Royal Mail Group Limited
Annual Report and Financial Statements
2012-13
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Basis of presentation
Special purpose financial statements
As previously announced, Post Office Limited was transferred from under the ownership of
Royal Mail Group Limited to become a fellow subsidiary undertaking of Royal Mail Holdings plc
on 1 April 2012, one week into the 2012-13 reporting year. Accordingly, to enable comparative
analysis, special purpose consolidated financial statements for Royal Mail Group Limited
excluding Post Office Limited have been prepared for 2012-13, 2011-12 and 2010-11.
Adjusted 52 week basis
The 2012-13 financial year was a 53 week year and to provide meaningful comparisons,
revenue and operating costs are also presented on an adjusted 52 week basis.
The adjustment removes the 53rd week’s revenue and incremental costs associated with
that revenue.
General Logistics Systems (GLS) reports results for a 52 week year ending 31 March.
No adjustments have been made for GLS.
Like-for-like revenue and cost growth
In addition to the 52 week adjustment, the impact of translating GLS’s Euro results into
Sterling using different average exchange rates has also been eliminated to permit revenue
and cost growth rates to be calculated on a like-for-like basis.
The average rates for 2012-13 are £1 = €1.2262 compared with £1 = €1.1572 for 2011-12 –
a weakening in the Euro of six per cent. Had last year’s GLS revenue of €1,808 million
(reported as £1,562 million) been translated at the 2012-13 average rate, it would have been
reported as £1,474 million, or £88 million lower. The translational impact of foreign currency
on UKPIL’s revenue is some £2 million, which is not material and therefore has not been
included in the like-for-like calculations.
The transactional cash impact of foreign currency is not eliminated. There are natural hedges
in the Group to cover this exposure and the impact on operating profit is estimated as £3 million.
Ultimate parent
Royal Mail Holdings plc is the immediate and ultimate parent of Royal Mail Group Limited and
consolidated financial statements for the 53 weeks ending 31 March 2013 will be prepared for
Royal Mail Holdings plc. A summary of the Group structure at 31 March is shown below.
Royal Mail Holdings plc
Post Office Limited
Royal Mail
Group Limited*
Royal Mail
Investments Limited
Royal Mail
Estates Limited
General Logistics
Systems B.V.
* Royal Mail Group Limited and its main subsidiaries.
i
Annual Report and Financial
Statements 2012-13
Contents
Overview
Who we are
Financial and business performance highlights
Strategy
Performance
Governance
Chairman’s statement
Chief Executive Officer’s review
Our strategy
Key performance indicators
Financial performance overview
Financial review
UK Parcels, International & Letters (UKPIL)
General Logistics Systems (GLS)
Business risks
Corporate responsibility
Our Board of Directors
Directors’ report
Corporate Governance
Directors’ remuneration report
Financial statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of cash flows
Consolidated balance sheet
Consolidated statement of changes in equity
Notes to the consolidated financial statements
Significant accounting policies
Group five year summary (unaudited)
Statement of Directors’ responsibilities in relation to the
Group financial statements
Other information
Forward looking statements
Corporate information
01
04
05
07
10
12
14
16
21
23
24
28
34
37
38
46
56
57
58
59
60
61
117
124
125
127
128
Information key:
Case studies
Go online for
more information
This icon is used to indicate
reporting against a KPI
throughout the document.
Who we are
As the sole provider of the Universal Service in the UK,
Royal Mail Group delivers a six-days-a-week, one-price-
goes-anywhere postal service to more than 29 million
addresses across the UK.
Royal Mail is the preferred delivery company in the UK.
We are a vital link connecting communities, businesses
and customers. In 2012-13, we collected and delivered
more than one billion parcels and 14 billion addressed
letters across the country.
The transformation of Royal Mail Group is
helping to ensure the sustainability of the
Universal Service by putting our Company on
a sound financial footing. Our strategy is to
capitalise on our strength in delivery to grow
our presence in the dynamic parcels market,
thereby maintaining a financially viable
Universal Service.
Delivering increasing numbers of parcels
through our combined UK network and
capturing the benefits of the new regulatory
regime will help us to mitigate the financial
impacts of structural decline in the letters
market. Addressed volumes have fallen from
around 63 million items a day in 2011-12 to
58 million items in 2012-13.
Achieving our strategic priorities, together
with becoming a more customer-focused
company, underpins our vision to be the
most successful delivery company in the UK.
Driving sustainable, profitable growth will
allow us to obtain ongoing access to external
capital, build a sustainable business and
continue to provide as many good quality
jobs as we can for our people.
We are making good progress. However,
more remains to be done to ensure we can
complete the transformation of our business
from one that predominantly handles letters,
to one that handles an increasing number
of parcels.
Five year Group revenue (£m)
Reported 53
weeks 2013
Adjusted 52
weeks 2013
Reported 52
weeks 2012
Reported 52
weeks 2011
Reported 52
weeks 2010
Reported 52
weeks 2009
9,279
9,146
8,764
8,415
8,547
8,695
Five year Group operating profit after transformation costs (£m)
Reported 53
weeks 2013
Adjusted 52
weeks 2013
Reported 52
weeks 2012
Reported 52
weeks 2011
Reported 52
weeks 2010
Reported 52
weeks 2009
440
403
152
18
147
101
Five year Group free cash inflow/(outflow) (£m)
Reported 53
weeks 2013
Adjusted 52
weeks 2013
Reported 52
weeks 2012
Reported 52
weeks 2011
Reported 52
weeks 2010
Reported 52
weeks 2009
334
334
154
(246)
(390)
(493)
01
OverviewRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Revenue by business and market (£m) (adjusted 52 weeks 2013)
Business segment/product
UK Parcels, International & Letters
(UKPIL)
General Logistics Systems (GLS)
Other
Group
Marketing
mail
Letters
& other
mail1
1,118
3,582
-
-
-
15
Parcels
2,933
1,498
-
4,431
1,118
3,597
Total
7,633
1,498
15
9,146
Percentage of revenue by market (adjusted 52 weeks 2013)
Parcels
Letters & other mail1
Marketing mail
Group
revenue (%)
48
40
12
Who we are (continued)
UKPIL
Royal Mail Group, through its core UK business,
UK Parcels, International & Letters (UKPIL), is
the UK’s sole provider of the Universal Service.
It is also a leading UK provider of express
parcels services through Parcelforce Worldwide.
UKPIL provides letter and parcel services to
and from countries around the world under
reciprocal arrangements with other overseas
postal administrations. It is also responsible
for the design and production of the UK’s
stamps and philatelic products.
Through MarketReach, UKPIL provides a
full-service marketing mail offering and helps
businesses derive more value from their
direct mail.
UKPIL’s transformation programme is one of
the largest undertaken in the UK in recent
history. The programme is about making our
combined UKPIL core network, which handles
over 90 per cent of the parcels and all of the
letters we deliver, more competitive and
effective. We are delivering benefits. 79 per
cent of letters are now sequenced to delivery
point. We are progressing with delivery
revisions, with modernisation underway or
completed in 860 Delivery Offices since the
programme began, representing more than
half of walks.
GLS
General Logistics Systems (GLS) is one of the
largest ground-based deferred parcel delivery
service providers in Europe. It is a pan-
European business, providing parcel and
express services as well as logistics solutions.
The GLS network covers 37 countries through
wholly owned and partner companies, is
globally connected through contractual
agreements and acts as the Group’s gateway
to Europe, opening up new opportunities.
02
1 Includes letters, publishing, data and philatelic.
OverviewRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Group legal structure
Royal Mail Holdings plc is directly owned by
HM Government and is the ultimate parent
company of Royal Mail Group Limited. The
Group primarily operates within the United
Kingdom, including a number of subsidiaries,
associates and a joint venture. It also has a
presence in most European countries, mainly
through General Logistics Systems.
The basic legal structure of the Group as at
25 March 2012 is shown in diagram one.
On 1 April 2012, Post Office Limited was
transferred from under the ownership of
Royal Mail Group Limited to become a direct
subsidiary of Royal Mail Holdings plc. The
revised Group structure at this date is as
shown in diagram two.
Further details on the principal subsidiaries
are shown in note 30 to the Group
financial statements.
25 March 2012 – pre-separation
Diagram one
Royal Mail Holdings plc
Royal Mail Group Limited
Post Office Limited
Royal Mail Investments Limited
Royal Mail
Estates Limited
General Logistics Systems B.V.
1 April 2012 - post-separation
Diagram two
Royal Mail Holdings plc
Royal Mail Group Limited
Post Office Limited
Royal Mail Investments Limited
General Logistics Systems B.V.
Royal Mail
Estates Limited
03
OverviewRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Financial and business
performance highlights
Our financial performance
Key financial highlights
Group
Revenue (£m)
Operating profit after transformation costs (£m)
Operating profit margin after transformation
costs (%)
Free cash inflow (£m)
Net debt (£m)
Reported
53 weeks
2013
Adjusted
52 weeks
2013
Reported
52 weeks
2012
9,279
440
4.7
334
(906)
9,146
403
4.4
n/a
n/a
8,764
152
1.7
154
(1,186)
Operating profits and margins after
transformation costs
• Reported Group operating profit increased
to £440 million. The operating profit margin
increased from 1.7 per cent to 4.4 per cent
on a like-for-like basis.
• UKPIL generated a reported operating profit
of £331 million and its operating profit
margin increased from 0.5 per cent to
3.9 per cent on a like-for-like basis. The UK
business is now the biggest contributor to
Group operating profit.
Cash flow
• EBITDA before transformation costs was
£915 million. £665 million was invested
back into the business, which was mainly
transformation-related.
• Free cash inflow of £334 million was
generated, mainly due to our improved
trading performance. As a result, net debt
decreased by £280 million to £906 million.
Modernisation
Revenue (£m)
Operating profit/(loss) after
transformation costs (£m)
Reported
53 weeks
2013
Adjusted
52 weeks
2013
Reported
52 weeks
2012
Reported
53 weeks
2013
Adjusted
52 weeks
2013
Reported
52 weeks
2012
Business unit
UK Parcels,
International & Letters
(UKPIL)
General Logistics
Systems (GLS)
Other businesses
Group
7,766
7,633
7,189
1,498
1,498
1,562
15
15
13
9,279
9,146
8,764
331
101
8
440
294
101
8
403
33
• Delivery and processing productivity
128
(9)
152
increased by 1.7 per cent across the core
network. In addition, nine Mail Centres were
closed in the year. In total, 25 Mail Centres
have closed to date, while four have been
opened since modernisation began,
representing a 30 per cent net reduction.
Like-for-like growth rates (%)
Revenue
Addressed volumes
• 79 per cent of letters are now sequenced to
delivery point.
Parcels
– UKPIL
– GLS
Letters
9
13
2
3
4
5
1
(8)
Revenue and volume
• Reported Group revenue was £9,279 million.
On a like-for-like basis, it increased by five
per cent. Reported Group parcel revenue
increased to £4,477 million, with growth
of nine per cent on a like-for-like basis.
Parcels remain a major contributor to
Group revenue, accounting for almost
half (48 per cent).
• Within UKPIL, reported letter revenue grew
to £4,787 million (including marketing mail).
Like-for-like growth of three per cent was
achieved. Addressed letter volumes declined
eight per cent on a like-for-like basis, which
was in line with expectations. Within letter
revenue, reported marketing mail revenue
was £1,135 million1. This was a two per
cent increase on a like-for-like basis.
• UKPIL reported revenue was £7,766 million,
up six per cent on a like-for-like basis. UKPIL
parcel revenue increased by 13 per cent
and volumes increased five per cent on a
like-for-like basis. Reported parcel volumes
were 1,081 million items, compared with
1,016 million items in 2012.
• At GLS, reported revenue was four per cent
lower at £1,498 million, due to the
weakness of the Euro against the pound.
However, on a like-for-like basis, revenue
increased by two per cent to €1,837 million.
Volumes increased one per cent on a
like-for-like basis.
04
1 Marketing mail numbers are calculated using statistical
analysis from surveys in order to estimate how our mail
is being used. Data services and redirections were added
into the marketing mail portfolio in 2012-13. Numbers
have been restated accordingly.
OverviewRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Chairman’s statement
We have a clear strategy in
place to meet successfully
the challenges we face in
our changing marketplace.
Donald Brydon
Chairman
A year of further significant progress
I wrote last year about the Company’s
considerable improvement. I am pleased to
announce a year of further progress. We have
reported a stronger financial performance,
helping to safeguard the continued delivery
of the Universal Service, secure the provision
of long-term, good quality employment and
create new opportunities for the Group.
We have a clear strategy in place to meet
successfully the challenges we face in our
changing marketplace.
Moya Greene, our Chief Executive Officer,
is leading the business with considerable
energy and focus. Her commitment to deliver
our business strategy and her determination
to put the Company in a position where it is
strong enough to access external capital is one
of the key drivers of our continuing success.
Our changing business
We have delivered a robust financial and
operational performance. Behind the
numbers lies one of the largest transformation
programmes in the UK in recent history.
It is greatly to the credit of the senior
management team and the union leadership
that this transformation has been carried out
with a limited impact on our Quality of Service
– especially when the standards set for Royal
Mail are the highest of any major European
country. See page 29 for more information
on our Quality of Service performance.
The changing communications market
has significant implications for our future.
Letters will always be an important part of
our business. However, it has been clear
for some years that we need to diversify
our revenue base to ensure the continued
provision of the Universal Service.
The vast majority of the letters we deliver
are now sorted and sequenced automatically.
Our delivery revisions programme is in place,
ensuring colleagues are able to manage the
demands of delivering increasing numbers of
parcels as part of their daily rounds. Our
progress is testament to the commitment
of our people to delivering this difficult,
wholesale change to the way they work.
Royal Mail is adapting to keep pace with this
competitive market. We need ongoing access
to external capital. I am confident that our
Company is capable of rising to the challenge.
Some key developments
The last two years have seen some of the
most important legislative and regulatory
changes with respect to postal services in
the Group’s history.
In April 2012, Ofcom implemented a new
regulatory framework. We welcomed this
change. It recognises that the Universal
Service Provider must be able to earn
a reasonable commercial rate of return.
We are harnessing the benefits of the new
framework to secure our financial future.
Today, approximately five per cent of Royal
Mail revenue is subject to direct price control.
Ofcom has recently concluded its Review
of Postal Users’ Needs, in which it ruled
out the need for any major changes to the
Universal Service. We also welcomed the
recent clarification by the Regulator of the
circumstances in which it would be minded
to intervene in direct delivery competition in
order to protect the viability of the one-price-
goes-anywhere service.
The pension transfer in April 2012 gave our
colleagues who are members of the Royal Mail
Pension Plan considerably more security with
respect to the pension benefits they had
earned up until 31 March 2012. It also
immediately removed the obligation to make
cash payments of around £300 million every
year to address the pension deficit. Of course,
the cost of continuing to provide one of the
largest defined benefit pension schemes in the
UK is material and growing. See page 75 for
more information.
At the same time as the pension transfer, Post
Office Limited formally separated from Royal
Mail Group Limited. Royal Mail and the Post
Office have signed a long-term commercial
agreement to ensure the two companies will
continue to work together in the future. With
its extensive network and its important place
in rural communities, the Post Office is a
natural partner for Royal Mail as we serve
communities across the UK.
05
OverviewRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 public and the philatelic community.
Thank you
We have delivered a great deal. The year ahead
is an important one for Royal Mail and I believe
we are now in a good position to build on our
substantial achievements.
I join our Chief Executive Officer in expressing
my gratitude to the Secretary of State for
Business, Innovation & Skills, Vince Cable,
Minister of State for Business and Enterprise,
Michael Fallon and all their colleagues in
Government for their continued support.
Most of all, I would like to pay tribute to all
my colleagues for their loyalty, commitment
and conscientiousness.
Donald Brydon
Chairman
Royal Mail Group Limited
31 July 2013
Chairman’s statement (continued)
Our role in the community
The business has continued to develop
and maintain its role in national culture
and heritage. Last year I confirmed that
Royal Mail had granted a lease to give the
British Postal Museum and Archive (BPMA)
a new home in Calthorpe House. The new
exhibition centre on this site continues
to progress.
I congratulate the BPMA team on securing
National Lottery funding to support the
creation of their brand new ‘mail rail’ visitor
attraction, which will help bring Royal Mail’s
historic role in the life of the capital to a wider
national and international audience.
Our place in serving the community goes
beyond delivering the Universal Service.
Across the UK, our people play a crucial role,
both in support of their communities and
charitable organisations. This year, our
colleagues chose to appoint Prostate Cancer
UK as the Group’s charity partner. Through
our colleagues’ fundraising activities and
matched funding from the Company, we
have already raised approximately £800,000
for this very important cause. We hope
to raise at least £2 million during our
two-year partnership.
Royal Mail played an important role in helping
the UK to support the London 2012 Olympic
and Paralympic Games. The Games saw Royal
Mail at its best, enhancing our reputation and
position in UK culture. Our operational teams,
especially in London, faced severe challenges
in delivering to our customers but, with careful
planning and dedication, continued to deliver
to our high service standards. Our gold post
boxes provided a means for local communities
to mark the success of their athletes. So too
did the wonderful Olympic and Paralympic
stamps, which proved very popular with the
Safety
We have made progress on tackling the
threat dangerous dogs pose to our people.
Last year, I announced the launch of an
independent, judge-led inquiry to gather
evidence on this issue and make
recommendations for action. In 2012,
Sir Gordon Langley published his report,
making clear the necessity for Government
action and proposals to protect postmen
and women from this unacceptable hazard.
In February 2013, I welcomed the
Government’s announcement that it is
planning to extend legal protection over dog
attacks to cover those that take place on
private property. Since the year end, this
legislation has been put firmly on the agenda
through the announcement of the Anti-social
Behaviour, Crime and Policing Bill in the
Queen’s Speech in May 2013. Following the
Langley report’s recommendations, we are
establishing a process where attacks on our
people are more likely to be the subject of
legal action. In addition, we will take a more
robust approach to the suspension of deliveries
where dogs pose a danger to our postmen
and women.
Our Board
The Board was pleased to welcome two new
non-executives to Royal Mail during the year.
John Allan was appointed a Non Executive
Director of the Company in January 2013.
John brings a wealth of strategic, financial and
marketing experience, including an in-depth
knowledge of the postal sector. In March
2013, we announced the appointment of
Jan Babiak as a Non Executive Director.
Jan’s extensive IT and regulatory experience
will further strengthen our Board.
In September 2012, Dame Jane Newell OBE
stepped down as Chair of Royal Mail Pension
Trustees Limited after eight years in the role.
All involved in the Pension Fund have cause to
be grateful to her. We welcomed her
successor, Joanna Matthews, earlier in the
year and are delighted to see someone with
such a wealth of experience and knowledge
take on this important role.
06
OverviewRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Chief Executive Officer’s
review
Our vision is to be the
most successful delivery
company in the UK.
Moya Greene
Chief Executive Officer
We are reporting a strong financial
performance. Our strategy is delivering.
The transformation of Royal Mail is
well underway.
Our key metrics are moving in the right
direction. Reported Group operating profit after
transformation costs grew from £152 million
to £440 million due to cost control and
improved revenue generated by parcel volume
and letter revenue growth. Our operating profit
margin after transformation costs increased
to 4.4 per cent on a like-for-like basis. Free
cash inflow increased from £154 million to
£334 million, mainly generated by trading.
Parcels continue to be a major contributor
to Group revenue at 48 per cent.
Just over three years ago, our core UK
business had significant cash outflows.
Now, despite the challenging UK economic
conditions, UKPIL contributes the majority of
Group operating profit; its reported operating
profit margin after transformation costs has
increased to 3.9 per cent on a like-for-like
basis. As the transformation of UKPIL gathers
pace, we are harnessing the benefits of the
new regulatory framework, introduced in the
UK in April 2012. Today, approximately five per
cent of Royal Mail revenue is subject to direct
price control. In short, we are delivering a
stronger commercial performance, and our
prices are now closer to the European median.
GLS, our ground-based European parcels
carrier, delivered a resilient performance.
Difficult trading conditions in Germany
and France were mitigated to some extent
by improved trading performance in
other countries.
Delivering our strategy
Our vision is to be the most successful delivery
company in the UK. Royal Mail is already a
market leader by revenue in both the UK
parcels and letters markets. GLS is an
established, ground-based parcels player
in all its markets. This means we are well
positioned to deliver our strategic priorities:
1. being a successful parcels business;
2. managing the decline in letters; and
3. being customer-focused.
We are creating a commercial, customer-
focused company, offsetting addressed letter
declines with revenue growth from parcels,
which is expected to drive profitable growth.
With the continued support and engagement
of our people, we can deliver these objectives
to help to ensure that we are financially
successful and able to access the capital
needed to deliver the ongoing transformation
of our business.
Being a successful parcels business
We operate in a dynamic and growing parcels
market. During the year, we handled a
reported total of 1,461 million parcels
(2012 1,391 million) through our three parcel
networks in the UK and continental Europe.
For more information on our parcels strategy,
see page 21.
We remain well positioned to benefit from
significant growth in online retailing in the UK,
where Royal Mail is the biggest overall parcel
delivery player by revenue. A recent survey1
found that 76 per cent of people in the UK are
more likely to use a particular online retailer
again if they deliver through Royal Mail.
Over 90 per cent of the UKPIL parcels that we
handle, including Universal Service Obligation
(USO) parcels, are delivered by our core UK
network, through which we also handle letters.
In the last financial year, this combined network
handled reported volumes of 1,010 million
parcels (2012 950 million), with quality being
a key consideration. This focus on quality
is important in a market where businesses
and consumers rightly demand high
service standards.
Parcelforce Worldwide, our UK express parcels
delivery business, handled reported volumes
of 71 million items during the year (2012
66 million), about seven per cent of our UKPIL
parcel volumes. It benefits from a very high
quality of service performance and is poised
to deliver a significant increase in the volumes
it handles in the years to come. In October
2012, we announced a £75 million, four-year
investment programme for Parcelforce
Worldwide, as we expand our position
in the UK express parcels market.
GLS carried 380 million parcels in 2012-13
(2012 375 million). Its parcel volumes grew
by one per cent during the year, with growth
in both domestic and international volumes.
1 Hall & Partners, Delivery Matters 2013.
07
OverviewRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Chief Executive Officer’s review (continued)
Managing the decline in letters
UKPIL’s letters business is key to our financial
success, generating £4,787 million (including
marketing mail) in reported revenue during
the year. However, as I have said in my
previous reports, addressed letter volumes
have been in structural decline for a number
of years. In 2011-12, we handled 63 million
addressed items every day. Today, this has
fallen to 58 million. For more detail on our
letters strategy, see page 21.
Our letter revenue, including marketing mail,
increased by three per cent on a like-for-like
basis. Addressed letter volumes decreased by
eight per cent on a like-for-like basis, in line with
our expectations. Following price increases, we
are making a profit on Access Mail – the mail
other postal operators place in our downstream
network for us to deliver on their behalf. This
is a significant step forward as it accounts
for approximately half of our addressed letter
volumes. Access Mail also makes a considerable
contribution to the cost of funding the USO
network. Marketing mail remains a significant
contributor to letter revenue2. MarketReach,
an initiative we launched in July 2012 to help
companies and their agencies derive more value
from mail, is focused on helping to mitigate the
impact of the letters decline. The advertising
market has shown little growth during the year.
Despite this, marketing mail revenue increased
by two per cent on a like-for-like basis.
As I have also reported in previous years,
our transformation programme, one of the
largest of its kind in UK industry, is improving
our productivity. 79 per cent of letters are
now sequenced to delivery point. Our delivery
revisions programme is well underway, as
we roll out new methods, processes and
equipment to help our colleagues manage
the fundamental shift in our traffic towards
parcels.
In March 2013, Ofcom published guidance
setting out its regulatory approach to
protect the Universal Service from growing
direct delivery (end-to-end) competition.
We welcome Ofcom’s acknowledgement in its
guidance of its duty, powers and willingness
to act to protect the Universal Service if
direct delivery competition threatened its
sustainability. We are also pleased to note
Ofcom’s commitment to actively monitor all
direct delivery market participants and track
developments and any prospective risks to the
Universal Service.
Being customer focused
In a recent survey of adults in Great Britain3,
Royal Mail was the most favourably viewed
company of all the participating organisations.
Our own research shows that our mean
business customer satisfaction score is 74,
an increase of four points on last year. But
we are aware that our customers have
many options.
To be their first choice, we must get the
basics right and be easy to do business with.
We gather customer feedback extensively
across our business and use this insight
to increase customer satisfaction, reduce
customer complaints and improve the
whole customer experience.
For example, last year we launched a monthly
customer report, which focuses on a number
of key metrics, including benchmarking our
performance against our peers and how likely
our customers are to recommend Royal Mail.
Assessing all the information available to us,
including social media activity and inputs from
our sales teams, provides a holistic view of
how we are meeting customer needs, and
where we need to take action.
A number of important customer initiatives
were implemented during the year. In April
2013, just after the financial year end, we
streamlined our consumer First Class parcels
offering from 15 to seven weight bands and
introduced two parcel categories – small and
medium. This simplified our product range,
making it easier for customers to understand
and make informed choices.
We know the areas where we need to
improve our service. Over 60 per cent of all
our complaints are caused by four issues –
P739 ‘Something for you’ cards, redelivery,
redirection and misdelivery. We have made
good progress on redirection, redelivery and
misdelivery, where complaints have reduced
since 2009. For example, we offer a free
redelivery service, where customers can have
an item redelivered to their address on a day
of their choosing, or select an alternative
address in the same postcode area.
We want to give recipients of parcels more
control. Having secured regulatory approval
from Ofcom, we rolled out our Delivery to
Neighbour programme across the UK in
September 2012. Our postmen and women
can now leave parcels with a neighbour if the
recipient is not at home. Feedback from
people in the areas where we trialled Delivery
to Neighbour revealed that 92 per cent4 of
customers whose items were left with a
neighbour were satisfied with the overall
experience.
In addition, we work with mailing customers
on forecasting delivery volumes in order to
ensure extra temporary operational capacity
is available to cope with seasonal peaks and
that we can continue to deliver a high quality
of service. This approach ensured we had the
capacity required to manage increased parcel
volumes over the Christmas period, through
the installation of eight temporary parcel
sort centres.
Our people
Our people are key to our transformation and,
in particular, the successful delivery of our
strategic priorities. In a recent survey, eight
out of ten Royal Mail customers were pleased
about the helpfulness of our postmen and
women5. They are our ambassadors and
a credit to Royal Mail.
The safety of our colleagues in the workplace
and on their rounds continues to be of
paramount importance.
Over the course of the year, the lost time
accident frequency rate reduced by
20 per cent.
Our World Class Mail programme – designed
to promote continuous improvement across
safety and productivity – continues to be
embedded across the organisation.
In 2012, we reintroduced a full employee
engagement survey for 150,000 colleagues
across the UK, following a benchmark survey
in autumn 2011. Almost two-thirds of our
colleagues are proud to work for Royal Mail.
Three-quarters (76 per cent) have a clear
understanding of what customers want.
We are redoubling our efforts to communicate
with our people about the challenges we face
and our strategy to address them. We have
2 Marketing mail numbers are calculated using statistical
analysis from surveys in order to estimate how our mail
is being used. Data services and redirections were added
into the marketing mail portfolio in 2012-13. Numbers
have been restated accordingly.
3 Ipsos MORI, Corporate Image Survey, December 2012.
4 Illuminas research: 720 telephone interviews with
trial participants.
5 Ipsos MORI, Corporate Image Survey, December 2012.
08
OverviewRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 provided managers with tools and support to
help with action planning, allowing members
of teams to feel more engaged in the business’
future. Alongside our broader engagement
programme, we are undertaking a series of
‘town hall’ events, where members of our
senior management team will address as
many as 1,000 colleagues at a time.
We are in ongoing discussions with our
trade unions on a number of issues. In these
discussions, we have reached agreement on
some key issues. The Company has extended
until April 2014 its existing voluntary
redundancy terms for those impacted by
modernisation and renewed its commitment
to maintaining a predominantly full-time
workforce. We separately confirmed that
a change in Royal Mail’s ownership
structure will not affect colleagues’
contracts of employment.
In last year’s Report I confirmed that, just
after the end of the financial year, almost all
of the liabilities and assets in the Royal Mail
Pension Plan (RMPP) were transferred to
HM Government. This transfer could not
address the ongoing costs of such a large
Plan (with approximately 112,000 active
members), which are material. For more
information, please see page 75.
Our role in society
London 2012 was a major highlight for
Royal Mail. We delivered 1.6 million envelopes
enclosing approximately 7.5 million tickets
to customers, with over 98 per cent of them
arriving first time, on time. We were the first
postal administration to paint its post boxes
gold in the communities that gold medal-
winning British athletes are associated with,
the first to pay Olympians and Paralympians
the same financial consideration for their
image rights, and the first to produce a
stamp in honour of every British Olympic and
Paralympic gold medal athlete. In this very
special year for the UK, we were touched by
the very positive response we received from
members of the public as we celebrated the
achievements of Team GB and ParalympicsGB.
We have a long heritage of contributing to our
communities. We connect millions of customers,
companies and communities, including those
in the most remote rural areas, making
commerce happen in the process. Our
contribution to the UK at this difficult time for
the economy is significant. For the 2011-12
financial year, research from the Centre for
Economics and Business Research (CEBR)
estimated that: i) in terms of ‘value added’
from UK operations of companies, our core UK
business ranked as the eighth highest in the
UK; ii) we contributed 0.4 per cent to the UK’s
total Gross Domestic Product (GDP), rising to
0.7 per cent when our wider economic impacts
were included and; iii) for every £1 we paid in
wages, an estimated additional 57p in wages
was generated in the wider economy through
indirect and induced impacts.
Obtaining ongoing access to external capital
As we said at the Interim Report stage, ongoing
access to external capital is a key part of the
transformation process.
We believe that Royal Mail will combine the
best of the public and private sectors. We are
the provider of the one-price-goes-anywhere,
six-days-a-week Universal Service Obligation.
We are honoured to provide the Universal
Service to more than 29 million addresses
across the UK. The service is enshrined in the
Postal Services Act 2011. The Act sets out
clear and specific minimum requirements,
which can only be changed by a vote in both
Houses of Parliament. We are pleased that
Ofcom found recently that nine out of ten
residential and business customers consider
our current level of service meets their core
needs and there is no need for change.
Our Quality of Service standard specifications
are the highest of any major European
country, and will continue to apply. Our
societal obligations would also remain in place
and, again, we are very proud to deliver them.
For example, our free Articles for the Blind6
service is enshrined in the Postal Services
Act 2011.
Demonstrating that Royal Mail can attract
external capital will pave the way for continued
investment in our Company. It also represents
a further opportunity to increase the
alignment that already exists between
Royal Mail and its people.
