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Post Office Board Agenda
26" September 2017 + Tim Parker (Chairman) + Jane MacLeod None
+ Richard Callard * Steve Ashton (item 4)
StartiTime Finish Time + Tim Franklin + Nick Kennett (item 4, 6 & 8)
10.30hrs 15.00hrs + Virginia Holmes + Kevin Gilliland (item 6)
+ Ken McCall + Rob Houghton (item 7)
+ Carla Stent + Owen Woodley (item 8)
Room 1.19 Wakefield + Paula Vennells + Representatives from McKinsey (item 8)
+ Alisdair Cameron
Agenda Item Action Ne Purpose Lead Timing
1. Minutes of previous Board held on Decision Minutes of meeting held on 25* July to be Jane MacLeod 10.30 - 10.35
25t July 2017 and Committee formally agreed.
meetings including Status Report
2 CEO’s Report For discussion and CEO to update the Board on the report. CEO 10.35 — 10.55
noting
3. Financial Performance Report For noting CFOO to update the Board on the report. CFOO 10.55 — 11.10
4. POMS Performance against For noting To update the Board on POMS’ performance Steve Ashton / 11.10 - 11.25
Strategy against strategy. Nick Kennett
5. Approve Report & Accounts after For approval For Board to approve the Annual Report and CFOO 11.25- 11.50
recommendations from the ARC Accounts following recommendations from ARC.
BREAK 11.50 — 12.00
6. Chief Executive Retail Performance For noting Chief Executive to update the Board on the Retail Kevin Gilliland 12.00 - 12.25
Report Performance Report.
ts Technology Strategy Update For approval For Board to review and agree the proposals in Rob Houghton 12.25 — 13.15
the Technology Strategy Update.
LUNCH 13.15 — 13.45
8. Project Peregrine Update For discussion and To update the Board on negotiations with the Bol Nick Kennett / 13.45 - 14.45
potential decision and the options for 2023. Owen Woodley /
McKinsey Representatives
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Post Office Board Agenda
Agenda Item Action Needed Purpose Lead Timing
9. Ratifications of decisions made by 14.45 - 14.50
correspondence
9.1 Modern Slavery Act Statement Ratification of The ARC approved the statement at its meetingin I Jane MacLeod
statement May, but this was not brought to the Board for
approval. Accordingly ratification is now required.
10. Items for noting 14.50 - 14.55
10.1 Sealings For noting Board aware of the affixing of the seal.
10.2 Health and Safety For noting To update Board on Health & Safety Report.
10.3 Health and Safety in the Agency For noting To note the report on Directors’ Duties.
Network
10.4 Future Meeting dates For noting For Board to note future meeting dates.
11. AOB 14.55 — 15.00
CLOSE 15.00
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POLB 17(5%)
POLB 17/51 — 17/64
Present:
Tim Parker
Richard Callard
Tim Franklin
Ken McCall
Carla Stent
Paula Vennells
Alisdair Cameron
In Attendance:
Alwen Lyons
Martin Edwards
Nick Kennett
Rob Houghton
Jeff Smyth
Andy Garner
Kevin Gilliland
Lucy Pink
Tom Wechsler
Christian Muir
Apologies for Absence:
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Strictly Confidential
POST OFFICE LIMITED
(Company no. 2154540)
(the ‘Company’)
Minutes of a meeting of the BOARD
held at 9.30am on Tuesday 25" July 2017
at 20 Finsbury Street, London EC2Y 9AQ
Chairman (TP)
Non-Executive Director (RC) (Excluding minutes 17/51 and 17/52)
Non-Executive Director (TF)
Senior Independent Director (KM)
Non-Executive Director (CS)
Group Chief Executive (CEO)
Chief Financial and Operations Officer (CFOO)
Company Secretary (CoSec)
Group Strategy Director (ME) (Minutes 17/52 and 17/59)
Chief Executive Financial Services and Telecommunications (NK)
(Minutes 17/57 and 17/58)
Group Chief Information Officer (RH) (Minute 17/59)
CIO FS&T (JS) (Minute 17/59)
CIO Retail (AG) (Minute 17/59)
Chief Executive Retail (KG) (Minutes 17/60 and 17/61)
Product Manager - Mails & Retail (LP) (Minute 17/60)
Government and Payment Services Director (TW) (Minute 17/61)
Client Director, Commercial (CM) (Minute 17/61)
Virginia Holmes Non-Executive Director (VH)
INTRODUCTION
(a)
A quorum being present, the Chairman opened the meeting.
FUNDING UPDATE
(a)
(b)
(c)
The Chairman welcomed ME to the meeting.
ME provided a verbal update on the funding negotiations and
the likely timetable for a response from the Shareholder.
The CFOO explained that once the detail of the funding was
known a cash flow forecast would be produced to prove
sustainability, at which point the Annual Report and Accounts
(ARA) could be finalised with the External Auditors including a
subsequent events review. If a letter was received before the
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ACTION: CoSec
ACTION: Jane
MacLeod
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(d)
(e)
(f)
(9)
Strictly Confidential
summer recess the ARA could be presented at an ARC in
September, although an additional meeting might be
needed.
ME explained that work was already underway on the
Government's State Aid Submission.
The format of the funding and the ongoing governance was also
under discussion with the Shareholder. The Board stressed the
importance that the Shareholder recognise and protect the
independence of the Board and challenged the need for
additional governance beyond that already incorporated in the
Articles of Association.
The Board thanked ME for his work to date and noted the
funding update.
ME left the meeting.
CONFLICTS OF INTEREST
(a)
(b)
RC joined the meeting.
The Directors declared that they had no conflicts of interest in
the matters to be considered at the meeting in accordance with
the requirements of section 177 of the Companies Act 2006 and
the Company's Articles of Association.
MINUTES OF THE PREVIOUS BOARD MEETING INCLUDING
STATUS REPORT
(a) The minutes of the Board meeting held on 25" May 2017 were
approved and the Chairman was authorised to sign them as a
true record.
(b) The actions status report was noted as accurate. The Board
asked the Company Secretary to ensure that Identity
Services and IT Strategy were included on the September
agenda.
(c) The Board noted the paper on Health and Safety Directors’
duties and recognised that the paper covered the duties to
employees
(d) The Board asked for a separate paper setting out any
Directors’ duties which apply to agents.
CEO REPORT
(a) The CEO introduced her report, focussing on the following key
points.
Financial Performance Period 3
(b) The CEO reported that the financial performance was on track.
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(c)
(d)
(e)
(f)
(9)
(h)
Strictly Confidential
Awards and External Recognition
The Business had received a number of awards and recognition
over the last month. The CEO highlighted the change in attitude
and positive report from Citizen’s Advice. The report covered
the effect of Network Transformation and the value of the Post
Office to consumers and small businesses.
BBC tender
The CEO was disappointed with the unsuccessful BBC tender
and a legal challenge had been considered. After taking
external advice it had become clear that the procurement
decision had included transition costs which favoured the
incumbent, and that Post Office were very unlikely to win any
challenge. It was recognised that more work was needed to
build relationships with big clients well in advance of any future
procurement.
Branch Numbers and Technology Transformation
The CEO recognised the adverse trend in branch numbers and
explained that the work underway to tighten up the cash in the
network including an increase in the number of risk based audits
had identified a few large losses and meant some branch
closures.
The CFOO believed that the work underway might find more
losses in the short term but would mean reducing the risk for the
future. The roll out if new kit in the Network was an opportunity
to audit 10% of the branches during the work. The very limited
number of audits to date had not highlighted any systemic
issues.
The announcement on new white space branches would be
made this week which would help to increase branch numbers
especially in urban areas.
Royal Mail Group (RMG) Negotiations
The Board discussed the pressure on RMG after the recent
brokers report, the drop in share price, and the effect this might
have on the negotiation.
HMRC Pre-Penalty Notice
The Board noted that the HMRC were unlikely to publish details
of the penalty in this instance. However HMRC would have to
respond to any FOI request on the subject.
The Chairman thanked the CEO for her report. The Board noted
the report from the CEO.
POLB 17/56 FINANCIAL REPORT
(a)
(b)
POLB, 25 July 2017
The CFOO presented the financial performance report for June
2017.
The cash report comparing the June performance with March
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(c)
(d)
(e)
(f)
(h)
(i)
Strictly Confidential
2017 was presented in the same format produced for the Board
away day, and showed a deterioration in headroom. However
the headroom remained £166m above target. The main change
had been an increase in cash in transit awaiting processing at
cash centres caused by higher inflows, work is underway to
reduce the balance be deploying additional resource.
The Board asked about the renegotiation of the security rules.
The CFOO explained that discussion with Santander might
produce some helpful changes.
The Board discussed agent’s debt and challenged why small
branches were allowed to accumulate large amounts of cash.
The CFOO explained that this was a complex issue reflecting
inadequacies in systems and MI, compounded by the lack of
prosecutions and the drive to ensure trading at all branches
versus the impact of a few criminals. Work was underway to
improve the situation but would some of the solutions would
take longer to implement.
The CEO explained that the decision not to prosecute agents if
they could use the Horizon system as a defence would be
reconsidered once Deloitte had completed their work on
Horizon and could be used in court as an expert witness.
The Board asked that the lessons learned on agent’s
losses, including recruitment processes, be presented at
the ARC.
The Board noted that Capital investment was £3.6m behind
target and asked if the Business had the capacity to deliver the
planned investment. The CEO recognised the scale of the
investment and assured the Board that programmes would only
be implemented if the pilots were successful, and this had
slowed some of the investment.
The CFOO recognised the capacity issue and explained that by
September the Executive and the Board would have some
critical choices to make on the investment for the rest of the
year.
The Board noted the financial performance report.
FS&T PORTFOLIO REVIEW
(a)
(b)
The Chairman welcomed NK to the meeting to present a report
on the Financial Services and Telecoms portfolio.
NK explained the FS&T portfolio Direct Profit Contribution
(DPC) and the advantage of having a mixed portfolio. The Board
acknowledged the product contribution even where Post Office
had small market share. NK explained that the FS market had
a few large companies and then a lot of smaller providers.
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(d)
(c)
(d)
(e)
(f)
Strictly Confidential
The Board recognised that the Payments Services Directive
(PSD2) offered opportunities to new entrants and challenges to
large legacy businesses.
The Board supported the FS&T portfolio approach but
challenged the mortgage performance and asked whether Bank
of Ireland (BOI) was the right partner in this market. NK
acknowledged the under delivery in mortgages but recognised
that both Post Office and Bol had some responsibility for the
results. The current opportunity to grow in the broker market
would be test of the online proposition.
The Board noted the report findings and endorsed the strategy.
The Board discussed the possible ownership models which
could be considered including a joint venture with Bol or a
different partner. The Board asked the Executive to ensure it
had a clear view of the possible and what might be earned under
a different model or contract.
NK explained that as part of the work with Bol, enabling
workshops were under way to understand the size of the prize
and what changes would be need to be made to deliver the
greater value. The Board asked NK to ensure that the analysis
of future opportunities was realistic.
IRRELEVANT I
NK was expecting a proposal from Bol in early September,
which if it was good enough, would be discussed at the
September Board, when NK would return with the options
for 2023.
The Board recognised the challenge of running a BAU contract
whilst negotiating a new deal and asked NK if he required
external support. NK declined the offer and explained that he
had passed the management of the BAU contact to the
Managing Director Post Office Money.
The Board asked the CFOO how damaging the loss of £16m
would be to the business in 2023. The CFOO acknowledged
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(h)
(i)
Strictly Confidential
that it would produce a gap in the plans, but that it would be
managed for the right long term solution.
The Board noted the update and reconfirmed the existing
mandate and negotiating approach.
NK left the meeting.
EMERGING TECHNOLOGY AND INNOVATION
(a)
The Board joined RH, JS and AG for a presented of emerging
technology and innovation.
RETAIL PRODUCT ARRANGEMENT FOR DMBs
(a)
(b)
(c)
(d)
(e)
The Chairman welcomed KG and LP to the meeting
KG described the retail product arrangement being proposed for
DMBs and the change from the current commercial contract to
an agency-type arrangement for future sales. He explained the
change from the original procurement to enable a trial of the new
approach with VOW, the incumbent, and WHSmith.
LP explained the trial results to date and the negotiations
currently taking place. KG assured the Board that any contract
would include rights to veto products on grounds of quality.
The Board endorsed the approach recommended in the report
and delegated authority to the Post Office CEO and CFOO to
sign a contract consistent with the parameters set out in the
report.
The Board thank LP for the work and LP left the meeting.
POST OFFICE CARD ACCOUNT (POca)
(a)
(b)
(c)
The Chairman welcomed TW and CM to the meeting.
KG reminded the Board of the position presented at the March
2017 Board meeting with a loss of £17.8m for POca in the 5 year
plan. However recent negotiations look as if they will deliver a
saving of £24m to 2021.
The Board discussed the LIBOR position and the consideration
being given to a 3 year interest rate SWAP. RC was unsure how
the Shareholder would respond to the proposed SWAP. The
CFOO reminded the Board that the Business already uses
hedging for FOREX and fuel, and that there was no governance
requirement to obtain Shareholder approval.
The CFOO stressed that no decision on the use of SWAPs
would be taken without approval by the ARC, and offered to
take the Shareholder through the rationale if it would be
helpful.
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(e) The Board delegated authority to the Group CEO to sign a new
contract with DXC and to authorise the Group CFOO, following
ARC approval, to execute an interest rate swap if considered
advantageous.
(f) The Board thanked KG and the team for the improvements they
had negotiated.
(g) KG, TW and CM left the meeting.
RESIGNATION AND APPOINTMENT OF THE COMPANY
SECRETARY
(a) The Secretary presented the report.
(b) The Board noted with regret the resignation of Alwen Lyons as
Post Office Company Secretary effective from 30 August 2017.
(c) The Board appointed Jane MacLeod as Post Office Company
Secretary with effect from 31 August 2017 and authorised Alwen
Lyons to make the appropriate filings at Companies House.
ITEMS FOR NOTING
(a)
(b)
(c)
(d)
Pensions Plan
The Board noted the trustee proposal.
Register of Sealings
The Directors resolved that the affixing of the Common Seal of
the Company to documents numbered 1522 to 1543 inclusive in
the seal register was confirmed.
Health and Safety
The Board noted the health and safety performance, risks and
mitigating activity within the Health and Safety report. The
CFOO explained that the recent increase in accidents had been
investigated and there was no systemic pattern. The main
causes had been carelessness and additional communication
had been issued.
The CFOO reported that Post Office had four properties
categorised as high rise which were covered in cladding,
including Finsbury Dials. Samples of the cladding at all four
properties has been sent for testing.
Meeting Dates and Forward Agenda for September 2017
The Board noted the future meeting dates and proposed forward
agenda.
ANY OTHER BUSINESS
(a)
There being no further business the Chairman closed the
meeting.
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Chairman s—S Date
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Status Report as at: 20/09/2017
Post Office Limited Board
REFERENCE [ACTION [Action Owner (GE Due Date STATUS (Open/Closed
Member)
31 January 2017 IBoard Effectiveness Review Ken McCall/ Rob October 2017 [Underway and there will be an independent review Open
POLB 17/11 (d) IReconsider the proposal for an independent advisor to the Houghton Board presented at the October Board.
Board after the IT strategy presentation at the July Board
meeting.
28 March 2017 _IFS Growth - Falcon Nick Kennett July 2017 Board IAction closed - the Falcon paper was addressed at June IClosed
POLB 17/25 (g) IA number of Fintech providers were being considered and Board Strategy Day.
due diligence was being completed. NK would return to
the Board with a concept for consideration in July 2017.
28 March 2017 _ Nick Kennett Board Date TBC IThis is a long term strategic option and as such, a Open
POLB 17/25 (j) i Board date has not been assigned. Nick will revert in
H due course as/when POMS are ready to proceed.
25 May 2017 [CEO Report - Identity Services Martin Edwards / KenI October 2017 IAction originally assigned to Kevin Gilliland for Open
POLB 17/36 (d) IThe CEO explained the enhanced Verify product which McCall Board September Board but this falls within Martin Edward's
would be launched in June and was likely to include a remit and has been reassigned accordingly, and is on
digital driving licence product. The new product would be the agenda for October.
helpful for vehicle rental companies and Ken McCall
offered advice in accessing this market. Post Office as the
Verify market leader had been chosen to launch this new
service in advance of other suppliers and this would help
cement the position in the market.
25 May 2017 I CEO Report - Industrial Relations Martin Kirke October 2017 ITo be addressed in Industrial Relations Project Jay Open
POLB 17/36 (h) IThe CEO reported that the Company was still in dispute Board report at October Board.
with the CWU and UNITE unions although the UNITE
dispute was closer to resolution. The Board discussed the
reduction in number of CWU reps paid for by the Business
which had reduced from nineteen to six. The Board
challenged the practice of paying for any union reps and
asked the CEO to check why the union were not paying
for their reps.
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REFERENCE [ACTION [Action Owner (GE Due Date STATUS (Open/Closed
Member)
25 May 2017 __I Chief Executive Retail Performance Report Kevin Gilliland __ ISeptember 2017IWe now have in place a combination of cameras, voice [To Close
POLB 17/39 (I) IThe Board asked the Executive to consider an adequate Board lof the customer measurement, mystery shopping and
sample of large branches measuring queue times to give take a ticket machines. This will give us a
more rigour to measurement of initiatives. comprehensive picture of waiting times across all
branches.
25 May 2017 __IMails Strategy Update Kevin November 2017 ITimescales for implementing our full next best Open
POLB 17/40 (e) IThe Board asked KG and MS to continue to develop the Board alternative (NBA) (including USO/captive core volumes)
(f) next best alternative work in parallel with an emphasis on is in the region of 30 months, driven by procurement,
the technical integration, and to return to the Board with organisation capabilities and IT integration. As set out
a view on how quickly they could be implemented if the in our May Board paper, the decision to commence full
negotiation do not deliver what is needed. The Board NBA preparation would be needed by November 2017
asked the CEO to ensure she had the strongest in order to achieve a go live of early 2020, the point
negotiation team possible. exclusivity falls away. Initiating the next phase of NBA
preparation will entail discussions with the market for
Ithe provision of services and distribution. Given our
recent progress with Royal Mail with the
acknowledgment of complex interdependencies to
deliver the USO, resulting in increasing interest in
renewing long term exclusive arrangement (possibly by
June 2018) such a decision would send a strong
negative signal to both RM and the market, and would
therefore require careful consideration. Update on the
outcome from the Mid-Term review to come to the
November Board.
25 July 2017 __IFunding Update - The ARA Company Secretary ISeptember 2017IIncluded on the Agenda for the September ARC. (Closed
POLB 17/52 (c) IThe CFOO explained that once the detail of the funding ARC
was known a cash flow forecast would be produced to
prove sustainability, at which point the Annual Report and
Accounts (ARA) could be finalised with the External
Auditors including a subsequent events review. If a letter
was received before the summer recess the ARA could be
presented at an ARC in September, although an
additional meeting might be needed.
25 July 2017 __ [Board Status Report Company Secretary ISeptember 2017IThere is an update on the IT Strategy at the September IClosed
POLB 17/54 (b) [The Board asked the Company Secretary to ensure that Board Board. Identity Strategy is on the Board agenda for
Identity Services and IT Strategy were included on the October.
September agenda.
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REFERENCE
ACTION
[Action Owner (GE
Member)
Due Date
STATUS
(Open/Closed
25 July 2017
POLB 17/54 (d)
Board Status Report
The Board noted the paper on Health and Safety
Directors’ duties and recognised that the paper covered
the duties to employees
The Board asked for a separate paper setting out any
Directors’ duties which apply to agents.
Jane MacLeod,
General Counsel
September 2017
Board
Paper included on the September Board agenda as item
10.3.
Closed
25 July 2017
POLB 17/56 (F)
Financial Report - Agent's Debt.
The CEO explained that the decision not to prosecute
agents if they could use the Horizon system as a defence
would be reconsidered once Deloitte had completed their
work on Horizon and could be used in court as an expert
witness.
The Board asked that the lessons learned on agent's
losses, including recruitment processes, be presented at
the ARC.
‘Al Cameron, CFOO
September 2017
ARC
[Deep dive on losses is on the September ARC agenda.
Closed
25 July 2017
POLB 17/58 (e)
25 July 2017
POLB 17/61 (d)
Peregrine Update
IRRELEVANT
(POSt OFfCe Cara ACEOUNE =" CIBOK Interest Kate SWAt
The Board discussed the LIBOR position and the
consideration being given to a 3 year interest rate SWAP.
RC was unsure how the Shareholder would respond to the
proposed SWAP. The CFOO reminded the Board that the
Business already uses hedging for FOREX and fuel, and
that there was no governance requirement to obtain
Shareholder approval.
‘The CFOO stressed that no decision on the use of SWAPs
would be taken without approval by the ARC, and offered
to take the Shareholder through the rationale if it would
be helpful.
Nick Kennett
September 2017
Board
Peregrine update to de discussed at September Board.
Closed
‘Al Cameron, CFOO
September 2017
ARC
[Included on the Agenda for the September ARC.
Closed
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POST OFFICE PAGE 1 OF 4
POST OFFICE BOARD
CEO’s Report
Author: Paula Vennells Meeting date: 26"" September 2017
Executive Summary
Context
Our target for 2017/18 is to achieve EBITDAS of £28m. Our 3 year goals are to:
~ Accelerate the transformation of the Post Office.
— Secure commercial sustainability for the long term.
— Establish a business that can ultimately fund investments and the social
purpose from profits rather than subsidy.
In summary, our strategy is to secure our position as the UK’s number one
parcels and letters retailer, grow in financial services and protect our network
and social purpose - all supported by a much leaner central organisation.
Questions this paper addresses
1. What is on my mind? (successes, challenges, opportunities and risks)
2. What are the implications for our outlook and plans?
Conclusion
1. Our underlying EBITDAS was marginally ahead of budget at the end of P5,
and we are currently undertaking a full reforecast to identify and address the
risks to hitting our full year target of £28m EBITDAS.
2. The confirmation in July that the Government will provide £210m of
investment funding for the period 2018-2021 removed the most significant
risk to our strategy. We can now focus on delivering what remains a
challenging transformation agenda, with complex interdependencies related
to IT, network and external partners.
3. The key topics for discussion at this month’s Board relate to our negotiations
with Bank of Ireland and future options in financial service including POMS. I
am grateful to Steve Ashton who will share his views on POMS program and
further opportunities. Rob Houghton will update us on the implementation of
our IT strategy and Kevin Gilliand will present our quarterly review of retail
performance.
Input Sought
The Board is invited to note the report and highlight any issues where a future
discussion would be welcome.
Strictly Confidential
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The Report
Looking Back
WHAT HAS GONE WELL?
« Financial Performance — P5
— At the end of P5 EBITDAS was £4.5m, £2.0m ahead of budget and £16.6m
ahead of the same point last year. However, favourable timing differences
mean that the underlying position is only marginally ahead of budget.
— Trading performance has continued in line with the trends reported in
previous months, with gross income £5.9m ahead of budget; and £8.7m
behind last year. Budget performance is driven primarily by mails and
government services. Financial Services & Telecoms remain behind budget,
Partially offset by growth in banking services and travel money. The New Call
acquisition has now been completed, delivering £1.5m of revenue a month.
— Staff costs were £3.8m adverse to budget over the year to date, £2.6m of
which was driven by the delay in DMB conversions previously reported. Some
challenges remain on costs over the remainder of the year, which we are
addressing as part of the current re-forecast process.
— Network numbers remain under pressure because of increased network churn
and higher numbers of postmaster suspensions due to losses. As set out in
more detail in Kevin’s report, a number of actions are underway to stabilise
the network, including opening new branches in ‘whitespace’ locations with
growing customer demand.
« Government funding negotiations
— Engagement has continued with UKGI, BEIS and HMT on the detail
underpinning the £210m investment funding confirmed by the Secretary of
State in July. The current expectation is that this will be provided as direct
grant funding (in line with previous funding rounds), not a loan or equity.
Rather than fix the profile of payments now, HMT and BEIS would prefer to
take a more flexible approach where drawdown is phased quarterly based on
the annual plan approved by the Board and shareholder each year. We would
be comfortable with this approach provided we can rely on the reassurances
given to date that the funding will be available on a front-loaded profile and
we are guaranteed access to the full £210m over the period.
— Tim Parker met with Richard Callard and Justin Manson on 5 September to
discuss our concerns around some of the additional governance proposals
which had been floated in response to the Secretary of State’s request to
have greater control over funding drawdown. Richard will provide an update
on the latest feedback from BEIS at next week’s meeting.
Strictly Confidential
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— No date has been confirmed yet for the formal announcement of the funding,
although UKGI are aware of the critical dependencies for publishing our
annual report and are continuing to push internally for mid-October.
— Weare currently reviewing what updates need to be made to the Strategic
Plan approved by the Board in May to take account of new information which
has emerged since then (including the final outcome of the funding
negotiations). The GE is reviewing this on 29" September and our expectation
is that we will present the revised plan for approval at the October Board.
— Our state aid notification was submitted in draft to the European Commission
at the end of August, with the aim of keeping us on track for approval before
the end of March 2018. We expect the next step will be to meet directly with
the Commission in early October, to explain the strategy and answer their
initial questions directly.
Looking Ahead
FUTURE FOCUS
e IT strategy implementation
— The rollout of new branch technology is continuing, including over 1,300
routers and 2,200 counters successfully installed at the time of writing. The
feedback from postmasters on the speed and performance of the new kit has
been very positive to date. However, this remains a complex and challenging
delivery programme, with particular challenges in three areas:
o exiting from old internet lines (ISDN) in certain branches, which
Vodafone are no longer willing to support beyond the end of September:
© managing the concurrent software changes required for programmes like
transaction simplification and EUM alongside the shift to HNGA; and
o exploring the opportunity to switch to alternative retail devices for the
second half of the programme, which would offer improved functionality
for retailers but with risks to the momentum of deployment if not
carefully handled.
— As originally agreed in the scope of the Computacenter contract, we are also
now rolling out new printers, addressing the mounting services failures
associated with the old printers. The overall investment is £9.4m, split into
three tranches.
Strictly Confidential
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— The Back Office transition of Credence to new hardware to alleviate service
issues continues to face problems due to legacy, undocumented code and
dependencies on key individuals in an exiting supplier (CGI). A revised plan to
deliver in October is currently tracking to plan. The historic service issues
have largely been remediated through constant housekeeping and diligence
by the new supplier (Accenture).
— We have selected Verizon (over Fujitsu) to move forwards into preferred
partner negotiation for implementation of the Security Operations Centre.
This was on cost grounds as technically they were equal. The size of the
award over 5 years is over £5m, so we will be requesting formal Board
approval in October prior to contract signature.
— We have now concluded our senior management IT appointments, with
Michael Austin joining as our new CTO, Mick Mitchell appointed as our
Security and Operations Director and Andy Garner confirmed as Retail CIO.
-» My thanks to Rob for progress to date and continually pushing the boundaries
of what is possible.
RISKS OR CONCERNS?
e Royal Mail industrial action
— The CWU ballot regarding RM industrial action closes on 3" October.
— Contractually under the MDA, RM are obliged to undertake all ‘reasonable
assistance’ to ensure continuity of service.
— Weare seeking to ensure that RM provide sufficient services so that the entire
POL network remains open to sell mail services to avoid customers (especially
higher value marketplace sellers) moving to competitors, and reassure
customers the network is open. We are working closely with their Business
Continuity teams and have had regular meetings and calls with them.
— RM have confirmed that maintaining POL collections is a priority for them.
Currently their intention is to ensure all branches have at least one collection
a day between 15:00 and 17:00. Work is continuing on providing higher
volume branches with more collections. RM have also identified contingency
cover should collections fail on the day.
— These plans will not finalised once Moya signs off RM’s plan in the first week
in October. (The earliest CWU can take action is w/c 16th Oct).
e Postmaster Litigation
— On 19 October there will be a Case Management Conference (CMC). At this
Court hearing, a Judge will decide on the strategic direction of the Group
Litigation for the next 6-24 months following representations from both
parties. We will provide an update on the implications at the Board.
Strictly Co:
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August 2017
Financial Performance
Al Cameron
26 September 2017
Post Office®
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Trading performance continues in line with recent trends.
Context
. YTD P4 EBITDAS performance was £4.0m. £1.5m favourable to budget.
. At end of FY 16/17, cash in Network was £666m and balance sheet headroom was £189m
. P5 budget EBITDAS is £0.0m
Questions
. How is our scorecard performance in P5?
. What is the financial performance of the business in P5?
. Are we appropriately funded?
Conclusions
. Reporting EBITDAS of £0.5m in P5 (£0.5m favourable to budget) and YTD of £4.5m (£2.0m favourable to budget). Excluding
favourable timing differences (£1.6m YTD) we are marginally ahead (£0.4m) on an underlying basis.
. Trading performance in the month was in line with performance of prior months, uplifted for the impact of New Call coming on line
in P5. Some challenges remain in the cost base and a detailed re-forecast is underway for the balance of year.
. Balance sheet headroom in P5 was £81m, a decrease of £89m v prior month. This was caused by lower client funding (£56m),
which is expected to reverse in P6 and a reduction in NRF (off balance sheet) usage of £32m as we manage to annual targets.
Network cash remains comparatively high as a result of summer forex and the impact of absence on inward rems processing.
Input Sought
The Board is asked to note the financial performance.
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Branch numbers continue to track below targets
K Perf Indi PS YTD Full Year
ey Performance Indicators Act Target Var. Act Target Var. Target
Growth
Total Gross Income (excl NSP) £m 71.4 391.0 385.1 945.0
EBITDAS £m 0.0 4.5 20) 28.0
Headroom £m (vs Board minimum limit) > 200 281 > 200 > 200
_.... IRRELEVANT
Net profit £m
Customer
Customer Effort 82% 76% 78% 76% 76%
Net Promoter score Financial Services 25 25 25 25 25:
Acceptable Wait Time % 95% 95% 93% 95% 95%
Branch Compliance - Financial Services - basket of 11 measures 10 <=50 30 <=50 <=50
People
Line Manager Engagement Index % (Once a year)? Same as YTD 61%
Representation (Senior Managers) - Gender 38.3% 37.0% 38.3% 37.0% 37%
Attendance 96.0% 96.7% 96.6% 96.7% 96.7%
IT Lost Time (Number of Sev1/Sev2 IT incidents) i, is Sz 65 <156
Safety LTIFR 0.166 0.180 0.303 0.180 0.180
Modernisation
Number of branches (one month in arrears) Same as YTD 11,574 11,633 >=11,700
NT and ND Branches Transformed in Year 32 40 214 177 400
IT Transformation (% of IT controls implemented) 59% 59% 59% 59% All high risk
gaps closed
1. Accounting estimate for impairment currently under review as part of FY 2016-17 year end process.
2. For comparison, prior year was 68%
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Digital Income below targets driven by Travel activity
+ Digital Net Income
+ Digital Income, £(0.3)m adverse to target versus £(1.6)m YTD.
* The shortfalls in the month were again driven by Travel, £(0.5)m adverse in the month and £(2.1)m adverse. Anticipated uplifts
in volumes due to natural search increases have not been delivered leading.
+ Motor and Home Insurance continues to over perform and fill some of the gap.
+ Attendance
* There is an increasing trend of long term absence in Directly Managed Branches and Supply Chain.
+ Absences that have converted from short to long term over the past 60 days include a number of musculoskeletal cases in
Supply Chain. This may reflect higher workloads and an ageing population: a causal review is underway. DMB absences have
been more stress related but a number of long term stress related cases have returned to work early in P6.
+ Network
+ Number of branches reduced by 8 in the month and is now 11,573, 60 behind target. Network Numbers remain under pressure
from the increased number of postmaster suspensions for losses (88 branches ytd), together with a higher than anticipated
level of churn in the Network overall.
+ Anumber of interventions are underway to deliver white space premises, a simpler appointment process and additional funding
being made available to assist postmasters in converting premises.
* Inthe month 32 branches were transformed which is 8 below the monthly target. YTD however we continue to significantly
track ahead with 217 transformations against a target of 177. Full year targets are still expected to be delivered.
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P5 EBITDAS is £0.5m favourable to budget.
PS
Var Var
a Act) Bud PY
Gross Income 73.3 2.0 2.2
Direct Costs (9.8) 0.1 (1.6)
Net Income 63.6 2.1 0.6
Staff Costs (15.1) (1.7) 3.3
Agents Pay (28.6) (1.0) 0.4
Non-Staff Costs (22.2) 11 (0.1)
Expenditure (66.0) (1.6) 3.6
FRES - Share Of Profits 2.9 (0.0) (0.1)
EBITDAS 0.5 0.5 4.1
EBITDA Bridge v Budget
0.0
(0.5)
(1.0)
Li
a 6 “ A & “ie “ & e “ a
Gross income — £2.0m favourable. Continuing
overperformance in Retail (+£2.6m). FS&T revenues
(+£0.7m) due to telecoms and banking. New Call revenue
(£1.5m) came online in the month and performed in line
with budget. Shortfall in POMS (£1.3)m due to budget
phasing. Further details provided on slides 7&8.
Staff costs — £(1.7)m adverse. Overspends in Retail
£(0.9)m due to continuing delays in branch conversions and
ongoing Supply Chain challenges £(1.0)m. Further details
on slide 9.
Agents pay — £(1.0)m adverse and continuing to track in
line with YTD trends due to favourable revenue variances in
Retail and the channel/product mix.
Non-staff costs — £1.1m favourable including:
+ £1.0m benefit from Property including £0.4m rent rebate
on Old Street
+ £0.5m benefit from impact of payment plans on
provisioning.
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YTD EBITDAS is £2.0m favourable to budget. £0.3m on an
underlying basis.
£m
Gross Income
Direct Costs
Net Income
Staff Costs
Agents Pay
Non- Staff Costs
Expenditure
FRES - Share Of Profits
EBITDAS
YTD
YTD Var Var
Act Bud PY
391.0 5.9 (8.7)
(49.8) 3.4 (2.7)
341.2 9.4 (11.5)
(77.0) (3.8) 20.3
(155.2) (4.6) 7.9
(118.3) 1.7 ord)
(350.4) (6.8) 31.4
13.7 (0.6) (3.4)
4.5 2.0 16.6
YTD EBITDA Bridge v Budget
14.0
12.0
_ * ”
8.0 a
* Gross income — £5.9m favourable.
+ Retail +£12.3m with strong performance in Parcelforce, RM
Signed for, Lottery and Government Services.
* Significant year on year decline £(13.0)m driven by
Government Services £(9.5)m
+ FS&T £(4.8)m adverse to budget driven by delays in New Call
launch £(6.0)m ytd and declines in Moneygram revenues
£(1.8)m due to drop in volumes following Brexit.
* Strong performance in other Telco areas due to c.32,000
additional customers (driven by closing 2016/17 base)
partially offsetting these declines.
Staff costs — £(3.8)m adverse. Overspends in Retail £(2.6)m
due to continuing delays in branch conversions and Supply
Chain challenges £(1.6)m
Agents pay — £(4.6)m adverse and continuing to track in line
with YTD trends due to favourable revenue variances in Retail.
Non-staff costs — £1.7m favourable with significant
underspends in marketing £2.4m which are currently
anticipated to reverse over the remainder of the year. Marketing
plans and spend phasing will be reviewed as part of the P5
Forecast process.
FRES — £(0.6)m shortfall ytd but action plans in place and
currently expecting to deliver full year targets.
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Retail revenues +£12.3m favourable to budget. FS&T £(4.8)m
adverse with shortfalls in Moneygram and Telecoms
PS Revenue v Budget
* Retail + £2.6m Retail
>——_+—_, * Continued strong performance in the month following recent
"4 ae I trends across all revenue pillars.
oe * As called out in the R&O, trends suggest there will be a
em
? e seo
v, Mf Of & €
360
em
YTD Revenue v Budget
410 550
408 Retail + £12.3m
406 a0
404
402
530
oa
396 oe 520
394
& 302
revenue opportunity in the remainder of the year. Additional
revenues will be offset by continuing cost pressures.
Retail - Rolling Trends
Opportunity
Pi2 P20 P4 PSPS SP12-s PZ PsPGHSCPBCP1O PAD
14/15 15/16 15/16 15/16 15/16 15/16 15/16 16/17 16/17 16/17 16/17 16/17 16/17
ase FS&T - Further details provided on next slide
382
380 POMS
e ¢ $ >
Poa L fv & &
* Shortfall in the month due to budget phasing. YTD position
& correct with a £1.4m gap v target but £2.0m y-o-y growth.
POMS still on track to deliver full year EBITDA target/“>
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PS YTD
£m
Mortgages
Credit Cards and lending
Savings
Travel Money
MoneyGram
Post Office Money '
Banking Services H
Telecoms i
Postal Orders
Other Income a
FS&T
POMS
Total FS&T I
IRRELEVANT }- £(0.6)m mth and £(1.8)m ytd Banking Services - £0.4m mth and £1.2m ytd
+ Continued post-Brexit impact with ongoing decline in send + Additional volumes driven by the Banking Framework
transactions following decline in the £/Euro exchange rate.
Telecoms - £1.1m mth and £(2.6)m ytd
+ Money laundering regulations came into effect in June Co a
requiring ID to be requested for every transaction. * New Call acquisition live in month delivering £1.5m of
revenue (in line with budget). YTD shortfall of £(6.0)m reflects
+ Measures to counter this trend include branch visits to assess timing of acquisition.
promotional opportunities, better customer retention and
targeted marketing spend. + Homephone and Dual continue to over perform +£1.1m due
to c. 32,000 additional customers and price rise impagt—
8
4
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Delay in branch conversions and challenges in supply chain
lead to overspend in staff costs
Total Month YTD Staff costs £(3.8)m adverse YTD:
£m Actual Bud Var Actual Bud Var Retail F&O Other Total
Bud Bud
Wages & Salaries 10.2] 10.1 (0.1) 53.6] 55.2 15 ; F
Overtime 05 03 (0.2) 20 17 (04) Salaries, NI& Pension (0.9) (0.3) 1.9 0.6
Contractors & Temporary Resource 0.6 0.0 = (0.6) 2.2 0.3 (1.9) Contractors & Overtime (0.8) (0.5) (1.0) (2.3)
Employers NI 1.4 1.3 (0.2) 7.6I 68 (0.8) Staff Costs - Run Rate (1.7) (0.9) 0.9 (1.6)
Pension 1.4 1.2 (0.2) 6.9I 66 (0.3) Bonus . . 0.4 0.4
Staff Costs - Run Rate 14.4[ 13.0 (1.1) 72.3f 70.5 (1.8) : ; ;
Bonus & Productivity oo} 1.2. 03 a7) 6.1 14 ~~ Efficiency (0.9) (1.3) (0.4) (2.6)
Staff Costs Efficiency Target -I (0.8) (0.8) -I (34) (3.4) Staff Costs - Total (2.6) (2.2) 1.0 (3.8)
Staff Costs - Total 16.4f 13.4 (1.7) 77.0f 73.1" (3.8), p F F
Staff & Agency Related Costs 0.8 0.1 (0.7) 44] 3.8 (0.5) pe manor pron fa brane conversions. For ohm full F
Consultancy & Advisory Services 0.0} 05 05 0.8 01 (07) year there will be a partial mitigation in agents pay. The gap is
Brand & Marketing 0.91 16 08 63 87 24 anticipated to continue throughout the financial year.
LegalCosts 0.4 0.3 (0.1) 1.9 18 (0.1) » Ofthe £(2.2)m variance ytd in F&O, £(1.6)m is due to Supply
Property & Faciities Management 25 a6 12 17.6) = 18.8 17 Chain with budget task £(0.7)m not achieved, adverse
Vehicles 04 03 (0-1) 1.6 18 oA overtime costs £(0.3)m due to sick leave and £(0.3)m of
IT Infrastructure & IT Services 8.2 8.6 0.4 43.5] 42.8 (0.6) . . .
Finance & Losses 19} 25 ©6005] 114.0 11.0 =~ 0.0 project costs to transferred.
Other Operating Costs 7.2 5.8 (1.4) 31.3) 30.7 (0.6) +» The remaining overspend in F&O is due to £(0.3)m payrise
Non staff Costs 22.2I 23.3 4.1) 148.3] _120.0 47 impact (budget held centrally) and £(0.2)m of contractor costs
Hotaleoets) S75 I ESSTAEE(O'S) S62 OSH (ea) in financial control and change for vacancies.
+ £1.0m of benefits in Other include costs budgeted centrally for
pensions and payrise £0.7m which are currently absorbed
within the divisions.
Non-staff costs (excluding YTD marketing underspend of £2.4m)
are in line with budget
+ Benefits in property costs +£1.7m (leases and rebates) offset
overspends in other areas.
Phasing of marketing spend will be revisited as part of the P5F.
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Significant Capital and Investment cost in month following
the announcement to close 48 DMB
PS YTD
Var Var YTD Var Var
£m Act Bud PY Act Bud PY
EBITDAS 0.5 0.5 4.1 4.5 2.0 16.6
Depreciation (5.4) - (5.4) (17.8) - (17.6)
Network Payment 5.4 - (0.8) 29.6 (0.0) (4.2)
EBIT pre exceptionals 0.4f 0.5 (2.1) 16.3 2.0 (5.2)
Interest (0.4) 0.2 (0.5) (1.6) 13 (2.2)
Impairment 7 - 73 - - 41.5
Capital & Investment (17.9) (10.1) (8.5) (39.5) 0.7 8.9
Government Grant Utilisation 5.8 - (51.4) 29.2 - (86.6)
Profit/(Loss) On Asset Sale (0.0) (0.0) 0.0 1.9 1.9 0.3
Profit/(Loss) Before Tax (12.0) (9.4) (56.5) 6.3 5.9 (43.3)
Assumes that Post Office no longer impairs assets on acquisition, and that assets are depreciated over their
useful life.
Depreciation charge is £5.4m in the month and includes a ytd adjustment following the finalisation of the
accounting for fixed assets as part of the FY16/17 audit process.
Capital & Investment (previously exceptional) expenditure is £17.9m in the month following the creation of a
£13.0m Onerous Property provision in month following an announcement regarding the closure of 48 DMB.
In period spend on capital assets was £10.3m, £42.7m YTD.
A further breakdown of the capital and investment spend is provided on the next slide.
Note: The sale of Great Portland Street has been removed from 2017/18 financials as completion was in
March 2017. This disposal is now reflected in the 2016/17 financial statements.
