) (56.5) (15.6) 495 27.0
Client Balances 113 17.0 (5.7) (3.0) 17.0
Network Cash (234.1) (2.6) (231.5) (91.6) (57.6)
Capital Expenditure (80.4) (132.8) 52.4 (145.0) } (205.2)
Government funding 330.0 330.0 0.0 170.0 330.0
Exceptional Items (217.9) (156.8) 38.9 (213.4) I (240.3)
(Other (including interest and tax) 15.9 20.0 (4.1) (9.9) (9.9)
(Operating Cashflow (213.6) (24.8) (288.9) I (458.4) I (200.0)
18th November 2014
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Business Scorecard Strictly Confidential ®
October 2014
Key Performance Indicators Current Month YTD YTD Full Year 2013-14
¥ Act Target Var Act Target Var__I Prior YearI Q2F'cast_ Target Var Outturn
Growth
Total Net Income (excl NSP) £m (Bonus 20%) 7719 84.6 500.1 531.6 503.5 880.0 925.1 866.7
Operating profit £m (Bonus 25%) 5.5 10.4 29.0 524 65.0 85.0 99.0 107.4
Earnings before ITDA and Subsidy £m* (9.7) (5.0) (66.0) (42.6) (54.0) (74.4) (60.4) (92.5)
Free cashflow £m (236.6) 39.4 (213.6) (24.8) 196.8 (158.4) (200.0) 179.7
Customer
Customer Satisfaction** 861% 89.0% 87.1% 89.0% 88.0% 87.5% 89.0% 87%
Easy to do business with (Bonus 15%)** 24% 47% 26% 47% 44.2% 26% 47% 41%
Net Promoter score** 3 2 1 2 -2 05 2 (4)
Queue time % < 5 minutes - Top 1k branches 80.1% 87.0% 778% 83.1% 84.1% 77.5% 81.2% 82.1%
Branch Compliance - Financial Services - basket of 11 measures 90 <=60 80 <=60 N/A 110=> <=60 <=60 N/A
Branch Compliance - Inland Dangerous Goods **** * 70.0% 80.0% 70.0% 80.0% TBC 80.0% 80.0% TBC
Branch Compliance - International Dangerous Goods **** * 80.0% __85.0% 80.0% 85.0% TBC 85.0% 85.0% TBC
People
Engagement Index % (Once a year April) (Bonus 15%)" TBC 58% TBC 58% 55% 58% 58% 57%
Subpostmaster Engagement Index % (Once a year)" 47% 48% 47% 48% N/A 48% 48% 45%
Post Office Values the diversity of the workforce (Once a year April)** 54% 66% 54% 66% N/A 66% 66% 52h
(No.) % of BME appointments over total recruits at senior leadership and on % 9% % 115% % % 14%
senior manager
(No.) % of Female appointments over total recruits at senior leadership and 33% 45% 40% 45% 53.8% 45% 45% 464
senior manager
Modernisation
Crown Profit (Loss) £m (2.5) 0.5 (24.2) (5.4) (11.9) (13.8) (8.9) (25.7)
Crown Profit (Loss) Run Rate £m (Bonus 12.5%)” N/A N/A N/A (41.7) (6.7) N/A (2.0) 0.0 N/A
NT Transformations - contract signatures *** 0 144 4168 3,944 2,113 4,800 4,800 3,246
NT Branches Transformed In Year (Bonus 12.5%) 0 140 1,076 996 295 1,650 1,650 1,554
Bonus worthy metrics
* ITDA Interest, Tax. Depreciation, Amortisation.
** Monthly = 3 month average. YTD = 12 month average.
*** YTD and FY = cumulative including prior years.
**** POL are looking to hit 100%, and these target have been set for 2014-15 in recognition that marked improvement is required to reach 100%.
* Target is the year end exit rate.
** Measured annually with some additional ‘Pulse surveys’
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Metrics To Focus On
October 2014
[ve metrics to focus on (YTD below target) include: \
Net Income: (Martin/ Kevin) (Bonus)
Net income is £31.5m adverse and is driven primarily by Mails, Telecoms and POCA income. The Mails variance was driven by labels, Collections & Returns, Special Delivery, Dangerous Goods and lottery. This is partially offset by Financial Services
being favourable
Operating Profit: (All) (Bonus)
Operating Profit is £23.4m adverse due to lower income of £31.5m, higher non staff costs of £12.8m, higher POOC of £2.4m and higher staff of £2.5m offset by favourable subpostmaster costs of £25.5m.
Customer Satisfaction - Top 3 box ( combination of those answering Extremely, Very, Fairly satisfied): (Martin)
Top 3 box remains stable in P7 at 86.1% - YTD performance below target at 87.1% (target of 89.0%)
Top 2 box satisfaction shows improvement up to 51.9% from 47.7% but the overall satisfaction is not moving as we lose more customers into neither satisfied or dissatisfied.
Easy To Do Business With (% think we are low effort minus % think we are high effort) 3 month rolling measure): (Martin) (Bonus)
P7 3 month rolling score at 24.0% ( an improvement of 2.7 percentage points from P6) with an increase in the number of people who think we are low effort. However, there has been no decrease in the number of people who think we are high effort.
The 1 month performance score in October has increased up to the level last seen in June this follows three lower performances in July, August and September and an improvement of 9 percentage points in October up to 28.4%. YTD score up to
26.0% is below target of 47.0%
Crown branches have driven this uplift at an overall level, with a large improvement in the overall score, up from 2% in P6 to 25% in P7. (3 month rolling)
During October , we have seen improvement in performance across the drivers of ease:
Most notably for The time I have to wait is acceptable’ and ‘The queue moves quickly’ (both +5 percentage points on P6) this ties with performance in mystery shopping which shows 3 consecutive months where over 80% have been served within 5
minutes.
Customer service measures also showing improvement with ‘Staff provide a warm welcome at the counter’ up by 4 percentage points in P7 and ‘Going the extra mile to provide good service’ up 3 percentage points and ‘Genuinely interested in assisting
customers’ a 2 percentage point improvement.
Net Promoter Score: (Martin)
Looking at NPS, the month scores show 3 consecutive months of positive performance with a decrease in the number of detractors. For 1 month data in September and October, NPS was above the year end target
Queue time % < 5 minutes - Top 1k branches: (Kevin)
The percentage that queued under 5 minutes down 0.6 percentage points in P7 however remains better than was recorded for the first 4 months of the year. Queue time in Crown is stable having fallen in P6, there was an improvement of 3
percentage points for Agency to the highest level this year but performance dropped by 6 percentage points in WHSmith branches.
Branch Compliance - FS: (Nick)
This is made up of 11 weighted metrics: Mystery Shopping, Significant upheld complaints, Customer validation calls, Financial promotions, Limits on staff permissions, Staff product knowledge, Life Insurance cancellations, Savings cancellations, Credit
card usage, Complaints process knowledge, Suitability of mortgage advice. The measures that are not green are; Mystery Shopping (Red), Customer validation calls (Amber), Life Insurance cancellations (Amber) and Credit card usage (Amber).
Branch Compliance - Mails: (Martin/ Kevin)
The targets shown are the full year exit rates. Inland (exit target 80%) has decreased from 77% to 70%, and International (exit target 85%) has also decreased from 93% to 808.
Measured annually with some additional ‘Pulse surveys’
+ Engagement Index: (Neil) (Bonus) - The Engagement Index target is 1% greater than prior year outturn of 57%. The November Pulse survey is tbc.
+ Subpostmaster Engagement Index: (Neil) - The Subpostmaster Engagement Index was last taken in December 2013 at 45%. The 48% target is the aspiration for the current year driven by the expected impact of the Branch Support
Programme. November Pulse score shown on scorecard of 47%.
+ Post Office values diversity: (Neil) - Survey from April shows 52% and the target is to get this to 66% driven by the business spotlight on diversity through various programmes such as the Diversity Forum, Women in Leadership and the
introduction of directorate level diversity objectives. November Pulse shows 54%
Appointments: (Neil)
58 appointments YTD (5 April, 7 May, 14 June, 15 July, 7 August, 7 September, 3 October), 23 female appointments YTD - 49.7% (2 April, 2 May, 7 June, 9 July 1 August, 1 September, 1 October), 5 BME appointments YTD - 8.6% (3 June, 1 July, 1
August).
Crown Profit: (Kevin) (Bonus)
The Crown loss is primarily driven by the lower Mails income and higher property costs.
Crown Profit Run Rate: (Kevin) (Bonus)
(eco profit Run Rate is a key metric for year end and has been updated for Q2. The variance is primarily driven by lower income. SD)
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Network Transformation Scorecard - Mains Sticty Confidential .
October 2014 Reporting prior months data (i.e. one month in arrears)
Current Month % Ave £'s per
branch
Cote Actual Mains
Key Performance Indicators Actual Group Var Var Sample Branches that have been converted to a Mains model
Size for more than 6 months have consistently out-
performed the control group in delivering POL income.
