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Post Office Limited — Strictly Confidential
POST OFFICE LTD BOARD MEETING (Company Number 2154540)
Meeting to be held at 9.45am on 25 March 2015
in Room 1.19 Wakefield, First Floor, 20 Finsbury Street, London, EC2Y 9AQ
Members of the Board will be asked to declare any interest that could give rise to conflict in relation to
any item on the agenda at the beginning of the item in question
recorded in the minutes of the Board
All interests so disclosed will be
If the Chairman of the meeting deems it appropriate, the member
shall absent himself or herself from all or part of the Board’s discussion of the matter.
10
CEO report
Hawk & POMS
BREAK
Financial Performance
Approval of 2015/16 Financial Plan and Scorecard
LUNCH
Telephony Strategy
Sparrow Update (Verbal)
Board Effectiveness Review
Minutes of Previous Meeting and matters arising
Committee Minutes for noting
Status report update
Board Sub Committee updates (Verbal)
RemCo, FS, Pensions & POAC.
Items for Noting
Significant Litigation Report
Health and Safety Report
IT Procurement
Sealings
Publication of Report and Accounts
Pensions Update
eee eee
Any other business
Date of next meeting: May 2015
CLOSE
Paula Vennells
Nick Kennett
Alisdair Cameron
Alisdair Cameron
Martin George/ Geoff Smyth
Jane MacLeod / Tom Wechsler
Alice Perkins
Alice Perkins
Committee Chairman
Alwen Lyons
Alwen Lyons
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CEO’s Report - March 2015
1. Introduction to this month’s Board and overall strategic priorities
e Ahead of our final Board meeting of this financial year, I want us to celebrate the
unprecedented pace of transformation now underway, and draw confidence from this
as we accelerate our turnaround further in 2015-16. This report provides updates on
developments over the last month, and I would highlight:
o We have had a number of recent successes across our product portfolio: signing
the new Post Office Card Account contract to safeguard the service for a further 7
years; reaching a successful conclusion on the valuation of the general insurance
business to support our buyout from Bol; and launching the Post Office’s identity
assurance service ‘Verify’.
o With the Board’s support, we have taken greater control of the Mediation Scheme
by closing the Working Group, and seen negligible press coverage.
o Weare well ahead of targets for Network Transformation with 5,000 contracts now
signed and the 4,000" transformed branch opened. I would like to thank Kevin
Gilliland in particular for his outstanding leadership of this programme.
o We have now secured agreement from both Unite and the CWU to a new Post
Office pension arrangement which will be launched with effect from 1 April
2015. The scheme will be called the Post Office Pension Plan and is applicable to
all employees who are currently in the Royal Mail Defined Contribution Plan.
o Iam personally delighted by the increases in positive engagement across both our
postmasters (up from 44% to 45%) and staff (up from 58% to 62%). This would be
worthy of celebration in any event, but is even more remarkable at a time of very
significant change, and reflects both strong leadership and open and honest
engagement with our people.
co And finally, the move to the new Customer Support Centre in Finsbury Dials on the
16" March has been a great success, with excellent feedback from staff and a real
buzz around the office. I am already seeing the benefits of the Group Executive
beginning each day around the ‘hub’ and I am confident this move will be a decisive
enabler of a more open, collaborative and agile working culture across the Post
Office.
Key issues for discussion at this Board:
e We have three substantive topics for discussion at the March Board meeting:
e Firstly, I have asked Nick to provide the Board with an update on how we propose to
exercise our option to buy the Bank of Ireland’s share of the joint insurance business
(Hawk). As you know, the Independent Insurance Ex luded that the
is i ‘ithe Board mandate,
this is within the Post Offic
e The Board is asked for approval to allow management to proceed with the acqu
in of
i IRRELEVANT lice and I hada positive and constructive meeting with
Christopher Fisher and Des Crowley from the Bank on the 11" March, which confirmed
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both their interest in continuing to work with us on general ins
to consider investment products. They are, as we anticipated,’
L However, there was commitment on both sides to
understand what it would take for the partnership to be successful such that it could
continue beyond this point.
e Alisdair will then talk us through the latest in-year financial performance followed by
leading a discussion to seek the Board’s approval of the financial plan and scorecard
for 2015-16. At the Board in January we discu: he financial plan which
The latest version of
the plan addresses the Board's feedback, and is substanti ore realistic than both
the previous year’s plan and the draft submission in January. Al and I have led
challenge sessions to review the assumptions underpinning income projections for next
year, and the Group Executive has reviewed the plan on two occasions. This version
sees a reduction in net income to reflect the removal of optimism bias and creation of
contingency, offset by additional cost reductions to retain the EBITDAS target ati"
Whilst more realistic it is important to note that the plan remains challenging.
e The KPI scorecard builds on the changes agreed with the Remuneration Committee,
and includes financial targets focusing on EBITDAS, digital income, and refinements to
the customer satisfaction measures. The scorecard also proposes further changes to
the non-bonus related metrics to rationalise them in number, following discussion by the
Group Executive.
e Finally, Martin George and Geoff Smyth have prepared a paper to facilitate a Board
discussion on the strategy for our telephony business, and specifically our homephone
and broadband services. At the June Board Awayday last year we agreed to prioritise
the mails and financial services businesses, recognising that telephony, along with
government services, would be secondary pillars going forward. Given this, I wanted
the Board to have the opportunity to review the strategic options available to us for the
telephony business, and in particular whether it should be retained as part of our group
portfolio or divested to release capital and reduce management distractions.
e The paper provides analysis of a range of options and seeks the Board’s agreement to
retain and grow the business in the short-term. This recommendation recognises the
positive (and growing) Direct Product Contribution the business provides, with minimal
funding requirements and a low impact on the network. Following a pause prompted by
the regulator, we will also resume talks with potential partners to discuss divestment
and franchising.
2. Commercial and business performance overview
Overall performance
e Net income in February was favourable to budget driven primarily by the additional
revenue for the new POCa contract. Total expenditure also remains favourable to the
budget, meaning the. =BIT target is still within reach. However, the forecast
remains in line with the update to the board in January of / FrmeverI Our focus for the final
weeks of 2014-15 remains on delivering income in line with forecasts and maintaining
tight cost control.
e The CFO's Performance Report for this Board provides additional commentary on
performance across the pillars so these are not summarised here to reduce duplication.
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3. Other updates of note for the Board
Sparrow
e As the Board will know, we announced on 10" March that we had completed all of our
investigations under the Complaint Review and Mediation Scheme, and that we had
decided to mediate all cases that had not been subject to a court ruling. In addition, we
published a 187 page report detailing progress on the Scheme so far; announced that
the Working Group overseeing the Scheme was to close with immediate effect and
gave notice of termination to Second Sight.
e Despite extensive hostile briefing by JFSA, there has been limited media coverage. PA
ran a very short, balanced piece picked up by some regional media. There was a very
hostile piece in Computer Weekly that does not seem to have been picked up and has
now been amended to add more balance. In Parliament, James Arbuthnot attempted to
secure an Urgent Question on 11" March. This was rejected but he was called as the
first supplementary question at Prime Minister's Questions, suggesting that Post Office
had “sacked” Second Sight and were attempting to suppress their Part Two Report —
inaccurate on both counts. The PM committed Vince Cable to writing to JA and the
Sparrow team have provided material to BIS in support.
e The priorities now are to progress as many cases to mediation as quickly as possible.
Second Sight have also given us their updated draft of their “Part Two” Report which is
intended to assist in the mediation process. It is inaccurate and inflammatory; we will
respond shortly.
e I am sure the Board will wish to join me in thanking Mark Davies and Jane MacLeod in
particular for their leadership in helping us take control of this agenda.
Engagement with the NFSP
e Weare reaching a critical point in our discussions with the NFSP relating to the MoU,
NT Cliff and Network Extension and I therefore wanted to update the Board on
progress. As part of the settlement we reached with the NFSP relating to the 2013 NT
funding, the Board endorsed the establishment of a 15 year agreement with the NFSP,
the agreement itself dependent upon the NFSP re-structuring their organisation and
supporting the Post Office in the delivery of NT, particularly elements related to
compulsion, noting that any network extension was excluded from the parameters of
the MOU. We have made good progress in the last 12 months in achieving delivery of
NT and moving the NFSP towards a position of supporting further business change
including our plans for Network Extension. This is in an environment where we have
yet to sign the Grant Agreement (GA) whilst maintaining our position of wanting to work
collaboratively but only in circumstances that are right for the business — this approach
has improved our position substantially.
e It should be noted that the NFSP continue to push for additional funding using the
possibility of withdrawing support for NT and joining the CWU. Our approach has
reduced their demand position significantly and we will continue to press for further
agreement/concessions as we do not believe a merge with CWU is their preferred
outcome (though this risk cannot be ignored). Our approach remains well within the
mandate agreed with the Board and we will keep you updated on progress.
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4. Update on key change programmes
e Work is well advanced to establish the necessary governance, processes and capability
to implement our change programmes as an integrated portfolio. This includes strong
central governance led by the Transformation Director, and activity is now being
managed to an integrated plan through the Transformation Management Group.
Particular attention continues to be given to the implementation of the new Front Office
solution given its business-wide impacts.
e Revised reporting is being developed to manage the portfolio of change programmes
and it is our intention to introduce this for the Board in May. For this month, updates
are provided to the existing format.
a) Crown Transformation Programme
Status overview: 292 branches have now been transformed with 4 more expected by end
of March, achieving the original target. Staff cost reductions, staff training and SSK
implementations are all achieving or exceeding targets. Around 19 branches will not be
franchised under CTP as no suitable partners have been secured. The P&L run rate for the
retained Crown estate at March 2015 is forecast to be around loss with P&L break-
even run rate targeted for later in 2015-16.
Programme KPIs: YTD
P&L run rate
Number of branches transformed
Number of branches franchised
Customer satisfaction in transformed
branches
Queue time satisfaction
Key milestones ahead:
Milestone Target date Current status
292 retained branches transformed I By end Mar 15 292 complete, 296 transformed by end-March
70 franchises live By end Aug 15 On track to deliver 50
505 Self Service Kiosks rolled out By end Mar 15 Complete
b) Network Transformation Programme
Status overview: The programme is on target against all key metrics, and end of year
targets have already been achieved for both contracts signed and branches open. The
programme continues work on implementation plans for the ‘cliff’, including engagement
with the NFSP as discussed earlier in this report.
Programme KPIs YTD (P11) 2014/15 FY
Target... Actual... Target... Forecast...
IRRELEVANT
Contract signed (cumulative)
Branches Open (cumulative)
Customer Satisfaction (all branches)
Operator Satisfaction
‘Average increase in opening hours
Cost reduction (in-year cumulative)
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Key milestones ahead:
Milestone Target date I Current status
Agent scorecard trial evaluation complete End of Mar 15 _I On track
Cliff management — ‘Come on the journey’ letter End of Mar 15_I On track
Transitional locals — Final Tranche End of May 15_I On track
Cliff management — Notice of contract change End of Jun 15 I On track
Cliff management — Deadline for signing a contract End of Dec 15 I On track
or CRP
c) ‘Win in Mails’
Status overview: The build of the Access Point solution continues, including the additional
products required by retailers. Taking the learning from the Ivy trials, the project has
decided not to trial a mails only solution in May 2015, but instead launch when the minimum
viable solution for retailers is available in spring next year. This will include a more
developed payments proposition to take on our main competitors.
Work is underway with Oliver Wyman on the next steps for mails, as discussed at the Board
in January.
d) Business Transformation (Transition to Delivery)
Status overview: The programme is coming to the end of the transition phase to establish
the foundations and governance to commence delivery from April 2015: TMO Design,
governance bodies and thematic programmes.
Transition Phase Key milestones ahead:
Milestone Target date Current status
Governance bodies operational End Mar 15 Largely complete.
Design Authority Group delayed
pending the appointment of the Head of
Business Design
Transformation Management Office (TMO) End Mar 15 Complete
operational
Delivery programmes operational End Mar 15 ‘On track
‘Assess Success Criteria End Mar 15 ‘On track
e) Separation
Status overview: The programme remains on track to deliver as expected and achieve the
agreed MSA target completion date. 257 sites have now separated onto the Post Office IT
Network, leaving a further 87 to separate.
Programme KPIs YTD (P11) Full programme
Separation of IT systems i
‘Separation of Business Services i
Finance — headcount reduction H Hi
NB The team will also be monitoring the number of post-launch incidents for the newly separated systems such as Finance and HR.
Key milestones ahead:
Milestone Target date Current status
HR: Nemo Go-live End of Mar 15 On track
HR Common Components separated End of May 15__I On track
Networks site migration end Apr 15 ‘On track
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f) IT Transformation
Status overview: The Front Office procurement remains on plan with three bidders (CSC,
IBM and Accenture) submitting proposals on time and the preferred bidder decision due in
April. Our ability to successfully complete the implementation by March 2017 remains a key
business risk and is the focus of significant management attention. Negotiations continue
with Fujitsu on potential extension mechanisms to ensure service continuity.
The Back Office workstream has been re-started following conclusion of the BPO review,
and an impact assessment is underway. We are currently targeting procurement to start
from April and initial estimates for Contract Award late August.
Programme KPIs YTD Full programme
Target __
Towers Contracts Awarded if
3° parties transitioned to Service Integrator (SI) !
Financial savings I i
Key milestones ahead:
Milestone Target date Current status
F/O Contract awarded End May 15 On track
Network contract awarded End May 15 On track
EUC Admin service commencement Mid May 15 On track
B/O contract awarded End Aug 15 On track
F/O Contract awarded End May 15 On track
Network contract awarded End May 15 On track
EUC Admin service commencement Mid May 15 On track
EUC Admin service complete End Aug 15 On track
EUC Branch service commencement End Nov 15 On track
g) People & Engagement
Status overview: Executive sessions continue to develop the second wave of headcount
reductions focused on the management population. Consultation on the changes is
currently planned for mid-April to allow the process to conclude in July. Good progress has
been made in reviewing the facilities time for CWU representatives. This work remains on
track. The first of our Business Consultation Forums with the Unions took place this month,
involving the CFO and other senior leaders in attendance.
Key milestones ahead:
Milestone Target date Current status
CWU facilities time review complete Apr 15 On track
POL vision sign-off May 15 On track
Grant funding for NFSP in place May 15 On track
People and Engagement plan/leadership May 15 On track
capability and capacity update to Board
Wave 2 complete July 15 Date re-baselined by 2 weeks
h) Titan/POMS
Status overview: POMS commenced trading from 1° January with the business
performing to date as forecast. The FCA “minded to approve” has been received with
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POMS targeting a stand-up date of 1$' May (this is subject to Post Office Board approval).
The key management focus is to bed down the new processes and close off the
outstanding issues from the Grant Thornton report to enable POMS to take up its FCA
authorisation.
Programme KPIs YTD (11 cum.) Full programme
Target__Actual___ Target ____ Forecast _
IRRELEVANT I
Contractual relationships in place
Systems in place
Staff in place
Key milestones ahead:
Milestone Target date Current status
Strategic system implemented End Aug 15 ‘On schedule
i) Hawk
Status overview: The IE (Independent Expert) provided a valuation purchase price for the
business within the expected tolerance. The Board is being asked to proceed at this
meeting.
Milestone Target date Current status
‘Seek PO Board approval to proceed End of Mar 15 __I On track
Initiate Hawk Implementation programme I End of Apr 15 __ I On track
Buy-Out complete Early 2015-16 _I On track
ij) Financial Services Investments and Savings Negotiations
Status overview: Savings negotiations concluded and benefits will be realised in 2014-15.
Investments negotiations have been on hold until Hawk negotiations have been concluded
and will now commence subject to Board approval.
Programme KPIs 2015/16
Target _____ Actual
Incremental increase in net Savings revenues IRREL_EVANT
Investments Negotiations
Milestone Target date Current status
Conclude investment product Early 2015-16 I Subject to Board approval
negotiations
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5. Market, political and external developments
Third party parcel access point market growing
e DPD is set to open 2,500 PickUp stores as part of its parcel shop network on 1st June
2015. Numark Pharmacies, a network of 3,000 independent pharmacies, has been
named as its first retail member. DPD say their aim is to have a DPD PickUp point
within ten minutes of “most people in the UK”. In 2013, DPD announced it extended its
partnership with myHermes ParcelShops for HomeCall Returns, its own return service.
At the time of the agreement there were 3,000 myHermes ParcelShop locations which
has now grown to ~5,000. In 2013, DPD delivered 1.6m parcels a week. Doddle also
announced plans to open 70 more locations in railway stations and shopping centres
taking the total number to 100 by the end of 2015. Doddle has already signed up
retailers such as Amazon, Asos, Charles Tyrwhitt and Misguided.
Amazon Logistics set to expand
e Amazon Logistics is set to expand after successful Sunday deliveries. Sunday
deliveries quadrupled from last year. Amazon Logistics currently uses 45 different local
and national delivery firms. The service is currently free for its subscription paying
Amazon Prime customers. According to the head of Amazon UK, Christopher North,
“Amazon Logistics is not about replacing a carrier, it is about complementing”. Amazon
UK has not revealed what portions of its products are delivered through Amazon
Logistics, but it is understood to reach close to 50% some weeks. North insists Amazon
has no interested in pushing all its deliveries through Amazon Logistics. He stated, “The
answer is you want to spread your volumes across multiple partners. You don’t want to
have a single point of failure.”
Competition in the challenger bank space grows
e Virgin Money is set to launch its current account nationwide by April 2015 after
launching in Northern Ireland and Scotland last year. Tesco announced plans to grow
its share of the current account market to rival its credit card business. However, both
face a challenge in winning customers over with only 3% of accounts being switched
since reforms were introduced according to the Yorkshire Building Society.
e TSB announced pre-tax profits of £134m in 2014, up 2.3% on the previous year. It
added 0.5m new accounts in 2014. Understanding the challenges to get customers
switching, it is exploring the option to raise its share of the current account market from
4.2% to 6% through acquisition.
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1.2.
1.3.
1.4.
2.2.
3.2.
3.3.
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POST OFFICE LIMITED BOARD
Project Hawk
in to buy Bank of Ireland’s share of Post ice Insurance
the
Exerci
Purpose
This paper updates GS on the negotiations with Bank of Ireland UK plc (Bol) on Project
Hawk - the exercising by Post Office of its option to buy Bol’s share of the joint insurance
business (the Business) as set out in the Eagle agreement (“FSJVA’).
This submission follows the paper presented to the Board on 16" July 2014, where
approval was given for “management to negotiate a buy-out of Bol’s share of Post Office
Insurance business at a cost not exceedin: {Board Minute POLB 14/91).
The Independent Insurance Expert (IIE) has opined, concluding that the valuation of the
this determination is final and binding both parties (although
there will be a final true-up on completion). This value, while/mcevarOutside the Board
mandate, is within Post Office’s value horizon. -
This paper seeks Board approval to allow management to proceed with the acquisition of
Bol’s share of the Business at the given valuation. Management further seeks scope to
negotiate potential alternative structures with Bol.
Background - Transforming Insurance to deliver value to Post Office
The insurance transformation programme is targeted to increase Post Office’s gross
income from insurance activities front 2013/14 to it
net income of! As set out in the Financial Services strategy presented to the
Board at various times, the program comprises three phases, viz:
e Phase 1 — Titan (new travel insurance model);
. Phase 2 — Exercise buyout option as set out in Eagle;
. Phase 3 — Migration of other insurance businesses as contracts expire (e.g.,
Junction).
Phase 1 has been completed with the establishment of POMS. Project Hawk is Phase 2.
Negotiations and the IIE determination
The FSJVA set out a defined process for Post Office to exercise its option as follows:
° Post Office initiates the process with a
“r jue” offer. This was completed
when Post Office submitted an offer of I IRRELEVAN
September 2014;
. If Bol and Post Office cannot conclude an agreement, Post Office can escalate
to an IIE, who would be appointed by both Parties;
. The IIE will determine the price based on representations from Bol and Post
Office. This determination is binding on the parties if Post Office chooses to
exercise the option.
Following the submission of Post Office’s offer, Bol responded in October with a counter
As it was quickly evident that the Parties would likely be unable to negotiate an
agreement, in November Post Office advised Bol that it would refer the matter to an IIE.
The FSJVA provided for the role of the IIE and set out a clear valuation approach
including timings. In January Grant Thornton was appointed as IIE, working within an
agreed four week timeframe.
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3.4. The IIE process comprised:
. Initial submission by both Parties setting out their valuation rationale:
. Oral presentation by both Parties;
° Interview with the Managing Director of the Business;
° Second submission by both Parties;
* Questions from the IIE.
At each stage papers were shared with the other party; all Parties attended the interview.
3.5. Post Office was supported by KPMG and Linklaters (the same team that drove Eagle),
while Bol retained Morgan Stanley, utilised its corporate finance in-house business and
appointed a leading insurance valuation expert to its team.
3.6. The IIE delivered his outcome to the parties to schedule on 27" February 2015:
* He determined Bol’s share of the Business to be! IRRELEVANT I
° This valuation is final and binding on the Parties.
Financial Analysis
4.1. Whilst the Board granted a he discussion at the time
discussed a realistic value of,_. tibsequent analysis by Post Office Finance.
has suggested that an even higher valuation would have worked for Post Office. Diagram
1 below sets out an analysis of the theoretical maximum acquisition price Post Office
could pay and see a commercially sustainable return.
4.2. This analysis shows the value derived from the various step changes an acquisition of the
Business would enable. Each scenario highlighted below builds on the previous scenario.
In all cases the i f the Business would reduce Bol’s contribution to the
marketing fund by, er annum. These funds would be provided by POMS (and
have been assumed in the budget submissions for 2015/16).
4.4. The
itive creates a business with a total value
less the acquisition investment (i.e.
tisk adjusted basis, the value add NPV of the acquisition is
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Diagram 1
5.2.
5.3.
5.4.
HAWK - THEORETICAL MAXIMUM ACQUISITION PRICE SUMMARY
Value added
in forecast
period
Value added
milton in Terminal
max price
{cumulative)
Totalvalue I isk _IRiskadjustedI
‘added I adjustment I value added
Theoretical
IRRELEVANT
‘Source: Post Office Finance
Risks
The buy-out of the Business is a key pillar of the Post Office's Financial Services 2020
Strategy. Its increases the likelihood of the successful delivery of the strategy, and opens
loreover, the Bank has indicated that it is keen to get this process
concluded and focus on the growth of the remaining businesses.
There is a risk that the business transfer will be delayed whilst Post Office develops the
infrastructure to manage it. This risk has been largely offset by the establishment of
POMS will need to advise the FCA that its business will grow beyond travel insurance;
this is not an exceptional process. POMS will also need to implement capabilities,
process and controls in order to run the newly-acquired business. The analysis and
process to develop this is underway, building on the existing POMS infrastructure and
capabilities. It is expected and anticipated in the FSJVA, subject to TUPE, that the
existing and experienced joint insurance team will move across into POMS.
Next Steps
Working with Post Office Legal and Finance, Linklaters and KPMG, we will engage with
Bol to conclude the contractual discussions and arrange for the transfer of the business to
Post Office. To start the process and following support from the FS Committee, Post
Office has written to the CEO of Bol advising him that we will be seeking Post Office
Board support to proceed to acquire the Business, based on the IIE’s valuation.