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Transformation is tracking below budget and is c.£83m ytd
PS YTD FY
Act} Bud Var Act} Bud Var Bud
Bud Bud
IT & Digital 5.4I 11.4 6.0 21.8) 43.9 22.0 112.7]
Network Development Programme. 4.4] 4.4 (0.0) 18.4) 20.2 18 70.8
DMB Network Development. 13.3 1.6 (11.8) 17.3) 6.9 (10.4) 21.6)
FS &T 0.5 9.4 8.8 7.0} 184 11.4 34.4)
Back Office Transformation 1.9 1.4 (0.5) 5.1) 6.3 1.2 20.1
LEAN Centre 0.2 - (0.2) 2.9) 3.2 0.3 47
Retail 0.6 1.8 11 2.6) 8.3 5.7 18.1
Supply Chain 0.2} 02 0.0 2.4) 0.4 (2.0) 3.9
People and Engagement Transformation 0.7/ 0.2 (0.5) 19) 26 07 5.0I
POMS 1.0 0.5 (0.5) 1.4] 15 O14 3.4
Property 0.4) 0.3 (0.1) 1.3} 1.1 (0.2) 4.0
Other Transformation O01 0.3 0.1 0.5] 1.3 0.8 3.0)
Corporate Services Transformation 0.0 O14 O14 0.2) 0.6 0.4 2.3
Identity - - 0.4 0.4 47
Finance O14 O14 0.3 0.3 0.5
Digital & marketing 0.2 0.2 0.7 0.7 2.3]
Network Operations - - - (0.0) 15 15 1.8I
Central Adjustments (0.0) 0.0 (0.0) 0.0
Total 28.8I 31.7” 2.9 I_82.7/ 117.4" 34.7 [313.3
Capital 10.9] 23.9 13.0 43.2) 77.2 34.0 210.3
Investment 17.9 7.8 (10.1) 39.5I 40.2 0.7 103.0}
Total 28.8I 31.7 14.6 82.7I117.4 90.6 I 313.3
Prioritisation and phasing work is ongoing as part of the P5
forecast process.
Total Transformation Spend
PL P2 P3002 PAS PGC PBR
mmm Budget Actual
Transformation Spend
IT & Digital continues to see delays in the rollout of a number of
projects as issues with programs and suppliers are worked
through. YTD spend is £22m behind budget.
Network Development Programme includes £14.4m of agents
compensation costs ytd.
DMB spend in the month includes £13m provision for property
costs following the announcement to close 48 DMB.
FS&T includes £6.1m ytd for the acquisition of New Call v
budget of £10.3m. Project Finch and Peregrine delays drive
additional budget underspend.
YTD Back Office Transformation costs include £2.0m for the
Sales and Finance Transformation programmes and £1.3m for
Cash Processing.
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P5 balance sheet shows a net asset position which reflects
the reversal of impairment accounting policy
£m August 2017 Mar 2017 Variance
Fixed Assets 429 390 39
Debtors 326 339 (13)
Cash 790 680 110
Creditors (618) (582) (36)
Pension surplus 1 1 (e)
Provisions (74) (88) 14
Other 9 8 1
Loan (669) (561) (108)
Net Assets/ (Liabilities) 193 187 6
Capital and Reserves 193 187 6
. The increase in the cash balance since the year end (see slide 13) is largely offset by the increase in creditor
and loan balances.
. Increase in creditors driven by the government grant which is received in April, recognised on the balance
sheet as a creditor and released to the income statement over the year.
. Reduction in provisions balance due to OSOP and agents compensation payments. Additional provisions in
the month have been made for £13.0m following the DMB closure announcement.
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Network cash has increased by £68m since year end funded
by higher RCF balances
(1) Where was our cash?
Cash
£m Branches cviT
Centres
March 648 139 160
August 669 146 225
Variance en 7 65
(2) How was it funded?
£m RCF Clients "Network
Cash"
March 561 130 691
August 669 90 759
Variance 108 (40) 68
(3) What was our facility headroom on the RCF?
Board amt
£m Cap Buffer Net Limit
March 950 (200) 750
August 950 (200) 750
(4) What was our security headroom on the RCF?
£m Network orner Total
cash ne Security
assets
March 691 227 918
August 759 227 986”
(5) What was our actual headroom?
Total
947
1,040
93
NRF
256
281
25
(561)
(669)
RCF
(561)
(669)
Total
947
1,040
93
Facility
Headroom
189
81
Security
Headroom
ahey/
317
Given we do not apply £200m buffer to Security headroom our actual headroom is £81m.
(lower of £81m facility and £317m security headroom)
Within branches, Foreign exchange holdings
have increased from £85m in March to £120m in
P5 in line with summer demand.
Cash centre balances have increased since the
year end as we continue to see higher cash in
transit awaiting processing at the cash centres
(Inward Rems) and across the business as more
banking cash is received.
Inward Rems were £84m in March 2017, rising
to £144m in P3. Initiatives to reduce the inward
rems balance reduced the P5 closing balance to
£121m. Pending recruitment, this is volatile to
sick absence and overtime.
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In P5 Gross Profit margin is on budget
PS YTD
Actual Var Actual Var
Retail FS&T Other Total Retail FS&T Other Total Retail FS&T Other Total Retail FS&T Other Total
Gross Income 38.8 33.5 10 73.3 2.6 (0.6) (0.1) 2.0 218.6 166.6 5.9 391.0 12.3 (6.2) (0.2) 5.9
Directly Attributable (2.6) (7.2) - (9.8) (0.2) 0.2 0.1 (12.9) (36.9) (0.0) (49.8) (0.3) 3.6 (0.0) 3.4
Supply Chain (2.3) (1.2) - (3.5) (0.3) (0.2) (0.5) (10.9) (5.7) - (16.6) (0.8) (0.4) - (4.2)
DMB Costs (4.7) (1.4) - (6.1) (0.5) (0.2) (0.7) (24.2) (7.1) - (31.2) (1.6) (0.5) - (2.0)
Agents Pay (22.4) (6.2) (0.0) (28.6) (1.0) 0.0 (0.0) (1.0) (123.8) (31.3) (0.0) (155.2) (6.8) 21 (0.0) (4.7)
Gross Profit 6.9 17.5 1.0 25.4 0.5 (0.6) (0.1) (0.1) 46.8 85.6 5.8 138.1 3.0 (1.3) (0.2) 1.5
Gross Margin% 17.7% 52.3% 34.6% 0.2% (0.9%) (1.1%) 21.4% 51.4% 35.3% 0.2% 1.1% (0.2%)
. Gross profit margin is on budget YTD at 35%. In P5;
.
Retail gross margin is slightly favourable as gross income flows through,
FS&T margin in P5 impacted by POMS revenue adjustment (c.2% impact). Excluding adjustment P65 is
inline with ytd trends.
. Supply Chain costs adverse to budget due to non-delivery of staff efficiency task.
° Other income relates to Supply Chain and Gamma.
Post Office®
Post Office Limited — Commercial in Confidence
(15)
©)
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REPORT TO POST OFFICE BOARD
POMS Performance Report - Submission
to the Shareholder of Full Year 2016/17
Results
Author: Rob Clarkson Sponsor: Nick Kennett, Steve Ashton Meeting: September 2017
Executive Summary
Context
Post Office Management Services Limited (“POMS”) is a subsidiary of Post Office Limited
and undertakes the business of insurance intermediation. It is regulated as an insurance
intermediary by the Financial Conduct Authority (“FCA”). Under its Articles of
Association, POMS is required to submit a performance report every half year to its
shareholder. This paper is the report for the year 2016/17; as it is submitted after P5
we have included brief comments on current performance and prospective actions.
Questions this paper addresses
e What are POMS’ strategic objectives and shorter term goals?
e Is POMS delivering what it said it would do?
e« What are the constraints and considerations for future profit growth?
Conclusion
POMS’ strategy is to build a sustainable competitive advantage to deliver value by
understanding the needs of target customers, building propositions that meet those
needs, optimising the operating models and building long term profitable relationships.
POMS is now well established and performing broadly in line with business case
expectations; the key building blocks that were planned are in place and being
embedded. The business model has settled following Hawk and shown flexibility to
respond to market/sales conditions to deliver profitable outcomes.
In POMS, Post Office has a strategic asset that can generate significant value. In 2021
the current plan aims to generate Group returns of £35m and create a business with an
estimated value of c£200m?. However, there are challenges from evolving regulation
and changes to distribution. In light of these, and following the Post Office Board
strategy away day discussion in June 2017, POMS is reviewing and is updating its five
year plan.
Input Sought
The Board is requested to review and note the report.
Based on 11-12 tim
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REPORT TO POST OFFICE BOARD
The Report
1. 2016-17 Financial delivery
1.1. POMS trading profit (“EBITDA”) was £7.8m, which was £(1.3)m adverse to Plan
and £0.2m better than the Forecast.
Full Year
—m Actual Var Var
to Plan to Forc
Gross Income 43.0 (5.0) (0.5)
‘Cost of Sales (5.5) 0.1 (0.1)
Net Income 37.5 (4.9) (0.6)
People Cost (3.3) 0.8 0.1
Marketing Costs (3.0) (0.4) (0.0)
Non Staff Costs (11.6) 1.6 0.5
IB Costs (11.8) 1.5 0.2
Total Expenditure (29.7) 3.6 0.8
EBITDA 7.8 (1.3) 0.2
(Other (0.2) 0.6 0.2
EBT 7.7 (0.7) 0.5
Capex (6.6) (1.7) 0.1
* “IB costs” are Inter-business amounts for Commissions and Services paid to POL
* “Forecast” is the forecast outturn for the full year made at the end of the third quarter
1.2. Income was £(4.9)m lower than Plan, principally due to weak travel insurance
sales £(3.3)m in the first half of the year, the impact of project Finch (£0.4)m
and new initiatives not meeting the overlaid income target £(1.7)m:
e Travel insurance performance was a result of lower sales in branches in Q1.
This was reversed in Q2 by the introduction of a promotional discount
aligned to the purchase of travel money. However, there was an impact on
margins, which were c. 20% below plan.
e Travel insurance performance in the second half of the year was in line with
budget.
1.3. Costs were £3.6m ahead of Plan, with:
e Staff costs £0.8m lower than Plan due to the release of a bonus provision
for 2015/16 and vacancies not being filled.
e Marketing costs were £0.4m higher than Plan from increased spend to
support the travel insurance online promotions.
e Non-staff costs (excluding Marketing) were £1.6m lower than Plan, mainly
due to contact centre costs being £0.8m less following lower travel insurance
volumes and the renegotiation of the contract.
e Commissions payable to Post Office were £1.5m lower, reflecting lower sales
and reduced margins.
e Other costs were £0.7m less than Plan due to lower depreciation charges
from the later delivery of Zeus.
1.4. Capital expenditure was higher than Plan due to higher project costs.
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1.5. POMS is regulated by the FCA and in the year was required to maintain a
minimum £0.7m of qualifying capital at all times. At the year-end, POMS’
regulatory capital of £3.4m exceeded the FCA minimum by £2.7m?.
1.6. At the year-end POMS had cash of £13.4m, balanced by amounts due to Post
Office for commissions and recharges of £2.0m, £2.2m due to Insurance third
parties, £7.3m of reserves and £1.9m for working capital.
1.7. In 2016/17, as the business model has settled following Hawk, POMS has shown
flexibility to respond to market/sales conditions to deliver profitable outcomes.
1.8. 2017/18 EBITDA is targeted to be £7.3m, with net income of £44.4m. After P5:
e POMS generated an EBITDA of £2.8m, £0.8m adverse to Plan; £0.5m of the
variance relates to timing (commissions and cost classifications) and £0.1m
to unbudgeted costs.
2. Building the future model
POMS strategic objectives
_ IRRELEVANT
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Progress to deliver the strategic objectives
2B
2.4.
2.5
- IRRELEVANT
2.7.
Next steps in the strategy
2.9.
» IRRELEVANT
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2.13. POMS and Post Office are currently renegotiating the Master Services and
Distribution Agreements under which certain services are provided by Post
Office to POMS. This review does not include the commission arrangements
under which POMS pays Post Office 30% of its net income.
3. Governance
3.1. A Board effectiveness review has been undertaken and the recommended
changes are being implemented, including the appointment of an additional
independent NED.
4. Risk management
4.1. Risk management framework and governance structures are in place.
Embedding these structures and ensuring they are effective is the future focus.
4.2. Risks currently classed as being outside of POMS’ risk appetite are:
e Appointed Representative (AR) (see 4.3 & 4.4);
e Marketing Capability/Performance - following the restructure of the Post
Office Marketing function there have been delays in the delivery of
marketing plans. With a new marketing director joining POMS shortly and
the completion of recruitment in Post Office’s central marketing, it is hoped
that this risk will soon revert to within appetite; and
e Strategy/Business Plan - a review of the 5 year business plan will be
complete by the end of the year. It is anticipated that this risk will be within
appetite following the review.
4.3. The POMS-Post Office relationship structure is unusual as Post Office is both
POMS’ sole shareholder and AR. POMS works closely with Post Office to ensure
issues of regulatory concern are addressed and managed.
4.4. The relationship with Post Office as both AR and service provider is in place; as
discussed over the course of the past year at the Post Office ARC, the biggest
risk is the operational oversight of branches. Progress has been made to
improve the systems and controls. Actions are being developed by both Post
Office and POMS to further improve the levels of conduct risk. Bringing these
risks into appetite requires the effective delivery of the Enhanced User Managent
project and a focus on those actions agreed and designed to address any
identified conduct risk. The POMS Board regularly assesses whether enough
progress has been made, or anticipated, for it to be comfortable to continue to
allow Post Office to sell POMS’ products in branches.
4.5. There have been no notifiable issues to the FCA in the period.
5. Performance of the “Titan” and “Hawk” projects
5.1. At the Post Office Board away day POMS was asked to provide an update on the
performance of the two core business builds to deliver the long term insurance
strategy - Titan (establishment of POMS and re-engineering the travel business
model) and Hawk (the acquisition of the Bank of Ireland’s share in Post Office
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Insurance). The third component was the acquisition of the activities undertaken
by Junction.
5.2. Following discussions at the Post Office Board from 2012-14, POMS was
established in late 2014 and from January 2015 took over the management of
travel insurance. Project Titan included the establishment of POMS as a trading
entity (including gaining FCA approval), the migration of travel insurance
business from AON to POMS; the establishment of a dedicated call centre; and
the building of the policy management system (Zeus).
5.3. Core components of Titan have been delivered and are operational; however
there have been challenges, in particular:
e Zeus delivery was delayed and project costs were higher;
e in branch sales of travel insurance have slowed, but the margin generated
is 15% higher; and
e the business case assumed an aggressive growth in online sales, in
particular through aggregators. This channel was delayed due to contractual
issues with the interim platform manager and the delay in launching Zeus.
The business case assumed 1.0m sales in 2017/18 against the current
budget/forecast of 700k.
5.4. The net impact has been that the business case is currently £2.3m adverse,
although we are confident that that gap will be closed as digital sales grow.
2013/14 2014/15 2015/16 2016/17_-2017/18P Total
Revenue Em 28 D7 ie 153 424
Actual ICost £m 19 “3a “95 TA “8.0 -29.7
EBITDA £m 19 0.7 32 47 73 25
Bus.case [EBITDA £m “19 “36 5a 65 87 148
Net Difference £m 0.0 28 “1.9 “18, “14 -23
Performance of the “Hawk” business acquired from Bank of Ireland
5.5. In November 2015, POMS acquired Bank of Ireland’s interests in Post Office’s
general insurance business (Project Hawk). Since acquisition, the business has
performed ahead of the plan by £1.8m:
EBITDA 2015/16 2016/17 Total
Actual £m 16 43 5.9
Bus. Case £m 03 38 41)
Net ém 13 0.5 18)
5.6. The business case also incorporated further benefits in the years past 2016/17:
e The initiative to take on more of the value chain through buying-out main
general insurance supplier (“Junction”) now has lower gross benefits, but a
greater certainty of delivery. The net impact of these factors on the value
case was a drop in NPV of c£(10)m.
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e Slower growth in existing business and slower growth in new products
versus the business case, but with an increased certainty of delivery for
both. These resulted in a £4m improvement in NPV.
5.7. As a result of the above, the review showed NPV incremental to the cost of
acquisition NPV of £24m versus the original £29m.
5.8. The holding value of Hawk remains at £43.9m, the acquisition price.
6. Conclusion
6.1. POMS is now well established and performing broadly in line with expectations.
e The key building blocks that were planned are in place and being embedded.
e Current income and profit outcomes exceed the original Hawk business case
(acquisition of the insurance business from the Bank of Ireland), confirming
the significant opportunity that POMS provides to its shareholder.
e POMS is undertaking a review of this strategy to reflect the impact of
market, regulatory and distribution changes. This is likely to result in a pivot
to a digital driven model, with concomitant increase in marketing and in-
year EBIT impact.
6.2. In POMS, Post Office has a strategic asset that will provide financial growth and
long term value to its shareholder.
Rob Clarkson, POMS Managing Director
Nick Kennett, POMS Deputy Chair
Steve Ashton, POMS Chair
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Appendix 1: POMS Balance Sheet
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Ek Mar-16 Jun-16 Sep-16 Dec-16 Mar-17
Non-current assets
Intangible assets 45,789 46,979 48,369 49,621 52,196
45,789 46,979 48,369 49,621 52,196
Current assets
Amounts owed by group undertakings 202 381 0 it} 0
Other debtors 142 126 293 98 115
Accrued income 4,552 4,830 4,250 3,767 5,620
Prepayments 41 23 130 142 121
Cash at bank and in hand 14,576 13,483 17,170 12,999 13,441
19,512 18,844 21,843 17,006 19,298
Total assets 65,301 65,823 70,212 66,628 71,493
Creditors: amounts due within one year
Trade creditors (738) (663) (1,203) (611) (746)
Amounts owed to group undertakings (6,638) (3,231) (5,853) (2,208) (2,043)
Other creditors (1,082) (1,859) (1,880) (885) (1,525)
Accruals (4,115) (5,054) (3,537) (4,141) (6,797)
Provisions (994) (1,121) (1,182) (856) (991)
Tax Creditor 0 (432) (965) _ (1,265) _ (1,567)
(13,567) (12,361) (14,619) (9,966) (13,669)
Total assets less current liabilities 51,734 53,462 55,593 56,662 57,824
Creditors: amounts due in more than one year
Amounts owed to group undertakings (500) (500) (500) (500) (500)
(500) (500) (500) (500) (500)
Net assets 51,234 52,962 55,093 56,162 57,324
Capital and reserves
Share capital 50,000 50,000 50,000 50,000 50,000
Retained earnings 1,234 2,962 5,093 6,162 7,324
Total equity 51,234 52,962 55,093 56,162 57,324
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BOARD ADVISORY PAPER
Annual Report and Accounts 2016/17
Author: Amanda Radford Sponsor: Al Cameron Date: 26 September 2017
Board Papers
We have created a suite of documents for review at the September 2017 Board in relation
to the Annual Report and Accounts for 2016/2017. These comprise:-
1. Annual Report and Accounts Cover Note
This paper covers the following:-
a. Changes to the financial statements since the May 2017 ARC
b. Details of the fixed asset impairment reversal of £272m and associated impairment
review
c. Post balance sheet review
d. Status of audit work
e. Post balance sheet events including Pension buy-in, liquidation of the holding
company and acquisition of the New Call customer base
f. Going concern, including funding status
2. Ernst & Young Audit Results Update Paper to the ARC
EY have updated their audit findings and this paper covers:-
a. Conclusion of audit items which were outstanding as at May 2017
b. EY’s conclusions on the fixed asset impairment reversal, impairment review and
going concern
c. Summary of audit differences
d. Status of audit work
3. ARA financials (“Back section”)
The primary statements and notes to the financial accounts for the Group and
Company only accounts.
4. ARA “Front section”
This covers the CEO and Chairman’s Statement, Finance and Business Review and
Governance sections of the ARA. This is in early draft and is subject to EY Review. EY
will provide a verbal update on the status of their review to the ARC. The ARC will
report on their update.
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BOARD ADVISORY PAPER
Annual Report and Accounts 2016/17
Author: Amanda Radford Sponsor: Al Cameron Date: 26 September 2017
Executive Summary
Context
1. In May the ARC reviewed the draft financial statements, briefing book and Ernst &
Young (“EY”) audit findings to 18" May 2017. At the point of the report, the clarity on
the timing of the value of investment funding was uncertain and there were a number of
key matters on which neither POL nor EY were able to conclude. These included:-
a. Fixed asset impairment reversal
b. Going concern
c. Subsequent events review to the date of signing the accounts
2. In May we reported an underlying operating profit of 93m and an EBITDAS profit of
£13m with net assets of £165m.
3. After concluding on funding, the draft 2016/17 Annual Report and Accounts (ARA) has
been reviewed by the ARC and is presented to the Board for approval, subject to
finalization of outstanding matters.
4. The papers comprise the Board ARA cover note, ARA and a report from Ernst & Young
on their findings as at 18" September.
Questions addressed in this report
5. The following questions are addressed in this report:
a. In summary, what were the changes to POL'’s final financial results since May
2017?
b. What is the effect of the fixed asset impairment reversal on the financial
statements?
c. How did we determine that Post Office can maintain the new fixed asset value on
the balance sheet?
d. What adjustments have been identified as a result of the post balance sheet event
review undertaken by Post Office and EY?
e. Whatis the status of the audit work on the ARA?
What other significant accounting judgements have been concluded?
o
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Conclusion
6. Since the Board in May 2017, a number of matters have been concluded. These
include:-
a. Completion of the work on the reversal of the fixed asset impairment. This has
resulted in the reversal of an impairment charge of £272m in FY16/17. In addition,
we have undertaken an impairment review and concluded that the future cash
flows generated by these assets support their value on the balance sheet
b. POL and EY have undertaken post balance sheet event reviews resulting in a
small number of adjustments.
c. A number of Post balance sheet events have been identified including Pension
buy-in, liquidation of the holding company and acquisition of the New Call customer
base
d. We have undertaken a Going concern review and given (1) the confirmation in
principle of the final year of the NSP and up to £210m of investment funding and
(2) continued forecast profitability of Post Office, we can demonstrate our longer-
term commercial sustainability which support going concern. The accounts have
been prepared accordingly.
e. There has been no change to the Quality of Earnings as a result of the completion
of the post balance sheet reviews by POL and EY.
7. As at 18'" September, EY have not completed all their audit procedures and will give
an update at the ARC on 25" September. A summary of outstanding matters is given in
this report. We do not currently anticipate any material changes. The ARC will update
the Board accordingly.
8. The cumulative effect of the adjustments posted to the accounts since the May 2017
do not affect EBITDAS and hence the bonus position is unchanged. There would be no
impact on the bonus position if we were to post the purchase order accrual credit
(£221k) identified by POL or the adjustments which EY have identified for the discount
rate on onerous leases as they are an adjustment to capital and investments. If we
were to accept the judgmental adjustment for gift vouchers, EBITDAS would increase
by £1m.
Input Sought
9. The Board is requested to approve the ARA subject to finalisation and to approve
delegation of authority to Tim Parker, Paula Vennells and Alisdair Cameron to finalise
any outstanding matters, the front end and sign thereafter.
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The Report
In summary, what were the changes to POL’s financial results since
the May Board?
10. There has been no change to the EBITDAS of £13m or operating profit of £93m since
the May Board.
11.On the Post Office Group balance sheet, there has been an increase in net assets by
£20m to £186m since the presentation of the financial statements to ARC in May
(£165m). This principally represents an increase in the impairment reversal of £17m
and £4m from the disposal of Great Portland Street.
What is the effect of the fixed asset impairment reversal on the
financial statements?
12.Following appropriate procedures to confirm existence, depreciation rates and value of
assets, an adjustment to the impairment charge of £272m has been calculated and
agreed with EY, subject to finalisation by EY of their impairment testing procedures. As
this is a change in accounting estimate, there is no prior year adjustment required to
the accounts. We have credited the P&L under the “Capital and Investment” heading
and debited fixed and intangible assets on the Balance Sheet. POL has a resulting net
assets position of £186m. Subject to annual impairment testing, fixed assets will be
capitalised and depreciated from the beginning of FY17/18.
13. The change in accounting estimate resulted from the financial performance of Post
Office and a profitable EBITDAS position. Confidence in the delivery of the profitable
position became apparent during the final quarter of the FY16/17 together with
confirmation of the funding position for the next three years and, supported by the
value in use calculations, we have reversed the impairment as at 26 March 2017.
14. Following the completion of the POL review and audit testing by EY there were, as
expected, a number of adjustments made which increased the initial impairment
reversal estimate from £255m to £272m. The net adjustment of £17m principally
relates to the completion of our procedures on Assets Under Construction.
15. Following the completion of the impairment review, the net book value of major
categories of asset and significant assets within those categories are as follows:-
a. Fixtures and equipment (£104m) which includes fit-out of agency branches (£58m);
equipment within the DMB network (£13m); and end user equipment (£20m).
b. Software (£137m) which includes Horizon (£49m); Back office transition and
transformation (£14m); upgrades to Credence, CFS, Success Factors, Moneygram
and other Post Office Systems (£23m)
c. Land & Buildings (£40m) which includes Finsbury Dials fit-out (£8m); fit-out of DMB
network (£24m) and other properties (9m).
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How did we determine that Post Office can maintain the new fixed
asset value balance sheet value?
16.Under accounting standards, we are required to demonstrate that the carrying value of
the fixed and intangible assets that we have recognised on the balance sheet can be
supported by a value in use calculation for POLs cash generating units (“CGUs’).
Essentially, we need to demonstrate that the future cash flows from the assets support
their value on the balance sheet.
17.This requires Post Office to undertake a number of specific procedures (1) divide Post
Office into appropriate CGUs (2) identify the carrying value of assets (3) estimate the
future pre-tax cash flows of the CGUs (4) determine an appropriate discount rate and
apply to the cash flows and (5) compare the carrying value of the assets with the future
discounted cash flows
18.As part of our work we concluded the following:-
a. POL has 2 CGU’s —- POL and POMS
b. Pre-tax cash flows were calculated using the strategic plan as a basis. As required
by accounting standards, capital expenditure and associated benefits were
restricted to maintenance and replacement capex only.
c. By using appropriate comparator companies, we determined the POL discount rate
to be 9% for POMS and 12% for POL.
19.We have completed the impairment review and, subject to the completion of EY testing
procedures, we have concluded that there is sufficient headroom to maintain our
tangible and intangible assets on the balance sheet.
What adjustments have been identified as a result of the post
balance sheet event review undertaken by Post Office and EY?
20.As part of the finalisation of the financial statements POL have conducted additional
procedures which have identified a number of adjustments. EY have also substantially
completed their outstanding audit procedures and post balance sheet review which
have resulted in a small number of judgmental and factual misstatements.
21. The POL review focused on testing the material Receivables and Payables balances
as at FY16/17 year end, with a focus on testing the clearing of balances (i.e. receipts or
payments) after the year end, and reviewing support for any un-cleared items. The
review has identified a number of adjustments, these net to a credit to the P&L of
£156k. Of this, a net £65k debit has been posted to the accounts. We have not
adjusted the £221k credit which relates to purchase order accruals.
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22.EY have noted 3 potential adjustments which are:-
a. Judgmental credit of £1,040k in relation to Gift Voucher accrued income. If
accepted this credit would increase EBITDAS.
b. Judgmental debit (709k) and factual misstatement (£663k)— both relate to the
discount rate applied to the onerous lease provision. If posted, these would
increase the cost disclosed under capital and investments but would not affect
underlying EBITDAS
What is the status of the audit work on the ARA?
23.Subject to the completion of the matters outlined below, we expect that EY which will
issue an unqualified audit opinion on the ARA for FY16/17.
e Finalisation of audit procedures in a limited number of areas including fixed asset
impairment reversal assessment and update on provision for legal claims
e Going concern assessment, in particular, letter of comfort from BEIS in relation to
investment funding for FY18/19 to FY20/21 and NSP for FY20/21
e Review of the front half of the ARA and completion of review on financials
e Finalisation of pension plan assets testing in respect of Blackrock investment fund
(£365m)
e Letter of representation
¢ Completion of subsequent events review
What other accounting judgments have been concluded?
Post Balance Sheet Events
24. The following items have been identified as non-adjusting post balance sheet events
which have been disclosed in the financial statements
a. Pension buy-in — On 20th July 2017, the Trustees of the pension scheme entered
into an agreement with Rothesay Life PLC in which a pension buy-in was effected.
Under the bulk annuity purchase agreements, the Trustees of the pension plan
have effectively bought an asset that provides income which matches closely the
benefit payments from the pension plan. It achieves a material risk reduction as
changes in income mirror changes in benefits due to e.g. inflation and longevity.
As a result of this transaction, the FY17/18 accounting entries in relation to the
balance sheet pension position net to nil. The data risk premium of £2.1m, paid by
the insurer, will be a debit to the P&L in FY 17/18 but the opposite side of the entry
is also to reserves and has no effect on the net asset position of the Group.
b. Postal Services Holding Company Limited placed into liquidation — on 12"
June 2017, Post Office’s parent company, Postal Services Holdings Limited, was
placed into liquidation and all of the ordinary shares that were held by Postal
Services Holdings Limited in Post Office Limited were transferred to the ownership
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of the Secretary of State for Business, Energy and Industrial Strategy. We expect
the process to be complete and the company dissolved by March 2018.
c. Acquisition of New Call - On 30 March 2017, the Group acquired the residential
broadband and home phone customer base, along with certain other assets, of
New Call Telecom Limited, for cash consideration of £2m. Further consideration of
£6m is contingent on the number of New Call customers that successfully migrate
to the Group’s systems by a particular date. We have disclosed the provisional fair
value of the net assets acquired (6m) and goodwill (2m) in the FY16/17
accounts. We will finalise these values as part of completing the accounts for
FY17/18.
Going Concern
25. The financial statements have been prepared on the basis that POL is a going
concern.
26.On 27 November 2013, a funding agreement was announced providing:
e Funding of £280m for 2015-16 (received April 2015)
e Funding of £220m for 2016-17 (received April 2016)
e Funding of £140m for 2017-18 (received April 2017)
e Extension of the existing working capital facility with BEIS to 31 March 2018 of
£950m.
27.As the previous funding round expires as at March 2018, POL has been working with
BEIS on securing funding for the next 3 years. On 30 March 2017, POL and the
Secretary of State for BEIS signed a Funding Agreement and an Amendment to the
Working Capital Facility confirming that the following funding package will be made
available to POL from April 2018.
e Extension of the existing working capital facility of £950m with BEIS to 31 March
2021
e Network subsidy payment of £60m for 2018-19
e Network subsidy payment of £50m for 2019-20
28.In addition the Secretary of State for BEIS has confirmed in principle in a letter dated
25th July 2017 (and BEIS will be providing a letter of comfort) that the following
additional funding will be also be made available to POL
e Network subsidy payment of £50m for 2020-21
e Investment funding of up to £210m for the period April 2018 to March 2021
29.Consistent with previous years, the network subsidy payment and investment funding
will be received in the form of grants and are non-refundable.
Strictly Confidential
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POST OFFICE Page 7 of 7
30.Consistent with the previous funding round, the network subsidy payment and
investment funding are conditional on European Commission approval. Known as
State Aid approval, POL has always received the required consent and, as in previous
years, we expect this to be a formality and do not expect the funding to be withheld.
The application for State Aid has been submitted and we anticipate confirmation in
Spring 2018. The working capital facility is not classified as state aid and requires no
further approval.
3
-Using budget for FY17/18 and the first year of the strategic plan, we have undertaken
going concern analysis which requires us to sensitise the assumptions around growth
rates and delivery of cost reduction. On the basis of the funding outlined in sections 26
to 28, we have concluded that Post Office Limited will be able to meet its liabilities as
they fall due for at least the next 12 months from the date of signing of the financial
statements and that it is therefore appropriate to prepare accounts on a going concern
basis.
Strictly Confidential
POL-BSFF-0088729_0047
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Audit Results Update Report to the Audit,
Risk and Compliance Committee
for the 52 week period ended 26 March 2017
Post Office Limited
19 September 2017
i
——_
Tr EY
The better the question. The better the answer. Bulldina’a batt
The better the world works. working world
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EY
The contents of this report are subject to the terms and conditions of our appointment as set out in our engagement letter dated 22 January 2016.
This report is made solely to the ARC Committee, Board of Directors and Management of Post Office Limited in accordance with our engagement letter. Our work has
been undertaken so that we might state to the ARC Committee, Board of Directors and Management of Post Office Limited those matters we are required to state to
them in this report and for no other purpose.
To the fullest extent permitted by law we do not accept or assume responsibility to anyone other than the ARC Committee, Board of Directors and Management of
Post Office Limited for this report or for the opinions we have formed. It should not be provided to any third party without our prior written consent.
POL-BSFF-0088729_0049
—_
EY
Building a better
working world
Ernst & YoungLLP Tel: +44 20 7951 3452
1 More London Place aduncan1@uk.ey.com
London SE1 2AF
The Audit, Risk and Compliance Committee
Post Office Limited
20 Finsbury Street
London
EC2Y 9AQ
Members of the Audit, Risk and Compliance Committee,
2016/17 Audit Results Update Report
We are pleased to present our Audit Results Update Report
for the forthcoming meeting of the Audit, Risk and
Compliance (“ARC”) Committee. This report summarises our
updated conclusions in relation to our audit of Post Office
Limited's (the “Group") financial position and the results of its
operations for the 52 week period ended 26 March 2017
(‘the year").
This report provides an update to the report issued on 12 May
2017 (the “Audit Results Report") and should be read in
conjunction with that report. This report also contains our
final summary of audit differences and communications
regarding our independence.
19 September 2017
This report is intended solely for the information and use of
the ARC Committee, Board of Directors and management. It is
not intended to be and should not be used by anyone other
than these specified parties without or specific written
consent.
We welcome the opportunity to discuss this report with you at
the ARC Committee meeting on 25 September 2017.
Yours faithfully,
Peter Mclver
Partner
For and on behalf of Ernst & Young LLP
The UK firm Ernst & Young LLP is a limited liability partnership registered in England and Wales with registered number ©C300001 and is a member firm of Emst & Young Giobal Limited. A list of members’ names is
available for inspection at 1 More London Place, London SEt 2AF, the firm's principal place of business and registered office. Ernst & Young LLP is a multi-disciplinary practice and is authorised and regulated by the
Institute of Chartered Accountants in England and Wales, the Solicitors Regulation Authority and other regulators. Further details can be found at hitp:/www.ey.con/UKien/Home/Legal.
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oD) = Executive
summary
Accounting
3 Qos: and
judgements:
significant risks
Other accounting
1 0 matters and
judgements
Summary of
audit differences
1 4 a ‘= Control
ie * environment
15 _S Detailed list of
open items
Draft
16S Maserent
=> representation
letter
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1 I Executive summary EY
Our audit of the group's financial statements for the year ended 26 March 2017
Our opinion and status of our audit has been performed in accordance with International Standards on Auditing
Our audit work in respect of the group and parent company is substantially complete. (UK and Ireland) in order to provide reasonable assurance that your financial
The significant open items required to finalise our audit procedures are: statements are free of material misstatements.
» Finalisation of our audit procedures in a limited number of areas, including fixed Audit scope and audit approach for the year ended 26
assets impairment reversal assessment and review of documentation in respect of March 2017
provision for legal claims;
There has been no change to our audit scope and audit approach from that
Finalisation of our audit procedures in respect of the going concern assessment; . .
. p p going reported in our Audit Results Report.
» Finalisation of our procedures relating to the group's annual report and accounts;
» Finalisation of pension plan assets testing in respect of BlackRock investment fund
with the total value of £365m; There has been no change to the significant risks or other accounting matters
or judgements from those identified in the Audit Results Report.
In Sections 2 and 3 of this report we have included an update on the status of
matters which were open at the time that our Audit Results Report was issued
Accounting matters and judgements
» Receipt of the signed management representation letter (draft in Appendix B); and
» Completion of subsequent events review.
We have included an update on the status of matters which were included in Audit including more extensive discussion on going concern and the impairment of
Results Report (dated 12 May 2017) and we have set out below the main updates tangible and intangible assets given the majority of the work on these two risks
since our previous report: had not been performed at that stage.
» Post Office Limited agreed a total network payment subsidy of £110m for 2018/19 Summary of audit differences
and 2019/20 and extended the £950m working capital facility to 31 March 2021. In
addition, Post Office Limited has agreed in principle a network subsidy payment of . dai Als
£50m for 2020/21 and investment funding up to £210m for the period to 2020/21. threshold for reporting audit differences of £472,000. Further detail, including
the turnaround effect of a prior year adjustment, can be found in Section 4 of
» Post Office Limited finalised its assessment of tangible and intangible assets this report.
impairment as at 26 March 2017. Following the improved performance, 5
management recognised a reversal of £272m impairment of tangible and intangible Control environment
assets. We finalised our substantive leavers testing and the final conclusion on our
evaluation of IT general controls was that we are able to rely on the IT
process for the relevant applications for our 2016/17 audit. Further details can
be found in Section 5 of this report.
We have identified some audit differences which were greater than our
We also included the status of matters that are still open (Appendix A). We will provide
an update on the status of our work at the ARC Committee meeting.
On the basis of our work performed to date, we anticipate issuing an unqualified audit . .
opinion in the form that was included in Appendix B of our Audit Results Report. There Independence, non-audit services and fees
has been no change to format or content of the report. There has been no change to our independence, non-audit services and fees
from that presented in the Audit Results Report. F
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2 I Accounting matters and judgements: significant. risks
Going concern
What is the risk?
Going concern was identified as a significant risk for the FY2016/17 audit due
to the following reasons:
» Uncertainty regarding Government funding;
» Significant judgement involved in future cash flow projections;
» Ongoing Network Transformation project;
» History of losses.
What judgements are we most focused on?
» Significant judgements around future cash flow projections.
What did we do?
We received supporting legal documentation for the further Government
funding package (FY2018/19 and onwards) which the Post Office has
obtained. This included the extension of the existing working capital facility of
£950m with Department for Business, Energy & Industrial Strategy (BEIS) to
31 March 2021 and the network subsidy payments of £60m for 2018/19 and
£50m for 2019/20.
We have received the signed letter from BEIS (dated 25 July 2017) confirming
in principle that future funding will be made available which will consist of
subsidy funding of £50m in 2020/21 (which supplements the subsidy already
agreed in the two preceding years) and investment funding of up to £210m for
the period to 2020/21. We are currently awaiting receipt of a letter from
Richard Callard which provides further clarification on the terms under which
the investment funding will be made available.
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For each of the judgements in this report, this graphic represents our view of the degree
of optimism or conservatism in management's judgement. The extreme ends of this
scale correspond with an adjustment on our summary of audit differences (‘SAD’)
SAD SAD
‘Optimistic OQ @ O O Conservative
We received the going concern assessment model prepared by management.
We checked the assumptions used in the model, i.e. average draw down of
working capital facility on a monthly basis and the maximum available balance.
We understood that in determining the working capital facility headroom the
model assumes a flat usage of the Note Recirculation Facility (NRF). The NRF
is used to manage network cash and in particular can be used in peak times of
network cash to reduce reliance on the RCF, for example during bank holidays,
particularly Christmas and Easter, Post Office Limited pre-funds the network
which, together with reduced cash collections, leads to an increase in required
funding.
We also checked the cash flow model prepared by management for the 4 year
period up to 2020/21 and noted significant available headroom of c. £100m
average during the period.
We also note that the EBITDAS forecasts used for the purposes of the going
concern assessment do not take account of some further initiatives which are
expected to be cash flow positive such as the improvements in cash
management and the expected securing of a £50m revolving credit facility.
As the network subsidy payment and investment funding are conditional on
European Commission approval we have requested that Note 1 of the financial
statements includes appropriate disclosure of this fact.
Subject to finalisation of our audit procedures and the receipt of the letter from
Richard Callard referred to above, we are satisfied with management's
assessment that the Post Office will be able to meet its liabilities as they fall due
for at least 12 months from the date of signing of the financial statements and
that it is therefore appropriate to prepare the financial statements on a going
concern basis.
=
EY
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For each of the judgements in this report, this graphic represents our view of the degree
of optimism or conservatism in management's judgement. The extreme ends of this
scale correspond with an adjustment on our summary of audit differences (‘SAD’).
—_
2 I Accounting matters and judgements: significant risks (continued)
Impairment of tangible and intangible assets
What is the risk?
Impairment of tangible and intangible assets was identified as a significant risk
for the FY2016/17 audit due to the following reasons:
» Significant judgement is involved in management's assumptions regarding
the discount rate and long-term growth rate;
» Risk of inappropriate valuation methodology applied;
» Significant judgment involved in future cash flow projections;
» History of losses and previous accounting estimate whereby POL impaired
their fixed assets in full..
What judgements are we most focused on?
» Judgement involved in re-instatement fixed assets register and existence
verification;
» Judgement involved in future cash flow projections
» Judgement involved in management's assumptions regarding the discount
rate and long-term growth rate.
What did we do?
We focused our work in respect of impairment of tangible and intangible assets
on the two main areas:
» Assessment of impairment analysis performed by management;
» Assessment and check of impairment reversal of £272m, recorded in
FY2016/17.
EY
SAD
i D i
:OptimisicQ @ O O O Consenative :
During 2016/17 management reassessed Post Office Limited group business
performance going forward, following their review of Post Office Limited's
transformation program and the actual results for the year ended 26 March
2017. Management expects the transformation program to be finalised by the
end of Q1 2018. During 2016/17 Post Office Limited generated EBITDAS of
£13m (2015/16: loss £17m).
Management prepared an impairment test of tangible and intangible assets as
at 26 March 2017. We checked the impairment test in conjunction with a
summary memo outlining the main assumptions applied.
We concurred with management's approach to the identification of Cash
Generating Units (CGUs). There are two CGUs, namely Post Office Limited
and Post Office Management Services Limited (POMS). We audited the
POMS impairment model as part of our statutory audit and were satisfied with
management's conclusion. We noted that there is a significant headroom of
£77m, compared to POMS assets of £51m, which includes goodwill of £44m.
Therefore we focused on Post Office Limited CGU with a headroom of £213m
and assets value of £275m, including tangible and intangible assets of £272m.
We challenged the cash flows forecast by checking the 5 months ended 27
August 2017 actual results annualised with the estimated 2017/18 results, and
checked the changes in forecast in comparison with 2015/16 5 year plan,
particularly focusing on significant or unexpected changes.
EBITDA was forecast to decline at a 47% CAGR over 4 years, mainly as a
result of a reduction of network subsidy from £70m budgeted for 2017/18 to
£50m in 2020/21.
We challenged the short term growth rates applied against the group's
strategy, supporting documents and our understanding of the business and
performance gained as part of our audit of other areas. 5
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For each of the judgements in this report, this graphic represents our view of the degree
of optimism or conservatism in management's judgement. The extreme ends of this —_
scale correspond with an adjustment on our summary of audit differences (‘SAD’).
EY
2 I Accounting matters and judgements: significant risks (continued).
Impairment of tangible and intangible assets
(continued)
We engaged our valuations experts to assist us with the assessment of the
discount rate (9%) and long term growth rate (0%) applied to the impairment
model. We concluded that both rates are within an acceptable range. However we
noted that the same discount rate was applied to different Post Office Limited's
revenue streams, particularly financial services, which has different dynamics and
features compared to other revenue streams. Given significant headroom for
FY2016/17 impairment test, this will not have a material impact, however we
recommend management monitors the discount rate going forward.
We noted that the EBITDA in perpetuity (£56m) is in line with 2020/21 EBITDA and
is based on the assumption that the £50m network subsidy will be available going
forward and the savings going forward will be in line with the savings in 2020/21
(£45m net). We challenged management's assumptions and received the following
explanations:
1) Network subsidy
Post Office Limited continues to receive a network subsidy payment from the
Government to maintain the network. Post Office Limited does not believe, and
Government has not indicated, that the network subsidy will be removed.
