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Post Office Limited - Document Classification: INTERNAL
Cover Page
fAuthor: I Asha Patel — Strategic Financial Planning & Analysis Director SROSoE Kathryn Sherratt, Interim CFO
el Sought: Review
The purpose of this report is to provide a summary of the FY24/25 Business Plan including Product Profitability analysis.
This Plan is the Executive's Recommended Plan for FY24/25 which includes self-funded ‘Other Change spend’ of s set out within the report.
This Plan has been prepared against the backdrop of Business Unit Strategic Priorities (as set out in the Appendix), recognising that this will need further development and guidance
from the Executive and Board as part of the 3-5 Year Strategic Vision.
Based on Investment Committee feedback, the Executive understand that there may be appetite for additional ‘Other Change Spend’ beyond U=24 In anticipation of this discussion,
this report includes a section covering ‘options’ on where additional investment could be directed with continued consideration sought to funding requirements, sustainable
affordability, strategic alignment, risk tolerance, return on investment as well as timeframe/capacity/practicalities of delivery and would welcome the Board's feedback and guidance
on this.
A
Board Engagement 1:1 Walkthroughs of Pre-Read 22°4 February - 26" February
(February Board Review of FY24/25 Business Plan including Product Profitability 1% March )
March SEG - Monthly Recommendation for Approval of FY24/25 Budget + Review of FY25/26 Plan 13* March
March Board Final Approval of FY24/25 Budget 25t% March
Review of FY25/26 Plan and Outline of preparation for FY25/26 Spending Review
Next steps:
There are some elements linked to the FY24/25 Business plan that continue to be a work in progress and which are listed below:
Summary of FY24/25 POL Strategic Priorities aligned to Board guidance on FY24/25 investments March Board
Refinement of FY25/26 Assumptions and preparation of Outline for FY25/26 Spending Review
3-5 Year Business Plan including Strategic Vision and Horizon Scanning
March Board
Board Strategy Day
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FY24/25 Business Plan: Contents
SS 7
adlines
He;
Executive Summary
Key Assumptions underpinning the FY24/25 Business Plan
Historical overview: Revenue vs Operating Cost Base
Summary P&L - Profit Before Tax
Revenue: FY24/25 vs FY23/24 and Phasing
Operating costs by Activity
FTE Headcount by Activity
Operating Costs by BU: FY24/25 vs FY23/24
Trading Profit: FY24/25 vs FY23/24
Trading Profit: FY24/25 vs 3 Year Plan
Change Spend Overview: 3 Year Total and Categorisation
Historical Context: Other Change Spend
Top Other Change Spend Projects by Category
Security Headroom projection
Facility Headroom projection
Top 5 Enterprise Risks
Change Spend Considerations for February Board
* Sustainable Affordability - Implications for FY25/26
* Options for Other Change Spend: Efficiency and Growth
* Options for Other Change Spend: Maintenance
Supporting Analysis
Revenue
Assumptions: Volume vs Price
Revenue related Opportunities and Risks
23
24
PRY
27
28
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Postmaster Remuneration
+ Variable PM Rem: FY24/25 vs FY23/24
* Variable PM Rem % of Variable Revenue
* Assumptions: Fixed PM Rem
Network Shape
+ Expected changes in the network from Apr-24 to Mar-25
* Network split by branch format
Operating Expenses
+ Staff Costs summary
* Non- Staff Costs summary
+ Detailed list: Incremental Cost Savings
+ Risks related to Operating Costs
Product Profitability
Purpose and Methodology
Key Findings and Limitations
Overview of FY24/25 by Business Unit
Proposed Reclassification of Non-Staff Costs to Cost of Sales
Proposed Reclassification of NSC to COS (Impact on Margin)
Allocation of Overheads Methodology
Appendix
* Strategic Priorities by Business Unit (Retail, Commercial, ClO)
* Product Profitability by Product
* Security Headroom drivers
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31
32
34
35
37
38
Bo.
40
42
43
44
45
46
47
49-51
52-55
56
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FY24/25 Business Plan
HE) 1. Headlines
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Executive Summary (1/3)
Headlines
The FY24/25 Budget is projecting ai
benefits that improve this trading posi lent to a (5.3%), with
(3.3%) decline. Total PM Remuneration is expected to be a whi for Operational Excellence e payouts. Variable PM Rem as a % of Variable Revenue is expected to be at
(vs 51.4% in FY23/24 or 5 (cluding Lottery). Whilst the Operating cost Basé is expected to be broadly flat year on year, this is driven by of projected cost increases, fully offset by
“of cost reductions (of which {recevan jare expected to meet the Remco savings criteria). Opportunities to reduce the cost base further have been identified through this process, with assessment on
tment required, implications ai ‘cutability included within this Business Plan.
ting that additional ‘growth’ or ‘efficiency’ related investments could realise
loss in revenue due to the exit of Lottery in Jan-24; excluding Lottery this is a
‘of ‘other change’ activit
‘base’ position aligned
cted to IRRELEVANT.
Mails Revenue
Mails revenues are expected tol IRRELEVANT } (0.4%) year on year, with
IRRELEVANT
“Jrevenue partially offseti IRRELEVANT. _
a
and shift to lower margi
"js expected to grow byi™
‘fom Qa 23/24 onwards.
Banking Revenue
Bankit nues are expected to
(7%) with volumes expected to remain flat
the maximum per the current agreement, however is a c.
Financial Services, Travel and Insurance Re’
Bank of Ireland (MSL) revenues are budgeted to
There may be potential upside to this proj
Travel Insurance revenue is expected t¢
in line with an expected return to lower and more stable interest rates, and the shifted construct of the recently signed agreement.
rates do not fall as expected.
IRRELEVANT ! (11%) due to the full year impact of moving from SEO position P1 to P2 along with price increases of c.10% for aggregators due t
will be more targeted, however, driving higher profits overall.
jue to RPI uplifts, whereas our FRES profit share is expected to be ( IRRELEVANT} because the FRES business is mort
=
i.
Other Revenue
Retail, Lottery & Gift Cards re\
Payment Services revenue i
Government Services revenue is}
2%) due to the exit of Lottery in Q4 FY23/24.
(149%) as we are not expecting a repeat of the small amount of EBSS payout roll over that we benefitted from in FY23/24.
16%) YoY with the UKVI contract coming to an end in FY24/25 and no extension planned.
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Executive Summary (2/3)
6 Postmaster Remuneration (PM Rem)
FY24/25 Variable PM Rem will reduce by; the exit of Lottery, partially offset by ajmusasolaceholder for the Operational Excellence (OE) Incentive. Excluding these impacts on a like for like
basis, Variable PM Rem is expected to increase byjmeaewn (aligned to Variable revenue increase of faracwmjand is assumed to be at 51.6% of variable revenue (vs 51.4% in FY23/24 or 50.6% excluding
Lottery). Within this average, overall Mails rates are expected to increase slightly due to product mix, whilst Banking rates are expected to fall from 55% to 53% due to shift in mix towards lower rem
generating volume drivers whilst Average Transaction Values ( in fiat.
