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RMH(10)POL
ROYAL MAIL HOLDINGS pic BOARD
POST OFFICE LTD — MANAGING DIRECTORS REPORT — PERIOD 2
(May 2010)
Profit Target
Operating Profit in the month was £1.6m against a budgeted loss of £0.9m resulting in
a £2.5m favourable performance. Cumulatively profit is £3.5m against a planned loss
of £3.6m giving a £7.1m favourable position. The favourable year to date performance
includes some timing effects expected to reverse. People costs were favourable by
£2.3m (staff £1.3m and agents £1.0m) and non staff costs favourable by £5.9m
(across most categories including lower losses £1.5m, Computers & Telephones
£2.2m and Staff & Agent related £1.5m).
External gross income cumulatively was £2.5m adverse to budget, mainly in Financial
Services and Telephony products (though the latter had favourable cost of sales,
giving Telephony £0.1m adverse net income). Cumulative sales performance for
standard products was at 104% against the budget but focus products was 97%,
mainly due to the lower sales on POFS and travel products.
Year to date Profit is £6.3m lower than prior year mainly driven by lower net income
(predominantly POCA) and higher costs partly offset by lower people & non-people
costs.
Telephony bad debts of £2.0m were written off in the month but did not affect the profit
as they had been fully provided. This amount is made up of balances where all debt
collection actions had been taken without success and small balances of under £30.
This represents writing off the outstanding balances of 7600 customers.
Cashflow
The YTD budget is for a cash outflow of £99m - actual performance is an inflow of
£61m giving a favourable variance of £160m. The Client category (debtors, creditors
and cash) accounts for £118m of this favourable variance with working capital,
particularly business creditors, contributing a further £44m favourable.
In Client, cash remains at controlled levels and in total is £79m below the budget set
for P2. May's actual of £769m is lower than the equivalent period last year of £787m.
Branch cash is particularly favourable (budget £603m, actual £501m) and represents
an achievement in a Bank Holiday affected period end.
Client creditors are £57m favourable to budget. Notable are high creditors for [IRRELEVANT I
Within working capital, business creditors at £362m are £35m higher than budget. The
main reason is client ad' i ly hit i i Ie}
Finally POL's capex is significantly adverse in P2 as the AEI photo-licence equipment
is being accounted for as a finance lease resulting in a capex cash outflow of c. £10m.
This is matched by finance lease cash inflow below the reported free cash flow
subtotal.
Meeting with Edward Davey MP.
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I met with the new Minister for Postal Affairs on 3° June with our Chairman, Donald
Brydon. The session confirmed likely timings of,
ind the initial thinking on the future of the Post Office as a
100% owned public body. The Minister was well briefed by the BIS team around all
the issues faced by the business. As a consequence of this session, POL has now set
up a working group to tie in with Group Strategy to work through critical impacts such
as legislation “asks” of the Bill, IBA requirements, legal structure, pensions and the
like. In addition, the business will provide a “positive story for the Post Office” as an
input to the Board awayday for the end of June.
Savings Gateway Update
We are currently seeking clarity from the new Government regarding their intentions
on Savings Gateway and their commitment to the £16m funding. I have written to the
Treasury following discussions with BIS, seeking their underwriting of the £400k
already committed to our suppliers and to our continuing project costs until a formal
contract is signed. Should I not receive a positive response by the middle of this
month we will stop work on this project. I have made the Government aware that this
would push back their previously stated delivery requirement for December 2010,
should they later wish to resume.
Application, Enrolment & Identity (AEI) Services Update
We have commenced the DVLA driving licence renewal transactions using our
Application, Enrolment and Identity (AEI) technology from 18 May. The transaction
involves capturing each customer's photo and electronic signature using a secure
booth in Branch offices. This, along with their data, is then sent by secure electronic
link to the DVLA, where they check the application and post a new photocard licence
to the customer.
This new technology is currently being rolled out and 750 units will be available in Post
Office branches by the end of September.
Horizon Online Rollout Update
The Horizon Online pilot is now operating at 622 customer-facing branches. Good
progress has been made on fixing the live issues we have been experiencing with
recent updates applied to the Data Centres further improving stability. High Volume
pilot migrations are now due to restart on Tuesday 8th June and a schedule for the
rest of the pilot has been agreed with stakeholders. We will be migrating the Crown
network first and complete by the end of June, with the rest of the Branch Network
following after that. We are looking to complete migrations in September.
Financially the programme remains ahead of the business case due to higher than
planned benefits and a number of financial savings which have been made. These
benefits are already guaranteed and not endangered by project slippage.
Identity & Passport Service (IPS) - Front Office Services (FOS) Update
The procurement has now been halted and the bid team are awaiting instruction
from IPS as to next steps — further communication from IPS due very soon.
Government has announced that the ID Card Programme is to be cancelled and the
capture of a second biometric (fingerprint) for latest generation passports ‘halted’.
The Front Office Services (FOS) procurement is still relevant to passport application
and the Check and Send Service — of which FOS is intended to subsume — expires in
November 2011. IPS has the option to: (1) continue the current procurement with only
passports in scope, creating relatively minor delay; (2) cancel and re-start a new
procurement with new requirements, creating significant delay and cost or (3) cancel
the current procurement and be amenable to an exclusive proposition for providing the
service avoiding a further costly procurement and enabling a timely implementation.