Board approval for POMS to proceed to stand-up as a principal under the FCA regime is tabled separately at
this meeting.
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6.2. The Hawk team is building a two pillar plan to complete the transaction. As advised by
KPMG's “Integration/Separation, Transaction and Restructuring” partner:
. Pillar 1 will focus on “separation”; acquiring the business from Bol, including asset
transfer (principally novating the existing insurance contracts).; and
. Pillar 2 will deliver the “integration” into POMS. These pillars will focus on people,
processes and services, contracts, assets and IP and technology.
6.3. Anticipating that the business will be run through POMS, POMS is preparing itself to be
ready for the business, including ensuring it has all the relevant regulatory, compliance,
technical and commercial capabilities in place.
. Both Post Office and Bol will require assurance that POMS has these in place
before the transaction can be concluded.
6.4. With Finance leading, supported by our legal team, we are assessing the most cost
effective and practical financing structure for the acquisition and how to ensure its delivery
into POMS.
Summary
7.1. The IIE determination has a valuation of the Business o'
i LEVANT
7.2. The ‘acquisition is a cot
7.3. The acquisition would: _jper annum.
7.4. Management strongly believes that the acquisition of the “Business at this valuation
represents a good investment for Post Office, with a strong NPV.
7.5. Management is assessing the appropriate structure and process to acquire the Business
and integrate it into POMS.
Recommendation 1.
8.1. rag seeks in principal: Board approval to proceed to acquire the Business for
9. Alternative models with Bol
9.1. Subject to approval 8.1 above, management will seek to conclude Hawk.
9.2. There are, however, alternative models that could further opportunities. These are
supported by:
9.3. Entering the investments market, particularly following the changes to pensions and
annuities that come into effect in 2014/15, presents the Post Office with a significant
income opportunity. As presented to the Post Office Board Financial Services Committee
in June 2014, the 2020 Strategic Plan includes aj IRRELEVANT j income for Post Office; this is
believed to be a conservative estimate of the long té1
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9.4. Preliminary discussions were held in late 2014 to ascertain the interest and value of an
alternative model for Hawk, on the basis of.
IRRELEVANT
9.5.
9.6.
10. Recommendation 2.
10.1. Management proposes to:
. Proceed with Hawk as recommended above (8.1), establishing a clear timeline
for completion; and
. Initiate parallel conversations with Bol to determine whether there is a financial
and strategic alignment to proceed further with the alternative solution.
10.2. The Board is asked to note the alternative solution and authorise management to assess
its veracity, while continuing to complete Hawk (as per 8.1 above).
Nicholas Kennett
Director, Financial Services
March 2015
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POST OFFICE LIMITED BOARD
Statutory Reporting Requirements for
Post Office Management Services Limited
1. Purpose
The purpose of this paper is to:
La Request consent from the Post Office Board pursuant to article 4.3(P) of
the Post Office Management Services Limited (POMS) articles of association
(Articles) to a) shorten the Accounting Reference Date (ARD) for the
second POMS accounting period to 30 November 2014 and then b) extend
the ARD for the third POMS accounting period to 27 March 2016.
2. Background - Statutory Reporting Requirements
2.1 POMS as a statutory legal entity was incorporated at Companies House on
25 March 2013. The ARD is 31 March, and it is this date which dictates
when Companies House expects the financial year end to fall and the
financial statements to be prepared.
2.2 As per the above, the first accounting period of POMS was from the date of
incorporation to 30 March 2014. As POMS was dormant throughout this
period, dormant financial statements were prepared and submitted to
Companies House in December 2014.
2.3. If no action is taken, the second accounting period for POMS will be the
twelve month period to 29 March 2015. Preparing financial statements for
this period is not considered to be efficient given that for eight months of
this period POMS was not trading, and only commenced trading in
December 2014. We would incur internal cost and external audit cost for
the preparation and audit of these financial statements.
2.4 As an alternative to the above, we propose to apply to Companies House to
shorten the second accounting period for POMS to end on 30 November
2014, and prepare dormant financial statements (which do not require an
audit) for this eight month period.
2.5 For the third accounting period of POMS we propose to apply to Companies
House to extend the accounting period to end on 27 March 2016 and
prepare active trading company financial statements for this sixteen month
period. These financial statements will be the first to be audited by our
external auditors. Following this the financial period end will always fall at
the end of March in alignment with the parent company, Post Office
Limited.
2.6 This change was approved by the POMS Board on 26 January 2015,
subject to consent being granted by the Post Office Board.
Statutory Reporting Requirements Page 1 of 2
March 2015
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Strictly Confidential
3. Request
3.1. The Post Office Board is asked to review the above and provide consent
pursuant to article 4.3(P) of the Articles of Association of POMS, for POMS
to:
a) Shorten its Accounting Reference Date for the second POMS accounting
period to 30 November 2014; and then
b) Extend the ARD for the third POMS accounting period to 27 March
2016.
Nicholas Kennett
CEO POMS Ltd.,
March 2015
Statutory Reporting Requirements Page 2 of 2
March 2015
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Executive Summary - February
February income was favourable to budget
and prior year by
POCA income
H IRRELEVANT!
The focus on costs has continued to narrow
the gap - total costs favourable by {1
Board update in ——
There are still some critical one-offs to
capture
bees and cost focus must remain intense to
create momentum into 2015/16
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Current Month
Prior Year Period
£m
TOTAL GROSS INCOME
Cost of Sales
TOTAL NET INCOME
‘Staff Costs
Subpostmaster Costs
Non-Staff Costs
Depreciation
Total Expenditure (pre POOC)
FRES - Share Of Operating Profits
EBIT - BAU
One off Project costs (POOC)
EBIT - Post Project Costs
Network Payment
EBIT pre exceptionals items
Actual Budget
Variance
Variance
Actual
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Mails income continued the trends, narrowly :
behind PY, strongly adverse to budget
February 2015 February 2014, ¢ Stamps in line with budget and
Net Income £m i
Actual Budget Variance I Actual geonya marginally behind prior year.
m YT,
Stamps (1st & 2nd Class plus other stamps)
Labels (1st & 2nd Class)
Hoe Shang Ret IRRELEVANT
Mails Other
Total Mails & Retail
+ Label volumes behind budget by
_t year on year but not meeting ferget
Net Income 2014-15 £m
i in SS I
Actual { i
ers IRRELEVANT
PY Variance i i
¢ Mails Other - flat YOY, but adverse
POL-BSFF-0178752_0018
Financial Services had a stronger month recovering
close to budget
Net Income £m
February 2015
February 2014
Actuals Budget Variance
Period Month (Yr
Actual On Yr)
Bill Payment
Payment Services
PFS-Savings
PFS-Insurance
PFS-Lending
Travel Insurance
MoneyGram
Other
IRRELEVANT
Total Financial Services
Net Income 2014-15 £m
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* Performance against budget improved in February
driven by:
* Recognition of the ‘profit share’ co
triggered for Credit Card sales of"
1on
ce additional commissions catch up of
Actual f~
Budget !
Variance I
PY Variance
Pa Pe
fo I RRELEVANT a
Pad YTD I
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The Telecoms price rise enabled a better month. Government was
supported by the main tranche of POCA income
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Net Income £m
February 2015 February 2014
Period Month (Yr
Actuals Budget Variance
Actual On Yr)
Energy
HomePhone /Dual & Broadband
Total Telecoms Services
Motoring Services
Card Account
Check and Send
AE! (DVLA & UKBA)
Other Government Services
IRRELEVANT
Total Government Services
cinsnsiicinsiininininiemieciannas
4
Net Income 2014-15 £m
Telecoms
Actual I
Budget _{
Variance_}
PY Variance
4 PPS
Gov. Servs.
Actual
Budget
Varian
PY Variance
Telecoms — flat with budget, but lower
customer numbers offset by price
increase. PY Feb, saw income reduced
in the period to align with Fujitsu.
Motoring volume falling due to no
visible disc implementation.
POCA: February saw! catch up
income (fee per account increase from
1 Dec), so underlying is adverse - fewer
active accounts.
Other Government Services -adverse
due to lower passport and AEI volumes
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®
We report gross revenue (not net income) in our Annual
Report - at P11 tbehind PY pre NSP
£m P44 I ¢ Mails and Retail - down: ear on year
Gross Revenue = YTD Actual PY YTD Variance} driven by parcel and stamps volumes but partly
ela : rowth in Home Shopping returns
Financial Services
Telecoms
Government Services
Other
‘Total Revenue Pre NSP
NSP
Total Gross Revenue
mortgages and credit card
decline in traditional bill pay’
ee IRRELEVANT, oe storsl lize
* Telecoms - declined by irreteva
Financial Services base)
Telecoms I I
Government Services : * Government - declined by;
Other i passports and POCA)
Total Cost of Sales { I
' H * Othe due to step
Net income Pre NSP I recognised under the Garnma deal in line with
Total Net Income 1 : agreed income recognition profile
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February’s costs benefited from focus and lower trading 2
+ Staff costs include! reevevant! true-
up of LTIP accrual for
performance (to assumed
pay-out rate) and continued
lower bonus accrual
-{* Lower subpostmaster costs due
Staff Costs ; .
Subpostmaster Costs to lower sales in the period and
Deeley IRRELEVANT I. .o°0c5:
Depreciation : ‘Je Non staff favourable due to
Total Expenditure (pre POOC) lower brand and marketing fees
One off Project costs (POOC) Ne 41 and savings across the functions
offset by catch up of property
costs
Current Month Prior Year Period
£m Actual Budget Variance Actual Variance
¢ Project costs credit arises from
year end true-up of transfers to
exceptional items
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Cost savings are continuing to reduce the profit
gap - now IRRELEVANT
Qi Q2 Q3 Q4 TD
£m Actual Budget Variance Actual Budget Variance Actual Budget Variance Actual Budget Variance
TOTAL GROSS INCOME
Cost of Sales
TOTAL NET INCOME
Staff Costs
Subpostmaster Costs
Non-Staff Costs i
Depreciation !
Total Expenditure (pre POOC) I}
FRES - Share Of Operating Prof] i
EBIT - BAU
One off Project costs (POOC)
EBIT - Post Project Costs
Network Payment
EBIT pre exceptionals items
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YTD EBITDAS is ahead of PY for the first time
Year to Date Prior Year YTD
£m Actual Budget Variance Actual Variance
TOTAL GROSS INCOME
Cost of Sales
TOTAL NET INCOME
Staff Costs
Subpostmaster Costs
Non-Staff Costs
Depreciation
Total Expenditure (pre POOC) ; I R R = L EVA N I
FRES - Share Of Operating Profits i
EBIT - BAU
One off Project costs (POOC)
EBIT - Post Project Costs
Network Payment
EBIT pre exceptionals items
[EBITDAS
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The mixed picture on KPls continues
Key Performance Indicators ae
Current Month
Target
Var
YTD
Prior Year
Growth
Earnings before ITDA and Subsidy £m*
Free cashflow £m
Customer
Customer Satisfaction**
INet Promoter score**
Queue time % < 5 minutes - Top 1k branches
Branch Compliance - Financial Services - basket of 11 measures
Branch Compliance - inland Dangerous Goods **** «
Branch Compliance - international Dangerous Goods **** «
ISubpostmaster Engagement Index % (Once a year)”
Post Office Values the diversity of the workforce (Once a year April)"
I(No.) % of BME appointments over total recruits at senior leadership and
senior manager
I(No.) % of Female appointments over total recruits at senior leadership and
[senior manager
Modernisation
Crown Profit (Loss) £m
a IRRELEVANT
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In P11, income forecasts stabilised except :
for Mails
£'m
Q3 P10 Latest
Mails & Retail
Govt
Telephony
FS
Other
Contingency
Net Income
Budget Forecast Changes Forecast changes P11 view
IRRELEVANT
Q3 to P11 forecast changes:
* P10 saw a reduction from the Q3 FYF
ceva) Telecoms was reclassified to non staff
“costs for claim recovery and debt sale
trading worsening in Telecoms had been
ipated and a contingency included at Q3 to
cover it
¢ FS - flattening of trading in a number of products
including insurance, mortgages and ATMs
* Mails - reflected continued trading performance.
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I IRRELEVANT I
Forecast Risk Low case
YTO operating profit erry ¢ Outturn range of
i (if one-offs not
I I delivered) potentially
Plus P12 trading run rate
Plus one-offs
Telecoms debt sale
POCA P12 impact
Postal Order uncashed true-up
VAT recovery
Engagement index stretch bonus
No increase in Mails Segregation from!
Forecast IRRE LEVANT I
Further opportunities
VAT on subpostmasters
Telecoms Fujitsu settlement
If is missed - bonus release
Potential outturn
Ifimeeevantis missed - bonus release I i ‘ "I
Potential outturn
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This continues good progress on EBITDAS
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2013-14
2014-15
2014-15
2014-15
2015-16
£m
Actual
P11 low
Q3 Forecast
Operating Profit
Network Payment
EBITDAS - reported
Exclude one-offs:
Prior Year VAT upside
Prior Year VAT upside
DWP compensation
ATM rates provision
2012-13 bonus outturn higher than accrued
EBITDAS -adjusted
Target
view
IRRELEVANT
Budget
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Our focus remains clear .... 2
* Deliver income as forecast - this is as important to our confidence as to
our numbers
¢ Maintain intense focus on costs
* Obtain Fujitsu settlement, VAT benefits and complete the Telecoms debt
sale
* Co
ete work to evidence mid range mails segregation penalty accrual
POL-BSFF-0178752_0029
Strictly Confidential
POST OFFICE LIMITED
Performance Report
February 2015
Produced By : Financial Control
For Queries & Comments Contact : Sarah Hall or Kam Bassra
CONFIDENTIAL
Commercially Sensitive and not for onward circulation
This document contains commercially sensitive informati s like unauthorised
vould not be d or forwarded in its enti for r who understand the cor
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Period 11 Performance Pack - Alisdair Cameron 25th March 2015
Page 1 of 10
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Strictly Confidential ®
Contents
Page
Headlines 3
Profit & Loss Statement
Crown Profit & Loss Statement
Cost Management update
Cashflow Analysis
Business Scorecard
wo Manan
Network Transformation Scorecard - Mains
Network Transformation Scorecard - Locals 10
Period 11 Performance Pack - Alisdair Cameron 25th March 2015 Page 2 of 10
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Headlines Strictly Confidential ®
February 2015
(eadtines >) ; ;
Operating profit before exceptional items in the month wag favourable to budget, bringing the year to date Cumulative EBIT pre exceptionals
operating profit t lyear on year, includingI i Anal
poe Budget
Net income year to date has improved by fmseisvr!
Total expenditure (before project costs) in the month wa favourable driven by lower subpostmaster costs and staff costs movement IRRELEVANT 1
to exceptionals. Somme een eee
Total expenditure (before project costs) year to date remains favourable to budget by
The! avings task remains challenging but is now all underpinned.
* Subpostmasters’ costs are favourable bylit#ss¥"] reflecting lower sales volumes and improved VAT recovery.
* Staff costs are favourable by’ eflecting lower bonus payments offset by under-delivery of savings tasks primarily in Supply Chain
and Commercial —
{reievertrelating to last year and I Felating to this year,
‘for the Mails Segregation penalty payment
© Non staff costs are! vourable driven increased VAT recovery of
offset by d rovision for client compensation, shortfall in savings task delivery!
accrual and other increased costs including postage.
* Project One Off Costs are adverse to budget by
reflecting unbudgeted spend for Sparrow and the ‘Journey to 2020’ strategy work.
IRRELEVANT
I favourable driven primarily by lower than budgeted capital expenditure,
Crown Profit Year to Dat
The YTD Crown profit is ladverse driven by lower Mails income and higher staff costs as shown on page 6. Financials T
Total Net Income (excl NSP) £m (Bonus 20%)
Operating profit £m (Bonus 25%)
The programme is ahead of plan at P11 both for contracts signed and branches transformed, Free cashflow £m
Crown Profit (Loss) £m (Bonus 12.5%) IRRELEVANT
Non Financials
Queue time % <5 minutes - Top 1k branches
NT Branches Transformed In Year (Bonus 12.5%)
Network Transformation
Period 11 Performance Pack - Alisdair Cameron 25th March 2015 Page 3 of 10
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Profit & Loss Statement Strictly Confidential td
February 2015
Current Month Prior Year Period Year to Date Prior Year YTD Full Year Prior Year
lem Actual Budget Variance I Actual Variance I Actual Budget Variance I Actual Variance I , °° I Budget Variance I Outturn
TOTAL GROSS INCOME
Cost of Sales
TOTAL NET INCOME
Staff Costs
ISubpostmaster Costs
Non-Staff Costs
Depreciation
Total Expenditure (pre POOC)
FRES - Share Of Operating Profits
[EBIT - BAU
[One off Project costs (POC)
JEBIT - Post Project Costs
[Network Payment
[EBIT pre exceptionals items
Interest
Impairment
Exceptionals (incl BT) & Redundancy & Severance Costs
Government Grant Utilisation
Profit/(Loss) On Asset Sale
Total Profit/(Loss) Before Tax
(Period vs. Budget ) (vrvs.Budget YTD vs. Prior Year
vourable to Operating profit (EBIT) ofa Operating profit (EBIT) of 0 prior year.
budget. Like for ike BAU favourable variance ofI as mainly due to:
etevarTiue primarily to the continuing adverse income trend; Mails I I ° Higher net income of. <<") The variance versus prior year is driven
marily to higher Gov. primarily by higher Financial Services (Moneygram, Mortgages,
for the recognition of mainly POCA and FS income Savings and Insurance) revenue, offset by lower Government
ber), ich, Travel and Insurance offset by Banking, Premium Bonds and Services income, mainly POCA and Telecoms
MoneyGram, + Lower staff cost ‘riven primarily by a lower productivity
+ Lower staff costs of offset by bonus and Crown savings.
lower bonus accrual and frue-up ofthe LTIP accrual for + Lower staff costs of al, offset by the savings + Lower subpostmaster costs ofan] which relates to improved VAT
PeiTenvenes, , task not being achieved w from Commercial) and the recovery.
+ Lower subpostmaster costs of /==nu} due primarily to lower Crown pay deal. Offset by:
sales (through branch network) VAT upside o + Lawer subpostmaster costs of 8] due primaniy to lower income and sales mix + Higher non staff costs of Icient compensation
simalles savings Teeting te Nebyerk Transtonre LmRELevarTI VAT recovery id other small variances relating to NT changes. provision this year, increased IT costs (mainly Horizon and ATOS)
+ Lower non staff costs offsesldriven primarily by brand and I I 1 over non staff costs of and higher marketing spend (including some switched from POOC)
marketing fees. the prior year) andes offset by improved VAT recovery.
One-off project costs variance ofmsenwrfavourable due to a compensation, impact of the centrally held savings task not being fully achiever Non like for like adverse varia was due to:
trua-ptranaer to ascapAlonal Tor Business Transformation accrued for Mails Segregation penalty payment and higher postage costs. « Lower Network payment
«Higher project costs of ame
Below EBIT .
Period variance is due tofmanaerbeverance charge in respect Below EBIT
of Wave 1 mal Crown franchises ] Below EBIT Included in grant utilisation this year if
and a transfer qi in respect of the Business Impairment is significantly below budget due to underspends in the IT Delivery and Supply exceptional spend for which there was insufficient grant last year.
Transformation Broaramme, be ‘out budget. Finally the Chain programmes Exceptionals in 13-14 is offset by a one off pension assumption
NT actual was faaeenly budget{esiner Exceptionals is close to budget following the.bigh P14 spend with NT and CT underspends credit of
. setting a bu “IRRELEVANT:
D \ cffseting a budgeted cost challenge DK )
Period 11 Performance Pack - Alisdair Cameron 25th March 2015, Page 4 of 10
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Crown Profit & Loss Statement Strictly Confidential ‘4
February 2015
Period Prior Year Period YTD Prior Year YTD Full Year Prior Year
lfm Actual Budget Variance Actual Variance I Actual Budget Variance I Actual Variance I 3 Forecast © Budget Variance Outturn
income and Distributions
Variable income
~ Mails
- Financial Services
- Government Services
~ Telecoms
Fixed income
Gamma/ Other
Renewals and Retentions
- Staff
~ Property
~ Other branch costs
Infrastructure costs
Allocated central costs
Total Expenditure
JV Share of Profits
[Statutory PBIT
Summary
Income:
At a busi I this is predominantly driven by adverse variances in Mails, including Labels, Home Shopping Returns and Lottery, Government Services and Telecoms, with a favourable variance in Financial Services.
There is also an impact of delayed franchising,
Line by Line variances are as fol
Variable sales income i{ ee
bss than plan principally due to (i) Mails - Lower parcel volumes, Retail sales and Home Shopping Returns, (i) Financial Services - shortfall from Life Insurance, Home Insurance and variable
sales of Savings products. There is a corresponding upside in savings retention income due to the income guarantee with Bank of Ireland. Premium Bonds and Mortgages are also performing above target. (ii) Government
Services - predominantly due to higher Passport check & send transactions. However, there is a variance in ‘Other Income’ that partially offsets this due to an element of the Passports target being held centrally in Other
Income.
Fixed income is adverse due to lower than planned LIBOR rates for Card Account commissions.
Retention income is adverse due to a lower customer base and Averaged Revenue Per User for HomePhone, partially offset by favourable Savings retention income.
Other income is adverse due to the delay or phasing of new products, predominantly Energy. Passport Check & Send (actual income in variable sales) is the other key driver. There was also a central Financial Services target
that is held here and being delivered within Financial services variable income
Costs:
Costs ard" hiaher than plan.
* Staff costs I IRRELEVANT [rimarily due to timing of the roll out of Franchising and the impact of the pay review settlement where associated efficiencies are on going, this is. partially offset by Crown branch vacancies,
including Financial and Mortgage specialist.
* Other branch costs
Tue to a provision for client compensation, impact of centrally held savings not being achieved, accrual for Mails Segregation penalty and higher postage cost, partially offset by improved
VAT recovery rates. There is also an impact of delayed franchising
Period 11 Performance Pack - Alisdair Cameron 25th March 2015, Page 5 of 10
POL-BSFF-0178752_0034
Cost Management update
February 2015
Progress since P10 update
Value and confidence
‘The Cost Reduction Group (CRG) has continued to st Management and the in-year
delivery of “line of sight” initiatives amounting toi (as per P9), although the focus has
shifted to the challenge included in the 2015/16 cost budget.
Original Cost Management Programme
Additional Cost Challenge to achieve budget
Central Stretch to achieve budget
Total Budget Cost Challenge
‘Additional Challenge from Q1 EBITDAS gap
2 underperformance adjustment
Total Current Cost Challenge
on subsequent years.
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Strictly Confidential e
—tevtes tudget tus em a2 Target
PEPE PPP PEEP PEEP PPP PPP POPP PEEP EE
Current "Line of Sight” forecast
a
Delivery and governance
The focus has been on driving exisiting projects to conclusion to achieve the in-year financial
targets. 121 meetings have continued to concentrate on a "snagging list'approach to ensure
completion of the initiatives and extraction of the full in-year value.
