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CONSIGNIA pic
(company no. 4138203)
Minutes of the meeting of the Board of Directors
eld at 148 Old S ondon
on 10 April 2001
Present:
Neville Bain Chairman
John Roberts Chief Executive
Marisa Cassoni Group Finance Director
Jerry Cope Group Managing Director, Strategy & Business Development
John Lloyd Non-Executive Director
Miles Templeman Non-Executive Director
Rosemary Thorne Non-Executive Director
In attendance:
Richard Dykes Group Managing Director, Mails Services
Stuart Sweetman Group Managing Director, Customer and Banking Services
Kevin Williams Group Managing Director, Distribution Services
Jonathan Evans Company Secretary
Miranda Dodd Notes
Also present:
Mark Thomson MD Stamps and Collectibles, for CB01/09
David Marshall Group Personnel Director, for CB01/10
Apologies
Mike Kinski, non-executive director, was unable to attend.
CB01/01 APPOINTMENT OF DIRECTORS CB(01)01
Consent from the Secretary of State as special shareholder
haviry been received. the Board agreed the following
appointments to the Board of Consignia pic:
« Jerry Cope, Mike Kinski, John Lloyd, Miles Templeman and
Rosemary Thorne with effect from 26 March 2001
* and Allan Leighton with effect from 2 April 2001.
CB01/02 MINUTES OF THE PREVIOUS MEETING OF CONSIGNIA pic
The Board noted the minutes of the Consignia plc Board held on
22 March.
CBO01/03 MATTERS RESERVED TO THE BOARD CB(01)02
The Board noted the that the powers previously reserved to The
Post Office Board had been updated to conform with the pic
status of Consignia, and agreed to the Matters Reserved to the
Board as set out in Annex B of the paper. The Board further
agreed to retain as a Matter Reserved, decisions on the
appointment and removal of auditors: such decisions would be
taken with the advice of the Audit Committee, and be subject to
ratification at the Annual General Meeting.
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CB01/04
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MINUTES OF LAST MEETING OF THE POST OFFICE BOARD
POB(01) 3%
The Board approved the minutes of the Post Office Board
meeting on 13 March.
MATTERS ARISING FROM THE LAST MEETING OF THE
POST OFFICE BOARD CB(01)04
The Board noted the matters arising from the Post Office Board
meeting held on 13 March 2001.
CHAIRMAN’S BUSINESS
The Chairman reported with much disappointment that despite
strenuous efforts with the DTI, it had not yet been possible to
finalise contractual terms for the executive directors and the
Chairman, DTI had undertaken to resolve the matter before the
end of June. For non-executive directors, agreement had been
reached with DTI on a new fee structure as follows:
a) base fee: £20,000 per annum
b) committee membership: £1,500 per annum per committee
¢) committee chair and membership: £2,500 per annum per
committee
The appointment of non-executive directors was made on a
staggered basis with Rosemary Thorne and Mike Kinski
appointed until 25 March 2002 and John Lloyd and Miles
Templeman appointed until 25 March 2003. The Board, with the
non-executive directors abstaining from the discussion, agreed
these revised fees and appointment terms;
the Chairman discussed the response, circulated to directors
before the meeting, from Alan Johnson on the Strategic Plan.
The Board considered the reply to be unsatisfactory as it failed to
recognise the extent of shareholder support which would be
required to deliver the Plan, placing an unacceptable level of risk
with Consignia. The Chairman agreed to reply to the letter,
stressing clearly the Board's concerns;
the Chairman reported that he had also received a letter from the
Minister on the subject of corporate governance - the eventual
and much-delayed reply to the Chairman's original letter of 27
June 2000, in which he had proposed a clear set of defined roles
for the shareholder and the Board. The DTI’s reply was
inadequate, leaving Consignia without an agreed governance
framework in place in respect of its dealing with the shareholder.
The Board agreed that the Chairman should pursue the issue with
DTI making clear the unacceptability of this situation;
the Chairman brought to the attention of the Board an article in
the April edition of the “Subpostmaster” newspaper in which the
Secretary of State had been quoted as saying to the NFSP's
Executive Council that the Post Office Board had failed in the past
to give sufficient support to the interests of subpostmasters and to
the post office network in general. The Board felt that these
comments, if correctly reported, were without foundation, and
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recalled the considerable time which the Post Office Board had
devoted over the past three years in particular to Horizon, the PIU
Teport and the future of the network. The Chairman intended to
challenge the Secretary of State about his alleged comments.
