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POST OFFICE LIMITED
BOARD DISCUSSION PAPER
Group CEO Report
Author: Nick Read
Meeting date: 26 November 2019
Input Sought
The Board is invited to note the report and highlight any issues where a future
discussion would be welcome.
As referenced in last month’s report, and in light of some of my early observations
around driving accountability cross the business I have implemented a new operating
rhythm and meeting cadence which focuses on ensuring we have much more
emphasis and control around our delivery, costs, accountability and across our
product lines. This new model will take effect from w/c 18'* November and comprises
of the following:
e Weekly CEO Lead Team meeting - shorter and focused on the week ahead
and horizon scanning
e Weekly Trading & Business performance meeting — attendees are key product
owners and focus is purely on weekly sales and performance
e Monthly strategic GE meeting - key focus is strategic and forward looking
items, as well as key business and decisions with time for strategic forward
looking discussion
e L40 huddles - renamed Leadership Council - now scheduled every fortnight,
as opposed to every three weeks. Key focus is groupwide issues across the
business as well as culture, purpose and ensuring cross functional alignment
e Monthly UK Operation meetings - key focus is lowering costs, delivery and
improving our productivity across our network
e Monthly Customer Plan - key focus is improving our customer proposition and
strengthening our brand across the network
e¢ 10@10 - a weekly all staff townhall huddle, on Wednesdays at 10am for 10
minutes. Key focus is on company performance and topical issues of the day
and an opportunity for me to answer questions from colleagues. Held
primarily in Finsbury Dials, but will be held in other locations across the year.
Each session will be filmed and highlights from the update will be uploaded
onto a dedicated intranet site and cascaded internally.
As part of this new model, a new engagement plan for GE and our Leadership Council
is being created, to ensure we rapidly increase and improve our interactions with
postmasters and spend more time outside Finsbury Dials, with our regional colleagues
and in our branches with customers. I will share more details about our plans at the
next Board meeting. As an example, December’s GE meeting will be in Chesterfield
and all GE colleagues will be ‘on the road’ in Christmas week meeting Postmasters and
customers.
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Financial & Cash Performance
Key Business updates
Network & Christmas planning
Network development programme is still on track. Year to date we have delivered 54
DMB exits and almost 150 new network locations helping to maintain our network of
around 11,600 branches. We are also on track to deliver 15 of the new parcel shop
locations before Christmas with 14 already delivered. Early indications are mixed
regarding number of parcels being handled each week. We are now conducting a full
review of the initial pilots to inform future plans especially around branding and
operational execution.
We have now concluded Project Edgware. 72 branches have been delivered to date
with the remaining 2 branches on hold due to lease issues between WHS and their
landlord. (Gloucester and Chelmsford). £5.6m annual benefits will be delivered each
year over the 10 year contract term. We expect to have around 120 DMBs remaining
at the end of March and following GE discussion our plans for 20/21 will be to divest
as many as we can. The McKinsey analysis highlights how significantly loss making
the estate is and we must accelerate the divestment next year.
We continue to build on our contingency planning across the business as the political
landscape remains uncertain. There are various options currently being developed
which would enable Post Office to respond quickly to any emergency service issues
created in the network as a result of the GLO outcome or the potential collapse of a
large retail partner.
Five additional mobile vans are in the process of being equipped and are on track to
be ready for use by the 25th November. Additionally, the ‘Post Office in a box’ solution
(a smaller footprint, quicker and cheaper means of local service provision) is also on
track to be tested in five pilot locations across the UK by early December, in areas
where we are currently experiencing service issues. Following the pilot and
refinement, we plan to use this new concept more widely across the network as a
contingency.
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Launch of Captial One Credit Cards
We have successfully launched two new credit cards with Capital One, only four
months after signing the agreement. Our MVP went live online on 5 November (soft
launch), with digital marketing following from the 12". So far, anecdotal feedback on
the customer experience has been positive; we will share the first performance
metrics next month. In parallel, we are working on delivering a small branch pilot in
Q4, driving a second release of journey enhancements, and building our customer
understanding to refine the proposition set and features from the current MVP.
New Identity proposition
We have initiated a trial in 15 branches for a tablet-based solution for Digital Check &
Send (DC&S) passport applications which will run until December. Unlike the existing
DC&S solution available in 700 branches with AEI booths, this will cover all passport
application types, not just adult renewals. Assuming the trial is successful, we will
then roll out the solution to c.1,500 branches during the first half of 2020, eventually
decommissioning the AEI service to reduce costs. Following the update provided at
the October Board, negotiations are underway for a short-term extension of our
contract with Digidentity, pending the conclusions of the wider strategy review to
determine if digital identity is one of our ‘big bets’.
Christmas planning
The Christmas Campaign landed in branches on the 11° of November and is centered
on the theme ‘It’s Post Office Season’. The marketing material comprises of posters
(for those branches with poster space available), leaflets, window vinyl and pin-pad
advertising.
We are supporting Postmasters and Area Managers with access to a central app for
social media content distribution. The app will store compliant, on-brand content that
Postmasters can easily post on their social media channels to drive engagement and
footfall to their branches. The initiative is in pilot with 500 app licenses and due to
launch before the Christmas period.
Banking Framework 2
BF2 is still fully on track to launch on January 1st 2020. Barclays have reversed their
decision, and we therefore have full 100% migration from BF1 to BF2. Following their
climb-down Barclays will now ‘agitate’ from the sides - including pressurising Govt
(HMT) and regulators (FCA) to put Post Office under tighter regulatory control and try
to galvanise other banks to highlight issues/raise ‘noise’ to underline their concerns
about the service (their main complaint being that we are - in their words - ‘semi-
monopolistic’ and now dominant). We are aware of this and are actively planning a
‘phase 2’ of our successful reversal campaign, to work with HMT and FCA, gain
assistance from BEIS and make sure any input from them is balanced and positive.