Finance Approved Investment per Mains £000 (42) (42) 0 0 These agents receive a dedicated package and a
Total Income: Post vs Pre Conversion renewed focus on sales targeting and performance at
[alt Branches live 6-12 months 4% (1) 5% 382 547 the point of conversion The 's having a sianficant
Branches live 12-24 months (1je_(6)% 5% 388 552 impact on focus income sor many orn
= 7 The foll cd rf ticular
[Agents Remuneration: Post vs Pre Conversion vl ofowune promues re pevorming parva
Branches live 6-12 months 4% (4)% 8% 518 547 Travel insurance
Branches live 12-24 months 6% (4)% 11% 812 552 Passport check and send
Customer Sessions aah witheravals
ent Growth bonds
Ag Branches live 6-12 months 1% (3)% 5% 492 Insurance products
B hes live 12-2. th: 4 4
renee en {0)% 5)% Z 86 In addition, these agents have increased their POL
Operator Feedback on Retail Sales Performance Th 155 earnings due to the improved sales and enhanced
Operator Satisfaction 81% 73 Mains pay rates.
Actual Note: the control group is based on those branches of
similar size that have not yet converted.
Actual Target Var Sample
Size
Average Increase in Opening Hours. 41% 20% 21% 1,550
Customer I Customer Satisfaction 98% 90% 8% 30
Queuing Times dm 24s_<5 mins 3m 36s 190
Customer
Customer Satisfaction,
extended opening hours and queue times all remain positive.
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Network Transformation Scorecard - Locals Strkty Confidential
October 2014 Reporting prior months data (ie. one month in arrears)
Ave £'s
Current Month % per
branch
Control Actual] I Locals
F control At the point of conversion there is an initial decline in
Key Performance Indicators Actual Group Var Var Sample} performance; as the branches settle and embeds the
Size operational changes. However this improves month on
LOCALS month and as they near the exit of the 6-12 month
category the run rate of performance is now higher
Finance Approved Investment per Local £000 (a) (41) 0 0 than the control group. This is partially as a result of
Total Net Impact: Post vs Pre Conversion the activities that have been put in place to limit the
ive 6-: op off in income and drive performance. Although the
Branches live 6-12 months a f income 8 i " fen “ Although th
impact on the Locals due to NSlis still having an
Income (oe (58 (BY (46) 240 I) acverse effect on performance the underying trend of
ea ‘Actual Fixed pay savings 930 other products is showing an improvement.
Actual Net impact 914
Branches live 12-24 months ‘As the better performing branches move through the
Income (10)% (14)% = 1% 26 183 categories this is reflected in the 1% increase in
Actual Fixed pay savings 919 performance for the 12-24 category
Actual Net impact 945
Customer Sessions Customer sessions/footfall continues to be strong so
Branches live 6-12 months 10% (2) 12% 130 this should support the agents retail growth.
Branches live 12-24 months it 190
Agent wv 7% __(3)% x Note: the control group is based on those branches of
Operator Feedback on Retail Sales Performance I 16% 52 similar size that have not yet converted less 5% to
Operator Satisfaction 79%, 56 reflect lost products.
Actual
Actual Target Var Sample
Size
Average Increase in Opening Hours 111% 80% = 31% 1107
Customer ICustomer Satisfaction 95% 90% 5% 30
(Queuing Times 55s_< 5 mins4m 05: 274 SJ
POL
+ Products such as bill payments, etop ups, cash withdrawals and MoneyGram have delivered growth for these branches - with associated footfall. This has been offset in income terms by poorer performance
con more complicated products.
+ Fixed pay has been reduced to zero for all converted branches, in line with the strategic plan.
+ On average Lottery income has reduced by c. £60k pa in these branches. Corrective action on how we minimise future risk is now being looked at, principally by improving the sales messages and focus of
the FCA’s when signing up the retailer as well as the LRM's focussing on these messages for those already converted
Agent
+ Customer sessions indicate that retailers are benefiting from greater footfall that should support their retail growth.
+ The footfall is delivering quicker but lower value Post Office sales which in turn should allow the retailer to utilise their staff in different ways or reduce their staff costs.
Customer
+Customer Satisfaction, extended opening hours and queue times all remain positive.
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Transformation Overview
October 2014
+ RAG, cost and benefits based on full programme life
+ RAG in brackets indicates programmes view
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+ New Transformation Portfolio category added to show status of the delivery of the 2020 EBITDAS strategic plan proposed in Business
Transformation Design phase. After we have implemented the Transition Plan this category will summarise the position across all
programmes under the new Roadmap
Programme Time I Cost Benefit I Quality
Comment / Areas for Discussion
Business
Transformation
(Design
Phase only)
Design phase will be complete in November having delivered an ‘end state’ operating model design and transformation ‘blueprint’
Proposals have been submitted to ExCo to review the affordability challenge and sequencing, with a further full day ExCo held on 13"
November to ensure alignment on all elements of Business Transformation. Transition business cases being prepared to manage the
transition from a ‘design’ to a ‘delivery’ structure and operational efficiency accelerators . Final recommendations will be made to
ExCo and the Board in November to secure approval for transition into delivery. Quality measures amber status as quality measures
not yet achieved
Winning in
Mails
yy pilots continue to roll out but with usage extremely low (digital marketing underway with more marketing planned). Currently have
agreement with NFSP not to implement more than 200 Ivy access points prior to 19th January, with engagement with NFSP co-
ordinated via P&E team. The programme plan to use CDP to develop the simplified customer journey with ability to project
functionality via both Injenico handsets and EPOS (Tablet prototype will now feed future self-serve capability). Agreement with Royal
Mail on product simplification, operational, technical and commercial solution (due on 14th November) and is key to deploying viable
proposition and obtaining agreements with strategic partners. Amber status on costs due to current short term funding cover.
Network
Transformation
Programme remains ahead of target on both contracts and openings. Transitional locals are progressing without significant adverse
stakeholder reaction though the workstream is time consuming as decisions need to be made on a case by case basis.
Value for Money workstream has identified potential cost savings that require further investigation working with Business
Transformation programme. Discussions on the cliff are starting with the NFSP and co-ordinated via P&E team
Analysis of the impact of the revised network strategy from Business Transformation has commenced and will be developed further
during the ‘Transition’ stage of Business Transformation. Draft business case for current programme (NT2) produced and under review
within the programme (will be used as baseline for any subsequent changes)
Crown
Transformation
The programme continues to deliver in line with targets across branch transformations, training (>3000 staff trained), staff cost
reductions (>470 FTE), SSK rollout (>480 rolled out), mergers and relocations - though current P&L run rate at year end is forecasting
@ £2M loss primarily due to a £7M income shortfall. Quality measure moved to green status as customer satisfaction continues to
improve, with both overall satisfaction and queue time satisfaction meeting (or very close to) target. Communication due to commence
mid November to branches that will not be Franchised this Financial Year, this will be on a branch by branch basis due to the differing
circumstances
Branch
Support
Enterprise Case Management recommendations yet to be agreed at Business Transformation Steering group, once outcome is known
impact on Branch Support benefits will be recalculated. Activity to realise savings (C.£284K) from online training, brought forward from
next financial year are in flight and are aligned with the HR1 processes across Business Transformation.
IT
Transformation
Fujitsu have informed Post Office that they are withdrawing from the Front Office procurement process, the programme has initiated a
full impact assessment, with specific focus on managing the risk around continuity of service.
Updated Business Case shows increase in transition costs, the programme is working with Finance to minimise the exposure and to
agree the most appropriate way to secure the funding. The increase is largely due to more informed bidder responses to the
procurements and flawed assumptions in the original estimates for the Network tower. Latest costs and assumptions have been used
in Business Transformation Roadmap and financial glide path. Mobilisation of the EUC delivery team underway following contract
award. Network and Back Office alignment with Business Transformation being finalised, way forward to be agreed by mid-November
Period 7 Performance Pack - Chris Day
18th November 2014 Page 13 of 26
Transformation Overview
October 2014
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Strictly Confidential °
+ RAG, cost and benefits based on full programme life
+ RAG in brackets indicates programmes view
Programme I Time Cost Benefit I Quality I Comment / Areas for Discussion
Programme is delivering against the revised timeline within the MSA Extension Letter, with significant milestones approaching before
cA the end of the financial year for ebusiness, Networks and Contact Centres. There is an increased licensing risk from Oracle who have
Separation ©) issued a ‘management’ letter to Royal Mail highlighting that the usage of Oracle products for divested/separated organisations (e.g
Post Office) has a one year expiry. This has now passed, and a 30 day consultation period has been invoked. The programme team
continue to work with Procurement, Legal and Royal Mail to mitigate any financial exposure and to secure an acceptable outcome.
Update reflects whole programme but will move to Post Office only deliverables (rather than POMS) from December to ensure clear
lines of governance. Contractual relationships with third parties for distribution and servicing progressing slightly behind plan but
Titan TBC I programme anticipate all will be completed within timescales. Key risks that PO board do not give authority to trade due concerns over
readiness, and FCA do not provide authorisation within required timescales. Contingency plans being developed for both to enable
uninterrupted Travel Insurance sales. Costs and benefits forecast inline with business case.
