RMH(08)8TH
RMH08/114 - 132
ROYAL MAIL HOLDINGS plc
(Company no. 4074919)
Minutes of the meeting of the Board of Directors
held at 148 Old Street, London, on 11 September 2008
Present: Richard Handover
Non-Executive Director (Chairman of meeting)
Allan Leighton
Chairman (by telephone, for RMH08/114-126)
Andrew Carr-Locke
Non-Executive Director
Alan Cook
Managing Director, Post Office Ltd
Adam Crozier
Group Chief Executive (by telephone, for RMH08/114-119)
Ian Duncan
Group Finance Director
David Fish
Non-Executive Director
Mark Higson
Managing Director, Royal Mail Letters
Baroness Prosser
Non-Executive Director
Helen Weir
Non-Executive Director
In attendance:
Jonathan Evans
Company Secretary
Also present:
Rico Back
Chief Executive, GLS
Martin Gafsen
Group Property Director, for RMH08/119
Ray Huntzinger
Managing Director, iRed, for RMH08/123
David Belton
Project Manager, iRed, for RMH08/123
RMH08/114
CHAIR
OF
MEETING
(a)
The
Board
agreed that as Allan Leighton was unavoidably
unable to be present at the meeting, Richard Handover should
take the chair.
RMH08/115
DIRECTORS
(a)
The
Board
noted that Andrew Carr-Locke had been appointed
as a director of the Company with effect from 1 September
2008, and welcomed him to his first meeting;
(b)
the
Board
noted that David Fish’s term of appointment as
director of the Company ended on 30 September 2008. At
this his final meeting, Board members expressed their great
thanks for the immense contribution he had made to the
Board and the Company. The Board would miss in particular
his feisty challenges, grounded in experience and
commonsense and always driven by doing the right thing for
customers. The Board wished him well for the future.
RMH08/116
FINANCE DIRECTOR’S REPORT – RMH(08)70
(a)
The
Board
noted Ian Duncan’s report on performance in
period 4 of 2008/09, and his presentation of the flash results
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for period 5;
(b)
the year-to-date results at the end of period 5 showed that
operating profit before exceptional items was £61million,
which was £32million adverse to budget and £63million
favourable to the prior year;
(c)
in period 5, Letters operating profit had outturned £8million
ahead of budget, mainly the result of a strong revenue
performance. However the revenue position had been
impacted favourably by the August bank holiday: this was
expected to reverse in period 6 with the underlying trend
remaining as had been reported in previous periods;
(d)
the full-year forecast was still to meet the budgeted
operational profit before exceptional items of £275million.
While the Letters business was suffering further revenue
decline in unpredictable market conditions, and experiencing
slower than expected benefits from changes in working
practices, management believed the Group budget was still
attainable through a combination of cost reductions and the
benefit of not having incurred compensation penalties;
(e)
the Letters business itself was forecast to achieve its full-year
target of £39million, with forecast adverse movements in
revenue of £100m and in energy and operational costs of
£38million offset by overhead and functional cost reductions of
£60million, together with the beneficial effects of £43million
from the pension charge and £35million from the favourable
outcome of the Postcomm QoS compensation decision;
(f)
GLS was trading in line with budget, and the full-year forecast
was for it to continue to do so in € terms, with a £2million
currency gain. Parcelforce and POL revenue was down
compared to budget, but this was more than offset by cost of
sales and overhead reductions, leading to a forecast net
benefit of £4million. The forecast for Central units was a
shortfall of £6million, mainly due to slippage in iRed’s
business plan;
(g)
in subsequent discussion, the Board wished to understand the
robustness of the forecast given the uncertain economic
ACTION
circumstances in which the Group was operating, and in
Ian Duncan
particular requested to see the range of possible responses to
a further substantial fall in Letters revenue. Ian Duncan
undertook to return to the Board at the following meeting with
an assessment of this;
(h)
Ian Duncan referred to the discussions he was holding with
representatives of the Royal Mail Pension Plan Trustee about
further de-risking of their investment strategy. These
discussions covered a speedier implementation of swap
overlays to protect against inflation volatility, and a further
reduction in equities to below 50% of total assets. The Board
noted this report.
