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Post Office Board Agenda
Present In Attendance
25 September 2018 '* Tim Parker (Chairman) ¢ ‘Tom Cooper ‘* Jane MacLeod (Company Secretary) . bare earsey (eaeking Framework
Start Time Finish Time * Paula Vennells © Tim Franklin * Veronica Branton (Minute Secretary) * Rob Houghton (C10)
11.45hrs 16.00hrs © Ken McCall ‘© Shirine Khoury-Haq_I * Owen Woodley (CEO, FS&T) ‘* Mark Siviter (Director of Mails)
Location * Alisdair Cameron © Carla Stent ‘* Debbie Smith (CEO - Retail)
1.19 Wakefield ‘* Tom Moran (Network Development
Director)
Agenda Item Action Purpose Lead Ti igs
Neede
1. I Welcome and conflicts of interest Noting To note any new declarations of conflicts of interest. Chairman 11.45 -11.50
2. I Minutes of previous Board and Committee meetings Approval Minutes formally agreed. Jane Macleod 1150-1155
including Status Report
3. I CEO Report Noting and Input Group CEO to update the Board on the report. CEO 11.55-12.15
4. I Financial Performance Report Noting and Input CFOO to update the Board on the report. cFOO 12.15-12.35
5. I Government Spending Review Discussion To discuss the Government Spending Review. ‘Al Cameron 12.35-12.55
6. I FS&T Performance Report Noting and Input To update the Board on FS&T performance. Owen Woodley 12.55 - 13.15
Lunch 13.15 - 13.45
7. I Banking Framework 2 Noting and input To update the Board on the Banking Framework. Additional I Debbie Smith / Martin Kearsley 13.45-14.45
papers are located in the reading room.
8. I Project Solar ‘Approval To seek the Board’s approval of the Project Solar Business Debbie Smith /Tom Moran’ 14.45 - 15.00
Case
9. I Mails Strategy Update Noting and Input To update the Board on the Mails Strategy. Debbie Smith / Mark Siviter 15.00-15.15
10,I Back Office Transformation ‘Approval To seek the Board’s approval of the additional drawdown. ‘Al Cameron/ Rob Houghton 15.15 - 15.35
11,] Modern Slavery Act Approval To seek the Board’s approval of PO Limited’s statement on Jane Macleod 15.35 - 15.45
the Modern Slavery Act.
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Post Office Board Agenda
12. Postmaster Litigation (Verbal) Noting and Input To update the Board on the Postmaster Litigation, including Jane MacLeod 15.45 - 15.50
contingency planning.
13.) Items for Noting 15.50- 15.55
13.1. Sealings Noting For the Board to be aware of the affixing of the Seal. Jane MacLeod
13.2. Health & Safety Noting To update the Board on Health & Safety. Al Cameron
13.3. Future Meeting Dates Noting For the Board to note the future meeting dates for 2018. Jane MacLeod
13.4. Forward Agendas Noting For Board to note. Jane MacLeod
14.I Any Other Business 15.55 — 16.00
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POST OFFICE LIMITED BOARD MEETING
MINUTES OF A MEETING OF THE BOARD OF DIRECTORS OF POST OFFICE LIMITED HELD ON TUESDAY 31 JULY
2018 AT 20 FINSBURY STREET, LONDON EC2Y 9AQ AT 11.45 AM
Present: Tim Parker Chairman (TP)
Paula Vennells Group Chief Executive (PV)
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)
Carla Stent (by phone) Non-Executive Director (CS)
Alisdair Cameron Chief Financial and Operations Officer (AC)
In Attendance: Jane MacLeod General Counsel & Company Secretary (JM)
Veronica Branton Minute Secretary (VB)
Cathy Mayor Finance Director, Retail (CM) (items 8&9)
Roger Gale Network & Sales Director (RG) (item 8)
Martin Kearsley Banking Director (MK) (item 9)
Ben Foat Legal Director (BF) (item 10)
Jonathan Hill Compliance Director (JH) (item 10)
Angela Van-Den-Bogerd LRG (A VDB) (item 11)
Owen Woodley CEO — FS&T (OW) (item 12)
Jeff Lewis IT (JL) (item 13)
Apologies: None ACTION
INTRODUCTION AND CONFLICTS OF INTEREST
a) A quorum being present, the Chairman opened the meeting.
b) The Directors declared that they had no conflicts of interest in the matters to be considered
at the meeting in accordance with the requirements of section 177 of the Companies Act 2006
and the Company's Articles of Association.
1. BOARD RE-APPOINTMENT
The Board NOTED the decision of the Department of Business, Energy and Industrial
Strategy (BEIS) to re-appoint Tim Parker as Chair of Post Office Limited for a four year term
until 30 September 2022.
The Board congratulated Tim on his reappointment.
2. ANNUAL REPORT AND ACCOUNTS 2017/18 (ARA):
a) Report from the Audit, Risk and Compliance Committee (ARC)
Strictly Confidential
b)
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Tim Franklin provided an overview of the discussion at the ARC meeting held earlier in the
day. Three adjustments had been approved and the EBITDAS figure for 2017/18 had been
confirmed as £35.46m. The wording of the group litigation statement had been discussed
and a slightly shortened CEO statement had been received. Discussions had taken place with
the auditors in the meeting and in the closed session.
The Board RESOLVED, on the recommendation of the ARC, to APPROVE the ARA 2017/18,
subject to finalisation of the CEO’s report and other minor changes, and to delegate signing
authority to the Chairman, Group CEO and CFOO.
Report from the Remuneration Committee (‘Remco’)
Ken McCall provided an overview of the discussion at the Remco meeting held earlier in the
day. The Committee had discussed the outturn of the annual (Short Term Incentive) bonuses
for 2017/18; outturn of the LTIP payments for 2015/18; and LTIP measures and targets for
the 2018/21 performance period noting the proposed EBITDAS “on target” figure for
2020/21 was £90m. The Committee had agreed also to submit the proposed base pay
increase (2.5%) for the CEO and CFOO to UKGI.
The Board
e NOTED the annual bonus outturn for 2017/18 and performance under the LTIP 2015/18
and the resulting payments for the Executive Directors based on an EBITDAS figure for
2017/18 of £35.46m (rounded up to £35.5m)
e RESOLVED, on the recommendation of Remco:
to APPROVE the LTIP measures and targets for the 2018/21 performance period.
APPOINTMENT OF EXTERNAL AUDITORS
AC reported that EY had not participated in the tender process. Only PwC and Deloitte had
bid and based on the scoring criteria, PwC had ranked highest on both service quality and
cost. The Board noted the following potential conflicts and proposed mitigations:
« PwC were remuneration advisers to Remco — based on the advice of the Chairman
of Remco this was not considered to be a material conflict;
e The lead partner in the PwC team was also the lead partner at Morrisons where
Paula Vennells was a Non-Executive Director. To ensure that PwC retained sufficient
independence it had been agreed that an additional partner would attend some PO
Limited ARC meetings. PwC were also the auditors for each of Bol and FRES (where
Paula Vennells was the Chairman of the Board). It was noted that each of those
audits was undertaken by a separate team and accordingly the Board considered
that although there was a potential conflict, this could be managed.
It was reported that PwC were not on the government framework so potential conflicts with
other advisory work were limited.
The Board RESOLVED, on the recommendation of the ARC, to APPROVE the appointment of
PwC as the provider of Post Office Limited external audit services and to delegate authority
to the CFOO and Micheal Passmore, Finance Director, to resolve the minor outstanding
contractual issues prior to signing the contract, and authorised the signing of the Engagement
Agreement.
MINUTES OF PREVIOUS BOARD AND COMMITTEE MEETINGS INCLUDING STATUS REPORT
The minutes of the meeting of the Board held on 24'" May 2018 were APPROVED and
AUTHORISED for signature by the Chairman and the notes taken of the discussions at the
Strictly Confidential
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Strategy Day were NOTED.
CEO’s REPORT
Paula Vennells updated the Board on of the following recent issues:
e the deployment of branch counter hardware was due to be completed in September
2018 in line with the current 95%+ roll-out success rate. Jason Black had driven through
much of this work and the Board and asked for their thanks to be conveyed to him
the Everest discussions had moved forward and change control notices were being
prepared for signature. Work was underway to operationalise these changes.
© ameeting had taken place with the CEO of Verizon who had agreed service credits for
delivery failures
© performance for Travel products was behind plan largely due to the warm weather
resulting in increased ‘staycations’. Performance in August was not expected to be
impacted to the same extent as much of the business in that month related to pre-
booked family holidays
¢ we had advised Bol that we would not discuss the sale of the credit card book until we had
agreed the wider negotiations. Bol had agreed that we needed to have signed off a deal
by the end of October 2018
e Kelly Tolhurst MP had formally taken on the PO brief
e PVhad met Andy Furey from CWU last week. CWU were keen to agree a pay deal and,
while they disagreed with DMB franchising, this was not the primary focus of their
current discussions with PO Limited.
A number of points were raised, including:
e The extent to which underperformance in Travel was linked to disruptors in the market
and whether Post Office could challenge market insurgents sufficiently. It was reported
that we did adjust rate to be competitive in identified branches. We did not seek to
adjust online rates to match firms like Revolut which had very low often zero profit
margins. However, our pricing was dynamic and we could adjust quickly when required.
This marketplace was changing rapidly and it was requested that the background ow
information provided for the away day should be updated and circulated to the Board.
e next steps for the negotiations with RM. It was reported that Paula Vennells was going
to have a follow up meeting‘ with the new Chief Executive of RM to discuss opportunities
for developing the contract. PV was also meeting Sue Whalley, the UK Chief Executive of
RM, in the next week. RM had its next Board meeting in September 2018 and were keen
to have made progress with contract negotiations by then
© Mo Kang’s CV would be circulated to those Board Members who were not Members of
the Nominations Committee VB
¢ Martin Edwards should be invited to give a half hour demonstration on the digital identity
developments before the next Board Dinner VB to
e whether there had been a full shut down test of the Belfast data centre. It was reported liaise
that there had not been a full shut down test and that we did not wish to do this until we with ME
had migrated off POLSAP. Shirine Khoury-Haq would discuss our hot back-up
arrangements with Rob Houghton
© an item on cyber security would be added to the Board agenda in October or November RH
2018 VB to
liaise
with RH
1 The Chairman and Chief Executive had meet the Chief Executive of RM following his appointment to the role.
Strictly Confidential
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The Board NOTED the CEO’s report.
FINANCIAL PERFORMANCE REPORT
The CFOO introduced the report and highlighted a number of issues:
e trading figures were on target taking account of the Telco budgeting error. Mails were
holding up well. FS&T should come back on plan. The higher fees for POca had only just
been triggered. Verify was trading well but Government had flagged it wanted to reduce
the fee. The main concern was IT costs where it had proved harder to drive costs out
than we had initially estimated.
The Board NOTED the Financial Performance Report.
UKGI QUARTERLY REPORT
The CFOO introduced the report and highlighted a number of issues:
© we were around £8m underspent against funding in the last quarter. We had involved
the Finance Directors from across the business in planning for the next quarter. The
nature of the portfolio was changing and we were aware of the need to improve our
change planning processes now that much of the work was cross silo
© funding for Payzone would come out of trading profit and not funds provided by UKGI.
The Board APPROVED the submission of a request for £50m of Q2 funding from UKGI.
CE PERFORMANCE REPORT - RETAIL.
The Chairman welcomed Cathy Mayor and Roger Gale to the meeting. CM introduced the
report on behalf of Debbie Smith, Chief Executive Retail. The following were reported:
It was reported that overall Retail performance was holding up well. The following issues
were raised:
POca numbers had now reduced below the threshold at which higher fees were
triggered’.
® RMG had previously flagged that as a result of GDPR they expected mail volumes to
reduce (with a consequential impact on their UK trading profit) and it was queried
whether this had eventuated?
« the Competition and Markets Authority (CMA) continued to raise questions in relation to
the panther acquisition, although the formal Merger Clearance process had not yet been
triggered. We continued to believe that the earliest we would receive clearance would
be towards the end of September 2018°. Market rumours suggested that Paypoint was
likely to challenge the acquisition on state aid grounds;
© Discussions with RMG continued and the focus was on loosening exclusivity. It was noted
that it would be helpful for the Board to understand what the opportunities might be if
this were to happen (for example, what we could do with Payzone, where there other
brands/products that may become available that we couldn’t engage with today etc.
e there was significant competition in the international mails market and we were
watching this closely
e the Board was pleased to see very positive customer feedback. The target had been
increased from 78% last year to 82% this year and were running slightly ahead of the
new target. Feedback was collected primarily through Voice of the Customer, a service
which was managed for us. 36,000 individual pieces of customer feedback had been
collected but there was also some focus group feedback. Post Masters were encourage
to listen to what customers were telling them and respond to that.
2 It was reported that we had done an interest rate swap in the Spring so that around 50% of the impact of a rate change was
hedged; therefore, we would not gain as much from an interest rate rise as we would have done previously.
3 provided that we were not required to proceed to stage 2 of their process.
Strictly Confidential
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POST OFFICE LIMITED BOARD MEETING
The Board NOTED the report.
BANKING FRAMEWORK
The Chairman welcomed Martin Kearsley to the meeting. MK introduced the paper and
highlighted a number of issues:
e since discussing the future of cash earlier in the year management had considered
further how we would negotiate with the banks on the value of the service we were
providing them through the Banking Framework. We had looked at how the framework
was working at the moment and how we could develop new revenue lines
e From a timing perspective there was only one opportunity to change the framework
is and we were
IRRELEVANT . The contract operated ona eee
The first opportunity for the banks fF
jowever management believed that there were com,
the banks to wantto! I IRRELEVANT i
© Weare proposing 4.
with our {- There was also scope to consider how the banks might wish to
invest in technology which could enable PO Limited to offer a fully automated route in
branch as well as a counter based service.
A number of points were raised, including:
© the potential total value of the development of the Banking Framework, and the
estimated trading profit per annum. It was noted that Post Office should maximise the
potential benefits. The banks would not wish t 7
e whether there had been similar types of structural changes in other industries and if so,
whether there was a model and methodology that could be relevant? For example,
and we run this
e knowledge of the marketplace was critical for us at this stage and the team now included
individuals with relevant banking experience. We needed to understand the pros and
cons, the size, and the delivery feasibility of each model we considered. We then need a
delivery strategy
¢ we needed to understa
A
A
m
[—
<
>
=a
=
¢ the banks would be looking at the iRRELEVAN’
however, we needed to understand thi
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POST OFFICE LIMITED BOARD MEETING
should be involved in the discussions as our negotiation
proposals were developed.
The Board NOTED the report.
CORPORATE STRUCTURES I
The Chairman welcomed Ben Foat and Jonathan Hill to the meeting. Jane MacLeod
provided an overview of the rationale for changing the corporate structure and how this
might evolve. The proposal to set up a holding company above Post Office Limited was pre-
emptive to facilitate known strategic developments (such as Peregrine). Two parallel work
streams were proposed:
1) getting approvals to set up the holding company. This would be required from the
Special Shareholder, as would FCA approval because establishing a holding company
would lead to a technical change of control for PO Insurance
2) analysis of options for both the development of the group structure and the future
group operating model
A number of points were raised, including:
e whether there were any alternatives to setting up a holding company. It was reported
that theoretically Post Office’s current business operations could be hived down into one
or more subsidiaries or Post Office Limited itself could, in theory, become regulated, but
both of these options was less attractive
e the importance of ensuring that any resultant structure was ‘simpler to run’
e the need to replicate the protections the Special Shareholder currently had in place
under the current corporate structure and it was AGREED that this would be added to
our design principles. Oversight of group activities had to remain with the holding
company
e ensuring that the current VAT arrangements remained in place was critically important
The Board RESOLVED to APPROVE, in principle:
e thecreation, of a Holding Company above PO Limited, noting that further approval
would be sought before putting into operation the new structure, e.g. transferring /
restructuring employees, assets, governance, subsidiaries etc.
POSTMASTER LITIGATION (including contingency planning) —Subject to Legal Privilege
The General Counsel Jane MacLeod noted that during July Post Office Limited had received a
claim from 123 Post Masters that they should be accorded ‘worker status’ and that they had
made an unquantified claim for unpaid holiday pay. Work was underway to assess the
impact and defend the claim, and a QC had been appointed. Some claimants were also part
of the PM litigation
In relation to the Postmaster Litigation, the GC provided the following update:
¢ witness statements were being gathered and were due to be exchanged during early
August
¢ Following receipt and review of the witness statements our QCs would be able to
update the Merits Opinion
¢ The application for Security for Costs (arising from our view of the flawed terms in the
Claimants’ insurance policy) continued. We expected that this issues would be
addressed during September 2018
Strictly Confidential
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POST OFFICE LIMITED BOARD MEETING
the two IT experts continued to review documents relating to the issues to be addressed
for the Horizon trial. We expected the scope of the Horizon trail to be agreed in the next
month.
* contingency planning was underway stemming from an analysis of the likelihood and
impact of any of the implied contractual terms put forward by the claimants being found
against us. ‘Likelihood’ was assessed by reference to the legal advice we had received
and ‘impact’ a business based assessment.
The GC referred to the development of a contingency planning paper — an example of which
was shown to the Board. This categorised four potential areas of response to each risk
identified: contractual changes; communications; operational changes (e.g. training); and
system changes (e.g. Horizon). The contingency planning would identify what responses
could and should be implemented ahead of receipt of the trial judgement irrespective of its
outcome, as well as those that would only be implemented following receipt of an adverse
judgement. The Board would be provided with updates at subsequent meetings.
The Board NOTED the update.
FRES UPDATE
The Chairman welcomed Owen Woodley to the meeting. OW introduced the paper and
highlighted a number of issues:
© we had ongoing input from Fenchurch and KPMG in ¢
¢ the market was challenging and Fintechs were becoming much more active
jowever Post Offic
e Perella Weinburg has been appointed by Bol as their firm of advisors
e A further update would be provided at the September 2018 Board Meeting on the wider
negotiations with the Bol, however as reported previously, both sides had recognised
the need to reach substantive agreement by end of October 2018
‘ollowing conclusion of the wider Peregri gotiations, we would reconsider whether
IRRELEVANT. -
A number of points were raised, including:
© the argument for resolving the wider Peregrine negotiations before considering the
© Bol group was leading on the negotiations now and the indications were that they did
ain points of disagreement were
The Board NOTED the update and next steps.
