GD 2018/0087

ISLE OF MAN 1ST £1.00 THORNTON AND BREGAZZI 2018 THORNTON AND BREGAZZI 2018

ISLE OF MAN ROW THORNTON AND BREGAZZI 2018

Strategic Business Case 2017-2022

REF-V5 - TO BE SUBMITTED WITH PAPER DEC 18 Who we are Our Mission: “To provide value added postal, distribution and digital services for our customers and make a positive contribution to the Manx economy.”

Our Vision: “Working together to protect the core business, growing profitably and diversifying selectively to the benefit of the Manx economy.”

Our Values: • Put our customers first, treating them with respect • Build on our trusted status • Conduct our business with integrity • Protect our customers’ information • Take responsibility for our actions • Treat each other with fairness and respect • Drive innovation and creativity • Succeed together Key Stakeholders:

STAKEHOLDER OUR COMMITMENT Our Employees Our people are our most valuable asset and are crucial to the effective delivery of our services Our Customers Our trusted services link people and business worldwide allowing customers to take advantage of our range of physical and digital services that support resident and business service needs Government We provide letters and small package delivery services under the universal service obligation. We complement this with commercial services that traditionally have ensured we remain a self-funding Statutory Board Private Sector We partner with the private sector, delivering services to customers in a commercially viable way Strategic We work with strategic partners (key suppliers, other small postal authorities etc) leveraging Partnerships knowledge, experience and skills to innovate and protect the quality of our service, competing on a fair basis Unions We work with the trade unions, maintain and build collaborative relationships with them to ensure their members’ views are represented Post Offices Sustain viable community services in the areas of the retail network and universal services obligation in a customer focussed, efficient manner

iompost.com 2 Our strategies and key objectives: Strategy 1 Work together Objectives; • To develop a modern, engaged and flexible workforce, attracting, developing and rewarding talent • Continue to build and maintain strong stakeholder relationships • Live our values, promoting innovation and a commercial approach

Strategy 2 Defend the core business Objectives; • Sustained viable community services in the areas of the retail network and universal services obligation • Use technology, data and new ways of working to improve service, working conditions and service affordability • Continue to be customer value focused, secure and compliant

Strategy 3 Diversify selectively and grow profitably, to return the business to a sustainable profit, supporting the local economy and reinvesting into the business Objectives; • Understand customer and market needs and priorities • Develop current and new profitable products and services • Develop digital solutions and services to protect and grow our customer base

Programme for Government Theme and policy statements alignment to which our strategy responds:

Theme Policy statement Responsible • Demonstrate sustainable public finances with clear recognition of financial targets that Island support Government priorities • Make access to our services more focussed around the needs of our customers • Continue to transform Government Services through the use of digital technology • Deliver against our commitment to reduce carbon emissions Enterprise and • Create an environment that allows businesses to thrive and flourish Opportunity • Maintain our reputation at the forefront of innovation and emerging technologies and Island respond quickly to new business models Inclusive and • We will work together with local authorities and other partners to deliver the right Caring Island services in the right place at the right time, making sure national priorities are funded accordingly

iompost.com 3 Contents Strategic Business Case 2017-2022

1. Executive Summary 5 7. Integrated Mailing Solutions 2. Overview 6 7.1 Overview 20 7.2 Dimensions 20 3. Current Structure 6 7.3 Reasons for change 20 4. Corporate Division 7.4 Work together 21 4.1 Overview 7 7.5 Defend the core business 21 4.2 Dimensions 7 7.6 Diversify selectively and grow 21 4.3 Reasons for change 7 profitably 4.4 Working together 8 8. Stamps & Coins 4.5 Defend the core business 9 8.1 Overview 22 4.6 Diversify selectively and grow 9 8.2 Dimensions 22 profitably 8.3 Reasons for change 22 5. Mails Division 8.4 Work together 23 5.1 Overview 10 8.5 Defend the core business 23 5.2 Dimensions 10 8.6 Diversify selectively and grow 23 5.3 Reasons for change 10 profitably 5.4 Work together 13 5.5 Defend the core business 14 Diversify selectively and grow 5.6 15 profitably 6. Retail Division 6.1 Overview 16 6.2 Dimensions 16 6.3 Reasons for change 16 6.4 Work together 18 6.5 Defend the core business 18 6.6 Diversify selectively and grow 19 profitably

iompost.com 4 1. Executive Summary

This strategy is required to sustain the business in the The postal industry is long term as a modern, self-funding Post Office fit for the future and minimise the risk for a subsidy from rapidly changing - the Government. If delivered, this strategy sees the business’s finances digital era is the game turnaround from a loss to a small profit over the five year period, retaining our position as a net contributor changer in the services to the public purse. It has been developed in line with our mission, vision and business objectives we provide. and contributes to a number of key themes for the ‘Programme for Government’ and ‘SAVE’ initiatives.