Outlook
We are well positioned to continue to benefit
from the structural change to e-retailing,
which is driving increases in parcel volumes,
and to manage the decline in letters. In the
early weeks of 2013-14, we have seen
similar trends to those seen in 2012-13.
In this year’s Report, I must again thank our
Shareholder, HM Government, for its continued
support. In particular, I wish to thank the
Secretary of State for Business, Innovation
& Skills, Vince Cable, Minister of State for
Business and Enterprise, Michael Fallon and
their officials. I also wish to thank Dame Jane
Newell OBE, until September 2012 the Chair
of Royal Mail Pension Trustees Limited, and
her successor, Joanna Matthews, for their
counsel and support.
Most importantly, I would like to extend my
thanks to my colleagues. These are times of
significant change and we are asking a lot of
our people. I continue to be grateful for their
hard work, dedication and support. As the
ambassadors of this cherished Company,
I know that they will continue to drive our
business forward as we seek to realise our
collective objectives.
Moya Greene
Chief Executive Officer
Royal Mail Group Limited
31 July 2013
6 A free-of-charge service for people sending items
specifically designed for blind and visually impaired
people within the UK and overseas.
09
OverviewRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Our strategy
Strategy
Royal Mail Group has a clear vision to be the most
successful delivery company in the UK.
This is underpinned by three priorities: capitalising on
growth in online retailing to grow our parcels businesses;
continuing to mitigate structural decline in the letters
market by maximising the value of mail; and by being
customer-focused. By doing this, we believe we can drive
sustainable, profitable growth that will enable us to
obtain ongoing access to external capital and secure a
sustainable future for our Company.
Our corporate strategy has three priorities:
Firstly, being a successful parcels business.
The UK parcels market has shown continued
growth, thanks to the growth of online
retailing. In 2012-13, parcels accounted for
48 per cent of Group revenue. We are
investing in our three main parcels networks
and our tracking technology to meet customer
needs. A long-term investment programme in
our core, combined UK network will ensure we
have the capability we need to accommodate
the changing traffic mix from letters to
parcels.
Our second strategic priority focuses on
managing the decline in letters. We have
already transformed how we sort letters,
automating the handling process in our
Mail Centres. 79 per cent of letters are now
sequenced to delivery point. We are pressing
on with our programme of delivery revisions,
changing the way we deliver to more than
29 million addresses across the UK. This also
allows us to effectively manage growth in
parcel volumes and at the same time improve
our productivity.
Changes in the regulatory framework last year
have given us greater commercial freedoms.
These enable us to respond better to market
changes. We have already taken steps to
simplify and improve many of our propositions.
Marketing mail is one of the most successful
ways to reach out to customers. We launched
MarketReach last year to transform our direct
marketing offering. We are now developing
ways to help our customers to derive more
value from all the mail they send.
Thirdly, we need to continue to be a customer-
focused company. In this competitive market,
our customers have a choice. We are
developing the services we offer to ensure
they meet our customers’ needs. We are
investing in technology to provide the tracking
services our customers expect. We are
working with our customers to anticipate
times of peak demand and ensure we can
deliver the high quality service they need.
Our strategic priorities and how we
achieve them are central to our internal
communications programme, so our
colleagues understand their role in delivering
our strategy. We have achieved a great deal.
But more remains to be done to safeguard
the sustainability of the Universal Service
and ensure we can continue to provide high
quality jobs for our people.
10
StrategyRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Strategy
Priority one — Being a successful parcels business
Definition
To leverage our network reach and our strong brand to ensure we
can capture increasing parcel volumes as a result of the growing
popularity of online retailing in the UK.
To use our new regulatory freedom for parcels to develop new
offerings and compete more effectively in the marketplace.
To ensure our combined core UK network can accommodate
increasing parcel volumes and meet customer needs through the
completion of our modernisation programme.
Key initiatives
• Investing in our technology: from how customers access our
networks through to tracking and management information;
• Progressing our core UK network transformation: improving
safety, customer service, quality and productivity to deliver
parcels effectively and efficiently;
• Enhancing products and services: expanding services, such as
Delivery to Neighbour, to give parcel recipients more choice
and convenience;
• Expanding Parcelforce Worldwide: increasing the capacity of
the network to meet customer needs; and
• Strengthening our competitive position in the countries
where GLS operates.
Priority two — Managing the decline in letters
Definition
To manage the structural decline in the letters market by becoming
more productive and effective, and ensuring we remain the carrier of
choice for delivery of letters in the UK.
Key initiatives
• Continuing to focus on improving operational productivity
through the automation of the sequencing and sorting
process and completing our programme of delivery revisions;
Harnessing the new regulatory freedoms we have won to ensure we
make a reasonable, commercial return for the letters we deliver.
Making marketing and business mail more valuable to our customers
by increasing the data and insight they can gather.
Priority three — Being customer-focused
Definition
Putting the customer at the heart of everything we do to ensure that
we continue to be the delivery partner of choice.
Being easy to do business with, and building new propositions that
truly meet customer needs.
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• Demonstrating to customers the value of mail in customer
retention and when used in conjunction with other media;
• Building on the successful launch of MarketReach last year to
develop new ways to prove the value of mail in a digital world
and enable businesses to take advantage of it; and
• Investing in barcode tracking services to provide far greater
information and value for bulk mail customers.
Key initiatives
• Extending and enhancing our services: launching the UK’s
largest ‘click & collect’ network; working with the Post Office
as it lengthens opening hours in many branches; simplifying
our international product portfolio;
• Tackling the root causes of complaints: focusing on the four
areas that cause most dissatisfaction – ‘Something for you’
cards, redelivery, redirection and misdelivery; and
• Transforming our digital channels to serve customers better.
We are creating a commercial, customer-focused company, capitalising on parcels growth, while successfully managing the decline
in letters. We are changing from a letters company that carries parcels to a parcels company that also brilliantly delivers letters.
11
StrategyRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Key performance indicators
Strategy
The four sections below (People, Customer, Performance and Financial) and their respective KPIs reflect the four quadrants of our Corporate
Balanced Scorecard for the year 2012-13. We said last year that as the business changes, we may adapt our KPIs. This year we have added
Second Class Quality of Service, replaced process sequencing (which has been completed) with a broader KPI on Delivery Office modernisation
and replaced RIDDORs with Lost Time Accident Frequency Rate.
Measured by
Key activities in the year
Strategic links
People
We continue the roll-out of our Walk Risk Assessment Programme. This identifies key risks
on every walk so that our people are aware of potential hazards and we can take action to
reduce risk where appropriate. Our Zero Accidents Programme continues, focusing on road
safety and ensuring that our people have the training they need to operate safely on their
round and in the yard.
We produced a Corporate Action Plan in response to the 2012 Engagement Survey, developed
with the involvement of both unions and an Employee Panel. One of the actions within this
Plan was continued communication with our colleagues. As part of our ‘town hall’ events,
members of our senior management team including the Chief Executive Officer have addressed
as many as 1,000 colleagues at a time at more than 20 meetings. Following the survey, we
also used a specialised planning tool to develop and monitor actions being taken across the
organisation to improve engagement. Over 90 per cent of managers are involved in action
planning to improve local engagement.
Through the Corporate Action Plan, we have focused on raising awareness of the key causes
of customer complaints and working with colleagues to bring the number of complaints down.
We rolled out our Delivery to Neighbour programme across the UK from 1 October 2012.
We delivered 1.6 million envelopes, enclosing approximately 7.5 million tickets for London
2012, with over 98 per cent arriving on time, first time.
KPI
People
Safety
Engagement
Lost Time Accident Frequency Rate: the number of UKPIL
employee, work-related accidents resulting in an absence
on a subsequent day or shift per 100,000 hours worked.
An annual survey by Ipsos MORI measuring involvement, alignment
and loyalty of colleagues through a number of questions, including:
what our people think about Royal Mail, their understanding of our
strategy and their place in achieving our strategic objectives.
Customer focus
An annual survey by Ipsos MORI measuring how focused our
people are on delivering improvements in customer service.
US T O MER
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Performance
Financial
More information
See ‘Corporate responsibility’ on pages 28-33
See ‘Corporate responsibility’ on pages 28-33
See ‘Corporate responsibility’ on pages 28-33
See ‘Corporate responsibility’ on pages 28-33
See ‘Corporate responsibility’ on pages 28-33
See ‘Corporate responsibility’ on pages 28-33
See ‘Corporate responsibility’ on pages 28-33
See ‘Financial performance overview’ on page 14
See ‘Corporate responsibility’ on pages 28-33
See ‘Corporate responsibility’ on pages 28-33
See ‘Financial review’ on pages 16-20
See ‘Financial review’ on pages 16-20
Customer
Customer
First Class Quality of
Service
An independent, audited measure of Quality of Service for First
Class retail products, adjusted for force majeure1.
Through our modernisation programme, we are driving improvements in the pipeline to be
more productive and effective. For example, 79 per cent of letters are now sequenced to
delivery point.
Second Class Quality
of Service
An independent, audited measure of Quality of Service for Second
Class retail products, adjusted for force majeure1.
Customer
satisfaction
Average business customer satisfaction scores on a number of
issues, including price, service quality and customer experience.
A customer satisfaction questionnaire is completed by a sample of business customers every
month, helping us to identify key areas for action. In response to customer needs, we opened
eight parcels hubs at Christmas to manage anticipated increases in volumes.
Customer
complaints
Performance
Number of complaints captured by our Customer Service team2.
We continue to take action to focus on redelivery, misdelivery, ‘Something for you’ cards and
redirections, which account for more than 60 per cent of complaints. We have made
considerable progress in redelivery, misdelivery and redirection since 2009.
Group revenue
Group revenue.
Delivery hours
reduction
Percentage year-on-year reduction in the gross hours spent on
delivery and collection activities.
Number of Delivery Offices that have been modernised.
Delivery Offices fully
modernised
Financial
Revenue increases were driven by a five per cent like-for-like increase in UKPIL parcel
volumes and price increases during the year. The Group is also successfully harnessing the
benefits of the new regulatory framework, helping us to ensure we can generate a reasonable
commercial rate of return for the services we offer.
Delivery transformation continues and is providing our people with tools to manage the
changing mail mix with fewer letters and more parcels. While we have reduced the gross
hours spent on delivering mail and improved productivity, factors including the changing
traffic mix are impacting our progress.
We are more than halfway through our Delivery Revisions programme, which is changing
every aspect of the way our postmen and women work. This will ensure we are more
productive and effective and can manage the changing traffic mix.
Total expenditure
Total expenditure for UK businesses, excluding all exceptional items.
UK costs have been held in line with inflation. Increases in non-people costs in UKPIL were
partially offset by a programme of procurement savings.
Group operating
profit
Group operating profit before exceptional items.
Price increases as a result of the introduction of a new regulatory framework are a key
driver of revenue increases that have supported an increase in Group operating profit. This has
been supported by tight controls, which have ensured costs increased in line with inflation.
Free cash flow
Free cash flow.
This year, free cash flow has principally been generated by trading performance.
See ‘Financial performance overview’ on page 14
12
StrategyRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
Strategy
More information
Strategic links key
Strategic links
People
Measured by
Key activities in the year
KPI
People
Safety
Lost Time Accident Frequency Rate: the number of UKPIL
employee, work-related accidents resulting in an absence
on a subsequent day or shift per 100,000 hours worked.
We continue the roll-out of our Walk Risk Assessment Programme. This identifies key risks
on every walk so that our people are aware of potential hazards and we can take action to
reduce risk where appropriate. Our Zero Accidents Programme continues, focusing on road
safety and ensuring that our people have the training they need to operate safely on their
round and in the yard.
and loyalty of colleagues through a number of questions, including:
with the involvement of both unions and an Employee Panel. One of the actions within this
what our people think about Royal Mail, their understanding of our
Plan was continued communication with our colleagues. As part of our ‘town hall’ events,
strategy and their place in achieving our strategic objectives.
members of our senior management team including the Chief Executive Officer have addressed
Customer focus
An annual survey by Ipsos MORI measuring how focused our
people are on delivering improvements in customer service.
as many as 1,000 colleagues at a time at more than 20 meetings. Following the survey, we
also used a specialised planning tool to develop and monitor actions being taken across the
organisation to improve engagement. Over 90 per cent of managers are involved in action
planning to improve local engagement.
Through the Corporate Action Plan, we have focused on raising awareness of the key causes
of customer complaints and working with colleagues to bring the number of complaints down.
We rolled out our Delivery to Neighbour programme across the UK from 1 October 2012.
We delivered 1.6 million envelopes, enclosing approximately 7.5 million tickets for London
2012, with over 98 per cent arriving on time, first time.
Customer
satisfaction
Average business customer satisfaction scores on a number of
A customer satisfaction questionnaire is completed by a sample of business customers every
issues, including price, service quality and customer experience.
month, helping us to identify key areas for action. In response to customer needs, we opened
eight parcels hubs at Christmas to manage anticipated increases in volumes.
Number of complaints captured by our Customer Service team2.
We continue to take action to focus on redelivery, misdelivery, ‘Something for you’ cards and
redirections, which account for more than 60 per cent of complaints. We have made
considerable progress in redelivery, misdelivery and redirection since 2009.
Customer
complaints
Performance
Group revenue
Group revenue.
Revenue increases were driven by a five per cent like-for-like increase in UKPIL parcel
volumes and price increases during the year. The Group is also successfully harnessing the
benefits of the new regulatory framework, helping us to ensure we can generate a reasonable
commercial rate of return for the services we offer.
changing mail mix with fewer letters and more parcels. While we have reduced the gross
hours spent on delivering mail and improved productivity, factors including the changing
traffic mix are impacting our progress.
We are more than halfway through our Delivery Revisions programme, which is changing
every aspect of the way our postmen and women work. This will ensure we are more
productive and effective and can manage the changing traffic mix.
modernised
Financial
Engagement
An annual survey by Ipsos MORI measuring involvement, alignment
We produced a Corporate Action Plan in response to the 2012 Engagement Survey, developed
See ‘Corporate responsibility’ on pages 28-33
See ‘Corporate responsibility’ on pages 28-33
Customer
Customer
First Class Quality of
An independent, audited measure of Quality of Service for First
Through our modernisation programme, we are driving improvements in the pipeline to be
Service
Class retail products, adjusted for force majeure1.
more productive and effective. For example, 79 per cent of letters are now sequenced to
delivery point.
Second Class Quality
An independent, audited measure of Quality of Service for Second
of Service
Class retail products, adjusted for force majeure1.
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See ‘Corporate responsibility’ on pages 28-33
See ‘Corporate responsibility’ on pages 28-33
See ‘Corporate responsibility’ on pages 28-33
See ‘Corporate responsibility’ on pages 28-33
See ‘Corporate responsibility’ on pages 28-33
Performance
See ‘Financial performance overview’ on page 14
Delivery hours
reduction
delivery and collection activities.
Percentage year-on-year reduction in the gross hours spent on
Delivery transformation continues and is providing our people with tools to manage the
See ‘Corporate responsibility’ on pages 28-33
Delivery Offices fully
Number of Delivery Offices that have been modernised.
See ‘Corporate responsibility’ on pages 28-33
Total expenditure
Total expenditure for UK businesses, excluding all exceptional items.
UK costs have been held in line with inflation. Increases in non-people costs in UKPIL were
See ‘Financial review’ on pages 16-20
partially offset by a programme of procurement savings.
Financial
Group operating
Group operating profit before exceptional items.
profit
Price increases as a result of the introduction of a new regulatory framework are a key
driver of revenue increases that have supported an increase in Group operating profit. This has
been supported by tight controls, which have ensured costs increased in line with inflation.
See ‘Financial review’ on pages 16-20
Free cash flow
Free cash flow.
This year, free cash flow has principally been generated by trading performance.
See ‘Financial performance overview’ on page 14
Being a successful parcels business
To leverage our network reach and our
strong brand to ensure we can capture
increasing parcel volumes as a result of
the growing popularity of online retailing
in the UK.
To use our new regulatory freedom
for parcels to develop new offerings
and compete more effectively in
the marketplace.
To ensure our combined UK network
can accommodate increasing parcel
volumes and meet customer needs
through the completion of our
modernisation programme.
Managing the decline in letters
To manage the structural decline in
the letters market by becoming more
productive and effective, and ensuring
we remain the carrier of choice for the
delivery of letters in the UK.
Harnessing the new regulatory freedoms
we have won to ensure we make a
reasonable, commercial return for the
letters we deliver.
Making marketing and business mail more
valuable to our customers by increasing
the data and insight they can gather.
C
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CUS T O
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Being customer-focused
Putting the customer at the heart of
everything we do to ensure that we
continue to be the delivery partner
of choice.
Being easy to do business with, and
building new propositions that truly meet
customer needs.
This icon is used to indicate
reporting against a KPI
throughout the document.
1 This accounts for the impact of factors which are
beyond Royal Mail’s control, such as weather and
the logistical impact of the London 2012 Olympic
and Paralympic Games.
2 We also provide detailed annual disclosure on customer
complaints to our regulator, which is publicly available.
13
StrategyRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
Financial performance
overview
Reported Group revenue was £9,279 million.
See KPIs pages 12-13
Group revenue increased by five per cent on a like-for-like basis with the key
performance drivers being:
– Letters revenue up three per cent.
– UKPIL parcel revenue up 13 per cent.
– GLS Euro revenue up two per cent.
• Operating costs have increased by three per cent on a like-for-like basis,
benefiting from productivity improvements and tight cost management.
• Operating profit after transformation costs before other exceptional items
of £403 million is £251 million higher than last year, mainly due
to revenue growth.
• Other net exceptional items comprise profit from property disposals (last year
saw significant profit on disposals), property write-offs, industrial diseases
provisions, Postal Services Act related costs and IT costs relating to the
separation of Post Office Limited.
• The current year taxation charge effective rate of 12 per cent is due to the
charge on current year profit being partly offset by past years’ losses.
• The Group has recognised a deferred taxation asset, primarily in respect of
taxation losses carried forward and decelerated capital allowances. This is a
result of an improved profit outlook for the Group.
Free cash inflow of £334 million was generated.
See KPIs pages 12-13
• EBITDA before transformation costs of £878 million on a 52 week basis
is £197 million higher than last year’s £681 million, due to an improved
trading performance.
• Working capital inflows include the impact of higher stamp holdings by
customers and tighter working capital management.
• Investment costs of £665 million (2012 £579 million) comprises:
– Business transformation payments of £55 million (2012 £60 million).
– Redundancy payments of £75 million (2012 £129 million).
– One-off project costs of £100 million (2012 £55 million).
– Transformation capital expenditure of £177 million (2012 £185 million).
– Other capital expenditure (GLS, IT (including software)) of £258 million
(2012 £150 million).
The profit and loss summary and commentary below provides an analysis of an
equivalent 52 week period for 2013 compared with the 52 week period for 2012.
Profit and loss summary,
see page 56 for more details
Revenue
Operating costs
Transformation exceptional costs
Operating profit after
transformation costs1
Other net exceptional items
Earnings before interest and
taxation (EBIT)
Net finance costs and pension interest
Taxation - current charge
- deferred credit/(charge)
Profit for the period
Operating profit after
transformation costs margin (%)
Reported
53 weeks
2013
£m
Adjusted
52 weeks
2013
£m
Reported
52 weeks
2012
£m
9,279
(8,644)
(195)
440
(73)
367
(43)
(38)
284
570
9,146
(8,548)
(195)
403
not
adjusted
at this
level
n/m
4.4
8,764
(8,383)
(229)
152
125
277
(76)
(36)
(15)
150
1.7
The free cash flow and balance sheet summary and commentary below relates
to the 53 weeks ending 31 March 2013 and 52 weeks ending 25 March 2012.
Free cash flow summary,
see page 58 for more details
EBITDA before transformation costs
– 52 weeks
– 53rd week
EBITDA before transformation costs (see page 15)
Working capital
Other pension payments
Investment costs
Other (taxation, interest, dividends from associates)
Other exceptional items
Disposal of property and business
Free cash inflow for the period
Net debt has reduced by £280 million, mainly as a result of free cash flow
generation of £334 million.
• A £98 million increase in net deferred taxation assets has resulted from the
recognition of UK deferred taxation due to an improved profit outlook.
• To comply with accounting standards, a pension surplus of £825 million has
been recognised following the transfer of the majority of RMPP pension
liabilities and assets to HM Government as at 1 April 2012. More information
can be found in note 9 to the financial statements.
Balance sheet summary,
see page 59 for more details
Net operating assets
Net debt
Operating assets less net debt
Net deferred taxation assets/(liabilities)
Retirement benefit asset/(liabilities)
Net assets/(liabilities)
14
1 Before other exceptional items.
Reported
53 weeks
2013
£m
Reported
52 weeks
2012
£m
878
37
915
142
(3)
(665)
(81)
(26)
52
334
681
–
681
(19)
(45)
(579)
(87)
(37)
240
154
As at
31 March
2013
£m
As at
25 March
2012
£m
1,397
(906)
491
89
825
1,405
1,456
(1,186)
270
(9)
(2,716)
(2,455)
PerformanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
Operating profit after
transformation costs
Revenue
Operating profit after
transformation costs
Operating profit after
transformation costs
margin (%)
EBITDA before
transformation costs
Operating profit before
exceptional items
Adjust for:
Depreciation/amortisation
Share of (profit)/loss from
associates
EBITDA before
transformation costs
Growth rates (%)
Group revenue
– UKPIL letters & marketing mail
– UKPIL parcels
– GLS
– Other
Group operating costs
– People
– Distribution and conveyance
– Infrastructure
– Other
GLS financial information
Revenue
Costs
Operating profit after transformation costs
Average £ : € rate
Adjusted 52 weeks 2013
Reported 52 weeks ended 25 March 2012
UKPIL
£m
7,633
GLS
£m
1,498
294
101
Other
£m
15
8
Total
£m
9,146
403
3.9
6.7
53.3
4.4
UKPIL
£m
7,189
33
0.5
GLS
£m
1,562
Other
£m
13
Total
£m
8,764
128
(9)
152
8.2
(69.2)
1.7
Reported 53 weeks ended 31 March 2013
Reported 52 weeks ended 25 March 2012
UKPIL
£m
526
249
–
GLS
£m
101
31
–
775
132
Other
£m
8
1
(1)
8
Total
£m
635
281
(1)
915
UKPIL
£m
262
269
2
533
GLS
£m
128
32
–
Other
£m
(9)
–
(3)
Total
£m
381
301
(1)
160
(12)
681
Comparison of 2013 vs 2012
Reported
2013
Like-for-like2
2013
5.9
4.4
14.4
(4.1)
15.4
3.1
4.6
1.7
(0.8)
1.9
Growth rates (%)
Group volumes
– Addressed letters
5.4
2.5
12.7
– UKPIL parcels
1.6
– GLS
15.4
3.0
3.6
4.1
(0.7)
1.1
Comparison of 2013 vs 2012
Reported
2013
Like-for-like2
2013
n/a
(7.1)
6.3
1.4
n/a
(8.4)
4.8
1.4
Reported
53 weeks
2013
€m
1,837
(1,714)
123
Reported
52 weeks
2012
€m
1,808
(1,660)
148
Reported
52 weeks
2011
€m
Like-for-like2
comparison of
2013 vs 2012
%
1,746
(1,607)
1.6%
3.3%
139
(16.9)%
1.2262
1.1572
1.1758
n/a
2 The methodology to calculate the ‘like-for-like’
growth rates is explained on page i.
15
PerformanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Financial review
The 2012-13 financial year comprised 53 weeks, compared with 52 weeks in 2011-12
and 2010-11. As a result, the 2012-13 income statement is presented both on a reported
53 week basis and 52 week adjusted basis, to provide a direct comparison of revenue and
costs (see page 56). Furthermore, in order to obtain like-for-like growth percentages for
revenue and costs, the material impact arising from foreign exchange has also been eliminated.
A further explanation of how like-for-like growth is calculated is shown on page i and
like-for-like percentages can be found on page 15.
Summary Group results
The Group has delivered an improved financial performance in 2012-13, with our core UK
business, UKPIL, delivering strong growth both in revenue and operating profit before and
after transformation costs. The Group improved its operating profit margin from 1.7 per cent
to 4.4 per cent on a like-for-like basis.
The trading performance resulted in EBITDA of £915 million on a reported basis and
£878 million on an adjusted 52 week basis (2012 £681 million). In addition, the Group
generated a free cash inflow of £334 million (2012 £154 million). This improvement
was mainly due to trading, compared with last year where material disposals generated
£240 million of cash inflows.
Reported
53 weeks
2013
7,766
1,498
15
9,279
Revenue
Adjusted
52 weeks
2013
7,633
1,498
15
9,146
Operating profit after transformation costs
Reported
52 weeks
2012
Reported
53 weeks
2013
Adjusted
52 weeks
2013
Reported
52 weeks
2012
7,189
1,562
13
8,764
331
101
8
440
294
101
8
403
33
128
(9)
152
Matthew Lester
Chief Finance Officer
Business unit performance (£m)
UKPIL
GLS
Other businesses
Group
Revenue
The Group’s revenue increased by five per cent on a like-for-like basis, largely driven by revenue growth in UKPIL of six per cent on a like-for-like
basis. UKPIL’s growth was mainly due to a 13 per cent like-for-like improvement in parcel revenue, driven by both higher volumes and price
increases. In addition, the letter price increases that came into effect in April 2012 increased letter revenue by three per cent on a like-for-like
basis. This enabled the Group to offset the addressed letter volume decline of eight per cent on a like-for-like basis.
Underlying GLS Euro revenue increased by two per cent on a like-for-like basis to €1.8 billion. All countries apart from France, Portugal and
Romania saw revenue growth. On conversion to Sterling, GLS revenue decreased by four per cent to £1.5 billion (2012 £1.6 billion) due
to the weakening of the Euro. GLS parcel volumes increased by one per cent on a like-for-like basis, with growth in both domestic and
international volumes.
Group operating costs
Group operating costs before transformation and other exceptional items increased by three per cent on a like-for-like basis.
People costs increased by four per cent on a like-for-like basis. This reflects an increase in UKPIL people costs mainly due to a 3.5 per cent pay
award, in line with the Pay and Transformation Agreement, a higher ongoing pension cost (due to the pension rate increasing to 18.2 per cent),
and the implementation of the Agency Workers Directive. However, the delivery and processing operations in Royal Mail delivered a productivity
improvement of 1.7 per cent.
Group costs (including transformation costs) (£m)
People costs
Distribution and conveyance costs
Infrastructure costs
Other operating costs
Transformation costs (operating exceptional items – see note 5)
Total operating and transformation costs
16
Reported 53
weeks 2013
Adjusted 52
weeks 2013
Reported 52
weeks 2012
5,147
1,785
1,052
660
195
8,839
5,077
1,771
1,047
653
195
8,743
4,920
1,755
1,060
648
229
8,612
PerformanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Distribution and conveyance costs increased by four per cent on a like-for-like basis as follows:
• An expected increase in the UKPIL networks as a result of the increase in the number of vehicles, higher fuel price (hedged using a rolling
three year programme at approximately 90 per cent of expected usage) and higher costs of maintaining the fleet of approximately
40,000 vehicles.
• Higher third party subcontractor costs in GLS Germany, which reflect the low unemployment rates of five per cent. However, when GLS Euro
costs are translated into Sterling, they decrease on a reported basis by three per cent.
Infrastructure costs decreased by one per cent on a like-for-like basis, due to lower depreciation and amortisation charges offsetting property
cost increases in UKPIL.
Other costs include those non-people costs mainly driven by the Commercial and Central functions in the UK. These have increased by just one
per cent and this is mainly due to tight cost control measures.
Expenditure relating to UK businesses was £7,247 million (2012 £6,950 million). See KPIs pages 12-13.
UKPIL transformation exceptional costs
Transformation exceptional costs are 15 per cent lower and are the same under the reported or adjusted basis.
UKPIL transformation exceptional costs (£m)
Voluntary redundancy
Business transformation payments
Project and property costs
Total
Reported 53
weeks 2013
Reported 52
weeks 2012
(78)
(22)
(95)
(195)
(77)
(87)
(65)
(229)
Voluntary redundancy costs are in line with last year and relate to delivery modernisation and announced Mail Centre closures. To date, 25 Mail
Centres have been closed. A further 11 have been through the appropriate consultation process, and are expected to be closed by 2015.
The £22 million business transformation payments relate to the Pay and Transformation 2010 Agreement where colleagues receive payments
of up to £1,000 based on specific milestones and specific bonuses with respect to transforming the network.
Project and property costs mainly relate to key business transformation projects such as the implementation of new delivery methods, Mail Centre
reductions and deployment of automation equipment. Increased activity in Delivery Office revisions during the year has contributed to this increase.
Operating profit before transformation costs was £635 million on a reported basis (2012 £381 million). See KPIs pages 12-13.
Operating profit after transformation costs
All three of the Group’s business segments generated an operating profit after transformation costs, resulting in a Group operating profit after
transformation costs of £440 million on a reported basis, and £403 million on an adjusted basis, with UKPIL contributing around 75 per cent
to the Group total (2012 22 per cent).
On a like-for-like basis GLS experienced a 17 per cent decline in operating profit after transformation costs, from €148 million to €123 million.
Germany reported a profit decline reflecting the challenging trading conditions. Operational performance issues remain in France. In most other
countries profit improved, particularly in Italy and Denmark.
On a like-for-like basis, Group margin improved from 1.7 per cent to 4.4 per cent. UKPIL’s margin was 3.9 per cent, and GLS’s margin was
6.7 per cent.
Net exceptional items, including transformation costs (same under a reported and adjusted basis)
Exceptional items (£m)
Operating exceptional items:
– Transformation costs (see above)
– Other
Total operating exceptional items
Non-operating exceptional items:
– Asset disposals
– Business disposals
Net exceptional items
Reported 52
weeks 2013
Reported 52
weeks 2012
(195)
(77)
(272)
4
–
(268)
(229)
(57)
(286)
156
26
(104)
17
PerformanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
Financial review (continued)
Other operating exceptional items mainly comprise costs relating to legacy industrial diseases claims of £28 million (2012 £10 million), one-off
IT costs associated with the separation of Post Office Limited during the year of £20 million (2012 £nil), impairments (mainly property) of
£20 million (2012 £7 million) and charges related to the implementation of the Postal Services Act of £10 million (2012 £24 million).
Non-operating exceptional items are not material this year. Last year there were property disposal gains of £156 million, £104 million of which
relates to the sale of the Rathbone Place property and £26 million mainly from the sale of the Group’s investment in Romec Services Limited
(a subsidiary of Romec Limited).
Net finance and pension interest costs
Net finance and pension interest costs of £43 million (2012 £76 million) comprise a £34 million net pension interest credit (2012 £24 million)
and net finance costs of £77 million (2012 £100 million) relating to net debt.
