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Post Office Limited — Strictly Confidential
POLB 16(4'")
POLB 16/26 — 16/36
POST OFFICE LIMITED
(Company no. 2154540)
(the ‘Company’)
Minutes of a Board meeting held at 9.00am on 24 May 2016
at 20 Finsbury Street, London EC2Y 9AQ.
Present:
Tim Parker Chairman
Richard Callard Non-Executive Director
Alisdair Cameron Chief Financial Officer (excluding minute POLB 16/30)
Tim Franklin Non-Executive Director
Virginia Holmes Non-Executive Director
Carla Stent Non-Executive Director
Paula Vennells
Chief Executive (excluding Minute POLB 16/30)
In Attendance:
Alwen Lyons
Mark Davies
Jane MacLeod
Andrew Moys
Nick Kennett
Steve Ashton
Kevin Gilliland
Kevin Seller
Apologies:
Ken McCall
POLB 16/26
POLB 16/27
Company Secretary
Communications Director (Minute POLB 16/29 & POLB 16/32)
General Counsel (Minute POLB 16/31)
Post Office Advisory Council (Minute POLB 16/32)
Financial Services Director (Minute POLB 16/33 to POLB 16/34)
Chairman Post Office Management Services (Minute POLB
16/33 to POLB 16/34)
Network and Sales Director (Minute POLB 16/35)
General Manager Network Transformation and Development
(Minute POLB 16/35)
Senior Independent Director
INTRODUCTION
(a) The Chairman noted that a quorum was present and opened the
meeting.
(b) Each Director confirmed that they had no conflicts of interest in
relation to the business to be considered at the meeting.
MINUTES OF THE PREVIOUS BOARD AND COMMITTEE MEETINGS
INCLUDING STATUS REPORT
Minutes
(a) The minutes of the meeting of the Board held on 9" February
were approved as accurate records and the Chairman was
authorised to sign them.
(b) The minutes of the meeting of the Board held on 21% March 2
were approved as accurate records and the Chairman was
authorised to sign them.
2016
016
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(c) The minutes of the Audit, Risk and Compliance Committee meeting
held on 22"4 January 2016 were noted.
Status Report
(d) POLB 16/02 (g) — The Board noted NFSP Grant Agreement
update. The CEO reported that to date no grant project funding had
been utilised and that any funding would have to be supported by a
business case.
(e) The Board noted the Status Report dated 16" May 2016.
POLB 16/28 CEO REPORT
CEO Report
(a) The CEO introduced the CEO Report, focusing on the following key
points:
(b) Period 1 results. Good trading results for the start of the year and
reducing costs have delivered above target results for period 1.
(c) IRIS. The IRIS announcement to withdraw from the supply chain
external market had been well managed by the CFO, Mark Ellis,
Supply Chain Director, and a team of ‘super- briefers’. After the initial
leaking of information by the CWU the external communications had
been effectively managed and the CEO thanked all those involved.
All the units would now have a session with a member of the Group
Executive (GE) or the Lead Team, to build on the messages and
listen to concerns.
(d) The 90 day consultation period was underway and despite the
excellent work the CEO still expected the CWU to ballot for industrial
action. The CEO explained that in the event of industrial action
support would be prioritised in the following order; supply chain;
NBSC (helpline); then directly managed branches.
(e) NFSP Conference. The CEO thanked the Chairman for attending
the NFSP Conference. The debate and questions had been
challenging but an opportunity to engage with the NFSP delegates.
(f) Horizon outage. Tim Franklin reported that the ARC had received
an update on the Horizon outage and that a full report, including root
cause analysis, was being presented at the September ARC.
(g) The Board noted the CEO report.
Transformation Update
(h) The Board noted the Transformation Update.
POLB 16/29 ANNUAL REPORT AND ACCOUNTS (ARA)
(a) The Chairman welcomed Mark Davies, Communications Director, to
the meeting.
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(b) The CFO introduced the ARA focussing on the following key points:
(c) The Accounts. The numbers in the accounts are almost finalised
with a few revenue procedures to complete. The CFO explained the
approach to capital expenditure impairment which had been
discussed at the ARC and the different treatment for POMS.
(d) Disclosures. As the Company was no longer reporting compliance
with the ‘spirit’ of the UK Code of Corporate Governance, there was
an opportunity for more flexible approach to disclosures in the ARA.
(e) The CFO reported the debate at the ARC and the recommendation
from EY to disclose the Sparrow claim. The Board agreed that the
note on Sparrow, as detailed in the Board paper, should be included
in the ‘contingent liabilities’.
(f) The Board discussed the Directors’ Remuneration Report and the
level of detail to include in the ARA. It was agreed that the report
would include more than the minimum detail required and although
it was unusual to provide the maximum stretch target for bonus
payments, this would be included as it was included in the past.