Our universal service obligations of letter mail and retail Corporatisation of the Post Office has been debated network service transactions continue to decline as since 2003 and the Board believe a change in the business and retail communications and transactions business’s corporate status is needed to future-proof move online. the business in the long term. However, the Board feel the debate should be postponed for the foreseeable There is an increasing risk that , our main future in order to allow the business to focus on trading partner for mail to and from the Island, will look delivering its strategy. to change the pricing structure of our commercial agreement and seek to renegotiate the fees we Key strategies include: receive for non-universal service obligation (first or second class) mail as they seek to address profitability • A review of the Post Office Network to ensure it challenges. This would have a significant financial impact provides a viable and affordable service in the future on our income and a reduction in up to a third of our against the backdrop of falling transactions mail volumes. Negotiations are ongoing. (average -7% per annum)

The current financial year 2017/18 has seen a • Review and modernise collection and delivery material drop in commercial revenues as the large local service operations to optimise resources using corporates, mainly banks and insurance companies, technology and modern working practices have reduced in number on the Island. Those remaining seek to reduce costs by moving work off-Island to • Introducing a pricing strategy for letter mail to larger print houses. This revenue is no longer sufficient protect the first class service to ensure the overall profitability of the business without material change. • Review our 6-day letter delivery service in line with reducing customer demand (average -7% Further diversification into new products and services, per annum) but maintain a 6-day delivery service for as approved by Tynwald in 2006, has not developed parcels and other time sensitive items with sufficient pace to replace the overall decline. With further one-off costs in respect of pension • Increase contracted parcel last mile deliveries contributions and building revaluations compounding the sales decline, IOM Post Office anticipates making a • UK sales presence to increase our off-Island net loss in 2017/18. customer base and UK partnerships

This year the new Board and Executive Team have • Increase the pace of introduction of our new reviewed the business’s strategy and have agreed services. E.g. MiCard, (Hybrid) Smart Delivery, strategic changes to more accurately respond to our scanning, more/new direct mail customers current challenges. • A review of terms and conditions, employment practices and job evaluation

• Changes to our pension scheme to ensure it is affordable and sustainable for the future

iompost.com 5 2. Overview Isle of Man Post Office (IOMPO) is a self-funding The commercial services IOMPO offers today compete Statutory Board of Tynwald providing public postal fairly with the commercial sector and are not cross services. At the turn of the century, mail volumes subsidised. This includes the delivery of parcels - a started to decline as individuals and businesses started competitive, price sensitive market and therefore the to take advantage of new quicker and cheaper digital increase in online shopping has only been a small communications available to them. benefit to IOMPO, with income not replacing declining letter mail revenue in the way that many may presume. Mail volumes have halved in the last 10 years. At its peak mail volumes were declining by 10% per annum Like other postal operators in public or former public (currently 7%). IOMPO recognised the challenges facing ownership, we have high fixed costs and less flexible the postal industry and commenced offering a franking operating models than our competitors. Our services, service (post marking of envelopes) to the high number the prices and the Government levy have only been of banks on the Island, this was the embryonic stage of sustainable in recent years due to the profits from the mailing division it has today. our commercial services, primarily large corporate commercial print and postage contracts. In 2006 Tynwald also recognised these challenges and approved IOMPO to “pursue the diversification and IOMPO has needed to find £1m of new income every development of new commercial opportunities in order year just to stand still. It has successfully achieved to remain economically and commercially viable and this until now but for the first time in its history, it is thus enable it to continue to support its public service forecasting a loss for 2017/18. Material change is obligation i.e. the postal service.” needed to return the business to profitability.

3. Current Structure We have four divisional areas that report a profit and loss for their respective products and services, together with a ‘Corporate’ division to manage activities that are common to all the divisions.

