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Post Office Limited
Board Meeting
MINUTES OF A MEETING OF THE BOARD OF DIRECTORS OF POST OFFICE LIMITED HELD
ON MONDAY 29TH JANUARY 2018 AT 20 FINSBURY SREET, LONDON EC2Y 9AQ AT
12.15PM
Present: Tim Parker Chairman (TP)
Richard Callard Non-Executive Director (RC)
Tim Franklin Non-Executive Director (TF)
Ken McCall Senior Independent Director (KM)
Carla Stent Non-Executive Director (CS)
Virginia Holmes Non-Executive Director (VH)
Paula Vennells Group Chief Executive (CEO)
Alisdair Cameron Chief Financial and Operations Officer (CFOO)
In Attendance: Jane MacLeod General Counsel & Company Secretary (JM)
Marla Balicao Minute Secretary (MB)
Tom Cooper UKGI Observer (TC)
Debbie Smith Chief Executive, Retail (DS) (items 5,6,7&
8)
Cathy Mayor Finance Director, Retail (item 5 & 7)
Martin Kirke Group HR Director (MK) (item 6)
Julie Thomas DMB Programme Director (item 6 & 8)
Tom Wechsler Programme Manager Mediation Scheme (TW) (item 7)
Andrew Goddard Head of Payment Services (AG) (item 7)
Rob Houghton Group Chief Information Officer (RH) (item 9)
Apologies: None
ACTION
1. INTRODUCTION, CONFLICTS OF INTEREST, MINUTES OF THE PREVIOUS
BOARD MEETING INCLUDING STATUS REPORT
1.1. A quorum being present, the Chairman opened the meeting.
1.2 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.
1.3. Minutes of the meeting of the Board held on 23" November 2017 were approved
and authorised for signature by the Chairman.
1.4 The actions status report was noted as accurate.
2. CEO’s REPORT
2.1 The Board noted the CEO report. In response to questions, the CEO made the
following additional points:
2.2. (a) PV noted that strong performance overall during Christmas period for retail
and that DS would cover in more detail in her report.
(b) PV gave an update on Peregrine and that negotiations have been positive since
the arrival of new Group CEO. They are keen to do a deal and hope to get
formalised by the end of February. They have accepted the cost base but
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don’t want to change the contract but are happy to do work arounds. Also up
for discussion is the new commercial construct of FRES.
(c) PV reported that MK has done a stunning job with Success Factors (“SF”) which
launched on 8* January with only a few teething problems. Payslips are due
to be available on SF this week. Overall feedback has been positive.
(d) PV reported that she met with Stephen Jones, CEO UK Finance in December
and on 24 January sent a joint response in relation to the Banking Framework.
(e) Union Activity - RMG have signed a deal with the unions details of this deal
still to be announced.
(f) I PV noted that L300 event was taking place tomorrow with three main areas of
discussion around IT Strategy, wider digitisation and people change. The focus
on strategy within the business and key priorities. It was noted that there
would be an afternoon session on decoding, to get people comfortable with
technology.
(g) PV informed the Board that due to Prime Minister’s reshuffle, we have a new
Postal Minister - Andrew Griffith MP. This is still to be confirmed officially and
PV is still to meet him.
(h) PV reported some personnel updates. Martin Kirke, Group HR Director is going
to retire later this year and a search for his replacement has started. Debbie
Smith joined as Chief Executive, Retail on 8 January and has hit the ground
running.
(i) I TP asked if we were to receive compensation from Gemalto in relation to the
disruption to our AEI services in December. PV responded that they had been
compensated and a paper went to the ARC this morning on this matter.
FINANCIAL PERFORMANCE REPORT
The CFOO presented the P9 financial performance report covering December 2017.
The Board noted the financial performance report and in discussion the CFOO made
the following points:
(a) Balance sheet headroom in P9 was £127m which was £129m worse than P8&
due to Christmas trading, but £36m better than forecast.
(b) Strong Christmas trading with £6.8m EBITDAS, giving us a £1.7m upside
against forecast.
(c) AC noted that POMS were still behind by £(0.5)m predominately due to profit
share not being met. Struggling performance of ATMs and availability has
fallen. 420 ATMs have been experiencing issues resulting in 65% availability.
