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Network, agents and staff
Steady progress continues to be made across the network, with POL meeting interim NT targets at financial year end; advancing plans to grow the network
through new access points; plans to pilot a mechanism for removing unviable subpostmasters (spms); and to build on the improved relationship with the
NFSP. In the Crown network, POL has reached pay agreements with CWU and Unite without compromising the strategy to bring the Crown network to
break-even. However, the company did miss its 2013/14 financial targets for the Crown network and progress has been slower than anticipated on
developing the Community Branch Fund (although this will open for applications in May).
Topic Then (20 Dec) Now (May) Change Notes
Network Contracts: 2,376 I Contracts: 3,399 I >1,000 contracts = NT accelerated in Q4, with POL exceeding its 2013/14 targets / bonus
Transformation I Openings: 1,465 I Openings: 2,292 I signed and >820 thresholds by 246 contracts. This represents good progress following
branches open the uncertainty created in the run up to the new funding.
= We are keen to see POL maintain this momentum and we are working
to ensure RemCo is setting stretching targets. Following our request
targets are now based on in-year openings, not cumulative contracts.
Crown Trading ahead of I Full year £11m Full year loss of = While disappointing, POL’s performance represents significant progress
Transformation I prior year but ahead of prior £26m which was on 2012/13. At the same time a number of actions have been taken (e.g.
below budget year but £3m ahead of £37m redundancy, franchising) which will deliver results in 2014/15.
Franchised below budget seen in 2012/13 Management remain cautiously confident of meeting the breakeven
Branches: 0 Franchised but was £3m. exit rate target by the end of this financial year.
Modernised Branches: 24 behind budget of I" There is some uncertainty around some of the proposed franchises (5
Branches: 46 Modernised £23m are considered unlikely and 17 are considered challenging). POL is
Branches: 135 working closely with prospective partners and the CWU.
Industrial Ongoing pay Pay deal agreed Counter staffand I" CMA/Unite is now balloting members on the agreed deal for managers
dispute across with both CWU branch managers’ and is supportive and recommending the deal — result expected 2 June.
both Crown and CMA/Unite. I deal agreed = Following agreement with the CWU on a deal that covered pay and new
counter staff and I CMA/Unite are working practices, the CWU then pulled away from putting the whole
branch managers I now balloting deal to members. POL pushed back, and agreement has been regained.
their members, The CWU will be balloting members by the end of the week.
the CWU is = The deals with CWU and CMA/Unite were secured while adhering to the
expected to principles that any increase must be additional to savings identified
follow suit under strategic plan. This agreement does not put POL’s Crown
shortly breakeven targets at risk.
= Supply chain and admin pay is still outstanding.
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Network High level senior I Fromastanding I Project strategy = For the first time in POLs history there are now more competitor mails
Expansion management start, POL has and governance outlets than post offices. POL understands the competitive threat this
commitment to established a has been poses to its largest revenue stream and the need for a commercial
expand the Post I project team that I established. response that retains market share and revenue.
Office network is moving quickly I Detailed dialogue I" POLis exploring a wide range of new business models that meet specific
to develop pilots I with prospective local requirements, including mails hubs, parcel shops, bureau de
that will be partners has also. change kiosks, etc.
introduced soon. I been developed I* The work undertaken to date by POL on Network Expansion is
reassuring and we are expecting the first pilots to be launched, subject
NFSP has been to final agreement with various partners, in early June. These should
engaged, and it include an automated access point at Tesco’s “innovation” store in
was also raised at Lincoln and a parcel-shop at Canary Wharf tube station, in conjunction
conference in with TFL. If successful both of these are likely to be quickly followed by
May. further openings.
= In this pilot stage POL will be offering an income guarantee to nearby
subpostmasters, which has been required to secure their support. This is
not a long term solution and prior to a broader rollout of new access
points POL will need to find a long term and sustainable solution to
address the perceived risk of cannibalisation.
