UKGI00041969 - PowerPoint presentation re: Post Office Ltd - Quarterly Review - April 2012

Evidence on official site

UKGI00041969
UKGI00041969

Shareholder
Executive

HM Government

Post Office Ltd

Quarterly Review
April 2012

RESTRICTED — POLICY & COMMERCIAL

UKGI00041969
UKGI00041969

Quarterly update

RESTRICTED — POLICY & COMMERCIAL

Royal Mail

Board and

Governar

3. Strategic Plan
and Funding
Position

@ Shareholder
Executive

On 1 April 2012, Post Office Ltd (POL) and Royal Mail Group Ltd separated operationally.
POL now has its own Board (see below) and operational autonomy from Royal Mail.
10-year (reviewable after 5) distribution agreement is now in place between the two
businesses, giving POL greater certainty over its largest revenue stream.

POL's Board now has 4 (non-ShEx) NEDS and a further NED with financial services expertise

is to be sought.

Susannah Storey has joined the Board as a ShEx representative.
New articles of association have been adopted giving ShEx direct special shareholder rights

over POL.

State aid approval for POL’s funding package to March 2015 was received in March.
Payment of FY12/13's £410m was made on 2 April

Piloting of new network models continues, with more than 200 now in place. Formal rollout
begins this summer.

Major other areas of focus to ensure strategic plan targets are met are Crown office losses and

new revenues.

UKGI00041969
UKGI00041969

RESTRICTED — POLICY & COMMERCIAL

Quarterly update

4. Policy questions
raised at Annual

Financial
porting
Improvements

6. Incentives

@ Shareholder
Executive

+ Anew AD focussing on the next SR package will join in May. An initial project will be to examine the
most efficient basis to provide subsidy to branches — particularly in the context of mutualisation and the
longer term II analysis suggests fixed cost must be removed before differentiated models can be
introduced).

Read across from FSS to POL: Similarities: decline in traditional markets and uncertainty on future
markets; high fixed cost base; solutions need to include a gvt wide view; the need to convert market
position to innovate in new areas. Differences: policy and politics around the future of the companies;
hetwork strategy attempts to address fixed-cost base and POL is seeking to innovate in GS (not tackled
in FSS).

‘The team has taken/is taking forward the reporting improvements suggested at the last annual review.
EG POL now reports profitability ex-subsidy; planned rise in agency pay as % of revenue due to fewer
crowns.

‘Additionally, the new Chair of POL's Audit, Risk and Compliance Committee takes his position shortly,
and he and the FD will look in detail at the appropriateness of POL's financial reporting.

‘The team’s new AD (to be supported by Charles Stevenson and Katie Wake) brings dedicated financial
expertise to the POL team for the first time.

Following separation, POL now has its own RemCo.
POL has set out initial proposals for principles on which the LTIP will be founded (reducing pre-subsidy
losses, network transformation and growth in revenues). We will now engage on this, looking to build in
‘a Crown profitability metric.

UKGI00041969
UKGI00041969

Trading update

RESTRICTED — POLICY & COMMERCIAL

po current Month I vr (tt months) I __Prior Yearyro__I 2012113
em factual [ Buaget I [ Actual [ Budget I Variance I 2011 Actual [ Variance I FY Budget I
External Income 309 499 1.05709 566.44 S716 07 na
Interbusiness Income m4 23 14 TT 2187 " na
POFSIFRES Share of Op Proft 12 17 095 26 2% 26 2A 62 na
Total Income m5 79 16 92 9134 158 912.7 165 10158
Cost of Sales 93 94 04 1044 12 68 127 ea _4179
Gross Profit 72 685 417 ee 0022 226 6000 248 e979
Expenditure (exclPOOC) 792 TST 35 8765 8028 163 8782 1710188
POOC Costs 39° 45 0 24 7B OTA 137 44 “17
Group Overhead Allocations A747 00-188 187 0.4 15.2 36 na
Other (ine Interest & mpairment) _—-09 3223-255 408 153 50.9 44 na
Total Costs 457 824° «36 +9386 9600 304-9670 ~*~«8.4=SSCHOSS
Share of Op Proft fom JVs. 26
Profit pre-Network Payment, 455 136 49 1138 4668 530 4670 532 — -1260
Network Payment 138 138 0016682 166.2 0.0 1935 arr 210

+ Profits are significantly ahead of budget and 2011 comparable.

+ Increase in revenue has been driven by outperformance vs prior year and budget on the mails (driven by 2! class and special deliveries) and
financial services (driven by internet saver and ATMs) sides of the business. Government Services revenues are also up by c£5mon the

previous year (driven by ID services) though this is less than budgeted.

* Decline in operating costs has been driven by non-people cost savings of c£16m. This has been driven by a renegotiation of POL's IT

contract with Fujitsu, as well as other savings from squeezing supply contracts.

+ New budget for 2012/13 has been ap}

@ Shareholder
Executive

proved

UKGI00041969
UKG1I00041969

RESTRICTED — POLICY & COMMERCIAL

Traffic light analysis

1. Shareholder Relationship
2. Implementation of Shareholder Model

3. Quality of Management Team & Board

4, Strategy

Policy and shareholder roles are combined.

‘Succession plan for POL MD is unclear. Governance
changes around separation will increase scrutiny and
support for POL executives.

Strategy is sound but its execution faces risks. In
particular ShEx is working hard on the Government
services side to ensure that POL has the best possible
chance of realising revenues.

5. Financial Performance

POL does not make a profit because HMG imposes a
number of SGEI requirements such as maintaining a
network of 11,500 outlets.

6. Balance Sheet & Risk

@ Shareholder
Executive

POL stil relies on HMG subsidy but a strategic plan is in
place to reduce this.