Present:
Apologies:
In attendance:
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EXECUTIVE COMMITTEE
AGENDA
For the meeting to be held on 19 August 2014 in Room 501
Chris Day (Chair), Mark Davies, Kevin Gilliland, Neil Hayward, Nick Kennett, Alwen Lyons,
Martin George, David Ryan, Gavin Lambert, Neil Wilkinson (deputising for Lesley), Piero
D'Agostino (deputising for Chris A),
Lesley Sewell, Paula Vennells, Chris Aujard, Martin Edwards
Jon Cooper, Bond Dickinson (agenda item 3), Simon Eldridge, Tom Moran, Belinda Crowe,
Harry Clarke, Aidan Alston, Nick Sambridge, Alison Thompson, Sarah Hall, Fay Healey
Start time: 09.15
End: 16.15
Time Item ExCo Sponsor/Presenter
09.15 - 10.00 P4 Performance update and outlook Chris Day/Nick Sambridge/
Sarah Hall
10.00 - 10.30 Team Talk Live - update and future plans Mark Davies
10.30 - 10.45 BREAK
10.45 - 11.30 Health and Safety Training with Jon Cooper, Bond Dickinson I Neil Hayward/Simon
Eldridge
11.30-12.15 Risk & Compliance committee update and explanation of how I Piero D'Agostino
we take PWC report and risk appetite forward
12.15 - 12.45 LUNCH
12.45 - 13.45 ER/IR Strategy and plans Neil Hayward/Tom Moran
13.45-14.45 P&E Strategy pre Board for Sept Neil Hayward with Fay
Healey
14.45 - 15.00 BREAK
15.00 - 15.15 Delegating authority for software licence purchases Piero D'Agostino
15.15 - 15.30 Finsbury Dials update Kevin Gilliland/Harry Clarke/
Aidan Alston
15.30 -15.45 Sparrow verbal update Belinda Crowe/Piero
D'Agostino
15.45 - 16.00 Actions Log Alwen Lyons
16.00 - 16.15 AOB Alwen Lyons
16:15 CLOSE All
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Strictly Confidential ®
POST OFFICE LIMITED
Performance Report
July 2014
Produced By : Financial Control
For Queries & Comments Contact : Sarah Hall or Kam Bassra
CONFIDENTIAL
Commercially Sensitive and not for onward circulation
This document contains commercially sensitive information that is likely to cause damage in the event of unauthorised disclos ure
It should not be copied or forwarded in its entirety unless for < fic business purpo: y to internal people who understand the consequences of
di to external people who h gneda sure agreement.
It is normally only circulated to the Senior Leadership Team and Finance Profe within the Post Office.
Period 4 Performance Pack - Chris Day 18th August 2014 Page 1 of 25
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Strictly Confidential ®
( Contents >)
Headlines 3
Profit & Loss Statement 4
CFO High Level Profit Outlook At Period 4 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
Appendices
Income Report
Net Income By Pillar vs Budget 16
Cost Report
Staff Cost By Function 18
Non Staff Cost by Function & Type 19
Transformation Expenditure Report
Project Costs (OpEx) 21
Project Costs (CapEx and Exceptionals) 22
Supplementary Information
Cashflow Statement & Balance Sheet Summary 24
q Income By Product Groups & Pillar 25
Period 4 Performance Pack - Chris Day 18th August 2014 Page 2 of 25
Headlines Strictly Confidential
July 2014
(Geadiines
Operating profit before exceptional items in the month was £8.7m which is £1.7m adverse to budget. Profit in the
year to date of £15.4m is £8.6m adverse to budget and £19.1m adverse to prior year (including an NSP reduction
of £13.8m).
Net income in P4 is adverse to budget by £3.0m in the month. This reflects the continuing shortfall in Mails (mainly
labels) of £2.3m although the performance in the month was £0.5m (1.5%) better than last year. Telecoms
continued its adverse trend in both revenue and cost of sales and the lack of reliable data continues to be a concern
which is in progress to be addressed. This month Government Services also fell behind budget by £1.5m partly due
to the budget including £0.8m for new revenue not yet delivered.
Year to date total net income is £7.2m behind budget and almost flat with last year.
Total expenditure (before project costs) in the month was £3.5m favourable to budget but includes £4.0m of VAT
recovery upside. This is the first stage of the recoveries reflecting the finalisation of the impact of the Post Office
leaving the RM VAT group and the conclusion of negotiations with HMRC. In addition to the ongoing impact of a
higher recovery rate, there will be further upside relating to the prior year and early part of this year. The £4.0m
was recognised in subpostmasters’ costs (£2.0m) and non staff costs (£2.0m).
Total expenditure (before project costs) in the year to date is £2.9m favourable to budget including the VAT upside
above so the underlying variance remains adverse. Subpostmasters’ costs are favourable by £9.0m including £2.0m
VAT recovered, further VAT and NI reductions and the impact of lower sales volumes. Staff costs are adverse by
£2.3m reflecting the savings tasks not being achieved in Supply Chain and Commercial. Non staff costs are adverse
by £3.8m driven by £2.9m of central savings task budget and the mails segregation penalty accrued £2.0m partly
offset by £2.0m VAT recovery. Project one off costs continue to overspend for Sparrow, the Journey to 2020
strategy work, and Business Transformation (spend is subject to review of accounting treatment).
The Commercial Committee supporting by the weekly trading meeting is focusing on actions to drive income. The
Business Transformation team is working with other business functions to identify and crystallise cost saving
opportunities as soon as possible. An update on these is on page 7. The CFO forecast remains unchanged and is on
page 5.
Cashflow
The YTD cashflow was an inflow of £9m which is £16m favourable to the budget of £7m outflow.
The favourable variance is driven by lower than planned expenditure on NT and CT programmes.
Crown Profit
Crown profit is adverse £2.3m driven by lower Mails income and higher property costs due to efficiencies taking
effect later in the year.
Non Financials
The queue time metric is adverse, driven largely by Crowns, but is a significant improvement on the prior year.
N
Period 4 Performance Pack - Chris Day 18th August 2014
Cumulative EBIT pre exceptionals
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£m
110 ——Actual «=== Budget
90
70
50
30
10
-10
YM @ © YD SO BW
CEE KEE EEE VK Ke
£m Total Net Income - Budget to Actual Bridge
3.0 1.7
Ree —
(8.0) (1.2) (2.8)
294.4
2014-15 Mails & Retail Financial Government Telecoms Other. 2014-15
YTD Net Services Services. YTD Net
Income Income
Budget ‘Actual
Year to Date
Financials Act Target Var
Total Net Income (excl NSP) £m (Bonus 20%) 294.4 I 3016
Operating profit £m (Bonus 25%) 15.4 24.0
Free cashflow £m 88 (7.0)
Crown Profit (Loss) £m (Bonus 12.5%) (9.8) (7.5)
Non Financials
Queue time % < 5 minutes - Top 1k branches 75.4% I 808%
NT Branches Transformed In Year (Bonus 12.5%) 722 560
Page 3 of 25
Profit & Loss Statement Strictly Confidential
July 2014
Current Month Prior Year Period Year to Date Prior Year YTD Full Year Prior Year
Em Actual Budget Variance Actual Variance Actual Budget Variance Actual Variance! Forest Budget Variance Outturn
JTOTAL GROSS INCOME 90.4 93.3 (2.9) 91.5, (1.2) 330.4 337.2 332.6 (2.2) 1,031.9 1,031.9
Cost of Sales (9.9) (28) (0.1) (98) (oa) I (360) 135.6) (334) 2.4 I (4068) (206.8)
[TOTAL NET INCOME 80.5 83.5 (3.0) 81.7 (1.3) 294.4 301.6 294.1 02 925.1 925.1
Staff Costs (22.7) (21.9) (0.8) (22.4) (0.4) (86.1) (83.9) (88.5) 24 (238.7) (238.7)
[Subpostmaster Costs (40.8) (45.9) 51 (44.4) 3.6 (154.0) (163.0) (155.6) 16 (491.0) (491.0) (447.6)
Non-Staff Costs (25.4) (24.3) (0.8) (24.0) (1.4) (98.9) (95.1) (85.6) (13.3) (273.5) (273.5) (264.8)
Depreciation (0.1) 0.0 (0.0) (0.0) (0.1) (0.2) (0.1) (0.0) (0.6) (0.6) (0.4)
[Total Expenditure (pre POOC) (92.4) 35 (90.8) 22 (339.2) (342.2) (329.9) (9.3) (1,003.8) (1,003.8) (966.6)
FRES - Share Of Operating Profits 5.0 O01 5.2 (0.0) 151 15.0 14.2 09 35.0 35.0 33.1
EBIT - BAU (EX) 0.5 3.9) 0.9 (29.8) (25.6) (4.2) (21.6) (8.4) 3.7) 37) 0.0 (66.9)
[One off Project costs (POOC) (1.4) (2.2) (1.0) (2.6) (10.2) (5.8) (13.1) 29 (17.3) (17.3) (26.0
EBIT - Post Project Costs 5.0) (16) CF (2.7) (40.0) (31.4) (8.6) Gay (5.3) (61.0) (61.0) 0.0 (92.9)
Network Payment. 15.4 0.0 19.2 (3.8) 55.4 55.4 69.2 (13.8) 160.0 160.0 200.0
EBIT pre exceptionals tems EUR (COS ETE) Ge) 45.4 2k (8.6) 36.5 9.4) I 99.0 99.0 0.0
Interest (0.1) 09 O12 07 24 (0.5) 11 13 (3.0) (3.0)
Impairment (21.6) 2.0 (12.6) (7.0) (45.8) (78.0) (24.0) (21.8) (205.2) (205.2)
IExceptionals & Redundancy & Severance Costs (16.9) 46 (7.3) (4.9) (70.7) (83.1) (29.4) (41.3) (216.1) (216.1)
Government Grant Utilisation 14.2 (2.7) 19.0 (7.5) 170.0 170.0 838 86.2 170.0 170.0
Profit/(Loss) On Asset Sale 0.0 0.0 0.0 0.0 00 0.0 25 (2.5) 0.0 0.0
Colleague Share/ Business Transformation Payments id 00 0.0 0.0 00 00 00 00 00 00
[Total Profit/(Loss) Before Tax (44.0) bes 13.5 (24.2) 71.3 32.4 38.9 68.5 28 (455.3) (455.3) 0.0
Period vs. Budget
Operating profit (EBIT) of £8.7m was £1.6m adverse to
budget.
BAU was £0.5m favourable:
‘+ Lower net income of £3.0m due primarily to lower Mails,
POCA and Telecoms income.
‘* Higher staff costs of £0.8min the month. This is mainly
due to the savings task not being achieved.
‘+ Higher non staff costs of £0.8m. driven primarily by
higher postage (Official Mail) costs of £1.6m, the centrally
held savings task £1.5m offset by VAT recovery of £2.0m.
Offset by:
+ Lower Subpostmaster costs of £5-Imdue primarily to
lower sales including product mix of £2.7m, A further
£2.0m relates to VAT recovery in the period.
One-off Project Costs variance of £2.2m adverse. £1.4m
relates to Business Transformation costs and £0.5m
relates to the Travel Insurance tender.
Below EBIT
The exceptionals favourable variance is mainly driven by
lower than budgeted subpostmaster compensation. CT
spend is slightly over budget
YTD vs. Budget
Operating profit (EBIT) of £15.4m was £8.6m adverse to budget.
BAU was £4.2m adverse:
‘+ Lower net income of £7.2m due primarily to the continued trend in Mails, specifically labels and
Lottery and Telecoms income, but also the adverse Government Services income, mainly POCA,
offset by favourable FS income, specifically banking, NS&I and MoneyGram
‘* Higher staff costs of £2.3m mainly due to the savings task not being achieved (1.1m from Supply
Chain and £0.7m from Commercial) and the Crown pay deal
‘* Higher non staff costs of £3.8m, driven primarily by the impact of the centrally held savings task of
£2.9m and £2.0m accrued for Mails Segregation Penalty payment, offset by £2.0m of VAT recovery.
Offset by:
+ Lower Subpostmaster costs of £9.0m due primarily to lower income and sales mix (4.4m), VAT
recovery (€3.2m) and other small variances including CTP budget opportunity
One-off Project Costs variance of £4.4m adverse. This is mainly due to unbudgeted costs: €1.5m
relates to unbudgeted Business Transformation costs to date (FYF c. £7m), £1.4m relates to
unbudgeted project Sparrow (FYF &c. £7m) and £0.8m relates to unbudgeted strategy consultancy
costs.
Below EBIT
The exceptionals budget includes £8m ATOS contract set up payment incurred in 2013-14 but
budgeted for 2014-15. The impairment favourable variance is mainly driven by lower than planned
NT, CT and IT Delivery costs. Although lower than budget, these are twice last year's spend.
Government grants have now been fully utilised.
YTD vs. Prior Year
Operating profit (EBIT) of £15.4m was £19-1m adverse to prior
year.
Like for like BAU adverse variance of £8.1m was mainly due to:
‘* Higher non staff costs of £13.3m due to increased IT costs (mainly
Horizon and ATOS), marketing spend moving from POOC and VAT
on RM costs
Offset by:
+ Higher net income of £0.2m. The variance versus prior year is
driven primarily by increased FS income, offset by lower
Government Services income, mainly POCA. Telecoms revenue is,
lower than last year but largely offset by lower cost of sales.
+ Lower Staff cost of £2.4m driven primarily by Crown savings.
‘* Lower Subpostmaster costs of £1.6mdriven by improved VAT
recovery.
Non like for like adverse variance of £11.0m was due to:
‘* Lower Network payment of £13.8m, offset by
+ Lower project costs of £2.9m.
Below EBIT
Included in grant utilisation this year is £77m of 2013-14
exceptional spend for which there was insufficient grant last year.
Period 4 Performance Pack - Chris Day
18th August 2014
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Trading on parcels business, assumes new business delivers budget (e.g. e-bay returns)
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
Volume upsides on tax discs and AEI £1.3m; one-off change control for EVL's £1.0m
Delayed launch. Still reliant on Cabinet Office committing to volumes
Digital passports delay, partially offset by paper passports volumes and price increase
Lower customer numbers, excess broadband usage; campaign costs, offset by price increase and one-off
settlement
Launch delayed and budget included ‘stretch’ volumes.
Proposition not being launched this year
Capped income of £6.6m under new contract
Trading upsides
Sales volumes £0.5m: additional commissions £2.5m
Investments £1.5m; Loans £1.0m; PSP £1.5m
One-off adjustment to uncashed PO's (24 months to 12 months)
Contingency reduced from £9m to £1m
New Commercial structure does not deliver budgeted savings task
£2m savings budgeted. IR delayed implementation of new ways of working
CFO High Level Profit Outlook At Period 4 Sry Consent
July 2014
£m Income JV Income Staff Agents Non-staff POOC Costs NSP EBIT
Costs Costs
[Budget 925 35 (239) asa) 27a) a7) (024) 60 99)
Mails and Retail
Mails (14.0) 88 88 (5.2)
Lottery and retail (4.0) 25 25 (1.5)
Mails segregation penalty (3.0) (3.0) (3.0)
Government Services
POCA (0.5) 0.0 (0.5)
DVLA 23 (0.4) (0.4) 19
IDA (1.0) 05 05 (0.5)
Passports (2.2) 09 05 14 (0.8)
Telecoms
Homephone (1.8) 03 09 12 (0.6)
Mobile (1.0) 05 05 (0.5)
Energy (3.0) 15 15 (1.5)
Financial Services
Premium Bonds 35 (1.4) (1.4) 21
Banking and Payments 32 (2.1) (2.4) 15
Life Insurance. (3.0) 0.0 (3.0)
New product launches/trading (4.0) 20 20 (2.0)
Uncashed Postal Orders 23 0.0 23
Central
Income contingency 8.0 0.0 8.0
Staff Costs
Commercial staff costs (2.5) (1.5) (1.5)
‘Supply Chain staff costs (2.0) (2.0) (2.0)
Eno ee oo 6s)_]
[Trading forecast at P4 ik! 35 (478) (276) (47) (4,033) 160 2)
The Net income forecast of £910m includes a number of major planned initiatives in Mails which are still to deliver. These include, but are not limited to:-
© The roll out of sales effectiveness coaching to 4,000 agency branches by November (FY incremental sales of £6.3m). Indicative results from the initial branches show an 8 sales uplift in the branches which have received the coaching ta date. Results will continue
to be monitored on a weekly basis to assess if this benefit can be sustained and applied nationally, and we are assessing plans to accelerate the roll out subject to continued delivery of the performance metrics.
‘+ e-bay returns launched this week, Estimated in year benefit of £7.5m based on Post Office gaining a 50% share of the e-bay returns market, The launch is being supported by a targeted marketing campaign to e-bay customers, with potential upside opportunity
if we can achieve greater than 50% market share.
‘+The current discount on medium parcels for Drop & Go customers has been extended to mid-September. Analysis to date has shown a significant uplift in Drop & Go sign ups, but further analysis is required to assess the contribution and cross-sell impacts.
‘© Launch of Online Mails for Drop & Go customers from 15% September. Incremental benefit of £4m,
The Mails team are reviewing opportunities to close the remaining £14m gap back to budget which currently remains a risk to the full year forecast.
Financial Services are tracking £3m ahead of budget YTD. We anticipate the performance to track closer to budget going forwards but the Financia Services team have plans in place to deliver a minimum of £297m net income,
Telecoms represents a heightened and material risk to the FY income forecast. The £910m outlook assumes that the Telecoms pillar falls short of income by £6m (lower Homephone customer acquisitions, delayed launch of Mobile, and removal of the Energy
proposition). The current trend indicates that this could be at risk by a further €5m. Activity to mitigate this risk includes focus on retention, and deployment of Telecoms specialists in agency branches.