Community Announcement A further POLis at = Once open, the Fund will pay out up to £8,000 to Community Branches,
Branch Fund about the launch I announcement advanced stages and up to £2,000 for Outreach branches. Focus is on:
of the fund was was released of developing the © Growth to benefit of subpostmaster and the network;
made in recently andthe I application and o Benefits to Post Office customers; and
November, fund is expected I support process © Benefits to subpostmasters’ business and branch viability.
alongside the to open for and fund = POL will be writing to all eligible Community Branch SPMs in late May to
new funding applications in governance advise them on how they can apply for funding.
May = The scheme is expected to run for four years (to 2018) and the first
awards are expected to be made during the autumn.
= There are concerns expressed by the NFSP that the Community Branch
designation is preventing some spms who want to leave the network
from being able to do so. They are calling for some Community
Branches to be replaced by Outreach services, with the leaving spm
receiving compensation. This is not part of the strategic agreement
reached in 2013.
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Mandated Provision for POL I Pilot of 50 POLis piloting an I" All subpostmasters were asked to complete two retail surveys,
Leavers tocompulsorily I “guided” leavers I approach to guide providing POL with information on their retail business’s opening hours
exit unviable to start in late SPMs of unviable and weekly branch turnover.
SPMs agreed in May. branches to leave I * Those branches unsuitable for conversion but where there is a viable
November 2013 the network alternative retailer in the community, and where the spm has not
already stepped forward to leave, have been classified as “Guided
Leavers”. There are around 900 guided leavers.
= Starting at the end of May, 50 pilot branches will be sent a letter
explaining that POL wants to work with them to find the best solution to
maintaining a Post Office in their community, a process which in certain
circumstances might lead POL to serve notice on an incumbent spm.
MPs will be engaged at the start of this process.
Relationship Improving Relationship has =" The breakthrough in the relationship between POL and the NFSP in 2013
NFSP relationship further can be attributed to Ministerial direction that POL secure NFSP support
following developed, and for the commercial strategy.
turbulent year of I discussions are = POL’s relationship with the NFSP is more collaborative now than it has
fraught open and been for a number of years. Both sides are closely engaged on Network
negotiations discursive Transformation and Network Expansion and the NFSP also now
around Network participates in a number of joint working groups with POL.
Transformation = POLis also working with the NFSP to define its future in a modernised
network — i.e. one where the traditional role of the NFSP might not be
needed but where spm representation and support is still critical. We
expect to see further progress in this area this year Although any change
would be subject to a positive vote at an NFSP special conference, not
likely until early 2015.
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Financial matters (performance and revenues)
The company missed its 2013/14 revenue targets, but met its operating profit target. The company is sticking to its 2013 commercial strategy for its 2015
budget, forecasting revenues (exc. Subsidy) of £925m, but this remains very challenging, with £60m of risk but only £10m of opportunities inherent in the
figure. However, revenue growth remains dependent on the successful deployment of new services (such as Local Collect (Click and Collect)). Uncertainty
still remains on the future of POCA, with discussions between DWP and POL continuing.
Topic Then (20 Dec) Now (May) Change Notes
2013/14 POL wastrading I 2013/14 ended POL took actions = After a poor start to 2013/14, particularly linked to product / pricing
Performance below budget in I below budget in I to address changes in Mails, POL’s revenue finished the year £34m down on
revenue, but revenue, but revenue budget. Actions were taken during the year which successfully slowed
ahead of budget I ahead of budget I weaknesses, the rate of decline, putting in place a firmer foundation for 2014/15.
in operating in operating while keeping a = Lower subp costs (e.g. linked to mails volumes) and tight cost control
profit profit focus on cost meant POL ended the year £6m ahead of operating profit budget.
control
2014/15 Budget I The 2014/15 had I Approved POL’s Board has = POL’s Board has approved a budget which is in line, at operating profit
not been drafted approved its level, with the strategic plans agreed in 2010 and 2013.
in December. budget for = This is reassuring. Momentum established over the past 2/3 years is
2014/15 being maintained and, if budget is achieved, this points to increasing
levels of commercial sustainability and reduced subsidy in the future.