This is primarily due to cash jams following the introduction of new £10 notes.
The Board discussed the future of ATMs and the shrinking industry it was in.
AC noted that this was part of the cash strategy which would be coming to
back to the Board in May.
(d) KM asked about the ‘trapped Postmasters’ and PV responded that this would
be coming back to Board at the end of the financial year.
(e) AC noted that white space branches are growing and doing well.
(f) I Project spend is below forecast as a result of the delay in DMB franchising
announcement.
(g) KM asked if AC was more confident around staff costs as the cost base looked
disappointing. AC responded that there had been a mixture of factors relating
to this. Started the year with lower FTE and been maintaining control but
some places such as depots we had to put more people in as had cut too much.
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4.2
5.1
5.2
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AC explained that we need to change through technology such as getting
POLSAP and HNGX out.
ANNUAL BUDGET 2018/19
The CFOO presented the Annual Budget for 2018/19 and highlighted the following:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
The focus of the paper was on EBITDAS. The GE had reviewed progress in
December and January and detailed budget reviews were due to start next
week.
AC noted that when the 3 year plan was signed off in October, the Board
were happy with the EBITDAS of £40m for 2018/19 but due to accounting
changes and Sparrow costs now being excluded it has increased. A
recommendation of £47m would be consistent with 3 year plan.
The Board felt £47m was quite conservative and should be at least £50m.
TF commented that the FS&T revenue lines were disappointing. AC noted
that POMS have been struggling to meet their numbers but a plan in place
to do online marketing and still expect to see growth by next year. PV added
that a new marketing director has been appointed and should improve
marketing overall for POMS.
TF expressed he thought the Mortgage business should be doing better as
it other non-brands mortgages were doing better than £1.8M. KM added
with these numbers should we be in this business. TP noted it was an
intensively competitive market and maybe we should be focusing on the
insurance business.
TP noted that he would like a 5 at the start of the number and that the
growth fund needs to be looked at and to also have a contingency. He went
on to say he was encouraged by initiatives and projects planned which will
deliver great benefits for the PO and is the way forward.
The Board discussed the Retail business and questioned how the Mails
business be more profitable. PV noted that the Mails strategy was DS
being worked on by Debbie Smith who recently joined in place of
Kevin Gilliland and would be covered in June for the away days but
would also like to bring back in March.
AC noted that with regards to the STIP he wanted to make it different from
LTIP and that this proposal would be discussed at RemCo in February and
brought back to the Board for March. The GE had debated supplementing a
retained EBITDAS with two critical pieces of delivery: getting us off
deteriorating infrastructure by replacing POLSAP, HRSAP and HNGX; and
creating customer hub functionality with products available for customers in
Travel and Identity. The gateway measure could be retaining more than
11,500 Post Offices.
CE PERFORMANCE REPORT - RETAIL SBU
The Chairman welcomed Debbie Smith, the new Chief Executive for Retail and Cathy
Major to the meeting to introduce the Retail performance report and noted the paper.
DS noted that 2 weeks ago she attended the opening of the first 24 hour branch in
New Oxford Street.
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CM reported on the following:
a) Christmas was very strong with a growth rate of 2% which was better than
previous year.
b) Christmas trading came later in week 39 this year as consumers appear to be
leaving things later.
c) Customer services levels improved year on year.
d) The no queues at Christmas initiative brought wait times down by 2 minutes an
improvement by 4%.
e) Continued growth on home shopping returns and local collect which help offset
ongoing decline in stamps.
f) Trends positive with £3m upside and forecasting £7m ahead of budget this year.
g) The Board brought up the discussion of Agents pay and it was agreed DS would
be looking into this and come back to the Board in June with a strategy.
DMB STRATEGY
The Chairman welcomed Julie Thomas and Martin Kirke to the meeting.