Whilst the business is stil fully focused on delivering the £925m Net Income budget, plans are being worked through to identify and crystallise further cost saving opportunities to deliver the budgeted EBIT if the income gap cannot be closed and these are shown on.
page 7. The CFO outlook remains unchanged until these savings are fully confirmed and validated, but it is anticipated that they will close the EBIT back towards the budget number of £99m,
Period 4 Performance Pack - Chris Day
‘1bth August 2014
Page 5 of 25
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Crown Profit & Loss Statement Strictly Confidential °
July 2014
Period Prior Year Period YTD Prior Year YTD Full Year Prior Year
lem Actual Budget Variance I Actual ~—Variance I Actual Budget Variance I Actual Variance I Q1 Forecast © Budget Variance I Outturn
Income and Distributions
Variable income
~ Mails 32 37 (0.4) 35 (03) I a9 127 (09) I 129 (1.0) 39.2 39.2 00 39.6
- Financial Services 36 37 (04) 34 05 13000 115 (0.2) I 102 32.0 32.0 0.0 28.2
~ Government Services 17 17 (0.0) 19 (0.2) 77 69 08 81 184 18.1 0.0 21.9
~ Telecoms O41 02 (0.4) 4 0.0 03 06 (0.2) I 03 13 13 0.0 08
Fixed income 2.0 21 (0.0) 23 (03) 74 76 (02) I 385 21.9 219 0.0 25.2
Gamma/ Other 05 05 00 10 (0.5) 18 24 (03) I 33 93 93 0.0 128
Renewals and Retentions 16 17 (0.1) 16 (0.0) 58 59 (oa) I 69 175 175 0.0 16.9
Total Income including Gamma/other 128 13.4 (0.7) 13.6 (0.8) I 464 473 (2.2) [50.2 139.5 139.5 0.0 145.4
Branch costs
- Staff (8.7) (9.3) 05 (8.7) (04) I (46) 44) (0.2): I 7.4) 28 (90.0) (90.0) 0.0 (106.9)
~ Property (3.6) (3.0) (0.5) (3.3) (0.2) I (@15) (09) (05) I (22) 07 (30.1) (30.1) 0.0 (34.4)
= Other branch costs (0.4) (0.2) (01) (0.4) (0.0) (0.7) (0.9) 02 (2.2) 05 (2.4) (2.4) 0.0 (4.3)
Infrastructure costs (24) (2.0) (0.4) (2.0) (0.4) (8.0) (7.8) (0.2) I (7.2) (08) (20.6) (20.6) 0.0 (21.9)
Allocated central costs (1.4) (1.6) 0.2 (1.1) (0.3) (5.3) (4.9) (0.4) (5.5) 0.2 (14.2) (14.2) 0.0 (14.0)
Total Expenditure (46.2) (46.1) (0.4) (45.4) (0.8) I (60.0) (58.8) (1.2) I (63.5) 35 (457.3) (457.3) 0.0 (180.6)
JV Share of Profits 14 14 0.0 15 (0.4) 4 41 0.0 44 (0.1) 9.0 9.0 0.0 96
[Statutory PBIT (2.0) (1.3) (0.7) (0.3) (TEN ECA eta ee re ce (0.6) (8.9) (8.9) 0.0 (25.7)
(Summary
Income:
Income is £1.2m less than plan.
Variable sales income is £0.5m less than plan principally due to (i) Mails - Lower parcel volumes and Retail sales, (ii) 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, (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 target being held centraly.
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 incame in variable sales) is the other key driver.
Costs:
Costs are £1.2m higher than plan.
Staff costs £0.2m adverse primarily due to the impact of the pay review settlement where associated efficiencies will be acheved in future months. This is partially offset through savings from vacancies, mainly
Financial and Mortgage Specialists.
Property costs £0.6m adverse due to the delayed savings for the new Facilities Management contract, now due to commence from October 2014,
Central Costs are £0.4m adverse due to business wide efficiency savings still to be delivered
Period 4 Performance Pack - Chris Day 18th August 2014 Page 6 of 25
Cost Management update
July 2014
Progress since P3 update
Value and confidence
Following the transfer of delivery and governance into the Business Transformation
Programme (BTP) a review of current cost reduction activity and an assessment of new
opportunities has concluded that a gap of c. £26.9m is emerging between the in-year delivery
of "line of sight” initiatives and the total cost reduction challenge,
Original Cost Management Programme £34,2m
‘Additional Cost Challenge to achieve budget £ 6.0m
Central Stretch to achieve budget £ 5.9m
Total Budget Cost Challenge £46.1m
Additional Challenge from Q1 EBITDAS gap £ 7.0m
Total Current Cost Challenge £53.1m
Current “Line of Sight" forecast £26.2m
Gap to £53.1m £26.9m
Delivery and governance
Governance of FY14/15 cost reduction initiatives has now been brought into the overall
Business Transformation programme and work is underway with the various initiative owners
to address the shortfalls versus budget and identify new opportunities.
‘A Cost Reduction Group (CRG) comprising a sub-set of ExCo members has been convened to
address the emerging gap in cost reduction activity. Further initiatives of £12.8m have been
identified and are being investigated further.
Strategic initiatives for FY15/16 and beyond
‘The Business Transformation current state assessment is now complete as planned. The
Programme has now moved into Stage 2, designing the target operating model (TOM)
Work is ongoing to:
1) Identify a portfolio of incremental cost saving opportunities to achieve the £53.1m in-year
improvement target placing all the cost saving initiatives under the scrutiny of the programme
to ensure the expected improvernent has the requisite effect on the 2014/15 EBITDAS
outturn.
2) Design the target operating model that will ensure the cost efficiency targets for the
programme (to 2019/20) are realised:
Period 4 Performance Pack - Chris Day
‘Strictly Confidential
Graph Showing Current Status of Project
Delivery Assessment
suaget
I Current Position (Week 18) ae
aoe I Delivered 3.1m Saving”
I Budget £13.3m Saving
I Variance: £10.2m
PSL I OSI SSS PP ewe PP PPS PEL LSS PE SP SS SP PSPS PSPS
PEE EEPPPPPEEEEEE PEPE EES ESE SEE EEEE EEE EEEEESE ES
‘Summary by Stage of Governance
"Saving assessed as “delivered from dlscusion with delvery leads and Finance team to obtain inal atifiation
Number £000
Risk Levels This Weel Last Week
level (Hopperideas)] 6 70 ‘oars increase in value week on week's rgely due to the identfiation of £12.8m
(6st tems) of new tates folowing o round of further costchollenge
lever 2 4 £103 1203 I Jocrossolfunctionalareos.
Level 3 2 4 £490 £615 IWeekly focus is on moving ideas through the levels as quickly as possible in
Lewia 7 5 Tox Taree I frderto tur ieas into devery of tangle benef
levers 2 2 4508 4508
[Fors [30 [99 I e262 [£58587 I [Tototnctudes evel nork adjusted
steels a tels
tele weve
steel steels
= evel? Level2
"Levelt (Hopper Ideas)
Number Number
18th August 2014
s Level (Hopper ideas)
£00
ast Week
Page 7 of 25,
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. Strictly Confidential ®
Cashflow Analysis ¥
July 2014
(Cashflow
—m YTD Cashflow
9 The £330m of government grant was received on ‘st April which is the last payment of the 2010
funding agreement with BIS.
P4 cash inflow of £9m is £16m favourable to budget of £7m outflow.
The favourable variance is mainly due to:
Capital and exceptionals continue to be favourable (capital £32m and exceptionals £28m) due to
timing of NT, CT and IT spend
* Client balances are £24m favourable driven by higher NS&I sales due to premium bond personal
(40)
160
(a18) Ea
4s) I
(1) (321) limits rising from £30k to £40k.
EBITDAS Cet & Network Working Captal Captal_——Redundangy, Cashfow fore Network Govt Funding Free cashflow
Con incre ewperstue provionsand Subidy Pament ‘* Working capital was £26m favourable due primarily to Fujitsu Telecoms costs being paid later
pensions ther xcenont than expected
£m YTD Cashflow Variances Offset by:
a * Network Cash was £85m (11%) adverse mainly due to branch ATM holdings, cash centres
a) a processing amounts on hand, and also cheques due to HMRC settling. This is currently under
review to bring back closer to budget.
24
8 os \¢ Operating profit is 9m adverse to budget. Dy,
Ea YTD Full Year
(25) £m Actual Budget Variance I Budget
TO Bidse Operating ptt NeworkCash Working Capalne Cent bes CagExand YTD Atal
—e. Bees man EBT O00) Gia) 64 (Gi)
Working Capital (63.7) (68.1) 24.3 27.0
Client Balances 373 13.0 24.3 170
Network Cash (154.8) (69.6) (85.2) (57.6)
Network Cash Capital Expenditure (46.0) (78.0) 32.0 (205.2)
£m Mar-14 P3 Government funding 330.0 330.0 ) 330.0
Prior Year I Opening I Actual I Budget var___I IExceptional Items (713) (98.9) 27.6 (240.3)
Retail, Cash Centres 626 522 608 533 (75) _I [Other (including interest and tax) (3.0) (41) 14 (9.9)
Bureau 95 58 88 89 1 Free cashflow before interest, tax 85 (7.0) 155 (200.0)
Cheques, debit cards 121 129 167 156 aa)
Network Cash
Headroom (£m) 854 1,026
Period 4 Performance Pack - Chris Day 18th August 2014 Page 8 of 25
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Business Scorecard Strictly Confidential ®
July 2014
Key Performance Indicators Current Month YTD Prior Full Year 2013-14
id Act Target Var_I Act ‘Target Var_I Year I Forecast ‘Target —‘Var_I Outturn
Growth
Total Net Income (excl NSP) £m (Bonus 20%) 80.5 83.5 294.4 301.6 294.1 925.4 925.1 866.7
Operating profit £m (Bonus 25%) 87 10.4 15.4 24.0 34.5 99.0 99.0 107.1
Earnings before ITDA and Subsidy £m* (6.6) (5.0) (39.9) (31.2) (34.6) (60.4) (60.4) (92.5)
Free cashflow £m (167.8) _(88.2) 88 (7.0) 279.9 (200.0) (200.0) 179.7
(Customer
Customer Satisfaction** 88.2% 89.0% 87.8% 89.0% 88.0% 89.0% 89.0% 87%
Easy to do business with (Bonus 15%)** 27% 47% 28% 47% 45.4% 47% 47% 41%
Net Promoter score** (a) 2 @ 2 0 2 2 (4)
Queue time % < 5 minutes - Top 1k branches 75.6% 86.0% 75.4% 80.8% 81.8% 81.2% 81.2% 82.1%
Branch Compliance - Financial Services - basket of 11 measures 80 <=60 88 <=60 N/A <=60 <=60 N/A
Branch Compliance - Inland Dangerous Goods **** * 69.0% 80.0% 69.0% 80.0% TBC 80.0% 80.0% TBC
Branch Compliance - International Dangerous Goods **** * 93.0% 85.0% 93.0% 85.0% TBC 85.0% 85.0% TBC
People
Engagement Index % (Once a year April) (Bonus 15%)** 57% 58% 57% 58% 55% 58% 58% 57%
Subpostmaster Engagement Index % (Once a year)** 45% 48% 45% 48% N/A 48% 48% 45%
Post Office Values the diversity of the workforce (Once a year April)** 52% 66% 52h 66% N/A 66% 66% 52k
(No.) ‘% of BME appointments over total recruits at senior leadership and % % 10% 1% 105% % 1% 1%
senior manager
(No.) % of Female appointments over total recruits at senior leadership and 60% 45% 49% 45% 553% 45% ast 46%
senior manager
Modernisation
Crown Profit (Loss) £m (2.0) (1.3) (9.8) (7.5) (9.1) (8.9) (8.9) (25.7)
Crown Profit (Loss) Run Rate £m (Bonus 12.5%)* N/A N/A N/A (15.4) (14.4) N/A 0.0 0.0 N/A
INT Transformations - contract signatures *** 184 121 3,823 3,556 1,685 4,800 4,800 3,246
INT Branches Transformed In Year (Bonus 12.5%) 219 134 722 560 221 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’
Period 4 Performance Pack - Chris Day
18th August 2014
Page 9 of 25
Strictly Confidential
Metrics To Focus On
July 2014
(qe neve to focus on (YTD below target) include: >
Net Income: (Martin/ Kevin) (Bonus)
Net income is £7.2m adverse and is driven primarily by Mails, Telecoms and POCA income. The Mails variance was driven by labe ls, Special Delivery. Dangerous Good and lottery. This is partially offset by Financial
Services being favourable.
Operating Profit: (All) (Bonus)
Operating Profit is £8.6m adverse and is driven by the savings task not being achieved, lower income and project costs.
Customer Satisfaction: (Martin) P2 number therefore P2 commentary
This remains adverse to target with the period actual showing a small downward trend, but the YTD continues to improve as th e even lower scores from 12 months ago fall out of the scoring. This is also affected by the
Easy To Do Business With score.
Easy To Do Business With: (Martin) (Bonus)
The reasons for the effort score declining by 3p.p. to 27% (our lowest recorded) are that perceptions of hard work have worse ned. Visitors to Crown branches are more likely to think we are hard work. Customer service
and queues are driving the decline. Analysis of the drivers show a drop in performance on key customer service measures: Staf f provide a warm welcome and staff are genuinely interested. Fewer people in Pé think that
‘our customer service is more efficient than other organisations and this is in tandem with a drop in the drivers relating to waiting time.
Net Promoter Score: (Martin)
The increase in NPS reported in P3 has not been sustained. The P3 score may have been as a result of the positive comms surro unding Post Office’s check and send product during the passport crisis at a time when we
‘saw in spike in check and send sales.
Queue time % < 5 minutes - Top 1k branches: (Kevin)
% queued under 5 mins improved marginally in July up O.8pp to 75.6%, the improvement overall driven by queue times in agency and WHSmith branches, whilst the average queue time in Crown branches dropped.
Queue times have been increasing over the last 12 months. 75.6% queued for less than 5 minutes in July 2014 vs 87.1% in July 2013.
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
Branch Compliance - Mails: (Martin/ Kevin)
The targets shown are the full year exit rates. Inland (exit target 80%) has dropped from 74% to 69%, whilst International (e xit target 85%) has increased from 73% to 93%,
Measured annually with some additional ‘Pulse surveys:
+ Engagement Index: (Neil) (Bonus)
The Engagement Index target is 1% greater than prior year outturn of 57%.
+ 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 y ear driven by the expected impact of the Branch Support Programme.
+ 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.
Appointments: (Neil)
41 appointments YTD (5 April, 7 May, 14 June, 15 July), 20 female appointments YTD - 48.8% (2 April, 2 May, 7 June, 9 July), 4 BME appointments YTD - 9.8% (3 June, 1 July)
Crown Profit: (Kevin) (Bonus) P&
The Crown loss is primarily driven by the lower Mails income and higher property costs due to efficiencies taking effect late r in the year.
Crown Profit Run Rate: (Kevin) (Bonus)
The Crown profit Run Rate is a key metric for year end and is updated quarterly.
NN wy
Period 4 Performance Pack - Chris Day 18th August 2014
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Network Transformation Scorecard - Mains
Strictly Confidential
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July 2014 Reporting prior months data (i.e. one month in arrears)
Ave £'s per
Current Month % W
branch
Mains
Control oo
Key Performance Indicators ‘Actual Var Sample _ II Branches that have been converted to a Mains model
Group 2 for more than 6 months have consistently out-
Size 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
renewed focus on sales targeting and performance at
Total Income: Post vs Pre Conversion the point of conversion. This is having a significant
Branches live 6-12 months 7% 1% 5% 442 464 impact on focus income for many branches.
POL Branches live 12-24 months 10% 4a 6% 544 337 The following products are performing particularly
Focus Income: Post vs Pre Conversion well:
Branches live 6-12 months 8h (0)% 8% 186 464 Travel insurance
Branches live 12-24 months 1% 12h 7% 195 337 Passport check and send
ash withdrawals
Agents Remuneration: Post vs Pre Conversion Growth bonds
Branches live 6-12 months 3% (2% 5% 299 464 surance products
Branches live 12-24 months 9% 0% % 553 337 In addition, these agents have increased their POL
fae Customer Sessions earnings due te the improved sales and enhanced
? ins pay r
" Branches live 6-12 months 2% (2)% 5% 464 ains Pay rates
Branches live 12-24 months 2% (2)% 4h 337 Note: the control group is based on those branches of
(Operator Feedback on Retail Sales Performance 8% 150 similar size that have not yet converted:
Operator Satisfaction 81% 104
Actual
Actual Target Var Sample
Size
Average Increase in Opening Hours 41% 20% 21% 1,313
Customer ICustomer Satisfaction 98% 90% 8% 30
Queuing Times dm 28s_<5 mins 3m 32s 204
Customer
Customer Satisfaction, extended opening hours and queue times all remain positive.
Period 4 Performance Pack - Chris Day
18th August 2014
Page 11 of 25
Network Transformation Scorecard - Locals Strictly Confidential
July 2014 Reporting prior months data (.e. one month in arrears)
Ave £'s
Current Month % per
branch
Actual
Control
Key Performance Indicators Actual Var I Var I Sample I (Loca >)
coe Size
TOCALS This month's performance has seen a slight reduction
when compared with the previous month. A one off
Finance Approved Investment per Local £000 (neo 0 impact of neveased passport applications in contrl
Total Net Impact: Post vs Pre Conversion branches has contributed to this . However early
Branches live 6-12 months analysis of August performance indicate that this is a
Income (6)% (5% (4)% (21) 123 temporary drop.
POL Actual Fixed pay savings 795 On site branches converted in the last 12 months have
Actual Net impact 7714 seen a decline at point of conversion but have improved
Branches live 12-24 months ‘each month and are tracking towards recovering their
pinta 65)% Qk (ie (72) 472 pre conversion position at around the 12 month point.
Actual Fixed pay savings 922 However offsite branches fave a sharper drop at point
of conversion so take longer to recover.
