UKGI00045852
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Shareholder
Executive
HM Government Commercial — In Confidence
Minutes of Shareholder Executive Board
Monday 7 March 2012 at 14.30
Members Patrick O’Sullivan (Chair) Attendees: Oliver Griffiths (Item 5)
present: Claudia Arney Rachel James (Items 2 and 3)
Gerry Grimstone Roger Lowe (Item 4)
Peter Schofield
Tony Watson
Stephen Lovegrove
Anthony Odgers Secretary: Deeya Sawhney
Mark Russell
Susannah Storey
Apologies: Lord Carter
Agenda Action point Action officer I Due date
Item
2 Bring thoughts on Private Investment I Anthony July 2012
for PDG to the Board. Odgers
6 Circulate example of Investment I Anthony May 2012
Review Odgers
7 Arrange meetings with Board I Deeya May 2012
members and Patrick O’Sullivan Sawhney
Agenda I Action point Action Due Status
Item officer date
2 Bring thoughts on Private Investment for I Anthony July Pending
PDG to the Board. Odgers 2012
6 Circulate examples of Investment I Anthony May Done
Reviews Odgers 2012
7 Arrange meetings with Board I Deeya May Done
members and Patrick O'Sullivan Sawhney I 2012
Item 1 Apologies for absence, Chair’s welcome and introduction,
minutes from last meeting, declarations of interest
1.1 Patrick O’Sullivan introduced himself to the Board, adding he had obtained a
very good early impression of ShEx and hoped he could add value by
advising Stephen and ShEx colleagues. The Board noted that apologies for
absence were received from Lord Carter, and that Susannah Storey had now
joined the Board as a member. The minutes of the previous meeting were
accepted and there were no new declarations of interest from Board
members. Patrick informed the Board that he would step out if there were
any discussions on the Royal Mail side relating to Bank of Ireland, as he was
Deputy Governor.
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UKGI00045852
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Shareholder
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HM Government Commercial — In Confidence
Minutes of Shareholder Executive Board
1.2 Claudia asked if the Cabinet Office Executive Director had been appointed
yet. Stephen answered that this position had now been split into two roles
and two people have been appointed.
Item 2 Chief Executive’s Report
2.1 Stephen went through his Chief Executive’s report, noting that the workload
was reasonably stable in ShEx at the moment. The new ShEx Minister,
Norman Lamb, is particularly interested in Royal Mail and Employee
Ownership and has been complimentary of the work of ShEx, mentioning
ShEx positively at a recent event.
2.2 Regarding the Corporate Finance Practice (CFP), ShEx continued to be
involved on the sidelines of MyCSP. Mark added that CFP work was currently
focused on GIB, continuing work around Airbus and Southern Cross, as well
as new work around Four Seasons which was currently undergoing
refinancing. CFP have not been as involved as expected with work regarding
companies in distress.
2.3. Work on Student Loans continues and the ONS have offered a relatively
positive response to removal of the interest rate cap. A paper updating
PEX(A) Ministers on progress is due in April. Board members discussed the
remaining liabilities for government from the derivative for sales going
forward, testing assumptions with rating associations and the model for sales
going forward.
2.4 Good progress has been made regarding Urenco, UK Government's position
has been presented to Dutch and German shareholders and we are awaiting
their responses; these are expected at the end of the month. Urenco are
currently going through the process of appointing a new CFO as the current
CFO had been in a serious accident and was still in hospital.
2.5 Regarding PDG, the Terms of Reference for PDG and DSB were in the write-
round process and we were in the process of recruiting a PDG Board Chair
and pursuing efficiencies and cross asset working. ShEx are currently
considering how to inject private capital into the entities and will come back to
the Board with thoughts on Private Investment for PDG
2.6 On NATS, we are currently awaiting Ministerial decisions on whether to sell
Government's stake, valued at £150m — 200m. This needs to be considered
with Government's wider aviation strategy.
2.7. Rachel James joined to update the Board on BNFL. Government is involved
in a complicated legal matter with regard to BNFL and is currently seeking
expert advice from Clyde’s. ShEx are monitoring the situation closely.