EVEREST
The Chairman welcomed Jeff Lewis to the meeting. JL introduced the report and highlighted
the following:
© The objectives for Project Everest (being the re-negotiation of the Fujitsu relationship)
had been delivered and were now being operationalised. In particular:
e gthe decision to move from Fujitsu’s proposed K5 platform to Microsoft Azure. Change
notes had been signed which would begin to deliver savings
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* an update on the move from the Belfast Data Centre would come to the September
Board
e Fujitsu had agreed to move £3m spend from opex to capex although we had been aiming
for £5m.
The following points were discussed:
e JLexplained that we were working together with Fujitsu to develop digital delivery
capability. Fujitsu were not advanced in this area but were developing quickly and
bringing in new people with expertise in agile
e JL reported that we were having workshops with Fujitsu regarding the Belfast exit plan.
We had received a proposal from Fujitsu which set out a very cautious approach with a
long delivery time. We had asked to look at other options.
e The current contract continued until 2023 but the moving to cloud architecture and our
ownership of the intellectual property gave us much greater scope to choose a different
path in the future.
whether the penalty measures for any failure by Fujitsu to deliver were appropriate and
sufficiently onerous. JL reported that we had built in penalty measures/ service credits
but that these were not perfect; however, we were in a good position on intellectual
property rights. The risk of non-renewal would become a more effective bargaining chip
over time
«© whether we were ensuring a modular build such that we would transition more easily to Jt
one or more new suppliers over time, and whether there were exit provisions that
allowed this. It was noted that the exiting the Belfast data centre and moving onto the
cloud was a critical component of being able to move to a new provider in the longer
term.
The Board NOTED that we would:
e close Everest as a project, complete transition and embed the new service models and
operating processes
© separate out the Belfast data centre refresh/transition to cloud, and run this as a
programme for which would seek separate approval from the Board.
The Board had already agreed the principle of moving to variable cost and migration to
cloud architecture and the Belfast exit programme would set out how and when this should
take place.
BACK OFFICE TRANSFORMATION,
AC introduced the report and highlighted a number of issues:
ewe had said at the May Board that September 2018 was the earliest feasible migration
date from POLSAP and we were now targeting October 2018
e integration testing was underway. Some elements including agents’ pay and cash
processing had already been transitioned from POLSAP and were now being run on
different systems. Issues identified in the internal audit report were being addressed.
DMW had not identified any red items and most ‘amber’ items were turning green. We
would be testing against 120% of our peak volumes. Prior to go-live we would be getting
additional assurance from Accenture’s QA team over the deployment plans and would
ask DMW to validate test results against our go/no-go criteria. The go live plan has
several roll back opportunities.
¢ Contingency planning was being addressed. POLSAP was not customer facing and would
not impact Horizon performance. There were already known manual work arounds in
place already to deal with specific types of failures. We therefore anticipated that
operational activity could continue through manual interventions and these would allow
key processes to continue albeit via labour intensive processes. Cash reconciliations
Strictly Confidential
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POST OFFICE LIMITED BOARD MEETING
across the Network would become more challenging and in all likelihood we would need
to further fund the network on a temporary basis in the event of issues. Increased
resources in the Bristol cash centre were also being considered, and we were working
with Accenture to review whether we could use their offshore resources to build a
reconciliation team
e Should it be determined that we could not safely migrate in October, it would be most
likely that migration would be delayed until January or February 2019. This was an
unattractive proposition as it would cost a further c£5m to run the project that long. We
had POLSAP spares for a period of time but would have to look at building more if we
were run to February 2019 and this would cost a further £5-6m.
¢ the report would be circulated to the Board. RH/ AC
The Board NOTED the report.
ITEMS FOR NOTING
Sealings
The Board RESOLVED that the affixing of the Common Seal of the Company to the
documents set out against items numbered 1682 to 1696 inclusive in the seal register
was confirmed.
Health and Safety
The Health and Safety report was NOTED.
Future Meeting Dates
The future meeting dates were NOTED.
Forward Agenda
The forward agenda was NOTED. An update on the Banking Framework would also be
included on the September agenda and Mails Strategy would be covered under the Retail
Strategy item.
Meeting closed at 3.30 pm.
Strictly Confidential
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OFFICE LIMITED PAGE 1 OF 6
BOARD
CEO’s Report
Author:
Paula Vennells Meeting date: 25" September 2018
Executive Summary
Context
Our target for 2018/19 is to achieve EBITDAS of i
. Our areas for future
focus will be:
Our
Our
vawNe
key market ambitions
To remain number one in letter and parcels
To build our position as a major challenger brand in financial services
and telecoms
To be the UK’s main provider of cash services and remain #1 in
travel money
To lead the market for digital identity services
key measures of success
Grow our network, doubling the number in town and city centres
Become the partner of choice for convenience retailers
Demonstrate digital innovation in every transaction
Deliver’ profit to reinvest in our business and communities
five priorities to deliver these outcomes
Simplify the retailer proposition
. Build flexible and secure IT
+ Modernise our products and services
Digitise and optimise the business
Trust our people to find the best way to do their jobs and help our
customers
Input Sought
The Board is invited to note the report and highlight any issues where a future
discussion would be welcome.
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The Report
Looking Back
WHAT HAS GONE WELL?
¢ Financial Performance
— P5 revenue wa 1, £0.6m favourable to plan in the month. Underlying
revenue is £0.5m adverse in perio £2.5m adverse YTD.
— P5 trading resulted in a profit of , £1.6m better than plan. These have
been parti et by one-off costs in the period of c. { YTD trading
profit of s £4.7m ahead of plan.
— Overall, we remain ahead of plan with underlying performance broadly in
line. A formal 2018-19 re-forecast will be completed in October. The
challenges will be Telco customer numbers, Verify re-pricing and H2 IT
costs.
e Annual report and accounts
— We published our Annual report and accounts on 13‘* September which
confirmed we have made a profit for the second year running, increasing
our year on year trading profit in 2017/18 to £35m from £13m in
2016/17. We have increased turnover by £4m over the prior year, moving
from £957m in 2016/17 to £961m in 2017/18.
« Retail
— Post Office has retained its title as the ‘service that has the most positive
impact on the local area’ in the 2018 Local Shop Report, which was
published this month by the Association of Convenience Stores (ACS). We
were voted into the top three ‘most wanted services’, a useful reference
point for us as we seek locations for new Post Offices. (Specialist food shops
were voted 1 choice followed by banks as 2"°)
Identity Services
— Identity has had a positive start to the year +5% on prior year.
— Verify YOY volumes have more than doubled, primarily driven by Universal
Credit applicants who can now use Verify. Post Office continues to be the
market leader with 53% market share. See below for emerging pricing
issue.
e IT - Investing in digital capabilities
— We have completed a deal with Fujitsu resulting in £19m operational
saving, over 5 years. This will be channelled into capex to invest in
strengthening our cloud and digital services.
IT / Branch network roll out
— The Branch Counter programme has now deployed 23,053 counters in
9,519 branches and remains on schedule for completion by the end of
September, with over 90% of the network now complete.
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« ATMs
— ATM availability has been consistently improving — target is 96% (industry
standard). Our fleet has struggled to achieve better than 94%, but with
focussed attention in the past quarter, that has improved to 95%, and in
recent weeks has shown consistent daily figures at 96% showing continued
progress.
— Discussions with Bank of Ireland to move to a new partner are continuing,
likely outcome will be an OJEU tender in Q4 to seek potential new partners
to take over our estate and help us move to a new strategic model and
relationship.
— Continued change in the wider ATM market (reduced interchange now
having an impact) is seeing many ATM's now charging for withdrawals,
which will lead to more volume in our estate as we remain free to use.
WHAT HAS NOT GONE WELL?
e PCI
— Nettitude QSA raised concerns regarding our PCI data security as a result of
auditing Fujitsu and Comptercentre approaches. We have initiated a further PCI
data audit and review as a matter of urgency to explore and rectify any
security exposures. A joint IT & Business Steering Committee for PCI is
working through the recommendation for the ARC in October.
e Verfiy price reduction
— On Friday 14** September, GDS issued their new pricing for Verify to.take effect
from 1% October: our current payment of per customer falls to jress!,
While we can still deliver our budget for this year as a result of strong
performance in H1, it creates significant challenges for the 2019/20 budget. We
are assessing a number of options to mitigate the impact. We will provide a full
update on the implications to the Board next week.
Chesterfield - water leak
— Due to a Seven Trent water board issue in Chesterfield, our office was without
water for 2-3 days. During the incident we arranged for colleagues to work
remotely where possible, and had a skeleton staff working in the building.
Colleagues displayed great resilience throughout and our business continuity
plans worked well with no visible impact on operations across all areas. I spent
a day there to show support, which was well received.
« Back Office/ POLSAP
— Our testing and planning around the migration continues - we are not ina
position to migrate at present. Although initial testing has been encouraging,
there are still issues to be addressed for a seamless switch. This will be
discussed further in the board meeting.
Strictly Confidential
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Looking Ahead
FUTURE FOCUS
« Government Affairs
— Imet with Kelly Tolhurst, our new Minister, on 3rd September. The Minister
was engaged and showed interest in championing our interests in Government
and beyond.
— At the request of BEIS, there is a meeting with the Minister and the Permanent
Secretary on 17‘ October to provide an update on the Group Litigation Order
(GLO). Jane MacLeod will provide more detail in the Board meeting.
¢ Financial Services
— Peregrine - we have negotiating sessions set up over the next four weeks with
an aim to reaching i ever, it is
clear that Dublin is This has
resulted in prioritising the sale of the Credit Cards business over everything
else. We have maintained our stance that we are negotiating a package.
— Savings - we have agreed a value share for 2018/19 which aligns interests with
Bol whilst the wider negotiations progress. A marketing campaign goes live on
17** September, focused on driving network engagement and underpinning
savings income in 2018/19.
e Royal Mail
— Debbie and I had a follow up meeting with Sue Whalley, (CEO UK, RM) last
month and we have a further meeting arranged later this month. Sue is keen
to keep the dialogue open as we discuss our future working relationship. Royal
Mail have their Board Away Day on 17" and 18'" September. I have a meeting
with Rico Back on 17" October.
« Retail Updates
— Our DMB strategy is on track to deliver 80 exits this year as planned. We are
currently in negotiations with WH Smith (Project Edgware) and we have an
opportunity to secure a deal for further franchising which would deliver
significant P&L benefit through our DMB Programme and also address our
concerns regarding customer service across the WH Smith Post Office estate.
These negotiations are moving quickly and we will provide a verbal update in
the Board meeting.
— We have to strengthened the Retail Leadership through recent new external
appointments to include: Retail CIO, Liz Robson, (previously at Shop Direct and
Halfords); Network & Sales Director, Amanda Jones, (was COO at Conviviality
having also been at Nisa, John Lewis and Waitrose); Retail HR Director, Lisa
Cherry (formerly at Wyevale Garden Centres, WH Smith and Sainsbury); and
Head of Automation, Lisa Watkins, (who led the roll-out of self-service for
Tesco). We are also in the process of hiring for the new role of Franchise
Director.
— Payzone: We have completed 8 weeks of pre-notification dialogue with CMA.
Key questions focused on mobile top market and parcel drop off/returns. This
has now progressed into Phase 1 which ends on 19 Oct. There will be 3
potential outcomes; i) unconditional approval, ii) conditional approval, iii)
request to progress to Phase 2. We have received positive endorsement from
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key bill payment clients and retailers, and the team remain confident in
receiving unconditional approval to the acquisition.
— Payzone trading performance is slightly behind 2018 forecasts with P10 YTD
(July) EBITDA at £2.9m (-1.8% / -£54k). This is driven by slightly lower than
planned mobile top-up revenue. Costs are in line with forecasts. In dialogue
with Payzone senior management, an additional 800 agents have been added
to the network and they anticipate performance to full year end (Sept) in line
with full year forecasts. The core program team are focused on Day 1 readiness
and all major work-streams are on track.
« Industrial Relations
— Pay talks with CWU are on-going. The pay anniversary date for non-managers
was 1° April 2018. Initially, their request was for an “RPI plus” pay award over
2 years. They are now proposing a 1 year deal at 3.2% (Indications are that
they would settle for 3%).
— Our position has been to offer the same 2 year deal we have agreed with Unite
for middle managers. (18/19 - 2.6% / 19/20 - 2.5%). We have been open
about considering flexing the proposed increase over the two year period but
working within the overall quantum that is on offer.
— In the event we are unable to reach a collective bargaining agreement we are
taking legal advice regarding the risks associated with imposing the deal.
Imposition of pay would lead to a ballot for industrial action.
— CWU also continue to encourage us to sign up to a Collective Defined
Contribution pension scheme, having made conference policy to deliver such an
agreement with PO. This proposed scheme has not yet been passed as
legislation; we are working with our Actuaries to understand how the CDC
scheme would operate in the Post Office before giving a full response to CWU.
— Itis likely that CWU will attempt to join up issues over pay, pensions and
franchising. The IR team’s assessment is that CWU will want to cause
maximum PR damage to coincide with the Group Litigation in November.
— Should CWU ballot for Industrial Action (IA) it is unlikely to have too
detrimental an effect upon customers and the network; contingency plans are
currently in place to mitigate sporadic and discontinuous IA.
— If necessary and reluctantly, I would consider a different deal to avoid
significant IA during the GLO: protection of the overall business being most
important. At present, this is not looking necessary.
¢ Identity Services
— Our new Digital Check & Send passports service is being tested with live
customers this week with full roll-out of the service commencing on a
staggered basis from the end of September, reaching 730 branches by the end
of October. Alongside improved customer experience the new service should
enable us to stabilise and then grow our market share (currently ~30%) versus
HMPO’s direct online channel (not least because Digital Check & Send will
benefit from the same £9.50 price discount). Discussions are already underway
with HMPO about the next phases of service innovation, including extending the
digital service to first-time applicants and child passports, with the ambition to
launch these later in 2019.
— Identity for SMEs is a significant medium to long-term opportunity (>£200m pa
revenue potential if we include linked services like digital signing). As a first
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step towards this opportunity we have been engaging with BEIS to shape their
thinking about a ‘Business Passport’ concept - essentially a digital identity for
businesses which will provide easier access to a wide range of both government
services (e.g. grants, procurement portals, tax returns) and private sector
products (business banking, lending, payments, utilities etc). BEIS have now
agreed in principle to award us a contract to run a joint alpha project over the
next ~9 months to develop this concept in more detail. It’s an important
opportunity, providing us with a more formal mandate to pursue discussions
with departments like HMRC and private sector players like the banks.
« New Leadership group & Strategic view
— As part of the work started on culture, we have brought together the senior
leaders of the Post Office to form a small subset group of 50 comprising of
some of the direct reports of the Group Executive. Recognising the importance
of this group to delivering our North Star strategy, we initially plan to focus
efforts on this group to develop their Leadership capabilities and ensure that
they have a cohesive view of the business strategy and agenda. Some of the
activity we have already initiated with them includes regular leadership
huddles, 360° feedback process and our first two day Leadership event on 2/3
October, where we will look at future disrupters, a customer first culture, talent
and resource requirements, digital and data focus. Mo Kang will be leading
subsequent GE work on organisational shape.
RISKS OR CONCERNS?
« Group Litigation Order (GLO)
— A verbal update will be provided in the Board meeting.
° Brexit
— Work is underway to assess impact of Brexit- particularly in light of the
possibility of a ‘hard Brexit’. This is being undertaken via a series of business
wide workshops coordinated through the Risk team and is considering
strategic, operational and financial risks as well as commercial
opportunities. We are liaising and sharing information with government, and
taking advantage of the work of other commercial organisations such as the
CBI. The output from these workshops will be incorporated into the Budget
planning cycle for 2019-20, and we will provide an update to the ARC in
October on key risks that have been identified, although assessment and
planning work will continue as greater detail emerges from government.
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BOARD DISCUSSION PAPER
August 2018 (P5) —- Financial Performance
Author: Micheal Passmore Sponsor: Alisdair Cameron Meeting date: 25 September 2018
Executive Summary
Context
The purpose of this paper is to summarise our financial performance in P5,
highlighting issues and implications. A more detailed slide-deck, used across the
Finance community, is attached.
What is our financial performance in P5 and YTD?
£m
Actual Budget Variance YoY Actual Budget Variance YoY
Retail
FS&T (incl. Insurance) H
Telco overstatement I
Identity i
Supply Chain/Other
Total Revenue
Cost Of Sales
Net Income
Agents Pay fi t
Other Income I I
Trading Profit i H
Network Subsidy Payment i ;
EBITDA i '
Depreciation fi Hl
Interest I i
Change Spend H I
Investment Funding i i
Profit On Asset Sale i i
Profit Before Tax eS
P5 revenue wa vourable to plan in the month. This was driven by a
one-off accrual following the successful conclusion of the RMG SSK
negotiations. Underlying revenue, when you also exclude the Telco budget
understatement, is £0.5m adverse in the period and £2.5m adverse YTD but 2% up
year on year; the main yoy growth areas are Banking, Mails, Telephony (New Call
acquisition timing) and Verify, with the key decline items being in POCa and Home
Office.
P5 trading profit was
£1.6m better than plan. As with revenue, the result was
Hl telco budget error.
YTD Mails is in line with budget and YoY growth expectations.
Travel money continues to track behind budget as Travel Money Online sales were 28%
short of budget. Although Travel Money Card shows a slight positive YoY trend in value
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terms, the 18/19 budget included a planned 22% increase in new card sales which has
not been achieved.
Travel insurance has suffered from the same trends, leaving PO Insurance trading profit
£0.5m adverse in the period in spite of lower marketing spend. Volumes from sales,
digital and branch combined were 23k adverse to plan; aggregators were 6k favourable
but attract higher costs of sale. A deep dive review is planned given the long term plan
is for Insurance to grow margin through marketing.
The Telco performance is under pressure. Underlying ARPU is down contributing to
£0.5m adverse variance in period; £2.1m YTD. Customers are now 11k behind plan at
497K: competitors are increasingly effective at saving customers we think we have won.
A price increase is planned in November to mitigate the ARPU gap but this could increase
pressure on customer numbers.
Banking services was adverse to plan in the period but remains favourable YTD due to
continued strong deposit growth (+18% on plan).
POCa revenue has started to recover as the higher price has been triggered.
Verify has continued its strong growth, exceeding budget by £0.6m in the month, and
£1.6m YTD. YoY volumes have more than doubled, primarily driven by Universal Credit
applicants who can now use Verify, and which commands the higher Level of Assurance
(LoA2) fee. Post Office continues to be the market leader with market share now at
53% and a conversion rate of 54% for LoA2s. However, we have now received the re-
pricing from GDS and it is very severe. We are reviewing the implications.
