UKGI00042836
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Post Office Limited
Board Meeting
MINUTES OF A MEETING OF THE BOARD OF DIRECTORS OF POST OFFICE LIMITED HELD
ON TUESDAY 23" NOVEMBER 2017 AT 20 FINSBURY SREET, LONDON EC2Y 9AQ AT
14.15PM
Present:
In Attendance:
Apologies:
Tim Parker
Richard Callard
Tim Franklin
Ken McCall
Carla Stent
Virginia Holmes
Paula Vennells
Alisdair Cameron
Jane MacLeod
Marla Balicao
Heather Jackson
Kirk Winstanley
Kevin Gilliland
Tom Wechsler
Mark Siviter
Sue Barton
Tom Moran
Nick Kennett
Martin Kearsley
Martin Kirke
Martyn Lewis
None
Chairman (TP)
Non-Executive Director (RC)
Non-Executive Director (TF)
Senior Independent Director (KM)
Non-Executive Director (CS)
Non-Executive Director (VH)
Group Chief Executive (CEO)
Chief Financial and Operations Officer (CFOO)
General Counsel & Company Secretary (JM)
Minute Secretary (MB)
External - Actinista (HJ)
External - Actinista (KW)
Chief Executive, Retail (KG)
Programme Manager Mediation Scheme (TW)
Head of Mails, Commercial (MS)
External - Accenture (SB)
Network Development Director (TM)
Chief Executive Financial Services &
Telecommunications, (NK)
Banking Framework Manager (MK2)
Group HR Director (MK)
Head of Change Delivery (ML)
(item 4)
(item 4)
(items 5,6,7)
(item 5)
(item 6)
(item 16)
(item 7)
(item 8)
(item 8)
(item 10)
(item 10)
ACTION
1. INTRODUCTION, CONFLICTS OF INTEREST, MINUTES OF THE PREVIOUS
BOARD MEETING INCLUDING STATUS REPORT
1.1. A quorum being present, the Chairman opened the meeting.
1.2 The Directors declared that they had no conflicts of interest in the matters to be
considered at the meeting in accordance with the requirements of section 177 of the
Companies Act 2006 and the Company's Articles of Association.
1.3. Minutes of the meeting of the Board held on 31% October 2017 were approved and
authorised for signature by the Chairman.
1.4 The paper from Patrick Bourke on the Impact of the Labour Government was noted.
1.5 The actions status report was noted as accurate.
2. CEO’s REPORT
2.1. The Board noted the CEO report.
following additional points:
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In response to questions, the CEO made the
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Board Meeting
(a) PV reported she had had a positive meeting with Francesca McDonagh, the
new CEO of Bank of Ireland and had found her dynamic and wanting to make
a difference. PV had provided her with feedback on the current relationship
and Ms McDonagh reiterated that the Post Office relationship was important
to BOI. PV noted that the parties had agreed to re-engage over the next 2
months.
(b) PV provided a further update on Union activity including the recent Tribunal
case in relation to weekly to monthly pay; the ongoing ACAS discussions
regarding the reduction in number of paid union representatives, and the
recent objection by the CWU to the roll out of telemetry in Supply Chain
vehicles.
(c) PV also noted that the Economic Secretary to the Treasury had written to both
Post Office and UKGI encouraging the extension of the banking services
framework to address issues of financial inclusion.
3. FINANCIAL PERFORMANCE REPORT
3.1. The CFOO presented the P7 financial performance report covering October 2017.
3.2. The Board noted the financial performance report and in discussion the CFOO made
the following points:
(a) Balance sheet headroom in P7 was £162m which was a month on month
improvement as a result of better planning around branch forex holdings;
improving data analytics to identify excess branch cash holdings, and better
management of inward remittances.
(b) TP asked about the trading performance of POMS. AC reported that POMS
were trading below plan and he and PV have spent some time to understand
the reasons for this. Resource gaps have contributed although these are now
being addressed. The plans are now more ambitious and Post Office has
agreed to commit £2.5m from the ‘growth fund’ to support POMS growth
plans.
