2 Minutes of Previous B
s including Statu:
Report
POST OFFICE LIMITED BOARD MEETING
Strictly Confidential and Subject to Legal Privilege - DO NOT FORWARD
MINUTES OF A MEETING OF THE BOARD OF DIRECTORS OF POST OFFICE LIMITED HELD ON TUESDAY 30
JULY 2019 AT HARTWELL HOUSE, OXFORD ROAD, STONE, AYLESBURY, HP17 8NR
Present: Tim Parker
Alisdair Cameron
Ken McCall
Tom Cooper
Tim Franklin
Carla Stent
Veronica Branton
Ben Foat
Amanda Jones
Julie Thomas
Laurence O'Neill
Owen Woodley
Chrysanthy Pispinis
Debbie Smith
Andrew Goddard
In attendance:
1 Welcome and Conflicts of Interest
A quorum being present, the Chairman opened the meeting. The Directors declared that they had
Chairman (TP)
Interim Group Chief Executive Officer (AC)
Senior Independent Director (KM)
Non-Executive Director (TC)
Non-Executive Director (TF)
Non-Executive Director (CS)
Company Secretary (VB)
General Counsel (BF) (items 6. - 8.)
Retail Sales Director (AJ) (item 6.)
Operations Director (JT) (item 6.)
Senior Legal Counsel (LON) (item 7.)
CEO —FST&I (OW) (item 9.)
Director, PO Money (CP) (item 9.)
CEO — Retail (DS) (item 10.)
MD —Payzone Bills Payments Ltd (AG) (item 10.)
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 Minutes of Previous Board meetings including Status Report
The Board APPROVED the minutes of the Board meeting held on 28 May 2019.
Progress with completion of the actions as shown on the action log was NOTED.
3 CEO Report
Al Cameron introduced the report and highlighted a number of points:
© the financial trend for the year was of concern but we were working to get back to plan and put
in place a £25m buffer
* we were looking at what our plan would be if a major partner were to go into administration
Tom Cooper would put us in touch with Hannah Gray who leads the UKGI/ BEIS insolvency team
* Barclays had taken the decision not to use Banking Framework 2 for withdrawals. It was
important that this was not a decision which it would be attractive for others to follow. It was
noted that the Minister had already written to Barclays to express her disappointment
* Postal Museum (PM). We had been supporting the PM financially as a junior partner with Royal
Mail and had an annual contract with them for archiving services, In addition, POL had lent the
PM £3 m which had not been repaid. PM had requested a letter of support from POL in
advance of the publication of their Annual Report and Accounts which we were not minded to
provide. It was AGREED that we would analyse their financial position and find out how RM.
was proposing to respond to the situation
© that Supply Chain was running at capacity and might need to make extra pick-ups.
that control risks such as this were not always getting reported to the ARC. AC and CS would
discuss how to ensure this flow of information.
A number of points were raised, including:
* whether announcing redundancies in stages would be more unsettling than a single
announcement? It was reported that people were used to there being changes in the business
and that we would adhere to the consultation processes involving the trades unions, where this
was required. The roles at risk were predominantly management roles but would not impinge
on the new CEO being able to choose his Group Executive
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It was noted
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Action
To do:
Tc
Exec
To do:
AC/ CS
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POST OFFICE LIMITED BOARD MEETING
Strictly Confidential and Subject to Legal Privilege - DO NOT FORWARD
© we had been advised that Duncan Tate (a key partner) was leaving Fujitsu. It was suggested
that we raise with Fujitsu our requirement for the standard of service and expertise to be Exec
maintained notwithstanding the change in partner
did we think that the time and resource proposed for investment in Digital Identity was
worthwhile given the competing priorities? It was acknowledged that our resources were
stretched and that prioritisation would be an important consideration for the Board and
incoming Chief Executive. A meeting was taking place with John Manzoni on 1 August 2019 to
discuss, among other topics, the proposed extension of the Verify contract. We wanted greater
certainty either that fees would be increased (they were currently close to cost) or that we
would have a clearer means of commercialising the proposition, noting that we regarded 10
million accounts as the threshold for being an attractive provider for clients, such as banks, to
choose us as a digital identity provider
© bill payments. We were close to agreeing an exclusive contract with British Gas. It would be
preferable to delay the start of this contract from January 2020 to June 2020 because of the
technical issues that needed to be resolved and because Co-op would have a six month period
where they were still linked to Paypoint and could not provide a bills payments service to British
Gas customers; however, Paypoint had announced their loss of the contract to the market so
we needed to proceed with a January 2020 start date. This meant that we would have to
replace 5,000 devices over a two month period, using devices that were not our first choice
because we could not secure these in time. Paypoint had sent us a cease and desist letter and
we were ensuring that there were no activities at ground level that could breach competition
law
© Service incidents. The increase in service incidents was discussed and it was AGREED that these
would be categorised, including where they linked to changes made by third parties or to Exec
releases we had made
Pensions. The POL defined benefit pension scheme had been closed three years ago and a buy
in secured so that the liability moved off our balance sheet and was carried by the insurers.