Post Office and Bank of Ireland have agreed to appoint an independent expert to provide a valuation of the insurance business as
Hawk there is significant variation between Post Office and Bank of Ireland valuations. FS will not be able to confirm if anticipated benefits
are achievable until independent expert valuation is received and there is a risk that the valuation may be higher than Post Office are
prepared to pay. Supported is being provided by both KPMG and Linklaters
ese Negotiations with Bol continue with Bol rejecting Post Office's proposal on investments, with escalation though recent executive
and Savings discussions. The key points under discussion are; need for market soundings, agreeing a delivery model, alternative structure for
Negotiations Insurance (linked to Hawk) and exclusivity & contractual control over Investments. FS are also waiting for Bank of Ireland to respond
on Savings negotiations
Programme consists of five workstreams to improve the overall effectiveness of FS sales team, with the target of increasing sales
FS Sales tec I volumes to 15 per specialist per week by 2020. Progress is behind plan as a result of delays in approvals for business cases and
Effectiveness resourcing challenges, which puts at risk achieving planned benefits in subsequent years. Phase 1 Post Office Money Academy due to
go-live in support of broader Post Office Money sub-brand launch.Quality metrics are to be confirmed with the project
The Public Procurement project is currently on track. POL and DWP are working to conclude the BAFO (commercial discussions on
Peat omen the content of the extended POca service) in support of the Ministerial announcement (end of November). The OJEU will commence
Card shortly after this decision. Contract award and implementation commencement are scheduled for end of Q3 15/16.
‘Account TBC I However, the overall RAG status for the continuation of the POca service is Amber for Time (the impact of slippage to the Ministerial
(Poca) announcement causes a potential risk to the start of the new supplier service in April 2017). Benefits are Amber due to the uncertainty
regarding DWP decision to either extend the existing contract for 2 years or commit to a 7 year continuation
Quality metrics are to be confirmed with the project.
Cost challenge has impacted on original timescales/benefits and has led to re-planning of key milestones and re-phasing of benefits.
Mobile ‘Friendly user trials’ are currently on track for January 2015 and the National launch of pre-paid and pay monthly is now scheduled for
Proposition TBC Q2 and Q3 2015 respectively. Cost status is Red due to the enforced delay which has extended the programme timelines and
(Wave) increased overall costs - an increase of £300k is currently forecast. Benefits status is Amber as income generation is delayed until
15/16. Quality metrics are to be confirmed with the project.
The People and Engagement strategy and detailed actions forthe next 12-18 months have been agreed by ExCo and the Board. The
People & actions within the plan are aligned to the accelerators and are underpinned by the business approach to risk management. Short term
Engagement focus will be on: 1, Stakeholder management (inc. NFSP, TUs, RMG, BIS) 2,Supply Chain strike ballot closing on 18th November 3.
Business Transformation Wave 1 activity and management OD
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Appendices
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Income Report
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Net Income By Pillar vs Budget Strictly Confidential e
October 2014
Period Prior Year Period Yr Prior Year Full Year Prior Year
Net income (Em) ‘Actual Budget Variance I Actual Variance ‘I Actual Budget Variance Variance I Q2Forecast Budget Variance I Outturn Variance
Mails & Retail 362 “04 eo) 359 02 ZiT Dara ro) ao 3894 wad B50) 3860 3a
Financial Services 268 269 (0.2) 249 20 173.4 1722 11 93 2974 295.2 20 2786 186
Government Services 85 92 (0.7) 89 (0.4) 616 684 (65) (64) 105.2 1166 (12.4) 64 (a0)
Telecoms 29 58 (2.9) 39 (aa) 25.9 35.4 (95) (3a) 525 619 (9.4) 460 65
other 36 26 10 40 (0.4) 215 185 31 (24) 361 273 88 404 (40)
TOTAL NET INCOME 779 84.6 (67) 17 03 5001 531.6 (31.5) G5) 880.0 925.0 (45.1) 866.7 13.2
IFRES - Share Of Operating Profits 28 27 04 26 04 266 262 01 09 35.0 35.0 00 334 19
Mails & Retail Services Financial Services Piller Parfermmance ve: 70 Budget
Mais & Retail Services - (€19.7m) Adv
em Labels -(£7.5m) adv driven by ower parcel volumes
14 OM te 08 Home Shopping Returns- (E5.4m) adv cue to delayed
—_- —-— em 17 — launch of ebay returns and RM not yet winning a major ‘lick
3) — - an — on = & Collect’ customer.
2s 8) any = — ery II (Other Mais -(£3.4m) adv driven by Philatelic and
4 I Dangerous Goods,
(6.4) I 65) Lottery - (£1.7m) adv - due to lower Camelot Euromilions
. volumes,
(75) 172.2 BTEWI II Special Delivery - (£1.5m) adv due to lower volumes.
297.7 PFW - (E1.3m) adv duo primarily to lower PF 24 & 48 and
Intemational volumes
Offset by:
Stamps ~£4.4m fav - due to lower than antcipated volume
declines
Financial Services - £1.1m Fav
NSGI- £2.9m fav due to new contract
Payment Services - £2.9m fav due to postal order uncashed
Mis Bgaiia" wiereuoal sua” Rel vam” Home aba ca ' benefit palcy moving to 12months, from 24 months.
Voit aarecass) PN ey tatary NM cpepping “End ass) YTD Net Banking Services - £1.7m fav due to higher than budgeted
Income Retna Income volumes.
i Actal II routs vio NSS” Peyrent ” Sarhng “MonyGren ATM” Tus! FS—wr/ak 2o1415 70) I] MoneyGram - £4.6m fav due to higher MoneyGram sales
‘ATMs ~ £0.8m fav.
Offset by
Government Services Telecoms Other / Task - (E5.6m) adv due to Sales Effectiveness target.
PFS - (£2.4m) adv crven primanly by lower insurance
i related additional commissions
06 02 tm ‘Travel Services ~ (£0.7m) adv.
—_— == Government Services - (£6.5m) Adv
(05) _ OCA - (£5.6m) adv reflecting fewer active accounts, lower
(10) , BOR ate and bude seen ese
68.1 1) Passport Check & Send - (€41.0m) adv lower volumes in
(63) August
: Gov. Services Other - (£0.5m) adv driven by lower than
planned volumes of Rod & Game licences,
a) 20.2 Offset by
Motoring - £0.6m fav higher volumes vs. budget
Telecoms ~ (€9.5m) Adv
Homephone -(£7.7m) adv mainly driven by lower customer
rumbers ¢.20k adverse, cll usage and higher cost of sales
relating to customer broadband usage and higher BT
wholesale costs
Energy ~ (€1.8m) adv relates tothe budget anticipating sales
from PO Energy
201615 YTO Ne! Motoring ——«1OSerwons—<OtharGavt_ Check andSend «POCA “201445 YTD Net Other - €3:Am Fav income contingency (FY £94)
Income Bet Income Acta ZOWA5 YTDNetincome Energy Home one/Dual& 201415 YTD Ne Income
Buaget broadband Customers ‘etal FRES Proft Share ~ €0:1m Fav
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Cost Report
Period 7 Performance Pack - Chris Day 18th November 2014 Page 18 of 26
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Staff Cost By Function Strictly Confidential ‘.
October 2014
lem yro Prior Year Full Year YTD Headcount ee
Heats
Staff Cost by Function Actual Budget Variance I Outturn Variance Fon cast Budget Variance! I % I Actual Budget Variance I Memorandum
(Central (incl. MD's office) 64) 73) aa I @3) (2a) I 15) G25) 40 oz I i2 iB 3
Commercial (63) 0) 644) I 4) 9) I 9) 4) 5) au I 116 127 1 1
People & Engagement (54) (47) 04) I 8) 03) I @2 2) 00 3x I 192 174 (a8) 33
HR ~ Centrally Held Bonus Payments (46) (es) 43 I aos) 60 I (77) (53) 76 - - : -
Finance (ine Change Management) (87) (64) (04) I Goo) 13 I @43) (43) 00 4x I 305 310 5 8
IT& Managed Services (3.6) a) = os I 4)? I 67) 72) a I 95 tng 19 2
Financial Services (32) 4 02 I @7 (4 I 63) 63) 00 a I 19 18 ()
Network (1040) (995) (4.4) I (1063) 23 I (164.9) (462.4) (25) 87% I 6320 6,196 (124) 607
Corporate Services (3.0) (32) 02 I Ga) 04 (52) (52) 00 ax I 7 88 11 3
[Total Staff Costs (446.0) (443.4) (2.5) I (452.6) 66 I (233.6) (238.7) 5.4 100% I 7,236 7442 (7) 654
PY Actual 8,028
People & Staff Cost by Function PY Variance 792
Period 7 Performance Pack - Chris Day
Finance (inc Change
Management)
6%
Vs. Prior Year
The staff costs are £6.6m favourable to prior year driven by the lower bonus accruals this
year, lower Crown costs and IT Outsourcing,
YTD Staff Costs are £2.5m adverse.
Higher staff costs of £2.5m are mainly due to the savings task not being achieved (£2.4m
from Supply Chain and £0.6m from Commercial), the Crown pay deal and the CMA pay award,
offset by a lower bonus accrual.
Headcount of 7,236 is 94 adverse to budget.
The adverse variance is driven by Crowns as the headcount budget reflects the savings
headcount profile expected.
Vs. prior year headcount has decreased by 792 primarily due to the Crown efficiency savings.