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RMH08/117
DRAFT LETTERS BUSINESS STRATEGIC PLAN –
RMH(08)75
(a)
The
Board
noted Mark Higson’s paper, which contained a
summary of the draft strategic plan for the Letters business.
The draft plan was to be submitted to Postcomm on 15
September in accordance with their Price Control Review
timetable, and it would be made clear to Postcomm that the
draft had not yet received the Board’s approval;
(b)
the paper highlighted the main proposed changes from the
earlier strategic plan approved in April 2008. Directors were
asked to give any comments on the draft summary to Mark
ACTION
Higson or Ian Duncan before the October Board meeting, at
All
which the draft plan would be submitted for full approval.
RMH08/118
INDEPENDENT REVIEW OF THE POSTAL SECTOR
(a)
Adam Crozier updated the Board on the Review. A draft of
the final Review report was expected to be made available for
comment in a few weeks’ time.
RMH08/119
STRATEGIC REVIEW OF THE ADMINISTRATIVE ESTATE
(PROJECT NOBLE) – RMH(08)72
DISCLOSE
(a)
The
Board
noted Adam Crozier’s paper, and Martin Gafsen’s
accompanying presentation;
(b)
the administrative estate had suffered from a lack of
investment over many years, and more recent organisational
changes had resulted in poor space utilisation;
(c)
a strategy had been developed with the aim of providing
single site accommodation for each of POL HQ and Group
HQ, enabling better ways of working, improved
communications and facilitating cultural change. Improved
space utilisation would be targeted by optimising the
accommodation footprint through consolidation, relocation and
external letting of spare capacity, with flexibility to respond
easily to future changes and to allow value realisation at the
appropriate time. The overall objective would be to minimise
additional costs against a ‘Stay Where We Are’ option (which
itself assumed a level of refurbishment cost given the poor
state of the current office premises;
(d)
the main elements of the proposal were to vacate 80 and 130
Old Street, to refurbish 148 Old Street to form a new head
office for POL and to contain RM Wholesale and iRed, and to
acquire a new building for Group head office. Consolidation
would also take place in Chesterfield and Milton Keynes;
(e)
in discussion the Board recognised the need for a
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rationalisation of administrative accommodation, but raised a
number of queries and challenges:
[Information Removed]
• whether space optimisation could be achieved by more
extensive use of open plan working;
• whether the new Group head office could be acquired for
no incremental cost over and above that of staying in 148
Old Street;
[Information Removed]
(f)
in conclusion the Board supported the overall aim of the
review, but asked for the detailed proposals to be re-
considered in the light of the Board’s challenges.
RMH08/120
MINUTES OF PREVIOUS MEETING RMH(08)7TH
(a)
The
Board
approved the minutes of the meeting held on 8 July
2008.
RMH08/121
MATTERS ARISING – RMH(08)69
(a) The
Board
noted the status report;
(b)
POL Direct (RMH08/88(e)): Alan Cook reported that work
was continuing on the POL Direct strategy, which would return
to the Board in due course. The challenge was to devise a
way of introducing it within POL business plan limitations, to
which end innovative means of funding the strategy were
being explored;
(c)
GLS expansion (RMH08/103(g)): Rico Back reported that
since the July awayday, when this issue had been raised,
GLS was alert to the possibility of having a presence in India
and would continue to look for opportunities;
(d)
RML revenue (RMH08/104(e)): the Board supported the
ACTION
proposed approach to Christmas 2008, and requested Mark
Mark Higson
Higson to report to the November board on the Letters
business’ readiness for Christmas;
(e)
Financial reports (RMH08/104(f)): the Board noted that the
monthly reporting pack now contained reports on the impact of
ACTION
exchange rates on results, and requested that this be carried
Ian Duncan
into the monthly flash results report.