Actual Net impact 850 i
The positive for the agents is that customer
Customer Sessions sessions/footfal is greater and this should support their
Branches live 6-12 months 10% (2% 12% 123 retail growth,
_ 4
Agent Branches live 12-24 months 10% (Ove 10% 172 Note: the control group is based on those branches of similar
(Operator Feedback on Retail Sales Performance 15% 50 size that have not yet converted less 5% to reflect lost
Operator Satisfaction 80% 54 products.
Actual
Actual Target Var Sample
Size
[Average Increase in Opening Hours 108% 80% 28% 859
Customer {Customer Satisfaction 96% 90% 6% 30
Queuing Times S4s_<5 mins 4m 65 165
OL
complicated products,
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 on more
Further analysis has shown that Onsite branches are performing better against products such as ATMs and Lottery when compared with Offsite branches. On average Lottery income has reduced by c. £60k pa for
branches converted between 6 & 12 months whilst ATM income has reduced by c, £30k p. a for branches converted over 6 months, Corrective action on how we minimise future risk is now being looked at
Agent
Fixed pay has been reduced to zero for all converted branches, in line with the strategic plan.
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 theirstaff in different ways or reduce their staff costs.
Customer
+ Customer Satisfaction, extended opening hours and queue times all remain positive,
Period 4 Performance Pack - Chris Day
18th August 2014
Page 12 of 25
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Transformation Overview
July 2014
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Strictly Confidential e
+ RAG, cost and benefits based on full programme life
+ RAG in brackets indicates programmes view
Programme Time Cost
Network
Transformation
Crown
Transformation
Branch
‘Support
Separation
IT
Transformation
IT Enablers
Business
Transformation
Network
Development
Benefit
N/A
(G)
N/A
(G)
Quality
Comment / Areas for Discussion
Guided Leavers pilot of 50 branches starts 22"¢ July. This is an important step to test stakeholder reaction to the process as it may be
deployed more widely. Office of Government Commerce ‘as is’ assessment complete, informing 100 day plan to improve programme
capability. Business case on track for completion by the end of July including model profitability as a KPI. Programme currently
investigating risk to cost budget due to lack of contingency funding for risks materialising
P&L run rate £1M adverse at end of Q1 (due to income and business wide cost savings behind plan). Therefore an over achievement
in last 3 quarters is needed to achieve target. Focused income call to action required at CTP Steering Group, Trading Board and the
Commercial Committee to address income shortfall. Customer satisfaction (queue times and transformed branches) both behind at Q1,
driven by a small number of branches where there has been a material reduction in customer satisfaction, action plan in place to
address causes. 19 of the 70 Franchise branches are at risk with the programme investigating options for alternative ways to franchise
or find further savings to cover the shortfall
Horice (improved management information at branch level) implementation delayed to August , programme establishing the impact on
benefits. Decision to continue with programme, rather than pause or integrate into Business Transformation taken to allow early
savings to be realised and improve efficiency of existing operation. This will create a more stable platform for any TOM changes to be
made. Close alignment with Business Transformation programme on IT and training initiatives. If Microsoft Dynamics doesn't meet the
programme's case management requirements, there will be a significant risk to time and benefits.
As the MSA expires at the end of September 2014, work has begun to revise and extend the agreement, with both
organisations engaged in this process. Principles agreed with Business Transformation programme to ensure implementations of
new services under Separation aligns with emerging Target Operating Model. The licensing risk and financial exposure has reduced
as agreement reached with Microsoft. Detailed plans in place to separate the remaining IT services, though these are complex and
come with risks.
Discussions commenced to ensure alignment with Business Transformation, specific focus being given to the Front Office tower.
Review of business case complete, benefits and 2014-15 cost profile remain on track, though there is a risk to the programme costs
beyond 2014/15. A more comprehensive update will be provided to the Finance Committee.
There is a risk that the Branch Of The Future requirements that are being developed by the Commercial area are not met by the EUC
tender, any additional requirements would need to be included via Change Request if they are outside the scope of the tender. Risk
that Belfast Refresh may need to be delayed to enable business critical change to be undertaken which will result in additional IT
costs, and service disruption. There is a risk that there is insufficient time to transition to the new Point of Service solution before the
Transitional Support Services ends, therefore should the risk materialise the Transitional Support Services may need to be extended
and this would have an adverse impact on the IT Transformation costs/benefits. On 18th July all bidders were sent ISPS documents
due back in August which includes a requirement for all bidders to propose how they can mitigate this risk. The 2014-15/16 cost
profile for the portfolio is being reviewed, to ensure alignment with IT Transformation and to address challenges from Business
Transformation.
An assessment of 2014/15 change plan has been completed with recommendations made to ExCo. Anticipated programme cost for
2014/15 will far exceed planned £800K opex, this will create a opex shortfall if spend cannot be classed at exceptional. Significant
activity across the business is needed to deliver Operational Efficiency savings of £53M during 2014/15
Programme’s priority is establishing a team and creating a business case for early activities.
Period 4 Performance Pack - Chris Day
18th August 2014 Page 13 of 25
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Appendices
Period 4 Performance Pack - Chris Day 18th August 2014 Page 14 of 25
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Strictly Confidential ®
Income Report
Period 4 Performance Pack - Chris Day 18th August 2014 Page 15 of 25
Net Income By Pillar vs Budget
Strictly Confidential
July 2014
Period Prior Year Period yro Prior Year Full Year Prior Vear
Not Income (Em) Actual Budget Variance I Actual Variance I Actual Budget Variance I Actual — Variance [01 Forecast Budget Variance I Qutturn Variance
Mails & Retail 35.1 372 (2.4) 339 12 127.0 135.0 (8.0) 1265 05 4264 A241 0.0 386.0 38.1
Financial Services 275 272 03 281 (0.7) 99.4 96.4 3.0 954 40 295.2 295.2 0.0 278.6 166
IGovernment Services 93 108 (1.5) 107 (1.4) 38.3 39.5 (1.2) 41a (3.4) 116.6 116.6 00 116.1 Os
Telecoms 48 57 (0.9) 5.0 (0.2) 75 203 (2.8) 18.0 (0.4) 619 61.9 0.0 46.0 159
lOther 38 2.6 11 40 (0.2) 12.1 10.4 17 128 (0.7) 27.3 27.3 (0.0) 40.1 (12.8)
TOTAL NET INCOME
IFRES - Share Of Operating Profits 51 5.0 O14 5.2 (0.0) 151 15.0 O41 142 09 35.0 35.0 33.1 19
Malls & Retall Services Services Pilar Performance vs YTO Budget
cm os Mails & Retail Services ~ (£8 0m) Adv
o7 Labels -(€3.6m) adv driven primariy by lower parcel
Ca ner £m 1.3 12 or — volumes,
7 — mo 0.4 Other Mails - (€2.0m) adv driven by Home Shopping
en on a) oy fe oo es) Return, histl nd Dangerous Googe
> o Spec Detury = (€1 Onl a duet ower volumes
~ PFW - (£0.7m) adv due primarily to lower PF 24 & 48
and Internationa volumes
C8 en Lottery -(€1.2m) adv ~ due to lower Camelot
‘ Euromilions valumes.
International - (€0.7m) adv ~ du to lower volumes
Offset by.
Stamps ~£0.7m fav due to lower than anticipated
volume decnes
Financial Services ~ £3.0m Fav
Banking Services - €1.3m fav due to higher than
budgeted volumes
Zie16 YD Sangh oranda oy Rad Laty Otero" Lae NES YTD SBI -£1.2m fav due to income from the new contract
Busse ” niche) Melee” II aor4ss vTO Banking NSGLand Other MoneyGam ATMs Travel Sewies insurance 201415 vO II and impact ofthe new limit
aticone Serene ‘Netincome” I I MoneyGram - £0.7m fav due to higher MoneyGram
Budget faust II Mine
[ATMs ~ £0.5m fv.
Payment Services and Bill Payment ~ on budget
i Offset by.
Government Services Telecoms Travel Services - (£0.1m) adv
Insurance (£0.5m) adv due to lower sales.
em Government Services -(£1.2m) Adv
em 02 o4 POCA- (E1.2m) adv reflecting the lower LIBOR rate.
[esc ie Gov, Services Other - (€0.3m) adv driven by lower than
(0.0) 03) [nanan Rey planned volumes of Rod & Game licences
° (1.2) 20.3 (1.0) Offset by
(18) Motoring ~ £0.2m fav due to higher than planned
i 175 volumes.
Passport Check & Sen - Fat with target.
Telecoms (€2.8m) Adv
Homephone - (1.8m) adv mainly driven by lower
customer numbers and higher cost of sales relating to
customer broadband usage and higher BT wholesale
costs
Energy -(€1.0m) ady relates to the budget atipating
sales fom PO Energy
Other - £1.7m Fav income contingency (FY £9.4m).
BONIS YTDNet —Motoing——IDServees"Checkand Send” OherGot”—«POCA—«2014-18 YTD Net —. — ——- ——— FRES Profit hare - £0.4m Fav
come Budget Imoome Actual Boose broadband Comers fata
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‘18th August 2014
Page 16 of 25
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Strictly Confidential ®
Cost Report
Period 4 Performance Pack - Chris Day 18th August 2014 Page 17 of 25
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Staff Cost By Function Strictly Confidential ®
July 2014
Em yto Prior Year Full Year YTD Headcount Total nT & CTP
Heads
Staff Cost by Function Actual Budget Variance I Outturn Variance Fonast Budget Variance % I Actual Budget Variance Memorandum
[Central (incl. MD's office) 2) 2) 00 68) 16 (25) (425) 00 OF 14 FG T
Commercial (2.9) (2.3) (0.7) (2.6) (03) (68) (6.8) 0.0 2% I 126 127 1
People & Engagement. (2.9) (2.7) (0.1) (2.7) (0.1) (8.2) (8.2) 0.0 38 192 174 (18) 35
HR - Centrally Held Bonus Payments (5.0) (5.4) 01 (3.6) (1.4) (15.3) (15.3) 0.0 - - - -
Finance (inc Change Management) (5.0) (4.8) (0.2) (5.8) 08 (1443) (44.3) 00 4y I 312 311 @ 9
IT& Managed Services (2.0) (2.3) 03 (2.8) 07 (7.2) (7.2) 0.0 1% 98 110 12 3
Financial Services (17) (1.7) 04 (1.7) 0.0 (63) (6.3) 0.0 ae I 112 % (16)
Network (60.9) (59.1) (1.8) (61.7) 08 (162.9) (162.9) 0.0 87% I 6,506 6,588 82
‘Supply Chain (19.6) (18.5) (1.4) (19.3) (0.3) (53.5) (53.5) 0.0 21% I 1,554 1.565 a8
Crowns (33.5) (34.4) 09 (36.2) 27 (96.0) (96.0) 0.0 51% I 3,767 3,708 (59)
Other Network (7.3) (6.8) (0.5) (6.2) (4.4) (20,3) (20.3) 0.0 7% 534 602 68
Programme costs 0.0 0.6 (0.6) (0.1) 04 69 69 0.0 © i = A
ICTP and NTP Heads (Costs in exceptionals) % 651 713 62 602
[Corporate Services (1.6) (1.7) 02 (1.8) 0.2 (5.2) (5.2) 0.0 1% 77 88 11 2
‘otal Staff Costs (86.4) (83.9) (2.3) _I (88.5) 24 (238.7) (238.7) 0.0 100% I 7.437 7,509. sT2 ow
PY Actual 7,956
PY Variance 519
Staff Cost hy, EHOHORnange
Management)
People & Engagement.
incl Bonus
9%
‘Commercial
3%
Central (incl. MD's
office)
YTD Staff Costs are £2.3m adverse.
Higher staff costs of £2.3m mainly due to the savings task not being achieved (€4.1m from
Supply Chain and £0.7m from Commercial) and the Crown pay deal.
Vs. Prior Year
‘The staff costs are £2.4m favourable to prior year driven by lower Crown costs, IT Outsourcing
and lower bonus payments this year.
Headcount of 7,437 is 72 favourable to budget.
Finance, IT & Managed services should be viewed as one area due to new structure.
Financial Services includes 39 heads management structure for FS and MS.
Vs. prior year headcount has decreased by 519 primarily due to the Crown efficiency savings.
Period 4 Performance Pack - Chris Day
18th August 2014
Page 18 of 25
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Non Staff Cost by Function & Type Strictly Confidential °
July 2014
em YTD Prior Year Full Year em YTD Prior Year Full Year
i cr i ‘ i ‘
INon- Staff Cost by Function Actual Budget Variance I Outturn Variance] - 7,6, Budget Variance] INon- Staff Cost by Type ‘Actual Budget VarianceI Outturn VarianceIQ1 Forecast Budget Variance
Computers & Telephones (30.3) (30.4) 02 (25.0) (5.3) (87.4)
Central - Centrally Held ae Pe 76 00 Other Operating Costs (208) (146) (6.2) I (382) 175 I (45.0)
ICommerciat (38) 94 = 3) I 6a) 7 I B07 307) 0D Consultancy, Marketing & Legal Fees Goo) (458) 18 I 6) 4) I 478)
* Skills Group external contractors (27) (4.4) 17 (4.4) 18 (12.9)
[Finance (inc Change Management) (3.2) (0.9) (5.5) 14 (10.1) (10.1) 00 Remainder (41.3) (41.3) 0.0 (5.2) (61) (34.9)
‘IT& Managed Services (42.8) (1.4) (30.1) (14.0) I (125.9) (125.9) 0.0 Finance (43) (7.2) 29 (6.4) 21 (16.0)
Financial Services: (2.3) (0.3) (2.4) (0.2) (6.8) (6.8) 00 Property Facilities (19.2) (19.2) (0.0) (2.4) (16.8) (54.0)
People & Engagement (4a) (0.0) (28) (3) I G06) (206) 00 Property Maintenance Ba) 26) 04) I (22) 09) 72)
Network (33.4) 18 (33.4) 24 (92.9) (92.9) 0.0 Vehicles (2.4) (2.6) 05 (0.7) (1.4) (7.7)
‘Supply Chain (9.7) (41.2) a5. (9.6) (0.1) (32.5) (32.5) 0.0 Compensation: (2.2) (0.6) (1.6) (0.3) (1.9) (1.6)
‘Crowns: (0.9) (1.4) 02 (3.2) 23 (2.4) G2) 08 Collection. Delivery & Conveyance Charges (0.1) (0.1) 0.0 (0.1) (0.0) (0.4)
Other Network (20.7) (20.6) (0.0) (205) (0.1) (59.7) (58.9) (0.8) Staff & Agent Related Costs & Consumables (2.8) (1.9) (0.9) (07) (2.1) (6.3)
[Programme costs 00 (0.2) 02 0.0 0.0 16 16 (0.0) * Skills Group off-charges to projects: 33 4a (0.8) 52 (2.8) 0.0
Corporate Services aa) a4) 03 I 13) 02 I ua) = 1) Remainder (62) 0) 1) I 9) 02) I 63) 8) 55)
[Total Non Staff Costs including Interbusiness (95.4) (3.8) “T (85.6) (43.3) I (273.5) (273.5) (0.0) _} [Total Non Staff Costs (98.9) (95.4) (3.8) [ (95.6) (43.3) (273.5) (273.4) 0.0 I
Non Staff by Function
Period 4 Performance Pack - Chris Day
Variance
YTD non people costs were £3.8m adverse to budget and £13,3m
adverse to prior year.
Vs. Budget
Higher non staff costs of £3.8m driven primarily by the impact of
the central savings task of £2.9m in Other Operating Costs and
££2.0m accrued for Mails Segregation penalty payment in
Compensation, offset by £2.0m of VAT recovery in Finance,
Vs. Prior Year
Higher non staf costs of £13.3m due primarily to increased
Property costs post separation (VAT on RM costs) and IT costs
(mainly Horizon and ATOS). The marketing fees have also been
‘moved from POOC to non staff this year with a FY impact of 9m,
18th August 2014
Non Staff by Type
Property Maintenance
Staff & Agent Related
‘Costs & Consumables
3%
* Skills group is the internal ‘consultancy’ providing project resource made up of a
‘mixture of employees topped up with contractors. If demand is high the contractor,
spend increases but this is offset by higher recharges to projects.
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Strictly Confidential ®
Transformation Report
Period 4 Performance Pack - Chris Day 18th August 2014 Page 20 of 25
Project Costs (Op Ex) Strictly Confidential
July 2014
The overall expenditure is £4.4m higher than budget, due primarily to Sparrow costs and
unbudgeted commercial strategy.
OpEx £m Current Month YTD Full Year
unction Programme Actual Budget Var Actual Budget. -—--Var_-—« I Outlook FY Budget anne 4
[Commercial Digital & Multi Channel on (02) 00 (02) (06) 04 aa aa (05)
Mails (0.1) (0.2) o1 (0.2) (0.9) 07 (3.5) (3.5) (1.3)
[Telecoms (03) (02) (00) (2.0) (06) (0.4) (G4) (34) (34)
Government Services (02) (03) i) (0.9) 0.9) a0 (24) (21) (0.2)
[Customer Engagement (01) ) (0.1) (00) 00 (0.0) (01) a0 (0.4)
Brand Marketing (0.0) 0.0 {0.0) o1 00 01 0.0 0.0 0.0
[Commercial Strategy (0.1) 0.0 {0.1) (0.8) 00 (0.8) (1.8) 0.0 (0.1)
Financial Services Financial Services (1.6) (1.0) (0.6) (3.5) (4.0) 06 (8.0) (8.0) (1.9)
[Corporate Services [Compliance (0) 00 (00) (oD 00 oD 00 00 00
Finance Finance (0.0) 0.0 {0.0) (0.0) 00 (0.0) (0.0) 0.0 00
Business Transformation I (1.5) (01) (1.4) a7 (03) (1.5) (5.4) (06) (22)
Network Network Other (00) 00 (00) (00) 00 oO 00 00 00
Property a0 00 0 00 00 a0 cr) (0.2)
Supply Chain (0.0) 0.0 {0.0) (0.0) oo (0.0) 0.0 (0.1)
IT & Managed Services IT (0.5) 0.0 {0.5) (0.6) 00 (0.6) 0.0 0.0
People & Engagement HR (0.0) 0.0 {0.0) oo 00 0.0 0.0 0.0
Sparrow 0.0 0.0 00 (1.4) 00 (1.4) 0.0 0.0
[Communications (or 00 (i) ) 00 (0) 00 00
Flow Through Projects 09 0.0 02 00 02 0.0 0.0
Centrally Held Centrally Held 0.0 O04 00 15 (1.5) 14 0.0
Period 4 Performance Pack - Chris Day
(10.2)
48th August 2014
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OpEx - £4.4m Over Spend YTD >)
Headlines: Budgeted projects behind planned activities and some may not
start this year mainly in FS, and will have a impact on Income, the
overspend is mainly driven by unbudgeted projects such as Sparrow,
Commercial Strategy plus the non identification of savings to offset the over
planned projects.