FY24/25 Fixed PM Rem payments are budgeted to reduce by ! riven by the cessation of Major Branch Support as OE ramps up, assumed 6% churn in branches that receive
Assigned Office payments (with no inflationary increases assumed) and lower in-year Strategic Partners payments. It does include a increase in Other Fixed payments to cover an anticipated increase
in hardship volumes following the exit of Lottery and Living Wage increase.
Network Shape
7 FY24/25 is expected to commence with 11,776 branches in the network. Churn is forecast at c.3.5%, broadly in line with the rate for 23/24. The network plan assumes the planned exit of 7 DMBs, 10
loss-making branches on exceptional remuneration and 45 ‘Hard to Place’ branches. It also assumes 200 net Drop & Collect (D&C) openings and the targeting of 70 Mains & Locals openings, co-funded
by postmasters. Subject to carrier agreements, a stretch plan could deliver up to 200 additional D&C, creating the headroom for 200 Outreach exits. This will be managed to reflect evolving market &
financial conditions subject to quarterly review. Overall, the network in March 2025 is forecast to be close to 11,600, remaining above the 11,500 target.
“iof gross cost reductions,
fof cost increases, =nmis due to RPI and
= due toa Pay Award assumption of 3.75% for CWU and Unite employees and 2.75% for 3A and 4 grades There is potential opportunity against this dependent on the
= zs
be contracted; further work is being undertaken to understand the nature and pipeline of these contractual costs, particularly in relation to 3-5 year horizon scanning. The budget assumes !macaniof losses
‘due to branch discrepancies — a reduction offmaneiear on year. Opportunities related to ‘Efficiency’ investments supporting further cost reduction are set out on page 23.
9 Product Profitability
The objective of Product Profitability is to understand a truer profitability for POL products and services taking into account direct costs, indirect costs and allocation of central overheads; and to leverage
these results as a tool to support, validate and enhance commercial and network decision making across the organisation, such a ‘The analysis in this report is based ona
purely mathematical exercise using the FY24/25 Trading Profit — it has not been reviewed by Commercial leads for commentary of Taput. It does not incladé an allocation of items below Trading Profit
such as NSP or investment cost, nor does it calculate the Postmaster cost to serve — these have been identified as limitations.
The key findings show that all commercial business units are projected to make a positive variable contributi
products in commercial assessments. At the notional profit level, before the allocation of central overheads}
network cost base for delivering! “Js aligned to a revenue base that is deciiniig
with revenue requires some time and investment il) With the implementation and
growth in this area will require investment; ii) Variable Postmaster Remuneration
to considered when reviewing the Remuneration Strategy in the Summer.
these should continue to be benchmarked to competitor
assumed to be due to the following reasons: i) The
=,emoving these increasing network costs in line
ut this is expected to take time to ramp up;
sTitly Tiigher than other BUs such as fj this negds
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Executive Summary (3/3)
1 0 Investment and Change Spend
Total Change Spend for the FY24/25 budget is projected to b
{both of which POL is rec
discretionary spend) and»
potentially increase by a
these categories is provided on page 17 of this plan.
for Remediation Unit & Inquiry,
‘0 be ‘Maintenance’ related (Non-
of ‘Other Change spend’ could
ited, A breakdown of the projects within
ing DBT funding) andi
Security Headroom and Facility Headroom - and sensitivity analysis
FT \ocgnmees
FY24/25 Secu
agreement) and{s=s~ contingency (subjectI
ing letter). Based on these assumptions,
Iwith the lowest point in Dec-24, which is {=
1 2 Risks & Opportunities
Risks & opportunities to the FY24/25 Trading Loss position include those that are trading related (page 27) as well as operating cost related (page 39). These are not included within the FY24/25
budget as there is a probability associated with these crystallising. There are also risks identified to Change spend (page 15), including RU & Inquiry which will be mandatory and ‘self-funded’ should
DBT funding not be made available e.g. to cover administration of the £75k payments, 1,500 late HSS applications, exoneration impacting Overturned Convictions, potential extension to the Inquiry
‘timelines and Capture related investigation, legal fees and compensation payments.
POL's current position of highest areas of Enterprise risk exposure remain in the following areas: Cyber Security, Technology, Legal, People & Operations (Retail & Franchise). There are 18 out of 81
intermediate risks outside of tolerance all of which have a remediation plan to bring into tolerance by an agreed target date (November ARC). However due to increased focus on the Inquiry, Media
attention, increased pressure on colleagues it is expected that several risks will remain outside tolerance for longer - subject to change spend ‘options’ being agreed through this review.
Options and Next Steps
1 3 Based on all considerations of this Business Plan, decisions on the quantum of ‘self-funded’ FY24/25 ‘Other Change spend’ must be balanced with a view of sustainable affordability. Whilst additional
change spend of say!ssse! in FY24/25 may not breach Security Headroom in FY24/25 it erodes the ability to manage cash flow and ‘self-funded’ investments in FY25/26 and beyond. This would be
further impacted by the expectation of af iTrading loss in FY24/25 as per this Plan, which would not contribute to positive cash flow optionality for future years.
Options on where additional investment could be directed within Maintenance, Efficiency and Growth categories are provided within this Plan with continued consideration sought to strategic
alignment, risk tolerance, return on investment as well as timeframe/capacity/practicalities of delivery. Feedback from the February Investment Committee also suggested ‘Innovation’ related
investment for longer term commercial development as well as investments within ‘Digital/ Automation’ which must also be considered. Options for. ‘Maintenance’ related investments would reduce
entified risks, bringing these inte telerance within the aareed target. date 2 owrearnnrenrnomranmrvmravnvannanvranenenin
IRRELEVANT
away from entering the fm===r!Board approved butter.
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Key Assumptions Underpinning the FY24/25 Business Plan
Self-funded
‘Other Change
Spend’
DBT Funding
Revenue
Postmaster
Remuneration
Network
Numbers
Inflation RPI
Pay Award
FTE Headcount
Cost Savings
ity
Interest rate
Loan Fi
Depreciation
f self-funded change investments following GE prioritisation of which:
Maintenance’: largely non-discretionary that is necessary, contracted or nugatory spend or (avoiding sunk costs)
ats that enable cost reduction
for Mails Strategy (developing Non-RM propositions)
‘of DBT funding of which:
“Wetwork Subsidy Payment (to_ ubsidise cost of the uncommercial network required due to the Network Access Criteria)
RU/Inquiry (as part of the agreement)
seacievanr RU/Inquiry Contingency (subject to final agreement)
‘br Replacement of Horizon (as part of the agreed Investment funding)
for SPMP (subject to receipt of funding letter)
=
2
>
8
3
[4
janking Framework Fi
“9 eed minimum commission
Ydue to SEO position P2 (vs P1 in FY23/24) and price increases of c.10% for aggregators (reducing aggregator volumes)
IKVI contract ending in FY24/25 with no extension planned
1.4% in FY23/24 or 50.6% excluding Lottery); RM Mails 63.3% (vs 62.3% in 23-24); Banking 53% (vs 55% in 23-24)
‘or Operational Excellence incentive based on 62.5% conformance (vs current 37.5%); pro-rated for Sept-implementation;
nallocated for expected increase in Hardship Volumes (Min Wage; Lottery exit)
Mortgages, Savin
Travel Insuranc
Government Servic
Variable PM Rem of 51.6%,
Variable PM Rem include: ms
Fixed PM Rem: 6% churn in branches receiving Assigned Office Payments¢.