Strategic initiatives for FY15/16 and beyond IRRELEVANT
Work continues to define the scope and timing of 2015/16 cost saving initiatives and the impact
‘The expectation is now fof f.run.rate cost savings by March 2016, from the original
baseline. This represents an IT From the original I iallenge and reflects the
ongoing challenging trading coviditi ‘the market.
Total "On-Track" Hopper Gap tojmasmrtarget 14/15 In Year Target
Period 11 Performance Pack - Alisdair Cameron 25th March 2015 Page 6 of 10
POL-BSFF-0178752_0035
Cashflow Analysis
February 2015
Strictly Confidential
Hietworc
BBITDAS "Giant Networe ior Get Funding
Incl
perc
rceptonl
IRRELEVANT
YTD Cashflow Variances
° YTD Budget Operating profit Network Cash Working Capital Client Balances CapEx and YTO Actual
Ine Interest, ox Exceptions
sie (rary )
Network Cash
£m Mar-14 Actual
Opening [Actual I Budget _I
Retail, Cash Centres
Bureau
Cheques, debit cards
A
A
mM =
I~
< I
>
Zz I
=
var.
a
Opening I Actual I Budget [
IRRELEVANT
Period 11 Performance Pack - Alisdair Cameron
mompn Transcash payments
introduced by Santander to reduce fraud (previously there was effectively oii), This reduced the amount
paid over the counter for Transcash transactions and therefore amount owed to Santander. DVLA is
adverse reflecting reduced volumes. Other clients offset, notably NS6I, UKBA and Payout.
* Working capital kpnd includes the impact of lower creditors than budget reflecting a slower
pace of spend on capital than anticipated and seen in previous months and lower general accruals impacted by
the cost reduction activities. Debtors levels are higher than budget across the board, being trade debt and
accrued income and also Bank of Ireland marketing spend recoverable,
* Operating profit is
Offset by:
* Capital and Exceptionals.are
Full Year
Q3
Racecar.
£m
Actual Budget _Variance
EBIT
Working Capital i
Client Balances i
Network Cash
(Capital Expenditure
Government funding
Exceptional Items
Other (including interest and tax)
[Operating Cashflow
IRRELEVANT
Budget _
25th March 2015
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Page 7 of 10
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Business Scorecard
February 2015
Strictly Confidential
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Key Performance Indicators
Act
Current Month
Target Var Act
YTO
Target
Var
YTD
Prior Year
Q3 F'cast
Full Year
Target
Var
2013-14
Outturn
Growth
Earnings before ITDA and Subsidy £m*
Free cashflow £m
(Customer
Customer Satisfaction**
Net Promoter score**
Queue time % < 5 minutes - Top 1k branches
Branch Compliance - Financial Services - basket of 11 measures
Branch Compliance - Inland Dangerous Goods **** *
Branch Compliance - International Dangerous Goods **** *
People
Subpostmaster Engagement Index % (Once a year)**
Post Office Values the diversity of the workforce (Once a year April)**
manager
(No.) % of Female appointments over total recruits at senior leadership and
senior manager
I(No.) % of BME appointments over total recruits at senior leadership and senior I}
Modernisation
Crown Profit (Loss) £m
NT Transformations - contract signatures
IRRELEVANT
* ITDA Interest, Tax, Depreciation, Amortisation.
** Monthly = 3 month average. YTD = 12 month average.
*** YTD and FY = cumulative including prior years.
**** POL are looking to hit 100%, and these target have been set for 2014-15 in recognition that marked improvement is required to reach 100%.
* Target is the year end exit rate.
‘* Measured annually with some additional ‘Pulse surveys’
Period 11 Performance Pack - Alisdair Cameron
25th March 2015
Page 8 of 10
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Network Transformation Scorecard - Mains sinrety Concerta) :
February 2015 Reporting prior months data (i.e. one month in arrears)
Ave £'s per
Current Month % iB
branch
Actual ( )
ual
Control Mains
Key Performance Indicators Actual Gan Var Var Sample
Size Branches that have been converted to a Mains model
—_—__—_____ for more than 6 months have consistently out-
Finance Approved Investment per Mains £000 performed the control group in delivering POL income.
Total Income: Post vs Pre Conversion These agents receive a dedicated package and a
POL (hanmdnes live Gatl2 ments renewed focus on sales targeting and performance at
the point of conversion. This is having a significant
Branches live 12-24 months L_]} impact on focus income for many branches
= ° +] I The following products are performing particularly
Agents Remuneration: Post vs Pre Conversion 1 TT welt
Branches live 6-12 months
Branches live 12-24 months Travel insurance
- — I Cash withdrawals
Agent Customer Sessions Growth bonds
Branches live 6-12 months Insurance products
Branches live 12-24 months I
Operator Feedback on Retail Sales Performance In addition, these agents have increased their POL
Operator Satisfaction earnings due to the improved sales and enhanced
— Mains pay rates.
Note: the control group is based on those branches of
similar size that have not yet converted.
Average Increase in Opening Hours.
Customer {Customer Satisfaction LL )
Queuing Times z I
Customer
Customer Satisfaction, extended opening hours and queue times all remain positive.
Period 11 Performance Pack - Alisdair Cameron 25th March 2015 Page 9 of 10
POL-BSFF-0178752_0038
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Network Transformation Scorecard - Locals ‘Stietly Confidential -
February 2015 Reporting prior months data (ie. one month in arrears)
Ave £'s
Current Month % per
branch
Actual
r Control tease
Key Performance Indicators Actual Gan Var Var Sample
ize
TOCALS = At the point of conversion there is an intial dectne in
performance; as the branches settle and embeds the
Finance Approved Investment per Local £000 II operational changes. However this improves month on
Total Net Impact: Post vs Pre Conversion {I month and as they near the exit of the 6-12 month
Branches live 6-12 months II category the run rate of performance is now higher
Income II than the control group. This is partially as a result of
{I the activities that have been put in place to limit the
Actual Fixed pay savings I
POL ‘Actual Net Ls am u II drop off in income and drive performance. Versuses,
A he 7 Dok th II control group in period one was j=-~Land is currently
ranches live 12-24 months 1] running at
Income i .
‘Actual Fixed pay savings i
Actual Net impact
Bandics lita Gaia mimitlis ' this should support the agents retail growth
Agent Branches live 12-24 months
Operator Feedback on Retail Sales Performance
oni Giseen Note: the control group is based on those branches of
Je I] similar size that have not yet converted less 5% to
reflect lost products
[Average Increase in Opening Hours
Customer I Customer Satisfaction
Queuing Times
POL
+ Products such as bill payments, etop ups, cash withdrawals and moneygram have delivered growth for these branches - with associated footfall. This has been offset in income terms by poorer performance on
more complicated products
+ Fixed pay has been reduced to zero forall converted branches, in line with the strategic plan.
+ Corrective action taken on Lottery from FCA 's has had a positive effect on the inital decrease in the specific product and is now on postive ground.
Agent
+ Customer sessions indicate that retailers are benefiting from greater footfall that should support their retail growth.
+ The footfallis delivering quicker but lower value Post Office sales which in turn should allow the retailer to utilise their staf in different ways or reduce their staff costs,
Customer
+ Customer Satisfaction, extended opening hours and queue times all remain positive.
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POST OFFICE LTD BOARD
Approval of the 2015-16 Financial Plan and Scorecard
1. Purpose
1.1. The purpose of this paper is to seek Board approval of:
(a) _ the financial plan for 2015-16; and
(b) the KPI scorecard and STIP bonus measures for 2015-16.
1.2. The Board is tolerant of risk-taking which will grow sustainable EBITDAS, seeks
risk that will reduce dependence on subsidies and wishes to ensure that
sufficient funding is always available.
2. Background
2.1. In January, the Board reviewed a draft financial plan for 2015-16. The review and
challenge process was underway but incomplete.
2.2. Income was expected to increase bymre: ITDAS showed a
reducing loss, fro} ing the reduction in network subsidy.
The progress to commercial Siistainability was slower than in the Strategic Plan,
which showed break-even in 2015-16.
2.3. The Board challenged the submission, requesting a plan that is realistic and
reductions.
3. Progress
3.1. In addition to a series of specific review meetings, the Group Executive (GE) has
reviewed the plan on two further occasions.
3.2.
3.3, “I
reviewed the plan for underlying optimism bias. We considered a number of
material decision points, noting that the underlying submission reflected the best
possible individual_and collective outcomes. We have therefore reduced income
3.4. lof cost reductions, jars agents pay and [imnetevant!
e challenges have been allocated to GE members an
accepted. Som currently ungrounded.
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3.5. The plan shows POL operating wi its funding envelope. The headroom at the
end of. 2015/16 i is forecast to bel IRRELEVANT "} compared toa minimum target of
3.6. The slides outlining the recommended plan are attached as Annex A, which is in
the Reading Room because of its length.
3.7. A Key Performance Indicator scorecard, including proposed bonus metrics, has
been discussed with the Remuneration Committee and is attached as Annex B.
4. Delivery
4.1. We continue to work on ensuring that the plan is fully grounded, embedded in
the organisation and will be delivered.
4.2. Work is ongoing to ensure that all income plans are absolutely granular and data
driven, by product. On costs, the structure that drove 2014-15 reductions is being
realigned to support next year’s targets: p/I rather than run rate driven and
reflecting the changes in organisational structure. Fortnightly cost challenge
sessions will be held with individual executives and collectively with the Executive
Team.
4.3. Aconsiderable amount of work has been undertaken by the Transformation
Director and the CIO to develop a single change plan for the business. This has
largely been completed and the directorates are working through the implications
for their plans. This work is especially critical in a year of limited change through
Horizon, as we move towards replacement. A new, single change governance
process has been established to ration and prioritise access to funding, the
network and the systems.
44.
September to ensure that we have the capacity to back the areas of greatest
potential impact in H2.
4.5. We are working through a process to ensure that these targets are consistently
embedded in the personal objectives of the SLP (which make up i
potential awards).
5. Realism and Risk
5.1. The Board’s primary concern in January was to ensure that it had a plan which
was realistic and deliverable following the experience in 2014-15.
5.2. The recommended plan is substantially more realistic than both the previous
year’s plan and the draft submission in January. However, the existence of some
income contingency at pillar level should not be confused with a plan that is
prudent or easily deliverable. The contingency is simply designed to mitigate
optimism bias.
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5.3.
5.4.
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The additional cost challenges have been allocated and accepted. These should
be substantially within our control and the business has demonstrated its ability
to take cost out. The Board will want ongoing assurance that the challenges are
being grounded and deliverable but they appear realistic today.
Some significant, potential developments are not modelled in the plan:
e The plan assumes no significant market changes in 2015-16 and no material
changes to competitor positioning. As a result, the Mails business
substantially retains market share. This has been reviewed product by product
and the trajectories appear sensible and have been aligned with RMG’s
expectations.
¢ RNG has signalled a desire to discuss changes to the { d
governs our commercial relationship. Anticipating that, as agreed at the
January Board, we have started work to ensure that we understand how the
Mails business needs to develop, with a negotiating strategy with RMG as a
by-} product of the work. The plan assumes no material changes in 2015- 16.
° raleaing the election of a new government, we expect that a new spending
plan will be required for 1, 3 or 5 years. Our plan assumes no change to the
current funding agreement.
costs.
6. Opportunities
6.1.
6.2.
A number of opportunities have been built into the plan:
¢ Identity verification is assumed to contribute == of revenue from a standing
start
e Our plan assumes renewal of the NS&I contract in September at similar rates
to today. This has been flagged as a contentious issue by BIS. If the contract
was not renewed,
e Hawk is assumed to complete early in 2015
* Telecoms plans assume that a further price increase is possible in January
2016
e Network Transformation enables further fixed pay savings of
(cumulative {: and an increase in the variability of costs from 77% in
2014-15 to 81% in 2015-16.
The GE has identified three further strategic opportunities, which do not
contribute materially to the plan, delivering ju: of planned income in
aggregate. However, they have potential to do and will be tracked as
though they were part of the core plan. The three are: identity verification
services; additional services for banks withdrawing branches; and additional
opportunities in financial services sales. In financial services, the focus is on
improving online journeys to increase digital income.
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6.3. A further commercial opportunity exists. Finally, the business has access to
profitability information which shows the direct contribution, the indirect
contribution and EBIT by product. This has been approved, with minor changes,
by the Commercial Committee and is now being rolled out across the commercial
teams. This should enable us to prioritise more profitable products, review the
portfolio for small, loss-making products that could be discontinued and
challenge pricing/cost structures, debating better outcomes with key suppliers. A
comprehensive review, Product Simplification, has started.
6.4. None of this is straightforward. Many changes would have to be negotiated with
third party clients and the impact on the network would have to be considered
and, if material, agreed. However, it should enable better bottom line outcomes
over time. Direct product contribution should be the primary KPI for commercial
product and marketing managers in 2015-16 scorecards.
7. Reacting to events
7.1. In aggregate, while recent income weakness may continue to play into the early
part of the year and cost challenges still have to be grounded, the plan appears
balanced but stretching. However, events such as aggressive RMG action, a
changing financial settlement from Government or the emergence of new
competitors could take us below plan.
7.2. Inthe shorter term, it will be difficult to manage such changes through additional
cost cutting as happened in 2014-15: the current plans already contain risk. The
immediate option, which reduces over the course of the financial year, is to cut
discretionary spend like marketing, to the detriment of the business.
7.3. A3or 5 year plan discussion with Government would take discussions beyond
the current agreement and focus us on any residual, uncompetitive areas of our
cost base. Such discussion may also be triggered by the triennial valuation of the
pension scheme. We have assumed no costs or benefits for fundamental
changes in 2015-16.
8. Three Year Plan
8.1. Asa result of structural market changes in Mails and the failure of intended
Government revenue to crystallise, delivery of the Strategic Plan is taking longer
than originally assumed. The Board should debate a number of key questions at
its May meeting and June awayday, including:
e the potential impact of product simplification;
e the outturn of the Mails review, with any implications for the relationship with
RMG;
e alternative sources of revenue;
e the plan to tackle the residual areas of uncompetitive cost;
e digital strategy; and
e IT delivery, awarding the front office procurement contracts.
8.2. The Board will be asked to approve: a revised three year plan; and a document
for an incoming government that demonstrates the benefits of the plan, the
returns on investment and alternative options.
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9. KPI Scorecard
9.1. The KPI scorecard includes a number of changes agreed with the Remuneration
Committee:
e the financial targets focus on EBITDAS with a lower allocation to income
* ameasure of increasing digital income has been included
¢ cashflow, incorporating the substantial capital and exceptional spend, is on
the scorecard but the Remuneration Committee didn’t consider it should be
bonusable
e the customer satisfaction measure has been split between NPS for Financial
Services and Customer Effort for the whole business. The methodology of the
Effort measure has been improved
e Subpostmaster engagement remains on the scorecard with a view to it
becoming bonusable from 2016-17.
9.2. The business continues to believe that it would be commercially appropriate to
have a threshold measure for income and profit, albeit asymmetric with the
stretch target.
10. Recommendation
10.1 The Board is asked to:
* approve the financial plan for 2015-16, as set out in Annex A.
¢ to approve the KPI scorecard for 2015-16 and the STIP bonus measures, as
set out in Appendix B.
Alisdair Cameron
March 2015
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Draft 2015-16 Scorecard - proposed targets
2015-16 Proposals
Metric 2014-15 I2014-15 I 2015-16
Key Performance Indicators (2014-15 bonus % in brackets) eer * FYE * Threshold Target Stretch
Commercial Sustainability i
Existing
‘Customer
ICustomer Satisfaction Existing but changes
INet Promoter score ~ PO brand Existing but changes
[Queue time % < 5 minutes - Top 1k branches -Perception of queue time Existing but changes
[Compliance - Financial Services - basket of 11 measures, Existing
[Compliance - Inland Dangerous Goods Remove
[Compliance - International Dangerous Goods Remove 4
People I
See ee ite i és Note that the cash flow
budget will be amended
ISubpostmaster Engagement Index % (Once a year) Existing
once year end outturn is
INew starter turnover New known.
[Senior management representation - gender New °
Senior management representation ~ ethnicity New i
Post Office Values the diversity of the workforce (Once a year April) Remove The Crown P&L budget
(No.) & of BME appointments over total recruits at senior leadership and senior manager Remove will be calculated from
(No.) % of Female appointments over total recruits at senior leadership and senior manager Remove the final approved Post
Modernisation Office group budget.
Number of branches
(Crown Profit (Loss) run rate £m Remove —_—
Remove I
INT Transformations - contract signatures
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Commercial Sustainability - basis for proposed targets 2
get with threshold and stretch set in line
higher for stretch)
‘than the budget target proposal of
* Net income target proposal is in line with tl
with 2014-15 ower for threshol
« Recommend a threshold for EBI that is
oss. Stretch proposal nd aligns to the LTIP threshold
+ Digital net income is based on Credence reporting with a target aligned to th
income budget and stretch proposed af IRRELEVANT!
¢ The cashflow target is aligned to the draft budget but will be adjusted once year end outturn
is known,
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®
Customer -Customer Effort Score, Customer Satisfaction and Wait time trend data
taken from Voice of Customer (feedback from customers visiting a branch)
Effort (Voice of Customer). Data shown P6-P11 14/15 + Through this programme, frequent visitors hold slightly higher perceptions month on
month of how easy it is to do business with the Post Office.
+ The Christmas period also proved a pressure point across among these customers
CLE —65% OT 67764 + The average score has been 63-64% (although highs of 65% and 67% have been
hit) and the target proposed is intended to be stretching but not unrealistic.
+ The measure will cover more branches next year which may impact the score
although we will be able to see a consistent score with this year if required.
+ Based on the numbers seen through Voice of Customer from P6-P11 (YTD is 64%), a
P114/15 P214/15 P314/15 P414/15 P5 14/15 P614/15 P7 14/15 PB 14/15 P9 14/15 P10 14/5P11 14/15 = 2 wegen
suggested annual target of 64%
Customer Satisfaction (Voice of Customer). Data shown P1-P11 14/15 + Customer Satisfaction through Voice of Customer (top 3 box) is a very stable
87% 87% 86% 87% g74 gay 38% 88% 86% 877% 88% measure, with limited scope for likely growth (i.e. late-80s is very high)
Based on the numbers seen through Voice of Customer from P1-P11 (YTD is 87%), a
suggested annual target of 88%
Pa. P2 P3 P4 I Po P7 P8 P9 P10 P11.
14/15 14/15 14/45 14/15 14/15 14/15 14/45 14/15 14/15 14/15 14/15
% served within 5 mins - (Voice of Customer). Data shown P1-9 14/15
WL — Ue bo ATP 9 -BU BT BM pg BUG 81
Voice of Customer vs. Mystery Shopping - the two show a very similar trend over
time
There is a similar picture when splitting this by Crown, Agency and WHSmith
Based on the numbers seen through Voice of Customer from P1-P11 (YTD is 78%), a
suggested annual target of 78%
P41 P2 BS P4 PS Po P7 P8 P9 P10 P11
14/15 14/15 14/15 14/15 14/15 14/15 14/15 14/15 14/15 14/15 14/15
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Customer - Brand-level NPS taken from Voice of Customer (feedback from customers
visiting a branch)
NPS (Voice of Customer). Data shown P1-P9 14/15 + NPS - at a brand-level - is not currently asked on the Voice of Customer
programme. The last time it was asked was it was +41
56% 53% 524 55% 88959789. BO —gng— 7 OY, + However, visit reason/product-level NPS is asked, and this can be aggregated up to
give a ‘brand-level’ view, grounded in why people have engaged with the brand via a
branch. This means it is asked in a way that is more relevant, and easier to
understand for customers, while making the amalgamated score broadly
representative of the Post Office customer base
Pt P2 I P4 PS Po P7 P8 P9 P10 80-41
14/15 14/15 1445 14/5 14/45 14415 14/5 14/45 14/5 14/5 14/15
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Customer - Net Promoter Score for Post Office Money
NPS Data shown P6-P11 14/15
We know that our currently NPS is over inflated due to the fact that we only carry
out telephone customer surveys at present, and our results are not based mainly on
IRRE LEVANT current account, as with most high street banks.
Throughout 15/16 it is planned to move towards a percentage of our surveys to be
carried out through IVR’s and SMS, where customers will be far more open to be
critical than they are over the phone. For 15/16 we will maintain the telephone only
score while we establish the benchmark for the different approach with a view to
targeting on the new approach in 16/17.
As we increase our current account holdings our NPS score will almost certainly
decline as peoples expectations are always higher of their current account provider
PL P2 P3 Pa PS P6 P7 P8 Po P10) P11. than they are for instance their car insurance provider. (average bank NPS is
14/15 14/15 14/15 14/15 14/15 14/15 14/15 14/15 14/15 14/15 14/15 between -5 and 5). Maintaining the current score will therefore be challenging.
Our current cross product holding is circa 1.25 and again as we drive this towards 2
and customers have multiple product holdings, their expectations rise and NPS as a
result will suffer.
Our NPS can be split by product, customer type and channel, and whereas we can
mainly influence sales (rather than service and passive) customers and our telephony
H channel is mainly run by 3 parties, they all have a brand impact on Post Office
Money so it is recommended that the overall NPS score for FS is used as the
measure.
For comparison, recent NPS scores from other FS providers are shown in the table
indicating that the Post Office score is currently high. As the Post Office develops as
an FS provider, we might expect the score to drop more in line with competitors.
A
A
m
re
<
>
=
—
Based on the current trend and planned changes to customer type a suggested
NPS annual target is 25 with a stretch to 27
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People - basis for proposed targets
¢ Employee Engagement
¢ Target of +1 based on continuing to increase engagement during period of business transformation. The stretch of +3 is
based on hitting the Hay Group external retail benchmark norm (65).
Postmaster Engagement
* Target of +2 based on continuing to increase engagement with postmaster population. We are still awaiting full
breakdown of 14/15 results that will highlight differentiation between transformed branches - which we expect to
achieve higher engagement levels.
* New Starter Turnover
+ The measure is calculated as leavers with up to 12 months service vs. total population with up to 12 months service. As
there is a moving top line the monthly spikes/drops could be severe so reporting on a quarterly basis will provide a
better trend
¢ Representation Gender
+ Like for like 13/14 actual figure was 35.9%, so 15/16 target of 0.5% increase rationalised by turning a 0.4 decrease into
a 0.5 increase. Target set in wider context of 40% senior managers female by 2020.
* Representation Ethnicity
¢ 15/16 target set in wider context of 10% of senior a
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POST OFFICE LTD BOARD
Update on strategic options for the telecommunications business
1. Purpose
The purpose of this paper is to:
1.1. Update the Board on progress in reviewing the alternative strategic options for the
telecommunications business (telco).
2. Background
2.1. The strategy for telco has not been reviewed in detail since the preparation of the
2013 Strategic Plan — it was not an explicit part of the work done for last year’s June
Board away day, other than to reach the high level conclusion that it was a
secondary pillar rather than one of our core strategic priorities of mails and financial
services. The Executive Committee therefore agreed in November 2014 that a
review should be undertaken of the strategic options available to us for the telco
business, and in particular whether it should be retained as part of our group portfolio
or divested to release capital and reduce management distractions.