PROFIT & LOSS DIVISIONS

MAILS RETAIL INTEGRATED STAMPS MAILING & COINS SOLUTIONS

LETTERS GOVERNMENT PRINTING & STAMPS AGENCY FULFILMENT PARCELS COINS INCLUDING SCANNING & COURIER MICARD STORAGE COLLECTABLES DRIVING & VEHICLE LICENSING DIGITAL SERVICES

FOREX

BANKING SERVICES

POST OFFICE NETWORK

CORPORATE

SHARED SERVICES & PENSIONS PAY, TERMS & CONDITIONS SYSTEMS

iompost.com 6 4. Corporate Division

4.1 Overview 4.3 Reasons for change

• Responsible for Executive matters, corporate • Low unemployment on the Island is a challenge governance includes regulatory compliance, staff in terms of recruitment generally. Some areas welfare and the provision of shared services of the business have a very low staff turnover, functions i.e. postal staff. In other areas of the business we are seeing an increase in leavers and difficulty in • Shared services functions are internal experts in a recruiting the right calibre of staff. This suggests given competency, e.g. Compliance. This includes our grading structure and terms and conditions are shared accountability of results to where the work is not appropriately aligned to the sector specific skills provided needed

• The Executive and the respective General • The current collective bargaining process provides Managers of the product and service divisions no opportunity to offer performance related ensure that the agreed results are delivered based rewards on defined measures • Employee engagement survey take up has historically been low c23%. Take up in 2017 was encouraging, resulting in 62% of staff completing 4.2 Dimensions the survey and highlighting areas where action can be taken • Working from Postal Headquarters, 66 Full Time Equivalent staff across Executive and shared service • The Postal industry is changing globally. IOMPO functions: working practices and technology have not developed in line with changing customer • Commercial, including Sales & Marketing demands and volumes. To be successful IOMPO • Finance & Compliance must engage the workforce to drive the change, • Projects/Business Change embracing technology, developing working practices fit for a modern Post Office with sector specific • IT Delivery & Support remuneration and working conditions

• HR • The use of corporate resources and the allocation • Customer Services (excludes Licencing team of the associated costs need to be reviewed in line detailed under Retail division with the changing divisional strategies • Our last triennial pension valuation (March 2017) informed the Board’s view that the current defined benefit scheme, last changed in 2010, is no longer affordable in its current form due to factors such as future expected investment performance, increased life expectancy and inflation.

iompost.com 7 Life expectancies in years in England at age 65 UK Government Bond Yields - 10 Year

25.00 6 ) % 5 s ( d l e i 4 nd y

e b o 3 g a r e 20.00 v 2 y a l

Males r e t Females r 1 u a Q 0

15.00 Source: Bank of England - Series IUQAMNPY

• Our customers require us to be compliant and secure in an increasingly regulated environment with high standards to be adhered to, e.g. General Data Protection Regulation, Equality regulation, Cyber security, ISO accreditations, Customs Pre Authorisation project etc. • Declining core services and narrowing profit margins require a more commercial, cost effective approach

4.4 Working together • We must continue to adapt our approach to be inclusive, acting on constructive feedback, attracting and rewarding employees in line with market and industry specific expectations across the business

OBJECTIVE ACTION OUTCOME • To develop a modern Work closely with unions, management and Feedback / dispute engaged and staff engagement groups to develop stronger resolution flexible workforce, relationships for the benefit of all attracting, developing Introduce Employee forums to ensure the voice and rewarding Feedback/ issue resolution of staff/access to senior management performance • Continue to develop Act on employee survey results Engagement score and maintain Complete business-wide job evaluation, Pay alignment strong stakeholder evaluating and simplifying the grade structure and relationships remuneration, aligning job families to industry • Live our values, equivalent pay bands promoting innovation Review role profiles to ensure capability to Ease of assessment and a commercial complete roles is clearly defined Increased productivity approach Implement a performance related pay and Retention and engagement management process Review T&C’s in line with the industry norms and T&C’s updated new legislation Policies updated Review policies in line with changing legislation Pension changes - Work with Trustees and union Pension scheme(s) that are to revise and protect pension schemes by reducing affordable and sustainable future liabilities for the future

iompost.com 8 4.5 Defend the core business • The Post Office has established and maintained a highly compliant operation with good governance as required by a public entity dealing with corporate and personal customers’ data • The Post Office must continue to invest to maintain its reputation and to protect its customer base

OBJECTIVE ACTION OUTCOME • Use technology, data GDPR compliant - Create and maintain and new ways of an effective customer and employee data Target date May 2018 working to improve management system service, working Create and maintain an effective records conditions and service Ease of use / record management system to aid FOI and efficient affordability retention document management • Continue to be Enhance Cyber security in line with industry customer value Threats mitigated focused, secure and standards compliant Equality Act compliant - Implement changes to Target date 2019 ensure the business is compliant Maintain and develop compatible, fit for purpose • Improved functionality IT systems network, infrastructure and software • User feedback in line with business requirements, including; • Compatibility an accounting system upgrade, new customer • Efficiencies through relationship management software and improved automation and reporting reduced support effort

4.6 Diversify selectively and grow profitably

• Shared service functions must be commercially focused, aligned to the profit and loss making division needs