The pension interest credit is non-cash and comprises the investment returns on the pension assets held by the Trustee at the start of the year
and the unwinding of the discount rate on the associated pension liabilities.
The net finance costs of £77 million comprise finance costs of £104 million (2012 £112 million), offset by finance income of £27 million
(2012 £12 million).
The finance costs of £104 million for this year mainly comprise £82 million (2012 £91 million) relating to average loans and borrowings
of £972 million (2012 £1,478 million) resulting in an average interest rate of 8.4 per cent (2012 6.2 per cent). Of the £82 million charge,
£51 million (2012 £45 million) relates to the 12.0 per cent general purpose/working capital facility. This is an unsecured facility that has
preconditions to any early repayment, and the interest is rolled-up rather than paid, meaning actual cash interest costs are lower by
this amount.
During April and May 2012, the Group paid down £600 million of one of its facilities and at 31 March 2013, the following facilities were
drawn down.
Purpose of loan/borrowing
GLS funding
General Purpose/Working Capital
General Purpose/Working Capital
General Purpose/Working Capital
Total
2013
Average
balance
£m
2013
Average
interest rate
%
500
48
–
424
972
5.8
2.0
–
12.0
Facility
end date
2021-2025
2014
2014
2016
Drawn
balance at
31 March
2013
£m
Average loan
maturity date
500
2023
–
–
473
973
–
–
2016
Facility
£m
500
600
300
473
1,873
Current taxation (UK businesses and GLS)
The current tax charge of £39 million (2012 £34 million) represents an effective rate on profit before taxation of 12 per cent (five per cent rate
in the UK) due to current year UK taxable profit being offset by previous years’ trading tax losses, which arose both due to trading and, up to
2010-11, the annual cash costs of nearly £300 million used to fund the historic pension deficit. The reason for the low overall UK effective tax
rate is because no deferred tax asset had previously been recognised for these tax losses. The majority of the remaining trading tax losses
available to Royal Mail Group Limited will be extinguished at the end of 2012-13 as part of the Postal Services Act pension transfer implementation.
GLS blended current taxation rates of 26 per cent are in line with the standard rates for the countries in which it operates.
Deferred taxation (UK businesses only)
The return to profitability in the UK, and the pension transfer – bringing an end to Royal Mail Pension Plan (RMPP) deficit correction payments
– has meant that the UK businesses produced taxable profit in 2012-13. Consequently, the net deferred tax credit of £284 million in the income
statement in 2012-13 includes £290 million relating to UK tax, mainly to recognise the improved profit outlook for the Group and future tax
benefits associated with carried forward tax reliefs (including capital allowances) of approximately £2.4 billion. These unused reliefs have built
up mainly because of there being insufficient profit to use the potential deductions which had been deferred to later years.
Pension plans
On 1 April 2012 – after the granting of State Aid approval by the European Commission on 21 March 2012 – almost all of the pension liabilities
and pension assets of the Royal Mail Pension Plan (RMPP), built up until 31 March 2012, were transferred to HM Government. On this date,
the RMPP was also sectionalised, with Royal Mail Group Limited and Post Office Limited each responsible for their own liabilities in future. This
arrangement left the RMPP fully funded on an actuarial basis in respect of historic liabilities at this date.
Royal Mail Group’s ongoing pension costs, mainly relating to approximately 112,000 active members in RMPP, will continue to be material
(with associated cash costs being similar to the charges to the income statement). There is no difference between the reported and adjusted basis.
18
PerformanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Pension costs in the income statement (£m)
UK defined benefit, mainly RMPP
UK defined contribution
GLS defined contribution
Total Group ongoing pension costs
Reported 53
weeks 2013
Reported 52
weeks 2012
(412)
(17)
(5)
(434)
(384)
(11)
(5)
(400)
Pension balance sheet amounts (under an IAS 19 basis)
The balance sheet pension deficit has reduced from a deficit of £2.7 billion at March 2012, to a surplus of £825 million at March 2013. The
movement in the pension liability is almost entirely due to the transfer of pension liabilities and pension assets to HM Government.
Royal Mail Senior Executives Pension Plan (RMSEPP)
This plan was closed to future accruals on 31 December 2012. The Company has reached an agreement with the RMSEPP Trustees to maintain
their cash contribution requirement at £10 million per annum until the March 2018 triennial valuation is complete. Also, as a part of the
agreement, the Company made a one-off deficit correction payment of £19 million to the plan during the year and placed £20 million into
an escrow account.
Cash flow
EBITDA before transformation costs of £915 million (2012 £681 million) increased due to the trading performance explained above.
Working capital inflow of £142 million (2012 £19 million outflow) is mainly due to the increase in stamp holdings by customers in light of the
April 2012 price increases and overall tighter working capital management.
Total investment of £665 million (2012 £579 million) comprises £407 million (2012 £429 million) resulting from the continuation of the
transformation programme, and business as usual spend of £258 million (2012 £150 million). The 2012-13 depreciation charge was
£281 million (2012 £301 million).
Taxation and interest cash costs of £81 million (2012 £91 million) comprise £44 million (2012 £56 million) relating to net interest paid and
£37 million (2012 £35 million) relating to current taxation payments. The interest cash costs are lower than the net interest charge of
£77 million mainly due to the roll-up of interest as explained above. The taxation payments are broadly in line with the current income
taxation charge of £41 million (2012 £36 million).
Cash inflows associated with disposals have reduced from £240 million in 2011-12 to £52 million in 2012-13. The 2011-12 inflow included
£120 million from the sale of the Rathbone Place property off Oxford Street, London and £29 million from the sale of the Group’s investment
in Romec Services Limited.
The combination of these cash flows resulted in a free cash inflow of £334 million (2012 £154 million) and, excluding the one-off impacts of
disposals of £52 million (2012 £240 million), a cash inflow of £282 million (2012 outflow of £86 million).
Net debt
Net debt has decreased by £280 million to £906 million during the year ending 31 March 2013, mainly due to cash flow generated. During the
year, £600 million of loans were repaid to HM Government.
Financial risks and related hedging
The Group is exposed to currency and commodity price risk. The Group operates hedging policies which are described in the notes to the
financial statements. The exposures are set out in the table below, together with how much the 2013-14 operating profit would differ
from 2012-13 as a result of the changes in commodity costs/exchange rates up to 31 March 2013, post the impact of the respective
hedging programmes.
Exposure – Royal Mail Group
Diesel and jet
US$
Euro
Impact on
operating profit
of a 5% increase
in price/
weakening of
Sterling (before
hedging)
£m (loss)/gain
Impact of no
further change
in price/rate on
2013-14
operating
profit versus
2012-13
(post hedging)
£m (loss)/gain
(5)
(4)
(9)
1
(2)
1
19
PerformanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Financial review (continued)
It is anticipated that there will be a £1 million favourable impact on profits arising from the change in effective (post hedging impact) diesel costs
from 51ppl in 2012-13 to an anticipated 50ppl in 2013-14. Without hedging, this favourable variance would become an adverse £3 million
variable (based upon closing fuel prices at 31 March 2013).
The Group’s exposure to fuel prices is shown in the table below, together with the coverage provided by the hedges in place. The exposure
represents the cost of the underlying commodity and excludes fuel duty (which costs the Group approximately £100 million each year).
Diesel and fuel costs (including duty) for 2013-14 are expected to be £196 million.
Diesel
Jet
Total
Underlying
product incl
irrecoverable
VAT in 2013-14
£m
Fuel duty in
2013-14
£m
Total cost in
2013-14
£m
80
16
96
100
nil
100
180
16
196
% of
underlying
product
for 2013-14
hedged
£m
93
92
The currency exposure arises mainly from the Group’s trading with overseas postal operators, the profits of GLS and inter-company loans with
GLS. There is a significant degree of offset between these exposures and hedge programmes in place which reduce the impact on 2013-14
operating profit. The residual, unhedged, exposure for 2013-14 is estimated at £14 million for the Euro and £50 million for the US$.
The Group manages its interest rate risk through predominantly fixed rate debt. At the year end 100 per cent of the loans were at fixed rate to
maturity. Consequently (and taking into account financial assets held but excluding the RMPP pension escrow investments), an increase of 100
basis points to interest rates during the year end would have resulted in an increase to profit of £3 million. The RMPP pension escrow
investments were sold in April 2012 and hence would not have been materially affected by an interest rate change during the year.
Counterparty risk is managed by limiting aggregate exposure to any individual counterparty based on their financial strength.
Off balance sheet arrangement
In 2000, Royal Mail entered into a defeased lease arrangement whereby certain automation equipment was leased and the lease rentals
concurrently prepaid by Royal Mail into an investment fund. Following the general falls in credit ratings, a letter of credit (LOC) has been
required to provide, on behalf of Royal Mail, additional support to the lessor in the event of default by the investment fund holder. The chances
of this LOC being called upon are considered to be remote, so no liability to reimburse the bank who have provided the LOC has been included
in the balance sheet for Royal Mail. The current value of the LOC is £40 million and it is currently not collateralised.
Equity
On 27 June 2012, the Company reduced the amount of its share premium account by £3,784 million, with the Company reducing the deficit
on its distributable reserves by the same amount at that time. This reduction of capital was approved by a special resolution of the Company,
supported by a solvency statement made by its Directors pursuant to section 642 of the Companies Act 2006. The reduction was executed
through a non-cash accounting entry and has no effect on total equity or the number of the Company’s ordinary shares in issue or their
nominal value.
Matthew Lester
Chief Finance Officer
Royal Mail Group Limited
31 July 2013
20
PerformanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 UK Parcels, International
& Letters (UKPIL)
Trading results
Revenue (£m)
Operating profit after transformation
costs (£m)
Operating profit margin after transformation
costs (%)
Volumes (m)
Royal Mail UK core parcels network
Parcelforce Worldwide
Total parcels
Addressed letters (including international)
Unaddressed letters
About UKPIL
As the UK’s sole provider of the Universal
Service, UKPIL’s 150,000 employees deliver
letters and parcels, six-days-a-week, to more
than 29 million addresses across the UK at
affordable and competitive prices. It is a leading
UK provider of collection and delivery services
for express parcels through Parcelforce
Worldwide and Royal Mail. MarketReach
provides a full-service marketing mail offering
and helps businesses derive more value from
marketing mail. UKPIL is responsible for the
design and production of the UK’s stamps and
philatelic products. It is also responsible for
the processing of international mail under
reciprocal arrangements with other overseas
postal administrations.
Our strategy
Our letters and parcels strategies go hand in
hand. We derive competitive advantage from
a combined network. Strategically, we are
focused on capturing the growth in online
retailing to ensure a sustainable and profitable
Universal Service as the number of letters we
handle continues to decline.
Reported
53 weeks
2013
Adjusted
52 weeks
2013
7,766
7,633
Reported
52 weeks
2012
7,189
331
4.3
1,010
71
1,081
14,079
3,307
294
3.9
994
70
1,064
13,869
3,258
33
0.5
950
66
1,016
15,147
3,077
Our parcels strategy:
• Getting the basics right. We are streamlining
our parcels offering to make it easier for
customers to choose the right service for
them. We have simplified our terms and
conditions. We have provided our colleagues
with more of the tools they need to deliver
increasing numbers of parcels;
• Getting the technology right. We are
investing in IT to offer our customers the
services they expect from a parcels
operator, including SMS messaging and
tracking services. By Christmas 2013, we
aim for every postman and woman to have
access to a hand-held scanner for their
delivery round; and
• Expanding and automating our networks.
We are investing to adapt the Royal Mail
network to handle more parcels and
expanding the capacity of Parcelforce
Worldwide’s express network.
Our letters strategy:
• Using our new regulatory freedom to receive
a commercial return for the letters we deliver.
Price increases in April 2012 are a key driver
of UKPIL’s improved profitability;
• Investing in our operations to improve
efficiency and in tracking business mail.
We have put in place initiatives to make
traditional mail more attractive to
customers and increase our share
of the business mail market; and
• Leveraging our position in marketing mail to
reach customers in new and innovative ways.
Trading performance
Price increases across UKPIL’s letters and
parcels portfolio, combined with increasing
parcel volumes, contributed to a strong
revenue performance. Reported revenue grew
to £7,766 million and grew six per cent on a
like-for-like basis. An increase in non-people
costs was offset by a number of other factors,
including procurement savings. Reported
operating profit after transformation costs
increased to £331 million.
The operating profit margin after
transformation costs increased to 3.9 per cent
from 0.5 per cent on a like-for-like basis, as
delivery and processing productivity across
the core network increased by 1.7 per cent.
UKPIL parcel volumes grew five per cent on
a like-for-like basis. Reported volumes were
1,081 million (2012 1,016 million), generating
a like-for-like increase in parcel revenue of
13 per cent and reported revenue of
£2,979 million. Royal Mail handled 14,079
million addressed letters over the period.
Letters (including marketing mail) accounted
for £4,787 million of UKPIL’s total reported
revenue during the year. While unaddressed
mail volumes increased by six per cent,
addressed letter volumes declined by eight
per cent on a like-for-like basis. This was
more than offset by price increases, which
contributed to like-for-like letter revenue
growth (including marketing mail) of
three per cent.
21
PerformanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 UK Parcels, International
& Letters (UKPIL) (continued)
UK Parcels,
International &
Letters (UKPIL)
case study 1 of 1
Stamps & Collectibles
Royal Mail’s Special Stamps programme has
had a landmark year, thanks to the Queen’s
Diamond Jubilee and London 2012 Gold
Medal Stamps. We issued 63 gold medal
stamps during London 2012 and painted
110 gold post boxes in honour of our
Olympians and Paralympians. The post
boxes, painted to celebrate every gold medal
win, will remain gold as a permanent
celebration of these wonderful achievements
by so many British athletes. Another highlight
– in a strong year for our stamps programme
– was the great success of our Doctor Who
stamp issue.
£1,135 million of reported Group revenue in
2012-13 (equivalent to 12 per cent) came
from marketing mail1, including MarketReach.
The advertising market has shown little
growth during the year. Despite this, marketing
mail revenue increased by two per cent on
a like-for-like basis.
We had a strong Christmas due to the
comprehensive planning we put in place to
prepare for this important trading period.
We recruited approximately 20,000 temporary
staff to handle increased Christmas traffic,
with eight temporary parcel sort centres
opening at the beginning of November. The
UKPIL core network handled 125 million
parcels and Parcelforce Worldwide handled
eight million express parcels in the four weeks
to 23 December 2012. A poll carried out after
the festive period by the leading consumer
website, moneysavingexpert.com, voted
Royal Mail the best UK parcel carrier, while
Parcelforce Worldwide was in third position.
Like-for-like growth rates (%)
Revenue
Addressed volumes
13
3
5
(8)
For more information visit
www.royalmailgroup.com
1 Marketing mail numbers are calculated using statistical
analysis from surveys in order to estimate how our mail
is being used. Data services and redirections were added
into the marketing mail portfolio in 2012-13. Numbers
have been restated accordingly.
Parcels
Letters
22
PerformanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 General Logistics Systems
(GLS)
Trading results
Revenue (£m)
Operating profit after transformation costs (£m)
Revenue (€m)
Operating profit after transformation costs (€m)
Operating profit margin after transformation costs (%)
Volumes (m)
Note: GLS reports results for the 52 weeks ending 31 March.
Reported 52
weeks 2013
Reported 52
weeks 2012
1,498
101
1,837
123
6.7
380
1,562
128
1,808
148
8.2
375
Trading performance
European parcel carriers have been faced with
a difficult market in recent times. Low or zero
GDP growth across the Eurozone has
constrained volume growth and a tight labour
market in Germany has driven up costs in
GLS’ largest business-to-business market.
In this context, GLS performance can be
considered robust, with like-for-like revenue
growth of two per cent.
Parcel volumes grew one per cent to
380 million. Operating costs increased more
rapidly than revenue, mainly due to the higher
distribution and conveyance costs arising in
Germany as low unemployment rates resulted
in higher subcontractor costs. This was
partially offset by profit growth in Italy,
Denmark and Austria.
Operating profit declined by 17 per cent on a
like-for-like basis to £101 million. This was
due to a £20 million decline in like-for-like
operating profit and a £7 million foreign
exchange impact. As a result, operating profit
margin declined to 6.7 per cent.
About GLS
General Logistics Systems (GLS) is one of
the largest ground-based deferred parcel
delivery service providers in Europe. It is a
pan-European business, providing reliable
parcel and express services as well
as logistics solutions.
The GLS network covers 37 countries through
wholly owned and partner companies, is
globally connected through contractual
agreements and acts as the Group’s gateway
to Europe, opening up new opportunities.
Our strategy
GLS aims to be a high quality of service leader
in the parcels segments in which it operates.
Its strategy is to invest in systems, products
and processes which will provide efficiencies
and opportunities to develop new delivery
options for the European parcels market.
While GLS already has a strong presence in
the European business-to-business parcels
market, business-to-consumer parcels
currently represent approximately one
quarter of GLS volumes. New initiatives
include investing in improved technology
to offer customers near real-time track
and trace services in the GLS network.
The expansion of the GLS network through
organic growth and targeted acquisitions
focused on the standard parcels market is a
key objective. GLS’s ground-based network
and pan-European reach mean it is already
benefiting from cross-border growth in parcel
volumes. Its broad customer base means it
is not dependent on specific accounts to
maintain and grow volumes.
Almost three-quarters (71 per cent) of GLS’s
revenue is generated in three major markets:
Germany, Italy and France. GLS provides
high service levels, supported by its tracked,
cross-border technology platform and
European reach. It continues to monitor
emerging markets, particularly those
seeking to join the EU, for further
growth opportunities.
23
PerformanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Business risks
The Corporate Governance section describes in detail how the Group manages its risk from the Group Board level, its respective
sub-Committees and through the organisation. Further details can be found on pages 38-45.
The table below details the principal business risks, their impact and how the Group mitigates these risks.
Principal risk
Impact
Mitigation
The market and our share of it
may shrink more rapidly than we
expect, leading to lower growth
rates and profitability.
Direct delivery may also threaten
the sustainability of Royal Mail’s
Universal Service.
Changes in customer
preferences and
competitor activity
Customer behaviours are
constantly evolving and
competition is increasing.
Consequently, there is a risk that
our product offerings and the
customer experience we provide
may not meet changing
customer needs.
In addition, customer or
competitor actions could trigger
significant volumes of physical mail
bypassing Royal Mail, downtrading
to lower revenue products and
acceleration in e-substitution.
Postal operators and other third
parties may set up discrete direct
delivery networks in urban areas.
• We have placed significant focus on the key growth area of parcels,
including investment in Parcelforce Worldwide and enhancing the
core network to accommodate growing customer traffic;
• We have introduced initiatives to simplify products, improve our
product delivery and the customer experience to drive loyalty
and advocacy;
• We have held discussions with key stakeholders, and continue to do
so, on the risk to the Universal Service if direct delivery competition
is allowed to develop unchecked;
• We are developing proposals to maximise commercial opportunities
from the freedoms we have gained;
• We are focusing product development and sales resource on growth
opportunities with the greatest potential for added value, especially
outside e-substitutable markets;
• We launched a new media business, MarketReach, to improve our
direct marketing mail proposition for customers; and
• We remodel/optimise the operational network as necessary to
cater for a different mix of products, local direct delivery and
to reduce costs.
24
PerformanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Principal risk
Impact
Mitigation
Economic environment
Historically, there has been a
correlation between the state of
the UK economy and the level of
mail volumes. There is a risk that
the continuation of flat or adverse
economic conditions could impact
our ability to stay profitable,
either by reducing volumes or
by encouraging downtrading
to lower revenue products.
Additionally, we have significant
European operations, and current
uncertainty and economic
weakness in the Eurozone
could impact these businesses.
Business modernisation
We are undergoing a significant,
extensive modernisation
programme to improve our
equipment and technical and IT
infrastructure, and operating
models. The success of the
business strategy relies on
successful extraction of benefits
from the programme, whilst
maintaining key business
outcomes such as Quality of
Service levels.
Adverse economic conditions and
uncertainty would have a direct
impact on mail volumes and,
consequently, on Group revenues
and profit.
Economic conditions may impact
the ability of key customers or
critical suppliers to continue
trading. This would directly
impact our revenues or day-to-
day operations.
• We continually review our costs to find areas where we can mitigate
the impacts of any downturn;
• We have conducted a programme of organisational restructuring to
reduce managerial headcount in line with changing business volumes,
and monitor closely our progress in realising these savings;
• We have robust econometric models in place to provide early
warnings of changes to overall volumes and the profile of letter and
parcel volumes. We continually review and upgrade these models
to anticipate better the impact of price rises and reflect the
increasingly deregulated market; and
• We targeted price increases for 2012-13 tariffs to ensure prices
remained affordable.
Failure to implement our
modernisation programme
effectively and extract benefits
would adversely impact our ability
to compete.
At the same time, a reduction
in Quality of Service standards
could result in loss of traffic,
reputational damage and failure
to meet our Quality of Service
standards will result in
regulatory scrutiny and
possible regulatory sanctions.
Failure to improve our IT
infrastructure would increase
the risk of delivery or security
shortfalls, and the risk that the
IT platform might not be able
to support the business
plan initiatives.
• We track progress and outcomes of all revisions to operational
practice on a weekly basis to ensure completion to time and
the sharing of good practice and lessons learned. Quality of Service
is a fundamental consideration prior to any change;
• We have increased focus on delivery modernisation and
performance with the new Operational organisation;
• We follow an agreed framework for all transformation revisions;
• We are closely managing and monitoring the IT
transformation project;
• We are embedding our World Class Mail1 initiative into delivery
operations to ensure that operational change is backed up by
cultural change;
• We are closely monitoring our progress in realising role reductions,
in line with operational changes; and
• We are engaging closely with our unions and colleagues with
regard to the rationale behind, and our progress with regard
to, modernisation.
1 Developed in-house and based on leading global practice
and expert advice, World Class Mail is a comprehensive
system for improving safety and productivity.
25
PerformanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Business risks (continued)
Principal risk
Impact
Mitigation
Risks inherent in the postal
industry
The postal industry has specific
characteristics that bring particular
operational and commercial risks.
Operations are at risk of disruption
by, for example, adverse weather,
health and safety incidents,
industrial action, operational
change, terrorism (either as a
target or a conduit), or failure of
critical suppliers.
In addition to the new regulatory
regime in the postal sector, there
is a risk of non-compliance with a
wide range of legal and regulatory
requirements, such as
procurement and competition law,
Bribery Act and financial services
and data security regulations.
The legal and regulatory
environment in which the Group
operates is subject to change.
Breakdowns in the network would
reduce Quality of Service, increase
costs and reduce revenue, and
damage our reputation.
• We have Business Continuity Plans in place which are owned,
maintained and reviewed by the Operations Executive;
• We have a communication model in place to keep customers
appraised of potential or actual service impacts;
Failure to meet regulatory,
competition law, or Bribery Act
or other legal requirements
could result in prolonged
investigations, with potentially
severe financial consequences
and reputational damage.
Changes in legal and regulatory
requirements (including at EU
level) could impact the Group’s
ability to meet its targets and
goals. For example, any change in
the VAT treatment of network
access services may make the
use of third party delivery
services which take advantage of
those network access services
less attractive.
• We continue to engage constructively with Ofcom;
• Our Regulation team works with key HM Government and EU
stakeholders on future legislative changes;
• We are embedding a structured approach to relationship
management for our key suppliers, including providing visibility
of contract performance throughout the business;
• We have engaged with trade unions at all levels across the
business, and there is constant visibility of issues, action taken
and potential risks;
• The Risk Management Committee conducts formal, ongoing
environmental scanning to identify emerging risks and episodes and
root causes of incidents that have impacted other businesses and
might have implications for Royal Mail Group;
• Comprehensive compliance programmes are in place addressing Mail
Integrity, Aviation Security and control of Dangerous Goods; and
• The Royal Mail Group compliance team works with business units
to maintain an overall compliance framework (covering postal
regulation, competition law and Bribery Act compliance), policy
and processes, awareness raising, and training programmes.
26
PerformanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Principal risk
Impact
Mitigation
Preparing for attracting
external capital
We need to be in a position to
implement the provisions of the
Postal Services Act 2011,
including reaching a sufficient state
of readiness to obtain access to
external capital.
As we are a recipient of State
Aid granted to HM Government,
HM Government must submit
annual reports to the European
Commission about progress with
our restructuring.
Without the changes provided for
by the Postal Services Act 2011,
we would be unable to generate
sufficient cash to meet these
obligations on a sustainable basis
or reach a sufficient state of
readiness to obtain access to
external capital.
In the event that we fail to
implement our State Aid
restructuring plan such that this
amounts to a failure to comply
with the conditions imposed by
the European Commission, the
European Commission has the
power to re-open its decision to
approve the State Aid we received.
A re-opening of the decision
would, at a minimum, create
significant additional work as well
as a great deal of uncertainty to
our financial condition.
• We successfully completed separation of Post Office Limited and
Royal Mail Group on 1 April 2012;
• We transferred the majority of the liabilities and assets of the
Royal Mail Pension Plan (for service up to and including 31 March
2012) to HM Government on 1 April 2012;
• We work with HM Government in its preparation of an annual
report to the European Commission about progress with our
restructuring. HM Government submitted a first report in October
2012. We are investing in our processes and data readiness to
help ensure we are in a position to meet any due diligence demands
relating to any potential transaction;
• A Director of Investor Relations has been appointed;
• We are engaging and involving the Shareholder to ensure it has
a full understanding of our plan and business model; and
• We have had continuing, ongoing dialogue and consultation with
Ofcom during the year to minimise the risk that the regulatory regime
will be a barrier to our initiatives to drive profitability, and to
maximise commercial freedom within the new Ofcom framework.
27
PerformanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Corporate responsibility
Customers
82 per cent1
Proportion of our customers
who are satisfied with the
attitude of Royal Mail’s
delivery staff.
7.5 million
Tickets delivered in 1.6 million
envelopes for London 2012.
People, Community & Environment
£800,000
Raised by our colleagues and the
Company for Prostate Cancer UK.
Royal Mail contributed
£9.5 million2 in support
of good causes over the year.
Bronze
Shadow rating in the Dow Jones
Sustainability World Index. Only
two other postal operators are
included in the index.
£2.5 billion
Invested annually through procuring
goods and services from over
7,000 suppliers.
50,000 days
Invested in our people through
formal training programmes.
1 Ipsos MORI Consumer CSI and Brand Tracker Survey
2012-13.
2 Includes our mandated commitments to Articles for the
Blind and BPMA totalling £6.1 million.
28
PerformanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Royal Mail Group makes a major contribution to the UK’s
social and economic infrastructure. As the sole provider
of the Universal Service, we play a vital role, connecting
millions of customers, businesses, organisations and
communities – including those in the most remote rural
areas. Our 124,000 postmen and women play a vital role
in local communities, reaching everyone in the UK.
The objective at the heart of our business
strategy and our corporate responsibility (CR)
strategy is the same – to ensure a sound and
sustainable Universal Service for the benefit
of everyone in the UK.
Corporate responsibility is a core part of our
focus on being a sustainable and stakeholder-
centred business. It is essential to our business
success that we behave responsibly and
sustainably in relation to our people, customers,
suppliers, communities and environment.
Our CR strategy links with our business
priorities to ensure long-term performance by:
• Delivering economic and social benefit to the
communities we serve;
• Managing our modernisation programme;
• Driving colleague advocacy of the Group and
its community role;
• Reducing the environmental impact of our
business and operations; and
• Communicating our management
of corporate responsibilities openly
and transparently.
Measuring our progress
We measure our overall corporate
responsibility performance using Business
in the Community’s (BITC) Corporate
Responsibility Index. Alongside our Platinum
ranking in BITC’s Corporate Responsibility
Index, we have achieved a shadow Bronze
ranking in the Dow Jones Sustainability Index.
Only two other postal operators globally are
included in the Dow Jones World Index.
Our aim is to maintain our Platinum BITC
ranking. This objective is one of our key
deliverables. Progress against each deliverable
is reported to the Chief Executive’s Committee
on a regular basis.
Our Corporate Balanced Scorecard supports
the implementation of our strategy, by
linking achievement of CR objectives, such
as Quality of Service and Customer Focus,
to managers’ remuneration.
Dedicated to customer service
Becoming a more customer-focused
company is one of our strategic objectives
(see page 10). We are committed to delivering
for everyone in the UK and set high targets
for customer satisfaction rates to drive
our performance.
This year we achieved a mean business
customer satisfaction score of 74, up from
70 in 2011-123.
See KPIs pages 12-13
We measure the level of employee focus on
our customers through regular monitoring of
their opinions on key aspects of the customer
experience. This year, we achieved a score of
65, compared with 63 last year.
See KPIs pages 12-13
Three quarters of non-business customers
polled by Ipsos MORI agree that “my postie
provides a good service”4.
We employ a range of communication
channels to listen and respond to customer
needs, including via telephone, letter, email
and Twitter. During 2012-13, we received
6.62 million calls from customers and
1.48 million calls from business customers.
This year, we delivered a Quality of Service
performance of 92.5 per cent in First Class
Retail and 98.7 per cent in Second Class
Retail5 (2012 92.7 per cent and 98.7 per cent
respectively).
See KPIs pages 12-13
We are very pleased to have exceeded our
Second Class target of 98.5 per cent. We
narrowly missed our First Class target of
93 per cent. We are disappointed not to have
achieved our goal. However, our performance
still means that over 1.2 billion First Class
stamped and metered items were delivered
on time, first time, against a backdrop of
significant operational change.
Of course, customer service extends beyond
our commitment to achieving our Quality of
Service specifications. We are working hard
to maintain customers’ trust and loyalty while,
at the same time, delivering one of the biggest
modernisation programmes of its kind in
UK industry.
Regrettably, the number of complaints
we received increased last year from
approximately 457,6006 to 486,400.
See KPIs pages 12-13
3 Ipsos MORI Business CSI Survey 2012-13.
4 Ipsos MORI, Consumer CSI and Brand Tracker Survey
2012-13.
5 Adjusted measures. This accounts for the impact of
factors which are beyond Royal Mail’s control, such as
weather and the logistical impact of the London 2012
Olympic and Paralympic Games.
6 A new complaint type was introduced for 2012-13 called
P739 complaints now include a new category for items
not located at the Delivery Office, which were previously
reported as claims. The 2011-12 number has been
restated from 439,600 complaints to provide
a like-for-like comparison.
29
PerformanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Corporate responsibility (continued)
Corporate responsibility
case study 1 of 2
Delivering tickets for London 2012
London 2012 was a major highlight for
Royal Mail.
We were proud to deliver the tickets for the
London 2012 Olympic and Paralympic Games.
We successfully handled over 1.6 million
items, delivering approximately 7.5 million
tickets to customers, with over 98 per cent
of them arriving first time, on time.