The following points were highlighted to the Board:
a) DS noted to the Board that it was clear that DMB’s are not profitable or meeting
our customers’ needs and have looked at options to reduce costs and in
particularly people costs through Project Jay. DS noted that the DMB strategy
proposed today will be over a three year period.
b) JT reported that the Franchising Programme that they propose today has been
designed to franchise all 227 DMB’s and staff over a three year period.
c) JT explained the two stage franchise model. The process would sequence the
DMB exit first by using the current DMB property estate with flexible lease terms
to host interim franchise branches, managed and staffed by temporary
operators. This will enable immediate staff cost savings while the recruitment of
the long-term operator and branch location is progressed in parallel.
d) JT noted that they currently they have 3 temp operators interested who are well
established organisations who can manage 30 branches at the same time. It is
an attractive proposition for them with low risk and low investment.
e) The Board asked about the impact on the employees and how much disruption
this would cause. JT responded that they would start the staff consultation
process by telling them about new Branches being advertised in the area and
the strategy of replacement of DMB’s over the next three years.
f) TP noted that structurally this is the right thing to do and would change the
nature of the business and benefits to our customers.
g) JT requested approval from the Board to progress the Franchise Programme with
the immediate funding of £23.1m for 2018/19, which would allow us to continue
our Franchise Programme in 56 branches.
It was RESOLVED that the progression of the Franchising Programme be approved
as well as the drawdown of the first year of funding of £23.1m for 2018/19.
PROJECT PANTHER
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7.1 The Chairman welcomed Tom Wechsler and Andrew Goddard to the meeting.
7.2 DS started by summarising the benefits of the Project Panther and TW and AG took
the Board through the progress of negotiations to date. The following points were
discussed:
« TW noted that the biggest hurdle would be CMA submissions as if this deal were
to go ahead we would have a greater market share and was working with the
legal team in anticipation of this.
« The technology of Payzone was raised and AG reassured the Board that the due
diligence undertaken had been very thorough and there would be added security
costs on implementation. There was also potential value add from their
technology and an opportunity cost on building on their technology.
« RC asked if State Aid would be an issue with CMA and JM noted that the PO has
enough money coming from revenue to fund this so no State Aid was required.
« The Board discussed the implications of this deal and were in agreement that
this was a rare opportunity for PO and makes sense to go ahead with deal.
« TW and AG asked the Board’s approval to continue working along the lines set
out in their paper presented today with a view to an additional Board call in
February. This call would, subject to the work underway, seek to confirm the
valuation, satisfy outstanding questions and recommend that we proceed to
signing Heads of Terms.
7.3. It was RESOLVED that the Board approved the progression of Project Panther in
line with recommendations set out in the Board paper. It was further agreed that
once valuation had been confirmed and outstanding questions resolved then a
further Board meeting be called in February to sign Heads of Terms.
8. EUM
8.1. The Chairman welcomed Julie Thomas back to the meeting to present the
replacement business case for EUM paper.
8.2 e JT started by explaining that since the Board approved the initial EUM business
case of £7.8m in January 2017, it has since become clear that a key design
assumption that all training could be delivered through Success Factors is not
correct as the current Horizon system does not support web-enabled training.
« This updated Business Case requests £2.53m of additional funding to deliver:
new IT developments needed to ensure EUM will work for agents using the
current Horizon system.
« Approval of funding will allow the programme to rollout to the entire network of
c11,600 branches by November 2018 with a workable design, allowing us to be
fully compliant with all relevant sales-related regulation.
e The Board noted their concerns over the delay in the roll out of this programme
but also felt lessons have been learnt and this was needed to be done.
8.3. It was RESOLVED that the Board approved the revised scope and business case
which included the funding requested at this stage of £2.53m, including an
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9.2
9.3
10.
10.1
10.2
11.
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immediate draw down of £1.3m. The Drawdown of the balance £1.23m in due
course should be brought to the Investment Committee.
BACK OFFICE TRANSFORMATION
The Chairman welcomed Rob Houghton to the meeting and the CFOO presented the
replacement Back Office Transformation business case.
« The CFOO gave an update on the progress of Back Office Transformation since
the September update and to explain the proposed changes to the Business
Case with a request for the next drawdown of funds that will allow the
programme to complete Phase 1.
e Phase 1 remains focused on ensuring we exit from POLSAP by June 2018,
delivering as much transformation as possible. In the next 2 months we expect
to deliver: Agent Remuneration process transformation & data migration from
HRSAP to CFS and Cash Processing functionality migrated from POLSAP to
Transtrack for Belfast cash centre (soft launch).