Non-staff costs was £4.7m favourable YTD and this was a result of reduced Post office
Insurance marketing spend and earlier delivery of IT cost saving initiatives which were
budgeted for in the second half.
Network numbers (July) were 11,561, being 61 above the commitment and an increase
of 14 compared to year end. The reduction of 31 from June driven by 63 temporary
closures, 23 re-openings and 9 new network locations. The scale of drop was greater
than expected by c. 10 as a result of higher audit closures and a mobile van off-line (6
branches).
Depreciation is higher than budgeted due to IT projects going Live following delivery,
earlier than expected. The full year impact is being assessed.
YTD Change spend (Capex and Exceptional) was { £2.2m ahead of forecast
(£33.6m behind budget). Although the change spend was more or less in line with the
latest forecast, there was a delay of DMB provision calculation and accounting offset by
higher than expected spend in EUC branch deployment following settlement with
Computercenter,
Net funding position has increased by /!*=from year end due to delay in
investment funding and FX growth for the summer campaign.
Conclusion
Overall, we remain ahead of plan with underlying performance broadly in line. However,
given the headwinds in Insurance and Identity and the expectation that Project Everest
will not deliver the planned reductions in IT costs, we now expect the ahead of plan
performance to reverse in H2. We will do a full re-forecast after the P6 results.
Input sought
The Board is asked to note the financial performance.
Strictly Confidential
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@
Period 5 FY18/19
Financial Performance
25 September 2018
©
Post Office® Post Office Limited — Commercial in Confidence
P5 Scorecard
Pressure emerging on network numbers, change benefits and IT performance
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Post Office Business Scorecard - FY18/19
Key Performance Indicators
Year to Date
Full Year
Deliver Profit
[Total Gross income (excl NSP) £m
HTrading Profitem
IHeadroom £m (vs Board minimum limit)
IChange benefit delivery £m (WIP)
IMails - Total Labels Volume m
[Mails - Home Shopping Returns Volume m
IBanking Volume (m)
IClosing Telecoms Customer Base (#)
Grow our Network - Customer
Number of Branches (mth in arrears)
[Branch Availability
lEase of Doing Business with (Effort )
INo. of Horizon Customer Sessions
I# of Sev1/Sev2 Incidents (Rolling average)
[Overall IT Supplier SLA Achievement (mth in arrears)
IActual Incident Volumes (Rolling average to July)
BU
Retail
Retail
Retail
Fsat
Retail
F8omT
Become the Partner of Choice - Customer
Retail
eo5eoce
IRRELEVANT
Target
FY18/19
Change benefit delivery - YTD variance in delivered benefits is mainly driven from.QMB.i.
delays in onerous provision along with phasing of Network Delivery savings and PO:
in projects delivering. All programmes are committed to full benefit delivery in the year.
No. of Horizon Customer Sessions - there is currently no target set and historical data only
available for last 90 days. Exploring possibility of retrieving archived data in order to set
appropriate target.
# of Sev1/Sev 2 Incidents - 12 high severity incidents in July; decrease of 6 from June.
Actual Incident Volumes have increased to 10,356 in July from 10,283 in June.
Post Office®
Post Office Limited — Commercial in Confidence
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"na
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P5 Scorecard
Digital sales channel remains behind, absence has improved
Post Office Business Scorecard - FY18/19
Key Performance Indicators Period 5 Year to Date Full Year
Measures BU Actual I Target I Var I RAG yaerdo
Digital Innovation - Customer ;
[Trading income from customer Hub (£m) Fsat I j e iI @
fr otRegistered customers on app ser I{ IRRELEVANT; , IRRELEVANT)
ls oF Al Product pages website visits al o I Irsaserasacasm yrs I 20,461,075
jebsite Conversion ratio Al 8.1% 10.7% (2.6%) e 98% 10.1% (0.3%) eo 10.0%
Care for our People i
lLine Manager Index’ Al 69% 62% 7% e 62%
Female Representation in Senior Roles (38 above I Al 404% I 410% I cox) I © 43.0%
IBAME Representation in Senior Roles (3a & above)’ Al 9.0% 93% (0.3%) oe 11.1%
[Senior Vacancies filled by Internal Talent Al 12.5% 50.0% (37.5%) e 49.3% 50.0% (0.7%) oe 50.0%
JAbsence: All 3.2% 3.3% 0.1% e 3.2% 33% 0.1% e 3.3%
Safety LTIFR FRO 0.000 0.200 0.200 e 0.143 0.200 0.057 e 0.200
T Line manager index calculation ls based on the weighted avenge resus
2. Our ambition is to achieve 50% by 2020. Full year target of43% is based on a linear increase over 3 years; this equates toreplacing 16 Males with Females in Year 1 based on 460 populaion.
Discussion to be held over changing Senior Roles to Level 4 andabove (population would decrease 250 and female ratio would be30%).
3.¢.14%is the percentage of people in the UK who describe thanselves as BAME. (Source: Most recent ONS Census, 20111). Our anbition is to achieve 14% by 2020. Full year target of 11.1% is
based on a linear increase over 3 years; this equates to replaéng 11 white to BAME in Year 1 based on 460 population. Discusson to be held over changing Senior Roles to Level 4 and above.
Absence - P5 absence split by short term (0.71%) and long term (2.47%). Monthly absence has
reduced from 3.36% in P4. YTD absence remains under target at 3.23%.
Safety LTIFR - There were 5 employee related accidents in Post Office during P5 compared to 11
during P5 in prior year. There were zero lost time accidents in P5 and there have been a total of 5 YTD
against 10 YTD in FY17/18.
@)
Post Office® Post Office Limited — Commercial in Confidence
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P5 Trading Profit +£1.6m v Budget; YTD +£4.7m
em PS5YTD Variance Analysis
y-Actual._...Budael...Variaoge....Yay........... Actual... Budart._. variance... YoY... ATimina...-Qne-aft.-Undeclviog
IRRELEVANT
Retail
FS&T (excl. Telco overstatement)
Telco overstatement
PO Insurance
Identity
Supply Chain/Other
Total Revenue
Costofsales
Netincome SS Income
AgentsPay——SOSOS~S
Staff Cost
Non staff Cost
FRES
Other Income
Trading Profit
[IRRELEVANT with RMG, offset by one-off costs off
£1.6m variance to budget driven by income one-off IRRELEVANT
Agents pay continues to benefit from new understanding on the system.
©
Post Office® Post Office Limited — Commercial in Confidence
Retail Scorecard
Mails volumes are holding up
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Budget Variance RAG
Actual
Actual Budget Variance RAG Budget
pate -roattanat oamem RRELEVANT: © IIRRELEVANT!° I IRRELEVANT
[Payments Volume m wor"
lease of Doing Business with (Effort) 844% 820% 24% @© 83.0% 820% 10% @ 820%
*month in arrears
Post Office®
Post Office Limited — Commercial in Confidence
(a)
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Retail: P5 Trading Profit £3.7m favourable to budget; YTD +£6.2m
£1.5m SSK accrual release; POCa continues to recover; DMB pay award accrual catch up
Period 5 yrD
a ‘Actual Budget Variance YoY ‘Actual Budget Variance YoY © ssk accrual release.
Mails Trading pntellOsBveimens chm nintnschensnrnsdilonrnimrnmenimentd UReeniehdsD fienrnsn(Q:Dlarnmrnten
Mailwork ; ; ;
cls Olver @ Payment services was adverse in period
RM Annual Fee & Count due to Co-op volumes which were
a expected to come through other
paca resellers not materialising.
Payment Services
ATMs
Banking Services
Other Retail
Ce en
Staff Cost
Staff & Agent Related Costs
Brand & Marketing
Consultancy & Advisory Services
TT Infrastructure & IT Services
Managed Senvces - Penalties
Postage
Finance & Losses
Change Opex
Other Non-Staff Cost
Other Income.
Trading Profit i
i @ ATMs’ performance adverse to budget
' driven by below budget volumes (-
0.8m) and availability rates below
budget at 94.4%.
@ Banking services adverse in period due
to seasonal activity. YTD remains
favourable due to continued strong
deposit volumes (+18% on plan).
H © Staff costs are adverse to budget in
period due to catch up of DMB pay
award accrual. YTD staff cost variance
relates to timing of efficiency savings in
network and sales.
© Non staff costs are favourable due to
release of card processing fee accrual
due to lower than anticipated average
transaction value.
(6)
SS
Post Office® Post Office Limited — Commercial in Confidence
FS&T Scorecard
Telco and Travel Money under pressure
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Actual Budget Variance RAG Actual Budget Variance RAG Budget
Vaiue of Mortgage Applications (Em)
Value of Mortgage Completions (£m)
otal value of Savings balances (£m)
Number of new Credit Card applications
(Credit Card application accept rate
Number of new Loan applications
Loan application accept rate
Hravel Money On Demand sales transaction volume
Travel Money On Demand sales transaction ATV
Number of MoneyGram Send transactions
Closing Telecoms Customer Base (#)
Telecoms ARPU
Telecoms Customer Churn
Net Telecoms customer additions
Net Promotor Score (Telecoms)
Number of Postal Orders sold
Policies Sold: Post cooling off period (k)
Policies Renewed (k)
Policies In-Force "live" (k)
Net Promotor Score (Post Office Insurance)
IRRELEVANT
Post Office®
Post Office Limited — Commercial in Confidence
@
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FS&T: P5 Trading Profit (2.0m) adverse to budget; YTD (£2.1m)
Travel money and Telephony continue to track below budget due to lower value of sales and reduced customer
numbers
£m
PO Money (Savings Loans)
Travel Money
MoneyGram
Telephony
Telephony Overstatement
Postal Orders
Total Revenue
Cost Of Sales
Pe
A 1d
Net Income
Agents Pay
Staff Cost
Staff & Agent Related Costs
Brand & Marketing
Consultancy & Advisory Services
infrastructure & IT Services
Managed Services
Postage
Finance & Losses
Other Non Staff Cost
FRES
Trading Profit
Travel money continues to underperform
due to lower value of sales.
@® MoneyGram Average Rate per Transaction
continues to come in below plan which is
driving a potential risk to income.
Cost of sales favourable in period due to
reduced take up of Galaxy offer together
with lower Telecoms customer number
than expected.
Agent's Pay includes remains favourable
YTD, reflecting the lower value of sales
than expected.
©® Permanent staff costs are on budget. Staff
costs also includes skills group contractors
which is driving adverse variance.
© Operating expenses adverse in period to
due foreign exchange revaluation.
@ FRES profit share reflects FRES’ actual
position.
Post Office®
Post Office Limited — Commercial in Confidence
(3)
oe
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Post Office Travel App
YTD income from Travel App top-ups £330k below budget; extrapolated at current rate YTG risk o
although revised targets are being worked on
Top-Up Volume Top-Up Value Top-Up Revenue Agent's Pay
Period Week Top-Up Volume Bud Var Act Bud Var Act Bud Var Act Bud Var
3 Total;
4 Total]!
Cy}
5
5)
5 i
B Totalli
Financial Performance
The Post Office Travel App was launched on 21*t
45k unique registered users with
ravel Insurance policies sold.
PO Travel App Value of Top-Ups
A weekly Hub trading committee has been set up and
errrrrnnnnannnsseer initiatives have been identified to increase traffic, downloads
and sales. The main focus is to increase the app download
111
5 16 17 18 19 20 21 22 4 25 26 27 28 29 3031 ratio which is currently 27% vs the old TMC app.
© Customers are still referred in branch so there is agents
pay due on the Top ups. Revenue is earned at
of top up value; agents pay is paid at
—— Actual Value ———= Budget Valt near (Actual Value)
Post Office® Post Office Limited — Commercial in Confidence
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Travel Money Sales
TMO sales short of target; TMC positive YoY trend but remains below budget
PS P5 YTD
Actual I Target % FY17/18 TYVLY% Actual Target % FY17/18 TYVLY%
TMC P ~ a 92% “i 109% 83% = Ii 105%
OnDemand I I 94% i] 89% 98% 89%
IRRELEVANT : 2 IRRELEVANT;
iTMO i Hi 72% H 98% 70% 91%
Total 88% 94% 88% 92%
Network Turnover Sales Performance
The assumed growth of TMC and revived growth of TMO sales continue
to fall short of expectations and as a result P5 turnover is currently
short of budget by £10m (13%)
Although TMC shows a slight positive YoY trend in value terms, the
18/19 budget included a planned 22% increase in new card sales. We
are currently tracking 9% behind YTD value target and 62k below in
Pi P2 PS PA PS PG PT PB PD PIO Pit PID new cards volumes.
—Tv 1 Tat
LY
TMO sales were mh, or (28)% short of target so far in in P5 with
‘TMO Turnover turnover currently trending c.31% behind target. The full year target
assumed a 25% increase in turnover from i. however
volumes are tracking 6% down YoY.
Note: Network sales figures include Click & Collect, however C&C
targets are included in Online.
P2 P32 P4 PS PG PT PB PS PIO PIT P12
—T TY Tot ——LY
@)
Post Office® Post Office Limited — Commercial in Confidence
Telephony Analysis
Customer gap is expanding; potential YTG risk of c. i
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PL P2 P3 Pa Ps
fend of period customer
JAvg. customer
JARPU
Revenue
1 impact (adjusted in
P2, Pa)
lUnderlying Revenue
lUnderlying ARPU
Actual
lend of period customer
lAvg. customer
JARPU
Revenue
impact in budget
Restated Revenue
Restated ARPU
Budget
_———
[Underlying customer Gap
lUnderlyingARPUGap__}
———
Underlying Revenue gap}
IRRELEVANT
P5 gap predominantly.
c. 11k customer gap
YTD gap predominantly from rate -
c. £1.3m
YTG risk of dimess”""! based on
underlying customer ga
restated budget ARPU ¢
Planned pricing increase to mitigate
ARPU could accelerate the widening
customer number gap
lo/w volume
Jo/w rate
C)
Post Office® Post Office Limited — Commercial in Confidence
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Telephony Base Summary
Improved acquisitions and retention rates has slowed base declne
464.7K 463.1K 461.5K - 514.1K 510.4K 508.8K - = 506.2K 504.4K 5015K 500.1K 498.7K 498.1K
Average Base Size Since April 17
+ In July last year the Post Office acquired the Fuel Telecoms base of 57k customers*
+ Since migration to the Post Office we have lost 18k Fuel Telecoms customers leaving 39k remaining on the
base
+ In late Q3 & Q4 17.18 the introduction of growth fund allowed us to stabilise the base by increasing adds
@ Galaxy and Price rise has had further negative impacts on base volumes of around 4k to 5k
«In the last three months the base has stabilised and is now only marginally declining... but still declining
+ Further investment may be requested to grow the base.
*51k customers were paid for.
Post Office® Post Office Limited — Commercial in Confidence
Telephony Acquisi
Orders up 27% YOY but adds up only 18% due to competitor retention activity
ions
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Order Volumes 25K
Budget 35.1K
17.18 Performance 20.6k
Variance to Budget -10.0K
YOY Variance 4.4K
vs Budget -29%
vs YOY 18%
32.0K FC
35.6K
21.0K
-3.6K
11.0K
10%
34%
57.0K Adds Volumes
70.6K Budget
416K 17.18 Performance
-13.6K Variance to Budget
15.4K YOY Variance
19% vs Budget
27% vs YOY
20.9K
27.5K
17.9K
-6.6K
3.0K
-24%
14%
Order volumes are up 27% YOY (34% in Q2) but adds are only up by 18% YOY.
23.0K FC
27.6K
18.3K
4.6K
4.7K
-17%
20%
43.9K
55.1K
36.2K
-11.2K
7.7K
-20%
18%
The variance in uplift from our gross orders and net adds positon is due to increased competitor retention activity
from the likes of Sky, Talk Talk and Plus Net (BT). This has meant we have lost between 4k to 5k of adds in H1.
At a channel level:
* Contact Centre: conversion is running 65% higher YOY but calls are down 17% YOY.
* Online: conversion nearly double YOY and traffic up 30% YOY
+ Branch: adds are down 30% YOY but we have seen improvements since we introduced ‘managers specials’
Overall a strong YOY performance but work to do to get back to budgeted levels
Post Office®
Post Office Limited — Commercial in Confidence
Telephony Churn
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H1 churn 15% down on budget but flat YOY, for which price rise was the key contributor
Churn Volumes 27.3K
Budget 19.3K
17.18 Performance 21.8K
Variance to Budget 8.1K
YOY Variance 5.5K
vs Budget 42%
vs YOY 20%
23.8K
25.0K
28.3K
1.2K
-4.5K
5%
19%
51.1K
443K
50.1K
-6.7K
“1.0K
15'
2%
ze
Gaining Provider
Galaxy and price rise have been key contributors to the churn miss YOY (circa 5k) of the remaining 1.7k deficit we
are closing through improved contact centre conversion (up 12% YOY)
40% of our customers are moving to the major triple play providers (Sky, BT & Virgin), however only 1% move to
Virgin which perhaps suggests that TV is the driver rather than Fibre or price.
The remaining 60% are moving to value players who are not major players in the TV space although may have an
offering. In terms of product We believe that it will be a like for like product in the main but with fibre pricing
coming down we would expect to see more customers move to fibre.
Our key point of leverage in this space is price which we hope to take advantage of through the new toolkit design.
Post Office®
Post Office Limited — Commercial in Confidence
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Telephony Q3 Core Trading Plan &
f= [=l=l=le[=l=[=[sle lst] [lo]
ee
Outbound Telemarketing Launch Phase 1 HGS — WK27
Cross Sell
Direct Mail to Existing Post Office Customers WK23
Cross Sell
September
New Retention Toolkit- WK27
Newly designed toolkit to reduce in life chum.
Growth Fund TBC
Aiming to Pitch for funds in September.
Price Rise WK32
Base price rise
Post Office® Post Office Limited — Commercial in Confidence
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PO Insurance: P5 Trading Profit (£0.5m) adverse to budget; YTD
(£0.1m)
Poor travel insurance performance; reduced brand and marketing spend but trading profit loss in period
= P5 underperformance predominantly from
Travel Insurance due to a combination of
volume (60%), mix and margin (40%).
Travel Insurance
Car insurance
Van Insurance
Home Insurance
Life - Over 50s
Life - SLI
Volumes from sales, digital and branch
combined are 23k adverse to plan;
aggregators are 6k favourable but attract
eked ease i higher cost of sale, hence lower income
cost resies_i i per policy (IPP). Travel margins are lower
oo ' as a result of the increase discount
Brand & Marketing i supporting the summer campaign.
Consultancy & Advis ory Services
TTinfastucture & IT Services
Managed Services
Other
Trading Profit
Other Insurance
Total volumes for all products of
were 16k (17%) higher than prior year.
