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POLB 15(5")
POLB 15/87 - 15/100
POST OFFICE LIMITED
(Company no. 2154540)
(the ‘Company’)
Minutes of a Board meeting held at 9.00am on 22 September 2015
at 20 Finsbury Street, London EC2Y 9AQ
Present:
Neil McCausland Chairman (Interim)
Richard Callard Non-Executive Director
Alisdair Cameron Chief Financial Officer
Tim Franklin Non-Executive Director
Virginia Holmes Non-Executive Director
Paula Vennells Chief Executive
In Attendance:
Alwen Lyons Company Secretary
Neil Hayward Group People Director (minutes 15/90 and 15/91)
Nick Kennett CEO, Post Office Management Services Limited (POMS)
(minute 15/92)
Jane MacLeod General Counsel (minutes 15/92 and 15/95)
Piero D’Agostino Head of Legal, Commercial (minute 15/92)
Mark Ellis Supply Chain Director (minute 15/94)
POLB 15/87 INTRODUCTION
(a) A quorum being present, the Chairman opened the meeting.
POLB 15/88 CEO’S REPORT
(a) The CEO introduced her report and focused on the following key
areas:
(b) Sparrow
The number of cases withdrawn from the mediation scheme had
now reduced to eleven, with all other non-criminal cases being
mediated. The Criminal Case Review Commission (CCRC) was
reviewing 20 cases but was unlikely to report before December.
The CEO reported that the Minister had asked the new Chairman
for his independent review of Sparrow. The Minister had also met
Lord Arbuthnot who informed the Minister that he would use
Sparrow as the focus of his maiden speech in the House of Lords.
The CEO felt good progress had been made including a meeting
with the Chairman of the Parliamentary Select Committee who
reported that Sparrow was not on the Committee’s current agenda.
A formal complaint had been made to the BBC for the
inaccuracies in the Panorama programme and meetings to brief
MPs about their specific cases continued.
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The Board recognised the progress made and encouraged the
ACTION: CEO to find different ways to inform MPs about their cases if they
Mark Davies refused a meeting.
(c) Sales
The Board were concerned about the effectiveness of the sales
growth strategy, specifically FS sales, and asked the CEO to
ensure more rigour in this area.
ACTION: The Board discussed digital growth and recognised the challenge
Richard Callard with Verify sales. Richard Callard offered to contact HMRC to
propose a dialogue with the Executive.
(d) Network
The CEO reported that Kevin Gilliland, Network and Sales
Director, believed that the Network Transformation (NT) targets
would still be achieved despite the delay in issuing the letters to
remaining subpostmasters. However he was considering how NT
aligned with the wider front office IT transformation to see if a
slight delay would make sense. The Board asked the CEO to
update the Board with any significant changes to the plan or
timing, as this would have implications to the budget and the
scorecard.
The Board pointed out that branch numbers now stood at 11582,
close to the floor of 11500, the target set in the funding
agreement. The CEO thanked the Board for highlighting the issue
and recognised that the number of branches had moved closer to
the target, but assured the Board that the number was monitored.
(e) clo
The CFO updated the Board on the CIO recruitment, the external
candidates being considered and the interim ClO, Chris Broe, who
P had started work.
Having taken the discussion into account, the Board noted the
CEO’s report.
POLB 15/89 FINANCIAL PERFORMANCE UPDATE
(a) The CFO confirmed that since the last forecast, which got the
business back to its EBITDAS target, a number of challenges had
emerged. For example; the good news on Sparrow mediation had
reversed a £1m saving; continued low interest rates would
increase POCA costs by £300k a month from 1 January; the
decision by HMRC reduced the Verify income; and Travel products
continued to perform below expectations. The CFO signalled that
in his view there was now a £5m risk in EBITDAS. The business
would re-forecast again in October and while he was still expecting
to hit the target, the Executive would need to make some
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unattractive decisions.
