Agenda
[Date: I Tuesday 28 May 2019
Post Office Board Agenda
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[met] 11.30-16.15 hrs [Location] 1.19 Wakefield I
© Tim Parker (Chairman) I © Tim Franklin * Veronica Branton * Henk Van Hulle (item 12.)
(Head of Secretariat) (Business Innovation Director)
* Alisdair Cameron © Shirine Khoury-Haq I © Debbie Smith (items 8. & 9.) © Chrysanthy Pispinis (item 11.)
{Interim CEO) (CEO — Retail) (Director PO Money)
* Ken McCall © Carla Stent * Owen Woodley (items 8. — 12.) © Mark Siviter (item 9.)
(CEO - FST&A) (MD — Mails & Retail)
* Tom Cooper © Cathy Mayor (item 8.) * Micheal Passmore (items 5. & 6.)
(Finance Director — Retail) Finance Director
© Colin Stuart (item 8) © Alan Watts (item 7.)
(Finance Director — FS&T) (Herbert Smith Freehills)
© Ben Foat (item 7.) © Emma Springham (item 8.)
(General Counsel) (Chief Marketing Officer)
© Jonathan Lewis (items 5. & 10.)
(Head of Strategy and Corporate
Development)
1. I Welcome and Conflicts of Interest Noting Chairman
2. I Appointments Chairman
Ratification of Interim Group CEO appointment I Ratification
11.30- 11.35
3. I Minutes of Previous Board meetings including I Approval Veronica Branton
Status Report
3.1 PCI Compliance Update Noting
3.2 Postponement of Belfast Exit Plan Noting
4. I CEO Report Noting & Input ‘Al Cameron 11.35 - 11.55
5. I Finance 1155-1255
5.1 Financial Performance Report Noting & Input Al Cameron/ Micheal
5.2 Change Funding Report Approval to send to Passmore
Shareholder
5.3 Costs and Structures Noting & Input Al Cameron/ Jonathan
5.4 Plan Update Lewis
6. I Annual Report and Accounts Approval Micheal Passmore 12.55- 13.15
Lunch 13.15 - 13.30
7. I Group Litigation Update Noting & Input Alan Watts/Ben Foat I 13.30- 13.50
8. I Business Performance Reports Noting & Input Debbie Smith/ Cathy I 13.50 - 14.30
8.1 Retail Performance Report Mayor
8.2 FS&T Performance Report Owen Woodley/ Colin
8.3 Marketing Report Stuart/ Emma
Springham
9. I Royal Mail Group Negotiations Noting & Input Debbie Smith/ Mark I 14.30- 14.45
Siviter
10. I Strategic Development Noting & Input Jonathan Lewis/ Owen I 14.45- 15.15
Woodley/ Tim Franklin
STRICTLY CONFIDENTIAL
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Agenda
Post Office Board Agenda
11.I Bank of Ireland Deal Noting & Input Owen Woodley / 15.15 - 15.30
Chrysanthy Pispinis
12.I Digital Update Noting & Input Owen Woodley/Henk I 15.30- 15.45
Van Hulle
13.I Contracts/ approvals Approval 15.45- 15.50
13.1 Home Re-engineering capital deployment
13.2 DMB franchising and Network
Development
13.3 NNL activity over the coming year
14.I Governance Report Approval Veronica Branton 15.50 — 16.00
15.I Items for Noting Noting All
15.1 Sealings
15.2 Health and Safety Report
15.3 Future Meeting Dates
15.4 Forward Agendas
16.00- 16.15
16.I Any Other Business Noting and Input Chairman
17.I Date of next meeting Noting Chairman
31 July 2019
STRICTLY CONFIDENTIAL
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Tab 2.1 Ratification of Interim CEO appointment
POST OFFICE LIMITED
BOARD
Appointment of Interim Group CEO
Author: Veronica Branton, Head of Secretariat Meeting date: 28" May 2019
Executive Summary
Following Shareholder approval, the Nominations Committee approved the
appointment of Alisdair Cameron as Interim Group Chief Executive Officer (CEO) and
the Remuneration Committee approved his remuneration package for
recommendation to the Board. Board approval was obtained by correspondence and
the Board is asked to ratify its decision to approve the appointment of Alisdair
Cameron as Interim CEO and his remuneration package.
Strictly Confidential
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Tab 3.1 Minutes
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POST OFFICE LIMITED BOARD MEETING
Strictly Confidential
MINUTES OF A MEETING OF THE BOARD OF DIRECTORS OF POST OFFICE LIMITED HELD ON TUESDAY 19
NOVEMBER 2018 AT 20 FINSBURY STREET, LONDON EC2Y 9AQ AT 13.00 PM
Present: Tim Parker (by phone) Chairman (TP)
Paula Vennells Group Chief Executive (PV)
Ken McCall (by phone) Senior Independent Director (KM)
Tom Cooper (by phone) Non-Executive Director (TC)
Tim Franklin (by phone) Non-Executive Director (TF)
Shirine Khoury-Haq (by phone) Non-Executive Director (SK)
Carla Stent (by phone) Non-Executive Director (CS)
Alisdair Cameron Group Chief Financial and Operating Officer (AC)
In Attendance: Jane MacLeod Company Secretary (JM)
Veronica Branton Head of Secretariat (VB)
Debbie Smith Chief Executive - Retail (DS)
Martin Kearsley Banking Director (MK)
Cathy Mayor Finance Director (CM)
Andrew Clatworthy Contractor (ACL)
1. WELCOME AND CONFLICTS OF INTEREST
A quorum being present, the Chairman opened the meeting.
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.
BANKING FRAMEWORK 2
The Chairman introduced the discussion on Banking Framework 2. There was
to be reached on where to set the rate card which would be in place for the
the Board would then need to monitor the situation over the
5 as to how they
MK summarised the slides which had been circulated earlier and noted management's
recommendation that overall,
We would also be asking the banks to__ IRRELEVANT ____} MK noted that this
recommendation represented an increase of er annum from the initial
recommendation.
A number of points were raised, includin
. It was unlikely that the banks would wish ta
¢ that it would be helpful to understand what would be involved if the banks sought to
i IRRELEVANT It was reported that the number of
transactions and size of transactions was declining but the banks would have to find a way
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Minutes
POST OFFICE LIMITED BOARD MEETING
Strictly Confidential
of circulating more cash and having more cash in transit. Management estimated that
approximately 750 hubs in city centres and major conurbations would be able to service
around 50% of the banks’ customers currently using PO services; however the cost of
running these centres would be high. A further 1,000 or so branches would be able to
service the majority of the remaining customers
what cost and reputational issues would face the banks if they were not able to provide
services through the banking framework? Management advised that they had explored the
li kely costs to the banks in several different ways: conversations
Office could of
some areas, I_
option
development of an operational and supply chain relationship typically involved
E While we were increasin;
lop a longer te! lati
"Where a bank:
(or our absorption of RPI costs) as volumes increased could develop a true
partnership approach
it was noted that there would be pressure from Government for Post Office to service
withdrawals in remote areas. In the absence of the banking framework there would need to
be a service for the disenfranchised
that PO wanted to be part of future solutions on the digitisation of cash. The banking
framework was not about a short term cash generation for us
that we needed to focus more on the economics for the PO, i
with our infrastructure and the branch network to which
that we received a subsidy to operate POs in isolated locations which would need to be
open whether we were offering a banking service or not. We needed to focus on the right
ur focus was on the
supply chain c costs because we would not incur these costs if we did not provide banking
services. Other than for DMBs, the network costs we not nearly as significant
Our central narrative was that we needed to make an economic return and would be
partnership with the banks
pressed to do so by our shareholde
and have a broader conversation o1
arrangements beyond the nextin
whether we were sufficiently well prepared for our discussions with the banks? Meetings
«I we would review wider aspects of the service and could introduce the concept of
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Tab 3.1 Minutes
POST OFFICE LIMITED BOARD MEETING
Strictly Confidential
The Board discussed the proposed rate card and the permission sought to operate within a
__ IRRELEVANT
e = the majority of directors thought that th
Tom Cooper would engage with the team to discuss the figures we had on the banks’ costs and
how these were underpinned.
The Board RESOLVED to APPROVE a rate card for banking framework 2 within a
Taeccvanr? The rates could be disclosed in conversations with the banks over the next few days to
gauge their reactions. The Board RESOLVED to DELEGATE AUTHORITY to the Chief Executive
and the CFOO to determine the rate within the range approved and where appropriate,
authorised the executive team to’
options and other options as appropriate.
The meeting closed at 2.30 pm.
Date
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POST OFFICE LIMITED BOARD MEETING
Strictly Confidential
MINUTES OF AN ADDITIONAL MEETING OF THE BOARD OF DIRECTORS OF POST OFFICE LIMITED HELD ON
WEDNESDAY 23 JANUARY 2019 BY TELEPHONE AND AT 20 FINSBURY STREET, LONDON EC2Y 9AQ AT
18.00 hrs
Present: Tim Parker Chairman (TP)
Ken McCall Senior Independent Director (KM)
Shirine Khoury-Haq Non-Executive Director (SK)
Carla Stent Non-Executive Director (CS)
Alisdair Cameron Group Chief Financial and Operating Officer (AC)
In Attendance: Jane MacLeod Company Secretary (JM)
Veronica Branton Head of Secretariat (VB)
Rob Houghton Group CIO (RH)
Ben Cooke ClO - Back Office, Technology Transformation (BC)
Michael Clements Finance (MC)
Ray Panditharatna DMw (RP)
Apologies: Tim Franklin Non-Executive Director (TF)
Tom Cooper Non-Executive Director (TC)
Paula Vennells Group Chief Executive (PV)
ACTION
1. WELCOME AND CONFLICTS OF INTEREST
A quorum being present, the Chairman opened the meeting. 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.
2. BACK OFFICE TRANSFORMATION
AC introduced the paper which set out the processes, risks and mitigation plans being
worked through in order to take the “Go/ No go” decision to migrate PO Limited’s financial
processes from POLSAP to Transtrack CWC (CWC), enabling the current system, POLSAP, to
be switched off. It was planned to take the “Go/No go decision” on 24" January 2019 and
for 28" January 2019 to be the first day operating on the new system.
Agents’ pay was already being processed on the new system and cash processing was
being carried out at the Belfast data centre. It was noted that no changes were being
made to branch systems.
DMW had been engaged as an assurance partner and their latest report had been
provided as an appendix to the paper. The Back Office Team (BOT) testing approach was
deemed appropriate and a suitable plan was in place to address the outstanding points
they had identified.
Three issues of concern had been identified in December 2018, since when further work
had been undertaken:
© Systems performance: sufficient progress had been made to enable a “go” decision
* Reconciliations: CWC was correctly recording the value of cash in supply chain but
there were problems with how that value was being reported through to SAP CFS.
Nevertheless, as the differences could be identified automatically and a process had
been agreed to explain, resolve and rectify these differences, we were satisfied that
the risks could be managed
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Cash forecasting": a decision had been taken to stop working on a fully automated
system within CWC and to build an alternative system using Power BI in order not to
delay the “Go live” decision. The Power BI system would not be available until late
February 2019 so standard planned orders for Sterling, which had already been
communicated to branches, would be issued. These manual systems could be
operated for an extended period and branches would be able to make changes to
orders by telephone and urgent cash deliveries could be sent overnight by Royal Mail
Special Delivery. Payments to suppliers could be made manually. It was noted that
manual processes would be more costly and we could end up with more cash in
branches than needed, although our processes for managing cash had improved.
However, the cost of a further month’s delay would be circa £1.5m, would take us
closer to year end and we would remain on a system which was fragile. On balance,
management believed the risk of delay appeared to outweigh the risk of migrating to
the new system, subject to the final “Go/ No go” checks being satisfied.
A number of points were raised, including:
What were the critical issues outstanding? What were the major risks? Was there a
roll back position? It was reported that the relevant PO Business teams were
confident that should the “Go live” fail, alternative arrangements could operate
reasonably well for two to three weeks. In practice there were manual processes
which had been deployed previously. Were this to happen, the customer impact
would be limited because, as noted, changes were not being made to branch systems
and arrangements were in place for the delivery of additional cash overnight via Roya’
Mail Special Delivery. Next day foreign currency orders could be impacted. We had a
short window within which we could choose to roll back and we could reconcile back
to cash at any point
Did we have a plan for the introduction of Power BI? It was confirmed that we did
and were reasonably confident that it could be in place in about four weeks
What was the difference between go live tomorrow and in two weeks? It was
reported that delaying now would require an extension of four weeks because we
would have to align with month end. Delay entailed more operational risk with POL
SAP and additional costs. We might also have to re-run the training we had already
provided because this needed to be reasonably close to the “Go live” date.
Proceeding also had the advantage of allowing us to deal with the issues that arose as
the new system started to operate and find fixes for them
If something changed our view on how long it would take to put Power BI in place
would we choose to delay? It was reported that a delay in the region of two anda
half to three months would not be viable and would represent a “red line” for the
“Go/ No go” decision
Were the support team in place and ready to operate the new system? It was
reported that training had been provided for the whole of supply chain, the system
had been live for some time in Belfast and a number of improvements had been
made. Back office and finance had also received training
Had any systemic problems been identified? It was confirmed that no systemic
problems had been identified but that we were producing end of day cash reports in
Belfast and counting the cash at the end of each day but that these reconciliations
were not always reporting correctly to SAP CWS. This might be partly due to timing
differences but we were seeking to identify the root cause
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1 The process by which the inventory management team set out how much cash should be sent to and recovered from each
branch, communicating this information to Supply Chain Operations via CWC and to branches via Horizon.
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Tab 3.1 Minutes
POST OFFICE LIMITED BOARD MEETING
Strictly Confidential
Board Directors were satisfied that appropriate testing work had been undertaken and
suitable assurances received. S K-H noted that she was comfortable with the information
provided on the manual processes and the approach to User Acceptance Testing (UATS),
and had discussed the assurance report with DWM.
The Board AUTHORISED the delegation of the “Go/ No go decision” to the CFOO and the
Group CIO.
Chairman
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Minutes
MINUTES OF A CALL OF THE BOARD OF DIRECTORS OF POST OFFICE LIMITED HELD ON 18 MARCH
2019 AT 17.15 HRs
Present: Other attendees:
Tim Parker (Chairman) Lord Neuberger, QC (from item 3.)
Ken McCall (Chairman for the meeting) Jane MacLeod (Group Director Legal, Risk and Governance
and Company Secretary)
Tom Cooper Veronica Branton (Head of Secretariat)
Tim Franklin
Shirine Khoury-Haq
Carla Stent
Alisdair Cameron
Apologies:
Paula Vennells
1. Conflicts of Interest Actions
A conflict of interest was noted in relation to Tim Parker in his role as Chairman
of the HM Courts and Tribunal Service.
A conflict of interest was noted in relation to Tom Cooper in his role as UKGI
Director, which as an executive part of government, should not be involved in a
decision which related to the judiciary.
Article 82 of PO Limited’s Articles of Association permitted the Board to authorise
a director in relation to any matter the subject of a conflict. The Board
determined that Tim Parker and Tom Cooper should be involved in the Board
discussions but they would not be party to the decision on whether or not to
seek the Judge’s recusal.
2. Context
24 Appeal and recusal
Jane MacLeod explained that the discussion would focus on appeal and recusal
issues.
She noted that we had received a written opinion from Lord Neuberger which
had been issued on 14 March 2019 and which suggested that Post Office had
grounds for appeal and for recusal. She noted that Lord Neuberger would be
joining the call so the Board had the opportunity to ask him questions about his
opinion on the case.
She noted that Lord Neuberger would not be able to represent Post Office in
Court because of his previous role as President of the Supreme Court and
therefore it was proposed that Lord Grabiner QC would represent Post Office on
any recusal application.
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2.2
JM noted that she had met with Lord Grabiner earlier in the day and the Board
would also have the opportunity to ask him questions on a subsequent call. Lord
Grabiner was a very experienced QC who had appeared in a number of high
profile cases. His strong advice was that PO Limited should bring a case for
appeal and for recusal; he was confident in the recommendations he was making
and was very critical of the Judgment and its legal underpinning.
It was noted that the Shareholder had previously requested that it be consulted
on any proposed appeal, although there was sensitivity in relation to a recusal
application. It was noted that a recusal application needed to be lodged as soon
as possible.
An application to appeal would normally be lodged within 21 days of the
Judgment being published but we thought that the Judge might extend this
deadline given that the Horizon trail was underway.
Horizon Trial
The Horizon Trial had started on 11 March 2019 and there were a number of
comments which suggested that the Judge’s views of Post Office (as contained in
the Common Issues Judgment) had not changed, including his continued
suspicion that Post Office was withholding evidence in relation to Horizon.
Lord Neuberger’s overview
Lord Neuberger joined the call and was introduced to the Board. He set out the
main courses of action that PO Limited could consider at this juncture:
1. Accept the Judgment
2. Take an orthodox defensive position and seek to appeal. This was an entirely
justifiable approach and a number of the Judge’s decisions were open to
attack and appealable from a preliminary reading of the Judgment
3. Seek recusal: the most aggressive approach.
The arguments for not accepting the Judgment as it stood included that the
Judge had accepted evidence that was not relevant to the case, having previously
stated that only relevant evidence should be allowed. He had included
commentary on witnesses which were not relevant to the Judgment and were
quasi Judgments. He was meant to be resolving a number of issues in relation to
the contract, but had not done this, and had taken into account how the contract
had been performed which was not a matter on which findings should have been
made.
Lod Neuberger noted that Post Office could argue that the Judgment was such
that the Judge could not fairly continue with the other hearings (including the
Horizon trial) and that justice would not be seen to be done if he did so. The
Court of Appeal (CoA) could be expected to give a judge a certain amount of
latitude in how they tried a case. However, we had a good prospect of convincing
the CoA to require the Judge to stand down although it was not inconceivable
that the case would fail. If we did not seek recusal the Judge could continue with
the hearings without any challenge being raised in relation to fairness or
potential bias and that would make it harder to argue this point subsequently.
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Losing the recusal case could alienate the Judge further but equally could make
the Judge more careful in his approach. Lord Neuberger thought that not taking
the aggressive course carried more risk than taking it from a legal perspective but
recognised that this was a difficult decision for an organisation like PO Limited
which was publicly owned.
4. Questions
1. Directors then had the opportunity to ask questions of Lord Neuberger,
including:
The arguments for recusal and appeal were clear and there was a strong case for
the former but we also had to consider the communications and stakeholder
arguments. What could the impact of not seeking recusal be on subsequent
appeals processes? Was there only one chance to seek recusal? For example,
what would happen if in our view the bias of the Judge continued or increased
during subsequent trials? Whilst it might seem attractive to go down the legal
route as it seemed like the right thing to do, was this a really strong case?
Lord Neuberger:
1. If we did not apply for recusal could this reduce the chance of the success of a
subsequent appeal? It was reported that appeal concerned matters of law
only and was not impacted by recusal which concerned issues such as
admission of evidence. These were free standing matters
2. Would this be our last chance on recusal? \f we did not seek recusal now our
chances of obtaining a recusal subsequently would depend entirely on how
the Judge acted in the future. Any subsequent application for recusal could
not refer to the first Judgment. If we did not act now the argument would be
that we had been happy for the Judge to continue hearing the Horizon trial
and for the claimants to continue spending money pursuing the case. A
decision on recusal needed to be taken this week. The usual process was to
go to the Judge to say that you were seeking to recuse him. If he did not
agree to recuse himself the application would then be made to the CoA
3. Prospects of success. Lord Neuberger reported that he did not yet know Lord
Grabiner’s view of the case; he thought we had a strong case but was slightly
diffident because he had not yet seen all of the evidence from the other side.
It was entirely possible that CoA would not accept our case but having looked
at the case did not think it possible that the PO would receive a fair trial if
heard by the current Judge.
2. The case had just started for the Horizon Trial. The Judge had commented
adversely on the PO Witnesses and some of these were appearing in the second
trial. Did these witnesses have a fair chance of being heard in the second case
given that the Judge had questioned their credibility? This was a concern and
illustrated the unfairness of the Judgment.
3. Would a charge of unfairness issue form part of the appeal? A charge of
unfairness was more bound into an application for recusal than appeal because if
it were flagged in appeal the CoA would not be clear what action it could take.
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Unfairness was not really linked to the interpretation of the law which was
flagged in appeal. However the unfairness and legal interpretation arguments
were connected because some of the Judge’s findings were not relevant to the
case and the inclusion of irrelevant findings would form part of the appeal case.
It had been assumed we could run the unfairness argument as part of the appeal
or go for recusal at a later stage. Not being able to do so presented a stark
choice.
4. The board had to weigh up risks from a PR perspective. To what extent was
recusal an unusual occurrence and how was it usually treated? It was reported
that applications for recusal were not common but not rare either and were
generally linked with an appeal. Being recused could be seen as a bit of a “black
mark” for a judge but it could be determined that a case needed to go toa re-
trial because the judge had got the law wrong.
A. What would the timings for appeal and recusal be and how quickly did the
applications need to be made? Did an application for recusal pause the clock on
the trial underway? An orthodox approach would be to inform the Judge that we
were going to appeal partly on prejudicial findings and as such were asking the
Judge to recuse himself now. This was a perfectly proper application to make. If
we were successful the current trial would be a waste of time. At this point the
Judge was likely to ask the claimants for their view as to whether to carry on with
the trial. If the parties requested an adjournment and the Judge proceeded with
the trial that would not be viewed favourably by the judicial establishment.
6. How long did the Judge have to decide whether to recuse himself? There were 3
options: 1) The Judge could recuse himself immediately; 2) The Judge could
adjourn the trial and request a different judge to hear the recusal application, or
3) The Judge could continue with the trial. In each case the Judge was likely to
seek the claimants’ views and would want to understand the grounds for recusal.
The Judge was likely to consider the application for recusal overnight or over a
few days but could not delay taking a decision for a long period of time. If we
sought recusal at the end of week the matter was likely to be resolved by the end
of the following week [post meeting note: the Court will not be sitting in the week
beginning 25 March 2019 so a decision could take longer].
7. Could the CoA say that the second and subsequent cases should not be heard by
the same judge even if a recusal application had not been lodged? \t would be
odd to go the CoA alleging unfairness without seeking recusal. In other
circumstances it might be decided not to apply for recusal however as the second
trial had already started, these circumstances were different. PO Limited’s
concerns about publicity surrounding a recusal application were however
understandable.
8. If you were advising the claimants having received a request for appeal and
recusal how would you advise them? Lord Neuberger would advise them to look
at their position very carefully. He would want to understand their QC’s rationale
for including all the evidence he had. The Judge’s findings had been made in very
strong terms and he would be worried about the chances of the recusal being
successful. He would want to understand if there was anything that was not
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obvious that could support the approach taken. It was hard to see what findings
of fact could apply to the contract at its inception.
Ken McCall thanked Lord Neuberger for joining the call.
i. Follow-up discussion
It was noted that these were not easy decisions to take and one element of those
decisions was understanding the costs of taking an appeal and recusal action. It
was reported that costs had not yet been provided but a range of £100-200k was
likely for recusal. This entailed 1 — 2 weeks’ work and some work had already
been undertaken.
JM provided an overview of the issues posed for us by the Common Issues
Judgment and the process for reaching a decision.
The Board would need to have the chance to talk to Lord Grabiner to ensure that
it had received a range of expert advice.
The purpose of the Common Issues Trial was to establish the true nature of the
contract. Any additional terms applied through the Judgment could be appealed.
It had been ruled that the contract was a relational contract and therefore
additional terms could be implied.
Other finding and observations had been based on the evidence from the
claimants but not from PO Limited. The Judge’s finding that NFSP was not
independent was a good example of making a finding based on partial evidence.
If we did not challenge those findings of fact they would stay on the record.
Decision making process and conclusion
A decision on recusal should ideally be taken at the Board call on 20 March 2019.
An application to the Court would need to be supported by witness statements
and evidence and would be heard by our Judge within 24 hours. The timetable
was then in the hands of the Judge. If he decided immediately that he would not
recuse himself we would need to be prepared to go the CoA.
A number of points were raised:
* we might disagree with how the Judge has reached his conclusions but
needed to test whether the heart of his findings were correct, for example,
we funded the NFSP which could have affected their independence. It was
noted, however, that whatever the merits or otherwise of particular
findings where these had been based on partial evidence they could not be
regarded as fair
appeal on the contractual findings had merit from a legal perspective but
we must be clear that we were not being defensive. We were committed to
making operational changes and improvements
the Horizon trial ought not to have been a dramatic trial because both
expert witnesses had found the system to be reasonably robust. However, if
the views of a small number of claimants were extrapolated and
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represented as symptomatic of the entire system, then that posed a threat
to this view. Finding that system errors might have occurred in certain
instances was radically different to finding that the system was not reliable.
This trial was focussed on findings of fact rather than interpretations of the
law and would be very difficult to appeal
the ongoing costs to the business of needing to prove that money had been
taken had major implications for the operation of the business and the
scope for others to seek compensation if these cases were found against us
@ we needed a process for checking whether anybody had been treated
unfairly even if our case was ultimately successful. We also needed to be
sure that we were set up to be fair in the future. It was reported that we
were working through all the contractual issues. We were focussed
particularly on the transparency of processes. These were two of the most
urgent issues to be resolved
the Board still needed a greater understanding of the “big picture” and
financial implications. The Board wanted to be confident that irrespective
of legal process, there was an understanding of whether claimants (and
others) had not been treated appropriately over the period of time in
consideration.
* If was noted that if Post Office lost the case overall that would have
significant financial and operational outcomes, however at this point there
wasn’t a clear understanding of the potential scenarios at the conclusion of
the trials. This would help shape the overall view of whether we should
seek to appeal and/ or apply for recusal. It was AGREED that Jane MacLeod JM/ AC
and Al Cameron would set out their best view of the possible scenarios and
this would be circulated in advance of the Board call on 20 March 2019.
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Present: Other attendees:
Tim Parker (Chairman) (by telephone) Jane MacLeod (Group Director Legal, Risk and Governance and
Company Secretary)
Ken McCall (Chairman for the meeting) Mark Davies (Group Director Communications)
Tom Cooper Veronica Branton (Head of Secretariat)
Shirine Khoury-Haq Ruth Cowley (Norton Rose Fulbright)
Carla Stent Glenn Hall (Norton Rose Fulbright)
Alisdair Cameron
Apologies:
Tim Franklin, Paula Vennells.
Conflicts of Interest Actions
A conflict of interest was noted in relation to Tim Parker in his role as Chairman of
the HM Courts and Tribunal Service.
A conflict of interest was noted in relation to Tom Cooper in his role as UKGI
Director, which as an executive part of government, should not be involved in a
decision which related to the judiciary.
Article 82 of PO Limited’s Articles of Association permitted the Board to authorise a
director in relation to any matter the subject of a conflict. The Board determined
that Tim Parker and Tom Cooper could be involved in the Board discussions but
should not participate in any decision on whether or not to seek the Judge’s recusal.
Ken McCall reported that had spoken to Tim Franklin the previous evening and that
he and Jane MacLeod had received his views in writing.
It was reported that Paula Vennells could not participate in the call but had been
updated on the discussions.
Summary of discussion with Lord Grabiner
JM reported that a call had been held with Lord Grabiner QC earlier in the day which
a number of Board members had attended. Lord Grabiner had reviewed the
Common Issues Judgment and understood how it impacted on the current and
prospective trials. He had noted that the Judge had received several warnings about
allowing inadmissible materials but had chosen to do so and as such had behaved
improperly and was wrong as to the law. It was an unusual case which was unusual
procedurally.
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The test for recusal on grounds of apparent bias was considered from the
perspective of a reasonable observer. We would only need to argue apparent bias,
although Lord Grabiner believed that grounds existed to argue actual bias. In his
view there was no practical alternative to an application for recusal, and the risk of
not making the application was that the Court of Appeal (CoA) would ask why we
had not sought for the Judge to recuse himself. Lord Grabiner agreed that there was
a risk that the Judge would be emboldened if we lost the recusal application but his
position was already clearly indicated by his Judgment and the damage from this
had already been inflicted.
The Board requested that Lord Grabiner’s views be provided in writing. JM
3. Introduction from Norton Rose Fulbright
The Board was advised that Norton Rose Fulbright had been engaged to provide
independent advice to the Board on the case as well as to provide assurance on the
steps being taken to address the operational and contractual issues raised by the
judgment.
Glenn Hall was a corporate lawyer with significant experience in mergers and
acquisitions. He had worked for the firm for 20 years but had been special adviser
to Greg Clark, Secretary of State BEIS, for the last couple of years, before re-joining
Norton Rose Fulbright recently.
Ruth Cowley specialised in commercial litigation and had been at the firm for nearly
20 years.
4. Discussions on appeal, recusal and case management
The paper setting out the background to recusal and other issues which had been
circulated on 19 March 2019 was used as the reference point for the discussions on
recusal and appeal. Each director’s view was sought and a number of issues were
highlighted:
© if the trials continued to be heard by a judge who had such strong views on the
conduct of Post Office Limited and the reliability of its systems, the risk of an
adverse outcome increased, as would the pool of individuals seeking
compensation. Existing and new agents’ perception of PO Limited would be
damaged
there was a significant potential liability which was hard to quantify because of
the terms which the Judge had found could be implied into contract and the
unfairness shown by the Judge in accepting inadmissible evidence to which PO
Limited had not been able to respond
© irrespective of whether the Judgment was in our favour we wanted to make sure
that any individuals who were found to have been treated unfairly had
restitution
the consequences of losing on the reliability of the Horizon System were very
serious. The Board needed to see the potential range of penalties at different
trial stages to provide a roadmap
* aJudgment from the second trial which undermined the reliability of the Horizon
System could destabilise the business as it runs today. Our ability to manage in
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branch cash could be adversely impacted if the ruling was that our systems could
not be relied upon
a follow on question to whether the Horizon System was reliable was how we
treated discrepancies in the System and if we were treating Postmasters fairly
where this happened today. It was noted that the system had changed
substantially in last 10 years. It was reported that most discrepancies were due
to human error, such as incorrect cash counting or putting a decimal point in the
wrong place. There was a team in Chesterfield which helped to identify these
errors and liaised with Postmasters and the banks. It was recognised that we
could improve our processes and be more transparent. However, if we were
getting banking transactions wrong routinely, we would know this because the
banks and their customers would be complaining. This was accepted to be the
case but it was AGREED that the Board should have the facts and figures to be
able to verify that position Executive
* we now had the opportunity to think more strategically about this case and the
final outcomes sought.
5. Information and discussions requested
1. To provide a phased plan (e.g. over 30/60/90 days) covering the operational,
financial and reputational issues we would be addressing. It was reported that
this work was underway and that a paper covering these issues should be
circulated by the end of the week. The executive would need to make
proposals on any operational changes, such as the liability clause in NCT
contract
2. We needed a clear view on whether the Horizon System worked properly
today. We had to be able to defend against others’ doubts of the reliability of
the System. This meant that we needed to be able to validate the system error Executive
rate and what was acceptable in other industries with transaction volumes of
similar scale e.g. banks. It was reported that we could provide sensible
information about today’s system but it was much more challenging to go back
in time
3. Asummary of previous investigations into Horizon and the related issues would Executive
be made available.
4. TCwould like to discuss the figures included in the paper with the executive. Todo: TC/
5. We needed to demonstrate a cultural shift in how we managed the case in Executive
future. It was vital that we avoided any potential to be criticised further for our
behaviour.
6. We needed to carry out a critical analysis of ourselves. For example, what did Executive
we need to do to be the right partner for Postmasters?
7. We needed to make sure that the written legal advice aligned with the verbal JM
advice received.
6. Decisions
Ken McCall asked whether the Board thought that it had received sufficient
information to take a decision on recusal and appeal. Directors confirmed that
while there was further information they would wish to see, as discussed and
requested for subsequent discussion, the information already received was
sufficient to allow a decision to be reached on recusal and appeal.
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Norton Rose Fulbright’s input was also sought, accepting that RC and GH had been
given limited time to review the case. RC noted that from a legal perspective,
recusal was seeking to stem the flood of taint on future trials. There were no other
options to achieve this end and it would be difficult, if not impossible, to seek
recusal at a later stage. GH noted that from a broader director perspective there
were risks of action and risks of inaction against the background of where we were
today. There would be consequences financially, operationally and from a
reputational perspective; however, there was a greater upside in making the
application for the recusal versus the risks of that application failing. There were
risks of incremental damage if we were to lose the application for recusal, but
damage had already occurred because of the initial Judgment. The final outcome
with a different judge ought to be better from a reputational, financial and
operational perspective. This did not underplay the fact that an application for
recusal was unusual and could attract attention. It was also difficult to take a
decision seeking the judiciary to rule against one of their own. However, the
position was unusual because the Judge was hearing a series of trials.
Mark Davies’ view was sought from a communications and stakeholder perspective.
He stated that we needed to take the right steps to protect the business long term,
notwithstanding that this was likely to generate some adverse publicity in the short
or medium term.
The following points were made in considering whether to make a recusal
application and seek leave to appeal:
© it wasa balanced decision, notwithstanding the legal advice, because we could
not be sure of succeeding with the recusal application. However, we could still
manage the narrative on what we wanted to do with the business even if we
lost the recusal application. The strength of the legal advice and possible
upsides of success tipped the balance in favour of recusal and we should
pursue leave to appeal
© we had received three legal views each of which supported making an
application for recusal and seeking leave to appeal. The Judge’s views and the
reputational damage caused by these pushed us towards seeking recusal and
to appeal
e the Horizon trial could be damaging and pose risk to the business if the trial
continued to be heard by the current judge
« the only argument of force against recusal was the near term reputational
impact if we lost and the risk of further alienating the Judge; however, the
Judge’s views were already pronounced and losing the recusal application
could either embolden him further or make him more alert to charges of bias
© the case had not garnered significant attention thus far, possibly because it was
focussed on technical systems issues
*® we needed to take action in the long term best interests of the business. This
was not confined to the current group of claimants and their case.
AC thought that a decision on recusal was balanced, notwithstanding the legal
advice, because we needed to consider whether a successful application would
result in a more balanced hearing of the case, although he noted that it would stem
the immediate risk posed by the current judge continuing the hear the Horizon trial.
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JM confirmed that from a legal perspective she recommended applying for leave to
appeal the Common Issue Judgment and seeking the Judge's recusal.
After careful consideration of all the arguments, each Director present and
participating in the decision, supported a RESOLUTION of the Board that an
application should be sought for the Judge to recuse himself from the case, and,
should he not elect to do so, to submit this application to the Court of Appeal. It
was further agreed that leave to appeal the Common Issues Judgment should be
sought. Ken McCall reported that Tim Franklin shared the view that an application
for recusal should be made as well as seeking leave to appeal.
The Board RESOLVED that Lord Grabiner should be briefed to prepare the recusal JM
application.
JM reported that we had sought clarification on the timescales for appeal and it
seemed likely that we would have until 16 May 2019 to lodge the application for
leave to appeal. A significant amount of work would be entailed in preparing the
appeal and a decision would need to be taken on who should carry out the appeal
work for us.
We did not have to notify that we would be seeking leave to appeal at the same
time as making the recusal application. Court was not sitting next week and it was.
not clear therefore when the Judge would take the decision as to whether to recuse
himself. We thought it likely that he would decline to recuse himself and that the
case would go to the CoA. At this point a decision was likely to be taken quickly
because the Horizon trial was underway. We would seek for the Horizon trial to be
adjourned at the same time as the lodging the recusal application.
The options for appeal were discussed. David Cavender could conduct the appeal for
us or we could appoint a new QC. There were advantages and disadvantages
associated both with retaining counsel or appointing new counsel. The executive’s
recommendation was to use David Cavender but to draw on Lord Neuberger’s
‘expertise in the background. That was an option acceptable to both counsel.
TC suggested that we ask Norton Rose Fulbright to consider the options and discuss
these further at the Board Meeting on 25 March 2019.
The need to avoid language that could be perceived as strident or arrogant was
raised. It was reported that recusal was largely a written process and was couched
in legal language. Lord Grabiner would stand up in Court to make to case to recuse.
The arguments would be forceful but would be legally grounded.
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POST OFFICE LIMITED BOARD MEETING
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MARCH 2019 AT 20 FINSBURY STREET, LONDON EC2Y 9AQ AT 08.30 AM
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Present: Tim Parker Chairman (TP)
Alisdair Cameron Chief Finance Officer (AC)
Ken McCall Senior Independent Director (KM)
Tom Cooper Non-Executive Director (TC)
Tim Franklin Non-Executive Director (TF)
Shirine Khoury-Haq Non-Executive Director (SK-H)
Carla Stent Non-Executive Director (CS)
In Attendance: Jane MacLeod Company Secretary (JM)
Veronica Branton Head of Secretariat (VB)
Julie Thomas Network Operations Director (JT) (item 10.)
Debbie Smith Chief Executive - Retail (DS) (items 3., 12. & 13)
Owen Woodley Chief Executive - FS&T (OW) (items 4.,5. & 6.)
Cathy Mayor Finance Director, Retail (CM) (items 12. & 13.)
Tom Moran Network Development Director (TM) (items 12. & 13.)
Martin Kearsley Banking Director (MK) (item 7.)
Glenn Hall Norton Rose Fulbright (GH) (item 10.)
Ruth Cowley Norton Rose Fulbright (RC) (item 10.)
Apologies were received from Paula Vennells, Group Chief Executive.
ACTION
Welcome and Conflicts of Interest
A quorum being present, the Chairman opened the meeting.
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.
Minutes and Matters Arising
The minutes of the Board meeting held on 29 January 2019 were APPROVED and
AUTHORISED for signature subject to correction of typographical errors.
Progress with the completion of actions as shown on the action log was NOTED.
Banking Framework 2
Martin Kearsley provided an update on discussions with the banks on Banking
Framework 2 (BF2), The banks had until;
IRRELEVANT
for BF2 but proposed giving
ided they exercise this opti
1 Subject to a Framework Fee cap being applied at 30m transactions.
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IRRELEVANT ij
_ IRRELEVANT
A number of points were raised including:
© that the Minister's support of BF2 had been very welcome and helpful rae
.
Ef MK would set out the impact of ai
It was also noted that questions such as the MK
would be addressed in the July Board paper on cash utility.
MK would provide an update note to the Board after the!
passed.
IRRELEVANT __
4.
The Credit Card negotiations were drawing to a close with Capital One and we would
revert to the Board Subcommittee once the final position was concluded. Discussions on
meeting.
A number of points were rai
.
A
AJ
mM
rr a
<
>
=
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_ IRRELEVANT I
rr
IRRELEVANT. i
s we could take but noted that gw
IRRELEVANT
The Board congratulated Owen Woodley and the team on a good outcome to the
negotiations with Bol.
5. PO Insurance
OW noted that PO Insurance was regulated by the FCA and was required to maintain a
minimum amount of capital at all times. As a result of planned investments and to
“was required from PO Limited.
OW explained that the top line for PO Insurance had grown significantly but trading
profits were flat. The travel market was very challenging. The business had a sound and
capable operating team but more strategic capability was needed. The potential
IRRELEVANT
A number of points were raised, including:
¢ what the updated insurance strategy would look like and when we would be
considering this again? It was reported that the themes would be the same but we
needed to make sure that we were focussed in the right way. We needed to be able
to discuss options at the Board in May 2019
how much capital was there in the insurance business? It was noted that £2.7m was
the minimum regulatory requirement B but the amount of capital held currently
Post Office Management Services Limited (POI) of
each be granted,
ordinary shares of I
e approved; and
2. the subscription offi “leach in POI, for a total
consideration of =
3. any one Director or the Secretary be authorised to execute on behalf of the company
any documentation in connection with the allotment of the shares.
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The Board noted that PO Insurance should report back on its application of the change
funding via the Investment Committee regularly.
Telecommunications
It was reported that the Telecommunications Strategy would be discussed again at the
Board Strategy day in July 2019. We were likely to run an open auction for the purchase
of the Telecommunications business. pproached us about the potential
purchase of the business and Fujitsu and IRRELEVANTyere also interested. Sale would free
up cash flow for alternative investments but we had not yet seen potential sale numbers
and the business was a key income generator. We would need to invest in the
Telecommunications business in the meantime to maintain a viable business.
Global Payments Agreement
The Board RESOLVED to:
1) APPROVE the contract extension with Global Payments fo
at a cost of around?
IRRELEVANT
hich included both I
2) to DELEGATE AUTHORITY to Al Cameron, CFO, to approve the final costs and
terms of the contract extension
3) to APPROVE the re-procurement of these services via the Crown Commercial
Services Payment Acceptance Procurement Framework.
Branch Hub
Branch Hub was a self-serve portal allowing branch operators and business owners to
access support via their own devices. The portal would provide better and simplified
support to agents. The self-serve functionality aimed to reduce circa 600 roles at a cost of
£30m per annum; this included 250 back office staff dealing with around 75,000 branch
enquiries per month.
A number of points were raised, including:
«whether the benefits set out in the business case reflected the headcount
reductions? It was confirmed that the headcount reductions had been reflected.
The content of Branch Hub had been prioritised in line with feedback from agents.
The Judgment had prompted us to further accelerate this work. The platform itself
was not complicated but interfacing into our operating systems was more
challenging
© whether we were taking on board the lessons learnt from previous projects, such as
having users included in the project team? It was reported that we were. We had
involved Post Master system users previously but needed to draw on less
experienced Post Masters to test that the system was sufficiently user friendly
© that we needed to look at our charging approach, which needed to represent value
for money for agents. It was reported that we needed to build trust amongst agents
so they were confident that we would pass on cost savings. We also needed to
consider how money for Sub Postmasters would be distributed, as small POs had
less scope to make changes. The fee system needed to be transparent and it was
suggested that we consider whether there needed to be a core payment element as
well as variable payments in some instances. We needed to consider how we
aligned our interests and agents and incentivised the right behaviours. Our agents
tended to fall into four groups: those who were predominantly providing a social
function; those who were not entrepreneurial but had run a PO for a long time;
entrepreneurial Post Masters; and, the multiples. This made developing the
mentality of running a franchise business very important for us.
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The Board RESOLVED to APPROVE up to £4.8m investment and £0.5m maintenance costs
during the 2019-20 financial year to the Branch Hub programme. This would be drawn
down quarterly subject to financial hurdle rates and performance KPIs being achieved.
9. CEO report
Al Cameron introduced the report and invited questions:
* since the report had been issued an IT error had affected the Horizon system; this had
been fixed overnight but we needed to understand the root cause
“la former employee, had received a 20 month prison sentence for a
involving Postal Orders
© as noted in the report, PO Limited would be moving to a standard arrangement with
BUPA for private healthcare arrangements for employees from 1 April 2019. When
shutting the previous arrangement with a self-insured trust we had identified a
number of tax errors. These were being resolved and we had informed HMRC. Tom
Cooper reminded the Board that HM Treasury guidance meant that PO Limited would
need to reconsider the provision of private healthcare for employees and that we
would not be able to offer private healthcare to new Executive Directors. It may be
possible to consolidate an allowance within an individual’s salary so they could
purchase their own benefits. Ken McCall requested that a strategy be brought to the Mo Kang
Remuneration Committee on the changes recommended, when these would be
introduced and who would be affected
© our response to the Judgment fitted with our existing business drive and narrative on
supporting agents more. The tempo of this work would be critical.
A number of points were raised, including:
what was the mood of the executive? AC noted that the mood was positive. The top
40 leaders’ group had met the previous week; they were a strong group of individuals
who held the key strategic and people roles within PO Limited and worked well
together. The GE were having open conversations as a whole but with clear authority
to operate within their sphere of responsibility. The work we were undertaking with
McKinsey’s assistance was driving us to look ahead at the capabilities and roles
needed in the medium term. It was AGREED that a discussion on succession planning yg Kang
should take place at Board, looking at future structure needs as well as how we would
manage if a senior individual we to leave in the short term? (post-meeting note: this
item has been scheduled as an item for the additional Board meeting on 30 April
2019). \t was noted that GE members had broad remits and it was important to have
a “plan B” in place for all the senior people. There needed to be strong group of
individuals at the tier below GE. It was noted that there were not natural successors
in all instances but the span of some roles, such as Rob Houghton’s on assuming the
COO role’, was recognised
* TCnoted that £3m of costs associated with the Payzone acquisition had not been
included in the acquisition costs and analysis and he would be discussing this further
with the executive.
10. The discussion on the Group Litigation Order is at Appendix 1.
11. Finance
11.1 Financial Performance Report
The Financial Performance Report was NOTED.
3 This needed to cover how we would manage in the short term if a GE member left, which individuals could step into roles on an
interim basis, how potential successors could be developed to take on GE roles and the shape of their development plans, and
the external recruitment options and timeframes.
“ We were seeking to address this through hiring a head of IT with a view to that person being a potential successor to the COO.
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11.2 Draft 2019/20 Budget and Strategic Plan
Al Cameron reported that we were not seeking approval of the 2019/20 Budget and
Strategic Plan today because of the re-prioritisation work needed following the
publication of the Judgment on the Common Issues Trial. We still planned to make
efficiency savings and were not proposing changes to our strategic direction in the
medium to long term. BF2 would start driving additional revenue and the work
supported by McKinsey would help to identify cost savings and develop the future shape
and requirements of the company. In the short term we would be reducing some profit
measures to be able to invest more into supporting agents.
It was AGREED that a Board meeting/ call would be set up at end of April 2019 to seek
the approval of the 19/20 Budget and Strategic Plan and to discuss succession planning.
A number of points were raised, including that:
© the DMB programme needed to continue. The structural changes underway were
important to the long term viability of the business and the quid pro quo of needing
to continue with structural changes and invest more in supporting agents was that we
might overspend on change in the short term. The core business needed to be in as
strong place as possible
whether the uplift in PO insurance revenues was realistic? It was noted that the
review of the focus of the PO Insurance’s strategy would not be complete by the end
IRRELEVANT
« AC would go through the figures and benefits plan with TC.
12. _ Network reporting
Tom Moran introduced the report which showed that PO Limited was meeting its targets
on branch numbers, access criteria and provision of SGEI (core services such as cash,
pensions and bill payments).
The Board NOTED the paper and endorsed the proposed approach to strengthen
assurance by asking the Board to review the Network and SGEI reports. These reports
would be circulated to the Board in June 2019.
13. Retail Network Plan
Debbie Smith introduced the paper and explained that there were acceleration, pause
and deferral options linked to the re-prioritisation of work prompted by the publication
of the Judgment on the Common Issues Trial. Work was already planned to strengthen
our engagement with agents and the support we provided to them; re-prioritisation
would serve to accelerate those work streams. The Retail Network plan had a customer
and an agent focus.
A number of points were raised, including:
© the Board’s steer was to veer more towards spending more than slowing down
« how sustainable was tl itability anticipated through the realisation of the plan?
It was reported that! IRRELEVANT generated a significant proportion of the additional
revenue. Other factors included the benefits flowing from the DMB programme and
initiatives such as Parcelshop
«what was the strategy for the Mails app? It was reported that Mails remained part
of a wider digitisation strategy and that an app was still being developed; the Retail
Team was working with the Digital Team to build the right technical solution
© that our starting point needed to be our ambition; for example, a peripatetic team
could manage SSKs if that was needed to achieve our strategy. It was reported that
we had not altered our automation strategy but had done further work on what
would and would not work. We had thought there would be benefit in having SSKs
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where there was not currently a PO. However, that proposition was unworkable
currently because 1 in 3 transactions required an intervention
© that when considering agents’ pay we wanted to make sure that vulnerable Post
Masters who offered a service of social benefit were protected but that we were not
diverting additional money to Post Masters who already operated a successful
business model. It was noted that some of the multiples, like Co-op, who were
generally good retailers, were not making much profit from running POs. We
needed to make sure that we had an accurate understanding of the workload
associated with particular transactions and paid appropriately but should not
subsidise poor retailers
© what was our vision for the Payzone Bills Payment business? It was reported that
the number and breadth of locations gave us a strategic advantage. We were
currently focused on winning major contracts. We would like to set up Parcelshop
with Royal Mail and Parcelshop services could be offered from Payzone outlets as
well as POs. The revenue generated in the short term would be limited but it would
establish us as a provider of this service for the longer term
© that the plan to introduce area managers was encouraging. It was reported that we
had always actively managed larger branches and all branches had a contact they
could call for help, however this had been “management by exception”. We needed
to develop the capability of area managers and Egremont were helping us with this
and tying it back into an integrated plan. It was also felt important to devolve
responsibility within agreed parameters. Agents needed the ability to make changes
where something was not right and PO Locals needed to have less bureaucracy. We
were trying to align our interests with those of agents
were we doing more work with the multiples? It was reported that agents’
remuneration would be moving into Amanda Jones’ remit and we were seeking to
create a Head of Multiples role.
14. Items for Noting
14.1 Sealings
The Board RESOLVED that the affixing of the Common Seal of the Company to te
documents set out against items numbered 1744 to 1759 inclusive in the seal
register was confirmed.
14.2 Health & Safety Report
The Health & Safety Report was NOTED.
14.3. Future Meeting Dates
The future meeting dates were NOTED.
14.1 Forward Agenda
The forward agenda was NOTED.
The meeting closed at 12.30 pm.
Chairman
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POST OFFICE LIMITED BOARD MEETING
MINUTES OF AN ADDITIONAL MEETING OF THE BOARD OF DIRECTORS OF POST OFFICE LIMITED HELD ON
TUESDAY 30 APRIL 2019 AT 20 FINSBURY STREET, LONDON EC2Y 9AQ AT 2.30 PM
Present: Tim Parker Chairman (TP)
Alisdair Cameron Interim Chief Executive (AC)
Ken McCall Senior Independent Director (KM)
Tom Cooper Non-Executive Director (TC)
Tim Franklin Non-Executive Director (TF)
Shirine Khoury-Haq Non-Executive Director (SK-H)
Carla Stent Non-Executive Director (CS)
In Attendance: Veronica Branton Head of Secretariat (VB)
Jonathan Lewis Head of Strategy and Corporate Development (item 3.) (JL)
Mo Kang Group HR Director (item 4.) (MK)
Apology: Paula Vennells
1. Welcome and Conflicts of Interest ACTION
The Directors declared that, in accordance with the requirements of section 177 of the
Companies Act 2006 and the Company’s Articles of Association, they had no interest in the
matters to be considered at the meeting.
2. CEO Report ACTION
Al Cameron introduced the report and highlighted a number of issues since its circulation:
ten or so emails had been received over the weekend asking us to “cease and desist” on
the mail work arrangements and stating that we could not make changes to contractual
arrangements following publication of the Judgment on the Common Issues Trial. The
emails were similarly worded and we were considering our response
the Bank of England and the UK finance industry, including PO Limited, had started
discussions on the creation of a cash utility
Ross McEwan, outgoing CEO of RBS, was keen on developing a stronger partnership with
PO Limited and we would wait to see if this approach was maintained under his
successor
e the evidence for the Select Committee Inquiry on the Post Office Network being held on
21 May 2019 would be submitted shortly.
A number of points were raised:
¢ — Tim Franklin thanked Directors for agreeing to speak to Deloitte about the PO Insurance
strategy options. It was hoped that the strategy would be brought to the May Board but
would be deferred if not sufficiently well developed
© Banking Framework 2. Whether we thought the banks which had yet to sign up to
Banking Framework 2 were finalising their governance arrangements or if there was
anything to indicate they were considering not participating? It was reported that there
was nothing to indicate the latter
it was noted that the only substantive item remaining as part of the Back Office
Transformation programme was moving the historical backlog of transactions onto
SAPCWS
© PCl compliance was no longer a sticking point for! in signing up to Banking
Framework 2 but they were keen to understand our security arrangements better.
However, PCI compliance remained a red/ amber risk for Post Office Limited. The
arrangements for bill payment transactions had been dealt with but we were developing
a plan on the banking side to take these transactions out of Horizon and therefore out of
PCI compliance. However, we were maintaining an alternative plan as a back up
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POST OFFICE LIMITED BOARD MEETING
* (subject to legal privilege) what was the current position with the recusal application?
PO Limited had gone to the CoA to seek to apply for the Judge’s recusal. David
Cavender QC’s view was that we should co-join the two appeals but on balance the
Postmaster Litigation Subcommittee had decided not to do so and to go first to the
Judge on 16 May 2019 to seek leave to appeal on the Judgment on the Common Issues
trial. AC thought we might not succeed with the recusal application’ but the strong view
from a legal perspective was that we ought to be successful in appealing at least some
elements of the Judgment
2019/20 Annual Strategic Plan and Budget
Jonathan Lewis was welcomed to the meeting and Al Cameron introduced the paper. The main
changes since the draft budget was discussed in March were:
. £3m of additional stretch
. £9m upside for the lease accounting change
. £12m of additional costs to support the accelerated agent agenda.
The change plan had been scrutinised and in particular what needed to be done to accelerate
work on agent engagement and support. In practice, this was mainly a question of deferring
some planned work, and in particular moving from the Belfast Data centres to the cloud (Azure)
in 2019/20.
We were finalising what the work on agent engagement and support during 2019/20 would
mean for agents in practice. This should include fewer errors in the system, for example, by
providing more prompts for Postmasters to check pieces of data before making a submission.
We would also be developing the agent pay proposition, making it as simple and attractive as
possible but in doing so distinguishing clearly between the incentives that could be offered to
business people acting as agents rather than those which might be offered to employees. The
implications for future costs associated with any changes proposed would also be factored in.
We needed to make changes which reflected points raised in the Judgment on the Common
Issues trial? but also wanted to promote alignment between our service via Postmasters and our
digital channel in a way which was beneficial for PMs. We now had better data on branch
activities which would inform our visits to branch and allow us to reach out if we thought there
might be a problem.
A number of points were raised:
. what were the risks attached to deferring the move from the Belfast Data Centres to the
cloud by a further year?
. what would happen if the system failed, what were the consequences of this and how
likely was the failure over the next year? If the system failed would we revert to our
business continuity plans? It was reported that we had been using the current
arrangements for about 20 years. On balance we thought we could postpone the move
to the cloud for a year with a saving of around £11m in this year’s budget; however, we
needed to progress with our plans to ensure the longer-term resilience of the system.
There were risks associated with migrating from one system to another but the decision
1 Recusal applications were rare and their success generally connected to a strong piece of factual evidence.
2 For example, work on agents’ training requirements.
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to postpone was predominantly to enable the acceleration of the agent engagement and
support work streams. It was AGREED that a note would be produced for the May Board 3.1
meeting to explain the risks and disaster recovery plan processes. ACto discuss with RH
¢ the re-procurement for the Computacenter contract was not as high on our priority list as
a number of other items and it was proposed to postpone this
. whether it was only an automated cash deposit system that would bring a fundamental
change in the volume of errors in the system? It was reported that we could not afford
the £200-300m investment that introducing such a system would incur but that a number
of the banks were interested in investing in automated deposit taking systems through
POs, though they remained unhappy about the increase in fees introduced with Banking
Framework 2 which could influence the speed of progress
that we needed to select options which were beneficial to both the Postmasters and to
us and which incentivised Postmasters. PO Limited needed to be commercially
sustainable in the long term and that approach also served the long term interests of
Postmasters. It was noted that a caveat to this approach was in relation to smaller POs
which might not be able to benefit from some mutually beneficial arrangements but
where we needed to make sure the fees they received were reasonable and supported
their operation. AC reported that work had been initiated on whether in a small number
of instances we should be offering Postmasters employee status. If we took this option
further our criteria for offering Postmasters the option of employee status would need to
be clear
© whether we were investing sufficiently in the change management capability to be able
to deliver so many projects and to do so to a high standard with proper financial controls?
AC reported that the Group Executive thought that we needed to provide more guidance
and control to ensure change management discipline but that extensive work had taken
place on how to do this, how to structure it and who should lead the different portfolios
to which each of the change projects would be allocated
what was the long term sustainability of the convenience store model? Would there bea
movement towards large click and collect centres? A piece of longer term thinking might
be needed on threats and opportunities and how this affected our partners. We also
needed to make sure we were not doing things now that could make our position worse
in the future
© Tom Cooper reported that UKGI was still working through the budget and needed to know
more about the changes flowing through from the Group Litigation Order. This year
represented a transition period but there was nevertheless a need to focus on non-staff
costs coming down. Other Non-Executive Directors supported the view that this was a
transition year in which we needed to prioritise and develop a clear vision of our future
strategy and structure, how we wanted to deliver this and why
« that the position on the STIP for 2019/20 should be discussed further once the budget for
2019/20 had been finalised.
The Chairman summarised the position. The budget needed to be agreed after which the
incentivisation measures could be agreed, There were moving and moveable elements and we
needed to strike the right balance between getting things done and continuing to improve
results. There was a continuing challenge of getting costs down, comprising two main
components 1) network cost base, especially DMBs 2) central staff overhead costs and IT costs,
including extricating ourselves from high cost contracts. The Board want to see “the art of the
possible” around the cost base and wanted to understand the strategy for the insurance
business. The costs associated with POCA, the reduction in the Verify fees and other services in
this bracket should not be underestimated. Employing people who were able to take the right
decisions was the most important element and we wanted to incentivise people to do well. We
needed to set realistic budgets where the basis for the actions planned were the right ones. The
Chief Executive — FS&T was tackling the insurance challenges and looking at the best future
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approach for the Telco business; the Chief Executive - Retail was taking the right steps to
strengthen the network; and, the COO was progressing work but with more still to be done on
IT issues. It was also important to have the right team at a level below GE to deliver projects.
AC noted that there had been a good track record of taking cost out over the last few years. If
we could get costs down, benefit from the increased fees from Banking Framework 2 and
support through the network subsidy we should have the funds necessary to support our change
projects. In the longer term we would need revenue to replace banking income and to develop
a lean business model over the next couple of years.
The Board APPROVED the proposed budget with a trading profit target for 2019/20 of £77m.
This was subject to confirmation with UKGI, as we shared the detailed plans for the
recommended changes and agreement at Remuneration Committee on the final STIP targets.
4. Succession Planning ACTION
Mo Kang was welcomed to the meeting and introduced the paper. Feedback and comment
was sought on the issues PO Limited faced with succession planning, noting that there was
likely to be some changes in the Group Executive over the next couple of years. This was set in
the context of the revised structure that the McKinsey work envisaged, resulting in a much
leaner business. We also needed to develop a number of skills and capabilities including
around digital while taking costs out supported by leaner support functions. Productive
conversations had been taking place. We needed to take the right decisions for the
sustainability of the business but also needed to look at retention issues and at the bench
strength of the tier below GE, noting that we had a range of strong individuals, including some
high potential individuals. Recruiting a deputy for the COO in the IT area was a priority.
We had recently started looking at the process for talent management. There were around 40
people in key positions who would be leading us through the period of change and had
narrowed this group down to between 7 to 10 of the top talent and were looking at their
development. We needed stronger client, product and proposition resource across the
business.
Anumber of points were raised and the overview of succession planning discussed:
¢ that giving high talent individuals testing projects to manage was one option to stretch
people. It was reported that we would be putting this approach into practice
¢ that it would be helpful to involve members of the L40 group in presentations to Board,
particularly those identified as the top talent, so that the Non-Executive Directors got to
know them
e whether there were good leaders within the wider group of 40 who could fulfil other roles
within the business to help us build our resilience? It was confirmed that we had people
who could step into broader leadership roles
« that we were in danger of losing a number of senior women from the business
© the extensive span of the role of the Chief Executive — FS & T currently was discussed. It
was noted that the span of this role and the scope to expand it further hinged on the
strength of his direct reports and how much they were able to do.
The Chairman summarised the position. A business of PO Limited’s size needed around 20
individuals of a very high standard and there were a number of very good people around the
table. We needed to give this top team Board exposure. We needed to consider how we
would deploy the senior team leaders who emerged over the next 6-9 months. There was
concern about how we would be able to replace the COO or the Chief Executive — FS&T
currently were either Rob Houghton or Owen Woodley to leave. The Board was also
concerned about how we would be able to replace the functional expertise represented by
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Mark Siviter in his role as Director of Mails and needed to understand the profile and seniority
of the individual needed for this role.
A grid showing the key roles in the organisation (and which will link to the future organisation
structure), the “top talent”, “corporate pillars”, who was ready for a bigger role now, who
would be ready in 1-3 year time scale etc. was requested. Mo Kang confirmed that this could
be provided but that we still needed to assess the RAG status and what we needed to do to
develop these individuals. MK
5. Date of next meeting
28 May 2019: 11.30 — 16.30 hrs
Chairman
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2. Future of Banking Framework
1. Retail Strategy
Post Office Limited Board Actions as at 20.05.2019
It would be useful to have a refresher on ATMS,
and the history of POca before coming back to
the Board on our developing strategy on these
issues.
The ATM Strategy should factor in our whole
Cash Strategy.
(We needed to analyse an investment in cash
machines carefully looking at how far we would
move to being a cashless society in the next 3-4
years).
Debbie Smith/ Martin
Kearsley July 2019
Debbie Smith July 2019
A paper of the overall position on
cash, including ATMs, is now
proposed for the July 2019 Board
meeting.
A paper on the overall position on
cash, including ATMs, is now
proposed for the July 2019 Board
meeting.
UKGI
and how we were driving this after the first 6
months of trading.
Veronica Branton
4. FS&qT Performance Report The learnings and next stage of the development I Owen Woodley / Mach 2018 A digital update paper is included on To close
of Customer Hub, including the mails Veronica Branton May 2019 the May Board agenda.
proposition, to be brought back to the Board.
Board Meeting 29 January 2019
5.1 Financial Performance Provide an interim update on Digital Identity. Martin Edwards/ May 2019 A digital update paper is included on To close
Report Veronica Branton the May Board agenda.
6.1 Retail Report Report back on Payzone BP branch performance I Debbie Smith/ May 2019 Item deferred until July Board Open
meeting but update included in
Retail Performance report included
in the May Board agenda.