2) Savings post 2020/21
The cost savings identified over the course of the four year plan which are
delivered by projects to replace or maintain capital expenditure will become
embedded within the cost base and therefore management expects the cost
savings implemented in 2020/21 will continue going forward.
We were satisfied with management's position in respect of Network subsidy and
cost savings assumptions applied for the EBITDA in perpetuity calculation.
SAD SAD
Optimistic O @ O © O Consemative
Having considered each of the individual inputs above, we sensitised the cash
flows of the valuation to a reduction in EBITDAS, an increase in the discount rate, a
reduction of savings post 2020/21 and a reduction of network subsidy post 2020/21:
5 200 a)
E 150 (35)
rs (35)
E 100
8
B 50 (75)
8
=
0 IS
Headroom I 10% reduction Increase of Reduction of Reduction of I Sensitised
in EBITDAS discount rate savings post network I _ headroom
109.6% 2020/21 by _ subsidy by
10% 20% post
2020/21
Sensitivities applied
At the date of our report we are yet to finalise our audit procedures and will provide
a verbal update to the Audit Committee at the meeting.
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For each of the judgements in this report, this graphic represents our view of the degree
of optimism or conservatism in management's judgement. The extreme ends of this —_
scale correspond with an adjustment on our summary of audit differences (‘SAD’). EY
2 I Accounting matters and judgements: significant risks (continued).
Impairment of tangible and intangible assets
(continued)
Review of amount of reversal of impairment recognised in FY2016/17
Given the significant judgment, the level of uncertainty and the material amount of
tangible and intangible assets impairment reversal, we re-assessed the level of risk
in relation to tangible and intangible assets existence and revised it to significant.
Following the re-assessment of the risk, we concluded that we would perform
additional audit procedures in respect of the existence of re-instated tangible and
intangible assets as at 26 March 2017.
We performed the following procedures:
1) We received management's summary memo of reversal of impairment (£272m)
recognised as at 26 March 2017 with the detailed analysis of re-instated tangible
[£931m] and intangible assets [£433m] gross book value and accumulated
depreciation [£787m] and amortisation [389m] as at 26 March 2017.
2) We checked the basis and timing for the change in accounting estimate. During
2016/17 Post Office Limited generated positive EBITDAS of £13m. Following careful
considerations of future business performance, the status of transformation program
and agreement on the network subsidy up to 2020/21 of £160m, management
revised its estimate in respect of intangible and intangible assets impairment. We
checked management's analysis to the evidence we obtained as part of our audit
procedures in respect of network transformation provision and going concern
analysis.
3) We checked management's assessment of existence of tangible and intangible
assets as at 26 March 2017. We tested a sample of assets from each group on a
random basis by vouching to supporting documents, e.g. properties and vehicles
registration documents and pictures of furniture and fittings obtained from Post
Office branches.
4) We challenged management's benchmark analysis of useful life for all groups of
tangible and intangible assets.
As a result of audit procedures we identified two adjustments which were corrected
by management; these are summarised in Section 4 of our report.
SAD SAD
Optimistic O @ O © O Consemative
Weare satisfied with the net book value of tangible and intangible assets of
£272m re-instated as at 26 March 2017. We are yet to finalise our audit
procedures in respect of the gross book values of tangible and intangible assets,
therefore these numbers are prelimiary. This will not impact the Group Balance
Sheet and Income statement, but could result in an amendment to the disclosure
notes in the Annual Report and Accounts.
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2 I Accounting matters and judgements: significant risks (continued)
Postmasters’
compensation
provision (valuation
and completeness)
Please refer to the Audit Results Report for details of the risk
and the work performed on this risk as at 12 May 2017.
We also completed the following procedures which were
outstanding as of date of the last report:
“Change in journey” release
+ We have agreed the consistency of the listing provided by
management with the full list of branches. No issues
were identified.
+ We received a breakdown of the total branches in the
Termination provision where management had
categorised the branches into six categories based upon
the probability of the provision being utilised. We have
reviewed the probability assigned to each of these
branches to ensure these are a reasonable basis for
management's estimate;
+ We have recalculated the weighted value of the provision
for each category, referring to the total branches and total
provision values (the values of which have been verified
in our testing of the Termination provision). We have then
recalculated the provision to check mathematical
accuracy with no differences noted.
Closing balance as at 26 March 2017
+ We have sampled five payments from the full breakdown
of cash payments made during P1 and P2 of 2017/18. We
matched selected payments by vouching to the bank
statements and payslips. No issues were noted through
this testing.
We challenged management's
assumptions with respect to the
release in provision relating to
“hard to place” branches. As part
of our audit procedures performed
we did not identify any differences
above our SAD posting threshold.
Our audit work in respect of the
release of the £12m provision
related to “changes in journey”,
including the branches
reconciliation, and our audit
procedures in respect of
subsequent cash payments
testing are in progress.
As part of our audit procedures
performed we did not identify any
differences above our SAD
posting threshold.
We have concluded that the
provision utilised during the year,
and the provision releases of the
“Hard to place” branches and
“changes in journey” during the
year are all appropriate.
Accordingly, we concluded that
the closing balance in respect of
the Postmasters’ compensation
provision is fairly stated as at 26
March 2017.
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2 I Accounting matters and judgements: significant risks (continued)
Revenue
recognition
Classification
and
completeness
of “capital and
investment”
items
We refer to the Audit Results Report
dated 12 May 2017 for the details of
the revenue recognition risk and the
audit procedures we performed.
We received a paper supporting the
change in estimate for Bill Payments
deferred revenue as at 26 March
2017. We reviewed the paper and
provided our comments to
management. At the date of this
report we are awaiting responses
from management.
We refer to the Audit Results Report
dated 12 May 2017 for the details of
the risk and the audit procedures.
performed.
We finalised our extended
subsequent events procedures
through review of cash payments for
the period subsequent to 26 March
2017 in respect of “capital and
investments” items.
We have not identified any differences above our
summary of audit differences threshold.
At the date of this report the Group is yet to provide
to us a paper supporting the change in estimate for
Bill Payments deferred revenue as at 26 March
2017. Subject to finalisation of our audit procedures
in respect of the change in estimate of Bill
Payments deferred revenue, we conclude that
revenue, accrued income and deferred income
balances for the 2016/17 financial year are
appropriately stated.
As a result of our audit procedures performed we
have identified one difference above our SAD
posting threshold related to overstatement of Royal
Mail separation provision by £1.1m. This was
adjusted by management. We included this
difference in our Summary of Audit differences in
section 4.
We have not yet completed our work in respect of
the impairment of intangible and tangible assets,
including the change in management's estimate
and resultant reversal of £255m impairment
recognised in previous periods.
We identified one judgemental difference of
£1.04m in relation to inappropriate accrual rate
used for Gift Vouchers accrued income. Please
see Section 4 for further details. We have
requested this adjustment be corrected by
management, as required by auditing
standards. It has not been adjusted as
management believes that it is immaterial to the
financial statements as a whole.
Subject to finalisation of our work on Bill
Payments deferred revenue, we are satisfied
with the revenue recognised during 2016/17.
As a result of our audit procedures performed
we have identified one difference above our
SAD posting threshold related to overstatement
of Royal Mail separation provision by £1.1m.
This was adjusted by management. We
included this difference in our Summary of Audit
differences in section 4.
We are satisfied with the classification and
completeness of capital and investment items,
subject to finalisation of our audit procedures in
respect of tangible and intangible assets
impairment reversal of £272m. For further
details please refer to slide 6 above.
POL-BSFF-0088729_0057
I Other accounting matters and judgements
Impairment of
goodwi
Pensions valuation
and accounting
Provision for legal
claims, including
Horizon
Subpostmasters’
litigation
Please refer to the Audit Results Report dated 12 May
2017 for the details of the risk and the work performed.
Please refer to the Audit Results Report dated 12 May
2017 for the details of the risk and the work performed.
As at the date of this report we have not received
pension plan assets confirmations in respect of the
RPMSEPP scheme. We are also finalising the pension
plan assets testing in respect of BlackRock investment
fund valuation with the total value of £365m due to the
fact this valuation is not publicly available.
We are yet to conclude our audit procedures of the
pension disclosure note in the Annual Report and
Accounts.
We met with Post Office management and Group
Legal, Risk and Governance Director in March 2017
and had a follow up meeting with her on 18 September
2017. We understood that there was a hearing of the
claim at the end of January 2017 and the order was
signed at the end of March 2017.
No quantification of potential exposure can be
estimated reliably.
Based on our audit procedures we:
concurred with management that there
is no goodwill impairment as at 26
March 2017.
We consider that the de-recognition of
the pension surplus as at the date on
which the MoU was signed on 21
March 2017 is in line with applicable
accounting standards (IFRIC 14) given
that, as a result of the terms included
in the legally binding MoU, the Post
Office no longer has an unconditional
right of refund of any surplus.
Based upon the audit procedures.
performed we are satisfied with
management's accounting position in
respect of pensions.
Weare yet to receive the supporting
documentation and the most recent
update in order to conclude on this
matter and finalise our audit
procedures.
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No change to our conclusion from that
included in our Audit Results Report
No change to our conclusion from that
included in our Audit Results Report
dated 12 May 2017.
We have received requested
supporting documentation, including
the most recent update on
Postmasters' litigation on 18
September 2017. We will review the
information provided and will provide a
verbal update during the ARC meeting
on 25 September 2017.
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I Other accounting matters and judgements (continued)
Accounting for Please refer to the Audit Results Report dated 12 May _—As a result of our audit procedures No change to our conclusion from that
Supply chain 2017 for the details of the risk and the work performed. _ performed we are satisfied with the included in our Audit Results Report
restructuring management's position that the Retail
(“Discontinued Cash in Transit operation represents a
operation”) separate and major operation and,
accordingly, that it is appropriate to
recognise Supply chain restructuring
as discontinued operation.
Accounting for Joint Please refer to the Audit Results Report dated 12 May I Weconcur with management's No change to our conclusion from that
venture (“FRES”) 2017 for the details of the risk and the work performed. _ rationale that this revised accounting included in our Audit Results Report
investment in Post policy provides more relevant and
Office Company reliable information to the users of the
financial statements financial statements as nearly all of
the group's activities occur within the
parent, so equity accounting in the
parent closely aligns the parent and
group financial statements.
Accordingly, in our view this change in
accounting policy is appropriate and
permissible under accounting
standards and UK company law. We
are satisfied with the £66m
investments balance value as
restated.
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4 I Summary of audit differences
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Unrecorded audit differences
Known differences
Adjustment to Onerous and Vacant Lease Provision (factual element) due to
incorrect discount rate used (5.25% used vs POL rate of 3.5%), less
overprovision of £194k for two leases which have ended (Dr Admin Expenses
(Capital & Investment) Cr Lease provision)
Judgemental differences
» Adjustment to account for inappropriate accrual rate for Gift Voucher accrued
income of 3% when average billings since 2012 have been 3.91% (and more
recent billings have been closer to 6% (3.91% rate applied by EY)) (Dr Accrued
income Cr Revenue (Revenue Trading)).
Adjustment to Onerous and Vacant Lease Provision for judgemental element of
discount rate used (POL should have used a rate of 3.5% per internal rates v EY
rate of 2.2%) (Dr Admin expenses (Capital & Investment) Cr Lease provision).
Total effect of uncorrected misstatements, before turnaround effect
Less tax effect
~ Turnaround effect of an audit difference which was unrecorded in the prior year
Cumulative effect of uncorrected misstatements, after turnaround effect
0.66
(1.04)
0.71
0.33
(0.07)
(1.53)
(1.2)
1.04
1.04
(0.66)
(0.71)
- (1.37)
12
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4 I Summary of audit differences (continued)
Unrecorded audit differences (cont'd)
Reclassification differences
» Reclassification between provision balance and payables for Mails Separation Agreement (MSA) (£2.18m).
Disclosure differences
» Atthe date of our report we have not identified any disclosure differences. We are yet to finalise our audit procedures in respect of the audit of disclosures in the
Annual Report and Accounts.
Parent company differences
» We did not identify any additional adjusted or unadjusted audit differences in the parent company.
Corrected differences
Judgmental and factual differences:
» MSA Payment provision release through capital and investment costs (£1.09m).
» Reduction of impairment reversal of intangible assets (£15.2m).
» Reduction of impairment reversal of tangible assets (£23.7m).
Reclassification differences:
» Reclassification of seven months of accrued income for Gift vouchers from current assets to non-current due to timing of the billing which takes place 19 months after
the sale (£1.5m).
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5 I Control environment
Scope
The scope of our work on the internal control environment was explained in our
Audit Results Report.
We tested the change management, user access and IT operations controls over
the applications listed in the table below. We performed additional procedures to
mitigate the impact on our audit of the deficiencies identified which were
communicated in our Audit Results Report.
Our conclusion is that we are able to rely on the IT process for the relevant
applications for our 2016/17 audit.
Manage Manage Manage IT ITCAs/
System Overall access change operations ITDMs
HNGX e Effective Effective Effective Effective
CFS e Reliable* Reliable Effective Effective
SAP HR e Reliable* Reliable Effective Effective
POLSAP e Reliable* Effective Effective Effective
* Conclusion was finalized after the completion of additional substantive leavers
testing
© - no recommendations were noted.
© - control deficiencies/recommendations were identified.
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Appendix A I Detailed list of open items
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1. Going concern
2. Tangible and intangible assets impairment
assessment and reversal of impairment of £272m
3. Finalisation of audit testing of pension plan assets
4. Finalisation of audit of legal claims
5. Annual Report and Financial Statements
6. Subsequent events procedures
7. Directors’ emoluments certificates
8. Corporation Tax
9. Letter of representation
10. Client receivables
11. FRES
12. Merlin Cash Centre Paper
13. Network Cash
14. Paper to support the change in estimate for Bill
Payments deferred revenue as at 26 March 2017
>
>
>
>
EY to finalise audit procedures in respect of review of management's going concem analysis and
forecast
Management to provide letter from Richard Callard in respect of £210m investment funding
EY to finalise the audit procedures in relation to testing of gross book value of tangible and
intangible assets adjustments recorded as at 26 March 2017.
Finalisation of detailed testing of cash flow forecast.
Management to assist with receiving outstanding supporting information related to pension assets.
EY to finalise the audit procedures once the documentation has been provided.
Management to provide remaining supporting documentation for Postmasters litigation and
assessment of potential exposure and some additional queries made by EY.
EY to finalise the audit procedures once the documentation and assessment have been provided.
Management to provide Front half of the Annual Report. EY to review and tie to financial
statements and other supporting documentation.
Tie out and review of the financial statements to be finalised by EY.
EY to finalise subsequent events procedures up to date of signing
Provision of signed certificates by management
EY to update their audit procedures in respect of corporation tax to reflect agreed fixed asset
reversal amount
Management and EY to table the wording of the draft letter included in Appendix B of this report
Management to provide supporting documents for additional sample. EY to finalise the audit
procedures once required information will be provided.
Management to provide responses on questions from EY. EY to finalise the audit procedures once
answers have been received.
EY to finalise the audit procedures.
Management to provide EY with support for cash declaration required for finalisation of tests of
controls.
Management to provide the updated paper and calculations to support the change in estimate.
EY to review the paper and supporting documentation once it is prepared by management.
Management and EY
Management and EY
Management and EY
Management and EY
Management and EY
Management and EY
Management
EN
Management and EY
Management and EY
Management and EY
lene
Management and EY
Management and EY
15
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Appendix B I Draft management representation letter
[@] 2017
Dear Sirs
This letter of representations is provided in connection with your audit of the consolidated and parent
company financial statements of Post Office Limited (‘the Group and Company’) for the 52 week period
ended 26 March 2017. We recognise that obtaining representations from us concerning the
information contained in this letter is a significant procedure in enabling you to form an opinion as to
whether the consolidated and parent company financial statements give a true and fair view of (or
‘present fairly, in all material respects,’) the Group and Company financial position of Post Office
Limited as of 26 March 2017 and of its financial performance and its cash flows for the 52 week period
then ended in accordance with, for the Group, International Financial Reporting Standards as adopted
by EU (‘IFRS’), and for the Company, Financial Reporting Standard 101 Reduced Disclosure
Framework ("FRS 101”)
We understand that the purpose of your audit of our Group and Company financial statements is to
express an opinion thereon and that your audit was conducted in accordance with International
Standards on Auditing (UK and Ireland), which involves an examination of the accounting system,
internal control and related data to the extent you considered necessary in the circumstances, and is
not designed to identify — nor necessarily be expected to disclose — all fraud, shortages, errors and
other irregularities, should any exist.
Accordingly, we make the following representations, which are true to the best of our knowledge and
belief, having made such inquiries as we considered necessary for the purpose of appropriately
informing ourselves:
Financial statements and financial records
1. We have fulfilled our responsibilities, as set out in the terms of the audit engagement letter dated
22 January 2016, for the preparation of the Group financial statements in accordance with
International Financial Reporting Standards as adopted by the European Union, and for the
Company, FRS 101
2. We acknowledge, as members of management of the Group and Company, our responsibilty for
the fair presentation of the Group and Company financial statements. We believe the Group and
Company financial statements referred to above give a true and fair view of (or ‘present fairly, in all
material respects’) the financial position, financial performance (or results of operations) and cash
flows of the Group in accordance with International Financial Reporting Standards as adopted by
the European Union and the Company in accordance with FRS 101 and are free of material
misstatements, including omissions. We have approved the Group and Company financial
statements.
3. The significant accounting policies adopted in the preparation of the Group and Company financial
statements are appropriately described in the Group and Company financial statements
4. Asmembers of management of the Group and Company, we believe that the Group and
Company has a system of internal controls adequate to enable the preparation of accurate
financial statements of the Group in accordance with International Financial Reporting Standards
as adopted by the European Union and the Company in accordance with FRS 101 that are free
from material misstatement, whether due to fraud or error
5. We believe that the effects of any unadjusted audit differences, summarised in the
accompanying schedule, accumulated by you during the current audit and pertaining to the
latest period presented are immaterial, both individually and in the aggregate, to the
financial statements taken as a whole. We have not corrected these differences identified
by and brought to the attention from the auditor on this basis.
Fraud
6. We acknowledge that we are responsible for the design, implementation and maintenance of
intemal controls to prevent and detect fraud.
7. We have disclosed to you the results of our assessment of the risk that the Group and Company
financial statements may be materially misstated as a result of fraud.
8 We have disclosed to you all significant facts relating to any frauds, suspected frauds or
allegations of fraud known to us that may have affected the Group or Company (regardless
of the source or form and including, without limitation, allegations by “whistle-blowers”),
whether involving management or employees who have significant roles in internal control.
Similarly, we have disclosed to you our knowledge of frauds or suspected frauds affecting
the entity involving others where the fraud could have a material effect on the consolidated
or parent company financial statements. We have also disclosed to you all information in
relation to any allegations of fraud or suspected fraud communicated by employees, former
employees, analysts, regulators or others, that could affect the consolidated or parent
company financial statements.
Compliance with laws and regulations
9. We have disclosed to you all known actual or suspected non-compliance with laws and
regulations whose effects should be considered when preparing the Group and Company financial
‘statements.
Information provided and completeness of information and transactions
10. We have provided you with:
a. Access to all information of which we are aware that is relevant to the preparation of the
financial statements such as records, documentation and other matters;
b. Additional information that you have requested from us for the purpose of the audit; and
c. Unrestricted access to persons within the entity from whom you determined it necessary to
obtain audit evidence
11. All material transactions have been recorded in the accounting records and are reflected in the
financial statements.
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Appendix B I Draft management representation letter
13. We have made available to you all minutes of the meetings of shareholders, directors and
committees of directors (or summaries of actions of recent meetings for which minutes have not yet
been prepared) held through the period to the most recent meeting on [@] 2017.
14. We confirm the completeness of information provided regarding the identification of related parties.
We have disclosed to you the identity of the Group and Company's related parties and all related
party relationships and transactions of which we are aware, including sales, purchases, loans,
transfers of assets, liabilities and services, leasing arrangements, guarantees, non-monetary
transactions and transactions for no consideration for the year, as well as related balances due to
or from such parties at the year end. These transactions have been appropriately accounted for
and disclosed in the Group and Company financial statements
a
We believe that the significant assumptions we used in making accounting estimates, including
those measured at fair value, are reasonable.
16. We have disclosed to you, and the Group and Company has complied with, all aspects of
contractual agreements that could have a material effect on the consolidated and parent company
financial statements in the event of non-compliance, including all covenants, conditions or other
requirements of all outstanding debt.
Liabilities and contingencies
16. All liabilities and contingencies, including those associated with guarantees, whether written or
oral, have been disclosed to you and are appropriately reflected in the Group and Company
financial statements.
17. We have informed you of all outstanding and possible litigation and claims, as well as litigation
and claims we consider likely to arise, whether or not they have been discussed with legal
counsel
18. We have recorded and/or disclosed, as appropriate, all liabilities related to litigation and claims,
both actual and contingent, and have disclosed the Group and Company financial statements all
guarantees that we have given to third parties.
Subsequent events
19. Other than described in the Group and Company financial statements, there have been no events
subsequent to period end which require adjustment of or disclosure in the Group and Company
financial statements or notes thereto.
Other information
20. We acknowledge our responsibility for the preparation of the other information. The other
information comprises the Strategic Report and the Directors’ Report of the Annual Report and
Accounts.
21. We confirm that the content contained within the other information is consistent with the financial
statements.
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Accounting estimates
22. We believe that the significant assumptions we used in making accounting estimates, including
those measured at fair value, are reasonable.
23. Accounting estimates recognised or disclosed in the financial statements:
a. We believe the measurement processes, including related assumptions and models, we used
to determine the accounting estimates have been consistently applied are appropriate in the
context of International Financial Reporting Standards as adopted by the European Union.
b. We confirm that the disclosures made in the financial statements with respect to the accounting
estimates are complete and made in accordance with International Financial Reporting
Standards as adopted by the European Union for the Group and FRS 101 for the Company.
c. The assumptions we used in making accounting estimates appropriately reflects our intent and
ability to carry out specific courses of action on behalf of the entity, where relevant to the
accounting estimates and disclosures
d. We confirm that no adjustments are required to the accounting estimate(s) and disclosures in
the consolidated and parent company financial statements due to subsequent events.
Income and indirect taxes
24. We acknowledge our responsibility for the tax accounting methods adopted by the Group and
Company, which have been consistently applied in the current period, and for the current year
income tax provision calculation.
Group audits
25. There are no significant restrictions on our ability to distribute the retained profits of the Group
because of statutory, contractual, exchange control or other restrictions other than those indicated
in the accounts
26. Necessary adjustments have been made to eliminate all material intra-group unrealised profits on
transactions amongst parent, subsidiary undertakings and associated undertakings.
Retirement benefits
27. On the basis of the process established by us and having made appropriate enquiries, we are
satisfied that the actuarial assumptions underlying the scheme liabilities are consistent with our
knowledge of the business. All significant retirement benefits and all settlements and curtailments
have been identified and properly accounted for.
Use of the work of the specialist
28. We agree with the findings of the specialists that we engaged to evaluate the corporate taxation
and pension valuations and have adequately considered the qualifications of the specialists in
determining the amounts and disclosures included in the consolidated and parent company
financial statements and the underlying accounting records. We did not give or cause any
instructions to be given to the specialists with respect to the values or amounts derived in an
attempt to bias their work, and we are not otherwise aware of any matters that have had an effect
on the independence or objectivity of the specialists.
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Appendix B I Draft management representation letter
Tangible and Intangible assets
28. We are satisfied with the basis of accounting for tangible and intangible assets impairment
reversal of £272m as a change in accounting estimate recognised as at 26 March 2017.
29. We believe that the assumptions used in the tangible and intangible assets impairment
assessment model are reasonable and represent management's best estimate as at 26
March 2017.
30. We confirm that it is our expectation that the network subsidy of £50m will be available to
the Company after 2020/21 if the performance of the business means that it is still required.
Going Concern
31. Note 1 to the consolidated and parent company financial statements discloses all of the matters of
which we are aware that are relevant to the Group and Company's ability to continue as a going
concern, including significant conditions and events, our plans for future action, and the feasibility
of those plans.
Comparative information — comparative financial statements
32. In connection with your audit of the comparative consolidated and parent company financial
statements for the year ended 27 March 2016, we represent, to the best of our knowledge and
belief, the following:
» In preparing the Group financial statements for the current year, the comparative figures for
the year ended 27 March 2016 have been restated. The Retail Cash in Transit operation has
been discontinued during the current year and has been presented as part of discontinued
operations. The comparatives in the Income Statement for the year ended 27 March 2016
have been restated and allocated to discontinued operations. The restatement affects
revenue, people costs, and other operating costs. Within this report, the comparative income
statement and statement of comprehensive income for the year ended 27 March 2016 have
been restated. The operating profit from revenue trading on the cash flow statement has also
been restated. There has been no effect on the balance sheet or statement of changes in
equity.
> The comparative amounts have been correctly restated to reflect the above matter and
appropriate note disclosure of this restatement has also been included in the current year's
consolidated and parent company financial statements.
» In preparing the Parent Company's financial statement the comparative figures for the years
ended 27 March 2016 and 29 March 2015 have been restated for a change in the accounting
policy with respect to investment in joint ventures. The restatement is in the Parent Company
Financial Statements only. The change in accounting policy is described in more detail in the
accounting policies.
> The Group also voluntarily changed the presentation format of consolidated income
statement to columnar format for 2016/17 and related comparative financial information.
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Ownership of Assets
33.
35,
Except for assets capitalised under finance leases, the Group and Company has satisfactory title
to all assets appearing in the balance sheet, and there are no liens or encumbrances on the
Group and Company's assets, nor has any asset been pledged as collateral. All assets to which
the Group and Company has satisfactory title appear in the balance sheet.
We have no plans to abandon lines of product or other plans or intentions that will result in any
excess or obsolete inventory, and no inventory is stated at an amount in excess of net realisable
value.
There are no formal or informal compensating balance arrangements with any of our cash and
investment accounts. Except as disclosed in Note 14 to the consolidated and parent company
financial statements, we have no other line of credit arrangements.
Yours faithfully,
Alisdair Cameron, Chief Financial Officer
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EY I Assurance I Tax I Transactions I Advisory
About EY
EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality
services we deliver help build trust and confidence in the capital markets and in economies the world
over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In
so doing, we play a critical role in building a better working world for our people, for our clients and for
our communities.
EY refers to the global organisation, and may refer to one or more, of the member firms of
Emst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a
UK company limited by guarantee, does not provide services to clients. For more information about our
organisation, please visit ey.com
Ernst & Young LLP
‘The UK firm Ernst & Young LLP is a limited lability partnership registered in England and Wales with registered number 0300001 and is a
member firm of Emst & Young Global Limited.
Ernst & Young LLP, 1 More London Place, London, SE1 2AF.
2016 Ernst & Young LLP. Published in the UK.
All Rights Reserved.
ey.com
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Registered Number 2154540
Post Office Limited
Financial Statements
2016-2017
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DIRECTORS’ RESPONSIBILITIES STATEMENT
The directors are responsible for preparing the Annual Report, which includes the Directors’ Report,
Remuneration Report and Corporate Governance Statement, and the Group and Parent Company
Financial Statements, in accordance with applicable law and regulations.
Company law requires the directors to prepare Financial Statements for each financial year. Under that
law the directors have elected to prepare the Group consolidated Financial Statements in accordance
with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union (“EU”).
The financial reporting framework that has been applied in the preparation of the Parent Company
Financial Statements is applicable law and United Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice). Under company law the directors must not approve the
Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs
of the Group and Parent Company, and of the profit or loss of the Group and Parent Company for that
period.
In preparing these Financial Statements, the directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgements and accounting estimates that are reasonable and prudent;
* state whether IFRS as adopted by the EU, and applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and explained in the Group and Parent
Company Financial Statements respectively;
* prepare the Financial Statements on the going concern basis unless it is inappropriate to
presume that the Group and Parent Company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and
explain the Company’s transactions and disclose with reasonable accuracy at any time the financial
position of the Company and the Group and to enable them to ensure that the Financial Statements
and the Directors’ remuneration report comply with the Companies Act 2006 and, as regards the
Group’s Financial Statements, Article 4 of the International Accounting Standards Regulation. They are
also responsible for safeguarding the assets of the Company and the Group and hence for taking
reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial
information included on the Company’s website. Legislation in the United Kingdom governing the
preparation and dissemination of Financial Statements may differ from legislation in other
jurisdictions.
The Directors are responsible for preparing the Directors’ report and the Corporate Governance report
in accordance with the Companies Act 2006 and applicable regulations.
The Directors confirm that to the best of their knowledge:
« The Group consolidated Financial Statements, prepared in accordance with IFRS as adopted by
the EU and in accordance with the provisions of the Companies Act 2006 give a true and fair
view of the assets, liabilities, financial position and profit of the Group;
« The Parent Company Financial Statements prepared in accordance with United Kingdom
Generally Accepted Accounting Practice including FRS 101 “Reduced Disclosure Framework”,
give a true and fair view of the assets, liabilities, financial position and profit of the Company;
and
« The management report contained in this report includes a fair view of the development and
performance of the business and the position of the Group as a whole and of the Company,
together with a description of the principal risks and uncertainties they face.
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INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF POST OFFICE LIMITED
We have audited the consolidated Financial Statements of Post Office Limited for the 52 week period
ended 26 March 2017 which comprise the Group Consolidated Income Statement, the Group
Consolidated Statement of Comprehensive Income, the Group Consolidated Balance Sheet, the Group
Consolidated Statement of Cash Flows, the Group Consolidated Statements of Changes in Equity, the
related notes 1 to 23, the Parent Company Statement of Comprehensive Income, the Parent Company
Balance Sheet, the Parent Company Statement of Changes in Equity and the related notes 1 to 19.
The financial reporting framework that has been applied in the preparation of the Group Financial
Statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by
the European Union. The financial reporting framework that has been applied in the preparation of the
parent company Financial Statements is applicable law and United Kingdom Accounting Standards
(United Kingdom Generally Accepted Accounting Practice), including FRS 101 “Reduced Disclosure
Framework”.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part
16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the
company’s members those matters we are required to state to them in an auditor’s report and for no
other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective responsibi s of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement set out on page bd, the directors
are responsible for the preparation of the Financial Statements and for being satisfied that they give a
true and fair view. Our responsibility is to audit and express an opinion on the Financial Statements in
accordance with applicable law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the Financial Statements
An audit involves obtaining evidence about the amounts and disclosures in the Financial Statements
sufficient to give reasonable assurance that the Financial Statements are free from material
misstatement, whether caused by fraud or error. This includes an assessment of: whether the
accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have
been consistently applied and adequately disclosed; the reasonableness of significant accounting
estimates made by the directors; and the overall presentation of the Financial Statements. In addition,
we read all the financial and non-financial information in the Annual Report and Financial Statements
to identify material inconsistencies with the audited Financial Statements and to identify any
information that is apparently materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. If we become aware of any apparent
material misstatements or inconsistencies we consider the implications for our report.
Opinion on Financial Statements
In our opinion:
e the Financial Statements give a true and fair view of the state of the Group’s and of the Parent
Company's affairs as at 26 March 2017 and of the Group’s profit for the 52-week period then
ended;
e@ the group Financial Statements have been properly prepared in accordance with IFRSs as adopted
by the European Union;
e the Parent Company Financial Statements have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice, including FRS 101 “Reduced Disclosure
Framework”; and
e the Group and Parent Company Financial Statements have been prepared in accordance with the
requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
® based on the work undertaken in the course of the audit
> the information given in the Strategic Report and the Directors’ Report for the financial year
for which the Financial Statements are prepared is consistent with the Financial Statements.
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» the Strategic Report and the Directors’ Report have been prepared in accordance with
applicable legal requirements;
Matters on which we are required to report by exception
In light of the knowledge and understanding of the Company and its environment obtained in the
course of the audit, we have identified no material misstatements in the Strategic Report or Directors’
Report
We have nothing to report in respect of the following matters where the Companies Act 2006 requires
us to report to you if, in our opinion:
@ adequate accounting records have not been kept by the parent company, or returns adequate
for our audit have not been received from branches not visited by us; or
@ the Parent Company Financial Statements are not in agreement with the accounting records
and returns; or
© certain disclosures of directors’ remuneration specified by law are not made; or
© we have not received all the information and explanations we require for our audit.
Peter McIver (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
[x] 2017
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Consolidated income statement
for the 52 weeks ended 26 March 2017 and 27 March 2016
2017 Em 2016 (restated) £m
Revenue Closure of Capital and Revenue Closure of Capital and
Notes trading activities investment Total trading activities investment Total
Continuing operations:
Turnover 957 - ts 957 964 = - 964
Network Subsidy Payment 80 - - 80 130 : : 130
Revenue 1,037 - - 1,037 1,094 z = _ 1,094
Costs 2,4,17 (978) 19 (116) (1,075) (1,016) 7 (283) (1,299)
Investment funding 4 - - 140 140 - « 150 150
Impairment 4 & - 168 168 - = (136) (136)
Depreciation - - - - (1) - - (1)
Share of post-tax profit from
joint venture 10 34 - - 34 35 : : 35
Operating profit / (loss) from
continuing operations 93 19 192 304 112 - (269) (157)
Finance costs 6 (6) - - (6) (5) - - (5)
Pensions net financing income 17 8 - - 8 8 : : 8
Profit / (loss) before taxation
from continuing operations 95 19 192 306 115 - (269) (154)
Taxation credit / (charge) 7 9 (25) - (16) 4 : - 4
Profit / (loss) for the financial
year from continuing operations 104 (6) 192 290 119 2 (269) (150)
Discontinued operations:
Loss for the financial year
after tax from discontinued
operations 20 - (47) - (47) : (17) - (17)
Profit / (loss) for the
financial year 104 (53) 192 243 119 (17) (269) (167)
EBITDAS 13 (17)
Revenue trading represents the underlying trading of the business excluding the closure of activities,
investment funding, restructuring and transformation costs, and impairment of capital expenditure.
Closure of activities is the £48 million net loss of the Retail Cash in Transit operation which has been
discontinued during the year less the £1 million provision release from the Mobile operation that was
discontinued in prior year (note 20), plus £19 million one-off pension gain resulting from the closure of
the defined benefit plan. The reversal of £25 million tax losses asset has also been allocated to closure
of activities as this is related to the closure of the defined benefit plan (note 7). Prior year results have
been restated to show the Retail Cash in Transit net loss as discontinued, the impact of this on prior
year revenue and costs has been summarised within note 1.
Capital and investment (note 4) includes investment funding, impairment of capital expenditure and
transformational spend. In the current year there has been a reversal of impairment to the value of
£272 million, further detail is given in note 1.
EBITDAS is one of the Group’s key financial measures and is calculated by taking Revenue excluding
the Network Subsidy Payment, less costs from revenue trading excluding depreciation, plus joint
venture share. For the year ended 26 March 2017 EBITDAS was £13 million (2016 restated: EBITDAS
loss of £17 million).
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Consolidated statement of comprehensive income
for the 52 weeks ended 26 March 2017 and 27 March 2016
2016
2017 (restated)
Notes £m ém
Profit / (loss) for the financial year from continuing operations 290 (150)
Loss for the financial year from discontinued operations 20 (47) (17)
Profit / (loss) for the financial year 243 (167)
Other comprehensive income not to be reclassified to profit or
loss in future periods
Remeasurements on defined benefit surpluses 17 (249) (9)
Withholding tax effect 30 -
Income tax effect 7 25 5
Total comprehensive profit / (loss) for the year 49 (171)
There are no other comprehensive income items that will be reclassified to the profit and loss in future
periods.
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Consolidated statement of cash flows
for the 52 weeks ended 26 March 2017 and 27 March 2016
2016
2017 = (restated)
Notes ém £m
Cash flows from operating activities
Operating profit from revenue trading from continuing operations 93 112
Operating loss from discontinued operations 20 (47) (17)
Total profit before capital and investment 46 95
Adjustment for:
Share of profit from joint venture 10 (34) (35)
Pension operating costs 2 24 30
Working capital movements: (6) (81)
Decrease/(increase) in trade and other receivables 81 (16)
Decrease in trade and other payables (95) (59)
increase in inventories (1) -
increase in provisions for discontinued operations 20 5 3
ncrease/(decrease) in revenue trading provisions 15 4 (9)
Pension operating costs paid (22) (23)
Cash payments in respect of capital and investment items: (50) (109)
investment funding 140 150
Restructuring costs (190) (253)
Other = (6)
Net cash outflow from operating activities (42) (123)
Income tax recovered 7 9 9
Cash flows from investing activities
Dividends received from joint ventures 10 35 35
Acquisition of insurance business - (44)
Purchase of tangible and intangible non-current assets (115) (136)
Net cash outflow from investing a (80) (145)
Net cash outflow before financing acti’ (113) (259)
Cash flows from financing activities
Finance costs paid (7) (5)
Payments to finance lease creditors (8) -
Proceeds of borrowings from BEIS 14 96 155
Net cash inflow from financing activities 81 150
Net decrease in cash and cash equivalents (32) (109)
Cash and cash equivalents at the beginning of the year 12 712 821
Cash and cash equivalents at the end of the year 12 680 712
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Consolidated balance sheet
at 26 March 2017 and 27 March 2016
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Notes £m £m
Non-current assets
Intangible assets 181 44
Property, plant and equipment 144 9
Investments in joint venture 10 66 67
Retirement benefit surplus 17 1 196
Trade and other receivables 11 13 12
Total non-current assets 405 328
Current assets
Inventories 7 6
Trade and other receivables 11 329 411
Cash and cash equivalents 12 680 712
Total current assets 1,016 1,129
Total assets 1,421 1,457
Current liabilities
Trade and other payables 13 (563) (655)
Financial liabilities - interest bearing loans and borrowings 14 (561) (465)
- obligations under finance leases - (8)
Provisions 15 (58) (151)
Total current liabi (1,182) (1,279)
Non-current lia!
Other payables 13 (22) (25)
Provisions 15 (31) (16)
Total non- current liabi (53) (41)
Net assets 186 137
Equity
Share capital 18 - -
Share premium 18 465 465
Retained earnings (281) (330)
Other reserves 18 2 2
Total equity 186 137
The financial statements on pages [x] to [x] were approved by the Board of Directors on [x] 2017 and signed
on its behalf by:
P A Vennells
Chief Executive
A Cameron
Chief Financial Officer
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Consolidated statement of changes in equity
for the 52 weeks ended 26 March 2017 and 27 March 2016
Share Retained Other Total
premium — earnings reserves equity
Notes £m ém —m £m
At 27 March 2016 465 (330) 2 137
Profit for the year - 243 : 243
Remeasurements on defined benefit surplus 17 - (249) . (249)
Withholding tax effect - 30 = 30
Income tax effect z : 25 : 25
At 26 March 2017 465 (281) 2 186
Share Retained Other Total
premium earnings reserves equity
Notes: —£m ém ém ém
At 30 March 2015 (restated) 465 (159) 2 308
Loss for the year - (167) = (167)
Remeasurements on defined benefit surplus 17 - (9) = (9)
Income tax effect 7 - 5 : 5
At 27 March 2016 465 (330) 2 137
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Notes to the financial statements
1. Accounting Poli
Financial year
The financial year ends on the last Sunday in March and for this reason these financial statements are made up
for the 52 weeks ended 26 March 2017 (2016: 52 weeks ended 27 March 2016).
Basis of preparation
The Group financial statements on pages rea) to real have been prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union and with those parts of the Companies Act 2006
applicable to companies reporting under IFRS. Unless otherwise stated in the accounting policies below, the
financial statements have been prepared under the historic cost accounting convention.
The Company is incorporated and domiciled in the United Kingdom. The Group consolidated financial statements
are presented in sterling and all values are rounded to the nearest £million except where otherwise indicated.
The presentational format of the income statement has been changed in the current year to a columnar format
presenting the results of the Group in total and split between Revenue trading, Closure of activities, and Capital
and investment. The prior year results have also been presented in the new format. The change in format was
considered appropriate this year because of the discontinued operation and the closure of the defined benefit plan,
which are significant items requiring separate presentation.
Revenue trading represents the underlying trading of the business excluding the closure of activities, investment
funding, restructuring and transformation costs, and impairment of capital expenditure. Closure of activities
includes the net loss of the Retail Cash in Transit operation which has been discontinued in the year, including all
revenue and costs in the year which relate directly to the operation. Closure of activities also includes the one-off
pension gain resulting from the closure of the defined benefit plan. Capital and investment includes investment
funding from the Government, impairment of capital expenditure and reversal of previous impairment, and
transformational spend.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiary
undertaking as at 26 March 2017. Subsidiaries are consolidated from the date of acquisition, being the date on
which the Group obtains control, and continue to be consolidated until the date such control ceases. A set of
financial statements has been prepared for Post Office Management Services Limited (subsidiary) for the 52 weeks
ended 26 March 2017. The year end date is in line with the Company. The subsidiary uses consistent accounting
policies where appropriate and its results have been consolidated into the group financial statements. All intra-
group balances, transactions, unrealised gains and losses resulting from intra-group transactions are eliminated
in full.
New standards, amendments and interpretations issued not yet effective for the current year
The following standards and interpretations, which have been issued by the IASB and are relevant for the Group,
become effective after the current year-end and have not been early adopted by the Group.
These standards have already been endorsed by the EU excluding amendments to IFRS 16 Leases, amendments
to IAS 7, and amendments to IAS 12 which are all expected to be endorsed in Q4 2017 as per the 13 July 2017
EFRAG Endorsement Status Report.
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments was first issued in November 2009 and has since been amended several times. A
complete version of the standard was issued in July 2014 and is a replacement of IAS 39 Financial Instruments:
Recognition and Measurement. IFRS 9 covers the classification, measurement and derecognition of financial assets
and financial liabilities, together with a new hedge accounting model and a new expected credit loss model for
calculating impairment. The new standard becomes effective for annual periods beginning on or after 1 January
2018. The Group expects to complete its analysis of the expected impact during 2017.
IFRS 15 Revenue from Contracts with Customers
The IASB issued IFRS 15 Revenue from contracts with customers in May 2014. The new standard provides a
single, five-step revenue recognition model, applicable to all sales contracts, which is based upon the principle
that revenue is recognised when control of goods or services are transferred to the customer. It replaces all
existing revenue recognition guidance under current IFRS and becomes effective for annual periods beginning on
or after 1 January 2018. The Group expects to complete its analysis of the expected impacts on revenue recognition
and disclosure requirements during 2017. A summary of the types of revenue recognised by the Group is
summarised in note 1.
ai
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Amendments to IFRS 16 Leases
The scope of IFRS 16 includes leases of all assets, with certain exceptions. IFRS 16 requires lessees to account
for all leases under a single on-balance sheet model in a similar way to finance leases under IAS 17, except for
two exemptions which are leases of low value assets and short-term leases (leases with a lease term of 12 months
or less), At the commencement date of the lease, a lessee will recognise a liability to make lease payments and
an asset representing the right to use the underlying asset during the lease term. Lessees will be required to
separately recognise the interest expense on the lease liability and the depreciation expense on the asset. Lessees
will be required to re-measure the lease liability upon the occurrence of certain events as an adjustment to the
asset value. The amendments are effective for annual periods beginning on or after 1 January 2019. The Group is
currently considering the impact of the new standard; a material impact is expected as a number of arrangements
that are currently accounted for as operating leases will come onto the Group’s balance sheet. The Group’s current
lease commitments are disclosed in note 19.