We were also proud to celebrate the
achievements of Team GB
and ParalympicsGB.
We were the first postal administration to
produce stamps for every gold medallist in
both Games.
We also honoured the victories by painting
110 post boxes gold across the UK in locations
associated with our gold medal athletes.
The post boxes have now become cherished
local landmarks, and in November 2012 we
announced that these would remain gold
permanently, with a plaque to name the
athlete and mark their gold medal
achievement, or mark the location’s
connection with London 2012.
The decision to keep the post boxes gold
marks the first time in Royal Mail’s history
that it has painted its iconic post boxes
a different colour permanently to mark
an historic achievement.
We are working hard to reduce the number
of complaints we receive. Four issues cause
over 60 per cent of Royal Mail complaints:
misdelivery, redelivery, redirection and P739
or ‘Something for you’ cards.
We have introduced a number of measures
to improve the service our customers receive,
such as the Delivery to Neighbour programme
(see page 8).
Supporting our people
Royal Mail has long been part of the fabric of
the UK. Our people interact with customers on
a daily basis, quite unlike most other companies.
Our colleagues are trusted and respected.
They take great pride in the work that they do.
Royal Mail employs a rich and diverse mix of
people who reflect the communities in which
we work, and the customers we serve. We are
committed to being an equal opportunities
employer. As part of this endeavour, we work
with Business in the Community’s
‘Opportunity Now’ and ‘Race for Opportunity’
programmes, which promote best practice in
equal opportunities. In addition, in 2012-13
we signed up to the Government’s Think, Act,
Report initiative, which encourages companies
to share progress in promoting gender equality.
Springboard is one of our initiatives to promote
gender equality. It is focused on helping
women to advance their careers within the
business. Since 2005, we have run over 50
courses across the Company and have seen
almost 800 female non-managers participate.
In the coming year, we hope to offer the
programme to another 1,000 colleagues.
Overall, Royal Mail’s ethnic profile is
representative of the UK workforce7 with
around 10 per cent of our employees from
ethnic minorities. However, we recognise that
ethnic minorities could be better represented
amongst our management population. Our
priority going forward is to increase the
representation of ethnic minorities at all levels
in Royal Mail.
For more information visit
www.royalmailgroup.com
7 ONS, 2010-11.
30
PerformanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Royal Mail aims to be a disability confident
employer. We are committed to employing
people with disability and supporting disabled
employees during employment.
Approximately six per cent of our employees
have a disability8.
To support our people, we also make a
significant investment in our learning and
development programmes. Almost 31,000
colleagues undertook formal training last year.
People development also forms a pillar of our
World Class Mail (WCM) programme.
We achieved an employee engagement score
of 50, up from 49 in 2011-12.
See KPIs pages 12-13
Our annual Employee Opinion survey helps us
identify the areas where we are doing well and
those we need to improve on. Three-quarters
of our people responded to the survey, up
from 68 per cent last year.
Over three-fifths (62 per cent) of our people
feel proud to work for Royal Mail Group and
seven out of ten say they still want to work for
us in two years’ time.
Safeguarding our workforce
Our commitment to the safety of our
employees is an enduring priority for us.
Not only does a safer workplace mean less
harm to our people, it means more efficient
operations. Our goal is to reduce the number
of accidents to zero, a commitment driven
throughout the business by a KPI on our
Corporate Balanced Scorecard.
Royal Mail’s Safety Strategy is to make safety
an integral part of the management of our
business by:
• Providing visible safety leadership;
• Ensuring that our safety management
programmes drive continual improvement
and are sustainable;
• Enhancing employee engagement on
safety; and
• Continuing to build competency in
safety management.
By supporting our people in their ability to
manage risk, we have achieved a 20 per cent
reduction in the Lost Time Accident Frequency
Rate (1.17 UKPIL employee, work related
accidents resulting in an absence on a
subsequent day or shift per 100,000 hours
worked in 2012-13, compared with 1.47 in
2011-12).
See KPIs pages 12-13
We strive to improve our safety performance
in everything we do. It is with great regret that
we report seven people lost their lives in
connection with our activities in the UK in the
past year. All the fatalities were associated
with road traffic accidents with our vehicles.
We liaise closely with the relevant authorities
and undertake our own detailed investigations
to establish the root cause of each accident
and, where possible, to determine what
lessons can be learned. The findings are
communicated across the Group and
discussed at the monthly meeting of the
Board. We are improving our processes to
ensure that recommendations from the
independent investigations team are dealt
with in a timely manner. Our investigations
have alerted us to potential dangers arising
when we reverse our vehicles. We are tackling
this hazard by installing reversing sensors on
our vans.
Modernising Royal Mail
Central to our relationship with our people is
the ongoing modernisation of our operations.
This root and branch revision of every aspect
of the way we work is difficult for our people.
But we are making progress.
452 Delivery Offices began modernising
during the year, taking the total number of
offices that have commenced or completed
modernisation to 860 since the programme
began. This represents over half of our
locations, with the remainder to commence
by March 2014. 298 Delivery Offices began
modernising in 2011-12.
See KPIs pages 12-13
Performance
We achieved a reduction in delivery hours of
1.9 per cent compared with 2.2 per cent in
2011-12. Improving the effectiveness of our
delivery operations is absolutely crucial to our
continued financial stability and the provision
of good quality jobs.
See KPIs pages 12-13
In consultation with our unions, the Group has
made significant commitments to job security,
including an overarching objective to complete
our modernisation programme without
compulsory redundancies, and a commitment
to remain a predominantly full-time workforce.
Supporting our communities
Our support for communities starts with the
services we provide and our direct economic
impact as an employer and purchaser of
goods and services. We make one of the single
biggest economic contributions of any UK
company. Research commissioned by Royal
Mail from the Centre for Economics and
Business Research (CEBR) estimated that, in
the 2011-12 financial year, in terms of the
‘value-added’ from UK operations of companies,
our core UK business ranked as the eighth
highest in the UK. This is supported by our
active investment in communities and our
charitable giving programme. We recognise
that our business will only thrive if the
communities that we serve are thriving too.
In 2012-13, Royal Mail contributed
£9.5 million9 directly to charities, good
causes and schemes for disadvantaged
groups. We also supported £3.2 million of
colleague fundraising for charities and good
causes across the UK. And, in July 2012, we
further increased our support for colleague
fundraising by introducing a penny for penny
matched giving scheme for our new Charity
of the Year programme.
Following a successful partnership with the
children’s charity Barnardo’s, in March 2012
our colleagues voted to support Prostate
Cancer UK as our new Charity of the Year
partner from 2012 to 2014. Our aim is to
raise at least £2 million to fund specialist
prostate cancer nurses. During 2012-13,
we raised enough money to fund 20 nurses.
Royal Mail provided £144,000 in matched
giving and grant schemes to support
employees’ fundraising for all other charities
and good causes.
8 Percentage of employees identifying themselves as
having a disability in the 2013 Employee Opinion Survey.
9 Includes our mandated commitments to Articles for the
Blind and BPMA totalling £6.1 million.
31
PerformanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Corporate responsibility (continued)
Corporate responsibility
case study 2 of 2
Royal Mail’s Movember campaign
Royal Mail Group supported the Movember
campaign in 2012, a global moustache-
growing charity event to raise funds and
awareness for prostate and testicular
cancers. Our charity partner, Prostate Cancer
UK, benefits from funds raised by Movember
in the UK.
Over 2,500 Royal Mail employees signed up
to take part in Movember. We were informed
by prostate cancer charity Movember that we
had the second largest number of registered
fundraisers of any single company network
worldwide. And, of our top ten fundraisers,
three were women.
We raised over £525,500 during the
campaign, including matched giving from the
Company. According to Movember, that is
more than any other single company network
in the world. We also engaged 23 MPs, MSPs
and researchers in fundraising. These funds
will pay for 13 new prostate cancer nurses in
areas of need across the UK.
Our campaign was shortlisted for two Third
Sector Business Charity Award categories,
receiving a Highly Commended in the
Challenge Event in May 2013.
Owen Sharp, CEO, Prostate Cancer UK said,
“Reaching men and women from a wide range
of backgrounds who are not office based is
very tough to do. But Royal Mail has done
exactly that. Thousands of its employees took
part in Movember and for every participant
there will have been hundreds of other
people who will have seen the moustache
when the post was being delivered.”
For more information visit
www.royalmailgroup.com
32
Managing our environmental footprint
We recognise that our business operations
have environmental impacts. We are
committed to discovering and adopting
solutions that minimise our use of natural
resources, safeguard the built and natural
environment and support the communities
we serve.
In 2008, Royal Mail was the first postal
services operator in the UK to achieve the
Carbon Trust Standard. In September 2012,
we successfully achieved recertification. This
was in recognition of our robust approach to
measuring, managing and reducing our
carbon emissions.
Over the last year we have been working to
further strengthen our performance, setting a
clear strategic framework for environmental
management. As part of this renewed drive
we have set a vision for 2020 and a number
of new targets. These include an aim to
reduce carbon emissions by 20 per cent
(against a 2010-11 baseline) and send zero
waste to landfill by 2020. We also strengthened
our governance framework, establishing
a new Environment Governance Board to
drive our strategy. In addition, in 2013-14,
we will introduce a new, Group-wide
Environment Policy.
Supplier relationships
Royal Mail makes a significant contribution to
the UK economy through our procurement
spend. We contribute around £2.5 billion
annually procuring goods and services from
over 7,000 suppliers.
We are committed to ensuring that these
suppliers maintain high standards of social,
ethical and environmental conduct. We expect
suppliers to adhere to our Responsible
Procurement Policy and regularly audit their
compliance. The Policy is based on the UN
Global Compact’s ten principles around good
human rights, labour and environmental
practice, and anti-corruption. In addition, we
encourage them to set targets to improve
their performance in social, environmental
and ethical issues. In 2012, the Chartered
Institute of Purchasing and Supply (CIPS)
recognised our efforts in this area by
PerformanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Political donations
In line with Group policy, no donations were
made for political purposes in 2012-13.
Summary
Corporate responsibility is a core part of our
focus on being a sustainable and stakeholder-
focused business. It is integral to our business
success. We have an excellent track record.
In 2012, we achieved our Platinum ranking in
Business in the Community’s CR Index, placing
us amongst the most responsible companies
in the UK. We also achieved a shadow Bronze
ranking in the Dow Jones Sustainability
World Index, the leading global sustainability
benchmark. Only two other postal operators
are included.
Our people make a major contribution to
the social fabric of the UK. They go the extra
mile in supporting good causes in their local
communities, and we support them in so
doing. Over the course of our two-year
partnership with Prostate Cancer UK, we
aim to raise at least £2 million to fund new
specialist prostate cancer nurses in areas
of need.
Looking forward, we need to continue to
improve customer experience across all our
businesses. Initiatives such as Delivery to
Neighbour aim to do just that. We also
recognise that we need to drive greater
environmental efficiencies through our
operations. Most of all, we need to support
and engage our people throughout this
period of significant change.
awarding Royal Mail a Gold certificate of
excellence for our purchasing policies and
procedures – at year end, only 15 other
organisations worldwide had achieved this.
We are now aiming to achieve the prestigious
Platinum standard.
Transparency
Royal Mail is committed to being open and
transparent with our stakeholders. We feel
it is important to ensure that information on
our performance is as comprehensive and
comprehensible as possible.
Freedom of Information requests
Each year, we receive hundreds of Freedom of
Information (FOI) requests about our business.
We have a dedicated team working on requests,
ensuring that we respond as fully as possible.
There are, of course, times when we may not
be able to make certain information available.
For example, as a commercial operation, we
would decline requests for information that
would damage commercial interests. In other
cases, we do not hold the data requested.
Last year, 536 requests were referred to our
central Information Rights team. Of those,
188 were answered in full. A further 118 were
answered in part. There were 151 requests
where the information requested was not
provided for commercial and data protection
reasons. In 79 cases we did not hold the
information requested. These figures are
broadly comparable with the previous year.
Returned mail
The overwhelming majority of mail items we
handle are delivered safely to the correct
address. A small proportion of items are,
however, undeliverable for reasons beyond
our control. These include incomplete
addresses, lack of forwarding addresses for
recipients who have moved house and lack of
return addresses. Our National Returns
Centre in Belfast handles undeliverable mail.
We aim to return undeliverable mail to the
sender or, if this is not possible, securely
dispose of it. In 2012-13, the Centre
processed 19.15 million items. That should be
set against the total of some 15 billion
addressed mail items we handled in 2012-13.
Exceptions to our collection and
delivery service
Royal Mail aims to collect and deliver every
item of mail that passes through our network.
There are, however, cases where this might
not be possible. We publish annual reports
that detail the Universal Service exceptions on
which we are required to report. The 2012
Exceptions report, published in October 2012,
showed there were 3,000 addresses where it
was not possible to deliver mail (compared with
3,013 in 2012). Considering Royal Mail delivers
to over 29 million UK addresses, that figure
represents only 0.01 per cent of this total.
During 2012-13, there were 2,001 long-term
Universal Service collection exceptions across
the UK (compared with 2,100 in 2011-12).
This represents one per cent of around
205,000 collection points across the UK.
These exceptions can be caused by difficulties
in accessing post boxes. There were also 118
temporary collection exceptions of more than
four months (117 in the prior year). These
were due to road or building works that
limited access to post boxes. We report all
such exceptions to Ofcom on a regular basis.
Mail security10
We take the security of mail we deliver very
seriously. Our security team works around the
clock to identify any threats to our products
and services and we have robust measures in
place to deal with any breaches. We now
publish data on the team’s investigation into
internal and external crime. During 2012-13,
we raised 658 full criminal investigations into
internal crime (2012 757). 248 former
employees of Royal Mail Group were
prosecuted in the UK (2012 315). These
individuals form a small proportion of an
overall employee population of almost
150,000. We raised 218 full criminal
investigations into external crime against
Royal Mail (2012 160), with 116 external
prosecutions (2012 66).
10 Numbers have been restated to include Parcelforce
Worldwide. Numbers for full criminal investigations
were incorrectly reported last year.
33
PerformanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Our Board of Directors
Governance
Donald Brydon CBE
Chairman
Moya Greene
Chief Executive Officer
Orna Ni-Chionna
Senior Independent
Non Executive Director
Matthew Lester
Chief Finance Officer
Mark Higson
Managing Director, Operations
and Modernisation
John Allan
Non Executive Director
Jan Babiak
Non Executive Director
Nick Horler
Non Executive Director
Cath Keers
Non Executive Director
Paul Murray
Non Executive Director
Les Owen
Non Executive Director
Details of membership of the
various Board committees can be
found in the Corporate
Governance section.
34
Royal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Donald Brydon CBE Chairman, age 68
Moya Greene Chief Executive Officer, age 59
Appointed to the Board 27 January 2009
as a Director and 26 March 2009 as Chairman.
Skills and experience Donald had a career in
finance, during which he ran two of the major
global asset management companies owned
respectively by Barclays and AXA. He has
since chaired several FTSE 100 companies,
in addition to his experience of a wide range
of domestic and international industries.
External appointments (current and
former) Currently Chairman of Smiths Group
(due to retire in 2013) and Sage Group plc.
He is Chair of the Medical Research Council
and Patron of the British Postal Museum
and Archive and was previously Chairman
of the London Metal Exchange, Amersham plc,
Taylor Nelson Sofres plc and the IFS School of
Finance and a past Director of Allied Domecq plc,
Scottish Power plc and AXA UK plc.
He is a past Chairman of EveryChild.
Committee membership Chairman of the
Nomination Committee and a member of the
Remuneration Committee.
Appointed to the Board 15 July 2010
Skills and experience Moya started her
career in public service in 1979 and held
various posts in a variety of departments
culminating in the position of Assistant Deputy
Minister for Transport Canada. Her experience
in the financial sector includes Managing
Director, Infrastructure Finance at TD
Securities Inc., and Senior Vice President,
Retail Products, at CIBC. Moya became
President and Chief Executive Officer of
Canada Post Corporation in 2005. In that
role, she led a wide-ranging transformation
programme to improve quality of service
and efficiency across the organisation.
External appointments (current and
former) Currently Director of Tim Hortons
in Canada. Prior to joining Canada Post,
she held senior roles at companies including
Bombardier Inc and TD Bank.
Committee membership Chair of the
Chief Executive’s Committee.
Orna Ni-Chionna Non Executive Director,
age 57
Appointed to the Board 1 June 2010.
Orna was appointed as Senior Independent
Non Executive Director on 1 April 2011.
Skills and experience Orna is a former
Partner at McKinsey & Company, where
she specialised in serving retail and
consumer clients.
External appointments (current and
former) Currently Chair of the Advisory
Board at Eden McCallum and Chair of
Trustees of the Soil Association. Formerly
Senior Independent Director of HMV plc,
Northern Foods plc and of BUPA and a Non
Executive Director of the Bank of Ireland UK
Holdings plc and Bristol & West plc.
Committee membership Chair of the
Remuneration Committee, member of
the Audit & Risk Committee and the
Nomination Committee.
Matthew Lester Chief Finance Officer, age 50
Appointed to the Board 24 November 2010
Mark Higson Managing Director, Operations
and Modernisation, age 57
John Allan Non Executive Director, age 64
Appointed to the Board 14 January 2013
Skills and experience Matthew was
previously Group Finance Director of ICAP plc
for five years and has held a number of senior
finance roles at Diageo plc, including Group
Financial Controller.
External appointments (current and
former) Matthew is a Non Executive Director
of Man Group plc and a main Committee
member of the 100 Group of Finance
Directors, where he is Chairman of its Investor
Relations and Markets Committee.
Committee membership Member of the
Chief Executive’s Committee and Chairman
of the Pensions committee.
Appointed to the Board 5 November 2007
Skills and experience Mark was previously
divisional director and Group Operations
Director of BPB plc. He has also held senior
positions at Courtaulds plc, HJ Heinz and
British Aerospace.
External appointments (current and
former) Currently President of the World
Class Manufacturing Association (WCMA)
and a member of the IPA Advisory Council.
Committee membership Member of the
Chief Executive’s Committee.
Skills and experience John is currently
Chairman of Dixons Retail plc, Care UK and
WorldPay. He is also a Non Executive Director
of the Home Office where he is chair of the
Audit and Risk Committee.
External appointments (current and
former) John is also a former senior executive
and corporate board member of Deutsche
Post World Net. Previously, amongst other
senior executive roles, John is a former CFO
and corporate board member of Deutsche
Post DHL. Previously he was CEO of Exel plc,
a FTSE 100 global logistics company.
Committee membership Member of the
Audit & Risk Committee.
35
GovernanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Our Board of Directors (continued)
Jan Babiak Non Executive Director, age 55
Nick Horler Non Executive Director, age 54
Cath Keers Non Executive Director, age 48
Appointed to the Board 1 March 2013
Appointed to the Board 1 April 2010
Appointed to the Board 1 June 2010
Skills and experience Jan previously held
managing partner and executive board level
roles at Ernst & Young. She has also been
an independent board member and Audit
Committee Chair for Logica plc.
External appointments (current and
former) Currently on the Board of Walgreens
and is Chair of its Audit Committee and a
member of its Finance Committee. She is
also a Board member of the Bank of
Montreal, a member of its Audit and Conduct
Review Committee and of the Risk Committee.
Committee membership Member of the
Nomination Committee and the
Remuneration Committee.
Skills and experience Nick was previously
Chief Executive Officer of Scottish Power and
has held senior strategic roles in major
companies, both in the UK and abroad.
External appointments (current and
former) Currently a Non Executive Director
of Secure Electrans Ltd and The Go-Ahead
Group plc. Nick is also CEO at Alderney
Renewable Energy Ltd and also chairs the
Advisory Board for KPMG’s Energy and
Natural Resources Practice.
Committee membership Member of
the Audit & Risk Committee and the
Nomination Committee.
Skills and experience Cath was previously
Customer Director and Marketing Director
of 02 UK and has held various marketing,
strategy and business development roles
at Next, Sky TV, Avon and Thorn EMI.
External appointments (current and
former) Currently a Non Executive Director of
Telefónica Europe, Home Retail Group plc and
the insurance group LV=.
Committee membership Member of the
Audit & Risk Committee and the Nomination
Committee.
Paul Murray Non Executive Director, age 51
Les Owen Non Executive Director, age 64
Appointed to the Board 1 August 2009
Appointed to the Board 27 January 2010
Directors who left during the year
David Currie 30 August 2012
Skills and experience Paul has been
Chairman of the Audit & Risk Committee since
August 2009 and is Audit Committee
Chairman at Qinetiq plc.
External appointments (current and
former) Trustee of Pilotlight and Non
Executive director of Knowledge Peers plc,
Naked Energy Ltd, Qinetiq Group plc and
Ventive Ltd. Formerly Senior Independent
Director of Taylor Nelson Sofres plc and Group
Finance Director of Carlton Communications
plc and of LASMO plc.
Committee membership Chairman of the
Audit & Risk Committee; member of the
Remuneration Committee.
Skills and experience Les is a qualified
actuary with 35 years’ experience in the
financial services industry. From 2000 to
2006, he was the Group Chief Executive
Officer of AXA Asia Pacific Holdings Limited
and responsible for AXA’s Asian Life Insurance
and Wealth Management operations.
External appointments (current and
former) Currently Non Executive Chairman
of Jelf Group plc and Non Executive Director
of Computershare, CPP Group plc,
Just Retirement Ltd and of Discovery
Holdings, a South African listed health and
life insurer. He was Chief Executive Officer of
AXA Sun Life plc and a member of the Global
AXA Group Executive Board and was, until
15 March 2012, a Non Executive Director
of Post Office Limited.
Committee membership Member of the
Audit & Risk Committee, the Pensions
committee and the Remuneration Committee.
36
GovernanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Directors’ report
Directors’ report
The Directors present the Group Annual
Report and audited Financial Statements for
Royal Mail Group Limited for the year ended
31 March 2013 (25 March 2012).
Principal activities
The Group provides a nationwide and
international distribution service, principally
of mail and parcels. From 1 April 2012, the
principal activities of Post Office Limited no
longer form part of Royal Mail Group Limited.
To enable you to assess how the Directors
have performed their duty to promote the
success of the Company, the Companies Act
2006 requires the Directors to set out in this
report a fair review of the business of the
Group during the year, the position of the
Group at the end of the year and a description
of the principal risks and uncertainties facing
the Group.
Information fulfilling these requirements
can be found in the following sections of the
Annual Report and Financial Statements
and are incorporated by reference.
Index
Review of business and
future developments
Results
Board of Directors
Charitable contributions
Financial assets and liabilities
People
Corporate responsibility
Disabled employees
Going concern
Page
1-13
55-116
34-36
28-33
87-102
28-33
28-33
28-33
63
Policy on the payment of suppliers
The policy of the Company and its principal
operating subsidiaries is to use their
purchasing power fairly. Payment terms are
agreed in advance for all major contracts.
For lower value transactions, the standard
payment terms of the supplier apply. It is the
Company’s policy to abide with the agreed
terms. The Company’s average creditor days
for 2012-13 were 37 days.
Land and buildings
The net book value of the Group’s land and
buildings, based upon a historic cost
accounting policy and excluding fit-out, is
£724 million (2012 £674 million). In the
opinion of the Directors, the aggregate market
value of the Group’s land and buildings
exceeds this net book value by £310 million
(2012 £390 million).
Qualifying third party indemnity
provisions for Directors
A partial qualifying third party indemnity
provision (as defined in section 234 of the
Companies Act 2006) was and remains in
force for the benefit of all the Directors of
the Company and former Directors who held
office during the year. The indemnity is
granted under article 115 of the Company’s
Articles of Association. The indemnity is partial
in that it does not allow the Company to cover
the costs of an unsuccessful defence of a third
party claim.
Directors and their interests
The Directors of the Company and details
of changes during the year are given on
pages 34-36. The Secretary of State (BIS)
appoints the Chairman; all other Directors are
appointed by the Company with the Secretary
of State’s consent. UK Government is the
Company’s sole shareholder. The Directors
have no interest in shares of the Company.
Audit information
The Directors confirm that, so far as they are
aware, there is no relevant audit information
of which the auditor is unaware and that each
Director has taken all reasonable steps to
make themselves aware of any relevant audit
information and to establish that the auditor
is aware of that information.
Auditor
The auditor is deemed to be reappointed
under section 487(2) of the Companies
Act 2006.
By Order of the Board
Jon Millidge
Company Secretary
31 July 2013
Royal Mail Group Limited
100 Victoria Embankment
LONDON
EC4Y 0HQ
Company number 4138203
37
GovernanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Corporate Governance
Chairman’s introduction
The Board is collectively responsible for the
long-term success of the business. We take
decisions only after the necessary level of
information has been made available to us
and with the necessary consideration of all the
facts, including risk. The following statement
is intended to explain our governance
arrangements in light of the UK Corporate
Governance Code (the ‘Code’) principles and
provisions and to provide insight into how the
Board and management run the business for
the benefit of the Shareholder.
The Board of Directors strongly supports
the principles of best practice in corporate
governance and we comply with the UK
Corporate Governance Code principles
and provisions in so far as it is appropriate
to Royal Mail Group as a company with
a single shareholder.
We have undertaken our annual review of the
performance of the Board and have shared
any issues which have arisen from this review
with individual Directors.
An effective Board is created by bringing
together the right mixture of individuals and
by promoting the right dynamic among those
individuals. In this regard the Company is very
privileged to have on its Board a number of
Directors with significant large business
experience to help guide the business through
its transformation programme and in helping
the Board to understand the cultural change
necessary for the business.
I trust that you will find this Corporate
Governance report helpful and informative.
Donald Brydon
Chairman
The Board has focused on the following
matters during the year:
• Safety;
• Operations and modernisation;
• Growth and innovation;
• Discussing with Ofcom the new regulatory
framework;
• Balance sheet restructuring; and
• Pensions funding.
Expected Board focus for the next year:
• Safety;
• Growth segments of the business;
• GLS;
• Operations and modernisation;
• Ongoing access to external capital; and
• Pensions funding.
Governance framework
The Board considers that it complied with the
full provisions of the Code during the year.
This report explains the key features of the
governance framework and how it applies the
principles of the Code. The location within the
Annual Report and Financial Statements of
each of the disclosures required in the
Directors’ Report are either disclosed
separately or indexed in the Directors’ Report
and are therefore incorporated by reference.
The role of the Board
The Board is responsible for setting the
objectives and strategy of the Group and for
monitoring performance and risk
management. At the end of the year, the
Board comprised a Chairman, three Executive
Directors and seven Non Executive Directors.
The biographies of each of the Directors,
setting out their current roles, commitments
and previous experience, are on pages 34-36.
The Board met on nine occasions during the
course of the year under review.
The Board has defined those matters that are
reserved exclusively for its consideration.
These include the approval of strategic
plans, financial statements, acquisitions and
disposals, major contracts, projects, and
capital expenditure. It delegates responsibilities
to the Board Committees detailed in
this report.
With effect from 1 April
2012, Post Office Limited
became a subsidiary of
Royal Mail Holdings plc and
became a sister company
to Royal Mail Group Limited.
Donald Brydon
Chairman
38
GovernanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Gender balance
Female
Male
Balance of Non Executive and
Executive Directors
Chairman
Non Executive Directors
Executive Directors
For each scheduled meeting of the Board,
the Company Secretary, on behalf of the
Chairman, collates and circulates the papers,
aiming to allow sufficient time for the
Directors to review the information provided.
The Board is confident that all its members
have the knowledge, talent and experience to
perform the functions required of a Director
of the business. Executive Directors have
rolling 12 month contracts and Non Executive
Directors are generally appointed for three
year terms.
The Board considers that each of the Non
Executive Directors is independent. This
means that in the views of the Board, they
have no links to the Executive Directors and
other managers and no business or other
relationship with the Company that could
interfere with their judgement. There is also
a clear division of responsibilities between the
Chairman and the Chief Executive Officer.
The Chairman of each of the Committees
reports to the Board on matters discussed
at Committee meetings and highlights any
significant issues requiring Board attention.
Reports on the work of the Audit & Risk
Committee and Nomination Committee on
work during the year are given on pages 40-43.
Full terms of reference for these Board
Committees can be found on our website
www.royalmail.com
Performance evaluation of the Board
Performance evaluation of the Board, its
Committees and individual Directors takes
place on an annual basis with the support of
the Company Secretary. Following last year’s
evaluation with the help of the London
Business School, this year’s evaluation was
conducted via questionnaires, with an
opportunity to discuss any issues arising.
It was completed during May 2013. A more
detailed process will take place again next
year. A performance evaluation of the Audit
& Risk Committee was conducted by the
Chairman of the Committee. Other Committees
are undertaking a review of their terms
of reference.
Directors’ support
Directors may take independent professional
advice in the furtherance of their duties, at
the Group’s expense. All Directors have access
to the advice and services of the Company
Secretary, the appointment and removal of
whom is a matter for the Board as a whole.
Director appointment and election
All Directors are re-appointed with the
consent of the shareholder. On appointment,
all the Directors take part in an induction
programme, in which they receive information
about the Group, the role of the Board and
matters reserved for its decision, the role of
the principal Board Committees, the Group’s
Corporate Governance arrangements and the
latest financial information about the Group.
This is supplemented by visits to key business
locations. The Group engages in two-way
communication with the Shareholder to discuss
information on its strategy, performance and
policies. The Board receives feedback on these
meetings from the Directors attending them.
Balance is considered a key requirement for
the composition of the Board, not only in
terms of the Executive and Non Executive
Directors, but also with regard to the mix of
skills, experience and knowledge.
Biographical details for all the Directors can be
found on pages 34-36.
Outside appointments
The Board believes that there are significant
benefits to both the Group and the individual
from Executive Directors accepting Non
Executive Directorships of companies outside
of the Group. The Board’s policy is normally to
limit Executive Directors to one Non Executive
Directorship, for which the Director may retain
the fees (see the Directors’ remuneration
report on pages 46-54 for details).
Chief Executive’s Committee
and Board Committees
The following Committees deal with specific
aspects of the Group’s governance. The details
of Committee membership shown are as at
31 March 2013.
64%
36%
64%
27%
9%
39
GovernanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Corporate Governance (continued)
Chief Executive’s Committee (CEC)
Chair
Membership
Moya Greene
Rico Back (CEO GLS), Catherine Doran (Director CIO & Technology), Matthew Lester (Group Chief Finance Officer),
Neil Harnby (General Counsel), Mark Higson (Managing Director, Operations and Modernisation), Mike Newnham (CCO),
Stephen Agar (Director Consumer and Network Access), Emily Pang (Chief of Staff), John Duncan (Group HR Director),
Sue Whalley (Director of Regulation and Government Affairs), Shane O’Riordain (Managing Director, Strategy and
Communications) and Jon Millidge (Company Secretary).