OBJECTIVE ACTION OUTCOME • Develop current Targeted admin savings and support for growth. • Services protected and new profitable Ensure shared service functions are commercially in line with demand, products and services focused, working with General Managers to creating savings provide leaner more cost effective services, and efficiencies including identifying, evaluating and delivering new to support new products and services to market revenue generating opportunities

iompost.com 9 5. Mails Division

• 1 mail centre, including letter and parcel delivery 5.1 Overview offices for IM1 to 4 postcodes • Our Mails division exists to supply a postal service • We have 3 separate delivery offices serving the to the Isle of Man. It has a protected right to deliver Northern, Southern and Western areas of the mail up to £7.50 in postage to any address on the Island in Ballasalla, Peel and Ramsey Island under the terms of the Post Office Act 1993. It has no reserved rights for items costing more • 257 weekday collections from post boxes than this and is thus in competition with other • 46 weekday collections from Post Offices parcel carriers • 282 weekday collections from businesses • The main types of mail include letters, large letters • 40,000 items posted per day and magazine packets, parcels, items requiring • >27 million total mail items last year scanned or signed proof of delivery and items over 30 kilograms known as heavy and large some of • 103 vans and trucks from Ford Connects to which require two-man delivery Mercedes 7.5 tonnes and fork lifts, including 6 electric vehicles • Mail generated by sales on Island is either for local delivery or forwarding for UK or worldwide delivery. The bulk of mail items delivered on Island comes from the UK and beyond 5.3 Reasons for change • Our contract with Royal Mail Group accounts for • We dispatch our collected mail each Monday to 90% of inbound traffic thus represents a dominant Friday evening to East Midlands Airport to connect strategic partner risk with the Royal Mail Group (RMG) network on the shared cost flight from Ronaldsway. That plane also Proportion of Inbound Mail Traffic by Carrier brings mail from the UK each Tuesday to Saturday morning. This service facilitates next day delivery for priority items in both directions. We also operate bespoke air-borne courier services from and to the UK

• Sea containers are used for the excess from the flight and for other work for us to deliver from Yodel and Hays DX. Sea containers arrive every day and are processed on the day of arrival except Sundays and Bank Holidays

5.2 Dimensions

• 198 Full Time Equivalent (FTE) postal staff • 3 engineers • 172 union members • 12 managers • 1 administration officer • 6 days out of 7 we deliver and collect mail • 52,000 letters and parcels delivered every day • 40,000 home deliveries

iompost.com 10 Letter mail;

• There has been a sustained decline in traditional letter mail, the average reduction of 7% over the last 3 years

Royal Mail Inbound Letter & Large Letter Volume / Weight / Revenue

0.0% Letter & Large -5.0% Letter Volume %+- -10.0%

-15.0% Letter & Large Letter Weight -20.0% %+- % Variance

-25.0% Letter & Large Letter Revenue -30.0% %+-

-35.0% 2013/14 2014/15 2015/16 2016/17 2017/18

• Our exclusive privilege (reserved area) for letter delivery is not large enough to sustain postage at the current pricing levels

• The volume decline was tempered slightly by an increase in direct mailing and regulatory mailings for PPI and FATCA. These mailings will reduce as the on island finance sector retracts and such projects are completed

• Inbound large letters are becoming lighter, volumes held up last year with a better negotiated price per item with Royal Mail Group creating more revenue

• The cost of a first class stamp price is the lowest in the British Isles. The price is not financially sustainable at the current levels. (See graph below)

70

60 63p 65p 65p 59p 50 49p 40 47p 47p 42p Local only 30

20 UK & other 10 islands

0 Isle of Man Guernsey Royal Mail

iompost.com 11 Parcels;

• While parcel volume and revenues have continued to grow, pricing power and profitability are declining, fast and free delivery is a competitive differentiator for online retailers. Competition for the last mile is fierce

Total Parcel Items Volume / Revenue

60.0%

50.0%

40.0% Parcels Volume %+- 30.0%

20.0% % Variance Parcels 10.0% Revenue %+-

0.0%

-10.0% 2013/14 2014/15 2015/16 2016/17 2017/18

• Average volume growth of 7% pa over the last four years (2% last year), better price per item negotiated in 2015 creating more revenue with Royal Mail Group

• 3% average revenue growth in Royal Mail Group

• The impact of unlicensed operators on the Island has a detrimental effect on IOMPO’s revenue each year. As it stands, the Post Office Act does not provide protection against such operators and therefore amends to tighten up the legislation in this area are required, which can then be enforced with support from IOMPO’s sponsoring department (Department for Enterprise)