IAS 7 Disclosure Initiative - Amendments to IAS 7
The amendments to IAS 7 Statement of Cash Flows are part of the IASB’s Disclosure Initiative and help users of
financial statements better understand changes in an entity’s debt. The amendments require entities to provide
disclosures about changes in their liabilities arising from financing activities, including both changes arising from
cash flows and non-cash changes (such as foreign exchange gains or losses). The amendment is effective for
annual periods beginning on or after 1 January 2017. The Group is currently considering the impact of this change.
IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses - Amendments to IAS 12
The IASB issued the amendments to IAS 12 Income Taxes to clarify the accounting for deferred tax assets for
unrealised losses on debt instruments measured at fair value. The amendments clarify that an entity needs to
consider whether tax law restricts the sources of taxable profits against which it may make deductions on the
reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity
should determine future taxable profits and explain the circumstances in which taxable profit may include the
recovery of some assets for more than their carrying amount. Entities are required to apply the amendments
retrospectively. The change is effective for annual periods beginning on or after 1 January 2017. It is anticipated
that the application of these amendments will have no significant impact on the Group’s income statement or
balance sheet.
There are no other standards and interpretations in issue but not yet adopted that the Directors anticipate will
have a material effect on the reported income or net assets of the Group. The Group has not early adopted any
standard, interpretation or amendment that has been issued but is not yet effective.
Fundamental accounting concept - going concern
The group has net assets of £186 million at 26 March 2017 (2016: £137 million).
A funding agreement with Government was announced on 27 November 2013 which provided for:
* Funding of £280 million for 2015-16
* Funding of £220 million for 2016-17
« Funding of £140 million for 2017-18
«Extension of the existing working capital facility with the Department for Business, Energy & Industrial
Strategy (BEIS) with a limit of £950 million from 30 March 2015 up to 31 March 2018.
At 26 March 2017 £389 million of the working capital facility was undrawn (2016: £485 million).
Post Office and the Secretary of State for BEIS signed a Funding Agreement and an Amendment to the Working
Capital Facility confirming that the following funding package will be made available to Post Office from April 2018:
« Extension of the existing working capital facility of £950 million with BEIS to 31 March 2021
* Network subsidy payment of £60 million for 2018-19
« Network subsidy payment of £50 million for 2019-20.
In addition the Secretary of State for BEIS has confirmed in principle in a letter dated 25 July 2017 that the
following additional funding will be also be made available to Post Office:
« Network subsidy payment of £50 million for 2020-21
« Investment funding of up to £210 million for the period April 2018 to March 2021.
The network subsidy payment and investment funding will be received in the form of grants and are non-
refundable.
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State aid approval for the funding for 2018-19 to 2020-21 has not yet been received. The working capital facility
is not classified as state aid and requires no further approval.
After careful consideration of the plans for the coming years, the Directors continue to believe that Post Office will
be able to meet its liabilities as they fall due for the next 12 months. Accordingly, on that basis, the Directors
consider that it is appropriate that these financial statements have been prepared on a going concern basis.
Prior year restatements
In preparing the financial statements for the current year, the comparative figures for the year ended 27 March
2016 have been restated. The Retail Cash in Transit operation has been discontinued during the current year
and has been presented as part of discontinued operations. The comparatives in the income statement have
been restated and allocated to discontinued operations. The restatement affects revenue and costs.
Within this report, the comparative income statement and statement of comprehensive income for the year
ended 27 March 2016 have been restated. The operating profit from revenue trading on the cash flow statement
has also been restated. There has been no effect on the balance sheet or statement of changes in equity.
The following table shows the impact of the restatement on the income statement for the year ended 27 March
2016:
As previously Restatement 27 March 2016
reported Restated
—m £m —m
Turnover 981 (17) 964
Costs* (1,040) 24 (1,016)
Loss for the year from continuing operations (157) 7 (150)
Loss for the year from discontinued operations (10) (7) (17)
Loss for the year after discontinued operations (167) - (167)
*Costs exclude £1 million of depreciation which is separated on the face of the income statement in the current
year.
The presentational format of the income statement has been changed in the current year to a columnar format
presenting the results of the Group in total and split between Revenue trading, Closure of activities, and Capital
and investment. The definition of these headings is defined within a memorandum to the consolidated income
statement. The prior year results have also been presented in the columnar format which is different to the format
they were presented in the last set of financial statements.
Cc
ical accounting estimates and judgements in applying accounting policies
The Group makes certain estimates and assumptions regarding the future. Estimates and assumptions are
continually evaluated based on historical experience and other factors. In the future, actual experience may
differ from these estimates and assumptions.
In addition the Group has to make judgements in applying its accounting policies which affect the amounts
recognised in the accounts. The most significant areas where judgements and estimates are made are discussed
below:
Pension assumptions
The costs, assets and liabilities of the pensions operated by the Group are determined using methods relying on
actuarial estimates and assumptions.
The Post Office section of the Royal Mail Pension Plan (RMPP) was closed to future accrual on 31 March 2017. A
Memorandum of Understanding was executed on 21 March 2017 which removed the unconditional right to
refund from the Plan. As a result of these events there has been a one-off credit to the income statement, and
the surplus has been written off through other comprehensive income. This is described in further detail within
note 17.
The values of these adjustments are particularly sensitive to changes in assumptions for discount rates,
mortality and inflation rates. The Group exercises its judgement in determining the assumptions to be adopted,
after discussion with its Actuary. Details of the key assumptions are set out in note 17.
Pension liabilities are measured on an actuarial basis using the projected unit credit method and discounted at a
rate equivalent to the current rate of return on a high quality corporate bond of equivalent currency and term.
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Judgement has been applied in determining that for these purposes a high quality corporate bond constitutes AA
rated or equivalent status bonds.
Provisions
The Group has recognised provisions where a present legal or constructive obligation exists as a result of a past
event, where it is probable that an outflow of resources will be required to settle the obligation and a reliable
estimate of the amount can be made. Severance provisions are recognised for business reorganisation where
the plans are sufficiently detailed and well advanced and where appropriate communication to those affected has
been undertaken at the balance sheet date. Postmasters’ compensation provisions are recognised when either
Postmasters agree to terminate their existing contracts or sign the new format contracts under Network
Transformation. The total provision for Postmasters’ compensation at the year end date represents
management’s best estimate of the future obligation. Provisions are detailed in note 15. Due to the nature of
provisions the future amount settled may be different from the amount that has been provided.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that
reflects, where appropriate the risks specific to that liability.
Impairment of non-current assets
The Group assesses whether there are any indicators of impairment for all non-currents assets at each reporting
date as well as if events or changes in circumstances indicate that the carrying value may be impaired. Where
appropriate, an impairment loss is recognised in the income statement for the amount by which the carrying
value of the asset (or cash generating unit) exceeds its recoverable amount, which is the higher of an asset’s
net realisable value and its value in use.
In previous years, due to ongoing operational losses (excluding the Network Subsidy Payment), impairment
losses have been recognised and the carrying value of some assets have been impaired to zero on acquisition.
In the current year the Group has made a profit from continuing operations and this is expected to be
sustainable. In addition, the Group has secured a Network Subsidy Payment to March 2021, and continued
investment funding over that period from Government. In this circumstance the Group no longer considers there
to be indicators of impairment, and there has been a change in accounting estimate to reflect this. An
impairment test was performed at the year end to support this; details of this are in note 9.
The change in accounting estimate has resulted in a reversal of impairment losses in the current year, and the
carrying value of assets has been increased. The reversal is no more than the depreciated historical cost if the
impairment had not been recognised. The reversal of the impairment loss has been recognised in the income
statement for the current year and the change will be applied in future years subject to a continuous review of
trading and funding.
Each asset category is described below:
Property, plant and equipment excluding freehold property, long leasehold property and land:
Property, plant and equipment is recognised at cost, including attributable costs in bringing the asset into
working condition for its intended use. These assets have a relatively short useful life and in previous periods
due to ongoing operational losses (excluding Network Subsidy Payment) they have been impaired to zero on
acquisition. In the current year the impairment loss was reversed at the year end, and depreciation will be
recognised going forwards on a straight-line basis over the following useful lives:
Range of asset lives
Plant and Machinery 3-15 years
Motor vehicles and trailers 3-12 years
Fixtures and equipment 3-15 years
In the current year the asset lives for Motor vehicles and trailers and Fixtures and equipment have been
changed to range from 3 years, not 2 years as reported in prior years. This is to reflect the range of asset lives
actually in use for the current asset portfolio.
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Freehold property, long leasehold property and land:
As with other property, plant and equipment this is recognised at cost, including attributable costs in bringing
the asset into working condition for its intended use. These assets have a long useful life and a fair market
value, therefore these assets have not been impaired on acquisition but would be considered for impairment if
indicators existed. They are depreciated on a straight-line basis over the following useful lives:
Range of asset lives
Land and buildings:
Freehold land Not depreciated
Freehold buildings Up to 50 years
Leasehold buildings The shorter of the period of the lease, 50 years or the estimated remaining
useful life
The remaining useful lives of freehold buildings are reviewed periodically and adjusted where applicable on a
prospective basis.
Intangible assets with a finite useful life:
Intangible assets acquired separately or generated internally are initially recognised at cost. In previous periods
these assets were impaired to zero for the reasons noted above. In the current year the impairment loss was
reversed at the year end, and amortisation will be recognised going forwards on a straight-line basis over the
following useful life:
Software 3 to 6 years
In the current year the range of asset lives for Software has been changed to start from 3 years, not 1 year as
reported in prior years. This is to reflect the range of asset lives actually in use for current Software assets.
Intangible assets arising on acquisition or with an indefinite useful life:
These assets are considered for impairment individually in line with Group policy noted above but are not
automatically impaired. Goodwill is considered separately below.
Goodwill
Goodwill is initially recognised at cost, being the excess of the aggregate of the consideration transferred and the
amount recognised for non-controlling interests, and any previous interest held, over the net identifiable assets
acquired and liabilities assumed.
After initial recognition, goodwill is recognised at cost less any accumulated impairment losses. The Group’s
management undertakes an impairment review annually or more frequently if events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors considered important that could trigger an
impairment review include the following:
- significant underperformance compared to historical or projected future operating results;
- significant changes in the manner of use of the acquired assets or the strategy of the overall Group; and
- significant negative micro- or macro-economic trends.
Goodwill was not considered to be impaired at the date of the last review.
Non-current assets within subsidiaries
Post Office’s subsidiary is considered a separate cash generating unit. The need for impairment of assets is
considered within the subsidiary and is dependent on whether indicators of impairment exist within that
subsidiary.
Discontinued operations
The Group has treated the closure of its Retail Cash in Transit operation as a discontinued operation in the year.
The prior year results have also been restated for this. The Retail Cash in Transit operation was considered to be
a separate component of Post Office, as its revenue, costs and cash flows were distinguishable from the rest of
the Group and the nature of the operation was different to the rest of the business.
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Revenue
Turnover from Retail, Financial Services and Telecoms comprises the value of services provided from the Group’s
principle activities in providing a whole range of services through its physical and digital channels. Turnover from
Financial Services and some Retail services comprises the commission received. Turnover relating to line rental
for telecoms services is recognised evenly over the period to which the charges relate and revenue from calls is
recognised at the time the call is made. Turnover from all other transactions is recognised when the transaction
is completed. All turnover is derived wholly from within the United Kingdom.
Post Office Management Services turnover comprises the value of services provided from the principle activities
in providing insurance intermediary services through its network of Post Office branches across the UK, online and
contact centre channels. Turnover comprises commissions received from provision of the intermediary services
excluding taxes.
The Network Subsidy Payment is Government grant revenue recognised to match the related costs of making
available the network of public Post Offices that the Secretary of State for Business, Energy & Industrial Strategy
considers appropriate.
Capital and investment expenditure
Capital and investment items are items of income and expenditure arising from the operations of the business
which, due to the nature of the events giving rise to them, require separate presentation on the face of the income
statement to allow a better understanding of financial performance in the year and in comparison to prior years.
Items classified within here will be material either because of size or nature and relate to the transformation of
the business rather than ordinary trading. This separate reporting of capital and investment expenditure helps to
provide a better picture of the Group’s underlying performance. Capital and investment expenditure comprises
investment funding, restructuring and transformation costs, and impairment of capital expenditure.
Leases
Finance leases, where substantially all the risks and rewards incidental to ownership of the leased item have
passed to the Group, are capitalised at the inception of the lease with a corresponding liability recognised for the
fair value of the leased item or, if lower, at the present value of the minimum lease payments. Lease payments
are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate
of interest on the remaining balance of the liability.
Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease
term.
Leases where substantially all the risks and rewards of ownership of the asset are retained by the lessor, are
classified as operating leases and rentals are charged to the income statement over the lease term. The aggregate
benefit of incentives are recognised as a reduction of rental expenses over the lease term on a straight-line basis.
Investments in joint ventures
Investments in joint ventures within the Group’s financial statements are accounted for under the equity method
of accounting. Under this method the investment is carried in the balance sheet at cost plus post-acquisition
changes in the Group’s share of the net assets of the joint venture less any impairment in value. The income
statement reflects the Group’s share of post-tax profits from the joint venture.
Inventories
Inventories include stationery, retail and lottery products and are carried at the lower of cost and net realisable
value after adjusting for obsolete or slow-moving stock.
Taxation
The charge for current income tax is based on the results for the year as adjusted for items which are not taxed
or are disallowed. It is calculated using tax rates in legislation that has been enacted or substantively enacted by
the balance sheet date.
Deferred income tax assets and liabilities are recognised for all taxable and deductible temporary differences and
unused tax assets and losses except:
- initial recognition of goodwill;
- the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time
of the transaction, affects neither the accounting profit nor taxable profit and loss;
- taxable temporary differences associated with investments in subsidiaries and interest in joint ventures, where
the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary
difference will not reverse in the foreseeable future; and
- deferred tax assets are recognised only to the extent that it is probable that taxable profit will be available
against which they can be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the
tax asset is realised or the liability is settled, based on tax rates that have been substantively enacted at the
balance sheet date. Deferred tax balances are not discounted.
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Current and deferred tax is recognised in the income statement, except to the extent that it relates to items
recognised in other comprehensive income or directly to equity. In this case, the tax is also recognised in other
comprehensive income or directly in equity, respectively.
Pensions and other post-retirement benefits
Membership of occupational pension schemes is open to most permanent UK employees of the Group. All members
of defined benefit schemes are contracted out of the earnings-related part of the State pension scheme.
The pension assets of the defined benefit schemes are measured at fair value. Liabilities are measured on an
actuarial basis using the projected unit credit method and discounted at a rate equivalent to the current rate of
return on a high quality corporate bond of equivalent currency and term.
The Post Office section of the RMPP closed to future accrual on 31 March 2017. A Memorandum of Understanding
was executed on 21 March 2017 which removed the unconditional right to refund from the Plan. As a result of
these events the surplus relating to this Plan has been derecognised in the year, in line with IFRIC 14 which states
that if the entity does not have an unconditional right to refund then an asset shall not be recognised.
Full actuarial funding valuations are carried out at intervals not normally exceeding three years as determined by
the Trustees and, actuarial valuations are carried out at each balance sheet date and form the basis of the surplus
or deficit disclosed. When the calculation at the balance sheet date results in net assets to the Group, the
recognised asset is limited to the present value of any future refunds of the plan or reductions in future
contributions to the plan (the asset ceiling). As noted above, the RMPP Plan has been closed and no future refunds
will be made to the Group. Therefore in accordance with IFRIC 14 the pension asset has been derecognised.
For defined benefit schemes, the amounts charged to operating profit, as part of staff costs, are the current service
costs and any gains and losses arising from settlements, curtailments and past service costs. The net difference
between the interest costs and the expected return on plan assets is recognised as net pensions interest in the
income statement. Actuarial gains and losses are recognised immediately in the statement of comprehensive
income. Any deferred tax movement associated with the actuarial gains and losses is also recognised in the
statement of comprehensive income. In the current year there are further impacts on the income statement and
statement of comprehensive income as a result of the closure of the RMPP Plan; these have been described within
note 17.
For defined contribution schemes, the Group’s contributions are charged to operating profit, as part of staff costs,
in the period to which the contributions relate.
Foreign currencies
The functional and presentational currency of the Group is sterling (£).
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of
the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from
the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates
are recognised in profit or loss.
Trade receivables
Trade receivables are recognised and carried at original invoice amount less an allowance for any non-collectible
amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad
debts are written off when identified.
Borrowing costs
Borrowing costs in relation to the working capital loan facility are recognised as an expense when incurred unless
they are directly attributable to the construction or development of a qualifying asset, in which case they are
capitalised using the weighted average cost of borrowing for the period of construction/development.
Investment funding
Investment funding is from the Government and includes the Network Subsidy Payment and Government grant.
The Government grant is shown separately in the income statement to match the expenditure to which it relates.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past
event, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate
can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are
determined by discounting the expected future cash flows at an appropriate pre-tax rate.
Financial instruments
The classification of financial instruments included on the balance sheet is set out below:
Financial assets
Financial assets are measured at fair value at the balance sheet date. They are classified into the following
categories, loans and receivables or available for sale, as appropriate based on the purpose for which they were
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required. Financial liabilities are measured at either fair value at the balance sheet date or as financial liabilities
measured at amortised cost.
Financial liabilities - interest-bearing loans and borrowings
All loans and borrowings are classified as financial liabilities measured at amortised cost.
Financial liabilities - obligations under finance leases
All obligations under finance lease and hire purchase contracts are classified as financial liabilities measured at
amortised cost.
Fair value measurement of financial instruments
The fair value of quoted investments is determined by reference to bid prices at the close of business on the
balance sheet date.
Where there is no active market, fair value is determined using valuation techniques. These include using recent
arm's length market transactions; reference to the current market value of another instrument which is
substantially the same; and discounted cash flow analysis and pricing models.
Derecognition of financial instruments
A financial asset or liability is derecognised when the contract that gives rise to it is settled, sold, cancelled or
expires,
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised
within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair
value measurement as a whole:
« Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities
« Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly observable
« Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines
whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the
lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and on hand, including cash in the Post
Office network and short-term deposits (cash equivalents) with an original maturity date of three months or less.
In addition the Group uses current deposit accounts as a readily available source of cash and these funds are also
categorised as cash equivalents. Cash equivalents are classified as loans and receivable financial instruments.
For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents
as defined above, net of bank overdrafts.
The subsidiary Post Office Management Services Limited holds some fiduciary cash balances, these are held on
trust on behalf of insurance third parties, see note 12 for details.
2. Staff costs and numbers
Employment and related costs were as follows:
2017 2016
(restated)
People costs within revenue trading: £m £m
Wages and salaries 157 164
Social security costs 21 19
Pension costs (note 17) 24 30
Total people costs within revenue trading 202 213
Other operating costs within revenue trading 776 803
Total revenue trading costs 978 1,016
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There is a People costs credit within closure of activities of £19 million (2016: £nil) relating to a one-off past
service adjustment in respect of the closure of the RMPP defined benefit pension plan.
People costs within capital and investment relate to severance costs as part of restructuring and are disclosed
within note 4.
Period end and average employee numbers were as follows:
Period end employees
Average employees
2017 2016 2017 2016
Total employees 5,302 6,605 6,054 6,667
Total employee numbers can be categorised as follows:
2017 2016
Administration 1,275 1,261
Directly managed branches (DMB) 2,807 3,344
Supply Chain 833 1,360
Network and DMB transformation programmes 387 640
Total 5,302 6,605
3. Operating profit from continuing operations before capital and investment
Operating profit from continuing operations before capital and investment expenditure is stated after charging:
2017 2016
£m £m
Postmasters’ fees 388 413
Depreciation = 1
Cost of inventories recognised as an expense 4 3
Operating lease charges - Land and buildings 14 17
Fees payable to the group’s auditor for audit and other services: £000 £000
-parent company and group audit 524 346
-audit of subsidiary 60 70
-audit related assurance services 38 40
-other assurance services 106 106
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4. Capital and investment
2017 2016
—m £m
Investment funding 140 150
Restructuring:
Business transformation (6) (13)
Network transformation including Postmasters’ compensation (36) (177)
Directly managed branch transformation (18) (23)
TT transformation (9) (30)
Restructuring - severance (46) (29)
- other (4) (11)
Total restructuring costs (116) (283)
Impairment:
Impairment of intangible assets (note 8) (78) (93)
Impairment of property, plant and equipment (note 9) (26) (43)
Reversal of impairment on intangible assets (note 8) 137 .
Reversal of impairment on property, plant and equipment (note 9) 135 :
Total impairment reversal / (charge) 168 (136)
Total capital and investment income / (loss) 192 (269)
Restructuring:
Restructuring costs are those incurred in order to implement the major transformation programmes, primarily the
Directly Managed Branch and Network programmes which are discussed further in the Financial Review on page
[x]. Network transformation includes the costs of Postmasters’ compensation of £10 million (2016: £102 million)
which are payments made to Postmasters as a result of the ongoing programme. Postmasters’ compensation costs
in 2017 were £10 million but these were offset by a release in the provision of £34 million (credit to the income
statement); this is due to a change in the accounting estimate as the programme nears completion and the
expected number of branches to convert decreases.
Impairment and reversal of impairment:
See the accounting policies on page [x] for details.
5. Directors’ emoluments
The Directors received the following emoluments:
2017 2016
£000 £000
Emoluments, excluding pension contributions and LTIP* 1,231 1,194
Contributions to pension schemes 4 4
Amounts receivable under Long-Term Incentive Plans 229 44
*Figures include any cash supplements received in lieu of pension and any payments in lieu of notice.
Directors accruing pension entitlements during the period under: 2017 2016
Number Number
Defined benefit schemes = =
Defined contribution schemes 1. 1
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The highest paid Director received the following emoluments:
2017 2016
£000 £000
Emoluments and LTIP, excluding pension contributions but including cash
supplements received in lieu of pensions 672 620
Company contributions to pension schemes = -
Remuneration for each director for the financial year 2016/17
Name Annualised Actual Benefits I Cash in lieu STIP TIP Total Total
salary/fees I salary/fees I 2016-17 ofpension I 2016-17 2016-17 2016-17 I 2015-16
2016-17 2016-17 2016-17
(note 1)
Non Executive Directors
Tim Franklin 40,000 40,000 - - - - 40,000 I 40,000
Virginia Holmes 35,000 35,000 - : - - 35,000 I 40,000
Alasdair Marnoch (note - - - - - - - 15,000
2)
Ken McCall (note 3) 50,000 50,000 = H ad = 50,000 12,500
Neil McCausland (note 4) - - - - - - - 25,000
Tim Parker (note 5) 75,000 75,000 - “ - - 75,000 37,500
Alice Perkins (note 6) - - - - - - - 33,333
Carla Stent (note 7) 45,000 45,000 - S . i 45,000 8,833
Richard Callard (note 8) - - - - - - - -
Executive Directors
Paula Vennells 250,000 250,000 9,900 62,500 I 198,000! 151,200 I 671,600 I 619,752
Alisdair Cameron 240,000 240,000 14,100 55,800 160,080 77,760 547,740 I 510,254
Note 1: The annualised fees are shown as at 26 March 2017 or at the date of leaving.
Note 2: Alasdair Marnoch resigned from the Board and left on 31 July 2015
Note 3: Ken McCall was appointed to the Board on 21 January 2016
Note 4: Neil McCausland resigned from the Board and left on 30 September 2015
Note 5: Tim Parker was appointed to the Board on 1 October 2015. Tim donates the after tax value of his Board
fees to charity.
Note 6: Alice Perkins resigned from the Board and left on 31 July 2015
Note 7: Carla Stent was appointed to the Board on 21 January 2016
Note 8: Richard Callard is an employee of the Shareholder Executive of the Department for Business, Energy and
Industrial Strategy.
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Remuneration Policy Summary
The table below describes the STIP and LTIP available for the Executive Directors.
The remuneration framework for the Executive Directors requires consent from the Special
Shareholder each year.
Short-Term Incentive I The STIP drives and rewards performance over the single financial year
Plan (STIP) against key financial and operational targets taken from the business
scorecard. Metrics and targets are determined and set each year
according to business priorities.
80% of the STIP plan is determined by business targets, with the
remaining 20% linked to the achievement of personal performance
objectives.
The target opportunities for the Chief Executive and Chief Financial
Officer are 48% and 40% with a maximum for stretch performance of
80% and 66.66% respectively.
Long-Term Incentive I The LTIP is designed to reward and retain key executives and senior
Plan (LTIP) managers on the achievement of strategic longer term targets linked
to the development and growth of a sustainable business.
The specific performance targets are determined for each LTIP cycle
with reference to the three-year plan which is agreed with the Special
Shareholder.
The target opportunities for the Chief Executive and Chief Financial
Officer are 70% and 50%, with stretch performance of 98% and 70%
respectively.
Differences in remuneration policy for the Executive Directors and employees generally
The remuneration policy for the Executive Directors takes account of their level of responsibility and
their influence over Post Office’s performance. Accordingly, a higher proportion of their total
remuneration package is at risk and subject to performance (under the STIP and LTIP). The incidence
and potential amounts payable under such incentives across the workforce are determined by their
role and grade within the organisation.
Claw-back provision
Executive Directors have claw-back clauses in their contracts, as well as the STIP and LTIP rules,
which provide for the return of any over-payments in the event of misstatement of the accounts, error
or gross misconduct on the part of an Executive Director. These provisions are structured in line with
market best practice.
6. Net finance costs
2017 2016
£m £m
Interest payable on loans (4) (2)
Finance charges (2) (3)
Total (6) (5)
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7. Taxation
(a) Taxation gains recognised in the year
2017 2016
£m £m
Corporation tax credit for year (9) (9)
Deferred tax credit relating to the origin and reversal of temporary differences 24 2
Effect of change in tax rate 1 3
Income tax charge / (credit) reported in the consolidated
income statement 16 (4)
Deferred income tax of £25 million (2016: £5 million) has been credited to other comprehensive income relating
to actuarial movements in the retirement benefit surplus. This offsets the deferred tax debit of £25 million (2016:
£5 million) that has been reported in the consolidated income statement.
The net charge recognised in the income statement is £16 million (2016: net credit of £4 million). Of this net
charge, a credit of £9 million relates to normal revenue trading. The remaining £25 million charge is linked to the
closure of the defined benefit plan and therefore has been recognised within Closure of activities in the income
statement.
(b) Factors affecting current tax charge on profit on ordinary activities
The tax assessed for the year differs from the standard rate of corporation tax in the UK of 20% (2016: 20%).
The differences are explained below:
2017 2016
£m (restated)
£m
Profit / (loss) on ordinary activities before tax from continuing operations 306 (154)
Loss on ordinary activities before tax from discontinued operations (47) (17)
Accounting profit / (loss) before taxation 259 (171)
Profit / (loss) on ordinary activities multiplied by the standard rate of
corporation tax in the UK of 20% (2016: 20%) 52 (34)
Net decrease in tax charge as a result of recognition of deferred tax assets (44) 8
Expenditure disallowable for tax - 1
Losses from disposals ineligible for relief (1) -
Effect of unutilised losses carried forward 16 28
Joint venture profit after tax included in Group pre-tax profit (7) (7)
Total current tax (see above) 16 (4)
(c) Deferred tax
Deferred tax assets relate to the following:
Balance sheet Income statement
2017 2016 2017 2016
£m —£m ém é£m
Pensions temporary differences - (25) (25) (5)
Losses available for offset against future
taxable income a 25 S =
Total deferred tax asset : = (25) (5)
Income statement - - (25) (5)
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(d) Factors that may affect future tax charges
The Group has unrecognised deferred tax assets of £181 million (2016: £166 million), comprising £54 million
(2016: £78 million) relating mainly to fixed asset timing differences, £6 million (2016: £1 million) relating to
timing differences on provisions and £121 million (2016: £87 million) relating to tax losses that are available to
offset against future taxable profits. The Group has rolled over capital gains of £2 million (2016: £2 million); no
tax liability would be expected to crystallise should the assets into which the gains have been rolled be sold at
their residual value, as it is anticipated that a capital loss would arise.
The Finance Act 2013 reduced the main rate of corporation tax to 19% with effect from 1 April 2017 and 18%
with effect from 1 April 2018. Following these changes, deferred tax balances were reduced from 20% to 18%.
The impact of this change on deferred tax balances is included in these financial statements.
8. Intangible assets
Software Goodwill Total
2017 2016 2017 2016 2017 2016
£m £m ém —m —m £m
Cost
At 27 March 2016, 29 March 2015 389 297 44 = 433 297
Reclassifications (53) - - - (53) -
Additions 78 93 . 44 78 137
Disposals (91) (1) - - (91) (1)
At 26 March 2017, 27 March 2016 323 389 44 44 367 433
Amortisation and impairment
At 27 March 2016, 29 March 2015 389 297 ES = 389 297
Reclassifications (53) - - - (53) -
Amortisation and impairment (note 4) 78 93 - - 78 93
Impairment reversal (note 4) (137) - - - (137) -
Disposals (91) (1) = : (91) (1)
At 26 March 2017, 27 March 2016 186 389 - a 186 389
Net book value
At 26 March 2017, 27 March 2016 137 = 44 44 181 44
Goodwill relates to the acquisition from Bank of Ireland of the business and assets of the joint insurance business.
The goodwill sits within Post Office Management Services Limited. Goodwill is tested for impairment annually or
more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable.
Management determined that no impairment was necessary for the current year (2016: Enil).
Refer to note 9 for details of the impairment review performed for Software.
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9. Property, plant and equipment
Land and Buildings
Plant Fixtures
Long Short Motor and and
Freehold leasehold leasehold Vehicles machinery equipment Total
Em Em £m £m ém £m £m
Cost
At 29 March 2015 83 5S 115 40 1 783 1,077
Reclassification* (6) 3 (22) - “ 25 -
Additions 1 . 5 4 “a 38 43
Disposals (1) - (3) (1) : (3) (8)
At 27 March 2016 77 58 90 43 1 843 1,112
Reclassification* (12) 8 - - - 57 53
Additions 1 . 7 7 2 25 26
Disposals (21) (25) (67) (17) - (130) (260)
At 26 March 2017 45 41 23 26 pA 795 931
Depreciation and
impairment
At 29 March 2015 74 54 115 40 1 783 1,067
Reclassification* (6) 3 (22) - “ 25 -
Depreciation and
impairment 2 e 3 4 A 38 44
Disposals (1) : (3) (1) : (3) (8)
At 27 March 2016 69 57 90 43 1 843 1,103
Reclassification (12) 8 - - - 57 53
Depreciation and
impairment
(notes 3 and 4) 1 - - - - 25 26
Impairment reversal
(note 4) (5) (26) 3 3 3 (104) (135)
Disposals (21) (25) (67) (17) = (130) (260)
At 26 March 2017 32 14 23 26 1 691 787
Net book value
At 26 March 2017 13 27 = = = 104 144
At 27 March 2016 8 1 2 2 = = 9
Depreciation rates are disclosed within accounting policies (note 1). No depreciation is provided on freehold land,
which represents £3 million (2016: £3 million) of the total cost of properties.
In previous years, due to ongoing operational losses (excluding the Network Subsidy Payment), impairment
losses have been recognised and the carrying value of some assets have been impaired to zero on acquisition.
In the current year the Group has made a profit from continuing operations and this is expected to be
sustainable. In addition, the Group has secured Network Subsidy Payments to March 2021, and continued
investment funding over that period from Government of up to £210 million. In these circumstances the Group
no longer considers there to be indicators of impairment, and there has been a change in accounting estimate to
reflect this. The change in accounting estimate has been made as at the year end date as this is the point at
which there was sufficient evidence of a value in use.
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An impairment test was performed at the year end to support this. Software and property, motor vehicles and
fixtures and equipment were tested for impairment at the year end by comparing the carrying amount of each
Cash Generating Unit (CGU) with the recoverable amount determined from value in use calculations.
The discounted net cash flows from the value in use calculations were used to determine the recoverable amount
of the CGU’s identified, being Post Office Limited and Post Office Management Services Limited. Value in use is
determined using the Group’s net cash inflows from the continued use of the assets within each CGU over a four
year period, with no nominal growth rate assumed outside of this period. A pre-tax discount rate of 9% (Post
Office Limited) and 12% (Post Office Management Services Limited) has been used to discount the forecasted
cash flows.
A sensitivity analysis has been performed in assessing the value in use of software and property, motor vehicles
and fixtures and equipment. This has been based on changes in key assumptions considered to be possible by
management. This included an increase in the discount rate of up to two per cent and a decrease in the growth
rate by up to two per cent. The sensitivity analysis showed that no impairment would arise under each scenario.
Management therefore believes that any reasonably possible change in the key assumptions would not cause the
carrying amount of any CGU’s to exceed their carrying value.
As a result of the conclusions made, there has been a reversal of impairment losses in the current year, and the
carrying value of assets has been increased. The reversal is no more than the depreciated historical cost if the
impairment had not been recognised. The reversal of the impairment loss has been recognised in the income
statement for the current year and the change will be applied in future years subject to a continuous review of
trading and funding.
10. Investments in joint ventures
The following entity has been included in the consolidated financial statements using the equity method:
Joint ventures
During 2016-17 and 2015-16, the Group’s only joint venture investment was a 50% interest (1,000 £1 ordinary
A shares) in First Rate Exchange Services Holdings Limited, whose principal activity is the provision of Bureau de
Change. First Rate Exchange Services Holdings Limited is a company registered in the United Kingdom. The
registered address of First Rate Exchange Services Holdings Limited is Great West House, Great West Road,
Brentford, Middlesex, TW8 9DF.
2017 2016
Joint venture Joint venture
£m £m
Share of net assets
Total net investment at 27 March 2016, 29 March 2015 67 67
Share of post tax pre dividend profit 34 35
Dividend (35) (35)
Total net investment at 26 March 2017, 27 March 2016 66 67
2017 2016
Joint Joint
venture venture
Share of assets and liabi £m £m
Current assets 222 187
Non-current assets 7 6
Share of gross assets 229 193
Current liabilities (163) (126)
Share of net assets 66 67
Share of revenue and profit:
Revenue 82 79
Profit after tax 34 35
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11. Trade and other receivables
2017 2016
—£m £m
Current:
Trade receivables 70 95
Prepayments and accrued income 97 73
Client receivables 144 229
Other receivables 18 14
Total 329 411
Non-current:
Prepayments 13 12
The Group receives and disburses cash on behalf of Government agencies and other clients to customers through
its branch network. Amounts owed from/to Government agencies and other clients are disclosed separately as
client receivables (as above) and client payables (see note 13).
As at 26 March 2017 trade receivables of £14 million (2016: £18 million) were impaired and fully provided for.
During the year £13 million (2016: £4 million) of the provision has been utilised and an additional £9 million
(2016: £8 million) has been provided for. Trade receivables of £13 million (2016: £23 million) were past due but
not impaired. The aging analysis of the trade receivables are as follows:
2017 2016
£m —m
Not yet overdue 57 72
Past due not more than one month 4 12
Past due more than one month and not more than two months 3 3
Past due more than two months 6 8
Total 70 95
The fair value of trade and other receivables is not materially different from the carrying value.
12. Cash and cash equivalents
2017 2016
ém ém
Cash in the Post Office Limited network 666 653
Short-term bank deposits 12 57
Fiduciary cash balances held on behalf of
insurance third parties 2 2
Total cash and cash equivalents 680 712
Where interest is earned it is at a floating or short-term fixed rate. The fair value of cash and cash equivalents is
not materially different from the carrying value.
The fiduciary cash balances are held within Post Office Management Services Limited and are held on trust on
behalf of insurance third parties and cannot be called upon should the Company become insolvent.
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2017 2016
£m £m
Current:
Trade payables 51 51
Accruals 161 163
Deferred income 33 39
Social security 10 8
Client payables 296 375
Capital payables 11 16
Other payables 1 3
Total 563 655
Non-current:
Other payables 22 25
The fair value of trade and other payables is not materially different from the carrying value.
14. Financial
‘ies —- interest bearing loan and borrowings
2017 2016
£m £m
Department for Business, Energy & Industrial
Strategy 561 465
The loan under the facility is short dated on a programme of liquidity management and matures 1 day after the
year end (2016: 1 day). The fair value of borrowings approximate their carrying value due to the short term
maturities of the loan. On maturity it is expected that further loans will be drawn down under this facility, which
expires in 2018. The undrawn committed facility, in respect of which all conditions precedent had been met at the
balance sheet date, is £389 million (2016: £485 million). The average interest rate on the drawn down loans is
0.8% (2016: 1.0%).
The facility is currently restricted to funding the cash and near cash items held within the Post Office Limited
network.
The facility (including drawn down loans) is secured by a floating charge over all assets of Post Office Limited and
a negative pledge over cash and near cash items. The negative pledge is an agreement not to grant security over
the assets or to set up a vehicle that has the same effect.
15. Provisions
Network Onerous Severance Other Total
Transformation Leases
£m £m ém £m £m
At 27 March 2016 134 19 3 11 167
Charged to capital and investment 10 20 50 3 83
Charged to revenue trading - ® 2 5 5
Charged for discontinued operation - - ° 44 44
Utilisation (68) (7) (43) (38) (156)
Unused amounts in the year - capital and
investment y P (34) (14) a 7 (53)
Unused amounts in the year - revenue . . .
trading (1) (1)
At 26 March 2017 42 21 9 17 89
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Network Onerous Severance Other Total
Transformation Leases
ém £m ém £m £m
Disclosed as:
At 26 March 2017
Current 28 7 7 14 58
Non - current 14 at . 3 31
42 21 9 17 89
At 27 March 2016
Current 132 & 3 10 151
Non-current 2 13 : 1 16
134 19 3 di 167
The Network Transformation provision relates to payments due to postmasters in relation to the major
transformation programme, see the accounting policies note on page
reduction in the provision from prior year reflects a change in the accounting estimate as the programme nears
completion and the expected number of branches to convert decreases.
Other provisions of £17 million (2016: £11 million) include £9 million of smaller provisions including £1 million for
personal injury claims and £1 million which sits within the subsidiary Post Office Management Services Limited
and relates to the repayment of commission received in the event of the cancellation of insurance policies. It also
includes £8 million (2016: £3 million) in relation to the discontinued operation as disclosed in note 20.
16. Financial assets and liabi
a. Financial assets and liabilities by category
for further details of this provision. The
The breakdown of the Group’s financial instruments at 26 March 2017 and 27 March 2016 is shown below:
2017 2016
Current Non Total = Current Non Total
current Current
—£m £m £m ém ém
Financial assets
Trade and other receivables 320 - 320 396 - 396
Cash and cash equivalents 680 - 680 712 - 712
Financial liabilities
Trade and other payables (520) (4) (524) (608) (4) (612)
BEIS loan (561) - (561) (465) - (465)
Finance leases obligations Ee o a (8) S (8)
ancial assets/
es) (81) (4) (85) 27 (4) 23
Except for prepayments, social security and deferred income, which have been excluded from the table above, all
of the Group’s financial assets and liabilities by nature and classification for measurement purposes are considered
loans and receivables.
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The fair value of the Group’s financial assets and liabilities approximate their carrying value due to the short-term
maturities of these instruments. The fair value of financial assets and liabilities is defined as the amount at which
the Group would expect to receive upon selling an asset or pay to transfer a liability in a transaction between
market participants at the measurement date.
The nature of the inputs used in determining the values of the financial assets and liabilities is quoted prices
(unadjusted) in active markets for identical assets and liabilities. All of the Group’s financial assets and liabilities
are therefore considered as Level 2 in the fair value hierarchy.
The Group has no Level 1 and Level 3 financial instruments and there have been no transfers between the levels
of fair value hierarchy during the period.
b. Financial risk management objectives and policies
The Group is exposed to a variety of financial risks: market risk (including foreign currency risk and interest rate
risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability
of financial markets and aims to minimise potential adverse effects on the Group’s financial performance.
Interest rate risk
The Group is exposed to changes in interest rate on floating rate debt, cash deposits and current account balances.
Interest rate risk on borrowings is managed through determining the right balance of fixed and floating debt within
the financing structure. Market conditions are considered when determining the desired balance of fixed and
floating rate debt. Had there been a 50 basis point increase in interest rates, there would have been an £8 million
favourable impact on the Group’s equity and income statement. A 50 basis point decrease would have resulted in
a £2 million adverse impact on the Group’s equity and income statement.
Foreign currency risk
The Group is exposed to foreign currency risk resulting from balances held to operate Bureau de Change services.
The currencies which these transactions are primarily denominated are the US dollar and Euro. The Group’s foreign
currency risk management objective is to minimise the impact on the Income Statement of fluctuations in the
exchange rates. The Group hedges its foreign currency risk principally through external forward foreign currency
contracts to cover near-term future revenues with a number of providers including First Rate Exchange Services
Holdings Limited.
The following table demonstrates the sensitivity of financial instruments to a reasonably possible change in the
US dollar and Euro exchange rates, assuming they are unhedged and with all other variables held constant, on
profit/(loss) before tax and equity.
Strengthening Effect on Effect Strengthening Effect on Effect
/ (weakening) profit on equity / (weakening) profit on equity
US dollar rate before tax in euro rate before tax
% ém £m % ém ém
Increase / Increase / Increase / Increase / Increase / Increase /
(decrease) (decrease) (decrease) (decrease) (decrease) _ (decrease)
2017 10 2 2 10 4 4
(10) (2) (2) (10) (4) (4)
2016 10 2 2 10 4 4
(10) (2) (2) (10) (4) (4)
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss
to the Group. Financial credit risk arises from cash balances (including bank deposits and cash and cash
equivalents) held by the Group and business credit risk arises from exposures to customers. Business risk includes
commission receivable and client related settlements for amounts paid out of the Post Office network on their
behalf.
The Group aims to minimise its financial credit risk through the application of risk management policies approved
by the Board. Counterparties are limited to major banks and financial institutions. The policy restricts the exposure
to any one counterparty by setting appropriate credit limits. The maximum exposure to credit risk is limited to the
carrying value of each class of asset summarised in note 11.
Business credit risk is monitored centrally. The level of bad debt provision is less than 2% (2016: less than 2%)
of turnover.
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Capital management
The Group’s objectives when managing capital (defined as the net of borrowings and amounts due under finance
leases and cash and cash equivalents excluding cash in the Post Office Network) are to safeguard its ability to
continue as a going concern and to maintain an optimal capital structure in order to support the business and
maximise stakeholder value. In managing the Group’s capital levels the Board and the Group Executive regularly
monitor the level of debt in the Group, the working capital requirements and the forecast cash flows. The Board
and Group Executive plan accordingly following this review process in order to meet the Group’s capital
management objectives.