(c) The Board noted that it would be helpful to see more commentary on
the performance of projects (eg slide 9 of the report) and why project
spend was behind budget (slide 12). AC noted that a review of change
spend and progress was underway including proposals for a stronger portfolio
office, improved prioritisation and gating processes, and better visibility of
inter-dependencies and impacts on benefits delivery. He noted that the
transformation of legacy systems such as back office continued to be
challenging due to the lack of documentation and the degree of upgrading. In
addition we are behind on the projects where we are replacing kit, networks
and software in branches due to the operational challenges of changing such
a large number of third party premises. He noted that the New Call acquisition
and implementation were broadly on track, and the delay in negotiations with
Bol was expected to have an adverse impact on the economics of the customer
hub. The Chairman noted that it would be helpful for the Board to receive
a status update as to where Post Office wants to be as at year end.
AC
AC
4. IT ASSURANCE
4.1. The Chairman welcomed Heather Jackson and Kirk Winstanley from Actinista who
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Board Meeting
provided the Board with an update on the findings from the review on Post Offices’
IT strategy.
HJ confirmed that the independence of Actinista had been discussed with PV given
that the firm had previously undertaken work for Rob Houghton in previous roles,
and no conflicts were considered to exist with Post Office or any of its current
employees..
HJ and KW took the Board through their key findings and highlighted the following:
(a) Overall the IT direction is right and progress is being made. There is an
opportunity to get more value from the IT estate, and avoid mis-alignment.
The delivery of the IT strategy is an important contributor to Post Office’s wider
costs savings ambition.
(b) It was not clear from the various papers that Actinista had reviewed how the
significant amount of IT spend supported the delivery of Post Office’s overall
strategy. Much of it appeared operational - fixing broken technology - rather
than focussing on delivering the longer term strategy and articulating business
outcomes.
(c) The volume of change is significant and Post Office should be satisfied that the
level of change can be delivered and absorbed. It was unclear how Post Office
could have a reliable forward view of required resources, capital and the
potential risks. To do this effectively, Post Office needed to have a better view
of the desired business outcomes.
(d) Overall Actinista was of the view that the strategy was appropriate and
proportionate to Post Offices’ needs; fixing the foundations was the right thing
to do, however in response to a question it was noted that RH should RH
consider whether further support was required given the volume of
activity all of which was fundamental to the delivery of the business
strategy.
HJ and KW left the meeting.
PROJECT PANTHER
The Chairman welcomed Kevin Gilliland, Tom Wechsler and Andrew Goddard to
provide an update on Project Panther. KG noted that following the June Board
strategy discussion on bill payments discussions had been underway with Panther to
consider various options to address the long term structural decline in the bill
payment business. In particular:
(a) Post Office have three material gaps in its current bill payment proposition:
network, content and good technology. Engagement with Panther may
address all three as they have 14,000 outlets, 50 million transactions and their
technology is more up to date. It would also facilitate the forthcoming
procurement by British Gas, and the increased network size would increase
our competitiveness.
(b) Financial, technical and operational due diligence is underway, however
applying conservative forecasts and assumptions it appears the Panther
business could be worth up to £38m to Post Office of which half would be
represented by the value of new contracts. On this basis, the analysis suggests
that a price of between £14.4m and £18.8m represent value for money to
acquire the bill payments business.
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(c) It was noted that while this was a very interesting opportunity, an adverse
market reaction to an acquisition by Post Office was likely and was the key
risk.
(d) The Board asked why Post Office was an attractive buyer, and KG noted that
PO was the only viable buyer. It was noted that the acquisition would support
the network development strategy, however the Board requested that the JM
State Aid position be considered as part of the due diligence.
(e) KG noted that timing was critical given the expected tender by British Gas for
bill payment services.
(f) The Board noted the update and confirmed that discussions should continue.
KG noted that he hoped to have draft heads of terms to present tothe KG
Board in January.
TW and AG left the meeting.
RM NEGOTIATIONS UPDATE
The Chairman welcomed Mark Siviter to the meeting. KG provided the Board with
an update on the RM negotiations, in particular developments since May, and
highlighted the following:
(a) Post Office had commissioned an independent assurance of our strategy and
approach to the Mid-Term review (MTR) from Accenture. Sue Barton from
Accenture would be joining shortly to provide further details of MTR.
(b) As flagged earlier in the year, there are three key market segments, each of
which requires a separate approach:
1. Core USO - volumes included consumer letters and parcels; market is in
slow decline.