(b) The CFO recognised the under spend in the transformation
budget, but he believed that this was largely down to timing and
the large projects would start to catch up in the second half of the
(c) year.
The CFO reported that the Executive were considering further
investment to grow the digital FS sales. The Board stressed that
the Post Office’s USP was its bricks and mortar channel and
suggested that they focus on optimising network FS sales. The
CEO assured the Board that she was leading a meeting on
leveraging the network for FS sales.
ACTION: (a)
Neil Hayward The Board asked for a note to explain the high level of turnover in
the new starter population.
(e)
Initial discussion interim results
The Board discussed the paper setting out the likely narrative and
communications for the half year results. It was agreed that the
results showed steady progress in tough conditions where the
ACTION: market was uncertain. The Board debated the audience and timing
Mark Davies for the report. Mark Davies would coordinate the optimum date of
publication with Richard Callard.
(f)
Government Spending Review
Richard Callard explained the pressure on BIS to deliver a 40%
budget saving. The Board discussed the proposal to write to BIS
to explain that market uncertainty may require the Post Office to
ask for additional funding beyond the network subsidy payment
ACTION: highlighted in the 2013 strategic plan. It was agreed that a letter be
CFO! Richard Callard sent to Mark Russell, CEO Shareholder Executive (ShEx)
explaining the position and asking for acknowledgement of the
contents. Richard Callard explained that officials would, in the
normal course of business, inform the Minister, BIS Finance and
the Treasury.
(9)
Having taken the discussion into account, the Board noted the
CFO's report.
POLB 15/90 ROYAL MAIL PENSION PLAN (RMPP)
(a) The Chairman welcomed Neil Hayward, Group People Director, to
the meeting.
(b) Neil Hayward explained the proposed changes to the RMPP to
strengthen the long term health of the plan. The proposal had
been discussed and agreed by the Group Executive (GE) on the
20 August 2015 and supported by the Pensions Committee on the
8 September 2015.
(c) He recognised that the proposal was different to the position being
taken by RMG, and an earlier change than the RMPP Trustee had
anticipated. The RMPP scheme rules mean that closure of the
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scheme is a matter reserved to the Trustee, and that the Business
is legally bound to consult members before and decisions is taken.
(d) Neil Hayward explained that the proposed timescale was realistic
and achievable although it did depend on the RMPP Trustee. Neil
Hayward assured the Board that the timetable was indicative and
that he would push for an earlier closure date if possible.
(e) Richard Callard asked if there was any flexibility with the timetable.
Neil Hayward explained that discussion at the RMPP Trustee
meeting on the 29 September was vital and that he would prefer to
stick to the proposed timing.
(f) It was agreed that the initial meeting with Joanna Matthews, RMPP-
Chair, on the 24 September and the meeting with the Trustees on
29 September should go ahead as planned. However, at both
meetings confidentiality should be stressed as the formal union
consultation would not take place until the 8"" October. Neil
Hayward noted that there would be some direct, private
conversation with the Unions so they were aware of what was
going to be proposed. Richard Callard supported this proposal and
did not intend to raise the issue further at BIS.
(9) The Board:
1. Noted and approved the decision taken by the GE on 20
August 2015, to engage with the Trustee of the RMPP to
close the RMPP to future accrual from 1 September 2016;
2. Noted and approved the decision taken by the Group
Executive, (same dates as above), on the future DC pension
scheme design for all employees, including the ex-RMPP
members who may transfer from the RMPP to the Post Office
Pension Plan; and
3. noted that any change to the terms of the RMPP were subject
to successful engagement with the Trustee and successful
consultation with members and their representatives.
POLB 15/91 PEOPLE AND COST TRANSFORMATION ISSUES — INDUSTRIAL
RELATIONS RISK MITIGATION AND PLANNING
(a) Neil Hayward introduced the paper and acknowledged the
unprecedented level of change being proposed. He believed that
the changes already made to implement the new Collective
Engagement & Industrial Relations Framework would help to
partially mitigating the risk, and that effective communication was
key.