• Hermes is part of the so-called gig economy where self-employed drivers are paid per ‘gig’ for delivering packets and parcels. They are reinventing last mile delivery and the competitive landscape. They are nimble and asset light - subject to current scrutiny in respect of employment law. The table below evidences that our parcel market share is reducing year-on-year with Hermes seeing sustained growth year-on-year

Sample Size IOMPO HERMES OTHER

2015 260 72% 16% 12%

2016 697 65% 21% 13%

2017 429 63% 23% 15%

• Scrutiny of our below average volume increases suggest that some online retailers exclude IOM postcodes on the basis of misconceptions regarding taxation and delivery. We are working with UK distribution partners to reassure their large online retail customers in this regard, recent successes include Argos, Zara and Asda

• With an increase in inbound e-commerce the scope for handling non-required returned parcels is a real revenue opportunity, but one for which IOMPO will face stiff competition from other parcels companies

iompost.com 12 Ways of working

• The ways we utilise our resources (employees, technology, vehicles and premises) have not developed as quickly as technology and customer preferences

% of Costs by Category

3% 2% 5% 4%

7% Staff Costs Royal Mail Group Delivery Cost Conveyance (Aircraft & Ferry Costs) Plant and Machinery 56% Accommodation Vehicles 23% Other

71% OF OUR MAILS DIVISION OPERATING COSTS ARE CURRENTLY FIXED • As a privatised entity Royal Mail Group are working hard to transform their business to protect their position in the UK market and to increase profits for their shareholders. A small change by Royal Mail Group can lead to substantial change in our costs and revenue. Our as-is includes a provision for a reduction in Royal Mail Group recharges

5.4 Work together

• We must continue to use technology and data to help evolve our working practices to meet the demands of a modern business

OBJECTIVE ACTION OUTCOME

• To develop a modern Continue to work closely with Royal Mail • Services protected engaged and to sustain affordable Island services. Where in line with demand, flexible workforce, stakeholder aims diverge, we will work together to creating savings attracting, developing establish an acceptable outcome and efficiencies and rewarding to support new performance revenue generating opportunities • Continue to develop and maintain Modernise Mail Operations - Review and strong stakeholder modernise collection and delivery service relationships operations, ensuring key resources are optimised in • Live our values, line with volume trends through the effective use promoting innovation of improved technology and working methods and a commercial approach

iompost.com 13 5.5 Defend the core business

• We must continue to adapt our services and pricing in line with reducing letter volumes, increasing parcel volumes and increasing service costs

OBJECTIVE ACTION OUTCOME

• Sustained community Review our 6-day letter delivery service in line • Services protected services in the areas with reducing customer demand (average -7% in line with demand, of the retail network per annum) but maintain a 6-day delivery service creating savings and universal services for parcels and other time sensitive items and efficiencies obligation to support new revenue generating • Use technology, data Letter pricing strategy - review on/off Island opportunities and new ways of costs and risks in line with commercial and working to improve residential customer needs • Environmental gains service, working through the reduction conditions and service Continuous improvements in carbon miles affordability • Reduce post box collection frequencies where • Continue to be demand for service is not viable customer value • Trial employee pay per item for delivery of focused, secure and parcels and Saturday specific deliveries compliant • Enhance the experience for the receiving Island customer by increasing the amount of useful delivery information available to them and by making it easier for them to receive parcels and items requiring Proof of Delivery on the first delivery attempt. In doing so we expect more off-Island suppliers to use us for their deliveries and returns, raising revenue

Improve fleet efficiency - Continuously review and revise size and composition of the vehicle fleet to meet our changing requirements, reduce maintenance costs, eliminate unnecessary journeys, replace diesel with electric vehicles where there is demonstrable benefit and aim to cost effectively reduce time that vehicles are not being used

iompost.com 14 5.6 Diversify selectively and grow profitably

• We must continue to grow the number of customers for which we provide services in line with e-commerce and IMS postage sales growth. With an increase in e-commerce inbound there is an opportunity to ensure IOM Post Office is the carrier of choice for returns

• Subject to a cost benefit appraisal and fair competition, we see an opportunity to use our trusted post people to win complementary services that will benefit from our unrivalled access to the local community

OBJECTIVE ACTION OUTCOME • Understand customer New last mile parcel deliveries - We will continue to • Increase in and market needs and compete for and win parcel delivery contracts based on profitable sales priorities quality and price of service • Improved • Develop current UK postage growth through IMS - Support for IMS customer and new profitable product related UK sales postage satisfaction as a products and services result of greater Postage growth through new online retailers - online retailer Continue working directly and indirectly (through UK choice/services carriers) to successfully attract UK online retailers to provided deliver to the IOM, winning collection and conveyance contracts for ‘unwanted returns’ New complementary services - Identify and implement other profitable services subject to customer demand

iompost.com 15 6. Retail Division Post Office locations Andreas PO Post Office Jurby PO