Non staff costs favourable due to reduced
brand and marketing spend. Risk of
ineffective marketing spend hindering
future growth.
Sales Volumes - Actuals vs Plan
~ I I II I Il
Pa P2 P3 P4 PS
m@PY @Plan m Actual
®
Post Office” Post Office Limited — Commercial in Confidence
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Identity Scorecard
Full Year
RAG Actual Budget Variance RAG Budget
[Gross Income £m
[Trading Profit £m
Paper Passport Volumes
Paper Passport Market Share
UKVI Volumes
[Secure Collect Volumes
[Tax Renewal volumes
H oyr Renewal Volumes
fewerrenatest __} [IRRELEVANT !-°— IRRELEVANT {IRRELEVANT !—
LOA 2 Market Share
IL oA2 Conversion rate
LoA1 Volumes
LOA 1 Market Share
LOA 1 Conversion rate
Re-Registration Volumes
IServices Live
©
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Identity: P5 Trading Profit £0.7m favourable to budget; YTD +£2.5m
Verify continues strong growth; passport volumes above budget
= © Passport volumes are running 10% higher than
Aannl... Bude ...Variance...-Ya. Actual Budget Varience budget, overall income is just £0.05m ahead, as
Home Office
DFTIDLA
Identity Services
they are derived wholly from the paper channel
which carries a lower fee than digital. YoY,
Eneoamenthysiiy volumes have dropped by 30% and market
TotalRevenue share has dropped 12% (to 31%) as HMPO
covers ___' IRRELEVANT Digital Channel volumes continue to grow. PO
Joents Pay Digital Check & Send is set to launch in Q3 to
Staff Cost
Managed Services - Penalties
Postage
Other Non Staff Cost
Trading Profit
address this area.
Verify YoY volumes have more than doubled,
primarily driven by Universal Credit applicants
who can now use Verify, and which commands a
the higher Level of Assurance (LoA2) fee. Post
Office continues to be the market leader with
53% market share and a conversion rate of 54%
for LoA2s. Marketing and User Experience
activities are being implemented to enhance
performance further.
Recent discussions with GDS have highlighted
Treasury's endorsement for the Verify service,
which should help drive volume, but alongside
expected downward pressure on price, as the
service matures. We are working on pushing
back in any price reduction for the current
financial year. Any further developments are
expected in P6.
® DVLA penalties reclassified to non-staff costs
hence adverse in period (£nil trading profit
impact).
co)
Post Office® Post Office Limited — Commercial in Confidence
Verify: Income & Volumes
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Verify Income
feriod1 Period 3 PeriodS ~Period7 Period 9__Period 11
mmm Verify Net Income —@®—Budget 1819
Verify is performing strongly against budget (£0.4m). This is a result of LoA2
volumes continuing to be above budget by 33%. YoY volumes have more than doubled
(165%) and are driven by Universal Credit applicants who can now use Verify. Also DBS
Users are contributing towards this uplift. Through social media, we will be running a
Universal Credit campaign to remind people that using Verify reduces the amount of time
needed in branch and will be followed up with more awareness campaigns and a refreshed
POL website in order to help capitalise on the new volumes.
Post Office continues to be the market leader wit-F#09 Market share and a conversion rate
of 54% for LoA2s. The strong YTD performance (iss) will be offset after P6 when the new
Call off with GDS will be signed. GDS have statku-endt they will pursue a significant price
reduction in order to achieve savings in accordance to Treasury guidelines. The actual effect
on the Verify numbers is being looked into and more clarity will be available after initial
feedback from GDS.
LoA1 volumes are not performing as expected ! inretevanr), as there are not so many outages
at DVLA. We are hoping for more information frormGos‘on further outages. Get your state
pension has gone live as anew service, but GDS estimate only 4% of service users will use
the Verify route (LoAI service). The impact from this set back is not significant compared to
LoA2 as net price is 1/3 of LoA2s and volumes just 25% of LoA2.
LoA 2 Volume
Period 1 Period3 Period ~— Period 7 ~—- Period 9 Period 11
mmm LoA2 —®—LoA 21718 —e®—Budget 1819
LoA 1 Volume
riod1 Period 3 Period ~— Period 7 Period 9 Period 11
Mmmm LoA1 —@—LoA 11718 —®—Budget 1819
Post Office” Post Office Limited — Commercial in Confidence
i)
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Home Office: Income & Volumes
Passports Volume
Home Office
Period Period Period Period Period Period Period Period Period Period Period Period
1 2 3 4 5S 6 7 & 9 0 1 2B
GEEEEPassports —=®=-Passport Budget Passports 1718
Period 5 income for all Home Office and related services was £0.1m,abaad.af, UKVI Volumes
Budget. This positive variance was driven by the UKVI BRP service #irevevaT!
BRP services is seeing the early signs of BREXIT with applications thtougn-tie’
Home Office slightly ahead of the same period last year and the Home Office
seeking to clear backlogs in advance of student surge. YTD UKVI is ahead of
budget by £0.54m but th=-+enkeact with Home Office will expire in P9 creating a
risk of £0.9m (EBITDAS hich might be partially offset by higher than
budget volumes continui 2 and Q3.
Passports are marginally higher than budget for PS Volumes are
higher than budget (8%), but due to them coming from our Paper Channel
rather than both Digital and Paper our overall income is flat (due to £4 price
difference). YoY volumes have dropped by 30%. The price differentiation that
Home Office implemented earlier this year to its Digital Channel has lifted its
market share YoY by 22%* (YoY , YTD figure) whilst Post Office Paper channel
has dropped to 31%* ( YoY/YTD drop 12%). PO Digital Check and send is set to
launch in Q3.
peregppased sprog tpeiods Period 6gaH0} 1pied BPeod Period Getod Period
i abe Seccre"Cofiect ‘BRP (UKVIS "Se" Secure Collect
©
Post Office” Post Office Limited — Commercial in Confidence
i RELEVAN’ a)
“YTD tradi
EY audit fees overruns and
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Finance & Operations: P5 Trading Profit (0.4m) adverse to budget; YTD ‘
customel
compensation
em @ Rent & rates favourable - some one off
credits, various rent reviews not seen an
Revenue 5 - 5
CostofSales H increase and have exited properties (not
Net income 7 onerous lease)
Staff Cost
Staff & AgentRelated Costs
Property & Facilities Management
Postage
Stationery
Finance & Losses
Vehicles
Other
Trading profit
IRRELEVANT
h
i
i
,
,
,
t
a
Printer cartridges: "==" jthi ;
TD also from 24% price increase
for paper and delayed benefits from
receipt reduction initiative
Former agents losses that continue to be
identified - full year risk as there is as yet
no detailed assessment of what is as yet
unidentified - provision release could
cover this
Post Office®
Post Office Limited — Commercial in Confidence
3)
Operating expenses: IT
£1.2m YTD favourable variance will be used to offset cost challenges in future periods
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Period 5 YTD
= Actual... .Budaet...Variance...YeY......... Actual... Budaet_Vadance...YeY...
IRRELEVANT
iT
Staff Costs
Staff & Agent Related Costs
IT Infrastructure & IT Services
Managed Services
Consultancy & Advisory Services
Other
Total Operating Expenses
P5 Variances:
Fujitsu savings £0.16m due to ceased services (branch network services)
Security savings due to SOC dela
Staff cost savings due to
ATOS higher volumetrics (!
ATOS prior year accrual released on disputed invoices not require:
not met
YTD Variances:
FJ savings from ceased BNS
SafehaveniiZaigvant
Security SOC dela
on recoveries of project recharges and vacancies not filled
ffset by cost challenge
Post Office® Post Office Limited — Commercial in Confidence
@
Operating Expenses: HR, Communications, LRG, Central
HR staff costs adverse variance relates to net impact of FY17/18 bonus.
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Period 5
udaet
IRRELEVANT
YTD
Actual Budget Variance YoY Actual Budget Variance YoY
IRRELEVANT
Staff Costs
Staff & Agent Related Costs
Finance & Losses
Other
Total Operating Expenses 1
Staff & Agent Related Costs
Consultancy & Advisory Service:
Legal Costs
Other
Total Operating Expenses
eros I
Actual Budget Variance YoY Actual Budget Variance YoY
Staff Costs
Staff & Agent Related Costs
Brand & Marketing
Other
Total Operating Expenses
YTD
Central Actual Bugs Variance YoY Actual Budget Variance YoY
Staff Costs
Finance & Losses
Growth Fund
Brand & Marketing
Other
‘Total Operating Expenses
IRRELEVANT
Post Office® Post Office Limited — Commercial in Confidence
©
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Vs Commitment YID Vs
Actual VS Actual Forecast Lal
ca
‘Actual Budget 1819
Forecast (Incl. open
Retail
Mails Programmes
Cash & Banking Services
Bill Payments Projects
‘Automation
bMB
Network Development
Network Transformation
Other Retail
Financial Services & Telecoms
Eagle
Telecoms
Other
EUC Branch Deployment
7 Back Office
IT Networks
Other IT
Project Everest
RR
Replacementof Counter Receipt Sli
Solar
Finance & Ops
Finance
Operations
Property
Supply Chain
IRRELEVANT
Human Resources __
Legal Risk & Governance
Central
Grand Total,
Anticipated savings or slippages to
‘Total Change FY 2018/19
ofw
Cape
Exceptional
(0)
®
©
©O® oe oO
Variance is mainly driven from DMBs provision
recalculation one-off cost expected to be signed off in
July but postponed for later in Q2
YTD underspend against forecast is mainly driven by
the redundancy provision and bonus payment release
and partially driven by phasing/cost saving
opportunities
Underspend is mainly driven from EUM project which
is behind plan in the month and now behind YTD
target and partially driven from general phasing
underspend with saving option to be investigated
YTD overspend is mainly driven from project Travel Hub
tracking ahead against forecast (due to PO 's reviewed
& GR’ed) which is now in line with the latest view and
P12 balance sheet review adjustments for Project
Peregrine
Underspend is due to the wider Identity Business
case submission being rescheduled for September
rather than August according to the original
planning
Overspend relates to accrual for final
Computacenter milestone payments and payment
of settlement in the month
Overspend against forecast relates to catching
up in previous months on cloud platform project
costs
Project is underspending YTD with no cost in month
as final costs and roll out is being agreed with
Computacenter, catch-up is expected in next month
YTD variance in delivered benefits is mainly
driven from DMB delays in onerous provision
along with phasing of Network Delivery savings
and PO! delay in projects delivering. All
programmes committed to full benefit a
24
Post Office® Post Office Limited — Commercial in Confidence
7
Balance Sheet & Cash Position
Net funding position up b from year end
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Balance Sheet
em
Fined Assets
[Debtors
cash
[Creditors
[Pension Surplus
[Provisions
lOther
[Coan
[Net Assets / (Liabilities)
Net Funding Position
em Periods I P12FYI7 I vPt
[Government Loan
JDemonetisation - NCS
lcash at Bank - POL H
[Net Funding Position i
Net funding position has increased by £70m from year
end due to delay in investment funding and FX growth
for the summer campaign. N:
cash after
Balance Sheet Headroom
tm
[Government Loan - Available Amount
jovernment Loan - Drawn Amount
Period 5
P12 FY
Period 5FYI7 I vPY
Headroom
IRRELEVANT
[Target Minimum Headroom
[Headroom Above/(Below) Target
Security Headroom
£m
[Network Cash
Jcash at Bank -POL*
lient Debtors
[Trade & Other Debtors - Business DebtorsI i
Period I P12FY17I vP12 I PeriodSFYI7 I vPY
[Total security
IRRELEVANT
[Total Obligations
[Headroom
Post Office®
Post Office Limited — Commercial in Confidence
@
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POST OFFICE PAGE 1 OF 6
BOARD
FS&T Board Report - Sept 2018
Author: Owen Woodley Meeting Date: 25" September 2018
Executive Summary
Context
This report provides an update to GE 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
. How is the FS&T strategy evolving?
. What is the progress in Customer Hub?
. How is our balance sheet product set performing?
. How is our transactional product set performing?
. How is our Telecoms business performing?
. How is our Insurance business performing?
DuUAWNE
Conclusion
Gross income is £6.6m adverse to budget at P5 YTD - this includes the {rscs!
overstatement in the budget due to the Telecoms FIN11 report error. Direct profit is £2:27
adverse to budget YTD P5, and full year out-turn is currently forecast to be
budget. Without the Fin11 report error, the profit out-turn estimate would b
but further action will be required to address the Telco-related gap.
Gross Income (£m
actual. Budaet._.. Var__...Out-turn._Budaet.. War
FS&T
PO Insurance
Teen IRRELEVANT
Other Income
Total
Profit Contribution
Actual Budget Var Out-turn Budget
FS&T
PO Insurance (Group Contbn)
Tak a IRRELEVANT
Central Marketing
Total
Input Sought
The Board is requested to review and note the report.
Strictly Confidential
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PAGE 2 OF 6
The Report
How is the FS&T strategy evolving?
Our competitive landscape is evolving rapidly with digital innovators like Revolut and
Monzo becoming increasingly prominent and aggressive in the financial services market.
We therefore need to ensure that our business is orientated relentlessly around changing
customer needs and service expectations and our approach to our markets needs to
continually leverage the unique attributes of the Post Office brand. That demands a
strategic vision for FS&T which is much more integrated and joined up at a customer level
than the previously more federal strategic positioning of the FS&T product lines.
We are therefore now in the middle of a programme of work to define a new strategy for
the FS&T business. This will include a specific (external) piece of work on the strategic
options for our Telco business. The outputs will be brought to GE and, as appropriate, to
the Board for discussion and challenge. That will include the identification of a clear set of
critical capabilities to underpin the delivery of the strategy and our proposed approach to
building those capabilities over the next three years. The early emerging view of the key
themes is as follows:
« Fewer activities at greater scale to have genuine market impact
« Adrive to take more control of the value chain in each of our business areas to
enable more control over the customer proposition and experience
A culture that has continual innovation and digitisation at its heart
A business that uses brand heritage and trust to be a real market disruptor
Being significantly more relevant to younger audiences
Focusing continuously on efficiency, ease and pace
A critical part of our success will be the development of our people and the attraction of
new talent in every part of our business. As a start to that journey, we have now appointed
a new Group Marketing Director who brings deep experience and credibility to the Post
Office and we will shortly be implementing organisational changes to significantly increase
the depth and focus of our digital activities for customers. We also have activity in train to
increase the talent bench strength in some other parts of the FS&T business portfolio as
well.
What is the progress in Customer Hub?
The Post Office Travel app now has more than 45,000 unique registered customers to
date, with approximately 1,500 downloads a day. The FRES app was removed from app
stores for new customers on 13" August and we have since seen a significant increase in
Post Office downloads, top ups and Travel Insurance sales in-app. Migration of existing
FRES app customers is starting in early September and further app enhancements are now
in train. We have mobilised other customer proposition initiatives alongside Travel. A proof
of concept for Mails was presented to the Board in June which received positive feedback
and an agile team (bringing together product, digital and coding expertise) is now in place
to bring a proposition to market within the current financial year. We are also exploring
options in Digital Identity.
Strictly Confidential
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PAGE 3 OF 6
How is our Balance Sheet product set performing?
1. The Market
Competitive pressures in the retail banking market remain. The continuing low interest
rate environment (notwithstanding recent base rate increases) and the BoE funding
schemes have put major pressure on mortgage margins and kept savings rates depressed.
2. Product P&L P5 YTD
Gross Income (£m
Mortgages
Cards & Lending
Savings
Balance Sheet Products
Mortgages
Cards & Lending
Savings
Balance Sheet Products
3. Review of Performance
. In addition, should
e will benefit from
IRRELEVANT
erformance is mixed, with
(nonrgepocreead, The expansion of the Post Office brand in the
Broker channel will compensate for some of this weakness by year end. Personal Loans
volumes continue to show strong performance.
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
e 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
e Post Office Money ‘North Star’ Metric to identify a customer centric indicator of
performance that fits across both ‘Customer’ and ‘Commercial’ metrics.
5. Year End Outlook
We expect to exceed full year income and profit targets.
Strictly Confidential
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PAGE 4 OF 6
How our Transactional product is set performing?
1. The Market
The good weather this summer has had a significant impact on UK “staycations”, by c40%
based on the top two UK holiday providers (Hoseasons and Parkdean). The UK travel
money market has been running c9% down YoY based on competitor feedback and so
whilst our numbers are lower than expected, they appear to be in line with the market.
The predicted natural decline in Postal Orders in 18/19 has not been as sharp as initially
thought, running at c.18% YoY vs 21% in 17/18.
2. Product P&L P5 YTD
Gross Income (£m
A 1 Bud
t
Travel Money
MoneyGram
Postal Orders
Transactional Products
Profit Contribution
Actual. Budget... War... Out-turn. Budget...
Travel Money
FRES Profit Share
MoneyGram
Postal Orders
Transactional Products
3. Review of Performance
Travel Money gross income has fallen behind budget for the reasons set out above. The
MoneyGram contract has been re-negotiated resulting in & } additional fixed income for
the remainder of the contrac! has been recognised P5 YTD).
Postal Orders are a profitable product with a low level of costs. Volumes are declining but
as stated, less steeply than predicted.
4. Customers
MoneyGram customers are holding but Revenue Per Transaction (“RPT”) remains under
pressure. New pricing for India to drive transactions was introduced in July as were local
advertising campaigns in key markets like Romania to drive Post Office awareness as a
destination to send/receive. Postal Orders are paper based with associated increasing AML
risks and therefore interest from some areas is declining. The MoJ has indicated they will
stop accepting Postal Orders but are yet to confirm a date.
5. Year End Outlook
We expect the renegotiated deal with MoneyGram to provide an upside to the overall full
year Travel Money & MoneyGram results. However MoneyGram revenue is currently
missing budgeted RPT values by 14% causing a risk of before the additional
commissions. TMC & TMO value of sales are currently 7} behind budget, posing a
year-end profit risk of it!Postal Orders are on track to outperform 18/19 budget
profit.
Strictly Confidential
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PAGE 5 OF 6
How is our Telecoms business performing?
1. The Market
The industry continues to focus on Fibre with BT Openreach (the main network provider)
looking to incentivise further uptake on this product, enabling the long term strategy of
retiring the ADSL (Broadband) network. There are a number of small challengers in the
market (e.g. Cityfibre, Hyperoptic, GigaClear) who are working with partners to rollout a
competing high speed network (up to 1Gbps) based on a Fibre to the Premise (FTTP)
technology. Post Office is working to secure a long term competitive pricing position on
fibre to ensure continued relevance.