(b) The Board supported the proposals but asked that individual
elements, such as changes to maternity leave, be tested to ensure
they deliver enough benefit to be included.
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(c) It was agreed that the planned Vision communication was
essential in getting people to understand and believe in the
transformation. The Board acknowledged the effectiveness of face
ACTION: to face communication and asked Neil Hayward to ensure as
Neil Hayward many people as possible saw the message direct from senior
managers rather than as a cascade.
(d) The Board:
1. noted the progress made since the June 2015 strategy
session on options for going further on cost;
2. agreed the next steps regarding implementation on each of
the cost options;
3. accepted the high IR risk inherent in the activity proposed and
endorsed the approach to mitigate it; and
asked the CEO to keep the Board updated in her Board report.
(e) Neil Hayward left the meeting.
POLB 15/92 HAWK APPROVAL
(a) The Chairman welcomed Nick Kennett, CEO POMS, Jane
MacLeod, General Counsel (GC), and Piero D’Agostino, Head of
Legal - Commercial, to the meeting.
(b) Nick Kennett circulated the PwC Post Office Management
Services (POMS) Compliance Readiness Review (this report is
now available in the Board reading room).
(c) The GC explained that she and Nick Kennett had jointly
commissioned PwC to ‘conduct a review of POMS’ compliance
readiness to accept the transaction of the existing general
insurance intermediary business, reflecting regulatory exceptions
in the current regime’
(d) IThe PwC report concluded that ‘based on the scope of the review,
and excepting matters set out in the report, we have not identified
any other FCA regulatory matters which would prevent POMS
taking on the responsibility of Hawk’.
(e) The GC explained the nine areas which had been highlighted in
the PwC report, two of which were mandatory for day one.
(f) I Contractual Arrangement for Agency franchises
The GC explained that the challenge regarded the basis on which
agents benefitted from the Appointed Representative (AR) status
of the Post Office. PwC had recommended that ‘POMS
management may wish to consider that the regulatory risk around
the issue would be managed more fully by confirming that the
assumptions underpinning this legal view are valid’. The GC
explained that a year ago external legal advice had been sought
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from Linklaters LLP (LL) to confirm this point and its relation to the
subpostmaster contract. In light of the PwC comment LL had
recently been asked to verify their advice which they had done.
(g) Conduct risk — agency franchises
The GC explained that this compliance risk of mis-selling Travel
Insurance or Over 50’s life Insurance already existed for the Bank
of Ireland and that this risk was now passing to POMS.
PwC recommended that ‘as part of the Hawk transaction, the
POMS Board needs to recognise that whilst the risk profile is not
changing, the risk owner is. As such POMS must put in place a
plan to understand the risk and mitigate them going forward.’
The Board recognised that changing risk ownership did not
change the risk, but acknowledged that Post Office continued to
bear the reputational risk, and Nick Kennett explained that POMS
Board would be putting together a plan to mitigate the risk.
(h) Governance
Three areas in the PwC report were marked for POMS Board
attention; the Appointed Representative; the drafting of the
Matters Reserved to the Board; and appointment of an individual
responsible for complaints.
The Board discussed the three areas and asked for evidence that
POMS had considered the Appointed Representative position
including benchmarking how other companies might overcome the
issue.
(i) IThe Board approved the acquisition proceeding, subject to the
ACTION: POMS Board approving the acquisition and approving an action
GC/Nick Kennett plan to address the recommendations of the PwC assurance
review; this plan should be circulated to the Post office Board.