Liquidity risk
The Group’s primary objective is to ensure that the Group has sufficient funds available to meet its financial
obligations as they fall due. This is achieved by aligning short-term investments and borrowing facilities with
forecast cash flows. Typical short-term investments include short term bank deposits with approved
counterparties. Borrowing facilities are regularly reviewed to ensure continuity of funding.
The Group has adequate cash reserves to meet operating requirements in the next 12 months.
At 26 March 2017 the Group has unused facility of £389 million (2016: £485 million). The current facility expires
in 2018. An extension of the working capital facility to March 2021 was agreed on 30 March 2017.
The tables below analyses the Group’s financial assets and liabilities into relevant maturity groupings based on the
remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table
are the contractual undiscounted cash flows and include interest, where applicable.
12 1-2
Months — Years =
At 26 March 2017 —m £m m
Financial assets
Trade and other receivables 320 3 320
Cash and cash equivalents 680 - 680
Financial liabilities
Trade and other
Pavables (520) a (524)
Interest bearing loan (561) - (561)
Finance leases obligations - . -
Total financial liabilities (81) (4) (85)
12 1-2
Months Years Total
At 27 March 2016 ém —m ém
Financial Assets
Trade and other receivables 396 - 396
Cash and cash equivalents 712 - 712
Financial Liabilities
Trade and other
Pavables (608) (4) (612)
Interest bearing loan (465) - (465)
Finance leases obligations (8) . (8)
Total financial assets/
(liabilities) a7 (4) 33
There were no financial assets or liabilities in the current or prior year that were due to mature after 2 years.
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17. Pensions
The disclosures in this note reflect the two defined benefit schemes: the Post Office section of the Royal Mail
Pension Plan (RMPP) which is independent from the Royal Mail section of the RMPP, and a 7% share of the Royal
Mail Senior Executive Pension Plan (RMSEPP). Royal Mail Group Ltd is the principle employer of RMSEPP and
Post Office Ltd became a participating employer with effect from 1 April 2012. This disclosure also includes the
Post Office Pension Plan (POPP), which is a defined contribution scheme.
The disclosures in this note show the value of the assets and liabilities that have been calculated at the balance
sheet date.
Post Office participates in pension schemes as detailed below.
Name Eligibility Type
Royal Mail Pension Plan (RMPP)* UK employees Defined benefit
Royal Mail Senior Executive Pension Plan (RMSEPP) UK senior executives Defined benefit
Post Office Pension Plan UK employees Defined contribution
*The RMPP closed to future accrual on 31 March 2017.
Defined Contribution
The charge in the income statement for the defined contribution scheme and the Group contributions to this
scheme were £3 million (2016: £3 million) during the year. New employees joining the Group are able to pay
contributions to POPP after they have worked for the Group for a year.
Under the Pensions Act 2008, from 1 May 2017 the Group will auto-enrol all eligible employees into POPP.
regardless of their length of service.
Defined Benefit
Both RMPP and RMSEPP are funded by the payment of contributions to separate Trust administered funds. It
should be noted that the assumptions used for these pension disclosures are not the same as the assumptions
used for funding the plans. The latest full actuarial funding valuation of the RMPP was carried out as of 31
March 2015 using the projected unit method. For RMPP, this valuation was concluded at £62.7 million surplus
(2012: £135 million surplus) on a Technical Provisions basis. Valuations are carried out triennially and the next
one for the RMPP is due to be carried out as at 31 March 2018. RMPP includes sections A, B and C each with
different terms and conditions:
« Section A is for members (or beneficiaries of members) who joined before 1 December 1971;
« Section B is for members (or beneficiaries of members) who joined after 1 December 1971 and
before 1 April 1987 or to Section A members who chose to receive Section B benefits;
« Section C is for members (or beneficiaries of members) who joined after 1 April 1987 and before
1 April 2008.
The latest full actuarial funding valuation for RMSEPP was carried out as at 31 March 2015 using the projected
unit method. For 100% of RMSEPP, the valuation concluded at £17 million surplus on a Technical Provisions
basis. The next full valuation for RMSEPP is expected to be carried out as at 31 March 2018.
A series of changes to RMPP and RMSEPP have taken effect since 1 April 2008.
The changes encompassed are:
« The Plans closed to new members from 31 March 2008;
« All pensions and benefits earned before 1 April 2008 retained a link to final pensionable salary,
benefits accrued from 1 April 2008 were earned on a “career average pensionable salary” basis;
« RMPP employees can continue to take their pension on reaching age 60 but the normal retirement
age increased to age 65 for benefits earned from 1 April 2010;
« From 1 April 2010 it was possible to draw pension earned before the change to normal retirement
age at age 55 (subject to an actuarial reduction in the pension benefit), and continue working
while still contributing to the RMPP until the maximum level of benefits was reached;
« RMSEPP was closed to future accrual on 31 December 2012;
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« Inrelation to RMPP only, from 1 April 2014 pensionable salary was amended to the amount in
force as at 31 March 2014, increasing each 1 April thereafter in line with RPI (up to 5% each
year), with allowance for certain promotional increases; and
* The Post Office section of the RMPP closed to future accrual on 31 March 2017 and so no further
defined benefits accrue in respect of Post Office employment after that date; however for as long
as a member remains in employment with the Group or has not taken pension, pre-1 April 2012
pension benefits are linked to pensionable salary and post-31 March 2012 benefits receive in-
deferment increases (linked to CPI).
Payment to the RMPP of £14m (2016: £17 million) was made by the Group during the year in respect of regular
future service contributions. The regular future service contributions for RMPP expressed as a percentage of
pensionable pay, has remained at 17.1% (2016: 17.1%) effective from April 2010. Following formal
consultation with employees in 2016, the Trustee agreed to Post Office’s request for the closure of the Post
Office section of the RMPP to future accrual. Closure to future accrual means that no contributions in respect of
normal service accrual will be made after 31 March 2017. However it is expected that there will be redundancy
payments to be made to the RMPP during 2017/18.
Even though RMSEPP had a funding surplus on a Technical Provisions basis at 31 March 2015, under the
Schedule of Contributions agreed for the 2015 valuation, payments of £11m per annum will be made. Post
Office’s share of these payments will be 7% which is £1m per annum. A payment of £1 million was made by
the Group during the year. The payments will continue to the later of 30 September 2018 and the date the 31
March 2018 valuation is completed.
A current liability of £1 million (2016: £nil) has been recognised for payments to the RMPP and RMSEPP
schemes relating to redundancy. During the year payments of £3 million (2016: £3 million) relating to
redundancy were made.
The weighted average duration of the Post Office section of the RMPP is around 26 years, and for RMSEPP is
around 20 years.
On 21 March 2017 Post Office executed a Memorandum of Understanding with the Trustee of the RMPP. This
clarified the Trustee’s powers to distribute surplus without Post Office’s agreement and Post Office has concluded
that as a result of the Memorandum of Understanding, Post Office no longer has an unconditional right to refund
from the Plan. In light of this, in accordance with IFRIC 14 the RMPP pension surplus was derecognised as at 26
March 2017, and the resulting loss has been recognised in Other Comprehensive Income.
The following disclosures relate to the gains/losses and surplus/deficit in respect of Post Office’s obligations to
RMPP and RMSEPP:
a) Major long-term assumptions
The size of the defined benefit obligation shown in the accounts is materially sensitive to the assumptions adopted.
Small changes in these assumptions could have a significant impact on this value. The overall income statement
charge and past service adjustment in the income statement are also sensitive to the assumptions adopted.
The major long-term assumptions in relation to both RMPP and RMSEPP were:
At 26 March 2017 At 27 March 2016
% pa % pa
Increases to benefits that retain a link to pensionable pay 3.4 2.8
Rate of pension increases - RMPP sections A/B 23 1.8
Rate of pension increases — RMPP section C 3.4 2.8
Rate of pensions increases - RMSEPP members transferred
from Section A or B of RMPP 2.3 1.8
Rate of pension increases - RMSEPP all other members 3.4 2.8
Rate of increase for deferred pensions 2.3 1.8
Discount rate 2.3 3.5
Inflation assumption (RPI) - RMPP & RMSEPP 3.4 2.9
Inflation assumption (CPI) - RMPP & RMSEPP. 2.3 1.8
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The ultimate cost of the RMPP plan to the Group will depend upon future events rather than the assumptions
made. The assumptions made may not be borne out in practice and as such the cost of the plan may be higher
(or lower) than disclosed.
In common with other defined benefit schemes, the main risk in relation to the arrangements is the value of the
assets does not keep pace with the increase in the value of the liabilities. This can arise for many reasons, but
the most significant risks are as follows:
Investment risk: If the assets of the arrangements fall short of expectations, this will lead to a decrease in the
funded status.
Asset volatility: The arrangements hold return seeking assets (including equities and property) which are
expected to outperform corporate bonds in the long term but give exposure to volatility and risk in the short
term. RMPP does, however, invest in liability driven investment (LDI) assets, for example bonds and swaps, which
mitigate the impact of interest rate and inflation volatility on the funded status.
Inflation risk: Higher inflation rates than expected will act to increase the plan liabilities as benefits will increase
to a higher level than assumed. The arrangements have a maximum pension increase (generally 5% per annum)
written into the rules which limits the increase for many benefits, so limiting the impact of high inflation. This
includes benefits retaining a link to pensionable pay in RMPP. In addition, the arrangement holds assets that
increase in value as price inflation expectations rise, so mitigating the impact of rising inflation
expectations. These assets include LDI assets in respect of RMPP.
Changes in bond yields: A decrease in corporate bond yields will increase the plan liabilities, although this can
be expected to be partially offset by an increase in the value of any corporate bond holdings and, potentially, the
LDI assets.
Pensioner longevity: If members live longer than expected, the liabilities would be greater than currently
anticipated because pensions would be paid for over a longer time than assumed.
Liabilities accrued in the Royal Mail Pension Plan to 31 March 2012 were largely transferred to the Royal Mail
Statutory Pension Scheme. These liabilities are substantially no longer an obligation of the Group and
consequently the transfer resulted in a significant removal of pension risk from the Group.
The following table shows the potential impact on the value of Post Office’s defined benefit obligation in respect of
RMPP and RMSEPP of changes in key assumptions:
2017 2016
£m £m
Changes in RPI and CPI inflation of +0.1% pa (9) (5)
Changes in discount rate of +0.1% pa 9 5
Changes in real salary growth of +0.1% pa - (2)
Changes in CPI assumptions of +0.1% pa (4) (1)
An additional 1 year life expectancy (10) (6)
The sensitivity analysis has been prepared using projected benefit cashflows as at the latest full actuarial valuation
of the plan. The same method was applied as at the previous reporting date. The accuracy of this method is limited
by the extent to which the profiles of the plan cashflows have changed since those valuations although any change
is not expected to be material in the context of the above sensitivity analysis.
Mortality: The mortality assumptions used to calculate the value of Post Office’s defined benefit obligation in
respect of RMPP and RMSEPP are based on the latest self-administered pension scheme (SAPS “S2” series)
mortality tables as shown in the following table:
Base mortality tables 2017 2016
Males 100% x S2PMA 106% x S1PMA
Female members. 100% x S2PFA 101% x S1DFA
Female dependants 100% x S2DFA 101% x S1DFA
CMI 2015 Core Projections Medium Cohort Projections
Future improvements with a 1.5% pa long-term trend with a 1.25% pa floor
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Average expected life expectancy from age 60: 2017 2016
For a current 60 year old male RMPP member 28 years 27 years
For a current 60 year old female RMPP member 30 years 30 years
For a current 40 year old male RMPP member 30 years 29 years
For a current 40 year old female RMPP member 32 years 32 years
b) Plans’ assets
The assets in the plans for the Group were:
Market value 2017 Market value 2016
Sectionalised RMPP. ém ém
Corporate bonds* 394 233
Property 13 11
Private Equity 7 10
Cash and cash equivalents 68 41
Bond/fixed interest funds 25 41
Other loan/debt funds 17 28
Alternative asset funds 8 43
Fair value of RMPP assets 532 407
Present value of RMPP liabilities (322) (184)
Surplus in plan before asset ceiling adjustment 210 223
Less effect of asset ceiling (210) (29)
Surplus in plan after asset ceiling adjustment - 194
*£4 million relates to UK Government Bonds, £365 million to an LDI investment containing UK
Government Bonds (a liability driven investment) and £25 million relates to infrastructure debt holdings
and collateralised liability obligations holding which are a combination of GBP, AUD, EUR and USD
denominated and are fixed interest.
Market value 2017 Market value 2016
Share of RMSEPP. —m £m
UK equities 1 1
Overseas equities 12 10
Government bonds 2 15
Alternative asset funds 2 2
Property 2
Bulk annuity policy* 13 -
Fair value of share in plan assets for RMSEPP 32 30
Present value of share in plan liabilities for RMSEPP (31) (27)
Surplus in plan for the share of RMSEPP before asset ceiling 1 2
adjustment
Less effect of asset ceiling - (1)
Surplus in plan for share of RMSEPP after asset cei
adjustment
*RMSEPP holds a bulk annuity policy with Scottish Widows. The value ascribed to this policy has been calculated
using the same assumptions as used to calculate the present value of the defined benefit obligation.
As described above, no surplus is recognised for RMPP because the Group has concluded that as a result of the
Memorandum of Understanding signed on 21 March 2017, the Group no longer has an unconditional right to
refund from the Plan. A retirement benefit surplus of £1 million is disclosed on the balance sheet, representing
the surplus in the RMSEPP Plan only.
There is no element of the above present value of liabilities that arises from plans that are wholly unfunded. With
the exception of the bulk annuity policy described above, all RMPP and RMSEPP assets are securities with a quoted
price in an active market.
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c) Movement in plans’ assets and liabilities
Changes in the fair value of the plans’ assets are analysed as follows:
Assets Sectionalised Sectionalised
RMPP 2017 £m__RMPP 2016 £m
Assets in sectionalised RMPP at beginning of period 407 379
Contributions paid 17 19
Employee contributions paid 5 6
Finance income 15 14
Actuarial gains/(losses) 92 (8)
Benefits paid to members (4) (3)
Assets in sectionalised RMPP at end of period 532 407
Share of Share of
Assets RMSEPP 2017 RMSEPP 2016
=m £m
Share of assets in RMSEPP at beginning of period 30 31
Contributions paid 1 1
Finance income 1 1
Actuarial gains/(losses) 1 (2)
Benefits paid to members (1) (1)
Share of assets in RMSEPP at end of period 32 30
Changes in the present value of the defined benefit pension obligations are analysed as follows:
Liabilities Sectionalised Sectionalised
RMPP 2017 RMPP 2016
=m £m
Liabilities in sectionalised RMPP at beginning of period (184) (150)
Current service cost (23) (27)
Curtailment costs* 2 (1)
Finance cost (7) (6)
Employee contributions (5) (6)
Experience adjustments on liabilities 6 3
Financial assumption changes (129) -
Demographic assumption changes (5) -
Benefits paid 4 3
Effect of closure of RMPP* 19 a
Liabilities in sectionalised RMPP at end of period (322) (184)
Liabilities Share of Share of
RMSEPP 2017 RMSEPP 2016
£m —m
Share of liabilities in RMSEPP plans at beginning of period (27) (26)
Finance cost (1) (1)
Experience adjustments on liabilities 7 (1)
Financial assumption changes (11) -
Benefits paid 1 1
Share of liabilities in RMSEPP at end of period (31) (27)
*The gain on curtailment of £2 million is due to redundancies in the year. It is equal to a cost of £3 million in
respect of enhanced retirement benefits granted to certain members, offset by a saving of £5 million due to RPI-
linked in-service revaluation being replaced by CPI-linked deferred pension revaluation. The effect of the closure
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of RMPP of £19 million is a past service adjustment as a result of the closure of the Plan and is a one-off adjustment.
Both of these adjustments have been allocated between revenue trading (net credit of £2 million relating to
adjustments linked to current year service) and closure of activities (net credit of £19 million relating to
adjustments linked to prior years’ service).
d) Recognised charges
An analysis of the separate components of the amounts recognised in the performance statements of the Group
is as follows:
Sectionalised
Sectionalised
RMPP 2017 RMPP 2016 £m
£m
Analysis of amounts recognised in the income statement
Analysis of amounts charged to operating profit from
revenue trading:
Current service cost 23 27
Loss due to curtailments 2 a
Effect of the closure of the RMPP. (4) :
Total charge to revenue trading 21 27
Analysis of amounts charged to closure of activities:
(Gain) / loss due to curtailments. (4) 1
Effect of the closure of the RMPP (15) :
Total charge to operating profit 2 28
Analysis of amounts charged/(credited) to net pensions interest:
Interest on plan liabilities 7 6
Interest income on plan assets (15) (14)
Net pensions credit to financing (8) (8)
Net (credit) / charge to the income statement before deduction (6) 20
for tax
Analysis of amounts recognised in the statement of comprehensi
income
Actual return on plan assets 107 6
Less: expected interest income on plan assets (15) (14)
Less: taxation on surplus recoverable through plan refunds - (2)
Actuarial gains/(losses) on assets (all experience adjustments) 92 (10)
Actuarial gains arising from changes in demographic assumptions 6 3
Actuarial losses arising from changes in financial assumptions (129) -
Actuarial losses arising from experience adjustment (5) :
Actuarial (losses)/gains on liabilities (128) 3
Effect of the asset ceiling (210) :
Total actuarial losses recognised in the statement of
comprehensive income (246) (7)
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Share of Share of
RMSEPP 2017 RMSEPP 2016
ém £m
Analysis of amounts recognised in the income statement
Analysis of amounts charged to net pensions interest:
Interest on plan liabilities 1 1
Interest income on plan assets. (1) (1)
Net pensions credit to financing = a
Net charge to the income statement before deduction for tax = =
Analysis of amounts recognised in the statement of
comprehensive income
Actual return on plan assets 2 (1)
Less: expected interest income on plan assets (1) (1)
Less: taxation on surplus recoverable through plan refunds - 1
Actuarial gains/(losses) on assets (all experience adjustments) 1 (1)
Actuarial gains arising from changes in demographic assumptions 7 -
Actuarial losses arising from changes in financial assumptions (11) (1)
Actuarial losses on liabilities (4) (4)
Total actuarial losses recognised in the statement of
comprehensive income (3) (2)
18. Equity
Called up share capital:
2017 2016
£ £
Authorised
Ordinary shares of £1 each 51,000 51,000
Total 51,000 51,000
Allotted and issued and fully paid
Ordinary shares of £1 each 50,003 50,003
Total 50,003 50,003
Other reserves:
Other reserves of £2 million (2016: £2 million) relate to First Rate Exchange Services Holdings Limited, the joint
venture entity.
Share premium:
On 7 August 2007 1,000 ordinary shares of £1 each were issued in return for £313 million cash paid by the
Secretary of State for Business, Enterprise and Regulatory Reform. A share premium of £312,999,999 resulted
from this subscription. In April 2008 two ordinary £1 shares were issued in return for £152 million cash paid by
the Secretary of State for Business, Energy and Industrial Strategy. A share premium of £151,999,998 resulted
from this subscription.
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19. Commitments
Capital commitments contracted for but not provided in the financial statements amount to £64 million (2016:
£51 million).
The Group is also committed to the following minimum lease payments under non-cancellable operating leases:
Land and buildings
2017 2016
£m ém
Within one year 13 14
Between one and five years 34 35
Beyond five years 35 29
Total 82 78
Contingent liabilities: As a large, nationwide retailer operating in dynamic and competitive markets, we may be
subject to regulatory investigations and may face damage to our reputation and legal claims.
From time to time, we may be named as a defendant in legal claims or be required to respond to regulatory actions
in connection with our activities. This may include claims for substantial or indeterminate amounts of damages
from customers, employees, consultants and contractors, or may result in penalties, fines, or other results adverse
to us. Like any large company, we may also be subject to the risk of potential employee or agent misconduct,
including non-compliance with policies and improper use or disclosure of our assets or confidential information.
On 11 April 2016, a High Court claim was issued on behalf of a number of postmasters against Post Office in
relation to various legal, technical and operational matters (“the Post Office Group Litigation”). The Generic
Particulars of Claim does not quantify the value of the claims.
Post Office is defending the claim, which is proceeding under a Group Litigation Order and is at a nascent stage.
The Directors do not currently consider, but continue to keep under review whether, the outcome of any current
claim or action will have a material adverse impact on the consolidated position of the Group.”
20. Discontinued Operations
In August 2016 the Group decided to discontinue its Retail Cash in Transit operation. The results of this operation
are disclosed below. 2016 includes the prior year results relating to the mobile discontinued operation, restated
to include the prior year results of the Retail Cash in Transit operation.
The mobile operation results included in the below table are a credit of £1 million for 2017 relating to unutilised
provision, and a cost of £10 million for 2016 relating to the closure (split between Other operating costs of £4
million and Capital and Investment of £6 million).
2017 2016
£m (restated)
—m
Revenue 9 17
People costs excluding restructuring costs (19) (20)
Other operating costs (2) (8)
Operating loss before capital and investment (12) (11)
Operating capital and investment expenditure (35) (6)
Loss before taxation (47) (17)
Taxation = a
Loss for the year from discontinued operation (47) (17)
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Balances on the balance sheet at year end in respect of discontinued operations are shown in the table below. The
current year balance relates entirely to the Retail Cash in Transit operation closure and is in respect of provisions
for severance costs (£3 million), other restructuring costs (£2 million) and vacant leasehold properties (£3 million).
The prior year balance relates to provisions for the Mobile operation closure costs and termination charges.
— 2017-0—~C—~——«*2016
(restated)
ém £m
Land and buildings - 1
Trade receivables - 2
Accrued income - 1
Total assets = 4
Provisions (note 15) (8) (3)
Total liabilities (8) (3)
Total net (liabilities) / assets (8) 1
The comparatives in the Income Statement for the year ended 27 March 2016 have been restated and allocated
to discontinued operations. The restatement affects revenue, people costs, and other operating costs. Within
this report, the comparative income statement and statement of comprehensive income for the year ended 27
March 2016 have been restated. The operating profit from revenue trading on the cash flow statement has also
been restated. There has been no effect on the balance sheet or statement of changes in equity.
The table below shows the impact of the restatement on revenue trading and closure of activities for the year
ended 27 March 2016:
As previously 27 March 2016
reported Restatement Restated
Turnover 981 (17) 964
People costs (233) 20 (213)
Other operating costs (808) 4 (804)
Loss for the year from continuing operations (157) 7 (150)
Loss for the year from discontinued operations (10) (7) (17)
Loss for the year after discontinued operations (167) - (167)
21. Related party disclosures
Joint venture
The following company is a joint venture of the Group:
Company Country of incorporation % Holding Principal activities
First Rate Exchange
Services Holdings Limited United Kingdom 50 Bureau de Change
All shareholdings are equity shares.
Related party transactions
During the year the Group entered into transactions with the following related parties. The transactions were in
the ordinary course of business. The transactions entered into and the balances outstanding at the financial year
end were as follows:
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Amounts owed from Amounts owed to
Sales/recharges to Purchases/recharges related party related party
related from including outstanding including outstanding
party related party loans loans
2017 2016 2017 2016 2017 2016 2017 2016
—m —m =m —m =m —m —£m —m
First Rate Exchange
Services Holdings
Limited 32 26 121 122 9 10 5 7
The sales to and purchases from related parties are made at normal market prices. Balances outstanding at the
year end are unsecured, interest free and settlement is made by cash. First Rate Exchange Services Holdings
Limited is a joint venture of the Group.
The Group trades with numerous Government bodies on an arm’s length basis. Transactions with these entities
are not disclosed owing to the significant volume of transactions that are conducted.
Separately:
« the Group has certain loan facilities with Government (note 14);
« the Group has received investment funding from the Government of £140 million, all of which was
recognised through the income statement; and
« the Group has received the Network Subsidy Payment from Government (note 1).
22. Post balance sheet events
On 20 July 2017, Post Office Limited and Trustees of the Royal Mail Pension Plan (POL fund) (“Trustees”)
entered into an agreement with Rothesay Life PLC in which a pension buy-in was effected for the Royal Mail
Pension Plan defined benefit pension scheme.
Under the bulk annuity purchase agreement, the Trustees of the pension plan have effectively bought an asset
that provides income which matches closely the benefit payments from the pension plan. It achieves a material
risk reduction as changes in income mirror changes in benefits due to, for example, inflation.
The accounting surplus will reduce by the difference between the insurance premium and the value of the
insured liabilities. This loss will be recognised in Other Comprehensive Income in 2017-18. As described in note
17, Post Office no longer has an unconditional right to refund from the Plan and, in accordance with IFRIC 14,
the RMPP pension surplus is no longer recognised on the balance sheet, with an asset ceiling applied which
reduces the balance to nil. As a result of the reduction of the surplus through the pension buy-in, there will an
equal and opposite adjustment to the asset ceiling also through Other Comprehensive Income. As a result, there
is no effect on Other Comprehensive Income or the net assets position of the Group.
In addition, a data risk premium of £2.1 million has been paid by the Trustees in relation to the buy-in. As these
premiums are not directly attributable to insuring the pension liability, these amounts will be taken to profit and
loss under Capital and Investment in 2017-18. The corresponding entry is through Other Comprehensive Income
and, as a result, there is no effect on the net assets position of the Group.
On 12 June 2017, Post Office’s parent company, Postal Services Holding Company Limited, was placed into
liquidation. It is expected that the process will be complete and the company will be dissolved by the end of
March 2018. On 12 June 2017, all of the ordinary shares that Postal Services Holding Company Limited held in
Post Office were transferred to direct ownership of the Secretary of State for Business, Energy and Industrial
Strategy.
On 30 March 2017 the Group acquired the residential broadband and home phone customer base, along with
certain other assets, of New Call Telecom Limited, for cash consideration of £2 million. Further consideration
estimated to be £6 million is contingent on the number of New Call customers that successfully migrate to the
Group’s systems by a particular date. The acquisition will be accounted for under IFRS 3 Business Combinations.
The provisional fair value of the net assets acquired is £6 million. The only major class of assets acquired are the
intangible assets associated with residential and home phone customer base acquired from New Call Telecom
Limited. Fair values are described as provisional due to the proximity of the acquisition to the 2016-17 year end.
The goodwill arising from the acquisition, provisionally valued at £2 million, represents the opportunity to grow
the New Call customer base by exploiting the Post Office branch network. The goodwill arising on acquisition is
not deductible for income tax purposes. Associated acquisition expenses have been charged to the income
statement in FY2017-18.
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In accordance with the funding agreement with Government announced on 27 November 2013, for which State
Aid approval was received on 19 March 2015, Post Office Limited received £140 million of funding on 3 April
2017.
23. Immediate and ultimate parent company
At 26 March 2017, the Directors regarded Postal Services Holding Company Limited as the immediate and ultimate
parent company. The largest group to consolidate the results of the company is Postal Services Holding Company
Limited, a company registered in the United Kingdom. Postal Services Holding Company Limited financial
statements can be obtained from Finsbury Dials, 20 Finsbury Street, EC2Y 9AQ.
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Parent Company Financial Statements
2016-2017
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Company statement of comprehensive income
At 26 March 2017
2016
2017 = (Restated)
Notes —£m £m
Profit / (loss) for the financial year from continuing operations 283 (150)
Loss for the financial year from discontinued operations (47) (17)
Profit / (loss) for the financial year 236 (167)
Other comprehensive income not to be reclassified to profit or loss
in future periods
Remeasurements on defined benefit surplus 11 (249) (9)
Withholding tax effect 30 -
Income tax effect 25 5
Total comprehensive profit / (loss) for the year 42 (171)
There are no other comprehensive income items that will be reclassified to the profit and loss in subsequent
periods.
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Company balance sheet
at 26 March 2017
2016
2017 (Restated)
Notes £m £m
Non-current assets.
Intangible assets 2 128 -
Property, plant and equipment 3 144 9
Investment in subsidiaries 4 50 50
Investments in joint venture 5 66 67
Retirement benefit surplus 11 1 196
Trade and other receivables 6 13 12
Total non-current assets 402 334
Current assets
Inventories 7 6
Trade and other receivables 6 327 413
Cash and cash equivalents 7 667 698
Total current assets 1,001 1,117
Total assets 1,403 1,451
Current liabilities
Trade and other payables 8 (554) (650)
Financial liabilities - interest bearing loans and borrowings 9 (561) (465)
- obligations under finance leases - (8)
Provisions 10 (57) (150)
Total current liabilities (1,172) (1,273)
Non-current liabilities
Other payables 8 (22) (25)
Provisions 10 (30) (16)
Total non-current liabilities (52) (41)
Net assets 179 137
Equity
Share capital 12 - -
Share premium 12 465 465
Retained earnings (286) (328)
Total equity 179 137
The financial statements on pages [x] to [x] were approved by the Board of Directors on [x] 2017 and signed
on its behalf by:
P A Vennells A Cameron
Chief Executive Chief Financial Officer
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Company statement of changes in equity
at 26 March 2017
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Share Retained Total
premium earnings equity
Notes £m £m £m
At 27 March 2016 (restated) 465 (328) 137
Profit for the year - 236 236
Remeasurements on defined benefit
surplus 11 - (249) (249)
Withholding tax effect 30 30
Income tax effect 7 25 25
At 26 March 2017 465 (286) 179
Share Retained Total
premium earnings equity
Notes £m é£m £m
At 30 March 2015 (restated) 465 (157) 308
Loss for the year - (167) (167)
Remeasurements on defined benefit
surplus 11 - (9) (9)
Income tax effect = 5 5
At 27 March 2016 465 (328) 137
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Notes to the financial statements
1. Accounting Poli
The accounting policies which follow set out those which apply in preparing the financial statements for the year
ended 26 March 2017.
Financial year
The financial year ends on the last Sunday in March and accordingly, these financial statements are made up to
the 52 weeks ended 26 March 2017 (2016: 52 weeks ended 27 March 2016).
Authorisation of financial statements
The parent company financial statements of Post Office Limited (the ‘Company’) for the year ended 26 March 2017
were authorised for issue by the Board of Directors on [x] 2017 and the balance sheet was signed on the Board’s
behalf by P A Vennells and A Cameron. Post Office Limited is a limited company incorporated and domiciled in
England and Wales.
Basis of preparation
These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure
Framework (FRS 101). These financial statements are prepared under the historical cost convention.
As permitted by Section 408 of the Companies Act 2006 Post Office Limited has not presented its own income
statement. The result dealt with in the accounts of the Company amounted to £236 million profit (2016: £167
million loss).
The results of Post Office Limited are included in the consolidated financial statements of Post Office Group which
are available from Companies House.
The Company has taken advantage of the following disclosure exemptions under FRS 101:
(a) the requirements of IFRS 7 Financial Instruments: Disclosures
(b) the requirements of paragraphs 91-99 of IFRS 13 Fair Value Measurement
(c) the requirement in paragraph 38 of IAS 1 ‘Presentation of Financial Statements’ to present comparative
information in respect of:
i. paragraph 73(e) of IAS 16 Property, Plant and Equipment
ii. paragraph 118(e) of IAS 38 Intangible Assets
(d) the requirements of paragraphs 10(d), 10(f), 39(c) and 134-136 of IAS 1 ‘Presentation of Financial
Statements’
(e) the requirements of IAS 7 Statement of Cash Flows
(f) the requirements of paragraphs 30 and 31 of IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and
Errors’
(g) the requirements of paragraph 17 of IAS 24 ‘Related Party Disclosures’
(h) the requirements of IAS 24 ‘Related Party Disclosures’ to disclose related party transactions entered into
between two or more members of a group, provided that any subsidiary which is a party to the transaction is
wholly owned by such a member.
Fundamental accounting concept - going concern
The Company had net assets of £179 million at 26 March 2017 (2016: £137 million).
A funding agreement with Government was announced on 27 November 2013 which provided for:
« Funding of £280 million for 2015-16
« Funding of £220 ion for 2016-17
« Funding of £140 million for 2017-18
« Extension of the existing working capital facility with the Department for Business, Energy & Industrial
Strategy (BEIS) with a limit of £950 million from 30 March 2015 up to 31 March 2018.
At 26 March 2017 £389 million of the working capital facility was undrawn (2016: £485 million).
Post Office and the Secretary of State for BEIS signed a Funding Agreement and an Amendment to the Working
Capital Facility confirming that the following funding package will be made available to Post Office from April 2018:
« Extension of the existing working capital facility of £950 million with BEIS to 31 March 2021
« Network subsidy payment of £60 million for 2018-19
« Network subsidy payment of £50 million for 2019-20.
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In addition the Secretary of State for BEIS has confirmed in principle in a letter dated 25 July 2017 that the
following additional funding will be also be made available to Post Office:
« Network subsidy payment of £50 million for 2020-21
« Investment funding of up to £210 million for the period April 2018 to March 2021.
The network subsidy payment and investment funding will be received in the form of grants and are non-
refundable.
State aid approval for the funding for 2018-19 to 2020-21 has not yet been received. The working capital facility
is not classified as state aid and requires no further approval.
After careful consideration of the plans for the coming years, the Directors continue to believe that Post Office
Limited will be able to meet its liabilities as they fall due for the next 12 months. Accordingly, on that basis, the
Directors consider that it is appropriate that these financial statements have been prepared on a going concern
basis.
Prior year restatements
In preparing the financial statements for the current year, the comparative figures for the year ended 27 March
2016 have been restated for the Retail Cash in Transit operation which has been discontinued during the current
year. The comparatives in the Income Statement for the year ended 27 March 2016 have been restated and
allocated to discontinued operations in both the Group and Parent Company financial statements. The
restatement affects revenue, people costs, and other operating costs. Within this report, the comparative
income statement and statement of comprehensive income for the year ended 27 March 2016 have been
restated. There has been no effect on the balance sheet or statement of changes in equity.
The comparative figures for the years ended 27 March 2016 and 29 March 2015 have also been restated for a
change in the accounting policy with respect to the investment in joint venture. The restatement is in the Parent
Company Financial Statements only. The change in accounting policy is described in more detail in the
accounting policies.
The restatement affects the Investments in joint venture shown on the Company balance sheet. The investment
value has been increased by £66 million as at 27 March 2016, which reflects the Company’s share of the joint
venture in line with the equity accounting method which is also adopted by the Group. This has also resulted in a
restatement in Retained earnings as at 27 March 2016 and as at 29 March 2015.
The tables below shows the impact of both restatements on the income statement and balance sheet at 27
March 2016 and at 29 March 2015.
Restatement for
discontinued 27 March 2016
As previously
reported operation Restated
£m £m é—m
Loss for the year from continuing operations (157) 7 (150)
Loss for the year from discontinued operations (10) (7) (17)
Loss for the year after discontinued operations (167) 0 (167)
As previously Restatement for 27 March 2016
reported change in joint Restated
£m__ venture accounting £m
—m
Investments in joint ventures 1 66 67
Retained earnings (394) 66 (328)
As previously Restatement for 29 March
reported change in joint 2015
£m venture accounting Restated
£m £m
Retained earnings (223) 66 (157)
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Critical accounting estimates and judgements in applying accounting policies
The Company makes certain estimates and assumptions regarding the future. Estimates and assumptions are
continually evaluated based on historical experience and other factors. In the future, actual experience may
differ from these estimates and assumptions. In addition the Company has to make judgements in applying its
accounting policies which affect the amounts recognised in the accounts. The most significant areas where
judgements and estimates are made are discussed below:
Pension assumptions
The costs, assets and liabilities of the pensions operated by the Company are determined using methods relying
on actuarial estimates and assumptions.
The Post Office section of the RMPP closed to future accrual on 31 March 2017. A Memorandum of
Understanding was executed on 21 March 2017 which removed the unconditional right to refund from the Plan.
As a result of these events there has been a one-off credit to the income statement, and the surplus has been
written off through other comprehensive income. This is described in further detail within note 11. The values of
these adjustments are particularly sensitive to changes in assumptions for discount rates, mortality and inflation
rates. The Company exercises its judgement in determining the assumptions to be adopted, after discussion
with its Actuary. Details of the key assumptions are set out in note 11.
Pension liabilities are measured on an actuarial basis using the projected unit credit method and discounted at a
rate equivalent to the current rate of return on a high quality corporate bond of equivalent currency and term.
Judgement has been applied in determining that for these purposes a high quality corporate bond constitutes AA
rated or equivalent status bonds.
Provisions
The Company has recognised provisions where a present legal or constructive obligation exists as a result of a
past event, where it is probable that an outflow of resources will be required to settle the obligation and a
reliable estimate of the amount can be made. Severance provisions are recognised for business reorganisation
where the plans are sufficiently detailed and well advanced and where appropriate communication to those
affected has been undertaken at the balance sheet date. Postmasters’ compensation provisions are recognised
when either Postmaster’s agree to terminate their existing contracts or sign the new format contracts under
Network Transformation. The total provision for Postmasters’ compensation at the year end date represents
management’s best estimate of the future obligation. Due to the nature of provisions the future amount settled
may be different from the amount that has been provided.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that
reflects, where appropriate the risks specific to that liability.
Impairment of non-current assets
The Company assesses whether there are any indicators of impairment for all non-currents assets at each
reporting date as well as if events or changes in circumstances indicate that the carrying value may be impaired.
Where appropriate, an impairment loss is recognised in the income statement for the amount by which the
carrying value of the asset (or cash generating unit) exceeds its recoverable amount, which is the higher of an
asset's net realisable value and its value in use.
In previous years, due to ongoing operational losses (excluding the Network Subsidy Payment), impairment
losses have been recognised and the carrying value of some assets have been impaired to zero on acquisition.
In the current year the Company has made a profit from continuing operations and this is expected to be
sustainable. In addition, the Company has secured a Network Subsidy Payment to March 2021, and continued
investment funding over that period from Government. In this circumstance the Company no longer considers
there to be indicators of impairment, and there has been a change in accounting estimate to reflect this. The
change in accounting estimate has been made as at the year end date as this is the point at which there was
sufficient evidence of a value in use.
The change in accounting estimate has resulted in a reversal of impairment losses in the current year, and the
carrying value of assets has been increased. The reversal is no more than the depreciated historical cost if the
impairment had not been recognised. The reversal of the impairment loss has been recognised in the income
statement for the current year and the change will be applied in future years subject to a continuous review of
trading and funding.
An impairment test was performed at the year end to support this. Details of this are given in note 3.
Each asset category is described below:
Property, plant and equipment excluding freehold property, long leasehold property and land:
Property, plant and equipment is recognised at cost, including attributable costs in bringing the asset into
working condition for its intended use. These assets have a relatively short useful life and in previous periods
due to ongoing operational losses (excluding Network Subsidy Payment) they have been impaired to zero on
acquisition. In the current year the impairment loss was reversed at the year end, and depreciation will be
recognised going forwards on a straight-line basis over the following useful lives:
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Range of asset lives
Plant and Machinery 3-15 years
Motor vehicles and trailers 3-12 years
Fixtures and equipment 3-15 years
In the current year the asset lives for Motor vehicles and trailers and Fixtures and equipment have been
changed to range from 3 years, not 2 years as reported in prior years. This is to reflect the range of asset lives
actually in use for the current asset portfolio.
Freehold property, long leasehold property and land:
As with other property, plant and equipment this is recognised at cost, including attributable costs in bringing
the asset into working condition for its intended use. These assets have a long useful life and a fair market
value, therefore these assets have not been impaired on acquisition but would be considered for impairment if
indicators existed. They are depreciated on a straight-line basis over the following useful lives:
Range of asset lives
Land and buildings:
Freehold land Not depreciated
Freehold buildings Up to 50 years
Leasehold buildings The shorter of the period of the lease, 50 years or the estimated remaining
useful life
The remaining useful lives of freehold buildings are reviewed periodically and adjusted where applicable on a
prospective basis.
Intangible assets with a finite useful life:
Intangible assets acquired separately or generated internally are initially recognised at cost. In previous periods
these assets were impaired to zero for the reasons noted above. In the current year the impairment loss was
reversed at the year end, and amortisation will be recognised going forwards on a straight-line basis over the
following useful life:
Software 3 to 6 years
In the current year the range of asset lives for Software has been changed to start from 3 years, not 1 year as
reported in prior years. This is to reflect the range of asset lives actually in use for current Software assets.
Intangible assets arising on acquisition or with an indefinite useful life:
These assets are considered for impairment individually in line with Group policy noted above but are not
automatically impaired. Goodwill is considered separately below.
Discontinued operations
The Company has treated the closure of its Retail Cash in Transit operation as a discontinued operation in the
year. The prior year results have also been restated for this. The Retail Cash in Transit operation was considered
to be a separate component of Post Office, as its revenue, costs and cash flows were distinguishable from the
rest of the Company and the nature of the operation was different to the rest of the business.
Leases
Finance leases, where substantially all the risks and rewards incidental to ownership of the leased item have
passed to the Company are capitalised at the inception of the lease with a corresponding liability recognised for
the fair value of the leased item or, if lower, at the present value of the minimum lease payments. Lease payments
are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate
of interest on the remaining balance of the liability.
Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease
term.
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Leases where substantially all the risks and rewards of ownership of the asset are retained by the lessor are
classified as operating leases and rentals are charged to the income statement over the lease term. The aggregate
benefits of incentives are recognised as a reduction of rental expenses over the lease term on a straight-line basis.
Investments in joint venture
Investments in joint ventures within the Company’s financial statements were in previous years stated at cost less
any accumulated impairment losses.
In the current year the Company has voluntarily changed its accounting policy with respect to investments in joint
ventures in order to apply the equity accounting method, consistent with that adopted by the Group.
This change in accounting policy is permitted by the amendment to IAS 27: Equity Method in Separate Financial
Statements. The amendment allows entities to use the equity method to account for investments in joint
ventures in their separate financial statements. Entities already applying IFRS and electing to change to the
equity method in their separate financial statements are required to apply that change retrospectively. The
amendments are effective for annual periods beginning on or after 1 January 2016.
The Company now applies equity accounting, under which the investment is carried in the Balance Sheet at cost
plus post-acquisition changes in the Company’s share of net assets of the joint venture less any impairment in
value. Prior to this change in accounting policy, the Company measured investments in joint ventures within the
Company's balance sheet at cost less any accumulated impairment losses.
The Company considers the new policy is appropriate as it provides the user of the financial statements with
more relevant and reliable information and aligns the accounting between the Group and the Parent Company
financial statements.
The impact on each line item of the primary financial statements is shown within the Prior year restatements
section on page [x].
Inventories
Stocks, which include printing and stationery, retail and lottery products, are carried at the lower of cost and net
realisable value after adjusting for obsolete or slow-moving stock.
Taxation
The charge for current income tax is based on the results for the year as adjusted for items which are not taxed
or are disallowed. It is calculated using tax rates in legislation that has been enacted or substantively enacted by
the balance sheet date. Deferred income tax assets and liabilities are recognised for all taxable and deductible
temporary differences and unused tax assets and losses except:
- initial recognition of goodwill
- the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time
of the transaction, affects neither the accounting profit nor taxable profit and loss.
- taxable temporary differences associated with investments in subsidiaries interest in joint ventures, where the
timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference
will not reverse in the foreseeable future and
- deferred tax assets are recognised only to the extent that it is probable that taxable profit will be available
against which they can be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the
tax asset is realised or the liability is settled, based on tax rates that have been substantively enacted at the
balance sheet date. Deferred tax balances are not discounted.
