POL00448415
POL00448415
2023 Board Away Day
Session 1
POL Today
Agenda
POL Today
Our Business
Our Network
Key Takeaways
Strictly Confidential
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Section 1
POL Today
6 Our History
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2011
NS&l withdraws savings
accounts from the Post
Office
2012
Post Office Limited is
separated from Royal
Mail plc. Network
Transformation begins
1968 I I 1969 1986 :
National I I The GPO Post Office Counters Ltd is
1660 1835 Girobank is becomes Post formed as a subsidiary of Post 2007
The Post Office Rowland Hill ectablished I_I Office, and Office ‘Network
is established publishes ‘Post 1922 GPO's savings 1990 Change’
as the General Office Reform The GPO activities are Girobank, 2004 closure
Post Office 1837 grants a transferred to established by the I ca-2,500 Oeics
cro by The adhesive _ broad- HMT under the GPO in the mid- shall el E00
postage casting name National 1960s, is sold to closure a branch
stamp is licence to Savings Alliance and Programme tlosures
invented the BBC Leicester launched
0O ° foJo)
1793 1838 1861 1981
Uniformed Post Office The Post Office Savings Post Office 2003 2006
post men takes over Bank is established by Telecoms is POca is BBC withdraws
take to the the UK the Palmerstone rebranded as launched, TV Licence
streets for I money order Government British Telecom, with ca.6m payments from
the first time system, and is carved out customers the Post Office
to deliver becoming 1852 into a separate
mail I postal orders The first red pillar box takes business
in 1881 its place on the streets of the 2001
ig4gk 1999 Post Office is renamed Consignia,
The ‘Uniform Penny Post’ is The Horizon T with Post Office Counters Ltd
launched in Great Britain and evstem Is becoming Post peilinardlel 2002
ireland launched Consignia is renamed Royal Mail ple
Strictly Confidential
2019
Post Office reaches a
settlement with 555
postmasters in the
GLO
2015
NS&l withdraws premium
bonds from the Post
Office
2014
DfT discontinues paper tax
discs
6 Our History oe
National I_I The GPO
1838
Post Office
takes over
the UK
money order
system,
becoming
postal orders
in 1881
Girobank is becomes Post
established I I Office, and
1922 GPO's savings 1990
The GPO activities are Girobank,
grants a transferred to established by the
broad- HMT under the GPO in the mid-
casting name National 1960s, is sold to
licence to Savings Alliance and
the BBC Leicester
00
1861 1981
The Post Office Savings Post Office
Bank is established by Telecoms is
the Palmerstone
Government
1840
The ‘Uniform Penny Post’ is
launched in Great Britain and
Ireland
rebranded as
British Telecom,
and is carved out
into a separate
business
Strictly Confidential
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2012
Post Office Limited is
separated from Royal
Mail plc. Network
Transformation begins
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6 Our Recent Trajectory
With support investment from HMG we have sustained and transformed our business over the last decade.