(g) Timetable. The ARC would be convened at the end of June for final
sign off of the ARA, which would be published in early July.
(h) Taking into account the discussion topics, the Board:
e¢ Noted the Briefing Book.
e Noted the Post Office Annual Report and Financial
Statements.
e Noted the Audit Results Report provided by EY.
e Delegated authority to the Post Office Audit, Risk and
Compliance Committee (ARC) to approve the Annual Report
and Financial Statements
e Delegated authority to the Chairman, the Chief Executive
and the Chief Financial Officer to sign the Annual Report and
the Financial Statements following approval by the ARC.
(i) Mark Davies left the meeting.
POLB 16/30 APPROVAL OF 2016/17 ANNUAL BONUS (STIP) DESIGN
(a) The CEO and CFO left the Meeting.
(b) A paper highlighting the 2016/17 Annual Bonus (STIP) Design was
circulated to the Board, outlining a proposal which had been
discussed at the Remuneration Committee on the 23 May and
recommended to the Board. The Chairman explained the proposal
included a gateway of 900 branch conversions, and an ‘entry point’
target.
(c) The Board approved the annual design and metrics for
recommendation to UKGI.
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ACTION: (d) I 2016/17 Annual Bonus design and metrics to be recommended
Neil Hayward to UKGI.
(e) The Board noted the governance agreed by the Remuneration
Committee.
POLB 16/31 ITEMS FOR NOTING
(a) The CEO and CFO re-joined the meeting. The Chairman welcomed
Jane MacLeod, General Counsel (GC), to the Meeting.
Sparrow.
(b) The GC introduced the report on Postmaster Litigation and gave a
verbal update on the High Court Claim described in the Noting
paper.
(c) The GC noted that the claim although filed in the High Court, had
not been formally served on the Company and that service must be
effected by 11 August in order to be effective.
(d) The GC noted that a 53 page letter had been received
from Freeths (the solicitors acting for the claimants) and that a
response would be sent during July. Initial review of the letter
suggested that there were no new areas of concern that had not
previously been raised through the Complaint & Mediation Scheme.
(e) The GC advised that it was proposed to continue to instruct Bond
Dickinson, who had detailed knowledge and experience of the
claims and that Tony Robinson QC had been interviewed and
instructed to act also.
(f) The Board noted the pro forma litigation timetable set out in the
paper.
(g) The Board noted the report.
Modern Slavery
(h) Jane MacLeod introduced the report and explained the requirements
of the Modern slavery Act 2015, (the Act).
(i) The Board discussed the requirements of the Act and the proposed
statement which would be published on the Company website. The
publication of the statement by September 2016 would ensure
compliance with the Act.
(i) The Board asked if the Company needed to ensure all its suppliers,
including those based overseas, complied with the Act. The GC
stressed that the ongoing work would include a risk analysis of the
core business and its related supply chains.
(k) The GC explained the need to change the subpostmaster contract
to pass the obligation down to the individual subpostmasters, who
would not be caught by the Act if their turnover was less than £36m
per year.
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(i) Taking all the discussion points into consideration, the Board
approved the Modern Slavery Transparency Statement 2015-2016.
(k) The GC left the meeting.
Sealings
(I) The Directors resolved that the affixing of the Common Seal of the
Company to the documents numbered 1400 to 1421 inclusive in the
seal register was confirmed.
Project Paddington
(m) The Board ratified the decision to delegate authority to the CEO to
sign a variation to the existing Collaboration Agreement, a Master
Franchise Agreement and a Framework Concession Agreement
with WHSmith (WHS) in connection with Project Paddington.
POLB 16/32 POST OFFICE ADVISORY COUNCIL (POAC)
(a) The Chairman welcomed Mark Davies, Communications Director
and Andrew Moys, a member of POAC, to the meeting.
(b) Mark Davies explained the history of the POAC, the backgrounds of
the members involved, and the range of issues which had been
debated at the meetings.
(c) Tim Franklin thanked the CEO for her support and recognised that
some of the debates at the POAC had been challenging for the
Executive team members presenting items. The CEO reinforced her
backing for the POAC and welcomed the diversity of the group and
the rigour of the challenge.
(d) Andrew Moys thanked the Board for inviting him and described his
role as a POAC member. He explained that the POAC brought
together a wide range of experience and had worked most
effectively when asked for input early enough to influence Company
thinking.
(e) Tim Franklin thanked the Board for their support and invited them to
attend a future POAC meeting.
(f) The Board noted the report.
(g) Mark Davies and Andrew Moys left the meeting.
POLB 16/33 PROJECT PEREGRINE PHASE 1
(a) The Chairman welcomed Steve Ashton, Chairman of POMS, and
Nick Kennett, Financial Services Director and CEO of POMS, to the
meeting.