Role
The Committee is responsible for all the key areas of commercial activity within Royal Mail Group. The CEC meets twice
a month. The role of the CEC is to manage the overall framework of financial risk and business controls to meet
Shareholder, regulatory and legal requirements. The Committee also assigns key accountabilities for business performance.
Audit & Risk Committee
Chair
Paul Murray
Membership
Non Executive Directors – Orna Ni-Chionna, Cath Keers, Nick Horler, Les Owen and John Allan.
Role
The Committee, which is supported by the Risk Management Committee, provides a forum for reporting by both internal
and external auditors and is responsible for a wide range of matters including:
• To oversee the process for managing risks across the business, including review of the Group Risk Profile and ensuring
risks are being addressed by the Board, relevant Committees, and management;
• To monitor the integrity of the financial statements of the Group;
• To monitor and review the effectiveness of the Group’s risk management processes and the control environment;
• To monitor and review the scope of work, authority, resources and effectiveness of the Group’s Internal Audit & Risk
Management function;
• To recommend to the Board, for Shareholder approval, the appointment of the external auditor, and to approve its
remuneration and terms of engagement; to monitor and review the scope and work of the external auditor to ensure
that it is appropriate, including the external auditor’s independence, and objectivity; and
• Where the Committee’s monitoring and review activities reveal cause for concern or scope for improvement, to make
recommendations to the Board or management on action needed to address the issue.
40
GovernanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Audit & Risk Committee continued
Work during the year Key matters the Committee considered and actions taken during the year include:
• Material judgements used by management in the interim and year end results, including Assessment of Accrued
Income, Provision for Industrial Diseases and Accounting for Pensions. Each of these was assessed in light of ranges of
estimates and third party expert reports;
• Relevant changes to accounting standards;
• The external audit engagement letters and annual audit fee, and the policy for approval of non-audit fees paid to the
Group’s auditors;
• A review of the effectiveness of the external audit process, including consideration of team structure, global integration,
tailoring of audit, leveraging of sources of assurance, use of technology, professional scepticism, technical ability,
communication and reporting, audit efficiency and effectiveness, and independence and quality control;
• Reviewing the external auditor’s report on their audit activity and opinion on Royal Mail’s Annual Report, including
observations on the control environment;
• Royal Mail’s Treasury Policy Statement;
• The Group Risk Profile, showing those risks of most significance to Royal Mail;
• The remit, resources and plan of the Internal Audit function, and the breadth of the Internal Audit plan, which includes
reviews of selected specific critical business controls, reviews and investigations into specific areas of the business,
selected on a risk basis, and reviews of key risk management processes;
• Reports from Internal Audit on key areas and initiatives in the business including Modernisation Programme, Fleet,
Pension System, Post Office Separation and Regulatory Compliance;
• Summary of results of whistleblowing cases;
• The Chair of the Audit & Risk Committee met formally with the Internal Audit & Risk Management Director and with
the external auditors, separate from Royal Mail senior executive management, as part of standard process, on five
occasions in the year, to provide a further opportunity for any issues to be aired and dealt with;
• Summary of results of depot and head office audits in GLS;
• The Compliance report, including changes in external environment, and roll-out of training in relation to Bribery Act
and Competition Law;
• Reviewing a report from Royal Mail’s external auditors on Royal Mail’s compliance with the UK Corporate Governance
Code which would be applicable to Royal Mail had it been listed for the year ended 31 March 2013;
• Directors’ expenses for the period;
• The Audit & Risk Committee’s calendar and agenda for 2013;
• The Committee also held direct discussions with senior management to understand and review issues and actions in
key areas of the business, including Human Resources and Regulatory/Competition Law Compliance; and
• The Committee carried out a self-assessment of its own effectiveness, using issue-specific questionnaires and
NED-only discussion of responses.
Chairman’s statement Although not members of the Committee, the Group CFO, Company Secretary, Director Internal Audit & Risk
Management and Director of Financial Control attend each meeting by invitation as does the lead audit partner from our
external auditors. The Committee met on five occasions during the year. A significant amount of time this year has been
spent reviewing the Group Risk Profile, obtaining management updates on specific risks, and ensuring the alignment of
the Group Risk Profile to the strategic plan.
After each Committee meeting, I report to the Board on the main issues that the Committee has discussed.
It has been a year of sound progress and our forward business schedule suggests another busy year ahead. Given the
skills, knowledge and experience of the Committee members, we are well placed to meet the challenges and
opportunities we face.
Paul Murray
Chairman of the Audit & Risk Committee
41
GovernanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Corporate Governance (continued)
Remuneration Committee
Chair
Orna Ni-Chionna
Membership
Chairman – Donald Brydon, Non Executive Directors – Les Owen, Paul Murray and Jan Babiak.
Role
• To determine and recommend for the Board’s approval the framework for the remuneration of the senior executives of
the Group;
• To determine the individual remuneration arrangements for the Chairman, the Executive Directors and the Company
Secretary, subject where necessary to the consent of the Secretary of State; and
• To agree the targets for any performance-related incentive schemes applicable to senior executives.
Work during the year Examples of matters the Committee considered during the year include reviews of:
• Performance targets;
• Reward philosophy and policy;
• GLS bonus and pay; and
• Committee’s independent consultants.
Chairman’s statement The Committee met on eight occasions during the year. A report detailing the work carried out by the Remuneration
Committee during the year, including an explanation of how it applies the principles of the Code in setting Executive
Directors’ remuneration, follows this section.
Orna Ni-Chionna
Chair of the Remuneration Committee
Nomination Committee
Chair
Donald Brydon
Membership
Non Executive Directors – Orna Ni-Chionna, Nick Horler, Cath Keers and Jan Babiak.
Role
• To lead a formal, rigorous and transparent process for appointments to the Board of the Company, to the Boards of
subsidiaries and to other senior executive positions;
• To advise the Board on succession planning for the positions of Chairman, Chief Executive Officer and all other Board
appointments; and
• To keep under review the balance of Board membership to ensure that it has the required mix of skills, knowledge and
Work during the year Examples of matters the Committee considered during the year include:
experience.
• The recruitment and appointment of new Non Executive Directors;
• Succession planning; and
• Considering future experience, skills and capabilities required on the Board.
Chairman’s statement The Committee has continued to evaluate the balance of skills, knowledge and experience of the Board and its diversity,
and is committed to its progressive renewal through orderly succession. Succession plans for the Non Executive Directors
and Executive Directors were kept under review. During the year we welcomed John Allan and Jan Babiak as new Non
Executive Directors to the Board.
Donald Brydon
Chairman of the Nomination Committee
42
GovernanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Pensions Committee
Chair
Matthew Lester
Membership
Jon Millidge (Company Secretary), Neil Harnby (General Counsel) and Les Owen (Non Executive Director).
Role
• To review funding, benefits, scheme structure and strategic developments impacting the Group’s occupational pension
schemes; and
• To represent the Group in discussions with the Trustees of the Group’s occupational pension schemes.
Work during the year Examples of matters the Committee considered during the year include:
• Scheme funding;
• Investment strategy;
• Scheme design; and
• Implementation of workplace pension reform (‘auto-enrolment’).
Chairman’s statement The Committee has continued to monitor strategic developments impacting on the Company’s pension arrangements,
including the Government’s ‘auto-enrolment’ legislation. Due to the size of its workforce, the Company was one of the
first employers to implement these new requirements. It has also worked closely with stakeholders regarding the March
2012 actuarial valuations of the Royal Mail Pension Plan and the Royal Mail Senior Executives Plan, and oversaw the
closure of the latter to future benefit accrual from 31 December 2012.
Matthew Lester
Chairman of the Pensions committee
During the year, the Directors attended the following number of meetings of the Board and its main Committees.
Attendance at Board and Committees
Name
Total number of meetings
Chairman
Donald Brydon
Executive Directors:
Moya Greene
Mark Higson
Matthew Lester
Non Executive Directors:
David Currie
Nick Horler
Cath Keers
Paul Murray
Orna Ni-Chionna
Les Owen
John Allan
Jan Babiak
Board
9
9/9
8/9
8/9
9/9
3/3
8/9
7/9
9/9
9/9
9/9
2/3
1/1
Audit & Risk
Remuneration
Nomination
5
–
-
-
-
2/2
5/5
4/5
5/5
4/5
4/5
1/1
-
8
8/8
-
-
-
4/4
1/4
2/4
8/8
8/8
8/8
-
-
3
3/3
-
-
-
-
3/3
3/3
-
3/3
-
-
-
43
GovernanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Corporate Governance (continued)
Other Committees
Risk Management Committee
The Risk Management Committee supports
the Audit & Risk Committee and meets to
promote and support the establishment,
communication and embedding of risk
management throughout the business.
Disclosure Committee
The role of the Disclosure Committee is to
assist the Executive Directors in fulfilling their
responsibility for oversight of the accuracy and
timeliness of the disclosures made by the
Company in relation to its financial and other
reporting. The Committee meets on a regular
basis during the reporting process and is
chaired by the Group Chief Executive Officer.
Non-audit services provided by the
external auditor
In some cases, the nature of advice required
makes it more timely and cost effective to
select the external auditor, who already has
a good understanding of the Group. In order
to maintain the objectivity and independence
of the external auditor, the Audit & Risk
Committee has determined what work can
be provided by the external auditor and the
approval processes associated with the auditor.
The Audit & Risk Committee monitors the level
of non-audit fees paid to the external auditor.
For this financial year, the statutory auditor
prepared a report outlining how it assesses its
own independence.
Risk management and control overview
The Board believes that effective risk
management and a sound control
environment are fundamental to the Group.
The system is designed to manage rather
than eliminate the risk of failure as taking on
risk is inherent in undertaking the commercial
activities of the Group.
There is an ongoing process for identifying,
evaluating and managing the significant risks
faced by the Group in accordance with the
guidance detailed by the Turnbull Committee
as part of ‘the Combined Code’, including
financial, operational, compliance risks and
risks to reputation. The process incorporates
both a top-down element (which collates
executive management/Board view of key
risks) and a bottom-up element (which
collates the views of the business units and
functions on risks in their area). Taken
together, these two perspectives are
combined to form the Group Risk Profile.
The process has been in place throughout the
year and up to the date of approval of these
financial statements.
The responsibility for joint ventures and
associates rests, on the whole, with the senior
management of those operations. The Group
monitors its investments and exerts influence
through Board representations.
Risk environment
In the main, the principal risks facing the
Group have not changed. A risk with respect
to insufficient readiness to access private
sector capital has been added, and the risk
relating to cash management activities do not
maintain solvency was removed as it no
longer represented an exposure to the Group.
The Group has classified its principal risks into
five main categories: changes in customer
preferences and competitor activity; economic
environment; preparing for attracting external
capital; business modernisation; and risks
inherent in the postal industry. An analysis of
the risks, their impacts, and mitigating actions
is given on pages 24-27.
Risk framework
The Group-wide risk management
framework includes risk governance, risk
identification, measurement and management,
and risk reporting.
The Group’s approach to control is based on
the underlying principle of line management
accountability for internal control and for risk
management. The Group recognises and uses
the principle of the ‘Three Lines of Defence’,
that is:
a) primary controls over the risks to
the business are located in the
day-to-day operation;
b) these are supported by internal
monitoring and oversight; and
c)
independent assessments by Internal
Audit and others provide the third line.
The process for risk identification and
management consists of formal identification
by management at each level of the Group of
the key risks to achieving their business
objectives and the controls in place to manage
them. The likelihood and potential impact of
each risk is evaluated. Risk management
action plans are monitored at executive level
to ensure key risks are being mitigated.
The views of top management and units/
functions are collated and brought together,
in the Group risk profile, to form a
comprehensive view of key risks in the
organisation. The Group risk profile is
reviewed annually against the business
strategy and refreshed where necessary.
The process also includes an annual
certification by management that the internal
controls are such that they provide reasonable
assurance that the risks are appropriately
identified, evaluated and managed.
The system of risk management and internal
control is embedded into the operations of the
Group, and the actions taken to mitigate risk
or address any weaknesses are monitored.
Risk governance and the Board
The Board has delegated responsibility for
specific review of risk and control processes
to the Audit & Risk Committee (ARC), and
the ARC in turn is supported by the Risk
Management Committee (RMC), to help
discharge its duties. The key responsibilities
for risk and control among the Board,
ARC and RMC are set out in this section
of this report.
Royal Mail Group’s attitude to risk
The structural legacy issues relating to
pensions and the regulatory framework have
been resolved and the Group’s revenues,
profits, margins and cash flows have all
improved. The letters portfolio remains under
structural decline but at the same time the
shift to online retailing has provided
opportunities in the parcels portfolio, whilst
the European parcels business operates in
difficult economic market conditions.
The Group Risk Profile, which identifies the
highest risks in terms of financial impact and
possibility, has been modified during the year
and each risk has clear accountabilities and
milestones to ensure that all mitigating action
can be taken. During the year executives from
Human Resources and Compliance were
invited to attend the ARC and explain their
respective risk and how it is being managed.
Internal control
The Group operates a system of internal
control, including operational, financial, and
compliance controls, and risk management
systems, to control the day-to-day operations
of the Group’s activities. In terms of the ‘Three
Lines of Defence’ model, the key processes
and controls include:
44
GovernanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 First line
Second line
• External audit and other reviews.
• Management: the Group has an established
management organisation, with structure,
reporting lines, accountabilities and
delegated authorities.
• Key policies and documentation:
– A number of Royal Mail’s activities are
mandated through the Postal Services
Act 2011 and Royal Mail is further
bound by regulatory requirements,
including those which cover service
standards, complaint handling,
integrity of mail, access to postal
facilities, accounting separation and
process for postal services.
– The Group’s Code of Business Standards
sets the principles of professionalism
and integrity for our people.
– Standard policies exist within
each function.
• Standard daily and monthly management
accounting and payroll processes through
centralised shared services for the
UK businesses.
• A budget prepared, reviewed and set once
a year, providing clarity on the short-term
strategies for each part of the Group. This,
along with the delegated authorities, resets
the levels of delegated spend in each area
on an annual basis.
• Performance management reviews include
production of weekly indicators and a
pyramid of monthly balanced scorecards
from front line operations to Holdings Board
level, which underpin quarterly reviews and
the interim and year end results.
• Medium-term business plans are collated on
a regular basis and submitted to both the
Shareholder and the regulator as part of
formal external processes such as
regulatory framework reviews and State Aid
applications. This provides regular
opportunities for executive management
and the Board to reappraise and confirm
long-term strategies and objectives for
the Group.
• Regular rolling reviews and audits are
carried out within the operations, covering
key operational areas.
• A self assessment is conducted of key
financial and non-financial processes across
all parts of the UK businesses, including
commercial and operations, and within each
key function.
• Annual sign-off by Finance Directors to
provide a formal confirmation, including
proper preparation of financial results,
compliance with Group accounting policies,
compliance to statutory reporting standards
and tax accounting arrangements,
disclosure of post balance sheet events and
related party transactions, and maintenance
of an appropriate system of internal control,
including disclosure of material weaknesses
and confirmation of remedial action plans.
Third line
• Specific and targeted Internal Audit work
programme. The effectiveness of the
internal control system is reviewed regularly
by Internal Audit & Risk Management
(IA&RM), the Group’s independent Internal
Audit function. IA&RM reports to the ARC
and provides assurance to executive
management and the Board on the
effectiveness of the internal control system.
Internal Audit reports include an action plan
where issues have been identified, and
progress against action plans is regularly
tracked and reported.
IA&RM establishes and agrees with the ARC
an annual plan of assignments and activities
based on discussions with the Board and
management, and also taking into account
known issues in the business and the
communications industry.
External audits and reviews take place during
the year to provide management, the Board
and the regulator with assurance on specific
matters, including:
– The external auditor performs a
statutory year end audit.
– The external auditor performs an audit
of the regulatory accounts as part of
Universal Service Provider (USP)
Accounting Condition 1 requirements.
– The external auditor confirms that the
statement to the regulator on
‘necessary resources’ is consistent with
their audit findings, as part of
Transitory Condition 3 requirements.
– The externally measured end-to-end
Quality of Service is audited by an
independent accounting firm (appointed
by Ofcom) as part of Royal Mail’s
Designated Universal Service Provider
condition requirements.
– The USO daily collections and deliveries
performance reporting and
methodology is assured by an
independent accounting firm (appointed
by Royal Mail) as part of Royal Mail’s
Designated Universal Service Provider
condition requirements.
Statement by the independent
Non Executive Directors
A number of structured processes exist
throughout the business to support good
governance.
The Independent Non Executive Directors
are satisfied that the Company’s Corporate
Governance and Internal controls have been
effective throughout the financial year ended
31 March 2013.
Orna Ni-Chionna
Senior Independent Director
45
GovernanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Directors’ remuneration
report for 2012-13
This report explains the approach adopted by the
Remuneration Committee when setting the remuneration
of the Company’s Executive Directors and certain
other senior executives. It has been prepared, taking
due account of the Directors’ Remuneration Report
Regulations, in so far as Royal Mail Group as a non-listed
company can comply with them. This report is split
into two sections: (i) The Policy report, setting out
the overall policy for executive remuneration and (ii)
The Implementation report, setting out details of
remuneration paid or awarded in 2012/2013.
Review of remuneration for Executive
Directors
During 2012/13, the Committee conducted
a comprehensive review of the remuneration
packages of the senior executive population,
including the Executive Directors,
benchmarking them against comparable
companies. Appropriate comparator
companies were chosen from the utilities,
consumer services, industrials and
telecommunications industries. The
companies were selected as they shared
certain characteristics relating to size and
complexity and regulatory environment.
The key findings of this review were:
• the base salaries of the Executive Directors
are below the median, with the Chief
Executive Officer’s salary falling in the
bottom quartile range. It is worth noting
that neither the Chief Executive Officer nor
the Chief Finance Officer has received an
increase in their base salary since they
joined the company in July and November
2010 respectively.
• the incentive opportunity (STIP and LTIP)
is significantly below market average both
as a percentage of base salary and in
value terms.
• total remuneration levels are below the
market average, with total remuneration
for the Chief Executive in the bottom
quartile range.
Overview by the chair of the
Remuneration Committee
2012/13 was a year of very significant
progress for Royal Mail as we put the Universal
Service on a secure footing. We have made
considerable headway with respect to the
achievement of our three strategic objectives
(see page 10). Particular highlights include:
• Group revenue has increased by five per
cent on a like-for-like basis. Profit after
transformation costs grew to £403 million
on a 52 week basis and we generated free
cash inflows of £334 million, mainly through
our trading performance;
• UKPIL, our core UK business, is now the
biggest contributor to Group profit. Its parcel
revenue increased by 13 per cent, while
letter revenue increased by three per cent
on a like-for-like basis; and
• Our customer satisfaction ratings are high.
We delivered more than 7.5 million tickets
for London 2012, with over 98 per cent
arriving on time, first time; we rolled out our
Delivery to Neighbour programme across
the UK.
This robust financial and operating
performance reflects the substantial progress
made by the Group, led by the Executive team.
The Committee recognises that executive
reward is a sensitive issue for society at large.
The Committee determines remuneration
levels carefully and the Secretary of State for
the Department for Business, Innovation and
Skills (BIS) approves any material changes to
the remuneration arrangements of Royal Mail
Group Executive Directors, including the
approach and targets relating to the short
term and long term incentive plans.
46
The remuneration arrangements are
structured so that a significant proportion
of the overall reward package for executives
is dependent on performance against short
term and longer term measures and targets.
The Committee is satisfied that there is a
strong link between the rewards received by
the Executive Directors under the Short Term
Incentive Plan (‘STIP’) and the financial and
operational performance of the Group.
The STIP is primarily dependent on the
achievement of corporate targets, as
summarised in the Corporate Balanced
Scorecard which lists 13 Key Performance
Indicators (KPIs) in four equally-weighted
quadrants: People; Customer; Performance and
Financial. Within these quadrants, performance
achieved or exceeded the target level for 11
out of the 13 KPIs, with stretch performance
achieved for six of them. There are no Long
Term Incentive Plan (‘LTIP’) awards vesting to
Executive Directors this year. The performance
targets for the first awards under the current
LTIP have been met in full (reflecting the strong
financial performance of the Group over the
three year period to 2012/13). However,
the awards are subject to an additional
deferral period, requiring continued service
to 31 March 2014.
The Committee believes that the current
remuneration policy is appropriately aligned
to the business strategy and that there is a
strong link between performance and reward.
No changes to the policy are proposed for
2013/14 except that the LTIP award for
2013/14 will convert to shares upon a
transaction.
On behalf of the Committee, I commend this
report to all stakeholders in Royal Mail Group.
Orna Ni-Chionna
Chair of the Remuneration Committee
GovernanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Governance
Policy report
This part of the Executive Directors’
remuneration report sets out the current
remuneration policy. The policy remains
unchanged for the forthcoming year, except
for the change to the LTIP arrangement
outlined in my overview above.
Summary of Executive Director
Remuneration policy
The Remuneration Committee determines, on
behalf of the Board, the Company’s policy on
the remuneration of senior executives and the
Executive Directors, subject where necessary
to the consent of the Secretary of State.
The Company’s policy on Executive Directors’
remuneration is that:
• A significant proportion of the remuneration
package should be dependent on
achievement of stretching performance
targets – both short and long term;
• Incentives should be designed so that they
align the interests of senior executives,
customers and the Shareholder;
• Variable reward should be structured so as
to achieve a balance between short term
and long term incentive programmes; and
• The overall remuneration package should be
sufficiently competitive to attract and retain
executives with the commercial experience
to run a large, complex business in a highly
challenging context.
The table summarises each element of the
remuneration policy for the Executive
Directors, explaining how each element
operates and how each part links to the
corporate strategy.
Summary table setting out the key features of remuneration policy
for Executive Directors
The following table sets out a summary of each element of the Executive Directors’ remuneration
packages, the policy for how these are operated and their link to the Company’s strategy.
Element of
reward
Base salary
Pension
Structure and opportunity
Its aim is to help recruit and retain executives of a sufficiently high calibre
to manage a large and complex business in a highly challenging context.
Paid monthly in cash and reviewed annually (but not necessarily
increased annually).
The Secretary of State’s (BIS) consent is required for all material changes
to remuneration, including base salary increases.
Its purpose is to provide appropriate levels of retirement benefits. It consists
of a mix of Company contributions to defined contribution pension schemes
and a cash supplement (in lieu of pension): amounting to a total of 40 per
cent of salary.
Other benefits
Company car and health insurance, or the cash equivalent of any benefits
not taken and other contractual benefits.
Short Term
Incentive Plan
(STIP)
The Chief Executive is eligible for two return flights to Canada each year and
financial advice.
Its aim is to drive and reward annual performance against financial and
non-financial targets.
80 per cent of the STIP is dependent on the achievement of corporate targets,
as summarised in the Corporate Balanced Scorecard (CBS). The CBS is directly
linked to the achievement of the Group’s strategic objectives (see page 10) and
is used to determine STIP awards for all Royal Mail Group managers. CBS
targets relate to financial and operational performance, and people and
customer measures, with all four quadrants given equal weighting.
The STIP operates between three specific points for each measure:
Threshold, Target and Stretch. Once a measure has achieved a specific
Threshold, 50 per cent of the STIP for that measure is awarded. If a measure
achieves Target, 100 per cent of the STIP for that measure is awarded. If the
measure outperforms, the STIP pays out above its Target rate proportionally
up to a maximum (Stretch) at which it is capped.
See page 52 for details of the metrics used in the Corporate Scorecard for
2012/13.
The remaining 20 per cent of the STIP is dependent on the achievement of
specific personal targets. In addition to the corporate and personal targets,
a minimum level of operating profit must be achieved before any Executive
Director becomes eligible for a payment.
For on-target performance the STIP opportunity is 60 per cent of base salary
for the Chief Executive and Finance Director, with the maximum (at Stretch
performance) being 100 per cent of salary. The STIP opportunity for on-target
performance is 48 per cent of base salary for the Managing Director,
Operations and Modernisation, with the maximum being 80 per cent of salary.
Payable in cash annually, based on performance against the Group’s KPIs,
as outlined in the CBS and personal goals.
The structure and size of the STIP is approved by the Secretary of State for
the Department for Business, Innovation and Skills.
47
GovernanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
Directors’ remuneration report (continued)
Element of
reward
Structure and opportunity
Long Term
Incentive Plan
(LTIP)
Its purpose is to drive and reward delivery of sustained long term financial
performance. The measures and targets are chosen to support the
achievement of the Company’s key strategic objectives.
Awards take the form of a right to receive a cash amount, normally three
years after grant, subject to continued employment and the satisfaction of
the performance conditions. Awards are made each year. A threshold applies
below which no payment is made. The threshold is 70 per cent of the
operating profit target. The maximum payment is awarded upon achievement
of a stretch target. The stretch target is 120 per cent of the operating profit
target. Full details are set out on page 53.
The performance conditions are based on both operating profit and return
on total assets (ROTA) in the third year of a three year performance period,
with the targets for each measure derived from the company’s business plan.
The operating profit is the audited figure as presented in the company’s
annual report. The ROTA figure is verified by auditors separately.
The primary performance measure is operating profit, with the indicative
pay-out under this measure then subject to a downward-only adjuster based
on ROTA targets. ROTA was chosen as the secondary measure as it covers
the need to make a sufficient return both on any new investments and on
the existing asset base.
For awards to pay out in full both the operating profit and ROTA targets
must be met in full. Details of the operating profit and ROTA targets applying
to existing LTIP awards are provided on page 53.
For achieving target performance, the LTIP opportunity is 70 per cent of
salary for each of the Executive Directors; the maximum LTIP opportunity
is 98 per cent of salary for achieving the stretch target.
The LTIP award for 2013/14 will have the same basic structure as last year,
but instead of the target LTIP opportunity (70 per cent of salary) being based
on the business plan number as in prior years, the target LTIP opportunity
will be subject to a level of performance which will be 10% higher than the
business plan number.
In the event of a sale of shares in Royal Mail Group, the LTIP award for
2013/14 will convert into shares at the Volume Weighted Average Price
(VWAP) for a specified period post transaction, and these shares will be
subject to the same multiplier.
The Remuneration Committee has the discretion to clawback the value of
any cash amount received if it transpires that an award has been paid on
the basis of mis-stated results due to willful wrongdoing by employees.
This restriction lapses five years from the vesting date.
The LTIP grants, size and targets are approved by the Secretary of State
for the Department of Business, Innovation and Skills.
48
GovernanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
Directors’ Service Contracts
The Committee’s policy is that Executive
Directors appointed to the Board are given
notice periods of one year, and that they
must give six months’ notice of departure.
The Committee has a defined policy on
remuneration and mitigation, to be applied in
the event of an Executive Director’s contract
being prematurely terminated. In such
circumstances, steps would be taken to ensure
that poor performance is not rewarded.
The rolling service contracts of the Executive
Directors include the following terms as at
31 March 2013.
Governance
Moya Greene
Matthew Lester
Mark Higson
Date of Contract
15 July 2010
24 November 2010
5 November 2007
Unexpired Term
(Months)
12
12
12
The Non-Executive Directors have service contracts but do not have employment contracts.
The Company is committed to the service contracts for the remaining term of appointments,
subject to annual review and notice, for Non-Executive Directors, including the Chairman.
The service contract dates as at 31 March 2013 for the Non-Executive Directors who have
served during the year are as follows:
Donald Brydon
John Allan1
Jan Babiak2
Nick Horler3
Cath Keers4
Paul Murray5
Orna Ni-Chionna6
Les Owen7
Fees for the Chairman and
Non Executive Directors
Date of Contract
26 March 2012
14 January 2013
1 March 2013
1 April 2013
1 June 2010
1 August 2012
1 June 2010
27 January 2013
Unexpired Term
(Months)
24
33
35
36
2
28
2
34
The fee levels are set taking into account the time
commitment and responsibilities of the Chairman
and Non Executive Directors.
Fees are paid monthly in cash.
The fees for the Chairman are set by the Secretary
of State for the Department of Business, Innovation
and Skills.
Fees for the Non Executive Directors are determined
by the Executive Directors and are submitted to the
Secretary of State for approval.
Details of the current fee levels are set out in the
Implementation Report. Fees are reviewed on a
periodic basis.
1 John Allan was appointed on 14 January 2013
for a three year term to 13 January 2016.
2 Jan Babiak was appointed on 1 March 2013
for a three year term to 28 Feb 2016.
3 Nick Horler was re-appointed on 1 April 2013
for a further three year term to 31 March 2016.
4 Cath Keers was subsequently re-appointed on 1 June
2013 for a further three year term to 31 May 2016.
5 Paul Murray was re-appointed on 1 August 2012
for a further three year term to 31 July 2015.
6 Orna Ni-Chionna was subsequently re-appointed
on 1 June 2013 for a further three year term to
31 May 2016.
7 Les Owen was re-appointed on 27 January 2013
for a further three year term to 26 January 2016.
49
GovernanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Directors’ remuneration report (continued)
Reward Scenarios
The chart opposite shows how the
composition of each of the Executive Directors’
remuneration packages varies at different
levels of performance achievement. The chart
also shows the total amount of remuneration
and the proportion made up by each element
of pay under each scenario.
On-target Performance assumes a payment
of 60 per cent of salary under the STIP
(48 per cent for Mark Higson) and 70 per cent
of salary under the LTIP.
0
0
0
£
’
Maximum Performance assumes full
achievement of the STIP and LTIP stretch
targets, providing an STIP award of 100 per
cent of salary (80 per cent for Mark Higson)
and an LTIP award of 98 per cent of salary
(1.4 x target).
Executive Directors’ reward scenarios
£1,724
£1,386
28%
25%
22%
29%
£738
£1,462
£1,171
29%
26%
22%
29%
£614
£1,377
£1,120
30%
27%
18%
25%
£615
100%
53%
43%
100%
52%
42%
100%
55%
45%
1,750
1,500
1,250
1,000
750
500
250
0
Minimum
On-
target
Maximum
Minimum
Maximum
On-
target
Minimum On-
target
Maximum
Moya Greene
Matthew Lester
Mark Higson
LTIP
STIP
Fixed Pay
Fixed pay includes salary, benefits and pension.
50
GovernanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
Implementation report
This part of the Directors’ remuneration
report sets out how the remuneration
policy and practices for the Company were
implemented over the financial year. Details
of the remuneration earned by Executive
Directors and the outcomes of incentive
schemes, together with the link to Company
performance, are also provided in this
Implementation report.
The detailed information about the Executive
Directors’ remuneration, set out below and
on pages 46 to 54 has been audited by the
Company’s independent auditors, Ernst &
Young LLP.
