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POST OFFICE LIMITED
THE BOARD OF DIRECTORS DISCUSSION PAPER
LEGALLY PRIVILEGED
Group CEO Report
Author: Nick Read Meeting date: 29 October 2019
First six weeks
I am delighted to be sharing my first Board report as Group CEO. At the time
of writing I have been in role for just over 5 weeks and I am pleased with the
level of progress achieved. I have met, individually, with all members of the
GE and L40 and discussed and agreed tactical objectives with each of them. It
felt important to emphasise the need for a delivery and commercial focus from
the outset.
Some of the highlights of where I have been spending my time, include;
e On day one, I hosted a welcome breakfast for all colleagues in Finsbury
Dials
e On day two, I hosted welcome conference calls for our colleagues in
Chesterfield, Bolton and Payzone, as well as field and remote working
colleagues
Visited our offices and met with teams in Chesterfield, Bolton and Payzone
Spent a day out in our Supply chain and cash operating unit
Two days of branch visits and meeting with Postmasters
Launched the Purpose, Strategy & Growth (PSG) project with McKinsey
Hosted three L40 events, and have begun refocusing the purpose of the
group
e Attended the Financial Inclusion Policy Forum at the Treasury and the
recent BEIS Network Partnership Organisation meeting
e Met with two CEOs, Paul Patterson, Fujitsu (recently taken over from
Duncan Tait) and Francesca McDonagh, Bank Of Ireland; I am due to meet
with Rico Back, Royal Mail on 28 October. A meeting with Carl Cowling,
CEO, WH Smith is scheduled next month
e Had an introductory meeting with Kelly Tolhurst MP, which was
encouraging. She has since suggested we meet bi-monthly going forward,
and I separately met with Permanent Secretary, Alex Chisholm and his
policy team
e Launched the Organisation Health Index (OHI) with all colleagues following
the L40 check list questionnaire
Most of my early observations will not come as a great surprise;
> the lack of real time management information and data
> the need to quickly establish a better operating and trading rhythm
> the importance of driving accountability across the organisation (see
above for objectives)
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> the necessity to rebalance the dominance of process, risk, audit
compliance and governance with a greater focus upon customers,
postmasters, products and services
the need to build a proper business consciousness. Focus upon
operational success and performance
the lack of an organisational change roadmap - no capability, nor
capacity management, nor understanding of what we want to be. No
narrative.
no change governance (nor design authority). Doing too much and not
necessarily the right things. “Stop-start-continue” required.
Vv
Vv
v
Fundamentally, many of these issues are a consequence of a lack of clarity
around the purpose, vision and strategy of the Organisation. Colleagues are
not clear ‘what good looks like’ nor what they are trying to achieve. Customers
remain unaware or confused by our proposition. There is a huge opportunity
to redefine the purpose of the Post Office, for all stakeholders and this remains
my key objective.
I would like to extend my thanks to Al for his support during my transition
period, which has been invaluable.
Financial & Commercial Performance
_P6 Trading profit wa on an underlying basis, leaving us
LIRRELEVANT:. While travel started to stabilise and we saw continuing positive
trends in Mails, Banking and Identity, results deteriorated in Insurance and
Telecoms and we are now facing sustained headwinds. The fir: i
of the 6+6 forecast showed us on a trajectory to miss plan by
i as a result. Urgent work is underway to mitigate this and we have
‘accelerated the spans and layers work to deliver more this year.
Five Year Plan and future funding agreements
We have agreed to postpone the five year plan to undertake a first Board
review in January and a final approval in March, enabling us to align it with the
strategy and priorities work - Purpose, Strategy & Growth (PSG) - McKinsey
are assisting us with. We are currently agreeing a baseline plan from which
the PSG work can operate. This will be agreed before the end of the month to
provide a stable basis, shared with McKinsey, to iterate. Overall the
commercial headwinds have worsened since the July review and we are
focusing on costs mitigations happening earlier. The baseline plan will not
solve the issue that we will not generate enough cash in the period to fund all
the investments we would like to make: the PSG work will enable us to
undertake less, affordably.