3. Act
ies/Current Situation
3.1. Having lost around 25,000 HomePhone and Broadband (HPBB) customers between
September 2013 and July 2014 as a result of the call centre issues associated with
the migration from BT to Fujitsu, the performance of the business has started to
improve during the second half of this financial year, with a forecast net addition of
5,000 customers.
3.2.A price increase of £2 per month on the Home Phone service was executed
successfully in January 2015, delivering an annualised profit improvement of £7
million. Plans are in place with the network and other distribution channels to deliver
a net increase of 20,000 customers in 2015/16 (taking the total base to 475,000
customers by end 15/16). Together with the proposed £1.00 monthly price increase
from January 2016, telecoms is forecast to generate a direct product contribution
(DPC) in 2015/16. ‘year on year increase. These growth plans are
supported by i=s*" investment to introduce fibre based broadband in Q2 and
develop our internet security product (‘Post Office Safeguard’). The scope for further
price and volume growth in subsequent years is outlined in the next section.
3.3. Our default strategy in the short term is therefore focussed on maximising the
positive contribution the business makes to our central overheads, thereby
supporting our path to profitability over the next three to four years. However,
recognising the challenges we face in remaining competitive in this market in the
long term, we have also started to assess whether greater value could be realised
through a divestiture to a third party. To inform this assessment in November we
commenced a preliminary dialogue with BT and Fujitsu (under NDA) to: a) estimate
the potential market valuation of our business under a full disposal; and b) to assess
whether there is appetite for a franchising or merger arrangement which would retain
a role for the Post Office brand within the telco market, but with a third party taking
on responsibilities for running the business. The preliminary conclusions of this
dialogue are set out in the next section.
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3.4. Separate to the HomePhone and Broadband business, our planned launch of mobile
4.
was delayed from November 2014 to May 2015, primarily to improve our financial
outlook this year by reducing marketing spend within Q4. The delay has also allowed
more time for rigorous testing through a friendly user trail with colleagues and
relations. We are proposing to also stagger the roll-out of the mobile launch through
a consumer trial in the North West region, with clear check points in place to review
trading performance before committing, to further investment. It should be noted that
mobile will dilute EBITDAS by around illion over the first two years of trading
before becoming profitable in year 3.
Options considered and commercial impacts
4.1. Option 1: Retain the telco business and maximise DPC
.
The UK telco market is mature and our competitors have far greater marketing
firepower and more compelling bundled ‘quad play’ propositions. Therefore our right
to play in this market remains confined to a limited, value-focused segment,
particularly amongst the over 65s. While we have a relatively strong position (second
behind BT) in the profitable HomePhone only market, this segment is clearly facing
structural decline over the longer-term.
Nonetheless, as noted in the previous section, telco provides a positive DPC to the
overheads of the business, thereby indirectly supporting our strategic priorities in
mails and FS, and also provides a useful degree of diversification during a period
when we are facing significant structural challenges in the mails market.
Furthermore, we are projecting a c5.5% annual average customer growth over the
next 3 years and expect the DPC to improve at a higher rate due to continued annual
price increases, reflective of a rational market with BT as a price leader. Under our
‘balanced’ grt
2014/15 to feievanrin 2017/18, delivering} "DPC by year 3. This assumes that
we maintairour current price differential a rease prices only in line with market.
We also have the option of reducing the price differential versus BT on HomePhone
in order to maximise the DPC, but with some potential trade off against longer-term
value.
requirements. In particular, in the context of the constraints and risks associated with
our IT transformation plans, telco has the significant advantage of being serviced by
an independent technology platform at Fujitsu with limited interface requirements
with Horizon and its replacement system.
The product is also predominantly traded online and through call centres (accounting
for 70 % of projected sales in 2017/18), limiting the demands on the network during
the deployment of Front Office.
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4.2. Option 2: Sell the base of customers to a competitor and exit the business
e Estimated value
Broadband customer and an estimated price of
million, based upon a market_tested price of
r Homephone Gustomer.
is the most likely purchaser of the combined base, as other competitors are
‘léss likely to be interested in Homephone customers. There is a possibility that
we could split the customer base and sell to differs rties; in this instance the
likely.purchaser of the Dual Play base would be !RRELEVANTat a small premium,
whilé emain the target purchaser of the Homephone Base.
o The write off of the technalaay investment in the Fujitsu solution is projected at
the end 2015/16 as } IRRELEVANT;
ncement and an Ofcom review of the broadband market
has continued to express interest in renewing the dialogue in
is not at this stage expressed enthusiasm for either an
acquisition or franchising arrangement, on the grounds that owning a telco franchise
is not part of their core business model (although they remain keen to continue
working with us under the current arrangement).
e Divesting of the business would arguably reduce management distractions from core
priorities in mails and FS. However, financially the question is whether the
opportunity cost of not disposing of the business to release} of capital is
greater than thei it! of annual DPC which we believe is achievable by retaining
the business (we have not identified any material central costs which would be saved
if we no longer had a telco business, and therefore this loss of DPC would be largely
unmitigated).
e At this stage we have not identified alternative investment opportunities which clearly
deliver a greater risk-adjusted annual return and which would only be affordable if we
were to divest of telco. However, this will be kept under review as part of the next
stage of work to refine and prioritise (by pay back) the options for spending against
our limited discretionary investment budget, with a further update provided as part of
the 3 year plan in May/June.
e There is also potential for brand damage should customers feel unhappy about being
transferred to another provider, and also an undermining of network confidence in
the growth aspirations of the Post Office (notwithstanding the fact that 60 % of HPBB
sales are via non-network channels).
e Finally, it should be noted that shareholder approval would be required for a disposal
of telco (both because this is an explicit deviation from the Strategic Plan and there
are specific obligations under the Articles for approval of disposals). Alongside the
commercial considerations, BIS would wish to take account of the potential
stakeholder, network, regulatory and competition implications of such a move.
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4.3. Option 3: Franchise the business or merge with another player
e Depending upon the model selected, the Post Office would either earn a modest
franchise fee, based on customer volumes, or would become a minority shareholder
in a merged entity. In particular this could be a value enhancing move for both
parties if one believes the Post Office brand is better leveraged using the capabilities
and infrastructure of a larger player such as During our initial dialogue
essed some potential interest in consolidating our business alongside theif s..9«
ubsidiary (which targets a similar value-focused segment of the market). “~~~
e This option has the potential benefit of reducing management distraction and risk by
handing over operational control to a better qualified third party, and in financial
terms could release both some upfront capital and maintain a recurrent annual
dividend/royalty payment. (We do not yet have a reliable estimate of the potential
value of these payments, but this is something we will seek to model as part of the
next stage of work, informed by any further dialogue wi ‘in the summer.)
e While management and operational distractions might be reduced by a franchising
arrangement, we would need to build and maintain an effective framework and
competence for managing our exposure to brand risks through the third party
arrangements. As part of any proposed deal we would also need to assess
arrangements over data ownership e.g. for use in cross-selling into our other product
lines.
Proposal
5.1. Given the considerations outlined above and the fact that we have not (as yet)
received a concrete expression of interest in either an acquisition of
franchising/merger arrangement, at this stage our recommended default strategy is
to retain telco within the corporate portfolio and seek to maximise the net cash
contribution to the overall business over the next three years through the right
combination of pricing, sales and investment levers.
5.2. In practice this is likely to mean keeping the investment in marketing and product
development to relatively low levels_ compared with industry benchmarks, and
maintaining the price differential vs. in HomePhone over the period. The optimum
pricing and marketing strategy will be reviewed ahead of the next expected price
increase round in Jan 1 2016, based on the available evidence at that point and any
regulatory considerations (e.g. the risk that Ofcom could seek to impose a price cap
on line rental). We are planning a line rental increase of £1.00 effective January 1
2016.
5.3. However, recognising that: a) the value of the business in-house is likely to decline
over the longer term; and b) it may be of greater value to a third party with greater
synergistic opportunities, we would propose resuming the exploratory discussions
with I 1: ee in early summer, in order to
obtain more reliable estimates of the financial impacts of the disposal and franchising
options outlined above. These updated figures will then be considered alongside our
latest assessment of alternative investment opportunities (including any arising from
further consideration of the ‘Plan B’ options in mails or other areas) to understand
the effective opportunity cost of retaining telco. A further update on this assessment
will be provided to the Board at this point.
Telco strategic options Martin George Page 4 of 5
March 2015
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5.4. In the event that we do decide that our preferred approach is to divest of the
business, we would also look to increase the number of potential purchasers to
create greater price tension.
6. Key risks and mitigation activities
6.1. Fuiitsu' 's call centre sub-contractor Ca ita f .
IRRELEVANT.
iven the challenges we experienced with the last
mig ly any mig! ll need to be meticulously planned and adequately
funded (by Fujitsu) to ensure the necessary staffing levels and training. We will
ensure Fujitsu are fully aware of these requirements as part of any new contracting
discussions.
6.2. In the event that a decision is made to either divest or merge the telco business,
there is a risk that our homephone customer base in particular will be confused,
leading to an increase in complaints and potential brand damage. This risk should
be mitigated by the fact that the purchaser is likely to have significant experience in
executing these types of migrations.
6.3. In the event that we elect to pursue a more explicit ‘cash co\ ;_strategy and increase
line rental ahead of the market (e.g. £2.00 vs. an expected increase of £1.00),
the total increase over 39 months would be in excess of 50%. creates the risk of
brand damage which we will need to evaluate in our future pricing decisions.
7. Conclusion
7.1. As set out above, telco has..the, potential to generate a rising direct product
contribution reaching arounc'***“"by 2017/18. It therefore provides a useful source
of diversification and meani contribution to the central overheads associated
with our strategic priorities of mails and financial services, and this is the benchmark
against which alternative corporate portfolio options should be assessed. We will
continue to assess these alternative investment opportunities alongside further work
to validate and quantify the economics of either a disposal or franchising/merger
arrangement.
8. Recommendations
The Board is asked to:
8.1. Note the update on strategic options for telco set out above and agree the proposed
next steps.
Martin George
March 2015
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Evaluation of the Effectiveness of the Post Office Board - March 2015
1, Process
Following the first full Board evaluation carried out in summer 2013, the current Board evaluation
was carried out by the Chairman based on interviews with all Board Directors and the Company
Secretary in January and February 2015. It takes account of feedback from some members of the
ExCo.
The key findings are set out below. The Chairman is separately giving feedback to the individual
Directors on a personal basis.
2. Context
Prior to the beginning of this evaluation, the Chairman had announced her intention to stand down
at the end of July after 4 years in the role. The SID had also let it be known that he did not intend to
extend his term beyond his 4 year term which would end in the autumn.
Anew CFO had joined the Board in January.
Discussion about the future composition of the Board should be seen in the light of these changes.
3. Overall Effectiveness
In general, the consensus was that the Board was continuing to grow in terms of its effectiveness
and was doing “pretty well” at addressing the right issues in the right way in the best interests of the
business and its shareholder.
The change of CFO provided a very positive opportunity to improve matters further and to rebalance
the respective contributions of the non-executive and executive Directors. The Board should take
conscious advantage of this.
The introduction of the new-style CEO report at the beginning of each meeting, providing an
overview of the business and progress in implementing its strategy, was regarded as a significant
improvement in terms of giving the non-executives an understanding of how things stood, and
focussing the rest of the meeting. The non-executives attached great importance to the CEO owning
the content of that report and opening the meeting by drawing out the key issues from her personal
perspective so that they could support her and her team more effectively.
Several Directors said that it was important for the Board to focus its time and attention primarily on
the issues which are key to the future success of the business in particular revenue growth (eg mails,
financial services and digital). The Forward Look for future Board agendas could be used more
effectively to ensure this happens.
Several Directors commented on the danger of the Board getting drawn into too much detail and
becoming too “executive”. This had often happened where the executive’s contribution on an issue
had not been strong and it was thought that the style and contribution of the new CFO could help
the Board control that tendency where it was inappropriate. It was also suggested that where
individual Directors were particularly interested in the detail of a particular issue, they should be
encouraged to take this off-line.
There is a specific question about how “intrusive” the non-executives should be in relation to
regulatory/compliance matters in relation to financial services on which there are different views
round the Board table. The Board should discuss this.
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A couple of Directors wondered whether the Board had become more risk averse and whether this
was detracting from the need to drive growth. On the other hand, it was suggested that a more
explicit articulation of key risks facing the business eg on a quarterly basis, might be helpful.
Overall, the executives value the Board’s contributions especially on the commercial agenda. The
NEDs were all thought to be well engaged in the business, knowing the key people and talking to
them outside meetings when appropriate. The level of challenge is thought to be right but it was
suggested that the Board could be more forthcoming with praise where it was due.
Many people commented on the dynamic around the Board table which they thought was very
good. There were no “egos” on display; differences were aired frankly and it was felt that the non-
executives did not pull their punches. The best discussions were those where the papers were clear;
had been properly digested by everyone; taken as read; and the non-executives’ questions and
concerns were aired at the outset so that the discussion covered these thoroughly. The Chairman
was recognised as someone who encouraged debate but it was suggested that she could sometimes
bring discussions to a conclusion more briskly.
One Director commented that It was important that there was no loss of energy in the Board in the
period before the current Chairman and SID stood down.
4. Organisation of the Board
Recently, Board agendas had become very packed and energy levels had flagged in the afternoons.
The inclusion of a speaker during the lunchtime session had put further pressure on the use of time.
Several people requested a clear break of at least 30 minutes for lunch. One Director suggested that
meetings should be limited to 4 hours and another that the Board could sometimes meet the
evening before the formal meeting to discuss issues which did not need to be decided formally, thus
taking some pressure off the agendas.
It was generally thought that the Board papers had deteriorated in quality - they were far too long
and insufficiently clear. One Director commented that the volume of papers for each meeting was
about 4 times the volume of papers for other Board meetings attended. It was unclear who owned
the quality of what came to the Board. Further work is needed here.
It was also suggested that the Board might meet in different Post Office venues as it had in the past,
where there was business activity with which it could usefully engage.
5. Composition of the Board
With the forthcoming change of Chairman and SID, it is agreed that maintaining continuity amongst
the remaining non-executives is important for the business. The new SID will need to complement
the experience of the new Chairman so that between the two of them, they cover both the
commercial and the government waterfronts. Given the range of business issues with which the
Board needed to engage, there might be a case for adding an additional non-executive in the longer
run. It would be helpful to recruit to the Board people who had IT and digital skills as well as
knowledge of mails, and to broaden the diversity of the group.
6. Sub-Committees
The Remuneration and Nominations Committees were working well, addressing the right issues at
the right time and reaching clear decisions when required.
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The Audit and Risk Committee had taken longer than had been hoped to get to grips with some
important key issues, such as risk, but progress had been made. The new CFO would put his stamp
on this, and other changes in personnel would help here.
There is an issue, raised below, about the extent to which the ARC should engage in the financial
services side of the business.
Members of the ARC are clear that meetings need to take place face to face rather than on the
telephone and this has been addressed in the planning of future meetings.
The Pensions Sub-Committee had broken the back of its original agenda and in the future, should
not need to meet more than a couple of times a year. But it was agreed that it should remain in
existence and should be accorded appropriate executive support.
The two non-executive Directors on the Financial Services Sub-Committee both take the view that it
should be wound up once the POMS Board is fully up and running under the Chairmanship of Steve
Ashton. They believe that the Sub-Committee falls into the trap of becoming inappropriately
executive; that the current arrangements allow for a lack of clarity about the role of the ARC in
respect of FS matters and that the Sub-Committee is not a good use of non-executive time.
Instead they suggest that post Hawk:-
The POMS Board should take responsibility for all “in scope” insurance matters with updates
provided to the ARC on an agreed basis to ensure that the ARC continues to have a company-wide
oversight of this area of business;
The ARC should take responsibility for non-POMS related FS matters in a discrete section of its
meetings to which at least one Bol representative should be invited alongside Nick Kennet and his
team. Tim Franklin has offered to meet Nick Kennet ahead of each ARC meeting to ensure the right
level of non-executive scrutiny and avoid detailed presentations or discussions.
This issue needs to be discussed and a way forward agreed with all concerned.
7. Issues
The focus of the Board’s time and use of the Forward Look in planning this.
Board members to flag when they think the non-executives are in danger of becoming too
executive.
The Chairman to be quicker on drawing discussions to a close.
The length of meetings and use of afternoons/evenings before the formal Board meetings.
The quality of Board papers and who is responsible for assuring this.
The Board’s role on financial services regulation/compliance.
The future of the Financial Services Sub-Committee post Hawk.
In the longer term, after the appointment of the new Chairman, the size of the Board and possible
widening of skills and experience represented.
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Post Office Limited — Strictly Confidential
POLB 15(1*)
POLB 15/01 - 15/23
POST OFFICE LIMITED
(Company no. 2154540)
(the ‘Company’)
Minutes of a Board meeting held on 28 January 2015
at 148 Old Street, London EC1V 9HQ
Present:
Alice Perkins Chairman
Neil McCausland Non-Executive Director
Tim Franklin Non-Executive Director
Virginia Holmes. Non-Executive Director
Alasdair Marnoch Non-Executive Director
Richard Callard Non-Executive Director
Paula Vennells Chief Executive
Alisdair Cameron Chief Financial Officer
In Attendance:
Alwen Lyons Company Secretary
Neil Hayward Group People Director (minute POLB 15/4-15/6)
David Ryan Business Transformation Director (minute POLB 15/5-15/7)
Martin Edward Head of Financial Strategy (minute POLB 15/5-15/6)
Lesley Sewell Chief Information Officer (minute POLB 15/7 only)
Jane MacLeod General Counsel (minute POLB 15/9 only)
Chris Aujard General Counsel (minute POLB 15/9 only)
Arnout Van Der Veer Head of Risk & Assurance (minute POLB15/9 only)
Martin George Commercial Director (minute POLB 15/10 only)
Mark Siviter Head of Mails (minute POLB 15/10 only)
Kevin Gilliland Network & Sales Director (minute POLB 15/11 only)
Mark Davies Communications & Corporate Affairs Director (minute POLB
15/12 only)
Tony Smith Head of CPNI (minutes POLB15/8 only)
POLB 15/01 INTRODUCTION
(a) A quorum being present, the Chairman opened the meeting.
POLB 15/02 CHANGE OF DIRECTORS
(a) The Board approved the appointment of Alisdair Cameron and noted
that Chris Day would cease to be a director with immediate effect.
ACTON: (b) The Company Secretary was authorised to make all the necessary
CoSec filings with Companies House.
POLB 15/03 CEO’S REPORT
(a) The CEO introduced her report and focussed on the following key
areas for discussion with the Board:
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(b) Cost Reduction The CEO was pleased to report the excellent progress
made by the. Business - the forecast was to overachieve the Iirrcevanr!
target by jirrsevast! She recognised the work done by David ‘Ryan,
Business Tranétormation Director, and stressed that the focus on cost
reduction would continue into the new financial year. The first wave of
staff efficiencies was taking place and planning for the second wave,
focussed on managerial role was underway.
(c) Finsbury Dials Teams would begin to move into the new ‘Customer
Support Centre’ in March and the CEO informed the Board that it
would be ready in time for the next Board meeting. The move would
promote new ways of working including a Group Executive hub; more
use of hot-desking and open plan areas; and a meeting room which
could accommodate up to 300 people. The CEO promised to circulate
ACTION: a note explaining the new governance structure, including the Group
CEO Executive, but assured the Board that there was no change in the
delegated authorities from the Board.
ACTION: (d) It was proposed that the next Post Office Advisory Council (POAC) be
Mark Davies held in the new office.
(e) ES Media coverage The CEO reported the excellent media coverage
ACTION: received for Post Office Money and the Financial Services Academy.
Pete Markey A link to the new Post Office Money TV advertisement would be
circulated as soon as it was available.
(f) Banking Facilities The CEO explained that the Secretary of State was
leading a debate on banking facilities and the role that Post Office
could play and thanked Richard Callard for his support with this work.
(g) Hawk The CEO focussed on the timescales for Project Hawk and the
ACTION: risk of further slippage. A Financial Services update would be given at
Nick Kennett the next meeting, including Hawk and POMS.
POLB 15/04 2014/15 FINANCIAL PERFORMANCE AND SCORECARD
(a) The Board welcomed Neil Hayward, Group People Director, to the
meeting.
(b) IThe CFO gave the Board an update on:
e the financial performance in December 2014 and YTD;
e the expected financial outcome for 2014-15; and
e the expected outcome on the performance scorecard.
(Cc) The CFO considered that in his opinion the: revenue forecast
still contained a degree of optimism. The Board discussed the
revenue trajectory and the Q4 revenue required to achieve the
forecast.
(d) The Board asked when the new FS incentive scheme would be
launched. Neil Hayward explained that the detail had been sent to the
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CWU on 18" December. The Board discussed the importance of
retaining the focus on Treating the Customer Fairly as well as
incentivising sales and agreed that the ARC should continue to
monitor the FS sales risk measures.
ACTION: (e) The Board recognised the importance of Q4 for ISA sales and asked
Kevin Gilliland the Business to ensure that they had the necessary sales focus in
place.
(f) I The Board discussed the telephony revenue and asked if the contract
ACTION: had been changed to rectify the revenue/cost disparity for increased
CFO customer usage. The CFO agreed to circulate a note to clarify.
(g) The CFO highlighted that Q3 was the first quarter of the year to deliver
an EBIT above plan and he was hopeful that the Business would be
able to close the EBIT gap further in Q4.
(h) The Board discussed the scorecard and the poor performance on
ACTION: ‘easy to do business with’. The CEO acknowledged the significant
Pete Markey drop against target and last year’s result. It was agreed that a note
would be circulated to explain the change.
(i) IThe CFO explained that Q4 still contained some big.one-off-risks_and,
opportunities and that the EBIT coul from }_.[RRELEVANT _!
although he was comfortable with the
Likewise the Bonus could range between i...
current forecast of i
(j) The Board discussed the Crown P&L target and agreed to the
principle that the initia ‘Crown branches be analysed to produce a
like for like breakeven analysis.
(k) The Board noted the performance and improved full year forecast.
The Board further noted that there were a number of key
dependencies for this improved full year forecast to be achieved.
POLB 15/05 UPDATE ON THE 2015/16 OPERATING PLAN AND THREE YEAR
OPERATING PLAN
(a) The Board welcomed David Ryan, Business Transformation Director,
and Martin Edwards, Head of Financial Strategy, to the meeting.
(b) IThe CFO updated the Board on the preparation of the 2015/16 Annual
Operating Plan and introduced the proposed approach to the three
year plan, providing an interim update on the latest financial
projections through to 2017/18.
(c) An EBITDAS target of «was proposed for 2015/16, continuing the
improvement of the last fhrée years but falling short of the breakeven
target in the strategic plan.
(d) IThe CFO explained that he believed that the Business was being over
optimistic on revenue, especially in Mails, which had not factored in
ACTION: RMG’s promotion of online postage. He did not think the level of over
Martin Edwards optimism was as significant as it had been in the 2014/15 budget but
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he wanted a more realistic approach in the budget and three year
plan. The Chairman stressed the need for realism.
