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Purpose, Strategy and Growth
Board presentation
26 November 2019
POL-BSFF-106-0000002
Contents
Where We Make Money
= Product profitability
= Channel profitability
Organisational Health Survey Results
Learnings from other post
Big Bets
Overall process update
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Executive summary — Where we make money
= The PSG team has worked closely with Post Office Finance team to depict a picture of product and
channel profitability based on existing Post Office data
= As per last Board meeting, we are presenting product profitability using “Contribution”, a new
profitability view developed by the PO Finance team, which splits total overheads between “True”
overheads (e.g., finance, HR and legal) and Allocated Indirects (e.g., CIO and DMB costs, which are
otherwise part of total overheads)
= Channel profitability is presented on trading profit terms
= The analysis drives several insights:
— AsofFY 2018-19, Post Office top revenue driver is Mails I IRRELEVANT), while Financial
Services is top contribution driver IRRELEVANT ‘with best contribution margin" I IRRELEVAI
trading rot of (ee in FY 2018-19 @
3
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Contents
Where We Make Money
= Product profitability
= Channel profitability
Organisational Health Survey Results
Learnings from other post
Big Bets
Overall process update
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Executive summary — Where we make money: Product profitability
» Asareminder, in FY2018-19, Post Office generated’
of revenues and
= In FY2018- 19t the top 4 drivers of revenues were Mail
9 f total revenues), Cash & Banking ‘x
Telecoms (=<) and Financial Services /*« .
forscented 0 revenue is expected
AGR and Financial ServicesI
= Over the next 2 years, baseli
Cash & Banking growing
GR with Mails remaining flat,
iCAGR
* An analysis of the Direct Contribution shows every product category made a positive direct contribution in
FY2018-19; FS the highest direct contribution margin at mse,
* Overall, Direct Contribution is expected to remain stable over next 2 years
baseline forecast at IRR
t CAGR) in PO Finance
xt! as Cash & Banking growth is offset by shrinking Financial Services and Identity
= The POL Finance team worked to refine the profitability view by splitting Total Overheads between Allocated
Indirect Costs and “True” Overheads, providing a view on Contribution (== of revenues)
" Allocated Indirect Costs include ClO, DMB, Network Ops, Agent Fixed Remuneration and Marketing. These
can be allocated to product categories using standard assumptions
= Compared to “Direct Contribution”, the “Contribution” proportion of Mails is significantly smaller (
~«}), FS is almost double (_ ) and Payments is; IRRELEVANT
= Contribution is expected to gro "I CAGR by FY2020-21 in PO baseline forecast, at which point Cash &
Banking expected to drive almost half of Contribution while Mails and FS shrink, and Identity increases its
loss
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REMINDER: In FY2018-19, Post Office generated [me
profits, a=; margin
FY 2018-19, £M @ % of revenue
t trading
IRRELEVANT
Revenue’ Direct costs? Direct contribution Total overheads Trading profit
eI
< IRRELEVANT
revenue driven by accounting adjustments: inclusion of POCA as revenu
1 Revenue before network subsidy payment. Differential with reported
xclusion of Payzonelsssess"}
ariable costs, processing costs, distribution and postage, postage costs, IT infrastructure & services, finance & losses, marketing; direct overheads and supply chain .
Source: POL Finance ;
“inclusion of FRES travel money
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In FY2018-19 the top 4 drivers of revenue
Telecoms and Financial Services (:
£M
were Mail (:
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100% =
Mails
— IRRELEVANT
Identity
Other?
Retail & Lottery
FY2018-19
Revenues
1 Telecom and: IRRELEVANT
2 Other relates to; IRRELEVANT
Source: POL Finance
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d revenue is expected to grow’:
i CAGR and Financial Services
Over the next 2 years, baseline foreca
L Cash & Banking
£M, baseline forecast
~« IRRELEVANT
Financial Services
Insurance
ther?
Identity
E
r
FY2018-19 FY2019-20 FY2020-21
Revenues’ Revenues’ Revenues’
yetwork subsidy paym: : t im), exclusion q
2 Other relates to
\ce 8
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An analysis of the Direct Contribution shows every product category made a positive
direct contribution in FY2018-19; FS the : :
Direct Contribution
£M margin (% of rev)
IRRELEVANT
Fi
identity
I
1
mmoomcy
I
FY2018-19 Revenue’ ~ FY2018-19 Direct Contribution?
network subsidy payment. Differential with reported/##ei=vant fevenue driven by accounting adjustments: inclusion of POCA as.tevenut inclusion of ERES travel. money exclusion of. Fy
LEVANT I
4 Reven
P,
lated as revenue minus direct costs per major project group. 3 Telecom and,
source: POL Finance
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Overall, Direct Contribution expected to remain stable over next 2 years (rene CAGR) at
iI jas Cash & Banking growth is offset by shrinking Financial Services and Identity
£M, baseline forecast CAGR (FY2018-19 to 20-21)
AR
ae IRRELEVANT
Financial Services
Insurance
Identity
Retail & Lottery
— oh 97. Ts I: nr Ch O71 I cc > O17 7 5 ea
Direct Contribution’ Direct Contribution’ irect Contribution’
enue minus direct cost
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The POL Finance team worked to refine the profitability view by splitting Total
Overheads between Allocated Indirect Costs and “True” Overheads, providing a
view on Contribution:
FY 2018-19, £M @ *% of revenue
IRRELEVANT
kb
Revenue’ Direct costs? Direct Allocated Contribution Overheads‘ Trading profit
contribution indirect costs*
Resulting
& “Contribution” view
1 Revenue before network subsidy payment. Differential with reported! m
exclusion of Payzone I= -
esi ts, distribution and postage, postage costs, IT infrastructure & services, finance & losses, marketing; direct overheads and supply chain
DMB costs, Marketing, network operations, ClO °
4 Staff costs, finance and operations, legal, risk & governance, HR & people & engagement, communications & central © 4
revenue driven by accounting adjustments: inclusion of POCA as revenue", inclusion of FRES travel money
Source: POL Finance
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Allocated Indirect Costs include ClO, DMB, Network Ops, Agent Fixed Remuneration and
Marketing. These can be allocated to product categories using standard assumptions
FY 2018-19, £M @ % of revenue
Revenue’ Direct costs? Direct clo DMB Network Agents fixed Marketing Contribution
contribution operations? remuneration
1 Revenue before network subsidy payment. Differential with reported”
}, inclusion of FRES travel money
"revenue driven by accounting adjustments: inclusion of POCA as revenuel
3 ‘rgures based on 18/19, and so excludes transfer of Retail Operations under Retail in 19/20
iprocessing costs, distribution and postage, postage costs, IT infrastructure & services, finance & losses, marketing; direct overheads and supply chain @
Source: POL Finance 12
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Compared to “Direct Contribution”: the “Contribution” proportion of Mails is significantly
a IRRELEVANT), FS is almost! I IRRELEVANT
RRELEVANT 3
Contribution
£M margin (% of rev)
100% #
— IRRELEVANT
Identity
Insurance
Other®
Retail & Lotte
Payment services
FY2018-19 Direct Cont.2
venue driven by accounting adjustments: inclusion of POCA as reven
ior project culated as revenue. minus.
15 Other relates to
FY2018-19 Contribution
3), inclusion of FRES travel money;
‘net. maioorolectaraun..4 Talecam.
IRRELEVANT
jource: POL Finance
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I CAGR by FY2020-21, at which point Cash & Banking expected
to, of Contribution while Mails and FS/: , Identity! :
£M, baseline forecast CAGR (FY2018-19 to 20-21)
oe IRRELEVANT
Insurance
Other
Identity
Retail & Lottery
4,Contribution calculated as re\
Til
ivenge:nnnos um ee GOses an UneMUcarey UvETTEaas per MALT
18 Other relates to!
jource: POL Finance —
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Contents
Where We Make Money
= Product profitability
= Channel profitability
Organisational Health Survey Results
Learnings from other post
Big Bets
Overall process update
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Executive summary — Where we make money: Channel profitability
= Channel split shows most product revenues driven at least partly by branches (vs
non-branch, i.e. online and call centres), except for Telco and FS
= 7,400 of POL’s ~11,600 PO branches are Mains and Locals
are the engines of Post Office profits in FY2018-19
* Within the branch network, Mains and Lanes are the engines of profits
respectively drive wt] Of lees
= 50% of revenues driven by just 14% of branches (~1,600 branches)
= Last quartile of branches (ranked by profitability) drive losses almost as great as
profits from first 2 quartiles
" 63% of the top quartile branches (ranked by profitability) are Mains; 59% of bottom
quartile of branches are Traditional branches
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Channel split shows most product revenues driven at least partly by branches, except
for Telco and PO Money se cninatox-tranch
£M revenue’, FY 2018-19 I Branch
tmone OE eeeeeee————e—e—e—_—_—_—_—_—_—_—_—_T =
Payment Services
Banking Framework a
POCA
Moneygram
Postal Orders
Mails 1% a
Retail & Lottery 1
ATM 1%
Other Identity
Travel Money
Insurance
PO Money
Telco 3
Verity
Other
1 Revenue before network subsidy payment. Differential with reported!wacwr] revenue driven by exclusion of Payzont and Royal Mai! } .
SOURCE: POL, product split based on Credence database 17
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[ierevevantQf POL’s ~11,600 PO branches are Mains and Locals
As of end of FY2018-19
Format Description
Product / service range
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Number of branches
Larger branches with minimum of two counters
May be a dedicated Post Office or situated in another shop, e.g., WHSmith
needs
Always situated within another shop, e.g., ina Nisa
Usually just has a combi counter
Locals
Core services"
Exact range dependent on local
needs
= Core services"
Exact range dependent on local
Branches not yet converted to Locals as per Network Transformation
Have protected status — remain on old contracts due to POL social purpose
Remain on old contracts, but are on notice until Local partner found
needs
Often run from public buildings, e.g., village halls, libraries
Include mobile vans
Operate under reduced hours
Most services offered
Exact range dependent on local
Core services"
= Managed and staffed by POL
Real estate may be owned or leased
Full?