Opening at 11,776 branches; churn in commercial branches of c.3.5% (flat on FY23/24). Planned exits of 7 DMBs, 10 loss-making branches on exceptional remuneration
and 45 ‘Hard to Place’ branches. Openings of 200 Drop & Collect (D&C), the targeting of 70 Mains & Locals openings, co-funded by postmasters.
Closing forecast of c.11,600 - remaining above 11,500 target.
Subject to carrier agreements, a stretch plan could deliver up to 200 additional D&C, creating the headroom for 200 Outreach exits.
RPI - 3.6%; CPI — 2.5% Source: Forecomp. October.pdf (publishing, service.qov.uk); For work performaned by Fujitsu - contractual indexation of 6%
3.75% for CWU and Unite employees and 2.75% for 3A and 4 grades
FTE reduction
Average FTE headcount of JFTE projected to reduce by FTE on a net basis, wit! “i FTE reduction within Remediation Unit and
through the closure of the Swindon Supply Chain site; this is partially offset by 39 planned incréases in People (20), ClO(14) and CFO (5).
f budgeted cost savings that could meet the Remco definition of ‘incremental’ year on year savings that are actively pursued
% rs
hroughout the year, and Notes Relief Facility of f»
Working Capital Facili
Drawdown of the DBT WCF at a fixed rate of 1.32%
=
of Budgeted Capex assumed to depreciate over average UEL of 7 years
Page 18
Page 19
Page 27-28
Page 30-32
Page 34-35
Page 13
Page 37
Page 36
Page 39
Page 20
Page 9
Page 7
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Historical Overview: Revenue vs Operating Cost base
‘ tion with Royal Mail, Mail revenues have declined by ind revenues from Government Services (including POCA/Voucher Encashment) have declined
RRELEVANT] Despite this and excluding the sale of Telco in FY20/21, Network revenues have remained broadly flat in comparison to FY13/14 levels due to the creation of
additional revenue streams through the Banking Framework and Non-Royal Mail revenues with other carriers.
However over the last few years, Operating Costs (Staff & Non-Staff costs) as a percentage of revenue and income have been increasing — a position that is
unsupported by the P&L, unaffordable and unsustainable.
Activity Based Costing analysis estimates that 52% of the FY24/25 Operating Cost base is focused on delivering key areas of DBT policy of sustaining the network (37%)
and cost of cash access (15%) — with the Network Subsidy Payment remaining at since FY19/20. There is every opportunity to “right size” the business through
effective strategic prioritisation and delivering sustainable efficiencies.
IRRELEVANT
~ " A
le and income tami Total Operating Costs Operating Costs % of Revenue and Income
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FY24/25 Summary P&L: Profit Before Tax
23-24 Fy24-25
Headlines
943 Forec Budget + The FY24/25 Budget is projecting a Trading Loss of ‘pase’ position aligned
‘Mails - RM. ff ‘other change’ activity noting that additional ‘growth’ or ‘efficiency’ related
meme ents could realise benefits that improve the trading position.
‘Banking Services
ATMs
gest driver of the year on year movement is a projected reduction in revenues of
equivalent to a (5.4%) decline, although like for like excluding Lottery this is a
(33%) decline.
‘Travel Money
(Mortgages, Savings & Loans
International Money Transfer
(Credit Cards
'PO Insurance
Payment Services & Payzone
Retail, Lottery & Gift Cards
(Government Services
‘Identity Services
\Voucher Encashment
‘Supply Chain/Other
‘Total Revenue
(Cost of Sales
Postmasters Rem Variable Costs
ace eaes ie piel atl bani cao + Detailed review of the Operating cost base has identified cfizazial of costs which could
semana I T be reclassified as Cost of Sale. Whilst this has no impact to Trading Profit it reflects a
res I R R E EVA N truer nature of the operating cost base which would reduce to (49% of revenue
[cross margin and income). Any reclassification would be overlayed after the FY23/24 year end to
+ Total PM Remuneration (Variable + Fixed) is expected to be at
is expected to be Variable. This includes; ‘or Operational Excellence incentive
payouts. Variable PM Rem as a % of Variable Revenue is expected to be at 51.6% (vs.
51.4% in FY23/24 or 50.6% excluding Lottery).
+ The Operating cost base is expected to be broadly flat year on year, driven by (ixanmat
of projected cost increases, wholly offset by! «of cost reductions (of which}
are expected to meet the Remco savings criteria).
Staff Costs ensure like for like comparison. Opportunities to reduce the cost base further have been
'Non Staff Costs identified through this process, with assessment on funding required, implications and
Total Overheads executability included within this Business Plan.
[rsdn Pot > . }) for existing assets and a further
Renee Subsidy Payment of budgeted capex spend (assumed to depreciate over an average
aeration ife of 7 years).
Interest
‘Exceptional Change Spend
Investment Funding.
Profit On Asset Sales
‘Profit Before Tax
KPIs
Total PM Rem
Total PM Rem % Total Revenue
Variable Rem % Variable Revenue
Total Opex % Revenue and Income
+ Interest costs are largely determined in relation to drawdown of the WCF at an average
rate of 1.32% - these are expected to be higher due to an expected increase in
the WCF drawdown to compensate for jreduction to the NRF facility from P7.
vara
+ FY24/25 Investment fundi
funding with DBT) and a further
for SPMP (s.t. receipt of funding letter).
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FY24/25 vs FY23/24: Revenue trajectory and phasing
5 Revenue of SAMMMME is expected to be a HMMM reduction on the F 4 Outturn. Mails revenues are expected to be impacted by further re-baselining of the
IRRELEVANT
(MSL) jeter saat in line with lower and more stable interest rates and the uct of the recently s ement. Net Banking
revenues are expected to continue to grow orgar r se to bank closures and through the further Bankin > g > phasing is fairly consistent
YoY, with a gradual reduction month on month. The lower BO! MSL incentive can bé en with reduced P11 n
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FY24/25 Total Cost base — by Activity
50% of POL’s cost base today is focu
Revenue
Sustaining
supporting: 24%
the network: 37%
Back office
central: 24%
Cost of
cash access:15%
Strictly Confidential
11
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FY24/25 FTE Headcount — by Activity
'% working in back office functions
MARCH-25 BUDGETED HEADCOUNT POSITION
IRRELEVANT
Revenue
supporting: 9%
Sustaining
the network: 38%
Back office
central: 30%
Cost of
cash access: 23%
Strictly Confidential ia
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Office Limi
Docume
Classification: INTERNAL
a Budget: Lissa = Dera ania costs and YoY ass eae
onc
planned and ‘increm
of which
Notes
: * Operating re expected to remain flat year on year -
commerce! driven by {ie lof gross cost increases offset byfmasnpf gross cost
a reductions, of which ‘ould meet the Remco definition of
‘incremental’ and ‘gen intended’ savings in the sense that they
pea are actively pursued.
Hae * Any cost avoidance or cost saving already achieved in FY23/24 should
not be double counted again .. saving’ in FY24/25. Based on
Centrally Managed
Strategy & Transformation
Communications
this guidance, the remaining f budgeted cost reductions are
excluded as largely due to one-off costs in FY23/24 not expected to
repeat.