(e) FO recognised the need for al i ontingency to support the
EBITDAS target proposed for 2015/16. This would be built into
idgets agreed with individual functions. Neil Hayward reminded
the Board that an EBITDAS target of h
target, the Business would need to deliver an outturn of I
trigger the LTIP.
(f) I The Board discussed the current risks and opportunities highlighted in
the plan and the need to continue to focus on reducing costs. The
CFO recognised the need to manage working capital to enable the
Business to deliver the plan without further borrowing.
(g) The CEO explained that the Business scorecard and bonus measures
would be discussed at the RemCom in February.
(h) The Board discussed the objectives for the three year operating plan,
the first year of which would be the budget for 2015/16. The CFO
promised a draft to the Board in March and the final plan in May.
(i) I The Board asked for a page showing the 2012/13 to 2017/18 strategic
plan against the outturn for past years and the forecast for future
years, to be included as a baseline in the three year operating plan.
(j) I Martin Edwards explained that the plan would contain milestones and
change activity, along with major events and a log of material risks
and opportunities. The Board asked that the plan showed the
assumptions being made so that they could understand the choices
available to the Business.
POLB 15/06 BUSINESS TRANSFORMATION
(a) The Board thanked David Ryan for the focus he had set the Business
on cost reduction and the performance to date.
(b) The Board received an update from David Ryan on the Business
Transformation Programme and the actions arising from_ the
November Board. id Ryan reported that he now believed
IRRELEVANT
(c) David Ryan proposed that the Back Office Application Tower (BOAT)
work, which had been suspended to consider alignment with the wider
back office outsourcing, should now go ahead. The added risks and
cost of any further delay to BOAT outweighed any possible small
advantage. The Board agreed that the risks outweighed any benefits
ACTION: and that the Business should focus on the front office changes. David
David Ryan Ryan would circulate a briefing note to the Board once the final BOAT
and back office timelines were agreed.
(d) David Ryan explained that he was focussing on three areas for
Business Transformation:
i. Driving the cost savings this year and next to get toa
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stretch target
ii. Delivering a 3 year plan, aligned with the operating
plan, with Business Transformation milestones, which
he agreed to report to the Board on in May
iii. Introducing joined up governance through design
authority and a Transformation Working Group,
escalating to the Transformation Committee to ensure
that all activity is considered through a transformation
lens.
(e) David Ryan stressed that the technology agenda was mission critical
and needed to take precedence.
(f) I The Board noted the update.
(g) Neil Hayward and Martin Edwards left the meeting.
POLB 15/07 IT STRATEGY
(a) The Board welcomed Lesley Sewell, Chief Information Officer, to the
meeting and received an update on: the progress against the key
initiatives within the 2020 Strategy; the progress on developing the IT
Strategy and alignment with Business Transformation; and the key
risks, mitigations and contingency plans.
(b) The Board discussed the changes to the front office system and
Lesley Sewell stressed the need for the front office changes to be
given primacy over all other Business initiatives. It was recognised
that standardising and simplifying products and systems would reduce
cost and complexity for suppliers and risk for the Company. The CEO.
assured the Board that the Executive recognised the need to simplify
products and processes and that the IT strategy was being managed
through the Executive.
(c) A preferred bidder (from Accenture, IBM and CSC) would be chosen
by the end of March.
(d) The Board asked the Business to consider the failures in other
ACTION: Business’ big IT projects to better understand the possible risks; and
Lesley Sewell to report back to the Board on their analysis and its relevance to the
Post Office.
(e) The Board discussed Sparrow and any perceived or actual risk for
ACTION: sub-postmasters of the system change. The Business was asked to
Lesley Sewell ensure independent assurance of the system's integrity and security
before it goes live, with a forensic end to end assurance.
ACTION: (f) The Business was also asked to consider how it would manage the
Mark Davies PR implications of announcing the change whilst Sparrow is still
ongoing.
(9g) Lesley Sewell explained that the plan was to run the new and old
systems in parallel for 6-7months and the need for the new supplier to
work closely with Fujitsu. The Board asked if the new supplier and
Fujitsu would have back to back contracts to mitigate the commercial
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tisk for the Business. Lesley Sewell assured the Board that this was
the plan but still recognised the Fujitsu exit as a significant risk.
(h) The Board asked how the Business would future proof the new
system and were reassured that this would be as standard a system
as possible, enabling additional ‘plug in’ improvements for software
developments.
(i) The Board noted:
e the progress against the key initiatives within the 2020
Strategy
e the progress on the IT Strategy and alignment with Business
Transformation
e the key risks, mitigations and contingency plans
e that the team would revert back to the Board as follows:
March 2015 — Strategy update and alignment to Operating
Plan
May 2015 — to seek authority for the Network Tower award
May 2015 — to seek authority for Front Office Tower award
G) David Ryan and Lesley Sewell left the meeting.
POLB 15/08 CYBER SECURITY
(a) The Board welcomed Tony Smith, Head of CPNI (Centre for the
Protection of National Infrastructure) for a discussion on Cyber
Security.
POLB 15/09 RISK APPETITE
(a) The Board welcomed Chris Aujard, General Counsel, Jane MacLeod,
General Counsel and Arnout Van Der Veer, Head of Risk and
Assurance, to the meeting and received a request to approve the
Company's Risk Appetite Statement (RAS).
(b) Chris Aujard explained the process used to develop the RAS and the
discussions at ExCo and the ARC. The RAS established the ground
rules for the Business and would help to drive behaviours. Arnout
Vanderveer recognised that it would take time to embed risk into the
Business and ensure that decisions were aligned with the RAS.
(c) Alasdair Marnoch, Chairman of the ARC, acknowledged that the RAS
was a good step forward, albeit that the process had been slow. He
ACTION: was encouraged by the discussions at both ExCo and the ARC and
Arnout Van Der believed the RAS was a good basis upon which to build. He asked
Veer that the RAS, with risk metrics, be presented to the ARC and Board in
May.
(d) Jane MacLeod recognised that the RAS would develop. She wanted
to develop a framework which would mature and change to drive
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business decisions.
ACTION: (e) The Board asked that all future Board papers included a risk section
CoSec which related back directly to the RAS.
(f) IThe Board agreed to adopt the RAS.
(g) Jane MacLeod, Chris Aujard and Arnout Van Der Veer left the
meeting.
POLB 15/10 MAILS STRATEGY
(a) Martin George, Commercial Director, and Mark Siviter, Head of Mails,
joined the meeting.
(b) Martin George provided an update on the Christmas advertisement
ACTION: campaign and its positive effect on brand recognition and perception.
Pete Markey The Board asked if the analysis could be broken down to understand
the effect on young people’s perception of the Business.
(c) Martin George explained that the Business was still on track to hit the
Mails revenue forecast. He reported the three things in place
to support the sales:
i. The continuing sales support through the guiding coalition,
including focus on_ the
IRRELEVANT
ii. An online marketing campaign
iii. And a branch sales incentive for the last 5 weeks of the year.
(d) Martin George updated the Board on the ‘Win in Mails’ strategy. He
was pleased with the progress on the hand held ingenico devices; the
positive conversations with retailers; and the clear path to a Mails-only
solution in the spring with other products added later. However he had
made limited progress with RMG, albeit they had agreed to work on
trials to look at an improved customer journey, simplified products and
more access points.
(e) The CFO recognised that this was probably the last chance to run a
meaningful trial with RMG to make a compelling case for change.
(f) The Board asked why the Ivy trials had not produced the expected
results. Martin George explained that, although the volumes of home
shopping returns had been lower than anticipated, the trial had shown
the market that Post Office was a viable alternative to Collect+ and My
Hermes. Retailers were now considering Post Office alongside these
other carriers.
(g) The Board supported the idea of a trial but were concerned that the
offer would be difficult to sell to retailers who would want a network
with more consistent opening hours for their customers. The Board
ACTION: agreed that more work needed to be done on the design of the trial,
Mark Siviter with a clear outcome for both the Business and RMG, or there was a
danger of a negative result which might reinforce the RMG position.
(h) The Board were asked to consider the Terms of Reference for
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reviewing the strategic options for Post Office in the Mails markets.
The CFO explained that this piece of work was his proposal based on
similar scenario planning in previous companies. It would enable the
Business to understand RMG’s strategy and possible areas of conflict
and alignment. The CEO asked that the work deliver: an
understanding of the RMG operation; a negotiating strategy; and how
ice could add value; and ¢
(i) I The Board supported the proposal and asked the Business to ensure
ACTION: that the work produced tangible proposals which could be discussed
Mark Siviter at the June Away Day. This work should be done without the
knowledge of RMG.
(j) I The Board agreed not to roll out any further Ivy trial outlets prior to the
launch of the full access point proposition in May 2015. Richard
Callard supported the decision but recognised that the Minister would
be disappointed that the Business had not reached 12000 outlets by
March 2015.
(k) I Martin George and Mark Siviter left the meeting.
POLB 15/11 NETWORK TRANSFORMATION, MODEL PERFORMANCE AND
CROWN TRANSFORMATION Q3 2014
(a) The Board welcomed Kevin Gilliland, Network & Sales Director, to the
meeting and received an update on Network Transformation,
performance of the new models and progress on Crown
Transformation.
(b) Kevin Gillila
its target of
leased to report that the Business had already hit
‘branches opened in the year and was expecting
nches by March. He reported relative success
with the guided leaver programme and wanted every office to know
what was happening to their branch before the IT front office changes.
(c) Kevin Gilliland reminded the Board that the sub postmasters’ contract
requires the Business to give 3 months’ notice to sub postmasters but
that the proposed cliff would give 6 months. It was his intention to
have started conversations with all sub postmasters before May. The
September cliff had always been indicative and because NT was
ahead of plan the Business needed to bring this forward to keep up
the conversion rate.
(d) The Board agreed that the term cliff was unhelpful and that the
Business should try to smooth the changes as much as possible.
(e) The Board asked how the NFSP and George Thomson are likely to
react to the change. Kevin Gilliland hoped that George Thomson
would understand the need to bring the date forward but he was
comfortable that this was the right thing to do irrespective of the NFSP
position. The Board noted that the MoU with the NFSP had still not
been agreed.
POL-BSFF-0178752_0067
ACTION:
Kevin Gilliland
ACTION:
Virginia Holmes
POLB 15/12
POLB 15/14
POLB 15/15
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(f)
(9)
(h)
(a)
(b)
(c)
(d)
(e)
(f)
(a)
(a)
The Board discussed the Crown Office P&L and getting the
branches to breakeven. They recognised that some Crown bran:
were still making a loss and that the Business would now deal with
these as Business as Usual. Kevin Gilliland was asked to set new
targets for the next 3 years with a specific focus on the untapped
potential in Financial Services.
The Board noted the update, and thanked Kevin Gilliland and his
teams for the Network and Crown transformation results.
Kevin Gilliland left the meeting.
The Board recognised that ISA sales should be the focus for the next
3 months and Virginia Holmes agreed to discuss this with Kevin
Gilliland.
SPARROW
Mark Davies, Communications & Corporate Affairs Director, joined the
meeting.
The Chairman explained that the agenda item was to update the
Board on the BIS Select Committee on 3” February.
Mark Davies described the Select Committee process and explained
that the Business had been asked to appear to give evidence. The
CEO would represent the Business. Other attendees were JFSA,
NFSP, CWU and Second Sight. He explained the work being done to
prepare for the Committee and the likely media activity.
Mark Davies reported that the Business had received a letter from the
Criminal Case Review Commission (CCRC) asking for information on
the Criminal cases involved in Sparrow. The Business had 28 days to
respond to the CCRC.
The Board discussed the possible outcomes from the Committee.
The Chairman explained that the Board Sparrow Sub Committee
would consider options and next steps at their next meeting.
Mark Davies left the meeting.
MINUTES OF PREVIOUS MEETINGS AND MATTERS ARISING
The minutes of the Board meetings held on 21 October, 18 November,
26 November and 14 December 2014 were approved for signature by
the Chairman.
COMMITTEE MEETING MINUTES FOR NOTING
The Board noted the minutes of:
e the Sub-Committee to approve the interim report and accounts
meeting held on 19 November 2014
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e the Audit, Risk and Compliance Committee meeting held on 10
November 2014;
e the FS Sub-Committee meetings held on 14 October and 3
December 2014; and
e the Pensions Sub-Committee meeting held on 8 October and 3
December 2014;
e the Post Office Advisory Council meeting held on 12 November
2014; and
e the Sparrow Sub-Committee held on 12 January 2015.
POLB 15/16 STATUS REPORT
(a) The Status Report, showing matters outstanding from previous Board
meetings, was noted.
(b) The Board noted the update on Project Ultra and the draft forward
agendas.
POLB 15/17 UPDATE FROM THE AUDIT, RISK AND COMPLIANCE
COMMITTEE
(a) Alasdair Marnoch, Chairman of the Audit, Risk and Compliance
Committee, updated the Board on the last Committee meeting.
(b) The ARC was more comfortable with the approach to risk, although
they wanted to continue to monitor Treating the Customer Fairly. The
Business had now set up a major incident team which it was in the
process of testing. The Internal Audit plan would need to come to the
Board in March.
POLB 15/18 UPDATE FROM THE FS SUB-COMMITTEE
(a) The Board received an update from Virginia Holmes, Chairman of the
FS Sub-Committee.
(b) Virginia Holmes suggested that the Board may no longer need an FS
Committee, and it was agreed to include sub-committee structure as
part of the Board evaluation.
(c) The Board agreed that if this sub-committee was disbanded the ARC.
would need to include FS compliance as part of its Terms of
Reference.
POLB 15/19 UPDATE FROM THE PENSIONS SUB-COMMITTEE
(a) The Board received an update from Virginia Holmes, Chairman of the
Pensions Sub-Committee.
(b) Virginia Holmes reported that the Pensions Sub-Committee had asked
for a short paper to be presented to the Board detailing the investment
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ACTION: CFO review position and its implications for the Pensions Plan. This would
be presented at the March Board.
POLB 15/20 CHANGE OF REGISTERED OFFICE
(a) The Board:
*® approved the change of registered office for the Company from
148 Old Street, London, EC1V 9HQ, to 20 Finsbury Street,
London EC2Y 9AQ;
e agreed to provide written consent for the change of registered
office for POMS in the form presented, giving a duly appointed
director or company secretary authority to sign the consent.;
e noted the change of registered office for Postal Services
Holding Company Limited; and
e authorised the Company Secretary to make all necessary
filings with Companies House.
POLB 15/21 ITEMS FOR NOTING
(a) The Board noted the IA status report summary as at 31 December
2014.
(b) The Board noted the Significant Litigation report.
(c) The Board noted the Health & Safety report.
(d) The Board noted the Report on Sealings and resolved that the
affixing of the Common Seal of the Company to the documents
set out against items numbered 1241 to 1261 inclusive in the seal
register was hereby confirmed.
POLB 15/22 ANY OTHER BUSINESS
(b) Neil McCausland explained the process was underway to appoint a
new Post Office Chairman. The OCPA (Office for the Commission of
Public Appointments) had appointed Margaret Scott as the PAA
(Public Appointments Assessor) to lead the process which also
includes Neil McCausland as the Post Office Board SID. Russell
Reynolds had been selected as the head hunters and an advert would
be published in mid-February. The current plan was to interview in
May/June, with the new Minister interviewing in late June and an
appointment in July.
POLB 15/23 DATES OF NEXT MEETINGS
(a) It was noted that the next Board meeting would be held on 25 March
2015, to be preceded by a NEDs’ breakfast.
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POLARC15 (1°)
15/01 - 15/12
POST OFFICE LIMITED
(Company no. 2154540)
(the Company)
Minutes of a meeting of the AUDIT, RISK AND COMPLIANCE SUB-COMMITTEE held
on 12 January 2015 at 148 Old Street, London, EC1V 9HQ
Present:
Alasdair Marnoch (AM) Chairman of Committee
Neil McCausland (NM) Senior Independent Director
Tim Franklin (TF) Non-Executive Director
In attendance:
Paula Vennells (PV) CEO
Alisdair Cameron (AC) CFO
Chris Aujard (CA) General Counsel (GC)
Gary Hooton (GH) Interim Head of Internal Audit
Arnout Van Der Veer (AV) Head of Risk and Assurance
David Mason (DM) Head of Risk Governance
Jonathan Hill (JH) Head of Financial Services Banking Regulation, Risk, Strategy &
Planning (Minute 15/04 only)
Lesley Sewell (LS) Chief Information Officer (Minute 15/07 only)
Dave Hulbert (DH) Senior Service Delivery Manager (Minute 15/07 only)
Alwen Lyons (AL) Company Secretary
POLARC INTRODUCTION
15/01
A quorum being present, the Chairman of the Committee opened the
meeting and welcomed all those present.
POLARC MINUTES OF THE LAST MEETINGS AND MATTERS ARISING
15/02
(a) The Committee approved the minutes of the meeting held on 10
November 2014 for signature by the Chairman of the Committee.
(b) IThe Committee noted the actions list dated 8 January 2014, and the CFO
assured the Committee that he had taken ownership of the external Audit
actions including the Auditors fees.
POLARC RISK APPETITE STATEMENTS
15/03
(a) DM introduced the Risk Appetite paper explaining the process undertaken
to produce the proposal. The Chairman explained that the Committee was
being asked to review and approve the statements for recommendation to
the Board.
(b) The Committee supported the categories for risk identified and the four
definitions used for the appetite, but asked the Business to consider
reversing some of the negative statements, to make them clear. Instead
of an ‘averse risk appetite not to maintain the service commitment to
customers’, change to a ‘seeking appetite to maintain the service
commitment to customers’.
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(c)
(d)
(e)
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The Committee discussed the specific statements and proposed that
each area had an overarching introductory statement explaining the areas
where there was no appetite for risk, e.g. unethical behaviour or
regulatory misconduct.
The Committee stressed that a definition of vulnerable customers would
help clarify the statements and asked that this group of customers was
treated consistently across all the areas.
Specific comments by the Committee:
i. Customer
The Business was too tolerant of Business as Usual risk to
customers and the Committee thought there should be more
protection for customers.
It was highlighted that the risk to the Business from customer
behaviour should also be considered.
ji. Financial
Business Transformation added significant risk into the Business
and the Committee, after discussion, were comfortable with the
levels identified.
iii. Market
The Committee asked for clarity in the overarching statement to
explain the drive for profitable growth, and the relationship with the
EBITDAS statement.
The CEO explained that the neutral attitude in government
services was based on prioritisation of Mails and FS and with this
positioning the Committee were comfortable with the levels
identified.
iv. Legal/Regulatory
The Committee challenged the risk appetite in this area, and were
very clear that they believed the Business should be averse to
legal and regulatory risk. AV stressed the importance for a zero
tolerance to compliance. The Committee asked the Business
delete the words ‘that lead to censure’ as they believed the
Business should have averse risk appetite irrespective of censure.
The Business was asked to reconsider the levels identified as the
ARC could not support them
v. People
The Committee asked the Business to include unethical behaviour
in the averse statement shown in the first bullet, and to rewrite the
rest of this category as positive statements which the Business
could seek to achieve.
vi. Technology
The Committee supported the averse appetite for data loss and
asked for a more granular statement for IT services.
vii. Operation
The Committee supported the statements as written.
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viii. I Stakeholder
The Committee supported the statements as written.
ix. Corporate Affairs
The Committee supported the statements as written.
ACTION: (f) IThe ARC asked the Business to amend the statements as discussed and
CAIDM agreed to table the redeveloped risk appetite statements to the January
Board.
POLARC FINANCIAL SERVICES COMPLIANCE RISK UPDATE
15/04
(a) Jonathan Hill, Head of Financial Services Banking Regulation, Risk,
Strategy & Planning, joined the meeting and the provided the Committee
with an update on financial services compliance risk.
(b) The Committee discussed FS compliance and were concerned by the
three dashboard measures shown as amber: mystery shopping; life
insurance cancellations; and credit card usage. There was
acknowledgement that the mystery shopping results had improved but
recognised that this was from a very low base and the absolute
performance needs to improve. There was also concern about reducing
the mystery shopper frequency whilst the results remained volatile.
(c) The Committee raised the level of credit card usage, and questioned
whether the sales process could be Treating the Customer Fairly with
such a high number of cards unused by the customer. JH accepted that
the level was too high and explained that the Bank of Ireland did not have
a process for supporting card activation, an area which was currently
being reviewed.
(d) The Committee asked the Business to provide a 6 month forecast for the
three areas show as amber with a proposed target for each measure and
stronger mitigating actions to improve the performance.
ACTION: JH
(e) The CEO expected that the launch of the new credit card would see a
ACTION: JH higher level of usage and asked JH to provide this analysis.
(f) I The Committee noted the update.
(g) Jonathan Hill left the meeting.
POLARC ANALYSIS OF THE TELEPHONY CONTRACT
15/05
(a) The Committee received an update on the historic and current position
around the Telecoms revenue accounting.
(b) IThe Committee noted that Post Office was now satisfied that the revenue
billing information provided by Fujitsu could be relied upon and that a
claim has been made for the £300,000 which had been identified as a
result of a full forensic review of billed revenue.
ACTION: (c) The Committee asked the Business to check that there had been no
CFO customer detriment caused by the overbilling.
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(d) The CEO recognised that the Business needed to improve its financial
modelling for future contracts to lessen the impact of unforeseen
consequences.
(e) The Committee was informed that the Board would receive an update on
Telecoms strategy, including the broader relationship with Fujitsu and any
commercial claims for the disruption after hand-over in March.
POLARC MAJOR INCIDENT/DISASTER RECOVERY TIMETABLE UPDATE
15/06
(a) The Committee received an update on the major incident management
progress and planning.
(b) DM explained that the Business Continuity steering group was now active
and would coordinate any incidents. The new step was to run a major
disaster recovery event test with the ExCo, which would take place on 5"
February.
ACTION: bm (¢) The Committee asked for sight of the major incident communications plan
including the Board and the Shareholder.
(d) The Committee noted the update.
POLARC IA STATUS OF AGREED ACTIONS, INCLUDING AN UPDATE ON THE
15/07 STATUS OF OUTSTANDING IT AUDIT ACTIONS
(a) Lesley Sewell, Chief Information Officer, and Dave Hulbert, Senior
Service Delivery Manager, joined the meeting.
(b) The Committee noted the update on the status of agreed actions arising
from formal audit and advisory activity and acknowledged the good
progress made.
(c) The Committee discussed the status of the outstanding IT audit actions.
LS explained the dependencies between the audit actions and two new
key suppliers being in place. She reported the work with Internal Audit
(IA) to clarify the actions and deadlines. 10 of the 19 actions were now
complete and 9 of the outstanding actions which aligned to separation
ACTION: would be finalised by the end of May. The Committee were encouraged
LS/GH by the progress and understood the reliance on separation, but asked for
more clarity in future reports on why and when deadlines have to change.
(d) It was agreed that IA would continue to give assurance to IT projects
alongside the work done by PwC.
(e) Lesley Sewell and Dave Hulbert left the meeting.
POLARC 2015/16 INTERNAL AUDIT PLAN
15/08
(a) The Committee received an update on the approach for the 2015/16
Internal Audit plan.
