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@ Shareholder
Executive
HM Government
Minutes of Shareholder Executive Board
Wednesday 15 September 2010 at 14.00
Members Philip Remnant (Chair) Attendees Susannah Storey (Item 3)
present: Claudia Arney : Jo Shanmugalingam (Item 3)
Pat Carter Abbie Lloyd (Item 6)
Gerry Grimstone
Peter Schofield Will Gibson, Deeya Sawhney
Tony Watson Secretary:
Stephen Lovegrove
Mark Russell
John McCready
Agenda Action point Action officer I Due date
Item
Item 2 Update Board regarding ShEx I Stephen December
reorganisation at the next meeting. Lovegrove meeting
Item 3 Commission paper from UBS on the I Susannah Completed
conditions for a Royal Mail I Storey
transaction
Item 3 Update on Royal Mail for next Board I Susannah December
meeting Storey meeting
Item 4 Circulate Public Data Corporation I Deeya Circulated
Slides Sawhney with
minutes
Item 5 Update on Property for the next) John December
Board meeting McCready meeting
Item 5 Give further consideration to I Stephen Property
Property Programme Board Lovegrove Advisory
Panel set
up October
2010
Item 6 Circulate PEX(A) remit and I Stephen Oral update
membership to Board members Lovegrove at
December
Meeting
Item 7 Arrange future Board meetings for I Deeya In hand
2011 Sawhney
Item 1 Apologies for absence, Chairman’s welcome and introduction
1.1. There were no apologies for absence. The minutes of the previous meeting
were accepted.
Item 2 ShEx Board Governance
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2.1 Philip went through his paper on the ShEx Board’s remit, particularly alerting
members to the following considerations:
= Policy restraints - the Board will give advice on the operational implications
and effectiveness of policy proposals;
= Projects - the Board will review progress and status of projects that ShEx
undertake;
«= Initiatives - the Board will be consulted on the cost/benefit analysis for all
major initiatives.
2.2 Board members went on to discuss the Board’s role, effectiveness and
accountability. The Board saw itself as an advisory group to help ShEx fulfil
its role in Government and escalate issues when necessary, with
accountability to ShEx. Members commented that there may be situations
where the Board disagrees with policy decisions, and therefore ShEx’s
involvement in some cases which could compromise ShEx’s capability or
affect its reputation. Stephen stated that ShEx would always start from a
commercial position but would overlay policy priorities in order to get a settled
and agreed position. An example was Ordnance Survey and free data. Peter
added that ShEx was also accountable to HMT Ministers and HMT would
support ShEx on matters where ShEx’s effectiveness could otherwise be
compromised, for instance on staffing. Philip pointed out that he and Stephen
regularly discussed key ShEx issues. Stephen commented that the Board has
been a very useful source of counsel and advice.
2.3. Stephen went on update the Board on the internal reorganisation of ShEx
into three units:
= Portfolio Business — managing assets in the ShEx portfolio, with oversight
of Royal Mail (Anthony Odgers);
= Corporate Finance — focusing on transactions of non-portfolio assets and
special projects (Mark Russell); and
= Property — efficient management of Government's property assets and
delivering the Property Vehicle (John McCready)
The Board asked for further detail on ShEx’s reorganisation for its next
meeting.
Actions
e Update the Board regarding ShEx reorganisation at the next meeting.