Digital & Muliti Channel: £0.4m favourable projects tracking behind plan.
Mails: £0.7m favourable, projects tracking behind plan.
Telecoms: £0.4m adverse due to POs set up up with delivery date in June
for the EE Network Contract signature, project slightly delayed with
payments planned but not invoiced
Commercial Strategy: development £0.8m adverse due to this being an
unbudgeted acctivity.
Financial Services: £0.6m favourable due to various projects being behind
planned activities.
IT: £0.6m adverse, £0.5m of which relates to the accounting treatment of
invoices received for Salesforce Licenses and shall be corrected in Period 5.
£0:1m relates to unplanned spend against projects which had flowed
through from the previous year.
Sparrow: (Horizon Litigation) £1.4m adverse.
Centrally Held: £1.5m adverse, this is the overlay required to achieve the
overall Target of £17.3m excluding unbudgeted projects which is yet to be
allocated out to programmes, work in progress,
Page 21 of 25
Project Costs (CapEx and Exceptionals)
July 2014
‘Strictly Confidential
Capital Expenditure and Exceptionals are £32m underspent, driven by IT and Network projects.
CapEx £m Current Month YTD Full Year
Board
Commercial [Digital & Multi Channel O1 (08) (0.4) (3.2) 28 (9.5) (9.5) (9.5) (03)
Mails (0.3) (0.4) (0.7) 03 (2.0) (2.3) (1.0) (1.4)
ITelecoms 00 (0.2) (0.2) 03 (1.9) (1.8) (2.0) (1.4)
IGovernment Services (0.6) (0.3) (0.7) 03 (3.7) (2.4) (2.4) (03)
[Customer Engagement, (0.3) 00 (0.5) (0.5) (0.2) 00 00 (0.9)
Financial Services [Financial Services (1.9) GB) (2.6) 25 (27.8) (27.8) (27.8) (28)
Corporate Services Security 02 0.0 02 02 (0.0) 00 0.0 00
[Compliance 00 (0.0) 00 02 (0.9) (0.9) (0.9) 00
Finance [Finance (0.0) (0.1) (0.2) 0.0 (1.2) (1.2) (1.2) 00
Network ICrown Transformation (9.0) (3.6) (13.1) 37 (24.0) (30.4) (30.4) 0.0
INetwork Other (0.6) (01) (0.6) (0.2) (1.2) (1.2) (1.2) 00
[Network Transformation (2.9) (3.5) (11.7) 33 (32.2) (35.0) (46.9) 00
IProperty (0.0) (0.9) (0.3) 21 (11.8) (11.2) (11.2) (5.0)
[Supply Chain (0.4) (1.6) (0.6) 34 (12.6) (12.6) (42.7) (0.1)
IT & Managed Services lIndependence & Separation (2.9) (3.0) (6.6) 48 (20.1) (19.9) (18.9) (11.8)
JIT Transformation (0.0) 00 (0.1) (0.1) (0.1) 00 00 00
iT (0.9) (45) (7.5) 10.5 (50.1) (53.7) (54.5) (17.3)
People & Engagement. JHR (0.1) 00 (0.1) 02 (0.3) (0.3) (2.8) (0.0)
[Old Projects JOld Projects (0.0) 00 (0.1) (0.1) (0.1) 0.0 00 00
[Centrally Held [Centrally Held 00 03 0.0 (1.3) 00 40 18.2 0.0
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pEx £32.3m underspend YTD
Commercial: The £3.2m favourable variance year to date is mainly
driven by Digital & Multi Channel £2.8m, Mails, Telecoms and
Government are each £0.3m favourable due to changes in activity,
profile and timings since the plan was presented,
Customer Engagement: is £0.5m adverse due to capital investment
activity around the Customer Management Programme having been
planned under Digital
Financial Services: £2.5m favourable, various projects behind planned
activities.
Crown Transfomation: £3.7m favourable this is mainly due to property
related costs being taken into the previous year. The forecast has been
adjusted to reflect this.
Network Transformation: £3.3m favourable mainly as a result of re-
categorising planned spend to Exceptional,
Property: £2.1m favourable, various projects behind planned activities.
‘Supply Chain: £3.4m favourable, various projects have slipped and have
been re-forcast fram p5,
Independence & Separation: £4.8m favourable, mainly due to a
combination of projects being behind schedule.
IT; £10.5m favourable due to numerous large capital projects being
‘behind plan,
Centrally Held: £1.3m adverse, £4m savings overlay to be allocated out
Exceptional Total
Period 4 Performance Pack - Chris Day
48th August 2014
to programmes in due course to achieve full year target.
Exceptional £m Current Month Year To Date Full Year
Board
Budget Budget FY Budget POLIC
Function lProgramme ‘Actual fehned ‘Actual hehe var Outlook ReBosed Approved I gn (oxen ~ £12.4m underspend
Budget_I “PP Network Transformation: £4,0m favourable mainly driven by the
Network [Crown Transformation (28) ) (102) (0.9) 07 (26.4) we (64.6) 00 timing of the accounting of compensation payments for sign ups.
Network Transformation (67) (13.3) (53.6) (57.6) 40 (168.9) (163.6) (149.2) 00 Forecast suggests a signficant increase in spend.
[Supply Chain 00 00 00 00 00 (3.0) (3.0) (2.9) IT Transformation: £7.2m favourable, £7.9m of this is the ATOS
IT & Managed Services Iindependence & Separation I (0.8) (04) 2a) (20) 02) (60) (60) (24) setup cost payments which were accounted for in 2013-14 but
IIT Transformation (14) (08) (4.2) (11.4) (9.4) (15.4) a9) (72) burlgeted in 2014-15.
[Transition 00 00 00 0.0 00 0.0 (22.5) 00 HR; £2.8m favourable project Sparrow (Horizon Litigation) costs in
ea) 00 (oa 00 oe) 26) 26) 26) (22) Opex, yet to identify what can be moved to Exceptional.
[Sparrow (05) (08) (05) G3) (25) (50) 0 00 contaly Held €2 9m adverse. €7 located
ld Projects oid Projects 00 00 00 00 00 00 00 00 ontraly Held £2 Sm adverse, £7 savings overiay fo be alloca
Centrally Held [centrally Held 00 05 00 29 7.0 (G00) 00
Na programmes in due course to achieve full year target. J)
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Strictly Confidential ®
Supplementary Information
Period 4 Performance Pack - Chris Day 18th August 2014 Page 23 of 25
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Strictly Confidential ®
Cashflow Statement & Balance Sheet Summary
July 2014
Balance Sheet Cashflow Statement
P3 YTO Full Year Board
fm Mar-14 I Actual Variance £m Actual Budget Variance I I Forecast Budget* Variance erat, Variance
Fixed Assets 71 81 0 Operating Profit 154 24.0 (8.6) 99.0 99.0 0.0 99.0 0.0
Debtors 155 162 16 Depreciation o1 O2 (0.0) 06 0.6 0.0 0.6 00
Cash 708 791 44 Working Capital (43,7) (68.1) 24.3 27.0 27.0 0.0 18.7 83
Client Balances (279) (320) (65) (Client Balances 37.3 13.0 24.3 17.0 17.0 0.0 (9.0) 26.0
Trade Creditors (303) (447) (24) Network Cash (154.8) (69.6) (85.2) (57.6) (57.6) 0.0 (10.0) (47.6)
Pension (deficit)/surplus 148 149 4 Dividends (15.1) (15.0) (0.1) 0.0 0.0 0.0 (4.5) 45
Provisions (78) (88) (65) (23) (Capital Expenditure (46.0) (78.0) 32.0 (205.2) (205.2) 0.0 (205.2) 0.0
Investments, Funding (19) 158 62 96 [Government funding 170.0 170.0 Loko) 170.0 170.0 0.0 170.0 00
Loan 0 0 0 0 INSP in advance 104.6 104.6 0.0 0.0 0.0 0.0 0.0 0.0
Exceptional Items (713) (989) 276 (240.3) (240.3) 0.0 (2161) I (24.2)
Pensions 22 13 09 3.0 3.0 0.0 3.0 00
Reserves Mar-14 Actual Budget Variance Proceeds from asset sales 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
[Capital and Reserves (403) (485) (438) (47) Business transformation (10.5) (10.5) 0.0 (10.5) 0.0
(403) (485) (438) (47) Free cashflow before interest, tax (1.3) (16.5) 15.2 (197.0) (197.0) 0.0 (164.0) (33.0)
interest (0.1) (0.5) 04 (3.0) (3.0) 0.0 (3.0) 0.0
[Tax 99 10.0 (0.1) 0.0 0.0 0.0 0.0 0.0
Free Cashflow 85 (7.0) 155 (200.0) __ (200.0) 0.0 (167.0) (33.0)
Cash Management Table * Budget has been updated to reflect year end outturn and a reconciliation is shown in the final two columns and explained below.
£m Prior Year I Mar-13 P3 Cashflow budget
P3 Opening Actual Budget var
Reta Cash Centres 62h 22 608 333 Ty 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
Bureau 95 58 88 389 1 result in changes being required. The budget of £200m shown in this pack reflects the year end outturn impacts, namely:
Cheques, debit cards 121 129 167 156 (11) ‘* higher provision balances at March 2014 than anticipated (£24m),
8
Headroom (£m) 854 1,026
Period 4 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 August 2014
Page 24 of 25
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Income By Product Groups & Pillar Strictly Confidential .
July 2014 Adverse; Mails is £8.0m, Telecoms is £2.8m and Government Services is £1.2m adverse
Current Month Prior Year YTD Prior Year Full Year Prior Year
Net Income £m Actuals Budget Variance Period Mone wr Actual Budget Variance I Outturn von On Forcast Budget Variance eosin
Parcelforce T9 24 (02) , (01) TI 78 Oo 75 05) Be 268 00 228
Special Delivery 47 49 (0.3) (0.2) 169 «17.9 (2.0) wd (0.8) 518518 0.0 51.4
International Priority & Standard 27 29 (02) (0.2) 102 110 (0.7) 108 (0.6) 346 34.6 00 344
IStamps (1st & 2nd Class plus other stamps) 22 20 02 (0.1) 79 72 7 84 (0.5) 26.2 26.2 00 30.6
Labels (1st & 2nd Class) 81 9.0 (1.0) (0) 295 3B (3.6) 31.0 (14) I 1033 1033 00 924
RM Mail Fixed 5.5 55 0.02 021 198 19.7 01 19.4 04 569 56.9 0.0 567
Retail & Lottery 47 44 02 08 159 16.4 (0.6) 15.4 05 480 48.0 0.0 437
Mails Other 54 63 (08) 11 199 21.9 (24) 165 3.4 795 79.5 00 54.2
[Total Mail Services EF UMIS ramen) Z 12_[ 4270-4350 ~«(8.0)~«YS«i6 05 I 426d 426d 0.0 386.0
Energy 0 03 (03) 0 1.0 (2.0) 0 0 3.0 3.0 0.0 0.0
HomePhone /Dual & Broadband Customers. 48 55 (0.6) . (0.2) 193 (1.8) 180 (0.4) 589 58.9 0.0 46.0
[Total Telecoms Services 48 5.7 (0.9) ! (0.2) . 20.3 (2.8) 18.0 (0.4) 61.9 61.9 0.0 46.0
Motoring Services 14 19 (0.5) 04 54 0.2 57 (0.4) 153. 15.3 0.0 19.9
Card Account 47 55 (08) (08) 198 (1.2) 209 (2.2) 60.2 60.2 00 59.2
Check and Send 19 24 (0.2) . (0.5) , 96 (0.0) 104 (0.5) 258 258 00 23.0
AEI (DVLA & UKBA) 08 07 0.0 01 28 01 27 02 95 95 0.0 83
lOther Government Services 05 06 (0.0) (03) 21 (03) 24 (03) 57 57 0.0 5.8
[Total Government Services 93408 (4.5) ; aa) ; 395 (a2) rw Gi_I 11664466 —~0.0 116.2
Bill Payment Services Direct 08 08 (0.0) x (0.2) 3.4 (0.0) 3.6 (0.6) 98 98 0.0 10.9
Bill Payment Services Reseller 26 25 02 . 0.0 94 oa 9.2 (0.0) 265 24.5 00 26.9
Postal Orders 22 21 04 (01) 74 O4 85 (0.7) 207.207 0.0 208
Payment Services 02 06 (04) (0.0) 16 (06) 0.6 04 89 89 0.0 74
Personal Banking Clients 28 26 02 0s 89 12 94 09 268 268 00 28.4
DWP Exceptions 0.0 0.0 0.0 (0.0) I 00 00 0.0 (0.0) 00 00 00 0.03
Business Banking 24 25 (0.0) (0.5) 9.0 01 97 (07) 268 268 0.0 281
ATM 3.4 3.0 04 0.2 110 05 109 06 327327 0.0 314
PFS-Savings 42 42 00 03 168 00 161 07 526 52.6 00 50.0
PFS-insurance 06 14 (08) (0.1) 49 (a) 28 1.0 170 ~—«17.0 00 9.0
PFS-Lending 11 07 04 . 04 27 06 18 14 waa 0.0 60
Bureau (excl profit share) (incl Travel Money Card) 3.0 32 (02) . (0.6) 99 (03) 101 (04) 241 8a 0.0 243
Travel insurance 15 14 o4 (2.0) 42 0.2 5.2 (0.8) 94 94 0.0 96
MoneyGram 24 19 02 06 67 07 55 20 201204 0.0 163
SEI 05 04 02 01 . 12 12 15 1.0 34 34 00 67
other 0 0 0 . (0.2) 0 Q 08 (08) 69 69 00 25
Total Financial Services 275 272 03 a (OH) 964 30. 95.4 40 I 2952 2952 0.0 278.6
(Other income 09 (03) 12 (0.2) (0.2) 18 29 (2.3) G7 G7) (0.0) 9.2
Supply Chain 29 29 (0.0) (0.0) 10.6 (0.0) 9.9 07 320 320 00 309
Net Income
Period 4 Performance Pack - Chris Day 18th August 2014 Page 25 of 25
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Health & Safety - Key Issues for the POL Leadership Team
Jon Cooper - Bond Dickinson LLP
4A_29120161_1 ‘
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Introduction
The objective of this session is not to go into the nuts and bolts of health and safety legislation but to give
an insight as to key health and safety issues for the Leadership Team within POL and to allow you to
reflect on whether the risk to the Business, and individuals is being properly managed and assessed.
Successful health and safety management requires the support, encouragement and promotion of health
and safety by the Leadership Team so that it becomes engrained in the organisation as a whole.
Health & Safety - why comply?
e Legal Compliance — failure to meet statutory and regulatory obligations can lead to criminal
proceedings
e It is consistent with POL's culture and business ethos; the health and safety of its employees,
agents and customers is paramount
« Reputational reasons — social attitudes towards health and safety failings have changed.
Consequences of non-compliance
1. Cost to the Business
a. Costs associated ill-health and injuries leading to time off work
b. The management time, resource and cost inevitably involved in an investigation by
enforcement authorities following a serious incident.
c. Fines and costs — the guidelines issued by the Judicial Studies Board for sentencing of
corporate defendants for breaches of health and safety legislation have been reinforced by
two cases in the Court of Appeal in January of this year (R —v- Sellafield and R -v- Network
Rail). Large organisations prosecuted for health and safety offences and/or corporate
manslaughter can expect fines of many hundreds of thousands if not millions of pounds.
d. Personal liability —s.37 HSWA
Where an offence by a body corporate is proved to have been committed with the
consent or connivance of, or to have been attributable to any neglect on the part of
any director, manager, secretary or other similar officer of the body corporate....that
person shall also be guilty of the offence and shall be liable to be proceeded against
and punished accordingly.
4A_29120161_1 2
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The consequences of personal conviction include fines, disqualification from directorships
and imprisonment.
e. Reputational damage corporate/brand and personal
How is compliance best achieved and driven by the Leadership Team?
e Anacceptance that health and safety is the responsibility of all within your organisation and not
just the Health & Safety Team.
e Ensure that health and safety is given appropriate priority within the organisation and all relevant
processes.
e Ensure that there are robust systems of risk assessment and risk management leading to
appropriate policies that are adequately policed and enforced (a key role for HR).
e Ensure that due diligence in terms of potential partners/contractors extends to health and safety
capabilities.
e Ensure that the Leadership Team follows the principles set out in "Leading health and safety at
work" ' the current benchmark for best practise. The principles can be distilled down to-
o Plan
o Do
o Check
o Act
How do you measure up against checklist in this document?
And if you are still not convinced...
The Jury may:-
a. Consider the extent to which the evidence shows that there were attitudes, policies, systems
or accepted practises with the organisation that were likely to encourage any failure (to
follow health and safety legislation) or to have produced tolerance of it; and
b. Have regard to any health and safety guidance that relates to the alleged breach
Section 8(3) Corporate Manslaughter & Homicide Act 2007 — corporate culture encapsulated
in statute!