However, we continued to need to engage with the trustees and to make disclosures in
association with the Scheme. We were planning to undertake a full buy-out, which would also
mean that the surplus from the scheme could be distributed to its members rather than being
spent on the costs associated with making disclosures etc. This change should be straight
forward for the majority of scheme members but for members from 2012! who were still
working for Post Office Limited the arrangements were more complex. The Group HR Director
was progressing the work.
4. Finance
51 Financial Performance Report
Financial Performance in P3 was discussed and NOTED.
5.2 Quarterly Delivery Report and Funding Request
The Board APPROVED the submission of a request to the Shareholder for a payment of £7m for Q2
against qualifying spend of £46m.
5. Annual Report and Accounts 2018/19 (ARA 2018/19)
The ARC had met on 29 July 2019 and had discussed the ARA 2018/19, including the draft
statements on the group litigation and on the workers’ rights case (Starling).
The Board:
© APPROVED the statements on the group litigation and workers’ rights cases (Starling) for
inclusion in the ARA 2018/19
APPROVED and DELEGATED to the Chairman and Interim CEO the signing of the Annual Report
and Accounts for the year ended 31 March 2019.
The main policy fully insured members’ pension benefit accruals from 1 April 2012 to 31 March 2017, the date
of the plan closure.
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POST OFFICE LIMITED BOARD MEETING
Strictly Confidential and Subject to Legal Privilege - DO NOT FORWARD
6. Group Litigation Update
Ben Foat updated the Board on the group litigation:
the Court of Appeal’s decision on leave to appeal the Common Issues Trial Judgment and the
publication of the Horizon Issues Trial Judgment were anticipated in mid-September 2019
© work was taking place to prepare for mediation and settlement which could commence in the
middle of October or the beginning of November 2019
© Weare analysing the categories of claimants that could be covered by the settlement. It was
noted that settlement for those with a criminal conviction could not be pursued and Lord
Justice Fraser’s view on how this category should be treated would be required. Around 60
claimants were in this category.
Anumber of points were raised:
© whether we would be able to make an umbrella figure as an offer? It was reported that one
option was to provide a global figure for settlement, the distribution of which could be
determined by the claimants’ solicitor, another option was to make individual settlements
© whether claimants were required to sign off on the settlement individually? It was reported that
the funder would have first sign off. There was likely to be a committee of claimants who would
consider offers. Claimants were not required to accept a settlement offer but if the funder was
recommending acceptance the claimant risked losing their funding and could incur previous
costs. In such a case, the Judge would have to continue hearing the case for those claimants
who would not agree to settle
© the permissions that would be required to fund any settlement agreement. It was noted that
Shareholder permission was required for funding above £50m. A recommendation would need
to be made to HM Treasury and BEIS for a) a settlement which was within POL funding but with
Shareholder approval required because it was above £50 m b) where POL needed to borrow
money to secure a settlement and a mechanism was required for repayment c) where a one off
capital injection was required
© that if a settlement pot were approved the spend from this would need to be monitored very
carefully
© what sum could be afforded from working capital? It was reported that £170m would take us to.
headroom but we needed to keep driving cash efficiencies. We needed to be flexible to
manage the requirements of the case and have a reasonable starting point for our negotiations,
recognising that we might need to talk with our Shareholder. A significant amount of
settlement analysis was required before we would be in a position to consider a potential
settlement figure. That work would be taking place over the next month and the Board would
need to take a decision on the starting point and range for the mediation discussions. That
figure and the range would also have to be discussed with BEIS/ HM Treasury and we would
need to write to BEIS outlining the Board’s recommendations
© that we still needed to understand more about the claimants and their funders. Had there been
a past history of settlements? What was the mediator’s background? How strong was our
team?