(j) I Subject to the provision of the POMS Board approved action plan,
the Board:
1. approved the subscription, on or before 27" September 2015,
for up to two million (2,000,000) ordinary £1 shares in the
capital of POMS at nominal value for an aggregate
subscription amount of £2million in cash;
2. authorised the CEO and the CFO to do all acts and things
required to perfect the resolution at 1 above, at such time and
in such manner as they consider appropriate in their absolute
discretion;
3. approved the acquisition of the interest in the POI general
insurance business under the Financial Services Joint
Venture Agreement from Bank of Ireland (UK) ple in
consideration of the sum of £43.9million;
4. approved the subsequent on-sale of that business to POMS
in consideration of the sum of £46million to be satisfied by an
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5. issue of 46 million (46,000,000) ordinary £1 shares in the
capital of POMS at nominal value to be subscribed for by Post
Office;
6. approved “the transaction” which resolutions 3 and 4 together
describe;
7. noted the description of the documents listed in Appendix A to
the paper (together “the Documents”) which will give effect to
the Transaction and authorised the CEO and CFO to finalise
the Documents;
8. authorised the execution of the Documents in accordance
with Post Office usual procedures; and
9. authorised and gave delegated authority to the CEO and the
CFO to do all acts and things regarded by him or her to be
necessary, desirable or appropriate (in their absolute
discretion) so as to carry into effect the purposes of these
resolutions or the transactions contemplated by them.
The Board congratulated the team and Nick Kennett, Jane
MacLeod and Piero D'Agostino left the meeting.
POLB 15/93 IT TRANSFORMATION (BACK OFFICE PROCUREMENT)
(a) The CFO explained that work was underway to deliver a detailed
Transformation plan by the end of October and that there was a
need to align the IT back office transformation to that plan.
Because of this and the need to understand the timing of the
obligations the Post Office were accepting the CFO proposed a
delay in the signing of the Accenture contract.
(b) The Chairman reported the discussion on contract management
which had taken place at the ARC and the need for the business
to manage the Accenture contract effectively.
(c) The Chairman asked it the 7 year Accenture contract contained a
break clause and was flexible enough to protect the Business if it
outsourced significant areas. The Board recognised that although
Accenture had won the tender on price this advantage could erode
quickly if the in-life contract was not managed effectively and did
not contain effective change clauses.
(d) The Board:
1. approved the award of the Back Office contract to Accenture
at a total cost of £35m over seven years, subject to a note
from the CFO clarifying the issues raised; the length of the
contract and break clauses; flexibility to change in areas
included in the plan; and the deployment of effective contract
management.
POLB 15/94 PROJECT IRIS
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(a) The Chairman welcomed Mark Ellis, Supply Chain Director, to the
meeting.
(b) Mark Ellis explained that since joining the Business four months
ago he had undertaken a review of the Supply Chain, with the help
of KPMG, exploring four operational scenarios and focused on:
¢ Optimising the current ‘as is’ model
e A shrink model retaining the existing constraints within the
operation
« Ashrink model removing constraints; and
e Agrow model.
(C) Mark Ellis noted that there was limited planning and modelling
capability, with no accurate CViT data. He explained that he was
implementing a series of no regret fixes which would improve the
efficiency of the operation.
(a) The Board discussed project IRIS and the approaches from
Armaguard and Vaultex. Mark Ellis explained that Vaultex
operated cash processing for HSBC and Barclays and were
looking for a relationship to enable them to offer processing and
distribution. Post Office would benefit by improving productivity in
cash processing and sharing, therefore reducing, unit costs in
distribution.
(e) The Board discussed the proposal to enter into a 3 month UK
exclusive dialogue with Vaultex and its shareholders. There was
concern that after the three months work the business would not
be ready to decide on the future strategy as the timing would need
to align with the rest of the transformation. The CFO considered
that there was limited dependency on IT transformation but
confirmed that plans would be assessed against that and the
potential for Industrial Relations issues.
() The Chairman asked if the Business was still considering
outsourcing the whole supply chain operation. Mark Ellis thought it
unlikely that the Business would find a buyer for the cash
distribution arm of the Supply Chain. The Board agreed that the
Supply Chain work was not a core activity for the Post Office and
asked the Executive to engage with Corporate Financing
institutions to explore their appetite for full outsourcing alongside
the Vaultex work.