2. Product P&L P5 YTD
Gross Income (£m
Actual Budget Var Out-turn Budget Var
Telecoms 63.3 65.3 (2.1) 154.6 159.4 (4.8)
Profit Contribution
Actual Budget Var Out-turn Budget Var
Telecoms 12.0 12.0 0.0 30.0 30.0 0.0
3. Review of Performance
The above P&L shows the underlying Telecoms performance, with the Fin11 budget
overstatement having been moved to the Other Income line in our P&L. Gross revenue is
behind budget expectations due to both lower ARPU than expected, partly driven by less
calls being made over the summer period, and lower customer numbers. We are launching
more aggressive acquisition and retention offers in October to address the market and
mitigate leakage. Cost of Sales are favourable to budget due to the take up of Project
Galaxy and overall, direct profit is in line with budget excluding Fin11.
4. Customers
Customer Satisfaction (“CSAT”) is showing a positive trend and is now embedded in the
Customer First Programme. Month to date score is 77% overall CSAT which is our best-
ever level. Consistent improvements are being seen with tNPS and the latest Ofcom
numbers show a best-ever performance on published Landline complaints.
5. Year End Outlook
Customer numbers are behind where we expected them to be. ARPU is also lagging behind
the budget, even after adjusting the budget for the FIN11 overstatement. Plans are
underway to implement a price increase in H2 which will partly mitigate the downward
ARPU trend.
How is our Insurance business performing?
1. The Market
The Travel Insurance market is expected to shrink over the next 5 years, leading to the
continuation of intensified price competition from a crowded market (current market share
is 7.6%). There is market uncertainty in relation to Brexit, with the outcome potentially
impacting on how the EHIC operates, foreign exchange and passporting, all of which could
Strictly Confidential
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PAGE 6 OF 6
have positive or negative impacts on the market. The Motor Insurance market is expected
to grow 1%pa to 2020, with POI current market share 0.4%. The short term outlook for
this market is favourable with a short/shallow drop in rates expected as some providers
move for growth. The Home Insurance market is expected to fall by 2%pa over the next
three years driven by changes in home ownership.
2. Product P&L P5 YTD
Gross Income (£m
Actual Budget Var Out-turn Budget Var
Travel Insurance
Life & Over 50s H
Home, Van, Car & Other i
PO Insurance
Profit Contribution
Actual Budget Var Out-turn Budget Var
IRRELEVANT
Travel Insurance
Life & Over 50s
Home, Van, Car & Other
Agent's Pay
Other Operating Costs
PO Insurance
3. Review of Performance
Travel Insurance is currently running 14% behind with trading impacted by Post Office
Travel App performance and market conditions. Despite this, total travel sales are up 27%
on 2017/18 and digital sales up 13% on prior year following investment in SEO. Protection
trading is 5% ahead following two successful branch offer weeks. A DRTV campaign will
run from week 26. We are also expanding distribution of protection products to price
comparison websites during Period 6. General Insurance outlook is favourable, driven by
particularly strong renewals performance for Car, Van & Home.
4. Customers
Net Promoter Score is currently running ahead of plan at 38 and Customer Effort Score is
currently at 80, slightly below plan but on an upward trajectory.
5. Year End Outlook
The PO Insurance 3+9F projected group profit stands at! before Agent’s Pay), up
£0.2m on budget. PO Insurance is progressing its 6+6F for finalisation and submission in
early October alongside the rest of the business.
Strictly Confidential
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PAGE 1
Appendix 1 - Individual Product Area Strategies
Telecoms The Telecoms business is currently in the process of appointing
consultants to understand the long term business options and refresh the previous
strategic plan. Important is its strategic fit within Post Office as a whole, what
opportunities exist to maximise the value of the business, and what a divestment
strategy might look like.
Peregrine We now have formal negotiating sessions scheduled for several dates
in September and October and are still aiming to conclude by th ‘ober
(although we should be cautious about this deadline given Bol’s
i ‘e continue to pressurise us to sta
the rest of the Peregrine negotiations. We have maintained
our position
(subject to the approval of our Board
They are still considering this.
Distribution Strategy with Retail Progress is being made to agree what the
right distribution capability is throughout the Network for FS&T products. We are
currently defining and sizing the potential scenarios.
Digital International Payments Following the contract renegotiation with
MoneyGram, Post Office has been released from exclusivity surrounding
international digital remittance. Discussions are underway with established
companies operating in this space to understand the options to launch a digital
account-to-account remittance service. The Business Case is scheduled for
completion at the end of October.
PO Insurance We have met with the majority shareholder of“! and their
newly appointed advisors, They are setting up the data room and propose
a formal process to commence in October; this will be an auction. We have been
offered an early view of the data once available and have stated they are open to
an offer prior to the formal process commencing. We will revert with a
recommendation once KPMGs insurance team have analysed the data and given
a view on the valuation. Separately, work continues on exploring market
disruption options Home Insurance - we expect to have some early ideas this
autumn.
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Appendix 2 - A Reminder On How We Make Money
Mortgages Income is based on total completions value: r contact
centre/online an: 5 for brokers. We offer a full range of mortgages across
residential (FTB, re-mortgage and home mover) as well as buy-to-let. Our two
innovative new mortgage propositions have launched in the FTB and later life
borrowing spaces.
Si
ings We are in a value share where we earn a base income of !
_ s for every basis point Bolsi.
from the baseline of We are developing two new strategic propositions to
move away from price-led competition in Savings.
Personal Loans Income is earned at “} of written lend. We are developing
two new strategic propositions to differentiate our loans offering.
Credit Cards Income is earned at £““"for every card sold. Our leading product is
the Platinum Card which offers zero-fee transactions abroad.
per over the
} er new TMC sale
of TMC top: ups) plus an . Post Office
is the number one provider for in-branch foreign currency sales, with a market
share of 25%, and online share of 17%.
MoneyGram Income is earned via three streams: FX margin :"
transaction amount), customer fee of transaction amount) and a fixed
commission o\/RRELEVANT} i ction. “Average revenue translates to
Send transactions and + } for Receive transactions. There is a fixed
commission per annum, and an additional fixed _ ission of :
recently negotiated to the end of the contract, translating to:' in 18/19. Our
core proposition is currently in-branch transactions, with a market share of c.13%
of cash money transfers, however we are looking at digital money transfer
capabilities to drive additional protection.
Postal Orders Income is
ed on a transaction basis, with the rate varied by
value of the Postal Order transactions up to £4.99 for transactions
bet £5 and £9.99; ani of the value for transactions ove! , capped
I We also recognise revenue from expired Postal Orders. Postal Orders
are in structural decline and subject to a wider strategic review.
Telecoms We offer consumer telephony products and services with varied
contract lengths (12/18/24 months). Customer monthly average revenue per user
(ARPU) and average tenures vary by product and promotional price points. The
HomePhone ARPU is £22.30 over 49 months and Broadband ARPU is £26.69 but
over 26 months. ARPU is made up of fixed contract income
income (eg from Call Packages).
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In H1 2018/19 we launched our most competitive Standard Broadband (ADSL)
price point at £17pm and improved Fibre retail prices to £31pm on our most
popular tariffs (supported through wholesale cost reductions negotiated with
TalkTalk).
Travel Insurance Revenue
trip policies with F
or all policies that continue beyond th IRRELEVANT
I is paid to POI as commission on these
policies.
Home, Car & Van Revenue is generated through a combination of /
IRRELEVANT
Policies generate an
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BOARD
Banking Framework 2
Author: Martin Kearsley Sponsor: Debbie Smith Meeting date: 25 September 2018
Executive Summary
Context
1. The Banking Framework (BF) is
transactions, with a singl
overing counter-based
i IRRELEVANT et
2. Deposit transaction growth is placing increased strain up
infrastructure and all banking transactions now represen
workload but only ‘= of postmaster fees.
3. Automation of cash services to ease pressure on branch counters requires
investment, which needs to be coordinated with all other branch
automation programmes to ensure that a coherent, aligned and detailed
plan can be presented to the banks.
4. A negotiation strategy has been developed to ensure Banking Framework 2
(BF2) pricing gives POL options regarding what and how to invest in
automation, either with or on behalf of banks.
Questions addressed in this report
5. The value the BF counter services deliver to the Banks.
6. The alternatives that Banks are developing and what limitations they might
impose on our ability to maximise our revenue.
7. What range of BF2 iT /are available, what.
they raise and what impacts do they have on participating banks.
8. How forecast transaction growth affects income and trading profit growth
9. Approach to cash automation and self-service and integration into POL wide
automation discussions.
10. The resources and team structure required.
11. The time frame for completion of the repricing exercise.
12. Our proposed BF2 negotiating approach with the Banks.
Conclusion
baseline of :"“""lin FY18/19).
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14. When considering likely growth scenarios th Iting Revenue and
Trading Profit could deliver i p.a. respectively in
2022, and provides a base for investment and agent remuneration change.
15. A negotiation strategy and team structure is recommended.
Input sought
16. Discussion regarding BF2 pricing and points at which
with the Banks.
17. Discussion on timing of negotiating meetings with the banks and potential
to give banks unti __IRRELEVANT
The Report
The value of the Banking Framework to the Banks
18. The I ‘I for BF2 has been assessed from three
perspectives
i. Since 2014 the UK branch network of the big 5 banks has
shrunk by 3800 (42%) to circa 5170. Estimated savings to
Banks of circa! p.a.
ii. Optimising their networks to a maximum of 600 branches
per brand could see another 1169 closures by 2025 and
further savings of up t Th p.a.
anks fully loaded costs, per transaction, are between :
RELEVANT I
b. The feasibility and cost of alternative channels
i. Three possible competitor channels to the Post Office
banking proposition have been identified:
1. Mobile van branches - which have limited reach and high
associated costs and are therefore discounted
2. Alternative counter services such as the PayPoint/LINK
tie up.
a. Enables cash withdrawals and deposits using Chip &
Pin, currently under trial at 15 locations and could
provide a ready-made network with reach exceeding
the Post Office.
b. Mainly small scale and incomplete banking service
proposition unsuitable for Business customers.
Useful ‘convenience cash’ role for ad hoc personal
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sector withdrawals, and could therefore draw some
volume from Post Office counters
3. A ‘shared service’ automated offer in dedicated premises
such as:
a. Cardtronics and Vaultex (¢
}) to pilot a self-service branch
capability for businesses. Concept due to pilot
January 2019
b. Banks have ring fenced tape for up to 750
c. Cardtronics are also proposing to set up a parallel
network in conjunction with Retail partners
c. The transactions fees Banks charge their own customers:
i. Transaction charges are rarely applied to mainstream
personal accounts; often waived for new Business
customers; and larger Commercial and Corporate customers
negotiate individual arrangements.
Framework 2 fee options
19.A range of potential fee levels for each category have been considered
against the constraints identified (Major fees only detailed in table below):
IRRELEVANT
b. I
20.Both potential fee levels feature
IRRELEVANT
21. There. are e wide \ variances in income e between key I parties i in n the ‘deposit
transaction
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DEPOSITS
Example
transaction values
Bank charges to
business customer
PO charges to
banks
PO pays agent
(non-main)
22.The resultant incremental fees, based on 2018 transaction volumes for each
scenario would be:
Total Impact
By Bank
Target
Increase Increase Increase _ Increase
Agoressive BZsedon.. basedon based on basedon
IRRELEVANT
IRRELEVANT
23.Over
reflects the need to address an
IRRELEVANT
Fee Increase Scenarios (£m)
Other fees
TOTAL
IRRELEVANT
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25.Without the implementation of self-service and further cash automation we
will be unable to efficiently manage increasing SME deposit volumes as the
network, customers and the supply chain are adversely impacted as:
a. Postmasters workload at branch counters (and back office) increases -
primarily driven by high value cash deposits
b. Customer service experience in branch suffers if queues are created
behind time consuming BF transactions
c. Supply chain capacity and efficiency is stretched as increased cash
deposit volumes turn branches cash positive
26.The cost implications from these issues was addressed in the May 2018
Future of Cash board paper
Impact of growth on framework income
27.Framework volumes are forecast to increase over the next 5 years before
starting to decline. The forecast is primarily driven by four elements
a. Contactless and online driving out cash
b. Alternative channels displacing Post Office
c. Continuing Bank branch and counter closures
d. Automation of LBG and RBS deposit transactions
28.Three scenarios have been modelled; Expected; Optimistic and Pessimistic
Pessimistic Vol <mmmExpected - Vo Optimistic - Vo
29. When volume increases are combined with f=
a. most optimistic scenario income would peak at £
b. most pessimistic scenario income would peak at!
c. expected scenario income would peak at:
s, in the:
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Vol/Inc. (m) 2017 2018 2019 2020 2021 2022 2023 2024
Pessimistic
=. IRRELEVANT
Aggressive Rates
30.At expected volu
trading profit atir
and target BF2 pricing income
™} in 2022 - assumes all costs (~~
Income and Trading Profit at Target BF2 rates - Expected volumes forecast
S
&
2019 2020 2021
——Income = Trading Profit
31.Trading profit forecasts above exclude the cost of additional supply chain
capacity fixed investment, network security upgrades, cash automation and
additional increases in agent remuneration
Approach to Self-service and cash automation
32. Adoption of branch automation technology, either as automated cash
handling at the counter or as full self-service mail and banking, is under
strategic review and will provide output and strategic direction by Q2’19
33. POL will not have a single, coherent view of Branch automation in time for
the bank automation component of that to be included into BF2 pricing
presentation at the level of detail that every bank will require.
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34. It is therefore recommended that any negotiations around providing .
: IRRELEVANT
banking self-service functionality are separated from the BF:
35. We will indicate to the Banks our intent to
beneficial proposition by middle of 2019 with
Project team structure and resources required
36. An internal team comprising of Martin Kearsley, Nigel Bascombe and Nicole
Calder (Finance analyst) lead the analysis work. Supported in negotiation
by Andrew Clatworthy. Full engagement with Retail Strategy, Supply Chain
and Automation work streams to ensure integrated approach.
Project timeframe
37.BF2repricing:
a. Work in progress to define { IRRELEVANT ‘to banks by end of October
b. Engage banks now, with delivery of final_BF2_pricing. by end November
c. Banks responses - accept or terminate I IRRELEVAN
38. Self-service / automation proposals
a. Complete POL-wide automation strategy by end Qi 2019
b. Develop detailed pricing, service SLA and proposition details for
banking automation through Q2 2019
c. Detailed Banking cash automation and self-service proposition
proposals to Banks by end Q2 2019
Proposed negotiating approach
39. Between now and end of October:
a. Engage with Banks’ operational teams to prepare way for BF2
40. Post October (based on assumed agreement on BF2 pricing at PO Board):
a. !
b. Maintain communication channels as above on responses and progress
c. Amend BF2 proposals if deemed necessary during negotiation
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BOARD DECISION PAPER
Solar — Building an integrated EPOS
Authors: Tom Moran — Sponsor: Rob Houghton/Debbie Smith Meeting date: 25" September 2018
Executive Summary
Context
We have identified ‘Solar’ (aka HNGT) as a critical part of developing our Retail and IT
Strategies. With it, we can have the flexible, open IT architecture we need to become
a more attractive retail proposition for our customers and our agents, respond quickly
to threats and opportunities and, in due course, reduce our IT costs by replacing the
need for counters with services integrated on retailers’ tills, self-service or deliver
through customers’ own devices.
Questions addressed in this report
1. What is Solar and why is it important?
2. What has the cost been so far and what have we delivered?
3. What are the risks?
Conclusion
1. Project Solar is a strategic initiative to deliver greater access to Post Office products
and services through a range of devices owned and operated by retailers,
customers and the Post Office. Successful deployment is a key enabler of the Retail
Strategy and North Star aims - we need it to be better for customers, be a partner
of choice for retailers, grow our network and to digitise and optimise our business.
2. Our development so far has cost just under £6m and we are therefore raising this
as we need to secure Board endorsement to be within governance. With this
funding we have developed the essential microservices needed as foundations for
product development, a Bill Payment pilot and are currently developing a Lottery
Transaction Tracking product on retailers’ tills, an initiative that has a clear
business case and is a priority for agents.
3. Our new approach to joint working with Fujitsu and close working with Retail
product owners and agents in developing Solar are designed to mitigate the key
risks of a) failing to deliver to time, cost & quality, and b) retailers not taking up
the new proposition(s).
Input Sought Input Received
1. The Board is asked to approve the 2. Each stage of Solar has been
money spent to date and note the approved by the Group Executive in
A the last year following extensive
lan to return to Board with a fuller,
P 2 input from Retail and IT. The
costed paper once the product business case has been reviewed
roadmap has been more fully and validated independently by
developed. KPMG, and Solar has been endorsed
from a strategic perspective by the
Board at the June Away Day.
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The Report
What is Solar and why does the Post Office need it?
1. Our current Post Office transaction engine, ‘Horizon’, is highly robust, monolithic
and over 20 years old. It is based on a ‘thick client’ running on Windows counter
hardware, with business logic and reference data downloaded to the client.
Transaction workflow takes place at the branch, with real time interaction with
back-end systems before committal takes place. It is a ‘one size fits all’ solution.
2. We have nearly completed the substantial task of replacing end-of-life ‘HNGX’
hardware (Windows NT4) with a newer ‘HNGA’ system running on Windows 10.
The renewal programme is over 90% complete and we will have installed the
new equipment in all branches by mid-October. Architecturally, HNGX and HNGA
are the same.
3. I HNGA/X is designed as a stand-alone system and does not lend itself to
integration on third-party IT. This requires us to own and maintain a large IT
estate on behalf of Agents and Partners. In the vast majority of our estate (all
¢3700 Locals, the vast majority of our c3400 Mains and most of our c2700
Community branches) this results in separate Post Office and retailer POS
equipment, with consequences for retail space, training and rostering of staff and
the need for customers to queue twice for Post Office and grocery baskets.*
4. The core of Project Solar is the ‘Horizon Integration Hub’ (HIH). HIH uses a
Web-Services architecture to connect browser-based, ‘thin client’, end user
devices such as a retailers’ till, via a common service interface or ‘API’, to
Horizon. Each microservice performs a specific role in fulfilling the basic ‘basket-
building’ process that is common to e-commerce systems. The generic basket-
build process in Horizon, exposed through HIH, is shown below.
oom “eerban
mh lala >
Gene Product Jourey
5. HIH gives Post Office the ability to innovate, develop and deploy new and
existing products more rapidly and at lower cost than would ever be possible
with the current HNGA/X system. As such it is critical to the future sustainability
of our Retail network as it enables the new formats we need to develop and roll-
out, reduces our IT operating costs and increases our ability to change products
and services quickly, as other retailers do (see paragraph 8 below).