3. Banking Framework 2 To include the impact of a drop in banking. Martin Kearsley For inclusion in next Open
transactions in the next Banking Framework Banking Framework
report to Board. report to Board.
4. Bank of Ireland (Bol) and Owen Woodley April 2019 A paper was circulated to the Board To close
Credit Card negotiations I R RE L EVAN T ‘Sub-group on 15* April 2019 which
set out the interventions PO Limited
would be able to make.
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9. CEO report
9a To provide a strategy for the Remuneration Mo Kang May 2019 A paper is included on the To close
Committee on the changes recommended to Remuneration Committee agenda
private healthcare insurance, when these would for 28 May 2019.
be introduced and who would be affected.
9b To prepare a paper on succession planningfor I Mo Kang May 2019 A paper was discussed at the To close
discussion at Board, looking at future structure additional Board meeting on 30
needs as well as how we would manage if a senior April 2019.
individual were to leave in the short term.
2. CEO report To provide a note on the PCI Compliance risks. Al Cameron/ Rob May 2019 A paper is included on the May To close
Houghton Board agenda.
4, Succession Planning To provide a grid showing the key roles in the Mo Kang July 2019 To be developed for Board and/ or Open
organisation (and which will link to the future NomCo discussion.
organisation structure), the “top talent”,
“corporate pillars”, who was ready for a bigger
role now, who would be ready in 1-3 year time
scale etc, once we had assessed the RAG status
and decided what we needed to do to develop
these individuals.
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Tab 3.3 PCI Compliance Update
POST OFFICE
AUDIT AND RISK COMMITTEE
PCI Compliance Status Update.
Author: Liz Robson Sponsor: Rob Houghton
Date: 17 May 2019
Executive Summary
Context
Further to the update on the PCI Programme that was issued to ARC on the 25" April
2019, this paper provides a progress update, specifically on the alternative approach
to process banking and retail transactions, the progress of the Point-to-Point
Encryption (P2PE) deployment across the pin-pad estate and the overall plan timeline
to achieve full PCI compliance.
Questions this paper addresses
1. What is the progress of the alternative technical design to simplify the processing
of banking and retail transactions from the pin-pad?
2. What's the status and outcome of the data audit?
3. How will we change our operating model to ensure process/procedures are in place
to maintain PCI compliance?
4. What is the overall timeline for achieving full PCI compliance, including progress of
the Point-to-Point Encryption (P2PE) deployment?
Conclusion
1. The alternative design is progressed enough with Ingenico, Fujitsu and Vocalink to
know that it is technically feasible and we can proceed to detailed design and
implementation. The advantage of this approach, whilst delaying us, saves
considerable effort, both unknown and known, in making the POL environment PCI
compliant with Fujitsu and avoids costs in the future data centre cloud migration.
2. The data audit is 85 % complete, with the outstanding actions to be completed by
the end of May. The findings have so far identified low or no instances of PCI-
related data. The low number of occurrences found have been in the Office 365
area, held within emails or documents. Remediation actions have been to delete
this data and educate users to prevent future occurrences.
3. Our operating model will be updated to include the necessary processes and
procedures to monitor and manage ongoing adherence to PCI regulation. These
will identify and impact assess any future changes in PCI scope, and maintain
periodic scanning of our systems estate to assure no further instances of PCI-
related data being held.
4. We need to do more work on the detailed design planning with Ingenico, on the
alternative design, to get a better estimate of the dates. Current plan shows
2Q/2020 to 4Q/2020 with more work being done to narrow this down.
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Tab 3.3 PCI Compliance Update
Context
1. We have three transaction types that are within scope of PCI compliance:
1. Retail transactions: for payment transactions via credit card
2. Banking transactions: for cash withdrawals, balance enquiries, pin changes
and deposits
3. Bill payments and non-chip and pin transactions (for example, scanning
barcodes to pay utility bills - the barcode can often include PAN number for
use in transaction execution)
2. Our solutions to ensure PCI compliance are:
2.1 Point-to-Point Encryption (P2PE) at the point of entry into our estate: the pin-
pad devices in branch. The rollout of P2PE across the estate is underway with
the agreed plan for shipment, firmware upgrade and in-branch device swap-out
agreed and progressing with delivery partners, Ingenico and
Computacenter/Buybox.
2.2 A joint solution with Ingenico, Vocalink (Santander) and Fujitsu that will see all
transactions (banking and retail) be directed from the pin-pad through to an
Ingenico Cloud solution (Axis) for onward transmission to the Banks via the
Vocalink/Santander networks for banking, and to Global Payments for retail
transactions. Our Quality Security Assessor (QSA) has indicated that the new
solution is an improved route to pursue than the previously proposed approach.
2.3 Client engagement (e.g All4One) to see changes to their cards to include PCI
compliant account/customer numbers; a proposal to manage prepay card
transactions as per banking transactions; a review of all card data ingested by
swiping the card at branch, to identify any further product amendments that
may be required to ensure PCI compliance.
3. The delivery of these solutions will enable POL to achieve the Reports of
Compliance required as Merchant and Banking Services provider.
4. The Data Audit of our systems estate has progressed with our key vendor partners
- Fujitsu, Accenture, Computacenter and Atos. The work is now 85%
complete overall. Fujitsu and ATOS have completed their work and the
outstanding activity remains with Computacenter and Accenture, which will be
completed by the end of May. The results of the systems scans so
far have revealed low or no instances of PCI-related data. Where any instances
have been identified, e.g. in MS365 emails/documents, steps have been taken to
remove the data and educate users to prevent future occurrences.
5. The PCI Programme includes a work-stream of activity focused on the Target
Operating Model, to ensure we have the processes and procedures in place to
monitor and manage our ongoing adherence to PCI regulation. This will include
the remit to notify any changes to PCI scope as a result of any future version
change and to assess the impact to systems and processes in order to maintain
compliance. Ongoing periodic scanning of our systems estate to identify instances
of PCI-related data will also be included in the future processes.
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Tab 3.3 PCI Compliance Update
6. The overall timeline to achieve full PCI Compliance - that is, receiving Reports of
Compliance for both Merchant and Banking services - is forecast between Q2-Q4
2020, based on all the estate being primed for activity by the end of 2019. Whilst
the deployment of P2PE is understood and underway, we have still to finalise the
development and deployment timeline of the new solution with Ingenico and
Vocalink — this is an entirely new development for Ingenico and we are working
with their senior team to influence their prioritisation and allocation of key
resources to the development of this solution.
Current status
1. Alternative Banking Services Solution:
1.1. Since the update at the end of April, the team have worked closely with
Ingenico, Vocalink and Fujitsu to successfully complete a feasibility review and
high level design on a solution that removes the requirement for POL systems
to process PCI data.
1.2 Once deployed, this solution will ensure that from the point of pin-pad entry in
the branch environment, both banking and retail transactions will be processed
through the Ingenico Cloud service, for onward transmission to either
Vocalink/Santander networks for banking, or Global Payments for retail
transactions.
1.3. The transaction information will still be registered in POL back-end systems for
reconciliation purposes, but as this data is not under PCI regulation, this
alternative approach effectively removes POL back-end systems from PCI
scope. This reduces the PCI compliance footprint across our overall systems
estate now and in the future.
1.4 The team are now at the detailed design stage and we are engaging with the
senior team at Ingenico to influence their prioritisation of this work -
specifically, as early inclusion in their product development timetable as
possible, and the allocation of key development resources to achieve a timely
delivery of the solution.
2. Point-to-Point Encryption Deployment
2.1 Work to deploy Point-to-Point Encryption (P2PE) to our pin-pad estate continues
with partners, Computacenter/Buybox and Ingenico. The deployment timetable
will see the upgrade to pin-pad firmware and device swap-out in branch run
from September 2019 to March 2020. Timelines are based on lead-time for
Ingenico to order hardware to support the rollout, the pin-pads being shipped
back to Ingenico for the PCI compliant software to be installed and the devices
redeployed back to all our branches.
2.2 Having been informed that the PCI accreditation of the version of the Pin-Pad
device we have in our estate expires in the next 12 months, we have taken
steps to agree with our acquirer, Global Payments, to extend the accreditation
of this version of the device, such that once it is accreditation tested, it will be
covered to 2023. The accreditation cover comes with the proviso that no
further software changes are made to the Pin-Pad device beyond P2PE - there
are no plans currently in place for any further software updates. This approach
has now been ratified by Global Payments with Visa and Mastercard.
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Tab 3.3 PCI Compliance Update
2.3
3 PCI Card Data Scan
3.1
3.2
3.3
3.4
3.5
In the meantime, the Branch Device Strategy review and paper will advise on
the future Pin-Pad device for our branch estate, along with other devices, such
as Paystations. An update is expected by the end of May to advise on this.
Fujitsu - complete. Results indicate a small known number of reported
instances of card data. With Fujitsu. Likely little remediation needed outside of
AP-ADC which we are pursuing separately
Accenture - Common Digital Platform (website) scan complete and all
remediation activities have been successfully completed. Scanning of back
office environment due to conclude by the end of May.
Computacenter - to be completed by the end of May. The majority of
databases have been scanned, with the few remaining to be completed shortly.
The results so far show there is no card data held in the databases. The scan
of unstructured data files has identified 339 instances of card data - emails and
documents within Office 365 - remediation has been to delete the data and
educate users not to hold PAN data.
Atos AP-ADC scripts - complete. 65 instances of the 1300 scripts scanned.
The team will now analyse the results and confirm if processes
(systems/people) need to be adjusted to ensure PCI-related data is handled in
a compliant way.
The team continue to engage with both our Quality Security Assessor (QSA)
Nettitude and our Acquirer, Global Payments to ensure our remediation
activities will result in required Reports of Compliance.
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Tab 3.4 Postponement of Belfast Exit Plan
POST OFFICE - Board
Noting Paper
Belfast Exit Update
Author: Rob Wilkins Sponsor: Rob Houghton Meeting date: 28" May 2019
Executive Summary
Context
The project is to move the Horizon system, currently hosted in Fujitsu managed Belfast
Data Centres, onto Microsoft's cloud platform, Azure. This move will contribute to a 30
- 40% reduction in the overall Fujitsu operating costs and move towards consumption-
based charging. It also provides greater resilience, avoids the cost of a
hardware/Operating System Refresh, and provides hardware evergreening.
The business case was updated in March 2019 and approval was given to proceed with
the completion of the cloud build and commence the first application move group
migration. With the recent prioritisation activity, we have evaluated the options of
continuing as planned or deferring for 12 months in order that other priorities could be
delivered. The strategic intent is still valid.
Questions addressed in this report
1. What decision was made and why?
2. What is the impact to the Belfast Exit Business Case?
3. What Operational Risks does this present?
4. What options did we consider?
Conclusion
1. The Belfast Exit programme will be placed on hold for 12months in order to support
the focus on other priorities such as Horizon changes, Branch Hub and Ops
Transformation. A reduced scope of work will continue to allow POL to develop a
cloud platform to land ePos Integration and Branch Hub. In parallel, allowing POL to
develop an operating model for running cloud hosted services. This will de-risk the
Horizon move.
2. This decision is not expected to impact the original business cost range of £36-42m
despite the need for incremental licensing and service reduction cost. It does impact
the benefits realisation timing with the savings shifting out a year.
3. The risk of a catastrophic risk of loss of both data centres remains as it has done
since inception; the risk of loss of one data centre can now be tested for DR.
4. Anoption to continue the project at a slower rate extending the timeline was rejected
due to the technical risk this introduced.
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Tab 3.4 Postponement of Belfast Exit Plan
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The Report
What decision was made and why?
1. There are limited opportunities to make changes to Horizon, if we were to proceed
and prioritise Belfast Exit then there would be a very high probability of impact to
plans and delays to ParcelShop/ Branch Hub/ Ops transformation due to the volume
of changes.
2. Similarly, if we were to proceed with Belfast exit and prioritise other activity, there
will be a significant impact to Belfast exit plan. This would result in a significant
operational risk as a result of the Horizon running in dual operation (half in Belfast;
half in cloud). The migration of Horizon to the cloud has to be completed in as short
a timeframe as possible to best mitigate this risk.
3. Our prioritisation focuses on significant Horizon changes, Branch Hub and Ops
Transformation — these will require SME time from Fujitsu and their resources are
limited. Ruthless prioritisation is required.
4. Given the significant change to technology and operating model inherent in any cloud
migration, there is a risk of service disruption during the migration of Horizon. There
is little tolerance for Horizon outages.
5. It frees up capital to invest in other things — but this is a lower priority.
What is the impact to Belfast Exit Business Case?
Benefit Benefit Statement March 2019 Revised Position May 2019
Type Business Case
Financial I The benefits are cost avoidance in I Some infrastructure refresh may
period of £28.4m of capex costs. I now be required to protect service
£16.4m = minimum contracted I due to End of Service Life risk. We
infrastructure refresh costs plus, I are evaluating both the risk and the
£4m Oracle upgrade, and £8m I impact on Capex and Opex.
internal resource and other 3rd
party costs. Note that the previous I The deferral of opex savings in FY
data centre refresh in 2016/2017 I 20/21 is £4.0m and reduced savings
cost £32m. in FY 21/22 of £1.8m, a total of
£5.8m.
We will also need to negotiate
extended support contracts on
some components which were due
to be replaced. This is being
evaluated but based on similar
scenarios in the past we have
estimated an impact of £0.3 -0.5m
FY 19/20 and £0.5 - 0.8m FY 20/21.
The total estimated cost for the I There are incremental costs plus a
programme should be considered I likely need for additional transitional
Strictly Confidential
PO Limited Board Meeting-28/05/19
Tab 3.4 Postponement of Belfast Exit Plan
as a range £36m - 42m. Cost
estimates are inclusive of Fujitsu
Networking, Equipment,
Resourcing, POL Resourcing,
Verizon Networking and
Resourcing costs.
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licences for Oracle. The total cost of
this is estimated at £2-3m_ in
2020/21. Based on savings already
identified we believe the cost of the
programme would still be within this
range.
Additional run costs benefits are
being explored in line with
Cloudreach recommendations and
there is potential for further
infrastructure consolidation, and
standardisation of multiple
infrastructure services e.g. POL
systems hosted outside of Belfast
and/or not supported within
Fujitsu-serviced Azure Cloud.
We will do a lot of pre-work for cloud
enablement - this will ensure that
all the environment is ready and
tested using branch hub and HIH
prior to moving Horizon. With
hindsight - this is a lower risk
implementation plan as it gives POL
an opportunity to land the future
cloud operate model with a smaller
presence that we can learn lessons
and grow from. That will put us in a
better position to leverage wider
cloud benefits when the Horizon
functionality migrates.
hardware components.
Intangible I Infrastructure supports PCI I An alternate approach is now being
compliance; implemented which would enable
PCI compliance without major
change to the Belfast infrastructure
Enablement of digital I} We will continue to develop and
transformation; build the infrastructure required by
the digital transformation projects
A fully resilient, secure I POL will continue to run a major risk
infrastructure with evergreen I of single or catastrophic risk of dual
commodity technology in the I data centre failures.
Variable charging in development
and testing
This will be valid for the new digital
applications (such as Agent's Portal)
but not for Horizon until 2021.
What operational risks does this present?
6. We have an existing operational risk that loss of both data centres in Belfast is
catastrophic to the business as we could not recover Horizon service. This material
risk has existed since Horizon was implemented and is considered extremely remote
likelihood due to the distance between data centres and the fact that they are on
separate infrastructure (power, fuel) and not on any geological/ natural fault lines
(i.e. earthquakes, tsunami events). The area has some political unrest but this is
not felt to increase the risk unduly.
7. The c£30m Horizon Data Centre refresh carried out in 2016-2018 significantly de-
risked failure of infrastructure components in data centre - the hardware was moved
onto modern frames and the infrastructure completely upgraded.
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PO Limited Board
Meeting-28/05/19
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Tab 3.4 Postponement of Belfast Exit Plan
8. Our sensitive systems did prevent a full test of the loss of one data centre and
recovery to the other. Given the move of POLSAP; planning and a risk assessment
of this move is now underway with a view to it being carried out in May 2019.
9. A delay to the migration also brings some further items into an “out of support”
category and may necessitate an upgrade that wouldn’t normally be carried out. A
detailed risk assessment and cost impact of each of these will be performed as it
may be prudent to avoid the cost and accept a slightly higher operational cost (or
not).
What other options did we consider?
10.Continue but at a slower rate was also considered however this was quickly
discounted given the significantly increased risk of running Horizon across 2 different
platforms for an extended period. As stated previously, the migration of Horizon
needs executing.
Strictly Confidential
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POST OFFICE LIMITED
THE BOARD OF DIRECTORS DISCUSSION PAPER
LEGALLY PRIVILEGED
CEO Report
Author: Al Cameron Meeting date: 28 May 2019
The wider political, legal and regulatory environment
On the litigation, our request for leave to appeal on the recusal has been refused and
we will not be taking the recusal argument further. The permission to appeal on the
common issues judgement will be heard by Justice Fraser on 23" and we are likely to
be appealing directly to the Court of Appeal if unsuccessful. In addition, the costs of
the common issues trial and the recusal application will be heard where we will seek
to have the trial costs reserved and resolve the recusal costs on best terms.
The Chairman, Tom and I met with our Minister last week for a wide-ranging
conversation and she has subsequently met with our franchising team to understand
how and why we work as we do. A number of points are worth highlighting:
e Anumber of MPs have said to the Minister that the repeated criticisms from Judges
demonstrate that we are arrogant and in her view it is damaging our brand
« The minister feels under-communicated with and I set up a meeting with UKGI and
the BEIS policy team to see how we can manage this better. Clearly, we share a
formidable amount of information and are not in a position to brief personally
« Otherwise, she seemed reassured by the financial opportunities and our feedback to
date from the DMB conversations is that she remains supportive
I did push her on POCA, HMRC fees and the future of Identity. While she is
instinctively supportive, there was absolutely no commitment.
The lead-up to the Select Committee was dominated by the NFSP’s press release and
especially the “tipping point” comment. We see this as evidence of a mixture of intent
and naivete on behalf of NFSP: they were keen to demonstrate their independence
and gave their first ever media agency a free hand. They got headlines beyond what
they wanted, as demonstrated by a relatively weak performance at the Select
committee itself. We will continue to encourage Calum to increase the numbers of
Postmasters he represents, to encourage more active membership and to
professionalise his operation.
Our objective for the Select Committee was to land our key messages and avoid
additional or embarrassing publicity. We appear to have succeeded for now. The
Committee is meeting the Minister in late June, will issue a report and the
Government will then have three months to reply. It is quite possible that the nature
of the Government and the identity of the Minister may change in this timescale.
The Daily Mail has started a campaign to support Postmasters. The Minister has
written to MPs today in a way that is supportive of us and our shared agenda. We are
drafting a letter, which we may send to the Minister to set out where Government
could help more, for her to consider before her appearance at the select Committee.
Points could include: extend the network subsidy beyond 2021; plan an effective
response on POCA; develop a tender for Verify that could enable us to take on the
commercial opportunity; agree that we should be more of a Government channel; and
stop discussion of dividends outside an overall review of ownership.
PO Limited Board Meeting-28/05/19 43 of 286
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On POCA, I wrote to Amber Rudd at DWP setting out our concerns around the
experience for customers and the outcome for Postmasters. Our meeting was
cancelled and no alternative date set but we are expecting a reply from which we can
plan next steps.
We are planning, as per a separate paper on the agenda, for a bad outcome from the
Horizon trial and over the next few days we will be working through the right
alignment and timing on a number of fronts: do we make a further move now on
Postmasters’ pay, reversing simplification cuts; should we seek to accelerate the
promised Postmaster pay review; do we want to seek to reassure Postmasters about
the functioning of Horizon; and when do we share changes in processes? Overall, do
we need to do more to settle Postmasters before the Judgement or after?
On the Postmaster pay review, it is important that we do not get lost in an endless
spreadsheet exercise creating winners and losers across the network: the winners will
simply believe they should always have had more and the losers will hate us forever.
Rather, as we finalise the work plan, we should focus on key questions including:
e How do we secure the smaller end of the Network in a world of uncertain subsidy
and falling Government revenue? This work has started with Tracy Marshall and
Debbie Smith.
e How do we align interests with Postmasters so they see digital channels as part of a
shared benefit and not a competitor? Owen has started work on the largest issue,
FX pricing.
¢ What is the right share of banking income and overall income?
How do we reward for stability without embedding overpayment in some segments?
e How do we incentivise appropriate selling in the network so the opportunity to earn
drives stronger income and how do we help less entrepreneurial Postmasters be
better salesmen?
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PAGE 3 OF 4
The public questioning and challenge over recent weeks has been aimed at the
Government and Royal Mail as much as at ourselves. WH Smiths were also targeted
at the Select Committee. Ensuring Royal Mail doesn’t undermine Post Offices is part of
the negotiation debate, covered in a separate paper. I believe that our overall position
is strong and we should hold our positions in the negotiations.
In summary, the GLO is making the wider environment considerably harder across
multiple fronts. We are working on our tone and the ground on which we fight but it
may be too little and too late to make a perceptible difference. If we are able to
settle, it may muddy the waters but is unlikely to bring an end to all of the issues. In
the meantime our focus must be on retaining and settling agents to reduce the
political noise and deliver commercial sustainability.
Commercial Performance
2018-19 financial results have not changed significantly to date and these are covered
in the annual results papers and in the commercial updates from the Retail and
Financial services businesses. A short P1 paper is included which shows that we
started the year broadly in line with budget, £1.2m adverse as reported, £0.3m
favourable when budget timings are corrected.
Delivery
Network.
Network location numbers grew 91 to 11,638 at year-end. Under the new rules
agreed with BEIS this would be 11,660 and the end April results showed little net
change.
Overall, we are not seeing real change in Postmaster behaviour but as noted above
and stated publicly, we are not in any way complacent.
Banking Framework 2.
We continue to have 25 Banks signed_up for BF2, wi
more expected to join
requested end of “but we told them again that was a
month notice period would go beyond the year-end. We have received no hint that
anyone will permanently exit.
Bank of Ireland.
The negotiation and fin: ntract post-HOTs continues with
significant focus on the Given the complexity, this process
will not finish by the end of as originally targeted but we are aiming to conclude
in the next few weeks. The new Credit Cards contracts (with BoI and CapOne) are
very close to being ready for signature, but we are holding out on one primary item -
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46 of 286
PAGE 4 OF 4
~ IRRELEVANT which
believe is an important longer term opportunity for our new partnership. A
paper is on the agenda.
getting ourselves released from c~ a
Back Office Transformation.
Operational processes are now largely bedded in and service performance is good.
Progress is being made on the reconciliation issues which are being managed
manually. We are in an active exchange with the MD of Transtrack seeking a clear
understanding on how they plan to work with us in order to address a number of
issues.
Security and Resilience.
Separate papers are being presented here and to the ARC on the timetable for the
exit from Belfast and on PCI.
We have detected through the audit processes a JML issue on access to Horizon within
Operations for a community of users. No compromises have been found but the
controls require strengthening and this is being acted upon.
With POLSAP now removed from our estate we are planning a Disaster Recovery
process for Horizon. This is being planned for the August bank holiday and we will
share the plans and mitigations at July Board
Team
I met Afua Kyei again last week and she has been offered another role, which is
probably less compelling but is permanent now. She has promised to decide this week
and we have re-started the interim search.
We have started collective consultation with the Unions on two restructures:
e Loss Prevention - 9 FTE taken out but 10 new professional roles put in to increase
capability
e Supply Chain - 30 FTE reduction
Decisions for today
The main decisions are:
« Approving the Annual report and Accounts subject to the completion of our work
and the review at ARC on the next day
e Endorse the direction of travel with Royal Mail
« Approve spend on a number of projects costing more than £5m
e Approve the change spend report, subject to finalisation with UKGI.
Strategy
A separate paper on progress with strategic projects is included on the agenda.
PO Limited Board Meeting-28/05/19
Tab 5.1 Financial Performance Report
POST OFFICE LIMITED
BOARD
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PAGE 1 OF 2
DISCUSSION PAPER
April 2019 (P1) - Financial Performance
Author: Micheal Passmore
Sponsor: Alisdair Cameron
Executive Summary
Context
Meeting date: 28 May 2019
The purpose of this paper is to outline our financial performance in P1.
How did we do in
P1?
Reta 1
FSET (nl. surance) 1)
Werity ios
Supply ChainvOter : 1 oo
Total Revenue i baa
Cost OF Sales
Not income
Aoenis Pay ' I
Stat Cost I i
Non sta Cost
FRES
tne come
Payzone
Trading Prof
YoY
HIRRELEVANT I tr 2s
Network Subsidy Payment
EBITDA
Depreciation
Interest
Change Spend
Investment Funding i
Profit On Asset Sales H 0.0
Profit Before Tax
72%
25%
54%
65%
100%
126%
P1 trading resulted in a profit of £7.4m, £1.2m adverse to budget. However, there were
timing issues in the budget for P1 totalling £1.5m, particularly in Agents Pay. Underlying
trading was therefore £
0.3m favourable to budget.
trading in mails and banking services. The continued slow migration to the new UKVI
supplier alongside strong international driving permit volumes, also provided an upside
in Identity revenue.
MoneyGram underperformed by £0.2m due to lower volumes. Telco net income was in
line with budget as favourable rental income was offset by lower call revenue.
Cost of sales was favourable due to product mix and lower aggregator costs in PO
Insurance.
Agents pay is £2.0m adverse to budget of which £1.2m relates to budget phasing. The
underlying adverse variance of £0.8m flowed from the higher revenue in mails and
banking services.
Staff costs are £1.5m adverse, £0.9m timing (driven by £0.3m of rephased DMB
franchising savings and £0.5m of project costs to be transferred in P2), and £0.6m
overspend in two areas, with actions to address this being put in place, including closing
out vacant roles covered by contract staff and options to accelerate program staff
savings.
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Tab 5.1 Financial Performance Report
POST OFFICE PAGE 2 OF 2
Network numbers decreased by 2 in the month to 11,658 (P12 18/19: 11,660), but
remain 158 above the minimum commitment and 58 above our target of 11,600.
Period 1 Change spend (Capex and Exceptional) was £13.3m, representing a £1.7m
underspend to budget predominantly due to lower costs than expected in creating the
version of Horizon that works on retailer tills (Solar). P1 benefits are consistent with
budget.
There has been a recent focus on year end reporting requirements, and as such a more
detailed performance deck will be presented in P2, included updated scorecard metrics.
Conclusion
We had a strong trading month in Retail (Mails & Banking services) and continued upside
in Identity (UKVI & IDPs) with increased revenues of £1.1m. Budgetary timing issues
of £1.5m, especially in Agents pay, have caused an overall underperformance in trading
profit. However, underlying we are £0.3m better than budget, although there is a
concern on the staff overspend which has to be corrected.
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Tab 5.2 Change Funding Report
POST OFFICE PAGE 1 OF 6
Quarterly Delivery Report and Funding Request
Author: Max Jacobi Sponsor: Alisdair Cameron Date: 28 May 2019
Executive Summary
Context
As part of our funding agreement, the Board should approve a quarterly report on recent and projected change spend,
agreeing a request for investment funding from BEIS where appropriate.
Questions this paper addresses
What happened in Q4?
What happened in FY 18/19?
What Q1 spend are we proposing?
What is our expectation of full year spend and benefits?
Can we afford the proposed spending?
What investment funding are we requesting from BEIS?
PVPyNr
Summary
In summary, 2018 change spend closed as follows:
Q1Cumulative I__I Q2 Cumulative 3 Cumulative 94 Cumulative
£m
[Change Plan Spend £ 65.0 £ 140.7 £2011 £ 255.0
IChange 9+3 Reforecast £427 £1225 £1747 £ 264.5
IChange Spend Final £427 £1225 £1747 £2719
UKGI Funded Plan Spend £35.0 £900 £1400 £ 168.0
UKGI Funding 9+3 Reforecast £ 35.0 £ 85.0 £1421 £ 168.0
UKGI Funding Received £ 35.0 £ 85.0 £1421 £ 168.0
Benefits Plan £82 £157 £262 £ 40.2
Benefits 9+3 Reforecast £79 £169 £23.9 £ 36.0
Benefits Final £79 £169 £23.9 £37.2
In Q4, we spent £97m, £7m more than forecast, driven by acceleration of Network Expansion (£3m), Blueprint related
project costs and Severance provisions (£3m). This overall spend level for the year was also in line with the budget
paper, which noted a range of £235-275m. We delivered £37m of in-year benefits, £1m above forecast.
Strictly Confidential
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Tab 5.2 Change Funding Report
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We are proposing to spend £174m in 19/20. Ata high level, 2019 change plan stands as follows:
Q1 Cumulative Q2 Cumulative I I Q3 Cumulative I I Q4 Cumulative
fm
[Change Plan Spend £425 £948 £1328 £1742 I
[UKGI Funded Plan Spend £35.0 £42.0 £42.0 £420 I
[Benefits Plan £156 £340 £539 £756 I
In our Three Year Plan, we originally included a cash spend level on change of £445m. Including alongside this the non-
cash change spend element (£21m), GLO spend (£14m) and the brought forward spend from 2017/18 (£26m), the
equivalent total change spend is £506m for the three year period to March 2021. The current forecast change spend
over the 3 year period (Apr-18 to Mar-21) stands at £542m, with further prioritisation of the final 20/21 funding year
still to be agreed, to align back to our original position. The current forecast also includes increased levels of GLO and
GLO remediation funding.
For 19/20 we are currently forecasting full year spend of £174m, compared to £165m in the Three Year Plan. On
benefits, we are forecasting delivery of £76m by the end of the year, an incremental £39m year on year.
In addition, our current forecasts suggest we will release additional amounts from net profit. None of this has been
made available for change spend, with some £47m set aside as contingency for the GLO (as noted in previous funding
report).
We are requesting a payment of £35m for Q1 against qualifying spend of £39m. Up to the end of March 2019 we have
received £168m, and this drawdown would leave £7m of our £210m funding from BEIS, as agreed under our 3 Year Plan
Funding Agreement.
To that end, we confirm that the funds requested will be spent on transformation, in accordance with the priority areas
set out in the Three Year strategic, Plan that underpins the Funding Agreement. For the avoidance of doubt none of the
funds will be spent on anything that is not related to transforming and improving our business as envisaged in the Three
Year Plan. We also confirm that the expenditure is controlled by the Executive Investment Committee, and is regularly
reported to the Board and UKGI as part of this request. The controls over change spend and the reporting of change in
our Annual Report and Accounts are within the remit of the Board’s Audit, Risk and Compliance Committee.
Input Sought
The Board is asked to note the contents of the paper, including the approach of FY19/20 Budget for Change Spend,
approve the request of £35m funding for Q1, giving delegated authority to Al Cameron to finalise the precise details
and supporting documents with UKGI.
Strictly Confidential
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The Report
1. What happened in Q4?
In Q4, we spent £97.2m against a £89.7m forecast, an overspend of £7.4m, as follows:
Qs Fy18 943 Q4 FY18 943
‘Actual Forecast Actual Forecast
‘Simplify the retailer proposition 524 46.7 54 38 3 oO
Modernise our products and services 100 10.7 (07) 47 48 (0.1)
Build innovative, flexible and secure IT 93 95 (0.2) 29 16 13
Digitise and optimise the business 80 53 27 09 09 00
Modernise our skills, polices and processes 55 56 (0.1) on, on 0.0
Non-UKGI Funded 12.2 119 03 1a 15 (oa)
Total Change Spend 97.2 89.7 74 13.2 14 12
A ist by major projects showing detailed variances for spend and benefits is attached as Appendix 1.
2. What happened in FY 18/19?
2.1, Summary View
In Year, we spent £271.9m against £264.5m forecast, an overspend of £7.4m as follows:
Frag Actual I "2893 I Variance I Frag actual I '¥*89*3 I Variance
Forecast Forecast
Simplify the retailer proposition 1015 96.2 5.4 112 10.8 4
Modernise our products and services 382 39.0 (7) 15.9 15.9 (oa)
Build innovative, flexible and secure IT 467 46.9 (0.2) 5.4 44 13
Digitise and optimise the business 189 16.2 27 35 35 0.0
Modernise our skills, polices and processes 179 18.0 (0.1) oO on 00
Non-UKGI Funded 48.6 48.3 03 ii 15 (0.4)
Total Change Spend 2719 264.5 74 372 36.0 12
A list by major projects showing detailed variances for spend and benefits is attached as Appendix 2.
2.2. Key variances within this overspend:
2.820: Simplify the retailer proposition: £5.4m
Further franchising DMBs: £0.9m
© DMB Strategy: (£3.0m) Settlement and strip out costs have been impacted by slippage in branch exit dates
(mainly recognition of settlement costs for the 10x FTC branches).
© Onerous Contract & Vacant lease Provision: £3.5m charge to Vacant Lease provision in line with accounting
policies.
© Network Expansion: £2.9m - Further provision required due to interest in 20 Hard to Place branches from multiples
(CoOp & McColls)
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2.2.2. Modernise our Products and Services: (£0.7m)
* Identity Services: (£0.6m)
© Digital Identity: (£0.3m) delay in project due to finalisation of supplier development contract impacting on
the sprint activities which are pushed now in to FY 19/20.
© Design Authority and Digital Certified Copy spend related to the completion of the second phase of the
projects has been deprioritised.
* PO Insurance Investments: (£0.6m)
© Variance is mainly driven from Pricing project where delays in signing the contract with Earnix (pricing
platform) occurred as part of IC request to slow down the project pending reprioritization. Implementation
pushed back to FY19/20 with carry forward spend of £0.5m.
‘* Falcon Peregrine: £0.7m due to timing of negotiations that took place earlier than anticipated during the forecasting
period.
2.2.3. Build Innovative, Flexible and Secure IT: (£0.2m)
‘* Project Everest - Cloud Enablement: (£1.5m)
© Underspend on Fujitsu project costs from license purchase and development costs reviews, driven by delays
in agreement on next incremental delivery scopes.
* IT Service Transformation Programme (Nelson): £0.9m
© Close out of current phase accelerated, with costs paid/accrued in line with completion - phasing shift, with
18/19 forecast reduced accordingly.
2.2.4. Digitise and Optimise the Business: £2.7m
© HR programmes: £2.7m
© £1.3m Acceleration of HR Operating Model restructure and associated severance provision.
© £1.5m Acceleration of Blueprint design work and associated accrued costs.
2.2.5, Non-UKGI Projects: £0.3m
© Group Litigation: £1.4m - Higher levels of legal spend than originally forecasted.
2.3, Benefits
Benefits Delivered higher than forecast mainly due to:
* Further franchising DMBs: £0.4m — driven by an increase of vacant lease provision for long term leaseholds on DMB's.
* EUC Branch Deployment: £1.0m Submission error in 9+3 forecast around sign convention used in new forecasting tool.
‘* Project Everest — Cloud Enablement: £0.4m — contractual remedying of prior shortfall in benefits during project’s
completion.
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3. What Q1 spend are we proposing?
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Change Spend for Q1 is expected to be £42.5m, delivering Q1 benefits of £15.6m and will mainly consist of deliveries of the
strategic projects which are already in execution phase.
Qi FY19 qi Fyi9
Simplify the retailer proposition 12.3 5.0
Modernise our products and services 12.2 63
Build innovative, flexible and secure IT 72 2.0
Digitise and optimise the business 49 09
Modernise our skills, polices and processes 2.2 05
Non-UKG! Funded 37 1.0
Total Change Spend 42.5 15.6
Under our funding agreement we can claim up to £42m of investment funding for the 19/20 annual period. Within the
proposed £42.5m Qi forecast spend, £38.8m will qualify for investment spending funding from UKGI, with a proposal to
request £35m of funding in this cycle.
Key Q1 works include:
DMB Strategy: £7.0m
Solar: £4.3m
PCI Payments Hub: £2.4m.
Back Office Transformation: £2.2m
Group Litigation: £2.1m
4. What is our expectation of full year spend and benefits?
We are expecting change spend of about £174.2m for the next year, with cumulative annual benefits of about £75.6m, and
incremental benefits of £38.5m.
A list by major projects showing in-year spend and benefits across 19/20 period is attached as Appendix 4.
Simplify the retailer proposition 50.3 24.3 13.2
Modernise our products and services 41.0 31.0 15.1
Build innovative, flexible and secure IT 26.4 9.2 3.8
Digitise and optimise the business 31.7 47 12
Modernise our skills, polices and processes 3.6 2.0 19
Non-UKGI Funded 213 43 32
Total Change Spend 174.2 75.6 385
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5. Can we afford the proposed spending?
In our Three Year Plan we planned for a cash spend of £445m. Including non-cash spend (£21m), GLO spend (£14m) included
elsewhere and the brought forward spend from 2017/18 (£26m), the equivalent total change spend is £506m for the period
to March 2021. We are assuming change spend over the three years of £506m plus an additional £20m for the Payzone
acquisition including future earn-out payments, and will be working to prioritise 20/21 spend to align to this.
£445m was predicated on the assumption that we would spend all of our incoming cash (net profit plus investment funding)
but would not borrow significantly to fund change. If we re-calculate this today we would, in our current forecasts, also expect
an additional £44m of trading profit and lower interest costs. If we land the Banking Framework in anything approaching its
current form, profit will increase further. This can reassure us that we are not spending recklessly. We are not, at this stage,
proposing to release any of this additional profit for change spend. Rather, we are retaining it as contingency against the GLO.
We are planning 2019/20 change spend of £174.3m, with 2020/21 currently forecast at £95m. We are comfortable with that
spend pattern as it is in the business's interests to change the business as quickly as we sensibly can, and we may have more
flexibility later. As previously set out, we have set up processes to manage budgets throughout the year and to ensure that we
spend within our target, and we will continuously monitor spend, forecasts and budget to ensure that we do not overspend.
To ensure that this Plan is deliverable we will continue to monitor and optimise the capacity and capabilities of our teams and
suppliers. Having also introduced Critical Success Factors that Platinum and Gold initiatives are evaluated, against to increase
the likelihood of successful delivery, we will continue to report against these on a monthly basis.
For 2020/21, we have generated a draft Change Plan with an allocation of £95m investment target. We will be revaluating this
throughout 19/20 before finalising a 20/21 Change Plan in March 2020. Over the three-year period, we expect our total
investments to cumulatively contribute £225m to our trading profit, though these will be validated via each new initiative’s
business case.
6. What investment funding are we requesting from BEIS?
Under our funding agreement we can claim up to £210m of investment funding. We have already received £168m up to the
end of March 2019, and we are requesting the remaining £35m for this coming quarter, leaving £7m further funding potentially
available.
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7. Appendices
7.1. Appendix 1 — Q4 Project Spend & Benefits versus Forecast
4 spend actual I *SPEN8 3 I variance Gatenetns I Oa tenertts 23) variance
Simplify the retailer proposition 52 467, 34 35 3a oa
Further franchising OMS 26 26.7 09 19 15 04
‘MulthyearCrown Project 18 22 (oa Fr 10 00
Network Expansion 156 127 29 06 06
Sear Full HNGT) 32 30 02 : : :
SelfService Kiosk 55K) oa 05 (ox] :
‘agents /Postmasters Portal 19 22 oa] : : :
Other Smaller Projects Simplify 16 (ox 22 -
‘Modernise ourproductsand services 100 107 o.I a7 48 {0.)
Mails Projects 12 08 04 :
Teentty Services Investments 10 16 (oa
POinsurance Investments 36 42 (oa 18 1 00
Vehicles 03 03 oa : : z
Project Galaxy (03) 02 3] 34 3a (oo
Telco investments 12 13 (oo = E :
Falcon Travel ub oa 08 (0 (ox (0.0 (oa)
Falcon Peregrine 16 09 07 -
Digital Developments os, 08 oa] 7
tagle os, 04 oa :
Youth stratesy 02 (o2] : :
Othersmaller Projects Modernise (oa (oa 06 : : -
Build innovative, flexible and secure IT 33 35 02 29 1s. 13
Project Everest -Cloud Enablement a7 62 (23 13 09 04
Riskand Resilience 15. 16 (oo : -
Pel/Payments Hub 03 05 03] : 3
EUC Branch Deployment (03 os] 05 os] io
Endvof life Replacements 06 05 oa é
Branch Printer Replacement 00 oa (oa 02 02 (oa)I
TT Service Transformation Programme (Nelson) 1s, 06 09 03 03
COP e-procurement 02 oa oa 02 02 -
Project Troalane 04 08 (oa - : :
Integration, Microservices & API Laver 00 (oo :
Computacenter Run Services Transition oa (ox
TTSecurityStratewy oa oa] s
Network Evolution and Enhancement 00 (oa :
Other Smaller Projects Build 06 (20 16 05 05
Digtise ond optimise the business 80 33 27 09 08 00
Supply Chain and Back Ofce improvement oa 17 (ol :
Property 19 24 (035 zi -
Bistrateay Arrow) 05, 07 (2 : 3
Hi Programmes Sa 06 46 08 09 00
RG Programmes 04 04 (oo :
Other Smaller Projects Diatise 00 (os 05 -
‘Move nise our sills polices and processes 35 36 0.) ot oa 00
Back fice Systems Transformation 55 56 (o.] oa on 00
Non-UKGI Funded m2 13 03 1a 15 {0a
NT Expansion CF 72 72 : :
Central (aa (23
Grouplitigstion 46 32 1a :
Gore os, 05 00 :
Project Panther (integration costs only) 08 12 (oa Fry 15 (oa)
Other Smaller Projects Regulatory 09 (ol 11 - :
[Total change Spend 972 397 74 132 ya 12
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7.2. APPENDIX 2 — FY18/19 Year-End Position
Fy1819
FY 1819 Spend I FY1819 Spend FY1819 Benefits Ae
Actual 943 Forecast os Actual Licenced
‘Simplify the retailer propotition 1015 96.2 SA n2 10.8 oa
Further franchising OMB 439 43.0 09 51 47 os
Multi-year Crown Project 82 a7 (0.4 42 42 00
Network Expansion 29.8 265 29 19 19 :
Solar Full{WNGT) 108 102 02 :
‘SeiService Kiosk (SSX) 15 16 (0. E
‘Agents /Postmazters Portal aa 44 (0.3) :
(Other Smaller Projects Simplify 39 17 22 : -
‘Modernise our products and servicesI 38.2 39.0 (07)] 159 159 coy]
Mails Projects 28 24 04 2 :
Identity Services Investments 27 34 (0.6) : :
PO insurance Investments 0 nz (0.6) 26 25 00
Vehicles 09 09 o2 : g
Project Galaxy 20 23 (0.3) 235 235 (09)
Telco Investments 48 46 (0.0) é E
Falcon-Travel Hub 59 63 (0.4) (03)] (0.2) (0.2)
Falcon=Peregrine 3a 24 o7 : E
Digital Developments 14 17 (0.3)] 2 5
Eagle 19 19) o2 : é
Youth Strategy E 02 (0.2 : E
‘Other Smaller Projects Modernize 18 12 06 : :
‘Build innovative, flexible and secure IT 467. 469 02)] SA 4a
Project Evarest-Cloud Enablement 1235 150 (2.5) 25 22 o4
Riskand Resilience 61 61 (0.0) :
Pol/Payments Hub 03 Os (0.3) E E
EUC Branch Deployment 75 En (05)] 07 (03) 10
End-otLite Replacements 37 36 1 :
Branch Printer Replacement 68 68 (0.0) 07 o7 (02)
TT Service Transformation Programme (Nelson) 38 29 09 06 06
COP e-procurement 21 20 oa 04 04 :
Praject Trafalgar 21 25 (0.4 : :
Integration, Microservices & API Laver E 00 (0.0) : F
‘Computacanter Run Services Transition a ot (0. a
ITSecurity Stratesy : or (0. é :
Network Evolution and Enhancement 3 00 (0.0) - :
(Other Smaller Projects Build OB (03) 16 05 os -
Digitise and optimise the business 18.9 16.2 27 35. 35 00
‘Supply Chain and Back Office Improvement 23 22 02 :
Property 87 72 (05) = E
Bl strategy (Arrow) 17 19 (0.2) =
HR Programmes: a7 20 27 35 35 0.0
LRG Programmes: 10 10 (0.0) :
(Other Smaller Projects Digitise 25 20 05, : -
‘Modernise our skills, polices and processes 179 18.0 (oa) on oa 0.0
Back Office Systems Transformation 179 180 (0. ot on 00
‘Non-UKGI Funded 486 483 03, ey 15
NT Expansion CF 26.2 262 : :
Central (0.4) 13 (28) :
‘Group Litigation 137 ns 14 : :
‘GOPR 37 37 00 :
Project Panther (integration costs only) 34 38 (0. ry 15 (0)
‘Other Smaller Projects Regulatory 20 09 fet :
“Total Change Spend Eze) 2645 74 372 360 12
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7.3. Appendix 3 — Q1 19/20 Funding Request
‘Qi Spend ‘Qi Benefits
‘Simpliy the retailer proposition 23 5.0
Further franchising DMs 3.0 25
‘Multi-year Crown Project : 16
Network Expansion 26 09
Solar Ful ANT) 43 -
SelfService Kiosk 55K) oa >
‘Agents /Postmasters Portal 13 (oa
‘Automation Strategy oa -
Other Smaller Projects Simplify 06 (0.
Modernise our productsand services 22 63
Malls Proleets 02 :
Identity Services Investments 06 06
PO insurance investments 42 08
Vehicles 06 :
Project Galaxy (oa 34
Telco investments 22 :
Falcon Travel Hub 2 oa
Falcon-Peregiine 24 13
Digital Developments 10 oa
tale 0s :
Youthswategy 03 :
Other Smaller Projects Modernise 03 -
Idinnovative, flexible and secure 72 20
Project Everest -Clovd Enablement 45 o7
Riskand Resilience 1.0 :
POi/Payments Hub 24 :
£UCBranch Deployment 02 02
End-of Life Replacements 02 :
Branch Printer Replacement 00 03
TTSenvce Transformation Programme (Nelson) 08 03
COP e-procurement oa 02
Project Trafalgar oa :
Integration, Microservices & API Layer oa :
Security strategy 02 :
‘Network Evolution and Enhancement o4 P
(Other Smaller Projects Build oa 03
Digitise and optimise the business 49 09
Supply Chainand Back Office Improvement 03 (0.
Property 45 :
Bi strategy Arrow) os :
HRProgrammes 18 10
TRG Programmes 03 :
Other smaller Projects Ditise 05 E
Modernise our skills, plicesand processes 22 os
Back Office Systems Transformation 22 05
Non UKGI Funded 37 10
Group Litigation 2a :
GoPR oa :
Project Panther {integration costs only) 07 10
Other smaller Projects Regulatory 08 -
otal change Spend a5 156
[Ofwhich qualifying for UKGI funding 388 146
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7.4. Appendix 4 — FY19/20 Full year expectation on Spend and Benefits
Project Spend Project Benefits
qirvia I quFvi9 Iairvi9IqiFyi9I FrI9 qurvis I airvis I qirvi9 I qiFvio I Fv19
“Simplify the retailer proposition 23 166 zal 139] 503 5.0 38 66 69 243
Further franchising OMB= 3.0 72 27 72I 200 25 3.0 33 34 22
Multi-year Crown Project : 5 16 16 16 16 63
Network Expansion 26 29 2 40] 6 09 10 aa 12 42
Solar Full (HNGT) 43 38 a
‘SeifService Kiosk) oa oa : 2 02 : on oa 00 02
Agents /Postmasters Portal 13 13 13 Fe 50 (00) 00 oa 02 03,
‘Automation Strategy oa 03 03 03 Fr : : 2 : E
OtherSmaller Projects Simplify 06 Fr aa 1 40 (a0) 03 os os 12
Modernise our productsand services: 22 25 23 ao] 410 63 7s 79 24 310
Mails Projects 02 08 18 as 43 : : : = E
Identity Services Investments 06 09 o7 12 34 06 6 os a7 34
PO Insurance Investments 42 Sa 17 a2] aa oa 12 24 26 6
Gath & Banting Services : A : E 2 : : : z 2
Vehicles 06 06 6 06 24 : : : :
Project Galany (0.) foal 03 8 10 34 34 34 34 BS
Telea investments 22 24 12 Fry 73 : 02 02 02 o7
Falcon Travel Hub F = = 2 oa 00 0.0 (oo) on
Falcon Peregrine 24 07 02 oz 35 13 18 13 1s 59
aI Developments 10 10 06 04 3a on 02 02 02 7,
Eagle os, os, 05 os 18 =: on oa 00 02
Youth strategy 03 04 06 = 13 : : (02 (03 (0)
‘Other Smaller Projects Modernise 03 oz oa oa 7, - 00 0.0 00 on
Build innovative, exible and secure IT 72 77 66 aa] 264 20 23 25 25 92
Project Everest -Cloud Enablement 1s 14 14 13 56 07 06 06 06 25
Riskand Resilience 10 10 10 Fr 39 : : 2 z E
PCi/Payments Hub 24 34 23 os 85 2 : < e E
EUCBranch Deployment 02 : 02 oz Os os os 47
Endiof life Replacements 02 00 : : 02 : : :
‘Branch Printer Replacement 00 : E : 00 03 03 03 03 42
TT Service Transformation Programme (Nelson) 08 04 : 12 03 03 03 03 10
ODP reprocurement oa : 3 1 oz o2 02 02 09
Project Trafalgar 04 02 02 02 10 : : : :
Integration, Microservices & API Layer oa 02 02 o2 08 : : E = 2
Computacenter Run Services Transition os OB 08 2a E
TTsecurity Stratesy 02 02 02 02 08, : : : 2 :
EUC/Computacenter 02 02 oz o7 : : : : :
Network Evolution and Enhancement oa 03 03 03 Lo : : 02 o2 oa
(ther Smaller Projects Build oa : : 2 03 om oa oa as
Digitise and optimise the business a 92 a7 es] 317 09 42 13 13 a7
Supply Chain and Back Ofce Improvement 03 44 43 42] 133 (00) 02 03 03 8
Property 1s 10 09) 42 47 : : : : E
Bi strategy (Arrow) os 03 02 Fry :
HR Programmes 18. 27 27 27 99. Fry 10 10 10 40
TRG Prosrammes 03 os 05 os Fry : : : : :
Other Smaller Projects Digtise os, oz on 03 FE : = = E
Modernise our ls, polices and processes 22 os Os, : 36 os os, os os 20
Back Office Systems Transformation 22 09 Os s 36 os os os os 20
Non-UKGI Funded 37 53 65 sal 23 Lo aa aa Fr 43
Group Litigation 22 26 26 26] 100 : : : E
oPR oa : : : on : : : : :
Project Panther integration costs only) o7 19 34 aa Er Fry aa 12 12 44
OtherSmaller Projects Regulatory 08 o7 oa oa 2a : - (oo (oo) (0.
[Total change Spend 2s soa] 30] ana] aaa 156 184 199 27 756
lof which qualifying for UXGH funding 388 aol as] 356] 1529 146 73 188 206 m3
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7.5. Appendix 5 - Key Delivering projects
Simplify the Retailer Proposition
Network Programmes
In the following year we plan to franchise 77 DMB’s of which 33 will be finishing our Oct 2018 deal with WHSmiths (Edgware)
and 44 further franchises are planned around the second half of the year. By the end of Q1 we will have tested the interim
operator approach that will enable us to review our exit plans and decide whether to ‘scale up’ exits in year.
As part of Network Maintenance we also plan to create 220 NNLs, convert 30 Mains to Locals and deploy 140 Outreaches to
support our target of 11,500 branches.
Solar Full (HNGT)
Solar is a critical part of developing our Retail and IT Strategies. It is a pre-requisite for delivering the new ‘PO Express’ format,
as well as building a new, device-agnostic transaction system that can be delivered through a range of devices. It will also help
us convert Mains branches to Locals through retailer point-of-sale (RPOS) integration.
Agents/Postmasters Portal (Branch Hub)
Branch hub is a self-serve portal that branch operators can use to access support. During the following year the project team
will build further functionalities into the portal, on a prioritised basis, to improve operator journeys and back office operations
generating cost savings from back office efficiencies.
Modernise our Products and Services
Post Office Insurance
Post Office Insurance key delivering projects for the next year are the following:
Travel Continuous improvements (Cronus Ill) - Focus is very much on the proposition to improve the customer experience and
conversion rates with the introduction of an improved contact centre journey and branch offering, proposition alignment and
additional services.
Home Insurance Reengineering (Nemesis) ~The Programme to transform the Home Insurance Proposition commenced in June
2018 and will continue design, development and testing ahead of a go live for new business in October 2019 with migration of
the existing customers occurring post go live at customer renewal.
Pricing Capability and Data Analytics - Following business case approval in December 18 the Programme have completed the
discovery phase in 2018/19 and will commence design, development, test and build in 2019/20. Delivery will be phased and
will include Travel and Home Insurance, Price Optimisation within the quote and buy, MTA and Renewal journeys with the
ability to respond and rapidly change and amend models in addition to a Data Warehouse with an Analytics platform for Pricing
and CVM modelling and visualisation.
Mails Programmes
Mails Programmes focus for the next year is around Mails Multi Chanel Customer Journeys a project that will define and deliver
an optimal digitization of mails customer journeys (Mails component of customer hub) and Mails Strategy and the
development of a sustainable future with Royal Mail including a long-term agreement that will secure our mails income for
future years.
Identity Services Investments
Identity Services Investments spend for the next year is mainly focused around the following projects:
Digital Identity - a project that will evolve the existing Verify product into a broader digital identity solution that can be used
across a wide range of public and private sector applications, thereby building our user base and establishing new revenue
sources beyond government.
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Digital Check and Send Hardware Modernisation — a project that will extend and potentially replace the AEI network, using
cheaper and smaller solutions such as tablets or Horizon peripherals, vital to defend our market share as paper passports are
phased out and to support a broader range of identity transactions in branch
Telecoms
Telecoms projects included in this category are as follows:
Telco Nuance ~ a programme to leverage market leading solutions to enhance the customer contact management capability
of Telecoms through telephone & online channels, ultimately reducing call centre costs for Post Office and improving customer
experience.
Telco Strategy — a project to address options to build a solution to the Telecoms contract with FJ ending in August 2020.
Telco Routers - that includes cost for router replacement.
Youth Strategy
New project aligned with our North Star, to ensure we remain relevant with our customers in particular Generation Z. The
project is to develop new products for this generation — Post Office Go (or PoGo)
Project Galaxy
The Project is mainly an umbrella of Telecoms projects in response to industry regulatory changes including: Galaxy — response
to the Ofcom regulation around Home Phone pricing, Proposition 2 ~ response to notification from the ASA, Code of Practise —
a project to ensure we comply with Ofcom code of practice.
Digital Developments
Key attributor in this category is project Website Refresh — a project to focus on the front end website to ensure customer
experience is consistent and engaging with the intention of driving more sales.
Eagle
Contractual agreement with Bank of Ireland for POL to invest on the product suite.
Falcon ~ Peregrine
Peregrine — Renegotiations with Bank of Ireland.
Vehicles
Capital spend for purchase and refit of vehicles to maintain required fleet numbers and standards.
Build Innovative, flexible and secure IT
Project Everest - Cloud Enablement
The project will be focused on the build of cloud solution to replace systems currently based in Fujitsu datacentres.
Risk & Resilience
The projects relates to maintenance of IT budget to deal with small pieces of work (predominantly reactive) that are required
to maintain service levels and make minor efficiency improvements where possible.
Payments Card Industry (PCI)/Payments Hub
Post Office is subject to Payment Card Industry (PCI) regulations and this project is driving increased levels of security and
encryption in our systems to remain compliant with these.
Project Trafalgar (Change excellence)
Continuation of project to further standardise and improve the delivery of change works throughout the Post Office.
Integration, Microservices & API Layer
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New Project that is focused on works to allow rapid, agile and seamless integration between Post Office and third parties’
services and functionality through building of Post Office API's (Application Programming Interfaces) and the ability to leverage
other parties API's.
Computacenter & Atos Services Transition
Projects to deal with review, negotiation and transition of our key suppliers (Computacenter & Atos) services, in house with
associated cost savings.
Network Evolution and Enhancement
New Project with scope to deep dive on IT network infrastructure and commission small, medium and large scale changes to
the infrastructure to make it more efficient. Verizon cost reductions from changes implemented.
Digitise and Optimise the Business
Supply Chain and Back Office Improvement
‘Swindon Strategy - review and transition to the best long term model for our Swindon Centre and the services we run out of it
Process and Contact Centre Transformation - a series of works to transition and reshape the Process and Contact Centre teams
to better align them with the business and increase cost efficiency.
Property
Capital spend for maintenance and improvements of wider property portfolio.
BI Strategy (Arrow)
The Data project, covering strategy, governance and delivery, has been passed pending the IT team agreeing the future of
Credence.
LRG Programmes
Legal Entity Optimization - Project to ensure that the organisation has the right legal structure to deliver its North Star strategy,
ensuring regulatory governance is only applied to the regulated activities and to support the wider strategic plans of the
business.
HR Programmes
HR target Operating Model — Project focuses on finding the suitable operating model for the HR function,
Modernise our skills, culture, HR policies and processes
Back Office Systems Transformation
Project for the replacement of core Back Office Systems including the decommissioning of POLSAP. Project has now been
delivered, however due to delays in the project's go live date cost related to closing activities slipped into the following financial
year.
Non UKGI Funded
Project Panther (integration costs)
Project spend is mainly focused on the integration of the Payzone acquisition and also funding on additional technology,
signage and transport earn out cost. The project is expected to generate net revenue which is made up by current Payzone
revenue, new contracts & a number of new initiatives (smart ticketing, cross network sales). (Payzone £16m acquisition has
been completed in FY1819 with some elements still to be delivered in the following two years requiring additional £1.4m in
FY1920 and £2.0mil in FY2021
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POST OFFICE LIMITED BOARD OF DIRECTORS
NOTING PAPER
Lof 4
19/20 Budget update
Author: Jonathan Lewis Sponsor: Al Cameron Meeting Date: 29 May 2019
Executive Summary
Context
In the 19/20 budget discussed with the Board at the end of April, £12m of additional
BAU opex was allocated to improving agent relationships and £10m of change spend.
This spend will help to reduce churn, improve our efficiency and better align incentives
between POL and our agents. This investment in improving our relationship with agents
will also address some of the GLO findings to date, though is not a direct response to
those findings.
Furthermore, £12m of ungrounded challenge remained (£9m existing prior to the Board
meeting and an additional £3m added).
Questions addressed in this report
1. How do we plan to spend the additional £22m allocated within the budget to
improve Agent relationships?
2. What progress has been made on grounding the ungrounded challenge?
Conclusions
We have developed a plan for where we intend to spend £12m of BAU opex and £10m
of Change spend to improve Agent relationships:
e Just under half of the BAU opex spend will go into Agent remuneration of one
form or another, with the remainder allocated towards communications and
engagement, internal process work and the lost benefits from reprioritising the
Change plan.
e Additional change spend is focused on making it easier for Postmasters to do
their job through Branch hub and Horizon screen changes, and accelerating the
benefits of the recent field structure change.
We believe it is worth pushing forward with these changes as soon as possible, given
there could be a finding from the Horizon trial as soon as July 2019.
We have made good progress in grounding over £10m of the ungrounded challenge.
However, given some adverse movements, we still have another £4m to go.
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The Report
How do we plan to spend the additional £22m allocated within the budget to
improve Agent relationships?
1. Having strong relationships with Agents is key to our long term success as a business. We rely
on them to deliver excellent customer service selling our products, and we need existing and
new Agents to maintain network reach for us to fulfil our statutory and strategic social purpose.
2. While around 500 Agents have engaged in the GLO process, we also believe that there is
growing unrest with many of our partners who have seen significant remuneration decreases
predominantly through reductions we have imposed and declining government services. This
along with increasing costs from NMW/NLW and rents/rates is making an increasing number of
our Post Offices vulnerable.
3. The Horizon trial is due to conclude in July and a judgement could be delivered rapidly after that.
Our intention is to launch a series of measures as soon as possible to ensure that whatever is
said in the judgement, our network and the public understand that we wish to maintain a fair
and profitable relationship with our agents.
BAU opex to improve Agent relationships
4. The following table summarises how we intend to deploy the additional £22m of funding
Initiative 19/20 £m
Opex
‘Agents Remuneration — reverse Mails simplification 35
‘Agents Remuneration for suspended Postmasters 15
Agents Remuneration — deep dive 0.5
Legal work regarding policies and processes 2.0
Communications 0.5
Simpler business — training and engagement 1.2
Impact on Change plan reprioritisation 0.5
BAU impact of process changes (placeholder) 23
Opex total 12.0
Change
Horizon changes (quick wins) 25
Branch hub initiatives 15
Simpler Business — HotHousing to accelerate field structure benefits 3.0
Design of new processes (including loss prevention) 2.0
POL workforce changes (Restructures etc.) 1.0
Change total 10.0
5. Just under half of the BAU opex spend will go into Agent remuneration of one form or another,
with the remainder allocated towards communications and engagement, internal process work
and the lost benefits from reprioritising the Change plan.
6. Additional change spend is focused on making it easier for Postmasters to do their job through
Branch hub and Horizon screen changes, and accelerating the benefits of the recent field
structure change.
7. With the exception of the Agent remuneration items, the numbers are current estimates and
subject to change.
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Summary of each initiative - Opex
8. Agents Remuneration — reversing Mails simplification - £3.5m
As part of Mails simplification and the reduction in Postmaster workload, the Postmasters also
suffered a loss in revenue. While we have defended this in public, we no longer believe that this
was the right thing to do — while the work did decrease, it is hard, if not impossible, for some
Postmasters to realise staff cost savings from the reduced work. We therefore intend to reverse
it as soon as we can. We are working through the operational changes required to make this
happen, as well as how best to communicate it so that we are resilient to claims for
retrospective compensation and claims for other remuneration changes for which Postmasters
believe they should be compensated. £3.5m covers 9 months of this change. We believe it is
worth announcing this before the next trial results are announced, which means it would be
committed before the findings are available from the strategic review of Agent remuneration.