Some do not offer full range of
Identity
Directly Managed
Branches (DMBs)
TOTAI
POST OFFICE
services
Provides card payment solutions
Payzone Accessed face-to-face, online or via telephone
1 Core services include Mails, POCA, Banking, Bill Payments, Travel Money, Click and Collect
2 Full services include Mails, POCA, Banking, Bill Payments, Travel Money On Demand, Post Office Money, Broadband and Phone, Identity services
SOURCE: POL
Card payment solutions
Grand total of ~25,000 Post
Office and Payzone branches
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SOURCE: NSP model, POL Finance
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channels drive
trading profit vs
loss from branches
DMB, followed by
traditional branches,
(which include community
branches) are the main
loss drivers
Mains and Locals
branches are the engine
of profit in the branch
network
Outreach loss is
relatively jw«=«iof trading
profits)
Closed branches drive
a ‘of total
network losses
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Detailed view of branch profitability shows DMB and Traditional accounting for the vast
majority of all losses generated by the branch network
FY2018-19
Key takeaways
Profit-making I Loss-making I Total * Online channel is
#of branches Trading I #ofbranches Trading I #of branches Trading ae tata ed
As of end of Profit, I As of end of Profit, : As of end of Profit, ‘P
Channel FY18/19 £m FY18/19 I FY18/19 £m FY18/19 I FY18/19 £m FY18/19 Excluding DMB,
: t H H ! POL physical
Locals network will have a
Tonnes nnn nnn positive profitability
Mains profile
Outreach
ee IRRELEVANT
Traditional
DMB Se . eos traditional
TOTAL2 branches are ja
IRRELEVANT
“} outreach branches are served
-Linits will be used in the analysis over the next pages; 2 Excludes profitability associated to closed branches 0)
SOURCE: NSP model, POL Finance 20
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018-19
------- Revenue, £m
IRRELEVANT
(jiRRELEVANT
IRRELEVANT
Analysis only includes open branches as of FY2018/19
SOURCE: NSP model, POL Finance
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branches) PRELIMINARY
Branches ranked by revenue
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Last quartile of branches (ranked by profitability) drive losses almost as great as profits
from first 2 quartiles
FY 2018-19 & Revenue (% of total revenues) tx ] Profitabi
TOTAL {iretevavr} TOTAL:
Profit, £m
I First quartile : Second quartile I Third quartile I Fourth quartile
LT
IRRELEVANT
I
Branches ranked by profitability ‘
Analysis only includes open branches as of FY2018/19 .
SOURCE: NSP model, POL Finance 22
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I of the top quartile branches (ranked by profitability) are Mains, ~~»
quartile of branches are Traditional branches
FY 201 % of b hes b HE Main Mi Local I) Traditional — Outreach {) DMB
>
Second quartile of branches Third quartile of branches Fourth quartile of branches
/ profitability tanked by profitability, ________.._...fanked by proMabiliy_________.__.._ranked Py proftebiity
Analysis only includes open branches asoiFY201@/19.~=~*~*~“‘*‘“<S*S*“‘<S*CS (coer)
SOURCE: NSP model, POL Finance 23
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Contents
Where We Make Money
Organisational Health Survey Results
Learnings from other post
Big Bets
Overall process update
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Summary of OHI findings and their potential uses
Diagnostic headlines
= Impressive level of engagement with the survey
= Bottom quartile organisational health indicating significant opportunity for improvement
= Accountability, work environment and motivation relative strengths (though still third quartile): relatively more effective in creating a
sense of community and belonging; practices around openness, trust, engaging leadership and ownership amongst most emphasised
= Purpose and direction not clearly understood, reinforcing need for current work on Purpose, Strategy & Growth
= Lack of consistent measurement and management of business and risk, or acting to address problems
= Lack of institutional skills and talent, external orientation and innovation/learning
= Overall, senior managers’ views most critical (especially innovation and learning)
= Current values centre around community, being of service, care and respect, but also hierarchy and bureaucracy; whereas desired
values include competitiveness, accountability, efficiency and being well organised
= Main purpose themes at Post Office are about being a trusted brand, with access for all, serving customer’s mails, parcel and cash
needs
Uses of the OHI findings
= Syndicate the results internally to increase understanding of the challenges (both generally and for particular parts of the organisation)
= Start to create a narrative about the required change building on the quantitative and qualitative detail of the survey results
= Use the detailed information about where practices need to change to inform concrete improvement initiatives
= Once Purpose, Strategy & Growth are clearer, use OHI results to inform what is needed to enable the new strategy
= Track progress and course correct where/if needed
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Organisational health is related to — but different from — organisational performance
Performance Health i I Focus of the OHI survey
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Organisations that focus on Org Health outperform their peers at every level
ES
ios id
ots
Across Industries Across Companies
Healthy Companies that focus on
companies across health show an
industries outperform
their unhealthy peers in 0
the stock market! by 0)
increase in EBITA
between surveys
1 Represents 9 year average Total Retum to Shareholders (TRS) for healthy companies vs. unhealthy companies across survey database
2 Based on re-survey data, companies with "Moderate", “Strong”, and “Very Strong” recipe alignment
Within Companies
Health explains up to
90%
of performance variation
across units
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The OHI survey digs deep to understand what’s happening under the surface and
provide a detailed picture of organisational health
Employee Engagement survey Organisational Health Index (OHI)
= Evaluates individual employee happiness / = Evaluates an organisation’s long-term
attitudes (e.g. how employees feel) capacity to perform
= Helps identify employee “hot buttons”. = Identifies strengths and opportunities
(e.g., satisfaction, happiness, morale, across a robust set of management
engagement, work environment) practices proven to drive health
= Allows customisation and comparison * Enables benchmarking across industries,
based on unique questions / lines of inquiry regions and a global database
= Focuses on manager level reporting vs. " Focuses on enterprise-wide, functional
enterprise-wide focus areas and business unit insights to inform
actions to improve health
In practice, employee engagement and the OHI are complementary; however a healthy
organisation is not justabouthappy.employeés, but also.aligning the workforceyand
behaviors with the organisation goals
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The Organisational Health Index (OHI) offers proven insights and expert support to
build an enduring organization that can sustain performance
Developed the
Conducted an exhaustive Interviewed key leaders Organisational Health
academic review across our client base Index (OHI) Survey
i, 800 100 cy 20
books & articles client executives minute survey
fact-based insights functional leaders precise
recommendations
‘7 200 < 30 Ae 3-5
participants surveyed companies
~5m iat SI ~1,900
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With 1+ billion data points, the OHI offers an unparalleled depth and breadth of
knowledge, across geographies and industries
Global reach and relevance, Robust industry
% of OHI surveys benchmarks
fe) = Global Energy & Materials
24% 27 Yo €#) = Banking
TMT (High Tech-Media-Telecom)
Consumer/Retail
Advanced Industries
1 8 % I Healthcare Systems and Services
= Pharmaceuticals and Medical
Products
= Public Sector
= Insurance
= Travel, Transport & Logistics
= Asset Management & Institutional
Investors
Infrastructure
Professional, Scientific, and
23%
ie)
8 Yo Technical Services
aa P c Social Sector
Surveys administered in 100+ countries
= Multi-Sector Conglomerate
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OHI statistics at Post Office
Sash
2448 73% >2000
Employees invited to Employees provided Individual comments,
participate in the survey responses to the survey recommendations and
(excludes DMB) opinions as provided
by employees at all levels
Source: Post Office (n=1770); Benchmark: Global (n=2,877,871, no. surveys=878) ©
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Two major measurements in the OHI
9 Health Outcomes
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37 Management Practices
= Interprets if what is happening on the
ground is working, and how well
= Agreement scale
= Example: “This Post Office colleague is
highly motivated"
= Identifies colleagues’ perceptions of
what’s happening on the ground
= Frequency scale, from “almost always”
to “almost never”
= Example: “Managers in Post Office
provide praise, thanks, or other forms of
recognition to high performers”
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Employees’ sense of community and belonging provide a foundation to build on once
direction becomes clearer
% of respondents who selected ‘agree’ or ‘strongly agree’
Benchmark: a Top Quartile 1 Second Quartile © Third Quartile Bottom Quartile
Communicate a clear and compelling vision of
where the organisation is headed, how to get there, 1
and what it means for people Use effective leadership styles to shape
the actions of people in the organisation
to drive high performance
Direction
Ensure individuals understand what is 48
expected of them, have sufficient authority
Consistently measure and manage
business and risk, and act to
and feel accountable for delivering results
9 - Coordination & address problems when they arise
Accountability
62 Control -—
48
Engage with important external Encourage and harness new ideas,
stakeholders (customers, External Orientation Leadership I Innovation & Learning including everything from radical
suppliers, partners, and others) to = — 56 62 38 —— innovation to incremental improvement,
so the organisation can effectively
more effectively create and deliver
evolve and grow over time
value — both now and in the future
Capabilities Motivation ‘
Ensure the institutional skills and talent 63 52 Develop employee loyalty and enthusiasm,
and inspire people to exert extraordinary
are in place to execute the strategy
and create competitive advantage effort to perform at their very best
Work Environment Cultivate a clear, consistent set of
60 values and working norms that foster
effective workplace behaviour
Source: Post Office (n=1770); Benchmark: Global (n=2,877,871, no. surveys=878) @
33
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Direction, Capabilities and Innovation & Learning are lagging most vs. UK benchmark
Post Office results
% of respondents who selected
‘agree’ or ‘strongly agree’
Benchmark: HM Top Quartile Ml Second Quartile
Difference: BB Significantly Stronger" © Comparable
Travel, Transport
& Logistics
Difference between Post Office
and benchmark median, pp
Public sector
Difference between Post Office
and benchmark median, pp
United Kingdom
Difference between Post Office
and benchmark median, pp
© Third Quartile
Bottom Quartile
I Significantly Weaker!
Retail
Difference between Post Office
and benchmark median, pp
OHI Score 54 5 a 8 I I 1 5 I
Direction 48 “10 I_I 5 i 14 I
Leadership 62 1 1 5
Work Environment 60 6 13 1
Accountability 62 3 10 -2
Coordination & Control 48 6 9 8
Capabilities 63 8 I 7H a =
Motivation NNN) 52 } 1 0 " 2
Innovation & Learning
External Orientation
56
4 The significance level is at p = .05. Statistical significance is calculated based on outcome distribution, size of population and size of point difference.