Membership of the Remuneration
Committee
The members of the Committee during the
last financial year were Orna Ni-Chionna
(Chair), Donald Brydon, Jan Babiak (from
1 March 2013), Paul Murray and Les Owen.
David Currie, Nick Horler and Cath Keers were
also members of the Committee until 20 June
2012. All of these are or were independent
Non-Executive Directors, as defined under
the Corporate Governance Code, with the
exception of the Company Chairman who was
independent on his appointment. Details of the
number of meetings held during the year and
the attendance of the members are provided
on page 43.
The Committee obtains information and
advice from inside and outside the Group.
Jon Millidge, the Company Secretary, acted as
Secretary to the Committee. Internal support
was provided by John Duncan, the Group HR
Director, supported by other members of the
HR department as appropriate. Moya Greene,
the Chief Executive, was also invited to attend
meetings where appropriate. No individual
was present when matters relating directly
to their own remuneration were discussed.
New Bridge Street was appointed by the
Committee in 2011 to act as the independent
adviser to it on remuneration matters. New
Bridge Street (NBS) is a trading name of Aon
Hewitt Limited, which is a subsidiary of Aon
plc. Advice provided by NBS to the Committee
during the year included:
• Attendance at Committee meetings;
• Provision of pay benchmarking data
for the senior executive team (see below);
• Annual update for the Committee on
developments in best and market practice
and regulatory requirements for all
remuneration elements;
• Review of the incentive schemes and
structure of the remuneration packages;
• Assistance with the drafting of the
Remuneration Report.
NBS is also assisting the Company in the
design of the Employee Share Scheme, as
outlined in the Postal Services Act 2011,
which provides that a minimum of ten per cent
of shares in the Company (or the equivalent
value) will be reserved for employees in the
event that the Government’s shareholding in
the Group falls to zero. The Remuneration
Committee is satisfied that these additional
services in no way compromised the
independence of advice provided by NBS.
NBS is a signatory to the Remuneration
Consultants’ Code of Conduct.
During the year Towers Watson Limited
provided the Company with advice on
pensions and actuarial matters and Cameron
McKenna provided advice on service contracts.
Base salaries
As stated above, the Committee’s underlying
policy with regard to senior executive base
salaries is that levels are enough to recruit
and retain executives of a suitably high calibre
to manage a very large and complex company,
which faces many challenges. During 2012/13
a comprehensive review of the senior
executive population against a comparator
group of similar companies found that the
base salaries of the Executive Directors were
below the median, with the Chief Executive
Officer’s salary falling in the bottom quartile.
Governance
Notwithstanding this, no increases were made
to the base salary of the Executive Directors.
This means that neither Moya Greene nor
Matthew Lester have received an increase
in their base salary since they joined the
Company in July 2010 and November 2010
respectively. Mark Higson’s base salary has
not increased since 2008.
Pensions
As in previous years, Mark Higson and Matthew
Lester receive a cash supplement of 40 per
cent of salary in lieu of pension contributions.
Moya Greene also receives pension
arrangements valued at 40 per cent of basic
salary, in line with other Executive Directors. In
2012/13, Moya Greene received a contribution
to an approved defined contribution plan
of £50,000 (the HMRC annual limit) and
£150,000 cash in lieu of pension contributions
(in total worth 40 per cent of salary).
In previous financial years, the Company
has made contributions for Moya Greene to
a UK HMRC approved pension plan and an
unfunded promise which together total 40 per
cent of salary. The cumulative value of this
unfunded promise was £277,943 at the end of
2012/13 (2011/12: £261,222) based on the
value of the amounts accrued having been
invested in UK 5-year gilts.
51
GovernanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Directors’ remuneration report (continued)
Employee
engagement -
customer
focus
First Class retail Quality of Service
Second Class retail
Quality of Service
5%
5%
5%
Employee
engagement -
increase
index
10%
Lost time
accident
frequency
rate
10%
%
5
EOPLE 2
P
Corporate
Balanced
Scorecard
100%
Delivery
Offices
fully
modernised
10%
P
E
R
F
O
R
M
A
N
CE 25%
10%
Transformation
delivery
(% gross hours
year-on-year
reduction)
5%
CUS
T
O
M
E
R
2
5
%
%
N CIAL 25
A
F I N
10%
Mean customer
satisfaction
10%
5%
5%
Total
complaints
Total
expenditure –
operating
cost of UK
businesses
10%
Operating
profit before
exceptionals
Total revenue
Free cash flow
Short Term Incentive Plan (STIP)
The structure of the STIP is outlined in the
table on page 47. For each of the Executive
Directors, 80 per cent of the STIP was
dependent on the achievement of corporate
targets, with 20 per cent dependent on the
achievement of specific personal targets.
Again, our benchmarking advice in 2012/13
demonstrated that the total opportunity
remained below typical market levels, with
the opportunity for the Chief Executive Officer
again falling in the bottom quartile both for
on-target and for stretch performance.
A minimum level of operating profit before
transformational costs and other exceptional
items must be achieved before an Executive
Director becomes eligible for a payment.
This payment then depends on to what
extent the corporate and personal objectives
were achieved. For the year in question this
minimum profit level was £400 million: actual
profit achieved was £633 million.
A blend of targets determined the extent to
which STIPs could be earned in 2012/13.
The chart above contains a summary of
the corporate metrics under the Corporate
Balanced Scorecard, which was used to
determine 80 per cent of the STIP award.
The same Corporate Balanced Scorecard was
also used to determine STIP awards for all
Royal Mail Group managers. The Committee
reviewed these measures and targets to
ensure that they were appropriate and
consistent with challenging levels of
performance.
Strong performance was achieved across all
four quadrants (People, Customer, Performance
and Financial). Target performance (or above)
was achieved in 11 out of the 13 KPIs and the
stretch hurdle was exceeded in six of them. The
total award resulting from achievement of the
Scorecard for 2012/13 was at 80 per cent of
the maximum (i.e. 64 per cent of salary for Moya
Greene and Matthew Lester and 51 per cent
of salary for Mark Higson. The maximum
opportunity was of 80 per cent and 64 per cent
of salary respectively).
20 per cent of the STIP award is based on
specific personal targets. The targets were
set at the start of the year based on each
Executive Director’s area of responsibility.
The Committee reviewed performance against
these objectives at the end of the year and
awarded bonus payments accordingly.
The total STIP payments awarded to the
Executive Directors for performance in
2012/13 were as follows:
• Moya Greene – 80 per cent of salary;
• Matthew Lester – 80 per cent of salary;
• Mark Higson – 57 per cent of salary.
The above payments reflect the achievement
of very strong performance against most of
the measures and targets in the STIP.
52
GovernanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
Governance
Long Term Incentive Plan (LTIP)
As outlined in last year’s Report, in 2011/12, the Remuneration Committee established a new
LTIP, the structure of which is set out below. The LTIP is a conditional award, payable in cash,
which usually vests in the third year after the grant is made, provided that stretching financial
performance conditions are met. In 2011/12, the Remuneration Committee awarded two
grants to the majority of participants (including Executive Directors) to reflect the fact that
an award it intended to grant in 2010 had not been made. Both grants reward performance
over a three year period. However, the award in respect of 2010 will not vest for another
year (i.e. until the end of 2013/14) to provide additional long term focus. A further grant of
70 per cent of salary was made in respect of 2012/13, which will vest at the end of 2014/15
(i.e. in March 2015), subject to performance against targets.
The table below sets out details of the outstanding LTIP awards.
Name
Moya Greene
Mark Higson
Matthew Lester
LTIP award
Final year of
Performance
Period
Target
value
of award
(£’000)
Maximum
value
of award
(£’000)
2010
2011
2012
2010
2011
2012
2010
2011
2012
2012/13
2013/14
2014/15
2012/13
2013/14
2014/15
2012/13
2013/14
2014/15
£349
£349
£349
£300
£300
£300
£300
£300
£300
£488
£488
£488
£420
£420
£420
£419
£419
£419
The LTIP is subject to two performance conditions. The primary measure is operating profit:
Operating profit performance in the
final year of the performance period
(i.e. 2012/13, 2013/14 or 2014-15)
Proportion of target award vesting
Less than 70 per cent of target
0 per cent
70 per cent to 80 per cent of target
80 per cent to 100 per cent of target
100 per cent to 120 per cent of target
More than 120 per cent of target
0 per cent to 80 per cent vesting
(straight-line sliding scale)
80 per cent to 100 per cent vesting
(straight-line sliding scale)
100 per cent to 140 per cent vesting
(straight-line sliding scale)
140 per cent vesting
(i.e. maximum 98 per cent of salary)
The secondary measure is a downwards only
adjustment based on ROTA targets. If ROTA
is greater than 90 per cent of target, there
is no adjustment. If ROTA is between 75 per
cent of target and 90 per cent of target there
is a 50 per cent reduction in the level of
vesting achieved under the operating profit
performance condition. If ROTA is less than
75 per cent of target then the award lapses,
irrespective of operating profit performance.
The year being reported on (2012/13) was
the last year of the performance period for
the 2010 LTIP award. The operating profit
target for 2012/13 was £368 million and
the ROTA target was 13.5 per cent. Actual
operating profit for 2012/13 was £635 million
and ROTA was 25.8 per cent. Accordingly, the
total percentage of LTIP awards for 2012/13
vesting was 140 per cent of target (equivalent
to 98 per cent of salary).
This results in the following potential awards
to the Executive Directors: Moya Greene –
£488,000, Mark Higson – £420,000, Matthew
Lester – £419,000. The awards are still
subject to a forfeiture condition. The awards
will be paid at the end of 2013/14, providing
the Executive Director remains in employment
with the Company and is not under notice at
the payment date.
The LTIP is also subject to clawback for a
maximum of five years after the vesting date
if it transpires that an award has been made
on the basis of mis-stated results because of
wilful wrongdoing by employees.
53
GovernanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Directors’ remuneration report (continued)
Remuneration for 2012/13
The table below sets out the remuneration received by the Executive Directors in relation to performance and/or service during the year.
The table has been prepared in accordance with the requirements of Schedule 8 of the Companies Act 2006.
£’000
Chairman
Donald Brydon
Executive Directors
Moya Greene
Mark Higson
Matthew Lester
Non-Executive Directors
John Allan8
Jan Babiak9
Nick Horler
Cath Keers
Paul Murray10
Orna Ni-Chionna11
Les Owen
Former Directors
David Currie12
Paula Vennells13
David Smith
Total 2013
Total 2012
Annual
salary/fees
Salary
and fees
Received
Contractual
Benefits14
200
498
428
428
40
40
40
40
50
60
40
40
-
-
200
498
428
428
12
3
40
40
50
60
40
17
-
-
1,816
2,124
-
127
15
15
-
-
-
-
-
-
-
-
-
-
157
81
Other15
-
250
-
-
-
-
-
-
-
-
-
-
250
Amount
in lieu
of pension
Short Term
Incentive Plan
Total
2013
Total
2012
-
200
171
171
-
-
-
-
-
-
-
-
-
-
542
578
-
200
200
399
245
344
1,474
859
958
1,107
887
934
-
-
-
-
-
-
-
-
-
-
988
1,137
12
3
40
40
50
60
40
17
-
-
3,753
-
-
40
40
50
60
40
40
463
59
3,920
Executive Directors’ outside appointments
The annual fees received by the Executive Directors as at 31 March 2013 in respect of their Non-Executive Directorships are shown in the
table below:
Name
Moya Greene
Matthew Lester
Approval
This remuneration report, including both the
policy and implementation reports, has been
approved by the Board of Directors.
Signed on behalf of the Directors by
Orna Ni-Chionna
Remuneration Committee Chair
31 July 2013
Directorship
Tim Hortons
Man Group plc
2013
£’000
1816
95
2012
£’000
1616
79
8 John Allan joined the Board on 14 January 2013.
9 Jan Babiak joined the Board on 1 March 2013.
10 Paul Murray’s fee includes £10,000 for his role
as Chairman of the Audit and Risk Committee.
11 Orna Ni-Chionna’s fee includes £10,000 for her role
as Chairman of the Remuneration Committee and
£10,000 for her role as Senior Independent Director.
12 David Currie stood down from the Board on
31 August 2012
13 Paula Vennells stood down from the Board on 31 March
2012 following the separation of Post Office Limited.
14 The Chief Executive’s other benefits include medical
insurance, contractual relocation payments, financial
advice and return flights to Canada.
15 The Company’s Relocation Policy states that any fees
or charges associated with relocation at the Company’s
request are subject to payment by the Company to assist
any executive.
In the exceptional circumstances of the Chief Executive’s
relocation and commitment to the UK, additional
assistance, on the purchase of a home, was offered given
the difference in residential costs between the UK and
Canada. The Remuneration Committee, consisting of all
Non-Executive Directors at the time, determined that a
single payment should be made to the Chief Executive
rather than an annual allowance. The additional
assistance amounted to £120,000 after tax.
The Chief Executive was not involved in the decision nor
does she engage with Government about payments made
to her by the Company.
The Secretary of State for Business, Innovation and Skills
has advised the Remuneration Committee that this was a
material variation to her remuneration and it therefore
ought to have sought his prior approval. Although it had
not done so, the Remuneration Committee considers
it made its decision in good faith in exceptional
circumstances . When she learned of this background,
the Chief Executive voluntarily offered to return this
assistance. The Remuneration Committee has accepted
this offer and is arranging the process for repayment.
The Remuneration Committee will also determine the
process for the reimbursement of the Company of any
unrealised gain to date associated with this payment.
16 Sterling equivalent of payments received during the year.
54
GovernanceRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
Consolidated financial
statements
Consolidated income statement1
Consolidated statement of comprehensive income1
Consolidated statement of cash flows1
Consolidated balance sheet2
Consolidated statement of changes in equity2
Core notes to the consolidated financial statements
1. Basis of preparation – note explaining how these statements have been prepared
2. Going concern and funding
3. Segment information
4. Revenue
5. Operating exceptional items (transformation and non-transformation)
6. Net finance costs and net debt
7. Taxation
8. Cash flow information
9. Employee benefits – pensions
10. Changes in equity
11. Events after the reporting period
Other notes – income statement
12. People information
13. Other operating costs
Other notes – financial assets, financial liabilities and hedging programmes
14. Financial assets and liabilities – introduction, summary and management of financial risk
15. Pension escrow investments
16. Cash and cash equivalents
17. Loans and borrowings
18. Financial liabilities net and gross maturity analysis
19. Financial assets and liabilities – additional analysis
20. Hedging programmes
Other notes – balance sheet
21. Provisions
22. Property, plant and equipment
23. Goodwill
24. Intangible assets
25. Investments in associates
26. Current trade and other receivables
27. Current trade and other payables
28. Issued share capital and reserves
29. Commitments
30. Related party information
Significant accounting policies
Group five year summary (unaudited)
Statement of Directors’ responsibilities in relation to the Group financial statements
Independent Auditor’s Report to the members of Royal Mail Group Limited
Forward-looking statements
1 For the 53 weeks ended 31 March 2013, 52 weeks ended 25 March 2012 and 27 March 2011.
2 At 31 March 2013, 25 March 2012 and 27 March 2011.
55
Royal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Financial statements
Consolidated income
statement
for the 53 weeks ended 31 March 2013,
52 weeks ended 25 March 2012 and 27 March 2011
Revenue
People costs
Distribution and conveyance operating costs
Infrastructure costs (property, IT, depreciation/amortisation)
Other operating costs
Operating profit before exceptional items
Transformation costs – operating exceptional items
Operating profit after transformation costs1
Other operating exceptional items
Operating profit/(loss)
Profit on disposal of property, plant and equipment
Profit on disposal of business
Earnings before interest and taxation (EBIT)
Finance costs
Finance income
Net pension interest credit/(charge)
Profit/(loss) before taxation
Taxation - current charge
- deferred credit/(charge)
Profit/(loss) for the period
Profit/(loss) for the period attributable to:
Equity holder of the parent company
Non-controlling interest (other partner interest in Romec Limited and
NDC 2000 Limited)
1 Before other operating exceptional items.
2 The methodology to calculate the 52 week comparative period is explained on page i.
Adjusted
20132
(unaudited)
£m
9,146
(5,077)
(1,771)
(1,047)
(653)
598
(195)
403
Notes
3/4
12
5
5
6
6
9(g)
7
7
Reported
53 weeks
2013
£m
9,279
(5,147)
(1,785)
(1,052)
(660)
635
(195)
440
(77)
363
4
–
367
(104)
27
34
324
(38)
284
570
566
4
52 weeks
Reported
2012
£m
8,764
(4,920)
(1,755)
(1,060)
(648)
381
(229)
152
(57)
95
156
26
277
(112)
12
24
201
(36)
(15)
150
149
1
Reported
2011
£m
8,415
(4,986)
(1,616)
(1,025)
(578)
210
(192)
18
(48)
(30)
60
44
74
(107)
23
(155)
(165)
(35)
(88)
(288)
(289)
1
56
Royal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Financial statements
Revenue
People costs
Distribution and conveyance operating costs
Infrastructure costs (property, IT, depreciation/amortisation)
Other operating costs
Operating profit before exceptional items
Transformation costs – operating exceptional items
Operating profit after transformation costs1
Other operating exceptional items
Operating profit/(loss)
Profit on disposal of property, plant and equipment
Profit on disposal of business
Earnings before interest and taxation (EBIT)
Finance costs
Finance income
Net pension interest credit/(charge)
Profit/(loss) before taxation
Taxation - current charge
- deferred credit/(charge)
Profit/(loss) for the period
Profit/(loss) for the period attributable to:
Equity holder of the parent company
Non-controlling interest (other partner interest in Romec Limited and
NDC 2000 Limited)
1 Before other operating exceptional items.
2 The methodology to calculate the 52 week comparative period is explained on page i.
Adjusted
20132
(unaudited)
£m
9,146
(5,077)
(1,771)
(1,047)
(653)
598
(195)
403
Notes
3/4
12
5
5
6
6
7
7
9(g)
Reported
53 weeks
2013
£m
9,279
(5,147)
(1,785)
(1,052)
(660)
635
(195)
440
(77)
363
4
–
367
(104)
27
34
324
(38)
284
570
566
4
Reported
Reported
52 weeks
2012
£m
8,764
(4,920)
(1,755)
(1,060)
(648)
381
(229)
152
(57)
95
156
26
277
(112)
12
24
201
(36)
(15)
150
149
1
2011
£m
8,415
(4,986)
(1,616)
(1,025)
(578)
210
(192)
18
(48)
(30)
60
44
74
(107)
23
(155)
(165)
(35)
(88)
(288)
(289)
1
Consolidated statement of
comprehensive income
for the 53 weeks ended 31 March 2013,
52 weeks ended 25 March 2012 and 27 March 2011
Profit/(loss) for the period from continuing operations
Other comprehensive income for the period:
Foreign exchange translation differences
Translation differences on foreign currency net investments
Amounts relating to pension accounting
IFRIC 14 adjustment relating to pensions
Actuarial (losses)/gains on defined benefit schemes
Taxation on items taken directly to equity
Cash flow hedges
(Losses)/gains on cash flow hedges deferred into equity
Losses/(gains) on cash flow hedges released from equity to income
Gains on cash flow hedges released from equity to the carrying amount of
non-financial assets
Taxation on items taken directly to equity
Gains on financial assets
Gains on financial assets deferred into equity
Gains on financial assets released from equity to income
Total comprehensive income for the period
Total comprehensive income for the period attributable to:
Equity holder of the parent company
Non-controlling interest (other partner interest in Romec Limited and
NDC 2000 Limited)
Notes
9(c)
9(g)
7(b)
7(b)
6
53 weeks
2013
£m
570
Reported
52 weeks
2012
£m
150
(5)
(5)
(411)
(5)
(218)
(188)
2
(1)
2
(1)
2
(22)
–
(22)
134
130
4
52 weeks
2011
£m
(288)
(11)
(11)
3,184
–
3,184
–
10
24
(7)
(3)
(4)
(3)
3
(6)
(47)
(47)
1,436
–
1,436
–
(14)
(4)
(15)
(3)
8
14
14
–
1,539
2,892
1,547
2,891
(8)
1
57
Royal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Financial statements
Consolidated statement
of cash flows
for the 53 weeks ended 31 March 2013,
52 weeks ended 25 March 2012 and 27 March 2011
The statement of cash flows below is prepared using the template prescribed under IFRS. Note 8 provides a summary statement of cash flows used
by management, and includes a reconciliation to the statement shown below.
Cash flow from operating activities
Operating profit before exceptional items
Adjustment for:
Depreciation and amortisation
Share of post taxation profit from associates
EBITDA before exceptional items
Working capital movements:
Decrease/(increase) in inventories
Decrease/(increase) in receivables
Increase/(decrease) in payables
Net increase in derivative assets
(Decrease)/increase in non-exceptional provisions
Difference between pension costs charged in operating profit and pension cash flows
Payments in respect of transformation operating exceptional items
Payments in respect of non-transformation operating exceptional items
Cash inflow/(outflow) from operations
Income taxation paid
Net cash inflow/(outflow) from operating activities
Cash flows from investing activities
Dividends received from associates
Finance income received
Proceeds from sale of property, plant and equipment
Proceeds from disposal of business
Purchase of property, plant and equipment
Transformation investment in UKPIL
Other (GLS and business as usual UKPIL spend)
Acquisition of business (in GLS)
Purchase of intangible assets (software)
Payment of deferred consideration in respect of prior years’ acquisitions
Net sale/(purchase) of financial assets investments (non-current)
Net sale/(purchase) of financial assets investments (current)
Net cash (outflow)/inflow from investing activities
Net cash inflow/(outflow) before financing activities
Cash flows from financing activities
Finance costs paid
Payment of capital element of obligations under finance lease contracts
Cash received on sale and leasebacks
New loans
Repayment of borrowings
Net cash (outflow)/inflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Effect of foreign currency exchange rates on cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
58
53 weeks
2013
£m
Reported
52 weeks
2012
£m
52 weeks
2011
£m
635
381
210
281
(1)
915
142
8
25
136
(15)
(12)
(3)
(230)
(26)
798
(37)
761
–
5
52
–
(388)
(177)
(211)
(3)
(41)
(3)
129
30
(219)
542
(49)
(74)
58
–
(600)
(665)
(123)
1
473
351
301
(1)
681
(19)
1
(148)
116
(6)
18
(9)
(280)
(37)
336
(35)
301
4
12
203
37
(287)
(185)
(102)
(2)
(45)
(1)
(4)
(30)
(113)
188
(68)
(49)
88
–
(1)
(30)
158
(4)
319
473
286
(3)
493
(58)
(1)
(21)
(25)
(12)
1
(263)
(242)
(5)
(75)
(36)
(111)
9
22
157
73
(270)
(166)
(104)
(2)
(70)
–
88
–
7
(104)
(54)
(62)
115
300
(42)
257
153
(2)
168
319
Notes
13
25
8
8
8
8
8
8
8
8
8
8
8
8
8
8
8
16
Royal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Financial statements
The statement of cash flows below is prepared using the template prescribed under IFRS. Note 8 provides a summary statement of cash flows used
by management, and includes a reconciliation to the statement shown below.
Reported
53 weeks
52 weeks
52 weeks
Cash flow from operating activities
Operating profit before exceptional items
Adjustment for:
Depreciation and amortisation
Share of post taxation profit from associates
EBITDA before exceptional items
Working capital movements:
Decrease/(increase) in inventories
Decrease/(increase) in receivables
Increase/(decrease) in payables
Net increase in derivative assets
(Decrease)/increase in non-exceptional provisions
Difference between pension costs charged in operating profit and pension cash flows
Payments in respect of transformation operating exceptional items
Payments in respect of non-transformation operating exceptional items
Cash inflow/(outflow) from operations
Income taxation paid
Net cash inflow/(outflow) from operating activities
Cash flows from investing activities
Dividends received from associates
Finance income received
Proceeds from sale of property, plant and equipment
Proceeds from disposal of business
Purchase of property, plant and equipment
Transformation investment in UKPIL
Other (GLS and business as usual UKPIL spend)
Acquisition of business (in GLS)
Purchase of intangible assets (software)
Payment of deferred consideration in respect of prior years’ acquisitions
Net sale/(purchase) of financial assets investments (non-current)
Net sale/(purchase) of financial assets investments (current)
Net cash (outflow)/inflow from investing activities
Net cash inflow/(outflow) before financing activities
Payment of capital element of obligations under finance lease contracts
Cash flows from financing activities
Finance costs paid
Cash received on sale and leasebacks
New loans
Repayment of borrowings
Net cash (outflow)/inflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Effect of foreign currency exchange rates on cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
Notes
13
25
8
8
8
8
8
8
8
8
8
8
8
8
8
8
8
16
2013
£m
635
281
(1)
915
142
8
25
136
(15)
(12)
(3)
(230)
(26)
798
(37)
761
–
5
52
–
(388)
(177)
(211)
(3)
(41)
(3)
129
30
(219)
542
(49)
(74)
58
–
(600)
(665)
(123)
1
473
351
2012
£m
381
301
(1)
681
(19)
1
(148)
116
(6)
18
(9)
(280)
(37)
336
(35)
301
4
12
203
37
(287)
(185)
(102)
(2)
(45)
(1)
(4)
(30)
(113)
188
(68)
(49)
88
–
(1)
(30)
158
(4)
319
473
2011
£m
210
286
(3)
493
(58)
(1)
(21)
(25)
(12)
1
(263)
(242)
(5)
(75)
(36)
(111)
9
22
157
73
(270)
(166)
(104)
(2)
(70)
–
88
–
7
(104)
(54)
(62)
115
300
(42)
257
153
(2)
168
319
Consolidated balance sheet
at 31 March 2013, 25 March 2012 and 27 March 2011
Non-current assets
Property, plant and equipment
Leasehold land payment
Goodwill (mainly investment in GLS)
Intangible assets (mainly software)
Investments in associates
Financial assets – pension escrow investments
– bank deposits
– derivatives
Retirement benefit asset net of IFRIC 14 adjustment
Other receivables
Deferred taxation assets
Non-current assets held for sale
Current assets
Inventories
Trade and other receivables
Financial assets – derivatives
Cash and cash equivalents
– short-term deposits
Total assets
Current liabilities
Trade and other payables
Financial liabilities – obligations under finance leases
– derivatives
Income taxation payable
Provisions
Non-current liabilities
Financial liabilities
– interest bearing loans and borrowings
– obligations under finance leases
– derivatives
Provisions
Retirement benefit obligation – pension deficit
Other payables
Deferred taxation liabilities
Total liabilities
Net assets/(liabilities)
Equity
Share capital
Share premium
Retained earnings – all distributable
Other reserves
Equity attributable to equity holder of parent company
Non-controlling interest (other partner interest in Romec Limited and NDC 2000 Limited)
Total equity
Moya Greene
Chief Executive Officer
Matthew Lester
Chief Finance Officer
Notes
22
23
24
25
6/14/15
6/14/19
14/19
9(c)
7
26
14/19
6/14/19
16
27
6/14/19
14/19
21
6/14/17
/19
6/14/19
14/19
21
9(b)
7
28
10
10
At
31 March
2013
£m
Reported
At
25 March
2012
£m
At
27 March
2011
£m
1,916
3
196
139
3
20
–
3
825
8
112
3,225
2
24
1,004
9
1
351
1,389
4,616
(1,611)
(79)
(2)
(14)
(119)
(1,825)
(973)
(226)
(1)
(127)
–
(36)
(23)
(1,386)
(3,211)
1,405
–
–
1,318
83
1,401
4
1,405
1,822
3
189
135
3
149
–
2
–
–
9
2,312
4
32
1,036
9
31
473
1,581
3,897
(1,512)
(86)
(4)
(9)
(132)
(1,743)
(1,522)
(231)
(1)
(85)
(2,716)
(36)
(18)
(4,609)
(6,352)
(2,455)
–
3,784
(6,347)
108
(2,455)
–
(2,455)
1,829
3
197
126
9
87
44
6
–
–
8
2,309
4
33
906
36
1
319
1,295
3,608
(1,394)
(61)
(3)
(6)
(167)
(1,631)
(1,478)
(184)
–
(85)
(4,185)
(29)
(10)
(5,971)
(7,602)
(3,994)
–
3,784
(7,941)
155
(4,002)
8
(3,994)
59
Royal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Financial statements
Consolidated statement
of changes in equity
at 31 March 2013, 25 March 2012 and 27 March 2011
At 28 March 2010
(Loss)/profit for the period
Other comprehensive income/(expense) for the period
At 27 March 2011
Profit for the period
Other comprehensive income/(expense) for the period
Dividend from non-controlling interest
At 25 March 2012
Profit for the period
Other comprehensive (expense)/income for the period
Pension deficit transfer to HM Government on
1 April 2012 (see note 9(d))
Capital reduction (see note 10)
At 31 March 2013
Share
premium
£m
3,784
–
–
3,784
–
–
–
3,784
–
–
Retained
earnings
£m
(10,836)
(289)
3,184
(7,941)
149
1,436
9
(6,347)
566
(411)
Financial
assets
reserve
£m
11
–
(3)
8
–
14
–
22
–
(22)
Foreign
currency
translation
reserves
£m
136
–
(11)
125
–
(47)
–
78
–
(5)
Equity
holder
of the
parent
£m
(6,893)
(289)
3,180
(4,002)
149
1,389
9
(2,455)
566
(436)
Non-
controlling
interest
£m
7
1
–
8
1
–
(9)
–
4
-
Hedging
reserve
£m
12
–
10
22
–
(14)
–
8
–
2
Total
equity
£m
(6,886)
(288)
3,180
(3,994)
150
1,389
–
(2,455)
570
(436)
–
(3,784)
–
3,726
3,784
1,318
–
–
–
–
–
73
–
–
10
3,726
–
1,401
–
–
4
3,726
–
1,405
60
Royal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Financial statements
Other comprehensive income/(expense) for the period
At 28 March 2010
(Loss)/profit for the period
At 27 March 2011
Profit for the period
At 25 March 2012
Profit for the period
Other comprehensive (expense)/income for the period
Pension deficit transfer to HM Government on
1 April 2012 (see note 9(d))
Capital reduction (see note 10)
At 31 March 2013
Financial
Foreign
currency
assets
translation
reserve
reserves
Hedging
reserve
Non-
controlling
interest
£m
Share
premium
£m
Retained
earnings
£m
3,784
(10,836)
3,784
3,784
(6,347)
–
–
–
–
–
–
–
–
–
(289)
3,184
(7,941)
149
1,436
9
566
(411)
3,726
3,784
1,318
(3,784)
£m
11
–
(3)
8
–
14
–
22
–
(22)
–
–
–
£m
136
(11)
125
–
–
–
78
–
(5)
–
–
73
Equity
holder
of the
parent
£m
(6,893)
(289)
3,180
(4,002)
149
1,389
(2,455)
566
(436)
3,726
–
£m
12
–
10
22
–
–
8
–
2
–
–
10
1,401
Total
equity
£m
(6,886)
(288)
3,180
(3,994)
150
1,389
–
(2,455)
570
(436)
3,726
–
1,405
7
1
–
8
1
–
–
4
-
–
–
4
Other comprehensive income/(expense) for the period
Dividend from non-controlling interest
(47)
(14)
9
(9)
Core notes to the consolidated financial statements
The notes in this section are considered by the Board to be particularly important to a reader of the financial statements. These notes are the
same as those included in the Preliminary Results announced on 21 May 2013, except for an additional ‘Going concern and funding’ note which
was not considered relevant for a Preliminary Statement but which is nonetheless an important disclosure, and additional disclosures in the
‘Taxation’ and ‘Employee benefits – pensions’ notes, in order to fully comply with IFRS.