9. Agents Remuneration — payments to suspended Postmasters - £1.5m
Generally, we have not paid Post Masters while they are suspended. The GLO findings, however,
questioned the fairness of this. Currently we have 17 Postmasters suspended on full pay. If the
cumulative run rate (c5 suspensions per month) continues, this will equate to an additional
£1.5m per year. We believe it is fair and reasonable to offset some remuneration costs against
the cost of paying a temp and processes are being streamlined to reduce the average period of
time Postmasters are suspended for (currently 12 weeks), to limit this exposure.
10, Agents Remuneration — deep dive - £0.5m
We will allocate an additional £0.5m to the work into Agent remuneration given the strategic
nature of this work.
11. Legal work regarding policies and processes - £2.0m
We are not currently intending to make wholesale changes to our contracts. We are going to
invest, however, on legal advice on our interpretation of contracts in the areas of termination
and loss recovery in light of the Common Issues trial — e.g., what does ‘fair and reasonable’ mean
in the way that we manage differences?
12. Communications - £0.5m
This spend is to cover communicating changes to Agent Remuneration, any changes to processes
and policies resulting from the legal work, and changes to Horizon and Branch Hub within the
Change spend.
13. Simpler business — training and engagement - £1.2m
This will fund additional trainers to meet the demands of new onboarding, on-site and refresher
training, and also to fund additional local and regional engagement meetings with our
Postmasters.
14, Impact on change plan reprioritisation - £0.5m
In light of the GLO findings and the need to ensure we had sufficient financial capacity and
change capacity to improve agent relationships, some elements of the change plan were
reprioritised, the net impact of which is £0.5m
15. BAU Impact of process changes (placeholder) - £2.3m
We have not yet worked through the BAU opex impacts of the process changes (as the process
changes themselves are unknown). We have therefore allocated the remainder of the £12m as
a placeholder to cover the costs of such process changes.
Summary of each initiative - Change
16. Horizon Changes - £2.5m
We have identified a number of areas where the design of the Horizon interface could be
improved to reduce errors. Examples include interventions to ensure transactions that have
failed on Horizon are not actioned in branch, standardising menu screens to ensure that the
right service is selected (e.g., Deposit vs Withdrawal) and introducing a requirement to rekey
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entries (so mitigating the “double zero” issue). This will be good for customers, good for Agents,
and good for us in that there will be less errors for us to fix. We will need Fujitsu to implement
these changes.
17. Branch Hub acceleration - £1.5m
Accelerating Branch Hub and its adoption will make for a better experience for customers, an
easier business for our Agents to run, and fewer errors for us to fix and less support required.
18, Simpler Business — Hot-housing to accelerate benefits of new field team - £3.0m
We will accelerate the current work being done to build the capability of the field teams to
better support agents in running their business and enable local solutions and quick wins to be
delivered, improving the performance of Agents (and therefore the amount of remuneration
they earn).
19. Design of new processes - £2.0m
We have allocated £2m to cover process redesign this year to enact the results of the legal
review into the Agent contract and other processes to improve the relationship with Agents.
Included within this is the additional project resource to redefine processes and implement the
necessary changes.
20. POL workforce changes - £1.0m
To implement the new processes, workforce changes may be required for which we have
allocated £1m.
What progress has been made on grounding the ungrounded cost challenge?
21. On top of the original £9m ungrounded cost challenge, to meet our budget, we will also need to
ground an additional:
a. £3m challenge from April budget discussion
b. £1.8m from the delay in capturing Computacenter savings, that will now be captured in
20/21
c. £1.0m from deciding to maintain the roll-out of Fibre in Telecoms, where the original
budget assumed that this would stop in Ju
fm Comment:
Ungrounded cost stretch from April 11.9 _ Includes additional £3m agreed as part of 19/20 Budget discussion in April
Lost change benefits 1.8 _ Delay to capturing Computacenter savings
Fibre 1.0 Additional cost to run Fibre roll-out for full year
Total 147
Of which:
Blueprint benefits -2.0 _ See separate paper
Other groundings -8.3 Primarily in CIO and FS&T
Remainder to ground 44
22. We have grounded over £10m of this, with the majority being grounded in:
a. CIO against 3% party vendors
b. FS&T through call centre efficiencies
c. Blueprint benefits assumed as set out in the May Board paper entitled “Future Cost
Opportunity”.
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POST OFFICE PAGE 1 OF 3
BOARD ADVISORY PAPER
Annual Report and Accounts 2018/19
Author: Tom Lee Sponsors: Micheal Passmore, Al Cameron Date: 28 May 2019
Executive Summary
Context
The draft 2018/19 Annual Report and Accounts (ARA) is presented to the Board, along
with supporting papers, for review.
The papers comprise 1) the ARA, 2) a briefing book setting out the details of the financial
results and accounting judgements, and 3) the Audit Committee Paper from PwC
outlining the work performed and findings to date.
Questions addressed in this report
The following questions are addressed in this report:
1. In summary, what were POL’s financial results for the year ended 31 March 2019?
2. What is the status of the audit work on the ARA?
3. What matters are we drawing to the Board’s attention in their review?
Conclusions
Post Office reported a trading profit (EBITDAS) of £61 million (2018: £35 million), an
improvement of £26 million, comprising a small increase in commercial turnover and
cost reductions. Net assets increased to £256 million (2018: £206m).
PwC is working to complete its audit procedures and will provide an update on their
identified significant risk areas and areas of audit focus in their Audit Committee Paper
to the ARC on 29 May. Subject to the completion of their audit work, PwC has not
identified any significant issues to date which would impact on the signing of the ARA.
Refer to the Audit Committee Paper prepared by PwC for details of findings to date.
The following items have been set out in this report:
e Accounting for the acquisition of Payzone Bill Payments Limited;
e Note Circulation Scheme; and
« Group Litigation Order.
Input Sought
The Board is requested to review and comment on the draft ARA for the year ended 31
March 2019 and, subject to the completion of PwC’s work, approve and delegate the
ARA for signing.
Strictly Confidential
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The Report
In summary, what were POL’s financial results for the year ended
March 2019?
1. Post Office made an underlying operating profit of £13 million (2018: £47 million)
and reported a trading profit (EBITDAS) of £61 million (2018: £35 million). This
represents a trading profit improvement of £26 million on the prior year. Trading
revenue increased year on year by £16 million to £972 million principally as a result
of growth in Identity and Insurance business areas, with continued growth also noted
within Banking Services. This was partly offset by the anticipated decline in our Post
Office Card Account income stream. The focus on controlling and reducing the cost
base generated a reduction in direct costs of £2 million to £958 million (2018: £960
million).
2. On the Post Office Group balance sheet, net assets have increased from £203 million
to £256 million. Notable changes driving this increase include an increase in tangible
and intangible assets of £55 million, a decrease of £112 million in cash and a
decrease in the government loan of £58 million.
What is the status of the audit work on the ARA?
3. PwC is working on the completion of its audit procedures. PwC will provide an
update on each of their identified significant risk areas and areas of audit focus in
their Audit Committee Paper at the ARC meeting on 29 May. Subject to the
completion of their audit work, PwC has not identified any significant issues to
date.
4. At this stage no significant findings or management letter points have been brought
to management's attention. Findings and adjustments raised to date include:
e £6m balance sheet reclassification, to move Camelot scratchcard balances from
inventory to prepayments;
¢ control recommendation around the leavers process in relation to global user
access, however alternative procedures are being performed to provide
appropriate assurance. Appropriate corrective measures will be performed
internally once findings confirmed.
5. As part of the year end process, internal Post Office reviews have been undertaken
to review post year end invoices, purchase orders and bank reconciliations and no
adjustments are proposed as a result. This work is continuing to be updated, and
PwC will also need to continue its post year-end review prior to signature.
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6. The migration from POLSAP to CFS was completed and reviewed internally prior to
year-end. PwC are currently completing their procedures over the accuracy and
completeness of the migration process. The results of this will be concluded and
reported prior to signing the ARA.
What matters are we drawing to the Boards attention?
Payzone Acquisition
7. On 24 October 2018 Post Office Limited acquired Payzone Bill Payments Limited for
total consideration of £19 million, which comprises £16m fixed fee and £3m
contingent fee (of which £1m has been settled to date). The acquisition has been
accounted for under IFRS 3 Business Combinations and has resulted in additions to
intangible assets of £7 million and Goodwill of £8 million. From the date of acquisition
to 31 March 2019, the Payzone business has contributed £4 million of revenue and
£1 million to trading profit.
Note Circulation Scheme
8. In the 2018/19 Annual Report and Accounts we have included an explanation of the
Note Circulation Scheme (NCS), in line with 2017/18, to provide greater
transparency to users. A reference is included in the Finance and Business Review
and note 22 includes a description of the scheme.
9. At the year-end £227 million (2018: £238m) was funded via the NCS. As in previous
years we do not disclose anything on the Balance Sheet but have taken a decision
to include narrative on the scheme in the notes to the accounts to allow the users
of the accounts to better understand our funding. In 2017/18 we agreed the
narrative included with the Bank of England and do not propose to amend it in the
2018/19 ARA. We have asked PwC to confirm that they agree with the off balance
sheet treatment and associated disclosure.
Group Litigation Order
10. The High Court claim is expected to remain ongoing beyond the signing date of the
ARA. The current disclosure in the ARA remains unchanged from 2017/18, being the
disclosure of the litigation as an unvalued contingent liability with no provision made.
We do not anticipate a material change to this disclosure, however the position will
be revisited prior to ARA signing to reflect the latest status of the claim with any
subsequent events reflected as required.
11. We have separated out the costs incurred in 2018/19 of £14m as an exceptional
item, which corresponds with the 2017/18 treatment. This classification has been
selected because the expenditure is not in the ordinary course of business and
anticipated total costs are material. Further spend is expected in 2019/20 but the
value cannot yet be estimated and no provision has been recognised.
12. PwC have and will continue to be consulted on the disclosures.
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Strategic Report
The Strategic Report for the Post Office comprises the Chairman's Foreword, Chief
Executive's Statement and Financial and Business Review.
Chairman’s Foreword
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and we have delivered a trading profit of £61 million, a 74% increase on last year
be A particularly encouraging performance was recorded in a number
of areas including Banking, Mails, Telecoms and Travel, showing our resilience in what has been
another challenging year on the high street.
I The Post Office has had another strong year, We grewOur -turnover-grew by 2%, to £972 mi
This year we have built on the major business restructures undertaken in previous years, consolidating
and reshaping central and back office functions to better serve our increasingly dynamic organisation.
We are creating stronger foundations to provide better services to our customers and support to those
who run our branches. At the same time, we have been challenged by Government to be a self-
sustaining company free of public subsidy. To achieve all this, we are going to have to work harder
than ever before. We must match the pace of change in the industry, embrace new technology, adapt
to market trends and meet customer expectations more decisively still.
Our recent results demonstrate that the ways in which we are transforming the business to remain
relevant, easily accessible and the first choice for customers are working. We are on the right track.
The success of our Banking Framework arrangements with the UK's banks has seen us become the
biggest high street provider of cash and point of access for everyday banking services in the country.
We are now the last cash provider in thousands of communities, reflecting our social purpose in action,
supporting the consumers and small businesses which fuel local economies. There is more growth to
come and we are working hard to expand this offer, to simplify the processes underpinning It and
provide a better share of that success to our postmasters.
This year’s acquisition of Payzone Bill Payments Limited ("Payzone”) underscores our determination
to extend our reach and accessibility for corporate and retail customers alike. The integration of
Payzone’s bill payments business with our own more than doubles the number of outlets at which
these services can be conveniently transacted, to 25,000. This provides us with a much stronger
platform through which to innovate and win new contracts from a wide range of corporate clients.
Improving the support we provide our postmasters and agents, and making it easier for them to run
their Post Offices profitably, remains a priority. We have been reviewing our ways of working to ensure
that effort and complexity are kept to a minimum, while looking to extend their product offering and
rebalancing transaction fees. Our ambition is to attract and retain high quality business people to
deliver for all our customers with energy and care. The ongoing Group Litigation Involving Post Office
is an important reminder that this aspect of our work is open ended, and that we must always strive
to do even better.
As ever, it’s our people, whether working in branches across the country, in our supply chain or in our
support centres, who are making these changes happen and I would like to thank them for their
continued support and their dedication to making this business successful.
1 would also like to express my appreciation to our Shareholder, the Secretary of State at the
Department for Business, Energy and Industrial Strategy ("BEIS”), as well as his Ministers and officials
in UK Government Investments and BEIS for their collaboration and support across the year. My
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colleagues on the Post Office Board and the Executive Team have, once again, demonstrated real
drive and energy in addressing the many challenges involved in modernising the Post Office for future
generations.
Finally, I would like to extend particular thanks to Paula Vennells for her service over the past seven
years as Chief Executive, leading and transforming this unique business towards an even brighter
future. During Paula's leadership, Post Office has grown from a company that was losing £120 million
a year, with a branch network in desperate need of modernising, to a strong, customer- focused,
innovative and profitable business. She is leaving the business in good shape and I wish her every
success for the future. I look forward to working with Al Cameron, Interim Chief Executive, and the
Executive Team to build on Paula’s success in the coming year,
Tim Parker
Chairman
XX XXXX 2019
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Chief Executive Statement
The Post Office matters more today than ever before. Providing essential services to millions of
consumers and small businesses, day-in, day-out, it fulfils a unique function in the UK. We are,
therefore, relentlessly focused on what needs to be done to evolve Post Office so it is relevant for
future generations, financially robust to weather new challenges, and always faithful to our central
purpose: being there for every customer in every community.
With a trading profit of £61 million this year, achieved-against- a broadly flatsupported by a small-
Increase in turnover-revenue-profiie, we are on track to achieve our £100 million trading profit target
by 2020/21. As Government looks, quite rightly, to reduce its financial support for the business in
favour of other spending priorities, it is essential that we build robust financial foundations,
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Our trading profit target reflects our shared ambition to become entirely subsidy free after 2020/21,
and create sufficient value to build a thriving, UK-wide, business for the long term. This will not be
easy. We have to keep developing ahead of the market, and generate enough profit to reinvest in
products, technology, our branches, and our people. We take confidence from the fact that our recent
results demonstrate that if we stay focused on the right things we can succeed.
This year saw us complete our Network Transformation Programme, by far the biggest change we
have ever made, and one of the biggest in UK retail. Investing in and modernising over 7,700 branches
has resulted in significant increases in opening hours and levels of customer satisfaction. Over the
period, we also opened over 440 new Post Offices in new locations, part of our strategy to increase
convenience and choice for customers who want easier access to our services on their doorstep. With
11,638 branches as at the year-end (2018: 11,547), our network is at its most stable for more than
a decade, and is growing.
Franchising, combining a post office alongside a separate retail offering, enables us to share the
property, staffing, and other costs of running any business. This model, which has been operated
successfully across the vast majority of the network for decades, continues to be extended to some
our Directly Managed Branches ("DMBs"). These represent less than 2% of our network, but are
disproportionately expensive to operate as stand-alone post offices. The decision to franchise is driven
by a determination to keep these essential services available on high streets across the country in the
face of the very significant cost challenges facing all retailers. Research shows that customer
satisfaction levels return to, or even exceed, their pre-franchise levels soon after the change is made.
Improvements to our physical network of brick-and-mortar outlets has been matched by significant
IT investment across the business. In financial year 2018/19, we substantially completed the
transformation of our back office systems. These handle £60 billion in financial transactions each year
for corporate clients and customers. As well as driving further efficiency, the changes give us better
commercial insights to enable us to improve products and services. At the front line, we also renewed
equipment in all our branches, and continue to look for opportunities for technology to expedite and
simplify processes for our postmasters and customers.
We are consolidating and strengthening our position in some of our traditional markets, such as bill
payments. Following clearance by the Competition and Markets Authority in October 2018, the
successful acquisition of Payzone’s bill payments business gives us a combined network of 25,000
locations at which customers can conveniently pay for essential services, significantly enhancing
opportunities for future revenue growth in this competitive market.
We have retained our position as number one in letters and parcels, with significant growth in home
shopping returns offsetting the continued decline in stamps. Online shopping has continued to drive
strong growth in Collections and Return volumes and we are working closely with Royal Mail to
innovate and improve our customer offering. This year we launched the new ‘Labels to Go’ service for
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online shoppers to print a returns label at their local Post Office, by simply using a QR code on their
mobile phone or tablet.
Our travel proposition also continues to grow as we leverage our market leading position in Travel
Money, using technology to enhance our offer. More than 300,000 customers are already using our
new Travel App. This enables customers to manage their Travel Money Card accounts 24/7 from
anywhere in the world, as well as providing easy access to travel insurance. Over 700 branches are
now offering Passport Digital Check and Send, enabling branches to process applications online,
dramatically improving the customer experience, while boosting security. To round off what has
become a one stop shop for our customers’ travel needs, we made International Driving Permits
available in 2,500 branches across the country, selling 350,000 permits over two months, with plans
for further expansion in the year ahead.
Over 900,000 new customers registered for our GOV.UK Verify service, which provides a secure, and
re-usable, means of definitive identity assurance to enable customers to access a range of online
Government services. The opportunity now is to build on this success and expand the benefits of
digital identity to a much broader range of users and organisations. We believe the Post Office is,
ideally placed to help grow this wider market, and we are seeking to rekindle Government's impressive
early interest and positive action in the development of this new and transformative technology.
Concerns over bank branch closures across the country have grown louder across the year, and
underscore just how important the continued availability of access to basic banking services through
the Post Office is to communities. Since its inception in January 2017, we have significantly grown the
volume of transactions we undertake on behalf of all the UK’s major banks, and doubled revenue. We
have been busy working on a significant further expansion over the next three year phase, rebalancing
the fees we receive to better reflect the value of the service. We want all those involved to share in
the success of the service, especially those working at the counter, and we recently announced that
we are near tripling the fees our postmasters receive for cash deposits as a result.
We recognise that our postmasters are key to the success of our business. These are the people
operating our branches alongside their retail businesses, serving our customers, day-in, day-out.
While the model works well in thousands of branches across the country, we know that in common
with other retailers, there are challenging head winds to face into. That Is why have been working
hard to make it easier for them to operate their post offices more profitably, with less effort, and
better support from us. From the process of on-boarding, through improved training and field
engagement, to simplified products and sales processes, we are continually improving the support we
provide postmasters. Irrespective of the legal merits, the Group Litigation we are engaged in brings a
sharper focus to this work. While our culture and practices have changed hugely over the 20 years
spanned by the case, it is right that we must continue to do better.
I would like to thank the Post Office Board, led by Tim Parker, for its direction and support throughout
the year, as well as our Shareholder and colleagues at BEIS. I must also thank all my colleagues in
‘our main customer support centres for rising to the challenge, once more, as we build a stronger
business. My final thanks are reserved for my predecessor, Paula Vennells, who over the past 7 years
has led us, as CEO, to be a profitable, confident, business without losing sight of our values. The Group
Executive is continuing, with passion and enthusiasm, to evolve an organisation like no other in the
service of current and future generations.
Alisdair Cameron
Interim Chief Executive
XX XXXX 2019
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Tab 6 Annual Report and Accounts 2018/19
Financial and Business Review
Summary results
We delivered our third consecutive year of profit as we continue on the path to commercial
sustainability.
Operating profit was £13 million (2018: £47 million). This is after increased depreciation and
amortisation charges of £94 million (2018: £55 million), and exceptional items of £14 million (2018:
£3 million).
Trading profit increased by £26 million to £61 million (2018: £35 million). Our turnover grew by.£16.,
million during 2018/19 to £972 million (2018: £956 million). Growth was driven by our Identity
and Insurance (15%) business areas, with continued growth also noted within Banking Services
(15%). This was partly offset by the anticipated decline in our card account income stream (down
25%).
As planned, the Network Subsidy Payment ("NSP") from Government decreased by £10 million to £60
million (2018: £70 million). NSP is to cover the costs of loss making branches which deliver our social
purpose. It is our responsibility to demonstrate that the NSP received is equal to or less than the total
loss these social purpose branches create. If the loss is less than the NSP, we are obliged to pay the
difference back to Government. This reduction in the NSP was partly offset by cost reductions of £2
million and, when combined with the growth in revenue streams outlined above, resulted in an
adjusted EBITDA increase of £16 million to £121 million (2018: £105 million)
Profit and Loss Summary - Trading
2019 = 2018 Variance Variance
—m £m £m %
Turnover 972 956 16 2
Costs (958) (960) 2 1
Other income 14 5 9 180
Share of profit from joint venture 33 34 (1) (3)
Trading profit 61 35 26 74
Add: Network Subsidy Payment 60 70 (10) (14)
Operating profit before depreciation,
amortisation, exceptional items and 121105 16 15
vestments (adjusted EBITDA)
Depreciation and amortisation (94) (55) (39) (71)
Exceptional items (14) 3) (11) (367)
Operating profit before investments 13 47 (34) (72)
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Significant accounting judgements
Going concern
The Group (being the Group of companies headed by Post Office Limited) has net assets of £256
million at 31 March 2019 (2018: £203 million) and headroom on the loan from BEIS of £385 million
(2018: £327 million). This is £185 million above the target minimum headroom of £200 million, hence
we are not at risk of breaching this limit. We have also been profitable at a trading profit level with
current year profit of £61 million (2018: £35 million) and shown a profit after tax of £52 million (2018:
£17 million).
We have the following funding agreed with BEIS: a working capital facility of £950 million to 31 March
2021; a further £50 million facility available to provide same day liquidity to 4 April 2020; NSP of £50
million for 2019/20 and 2020/21 respectively; and we also have investment funding of up to £210
million as required for up to March 2020.
After careful consideration of the plans for the coming years, we continue to believe that Post Office
will be able to meet its liabilities as they fall due for the next 12 months. Accordingly, on that basis,
the Directors consider that it is appropriate that these financial statements have been prepared on a
going concern basis.
Key Financial Performance Indicators
2019 2018 Variance
£m £m £m
Turnover ‘S72 S56 16
Operating profit before depreciation, amortisation, 121 105 16
exceptional items and investments (adjusted
EBITDA) (note [XX])
Operating profit before depreciation, amortisation,
exceptional items, investments and Network 61 35 26
Subsidy Payment (trading profit) (note [XX])
Profit for the financial year 52 7 35
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Profit and Loss
‘As disclosed in note [XX] to the financial statements on page [XX], we have split the results of the Group
between trading and investments. Together these combine to give the results of the Group. This
presentation clearly separates the underlying trading of the business from the change activity being
undertaken to ensure the future sustainability of the Post Office. In the following sections, we consider
each of the columns of our consolidated income statement which combine to give an operating profit of
£52 million (2018: £15 million), Once finance income/costs, taxation credit/charge have been factored
in, the profit for the financial year is £52 million (2018: £17 million). See the consolidated income
statement on page [XX] for full details.
2019 2018 Variance
em £m £m
Operating profit
Operating profit before depreciation, amortisation,
exceptional items and investments (adjusted 121 105 16
EBITDA)
Depreciation and amortisation (94) (55) (39)
Exceptional items (14) (3) (yy
Operating profit before investments 13 47 (34)
Investments 39 (32) nm
Operating profit 52 15 37
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ual Report and Accounts 2018/19
Turnover
The Post Office business is organised into three strategic business units, Retail, Financial Services &
Telecoms (including Insurance) and Identity. Turnover from our subsidiary Post Office Management
Services Limited is included within the Insurance line below. Turnover from our subsidiary Payzone
Bill Payments Limited ("Payzone”) is included within the Payment Services line below. The divisions
and their performance are detailed on the next pages:
2019 2018 Variance Variance
em —m —m %
Retail
Mails 350 334 16 5
Retail & Lottery 42 45 (3) 7)
Payment Services 27 27 - -
Cash & Banking Services 161 158 3 2
Financial Services & Telecoms
Financial Services 113 127 (14) (11)
Telecoms 153 147 6 4
Insurance 55 48 7 15
Identity 58 54 4 7
Other* 13 16 3) (19)
Turnover 972 956 16 2
* Relates to Supply Chain income (E10 million) predominantly for warehousing of Royal Mail stock, transport of high value
mails and release of Bank of Ireland deferred income (£3 million).
The grouping of products has altered in 2018/19 as a result of changes to internal reporting, with Post
Office Card Account (“POCA”) turnover moving from Government Services to Cash & Banking Services.
Remaining Government Services turnover has been moved into the Identity business unit. Banking
Services and ATMs revenue have also moved into Cash & Banking Services. Commission income
relating to Government Services has been reclassified from revenue to other income because it did
not fall within the scope of IFRS 15 Revenue from Contracts with Customers. The Impact of these
changes on the reported 2017/18 performance of the divisions is detailed below:
Commission Banking 2018
2018 POCA Income Identity Services ATMs reclassified
£m £m £m £m £m___£m £m
Retail
Mails 334 - - - - - 334
Retail & Lottery 45 - - - - - 45
Government Services 99 (40) (5) (54) - - -
Payment Services 57 - - - = (30) 27
Cash & Banking Services - 40 - - 88 30 158
Financial Services & Telecoms.
Financial Services 215 : - - (88) - 127
Telecoms 147 - - - - - 147
Identity - - - 54 - - 54
Insurance 48 - - - - - 48
Other 16 : : E c 2 16
Turnover 961 - (5) - - - 956
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Retail
The Retail business encompasses our position as the United Kingdom's number one mails provider, as
well as providing Cash & Banking and Payment services.
Mails
Mails includes the sale of parcels and other mails products provided by Royal Mail and Parcelforce.
Underlying trading turnover Is up £17 million (6%) year on year. Growth in parcels (7%) and home
shopping returns (35%) is partially offset by the continuing decline in stamps. In addition, there were
planned reductions in the fixed fee element of the contract with the Royal Mail Group plc of £2 million.
Cash & Banking Services
This comprises the following services:
2019 = 2018 Variance Variance
£m £m Em %
POCA 30 40 (10) (25)
Banking Services 102 88 14 15
ATMs 29 30 (a) (3)
Cash & Banking Services 161-158 3 2
POCA revenue has decreased by £10 million in line with expectations, ATMs revenue has remained stable
despite market decline. Banking services has significant year on year growth of £14 million to £102
million as more high street banks are closing their branches, in addition to the switch made to automated
deposit transactions in October 2018.
Payment Services
Payment Services includes bill payment transactions. Revenue has remained flat at £27 million (2018:
£27 million). The acquisition of Payzone contributed £4 million to turnover, offset by reduced volumes in
the reseller market of £4 million.
Financial Services & Telecoms
Financial Services
Our Financial Services products include mortgages, credit cards, savings and travel money, in addition
to postal orders. Turnover decreased by £14 million to £113 million (2018: £127 million).
The majority of the decrease is due to Bank of Ireland products, down £12 million to £45 million (2018:
£57 million). This is due to not having a minimum savings commission value in 2018/19. The
competitive, customer and regulatory environments remain tough; the continued low rate environment
and Bank of England funding scheme are putting pressure on Mortgage margins and Savings rates.
Mortgages are also challenged due to Bank of Ireland pricing, but the expansion into the Broker channel
Is compensating this.
Turnover from Postal Orders declined by £2 million as this legacy product continues to decline in the
marketplace. The impact of Brexit, weak sterling and tighter AML regulations continue to impact
MoneyGram and to a lesser extent travel money, which has remained stable year on year.
Telecoms
Telecoms includes Post Office HomePhone, Broadband and Fibre services.
Telecoms turnover of £153 million increased by £6 million (2018: £147 million) as customer numbers.
have increased.
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Insurance
Post Office Insurance provides Travel, Life and General insurance policy cover. Insurance turnover has
grown by £7 million to £55 million (2018: £48 million). The increase was driven mainly by growth in our
Over 50s Life insurance and Travel insurance businesses.
Identity
Identity provides Home Office, DVLA and Verify services. Identity turnover has grown by £4 million to
£58 million (2018: £54 million) due to the launch of Universal Credit in Verify. A new pricing
arrangement with the Government Digital Service in November 2018 significantly reduced average
margin for the Verify service.
Costs
Total costs decreased by £2 million to £958 million (2018: £960 million).
People costs of £193 million increased by £4 million (2018: £189 million) due to pay increases.
‘Average headcount reduced from 5,066 in 2017/18 to 4,703 in 2018/19 reflecting efficiency savings across
the DMBs and the effect of the Network and DMB transformation programmes. Closing headcount for the
year was 4,397 (2018: 5,020).
Other operating costs decreased by £7 million to £765 million (2018: £771 million) of which £3 million
relates to landlord compensation payments, with other controlled cost savings noted, especially in IT.
Depreciation and amortisation charges increased to £94 million (2018: £55 million); a number of
significant assets under construction came into use during the year and are now being depreciated,
Exceptional costs
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Joint venture
Post Office Limited has a joint venture with the Bank of Ireland with each holding 50% of First Rate
Exchange Services Holdings Limited. The principal activity of the business is the supply of foreign
exchange in the UK to the Post Office and others. The share of operating profit from the joint venture
was £33 million (2018: £34 million)
Capital and investment costs
Investment costs included in the consolidated income statement are shown below:
2019 =. 2018
£m £m
Investment funding 168 70
Restructuring
Business transformation (14) (16)
Network programmes (64) (63)
IT transformation (23) (6)
Severance (38) a7)
Total restructuring costs (229) (102)
Unwinding of discount on provisions @ (2)
Total investment income/(charge) 38 (4)
Restructuring costs include the costs of delivery for major change programmes. In addition, we have
incurred £154 million (2018: £151 million) of capital spend, primarily on IT transformation projects, as
disclosed in notes [X] and [X]
These are offset by Government funding, recognised to match the associated costs. Government
fundingGovernment funding for 2018/19 of £168 million (2018: £70 million) was received in quarterly
instalments and was fully recognised in the year.
BEIS has approved funding of up to £210 million which is available for the period from April 2018 to
March 2020. The maximum available in 2018/19 was £168 million and this was received in full
Post Office Limited
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Cash flow and net debt
I Cash and cash equivalents amounted to £54360 million (2018: £655 million) at the year-end. There
was a net cash outflow during the year of £95342 million (2018: £25 million).
Net debt (excluding cash in the Post Office network) decreased by £66 million year on year as shown
in the table below.
2019 2018
em £m
BEIS loan at the start of the year (623) (561)
Investment funding 168 70
Restructuring costs (119) (116)
Other cash inflows from operating activities 5134 66
Net cash inflow from operating activities 10083 20
Dividends received from joint ventures 33 34
Acquisition of businesses (17) (6)
Proceeds from the sale of property, plant and equipment 4 5
Purchase of tangible and intangible non-current assets (149) (135)
Net cash outfiow from investing activities (129) (102)
Net cash outflow from financing activities (8) (5)
I _Decrease in cash and cash equivalents 95412 25
BEIS loan at the end of the year (565) (623)
Cash (excluding cash in the Post Office Network) 24 12
Total net debt carried forward at the end of the year (541) (611)
Post Office Limited seeks to minimise the amount drawn down on the loan from BEIS in order to
reduce its interest cost. The facility is limited to a maximum of £950 million, the unused facility at the
end of the year was £385 million (2018: £327 million). The maximum drawn down under the facility
during the year was £744 million on 13 April 2018. The facility is available at two days’ notice and has
an end date of 31 March 2021
Post Office Limited’s borrowing facility from the Government limits the purposes for which the facility
can be used and, together with borrowing limits contained in the Articles of Association, imposes
constraints on the availability of external borrowing.
The Bank of England Note Circulation Scheme
The continued participation in the Note Circulation Scheme (“NCS”) assures that Post Office Limited has
an adequate supply of notes to meet customer demand across its network and provides a mechanism
for enabling Post Office Limited to hold Bank of England owned notes. At the end of the year £227 million
(2018: £238 million) of Bank of England owned notes were held. See note 22 on page [XX] for further
details on the NCS.
Post Office also has an arrangement in Scotland with a commercial banking partner whereby surplus
‘Scottish notes are sold to the partner overnight for repurchase the next day. At the end of the year a
total of £3 million (2018: £17 million) was outstanding under this arrangement.
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Pensions
Post Office Limited is the principal employer of the Post Office Section of the Royal Mail Pension Plan
(°RMPP”), which is independent of the Royal Mail section of the RMPP. Royal Mail Group Limited is the
principal employer of the Royal Mail Senior Executives Pension Plan ("RMSEPP”) and Post Office Limited
is a participating employer within RMSEPP. RMPP and RMSEPP are both defined benefit plans. The Post
Office operates a defined contribution scheme ~ the Post Office Pension Plan.
Both defined benefit plans are closed to new members and closed to future accrual
In 2016/17, a Memorandum of Understanding was executed by Post Office with the Trustee of RMPP,
This removed the unconditional right to refund from the RMPP. As a result of these events the surplus
relating to this Plan was derecognised.
In 2017/18, the Trustees of the pension scheme entered into an agreement with Rothesay Life PLC in
which a pension buy-in was effected by the purchase of two bulk annuities. Under the purchase
agreements, the Trustees of the pension plan bought an asset that provides income which matches
closely the benefit payments from the pension plan, achieving a material risk reduction as changes in
Income mirror changes in benefits due to, for example, inflation and longevity.
The accounting surplus reduced by the difference between the insurance premium and the value of the
insured liabilities, creating a ‘loss’ on buy-in. There was also an ancillary premium as part of the buy-in
agreement which transferred to the insurer the risk of incorrect data being used to price the premium.
These items were recognised in Other Comprehensive Income in 2017/18. As Post Office had no right
to a future surplus in the scheme, there was an equal and opposite adjustment to the asset ceiling
through Other Comprehensive Income. As a result, there was no effect on the net assets position of the
Group.
The immaterial deficit payments into RMSEPP were agreed with the pension trustees during the year
and payments were made in accordance with the agreements. The net cash payments made are detailed
below
2019-2018
£m £m
Regular pension contributions (20y (20)
Funding of the pension deficit - RMSEPP - (1)
Payments relating to redundancy @) (5)
Net cash payments (21) (26)
The income statement charge to trading for the year was £13 million (2018: £17 million) in relation
to the defined contribution scheme. There was no charge (2018: Enil) in relation to the defined benefit
scheme.
Alisdair Cameron
Interim Chief Executive
XX XXX 2019
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Governance
Corporate Governance
Legal Ownership and Structure
Post Office Limited ("the Company”) is ‘Secretary of State for Business,
wholly owned by the Department for Energy & Industial Strategy
Business, Energy and Industrial
Strategy ("BEIS"). BEIS holds a special Post Office Limited
share in the Company the rights of
which are enshrined within the Post
Office Limited Articles of Association ere Rate Exchange Serves ‘fom Cfica Management Servces Payzore bel Payments
(http://corporate.postoffice.co.uk/our- _.sens\ure (MS) women et
leadership). —s-
BEIS has no day to day involvement in
the operations of the Company or in "Seaman
the management of its branch network aT
and staff. Through UK Government Investments ("UKGI”), BEIS monitors the Company's performance,
in particular its compliance with minimum network access criteria and provision of specified services.
BEIS has the right to appoint Non-Executive Directors to the Board and typically appoints a UKGI
employee for this purpose. Tom Cooper currently holds this position.
Corporate Governance Overview 2018/19
The Company maintains standards of corporate governance appropriate for our ownership structure,
commitment to social purpose and strategy to achieve commercial sustainability. We review our
corporate governance arrangements to ensure they remain appropriate for our developing business
needs and relevant legal and regulatory advances.
Board of Directors
The Board is responsible for setting the business’ strategic aims, putting in place the leadership to
deliver them, maintaining appropriate oversight of the management of the business, reporting to the
Shareholder and determining the Company's vision, values and organisational culture.
During 2018/19 the Board comprised an independent Non-Executive Chairman, the Group Chief
Executive, the Chief Finance and Operating Officer and five Non-Executive Directors (one of whom is
designated the Senior Independent Director and four of whom are independent). Non-Executive
Directors are not employees of Post Office Limited but provide services under the terms of an individual
letter of appointment, signed at the commencement of their directorship.
Directors’ statutory duties are set out in the Companies Act 2006. The primary duty of the Directors
is to promote the success of the Company for the benefit of its Government shareholder and the
stakeholder community,
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Tab 6 Annual Report and Accounts 2018/19
Tim Parker, Independent
Chairman, Chairman of the
Nominations Committee and
member of the Remuneration
Committee
Joined the Board 1 October 2015
Alisdair Cameron, Chief Finance
and Operating Officer throughout
the 2018/19 financial year and
Interim Chief Executive from 5
April 2019
Joined the Board 28 January 2015
I
Ken McCalll, Senior Independent
Director, Chairman of the
Remuneration Committee and
member of the Audit, Risk and
Compliance and Nominations
Committees
Joined the Board 21 January 2016
Tim Franklin, Non-Executive Director
and member of the Audit, Risk and
Compliance Committee
Joined the Board 19 September 2012
Shirine Khoury-Haq, Non-
Executive Director and member of
the Nominations and Remuneration
Committee
Joined the Board 24 May 2018
i
Carla Stent, Non-Executive Director
and Chairman of the Audit, Risk and
Compliance Committee
Joined the Board 21 January 2016
Tom Cooper, Non-Executive
Director, and member of the Audit,
Risk and Compliance and
Remuneration Committees
Joined the Board 27 March 2018
Paula Vennells, Group Chief
Executive, throughout the 2018/19
financial year*
Joined the Board 18 October 2010
Company Secretary:
Veronica Branton
Appointed as Company Secretary XX
fx 2019
Jane Macleod
Served as Company Secretary
from her appointment on 30
August 2017 until 31 May 2019
‘Paula Vennells resigned as Group Chief Executive on 30 April 2019.
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Non-Executive Directors are usually appointed for an initial term of three years with the scope to
renew for a second term, subject to Board approval and the approval of BETS. Ken McCall and Carla
Stent were reappointed for a second term of three years on 29 January 2019 as Senior Independent
Director and Non-Executive Director, respectively. As the Board representative of UKGI, Tom
Cooper's appointment period is determined by the Secretary of State for BEIS.
Biographies of all current members of the Board can be found on the Post Office Limited website:
corporate. postoffice.co.uk/our-leadership.
Board
Role and responsibilities
The Board is accountable to the Secretary of State for BEIS, as the sole shareholder, for the
performance of the Company and is required to seek consent for certain matters, as included in the
Articles of Association. The Shareholder is briefed regularly on the performance of the business and
the progress to deliver the strategy.
The Board is also responsible for oversight of legal and regulatory compliance, delivery of the
strategy, providing constructive challenge to the Group Executive and communicating with the
Shareholder. The Board has a schedule of matters reserved for its decision and has approved Terms
of Reference for its committees, which are available on the Post Office website.
‘The Board annually reviews the strategy, approves the annual budget and business plan required to
deliver the strategic objectives for that year; the last approval was in [May 2019]. The Board
regularly reviews reports on performance against that plan and receives periodic business reports
from senior management. Directors are briefed on matters to be discussed at Board and Committee
meetings by papers distributed in advance of meetings, as well as management presentations.
In setting the risk appetite for Post Office Limited the Board has established a framework to manage
and mitigate risk. The Board takes guidance from its Audit, Risk and Compliance Committee, and
has oversight of risk management. This Committee receives reports from the executive Risk and
Compliance Committee, from the internal and external audit teams and from operational
management. Further detailed information on the management of risk within Post Office Limited,
together with identification of principal risks, their impacts and mitigation can be found in the
management of risk section on pages [XX] to [XX].
Key focus and achievements in 2018/19
During the year to 31 March 2019, the Board continued to oversee the Post Office Limited’s strategic
plan to achieve commercial sustainability and profitability.
This included project approvals, monitoring of developments in IT strategy, and services in the digital
space. These developments are designed to enhance customer experience and offer services that
meet customer needs in a digital age while continuing to serve our social purpose.
The Company acquired Payzone Bill Payments Limited on 24 October 2018. The business has over
25 years’ experience in the bill payments industry and offers payment terminals for bills, tickets,
lottery and mobile top up in convenience stores, enabling these businesses to generate revenue and
increase footfall.
The Board approved the appointment of new external auditors, following the resignation of Ernst &
Young LLP. PricewaterhouseCoopers LLP were appointed as the Company's external auditors on 31
July 2018 following a tender process.
The Board also focused on a revised banking framework to provide banking services in Post Office
branches on behalf of UK banks and approved investment for the Branch Hub (a self-service portal
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Tab 6 Annual Report and Accounts 2018/19
for branch operators and business owners to access support).
The Board continued to monitor the progress of the ongoing Group Litigation Order.
Conflicts of Interest and Independence
The Board may, in the furtherance of its duties, seek independent professional advice at the expense
of Post Office Limited. During the period, no Director sought independent professional advice.
In accordance with the Companies Act 2006, the Articles of Association give the Directors power to
authorise conflicts of interest.
During the period, none of the Directors had a material interest in any contract of significance with
Post Office Limited or any of its subsidiaries. At all times during the periods of their appointments in
2018/19, the independent Directors met the criteria for independence set by the Board.
Post Office Limited has arranged appropriate insurance cover in respect of legal action against
Directors of Post Office Limited and its subsidiaries.
Tim Parker, Ken McCall, Tim Franklin, Shirine Khoury-Haq and Carla Stent are considered
Independent Non-Executive Directors. Tom Cooper is not an independent Non-Executive Director as
he is a shareholder representative. Paula Vennells and Alisdair Cameron held executive roles
throughout the financial year, and as such were not independent directors.
Board Meetings
During 2018/19 the Board met 8 times (including additional meetings held either in person or by
telephone). A record of Directors’ attendance (attended/eligible to attend)? at the Board and its
Committees is set out in the table below:
Director Board Board Audit, Risk and Nominations Remuneration
(additional) Compliance Committee Committee
Committee
Chairman
Tim Parker a8 TBC - 4/4 6/6
Executive Directors
Paula Vennells 718 Tac - - -
Alisdair Cameron 8 TBC - - -
Non-Executive
Directors
ken McCall 8/8 Tec 4s 4/4 6/6
Tom Cooper 8/8 TBC 5/5 - 5/6
Tim Franklin a8 TBC 4/5 - -
Shirine Khoury-Haq a8 TBC - 3/4 5/6
Carla Stent 8/8 TBC 5/5 - -
2 Directors who are not members of a committee may attend meetings from time to time, at the invitation of,
the Chair.
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Committees
To assist in the execution of its corporate governance responsibilities, the Board has established
three committees which deal with specific topics requiring independent oversight. The Audit, Risk
and Compliance, Nominations, and Remuneration Committees are each chaired by an independent
Non-Executive Director.
The Board retains overall oversight but delegates responsibilities and authorities to its committees
to operate within the Terms of Reference approved by the Board. The Terms of Reference for all
committees are reviewed annually to assess that each Committee discharged its duties effectively in
accordance with the Terms of Reference. The reviews conducted in March 2019 raised no issues.
Terms of Reference for the committees are available on the Post Office Limited website:
www.corporate.postoffice.co.uk/our-leadership.
Nominations Committee
Role and Membership
The duties and responsibilities of the Nominations Committee are included in the Terms of Reference,
which are available on the Post Office Limited website: www.corporate.postoffice.co.uk/our-
leadership.
The Committee is chaired by Tim Parker, Chairman, and the other members during the year were
Shirine Khoury-Haq, Non-Executive Director and Ken McCall, Senior Independent Director.
Work of the Committee in 2018/19
During the year the Committee considered the skills and experience required by the Board for a new
Group Chief Executive and a new Non-Executive Director and worked with Russell Reynolds (search
consultants) on the proposed appointments. The Committee approved re-appointments to subsidiary
boards and the appointment of a new Chair of Post Office Management Services Limited.
The Nominations Committee monitored the independence and internal process for the evaluation of
the Board and Board sub-committees and considered developments in corporate governance and
how these should apply to the Company.
Remuneration Committee
Role and Membership
The duties and responsibilities of the Remuneration Committee are included in the Terms of
Reference which are available on the —Post-«Office_-—- Limited _—_ website:
www.corporate.postoffice.co.uk/our-leadership.
The Committee is chaired by Ken McCall, and the other members during the year were Tom Cooper,
Shirine Khoury-Haq and Tim Parker.
In accordance with the Terms of Reference, the Group Chief Executive may attend meetings, at the
invitation of the Committee Chairman, to discuss matters relating to the remuneration of the Chief
Finance and Operating Officer and members of the Group Executive. However, the Committee
recognises the need to manage any potential conflicts of interest and upholds the principle that no
individual may be involved in discussions concerning their own remuneration.
Work of the Committee in 2018/19
During the year the Committee reviewed and made recommendations to the Shareholder for the
2017/18 bonus payments against incentive plans for Executive Directors, annual pay increases for
Executive Directors and targets and measures for 2018/19. The Committee approved senior salary
pay changes, in line with increases provided to all employees, and pay at appointment where these
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Tab 6 Annual Report and Accounts 2018/19
were within its remit and delegated authority.
The Committee received updates and advice from the HR and Finance teams and from
PricewaterhouseCoopers LLP, its external adviser, on gender pay, market trends and benchmarking
information and corporate governance.
Audit, Risk and Compliance Committee
Role and Membership
The duties and responsibilities of the Audit, Risk and Compliance Committee are included in the
Terms of Reference which are available on the Post Office Limited website:
www.corporate.postoffice.co.uk/our-leadership.
The Committee is chaired by Carla Stent, Non-Executive Director, and the other members during the
year were Ken McCall, Senior Independent Director, Tom Cooper, Non-Executive Director and Tim
Franklin, Non-Executive Director.
The Board considers that the Committee’s members have broad commercial knowledge and
extensive business leadership experience and that this constitutes an appropriate mix of business
and financial experience and expertise.
The Directors of Risk & Compliance and Head of Internal Audit attended all of the meetings of the
Committee and also met the Committee Chairman, independently and regularly, throughout the year.
The external auditor was invited to, and attended, all meetings of the Committee except on 31 July
2018, where the Committee recommended to the Board the appointment of new external auditors
PricewaterhouseCoopers LLP.
Further detailed information on the management of risk within Post Office Limited, together with
identification of principal risks, their impacts and mitigation, can be found in the Management of Risk
section on pages [XX] to [XX].
Work of the Committee in 2018/19
During the year, the Committee reviewed the Annual Report and Financial Statements for 2017/18,
including consideration of the principal and strategic risks, and recommended Board approval.
The Committee approved the annual audit plans for the internal and external auditors.
The Committee reviewed the risk management framework for the Company, including its appetite
for risk, self-assessment of the control framework and areas of specific risk highlighted by the
Executive Risk and Compliance Committee. It reviewed and approved relevant policies, such as
financial crime and protecting personal data, as part of an annual review cycle.
Board and Committee Effectiveness Evaluations
The Board recognises that an effective Board is vital to the success of the Company and the business.
Ken McCall, Senior Independent Director, led an internal Board effectiveness evaluation in December
2018 which included a formal evaluation of the performance of the Board, Its Committees and the
Chairman.
The Board evaluation was conducted by internal questionnaire and, following a review of the results,
recommendations were presented to the Board. The feedback and scores were positive but areas for
additional focus were identified, including closer engagement with and understanding of
stakeholders’ perspectives, particularly postmasters and employees; the competitor landscape and
franchising models; and periodic scheduling of meetings without the executives.
As part of the Board review process, each Board Committee undertook a review of its effectiveness.
The feedback and scores were positive. Each Committee considered the feedback from the evaluation
and agreed actions. The Audit, Risk & Compliance Committee decided to increase the number and
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length of meetings held annually to reflect the range and scope of legal and regulatory compliance
and risk management issues across a span of business lines. It also agreed to hold separate meetings
with the Head of Internal Audit periodically. The Nominations Committee added a succession planning
review to its forward agenda and the Remuneration Committee commissioned a report on the group
remuneration framework and the approvals process.
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Management of Risk
Our Approach to Risk
The commercially competitive and highly regulated environment, together with operational
complexity, exposes the Post Office to a number of risks. We define risk as anything that can
adversely affect our ability to meet the Post Office's objectives, maintain its reputation and comply
with regulatory standards. We seek to understand and harness risk in the pursuit of our objectives
and aim to operate within an acceptable level of risk taking. The Post Office has articulated its risk
appetite in relation to the most material risks with a view to managing better the key strategic risks
and assessing the risks in relation to new opportunities.
Risk Management Governance
The Board is accountable for risk management and internal controls in the Post Office, reviewing
their effectiveness and determining the nature and extent of principal risks. The Board has delegated
responsibilities to the Audit, Risk and Compliance Committee ("ARC"), which provides assurance to
the Board through review of reports from management, risk, internal audit external advisers and
external audit. Responsibility for day to day operations rests with the Group Executive. The Risk and
Compliance Committee ("RCC") reviews the effectiveness of the risk management framework and
management of principal risks. The outputs are reported to the ARC as necessary.
Our Risk Management Framework
In order to deliver its objectives, the Post Office is required to identify, assess and manage a wide
range of risks. These are managed through an overarching framework in order to apply consistency
and transparency of risk management across the organisation. The framework identifies roles and
responsibilities of key parties in the risk management process, the policies for how risks are
managed, the tools and processes used and the reporting outputs that are generated.
The approach to risk management is based on the underlying principle of line management
accountability for effective implementation of internal controls to manage risk. The Group Executive
has Identified and manages the principal risks in the organisation, focusing on the aims of the
strategic plan. These risks, with their response plans, are reviewed by the Central Risk team and at
the RCC and the ARC to assure the robustness of risk assessment and management. There is an
‘ongoing process of identifying, evaluating and managing the principal risks faced by Post Office.
During the year we have further improved our oversight over the level of risks being taken across
Post Office and effectiveness of our mitigating actions, including close monitoring of emerging risk
themes and incidents. Plans are also in place to fully refresh risk appetite to better inform decision
making. This is a component within our wider enhancement plan to continue maturing our Risk
Management framework.
Our Control Framework
We have an internal control framework in place for both our financial reporting and IT processes,
which fall under our self-assessment regime. In addition, we have implemented a suite of Post Office
policies which define the minimum control standards we expect to be performed within the applicable
business areas. Our risk management efforts are also underpinned by our Executives’ Declaration.
What has changed since last year?
Our principal risks evolve overtime, as we progress with the North Star strategy and business plan,
new risks emerge and our mitigation activities adapt. Health and Safety has become a new principal
risk this year, reflecting the high importance we place on the safety. Litigation is also new, due to
the change in posture. The level of risk has increased for Economic and Political environment, in
response to the ongoing political and economic uncertainty. Dependency on strategic relationships
remains a principal risk and is in an improving position. We have invested considerably in Technology,
Business Interruption and Cyber and this principle risk is improving. Both our Retail Proposition and
Regulatory Environment risks are stable. Our Retail Proposition remains fundamental to enabling us
to continue to successfully deliver our social purpose and the regulatory environment continues to
evolve and introducing new ways of doing business.
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Our Principal Risks and Mitigations
These are our principal risks, detailed with their potential consequences if they were to crystallise
and how the Post Office manages them. Any of these risks could have a material impact on our
results, condition and prospects. However, these risks should not be regarded as a complete and
comprehensive statement of all potential risks; some risks are not yet known and some that are not
considered material could later turn out to be material. Our principal risks are regularly re-evaluated
and discussed at both a Board and GE level.
Principal Risk / Movement
Potenti:
Consequences
Key Mitigations
STRATEGIC RISKS
Dependency on Strategic
Relationships
Post Office has a number of
strategic relationships which
are key to delivering its growth,
and strategic ambitions. The
number of such relationships isI
increasing.
We work with our partners to
align our direction and
interests to enable us to meet
evolving customer and market
requirements and any
misalignment.
Not achieving our
strategic ambitions,
losing revenue and
market share.
+ We have established close working
relationships with our strategic
partners underpinned by formal
governance and reporting mechanisms.
These ensure commercial objectives
are aligned and relationship deliver to
expectation.
* Regular interaction with strategic
partners to improve joint operating
efficiency, product offering and service
to drive growth and profitability for all
parties. This includes regular
engagement at Chief Executive Officer
/ Managing Director level.
+_We review the relationships with our
strategic partners on a regular basis, to
ensure long term alignment, with our
customer and business outcomes.
-
Post Office are committed to
maintaining a Retail network
of at least 11,500 branches.
Critical to this objective is
offering an attractive
proposition for our retail
partners and to continue to
operate Post Offices in
‘communities who need us.
We continue to review and
develop our proposition to
enable us to continue to
successfully deliver our social
purpose, which addresses the
impact of:
‘+ Increased high street costs;
‘+ ongoing move to online;
and
+ a decline in traditional
income streams.
Tnability to meet
our network
‘commitment, and
consequent
adverse impact on
delivery of our
social purpose and
consequential
financial impacts.
I> We are continuing to open branch
locations where there is a customer
need, adding 328 ‘new network
locations’ in 2018/19. We are also
continuing to improve our support to
existing postmasters and have
strengthened our field support team this
year.
New technology will help our
postmasters manage costs and our
business remain relevant to customers
and we are investing in the next
generation of automation for our
branches as well as further developing
the software that will allow retailers to
sell Post Office products on their own
tills.
J+ We are developing 15 pilot locations for
Post Office Parcel Shop and are
continuing to develop automated locals,
with the first proof of concept branch.
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Tab 6 Annual Report and Accounts 2018/19
Principal Risk / Movement
Potential
‘Consequences
Key Mitigations
STRATEGIC RISKS
Economic and Political
Environment
Current uncertainties in the
external political, economic
and social environment could
have a detrimental impact our
strategy and operating model
significantly:
Brexit itself represents a
potential series of risks which
would be most pronounced in
the event of a no-deal
departure from the EU (see
below), but has also taken a
very serious toll on all aspect
of Government and politics
more broadly. There remains a
possibility that the current
impasse will increase the
pressure for a General
Election, with the attendant
risk that Government and our
Shareholder’s priorities will
change in favour of a Labour
agenda, with significant
implications for the business.
Examples include the
implementation of Labour's
proposals for the
renationalisation of RMG, and
the creations of a Post Bank.
t
t
Spending patterns
of our customers
during economic
uncertainty and
potential downturn
of the economy
e.g. decline in the
sale of banking
products,
particularly
mortgages.
Disruption to
operations
(customs labels in
branch,
accessibility issues
for supply chain)
Financial resilience
of our postmasters
and suppliers.
Retention of skilled
labour and
recruitment.
New income
streams failing to
grow.
We regularly perform horizon scanning
to identify external events and assess
their potential impact on our business.
Our strategy considers customer
requirements, market trends and
competitor behaviour.
We continue to invest in the
development of our digital capability.
In terms of Brexit arrangements, PO
have communications, training and
contingency processes in place to
deploy in the event of a ‘no deal’.
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OPERATIONAL AND FINANCIAL RISKS
Health and Safety INEWI
Due to Post Office’s wide reach NEW
through the size and operation
of its Network including fleet,
it is essential we invest in our
safety procedures and
controls.
Ahealth and safety incident or
failure could result in serious
injury, ill health or loss of life.
Post Office Limited
Exposure to
significant costs for
reimbursement for
damages and
remediation,
operational
disruption,
prosecution and
reputational
damage.
We have regular Health & Safety training
provided to all colleagues and managers
including Directly Managed Branches andI
Supply Chain Managers.
We regularly review, update and
monitoring of Local Risk Assessments
and safe systems of work.
We have developed a Road Risk Policy.
We regularly review our Health & Safety
policy and Property Statutory
Compliance policies.
Our Health & Safety Management
System has been independently audited
and assessed as strong and
mature. Initiatives recommended to
further strengthen our safety culture
have been implemented.
An Independent Risk Assessment of high
risk building fabric has been undertaken
and remediation actions completed.
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Tab 6 Annual Report and Accounts 2018/19
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Potential
Principal Risk / Movement
Consequences
Key Mitigations
We undertake a dynamic risk
assessment, work closely with industry
experts and bodies and have invested
heavily in security related interventions
to reduce the risk of attack and assault
across the Network and Supply Chain.
[TECHNOLOGY AND INFORMATION SECURITY RISKS
‘Technology, Business
Interruption and Cyber
ea A
Post Office is dependent on theI
continued effectiveness,
availability, integrity and
security of its information
systems and associated
infrastructure.
Post Office, in common with
other businesses, is continuing
to track the threat “universe”
and is aware of increasing risk
from cyber-attackers
particularly nation states)
seeking to undermine
businesses, government and
utilities.
‘our network
availability and
Fs
J
in adverse
and financial
performance
and/or reputati
A cyber-attack
could threaten
confidentiality,
integrity and
systems.
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Direct impact on
reliability resulting
customer service
availability of our
«We are continuing to mitigate this risk
by migrating some of our aging legacy
systems to new infrastructure and this
will continue through 2019/20.
We regularly evaluate the adequacy of
our IT infrastructure and related
controls.
We regularly meet with our key third
parties to ensure they fulfil thelr
obligations covering the security,
resilience and availability of our IT
systems and Infrastructure.
We have introduced a Security
Improvement Plan enabling our third
party suppliers to use their security
experience to identify a gap or
improvement to a security process or
tool that Post Office has not identified,
improving our partnership and utilise
their experiences to improve our
overall security posture.
We have policies in place for cyber,
disaster recovery, information security
and acceptable use.
We monitor and provide assurance
against the minimum controls defined
in these policies.
A Security Operations Centre has built
enabling our IT Security Team to
assess and manage vulnerabilities,
identify and mitigate the risk of cyber-
attacks.
We continue to further invest and
further mature our cyber defences
including:
increasing capability within our
security operations; and
> cultural awareness around data
protection.
ion.
the
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6
Tab 6 Annual Report and Accounts 2018/19
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of Justice, Queen’s Bench
Division (“The Post Office
Group Litigation”).
Potential
Principal Risk / Movement Consequences Key Mitigations
ILEGAL & REGULATORY RISKS.
I I Group Litigation JNEWI Legal findings and I Post Office has instructed specialist
Post Office Limited is the court orders which I legal advisors to advise on and conduct
defendant in Bates & Others v. have an adverse its defence of the litigation, subject to
Post Office Limited, Claim Nos. impact on financial I__ senior management oversight.
HQU6X01238, HQ17X02637 & performance —
HQ17X04248 in the High Court: and/or reputation.
Regulatory Environment oe Fines, penalties,
Post Office operates under an litigation and a
extensive and evolving resulting adverse
regulatory environment, impact on financial
including areas such as performance
financial services, transactional and/or reputation.
services, postal services,
telecoms, procurement,
competition law, and data
security. This environment
continues to evolve,
particularly in the financial
services (e.g. HMRC’s
requirements around Anti
Money Laundering controls,
location fees as well as Fit and
Proper) and telecoms space,
which increases the risk of
non-compliance, costs and
could impact our financial
performance.
We have open dialogue with key
regulators to understand and clarify
expectations.
We regulatory perform horizon
scanning to anticipate future
requirements and planning with each
business area to undertake
appropriate solutions.
On-going training is provided to staff
and retail partners on legal and
regulatory matters.
Regulatory obligations are supported
by policies which define minimum.
controls that must be operated to
mitigate risks.
Internal and external programmes are
In place to provide assurance on
regulatory compliance.
Post Office Limited
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Tab 6 Annual Report and Accounts 2018/19
Directors’ Report
The Directors present the Group Annual Report and Financial Statements and Company Financial
Statements for the year ended 31 March 2019.
Expected future developments
Expected future developments are detailed in the Chief Executive's statement on page [X].
Results and dividends
The profit after taxation for the year was £52 million (2018: £17 million). The Directors do not
recommend the payment of a dividend (2018: £nil).
Political contributions
No political contributions were made in the year (2018: Enil).
Research and development
We submitted our first research and development claim during 2018/19 in respect of 2017/18
and 2016/17. The claim relates to IT transformation projects.
Directors and their interests
The following served as Directors during the year:
TC Parker PA Vennelis (resigned 30 April 2019)
ACJ Cameron TK G Cooper
TA Franklin S Khoury-Haq
KS McCall CR Stent
VA Holmes (resigned 27 March 2018) RJ Callard (resigned 27 March 2018)
No Director has a beneficial interest in the share capital of Post Office Limited. The emoluments
of Directors are set out in note [5] to the financial statements on pages [KX] to .
People
People are critical to our success, whether in branch or in our offices. To attract and retain the
right people we:
* Conduct regular employee surveys and use the feedback to make improvements.
* Provide information regularly on company performance, policies and organisational
developments through our intranet, briefing sessions and company-wide emails.
+ Have a network of engagement champions representing the voices of colleagues from
each part of the business.
* Are committed to providing a safe working environment that promotes the health,
safety and wellbeing of employees. A range of services is provided to help all employees
stay mentally and physically healthy.
* Operate our Learning Academy to provide high quality learning for all employees and
postmasters, aiming to ensure that everyone is supported into reaching their full potential.
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Tab 6 Annual Report and Accounts 2018/19
* Invest in developing the best talent to support our business, including graduate
recruitment and active participation in the apprenticeship programme, available
for new and existing colleagues.
* Promote diversity and inclusion and celebrate the diversity of the workforce and
communities we serve. We have a number of active employee network groups such as:
Women in Leadership, to support and nurture female talent; Prism, which supports and
celebrates our LGBT+ community; BAME (supporting Black, Asian and Minority Ethnic
colleagues) and Return to Work (supporting colleagues returning to work after maternity,
other parental leave and long term absences).
* Proactively communicate that we are a Disability Confident Leader and actively try to
attract talented people to Post Office from diverse backgrounds. We do this through our
corporate careers page, recruitment agencies and other attraction channels such as
Vercida who are the world's leading diversity and inclusion employer brand platform.
* Ask all applicants to inform us of any reasonable adjustments we can make to ensure they
are not disadvantaged due to a particular disability during the selection process.