BROWSER-BASED ACCESS
6. Having the business logic, reference data and transaction workflow in HIH, rather
than in the client as in HNGA/X, allows the use of a simple browser to connect
user devices, minimising the integration effort by third-party IT developer teams.
This is the customer journey we demonstrated, along with the planned new one, to the Board
at the June 2018 Away Day.
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Figure 1: How Solar will allow link our Horizon m _to multiple channel
End-User Access ‘Channels’
Cee! I one ton aeRO SSECS
Bag eee oqo omar
cmrerenc tomate I Gypicanyrwhen eee
ff Sees NNGA veered)
ee I
i
Retailer POLPOS
App POS CHNGT’) Machine
Hub CHIH),
i
7. This makes Retailer-POS integration an attractive proposition which should allow
Post Office to increase accessibility (for example in PO Express) at low cost and
at a high velocity.
WHY POST OFFICE NEEDS SOLAR
8. Solar will allow us to do the following, none of which are possible through HGNA:
* access Post Office services on an omnichannel basis through a range of
devices owned/ operated by retailers, by customers and by the Post Office;
*® segment product offer by branch type, location, time of day, operator skill or
other factors; and
e innovate and deploy new products rapidly, including those for new strategic
partners, as well as to change or improve existing products (for example,
price changes).
9. The Retail Strategy describes a segmented customer proposition which moves
away from the existing and limited Locals and Mains offers, which are not
sufficient to meet customer or agent expectations. Our Retail Strategy stated
that "without mitigating action, our 3YP could potentially be negatively impacted
by up to £22m EBITDAS...due to the challenges we are finding in recruiting
agents...[which would result in more outreach and temporary-managed
branches].” Solar is needed to enable the new formats set out in the table below
and is particularly critical to developing the new proposed ‘Kiosk’ and ‘Express’
formats.
10. The approach of the Integration Hub and Post Office retaining the IPR of the
development gives us future sourcing options away from Fujitsu. The proprietary
HNGA/X application and the Horizon back-end systems are complex and make it
impossible for Post Office to access Category procurement savings from the
market.
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USE OF PAYZONE
11.
12.
13%
We are working closely with colleagues responsible for ‘Panther’ to ensure we are
aligned, as acquiring Payzone would give us a new capability and bill payment
and other simple 'scan a bar code' transactions could be developed within the
Payzone mobile device and systems.
Payzone already has a similar target architecture with regards to its development
of bill payment microservices and it is expected that these can be integrated into
the Post Office architecture in the future through a single API Gateway.
The integration planning of the two IT eco-systems continues, with the most cost
effective and efficient outcome likely to be an integration of both existing
microservice assets rather than one technology replacing the other.
What has the cost been so far and what have we delivered?
1.
The work to date (previously referred to as ‘HNGT Lite’) developed the key
foundation components - known as microservices - of the new HIH (Horizon
Integration Hub) architecture. This has been critical work which we had to do
before developing the new product journeys, which can then be developed using
our Agile delivery approach.
This foundation development represents 90% of the £5,995m expenditure in
HNGT Lite, and forms the essential basis for development of the roadmap in the
coming Programme Increments. This funding has been approved in stages over
the last 12 months through our Investment Committee, which the Group
Executive uses to review and approve strategic investments. As the total now
exceeds the £5m for which Board approval is required, we are requesting
approval for the £5,995m through this paper.
We are not requesting funding for subsequent ‘increments’ or for Solar as a
whole in this paper. We will be returning to Board with a fuller, costed
explanation of the programme once we have developed the product roadmap
more fully over the next few months. We will ensure all future business cases are
subject to the relevant governance approval processes in future.
Our partners for this work are Fujitsu (as well as Retail Data Partnerships, EPOS
specialists who operate in the Booker network) and, up to August, we were
under the terms of the previous contractual arrangement with Fujitsu. The new
Lottery increment is the first major initiative to be delivered as part of the new
approach agreed through Project Everest and is intended to set a new standard
in joint working and Agile delivery.
SUMMARY OF ROADMAP TO DATE - LOTTERY, BILL PAYMENT AND MAILS
Having developed the necessary microservices to start adding products, we have
started our product roadmap. The current work (Increment 1) is developing and
deploying Lottery Transaction Tracking in all c1200 Multiple retail partner
branches and which will improve the management of Lottery through Post Office
to align with contracting direct with Camelot. This will protect £4.1m of at-risk
EBITDAS and prove our credibility to our network for reasons set out below. We
are working closely with McColls on this (as our largest partner with over 600
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Post Offices, McColls have consistently called for EPOS integration and securing
their support, which we have done, is crucial to our wider credibility).
The prioritisation of products is a business decision driven by our key senior
product owners in Retail to align with commercial priorities and our Retail
Strategy. The current product roadmap, which we fully expect to be modified on
a regular basis, as we review it over the coming months, is below. We have also
set out the business case we have identified for each increment at Appendix A.
Figure 2: Solar Product Roadmap as at 17 September 2018
Roadmap
Commissioned Development — ‘ome functions
Tes of previous Dorset ~ tena a r0ch I} [Tatas wroeRT
( = SS]
~ =) Mate (Sea) ate (Send)
( ae
~ weacen) I I manycam mau (can) mau (can)
( oT oT oT oT
Travan vay I [Praveen oy I I rea Trea Fy
vas scone I I manscame I [man cescee I I ceca abe I mat css ube
Sanne I [Sear nets saa I [ Seatnaten III amano
Payot ft oat rare reat
Peatray ra] I Petoayree I I Pet vayree I I —Potrayran III ony ree
tottery I totery I I tettery lottery lottery Lottery tottery
[Aste SettementI! {auto setdementI [ Auto settement I I Amtosettement I I Autosetiement I I User Authentication I! I User Authencaton
ill POKiosks PO Express POKiosks —PO Local 70 Plus
Direct settie I payments "(oc)" (RetmilPos)—(auterOs) ———(WOLROS (rowres
(natait pos) I (Poc) ‘Simple) Complex)
Catalogue
‘Back omice
inertace
Mails products appear later in the product roadmap (see above) as the full Mails
suite already exists in the current Mains and Local format which, supported by
the deployment of HNGA, satisfies the requirement of the new PO Local and PO
Plus model referred to in the Retail Strategy. However, we continue to review
the opportunity to bring forward the Collects component, as a minimum.
We are also developing the ‘Mails App’ demonstrated to the Board in June
through the Customer Hub. This complements the Solar work and means we can
deliver to market quicker - the ambition is to launch Version 1 of the Mails App
through Customer Hub prior to peak season whilst in parallel developing further
enhancements for launch in Q4.
What are the risks?
1.
The Post Office becomes locked into the current Horizon architecture - this would
be likely if we do not deliver Solar and would make us increasingly inflexible,
increase costs and make us less attractive as a partner. Solar is designed to
open up our architecture to 3 parties and devices such as retailer tills and
tablets to increase our options.
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Partners will not take up the new technology - we are confident there is a clear
need from partners, particularly Multiples and Symbols, for EPOS integration and
for the new formats it will enable. Developing this with them is crucial to avoid
wasted effort and we are involving them in the development (to date principally
Spar on Bill Payment, McColls on Lotto and a range of agents in developing our
microservices.
Fujitsu will be unable to deliver to the time and cost we need - our new
contractual position incentivises Fujitsu is deliver through Agile quickly and
efficiently. We must also accept our part as a partner and develop the product
requirements needed to deliver.
Solar will result in a GDPR-related issue or incident - we need to consider GDPR
in our design approach to be both compliant and mitigate against any potential
re-work together with its partners. We have not identified any major issues to
date and will keep this under close review.
Conclusion
1.
We have identified ‘Solar’ (aka HNGT) as a critical part of developing our Retail
and IT Strategies. With it, we can have the flexible, open IT architecture we need
to become a more attractive retail proposition, respond quickly to threats and
opportunities and, in due course, reduce our IT costs by replacing the need for
counters with services integrated on retailers’ tills, self-service or deliver through
customers’ own device.
So far we have developed the essential microservices needed as foundations for
product development, a Bill Payment pilot and are currently developing a Lottery
Transaction Tracking product on retailers’ tills, an initiative that has a clear
business case and is a priority for agents. Feedback from independent and
Multiple agents has been very positive, giving us confidence we are taking the
right approach. Our next increments will focus on Bill Payment and Mails, these
being the priority products to address customer and agent needs.
As the total now exceeds the £5m for which Board approval is required, we are
requesting approval for the £5,995m through this paper. The Board is asked to
approve the money spent to date and note the plan to return to Board with a
fuller, costed paper once the product roadmap has been more fully developed.
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Appendix A: High-level business cases for future Solar Product Increments
Use case/business case OPEX EBITDAS EBITDAS CAPEX Timing
driver /benefit reduced increased maintained avoided
UC1: Enable PO Express . . . £4.0-13.0m IFull benefits achieved over
format on Retailer POS in total 5 years starting FY2020
UC2: Displace PayPoint . £1.2-4.5m . . Full run rate achieved over
from multiples/ symbols p.a. 3 years starting Sep 2019
UC3: Reduce cost of £4.5-9.0m Roll out start in FY2021
Automation i a. = = 2 and full run rate achieved
[tb by FY27
UC4: Enable Digital mail £2.5-5.0m - .
back end integration in total CAPEX avoided in FY19
UCS: Enable direct Excludes £1m OPEX saving
settlement of lottery for multiples partners.
transactions . . £4.1m . EBITDAS estimate is for
p.a. FY2020 assuming FY2018
EBITDAS of £5.1m and
10% yoy decline
TOTAL £4.5-9.0m £1.2-4.5m £4.1m £6.5-18.0m
p.a. p.a. p.a. in total
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Appendix B: Solar benefit map linked to Retail Strategy
Our Customers
I can save my
Our Agents operating cost
from Lottery
We can talk to We can integrate I We can save our
Post Office our multiple ‘our App products operating cost
partners with a from Lottery
live POC in place
We can evaluate
the benefit of
RPOS
We can get our
first service
integrated into
Retailer POS’s
SSK S/W POC
I can do my
“transactional”
services at the
Retailers POS in
my Post Office
Icangivea
better service to
my customers at
lower cost
We can add our
transactional
products into
Retailer POS’s
‘SSK S/W Lite
I can use the
Self serve
machine on my
own
1 use lower skill
staff to operate
My Post Office
counters
We can extend
‘our network into
whole estates
SSK Full
S/W Solution
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Ican do my
“transactional”
services at the
Retailers POS at
my local store
We can remove
the cost of
operating HNGA
Express
Counter POC
HNGA Replaceable
(SGET onl
HNGA Replaceable
(Full)
2 Branch POC “Whole” estate
Lottery fix
Paypoint
Displacable
Access Points
=
al
cme
2.
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BOARD UPDATE PAPER
Royal Mail (RM) MDA Negotiations
Author: Mark Siviter Sponsor: Debbie Smith Meeting date: 25 September 2018
Executive Summary
Context
Following Board support to engage early with Royal Mail (RM) to secure the longer
term future of the commercial relationship. We are now about to engage in the first
round of more formal negotiations in October to explore the broad shape of a possible
deal in advance of the formal contractual renegotiation period in 2019.
Questions addressed in this report
What progress have we made with Royal Mail?
What are our aspirations from a new agreement and why?
What does Royal Mail want from a deal, and what outcome do we expect?
What are the next steps?
Pour
Conclusion
1. Since the changes in Royal Mail leadership in June, there has been greater interest
in progressing discussions, resulting in Royal Mail going to their Board in
September for permission to enter a first round of formal negotiations exploring
what the broad shape of a new deal could look like.
2. Our aspirations are to;
3
4.
negotiations with the intent of reaching a broad shape of a deal. We will return to
GE and Board in January with a more informed mandate to support a second round
of discussions.
Input Sought Input Received
1. Note progress made to date and the 1. RM Negotiations SteerCo, 29th Sept
intent to enter the first round of 2. GE 12% Sept
formal negotiations
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The Report
What progress have we made with Royal Mail?
1. Since early 2018 we have been actively engaged with RM, agreed mutual interest
in securing an € “IRRELEVANT } set out principles and established key topics for
discussion, 9
2. We have achieved our ambition to understand RM’s high level interests and
identify the key points of difference as RM’s desire fort i
Post Office’s:
4. The changes in RM’s Executive announced in June resulted in renewed pace from
their side, driven by Sue Whalley, RM’s new UK CEO.
5. Since June a series of high level meetings have been held between respective
CEOs and senior managers to discuss intentions and approach to negotiations. RM
have now confirmed they are ready to enter formal discussions in October, subject
to their Board approval in September.
What are our aspirations from a new agreement and why?
1. We are well prepared for these negotiations. We have spent significant effort in
evaluating the market, understanding our alternatives, RM’s alternatives and our
financial and commercial asks.
2. The context of a new agreement with RM remain consistent with our previous
statements to the Board, specifically:
« There are no realistic scenarios in which the Post Office and RM would not
have a significant ongoing future trading relationship. To our knowledge RM
has no viable, comprehensive NBA.
e However, it is expected that competitive pressures on RM and Post Office
will increase over the term of a new long term agreement.
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4. Our opening position includes the following key asks, in relative priority:
5. In addition we have approximately twenty ‘Tier 2’ asks covering detailed areas
such as segregation, industrial action contingencies and other contractual terms.
6. We recognise these are highly ambitious and securing all or some of them is highly
unlikely, however we are seeking to maximise our opening position in order to
better protect our absolute red lines o
IRRELEVANT I
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What does Royal Mail want from a new agreement and what outcome do we
expect?
1. RMG have stated their general requirements from a new agreement as;
2. We & expect this to translate into six key ask:
IRRELEVANT
Next steps?
1. Following the latest CEO to CEO meeting a series of formal meetings have been
diarised between Oct and Dec 2018 to discuss these key topics in depth.
2. The intention of these discussions is to establish detailed understanding of each
party’s positions and the zones of potential agreement.
3. The outcome, should there be sufficient common ground, will be the high level
outline shape of a deal, which both parties will take back to their respective
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Page 5 of 5
Boards for approval prior to moving to the next stage of negotiations where final
offers and commitments are made and legal drafting executed.
4. Should insufficient progress have been made, or the outline deal is not acceptable,
then we will recommend that second round of negotiations commence in January.
5. In addition we are continuing to develop our optionality and functionality in
preparation of a deal, specifically;
We will update the Board in November on how initial discussions are progressing
before bringing a formal recommendation on next steps in January.
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Annex 1. Financial projections of very ambitious asks
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POST OFFICE LIMITED DECISION PAPER
BOARD
PAGE 1 OF 6
Back Office Transformation
Authors: Michael Clements Sponsor: Alisdair Cameron Meeting date: 25 September 2018
Executive Summary
Context
Back Office Transformation comprises the following projects:
¢ Agent Remuneration - moving agent payment processes from HRSAP to CFS,
automating the process, improving data accuracy and visibility
e Cash Processing Transformation - moving cash processing from POLSAP to CWC
improving ordering, inventory management, vault and stock management and
forecasting processes
e POLSAP Process Migration - migrating the Post Office back office sales and finance
processes onto CFS, delivering settlement, billing and reporting from a single set of
data and providing a system based view of product profitability
The strategic importance of the transformation is defined in four key areas:
e Risk avoidance - To remove POLSAP before it stops working. Spare parts are
increasingly unavailable for our POLSAP system. If it fails, we cannot trade.
« Improvements in information and control - A single view of financial activity that will
give us one version of the truth; sales data that is accurate and reliable.
e Reduce OPEX - The bulk of the benefits from getting off POLSAP is an IT OPEX
reduction of £3m with £0.4m business simplification.
e Simplification of systems and processes - fewer systems and simpler processes will
reduce manual data processing in spreadsheets and improve controls.
In May, the Board approved a cumulative investment of £26.2m to enable the
programme to deliver a September Go Live or £27.9m for an October Go Live. In July
we confirmed that October was the first possible go-live date.
Questions addressed in this report
1) What has happened since the last update?
2) What Go Live date are we recommending?
3) What is our confidence level?
4) Can POLSAP last?
5) What does this mean for contingency plans?
6) What are the financial implications?
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Conclusions
1. The completed agents pay process is operating effectively. The Belfast cash
processing trial is stable and operating efficiently. All master data changes and
integration are live. We have completed a full dress-rehearsal of Go Live. POLSAP
Process Migration has almost completed it’s 3" integration test, run higher than x-
mas volumes through the sale-settle-bill process and were it a stand-a-lone
project, we would have been confident taking it live in October.
2. In Cash Processing, testing and correcting defects is taking longer than expected.
In Transtrack, system changes that we require (there is no off the shelf system
that meets our needs) are changed in the core product available to all customers.
While this means we avoid a bespoke solution with future upgrade complexity,
changes are slow. We are also continuing to create the Cash Forecasting solution.
We cannot therefore complete full integration testing or testing Forecasting at
volume by October, hence reviewed November and January go-live dates.
3. The additional cost of delaying go-live from November to January is £1.3m.
However, for November we would go-live having compromised testing at volume
for Cash Processing, with less well designed and delivered training in Supply Chain,
and with a less effective Cash Forecasting solution than we have today. In total,
November go-live is likely to require an additional £300m of cash outside the
vaults, stretching our borrowing facilities to their limits.
4. We are recommending go-live on 28" January, a further three-month delay. The
total cost of Phase 1 is now estimated at £37.3m, an increase of £9.4m on the
October value of £27.9m. The difference between November and January is
smaller than pro-rata because it covers the Christmas period and requires work to
be delayed post go-live.
5. Weare confident that January can be delivered and that the current infrastructure
will be robust for this period.
Input Sought
The Board is asked to approve the additional £9.4m drawdown.
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The Report
What has happened since last update?
1. In the last update we flagged three issues preventing a September Go-Live:
Horizon interfaces, CFS high volume performance and Cash Forecasting. Two
resolved as hoped:
¢ Horizon interfaces: All interfaces delivered to test broadly on their
revised schedule but the delay has affected Cash Processing and Cash
Forecasting.
e¢ CFS high-volume performance: Our original design was to operate a
monthly billing process. This has proved to be infeasible due to our data
volumes. We therefore developed a daily billing process and have
subjected that to both integration and volume testing. Having added two
more testing cycles, the Sale-Settle-Bill process is in the final stages of
testing at peak volumes and will now complete well before morning
settlement deadlines.