‘ See Appendix A
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Risk Factors for POL — view of an informed outsider
e Multi-site operation
e The nature/extent of your undertaking
¢ Contractors — procurement and management
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WD) ae
Leading health and safety at work
Actions for directors, board members, business owners
and organisations of all sizes
Be Introduction
Leading health and safety
at work
This guidance sets out an agenda for the effective leadership of health and safety. It
is designed for use by all directors, governors, trustees, officers and their equivalents
in the private, public and third sectors. It applies to organisations of all sizes.”
Protecting the health and safety of employees or members of the public who may be
affected by your activities is an essential part of risk management and must be led by
the board.
Failure to include health and safety as a key business risk in board decisions can
have catastrophic results. Many high-profile safety cases over the years have been
rooted in failures of leadership.
This is a web-friendly
version of leaflet Health and safety law places duties on organisations and employers, and directors
INDG417(rev1), can be personally liable when these duties are breached: members of the board have
published 06/13 both collective and individual responsibility for health and safety.
By following this guidance, you will help your organisation find the best ways to lead
and promote health and safety, and therefore meet its legal obligations.
The starting points are the following essential principles. These principles are intended
to underpin the actions in this guidance and so lead to good health and safety
performance.
Essential principles
Strong and active leadership from the top:
visible, active commitment from the board;
establishing effective ‘downward’ communication systems and management
structures;
integration of good health and safety management with business decisions.
ia Worker involvement
engaging the workforce in the promotion and achievement of safe and
healthy conditions;
effective ‘upward’ communication;
providing high-quality training
a@ Assessment and review
identifying and managing health and safety risks;
accessing (and following) competent advice;
monitoring, reporting and reviewing performance.
* The Health and Safety Executive (HSE) has further advice on leadership for small
businesses and major hazard industries — see ‘Key resources’ section.
Page 1 of 16
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Health and Safety
Executive
In this guidance
The following pages set out:
a four-point agenda for embedding the essential health and safety principles;
a summary of legal liabilities;
a checklist of key questions for leaders;
a list of resources and references for implementing this guidance in detail.
The agenda consists of:
@ core actions for boards and individual board members that relate directly to the
legal duties of an organisation. These actions are intended to set a standard;
™ guidelines that set out ways to give the core actions practical effect. These
guidelines provide ideas on how you might achieve the core actions;
@ case studies selected to be relevant to most sectors.
A website, www.hse.gov.uk/leadership, provides links to all the resources mentioned. It
includes online and downloadable versions of this guidance and further advice for small
enterprises.
Benefits of good health and safety
Addressing health and safety should not be seen as a regulatory burden: it offers
significant opportunities. Benefits can include:
™ reduced costs and reduced risks — employee absence and turnover rates are
lower, accidents are fewer, the threat of legal action is lessened;
@ improved standing among suppliers and partners,
@ a better reputation for corporate responsibility among investors, customers and
communities;
@ increased productivity - employees are healthier, happier and better motivated
Costs of poor health and safety at work
HSE statistics reveal the human and financial cost of failing to address health and
safety. Each year:
Millions of working days are lost due to work-related illness and injury.
Thousands of people die from occupational diseases.
Around a million workers self-report suffering from a work-related illness.
Several hundred thousand workers are injured at work.
A worker is fatally injured almost every working day.
Organisations can incur further costs - such as uninsured losses and loss of
reputation.
For the latest statistics see: www.hse.gov.uk/statistics/index.htm
Legal responsibilities of employers
Health and safety law states that employers must:
‘@ assess risks to employees, customers, partners and any other people who could
be affected by their activities;
'@ arrange for the effective planning, organisation, control, monitoring and review of
preventive and protective measures;
Leading health and safety at work Page 2 of 16
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Health and Safety
Executive
have a written health and safety policy if they have five or more employees;
ensure they have access to competent health and safety advice;
m consult employees about their risks at work and current preventive and protective
measures.
Failure to comply with these requirements can have serious consequences — for
both organisations and individuals. Sanctions include fines, imprisonment and
disqualification.
Under the Corporate Manslaughter and Corporate Homicide Act 2007, an offence
will be committed where failings by an organisation's senior management are a
substantial element in any gross breach of the duty of care owed to the
organisation’s employees or members of the public, which results in death.
The maximum penalty is an unlimited fine and the court can additionally make a
publicity order requiring the organisation to publish details of its conviction and fine.
(See also the back page of this guidance for the legal status of this advice.)
“Health and safety is integral to success. Board mem-
bers who do not show leadership in this area are failing
in their duty as directors and their moral duty, and are
damaging their organisation.”
“Health and safety is a fundamental part of business.
Boards need someone with passion and energy to
ensure it stays at the core of the organisation.”
“An organisation will never be able to achieve the
highest standards of health and safety management
without the active involvement of directors. External
stakeholders viewing the organisation will observe the
lack of direction.”
“Board level involvement is an essential part of the
21st Century trading ethic. Attitudes to health and
safety are determined by the bosses, not the
organisation’s size,”
Quotes from health and safety leaders in the public and private sectors.
Leading health and safety at work Page 3 of 16
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Health and Safety
Executive
Case study - orth The board should set the direction for effective health and safety
Staffordshire Combined I management. Board members need to establish a health and safety policy
Healthcare NHS Trust that is much more than a document - it should be an integral part of your
organisation's culture, of its values and performance standards.
The board found itself
facing service All board members should take the lead in ensuring the communication of
improvement targets. health and safety duties and benefits throughout the organisation. Executive
Using new corporate directors must develop policies to avoid health and safety problems and
and clinical guidance, it must respond quickly where difficulties arise or new risks are introduced;
set about taking a non-executives must make sure that health and safety is properly addressed.
‘whole systems’
approach to managing
corporate risk, giving Core actions
one of its directors
responsibility for the To agree a policy, boards will need to ensure they are aware of the significant risks
leadership of health and I faced by their organisation.
safety for the first time
Health and safety was The policy should set out the board's own role and that of individual board
also made a key item members in leading the health and safety of its organisation. It should require the
on the board agenda. board to
This has resulted in a @ ‘own’ and understand the key issues invoived;
much better integrated ™@ decide how best to communicate, promote and champion health and safety.
health and safety
management system The health and safety policy is a ‘living’ document and it should evolve over time,
that increases the eg in the light of major organisational changes such as restructuring or a significant
opportunity to identify acquisition.
and manage all
corporate risks, and a
much more open How it can be done
culture, improving
reporting and m@ Health and safety should appear regularly on the agenda for board meetings.
monitoring. The board m™ The chief executive can give the clearest visibility of leadership, but some
actively promotes a boards find it useful to name one of their number as the health and safety
culture that gives staff ‘champion’.
the confidence to report I ™ ~The presence on the board of a health and safety director can be a strong
incidents. This has signal that the issue is being taken seriously and that its strategic importance is
resulted in: understood.
= Setting targets helps define what the board is seeking to achieve.
@ 16% reduction in m Anon-executive director can act as a scrutineer — ensuring the processes to
incidence rates over support boards facing significant health and safety risks are robust.
two years;
‘a 10% reduction in Corporate governance
insurance
premiums. For many organisations, health and safety is a corporate governance issue. The
board should integrate health and safety into the main governance structures,
including board sub-committees, such as risk, remuneration and audit.
The Turnbull guidance on the Combined Code on Corporate Governance requires
listed companies to have robust systems of internal control, covering not just
‘narrow’ financial risks but also risks relating to the environment, business
reputation and health and safety.
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Case study - British Delivery depends on an effective management system to ensure, so far as
Sugar reasonably practicable, the health and safety of employees, customers and
members of the public.
British Sugar had an
excellent safety record Organisations should aim to protect people by introducing management
and was devastated in systems and practices that ensure risks are dealt with sensibly, responsibly
2003 when it suffered and proportionately.
three fatalities.
Although health and
safety had always Core actions
been a business
priority, the company To take responsibility and ‘ownership’ of health and safety, members of the board
recognised that a must ensure that:
change in focus was
needed to achieve ™@ health and safety arrangements are adequately resourced;
behavioural change. jm they obtain competent health and safety advice;
This included: fm risk assessments are carried out;
™ employees or their representatives are involved in decisions that affect their
@ the CEO assigning health and safety.
health and safety
responsibilities to The board should consider the health and safety implications of introducing new
all directors, and processes, new working practices or new personnel, dedicating adequate
monthly reports go. resources to the task and seeking advice where necessary.
to the board;
@ creating effective Boardroom decisions must be made in the context of the organisation's health and
working partnerships safety policy; it is important to ‘design-in' health and safety when implementing
with employees, change.
trade unions and
others;
'@ overseeing a How it can be done
behavioural change
programme and Leadership is more effective if visible board members can reinforce health and
audits; safety policy by being seen on the ‘shop floor’, following all safety measures
@ publishing annual themselves and addressing any breaches immediately.
health and safety @ Consider health and safety when deciding senior management appointments.
targets, and devising ™@ Having procurement standards for goods, equipment and services can help
initiatives to meet prevent the introduction of expensive health and safety hazards.
them. The health and safety arrangements of partners, key suppliers and contractors
should be assessed; their performance could adversely affect yours.
Results included: a Setting up a separate risk management or health and safety committee as a
subset of the board, chaired by a senior executive, can make sure the key
@_a two-thirds reduction issues are addressed and guard against time and effort being wasted on trivial
in both lost time and risks and unnecessary bureaucracy.
minor injury frequency} ™ Providing health and safety training to some or all of the board can promote
rates over a understanding and knowledge of the key issues in your organisation.
ten-year period; @ Supporting worker involvement in health and safety can improve participation
@ much greater and help prove your commitment.
understanding by
directors of health
and safety risks.
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Check
Case study - Vid and Monitoring and reporting are vital parts of a health and safety culture.
West Wales Fire and Management systems must allow the board to receive both specific
Rescue Service {eg incident-led) and routine reports on the performance of health and safety
policy.
Mid and West Wales
Fire and Rescue Much day-to-day health and safety information need be reported only at the
Service recognised time of a formal review. But only a strong system of monitoring can ensure
that it was critical to that the formal review can proceed as planned - and that relevant events in
demonstrate to staff the interim are brought to the board’s attention.
that health and safety
was fundamental to
the success of its Core actions
overall service delivery
- and that commitment I The board should ensure that
to health and safety
came from the top of ™ appropriate weight is given to reporting both preventive information (such as
the organisation. progress of training and maintenance programmes) and incident data (such as
accident and sickness absence rates);
The director of service ™ periodic audits of the effectiveness of management structures and risk controls
policy and planning for health and safety are carried out;
was made health and the impact of changes such as the introduction of new procedures, work
safety director, and processes or products, or any major health and safety failure, is reported as
implemented a revised soon as possible to the board;
framework for health m there are procedures to implement new and changed legal requirements and to
and safety. The consider other external developments and events.
director made site
visits to engage the
workforce and placed How it can be done
renewed emphasis on
the need to improve ™ Effective monitoring of sickness absence and workplace health can alert the
incident reporting, board to underlying problems that could seriously damage performance or
investigation and result in accidents and long-term illness.
monitoring procedures. m_ The collection of workplace health and safety data can allow the board to
The service has benchmark the organisation's performance against others in its sector.
reported: @ Appraisals of senior managers can include an assessment of their contribution
to health and safety performance.
@ £100 000 reduction m Boards can receive regular reports on the health and safety performance and
in insurance liability actions of contractors.
premiums in one year} ™ Some organisations have found they win greater support for health and safety
through improved by involving workers in monitoring,
corporate strategic
risk management;
@ 50% reduction in
sickness absence
resulting from work:
related injury over
two years;
‘a 50% reduction in
injury rates over
[ three years, I
re
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Case study - A formal boardroom review of health and safety performance is essential.
Sainsbury's It allows the board to establish whether the essential health and safety
principles - strong and active leadership, worker involvement, and
Sainsbury's rethought assessment and review - have been embedded in the organisation. It tells
its approach to health you whether your system is effective in managing risk and protecting people.
and safety after an
external audit
highlighted the need Core actions
for a more unified
approach across the The board should review health and safety performance at least once a year. The
company. The key review process should:
element was a health
and safety vision, set @ examine whether the health and safety policy reflects the organisation's current
out by the group HR priorities, plans and targets;
director and backed by @ examine whether risk management and other health and safety systems have
a plan that included been effectively reporting to the board;
targets over three report health and safety shortcomings, and the effect of all relevant board and
years. management decisions;
decide actions to address any weaknesses and a system to monitor their
As part of the plan, implementation;
all board directors ‘a_consider immediate reviews in the light of major shortcomings or events.
were given training on
health and safety
responsibilities. Health How it can be done
and safety now
regularly features on m Performance on health and safety and wellbeing is increasingly being recorded
board agendas. The in organisations’ annual reports to investors and stakeholders.
business benefits = Board members can make extra ‘shop floor’ visits to gather information for the
include: formal review.
@ Good health and safety performance can be celebrated at central and local
@ 17% reduction in level.
sickness absence;
m@ 28% reduction in
reportable incidents; Auditing and reporting
@ improved morale
and pride in working Larger public and private sector organisations need to have formal procedures
for the company, as for auditing and reporting health and safety performance
indicated by
colleague surveys. The board should ensure that any audit is perceived as a positive management
and boardroom tool. It should have unrestricted access to both external and
internal auditors, keeping their cost-effectiveness, independence and objectivity
I under review.
Various codes and guides (many of them sector-specific) are available to help
organisations report health and safety performance and risk management as part
of good governance. See the ‘Key resources’ section
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When leadership falls short
When board members do not lead effectively on health and safety management the
consequences can be severe. These examples mark issues for all boards to
consider.
Competent advice, training and supe!
Following the fatal injury of an employee maintaining machinery at a recycling firm
employing approximately 30 people, a company director received a 12-month
custodial sentence for manslaughter. The machinery was not properly isolated and
started up unexpectedly.
An HSE and police investigation revealed there was no safe system of work for
maintenance, instruction, training and supervision were inadequate.
HSE's investigating principal inspector said: ‘Evidence showed that the director
chose not to follow the advice of his health and safety advisor and instead adopted
a complacent attitude, allowing the standards in his business to fall.’
Monitoring
The managing director of a manufacturing company with around 100 workers was
sentenced to 12 months’ imprisonment for manslaughter following the death of an
employee who became caught in unguarded machinery.
The investigation revealed that, had the company adequately maintained guarding
around a conveyor, the death would have been avoided. The judge made clear that
whether the managing director was aware of the situation was not the issue; he
should have known as this was a long-standing problem, An area manager also
received a custodial sentence. The company received a substantial fine and had to
pay the prosecution's costs.
Risk assessment
A company and its officers were fined a total of £245 000 and ordered to pay costs
of £75 500 at Crown Court in relation to the removal of asbestos. The company
employed ten, mostly young, temporary workers; they were not trained or equipped
to safely remove the asbestos, nor warned of its risk. The directors were also
disqualified from holding any company directorship for two years and one year
respectively.
Legal liability of individual board members for health and safety failures
if a health and safety offence is committed with the consent or connivance of, or is
attributable to any neglect on the part of, any director, manager, secretary or other
similar officer of the organisation, then that person (as well as the organisation) can
be prosecuted under section 37 of the Health and Safety at Work etc Act 1974.
Recent case law has confirmed that directors cannot avoid a charge of neglect
under section 37 by arranging their organisation’s business so as to leave them
ignorant of circumstances which would trigger their obligation to address health
and safety breaches.
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Those found guilty are liable for fines and imprisonment. In addition, the Company
Directors Disqualification Act 1986, section 2(1), empowers the court to disqualify
an individual convicted of an offence in connection with the management of a
company. This includes health and safety offences. This power is exercised at the
discretion of the court; it requires no additional investigation or evidence.
Individual directors are also potentially liable for other related offences, such as the
common law offence of gross negligence manslaughter.
Under the common law, gross negligence manslaughter is proved when individual
officers of a company (directors or business owners) cause death by their own
grossly negligent behaviour. This offence is punishable by an unlimited fine and a
maximum of life imprisonment
Note: equivalent legislation exists in Northern Ireland, ie article 34A of the Health and Safety
at Work (Northern Ireland) Order 1978 and article 3(1) of the Company Directors
Disqualification (Northern Ireland) Order 2002.
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Plan, Do, Check, Act
Planning
Policy
Learning
lessons
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Plan Notes
mw How do you demonstrate the board's commitment
to health and safety?
www.hse.gov.uk/toolbox/managing/writing.htm,
{
Page 11 of 16
Leading heaith and safety at work
Do
m™ What have you done to ensure your organisation, at all
levels including the board, receives competent health
and safety advice?
wwwhse.gov.uk/toolbox/managing/deciding.htm
jm Howare you ensuring all staff — including the board —
are sufficiently trained and competent in their health
and safety responsibilities?
Health and safety training: A brief guide
www. hse.gov.uk/pubns/indg345.htm,
@ How confident are you that your workforce, particularly
safety representatives, are consulted properly on
health and safety matters, and that their concerns are
reaching the appropriate level including, as necessary,
the board?
www.hse.gov.uk/involvement
a What systems are in place to ensure your
organisation's risks are assessed, and that sensible
control measures are established and maintained?
www.hse.gov.uk/tooloox/managing/managingtherisks.htm
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Notes
Page 12 of 16
Check
@ How well do you know what is happening on the
ground, and what audits or assessments are
undertaken to inform you about what your
organisation and contractors actually do?
What information does the board receive regularly
about health and safety, eg performance data and
reports on injuries and work-related ill health?
www.hse.gov.uk/eadership/auditing.htm
m Do you compare your performance with others in
your sector or beyond?
a Where changes in working arrangements have
significant implications for health and safety, how
are these brought to the attention of the board?
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Notes
Page 13 of 16
Act
What do you do to ensure appropriate board-level
review of health and safety?