Kiosk Sulby PO Ramsey PO 6.1 Overview Ballaugh PO Kirk Michael PO • The network is loss making, 2016/17 recorded a net loss of £1.5m Peel PO Laxey PO St Johns PO • The network is made up of largely externally owned Foxdale PO Kirk Onchan PO and operated businesses that operate other retail Union Mills PO Royal Avenue PO PO HQ services and benefit from the footfall Post Office Douglas Counters transactions generate. • Anagh Coar SDO Ballasalla PO • Crosby Terrace Port Erin PO • Governors Hill Port St Mary PO • Pulrose • The Post Office pay commissions on transactions Castletown PO • Strand Street and fixed community support payments (£750k) to • Willaston • Windsor Road the network. The Post Office costs include office fittings, IT equipment and connectivity costs 6.3 Reasons for change

• The network supports three main categories of • IOM Post Office currently has the highest number transactions; post, banking services (on behalf of of Post Offices per head of population, anywhere in local and UK banks) and Government services the United Kingdom

• The diverse nature of products and services is Average number of people per Post Office largely limited to simple transactions to ensure viability 8,000

6,000 Average • The division includes vehicle and driving licencing number 4,000 of people services provided on behalf of the Department of per Post Infrastructure (DOI) through the network and a 2,000 Office dedicated IOMPO team who provide commercial 0 counter services and back office services Wales Ireland Jersey England Northern Scotland Guernsey Isle of Man • The MiCard service was implemented in 2016 in partnership with Treasury’s Social Security Division. • We anticipate the rate of decline in transactions It has been a great success. It fits well with our will continue to increase as digital changes the trusted brand and is helping to sustain footfall way retail services are provided through multiple across the network while generating a new digital channels; internet self-service portals, phone, revenue stream applications etc are growing with face-to-face transactions reducing - average 7% reduction per annum over the last 3 years 6.2 Dimensions Existing services transaction • Currently 27 Sub Post Offices, 3 internal operating volume forecast by 2021/22 from Post Office locations, 24 independently owned and managed offices Vehicle Licences -100% • 12 Kiosks Dog Licences -100% Government Rent Payments -100% • 7 FTE specific to the Department of Infrastructure (DOI) vehicle licencing administration support Postal Orders -100% Government cheques -95% • The broader Customer Services team support products and services across the business divisions Non Government transactions -50% (, Manx Gas) Banking -15% MiCard (Social security payments) -11% Mails -8% Forex +25%

iompost.com 16 • While we continue to seek out opportunities, online and through the network, it is clear that this will not materially slow the decline in face-to-face transactions

• Experience indicates that funding levels would need to be maintained to make the current retail network financially viable in the face of falling volumes, thus increasing losses if an alternative strategy cannot be agreed

• A natural reduction of the network as Sub Post Masters resign or retire will not protect the provision of services in the community

• The current customer pricing structure is complex and inconsistent having evolved over time

Comparison of transaction volumes to transaction revenues excluding mails 2016/2017

13% 9% 26% 8% 30%

Gov Payments - Licensing Gov Payments - MiCard Gov Payments - Other 14% Forex 29% 6% Non Government Payment 1% Banking Agency 10%

25% 29% VOLUMES REVENUES

• If the DoI ceases their contracts for agency arrangements with IOMPO for vehicle and driving licences as anticipated, this will reduce the IOMPO annual revenue by over £550k per annum based on current revenue levels, and the independent network sub postmasters income by 12% to 51% per annum.

iompost.com 17 6.4 Work together

• We must work together with all key stakeholders to find ways to reasonably protect services at an affordable cost

OBJECTIVE ACTION OUTCOME • To develop a modern engaged Transform the network. Consult with all key • Services and flexible workforce, attracting, stakeholders on the future of retail face-to- protected in line developing and rewarding face transactions to determine the future with demand, performance operating model and roadmap of change to creating savings protect the service provision and efficiencies • Continue to develop and maintain to support strong stakeholder relationships new revenue • Live our values, promoting Reduction in Department of Infrastructure generating innovation and a commercial services. Work with the Department of opportunities approach. Infrastructure and other key stakeholders • Clarity for Post to manage the decline in line with the Office Network Department of Infrastructure strategy and employees impacted

6.5 Defend the core business

• Tightening of regulation has led to material overheads in providing services

• Financial analysis indicates that some contracts may not be profitable

• We must seek to drive through efficiencies in back office services to optimise financial returns