IRRELEVANT
a3)
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FY24/25 vs FY23/24: Projected Trading Loss of
IRRELEVANT ‘as well as projected increases in the operating cost base offset by year on year cost reductions and
savings. Opportunities to improve this position through implementing ‘efficiency’ related actions that reduce the cost base, are set out in this business plan.
gs. Opp pi Pp gh imp 9g y p
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FY24/25 Budget: Comparison to the 3 Year Plan
The current FY24/25 Budget projection of a Trading Loss of 3006 is a J&MMMMFimprovement to the JMR Trading Loss presented in the June-23 3YP. It is
largely driven by afin et improvement in Revenues (which includes assumptions on ue loss not materializing), a 3agititreduction in Fixed Rem payments
driven by the Network Strategy, offset by a 94H increase in Variable PM Rem and a net {pigietai) incre e operating c se.
IRRELEVANT
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Total Change & Investment Spend
din
wed in
Total Change Spend Risks
FY22/23 FY23/24 FY24/25 3YR FY25/26
Risks to RU/Inquiry change spend (which will be
mandatory if unfunded as opposed to ‘options’):
. Administration of £75k payments
* Administration of 1,500 late HSS applications
o Administration of Exoneration impacting
Overturned Convictions
* Extension to the Inquiry timelines
. Capture related investigation, legal fees and
compensation payments
Total Change Spend, £m Actual Forecast ___ DRAFT Total Plan
Other Change Spend ~ Self funded
Remediation & POHIT Inquiry I R R E I EVA N I
Replacement of Horizon
Total POL
Risks to Other Change Spend:
* Potential “delayed spend from FY23/24 into
FY24/25 (DD and cross other projects
based on current monthly run rates)
estimate for Hard to Place Branches:
counting reclassification of
spend from opex to capex TBC (however
opportunity to reduction in opex)
16
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Other Change Spend: Comparison to Prior Years
The FY24/25 budget of SQM for Other Change Spend (net) is comparable to prior years, of which $$4tifis considered ‘Maintenance’ related andUQ@Mtt Efficiency
since the time of writing suggest this could potentially increase by a further SUMMME due to deferral
h is expected to be limited
IRRELEVANT
2021/22A 2022/23A 2023/24F 2024/25B
it?
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Top Other Change Spend Projects by Category
Top 10 Maintenance Projects Portfolio FY24/25 Budget Description
1 Data Centre Fortification Technology
2 Copper Stop Sell Technology
3 PED Replacement Devices Technology
4. Project Test Environment FY23 Technology
5 Back Office Operational Modernisation Technology
6 Cyber Security Maturity Technology
7 PCI Compliance Technology
8 ATM Banking Strategy Commercial
9 POL Data Enablement Programme Technology j IRRELEVANT
10 Central Change Team FY24 Central
11 Multi-Function Devices Commercial
12. Network Maintenance 2023/24 Retail
13 POI Reg & Compliance 24/25 Commercial
14 Property CAT - Compliance 24-25 Retail
15. Horizon Continuous Improvement Technology
Other :
Total Maintenance Project Spend -
Top 5 Efficiency Projects Portfolio _ FY24/25 Budget Description
1 Darwin ‘Supply Chain
2 Retail
3 Operational Excellence Commercial
4 Network Strategy Acceleration (NSA) Retail
5. Network Strategy - Hard to Place Branches jamie; RRELEVANT
Other i
Total Efficiency Project Spend
Growth Projects Portfolio __FY24/25 Budget Description
Mails Strategy ~ multiple projects Commercial
IRRELEVANT
Commercial/
caer Retail
IRRELEVANT
Total Growth Project Spend
Total FY24/25 Spend
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Security Headroom
Budget assume s) and jpeaieiginte Horizon re ment funding (subject to receipt
of funding letter) resulting in a positive Security Headroom position throughout FY24/25. The lowest point would be PRM Dec 24 (noting a recommended buffer
ABBE maintained throughout the year). The SH fore an unfunded variance of c..iittchange spend on SPMP (over and above the Sg and
$RBS oF RU/Inquiry lover and above th 0 ould this position change this would provide additional SH upside. Equally should additional
funding not be approved, this would caus > current spend forecast — however in reality and moreso with regards
to SPMP, the programme spend would halt in this scenario.
, A 2Year
Funding Assumptionsfém QL. FY23/24 «= QL Fvaa/25 ToL
Network Subsidy
Investment Funding
IRMU/Inquiry Funding
Total Funding Assumed
IRMU/Inquiry Contingency
Horizon Replacement
Total Additional Funding
IRRELEVANT
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Facility Headroom
The Baseline Budget assumes a WCF of {3888488 throughout the year, and an NRF facility of 320M in H1 and J4HMMEin H2. There are ongoing discussions regarding
increasing the WCF by {384% with the NRF permanently reducing down to }ittttitf. This would provide facility upside in H2 based on current assumptions. There
are no breaches of Facility Headroom forecast for FY24/25 with the lowest point in Dec-24, which is }QMMME away from entering the AMeuMt Board buffer
Document Classification: INTERNAL
IRRELEVANT
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ey 5 Enterprise Risks
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2. Change spend considerations
for February Board
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Post Office Limited - Document Classification: INTERNAL
Sustainable affordability: Implications on FY25/26
Based on all c erations of the Busir s on the quantum of FY24/25 Change spend must be balanced with a view o' ainable affordability.
IRRELEVANT
Maximum FY24/25 OTHER CHANGE SPEND OF SME Maximum FY24/25 OTHER CHANGE SPEND OF Stat Maximum FY24/25 OTHER CHANGE SPEND oF Site:
MAXIMUM FY25/26 AVAILABLE CASH Of
MaximuM FY25/26 AVAILABLE CASH Of MAXIMUM FY25/26 AVAILABLE CASH OF
POL-BSFF-WITN-021-0000019_0022
POL00448610
POL00448610
Post Office Limited - Document Classification: INTERNAL
Options for additional investment (1/2): Efficiency and Growth
The below table set out options for additional investment in ‘Efficiency’ and ‘Growth’ related investments alongside benefits and implications for both operating cost
ck from the February Investment Committee also suggested ‘Innovation’ related investment for longer term comme
reduction and revenue growth options. Feedb
development as well as investments within ‘Digital/ Automation’ which would enable sustainable cost reduction.
westmer Benefits
Efficiency £m £’m (Opex) Implications
Organisational Design Remaining resource does meet quality and delivery requirements for the business increasing risk
FY24/25 DMB Programme Acceleration
(deliver 16 more DMBs in 24/25)
To deliver the programme. with current resource, the programme could be delivered in 4-5 years, at a cost ofj I
The programme could be delivered within 2-3 years, but there would be an additional cost of cf wetrvanr}pa for a larger
programme delivery team. There will also be early lease exit fees and RM separation costs.
IRRELEVANT Improve ability to identify, investigate and resolve/reduce discrepancies in the network.
j
(Branch Assurance visit at all branches) Project could be included as part of SPM programme as it will reduce speed of rollout.
