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POLB 16(1*)
POLB 16/1 — 16/12
POST OFFICE LIMITED
(Company no. 2154540)
(the ‘Company’)
Minutes of a Board meeting held at 12.00 noon on 22 January 2016
at 20 Finsbury Street, London EC2Y 9AQ
Present:
Tim Parker Chairman
Richard Callard Non-Executive Director
Alisdair Cameron Chief Financial Officer
Tim Franklin Non-Executive Director
Virginia Holmes. Non-Executive Director
Ken McCall Senior Independent Director
Carla Stent Non-Executive Director
Paula Vennells Chief Executive
In Attendance:
Alwen Lyons Company Secretary
Dave Carter Group Financial Controller (Minute 16/7)
Martin Edwards Head of Strategy and Corporate Planning Director (Minute 16/3,
16/4and 16/7)
Mark Ellis Supply Chain Director (Minute 16/3)
Martin George Commercial Director (Minute 16/4)
Jane MacLeod General Counsel (Minute 16/8)
Justin Zatouroff KPMG
POLB 16/1 INTRODUCTION
(a) A quorum being present, the Chairman opened the meeting and
welcomed Ken McCall the new Senior Independent Director and
Carla Stent the new Non- Executive Director and Chair of the ARC.
POLB 16/2 CEO REPORT AND TRANSFORMATION UPDATE
CEO Report
The CEO introduced her report and focused on the following key
areas:
(a) Period 9 sales
Excellent trading over the Christmas period had ensured a very
good period 9 sales result. The network had also delivered
improvements in the customer service effort measures and NPS
scores both of which had been a priority.
(b) Banking Services Framework.
The CEO thanked the Board for their support for the Banking
Services Framework, which had been agreed at the Extraordinary
Board meeting in December.
(c) Flooding
144 Post Offices had been affected by the recent floods. Support
from the network team and local communities had ensured that all
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but 5 had reopened. The CEO explained that she had visited some
of those worst affected, and that there were some real heroes in
the network.
The Chairman asked the Executive to consider how the Business
could recognise and celebrate the exceptional contributions made
by individuals. The CEO explained that in the past the Business
had celebrated significant contributions through the Chairman's
Awards and that she would consider how best to take this forward.
The Board supported.
ACTION:CEO The CEO to consider how the Business should recognise
exceptional contribution by individuals.
(d) I SGEI Consultation
Richard Callard explained that the SGEI consultation was part of
the government funding process, and a requirement of EU State
Aid clearance. The current consultation was likely to be less wide
ranging than had been initially planned, as Ministers felt a number
of questions were operational in nature and for POL to deal with as
a business as usual matter.
The only commitment in the Government's manifesto had been to
retain 3000 rural branches, although ministerial expectations are
that the size of the network should remain broadly at 11500
branches. The funding discussions which would start after the
summer should consider the future shape of the network.
The CEO recognised that neither the Minister nor the Secretary of
State had challenged the recent Crown franchising announcement.
Richard Callard stressed that the shareholder understood that the
Executive were managing difficult challenges and that these were
Business decisions.
(e) Interim Report & Accounts
The CEO reported that the Interim Report & Accounts had been
discussed at the ARC meeting with one challenge to the narrative.
The CEO promised to circulate the Interim Report along with the
press release and the Qs & As to the Board before publication.
Circulate the Interim Report along with the press release and
ACTION: CFO the Qs & As to the Board before publication.
(f) Industrial Relations
The CEO reported that an IR deep dive had been organised for the
Chairman and invited the other NEDs to join the meeting if they
would find it helpful. A full brief would also be provided for those
who could not attend in person or by phone.
ACTION: CoSec Invitation to be extended to all the NEDs for the IR deep dive
(9) NESP
The CEO explained the NFSP funding agreement and the
Federation’s move to a trade association. These changes were
causing concerns within the NFSP at a time when 75% of the
Federation’s Executive was also changing. The CEO recognised
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the importance of a professional body to support subpostmasters
and represent the network which had been the reason for the
proposed trade association.
To assist new Board members the CEO promised a paper to
ACTION: CEO explain the rationale behind the NFSP funding and the move to
a trade association.
(h) Having taken all of the discussion issues into account, the Board
noted the CEO's report.
(i) The Board noted the Transformation Update.