(g)
ACTION: The Board:
Mark Ellis 1. noted the work undertaken to date, particularly the emerging
direction, which was likely to lead to a smaller Supply Chain,
operating at a lower net cost, and supported the no regrets
ACTION: changes;
Mark Ellis 2. approved entering into a three month, exclusive dialogue with
Vaultex and its shareholders to develop and assess a potential
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ACTION:
Mark Ellis
POLB 15/95
ACTION:
Company Secretary
ACTION:
Company Secretary
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3. business combination, being open about the parallel approach
to Corporate Finance institutions asked to explore the appetite
for outsourcing ;
4. approved approaching Corporate Finance institutions to
explore their appetite for outsourcing; and
5. noted the work to be completed in the next four months and
requesting the submission of detailed recommendations in
January 2016.
(h) Mark Ellis left the meeting.
GOVERNANCE - COMMITTEE CHANGES
(a) The Chairman welcomed Jane MacLeod, General Counsel, to the
meeting.
(b) The GC explained the proposal and the discussion which had
taken place at the ARC and FS Committee and with individual
NEDs. The proposed changes had been welcome subject to the
following observations:
¢ The current FS Committee members would still be available
for FS discussions on an adhoc basis
e Nick Kennett should be invited to attend the ARC
e There would be 2 FS deep dives a year at the ARC, to
which either the POMS Board Chairman or POMS ARC
Chairman would be invited
¢ Time would need to be made available to ensure Board
members were up to speed on FS issues.
(C) The changes would be effective from the 1% October
(4) The Board:
1. agreed to dissolve the Financial Services Committee and the
Pensions Committee with immediate effect; and
2. approved the proposed changes to the terms of reference of
the Audit, Risk and Compliance Committee, subject to an
amendment to include Cyber Security as well as Technology
risk in the Risk Management framework.
(€) Jane MacLeod left the meeting.
MINUTES OF THE PREVIOUS MEETING AND MATTERS ARISING
Minutes
(a) The minutes of the meeting of the Board held on 15 July 2015 and
the two meetings of the Board held by correspondence on 17 July
2015 and 23 August 2015 were approved as accurate records and
the Chairman was authorised to sign them.
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(b) There were no matters arising.
Status Report
(c) The Status Report, showing matters outstanding from previous
Board meetings, was noted. Tim Franklin clarified that agendas
and minutes of all future POAC meetings would be circulated the
Board when available, Action 7d (POLB 15/802 (a)).
POLB 15/97 COMMITTEE MEETING MINUTES FOR NOTING
(a) The Board noted the draft minutes of the following meetings:
1. Audit, Risk and Compliance Committee held on 20 May 2015;
2. Financial Services Committee held on 30 June 2015;
3. Nominations Committee held on 8 July 2015 and 14 July 2015
(by correspondence);
4. Remuneration Committee held on 8 July 2015 and 13 August
2015 (by correspondence); and
5. Pensions Committee held on 26 June 2015 and 8 September
2015 (extraordinary).
POLB 15/98 ITEMS FOR NOTING
(a) The Board noted the Report on Sealings and resolved that the
affixing of the Common Seal of the Company to the documents set
out against items numbered 1331 to 1345 inclusive in the seal
register was hereby confirmed.
(b) The Board noted the Health and Safety report.
POLB 15/99 ANY OTHER BUSINESS
(a) The CEO recognised that this Board meeting would be the last for
Neil McCausland, who was stepping down as SID and Interim
Chairman. The CEO thanked Neil McCausland for his significant
contribution to the Board and the Business over the last four
years.
ACTION: (b)
Company Secretary The CEO asked the Company Secretary to make the necessary
filing at Companies House.
POLB 15/100 DATE OF THE NEXT MEETING
(a) It was noted that the next meeting of the Board would be on 28
October 2015.
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