Current and deferred tax is recognised in the income statements, except to the extent that it relates to items
recognised in other comprehensive income or directly to equity. In this case, the tax is also recognised in other
comprehensive income or directly in equity, respectively.
Pensions and other post-retirement benefits
Membership of occupational pension schemes is open to most permanent UK employees of the Company. All
members of defined benefit schemes are contracted out of the earnings-related part of the State pension scheme.
The RMPP defined benefit Plan was closed to future accrual on 31 March 2017.
The pension assets of the defined benefit schemes are measured at fair value. Liabilities are measured on an
actuarial basis using the projected unit credit method and discounted at a rate equivalent to the current rate of
return on a high quality corporate bond of equivalent currency and term. The RMPP Plan was closed on 31 March
2017. A Memorandum of Understanding was executed on 21 March 2017 which removed the unconditional right
to refund from the Plan. As a result of these events the surplus relating to this Plan has been derecognised in the
year, in line with IFRIC 14.
Full actuarial funding valuations are carried out at intervals not normally exceeding three years as determined by
the Trustees and, actuarial valuations are carried out at each balance sheet date and form the basis of the surplus
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or deficit disclosed. When the calculation at the balance sheet date results in net assets to the Company, the
recognised asset is limited to the present value of any future refunds of the plan or reductions in future
contributions to the plan (the asset ceiling). The RMPP defined benefit plan has been closed and no future refunds
will be made to the Company.
For defined benefit schemes, the amounts charged to operating profit, as part of staff costs, are the current service
costs and any gains and losses arising from settlements, curtailments and past service costs. The net difference
between the interest costs and the expected return on plan assets is recognised as net pensions interest in the
income statement. Actuarial gains and losses are recognised immediately in the statement of comprehensive
income. Any deferred tax movement associated with the actuarial gains and losses is also recognised in the
statement of comprehensive income. In the current year there are further impacts on the income statement and
statement of comprehensive income as a result of the closure of the RMPP Plan; these have been described in
further detail within note 17 to the Group accounts.
For defined contribution schemes, the Company’s contributions are charged to operating profit, as part of staff
costs, in the period to which the contributions relate.
Foreign currencies
The functional and presentational currency of the Company is sterling (£).
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction (or at the contracted
rate if the transaction is covered by a forward foreign currency contract). Monetary assets and liabilities
denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date (or
the appropriate forward contract rate). All differences are taken to the income statement.
Trade receivables
Trade receivables are recognised and carried at original invoice amount less an allowance for any non-collectable
amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad
debts are written off when identified.
Borrowing costs
Borrowing costs are recognised as an expense when incurred unless they are directly attributable to the
construction or development of a qualifying asset, in which case they are capitalised using the weighted average
cost of borrowing for the period of construction/development.
Government grants
Government grants of a revenue nature are recognised to match costs in relation to the performance of certain
specified activities.
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past
event, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate
can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are
determined by discounting the expected future cash flows at an appropriate pre-tax rate.
Financial instruments
Financial assets
Financial assets are measured at fair value at the balance sheet date. They are classified into the following
categories as appropriate loans and receivables or available for sale as appropriate based on the purpose for which
they were required. Financial liabilities are measured at either fair value at the balance sheet date or as financial
liabilities measured at amortised cost.
Financial liabilities - interest-bearing loans and borrowings
All loans and borrowings are classified as financial liabilities measured at amortised cost.
Financial liabilities - obligations under finance leases
All obligations under finance lease and hire purchase contracts are classified as financial liabilities measured at
amortised cost.
Fair value measurement of financial instruments
The fair value of quoted investments is determined by reference to bid prices at the close of business on the
balance sheet date.
Where there is no active market, fair value is determined using valuation techniques. These include using recent
arm's length market transactions; reference to the current market value of another instrument which is
substantially the same; and discounted cash flow analysis and pricing models.
Derecognition of financial instruments
A financial asset or liability is derecognised when the contract that gives rise to it is settled, sold, cancelled or
expires.
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Cash and cash equivalents
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Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits (cash
equivalents) with an original maturity date of three months or less.
Auditor’s remuneration
The remuneration paid to auditors is disclosed in the Group financial statements (note 3).
Director’s emoluments
The emoluments paid to Directors are disclosed in the Group financial statements (note 5).
2. Intangible assets
2017 2016
Cost £m —m
At 27 March 2016, 30 March 2015 387 297
Reclassifications (53) -
Additions 71 91
Disposals (91) (1)
At 26 March 2017, 27 March 2016 ma 387
Impairment
At 27 March 2016, 30 March 2015 387 297
Reclassifications (53) 3
Impairment 71 91
Impairment reversal in the year (128) »
Disposals (91) (1)
At 26 March 2017, 27 March 2016 ise 387
Net book value
128 =
At 26 March 2017, 27 March 2016
The above intangible assets relate to software.
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3. Property, plant and equipment
Land and Buildings
Plant Fixtures
Long Short Motor and and
Freehold leasehold leasehold Vehicles machinery equipment Total
£m £m £m £m ém £m £m
Cost
At 29 March 2015 83 55 115 40 1 783 1,077
Reclassification* (6) 3 (22) - - 25 -
Additions 1 > 4 - 38 43
Disposals () : (3) (1) = (3) (8)
At 27 March 2016 77 58 90 43 1 843 1,112
Reclassification* (12) 8 - - “ 57 53
Additions 1 5 . 3 = 25 26
Disposals (21) (25) (67) (17) = (130) (260)
At_26 March 2017 45 41 23 26 1 795 931
Depreciation and
impairment
At 29 March 2015 74 54 115 40 1 783 1,067
Reclassification* (6) 3 (22) - - 25 -
Depreciation and
impairment 2 7 - 4 - 38 44
Disposals (1) - (3) (1) * (3) (8)
At 27 March 2016 69 57 90 43 1 843 1,103
Reclassification (12) 8 - - - 57 S53
Depreciation and
impairment
(notes 3 and 4) 1 - - - - 25 26
Impairment reversal
(note 4) (5) (26) - - - (104) (135)
Disposals (21) (25) (67) (17) = (130) (260)
At 26 March 2017 32 14 23 26 1 691 787
Net book value
At 26 March 2017 13 27 = cad 7 104 144
At 27 March 2016 8 1 e E = = Ee]
Depreciation rates are disclosed within accounting policies (note 1). No depreciation is provided on freehold land,
which represents £3 million (2016: £3 million) of the total cost of properties.
In previous years, due to ongoing operational losses (excluding the Network Subsidy Payment), impairment
losses have been recognised and the carrying value of some assets have been impaired to zero on acquisition.
In the current year the Group has made a profit from continuing operations and this is expected to be
sustainable. In addition, the Group has secured Network Subsidy Payments to March 2021, and continued
investment funding over that period from Government of up to £210 million. In these circumstances the Group
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no longer considers there to be indicators of impairment, and there has been a change in accounting estimate to
reflect this. The change in accounting estimate has been made as at the year end date as this is the point at
which there was sufficient evidence of a value in use.
An impairment test was performed at the year end to support this. Software and property, motor vehicles and
fixtures and equipment were tested for impairment at the year end by comparing the carrying amount with the
recoverable amount determined from value in use calculations.
The discounted net cash flows from the value in use calculations were used to determine the recoverable amount
of Post Office Limited as a CGU. Value in use is determined using the Company’s net cash inflows from the
continued use of the assets over a four year period, with no nominal growth rate assumed outside of this period.
A pre-tax discount rate of 9% has been used to discount the forecasted cash flows for Post Office Limited.
A sensitivity analysis has been performed in assessing the value in use of software and property, motor vehicles
and fixtures and equipment. This has been based on changes in key assumptions considered to be possible by
management. This included an increase in the discount rate of up to two per cent and a decrease in the growth
rate by up to two per cent. The sensitivity analysis showed that no impairment would arise under each scenario.
Management therefore believes that any reasonably possible change in the key assumptions would not cause the
carrying amount to exceed its carrying value.
As a result of the conclusions made, there has been a reversal of impairment losses in the current year, and the
carrying value of assets has been increased. The reversal is no more than the depreciated historical cost if the
impairment had not been recognised. The reversal of the impairment loss has been recognised in the income
statement for the current year and the change will be applied in future years subject to a continuous review of
trading and funding.
4. Investment in subsidiaries
The carrying value of £50,000,100 relates solely to the Company’s investment in Post Office Management
Services Limited, a 100% subsidiary of the Company. It relates to 50,000,000 shares with a nominal value of £1
and 1 share with a nominal value of £100. The registered address of Post Office Management Services Limited is
Finsbury Dials, 20 Finsbury Street, EC2Y 9AQ.
5. Investments in joint ventures
2016
2017 (restated)
£m ém
Investment in joint ventures 66 67
During 2016-17 and 2015-16, the Company’s only joint venture investment was a 50% interest (1,000 £1 ordinary
A shares) in First Rate Exchange Services Holdings Limited with a carrying value of £66 million (2016 restated:
£67 million), whose principal activity is the provision of Bureau de Change. First Rate Exchange Services Holdings
Limited is a company registered in the United Kingdom. The registered address of First Rate Exchange Services
Holdings Limited is Great West House, Great West Road, Brentford, Middlesex, TW8 9DF.
The comparative figures for the years ended 27 March 2016 and 29 March 2015 have been restated for a
change in the accounting policy with respect to the investment in joint venture. The restatement is in the Parent
Company Financial Statements only. The change in accounting policy is described in more detail in the
accounting policies.
The restatement affects the Investments in joint venture shown on the Company balance sheet. The investment
value has been increased by £66m as at 27 March 2016, which reflects the Company’s share of the joint venture
in line with the equity accounting method which is also adopted by the Group.
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6. Trade and other receivables
2017 2016
£m £m
Current:
Trade receivables 69 95
Amounts owed by group undertakings 4 6
Prepayments and accrued income 93 68
Client receivables 144 229
Other receivables 17 15
Total 327 413
Non-current:
Prepayments and accrued income 13 12
7. Cash and cash equivalents
2017 2016
£m £m
Cash in the Post Office Limited Network 666 653
Short-term Bank Deposits 1 45
Total 667 698
8. Trade and other payables
2017 2016
£m £m
Current:
Trade payables 42 51
Accruals 163 159
Deferred income 33 39
Social security 10 8
Client payables 295 375
Capital payables 11 16
Other payables : 2
Total 554 650
Non-current:
Other payables 22 25
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ies - interest bearing loans and borrowings
2017 2016
£m £m
Department for Business, Energy & Industrial
Strategy 561 465
The loan under the facility is short dated on a programme of liquidity management and matures 1 day after the
year end (2016: 1 day). The fair value of borrowings approximate their carrying value due to the short term
maturities of the loan. On maturity it is expected that further loans will be drawn down under this facility, which
expires in 2018. The undrawn committed facility, in respect of which all conditions precedent had been met at the
balance sheet date, is £389 million (2016: £485 million). The average interest rate on the drawn down loans is
1.0% (2016: 1.0%).
The facility is currently restricted to funding the cash and near cash items held within the Post Office Limited
network.
The facility (including drawn down loans) is secured by a floating charge over all assets of Post Office Limited and
a negative pledge over cash and near cash items. The negative pledge is an agreement not to grant security over
the assets or to set up a vehicle that has the same effect. The Network Transformation provision relates to
payments due to postmasters in relation to the major transformation programme, see the accounting policies note
on page [x] for further details of this provision.
10. Provisions
Network Onerous Severance Other Total
Transformation Leases
£m £m ém £m £m
At 27 March 2016 134 19 3 10 166
Charged to capital and investment 10 20 50 3 83
Charged to revenue trading - - 5 5
Charged for discontinued operation - s 3 44 44
Utilisation (68) (7) (43) (39) (157)
Unused amounts in the year - capital and
investment ’ ° (34) (11) (1) (7) (53)
Unused amounts in the year - revenue . . . (1) (1)
trading
At 26 March 2017 42 21 9 15 87
Network Onerous Severance Other Total
Transformation Leases
—m £m —m £m £m
Disclosed as:
At 26 March 2017
Current 28 7 2 13 57
Non - current 14 aa . 2 30
42 21 9 15 87
At 27 March 2016
Current 132 6 3 9 150
Non-current 2 a : 1 16
134 13 2 10 166
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The Network Transformation provision relates to payments due to postmasters in relation to the major
transformation programme, see the accounting policies note on page [x] for further details of this provision. The
reduction in the provision from prior year reflects a change in the accounting estimate as the programme nears
completion and the expected number of branches to convert decreases.
Other provisions of £45 million (2016: £32 million) include £37 million for continuing operations, this includes £21
million onerous lease obligations, £9 million severance and £7 million of smaller provisions including £1 million for
personal injury claims. It also includes £8 million in relation to the discontinued operation as disclosed in note 20
to the Group financial statements.
11. Pensions
The disclosures in this note reflect the two defined benefit schemes: the Post Office section of the Royal Mail
Pension Plan (RMPP) which is independent from the Royal Mail section of the RMPP, and a 7% share of the Royal
Mail Senior Executive Pension Plan (RMSEPP). Royal Mail Group Ltd is the principle employer of RMSEPP and
Post Office Ltd became a participating employer with effect from 1 April 2012. This disclosure also includes the
Post Office Pension Plan (POPP), which is a defined contribution scheme.
The disclosures in this note show the value of the assets and liabilities that have been calculated at the balance
sheet date.
Post Office participates in pension schemes as detailed below.
Name Eligibility Type
Royal Mail Pension Plan (RMPP)* UK employees Defined benefit
Royal Mail Senior Executive Pension Plan (RMSEPP) UK senior executives Defined benefit
Post Office Pension Plan UK employees Defined contribution
*The RMPP closed to future accrual on 31 March 2017.
Defined Contribution
The charge in the income statement for the defined contribution scheme and the Company contributions to this
scheme were £3 million (2016: £3 million) during the year. New employees joining the Company are able to
pay contributions to POPP after they have worked for the Company for a year.
Under the Pensions Act 2008, from 1 May 2017 the Company will auto-enrol all eligible employees into POPP
regardless of their length of service.
Defined Benefit
Both RMPP and RMSEPP are funded by the payment of contributions to separate Trust administered funds. It
should be noted that the assumptions used for these pension disclosures are not the same as the assumptions
used for funding the plans. The latest full actuarial funding valuation of the RMPP was carried out as of 31
March 2015 using the projected unit method. For RMPP, this valuation was concluded at £62.7 million surplus
(2012: £135 million surplus) on a Technical Provisions basis. Valuations are carried out triennially and the next
one for the RMPP is due to be carried out as at 31 March 2018. RMPP includes sections A, B and C each with
different terms and conditions:
« Section A is for members (or beneficiaries of members) who joined before 1 December 1971;
« Section B is for members (or beneficiaries of members) who joined after 1 December 1971 and
before 1 April 1987 or to Section A members who chose to receive Section B benefits;
« Section C is for members (or beneficiaries of members) who joined after 1 April 1987 and before
1 April 2008.
The latest full actuarial funding valuation for RMSEPP was carried out as at 31 March 2015 using the projected
unit method. For 100% of RMSEPP, the valuation concluded at £17 million surplus on a Technical Provisions
basis. The next full valuation for RMSEPP is expected to be carried out as at 31 March 2018.
A series of changes to RMPP and RMSEPP have taken effect since 1 April 2008.
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The changes encompassed are:
« The Plans closed to new members from 31 March 2008;
« All pensions and benefits earned before 1 April 2008 retained a link to final pensionable salary,
benefits accrued from 1 April 2008 were earned on a “career average pensionable salary” basis;
* RMPP employees can continue to take their pension on reaching age 60 but the normal retirement
age increased to age 65 for benefits earned from 1 April 2010;
« From 1 April 2010 it was possible to draw pension earned before the change to normal retirement
age at age 55 (subject to an actuarial reduction in the pension benefit), and continue working
while still contributing to the RMPP until the maximum level of benefits was reached;
« RMSEPP was closed to future accrual on 31 December 2012;
« Inrelation to RMPP only, from 1 April 2014 pensionable salary was amended to the amount in
force as at 31 March 2014, increasing each 1 April thereafter in line with RPI (up to 5% each
year), with allowance for certain promotional increases; and
« The Post Office section of the RMPP closed to future accrual on 31 March 2017 and so no further
defined benefits accrue in respect of Post Office employment after that date; however for as long
as a member remains in employment with the Company or has not taken pension, pre-1 April
2012 pension benefits are linked to pensionable salary and post-31 March 2012 benefits receive
in-deferment increases (linked to CPI).
Payment to the RMPP of £14 million (2016: £17 million) was made by the Company during the year in respect
of regular future service contributions. The regular future service contributions for RMPP expressed as a
percentage of pensionable pay, has remained at 17.1% (2016: 17.1%) effective from April 2010. Following
formal consultation with employees in 2016, the Trustee agreed to Post Office’s request for the closure of the
Post Office section of the RMPP to future accrual. Closure to future accrual means that no contributions in
respect of normal service accrual will be made after 31 March 2017. However it is expected that there will be
redundancy payments to be made to the RMPP during 2017/18.
Even though RMSEPP had a funding surplus on a Technical Provisions basis at 31 March 2015, under the
Schedule of Contributions agreed for the 2015 valuation, payments of £11 million per annum will be made.
Post Office’s share of these payments will be 7% which is £1m per annum. A payment of £1 million was made
by the Company during the year. The payments will continue to the later of 30 September 2018 and the date
the 31 March 2018 valuation is completed.
A current liability of £1 million (2016: Enil) has been recognised for payments to the RMPP and RMSEPP
schemes relating to redundancy. During the year payments of £3 million (2016: £3 million) relating to
redundancy were made.
The weighted average duration of the Post Office section of the RMPP is around 26 years, and for RMSEPP is
around 20 years.
On 21 March 2017 Post Office executed a Memorandum of Understanding with the Trustee of the RMPP. This
clarified the Trustee’s powers to distribute surplus without Post Office’s agreement and Post Office has concluded
that as a result of the Memorandum of Understanding, Post Office no longer has an unconditional right to refund
from the Plan. In light of this, in accordance with IFRIC 14 the RMPP pension surplus was derecognised as at 26
March 2017, and the resulting loss has been recognised in Other Comprehensive Income.
The following disclosures relate to the gains/losses and surplus/deficit in respect of Post Office’s obligations to
RMPP and RMSEPP:
a) Major long-term assumptions
The size of the defined benefit obligation shown in the accounts is materially sensitive to the assumptions adopted.
Small changes in these assumptions could have a significant impact on this value. The overall income statement
charge and past service adjustment in the income statement are also sensitive to the assumptions adopted.
The major long-term assumptions in relation to both RMPP and RMSEPP were:
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At 26 March 2017 At 27 March 2016
% pa % pa
Increases to benefits that retain a link to pensionable pay 3.4 2.8
Rate of pension increases - RMPP sections A/B as 1.8
Rate of pension increases - RMPP section C 3.4 2.8
Rate of pensions increases - RMSEPP members transferred
from Section A or B of RMPP 2.3 1.8
Rate of pension increases - RMSEPP all other members 3.4 2.8
Rate of increase for deferred pensions 2.3 1.8
Discount rate 2.3 3.5
Inflation assumption (RPI) - RMPP & RMSEPP 3.4 29
Inflation assumption (CPI) - RMPP & RMSEPP. 2.3 1.8
The ultimate cost of the RMPP plan to the Company will depend upon future events rather than the assumptions
made. The assumptions made may not be borne out in practice and as such the cost of the plan may be higher
(or lower) than disclosed.
In common with other defined benefit schemes, the main risk in relation to the arrangements is the value of the
assets does not keep pace with the increase in the value of the liabilities. This can arise for many reasons, but
the most significant risks are as follows:
Investment risk: If the assets of the arrangements fall short of expectations, this will lead to a decrease in the
funded status.
Asset volatility: The arrangements hold return seeking assets (including equities and property) which are
expected to outperform corporate bonds in the long term but give exposure to volatility and risk in the short
term. RMPP does, however, invest in liability driven investment (LDI) assets, for example bonds and swaps, which
mitigate the impact of interest rate and inflation volatility on the funded status.
Inflation risk: Higher inflation rates than expected will act to increase the plan liabilities as benefits will increase
to a higher level than assumed. The arrangements have a maximum pension increase (generally 5% per annum)
written into the rules which limits the increase for many benefits, so limiting the impact of high inflation. This
includes benefits retaining a link to pensionable pay in RMPP. In addition, the arrangement holds assets that
increase in value as price inflation expectations rise, so mitigating the impact of rising inflation
expectations. These assets include LDI assets in respect of RMPP.
Changes in bond yields: A decrease in corporate bond yields will increase the plan liabilities, although this can
be expected to be partially offset by an increase in the value of any corporate bond holdings and, potentially, the
LDI assets.
Pensioner longevity: If members live longer than expected, the liabilities would be greater than currently
anticipated because pensions would be paid for over a longer time than assumed.
Liabilities accrued in the Royal Mail Pension Plan to 31 March 2012 were largely transferred to the Royal Mail
Statutory Pension Scheme. These liabilities are substantially no longer an obligation of the Company and
consequently the transfer resulted in a significant removal of pension risk from the Company.
The following table shows the potential impact on the value of Post Office’s defined benefit obligation in respect of
RMPP and RMSEPP of changes in key assumptions:
2017 2016
é£m ém
Changes in RPI and CPI inflation of +0.1% pa (9) (5)
Changes in discount rate of +0.1% pa 9 5
Changes in real salary growth of +0.1% pa 5 (2)
Changes in CPI assumptions of +0.1% pa (4) (1)
An additional 1 year life expectancy (10) (6)
The sensitivity analysis has been prepared using projected benefit cashflows as at the latest full actuarial valuation
of the plan. The same method was applied as at the previous reporting date. The accuracy of this method is limited
by the extent to which the profiles of the plan cashflows have changed since those valuations although any change
is not expected to be material in the context of the above sensitivity analysis.
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The mortality assumptions used to calculate the value of Post Office’s defined benefit obligation in
respect of RMPP and RMSEPP are based on the latest self-administered pension scheme (SAPS “S2” series)
mortality tables as shown in the following table:
Base mortality tables 2017
2016
Males
Female members
Female dependants
100% x S2PMA
100% x S2PFA
100% x S2DFA
CMI 2015 Core Projections
Future improvements with a 1.5% pa long-term trend
106% x S1PMA
101% x S1DFA
101% x S1DFA
Medium Cohort Projections
with a 1.25% pa floor
Average expected life expectancy from age 60: 2017 2016
For a current 60 year old male RMPP member 28 years 27 years
For a current 60 year old female RMPP member 30 years 30 years
For a current 40 year old male RMPP member 30 years 29 years
For a current 40 year old female RMPP member 32 years 32 years
b) Plans’ assets
The assets in the plans for the Company were:
Market value 2017
Market value 2016
Sectionalised RMPP. &m ém
Corporate bonds* 394 233
Property 13 11
Private Equity 7 10
Cash and cash equivalents 68 41
Bond/fixed interest funds 25 41
Other loan/debt funds 17 28
Alternative asset funds 8 43
Fair value of RMPP assets 532 407
Present value of RMPP liabilities (322) (184)
Surplus in plan before asset ceiling adjustment 210 223
Less effect of asset ceiling (210) (29)
Surplus in plan after asset ceiling adjustment - 194
*£4 million relates to UK Government Bonds, £365 million to an LDI investment containing UK
Government Bonds (a liability driven investment) and £25 million relates to infrastructure debt holdings
and collateralised liability obligations holding which are a combination of GBP, AUD, EUR and USD
denominated and are fixed interest.
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Market value 2017 Market value 2016
Share of RMSEPP =m £m
UK equities 1 1
Overseas equities 12 10
Government bonds 2 15
Alternative asset funds 2 2
Property 2 2
Bulk annuity policy* 13
Fair value of share in plan assets for RMSEPP 32 30
Present value of share in plan liabilities for RMSEPP (31) (27)
Surplus in plan for the share of RMSEPP before asset ceiling 1 3
adjustment
Less effect of asset ceiling : (1)
Surplus in plan for share of RMSEPP after asset cei
adjustment
*RMSEPP holds a bulk annuity policy with Scottish Widows. The value ascribed to this policy has been calculated
using the same assumptions as used to calculate the present value of the defined benefit obligation.
A retirement benefit surplus of £1 million is disclosed on the balance sheet, representing the surplus in the
RMSEPP Plan only. As described above, no surplus is recognised for RMPP because the Company has concluded
that as a result of the Memorandum of Understanding signed on 21 March 2017, the Company no longer has an
unconditional right to refund from the Plan.
There is no element of the above present value of liabilities that arises from plans that are wholly unfunded. With
the exception of the bulk annuity policy described above, all RMPP and RMSEPP assets are securities with a quoted
price in an active market.
c) Movement in plans’ assets and liabilities
Changes in the fair value of the plans’ assets are analysed as follows:
Assets Sectionalised Sectionalised
RMPP 2017 £m__RMPP 2016 £m
Assets in sectionalised RMPP at beginning of period 407 379
Contributions paid 17 19
Employee contributions paid 5 6
Finance income 15 14
Actuarial gains/(losses) 92 (8)
Benefits paid to members (4) (3)
Assets in sectionalised RMPP at end of period 532 407
Share of Share of
Assets RMSEPP 2017 RMSEPP 2016
=m £m
Share of assets in RMSEPP at beginning of period 30 31
Contributions paid 1 1
Finance income 1 1
Actuarial gains/(losses) 1 (2)
Benefits paid to members (1) (1)
Share of assets in RMSEPP at end of period 32 30
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Changes in the present value of the defined benefit pension obligations are analysed as follows:
Sectionalised Sectionalised
RMPP 2017 RMPP 2016
£m —m
Liabilities in sectionalised RMPP at beginning of period (184) (150)
Current service cost (23) (27)
Curtailment costs* 2 (1)
Finance cost (7) (6)
Employee contributions (5) (6)
Experience adjustments on liabilities 6 3
Financial assumption changes (129) .
Demographic assumption changes (5) -
Benefits paid 4 3
Effect of closure of RMPP* 19 a
‘ies in sectionalised RMPP at end of period (322) (184)
Liabilities Share of Share of
RMSEPP 2017 RMSEPP 2016
£m £m
Share of liabilities in RMSEPP plans at beginning of period (27) (26)
Finance cost (1) (1)
Experience adjustments on liabilities 7 (1)
Financial assumption changes (11) -
Benefits paid 4. 1
Share of liabilities in RMSEPP at end of period (31) (27)
*The gain on curtailment of £2 million is due to redundancies in the year. It is equal to a cost of £3 million in
respect of enhanced retirement benefits granted to certain members, offset by a saving of £5 million due to RPI-
linked in-service revaluation being replaced by CPI-linked deferred pension revaluation. The effect of the closure
of RMPP of £19 million is a past service adjustment as a result of the closure of the Plan and is a one-off adjustment.
Both of these adjustments have been allocated between revenue trading (net credit of £2 million relating to
adjustments linked to current year service) and closure of activities (net credit of £19 million relating to
adjustments linked to prior years’ service).
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d) Recognised charges
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An analysis of the separate components of the amounts recognised in the performance statements of the Company
is as follows:
Sectionalised
Sectionalised
RMPP 2017 RMPP 2016 £m
£m
Analysis of amounts recognised in the income statement
Analysis of amounts charged to operating profit from
revenue trading:
Current service cost 23 27
Loss due to curtailments 2 .
Effect of the closure of the RMPP. (4) :
Total charge to revenue trading 21 27
Analysis of amounts charged to closure of activities:
(Gain) / loss due to curtailments. (4) 1
Effect of the closure of the RMPP (15) :
Total charge to operating profit 2 28
Analysis of amounts charged/(credited) to net pensions interest:
Interest on plan liabilities 7 6
Interest income on plan assets. (15) (14)
Net pensions credit to financing (8) (8)
Net (credit) / charge to the income statement before deduction (6) 20
for tax
Analysis of amounts recognised in the statement of comprehensi
income
Actual return on plan assets 107 6
Less: expected interest income on plan assets (15) (14)
Less: taxation on surplus recoverable through plan refunds - (2)
Actuarial gains/(losses) on assets (all experience adjustments) 92 (10)
Actuarial gains arising from changes in demographic assumptions 6 3
Actuarial losses arising from changes in financial assumptions (129) -
Actuarial losses arising from experience adjustment (5) :
Actuarial (losses)/gains on liabilities (128) 3
Effect of the asset ceiling (210) -
Total actuarial losses recognised in the statement of
comprehensive income (246) (7)
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Share of Share of
RMSEPP 2017 RMSEPP 2016
ém £m
Analysis of amounts recognised in the income statement
Analysis of amounts charged to net pensions interest:
Interest on plan liabilities 1 1
Interest income on plan assets. (1) (1)
Net pensions credit to financing = a
Net charge to the income statement before deduction for tax = =
Analysis of amounts recognised in the statement of
comprehensive income
Actual return on plan assets 2 (1)
Less: expected interest income on plan assets (1) (1)
Less: taxation on surplus recoverable through plan refunds - 1
Actuarial gains/(losses) on assets (all experience adjustments) 1 (1)
Actuarial gains arising from changes in demographic assumptions 7 *
Actuarial losses arising from changes in financial assumptions (11) (1)
Actuarial losses on liabilities (4) (4)
Total actuarial losses recognised in the statement of
comprehensive income (3) (2)
12. Equity
Called up share capital:
2017 2016
£ £
Authorised
Ordinary shares of £1 each 51,000 $1,000
Total 51,000 51,000
Allotted and issued
Ordinary shares of £1 each 50,003 50,003
Total 50,003 50,003
Share premium:
On 7 August 2007 1,000 ordinary shares of £1 each were issued in return for £313 million cash paid by the
Secretary of State for Business, Energy and Industrial Strategy. A share premium of £312,999,999 resulted from
this subscription. In April 2008 two ordinary £1 shares were issued in return for £152 million cash paid by the
Secretary of State for Business, Energy and Industrial Strategy. A share premium of £151,999,998 resulted from
this subscription.
13. Commitments
Capital commitments contracted for but not provided in the financial statements amount to £64 million (2016:
£51 million).
Details of the Company commitments under non-cancellable operating leases are disclosed in the Group financial
statements (note 19).
14. Related party disclosures
Details of transactions with related parties are disclosed in the Group financial statements (note 21).
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15. Capital and investment expenditure
Details of operating capital and investment expenditure is disclosed in the Group financial statements (note 4).
16. Taxation
Details of the taxation gains recognised in the year are disclosed in the Group financial statements (note 7a).
17. Discontinued operations
Details of the discontinued operation are included in note 20 in the Group financial statements.
18. Post balance sheet events
On 20 July 2017, Post Office Limited and Trustees of the Royal Mail Pension Plan (POL fund) (“Trustees”)
entered into an agreement with Rothesay Life PLC in which a pension buy-in was effected for the Royal Mail
Pension Plan defined benefit pension scheme.
Under the bulk annuity purchase agreement, the Trustees of the pension plan have effectively bought an asset
that provides income which matches closely the benefit payments from the pension plan. It achieves a material
risk reduction as changes in income mirror changes in benefits due to, for example, inflation.
The accounting surplus will reduce by the difference between the insurance premium and the value of the
insured liabilities. This loss will be recognised in Other Comprehensive Income in 2017-18. As described in note
17, Post Office no longer has an unconditional right to refund from the Plan and, in accordance with IFRIC 14,
the RMPP pension surplus is no longer recognised on the balance sheet, with an asset ceiling applied which
reduces the balance to nil. As a result of the reduction of the surplus through the pension buy-in, there will an
equal and opposite adjustment to the asset ceiling also through Other Comprehensive Income. As a result, there
is no effect on Other Comprehensive Income or the net assets position of the Company.
In addition, a data risk premium of £2.1 million has been paid by the Trustees in relation to the buy-in. As these
premiums are not directly attributable to insuring the pension liability, these amounts will be taken to profit and
loss under Capital and Investment in 2017-18. The corresponding entry is through Other Comprehensive Income
and, as a result, there is no effect on the net assets position of the Company.
On 12 June 2017, Post Office’s parent company, Postal Services Holding Company Limited, was placed into
liquidation. It is expected that the process will be complete and the company will be dissolved by the end of
March 2018. On 12 June 2017, all of the ordinary shares that Postal Services Holding Company Limited held in
Post Office were transferred to direct ownership of the Secretary of State for Business, Energy and Industrial
Strategy.
On 30 March 2017 the Company acquired the residential broadband and home phone customer base, along with
certain other assets, of New Call Telecom Limited, for cash consideration of £2 million. Further consideration
estimated to be £6 million is contingent on the number of New Call customers that successfully migrate to the
Company’s systems by a particular date. The acquisition will be accounted for under IFRS 3 Business
Combinations.
The provisional fair value of the net assets acquired is £6 million. The only major class of assets acquired are the
intangible assets associated with residential and home phone customer base acquired from New Call Telecom
Limited. Fair values are described as provisional due to the proximity of the acquisition to the 2016-17 year end.
The goodwill arising from the acquisition, provisionally valued at £2 million, represents the opportunity to grow
the New Call customer base by exploiting the Post Office branch network. The goodwill arising on acquisition is
not deductible for income tax purposes. Associated acquisition expenses have been charged to the income
statement in FY2017-18.
In accordance with the funding agreement with Government announced on 27 November 2013, for which State
Aid approval was received on 19 March 2015, Post Office Limited received £140 million of funding on 3 April
2017.
19. Immediate and ultimate parent company
At 26 March 2017, the Directors regarded Postal Services Holding Company Limited as the immediate and ultimate
parent company. The largest group to consolidate the results of the Company is Postal Services Holding Company
Limited, a company registered in the United Kingdom. Postal Services Holding Company Limited financial
statements can be obtained from Finsbury Dials, 20 Finsbury Street, EC2Y 9AQ.
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Corporate information
Registered Office
Post Office Limited
Finsbury Dials
20 Finsbury Street
London
EC2Y 9AQ
Auditor
Ernst & Young LLP
1 More London Place
LONDON
SE1 2AF
Solicitor
Linklaters LLP
One Silk Street
LONDON
EC2Y 8HQ
Post Office Limited
Actuary
Towers Watson Limited
Watson House
London Road
REIGATE
Surrey
RH2 9PQ
Consumer Body
Consumer Focus
4th Floor
Artillery House
Artillery Row
London
SW1P 1RT
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POST OFFICE BOARD PAGE 1 OF 6
PERFORMANCE UPDATE
CE’s Retail Report - September 2017
Author: Cathy Mayor Sponsor: Kevin Gilliland Meeting date: 26 September 2017
Executive Summary
Context
The Period 5 YTD Retail Commercial Performance Report for the Board.
Questions this paper addresses
1. I How are our sales and revenues performing against our targets and prior year?
2. What are the implications for our outlook and plans?
3. Competitor Information
Conclusion
1. Retail trading continues to perform ahead of budget with footfall remaining
consistently 16.7m +/- 0.1m for the last 12 months.
2. The decline in mail volumes has slowed over the last quarter. Variable income
continues stronger than expected from price effects (RPI and barcoding).
3. Competition continues to evolve in the mails and parcel market. Royal Mail reported
weak business confidence behind increased decline in letter volumes, while parcel
growth continues. Major operators, including Amazon and eBay, continue to evolve
their offerings with the need to differentiate in a crowded market.
4. As previously reported, delays to conversions in the DMB programme has caused a
£1.5m in year shortfall. We have advertised 46 more opportunities to strengthen the
pipeline to commence delivery of the targeted £17m recurring benefits as part of the
DMB Strategy.
5. There is a £4.0m in year shortfall against targeted savings of £6.3m arising from the
simplification programme.
6. Stronger income trends than budgeted offset the programme downsides so Retail is
confident it will meet or exceed budget.
Input Sought
For the Board review and note.
Strictly Confidential Kevin Gilliland, 5 September 2017
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The report
Overview of Financial performance
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Gross Income (
27
Period 5YTD Full Year
Actual......Budaat. Var PY YoY Budget PY YoY%
Mails Fixed or——————" (8.5)%
Mails Variable i i 39 I 1 (2.3)%
Government Services i IRRELEVANT I 58 I I (23.1)%
Part Se I o2 IRRELEVANT ¢:.:;.
Retail & Lottery
Retail Total
12.4
1 (11.6)%
i L_(9.1)%I
Retail Profit (£m)
___Actual Var PY YoY Budget FY YoY%
Mails I 1) of — commen 1 (3.3)%
Government Services i i 39 I I (41.29%
Payment Services HIRRELEVANT: 33 I IRRE LEVANT I (62.9)%
Retail & Lottery i i 09 I 1 6.2%
Retail Total DPC [ (14.6)%)
Fixed Agents Pay I 12.0%
Sales and Trade Marketing I 16.5%
Retail Programme Costs I (69.3)%
Retail Central Costs 163.6)%
Retail Profit '(23.0)%
1. Whilst all areas are in volume decline, Retail continues to perform well versus budget.
Mails income is benefiting from price effects; in particular higher levels of barcoding
items than expected and the failure of delivery confirmation to reduce Signed For
volumes. All key Home Office services continue to perform ahead of budget. Most
notably, digital take-up on passports has been far lower than predicted by HMPO and
we have maintained 41% market share (43% in July 2016).
2. The income trends are projected to continue for the remainder of the year (subject to
strike risk at Royal Mail) and fully mitigate the £5.5m programme benefit in year
delivery gaps and other downsides, with Retail currently forecasting +£1m net R&O
upside.
Market Update
3. The convenience market in which most of our agents compete has seen recent trends
continue this quarter: growth; cost pressures and big plays in the market which tend
towards consolidation. IGD’s recent upgrade of their growth forecast for the UK food
and grocery market to 2021 from 9.9% to 18% is driven by the convenience, on-line
and discount sectors. The continued strength of convenience (c50,000 convenience
stores in the UK) is good news given our dependency on this market.
Strictly Confidential Kevin Gilliland, 5 September 2017
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4. Set against continued growth is an ever greater focus on costs. The CEO’s of McColl
and OneStop both cited national living wage, rates and inflation as major concerns
when we met recently and want to work with us to improve profitability. Simplification
and automation will help here but this is also a clear indication that we should avoid
any further remuneration reductions that would make Post Office less profitable than
rival categories for space in stores such as Subway (which is now the UK’s largest
fast-food chain and intends to open a further 500 stores by 2020, all of which would
likely be in retailers suitable for Post Offices).
5. Fierce competition in the food and convenience market continues. Amazon acquired
Whole Foods in June for £10.7bn and Co-op have recently announced their intention
to bid for Nisa, a symbol group which operates 2,500 convenience stores and has
recently lost its wholesale contract for McColls stores to Morrisons. Tesco’s £3.7bn
takeover of Booker is still progressing, itself following Booker’s purchase of Musgrave’s
GB business (c2,000 Budgens and Londis stores) in 2016.
6. Royal Mail’s share price has been under sustained pressure since May reflecting
stronger than expected decline in letters (-9%), continued competitive pressure in
parcels and the risk of industrial action over pensions. This resulted in RM moving out
of the FTSE 100 on 30th August.
7. Ofcom's latest market report revealed that although 88% of people value the option
to use the post and the majority (64%) consider stamps as good value for money, the
use of mail continues to decline notably in younger demographics, presenting a long
term challenge to POL.
8. eBay’s shipping platform is beginning to progress with signs of a likely launch before
Christmas 2017. Hermes have launched a £2 small parcel promotion on eBay and RM
are expected to launch their new retail Tracked product in mid-October in response.
This presents a potential risk to Post Office from income loss to competition or dilution
from sale to accept rates.
9. RM are undertaking a 3 month price promotion of medium parcels bought online (not
via POL). This is aimed at testing their ability to win back volume from competitors
who dominate the >2kg parcel market. myHermes responded with a similar summer
promotion. To date there has been no evidence of loss of POL volumes, reinforcing
the view this is impacting existing online customers.
Mails performance
10. Negotiations with Royal Mail have concluded with a
11. The realisation of industrial action by the CWU may challenge mails performance over
peak subject to the type and timing of action taken. CWU will ballot on 6 Sept, RM
have started their contingency planning and we are engaged with them on the
minimising the impact on the network.
12. The long standing Drop and Go settle to cash (STC) issue has been successfully
resolved with instances of locked customer accounts reduced by >90%. This
facilitates the immediate increasing of the number of branches offering the service.
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Governments Services performance
13. Further to the discussion at July’s Board meeting, we have entered into detailed legal
and contractual discussions with DXC and JP Morgan in order to complete the ongoing
POca procurement. We aim to reach a conclusion on the new contract during
September 2017 although there is a risk of slippage to October given the need to take
account of forthcoming regulatory changes and their associated complexity.
Payment Services performance
14. We have processed 24.5m transactions to date, +1% ahead of budget.
15.
IRRELEVANT
IRRELEVANT
. This will enable us to deliver the deployment “Of
i SSE in September and target new “challenger”
energy companies eg, Co-op Energy, Ovo Energy. We have detailed business planning
workshops during September and October with Capita and Santander, our two other
reseller partners.
17. Further to the discussion at the Board strategy sessions, we have commenced formal
due diligence of the Payzone business and a dedicated project team are working
through an assessment of their financial health, convenience network (14k locations),
IT infrastructure, bill payment content and capability, brand, organisation
competencies, alongside determining the optimum corporate structure. We will keep
the Board updated of progress.
Network Transformation Programme
18. The programme remains green and ahead of target with 7,382 branches transformed
to date. We have already over-delivered our contracts target for the year (106 against
a target of 93) and so far have delivered 212 NT branches, leaving 138 branches to
open to deliver this year’s target. The programme decommissioning remains on track
with three tranches of staff redundancies planned for September, December and
March 18. Employees will be redeployed to Network Development or elsewhere if
possible however the majority will take voluntary redundancy.
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Directly Managed Branches (DMB) Programme
19. We are on track to fully deliver the 17/18 in year benefits of £2.2m (£4m EBITDAS),
in line with the GE deep dive review and subsequent refreshed business case. The
programme needs to deliver a minimum of 27 activities in 2017/18 and 26 contracts
are now signed with a further 6 agreed subject to contract. The pipeline for 2018/19
(the final year for Network Shape business case) is well underway with 22 branches
in advanced planning to replace the DMB with 1 or more Main and Local and 8 branches
already in recruitment. This activity, along with 5 x 1:1 franchises to be carried forward
from 2017/18 activity put the programme in a good place to deliver next year’s 25
DMB closure target.
20. Activity has commenced for the new DMB Strategy with 46 adverts placed at the end
of July for Local or Main operators close to 46 DMB branches. Opening new branches
in the next year will facilitate the final closure of the 46 DMB over the next 2-3
years giving a £5.6m EBIT value. We have received 80 registrations of interest across
37 Post Districts. A Trade Marketing communications plan is in development to further
boost interest across the DMB estate in addition to the POL website advert.
Network Development Programme
21. To date we have identified 926 new locations without Post Offices and our field teams
are using our new pitch pack to engage with potential new operators. Of these, 668
have been contacted and made a decision with 229 progressing, a 34% conversion
rate to date compared to c20% using the old approach. 48 contracts have been signed
against a P5 cumulative target of 91 so we are behind and Amber on contracts signed.