=" However, the budget is very challenging with £60m of risk but only
£10m of opportunities inherent in the figure.
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Front Office of I Stakeholder PEX(ER) met on HMG engagement I "Progress with GDS in relation to ID Assurance and Assisted Digital has
Government complaints that I 14 May anda has been good been slow. Both teams are in early stages of delivery so POL does not
HMG had Cabinet (eg. PEX(ER), have visibility around the commercial opportunity (eg. Volumes, market
reneged on its discussion has Maude meeting, structure and pricing, what services will look like). Progress is likely to
commitment to been secured for I call to use FOCS) remain slow during the current year, and POL also has work to do to get
promote POLasa I before summer I and further GDS to be supportive of its ambitions in these areas.
front office of recess. meetings are = Unfavourable opinions from within HMG about POL have emerged (eg.
HMG. planned (eg. High pricing, old fashioned branches, poor customer service, short
Progress in key Cabinet, opening hours) and POL/ShEx have been working hard to dispel these —
Progress in key growth areas Hammond, mostly anecdotally based — views. This will be a particularly important
growth areas was I continuestobe I Webb). However, work stream prior to the pre-recess Cabinet discussion.
slow (eg. ID slow results have been I * POL cam up against strong opinions at the NFSP conference in relation
Assurance, slow to emerge to declining Government Services revenue (eg. The new DVLA contract),
Assisted Digital) putting POL’s and plans to grow revenues in the future (eg. Reviewing POCA, ID
planned targets at Assurance, etc). This concern is likely to remain until there is
risk. clarity/evidence that revenues are stabilising or growing.
= Good progress has been made with Home Office with: (i) UKV&I
planning to move secure collection for renewed biometric residence
permits onto the Front Office Counter Services (FOCS) contract from
June 2014; (ii) HMPO in advanced discussions to digitise check and send
under FOCS; and (iii) Security Industry Authority and all remaining
biometric residency permits potentially also moving to FOCS.
POCA POL initial offer POL “best and POL has offereda I * Aseries of meetings have taken place to ensure that DWP and POL are
rejected by DWP I final” offer also 10% per account assessing options on the basis of agreed figures on migration and
rejected by DWP I reduction and an agreed specification for what POCA services DWP requires.
but discussions overall reduction I *" DWP clear that they will need to extend current contract but not yet
still ongoing. on their initial convinced that a son-of-POCA for pensioners under FOCS framework
Ministerial offer. offers best vfm for them beyond 2017 or whether they will go to public
meeting June procurement. However discussions still underway.
= POL’s “best and final” offer is at breakeven for them, it is unlikely they
can go much further on cost, but DWP are continuing to push.
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Mails Atend The 2013/14 FY Performance in = 2013/14 mails revenue was £28.7m adverse to budget, and £18.0m
December, mails_I ended with mails I mails and retail lower than the previous year.
and retail and retail improved = The primary reason for underperformance was due to changes Royal
revenue was revenue £28.7m I compared to the Mail made to its parcels strategy in April 2013 (e.g. related to parcel cost
£25.4m adverse adverse to previous three and sizing) having a worse than expected impact on POL, leading to a
to budget budget quarters, but still contraction of the overall market and a loss of market share.
underperformed = 2014/15 sees a forecast 9.8% (£37.9m) rise in mail and retail revenue.
to budget This will be dependent, in part, on the successful on-boarding of eBay
and Amazon for collection and returns services.
= POL must begin preparing for the 2017 scheduled renegotiation event
with Royal Mail, and are attempting to build deeper relationships with
Royal Mail at all levels.
Current Current accounts I Pilot extended to I In Jan 2014, POL Review by POL Jan 2014 found that:
accounts pilot launched East Midlands forecast 3,000 = Varied sales performance across the branch network. Had not been a
May 2013, E Jan 2014 sales by end June; focus for the Crowns. Marketing delivered a strong uplift of c30%.