© that the Board would need to understand all the constituent parts for the negotiations and
what could and could not be negotiated.
Julie Thomas updated the Board on the operational work streams:
* current procedures and processes were being amended where improvements could be made
and these could be processed quickly’. We were working through a table of all the relevant
artefacts but were also thinking about where we should do things completely differently. That
included support for branches and the Horizon system itself. 150 people were based in
Chesterfield who answered between 30,000 — 40,000 calls a month. These volumes showed
that we were not addressing problems in the right way. We were considering introducing a self-
audit tool for branches to help them see where there were issues that needed to be resolved;
by doing this we might be able to avoid some suspensions and target support to the right
branches
? For example, if we could see that a screen on Horizon was potentially confusing and resulted in more errors
than average.
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POST OFFICE LIMITED BOARD MEETING
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© the leadership team had changed, the loss management systems had been improved and we
were seeing a consistency in responses. The work was at an early stage and represented a
mind-set change as much as a change in processes and procedures
© the greatest costs were associated with changing the Horizon system and bringing in Branch
Hub. Ultimately we thought these changes would lead to cost savings.
Anumber of points were raised:
© how long did it take on average to fix an issue raised by a Postmaster? Questions could usually
be answered immediately but culturally we were trying to address problems differently so that
we could identify the issue within the system and resolve this for the Postmaster. The more
fundamental fix could take three days but resolving problems in this way helped to build trust
and encourage reporting
© Cash balances. The figure of 4,500 not balancing their cash every day seemed high. What were
the reasons for this? It was reported that the complexity of the systems and insufficient
training, in some instances, were drivers. An example was stamps for which there was a manual
process which tended to cause balancing issues. It was noted that it would be helpful to
understand the reason code and the source of the problem to ensure we were targeting
resource at the right issues given that the number of calls was unsustainable. The quid quo pro
of resolving problems and providing support would be that branches would not be permitted to
trade if they had not done their cash balances properly.
Amanda Jones updated the Board on changes to the field management system and support for
Postmasters:
© lack of field management had been one of the weakest links in our chain and we were already
seeing benefits from having field team support. It meant that we could move away from a “one
size fits all” approach. Attracting the right people as Postmasters and supporting them with
training and refresher training was central to our success
© previously Postmasters had received training on new products but no refresher training on
operations. This was being introduced together with face to face support. We were piloting
new ways of working through the field teams in around 200 branches. We had a diagnostic that
helped Post Office understand the business and helped the Postmaster to run their business.
We had developed toolkits in various areas like marketing and would seek Postmasters’ views
on training and support periodically.
Anumber of points were raised:
© whether we would be relaunching our network support approach through regional roadshows?
© we needed to understand the environment in which Sub postmasters operated, to align our
interests with Postmasters’ and to assess whether we had the balance right between fixed pay
and variable pay
© where Post Offices failed the reasons were varied and there were many different scenarios. The
toolkit needed to include how to be a better retailer
© we needed to have a tariff that made us attractive, a much lower central cost structure and
strong field support for Postmasters. There would be costs involved in changing our approach,
systems and processes
© we had sub-optimal retail products. We still needed a complete picture of Postmaster revenue
from POL and from other parts of their business. The whole concept needed to be profitable
and with a profitable franchise we would need to consider how much we should be investing in
the profit opportunities.
The Board ENDORSED the approach set out in the paper in relation to the mediation and
operational activities to address the requirements flowing from the Common Issues Trial Judgment,
prepare for the Horizon Issues Trial Judgment and achieve the delivery of better support to agents.
BF/IT/
The Board AGREED that a paper should be included on the September Board agenda setting out Fs
proposals for a starting figure for mediation and an upper limit. The legal team would then be
delegated authority to settle the matter in accordance with the Board’s instructions. It was noted
that BEIS approval would be required for a settlement figure above £50m and the Board would also
need to approve writing to BEIS to seek approval of the range proposed for the settlement and any
borrowing requirements. The BEIS approvals we likely to take some time and they would need to
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POST OFFICE LIMITED BOARD MEETING
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understand in detail how much POL could afford for the settlement and where additional borrowing
or a capital injection would be required and on what terms.
Starling (Workers’ rights litigation)
The Board AGREED that updates should be provided to the Board rather than setting up a Board
Subcommittee at this stage. We also needed to make sure that UKGI/ BEIS were fully briefed on the
case and how we proposed to manage it.