22. The pipeline of potential new Postmasters is positive and we are urgently reviewing
how we can open branches more quickly. Practically this includes trialling replacing
the face-to-face interview process with a telephone interview which should reduce
timescale and improve the applicant journey, and reviewing all financial information
as it comes in rather than waiting until a full business plans is submitted.
23. On openings, we are on track for the year to date target of 20 with 11 scheduled and
9 open.
24. The plan to implement Phase 1 of Simplification (quicker mails transactions and
resulting remuneration reduction) on 31% August was hit by a Fujitsu error which result
in a delay to September and a £400k in-year benefit reduction, increasing the total
gap to £4m.
25. The initial response to simplification is likely to be negative, particularly from Multiples.
We have risk assessed and have a mitigation plan in place. Each Multiple will have
bespoke support with their branches and we have developed a new Retail Value
Proposition, to which Multiples have so far responded well, which demonstrates the
commercial value of Post Office. We are also engaging Multiples in our automation
plans, which will start with machines in selected trial branches before Christmas. Our
aim is to develop a fully automated solution and we will work with postmasters to
develop this.
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Customers
CURRENT naire
URC PERIOD Sean eae Target
(P5) (pa)
Effort (% saying Post Office is
Easy to do business with)
81% 76% 76%
Wait time Acceptability voc 95% 94% +1 93% 93% 95%
26. Network customer sessions continue to be stable at approximately 10.3m per week to
the end of P4. Year on year the decline in session numbers has slowed to about 2%
which continues to reflect the footfall reductions seen in H1 16/17 but also the relative
stability we began to see from July 2016 and since when customer sessions have been
pretty consistent.
27. P5 has seen continued improvements in both the ‘Effort’ and ‘Waiting Times’, hitting
the period target for the latter for the first time this year. Network is now ahead of
the YTD target for Effort but still slightly behind on Waiting Times. The continued
focus on these aspects from the Task Force and ‘Customer Champions have driven
improvements in Effort scores of a further 1% vs P4, with waiting time performance
strong and improving in DMBs at 95% exactly as in Agency, and WHSmith also
improving by 1% to 93%.
28. The absolute wait time trial continues to roll out in 10 branches, with live data now
being collected. Cost indications per branch are expensive (£3-£10k) so we are
exploring a blend of options to include Take a Ticket branches, Voice of the Customer
programme and customer research before substantially extending the size of the trial.
29. The trial of the new role in 10 DMB branches as part of NQAC is underway. We have
had some teething issues which have reduced the number of branches in the trial to
7 but training is complete and marketing materials are in place. We are now increasing
the size of the trial to circa 50 branches so that we will have meaningful data, and we
are aiming to have the first of the increase in place by mid October.
30. The agreed improvements to some of the customer journeys on SSKs, such as
removing the need for host interventions when a customer requires confirmation of
posting, making it clearer how to buy a single stamp, and changes to Horizon are on
track for implementation before Christmas. We have also commissioned the
production of 5 short films for uploading to social media showing customers how to
‘help us to help them’, by, for example, explaining the Dangerous Goods restrictions
so they know what can be sent through the post and what cannot.
31. Following the Grenfell Tower tragedy, where we rapidly provided access to cash and
other government services for affected residents, we met with Central Government
officials and fed back the lessons learned and proposed solutions going forward. The
feedback was positively received and a meeting is scheduled for early September to
plan for any future disaster, and will include DCLG, BEIS, Cabinet Office CitA and POL.
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POST OFFICE BOARD DECISION PAPER
Technology Strategy Update
Author: Rob Houghton Sponsor: Paula Vennells Meeting date: 26 September 2017
Executive Summary
Context
This document is the third in a series of updates to the Technology Strategy (previous
updates were presented in July 16 and January 17). We are now deep into execution
of the strategy with course correction as appropriate. This update is more focussed on
business areas and has greater emphasis on digital transformation.
Questions addressed in this report
What progress are we making in improving our operational risk profile?
What is the progress on our run cost reductions and 5-year plan?
What are our Digital Transformation plans?
Is IT delivering against the intended business outcome?
What is our Operating Model to underpin the delivery of the Technology Strategy?
“bon pr
Conclusion
e We have now moved solidly into execution across all the strategy areas; we
have passed 2,200 counters on branch technology change, strengthened our
security posture and started our Digital Transformation agenda.
e We remain outside risk appetite and will remain so until second half of 2018;
the key activities are the data centre refresh and migration of core legacy
applications (Credence, POLSAP, HRSAP and HNGX).
e Weare progressing supplier negotiations to drive a lower, flexible cost base and
more agile delivery model.
e We have gained further confidence from proving the architecture for Thin Client
which presents a tremendous retail network transformation opportunity.
e Our scale up of digital capability and investigations now presents a business
opportunity to transform the way we work through digital enablement and
proposition development.
e Our executive talent hiring is complete, ATOS discussions are close to
finalisation and plans are in place to strengthen our permanent capability.
Input Sought
The board is asked to support the direction set out in this document and progress will
be reported in six months.
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The Report
Reminder of Key Strategy Messages
1. Since January 17 we have refined the Technology Strategy messages into the
following core objectives which will transform the way that the business operates
internally and externally:
¢ Digital Transformation - deliver excellent digital services and transform
the way Post Office operates from front-end to back-office, in a modern
and efficient way. This requires re-architecting of systems, cultural change,
increasing digital enablement of business processes and driving innovation.
e Protect Service - we will build secure and resilient systems by default,
ensuring that we create protection against service disruption and cyber-
crime through every stage of our Digital Transformation. This requires
delivery of IT infrastructure change programmes, Security Transformation
programmes and improved Environment Monitoring/Management.
e Cost Reduction - we will drive our cost base to a competitive level in
order for the business to reinvest in change. We will do this through
supplier renegotiations, counter rationalisation and service differentiation.
We will continuously rethink the engagement model between Post Office
central and Post Masters to drive a different cost profile.
¢ Deliver with Excellence - our intent is to drive fundamental change to
the delivery model whilst avoiding service disruption. Architecture
changes, operating model shifts and focus on agile delivery are key
enablers.
e The strategy is underpinned by developing and hiring great people
within the right operating model. The key to this is building our own
strong technical capability and helping non-digital specialists to understand
the potential of new or different ways of working.
2. Since January 17 we have moved solidly into execution of the roadmap:
e The senior team recruitment is complete.
e We have delivered technology change to over 2,200 counters with HNGA
and network delivery in full progress and very positive feedback.
e We continue to deliver to move ourselves within risk appetite. Significant
improvements include the migration of Credence into cloud infrastructure
in the next month, stronger control around Disaster Recovery, and the
strengthening of our IT Security Controls, including Security Operations
Centre (SOC) selection.
e Control gaps are now understood and remediation activities underway.
e¢ A“Thin Client” proof of concept was successfully proved in 4 months.
e Security Transformation execution is ongoing with BYOD, stronger
patching regime and establishing the SOC.
e We have established solid negotiation positions with ATOS and Fujitsu.
e We have outlined and made headway on a Digital Transformation agenda.
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e We have initiated re-procurement of our digital hosting environment and
delivery partner.
3. Our profile of spend in current and prior periods is predominantly on operational
risk and cost reduction. 62% of spend is on essential upgrades and separation
activities, with 30% on branch and admin IT enablement only 8% on enabling the
business. Our submission for the government funding shifts the balance of spend
to 55% (£55.4m) enabling the business and remainder on completion of rollout,
pivot to retail transformation through Thin Client deployment and continued
investment on Risk and Resilience activities, Cyber Security and Back Office
transformation.
4. The next 3 years therefore involves “completing the job” and transforming the
architecture and supplier base of the organisation. We increasingly:
e Provide a strong customer facing digital presence (with true agility and
pace of change) either through retail stores or online.
e Radically speed up the velocity of change and market responsiveness.
e Lessen supplier strangleholds on our cost base and strategic intent through
architecture layering.
e Create an appropriate, predictive and responsive operational and security
profile.
5. We have validated the Technology Strategy through a number of low cost,
technical expert engagements on the cost base, operating model, cloud
architecture, network and retail IT strategy; findings are available on request.
Independent assurance is an ongoing feature both at the technical level and
overall strategy.
What progress are we making on our operational risk profile and has our risk
profile shifted?
6. In January 17 we outlined that we remain outside our operational risk appetite.
Since then we have made solid progress on moving towards a better risk profile.
7. Our main operational risks relate to the Fujitsu supported infrastructure:
¢ The hardware frames and network routers on which some of our critical
services exist (POLSAP/ HNGX) are significantly beyond life. Delivering
Back Office Transformation, Data Centre Refresh and Branch Rollout
mitigates this risk.
e At present we have today sufficient spares to recover service in the event
of a failure. However, falling below a minimum criteria or increased risk of
outage will mean we instigate emergency service recovery (re-platform of
POLSAP). We have already instigated emergency measures on the routers
to lower the risk profile.
e« We have a number of systems that haven’t successfully completed disaster
recovery (DR) for a period of time. This includes the complete failure and
failover of the Horizon Data Centre. The test can only be carried out once
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we have moved off the POLSAP and HNGxX platforms as these are
susceptible to failure on power down. This risk will be fully mitigated when
we migrate all the Fujitsu estate to the cloud in 2018/19.
e We have increased the governance around all DR testing across our estate,
implemented a revised DR Framework, and are constructing mitigation
plans for all our critical systems.
8. These factors mean the business is still exposed to the critical risks below. The
potential for these to materialise is high but we remain confident that we can
recover service in a reasonable time (albeit not within the Recovery Time
objectives):
« Complete or partial failure of the branches operating on HNGX devices. As
of today 90% of the network is still on HNGX, but this is declining each
month with HNGA rollout.
e Failure of the Supply Chain and the Cash Management processes operating
on POLSAP.
9. The ongoing delivery of the IT infrastructure programmes are essential mitigating
strategies aimed at moving us within our risk appetite.
10. We have also implemented a more proactive stance around IT Security. The
widely publicised security breaches such as the Wannacry virus (which affected
the NHS in May) have underlined the need for an improved security posture. We
have created an IT Security function, articulated an IT Security roadmap, selected
a Security Operations Centre (SOC) and implemented improved tools (e.g. Digital
Shadows for threat detection, Ironscales for Email Phishing protection, Intune for
BYOD) and governance to ensure our estate is made secure.
11. The aim is to move us to within our risk appetite within the next 10-18 months:
ows zois/is 2019/20
Horizon Data Centre Refresh Project & Pivot to Cloud
'HNGA/HNGT Deployments & Branch Network Migration
POLSAP, MRSAP, Credence, MDM TDC Decommissioned/Migratod
'BYOD, SOC, PCL, Vulnerability Testing
'DR Testing & COBIT'S Frameworks
12. In January 17 we also highlighted that achieving effective IT risk management,
requires the use of well-defined controls and processes. Since then, to help
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manage our key operational risks, we have worked in partnership with KPMG to
implement the COBIT5 Control Framework which defines industry best practice.
13. Out of the 37 COBITS processes within scope, we identified 11 priority processes
that have proved to be effective countermeasures in reducing our exposure to
both internal and external IT operational risks.
What is the progress on our run cost reductions and 5-year plan?
14. Our cost base is targeted to reduce from £105m last year to £71-85m; retail
benchmarking would appear to suggest a target of £40-50m, but as previously
outlined we don’t believe this is achievable because:
e PO provides a combination of specialist retail, financial and government
services which makes it difficult to find an appropriate sector benchmark.
e« We have an extremely high number of users and branches; a lot of retail
businesses we might compare against have low central IT costs and move
costs to every branch operating them as independent P&Ls.
15. Given the benchmark challenge, we will validate our cost base by benchmarking
our unit rates, moving to a variable cost base with our suppliers and introduce a
flexible architecture. All of this is in progress. In addition, we will examine all
business drivers and continuously challenge the cost being driven into IT (e.g. AEI
machines, SSK, product design).
16. The drivers of the IT cost base are:
e Historic high, fixed level contracts with Tier 1 suppliers, based on outdated
operating models.
e Service Levels: price is informed by service levels and these are too
uniform across Post Offices; offering tiered/ reduced/ improved service
levels would reduce/shift costs.
e PO has been designed on dated and expensive “fixed capacity” in the
infrastructure. Moving to “elastic compute” with virtualised network, Thin
Client and cloud based solutions significantly matches cost to usage and
reduces costs.
e The SIAM model has introduced complexity, overhead and cost into every
process.
17. In January our view was based on FY16/17 OPEX figures of £107m. We went on to
close FY16/17 at £103m, which was underpinned by £1.5m one-off accrual
releases.
18. For our FY20/21 OPEX target we presented a range of between £71m to £85m;
and forecasted FY20/21 to achieve £71m, the most extreme end of this target,
which included many assumptions.
19. We are now able to make a more informed reforecast for FY20/21 of £75.8m:
e Fujitsu overall savings are now anticipated to be midrange (Everest
negotiation, Pivot to Cloud) and arrive later than anticipated.
e Atos and Computacenter are adjusted to be midrange
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5 Year Forecast OPEX £m
16/17 17/18 I 18/19 I 19/20 I 20/21
Underlying
Result Budget I Forecast I Forecast I Forecast
Jan-17 104.5 98.7I 78.6] 70.8) ~—-70.5
Sep-17 104.5 98.7I 85.8] 79.0] __ 75.8)
NB FY 17/18 includes additional budget tasking of £1.2m. All years exclude Depreciation and
Inflation.
20. The plan still faces a number of risks, including:
e Successful completion of Fujitsu (to be covered in an October Board paper)
and ATOS negotiations.
¢ Computacenter and Verizon contractual assumptions and expectations
against the revised baseline.
e Back Office Transformation projects delay: a SafeHaven delay may impact
our costs by £2.5m-£4m in F18/19.
e Branch Technology or Network rollout delay cause Fujitsu/ BT extensions.
e Severe service failure on the existing infrastructure requires us to spend
unallocated funds to restore service.
e Conflicting or contentious Business Change inhibits IT's ability to enact
OPEX reducing change e.g. Transaction Simplification, Receipt Printer.
What are our Digital Transformation plans?
21. The scale and pace of digital disruption continues and represents a genuine
competitive threat. We need to move to being “Digital on the inside”,
tremendously customer centric and data powered. The tools, techniques,
technology and approaches of the internet age give us greater opportunities
than ever before to transform our delivery of services; assemble services faster
at lower cost; and continuously improve services based on data and evidence.
22. We recognise as a Group Executive that a Digital Transformation is a major
undertaking and we need to do more work as a team to form a delivery
framework around it.
23. We have pivoted the organisation around three main digital experiences: the
agent, the customer and our employees. We believe that the opportunities
delivered through these areas drives a profound and deep transformation
primarily focused on customer and productivity improvements.
24. Many digital initiatives require a significant improvement to our data quality and
analytics capability. Post Office’s data governance, tools/architecture and data
quality need to improve dramatically. A roadmap has been proposed leading to
the eventual replacement and consolidation of our current reporting solutions.
25. A profound talent and cultural shift across the Post Office is required.
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e People who ‘think digital’ - our preeminent mindset is based on traditional
leadership and analogue-thinking models (both in operational and change
mindsets). Changing this is our greatest opportunity.
e Agile and digitally aware product managers to lead functional prioritisation
of digital initiatives.
e Digital Operations specialists to create and maintain fast changing content.
e We will make a significant investment in our internal digital IT permanent
skill base to drive the pace and breadth of expertise that we require to
succeed across digital initiatives.
26. We also continue our agenda of innovation and emerging technology. In
particular we are exploring:
e Blockchain and distributed ledgers due to the opportunity within Identity
Services.
e Predictive Analytics/ Machine learning/ AI due to both the huge consumer
disruption it will cause but also due to applicability in Back Office.
Is IT delivering against the intended business outcomes?
“RETAIL SERVICES”
27. We have now developed our Retail IT Strategy which aligns the Mails, Payments
and Network Development goals with the 2017-2021 technology roadmap. The
strategy is aligned on our strategic customer objective to reduce queue time
and failure demand, extend our network reach, make our customer experience
more enjoyable and improve efficiency of service performance.
28. Acore enabler of this is the development of HNG-T (technology that allows us
to run a very modern Horizon client in the Post Office on a web browser i.e. a
Thin Client version of the existing Horizon). We have increased confidence,
having proven our Thin Client concept in four months through the HNGT
development of our Telephony E-top Up service. We are also engaging with our
partners and have a reasonable degree of confidence that they will want to take
this solution into their estates if we get it right.
29. We also intend to digitise business processes critical to the running of retail
branches by implementing self-service capabilities. Many processes are
manually laborious and require intensive support with complex remediation.
Our first pilot application will be Horizon Self Service which will automate and
deliver agent sales and transactional MI in near real time; currently full data is
provided by CDROM to retail partners 3 months in arrears! Subsequent
business prioritised user stories include the raising of branch IT incident tickets
via the portal and providing real time service updates, and the ordering of
cash/coins and stamp stock management.
30. A differentiated service proposition for agents is being developed, with the aim
of delivering new service revenue, reduced operational costs and provide
enhanced customer propositions through a channel where IT has previously
been provided free of charge. The intent is to charge for “Premium Service”
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offerings which will provide more choice and flexibility in the running of their
business.
“FINANCIAL SERVICES AND TELECOMS”
31. The Customer Hub described to the Board in June is a core enabler of the
Financial Services strategy supporting digital financial products and Open
Banking Framework. We believe that this will be a key enabler for customers in
the omni-channel environment. We are developing the roadmap and customer
facing digital agenda by working with the Financial Services and Identity teams
to finalise the MVP for the hub.
32. We will build a reusable, portable Customer Identity capability linked to an easy
purchasing experience for customers. In doing this, we enable a fast-track
purchasing experience for all branch customers for all branch transactional
branch products. In parallel, this will allow pre-branch data entry steps for Drop
and Go, International Mail or Bill Payment transactions.
33. We successfully ran a hackathon in June which built a retail mobile application
for the business in 48 hours. This proved our capability to rapidly prototype our
ideas using a Low Code Development tool and integrate a broad range of
external API services such as Open Banking and facial identity verification.
These hackathon initiatives will continue.
34. Weare going to build our ‘Digital Factory’ around the “low code” capability and
use it to transform our business approach to change. In addition, we will invest
in engineering skills to support scalable agile delivery, enterprise digital
architecture, enterprise Cloud hosting, mobile application development and API
service engineering.
“OUR COLLEAGUES”
35. We are changing our back-end platforms which in itself will drive change in the
ways we do business:
e Consolidation of Back Office systems on to CFS and Transtrack providing a
stable and robust financial system.
e SuccessFactors migration will fully remove HR SAP from our environment
and enable staff to update their own data, make requests and ensure
managers get better visibility of their team.
e Review of our MI and Data Warehouse capability (Credence) in a Big-Data
world is required to evaluate suitable analytics capability.
« Contact Centre Case management will enable web, phone and social
interaction with Post Masters, employee and clients for our call centres.
36. The ability to ‘systems think’ the processes and digitise/ automate will
fundamentally change the shape and size of Back Office centres whilst
significantly improving service.
37. Concurrently we are investing in internal resource in our Process Centre of
Excellence; already we have a number of activities run by software robots,
©
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processes brought online using workflow, e-signatures replacing paper and
structured SharePoint sites and forms replacing personal inboxes.
What is our Operating Model to underpin delivery of the Technology Strategy?
38. We previously outlined an Operating Model which includes PO taking back
control of business-critical services and building up our own technical capability.
The landing position for the operating model is appropriate based on existing
contracts, however we will need to make more choices on further insourcing as
contracts come to an end. Our supplier base have all changed Account
Management and Delivery teams on our recommendations and are now moving
from “cash cow” mentality to an increased partnership model.
39. We discussed the negotiations with ATOS and have now agreed a Letter of
Intent. The Letter of Intent outlines:
e Agreement for Atos to embark on an improvement plan to the Service
Desk services which will have clearly defined set of measures.
e Post Office taking back responsibility for managing Change Demand
services with Atos providing a systems integration role where required.
e« Agreement on pricing adjustments that reflect redesigned service
requirements, providing full year cost reduction on FY17/18 costs of
£1.2m.
e Cessation and suspension of certain lines of services which have been
identified as no longer required.
« Formal Legal agreement expected to be signed end of September.
40. The ability of the IT eco-system to deliver the Change Portfolio is critical to Post
Office achieving its strategic goals and 5-year plan. The scale of change across
the organisation (both business and IT) is unprecedented and it requires a high
degree of coordination, effort and planning to deliver a high volume of change
across a complex “none owned?” retail organisation
41. The risks to the strategy delivery and their mitigations are tracked monthly and
fall into the following categories:
e The ability of the network and back office operations team to absorb the
scale of change for both the retail and IT transformation.
e The bespoke and legacy nature of our systems which require
specialist/experienced resources which are in limited supply.
e The ability of the suppliers to “step up” to the strategy demands from a
resource quality and pace of change.
42. We have implemented an IT Portfolio Office, including the deployment of the
“ServiceNow” demand management tool. This will ensure stronger adherence to
the Post Office Gating process at project level to gain visibility, early
engagement and manage demand effectively.
43. We have also identified critical digital technical capability gaps in the operating
model regarding architecture, agile and security skills. We anticipate medium
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term needs in Machine Learning, Predictive Analytics and Big Data manipulation
domains. Our strategy for developing this capability is:
e Making Post Office a leader in attracting a diverse workforce for digital,
data and technology roles.
e Supporting non-digital specialists in understanding the potential of new or
different ways of working.
e Working to make sure that current and future leaders have the right
training and experience to manage digital projects effectively, work in an
agile way and manage digital-age organisations.
44. Our Engagement Survey results indicated the requirement to focus on four key
areas to improve engagement and buy-in to our strategy:
e Communication and decision making: increase collaboration between CIO
and other functions and increase visibility of CIO lead team.
e« Company strategy: deliver against our vision with speed and conviction.
e Working environment: improve workplace processes with digital solutions.
e Employee wellbeing: resource more effectively; improve PDR process.
45. We have taken the opportunity to define our new diversity agenda which is
made up of key initiatives around greater gender balance and we have recently
set up a partnership with FDM Group, an IT talent supplier that work directly
with ex-Armed Forces individuals.
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Appendix A: Progress against Measurement of Technology
Strategy
Measui A y July 2016 Sept 2017 get 2020
im to meet budget in first year and
with target investment reduce costs by Current Year £70-£80M
Lower Cost 5-10% beyond that without increases. I £104.8M Dependent on
i; - Forecast
Note that business change (rightly) growth
i £101.9m
increases IT cost
, i; " In-house
Faster speed to Previous experience dictates that this Demand 3-6 months
requires end-to-end change. Aim to hs
market (Flash 12-18 months I Management incremental
halve end to end cycle teams across . ‘4
to bang): & Engineering I value
the system *
in progress
HNGT,
Requires end to end change but Expensive, Customer Hub Agile
Increased through agile and systems thinking the P " and Horizon aie, .
oa tettinell tena et layered, ‘. cheaper, high
productivity process - from initial view; aim to save waterfall Self-Service ualit
at least 30-50% on cost of delivery all being q Y
established as
agile
Use a capability measure from Denied . Security High 7
ay, . . visibility; - understanding
Security Deloitte’s against 5 key risk areas to er Operations
. limited ; ; robustly
Effectiveness assess and gain an accurate measure ‘ Centre in J
of IT/Cyber security maturity testing; low rogress tested; higher
y! Y Me risk profile; Prog} risk profile
Web site nn
Our current capability is well behind “brochure Agent & Sioa
Digital “ - ~ capability;
i leading retail peers. The development ware”; Customer . "
Capability ; . ‘ online/ offline
i work over a year should be to get us immature; portal in ‘i .
Maturity a journeys;
amongst our peers limited progress .
. MyPostOffice/
transactions
SME
Regular Sev
month fee 1 High
Aim for a consistent reduction in lost Severity 20% reduction
- months - 7 a
Always On business revenue year on year for key fo Incidents = 30 I on critical
. " . Severity 1 = " ‘
service services and avoidance of lost hours Q2 High business
het 16 7
through predicting events. . Severity hours lost
Severity 2 = .
Incidents = 21
67
Total = 83)
Aim to establish a mechanism across Low trust;
A 4 High trust; IT
the company on how technology is business/ Engagement
Colleague h 7 “1 . as a partner
performing from a branch, end user supplier action plans in nd
Feedback “ - - . driving value
and business change perspective. attitude; low development i 7
i and innovation
Improve and resolve root cause expectations
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11
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B: Architecture Roadmap
The following shows the roadmap and shifting risk profile as we improve the estate (the circles represent the application and
the square represents the platform). It also demonstrates the Digital Transformation with the shift of the ability to access the
architecture through a variety of portals.
2020
2017 2018-2019
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C: Plan on a page
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The following shows the progress by years as we implement the outcomes of the transformation. Grey boxes remain unfunded
and blue is complete. We have split across applications, infrastructure and capability.
Horizon branch on
Hardware
Common Digital
Platform
Applications
Modern Horizon “back end”
Digital Platform
Fixed ITnetwork/old
technology
Fixed data centre
old technology
Flexible Network asa
Service
Infrastructure
Fixed contracts/
mismanaged supplers
Limited capability/
SIAM operating model
Immature Risks 2nd gu
controls
Capability
Security Environment
ad =a
known issues
No operational
Command Centre
Bare bones OCC
COBITS implement’n
-Ph2
Fully implemented SOC
Functioning OCC capability
Better for the customer. Simpler to run. A great place to work
Ke
3
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BOARD
Peregrine Update
Author: Jonathan Hill; Owen Woodley Sponsor: Nick Kennett Meeting: 26 September 2017
Executive Summary
Context
The exclusive contract
-date.is impacting Bo
HIRRELEVANT! This. combi
(Bol) expires in 2023; the clecenacc.of this.
and thence ability to deliver, IRRELEVANT I
ncerns about the __
At the July Board meeting management net an update on progress, concluding
that the “chances of concluding a satisfactory agreement are, at best, balanced”. On
13% September Bol presented its proposal in response to ours of August 2016.
In anticipation of finally receiving this proposal, Post Office engaged consultants to give
context to our analysis - I _ ___IRRELEVANT - _?
IRRELEVANT 9 [
QUESTION“ Wnat COUTd DE the Size Or Our ampition?”y, ara KPIMG to assess the potential
costs/risks that Post Office could suffer if we do not reach agreement with Bol.
Questions addressed in this report
What are the alternative model options for Post Office?
How important is Post Office to BoI UK and to Bol Group?
What has Bol proposed and what is Post Office’s assessment?
What are the negotiating options?
What is the comparative value of the Bol proposal and McKinsey options?
What actions could/will BoI take; what are Post Office’s options?
What are Post Office’s key protective actions?
What are the key risks?
ons fos oP
Conclusion
1. The rane review concludes that there are significant opportunities for Post
2. Bol UK has to date been seen by Bol Group and the market as being a core
component of the “Bol story”. However with growth of the UK business flat-lining
feduce. aoe — “IRRELEVANT
Lo __ _ IRRELEVANT __ __
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3. The Bol proposal does not meet our core objectives; with a wide gap between the
parties, satisfactory conclusion is unlikely. While we have been absolutely clear
with Bol throughout the process as to our minimum requirements, the proposal
RRELEVANT Therefore we inten the proposal and move to the next stag:
‘orour negotiating strategy, which initially is to restate our minimum requirements
and retest BolI’s appetite to meet them; if this is rejected, we will follow the
subsequent stages as set out in this paper.
IRRELEVANT I
6. We will start to deploy our counter-plays as we understand Bol’s reaction and
actions and continue to build key long term capabilities (in particular the Hub);
there are likely to be medium term financial and business implications of rejecting
the proposal which are set out below.
Input sought
The Board is asked to note the status of Project Peregrine and support management’s
recommendations.
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The Report
What are the alternative model options for Post Office’s financial services?
1. We engaged McKinsey & Co to assess alternative options for the future. Post Office
financial services business in 2023 if, TARRELEVANT
Financial Services business be, leveraging its unique brand and consumer base?”
2. McKinsey concludes that there is a significant opportunity, hiahliahting.three..
alternative models: in.each.case. the forecast returns .ranae from..IRRELEVANT_:
; : IRRELEVANT _ _ ;
L IRRELEVANT ' While the analysis is
‘inevitably high Up! is considerable and
compares to the; IRRELEVANT ___J (see next section).
3. The conclusions also highlight the criticality of Post Office keeping options open for
the next 2-3 years - the optionality is set out in Exhibit 4.
4. Below is the executive conclusion from McKinsey - the exhibits referenced are
attached in the appendix and the detailed workings are in the Board Reading Room.
PERSPECTIVES ON THE UNCONSTRAINED OPPORTUNITY FOR POST OFFICE MONEY BEYOND 2023
- AREPORT FROM MCKINSEY & CO (SEPTEMBER 2017)
As UK Retail banking landscape undergoes a revolution; with Open banking disaggregating the banking value
chain, technological advancements lowering barriers to entry and a crowded Fintech/ Attacker market
providing unprecedented partnership and acquisition options, Post Office has a unique opportunity to play
at scale in the UK retail banking market.
m™ Post Office’s core strengths of Brand and reach are becoming increasingly rare and valuable in a
crowded market, while Post Office’s historic capability gaps across data/ analytics, Digital UX, and core
banking capabilities are becoming increasingly accessible and commoditised. For example, the costs of
core banking system have dropped by 80-90% due to the advent of cloud platforms, while over 50 new
Fintechs including at least 12 new Challenger Banks were launched in the UK in past 3 years, most
lacking a brand and established customer base but with strengths in Digital UX, data analytics. These
provide Post Office a plethora of partnership and small-scale acquisition opportunities to close
traditional capability gaps.
m Open Banking, coupled with API technology, is accelerating the disaggregation of the banking value
chain into “originators” and “customer interface providers”. Originators hold the balance sheet and
manufacture products, (£5.8bn in flow revenues p.a. but shrinking at 2% p.a.) while “customer interface
providers” (smaller revenue pool of £2.2+bn but growing at 14% p.a.) offer an aggregated account
management interface and serve as gateways into broader digital ecosystems that span financial
services and beyond (e.g., utilities, digital 1D) [Exhibit 1]. Post Office has an undeniable right to play in
this customer interface market, given its brand strength, existing customer base and hard to replicate
ecosystem relationships [Exhibit 2]. However, given uncertainty and risks of pure customer interface
play, and the significant size of revenue pools for balance sheet banking, Post Office should seek to tap
into both the customer interface as well as origination pool revenues via a series of innovative
partnerships and selected acquisitions
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Assessing the full spectrum of options across potential size of prize as well as feasibility and achievability for
Post Office, we have shortlisted three viable winning models for Post Office.
1. Customer interface provider with full market access including own branded products “Your trusted
and independent assistant to save you time and money”:
Post Office leverages its independent, trusted brand to provide a convenient, digital platform to
aggregate and manage customers’ financial accounts, as well as make transfers and payments. The
platform proactively analyses customers’ needs and compares across the market to recommend, with
complete transparency, the right product in both financial and related non-financial services. The product
offering includes the full market (via open APIs into the platform), including Post Office Money products
(provided via a selection of profit-sharing partnerships with balance sheet players across product
categories). Post Office also provides value added services like Digital IDs and webchat.
Key advantages of this model are that it enables Post Office to effectively play in multiple revenue pools:
the banking distribution revenue pool (based on commissions for product recommendations), the
banking origination pool (based on profit sharing partnerships) and new revenue sources (digital
servicing, KYC). It also de-risks a pure Customer Interface play, given the uncertainties around customer
take-up of non-bank interfaces and potential regulatory scrutiny of commission based revenue
structures.
That said, for such a play to succeed, it is critical for Post Office to keep the distribution platform at arm’s
length and fully independent from the rest of the business, following the example of mutual fund
providers like Fidelity.
Given the need for best-in-class UX and analytics capabilities for a market-wide offer, Post Office should
consider partnering with Fintechs offering similar services today but who lack brand and existing
customer base (e.g., Pariti, Bud, Monzo), non-UK players who have experience offering ecosystems in
their home markets (e.g., AliPay) or small-scale comparison players (e.g., Money Saving Expert).
2. Banking partnership by category “Building bridges between you and our trusted partners”:
Post Office leverages its brand and existing reach to provide customers with Post Office Money branded
products via a selection of profit-sharing partnerships with “best of breed” balance sheet players across
product categories. In this model, the customer hub is primarily a convenient digital gateway and account
aggregation tool for Post Office Money’s own customers and does not recommend products from across
the market.
The key advantage of this model is that it enables Post Office to play in the banking origination pool with
a higher share of profits compared to model 1, while de-risking full balance sheet ownership. It also avoids
the uncertainty and risks surrounding the, as yet unproven, pure customer interface and ecosystem play.
In this model, Post Office would develop a larger range of partners compared to today, including
monoliners (e.g., Capital One, Zopa), challenger banks with specific asset / liability needs (e.g. ING, Metro)
and, potentially, the Bank of Ireland for specific products. This requires, however, Post Office to manage
the complexity of such a range of partnerships, potentially via simple profit sharing contracts, with most
aspects common across the full range of partnerships.
3. Become a bank “Your trusted challenger bank already on your high street”:
Post Office leverages unprecedented opportunity to close key balance sheet capability gaps by acquiring
a challenger bank at low cost (potentially with equity stake as first step). For own banking customers,
Post Office provides a convenient hub to aggregate and manage their financial accounts.
Key advantage of this model is that it allows Post Office to fully tap into the substantial origination
revenue pools, and opens up SME banking opportunity in the future. This requires, however, that Post
Office is allowed to hold balance sheet and take on credit risk.
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There are many paths to becoming a bank — ranging from organic growth, to taking (and building over
time) a stake in a challenger bank, to outright, full acquisition.
Given the rapidly developing landscape for challenger banks with new entrants expected every year (e.g.,
Starling, Tandem, Atom are current new breed of banks), we believe a viable, affordable path for Post
Office could be to acquire a stake in a fledgling challenger bank, and to grow that stake over time. When
contractually able to, Post Office could leverage its brand and reach to accelerate the growth of this bank.
For example, Portugal’s post (CTT) created a bank in 2015 banco CTT. It leapfrogged the three major
digital attacker banks within 2 years by leveraging the CTT brand and footprint. Today, Banco CTT has
nearly 300,000 customers—more than all three digital attackers combined.
In all these cases, the returns are expected to be highly attractive, ranging from £150m-£300m+ annual
revenues in year 5 post launch [Exhibit 3], increasing its revenue 3-6x by 2028 compared to today’s BOI
revenues.
Given the dynamic nature of UK Financial Services market over the next 5-6 years, with new players entering
at unprecedented pace, uncertainty about open banking adoption and evolving revenue models of customer
data ownership, we believe Post Office should maintain optionality across these business models for the next
1-3 years [Exhibit 4].
Once Open Banking is live, Post Office should monitor customer adoption to decide whether a Customer
Interface play with full market access is viable, or alternatively, whether a more conservative model of
Banking Partnerships is preferable. Post Office should note that going down the model 1 route continues to
keep the other two options open to it. The one decision that is potentially more definitive is whether to make
an opportunistic stake in a challenger bank, which would position Post Office more firmly towards Model 3
of “Becoming a bank”.
However, regardless of option chosen, in the next 6 months there are a set of no regret moves, including
m= Building the basics required to succeed across all these models (build customer interface platform, grow
customer database, e.g., via FX)
m Explore “new sources of revenue”, e.g., Digital ID/ KYC as value added service, non FS ecosystem
possibilities leveraging existing Post Office relationships
= For future options, detail out and analyse: customer value proposition, fulfilment path, capability gap
assessment, revenue model and investment/ return profile
= = Carry out detailed market scan and develop value proposition for potential partners to deliver on these
business models, including opportunistic stake in challenger bank
m Closely monitor Open Banking response by financial services players, regulatory scrutiny of commission
model and customer take-up
How important is Post Office to BoI UK and to Bol Group?
5. Post Office is critical to the BoI (UK) plc business for assets and liabilities and is
the cornerstone of its “partnership bank” strategy:
IRRELEVANT
e Of £19.5 billion customer UK deposits, c£14.5 billion (74%) are from Post Office
customers;
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e To date Bol UK has not found significant new channels to drive asset growth.
Bol UK had been the strategic retail growth driver for the Group, but last year was
flat:
Overall the Post Office has been critical to Bol’s diversification and growth strategy.
However, over the past year this may have changed as UK growth has flattened
and the core focus of BoI may shift with the arrival of a new Group CEO.
What has Bol proposed and what is Post Office’s assessment?
8.
As set out in recent Board papers, we assessed the likelihood that BoI would table
a proposal which would conclude in a satisfactory agreement as “at best,
balanced”.
The proposal was only very recently presented, giving minimal time for detailed
analysis or discussions between the Parties: However, the Proposal included:
r mortgages and savings, with a transition
g an immediate fall in Post Office revenues;
e An annual contribution towards Post Office’s costs (subject to an auditable
demonstration of investment in the business by Post Office);
e The closing of the existing current account to new customers with a managed
exit of the customer base and a review in eighteen months;
e Extension of the contract notice period to five years (from two) plu
operational support if Post Office exits financial services;
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11. Bol’s proposal does not address the issues and requests tabled in Post Office’s _
proposal of August 2016:
e There is no growth ambition - excluding the costs contribution, Post Office’s
commissions are effectively flat to 2023. There are no assumptions or
comments on opportunities thereafter;
e There are no guarantees that we could get the products we want nor
commitment to fundina.a Post Office-generated balance sheet; it still leaves us
_IRRELEVANT. iand shifting focus to their own or another
business opportunities (including ‘investments); and
would make it
‘in the future.
e The proposed changes
virtually impossible for IRRELEVANT
What are the negotiating options?
12. In assessing the proposal we have sought to identify the points of maximum
leverage to Post Office, as well as the short and long term implications and risks
of how we would position a rejection. The table in appendix A sets out the
negotiating options, their impact and risks/opportunities and potential chronology.
These are summarised as:
e Option 1 - reject and seek to negotiate around the Bank’s proposal, highlighting
why it does not work and propose it is reworked to address Post Office’s
requirements; this would be a precursor to other options;
Opti
ion 2A - reject the proposal and offer a
IRRELEVANT ‘his would provide increased
“perarree sreeranureygaracory-cercanrey-covur-arrd is the closest to Post Office’s
original proposal;
¢ Option 2B - as per 2A, but on a__ IRRELEVANT
term m:epuonality for Post ofies;
13. Wel
particularly with the new Bol Group CEO arriving in October.
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14. If BoI does not significantly change its position to meet our basic requirements
{which.we. regard_as likelv),.we.will. move to Option 2B above and:
E'
this also has significant overlap with the
McKinsey options. It is possiblg- tat Ral. ciabt.cacnand.with. Antinn 20..mhich could,
still be acceptable based._on IRRELEVANT
16. The rationale for this staged approach is that:
« In the interim we would look to minimise the downside risks to customers and
income;
e Option 2B would give Post Office a good outcome, in particular avoiding the
challenges of migrating the balances and customers to an alternative provider
and retaining optionality around the McKinsey scenarios;
17. The FSJVA is clear as to the expectations and actions available to the parties at
termination, but restricts Post Office’s options before 2020:
What is the comparative value of the Bol proposal and McKinsey options?
18. While we have not had the opportunity to undertake a detailed financial analysis
of the proposal, a brief review by McKinsey based on high level assumptions (we
do. not have those that underpin the Bol proposal) has estimated that:
.
What actions could/will BoI take; what are Post Office’s options?
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IRRELEVANT.
What are Post Office’s protective actions?
20. To protect Post Office’s short and medium term position we anticipate deploying a
four-pronged strategy:
(i) The FSJVA gives key contractual rights and protections to Post Office:
IRRELEVANT
IRRELEVANT
the intent of IRRELEVANT _
e Require Bol to undertake a rolling two-year review of all products to ensure
_they remain fit for purpose. We can contend that BoI does not have
« Challenge Bol’s.
are obliged to si
to tak
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limit Bol’s attempt to! IRRELEVANT
(ii) Travel Money - the FRES agreements are contractually extremely difficult to
terminate or amend, with limited avenues open to us to take action to change
the existing arrangements; Linklaters is exploring options.
Any options would need to include consideration of the impact on Post Office’s
revenue and agents, potential material harm to the FRES relationship,
possible breaches to good faith obligations in the various contracts and
potential allegations regarding directors’ duties (the latter needs to be
clarified prior to any actions).
(iii) Develop business} IRRELEVANT
e Accelerate the development of the Post Office Hub, with initial products
coming from insurance and travel (requiring FRES to link to the Hub);
e Fast track work on alternative transactional account products, in particular
pre-paid debit cards (which is outside exclusivity);
Identify acquisition targets for
(iv) Review costs for delivering the existing BoI business
e Astrong rejection of the proposal will inevitably reduce the prospect of a
collaborative approach to product development and the distribution model
(in particular on mortgages). This does not have a significant impact on
the CRM role, but we are reassessing the value of Mortgage Specialists,
which could result in their disbandment.
As the relationship with Bol changes and r
[IRRELEVANT —_ it may be necessary to change the rolés and”
COMPSSIEIOH OF THE POSt Office Money team.
What are the key risks?
21. The potential consequences to Post Office from rejecting the proposal and failing
to reach any satisfactory alternative position with Bol are:
— ss — iain ail cr a, SOOO PT
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e Loss of momentum (and likely skills) in financial services as a business;
e Deteriorating relationship with Bol that would be driven by firm adherence to
the FSJVA terms;
e Bol may be unwillingly to make changes to existing product journeys to link
into the Customer Hub;
e Uncertainty as to the options available in 2023, but the freedom to seek
22. While. remaining under the FSJVA will not have a detrimental impact on existing
customers as both parties have contractual and regulatory obligations to look after
customers, the lack of product innovation will reflect on the Post Office as a
financial services brand.
24. “The potential impact for agents would be lower commissions and footfall as savings I
volumes are reduced.
Conclusion
25. Whilst management believed that an outcome along the lines set out in our original
proposal would have generated the optimal medium and long term value for both
parties, based on the IRRELEVANT __ of Bol’s proposal, the gap to our minimal
acceptable position and potential attractiveness of McKinseys’ options we propose:
¢ To reject Bol’s proposal and restate our minimum requirements to test their
appetite to shift position and close a deal,}
perauaaas i Ee
26. In all. cases as ‘above, we ‘will ‘build our optionality. as set ‘out “by “McKinsey ‘and our
existing Customer Hub strategy.
27. We expect Bol
ly direct pres:
Nicholas Kennett
Chief Executive, Financial Services & Telecoms
September 2017
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3 IRRELEVANT _ IRRELEVANT
Origination
(core
balance
sheet
banking)
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IRRELEVANT
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IRRELEVANT
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IRRELEVANT
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September 2017
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September 2017
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IRRELEVANT
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BOARD DECISION PAPER
Modern Slavery Act Statement
Author: Kelly Godden — Sponsor: John Whitefoot Meeting date: 26 September 2017
Executive Summary
Context
The Modern Slavery Act 2015 challenges slavery, domestic servitude, forced and
compulsory labour and human trafficking. Post Office is required to produce an annual
slavery and human trafficking statement setting out what steps have been taken to
ensure its business and supply chains are slavery free. The first statement was approved
in May 2016.