Source: Post Office UK (n=1770); Benchmark: Global
=2,877,871, no. surveys=878); United Kingdom (n=50,623, no. surveys=26); Public Sector (n=96,288, no. surveys=37);
Travel, Transport & Logistics (n=136,237, no. surveys=36); Retail (n=155,238, no. surveys=39)
=
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Survey scores across 9 health outcomes and 37 management practices
% of respondents who selected ‘often’ or ‘almost always’
Benchmark: [ll Top Quartile Ml Second Quartile Third Quartile Bottom Quartile
Power practice — practice that needs to be prioritised if in bottom quartile
Direction
Accountability 40 37 Coordination & Control
48 35 Shared Strategic Employee 55) 52 56
Vision Clarity Involvement
Role Clarity Performance Consequence Personal People perf. Operational Financial Professional Risk
Contracts Management Ownership review Management Mngmnt. Standards Management
External Orientation Leadership Innovation & Learning
Customer Competitive Business Gut & Authoritative Consultative Supportive Challenging Top-down Bottom-up Knowledge _— Capturing
Focus Insights Partnerships omen Leadership Leadership Leadership Leadership Innovation Innovation Sharing External Ideas
‘elations
Capabilities Motivation
Work Environment
Talent Talent Processbased Outsourced 66 I 34 Meaningful Inspirational Career Financial Rewards &
Acquisition Development Capabilities Expertise Values Leaders Oppor- Incentives Recognition
Open and Performance Operationally Creative & tunities
Trusting Transparency Disciplined Entrepreneurial
Source: Post Office (n=1770); Benchmark: Global (n=2,877,871, no. surveys=878) @ 35
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Survey scores are supported by a set of related questions: “Accountability” example
Accountability outcome questions‘
Employees clearly understand what is expected of them
Employees are held accountable for the results they are expected to deliver
Employees within Post Office have sufficient authority to make decisions
Accountability practice questions’
ROLE CLARITY
PERFORMANCE
CONTRACTS
CONSEQUENCE
MANAGEMENT
PERSONAL OWNERSHIP
1 Percent of employees
Source: Post Office (n=1770)
Post Office’s organisational structure helps create clear accountability
Jobs in Post Office are designed to have clear objectives and accountabilities for results
[- Employees have written performance goals that clearly define what they are expected to
deliver
Post Office sets performance goals for individuals that are challenging
Post Office provides attractive incentives to high performing employees
Post Office has created clear links between performance and consequences
Line managers create a sense of belonging to Post Office
Line managers encourage employees to take a personal stake in their jobs
lM Disagree M™ Neutral MI Agree
ll Infrequently MJ Sometimes Ml Frequently
x
5
nN
i)
2
8
>
a
nN
a
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my
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g
g
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Gap between Post Office scores and next best quartiles is key in understanding scores
Percentage points
oo Shared Vision 40
Direction
48 Strategic Clarity 37
Employee Involvement 43
Authoritative Leadership 59
Leadership Consultative Leadership 47
62 Supportive Leadership 60
Challenging Leadership
I
Work
Environment
60
g
Performance Transparency,
Operationally Disciplined
FS
ry
Creative & Entrepreneurial
Role Clarity 48
Accountability
Sy
Performance Contracts
o
a
62 Consequence Management
go 2
a 3
Personal Ownership
Talent Acquisition 49
Capabilities Talent Development 47
63 Process Based Capabilities 40
ES
=
Outsourced Expertise
Source: Post Office (n=1770); Benchmark: Global (n=2,877,871, no. surveys=878)
{MEE Point increase required to achieve next quartile
Benchmark: [J Top Quartile {J Second Quartile J} Third Quartile Bottom Quartile
Coordination & People Performance Review 50 m 0-13 I
Control Operational Management 55 m 59 I
48 Financial Management 52 ~EE
Professional Standards 7 me 6-10 I
Risk Management 56 m= 37 I
ieaitasittarn Meaningful Values 42 ~EE
cy Inspirational Leaders 49 ~Ea
Career Opportunities 26 me 1-15 I
Financial Incentives 29 m 6-10 I
Rewards & Recognition 24 ~EE
Innovation & Top-down Innovation 33 1-15 I
Learning Bottom-up Innovation 31 —~EEE
38 Knowledge Sharing 33 m 6-10 I
Capturing External Ideas. 28 m 0-13 I
External Customer Focus 47 EET
Orientation Competitive Insights 51 mm i317 I
56 Business Partnerships 64 m 438 I
—
e
g
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Next steps on OHI
* Continue sharing survey results with relevant Post Office groups
* Start shaping the interventions to improve organisational health by
identifying which management practices can be improved via
workshops with L40 (session on 10 December), GE, etc.
* As the strategy work continues to be refined, ensure focus on
improving the management practices that are most relevant to
delivering that strategy
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Contents
Where We Make Money
Organisational Health Survey Results
Learnings from other post
= Review of postal context
= Learnings
Big Bets
Overall process update
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Executive summary — postal market overview
" Postal players have been under increasing pressure. Several trends contribute to this:
= Structural and irreversible decline of the mail business
= Customers demanding higher convenience and service in the core products offered by postal
players, while often not being willing to pay higher prices (especially B2C e-commerce parcel
senders)
= Disruptors are winning the postal players’ natural new growth segments (e.g. parcels and
financial services), in particular Amazon
= Regulatory pressure to maintain retail network coverage and USO requirements continue
impacting postal players’ economics; although most European players still enjoy some form of
subsidy
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Postal players have been under increasing pressure which impacts branch networks
o<=h
1
J I J I J I
@ I e I 3) 4)
Volume Growth products with Accelerating Performance
decline ' different customer ' competiton pressure
i expectations I
®m® 2 ©
Declining volumes in both ' Parcel volumes and postal I New growth segments are Increased pressure
cash and letters i financial ; very competitive and from shareholders
due to e-substitution { service sales ' competitors are often to improve economics, but
j are increasing I disruptors. Postal players high (USO) requirements
I but customers require more I suffer from legacy costs and
: service, higher convenience : innovation gap
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The world of post is changing fast in the face of megatrends that generate both threats
and opportunities
Digitisation
of letters
= World going paperless
= Advertising going digital
i)
Disruption in
financial services
= Cashless, online and
mobile banking
= Trust deficit
= Withdrawal from the high street
economy
= ‘Uberfication’ of services
= Changing customer interaction
models
The mobile
E-commerce
and parcels
growth
= Shopping at your fingertips
Disruptive innovators
Amazon: “Marketplace” ©
and “Fulfilment by Amazon”
Megatrends impacting global postal
markets
The poly-
morphous world Y)
= Emerging social and economic
divides driving political
disruption (Brexit, Trump)
The privatisation wave
European posts under
Ke
@)
private ownership
Peak in government sales
The gig economy
= Much lower labour cost
structure
" Different motivations from
‘lifestyle couriers’
Digital
government
* Online
management of national and
municipal services, benefits,
and taxes
Convenience
retail ©
= Growth in convenience and
discounter retail
= Big box retailers entering the
market
@.
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Mail and parcel are set to reach volume parity by 2025
2025
Overall market
Typical postal
incumbent
PIR
re)
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The decline of the mail business is structural and irreversible
Addressed domestic letter volumes in selected markets!’
Indexed, 2003=100
120 -
110 -
100 +
90 -
80 I Germany
70 -
60 -
50 SS UK
40
30
20 -
Denmark
10 ! ! ! 1 ! ;
2002 2004 2006 2008 2010 2012 2014 2016 2018
1 Austria, Belgium, Canada, Denmark, France, Germany, Ireland, Netherlands, Norway, Spain, Sweden, Switzerland, UK, US
SOURCE: Operators’ website and annual report; Regulators; UPU; Press
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ESTIMATES
A few observations and
additional facts ...
= Drop in mail volumes in key
European postal markets —
speed of decline driven by local
habits and regulation
= 80% drop in mail volume in
Denmark since 2003 —
eGovernment initiatives since
2007 accelerated decline
= <20% drop in mail volume in
Germany -— least affected market
in the analyzed set
= Most of key postal markets
increased stamp prices since
2010, only Switzerland kept
prices stable
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E-commerce is currently a ~ USD 3 tr market, quadrupling to ~ USD 8 tr by 2025
E-commerce market worldwide USD trillions
Based on observation of historic growth of most mature e-commerce markets (e.g.,
UK, US), our assumption is that growth rate will decline from 2020 onwards and
further from 2025 A few additional facts ...
a 20X increase in global e-commerce
~10% p.a. since 2000
~43.0 5x growth differential between
. online and brick and mortar retail
expected in 2016-21
‘~4 GO,
Ug [pe 30% share of total retail to happen
Ses Seem i online by 2030
70-80% of all e-commerce
purchases delivered via networks
36bn e-commerce (B2C) parcels
handled globally p.a.
4.9
New geographies, consumer
segments, product verticals,
1
'
1.5 I
; channels and occasions as drivers
2015 I 18 21F I Ft 2030F
SOURCE: eMarketer 2016 (225) 46
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Differences in e-commerce parcel penetration highlight growth opportunities
E-commerce relevant parcel’ penetration
In parcels per capita, per year
>70
24
21 22
14 15
12
9 9 10
6
<1 <1 1 1 2 2
Vietnam India Malaysia Thailand Indonesia Italy I Singapore Belgium Switzerland Sweden Netherlands Austria Ireland I US UK Germany — China?
' ' (tier 1)
Less mature markets ; Moderately mature markets i Mature markets
~ 1-2 parcels/capita ~ 10 parcels/capita > 20 parcels/capita
1 ‘E-commerce-relevant’ is defined as domestic B2C parcels, with speed typical for e-commerce shipments in the given country2 Shanghai and Beijing, assuming 70% B2C share .
SOURCE: Research, various reports 47
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4 universal truths
Competitive market
o%
407
of parcel market share for
typical incumbent
Australia with dominating
incumbent share in B2C1
parcel delivery (75%),
particularly outside major
population areas
Competition is aggressive
and increasing, e.g., e-
tailers such as Amazon
are already insourcing
logistics
1. 30% market share in B2B; 2 Based on percent of total volumes in 2015; 3 Consumer survey across US, China and Germany (n= 4,700), conducted 2016
Source: IPC; APA/Branchenradar
Customer expectations
704
prefer price over speed
44% of customers have
no willingness to pay extra
for same-day parcel
delivery, 40% only <1
EUR?
Currently 90% of parcel
deliveries are same-day or
next-day deliveries
Legacy costs
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Innovation gap
~320%
higher unit costs vs.
competitors in urban areas
Labor represents 80% of
parcel production costs
In urban areas labor cost
disadvantage of up to 30%
- without benefit of
network effects
10x
less IT jobs
No postal incumbent listed
in Forbes top 100 list of
digital companies 2018
Postal incumbents are
often stuck with rigid
corporate cultures that are
slow moving and risk
averse
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Domestic volumes dominated by local players — various competitor types attacking
with sharp value propositions Hi Postal Incumbent ll 2 main competitor: il Other
Tough competition - postal incumbents are #1 in most parcel markets, but face
strong rivalry ... ... With 3 types of competitors attacking with sharp value propositions
Domestic parcel & express market shares,
Selective markets’, Percent Competitor type Strengths Examples
Transferrable expertise from B2B operations US UPS. fips
(eg., time-window delivery)
B2B-focused parcel
specialists and express Network synergies due to B2B baseload and EU DPD SB apa
° integrators factor cost advantages
id
Stronger brands in some markets CN
Z
4 =
High agility and innovative power US Postmates
(‘digital first’, '10X better’ mindset)
Ability to cherry-pick and tailor offering to EU Ocado
coverage areas or verticals
Ability to ‘buy market growth’ CN Eleme = ele.me
on the back of growth financing
B2C delivery startups
High agility and innovative power US Amazon — amazon
(digital first’, greenfield)
o Forward-i i Superior consumer insight and access EU = Amazon = amazon
e-tailers (‘what's inside the box’)
@ Ability to cross-subsidize with other revenue CN Alibaba
streams (e.g., commissions)
1 Revenue-based for BE, DK, FR; 2 Includes Coliposte, Chronopost, Exapa Poste Italiane is not in top 3
Two main competitors include: DPD and DHL in SW; UPS and DHL in BE; GLS and local player in DK; FedEx and UPS in FR; Hermes and DPD in DE and UK; DHL and GLS in NL;
Top 3 in IT: Bartolini, FedEx and UPS .