Since the publication of the Preliminary Statement, the Company has announced a consultation with members of the Royal Mail Pension Plan
(RMPP) and details of the proposals have been included in the ‘Events after the reporting period’ note.
1. Basis of preparation – note explaining how these statements have been prepared
2. Going concern and funding
3. Segment information
4. Revenue
5. Operating exceptional items (transformation and non-transformation)
6. Net finance costs and net debt
7. Taxation
8. Cash flow information
9. Employee benefits – pensions
10. Changes in equity
11. Events after the reporting period
61
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
Notes to the consolidated
financial statements
1. Basis of preparation
This note explains how these Royal Mail Group Limited consolidated financial statements have been prepared, including management’s
decision to exclude the consolidated results of the Company’s main subsidiary company, Post Office Limited, up until its transfer of ownership
to Royal Mail Holdings plc on 1 April 2012, to enable a comparative analysis.
Introduction
In preparing these Group financial statements, Royal Mail Group Limited continues to embrace recent guidance issued by the Financial Reporting
Council (FRC). The FRC outlined principles in its ‘Louder than Words’ and ‘Cutting Clutter’ discussion papers to make corporate reporting clearer and
less complex.
Based on the views of the Group, as well as the key areas of focus from stakeholders, Royal Mail Group Limited has separated the notes to the
financial statements into two sections: ‘Core’ and ‘Other’ in order to assist the users of the financial statements. While the financial statements need
to be considered as a whole, ‘Core’ notes to the financial statements represent those that are regarded by the Board to be of most importance to
a user of the financial statements. All remaining notes are included in the ‘Other’ category.
The Group comprises Royal Mail Group Limited (the Company) and its subsidiaries. The Company is incorporated in the United Kingdom which is also
the Group’s country of domicile.
These Group consolidated special purpose financial statements are presented in pounds Sterling because that is the currency of the primary
economic environment in which the Group operates. The consolidated financial statements have been prepared on a going concern basis and on a
historic cost basis except for pension assets, derivative financial instruments and available for sale financial assets which have been measured at fair
value.
The Directors have established a principle to produce a set of consolidated results for Royal Mail Group Limited which includes the trading activities
of UK Parcels, International & Letters (UKPIL) and General Logistics Systems (GLS). These financial statements therefore exclude the results of Post
Office Limited, a subsidiary of Royal Mail Group Limited up until its transfer to Royal Mail Holdings plc on 1 April 2012. These financial statements do,
however, include transactions with Post Office Limited, i.e. revenue and costs and trade payable/receivable balances, as though Post Office Limited
was like any other external customer/supplier of Royal Mail Group Limited.
Basis of accounting
These Group consolidated special purpose financial statements do not constitute statutory financial statements as defined in section 434 and 435 of
the Companies Act 2006, but have been prepared in accordance with applicable International Financial Reporting Standards (IFRS) as adopted by the
European Union, except for the non-consolidation of the Company’s Post Office Limited subsidiary up until its transfer to Royal Mail Holdings plc on
1 April 2012. The effect of this is as follows:
• There is no difference between the closing balance sheet position at 31 March 2013 under this methodology and that required if Post Office
Limited had been consolidated up until the date of its transfer to Royal Mail Holdings plc;
• There has been no disposal accounting in respect of the Post Office Limited transfer;
• If disposal accounting had been effected in line with IFRS, certain components of these financial statements would have been impacted as follows:
– 2012 and 2011 comparative information – which would have included the results of Post Office Limited and the related inter-group
elimination/consolidation accounting entries;
– Income statement – which would have included the results of Post Office Limited (as a discontinued operation) for the period 26 March 2012 to
31 March 2012 – i.e. up until its transfer to Royal Mail Holdings plc; and
– Total equity – through which the transfer of Post Office Limited on 1 April 2012 would have been recorded as a transaction with the Company’s
owner (Royal Mail Holdings plc) in their capacity as owner (IAS 1 Presentation of Financial Statements).
The Royal Mail Group Limited statutory financial statements are publicly available from www.royalmailgroup.com.
Estimation and accounting judgements
The preparation of these consolidated financial statements requires management to make various judgements, estimates and assumptions when
determining the carrying value of certain assets and liabilities. Actual results may differ from the estimates. Further details can be found in ‘Significant
accounting policies’ on page 117.
62
Royal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Financial statements
1. Basis of preparation
2. Going concern and funding
This note explains how these Royal Mail Group Limited consolidated financial statements have been prepared, including management’s
decision to exclude the consolidated results of the Company’s main subsidiary company, Post Office Limited, up until its transfer of ownership
This note provides details of how the Directors have concluded that Royal Mail Group Limited remains a going concern, including their review of
the Group’s cash headroom position.
to Royal Mail Holdings plc on 1 April 2012, to enable a comparative analysis.
Introduction
less complex.
In preparing these Group financial statements, Royal Mail Group Limited continues to embrace recent guidance issued by the Financial Reporting
Council (FRC). The FRC outlined principles in its ‘Louder than Words’ and ‘Cutting Clutter’ discussion papers to make corporate reporting clearer and
Based on the views of the Group, as well as the key areas of focus from stakeholders, Royal Mail Group Limited has separated the notes to the
financial statements into two sections: ‘Core’ and ‘Other’ in order to assist the users of the financial statements. While the financial statements need
to be considered as a whole, ‘Core’ notes to the financial statements represent those that are regarded by the Board to be of most importance to
a user of the financial statements. All remaining notes are included in the ‘Other’ category.
The Group comprises Royal Mail Group Limited (the Company) and its subsidiaries. The Company is incorporated in the United Kingdom which is also
the Group’s country of domicile.
These Group consolidated special purpose financial statements are presented in pounds Sterling because that is the currency of the primary
economic environment in which the Group operates. The consolidated financial statements have been prepared on a going concern basis and on a
historic cost basis except for pension assets, derivative financial instruments and available for sale financial assets which have been measured at fair
value.
The Directors have established a principle to produce a set of consolidated results for Royal Mail Group Limited which includes the trading activities
of UK Parcels, International & Letters (UKPIL) and General Logistics Systems (GLS). These financial statements therefore exclude the results of Post
Office Limited, a subsidiary of Royal Mail Group Limited up until its transfer to Royal Mail Holdings plc on 1 April 2012. These financial statements do,
however, include transactions with Post Office Limited, i.e. revenue and costs and trade payable/receivable balances, as though Post Office Limited
was like any other external customer/supplier of Royal Mail Group Limited.
Basis of accounting
These Group consolidated special purpose financial statements do not constitute statutory financial statements as defined in section 434 and 435 of
the Companies Act 2006, but have been prepared in accordance with applicable International Financial Reporting Standards (IFRS) as adopted by the
European Union, except for the non-consolidation of the Company’s Post Office Limited subsidiary up until its transfer to Royal Mail Holdings plc on
1 April 2012. The effect of this is as follows:
• There is no difference between the closing balance sheet position at 31 March 2013 under this methodology and that required if Post Office
Limited had been consolidated up until the date of its transfer to Royal Mail Holdings plc;
• There has been no disposal accounting in respect of the Post Office Limited transfer;
• If disposal accounting had been effected in line with IFRS, certain components of these financial statements would have been impacted as follows:
– 2012 and 2011 comparative information – which would have included the results of Post Office Limited and the related inter-group
elimination/consolidation accounting entries;
– Income statement – which would have included the results of Post Office Limited (as a discontinued operation) for the period 26 March 2012 to
31 March 2012 – i.e. up until its transfer to Royal Mail Holdings plc; and
– Total equity – through which the transfer of Post Office Limited on 1 April 2012 would have been recorded as a transaction with the Company’s
owner (Royal Mail Holdings plc) in their capacity as owner (IAS 1 Presentation of Financial Statements).
The Royal Mail Group Limited statutory financial statements are publicly available from www.royalmailgroup.com.
Estimation and accounting judgements
accounting policies’ on page 117.
The preparation of these consolidated financial statements requires management to make various judgements, estimates and assumptions when
determining the carrying value of certain assets and liabilities. Actual results may differ from the estimates. Further details can be found in ‘Significant
The Group’s business activities, strategy and performance are outlined on pages 1 to 33.
Introduction
In assessing the going concern status of the Group, the Directors have to look forward by a minimum of 12 months from the date of signing the
Annual Report and Financial Statements to ensure that there is sufficient headroom (broadly available cash and cash equivalents plus available
unrestricted unused committed facilities) to enable the Group to pay its creditors as they fall due.
There are two significant events that the Directors have noted and considered whilst performing this review.
(i) Pension transfer to HM Government
On 1 April 2012 (one week into the current financial year) – after the granting of State Aid by the European Commission to HM Government on
21 March 2012 – almost all of the pension liabilities and pension assets of the Royal Mail Pension Plan (RMPP), built up until 31 March 2012,
were transferred to a new HM Government pension scheme, the Royal Mail Statutory Pension Scheme (RMSPS).
This transfer left the RMPP fully funded on an actuarial basis and by using long-term actuarial assumptions agreed at that date, it was predicted that
the Company would have to make no further deficit cash contributions to RMPP (previously the Group had made payments, including £272 million in
2011 and £262 million in 2010).
Further details on pensions can be found in note 9.
(ii) Available loans and borrowings
Note 17 of these financial statements details the loan facilities agreed between HM Government and Royal Mail Group Limited. This note confirms
that the £900 million Senior Debt Facility (£600 million term loan, £300 million revolver) is due to expire in March 2014. At 31 March 2013 and at
the date of signing this Annual Report and Financial Statements, these facilities had not been used and, until their expiry, the Directors can assume
that they are available to be used. After their expiry they should normally expect that they are not available.
The Board, however, has written assurance from HM Government that alternative financing on commercial terms would be available to replace these
borrowing facilities, should a sale transaction not take place and the cash headroom position deteriorated sufficiently to require HM Government to
roll over the existing facilities.
Review assumptions
For the current review of going concern, the Directors undertook a review of the Company’s cash headroom to March 2015, a longer window than
the minimum requirement, under two different scenarios:
• A realistic but pessimistic downside case assuming no transaction takes place and placing reliance on the assurance from HM Government referred
to above; and
• A realistic but pessimistic downside case assuming a sale transaction takes place and that as a consequence, the existing facilities are replaced by
new facilities.
Summary
The Directors concluded from their review that under both of the above scenarios, sufficient cash headroom exists for the foreseeable future and
accordingly the Group remains a going concern.
63
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
3. Segment information
Royal Mail Group’s revenue, certain costs and profit before financing and taxation are segmented below, aligned with how the business
is managed.
Business unit
Brand
Main statutory entities
UK Parcels, International & Letters
(UKPIL) – UK operations
General Logistics Systems (GLS) –
Other European operations
Other – UK operations
Royal Mail Group Limited
Royal Mail Estates Limited
Royal Mail Investments Limited
GLS Germany GmbH & Co. OHG
GLS France S.A.S.
GLS Italy S.p.A.
Facilities management
Romec Limited (51% owned subsidiary)
Design consultancy
Catering services
NDC 2000 Limited (51% owned subsidiary)
Quadrant Catering Ltd (51% owned associate)
Royal Mail Group is structured on a geographic business unit basis and these business units report into the Chief Executive’s Committee and the
Royal Mail Group Board. Each of these units have discrete revenue, costs, profit, cash flows, assets and people and therefore full and complete
financial information is prepared and reviewed on a regular basis and compared with both historical and budget/forecast information as part of
a rigorous performance management process.
In addition to providing segmental disclosures for profit after taxation, consistent with the requirements of accounting standards and how the Group
is managed, the information below also includes details of free cash flow and EBITDA before transformation costs.
The majority of inter-segment revenue relates to the provision of facilities management and catering services to UKPIL. Trading between UKPIL and
GLS is not material.
Transfer prices between the segments are set on a basis of charges reached through commercial negotiation with the respective business units that
form part of the segments.
64
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
Royal Mail Group’s revenue, certain costs and profit before financing and taxation are segmented below, aligned with how the business
Business unit
Brand
Main statutory entities
Royal Mail Group Limited
Royal Mail Estates Limited
Royal Mail Investments Limited
GLS Germany GmbH & Co. OHG
GLS France S.A.S.
GLS Italy S.p.A.
3. Segment information
is managed.
UK Parcels, International & Letters
(UKPIL) – UK operations
General Logistics Systems (GLS) –
Other European operations
Other – UK operations
Facilities management
Romec Limited (51% owned subsidiary)
Design consultancy
Catering services
NDC 2000 Limited (51% owned subsidiary)
Quadrant Catering Ltd (51% owned associate)
Royal Mail Group is structured on a geographic business unit basis and these business units report into the Chief Executive’s Committee and the
Royal Mail Group Board. Each of these units have discrete revenue, costs, profit, cash flows, assets and people and therefore full and complete
financial information is prepared and reviewed on a regular basis and compared with both historical and budget/forecast information as part of
a rigorous performance management process.
In addition to providing segmental disclosures for profit after taxation, consistent with the requirements of accounting standards and how the Group
is managed, the information below also includes details of free cash flow and EBITDA before transformation costs.
The majority of inter-segment revenue relates to the provision of facilities management and catering services to UKPIL. Trading between UKPIL and
Transfer prices between the segments are set on a basis of charges reached through commercial negotiation with the respective business units that
GLS is not material.
form part of the segments.
3. Segment information (continued)
Reported 53 weeks ended 31 March 2013
UK operations
Revenue (external, as reported)
Inter-segment revenue
Total segment revenue
Operating profit before exceptional items
Transformation costs – operating exceptional items
Operating profit after transformation costs before other
operating exceptional items
Other operating exceptional items
Operating profit
Profit on disposal of property, plant and equipment
Earnings before interest and taxation (EBIT)
Net finance costs
Net pension interest
Profit before taxation
Taxation
Profit for the period after taxation
UK Parcels,
International
& Letters
£m
7,766
–
7,766
526
(195)
331
(77)
254
4
258
Other
£m
15
148
163
8
–
8
–
8
–
8
not charged at this level
Free cash flow
EBITDA before transformation costs
not reported at this level
775
8
Reported 52 weeks ended 25 March 2012
UK operations
Revenue (external, as reported)
Inter-segment revenue
Total segment revenue
Operating profit/(loss) before exceptional items
Transformation costs – operating exceptional items
Operating profit after transformation costs before other
operating exceptional items
Other operating exceptional items
Operating (loss)/profit
Profit on disposal of property, plant and equipment
Profit on disposal of business
Earnings before interest and taxation (EBIT)
Net finance costs
Net pension interest
Profit before taxation
Taxation
Profit for the period after taxation
Free cash flow
EBITDA before transformation costs
1 Trading between GLS and UKPIL is not material.
UK Parcels,
International
& Letters
£m
7,189
–
7,189
262
(229)
33
(42)
(9)
156
–
147
Other
£m
13
121
134
(9)
–
(9)
(15)
(24)
–
25
1
not charged at this level
not reported at this level
(12)
533
Total
£m
7,781
148
7,929
534
(195)
339
(77)
262
4
266
(82)
34
218
279
497
309
783
Total
£m
7,202
121
7,323
253
(229)
24
(57)
(33)
156
25
148
(109)
24
63
(6)
57
90
521
Other
European
operations
General
Logistics
Systems
£m
1,498
–1
1,498
101
–
101
–
101
–
101
5
–
106
(33)
73
25
132
Other
European
operations
General
Logistics
Systems
£m
1,562
–1
1,562
128
–
128
–
128
–
1
129
9
–
138
(45)
93
64
160
Total
£m
9,279
148
9,427
635
(195)
440
(77)
363
4
367
(77)
34
324
246
570
334
915
Total
£m
8,764
121
8,885
381
(229)
152
(57)
95
156
26
277
(100)
24
201
(51)
150
154
681
65
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
3. Segment information (continued)
Reported 52 weeks ended 27 March 2011
UK operations
Revenue (external, as reported)
Inter-segment revenue
Total segment revenue
Operating profit before exceptional items
Transformation costs – operating exceptional items
Operating (loss)/profit after transformation costs before other
operating exceptional items
Other operating exceptional items
Operating (loss)/profit
Profit on disposal of property, plant and equipment
Profit on disposal of business
Earnings before interest and taxation (EBIT)
Net finance costs
Net pension interest
(Loss)/profit before taxation
Taxation
(Loss)/profit for the period after taxation
Free cash flow
EBITDA before transformation costs
1 Trading between GLS and UKPIL is not material.
UK Parcels,
International
& Letters
£m
6,885
–
6,885
82
(192)
(110)
(48)
(158)
60
–
(98)
Other
£m
45
135
180
10
–
10
–
10
–
44
54
not charged at this level
not reported at this level
6
335
Total
£m
6,930
135
7,065
92
(192)
(100)
(48)
(148)
60
44
(44)
(90)
(155)
(289)
(79)
(368)
(331)
341
Total expenditure for UK businesses in 2013 was £7,247 million (2012 £6,949 million, 2011 £6,838 million).
The following amounts are included within operating profit before exceptional items:
Reported 53 weeks ended 31 March 2013
UK operations
Depreciation
Amortisation of intangible assets (mainly software)
Share of post taxation profit from associates
UK Parcels,
International
& Letters
£m
210
39
–
Other
£m
1
–
1
Reported 52 weeks ended 25 March 2012
UK operations
Depreciation
Amortisation of intangible assets (mainly software)
Share of post taxation (loss)/profit from associates
UK Parcels,
International
& Letters
£m
240
29
(2)
Other
£m
–
–
3
Total
£m
211
39
1
Total
£m
240
29
1
66
Other
European
operations
General
Logistics
Systems
£m
1,485
–1
1,485
118
–
118
–
118
–
–
118
6
–
124
(44)
80
85
152
Other
European
operations
General
Logistics
Systems
£m
27
4
–
Other
European
operations
General
Logistics
Systems
£m
28
4
–
Total
£m
8,415
135
8,550
210
(192)
18
(48)
(30)
60
44
74
(84)
(155)
(165)
(123)
(288)
(246)
493
Total
£m
238
43
1
Total
£m
268
33
1
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
Revenue (external, as reported)
Inter-segment revenue
Total segment revenue
Operating profit before exceptional items
Transformation costs – operating exceptional items
Operating (loss)/profit after transformation costs before other
operating exceptional items
Other operating exceptional items
Operating (loss)/profit
Profit on disposal of property, plant and equipment
Profit on disposal of business
Earnings before interest and taxation (EBIT)
Net finance costs
Net pension interest
(Loss)/profit before taxation
Taxation
(Loss)/profit for the period after taxation
Free cash flow
EBITDA before transformation costs
1 Trading between GLS and UKPIL is not material.
not charged at this level
not reported at this level
335
6
UK Parcels,
International
& Letters
£m
6,885
–
6,885
82
(192)
(110)
(48)
(158)
60
–
(98)
UK Parcels,
International
& Letters
£m
210
39
–
UK Parcels,
International
& Letters
£m
240
29
(2)
Other
£m
45
135
180
10
–
10
10
–
–
44
54
Other
£m
1
–
1
Other
£m
–
–
3
Total
£m
6,930
135
7,065
92
(192)
(100)
(48)
(148)
60
44
(44)
(90)
(155)
(289)
(79)
(368)
(331)
341
Total
£m
211
39
1
Total
£m
240
29
1
Other
European
operations
General
Logistics
Systems
£m
1,485
–1
1,485
118
118
118
–
–
–
–
6
–
118
124
(44)
80
85
152
Other
European
operations
General
Logistics
Systems
£m
27
4
–
Other
European
operations
General
Logistics
Systems
£m
28
4
–
Total
£m
8,415
135
8,550
210
(192)
18
(48)
(30)
60
44
74
(84)
(155)
(165)
(123)
(288)
(246)
493
Total
£m
238
43
1
Total
£m
268
33
1
Total expenditure for UK businesses in 2013 was £7,247 million (2012 £6,949 million, 2011 £6,838 million).
The following amounts are included within operating profit before exceptional items:
Reported 53 weeks ended 31 March 2013
UK operations
Depreciation
Amortisation of intangible assets (mainly software)
Share of post taxation profit from associates
Depreciation
Amortisation of intangible assets (mainly software)
Share of post taxation (loss)/profit from associates
Reported 52 weeks ended 25 March 2012
UK operations
3. Segment information (continued)
3. Segment information (continued)
Reported 52 weeks ended 27 March 2011
UK operations
Reported 52 weeks ended 27 March 2011
UK operations
Depreciation
Amortisation of intangible assets (mainly software)
Share of post taxation (loss)/profit from associates
4. Revenue
UK Parcels,
International
& Letters
£m
223
29
(1)
Other
£m
–
–
4
Total
£m
223
29
3
Other
European
operations
General
Logistics
Systems
£m
27
7
–
Total
£m
250
36
3
A summary of Royal Mail Group revenue segmented by business unit and sub-divided by type i.e. parcels, letters and other, and marketing mail.
Group revenue
UKPIL
Letters
Parcels
Marketing mail
GLS
Parcels
Other
Total
Parcels
Letters and other
Marketing mail
Total
53 weeks
2013
£m
7,766
3,652
2,979
1,135
1,498
15
9,279
4,477
3,667
1,135
9,279
Reported
52 weeks
2012
£m
7,189
3,485
2,604
1,100
1,562
13
8,764
4,166
3,498
1,100
8,764
52 weeks
2011
£m
6,885
3,504
2,348
1,033
1,485
45
8,415
3,833
3,549
1,033
8,415
Within UKPIL, stamped, metered and other prepaid revenue channels are subject to statistical sampling surveys to derive the revenue relating to
parcels, marketing mail and letters. These surveys are subject to continuous refinement, which may over time reallocate revenue between the
products above and occasionally, prior period results may be restated.
67
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
5. Operating exceptional items (transformation and non-transformation)
These are non-recurring or restructuring costs which fall outside the Group’s normal trading activity and which in management’s view need to
be disclosed separately to provide greater visibility of the trading results of the business.
Transformation costs:
Incentive payments:
– Business transformation payments
– ‘ColleagueShare’ – legacy share scheme release
Restructuring costs:
– Voluntary redundancy
– Project and property costs
Impairment of property, plant and equipment
Total transformation costs
Other operating exceptional costs:
Potential industrial diseases claims
Post Office Limited separation – IT costs
Postal Services Act related costs
Other exceptional items (Romec transformation costs in 2011-12)
Impairments
Total non-transformation costs
Total operating exceptional items
53 weeks
2013
£m
Reported
52 weeks
2012
£m
52 weeks
2011
£m
(22)
–
(78)
(95)
–
(195)
(28)
(20)
(10)
1
(20)
(77)
(272)
(87)
–
(77)
(65)
–
(229)
(10)
–
(24)
(16)
(7)
(57)
(286)
(31)
101
(223)
(27)
(12)
(192)
(30)
–
(15)
–
(3)
(48)
(240)
Business transformation payments represent payments linked to the achievement of key modernisation milestones, as part of the pay deal with the
Communication Workers Union.
The non-transformation related impairments of £20 million (2012 £7 million, 2011 £3 million) comprise £21 million (2012 £1 million,
2011 £nil) relating to property, plant and equipment, a £1 million impairment reversal (2012 £3 million charge, 2011 £1 million charge) relating
to intangible (software) assets and £nil (2012 £3 million, 2011 £2 million) in respect of the Group’s investment in its G3 Worldwide Mail N.V.
(Spring) associate company.
68
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
Transformation costs:
Incentive payments:
– Business transformation payments
– ‘ColleagueShare’ – legacy share scheme release
Restructuring costs:
– Voluntary redundancy
– Project and property costs
Impairment of property, plant and equipment
Total transformation costs
Other operating exceptional costs:
Potential industrial diseases claims
Post Office Limited separation – IT costs
Postal Services Act related costs
Impairments
Total non-transformation costs
Total operating exceptional items
Communication Workers Union.
Other exceptional items (Romec transformation costs in 2011-12)
53 weeks
2013
£m
Reported
52 weeks
2012
£m
52 weeks
2011
£m
(22)
–
(78)
(95)
–
(195)
(28)
(20)
(10)
1
(20)
(77)
(87)
–
(77)
(65)
–
(229)
(10)
–
(24)
(16)
(7)
(57)
(272)
(286)
(31)
101
(223)
(27)
(12)
(192)
(30)
(15)
–
–
(3)
(48)
(240)
Business transformation payments represent payments linked to the achievement of key modernisation milestones, as part of the pay deal with the
The non-transformation related impairments of £20 million (2012 £7 million, 2011 £3 million) comprise £21 million (2012 £1 million,
2011 £nil) relating to property, plant and equipment, a £1 million impairment reversal (2012 £3 million charge, 2011 £1 million charge) relating
to intangible (software) assets and £nil (2012 £3 million, 2011 £2 million) in respect of the Group’s investment in its G3 Worldwide Mail N.V.
(Spring) associate company.
5. Operating exceptional items (transformation and non-transformation)
6. Net finance costs and net debt
These are non-recurring or restructuring costs which fall outside the Group’s normal trading activity and which in management’s view need to
This note provides details of:
be disclosed separately to provide greater visibility of the trading results of the business.
•
Interest payable on loans and finance lease obligations and interest received from investments and loans. This analysis excludes net pension
interest which is a non-cash item and is derived to comply with the requirements of the relevant accounting standard IAS 19; and
• Net debt – a metric which shows the Group’s overall debt position, by netting the value of financial liabilities (excluding derivatives) against its
cash and other liquid assets. The balance sheet on page 59 shows these items gross within the different categories of assets and liabilities.
Unwinding of discount relating to ‘ColleagueShare’ legacy share scheme
Unwinding of discount relating to industrial diseases provision
Interest payable on financial liabilities
Loans and borrowings
Finance leases
Unused facility fees
Other facility fees
Finance costs
Release of gains held in equity on disposal of pension escrow gilts
Other interest received on gilts and Treasury Bills
Interest receivable on other financial assets
Interest receivable on VAT refund
Finance income
Net finance costs (excluding net pension interest)
A summary of the Group’s net debt position is shown below:
Pension escrow investments
Bank deposits
Short-term deposits
Cash and cash equivalents:
– cash at bank and in hand
– cash equivalent investments: short-term bank and local authority
deposits/money market fund investments
Obligations under finance leases
Interest bearing loans and borrowings
Obligations under finance leases
Net debt
Balance sheet category
Non-current assets
Non-current assets
Current assets
Current assets
Current assets
Current liabilities
Non-current liabilities
Non-current liabilities
53 weeks
2013
£m
–
(1)
(103)
(82)
(13)
(5)
(3)
(104)
22
–
5
–
27
(77)
At
31 March
2013
£m
20
–
1
136
215
(79)
(973)
(226)
(906)
Reported
52 weeks
2012
£m
–
(1)
(111)
(91)
(15)
(2)
(3)
(112)
–
4
8
–
12
(100)
At
25 March
2012
£m
149
–
31
52 weeks
2011
£m
(6)
–
(101)
(79)
(12)
(3)
(7)
(107)
6
9
3
5
23
(84)
At
27 March
2011
£m
87
44
1
172
100
301
(86)
(1,522)
(231)
(1,186)
219
(61)
(1,478)
(184)
(1,272)
69
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
6. Net finance costs and net debt (continued)
As from 1 April 2012, following the transfer of almost all of the RMPP pension liabilities and pension assets to HM Government, and hence the
removal of the historic pension deficit, £149 million of investments – which were previously held in pension escrow in Royal Mail Group Limited –
were released to the Company. These were subsequently sold and proceeds used to pay down loans to HM Government.
On 25 March 2013, the Company placed £20 million in a money market fund investment established to provide security to the Royal Mail Senior
Executives Pension Plan (RMSEPP) as part of a funding agreement with the RMSEPP Trustee. This is treated as an investment in the Group’s
balance sheet. RMSEPP was closed to future accruals on 31 December 2012.
The Company repaid £600 million of loans and borrowings from HM Government in 2012-13.
Net debt has decreased overall by £280 million during 2012-13 and by £86 million during 2011-12 as shown below:
Net debt brought forward at 26 March 2012
Free cash flow
Increase in value of pension escrow investments
Increase in loans and borrowings (roll-up of interest on 12.0 per cent facility)
Increase in new finance lease obligations (non-cash)
Foreign currency exchange impact on cash and cash equivalents
Net debt carried forward at 31 March 2013
At
31 March
2013
£m
(1,186)
334
–
(51)
(4)
1
(906)
At
25 March
2012
£m
(1,272)
154
14
(45)
(33)
(4)
(1,186)
The table below shows the average interest bearing loans and borrowings and the interest payable and average interest rate on those loans
and borrowings.
Average interest bearing loans and borrowings
Interest payable on interest bearing loans and borrowings
Average interest rate
During 2012-13 the Group was financed as follows:
Purpose of loan/borrowing
GLS funding
General purpose/working capital (Senior Debt Facility)
General purpose/working capital (Senior Debt Facility)
General purpose/working capital (Shareholder Loan)
Total facility/facilities utilised
2013
£m
(972)
(82)
8.4%
2013
Average
balance
£m
500
48
–
424
972
2013
Average
interest
rate
%
5.8
2.0
–
12.0
Facility
end date
2021-2025
2014
2014
2016
Facility
£m
500
600
300
473
1,873
2012
£m
(1,478)
(91)
6.2%
Drawn
balance at
31 March
2013
£m
500
–
–
473
973
As 2011
£m
(1,283)
(79)
6.2%
Average loan
maturity date
2023
–
–
2016
70
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
6. Net finance costs and net debt (continued)
7. Taxation
As from 1 April 2012, following the transfer of almost all of the RMPP pension liabilities and pension assets to HM Government, and hence the
removal of the historic pension deficit, £149 million of investments – which were previously held in pension escrow in Royal Mail Group Limited –
were released to the Company. These were subsequently sold and proceeds used to pay down loans to HM Government.
On 25 March 2013, the Company placed £20 million in a money market fund investment established to provide security to the Royal Mail Senior
Executives Pension Plan (RMSEPP) as part of a funding agreement with the RMSEPP Trustee. This is treated as an investment in the Group’s
balance sheet. RMSEPP was closed to future accruals on 31 December 2012.