Successful health and safety management HSG65
www.hse.gov.uk/pubns/books/HSG65.htm
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Notes
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Key resources
A dedicated web page has been created to provide boards and board members
with further advice and guidance. It includes links to various publications and
websites, as well as online versions of this guidance.
The web page can be found at: www.hse.gov.uk/leadership
You can get further information from the following organisations:
Health and Safety Executive (HSE) (www.hse.gov.uk)
Managing for health and safety website www.hse.gov.uk/managing/
a Successful health and safety management HSG65 www.hse.gov.uk/pubns/
books/hsg65.htm
Leadership for the major hazard industries: Effective health and safety
management Leaflet INDG277(rev1) HSE Books 2004
www.hse.gov.uk/pubns/indg277.htm
Health and Safety Executive for Northern Ireland (www.hseni.gov.uk)
Institute of Directors (loD) (www.iod.com)
w dedicated web page at: www.iod.com/hsguide
Wellbeing at work: A Director's Guide loD 2006 ISBN 978 1 9045 2048 1
Institution of Occupational Safety and Health (IOSH) (www.iosh.co.uk)
a Questioning performance: The director's essential guide to health, safety and
the environment IOSH ISBN 978 0 901357 37 3
toolkits
= competent health and safety assistance
Royal Society for the Prevention of Accidents (ROSPA) (www.rospa.com)
a DASH: Director Action on Safety and Health
a GoPoP: Going Public on Performance - measuring and reporting on health and
safety performance
™ case studies
Trades Union Congress (TUC) (www.tuc.org.uk)
safety representatives
European Agency for Safety and Health at Work (www.osha.europa.eu)
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Further information
For information about health and safety, or to report inconsistencies or inaccuracies
in this guidance, visit www.hse.gov.uk. You can view HSE guidance online and
order priced publications from the website. HSE priced publications are also
available from bookshops.
This guidance, issued jointly by the Institute of Directors and the Health and Safety
Executive, is addressed to directors (and their equivalents) of corporate bodies and
of organisations in the public and third sectors.
This guidance is issued by the Health and Safety Executive. Following the guidance
is not compulsory, unless specifically stated, and you are free to take other action.
But if you do follow the guidance you will normally be doing enough to comply with
the law. Health and safety inspectors seek to secure compliance with the law and
may refer to this guidance.
In considering the liability of an organisation under the Corporate Manslaughter and
Corporate Homicide Act 2007, a jury must consider any breaches of health and
safety legislation and may have regard to any health and safety guidance. In addition
to other health and safety guidance, this guidance could be a relevant consideration
for a jury depending on the circumstances of the particular case.
This leaflet is available at www.hse.gov.uk/pubns/indg417.htm.
© Crown copyright If you wish to reuse this information visit
www.hse.gov.uk/copyright.htm for details. First published 06/13
Acknowledgements
The Institute of Directors and the Health and Safety Executive would like to thank
the following organisations for their help on the steering group that developed this
guidance: Confederation of British Industry, Federation of Small Businesses,
Institution of Occupational Safety and Health, Local Authorities Coordinators of
Regulatory Services, Local Government Association, National Council for Voluntary
Organisations, NHS Confederation, The Princess Alice Hospice, Trades Union
Congress, University of Warwick
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Confidential
POST OFFICE LTD EXECUTIVE COMMITTEE
Risk & Compliance Committee Management Summary
Meeting 21° July 2014
1. Purpose
The purpose of this paper is to provide ExCo with a summary of the Risk & Compliance Committee held
on 21° July 2014.
2. Meeting Summary
A quorate meeting was held on the 21“ July 2014; Simon Evans from PricewaterhouseCoopers attended
the meeting as an observer.
The committee examined and accepted the Head of Risk Report. The committee asked that the report
be improved by including proposed completion dates for those parts of the risk framework yet to be
planned in detail. The risk communications plan was discussed, confirming that the plan included training
as well as awareness.
While discussing the recent Travel Insurance risk event, the committee identified corrective actions
requiring a high priority, particularly the Horizon system changes that would prevent a recurrence.
Reviewing the emerging risk relating to state aid, the committee decided that the possible impact on the
restrictions policy could be significant for Post Office and therefore should be analysed and tracked
separately while being reported to the Audit and Risk Committee at the earliest opportunity.
The committee followed up on the risk team assurance activity over Titan project support and the Xanadu
programme. The General Counsel reported that as a pre-requisite for implementation of Project Titan,
Grant Thomton would be independently confirming that risks and other matters arising were appropriately
addressed. It was requested that Grant Thornton present their conclusions directly to the committee. The
committee also agreed that the Xanadu assurance report should be reviewed with the Chief Information
Officer and the Commercial Director and lessons learned be reported to the committee.
The committee performed an in depth review covering the risk of failing to achieve top line growth in line
with the strategy. The discussion examined the controls in place, areas for improvement and actions to be
taken. The committee requested that the Chief Marketing and Commercial Officer, the General Counsel
and the Financial Services Director follow up on this discussion and further define actions for
improvement. It was agreed that the Head of Commercial Finance should review the annual planning
cycle, ensuring that all supporting assumptions are documented, including robust “horizon scans” and
reviews of market conditions.
The committee reviewed the network transformation risk mapping and it was advised that the programme
is undertaking a ‘100 day’ project to improve managementof the risks and devise mitigation approaches.
The programme was requested to report back to the committee on the outcomes of the project.
The committee discussed the value of establishing contingency budgets or reserves for the management
of programme risk at Post Office and whether these should be held centrally or managed by programmes.
The Head of Commercial Finance was asked to review the financial planning process, determining
whether contingency / reserve should be put in place for programme and portfolio risk management, and
report back to the committee.
The committee discussed a summary of the Deloitte report on internal controls over the Horizon System
(Project Zebra) and agreed the response from the business to the report's recommendations. The Chief
Information Officer confirmed that the report's conclusions would influence future systems procurement
processes, including the need to perform risk and control assessments at an early stage.
The Business Continuity Management proposal was accepted and it was agreed that the Head of Risk
should develop the business case for approval and submit it to the Finance Committee.
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There were a number of further actions raised at the meeting and these, together with the full details of
the discussions and outcomes, can be seen in the minutes of the committee which are provided as an
appendix to this paper.
4. Recommendation
ExCo is asked to note the summary of the meeting of 21° July 2014.
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Risk and Compliance Committee (R&CC)
Reference: R&CC JUL 14
Date: 21% July 2014
Venue: Room 501, 148 Old Street, London
Time: 14:00 - 16:00
Attending:
Chris Aujard
General Counsel
Chair
Paula Vennells
Chief Executive Officer
Member
Fay Healey Head of HR Member (for Neil Hayward)
Colin Stuart Head of Commercial Finance Member (for Chris Day)
Martin Edwards Chief of Staff Report
David Mason Head of Risk Report
lan Kennedy General Manager Network Transformation Report
Martin George Chief Marketing and Commercial Officer Report
Jonathan Hill Head of Risk, Banking Regulation and Strategy Report
Lesley Sewell Chief Information Officer Report
Paul Beaumont Risk Business Partner, Financial Services Report
Malcolm Zack Head of Internal Audit Report
I Simon Evans PricewaterhouseCoopers Observer
Mark Bayliss Manager, Business Risk and Assurance Secretariat
Apologies:
Chris Day Chief Finance Officer Member
Alwen Lyons Company Secretary
Member
eduction
Purpose
The committee to review the Head of Risk report
ssio!
The progress made and current state of the risk management framework was reported to the committee.
The committee asked that the current state and planned completion date of each element of the
framework be included. (Action 1606)
The committee discussed the risk communications plan and the Head of Risk confirmed that the plan
included training as well as awareness and that including risk as a component of the SLT training
programme was being agreed. The committee agreed that priority is given to areas where the level of
experience was low. The risk team was asked to perform a risk assessment of the plan and revise it to
take account of areas of known good practice and areas of low skill and knowledge in the organisation.
(Action 1607)
The committee noted the current staff shortfall in the risk team and agreed that HR would ensure that the
contract replacements would be able to start work as soon as possible. (Action 1608)
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The committee reviewed the risk events section of the report and focused on the recent Travel Insurance event.
The impact, root cause and actions taken so far were discussed and the committee requested that the
actions be given a high priority, particularly the Horizon changes which would prevent a recurrence. The
committee requested that the Director of Financial Services produce an update on the corrective actions,
taking into consideration the impact on project Titan, and circulate it to the committee members.(Action
1609)
The committee also requested that a policy be defined requiring the escalation of any events having a
potentially significant reputational impact. (Action 1610)
The committee reviewed and discussed the emerging risks section of the report.
The committee agreed that the restrictions policy element of the state aid emerging risk could have a
significant impact on Post Office and should be separately reported. The committee requested that the
Communications and Corporate Affairs Director and the Chief Financial Officer provide a proposal
covering the communications activity and other management of the risk. (Action1611) The emerging risk
should also be escalated to the Audit Risk and Compliance committee at the first opportunity.
The committee requested that the emerging risk report be re-organised to emphasise entries with the
highest potential impact and those likely to occur in the near future. (Action 1612)
The committee reviewed the assurance section of the report, focusing on Titan project support and the review of
the Xanadu programme.
The General Counsel reported that it had been agreed with the Director of Financial Services that, as a
pre-requisite for implementation of Project Titan, Grant Thornton would be independently confirming that
risks and other matters arising were appropriately addressed. The committee requested that Grant
Thornton present their conclusions to the committee in person. (Action 1613)
The committee agreed that the Xanadu report should be reviewed with the Chief Information Officer and
the Commercial Director and revised where needed. (Action 1614)
The lessons learned from the review should then be reported to the committee. (Action 1615)
The committee discussed the risk of unexpected costs due to changes to Post Office business requiring supplier
contracts to be terminated early. The General Counsel was asked to ensure that members of the legal team are
conscious of the changes that might be required to contracts as a consequence of Business Transformation,
wherever practicable. (Action 1616)
Outcomes
The committee received the Head of Risk report and identified a number of actions arising.
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Apne eS Neo See ee See on
Deep Dive session - Growth
Purpose I
The committee to review the management in place over the risk of failing to achieve top line growth in
line with the strategy
Discussion
The discussion highlighted the controls in place, areas for improvement and actions to be taken. Areas for
improvement identified by the Chief Marketing and Commercial Officer and Head of Risk, Banking Regulation
and Strategy, presenting the risk, were:
e “horizon scanning” for future trends,
e risk management of programmes, including initial risk assessments and re-assessments throughout
the life of the programme,
future trends and assumptions to be better analysed and documented in the business planning cycle,
business plans need to include market reviews,
identification and review of interdependencies between programmes, and
alignment of assumptions with business partners.
eeee
The committee requested that the Chief Marketing and Commercial Officer, the General Counsel and the
Financial Services Director follow up on this discussion and further define actions for improvement including:
e Further integrating the various growth programmes, taking into account the review of the Financial
Services strategy, and
e« Documenting the interdependencies between the programmes.
(Action 1617)
The committee agreed that the Head of Commercial Finance should review the annual planning cycle, ensuring
that all supporting assumptions are documented, including robust “horizon scans” and reviews of market
conditions. (Action 1618)
Outcomes
The committee reviewed and discussed the current state and future plans for the management of the strategic
growth risk and requested follow up actions.
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Agenda item 3 —
Network Transformation Risk SMepDIna
Purpose I
The General Manager, Network Transformation to present a mapping of the risks to the programme, their
impact and source
Discussion : ee oe i
The committee reviewed the risk mapping which highlighted the following:
e finance, legal and information technology are the areas most exposed to risks from the programme,
e there are more risks arising from interdependencies between programmes than from within the
programme, and
* programme risks commonly affect multiple areas of the business.
The programme is undertaking a ‘100 day’ project to further analyse the risks, improve their management and
devise mitigation approaches. The committee requested that the programme report back to the committee on
the outcomes of the project. (Action 1619) The committee also asked that the Head of Risk identify where risk
knowledge and best practice can be shared between business units and programmes. (Action 1620)
The committee discussed the need to allocate contingency budget or reserves for the management of
programme risk at Post Office and whether it should be held by programmes or centrally. The committee
requested the Head of Commercial Finance to review the financial planning process to ensure that sufficient
contingency / reserve is in place for programme and portfolio risk management and report back to the
committee.(Action 1621)
Outcomes oS Se ee
The committee reviewed the risks mapping from the Network Transformation programme and requested follow
up actions.
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To present a summary of the Deloitte report on internal controls over the Horizon System (Project Zebra)
The Head of Risk to bring back the Business Continuity Management enduring model proposal for approval
The Project Zebra report was reviewed and the committee agreed the response from the business to the
recommendations. The Chief Information Officer confirmed that the report's conclusions would influence future
systems procurement processes, including the need to perform risk and control assessments at an early stage.
The committee requested that:
e the last paragraph of the report be re-written to clearly identify issues and actions arising, (Actions 1622)
and
e actions from the report be tracked as audit actions.(Action 1623)
The Business Continuity Management proposal was not further discussed in detail but accepted and it was
agreed that the Head of Risk document the costs and submit the proposal for business review and approval.
The committee accepted the report on Project Zebra, requesting further actions, and approved the Business
Continuity Management enduring model proposal.
The committee to agree the previous minutes and receive the updates on actions to confirm completion
The committee did not cover this agenda item.
The members be asked to approve the previous minutes and action updates by email
The committee to consider any other business not captured on the agenda and any necessary actions
The committee did not cover this item but approved the proposal to move to a monthly timetable.
The committee agreed to meet monthly.
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Risk Management Summary Appendix
I Action Summary and Updates oo .
Update
Ref Action Lead By
1623 Track the actions from the Project Zebra report I Malcolm I 29" August
as audit actions Zack
1622 Ensure the last paragraph of the R&CC paper Malcolm I 15™ August
on Project Zebra is re-written to clearly identify I Zack
issues and actions arising.
1621 Review the financial planning process to Colin 29th August
ensure that sufficient contingency / reserve is in I Stuart
place for programme and portfolio risk
management.
1620 Identify where risk knowledge and best practice I David 29th August
can be shared between business units and Mason
programmes
1619 The NT programme to report back to the lan 6th
committee on the outcomes of its ‘100 day’ Kennedy I November
project to improve and embed risk
management.
1618 Review the annual planning cycle, ensuring Colin 29th August
that all supporting assumptions are Stuart
documented, including a robust “horizon scan”
and review of market conditions.
1617 Follow up on the R&CC deep dive discussion of I Nick 29th
the growth risk and further define actions for Kennett September
improvement including: Chris
Aujard
e Further integrating the various Martin
growth programmes, taking into I George
account the review of the
Financial Services strategy
taking place, and
e« Documenting the
interdependencies between the
programmes.
1616 Ensure that members of the legal team are Chris 29th
conscious of the changes that might be Aujard September
required to contracts as a consequence of
Business Transformation, wherever practicable.
1615 The lessons learned from the Xanadu David 29th
assurance report be reported to the R&CC Mason September
1614 The Xanadu assurance report be reviewed by David 29th August
the Chief Information Officer and the Mason
Commercial Director and be revised where
needed.
1613 As a pre-requisite for implementation of Project I Chris 29th
Titan, Grant Thornton will be independently Aujard September
confirming that the risks and other matters
arising were appropriately addressed. The
committee requested that Grant Thomton
present their conclusions to the committee in
person.
1612 Re-organise the emerging risk section of the David 29th
Head of Risk Report to highlight entries with a Mason September
high potential impact and likely to occur in the
near future
1611 Provide the committee with a proposal covering I Mark 29th
the communications activity and other Davies September
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Risk Management Summary Appendix
management of the emerging risk related to the I Chris
restrictions policy. Day
1610 Define a policy requiring the escalation of any David 15th August
events having a potentially significant Mason
reputational impact.
1609 Director of Financial Services produce an Nick 1st August
update on the mitigating actions related to the Kennett
recent Travel Insurance risk event, taking into Chris
consideration the impact on project Titan, and Aujard
circulate it to the committee members.
1608 Ensure that the contract replacements for risk David (Action Completed) I
business partners will be able to start work as Mason I
soon as possible and Fay I
Healey I
1607 Perform an assessment of the risk David 29th
communications and training plan and revise it I Mason September
to take account of areas of known good
practice and areas of low skill and knowledge in
the organisation.
1606 The current state and planned completion date I David 29th
of each element of the framework to be Mason September
included in the Head of Risk report on the
framework development progress
1601 Benchmarks or examples of how other Julie 3rd July
Carried businesses manage the exception to the George 2014
forward acceptable use policy to be collated and
provided to the committee
1600 Produce and circulate the job specification for David Next
Carried the MLRO Mason meeting
forward
1589 Assess the options for further FCA approved David Next
Carried persons within Post Office and identify training I Mason meeting
forward requirements.
1586 Failure of external bank IT systems to be David Next
Carried investigated to determine exact nature of Mason meeting
forward failures and if connected to Bank of Ireland
systems. To be reported within risk events
paper if appropriate
1584 Discuss and agree with Group People Director I David Next
Carried how any gaps in compulsory training are Mason meeting
forward I resolved
1583 Risk & Compliance team perform a survey to David Next
Carried identify the compulsory/obligatory corporate Mason meeting
forward training that is required to be completed and
identify any gaps in actual training that has
been completed
R&CC Management Summary Appendix David Mason Page 7 of 7
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1.
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Industrial Relations Strategy
Executive Summary
1.1,
1.2.
1.3,
This Post Office Industrial Relations (IR) strategy is based on raising capability and
confidence. It is designed to accelerate an increase in our levels of direct employee
engagement and the achievement of our commercial objectives and strategy.
The capability and confidence of our leaders and line managers to improve individual and
team performance during significant, challenging transformation is a critical success
factor for our business. Overcoming the current IR barriers to releasing more
discretionary effort — and giving managers the ability to manage — is another. We need to
up-skill our front line managers and HR Business Partners (HRBPs) so they can
successfully own and manage change in a highly unionised environment.