* Require all Hiring Managers to complete Effective Interviewing and Unconscious Bias
Training to ensure a consistent, fair and unbiased selection process takes place.
* Do not tolerate any form of bullying, harassment, victimisation or discrimination whether
written, verbal, visual or physical. We are committed to taking the necessary action to
ensure that they do not occur, or where they do occur that they are dealt with quickly and
eliminated, by following a consistent, fair and robust Bullying and Harassment Policy and
Procedure. All managers are required to complete Dignity at Work training to ensure they
understand their responsibilities and that they demonstrate the correct behaviours and
treat everyone with dignity and respect at all time.
Disabled employees
As noted above, the Post Office Limited has been recognised as a Disability Confident Leader. We
have a Disability Confidence networking group called ‘Be You’. This group provides support and
advice and helps the business to do the best it can for employees with disabilities. We also make
necessary adjustments for colleagues who are disabled or become disabled during the course of
their employment to allow them to carry out their role and fulfil their potential, including any
specific training needs.
Gender pay gap
Gender pay is not the same as equal pay. Equal pay is about ensuring men and women are paid
the same for work of equal value, as set out in the Equality Act 2010. At Post Office we support
equal pay through a robust job evaluation process that is free from gender bias.
The gender pay gap relates to the difference between the gross hourly pay of all men and the
gross hourly pay of all women across the organisation. The difference between gender pay and
equal pay is important to understand as you can have a gender pay gap without having equal pay
issues. At Post Office we recognise that more needs to be done to reduce the gender pay gap and
we are committed to doing so.
We continue to make progress. Our gender pay gap Is 0.5% lower than last year, and smaller
than the UK average. We are closer to our goal of filling 50% of senior manager roles with women
which was 39% in our last report and is currently 43%. The number of women holding mid-level
managerial roles has risen by a third in the last year. We provide tailored coaching and mentoring
for female colleagues and run recruitment programmes to encourage more women to pursue
careers in IT and Finance. Our commitment has been recognised by The Times as we made their
list of Top 50 Employers for Women for the third time.
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Both our mean and median hourly gap has reduced. Our median gender pay gap Is 7.9%, (as
compared with the national figure of 18.4%) and our mean gender pay gap Is 17%. The main
reason for the gap is the lower proportion of women in senior roles relative to men. Another
reason Is part-time working ~ 45% of female colleagues work part-time, compared with only 12%
male colleagues. This especially impacts the bonus pay gap.
However, we are not complacent. There is still work to do to ensure women at Post Office realise
their potential. We are taking actions to reduce the gender pay gap further, such as continuing
to offer tailored mentoring to female colleagues and making sure we have 50/50 gender balanced
shortlists for senior level vacancies and for our next graduate intake. Above all else, we continue
to listen to our colleagues and understand what they need to help them to flourish. We will use
these conversations, alongside the data contained in our full gender pay report, to improve again
next year. Because it is the right thing to do - for the future of Post Office and our people. For
our full gender pay report please see: http://corporate.postoffice.co.uk.
Post balance sheet events
In accordance with the funding agreement with Government, Post Office Limited received a
Network Subsidy Payment of £17.5 million on 2 April 2019. The Network Subsidy Payment is
received on a quarterly basis and a total of £50 million will be received from Government in
2019/20.
Going concern
After analysis of the financial resources available and cash flow projections for Post Office Limited,
the Directors have concluded that it is appropriate that the financial statements have been
prepared on a going concern basis. Further details are provided in accordance with the
fundamental accounting concept in note 1 to the financial statements on page [XX].
Financial instrument risk
The exposure of the Group to market risk, credit risk and liquidity risk has been disclosed in note
16 to the financial statements on pages [XX] to [XX].
Audit information
‘The Directors confirm that, so far as they are aware, there is no relevant audit information of
which the auditor is unaware, that each Director has taken all reasonable steps to make
themselves aware of any relevant audit information and to establish that the auditor is aware of
that information.
Auditor
PricewaterhouseCoopers LLP were appointed as the Company’s external auditors on 31 July 2018
following a tender process.
By Order of the Board
Veronica Branton
Company Secretary, Post Office Limited (Company Number
2154540) Finsbury Dials, 20 Finsbury Street, London EC2Y 9AQ.
2019
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Registered Number 2154540
Post Office Limited
Annual Report
& Consolidated Financial
Statements
2018/19
PRESENTED TO PARLIAMENT PURSUANT TO
SECTION 77 OF THE POSTAL SERVICES ACT 2000
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Tab 6 Annual Report and Accounts 2018/19
Financial Statements
Directors’ responsibilities statement
The Directors are responsible for preparing the Annual Report and the financial statements in
accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each financial 53 week
period. Under that law the Directors have prepared the Group financial statements in accordance
with International Financial Reporting Standards (IFRSs) as adopted by the European Union and
Company financial statements in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure
Framework”, and applicable law). In preparing the Group financial statements, the Directors have
also elected to comply with IFRSs, issued by the International Accounting Standards Board (IASB).
Under Company law the Directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of affairs of the Group and Company and of
the profit or loss of the Group and Company for that period. In preparing the financial statements,
the Directors are required to:
e select suitable accounting policies and then apply them consistently;
« state whether applicable IFRSs as adopted by the European Union and IFRSs issued by IASB
have been followed for the Group financial statements and United Kingdom Accounting
Standards, comprising FRS 101, have been followed for the Company financial statements,
subject to any material departures disclosed and explained in the financial statements;
« make judgements and accounting estimates that are reasonable and prudent; and
* prepare the financial statements on the going concern basis unless it is inappropriate to
presume that the Group and Company will continue in business.
The Directors are also responsible for safeguarding the assets of the Group and Company and
hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for keeping adequate accounting records that are sufficient to show
and explain the Group and Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Group and Company and enable them to ensure that the financial
statements comply with the Companies Act 2006.
The Directors are responsible for the maintenance and integrity of the Company’s website.
Legislation in the United Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Directors’ confirmations
In the case of each Director in office at the date the Directors’ Report is approved:
eso far as the Director is aware, there is no relevant audit information of which the Group and
Company’s auditors are unaware; and
e they have taken all the steps that they ought to have taken as a Director in order to make
themselves aware of any relevant audit information and to establish that the Group and
Company’s auditors are aware of that information.
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Tab 6 Annual Report and Accounts 2018/19
Independent Auditor’s Report to the members of
Post Office Limited
In our opinion:
« Post Office Limited’s Group financial statements and parent Company financial statements (the
“financial statements”) give a true and fair view of the state of the Group’s and of the parent
Company’s affairs as at 31 March 2019 and of the Group’s and the parent Company’s profit and
the Group’s cash flows for the 53 week period (the “period”) then ended;
« the Group financial statements have been properly prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European Union;
« the parent Company financial statements have been properly prepared in accordance with
United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting
Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); and
«the financial statements have been prepared in accordance with the requirements of the
Companies Act 2006.
We have audited the financial statements, included within the Annual Report & Financial
Statements (the “Annual Report”), which comprise: the Group consolidated and Company balance
sheet as at 31 March 2019; the consolidated income statements and consolidated statement of
comprehensive income, the consolidated statement of cash flows, and the consolidated and
Company statements of changes to equity for the 53 week period then ended; and the notes to the
financial statements, which include a description of the significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”)
and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’
responsibilities for the audit of the financial statements section of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical
Standard, and we have fulfilled our other ethical responsibilities in accordance with these
requirements.
Conclusions relating to going concern
ISAs (UK) require us to report to you when:
« the Directors’ use of the going concern basis of accounting in the preparation of the financial
statements is not appropriate; or
« the Directors’ have not disclosed in the financial statements any identified material
uncertainties that may cast significant doubt about the Group’s ability to continue to adopt the
going concern basis of accounting for a period of at least twelve months from the date when
the financial statements are authorised for issue.
We have nothing to report in respect of the above matters.
However, because not all future events or conditions can be predicted, this statement is not a
guarantee as to the Group’s ability to continue as a going concern. For example, the terms on
which the United Kingdom may withdraw from the European Union are not clear, and it is difficult
to evaluate all of the potential implications on the Group’s trade, customers, suppliers and the
wider economy.
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Independent Auditor’s Report to the members of Post Office Limited (continued)
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial
statements and our auditors’ report thereon. The Directors are responsible for the other
information. Our opinion on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated
in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with
the financial statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated. If we identify an apparent material inconsistency or material misstatement,
we are required to perform procedures to conclude whether there is a material misstatement of the
financial statements or a material misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the
disclosures required by the UK Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit,
ISAs (UK) require us also to report certain opinions and matters as described below.
Strategic Report and Directors Report
In our opinion, based on the work undertaken in the course of the audit, the information given in
the Strategic Report and Directors’ Report for the period ended 31 March 2019 is consistent with
the financial statements and has been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the Group and its environment obtained in the
course of the audit, we did not identify any material misstatements in the Strategic Report and
Directors’ Report.
Responsibilities of the Directors for the financial statements
As explained more fully in the Directors’ Responsibilities Statement set out on page [XX], the
Directors are responsible for the preparation of the financial statements in accordance with the
applicable framework and for being satisfied that they give a true and fair view. The Directors are
also responsible for such internal control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s
ability to continue as a going concern, disclosing as applicable, matters related to going concern
and using the going concern basis of accounting unless the Directors either intend to liquidate the
Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsi ies for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on
the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditors’ report.
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Tab 6 Annual Report and Accounts 2018/19
Independent Auditor’s Report to the members of Post Office Limited (continued)
Use of this report
This report, including the opinions, has been prepared for and only for the parent Company’s
members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no
other purpose. We do not, in giving these opinions, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into whose hands it may come
save where expressly agreed by our prior consent in writing.
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
«we have not received all the information and explanations we require for our audit; or
« adequate accounting records have not been kept by the parent Company, or returns adequate
for our audit have not been received from branches not visited by us; or
« certain disclosures of Directors’ remuneration specified by law are not made; or
e the parent Company financial statements are not in agreement with the accounting records and
returns.
We have no exceptions to report arising from this responsibility.
Andrew Paynter (Senior statutory auditor)
for and on behalf of PricewaterhouseCoopers LLP
Charted Accountants and Statutory Auditors
Leeds
XX XXXX 2019
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Tab 6 Annual Report and Accounts 2018/19
Consolidated Income Statement
for the 53 weeks ended 31 March 2019 and 52 weeks ended 25 March 2018
2019 2018
£m £m
Note Trading Investments Total Trading Investments Total
Revenue from contracts with
customers 972 2 972 956 . 956
Costs 24 (958) (129) (1,087) (960) (102) (1,062)
(Costs - exceptional items 19 (14) - (14) (3) = (3)
Total costs (972) (129) (1,101) (963) (102) (1,065)
Other operating income 14 - 14 § - 5
Investment funding 4 - 168 168 . 70 70
Network Subsidy Payment 60 - 60 70 - 70
Depreciation and amortisation 8,9 (94) - (94) = (55) - (55)
Share of .
Shar ° of post tax profit from 10 a . BS 34 . 34
Operating profit / (loss) 3 13 39 52 47 (32) 15
Finance costs 6 (8) (1) (9) (5) (2) (7)
Profit / (loss) before taxation a 5 38 43 42 (34) 8
Taxation credit 7 9 : 9 9 * 9
Profit / (loss) for the 7 ae = = (34) -
financial year
For the year ended 31 March 2019 trading profit was £61 million (2018: £35 million).
Trading profit is one of the Group’s key financial measures and is calculated by taking operating
profit before depreciation, amortisation, exceptional items, investments and Network Subsidy
Payment. Further detail is given in note [23].
All amounts relate to continuing operations.
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Tab 6 Annual Report and Accounts 2018/19
Consolidated Statement of Comprehensive
Income
for the 53 weeks ended 31 March 2019 and 52 weeks ended 25 March 2018
2019 2018
Note £m £m
Profit for the financial year 52 17
Items that may be reclassified to profit or loss
Gain on cash flow hedge 16 3 -
Items that will not be reclassified to profit or loss
Re-measurements on defined benefit surpluses 17 (3) 2
Asset ceiling effect 17 1 (2)
Other comprehensive income 1 -
53 17
Total comprehensive income for the year
There are no other comprehensive income items that will be reclassified to the profit and loss in future
periods.
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Tab 6 Annual Report and Accounts 2018/19
Consolidated Statement of Cash Flows
for the 53 weeks ended 31 March 2019 and 52 weeks ended 25 March 2018
2019 2018
Note —m £m
Cash flows from operating activities
Operating profit 13 47
Total profit before investments 13 47
Adjustment for:
Share of profit from joint venture 10 (33) (34)
Depreciation and amortisation 8,9 94 55
Pension operating costs 17 13 17
Other gains and losses 7 -
Working capital movements: (30) (2)
‘Increase)/decrease in trade and other receivables (11) 5
Decrease in contract assets 5 -
Decrease in trade and other payables (26) (3)
Decrease/(increase) in inventories 1 (2)
Decrease in trading provision (1) -
ncrease/(decrease) in provisions for discontinued operations 2 (2)
Pension costs paid (21) (26)
Cash payments in respect of investments items: 49 (46)
nvestment funding 168 70
Restructuring costs (119) (116)
Surrender of tax losses to joint venture 8 9
Net cash inflow from operating activities 100 20
Cash flows from investing activities
Dividends received from joint ventures. 10 33 34
Acquisition of businesses (net of cash acquired) 20 (17) (6)
Proceeds from the sale of property, plant and equipment 4 5
Purchase of tangible and intangible non-current assets (149) (135)
Net cash outflow from investing act (129) (102)
Net cash outflow before financing act (29) (82)
Cash flows from financing activiti
Finance costs paid (8) (5)
Proceeds of borrowings from BEIS 14 (58) 62
Net cash (outflow) /inflow from financing activities (66) 57
Net decrease in cash and cash equivalents (95) (25)
Cash and cash equivalents at the beginning of the year 12 655 680
Cash and cash equivalents at the end of the year 12 560 655
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Tab 6 Annual Report and Accounts 2018/19
Consolidated Balance Sheet
at 31 March 2019 and 25 March 2018
2019 2018
Note £m £m
Non-current assets
Intangible assets 8 291 264
Property, plant and equipment 9 176 148
Investments in joint venture 10 66 66
Retirement benefit surplus 17 1 3
Trade and other receivables 44 6 12
Total non-current assets 540 493
Current assets
Inventories 8 9
Trade and other receivables 11 344 324
Cash and cash equivalents 12 560 655
Total current assets 912 988
Total assets 1,452 1,481
Current lial ies
Trade and other payables 13 (533) (571)
Financial liabilities - interest bearing loans and borrowings 14 (565) (623)
Provisions 15 (50) (36)
Total current li (1,148) (1,230)
Non-current liabi
Other payables 13 (14) (18)
Provisions 15 (34) (30)
Total non-current liabi (48) (48)
Net assets 256 203
Equity
Share capital 18 - -
Share premium 18 465 465
Accumulated losses (214) (264)
Other reserves 18 5 2
Total equity 256 203
The notes on page [xx] to [XX] form an integral part of the consolidated financial statements.
The financial statements on pages [XX] to [XX] were approved by the Board of Directors on XX
XXX 2019 and signed on its behalf by:
ACJ Cameron
Interim Chief Executive
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Tab 6 Annual Report and Accounts 2018/19
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Consolidated Statement of Changes in Equity
for the 53 weeks ended 31 March 2019 and 52 weeks ended 25 March 2018
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Share Share = Accumulated Other Total
capital premium losses _ reserves equity
Note —m £m £m £m £m
At 26 March 2018 . 465 (264) 2 203
Profit for the year = = 52 - 52
Other comprehensive income - - (2) KE) zt
At 31 March 2019 - 465 (214) 5 256
Share Share = Accumulated Other Total
capital premium losses _ reserves equity
Note £m £m ém £m £m
At 27 March 2017 . 465 (281) 2 186
Profit for the year - - 17 - 17
Other comprehensive income - - - - -
At 25 March 2018 = 465 (264) 2 203
Post Office Limited
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements
1. Accounting Policies
Financial year
The financial year ends on the last Sunday in March and for this reason these financial statements
are made up for the 53 weeks ended 31 March 2019 (2018: 52 weeks ended 25 March 2018).
Basis of preparation
The Group financial statements on pages [XX] to [XX] have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by the European Union and with
those parts of the Companies Act 2006 applicable to companies reporting under IFRS. IFRS
interpretations are issued by the International Accounting Standards Board (IASB) and must be
adopted into European Law, referred to as endorsement, before they become mandatory under
the IAS regulation. Unless otherwise stated in the accounting policies below, the financial
statements have been prepared under the historic cost accounting convention.
The principal accounting policies applied in the preparation of these consolidated Financial
Statements are set out below. These policies have been consistently applied to all the years
presented, unless otherwise stated.
The Company is incorporated and domiciled in the United Kingdom. The Group consolidated financial
statements are presented in sterling and all values are rounded to the nearest £ million except
where otherwise indicated. The financial statements have been prepared in accordance with the
requirements of the Companies Act 2006.
Post Office Limited is a private Company limited by shares incorporated in England and Wales.
The income statement presents the results of the Group in a columnar format - in total and split
between trading and investments. The trading column represents the underlying performance of the
business. Investment funding from Government, restructuring and transformation costs are
separately disclosed in the investments column.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and its
subsidiary undertakings as at 31 March 2019. Subsidiaries are consolidated from the date of
acquisition, being the date on which the Group obtains control, and continue to be consolidated until
the date such control ceases. A set of financial statements has been prepared for Post Office
Management Services Limited (subsidiary, registered address: Finsbury Dials, 20 Finsbury Street,
London, EC2Y 9AQ) for the 53 weeks ended 31 March 2019. A separate set of financial statements
has also been prepared for Payzone Bill Payments Limited (subsidiary, registered address: Finsbury
Dials, 20 Finsbury Street, London, EC2Y 9AQ), which was acquired on 24 October 2018, see note
[20] for details.
The year-end dates of these subsidiaries are in line with the Company. The subsidiaries use
consistent accounting policies where appropriate and their results have been consolidated into the
Group financial statements. All intra-group balances, transactions, and unrealised gains and losses
resulting from intra-group transactions are eliminated in full.
New and amended standards adopted by the Group
The Group applied IFRS 15 and IFRS 9 for the first time. The nature and effect of the changes as
a result of adoption of these new accounting standards are described below.
Several other amendments and interpretations apply for the first time in 2018/19, but do not
have an impact on the financial statements of the Group. The Group has not early adopted any
standards, interpretations or amendments that have been issued but are not yet effective.
IFRS 9 Financial Instruments
IFRS 9 replaces the provisions of IAS 39 Financial Instruments: Recognition and Measurement
that relate to the recognition, classification and measurement of financial assets and financial
liabilities, derecognition of financial instruments, impairment of financial assets and hedge
accounting.
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Notes to the financial statements (continued)
The adoption of IFRS 9 from 2018/19 has not had a material impact on our results, with the key
issues for Post Office being around documentation of policies and new hedge documentation.
IFRS 9 operates an expected credit loss model rather than an incurred credit loss model.
Providing for loss allowances on our existing financial asset has not had a material impact.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations
and it applies, with limited exceptions, to all revenue arising from contracts with its customers.
IFRS 15 establishes a five-step model to account for revenue arising from contracts with
customers and requires that revenue be recognised at an amount that reflects the consideration
to which an entity expects to be entitled in exchange for transferring goods or services to a
customer.
The Group adopted IFRS 15 using the modified retrospective method of adoption. The standard
has not had a material impact on revenue recognition at Post Office and therefore, on initial
application, no adjustment was required to the opening balance of retained earnings.
Presentational reclassifications on the face of the income statement have been required in
respect of the Network Subsidy Payment and commission income relating to Government
Services. These two items were formerly recognised in revenue and have now been reclassified
to other income as they did not meet the recognition criteria from revenue under IFRS 15. Refer
to page [Xx] for further details of the reclassification. The accounting policies for revenue and for
other income are on pages [X] and [X] respectively.
New standards and interpretations not yet adopted
IFRS 16 Leases
IFRS 16 was issued in January 2016. It will result in almost all leases being recognised on the
balance sheet by lessees, as the distinction between operating and finance leases is removed. Under
the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals
are recognised. The only exceptions are short-term and low-value leases.
The Group has set up a project team which has reviewed all of the Group’s leasing arrangements
over the last year in light of the new lease accounting rules in IFRS 16. The standard will affect
primarily the accounting for operating leases.
The Group will apply the standard from its mandatory adoption date - for Post Office this is from 1
April 2019. The Group intends to apply the simplified transition approach and will not restate
comparative amounts for the year prior to first adoption. Right-of-use assets will be measured at the
amount of the lease liability on adoption (adjusted for any existing onerous and vacant lease
provisions). The Group therefore expects to recognise right-of-use assets of approximately £[XX]
million on 1 April 2019 and lease liabilities of £[XX] million. The net impact on the income statement
account will be minimal - an increase in trading profit of some £[7-9]m as it will no longer have a
charge for operating leases, matched by increases in depreciation, to recognise the usage of the new
right-of-use assets, and finance costs, to recognise the unwinding of the discount on the lease
liability. There will be no impact on the cash flows of the business.
The Group’s activities as a lessor are not material and hence the group does not expect any
significant impact on the financial statements.
The Group’s current lease commitments are disclosed in note [19].
There are no other standards and interpretations in issue but not yet adopted that the Directors
anticipate will have a material effect on the reported income or net assets of the Group. The Group
has not early adopted any standard, interpretation or amendment that has been issued but is not
yet effective.
Fundamental accounting concept - going concern
The Group has net assets of £256 million at 31 March 2019 (2018: £203 million). At 31 March 2019
£385 million of the Group’s working capital facility was undrawn (2018: £327 million). The Group has
also been profitable at a trading profit level with current year profit of £61 million (2018: £35 million)
and has shown a profit after tax of £52 million (2018: £17 million).
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
We have the following funding agreed with BEIS: a working capital facility of £950 million to 31
March 2021; a further £50 million facility available to provide same day liquidity to 4 April 2020;
Network Subsidiary Payment of £50 million for 2019/20 and 2020/21 respectively; and we also have
investment funding of up to £210 million as required for the period from April 2018 to March 2020.
After careful consideration of the plans for the coming years, the Directors continue to believe that
Post Office will be able to meet its liabilities as they fall due for the next 12 months. Accordingly, on
that basis, the Directors consider that it is appropriate that these financial statements have been
prepared on a going concern basis.
Critical accounting estimates and judgements in applying accounting policies
The Group makes certain estimates and assumptions regarding the future. Estimates and
assumptions are continually evaluated based on historical experience and other factors. In the
future, actual experience may differ from these estimates and assumptions.
In addition the Group has to make judgements in applying its accounting policies which affect the
gamounts recognised in the financial statements. The most significant areas where judgements and
estimates are made are discussed below:
Critical accounting estimates:
Key assumptions used in impairment tests for non-current assets
The Group assesses whether there are any indicators of impairment for all non-current assets at
each reporting date as well as if events or changes in circumstances indicate that the carrying value
may be impaired. Factors considered important that could trigger an impairment review include the
following:
. Significant underperformance compared to historical or projected future operating results.
. Significant changes in the manner of use of the acquired assets or the strategy of the overall
Group.
. Significant negative micro- or macro-economic trends.
Where appropriate, an impairment loss is recognised in the income statement for the amount by
which the carrying value of the asset or cash generating unit (CGU) exceeds its recoverable amount.
The recoverable amount is determined based on value in use calculations which require the use of
assumptions. The calculations use cash flow projections based on financial budgets approved by
management covering a two year period. Cash flows beyond this period are extrapolated using
estimated growth rates. Refer to note [9] for the results of the latest impairment test, including
sensitivity analysis.
Actuarial assumptions
The costs, assets and liabilities of the pensions operated by the Group are determined using
methods relying on actuarial estimates and assumptions.
The pension figures are particularly sensitive to changes in assumptions for discount rates, mortality
and inflation rates. The Group exercises its judgement in determining the assumptions to be
adopted, after discussion with its Actuary and in accordance with published statistics and experience.
Refer to note 17 for details of the key assumptions and sensitivity analysis performed.
Pension liabilities are measured on an actuarial basis using the projected unit credit method and
discounted at a rate equivalent to the current rate of return on a high quality corporate bond of
equivalent currency and term. Judgement has been applied in determining that for these purposes a
high quality corporate bond constitutes AA rated or equivalent status bonds.
Property provisions
The Group recognises provisions for property leases that are onerous. Assumptions are made to
determine whether the unavoidable costs of meeting the obligations of a lease agreement exceed
the economic benefits expected to be received under it. These include estimates around the future
trading performance of the site and cost allocations.
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
Critical accounting judgements:
The recognition of a contingent liability in respect of the Group Litigation Order is a key accounting
judgement as at the accounting reference date. The key judgement is the level to which a potential
liability is deemed possible versus probable and therefore whether a contingent liability is the correct
accounting treatment.
Revenue
The following revenue accounting policy relates to the prior year only.
Revenue from Retail, Financial Services and Telecoms comprises the value of services provided from
the Group’s principal activities in providing a whole range of services through its physical and digital
channels. Revenue from Financial Services and some Retail services comprises the commission
received. Revenue relating to line rental for telecoms services is recognised evenly over the period to
which the charges relate and revenue from calls is recognised at the time the call is made. Revenue
from all other transactions is recognised when the transaction is completed. All revenue is derived
wholly from within the United Kingdom.
Post Office Management Services revenue comprises the value of services provided from the
principal activities in providing insurance intermediary services through its network of Post Office
branches across the UK, online and contact centre channels. Revenue comprises commissions
received from provision of the intermediary services excluding taxes. Revenue from all transactions
is recognised when the transaction is completed.
Revenue from contracts with customers
In 2018/19, the Group adopted IFRS 15.
Retail
The Group provides Mails support services to Royal Mail and Parcelforce. Each Mails product and
service has an associated transaction price. The transaction price may vary due to the volume
transacted in the period. Revenue from providing Mails support services is recognised in the
accounting period in which the services are rendered.
The Group acts as a selling agent and earns commission on the sale of lottery tickets, scratch cards
and gift vouchers. The transaction price is a contractual commission rate, which is based on the
value of sales in the period. Revenue from the sale of lottery tickets, scratch cards and gift vouchers
is recognised in the accounting period in which these sales are made.
Payment services comprise of bill payments (including the subsidiary Payzone Bill Payments
Limited). The transaction price is the fee that the Group earns for each bill paid in a branch. Revenue
from bill payments is recognised in the accounting period in which the service is rendered and is
based on the transaction price multiplied by the volume of bill payments in the period.
Through the Banking Framework Agreement, the Group provides over-the-counter banking services,
such as withdrawals, deposits and balance enquiries, on behalf of banks. A transaction price is
associated with each banking service provided. Revenue is recognised in the accounting period in
which the services are rendered and is based on the transaction price multiplied by the volume of
each service provided in the period.
Identity Services
Identity services are provided under contract to Government departments, such as the DWP, DVLA
and the Home Office. Each Government service has an associated transaction price. Revenue is
recognised in the accounting period in which the services are rendered and is based on the
transaction price multiplied by the volume of each service provided in the period.
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
Financial Services & Telecoms
Our Financial Services products include mortgages, credit cards, savings, travel and banking. The
Group earns commission on the sale of these products. The transaction price is a contractual
commission rate. This commission rate varies by product and is based on volume or value of
products sold in the period as well as the channel of sale, for example online or through the branch
network. Revenue is recognised in the accounting period in which the new products are sold.
Telecoms includes Post Office HomePhone and Broadband services. The transaction price is the
subscription fee, consisting primarily of charges for access to broadband and other internet access or
voice services. Revenue is recognised as the service is provided because the customer receives and
uses the benefits simultaneously.
Insurance
Through its subsidiary, Post Office Management Services Limited, the Group provides general and
life insurance intermediation. The transaction price is a contractual commission rate. This
commission rate varies by product and is based on the volume or value of products sold in the
period as well as the channel of sale, for example online or through the branch network. Revenue is
recognised in the accounting period in which the new products are sold.
For all the revenue streams noted above, a receivable is recognised when the goods are delivered or
the services are provided, as this is the point in time that the consideration is unconditional, because
only the passage of time is required before the payment is due.
The Group does not expect to have any contracts where the period between the transfer of the
promised goods or services to the customer and the payment by the customer exceeds one year. As
a consequence, the Group does not adjust any of the transaction process for the time value of
money.
Other income
The Network Subsidy Payment is received from Government and is recognised as other income to
match the related costs of making available the network of public Post Offices that the Secretary of
State for BEIS considers appropriate. The subsidy is recognised in the year in which it is received. If
the subsidy were to exceed the cost of making the network available, the excess would be repaid to
Government. Other income also includes commission income relating to Government Services. This
income, along with the Network Subsidy Payment, was previously presented within revenue;
however they do not fall within the scope of IFRS 15. As a result these two items have been
reclassified to other income. Refer to note [16] for further detail.
Investments column in the income statement
Income statement items are presented in the investments column when they are significant in
size or nature, and either they do not form part of the underlying trading of the business or their
separate presentation enhances understanding of the financial performance of the Group.
Investment funding from Government, restructuring and transformation costs are separately
disclosed in the investments column. Refer to note [4] for further detail.
Leases
Leases where substantially all the risks and rewards of ownership of the asset are retained by the
lessor, are classified as operating leases and rentals are charged to the income statement over the
lease term. The aggregate benefit of incentives are recognised as a reduction of rental expenses
over the lease term on a straight-line basis. Provision for dilapidation are made where necessary.
Refer to the provisions policy on page [X] and note [15] for further detail.
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Notes to the financial statements (continued)
Taxation
The amount charged or credited as current income tax is based on the results for the year as
adjusted for items which are not taxed or are disallowed. It is calculated using tax rates in legislation
that has been enacted or substantively enacted by the balance sheet date.
Deferred income tax assets and liabilities are recognised for all taxable and deductible temporary
differences and unused tax assets and losses except:
- On the initial recognition of goodwill.
- On the initial recognition of an asset or liability in a transaction that is not a business combination
and, at the time of the transaction, affects neither the accounting profit nor taxable profit and loss.
- On the taxable temporary differences associated with investments in subsidiaries and interest in
joint ventures, where the timing of the reversal of the temporary difference can be controlled and it
is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets are recognised only to the extent that it is probable that taxable profit will be
available against which they can be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the
period when the tax asset is realised or the liability is settled, based on tax rates that have been
substantively enacted at the balance sheet date. Deferred tax balances are not discounted.
Current and deferred tax is recognised in the income statement, except to the extent that it relates
to items recognised in other comprehensive income or directly to equity. In this case, the tax is also
recognised in other comprehensive income or directly in equity, respectively.
Investments in joint ventures
Investments in joint ventures within the Group’s financial statements are accounted for under the
equity method of accounting. Under this method the investment is carried in the balance sheet at
cost plus post-acquisition changes in the Group’s share of the net assets of the joint venture less any
impairment in value. The income statement reflects the Group’s share of post-tax profits from the
joint venture. The joint venture is an integral part of the Group’s operations,
Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The
consideration transferred in a business combination is measured at fair value, which is calculated
as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities
incurred by the Group to the former owners of the acquiree and the equity interest issued by the
Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit
or loss as incurred, within the investments column.
Property, plant and equipment
Property, plant and equipment excluding freehold property, long leasehold property and land:
Property, plant and equipment is recognised at cost, including attributable costs in bringing the
asset into working condition for its intended use. These assets are depreciated on a straight-line
basis over the following useful lives:
Range of asset lives
Plant and machinery 3-15 years
Motor vehicles 3-12 years
Fixtures and equipment 3-15 years
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
Freehold property, long leasehold property and land:
As with other property, plant and equipment this is recognised at cost, including attributable costs in
bringing the asset into working condition for its intended use. These assets have a long useful life
and a fair market value. They are depreciated on a straight-line basis over the following useful lives:
Range of asset lives
Freehold land Not depreciated
Freehold buildings Up to 50 years
Leasehold buildings The shorter of the period of the lease, 50 years or the estimated
remaining useful life
The remaining useful lives of freehold buildings are reviewed periodically and adjusted where
applicable on a prospective basis. Where freehold property and long leasehold includes the fit-out of
those properties, then the fit-out is depreciated over its useful economic life in line with fixtures and
fittings.
Assets in the course of construction are carried at cost, with depreciation charged on the same basis
as all other assets once those assets are ready for their intended use.
Intangible assets
Goodwill
Goodwill is initially recognised at cost, being the excess of the aggregate of the consideration
transferred and the amount recognised for non-controlling interests, and any previous interest held,
over the net identifiable assets acquired and liabilities assumed. After initial recognition, goodwill is
recognised at cost less any accumulated impairment losses. The Group’s management undertakes an
impairment review annually or more frequently if events or changes in circumstances indicate that
the carrying value may not be recoverable.
Software
Costs associated with maintaining software programmes are recognised as an expense as incurred.
Development costs that are directly attributable to the design and testing of identifiable and unique
software products controlled by the Group are recognised as intangible assets when the following
criteria are met:
. it is technically feasible to complete the software so that it will be available for use
. management intends to complete the software and use or sell it
. there is an ability to use or sell the software
. it can be demonstrated how the software will generate probable future economic benefits
. adequate technical, financial and other resources to complete the development and to use or
sell the software are available, and
. the expenditure attributable to the software during its development can be reliably measured.
Directly attributable costs that are capitalised as part of the software include employee costs and an
appropriate portion of relevant overheads.
Capitalised development costs are recorded as intangible assets and amortised from the point at
which the asset is ready for use.
Research and development
Research expenditure and development expenditure that does not meet the criteria above are
recognised as an expense as incurred. Development costs previously recognised as an expense are
not recognised as an asset in subsequent periods.
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
Intangible assets with a finite useful life:
Intangible assets acquired separately or generated internally are initially recognised at cost. They
are amortised on a straight-line basis over the following useful lives:
Range of asset lives
Software 3 - 6 years
Customer relationships 5 years
Merchant relationships 5 - 10 years
Brands 15 years
Assets in the course of construction are carried at cost, with amortisation commencing once the
assets are ready for their intended use.
Inventories
Inventories include stationery, retail, lottery and Royal mint coin products and are carried at the
lower of cost and net realisable value after adjusting for obsolete or slow-moving stock.
Trade receivables
Trade receivables are recognised and carried at original invoice amount. An allowance is made
when collection of the full amount is no longer probable. The Group applies IFRS 9 to measure
this allowance for expected credit loses, grouping trade receivables based on shared risk
characteristics and days past due. Bad debts are written off when identified.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and on hand, including cash
in the Post Office network and short-term deposits (cash equivalents) with an original maturity date
of three months or less. Cash equivalents are classified as loans and receivable financial
instruments.
For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and cash
equivalents as defined above, net of bank overdrafts.
The subsidiaries Post Office Management Services Limited and Payzone Bill Payments Limited hold
some fiduciary cash balances, these are held on trust on behalf of third parties, see note [12] for
details.
Pensions and other post-retirement benefits
Membership of occupational pension schemes is open to most permanent UK employees of the
Group.
The Group is the principal employer of the Post Office Section of the Royal Mail Pension Plan (RMPP),
and is a participating employer within the Royal Mail Senior Executives Pension Plan (RMSEPP).
RMPP and RMSEPP are both defined benefit plans closed to new members and closed to future
accrual. All members of these plans are contracted out of the earnings-related part of the State
pension scheme.
A Memorandum of Understanding was executed in 2016/17 which removed the unconditional right to
refund from the RMPP. As a result of these events the surplus relating to this Plan was derecognised.
The pension assets of the defined benefit schemes are measured at fair value. Liabilities are
measured on an actuarial basis using the projected unit credit method and discounted at a rate
equivalent to the current rate of return on a high quality corporate bond of equivalent currency and
term.
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
Full actuarial funding valuations are carried out at intervals not normally exceeding three years as
determined by the Trustees and actuarial valuations are carried out at each balance sheet date and
form the basis of the surplus or deficit disclosed. When the calculation at the balance sheet date
results in net assets to the Group, the recognised asset is limited to the present value of any future
refunds of the plan or reductions in future contributions to the plan (the asset ceiling). As noted
above, the RMPP Plan has been closed and no future refunds will be made to the Group.
Actuarial gains and losses are recognised immediately in the statement of comprehensive income.
Any deferred tax movement associated with the actuarial gains and losses is also recognised in the
statement of comprehensive income. As the Group has no right to a future surplus in the RMPP, an
equal and opposite adjustment to the asset ceiling is recognised in other comprehensive income.
There is no effect on the net assets position of the Group.
For defined contribution schemes, the Group’s contributions are charged to operating profit, as part
of staff costs, in the period to which the contributions relate.
Foreign currencies
The functional and presentational currency of the Group is sterling (£).
Foreign currency transactions are translated into the functional currency using the exchange
rates at the dates of the transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation of monetary assets and liabilities
denominated in foreign currencies at year-end exchange rates are recognised in profit or loss.
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result
of a past event, it is probable that an outflow of resources will be required to settle the obligation,
and a reliable estimate can be made of the amount of the obligation. Due to the nature of provisions
the future amount settled may be different from the amount that has been provided. If the effect of
the time value of money is material, provisions are determined by discounting the expected future
cash flows at an appropriate pre-tax rate.
Financial instruments
Initial measurement of financial instruments
All financial instruments are initially measured at fair value plus or minus, in the case of a
financial asset or financial liability not at fair value through profit or loss, transaction costs.
Subsequent measurement of financial assets
IFRS 9 divides all financial assets into two classifications - those measured at amortised cost and
those measured at fair value.
Where assets are measured at fair value, gains and losses are either recognised entirely in profit
or loss (fair value through profit or loss, “FVTPL”), or recognised in other comprehensive income
(fair value through other comprehensive income, “FVTOCI)”.
The classification of a financial asset is made at the time it is initially recognised. If certain
conditions are met, the classification of an asset may subsequently need to be reclassified.
Subsequent measurement of financial liabilities
IFRS 9 divides all financial liabilities into two measurement categories: FVTPL and amortised
cost. All of the Group’s financial liabilities are measured at amortised cost.
Derecognition of financial assets
A financial asset is derecognised when the Group determines that it has transferred substantially
all of the risks and rewards of ownership of the asset.
Derecognition of financial liabilities
A financial liability is removed from the balance sheet when it is extinguished; that is, when the
obligation specified in the contract is either discharged or cancelled or expires.
Derivatives and hedging activities
Derivatives are initially recognised at fair value on the date that a derivative contract is entered
into, and they are subsequently remeasured to their fair value at the end of each reporting
period. The accounting for subsequent changes in fair value depends on whether the derivative is
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
designated as a hedging instrument and, if so, the nature of the item being hedged. The Group
designates certain derivatives as either:
* Hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value
hedges).
* Hedges of a particular risk associated with the cash flows of recognised assets and liabilities
and highly probable forecast transactions (cash flow hedges).
* Hedges of a net investment in a foreign operation (net investment hedges).
At inception of the hedge relationship, the Group documents the economic relationship between
hedging instruments and hedged items, including whether changes in the cash flows of the
hedging instruments are expected to offset changes in the cash flows of hedged items. The
Group documents its risk management objective and strategy for undertaking its hedge
transactions.
The fair values of derivative financial instruments designated in hedge relationships are disclosed
in note [16]. Movements in the hedging reserve are shown within other reserves in the
statement of changes in equity. The full fair value of a hedging derivative is classified as a non-
current asset or liability when the remaining maturity of the hedged item is more than 12
months; it is classified as a current asset or liability when the remaining maturity of the hedged
item is less than 12 months.
Cash flow hedges that qualify for hedge accounting
The effective portion of changes in the fair value of derivatives that are designated and qualify as
cash flow hedges is recognised in other reserves within equity. The gain or loss relating to the
ineffective portion is recognised immediately in profit or loss.
When the forecast transaction subsequently results in the recognition of a non-financial asset or
non-financial liability, the associated cumulative gain or loss is removed from equity and included
in the initial cost or other carrying amount of the non-financial asset or liability. If a hedge of a
forecast transaction subsequently results in the recognition of a financial asset or financial
liability, the associated gains or losses that were previously recognised in the statement of
comprehensive income are reclassified into the income statement in the same period or periods
during which the asset acquired or liability assumed affects the income statement.
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Notes to the financial statements (continued)
2. Staff costs and numbers
Employment and related costs were as follows:
2019 2018
People costs within trading: £m £m
Wages and salaries 162 154
Social security costs 18 18
Other pension costs (note [17]) 13 17
Total people costs within trading 193 189
Other operating costs within trading 765 771
Total trading costs 958 960
People costs within investments relate to severance costs as part of restructuring and are disclosed
within note [4].
Period end and average monthly employee numbers were as follows:
Period end employees Average monthly employees
2019 2018 2019 2018
Total employees 4,397 5,020 4,703 5,066
Total employee numbers can be categorised as follows:
2019 2018
Administration 1,205 1,205
Directly managed branches (DMB) 2,049 2,707
Supply Chain 854 848
Network programmes 164 213
Post Office Insurance 57 47
Payzone Bill Payments 68 -
Total 4,397 5,020
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Notes to the financial statements (continued)
3. Operating profit
The following items are included within operating profit:
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2019 2018
ém £m
Postmasters’ fees 365 371
Depreciation and amortisation (notes [8] and [9]) 94 55
Cost of inventories recognised as an expense 4
Loss on disposal of fixed assets 5 1
Operating lease charges - Land and buildings 13 12
Operating lease charges - Motor vehicles 1 1
Fees payable to the Group’s auditor for audit and other services: £000 £000
- parent Company and Group audit 440 773
- audit of subsidiary 85 82
- audit related assurance services - 105
- other assurance services 110 110
4. Investments
2019 2018
£m ém
Investment funding 168 70
Restructuring:
Business transformation (14) (16)
Network programmes (64) (63)
IT transformation (13) (6)
Severance (38) (17)
Total restructuring costs (129) (102)
Unwinding of discounts on provisions q) (2)
Total investments income / (charge) 38 (34)
Investment funding: Investment funding is received from BEIS.
Restructuring: Restructuring costs are transformational spend incurred in order to implement the
major transformation programmes. Business transformation is an overarching programme that will
transform the business, driving Post Office toward commercial sustainability through technological
innovation and the fundamental re-envisaging of long-term contracts. Network programmes is a
multi-year initiative designed to simplify the retailer proposition, with key areas of focus being
simplification, automation and the extension of the franchising model to some of our directly
managed branches. IT transformation includes programmes to restructure our IT operating model
and overhaul legacy back office systems, transitioning to a cloud based architecture. As part of the
aforementioned transformational activities, severance costs have been incurred.
Unwinding of discounts on pro’
onerous lease provisions.
Post Office Limited
ns: finance costs incurred in order to unwind the discount on
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
5. Directors’ emoluments
Directors accruing pension entitlements during the period under: 2019 2018
Number Number
Defined benefit schemes - -
Defined contribution schemes 1 1
The Directors received the following emoluments:
Remuneration for each Director for the financial year 2018/19
Name Annualised Actual Cash in lieu
salary/fees salary/fees Benefits of pension ‘STIP LTIP Total Total
2018/19 (note1) 2018/19 2018/19 2018/19 2018/19 2018/19 2018/19 2017/18
Non-Executive Directors
Tom Cooper (note 2) - - - - 7 = . -
Tim Franklin 40,000 39,800 - - - - 39,800 40,000
Virginia Holmes (note 2) 35,700 300 - - - - 300 35,500
Shirine Khoury-Haq 35,000 30,000 - - - - 30,000 -
Ken McCall 50,000 49,800 - - - - 49,800 50,000
Tim Parker (note 4) 19,230 19,300 - - - - 19,300 75,000
Carla Stent 45,000 44,800 - - - - 44,800 45,000
Richard Callard (note 5) - - - - - 7 =) -
Executive Directors
Alisdair Cameron 244,800 244,800 9,900 61,200
Paula Vennelis (note 6) 255,000 255,000 9,900 63,800 718,300
595,900
Note 1: The annualised fees are shown as at 31 March 2019 or at the date of leaving.
Note 2: Tom Cooper is an employee of UK Government Investments Limited (UKGI).
Note 3: Virginia Holmes ceased her role as Non-Executive Director on 27 March 2018.
Note 4: Tim Parker donates the after tax value of his Board fees to charity. From 1 April 2018, Tim’s time
commitment has reduced and there has been a corresponding reduction in his annual fee.
Note 5: Richard Callard was an employee of UKGI and ceased his role as Non-Executive Director on 27
March 2018.
Note 6: Paula Vennells resigned as Group Chief Executive on 30 April 2019.
Remuneration Policy Summary
The table below describes the STIP and LTIP available for the Executive Directors.
The remuneration framework for the Executive Directors requires consent from the Special
Shareholder (BEIS) each year.
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Notes to the financial statements (continued)
Short-Term
Incentive Plan
(STIP)
The STIP drives and rewards performance over the single
financial year against key financial and operational targets taken
from the business scorecard. Metrics and targets are
determined and set each year according to business priorities.
80% of the STIP plan is determined by business targets, with
the remaining 20% linked to the achievement of personal
performance objectives.
The target opportunities for the Chief Executive and Chief
Finance and Operating Officer are 48% and 40% of salary, with
a maximum for stretch performance of 80% and 66.66% of
salary respectively.
Long-Term
Incentive Plan
(LTIP)
The LTIP is designed to reward and retain key executives and
senior managers on the achievement of strategic longer term
targets linked to the development and growth of a sustainable
business,
The specific performance targets are determined for each LTIP
cycle with reference to the three-year plan which is agreed with
the Special Shareholder (BEIS).
The target opportunities for the Chief Executive and Chief
Finance and Operating Officer are 70% and 50% of salary, with
stretch performance of 98% and 70% of salary respectively.
Differences in remuneration policy for the Executive Directors and employees
generally
The remuneration policy for the Executive Directors takes account of their level of responsibility
and their influence over Post Office’s performance. Accordingly, a higher proportion of their total
remuneration package is at risk and subject to performance (under the STIP and LTIP). The
incidence and potential amounts payable under such incentives across the workforce are
determined by their role and grade within the organisation.
Claw-back provision
Executive Directors have claw-back clauses in their contracts, as well as the STIP and LTIP rules,
which provide for the return of any over-payments in the event of misstatement of the financial
statements, error or gross misconduct on the part of an Executive Director. These provisions are
structured in line with market best practice.
6. Finance costs
2019 2018
£m £m
Trading:
Interest payable on loans (6) (5)
Finance charges (2) :
Total - trading (8) (5)
Investments:
Unwinding of discounts on provisions (1) (2)
Total - investments (1) (2)
Total - net finance costs (9) (7)
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
7. Taxation credit
(a) Taxation recognised in the year
Current and deferred income tax is charged or credited to the income statement as follows:
2019 2018
£m £m
Current income tax:
Corporation tax credit for year (8) (8)
Deferred income tax:
Deferred tax income relating to the utilisation of losses brought forward (a) (4)
Taxation credit (9) (9)
The current income tax credit recognised in the income statement is £8 million (2018: £8 million)
and relates to the surrender of tax losses to the joint venture. The deferred income tax credit
recognised in the income statement is £1 million (2018: £1 million) and arises as a consequence of
the acquisition of intangible assets as part of a business combination. It corresponds to the deferred
tax liability recognised in the business combination.
In the current year no deferred income tax has been recognised in other comprehensive income.
No current or deferred tax income tax was recognised directly in equity in the current or prior year.
(b) Factors affecting current tax charge on profit on ordinary activities
As in 2018, the tax assessed for the year differs from the standard rate of corporation tax in the UK
of 19% (2018: 19%). The differences are explained below:
2019 2018
£m ém
Profit before taxation 43 8
Profit before taxation multiplied by the standard rate of corporation 2 ‘
tax in the UK of 19% (2018: 19%)
Effect of unutilised losses carried forward 18 29
Decrease in tax charge as a result of change in unrecognised deferred (21) (24)
tax assets
Surrender of tax losses to joint venture (8) (8)
Profits from disposals eligible for relief - -
Tax effect of share of results of joint venture (6) (7)
Taxation credit (9) (9)
(c) Deferred tax
Deferred tax relates to the following:
Consolidated balance sheet ___ Consolidated income statement
2019 2018 2019 2018
£m £m £m ém
Acquired intangible assets (2) (1) 1 1
Tax losses 2 1 2 e
Deferred tax (liability) / asset - - - -
Deferred tax income = = 1 1
In the current year a deferred tax liability of £2 million (2018: £1 million) has been recognised on
the acquisition of intangible assets as part of a business combination, with a corresponding deferred
tax asset of £2 million (2018: £1 million) recognised for the value losses up to the same liability.
The Group has significant tax losses that are available indefinitely for offsetting against future
taxable profits. As at the balance sheet date no deferred tax asset has been recognised in relation to
these tax losses (2018: Enil).
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Notes to the financial statements (continued)
(d) Factors that may affect future tax charges
The Group has unrecognised deferred tax assets of £183 million (2018: £190 million), comprising
£148 million (2018: £143 million) relating to tax losses that are available to offset against future
taxable profits, £32 million (2018: £46 million) relating to fixed asset timing differences and £1
million (2018: £1 million) relating to temporary differences on provisions. The Group has rolled over
capital gains of £2 million (2018: £2 million); no tax liability would be expected to crystallise should
the assets into which the gains have been rolled be sold at their residual value, as it is anticipated
that a capital loss would arise.
The main rate of corporation tax in the UK will remain at 19% for the year starting 1 April 2019 and
reduce to 17% with effect from 1 April 2020.
The Finance (No.2) Act 2017 was substantively enacted on 16 November 2017. This includes a
restriction on the utilisation of brought forward tax losses and corporate interest in certain
circumstances effective from 1 April 2017.
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Notes to the financial statements (continued)
8. Intangible assets
Other
Software Goodwill intangibles Total
—m £m £m é£m
Cost
At 27 March 2017 323 44 * 367
Reclassification (2) - - (2)
Additions 125 1 6 132
At 25 March 2018 446 45 6 497
Reclassification (29) - 2 (29)
Additions 101 = = 101
Added on acquisition 1 8 7 16
Disposals (17) - 2 (17)
At 31 March 2019 502 53 13 568
Accumulated amortisation
At 27 March 2017 200 - * 200
Reclassification 6 - * 6
Amortisation 27 - - 27
At 25 March 2018 233 = - 233
Added on acquisition 1 - . 1
Amortisation 55 = 3 58
Disposals (15) > - (15)
At 31 March 2019 274 = 3 277
Net book value
At 31 March 2019 228 53 10 291
At 25 March 2018 213 45 6 264
Other intangibles includes customer relationships, merchant relationships and brands.
During the current and prior year, a review of property, plant and equipment and intangible assets
took place and resulted in reclassifications between categories.
Additions to software relate to IT transformation projects undertaken during the current year.
Additions to goodwill and other intangibles relate to the Payzone Bill Payments Limited (“Payzone”)
business combination disclosed within note [20]. Goodwill is tested for impairment annually or more
frequently if events or changes in circumstances indicate that the carrying value may not be
recoverable. Management determined that no impairment was necessary for the current year (2018:
Enil).
Goodwill was not considered to be impaired at the date of the last review. Refer to note [9] for
details of the impairment review performed during the year.
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Notes to the financial statements (continued)
9. Property, plant and equipment
Land and Buildings
Plant Fixtures
Long Short Motor and and
Freehold leasehold leasehold vehicles machinery equipment Total
£m —m —m ém —m £m ém
Cost
At 27 March 2017 45 41 23 26 1 795 931
Reclassification t 1 1 - - (1) 2
Additions - - 1 - 18 19
Disposals (6) (3) (2) (2) - (7) (20)
At 25 March 2018 40 39 22 25 1 805 S32
Reclassification 2 2 a B 2 27 29
Additions 1 1 1 = 2 35 38
Added on acquisition - - - - - 4 4
Disposals (4) (1) (2) 2 - (22) (29)
At 31 March 2019 39 39 21 25 1 849 974
Accumulated depreciation
At 27 March 2017 32 14 23 26 1 677 773
Reclassification - - - - - (6) (6)
Depreciation 1 2 . . . 25 28
Disposals (4) - (2) (2) - (3) (11)
At 25 March 2018 29 16 21 24 1 693 784
Depreciation 1 2 = = 2 33 36
Disposals (2) (1) (2) 2 S (17) (22)
At 31 March 2019 28 17 19 24 1 709 798
Net book value
At 31 March 2019 11 22 2 1 bd 140 176
At 25 March 2018 11 23 1 1 = 112 148
Depreciation rates are disclosed on page [XX] within the accounting policies note. No depreciation is
provided on freehold land, which represents £2 million (2018: £2 million) of the total cost of
properties.
During the current and prior year, reviews of property, plant and equipment and intangible assets
took place and resulted in reclassifications between categories.
An impairment test was performed during the year. Intangible assets and property, plant and
equipment were tested for impairment by comparing the carrying amount of each Cash
Generating Unit (CGU) with the recoverable amount determined from value in use calculations.
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
Post Office has determined that it has two CGUs: Post Office Limited and Post Office Management
Services Limited. Post Office Management Services Limited is a standalone entity with an
identifiable asset base and therefore is deemed one CGU. Post office Limited runs a national
network of branches which provide a distinct retail offering resulting in a fluid customer base
across the network. As such the network as a whole is deemed to be one CGU.
The discounted net cash flows from the value in use calculations were used to determine the
recoverable amount of the CGU’s identified, being Post Office Limited and Post Office
Management Services Limited. Value in use is determined using the Group’s net cash inflows
from the continued use of the assets within each CGU over a two year period (and then
continued into perpetuity), with no nominal growth rate assumed outside of this period. Pre-tax
discount rates for Post Office Limited of 9.5% (2018: 9%) and for Post Office Management
Services Limited of 12% (2018: 12%) have been used to discount the forecasted cash flows.
A sensitivity analysis has been performed in assessing the value in use of property, plant and
equipment and intangible assets. This has been based on changes in key assumptions considered
to be possible by management. This included an increase in the discount rate of up to 12%, zero
growth rate and a decrease in forecasted EBITDA by 5%. The sensitivity analysis showed that no
impairment would arise under each or a combined scenario.
Management therefore believes that any reasonably possible change in the key assumptions
would not cause the carrying amount of any CGU’s to exceed their carrying value.
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
10. Investments in joint ventures
The following entity has been included in the consolidated financial statements using the equity
method:
Joint ventures
During the current and prior year, the Group’s only joint venture investment was a 50% interest
(1,000 £1 ordinary A shares) in First Rate Exchange Services Holdings Limited, whose principal
activity is the provision of Bureau de Change. First Rate Exchange Services Holdings Limited is a
company registered in the United Kingdom. The registered address of First Rate Exchange Services
Holdings Limited is Great West House, Great West Road, Brentford, Middlesex, TW8 9DF.
The principal activity of First Rate Exchange Services Holdings Limited is the supply of foreign
currency in the UK, which is seen as complementing the Group’s operations and contributing to
tn the Group’s overall strategy. The principal risks of the Group are disclosed on pages Dx]
to [XX].
The financial year-end date of First Rate Exchange Services Holdings Limited is 31 March. For the
purposes of applying the equity method of accounting, the financial statements of First Rate
Exchange Services Holdings Limited for the year ended 31 March 2019 have been used.
2019 2018
Joint venture Joint venture
£m £m
Share of net assets
Total net investment at 26 March 2018, 27 March 2017 66 66
Share of post-tax pre dividend profit 33 34
Dividend (33) (34)
Total net investment at 31 March 2019, 25 March 2018 66 66
2019 2018
Joint venture Joint venture
Share of assets and liabilities: £m ém
Receivables 193 220
Cash and cash equivalents 22 14
Non-current assets 7 8
Share of gross assets 222 242
Current liabilities (156) (176)
Share of net assets 66 66
Share of revenue and profit:
Revenue 82 84
Profit after tax 33 34
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
11. Trade and other receivables
2019 2018
—m £m
Current:
Trade receivables 97 81
Accrued income 71 78
Prepayments 19 17
Client receivables 138 132
Other receivables 19 16
Total 344 324
Non-current:
Accrued income 2 2
Prepayments 4 10
Total 6 12
The Group receives and disburses cash on behalf of Government agencies and other clients to
customers through its branch network. Amounts owed from/to Government agencies and other
clients are disclosed separately as client receivables (as above) and client payables (see note [13]).
£5m (2018: £4m) has been recognised within current prepayments for costs incurred to fulfil
contracts. Non-current prepayments constitute costs incurred to fulfil contracts, in both the current
and prior year.
The Group applies IFRS 9 when measuring expected credit losses. Trade receivables have been
grouped based on shared credit risk characteristics and the days past due to measure the expected
credit losses. The loss allowance for the current and prior year has been determined as follows:
>30 days >60 days
and <60 and <120
days past days past >120 days
31 March 2019 Current due due past due Total
Expected loss rate 21% 65%
Gross carrying amount - £m © 2 1 18 19
Loss allowance - £m - : 1 18 19
>30 days >60 days
and <60 and <120
days past days past >120 days
25 March 2018 Current due due past due Total
Expected loss rate = - = 95%
Gross carrying amount - £m - = = 19 19
Loss allowance - £m * “ J 19 19
There is a loss allowance in the current, more than 30 days and more than 60 days ageing
categories, however it is immaterial for disclosure.
The closing loss allowance for trade receivables as at 31 March 2019 reconciles to the opening loss
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Notes to the financial statements (continued)
allowance as follows:
2019 2018
£m ém
Opening loss allowance 19 14
Increase in loss allowance 9 14
Receivables written off as uncollectible (7) (5)
Unused amounts reversed (2) (4)
Closing loss allowance 19 19
The fair value of trade and other receivables is not materially different from the carrying value.
12. Cash and cash equivalents
2019 2018
£m £m
Cash in the Post Office Limited network 537 643
Short-term bank deposits 14 9
Fiduciary cash balances held on behalf of third parties 9 3
Total cash and cash equivalents 560 655
Cash in the Post Office Limited network represents the note and coin in circulation in branches and
cash centres. Refer to note [22] for further detail.
Where interest is earned it is at a floating or short-term fixed rate. The fair value of cash and cash
equivalents is not materially different from the carrying value.
The fiduciary cash balances are held within Post Office Management Services Limited or Payzone Bill
Payments Limited and are held on trust on behalf of third parties and cannot be called upon should
either company become insolvent.
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
13. Trade and other payables
2019 2018
£m —m
Current:
Trade payables 61 45
Accruals 118 160
Deferred income 20 32
Social security 8 8
Client payables 312 306
Capital accruals 11 20
Other payables mY -
Total 533 571
Non-current:
Other payables 14 18
Total 14 18
The fair value of trade and other payables is not materially different from the carrying value.
14. Financial liab
ies -— interest bearing loan and borrowings
2019 2018
£m £m
Department for Business, Energy and Industrial Strategy 565 623
The loan under the facility is short dated on a programme of liquidity management and matures 1
day after the year-end (2018: 1 day). The fair value of borrowings approximate their carrying value
due to the short term maturities of the loan. On maturity it is expected that further loans will be
drawn down under this facility, which expires in 2021. The undrawn committed facility, in respect of
which all conditions precedent had been met at the balance sheet date, is £385 million (2018: £327
million). The average interest rate on the drawn down loans is 1.1% (2018: 0.8%).
The facility is currently restricted to funding the cash and near cash items held within the Post Office
Limited network.
The facility (including drawn down loans) is secured by a floating charge over all assets of Post Office
Limited and a negative pledge over cash and near cash items. The negative pledge is an agreement
not to grant security over the assets or to set up a vehicle that has the same effect.
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
15. Provisions
Network
Programmes Property Severance Other Total
£m £m £m £m £m
At 26 March 2018 18 32 7 9 66
Charged to investments 30 25 43 al 98
Charged to trading 2 2 < 9 9
Transfers a - * 3 3
Utilisation (36) (9) (24) (6) (75)
Provisions released in the year - . (7) (4) en) (12)
ane released in the year . . . (5) (5)
At 31 March 2019 12 41 22 9 84
Network
Programmes Property Severance Other Total
£m £m £m £m ém
Disclosed as:
At 31 March 2019
Current 6 14 22 8 50
Non-current 6 27 = 1 34
12 41 22 9 84
At 25 March 2018
Current 11 11 7 7 36
Non-current 7 21 . 2 30
18 32 7 9 66
The Group has recognised provisions where a present legal or constructive obligation exists as a
result of a past event, where it is probable that an outflow of resources will be required to settle the
obligation and a reliable estimate of the amount can be made.
The Network Programmes provision relates to payments due to postmasters in relation to the major
transformation programme. Provisions are recognised when either postmasters agree to terminate
their existing contracts or sign the new format contracts under Network Transformation.
Property provisions relate to vacant and onerous leases and dilapidations. Vacant and onerous lease
provisions are recognised on leasehold properties when the unavoidable costs of meeting the
obligations of the lease agreement exceed the benefits expected to be received under it.
Severance provisions are recognised for business reorganisation where the plans are sufficiently
detailed and well advanced and where appropriate communication to those affected has been
undertaken at the balance sheet date.
Other provisions of £9 million includes £1 million for personal injury claims and £2 million which sits
within the subsidiary Post Office Management Services Limited and relates to the repayment of
commission received in the event of the cancellation of insurance policies.
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
16. Financial assets and liabilities
a. Financial assets and liabilities by category
The breakdown of the Group’s financial instruments at 31 March 2019 and 25 March 2018 is shown
below:
2019 2018
Non - Non -
Current current Total Current current Total
£m £m £m £m —m £m
Financial assets
Trade and other receivables 325 2 327 307 2 309
Cash and cash equivalents 543 - 543 655 - 655
Financial liabilities
Trade and other payables (505) (3) (508) (531) (4) (535)
BEIS loan (565) - (565) (623) - (623)
Total financial liabi (202) Ww (203) (192) (2) (194)
Except for prepayments, social security and deferred income, which have been excluded from the
table above, all of the Group’s financial assets and liabilities by nature and classification for
measurement purposes are considered loans and receivables.