2. Multi-channel marketplace - mostly large letters and parcels from
marketplace sellers and eBayers; and growing slowly. RM and PO lead the
market but this is under increasing threat from price competition, for
instance eBay shipping platform. We continue to see RM as our preferred
partner however we would prefer not to be in an exclusive relationship.
3. E-retail market - accounts for 5% income and comprises of Click and
Collect and Home Shopping Returns. This is rapidly growing segment by
15% a year. RM and PO combined have 30% market share and our intent
is to compete directly with Collect+ and Hermes to become the ubiquitous
third party network. Securing relaxation of MDA restrictions on PO
accepting third party items in our network is key to significant growth.
(c) I MS noted that Amazon, eBay and ASOS want to engage with us and we are
making good progress in building informal relationships with them. KG noted
that if we did the Panther project this could help expand the network
overnight.
The Chairman welcomed Sue Barton from Accenture to the meeting. She provided
the findings to the independent review and highlighted the following:
(a) The analysis undertaken by the Mails team supports the negotiation of a new
long term contract and the strategy remains sound. The current position has
been well thought through.
(b) PO needs to be able to articulate why it is valuable to RM, but otherwise is
well placed for the Mid-Term review.
(c) Achievement of the longer term strategy will require further discussions with
RM particularly as regards the parties’ respective long term aspirations.
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(d) Post Office needs to consider whether it will be ready to capitalise on
achievement of these outcomes - for example will it be able to address all the
issues that would arise from becoming a long term partner of Amazon in say
the next 12-18 months?
(e) Post Office needs to create a supervisory group with GE and Board members
who can stay close to the details of negotiations and can provide additional
comfort and confidence when decision points are reached.
SB left the meeting.
NETWORK DEVELOPMENT BUSINESS CASE
The Chairman welcomed Tom Moran to the meeting. KG presented his decision
paper asking for the Board to approve £18.71 funding for delivery of the Network
Development Programme from April 2018- March 2019. The Network Strategy had
been approved by the GE and Board in September and the Post Office Executive
Change Group (ECG) previously approved the business case in October.
KG explained that opening new branches was costly and lighter options needed to
be considered and options for new models were being explored.
The key proposals set out in the Business Case were
(a) Small Mains to Locals - transition of 114 small mains to Locals with a £6.5k
benefit per branch.
(b) I Managing ‘stranded’ branches left after NT — it is expected that 46 Traditional
branches will be left.
(c) Replacement of 123 Community branches with new Locals.
(d) over 2,000 potential sites for new Locals have been identified with the aim to
deliver 300 new Locals in mainly urban areas.
(e) Central London - in addition to DMB programme there will be around 50 new
locals in central London to meet customer demand in London and improve
ability to compete. There is also a plan to open a further c125 new branches
in areas close to DMBs to improve customer.
RC requested that in future business cases should explain how they supported the
delivery of the Strategic Plan.
The Chairman also asked that we look at ‘stranded’ leavers and find a way TM
to compensate them to enable them to leave. Analysis was needed to be
reported back to the Board.
It was Resolved that the Board approved the funding of £18.71m for delivery of
the Network Development Programme from April 2018- March 2019.
The Chairman noted that this would be the last Board meeting KG would be
attending and conveyed his thanks to KG for his contribution and commitment to
the PO for over 30 years, and wished him well for his retirement.
CASH SERVICES STRATEGY
The Chairman welcomed Nick Kennett and Martin Kearsley to present the Cash
Services Strategy paper.
(a) NK explained that the value of cash in the UK economy continues to grow
whilst the use of cash is expected to decline but will still remain vital to the
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10.
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Post Office Limited
Board Meeting
UK economy for a significant period. Banks continue to close branches and
the continued demand for cash with reduced locations could create a unique
opportunity for PO as the counter cash partner for UK banking
(b) Lloyds has approached us to consider taking over the counter cash
transactions and we are having similar conversations with other banks.
(c) I RCnoted that at there had been a lot of interest from Ministers, as the strategy
supported the government's financial inclusion strategy.
(d) MKe noted that significant work was underway to assess the operational
impact of a request to widen the scope of cash services available through post
offices. An update on the implications would be presented to the Board
in Spring 2018.