18th November 2014
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Non Staff Cost by Type Strictly Confidential ®
October 2014
lem YTD Prior Year Full Year
Non- Staff Cost by Type Actual Budget Variance] Outturn VarianceIQ2 Forecast Budget Variance
Legal Costs (0.9) (1.6) 07 (1.4) 05 (2.4) (2.4) 0
Staff & Agent Related Costs (6.5) (7.5) 1.0 (6.9) 05 (11.3) (12.3) 1.0
Consultancy and Advisory Services 03 (08) 44 09 (0.6) (2.6) (2.6) 0
Skills Group Offcharge 42 1.0 Ne) 98 (5.6) 16 a9) 0
Consultancy and Advisory Services (3.9) (1.8) (2.4) (9.0) 5.0 (3.2) (3.5) 0
Brand & Marketing (17.3) (497) 25 (78) (9.4) (28.1) (30.9) 28
Property & Facilities (37.5) (35.9) (1.6) I (383) 07 (61.0) (61.0) 0
Vehicles (4.0) (4.6) 07 (4.8) 08 (7.8) (7.8) 0
IT Infrastructure & IT services (53.3) (533) 00 I (446) (87) (90.9) (89.9) (2.0)
Finance & Losses (1.4) (68) 5.7 (9.5) 83 (5.2) (18.2) 13.0
[Other Operating Costs (50.7) (363) (14.4) I (35.2) (45.5) (77.6) (60.9) (16.7)
Non-Staff Costs Efficiency Target 0.0 85 (8.5) 0.0 0 5.5 11.6 (6.4)
Total Non Staff Costs (174.0) (158.2) (12.8) I (146.7) (24.3) I (280.5) (273.5)__ (7.0)
\ Non Staff by Type
Variance Brand & Marketing
YTD non people costs were £12.8m adverse to budget and £24.3m 12% Staff & Agent Related
Costs
4%
adverse to prior year.
Vs. Budget.
Higher non staff costs of £12.8m driven primarily the £10m provision for
client compensation, impact of the centrally held savings task of £4.5m not.
being achieved, £3.0m accrued for Mails Segregation penalty payment and
higher postage costs offset by improved VAT recovery of £11m (relating to
the prior year).
Vs. Prior Year
Higher non staff costs of £24.3m due primarily to £10m client
compensation provision this year, IT costs (mainly Horizon and ATOS) and
the marketing fees have also been moved from POOC to non staff this year
with a FY impact of £9m. This is partly offset by staff savings following the
outsourcing and the improved VAT recovery this year.
Note: PY POOC offset against other operating costs a)
Period 7 Performance Pack - Chris Day 18th November 2014 Page 20 of 26
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POL00149531
Strictly Confidential ®
Transformation Report
Period 7 Performance Pack - Chris Day 18th November 2014 Page 21 of 26
POL00149531
POL00149531
Project Costs (OpEx) Strictly Confidential °
October 2014
The overall expenditure is €2.4m higher than budget, due primarily to unbudgeted cost, specifically Sparrow and fo ~
Commercial Strategy, which was partially budgeted. OpEx - £2.4m Over Spend YTD
Headlines: The overspend of £2.4m is driven by the unbudgeted projects;
Sparrow and Commercial Strategy. The projects which are behind planned
OpEx £m Current Month yo Full Year Soe I sites ae FS & Mais, and ther YTD underspend is of sting the
‘overspend in other areas.
cunction — Actual Budget Var I Actual Budget Var_ I Outlook FY Budget ove
[Commercial Digital & Multi Channel (0) (02) ) (03) (08) 05 (04) rr) (0.5) I] I Digital & Muliti Channel: £0.5m favourable projects tracking behind plan.
Mails (05) (0.2) (0.2) (07) 9) 12 (7) (3.5) (2.4) ;
HTelecoms (05) (02) (0.4) (28) a7) a4) (33) (3.4) (3) _ I] Malls: £1.2m favourable, projects tracking behind plan
Government Services I (02) 02 oa I 3 G7 04 I a — (22) (0.5) Telecoms: €1.1m adverse. Setup costs are under review and an element may
Customer Engagement (oo) ) (0.0) (0.1) 0.0 (01) (0.4) 09 (0.4) II be capitalised.
[Brand Marketing 00 oe) 00 01 0.0 o1 o1 oe) 0.0
commercial Strategy 00 00 00 (oa) 00 (08) (09) 00 (0.2) _ I I Commercial Strategy: development £0.8m adverse due to this being an
unbudgeted activity.
Financial Services Financial Services (04) (0.6) 03 9) (64) 25 (7.4) (7) (25)
[Corporate Services (Compliance (00) 00 (00) (02) 00 (02) (0.2) 00 00 Financial Services: £2.5m favourable due to various projects being behind
Mutualisation (00) (0) (0.0) (0.0) 00 (00) (0.0) (i) 00 planned activities.
Finance Finance (0.0) 00 (0.0) (0.1) 0.0 (0.1) (0.1) eke) 0.0 IT: £0.4m ac £04 ates t , 4 d % ts which
ress TA m adverse, £0.1m relates to unplanned spend against projects whict
Business Transformation I (0.2) (0.2) (0.4) (28) (05) 43) (0.6) (08) (5.8) _I} ‘had flowed through from the previous year.
Network Network Other (00) 00 (0.0) (00) 00 (00) (0.0) 0) 00
Property (0.0) 00 (0.0) (0.0) 0.0 (0.0) (0.0) oe) (0.2) Sparrow: (Horizon Litigation) £2.3m adverse. £0.2m of cost have been
Supply Chain (0.0) 0.0 (0.0) (02) 00 (02) (02) 0.0 (0.0) exceptionalised. £2.1m was under classification review and will now remain in
T& Managed Services [Independence & Separatio] 0.0 0 00 (2) 00 (on) (02) 00 (oo _}I
ii O4 00 O41 (0.4) 0.0 (0.4) (0.6) 00 0.0 Centrally Held: £1.8m adverse, this is the overlay required to achieve the
People & Engagement [Communications a0 00 00 (0.0) 0 (1 (00) 00 00 overall Target of £17.3m excluding unbudgeted projects which is yet to be
HR (including Sparrow) o4 0.0 04 (2.4) 0.0 (2.4) (5.0) 0.0 0.0 allocated out to programmes, work in progress.
FI i
low Through Projects {0.1) 00 iat = 00 13 {0.0) a i FY Outlook of £21.9m includes Sparrow unbudgeted spend of £5m.
Centrally Held Centrally Held 90 o ioe) 00 18 (28) 9.0 ex 9.0 I Work is underway to review and stop projects which do not deliver an in year
Opex Total (1.6) (1.3) (0.4) (13.5) (11.2) (2.4) (21.9) (17.3) (15.6) benefit or significant benefit in 2015-16.
Ne S
Period 7 Performance Pack - Chris Day 18th November 2014 Page 22 of 26
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Project Costs (CapEx) Strictly Confidential .
October 2014
Capital Expenditure is £52.4 underspent, driven by FS, IT and Network projects.
CapEx £m Current Month YTD Full Year Se eT
Funeion Prooramme fest pare YT I Atay Var I Ook SEE apne I es II Commer The £5 én obi vance yao date ima
get driven by Digital & Multi Channel £5.0m and Government £0.7m
[Commercial Digital & Multi Channel (oo (oa) 08 (oa) 65) 50 oo) oo) (95) (2) II favourable due to changes in activity profile and timings since the plan
Mails (03) (00) (03) (12) (0) (02) (29) (23) (0) (33) I] was presented
Telephony 00 (06) 06 (3) _ oa (oe) ta) (20) 4) 1) customer Engagement: £0.6m adverse due to capital investment
Government Services, (03) (03) 09 (a2) ae) a7 (23) (24) (24) (0.5) I} activity around the Customer Management Programme having been
Customer Engagement (on) 00 (00) (07) 00 (06) (23) oo i) (0.9)__] planned under Digital
(Corporate Services (Compliance 00 on o4 00 (04) 04 (07) (09) (09) 00 -
aetrty 00 00 00 00 00 00 oa 00 00 0.0 _ I Financial Series £120m favourable, various projets etn planed
Finance Finance 00 (on) oa (02) (06) 4 (aa) a2) 2) (0.4) ”
Financial Services Financial Services 00 (29) 29 (19) (23.8) 120 (5.0) (27a) (27.8) (28) I] Crown Transformation: £2.3m favourable this is mainly due to property
IT & Managed Services, Independence & Separation (3.0) (10) (20) (23.1) (15.8) 27 (23.6) (29.9) (18.9) (24.6) ‘elated costs being takan into the previous year. The forecast has heen
IT Transformation 00 oo 09 20 00 20 2a 00 00 00 adjusted to reflect this.
I (4) (45) (03) (26.2) (31.5) 166 I G97) (637) (54.5) (22.0) I} Network Transformation: £5.1m favourable mainly as a result of re=
Network Crown Transformation (2) (2a) o1 (232) (25.4) 23 (209) (30) (30.4) (30.4) _] categorising planned spend to Exceptional
Network Other (00) (2) o4 (09) (07) (02) (2) (2) a2 00
Network Transformation (23) (27) 14 (28.2) (233) 54 (278) (35.0) (46.9) (32,5) ]] Property: £3.7m favourable, various projects behind planned activities.