The fair value of the Group’s financial assets and liabilities approximate their carrying value due to
the short-term maturities of these instruments. The fair value of financial assets and liabilities is
defined as the amount at which the Group would expect to receive upon selling an asset or pay to
transfer a liability in a transaction between market participants at the measurement date.
All of the Group’s financial assets and liabilities are considered to be Level 2 in the fair value
hierarchy. The nature of the inputs used in determining the values of the financial assets and
liabilities are those other than quoted prices included within Level 1 that are observable for the asset
or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
The Group has no Level 1 and Level 3 financial instruments and there have been no transfers
between the levels of fair value hierarchy during the period.
b. Financial risk management objectives and policies
The Group is exposed to a variety of financial risks: market risk (including foreign currency risk and
interest rate risk), credit risk and liquidity risk. The Group’s overall risk management programme
focuses on the unpredictability of financial markets and aims to minimise potential adverse effects
on the Group’s financial performance.
Interest rate risk
The Group is exposed to changes in interest rate on floating rate debt, cash deposits, current
account balances, and commission income. Interest rate risk on borrowings is managed through
determining the right balance of fixed and floating debt within the financing structure. Market
conditions are considered when determining the desired balance of fixed and floating rate debt. Had
there been a 50 basis point increase in interest rates, there would have been an £7 million
favourable impact on the Group’s equity and income statement. A 50 basis point decrease would
have resulted in a £7 million adverse impact on the Group’s equity and income statement.
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132 of 286
Notes to the financial statements (continued)
In 2018/19, to hedge its exposure to the variability of commission income linked to 1-month Libor,
the Group entered into a three year amortising interest rate swap which has the effect of fixing a
proportion of the interest commission income. The qualifying criteria for hedge accounting were met
and in accordance with IFRS 9 the swap was designated as the hedging instrument in a cash flow
hedge. At year end, the hedging instrument had a fair value of £3 million and has been included
within trade and other receivables on the balance sheet.
Foreign currency risk
The Group is exposed to foreign currency risk resulting from balances held to operate Bureau de
Change services.
The currencies in which these transactions are primarily denominated are US dollar and Euro. The
Group’s foreign currency risk management objective is to minimise the impact on the Income
Statement of fluctuations in the exchange rates. The Group hedges its foreign currency risk
principally through external forward foreign currency contracts to cover near-term future revenues
with a number of providers including First Rate Exchange Services Holdings Limited.
The following table demonstrates the sensitivity of financial instruments to a reasonably possible
change in the US dollar and Euro exchange rates, assuming they are unhedged and with all other
variables held constant, on profit/(loss) before tax and equity.
Strengthening Effect on Strengthening Effect on
/ (weakening) profit Effect / (weakening) profit Effect
in US dollar rate before tax on equity in euro rate before tax on equity
% ém —m % ém £m
Increase / Increase / —_ Increase / Increase / Increase / Increase /
(decrease) (decrease) (decrease) (decrease) (decrease) _ (decrease)
2019 10 1 1 10 2} 2
(10) q@) (1) (10) (2) (2)
2018 10 1 1 10 3 3
(10) (1) (1) (10) (3) (3)
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in
financial loss to the Group. Financial credit risk arises from cash balances (including bank deposits
and cash and cash equivalents) held by the Group and business credit risk arises from exposures to
customers. Business risk includes commission receivable and client related settlements for amounts
paid out of the Post Office network on their behalf.
The Group aims to minimise its financial credit risk through the application of risk management
policies approved by the Board. Counterparties are limited to major banks and financial institutions.
The policy restricts the exposure to any one counterparty by setting appropriate credit limits. The
Hise aa to credit risk is limited to the carrying value of each class of asset summarised
in note [ A
Business credit risk is monitored centrally. The level of bad debt provision is 2% (2018: less than
2%) of revenue.
Capital management
The Group’s objectives when managing capital (defined as the net of borrowings and cash and cash
equivalents excluding cash in the Post Office Network) are to safeguard its ability to continue as a
going concern and to maintain an optimal capital structure in order to support the business and
maximise stakeholder value. In managing the Group’s capital levels the Board and the Group
Executive regularly monitor the level of debt in the Group, the working capital requirements and the
forecast cash flows. The Board and Group Executive plan accordingly following this review process in
order to meet the Group's capital management objectives.
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
Liquidity risk
The Group’s primary objective is to ensure that the Group has sufficient funds available to meet its
financial obligations as they fall due. This is achieved by aligning short-term investments and
borrowing facilities with forecast cash flows. Typical short-term investments include short term bank
deposits with approved counterparties. Borrowing facilities are regularly reviewed to ensure
continuity of funding.
The Group has adequate cash reserves to meet operating requirements in the next 12 months.
At 31 March 2019 the Group has unused facility of £385 million (2018: £327 million). The working
capital facility expires in 2021.
In addition to the security interest provided to BEIS in connection with the £950 million Working
Capital Facility (note [14]), Post Office Limited has also created a first floating charge over its
assets as security for the payment and discharge of certain liabilities arising in the normal course
of its client-related activity. The charge under these arrangements is restricted in its ability to
take an acceleration action in relation to its debt. As at the balance sheet date the outstanding
liabilities amounted to £95 million (2018: £100 million).
The tables below analyse the Group’s financial assets and liabilities into relevant maturity groupings
based on the remaining period at the balance sheet date to the contractual maturity date. The
amounts disclosed in the table are the contractual undiscounted cash flows and include interest,
where applicable.
12 1-2
Months Years Total
At 31 March 2019 —m —m £m
Financial assets
Trade and other receivables 325 2 327
Cash and cash equivalents 543 . 543
Financial liabilities
Trade and other payables (505) (3) (508)
Interest bearing loan (565) - (565)
Total financial assets/(liabi (202) (1) (203)
12 1-2
Months Years Total
At 25 March 2018 £m £m £m
Financial Assets
Trade and other receivables 307 2 309
Cash and cash equivalents 655 - 655
Financial Liabilities
Trade and other payables (531) (4) (535)
Interest bearing loan (623) - (623)
Total financial assets/(liabilities) (192) (2) (194)
Prepayments, social security and deferred income have been excluded from the table above. There
were no financial assets or liabilities in the current or prior year that were due to mature after two
years.
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
17. Retirement benefit surplus
The disclosures in this note reflect the two defined benefit schemes: the Post Office section of the
Royal Mail Pension Plan (RMPP) which is independent from the Royal Mail section of the RMPP,
and a 7% share of the Royal Mail Senior Executives Pension Plan (RMSEPP). Royal Mail Group Ltd
is the principal employer of RMSEPP and Post Office Limited became a participating employer
with effect from 1 April 2012. This disclosure also includes the Post Office Pension Plan (POPP),
which is a defined contribution scheme.
The disclosures in this note show the value of the assets and liabilities that have been calculated
at the balance sheet date.
Post Office participates in pension schemes as detailed below.
Name Eligibility Type
Royal Mail Pension Plan (RMPP)* UK employees Defined benefit
Royal Mail Senior Executives Pension Plan (RMSEPP) UK senior executives Defined benefit
Post Office Pension Plan (POPP) UK employees Defined contribution
*The RMPP closed to future accrual on 31 March 2017.
Defined Contribution
The charge in the income statement for the defined contribution scheme was £13 million (2018:
£17 million) and the Group contributions to this scheme were £20 million (2018: £20 million)
during the year.
Defined Benefit
Both RMPP and RMSEPP are funded by the payment of contributions to separate Trust
administered funds. It should be noted that the assumptions used for these pension disclosures
are not the same as the assumptions used for funding the plans. The latest full actuarial funding
valuation of the RMPP was carried out as of 31 March 2018 using the projected unit method. For
RMPP, this valuation was concluded at £20 million surplus (31 March 2015 valuation: £63 million
surplus) on a Technical Provisions basis. Valuations are carried out triennially.
RMPP includes sections A, B and C each with different terms and conditions:
« Section A is for members (or beneficiaries of members) who joined before 1 December
1971.
« Section B is for members (or beneficiaries of members) who joined after 1 December
1971 and before 1 April 1987 or to Section A members who chose to receive Section B
benefits.
« Section C is for members (or beneficiaries of members) who joined after 1 April 1987 and
before 1 April 2008.
The latest full actuarial funding valuation for RMSEPP was carried out as at 31 March 2018 using
the projected unit method. For 100% of RMSEPP, the valuation concluded at £49 million surplus
(31 March 2015 valuation: £17 million surplus) on a Technical Provisions basis.
A series of changes to RMPP and RMSEPP have taken effect since 1 April 2008.
The changes encompassed are:
* The Plans closed to new members from 31 March 2008.
«All pensions and benefits earned before 1 April 2008 retained a link to final pensionable
salary, benefits accrued from 1 April 2008 were earned on a “career average pensionable
salary” basis.
« RMPP employees can continue to take their pension on reaching age 60 but the normal
retirement age increased to age 65 for benefits earned from 1 April 2010.
« From 1 April 2010 it was possible to draw pension earned before the change to normal
retirement age at age 55 (subject to an actuarial reduction in the pension benefit), and
continue working while still contributing to the RMPP until the maximum level of benefits
was reached.
* RMSEPP was closed to future accrual on 31 December 2012.
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Notes to the financial statements (continued)
e Liabilities accrued in the RMPP to 31 March 2012 were largely transferred to the Royal
Mail Statutory Pension Scheme. The pre-31 March 2012 liabilities are substantially no
longer an obligation of Post Office and the transfer therefore resulted in a significant
removal of pension risk for Post Office.
e In relation to RMPP only, from 1 April 2014 pensionable salary was amended to the
amount in force as at 31 March 2014, increasing each 1 April thereafter in line with RPI
(up to 5% each year), with allowance for certain promotional increases.
«The Post Office section of the RMPP closed to future accrual on 31 March 2017 and so no
further defined benefits have accrued in respect of Post Office employment after that
date; however for as long as a member remains in employment with the Group or has not
taken pension, pre-1 April 2012 pension benefits are linked to pensionable salary and
post-31 March 2012 benefits receive in-deferment increases (linked to CPI). Closure to
future accrual means that no contributions in respect of normal service accrual are
required after 31 March 2017. However there were redundancy payments of £1 million
(2018: £5 million) made to the RMPP during 2018/19, which were paid in order to fund
enhanced benefits for the members concerned.
e On 21 March 2017 Post Office executed a Memorandum of Understanding with the Trustee
of the RMPP. This clarified the Trustee’s powers to distribute surplus without Post Office’s
agreement and Post Office concluded that it no longer had an unconditional right to
refund from the Plan. In light of this, in accordance with IFRIC 14, the RMPP pension
surplus was derecognised as at 26 March 2017.
Even though RMSEPP had a funding surplus on a Technical Provisions basis at the date of the
latest full actuarial funding valuation, under the associated Schedule of Contributions, payments
of £1 million per annum has been made. Post Office’s share of these payments is 7% of the total.
The payments will continue to 31 March 2025.
The weighted average duration of the Post Office section of the RMPP is around 25 years, and for
RMSEPP is around 20 years.
In July 2017 the Trustee of the RMPP invested in two bulk annuity policies with Rothesay Life.
Those policies provide an income to the Post Office section of the RMPP that matches the vast
majority of the required benefit payments; as shown in the following disclosures, the estimated
value of those policies (on the IAS 19 assumptions as at 31 March 2019) is £292 million (2018:
£272 million), compared to the RMPP defined benefit obligation of £320 million (2018: £298
million). The £28 million difference in these figures is due to a £20 million reserve for future
administration expenses (which are not matched by the annuity policies), plus £8 million in
respect of small differences between the insured benefits and the actual benefit obligation.
A bulk annuity policy (with Scottish Widows) is also held by the Trustee of the RMSEPP. As shown
in the following disclosures, the estimated value of that policy, on the IAS 19 assumptions as at
31 March 2019, is £28 million (2018: £12 million), compared to the RMSEPP defined benefit
obligation of £29 million (2018: £27 million).
Therefore, as at 31 March 2019, 92% of the aggregate defined benefit obligation (i.e. £320
million out of the £349 million) is matched by bulk annuities that provide income matching the
required benefit payments. As such, the majority of the investment and longevity risk associated
with Post Office’s obligations in respect of the defined benefit plans has been removed (noting
that the bulk annuity policies are subject to protection from insurance regulations, including
access to the Financial Services Compensation Scheme, in the event of insurer insolvency).
Nevertheless, to the extent that 8% of the defined benefit obligation is not matched by bulk
annuities, some risk remains in respect of that 8%, in particular the risk that members with
uninsured benefits live for longer than expected, the risk that inflation is higher than expected,
leading to higher than expected increases to the uninsured benefits, the risk that the assets in
excess of the bulk annuity polices generate poor investment returns, and the risk that
administration expenses are higher than anticipated. However, these risks are expected to be
mitigated by the surplus assets shown in the disclosures (before allowing for the fact that the
RMPP surplus is not recognised on Post Office’s balance sheet due to the Memorandum of
Understanding described above).
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
The following disclosures relate to the gains/losses and surplus/deficit in respect of Post Office’s
obligations to RMPP and RMSEPP:
Major long-term assumptions
The size of the defined benefit obligation shown in the financial statements is materially sensitive
to the assumptions adopted. Small changes in these assumptions could have a significant impact
on this value. The overall income statement charge and past service adjustment in the income
statement are also sensitive to the assumptions adopted. However, the majority of any change in
the defined benefit obligation due to changes in assumptions, will be matched by a corresponding
change in the value in the bulk annuity policies (described above).
The major long-term assumptions in relation to both RMPP and RMSEPP were:
At 31 March 2019 At 26 March 2018
% pa % pa
Increases to benefits that retain a link to pensionable pay 3.4 3.3
Rate of pension increases - RMPP sections A/B 2.4 2.2
Rate of pension increases - RMPP section C 3.4 3.3
Rate of pensions increases - RMSEPP members transferred 2.4 2.2
from Section A or B of RMPP
Rate of pension increases - RMSEPP all other members 3.4 3.3
Rate of increase for deferred pensions 2.4 2.2
Discount rate 2.4 2.5
Inflation assumption (RPI) - RMPP & RMSEPP 3.4 3.3
Inflation assumption (CPI) - RMPP & RMSEPP 2.4 2.2
The following table shows the potential impact on the value of Post Office’s defined benefit
obligation in respect of RMPP and RMSEPP of changes in key assumptions. As noted above, the
bulk annuities held by the arrangements provide an income that matches the vast majority of the
RMPP benefit payments, and a significant proportion of the RMSEPP benefit payments. Therefore
the following changes in the defined benefit obligation would be largely offset by a corresponding
change in the asset values.
2019 2018
£m —m
Changes in RPI and CPI inflation of +0.1% pa (8) (8)
Changes in discount rate of +0.1% pa 8 8
Changes in CPI assumptions of +0.1% pa 3 (3)
An additional one year life expectancy 11 (9)
The sensitivity analysis has been prepared using projected benefit cash flows as at the latest full
actuarial valuation of the plan. The same method was applied as at the previous reporting date.
The accuracy of this method is limited by the extent to which the profiles of the plan cash flows
have changed since those valuations although any change is not expected to be material in the
context of the above sensitivity analysis.
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
Mortality: The mortality assumptions used to calculate the value of Post Office’s defined benefit
obligation in respect of RMPP and RMSEPP are based on the latest self-administered pension
scheme (SAPS “S2” series) mortality tables as shown in the following table:
Base mortality tables 2019 2018
Male members 100% x S2PMA 100% x S2PMA
Male dependants 100% x S2PMA 100% x S2PMA
Female members 100% x S2PFA 100% x S2PFA
Female dependants 100% x S2PFA 100% x S2DFA
CMI 2018 Core Projections with CMI 2016 Core Projections
Future improvements a 1.5% pa long-term trend _with a 1.5% pa long-term trend
Average expected life expectancy from age 60: 2019 2018
For a current 60 year old male RMPP member 27 years 27 years
For a current 60 year old female RMPP member 29 years 29 years
For a current 40 year old male RMPP member 28 years 29 years
For a current 40 year old female RMPP member 31 years 31 years
b) Plans’ assets
The assets in the plans for the Group were:
Market value 2019 Market value 2018
Sectionalised RMPP £m £m
Corporate bonds a 16
Private Equity 4 6
Cash and cash equivalents 43 28
Bond/fixed interest funds 9 1
Other loan/debt funds 10 10
Alternative asset funds 4 5
Bulk annuity policies* 292 272
Fair value of RMPP assets 362 338
Present value of RMPP liabilities (320) (298)
Surplus in plan before asset ceiling adjustment 42 40
Less effect of asset ceiling (42) (40)
Surplus in plan after asset ceiling adjustment - -
* As described above, the Post Office section of the RMPP holds two bulk annuity policies with Rothesay Life
PLC. The value ascribed to the policies has been calculated using the same assumptions as used to calculate
the present value of the defined benefit obligation.
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Market value 2019 Market value 2018
Share of RMSEPP. £m £m
Overseas equities - 8
Government bonds = 17
Cash and cash equivalents be 1
Alternative asset funds 2 (8)
Property 1 2
Bulk annuity policy* 28 12
Fair value of share in plan assets for RMSEPP 29 32
Present value of share in plan liabilities for RMSEPP (29) (27)
Surplus in plan for the share of RMSEPP before asset . 5
ceiling adjustment
Less effect of asset ceiling 1 (2)
Surplus in plan for share of RMSEPP after asset
ceiling adjustment
*As described above, RMSEPP holds a bulk annuity policy with Scottish Widows. The value ascribed to this
policy has been calculated using the same assumptions as used to calculate the present value of the defined
benefit obligation.
1 3
As described above, no surplus is recognised for RMPP because the Group no longer has an
unconditional right to refund from the Plan. A retirement benefit surplus of £1 million is disclosed
on the balance sheet, representing the surplus in the RMSEPP only.
There is no element of the above present value of liabilities that arises from plans that are wholly
unfunded. With the exception of the bulk annuity policy described above, all RMPP and RMSEPP
assets are securities with a quoted price in an active market.
c) Movement in plans’ assets and li ies
Changes in the fair value of the plans’ assets are analysed as follows:
Assets Sectionalised Sectionalised
RMPP RMPP
2019 2018
£m £m
Assets in sectionalised RMPP at beginning of period 338 532
Contributions paid 1 5
Finance income u 4
Actuarial gains/(losses) 21 (201)
Benefits paid to members (5) (5)
Assets in sectionalised RMPP at end of period 362 338
Share of Share of
x RMSEPP RMSEPP
ssets 2019 2018
£m £m
Share of assets in RMSEPP at beginning of period 32 =
Contributions paid - 1
Finance income 1 1
Actuarial losses (2) (1)
Benefits paid to members (2) (1)
Share of assets in RMSEPP at end of period 29 32
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Notes to the financial statements (continued)
Changes in the present value of the defined benefit pension obligations are analysed as follows:
Liab Sectionalised Sectionalised
RMPP RMPP
2019 2018
£m £m
Liabilities in sectionalised RMPP at beginning of period (298) (322)
Past service cost (1) (4)
Finance cost (7) (7)
Experience adjustments on liabilities (6) (2)
Financial assumption changes (18) 23
Demographic assumption changes 4 9
Benefits paid 6 5
Liabilities in sectionalised RMPP at end of period (320) (298)
Liabilities Share of Share of
RMSEPP RMSEPP
2019 2018
£m £m
Share of liabilities in RMSEPP plans at beginning of period (27) (31)
Finance cost (1) (1)
Experience adjustments on liabilities (1) -
Financial assumption changes Q) 3
Demographic assumption changes 1 1
Benefits paid 1 1
Share of liabilities in RMSEPP at end of period (29) (27)
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Notes to the financial statements (continued)
d) Recognised charges
An analysis of the separate components of the amounts recognised in the performance
statements of the Group is as follows:
Sectionalised Sectionalised
RMPP RMPP
2019 2018
£m ém
Analysis of amounts recognised in the income statement
Analysis of amounts charged to investments:
Loss due to curtailments 1 4
Total charge to operating profit 1 4
Analysis of amounts (credited)/charged to net pensions interest:
Interest on plan liabilities 7 7
Interest income on plan assets (7) (7)
Net pensions credit to financing il a
Net charge to the income statement 1 4
Analysis of amounts recognised in the statement of
comprehensive income
Actual return on plan assets 28 (194)
Less: expected interest income on plan assets (7) (7)
Actuarial gains/(losses) on assets (all experience adjustments) 21 (201)
Actuarial gains arising from changes in demographic assumptions 4 9
Actuarial (gains)/losses arising from changes in financial assumptions (18) 23
Actuarial losses arising from experience adjustment (6) (2)
Actuarial (gains)/losses on liabilities (20) 30
Effect of the asset ceiling (2) 170
Total actuari: 1 losses recognised in the statement of . (1)
comprehensive income
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Notes to the financial statements (continued)
Share of Share of
RMSEPP RMSEPP
2019 2018
£m £m
Analysis of amounts recognised in the income statement
Analysis of amounts charged to net pensions interest:
Interest on plan liabilities 1 1
Interest income on plan assets (1) (@)
Net pensions credit to financing = :
Net charge to the income statement before deduction for tax - -
Analysis of amounts recognised in the statement of
comprehensive income
Actual return on plan assets (1) 2
Less: expected interest income on plan assets (4) (1)
Actuarial losses on assets (all experience adjustments) (2) (@)
Actuarial gains arising from changes in demographic assumptions 1 1
Actuarial (losses)/gains arising from changes in financial assumptions (2) 3
Actuarial losses arising from experience adjustment (1)
Actuarial (gains)/losses on liabilities (2) 4
Total actuarial (gains)/losses recognised in the statement of (4) 7
comprehensive income before effect of asset ceiling
Effect of the asset ceiling 1 (2)
Total actuarial (gains)/losses recognised in the statement of .
comprehensive income after effect of asset ceiling (3) 1
18. Equity
Called up share capital:
2019 2018
£ E
Authorised
Ordinary shares of £1 each 51,000 51,000
Total 51,000 51,000
Allotted and issued and fully paid
Ordinary shares of £1 each 50,003 50,003
Total 50,003 50,003
Other reserves:
Other reserves of £2 million (2018: £2 million) relate to First Rate Exchange Services Holdings
Limited, the joint venture entity, and £3 million (2018: £nil) relates to a cash flow hedge.
Share premium:
On 7 August 2007 one ordinary share of £1 was issued in return for £313 million cash paid by the
Secretary of State for Business, Enterprise and Regulatory Reform. A share premium of £313 million
resulted from this subscription. In April 2008 two ordinary £1 shares were issued in return for £152
million cash paid by the Secretary of State for Business, Energy and Industrial Strategy. A share
premium of £152 million resulted from this subscription.
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Notes to the financial statements (continued)
19. Commitments and contingent liabilities
The Group is also committed to the following minimum lease payments under non-cancellable
operating leases:
Land and buildings Motor vehicles
2019 2018 2019 2018
£m £m £m £m
Within one year 11 13 1 1
Between one and five years 24 34 1 -
Beyond five years 18 33 - -
Total 53 80 2 1
Contingent liabilities: As a large, nationwide retailer operating in dynamic and competitive markets,
we may be subject to regulatory investigations and may face damage to our reputation and legal
claims.
From time to time, we may be named as a defendant in legal claims or be required to respond to
regulatory actions in connection with our activities. This may include claims for substantial or
indeterminate amounts of damages from customers, employees, consultants and contractors, or
may result in penalties, fines, or other results adverse to us. Like any large company, we may also
be subject to the risk of potential employee or postmaster misconduct, including non-compliance
with policies and improper use or disclosure of our assets or confidential information.
On 11 April 2016, a High Court claim was issued on behalf of a number of postmasters against Post
Office in relation to various legal, technical and operational matters, many of which have been the
subject of significant external focus for a number of years. Post Office is robustly defending the
claim, believes it lacks merit, but welcomes the opportunity to have these matters resolved through
the Court managed Group Litigation Order.
The Court has ordered two trials to be heard in 2018-19 to determine a subset of the preliminary
issues in dispute between the parties. The Court has not yet ordered a process for determining any
issues of liability or quantum. To date, the Claimants have not asserted the aggregate value of their
claims in any of the Particulars of Claim filed in the litigation.
While the Directors recognise that an adverse outcome could be material, they are currently
unable to determine whether the outcome of these proceedings would have a material adverse
impact on the consolidated position of the Group, and are unlikely to be able to do so until the
Court has made further determinations and the Claimants have provided the necessary
information about the value of their claims. The Directors continue to keep this under close
review.
The costs of £14 million included in exceptional items relate to Post Office defending the Post Office
Group Litigation (2018: £3 million). These have been disclosed as exceptional items because we
expect costs to remain significant in 2019/20 and 2020/21.
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Notes to the financial statements (continued)
20. Business combinations
On 24 October 2018, the Group acquired Payzone Bill Payments Limited ("Payzone”) for cash
consideration of £16 million. Further consideration of £3 million is contingent on the future
performance of certain Payzone revenue streams. £1 million has been paid as at 31 March 2019. The
acquisition developed the bill payments business and has been accounted for under IFRS 3 Business
Combinations.
The fair values of the identifiable assets and liabilities of the business as at the date of acquisition
were:
2018
£m
Property, plant and equipment 4
Trade and other receivables
Cash and cash equivalents 1
Trade and other payables (6)
Net assets acquired 5
Intangible assets - merchant relationships
Intangible assets - brand 1
Deferred tax liability on acquired intangible assets (1)
Goodwill 8
Total consideration 19
Consideration is represented by:
Cash 16
Contingent consideration 3
Total consideration 19
The goodwill arising from the acquisition represents the opportunity to integrate technology and
combine the Group’s existing bill payments business with Payzone in order to compete for new and
bigger bill payment contracts from a stronger position. The goodwill arising on acquisition is not
deductible for income tax purposes, Goodwill has been reviewed for impairment at acquisition and
during the year and on both occasions the amount is considered to represent fair value. There are no
indicators of impairment.
Associated acquisition expenses were immaterial and have been charged to the income statement,
within the investments column.
From the date of acquisition to 31 March 2019, the Payzone business has contributed £4 million of
revenue and £1 million to trading profit.
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
21. Related party disclosures
Joint venture
The following Company is a joint venture of the Group:
Company Country of incorporation % Holding Principal activities
First Rate Exchange
Services Holdings Limited United Kingdom 50 Bureau de Change
All shareholdings are equity shares. Summarised financial information for the joint venture is
included in note [10].
Related party transactions
During the year the Group entered into transactions with the following related parties. The
transactions were in the ordinary course of business. The transactions entered into and the balances
outstanding at the financial year-end were as follows:
Amounts owed from Amounts owed to
Sales / recharges Purchases / related party related party
to related recharges from including including
party related party outstanding loans outstanding loans
2019 2018 2019 2018 2019 2018 2019 2018
£m £m £m £m £m £m £m —£m
First Rate
Exchange Services
Holdings Limited 36 34 112 118 2 8 6 4
The sales to and purchases from related parties are made at normal market prices. Balances
outstanding at the year-end are unsecured, interest free and settlement is made by cash. First Rate
Exchange Services Holdings Limited is a joint venture of the Group.
The Ggoup trades with numerous Government bodies on an arm’s length basis, such as the DWP,
the DVLA and the Home Office. Transactions with these entities are not disclosed owing to the
significant volume of transactions that are conducted.
Separately:
. The Group has certain loan facilities with Government (page [xx]).
. The Group has received investment funding from Government of £168 million (2018: £70
million), all of which was recognised through the income statement.
. The Group has received the Network Subsidy Payment from Government (page [XX]).
Key management personnel comprises the Executive and Non-Executive Directors of the Post
Office Limited Board at 31 March 2019. The remuneration of the key management personnel of
the Post Office Group is disclosed in note [5] on pages [XX] and xxl
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Notes to the financial statements (continued)
22. Membership of the Bank of England’s Note Circulation
Scheme
Post Office Limited is a member of the Bank of England (the ‘Bank’) Note Circulation Scheme (the
‘NCS’) which governs the custody of Bank of England notes that are not in issue. The NCS promotes
efficiency in the distribution and processing of notes by allowing approved commercial organisations,
engaged in the wholesale distribution and processing of cash, such as the Post Office, to hold notes
owned by the Bank.
The continued participation in the NCS ensures that Post Office Limited has an adequate supply of
notes to meet customer demand across its network.
The NCS mechanisms that enable Post Office Limited to hold Bank of England owned notes comprise
of two elements:
Bond Facility Cash (the ‘Bond’) - this is cash that is permanently owned by the Bank and is stored in
secure vaults at our cash centres, physically separate from other cash. Post Office Limited buys cash
from and sells cash to the Bond.
Note Recirculation Facility Cash (the ‘NRF’) — this is cash that is held securely, either in our NCS cash
centres or in the branch network and that is sold to the Bank at the end of each day with a
commitment from Post Office Limited to buy it back the next morning. In order to sell notes in this
way to the Bank, Post Office Limited must ensure that Gilts are lodged each night as collateral. Our
ability to sell notes to the Bank under the NRF is constrained by:
a) The amount of eligible notes available for sale.
b) The collateral available.
c) An annual limit imposed by the Bank dependent upon the volume of notes sorted and issued
from our cash centres.
In order to support its participation in the NCS, Post Office Limited has bank facilities of up to £400
million in place (the ‘Facilities’), comprising:
a) An overnight collateral facility.
b) An intra-day overdraft facility.
The Facilities may be cancelled by the lender with 60 days’ notice.
At the end of the year £227 million (2018: £238 million) were held in this way.
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Notes to the financial statements (continued)
23. Alternative performance measures
An alternative performance measure is a financial measure of historical or future financial
performance, position or cash flows of the Group which is not a measure defined or specified in
IFRS.
Trading profit
Trading profit is one of the Group’s key financial measures and is calculated by taking operating
profit from continuing operations before depreciation, amortisation, exceptional items, closure of
activities, investments and Network Subsidy Payment. The table below summarises the calculation of
operating profit before exceptional items, trading profit before Network Subsidy Payment and trading
profit.
2019 2018
£m —m
Operating profit 52 15
Adjusted for:
Exceptional items 14 3
Operating profit before exceptional items 66 18
Depreciation and amortisation 94 55
Investments (39) 32
Trading profit before Network Subsidy Payment 121 105
Network Subsidy Payment (60) (70)
Trading profit 61 35
24. Post balance sheet events
In accordance with the Funding Agreement with Government signed on 30 March 2017, Post
Office Limited received a Network Subsidy Payment of £18 million on 2 April 2019. The Network
Subsidy Payment is received on a quarterly basis and a total of £50 million will be received from
Government in 2019/20.
25. Ultimate controlling party
The Post Office Limited was a wholly owned subsidiary of Postal Services Holding Company
Limited until it entered voluntary liquidation in June 2017 and the shares in Post Office Limited
were transferred to the Secretary of State for BEIS.
BEIS holds a special share in Post Office Limited and the rights attached to that special share are
enshrined within Post Office Limited Articles of Association. BEIS, through UK Government
Investments Limited (UKGI), has no day to day involvement in the operations of Post Office
Limited or in the management of its branch network and staff. As such, at 31 March 2019, the
Directors regarded Post Office Limited as the immediate and ultimate parent Company.
The largest Group to consolidate the results of the Company is Post Office Limited, a company
registered in the United Kingdom. Post Office Limited financial statements can be obtained from
Finsbury Dials, 20 Finsbury Street, EC2Y 9AQ.
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Post Office Limited
Company
Financial Statements
2018/19
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Tab 6 Annual Report and Accounts 2018/19
Company balance sheet
at 31 March 2019 and 25 March 2018
2019 2018
Note £m £m
Non-current assets
Intangible assets 3 215 211
Property, plant and equipment 4 173 148
Investment in subsidiaries 5 74 50
Investments in joint venture 6 66 66
Retirement benefit surplus 12 1 3
Trade and other receivables 7 6 12
Total non-current assets 535 490
Current assets
Inventories 8 9
Trade and other receivables 7 344 323
Cash and cash equivalents 8 541 644
Total current assets 893 976
Total assets 1,428 1,466
Current liabilities
Trade and other payables 9 (523) (565)
Financial liabilities - interest bearing loans and borrowings 10 (565) (623)
Provisions 41 (49) (35)
Total current liabilities (1,137) (1,223)
Non-current liabilities
Other payables 9 (14) (18)
Provisions 11 (33) (30)
Total non-current liabilities (47) (48)
Net assets 244 195
Equity
Share capital 13 - -
Share premium 13 465 465
Accumulated losses (226) (272)
Other reserves 5 2
Total equity 244 195
The notes on page [XX] to [XX] form an integral part of the financial statements.
The result dealt with in the financial statements of the Company amounted to a profit of £[48]
million (2018: £15 million).
The financial statements on pages [XX] to [XX] were approved by the Board of Directors on XX
XXX 2019 and signed on its behalf by:
ACJ Cameron
Interim Chief Executive
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Company statement of changes in equity
for the 53 weeks ended 31 March 2019 and 52 weeks ended 25 March 2018
Share Share Accumulated Other Total
capital Premium losses reserves equity
£m £m £m £m £m
At 26 March 2018 - 465 (272) 2 195
Profit for the year - - 48 - 48
Gains on cash flow hedges - - . 3 3
Re-measurements on defined - - (3) - (3)
benefit surplus
Asset ceiling effect - - 1 - 1
At 31 March 2019 - 465 (226) 5 244
Share Share Accumulated Other Total
capital Premium losses reserves equity
£m £m £m £m £m
At 27 March 2017 " 465 (287) 2 180
Profit for the year - - 15 - 15
Re-measurements on defined . - 2 . 2
benefit surplus
Asset ceiling effect - ; (2) - (2)
At 25 March 2018 « 465 (272) 2 195
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Notes to the financial statements
1. Accounting Policies
The accounting policies which follow, set out those which apply in preparing the Company financial
statements for the 53 week period ended 31 March 2019.
Financial year
The financial year ends on the last Sunday in March and accordingly, these financial statements are
made up to the 53 weeks ended 31 March 2019 (2018: 52 weeks ended 25 March 2018).
Authorisation of financial statements
The parent Company financial statements of Post Office Limited (the ‘Company’) for the year ended
31 March 2019 were authorised for issue by the Board of Directors on XX XXX 2019 and the balance
sheet was signed on the Board’s behalf by A C J Cameron. Post Office Limited is a company limited
by share capital, incorporated and domiciled in England and Wales. The address of the registered
office is given on page [XX].
Basis of preparation
These financial statements were prepared in accordance with Financial Reporting Standard 101
Reduced Disclosure Framework (“FRS” 101). These financial statements are prepared under the
historical cost convention. The financial statements have been prepared in accordance with the
requirements of the Companies Act 2006.
As permitted by Section 408 of the Companies Act 2006 Post Office Limited has not presented its
own income statement.
The results of Post Office Limited are included in the consolidated financial statements of Post Office
Limited which are available from Companies House.
The Company has taken advantage of the following disclosure exemptions under FRS 101:
(a) the requirements of IFRS 7 ‘Financial Instruments: Disclosures’.
(b) the requirements of paragraphs 91-99 of IFRS 13 Fair Value Measurement.
(c) the requirement in paragraph 38 of IAS 1 ‘Presentation of Financial Statements’ to present
comparative information in respect of:
a. paragraph 73(e) of IAS 16 ‘Property, Plant and Equipment’.
b. paragraph 118(e) of IAS 38 ‘Intangible Assets’.
(d) the requirements of paragraphs 10(d), 10(f), 39(c), 40.A and 134-136 of IAS 1 ‘Presentation
of Financial Statements’.
(e) the requirements of IAS 7 ‘Statement of Cash Flow’s.
(f) the requirements of paragraphs 30 and 31 of IAS 8 ‘Accounting Policies, Changes in
Accounting Estimates and Errors’.
(g) the requirements of paragraph 17 of IAS 24 ‘Related Party Disclosures’.
(h) the requirements of IAS 24 ‘Related Party Disclosures’ to disclose related party transactions
entered into between two or more members of a Group, provided that any subsidiary which is
a party to the transaction is wholly owned by such a member.
Fundamental accounting concept — going concern
The Company had net assets of £244 million at 31 March 2019 (2018: £195 million). At 31 March
2019 £385 million of the Company’s working capital facility was undrawn (2018: £327 million). The
Company has also shown a profit for the year of £48 million (2018: £15 million).
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
We have the following funding agreed with BEIS: a working capital facility of £950 million to 31
March 2021; a further £50 million facility available to provide same day liquidity to 4 April 2020;
NSP of £50 million
for 2019/20 and 2020/21 respectively; and we also have investment funding of up to £210 million as
required for the period from April 2018 to March 2020.
After careful consideration of the plans for the coming years, the Directors continue to believe that
Post Office Limited will be able to meet its liabilities as they fall due for the next 12 months.
Accordingly, on that basis, the Directors consider that it is appropriate that these financial
statements have been prepared on a going concern basis.
Accounting policies
The following accounting policies are consistent with those of the Group as detailed in note 1 of the
Group financial statements:
« Critical accounting estimates and judgements in applying accounting policies.
* Revenue.
« Investments column in the income statement.
+ Leases.
« Taxation.
+ Investments in joint venture.
* Business combinations.
¢ Property, plant and equipment.
e Intangible assets.
«Inventories.
° Trade receivables.
«Cash and cash equivalents.
«Pensions and other post-retirement benefits.
* Foreign currencies.
«Provisions.
¢ Financial instruments.
«Derivatives and hedging activities.
Auditors’ remuneration
The remuneration paid to auditors is disclosed in the Group financial statements (note [3]).
Directors’ emoluments
The emoluments paid to Directors are disclosed in the Group financial statements (note [5]).
Directors for the Company are the same as Group.
Investment in subsidiaries
Investment in subsidiaries are carried at cost less accumulated impairment losses.
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
2. Staff costs and numbers
Employment and related costs were as follows:
2019 2018
People costs within trading: £m £m
Wages and salaries 157 151
Social security costs 17 18
Other pension costs (note [17]) 13 16
Total people costs within trading 187 185
Other operating costs within trading 733 751
Total trading costs 920 936
Period end and average employee numbers were as follows:
Period end employees Average employees
2019 2018 2019 2018
Total employees 4,272 4,973 4,623 5,022
Total employee numbers can be categorised as follows:
2019 2018
Administration 1,205 1,205
Directly managed branches (DMB) 2,049 2,707
Supply Chain 854 848
Network programmes 164 213
Total 4,272 4,973
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
3. Intangible assets
Other
Software Goodwill Intangibles Total
£m £m £m £m
Cost
At 27 March 2017 314 - “ 314
Reclassification (2) - - (2)
Additions 122 1 6 129
At 25 March 2018 434 1 6 441
Reclassification (29) = - (29)
Additions 90 Se = 90
Disposals (17) S p (17)
At 31 March 2019 478 1 6 485
Accumulated amortisation and impairment
At 27 March 2017 199 - - 199
Reclassification 6 - - 6
Amortisation 25 - - 25
At 25 March 2018 230 = = 230
Amortisation 52 = 3 55
Disposals (15) - - (15)
At 31 March 2019 267 i 3 270
Net book value
At 31 March 2019 211 1 3 215
At 25 March 2018 204 1 6 2it
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Notes to the financial statements (continued)
4. Property, plant and equipment
Plant Fixtures
Long Short Motor and and
Freehold leasehold leasehold vehicles. machinery equipment Total
£m £m £m ém £m £m £m
Cost
At 27 March 2017 45 41 23 26 1 795 931
Reclassification 1 1 a = - (1) 2
Additions - bd - 1 ” 18 19
Disposals (6) (3) (2) (2) - (7) (20)
At 25 March 2018 40 39 22 25 1 805 932
Reclassification 2 2 9 2 2 27 29
Additions 1 1 1 ° 2 35 38
Disposals (4) (1) (2) = = (22) (29)
At 31 March 2019 39 39 21 25 1 845 970
Accumulated depreciation and impairment
At 27 March 2017 32 14 23 26 1 677 773
Reclassification = - 3 7 S (6) (6)
Depreciation 1 2 - - - 25 28
Disposals (4) = (2) (2) s (3) (11)
At 25 March 2018 29 16 21 24 1 693 784
Depreciation 1 2 = - - 32 35
Disposals (2) (1) (2) - - (17) (22)
At 31 March 2019 28 17 19 24 1 708 797
Net book value
At 31 March 2019 11 22 2 1 - 137 173
At 25 March 2018 al 23 1 1 ” 112 148
Depreciation rates are disclosed on page XX within the Group accounting policies note. No
depreciation is provided on freehold land, which represents £2 million (2018: £2 million) of the total
cost of properties.
During the current and prior year, a review of property, plant and equipment and intangible assets
took place and resulted in reclassifications between categories.
An impairment test was performed during the year. Intangible assets and property, plant and
equipment were tested for impairment by comparing the carrying amount of each Cash Generating
Unit (CGU) with the recoverable amount determined from the value in use calculations.
The discounted net cash flows from the value in use calculations were used to determine the
recoverable amount of the CGU’s identified, being Post Office Limited. Value in use is determined
using the Group’s net cash inflows from the continued use of the assets within each CGU over a
two year period (and then continued into perpetuity), with no nominal growth rate assumed
outside of this period. Pre-tax discount rates for Post Office Limited of 9.5% (2018: 9%) have
been used to discount the forecasted cash flows.
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Notes to the financial statements (continued)
A sensitivity analysis has been performed in assessing the value in use of property, plant and
equipment and intangible assets. This has been based on changes in key assumptions considered
to be possible by management. This included an increase in the discount rate of up to 12%, zero
growth rate and a decrease in forecasted EBITDA by 5%. The sensitivity analysis showed that no
impairment would arise under each or a combined scenario.
Management therefore believes that any reasonably possible change in the key assumptions
would not cause the carrying amount of any CGU’s to exceed their carrying value.
5. Investment in subsidiaries
The carrying value of £74 million relates £55 million to the Company’s investment in Post Office
Management Services Limited, a 100% subsidiary of the Company with 55,000,000 shares at a
nominal value of £1 and 1 share with a nominal value of £100; and £19 million, in Payzone Bill
Payments Limited, a 100% subsidiary of the Company with 1 share at a nominal value of £1. The
registered address of both Post Office Management Services Limited and Payzone Bill Payments
Limited is Finsbury Dials, 20 Finsbury Street, EC2Y 9AQ.
6. Investments in joint ventures
2019 2018
£m £m
Investment in joint ventures 66 66
During the current and prior year, the Company’s only joint venture investment was a 50% interest
(1,000 £1 ordinary A shares) in First Rate Exchange Services Holdings Limited with a carrying value
of £66 million (2018: £66 million), whose principal activity is the provision of Bureau de Change.
First Rate Exchange Services Holdings Limited is a company registered in the United Kingdom. The
registered address of First Rate Exchange Services Holdings Limited is Great West House, Great
West Road, Brentford, Middlesex, TW8 9DF.
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nnual Report and Accounts 2018/19
Notes to the financial statements (continued)
7. Trade and other receivables
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2019 2018
£m ém
Current:
Trade receivables 90 78
Amounts owed by group undertakings 8 6
Accrued income 70 74
Prepayments 19 17
Client receivables 138 132
Other receivables 19 16
Total 344 323
Non-current:
Accrued income 2 2
Prepayments 4 10
Total 42
8. Cash and cash equivalents
2019 2018
£m £m
Cash in the Post Office Limited network 537 643
Short-term bank deposits 4 1
Total 541 644
9. Trade and other payables
2019 2018
£m £m
Current:
Trade payables 53 40
Amounts owed to group undertakings 4 4
Accruals 113 155
Deferred income 20 32
Social security 8 8
Client payables 312 306
Capital payables 10 20
Other Payables 3 -
Total 523 565
Non-current:
Other payables 14 18
Total 14 18
Post Office Limited
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Tab 6 Annual Report and Accounts 2018/19
Notes to the financial statements (continued)
10. Financial liabilities — interest bearing loans and
borrowings
2019 2018
£m £m
Department for Business, Energy and Industrial 565 623
Strategy
The loan under the facility is short dated on a programme of liquidity management and matures 1
day after the year-end (2018: 1 day). The fair value of borrowings approximate their carrying value
due to the short term maturities of the loan. On maturity it is expected that further loans will be
drawn down under this facility, which expires in 2021. The undrawn committed facility, in respect of
which all conditions precedent had been met at the balance sheet date, is £385 million (2018: £327
million). The average interest rate on the drawn down loans is 1.1% (2018: 0.8%).
The facility is currently restricted to funding the cash and near cash items held within the Post Office
Limited network.
The facility (including drawn down loans) is secured by a floating charge over all assets of Post Office
Limited and a negative pledge over cash and near cash items. The negative pledge is an agreement
not to grant security over the assets or to set up a vehicle that has the same effect.
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Notes to the financial statements (continued)
11. Provisions
Network
Programmes Property Severance Other Total
£m £m £m £m £m
At 26 March 2018 18 32 7 8 65
Charged to investments 30 25 43 - 98
Charged to trading oe fa 5 5
Transfers 5 I ° 3 3
Utilisation (36) (9) (24) (3) (72)
Provisions released in the year -
investments 7 ” (4) ©) G2)
Provisions released in the year - . . .
trading (5) (5)
At 31 March 2019 12 41 22 7 82
Network
Programmes Property Severance Other Total
£m —£m —m —m £m
Disclosed as:
At 31 March 2019
Current 6 14 22 7 49
Non-current 6 27 2 ba 33
12 41 22 7 82
At 25 March 2018
Current 11 11 7 6 35
Non-current 7 21 - 2 30
18 32 7 8 65
Details of the provisions are included in note [15] in the Group financial statements.
12. Pensions
The Company pension’s disclosure is consistent with the Group disclosure included in note [17] on
pages [XX] to [XX]
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Notes to the financial statements (continued)
13. Equity
Called up share capital:
2019 2018
€ £
Authorised
Ordinary shares of £1 each 51,000 51,000
Total 51,000 51,000
Allotted and issued
Ordinary shares of £1 each 50,003 50,003
Total 50,003 50,003
Share premium:
On 7 August 2007 one ordinary share of £1 was issued in return for £313 million cash paid by the
Secretary of State for Business, Energy and Industrial Strategy. A share premium of £313 million
resulted from this subscription. In April 2008 two ordinary £1 shares were issued in return for £152
million cash paid by the Secretary of State for Business, Energy and Industrial Strategy. A share
premium of £152 million resulted from this subscription.
14. Commitments and contingent liabilities
Details of the Company commitments under non-cancellable operating leases and Company
contingent liabilities are disclosed in the Group financial statements (note [19]).
15. Related party disclosures
Details of transactions with related parties are disclosed in the Group financial statements (note
(24).
16. Investments expenditure
Details of operating investments expenditure is disclosed in the Group financial statements (note
(4).
17. Taxation
Details of the taxation gains recognised in the year are disclosed in the Group financial statements
(note [7]).
18. Business combination
Details of the business combination are included in note [20] in the Group financial statements.
19. Post balance sheet events
Details of post balance sheet events are included in note [24] in the Group financial statements.
On 1 April 2019 Post Office Management Services Limited issued 5,000,000 ordinary shares with a
value of £1 each to Post Office Limited.
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Notes to the financial statements (continued)
20. Ultimate controlling party
The Post Office Limited was a wholly owned subsidiary of Postal Services Holding Company Limited
until it entered voluntary liquidation in June 2017 and the shares in Post Office Limited were
transferred to the Secretary of State for BEIS.
BEIS holds a special share in Post Office Limited and the rights attached to that special share are
enshrined within Post Office Limited Articles of Association. BEIS, through UK Government
Investments Limited (UKGI), has no day to day involvement in the operations of Post Office Limited
or in the management of its branch network and staff. As such, at 31 March 2019, the Directors
regarded Post Office Limited as the immediate and ultimate parent Company.
The largest Group to consolidate the results of the Company is Post Office Limited, a company
registered in the United Kingdom. Post Office Limited financial statements can be obtained from
Finsbury Dials, 20 Finsbury Street, EC2Y 9AQ.
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Corporate information
Registered Office Actuary
Post Office Limited Towers Watson Limited
Finsbury Dials Watson House
20 Finsbury Street London Road
London Reigate
EC2Y 9AQ Surrey
RH2 9PQ
Independent Auditor Consumer Body
PricewaterhouseCoopers LLP Consumer Focus
29 Wellington St 4th Floor
Leeds Artillery House
LS1 4DL Artillery Row
London
SW1P 1RT
Solicitor
Linklaters LLP
One Silk Street
London
EC2Y 8HQ
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Post Office Limited is registered in England and Wales. Registered number
2154540.
Registered Office is Finsbury Dials, 20 Finsbury Street, London, EC2Y 9AQ.
Post Office and the Post Office logo are registered trademarks of Post Office
Limited.
Copyright 2019 The Post Office.
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Tab 7 Group Litigation and Work Stream Updates
POST OFFICE LIMITED
PAGE 1 OF 7
BOARD PAPER SUBJECT TO LEGAL PRIVILEGE
Operational Responses to the GLO: Update
Rob Houghton & Ben Foat Meeting date: 28 May 2019
Context
The Common Issues Trial Judgment was ‘handed down’ on 15 March 2019. The GE and
Board have sought and received regular updates on the various legal developments
since then, as well as the planned initiatives which will enable Post Office to continue to
improve its relationship with agents and commercial partners. This paper provides an
update on that received by the Board in March.
Questions this paper addresses
1. What have been the legal developments since the Common Issues trial Judgment
(CITJ) was received in March and what is the timetable over the coming months?
2. What has been the impact of the CITJ on our day to day operations and brand?
3. What operational improvements have been made since the CITJ to mitigate the
impact on the network and enable us to continue to be an attractive proposition for
agents and commercial partners? What further initiatives are planned?
4. How much money has been allocated in the 19/20 change plan to accelerate and
deliver these operational improvements? How much of this has already been
earmarked by initiatives? How will progress be tracked?
5. What are we doing to mitigate the impact of a similar adverse Judgment in the
Horizon Issues Trial (HIT)?
Conclusions
1. Post Office’s application to the Court of Appeal for the Managing Judge to be recused
was dismissed on 10 May 2019. There is no right to appeal or challenge a refusal to
grant permission to appeal. The recusal application has therefore reached its
conclusion and the Horizon Issues Trial will resume on 4 June 2019. Before then,
Post Office will seek permission from the Managing Judge to appeal the CITJ on 23
May 2019. If the Managing Judge does not grant permission to appeal, Post Office
will, as it had done in relation to the Recusal application, be able to seek permission
to appeal from the Court of Appeal.
2. There has been no notable change in the behaviour of agents in terms of the support
they require or their level of compliance. Coverage in the media has been limited
and results from the latest wave of consumer research concluded that 74% of
respondents felt positively about the Post Office Brand - the highest score recorded
since the research began last year.
3. A range of activities are being mobilised as part of an Operations Transformation
Programme. The programme is organised into value streams which reflect the end
to end lifecycle of an agent with a full business case expected to be ready by the
end of June. The Legal team has been supporting the business to ‘operationalise’ the
judgment, ensuring that changes made or planned are consistent with the judgment
and designed and introduced in a manner which is fair and reasonable. These include
how we issue new contracts, process improvements to the suspension, termination
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and recovery of loss processes including revised policies, scripts and associated
documentation as well as guidance in these areas. Further work is being undertaken
to develop and embed these enhancements in the relevant teams through workshops
planned at the end of May followed by training to teams responsible for these issues.
The immediate priority or focus has and should continue to be on areas where there
is the biggest financial and reputational risk to Post Office i.e. processes and
procedures relating to recovery of losses, suspension and termination, signing new
contracts and the tone and style of communication with agents more generally.
4. Within the £173m 19/20 change plan, £10m has been allocated to delivering
operational improvements. A further £12m of opex spend will, at least in part, be
used to improve the relationship with agents. £22m of both change and opex spend
in 19/20 has already been identified. The progress of these initiatives and their
specific and measurable business outcomes will be tracked and reported on at each
Board.
5. We are working with Deloitte, who have relevant experience in crisis preparedness
and response work, to ensure the business is suitably prepared to prevent the legal,
reputational and operational risks associated with an adverse judgement from the
Horizon Issues trial from crystallising. We anticipate this work will be complete by
early July, leaving us some time to refine plans prior to the earliest possible date for
judgment.
Input Sought
The POL Board is asked to note the contents of the paper.
The Proposal
1. What have been the legal developments since the Common Issues trial
Judgment (CITJ) was received in March and what does the landscape look like
over the coming months?
1. The Board has received regular briefings on material developments since the CITJ
- of which there have been a number - most recently at the Board Sub-Committee
of 9 May 2019.
Recusal Application
2. Subsequent to Post Office’s recusal application being dismissed by the Managing
Judge, Post Office sought permission for the Court of Appeal to lodge an appeal
of that decision. This was refused by the Court of Appeal on 10 May 2019. There
is no right to appeal or challenge a refusal to grant permission to appeal. The
recusal application has therefore reached its conclusion.
Appeal of the Common Issues Trial Judgment
3. Post Office will appeal all material legal points of the judgment that it disagrees
with. In order to lodge an appeal, permission to appeal the CITJ can be sought
from either the Managing Judge or the Court of Appeal. If permission is not
granted by the Managing Judge, then permission to appeal can be sought from
the Court of Appeal.
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4. Ahead of a hearing for permission to appeal the CITJ, in front of the Managing
Judge on 23 May 2019, draft Grounds of Appeal will be sent to the Claimants and
filed at the Court w/c 13 May 2019.
Horizon Issues Trial
5. As the Court of Appeal has now refused Post Office permission to seek to have
the Managing Judge recused, the Horizon Issues Trial is expected to resume with
the cross examination of expert witnesses on 4 June 2019. Cross examination
will continue until 13 June 2019, followed by closing submissions on 1 and 2 July
2019.
Further Issues Trial
6. The Further Issues Trial is listed for November 2019 and will determine breach,
limitation and discrete points of loss for four lead claimants. Preparations
(Disclosure, Witness statements etc) continue.
2. What has been the impact of the CITJ on our day to day operations and brand?
7. To date, we have not seen a notable change in the behaviour from agents in
terms of the support they require or their level of compliance. Customer
complaints have also not increased. c90% branches continue to complete cash
declarations and average losses at balance remain low (c£100). Tier 2 balancing
support is a new service which is well received by branches, however the numbers
are very low with the highest number of cases being 33 in w/c 08 April.
8. In terms of brand, results from the latest wave of consumer research suggests
the level awareness of the litigation has reduced to levels similar to those seen
in October 2018 (i.e. before the first trial began) with overall positivity towards
Post Office still being strong. Only a quarter (25%) of respondents had heard
about the alleged treatment of Postmasters with almost three quarters of
respondents (74%) feeling positively towards the brand - the highest score
recorded since the research began last year.
3. What operational improvements have been made since the CITJ to mitigate
the impact on the network and enable us to continue to be an attractive
Proposition to agents and commercial partners? What further initiatives are
planned?
Legal
9. The Judgment makes numerous changes to Post Office's contractual relationships
with its network of agents, including a general obligation of good faith, striking
out various rights of Post Office, and introducing many new terms. The key
impacts from an operational perspective are that Post Office's rights to recover
losses and to suspend and terminate agents are restricted.
10.Post Office will be appealing the Judgment. However, in the meantime the
Judgment is effective.
11.The judgment does not prohibit Post Office continuing to contract using its
existing templates but rather how it operates those contracts. Processes have
been reviewed and new documents have been developed. A covering notice is
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now attached to new contracts pending the outcome of the appeal. A new draft
contract template is in the process of being finalised which expresses the two
implied terms that Post Office has admitted (necessary cooperation and not to
inhibit/prevent performance) but expressly disavowing the legal duty of good
faith. In parallel to the appeal, the Operational Transformation Programme will
further consider how to develop simpler contracts which, in due course, can be
automated. Further analysis of the application to corporate postmasters, for
example multiples, is also being undertaken.
12.Variations may also need to be made to Post Office's contracts with its agents
(both existing and new) in due course. However, as varying the contracts is not
a requirement of the Judgment, the first priority should be to change the way the
contracts are operated in practice.
13.Although the CITJ finds that Post Office can recover losses, absent a successful
appeal, it is unable to do so unless it is able to prove that i) a loss has been
suffered by Post Office and (ii) it was caused by the fault of a Postmaster or their
assistant. As a result, the recovery of £3m from former agents and £70k from
current agents will resume subsequent to a workshop which has been scheduled
to develop and embed the new process and which meets the fair and reasonable
test. Legal has reviewed the new policy and associated scripts and documents.
This is being worked through with an expected June delivery date.
14.Further, Post Office's right to withhold remuneration during a period of
suspension has been struck down. Again, pending a successful appeal, Post
Office must now pay all suspended Postmasters. Currently we have 17
postmasters suspended on full pay. If the cumulative run rate (c5 suspensions
per month) continues, this will equate to an additional £1.5m per year. We
believe it is fair and reasonable to offset some remuneration costs against the
cost of paying a temp and processes are being streamlined to reduce the average
period of time Postmasters are suspended for (currently 12 weeks), to limit this
exposure.
15.Guidance has been given on the new process for terminating postmasters with
or without notice although a further workshop is needed to map out the various
categories of potential grounds as well as socialising that training to the relevant
teams.
1.
16.Changes to the recovery of loss process have already been introduced together
with guidance on what will be required operationally to satisfy the requirement
of a “reasonable and fair investigation”. A further series of workshops are to be
conducted at the end of May led by the Operational Director and team leaders
impacted, supported by Legal, to test these changes and embed the new
approach.
Operations / Agents
17.A range of activities are being mobilised as part of an Operations Transformation
Programme. The programme is organised into value streams which reflect the
end to end lifecycle of an agent with a full business case expected to be ready by
the end of June. In summary however, and in addition to being more transparent
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in everything we do and sharing more information with Postmasters, the
programme is also looking to:
Help people open Post Offices through improving and digitising the on
boarding process with the pre-vetting of applicants and smoother, risk based
business plan assessments. The interview and contracting process will also
shift from formal meetings to relationship based site meetings, ensuring
applicants are sighted on the contract from an early stage in the process and
have the necessary time to be able to obtain legal advice, should they choose
to.
Help people work in Post Offices with, for example:
Cash, coin and stock orders and ‘How To’ support guides available via
Branch Hub.
Language simplified across all communications and support, and
available in various languages.
Product or System changes impacting branches being managed and
controlled specifically to avoid errors.
Help people manage Post Offices through improved branch accounting,
reconciliation and loss recovery processes and better MI and performance
analytics (which is available to both POL and the Postmaster). Training will
also be re-visited and various touchpoints and refresher training offered
throughout the duration of a contract, including simple video tutorials and
online help.
18. A number of these initiatives will be supported and delivered by the network
teams in Retail, not just operations - the focus of which is for Post Office to be
seen as a strong franchise partner, offering fair remuneration and recognition,
underpinned and supported by strong relationships built by capable fields. By the
end of May we expect to have scoped a deep dive strategic review of how we
could evolve the current transaction based remuneration model, presenting an
update to the Board in October.
4. How much money has been allocated in the 19/20 change plan to accelerate
and deliver these operational improvements? How much has already been
earmarked by initiatives? How will progress be tracked?
19.The 19/20 change plan is costed at c£173m, with projected benefits totalling
£76m. Within this, £10m of change spend has been ‘carved out’ to fund initiatives
which deliver the operational improvements noted above.
20.There is a further ‘pot’ of £12m of opex spend which, in part at least, will be used
to improve the relationship with agents through, for example, re-visiting their
remuneration. At this stage however, agents pay plans are tactical and
implementation will be deferred until Q3/Q4, so that plans can be aligned with
the outputs of the agents pay ‘deep dive’ work which is going to the Board in
October.
21. £22m (£10 ‘Change’ Spend, £12m Opex) of spend has already been identified,
which would not have otherwise been delivered in 19/20.
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Type LEAD Initiative £m
opeXx I AmandaJones I Agents Rem - Reverse Mails simplification (From Q2) 35
OPEX I AmandaJones _I Agent Rem - Travel Money Online Agent Remuneration Trial (One-Off) 0.4
Opex I Julie Thomas _I GLO - Communication (One off) 05
Opex _I Julie Thomas _I GLO - Legal Contract changes (One off) 2.0
OPEX I Amanda Jones _I Simpler Business - Training & Engagement 12
Opex _I Julie Thomas _I GLO ~ Agents Rem for suspended Post Masters 15
OPEX I Various GLO - Change plan reprioritisation, benefit impact 2.0
Change I Amanda Jones _I Simpler Business - HotHousing2 Accelerate field structure benefits 3
Change I Julie Thomas _I Branch Hub Initiatives 15
Change I Julie Thomas _I Horizon Changes (Quick Wins) 25
Change I Julie Thomas _I Design of New Processes (Including Loss Prevention) 2
Change I Julie Thomas _I POL Workforce Changes (Restructures etc.) 1
Total 22.0
22.Pre-established governance (e.g. Board Sub-Committee meetings) and regular
briefings / exceptional meetings gives the Board visibility of legal developments
and these will continue. Further, as operational improvements are fully ‘stood up’
with projects mobilised, they will follow the Change Excellence Framework with
their own respective programme teams adhering to the required level of
governance. Rather than duplicate governance or reporting, we intend to ensure
GE and the Board remain sighted on the initiatives being delivered through
developing an instrument which delivers a helicopter view of all of the
improvements being made, easily and at a glance, focussing on tracking progress
against specific and measurable business outcomes and success criteria.
Measurement and tracking will also be aligned to the new seven strategic
portfolios — this will enable greater accountability.
5. What are we doing to mitigate the impact of a similar adverse Judgment in
the Horizon Issues Trial (HIT)?
23.We are preparing the business for an effective immediate and short-term
response to the verdict in the Horizon Trial phase of the GLO proceedings. We
have asked Deloitte, who have relevant experience in crisis preparedness and
response work, to assist us in this work.