Anglia in 39 covering further I 5,000 by end Sept; I * Lower application to sales conversion rate than anticipated (55% versus
branches. 71 branches (110 I and 30,000 by end 83%). This has particularly impacted Control applicants, however BO!
in total). March 2015. credit risk have now agreed to amend the score card, which will improve
By end Dec 13, By end May, c. Latest figures the conversion rate.
2,000 4,910 suggest they are I" Customers tended to be loyal to the brand, +50 on average (older
applications, applications, slightly behind families; approaching retirement) and of good credit quality / affluence.
c1,000 sales, only I c.2,400 sales. target. = Wider pilot will bring in other demographics (e.g. “Inner City”),
50% of target. = Subject to outcome of wider pilot, POL plans to extend to another region
by June/July 2014 and ultimately have 2,000 POL branches selling
(Product mix (Product mix current accounts by March 2015 [NB NOT PUBLIC].
Control 14%; Control 17%; =" POL also intend to enhance the proposition with a number of product
Standard 83%; Standard 80%; and service enhancements eg switching to VISA debit functionality
Packaged 3%) Packaged 3%). rather than maestro, a mobile app, SMS alerts, online account opening,
customer correspondence review. [NB NOT PUBLIC]
NS&I NS&I wish to stop I HMT agreed that I POL has contract = From Sept 15, NS&I technology upgrade would enable a fully online
sales of Premium I NS&I could sign with NS&l for PB system including for those buying on behalf of others (eg guardians of
Bonds (PBs) over I up to contract sales over PO someone with disability).
PO counters with POL but counters to Sept = Since contract signature, HMT announced in the budget an increase in
pressed BIS to 15 the amount of PBs public could buy — POL is negotiating with NS&I over
pay costs: BIS has changes to contract whilst minimising any additional cost.
declined.
Mutualisation
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POL has developed a Public Purpose Statement and a Mutualisation Milestones Document, both of which were published at the start of May. Progress
continues to be made with the underlying mutual ways of working, although mutualisation itself is still someway off given its dependance on financial
sustainability.
Topic
Then (20 Dec)
Now (May)
Change
Notes
Mutualisation
Milestones and
Public Purpose
Agreement with
POL to publish
the public
purpose and
Public purpose
and
mutualisation
milestones were
= As part of an update on the Community Branch Fund in early May, and
ahead of the NFSP conference, POL published its public purpose and
mutualisation milestones (in an abridged form compared to what you
Statement saw in POL’s strategic plan).
mutualisation published in = Unfortunately given other news at the time this did not get much
milestones early May 2014 coverage however it was discussed at the NFSP conference and will be
helpful in 2014/15 in mapping out immediate next steps (e.g. as the
public purpose is embedded and as other workstreams develop).
Post Office The POAC The POAC has Appointment ofa I" The POAC was set up for people to engage with POL, to share ideas and
Advisory Council I appointment launched and has I Chair and >20 provide feedback on commercial and strategic matters.
process was held its first panel members =" POL received >200 applications for membership and >20 members have
underway meeting been appointed on 2-4 year fixed terms.
"This is a positive development and demonstrates a move towards
mutual ways of working. However we will want to see more progress
during 2014/15 in this and other engagement / cultural areas.
= Members of the POAC include customers / members of the public and
subpostmasters and POL employees, in addition to charities (e.g. Age
UK), SME’s and larger businesses (eg. Google and John Lewis).
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Business transformation and senior management matters
POL remains committed to reducing its central costs by 25% by 2020 (as agreed in November 2013) and has appointed David Ryan to lead on this work. An
initial review is expected to be completed by the end of 2014. Since November, POL has moved to address identified weaknesses in its senior management
team, with key appointments in HR, NT and business transformation.
Topic Then (20 Dec) Now (May) Change Notes
Business Limited work had I POL has started Divisional teams = As part of the plan signed up to by POL and HMG, POL is required to
Transformation I been undertaken I to make progress I have started on reduce many of its costs by up to 25% by 2020. As a first step this
but remains ata_ I this project, and requires a bottom up review of POL’s business model to understand
preliminary stage I governance is what can be done at lower cost, while still supporting the plan.
starting tobe put I * This review has recently begun and is expected to be completed
in place towards the end of 2014. It is taking longer than anticipated but POL
remains committed to achieving the targeted cost savings. POL’s new
appointee (David Ryan, see below), will bring further clarity to this area.