Legal Enterprise Optimisation
Ben Foat and Owen Woodley introduced the paper which proposed a change to the corporate
restructuring approach approved by the Board in principle previously. The revised approach would
not deliver the optimal structure? but allowed for a potentially quicker execution of the Peregrine
Strategy* by expanding the remit of the PO Insurance subsidiary rather than setting up a new
Financial Services subsidiary. To do this a variation of permissions would need to be approved by
the FCA; this could take between 6 and 12 months and with the work required it was anticipated
that an expanded PO Insurance would not be in place until June 2020. It also no longer proposed to
set up a ServCo, the main business requirement of which was to be able to engage new employees
on more commercial terms. Legal advice had been taken which suggested that it might be possible
to do this within the current corporate structure.
A number of points were raised:
‘that if we were proposing to move a large proportion of the business into PO Insurance we
needed to understand how we were going to manage this from a group perspective. Many
questions had not been answered and needed to be worked through, including the governance
structure. Issues included moving financial services from an unregulated to a regulated
environment; considering the board composition of the expanded subsidiary; making sure that
the Chair of the PO Insurance/ financial services subsidiary was also a Non-Executive Director on
the POL Board. We needed to understand the ramifications of moving from the current position
to the new position from a regulatory, personnel (including SMCR requirements), cost and
transition perspective
«that the reasons for the changed approach should be set out clearly, noting that some costs
were already sunk
The Board AGREED:
© that a paper should be prepared for the September Board meeting setting out the reasons for BF
the changed approach on corporate restructuring and the ramifications of moving from the
current position to the new position
* to DELEGATE AUTHORITY to the CEO or CFO and General Counsel to agree the final versions of
the draft Articles of Association and Framework Agreement, subject to there being no further
material change.
3 There was nothing to prevent POL from changing its corporate structure in the future, for example, to set up a
Holdco should there be an imperative to do so.
* Whereby POL is no longer in an exclusive relationship with Bank of Ireland for the sale of all financial services
products and can forge other partnership arrangements.
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10.
11.
12.
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12.2
12.3
12.4
13.
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POST OFFICE LIMITED BOARD MEETING
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Bank of Ireland
Owen Woodley and Chrysanthy Pispinis updated the Board on the final position in the negotiations
with the Bank of Ireland on a new contract under which we were extending by three years to get to
a safe exit mechanism. We had been meticulous about drafting the terms of the revised contract
and defining terms such as sole traders.
The Board:
CONSIDERED and AGREED the final construct of our refreshed relationship with Bol
© DELEGATED AUTHORITY to the Interim CEO and Chief Executive FST& to proceed to signature
on the basis presented once the contractual legal drafting is concluded.
APPROVED the total spend of £5.6m related to these negotiations.
The Board congratulated Owen Woodley, Chrysanthy Pispinis and the team on the successful
outcome of their dedication and resilience through a lengthy and complex negotiation process.
Parent Company Guarantee for Payzone Bills Payments Limited
Debbie Smith and Andrew Goddard introduced the paper, noting that we wanted to sign the
contract with British Gas at the end of August 2019.
It was noted that the unlimited liability clauses proposed by British Gas were wide and that we
would be proposing reductions to the breadth of the draft guarantee.
The Board APPROVED the delegation of authority to the CEO and the General Counsel to finalise
and approve the terms of the parent guarantee in relation to the British Gas contract as set out in
the paper. Should any material variances to this be proposed we would revert to the Board for
approval.
Governance items
The Board RATIFIED the appointment of Nick Read as Chief Executive Officer of Post Office Limited.
Nick Read would start in post on 16 September 2019.
The Board NOTED the resignation of Shirine Khoury-Haq as a Non-Executive Director of Post Office
Limited on 18 July 2019.
The Board NOTED that a Credit Card contract had been signed with Capital One on 25 June 2019,
following the approval of the Sub-group, to which the Board had delegated authority for that
decision.
The Board APPROVED the revised Remuneration Committee terms of reference on the
recommendation of the Remuneration Committee.
Items for Noting
Sealings
The Board APPROVED the affixing of the Common Seal of the Company to the documents set out
against items numbered 1782 to 1801 inclusive in the seal register.
Health and Safety Report
The Board NOTED the Health and Safety Report.
Future Meeting Dates
The Board NOTED the future meeting dates.
Forward Agenda
‘The Board NOTED the forward agenda.
Date of next meeting
23 September 2019.
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