This strategy sets out the context for change and the practical ways in which we will
transform the relationship with our unions and, as a result, improve employee
engagement and business performance. It represents a fundamental change in our
relationship with unions.
Purpose
2.1.
2.2.
The Post Office has an ambitious commercial strategy to deliver the commitments
outlined in the document ‘Securing the Future — Strategy 2020. Creating the goodwill and
high levels of motivation required to successfully deliver this is a shared responsibility.
Without changing the way we work with our unions we will find it hard to deliver our
Strategy. This IR strategy is designed to add tangible value to the business by making us
faster at delivering change and by reducing the business cost of union representation. It
will support the ten ‘accelerators’ which guide our work, notably the radical re-shaping of
our organisation and the accelerators which involve ‘Changing the way we work’. '
Figure 1: Alignment with People and Engagement Strategy
People and Engagement Strategy IR Strategy
Acommercial, customer-focused culture Reduce the cost of union Facility time & balance the needs
of all stakeholders
An agile organisation that delivers faster Reduce cycle time for implementing change
execution
Higher levels of engagement from our Embed a new modern partnership based ‘Collective
employees Engagement Framework’ — national in scope, local in
practice
The roles and skills in place to drive the Establish IR/ER CoE; up-skilling managers and HRBPs
execution of the strategy Roll-out ‘Managing Change in a Unionised Environment’
workshop.
Remove duplication and complexity from I Re-work [and as appropriate remove] many of the c 300
our structure collective agreements to ensure they are fit for future
business purpose and legally compliant. Embedding
streamlined and simplified people policies.
ta
'8. Lead change with the right people in the right places — we will ensure that colleagues have the skills and authority
needed to manage their areas of responsibility, and are held accountable for delivery of the right outcomes for our
customers
9. Inspire and engage everyone in our turnaround story — we will make a compelling case for change to our agents,
employees and stakeholders in order to drive performance and customer service
10. Manage our partners with purpose - we will build profitable partnerships informed by a rigorous analysis of their
position and our customers’ needs.” ‘Our 10 accelerators to deliver a commercially sustainable Post Office’
4
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3. Context
3.1. We are independent business with recognised unions which are still organised for, and
wedded to, a pre-separation view of Industrial Relations. We have made significant
progress in asserting that ‘the old rules don’t apply’, notably through the resolution of the
Crown dispute with CWU in 2013/14, but still have a long way to go.
3.2. Just under 26% of all UK employees are members of a trade union, and only 14.4% of
private sector workers belong to one.* Even compared to the public sector, which is
considerably higher (55.4%), union density at the Post Office is exceptionally high. Latest
figures show that 90% of CWU, or team, grades are paying members. The equivalent
number for CMA, Middle Manager, grades is 40%.°
3.3. There are currently 38 individuals on full-time pay release for union activities within the
Post Office.* This equates to 1,767 working weeks, 8,835 days, or 61,845 hours per
year.° The total business cost of these individuals in pay, pension and expenses was
£1.2m in 2013/14.° This is an unsustainable cost for our business and an unjustifiable use
of public money
3.4. There is also the ‘known unknown’ additional cost to the business (as yet unspecified) of
time being taken off from normal working duties by part-time union reps carrying out
union duties and activities locally and the associated cost in management time this brings
with it. The IR team is currently undertaking a forensic investigation in to this issue.
3.5. Notwithstanding, the combined total of 38 full-time union reps on paid release alone in the
Post Office versus the current number of management IR subject matter experts currently
employed in the business represents a ratio of over 10:1 in the unions’ favour. Union
reps also receive additional professional support and ‘back-up’ from Union HQ, including
training.
3.6. A ‘like for like’ comparison with BT Plc which has a similar level of CWU membership
density as the Post Office (85%+), shows that applying the formulaic approach used by
BT, which is based on 0.8FTE per 500 union members, would realise cost savings to
Post Office Ltd of ~£0.8M pa.”
3.7. Fifty major collective agreements governing various workforce practices transferred to
Post Office under separation from Royal Mail. There are further 200+ which exist through
custom and practice at varying local levels.
4. Key Outcomes
4.1. This strategy will contribute towards commercial sustainability for Post Office by
delivering:
o Improved service efficiency and customer satisfaction;
Higher and sustainable levels of colleague engagement;
Reduced cycle time for implementing change;
Reduced cost of union facility time;
Capable and confident managers & HRBPs empowered to successfully manage
timely change in a highly unionised environment; and
o Assustainable positive climate of industrial and employee relations.
0000
? Trade Union Membership 2013, BIS, May 2014
* Figures taken from Post Office pay roll which administers ‘check off of union dues.
4 The Post Office IR Framework gives our unions 41 fulltime paid Reps. Three posts are currently vacant.
5 Based on a working year of 232.5 days per year and a 35 hour working week for a Post Office employee.
° Based on total employment costs and T&S spend of all fulktime Reps.
' Based ona projection of the average cost of a Rep (£31,500p.a.) and the total number of Reps (12) which
would be required under the BT formula.
2
4.2.
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We will deliver this by transforming the industrial relations landscape. Our default
position is to adopt a collaborative approach to working with our recognised unions while
recognising theirs are one set of interests to be balanced against others. Our customers
and colleagues come first.
Themes
5.1.
5.2.
5.3.
5.4.
5.5.
5.6.
Our work will have four main themes which will underpin our ongoing work to account
manage our unions. These are set out below.
A explicitly commercial approach to_all negotiations on pay to deliver affordable results
and change union and colleague perception of the Post Office’s approach and ability to
manage unions effectively.
A_new, modern approach _to_engagement_and change. Through a new ‘Collective
Engagement Framework Agreement’ and ‘Managing Organisational Change Framework’
which will be the new rules for collective engagement. This will represent an extremely
challenging negotiation process. Sitting underneath this will be the updating of collective
agreements and associated people policies, processes and procedures on a ‘many to
few’ basis. This will set the tone and practical framework for what we need our managers
and the unions to support.
A new, lean Collective Engagement Framework. Reframing the extant National Industrial
Relations Framework Agreements is critically important as ultimately these will set the
future context for collective engagement with the CWU and CMA over business
transformation generally and how Post Office Ltd will accomplish significant revenue
growth and reduce its cost base. This will result in a realignment and reduction in the
number of full-time union representatives.
A_step change _in_business_skills_in working with unions. Not all our colleagues,
particularly front-line managers, have the skills and support they need to work with unions
confidently and colleagues effectively. We will work to up-skill the business through
training, support and a wide range of guidance which we will produce to underpin our
engagement. See Appendix 2 for a summary of how this will work on a day-to-day basis.
This is designed to allow more and more decision to be taken at the appropriate, local,
level.
In summary, the successful delivery of the strategy is designed to create a new, legacy-
free culture of employee engagement in the Post Office. It is designed to bring the CWU
and CMA on that journey so long as they are willing to accept that challenge. This has
significant implications for the People and Engagement agenda across the business.
Figure 2: Culture change — direction of travel in industrial relations for Post Office
As is
Sector norms
Custom and practice
Over-emphasis in Comms on union collectivism
Formal/fixed roles
Hierarchy
Central ‘command and control’ by CWU
Engagement at national level with unions’
Indirect engagement with colleagues via unions’
Reactive/crisis management of unions
To be
POL Governing Principles and Values
Transformation
Greater emphasis in Comms to individuals
Flexible/agile working
Flatter structures
Devolved empowerment of local reps
Greater engagement at local level
Greater direct engagement with colleagues
Proactive/ planned engagement with unions
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6. Delivering the Strategy — Resourcing and Priorities
6.1. To address the current imbalance of influence over colleagues’ behaviours (e.g. industrial
action) away from the unions (CWU in particular) towards front line managers, we must
be able to demonstrate that every colleague is valued, feels valued and is invited and
trusted to participate in meaningful and regular conversations directly with their line
managers.
6.2. Post Office line managers hold the key to improving the levels of employee engagement
— we need to up-skill & support them and the HRBPs to effectively manage timely change
in a unionised environment.
6.3. We have already integrated IR and ER into a single team.
6.4. We need a lean, focused and expert team to deliver this challenging strategy. It needs to
focus on a short list of priorities which will underpin the themes outlined at Section 5.
6.5. A New Employee Relations & Engagement Team
Delivering this strategy requires targeted investment in expertise and needs to be fully
integrated with our work on employee relations and employee engagement. This will be
offset and, in time, funded, through the reduction in paid union officials and facility time. It
will have clear metrics against which to judge success (see Appendix 1)
6.6. Notwithstanding the planned reduction in the cost of union facility time, there is a
compelling business case for investing in additional resource for establishing an
adequately resourced IR and ER capability to readdress the current imbalance of IR
resource/influence available to the unions. We will create a new Employee Engagement
Team, bringing together IR and ER which will work closely with Comms and HR. This will
be led by the Head of Employee Engagement as part of the People Team. Please see
Appendix 1 for details.
6.7. Priorities
To deliver the strategy we will:
e Produce and roll out a workshop — ‘Managing Change in a Unionised Environment ;
e Re-work, modernise (and, as appropriate, remove) many of the collective agreements,
policies and procedures ensuring they are fit for future business purpose and legally
compliant:
¢ Produce and embed a ‘Managing Organisational Change Framework’ to rationalise
and simplify collective agreements, policies and procedures;
e Replace the national agreement on trade union facilities and time with a new trade
union duties framework that will reduce the cost to the business;
¢ Produce and embed a robust ‘account management’ approach to the governance,
tracking, managing and authorising TU facility time; and
e Produce and regularly update a forward-looking IR ‘Heat Map’ to enable us to identify
‘early wins’ and pro-actively plan IR/ER team interventions for supporting managers
and HRBPs through change and transformation.
7. Risks (and mitigations)
7.1. This approach has a number of clear risks which we will seek to mitigate:
¢ — Seeking to implement the Strategy will delay other business activity — Possible if the
unions chose to withdraw from all co-operation;
. Post Office will be portrayed as anti-union — This is a certainty, the key is whether it
will be seen as such by colleagues and stakeholders. Our approach can fairly be
described as pro-union as our ideal end-state includes recognised unions with
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agreements consistent with Acas best practice and a level of union representation
still above industry benchmarks. We will emphasise this point to colleagues and
Stakeholders, as well as to the unions themselves;
e The business will not have the resolve to implement the Strategy — this would be
highly damaging to the Post Office. If it is a likely outcome we should not take this
work forward. This is best mitigated through a strong and united endorsement of this
strategy, having accepted the challenges inherent in delivering it;
e Implementing the work will expose the current cost of Post Office industrial relations,
which will reflect badly on the business — it is possible that government or the right-
wing media would sensationalise the Post Office’s current IR Framework, which is
now significantly above the public sector norm. This is a risk with our present
situation and, if it was exposed as part of this work, could legitimately portrayed as
Post Office taking action to address a legacy issue;
¢ Relations with the Royal Mail would be damaged — This is possible in the sense that
we would be pursuing a very different approach to RM in our approach to unions.
This can be mitigated through effective stakeholder management at IR and senior
exec level, and also by making clear that this is no criticism of RM’s approach, which
is appropriate to their needs as a separate company.
. Union membership and support will increase in reaction to the Strategy — It is hard
for either to increase much beyond its current levels within CWU grades. This is an
employee engagement strategy and only be reducing union influence can we
effectively improve employee engagement.
8. Next Steps
8.1. There is an urgency to start delivering this strategy. It will support our accelerators for
commercial sustainability. We therefore propose to:
. Continue with on-going work noted in this Strategy
. Present this Strategy, supporting Industrial analysis, and high-level delivery plan, to
the ExCo for discussion and approval
. Secure business sign-off.
Industrial Relations
August 2014
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APPENDIX 1: Post Office Employee Relations & Engagement Team
Proposed Organisational Chart
Head of Employee
Relations &
Engagement
1
i
i T t T
: Employee
IR Policy Manager i Partnerships ER Manager Manager Engagem
Manager vee
[ iR Manager
{P/T)
Employee Relations & Engagement Team Commitments
The ER&E Team will:
1. Ensure that the IR strategy remains wholly aligned with ‘Post Office People and Engagement
Strategy’.
2. Focus on outputs/outcomes; measuring them and making them come alive rather than on
inputs / internal processes / checklists etc.
3. Build on the excellent work that has gone on in Post Office already.
4. Produce and maintain an organic IR ‘Heat Map’ to facilitate a continual line of sight to future
transformation change programmes.
5. Enable Post Office lines of business to better coordinate; risk assess and time the
implementation of change programmes to reduce the risk of industrial action.
6. Collaborate with directors, business managers, HR, internal and external communications
L&D teams etc. to maximise the power of the resources available.
7. Focus on relationship strategies that involve the right people at the right time in the arena of
industrial and employee relations.
8. Using targeted interventions of training/IR support for priority groups / individuals, as opposed
to generic and huge ‘sheep dip’. We will be guided by team feedback and the Employee
Engagement results.
9. Remain cognisant that anything we do in the arena of IR/ER and employee engagement must
‘fit’ within the framework of current POL initiatives, all of which have their own inter-
dependencies and sponsor.
10. Work smart.
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APPENDIX 2: Employee Relations & Engagement Team Success C. ja/Metrics
Sustainable positive climate of industrial & employee relations
Measured/Evidenced by:
= The number of collective disputes raised by the unions
The impact on performance and productivity due to industrial action and organised non-
cooperation.
Examples of successful joint/collaborative initiatives undertaken in partnership with the
unions featuring positively in internal and external media/communications — i.e. ‘good
news’ stories.
Sustainable high levels of employee engagement
Measured/Evidenced by:
Employee engagement index
Reduced levels of absenteeism
Retention of business critical talent
Improved performance and increased levels of discretionary effort.
Removing IR barriers & out-dated collective agreements that militate against reducing cycle time
to implement change and which drive up preventable costs to the business
Measured/Evidenced by:
» Embedding a new ‘Collective Engagement Framework Agreement’ containing a revised
collective dispute resolution procedure
Embedding a ‘Managing Organisational Change Framework Agreement’ (MOCF)®
» Embedding streamlined and simplified people policies
* A reduction in cycle time and costs for successfully resolving collective (union) work
related disputes
A reduction in cycle time for successfully and cost effectively resolving cases of individual
grievance; performance management, conduct and capability issues involving union
interventions
= The reduction of union facility time and associated cost to the business
= The introduction of a trade union data base for tracking and managing TU facility time
Where agreement for the removal of IR barriers to change has not proved possible through
collective engagement it is proposed that the parties in dispute will adopt the revised and agreed
collective dispute resolution procedure annexed to the ‘Collective Engagement Framework
Agreement’.
Industrial Action Contingency Plans
Should the adoption of the revised collective dispute resolution procedure not result in the
avoidance of lawful industrial action, we will set in train robust Industrial Action Contingency plans
developed and very effectively deployed in Crowns, which will be revised as required. These will
involve Comms and Employee Engagement as well as operational requirements. These already
exist for the Crown and Supply Chain networks.
® The MOCF will spell out the context within which a specific number of change situations need to be played out, e.g
redeployment, relocation, surplus staff, VR, performance management etc.
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POST OFFICE LTD BOARD
Delegating authority for software licence purchases — August 2014
1. Purpose
The purpose of this paper is to:
1.1. Request approval for the Board to delegate authority to approve software licence
purchases and associated support contracts containing uncapped liability to a group
consisting of the CFO (Chris Day), General Counsel (Chris Aujard) and CIO (Lesley
Sewell). Software licence agreements and associated support contracts will be
signed by an authorised signatory under the ‘Post Office Procurement Delegated
Authorities’ once the contract has been approved by the CFO, ClO and General
Counsel.
2. Background
2.1 The Board has delegated authority to enter contractual commitments on its behalf.
This process is managed via the contract approval procedures and the Contract
Approval Form (“CAF”)
2.2 Any contracts which do not limit the liabilities of the Post Office, i.e. contains an
unlimited liability, must be approved by the Post Office Limited Board.
2.3 In separating the software licence estate from Royal Mail Group, there is a large
number of “off the shelf” software licences that will need to be signed in the name of
Post Office Limited. There are 62 known software vendors whose products are in use
and new agreements will need to be signed.
2.3 It is standard industry practice for software licence agreements for “off the shelf’,
proprietary products from large software vendors, such as Microsoft and SAP, to
contain uncapped liability clauses. Negotiation options with these suppliers are very
limited.
2.4 Requesting Board approval for each licence agreement with an uncapped liability will
burden the Board and add limited value as these are market standard positions. This
will also add time to the process.
2.5 Delays in seeking Board approval may result in cost increases if negotiated discounts
are time boxed by vendors.
3. Activities/Current Situation
3.1 Negotiations are currently underway and nearing completion with the large vendors
such as Microsoft, Oracle, SAP and Adobe. Each of their contracts contains, or will
contain either an uncapped liability clause or the contract will be silent as to any cap
on Post Office’s liability.
4. Proposal
41 All concluded contract negotiations with software vendors are:
Delegated signing authority — software contracts Chris Day/Chris Aujard Page 1 of 2
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« reviewed by internal and external legal counsel
e approved by the Post Office Limited ClO, CFO and General Legal Counsel through
the signing of a CAF, which is then countersigned by Company Secretariat
e licence agreement and associated support agreement signed by an authorised
signatory under ’Post Office Procurement Delegated Authorities’
* copies of the agreement(s) and CAF will be kept my Company Secretariat
¢ summary of contracts signed through this route are sent to Board for noting
5. Commercial Impact/Costs
5.1 There is limited commercial impact in delegation of authority. In many instances Post
Office are already using these products, through Royal Mail agreements
6. Key Risks/Mitigation
6.1 The key risk associated with delegating authority is that the functional EXCO
members approve an uncapped liability position that the Board would view as an
unacceptable risk.
7. Long term considerations
7.1 Software Asset Management will be implemented and managed via Atos as part of
the transition to the IT Towers. This will allow Post Office to optimise the use of these
assets
8. Communications Impact
8.1. There are no communication impacts beyond the IT procurement team who are
already aware of this proposal.