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Shareholder
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HM Government Commercial — In Confidence
Minutes of Shareholder Executive Board
2.8 Tony asked about staffing in ShEx. Stephen mentioned that ShEx were in the
process of recruiting 8/9 new people but the situation was stable at the
moment. Despite the public sector pay freeze and complicated recruitment
process, we have been getting a lot of good candidates. Peter noted that
there may be pressure from BIS centre in the future to find savings through
headcount reduction and ShEx should be wary as their budget was no longer
hypothecated.
Action
e Bring thoughts on Private Investment for PDG to the Board before Summer.
Item 3 Executive Remuneration
3.1. Stephen asked the Board to note there was increased focused on executive
remuneration which could have an effect on work in ShEx; therefore, ShEx
has come up with its position on executive remuneration issues. These
include the importance of performance related pay and monitoring the
implementation of pay agreements. A number of stakeholders were interested
in pay decisions, including BIS Ministers, CST and BIS Committees.
3.2. Claudia mentioned an upcoming Select Committee on Business and Public
Appointments which it might be useful for ShEx to feed into. Stephen added
that he and Anthony sat on SROC, which was the Committee that took
decisions on pay within BIS.
3.3 Board members noted that it was a well written paper, commenting that the
public appointment process was complicated and ruled people out of the
talent pool and this, added to the pay discount and little support from
politicians, made a very difficult position. Patrick asked if pay packages were
compared across Government. Stephen answered that they were not but they
are benchmarked and are considered on a case by case basis.
Item 4 Royal Mail
4.1 Roger Lowe joined the meeting to update the Board on Royal Mail.
Government, from 1 April 2012, will take on liability for historic pensions and
ShEx will manage the sale of assets £28bn, leaving Royal Mail with £2bn of
liabilities.
4.2. The new regulatory framework will come into effect on 27 March 2012; this
will give the business more commercial flexibility. In terms of a transaction,
we need the new regulatory framework to bed in and the modernisation
programme to continue; therefore, we would look to commence a transaction
in March 2013 at the earliest. Royal Mail management would prefer to go
down an IPO route and would like to do a deal a soon as possible. Susannah
added that it is now up to ShEx to manage various stakeholders and handle
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Minutes of Shareholder Executive Board
tactics, adding the Minister is very keen to see employee share ownership.
Peter added that we needed to remain open to all types of transaction; a PE
style sale may be best for proceeds and therefore need to manage
relationships with Royal Mail management carefully.
4.3 Gerry asked about asset transfer and the decision making process around
these asset sales. Mark said they were putting together a ‘bible’ to have as
consistent approach as possible.
Item 5 Green Investment Bank
5.1. Oliver Griffiths joined the meeting to update the Board on GIB since the last
Board meeting. GIB is currently taking up quite a lot of senior management
time as there are major reputational and financial consequences for ShEx
and the Department. Mark said the key thing was getting investment team
together; there are currently 25 people working on GIB (including from ShEx)
and 16 people have been hired. An announcement on location will be made
shortly; 32 cities applied with London scoring highest and Edinburgh next.
The HQ will be in Edinburgh, with the transaction and project team will be
based in London. The first big investment is expected to be in the North
West. Oliver added they may be some waste investments in London. Also,
the Chair has been delayed for a week. The State Aid process is going well
and we will be notified in the next few weeks.
5.2 Board members discussed reputational consequences regarding investment
choices, the types of projects that GIB might invest in and_ political
expectations.
Item 6 Portfolio Unit Development
6.1. Anthony updated the Board on Portfolio Unit development, focusing on the
investment review process. All investment reviews will be completed by the
end of the year and the quarterly investment review process has commenced.
Investment reviews have focused on the strategy of the business, the
business plan, management and direction. Overall, the process has been
very helpful and some good ideas have been generated.
6.2 Tony asked about ShEx resource and adding assets to the portfolio. Stephen
asked that some things have come out of the ShEx portfolio and that there
may be large companies formed through government activities in the future
which may end up sitting in ShEx; however, at present the current portfolio is
manageable.
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@ Shareholder
Executive
HM Government Commercial — In Confidence
Minutes of Shareholder Executive Board
Action
¢ Circulate Investment Review example
Item 7 Any other business
7.1. Patrick noted that it was Peter’s last Board meeting and thanked him for his
significant contribution to ShEx.
Deeya Sawhney
ShEx Board Secretary
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