POLB 16/3 IRIS
(a) The Chairman welcomed Mark Ellis, Supply Chain Director, and
Martin Edwards, Head of Strategy and Corporate Planning Director,
to the meeting.
(b) IThe CFO introduced project IRIS and the work undertaken to date.
He explained that the work had identified cost reduction
opportunities by:
e Optimising routes and cash depots, with a saving of £9.5m,
235 FTE redundancies and the closure of 10 facilities at a
cost of £11-13m
e Withdrawing from the external market which would increase
the EDITDAS improvement by an addition £4m, increase
redundancies to c800 FTE but increase one off cost by
£19m.
The CFO believed that either option could be likely to trigger
Industrial Action.
(c) A further option to outsource the Cash Business had also been
considered. The Board acknowledged the challenges of
outsourcing, but recognised that management might need to use
this more radical proposal in discussions with the unions.
(d) The Board discussed the options presented in the paper and gave
a strong steer to management to focus attention on the rightsizing
ACTIONS: of the fixed cost structure.
Mark Ellis
(€) The following questions to be considered before a final paper would
be presented at the March Board:
e How would the Business, deliver the required workforce
with changes to terms and conditions (excluding cutting
pay), flexible shifts, and a more efficient structure?
« The cost drivers for cash delivery are the number of cross
pavement transfers and the frequency. What could be done
to reduce the demand from branches? Could
subpostmasters be incentivised to order less frequently?
e What are the economics of different methods of cash
delivery including subpostmaster collections?
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(f) IThe Board asked the CFO to ensure that the IR threat was aligned
with the wider IR strategy and planned changes. The CEO gave
assurance that IRIS was already included in the IR plans.
(g) Mark Ellis left the meeting.
POLB 16/4 MAILS STRATEGY UPDATE
(a) The Chairman welcomed Martin George, Commercial Director, to
the meeting.
(b) Martin George updated the Board on the work undertaken to date
to define the long term mails strategy. Despite encouraging sales
results in P9 and a significant uplift in the quarter 3 performance
the long term threat remained.
(c) Martin George explained that Royal Mail Group (RMG) continue to
block Post Office from selling postage online, and were proposing
to discount the RMG online offer which could have a considerable
impact on Post Office income.
(d) The Board discussed the relationship with RMG and asked
management to focus on the costs and opportunities of an open
architecture model, including the value and risks of independence
from RMG.
ACTION: (e) The Board discussed the paper and asked that the following
Martin George questions be considered in the March Board paper:
« What contribution does mails income make to a
subpostmaster’s remuneration and how critical is this
income to branch economics?
e« What is the value of the footfall from mails products for the
subpostmasters, and how could an open architecture model
impact subpostmaster income?
e What priorities will RMG have in the renegotiation of the
MDA and what are their cost drivers? What would they want
from Post Office and how can we become vital for RMG?
« What is the value of the Parcels2Go (P2G) acquisition —
does it have demonstrable value to the Post Office beyond
the cashflows of the standalone business?
(f) Having taken all of the discussion issues into account, the Board
noted the Mails Strategy Update.
(9) Martin George and Martin Edwards left the meeting.
POLB 16/5 MINUTES OF PREVIOUS BOARDS AND COMMITTEES MEETINGS
AND BOARD STATUS REPORT
(a) Minutes
The minutes of the meeting of the Board held on 25"" November
2015 were approved as accurate records and the Chairman was
authorised to sign them.
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The minutes of the meeting of the Board held on 17" December
2015 were approved as accurate records and the Chairman was
authorised to sign them.
The minutes of the meeting of the ARC held on the 21*' September
2015 were noted by the Board.
(b) Status Report
POLB 15/112 (e): The Board noted the Trade Union update paper.
POLB 15/107 (d): The Board noted the Economics of the ATM
Business paper.
The Status Report, showing matters outstanding from previous
Board meetings, was noted.
POLB 16/6 FINANCIAL REPORT — PERIOD 9
(a) The CFO introduced the Financial Report for Period 9 explaining
that after a good Christmas the Business was ahead of plan for the
first time in 2015/16 and that he was now cautiously optimistic that
the EBITDAS target would be delivered.
(b) Having taken all of the discussion issues into account, the Board
noted the Financial Report for Period 9.