SOURCE: IPC 49
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Legacy costs — parcel production costs are a function of labor costs on the last mile
where incumbents have a major handicap vs. low-cost attackers Low-cost attacker ll Incumbent
Legacy costs — parcel production costs are a
function of labor costs on the last mile ... ... Where incumbents have a major handicap vs. low-cost attackers
Parcel production costs by process step,
Incumbent example (urban areas), EUR/percent
Comparison of labor cost between incumbent and attacker, Labor costs per hour, selected global markets, EUR
1.40 ' 15
Material costs, 13 13
labor costs 0.43 ' 12
on other processes, (31%) ' oonave
other costs 449
H 8
6
Labor costs on i
the last mile t
Labor represents : Country 1 Country 2 Country 3 Country 4
80% of all costs '
i + More rigid labor terms and conditions (working hours, scheduling flexibility, ...)
1 Case example for delivery of 1 parcel in Berlin through a parcel network with 125,000 parcels per day @
SOURCE: Press 50
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Innovation gap — postal incumbents find it harder to innovate than their ‘digital first’
attackers
0 Postal incumbents appear on Forbes'
Top 100 Digital companies list
#1 O FedEx as first Postal/Parcel company
on most admired companies list
IT Jobs open worldwide for Deutsche
<200 Post DHL"
[e) Of FTEs are longer than 10 years with
60%
their firm
Capital expenditure as a share of total
4 T% revenue in 2017 by Postal companies
1 May 2019
SOURCE: Forbes, IPC, Fortune
3
#2
2,000
~1
~6%
Amazon, Alibaba and JD.com all listed
within Top 50
Amazon ranking
Jobs offered by Amazon within the
category of Operations, IT & Support-
Engineering’
Year median tenure at Amazon
and Google
Capital expenditure on average by
Amazon, Alibaba, JD.com
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E-commerce and financial services are important drivers of growth in postal business
Industry revenue share '
Percentage
Other
Logistics & Freight
Financial Services
Parcels & Express
Mail
2012 2017
1 Includes IPC members (postal operators from Europe, North America and the Asia-Pacific region). Collectively, their operations deliver 80% of global mail volumes @
SOURCE: IPC 52
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E-commerce shoppers’ need for convenient receiving drives explosive growth of parcel
retail networks
Post and parcel retail network expansion
# of offices
yy
“i> 45,783
4,800
2,600
2,600
2,800
3,000
4,700
5,000
1,300
15,405
3,500
7,436
11,905
11,547
2010 2018
Others
Amazon Locker
Parcelly
DPD
UPS Access Point
Hub-box
DHL Service Point
myHermes
CollectPlus
Post office
~7 new branches opened every day in the UK between
2010 and 2017
1 Kariboo points serve as non-exclusive parcelshops (for bpost and some for competitor PostNL too); 2 PostNL relies on Kariboo and additional own points
SOURCE: UPU; Company Web sites; Press search
1,820
330
1,300
2005e
4,407
450 DPD
20 DHL
hii GLS/Mondial
Relais
Kiala/UPS
PostNL?
900
Kariboo'
bpost -
post points
bpost - POs
2018e
bpost increased its network relying on postal points
and non-exclusive parcel shops
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E-commerce supergiants are entering the battle for B2C logistics
Starting to insource i I Insourcing at scale I I Offering to other parties
Size of the global e- . _
commerce revenue pool! Supergiant activity
Value pool USD billions Amazon Alibaba, Cainiao JD.com
Web services ~ 55
Enabling (web) ° II II I
services
~80 a a I
Outbound B2C ~10
logistics
(incl. cross-
border) ~ 115 L L L
~ 270 Already offering last
mile services at scale
to e-tailers
1 Total costs of e-commerce merchants, both in- and outsourced .
SOURCE: Industry experts @ 54
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Example Amazon: broad fulfilment network as basis for fast delivery across regions
Amazon's fulfilment network and delivery speeds Implications
Amazon's footprint io I Amazon has a broad network
' of fulfillment center across
Europe to enable both scale
@ Fulfilment centers
© Current delivery stations
and speed
@ Current prime now hubs
Amazon's delivery speed
1 Same-day in '
metropolitan areas, \ MA Amazon already has a
otherwise next-day consistent same-day offering
1) Next day ' in metropolitan areas in main
1-2 days countries
2+days
lf. Amazon also leverages its
broad fulfillment network to
offer fast cross-border
deliveries (e.g., Belgium,
Portugal, Poland)
1 Best available delivery speed for Amazon Prime customers, delivery speeds for some products and areas may vary @
Source: Web search 55
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Amazon's value proposition is built on operational excellence, scale-induced quality
improvements and an integrated offering
What amazon offers... ...and what is needed to match it
= Distributed Order Management system with
integrated optimization algorithm for cost and
speed in FC network
" Best-in-class fulfillment, fast fae Inventory
delivery and customer-friendly = Irene nes we
returns fulfillment i
= Branding that drives end-
consumer trust in fast and
reliable service
' = Integrated fulfillment center network to allow fast
Operational eFulfillment
shipping and easy localization
Excellence z Late cutoffs, rigorous cutoff manage-ment and
fib service promise transparency
~ iSuperior@ervies levels currently 6 rrr tne ric erin nen cin aennin ren meee rin mre nin ames
unavailable to eCommerce " Direct Injections into foreign networks to limit
merchants ie int'l Mid quality losses
* Scale effects for eCommerce ae Mile a « IT-Integration with and optimized use of
merchants international deferred carrier network
Scale and Fee eee nee eee eee nee ee eee eee eee ee ee eee ne eeeeeeeeeeeeees
__Gensolldation ore are Shee Sr i en en Se ee ce j Parcel = Priority processes to ensure fastest delivery in
= Integrated domestic and } deferred network (i.e. at affordable cost)
international carrier '
management } ON
' = Integr white-label return I for direct
S NEBESesere teeny across _— (Ixeienete pias belveon rear ecto and
entire value chain logistics H payment
Integration
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Logistics partners can enable a consistent next day service promise across Europe for
retailers — matching Amazon on fulfilment center density not a requirement
Amazon's current fulfilment center amazon Theoretical requirements for consistent ed
footprint in Europe ihiacitie next-day-shipping in Europe x
© Possible next day coverage via
ground shipping per fulfilment center
# Number of fulfillment center per
country
NIN
o=
oN
~9 FF center
72 FF center
~87% of Amazon‘s 72 fulfillment center in Europe are only required due to the immense scale of the business
and are strategically located to service high density areas
1 For ground shipping @
57
Source: MWPVL.com
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Governments are increasingly digitising their services, reducing the need for both mail
and a physical footprint
Public Sector examples
=] Strong digital agendas in social insurance and tax:
= Social insurance agency: eliminating paper forms and manual handling processes
= Tax : authorisation of annual tax declaration through text message response to pre-filled tax form
D k a Top down digitisation agenda spearheaded by the central digitisation agency:
enmari
-. Digitising 80% of all government communication: non-digital communications to citizens are banned except in rare exception cases
» Service New South Wales developed a unified, single point of contact for residents and businesses for more than 800 transactions, including:
= Driver licenses
Australia = Birth certificates
= Seniors1 Cards
= Fair Trading licenses
<> Core services now predominantly online:
" Tax return submission eet ee
"Passport renewal Tax your vehicle
UK = Car tax renewal, including abolition of physical tax disc es
= Renewal of driving licenses
= Booking driving tests (over 98% booked online)
= Parking fines payment
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As volumes decline, operators obtain more important USO scope modification. IRoveLe
C=] Portugal:
reduced weight
to 10kg for parcels;
removed direct mail;
Start of XY delivery
Bulgaria: removed postal money
orders and direct mail
@ New Zealand: 3 day
urban delivery, 5 days
in rural; changed
service outlet specifi-
cations (e.g., allow self-
service kiosks)
4 Denmark: D+1 mail
removed from USO.
and becomes priority
product delivered with
parcels; shift to
& Finland: Postal Act was
approved which allows
discontinuation of
Tuesday delivery of USO
letters, advertisements
Slovenia: reduced parcel weight ( Italy: changed from 6 pilot in deep rural © Netherlands: “flower” rolling model and magazines; Non
to 10kg to 5 days of delivery areas adjustment to reduce for standard mail, USO mail delivery three
Croatia: changed existing services per week; removed 4B Iceland: Split into A- number of post offices now with D+5 days per week in large
scope and weight limits direct mail and B-Mail and letterboxes specification cities
J [ [ J
I [
2000 2010 2011 2012 2014 2015 2016 2017 2018
e@ e e e oe ‘©. oe. e ‘©.
[ [ I
-—
Austria: reduced parcel limit (& ©zech Rep: reduced parcel © Netherlands: reduced
to 10kg, and included and insured items weight delivery from 6 to 5
newspapers to 10kg days a week (with minor
Finland: redefined coverage & Latvia: reduced weight exceptions)
of the USO scope to 10kg for domestic parcels —_(w) Canada: will introduce
) France: added a new single ithuania: removed bulk community mailboxes to
~ piece product in D+2 to USO; and direct mail all households that still
i ( receive door-to-door
deletion of second class letter (Poland: removed bulk mail
for outbound international delivery over
5-year period?
Romai xcluded direct
ine mail; included mail
© ireland: specified minimum for the blind; new parcel
Sato Benvices quality provisions
@ uK: removed bulk mail
from USO
1 Coverage: 85% of the population. This measure is not yet implemented, 2 Delivery standard of 2-13 days depend on distance, product, and urbanization
and review
Source: Press, academic literature search, operators’ reporting
@& Australia: & Finland: discontinuation of two
introduced mail classes (2nd class ended)
a2" class as of Jan, 2017. Plan to reduce
service delivery from 5 to 3 days
with slower in urban regions"; mail
delivery times delivered to flat houses can
for existing be left in boxes by the entrance
USO service; ( Italy: from 6 to 5 days, gradual
existing delivery implementation of <5 delivery
times moved days in alternate-delivery-day
premium system; staged implementation
service
plan, eventual impact on 25%
of population?