Item 3 Royal Mail Update
3.1Susannah Storey and Jo Shanmugalingam joined the meeting to update the
board on Royal Mail and the Postal Services Bill. The new Bill has been
designed to offer greater flexibility on the commercial and regulatory side, acting
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as a package of reforms. Susannah and Jo talked through some of the big issues
facing Royal Mail:
= Ownership — Royal Mail are committed to IPO route in preference to any
other
= Pensions — Pension liability will need to be addressed
« Regulation — Protection and operation of USO
= Post Office — Public perception of the Bill and its effect on the Post Office
network
= Proceeds — Fundamental saleability of business
= Players — Interaction and support of key Stakeholders
3.2The new CEO of Royal Mail has ambitious plans for cost reduction and Royal
Mail is currently committed to the idea of an IPO. Members of the Board queried
whether this was a sensible option for this business with Tony commenting that,
even if there was a transfer of shares and capital injection, some form of
Government underwriting would still have to exist. Susannah felt that this was
probably a defensive stance from the business but ShEx were aware of the
issues that surround this route. Stephen added that CVC were involved with the
Belgian post office, they were able to increase margins and were now doing an
IPO.
3.3Members of the Board were concerned about the problems Royal Mail was
facing and its future prospects. Stephen assured the Board that, while the Postal
Services Bill offered more flexibility in terms of sale, ShEx realised that it may not
be possible to sell a stake and had informed Ministers about the difficulties of the
process. Pat inquired about what had happened to EU privatised Post Offices.
Gerry was concerned about the future of Royal Mail, particularly with respect to
its IR problems and asked if proposals work in terms of value for money (VfM).
Stephen realised that there were uncertainties surrounding the future of the
Royal Mail, particularly due to the effect of e-substitution, but the Bill should
create more flexibility and enhance our levers over the business. Stephen also
added that the pensions issues will have to be fixed at some stage. Susannah
responded that EU examples had more flexibility to tackle the USO and cost
issues, and that we have designed the new Bill with more flexibility to tackle
these issues and have made a VfM case to HMT. The team are working to a mid-
2012 timetable to deal with pensions and change the regulator before trying to
find a buyer for the business.
3.4Peter added that HMT were supportive of the work on Royal Mail, especially the
fact that it gave the business an added sense of momentum but there were some
key challenges. He asked whether ShEx had done an assessment on
parameters for sale. At the end of a difficult Bill process it may still not be
possible to sell the business; this could be difficult for Ministers to accept. Peter
also queried the effect on ShEx’s reputation, asking if it was difficult for ShEx to
give commercial advice when they were in charge of policy too. Susannah
mentioned that ShEx are waiting for Royal Mail’s updated business plan but have
previously looked at parameters for sale and potential buyers, reiterating that
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Ministers have been advised of the difficulties surrounding a sale and the need
to address regulation and pension issues. Regarding the split between
commercial and policy issues, Susannah confirmed ShEx were comfortable with
giving advice on both areas.
Actions
¢ Commission paper from UBS on the conditions for a Royal Mail transaction
e Update on Royal Mail for next Board meeting.
Item 4 Chief Executive’s report
4.1Stephen ran through his Chief Executive's report. ShEx is engaged in working on
some of BIS’s major initiatives and financial exposures: Royal Mail, Student
Loans and Property and is also feeding into work on the Green Investment Bank
(GIB). ShEx will need to remain involved as initial ideas have included using
proceeds from the sales of assets from DfT, BIS (Student Loans) and DECC to
fund GIB.
4.2Regarding Post Office, the main issues surround maintaining the Post Office
Network and Spending Review negotiations ongoing regarding the Post Office.
On ESS, the business is currently in financial difficulty, and Stephen will be
writing to David Normington (Perm Sec, Home Office) on these matters. On
Urenco, a go/no go decision on sale of Government's stake from Ministers is now
contemplated before Christmas. On CDC, Gerry raised the possibility of a buy
out of CDC’s non-core assets. This asset transfer would put money into DflD
which could be redistributed as a third world fund.
4.3 Stephen introduced the Board to the idea of a Public Data Corporation. The
concept of ‘free data’ could destroy value in public data companies and therefore
there is a need to adopt a consistency of approach when looking at these
businesses. ShEx feels there could be significant advantages to having public
data entities under one organisation. ShEx will continue to work up ideas on this
proposal but early indications show that there is Ministerial interest as it plays to
value for money, transparency and data agendas. A presentation on Public Data
Corporation will be circulated to the Board.
