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To: Vince Cable, Jo Swi Ison
From: Tim McInnes: GRO:
Date: 10 July 2013
Meeting with Post Office Ltd. (“POL”) on its Strategic Plan
12:00 — 12:45 Thursday 11 July 2013
1. Purpose
To discuss POL’s commercial and network strategy for 2015/16 to 2019/20, and the
associated funding requirement. POL is keen to focus this meeting on its Network
Transformation Programme (“NTP”) and wants to seek your approval to continue
discussions with the National Federation of SubPostmasters (“NFSP”) to agree a
new approach to implementation.
2. Attendees
Alice Perkins (POL Chair)
Paula Vennells (POL Chief Executive)
Sue Barton (POL Strategy Director)
Martin Edwards (POL Chief of Staff to Paula Vennells)
Will Gibson (ShEx)
Tim Mcinnes (ShEx)
Mike Whitehead (ShEx)
Tobi Adetimilehin (ShEx Finance Business Partner)
3. Your objectives
= To make clear your support for a suitable strategy to put the business on a
financially sustainable footing that can support: (i) a significant reduction in the
need for HMG funding; (ii) opportunities to grow the post office network for the
first time in many years; and (iii) a mutualisation of POL.
= To express caution around the changes that POL is planning to make to NTP and
in particular any move away from voluntary implementation that does not have
sufficient support from key stakeholders (e.g. the NFSP). This includes POL’s
ability to manage concerns around implementation both nationally and locally.
= To seek POL’s views around whether it could be possible to put in place time
limited compensation as a mechanism for encouraging post office conversions,
while retaining a voluntary approach to implementation.
= To encourage POL to continue to work closely with the NFSP in order to agree a
strategy that not only meets the objectives of POL, the NFSP, HMG and POL’s
customers but also delivers Value for Money for the taxpayer.
4. POL objectives
= POL will want to introduce the approach it is taking to: (i) transforming, investing
in and growing its network; (ii) launching new products; (iii) becoming a more
customer focused and commercially responsive organisation; and (iv) working
with stakeholders.
= To make it clear that while NTP is central to its strategy, based on the current
voluntary approach to implementation it will not be able to transform its network
quickly enough. POL believes this will make it both financially and competitively
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vulnerable (e.g. less able to grow the network or mutualise), unable to meet the
needs of customers and increasingly reliant on HMG funding.
= To explain why POL is seeking to change NTP implementation from a voluntary
to a scheduled, or mandated, approach. To support to this change POL will want
to explain the different levers that were considered in the development of its
strategy and also the alternative “menus” of levers that were considered (and why
these are considered less suitable for delivering a sustainable network).
= To update you on and to seek approval to continue the work that is ongoing with
the NFSP to agree a new approach to implementation. POL is working within
parameters set by HMG and stakeholders to ensure a high level of support. At
the same time with the NFSP it is developing an implementation strategy that
delivers conversions while minimising customer and subpostmaster concerns.
5. Background
5.1. New Strategic Plan
The meeting gives POL management their first opportunity to talk to you about their
new strategy which covers the period from 2015/16 to 2019/20. The plan is a
continuation of POL’s existing strategy — it builds on the platform that management
has established since POL became independent in April 2012 and seeks to maintain
the downward trajectory in the HMG funding required by the business.
The strategy delivers a number of Government and business objectives, including:
= Delivering a financially sustainable POL that is much less reliant on HUG
funding, is more competitive and which is a strong long term partner for Royal
Mail;
= Growing the post office network for the first time since 1964, increasing the
number of post offices by >10% to c.13,500;
= Establishing a platform that could enable a mutualisation of POL, and more
collaborative working relationships with all stakeholder groups;
= Transforming a significant majority of the network to new models, making
branches more viable, competitive and responsive to customer and client needs;
* Establishing POL as a credible challenger in the UK banking market through the
launch of new financial services products;
= Making HMG services more accessible to vulnerable and working age people
and supporting HMG’s ambitions to make services digital-by-default; and
= Taking a more strategic approach to supporting customers, including launching
new services and developing an integrated offer to support SMEs.
5.2. Network Transformation Programme
In order to meet these objectives POL needs a fit-for-purpose network, and the
successful delivery of NTP is crucial to achieving this. There is wide-ranging public
support for the need for a transformed network, including from the NFSP, customers
and the BIS Select Committee, however the original NTP was developed with an
economic backdrop that differs materially to the current climate. This means that in
its current form POL does not believe that it will be able to deliver the transformation
successfully (e.g. subpostmasters are unwilling to volunteer to convert branches
given uncertainties related to the broader economic environment, challenging retail
markets and slow to emerge sales growth in new post office services including
Government Services).
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POL management has therefore proposed a move away from a wholly voluntary
process to one that requires all subpostmasters to enter a business planning stage
and schedules national “waves” of conversions. No post offices would be able to
close under this strategy unless replacement subpostmasters (or alternative host
retailers) have been identified and continuity of service in a community can be
ensured.