5 Norway: discontinuation of
mail delivery on Saturdays
4B Iceland: delivery in most rural
areas every other day
. 3 Halted after government change
= Norway: discontinuation of two
mail classes with two day
delivery
4B sweden: reduction in delivery
quality to D+2
& Finland: delivery speed
requirement from D+2 to D+4
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Though, regulatory pressures on network coverage have been increasing in some
markets
Portugal
Anacom reviewing minimum required coverage
on each municipality, likely to result in increased
(branch-like) coverage in 33 locations for CTT
@ A x
SOURCE: Anacom
oy
Netherlands —_
The State allowed several USO modifications,
including halving number of post offices and
letter boxes
[—) BE, 1,000 a 8,700
offices i ¢-4 postboxes
1,000 down =} 9,300 down from
from 2,000 18,000
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Regulatory debate will stay key lever on the long-run
Themes to address in regulatory
management Peer examples
Fon Optimization within the current ZH. Stable network size, but
oS requirement bpost outsourcing of operation
Regulatory ——_— Reisen
negotiation
stays key for fit Renegotiation of constraint to . .
postal services Gril decrease service cost Network size adaption
entrusted with
USO, branch «—-
requirement
= Negotiation of the financing or Tax exemption for territorial
Fea alternative delivery of the = presence and joint post-
— public service fA POSTE townhall operation of branches
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Regulatory requirement on network size and proximity is a key lever
Minimum branch number Distance criteria
SP Miwatt paraanea I yin any municipality with if Customers in any municipality with more than 4,000 residents or in adjoining built-up areas shalll in general be able to reach a permanent facility within no more
more than 2,000 residents than 2,000 m. Additionally, in every district 1 permanent facility shall be located per 80 km: All other locations must be served by mobile postal service units
A Atleast 1 facility in each municipality’
Service points shall be placed so that users have access to a service point within a reasonable distance
‘At least 95% of the national population should have access to a complete assortment of postal services within a 5 km reach from where they live.
The distribution of service points, with a complete assortment outside residential areas of more than 5,000 inhabitants, shall provide access to at least 85% of
the non-urban population within a 5 km radius
Under the regulatory conditions, Royal Mail must ensure facilities are provided such that the premises of not less than 95% of users or potential users are within
5 km of an access point capable of receiving the largest relevant postal packets and registered mail, and that the premises of not less than 95% of users in each
postcode area are within 10 km of such access points
At least 90% of the population must be able to reach this network within 20 minutes on foot or by public transport (30 minutes if a doorstep collection service
exists). In addition, at least one post office in every For financial services included in the USO, at least 90% of the population must have access to the services
within 30 minutes by foot or by public transport on average
Postal Law requires one facility by municipality
The Sixth Management Contract provides that
\_ bpost must maintain a retail network SGE! of at x
least 1,300 postal service points, including post
offices and third-party-run postal shops
x Services must be accessible to everyone and be provided at a reasonable distance from one’s home or workplace. The density ofthe access points must take
into account the needs of users
At least 99% of the national population and at least 95% of the population in each department must be less than 10 km from a post office branch. All
municipalities with over 10,000 inhabitants must have at least 1 post office branch per 20,000 inhabitants. Additional post office network requirements (following
( 1) x A the requirements of La Poste’s public service mission of regional planning) do not permit more than 10% of a department's population to be further than 5 km or
more than 20 minutes by car under normal driving conditions for the area concerned from the closest La Poste point of contact. The 2010 postal act requires
that the postal network consists of at least 17,000 contact points
Density criteria newly introduced. Austrian Post must ensure that all municipalities with over 10,000 inhabitants as well as 90% of the people living in the urban
areas of all provincial capitals must have access to a postal service point within a radius of two kilometers. In all other regions, the prescribed maximum distanoe
aa ih The Postal Market Act prescribes a minimum of es
to.a postal service point is ten kilometers
— 1,650 postal service points.
1 Service points shall be placed so that users of a universal service have access to a service point within a reasonable distance of their permanent residence. It is also possible to operate a
service point that is not at a fixed location
SOURCE: Regulators, Opretators' reporting, Press 62
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In light of sector trends, postal players have been optimizing their retail network —
example of North American postal player
Key actions »)) EBIT impact, $mn
; , ' Current -100
= Review of product portfolio !
= Simplifications of retail products and processes New rural
= Full clean sheet redesign of branch formats, pricing ' corporate offices a
and third-party contracts '
— Urban office conversion/closure (~400) ' Outsourcing of rural 60
— Rural office conversion to co-located (~900) ' corporate offices
= Optimized retail footprint exploiting new-gained ' Outsourcing of urban
flexibility in USO regulation t offices ay)
' Improved contract terms 20
Incremental delivery costs 40
' due to less density
Future retail vision 35
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Throughout Europe postal companies receive (in)direct subsidies for sustaining the
USO
National subisidies postal companies in Europe, NOT EXHAUSTIVE 2015 I) 2016 M2017 MI 2018
EUR mn Description
Indirect subsidy through favorable pension arrangements; replacement of standard pension system for
system where government pays part of pensions
Subsidies for providing services of general economic interest (SGEl), compensation based on net cost of
providing these serivces (e.g. Network density, press distribution, basic banking access)
General subsidy for providing USO
General subsidy for providing USO
300
289 SGEI subsidy for transport and distribution of press and to guarantee network for delivery of financial
products (latter given in the form of tax excepmtion)
General subsidy for providing USO, compensation based on reimbursement for loss-making services that are
required by the USO
3 Based on exchange rate of 0,10 EUR per NOK
1 Excluding compensation for providing banking services, 2 Based on exchange rate of 1,13 EUR per GBP; network subsidy payment to Post Office Limited 7
Source: Annual reports postal companies, national supervisors @ 64
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Contents
Where We Make Money
Organisational Health Survey Results
Learnings from other post
= Review of postal context
= Learnings
Big Bets
Overall process update
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Executive summary — learnings from postal players
There are three pillars of learnings from other post players:
1. Winning in competitive growth areas requires adapting the retail network structure to better serve consumers
(e.g., DHL’s dense parcelshop network provides convenience to its e-commerce receivers)
— Multi-tiered networks allow for improved economics without compromising on sales and convenience
2. Growing the top-line through non-core, third-party products usually fails to create sizeable revenue
streams. Most sizable growth areas are parcels and financial services. Sales performance programmes as
well as targeted incentives can be effective growth levers
3. Remaining competitive with a lean cost base requires consolidating footprint and different approaches to
ownership (e.g., franchise, dealers)
— Automation in selected areas, both in customer-facing activities and in in-store operations, is a key
lever to improve customer experience in a cost-effective manner, culminating in the “unmanned branch”
(Singapore, Finland)
— Strong partnerships with retailers (e.g. in Canada) have been successful, based on standardised
master franchise arrangements and clear understanding of economic benefits of having a post office (e.g.
15% sales uplift for retail)
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We have reviewed over 40 posts globally to identify learnings for postal retail networks
= Goa) Dastherot OH Posteitaliane SP
— poration Se 7 Post.at I -pom I = posten ‘swiss post"
¢. 7
e =S
itellae + Sconncos = EATA >
en LA POSTE Helen Pow
NoywiTA ‘-
Americas Europe
Asia/Pacific
Africa/Middle-East
o<w ae
CHINA POST
Ons 7S
New Zealand Post aoe
KOREA POST @- EXPRESS Ga
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Three main groups of questions to be addressed
SAC
~ e—_——_—
Retail network strategy Product & sales Operations & economics
How can stores help win in What further products What ownership model
growth segments such as should be commercialized work to control costs while
e-commerce and FS? and how? delivering excellence?
What is the right branch I @ How sales in branches can I @ Whatis the ideal store
segmentation to ensure i become more efficient? I coverage and operational
appropriate and efficient I model?
service?
@.
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1) DHL is building a dense parcelshop network to provide convenience to its
e-commerce receivers
Deutsche Post Q
" Offers proximity access to parcel sending for individual
customers
" At target state, DHL aims to have 20,000 parcelshops
(today ~11,000 parcelshops, 13,000 retail outlets and
3,700 parcel lockers)
= Low and variable cost operations
" Basic product offering - parcel receipt, send and returns,
domestic stamps
= Only needs basic equipment (a handheld scanner, label
printer) and inventory is minimal
SOURCE: DP DHL; Press ) 69
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OU iy
Change Alley Post Office Ocean Financial Center
SOURCE: SingPost 70
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4) Canada Post tests a concept store to meet online shoppers’ needs
= Drive-thru parcel pickup
* All-in-one self-serve shipping station
= A fitting room where customers can try on the outfit they bought online and if needed, return it
immediately
= Self-serve vending kiosk
= Extended hours: self-serve 24/7, opening 9-9 on weekdays, 9-5 weekends
SOURCE: Canada Post (22) 71
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1) Poste Italiane has established a leading FS business through BancoPosta
BancoPosta starting position
= Large incumbent utility with 8m
customer, 150k employees and €0.5tn
in assets
= BancoPosta can offer a full suite of
products without a banking license
— BancoPosta cannot lend to the
public directly, but can be an
intermediary
= BancoPosta is, however, required to
maintain ring fenced capital
SOURCE: Poste Italiane
ee
Key developments
Since 2001, BancoPosta has innovated and
grown its product range in a steady and
managed way
— They moved from current accounts and
payments, to prepaid cards, and on to mobile
payments
— Other products include lending, mutual
funds, insurance
BancoPosta has managed this growth through
numerous partnerships
Banking clients receive several advantages
— Priority postal branch services; Discounts on
postal and other products; Easier online
money transfers
BancoPosta
= In 10 years, BancoPosta more than
doubled the market share in terms of
number current accounts
= Moving to expand wealth
management and increase
distribution of loans, mortgages and
P&C insurance
— Strongly positive market
reception to renewed 5-year
strategic vision: double digit share
price increase
= The postal networks allows for nearly
3x the number of branches versus
the next largest bank
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1) Poste Italiane created a competitive advantage in financial services with its large
branch network
Coverage of Italian population, Branches / 100k
inhabitant
Italy or
"
23
North Italy eo
20
Center Italy =o
20
South Italy 5
PI
Poste 1st Italian
Italiane Bank
SOURCE: Poste Italiane investor presentation
»
Italy’s leading customer distribution network
Posteitaliane
Payments, mobile &
AAW
ON
w=)
Mail & parcel digital Financial & insurance
* Unrivalled physical i = Italian payments = Market leading
distribution network I champion product distribution
= Advanced customer
data capabilities
= Leading financial
web and app
platforms
network
Poste has nearly 50% of population as a customer, 18% share in savings
accounts, 8% in consumer loans and outperforms peers on ROE (~23%)
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4) Poste italiane : The FS play
2017
Main business Payments, mobile Posteitaliane
units Mail and parcel Financial services and digital Insurance
eo £36 5.4 <p 24.4)
Ke
financials ie C -0.5 t +0.6 ] C +0.2 ) C +0.8 )