Property (7) (1.4) (03) (2a) (68) 37 (a2) (11.2) (5.0) 1! Supply Chain: £6.9m favourable, various projects have slipped and have
[Supply Chain (00) (12 12 (2.0) 79) 69 026) (27) (0:1) _}} been re-forecast
People & Engagement [HR (00) 00 (00) (02) (03) oa (03) (28) (02)
Centraly Held cortaly Held 00 03 (03) 00 23 23) 182 0.0 I] Inependence& Separation: £27 favorable, manly duet
id Projects ltd Projects 02 00 02 (02) 00 (02) 00
Capex Total (43.9) (18.1) 42 (gos) (1328) 52, EMMICECEOI 17: £24.6m favourable due to numerous large capital projects being
behind plan
Centrally Held: £2.3m adverse, £4m savings overlay tobe allocated out
{2 programmes in due course to achive ful year target. )
Period 7 Performance Pack - Chris Day 18th November 2014 Page 23 of 26
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Strictly Confidential ®
Supplementary Information
Period 7 Performance Pack - Chris Day 18th November 2014 Page 24 of 26
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Strictly Confidential ©
Cashflow Statement & Balance Sheet Summary
October 2014
Balance Sheet Cashflow Statement
P7 yro Full Year Board
fm warts I actuat I Budget I Variance £m Actual Budget Variance II Forecast Budget" Variance Aertel, Variance
Fixed Assets 74 68 62 5 [Operating Profit 290 524 (23.4) 850 99.0 (14.0) 99.0 14.0
Debtors 154 187 135 22 Depreciation 03 Ou (02) 06 06 0.0 06 00
cash 708 942 711 231 Working Capital (724) (66.5) (15.6) 495 270.228 187 308
Client Balances 279) (290) 296) 6 Client Balances 13 170 ~—(6.7) 0) 170 (200) (9.0) 60
Trade Creditors, (303) (310) (310) (0) Network Cash (2342) (26) ~— (231.5) II (92.6) (57.6) (34.0) (20.0) (81.6)
Pension (deficit/surplus 148 163 143 20 Dividends 34 88 (6.4) ) ) 00 (45) 45
Provisions (78) (79) (69) (20) Capital Expenditure (804) (1328) 52.4 (245.0) (205.2) 60.2 (205.2) 60.2
Investments, Funding (a8) 22 48 (23) Government funding 1700 1700 «= 00 1700 1700 00 1700 0.0
Loan oO (251) (88) (163) INSP in advance 64.6 64.6 0.0 00 00 00 0.0
Net Assets 403 422 343 79 Exceptional Items (179) (1568) 389 (213.4) (2403) 26.9 (216.1) 27
Pensions 36 23 13 30 3.0 00 30 00
Reserves Mar-14 Actual Budget Variance Proceeds from asset sales 0.0 00 0.0 00 0.0 00 00 0.0
(Capital and Reserves (403) (422) (392) (30) Business transformation 0.0 () 0 (05) (205) 00 (20.5) 00
(403) (422) (392) (30) [Operating Cashflow (2223) (333) (489.4) I [(155.4) (197.0) 41.6 (164.0) 86
Interest @3) (5) 02 EXC 00 (3.0) 0.0
Tax 99 100 (0.4) 00 00 0) 0) 0
Free Cashflow (213.7) (24.7) (489.0) I I (458.4) (2000) 41.6 (167.0) 86
Cash Management Table ~ Budget has been updated to reflect year end outturn and a reconciliation i shown in the inal two columns and explained below.
£m Prior Year Mar-13 P7 (Cashflow budget
P7 Opening I Actual I Budget var
Reta, Cash Centres $96 522 728 527 00) ‘The 2014-15 budget was approved by the Board at £167m outflow, prior to the 2013-14 year end and noting the year end outturn may
Buresu 70 38 pa 3 a5) result in changes being required, The budget of £200m shown in this pack reflects the year end outturn impacts, namely:
Cheques, debit cards 119 129 146 131 (15) ‘ higher provision balances at March 2014 than anticipated (E24m),
Headroom (£m)
854
831
Period 7 Performance Pack - Chris Day
‘lower network cash outturn at March 2014 than expected and not assumed to repeat at March 2015 due to Easter timing (£48m),
+ refinement to client creditor budget reflecting timing of Easter 2015 £26m, and
* other minor rebalancing £13m.
18th November 2014
Page 25 of 26
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Income By Product Groups & Pillar Strat Confidential %
October 2014 Adverse; Mails is £19.7m, Telecoms is £9.5m and Government Services is £6.5m adverse I
Favourable; Financial Services is €1.1m, and other income is £3.0m favourable
Current Month Prior Year ci) Prior Year Full Year Prior Year
_= Actuals Budget Variance I Period Month (Yr] asi) Budget Variance I Outturn YT2WrOn] G2 pact Variance I 2023/14
Actual On Yr) Yr) Forecast Outturn
Parcelforce 19 22 (02) (0.2) 120 133 (23) 129 (9) 238 00 228
ISpecial Delivery 48 5.0 (0.2) (0.2) 29.4 305 303 (1.2) 518 0.0 51.4
International Priority & Standard 29 29 O41 (0.1) 176 174 18.6 (1.0) 34.6 0.0 344
IStamps (4st & 2nd Class plus other stamps) 23 24 O41 (0.2) 13.6 125 14.6 (1.0) 262 0.0 30.6
Labels (1st & 2nd Class) 8.2 98 (1.6) (0.2) 50.4 57.9 53.0 (27) 103.3 00 92.4
RM Mail Fixed 55 55 0.02 0.01 34.0 33.9 33.2 os 569 00 567
Retail & Lottery 46 45 O41 O41 26.6 283 25.9 07 48.0 (4.0) 43.7
Home Shopping Returns 08 27 (1.9) o1 52 107 45 07 227 0.0 77
Mails Other 54 5h (03) 09 293 328 25.7 36 568 (31.0) 465
Total Mails & Retail 36.2 40.4 GB.) 0.2 217.7 237.4 218.7 (2.0) 4244 (35.0) 386.0
Energy 0.0 03 (0.3) 0.0 00 18 0.0 0.0 30 (3.0) 0.0
HomePhone /Dual & Broadband Customers 29 55 (2.7) (1.4) 25.9 337 29.1 (24) 58.9 (6.4) 46.0
Total Telecoms Services. 29 58 29) (4.4) 25.9 35h 29.4 a) 61.9 (9.4) 46.0
Motoring Services 12 13 (0.0) (0.4) 103 98 116 (4.3) 153 23 19.9
Card Account 44 53 (1.0) (0.1) 298 35.6 60.2 (10.5) 59.2
Check and Send 13 12 O41 (0.1) 13.4 14.0 25.8 (2.2) 23.0
JAEI (OVLA & UKBA) 14 09 02 0.0 55 53 95 (1.0) 83
Other Government Services 0.5 04 0.0 O41 29 34 58 (0.0) 58
Total Government Services 8.5 9.2 (0.7) (0.4) 61.6 68.1 116.6 (11.4) 116.1
Bill Payment Services Direct 10 1.0 (0.0) (0.2) 56 56 98 00 10.9
Bill Payment Services Reseller 23 23 0.0 15.5 245 00 269
Postal Orders 22 24 O41 207 0.0 208
Payment Services 08 os 00 88 00 Th
Personal Banking Clients 29 26 03 268 00 28.4
DWP Exceptions 0.0 00 0.0 0.0 00 0.03
Business Banking 26 25 4 268 00 281
ATM 33 34 0.2 327 00 31.4
PFS-Savings 43 45 (03) 526 00 50.0
PFS-Insurance 14 15 (0.4) 17.2 00 90
PFS-Lending 10 1.0 (0.0) 144 00 60
Bureau (excl profit share) (incl Travel Money Card) 22 24 4 251 00 24.3
Travel insurance 06 06 (0.1) 89 00 96
MoneyGram 23 19 03 201 00 163
NSB 08 03 05 34 00 67
Other (0.5) 05 (1.0) 69 20 25
Total Financial Services. 268 26.9 (0.4) 295.2 2.0 278.6
Other Income 05 (0.4) 08 (4.7) 88 9.2
Supply Chain
Net Income
Period 7 Performance Pack - Chris Day
18th November 2014
Page 26 of 26
POL00149531
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¢ Introduction
« The Numbers
¢ Customer Satisfaction and NPS
* Complaints
¢ Elderly and Vulnerable Process
* Operations and Service levels
¢ Sales and Trading
¢ Product Road Map for 2015/16
¢« Compliance and Risk
¢ Fujitsu Relationship and Status
* Initial View of Strategic Options for the Business
Questions
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Telecoms 11/12 to 14/15
revenue £mil 11_12 12m13 13.14 14.15
HPBB 112 122 119 118
ETU& PC 8 7 5 4
total telephony 120 129 124 122
Gross margin £mil
HPBB 33 38) 40 45
ETU& PC&other 8 7 6 6
total telephony 41 45 46 51
HPBB Managed Services 12.5 12.165 16.7 14.4
Net Income 28.5 32.835 29.3 36.6
POL Telephony Staff Costs 1 1 1 1
contribution to overheads and profit 27.5 31.84 28.3 35.6)
Base (mid year) 460k 479k 463k 450k
Monthly ARPU g 20.29 I £ 21.22 I £ 21.42 I £ 21.85
Contribution to O/H and profit is EBITDA before overhead allocation
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Telecoms - HomePhone Combined Sales Report
HomePhone Combined YTD Actual
Crown Agency IContact CentreI Online
%of Target
YoY
[RUNRATES Od D Perfo e 4Wee Next 4 Weeks Full Year
jomePhone Combine POL 702 858 297 686 622 424
BRANCH NETWORK 319 376 127 331 273 113
CROWN 124 71 53 130 123 54
WHS 6 17 3 5 12 2
IAGENCY 186 189 68 194 137 56
[CONTACT CENTRE 222 393 140 209 285 232
WEB 160 89 3 147 65 80
HomePhone Combined: £194k negative variance to target YTD
re Dires LO 2013/ 219 303 249 156 i
ove are_frnene 1,400 POL - HomePhone Combined
VeTarget 60% 15% 73% 7™%
vor 60% 70% 0% 140%. 1,200
2014/15 13 156 168 151 ’
Network __IAgency Branches 61 53 42 67 600
184 20 189 1
Vs Target 134% 167% 137% 127% 400
vor 302% 432% 450% 261%
[crown Branches 14 70 58 38 51 200
01415 fe 136 123 133
Vs Target 104% 110% 100% 108% 0+
3 2 1 2 = s
2014/15) 5 3 5 6
stages aus wii bili i —13'14 Actual ——14'15 Actual —14'15 Targets
YoY 167% 150% 500% 300%
Sales Planning and Analysis Team — In Commercial Confidence
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Sales and Trading Comments
¢ Very Mature Markets — HP/BB/Mobile — 86 % penetrated
* Lack of focus on “NET ADDITIONS”
* Poor Sales Performance and Higher Churn
¢ Online performance encouraging
¢ Lack of a Trading mentality/rhythm — to be remedied by
¢ Establish two new Trading Manager positions replacing product
managers
¢« Beon promotion “always”
¢ Broadband Product Range requires upgrading, and Broadband market
extremely competitive
¢ Introduce Fibre in 2015/16
* Home Phone surprisingly resilient and potential for growth as only BT as
competition
¢ Declining market, but over-indexes with our demographics
* Only one competitor, and we have a price advantage
Recent Good news 2,000 nets adds in last 6 weeks — Growth
POL00149531
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Broadband and Phone’ E>
Free line rental for 3 months - then
£13 per month ongoing
Compsre HomePhane prices foryourzelf and remember, these
savings are even before BT inc its prices on 1* December 2014!