RMH08/122
OTHER MINUTES
(a) The
Board
noted the minutes of the meetings of:
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• the Group Executive Team on 17 July 2008
• Pensions Sub-Committee on 7 August 2008
• Post Office Ltd Board on 21 July 2008.
RMH08/123
iRED PARTNERSHIP
(a)
Ray Huntzinger gave a presentation to explain to the Board
iRed’s customer offer, its potential attractiveness to
businesses, and its significance to Royal Mail;
(b)
[Information Removed]
(c)
the Board thanked Ray Huntzinger for his presentation, and
looked forward to seeing reports of revenue growth in the near
future.
RMH08/124
CHAIRMAN’S BUSINESS
(a)
The Chairman reported that the Government was beginning
the process to find a successor for him when he stands down
from the Board in March 2009. An advertisement for the
Chairman position was due to appear in
The Sunday Times on 21 September.
RMH08/125
REPORTS FROM CHAIRS OF BOARD COMMITTEES
(a)
Nomination Committee: Richard Handover reported that
interviews were due to take place later that day with four NED
candidates, and others would follow later. He was hopeful
that there would be at least one candidate of sufficient calibre
to join the Board. Meanwhile the search for a Group HR
Director was continuing;
(b)
[Information Removed]
(c)
Remuneration Committee: David Fish reported that he had
been asked to meet officials from the Treasury to discuss
outstanding issues with the bonus scheme and executive pay
proposals. The meeting was scheduled to take place on 29
September;
(d)
Audit and Risk Committee: Helen Weir reported on the
business conducted at the Committee meeting held on 3
September 2008. The main items discussed were:
• tax team changes: controls had improved, but there were
still some appointments to make to complete the team;
• POL financial services compliance: a worrying report had
been received which highlighted some potential
vulnerability. The Committee would be pursuing this
further at the next meeting, which Alan Cook had been
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invited to attend. The Committee had concluded more
generally that it would be useful for each business unit to
attend the Committee periodically to discuss any control
issue concerns, and this was being arranged;
• Internal Audit team performance: this had been formally
reviewed by the Committee, management and the external
auditors. There was a general consensus that
performance was positive;
• Committee effectiveness: the Committee had conducted
its annual assessment of its own effectiveness against the
Combined Code’s requirements, with the results showing
a high degree of compliance The Committee had been
concerned that despite succession planning in the
Company having been raised a number of times at the
Board as a key risk area, there had been no visible sign of
progress;
• Interim statement 2008/09: the Committee had endorsed
the approach proposed;
• External auditors: the Committee was satisfied with the
survey of Ernst and Young’s performance, and had agreed
their audit fee.
• GLS internal audits: the Committee had been pleased to
see the progress being made under the new GLS audit
manager, who would be invited to attend the Committee
periodically to report on the audit programme and the key
themes emerging from it;
• IT control environment: Robin Dargue had presented an
update, and there were clear signs of significant
improvement in the areas of weakness previously of
concern to the Committee;
• Tracked+: Mark Higson had explained to the Committee
the lessons learned from the need to reauthorise this
business case, which he felt would be valuable for the
authorisation and implementation of future projects in the
Letters business;
• Directors’ expenses: the Committee had conducted its
annual review, and found the position to be satisfactory;
• GLS Finance Director reporting lines: there was still an
outstanding point which would be considered by the GLS
audit committee about the creation of a role in GLS for
someone to have a roving oversight of performance and
financial control issues across the GLS businesses;
(e)
David Fish recommended that the Committee commissioned
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some activity to test the responsiveness and resilience of the
ACTION
Company against its major risks. Ian Duncan undertook to
Ian Duncan
follow up this suggestion and report back to the Audit and Risk
Committee;
(f)
Helen Weir reported that she had been in correspondence
with the Chief Executive of Postcomm about alleged shortfalls
in Royal Mail’s handling of confidential information shared with
the Company by Postcomm. The accusations, largely
unfounded, had been responded to, and the exchange of
correspondence was shared with the Board. It was likely that
the matter would now be considered by Postcomm to have
reached a conclusion.