(b) I GH explained that the proposed IA plan would be ready by mid-March. He
stressed the importance of aligning with the Business Transformation
ACTION: plan. The Committee members were asked to feed in any comments to
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ARC shape the direction over the next two weeks.
ACTION: (c) It was agreed that a draft proposal would be circulated to the Committee
GH/ CoSec members and the Company Secretary would set up a Committee meeting
by conference call to sign off the plan.
POLARC RESULTS OF THE COMMITTEE SELF-ASSESSMENT 2014
15/09
(a) The Committee received the results of the Committee Self-Assessment
2014.
(b) The Committee discussed the web-o-gram shown at 3.4, and the
progressed made over the year. The Committee recognised that
processes had improved and that there were higher expectations on the
Committee and the Business.
ACTION: (c) The Committee supported inviting ExCo members to present their risk
CoSec assessments and asked that IT be included in the forward agenda.
ACTION: (d) The Committee asked that the ARC self-assessment be circulated to the
CoSec . Board as a noting paper.
POLARC IA CHARTER
15/10
The Committee noted the IA Charter.
POLARC DATE OF NEXT MEETING
15/11
The date of the next meeting is 20 May 2014.
POLARC CLOSE
15/12
There being no further business, the meeting was declared closed.
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REMCOM
15/01 — 15/14
POST OFFICE LTD
REMUNERATION COMMITTEE
Minutes of a meeting of the Remuneration Committee of the Board
held at 148 Old Street, London EC1V 9HQ on 25 February 2015
Present: Neil McCausland (NH) (Committee Chairman)
Virginia Holmes (VH)
Alice Perkins (AP)
In Attendance: Neil Hayward (NH) Group People Director
Alwen Lyons (AL) Company Secretary
Keith Murdoch (KM) Head of Reward and Pensions
Paula Vennells (PV) Chief Executive (15/04 — 15/09)
REMCOM OPENING OF MEETING AND CONSTITUTION OF COMMITTEE
15/01
(a) A quorum of two directors being present, the Chairman of the Committee
opened the meeting and welcomed those attending.
REMCOM MINUTES OF PREVIOUS MEETING AND MATTERS ARISING
15/02
(a) The minutes of the meeting held on 29 October and 10 November 2014
were approved for signature by the Chairman of the Committee.
ACTION:KM (b) NH reported that the objectives the new CFO needed to deliver to attain
his ‘sign on’ payment would be recommended to Committee for their
agreement by 6 March.
REMCOM TERMS OF REFERENCE
15/03
(a) The Committee considered the draft of the revised Terms of Reference
(ToR). It was explained that the TOR had been expanded to bring them
into line with the UK Corporate Governance Code. The Committee asked
ACTION: the Company Secretary to ensure that this longer form did not hamper
CoSec future Board Effectiveness reviews.
ACTION: (b) The Committee asked the Business to ensure that the references to
CoSec POMS aligned with the POMS Board TOR.
ACTION: (c) The Committee, being constituted of the same members, discussed the
CoSec , Nominations Committee TOR. It was pointed out that the Nominations
Committee has no jurisdiction to appoint a Board Chairman, and this
reference should be removed.
(d) The TORs for both Committees were agreed, subject to the above, and
recommended to the Board.
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REMCOM SHORT TERM INCENTIVE PLAN BALANCED SCORECARD 2015/16
15/04.
(a) Paula Vennells, CEO, joined the meeting.
(b) NH updated the Committee on the proposed measures for the Post
Office Scorecard for 2015/16 (the Scorecard), in particular the measures
that would form part of the Short Term Incentive Plan (STIP) calculation.
KM explained that Richard Callard (NED and Shareholder
Representative on the Board) had provided written input for the debate,
which was circulated.
(c) The Committee agreed that as a principle it would like to continue with a
similar or smaller number of measures and discussed the Scorecard and
STIP measures in detail.
(d) Commercial Sustainability
The Committee discussed the proposed bonus worthy scorecard
measures, including the change in the weighting given to net income and
the introduction of a cashflow measure. The CEO explained the
Business’ preference to focus more on EBITDAS than net income, to
drive margin and profit. The Committee recognised that EBITDAS
should remain the measure with the highest bonus weighting but it was
felt that the Business should retain the net income bonus target.
The Committee challenged the inclusion of cashflow as a bonus worthy
ACTION: measure on the scorecard, although it was recognised that this would be
CEO an important measure in future years. It was suggested that the CFO be
given an objective to define and start to drive the cashflow performance.
Modernisation
The Committee supported the inclusion of a digital net income measure
to be included in the Commercial Sustainability section of the scorecard.
Both Crown P&L and Network Transformation branch openings were
acknowledged as important targets and the Committee agreed that these
two measures should make up the modernisation scorecard.
Customer
The Committee discussed the proposed customer measures and a
possible additional option which would include three measures Financial
Services Net Promoter Score (NPS), a Business wide NPS and a
Customer Effort Score (CES). The Committee did not support a change
to three measures. After debate they agreed to continue with the FS
NPS and asked the Business to consider CES or Business wide NPS as
the other measure ensuring a sound baseline of data to set the target
against.
People
NH explained that the Business had intended to include a subpostmaster
engagement measure in the scorecard for 2015/16, but that the recent
engagement survey returns had been very low at 25%, and that this may
not provide an accurate representation or a good base from which to set
the target. The CEO suggested that the Business used the People
Engagement measure as proposed but that the Business should
consider measuring the subpostmaster engagement at the point of
network transformation. It was acknowledged that, given the relative
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ACTION:
CEO
ACTION: NH
REMCOM
15/05
REMCOM
15/06
REMCOM
15/08
(e)
(f)
(a)
(b)
(a)
(b)
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large number of subpostmasters in comparison to employees, that the
Business had to develop a way of measuring their engagement. It was
suggested that the People Director be given a personal objective to
develop a measure to be included in the scorecard for 2016/17.
The Committee supported the following measures and bonus weighting
for each for the 2015/16 Scorecard:
Commercial Sustainability
EBITDAS 30%
Net Income 10%
Digital Net Income 10%
Customer
CES or POL NPS 10%
FS NPS 5%
People
Engagement 15%
Modernisation
NTP branches open 10%
Crown P&L 10%
The Committee asked the Business to finalise the scorecard, consult
again with ShEx, and present it to the March Board.
BONUS DESIGN FOR GROUP EXECUTIVE
The Committee received and approved a recommendation to align the
bonus design for the Group Executive (GE) with the Executive Directors.
PROPOSED LONG TERM INCENTIVE PLAN MEASURES 2015/16
Keith Murdoch gave an oral update on the progress to date with the Long
Term Incentive Plan Design (LTIP).
The Committee agreed to retain the same LTIP measures and
recognised the important debate still to take place on the targets and the
shape of the gateway and stretch ‘cylinder’
SHORT TERM INCENTIVE PLAN AND LONG TERM INCENTIVE PLAN
PERFORMANCE
The Committee received an update on the forecasted outturn from the
2014/15 STIP and LTIP due to complete in March 2015. The current
forecast would generate a very small STIP payment and a 54% LTIP
performance.
NH reported that the Crown P&L looked likely to breakeven in September
or October 2015, so the March target would be missed. The CEO
explained that, if taken as a whole, the original 373 branches would
breakeven by March. However, the Crown branches remaining in the
network would miss the target so the scorecard bonus and Crown staff
payments would not be triggered.
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(c) The Committee noted the impact of the P10 forecast on the potential
STIP and LTIP payments.
REMCOM NEW EMPLOYEES WITH A BASE PAY OF OVER £125K
15/09
(a) IThe Committee noted the employees who had been employed since the
last meeting on salaries above £125k.
(b) The Committee asked for a paper to be circulated including all the
ACTION: employees who earned salaries above £125k, showing where they work
KM in the Business and whether they were eligible for STIP or LTIP.
(c) Paula Vennells, CEO left the meeting.
REMCOM DIRECTORS’ REMUNERATION REPORT 2014/15
15/11
(a) KM introduced the Committee to the draft Directors’ Remuneration
Report 2014/15.
(b) The Committee members were broadly comfortable with the level of
disclosure being proposed but would revert back to KM with any
comments.
REMCOM NEDS’ FEES
15/12
(a) IThe Committee discussed the fees paid to NEDs by the Business and its
effect on future recruitment. AP reported that she had discussed this
issue with Richard Callard and that the Post Office NED fees were more
generous than other Government owned Businesses. It was agreed that
the issue would be discussed when the new Board Chairman was in
place.
REMCOM DATE OF NEXT MEETING
15/13
ACTION: NM said he would review the next Committee date, which was currently
NM scheduled for 13.00 — 14.30, 13 May 2015.
REMCOM CLOSE
15/14
There being no further business, the meeting was then closed.
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POST OFFICE LIMITED BOARD
Status Report
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No. I REFERENCE ACTION BY WHOM STATUS
1. Strategy
1d I January 2015 POLB The Board asked the Business to consider the failures I Lesley Sewell Feed in to programme and will be
15/07(d) in other Business’ big IT projects to better understand completed part of the programme.
the possible risks; and to report back to the Board on
their analysis and its relevance to the Post Office.
1e I January 2015 POLB Ensure independent assurance of the system’s integrity I Lesley Sewell Action is in progress, feedback
15/07(e) and security before it goes live, with a forensic end to provided by TMG members on critical
end assurance. success factors. Drawing on insight
from our delivery partners ( Delioitte,
PwC and Berkeley). Board response
being prepared for March meeting.
1f I January 2015 POLB Consider how to manage the PR implications of I Mark Davies Update for May Board
15/07 (f) announcing the system change whilst Sparrow is still
ongoing.
1g I January 2015 POLB The Board asked if the analysis of the Christmas I Pete Markey Update for March Board
15/10(c) advertising campaign could be broken down to
understand the effect on young people’s perception of
the Business.
1h_ I January 2015 POLB The Board agreed that more work needed to be done I Mark Siviter Feedback at June Away Day
15/10(g) on the design of the Mails trial, with a clear outcome for
both the Business and RMG, or there was a danger of
a negative result which might reinforce the RMG
position.
1i I January 2015 POLB The Board supported the proposal and asked the I Mark Siviter June Away Day
15/10(i)
Business to ensure that the work produced tangible
proposals which could be discussed at the June Away
Day.
Status Report at 18" March 2015
Alwen Lyons
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14/145(m)
Davies
2a I September 2014 Present the results of the six month trial where Post I Nick Kennett May Board
14/105(f) Office FS colleagues used Mains branches as their
base.
2b I September 2014 Analyse on present to the Board on whether the I Nick Kennett To be included in the FS forward
14/105(i) Business should focus more on the innovation of the agenda
pre-paid debit account rather than the current account
as on the effective hook for customers
2c I January 2015 POLB Kevin Gilliland to set new targets for Crown branches I Kevin Gilliland To be dealt with in the Sales capability
15/11(f) for the next 3 years with a specific focus on the slot at the May Board
untapped potential in Financial Services.
3a I November 2014 POLB Discuss the progress on Digital at the March Meeting. Martin George March Board
14/145(h)
3d I November 2014 POLB Discuss the vision and change narrative at the Board. Neil Hayward/Mark May Board
3f I January 2015 POLB Circulate a briefing note to the Board once the final I David Ryan
15/06(c) BOAT and back office timelines are agreed.
January 2015 POLB Provide an update on the appointment of the Business I CEO March Board
15/22(a) Transformation Director.
4a I October 2014 POLB Provide an update at the end of the financial year to I Neil Hayward May Board
14/130(e)
review the People and Engagement roadmap for the
next 12 -18 months and the senior leadership training
and development.
4b I October 2014 POLB
14/130(g)
Provide a note on the relationship between Post Office
and subpostmasters.
General Counsel
Work is underway and a note will be
circulated to the Board when it
becomes available.
Status Report at 18" March 2015
Alwen Lyons
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5a I January 2015 POLB The RAS, with risk metrics, to be presented to the ARC I Arnout Van Der Veer I May Board & ARC
15/09(c) and Board in May.
6b I November 2014 POLB Have a separate session on working capital at the May I CFO June Away Day
14/146(g) Board
6d I January 2015 POLB The Board discussed the scorecard and the poor I Pete Markey March Board
15/04(h) performance on ‘easy to do business with’. The CEO
acknowledged the significant drop against target and
last year’s result. It was agreed that a note would be
circulated to explain the change.
6e I January 2015 POLB Provide a more realistic approach to revenue in the I Martin Edwards May Board
15/05(d) budget and three year plan.
7c I October 2014 POLB Undertake an internal Board effectiveness review in the I Chairman March 2015 Board
14/135(a) New Year.
Te I January 2015 POLB Circulate a note explaining the new governance I CEO
15/03(c) structure, including the Group Executive.
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POST OFFICE LIMITED
NOMINATIONS COMMITTEE
TERMS OF REFERENCE
PURPOSE
The purpose of the Nominations Committee is to recommend the appointment of individuals to the Board
of Post Office Limited (the Company); to its sub-committees; to Group Executive positions which report
directly to the Chief Executive and the Company Secretary; and to the Post Office Management Services
Limited (POMS) Board. The Committee will also consider and, if necessary, recommend to the Board any
proposals to remove or replace individuals holding office as a Director of the Company or POMS or
reporting directly to the Chief Executive and the Company Secretary. It is acknowledged that the actions of
the Committee will be subject always to the Articles of Association of the Company, under which any
proposal for the appointment or removal of a director of the Company requires the consent of the
Shareholder.
A. COMPOSITION AND GOVERNANCE
1. The Nominations Committee is constituted as a sub-committee of the Board.
2. The Chairman and members of the Committee shall be appointed by the Board.
3. The Committee shall be made up of three members, including at least two independent non-executive
directors.
4. The Chairman shall chair the Nominations Committee.
5. In the absence of the Chairman of the Committee at any meeting, the Committee members present
shall determine who shall chair the meeting.
6. Members of the Committee will normally serve for a period of three years. Their appointment may be
renewed for a further three year period but no director shall serve as a member of the Nominations
Committee for a period of more than six years.
7. Only members of the committee have the right to attend Committee meetings. The Chief Executive
and the Group People Director (or the holder of any equivalent position) shall be informed of the date
of each meeting and may be invited by the Committee Chairman to attend all or part of any meeting,
as and when appropriate.
8. The Company Secretary shall not be a member of the Committee but shall act as Secretary to the
Committee (or shall nominate an appropriate substitute) and shall keep minutes and records of each
meeting and ensure regular reporting by the Committee to the full Board.
9. Minutes of each meeting will be circulated to all members of the Committee and, once agreed, to
those members of the Board who have no personal interest in the matters discussed. Where a conflict
of interest exists, the Company Secretary will provide sufficient information to the full Board to provide
an understanding of the matter(s) considered.
10. If so requested by the Board or by the Shareholder, the Committee shall provide an annual report on
its activities.
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11. The Committee shall have access to sufficient executive time and resources in order to carry on its
duties, including access to the Company Secretary and members of the HR team;
12. The Committee shall have authority to appoint executive search consultants and to obtain, at the
Company's expense, legal or other professional advice on matters within its terms of reference as
required, up to a financial limit determined by the Board.
13. If there should be disagreement between the Nominations Committee and the full Board, the
Chairman of the Board shall make time available for discussion of the issue so that the matter may be
resolved.
14. Members of the Committee shall conduct an annual review of the Committee's performance.
B. MEETINGS
1. The Committee shall meet as often as required but not less than twice each year. The Committee
may meet in person, by telephone or by other electronic means, so long as each member can
contribute to the business of the meeting simultaneously.
2. The quorum necessary for the transaction of business shall be 2 members.
3. Meetings may be convened by the Secretary to the Committee, at the request of the Committee
Chairman, or by any member of the Committee, at any time.
4. Notice of each meeting shall be given to all members of the Committee and any other person
required to attend, at least 3 working days before each meeting.
C. DUTIES AND RESPONSIBILITIES WITH REGARD TO THE COMPANY
The main duties and responsibilities of the Committee with regard to the Company are:
1. to keep under review the structure, size and composition of the board (taking account of the skills,
experience, knowledge and diversity of its members), to ensure that the key roles of Board Chairman,
Chief Executive, Chief Financial Officer and Senior Independent Director are filled and to recommend
changes to the Board’s composition as thought necessary.
2. to monitor the independence, and process for evaluation of, Board sub-committees and the skills and
experience available within the Board, in order to recommend new appointments to committees, or
the replacement of individuals on those committees, as required from time to time.
3. to review the results of the performance appraisal of executive directors and the results of any
committee evaluation process which may relate to the time required from non-executive directors
and whether non-executive directors are spending enough time to fulfil their duties, the composition
of the Board, any of its sub-committees or the Group Executive.
4. to consider the re-appointment of any non-executive director at the conclusion of their specified term
of office having given due regard to their performance and ability to continue to contribute to the
Board in the light of knowledge, skills and experience required.
5. to lead the process for identifying and nominating candidates for appointment to the Board, including
the formulation and approval of appropriate role descriptions and specifications and considering
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10
11.
12.
13
14
45
16
17,
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candidates from a wide range of backgrounds, on merit and against a range of objective criteria and
with due regard for the benefits of diversity on the Board, including gender, and which seek to
attract a wide range of talent and promote diversity within the organisation. Such deliberations
should also assess whether appointees have enough time available to devote to the position.
to ensure that on appointment to the Board, non-executive directors receive a formal letter of
appointment setting out clearly what is expected of them in terms of time commitment, committee
service and involvement outside Board meetings.
in the case of the proposed appointment of a new Chairman, to work with the Shareholder to prepare
a full specification which reflects accurately the personal qualities, skills and experience and time
commitment needed by the Business.
to consider for each proposed appointment the respective merits of open advertising and the use of
specialist advisers to facilitate the search for appropriately qualified candidates.
to review the processes for the engagement of external search agents for senior appointments
to consider recommendations made by the Chief Executive on appointments to Group Executive
positions which report directly to the Chief Executive and the Company Secretary to ensure that a fair,
open and transparent process is followed in identifying and interviewing candidates for Group
Executive positions.
to ensure that the business puts in place plans for development of potential and succession plans for
key roles on the Board and on the Group Executive, taking into account the challenges and
opportunities facing the Company and the skills and expertise needed for leadership of the Post Office
in the future.
to review, on behalf of the Board, the progress of building talent and diversity within the Post Office
and to report to the Board progress against the targets set for performance measurement in this
area.
to ensure that any proposed appointee to the Board discloses other business interests and any
potential conflict of interest, in line with the recommendations of the UK Corporate Governance Code
(the Code) and the precepts set by the Nolan Committee on Standards in Public Life.
to work with the Remuneration Committee in respect of new hires, to ensure that the proposed
package for new senior appointments reflects the responsibilities of the role and is designed to attract
talent but is not excessive.
to ensure that consent is sought from The Secretary of State for Business, Innovation and Skills for
the appointment to the Board of any new director on terms agreed between the Nominations
Committee and the Remuneration Committee.
to respond to any queries from the Shareholder on the processes for selection of candidates or the
contractual terms proposed for any senior appointment.
to consider on behalf of the Board any matters relating to the continuation in office of any director or
direct report of the Chief Executive and the Company Secretary, including the suspension or
termination of any contract of employment or contract for services, subject to the provisions of the
law.
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18. to undertake any other oversight function delegated to the Committee by the full Board.
D. DUTIES AND RESPONSIBILITIES WITH REGARD TO POMS
The main duties and responsibilities of the Committee with regard to POMS are:
1. to keep under review the structure, size and composition of the POMS board (taking account of the
skills, experience, knowledge and diversity of its members), to ensure that the key roles are filled and
to recommend changes to the POMS board composition as thought necessary.
2. to consider the re-appointment of any non-executive director at the conclusion of their specified term
of office having given due regard to their performance and ability to continue to contribute to the
POMS board in the light of knowledge, skills and experience required.
3. to lead the process for identifying and nominating candidates for appointment to the POMS board,
including the formulation and approval of appropriate role descriptions and specifications and
considering candidates from a wide range of backgrounds, on merit and against a range of objective
criteria and with due regard for the benefits of diversity on the POMS board, including gender, and
which seek to attract a wide range of talent and promote diversity within the organisation. Such
deliberations should also assess whether appointees have enough time available to devote to the
position.
4. to ensure that any proposed appointee to the POMS board discloses other business interests and any
potential conflict of interest, in line with the recommendations of the Code and the precepts set by the
Nolan Committee on Standards in Public Life.
5. to work with the Remuneration Committee in respect of new hires, to ensure that the proposed
package for new senior appointments reflects the responsibilities of the role and is designed to attract
talent but is not excessive.
6. to consider on behalf of the Board any matters relating to the continuation in office of any POMS
board director, including the suspension or termination of any contract of employment or contract for
services, subject to the provisions of the law.
E. ANNUAL REVIEW
1. The Committee will undertake an annual review of the Terms of Reference and recommend to the
Board any necessary changes.
2. These Terms of Reference were last reviewed in [ ] 2015
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POST OFFICE LIMITED
REMUNERATION COMMITTEE
TERMS OF REFERENCE
PURPOSE
The purpose of the Remuneration Committee is to recommend to the Board the remuneration strategy
and any changes to individual elements of the remuneration package for executive directors of Post Office
Limited (the Company); members of the Group Executive who report directly to the Chief Executive; other
significant senior level appointments with comparable remuneration; and to provide an oversight function
for the remuneration of the directors of the Post Office Management Services Limited (POMS) board, as
determined by the Board. Any changes in remuneration for directors of the Company must be approved in
advance by the Shareholder. The remuneration of the Chairman and of non-executive directors will be
set by the Shareholder.
A. COMPOSITION AND GOVERNANCE
1. The Remuneration Committee is constituted as a sub-committee of the Board and its Chairman shall
be appointed by the Board. If considered independent at the time of appointment, the Chairman of the
Company may be a member of the Committee, but shall not chair it.
2. Members of the Committee shall be appointed by the Board, acting on the recommendation of the
Nominations Committee and in consultation with the Chairman of the Remuneration Committee.
3. The Committee shall be made up of at least two independent non-executive directors. Only non-
executive directors shall be eligible to be members of the Committee such that no individual shall be
involved in determining their own remuneration.
4. In the absence of the Chairman of the Committee at any meeting, the Committee members present
shall determine who shall chair the meeting.
5. Members of the Committee will normally serve for a period of three years. Their appointment may be
renewed for a further three year period but no director shall serve as a member of the Remuneration
Committee for a period of more than six years.
6. Only members of the Committee have the right to attend Committee meetings. The Chief Executive
and the Group People Director (or the holder of any equivalent position) shall be informed of the date
of each meeting and may be invited by the Committee Chairman to attend all or part of any meeting,
as and when appropriate.
7. The Company Secretary shall not be a member of the Committee but shall act as Secretary to the
Committee and shall keep minutes and records of each meeting and ensure regular reporting by the
Committee to the full Board.
8. Minutes of each meeting will be circulated to all members of the Committee and, once agreed, to
those members of the Board who have no personal interest in the matters discussed. Where a conflict
of interest exists, the Company Secretary will provide sufficient information to the full Board to provide
an understanding of the matter(s) considered.