Bealen.
Enjoy a BT busting
3 months free line
rental with our
HomePhone service.
Unlike BT customers - you get:
A free paper bill
No charge to pay in cash
Sign up at the counter today and enjoy
3 months free line rental for —
Post Office broadband and phone.
nt een en apy = eee tee
Ask at the counter or call us om:
4, 0800 1217025
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Competitive positioning Jan 1 2015
a =
£ 15.00 16.99 16.45 15.99
£ 12.00 £ 14.08 £ 14.35 £ 12.99
9. 9.58 11.5 9.58
15 15.97 15 15
[EaWicale I £ 1.50 £ 3.00 £ 5.00 £ 2.00
£ 5.75 = 7.50 £ 5.00 £ 5.00
£ 5.00 £ 10.00 nla nla
£ 8.00 E 16.00 £ 3.50 £ 9.99
Call Package included free weekend free weekend national NO free weekend free weekend
national calls calls calls national calls
£ 23.00 £ 32.99 £ 19.95 £ 25.98
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POL00149531
Post Office HomePhone - Better value
Inclusive Calls
Weekend Time Period
Call Connection Charge
Calls to
UK Landlines
Calls to UK Mobiles
Caller Display and 1571
Voicemail
Pay bill by cash?
Contract term
Early Termination Charges
Line Rental
@
Weekend Calls to 01, 02, 03 and
0845/0870 numbers (includes calls to
Channel Islands)
6pm Friday - 6am Monday
15p per call
8.5p per minute
5p per minute (evening & weekends)
10p per minute (day)
Included at no extra charge
(opt in required)
Yes - no extra charge at any Post Office
No minimum term contract
no Early termination Charge are payable -
14 days notice required
£15.00
BT@
Weekend Calls to 01, 02, 03 and
0845/0870 numbers excludes calls to
Channel Islands
Midnight Friday - Midnight Sunday
15p per call
9p per minute
12p per minute (all day)
BT Answer 1571 - £1.75 a month extra
Caller Display - £3.30 a month extra or
BT Privacy at Home with Caller Display -
£1.75 a month extra
Yes but £2 a month
Payment Processing Fee applies
12 month contract
£5.75 per month remaining
In contract
£16.99
Broadband Competition : Everyone is on
promotion - always !
Talk Talk example
Order online for our best deals
TV, Broadband & Calls
Sate I Mobile I Move home
Buynow
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Product Roadmap
. Post Office
Price Change
i becandI Safeguard
2015
pcrsa8 I Online Sales Wholesale
NGA (Trial) Portal Broadband
Apr tants I (Web Journey) Connect (WBC)
POL Priority
Discounts/
Offers
Functionality
(Phase 2)
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Customer Satisfaction and NPS
¢ Very encouraging Trend in last 4 months
¢ Transactional NPS survey results surprising — 2,500 surveys 3 %
* Post call survey
¢ Statistically accurate
¢ If translated to NPS +39
¢« NPS survey of 400 customers conducted Feb-Jun by Marketing
* Home phone in-life 20
¢ HP/Broadband in-life 3
¢ Industry results BT — 10, Talk Talk -21
¢ POL General Population 2
¢ Telephony is POL brand “accretive”
¢ Ofcom complaints significantly reduced
¢ Edge cases now being managed pro-actively
Open Reach escalation process introduced and working
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CSAT/NPS Scoring
stomer Satisfaction Net Promoter Score®
How satisfied were you with how your call was dealt with Based on your recent contact with us, how likely are you
today? to recommend us to a friend or colleague?
The calculation for customer satisfaction = Customers The calculation for NPS® = Promoters (Surveys scored 4
who are satisfied through to extremely satisfied (3,4 and or 5) — Detractors (Surveys scored 1 or 2)
5) / Total survey responses
No. Surveys 2447 2588 2566 No. Surveys 2398 2529 2505
1 11% 9% T% 1 10% 9% T%
2 3% 3% 3% 2 3% 4% 2%
3 6% 6% 6% 3 9% 10% 11%
4 8% 9% 9% 4 13% 14% 15%
5 12% 72% 76% 5 65% 64% 66%
CS Score 86.2% 87.4% 90.5% NPS® Score 64.7% 65.3% 71.9%
Data = Rant & Rave 01/07/2014 - 30/09/2014
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OFCOM Complaints trend
OFCOM complaints per 1000 customers - OFCOM complaints per 1000 customers - Fixed
Fixed phone BB
0.30 0.35
\
O25 0.30 \
WN 0.25
0.20 \
‘\ 0.20
0.15 \
\ 0.15
0.10 ey
0.10 VY
os PON a A=
I 0.05 ~
Aug Sept Oct Nov Dec Jan Feb Mar April May June Jul Aug Aug Sept Oct Nov Dec Jan Feb Mar April May June Jul Aug
Post Office - fixed line ——Fixed line industry average Post Office - BB
Talktalk - fixed line
——BB industry average BT - BB
*Latest OFCOM Data for Q2 pending release
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OFCOM Complaints trend
90
80
70
60
50
40
30
20
10
OFCOM complaints
Aug Sept Oct Nov Dec Jan Feb Mar April May June Jul Aug
——Fixed Broadband HP & BB Fixed Line
*Count of consumer complaints made to OFCOM
13
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Post Office Complaints to September 2014
4500 5
4000
Incoming Complaints Trend
3500 +
3000
2500
2000
1500
1000 +
500 -
0
Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 = Jun-14 Jul-14
MTOTAL Complaints
BTOTAL High profile complaints (High Profile, ECT, Escalated, Ombudsman)
Aug-14
Sep-14
"Observations
= The number of complaints decreased 3% for September
Driven by reduction in Billing and Technical complaints
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Identifying and Managing Elderly and or
Vulnerable Customers
. Clear Policy Statement, and Compliant explanation of POL process on Web Site
All relevant Call Centre agents have been re-briefed on ‘spotting’ Vulnerable customer cases.
* DOB, Tone of Voice, active listening
¢ Elderly and Vulnerable customers will be designated as such in all workflows
* All relevant Call Centre Team Leaders now DPA override authority.
« All DPA overrides will generate the consideration to raise a E/V case
« All E/V Cases to be grouped and reported upon daily, with visibility at all levels
* Talk Talk and BT Open Reach Customer Service Teams have been re briefed to relevant teams.