Our next step is to work with FCA and HMT to understand the regulatory umbrella and
to develop plans with BEIS, CA and others to ensure continued buy-in.
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ATM's
We currently host just under 2,200 ATMs located across the Post Office network. Bol
has notified us that it is withdrawing from the ATM market, and we are working with
them towards a contract end date of March 2022 by which time all devices will have
been removed. Bol are beginning the process of removing out of licence devices,
however some of these we want to retain due to their profitability. This means that if
we intend to ‘remain’ we need to agree a retention package with Bol to avoid the
removal of ATMs that we want to keep. At this early stage we believe that the case to
‘remain’ in the ATM market is strong. Early financial analysis shows that remaining in
the market would generate £80m cash flow over an eight year period from 20/21,
compared to £14m if we exited the market. To help inform our decision making we
are undertaking an OJEU procurement process which is currently underway and on
track for completion in April 2020. We will update the board after Christmas and
deliver final recommendations in Q4 19/20.
British Gas
As you will be aware we have now signed the contract with British Gas securing an
exclusive 5.5yr deal to retain the service in Post Offices, include the addition of the
Payzone retail network, and remove the incumbent PayPoint service. The service will
go live in Payzone stores from 1%* December, with the full transition and exclusivity
effective on Jan ist, 2020. The contract will generate 72m additional transactions p/a
and serve ~1.8m customers.
Paypoint have responded as expected, encouraging BG customers to move to other
energy providers & targeting Payzone agents around contract restrictions. British Gas
are considering how to respond as this is a breach of Paypoint’s current contract. We
are now stepping up our marketing and communications to both agents and
customers.
Agents’ Remuneration - well received
Following the announcement earlier this month of further increases to Agents’
Remuneration, we have been monitoring press coverage and postmaster feedback.
Postmaster feedback via Area Managers has been very positive in the vast majority of
cases inevitably wanting more detail and to understand the benefits for their
individual branches, but very welcoming and recognising this is meaningful and in the
right areas. The most prominent press was in the Daily Mail who led with a positive
headline about the amount, welcoming the increases and implying that they have
helped achieve this. This largely positive coverage, particularly using the 10%
increase as a lead, was the pattern in the other press coverage. Other articles have
appeared in Daily Mirror, Daily Record, Convenience Store, Talking Retail, The Grocer,
Asian Trader, Post & Parcel News, Retail Newsagent, Scottish Grocer and Convenience
Retailer. We will be writing to branches next week confirming the detail of the rate
changes and will update with further feedback following this.
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Hothouse Programme
The Hot housing programme to develop capability of Area Managers and Postmasters
to drive improved performance, has extended to a further 3 regions and will be
activated in 700 branches by the end of November. Results from branches in the 1*
two phases show a positive uplift in revenue relative to the control group. We are now
building a case for an accelerated programme to be on the ‘big bets’ list. The principle
of optimising our existing operation is increasingly looking like the best strategic
option. This is a reflection on core capability, our capacity to deliver change and our
culture of initiating something new, when results are hard to extract.
Change project spend
In P7 the Investment Committee approved additional spend for 2 large programmes:
Branch Hub (Agent Self Service) and RPOS (technology for whole estate deals). We
are noting this for the board but not seeking formal approval until we have completed
the strategic review (PSG Project) to understand if these programmes are aligned with
the long term strategy. For the moment, the programmes have approval to spend
until January Board. Spend and deliverables are as follows:
o Branch Hub has spent £9.6m to P7 of their current approved £9.7m
spend. The programme forecast £1.9m additionally to the end of
January to complete in anticipation of a full adoption plan at the end of
Q4.
o RPOS has spent £2.9m to P7. The programme forecasts spending £1.9m
to the end of January to obtain 70% product completion built on HIH, a
fully configured paystation device and clear Heads of Terms for The Co-
Op Group
Risks & Concerns
Royal Mail - Potential Industrial Action
On 13 November the High Court ruled that CWU's postal ballot of Royal Mail
employees for industrial action was unlawful, meaning no industrial action can take
place until a new ballot is completed. Whilst this means we can safely say that they
will not strike officially over the Black Friday, Cyber Monday weekend the CWU have
now appealed the judgement. If this fails they will likely re-ballot with the possibility
that if this is expedited then they could just feasibly take industrial action in mid to
late December. A verbal update will be provided in the Board meeting.
Post Office Industrial Action
A ballot for industrial action at Post Office for Christmas industrial action now looks
unlikely. Caution has been urged regarding any new DMB franchising announcements
in the General Election campaign period because CWU would likely make political and
industrial noise about this, however, with a 5 week lead in time from an
announcement of a ballot to a day of action, they would need to manufacture a trade
dispute by Nov 19th to call Industrial action on Christmas Eve (their traditional
target).
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GLO
We continue to await the outcome from our application for permission to appeal to the
Court of Appeal in respect of the Common Issues judgment and the Horizon
judgment. Contingency plans are in place for when the Horizon judgment is handed
down. Work is continuing on preparing our Defence in the Further Issues trial which
will be filed on Monday 25 November. The mediation remains in place for 27 and 28
November notwithstanding that the parties may not have received either or one of the
judgments by this time. It would be helpful for Post Office to participate in the without
prejudice mediation in any event as it will provide an opportunity to gain further
insight into the Claimants strategy and expectations. A verbal update will be provided
in the Board meeting.
Purpose, Strategy & Growth (PSG
Progress on our PSG strategy plans is on the agenda for later in this Board meeting.