On an early view of cashflow, subject to the above, we continue to believe that
we can fund a reasonable GLO settlement from cash efficiencies. The challenge
is that the Bank of England facility is forecast to contract severely as POCA is
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shut down, ATMS reduce and market cash withdrawals are falling in both value
and volume. The Bank of England’s position is that they won’t review the
structure of the BCS arrangements until they are clear on a future cash utility.
We will therefore need to discuss with Government how we can hold our
working capital facilities whole.
We have raised the question with UKGI on what process and timetable we will
need to follow to agree funding arrangements after March 2021 which will be
relevant to a going concern assessment in our 2019-20 Annual Report. Clearly,
some uncertainty on timetables will remain given the political environment,
however an initial submission for the spending review will be required by BEIS
in December. It may be that we need to convene (by phone) as a Board to
agree this submission.
2018-19
We have published our Annual Report for 2018-19 confirming trading profit of
£60m.
Spans & Layers
Wave 1 of this began last month with 58 roles impacted it has been delivered
successfully and received with minimal noise, and wave 2, which has 50
impacted roles, is scheduled to commence early next month. The total
annualised saving to the business of both Waves 1 and 2 is jirrevevant! in-year
benefit versus a target of ‘set in July 2019.
Key Business updates
Network & Christmas planning
Delivery of our Network Programmes continues at pace. 43 DMB exits have
now been delivered inst a target of 69 and we remain on track to deliver in
year benefits o' 07 NNL’s have also been delivered to date against an
end of year targ
Implementation of our trial Parcel Shop proposition is progressing well with 6
locations now live. Performance levels at branches are in line with early
expectations. Marketing is predominantly via digital channels on the RMG
website. Social media is also live via face-book for those within the vicinity of
the stores. The Parcel Shop device will also be deployed in around 100 of our
high volume mails branches over the Christmas period in order to help manage
queues and improve overall customer experience.
The next wave of SSK simplification enhancement will be live in branches by
the end of November, creating a better customer experience in time for the
peak Christmas period. Key improvements include changes to returns
processing and clearer information on Saturday Delivery pricing.
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Barclays & Banking Framework
The media reaction resulting from the Banking Framework announcement was
as briefed and expected - highly critical of Barclays decision and supportive of
formal (even legislative) pressure on them to reconsider. We continue to
watch as the positive ‘28 banks sign up’ message is used to pressure the one
bank that hasn’t.
The negative noise around Barclays continues to build and on the political side,
Andrea Leadsom, SoS at BEIS, has publicly called on the bank to reconsider.
This is in addition to the Chairs of the BEIS, Work and Pensions and Treasury
Select Committees. A cross party letter signed by over 100 MPs has been sent
to Jess Staley, the Bank’s CEO. They were joined by support from the
Payment Services Regulator, Citizens Advice, Which?, Access to Cash Review
Chair, Natalie Ceeney CBE, MoneySavingExpert.com as well as many others.
The BEIS Select Committee has asked Post Office and Barclays to give
evidence about the impact of the latter’s decision to stop cash withdrawals on
5 November, General Election permitting. On the media side, almost all
nationals have criticised Barclays, but the Daily Mail is undertaking a sustained
campaign which, at the time of writing, appears to have some distance still to
run.
During my meeting, Kelly Tolhurst expressed her support for our approach and
remarked that she would be contacting Staley this week.
POca
The Department of Work and Pensions has now revealed their tender plans to
replace the POca service for the most vulnerable customers. The suggested
solution is so complex, the customer journey so poor, and the investment
costs to fulfil the CRM and MI so onerous that we are investigating the impact
of a ‘no bid’ decision as we feel their proposal is unfit for purpose and
detrimental to customers.