9. If so requested by the Board or by the Shareholder, the Committee shall provide an annual report on
its activities
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10. The Committee shall have access to sufficient executive time and resources in order to carry on its
duties, including access to the Company Secretary and members of the HR team.
11. The Committee shall be authorised to seek any information it requires from any employee of the
Company in order to perform its duties.
12. The Committee shall be exclusively responsible for establishing the selection criteria, selecting,
appointing and setting terms of reference of remuneration consultants and have authority to appoint
remuneration consultants and to obtain, at the Company's expense, legal or other professional advice
on matters within its terms of reference as required, up to a financial limit determined by the Board.
13. If there should be disagreement between the Remuneration Committee and the full Board, the
Chairman of the Board shall make time available for discussion of the issue so that the matter may be
resolved. Where any such disagreement cannot be resolved, the Remuneration Committee shall
report the issue as part of any annual report on its activities required by the Shareholder.
14. Training will be provided by the Company for members of the Committee, as required. Such training
may take the form of internal briefings, attendance at formal courses and conferences and/or sessions
with external advisers.
15. Members of the Committee shall conduct an annual review of the Committee’s performance.
B. MEETINGS
1. The Committee shall meet as often as required but not less than three times each year. The
Committee may meet in person, by telephone or by other electronic means, so long as each member
can contribute to the business of the meeting simultaneously.
2. The quorum necessary for the transaction of business shall be 2 members.
3. Meetings may be convened by the Secretary to the Committee, at the request of the Committee
Chairman, or by any member of the Committee, at any time.
4. Notice of each meeting shall be given to all members of the Committee and any other person
required to attend, at least 3 working days before each meeting.
C. DUTIES AND RESPONSIBILITIES WITH REGARD TO THE COMPANY
The main duties and responsibilities of the Committee with regard to the Company are:
1. to recommend to the Board the remuneration strategy for the Chief Executive, executive directors
and those members of the Group Executive who report directly to the Chief Executive, always taking
into account the remuneration policy set for other employees.
2. in determining such strategy, take into account all factors which it deems necessary including relevant
legal and regulatory requirements, the provisions and recommendations of the UK Corporate
Governance Code (the Code) and associated guidance. The objective of such strategy should be to
attract, retain and motivate executive management of the quality required to run the Company
successfully without paying more than is necessary having regard to views of shareholders and othe
stakeholders. The remuneration policy should have regard to the risk appetite of the company and
alignment to the company’s long strategic term goals. A significant proportion of remuneration should
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be structured so as to link rewards to corporate and individual performance and designed to promote
the long-term success of the Company.
3. review the ongoing appropriateness and relevance of the remuneration strategy.
4. with the consent of The Secretary of State for Business, Innovation and Skills, determine each
element of the total individual remuneration package of the Chief Executive and other executive
directors, both existing and for new hires, including any increases in salary (whether or not resulting
from company-wide pay increases), pension provision and the outturn of performance related pay
arrangements and incentive schemes.
5. to determine the elements which will form the remuneration package for an individual in the above
group, which may include, but shall not be restricted to:
base salary
short term incentive (annual bonus)
Long Term Incentive Plan
pension provision
benefits such as car or car allowance, private health, holidays
contractual terms such as notice periods
6. to keep under review the contractual terms applicable to executive directors such that payments
made are fair to the individual and to the company, that success, rather than failure, is
rewarded and that the duty to mitigate loss is fully recognised.
7. to work with the Nominations Committee in respect of new hires, such that the Remuneration
Committee can recommend to the Board an appropriate level of remuneration which will attract
talent but not be excessive.
8. to receive information on each element of the remuneration package and total remuneration for new
hires and any internal promotions and appointments which are proposed to carry a salary in excess of
the lowest salary of any member of the current Group Executive.
9. to review the overall total remuneration of the Senior Group (defined as the Chief Executive, executive
directors and members of the Group Executive) compared both with external market comparators
and with the remuneration of other employees in the Group.
10. to review and recommend to the Shareholder the implementation of, or changes to, performance
related incentive schemes for the executive directors, Group Executive members and senior managers
eligible to be invited to participate in the Post Office Long Term Incentive Plan.
11. to review and agree the criteria for, and the outturn of, performance related pay arrangements for
executive directors and Group Executive members, subject to authorisation from the Shareholder.
12. to review the total outturn of performance related pay arrangements across the business.
13. to approve any exit package for any individual with a salary above the lowest salary within the Group
Executive membership, where the exit package would be in excess of contractual obligations
14. to undertake any other function delegated to the Committee by the full Board.
D. DUTIES AND RESPONSIBILITIES WITH REGARD TO POMS
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The main duties and responsibilities of the Committee with regard to POMS are as follows, to provide an
oversight function for remuneration of senior executives within POMS:
1. to ensure the remuneration strategy for and any appointments to the POMS board is consistent with
remuneration policies within the Company, always taking into account the remuneration policy set for
other employees.
2. to ensure each element of the total individual remuneration package of the executive directors of
POMS, both existing and for new hires, including any increases in salary (whether or not resulting
from company-wide pay increases), pension provision and the outturn of performance related pay
arrangements and incentive schemes is consistent with remuneration policies within the Company.
3. to ensure the elements which will form the remuneration package for an individual in the above
group, are consistent with remuneration policies within the Company and may include, but shall not.
be restricted to:
base salary
short term incentive (annual bonus)
Long Term Incentive Plan
pension provision
benefits such as car or car allowance, private health, holidays
contractual terms such as notice periods
4. to ensure the contractual terms applicable to executive directors of POMS such that payments
made are fair to the individual and to the company, that success, rather than failure, is
rewarded and that the duty to mitigate loss is fully recognised.
5. to work with the Nominations Committee in respect of new hires to the POMS board such to ensure
that levels of remuneration will attract talent but not be excessive and will be consistent with
remuneration policies within the Company.
6. to review the overall total remuneration of the Senior Group (defined as any members of the POMS
board) compared both with external market comparators and with the remuneration of other
employees in the Group.
7. to ensure the criteria for, and the outturn of, performance related pay arrangements for executive
directors of the POMS board is consistent with remuneration policies within the Company.
—. ANNUAL REVIEW
1. The Committee will undertake an annual review of its own performance and the Terms of Reference
and recommend to the Board any necessary changes.
2. These Terms of Reference were last reviewed in [ ] 2015,
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Strictly Confidential
POST OFFICE LIMITED MATTERS — DISPUTE RESOLUTION
PRIVILEGED AND CONFIDENTIAL — CLAIMS OVER £500K OR THOSE OF A SENSITIVE NATURE
PART (A) - CIVIL LITIGATION
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CASE INESS UNIT IPTION
HOLDER CONTACT
Horizon claims Rodric Belinda Crowe / I Post Office has received various claims from I This matter is the subject of separate I Bond Dickinson
(aka “Project I Williams Angela van den I subpostmasters (SPMs) alleging defects in the I updates to senior management and the
Sparrow”) Bogerd Horizon system and POL’s internal processes. Board.
These allegations were initially made in 5
claims brought through solicitors Shoosmiths.
Similar allegations have been made by the
“Justice for Subpostmasters Alliance” (JFSA)
and advanced through SPMs’ MPs.
Following discussions with James Arbuthnot
MP and JFSA, independent investigator Second
Sight Support Services Ltd (Second Sight) was
appointed in July 2012 to carry out a review
into these allegations.
On 08.07.13, Second Sight published a Report
finding shortcomings in Post Office’s internal
training and support to SPMs on the Horizon
system, but no systemic problems with Horizon
itself.
Following the Second Sight Report, on
27.08.13 Post Office launched a Mediation
Scheme (Scheme) aimed at resolving individual
complaints made about Horizon.
The Scheme received 150 applications,
which have been progressed under the
direction of a Working Group comprising
retired Court of Appeal Judge Sir Anthony
Hooper (as Chair), Post Office, Second Sight,
and JFSA. 80 cases are still being
progressed through the Scheme.
On 03.03.15 the Board approved a course of
action by which Post Office would presume
to mediate all non-criminal cases within the
Scheme, the Working Group would be closed,
and the current engagement with Second
Sight would be terminated. Post Office's
project team is acting in accordance with the
Board's direction
To date, no claim has been made against
Post Office in the civil courts, and no appeal
has been made against any conviction in the
criminal courts, following Second Sight's
Report. Post Office is however _in
Significant Litigation Report
March 2015
Page 1 of 4
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Employment
Nisha
Marwaha
Colin Stretch
Significant Litigation Report
March 2015
Page 2 of 4
correspondence with the Criminal Cases
Review Commission about its past
prosecution practices.
There has also been significant media and
political activity concerning the Scheme,
which is likely to continue in the immediate
future. Post Office’s Communications team
is fully engaged on this activity
Eversheds
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Strictly Confidential
Employment POL/NM Colin Stretch eightmans
PART (B) - CRIMINAL LITIGATION
PROSECUTION POLICY
Post Office is in the process of finalising a new prosecution policy drafted by former First Senior Treasury Counsel Brian Altman QC
PROSECUTION CASES
Post Office is not currently pursuing any live prosecutions in England and Wales, although there are 5 cases being dealt with by the national prosecutors
in each of Scotland and Northern Ireland. A number of security investigations are being reviewed as to whether a prosecution could be commenced
(supported by an independent expert report on the Horizon branch accounting system if appropriate - see below).
EXPERT REPORT
Significant Litigation Report
March 2015 Page 3 of 4
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Strictly Confidential
Steps continue to be taken to determine the basis on which Imperial College London may be able to provide expert evidence to support prosecutions
which involve data obtained from the Horizon system.
Significant Litigation Report
March 2015 Page 4 of 4
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Confidential
POST OFFICE LTD BOARD
Health & Safety Report
1. Purpose
The purpose of this paper is to:
a Provide an update on safety performance.
1.2 Outline risk reduction activities.
2. Current Situation
2.1 The majority of accidents fall into three main categories lifting and handling,
stepping and striking and outdoor falls. These are higher frequency events with, in
the majority, relatively low severity. The lower frequency types of incident can carry
the potential for very high impact, for example, assaults and road traffic collisions.
2.2 Performance during the past 10 months of 2014/15 indicates that the 5% continuous
improvement target in absence accidents will not be achieved. This needs to be
considered in the context of the overall low number of absence accidents and the
adverse impact that an additional one or two absence accidents per month has on
the overall performance. The severity of those accidents, measured by the number
of days lost, indicates that while volume has increased, severity has significantly
decreased with days lost from accidents well ahead of the target reduction of 5%.
The reduction of all injury accident incidents is currently on target for a 5% reduction
at year end.
Table 1 All Injury accidents and those resulting in absence (Cumulative)
300
250 aa
o 200 —— 2013/14 All
ie =~ 2014/15 All
3 150
3 = 2013/14 Absence
2 100 ——2014/15 Absence
50 +
° [incertae a
P1 P2 P3 P4 P5 P6 P7 P8& P9 P10 P11 P12
Period
2.3 Personal injury compensation claims have fallen significantly in line with the
reduction in accidents that result in sick absence. Comparison with a similar
retail organisation indicates that the Post Office claim rate is significantly lower
in both public and employer's liability and of those claims the ‘denial’ or
‘defence’ rate is significantly higher. The general level of claims is recognised
by the insurers as extremely low both in volume and value.
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The insurance year runs from October to September - the table below indicates
2012/13, 2013/14 and Q1 of the 2014/15 insurance year.
Policy Class
Employers’ Liability
General Lial
Employers’ Liability
General a
a Liability
General Liability
mployers’ liability - employees. General liab — customers.
24 The number of days lost due to accidents is currently well ahead of target and
forecast to outturn ahead of the 5% reduction target. (Table 2 below refers)
Table 2 Days lost resulting from injury accidents (Cumulative)
600
500
400
2 —— 2013/14
2 300
a Va = 2014/15
200
100
0
P1 P2 P3 P4 P5 P6 P7 PB PO P10 P11 P12
Period
25 The total number of road traffic collisions (RTCs) for the past 10 months is up
39 on last year. While this is of concern it is believed that there continues to
be a more robust approach to the reporting of incidents, irrespective of
severity, and what appears to be an increase in minor damage incidents e.g.
broken mirrors and minor scrapes The number of incidents where the Post
Office driver is ‘at fault’ is also up compared to last year and accounts for
54.5% of the incidents. (Table 3 refers) Road risk reduction opportunities
continue to be the subject of analysis at the Road Risk Forum with a view to
identifying improvement activities in addition to those already in place.
Reversing incidents remain a cause for concern and will be the subject of
additional attention. Injuries as a result of road traffic collisions are extremely
infrequent and road traffic collisions account for less than 3% of the overall
number of injury accidents, however they have the potential for high impact in
terms of injury and loss. Currently the majority of incidents involve low speed
—less than 25mph. Road risk reduction activities are highlighted at 3.1 below.
There was a serious road traffic incident involving a Post Office vehicle on 6”
February as a result of which the driver of the other vehicle died. Indications
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Confidential
are that the 3° party, who had been reported as driving erratically, was on the
wrong side of the road (overtaking) at the time of the collision. The Post Office
driver suffered non-life threatening injuries which required hospital treatment
and is being supported via line management and occupational health
interventions. Post Office insurers have been notified of the incident.
Governance of all three areas of vehicle use — commercial, business car and
private vehicle — is being tightened to mitigate the associated risks.
Table 3 Road Traffic Collisions (cumulative)
250
200
150
100
Number of RTCs
50
ra
a,
—* 2013/14 All
= 2014/15 All
~~ 2013/14 ‘at fault’
> 2014/15 ‘at fault’
P1 P2 P3 P4 P5 P6 P7 P8& PY P10 P11 P12
Period
26
27
Robberies involving Post Office Cash and Valuables in Transit (CViT) crews are
down 5 on last year from 33 to 28 for the past 10 months. Physical injuries
during robberies, of which there have been 9, 1 less than last year for the same
period, remain relatively minor in severity. The level of use of firearms remains
consistent with last year with 5 of the 28 robberies (17.8%) enabled by the
presence and/or threat of use of fire arms. There has been one occasion where
the fire arms were discharged (into the ceiling). Support for those affected by
robberies is provided by trained trauma supporters and professional support
resources available through the occupational health service provision. Risk
reduction activities are identified at 3.2. (Appendix 1 — Significant Incidents
refers). Following discussions at the Group Executive H&S sub-committee the
robbery risk assessment and the business’ approach to body armour is now the
subject of a formal 3 monthly review.
Robberies and attempted robberies on the Post Office network, up to and
including P10, are up 4 on last year to 94 of which 55.3% were successful.
Injuries sustained during robberies are down from 17 to 14. Robberies take
place predominantly at sub post offices leaving Crown branches largely
unaffected. Supporting activities have been introduced to continue to mitigate
the robbery risk and are identified at 3.2. (Appendix 1 — Significant Incidents
refers).
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Confidential
3. Act
ies
3.1 Road Risk
Current longer term activities to mitigate road risk are:
« Road risk forum in place to scope and develop road risk reduction initiatives
and activities supported by the risk management division of our insurers
« Analysis and deployment of interventions for reversing incidents to mitigate the
increased incidence rates, including yard assessments and technical accident
reduction interventions on new vehicles e.g. Reversing aids to reduce accidents
e Analysis and evaluation of data including risk profiling to identify drivers who
need additional support and to determine further generic accident reduction
interventions
e Safe driver of the year award to encourage and reward responsible driving
« Weekly case conferences to ensure consistent approach to accident
investigation, follow up activity and sharing of good practice
« Programme of driving and road risk communications to raise awareness of
current and emerging risks
« Onsite coaching to improve slow manoeuvring skills e.g. reversing
3.2 Robbery/Burglary Risk
Current activities to mitigate robbery and burglary risk are:
« Active liaison activities with the police to understand ‘at risk’ areas and to
deploy surveillance teams
e Increased use of ‘advertising’ on vehicles of new deterrent technologies e.g.
DNA taggant — a solution that contains a unique identifier that is released
automatically in the event of a robbery, spraying those involved and enabling
identification of the individuals involved in the robberies
e Trialling new point of transfer arrangements to reduce exposure at Post Office
counters - the majority of robberies take place at the point of transfer which in
Post Office's is the counter where there is ready public access. The new
arrangements allow for the cross pavement protection box to be emptied / filled
in a secure location.
e Significant reduction in opportunities for duress type robberies linked to the
introduction of single person vehicles — single person vehicles eliminate the
opportunities for Supply Chain employee duress type incidents which
historically have been the most violent and likely to involve injury.
3.3 Health and Wellbeing
Healthcare interventions:
« Second programme of visits to Crown branches, Supply Chain units and Admin
offices to offer health checks using equipment that provides a wide range of
indicators on physical wellbeing. The anonymised data is used to develop
future health and wellbeing campaigns and target interventions.
« The programme of visits is supported by an online ‘Wellbeing Zone’ health
check tool as a ‘self- help’ option
« Ongoing campaign of communications to promote a range of different wellbeing
issues
e Wellbeing events to promote general health, exercise and dietary initiatives
« Attendance levels are at 96.5% which compares very favourably with the public
sector and relatively favourably with the private sector
« Mental health - A programme of activity has been running for the past 9 months
to raise awareness of mental health conditions and the support available to
Health and Safety Neil Hayward Page 4 of 6
March 2015
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those affected and those supporting them. Mental health conditions remain the
single most common cause of longer term absence however related monthly
absence (days lost) is down from a peak of 2274 in P5 to 2185 in P10 and
occurrences are down from 121 in P5 to 106 in P10.
3.4 Safety
The Post Office occupational health and safety management system (OHSMS)
is certified by external auditors to the standards required by British Standard
OHSAS 18001.
4. Residual Risks
44 Driving activities have the potential for high impact/loss and therefore remain as
a significant residual risk. However, the actions identified in 3.1 above are
aimed at mitigating that risk and improving performance.
5. Recommendation
The Board is asked to:
5.1 Note the overall safety performance
5.2 Note the risk reduction activities.
5.3 Note the residual risks
Neil Hayward
March 2015
Health and Safety Neil Hayward Page 5 of 6
March 2015
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Appendix 4
I Significant Incidents (Period 10)
Crowns and Network
Location Loss Circumstances Physical Injuries I Any further details
Blyton outreach, £5,000 Tue 6/1/15 9:30. Male armed with a knife entered Nil One previous incident robbery Jan
Blyton Parish the office and took cash. (Core branch Epworth 2010.
Council Office, 498311).
Blyton,
Gainsborough DN21
3LA
Beech Road SPSO, I £27,000 Mon 19/01/2015 5:39 - Supervisor had the safe Cuts and bruises I No previous incidents
12 Beech Road, St open to take out the till and stamps. Two masked
Albans, AL3 5AS men forced their way in and held supervisor at
knifepoint. He was pushed to the floor and has cuts
& bruises. Cash taken. Phone ripped out, the alarm
was activated.
Supply Chain
Location Loss Circumstances Physical Injuries I Any further details
Mill Lane, 41a Mill £26,000 Wed 28/01/2015 10:15 -Crew member was at the Nil No previous incidents
Lane, London, NW6
1NB
counter when 2 males were waiting in the queue in
the post office once she opened the Ibox the
pouches were snatched 1 cash pouch and 1 stock
pouch 2 males made off on foot. No weapons were
seen..
Health and Safety
Neil Hayward
March 2015
Page 6 of 6
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POST OFFICE LTD BOARD
Front Office and Network Tower Procurements: Route to Contract Award
1. Purpose
1.1. The purpose of this paper is to inform the Board of:
« The current status of the Front Office Application and Network Tower
procurements;
« The governance steps that will support the recommendation to award contracts
for the Front Office Application and Network Towers;
« The intent to seek approval to award the Front Office Application and Network
Tower contracts at the Board meeting on 21% May 2015; and
« The current status of the Back Office Tower following the decision to resume the
procurement.
1.2. In addition, we request the Board to recommend non-executive directors (NEDs)
who will work with the Front Office and Network teams prior to contract award,
leveraging their expertise and experience.
1.3. Due to the strategic importance and high value of the remaining procurements the IT
Transformation Programme Committee has issued this paper to ensure the
Transformation Committee and Board has visibility of the proposed route to contract
award.
2. Background
2.1. IT Transformation is responsible for transforming and modernising the IT services
consumed by Post Office, to support the 2020 Strategy.
2.2. The intention is to award contracts for the Front Office Application and Network
Towers in May 2015 as part of the IT Transformation programme (Lean IT)
supporting Business Transformation.
2.3. The Front Office Application Tower will provide an enhanced replacement to the
Horizon platform provided by Fujitsu, and will be a key enabler in modernising our
branch experience for our customers.
2.4. The Network Tower will replace the current branch and admin network services
provided by Fujitsu (TalkTalk) and BT respectively, and allow us to modernise our
branch IT estate.
2.5. The current Front Office Application and Network Tower contracts with Fujitsu and
BT expire in March 2017 and May 2018 respectively, and it is necessary to conclude
these procurements by May 2015 to minimise transition risk and to ensure continuity
of service.
Front Office & Network Tower Lesley Sewell Page 1 of 4
Procurements: Route to March 2015
Contract Award
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2.7.
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Given the Front Office Tower is a key enabler to achieving the 2020 strategy, the
governance and accountability for the transformation will be enhanced to increase
business ownership. The Front Office Tower will be set up as a separate Business
Transformation theme, jointly sponsored by Kevin Gilliland and Lesley Sewell. A
strong interface with the remaining elements of IT Transformation will be retained.
Following the recent Business Process Outsourcing (BPO) review, a decision was
made to resume the Back Office tower procurement.
3. Activities / Current Situation
3.1.
3.2.
3.3.
3.4.
3.5.
3.6.
3.7.
3.8.
Post Office has followed a robust Competitive Dialogue procurement process for
over a year, designed to achieve the best value proposals from the marketplace.
The process has included two down-selection steps, and as a result, there are three
bidders remaining in each procurement:
e Front Office Application Tower — IBM, CSC and Accenture.
e Network Tower — BT, Vodafone and Verizon.
« Back Office Application Tower — Accenture, CSC and CGI
Bidders on both the Network and Front Office Tower procurements have submitted
their final proposals which are currently being evaluated.
Some of our government clients (DVLA, Home Office and Environment Agency)
require us to obtain their written permission prior to the appointment of the new
suppliers for Front Office (and Networks).
The formal requests will be made early May, once Preferred Bidder status has been
identified. Engagement is underway with Government Services to agree the
information that clients will require. We have achieved client support for previous
contract awards; the DVLA provided sign off of the EUC contract, awarded in
October 2014. However, we remain subject to successfully completing the formal
process.
The Shareholder Executive will be engaged as we progress to ensure that they are
informed and are appropriately involved.
To mitigate risk the recommended option to ensure service continuity of the existing
Horizon service during Front Office transition will be finalised. We are in discussion
with Fujitsu on options, including the potential for an extension of the Horizon
contract.
The project team to support the resumed Back Office procurement is currently being
mobilised, and the impact of the delay is subject to an impact assessment.
4. Governance Approach
4.1. Given the importance and value of these services, there is a need for heightened
governance. The programme team has worked closely with the wider business on
finalising the approach to governance, it is critical that key business owners from
across the business are consulted at the appropriate time prior to contract signature.