At the ARC meeting in May 2017, the ARC considered and recommended for approval
an updated statement which describes our progress on the previous year’s
commitments and outlines the actions that we will take during 2017 -18. Due to an
oversight, this statement was not then brought to the Board for approval. We now
require approval from the Board in order that the statement can be published within
time by 30 September.
Questions addressed in this report
1. What are we required to do?
2. What progress have we made to date?
3. What do we need to do next to progress?
Conclusion
1. A steering group was appointed in January 2016 to develop and monitor our
approach to the Modern Slavery legislation (‘MSA’).
2. We have undertaken further due diligence on our business and supply chains to
identify any risk areas. The steering group has identified that the highest level of
risk is within our Agency network. We have already begun to address this risk
including drafting guidelines for Postmasters to follow. Postmasters are already
required to comply with the Act.
3. Post Office’s MSA Statement was prepared using Home Office guidance and after
reviewing Statements by UK and international companies.
4. Post Office has prepared an updated Statement in line with the legislation which
must be published within 6 months of financial year end.
5. The nature of the legislation allows for Post Office to build a robust approach to the
MSA over time. Going forward, our annual MSA statement will outline progress on
previous commitments and those actions we will take in the next twelve months.
Strictly Confidential
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Input Sought
The Board is asked to approve the 2017/18 statement and endorse actions for the
business to take forward this financial year.
The Report
What are we required to do?
6
6. The requirement to publish an annual Statement applies to “commercial
organisations” which (a) supply goods or services and (b) have a total turnover of
not less than £36,000,000. It will therefore not apply directly to Postmasters if
their turnover is less than £36 million per year.
7. Post Office must state what steps it has taken to ensure that slavery and human
trafficking is not taking place in any of its supply chains or in any part of
business. This includes the agency network.
its
8. Set out in Appendix 1 is the updated Statement approved by the ARC in May which
documents our progress and outlines the actions that we are committed to taking
this year 2017 -18. This must be approved by the Post Office Board and signed
a Director.
What progress have we made to date?
by
9. In 2016 we made three specific commitments and progress on these commitments
is outlined below:
Commitments from 2016 Statement Progress on 2016 commitments
Updating Postmaster's selection and We have now reviewed the Postmaster’s
appointment process to address MSA contract and believe that it is robust
requirements enough to cover the MSA legislation. We
have also supplemented the contract
process with a set of Guidelines for
Postmasters
Amending our standard form We have reviewed our standard form
procurement contracts. procurement contracts and believe that
our ‘applicable laws’ clause covers POL
for breaches of MSA.
Our Pre-Qualification Questionnaire
(PQQ) procurement process has also
been amended to take account of MSA
and suppliers must confirm that they
comply with their obligations under the
MSA and provide a copy of their MSA
Statement.
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Commitments from 2016 Statement Progress on 2016 commitments
Developing a communication and We have now produced a communication
training plan to ensure our suppliers, plan which includes partnering with the
NFSP for roll out in 2017.
The MSA is also now referenced in our
Whistleblowing Policy and our Code of
Business Standards (which is currently
being updated).
A training plan remains under
development. This year, however, our
commitments are focussed on raising
awareness. The Steering Group
anticipate the training requirement to
increase as we move towards 2018 as
we begin to build a suitable due diligence
and compliance capability.
staff and agents are aware of Post
Office’s obligations in relation to Modern
Slaver and informing them about the
Modern Slavery Helpline.
10. In drafting the statement for this year we reviewed statements from a range of
other companies including our key partners, to ensure that our proposals were
consistent with emerging practices.
11. The statement for 2017-18 was developed by the MSA Steering Group which
comprises of representatives from Legal, Network, Postmaster Contracts,
Procurement, Risk, Employee Relations and Learning and Development. Members
were heavily involved in the development of the statement and supporting
documentation. There are no significant costs identified in fulfilling our
commitments for 2017-18.
What do we need to do next to progress?
12. The new Statement must be signed by a Board Director and published on our
external website within the first six months of the financial year.
13. We are confident that the detail in our Statement, our commitments documented
last year and our proposed actions for this year are appropriate and compliant at
this stage. We will monitor developments, however, and keep the efficacy of the
Statement under review.
14. By not updating our Modern Slavery Act Statement every year the business could
be liable to prosecution under the Act. This could, worst case scenario, result in a
heavy fine and subsequent damage to our reputation and brand. The Act allows for
organisations to evolve a robust approach and that is why reaffirming a renewed
commitment every twelve months is required. By continuing to effect reasonable
progress year on year, Post Office Limited will remain compliant with the
legislation.
Strictly Confidential
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Appendix
Post Office Limited (Post Office) & Post Office Management Services Limited
(POMS)
Modern Slavery Transparency Statement 2017-18
Executive Summary
This statement sets out the steps we have taken during the last financial year to ensure
that Modern Slavery is not taking place in any of our supply chains or any part of our
business. It is made pursuant to section 54(1) of the Modern Slavery Act 2015 (MSA).
The Statement also sets out our commitments for the next twelve months with regards
to the legislation.
Our business
Post Office is the UK’s largest retail network and the largest financial services chain in
the UK with more branches than all of the UK’s banks and building societies put
together. We have provided services for more than 370 years and currently supply more
than 170 products and services (mails & retail; financial services; government services;
and telephony) from a Network of more than 11,500 Post Office branches nationwide.
Post Office directly manages around 2% of the Network branches. The remainder of the
branches are managed on an agency basis by Postmasters and multiple partners.
Our supply chains
We currently operate throughout the UK, however our supply chains connect with
suppliers with a global reach.
Banking services
Post Office banking services (deposits, withdrawals, balance enquiries and change
giving) are provided in Post Office branches on behalf of the customers of UK banks.
Postmasters
Postmasters can operate one or more branches. As agents they have control on how
they run their branches on a day-to-day basis. All those working in an agency Post
Office branch are engaged by the Postmaster.
Multiple partners
A large proportion of the agency part of our network is run by multiple partners.
Trade Unions
In our directly managed branch network, we work closely with the Communications
Workers Union (CWU) and Unite (CMA) Communications Managers Association.
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Third Party Suppliers/Procurement
We also procure products and services from a wide range of national and international
businesses.
Responsibility and due diligence
Responsibility for our Modern Slavery initiatives currently resides with a steering group
which was appointed in January 2016. It is tasked with the development of a project
plan to carry out due diligence and implement change.
Where are the risks of Modern Slavery at Post Office/ POMS?
The due diligence that we have undertaken so far indicates that there could be a risk of
non-compliance within our agency network because there are a large number of people
employed by Postmasters (including multiple partners) but who are not employees of
Post Office or POMS. They work directly for the Postmasters (including multiple
partners). We will be taking action to address this risk (see below).
What we have done so far
e Our Whistleblowing Policy has been updated to include references to concerns
about Modern Slavery.
e Our Code of Business Standards will reference the issue of Modern Slavery.
e We have adapted the Post Office recruitment policy to address MSA
requirements.
e We conducted an assessment of the Post Office procurement process to ensure
it aligns with the MSA. As part of this process we have conducted a review of
the criteria used by Post Office to evaluate whether suppliers meet Post Office’s
minimum tendering requirements. As a result of this we have now reviewed our
standard form procurement contracts to ensure that they cover POL with regards
to the MSA legislation.
e Our Pre-Qualification Questionnaire (PQQ) process has also been amended to
take account of MSA. Suppliers must now confirm that they comply with our MSA
Statement.
e We have reviewed the Postmaster Contract of Engagement and have written
Guidelines for Postmasters to assist them in complying with MSA legislation.
Next steps
Throughout 2017 we will be committed to a programme of ‘Building Awareness’. This
includes:
e Rolling out our MSA Communication Plan across all of POL, including our directly
employed colleagues, postmasters and supply chain.
e Reviewing our approach to audit and compliance and making recommendations
around a suitable regime to take forward.
e In the light of the recommendations from the review of audit and compliance,
developing a relevant Training Plan in support of any proposed new regime.
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Our policies
We currently operate the following policies that describe our approach to Modern
Slavery:
* Code of Business Standards
e Whistleblowing Policy
Further information
If you have any concerns about the issues raised in this statement or if you think you
have identified signs of Modern Slavery then please either contact us in the first instance
or call the Government's Modern Slavery Helpline on 0800 0121 700.
Signed:
Name:
Position:
Date:
Strictly Confidentiat
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Post Office Limited Sealings
Author: Jane MacLeod Meeting date: 26 September 2017
Executive Summary
Context
The Directors are invited to consider the seal register and to approve the affixing of
the Common Seal of the Company to the documents set out against items number
1544 to 1575 inclusive in the seal register.
Input Sought
For the Directors to resolve that the affixing of the Common Seal of the Company to the
documents set out against items numbered 1544 to 1575 inclusive in the seal register
is hereby confirmed.
Strictly confidential
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Date Register of Sealings Company Number
26.09.2017 21554540
Seal Number Date of Date of Persons Attesting Destination of
1 File Ref. Sealing Authority Description of Document To Document Document
1544 Lease 78/07/2017 15/07/2017 I Renewal of lease in respect of 193/199 Cricklewood Broadway, London I Alwen Lyons, Company Jean Reynolds
Renewal NW2 SHR between Anthony Christou and loanina Christou (the Landlord) I Secretary
oe —_ ____I and POL (the Tenant) - _ - _ - -
1545 / Renewal 2410712017 79/07/2017 I Renewal lease by reference to an existing lease Unit 2, 24 Wellington ‘Alwen Lyons, Company Jean Reynolds
Lease Road, Rhyl, Denbighshire LL18 1AD between Post Office Limited and Co- I Secretary
Options Limited.
15467 Renewal 2A1O7I2017 20/07/2017 I Renewal lease in respect of 16 Francis Street, Stomoway, Isle of Lewis I Alwen Lyons, Company Jean Reynolds
Lease between Dr Jonathon Neil Davis, Jean Alexandra Davis, Jonathan Secretary
Alexander Greig Davis, Thomas Charles Greig Davis and Nicolas Alasdair
Greig Davis (Landlords) and Post Office Limited (Tenant).
Please not the seal was returned because sealing is not recognised in
Scotland, so this was executed as a signature.
15477 2710712017 2710712017 I Settlement agreement between Mars Pensions Trustees Limited Victoria Moss, Deputy Company I Jean Reynolds
Settlement (004497333) (Landlord) and Post Office Limited (Tenant) in respect of Secretary
Agreement property known as Units 29 and 30 Tower Ramparts Shopping Centre,
Ipswich
15497 28/07/2017 2710712017 I Settlement Agreement between New Call Telecom Limited (Employer) Victoria Moss, Deputy Company I CoSec Contract
Settlement and The Post office Limited and Fujitsu Service Limited and Emma Moir I Secretary Depository
(Employee). CAF no. 744. Dated: July 2017 (x2)
15517 28/07/2017 2710712017 I Settlement Agreement between New Call Telecom Limited (Employer) Victoria Moss, Deputy Company I CoSec Contract
Settlement and The Post office Limited and Fujitsu Service Limited and Craig Secretary Depository
MeNillan (Employee). CAF no. 744. Dated: July 2017 (x2)
15537 28/07/2017 2707/2017 I Settlement Agreement between New Call Telecom Limited (Employer) Victoria Moss, Deputy Company I CoSec Contract
Settlement and The Post office Limited and Fujitsu Service Limited and Joanna Moss I Secretary Depository
I (Employee). CAF no. 744, Dated: July 2017. (x3)
1555 / Spinnaker I 03/08/2017 03/08/2017 I Deed of variation for contract maintenance and leasing reducing and Victoria Moss, Deputy Company I CoSec Depository
capping estate form 700 Iboxes to 300, following simplifying supply chain. I Secretary
Continued maintenance of ATM cassettes and ATM Ibox as per current
contract. Extension of current contract to End of November 2017, as per
clause 42.2. Agreement for the provision of Goods and Services relating
I_to the supply and installation of ATM and cash transportation equipment.
1556 / Transfer 75/08/2017 77/08/2017 I Transfer of whole registered fitle in respect of 305 Gloucester Road, Victoria Moss, Deputy Company I Jane Reynolds
of Whole Reg Horfield, Bristol, BS7 8PF (Title no BL90936). Transferor: Post Office Secretary
Title Limited. Transferee: Richard Douglas Tyler and Anne Tyler. Option to
I purchase. (x1)
1557 / Surrender I 15/08/2017 70/08/2017 I Surrender of Post Office Limited’s head lease in respect of 199 - 201 High I Victoria Moss, Deputy Company I Jean Reynolds
of Lease I_St, Southend on Sea Essex, SS1 1LL. Landlord Benrose Property LLP Secretary
1548 / 76/08/2017 27/07/2017 I Settlement Agreement between New Call Telecom Limited (Employer) ‘Alwen Lyons, Company CoSec Contract
Settlement and The Post office Limited and Fujitsu Service Limited and Oliver Secretary Depository
I_Mackereth (Employee). CAF no. 744. Dated: July 2017. (x3)
Register of Sealings
Jane MacLeod
Page 2
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Date Register of Sealings Company Number
26.09.2017 21554540
‘Seal Number Date of Date of Persons Attesting Destination of
1 File Ref. Sealing Authority Description of Document To Document Document
1552 / 76/08/2017 2710712017 I Settlement Agreement between New Call Telecom Limited (Employer) ‘Alwen Lyons, Company ‘CoSec Contract
Settlement and The Post office Limited and Fujitsu Service Limited and Jason Secretary Depository
Newton (Employee). CAF no. 744, Dated: July 2017 (x3)
1554 76/08/2017 2710712017 I Settlement Agreement between New Call Telecom Limited (Employer) ‘Alwen Lyons, Company CoSec Contact
Settlement and The Post office Limited and Fujitsu Service Limited and Stuart Secretary Depository
Jackson (Employee). CAF no. 744, Dated: July 2017 (x3)
1558 / Deed of 76/08/2017 09/08/2017 This Deed of Novation (the Deed) is supplemental to a Terms and Victoria Moss, Deputy Company I CoSec Depository
Novation Conditions relating to a contract for the supply of Single Licensee Secretary
Software Escrow Agreement dated 1st July 2011 and between NCC
Escrow International Limited, the Continuing Party and 3M Cogent INC.
(the Contract). Deed of Novation between the following parties: 1. 3M UK
PLC (Company No: 1123045) 2. NCC Group Escrow Ltd (Company No’
3081952) 3. Post Office Limited (Company No: 02154540) and 4.
Gemalto UK Ltd (Company No: 01278148. (x4)
1559] Deed of 2108/2017 21/08/2017 I Deed of variation relating to Cash-In-Transit premises forming part of the I Victoria Moss, Deputy Jean Reynolds
Variation Premises known as MCICIT, Slindon Street, Portsmouth PO1 1AA. Company Secretary
(Landlord) Royal Mail Estates Limited, (Tenant) Post Office Limited. (x1)
1560 / Lease of 21/08/2017 21/08/2017 I Lease of Reference relating to Cash-In-Transit premises forming part of I Victoria Moss, Deputy Company I Jean Reynolds
Reference the Premises known as MCICIT, Slindon Street, Portsmouth PO1 1AA. Secretary
(Landlord) Royal Mail Estates Limited, (Tenant) Post Office Limited. (x1)
1561 / Deed of 21/08/2017 2108/2017 I Deed of Surrender of Part relating to Cash-In-Transit premises forming Victoria Moss, Deputy Company I Jean Reynolds
Surrender part of the Premises known as MCICIT, Slindon Street, Portsmouth PO1 I Secretary
1AA. (Landlord) Royal Mail Estates Limited, (Tenant) Post Office Limited.
(xt)
15627 17/08/2017 2710712017 I Settlement Agreement between New Call Telecom Limited (Employer) ‘Alwen Lyons, Company CoSec Contact
Settlement and The Post office Limited and Julie Berry (Employee). CAF no. 744. Secretary Depository
Dated: July 2017 (x3)
1563/ 17/08/2017 27/07/2017 I Settlement Agreement between New Call Telecom Limited (Employer) ‘Alwen Lyons, Company CoSec Contact
Settlement and The Post Office Limited and Katie Crook (Employee). CAF no. 744. I Secretary Depository
Dated: July 2017 (x3)
1550/ 18/08/2017 27/07/2017 I Settlement Agreement between New Call Telecom Limited (Employer) Alwen Lyons, Company ‘CoSec Contract
Settlement and The Post office Limited and Fujitsu Service Limited and Noreht Secretary Depository
Viljoen (Employee). CAF no. 744, Dated: July 2017 (x3)
15647 DS1 21/08/2017 21/08/2017 I Cancellation of charge over Property: 25 Blenheim gardens, Kingston ‘Alwen Lyons, Company Rodrie Williams
Cancellation Upon Thames KT2 7BN. Lender: Post Office Limited (x1) Secretary
Charge
1565 / Lease 21/08/2017 21/08/2017 I Lease Renewal relating to (Property) 5 -7 London Road, Basingstoke, ‘Alwen Lyons, Company Jean Reynolds
Renewal RG21 7AB (Landlord) The Wardens and Commonalty of the Ministry of I Secretary
Goldsmiths of City of London, (Tenant) Post Office Limited. (x1)
7566 / Variation 22/08/2017 17/08/2017 I Management services agreement between Digidentity and Post Office Alwen Lyons, Company CoSec Depository
to a Contract Limited, and this is an amendment to this contract (x1). Secretary
Register of Sealings
Jane MacLeod
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Date Register of Sealings Company Number
26.09.2017 21554540
Seal Number Date of Date of Persons Attesting Destination of
1 File Ref. Sealing Authority Description of Document To Document Document
1567 / Renewal 04/09/2017 01/09/2017 I Renewal lease by reference to an existing lease Unit 7, 24 Wellington Victoria Moss, Deputy Company I Jean Reynolds
Lease Road, Rhyl, Denbighshire LL18 1AD between Post Office Limited Secretary
(Landlord) and Co-Options Ltd (Tenant). Seal x1
1568 / Renewal 04/09/2017 01/09/2017 I Renewal lease by reference to an existing lease Unit 2, 24 Wellington Victoria Moss, Deputy Company I Jean Reynolds
Lease Road, Rhyl, Denbighshire LL18 1AD between Post Office Limited Secretary
I (Landlord) and Co-Options Ltd (Tenant) Seal (x1)
1569 / Rent 04/09/2017 01/09/2017 I Rent Deposit relating to Unit 1, 24 Wellington Road, Rhyl, Denbighshire I Victoria Moss, Deputy Company I Jean Reynolds
Deposit Deed LL18 1AD between Post Office Limited (Landlord) and Co-Options Ltd Secretary
(Tenant). Seal (x1)
15707 06/09/2017 07/09/2017 I Assignation related to 109 South Street, Perth, PH2 8AF between Post __I Victoria Moss, Deputy Company I Jean Reynolds
Assignation Office Limited (Vendor) and Kilpatrick Property Group Limited (Purchaser) I Secretary; Diane Blanchard,
and authorised by Perth & Kinross Council (Landlords), Executive Assistant to
Assignation to be executed by signature and under seal as deed to satisfy
I_English and Scottish law. (x1).
18717 06/09/2017 07/09/2017 Disposition related to 109 South Street, Perth between Post Office Limited I Victoria Moss, Deputy Company I Jean Reynolds
Disposition (Vendor) and Kilpatrick Property Group Limited (Purchaser), Secretary; Diane Blanchard,
Assignation to be executed by signature and under seal as deed to satisfy I Executive Assistant
English and Scottish law. (x1).
75721 Transfer 08/09/2017 07/09/2017 I Transfer of whole registered title in respect of 13-17 North Street, Strood, I Victoria Moss, Deputy Company I Jean Reynolds
Registry ME2 ASL (Title no Ki21126). Transferor: Post Office Limited; Transferee: I Secretary
I Hardev Singh and Charanjit Kaur. Seal x1
1573] Minute of 13/09/2017 12/09/2017 I Minute of Variation of Lease in respect of First Floor, 489 Union Street, Victoria Moss DCS and Sarah__I Jean Reynolds
Variation of Aberdeen AB1 1 GAZ, between the Post Office Limited (Landlord) and Koniarski, ACS
Lease Intelligent Plant Limited (Tennant). x1
1874 I Deed of 75/09/2017 77/09/2017 I Deed of Surrender in relation to the Premises known as Unit 8, Seacroft I Victoria Moss, Deputy Company I Jean Reynolds
Surrender District Centre, Leeds LS14 6JD. A surrender of lease dated 12 Secretary
September 2008 between (Landlord) Leeds City Council, (Tenant) Post
I_ Office Limited. (x1)
1575/ Surrender I 15/09/2017 17/09/2017 I Assurrender of an underlease dated 18 November 2008 between Victoria Moss, Deputy Company I Jean Reynolds
of Sub Lease
(Landlord) Post Office Limited and (Tenant) Mr Yiyaz Loonat, which
subsequently was assigned to Mr Samvarta Bandyopadhyay. x1 )
Secretary
Register of Sealings
Jane MacLeod
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POST OFFICE BOARD
Performance Review — Health and Safety
Authors: Martin Hopcroft Sponsor: Al Cameron Meeting date: 26 September 2017
Executive Summary
Context
1.1 Keeping our employees healthy and safe is fundamental to Post Office success. This
is reflected in the Post Office Board’s legal responsibilities and members of the
board have both collective and individual responsibility for health and safety.
1.2 Our Health & Safety performance has improved significantly in the past 6 years
and we have a rolling 3-yer plan to drive compliance, targeting a reduction in safety
metrics including accidents; lost time accidents; days lost; and personal injury
claims. Our H&S reporting and safety management system is measured against the
externally recognised standard, OHSAS 18001. We also recognise the importance
that wellbeing can play in creating engaged and motivated employees.
Questions this paper addresses:
2.1 What is going well across health and safety and what are the current activities?
2.2 What are we doing to mitigate the key risks, including driving and robberies?
2.3 Are there any significant emerging risks?
Conclusion:
ds Accident Performance, including absence accidents and lost days have returned
to normal in July and August (see Report-H&S Metrics), Benchmark data is being
collated from suppliers/insurers/partners for reporting in October to GE & ARC.
2. Mitigating action has reduced road risk which remains at a low level. An
overarching policy will be developed for all business drivers (inc. personal car users).
3. Whilst there were only 2 CViT attacks in P4 and P5, Post Office robberies remain
high with a number of initiatives being deployed in hot spot areas, however trend is
now downward.
4. The overall level of Property risk at 3ist August was predominantly low, however,
there are some high risk exceptions being reviewed. The FM contract amended to move
to a proactive fabric management regime. A serious signage incident on the 3rd August
has increased the current ‘building fabric’ risk to high, whilst measures are put in place.
Signage checks are being undertaken by CBRE across the whole estate and will be
completed. Current property statutory compliance is good at 95.63 and we are now
tracking remedial actions with 80.24% completed. Current fabric ‘cladding’ checks have
been reported ‘clear’ with no remedial work required.
5: Following the H&S deep dive review, a number of actions are progressing,
including a review of road policy, guidance for lone workers, safety of vacated buildings,
competency and statutory compliance. A 3rd Party Audit will be arranged in Q3 to
review the Post Office Safety Management System.
6. A number of initiatives are being developed to raise awareness of mental health
support and resources, including Awareness Workshops, and introduction of Mental
Health First Aiders to provide proactive support to colleagues across the business.
Input Sought
The Post Office Board are requested to note the current health safety performance and
content of this report. A deep dive review discussion will take place in October.
Strictly Confidential Health & Safety Report Sept 2017
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The Report - H&S Metrics
Summary of Safety Performance - YTD Period 5 (Aug 2017)
All Accidents - Monthly - Period 5
(Target to achieve a 5% year on year reduction)
Directly Managed Branch
Accidents P5 YTD.
20
15
10
0
PL P2 P3 P4 PS
2016/17 2017/18
Accidents have returned to normal levels and are consistent with 2016/17.
There have been 62 accidents YTD compared to 61 in 2016/17.
Causation is consistent with previous years in DMBs and due to falls indoors,
lifting and handling and stepping and striking. Whilst stepping and striking
and non RTA vehicle related accidents have increased in Supply Chain
recently, lifting and handling related incidents have reduced.
There was 1 lost time accidents reported in P5 with 10 lost time accidents
YTD 2017/18 and 277 total lost days which is a 5% decrease compared to
2016/17 but a 17% decrease compared to 2015/16. Cumulative Trends can
be seen per 000 employees in the graph below. Total lost time / 000
employees has risen by 20%. Trauma related total lost days, following an
attack, are 60% down (36 days 17/18 v 86 in 16/17).
DAYS LOST DUE TO ACCIDENT / 000 EMPLOYEES -
CUMULATIVE
“I
_ al
a
ya
2
Pt p2 P3 P4 PS
— 2015/16 — —2016/17 — —2017/18
Post Office total lost days: 33 in Period 5 due to an ongoing absence in DMB.
DMB total lost days P5 YTD : 153 (96 in 16/17) - 1 slip/trip, 1 lifting, 1 fall
Supply Chain tot lost days PS YTD: 141 (109 in 16/17) 1 RTA, 3 falls, 1 lifting
Support total lost days P5 YTD : 6 (6 in 16/17)
Post Office CViT Robberies — P4 (July 17)
There was 1 incidents reported in July v 5 in 2016/17 and 8 YTD v 14 YTD in
16/17. Trend is being monitored closely. Task Force vehicles deployed in usual
hot spots with cross pavement observations. Merseyside identified as current
industry hot spot area. Regular Security team attendance at monthly ‘Operation
Guardian’ meeting to highlight and mitigate against CViT criminality in the area.
20
15
10
5
0
Year to Date
15/16 31
16/17 22
17/18 23
Supply Chain
Accidents P5 YTD
30
25
20
15
10
5
0
Year to Date
15/16 31
16/17 21
17/18 36
Post Office (All branch types)
Robberies ~ P4 (July 17)
There were:
(152 incidents in 16/17 v 104 in 15/16)
13 incidents in April v 3 (16/17)
15 incidents in May v 7 (16/17)
8 incidents in June v 11 (16/17)
4 incidents in July v 8 (16/17)
22 burglaries YTD v 34 in 2016/17
69 compared to 129 rolling 12 mth
Recent trend is reversing.
A review of causation and mitigating
activity has been undertaken by the
Security Team including TORCH visits to
hot spot branches to verify for compliance
to security standards.
2017/18 P4
Violence - 1 vs 2 last year
Injuries - 0 vs 2 last year
Weapons - 12 (6 firearm) vs 9 last year
(3 firearms)
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LTIFR - Lost Time Incident Freq Rate
—e=LTIFR DMB =e=LTIFR Supply Chain —e==LTIFR Post Office —e=LTIFR Target
Lost Time Injury Frequency Rate (LTIFR) - Period 5 YTD
Supply Chain All Post Office - Employee
YTD P5 - 0.880 YTD P5 - 0.303
2016/17 out turn - 0.586 2016/17 out turn - 0.168
2017/18 target - 0.500 2017/18 target - 0.180
Road Risk
P4YTD Road Traffic Collisions Road Traffic Incidents - Cumulative
. 33 RTC’s - YTD.
. 5 at fault, 3 not at fault 90
* 4 minor RTC’s, 4 major in
respect of damage costs.
* Some additional analysis is being 80
done regarding fleet size, staff
hours and headcount for future 70
reporting.
Comparing 2016 v 2017
* There were 77 RTCs YTD in 60
2016/17 v 33 this year (17/18),
a 57% reduction YTD.
+ At fault RTC’s were 42 in 50
2016/17 and have reduced to 20
in 2017/18, a 52% YTD 40
improvement
Enhanced MI and accident analysis is 30
starting to be provided and shared and
will be included in future H&S reports. 20
An overarching Road Risk Policy, with
improved training and compliance checks 10
is being developed by the Fleet I I
Management team to cover Commercial 0
PL P2 P3 P4
Fleet, Business Cars and Personal Car
use.
Driver Training is being developed and BAIl 16/17 BAIL 17/18 wAt Fault 16/17 wAt Fault 17/18
will be launched on Success Factors asap.
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Summary of Wellbeing Performance - YTD Period 5 (Aug 2017/18)
* The overall attendance level remains stable at 96.6% YTD P5 (August 2017/18). Short Term absence
is 1.0% YTD and long term absence has increased to 2.4% YTD. Supply Chain Long term sick
absence has increased to 2.7% and DMB LTS increased to 2.9%. Whilst there will be a degree of late
reporting and housekeeping of absence records due to annual leave of managers, work is currently
under way to understand the causation of long term absence across the business areas and suitable
intervention and support provided.
« The Post Office Occupational Health provider OH Assist are incurring service delays following their IT
system upgrade and are working closely with Post Office to prioritise referral appointments and
Occupational Physician appointments for long term absence cases.
+ Mental health related absence remains the most common cause of long term absence and there is an
increase in lost days in Directly Managed Branches. Some additional analysis is being undertaken by
our Occupational Health and HR Service Providers to understand trends and areas of concern and to
target intervention.
» Proactive activity across the business, includes ‘positive mental health awareness’ sessions for
colleagues, additional awareness training being piloted for line managers and the introduction of
Mental Health First Aid initiatives. The recruitment approach for MHFA is being developed with the
HR Business Partners and OH Assist ™ and training courses planned for September and October. A
GE sub-committee meeting was held in September to discuss and agreed to support the Mental
Health and Wellbeing Plan and initiatives.
The Report
2.1 What is going well across health and safety and what are the current activities?
2.2 What are we doing to mitigate the key risks, including driving and robberies?
SAFETY and ENVIRONMENT
Performance remains strong across key health & safety metrics, including road risk and
CiT related robberies (see Report-H&S Metrics). Current activities include:
1. Person in Control (PiC) Training — The H&S team are continuing to support all
PiCs and checking that all have received suitable training and are competent.
2. Fire Training — Directly Managed Branch Managers, Supply Chain Managers and all
colleagues using Success Factors have received online training. Additional Fire
Wardens have been trained at Finsbury Dials and procedures reviewed.
3. Property related risk (As reported in the Property Compliance Report)
« Current overall compliance, measured by up to date inspections is 95.63%.
« Fire risks have been closed out and this year’s programme will commence in Q3.
e Electrical 5yr inspections are now BAU and remedial actions rectified at the time.
e Fabric projects for 17/18 are under review to ensure we optimise the capital budget
on the higher priority sites. Cladding surveys have been undertaken at four
higher risk sites and reported that no remedial work is required.
Objectives next 2 months include; further fabric inspections and site audits to
prioritise capital spend; inspection of all Post Office premises by end of October.
4. Health & Safety Activity Calendars - To ensure Health & Safety activities are
undertaken, H&S BPs are attending Lead Team meetings to help raise awareness
and compliance and this is being extended across all areas of the business in 17/18.
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5. Road Risk - The volume of road traffic incidents continues to reduce. The Fleet
Management Team are developing an overall Road Risk Policy, working closely with
the Travel Manager, H&S and Benefits and Rewards teams.
6. Security / Robbery Risk - To mitigate risk following the recent increase in Post
Office robberies, additional TORCH surveillance visits are being undertaken. CViT
related incidents remain low.
7. 3° Party Audit - Head of H&S is in discussion with a number of providers including
the British Safety Council, HSL and NSI to prepare for an independent audit of the
Post Office H&S Management System to commence in Q3 to identify weaknesses
and improvement opportunities to achieve world class status.
8. Environment - The Environmental Tactical Group has reviewed policy, plans and
energy and recycling data submitted by CBRE and developing 2020 strategy.
HEALTH & WELLBEING
1. The Health & Safety team are raising awareness of resources that are available to
colleagues at Support Centre, Supply Chain & Directly Managed team meetings.
2. Mental Health awareness workshops are being provided to up to 500 managers
before Christmas and will continue to run in the New Year.
3. The Occupational Health provider has provided guidance for ‘Mental Health First Aid’
training for volunteers across the business (approx 60). The selection criteria has
been considered by the HR Directors and Consultants. Applications will be invited in
September and training is being scheduled for October / November.
4. All business areas are considering the best way of delivering ‘Time to Talk’ Mental
Health Training and we are talking to Time to Change organisers about a sustained
programme of support for our colleagues.
5. Health Checks will continue to be offered to all employees (either Kiosk or Mobile)
6. The range of available OH services has been extended and current activity includes:
o Launch of the Post Office Wellbeing Portal, enabling access (externally and
internally) to all services and resources through one landing page.
Extension of the absence ‘case management’ pilot, OH Assist™ Advice Plus.
Training provided to Support Centre call advisers and team leaders for
‘difficult’ and traumatic calls to be extended to Contract & Security Managers.
7. The ‘Be You’ (Inclusion and Diversity) Group have planned an event to support the
Mental Health Foundation day on the 10°" October in Finsbury Dials and Future Walk.
What additional activity has been undertaken to address specific risks?
1. Compliance to Driving and Mobile Phone Policy
A check has been incorporated into the local risk assessment document undertaken
by all line managers who have staff who drive for work. A new online training module
is being developed and will be issued via Success Factors in Q3.
2. Security and lone working in Support Centres
H&S, Property & Security Managers are reviewing personal security arrangements
in place at Support Centres & satellite offices. The upgrade of security & access
arrangements at Finsbury Dials has been agreed.
3. Fire Training and Evacuation Plans
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Additional Fire Wardens have received training at Finsbury Dials and an evacuation
plan worked through and reviewed in conjunction with the Business Continuity Plan.
Communications will be issued to remind staff of the evacuation plan. Online Fire
Training was also issued in July and August to all those with access to Success
Factors and Persons in Control have reviewed their evacuation plans.
2.3 Are there any significant emerging risks for 2017?
1. Change Programmes
e H&S Business Partners are monitoring absence, accident causation and working
closely with lead teams, providing training and improving the focus on safety,
attendance management and wellbeing across the business.
e The Induction Programme, including H&S content, has been reviewed and
updated to ensure line managers of new employees complete the checklist.
e Support and training has been provided to upskill Supply Chain Shift Managers,
ensuring records brought up to date to meet OHSAS 18001 audit requirements.
2. Property / IT - Disposal of hazardous waste — Whilst inherent risk is low, there
is a requirement to recycle Horizon printer cartridges and a solution is being sourced
by IT and Procurement. Current Objectives include: Closure of outstanding
remedial actions from previous ‘5 Year Electrical Inspections’, further fabric
inspections and site audits (see below). Property — Signage - A specific high risk
issue has emerged for the fabric of our buildings, as reflected by the recent incident
at Muswell Hill DMB. The incident was managed very well locally with escalation to
local authority or HSE unlikely. All signage has since been checked at Royal Mail
shared buildings. Guidance was issued to Agents in April and will be reissued in
September. There is an ongoing internal investigation being undertaken to assess
the current maintenance and contractual arrangements in place with our preferred
FM partner (CBRE) to check that all of the fabric checks have been/will be undertaken
and will include signage. In addition we are
a. Checking the obligations of our partner CBRE are both understood and
fulfilled and checking where provision may have been switched off following
previous contract reviews, exposing Post Office to additional risk.
b. CBRE are checking all signs affixed to POL buildings and shared buildings
c. Undertaking a profiling of fabric risk across the estate with urgency and the
forward maintenance plan updated
The investigation has identified a causation of substandard plywood materials
being used for fixing signage and whilst the current priority is to control the risk
and check the rest of our estate, ongoing investigation will help us understand
the extent of the problem.
3. Mental Health - A number of initiatives have been implemented to raise awareness
of mental health resources, including support for ‘Time to Change’ initiatives. Mental
Health Awareness Workshops have been successfully piloted and are rolling out
initially for up to 500 managers. It has also been agreed to introduce and train up
to 60 Mental Health First Aiders during Q3 to provide proactive support to colleagues
across all areas of the business.
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BOARD DECISION PAPER
Directors’ Duties - Health and Safety
in the Agency Network
Author: Zoe Brauer and Jean Reynolds Sponsor: Jane MacLeod Meeting date: 26 September 2017
Executive Summary
Context
At their July meeting, the Board was presented with a briefing note setting out the
duties owed by the Directors in relation to Health & Safety matters regarding
employees. The Board subsequently requested an equivalent paper to discuss any
similar duties of Directors from a health and safety perspective in relation to POL's
network of agent-run branches.
Questions addressed in this report
1. What are POL’s duties in respect of health and safety in the agency branch
network?
2. Do the directors have personal liability regarding these duties?
3. How does the Board get assurance that POL is discharging its duties?
Conclusion
1. POL is required to conduct its business, including the agent-run branches, in such a
way as to ensure that, so far as is reasonably practicable, that persons not in its
employment (including agents and customers) who may be affected by that business
are not exposed to risks to their health and safety. What is reasonably practicable is
determined by, for example, the reduced level of control that POL has in respect of
the agent-run network.
2. Directors have an oversight obligation in respect of health and safety in the agent-
run network, which arises from their duty in the Company Act to ensure they
promote the success of the company. A director will only be personally criminally
liable if a breach of health and safety occurs as a result of their neglect, connivance
or consent. The risk of personal criminal liability on Directors in respect of the agency
branches is considered to be very low.
3. The Board will be considered to have discharged its duties in terms of health and
safety if it acts in accordance with the principles of best practice found in the
HSE/IOD Guidance "Leading and Health and Safety at Work" having regard to its
duty which is constrained by what is reasonably practicable in the circumstances.
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Input Sought
1. The Board is asked to note the
report.
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Input Received
. External legal advice has been
obtained and the Head of Health and
Safety has reviewed and contributed
to the report.
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The Report
What are POL’s duties in respect of health and safety in the agency branch
network?
4. The primary statutory provision applicable in respect of the agent-run network is
Section 3 (1) of the Health and Safety at Work Etc Act 1974 (HSWA). HSWA requires
POL to conduct its "undertaking" (ie business), in such a way as to ensure, so far as
is reasonably practicable, that persons not in its employment (including agents and
customers) who may be affected by that business are not exposed to risks to their
health and safety. What is reasonably practicable depends on the relevant
circumstances but would take into account the reduced level of control that POL has
in respect of the agent-run network.
5. The agents have a direct responsibility for the health and safety of their own
employees and also for health and safety in respect of their premises. In so far as
POL takes action, exerts control, undertakes obligations or is otherwise responsible
in respect of the agent-run network, it needs to comply with section 3 above. If POL,
for example, provides equipment to agent-run branches it would need to ensure that
such equipment complies with health and safety requirements.
Do the Directors have personal liability regarding these duties?
6. The broad duty on Directors, under the Companies Act 2006 "to promote the success
of the Company", means that the Board should satisfy itself that as an organisation
POL is taking all reasonable practicable steps to ensure that its business activities,
including the operation of the branch network, does not give rise to a risk to non-
employees including agents and customers. There are no specific prescribed
statutory duties placed upon Directors in relation to health and safety simply by
holding the office of Director.
7. Under Section 37 HSWA, if an offence (such as s.3 HSWA above) by POL as a
corporate body is proved to have been committed with the consent, connivance or
due to the neglect of a Director then that Director may be prosecuted personally as
well as there being a prosecution of POL as a corporate body. However, if the Board
approaches health and safety in the manner described below prosecution is highly
unlikely particularly given the heightened criminal standard.
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What assurance does the Board have that Health and Safety is managed
properly at Post Office?
8. As flagged in the previous report, POL should follow the HSE/IOD guidance "Leading
Health and Safety at Work". If the key principles within that document are followed
that will provide clear evidence that directors are discharging their duties from a
health and safety perspective including in relation to the agent-run network.
9. The table below sets out the HSW/IOD Guidance and POL’s controls at a high level
that would be relevant to the agent-run network:
POL Controls
The CFOO is the executive with ultimate
responsibility for health and safety and the
Head of Health and Safety has a reporting line
through to the CFOO.
The Post Office has a Health and Safety policy
approved by the Group Executive.
HSW/IOD Guidance Process
Planning - setting the direction
for effective health and safety
management in relation to its
network of branches.
Health and safety matters are considered
monthly at the Operations Board and quarterly
at Group Executive level through the Health
and Safety Committee which covers any
incident arising in the agent run network that
relates to POL’s duty will be reviewed and
where appropriate, mitigating action agreed.
System / Controls - This will be
achieved by ensuring there is an
effective system or controls in
place covering:
« Any equipment it provides to
agents for their use in the
course of Post Office
business is safe and
appropriate.
« Where under leases/licences
POL has responsibilities for
repair and maintenance of
premises that it has in place
appropriate systems of
inspection, maintenance
and repair.
« Any specific risk known to
POL is communicated to
A range of management committees consider
matters including branch operation, building
compliance (including premises let to agents),
fit outs and refurbishment of post offices
(including agency branches) by or at the Post
Office’s whole or partial expense.
Some of the other controls include:
e The equipment team works closely with
the Head of Health and Safety to ensure
that equipment provided is safe and
appropriate.
¢ The property team ensures that the Post
Office meets its obligations including
statutory compliance obligations. It
reports into the Health and Safety
committee.
POL also ensures that safety issues are
considered in designing branches by having
regard to the requirements of the Equality Act.
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agents so that those agents
can take appropriate steps
to assess and manage those
risks.
« Where health and safety
failings on the part of
agents become known to
POL that POL takes steps to
ensure that agents address
those risks.
« Where POL undertakes, or
has undertaken on its
behalf, refurbishment or
construction works in
agent's premises that those
works are appropriately
planned and executed.
Accessibility guidance is provided to Network
Support Teams and Contract Advisors.
POL has recently obtained assurance from our
specialist legal advisors that the procedures
and processes we have in place for the
Whitespace project (including giving specific
guidance to Agents as to how to meet their
health and safety obligations) is fit for purpose.
Reporting — The Board should
receive specific reporting on any
health and safety issues arising in
the agent run network and which
relate to POL’s duty
A Health and Safety report is produced monthly
for the Group Executive and each Board
meeting. The report will include any incident
arising in the agent run network that relates to
POL’s duty and will include mitigation action.
Review - There should be
periodic boardroom reviews of
health and safety issues that could
impact the agent -run branch
network (as set out in
Systems/Controls above) and that
any actions identified from such
reviews are followed through.
Deep dives are undertaken by the Health and
Safety Committee on specific risk areas, and in
depth Health and Safety briefings are provided
to both the Group Executive and the Board at
least once a year. The Board is given
assurances that actions previously identified
are carried through.
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Post Office Limited Board Meetings
Author: Jane MacLeod Meeting date: 26 September 2017
Executive Summary
Context
The Directors are requested to note the future meetings dates scheduled in respect of
Post Office Limited Board meetings.
Input Sought
The Board is requested to note the future meeting dates.
The Report
2017
Date Time Notes
Tuesday 31 October 2017 09.30 - 14.00
Thursday 23 November 2017 13.30 - 17.00
2018
Date Time Notes
Thursday 1 February 2018 11.45 - 16.30
Tuesday 27 March 2018 11.45 - 16.30
Thursday 24 May 2018 11.15 - 16.00
Tuesday 26 June 2018 TBA Board Away Day
Wednesday 27 June 2018 TBA Board Away Day
Tuesday 31 July 2018 11.45 - 16.30
Tuesday 25 September 2018 11.45 - 16.30
Tuesday 30 October 2018 11.45 - 16.30
Tuesday 27 November 2018 11.45 - 16.30
Board September 2017
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