2. Unfortunately the 3 remains a challenge, and an accumulation of issues caused
a 4" challenge:
e Cash Forecasting: The logic behind the new TransTrack forecasting
module is widely used but significantly different to how we currently
operate. Whilst the technical delivery and new functionality is
comprehensive, there were some key areas where a late change was
needed. This required changes to the Horizon interfaces. As a result of this
delay, we are unable to confirm performance, or ensure we will not have
a branch cash out nor any increases in inventory. While we finalise the
solution, the project is concurrently building a “Plan B” forecasting tool
that replicates the current approach. Whilst Plan B does not add value over
our current forecasting solution this ensures we can allow the rest of the
project to go-live without degradation to our ability to manage Network
cash. This de-risks January go-live.
e Cash Processing: We have made significant progress with defect
resolution times in conjunction with TransTrack. However, as we want to
avoid a bespoke solution, this does mean we encounter delays as
TransTrack test the fixes with other clients. As noted the Horizon interfaces
were delivered 2 months later than originally planned (due to incorrect
requirements) and the forecasting components are as a result still
undergoing unit testing. The technical integration of Transtrack to our high
speed note counters (fundamental to all in-bound cash scripts) contained
critical defects resolved 8 weeks late and Transtrack to SAP integration
suffered due to late (but mandatory) design specification changes.
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3. Asa result of the delayed integration testing in Cash Processing (new target 28"
September), we do not have sufficient elapsed time to complete user acceptance
testing, prepare the training materials and deliver the training the full Supply
Chain organisation by 26'" October.
4. Whilst it is still possible to Go Live with POLSAP Process Migration, we have re-
confirmed that we cannot separate the projects. Whilst theoretically possible, it
would require a number of interim interfaces to ensure the ongoing systems
alignment. These would require substantial testing and mean a longer delay than
for a joint go-live.
What Go Live date are we recommending?
5. In the last update we were evaluating Go-Live dates from October to January.
October is no longer feasible. The steering committee recently reviewed detailed
options for November and January.
6. We are recommending Back Office Transformation Go Live in January. Across the
programme there was unanimous support for January rather than November,
reflecting more certainty on cash processing, a better cash forecasting solution,
better training for Supply Chain and a reduction in cash usage of some £300m at
peak.
November January
CAPEX £36.0m £37.3m
Benefit Impact £0.2m reduction for 2019 £0.2m reduction for 2019
Cash impact Additional £300m in Expected nil impact year on
borrowing year
Quality of training
PPM
Quality of training
Cash Processing
Process readiness
PPM
Process readiness
Cash Processing
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Delivered as planned to the
user base
Lower quality as training is
delivered before user testing
is completed.
Delivered during capacity
peak, will require 40 FTE
backfill
All processes ready to
implement. Workarounds in
Billing
All Cash Processing processes
ready
Backfill required to process
delayed collections = and
maintain Christmas output
after Go Live
Cash Forecasting uses
temporary and basic standard
replenishment process
Delivered as planned to the
user base
Higher quality as training is
delivered after user testing
ended.
Delivered in January quiet
period, may require 20 FTE
backfill
All processes
implement.
workarounds in Billing
All Cash Processing processes
ready
Backfill required to process
any collections before Go Live
Full Cash Forecasting process
either by TransTrack or
alternative Plan B solution
ready to
Fewer
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What is our confidence level?
7. The full Back Office Transformation Steering Committee unanimously agreed the
January Go Live option based on the following:
e We will implement a full-capability Cash Forecasting solution (either from
TransTrack or from the alternative “Plan B”) that we expect to have a minimal
impact on service or network funding.
¢ Volume testing and POLSAP comparison of the full Cash Forecasting solution
will be complete.
e Training materials for Cash Processing will be ready and we will have the
maximum possible attendance
e It has the lowest overall cash impact with the minimum of borrowing and
does not require us to delay cash collections during the Go Live period
In summary we are:
e Very confident of achieving January for Sales & Finance
e Very confident of achieving January for Cash Processing
e Hopeful of achieving January for improved Cash Forecasting, confident of a
solution similar to POLSAP in its outcome, and very confident of a workable
but not optimal solution that would allow the remainder of the project to Go-
Live whilst forecast testing continued.
Can POLSAP last until January?
8. We continually review the risks and support arrangements for POLSAP. We had a
hardware failure on 11** September. This was reasonably expected based on the
volume and age of equipment. It does not lead us to believe the failure rate is
accelerating. POLSAP is now running at marginally reduced resilience until the part
is swapped and the service is failed back in a planned change window. The failed
part will then be returned, internationally, for attempted repair. Our suppliers have
confirmed that we are not seeing any systematic deterioration.
What does this mean for contingency plans?
9. Contingency plans largely remain similar to those submitted in last month’s board
paper. DMW are returning to review our plans with business continuity, project
deployment and departmental heads over the coming month.
10. The most significant difference of moving to January is the change in approach to
cash collection processing around Go Live. We were (for October or November)
going to postpone collections for 3 days which had a temporary borrowing impact
of approximately £140m. For January, this is not required and we will work in the
first two weeks of 2019 to clear all collections from the network.
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11. We will deploy additional support staff between the Supply Chain and Finance
teams so that we have sufficient capacity to execute transaction corrections
between TransTrack and CFS as a direct learning from the Belfast Go Live.
Financial and other implications?
12. As a result of the plan updates and recommendations per commentary in this
Paper, an approval of an additional £9.4m of additional funding taking the
cumulative investment to £37.3m. The 2019 benefits will reduce by £0.2m as a
result of the delayed decommissioning of POLSAP. This £9.4m increase from
October is comprised of:
£m Description Comments
£2.8m — Cash Processing _ Introduction of Agile Forecasting workstream,, Arrow Plan
B Forecasting solution, Optimising Cash Forecasting, Cash
Processing Training (by Vaultex) and Transtrack additional
testing resources
£5.8m Programme Additional resource the programme has_ added
Resources predominately due to the accelerating September delivery
plans. Resources added for integration and performance
testing, business intelligence and change management.
Monthly run-rate will reduce from a £2m peak from
December to under £1.5m
£0.4m SAP Buyback Contractual obligations under discussion; Provision to buy
back order form 9 if termination / negotiation is on plan
£0.4m Infrastructure Delay costs from going live with new services opex.
and Application Downsizing of project environments
support Performance Testing uplift
£9.4m Total
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Appendix 1 (Waterfall sent separately)
GE Update
Board June
Board June
U
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Board June Current Current
Business Go Live ;
Project Case June 18 Go Live Go Live one Go Live I Go Live
y Budget (Sept 17 June 18 Sept 18 [DLA] Nov 18 I Jan 19
Approved Update)
Total 20.0 20.9 21.2 26.2 27.9 36.0 37.3
Annualised Direct Benefits
(£m) 3.5 3:9 3.1 B.1 3.1 2.9 2:9)
NPV (£m) (12.7) (13.4) G5.5) (16.7) (G75) (23.3) (24.1)
Payback 5.7 yrs 6.0 yrs 6.8 yrs 8.4 yrs 8.9 yrs 12.6 yrs I 13.0 yrs
Cost Movement (£m) 0.3 6.0 L7 8.2 9.4
NPV Movement 15.5% 7.6% 7.2% 30.3% 34.6%
Payback Movement 13.0% 23.5% 6.4% 41.8% 46.1%
Movement to Oct
DLA
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Appendix 2
Programme timelines
Apr-19
F Mar-19 I
Feb-19
{ Jun-18
Apr-18 } May-18
3seyiog
19599014 YE:
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POST OFFICE PAGE 1 OF 3
BOARD
Modern Slavery Act Statement
Author: Janene Mellor & Laurence O'Neill Sponsor: Mohinder Kang Meeting date: 25th September
Executive Summary
Context
The Modern Slavery Act 2015 (the Act) challenges slavery, domestic servitude, forced and
compulsory labour and human trafficking. Post Office is required to produce an annual slavery
and human trafficking statement (Statement) setting out what steps have been taken to
ensure its business and supply chains are slavery free. This paper attaches the second
Statement which documents progress on our previous year’s commitments and outlines the
actions that we commit to take in the year ahead.
Questions addressed in this paper
1.Why do we need a Statement?
2.What are the key points to note about our Statement?
3.What are the implications for the board and the business?
Conclusion
1. Post Office has undertaken due diligence on its business and supply chains to identify
any risk areas.
2. Post Office has prepared a new Statement for 2017/2018 in line with the Act. The
Statement must be published on Post Office’s website within 6 months of year end.
3. A steering group was appointed in January 2016 and is responsible for proposing
actions, creating relevant project plans and continuing to develop and monitor our
approach to the Act.
4. The steering group identified that the highest level of risk is within our Agency network.
We have already begun to take action to address this risk including amending our
contracts with Postmasters to require compliance with the Act and issuing Postmaster
guidelines.
5. The nature of the Act allows for Post Office to build a robust approach to tackling modern
slavery. The Act requires that a statement is published which records the steps taken
to tackle modern slavery in the previous financial year, although it is common practice
for organisations to publish its commitments to tackle modern slavery in the financial
year ahead.
6. Although the legal requirement is only to publish a statement, the desire to clearly show
the material commitment we are making to tackling modern slavery comes from the
scrutiny to which our statement will be subject from the public, the media and from
pressure groups.
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POST OFFICE PAGE 2 OF 3
Input Sought Input Received
The ARC are asked to approve the We consulted all members of the MSA
2017/2018 Statement and endorse the Steering Group which comprises of
proposed actions for the business to take representatives across functions including
forward in the 2018 /2019 financial year. Legal, Postmaster Contracts, Procurement,
Risk, Employee Relations and Learning and
Development.
The Report
Why do we need Modern Slavery Act Statement?
i.
The requirement to publish a Statement applies to “commercial organisations” which (a)
supply goods or services and (b) have a total turnover of not less than £36 million. It
will therefore not apply directly to Postmasters if their annual turnover is less than £36
million. As Postmasters are part of the Post Office supply chain Post Office must state
what steps it has taken to ensure that slavery and human trafficking is not taking place
in any of its supply chains or its business.
Post Office is required under s.54 of the Act to produce an annual slavery and human
trafficking statement listing the steps taken to ensure its business and supply chains are
slavery free. This paper attaches the second Statement (Appendix 1) which records what
steps we have taken in 2017/2018 and outlines the actions we commit to take in
2018/2019. The Statement must be approved by the Post Office Board and signed by a
Director.
The due diligence undertaken so far indicates that there is a potential risk of non-
compliance within our agency network. This is because there are a large number of
people employed by Postmasters (including multiple partners) who are not employees
of Post Office or POMS. They work directly for the Postmasters. We do not have
visibility on how they are engaged. We have already taken action to begin to address
this risk including reviewing our contracts with our Postmasters to require compliance
with the Act and raising awareness of their responsibility by communicating Postmaster
guidelines on Modern Slavery during December 2017.
What are the key points to note about our updated Modern Slavery Act Statement?
Our 2017/2018 statement records the progress we have made against those
commitments and lists our commitments to tackle modern slavery across POL and POI
for the financial year 2018/2019. The commitments were developed by the MSA Steering
Group which includes representatives from Legal, Postmaster Contracts, Procurement,
Risk, Employee Relations and Learning and Development. Our commitments are:
= Raise awareness of Modern Slavery across our supply base.
= Improve the due diligence assessment for onboarding new suppliers to our systems.
= Raise awareness of Modern Slavery across Post Office, its suppliers and within the
agency network.
= Educate field teams out in the agency network on spotting the signs of Modern
Slavery.
. Rigviewy our supply base and revise our supplier management processes.
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POST OFFICE PAGE 3 OF 3
2.In formulating our commitments for 2018/2019 we reviewed the commitments made by
other organisations in this area and looked at a variety of statements to ensure our
approach is consistent. By way of an example:
ACAS [for 2018/2019]
1. Continue to develop a staff awareness strategy for the Act and reporting mechanisms if
a case of slavery or human trafficking is suspected.
2. Develop measures (e.g. KPI, assurance) to evidence our commitment to the principles of
the Act.
3. Embed the Act into our Whistleblowing Policy and processes.
4. Incorporate the finding and guidance from the UKSBS and BEIS supplier assessment pilot
into our procurement process.
5. There are no significant costs identified in fulfilling our commitments for 2018-19.
What are the implications for the board and the business?
1. Aside from the statutory sanctions, one consequence that may result if a business fails
to comply or reports in its statement that it has taken no steps to ensure that slavery is
not taking place, is damage to the organisation's reputation and brand.
2. Provided our annual statement continues to show a material commitment to tackling
modern slavery, we should ensure that we minimise the risks of modern slavery occurring
within our business or supply chain and safeguard our reputation.
3. We are confident that the detail in our 2017/2018 statement recording our progress on
last year and our proposed actions for the financial year 2018/2019 are appropriate. We
will monitor developments, and keep the adequacy of the Statement under review.
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POST OFFICE PAGE 1
Appendix
1. Modern Slavery Statement 2017/2018
MODERN SLAVERY ACT TRANSPARENCY STATEMENT 2017/18
Post Office Limited (Post Office) & Post Office Management Services Limited (POMS).
This statement is made pursuant to section 54(1) of the Act. It sets out the steps taken by
Post Office & POMS during year ending 31%t March 2018 to prevent modern slavery and human
trafficking in its business and supply chains.
Post Office and POMS are committed to combating the risk of modern slavery or human
trafficking in our supply chain and business operations. We are committed to taking
appropriate steps to ensure that everyone who works for Post Office in any capacity, benefits
from a working environment in which their fundamental rights and freedoms are respected.
While this is only the second statement in which we report on our efforts to prevent modern
slavery in line with the requirements of the Act, we have focused on the rights and wellbeing
of the people who work for Post Office and for our suppliers for many years. Our statement
provides details of our policies, our approach and the actions we have taken in the 2017/18
financial year to strengthen our programme and commitment to respect and uphold people’s
fundamental rights and freedoms.
OUR BUSINESS AND SUPPLY CHAIN
Post Office is the UK’s largest retail network and the largest financial services chain in the UK.
We have provided services for more than 370 years and currently supply more than 170
products and services Post Office directly manages around 2% of the Network branches. The
remainder of the branches are managed on an agency basis by Postmasters and multiple
partners. We operate throughout the UK, however our supply chains connect with suppliers
with a global reach.
Banking services
Post Office banking services are provided in Post Office branches on behalf of the customers of
UK banks.
Postmasters
Postmasters can operate one or more branches. As agent’s they have control over how their
branches are run on a daily basis. All those working in an agency Post Office branch are
employed directly by the Postmaster. The Postmaster is self-employed and typically takes on a
Post Office as an adjunct to their own retail business.
Multiple partners
A large proportion of the agency part of our network is run by multiple partners - corporate
retail organisations who themselves have a multiple number of high street stores, some with
Post Offices.
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POST OFFICE PAGE 2
Trade Unions
In our directly managed branch network, we work closely with the Communications Workers
Union (CWU) and Unite (CMA) Communications Managers Association.
Third Party Suppliers
We also procure products and services from a wide range of suppliers, ranging from small and
medium enterprises to large multinationals, each one of which has its own supply chain. The
majority of the purchasing is controlled centrally by the Procurement team who also set the
Supplier Relationship Management standards to ensure our teams maintain a consistent
approach to supplier management across Post Office.
OUR BELIEFS AND PRINCIPLES
Respect for the dignity of the individual and the importance of each individual’s human rights
form the basis of the behaviours we expect in every workplace and are communicated through
our Code of Business Standards. We will not accept any form of discrimination, bullying or
harassment. We require all our managers to implement policies designed to ensure equality of
opportunity and inclusion for all Post Office employees.
OUR POLICIES
We operate a number of policies to ensure we are conducting business in an ethical and
transparent manner. These include:
CODE OF BUSINESS STANDARDS
We have a Code of Business Standards which underpins everything we do. The Code is
mandatory and extends to everyone employed by Post Office. It requires all of us to act
ethically and comply with legal requirements at all times, putting our principles into practice in
everything we do. The Code of Business Standards was updated during the 2017 financial year
to include references to Modern Slavery.
WHISTLEBLOWING
We operate a Whistleblowing Policy so that all employees know how to raise concerns
regarding wrongdoing or dangerous practices. The policy was updated during the 2017
financial year to include references to concerns about Modern Slavery.
There are a number of ways people can report any concerns regarding slavery or human
trafficking within Post Office, by either contacting the Whistleblowing Officer or via our
anonymous external confidential reporting service ‘Speak Up’ which is regularly communicated
to all employees, suppliers and contractors. This is overseen by our General Counsel
(Whistleblowing Officer). Every report submitted is assessed and investigated.
RECRUITMENT POLICY
Our recruitment policy sets out the overarching principles and controls to be followed and
applied to ensure that personnel resourcing is conducted in a fair, open and transparent
manner, including conducting eligibility to work in the UK checks for all employees.
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POST OFFICE PAGE 3
DUE DILLIGENCE PROCEDURES IN RELATION TO SLAVERY AND HUMAN
TRAFFICKING IN OUR BUSINESS AND SUPPLY CHAIN.
Post Office/POMS employs solely within the UK.
Our recruitment procedures ensure that all prospective employees are legally entitled to work
in the UK. All successful applicants must produce, on their first day, one of the following: their
original passport, driving license or birth certificate. Additionally, to comply with the Asylum
and Immigration Act 1996 requirements, if they are from a non-European Economic Area
(EEA) country, evidence of a right to reside and work in the UK must be produced.
We carry out reasonable and practical due diligence in the sourcing of goods and services and
ensuring that the Act's obligations form part of the procurement process. As part of this
process we have conducted a review of the criteria used by Post Office to evaluate whether
suppliers meet Post Office’s minimum tendering requirements. We have also reviewed our
standard form procurement contracts to ensure that they make explicit reference to the Act.
Additionally our supplier pre-qualification process requests information from potential suppliers
to assess their suitability as a supplier and provide evidence of their compliance with the Act,
as well as covering other areas of company information, policies and procedures. This enables
the procurement team to assist Business Units to identify and assess any potential risks
relating to the goods or services being procured.
IDENTIFYING, ASSESSING AND MANAGING RISK
WHERE ARE THE RISKS OF MODERN SLAVERY AT POST OFFICE/POMS
Post Office understands that our third party supply chains carry with it the risk of modern
slavery and human trafficking.
The due diligence we have undertaken so far indicates that there could be a risk of non-
compliance within our agency network as there are a large number of people employed by
Postmasters (including multiple partners) who are not employees of Post Office or POMS. They
work directly for the Postmasters. During 2017 we reviewed the Postmaster Contract of
Engagement and have written Guidelines to assist them in complying with MSA legislation.
These guidelines were issued December 2017.