(b) Nick Kennett gave a verbal update to the Board on Project
Peregrine, the renegotiation of the Bank of Ireland (Bol) contract.
After a tender process Macquarie, investment banking group, had
been chosen to support the Peregrine process.
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(c) Nick Kennett explained that the work was in three phases:
* To understand the value of the Bol contract, as it was
currently suboptimal for both parties;
e To agree a negotiation strategy, a mandate for which would
be brought to the June Board away day; and
« To prepare for the negotiation.
(d) Nick Kennett clarified that it had yet to be decided if Macquarie would
be involved in the negotiation as a different set of skills may be
required.
(€) The Board noted the paper.
(f) Nick Kennett updated the Board on the good progress being made
on the Banking Framework. He also explained that the Payments
Strategy, covering bill payments and the digital wallet would be
presented at the June away day.
ACTION: ALL (9) Nick Kennett offered 121 sessions to Board members before
the June away day.
POLB 16/34 POMS UPDATE TO POST OFFICE BOARD
(a) Nick Kennett introduced the POMS update paper to the Board
reporting the progress made over the last year. Two areas of risk
were identified:
e Branch trading for travel insurance; and
e Ensuring that branch sales conversations are compliant.
(b) The Board asked how POMS was trading compared with the market.
(c) Steve Ashton explained that the market had shifted online and to
aggregator sales and that POMS needed to respond. Competitors
were very good at acquiring customer life time value through
analytics and that this was where the Post Office should focus.
(J) Nick Kennett reported that work was underway on customer
segmentation and product analytics which, along with improvements
in the customer journey, should enable POMS to develop a better
customer relationship and higher customer value.
(e) Steve Ashton recognised that POMS could use the Travel Insurance
product, linked to the travel money product as an anchor to create
awareness and customer momentum. This anchor could then
enable product bundling and the development of a customer
relationship.
(f) The Board asked if Network Transformation was hindering the
growth of Financial Services. Nick Kennett explained that the most
vulnerable area was in travel where the product is currently sold in
9000 branches.
(g) The Board discussed the sales model of Financial Services products
and the CEO explained that a new proposed Target Operating
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Model would be discussed at the June Away day which would
recognise the difference between transactional and relationship
sales.
(h) The Board asked about the risks identified by POMS. Steve Ashton
stressed that 6 to 9 months ago the POMS Board had been very
concerned by the regulatory relationship with Post Office and the
lack of engagement to mitigate the conduct risks. However he was
pleased to report that the POMS ARC had received a report and
presentation from Kevin Gilliland, Network & Sales Director, and
Jonathan Hill, Head of Financial Services Risk, on the oversight of
Post Office as the appointed representative of POMS. This had
given POMS ARC comfort that Post Office is taking steps to address
the various issues and concerns. Post Office is due to present an
update to the POMS ARC in July.
(i) The Board noted the progress made and confirmed support to the
strategic direction and business intent.
(i) Nick Kennett and Steve Ashton left the meeting.
POLB 16/35 DIRECTLY MANAGED NETWORK STRATEGY UPDATE
(a) The Chairman welcomed Kevin Gilliland, Network and Sales
Director, and Kevin Seller, General Manager Network
Transformation and Development, to the meeting.
(b) Kevin Gilliland introduced the Directly Managed (DM) Network
Strategy Update, and explained that although the transformation of
the DM branches had produced a £50m turnaround from a loss of
£46m per annum to a profit of £2.7m per annum, and that
Paddington would deliver a 3yr £18m EBITDAS improvement, the
strategy needed to develop further if the network was to become
cash generative.
(c) Kevin Gilliland explained that the Business case was predicated on
simplifying the operating model and taking out significant central
costs.
(d) The Board discussed the options for the DM branches and the
investment which would be required to deliver the change.
(e) The CFO recognised that there would be a finite investment pot to
right size the Business and that the directly managed transformation
should be considered alongside other initiatives. Richard Callard
reminded the Board that the Government were not expecting to fund
a further big investment. The CFO noted that the earlier plans
assumed a much higher level of profitable Government revenue.
(f) The Board recognised that significant reduction in the DM network
would cause serious industrial relations issues but the CEO believed
that if this was the agreed strategy it could be delivered.
(g) Kevin Seller acknowledged that there would be areas of the country
where an alternative approach would be required. Large city mails
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branches may require dividing and replacing with automation or
smaller cheaper sites. Urban deprived areas, where there are no
other solutions, may need to be considered as community branches
and require ongoing support.
(h) The Board noted the update, confirmed its appetite for a
transformation programme to further reduce the Directly Managed
network and welcomed a fuller debate at the June away day with a
business case to returning to the Board in September.
(i) Kevin Gilliland and Kevin Seller left the meeting.
POLB 16/36 CLOSE
(a) There being no further business, the Chairman declared the meeting
close.
ees Beg
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