:LE'
(exit remaining 90 DMBs)
Network Strategy Acceleration
Business decision required for build and implementation (based on current resource and consideration of NBIT)
Customer Journey change - Stationery Benefits based on a 25% reduction in receipts being printed. Would require ongoing costs for data capture and storage - TBC
TOTAL
Benefits
Investment I £'m
(Revenue) Implications
There is appetite to do more within the Commercial space should there be capacity to do so / funding available, in particular in
ation to the Mails Strategy which would enhance the current proposition and longer term commercial prospects. The benefits
‘om these investments are subject to ongoing assessments.
IRRELEVANT
New ATM deployment
Other
TOTAL
: IRRELEVANT
24
POL-BSFF-WITN-021-0000019_0023
POL00448610
POL00448610
Post Office Limited - Document Classification: INTERNAL
Options for additional investment (2/2): Maintenance
Additional options identified for ‘maintenance’ e e ther new inv ts or additional increases in existing investments already
included within the {480K of change spend. Inve 5 Juce risk impacts. Of these risks it is likely that the first and second- relating to Cyber
Security Maturity and POL Data Enabl > likely to he most material impact on the business's near-term risk position. The risk around Horizon Continuous
Improvement is less about scope being removed as a result of the cuts, and more about the availability of any contingency to resolve new issues that might emerge
IRRELEVANT
POL's data warehouse infrastructure is considered to be impacted without this additional investment in POL’s data and reporting
repositories. This additional investment would enable implementation of the Future Data Platform one year sooner than currently
planned (reducing risks raised in HU findings, as well as a nnualised benefit through costs avoided under the Accenture
POL Data Enablement Programme contract)
Without additional investment (including contingency), there is a risk to POL's ability to adequately implement Horizon Matters
remediations and deliver improvements to Horizon issues as well as adequately manage any new/unknown issues (which may
arise out of the next phases of the Inquiry).
Horizon Continuous Improvement “i specific additional investment would enable discrepancy visibility for Post masters.
Cyber Security Maturity
Contingency for unplanned spend e.g. Horizon continuous Improvement (as noted above) or provision for any change costs
Fire Fighting Risk and Resilience associated with recommendations stemming from the Grant Thornton Governance Review.
IRRELEVANT
PCI 3.2.1 to 4.0
Network Maintenance Potential j etained Trading Profit from newly opened branches
Zorin upgrade IRRELEVANT
Back Office Operational Modernisation Current plan spend of! is unfunded
Other
TOTAL
25
POL-BSFF-WITN-021-0000019_0024
POL00448610
POL00448610
3. Supporting Analysis:
Revenue
POL-BSFF-WITN-021-0000019_0025
Post Office Limited - Document Classification: INTERNAL
Revenue vce ole) Volume vs Price
POL00448610
POL00448610
Product Revenue £m
Fy24/25—FY23/24 Yor Yor Fy24/;
8 ar V Bu
YoY Fy24/25—FY23/24
3
Budget
‘Mails RM (excl. Mailwork & Annual Fee)
Parcelforce
Special Delivery
International Priority & Standard
Stomps
Lobels
Home Shopping Returns
Acceptance
Other Trading
Mails Other
Total Malls RM
‘Mails Non-RM
Click and Collect
Returns
Drop-off Purchase
Online Platform
Sale in Branch
Total Malls Non RM
Banking Services (exc. Framework)
Deposits
Withdrawels
Change Giving
Banking Other
Total Banking Services
Post Office Insurance (PO!)
Travel
Home
Motor
Protection
Other
Total POI
Note the price above is a simplified average ‘price’ based on revenue and volume, in order to provide a broad sense check of the product areas.
This does not consider the multiple price/commission structures in place for each product.
Royal_ Mail revenues _continue_ to
IRRELEVANT
IRRELEVANT
ing Services YoY
from increased deposit
Volumes and inflationary price rises
Insurance volumes are
YoY driven principally by
in SEO position from P1 to P2 and
10% RPI increases for aggregators,
which we anticipate will reduce
Aggregator volumes.
Protection tRRELEVANT: UP driven by
improved mix tribution channels
with increase in contact centre
channels which drive higher average, 7
premiums
POL-BSFF-WITN-021-0000019_0026
POL00448610
POL00448610
Revenue Related Opportunities & Risks
IRRELEVANT
Lcsesesesesesnenenenentnintninininininininiaiaianiaiaiarninininininininintninintnininininininsnaisiaiaiaiininininininininineninintnininininininisinasiniiniaiaininininininintnininininintninininiiissiniaiaininininimininiminenininentnimenimimimsaiat
POL-BSFF-WITN-021-0000019_0027
POL00448610
POL00448610
4. Supporting Analysis:
Postmaster Remuneration
POL-BSFF-WITN-021-0000019_0028
POL00448610
POL00448610
Post Office Limited - Document Classification: INTERNAL
Variable Postmaster Rem: FY24/25 Budget vs FY23/24 9+3
Notes
Mails - RM. “Revenue _I PMRem_ I
Product areas where PM Rem % Reveune <50%, i
Product areas where PM Rem % Reveune >50%
Mail Segregation / incentive
Total
IRRELEVANT
o The FY24/25 Variable Rem Budget includes an assumption ot
Operational Excellence (OE) Incentive payout. This is based on an assumption
of 62.5% conformance (expected to generate of Remuneration for
Postmasters), pro-rated for 8 months, with the expectation that the OE
initiative will be implemented in August-24.
o A current year assessment against OE criteria suggests 37.5% conformance
and so it is expected that this incentive will generate an improvement in best
practices to 62.5%.
30
POL-BSFF-WITN-021-0000019_0029
Post Office Limited - Document Classification: INTERNAL
Variable Postmaster Rem % of Revenue
In percent
this is 50.7
product mixes.
% compared to 5\ > in FY 4, It -) rall Mai to inc
23/24 9+3 Forecast 24/25 Budget
terms Variable Rem is budgeted at 51.6% c enue; As a like for like comparison, excluding lottery from FY23/24 and excluding the OE incentive
slightly whilst Banking r
Var Var Var
Variable Variable Variable Variable riable Variable
Revenue Rem "°™YREYI revenue Rem "*™/RE I Revenue Rem em/REV
Pillar i
Mails - RM
Mails - Non-RM
Retail, Lottery & Gift Cards
Government Services
Identity Services
Mails, Retail, GS & ID
Banking
ATMs
Voucher Encashment
Banking & ATMs
International Money Transfer
[Travel Money
Credit Cards
Bol
PO!
FS-INS-TM-IMT i
Bill Payments
Central Commercial
Variable Total
Fixed Remuneration
Total
IRRELEVANT
Variable (Excl Lottery)
Variable (LFL: Excl Lottery Exc OE*) i
POL00448610
POL00448610
are expected to fall due to
Notes
Banking Variable PM Rem % is expected
to fall from j in FY23/24 to in
FY24/25 due to product mix.
In the FY24/25 Budget, Average
Transaction Values (ATVs) which is a
bigger driver for PM Rem than volumes,
are assumed to stay flat - causing a lower
overall PM Rem value.
Also PM Rem Rates on ATVs do not
attract inflationary increases (apart from
Change giving).