POLB 16/7 INITIAL DISCUSSIONS ON THE 2016/17 BUDGET AND OUTLOOK
FOR THE 3 YEAR PLAN
(a) The Chairman welcomed back Martin Edwards and welcomed
Dave Carter, Group Financial Controller, to the meeting.
(b) The CFO introduced the budget discussion and explained the work
underway to prepare the 2016/17 budget for presentation at the
March Board.
(c) The Board asked the CFO to ensure that the budget was based on
income targets which were stretching but realistic as the current
targets for some products eg Mortgages had not been robust. The
CFO assured the Board that realistic income targets would be
proposed for all products.
Ensure challenging and realistic income targets are set as part
ACTION: CFO of the 2016/17 budget.
(d) The CFO explained that the first cut of the budget had highlighted a
gap of £91m between the initial budget bids and the plan. The
budget process had revealed the need for a radical approach to
cost reduction. The CFO stressed that the Executive were
committed to delivering the target £10m loss in the plan.
(e) The Board agreed that radical solutions would now be required to
reduce and right size the cost base. The Chairman stressed that
much had already been delivered but that the Executive needed to
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consider extreme solutions even if the cost of delivery affected the
short term profitability.
(f) The Board recognised that Business needed to invest in growth but
would be unable to do so unless the cost base was rectified.
However it would be important to monitor the top line whilst tackling
the costs.
(9) Having reviewed the work to date, the Board noted the cost
challenge and asked the CFO to return with the 2016/17 budget
having taken regard of the Board discussion.
(h) Richard Callard explained that the timetable would be tight for the
Shareholder to agree the budget, after the March Board approval,
and release the funding before the end of the financial year. The
CFO assured the Board that the Business would work with the
Shareholder Executive to ensure they had sight of the budget as it
developed.
It was agreed that the Business would work with the
ACTION: Shareholder Executive to ensure they had sight of the budget
Martin Edwards/CFO as it developed to help facilitate the process which would
follow the Board decision in March.
(i) Dave Carter and Martin Edwards left the meeting.
POLB 16/8 TRINITY
(a) The Chairman welcomed Jane MacLeod, General Counsel, to the
meeting.
(6) The CFO noted that the Board had previously been briefed on
Project Trinity and provided an update on progress and the status
of discussions with the various third parties involved.
(c) The Board asked for a note explaining who had given assurance to
the original plans and what assurance would be sought for delivery
of the Trinity plan.
ACTION: GC Provide a paper to explain what assurance was given to the
original plan and what will be given to Trinity
(d) The CFO explained that a final decision was likely to be needed in
February and proposed an Extraordinary Board meeting be help at
the appropriate time.
e
) The Board noted the update and that an additional board meeting
would be called in February to be held by telephone.
POLB 16/9 ANY OTHER BUSINESS
Delegated Authorities
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(a) Having taken all of the discussion issues into account, the Board
approved the new delegated authorities and noted that an
appropriate list of authorised signatories would be kept by the
Company Secretary.
(b) Back Office
The CFO gave a verbal update on the Front Office project. He
explained that since the September Board meeting where the
Board had approved the Accenture contract, changes had occurred
which meant that the contract was no longer within the original
approval.
(c) The Board asked if the changes were still necessary, and the CFO
explained that to do nothing was not an option, but that he would
ensure that this was explained in a paper. He thanked the Board
for their patience and promised to circulate a paper with an option
for a call to discuss.
ACTION:CFO/ Provide a paper on the Back Office procurement with an
COSEC option for a Board conference call if required.
POLB 16/10 ITEMS FOR NOTING
Sealings
(a) The Board noted the Report on Sealings and resolved that the
affixing of the Common Seal of the Company to the documents set
out against items numbered 1366 to 1378 inclusive in the seal
register was hereby confirmed.
Prosecutions Policy
(b) The Board noted the Prosecutions Policy but challenged whether
the policy should be available on the Post Office website, asking
what benefit this brought to the Business.
(c) The CEO explained that publishing the policy gave clarity to
subpostmasters.
It was agreed that the GC would consider whether publication
ACTION: GC was appropriate.
(d) Having taken all of the discussion issues into account, the Board
noted the new Prosecutions Policy.
POLB 16/11 CLOSE
(a) There being no further business, the Chairman declared the
meeting close.
POLB 16/12 DATE OF THE NEXT MEETING
(a) It was noted that the next meeting of the Board would be on 21
March 2016.
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Chairman Date
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