24.The approach consists in defining possible trial outcomes on a spectrum of
severity, including that the system is not fit for purpose. Each part of the business
needs to be clear on, and planning for, the immediate and short term steps which
need to be undertaken to present a workable and well calibrated comprehensive
response to be deployed. Following a short immersion phase, Deloitte will hold
individual and group sessions to surface all relevant concerns, and help the teams
to develop sensible mitigations both in the individual and aggregate.
25.We anticipate this work will be complete by early July, leaving us some time to
refine plans prior to the earliest possible date for judgment.
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Tab 8.1 Retail Performance Report
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GE PERFORMANCE UPDATE
Retail CE’s Report — May 2019
Author: Cathy Mayor Sponsor: Debbie Smith Meeting date: 28 May 2019
Executive Summary
Context
The Period 12 Retail Commercial Performance Report for the Board.
Questions this paper addresses
1. How are our sales and revenues performing against our targets and prior year?
2. What's happening in the relevant markets?
3. How are we progressing around delivery of strategy and plans?
Conclusion
1. Retail income is +2% year on year (+0.3% excluding week 53), ahead of Income
budget by +£7m and ahead of profit budget by +£10.2m, +£2.7m better than 8.1
forecast.
2. Network customer sessions in 18/19 were -1% down year on year, averaging 10.3m
sessions per week vs 10.4m in 17/18 slightly better than the BRC reported 12 month
footfall decline of -1.4%.
3. Mails volume growth continues to come from Home Shopping Returns (+24%),
supported by the launch of labels to go in Nov and Click and Collect (+36%), with core
products such as stamps (-5%), labels (+1.4%) and international all trading to plan.
4. In Banking, volume growth trends continue with withdrawals +7% and deposits +22%
in the year, fuelled by 2 major automation (RBSG and LBG) programmes, 2 new banks
added to the Framework and over 15 new product combinations with our various bank
customers.
5. Customer service metrics improved throughout the year, maintaining our Network
Ease (Effort) performance for P12 at 89.5% +5.3% year on year. Full year average
is 84.8%, +2.8% against target and +4.5% year on year.
6. Delivery of our retail strategy and plan is on track. The new Field Structure is now in
place to better support our partners and drive performance across the whole network.
We have successfully trialled a ‘Hothouse’ approach in 6 branches to build capability
and drive performance/change bottom up and are now transitioning to Phase II to
build the capability in our Regional and Area Managers, scale solutions and drive
benefits faster and more widely.
Input Sought Input Received
For the Board to review and note. RLT & GE
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The report
Overview of Financial performance
Period 12 FULL YEAR
Gross Income (£m) ActualI Var Bud von YoY% Actual) Var Bud Var Fest YoY%
Mails Trading 27.7 2.3 27 33% 292.5 3.4 3.8 7%
Mails Non-Trading 5.3 0.2 0.1 14% 57.4 1.6 0.1 -4%
Banking Services 10.8) 1.4 1.5 46% 101.4 44 2.8 15%
ATMs 2.7 (0.2) (0.2) 20% 29.0 (2.2) (0.7) -3%
POCA 2.3 0.2 0.1 -30% 30.2 0.5 0.3 -25%
Payment Services 1.2) (0.5) (0.4) -22% 23.0 (3.8) (1.7) -15%
Retail & Lottery 3.7 0.2 0.0 24% 41.8 2.8 1.0 6%
Retail Total 53.8) 3.6 3.9 25% 575.3 6.7 5.6 2%
Retail DPC (£m)
Mails 15.0 1.2 (0.9) -40% 161.5 10.0 0.3 -51%
Cash and Banking Services 10.0 1.5 2.3 -8% 88.5 (0.4) 4.3 -35%
Payment Services (0.8) (0.6) (0.5) -301% 0.4) (0.4) (1.6) 97%
Retail & Lottery (0.6) (2.2) (2.2) -122% 12.3) (2.0) (2.4) 69%
Retail Total DPC 23.7) (0.1) (1.3) -39% 262.7 7.2 0.6 -49%
Fixed Agents Pay (3.9) (0.3) (0.3) 86% (42.0) 1.9 (2.9) 89%
Retail Director (6.1) (0.8) (0.4) -2% (73.2) (1.3) 0.2 8%
Retail Programme Costs (0.3) (0.0) 0.2 33% (4.5) 1.0 4.1 -153%
Retail Central Costs (0.4) 0.0 0.1 36% (5.9) 0.1 0.8 -20% 8 41
Retail Profit 13.0) (1.2) (1.6) 195% 137.1 8.9 2.7 17%
Payzone 0.3 0.3 0.0 1.2 1.2 (0.1)
Total Profit 13.2) (1.0) (1.6) 201% 138.2) 10.1 2.6 18%
1. Retail has grown year on year income 2% (+0.3% excluding week 53) and exceeded
Income budget by +£7.0m driven by Mails and Banking, the latter of which has tripled
in the last 3 years to over £101m. Profit exceeded budget +£9.0m, £10.2m including
Payzone.
2. The £9.0m profit upside vs budget i is driven byr more accurate Agents pay methodology
Mails annual count process Generating £1.6m, lower card processing fees saving
and £1m Programme delays/savings. Issues with ageing Coin stock led to a -
£2m inventory provision being made in P12. As one-offs, this upside should not be
regarded as repeatable in 19/20, closing the current £3m stretch gap embedded in
the 19/20 retail budget will be challenging.
3s
4 overall income is +1.8% up on prior year,
exceeding the expected trend set for budget by 80 bps. Continuing positive trends in
Home Shopping Returns (albeit slowing in H2) and Banking deposit growth driven by
automation and bank branch closures are mitigating long term volume decline in other
retail products. The decline in bill payments mainly stems from the Co-Op exit from
the reseller market during 2018, driving transaction volume to PayPoint before the
completion of the Payzone acquisition.
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Market Update
4. Key market trends have continued into 2019. Well known retailers going into
administration including Debenhams and Office Outlet (was Staples) contrasts with
the strong growth and store opening programmes in the convenience retail sector
reported by several of the Co-Op societies, McColls and Tesco. NISA’s recruitment of
new retailers is up 25% since their acquisition by Co-Op and Tesco has reported over
11% growth in Booker. Competition for space within convenience stores is also
intensifying. For example, BP have recently announced a trial to offer their Wild Bean
Café concept on a market wide franchise basis.
5. Royal Mail share price has remained suppressed in the 250p to 270p range reflecting
concerns over its ability to reduce costs in line with declines in mail volumes and a
possible reduction in dividends. RMG's latest annual results are due on 22nd May.
6. RM have announced the imminent launch of single item postage purchase function via
their app. While this increases the choice of online channels aimed at our core
consumer market, we believe immediate impact is likely to be low as customer
demand is currently limited. It does however reinforce the need for our own digital
route for customers.
7. Recent competitor results saw Amazon growing volumes +10%, and Hermes growing 8.1
income by 16% to £665m (£30m EBit). However, many operators continue to struggle
with intense price competition and increasing costs. Yodel posted operating losses of
£112m, a 36% increase on prior year, and DHL’s UK parcel subsidiary, UK Mail, is
expected to withdraw from UK domestic parcel operations.
8. Industry sources continue to expect a further 1,500-2,000 bank branches to close by
2022, although some anecdotal evidence suggests all banks are expecting to halve
the number of counter positions in the remaining branch estate, in some cases moving
to completely unstaffed sites.
Customers
9. Network customer sessions have averaged 10.3m per week for the year, a -1.0%
reduction year on year, slightly better than BRC reported footfall decline of -1.4%.
Network performance was strong in Q4, +7% vs target compared to +2% FY,
particularly pleasing in the context of significant organisational change as well as
responding to Postmasters reaction to the GLO judgement.
10. Customer Experience KPIs performed strongly across the year. The ‘how easy is the
Post Office to do business with’ score was 2.8% ahead of target at 84.8%, +4.5%
YoY. 96.1% of customers thought their wait time was acceptable, up 2.1% YoY.
Customers’ rating of counter teams being Friendly, Professional, Knowledgeable,
having understanding, acting efficiently and meeting expectations improved by 2.5%
in the 2nd half year.
Mails performance
11. Trading income growth of 7% was driven by RPI (3.5% on all products except stamps),
53rd week (£5.5m, 2.8%) and one off benefits (£1.5m). Long term volume trends
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continue with core products such as stamps (-5%), labels (+1.4%) and international
(-4.4%) all trading to plan.
12. Home shopping returns finished the year +24% vs prior year, although the second
half saw a slowdown in growth partly due to House of Fraser ceasing to offer free
returns (c. 80-100k items per month) as well as an overall slowing of online UK retail
growth. Since launch in November, Labels-to-Go now accounts for 10% of total return
volumes through organic customer adoption. We expect that an increased e-tailer
focus on reducing returns e.g. ASOS, may have an impact going forward. Local collect
saw continued strong growth of 36% from existing client growth and new customer
acquisition.
Cash & Banking performance
13. Overall cash withdrawals through ATM continue to reduce at a compounding 7-10%
(according to LINK). Our own ATM Performance has been -3% in 18/19, temporarily
bucking this trend driven by a focus on ATM availability which is now routinely above
95% (higher than last 4 years). Counter withdrawals through the Banking Framework
have grown 7% YOY.
14. Counter deposit volumes through the Banking Framework continue to exceed
expectations, c10%/£3m above FY budget. Overall banking services are up +5% to 8.1
£101m, +£4.4m vs FY budget. We launched 2 major automation (RBSG and LBG)
programmes in Q3, brought 2 new banks live into the Framework and launched over
15 new product combinations with our various bank customers in the year.
15. Banking Framew
banks. Three
I_accepted by. all
IRRELEVANT _
Il three intend to
16. In POca, customer volumes continue to decline but at a slower rate due to a temporary
pause in the DWP migration efforts (to restart again soon). DWP have stated they will
not extend the POca contract beyond 2021 and will go to tender in 2019 for a POca
replacement, which we will bid for. Our main strategy and direction is to ensure POL
remains the channel for any new service, whether provided by us or not. This will
ensure existing footfall remains in branch and continue to support our social purpose.
Payment Services performance
17. Payzone trading performance continues in line with business case expectations (Profit
£1.2m). Excellent engagement with key clients continues. We have secured the first
exclusive only contracts in circa 20 years with Scottish Power (800k customers) and
Shell Energy (ex-First Utility) and signed first time access to Thames Water & Anglian
Water. All go live in Summer 2019 and will take market share from PayPoint.
18. Similar positive engagement with major retail groups continues. Coop have agreed
to our HIH rPos approach to operate bill payments via their ePos systems. They are
willing to negotiate termination of PayPoint by July 2020 if we can demonstrate rPos
delivery.
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19. Day 1-100 period has been completed with the separation from Payzone UK (“remain
co”) delayed to July, due to delays in transfer to new Vodafone data servers. Key
issues and challenges are;
a. Internal audit report concluded “Needs Improvement” with regards to completion
of Day 100 tasks, insufficient resource to complete the separation activities, and
the outstanding Master Services Agreement between POL and Payzone. We have
updated the plan and restructured the program team to bring closer to the BAU
teams.
b. Completion of all IT security remediation and business continuity activity, notably
the results of vulnerability testing requiring additional infrastructure security
enhancements.
c. There has been greater effort required to enable all Post Office and Payzone clients
to operate across both retail networks, due to unforeseen complexity with
transaction processing and client settlement from both respective processing
platforms. There is now a program of work to technically enable all ~800 clients
to be operational across both PO and PZ networks by mid Nov.
Retail Strategy delivery
20. In response to the GLO judgement, an Agents Relationship workstream has been set 8.1
up. Whilst much of the activity was already underway as part of our Retail Strategy,
the judgement has challenged us to go faster. The areas of focus are: Agent
Remuneration; Field team support; Agent Onboarding, Training and Communication.
21. We have been holding listening groups with Postmasters across the country to better
understand the reality. Common themes are emerging, predominantly relating to
remuneration rate decreases, declining government services, inadequate training and
communication and a general lack of support from the Post Office.
22. On Agents remuneration we are undertaking a further deep dive as agreed at the
board meeting in April. An earlier review was more tactical and didn’t address all the
issues, hence the need for a more strategic, radical review. Scope definition of this
work is underway and will be presented to the GE for input early June with a report to
the Board in October.
23. To better support Postmasters, the new field team structure was put in place at the
beginning of this financial year, including bringing the Network Operations team into
retail. Each Postmaster now has a nominated local point of contact (an Area Manager)
who will visit regularly and offer support to improve performance and help them grow
sustainable businesses.
24. In Q4 we ran a 1* phase of a ‘hothousing’ programme to test how to improve
performance and build capability with Area teams and Postmasters, driving change
from the ‘ground up’. We are measuring success in a number of ways: improving
remuneration (Trial achieved 5.6% increase on mails and 4.4% on banking);
improving retail sales by 1-2% through increasing footfall and basket size;
accelerating Area Manager competence and confidence in building trusted
relationships with Postmasters to improve retention and avoid cost of churn (target
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£0.5m pa). We have now transitioned to Phase II to build area and regional
management capability and test how we can scale solutions to drive benefits faster.
25. We are overhauling the onboarding experience, increasing on-site training for new
Postmasters and introducing classroom refresher training for longer serving
Postmasters and their teams. We will continue to hold local and regional listening
groups throughout the year to listen and update on progress in response to the issues
raised. Postmaster written communications are under review to simplify and improve.
26. The Network Transformation Programme closed at the end of March as planned. The
programme has delivered against all its original objectives, notably delivering opening
hours increases of over 40% and consistently high customer satisfaction scores of
95% and above across both transformed mains and local branches. A provision of
£20.4m remains to deliver a further 132 branches over the next two years.
27. The DMB Programme exited 67 branches in 2018/19, delivering c.£5.5m of benefits
in year including 40 franchises to WHS (Edgware) and 27 network shape branches.
Momentum has continued with 7 exits already delivered in Q1 and a strong pipeline
of opportunities in place to deliver the 69 planned for 19/20 (inc 34 to WHS).
28. The Network grew +91 to 11,638 branches at year end. 328 New network locations
were added and 294 branch re-openings and outreaches added, mitigating churn of
531. Churn comprised c.60% planned closures (mainly resignations driven by
financial/personal reasons) and 40% unplanned closures (i.e. suspensions and
terminations via audit activity).
8.1
29. The Parcel Shop format trial starts imminently with a concept in Finsbury Dials
(Prepaid Returns), and the first ‘in branch’ at the end of June. Low risk locations are
being selected for the initial trial in urban areas/commuter hubs where our competitors
are located, and at least 0.25 miles away from the nearest PO, so as to minimise
impact on existing branches.
30. Good progress is being made on the 14 trial main to local branches this year and on
track to complete all by the end of October. 1 successful conversion has taken place
within a Southern Coop branch with a further 5 agreed with McColls and Spar for July
and August implementations.
31. Digitisation of mails continues with a focus on a revised MVP providing online postage
purchase. This includes the successor platform for Drop and Go and potential data
capture for new Customs requirements. Delivery timescales have been affected by
the technical design complexity and continued dependency on RM API specifications.
32. Plans are on track to develop and deploy the next generation of customer facing self-
service kiosks across the network to meet customer demand and improve financial
viability for our agents. A design contest procurement approach for the new hardware
will begin in May to identify the preferred supplier(s) and commercial terms have been
agreed for 15 machines in 7 branches, with contracts signed and returned.
Strictly Confidential
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POST OFFICE PAGE 7 OF 9
Appendix 1 - Retail Scorecard
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P12
AREA MEASURE Unit PY Full Year Full Year
Gross Income im $2.7 53.8 I@ 49.9 575.3I @ 569.7 $63.8 ‘568.6
Trading Profit ém 10.0 130I@ 146 137.1I@ 134.4 106.1 128.2
Mails - Priority Volm 0.8 10 /@ 08 105 I@ 10.2 10.1 11.6
Mails - Total Labels Volm 12.4 16.0 15.1 166.7 163.2 161.1 163.4
PERFORMANCE wails - Click & Collect volm 0.4 os I@ 04 si I@ 47 3.6 41
Mails - Home Shopping Returns Volm 3.4 44 I@ 46 479 I@ 50.7 39.5 45.0
Banking All Transactions Volm 10.8 141 ]@ 12.6 137.4I@ 133.4 123.4 130.2
Payments "*** Vol m
No. of Customer Sessions per week * m 10.0 105 /@ 81 10.3 I @ 10.2
No. of Retail Transactions per session’ Ratio 16 16 I@ 17
CUSTOMER Ease of Doing Business With (Effort) * % 88 90 I@ a2 8s a I@ 82 82 82
Customer Drivers * % ot 91 88
Complaints* 2 2,720 I 2,506 30827
Branch Numbers" 2 11,613 11,660] @ 11,600 11,547 11,600 11,600
NETWORK NNL Builds 2 45 73 1@ 80 328 I@ 338 338 338
Branch standards - Losses Identified in Audit* ém 0s os 0.7 7.0 7.4
Diversity inc Women (Level 4 & above)*** % 25 24 1@ 43 ° 43 43
PEOPLE Trust our people (Line Manager Index) % 7s 6s
Engagement as at Pi survey % so 36
** New measure
*** PO target 43% for level 3A & above. Retail at 38%, PY 31% (one month in arrears)
**** No data due to Credence data issues
***** To stay above/below the previous year
Strictly Confidential
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Tab 8.1 Retail Performance Report
POST OFFICE PAGE 8 OF 9
Appendix 2 - Retail Income by Product
Period 12 FULL YEAR
Income (£m) war aa YoY%
Parcelforce I 0.1 © (0.7) 7%
Special Delivery ! 0.6 0.6 4%
International Priority & Standard i 0.4 = (2.6) -1%
Stamps : 1.7 11 0%
Labels (1st & 2nd Class) I 18 0.5 5%
RM Signed For : (0.0) (1.0) 2%
Home Shopping Returns i (0.9) 0.8 30%
Other Trading i 0.2 47 30%
Annual Fee ; 0.1 1.6 -5%
Mailwork & Mails non trading H 0.0 0.0 0%
Total Mails I H 3.9 5.0 5%
Retail (Inc Gift cards & Other) i i (0.2) (0.0) -74%
Gift Vouchers branch H : 0.4 0.2 16%
WHS Retail Sales I ! (0.0) (1.3) —-913%
Total Retail I i i 0.2 © (4.1) -24%
Lottery Variable i I 0.9 3.6 2% 8.1
Camelot Fixed i i (0.0) 0.3 -3%
Health Variable i : (0.0) (0.0) -12%
Health Fixed : I 0.0 0.0 0%
Total Lottery i i 08 3.9 2%
Banking Services i 2.8 4.4 15%
Card Account : 0.3 0.5 -25%
ATMs : (0.7) (2.2) -3%
Total Banking I i 24 2.7 1%
Payments Services i (1.7) (3.8) -15%
Total Payments I i (1.7) (3.8) -15%
Gross Income I : 5.6 6.7 2%
Appendix 3 - Customer KPIs
CURRENT] LAST fan puor
KPIs SOURCE PERIOD I PERIOD Year Year Target
(P12) (P11)
Customer Driver voc 90.2% I 90.5% -0.3%] 88.4%] n/a N/A
fetaspodi badnesewth) voc I 89.5% I 87.4% +2.1%] 84.8%] 80.3% 82%
Wait time Acceptability voc I 96.6% I 96.7% -0.1%] 96.1%] 94.0% N/A
Strictly Confidential
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Appendix 4 - NNL Performance (Board action)
1. Our aim is for all New Network Locations (NNL) to achieve at least 150 customer
sessions each week, the amount required to enable ‘break even’ for Post Office. 92%
are already achieving this threshold after 6 months trading, with the average weekly
customer sessions across all the new branches sitting at over 300. Our top 3
branches are achieving over 1,500 customer sessions per week, 2 in London (New
Oxford Street & Poland St) and 1 in Oldham (London Rd).
2. Steps are being taken to improve performance at branches serving under 150
customer sessions per week, with every NNL now receiving dedicated in branch
support during the first 6 months before then being handed over to an Area Manager
who will continue to monitor overall performance and work with the postmaster to
resolve any issues.
3. We work closely with the NFSP to monitor the impact of new branches on the existing
network and hold monthly review meetings with them. Existing branches tend to see
an average of 2% - 3% reduction in customer sessions as a result of a new branch
opening nearby. Of the circa. 460 NNLs already implemented over the past two
years, POL has identified 3 branches that may have been affected by > 10% and in
these cases, we work with the Postmasters to understand how we can better support
them and their overall business. 8.1
Strictly Confidential
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Tab 8.2 FS&T Performance Report
POST OFFICE PAGE 10F7
FST&I Board Report - March 2019
Executive Summary
Context
This report provides an update to the Board on the current performance of the products
across FS&T together with a full year outlook and an update on strategic initiatives.
Questions this paper addresses
1. How are our products and marketing performing?
Conclusion
Gross income was £2.0m favourable to forecast in P12, driven by Identity. This brought
income to £4.3m favourable to forecast across the full year, principally due to Identity
£7.7m, offset by Telecoms £(2.1)m, FRES £(0.8)m and POI £(1.1)m.
Direct contribution is £2.3m ahead of forecast in P12, which leads to a full year variance
of £1.8m favourable versus forecast. Again, the principal upside was Identity £6.2m, offset
by underlying underperformance in Telecoms £(2.9)m and by benefits anticipated in the
forecast of £2.3m from updated accounting treatments in Postal Orders and Telecoms
which were not implemented.
Gross Income P12 & YTD (£m) FS&T Direct Contribution P12 & YTD (£m)
Total FS&T
PiarestI FY FYBud FYFost FYYOY 24, Pazrest’ FY FYBud FYFest FYYoY
LAE Mar et Mar Mae ae Var, Act Var. Var, Var
Mortgages i en eS CY SC eC
Personal Loans I a2 o1 I a2 a4 = ot 01 01 I 06 = (1)?
Credit Cards I 02 006 I 42 a1 05 (06) I 00 aa I 07 (0.2) 50.8)
Standard Account I 00 (00) I (00) (0) (00) (04) 00 (00) (09) (0a) (00) (04)
Savings 37 (00) I 406 «1400 (a2a) 853 859 (00) 68 (9.3)
Travel Money 21 (00) I 283 (26) 00 01 (02) I 30 (08) (a6) 3
FRES 21 (04) I 330 (08) (08) (24) 22 (0.4) 30 (0.8) (08) (4.4)
MeneySram (aston I aa os ons as aes ta) aa
PO Money [ato (oa) 43317007 (03) 7 43a) 7.702897 7 09 05 7 14)
Telecoms I aas (oa) I 152.7 7 (23) 59 2a (12) I 359 (4a) (45) (43)
PO Insurance I 64 03 556 (23) (0.2) 167 30 a4 99 (04)
Identity Lom 24 I 579 1067.7 aq a7 29 272 62 09
Postal Orders I as 00 aa oa (0s) 5) 09 fs) 980828) (23)
Other I 00 00 I 00 (57) 0212 (00), O33) 2200
403 20 I 425 (33) 43137 8423796 © (06) 18 (7.6)
Versus budget gross income for the year was £3.3m adverse and direct contribution was
£0.6m adverse. The budget was overstated by the impact the 2017/18 accrued income
overstatement issue in Telecoms of £5.6m. Excluding that issue, we were £2.3m
favourable to gross income budget and £5.0m favourable to our direct contribution budget.
Year on year (YoY) gross income increased by 3.3%, of which 1.6% was due to the 53
week. Direct contribution fell £7.6m YoY due to lower Value Share under the short term
agreement with Bank of Ireland (Bol). We continue to see the benefits of a diverse
commercial portfolio; with a portfolio of this nature we see ups and downs by individual
areas and products however we still continue to deliver budget overall.
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Looking forward into the new financial year we are expecting the new Bol deal to take
effect from June and we are reviewing our strategy on Forex and Telecoms Business Model
(to be presented in July) and POI strategy refresh to be presented in June.
Input Sought
The Board is requested to review and note the report.
The Report
How is our Balance Sheet product set performing?
1. The Market
Competitive pressures in retail banking remain. The continuing low rate environment
(notwithstanding the further base rate increase last summer), ring-fencing and the BoE
funding schemes have put major pressure on mortgage margins and savings rates.
2. Product P&L P12 FY
Gross Income (£
Period 12 Full Year
G+6F Var. Var.
Mortgages 0.3 0.2 OL 2.6 20 0.6
Cards & Lending 0.2 O.1 O1 23 18 05
\Savings 3.7 3.7 (0.0) 40.6 40.6 0.0
Balance Sheet Products
Full Year
Var.
Mortgages 0.2 07
ICcards & Lending 0.2 0.0 07
Savings
3. Review of Performance
Savings income is underpinned by the short-term Value Share agreement signed with Bol
covering 2018/19, which. locks ini IRRELEVANT. i Lending outperformed
expectations, despite IRRELEVANT I
i ai as Compensated
for some of this weakness. Personal Loans volumes continued to show strong growth.
4. Customers
There are four key customer projects underway in Post Office Money:
« Customer Advocacy Programme which aims to enhance end-to-end customer journey
experiences — NPS continues positive upwards trend
« External Benchmarking Survey to highlight areas for improvement vs peer group -
results due later this year
« Customer Research Panel to support new product markets & innovation
« Post Office Money ‘North Star’ Metric to identify a customer centric indicator of
performance that fits across both ‘Customer’ and ‘Commercial’ metrics.
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How is our Transactional product set performing?
1. The Market
Mintel expects growth in the Travel Money market to be slow over the next five years, at
around 2% annually, with the market reaching £50.4 billion by 2023. The forecast period
will be heavily defined by the outcome of Brexit. However, whatever the terms of the
withdrawal from the EU, the travel money sector will tend to stabilise after the initial shock
as markets, consumers, and businesses adapt to the ‘new normal’.
Any further devaluation of the Pound is likely to impact the way British holidaymakers go
about paying for and spending during their visits abroad. It will also influence the type of
trips and destinations they choose as people try to make the most out of their money.
2. Product P&L P12 FY
Var.
ELEVANT I
Travel Money (inc App) :
Act I _6+6F
Moneygram i
Postal Orders i
Travel Money (inc App)
Moneygram
Postal Orders
3. Review of Performance
Travel Money gross income performed largely in line with the 6+6 forecast in P12 and
performed slightly better in the full year. MoneyGram revenue came in behind forecast
due to transaction volumes being lower than forecast; revenue per transaction caught up
with forecast after falling behind during the year. Postal Orders are a profitable product
with a low level of costs however volumes are not currently performing in line with
forecast.
4. Customers
MoneyGram transaction volumes continue to be under pressure. We ran an incentive
scheme for the last two months of the year and saw mixed results by ASPM, but across
their branches we saw an uplift of around 2% (this was against a base of average
performance for the previous 6 months). The activity generated over 2,000 more
transactions in a 6 week period, generating an estimated £20k of additional revenue (for
the 6 week period). We are in the process of closing down this activity and then will look
at what further incentives we would like to run during 2019 (potentially during the ICC
World Cup in the summer). Postal Orders are paper based with increasing AML risks and
therefore interest from some areas is declining. The MoJ has still yet to provide any further
indication of when they are looking to stop using Postal Orders.
PO Limited B
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How is our Telecoms business performing?
1. The Market
The industry continues to focus on Fibre with BT Openreach (the main network provider)
now actively incentivising further uptake on this product, enabling a long term strategy to
retire the Broadband (ADSL) network.
Our core product ADSL accounts for only 30% of the total market of new Broadband
subscriptions sold, and in the next financial year the Post Office will move into a period of
accelerated Fibre growth with improved commercials and increased marketing.
Growth Fund investment has delivered 7.9k customer adds, which is 3.2k better than our
budgeted position. Our churn position was more challenging due to end of financial year
promotions from Talk Talk, BT, Plus Net, EE & Virgin Media where Fibre pricing dropped
below £20 for the first time.
P12 Churn closed 10.2k vs budget of 7.6k (broadly flat YoY on an underlying basis).
Looking ahead to the new financial year we will be more competitive on Fibre and ADSL,
with a plan to accelerate base conversion to Fibre whilst maximising margin.
2. Product P&L P12 YTD
Gross Income P12 Direct Contribution P12
fms Act 6+6F Var. Act 6+6F var, I ActDiect 6s6F Diet
Margin I Margin
Telecoms [us 48 4 [at 32 (12) wm I (eK I
3. Review of Performance
The above P&L shows the underlying Telecoms performance, excluding the FIN11 issue.
Full year gross revenue is behind forecast, despite customer numbers running favourable
to forecast. ARPU was lower than expected, notably driven by increased discounts as a
result of tougher trading conditions, and customers making fewer calls. Cost of Sales are
£1.2m adverse to full year forecast, with the key drivers being increased wholesale
charges as well as increased base size.
4. Customers
The Customer First programme is now live across all lines of Business. This new way of
working places the customer at the heart of our conversations and ensures we strike the
right balance between commercials and customer experience.
We continue to see record Customer Satisfaction (CSAT) scores at 80% overall and 82%
in Customer Services. Our best ever Ofcom scores are projected to continue to be <10
keeping us below market average. The recent Which? Best Broadband provider survey
noted that we were the most improved provider year on year.
How is our Insurance business performing?
1. The Market
The Travel Insurance market is expected to shrink over the next 5 years due to the
continuation of intensified price competition from a crowded market (market share is
7.6%). There is continued market uncertainty in relation to Brexit, with the outcome likely
to impact on how EHIC operates and travel demand. POI are well placed to grow market
share of Impaired and enhance margins across the portfolio. The Home Insurance market
is expected to fall by 2% p.a. over the next three years driven by changes in home
ownership - POI’s new model will enable us to grow market share. Our Disruption
proposition provides access to the growing rental market. The Car Insurance market is
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POST OFFICE PAGES OF7
expected to grow by 1% p.a. to 2020; our current market share is 0.4% and we intend to
invest in growth this year to capitalise on our new arrangement with BGL. The Protection
market is stable and little growth is expected over the next year. Acceleration of channel
defection towards direct is expected to continue and POI's plans will capitalise on this
growth in direct to consumer Life Insurance. The FCA is investigating the industry’s
approach to pricing however POI is well placed versus competitors to react if required.
Brexit creates major market uncertainty, both positive and negative, and we estimate an
annualised impact of a hard exit as circa £7m reduction in EBITDAS.
2. POI P&L P12 FY
PO Insurance
Period 12 P12YTD FY
£m Act. For. Var. PY. Var. Act. For. Var. PY. Var. Bud. For.
Gross Revenue 64 61 03 43 21 556 558 (0.2) 478 78 579 55.8
Cost of Sales (1.5) (1.1) (0.4) (0.7) (0.8) (10.9) (10.0) (0.9) (89) (2.0) (8.5) (10.0)
Net Revenue 49 50 (01) 36 13 447 458 (11) 389 58 494 458
Agents' Pay 0.0 0.0 00 00 00 0.0 0.0 00 00 00 0.0 0.0
Staff Costs (0.2) (05) 03 (05) 03 (6.0) (6.4) 04 (4.0) (20) (7.6) (6.4)
Non-Staff Costs (1.7) (1.9) 0.2 (0.9) (0.8) (18.8) (19.9) 1.1_ (15.3) (3.5) (21.5) _ (19.9)
Total Expenditure (1.9) (2.4) 0.5 (1.4) (0.5) (24.8) (26.3) 15 (19.3) (5.5) (29.1) (26.3)
DirectContribution 3.0 26 04 22 08 199 195 04 196 03 203 19.5
Direct Profit Margin 47% 43% 36% = 35% 35% © 35%
3. Financial Performance
During this financial year we have delivered our expected direct contribution of £19.9m
which is £0.4m favourable to forecast. Adding back allowable additional investment costs
(£0.4m) this achieves our budgeted direct contribution of £20.3m.
Direct contribution in P12 was £3.0m, £0.4m up against forecast and £0.8m up against
prior year. Overall, a very strong Q4 was delivered with a number of initiatives performing
as expected, for example Travel price optimisation, Protection DRTV and Lead Generation.
Group EBITDAS is broadly in line with prior year on a reported basis and 18% favourable
on a normalised basis. Re-engineered products showed strong gross revenue growth
(Travel +29%, Protection +45%). Net income growth was offset by continued investment
in the capability of the business (Staff) and direct sales (Marketing).
4. Sales Performance
Total sales of £88k in P12 were 31k (53%) higher than prior year and 11k (32%) ahead
of plan. Travel and Protection sales grew significantly YoY. Protection sales of 5k were
51% up against plan reflecting the impact of DRTV, Outbound Telemarketing and an
increase in Digital Marketing. For the year as a whole total sales volumes of 992k were in
line with plan and 138k (16%) up against prior year.
How is our Identity business performing?
1. Review of Performance
Identity has performed strongly against forecast in 2018/19, delivering a Trading Profit
upside of £6.2m. The main drivers are Home Office and DVLA product volumes. Identity
increased expenditure is related to Agents Pay and Postage which is in line with the higher
volumes.
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YTD
var
—m Act] eee
Home Office 27.6] 3.6
DVLA 9.0] 2.6
Identity Services 5.5 0.5
Verify 14.9I 0.8
Environment Agency 1.9) 0.2
Gross Income 57.9 7
Direct Costs (6.4) 0.5
Net Income 51.5I 8.2
Expenditure (17.3)I (2.1)
Trading Profit 34.2 6.2
Home Office: Over performance is primarily driven by UK Visa & Immigration’s delayed
switch (forecasted for P9) to a new supplier, Sopra Steria, for the Biometric Residence
Permit service (+£2.3m), and Digital Check and Send Passports (+£0.9m). Since
launching Digital Check and Send in P7, POL has increased its market share for this service
to 4.5%, with overall POL market share at 29% YTD.
DVLA: Strong performance against forecast is primarily driven by International Driving
Permits volume upside (£1.9m) relating to uncertainty of BREXIT, and 10 year licence
renewals (£0.3m) due to renewal cycles and ongoing DVLA compliance activity (e.g.
customer reminder letters).
Verify: Over performance against forecast is driven by a general upward trend of
Universal Credit applicants. Post office remains the market leader with a market share of
50% and a conversion rate of 61% in P12, for the higher level of assurance LoA2 service.
Our conversion rate has been increasingly steady through the year due to improvements
in both user experience and the assurance checking process. New GDS pricing tiers for
Verify, which started in P7, have significantly reduced (dropping from £25 to £12 and then
£8, per successful LoA2 account creation).
Other Identity Products: Over performance against forecast is driven by higher volumes
for Security Industry Authority (SIA) licences (£0.3m) and the Post Office Document
Certification service (£0.2m).
How is Marketing performing?
Please see Appendix I for an update on performance against original objectives set out in
November last year.
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Appendix I - Group Marketing Presentation
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Board Group Marketing Update
Emma Springham - Chief Marketing Officer, Group Marketing
May 2019
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Recap of November Board
Key marketing issues highlighted eight weeks into the business:
+ Marketing Strategy - no Group Marketing strategy in place.
+ Data-—no investment in data marketing strategy or data FTE. No cross or upsell marketing strategy. Basics not in place — control
cells, propensity and lookalike modelling.
+ Marketing Management Information — partner structure adds complexity to reporting. No end to end marketing funnel tracking in
place for all products and services. Manual processes and limited FTE.
+ Customers & Postmasters — limited investment in customer insights and profiling our community stories.
+ Slow to respond to market opportunities - no marketing processes in place to respond quickly to market events.
* Creative — no stand out in the market and inconsistencies in branding across products.
+ Brand, Customer Insight and Social Media - teams aligned outside of the Group Marketing function.
+ Propositions — no market leading or innovative propositions. Product silo marketing approach.
+ Limited Marketing Channels — performance based marketing channels (affiliates, aggregators, paid search).
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Starting to lay down the Marketing Strategy
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Behaviour
Customer-first approach Modernise our brand Drive our routes to market
Grow and opti @ performance
marketing
A customer-first approach to drive
proposition awareness,
consideration, customer retention
and cross-sell
* Build a customer and data driven
marketing team
+ Best in class customer on-boarding and
cross-sell processes/customer journeys
+ Create magical customer moments in
the community
+ Launch differentiated propositions into
the market utilising the strength of our
partners and breath of our product range
Modernise and protect the Post
Office brand
+ Consistent and cohesive approach to
brand across all customer touchpoints
+ Focus on Postmasters and employees
to create brand advocacy and
reappraisal of the Post Office brand
+ Place Postmasters and Social Purpose
at the centre of our brand
+ Ensure our partner relationships support
our brand values of social purpose,
modern and innovative
Digital, Mobile, Branch, Contact
Centre, Customer Service
+ Expand the marketing team to drive
leads from the SME market
+ Open up new marketing channels, e.g.
programmatic marketing
+ Target younger segments to protect the
future of the Post Office
+ Own the social and inclusion market in
the UK
Trade performance across Post
Office product portfolio and Speed
to Market
+ Drive efficiencies and optimisation in
marketing channels
+ Provide decision making performance
data to the Business, Postmasters and
Partners
+ Utilise partner data to drive insights and
revenue
+ Enable timely reactions to market
changes and events
yodey BunaeW dnoip ¢'g GeL
Enabler: Data & Insight- driven
Data and Insight as the bedrock to move from tactical executions, to strategy-driven marketing and finally to audience-driven marketing
Enabler: Innovative Propo:
ions & Partnerships
Pipeline of propositions and partners that drives the reappraisal of the Post Office brand
Test & Learn Approach
Empower our People and Postmasters in the Community
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Data —- fixing the basics
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With a new central CVM team in place (7 FTE), we are now beginning to work our database and
direct marketing channels harder and with greater success.
Propensity modelling is delivering better conversion
+ The development of the Loans Propensity Model allowed us to go beyond basic segmentation and identify customers who are
more likely to buy based on their expected behaviour.
+ Results from monthly loans email programme have shown that the top 3 deciles of our new model (the top three ‘highest
propensity’ customers for a loan) accounted for 62% of our total responses - 65 out of 105 Loans acquired.
+ We must replicate this approach across other products and programmes to ensure that we’re speaking to the right
customers with the right message, in order to maximise the potential cross-sell opportunities within our database.
New mobile first email template design has seen improved email engagement
+ Working with an interim new design for our most recent mortgages email, we've already seen email engagement increase -
from 3.47% (and the most clicked link being unsubscribe), to 5.49% (and the most clicked link being ‘find out more’).
We are beginning to automate recurring campaigns
+ Our monthly General Insurance campaigns (email and letters) are now 80% automated.
+ We must replicate this approach across all campaigns in order to shift balance of resource from where it is now -
manual delivery of campaigns to future facing initiatives.
Using data to personalise and target branches with the right messaging
+ Branch geographical data being used to align out of home messaging to network retail data.
City hoppers
to weekend
ayeayers, we've
got you covered.
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Data — fixing the basics
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The Post Office marketable database is shrinking due to GDPR impacts and limited data feeds:
Marketing opt-ins from Branch transactions have halved over the last 12 months, vs. the same period the previous year:
+ Email opt-ins from Branch transactions decreased from 174k to 93k in the last 12 months.
* Direct Mail opt-ins from Branch transactions decreased from 261k to 94k in the last 12 months.
Call-centre data feeds and strategy not built around cross-sell — no information passed back into BRANDs marketing database for existing
customers phoning up about other Post Office products.
Little consideration given to marketing data within partner contracts or in customer journeys — Limited management information or data
tracking and sharing agreements in place. For example - no data feed agreed as part of Money Gram and Payzone contracts.
Support Required
+ Business case - 2 FTE - Data Analyst and CVM Manager to accelerate the implementation of propensity models across all Post Office
products. Work with external agencies to develop test and learn marketing plans to drive revenue.
+ Business case - 1 FTE to fix the Post Office data architecture — improving our marketing database, improving data flows and data sharing
from partners, will give us a consistent data strategy that allows us to harness our data more effectively.
* Central project resource required to develop a Group opt-in strategy across all channels and review e-receipt opportunities — network,
mobile, digital, call centres.
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Management Information -— fixing the basics
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We need to work across Business Units and Partners to achieve greater control of the end-to-end customer experience
and its performance:
Our customer journeys are complex and we often don’t own them end-to-end:
+ Internally: Marketing, Digital, Retail and Internal Comms own different touchpoints of the customer journey.
+ Partners are often responsible for the online purchase funnels, call centre management, fulfilment of the orders and post-sale servicing - with
Post Office only influencing.
End-to-end reporting is impacted:
+ Werely on Partners to open up access to their funnels for measurement and pass transactional data back to our database.
Limited reporting automation and measurement of marketing effectiveness
+ Manual reporting due to multiple disjointed data sources.
+ Limited investment in Performance and Data Teams: 3x Marketing Performance Team and 1x Digital implementation.
* Complex to identify the true value of a sale and the marketing efficiency.
Priorities:
+ Acentral project to map and align existing end-to-end customer journeys: Marketing, Digital and Branch teams with relevant Product teams
and Partners.
+ Gap analysis of tracking and data sources: joint effort between Marketing and Digital with internal BUs to map gaps in reporting and data feeds.
* Gather all historic branch/call centre/digital and marketing data in one place. Move towards reporting automation — in progress through
Marketing Performance team. Dependency on Post Office centralised data repository project (Project Arrow) — delivery timeline TBC.
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Responding quicker to market events
yodey Bunayew dnoig ¢'g qeL
We have started to move towards event triggered marketing:
Marketing team challenge — To launch an April Fools Day campaign with commercial benefits in four days.
Output — Time Travel Insurance video launched across social media and email channels. Employee
competition to encourage content sharing to their networks -
Results
Channel Video Travel app Linked travel
views downloads money card
Facebook 400.000 26n 161
Twitter homepage
Travel app 636
notifications insurance
Email 12m 282.000 open I 3.438 860 101
rate homepage
More testing underway
Social media channel (Facebook, Twitter, Instagram, Pinterest)
ve dates Viewed, liked, brite traffic
shared, comme
ee March-Apeil [15m 365.881" 9699 NA a
banking. (+1968% previous campaign) I Need to overlay Network Ml
Travel money [SE 5.2m 500,000 117000 Travel Money Online - 177
Savings - 4
49 applications Broadband - 14
Free parent cover - 3 i
Re-targeting underway ' &
Post Ofte Time Travel surance
6:
Product
+92,31 people took part in our taro Tutus polls which were developed to highlight thatthe Post Office provides the UN's large ee free cash withdrawal network snd you can access your
tank account at ay local Post Office.
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Modernising the Post Office brand
yodey BunexeW dnoip ¢'9 GeL
We have started to move perceptions
Downend ou tava App
to manage yoo card om the
: @ z towards modern through our external
Great rates Pick up a Travel Choose a free gift with Travel Mon wrapper:
on bees and US Dor with oda) ey
renin Money Card today iiourcevellmurence_ Ti ate of the Day
* Delivering a modern and more
consistent approach to creative.
* Launched interim Brand
guidelines to drive consistency
across our marketing collateral
going forward.
+ Modernising the way we attract
talent through LinkedIn posts
showcasing our staff and values.
“A balance of péuieive
energy onal S * Currently no brand team, 1 FTE
ng q approved and recruitment
i
underway.
teams
MICK
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But we have a legacy of poor brand management
poday Bunayey dnoig ¢-g qe,
No brand consistency across our literature range... ..or Apps
Post Office GOV.UK Verify
@ Post Office Limited
age
Post Office Travel
Poat Office Ltd.
a3e
Post Office Essentials
Post Office Lid
soe
Post Office Current Account
Bank of retard
Key Priorities: Customer First logo is still Post Money branding was Ene Currency...
- used across the business stopped over 12 months anes
+ Fix literature range. ago but still in existence me
. f internally and externally:
+ Standardise App branding. & " " Y taal * Post Office Branch Fi...
Remove legacy branding. customer & M pecrenie
+ Launch proposition based leaflet range: FIRST 7
Post Office Money Credit Cards
Travel Essentials, Home Essentials,
Banik of roland UK
Everyday Essentials, Business Essentials.
lae
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External assets owned across the business
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External facing assets are owned across the business. Digital channels need to be aligned and brand approval’s in place to
ensure a consistent look and feel.
Kreeydey barking amen 8 Facets © Toot B Trace
www.postoffice.co.uk (Digital & Innovation Team)
Available in
Posting made easy. ————— :
: 4 with ovr [Enel] Envelopes @B.
' =. I
www.postofficeshop.co.uk (Retail Sales Team)
Recommendations
+ Move FTE & budget into Group Marketing for agency run websites — www.corporate.postoffice.co.uk and www.postofficeshop.co.uk
www.blog.postofficeshop.co.uk (Retail Sales Team)
+ £100k budget required to launch a consistent brand across all web assets.
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Social Media can damage our brand
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Social media channels have a high impact on brand perceptions but are underinvested with 2 FTE.
Glenda Cordova Fee three months now you are redirecting my mal
{to my expartner. Every time I call you asking to cancel this
tecSeection, your answet is, Scery be has the ih to recieect his
mal. Flea But whew ae my Hgbes to receive my mail? You are just
thaping bir to steal my mail
Live Resty- 15
@ Poet oMmce © Sony tobe that Glande. bt redectons are
handled by Royo MOx not curseves youre having sows
with a redirection they are curently doing youll need to reach:
tutto Ooo drocty > hp ewe facebosh omoyainal
Stephen
Une Resty 159
‘+ View 1 more reply
Key Priorities:
Build business case for social media FTE to drive leads into the business, enable prompt social media responses and embed the social
media strategy across the Post Office and partners.
Provide guidance, tools and support to Postmasters to mange their local social media content to protect the Post Office brand.
Announce our partnerships with more impact to remove confusion for customers. Utilise PR and content to share the Post Office story.
Create Post Office spokespeople across the Post Office and partners.
Shakira Bennett Never use the travel cardill! I's an
‘embarrassment! Two calls for them to unblock the card after they
‘came up with a bull excuse about security! Two people said it was
now good to use right away! Both were wrong! Do not rely on this
card if your abeoad or anywhere it's useless! It will cost you so
‘much in transactions and calls you'll wish you never bothered
Like Reply Sw
Morwenna Essex
Margaret Boggis Think
Santander and an Irish Bank
have something to do with the
“ownership” of the Post Office!
5h Like Reply oO
Postotfice Pewsey
eipostottce pemvey
pepenaee
whine jy fonom Saare
wee
Lat ay of cur money cars promenon 00 net miss Out on your extra
Ccureney Your wal et mere tee your ony Wha Knows what may Rape
on Fray
Dime © Commneet 2 Shave
Portotice Pemey
ase
Wer a tne tat about deals ere ours
Nis ay to ot cut 7 ny money card geo,
you spend €300 today on cusvency fw gve you 24 Euros extra on ine
‘money cand YES 24 turos extra FRELM
Thos apptns fo at the 13 currencies bu sn Eran ory
You get an extra'24 Euros for £300 and £500 and 24 Euros extra tor £700
0 any amount you wat get more
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Our employees have views on our brand
yodey BunayeW dno ¢°9 qeL
Employees Current Vision Employees Future Vision
+ Recognise the value of the brand and its heritage
Trusted Network wy pee
Relabie _
+ Viewed as part of the community, trusted and reliable F Digital commun tL Cool
INNOVAIVE Employees
Old fashioned tdated Customer Mobile
. asnioned, queues, outdate ra aa dl
Customer:
Trusted Digital
+ Miserable customer moments Mobile Dost *” Customer. te Protect Brand
Moder stm aste Cool
Reliable geal
te MO deri Sortmaster paretable
— odern :
Protect Br
+ Limited innovation in the network, mobile or digital
* Behind competitors
+ Limited investment in the brand and customer processes
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Choosing the right partners for our brand
The Post Office is building strong corporate relationships with key High street Retailers, partners and digital brands:
High Street Brand Associations In-branch Brand Associations Digital Brand Associations Partner Brand Associations
. Q MoneyGram, a Google ebay sa
——, FIRST RATE
WHSmith PD) Go
co (cx:) — HOU
ON Robert Dyas excel
p ww. TalkTalk
45 Retail Partners
Customers and employees are confused over what we stand for today, the products and services on offer and the future vision
* Recommendation - launch a UK wide door drop campaign to tell customers where there local branches are located, the services on offer and the role
of the Post Office in the community. Utilise augmented technology within the door drop to drive customers to mobile and digital channels. Budget
requirement £1.2 million.
+ Utilise internal communications channels, PR and Social Media channels to tell the Post Office story.
We are not utilising partners marketing channels:
+ Integrate Post Office content into partners digital screens, email/direct mail, social media channels (align marketing budget to Postmasters).
+ Setup a feed to share Postmaster/Community stories. Align marketing to CSR programme and North Star relaunch (PR & Communications).
+ Recommendation - test a partner marketing role (1 FTE required) to align marketing plans and data with Retail partners such as WHSmith. &
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The future of the Post Office brand
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BROADBAND
OFFICE
BUSINESS INSURANCE
OFFICE JA OFFICE
In the Community, for the Community
Customer First Postmasters Community
& Partners
Effortless to do Driving footfall and Providing the right
business with revenue into the propositions, at the
High Street right time, through
Creating magical the right channel
customer moments Treating
Postmasters fairly
Innovative
Using innovation to
support
Postmasters
Employees
Customers
Partners
Commercial
Delivering £150m
trading profit
Driving costs out
the business
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Brand priorities
Modernising and protecting the Post Office brand
Employee Engagement — high impact internal launch of the Post Office brand guidelines, values and rules to stop all future work going off brand.
Link into wider initiatives such as Corporate Social Responsibility and North Star Strategy relaunch.
Utilise Travel summer and Retail Christmas campaigns to create noise in the market internally and externally. With limited budgets we need to be
brave to stand out in the market. Link campaigns to exclusive employee offers to create engagement and awareness.
Recruit brand marketing vacancy and brand agency (current FTE allocation 1 Senior Brand Manager). Business case to increase the brand team
from 1 FTE to 2 FTE to protect and evolve the Post Office brand.
Remove out-of-date legacy branding internally and externally, for example Post Office Money branding.
Reduce branch literature and move towards proposition-led range (Travel Essentials, Home Essentials, Everyday Essentials). Test augmented
technology in leaflets to drive mobile and web sales. Align direct mail and email communications to a Postmaster community level.
Reach an agreement with Royal Mail to educate the market on how we work together and to address dual branding of in-branch materials to enable
consistency in look and feel (in-branch materials currently branded Royal Mail and Parcelforce which clash against Post Office marketing,
confusing customers).
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Next steps
Since November the marketing team has been formed into a Group function and has started to move the
dial on marketing strategy, data, customer insights, brand consistency and modernising external
communications.
* Embed the Post Office brand guidelines and rules to protect our brand, alongside CSR and North Star initiatives.
Drive reappraisal of the Post Office brand amongst customers.
* Fix customer journey and data issues to create best in class and personalised experiences. We need to invest in
our data capability and address opt-in strategy issues to protect our database.
* Utilise Travel summer and Retail Christmas campaigns to create noise in the market and inside the organisation.
With limited budgets we need to be brave to stand out in the market.
* Support from Product areas to launch modern and innovative propositions that create stand out in the market.
* Continue to test market reaction campaigns, e.g. Help for Heroes, Black Friday, Cyber Monday. &
~
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Tab 8.3 Group Marketi
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Tab 9 Strategic Development
POST OFFICE LIMITED BOARD OF DIRECTORS NOTING PAPER
1
July Strategy day update
Author: Jonathan Lewis Sponsor: Al Cameron Meeting Date: 29 May 2019
Executive Summary
Context
The strategy day provides us with an opportunity, as a Board, to reflect on the longer
term direction of the business and make the difficult decisions that will be required to
guide the business towards commercial success and freedom from subsidy.
We plan to start the session with a view of the long term financial plan for the Group.
This will help us understand how close (or otherwise) we are to long term financial
sustainability, and what key levers we have at our disposal to accelerate towards it.
While the coming years are likely to look positive while we continue to receive funding
from government and have the benefit of the Banking Framework, these may not last
forever. At the same time, we are facing volume declines in many of our other products
and substantial continued investment requirements to continue improving the efficiency
and agility of our business.
The remaining papers will present difficult choices for us to make - particularly around
the extent we want to invest in growth at the expense of short term profitability.
Debbie will bring an interim update on the Agent Remuneration work which was due to
report back in October. There may be some decisions we should make now to align
better the incentives of POL and its Agents and improve the sustainability of Agents’
businesses.
Owen will bring work currently underway that will allow us to debate the future path for
our Travel Money business - a strong contributor to profit as well as being a key footfall
driver for our Agents. We are the largest in-person provider of Travel Money, but are
at risk to digital-only offerings and new disruptors. We should discuss whether we
should invest to grow this business, or run it for yield.
Our Telecoms business has been very profitable for us, particularly given the limited
resources it consumes. However, keeping pace with the market will require substantial
investment in fibre, as well as potentially bundled offerings with mobile, TV etc. The
contract with Fujitsu is due for expiry in 2020 and an RFP process has been initiated.
Owen will bring work to the Board to allow us to discuss whether we should continue to
own the business or consider a sale.
We are one of the four major networks moving cash around the UK. It is widely
accepted that cash usage will continue to decline, and the current infrastructure will
need to be rationalised. Owen will bring work to set out the benefits of rationalisation
and a recommendation for how we should position ourselves to take advantage of any
consolidation.
To date, we have shown strength in the Identity market and now have over 2m accounts
that have chosen our solution focused on government services. Building that
opportunity further, however, will require us to extend into the private sector and build
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Tab 9 Strategic Development
new capabilities. Owen will bring a paper that will allow us to discuss how aggressive
we want to be in capturing these opportunities.
As you can see, we have some important decisions to make as a Board that will have
defining impacts on the future direction of the group and its finances.
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Tab 9 Strategic Development
204 of 286
POST OFFICE GROUP EXECUTIVE NOTING PAPER
Page 3 of 7
The Report
Draft timing of Strategy Day
We are proposing the following agenda and will take feedback during the May Board meeting:
Strategy Day - draft Agenda
Date 30th / 31st July
Topic Time
Tuesday 30th July
Board meeting xx-1530
Financial Strategy for POL 1600-1700
Branch technology demonstrations 1700-1800
Wednesday 31st July
Agent Remuneration - interim update 0815-0945
Addressing the Incumbency Trap in Travel Money 1000-1100
Options for our Telecoms business 1100-1200
The opportunity to create a cash utility 1245-1415
Winning in Identity 1430-1600
Departures 1600 onwards
Current Progress
Financial Strategy
Work Sponsor Alisdair Cameron
Project Lead Jonathan Lewis
External Support KPMG
Context The Group secured a three year funding agreement from HMG which
lasts until the end of March 2021. Since the funding package was
agreed, however, there have been substantial changes in our business
and the market in which it operates. We may need to engage with
HMG at short notice regarding funding/dividend requirements post
March 2021 and it is therefore imperative that we have a view on the
longer term financial performance of the Group and the levers with
which we can affect it.
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POST OFFICE GROUP EXECUTIVE
Page 4
Key question(s) to be
answered
What does the plan mean for future funding requirements /
dividend capacity?
© What other priorities does it suggest for the next 12 months?
Key topics being
explored to support
board in making a
decision
¢ Financial forecasts by line of business over next S years with
key assumptions
¢ Detail around cost savings opportunity
© Set of scenarios and choices, and impact on financial
forecasts, to include:
o Sale of Telecoms business
© Outcomes on litigation
© Agents’ Pay
o Other commercial opportunities (e.g., investment into
Travel Money)
Progress to date
KPMG engaged and meeting with FDs w/c 20 May
Agent Remuneration — interim update
Work Sponsor Debbie Smith / Amanda Jones
Project Lead Nick Beal
External Support TBC
Context
Having strong relationships with Agents is key to our long term
success as a business. We rely on them to deliver excellent customer
service selling our products, and we need existing and new Agents to
maintain network reach for us to fulfil our statutory and strategic
social purpose.
While around 500 Agents have engaged in the GLO process, we also
believe that there is growing unrest with many of our partners who.
have seen significant remuneration decreases predominantly through
reductions we have imposed and declining government services. This
along with increasing costs from NMW/NLW and rents/rates is making
an increasing number of our Post Offices vulnerable.
As previously indicated to the Board, we have started a detailed piece
of work to develop our Agent remuneration strategy — this work is
due to report back in October.
However, we may need to act more quickly than this. This session,
therefore, will provide an interim update together with some options
to accelerate key decisions.
Key question(s) to be
answered
How do we ensure that a Post Office remains viable for
Agents at the smaller end of the network?
© How do we ensure that Agents see digital sales as an
opportunity and not a threat?
© How should we share the upside from the Banking
Framework?
What should we do to support and incentivise Agents to earn
more (rather than be paid more)?
Key topics being
explored to support
board in making a
decision
¢ Overview of current remuneration agreement, and key
sources of friction between Agents and POL
© Economics of Agents by segment
© Product economics for Agents
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Tab 9 Strategic Development
206 o
POST OFFICE GROUP EXECUTIVE
* Costed options to address the key questions above with
recommendation
Progress to date
Work underway
Telecoms
Work Sponsor
Owen Woodley
Project Lead
Meredith Sharples
External Support
Valuation advisor being selected
Context
The Telecoms business contributes around £150m of gross revenue
and £30m to POL’s profits.
A strategy was agreed at the January board to invest further in
migrating the customer offer towards fibre broadband and it
full procurement process. The process will identify options to
optimise the current supply structure to release an estimated
additional margin of £7-11m pa by increasing the amount of supplier
management internally.
The strategy will also consider the option of divestment, so we are
therefore exploring what value our business might achieve if sold,
through a piece of desk based research led by external advisors.
Key question(s) to be
answered
© Should we:
© Continue to manage Telecoms as we do now through
one master supply agreement?
© Take on more of the supplier management role,
contracting with individual suppliers?
© Pursue a sale of the Telecoms business?
Key topics being
explored to support
board in making a
decision
Progress to date
© Initial outcome of RFP process and financial projections
© Outcome of valuation exercise, buyer universe and likelihood
of being able to execute a sale
RFP process initiated — responses due in June
¢ Shortlist of valuation advisors selected (Akira, Oakley
Advisors, PJT) — going through beauty parade w/c 20 May
Travel Money
Work Sponsor
Owen Woodley
Project Lead
Chrysanthy Pispinis
External Support
Grant Thornton
Context
Our Forex / Travel Money business currently generates £36m
contribution per year and is also important component of
remuneration for our agents (£22m).
With a segment share of 24% for branch transaction, we are the clear
leader in the space. However, competition is intensifying from retail
operators such as M&S, as well as new disruptive models such as
Revolut.
Furthermore, we currently set pricing differently online and offline, as
is normal in the market, though this is seen by Postmasters as driving
volume away from them.
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NOTING PAPER
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Tab 9 Strategic Development
POST OFFICE GROUP EXECUTIVE
Key question(s) to be
answered
Key topics being
explored to support
board in making a
decision
© Should we:
© Run Travel Money for maximum short term profit?
© Seek to maintain our current level of segment share,
at a potentially lower level of overall profit?
© Aggressively expand our position within Forex?
© Market context including regulation
* Customer needs
© Options for our Travel Money proposition
© Options for Forex partnerships
© Financial and strategic comparison of the options, and
implications for the FRES business
Progress to date
Grant Thornton engaged and work has started
Cash Utility
Work Sponsor
Alisdair Cameron / Rob Houghton
Project Lead
Russell Hancock / Gayle Peacock
External Support
Reinvigoration
Context
Post Office plays a vital role within the UK’s cash infrastructure
distributing cash to serve communities in over 11,500 locations via
our branch counters and c2500 free to use ATMs. We are one of four
members of the Note Circulation Scheme, contracting with the Bank
of England to ensure bank notes are circulated within the UK. Post
Office is the only organisation able to collect coins directly from the
Royal Mint. The Supply Chain provides this access via four cash
centres, 15 Cash in Transit depots and a fleet of 203 vehicles.
The estimated cost of distributing and managing this cash across all
providers is £5b per annum, and this is expected to rise. Whilst Post
Office are seeing an increase in cash being deposited in our branches
due to the impact of local bank closures, the long term cash usage for
transactions, however, is expected to decline over coming years.
Some forecasts suggest it might be used for only 10% of transactions
by 2030.
It has been acknowledged that access to cash and being able to make
cash payments will and need to continue in the future. Industry
participants and other stakeholders (e.g., BoE) are considering how
the cost of cash can be reduced, including whether the cash
processing and distribution network should be consolidated towards a
regulated monopoly provider. Running in parallel, we are having
conversations about the viability of operating partnerships with other
players in the market in the advance of a wholesale cash utility model
being introduced.
Key question(s) to be
answered
© How do we organise ourselves to ensure we are in the
strongest position to be able to provide cash and fulfil our
social and contractual obligations in the most efficient way?
¢ What role should we take in the consolidation of the UK’s
cash infrastructure?
Key topics being
explored to support
* — Strategic analysis of the cash industry and future trends in the
UK and worldwide
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NOTING PAPER
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Tab 9 Strategic Development
POST OFFICE GROUP EXECUTIVE
board in making a
decision
Understanding what our stakeholders and customers need
from the Post Office regarding cash
© The range of target operating models available to us
{including JV/utility/commercial partnerships etc) supported
by financial implications
Progress to date
Reinvigoration are on board and due to release first output to us
initially at the June Group Executive
Identity
Work Sponsor
Owen Woodley
Project Lead
Martin Edwards
External Support
n/a
Context
The Post Office is currently the largest player within the nascent
Identity market, with 2 million people having signed up for a POL
identity account through the Government portal.
To date, the use of the Identity product has been limited to
government services — however, there is a substantial opportunity to
grow this across other use cases such as Employment and Financial
Services.
We have a unique set of skills and capabilities with which to further
grow our presence in the market, as well as to influence its
development.
However, our likely competitors are formidable, being either large
financial services players, or well-capitalised fintech startups.
We therefore have some important choices to make regarding how
we play within this space, and the extent to which we want to emerge
a leader.