OBJECTIVE ACTION OUTCOME • Sustained community services in Review contracts in respect of 3rd party • Profitable services the areas of the retail network services provided in line with increasing protected and universal services obligation operating costs • Improved cost and • Use technology, data and new sustained quality ways of working to improve of products and service, working conditions and Continuous improvements including services service affordability exploring the insourcing of the cashier • Continue to be customer value function, more online servicing and focused, secure and compliant improved customer enquiry and compliant management

iompost.com 18 6.6 Diversify selectively and grow profitably

• We believe our current MiCard service has the potential to be developed as a convenient way for residents to certify their identity and digitally maintain their personal details through the IOMPO portal; asserting their personal data to access Government services, creating a new revenue stream for IOMPO that is not dependent on the physical Sub Post Office network. It could be the strategic solution to replacing the 18+ Government related cards currently in use

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• The network is well positioned to provide simple third party transactions as the viability of branch face-to-face services continues to decline

OBJECTIVE ACTION OUTCOME

• Understand customer and market Expand the use of MiCard. Continue • Increase in needs and priorities to work with Government to identify profitable sales • Develop current and new opportunities to extend and develop the profitable products and services use of MiCard for other services • Develop digital solutions and Extend counter services. Work with the services to protect and grow our public and private sector to develop and customers support new e-commerce and financial service opportunities through the retail network

iompost.com 19 7. Integrated Mailing Solutions (IMS)

7.1 Overview 7.3 Reasons for change

• IMS was created 20 over years ago to provide • As the Island’s business profile has diversified, and added value services and to protect and generate our traditional customers seek more convenient postal revenues and cost-effective ways to communicate with their clients, our market is changing • We are the only ISO 27001 accredited data handling specialist providing secure mailing • To stay relevant and meet our customers’ needs, we production in the IOM and Channel Isles. Coupled need to provide a convenient mix of traditional and with IOMPO having one of the lowest first class digital communication solutions postage rates in Europe, our offering is unique • We need to find new markets and customers • We use local suppliers whenever possible, spending £310k throughout 16/17 Trends in the local financial sector since 2010

• IMS is fundamental to sustaining postage revenues. During 16/17 mail produced by IMS accounted for 31% of all the mail generated in the Isle of Man 2010 34 Class 1 Net outbound postage sales 16/17 Banking Licenses

IMS - Production 44% 31% decline Mails & Retail 52%

17% 2017 19 Class 1 IMS - Franking Banking Licenses

7.2 Dimensions • With our expanding physical and digital products and services well matched to support the • Team of 27 FTEs skilled & general roles across two digitisation of documents, GDPR and secure data sites handling, we see an opportunity to expand our customer base both locally and in the UK focusing • In the last 2 years - £480k investment in printing, on small to medium enterprises finishing and insertion equipment to enhance capacity, capability of Print / Finishing / Fulfilment / Scanning

• Only mailing house in IOM/Jersey/Guernsey that is:

• ISO 27001 / ISO 9001 certified

• Complaint with BS 10008 / PCI DSS

iompost.com 20 7.4 Work together

• IMS work is volatile leading to peaks and troughs in demand for a fixed headcount • There is an opportunity to work more closely with Government to use our products and services in the delivery of the Programme for Government/SAVE initiative • We must continue to invest in sales and marketing to deliver our commercial targets

OBJECTIVE ACTION OUTCOME • To develop a modern engaged Modernise the operation - Review the structure • Employee and flexible workforce, and source of resource to ensure a flexible cost satisfaction attracting, developing and effective operating model in line with fluctuating • Improved cost and rewarding performance demands (IMS and Stamps & Coins production) sustained quality • Continue to develop and of products and maintain strong stakeholder services relationships Protect/Increase IOM Government customers • Increase in • Live our values, promoting - Strengthen existing Government and local profitable sales innovation and a commercial corporate relationships to protect and increase approach IOMPO sales/deliver efficiencies within Government

7.5 Defend the core business

• Need to continuously improve quality and price to remain competitive. There is potential to make use of industry tools to aid workflow and customer management

OBJECTIVE ACTION OUTCOME • Use technology, data and new Continuous improvement - Reduce • Improved ways of working to improve administration costs and improve the customer customer service, working conditions experience by investing in tools and techniques experience and service affordability that automate manual processes to remain • Improved cost and competitive • Continue to be customer sustained quality value focused, secure and of products and compliant services

7.6 Diversify selectively and grow profitably

• We must continue to build our e-solution products to enable sending and receipt of documents digitally, helping to win new customers and revenue, and to retain customers who might otherwise go to competitors