* Relevant to provision or repair
+ CAPITA and FJ LOB owners can see customers DOB for all open E/V cases ®
Design/Development to auto generate a E/V case during diagnostics
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Christmas Plan — Elderly and Vulnerable
Customers
* Operations Meetings established10 am every day Dec 15-
Jan 1,
¢« POL. Fujitsu and Capita
¢ Elderly and Vulnerable customers identified in fault
reporting and separately identified and managed
¢ Escalation management process in place to escalate to
Open Reach (including CEO) for sensitive days —
Christmas Day etc
* Senior POL Management Escalation Plan in place
¢ Web Site updated with Holiday instructions
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Compliance and Risk
¢ Current Status
¢ Fujitsu maintain a Risk Register
¢ Operational Risks
* Customer Communication Risks
¢ Business Continuity Risks
¢ Material Subcontractor Risks
* Post Office Telephony Team add POL risks to Fujitsu Risk Register
¢ Primary Contractor and Material Sub-contractors financial returns are well
below minimum expectations
* Mitigated by New Way of Working,
* New “tone” of team engagement “our not they “
* Close participation in relaxing the customer facing elements of the
contract that deliver negative POL results
¢ Sales and Retentions staffed and remunerated for su
* Ofcom Regulatory Compliance - General Conditions
* Government Policy Compliance
¢ Internet Safety
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Fujitsu Relationship and Status : Green
¢ Fujitsu relationship re-baselined and Fujitsu more comfortable
¢ Established New “Ways of Working” to encourage greater innovation and lower
costs
* Submitted Historical claim for £5.6 million invoice/performance
¢ Established Effective Governance Framework
¢ New Fujitsu Account team, and organisation
* £2,300,000 annual savings on broadband usage agreed
¢ Fujitsu/Capita Relationship remains challenging but good progress
¢ Agreed to draw a line under the past 12 months
¢ Review contract T and C’s that to not reward Sales Performance
¢ Developed a Plan B in event of failure to resolve differences
¢ Consideration of applying same Managed Services model to Mobile and ®
integrating/sharing roles
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Strategic Options for the Business
¢ Option 1: Maintain and Grow Business
¢ EBITDA- 10 % and growing in 2015/16
¢ Gross Revenue £130 million in 2015/16
* Capex spend of 5 % of Revenue
* Consideration of TV but not essential to success
¢ Option 2 : Sell the Base of Customers to a Competitor and Exit the Business
* Likely value less than £50 million *
¢ Migration risk and lack of control over Brand damage
¢ Write off of Technology investment in OSS/BSS Fujitsu solution estimated at
£20 million
¢ Reduce product range for Retail Network
¢ Option 3: Sell business as Post Office Franchise
¢ Post office earns a modest Franchise fee but growing over time
¢ Fujitsu/Talk Talk is the natural buyer
¢ Estimated value £60 - £70 million *
*Best guess estimates to be ratified
*Possible blend of Option 2/3 also negotiable
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Questions
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Strictly Confidential
POST OFFICE LTD EXECUTIVE COMMITTEE
Post Office Prepaid Funeral Plan
1 Purpose
1.1. The introduction of new products requires the approval of the POL Board. Ahead of that,
this paper seeks the approval of the POL Executive Committee for the proposed
introduction of a Prepaid Funeral Plan.
2 Background
2.1. Post Office has an aspiration to be the financial services destination of choice for our
customer base of families, homeowners and people in the 50+ age range.
2.2 The Prepaid Funeral Plan offers the customers the investment opportunity of funding their
funeral at today’s prices. Funeral costs have risen by 71% over the last ten years.. A
market for these products already exists, with premiums paid of c£400m. The market is
strongly biased towards older customers, with more than 80% of customers being more
than 65 years old at the time of purchase.
2.3 Our Over 50s Life Cover policy meets some customers’ requirements in respect of funeral
costs. However, purchases of our Over 50s Life policies fall off dramatically over the age of
75. Market data shows that 45% of funeral plans are sold to customers over the age of 75,
which suggests that there is a customer need we currently do not meet. The proposed
Prepaid Funeral Plan product would fill that gap and would fit with our strategic aspirations
in the "end of life” market. The target is to capture a market share of 5%, and gross written
premiums of £20m.
2.4 Financially, the initiative exceeds POL’s financial hurdles, with an NPV of £5m and a
payback period of 2 months. It has successfully passed through financial governance.
3 The product and commercial arrangements
3.1. The product will be provided by an existing market player, Dignity, through the existing
insurance joint venture arrangement with Bank of Ireland (“BOI”)
3.2 Customers pay an initial upfront single premium in the range £3,300 to £3,900 depending
on the level of cover. In return, the plan guarantees specified funeral arrangements, whilst
allowing the customer to personalise through the choice of music, flowers, coffin, etc.
3.3 Sales opportunities will be generated:
(i) in branch via leaflets;
(ii) via direct marketing; and
(iii) increasingly, by our Financial Services advisers.
3.4 Post Office receives commissions based on the value of policies sold and a share of the
profit made in the joint venture arrangement with BOI. In FY14/15 this commission is
c£205 per policy, rising to £291 per policy in FY18/19. From this, payments will be made to
agents generating sales at a rate of £60 per policy.
3.5 The product will be introduced as a pilot in 2014/15, in Crown, WH Smith and 500 Agency
branches. Any decision to roll-out will based a formal compliance assessment of the pilot
period and on performance.
Post Office Prepaid Funeral Plan 12" November 2014 Page 1 of 2
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Strictly Confidential
4 Financial Overview
4.1. Summary P&L and cash flow
14/15 19/20
Incremental Profit & Loss (£000s) mite) I 25/16 I 16/47 I 17/48 I 18/19 I 6 rns
Number of policies sold 1050I 6,000I 6,000I 6,000} 6,000I 3450
Recurring commission and profit share on 14s I 1349! 1470] 1602] 1,747] 1,094
Payments to agents
(40) (54) (54) (54) (54) (34)
One-off costs (Opex) - Operating
(62)
Total Incremental PBIT
73 I 1,295 I 1,416 I 1548 I 1,693 I 1,063
Incremental Cashflow (£000s)
14/15 19/20
(3 mths) 15/16 I 16/17 I 17/8 I 18/19 (9 mths)
Recurring PBITDA (as per above)
73 I 1,295 I 1,416} 1,548] 1,693] 1,063
Capital Expenditure (Capex)
Total Incremental Cashflow
73 I 1,295 I 1,416I 1,548I 1,693 I 1,063
eae " NPV Payback
Sensitivity applied (Em) IRR (%) a tl
Case as presented n/a 5.0 >100% I 2 months
Key sensitivities:
1. The initiative captures a lower Currently anticipate a a 5% market
market share than anticipated _I share. Assume only 3% 3 2100 I 3 months
2. Agents sales represent a higher I Currently assume 15% through ie toon I Syente
proportion of sales agents. Instead assume 30% : °
4.2 In the pilot period (FY14/15), target sales are 1,050 plans, generating net revenue of
£212k. Launch costs are £62k. Agents’ commissions are estimated to be £10k.
4.3 Thereafter, sales of 6,000 plans a year
are targeted. The market cost of funeral plans is
inflating c 8% a year and POL’s total commissions are anticipated to grow at this rate, plus
an element reflecting the increasing use of premium financing by customers. Marketing
costs will be met by POL’s insurance joint venture with BOI.
5 Risks and dependencies
Risk/Dependency
Mitigating Action
Brand damage from supplier actions
Supplier (Dignity) is an established market player with no
history of issues.
On-going monitoring of complaints and wider market
Branch Miss-selling
Detailed branch communications
Alignment of branch sales incentives
Detailed Sales Controls and KPI's
Network Distraction
Limited number of branches (500) planned for launch
Product Unsuitable for Customer's needs
Clear brochure detailing different product options.
6 Recommendation
6.1 It is recommend that the Executive Committee approve the introduction of the Prepaid
Funeral Plan and recommend authorisation to the POL Board.
Paul Havenhand
Head of Travel and Insurance
Post Office Prepaid Funeral Plan 12
"" November 2014 Page 2 of 2
SLT PDR Ratings Mid Year 2014/2015
(excludes ExCo members and external int
Attached are the provisional ratings for the SLT as at HY 2014/15.