‘A number of factors are considered when
looking at PM Rem rates for products,
including rem % of income, gross margin,
length of time it takes to complete a
transaction and market rates (earned by
competitors for the same service).
The Rem rates paid are expected to be in
line with the market.
at
POL-BSFF-WITN-021-0000019_0030
POL00448610
POL00448610
Post Office Limited - Document Classification: INTERNAL
Fixed Postmaster Remuneration
1 PM Rem payments, a $MM year on year reduction driven by the cessation of Major Branch Support as OE ramps up,
% churn with no inflationary increases in reducing Assigned Office payments and lower in-year Strategic Partners payments. This is offset by a #gaMt
ery and Living Wage incre
Other Fixed payments for an unallocated po er an anticip crease in p volumes following the e
Notes
1d to reduce inline with trend. inflationary incre
FY24/25 due to the introduction of the Operational Excellence initia idgeted for in vat
sn). The inflationary increase @ 2.5% would have increased AOP by eUtha Newer Strategy. (Biooraninne eich
supports the conscious shift away from loss
making and poorly used branches and
replacing outreaches with Drop & Collect, has
in FY23/24 year to date.
Jase inline with current run rate + inflation (living wage @9.8% (85%) and Fuel (15%) @-8.8% to November, saved
= 7%), adjusted for Network Strategy
/25 overlay for Network si
5/26 overlay for Network Sti + A further! f savings has been overlayed
Inline with current trend in the FY24/25 Budget (reduction to
Inline with current trend
Inline with current trend exceptional payments by and
ith corer teed Outreaches by!
ed over from 22/23 [ REVEVART Inew payment to Coop group,
Inline with trend + inflation (inline with living wage 9.8%)
Inline with trend + inflation (inline with living wage 9.8%)
24/25
32
POL-BSFF-WITN-021-0000019_0031
POL00448610
POL00448610
5. Supporting Analysis:
Network Shape
POL-BSFF-WITN-021-0000019_0032
POL00448610
POL00448610
SSDELIEE changes in the network from April 2024 to March 2025
be managed as a dynamic ct to quarterly re eflecting evolving marke ancial condit
11900
11800
11700
11600
11500
11400
11300
11200
11100
11000
We are
We expect Churn is forecast at c.3.5%, broadly in line Our base case eee) 70
GERNHE with the rate for 23/24. We are also plan assumes Ra neiay
ES assuming the planned exit of 7 DMBs*,10 200 net Drop
year with . : Locals
11.776 loss-making branches on exceptional & Collect Pa ne
i remuneration and 45 ‘Hard to Place’ (D&C) Pema
branches branches. openings v
postmasters
295
57 a 5
Exits during 24/25 Openings during 24/25
Mar-24 Commercial Loss-making Planned exits Hard to Place D&C = Mains & Local Mar-25
churn churn exits openings _ openings
* Note: 7 DMB exits include 2 being closed in March-24 with a further 5 planned in FY24/25 as part of the £4m within ‘Other change spend’
Subject to carrier
agreements, we Our network
aim to deliverup in March 2025
to 200 additional _is forecast to
D&C, creating the be close to
headroom for 200 11,600
Outreach exits
Stretch D&C Outreach Mar-25
exits
34
POL-BSFF-WITN-021-0000019_0033
POL00448610
POL00448610
Expected changes split by branch format
cy
DMBs
IRRELEVANT
Funding constraints mean we're only replacing around 15% of exiting Mains, with a dependency on
postmaster co-funding. Ideally, we would replace around half of exiting Mains to maintain commercial
performance
Mains 3,260 3,170
+ Ideally we would be maintaining Locals numbers to protect commercial performance, but funding
Locals 4,210 4,065 -3.6% constraints mean we're only replacing around a quarter, again with a dependency on postmaster co-
funding.
Drop & e D&C will be our main lever to maintain network numbers and offset churn in full-service branches, while
631 831 +24.1% also strengthening our competitive position in the PUDO market in urban areas
Collect + Ourbaseline will be 200 D&C openings, with a stretch target of 400
eas is + Churn in Community branches continues to run at a higher rate, and this figure also includes an assumption
Traditional 1,780 1,700 4.7% of 45 planned ‘Hard to Place’ exits agreed with the postmaster
+ Welll continue to work with postmasters to reduce Outreach costs through optimising opening hours and
Outreach 1,780 1,720 -3.5% routes. If headroom on network numbers allows we will consider up to 200 additional Outreach exits
Total 11,776 11,592 -1.6% ~- overall, the network is expected to reduce by c.84 next year, but remains well above the 11,500 target
35
POL-BSFF-WITN-021-0000019_0034
POL00448610
POL00448610
6. Supporting Analysis:
Operating Expenses
POL-BSFF-WITN-021-0000019_0035
POL00448610
POL00448610
Post Office Limited - Document Classification: INTERNAL
Staff Costs & PE ay Business pets
FTE incl. FTE incl. YoY Mvt in FTE
Contractors Contractors March 25 vs
31/03/24 30/03/25 March 24 Contractors
i Open Vacancies
Maternity Leave Backfill
TOTAL
FY23-24 FY24-25
943 Forecast Budget
~~ J
“—
Releasing opportunity within these categories
should require a consistent POL wide approach
Retail — reduction in FTE YoY largely due to closure of Swindon Supply Chain site, with associated benefit flowing through staff costs.
ClO - YoY FTE increase including 3 x SNOW developers/admin, 4 x cyber security roles, and 14 budgeted senior manager vacancies. Costs reducing YoY due to transfer
of Data Governance to S&T, along with cost savings from role reductions and leavers not replaced, outweighing the impact of new roles.
CFO - FTE increase YoY due to new roles for increased ARA support, Payzone activity and maternity cover.
People ~ FTE increase resulting from people structure review (13 roles removed and 33 new roles added).
Remediation Unit — FTE decrease driven largely by reduction in number of contractors. All RU FTE/contractor spend is project related, hence no staff costs within opex.
Centrally Managed ~ planning assumption of between 2.75% and 3.75% pay award depending on grade (imscnni Short term and Long term incentive plan bonus
accruals also held here which are assumed flat with FY23/24. 37
POL-BSFF-WITN-021-0000019_0036
POL00448610
POL00448610
Post Office Limited - Document Classification: INTERNAL
Non- Staff Costs — by Business Unit and by type
Further work
in aed to 3-5 year horizon scanning
BU (£m) FY23-24 FY24-25 YoY Of which in FY24/25 [em I
FE
9+3 Forecast su) Contractual costs
— Further work will be
eal Non-contracted/discretionary ; IRRELEVANT continued in assessing
CFO ' TOTAL the pipeline of these
People contractual costs in
Centrally Managed horizon scanning
Strategy & Transformation Fixed
Communications
Total POL 1 Variable
TOTAL
IRRELEVANT
FY2: FY24-25 YoY YoY
Ne Staff Costs by T
ores batt Coctsiby ype I 9+3 Forecast Budget £m %
Staff & Agent Related Costs
Consultancy & Advisory Services
Finance & Losses
IT Infrastructure & IT Services
Legal Costs
Managed Services
Marketing & Communications
Postage j
Property & Facilities Management
Other Operating Costs
TOTAL
Releasing opportunity
within these categories
should be based on a
consistent POL wide
approach
: Of which in FY24/25
IRRELEVANT =
Recruitment
Further work is being
Travel and Subsistence IRRELEVANT conducted on
presenting Non-Staff
costs on an ‘Activity
Based Costing’ view.