This strategy also enables POL to identify those branches that are not financially
viable and where a conversion — either onsite or offsite — is not possible. Such
branches, which are expected to number c.3,500, would be deemed “Community”
and would also include “Outreach” branches — a new £20m fund would be made
available for investment in these post offices.
POL is aware that it needs the support of key stakeholders, and in particular the
NFSP, to deliver NTP successfully and that it needs to manage the concerns of
customers and subpostmasters effectively. Management is therefore working with
the NFSP to shape a strategy that meets its objectives, and one that the NFSP is
able to publicly support (and in certain instances also work alongside POL to ensure
its successful implementation). Any such strategy would also be structured in such a
way that it is able to meet the objectives of HMG and POL’s other stakeholders.
These discussions are ongoing and we believe that POL and the NFSP are making
progress towards reaching a mutually acceptable outcome (the most recent meetings
were held on 8th and 10th July). An agreed strategy is likely to be based around the
NTP plan that management has proposed, albeit with changes. These changes,
which are likely to increase the overall cost of NTP, could include:
= identifying “winners” from NTP and “Community” branches through a desktop
assessment;
= restricting “mandated” conversions to exiting subpostmasters only, with “winners”
managed in such a way that they are more likely to willingly convert;
= offering time-limited, phased or increased compensation to converting
subpostmasters;
= bringing forward the opening of some new post offices to improve service
provision sooner; and
= giving support to subpostmasters with a “retail support fund” to improve non-POL
retail income.
5.3. Funding
POL believes that it can deliver NTP successfully within the £210m funding “ask” for
2015/16 that formed part of BIS’s recent Spending Review settlement with HMT.
However in order to secure the support of the NFSP it is likely that changes will be
made to the strategy that increase the cost of implementation.
Some of these costs can be absorbed by POL (e.g. by reprioritizing strategic
initiatives, or by driving efficiencies elsewhere in the business) while it might be
possible to phase others in such a way that they are incurred in later years (e.g. by
increasing the funding “ask” for 2016/17). However some potential changes (e.g.
changes to compensation paid to converting subpostmasters) would be likely to
increase POL’s funding “ask” for 2015/16.
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Discussions with the NFSP are ongoing and both POL and the NFSP are acutely
aware of the funding pressures on HMG and BIS. POL is working to reach an
agreement around a plan that delivers value for money for the taxpayer while
ensuring the commercial benefits of NTP can be delivered and national and local
concerns around the continuity of service provision can be minimised.
5.4 Update on NTP
As at the end of June POL had achieved 1,600 contract signatures and 821 open
converted branches (of which 270 formed part of the 2012 piloting exercise). This
compares to a target of 1,800 contract signatures by this time, and a target of 3,600
signatures for the end of the current financial year in March 2014. Of the converted
branches that are currently open, 409 are Main post offices and 412 are Local post
offices.
At the end of the last financial year POL had managed to secure 1,450 contract
signatures, against a target of 1,200 and 507 open branches. However, this out-
performance in contract signatures has unwound in the first quarter of 2013/14 to
June 2013, and the company is not expected to catch-up under voluntary NTP.
The pace of conversions has been slower than expected by POL, primarily for the
reasons listed above in subsection 5.2. POL has however learned a number of
lessons over the past year and the implementation process is now more controlled,
streamlined, flexible and efficient (these lessons are being carried through to the
new strategic plan). However, the current approach is not producing enough
volunteers to achieve the 2010 target of 6,000 conversions by 2015 (current
forecasts put the likely figure at more like 3,000 conversions).
CC List: Swinson MPST; Donnelly MPST; SPADs; ShEx POL team
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Points to Make/Questions to Ask:
Opening
Remarks:
Possible
Questions:
Points to Draw From:
« POL’s new strategy is ambitious and I support what
management is trying to achieve — we all want to see a
sustainable and growing POL which is less reliant on HMG
funding. However I understand that there are a number of risks
in the plan that will make it challenging for management to
deliver its objectives successfully.
I would like to understand the key risks in the plan and how you
plan to address these. In particular I have questions around the
proposed change to NTP and the extent to which POL will be
able to secure the support of stakeholders and manage the
national and local concerns of customers and subpostmasters.
Why does POL feel there is a need to move away from the
current voluntary approach to implementing NTP — POL met its
targets for 2012/13?
What other strategies did POL consider before landing on the
proposed move away from a voluntary NTP? Why were these
alternatives less suitable for delivering a fit-for-purpose network
than the strategy being proposed?
What is the risk to POL and other stakeholders from not
successfully delivering NTP and why does POL need to put in
place this change now? What is the benefit compared to
implementing such a change after the end of the current funding
agreement in 2015?
.
.
e
When do you believe you will be able to reach agreement with
the NFSP in relation to a new approach to implementing NTP?
What do you think the incremental cost of this will be? How can
you be confident that it will address national and local concerns
around continuity of service provision?