The average rating is 2.7, down from 3.25 at year end 2013/14
Ratings will be discussed at 20 November ExCo meeting
Sarah Malone
Head of OD
Strictly confidential
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SLT PDR Ratings Mid Year
2014/2015
(excludes ExCo members and external Interims)
Name Directorate /33 Ful 13/14 13/14 Full 14/15 Mid
peter Markey [Commercial wa I wa I wa 2
kevin Seller [Commercial 3 3 4 2
Paul Brown [Commercial 4 4 3 2
cites Dunning [Commercial 3 I WA WA z
lan [Crumpton [Commercial WA_I_N/A_I WA 2
Avan smith Financial Services 2 3 3 3
Henk [Van-Hlle Financial Services 5 4 4 4
Jeremy law ncial Sevices 4 4 4 4
ohn. lwilcock Financial Services 4 4 4 3
fionathan [au Financial Services 4 4 4 3
Paul [Mavenhand [Financial Services 3 3 3 3
Paul white Financial Services 3 4 4 4
[Angela Van Den Bogerd Ines 3 4 4 3
[Andrew [thompson Ines 3 3 3 2
tie thomas ues 5 4 3 3
noave Harcourt nas 4 3 3 3 I
Drew cbride nas 3 3 3 4
Harry (Clarke Nes 4 3 4 3
ohn. Dutton Nes 3 3 4 3
Keith Rann nes 3 3 3 3
Martin Rouse Nas 3 3 3 2 I
Michael tarkin Nes 5 4 4 3
il Enis Nes 3 3 3 4
Roger Gate Nes 5 4 4 2
pRussel Hancock Nes [panda 3 a 3 2
an Kennedy Nes [ReNco WA_I N/A ON 3} Trial period rating
[Pam Heap Nas ste 3 4 5 2
[rian lbeveney Finance st 3 3 3 3
[charies [Colquhoun Finance ste 3 3 3 3
Colin stuart Finance stp 3 4 4 3
ick sombridge Finance stp 3 3 3 4
Peter [Goodman Finance st 4 3 3 3
Rod ismay Finance st 3 3 3 3
Sarah alt Finance ste 3 3 3 3
Sharon uit Finance stp 4 4 3 3
[vison Thompson sera (Finance) ste WA_I WA I Win 3
[alana Renner [comms (People & Engagement) __[StP 3 4 5 4
Mike [Granville [Comms (People & Engagement) [SUP 3 3 3 3
Nina [Arnott [Conims (People & Engagement) [SUP WA 3 2 z
richard Walden Comms (People & Engagement) [Banda 3 3 3 4
lane i [Comms (People & Engagement) [SUP WA_I N/A 3 3
[Hazel Hudgel [comms (People & Engagement) [Band 4 4 3
[andy [Garner [cio anda 4 a 3 3
[Dave cio ste [Ts 4 4 3
ite [cio leand wa [3 4 3
[Malcolm zack [corporate Sences str 3 3 2 3
1 Dave i ]eorporate Services [sands 4 4 3 2
ohn [Corporate Services su 2 3 2 3
Ht Piero D'Agosting [corporate Services [sand 4 3 4
Pt tessa IMadron [corporate Services Banda 4 3 3
ik [Beal [Network Development (P&E) [st 3 4 4 3
From Moran industrial Relations (P&E) isu 4 4 5 3
Sarah aalone HR (People & Engagement) st WA _I N/A 4 3
oe [connor [hm (People & Engagement) st 4 3 3 3 I
aichelle Ranger HR (People & Engagement) [panda WA_I N/A 3 3
Natale Wilkins HR (People & Engagement) [pand 4 3 3 3 I
Diane Ward HR (People & Engagement) [Band WA] 3 3 2
Deborah setts HR (People & Engagement) [panda a EN 2 2
Keith Murdoch HR (People & Engagement) ste N/A IN/A WA wa
[Ann bier HR (People & Engagement) stp 3 3 3 3
Fay Healey HR (People & Engagement) ste 3
ty Acting up to SLT role
PDRRATING Optimum Actual
SLT Distribution
13/14 FY
13/14 HY
2 0 14/15 HY PDR Ratings
2 9 14 pleat
3 36 37 14% 12% 4% 14+2
4 9 9 37% 54% 63% a
5 3 0
Total Ratings 60 60 9% 34% 33% 445
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Current Actions and Decisions Log
ExCo Meeting 18 February - Actions and Decisions
Transformation Board
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18/02/06 Action 1 Communicate to SLT the new Governance structure and their role in
holding ExCo to account. AL/AT/MD End June
Update 13/06/14: RZW is progressing this action.
AL: ON HOLD TOR AND DATES TO BE CIRCULATED TO SLT On hold (Still)
ExCo meeting 8 May - Actions and Decisions
Strategic Risk - Contingency Risk
08/05/16 Action 15 Chris Day to share the finance stress testing of the plan with the ExCo, In progress - due
to ensure contingencies are identified for the big programmes. cD Nov/Dec
TFL - Audit protocol guidance
08/05/34 Action 3 Put the policy on the intranet and ensure it is well communicated.
Updated 25/06/14: MD and CA meeting to progress CA/MD In progress
TFL - Audit protocol guidance
08/05/37 Action 6 Decide on the best approach to ensure the intranet is effective with
the possible use of a super administrator. MD/NH In progress
Updated 13/06/14: MD to discuss at 1:1 with NH to progress.
ExCo Meeting 9 June 2014 - Actions and Decisions
Risk & Compliance
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09/06/01 Action 1 Piece of communication needed to explain risk management and risk
protocols particularly as we move into Business Transformation. MD/CA Ongoing
Updated 25/06/14: MD and CA met to progress further.
ExCo Meeting 3 July - Actions and Decisions
Significant Litigation
03/07/05 Action 1 Schedule an ExCo discussion on losses and prosecution policy CAVAL End Aug
Cyber security noting paper
03/07/09 Action 2 Risk & Compliance Committee to consider Cyber Security on its next CA 21 July
agenda
ExCo Meeting 8 July 2014 - Actions and Decisions
Finance Performance update at Q1 - Telephony
08/07/02 Action 2 Organise a deep dive for telephony for the Autumn to review the MG/AL ExCo
product profitability. November
ExCo Meeting 19 August - Actions & Decisions
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148 Office Move
19/08/2014 I Action 2 Provide technology training (i-clinics) to ensure people are capable of I AA End Dec
using the new technology,
19/08/2014 I Action 3 Explore the option of using partner buildings in the lead team AA End Dec
discussions.
ExCo Meeting 16" October - Actions and Decisions
Risk Appetite
6 + 3 Strategic Risks to be reviewed by the next R&CC and to come
16/10/2014 I Action 1 back into ExCo and the Board in January. CA/DM Aeeny il
16/10/2014 I Action 2 Ensure that there is no conflict in PWC carrying out work on both CA November 2014
execution and assurance for the TMO.
16/10/2014 I Action 6 Produce a one page risk scorecard with metrics to monitor the CA/DM
business risks.
16/10/2014 I Action 8 Chris A to draft a note to Paula to send to the ARC to explain how the CA 20" October
Risk Appetite statement will be operationalised.
Project Titan
16/10/2014 I Action 1 rowers Committee to discuss and agree ways of working with cc End October
16/10/2014 I Action 2 Ensure that Project Titan does not compromise the ability to cross sell NK/MG End October
products including passports and bureau de change.
16/10/2014 I Action 3 Circulate to the ExCo, the neutral contractual paper being written by NK End October
Colin Stuart.
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16/10/2014 I Action 4 Confirm the level of financial risk to the plan if POMS does not get FCA NK End October
approval by 1°* December.
16/10/2014 I Action 5 Update the ExCo on the Bol long term contract before the Board NK November ExCo
debate in November.
16/10/2014 I Action 6 Overlay the Risk Appetite framework and operational risk for POMS. NK/ CA
P &E Strategy
16/10/2014 I Action 3 Ensure that the FS 12-18 month strategy milestones are included in I FH / NK This will be
the plan. integrated as part
of the presentation
to the Board in Feb
when Nick presents
the milestones on
Fs.
. Half day session to be arranged to consider how we engage with sub- I KG / NK/N Beal / Meeting taking
16/10/2014 I Action 4 postmasters (operators) to understand culture change. AR/ FH place on 21% Nov
Business Transformation
Feedback on 15% cost reduction plans by 23 October - then w/c 27
16/10/2014 I Action 1 October talk to direct reports, w/c 3 November talk to direct reports I ExCo 23” October
+1.
Digital
Digital slot at future ExCo to cover what digital developments mean
7 for the Post Office.
16/10/2014 I Action 1 Update 11/11/14 - The Digital update is now going to January ExCo MG/6D January
and Board.
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Network
. Commercial Committee were asked to discuss the FS sales capability
16/10/2014 I Action 2 and the plan to get FS specialists to the required performance level. cc End October
Funeral Plan
Produce a more detailed paper setting out the P&L financial position,
16/10/2014 I Action 1 costs, customer's proposition, effect on the network and risks and then I NK November ExCo
return to the ExCo.
16/10/2014 I Action 2 Provide a template for future ExCo product authorisation. cD / CA End November
Sparrow
P =a
16/10/2014 I Action 1 Invite Angela Van Den Bogerd to update the ExCo on the Branch AL/ AVDB ExCo - 20'
Support improvements. November
BREC
Pete Markey to discuss ‘Easy to do Business with Measure’ with AL,
16/10/2014 I Action 1 KG and DR, then return to ExCo with a specific proposal on the levers IPM/KG/AL/DR January 2015
to pull to improve ‘Easy to do Business with Measure’ performance.
Information Security
16/10/2014 I Action 1 Contact Julie George's team for advice if ExCo are concerned about All Ongoing
Information Assurance as colleagues leave the business.
Risk during Leaving Process
[16/10/2014 I Action 2 [Email to ExCo on the risks inherent in the leavers process. [FH [End November I
ExCo meeting 21% October - Actions and Decisions
Crown P & L
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21/10/2014
Action 1
Report to the ExCo on the DWP mediation for compensation for the
over payment, to understand the possible timeline and its effect on
this year.
MG
November ExCo
21/10/2014
Action 6
Look at the methodology to ensure Q of S Scores are giving an
accurate measure - including self service.
Update 13/11/14 PM: Full and detailed review being undertaken
between network and insight team to determine link between ease
measures and revenue. This review which will be completed with
recommendations by year end will also determine if our ways of
measuring remain fit for purpose with a secondary aim to determine if
expense savings can be delivered by adopting a different approach.
MG / KG / P Markey
November ExCo
Business Tran:
sformation
21/10/2014
Action 2
Provide a timeline and milestone of the events and decision points
which form the critical path for the next 6 months.
Update: now covered as part of the revised Transformation
Committee fortnightly meeting
DR/CA
Closed
21/10/2014
Action 4
Consider how the scorecard would need to change to include Business
Transformation metrics and bring back to ExCo for discussion.
Update: will be addressed as part of the budgeting process for
2015/16 to conclude in Q4
DR
Closed
MDA
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21/10/2014
Action 1
Need to put in place financial governance and economic modelling for
the MDA re-negotiation, what is the business trying to achieve short
and long term.
MG / CD / ExCo
11" November