Network aside POL today is almost unrecognisable to the business that was separated from Royal Mail in 2012
Evolution of Sales Mix (excl. Telco)
Track Record of EBITDAS Growth (incl. Telco)
£m Revenue
Vv
£m EBITDAS
885 82
om =f
I (
1 N
1 I\-----------
1 ! I £262m of Cash & I
I 495 ! I ATMs and £233m I
AGA I I ofwiderFS. I
1 I p---------- 1
I i}
I I
ca.£59m
excl. Telco
(119) (116)
we wes ef8eR28RegeaegegaRr
& Mails & Retail Banking & FS a q a = a S 5 3 By s a q
lS HMG Services m Other Strictly Confidential se a 2 2)
6 Our Recent Funding
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We have received almost £2.8bn funding from HMG since FY11/12 to sustain the network and transform
the business. The trajectory of this funding has been on a broadly declining trajectory for a number of years
Network Subsidy
£m
N
a
S
a
a
>
c
FY12/13
FY13/14
FY14/15,
FY15/16
FY16/17
FY17/18
FY18/19
Investment Funding
£m
£1,390m total
Network Subsidy
FY19/20
FY20/21
FY21/22
FY22/23
FY23/24
FY24/25
Strictly Confidential
FY11/12
FY12/13
rT MH wo
saa
nm +t Ww
ao aoa
zee
zz
FY16/17
FY17/18
FY18/19
rvi9/20 SE
FY20/21
£1,398m total
Investment Funding
rv2a/25 FJ
xn 7
NAN AN
aq
NAN A
ze
FY23/24
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6 Our Revenue
hly a concen Mails and Banking Services which
income combined. Within each of these revenue lines income is further diversified
IRRELEVANT
Strictly Confidential 8
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6 Our Revenue
Our revenue mix is highly diversifi albeit there is a concentration in Mails and Banking Services which
account for emt income combined. Within each of these revenue lines income is further diversified
7 IRRELEVANT
BF3 Fixed
Deposits Fee
ews
Strictly Confidential 9
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6 Our Costs & Postmaster Remuneration
Postmaster remuneration, representing or Gaeaegof POL’s
total accounting outgoings. Non-staff costs represent a majority of the wider costs.
‘Total Accounting Costs
IRRELEVANT
Strictly Confidential 10
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6 Our Costs & Postmaster Remuneration
Of iia Postmaster remunera: FY22/23 around f this was classified as variable. Only ca. or fixed
remuneration relates to SPSOs with about YM linked to uncommercial Branches or Branch retention payments
FY22/23 I otal Accounting Costs
Variable
=
IRRELEVANT
Fixed
IRRELEVANT}
*Postmaster Remuneration here includes elements outside of fixed and variable Strictly Confidential i
remuneration e.g. they do include other items, such as payments to the NFSP.
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6 Our Costs & Postmaster Remuneration
While around {gpeagmtof POL’s cost based is fixed more is treated as fixed in practical terms, since to sustain Branches POL
has historically taken active steps to increase remuneration rates. This offers some ‘protection’ to variable remuneration
FY22/23 Total Accounting Costs
IRRELEVANT.
Fixed
IRRELEVANT
Strictly Confidential 12
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6 Our Purpose and Vision
In 2021 we set out our Purpose and a Vision to 2025. While the timeline to achieve this has shifted over the
past two years these still define the shape of our wider ambition and the direction of travel of our business
400 fh @ BB be
“We're here, in person, for the people who rely on us”
Prioritise strong, trusting and rewarding relationships with our postmasters
Strengthen our network, making sure we have the right services in the right locations nationwide
Innovate in mails, working with more carriers and delivering more of what consumers and SMEs want
Secure free, convenient and reliable access to cash in every community
Build commercial partnerships to launch new products and services in our branches and online
Invest in new branch technology for postmasters’ and online for their customers
Create value for our shareholder with a successful, sustainable and efficient business
Strictly Confidential 13
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Section 2
Our Business
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2] Our Business: Fundamentals
A number of commercial fundamentals determine where we are today as a business — and our future trajectory
im it @G a bd
Our diverse Weare a costly Our strategy is Our revenue We need to compete
portfolio helps distribution channel to focus on the markets are with commercial
our resilience to our Clients ‘Core’ moving online organisations
ok Critical nationwide infrastructure and brand awareness
Our
eticnutlis Pal Primarily franchised and outsourced operating model
F Enviable weekly footfall
Strictly Confidential 15
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2] Our Business: Mails and Parcels
POL is a network provider, uti ig the physical reach of Postmasters. We are not involve
mails logistics where margins are tight and success is driven by operational efficiency
_[ay Mails carriers e.g. Royal Mail, Evri, Amazon. Ultimate ownership of E2E logistics, product,
Yemmle) pricing and customer data
v v ¥ v ¥v
Purchase
. Pick up
postage Drop off Mails ce D eeree
lin Stareay acceptance eciedes Click and Collect rop off returns
j * Undelivered
Online)
XR ah XR Y
al ~_
Physical Location A Physical Location B
t
NN Network Providers e.g. Post Office, InPost, Collect +, Asda, Co-Op.