= ~110m = ~34m customers = ~25% = ~22% market
parcels/year = ~13k post offices e-commerce share on life
= ~30% B2C = 15m daily visits payments GWwpP
market store = ~25m cards
Commercial issued
figures = ~104bn1 pay-
ments
transactions
= 3m Telco
customers
1 Total financial assets .
74
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LA POSTE
4) La Poste is expanding financial product portfolio and adjusts the branch
environment
= La Poste Bank and BPE collaborate to offer private banking services
is : targeting the postal bank’s 600,000 affluent clients
= Early 2019, BPE has 75 offices, BPE-spaces in 45 post offices
complement its own branches deploying private banking spaces in
some of its post offices
SOURCE: La Poste; Press ) 75
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4) Portugal’s CTT has moved up the FS value chain from distribution to creating
and broadening the product offering
Where CTT started
pe ctt
= In 2015, Banco CTT was created as legal
entity with banking license provided by Bank
of Portugal
= Prior to this, CTT offered very limited
financial services
= CTT had a very strong existing mass market
postal customer base
= The initial approach was for a low risk
balance sheet strategy
Dedicated counter space
) Key developments
The bank focuses on the mass market,
offering simple, transactional products
— Principles of fairness, transparency,
low cost
Lending began as an intermediary, in
partnership with Cetelem
— It is gradually increasing its
exposure to credit risk and
broadening the product range
The initial 51 branches have expanded to
~200, built off CTT’s postal network
— Branches have either multifunction
counters (with postal), dedicated
counters, or dedicated space
Digital focused
»») Outcome
= Strong customer growth, and move to breakeven (2015
v 3Q16):
Net loans 3.0
= Aggressive branch growth I Dedicated space
I Dedicated counter
© Multifunctional counters
202
2016
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1) Within FS we see different strategies for posts
Traditional approach
@ Last Mile Utility
for all F2F needs
© Classic Postal Bank
model with
Distribution only
Radical moves
Description
Potential
operating
model
Example
players
Offer branch services
for existing banks
Expand into KYC/ ID
verification for credit
checks etc
Fee-based partnership
with banks
& Money
= Expand current offering
(e.g., credit cards,
loans)
= Negotiate
best possible distributor
terms
* JV with traditional
banking to act
as intermediary
@ Digital Customer @ Become @ Ecosystem covering
Interface provider Ethical Bank FS (Fintech) + non-FS
= Act as aggregator of all = Build a fair ethical bank = Become key gateway
financial relationships based that spans FS
(PSD2 play) on brand trust and related sectors
* Offer 3 party and own = Fair and transparent = Partner with Fintech
products themed "Build ecosystem
Multiple models possible depending on product choice — opportunity
to take origination revenues either directly as a bank or in JVs
Building Society
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(2) Retail networks have to be adapted to maximize customer convenience
European post and parcel player example Key considerations
Agent based parcel
Full-range post offices shops
* Maximizing convenience through
longer opening hours and
additional (community) services
8 + 6 8 O * Improving accessibility for
= 6 Oo pickup and returns through more
access points
+450 * Creating lock-in effect with e-
0) commerce customers through
~ 5 O % Smart parcel lockers in parcel lockers
partnership models
Traditional owned post
offices + Providing attractive agent
incentives in a post-mail
environment
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(2) Successful postal peers transformed their branches in multi- tiered networks to
allow sales, convenience and lower cost
@ Sales focus
Large offices with a wide range of services
Primary goal is to provide the highest quality service and ensure a positive
brand perception
@ Service focus
Mid-sized offices with an optimal set of services
Primary goal is to provide fast, efficient and high-quality of large volumes of
transactions
© Local Access
Small offices with a narrow range of core services
Primary goal is meet the accessibility criteria/social needs or provide a response
to the competition
@ Direct Channels
Aset of alternative channels provides more options to the customer and increases the
quality of customer service — mainly websites, mobile applications, call centers
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(2) For example, La Poste has 3 outlet formats, to which DPD adds parcel =
shop and locker network
Own operated office
3rd-party municipality outlet
3rd-party retail outlet
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LA POSTE
DPD Pickup Station (parcel
DPD Pickup (parcel shop) locker)
= ~8,700 outlets
= 1-2, 3-5, 7-8 counters,
banking dedicated office or
counter in medium and large
offices
= Private customers, SME and
corporate
= Service offers
— Full range postal
— Full range financial
services
— Full range of mobile and
digital services
— Third party services
1 Or SMEs behaving like private customers
SOURCE: La Poste; Press
~6,500 outlets
1-2, 3-5 counter, banking
dedicated counter in medium
ones
Municipality branches are
operated partnership with a
town hall or group of
municipalities
Private customers1
Service offers
Large scale of post,
parcel services
Most commonly used FS
= ~2,000 outlets
= 1(-2) counter at retailer
= Framework agreements with
a few large retailers
(Franprix, Total, Carrefour)
but also individual retail
contracts
= Private customers1
= Service offers
— Most commonly used
post, parcel and basic
financial service
= ~7,800 in France ' = ~350 (250 in stations, 150 in
(31,200 in Europe) ' post offices)
= 1 counter I * Private customers
= Equipment: handheld I" Service offers
scanner, label printer, scale ' — Parcel receipt on choice
= Private customers, SME ' of customer to order in
= Service offers ' locker
— Parcel sending, return '
and receiving (direct ‘
order to shop or failed '
home delivery) '
— Product exchange, }
sending and receipt of '
equipment for repair H
(e.g., set-top box) '
— Parcel shop to parcel '
shop sending France '
and international within '
DPD European network
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Three main groups of questions to be addressed
sR
rain
CS
Retail network strategy Product & sales Operations & economics
How can stores help win in What further products What ownership model
growth segments such as should be commercialized work to control costs while
e-commerce and FS? and how? delivering excellence?
What is the right branch How sales in branches can = @ Whats the ideal store
segmentation to ensure i become more efficient? I coverage and operational
appropriate and efficient I model?
service?
@.
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(3) Postal players have attempted to sell various non-core, third-party products in
offices
Description
Mobile phones, prepaid cards and subscriptions
Fixed line and internet subscriptions
Stationery
Personal computers and other electronic items
Various items (e.g. consumer electronics) via mail order
Books/CDs/DVDs
Gift vouchers
Public transport tickets/subscription
Event tickets
Flight ticket booking & payment (Jetstar airlines)
Cinema ticket booking & payment
Toys and games
ID photo service
Copy and fax services
Drop off and pickup point for computer repair services
Travel services, e.g., rental car, airline and hotel booking
SOURCE: Press; Operators; Interviews
Example operator
Various operators
UK Post Office
Commonly offered
Swiss Post in the past, Austrian Post
Poste Italiane
Commonly offered
UK
Czech Post
China Post for Expo
SingPost
SingPost
Australia Post
Australia Post
Austrian Post
SingPost
UK Post Office °
@..
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[3] What are the services you see being the most important to success over the next 5
years?
90%
Mails Parcels Digital and/or © eCommerce Reverse Loyalty Financial
Hybrid mail logistics services
NOTE: Multiple answers were allowed @
SOURCE: Escher 83
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© EU peers offer varied level of government services and often decoupled INorextiaustive
from branch network Service provided outside post office
ID verification, authentic Official document
Country Payment services cation, enrolment E-government services applications and renewals' Other government services
2 * Reimbursement requests * Notarial or judiciary certificates. * n/a * Driving license renewal * Scheduling appointments at the
ft. conceming health expenses _* Real estate, civil or = Residence permit renewal hospital or healthcare center
ctt * Utility payments commercial certificates * Registering foreign
Citizen * Toll road payments requests workers’ contracts
Registering intellectual property
Bureau Areas?
* Vehicle tax * PostelD application . = Passport services .
* Social welfare payments * Health card application
* State pension payments = Application for cards of welfare
* Payment services for benefits
EEE unbanked citizens = 5700 offices operate citizen help .
desk, which allows multiple services,
eg. land registry, residence permit
. personal certificates applications
* Cash transactions for "nla . * Fishing permit .
eH unbanked citizens .
bpost .
1 Typically, not all services offered in all States/Counties/Regions and all Pos, 2 In 300 POs .
SOURCE: Operators’ websites and reporting; Press 84
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(3) “Lessons learned” from other postal services companies yield several insights for
POL direction
@ Every post has made attempts to grow outside the core in “adjacent” markets. The vast majority of these
efforts has failed to create either sizeable revenue streams (more than £20m per annum) or profits. E.g.,
mailroom management, ID validation, secure email, digital letterbox, document archiving, warehousing, postie
add on services (meter reading) etc
@ The successes have been primarily from legacy assets, in particular growth of financial services and
mobile (e.g., Poste Italiane), as well as parcel markets
© Other posts have, in general, failed to incubate new businesses organically. There have been some
successes in making acquisitions, especially in two areas:
= Rollup of other express or parcel operators (DHL Express in Europe, UPS and Fedex globally)
= Acquisition of businesses which have subsequently been run at arm’s length in order to preserve different
culture and people processes e.g. Deutsche Post acquisition of digital marketing boutiques Nugg and Admail
SOURCE: Press; Operators; Interviews ) 85
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Visual sales performance
Branch manager's CRM tool
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(4) Sales scripts, tools can boost in-branch sales
Best practices from retail and banking environment Counter clerk trigger-selling chart example
= Standard and well-known to staff scripts for basic ' soeronne me vnanee Same’ _Payuents
products is use ' Mort: Personal Credit I travel I Home Motor /MstattI Bonds I Tem, Current
* Aheatmap of potential cross and up-sell situation ' 3 Sooner = ne “Are you ierested
identified and staffed trained on transitions if recognizing ' & I Paneer net, srt esau?
any of the triggers I 5 I dareny — tance [ie or evant
' I forum ee
" Staff is coached on translating products knowledge toa I FI = Po elon . I
language understandable by any customer ' = we
= Adequate training and coaching e.g., via role plays 2 P
oroviding experience on how to S abaith different. ' Simple visual and IT tools help track process and progress
customers '
= Regular monitoring, feedback and performance 1 .
dialogues are provided to staff ' —,
SOURCE: POL; Postbank; Hitachi Dynamics CRM
management board
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4) Branch-specific incentive practices can lift sales
Best practices at retail banks
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RETAIL BANKING EXAMPLE
Examples at postal operators
= Pay out incentives frequently and more often to create
right frontline motivation
= Create gradual incentives to drive growth — don’t create
strong step function
= Ensure employees clearly understand how their
incentives tie to overall goals of the institution
" Prioritize strategic objectives (e.g., tiered quotas)
= Drive collaboration amongst sales teams (e.g., group
bonus)
= Use leverage in financial incentives to drive appropriate
employee behavior
= Provide attractive non-cash incentives to conveys
importance and special appreciation
= Build loyalty to the company through unique and culture-
specific awards
EU postal
incumbent
Incentivizes to postal clerks by providing possibility to become
financial advisor in case of stellar performance
Recruits and manages postal banking staff as in banks:
employees specialize in products, they are in charge of a client
portfolio, there is separation of staff for retail and corporate
banking staff, incentivized for sales
Luxembourgish Post provides incentive-pay for both financial
services and telecommunication sales staff
Team incentive for most successful office in sales of third-party
product
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Three main groups of questions to be addressed
SR
Li
Retail network strategy Product & sales Operations & economics
How can stores help win in What further products What ownership model
growth segments such as should be commercialized work to control costs while
e-commerce and FS? and how? delivering excellence?
What is the right branch © @ How sales in branches can I @ Whatis the ideal store
segmentation to ensure i become more efficient? I coverage and operational
appropriate and efficient I model?
service? ; I
@..
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6 Typically only 1/3 of own-operated branches are profitable...