Department Away Days
38
POL-BSFF-WITN-021-0000019_0037
POL00448610
POL00448610
Post Office Limited - Document Classification: INTERNAL
FY24/25 ‘Incremental’ Cost Savings — actively pursued
As per the Remco guidance the achievability of ‘cost savings’ will be assessed on a definition of an ‘incremental reduction’ on the FY23/24 forecast that is actively
such any cost avoida saving already achieved in FY23/24 cannot be double counted again as a ‘cost saving’ in FY24/25. A draft of th
w totalling
BU Incremental Cost Savings
Incremental Cost Savings
Credit Cards clo
did if aa
ayment Services
Pol clo
Pol clo
Travel Money cio
Total Commercial Total ClO
Retail People
Retail People
Retail People
Retail People
= IRRELEVANT = —s IRRELEVANT
Retail I eeapes
ad People '
Retail i
Retail People
Retail People
Retail People
Retail People
Retail Total People
Retail LCAS
Retail S&T
Total Retail
POL Total Cost savings ) ®
39
POL-BSFF-WITN-021-0000019_0038
POL00448610
POL00448610
ff imited - C
Risks relating to Opex cost increases and cost savings
TERN
Risks not included in the FY24/25 plan relating to cost increases
Risk Area Risk Items Identified
Network H
IRRELEVANT
Risks not included in the FY24/25 plan relating to cost.
Risk Area
Staff/Vacancies
Accounting
Commercial
Legal
Marketing
Property
Comms & Engagement
HS ec aseennnen
IRRELEVANT
Staff/Vacancies
Commercial
Legal
Property
Network
40
POL-BSFF-WITN-021-0000019_0039
POL00448610
POL00448610
7. Supporting Analysis:
HE) Product Profitability
POL-BSFF-WITN-021-0000019_0040
POL00448610
POL00448610
Post Office Limited - Document Classification: INTERNAL
Purpose and Methodology: Levels of Profitability
s considering direct costs, indirect costs and allocation of central overheads;
To understand truer profitability at the Trading Profit level for products and servic
To leverage these results as a tool to support, validate and enhance commercial and network decision making across the organisation such as IRRELEVANT
MATTSISVAE validating the commercial decision to exit Lottery and POCA, or discussion around the IRRELEVANT
IRRELEVANT
Product Profitability is assessed at three levels
Variable
Contribution
= IRRELEVANT
Allocated Profit
POL-BSFF-WITN-021-0000019_0041
POL00448610
POL00448610
Post Office Limited - Document Classification: INTERNAL
cls Profitability: Key findings and Limitations
25 Budget, all commercial business units are projected to make a positive variable contribution — where possible these should continue to be
ments
assumed to be due to the following:
i) The network cost base for delivering} a revenue base that is declining year on year! removing these
increasing network costs in line with
IRRELEVANT, are growing but this is expected to take time to ramp up; growth in this area will
ii) With the implementation and delivery of th
require investment.
- this needs to considered
iii) Variable Postmaster Remuneration % on! is significantly higher than other BUs such a:
when reviewing the Remuneration Strategy in the Summer.
pues analysis at the product level show two other products are also loss making at the Notional Profit level:
ans will enable co-ordinated revenue opportunities and cost reduction for long term profitability.
Limitations of this analysis:
This analysis centres around an allocation of Trading Profit ie. EBITDAS level of profitability as a KPI for POL trading performance. However based on Board member feedback
there are other elements that could be considered in assessing a ‘true’ sense of profitability, including:
Network Subsidy Payment from DBT in subsidising the cost of delivering the Network Access Criteria; this sits below Trading Profit and further work on ‘branch
ieval profitability’ is being carried out to assess the total cost of the uncommercial network in preparation for the FY25/26 Spending Review.
* Cost of ‘change’ activity e.g. cost of product development that sits within Exceptional spend or Capex or the cost of NBIT/ other network technology improvements
* The Postmaster ‘cost to serve’ i.e. the true cost for the Postmaster with an understanding of the PM Rem rate % aligned to time and motion analysis
Based on Board member feedback, this analysis could also be developed further for use as a tool in scenario modelling or investment appraisal, for example in assessing the impact
of cost reduction measures such a: or the potential impact of automation. Ultimately, we recommend an approach that balances the effort in developing this for other
uses against the value it could generate.
43
POL-BSFF-WITN-021-0000019_0042
POL00448610
POL00448610
Post Office Limited - Document Classification: INTERNAL
Product Profitability: Overview 2024/25 by Business Unit
idation — it has nc commentary or input
Revenue & Variable PM Va Allocated Allocated
Cost of Sales
Income Rem contribution overheads __ Profit
Mails RM.
Mails Non RM
Total Mails
Banking Services
ATMs
Total Banking & ATMs
Travel Money
Mortgages, Savings & Loans
International Money Transfer
Credit Cards
Pol
Total FS-INS-TM-IMT
Payment Services & Payzone
Total Payment Services & Payzone
Retail & Gift Cards
Government Services
Identity Services
Total Retail, Government & Identity
Voucher Encashment
Supply Chain
Central Commercial
RRELEVANT
Overheads
Total Other
Total POL
POL-BSFF-WITN-021-0000019_0043
POL00448610
POL00448610
Post Office Limited - Document Classification: INTERNAL
Proposed Reclassification of Non-staff costs to Cost of Sales (1/2)
ntifi
would
FY24-25
BU Item Comments Status
9+3Forecast Bud:
Banking i
Banking
Banking
Government Services
Payment Services
PO!
Total
Total Opex % Revenue & Income - current
Total Opex % Revenue & Income - after proposed ch
IRRELEVANT
Notes for consideration
+ IFRS doesn't explicitly specify what should / should not be included in COS. It is mentioned briefly in various IFRS agendas/papers but is vague.
Judgement is therefore involved in classifying COS vs non-COS but must be appropriate and consistent - and we need to be able to justify any judgement.
* Often, reporting entities look to US GAAP which is slightly more detailed. It puts sales / marketing type costs in admin/opex/general type line items.
Currently, we don't split COS out in the ARA — so the impact at the moment on external reporting is minimal. However, there may be a time when this changes (a new IFRS
standard is due to take effect from 2027 which is more explicit in how accounts are presented)
45
POL-BSFF-WITN-021-0000019_0044
POL00448610
POL00448610
Post Office Limited - Document Classification: INTERNAL
Proposed Reclassification of Non-staff costs to Cost of Sales (2/2)
Variable Contribution margin across POL is at 56% based on current reporting
RE Reflecting the proposed Opex to CoS reclassifications, fst UUIME would reduce by 3 % pts IRRELEVANT
recommended that these continue to be benchmarked to competitor products in commercial assessments.