(=) Provide carriers with physical stores, sales support, lockers, pick up and drop off points
Strictly Confidential 16
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2] Our Business: Mails and Parcels
We serve three key customer segments. Marketplace is the higher value and most competitive, while e-commerce presents an
opportunity for the business given our lower presence in this area
Approx. % of POL Competitive
Mails income* Intensity
Kal Social Low
— Marketplace IRRELEVANT High
I E-commerce Medium
“Based on McKinsey analysis from 2020 Strictly Confidential 17
underpinned by a number of assumptions.
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6 Our Business: Mails and Parcels
Stamps and Labels vol ng replaced by Acceptance, Click & Collect and Returns volumes, which drive lower income
and lower Postmaster remuneration
Acceptance
Acceptance Pick Up &
Drop Off
Returns products
Returns
Parceltorce
International
POL Mails volume mix
(%)
2018/19 Strictly Confidential 2022/23 18
2] Our Business: Mails and Parcels
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The execution of our Mails strategy means moving to multi-carrier and multi-channel and will po. in. us as the most extensive
and accessible sales and acceptance network for customers, carriers and retailers
Customers
@e@eee0
anet Co cick & cottect
Mails Online
avaveve Platform
=) RS Online sales
ae acceptance
f f t f ry" Ecommerce
amazon Returns
@eee
7 met ie In-branch sales
EVRi —
& other carriers (TBC)
Strictly Confidential
Driving sustainable future
income streams
19
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2] Our Business: Cash & Banking
Post Office and its network are critical to recently approved Access to Cash legislation
Cash still represents 15% of all transactions
= Loss of access to cash impacts rural and remote communities the most
# [))
= Budgeting in cash helps the most vulnerable
but
ke = The Banking Framework was created in 2017 to consolidate our partnerships
20
Strictly Confidential
2] Our Business: Cash & Banking
Bank branch closures will continue to increase our share of cash in a declining market
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Deposit and Withdrawal Transaction Projections (vol)
450m 70%
59%
400m 57% 58% ° 0 60%
tatiana
350m 383m
50%
300m
40%
Number of 250m 40% % Share of total
transactions p.a. 200 m 227m transactions
30%
215M 403m
150m Sm ism ism ——_—_.__,
153m 155m 154m 145m 20%
100 m 136m 130m 125m 119m
50m 10%
m 0%
2023 2024 2025 2026 2027 2028 2029 2030
—e—Market Transaction Estimate —e—POL Transaction Estimate == POL Transaction Share
Strictly Confidential
21
*Assumes cash share of transactions 10% by 2030 based on UKF UK Payment Markets 2018 projections. Income projections use existing BF3 assumptions and dial them forwards.
2] Our Business: Cash & Banking
We aim to capture a greater share of a slowly declining market whilst maintaining our position at the heart of the UK cash
infrastructure
Post Office branches expand retail banks’ physical reach
Banks’
(residual)
branches
ROE
Branches
& ATMs
Banking
Hubs
ea
Enhanced
Post Ofiice
&
\ J
Y
Automation (e.g. TCRs) underpins and supports our Banking ambitions, by
making the physical network more cost effective and efficient
Strictly Confidential
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2] Our Business: Platform Products
Our Platform Products drive our profit, allowing us to re-invest in the business
In-branch Online - direct Online - intermediary
i % v v
Credit Cards
®
Bank of Savings only v v
Ireland
Mortgages, Savings &
Loans
FS fou v v v
Identity Services
Breed Protection only
v
TH aed Best of Travel &
» 4 v v
Insurance Strictly Confidential 23
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2] Our Business: Our Customers
We are primarily a B2B2C business, servicing other businesses’ customers via franchisees.