Profit (loss) per branch’
€ thousand
Small group of relatively profitable outlets — typically
very busy commercial agency outlets
I
200
~60%-75%
0
~25%-40%
(200) 4 Large number of “marginal branches”
(400) +
Long tail of highly loss-
making branches —
(600) 4 typically rural areas
(800) -
1 Net profit per branch includes income less direct and attributable costs of network provision @
SOURCE: Typical experience across multiple European postal counters networks 89
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6 ... which leads to a strong trend of outsourcing offices
Outsourced Ml Own
Postal retail network size and ownership
Percent
2005
100%= 133 13.881 10,081 2,531 37,142 17,000 1.947 12.671 4.511 2.234 2.100 14.376
0 0 0 = 6 _11 18
31
88 81 81
88 97
100 100 94 oe
45
me 12 <3
2017
100%= 124 12.822 8,669 2157 35,005 17,100 1.802 13.167 4.356 1.851 1.670 11.547
0 0 0 = 10
45 51
75
100 100 100 gs 87 100 98
55 49
Zo Le Hd o 42
Hong Kong Italy Spain Switzerland US France Austria Germany Australia Sweden Netherlands UK
1 PostNL owns offices, but provide services only to corporate clients and were excluded for benchmark purposes ©
SOURCE: Company websites and annual reports; Regulator reports; Press 90
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6 Achieving best strategy typically requires relocating many postal branches and
innovative approach to partnerships
Where different partners could support the network
MAJOR DEPARTMENT LARGE RETAIL PARKS MAJOR SHOPPING GREENFIELD
SUPERMARKET STORES STATIONERS CENTERS BUSINESS PARK
focus x aa rs ¥
INDEPENDENT MOTORWAY
BOOKSHOPS PETROL STATIONS: TRAIN STATIONS FORECOURTS WAY STOPS GYM
Service %
focus
= se
—-
sine?
Local
access
=z
f
A
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6 Example - Canada Post has transitioned from a fully Direct to more of a Master
Franchise model over time
Overview of Canada Post
Overview of transition to Master Franchise model
= Canada Post i Directly managed {" Franchised
operates 6,200
branches
= 98% of Canadians
live within 15km
of a Canada Post
branch
~6,200
Before franchise model
= Canada Post (pre-1987)
delivers mails and
parcels to around
~16M addresses
per year Directly-managed v
= Canada Post branch = Canada Post managed
generates ~$8.2B 100% stores directly
annual revenue
= Canada Post sought
franchise model to:
— Improve customer
access
— Reduce costs
— Leverage the retail
know-how of the
private sector
Franchised branch
(store-in-store format)
Total number
of branches
SOURCE: Canada Post
Early years of
franchise model
Current state
Franchisees were granted
exclusive territory rights
Canada Post opened a
franchised store for .
every directly managed
store it closed
Post offices were
standalone branches,
rather than store-in-stores
Removal of territory
rights
Consistent split of
franchised and directly
managed branches over
time (~40% franchised,
60% directly managed)
The organisation has
moved from owned stores
to a ‘store-in-store’
format, particularly in
urban areas
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6 Example - Canada Post’s Master Franchise model enables a lean
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organisation structure with standardised, fixed-period contract terms
Overview of Canada Post franchising model
Relationship with Shoppers Drug Mart
= Sub-franchisee owns and operates a Post Office within an existing
retail store, e.g., a drugstore
= No exclusive territory rights
= Blended margin of ~20% for Master Franchisees and additional
economic benefits driven by increased customer footfall generated
by Post Office products (~15% sales uplift)
= Contract term of 5 years with option for a further 5-year renewal
= Minimum of 76 opening hours per week and 7 days per week
= No management of store operations, performance management of
stores conducted on a quarterly basis
= Explicit preference for household brand names as partners, as
quality is perceived to be better
Example partnerships
Ulobens ED “Lbeyr FaI
SHOPPERS
DRUG MART
SOURCE: Canada Post
Overview
Q
Insights
for POL
Shoppers Drug Mart, a franchised organisation itself,
owns ~50% of Canada Post franchised branches
Canada Post agrees a framework with Shoppers Drug
Mart but actual contract is signed on a store-by-store
basis — very specific formal contract with standard
terms and pricing
The Master Franchisee is responsible for paying most of
the setup cost, i.e., standard fit-out, staging and
equipment
The relationship between Canada Post and Shoppers
Drug Mart is renewed every 5 years
Although Master Franchise models create a leaner agent
servicing structure, larger contract management teams
are required to ensure consistency among franchisees
Fixed period contracts allow the franchised
organisation to update arrangement terms if desired,
making it easier to change franchise strategy
SHOPPERS
DRUG MART
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6 Increasing automation plays an important role in transforming network economics
and driving future customer satisfaction
Counter automation mentioned as #1 factor in branch Younger generations use significantly more automated delivery
productivity method
Escher postal survey responses! Doddle survey
MiHome Mi Lockers Ml Workplace I) Store pick-up — Friend/family
3
°
°
e
e ©
° e
° «
° °
e °
rs 6
° °
° °
e e
Millennials GEN X Baby Boomers Seniors
1 Survey conducted between July and September 2018. Online survey of Postal leaders worldwide, with 76 total responses from 32 countries @
SOURCE: Escher — Future of the post, 2019 report, Doddle - UK presentation on World Mail and Express Europe conference, June 2019 94
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6 Example - Singapore Post introduced self-service postal machines as early as 1997
and also built up the world’s densest parcel locker network
Self-service They allow easy SAM specially started I SingPost retail Network
Automated Machines access to services to be popular in the i # of access locations
(SAM) were without queuing and early 2000s with '
introduced in 1997 by also outside of office introduction 24/7 ' HsAM © 3rd party operated post office
SingPost opening hours and machines ' ;
often 24/7 ' I Popstations — Own operated post office
'
In 2010, two thirds of Wide range of i
the counter network is products and services ’ 521 513 519
composed of SAMs. include: bill payments, '
In 2016, only 3 post government services, 1
offices were not top ups and gaming it
- ;, ;
equiped with a SAM etc. ! 400
Se ' 338 298 300 300
SingPost introduced Network is composed Machines allow parcel i
Popstations of 139 machines sending, receiving Hl 269
(automated parcel today, with expansion and returning and H
terminals) in 2013 for plan of doubling the customers can also ' 304
convenient parcel network on mid-term rent a box for peer to '
receipt and return peer e-commerce H
sending !
1 139
I 163
Both services are In 2015, 29 Pos have : 0
especially been renovated all ' oT
appreciated by allowing digital 1
younger generation access, 24/7 letter, bill ' 63 62 62 87 56
due to convenience payment and parcel Hy
services ' 2003 2005 2010 2016 2017 2018
Source: Singapore Post; Press @ 95
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6 Example — Posti starts roll-out of unmanned post offices
= Posti has completed its second unmanned
postal kiosk, located outside Posti’s
headquarters in Helsinki.
= The kiosk features parcel lockers for
collection of parcels and lodging e-
commerce returns. Customers can also
send domestic and international parcels.
= Customers can contact Posti customer
service personnel via a video link for help
and advice.
SOURCE: Posti, Press ) 96
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6 Parcel lockers gain in popularity and some operators make aggressive bet towards
this delivery mode
Overall trend towards expansion
of locker networks continues ...
# of terminals of IPC members, ... with pronounced strategy towards lockers at a few operators
indexed Examples
160 ; .
q Pare ~3700 Lockers introduced as early as 2001
terminals Multiple generations of technology tested
atts Over 10% of population are registered regular users
100 ' Germany
posti ~1,600
terminals in
2018
2013 2017 1
SOURCE: IPC Global Postal Industry report, 2018, Operators’ website and reporting
Plans to roll out 7,000 by 2021
40% of the Finns are covered by a seven day parcel
distribution via lockers
Target of 1500 terminals by end 2019, most dense EU
network at target state
POL-BSFF-106-0000002_0095
Contents
Where We Make Money
Organisational Health Survey Results
Learnings from other post
Big Bets
= Approach to building a portfolio of Big Bets
= Latest list of Big Bets considered and discarded
Overall process update
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REMINDER: Big Bets will help shape the future of the Post Office
= Research found that a significant and flexible reallocation of
resources to support “big bets” is one of the most important
drivers of revenue growth and profitability improvement
= “Big bets’ are initiatives that require significant resources and —
investment (£10m+ of total CAPEX and exceptional spend over the
entire duration of the project) and will materially impact the strategy 1 STRATEGY
and/or operating model of the Post Office ee
wockeY ST!
= We developed a methodology by which we propose to assess and LT
choose a portfolio of “big bets” using 3 dimensions: financial eth
returns, ease of value capture and fit with the purpose of the Post i
Office g
= Since the previous Board meeting, we have:
— Further developed our long list of potential Big Bets
— Assessed the Big Bets against the 3 said dimensions
— Started ruling out some Big Bets on the basis of poor
financials or low feasibility @
100
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We are currently in the 3 and final stage of our approach to building a Big Bet portfolio
Ideation Evaluation 7
@ Finish w/c/ 4 Nov @ Finish w/c 25 Nov (3) Selection
= Generate Big Betideas = Build fact base to level needed to = Continue to pressure test / refine
decide on Big Bets: big-bets, maturing financial
= Structure into 4 A ‘ estimates and feasibility assessment
categories — Financial estimates (benefits,
9 investment, terminal value when *= Cut weakest individual projects by
* Refine Big Bet insightful) financial / feasibility rankings
definitions — Feasibility assessment * Select a portfolio from the
Activities an individual Big Bets based on:
= Assign primary source — Fit with PO Purpose affordability, timing, risk profile,
of content for evaluation = Cut Big Bets weak on financials, interdependencies, PO capacity and
feasibility or fit with purpose capability for change
= Make decisions aggressively on = Step-back and test: can we make
weak big-bets to focus on better these bolder, more ambitious?
candidates
= Agreed long list of Big " List of excluded Big Bets = Sequence of Big Bets that will
Bets shape the Post Office for next 5
Outputs * List of shortlisted Big Bets with years
summary 1-pager P
S&S 101
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® Big Bet selection is first done at a project level, then at a portfolio level
(a) Project-level assessment Portfolio-level assessment
Evaluate Big Bets under 3 dimensions:
Investment required and contribution
Level of granularity: as much as relevant
ills} eel for selection
financials
" Informed by external market view when
relevant
* How likely is POL to succeed in
implementing and capturing the value
Feasibility
= Informed by external market view when
relevant
Fit with = Will it increase convenience, access for
POL’s all, ability to help our end customers
purpose with everyday tasks, etc.?
= Bring all remaining potential Big Bets in a single list
= Refine high-level financial as relevant
= Construct Big Bet portfolio options taking into
account:
— Affordability of investment cash flows required
— Timing and Risk profile of overall portfolio:
® Does the portfolio offer a healthy balance
between higher-certainty and higher-
risk/potential payoff Big Bets, and between
shorter- and longer-term payoffs?