OBJECTIVE ACTION OUTCOME • Understand customer and Increase UK Sales - Leveraging our marketing • Increase in market needs and priorities research, develop a sales capability to sell our profitable sales products and services into the UK • Develop current and new profitable products and Increase IOM Sales - Leverage our experience services and contacts to upsell to existing customers and • Develop digital solutions and increase new customers services to protect and grow Extend our digital solutions - Through virtual our customer office, accounts payable and other products and services that add value to our customers

iompost.com 21 8. Stamps & Coins

8.1 Overview 8.3 Reasons for change

• Isle of Man Stamps and Coins issued their first • Our philately customer base has reduced by an stamp on the 5th July 1973 average of 8% year-on-year over the last 3 years

• Our stamp issues are recognised worldwide for • Revenues have largely been maintained through a relevance to the Island’s heritage, culture or combination of price increases and sales of specific subjects which people hold in high esteem (royal issues to special interest groups anniversaries) and we have received many accolades and awards • The proliferation of new issues is limiting the attraction to new collectors; existing collectors • We produce 16 stamp issues per year, consisting of are reducing with age and their level of disposable mint sets, first day covers and presentation packs, income additional products are created where there is a commercial opportunity • We must seek to stem the reduction in regular collectors while attracting new collectors by making • We sell to individual collectors and to wholesale, our product more collectible whilst minimising our competing with other philatelic bureaus and costs to help keep our stamps affordable at the right collectible sellers and resellers margin

• Coin collectables are marketed and sold depending • Our global stamp sales have been compromised upon the Treasury issue programme and allocation by old stamps making their way back into the allowance postal system through wholesalers. Changing the legislation will allow us to champion more sales % Revenue by product type through the wholesale network

• We must utilise technology to optimise sales ensuring our products are easily accessible online with efficient back office systems and processes

• Following recent changes in coin administration we are no longer seen as the preferred re-seller by Treasury. Embedding the new relationships and ways of working with Tower Mint and Westminster has led to issues with supply and pricing that have in turn led to reputational damage and loss of credibility with our existing collector base. These 8.2 Dimensions issues are now being formally addressed to ensure confidence in the relationship and processes going • Team of 10 FTE is supplemented by casuals, home forward industry and IMS when required. 50% of the staff have more than 20 years’ experience

• Current customer profile: UK - 82.3%, Europe - 8.8%, North America - 6.2%, Asia - 1.4%, Oceania - 1.16%, South America - 0.1%, Africa -0.04%

iompost.com 22 8.4 Work together

To ensure our operation supports falling regular collectors and more volatile new product and services.

OBJECTIVE ACTION OUTCOME • To develop modern engaged Modernise the operation - Review the structure • Employee and flexible workforce, and source of resource to ensure a flexible cost satisfaction attracting, developing and effective operating model (leveraging appropriate • Improved cost and rewarding performance external and internal resource, e.g. IMS sustained quality production, customer services etc) in line with • Continue to develop and of products and fluctuating demands (falling regular collectors, maintain strong stakeholder services new products) relationships • Live our values, promoting Coin and bank note sales - Work with Treasury, • Increase in innovation and a commercial Tower Mint and Westminster to ensure we profitable sales approach receive adequate coin and note allocations that we can market competitively

8.5 Defend the core business

Seek to continuously improve the way we engage and deliver services to our customers.

OBJECTIVE ACTION OUTCOME • Use technology, data and new Production limits - Increase collectability by • Improved ways of working to improve including more limited editions that retain customer service, working conditions collector interest and generate production experience and service affordability efficiencies • Improved cost and • Continue to be customer Continuous improvement - Reduce sustained quality value focused, secure and administration costs and improve the customer of products and compliant experience by investing in automation and services customer management tools and techniques to remain competitive

8.6 Diversify selectively and grow profitably

Seek to use our skills and experience to deliver enhanced products and services, upselling to existing customers.

OBJECTIVE ACTION OUTCOME • Understand customer and Increase international sales - of both new and • Increase in market needs and priorities old stamp issues and through bulk trade sales to profitable sales existing / new wholesalers allowing for discount • Develop current and new / import duties, subject to changing the Post profitable products and Office Act services • Develop digital solutions and Grow personalised Corporate postage services to protect and grow Use our stamp archive - to create and market our customer non philatelic products for bespoke gift giving both for corporates and individuals

iompost.com 23 “Working together to protect the core business, growing profitably and diversifying selectively to the benefit of the Manx economy.” Printed by Isle of Man Post Office by Isle of Man Post Printed

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