Key question(s) to be
answered
= What level of ambition should we have within the Identity
market?
¢ Across the multitude of opportunities, where should we be
prioritising for our first major push into new markets over the
next 12-24 months? What resources and partnerships will this
take?
= What role should we be taking in the Identity value chain?
What are the options to either reduce or increase our
risk/reward?
Key topics being
explored to support
board in making a
decision
© Strategic analysis of Identity market with:
o Keyuse cases / customer journeys
© Route to cash for POL
o Importance of the self-supporting ecosystem (the
‘chicken and egg’ problem)
© Competitor dynamics
© Likely development of the Identity market
Size of the prize
© Update on current product development
© Our current market plans and financial projections
Options for how we go faster and/or further, including likely
capital requirements / partnerships etc.
Progress to date
Project team stood up
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Tab 10 Bank of Ireland Deal
POST OFFICE LTD PAGE 1 OF 6
BOARD
Bank of Ireland and Capital One
negotiations - an update
Authors: Chrysanthy Pispinis & Colin Stuart Sponsor: Owen Woodley Meeting date: 28 May 2019
Executive Summary
Context
Our negotiations with Bol Group picked up pace in late August 2018 and in November 2018,
Bol put forward a new proposal for our future partnership.
e We signed non-binding Heads of Terms on 25th March and are progressing towards final
agreements. Neither the key elements of the agreement, nor the financial assumptions
underpinning it, have changed since the update to the Board in March 2019.
e The negotiations to change our credit card provider have progressed on a parallel track:
© In mid-2018 Bol initiated a process to dispose of its whole. UK credit card
offers were received: full front and back book offers from I!RRELEVANTian\
and a front book-only offer for the Post Office business from Capi One.
o Management’s recommendation, supported by GE and Board, is a ‘split book’, where
we will launch a new cre ard business with Capital One (“CapOne”), with the existing
back book migrated to}=«I- a private equity backed Norwegian fintech.
o Atits January meeting, the Board delegated authority for the approval of the credit card
contracts to the Chairman; Shareholder Representative; Group CEO and CFOO.
o Contracts are expected to be signed by the end of May
Questions addressed in this report
« What is the latest position in the Bol negotiations, next steps and timelines?
e What are the final parameters of the credit card partnership with CapOne?
« How will the back book be managed to ensure appropriate customer treatment and
minimise reputational risk for Post Office?
Conclusion
e Following signature of the Heads of Terms, good progress has been made on the necessary
amendments to the FSJVA, with a target for finalisation in June 2019. Nothing has emerged
to change the terms presented to the GE and Board in March; the key material items that
are being worked through in further detail are exclusivity and termination.
e We will be partnering with an expert and proven credit card partner in CapOne, making us
more effective and credible in this space and enabling us to provide products to a much
wider set of Post Office customers. Market launch is targeted for October 2019.
o We have secured firm protections from Bol around the treatment of our back book
customers and reached agreement with the relevant third parties on that basis.
o We are being paidin by Bol for the six months that we will be out of the market
whilst we get our new propositions designed and launched.
Input Sought
The Board is asked to note the updates on the Bol negotiations and new credit card partnership,
and provide its steers and challenges. The Board is asked to: 1. Approve the total spend related
to the Bol negotiations; 2. Provide its delegated authority to the Board sub-committee for the
approval of the signing of the amended FSJVA and FRES contracts on the basis presented once
finalised.
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The Report
What is the latest position on the Bol negotiations, next steps and time lines?
A reminder of the core planks we have been negotiating on
1. There have been six key art
.
. IRRELEVANT I
« An extension to the term of the agreement andi _
« Arefreshed approa
«Resolution of the!
« Moving our credit card business away from Bol
A reminder of the key risks and dependencies
2. Execution risk: Continuing and finalising the negotiations with Bol, on-boarding a new credit
card provider, operationalising these new agreements (including launching new propositions
to market) will require significant bandwidth - so resourcing levels and having the right
capabilities in place are critical, and this will come at a cost - particularly expert legal advice.
3. Procurement risk: We have revisited the PCR risk and there is no change in advice. In 2016,
the Concessions Contracts Regulation (CCR) came into force, and we have considered
whether the FSJVA extension could fall within CCR and exposing Post Office’s procurement
rocesses to challenge.
4. The Legal Entity Optimisation (“LEO”) project is a key dependency with the Bol negotiations,
especially the creation of a separate FS entity. The preferred approach of Post Office
partnering with ‘best of breed’ providers to deliver its FS strategy is best supported by a
regulated financial services entity, as opposed to the current set-up of the whole of Post
Office being an Appointed Representative of two, soon to be three, regulated principals (Bol,
Post Office Insurance and CapOne). The complexity and cost of managing multiple principals
is not consistent with being simpler to run.
Progress towards final agreements
5. Non-binding Heads of Terms were signed on 25 March 2019. Steady progress is being made
in negotiating and finalising binding agreements, with a target for completion of mid to late
June 2019. This includes a couple of weeks for the respective lawyers to pull together all the
amendments and restate the agreements.
6. Post Office and Bol have split the work of drafting various sections of the legal agreements,
prior to joint review and agreement. Several sections have been completed and agreed, or
are substantially completed and agreed, including the Review mechanisms, Incentivisation,
and Governance.
7. Good progress is being made on the three-year joint business plan, with positive engagement
across Post Office. Z
8. The two items that have proven most complex are}
the latter as_we are fundamentally changing the FSJVA approach IRRELEVANT
. This is partly down to the provisions in
the Heads of Terms requiring expansion or Giatification, with elements requiring further
negotiation. The drafting of these sections is complicated and has taken time - and
agreement on the finer points of detail and definition is also anticipated to be time
consuming.
9. Whilst both Bol and Post Office are keen to finalise all the contractual amendments in a tight
timetable, it is also important that we take the time to get the provisions right in order to
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Tab 10 Bank of Ireland Deal
PAGE 3 OF 6
protect the Post Office and improve the likelihood of a safe and orderly exit from the
relationship, with a strong FS customer franchise.
10.Nothing has emerged so far that would change the terms that have been previously
presented to the GE and Board.
11. From a process Perspective, the negotiating team has been supported throughout by our
- and our external legal counsel - particular
has been pt fidependent validation to these agreements. This, and ongoing support
and challenge from Board members have enabled us to get to the most favourable outcome
for Post Office.
Project funding
12. Our broader FS strategy work and negotiations with Bol started in mid- 2016, with varying
degrees and phases of activity over the last three years.
o Our initial strategy wi k_ and negotiating position was supported by
consultant and } IRRELEVANTias our financial advisor, with further sup,
on validating th “ategy (as requested by the Board) - totalling!
and 2017/18.
o Since negotiations picked up again around the summer of 2018, we have been
supported by ‘as our advisors andi as our external counsel - spend
has totalled} iin 2018/19, with a further i in approved funding to end May
2019.
o The expected additional spend to complete negotiations and fund the project until mid-
July (for contingency) is
13. The total approved funding since May 2016 ig{iRRELEVANT!
14. The Board is requested to approve the total spend which includes the sunk costs
detailed above. The requests to drawn down this funding will be presented to CAG for
approval.
Credit cards: Final parameters of the partnership with CapOne
Commercial arrangements, pricing and governance :
15. Post Office will receive an upfront commission per new account, ranging from
card sale (with higher payments for more valuable near-prime customers). This a
our cash returns as the programme scales up. The commissions per product ca:
time to ensure incentives remain aligned for both parties with Post Office earnin:
the expected total product lifetime value (depending on the product structure and customer
take-up). Post Office will have the right to audit CapOne’s lifetime expected value calculations
to ensure that this remains the case.
16.We have defined _two initial core sets of strategic product features (a standard card and a
travel card with j=}on FX) that CapOne will be required to operate within unless agreed
otherwise.
17. CapOne will have the right to test and optimise pricing, underwriting and minor card features
on their own volition outside the strategic product features. This optimisation will drive value
for both parties.
18.CapOne will deliver the marketing (with the close involvement of Post Office’s marketing
team) and pay for the associated headcount cost for two years post launch. Thereafter, we
have the option to continue this support on a paid basis or take the activity fully in-house.
Post Office and CapOne will each have a }ss«.“":i annual marketing commitment for the first two
and a half years as long as the programme credit card sales achieve set benchmarks.
19.A joint Management Committee will oversee the programme with an emphasis on
transparency and strong/regular management information.
Termination and exit
20. There is an initial five-year contract term which has a practical running term of c.3 years
(following 5 months of launch planning) before Post Office can trigger an exit process if
desired.
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21. Post Office will be unrestricted from discussions with potential new partners throughout, and
exclusivity will fall away upon the signing of a sale agreement with a new partner or
termination of the agreement.
22.There is an option for a new Post Office partner to purchase the portfolio from CapOne at
expiry, or for Post Office to exit and start a new partnership as we are doing on this occasion,
in which case CapOne would retain the portfolio in wind-down.
23. Post Office’s purchase option is tied to a specific pricing mechanism, based primarily on fair
market value but with certain protections for CapOne (only related to the fact that the lifetime
value commission is paid to PO entirely up-front).
24. Post Office is not obligated to pay or buy anything, but has an option to convey purchase
under the agreed Pricing mechanism to a new partner.
to par valle, Which our advisers confirm is standard a industry practice and which, with a best-
Practice issuer, should be an achievable price. Any amount above the purchase price will
accrue to Post Office, either as an
26.In non-standard termination circumstances, e.g. in the event of a breach by either party,
slightly different mechanisms and pricing approaches apply to protect the party suffering the
breach or damage. Again, these are entirely in line with normal credit card industry practice.
27.Standard termination rights exist, though each party also has a right of termination on
change of control of the other party. CapOne also has the right to terminate the agreement
where it undergoes a change of control (other than an internal re
Upon receiving a purchase notice, CapOne will have the right to
28.
year. However, for accounting purposes, Post Office will REL
g any impact on the P&L in the
Customer servicing and data
29.CapOne offshores its customer servicing, but with the ability for customers to transfer to a
UK agent, and has recently re-shored handling of vulnerable customers.
30. CapOne holds its own data outside the EEA - in the US via its corporate parent and with its
offshored servicing centres in India and the Philippines. Our Data Protection team has
confirmed that this is acceptable to Post Office.
31.CapOne has agreed not to hold any Post Office data outside the EEA (e.g. if we sent them a
marketing target list for a campaign)
32. We have agreed to work together ti
we will most likely need to rely on!
Regulatory relationship and Project LEO interdependencies
33.There is no binding obligation on Post Office (or a subsidiary) to become regulated, and
CapOne would have to continue acting as a principal.
34. However, depending on the progress and timing of LEO, Post Office could become directly
regulated for this activity through a new FS subsidiary.
35.In the meantime, Post Office is finalising the future regulatory relationship as CapOne’s
Appointed Representative, with CapOne acting as Principal, and ensuring that Post Office’s
three go-forward principals (PO Insurance, Bol and CapOne) agree together how to manage
the multi-principal relationships. The compliance arrangements are also being finalised.
36. In parallel to closing off the final commercial and legal drafting points with CapOne, we are
finalising our agreement with Bol in relation to Credit Cards, covering among others
exclusivity release and the management of the back book - with more detail on the latter in
the next section.
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Management of the back book & migration risk with BoI
37. After a robust negotiation with Bol on this topic, we have agreed a number of items on how
back book customers will be managed, including protections for those customers and for Post
Office's renutation and brand.
} to undertake the migration of customers
rd migrations are highly complex, and there is a risk ‘of delay
re using the same credit card
plastic.
(industry practice is closer to 12-18 months). Bol and «
platform, which reduces some of the complexity.
39.A smooth migration is particularly important for Post Office, given that our brand will be on
the back book credit cards and all of the servicing elements (contact centre, statements,
etc.) of back book customers until migration, and for a short window thereafter. Conversely,
the migration not going to plan could present brand and customer risks to Post Office.
40.In addition, after the launch of the new Post Office credit cards with CapOne - from October
2019 - there will be two different Post Office-branded credit cards in the market, albeit only
our new pi ition will be actively marketed.
41.If Bol an achieve their intended migration timetable - and they have a very clear
commercial incentive to do so - then the brand overlap would only be for five months.
However, a delayed migration could make this longer (Please refer to Appendix I for an
indicative timeline).
42. We have therefore negotiated a number of things to mitigate the risks to Post Office.
o Firstly, there will be a backstop of 18 months - plus a th month grace period (not
unreasonably withheld if they are.on_track).- for. Boland ‘0 complete the migration,
failing which they will be} IRRELEVANT
o Furthermore, we will have the right to;
which it so happens would be much easier if the PO brand remains in use at that point.
o In addition, Bol will be paying Post Office a fixed sum of } i
getting our new CapOne proposition to market (we aim to launch during October 2019).
43. It should also be noted that for as long as the back book remains on Bol’s books, all the
existing contractual obligations and protections towards Post Office remain, to protect our
customers and brand / reputational risk.
44. Finally, during the migration, Post Office has the right to appoint a consultant to scrutinise
the migration process and timetable so that we can insist on remediation where any concerns
around customer treatment arise - which is in addition to the close scrutiny from the
regulator.
45. Post the migration, i=<" will have a maximum of three months to re-issue branded cards
to the Post Office back book customers. Bol’s key FSJVA commitments will extend to this
card reissue period as well.
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1e@q puejeyI Jo yueg OL GeL
The overlap between the new credit cards and the back book is
governed by contractual provisions with clear timelines
3. Ta 4. End Dat
2. PO / Bol ongoing comms —_ migration date by which
planning — PO to have the right’ window (9- 5. All cards re
we to communicate to customers 12 months
ass Comet in the case of reputational post a 3-month grace
hp damage or customer detriment signing) period iidiith period
(Bor FSIVA amendment)
May Dec lar
End Date >< Reissue
Back book customer journey
2019 2020 2021
New program (“front-book”) ramp-up
No new card
marketin
esac,
Non solicit for back-book customers 15mo PO free to market to back book customers
Po
&
Ss
&
cy
May Sep
1, CapOne contract 5. End of PO
signing solicit
pe Continuous program and proposition development & Money,
Strictly Confidential Bank of Ireland negotiations update May 2019
=
o
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Tab 11 Digital Update
POST OFFICE BOARD PAGE 10F 11
Digital Progress update
Authors: Henk Van Hulle, Jeff Smyth, Priyanka Dewan Sponsor: Owen Woodley Meeting date: 28% May 2019
Context
This paper provides an update on the consumer digital activity in Post Office and covers the
following items:
«Our digital ambition
«Our progress so far including an update on Customer Hub
« Forthcoming developments and wider strategic considerations
Key questions addressed in this report
1. What is our digital ambition?
2. What are we currently doing to deliver value across digital channels? What does success look
like for our new “mobile” distribution channel?
3. What are the next steps in terms of developing our digital strategy?
Conclusions
1. Our ambition is clear and unambiguous - to engage and appeal to both our customers and
agents with innovative product propositions and leading edge digital online experiences,
underpinned by frictionless branch journeys. This requires a transformative shift and will
require us to focus on 6 enabling themes:
i. Creating a digitally savvy organisation
ii. Building and integrating leading edge web and mobile-optimised experiences
iii. Originating informative content and interactive digital tools to activate step-
change improvements in our Search Engine Optimisation (“SEO”) and Conversion
Rate Optimisation (“CRO”) funnel performance
iv. Forming and fostering external ventures and partnerships to identify emergent
digital opportunities
v. Delivering sustained digital improvement of every signature process
vi. Establishing comprehensive data analytics expertise and tooling capabilities
2. Weare currently engaged in a number of activities delivering value through digital; this
includes enhancement of Customer Hub, i.e. the Travel App including the addition of Holiday
Extras, insurance in-life policy changes and renewals. We are also engaged in website
developments to improve search engine rankings and sales funnel conversion. Further short
term plans include the addition of standalone Gadget Insurance, launch of the Identity
Website, Mails Digitisation, Youth Strategy and International Money transfers.
On the Travel App, we have achieved 300k unique customers adopting the app
following 11 months of successful operation (yielding £11k+ revenue to FRES
daily). The creation of our new Group Innovation and Digital business unit
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earlier this year positions us well to drive a much more efficient and consistent
development effort. Following agreed CR changes (including internal cost
allocation changes decided in March 2019) outlined in Appendix A, there has
been a reduction in investment and, therefore, the benefits declared for the
original Customer Hub business case. However, we are seeing an improved
NPV. The addition of new verticals (beyond travel) on Customer Hub (such as
Mails Digitisation and Youth Strategy) will now be assessed under their own
standalone business cases.
ii. On SEO and CRO activities, we have employed measures to increase our share
of the online market through being more noticeable in searches and more
efficient when it comes to a customer executing a digital journey. The Life
Insurance work in conjunction with Royal London is an exemplar of what can
be achieved (a doubling of the conversion rate in 3 months); we are
extrapolating this approach more widely across the organisation with a
projecting an income uplift of £942k in FY19/20 - from a team of 2 FTE at
present. It also highlights the importance of having control of the end to end
customer journey and the criticality of good relationships with our partners to
be able to deliver the best, consistent experience, and to have a holistic view
of opportunities.
3. To plan for the future, a business wide digital value mapping exercise is underway and
themes are emerging about the ways in which digital can deliver greater financial benefits
and where we need to invest to deliver the necessary transformation. Example initiatives
include the digitisation of particular processes with Postmasters (through the Branch Hub
initiative), options to optimise Cash in Transit planning, self-service capabilities - call
deflection for telecoms customer servicing, improved branch processing through cheque
imaging via an app or companion APIs for the Banking Framework etc. What is very clear is
that we need stronger data/analytics capabilities to inform our approach and prioritisation.
Input sought
The Board is asked to note this paper and the progress we are making on digital enablement.
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The Report
1. What is our digital ambition?
Our ambition is clear and unambiguous - to engage and appeal to both our customers and
agents with innovative product propositions and leading edge digital online experiences,
underpinned by frictionless branch journeys. Enabling this transformative shift will require us to
focus on 6 enabling themes:
vi.
Creating of a digitally savvy organisation; conversant, skilled and confident with
applying agile methodologies and clearly focused on digital proposition design and
lifecycle management
Building and integrating leading edge web and mobile-optimised experiences that
delight our retail consumers, agents and SME customers
Originating informative content and interactive digital tools to activate step-change
improvements in our Search Engine Optimisation (“SEO”) and Conversion Rate
Optimisation (“CRO”) funnel performance
Forming and fostering external ventures and partnerships to identify emergent digital
opportunities and to stimulate creative business and technical responses
Delivering sustained digital improvement of every signature process to ruthlessly
eliminate failure demand, reduce wasted effort and achieve slick redesign fuelled by
robotic process automation (“RPA”) and machine learning technology, yielding
optimised organisational execution
Establishing comprehensive data analytics expertise and tooling capabilities to drive
data-led behaviour and action focused test and learn activities to drive continuous
development of profitable market opportunities
The journey to deliver this ambition will iterate and evolve, but it has commenced with a
number of examples below...
a)
b)
Mails Digitisation - this initiative provides a clear through route to deliver our Send, Pick
Up and Drop Off (“SPUDO") objectives for parcels. The solution will deliver a hugely
improved customer digital experience to purchase online parcel postage, complemented
by optimised branch journeys for handover and pick-up. Functional enhancement will
lead to an integrated offer of Send, Click & Collect and Home Shopping Returns within a
single web/mobile experience, complemented by eBay shipper integration, enablement of
International Customs Data Capture and enhanced tracking of parcel journeys. The new
capabilities are beneficial to customer and agents alike; making a clear marketplace
statement of our digital ambitions and sending a reinforcement message about our
digital credibility to Royal Mail Group during our current commercial renegotiations.
Universal Payments Platform - we are developing an innovative platform which will
support multi-channel (cash, card and bank account originated) payment loading, digital
wallet store of (multi-currency) value and transfer via WU/MoneyGram remittances and
consumption of stored value, both domestically and internationally. Cash-out and spend
via the MasterCard scheme will be possible using cash, merchant spend and bank
account channels. Usage of this universal platform will be applicable across a range of
business opportunities - Digital Wallet, TMC of the future, our POCA replacement product,
Postal Order 2 and our Youth Strategy. Having recently obtained product freedom from
Bank of Ireland for current accounts, there is also a possibility of using the platform
solution as a pseudo current account. This differentiating proposition and the
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c
d
e
accompanying web/mobile assets will be capable of supporting retail and SME customer
segments.
:) Common repeatable delivery patterns for fast track digital on-boarding of financial
service products - our objective is to deliver accelerated enablement of white-labelled
“thin-involvement partnerships” where Post Office participates in web brochureware. This
frequently involves data integration with partner journeys/systems/tools, web tagging of
whole end to end journeys and repatriation of “converted customer” data records to
populate our core customer database. We are also looking at alternative options where
we more deeply integrate using API approaches both for customer acquisition and in-life
servicing activities.
Agent Effectiveness Enablement & Operations Transformation - Branch Hub forms a
critical strand of how we will digitally power our agents and make day to day branch
support transactions easier to execute. These include easy access to
operational/management information, problem resolution requesting for branch kit and
execution of resource intensive (call centre facing) business activities like cash/coin
ordering. Branch Hub acts as an enablement portal for all operational transformation
activities, either stimulated by internal process digitisation objectives (like delivering an
improved agent on-boarding experience) or to focus on how we improve in-branch
process efficiency and operational controls.
) Leverage of our Identity capabilities - our market credibility in Identity is already clear
through Verify, Digital Passport Check & Send and In-Branch Document Certification
services and further opportunities are being pursued to embed Identity capabilities into
an array of digital journey paths. These include digitising the branch Document
Certification process which will be enabled using in branch tablet technology
(complemented by both agent and customer digital apps) and the embedding of Verify
journeys within Travel Money Card on-boarding.
2. What are we currently doing to deliver value across digital
channels? What does success look like for our “mobile”
distribution channel?
So far we have implemented a number of measures to deliver revenue uplift through:
.
Enhancement of our existing websites and apps and performance improvement achieved
through focused SEO/CRO optimisation
Launch of new websites and apps to support new business propositions
Enhancements of websites and apps through SEO/CRO optimisation:
a
b
) On SEO optimisation, the team have made significant progress in increasing the search
engine visibility of our loan products and the results of this has been a vast increase in
traffic volumes directed to the loan pages on postoffice.co.uk; the year on year personal
loan traffic has increased by over 350%. This approach is now being applied to our other
products with an online presence (See Appendix B for full details).
}) On CRO optimisation, we identified and shared a programme of journey improvements
with Royal London (Life Insurance) - including improved branding, clearer error
messages and guidance, reduction in form size, improved journey flow, removal of
duplicated customer steps. Testing has shown that the journey time to complete the new
online process has been drastically reduced by 50%, and conversion has doubled.
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Further brochure ware changes on the site have helped to drive a 40% increase in traffic
to the site.
c) Beyond the Life Insurance case study, there are a number of other successes that have
been delivered via this test-learn-optimise methodology. The graphic below shows the
range of projected benefits from a range of other business lines and respective uplift to
income in FY 2019/20, totalling c.£1M.
Telco Verity
9.5% uplift in CR 12196 uplift in filter usage Fahl 3.4% uplift In CTR
£273k additional income 843k additional usage vere ore pistes! GOV ae
108%+ uplift in opt ins 6% uplift in CTR wos opt ncTR
opt upl
Grlyovlaheroriy £991k additional deposits 4,200 additional funnel 11,372 additional service
during lifetime of campaign entries page views
‘Travel insurance Funnel Loans Total additional annua
‘3.5% uplift in CR 20% uplift FC subs Lesherertimed income projection
£390k additional income 2.3% lift in accepted apps 12% uplift in CTR
38,955 add. FC subs £942k
d) Once implemented, SEO and CRO techniques need to be iteratively applied to protect our
investment and gain advantage in a highly dynamic and competitive digital marketplace.
Launch of new websites and apps
Customer Hub
Following 11 months of successful operation, the customer hub has acquired 300k unique
customers adopting the Post Office Travel app.
a) On latest forecast (details in Appendix A), and relative to the original business case, we
have had a reduction in total investment of £14.2m resulting in a £16.6m decrease in
total benefits. This decreased net cash flow by £2.4m relative to the original business
case and a slight decrease of £0.2m relative to the April CR:
Cumulative 5 year view from launch
Business I April ‘18 Change Latest I Change from
Case £m Request Forecast I Business Case
Em im im
Total Benefits* 32.5 30.4 15.9 (16.6)
Total Investment (26.3) (26.3) (12.1) 14.2
Net Cashflow 6.2 4.0 3.8 (2.4)
*Represents Gross Revenue + FRES profit share by way of dividend.
b) The best strategies develop as you test, learn, iterate (based on customer insight) and
adopt agile ways of working. This was always the intended approach for Customer Hub.
Outlined in Appendix A of this report are the reasons for the shift away from the original
business case. Since the platform and first verticals have been built, Customer Hub will
formally close as a project and its capabilities will be embedded into the new Digital and
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c)
d)
e)
Innovation group function. Future verticals will be developed on their own business
cases.
In essence, “mobile” is a channel that has to stay relevant and will be a catalyst for both
growth and change in the organisation. Examples for growth could include adding digital
Retail Investments and SME propositions, and these would enjoy the benefit of having no
legacy/existing dependencies to constrain their evolution.
New verticals will benefit from the reusable capabilities delivered under the Customer
Hub programme: a low code platform (Outsystems) with mobile development
engineering capability enabling fast-track prototyping and rapid app development; new
skills such as digital proposition development, user experience design, API engineering,
machine learning testing, DevOps working together under a new cross-functional agile
pattern; a new contact centre with 24/7/365 support capability; horizontal capabilities
such as registration, push notifications, ATM/branch locators, in app feedback
management and analytics.
Customer Hub also introduced a customer usability and user experience testing lab in the
Moorfields office, which allows the team to test innovations and enhancements with
customers prior to release. Consideration is now being given to embedding this capability
more centrally into the business, as a visible catalyst for driving customer centric
change.
What are the next steps in terms of digital strategy?
a)
b
c)
d)
A Digital Advisory Board (“DAB”) has been established to define and implement the
digital Post Office of the future and is represented by 13 business unit leaders across the
Post Office. We would also like to appoint a Post Office NED onto this “board” to provide
independent input and external challenge.
The DAB has initiated a project to understand the value that digital can bring to Post
Office. We are interviewing business unit leaders to understand challenges, opportunities
and views on potential digital initiatives that could have a transformative effect on our
organisation and wish to build up an enterprise wide view of such change potential.
Business cases to execute identified digital change initiatives will be prepared during the
second quarter.
This digital value mapping exercise is in flight and themes are emerging about ways in
which “digital” can deliver financial benefits, and the enablers needed to achieve this.
Example initiatives include the digitisation of processes in particular with postmasters
and colleagues e.g. Cash in Transit and Branch Hub, self-service capability (call
deflection for telecoms customer servicing and cheque imaging via an app for Banking
Framework). Common enablers emerging are data/analytics capability to understand our
business better, and make more informed, profitable decisions, and adopting customer
centric design approaches.
In parallel with value mapping activity, we have commenced build out of our digital
delivery roadmap and our organisational change portfolio in empathy with the 6 strategic
themes identified to support our digital ambitions. This is a multi-year effort and
progress is already being made across multiple projects distributed across the approved
investment portfolio.
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Appendices
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Appendix A: Customer Hub (Mobile Distribution Channel) Financials
A1. Original Business Case
10/2017 BC
Baseline
=+—
;,, I 2017/18 I 2018/19 I 2019/20 I 2020/21 I 2021/22 I 2022/23 Total
Direct Product Cost
ee
Frossenerse Ie 0] a7] —sa[ ea [ea] va] saa)
[rotaipoucashfiow I oi] so] 24] aa] ze] ose] sa] 62)
Customer Hub
Investment (£m)
Capex 18.4
Exceptional 0 0 ° 0 0 C) 0 0)
Opex 0 0.4 15 15 15 15 15 79
Client Funded 0 0 ° 0 0 C) 0 0
Unforeseen Costs 0 0) C) 0 0 C) 0 0
Total (Annual) 0.1 3.9 5.1 4.3 43 4.3 4.3 26.3
Total (Cumulative) 0.1 4 9.1 13.4 17.7 22.0 26.3
Sy Total NPV: £0.5m
A2. 2018/19 Change Request (April 2018)
J2orecr (Drawdown) I I I I
2017/18 I 2018/19 I 2019/20 I 2020/21 I 2021/22 ee
0 [ _104[ 12] 13.8] 48.0 I
a
[I
Frosisenens I —o[ 0] oa a8] ea aa] 94] aoa]
[rotaipoucashfiow I o1] 27] so] 12) 26] 38] sa] 4.0)
Hub Investment (Em) SS
Capex 2.8 20.3
Exceptional C) ° 0 () () 0 () ()
Opex C) 0) 0) 1.5 1.5 1.5 15 6.0
Client Funded C) () 0 0 () C) () °
Unforeseen Costs () ° () () () 0 () °
Total (Annual) 0.1 2.6 6.4 43 43 4.3 43 26.3
Total (Cumulative) 0.1 2.7 9.1 13.4 17.7 22.0 26.3
5y Total revised NPV: -£3.2m
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A3. Revised Forecast
Benefits
TMC 0.4 0.9 1a 14 18 5.6
Tl O41 0.2 4a 2.0 25 5.9
Dividend TMC 0.3 13 17 23 29 8.5
Dividend TMO 0.0 0.0 0.0 0.0 0.0 0.0
Direct Product Costs
Agents Pay -0.6 0.6 0.7 08 0.8 3.5
Other -0.7 0.7
Cost Savings
Recurring Costs
Total Benefits 0 0.5 18 3.3 4.9 63 15.9
Total POL Cash flow
Investment (£
CAPEX
Horizontal 2.6 6.4 9.0
CAPEX Sub-Total 2.6 6.4 0.0 0.0 0.0 0.0 9.0
Opex Non-Staff 0.8 0.5 05 0.5 23
Opex Staff 0.2 0.2 0.2 0.2 08
Total (Annual) 2.6 6.4 1.0 0.7 07 0.7 12.1
Total (Cumulative) 2.6 9.0 10.0 10.7 11.4 12.1
5y Total revised NPV: £3m
e) Total investment has fallen from £26.3m to £12.1m due to:
a. The original Customer Hub business case envisaged the build of three additional
verticals of c£3m each.
b. Removal of TMO c£1.7m.
c. Additional verticals will be assessed in BAU subject to separate business cases.
d. Anew central policy to allocate CDP resource cost meant that Customer Hub
received an allocation of £1.5m. We managed to absorb these additional costs.
e. Minimising the level of resource as we shift to BAU (as described below).
f) Total benefit has fallen from £32.5m to £15.9m due to reduced investment (above):
a. Overall Travel market performance down by c9% (e.g. Thomas Cook profits down
by 25%).
b. FRES performance below target, YTD Travel Money Card sales at 72% versus
target.
c. The coexistence with the FRES App was confusing for customers and impacted the
Travel App performance. The FRES app was retired and migrated its users in early
December 2018.
d. The FRES Board decision to continue the ‘mobile first’ development created
additional confusion. This resulted in the customer on-boarding via the Travel App
only being delivered in October 2018, missing the peak travel season.
e. Standalone Gadget Insurance product was not available (impacting £1.1m of
income over 105K policies).
f. Access to Travel Insurance back book wasn’t available.
g. Marketing budget was reduced by £1.9m to £0.6m.
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h. Removal of Travel Money Online (TMO) proposition due to FRES API not being
available and proposing that a separate business case should be submitted.
g) Dependencies for current forecast include:
a. Level of dividend benefit from FRES.
b. POI Travel Insurance back book migration.
c. Marketing cost to be absorbed within the summer campaign from FRES/POI.
d. Budgeted CAPEX and OPEX in BAU from 2019/2020 managed in new group
function (Digital and Innovation).
e. That no rent will be charged to the project and these costs will be taken on
centrally like all other projects.
f. Call Centre costs to be absorbed by FRES as part of overall product.
h) The Digital teams continue to support the further customer digitisation of the retail
financial services, insurance and telco businesses. New app verticals - Mails Digitisation
and Youth Strategy are in flight; both of these programmes have already benefited from
our rapid prototyping capability.
i) Website changes for the new Digital Identity, Credit Cards, Gadget Insurance proposition
and International Money transfers are imminent and we are discussing the application of
Customer Hub approaches to Branch Hub and the refresh of our website. We are also
agreeing a 3 year integrated digital plan with BOI which will deliver digital channel
benefits for savings, mortgages and unsecured loans.
j) Further Post Office Travel enhancements and accessibility improvements are planned as
we look to drive our customer base from 300k to 600k customers in FY2019/20. Subject
to commercial arrangements being agreed with FRES we are considering incorporation of
Travel Money Online into the Travel App.
Appendix B: Search Engine Optimisation (SEO) and Conversion Rate Optimisation (CRO)
k) The investment in our digital channels needs to be protected by ongoing work to ensure
that we drive online traffic economically into these channels, and then optimise the
conversion through the sales funnel to maximise value. The diagram below depicts the
key stages of bringing a potential customer into our online ecosystem, and converting
their interest into a sale, noting the attrition that can happen across funnel steps.
Digital Marketing Funnel (Analytics)
1) Search engine optimisation (SEO) is an internet marketing strategy that spans research,
analysis and refinement of webpages (such as optimising technical performance,
publishing relevant and engaging content, and accumulating reputable links to the site)
to achieve the best ranking possible in search engine result pages for our chosen search
terms.
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m) The ranking position in search is hugely important in driving quality traffic to our web
pages; as the ranking position of a search result item drops, the click through rate of
customers falls exponentially. Conversely, activities that improve search ranking for
critical search terms help to generate more organic traffic and reduce dependency on
“paid for” models such as pay-per click (PPC) and referrals to generate the same
inbound traffic.
n) SEO activities fill the top of our sales funnels with high quality (i.e. customers actively
searching for a product/solution) traffic. The next challenge is to convert as much of this
traffic as possible into our business goals (sales, increasing transaction value/frequency
etc.) by prevent “leakage” from various steps within the funnel. Conversion Rate
Optimisation (CRO) uses many tools to achieve this - data collection and analysis to
identity customer behaviour and impediments to conversion; hypothesis formulation to
suggest alternative models to improve conversion, implementing improvements to
existing journeys and measuring the resultant effect on conversion.
°
The Digital Optimisation team have made great progress in the last quarter to increase
the search engine visibility and ranking of our loan products. Analysis showed that for
most of the key search terms we wish to be found for, Post Office loans products were
either not searchable by engines such as Google or appeared on the third page of search
results.
Pp) Technical improvements were made to optimise page load times and the visibility of the
loans webpages to the search engines which index the pages; the structure of the loans
website was enhanced to include new pages to capture the search interest for different
loan types. New content was also created to provide guidance for prospective customers.
q) The table below shows the results achieved with SEO of personal loan product pages
within 3 months. All search terms achieved a ranking for Post Office Loans product pages
within the top 10 organic search results, and the keyword “loans”, searched 210,000
times per month, ranked Post Office within the top 3 organic results on Google search.
Fosne 20,00] 23 3
Loan ctor 90.500 I Netranied I 5
Personal loans” 3.00, n
[ca loan 722,200 Notranied I9
Fett consolidation oan 2100 I Not ranked I 1
FHome improvement los 5,00I Notranked I 10
Eotiay loan” Fi 1
r) Adirect consequence of the marked improvement in search engine result rankings was a
vast increase in traffic volumes directed to the loan pages on postoffice.co.uk. YoY
volumes for personal loan traffic have increased by over 350% since implementing these
changes.
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s)
t)
u
v)
w)
This highly successful approach to driving online traffic is now being applied to our other
products with an online presence. As the table shows below, there are huge opportunities
to increase organic traffic for our products, reduce reliance on “paid for” traffic, and
ultimately increase revenue from online distribution.
Average I Avg Weekly I Avg Weekly I Avg Search Page 1 Est Additional
Rank I Sales (18/19) I Produet Visits I Conw volume I additional I conversions
(18/19) I Rate (18/13) I opportunity I traffieshare I (Monthly)
(Monthly) I (8% CTR)
Mortgages 48 163 6,088 2% 397,000 31,700 634
Credit cards 52 120 1473 8.1% 520,000 43,600 3,369
Telcoms 34 101 6,506 1.5% 900,000 72,000 1080
Savings 49 N/A 23,856 N/A 400,000 32,000 N/A
Home 70 18 1,021 1.7% — 420,000 33,600 sn
Life (alt) 40 4 593 12.4% 240,000 19,200 2,380
Motor (All) 68 7 202 3.4% 1,200,000 96,000 3,264
SEO techniques have also been applied as part of our branch discoverability work. We
now have 11,400 branch location pages visible to search engines and ranking in the top
3 search positions for location-based searches. 6m extra impressions have resulted from
this work, yielding an extra 230k clicks since the end of Feb 2019.
Further SEO efforts have seen Post Office insurance attain a position 2 ranking in search
for both travel and life insurance products. Travel has seen a 300% YoY growth in traffic
and sales, and we have driven a 200% increase in traffic to life insurance pages.
The CRO team have also employed Conversion Rate Optimisation (CRO) strategies to
great effect on the Post Office Life Insurance sales journey. Working with colleagues at
Royal London, the team analysed the current online journey for Life Insurance, finding
the average time for a customer to complete the journey was 24 minutes; nearly a third
of this time was spent navigating the direct debit instruction set up that was clearly
confusing for most customers.
This exemplar shows how critical it is for POL to have control of the user experience - by
collaborating with our partner Royal London, we were able to gain visibility of data
throughout the end-to-end customer journey and optimise this for conversion by taking a
holistic view. We have enjoyed similar successes with the Customer Hub, where we now
control the front-end experience totally, enabling us to rapidly implement the insights
gained from data analytics to improve the journey on an iterative basis with a rapid cycle
time. For journeys where we have less control (e.g. BOI products), this is a much harder
task to achieve, and we believe is validation of our “strong integrator model” principle.
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Tab 12.1 Home Re-engineering capital deploymen
POST OFFICE PAGE 1 OF 4
BOARD DECISION PAPER
Home Insurance Re-engineering
Author: Nick McCowan Sponsor: Rob Clarkson Meeting date: 28 May 2019
Executive Summary
Context
1. The Post Office Insurance (“POI”) Board had reviewed the business case and
released the funding for the development of the new home insurance model as it
fell within its delegated authority in 2018. The project was incepted in the summer
of 2018.
2. As part of the review of prioritisation of capital undertaken across the Post Office
in December 2018 and January 2019, alternative funding options were considered
but GE ratified a preference to allow this program to be Post Office funded.
3. As a result of changing the POI delegated authorities, this programme has gone
retrospectively back through the Investment Committee (IC) and been approved.
The IC governance requires any programme with a spend in excess of £5m to be
taken to the group Board.
4. The total costs of the project are £14.4m (Discovery-£0.9m, Investment-£12m,
BGL Exit costs-£1.5m). Total amount spent so far is £9m.
5. The Board will is requested to ratify the decision of the POI Board, IC and GE to
continue with the execution of the programme.
6. This programme supports the wider POI strategic plan, gaining greater access to
the value chains of core products by building an in-house insurance intermediary
capability for home insurance.
7. It forms one part of a multi-programme approach to transform POI’s capability
enabling double digit revenue and profit growth with benefits being read in
conjunction with the full view of our 5 year plan.
8. Building the capability in-house enables us to exercise control across the sales and
service processes, to build innovative product solutions and optimise sales
processes.
9. The delivery of our home intermediary solution is dependent on the development
of a data-driven dynamic retail pricing capability. This capability is part of a wider
build which delivers data analytics and pricing across the product estate and will
drive incremental value above this business case - this is detailed in a separate
business case being submitted concurrently. The consolidated business case
results are included for completeness.
Questions addressed in this report
1. What do we propose to do and why?
2. What is the supporting business case?
3. What do we need to do next to progress?
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Conclusion
1. Build an in-house home intermediary capability which supports the broader POI
strategy to access more of the value chain in core markets.
2. Delivery of this new model supports the delivery of POIs 5YP commitments.
3. Secure Board approval for the required capital spend.
Input Sought Input Received
The Board is asked to approve the Business case approval has been
deployment of capital to complete the POI received by the POI Board and POL
build of the home insurance re- Investment Committee.
engineering programme. The total costs
of the project are £14.4m (Discovery-
£0.9m, Investment-£12m, BGL Exit
costs-£1.5m).
The Report
What do we propose to do and why?
The Proposal
1. Using market leading technology and supported by Accenture, acting as our strategic
implementation partner, we will build a home insurance operating system to host
the sales and administration of Home Insurance policies integrated with our
underwriting partner Ageas, and external data sources to provide an optimal
customer experience including enhanced and streamlined claims journeys, dedicated
POI contact centre, refreshed products, associated target operating model and
improved online servicing capability.
2. These solutions will include end to end capability for us to target, acquire, distribute
and service home insurance customers.
3. We plan to migrate our existing book of 207k customers and access a significant
amount of embedded value improving our income per policy and life time value by
4, We will redevelop and modernise the product.
5. We will take greater control of distribution and exclusively own retail pricing.
6. Delivery enables further components of our five year plan including, Customer Value
Management and multi-product cross sale. Benefits from these are subject to a
separate business case.
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The Business Case
Table 1
unk
Cost 18/19. 19/20. 20/21 21/22 23/24 24/25 25/26 26/27 27/28 28/29. 29/30 TOTAL
Net Income
Staff Costs i
=~ IRRELEVANT
Capex H
Exceptional i
POI Cashflow H
L_pot cashflow
7. Table 1 highlights the incremental cashflows (income and costs) across 2018/19 -
2029/30 between the current model and our revised forecast for value over the
‘
period. On a normalised basis the Home elements account fo! fon a cash
basis.
8. Business Case Hurdle Rates
Table 2
Output
NPV Em
IRR (Discounted)
Payback
9. Due to the strategic nature of the new home insurance operating model, economics
have been measured across a 10 year period based on higher investment in the
early years and delivery of payback over a longer period of time. The business
case delivers a positi nd will deliver a payback in year’
10. An additional jesevanr;
in a positive EBITDA contribution o (cumulative).
11. Following comparison analysis between this business case and the discovery work
completed in 2017 the business case demonstrates a high degree of confidence in
delivering the improved income per policy as per the original submission.
12. In addition to the benefits the inforce policies at the end of the business case
period will create an incremental asset value of {mas} at the end of the current
SYP.
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What do we need to do next to progress?
What is required to progress the preferred option?
13. System and business requirements gathering commenced in June 18. Overall
programme broken into work packages to support incremental delivery of
technology and capability to achieve key milestones and reduce overall risk carried
in plan. High level deal terms have been agreed with our primary capacity provider
(Ageas) and full deal and contract negotiations will run in parallel with the build
with a target completion date of May 2019.
14. Procurement for other services (Data Enrichment, Premium Finance and Ancillary
products) has been completed.
15. Planning for migration from BGL has commenced and detailed requirements are
being worked through.
What would the impact be of delaying or rejecting the decision to progress?
16. Following approval of the strategy at the Group Strategy Day in 2018 and in order
to support implementation in advance of the BGL contract termination (Oct 2019)
work has commenced - this approach was supported by Group Investment
Committee & the POI Board. Closing the curr gramme would result in loss
of all to date spend currently calculated at :® y the end of FY 18/19.In
parallel, we building a cross product data analytics and pricing capability. This will
provide support for both Travel and Home Insurance. This programme has been
stood up and provides the pricing function required to operate the new home
insurance business as well as enhanced pricing for Travel and access to further
CVM benefits (not included in either of the business cases quoted. This programme
has received approval via the POI Board and is supported by the Group Investment
Committee investment). The combined business case is illustrated below.
Table 3
Group Consolidated
Syears_ Syears Oy
NPV (£k)
IRR (undiscounted)
IRR (discounted) i
esoures) I IRRELEVANT I
PO! Cashflow (£k)
POL Commissions
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Tab 12.2 DMB Franchising and Network Development
POST OFFICE LIMITED PAGE 1 OF 8
BOARD
DMB Business Case
Author: Kathleen Griffin Sponsor: Debbie Smith Meeting date: 28 May 2019
Executive Summary
Context
In January 2018 the DMB Strategy was signed off by GE and Post Office Board,
accelerating our DMB exit plans through further franchising activity. The DMB
Programme delivered a further 67 DMB exits in 18/19, over 30 of which were
franchises to WHS as part of Project Edgware, taking the DMB network down to 188.
For 2019/20, we plan to franchise 34 branches to WH Smith to complete Project
Edgware and exit a further 35 DMBs, bringing the total number of DMB exits to 69.
Our immediate request is to secure funding of £27.7m, which will deliver in year
benefits of £6.4m.
Questions addressed in this report
1. What do we propose to do and why?
2. What do we need to do next to progress?
Conclusion
1. We propose to exit a further 69 DMB exits during 2019/20, predominantly
franchising to retail partners, resulting in improved customer convenience with
longer opening hours, simplification of our operating models and the creation of a
more sustainable network in line with our North Star ambitions. The delivery of 69
DMB exits during 2019/20 will realise £6.4m of in year benefits in return for
£27.7m investment.
2. This business case will allow us to continue engagement with interested retailers to
build a pipeline of activity for delivery in 2019/20 and beyond, and retain the
resources required to deliver this.
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Input Sought
Approval from the Post Office Board
for final sign off
PO Limitec
Input Received
This revised business case has been
reviewed by Finance, IT, DA and CAG
and spend has been included in the
GE- prioritised change spend for
19/20.
Finance concurrence provided on 17%
April 2019
CAG approval provided on 23 April
2019
IC approval provided on 29" April
2019
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The Report
What is the need or opportunity and why now?
Financial imperative: DMBs have high staff costs with inflexible contracts and fixed
property costs. They also drive complexity leading to other central overhead costs.
Customer imperative: Agency branches offer our customers extended opening hours
at a more affordable, variable cost to Post Office. Retailers give access to Post Office
services across their retail opening hours, often 7 days a week.
Strategic alignment: The continuation of our already approved DMB exit strategy will
improve customer convenience through the introduction of longer opening hours and
new network locations in surrounding areas, it simplifies our operating model and
creates a more sustainable network in line with our North Star ambitions. It is also in
line with the business’ wider Retail Strategy.
Not funding for 2019/20 would leave us unable to complete Project Edgware, would
result in the loss of, or delay to Trading Profit benefit and retention of high fixed staff
costs as well as property costs.
What do we propose to do and why?
We start 2019/20 with a network of 188 DMBs and our plans for 2019/20 involve the
exit of a further 69 DMBs. With 34 Project Edgware branches already scheduled, a
further 35 exits are required. The successful conclusion of Project Edgware has
allowed us to implement more permanent operator franchise solutions in 18/19 than
originally planned, reducing the reliance on the use of alternative approaches such as
fixed term contracts with operators. As such, this remains a largely untested approach
with plans currently being developed to pilot 5 branches in Q1/early Q2. We will learn
from the rollout of these branches and adapt our approaches for future use.
In the context of the above, our approach is to secure as many permanent operator
solutions as possible to enable delivery of 69 exits in 2019/20. Based on our current
pipeline of activity we believe we will see 28 exits in Q1, 18 in Q2, 14 in Q3 and 9 in
Q4.
The delivery of 69 branch exits will leave a network of 119 DMBs. Our previous plan
included an assumption that all DMBs would be exited over the next two years
however our updated assumption is that we will aim to exit all DMBs over the next
three years as follows: 69 exits in 19/20, 60 exits in 20/21 and 59 exits in 21/22.
We plan to complete a GE ‘checkpoint’ at the end of Q1 and again at the end of Q2, to
review DMB progress generally and discuss future options.
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Tab 12.2 DMB Franchising and Network Development
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Benefits Classification (Delete as appropriate)
¥ Growth R Pretecti Cost Savings / Cost
Beeline Enerease Avoidance
Solution Impact Benefit (financial Benefit
and non-financial) Owner
Exit a DMB through Removal of branch £52.6m estimated staff I Tracy
franchising or area staff costs cost savings through Marshall
plan solutions exiting all DMBs
Exit a DMB through Removal of property I £10m estimated Tracy
franchising or area overhead costs property cost savings Marshall
plan solutions through exiting all
DMBs
Establish new Improved customer I Opening hours Tracy
franchise branches convenience through I increased by at least 4 I Marshall
or NNLs longer opening hours on Saturday
hours afternoons, but often
early mornings,
evenings and Sundays
Details of the key Risks that may have an adverse impact on benefits realisation
(taken from programme/project Risk Log)
Risk 1D Risk Title 7 Current Target Mitigation Action Due
Descript-ion 1 (Impact) Date
L (Likelihood)
T L ICurrent] I I L I Target
1-5 I 1-5 I Score I 1-5 I1-5I Score (I
(xb xt)
DMB-02 I The risk of adverse 4 fi2 Bp 19 1. Continued engagement with UKGI__[31/3/21
local, political and (UK Government and Investment) to
union reaction, ensure commercial decisions are
Including Industrial supported publicly by our Minister.
action. Regular correspondence and meetings
are held.
2. Use of the Public Affairs team to
engage with MPs and local opinion
formers.
3. Communications strategy shared on a
regular basis with GE and IRSG for
agreement.
4. Effective detailed communication
strategy for DMB colleagues.
DMB-0i I There is a risk of not 3 ia ep Bp I6 T. Programme team fed the programmes [31/3/21
finding suitable requirements into the field team
partners to franchise structure to ensure they manage the
DMBs or to migrate programme's needs. Ring-fenced team
customers away now in place.
from DMBs in order 2. Review team resources and recruit
to transfer the DMB where required to provide additional
as.a smaller main or skills and support.
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close it. 3. Ongoing review of franchise offer to
understand potential weaknesses and
address where possible.
DMB-26 I The risk of income 2 bP 2 14 T. The case allows investment in i/a/2i
loss due to customer migration support and
franchising. This marketing activity which can be directed
business case to product specific marketing, CRM
assumes 82.8% of
total income will
migrate to the new
branches, consistent
support or local awareness activity.
2. Income and migration rates
monitored and analysed monthly and
with the observed reported to SteerCo for review and
migration levels in action.
independent 3. To date, migration rates have been
franchise cases in higher than expected. For example,
the last 2 years. Edgware branch migration is 108%
above target, delivering an additional
3100k benefits so far.
What options did we consider?
With our strategic intent already agreed, the options we have considered relate to the
pace of implementation. Options included the implementation of committed activity
only (Project Edgware) through to full scale exit of all DMBs in 2019/20.
What do we need to do next to progress?
DMB Programme is well underway in delivering our proposed approach for 19/20 and
beyond with a ring-fenced field team in place, planned completion of Project Edgware,
detailed partner engagement ongoing, and new Fixed Term contract solutions already
in the pipeline.
e Loss of, or delay to Trading Profit benefits and maintenance of associated DMB
staff and property costs.
e Inability to franchise branches or create more locations around the DMB - failing
to improve customer convenience through longer opening hours and responding
to competitive threat from other mails providers.
e With Government funding only available over the next few years, this is our
opportunity to exit a large proportion of our remaining DMB estate, in line with
the wider Retail Strategy.
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Tab 12.2 DMB Franchising and Network Development
Appendix
1. Funding overview
2. High Level Plan
1. Funding overview
FUNDING OVERVIEW
Existing Approval New Request
Total Total New
lem e. FY18/19__Approved__FY18/19 _FY19/20 _FY20/21__Request __Total Project
Opex 0.00 0.00 0.09] 0.00 0.00 0.09] 0.09 0.00]
Exceptional 0.00 27.91 27.91] 0.00 19.82 0.09] 19.82] 47.74]
Capex 0.00 0.86} 0.86] 0.00 7.88 0.00] 7.88 8.73]
Total Funding 0.00 28.77 28.77] 0.00 27.70 0.00] 27.70] 36.47]
BUSINESS CASE FINANCIALS
lem st] F¥18/19 I FY19/20 I FY20/21 I FY21/22 I FY22/23 I FY23/24 TOTAL
Gross Income 0.00 -0.30 ~3.59 ~4.27 -4.27 ~4.27 ~4.27) -20.99]
Income Growth -0.30 3.59 “4.27 -4.27 “4.27 -4.27] -20.99]
Revenue Protection 0.00 0.00 0.00 0.00 0.00 0.09 0.00]
Cost of Sales 0.46 7.28 8.94 8.94 8.94 8.94] 43.49]
Total Direct Contribution 0.00 0.16 3.70 4.66 4.66 4.66 4.66] 22.51]
‘Operating Expenses (OpEx) 0.00 0.27 3.14 4.61 4.61 4.61 4.61] 21.83]
Project Related 0.00 0.00 0.00 0.00 0.00 0.00 0.09 0.00]
Recurring 0.21 1.53 2.42 2.42 2.42 2.49 11.4]
Reduction 0.07 1.61 2.19 2.19 2.19 2.19 10.42
‘Avoidance 0.00 0.00 0.00 0.00 0.00 0.09 0.00]
Trading Profit 0.00 0.43 6.83 9.27 9.27 9.27 9.23] 44.34
Trading Profit [96] 0.00 0.00 0.00 0.00 0.00 0.00 0.00] 0.00
Capital Expenditure (Capex) 0.00 0.86 7.88 0.00 0.00 0.00 0.09 8.73]
Exceptional 0.00 27.91 19.82 0.00 0.00 0.00 0.09 47.74)
Net Cash Flow 0.00 29.21 34.53 9.27 9.27 9.27 9.27] 100.81]
2. Key Delivery Milestones
Milestone Name/Title Completion Date
Level
0 Fixed term contract pilot implemented 31/07/2019
° Implementation of Project Edgware completed 14/07/2019
Identification of other permanent solutions completed, including smaller deal 30/06/2019
constructs
1 Q1 benefits target achieved 30/06/2019
t) GE checkpoint - Q1 31/06/2019
1 Q2 benefits target achieved 30/09/2019
PO Limited Board Meeting-28/05/19 235 of 286
Tal
12.2 DMB F
anchising and Network Development
C) GE checkpoint ~ Q2
1 Q3 benefits target achieved
C) Q4 benefits target achieved
) Limited B
Meetir
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30/09/2019
31/12/2019
31/03/2020
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Tab 12.3 NNL activity over the coming year
POST OFFICE Page 1 of 8
Network Development (year 3)
Author: Peter Johnson Sponsor: Debbie Smith Meeting date: 28 March 2019
Executive Summary
Context
Maintaining network numbers above 11,500 while also changing the shape of the
network to increase convenience, particularly in urban areas, is critical to business
strategy and a requirement for continued Government funding. Having identified the
activity needed to achieve this in 2019/20, we now need to secure funding to
commit to contracts and branch openings in 2019/20. The total spend requirement is
£7.56m.
Questions addressed in this report
1. What do we propose to do and why?
2. What options did we consider?
3. What do we need to do next to progress?
Conclusion
1. We propose to maintain our Post Office network numbers and change our branch
network to better match customer demand by delivering a total of 220 new
branches. Network Operations have restructured the field and will focus on
supporting existing branches to remain open to reduce churn. We will also
transition c30 small Mains to Locals through natural “churn” in the network.
2. The performance provides a positive EBITDAS impact of £4.9m at steady state. It
is vital to note that this activity is essential to maintaining our branch numbers at
more than 11,500. The total investment is £7.56m for 2019/20.
3. This business case will allow us to continue establishing a pipeline of new branches
for delivery in 2019/20 and retain the team we need to deliver it.
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Tab 12.3 NNL activity over the coming yea
Input Sought
1. Approval from the Post Office Board
for final sign off.
Strictly Confidential
238 of 286
2.
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Input Received
This business case has been reviewed
by Finance, IT and CAG and DA and
spend has been included in the GE-
prioritised change spend for 19/20.
. IT concurrence provided on 31%
October 2018.
. DA Concurrence provided 015* Nov
2018
. Finance concurrence provided on 224
Nov 2018
. CAG approval provided on 24* April
2019
. IC approval provided on 29" April
2019.
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Tab 12.3 NNL activity over the coming yea
Page 3 of 8
The Report
What is the need or opportunity and why now?
We have a customer and competitive imperative to ‘be where our customers are’;
opening new outlets in both the urban and rural areas. We also have a continuing
requirement to maintain our network of SGEI-compliant branches at over 11,500. We
have ended the year on 11,638 (18/19), an increase of 91 over the year, due largely
to the 328 new branches that this programme has delivered. During 19/20 and in line
with previous years we expect 350-400 branches to close; the implementation of 220
new network locations will therefore help to maintain and hopefully grow our network
further. Continuing this activity is therefore both an opportunity to continue making
our network better matched to customer needs, and is essential to maintaining
network numbers.
Not funding for 2019/20 would leave us unable to fulfil our commitment to honour
signed contracts with new Agents (140 by year-end March 19 with planned opening
dates in early 2019/20). We would also have to make redundant the programme
support team (26 people), losing experienced resource, knowing we would almost
certainly need to recruit a similar team in the near future to deliver this type of
activity.
What do we propose to do and why?
The focus of our work will be identifying and opening 220 SGEI-compliant Post Offices
in new network locations. These will all be Locals as this is currently our best model
for providing customers with a convenient service which is both sustainable for the
agent and for Post Office. In addition to the build activity we will continue to sign up
new Post Office operators throughout 19/20 — c160 new contracts — around half of
which will be built in the following financial year.
Our key activity is as follows.
« Re-shaping the Network: We aim to deliver 220 new Locals, in mainly urban
areas. The headroom off-sets most of the expected churn in branches.
e¢ Small Mains to Locals: transition ~30 small Mains to Locals (through churn).
Current build costs are around £18k per branch build and £3k for dilapidations. The
majority of these costs are based upon fixed prices within our contracts with third
party suppliers including CBRE, and we are actively working with Operations (who own
these contracts) to reduce build costs for future activity and underspend against the
build cost budget where possible. We believe that costs can be reduced by up to 11%
in total, bringing the average build spend down to circa. £16k per branch. Discussions
so far have been positive with an agreement already in place with CBRE to reduce
costs by 4% overall, a reduction that should start to materialise for builds in Q3
onwards. We aim to achieve further savings through value engineering where
Strictly Confidential
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Tab 12.3 NNL activity over the coming year
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Page 4of 8
possible, transference of some of the non-essential branch works on to the retailer
and a review of our governance and escalation processes regarding authorisation of
any overspends. Assuming that an average saving of 11% on build costs is applied for
implementations from late Summer onwards, there is an opportunity to save circa.
£260k, although we would aim to bed in savings earlier where possible — this will be
reviewed on a quarterly basis.
Benefits Classification (Delete as appropriate)
Income Growth /_ I RevenuePretection I Cost Savings / est
Beeline Inerease Aveidance
Benefits Map
Solution Impact Benefit (financial Benefit
and non-financial) Owner
Local branch opened in Branch in a better £1.5k pa. additional profit Tracy
new location location providing longer I per branch to POL after 6 Marshall
opening hours & greater I months of trading. In year
accessibility for benefit £350k.Total
customers. recurring benefit of cEim
p.a from 21/22.
*Based on an average of
300 customer sessions
‘Small main converted to I Savings in remuneration I Total saving of £270k by Tracy
the local model costs @ avge £6.5k per 20/21 Marshall
branch(these are all Total saving £1.76m by
small mains) 20/21
Churn in community & Savings in fixed pay Total programme recurring I Tracy
traditional SPSO branches avge of £8.5k saving small main to local + I Marshall
(replaced by NNL’S) per branch. churn = £4.04m by 20/21
The Network Development programme is approaching its third year of operation and
all of the implementation processes are very well established. Opening Post Offices
in new locations where there is known demand makes things better for customers by
offering greater accessibility to the products and services they require.
Risks & mitigations
Details of the key Risks that may have an adverse impact on benefits realisation
(taken from programme/project Risk Log)
Risk Risk Title / Current Target Mitigation Action Due
ID Descript-ion I (Impact) I (Impact) Date
L (Likelihood) L (Likelihood)
1 I L ]CurrentI 1 I L I Target
1-5 I 1-5 I Score I1-5I1-5I Score
(IxL) (IxL)
Prog I As aresult of alowerthan I 4 I 4 16 33 9 I The Field are testing a Additional
019 I expected conversion rate self-generating approach Cpanel
in 18/19, there is a risk to leads and looking at
that we have insufficient other options to raise required
opportunities remaining interest for 19/20.
Strictly Confidential
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Tab 12.3 NNL activity over the coming year
Page 5 of 8
based on existing criteria. NDA have identified up to Py April
This may result in failure 400 opportunities (Oct 18) 7019
to achieve the build target and confirmed that it is
for 19/20 putting network possible to identify a
numbers at risk. further 200 sustainable PO
leads from temporary
closed branch lists
005 I As a result of NNL 4/3 i [3/2 6 I Proximity impact analysis Review
branches opening there is (reviewed by Steerco) panel to
a risk that existing continues to prove that the ("ne
branches in the vicinity current approach is 2019/20
could lose /perceive to minimising cannibalisation. and
lose business. Review Panel established resource
with the NFSP to deal with panel is in
concerns and deploy this case
support.
010 As a result of an adverse 4 3 12 3 3 9 Communication plan in Review
PR campaign there is a place and reviewed of
risk that it could have a monthly at the Delivery comms
negative impact on the leads meeting. in MarchI
level of PNO interest - ¢.20 flag cases raised to- 19
date (relatively low).
What options did we consider?
A number of alternative scenarios were considered for each of the categories of
agency branches, in line with the network strategy approach set out to the Board in
October 2016 and re-validated in the Retail Strategy in June 2017. We have also
ensured that this approach aligns with the emerging Retail Strategy.
What do we need to do next to progress?
Implement the proposed option:
Network Development Programme is currently implementing the solution; this is
a continuation for a further year. The Programme is in its implementation phase and
therefore the next appropriate Gate would be Gate 5. The Programme will have the
previous gates Mandatory documentation in Project Server, including the Programme
plan (level 0 and level 1 reporting milestones) for reference. This approach was
agreed with the Change team on the 15" March 2017.