« It was noted that while costs have remained relatively flat (up £0.3m),
annualised IT benefits have reduced by £0.8m to £3.1m.
e RH noted that in the CTO space there was a gap in architecture skills and this
has been resolved with a much better operational team in house now in place.
It was RESOLVED that the Board approve revised business case and additional
£5m drawdown of budgeted spend to enable the completion of Phase 1, noting the
reduction in IT cost benefits.
BOARD COMMITTEE CHAIR UPDATES (VERBAL)
ARC
CS provided the following update:
R&CC
KM provided a update and noted the following:
ITEMS FOR NOTING
Sealings
It was Resolved that the affixing of the Common Seal of the Company to documents
numbered 1604 to 1636 inclusive in the seal register was confirmed.
Health & Safety
The Board noted the report. The CFOO noted that they were doing more around
threats of violence on staff and a deep dive would be undertaken and come back to
the Board. Body cameras were being trialled and as result fewer attacks on staff
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have been observed.
11.3 Conflicts of Interests
The Board noted the future meeting dates and January’s agenda.
Meeting Dates and Forwards Agenda
The Board noted the future meeting dates and January’s agenda.
12. AOB
12.1 Bank Ring-Fencing Changes
The Board previously approved Post Office entering into a Facilities Agreement dated
26 November 2015 with the Royal Bank of Scotland plc (RBS) under which RBS
makes available: a £400m intra-day facility; a £350m overnight NRF facility (for the
purpose of providing overnight collateral to the Bank of England); and a £1m
collateral facility used in connection with our crime insurance (Facilities
Arrangement). (See Schedule 1.)
As a result of the UK government’s ring-fencing requirements which come into force
on 1 January 2019, RBS has to restructure their activities and legal entities (which
includes the National Westminster Bank plc (Nat West). Nat West will sit within the
ring-fence of retail & business banking within the RBS Group.
Consequently, POL needs to enter into an Amended and Restated Facilities
Agreement with RBS and Nat West to allow Nat West to provide the Facilities
Arrangement going forward.
IT WAS RESOLVED THAT:
1) The terms of and the entry by the Company into the Amended and Restated
Facilities Agreement with RBS and Nat West (‘ARA’) and the other 2018 Ring-
fencing Documents, and all other documents which are required to be entered
into by the Company from time to time in connection with or pursuant to any of
the foregoing (the “Ancillary Documents”), be and are hereby approved;
2) The CEO or CFOO be and is hereby authorised for and on behalf of the Company
and in its name to agree such amendments (whether additions, deletions or
other changes) to the ARA and the other Ring-fencing Documents and the
Ancillary Documents as they shall deem appropriate subject to them being
satisfied that the credit standing of any new legal entity counterparty is equal to
or better than the existing legal entity (and whether such amendments are
agreed before such documents have been entered into or are agreed after such
documents have been entered into and are effected by entering into new
documents or otherwise);
3) The CEO or CFOO be and is hereby authorised for and on behalf of the Company
and in its name to execute and enter into (and in the case of any deed, to
execute and deliver) the ARA and the other Ring-fencing Documents and the
Ancillary Documents (including any and all amendments as detailed in the
preceding paragraph);
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4) The CEO or CFOO be and is hereby authorised for and on behalf of the Company
and in its name to do all such acts and things as may be required in connection
with the ARA and the other Ring-fencing Documents and the Ancillary
Documents (and any such amendments thereto) and to carry into effect the
purposes of the resolutions passed at this meeting, and to give or execute any
notices, communications and other documents on behalf of the Company in
connection therewith;
5) The CEO or CFOO be and is hereby authorised for and on behalf of the Company
and in its name to approve and execute other documentation with any other UK
regulated bank which is of a similar nature and has a similar effect as the ARA
and the other Ring-fencing Documents and the Ancillary Documents, and to
which the Company and such other UK regulated bank (being one of the
Company’s bankers) is a party subject to the CFOO being satisfied that the credit
standing of any new legal entity counterparty is equal to or better than the
existing legal entity, and the terms of these resolutions shall be deemed to apply
equally to such other documentation as if passed specifically in respect of
thereof.
12.2 Postmaster Litigation Update
JM provided the Board with a verbal update on the Postmaster Litigation. (JM to
provide)
There being no further business the Chairman declared the meeting closed at
16:00pm.
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