10.
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There is no impact to the UK Border Agency pilot activity, or the DVLA licence
application programme roll-out as a consequence of the delay described above.
Next Steps and Actions
« While awaiting IPS’s instruction the bid team continues to develop an exclusive
proposition based on its summer 2009 proposition to IPS.
e Group is being briefed on the approach to help determine the political will for such
a solution.
e The Bid Team continues to monitor competitors’ activities and adapt the strategy
accordingly.
System & Channel Availability
Horizon — Branch availability in May was 99.74% (provisional figure only at this stage)
exceeding a stretch target of 99.60% and significantly above the contracted target of
99.45%. This is due to less branch incidents requiring an engineer visit, as well as a
marked increase in the stability of the on-line service at branches due to all the fixes
applied by Fujitsu to the infrastructure. This now provides us with a very stable
environment as we re-commence HNGxX roll-out.
ATM - ATM availability performance has increased this month, from 94.91% in April to
95.14% in May (provisional figure only at this stage). This is mainly due to an increase
in availability of the Bank of Ireland infrastructure.
Website — Availability increased to 100% in May from 99.48% in April. This was due to
no emergency/scheduled maintenance or downtime impacting on performance.
Customer availability was similarly high at 99.95%.
Call Centre — Grade of service (GOS) for May outturned at 78.8% against the target of
80%.
We just missed the target threshold this period due to failures on several products.
These include Travel Insurance (54%) due to a continued number of issues, including
the ongoing situations in Iceland, Thailand, Greece and lengthy queries relating to BA
industrial action. We have seen continued excellent performance at the two largest
contact centres with Telephony (88%) and Card account (85%).
Post Office Budget Card
Post Office Budget card was launched on 25 May, providing customers with a modern
and convenient way to help them budget for their outgoings.
Customers will be able to use the card to pay for all bills accepted at our branches and
they can be reassured their funds are safe if they lose their card as it is issued by the
Bank of Ireland, so covered by the Irish Deposit Protection scheme.
We currently have 300,000 Savings Stamp customers and aim to transfer all of these
as well as gaining new customers looking for help with their budgeting in the current
economic climate.
Network Related Updates
Sales
At the end of week
giving a POL performance of 97%. Standard Product
ith
Wi
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‘income performance
} POL at 102%.
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Inland and international express mails have largely recovered from the effects of the
flight restrictions seen in weeks 3 and 4, but Travel Money remains severely impacted
with reports of travellers waiting until the very last minute to buy their currency, and a
resulting increase in market share being seen by FX outlets in airports. Despite the
slight relaxation, with permission to fly in a greater density of ash cloud than originally
thought, there still remains a possibility of further disruption, which continues to affect
FX buying behaviour.
Agency Contracts
The financial consequences process comes into force from 1st June following three
months Agency contract change notice period. This is the first stage in managing non-
conforming branches more rigorously, using the agents contract disciplines to improve
the customer experience and compliance. Repeat ‘non-conforming’ branches will be
visited and retrained, and the costs passed on to them although mitigating
circumstances will be taken into account.
National Federation of Sub Postmasters (NFSP): Ways of Working
A collaboration workshop day is being set for July and we await agreement on signing
an NDA, in order to work more closely with the NFSP on commercial matters.
Network Operations/Support
Round 2 of the Welsh Assembly Post Office Diversification Fund (PODF) generated 70
applications from Subpostmasters wishing to refurbish their post office with the
average funding request in the range of £16k. The Scottish Parliament is currently
consulting on a Scottish version of the PODF which, if introduced, will make £1m per
year available to Subpostmasters in Scotland to develop their post office business for
the future.
Melsonby — the Police investigation has progressed leading to Robin Garbutt, Diana’s
husband, charged with her murder. Diana’s funeral took place on 7th May.
New Mobile Web Site
Mobile platform m.postoffice.co.uk was launched this week, and is a cut down version
of the main Post Office website produced specifically for mobile users accessing the
internet on their mobile phone. The site contains our core tools:
- Branch finder
- Postcode/Address finder
- Currency convertor
The mobile platform can be accessed by any phone with mobile internet access. It will
display differently on various phones depending on the capability of individual
handsets. The site also promotes Post Office Travel Insurance with a ‘click to call’
button allowing users to connect directly to the AON contact centre to get a quote or
buy Travel Insurance.
Sales Model Review
Navigant (a specialist FS sales consultancy) have now spent 2 weeks investigating
POL’s approach to selling FS products. The review completes in 3 to 4 weeks and will
feed into a concurrent POL OD review, the 12-17 Strategy refresh, and Eagle.
Customer Experience (CE) Programme
A new programme is being scoped to combine work from the Crowns Waiting Times
project and the Brand and Customer Experience programme. The priority will be on
delivering a noticeable difference in branches by training, incentivising and
communicating a best practice, to be adopted across all Crown and major Agency
branches where queuing times are worse than targets, which integrates with our
customer complaints’ policy.
David Smith
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June 2010