2 What is the potential correlation between risk
profiles of the higher-risk Big Bets?
® PO capabilities and capacity for change
— Potential interdependencies between projects
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Big Bet are submitted to a “decision tree” that underlines a rigorous selection process
Big Bets
considered
Completely
discard Big Bet
Move to
B2 small Bet” list
a I
© U)
= Preliminary Big Bet case is weak
Any further effort on it should be stopped
Big Bet case is strong, but total investment
<£10m, therefore moved to “Small Bet” list to be
owned by relevant function lead
Preliminary case is not sufficiently
developed at this stage to make a decision
Clear next steps and owners to be identified
and Big Bet to be discussed again
Preliminary case for Big Bet is strong
Case to be further developed in next couple
of weeks in preparation for “Final Round”
Big Bet is a “must do” that can be approved
without any further discussion .
S&S 103
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The result is an iterative process that gets us progressively closer to the recommended
Big Bet portfolio
Decision-
making
activities
# of
potential
Big Bets
(1) Ideation
(2) Evaluation
Project-level (38)
selection
Portfolio-level
selection
——_>
>
—
Sal
>
oe
Sal
>
—_
>
>
—
—_
—
—
No decision at this
stage
~40
Rule out those Big Bets
whose high-level
financials, feasibility or
purpose fit are clearly
weak
~25
Through an iterative
process, reduce the
list to a manageable
size by ruling out
those Big Bets that
have the weakest
financials and
feasibility
~15-20
Select Big Bet portfolio
options based on:
Affordability
Timing
Risk profile
Interdependencies
PO capacity and
capability for change
~10-15
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Contents
Where We Make Money
Organisational Health Survey Results
Learnings from other post
Big Bets
= Approach to building a portfolio of Big Bets
= Latest list of Big Bets considered and discarded
Overall process update
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4 Big Bet categories
Examples of Potential Big Bets
none ' = Sell Telco business
Optimise the product portfolio and grow revenues from the « Digitise parcel journey
Tet * Replace Bol ATMs with POL ATMs
= Redefine the network
= Improve customer experience through
branch automation
Transform the network and its operations to ensure its
sustainability
= Modernise Horizon
= Build digital and analytics capabilities to
support other Big Bets
Build technology and digital capabilities to support the
business
= Right-size the central functions
Right-size the central functions
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Big Bets: Optimise the product portfolio & grow revenues from the existing product cat.
Big bets Example of initiatives
Mails and Digitise the parcel journey = Implement an online parcels business connected to the branch journeys
parcels Extend the PUDO network = Increase the PUDO points through Payzone and Parcelshop
Bill Pa EXpanditherBillipavinetwort = Expand the bill payment network through contract wins and whole estate convenience
id D y retailers deals
Telco: divest or keep * Divest Telco, or keep Telco & reduce cost base through RFP and potential supplier change
Replace BOI ATMs with POL ATMs = Invest in infrastructure to replace current Bol ATMs by POL ATMs
Banking Growbankinniiramerordstsliess = Invest in marketing campaign to increase awareness
Optimise ol = Take a partnership lead approach to develop new services for banks
the product J identity I Grow Identity business = Invest to develop Identify service and seek partnership with a bank
rtfoli
ne aoa Build an FX transactional = Expand current FX offering to capitalise on market growth within travel Credit/Debit card
revenues proposition market
from the
existing t
product Hl T
_ I R R E L EVA N
Cross-
product t — a — a ae —
Marketing / Branding investment = Invest in developing a Post Office campaign to reinvigorate its brand
IRRELEVANT
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Big Bets: Transform the network and its operations to ensure its sustainability
Big bets Example of initiatives
= Continue DMB closure program at accelerated pace
= Continue Mains to Locals program
= Continue New Network Locations program
Redefine the
network based on
customer needs
In-branch cash = Invest in cash automation through TCRs and automated
automation deposit machines
In-branch mails Invest in automating in-branch mails customer journey
automation through deploying SSKs
Modernise agent support (e.g., Branch Hub)
Digitise agent journeys (e.g., training)
Optimise the channel mix and ROI for the agent package
taking into account pay, alarms & security, building spend,
cash, field teams...
Change Horizon and processes to simplify customer journeys
in branches, reducing errors & queues
Transform the
network and its
operations to
ensure its Improve agents’
sustainability experience
Optimise supply chain efficiency, ownership and systems
Outsource cash supply chain
Apply advanced analytics to optimise supply chain logistics
Improve supply
chain efficiency
Develop agents’ “Super-size” hot housing
capabilities = Build sales competencies of postmasters
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Big Bets: Build technology and digital capabilities to support the business
Big bets Example of initiatives
= Invest to move the Horizon technology onto modern architecture and without
Modernise any supplier lock-in
Horizon = Review the business needs that drive complexity into what the future Horizon
must do
Enable
management = Build a MI strategy that enables data-led decision making
Build technology information
and digital across POL
capabilities to
support the Build
business customer data = Build a customer loyalty program underpinned by data & analytics capabilities
and loyalty
approach
Platform = Build a POL own platform that allows owning customer data across POL online
capability businesses
building
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Big Bets: Right-size the central functions
Big bets Example of initiatives
= Zero-base lowest run cost for staff costs and non-staff costs that will support the business
= Leverage tools such as digitisation, automation and spans & layers to transform and right size
the central functions for:
-SLP-grade managers
-Supply chain
-(not DMBs)
Right-size the
central
functions
Right-size the
central functions
Undertake = Undertake review of employees Ts&Cs to close the gap with market average metrics
review of
Ts&Cs
challenges
such as MTSF
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Discarded Big Bets
Big bets Example of initiatives
= We should not divest insurance because it is an important profit contributor (13% of total
IRRELEVANT
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Contents
Where We Make Money
Organisational Health Survey Results
Learnings from other post
Big Bets
Overall process update
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PSG: Overall Project Plan
Workstreams
Strategy and
Growth g
Technology
Board
meetings
PHASE I: Baseline and Theme
Phase II: Strategy Development
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Phase III: Syndication and Iteration
4 weeks (30 Sep to 25 Oct)
Provide a fact base to assess POL's
markets and customers
Start assessing the “strategic balance
sheet” of POL
Brainstorm alternative Purposes
Identify emerging themes that would
inform the future strategic “Big Bets”
Design a Customer Insight survey
Launch the Organisational Health
Index (OHI) survey
Provide targeted expert support to the
Zero-Based review of the organisation
Identify major problems posing a threat
to continuity of the business (“lights
out” risk)
7 weeks (28 Oct to 13 Dec)
Articulate Post Office purpose
Define the future'strategy and start
answering the strategic questions listed
earlier, e.g.:
— “Bigbets” :
— Markets should we play in
— Attractive growth opportunities
— Strategy finaricials / economics
Launch the Customer Insight survey
Playback the resilts of the OHI survey
Identify the leadership steps to shape
the actions informing the strategy
Continue ZBB acceleration
Baseline technology
Identify implications for the business
strategy
5 weeks (6 Jan to 7 Feb)
Syndicate and refine the strategic
choices, and finalise the answer to the
strategic questions
Articulate the 2-3 “Big Bets”, including
resources needed to support them
Prioritise initiatives to embed Purpose
and Strategy
Integrate with 5 year plan
Drive OHI survey results into target
behaviours and interventions
Prioritise technology initiatives to
deliver strategy
29 October 2019
28 January 2020
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Overall PSG plan: several workstreams come together to feed into Big Bets over next 4 weeks
Output
November
December
January
Purpose
Customers &
Postmasters
Big Bets
Financials &
Markets
Org capabilities
Technology
Integration
Arefreshed statement of our
purpose that states what
POL stands for and...
Resonates with our
customers and our
Postmasters
Captures the coherent set of
services we will invest
money and effort into
Aligns us to where POL can
be profitable within our
investment envelope
Fits our capabilities and
motivates our people
Is supported by a funded set
of technology changes
Brings together all the above
in board papers + unified plans
Gather inputs from wide group
of stakeholders
Understand what customers
and postmasters think through
engagement and surveys
Create long-list with
estimated financials and
feasibility; shortlist best
Estimate product and channel
profitability; analyse markets
for difficult Big Bet decisions
Baseline the organisation to
understand changes needed to
deliver Big Bets
Diagnose issues with
technology and identify what it
takes to move forwards
Feed Purpose, Customers &
Postmasters and Financial &
Markets inputs into Big Bets
Test early purpose statements
Feed results into iterations of
the Big Bets
Iterate portfolio of Big Bets
with learnings from Purpose,
Customer and Financials
Improve financial forecasts and
feasibility assessments where
required for shortlisted Big Bets
Review ways to strengthen
effectiveness of Product and
Partnership
ITLT works on addressing
issues and designs project to
identify Horizon way forwards
Ensure coherence of Big Bet
iterations with Purpose and
Customers & Postmasters view
Finalise purpose statement
Engage postmasters with
findings (may be later)
Select portfolio and engage
stakeholders to confirm
Build PO financial forecasts
Identify leadership actions to
shape the culture needed to
support Big Bets
ITLT starts project to under-
stand Horizon and identify a
costed way forwards Q1 2020
Feed Big Bet choices into
financial forecast
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We are engaging postmasters through “curry nights”, 1-on-1s and an online survey
1
Current
pro-
gress
Curry
nights
One-
on-
ones
~6,000 represents postmasters that opted in to communications per GDPR restrictions; DMBs were excluded from this survey as their input was taken in the OHI survey
Curry Nights an
Engaged over 80 postmasters at “curry nights’, including:
= Diverse blend of branch formats/ locations (rural, suburban, urban)
1s
= Varying tenures ranging from <1 year to 33+ years
= The youngest postmaster in the UK at 22 years old
= Postmaster for the only Post Office run by a town council
= Third generation postmaster, handed down in the family since 1932
= Final “curry night” with ~15 London area postmasters
= 10+ 1-on-1 conversations with high performing postmasters
scheduled for w/c 25 Nov
Location Date
@ Eastbourne Mon 4th v
® Burton-on-Trent Tue 12! v
© Weston-super-Mare Thu 14h v
® Cambridge Mon 18!
‘© Manchester Tue 19" v
© Guildford Thu 21% v
© London Tue 26th
@ England
© Scotland wie 25th
© Northern Ireland
= Sent to ~6,000' postmasters at 18:00 on Friday 15 Nov
= 6% response rate by end of first week of survey being live
= Reminder email sent Friday 22 Nov
Current
progress
= Area Managers will follow-up to encourage people to
complete survey during routine branch visits
= Close survey Friday 29 Nov and analyse results
Early results
G Serving our communities 215
A trusted brand 213
Part of the social fabric in our communities 203
Care for our customers 135
Consistent, friendly service 129
Middle 25 ranked themes
Value for money 81
Enabling lives and businesses to move forward 82
Convenient online presence 122
Helping businesses grow 125
3 Moving the UK forward 159
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