GOVERNANCE
We have established a cross-functional steering group through which we develop and
coordinate our approach to addressing modern slavery risks within our operations and supply
chain. This group consists of expertise from the legal, procurement, compliance and
operational functions in Post Office.
TRAINING
We provide annual Compliance Awareness Training to all our employees and postmasters,
which is tailored to ensure an appropriate level of understanding of issues such as modern
slavery and the Act's requirements.
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POST OFFICE
WHAT DID WE DO THIS YEAR
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PAGE 4
Proposals from 2017 Statement
Progress on 2017 proposals
Update Postmaster selection and
appointment process to address MSA
requirements.
We reviewed the Postmaster contract and
believe it is robust enough to cover the Act.
We also supplemented the contract process
with a set of Guidelines for Postmasters.
Amend our standard form procurement
contracts.
We reviewed our standard form procurement
contracts and believe our ‘applicable laws’
clause covers POL for breaches of MSA. Our
PQQ process has also been amended to take
account of MSA and suppliers must confirm
that they comply with their obligations under
the MSA and provide a copy of their MSA
Statement.
Develop a communication plan to ensure our
suppliers, staff and agents are aware of Post
Office’s obligations in relation to Modern
Slavery and informing them about the
Modern Slavery Helpline.
We sent multiple communications regarding
Modern Slavery during 2017/18, including
communications to Postmasters.
The MSA is referenced in our Whistleblowing
Policy and was added to our Code of
Business Standards during 2017.
Review of audit and compliance, to develop a
relevant Training Plan.
A training plan remains under development.
This year, our commitments are focussed on
raising awareness. The Steering Group
anticipate the training requirement to
increase as we move towards 2019/20 as we
begin to build a suitable due diligence and
compliance capability.
We do however provide annual Compliance
Awareness Training to all our employees and
postmasters, which is tailored to ensure an
appropriate level of understanding of issues
such as modern slavery and on the
requirements of the Act.
WHAT COMMITMENTS ARE WE MAKING TO TACKLE MODERN SLAVERY IN THE
YEAR AHEAD
As part of our initiative to identify and mitigate risk throughout 2018/19 we are committed to:
agency network.
Improve the due diligence assessment for onboarding new suppliers to our systems
Review our supply base and revise our supplier management processes
Raise awareness of Modern Slavery across our supply base
Raise awareness of Modern Slavery across Post Office, its suppliers and within the
= Educate field teams out in the agency network on spotting signs of Modern Slavery.
Strictly Confidential
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POST OFFICE PAGE 5
REMEDIATION PROCESSES
If you have any concerns about the issues raised in this statement or if you think you have
identified signs of Modern Slavery then please contact us on the below contacts:
= Post Office’s Whistleblowing Officer: whistleblowing@postoffice.co.uk or by telephone
on: 07900 216851.
= The Government's Modern Slavery Helpline on 0800 0121 700.
We encourage any individual who has concerns about unethical behaviour in any part of our
business or operations to speak up and to do so without fear of retaliation. We will review all
instances of non-compliance, on a case-by-case basis and will implement appropriate remedial
action.
REVIEW
This statement shall be reviewed and published annually
Strictly Confidential
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POST OFFICE LIMITED PAGE 1 OF 2
BOARD
Post Office Limited Sealings
Author: Veronica Branton Sponsor: Jane MacLeod Meeting date: 25 September 2018
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
1697 to 1710 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 1697 to 1710 inclusive in the seal register
is hereby confirmed.
Strictly Confidential
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POST OFFICE LIMITED
Date Register of Sealings Company Number
18.09.2018 21554540
‘Seal Number Date of Persons Attesting Destination of
[File Ref. Authority I Description of Document To Document Document
1697 01/08/2018 31/07/2018 I Licence to Occupy - Post Office, 3 Crown Buildings, Billingham Jane Macleod, Company Secretary I Legal
1698 (01/08/2018 30/07/2018 I Sale of 134 Brent Street, London, Jane MacLeod, Company Secretary _I Legal
1699 (03/08/2018 01/08/2018 I "Sale of freehold - 16-18 East Street, liminster, TAT9 OAJ Jane MacLeod, Company Secretary I Legal
1700 20/08/2018 20/08/2018 — I Agreement for surrender relating to part ground floor, basement floor and I Jane MacLeod Company Secretary I Jean Reynolds
mezzanine floors, 7/8 St Martin's Place, London between Best Effort
Ventures Limited (Landlord) and Post Office Limited (Tenant).
7701 2008/2018 20/08/2018 I Deed of surrender and release relating to part ground floor, basement Jane MacLeod, Company Secretary I Jean Reynolds
floor and mezzanine floors, 7/8 St Martin's Place, London betwe en Best
Effort Ventures Limited (Landlord) and Post Office Limited (Ten ant).
GROUD FLOOR SURRENDER DEED.
7702 20/08/2018 20/08/2018 I Deed of surrender and release relating to part ground floor, basement Jane MacLeod, Company Secretary I Jean Reynolds
floor and mezzanine floors, 7/8 St Martin's Place, London betwe en Best
Effort Ventures Limited (Landlord) and Post Office Limited (Ten ant),
BASEMENT FLOOR SURRENDER DEED.
7703 2008/2018 20/08/2018 I Deed of variation relating to part ground floor, basement floor and Jane MacLeod, Company Secretary I Jean Reynolds
mezzanine floors, 7/8 St Martin's Place, London between Best Effort
Ventures Limited (Landlord) and Post Office Limited (Tenant).
7704 0470972078 04/09/2018 I Agreement for sale relating to 117-121 High Street, Bromsgrove, B61 8AA I Al Cameron, Group Chief Financial I Legal
Operating Officer
7705 0470972018 04/09/2018 I Transfer of whole of registered tities relating to 117-121 High Road, ‘Al Cameron, Chief Financial Legal
Bromsgrove, B61 8AA Operating Officer
7706 0470972018 04/09/2018 I Notice of an election to use an allernative apportionment relating t0 117- I Al Cameron, Chief Financial Legal
121 High Street, Bromsgrove, B61 8AA Operating Officer
1707 7170972018 17/09/2018 I Deed of release of dilapidations relating to Barry Crown Post Office (3-5 I Jane MacLeod, Company Secretary I Legal
Holton Road, Barry, Glamorgan, CF63 422)
7708 7170972018 11/09/2018 I Deed of surrender and release relating to a lease of premises known as I Jane MacLeod, Company Secretary I Legal
Great Dunmow Crown Post Office, High Street, Great Dunmow, CM6_1AL
7709 3/09/2018 13/09/2018 I Deed of surrender and release relating to a sub-underlease of premises I Jane MacLeod, Company Secretary _I Legal
known as Ground Floor, 377 Harrow Road, London, W9 3ND.
Seal x 2
7770 7370972018 73/09/2018 I Transfer of whole of registered lille relating to 377 Harrow Road, London, I Jane MacLeod, Company Secretary I Legal
w9 3ND
Register of Sealings
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Page 2
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POST OFFICE PAGE 1 OF 2
POST OFFICE BOARD
Performance Review - Health & Safety
Author: Martin Hopcroft Sponsor: Al Cameron Meeting date: 25" Sept 2018
Executive Summary
Context
Keeping our employees healthy and safe is fundamental to Post Office success. This is
reflected in the Post Office Board’s legal responsibilities and 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 across Post Office?
Conclusion
The prevention of accidents has improved materially year in year. However, we are
seeing a recent increase in robberies, especially around CViT in Liverpool and in ATM
rip-outs. Most worryingly we have seen two recent attacks on Post Offices with a
machete and a gun respectively. One was foiled with fogging technology.
There is a 47% reduction in accidents reported YTD to P5 (Aug) compared to 2017/18
(33 v 62) mainly due to a 69% decrease in Supply Chain (11 v 35). Accidents per 1000
employees have reduced by 55% with Supply Chain reducing to 13.5 from 42.9 (69%).
Lost time accidents have also reduced and the P5 YTD LTIFR is 0.143 compared to 0.303
in 2017/18. Total lost days are 68 compared to 276 in 17/18, a reduction of 75%.
The Supply Chain safety plan is progressing well with the introduction of safety
champions, safety forums and a review of local risk assessments and safe systems of
work. Further workshops are planned to support development and share best practice.
Additional Health & Safety training workshops have been provided to DMB and Supply
Chain Managers and a plan is being developed to provide similar training and support
to Network Operations and Retail support teams.
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POST OFFICE PAGE 2 OF 2
We have seen a reduction in road traffic accidents in line with the 41% fall in fleet size.
Support is being provided to teams adopting the mobile phone whilst driving policy
and online driver safety training. Advice and guidance to alleviate fatigue whilst
driving is being pulled together for our drivers,
CViT attacks have increased with 24 incidents occurring over the last rolling 12 months
compared to 15 during the previous 12 months. There was 1 incident in August with no
injury. A review meeting has been held with all parties across supply chain, physical,
intel and security operations to deal specifically with the increased risk to CViT in
Merseyside. Unfortunately there is little intelligence from Police, who believe that
numerous gangs are responsible. The Serious Crime Group NW Police are attending
Chester to address crew and management.
Whilst Post Office robberies have been lower over the most recent 12 mths at 117 (v
170), there has been a very recent spike (10 successful and 3 unsuccessful, 5 using
fire arms, 2 blades including a machete and 3 blunt instrument with one injury,
bruising and cuts to head) and ATM crime (there have been 3 very recent cases that
have used vehicle ram raids to access the ATMs). We are about to assess a business
case on rolling out additional fogging in branches. We have now introduced an ATM
risk model and early indications suggest a positive impact.
The overall risk for property statutory compliance risk assessments remains low at
96.95%.
External Fire Risk Assessments have been completed for 2018 and actions are in the
process of being closed out. The risk profile has reduced significantly when compared
with the number of identified actions reducing by 71%.
Input Sought
The Post Office Board are requested to note the current health safety performance
and content of this report.
Strictly Confidential Health & Safety Report Sept 2018
POST OFFICE
Appendix 1
The Report —- H&S Metrics
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PAGE 1 OF 2
P5 (August) 2018/19
Number of Employee Accidents - Monthly - Period 5
(Target to achieve a year on year reduction)
Directly Managed Branch
Accidents P5 YTD
15
10
a1 it bo
5 ihe
P9 P10 P11 P12
2016/17 2017/18 ™2018/19
There were 5 employee accidents in P5 18/19 compared to 11 in PS 17/18
DMBs - There has been a 17% reduction in DMB accidents to 19 YTD 2018/19.
Causation is due to stepping/striking objects. However, there has been a marked
reduction in lifting / handling related accidents and falls on the premises.
Supply Chain - There has been a marked reduction in Supply Chain accidents to
11 YTD 2018/19 from 35 in 17/18, a reduction in vehicle related accidents (non
RTA) and stepping/striking related accidents with a slight increase in
lifting/handling related incidents and injuries following attack. The H&S and L&D
teams are updating the H&S training modules, inc Manual handling for issue to
Supply Chain colleagues from Q3.
The Supply Chain Safety Plan is also progressing and 3 workshops have been
attended by Safety Champions to share best practice, lessons learnt and
promote safety culture. IOSH Managing Safely training courses are being
attended in Q2 and self-audit tools are being developed for champions to use to
support their local PiCs. A number of improvement opportunities have been
identified by the Champions eg tail lift and loading and unloading.
Overall, there have been 5 lost time accidents in POL in 2018/19, incurring a
total of 68 lost days, a 75% reduction when compared with 2017/18.
Days lost due to accident / 000 employees - Cumulative
P6
100.0
80.0
60.0
40.0
20.0
0.0
n/16
NEAR MISSES - A total of 6 in P5 (Aug). DMBs - Nil reported
Supply Chain - 6 near misses recorded in Aug. These are occurring in bullion
and coin sorting areas where we are using lifting equipment and moving cages.
Action taken: management action, H&S team have updated Vehicle Tail Lift
SSOW and all crew retrained, briefing to all Managers and staff at London CViT
and Swindon Stock Centre. Faulty items removed for repair by engineers.
eight? 2017/18 2018/19
25
20
15
10
5
0
Year to Date
16/17 22
17/18 23
18/19 19
Supply Chain
Accidents P5 YTD
40
35
30
25
20
15
10
Ld
0
Year to Date
16/17 21
/18 35
18/19 it
Road Risk
P5 18/19 — A total of 5 RTCs
Blameworthy - 2
There has been a 35% reduction in
blameworthy road traffic collisions in
18/19 compared to 17/18
Non Blameworthy - 3
Initiatives include:
- A new overarching Road Risk Policy
is being developed, with improved
training and compliance checks and
maintenance checks to cover
Commercial Fleet, Business Cars &
Personal Car use.
- Road Risk and H&S teams are
scoping products to alleviate fatigue
and improve journey planning.
- Online driver training has been
provided to employees who drive on
business with ongoing support from
the H&S BPs.
- Crash investigation courses have
been provided to ‘Transport
Managers and H&S BPs.
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Health & Safety Report Sept 2018
POST OFFICE
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PAGE 2 OF 2
LTIFR - Lost Time Incident Freq Rate
2.00
1.50
1.00
0.50
00 a a 5
PL P2 P3 Pa PS P6
“TIER OMB ——LTIER Supply Chain —=LTIFR Post Office ——==LTIFR Target
All Post Office - Employee
LTIFR P5 YTD
YTD P5 - 0.143
2017/18 out turn - 0.271
2018/19 target - 0.200
Benchmark ~- 0.300
Absence accidents/000 SiP:
1.02 PS YTD v 1.97 (17/18)
Post Office CViT Robberies — P4
There were 3 incidents reported in July v 1 in 2017/18 and there have been 24
incidents v 12 over previous 12 rolling months. Trend is being monitored closely.
There was no use of violence or injuries incurred. 1 used weapons v 1 in 2017/18.
Current mitigating activity:
* Ongoing concerns in relation to recent spike in incidents on Merseyside. A
number of Depot visits undertaken by Security Manager to discuss best
practise with crews, and overt CPOs conducted by Security team to better
protect and reassure crews in the area.
* Attendance at Operation Guardian CViT industry meeting in Liverpool to
engage with law enforcement about further mitigating actions to deter
criminality in this area
* New iBoxes to be deployed on high risk routes around Merseyside, with
facility to remotely detonate box (via Grapevine) if stolen.
* Security Manager arranged for Supply Chain managers to attend briefing
and demonstration by Met Police Flying Squad aimed at providing
reassurance as to both intelligence gathering work undertaken and
reactionary capabilities and strategy in event of CViT incidents.
Rolling CViT Incidents
PS P67 PBCPSPAOCPALSPA2 PLP
[[ Searrent Roling 12 Months ast Roling 2 Months I
Rolling Robbery Incidents
2s
20
as
10
PS PG) P7) PSPS PIO sPAL «PAZ PL PRPS
[/ Current Roling 12 Months m tast Rolling 2 Monthe
Supply Chain - Employee
LTIFR P5 YTD
YTD PS - 0.615
2017/18 out turn - 0.820
2018/19 target - 0.500
Benchmark 0.600 (BSIA update Q2)
Absence accidents/000 SiP
4.91 PS YTD v 6.13 (17/18)
Post Office (All branch types)
Robberies - last 6 months:
Feb ~ 12 incidents v 15 (16/17)
Mar - 9 incidents v 11 (16/17)
Apr ~ 6 incidents v 12 (17/18)
May ~ 7 incidents v 14 (17/18)
June - 8 incidents v 11 (17/18)
July ~ 6 incidents v 18 (17/18)
117 robberies current rolling 12 mths v
170 previous rolling 12 mths
P4 2018/19
Violence - 3 vs 1 last year
Injuries ~ 2 vs 0 last year
Weapons - 5 (1 firearms, 3 blades) vs
12 last year (6 firearms, 5 blades).
There were 11 injuries compared to 16
in previous 12 months.
- 53 Operation Torch unannounced
security audits/visits conducted by
Security Managers in period,
targeting branches primarily in high
risk areas.
- 13 DMB Security visits during period
with full toolkit undertaken, including
focus on ATM and SSK security and
compliance
- YTD the number of robbery incidents
involving a weapon has remained the
same at 84%.
- In P4 there was 2 injuries; one
incident involved PM being hit on the
back with a crow bar and one
incident involved the PM being
punched in the face. Neither resulted
in hospital attendance.
- The deployment of fogging and IP
cameras is aimed to reduce robberies
and the associated risks, as noted
zero injuries, where activated.
Strictly Confidential
Health & Safety Report Sept 2018
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POST OFFICE PAGE 1 OF 1
BOARD
Post Office Limited Board Meetings
Executive Summary
Context
The Directors are requested to note the future meetings dates scheduled in respect of
Post Office Limited Board meetings.
Input Sought
The Board is requested to note the future meeting dates.
The Report
2018/2019
Date I Time Notes
Tuesday 30 October 2018 11.45 - 16.30
Tuesday 27 November 2018 11.45 - 16.30
Tuesday 29 January 2019 11.45 - 16.30
Tuesday 26 March 2019 11.45 - 16.30
Tuesday 28 May 2019 11.45 - 16.30
Tuesday 25 June 2019 13.00 - 18.00 Away Day*
Wednesday 26 June 2019 08.30 - 16.00 Away Day*
Tuesday 30 July 2019 11.45 - 16.30
Tuesday 24 September 2019 11.45 - 16.30
Tuesday 29 October 2019 11.45 - 16.30
Tuesday 26 November 2019 11.45 - 16.30
* The away day will be moving to July
Strictly Confidential Board September 2018
UKGI00043690
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Draft Board Agenda for meeting on 30°" October 2018
Minutes of previous Board and Committee meetings 5 Board action from Jane Macleod Decision
including Status Report previous meeting
CEO Report 20 Standing item CEO For Noting
Financial Report 20 Standing item CFOO For Noting
UKGI Quarterly Report 20 Standing item Al Cameron Cem Oztoprak Approval
Retail Performance Report 30 Standing item Debbie Smith Cathy Mayor For Noting
Postmaster Litigation 10 Update Jane MacLeod For Noting
Conflicts of Interest Policy 5 For Noting Jane Macleod For Noting
Corporate Structures II 30 Decision Jane MacLeod Ben Foat/Jono Hill/David Decision
Gemmell
Belfast Exit Business Case 30 Reserved decision Rob Houghton clo Decision
Peregrine Proposals 30 Decision Owen Woodley Decision
Health and Safety 10 Standing item ‘Al Cameron For Noting
[ ATM and Cash Strategy 30 Standing tem Debbie Smith I Martin Kearsley For noting
[-Jrolding slot
Strictly Confidential