As a result, they intend to go out to tender on 8 November on a voucher based
system and which will likely provoke a very negative reaction from all
stakeholders. As things stand currently, we will not be bidding to offer the
replacement product. We have informed BEIS at official level, and I briefed
Kelly Tolhurst during our meeting. The Minister fully understands our concerns
and agrees that, in circumstances where DWP remains fixated on a voucher
based system to replace POCA, we will not bid. She has, however, asked us to
work with her Department and with her directly in an effort to combine forces
in making one last push for a policy change at DWP, which we have readily
agreed to do.
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RM negotiations update
Negotiations have been progressing well over the course of the last 6 months
resulting i
e Overall equivalence to current financials on day 1 of the new deal
e POL to sell RMG products and services online through POL website
This now allows the parties to move into detailed commercial discussions with
the aim of signing a new agreement before 18th January 2020. The output will
be documented with agreed positions and any remaining points of difference
shared with the Board in November together with recommended next steps to
achieve the target date.
IT - Belfast Disaster Recovery success
We recently completed a successful Fujitsu Belfast Datacenter disaster
recovery test, including our Horizon trading platform, for the first time in 6
years.
Risks & Concerns
CWU Ballot for Industrial action with Royal Mail
The CWU ballot results showed 97% support for industrial action (76%
turnout). The earliest the CWU could serve notice is w/c 29th October,
however this is unlikely and current speculation is that any action could be
timed around Black Friday in November or Christmas. The CWU is currently
stating that the timing is entirely dependent on Royal Mail and its leadership's
willingness to negotiate. It is also unlikely that the CWU will bring any action
forward from the date on the ballot paper (believed to be 20** Nov) as this
would allow RMG to take legal action to prevent it.
We are working with Royal Mail on priorities and contingency plans. A joint IA
working group has been convened with all relevant POL representatives.
Based on detailed work undertaken before the potential strikes of 2016/17, we
have requested that all branches except the very smallest (for mails volume)
receive a collection by RM once per day with more for the higher volume,
urban locations prioritizing branches across our network. Our plan includes
setting up a POL control centre and we will, of course, be working closely with
our postmasters throughout.
Brexit
We have produced a leaflet for circulation in our branches advising customers
on any key issues and actions they may need to take, that we are aware of, in
the outcome of Brexit taking place on 31°t October. In order to support our
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branches, colleagues from the business will be deployed over a two week
period around the withdrawal, to assist our customers in branches with any
queries and support they may need. (Branch support will be for those likely to
be most affected due to high international volumes/passorts etc).
GLO - KELs Disclosure incident
As briefed earlier this month we have identified and disclosed an incident
relating to KELs. I met with Paul Patterson, Fujitsu and expressed our
disappointment with the incident. A verbal update on the overall status is on
today’s meeting agenda.
We continue to work through the mediation process, including the quantum
analysis so that the Board can delegate authority to the Board Sub-Committee
the making of an appropriate offer(s) at the mediation which is currently
scheduled at the end of November. This may be delayed because of the KELs
disclosure issue which in turn delays the handing down of the Horizon issues
judgment.
Personnel
Mark Davies will be leaving the business at the end of December. Until then,
he will be assisting part-time with the GLO communications. The
Communications department has split with Internal communications moving
into HR department; Corporate & Public Affairs will report into me. A
recruitment process is underway.
New strategy & vision - Purpose, Strategy & Growth (PSG
I have commenced a Purpose, Strategy & Growth project, with assistance from
McKinsey, which will define and shape a forward strategy for Post Office,
specify the organisation capabilities and behaviours required to win, and
identify the technology needed to support us in the future. Further discussion
on this topic is on the agenda later in this meeting.
As part of this process we launched a McKinsey Occupational Health Index
(OHI) survey to all colleagues across the business. The purpose of this is gain
insight into the ‘health’ of the organisation with outputs used to shape the
overall plans for the organisation. Further discussion on this topic is on the
agenda later in this meeting.
We are conducting similar research amongst customers and Postmasters. I
want to get away from opinion and base decisions on data and facts.
Input Sought
The Board is invited to note the report and highlight any issues where a future
discussion would be welcome.