Operate the proposed option:
New Network location branches will be passed to BAU for ongoing operational support
and compliance. It is expected that new network locations will generate new
customers and this will take around 6 months from go live to establish the customer
base. During this period branches will be supported by a team of Business Support
Managers to optimise performance. This will also demonstrate the benefit of a Post
Office to potential new operators and customers.
Strictly Confidential
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Tab 12.3 NNL activity over the coming yea
Page 6 of 8
What would the impact be of delaying or rejecting the decision to progress?
If we did not get approval for the programme we would likely see the following due to
our inability to maintain a pipeline of activity:
e Failure to maintain the current network numbers obligation (11,500)
e Failure to compete as effectively in the banking and mails markets
e Failure to meet customer demand and maximise overall network potential
« As aminimum we need the funds to build c.140 branches that we have committed
to in 18/19 (signed contracts and engaged new Agents) - £4.32m already
approved.
« Resources will need to be re-deployed or released from the business
Appendix
1. Funding Overview
2. High Level Plan
Strictly Confidential
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Tab 12.3 NNL activity over the coming yea
Page 7 of 8
1. Funding Overview
FUNDING OVERVIEW
Existing Approval New Request
Total
Total New Total
lfm Prior Years FY18/19 Approved FY18/19 FY19/20 FY20/21 Request Project
Opex 0.000] 0.000] 0.000 ~—-0.000-~— 0.000] 0.000} ~—_ 0.000}
Exceptional -12,090] -19.502] 0.000 -4.333 0.000] -4.333] -23.835
Capex -5.454I -7.613] 0,000 -3.222 0,000] -3.222I -10.835
Total Funding -17.544] -27.115] 0.000 -7.555__0.000I_-7.555] -34.670I
BUSINESS CASE FINANCIALS
I
lem Sunk Cost IFY18/19 IFY19/20 IFY20/21I FY21/22IFY22/23/FY23/24 TOTAL
Gross Income 0.000 0,191 0.614 0,940 0.990 0.990 0,990] 4.715)
Total Direct Contribution 0.000 0,191 0.614 0.940 0.990 0.990 0,990] 4.715)
Operating Expenses (OpEX) 0.000 2.190 2.970 4.004 4.004 + 4.004 4.004] 21.176
Trading Profit 0.000 2.381 3.584 4.944 4.994 4.994 4,994] 25.891,
Trading Profit [%] 0.000 0.012 0.006 + 0.005 0.005 = «0.005 0.005] 0.005)
Capital Expenditure (CapEx) -2.159 -5.454 -3.222 0.000 =0,000 0.000 -~—0.000]_ - 10.835
Exceptional -7.412 -12.090 -4.333 0.000 0,000 0.000 _~—0.000]_ - 23.835
Net Cash Flow -9.571 -15.163_ -3.971 4.944 4.994 4,994 4.994] -8.778
With La
Intangible tangible
benefits benefits
Discount Rate [%] 12.0%] 12.0%I
NPV / Net Present Value (5 years) 8.5] 8.5
IRR / Internal Rate of Return [%] -9%) -9%
PBP / Payback Period [years] wal wal
Strictly Confidential
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Tab 12.3 NNL activity over the coming year
Page 8 of 8
2. High Level Milestone Plan
1 Re-baseline churn assumptions 01/10/18 -
Completed
1 19/20 Q1 Contracts target achieved 30/06/19
1 19/20 Q1 Openings target achieved I 30/06/19
1 19/20 Q2 Contracts target achieved 30/09/19
1 19/20 Q2 Openings target achieved 30/09/19
1 Check point to review that we have secured funding by Q3 start for spend in 30/09/19
20/21 (to build the remaining 80 NNLs signed in 19/20 to be built 20/21).
tC) Funding (Business Case) for 20/21 approved 20/11/19
1 19/20 Q3 Contracts target achieved 31/12/19
1 19/20 Q3 Openings target achieved 31/12/19
tC) 19/20 opening target achieved 29/03/20
i) 19/20 Contracts target achieved I 29/03/20
°O Gate 5 (Operate to BAU) Approved Tbe
i) Project Closed Tbe
Strictly Confidential
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Tab 13 Governance Report
POST OFFICE PAGE 1 OF 6
POST OFFICE LIMITED BOARD NOTING &
APPROVAL PAPER
Governance Report
Author: Elizabeth Hallissey/ Veronica Branton, Secretariat
Meeting date: 28" May 2019
1. Executive Summary
1.1. The report incorporates the annual review of the following, which require
consideration, and if thought fit, approval:
(a) Delegated Authorities including subsidiary companies;
(b) Authorised Signatories;
(c) Authentication of the Company Seal;
(d) Board Committee Terms of Reference; and,
(e) Directors’ conflicts of interest register.
1.2. The report also includes a review of the Conflicts of Interest, following
confirmation at the meeting on 30" October 2019 that this would be aligned
with the review of directors’ conflicts of interest.
1.3. The following documents are appended to this report:
Appendix 1 - Delegated Authorities
Appendix 2 —- Authorised Signatories
Appendix 3 - Treasury Policy
Appendix 4 - Conflicts of Interest Register
Appendix 5 - Conflicts of Interest Policy
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POST OFFICE PAGE 2 OF 6
2. Delegated Authorities
Context
2.1. The Board is required to act within the authorities set out in the Post Office
Limited (“the Company”) Articles of Association. Excluding those matters
specifically reserved to the Board or which require Shareholder approval, the
Board has delegated appropriate levels of authority to the Executive to enable
the Company to operate effectively.
2.2. The current delegated authorities are included in Appendix 1 of the report and
were approved by the Board at its meeting on 27 March 2018. No changes
are proposed to the authorities but the delegation previously to the Chief
Finance and Operations Officer is now to the Chief Finance Officer. Job titles
have been updated to reflect recent organisational changes.
2.3. In addition to the delegated authorities there is a Treasury Risk Management
Framework, Policies and Authorities. This policy was last reviewed and
approved by the Post Office Limited ARC on 25" March 2019. The table setting
out the summary of delegated authorities is at Appendix 3.
2.4. The Board has delegated appropriate levels of authority to its subsidiary
companies, it is proposed these remain unchanged and are also included in
Appendix 1.
Input
2.5. The Board is requested to consider and, if thought fit, approve that the
following levels of authority remain unchanged:
(a) Chief Executive Officer (up to and including £5 million);
(b) Chief Finance Officer (up to and including £4 million);
(c) Group Executive Members (up to and including £2 million);
and,
(d) Group Executive Members have authority to sub-delegate up
to the limit of their delegated authority.
2.6. The Board is requested to consider and, if thought fit, approve the Treasury
Risk Management delegated authorities as set out in Appendix 3.
2.7. The Board is also requested to consider and, if thought fit, approve the
delegated authorities to subsidiary companies, as set out in Appendix 1.
Strictly Confidential
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Tab 13 Governance Report
POST OFFICE PAGE 3 OF 6
3. Authorised Signatories
Context
3.1. As part of the Contract Approval Process, Company Secretariat arrange
signatures of documents such as contracts, statements of work, order forms
and terms and conditions. The list of authorised signatories is included at
Appendix 2 for your information.
Action
3.2. The Board is asked to consider, and if thought fit, approve the updated
authorised signatories list, as set out in Appendix 2.
4. Authentication of the Affixing of the
Company Seal
Context
4.1. Board approval is sought to revise those persons with delegated authority to
authenticate the affixing of the common seal of the Company in accordance
Section 45 of the Companies Act 2006.
4.2. The Company Seal is principally used to execute documents as deeds (most
commonly in relation to trust documents and property transactions).
4.3. The Directors receive and confirm the list of documents executed under the
Company seal at each Board meeting.
4.4. To reflect recent changes within the organisation and to meet future business
needs, it is requested that authority to attest the seal be delegated to General
Counsel, the Company Secretary and Senior Assistant Company Secretaries
in addition to any current Director of the Company.
Input
4.5. The Board is asked to consider, and if thought fit, approve that the affixing of
the Company Seal can be authenticated by any one of the following;
(a) A Director;
(b) General Counsel;
(c) Company Secretary; and,
(d) Senior Assistant Company Secretary.
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POST OFFICE PAGE 4 OF 6
5. Committee Terms of Reference Reviews
Context
5.1. Terms of Reference are in place for the Company’s Remuneration,
Nominations and Audit, Risk and Compliance Committees (“the Committees”).
The UK Corporate Governance Code (Section 3, Provision 21) recommends
that an evaluation of the activities of each Committee against the Terms of
Reference should be completed annually. This report provides an overview of
the results of each of the evaluations conducted this year.
5.2. The full reports are available in the Diligent Reading Room, for your reference
and have already been considered by each of the Committees on the following
dates:
Committee Meeting Date
Audit, Risk and Compliance Committee 29 January 2019
Remuneration Committee 9 February 2019
Nomination Committee 12 February 2019
The Committees
5.3. Following a review of the agenda and minutes of each the Committees for
2018/19 against the Terms of Reference, it was concluded that the
Committees had fulfilled their requirements to the Board. Specifically that:
(a) The purpose of each Committee was clear;
(b) The composition and terms of office had been adhered to
throughout the year;
(c) All meetings had been convened in accordance with the
Terms of Reference; and,
(d) All duties and responsibilities had been discharged in
accordance with the Terms of Reference.
Input
5.4. The Board is asked to note the conclusion of the Committee Terms of
Reference Evaluations.
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POST OFFICE PAGE 5 OF 6
6. Conflicts of Interest Register
Context
6.1. In accordance with Section 175 of the Companies Act 2006 (“the Act”), a
Director must avoid a situation in which they have or can have, a direct or
indirect interest that conflicts, or possibly may conflict, with the interests of
the Company.
6.2. In accordance with the Act and with Section 82 of the Company’s Articles of
Association, the Board may authorise any matter which would otherwise
involve a director breaching his duty under the Act to avoid conflicts of
interest.
Input
6.3. Directors are asked to review and note the information held on the register of
interests (Appendix 4) and advise the Board and Secretariat of any additions
or changes.
7. Conflicts of Interest Policy
Context
7.1. The Post Office Group Conflicts of Interest Policy was last reviewed and
approved by the Board on 30 October 2018. The Board also agreed that the
policy would be reviewed in line with the directors’ register of interests in
March 2019 (and this was later agreed to be deferred until May 2019).
The Review
7.2. The Post Office Group Conflicts of Interest Policy, included in Appendix 5, has
been reviewed and the following changes are proposed:
(a) Change of format to align with the agreed format for all Post Office
Group Key Policies;
(b) Inclusion of definitions of a conflict of interest and related parties;
and,
(c) Inclusion of core principles, in line with updated policy format.
7.3. No significant changes to the policy in practice are proposed.
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ernance Report
POST OFFICE PAGE 6 OF 6
Effectiveness and Controls
7.4. The Board reviews the Directors’ register of conflicts of interest annually.
Board members are reminded at the start of each board meeting to disclose
any changes to their conflicts of interest to the Board and Group Secretariat.
The Articles of Association include the processes for managing conflicts of
interest.
7.5. Group Secretariat holds a register of employees’ external directorships and
interests. Arrangements will be made for an update to be sent to all
employees communicating the updated conflicts of interest policy, reminding
employees of the requirement to inform the Company Secretary of any
external directorships or interests.
7.6. As part of ongoing work by Elizabeth Adams, Regulatory Policy Manager, and
HR, training and awareness of the conflicts of interest policy is under review,
along with all Post Office Group key policies.
7.7. Procurement policies and procedures require procurement employees working
with Post Office suppliers to declare any conflicts of interest.
Input
7.8. The Board is asked to consider, and if thought fit, approve the Post Office
Group Conflicts of Interest Policy, as included at Appendix 5.
Appendices
Appendix 1 — Delegated Authorities
Appendix 2 - Authorised Signatories
Appendix 3 - Treasury Policy
Appendix 4 - Conflicts of Interest Register
Appendix 5 — Conflicts of Interest Policy
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Tab 13 Governance Report
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Appendix 1 - Delegated Authorities
Post Office Limited — Delegated Authorities
PO Limited Board Meeting-28/05/19
Role Commitment I Liabilities/Indemnities Notes
/Spend
UKGI >£50m UKGI (Shareholder) consent is
required:
- where the transaction is
not in the ordinary course
of business or has not
been approved in the
Strategic Plan;
- There is actual
commitment, liability or
payment of more than
£50m (where there is a
real prospect of liability
arising over £50m);
- The transaction would
require an entry in the
company accounting
records of a liability or
more than £50m;
- all major strategic
acquisitions and disposals
(these should be set out
in the Strategic Plan as
required by the Funding
Agreement 2018-2021);
and
- all proposals to enter into
financial instruments,
bank borrowing and any
proposed loan facility
(above £20m) [refer to
the Treasury Risk
Management Framework
Policy]
Board <£50m There are certain matters
where there is a risk of
loss or liability which
should be escalated to the
Board:
- agranting of a
security in excess of
[£5m];
- anew area of
business which might
bring Post Office
within the scope of
oversight of a
regulatory to which it
has not previously
been subject;
- a matter which gives
rise to risk [in excess
of £5m] in
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maintaining service
commitment to
customers in line with
Post Office’s social
purpose (for which
POL has an averse
risk statement);
- a matter which could
risk disruption to Post
Office’s credit facility
(averse risk appetite
- POL is to ensure
loan remains below
£950m with
maintenance of
£200m headroom);
and
- A matter where there
is realistic possibility
of CMA intervention.
CEO £5m £5m* *The CFO together with the
CFO £4m £4m* General Counsel can authorise
GE £2m £2m* any transaction or contract
containing:
- a higher capped liability
and/or indemnity or
- an non-standardised
unlimited liability and/or
indemnity
SLT/GE- I GE members may delegate up to their individual limits to individuals within
1 their directorates to give those within the organisation a sufficient level of
authority to deliver their accountabilities.
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Tab 13 Governance Report
Post Office Management Services Limited
Financial Li
‘Commitment / spend* Liabilities (incl Notes
authorised in the AOP indemnities)
UKGI Above £50m UKGI consent will be required
where there is actual
commitment, liability or payment
of more than £50m (where there
is a real prospect of liability
arising over £50m) or where the
transaction would require an
entry in the company accounting
records of liability more than
£50m.
Post Office Board Above £5m “Exceptions” POL consent will be required for
referred to POL I the giving of any guarantee or
Board to confirm I indemnity which is not in the
shareholder view I ordinary course of business.
POMS Board Up to £5m POMS Board *The POMS CFO together with
approval for the Legal Director can authorise
“exceptions” and I any transaction or contract
referral to POL containing:
Board - a higher capped liability and/or
Managing Director Up to £2m £2m* indemnity or
POMS Chief Finance Officer Up to £im £1m* - a non-standardised unlimited
‘Senior Management? Up to £250k £250k* liability and/or indemnity.
Payzone Bill Payments Limited
Financial Limits
pproval level for
pend* /liabilities* authorised
in the AOP
Post Office Board [>£2m
PZBPL Board I<£2m
Managing Director [<£1m
POL Finance Director - Retail _I<£1m
Senior Management** I<£250k
*Over the life of the contract and whichever amount is the greater.
**As defined under authorised signatories.
Note: Delegated authorities for First Rate Exchange Services Holding Limited (Joint Venture 50%
owned with the Bank of Ireland (UK) Limited) are included in the Joint Venture Agreement.
+ Over the life of the contract.
? As defined under Authorised Signatories
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Appendix 2 - Authorised Signatories
Post Office Limited — Authorised Signatories
Job Title
Current Postholder
Chief Executive
Alisdair Cameron
Chief Financial Officer
POSITION VACANT
Chief Executive - Retail
Chief Executive Officer - Financial Services,
Telecoms, Identity, Group Marketing and Group
Digital Innovation
Debbie Smith
Owen Woodley
Chief Operating Officer
Rob Houghton
Group HR Director Mo Kang
Communications & Corporate Affairs Director Mark Davies
Managing Director — Identity Services Martin Edwards
Managing Director - Mails & Retail Mark Siviter
Network Development & Central Strategy
Director
Tracy Marshall
Banking Director
Martin Kearsley
Financial Controller
Micheal Passmore
Business Improvement Director
Angela van den Bogerd
Operations Director Julie Thomas
General Counsel Ben Foat
Compliance Director Jonathan Hill
Managing Director — Post Office Money
Chrysanthy Pispinis
Business Performance & IT Transition Director
Catherine Hamilton
Head of Secretariat
Veronica Branton
related agreements as set out below:
The following people are permitted to sign employment contracts or similar HR
Job Title Current Postholder Purpose
Employment Recruitment, Kay Perry New Joiners’
Leavers & MI Manager Contracts
Payroll Manager
Amanda Taylor
Contract Changes
Agents On-boarding Team
Sheinaze Aboobaker
John B Jenkinson
Liesl Jackson
Paul O’Leahy
Olivia Farrelly
Agents’ contracts
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Conflicts of Interest & External Directorship Register
Appendix 4 - Conflicts of Interest Register
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" ISummary of a P
Last Confirmation of I_I Company/ = Role (note if indirect Comments inc. Any
Lena Conficts of Interest [organisation & Company Number [Company/Organisation interest) Date from [Date to — Ipoard Approvals
Samsonite International S.A, American luggage manufacturer and I scrap 08/11/2014] Current
retailer
National Trust [Conservation Charity (Chairman og/13/2014I Current
[The Grange Festival (09828929), Performing Arts Director 27/03/2017I Current
rim Parker 2710312018 [The Brand Foundation (09718333) [Education (Chairman 38/13/2015I Current
[Conservatoire providing
Royal Academy of Music lundergraduate and post graduate IM@mberofthe Governing I oujss/2q15] current
training in music Body
HM Courts & Tribunal Service [Courts & Tribunals Service Chairman 27joajz018I Current
British Pathé Film Archive Film Archives Director & Owner NAL Current
[Al cameron 27/03/2018, [Dover Harbour Board [cross Channel Ports Non-Executive Director I 01/02/2017] Current
reaicoven 27/03/2018 ast West Railway Company Limited (11072935) [Passenger ral transport Director (03/10/2018I current
ITKGC Consulting Limited (11115943) [Management Consultancy Director 38/12/2017I current
THM Landy Registry [Government [Audit Committee Chair 23/02/2027I Jan-13
PCF Group ple (02863246) [Financial Services Director 06/12/2016] Current
PCE Bank Limited (02794633) [Financial Services Director 22/05/2017I Current
Sunsitive Limited (08024745) [Management Consultancy Director & Owner 31/04/2012I Current [Dormant Company
Post Office Limited (02154540) [Group Company Director 19/09/2012[ "Current
aol sapere: Post Office Management Services Limited [Group Company Director 20/03/2018I Current a
Enville Court Management Company Limited (01120014) _IFlat Rental Director & Owner 13/04/2016 Current Ie
[Topaz Finance Limited (05946900) [Business Support Services Director apigpoi7I Current
instructed by Post office
Doris IT Limited (08104008) ist Shaner mansgement Partner is Director & Owner I 13/06/2012 IHR regarding graduate
recruitment recruitment
Chief Financial Officer (Start
lShirine Khoury-Haq _—_—I24/05/2018 (Co-Operative Group Limited Retail ate August TBC} Tec Tec
Warious directorships of
rare pr/oa/anns [Europcar Groupe S.A (incorporated in France) Mobility and Rental Director 20/02/2017] 31/03/2019] TO companies
Sustenir Group Pre Ltd (incorporated in Singapore) [Produces agricultural products [Chairman 33/12/2038]
IMCS Advisory Limited (08861745) management consultancy Director Pjowpzora] Current
Power to Change Trustee Limited (08940987) [charity- community business Vice Chale 23/01/2015I Current
SSavernake Management Limited (incorporated in Guernsey) Emerging manager fund Director 39/03/2017] Current
Savernake Capital Limited (incorporated in Guernsey) [Emerging manager fund Director 78/05/2016] Current
carla tent 27/03/2018, SSavernake Technology Limited (09196590) lEmerging manager fund (Chair 30/08/2014[ Current
[This ls The Big Deal Limited (08867458) Director 20/02/2014] Current
[Malherbe Limited (10169969) Financial management Director 09/05/2016] Current
l)PMorgan Elect plc (03845060) lnvestment Trusts Director 20/04/2015I Current
[Marex Spectron Group Limited (05613060) [Financial Intermediation Director 03/12/2014I Current
[Littlefish FX Limited (07847854) [Business Support Services Director 01/02/2013] Current
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Appendix 5
GROUP POLICIES
Conflicts of Interest Policy
Version - 2.0
Chief Executive’s Endorsement
The Post Office Group is committed to doing things correctly. Our values and behaviours
represent the conduct we expect. The Conflicts of Interest Policy supports this bye ensuring
thate highest standards of conflict of interest risk management are maintained.
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1. Overview...
1.1. Introduction by the Policy Owner
1.2. Purpose....
1.3. What are Conflicts of Interest?.....
1.4. Core Principles...
1.5. Application...
1.6. Legislation, Regulation & Industry Guidance......
2. Risk Appetite and Minimum Control Standards
2.1. Risk Appetite ....
2.2. Policy Framework...
2.3. Who must comply?
2.4. Reporting ....
SO0R DMA A AR www w
2.5. Minimum Control Standards ....
ie
3. Definitions...
4. Where to go for help......
4.1. Additional Policies......
4.2. How to raise a concern ...
Es
ig I
bh
Is
Is
4.3. Who to contact for more information...
in
5. I Governance
5.1. Governance Responsibilities.
6. Control...
>
I>
6.1. Policy Version
6.2. Policy Approval
BERS EER
B i I
Company Details...
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1. Overview
1.1. Introduction by the Policy Owner
The Company Secretary has overall accountability to the Post Office Group! Boards for the
design and implementation of controls to prevent and manage the risks associated with
conflicts of interest. The Conflicts of Interest Policy (the “Policy”) is reviewed annually and
agreed by the Pest-Office-Limited Audit, Risk & Compliance Committee-and the Post Office
Limited Board.”
1.2. Purpose
This Policy has been established to set the minimum operating standards related to the
management of any conflict of interest risks throughout the Group!. It is one of a set of
policies which provide a clear risk and governance framework and an effective system of
internal control for the management of risk across the Group. Compliance with these
policies supports the Group in meeting its business objectives and to balance the needs of
shareholders, employees and other stakeholders.
1.3. What are Conflicts of Interest?
A conflict of interest is a situation in, which the concerns,or aims of two different parties
are incompatiable. Conflicts of interest.can take many forms including the following:
i) Actual
There is a real conflictof interest\between an employee’s? private interests and
their duties)A real conflict of interest can also exist between two or more Post
Office Group directorships.
ii) Potential
An employee =has private interests that could conflict with their duties and
decisions at work. This refers to circumstances were it is foreseaeable that a
COnflict may arise in the future.
Conflicts of interest can either be a direct interest or an indirect interest.
iii) Direct interest
Includes an employee’s own conflicts of interest.
iv) Indirect interest
Includes the interests of individuals, groups or companies that the employee is,
or was, closely associaited.
"In this Policy “Post Office” and “Group” means Post Office Limited, Post Office Management Services Limited and Payzone Bill
Payments Limited.
2 The same process applies for Post Office Management Services Limited and Payzone Bill Payments Services Limited.
33 In this Policy the term “employee” means statutory directors, permanent staff, temporary staff, agency staff, contractors,
consultants and anyone else working for or on behalf of the Post Office Group.
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When employees are considering any conflicts of interest regard should be given
to the conflicts of interest of related parties of an employee, which includes:
¢ Spouse or partner;
¢_ Children;
¢ Other relatives who share their residence;
¢ Trust of which they are a Trustee or Beneficiary;
¢__ Partnership of which they are a partner;
¢ __A business entity of which they are a director or officer or in which they hold a
siminalr position; and.
¢ A business entity of which they own or control, directly or indirectly 5% or more.
1.4. Core Principles
In order
r to manage the legal, regulatory and reputationalisks associated, with conflicts of
interest and establish processes for the identification and managementyof them, the
governance arrangements included»in this Policy are based upon the following core
principl
i)
ii)
iii)
iv)
v)
vi)
vii)
viii)
INTERN.
jes:
Promote individual responsibility andya culture offhonesty and integrity;
To be open’and honest about relationships and personal interests that could be
seen torbe influencing independentgudgement.)Employees’_ personal interests
should never influence\decisions at work;
Conflicts of interest cannot always bevavoided. Unavoidable conflicts of interest
need to»be identified, disclosed and effectively managed;
Conflicts of interest must be managed fairly and effectively. To achieve this, the
process for identifying, disclsoing and managing conflicts of interest must be
transparent;
Ensuring that employees are not open to (or perceived to be open to) improper
influence through the acceptance of gifts and hospitality;
Committed to providing clear guidance on how to report conflicts of interest or
concerns related to them;
Committed to providing appropriate training and awareness of the Policy; and,
The Post Office Group is committed to and oversees the implementation of a
policy in line with the Group’s risk appetite. The policy and associated
procedures (set out or referred to in this document) are proportionate to the
risks and complexity of the Group.
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1.5. Application
This Policy is applicable to all areas within the Group and defines the minimum standards
to control financial loss, customer impact, regulatory breaches and reputational damage
in line with the Group’s Risk Appetite.
This Policy is applicable to all employees* which also includes statutory directors,
permanent staff, temporary staff, agency staff, contrators, consultants and anyone else
working for and on behalf of the Post Office Group.
1.6. Legislation, Regulation & Industry Guidance
The Post Office Group seeks to comply with all relevant legal and regulatory requirements
including, but not limtied to, the following (as amended or supplemented from time to
time):
. Companies Act 2006;
. Articles of Association of each Post Office Group entity;
. Financial Conduct Authority Handbook;
. Public Contract Regulations 2015;
. Nolan Seven Principles of Public Life.
The Companies Act 2006
Post Office Group statutory directors must comply with Section 175 of the Companies Act
2006.
S. 175 - Duty to Avoid Conflicts of Interest
S175(1) - A director of a company must avoid a situation in which he has, or can have, a
directer or indirect interest that conflicts, or possibly may conflict, with the interest of the
company.
S175(2) - This applies in particular to the exploitation of any property, information or
opportunity (and it is immaterial whether the company could take advantage of the
property, information or opportunity).
Articles of Association of each Post Office Group entity
The Articles of Association of each Post Office Group entity sets of the procedures and
exceptions for statutory directors, which includes authorisation of certain conflicts of
interest by the appropriate Boards.
+ In this Policy the term “employee” means statutory directors, permanent staff, temporary staff, agency staff, contractors,
consultants and anyone else working for or on behalf of the Post Office Group.
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Public Contract Regulations 2015
The Post Office Group is subject to the Public Contract Regulations 2015.
Regulation 24
Public Contract Regulations 2015, Regulation 24 "(1) Contracting authorities shall take
appropriate measures to effectively prevent, identify and remedy conflicts of interest
arising in the conduct of procurement procedures so as to avoid any distortion of
competition and to ensure equal treatment of all economic operators.
"(2) For the purposes of paragraph (1), the concept of conflicts of interest shall at least
cover any situation where relevant staff members have, directly or indirectly, a financial,
economic or other personal interest which might be perceived to compromise their
impartiality and independence in the context of the procurement procedure.
"(3) In paragraph (2) ‘relevant staff members’ means staff members of the contracting
authority, or of a procurement service provider acting on behalf of the contracting
authority, who are involved in the conduct of the procurement procedure or may influence
the outcome of that procedure; and ‘procurement service provider’ means a public or
private body which offers ancillary purchasing activities on the market.”
Nolan Seven Principles of Public Life
The Nolan Seven Principles of Public Life apply to anyone working to deliver public services.
The seven principles are listed below. These principles are at risk if conflicts of interest are
not managed effectively.
¢ Selflessness
« Integrity
e¢ Objectivity
* Accountability
« Openness
« Honesty
« Leadership
Financial Conduct Authority Handbook
Post Office Management Services Limited is regulated by the Financial Conduct Authority,
and as such must adhere to the Financial Conduct Authority Handbook that includes
particular regulations related to conflicts of interest.
The FCA Handbook (Chapter 10, 10.1.3):
A Firm must take all appropriate steps to identify and to prevent or manage conflicts of
interest between:
1) The firm, including its managers, employees, and appointed representatives (or
where applicable, tied agents), or any person directly or indirectly linked to them
by control, and a client of the firm; or
2) One client of the firm and another client;
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That arise or may arise in the course of the firm providing any service referrd to in
SYSC 10.1.1R including those caused by the receipt of inducements from third parties
or by the firm’s own remuneration and other incentive structures.
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2. Risk Appetite and Minimum Control
Standards
2.1. Risk Appetite
Risk Appetite is the extent to which the Group will accept that a risk might happen in
pursuit of day to day businesses transactions. It therefore defines the boundaries of
activity and levels of exposure that the Group are willing and able to tolerate.
The Group takes its legal and regulatory responsibilities seriously and consequently has:
« Tolerant risk appetite for Legal and Regulatory risk in those limited circumstances
where there are significant conflicting imperatives between conformance and
commercial practicality
« Averse risk appetite for litigation in relation to high profile cases/issues
« Averse risk appetite for ligation in relation to Financial Services matters
« Averse risk appetite for not complying with law and regulations or deviation from
business’ conduct standards for financial crime to occur within any part of the Group
« Averse Risk Appetite in relation to unethical behaviour by our staff
The Group acknowledges however that in certain scenarios even after extensive controls
have been implemented a product or transaction may still be outside the agreed Risk
Appetite. In this situation, a risk exception waiver will be required.
2.2. Policy Framework
The Post Office Group has established a suite of policies and procedures on a risk sensitive
approach that are subject to an annual review. The policy framework is designed to ensure
compliance with applicable legislation and regulation. This Policy should be considered and
read in conjunction with other policies, where relevant. These may include the Anti-Bribery
and Corruption Policy, the Gifts and Hospitality Policy, the Financial Crime Policy and HR
policies.
2.3. Who must comply?
Compliance with this Policy is mandatory for all Post Office employees and applies
wherever in the world the Group’s business is undertaken. All third parties who do business
with the Group, including consultants, suppliers and business and franchise partners, will
be required to agree contractually to this Policy with their own equivalent Policy.
Where non-compliance is identified the matter must be referred to the-Greup—Directer-of
LegalRisk-&—GevernanceGeneral Counsel. Any investigations will be carried out in
accordance with the Investigations Policy. Where is it identified that that an instance of
non-compliance is caused through wilful disregard or negligence, this will be treated as a
disciplinary offence.
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2.4. Reporting
All employees and statutory directors must:
Receive written authority from the Company Secretary to engage in any transaction
or pursue any activity, directly or indirectly, in competion with the Post Office
Group;
Receive written authority from the Company Secretary before accepting
employment, a position as a director or officer of, or acquire a substanital
ownership interest (5% or more) in any other company or business;
Make all business decisions in the best interest of their employer. Except in certain
limited cases, the best interests of Post Office Limited, Post Office Management
Services Limited and Payzone Bill Payments Services Limited will be aligned. Where
such conflict exists, please discuss this with your Line Manager and/or the Company
Secretary;
Avoid engaging in any private or personal business interest that may conflict with
the duties and responsibilities owed to the Post Office Group;
Declare to your Line Manager and the Company Secretary any transactions or
potential transactions in which you, or a related party, have an interest or potential
interest;
Declare to your Line Manager and HR Services (or the Company Secretary for
statutory directors) any existing outside employment, directorship or material
shareholding; and,
Review your situation regularly to avoid becoming involved in activity that could
give rise to a conflict of interest.
The Articles of Association of each Company in the Post Office Group includes details of
the process for statutory directors to notify conflicts of interest to enable the respective
Boards to determine whether and how to manage the conflict.
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2.5. Minimum Control Standards
A minimum control standard is an activity which must be in place in order to manage the risks so they remain within the defined Risk
Appetite statements. There must be mechanisms in place within each business unit to demonstrate compliance. The minimum control
standards can cover a range of control types, i.e. directive, detective, corrective and preventive which are required to ensure risks are
managed to an acceptable level and within the defined Risk Appetite.
The table below sets out the relationships between identified risk and the required minimum control standards in consideration of the stated
risk appetite. The subsequent pages define the terms used in greater detail:
Risk Area Description of Risk Minimum Control Standards Who is responsible I When
Approval &I Failure to manage conflicts of I Contract approval and execution process. Company Secretary Ongoing
execution of I interest in the approval and I The process requires separation between the
contracts execution of agreements contract owner who approves the agreement
for execution and the authorised signatory
who signs the agreement.
Statutory Failure to manage Statutory I All statutory directors are required to disclose I Directors & Company I Ongoing
Directors’ Directors’ potential conflicts of I any outside interests on appointment. I Secretary
conflicts of interest arising from external I Directors are required to update Group
interest and I appointments and interests. Secretariat when changes to these interests
register of occur, and the conflicts of interest register is
conflict of confirmed annually.
interest
Directors are asked to declare any new
interests at the beginning of each Board
Meeting.
If a transactional conflict of interest arises
during a Board Meeting, the Articles of
Association may permit the interest, or the
Director will absent themselves from that
particular item. Any decision and action
surrounding conflicts of interest is recorded in
the minutes of the meeting.
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Gifts and
hospitality
Incentive
Payments
Failure to manage conflicts of
interest related to gifts and
hospitality
Failure to monitor conduct
associated with _ incentive
payments
All statutory directors and employees are
required to comply with the Post Office
Group’s gifts and hospitality procedures set
out in the anti-bribery and anti-corruption
policies. Training is provided to all employees.
If incentives are made to staff, systems and
controls must be put in place to assess the risk
and monitor behaviours and conduct.
Company Secretary
and HR Training
Manager
HR
Ongoing
Ongoing
Procurement
Processes
Failure to manage conflicts of
interest related to procurement
m rs d ‘ ii
i going PP
ducted —i
)
tj
pi
During procurement activity,» conflicts of
interest declarations are issued and reviewed.
Any conflicts of interesterisks are mitigated
and.recorded.
Suppliers are contracted to comply with anti-
bribery and corruption laws. The Post Office
SuppliersCode of Conduct is provided to new
and _prospective.suppliers.
Procurement Director
Ongoing
Reporting
Failure to report potential or
actual conflicts of interest
All employees and directors are required to
report immediately in writing any potential or
actual conflict of interest with the Post Office
Group and an external appointment or
activity.
Group Secretariat hold a register of interests
for statutory directors.
Employees must report to their Line Manager
who will contact the Company Secretary
Company Secretary &
HR
Ongoing
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regarding any potential or actual conflicts of
interest.
Training &I Failure to provide appropriate I Conflicts of Interest training is a mandatory I Company Secretary & I Ongoing
Competence I training and awareness of the I part of employee inductions. HR Training Manager
policy to effectively manage
conflicts of interest Directors’ duties and conflicts of interest
training is provided to statutory directors.
Contractors and suppliers are required to
comply with this policy where they are
engaged to participate _in_aprocurement
process.; d ith the-pi He
Governance Failure to ensure effective I The Policy is reviewed annually and presented I Company Secretary Ongoing
oversight of the policy and its I to the appropriate Boards.
effectiveness
Conflicts of Interest registers are annually
reviewed by Boards.
Post Office Internal Audit retains independent
third line oversight of the Policy.
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3. Definitions
1. FCA - Financial Conduct Authority
2. Grapevine - 24/7 Security Support Centre provided by Kings Ltd. Grapevine
provides security advice and records all security incidents across the business
including burglaries, robberies and suspicious activity.
3. Speak Up Service - Can be accessed by telephone [ _
online web portal: http://www. intouchfeedback.com/postoffice
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4. Where to go for help
4.1. Additional Policies
This Policy is one of a set of policies. The full set of policies can be found at:
https://poluk.sharepoint.com/sites/postoffice/Pages/policies.aspx
4.2. How to raise a concern
Any Post Office employee who suspects dishonest or fraudulent activity has a duty to:
« Discuss the matter fully with their Line Manager; or,
+ Report their suspicions by telephoning Grapevine on (
e If either or both are not available, staff can contact the
Counsel, who can be sontarterd by email at: whistleblowing!
telephone on
¢ Alternatively staff can usé ike Speak Up service available on
* or via a secure on-line web portal: http://www. intouchfeedback. m/postt ffice
Post-Offi bers-of- th: bhi e-not loyed-b: He t
i ¥ ¥
flict-of_interest_breaches—t ste id te the Chief-£ tive's_O ffi:
4.4.4.3. Who to contact for more information
If you need further information about this policy or wish to report an issue in relation to
this policy, please contact-Veronica BrantonJane-Macleod, SecretariatCompanySeeretary;
6 Director-of Legal Risk &-G
ia gi
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Tab 13 Governance Report
5. Governance
5.1. Governance Responsibilities
The Policy sponsor, responsible for overseeing this Policy is—_Veronica Brantonjane
MacLeed,-Company Secretary, o Director of Legal, Risk &G :
Mackeed: Shevet
The Policy owner is the—Veronica_ Branton3 pany
Direetor-of Legal; Risk & . who is responsible for ensuring that the Company
Secretariat conducts an annual review of this Policy. Additionally the Company Secretary,
p-Direcks f£ Legal Risk & is responsible for providing appropriate and
timely reporting to each Companies’ Rist co ati d-+he-Board-Audit-
The AtidiRisk I pth e ite Board of each Company are responsible for
approving the Policy and overseeing compliance.
The Board of each Company is responsible for setting the Group’s risk appetite.
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6. Control
6.1. Policy Version
Date Version Updated by Change Details
01/07/2016 I 1.1 Victoria Moss Initial draft
06/07/2016 I 1.2 Mark Rodgers/Mike Policy standards and Head of Risk
Morley-Fletcher review
06/07/2016 I 1.3 Susie Hayward/Victoria POMS review and review of proposed
Moss changes in v1.2
7/11/2016 1.4 Jane MacLeod Comments following RCC review
04/10/2018 La Veronica Branton Annual review
05/04/2019 I 2.0 Elizabeth Hallissey Re-draft to align with Post Office
Group Key Policies template
6.2. Policy Approval
Group Oversight Committee: Risk and Compliance Committee and Audit and Risk Committee
Committee
POL Risk & Compliance Committee
POMS Risk & Compliance Committee
Committee
Post Office Limited Audit, Risk & Compliance Committee
Post Office Management Services Limited Audit, Risk & Compliance
Post Office Limited Board
Post Office Management Services Limited Board
Payzone Bill Payments Limited Board
Policy Sponsor:
Policy Owner:
Policy Author:
Next review:
INTERNAL
Veronica Branton3 Macteed, CermmpanyS: Eo p-Direct Legal;
Risk &-Gevernance
Veronica Brantonjane-Macteed, Company Secretary, p-Director-oftegat,
Risk &Gevernanee
Elizabeth Hallissey, Senior Assistant Company Secretary
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Company Details
Post Office Limited is a company registered in England and Wales. Registered Number: 02154540. Registered Office: Finsbury
Dials, 20 Finsbury Street, London EC2Y 9AQ. Post Office Limited is authorised and regulated by Her Majesty's Revenue and
Customs (HMRC), REF 12137104. Its Information Commissioners Office registration number is 24866081.
Post Office Management Services Limited is a company registered in England and Wales. Registered Number: 08459718.
Registered Office: Finsbury Dials, 20 Finsbury Street, London EC2Y 9AQ. Post Office Management Services Limited is authorised
and regulated by the Financial Conduct Authority (FCA), FRN 630318. Its Information Commissioners Office registration number
is ZAO90585.
Payzone Bill Payments Limited is a company registered in England and Wales. Registered Number: 11310918. Registered Office:
Finsbury Dials, 20 Finsbury Street, London EC2Y 9AQ.
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Tab 14.1 Sealings
POST OFFICE LIMITED PAGE 1 OF 3
BOARD
Post Office Limited Sealings
Author: Rebecca Whibley, Company Secretarial Administrator Sponsor: Veronica Branton, Head of Secretariat
Meeting date: 28 May 2019
Executive Summary
Context
The Directors are invited to consider the seal register and to approve the affixing of
the Common Seal of the Company to the documents set out against items number
1760 to 1781 inclusive in the seal register.
Input Sought
For the Directors to resolve that the affixing of the Common Seal of the Company tothe
documents set out against items numbered 1760 to 1781 inclusive in the seal register
is hereby confirmed.
Strictly Confidential
PO Limited Board Meeting-28/05/19 275 of 286
982 J0 91Z
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Date
20.05.2019
POST OFFICE LIMITED
Register of Sealings
Company Number
21554540
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‘Seal Number
[File Ref.
Date of
Sealing
Date of
Authority.
Description of Document
Persons Attesting
To Document
Destination of
Document
1760
1764
26/03/2019
28/03/2019
26/03/2019
28/03/2019
Licence to Occupy in respect of Sutton DMB, 19 Grove Road, Sutton,
SM1 1DX between Post Office Limited and Potent Solutions Limited,
Underlease of whole relating to Post Office Unit at Parkstone DO, 27
Bournemouth Road, Poole BH14 OEL between Post Office Limited
(Landlord) and Mr Tejas Shah (Tenant).
Veronica Branton, Head of
Secretariat
Veronica Branton Head of Secretariat
Jean Reynolds
Jean Reynolds
1762
1763
01/04/2019
01/04/2019
28/03/2019
29/03/2019
Lease of Ground Floor 190 Kensington Church Street London W8
between Chestnut estates Limited and Post Office Limited
Deed of Variation between Post Office Limited and Vow Retail Limited
dated 21 March 2019 relating to Agreement for the Supply of Goods for
Wholesale and Online Sales and Associated Services (contract date
01/08/2011) x 2
Relates to eCAF63
Jane MacLeod, Company Secretary
Jane MacLeod, Company Secretary
Legal
Retail
1765
09/04/2019
08/04/2019
Form of Release in respect of 57/58 High Street Banbury, Oxfordshire,
OX16 SLB. Landlord: Panbrook (Banbury) Limited. Tenant: Post Office
Limited. Lease dated 17 March 2009. The lessee shall pay the lessor
£80k by way of liquidated damages as compensation for the breach by
the lessee of the covenants in the lease relating to the state and condition
of the property in full and final settlement of those obligations.
EXECUTED UNDER SIGNATURE.
Veronica Branton, Head of
Secretariat
Jean Reynolds
1764
1765
11/04/2019
09/04/2019
08/04/2019
08/04/2019
Settlement Agreement - £75,000 in settlement of the dilapidations claim.
Premises: 72 High Street, Hoddesdon, Hertfordshire. Landlord: Nicola
Trigg and Graeme Ross Atkinson as Executors for Elizabeth Fowler.
Tenant: Post Office Limited. EXECUTED UNDER SIGNATURE.
(Note: originally signed on 09/04/2019 but this was the incorrect version,
correct version was resigned on 11/04/2019 and legal were asked to
dispose of incorrect version)
Form of Release in respect of 57/58 High Street Banbury, Oxfordshire,
OX16 SLB. Landlord: Panbrook (Banbury) Limited. Tenant: Post Office
Limited. Lease dated 17 March 2009. The lessee shall pay the lessor
£80k by way of liquidated damages as compensation for the breach by
the lessee of the covenants in the lease relating to the state and condition
of the property in full and final settlement of those obligations.
EXECUTED UNDER SIGNATURE.
Veronica Branton, Head of
Secretariat
Veronica Branton, Head of
Secretariat
Jean Reynolds
Jean Reynolds
1766
15/04/2019
12/04/2019
‘Agreement for lease relating to Suite 2, Elm Court, Bridgend CF31 3SR
between POL & Michael Thomas Lincez & Valerie Rosalind Lincez.
Veronica Branton, Head of
Secretariat
Legal
1767
17/04/2019
17/04/2019
Deed of variation of agreement for sale between Post Office Limited and
Mayfair 500 (Buzzard) Limited in respect of 7-9 Church Square, Leighton
Buzzard, LU7 1AA. POL and Mayfair are party to an agreement
conditional on planning permission for the sale and leaseback of the
property dated 12 July 2018 and wish to amend the agreement as set out
in the deed of variation.
Veronica Branton, Head of
Secretariat
Jean Reynolds
Jean Reynolds
24/04/2019
vb
18/04/2019
Licence to occupy in respect of Post Office at 33 Broadway, Sheeess
ME12 1AA between Post Office Limited and Potent Solutions Limited
(licensee).
Strictly Confidential
Veronica Branton, Head of
Secretariat
Page 2 of 3
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98740 1/2
POST OFFICE LIMITED
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Date Register of Sealings Company Number
20.05.2019 21554540
‘Seal Number Date of Date of Persons Attesting Destination of
1 File Ref. Sealing Authority __I Description of Document. To Document Document
1769 24/04/2019 23/04/2019 I Licence to occupy on short term basis relating to the area where the Veronica Branton, Head of Jean Reynolds
Rosewall sculpture by Dame Barbara Hepworth is situated, know as the I Secretariat
part of the Post Office at West Bard, Chesterfield, S40 1AA between Post
Office Limited and Chesterfield Borough Council (licensee).
1770 25/04/2019 08/04/2019 I Sub Lease between Post Office Limited (Landlord) and GB Really Lid Jane MacLeod, Company Secretary I Jean Reynolds
(Tenant) in respect of ground floor premises, 4 Meadowside, Dundee DD1
1AA. Scottish deed, therefore the common seal of the company is not
recognised. Executed under signature by Company Secretary and
witnessed by Senior Assistant Company Secretary.
174 25/04/2019 08/04/2019 I Deposit Agreement between Post Office Limited (Landlord) and GB Jane MacLeod, Company Secretary I Jean Reynolds
Realty Ltd (Tenant) in respect of ground floor premises at 4 Meadowside,
Dundee, DD1 1AA. Scottish deed, therefore the common seal of the
‘company is not recognised. Executed under signature by Company
Secretary and witnessed by Senior Assistant Company Secretary.
1774 26/04/2019 25/04/2019 I Deed of Participation relating to BUPA Healthcare Fund between Post, Jane MacLeod, Company Secretary I Victoria Milford, Clarita Earnshaw,
Office Limited and BUPA Trustees Limited. Approved by eCAF 102, POL
contract Register 1262 x 2
1775 01/05/2019 30/04/2019 I Disposition by Post Office Limited in favour of Amber Taverns Limited inI Jane MacLeod, Company Secretary I Legal
respect of Coatbridge Post Office, 132 Main Street, Coatbridge.
1776 07/05/2019 03/05/2019 I Agreement for sale between Post Office Limited and Ben Rask Veronica Branton, Head of Karima Karger
Rosenberg and Jonas Rask Rosenberg Eilersen, relating to freehold Secretariat
property known as 138 Stoke Newington High Street, London
177 07/05/2019 03/05/2019 I TR1 in respect of 138 Stoke Newington High Street, London N16 7JN. Veronica Branton, Head of Karima Karger
Title number EGL494993 Secretar
1778 07/05/2019 03/05/2019 I Section 198 capital allowances election in relation to 138 Stoke Veronica Branton, Head of Karima Karger
Newington High Street, London, N16 7JN Secretariat
179 07/05/2019 03/05/2019 I Non-crystallisation letter in respect of premises at 138 Stoke Newington I Veronica Branton, Head of Karima Karger
High Street, London, N16 7JN debenture over the property. Executed Secretariat
under signature, by the Head of Secretariat on behalf of the Company
Secretary.
1780 08/05/2019 07/05/2019 I Lease relating to Suite 2, Elm Court Cowbridge Road, Bridgend, CF31 Veronica Branton, Head of Karima Karger
3SR between Mr Michael Thomas Lincez and Mrs Valerie Rosalind Lincez I Secretariat
and Post Office Limited
1781 14/05/2019 10/05/2019 Letter Licence for Excavation Works of 7-9 Church Square, Leighton Ben Foat, Legal Director Karima Karger
Buzzard, LU7 1AA made between Post Office Limited and Mayfair 500
(Buzzard) Limited.
vb
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Tab 14.2 Health and Safety Report
POST OFFICE PAGE 1 OF 2
POST OFFICE BOARD
Performance Review - Health & Safety
Author: Martin Hopcroft Sponsor: Mo Kang Meeting date: 28" May 2019
Executive Summary
Context
Keeping our employees healthy and safe is fundamental to our success. This is reflected
in the Post Office Board’s legal responsibilities: members of the board have both
collective and individual responsibility for health and safety.
We have a rolling 3-year plan to drive compliance, targeting a reduction in safety
metrics including accidents; lost time accidents (LTIFR); days lost; and personal injury
claims. Our H&S reporting and safety management system has been externally audited
and we also recognise the importance that wellbeing can play in creating engaged and
motivated employees.
Questions addressed in this report
What are the trends on accidents and on violence?
Conclusion
The prevention of accidents has improved materially year on year. There were a 28%
reduction in accidents reported in 18/19 compared to 17/18 (81 v 112). Whilst we have
also seen a reduction in year on year robberies and CViT incidents, a recent increase in
violent robberies, including ATM rip-outs raised our concerns. A review has been
undertaken and we are mitigating risk through the roll out of upgrade equipment.
Post Office robberies showed an overall 3.5% decrease in 2018/19 compared to
previous year 17/18 (139 v 144). Injuries were level (14 vs 14), the majority were
relatively minor with punches, kicks and cuts. There was a 11% decrease in weapons
carried during robberies compared to the same point in 17/18 (107 vs 120). Included
within this figure, the number of blades being carried has seen a 11% reduction (55 vs
61). Engagement with the wider community is already progressing through the British
Retail Consortium, ACS and BSIA. To mitigate risk further, we rolling fogging and IP
cameras out to high risk branches. In response to abusive and aggressive behaviour,
temporary IP cameras with automatic aggression detection will be made on a case by
case basis. CViT robberies showed a 23% reduction YTD (17 v 22), 6 of these were
at Chester. Police have also attended a number of depots to discuss threats and
mitigations with staff. We are piloting a new iBox design on 6 high risk routes, where
the cash will be destroyed if snatched. ATM attacks are currently showing an overall
154% increase year on year, (61 vs 24). We have identified some 700 high risk
branches and are rolling out gas suppression technology. In the meantime we are asking
branches to significantly reduce ATM cash holdings overnight. For both ATMs and CViT
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Tab 14.2 Health and Safety Report
POST OFFICE PAGE 2 OF 2
we are pushing a variety of suppliers to deliver technology in the carry case that can
guarantee the destruction of the cash in the event of a theft.
Safety performance continues to improve. In April there were 5 accidents (2 DMB, 2
Supply Chain and 1 in Support teams), with 2 lost time accidents (1 SC and 1 Support).
The seriousness of accidents can be measured by the amount of lost time per 1000
employees. There were 32 lost days in April vs 36 in 18/19. There was a 46% reduction
from 94 (17/18) to 51 lost days per 1000 employees (18/19) across the business.
Supply Chain have reduced from 270 lost days to 107 per 1000 employees this year
and DMBs reduced from 89 days to 59 this year. Total lost days are 245, reduced 49%
from 480 in 17/18 (see chart on Page 3). A review of our risk assessments in Supply
Chain has identified inconsistency in the loading and unloading of heavy coin cages.
Action has been taken to ensure assistance is provided to crew at all POL depots to
reduce risk of injury, and conversations will be had with external sites. We are
commencing a review of fatigue in Supply Chain (both physical and mental) with the
support of our Occ health provider.
The HSL audit action plan covered 6 main areas with 30 sub actions, including the
development of competence across all business areas, through a mix of online and face
to face training, workshops and coaching, more recognition and evidence of compliance.
Actions have been completed with a small number flowing through to 19/20, including
development of digital tools inc. accident reporting, PiC training and a hearts and minds
campaign in Supply Chain, sponsored by BSIA.
We continue to see a reduction in road risk through the introduction in telemetry and
analysis of driving behaviour in Supply Chain. The MPO Compliance Manager is working
with individuals to coach on their poor driving behaviours. We are working to strengthen
a number of areas including driver safety training, guidance for alleviating fatigue and
the introduction of Alcolock (breathalyser integration with key management). Other
initiatives include the reissue of driver handbooks (CViT, Company Car, Grey Fleet),
profiling drivers from Selenity data, capturing maintenance records.
The overall risk for Property Statutory Compliance remains low at 96.61%. External
Fire Risk Assessments have been completed for 2018 with 100% PiC actions closed and
therefore the risk profile has reduced significantly. Fabric Surveys have been completed
and mainly showed a satisfactory condition. A programme will commence to inspect
signs over 3 yrs old and/or located in harsh weather areas, inc c3800 local agency signs,
low risk lozenges and will communicate with branches once Legal approve letters.
Lone working guidance has been incorporated into the general H&S Training for Personal
Safety and issued through Success Factors in April. A new training plan has been agreed
for 19/20 and will be supported by the H&S, including a requirement to re-introduce
some face to face training in the workplace where appropriate eg higher risk activities.
Input Sought
The Board are requested to note and comment on the current safety performance.
Strictly Confidential Health & Safety Report May 2019
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Meeting-28/05/19
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Tab 14.2 Health and Safety Report
POST OFFICE PAGE 1 OF 3
Report
A review of robberies and violence was undertaken to help us understand current
trends, whether our approach to profiling risk and current level of intervention is
sufficient and whether our plan for upgrading branch security and equipment is robust.
Post Office robberies show an overall 9% decrease from last year (122 v 134) but an
increase over the most recent 3 month period.
Rolling Robbery Incidents
PL P2 PS PS PS PG OPT PSO OPO PAL PA
‘= Current Rolling 12 Months m Last Rolling 12 Months
Risk Programmes - We are undertaking three security equipment initiatives.
1. We are upgrading alarms in 676 high & medium risk branches. We will be
completed by 30 Sept 2019.
2. As the Board is aware, we are rolling out fogging equipment and IP cameras
to 1200 high risk branches. We will finish in Sept 2019, delivered 6 months
ahead of the original plan.
3. Given the threat to ATMs we are installing 700 gas suppression devices by
mid July 2019 and may require more national coverage if the threat spreads.
625 will be installed in all the high risk branches, with 75 to deal with
risk score changes. Barclays are following a similar strategy.
The total cost of these initiatives is £4.7m and is within the agreed signed-off budgets.
Activity:
a. Improve the insight into the level of aggressive behaviour and enhance risk
assessments with a 2-3 years horizon scan by engaging with third party agencies BRC,
BSIA, ASC and Kings Intelligence Service ‘KIS’ (Grapevine) to obtain a dynamic
overview of all incidents and instances of aggression, allowing analysis and better
response activities.
b. Funding approved to extend some of the stronger security measures such as
fogging to some more high risk branches.
c. Wehave rolled out the body worn camera trial to all high risk CViT routes at a cost
of £50K, and will extend remote vehicle monitoring and extend the roll out of cameras
in high risk branches to alert Grapevine and enable real time monitoring when
aggressive behaviour is detected.
d. We have reviewed, updated and reissued ‘Harassment by Customers’ training for
employees and will signpost agents in 19/20 to HSE guidance and our best practice and
provide guidance on not fighting back.
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ATM gas attacks remain a major concern and work is underway to scope opportunities
to destroy cash. We have developed an ATM risk model, based on similar underlying
trends and analysis as the Burglary and Robbery Risk model, showing 707 of 2545 as
high risk. We are continuing to roll out the gas suppression system which prevents any
build-up of gas.
Various discussions are taking place to consider options to destroy cash in ATM
cassettes, such as glue, dye, foam and pyrotechnics, along with new anchoring plate
technology to support the recent brute force attacks.
Rolling ATM Incidents
10
Pl P2 P38 PS PS P67 PBS PLO PLL OP
[/ mCurrent Roling 12Months mi lastRoling 12Months I
What are our priorities for 2019/20
1. To progress the Safety Plan for Supply Chain with the introduction of Safety
Champions and a Safety Forum to develop a ‘hearts and minds’ culture, share best
practice, videos and visuals and provision of tool kit and self-audit tool.
2. To continue the development of our Managers to ensure compliance with safety
calendar activities, completion of training and local risk assessments.
3. To progress the recommendations from the Robbery and Violence review and Road
Risk Action Plan.
4. Digitalise H&S tools including Accident reporting (ERICA) and the Safety Calendar,
working closely with Ben Cooke's team.
5. Update content of training and closely support deployment of Harassment by
Customers policy, implementing procedures to mitigate risk and reduce likelihood
and impact of violence.
6. To review lone working guidelines for Support Centres, guidance to alleviate driver
fatigue and compliance to the mobile phone whist driving policy.
7. Undertake an independent audit of the Property Compliance Framework with support
from HSL/HSE, building on our previous H&S audit.
8. To extend the ‘mental health first aid’ initiative to provide support to the wider
business and network colleagues.
9. Reintroduce mobile health checks for DMB and Supply Chain colleagues.
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POST OFFICE
4 Year Safety Performance
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PAGE 3 OF 3
Year/KPI
15/16 I 16/17 I 17/18 I 18/19
All accidents
198 129 112 81
All accidents/1000
29.3 21.0 22.0 I 16.95
Absence accidents
38 16 21 15
Absence Accs/1000
5.62 2.61 4.13 3.14
LTIFR 0.367 I 0.168 I 0.271 I 0.184
ie herein” 792 I 259 I 480 I 245
Days lost/1000 117 36 94 51
RIDDOR 14 9 14 7
Supply Chain
All accidents 104 60 64 35
All accidents/1000 74.8 48.4 78.8 I 41.97
Absence accidents 24 12 11 9
Absence Accs/1000
17.3 9.7 13.5 10.79
LTIFR 1.040 I 0.586 I 0.820 I 0.586
in rial 470 I 157 I 219 I 89
Days lost/1000 338 140 270 107
Days lost trauma 288 144 4 280
DMBs
All accidents 84 62 44 41
All accidents/1000 23.1 19.0 15.6 I 16.70
Absence accidents 13 4 8 5
Absence Accs/1000
3.58 1.22 2.84 2.04
LTIFR 0.307 I 0.103 I 0.206 I 0.145
Days lost due to 316 96 250 145
accidents
Days lost/1000
86.91 14 89 59
Strictly Confidential
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Tab 14.3 Future Meeting Dates
POST OFFICE LIMITED PAGE 1 OF 1
BOARD
Post Office Limited Board Meetings
Author: Veronica Branton Meeting date: 28 May 2019
Executive Summary
Context
The Directors are requested to note the future meetings dates scheduled in respect of Post
Office Limited Board and Committee meetings.
The Report
2019
Date Time Meeting
Tuesday 28 May 2019 11.30 - 16.30 Board
Tuesday 28 May 2019 16.30 - 17.00 Nominations Committee
Tuesday 28 May 2019 17.00 - 18.00 Remuneration Committee
Monday 29 July 2019 15.30 - 17.30 ARC
Tuesday 30 July 2019 09.00 - 13.00 Board
Tuesday 30 July 2019 13.30 - 18.00 Board Away Day - Day One
Wednesday 31 July 2019 08.00 - 17.00 Board Away Day - Day Two
Monday 23 September 2019 08.30 - 10.30 ARC
Monday 23 September 2019 10.30 - 11.00 Nominations Committee
Monday 23 September 2019 11.00 - 12.00 Remuneration Committee
Monday 23 September 2019 12.30 - 17.30 Board
Tuesday 29 October 2019 11.45 - 16.30 Board
Monday 25 November 2019 16.00 - 18.00 ARC
Tuesday 26 November 2019 09.30 - 10.00 Nominations Committee
Tuesday 26 November 2019 10.00 - 11.00 Remuneration Committee
Tuesday 26 November 2019 11.15 - 16.30 Board
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Forward Agenda
Performance Management
CEO Report
Al Cameron
Noting & Input
Financial Performance Report
Al Cameron
Noting & Input
Retail and FST&I Quarterly Reports
Debbie Smith / Owen
Woodley/ Cathy Mayor/ Colin
Noting & Input
Stuart/ Emma Springham
UKGI Quarterly Report Al Cameron Approval
Cash Management & Funding (Borrowing Limits I Al Cameron Approval
over Christmas)
Health and Safety (incl. violence and robberies) I Mo Kang Noting & Input
‘Succession Planning Il Mo Kang
Strategic Delivery
Banking Framework 2
Debbie Smith/ Al Cameron/
Martin Kearsley
Noting & Input
Bol Deal ‘Owen Woodley/Chrysanthy I Approval for Board
Pispinis
Network Reporting Debbie Smith/ Tracy Marshall I Noting & Input
“Strategic choices
RM Negotiations mandate Debbie Smith/ Mark Siviter Approval
TT Strategy Rob Houghton
Agents’ pay in the long term Debbie Smith/ Rob Houghton/ I Approval
Cathy Mayor/ Alastair Roman
Legal Enterprise Optimisation Ben Foat ‘Approval
Brand/ Marketing (requested by Board at Jan 19
meeting at some point over next 12 months) Owen Woodley/ Emma
(placeholder) Springham
Group Litigation Ben Foat/ Alan Watts Noting & Input
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Telco
‘Owen Woodley/ Meredith
Sharples
Network/ Retail Strategy, including DMBs
Debbie Smith/ Tracy Marshall
Digital wallet (placeholder) ‘Owen Woodley
Forex Strategy ‘Owen Woodley/ Chrysanthy
Pispinis
Cash Utility Rob Houghton/ Russell
Hancock/ Martin Kearsley
Costs and Structures
‘Al Cameron/ Jonathan Lewis
Branch Hub Demo Julie Thomas
‘Standing items and Governance
‘Welcome and Conflicts of interest Chairman Noting
Minutes of Previous Board and Committee Veronica Branton ‘Approval
Meetings (incl. Status Report)
Contracts for Approval / Funding: Approval
Items for Noting (Health & Safety; Sealings) Noting
Verbal Updates from Committees Noting
Board and Committee Evaluation Reports Veronica Branton ‘Approval
‘Annual Governance report (reviews against Veronica Branton ‘Approval
terms of reference; delegated authorities;
conflicts of interest)
Modern Slavery Act Debbie Smith ‘Approval
‘AOB
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