NK and MK left the meeting.
GROUP LITIGATION UPDATE (VERBAL)
JM provided an update on the outcome of the Case Management Conference held on
19 October and outlined the dates set for future hearings. She noted that the judge
had indicated that the court dates would not be set by reference to counsel
availability. This posed a potential issue for Post Office in relation to the court hearing
in November 2018 as the lead counsel may not be available due to another trial, and
advised that contingency plans were being developed.
TF left the meeting.
SAP HR & PAYROLL REPLACEMENT BUSINESS CASE
The Chairman welcomed Martin Kirke and Martyn Lewis to the meeting who
presented the decision paper “Replacement of HR SAP and Payroll Systems”. MK
explained the reasons for the replacement business case and the additional funding
required as follows:
(a) The programme had been hampered by poor documentation of a very old
system;
(b) testing had indicated a high risk of large numbers of inaccurate payments
being made to employees due to the system design not meeting key
requirements. The decision was made that reputational risks were too great
to risk implementation until the system was fixed. As a result the programme
had incurred delays and increased costs while the additional work was
undertaken to fix the issues. Go live had been postponed from July 2017 and
is now planned for January 2018.
(c) The request for additional funding to the amount of £4,061k is required to
complete delivery of Wave 1 in January 2018. If further testing is required
and go-live delayed then a drawdown of a further £1 million would be
required to cover the delays through to March 2018, resulting in a total
increased spend of £5,061k.
(d) The Chairman asked did we definitely have to go ahead with this change or
could we continue with what we currently have in place. ML noted that
support on the current system will stop on 6" April 2018 so we must
transition off the current systems. It was noted that RH also supported this
view and confirmed that migration off old system was imperative and urgent.
(e) The Board requested better controls around overruns. AC noted that as a
matter of good practice, projects should flag to GE as soon as they are
aware they are going to be more than 10% variance from NPV and must
give earlier warning.
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MKe
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Board Meeting
(f) I Independent assurance would be sought to ensure there are no potential risk
for the go-live decision, and a review of ‘lessons learnt’ would be JM
commissioned and presented to the ARC after go-live.
MK and ML left the meeting.
11. BOARD COMMITTEE CHAIR UPDATES (VERBAL)
11.1 NomCo
TP provided the following update:
(a) VH will be stepping down from this Board at the end of March 2018. A search
has commenced for her successor.
(b) The POMS Board is recruiting for a further independent non-executive
director.
(c) TF has been nominated to join the POMS Board.
11.2 RemCo
KM provided a update and noted the following:
(a) Verbal update had been received on the status of the submission to the
shareholder regarding the LTIP criteria.
(b) I PwC had provided an update on market trends and gender pay. At this stage
there was relatively little information on gender pay reporting. RemCo will
consider the likely Post Office report in January.
(c) The performance criteria for the 2016-19 and 2017-20 had been discussed
and recommended as tied to cash usage and EBITDA.
(d) Natasha Wilson is putting together a list of incentive schemes currently used
at PO and the reasons behind them.
(e) POMS - the RemCo has requested an update on POMS remuneration
framework and how it operates in practice.
11.3. ARC
CS provided an update. The key points were:
(a) IT - The ARC had been concerned at the number of recent major incidents
including 3 DDOS attacks, AEI control failure and Contact Centre issues where
unexpected high call volumes had led to significant service outages. Generally
there was a concern at the volume of change that was dependent on IT and
the better visibility had been requested of the delivery of key programs
designed to address audit actions, or minimise risk.
(b) An update had been provided on the discussions with HMRC regarding the
proposed eKYC solution for Bureau de Change
(c) The external audit plan for next year - no material changes to the materiality
levels used in the recent audit.
(d) Approved change implementation plan.
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Board Meeting
12. ITEMS FOR NOTING
12.1 Sealings
It was Resolved that the affixing of the Common Seal of the Company to documents
numbered 1592 to 1603 inclusive in the seal register was confirmed.
12.2 Health & Safety
The Board noted the report.
12.3 Meeting Dates and Forwards Agenda
The Board noted the future meeting dates and January’s agenda.
13. AOB
There being no further business the Chairman declared the meeting closed at
17:20pm.
: Tim Parker
Chairman . Date
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