We have pockets of insight, but data is limited
uy Total 2022/23 Retail Sessions: 496m Total 2022/23 POL Web Visits (unique): 71.5m
% of retail % of online
Travel Money Online
tS ) Branch Mails 49%
20%
pig Banking 32% t Ar) Travel Insurance 7%
© Bill Pay 14% Es Loans 2%
Branch Mails Banking Bill Pay BranchTM Money Trf Savings Loans Credit Card Travel Money Travel Insurance
Online
No customer data UT} IRRELEVANT I I IRRELEVANT I Varying levels of data held by POL - IRRELEVANT I
Strictly Confidential
Car, Van &
Drop & Go
Home Insurance
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6 Our Business: Our Customers
Micro SMEs appear to be a core customer segment for PO, building on trust and proximity
Overall importance of POL to SMEs and their staff
100%
= POL enables economic activity 7 I I nl I I a
1390
80%
15%
= 43% of SMEs say they would not
20%
. : . 60%
be able to continue functioning cs
without us
249%
23%
40%
= Nearly 3 in 10 SMEs use a Post
Office branch at least once a 20%
week
0% 17% 22% 29%
1- Sole 2-4 5-9 10-24 25-49 50-99 100-249
Trader Employee Count
@ Very @ Somewhat Neither Important nor @ Unimportant @ Very
\raportant Important Unimportant unimportant
Sources: Public First, London Economics, SME Segmentation Strictly Confidential 25
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2] Our Strategic Challenge
The different requirements on our business see us pushing in competing directions
Product launch
and
rationalisation vs.
Postmaster rem
Mainstream vs.
excluded
Fair remuneration for
Postmasters vs. pricing
ourselves out of the market
(Declining) “Core”
products vs. long-
term sustainability
Strictly Confidential 26
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Section 3
Our Network
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3] Network Formats
We have a variety of formats that meet the varied needs of our retailer hosts and customers
OUTREACH
AY yi da Y, ES
Ie oe ¢
a 3,298 4211 1,869 268 1,909
Dedicated Dedicated Non-Dedicated Dedicated Non-Dedicated Dedicated
staffing? staffing required staffing staffing required staffing staffing
Product 95% Parcel collections &
offering: All products Don't offer some govt services Most products returns, bill pay All products
Av. customer
sessions per 1,650 Mains 750 400 75 21
week
Average POL
income per IRRELEVANT
branch
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3] Evolution of the Network
Today half our networl ed retail (principally Legac MBs and some
Mains). By 2032 our network will need to continue this shift towards post offices co-located in good retailers.
=
Network 4218
Transformation
FY11/12 Strictly Confidential FY22/23
*Network numbers at year end
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3] Network Footfall
Post Office footfall has been experiencing steady decline footfall and has re-baselined since Covid at c.9.5m each
week - 1m less than pre-Covid levels.
Weekly customer sessions (footfall) since 2007
25m 2007 Peak week had 21m c/s per
week. Peak in 2022 was just 13.2m —
a decline of 37% over those 15 years
20M
15M I
10M , Phone il
os /
Covid lockdown
Om
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Strictly Confidential
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3] Our Network Strategy
Looking ahead, our Network Strategy is focused on gradually shifting the network from under-used rural post
offices towards high-demand urban areas, while continuing to meet our network obligations.
®) ©) @
1. Deliver a more convenient network for customers, closing the gaps in
urban coverage and reducing under-used branches
2. Concentrate our limited resources on the branches we want to retain
long term to support our commercial objectives
3. Support roll-out of new branch IT, ensuring efforts are focussed on
sustainable branches while right-sizing the number of counters
4. Release savings to support both short and long-term business
sustainability
Strictly Confidential
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Section 4
Recap
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[4] Key Takeaways
= Post Office’s past and recent history shows our capacity for innovation, reinvention
and resilience
= Our Mails and Cash and Banking businesses are our foundation but both are facing
significant structural challenges
= These challenges threaten our business as it operates today as well as our
Postmasters and their branches.
=" Weare taking action through our Network and Commercial strategies to optimise our
position but more will need to be done for us to be sustainable
=" More means accessing funding to take out cost and reviewing DBT’s policy to ensure
HMG is both behind the network and is willing to fund it
Strictly Confidential