CHIEF EXECUTIVE’S REPORT CB(01)05
The Board noted the Chief Executive's report, and in particular
that:
Performance: across the company performance had continued
the trend of previous months, and the forecast agreed at the last
meeting of the Post Office Board appeared to be secure. The
exception was a marked and serious deterioration in the financial
situation of the Packages and Express business unit, which was
explored in greater depth in the financial overview item;
Operating licence: an acceptable licence had finally been agreed
in an intense weekend of negotiation at DTI, in which Postcomm
had moved their position by some distance. Postwatch’s reaction
to the licence had been unfavourable, with accusations that
Postcomm had capitulated. Postwatch was understood to be
contemplating seeking a judicial review of the licence-issuing
process, although DTI were making attempts to broker an
agreement between Postcomm and Postwatch to head off this
threat;
DSS: relationships with the DSS had improved following the
development of an innovative secure distribution product for order
books. The scheme enjoyed ministerial backing and was
awaiting final approval;
BBC/Envision: a new contract with the BBC had been agreed to
replace the Envision contract, which was now dissolved. The
Board recognised the huge personal effort of Mena Rego in
securing an agreement which decreased the Consignia risk,
recovered all fully allocated costs and improved relations with the
client. The latest forecast cost, to be treated as an exceptional
item, had decreased to £63.8million from £91 million set aside in
the half year accounts. A settlement to resolve the dispute with
Bull was still being pursued with vigour with a settlement
expected in the current financial year;
The Address Interpretation (Al) project was reported to be back
on track following an 8 month delay. The contractor, Lockheed
Martin, had changed their team, as had Royal Mail, and together
the parties had reached a settlement which improved the NPV
from £29million to £37million by bringing performance forward
and delaying payments. The Board were updated on the lessons
to be drawn from the experience, categorised as:
* the importance of understanding the consequences of a tight
business case
* ensuring the continuity of supplier teams
* conducting an early search for improvement opportunities
* maintaining a clear line of sight to the activity of sub-
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contractors
* ensuring a rapid escalation process in the case of difficulty
Delta: the proposed joint venture with TPG and Singapore Post
had been approved by the European Commission subject to
some divestment by TPG, which would helpfully reduce the entry
price for Consignia;
Evidence from TPG and from Warburgs about DPWN indicated
that both postal administrations were struggling to provide a
profitable and comprehensive parcel operation;
USPS: the Chief Executive had recently visited Washington for a
discussion with the Postmaster General. The USPS was about to
announce losses of $3bn and was considering implementing
service cutbacks such as Saturday deliveries. The contract of the
current Postmaster General was not being renewed and it was
anticipated that the new holder of the post may herald a new
approach to entry in to the international letters market;
Prices: as agreed at the Post Office Board the previous month,
the DTI had been told of the proposed increase in prices, which
had been foreshadowed in the Strategic Plan for two years.
Postcomm and Postwatch were to be briefed after the Board
meeting and a public announcement was scheduled to be made
the following morning;
Industrial Relations: following the last meeting of the Post Office
Board, the Chief Executive had again met with the CWU
leadership. The incidence of unofficial industrial action had
decreased, but a number of ballots were now taking place calling
for official action. The position was still volatile, and there was the
risk of a major national dispute arising, the direction of which,
given the current political scene in the run-up to the next General
Election, may not sufficiently be in the hands of management. In
these circumstances, the possibility was being explored of
conducting over the next few weeks an external enquiry, jointly
with CWU, into industrial relations in a limited number of offices
which had endured recent unofficial action. The TUC was also
being consulted on this idea. While the Board saw the
advantages of this approach, it was not without its risks as it
could be perceived internally as delaying necessary tough actions
with the union. There would also be no certainty that the union
would respond adequately to the outcome of such a review. The
arguments were finely balanced, and consideration of the most
appropriate approach would continue.
FINANCIAL OVERVIEW
The Board noted a presentation by Marisa Cassoni, in particular
that:
Quality of Service forecasts had been revised during the month.
In mails services 10 out of 13 forecasts had been revised
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downwards with the second class letters target now being
forecast to be failed. Two forecasts in Distribution Services had
been revised upwards and three downwards;
significant contributors to the variance against forecast for the
month had been caused by delays to realising savings in the
Gemini hubs, failure to realise negotiated productivity gains in
Post Office Network, a reduced write down provision for vehicles
and a reduced spend on group centre projects;
Group income was showing an 8.6% increase in over the year,
the increase stemming mainly from the inclusion of foreign
acquisitions. The adverse variance against external income
excluding acquisitions was in the main the result of lower than
expected volume;
turning to the budget for 2001/02, Trading model! changes were
being planned to ensure that units worked together in partnership
to achieve the best results for the company;
£95m in savings had been identified against £60m external
income risk as requested by the Post Office Board at its last
meeting. Savings in Purchasing Services, Service Delivery,
Business and Consumer Markets, capital expenditure and
Business Systems had been included into unit budgets; additional
funds would only be released during the year when and if the
overall performance of the company allowed it.
The Board agreed the full year Group post-tax profit forecast,
before ringfenced items, of £175 million should be released to
OTI.