Pre Opex to CoS Transfers:
BU - FY24/25 Budget Re & FRES Variabl
(eo ecas gh pian Variable PM Rem Cost of Sales marae Margin % Variable contribution Margin %
£m Income contribution
Mails RM
Mails - Non RM
Mails
Banking Services
ATMs
Banking & ATMs
Travel Money
Mortgages, Savings & Loans
International Money Transfer
Credit Cards
PO Insurance
FS-INS-TM-IMT
Payment Services & Payzone
Retail, Lottery & Gift Cards
Government Services
Identity Services
Voucher Encashment
Other
Total
Post Opex to CoS Transfers:
IRRELEVANT
46
POL-BSFF-WITN-021-0000019_0045
POL00448610
POL00448610
Allocation of overheads methodology
d to product: lative revenue g
= Overheads are allocated based on the following drivers:
Q * «2
Weighting based on Weighting based on
Direct cost usage Revenue
cash usage resource usage
= Revenue is a common basis for allocation however other metrics are used in conjunction with revenue to derive a rational
apportionment that depends on the cost type, for example:
= Network and Postmaster costs are weighted more heavily towards network products and less towards platform
products;
= Customer Experience, Marketing costs are assigned more towards product groups that take a larger % of the resource.
47
POL-BSFF-WITN-021-0000019_0046
POL00448610
POL00448610
HE) 8. Appendix
POL-BSFF-WITN-021-0000019_0047
POL00448610
POL00448610
Commercial-Led Top Strategic Priorities for
2024/25
Drive top line revenue I
a growth
Retain PO’s most profitable
customers
Reduce cost of service and
improve cost margins,
IRRELEVANT
Enhance IT & Digital
services
Reduce commercial and
regulatory risk
TS BES Ee Se)
POL-BSFF-WITN-021-0000019_0048
POL00448610
POL00448610
Retail-Led Top Strategic Priorities for 2024/25
In order of importance
Deliver future formats to
1 support long-term branch
profitability
Reduce branch
discrepancies
Reshape the network to I
3 support sustainability for B I
POL, PMs & SPs i
Enhance Branch Hub to i
Z@ drive branch performance & H
central efficiencies i
Improve customer z
profitability by increasing '
reach & active base
=e FES Re ie
UO
Relentlessly Championing Excellence for our Network lorrice)
POL-BSFF-WITN-021-0000019_0049
POL00448610
POL00448610
Post Office Limited - Document Classification: INTERNAL
CIO Top le Priorities for 2024/25
[Improve Service to I .
1—@ Postmasters and Strategic
Suppliers]
[Improve Cyber Controls
and Maintain Compliance]
[Deliver Branch
Automation]
) IRRELEVANT
[Reduce Technology :
Operation Costs]
[Maintain Lifecyle
Management for
Technology Infrastructure]
POL-BSFF-WITN-021-0000019_0050
POL00448610
POL00448610
ffice Limited - Document Classification: INTERNAL
Product Profitability Analysis: Mails
2024/25
Revenue & Variable PM Variable Non-Staff Allocated Allocated
Business Unit Product Cost of Sales Fixed PM Rem Staff Costs
Income Rem contribution Costs overhead: Profit
Mails RM Labels
Mails RM Special Delivery
Mails RM Home Shopping Returns
Mails RM International Priority & Standard
Mails RM Acceptance
Mails RM Stamps
Mails RM Parcelforce
Mails RM Other Trading
Mails RM Mails Other
Mails RM Mailwork
Total Mails RM
Mails Non RM Sale in Branch
Mails Non RM Click and Collect
Mails Non RM Drop-off Purchase
Mails Non RM Returns
Mails Non RM Online Platform
Total Mails Non RM
Total Mails
52
POL-BSFF-WITN-021-0000019_0051
POL00448610
POL00448610
Post Office Limited - Document Classification: INTERNAL
Product Profitability Analysis: Banking and ATMs
eMC AMINE aI Banking products are expected to be IitneyftNtt supported by the IRRELEVANT
2024/25
Allocated
Profit
Notional Allocated
Profit overheads
Revenue & Variable PM Variable Non-Staff
Product Cost of Sales Fixed PM Rem Staff Costs
Income Rem contribution Costs
Banking Services Deposits
Banking Services Withdrawals
Banking Services Banking Other
Banking Services Change Giving
Total Banking Services
ATMs ATMs
Total ATMs
Total Banking & ATMs
53
POL-BSFF-WITN-021-0000019_0052
POL00448610
POL00448610
Post Office Limited - Document Classification: INTERNAL
Product Profitability: FS-INS-TM-IMT
PASM al! product are
2024/25
Revenue & — FRESProfit Variable PM Variable Non-Staff Notional Allocated —_Alllocat
Business Unit Product Cost of Sales Fixed PM Rem Staff Costs
Income Share Rem contribution Costs Profi overheads Profit
Travel Money Travel Money - Branch
Travel Money Travel Money - Online
Total Travel Money
Mortgages, Savings & Loans Mortgages, Savings & Loans
Total Mortgages, Savings & Loans
International Money Transfer MoneyGram
International Money Transfer Postal Orders
International Money Transfer Western Union
Total International Money Transfe
Credit Cards Credit Cards
Total Credit Cards
Pol Travel Insurance
Pol Protection
Pol Home Insurance
Pol Motor Insurance
Pol Other Insurance
Total PO
Total FS-INS-TM-IMT
54
POL-BSFF-WITN-021-0000019_0053
POL00448610
POL00448610
tion: INTERNAL
Post Office Limited - Document
Product Profitability: Other
2024/25
Revenue & Variable PM Variable Non-Staff Notional Allocated Allocated
Business Unit Product Cost of Sales Fixed PM Rem Staff Costs
Income Rem contribution Costs Profit overheads Profit
Payment Services & Payzone _ Bill Payments
Total Payment Services & Payzone
Retail, Government, Identity: All products profit making at the notional profit level.
2024/25
Revenue & — Variable PM Variable Non-Staff Notional — Allocated — Allocated
Business Unit Product Cost of Sales Fixed PM Rem Staff Costs
Income Rem contribution Costs Profit overheads Profit
Retail & Gift Cards Gift Cards {
Retail & Gift Cards Retail
Total Retail & Gift Cards
Government Services DVLA
Government Services Home Office
Government Services uKVI
Government Services Other
Total Government Services
Identity Services Document Certification Service
Identity Services Yoti
Total Identity Services
Total Retail, Government & Identity
POL-BSFF-WITN-021-0000019_0054
POL00448610
POL00448610
Security
FY24/25 Baseline:
rr TERNA
Headroom Drivers
FY23/24— PL P12 FY24/25
Security Headroom Brought Forward
Trading profit
FRES Profit Share (non-cash)
FRES Dividend
Interest
Change Spend
Remediation Compensation
Network Subsidy
Investment funding
Investment loan
Movement in payables
Other
Security Headroom Carried Forward
AJ
A
Mm
r~
>
=<
—I
FY24/25 excluding £40m RU/Inquiry contingency and £103m Horizon replacement funding: <Lowest point>
Security Headroom Brought Forward
Trading profit
FRES Profit Share (non-cash)
FRES Dividend
Interest
Change Spend
Remediation Compensation
Network Subsidy
Investment funding
Investment loan
Movement in payables
Other
Security Headroom Carried Forward
IRRELEVANT
<First breach> <Lowest point>
POL-BSFF-WITN-021-0000019_0055