9. Conclusion
9.1 Delegated authority to approve software licence agreements containing uncapped
liability will not introduce any new material risks to Post Office Limited but will
expedite separation of software contracts in a more timely manner.
10. I Recommendations
The Board is asked to:
10.1 Delegate authority to approve software licence agreements and associated support
agreements containing uncapped liabilities to the ClO, CFO and General Legal
Counsel.
Chris Day/Chris Aujard
19°" August 2014
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148 Office Move “
‘Ways of Working’
19st August, 2014
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Purpose
The purpose of this presentation is to take ExCo through the project SLAID:
¢ — Communications framework
* — Ways of working principles (including desk allocation)
* — Change plan (practical and cultural)
ExCo are asked to review this presentation and then:
1. Support and advocate the ways of working approach outlined
2. Role model the cultural change required
3. Engage with their teams to lead the change in their area
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Overview of approach
ey
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Communicating the move: 4 sections
Keeping people Involving Introducing
Madernising the way we work where:
I updated on the people to help I } people to their
I operational side ; shape their new i 41. Work is seen as an activity and not a
i of the move- I I place of work I I neighbourhood I I place (output rather than input based) I
including ~—I_: (i.e. voting to ; I (ie. places to I I 2. People collaborate across teams, utilising
i timelines and I name i; eatnear I technology where possible
FAQs. i i meeting I I Finsbury Dials) } I 3. Cost savings are delivered through more I
Snead : rooms) I et effective use of space (going digital)
Each of these strands to run through-out the office move period, but also to carry on
post-move to continue to make Finsbury Dials a modern and great place to work.
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The way you work: Who does this well...
Seven floors dedicated to start-up success
Open to all (internal and external) with free Wi-Fi, networking and collaborative space
I
eae n eee e eee eee eee eee eee eee ee eee ee ee eee ee 4
* 2300 employees all hot-desk H
IBIBICI re Nobody assigned a desk, rather the entire office has activity areas that allows workers to I
' collaborate, socialise and focus on tasks H
i
1
O ne In 2010 moved to new HQ in Slough, where there are 1,500 desks for 2000 people. I
2 + 600 ‘huggers’ (permanent desk) and 1400 ‘hoppers’ (no permanent desk). I
Atuenacrry 1 @ This equates to 1 permanent desk for every 3.3 employees 1
* Moved 450 staff 20 miles from Harlow to Hatfield H
¢ — Agile working introduced where now only 60 people work in the H
headquarters, where previously only 60 worked away from it I
r
1
. 1
#4 PitneyBowes
1
1
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The space challenge
* Current space requirement in 148 is c.900 (June 2014).
* 120 will leave 148 as part of NT moves to Clapham/Colchester (leaving 780).
* 148 has an average occupancy of 80% - leaving an estimated 624 using the building each
day*
* There are 480 desks in Finsbury Dials (+ 70 touchdown spaces / 41 meeting rooms).
¢ To achieve this will require a significant
change to the way we work.
*This number will decrease as a result of business transformation to the point where in the
future Finsbury Dials will have a predicted over extra capacity - in which case the flexible lease
will give us the option of sub-letting a floor
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New ways of working is broader than Old Street
(office move is the catalyst)
The Agile Future Forum is a partnership of
organisations that are looking at how UK
organisations can support the growth of UK
plc by becoming more agile across the
following 4 areas:
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Ways of Working
Principles
gk
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10 Ways of Working Principles
1. Neighbourhoods: Functions will be allocated neighbourhoods with a proportional amount of
desk space to which they will be responsible for determining the allocation of desks using the
principles outlined in this document. ExCo will have their own neighbourhood which will
include space for personal assistants.
2. Work Location: Employees who are home based, field based or non-London based will not
have a permanent desk
3. Hot-desking: The majority of employees will be required to hot-desk (business wide
expectation that permanent desks will be the exception with a minimum of 2/3rds hot-
desking). Huggers* will have a permanent desks and Hoppers* will be mobile (both will still
have Finsbury Dials as contractual location)
4. Permanent Desks: Huggers will be determined using transparent criteria based on
business or personal requirement. Lead teams to determine which roles are huggers
(including SLT) as part of a mapping exercise in September.
*We will be asking people to vote on the best name for permanent and mobile workers but are
using the terms hugger (permanent desk) and hopper (mobile worker) for briefing purposes.
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10 Ways of Working Principles (contd)
5. Temporary workers: Where covering a permanent role will be included in
proportional neighbourhood space. Project work will need to include a space request
as part of a separate business case submission (including existing projects)
6. Storage: Huggers will have permanent storage (slim pedestals) while hoppers will have
access to individual personal lockers. There will also be separate team storage where required
(i.e. legal requirements for confidentiality) but the emphasis will be on becoming more digital
(i.e. office clear out days)
7. Costing: Desks will be cross-charged to functions. Additional requests for space will be
factored into business cases which the property team will support as appropriate. Conversely,
teams can hand back space as appropriate and realise a cost saving.
8. Desk Booking: Desks will not be pre-bookable
9. Touch-down desks: Touch-down desks (70) will be available on a first come
first served basis
10. Clear Desk Policy: There will be a clear desk policy (no towels on sun loungers!)
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Example
+ HR team has 148 headcount of 45 which equates to 5.8% of total 148 population of 780 (900 total - 120 moving as part of NT)
+ Finsbury Dials has 480 desks. HR team allocated neighbourhood with 5.8% of desks = 28 desks.
+ HR team to allocate permanent desks (huggers) based on central criteria. This is up to lead teams to determine (mapping sesions
to take place in September) but the greater the ratio the more neighbourhood hot-desks available for team:
- 1:3 ratio = 15 permanent desks : 45 people (this leaves 13 hot-desks for 30 people requiring a daily hugger occupancy rate of 43%)
- 1:4 ratio = 12 permanent desks : 45 people (leaving 16 hot-desks for 33 people requiring a daily hugger occupancy rate of 48%)
- 1:5 ratio = 9 permanent desks : 45 people (leaving 19 hot-desks for 36 people requiring a daily hugger occupancy rate of 53%)
- 1:11 ratio = 4 permanent desks : 45 people (leaving 24 desks for 41 people requiring a daily hugger occupancy rate of 59%)
+ Expectation that permanent desks should not be allocated at a ratio less than 1:3
* ExCo members and personal assistant will be situated in their own neighbourhood so mapping exercise will not include them.
Teams then supported in how they work as flexible teams
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Example (contd)
* HR team chooses to allocate just two people with permanent desks (1 x Health and Safety point of contact
and 1 x Pensions Admin role)
* This leaves 43 people to share 26 desks. This requires a daily hugger occupancy rate of 60% as opposed
to the existing natural overall occupancy rate of between 60% and 90%
* Each team allocated 3 primary office days (i.e. Reward team on Monday/Wednesday/Friday, Business
Partners on Monday/Tuesday/Thursday) to meet 60% occupancy rate
« Employees encouraged to work at home up to 2 days per week, where possible, and utilise technology to
communicate
* Team utilises technology wherever possible to hold meetings
- Video conference 1:1s
- Webinar team presentations
* Team members work in touch-down areas and collaborative shared space when.no:space in
neighbourhood :
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We need to change our work culture
Current World
Head office
Work as a destination
(everyone with an allocated
permanent desk)
Face-to-face
communication and travel
the default
Silo working
Hierarchical and
bureaucratic
New World
Customer support centre
Work as an activity (hot-
desking where permanent
desks are the exception)
Technology based
communication (i.e. video
conferencing) the norm
Collaborative work
environments and
relationships
Open plan and agile
Timeframe
Building an agile workforce will be a an on-going
process - but office moves are used as the
catalyst.
BBC: Relocated to new Salford HQ over 9 month
change journey.
02: Merged 5 different geographics units into one
hub in Slough where 2000 people use 1500
desks. 7-8 month change journey
Pitney Bowes: Moved 450 staff 20 miles to new
HQ. 6 month change journey.
Our journey will be quicker
(5-6 months) but it is less
complicated due to distance,
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Change Curve
like in different functions..
'
'
H
! i Work is seen as an activity and not a place (output
H rather than input based)
‘Understancing I [test I: 2. People collaborate across teams, utilising technology
changes im =Move ff where possible
V5 Searching I In I 3. Cost savings are delivered through more effective
4 Letting go t I use of space (going digital)
I u.
Time 1 as
i 1 i
AUG SEPT OCT NOV DEC JAN !FEB/MAR Practical Change Plan Cultural Change Plan
i i I i
H I Informing the business of : } Changing the culture of !
7 ! new ways of working and ! k '
f : managing what that looks Moonee
Understanding &
& Awareness Experiencing
Communicating i
i
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°
New Ways of Working: Cultural Change
A t 21st Sept October November December Monthly updates
Positioning Note from Office move Lunch & Office Lunch & Learn Office Lunch & Learn Office Lunch & Learn continue until June
Neil Hayward (ExCo Learn (Harry) + video broadcast + video broadcast + video broadcast 2015
Sponsor)
P Email Update* Email Update* Email Update* Email Update*
August 29th
Internal Teaser Banner in reception / Posters / Screens / Social Media (Office Move Instagram) /Teamtalk Lite / monthly
Campaign update email / celebrate Old Street achievements (October)
‘On the move”
Sept 9% / 23°4 October 3™ SLT New off Nov! Dec
fi i + New office visits
Webinar training How ott can lead the » Line Manager Training (managing agile Feb - March
sessions on new ways. change teams) Phased move in with
of working ’ .
$ * Technology drop-in sessions pack (i.e. new
+ lanyards)
* i Sept 19" / October October
H Monthly email : 3 / October 17th HR Functional Trial November
H update to include ! Digital clear out days and video diary Functional 1 week
i feedback survey to i (Scan, Shred, Store) trials of new ways of
: track progress i October working (pedestals
: through change} Virtual Reality walk taken away)
- through launched TBC
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Internal Teaser Campaign: On the move...
Are you a See it to
hugger or a believe it....
hopper?
PP On the move on
On the move... Instagram
#onthemove
#onthemove
(visit the intranet site to find
out more)
(visit the intranet site to find
out more)
New Ways of Working: Practical Change
i
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Aug 4th - 29th
Relocation reps
complete data capture
of 148 population
(line in the sand for
fluid population)
August 21st
Positioning Note from
Neil Hayward (ExCo
Sponsor)
Mid-late Sept
Lead team sessions to:
- Confirm permanent
desk allocation against
role / confidential
storage requirements
- Discuss new ways of
working (including
functional trial)
End Sept / Early
October
Map functional
requirements to
Finsbury Dials and
confirm layout.
August 215 - Sept
11th
Initial line manager
discussions / Team-
talk
Sept 19% / October 3"
/ October 17th
Digital clear out days
(Scan, Shred, Store)
August 29th
Briefing note to
functional lead teams
to prepare for
mapping sessions
Early October
1:1 discussions where
line managers discuss
news ways of working
(including who gets
permanent desks and
functional trial) to
include discussion with
individuals who need
permanent desk for
personal reasons
Briefing packs provided
November
Functions go through 1
week trial run of new
ways of working.
Questionnaire and
follow up lessons
learned session to take
place.
Oct/ November / Dec
onwards
Online Management
training (modular
courses such as
managing remote
teams / peer learning
End October
Seating plans finalised
Jan
Move preparation
(move in packs or
app / new lanyards
/ laptop refresh)
Feb - March
Phased move in to
Finsbury Dials
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New Ways of Working: Utilising Technology
These are examples of how other organisations are utilising technology to work differently:
« Webinars: Exchange ideas and information with real time screen sharing and phone conferencing
« Video Conferencing: Visual and audio information exchange (one-to-one, one-to-many, group)
¢ Digital Post-it: Share information remotely between screens and laptops
« Yammer: Online collaborative tool
¢ Virtual Directory: Self-managed digital address book
¢ Digital Posters: Part of neighbourhoods to display functional and broader messages such as realtime business
stats (e.g. life insurance sales, call centre waiting time)
¢ Twitter: Tracking geographical activity hotspots on the screens
« Near Desk: Pay-as-you-go external mobile desk space through an Oyster Card system
¢ Follow-me printers: Printers that you scan and recognise you anywhere
We need to go digital. The move will coincide with a technology refresh that will see everyone in Ol
Street issued a new laptop and Blackberries will be replaced with Windows phones.
The biggest change will be the change in habit. We need to go digital.
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Summary
ExCo are asked to:
1. Support and advocate the ways of working approach outlined in this document
2. Role model the cultural change required
Treat work as an activity, not a place (performance manage on outputs not inputs)
Utilise technology to collaborate (hold video conferences / Webinars)
Maximise how we use space (go digital/paperless)
w
. Engage with their teams and lead the change in their area.
4. Start to do things differently.....
Next Steps:
* Positioning note from Neil Hayward to go out Thursday 21°t August
¢ Lead team session in the diary for September
* ~We have a dedicated intranet site which you can access by clicking here
Current Actions and Decisions Log
ExCo Meeting 18 February - Actions and Decisions
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18/02/06 Action 1 Transformation Board
Communicate to SLT the new Governance structure and their role inI AL/AT/MD End June
holding ExCo to account.
Update 13/06/14: RZW is progressing this action. ON HOLD TOR AND In progress
DATES TO BE CIRCULATED TO SLT
ExCo meeting 18 March - Actions and Decisions
18/03/08 Action 8 Finance Report - Government Contracts
Circulate to ExCo a table showing Government contract coming up for I MG April ExCo
renewal in 2014/2015 and the likely effect on the plan.
ExCo meeting 15 April - Actions and Decisions
15/04/20 Action 2 Network Board papers
Mike Granville to provide a paper to look at the effect of the run up to I MD/Mike Granville In progress
the last election on the Business and the influence of manifestos.
Update 13/06/14: Mike Granville and Jane Hill preparing a paper.
Update 12/08/14 - Influencing Update paper for ExCo on the
approach to the election (influencing manifesto/preparation) will be
provided in advance of October ExCo meeting. It will include any
lessons from 2010.
ExCo meeting 8 May - Actions and Decisions
08/05/14 Action 13 Strategic Risk- Risk Appetite
Feedback to Dave Mason any comments on the Risk Appetite paper. ExCo/DM SEPT 11TH
Dave to update and set up an ExCo session on risk appetite after the
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June Board away day. 12/8 - UPDATE FROM KEVIN G - FLAGGED
CONCERN AND WILL TRIAL A NETWORK INITIATIVE TO TEST THE
FRAMEWORK.
08/05/15
Action 14
Strategic Risk - Contingency Risk
Paula to discuss the contingency with Chris D to decide how the ExCo
take the lack of contingency risk forward.
Pv/CD
SEPT 11TH
08/05/16
Action 15
Strategic Risk - Contingency Risk
Chris Day to share the finance stress testing of the plan with the ExCo,
to ensure contingencies are identified for the big programmes.
cD
SEPT 11TH
08/05/31
Action 4
Data Centre Procurement (pre ARC)
Adnan to produce a draft learning sheet to use within the business.
CA
In progress
08/05/34
Action 3
TFL - Audit protocol guidance
Put the policy on the intranet and ensure it is well communicated.
Updated 13/06/14: MD meeting CA to progress Updated 25/06/14:
MEETING ON 25/6 TO PROGRESS FURTHER.
CA/MD
In progress
08/05/14
Action 5
TFL - Audit protocol guidance
Internal Audit to recommend best practice for assurance activity for
the large programmes.
CA
In progress - will
form part of the
PwC work.
08/05/37
Action 6
TFL - Audit protocol guidance
Decide on the best approach to ensure the intranet is effective with
the possible use of a super administrator. Updated 13/06/14: MD to
discuss at 1:1 with NH to progress.
MD/NH
In progress
ExCo Meeting 9 June 2014 - Actions and Decisions
09/06/01
Action 1
Risk & Compliance
Piece of communication needed to explain risk management and risk
protocols particularly as we move into Business Transformation.
Updated 25/06/14: MD and CA met to progress further
MD/CA
ONGOING
ExCo Meeting 3 July - Actions and Decisions
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03/07/01 Decision 1 I Kelly Report OR Closed
BBC lessons learned on programme management to be picked up by
David and fed into Business Transformation programme
Document circulated to BTr team with the action to embed risk
mitigation into programme next steps to address relevant provocation
from the report.
03/07/02 Action 1 Project Nemo NW/NH Sept 11th
Use the opportunity of introducing a new DC scheme to reconsider
offering salary sacrifice as part of the scheme.
Paper to be produced for September ExCo
03/07/03 Action 2 Project Nemo NH/NK On Going
Consider whether we align any potential FS pensions product (e.g.
advice service) with the new DC pension provision for our employees.
Scoping exercise to take place once the legal framework is better
understood (eg. Mechanism to offer free advice at retirement etc)
03/07/05 Significant Litigation
Schedule an ExCo discussion on losses and prosecution policy
03/07/09 Cyber security noting paper
Risk & Compliance Committee to consider Cyber Security on its next
agenda
21 July
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03/07/16 Action 1 Titan/Hawk
Provide a verbal update at the next ExCo to ensure understanding of
Titan and the negotiation mandate for Hawk.
NK
Next ExCo
ExCo Meeting 8 July 2014 - Actions and Decisions
08/07/02
Action 2
Finance Performance update at Q1 - Telephony
Organise a deep dive for telephony for the Autumn to review the
product profitability.
MG/AL
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08/07/05
08/07/07
08/07/09
Action 3
Action 1b
08/07/10
Action 2
08/07/11
Action 3
CFO forecast - Mails
Come back to ExCo to explain options for Mails segregation.
CFO forecast - Commercial Committee
Extra ordinary meeting of Commercial committee to discuss life
insurance sales model
Commercial
committee
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08/07/14 Finsbury Dials FH/HC/PM End of August
Provide a paper of different ways of working with more dynamic use
of Customer/business information.