The Board noted a presentation from Kevin Williams on the
significant deterioration in the position of Packages and Express
business unit. In particular:
the unexpected change in the report to the Board - the profit
forecast had worsened by £15m in a single month - had resulted
in part from the incompetent actions of a senior accountant who.
had since left the company. Some other senior staff were having
their careers re-assessed;
P&E’s performance in 2001/02 was now seriously adrift from the
targets agreed with the Board under Project Everest. A new five
year plan had been constructed which returned the unit to being
on track by year 5, but this was very ambitious and risky. A profit
improvement of £25million was assumed in 2001/02 alone, which
was seen as a very tough task;
the proposal now was to continue to drive hard on the Everest
actions - and there were signs of solid progress, especially in the
resourcing area - and in parallel to mobilise a team to build on the
earlier Project Apollo work outlined to the Post Office Board, to
identify the best commercial options for the future. A report back
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would be made to the Board in July.
The Board expressed intense disappointment that it had been in
receipt of misleading performance information in earlier months,
together with great concern that the true underlying performance
now cast considerable doubt on the ability of the unit to transform
itself into running at acceptable levels of profitability. The Board
would need to return to this in July, when the Apollo work had
been further progressed. The Board would be looking for options
which created value for the company, and which the Board could
have confidence of being delivered.
2003 STAMP PROGRAMME CB(01)06
The Board discussed Stuart Sweetman's paper, supported by a
presentation from Mark Thomson.
The role of the Stamps and Collectibles business unit was to
strike a careful balance between securing a financial contribution
from broadening the appeal of stamps to new customers, whilst
maintaining the support and revenue from the existing more
traditional philatelic community, who provide most of the unit's
revenue at good contribution levels. The indications were that
this was being achieved: revenue was showing substantial
growth, and customer satisfaction very high;
to further the attractiveness of stamps for the new generation of
customers, the paper proposed that the criteria and conventions
for new stamps be updated to enable living people to be featured
on stamps as part of a crowd or sporting team, but not to be
depicted individually unless the individual was a member of the
Royal family. It was recognised that this change could lead to
potential controversy, particularly if, subsequent to the stamp
issue, the reputation suffered of those depicted. However with
sensitive treatment, it was considered that this change in the
conventions was worth making.
The Board:
* congratulated Mark Thomson on the progress his unit had
made to date
© noted the progress on the development of the 2001 and
2002 Special Stamp Programmes
* noted the proposals for the 2003 Stamp Programme
¢ endorsed the proposed amendments to criteria for subject
selection, and asked that the drafting of the revised
convention 2 be made explicit to exclude the possibility of
identifiable individuals who were not members of the Royal
family from being depicted.
IMPROVING SENIOR MANAGEMENT CAPABILITY CB(01)07
The Board discussed Jerry Cope’s paper, supported by a
presentation from David Marshall.
It was intended to facilitate an improvement in company
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performance by completing a major overhaul of the treatment of
the “Top Y" managers who comprised in the main business unit
executive committee members and group centre directors;
over the course of the three year plan outlined, Consignia should
become more like other companies subject to market forces in
the way that it both treats and is treated by its senior
management population;
successful work had been undertaken to ensure that Consignia
had access to an ethnic and culturally diverse population of
applicants from whom the best could be selected;
the need for honest appraisal of individuals against the
dimensions of performance and potential was paramount,
together with supporting individuals who felt threatened by the
new process;
The Board noted and supported with encouragement the
progress on the strategy, and the further issues yet to be
addressed.
INVESTMENT BOARD - THE ENTERPRISE SYSTEM
PROGRAMME CB(01)08
The ESP programme was approved by the Investment Board in
June of 2000 and was now subject to a staged approval process;
the Board noted in discussion that the ESP programme was
proceeding well and that the Board's concerns about the project's
manageability had been addressed;
some directors expressed surprise at the scale of investment
tequired, but did not wish to delay authorisation of this key
programme. However the Board sought further information on
how the implementation by Consignia of the system compared to
similar installations in other organisations. SAP would be invited
to present their views to the Board.
The Board:
* noted the overall programme spend of £176m, of which £41m
was sunk, authority was sought for £49m, with future spend
remaining of £86m;
* endorsed the Investment Board's approval for 2001/02 spend
of £49m with future spend for the remainder of the Enterprise
Systems Programme estimated at £86m, which will be subject
to further business case authorities.
AUDIT COMMITTEE REPORT CB(01)09
The Board noted that guidelines on the governance arrangements
of overseas subsidiaries were being developed, and would be
agreed by the Executive Board prior to implementation;.
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(ii) The Board noted the audit committee report.
CB01/13 DATE OF NEXT MEETING
The next meeting was scheduled for 9 May 2001.
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