RMH08/126
EXECUTIVE REPORTS
(a) The
Board
noted the reports;
(b)
Royal Mail Letters: Mark Higson reported that there had been
three fatal third party road traffic accidents in the period. No
action was being taken against the Royal Mail drivers;
(c) 1st class quality of service in period 5 had exceeded the target,
with performance at 93.5%;
(d)
the proposed closure of Liverpool mail centre had been
announced, with predictable adverse reaction from local
politicians and union representatives. An alternative site for a
mail centre in Liverpool had been proposed locally, and this
was being examined;
(e)
the industrial action climate was fractious, with many sporadic
incidents, opposition to the use of PDAs and the threat of a
national ballot. Management was maintaining a consistent
robust position;
(f)
GLS: Rico Back reported that in period 4 the GLS Group
revenues were €154.9million and EbitA €12.1million
representing an EbitA margin of 7.8%. The EbitA of
€12.1million was €1.8million higher than the prior year and
broadly in line with budget. Strong performances had again
been reported by GLS Germany and GLS Poland. The GLS
France EbitA was €0.9million ahead of the prior year and
marginally down on budget. The full year EbitA forecast
remained in line with the GLS Group budget of €180.1million.
Economic conditions across Europe, particularly in the
Benelux region, were showing signs of weakness. Volume
growth to date had been maintained, but due to cost inflation
in the wider economy, margins may come under pressure;
(g)
Post Office Ltd: Alan Cook reported that PO
Essentials had
been launched in Hastings - a “cut-down” low-cost Post Office
outlet running on a small physical footprint designed to reduce
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dependency on the Social Network Payment;
(h)
[Information Removed]
(i)
[Information Removed]
(j)
the Board asked for the team leading Network Change to be
congratulated on their work, having managed to make a very
demanding programme run to time.
RMH08/127
CAMELOT CONTRACT RENEWAL – RMH(08)71
(a)
The
Board
noted Alan Cook’s paper, and agreed to the
signing of a new contract with Camelot for the sale of lottery
tickets and issuing prize payments, on the terms set out in the
paper.
RMH08/128
CORPORATE FINANCE REPORT: QUARTER 1 –
RMH(08)73
(a)
The
Board
noted the paper.
RMH08/129
REGULATION REPORT – RMH(08)74
(a)
The
Board
noted the paper.
RMH08/130
COMPANY SECRETARY’S REPORT – RMH(08)76
(a)
The
Board
noted the report.
RMH08/131
OTHER BUSINESS
(a)
Committee membership: Richard Handover referred to the
need to review the membership of the Board’s committees in
the light of NED changes. The Board noted that:
• David Fish would cease to be Chairman of the
Remuneration Committee and member of the Nomination
Committee on 30 September 2008;
agreed that:
• Andrew Carr-Locke would become a member of the Audit
and Risk Committee with effect from 1 September 2008;
and further agreed, as temporary measures pending a review
of committee membership on the appointment of new non-
executive directors, that:
• Richard Handover would chair the Remuneration
Committee;
• Margaret Prosser would chair the Nomination Committee;
• Andrew Carr-Locke would join Richard Handover and
RYLML\0133\Documents\Minutes 11 Sept 08 (18.09.09)\7792278.1
Margaret Prosser as a member of the Remuneration and
Nomination Committees;
• these appointments would take effect on 1 October 2008.
RMH08/132
CLOSE
(a)
In the absence of any further business, the Chairman closed
the meeting. The next scheduled meeting of the Board was
on 8 October 2008, at 148 Old Street, London.
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