4.4Stephen updated the Board on the staffing situation in ShEx. Since the last
Board meeting, BIS has approved ShEx’s immediate portfolio recruitment needs.
GPU are currently awaiting approval for exemption from BIS’s recruitment freeze.
Actions
e Circulate Public Data Corporation Slides
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Item 5 Property Group Update
5.1 John updated the Board on progress made since the last meeting on the
Property Agenda. There has been private sector and press interest in the work of
the Government Property Unit (GPU). The key issue facing the Property agenda
is the potential impact of Property Vehicles on the BIS balance sheet. ShEx are
working with HMT and BIS Finance to address this issue.
5.2The aim is for the Property Vehicles to own, manage and control the estate and
to take decisions on asset sales, starting with the central civil estate. The
proposed end model is to outsource the operation of the estate to private sector
partners on a regional basis, who will bring the systems and commercial
capability to consolidate the estate and who could provide financing for specific
projects to release value where appropriate. The precise formulation of this time
limited partnership is to be decided. The model will help to break down barriers
to entry for strategic property management service providers, by setting
contracts on a short term basis, thereby allowing and encouraging new entrants
into the market (and ensuring service levels are optimised)
5.3Stephen noted that there would need to be a large amount of Project
Management work involved on the Property agenda and Philip was also
concerned about the amount of resource in the GPU. John assured the Board
that the level of work involved was fully understood. The scope of the GPU is
across all central Government Departments, regions, and the operational estate,
including MoD and NHS. To achieve substantial savings GPU needed to
progress new property model in all these areas. Having a GPU presence in the
regions would help to achieve this. There was a discussion regarding the
comparatively complex governance arrangements of GPU, with reporting lines to
both Cabinet Office and BIS. It was agreed these should be clearer, and that
consideration should be given to the creation of a Property Programme Board to
provide strategic challenge to the property strategy which was also being
supplemented by work from Deloitte. Claudia was concerned about risks to
ShEx’s reputation and was keen to have a further discussion on this with Gerry
adding that several members of the Board had expertise in the Property area and
were able to offer advice. Philip asked for an update from John on the execution
stage of forming the Property Vehicle at the next Board meeting for the Board to
discuss.
Actions
e Update on Property — Execution Stage for next Board meeting.
¢ Give further consideration to a Property Programme Board.
Item 6 Asset Management and Sales Update
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Minutes of Shareholder Executive Board
6.1 Abbie Lloyd joined the Board to present a paper on Asset Management and
Sales, focusing on the creation of PEX(A), a sub-committee of the Public
Expenditure Cabinet Committee (PEX), and its implications for ShEx. ShEx
would act as an empowered delivery agent to lead the Assets agenda working on
assets for sale/commercialisation, property and projects.
6.2 PEX(A) has not been formally established but the first meeting has been
provisionally tabled for 27 September. The Committee is due to be co-chaired by
Lord Sassoon, Commercial Secretary and Francis Maude, Minister for Cabinet
Office. Stephen stressed that PEX(A) could be very important for ShEx to raise
its profile and formalise the placement of assets in the ShEx portfolio. However it
also could also be resource intensive for ShEx.
6.3 The Board commented on PEX(A)'s membership and remit, agreeing that the
Committee needed to act as an enforcer with the right terms of reference and
membership in order for it to function in the best manner. Stephen added that
PEX(A) could be a good place to help clear obstacles and encourage progress
on the assets agenda.
Actions
e Circulate PEX(A) remit and membership to members of the Board.
Item 7 Any other business
7.1Philip mentioned future Board meeting dates for 2011; these will be arranged
with Board members shortly. The next meeting of the Board will be on 8
December 2010, 14.00 — 17.00, 1 Victoria Street Conference Centre.
Actions
e Arrange Board meetings for 2011.
Will Gibson, Deeya Sawhney
ShEx Board Secretary
September 2010
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