Exec Pay Exec pay in Exec pay in = RemCo toughened the targets for the 13/14 year and this has been
2012/13 2013/14 reflected in the level of payout.
i = Proposals for the 14/15 year will be submitted to SROC shortly
(expected June), and for your subsequent consideration.
Exec Team POL was Some gaps Anumber of new I = Neil Haywood: Appointed HR Director to lead on all people / cultural
experiencing a remain but most I appointments transformation issues. Fills a role that had been open for >12 months.
number of gaps weaknesses have I have been made =" Chris Aujard: Appointed interim Counsel after the departure of Susan
in senior been addressed by POL in the last Crichton in 2013/14. A process to find a permanent replacement is
management 6 months advanced.
= lan Kennedy: Appointed to lead Network Transformation, splitting the
responsibilities of POL’s existing Network Director.
= David Ryan: Appointed as a consultant to lead on the Business
Transformation design, planning and procurement.
= In addition, Martin George (Commercial Director, who was appointed a
few months before you left) continues to change POL’s approach
winning further business and acting more commercially
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Exceptional items
The misalignment of views with the VOA continues, but must come to a decision point shortly. The Working Group established to consider complaints
raised by current and former subpostmasters with respect of the Horizon accounting system has an independent Chair and is beginning to consider cases,
but progress has been slow and POL is seeking assurance on its position. Progress towards State Aid approval is underway and on track.
Topic Then (20 Dec) Now (May) Change Notes
VOA Discussions Discussions have I Both = The VOA has not been persuaded by BIS’s arguments that externally
between BIS and I reached an interdepartmenta facing ATMs at agency branches should not attract separate business
the VOA ongoing I impasse, and I policy and legal rates.
to identify a further options routes were = The likely liability falling to subpostmasters is now £15.3m, which
solution that are being explored without includes the four years retrospective liabilities (2010-11 to 2013-14) and
does not result in I considered reaching the 2014-15 in-year liability. Ongoing costs are likely to be in the region
externally facing agreement of £4-5m per year.
ATMs being = If VOA does implement its proposals, Ministers have previously arrived
separately liable at the view that subpostmasters should not individually bear the costs of
for business rates the VOA policy. However agreement still needs to be reached to
determine how the cost of the liabilities are met, and by whom.
Horizon Working Group I The Working The lack of = The Working Group has an independent Chair in Sir Anthony Hooper, a
established to Group is progress is former High Court and Appeals Court judge.
consider progressing very I generating = POL has so far investigated around 80 of the 147 applications received.
applications slowly and no considerable It remains confident of the integrity of Horizon, and that it is not legally
made by current I case has yet been I frustration for all / financially exposed to any material risk.
and former fully considered I members of the = The JFSA is showing signs of becoming increasingly agitated with the
subpostmasters Working Group lack of a “smoking gun” and appears keen to exit the Working Group.
= POL has received legal advice that it bears no financial liability for SPM
losses where there is no systemic system failure, and is keen to reform
the Working Group.
= BIS is keen for the independent Chair to take the lead on any reform, or
for POL to have very firm third party technical, legal and operational
assurance before instigating a change.
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State Aid
Planning was
underway to
meet the March
2015 deadline
(i.e. end of the
current funding)
The State Aid
approval has
begin and is ina
“pre-notification”
stage
The BIS / POL
teams met with
the Commission
in February and
submitted a paper
in April
After an informal meeting with the Commission in February BIS / POL
submitted a “non-paper” in April which marks the beginning of the State
Aid approval process. This paper has been reviewed by the Commission
and we will be meeting with them in Brussels in June.
This is good progress and both teams are confident of meeting the
March 2015 deadline for an approval. We also believe there is a chance
an approval might be received earlier, before the New Year.