4.2. Aseparate steering group, with supporting terms of reference has been established
and is meeting monthly, or more frequently as we mobilise for delivery. This has
recognised and is taking necessary actions to secure a programme director and key
delivery leads, including the end to end process lead.
Front Office & Network Tower Lesley Sewell Page 2 of 4
Procurements: Route to March 2015
Contract Award
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4.3.
4.4.
45.
46.
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A plan is being formalised, with support from external specialist expertise to ensure
full engagement across the senior leadership team to accelerate learning and
prepare the business for change.
We intend to involve nominated NEDs ahead of the May Board, leveraging their
expertise and experience to bring challenge and insight to prepare the Board ahead
of presenting the recommendation.
Arecommendation on securing continuity of service with Fujitsu will be presented to
Board alongside the recommendation on Front Office contract award so that a full
view of impacts, commitment, risks and costs are understood.
The Board recommendation will be subject to prior approval from the Transformation
Committee and Group Executive.
5. Commercial Impact/Costs
5.1.
5.2.
5.3.
5.4.
The Front Office Application Tower will be worth circa £180m over a 7 year period.
The Network Tower will be worth circa £100m over an 8 year period.
The Network and Front Office contracts are within the delegated authority of the
Board and there is no requirement to go to the Shareholder Executive for approval.
On identification of preferred bidder the business cases will be updated, reflecting
the cost and benefit profile against the overall three-year business transformation
plan. The Front Office business case will include the impact of securing a continuity
of service contingency with Fujitsu.
6. Key Risks / Mitigation
6.1. Risks associated with the on-going procurement and resulting transition will be
subject to Post Office governance, project management and control processes,
and will be escalated to the appropriate governance where necessary.
6.2. Ahead of presenting the recommendation to sign the contract we will provide a
comprehensive update on the critical risks. This will include:
e The Horizon change freeze required during Front Office implementation may
impact other key business initiatives. (Operations Risk — Controlled)
e There is less flexibility in the event of a change of scope or business strategy.
This is because on signature of the contracts, Post Office is committed to
minimum levels of spending in both the Front Office and Networks contracts.
(Financial Risk — Controlled)
e Failure to fully transition to the new Front Office solution by March 2017 may
result in a delay in benefits realisation and significant additional Fujitsu cost
being incurred to maintain continuity of service. (Operational Risk / Financial
risk — Controlled)
« Failure to deliver within the three-year transformation window may have
significant ramifications to the wider business transformation, and require major
funding outside the existing cost envelope. (Operational / Financial Risk —
Controlled)
Front Office & Network Tower Lesley Sewell Page 3 of 4
Procurements: Route to March 2015
Contract Award
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In additional, an action from the February Board was to present the lessons learnt
from high profile IT Transformation failures. The resulting paper will be provided as
an annex to the Front Office contract award recommendation. 1
7. Long Term Considerations
10.
7.1.
These contracts represent a significant step for Post Office in delivering the future IT
Ci
.
apabilities and achieving specific elements of the 2020 vision:
A capability to take cost out of the business (not just IT) through efficiency and
process improvements.
Reengineering of customer journeys to provide the optimum experience for both
the customer and user.
Reducing processing errors, driving a reduction in losses and write-offs.
Looking for a more flexible way to bring on new products, harnessing the new
technology, and making current products more profitable.
. Communications Impact
8.1. Pre-contract communication will go via legal and the procurement team.
8.2. On contract award there will be communications to the wider market via the official
government procurement channels.
8.3. Discussions continue with the central communication team aimed at developing a
robust stakeholder plan, including sub-postmaster and union messaging.
. Conclusion
9.1. The programme will continue with a robust management and control approach to
ensure that it complies with the necessary governance to deliver the contract.
Recommendations
The Board is asked to:
10.1. Nominate NEDs to work with the IT Transformation programme to assure the
recommendation to appoint the successful supplier;
10.2. Endorse the intent to seek approval to award the Front Office Application and
Network contracts at the Board meeting on 21° May 2015;
10.3. Note the update and actions set out above.
Lesley Sewell
17 March 2015
Front Office & Network Tower Lesley Sewell Page 4 of 4
Procurements: Route to March 2015
Contract Award
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POST OFFICE LIMITED BOARD
Sealings 21 January 2015 — 18™ March 2015 inclusive
Register of Sealings
The Directors are invited to consider the seal register and approve the affixing of the Common Seal of the Company to the documents set out against items numbered
1262 to 1286 inclusive in the seal register.
“The Directors resolve that the affixing of the Common Seal of the Company to the documents set out against items numbered 1262 to 1286 inclusive in the seal register
are hereby confirmed.”
Alwen Lyons
Company Secretary
48" March 2015
Register of Sealings Alwen Lyons Page 1
18" March 2015
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POST OFFICE LIMITED
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Date Register of Sealings Company Number
18" March 2015 21554540
1262 26/01/2015 26/01/2015 I Deed of Amendment and Restatement relating to an agreement to Paula Vennells Piero D'Agostino
provide funding to Post Office Limited between the Secretary of State for
Business, Innovation & Skills and Post Office Limited
1263 27/01/2015 26/01/2015 I Renewal lease by reference to an existing lease of premises situate at Alwen Lyons Jean Reynolds
and known as 489/491 Prescot Road, Old Swan, Liverpool, Merseyside
between Valerie Margaret Marson and Post Office Limited
1265 02/02/2015 29/01/2015 I Lease of Units 29 and 30 Tower Ramparts Shopping Centre, Ipswich Alwen Lyons Jean Reynolds
between Mars Pension Trustees Limited and Post Office Limited
1266 02/02/2015 29/01/2015 I Agreement for works relating to Units 29 and 30 Tower Ramparts Alwen Lyons Jean Reynolds
‘Shopping Centre, Ipswich between Mars Pension Trustees Limited and
Post Office Limited
1267 02/02/2015 29/01/2015 I Underlease of premises at 52 Great Portland Street, London, between Alwen Lyons Jean Reynolds
Post Office Limited and LRK Associates London Limited
1268 18/02/2015 18/02/2015 _I Lease of premises at 22 Lendal, York, YO1 8AA between Post Office Alwen Lyons. Jean Reynolds
Limited and Employee Pulsecheck Limited (trading as Karian and Box
Limited)
1269 18/02/2015 18/02/2015 Lease relating to Heathway Post Office 214-216 Heathway, Dagenham, I Alwen Lyons Jean Reynolds
RM10 8RD between Post Office Limited and Dagenham Enterprise
Limited
1270 19/02/2015 18/02/2015 Counterpart Lease relating to 84-86 Fore Street, Hertford, SG14 1AA Alwen Lyons Jean Reynolds
between Primeco Limited and Post Office Limited
1271 19/02/2015 18/02/2015 Counterpart Lease relating to 76 Regent Street, Weston-Super-Mare, Alwen Lyons. Jean Reynolds
North Somerset, BS23 1AA between Primeco Limited and Post Office
Limited
1272 19/02/2015 18/02/2015 I TR1 relating to 76 Regent Street, Weston-Super-Mare, Avon, PO301AB I Alwen Lyons Jean Reynolds
between Post Office Limited and Primeco Limited
Register of Sealings Alwen Lyons Page 2
18" March 2015
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1273 19/02/2015 18/02/2015 TR1 relating to 136 High Street, Gosport, Hampshire, PO12 1EH between I Alwen Lyons Jean Reynolds
Post Office Limited and Primeco Limited
1274 19/02/2015 18/02/2015 TR1 relating to 84-86 Fore Street, Hertford, SG14 1AA between Post Alwen Lyons Jean Reynolds
Office Limited and Primeco Limited
1275 19/02/2015 18/02/2015 TR1 relating to 20 Albert Street, Rugby, Warwickshire, CV21 2AA Alwen Lyons Jean Reynolds
between Post Office Limited and Primeco Limited
1276 19/02/2015 18/02/2015 TR1 relating to 140 Queensway, Bletchley, MK2 2AA between Post Office I Alwen Lyons Jean Reynolds
Limited and Primeco Limited
1277 19/02/2015 18/02/2015 TR1 relating to 74/76 High Street, Epsom, Surrey, KT19 8BE between ‘Alwen Lyons Jean Reynolds
Post Office Limited and Primeco Limited
1278 19/02/2015 18/02/2015 TR1 relating to 20 Giles Street, Northampton, NN1 1NN between Post Alwen Lyons Jean Reynolds
Office Limited and Primeco Limited
1279 19/02/2015 18/02/2015 TR1 relating to 15-19 Howardsgate, Welwyn Garden City, Hertfordshire, Alwen Lyons Jean Reynolds
AL8 6AA between Post Office Limited and Primeco Limited
1280 02/03/2015 02/03/2015 Call of Agreement between Secretary of State for Work and Pensions and I Paula Vennells Kevin Seller
Post Office Limited (POca)
1281 17/03/2015 13/03/2015 Lease Agreement for 92A Balham High Road Alwen Lyons Jean Reynolds
1282 17/03/2015 13/03/2015 Licence for Alteration ref. Southend on Sea CO, 199-201 High Street Alwen Lyons Jean Reynolds
1283 17/03/2015 11/03/2015 TR1 between Shirley Avenue Post Office and Post Office Limited Alwen Lyons Jean Reynolds
1284 17/03/2015 13/03/2015 Lease of Premises at Finsbury Dials - Ground Floor Alwen Lyons Jean Reynolds
1285 17/03/2015 13/03/2015 Lease of Premises at Finsbury Dials — First Floor Alwen Lyons Jean Reynolds
1286 17/03/2015 13/03/2015 Lease of Premises at Finsbury Dials - Second Floor Alwen Lyons Jean Reynolds
Register of Sealings Alwen Lyons Page 3
18" March 2015
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21
2.2
2.3
24
3.1
3.2
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POST OFFICE LTD
Publication of our Report and Accounts for 2014/15
Background and Purpose
The purpose of this paper is to set out plans for the publication of the Post Office's
Report and Accounts for the financial year 2014/5. The paper outlines the overall
format of the document, high level messages and tone and explains the development
and production timeline.
Approach and style of the report
Post Office Ltd has now established a track record of producing Report and Accounts
documents to the appropriate standards as a separate company. The 2014/15 report
will therefore follow the same structure as the 13/14 document. The sections to be
included are given at Annex 2.
The document will display the same professional production standards as last year,
but will take a more functional stance in terms of fewer pictures and it will not include
detailed ‘case studies’. The document will be distributed as a digital pdf. A very
limited number of digitally printed paper copies will be produced for key high level
stakeholders and reference purposes
This functional approach will mean tha’ ed compared to
mn 15/16 budgets
It is anticipated that the Report and Accounts should be ready for external publication
from the middle of June. This will follow Royal Mail Financial Results which will be
published 21 May. Our precise date of publication is yet to be determined and the
accompanying PR and stakeholder plan will also be finalised nearer the time
dependent on the specific environment faced. At this stage, we are expecting to
employ a ‘business as usual’ approach to external media and stakeholders: we are
not expecting to aggressively seek media attention.
Tone and key messages
The document is first and foremost a professional documentation of the year's
financial results which meets the accounting and reporting standards appropriate to a
listed company. Beyond this it represents a positioning of the company’s strategic
progress to the media and key stakeholders; to internal audiences of staff and
subpostmasters; and to our Shareholder (who will be a new Government following the
May general election). Notably, this Report and Accounts may be the first formal
public positioning of the company in front of a new Government.
As such, the overall tone of the report should be one of confidence - demonstrating
steady, competent progress in delivering a strategy of change, making financial
improvement and delivering subsidy reduction - whilst being realistic about the
significant challenges in our market and environment. It should demonstrate progress
in delivering a long term strategy by referencing year on year metrics (as required in
financial reporting) rather than internal targetry. The document should demonstrate
that the company has the determination and commercialism to continue to deliver
necessary change.
Report and Accounts Page 1 of 4
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3.3
41
4.2
5.1
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Against this backdrop, the Chairman’s Foreword can emphasise the long term
progress as a reflection prior to stepping down in July whilst the Chief Executive's
review can focus on in year progress, achievement and challenge — and point to the
continued necessity for accelerating change.
Timeline
An outline of the current timetable is given at Annex 1. The March Board is being
consulted on tone, feel and timescale using a variation on this paper. Content will be
gathered in April. Collation and accounting clearances will be achieved in the first half
of May — leading to the May Board giving necessary approvals and delegations. We
will be ready for the signing of the Report and Accounts in the first half of June.
Finance will collate the figures and the ‘back half of the report (Financial Statements);
Communications and Corporate Affairs will collate the ‘front half. To enable this,
individual Directors will be approached in March to commence the process of
providing and signing off non-financial content for the relevant sections against
templated formats.
Recommendation
The ET is asked to note and agree the approach, key messages and timescales for
the production of the 2014/15 Report and Accounts
Mark Davies and Alisdair Cameron
March 2015
Report and Accounts Page 2 of 4
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Annex 1
High Level Timetable showing key dates
Date Activity
17 March ET Meeting covering approach and key
messaging
25 March Board Meeting covering approach and key
messaging
16 March to 15 April
‘Front Half Content’ liaison between
Communications and Directors
9 April
Flash Results for Year End to GE
13 April to 6 May
Finance Liaison with EY / Finance collating
‘Back Half Content’
15 April to 23 April
Communications collating Front Half
23 April Collated Front Half circulated to GE for
comment
30 April Front Half with GE inputs circulated to ARC
13 May Full Report/Accounts draft and EY Report to
ARC
14 May Full Report/Accounts draft sent to the Board
20 May ARC — review of full accounts
21 May Board — approval and delegations to prepare
for publication
First Half June (date tbd)
Signing of Accounts
June (tbd)
Publication with associated PR / Stakeholder
Plan
Report and Accounts
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Overall Format / Structure of 14/15 Report and Accounts
OVERVIEW
Our year in numbers
Chairman's foreword
Chief Executive's review
Strategy
BUSINESS REVIEW
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Annex 2
Business in detail — brief summary of each pillar — Mails, Financial Services, Government Services,
Telecoms
Network and Modernisation
Customer excellence
Our people
Supporting colleagues and communities (including CSR and commentary on ‘milestones to
mutualisation’.
STRATEGIC REPORT
Financial review
Business risk
GOVERNANCE
Board biographies
Corporate governance
Directors’ report
Directors’ remuneration report
FINANCIAL STATEMENTS.
Statement of Directors’ responsibilities
Independent auditors report to the members
of Post Office Limited
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of cash flows
Consolidated balance sheet
Consolidated statement of changes in equity
Notes to the financial statements
Parent Company financial statements
Report and Accounts
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POST OFFICE LTD BOARD
Post Office Pensions — Update
1. Purpose
The purpose of this paper is to:
1.1
1.2
Update the Board on the defined benefit pension arrangement, Royal Mail
Pension Plan (RMPP) and the proposed new defined contribution Group
Personal Pension, Post Office Pensions Plan (POPP).
Note the initial engagement with the RMPP Trustee and their advisers with
regards to the 2015 valuation.
2. Royal Mail Pension Plan (RMPP) — Background
2.1.
2.2.
2.3.
24.
25.
26.
Following the transfer of RMPP liabilities to the Royal Mail Statutory Pension
Scheme (RMSPS) and HMG in 2012, Post Office became responsible for
funding its own section of the RMPP.
As part of the agreement of the transfer, it was agreed to retain the link
between the RMSPS and final salary for Post Offic
employment. It was agreed to set future i increas
agreed that HMG would fund this link an 7
section of the RMPP.
At the valuation on 31 March 2012, the Trustee of the RMPP utilised the same
assumptions used by the Government Actuaries Department (GAD) when
they valued the liabilities that were transferred to HMG.
Based upon these assumptions, the employer contribution rates and the
investment strategies were set for both Royal Mail t Office by the
Trustee. The employer contribution rate proposed wa: ‘of pensionable
pay (compared wit! hich was being paid at the time). It was felt that
this higher rate was fot 6tonomically viable and would put the future of the
RMPP in jeopardy.
Royal Mail and Post Office examined ways to limit their contributions to the
RMPP whilst providing a degree of certainty for the future of the RMPP. It
was agreed with the Trustee to limit Pensionable Pay increases to RPI (to a
maximum of regardless of any pay increase an employee would receive
from 1 April 2014 onwards.
By capping future Pensionable Pa _increases it was agreed that the
I However, it needs to be understood
ney left by HMG to fund. the pensionable salary link at a rate of RPI
created a surplus that would be drawn down
‘time. It was projected at ‘time that, if the assumptions and investment
returns were realised, the RMPP would cross-over into a deficit position by
Pensions Update Alisdair Cameron Page 10f5 March 2015
POL-BSFF-0178752_0112
3.
3.1
3.2
3.3
Pensions Update
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2021. Prior to this point, Post Office would have to consider the future of its
section of the RMPP.
RMPP — Current Situation
Following an update from the Trustee at the last Pensions Committee
(December 2014), it was highlighted that Post Office might want to consider
its position and support of the RMPP as it was estimated that the deficit
crossover point could be between March 2018 and late 2019, rather than
2021 as initially thought.
The financial position of the RMPP as at 30 November 2014 (this being the
most up to date figures available) is shown below, with commentary on the
key points.
Gilts basis ABO Gilts basis ABO
31 August 2014 30 November 2014
estimated) I (estimated) _
Liabilities
Assets H
Surplus/(Deficit)
crsmatee IRRELEVANT
Effective nominal
discount rate
Effective real
discount rate
Commentary
The surplus position has remained largely unchanged over the period, with assets
increasing by; Rretevantand liabilities increasing by
The positions jinciude the effect of the April 2012 Sal ary increases assumed in the
2012 actuarial valuation basis base increase plus an allowance for
promotional salary increase), as Well”as the promotional salary increases from
2013 onwards assumed as part of the 2012 actuarial valuation.
The gilt basis ABO measure shown here uses demographic assumptions from the
2012 actuarial valuation basis, market gilt yields and RPI inflation rates. The
RPI/CPI differential is also from the 2012 valuation basis. LPI rates are Mercer
defined.
The figures exclude an expense allowance.
The major contributor to the increase in the liabilities is the significantly
reduced returns in UK government bond yields. Since March 2012 the 20-year
UK government bonds yield has dropped from circa 3.5% to circa 2.3% in
September 2014 (source Bank of England). The impact of this has been
significantly to increase the cost associated with accruing pension benefits in
the RMPP, as they are measured with reference to UK government bonds.
The POL section has a hedging programme in place, however this currently
only extends to benefits accrued to 31 December 2015, and benefits accrued
after this date remain subject to market movements.
Alisdair Cameron Page 20f5 March 2015
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The Trustee will be taking the current situation with UK government bonds into
consideration when they determine the assumptions to be used in the
valuation due on 31 March 2015.
4. RMPP — Next steps
4.1. Post Office met with the Trustee and their advisers on 19 March 2015, to
discuss the upcoming valuation. This initial engagement was to set the
expectations and timescales.
4.2. Engagement with the Trustee on the valuation and the assumptions to be
used can have an effect of the economic viability of the RMPP from a Post
Office perspective. The Trustee has an obligation to engage with the
employer when setting assumptions and the Pensions Regulator has set out
the role of the employer with regards to the funding of defined benefit pension
arrangements in its Code of Practice No.3. If we did not engage, we would
risk the following:
- IRRELEVANT
4.3. Post Office will not know the full extent of the financial implications of the
valuation until September 2015, when the initial results will be available. In
the meantime, all possible scenarios will be examined ranging from not doing
anything to closing the RMPP to future accrual. Possible courses of actions
will be presented to the Group Executive in April 2015.
4.4. We are currently developing a risk profile for the different scenarios which
includes key considerations such as industrial relations, employee relations
and the financial risk to the business.
4.5. Given the close link between Post Office and Royal Mail through the RMPP,
and the CWU’s longstanding view that separation was not in the best interests
of employees, it would be highly preferable to avoid any changes until Royal
Mail had chosen to do the same. We will be speaking to the Royal Mail
pensions and IR teams in confidence over the next month to understand our
respective positions better.
5. People and IR impact
5.1. The DB pension scheme is highly valued by — and highly valuable to — our
employees and is fiercely protected by both Unite and the CWU. We are
certain that any move to close or substantively reduce the perceived benefit of
the RMPP would be fiercely opposed by both unions and would likely lead to
industrial action.
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5.2.
5.3.
6.1.
6.2.
6.3.
6.4.
6.5.
6.6.
67.
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Anticipating this risk, we are planning our consultation schedule to avoid DB
pensions coinciding with Crown pay and ‘Wave 2’ of Business Transformation
and adding specialist pensions expertise to the IR team. We would also
invest in comprehensive communications to support affected colleagues so
they had the information to understand any change and make the right
decisions for them.
The current work on pensions is one part of a wider review of staff-related
costs across the business. The People team is currently reviewing all aspects
of pay and reward (including terms and conditions) for colleagues in detail,
working closely with the management teams of Crowns and Supply Chain in
particular. We aim to complete this work in Q1 of 2015/16 so it can inform the
next steps regarding overall pay and reward, and our next steps within both
the Crown and Supply Chain networks.
New Group Personal Pension (Project Nemo) — Update
The name of the new pension arrangement will be Post Office Pension Plan
(POPP).
A 60 day consultation with all employees affected by the change began on 23
December 2014 and ended on 23 February 2015. We considered the
feedback from employees and the Unions before making a final decision to
proceed with the POPP. Unite was broadly positive and this view was echoed
in correspondence to members. Their main issue concerned the governance
of POPP.
As part of the consideration we met with the Unions to gain their support and
discuss any issues they still may have. We addressed the situation
surrounding the governance of the new pension scheme and provided them
with the feedback from employees. It was agreed in principle to the formation
of a joint Post Office and unions governance group. The terms of reference
have been discussed but still need to be finalised between Post Office and the
Unions.
Based upon the formation of the joint Governance Group, both Unions
provided their support for Post Office’s proposal to set up a new Defined
Contribution pension scheme to replace the Royal Mail Defined Contribution
Scheme. It was further agreed to issue a joint statement between the unions
and Post Office demonstrating union support for the proposal. The joint
statement was issued on 17 March 2015.
The implementation of POPP is on schedule, with system changes at an
advanced stage. Given the importance of this project, we are prioritising this
project over other HR SAP changes.
We have worked with our unions and the provider (Zurich) to arrange a series
of presentations to employees joining POPP. These are taking place in
London and Bolton, with Zurich present and both the CWU and Unite fully
supportive and signed up to explaining the changes to their members. These
have already started, with the first union presentation on 9" March and the
first colleague presentation on 18" March.
The Trustee of the Royal Mail Defined Contribution Plan (RMDCP) and Royal
Mail has agreed to allow current Post Office members of the RMDCP with
fewer than 3 months’ pensionable service to take a full transfer of their
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‘pension pot’ to POPP instead of the usual refund of a member's own
contributions.
6.8. We formally notified Royal Mail of our ceasing to participate in the RMDCP
from 1 April 2015 on 10 March 2015.
7. Recommendations
The Board is asked to:
7.1. Note the update and actions proposed in respect of the RMPP set out above;
and
7.2. Note the outcome of the consultation for Project Nemo and the fact that this
project is currently on track as intended.
Alisdair Cameron
March 2015
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