The Company repaid £600 million of loans and borrowings from HM Government in 2012-13.
Net debt has decreased overall by £280 million during 2012-13 and by £86 million during 2011-12 as shown below:
Net debt brought forward at 26 March 2012
Free cash flow
Increase in value of pension escrow investments
Increase in loans and borrowings (roll-up of interest on 12.0 per cent facility)
Increase in new finance lease obligations (non-cash)
Foreign currency exchange impact on cash and cash equivalents
Net debt carried forward at 31 March 2013
The table below shows the average interest bearing loans and borrowings and the interest payable and average interest rate on those loans
and borrowings.
Average interest bearing loans and borrowings
Interest payable on interest bearing loans and borrowings
Average interest rate
During 2012-13 the Group was financed as follows:
Purpose of loan/borrowing
GLS funding
General purpose/working capital (Senior Debt Facility)
General purpose/working capital (Senior Debt Facility)
General purpose/working capital (Shareholder Loan)
Total facility/facilities utilised
2013
Average
interest
rate
%
5.8
2.0
–
12.0
2013
Average
balance
£m
500
48
–
424
972
Facility
end date
2021-2025
2014
2014
2016
Facility
£m
500
600
300
473
1,873
Average loan
maturity date
2023
–
–
2016
2013
£m
500
–
–
473
973
At
31 March
2013
£m
(1,186)
334
–
(51)
(4)
1
(906)
2013
£m
(972)
(82)
8.4%
At
25 March
2012
£m
(1,272)
154
14
(45)
(33)
(4)
(1,186)
2012
£m
(1,478)
(91)
6.2%
Drawn
balance at
31 March
As 2011
£m
(1,283)
(79)
6.2%
This disclosure provides details about taxation charges relating to current profit and deferred taxation movements for the impact of past events
on expected future taxation liabilities.
(a) Taxation charged in the income statement
Current income taxation
UK corporation taxation
Foreign taxation
Current income taxation charge
Amounts over/(under) provided in earlier years
Total current income taxation
Deferred taxation
Origination and reversal of temporary differences
Taxation credit/(expense) in the consolidated income statement
(b) Taxation relating to items charged or credited to other comprehensive income
Deferred taxation
Actuarial losses on defined benefit pension plans
Net gain/(loss) on revaluation of cash flow hedges
Total (expense)/credit in the statement of other comprehensive income
53 weeks
2013
£m
Reported
52 weeks
2012
£m
52 weeks
2011
£m
(11)
(28)
(39)
1
(38)
284
246
(188)
2
(186)
2
(36)
(34)
(2)
(36)
(15)
(51)
–
8
8
(2)
(35)
(37)
2
(35)
(88)
(123)
–
(4)
(4)
(c) Reconciliation of the total taxation charge
A reconciliation between the taxation charges and the product of accounting profit/(loss) multiplied by the UK rate of Corporation Taxation for the
years ended 31 March 2013, 25 March 2012 and 27 March 2011 is as follows:
Profit/(loss) before taxation
At UK standard rate of Corporation Taxation of 24% (2012 26%, 2011 28%)
Effect of higher taxes on overseas earnings
Taxation over/(under) provided in prior years
Non-taxable income
Non-deductible expenses
Associates’ profit after taxation charge included in Group pre-taxation profit
Net decrease/(increase) in taxation charge resulting from recognition/(derecognition) of deferred
taxation assets
Other
Taxation credit/(charge) in the income statement
2013
£m
324
(78)
(1)
1
6
(11)
–
329
–
246
2012
£m
201
(52)
1
(2)
45
(13)
–
(30)
–
(51)
2011
£m
(165)
46
3
2
29
(14)
1
(191)
1
(123)
71
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
7. Taxation (continued)
Deferred taxation relates to the following:
Liabilities
Accelerated capital allowances
Goodwill qualifying for taxation allowances
Deferred taxation liabilities
Assets
Deferred capital allowances
Provisions and other
Pensions temporary differences
Losses available for offset against future taxable income
Hedging derivatives temporary differences
Deferred taxation assets
Balance sheet
2012
£m
2013
£m
–
(23)
(23)
244
37
(222)
51
2
112
(1)
(17)
(18)
–
4
–
5
–
9
Net deferred taxation asset/(liability) disclosed on the
balance sheet
89
(9)
Income statement
2013
£m
2012
£m
1
(6)
244
33
(34)
46
–
–
(8)
(9)
3
–
(1)
–
2011
£m
–
(5)
8
(29)
(2)
(62)
2
2011
£m
(1)
(9)
(10)
9
1
–
6
(8)
8
(2)
Consolidated income statement
284
(15)
(88)
At 31 March 2013 the Group had unrecognised deferred taxation assets of £66 million (2012 £1,176 million, 2011 £1,610 million), comprising
£nil (2012 £632 million, 2011 £1,132 million) relating to the retirement benefit obligation, £54 million (2012 £219 million, 2011 £206 million)
relating to taxation losses that are available to offset against future taxable profits and £12 million (2012 £324 million, 2011 £273 million) relating
to other temporary differences. The Group has capital losses carried forward, the taxation effect of which is £4 million (2012 £4 million, 2011 £nil)
and temporary differences related to capital losses of £73 million (2012 £80 million, 2011 £91 million). The Group has rolled over capital gains of
£53 million (2012 £59 million, 2011 £57 million); no taxation liability would be expected to crystallise should the assets into which the gains have
been rolled be sold at their residual value, as it is anticipated that a capital loss would arise.
The Finance Act 2012 reduced the main rate of corporation taxation to 23 per cent with effect from 1 April 2013. The effect of this change on
deferred tax balances is included in these financial statements as detailed above. In the 2012 Autumn Statement, the Chancellor of the Exchequer
announced that the main rate of corporation taxation will be 21 per cent for the year commencing 1 April 2014 and in the March 2013 budget he
announced that the rate will be further reduced to 20 per cent with effect from 1 April 2015. It is anticipated that both of these rate changes will be
included in the Finance Bill 2013. In accordance with accounting standards, the effect of these rate reductions on deferred taxation balances has not
been reflected in these accounts due to the relevant legislation not having been substantively enacted at the balance sheet date. A reduction of 20
per cent would, based on losses and temporary differences at 31 March 2013, reduce the Group’s recognised deferred taxation assets by £14 million
and reduce unrecognised deferred taxation assets by £4 million.
Under the Postal Services Act 2011, trading losses which arose due to employer’s pension contributions paid which are unused at 31 March 2013
are extinguished. The gross amount of losses extinguished is estimated to be £250 million. Losses and deferred taxation assets carried forward are
stated above, net of the extinguished amount.
Royal Mail Group Limited is committed to paying taxation in accordance with all relevant laws and regulations in the territories in which it operates.
72
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
7. Taxation (continued)
Deferred taxation relates to the following:
Liabilities
Accelerated capital allowances
Goodwill qualifying for taxation allowances
Deferred taxation liabilities
Assets
Deferred capital allowances
Provisions and other
Pensions temporary differences
Losses available for offset against future taxable income
Hedging derivatives temporary differences
Deferred taxation assets
Balance sheet
2012
£m
2011
£m
Income statement
2013
£m
2012
£m
2013
£m
–
(23)
(23)
244
37
(222)
51
2
112
(1)
(17)
(18)
–
4
–
5
–
9
(1)
(9)
(10)
9
1
–
6
(8)
8
(2)
1
(6)
244
33
(34)
46
–
–
(8)
(9)
3
–
(1)
–
2011
£m
–
(5)
8
(29)
(2)
(62)
2
284
(15)
(88)
Net deferred taxation asset/(liability) disclosed on the
89
(9)
balance sheet
Consolidated income statement
At 31 March 2013 the Group had unrecognised deferred taxation assets of £66 million (2012 £1,176 million, 2011 £1,610 million), comprising
£nil (2012 £632 million, 2011 £1,132 million) relating to the retirement benefit obligation, £54 million (2012 £219 million, 2011 £206 million)
relating to taxation losses that are available to offset against future taxable profits and £12 million (2012 £324 million, 2011 £273 million) relating
to other temporary differences. The Group has capital losses carried forward, the taxation effect of which is £4 million (2012 £4 million, 2011 £nil)
and temporary differences related to capital losses of £73 million (2012 £80 million, 2011 £91 million). The Group has rolled over capital gains of
£53 million (2012 £59 million, 2011 £57 million); no taxation liability would be expected to crystallise should the assets into which the gains have
been rolled be sold at their residual value, as it is anticipated that a capital loss would arise.
The Finance Act 2012 reduced the main rate of corporation taxation to 23 per cent with effect from 1 April 2013. The effect of this change on
deferred tax balances is included in these financial statements as detailed above. In the 2012 Autumn Statement, the Chancellor of the Exchequer
announced that the main rate of corporation taxation will be 21 per cent for the year commencing 1 April 2014 and in the March 2013 budget he
announced that the rate will be further reduced to 20 per cent with effect from 1 April 2015. It is anticipated that both of these rate changes will be
included in the Finance Bill 2013. In accordance with accounting standards, the effect of these rate reductions on deferred taxation balances has not
been reflected in these accounts due to the relevant legislation not having been substantively enacted at the balance sheet date. A reduction of 20
per cent would, based on losses and temporary differences at 31 March 2013, reduce the Group’s recognised deferred taxation assets by £14 million
and reduce unrecognised deferred taxation assets by £4 million.
Under the Postal Services Act 2011, trading losses which arose due to employer’s pension contributions paid which are unused at 31 March 2013
are extinguished. The gross amount of losses extinguished is estimated to be £250 million. Losses and deferred taxation assets carried forward are
stated above, net of the extinguished amount.
Royal Mail Group Limited is committed to paying taxation in accordance with all relevant laws and regulations in the territories in which it operates.
8. Cash flow information
Royal Mail uses free cash flow to monitor and manage its cash performance. This measure eliminates inflows/outflows between net debt items
(see note 6) and includes finance cash costs paid.
A reconciliation of ‘net cash inflow/(outflow) before financing activities’ in the consolidated statement of cash flows on page 58 to ‘free cash
inflow/(outflow) as used internally by management’ is included below.
EBITDA before exceptional items (see page 58)
Working capital
Other UK pension – ongoing – difference between profit and loss and cash flow rates (note 9)
– deficit correction payments
– pension costs relating to redundancy
Total investment costs
Transformation investment in UKPIL – voluntary redundancy
Transformation investment in UKPIL – business transformation payments/bonus
Transformation investment in UKPIL – capital expenditure
Transformation investment in UKPIL – one-off project costs
Total transformation investment
Other non-transformation spend (IT (incl. software), GLS and business as usual UKPIL spend)
Other exceptional items:
Postal Services Act related payments
Romec Enterprise project
Industrial diseases claims
Other
Other:
Taxation paid
Net finance costs paid
Dividends from associates
Cash inflow/(outflow) before disposal of assets and non-core business
Disposal of property and non-core business
Free cash inflow/(outflow) as used internally by management
The transformation programme commenced in 2006-07, for which the cumulative spend is shown below:
Capital expenditure
Redundancy
Incentive payments
Project and property costs
Total cumulative transformation spend
Reported
52 weeks
2012
£m
681
(19)
(1)
(8)
(36)
(579)
(129)
(60)
(185)
(55)
(429)
(150)
(37)
(16)
(15)
(3)
(3)
(87)
(35)
(56)
4
(86)
240
154
53 weeks
2013
£m
915
142
25
(28)
–
(665)
(75)
(55)
(177)
(100)
(407)
(258)
(26)
(21)
–
(1)
(4)
(81)
(37)
(44)
–
282
52
334
At
31 March
2013
£m
(1,093)
(875)
(515)
(312)
(2,795)
52 weeks
2011
£m
493
(58)
15
(278)
(29)
(555)
(110)
(95)
(166)
(8)
(379)
(176)
(5)
(5)
–
–
–
(59)
(36)
(32)
9
(476)
230
(246)
73
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
8. Cash flow information (continued)
The following analysis provides a reconciliation of ‘net cash inflow before financing activities’ in the statement of cash flows (see page 58) and free
cash flow as used internally by management.
Net cash inflow/(outflow) before financing activities in the statement of cash flows
Net (sale)/purchase of gilts and Treasury bills (financial asset investments – non-current)
Net (sale)/purchase of bank deposits (financial asset investments – current)
Finance costs paid
Free cash inflow/(outflow)
53 weeks
2013
£m
542
(129)
(30)
(49)
334
Reported
52 weeks
2012
£m
188
4
30
(68)
154
52 weeks
2011
£m
(104)
(88)
–
(54)
(246)
74
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
8. Cash flow information (continued)
cash flow as used internally by management.
The following analysis provides a reconciliation of ‘net cash inflow before financing activities’ in the statement of cash flows (see page 58) and free
Net cash inflow/(outflow) before financing activities in the statement of cash flows
Net (sale)/purchase of gilts and Treasury bills (financial asset investments – non-current)
Net (sale)/purchase of bank deposits (financial asset investments – current)
Finance costs paid
Free cash inflow/(outflow)
Reported
53 weeks
52 weeks
52 weeks
2013
£m
542
(129)
(30)
(49)
334
2012
£m
188
4
30
(68)
154
2011
£m
(104)
(88)
–
(54)
(246)
9. Employee benefits – pensions
For a number of years the Group has reported a significant defined benefit pension obligation on its balance sheet, which exceeded its other
net assets.
At 31 March 2013, a pension asset of £825 million has been recognised compared with a £2,716 million pension obligation at 25 March 2012.
This is because the majority of pension liabilities and assets were transferred to HM Government in the first week of the financial year
on 1 April 2012, leaving the Group’s main defined benefit scheme fully funded at that date.
Summary pension financial information
Pension costs:
Ongoing:
- UK defined benefit scheme (P&L rates 18.2%, 17.1%, 17.8%)
- UK defined contribution scheme
Total UK ongoing pension costs
Total GLS defined contribution type scheme costs
Total Group ongoing pension costs
Difference between profit and loss and cash flow rates (cash flow rates 17.1% for all three years)
Total Group pension cash flows relating to ongoing pension costs
UK defined benefit scheme - active membership at 31 March
Reported
53 weeks
2013
£m
52 weeks
2012
£m
52 weeks
2011
£m
(412)
(17)
(429)
(5)
(434)
25
(409)
112,000
(384)
(11)
(395)
(5)
(400)
(1)
(401)
116,000
(423)
(9)
(432)
(5)
(437)
15
(422)
121,000
Background
Royal Mail Group had one of the largest defined benefit pension schemes in the UK (based on membership and assets), called the Royal Mail Pension
Plan (RMPP), and for a number of years the Company:
i) made significant pension deficit cash contributions on top of its ongoing pension costs; and
ii) recognised a pension deficit on its balance sheet which has ranged from £2.7 billion to £7.5 billion.
This meant the Company faced issues with respect to Going Concern, it was balance sheet insolvent and it carried material pension risk and volatility.
To address this historic legacy issue, the Postal Services Act, passed in June 2011, proposed to transfer the majority of pension assets and liabilities
to HM Government. In order to achieve this, HM Government had to seek State Aid approval from the European Commission and made its
application in the summer of 2011.
At 25 March 2012, a defined pension obligation of £2,716 million was reported in the balance sheet.
Transfer of pension liabilities/assets to HM Government
On 1 April 2012 (one week into the 2012-13 financial year) – after the granting of State Aid approval by the European Commission to
HM Government on 21 March 2012 – almost all of the pension liabilities and pension assets of RMPP, built up until 31 March 2012, were
transferred to a new Government pension scheme, the Royal Mail Statutory Pension Scheme (RMSPS).
On this date, RMPP was also sectionalised, with Royal Mail Group and Post Office Limited each responsible for their own sections from
1 April 2012 onwards.
The transfer left the RMPP fully funded on an actuarial basis. This means that using long-term actuarial assumptions agreed at that date,
it was predicted the Company would have to make no further deficit cash contributions.
75
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
9. Employee benefits – pensions (continued)
The total (Royal Mail Group and Post Office Limited) liabilities transferred of £41.0 billion comprise:
i) all liabilities relating to deferred members or pensioners on 1 April 2012; and
ii) for the liabilities of active members currently employed on 1 April 2012:
– benefits accrued under the final salary arrangements to 31 March 2008 (based on number of years in scheme and respective salary
at 1 April 2012). The RMSPS rules increase this final salary benefit by RPI2 each year for active membership; and
– benefits accrued under the career average salary arrangements from 1 April 2008 to 31 March 2012, assuming an RPI2 future increase.
The total assets (Royal Mail Group and Post Office Limited) transferred were £28.5 billion, leaving £2.2 billion with the RMPP Trustee to match the
liabilities (Royal Mail Group and Post Office Limited) relating to the final salary benefit for active members (at 1 April 2012) that the Government did
not take on. These remaining liabilities relate to the difference in increases to the final salary benefit that the RMSPS provides for (at RPI) and the
RMPP Trustee assumes (at RPI + 1%3).
Therefore, the Royal Mail Group and Post Office Limited retained the liability for each year of future service under the career average salary
arrangements and the following risk for active members only:
liability for salary growth above RPI (increases up to 1% above RPI are covered by the £2.2 billion funding described above);
i)
ii) changes in future long-term economic assumptions (e.g. interest rates, RPI/CPI);
iii) changes in future long-term demographic assumptions (e.g. mortality);
iv) changes in market assumptions (returns on assets, gilt yields, etc.); and
v) all existing aspects relating to the RMSEPP scheme (the Company closed this plan to future accruals on 31 December 2012).
All other financial information other than in this note relates to the amounts that have been sectionalised to Royal Mail Group.
Application of International Financial Reporting Standards (IFRS)
Applying IFRS in the accounting valuation of the defined benefit position at 31 March 2013 resulted in the recognition of an accounting pension
surplus of £825 million, compared with an obligation of £2,716 million at 25 March 2012. The £825 million comprises pension assets of £3,343
million, less pension liabilities of £2,513 million adjusted as required by IFRIC 14 in respect of RMSEPP by £5 million.
Why the accounting position is different to the funding (actuarial) position
On an actuarial basis at 31 March 2013, the pension actuarial deficit was £162 million on an estimated rolled forward basis (formal valuations are
part of the triennial review). The funding requirements, a mutual agreement between the Company and the Pension Trustees, are normally set every
three years, with the last agreement dating back to 2010 for the March 2009 valuation. The long-term assumptions used for funding by the Pension
Trustees are generally more conservative than those that must be used under IFRS.
As noted in the financial review, the Company has reached an agreement with the RMSEPP Trustee on their cash contribution requirements. The
Group and the RMPP Trustee are currently in discussion about the future funding requirements and, at the date of this report, no new assumptions
have been agreed.
Defined benefit
RMPP is funded by the payment of contributions to separate trustee administered funds. RMPP includes sections A, B and C, each with different
terms and conditions:
• Section A is for members (or beneficiaries of members) who joined before 1 December 1971;
• Section B is for members (or beneficiaries of members) who joined on or after 1 December 1971 and before 1 April 1987 or to members of
Section A who chose to receive Section B benefits; and
• Section C is for members (or beneficiaries of members) who joined on or after 1 April 1987 and before 1 April 2008.
The regular future service contribution rate for RMPP, expressed as a percentage of pensionable pay, remained at 17.1 per cent (2012 and 2011
17.1 per cent), effective from April 2010. The Company is currently in discussion with the Plan Trustee regarding the March 2012 actuarial valuation,
and the contribution rate required to provide future benefit accrual. A conclusion to these discussions is expected by September 2013. Following the
State Aid clearance granted on 21 March 2012, and the subsequent transfer of almost all of the RMPP assets and liabilities to HM Government on
1 April 2012, no RMPP deficit payment was made during the year.
2 Section C members (who joined RMPP on or after April 1987) have this increase capped at five per cent.
3 RPI + 1% has been used by the RMPP Trustee in the valuation which was agreed in 2010 because it reflected long-term historical actual pay increases.
76
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
9. Employee benefits – pensions (continued)
The total (Royal Mail Group and Post Office Limited) liabilities transferred of £41.0 billion comprise:
i) all liabilities relating to deferred members or pensioners on 1 April 2012; and
ii) for the liabilities of active members currently employed on 1 April 2012:
– benefits accrued under the final salary arrangements to 31 March 2008 (based on number of years in scheme and respective salary
at 1 April 2012). The RMSPS rules increase this final salary benefit by RPI2 each year for active membership; and
– benefits accrued under the career average salary arrangements from 1 April 2008 to 31 March 2012, assuming an RPI2 future increase.
The total assets (Royal Mail Group and Post Office Limited) transferred were £28.5 billion, leaving £2.2 billion with the RMPP Trustee to match the
liabilities (Royal Mail Group and Post Office Limited) relating to the final salary benefit for active members (at 1 April 2012) that the Government did
not take on. These remaining liabilities relate to the difference in increases to the final salary benefit that the RMSPS provides for (at RPI) and the
RMPP Trustee assumes (at RPI + 1%3).
Therefore, the Royal Mail Group and Post Office Limited retained the liability for each year of future service under the career average salary
arrangements and the following risk for active members only:
i)
liability for salary growth above RPI (increases up to 1% above RPI are covered by the £2.2 billion funding described above);
ii) changes in future long-term economic assumptions (e.g. interest rates, RPI/CPI);
iii) changes in future long-term demographic assumptions (e.g. mortality);
iv) changes in market assumptions (returns on assets, gilt yields, etc.); and
v) all existing aspects relating to the RMSEPP scheme (the Company closed this plan to future accruals on 31 December 2012).
All other financial information other than in this note relates to the amounts that have been sectionalised to Royal Mail Group.
Application of International Financial Reporting Standards (IFRS)
Applying IFRS in the accounting valuation of the defined benefit position at 31 March 2013 resulted in the recognition of an accounting pension
surplus of £825 million, compared with an obligation of £2,716 million at 25 March 2012. The £825 million comprises pension assets of £3,343
million, less pension liabilities of £2,513 million adjusted as required by IFRIC 14 in respect of RMSEPP by £5 million.
Why the accounting position is different to the funding (actuarial) position
On an actuarial basis at 31 March 2013, the pension actuarial deficit was £162 million on an estimated rolled forward basis (formal valuations are
part of the triennial review). The funding requirements, a mutual agreement between the Company and the Pension Trustees, are normally set every
three years, with the last agreement dating back to 2010 for the March 2009 valuation. The long-term assumptions used for funding by the Pension
Trustees are generally more conservative than those that must be used under IFRS.
As noted in the financial review, the Company has reached an agreement with the RMSEPP Trustee on their cash contribution requirements. The
Group and the RMPP Trustee are currently in discussion about the future funding requirements and, at the date of this report, no new assumptions
have been agreed.
Defined benefit
terms and conditions:
RMPP is funded by the payment of contributions to separate trustee administered funds. RMPP includes sections A, B and C, each with different
• Section A is for members (or beneficiaries of members) who joined before 1 December 1971;
• Section B is for members (or beneficiaries of members) who joined on or after 1 December 1971 and before 1 April 1987 or to members of
Section A who chose to receive Section B benefits; and
• Section C is for members (or beneficiaries of members) who joined on or after 1 April 1987 and before 1 April 2008.
The regular future service contribution rate for RMPP, expressed as a percentage of pensionable pay, remained at 17.1 per cent (2012 and 2011
17.1 per cent), effective from April 2010. The Company is currently in discussion with the Plan Trustee regarding the March 2012 actuarial valuation,
and the contribution rate required to provide future benefit accrual. A conclusion to these discussions is expected by September 2013. Following the
State Aid clearance granted on 21 March 2012, and the subsequent transfer of almost all of the RMPP assets and liabilities to HM Government on
1 April 2012, no RMPP deficit payment was made during the year.
2 Section C members (who joined RMPP on or after April 1987) have this increase capped at five per cent.
3 RPI + 1% has been used by the RMPP Trustee in the valuation which was agreed in 2010 because it reflected long-term historical actual pay increases.
9. Employee benefits – pensions (continued)
For RMSEPP, regular future service contributions remained at 35.9 per cent (2012 and 2011 35.9 per cent) until 31 December 2012 when this
Plan closed to future accruals. Deficit recovery payments were £28 million (including a special one-off payment of £19 million) (2012 £8 million,
2011 £6 million). The Company and the Trustee have reached agreement over the March 2012 actuarial valuation. As the Plan is closed to future
accruals there will be no regular future service contributions, but the Company will continue to make deficit payments of £10 million p.a.
A liability of £1 million (2012 and 2011 £1 million) has been recognised for future payment of pension benefits to a past Director
(see page 51 of the Directors’ remuneration report).
a) Major long-term assumptions used for accounting purposes – RMPP and RMSEPP
The major assumptions were:
Inflation assumption (RPI)
Inflation assumption (CPI)
Discount rate – nominal
– real4
Rate of increase in salaries
Rate of increase for deferred pensions – RMSEPP members transferred from
Section A or B of RMPP
Rate of increase for deferred pensions – all other members
Rate of pension increases – RMPP Sections A/B
Rate of pension increases – RMPP Section C5
Rate of pension increases – RMSEPP all members
Expected average rate of return on assets
At 31 March
2013
% pa
3.3
2.3
4.8
1.5
RPI + 1%
RPI
CPI
CPI
RPI
RPI
n/a6
At 25 March
2012
% pa
3.3
2.3
5.1
1.8
RPI + 1%
RPI
CPI
CPI
RPI
RPI
5.9
At 27 March
2011
% pa
3.5
2.8
5.5
2.0
RPI + 1%
RPI
CPI
CPI
RPI
RPI
6.5
4 The real discount rate selected reflects the long duration of the schemes.
5 Section C members (who joined RMPP on or after April 1987) have this increase capped at five per cent, which results in the average long-term pension increase assumption being 10 basis
6
points lower than the RPI long-term assumption at 31 March 2013 (prior two years - this reduction did not apply).
In accordance with the 2011 revision of IAS 19, which applies for financial periods beginning on or after 1 January 2013, the historic expected return on assets assumption is no longer
required to determine the 2013-14 expense.
Mortality
The mortality assumptions for the larger plan are based on the latest Self Administered Pension Scheme (SAPS) mortality tables with appropriate
scaling factors (106 per cent for male pensioners and 101 per cent for female pensioners). For future improvements the assumptions allow for
‘medium cohort’ projections with a 1.25 per cent floor. These are detailed below:
Average expected life expectancy from age 60:
For a current 60 year old male RMPP member
For a current 60 year old female RMPP member
For a current 40 year old male RMPP member
For a current 40 year old female RMPP member
2013
26 years
29 years
29 years
32 years
2012
26 years
29 years
29 years
32 years
2011
26 years
29 years
29 years
32 years
77
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
9. Employee benefits – pensions (continued)
The Company and the RMPP Trustee are currently in discussion about the future funding requirements, and this could materially change the pension
costs and balance sheet amounts that are reported in future financial statements.
9. Employee benefits – pensions (continued)
The following disclosures relate to the gains/losses and surplus/deficit in the schemes recognised for the RMPP and RMSEPP defined benefit plans in
the financial statements of the Group:
The Company and the RMPP Trustee are currently in discussion about the future funding requirements, and this could materially change the pension
costs and balance sheet amounts that are reported in future financial statements.
The real discount rate has decreased to 1.5 per cent since March 2012 when it was 1.8 per cent (March 2011 2.0 per cent).
The following disclosures relate to the gains/losses and surplus/deficit in the schemes recognised for the RMPP and RMSEPP defined benefit plans in
Demographic assumptions, for example mortality, remain unchanged from those made in March 2012 and March 2011.
the financial statements of the Group:
The following table shows the potential impact on the RMPP liabilities and pension deficit of changes in key assumptions:
The real discount rate has decreased to 1.5 per cent since March 2012 when it was 1.8 per cent (March 2011 2.0 per cent).
Demographic assumptions, for example mortality, remain unchanged from those made in March 2012 and March 2011.
The following table shows the potential impact on the RMPP liabilities and pension deficit of changes in key assumptions:
Sensitivity analysis on RMPP liabilities
£m
720
60
60
20
50
Change in
pension
increases of
+0.1% pa
Change in
discount rate
of -0.1% pa
Change in
real salary
growth of
+0.5% pa
Change in
CPI
assumptions
of +0.1% pa
An additional
1 year life
expectancy
b) Plans’ assets and expected rates of return and deficit calculation – RMPP and RMSEPP
The assets in the plans and the expected rates of return were:
b) Plans’ assets and expected rates of return and deficit calculation – RMPP and RMSEPP
The assets in the plans and the expected rates of return were:
2013
£m
2012
£m
2011
£m
Equities
Bonds
Property
Cash/other
Equities
Derivatives
Bonds
Fair value of plans’ assets
Property
Present value of plans’ liabilities
Cash/other
Surplus/(deficit) in plans
Derivatives
Fair value of plans’ assets
Present value of plans’ liabilities
There is no element of the present value of Plans’ liabilities above, that arises from plans that are wholly unfunded.
Surplus/(deficit) in plans
Included within the pension assets are £1.4 billion (2012 £11.6 billion, 2011 £7.8 billion) of HM Government Bonds.
3,971
19,812
2011
1,480
£m
389
3,971
110
19,812
25,762
1,480
(29,947)
389
(4,185)
110
25,762
(29,947)
(4,185)
3,151
23,600
2012
1,319
£m
310
3,151
236
23,600
28,616
1,319
(31,332)
310
(2,716)
236
28,616
(31,332)
(2,716)
558
2,479
2013
218
£m
88
558
–
2,479
3,343
218
(2,513)
88
830
–
3,343
(2,513)
830
6
6
Long-term expected rate
of return
Long-term expected rate
of return
2012
% pa
7.7
5.7
2012
6.8
% pa
3.4
7.7
5.7
5.7
6.8
3.4
5.7
2013
% pa
n/a6
n/a6
2013
n/a6
% pa
n/a6
n/a6
n/a6
n/a6
n/a6
n/a6
n/a6
In accordance with the 2011 revision of IAS 19, which applies for financial periods beginning on or after 1 January 2013, the historic expected return on assets assumption is no longer
required to determine the 2013-14 expense.
In accordance with the 2011 revision of IAS 19, which applies for financial periods beginning on or after 1 January 2013, the historic expected return on assets assumption is no longer
required to determine the 2013-14 expense.
2011
% pa
8.2
6.2
2011
6.5
% pa
4.2
8.2
6.2
6.2
6.5
4.2
6.2
There is no element of the present value of Plans’ liabilities above, that arises from plans that are wholly unfunded.
Included within the pension assets are £1.4 billion (2012 £11.6 billion, 2011 £7.8 billion) of HM Government Bonds.
78
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
9. Employee benefits – pensions (continued)
The Company and the RMPP Trustee are currently in discussion about the future funding requirements, and this could materially change the pension
costs and balance sheet amounts that are reported in future financial statements.
9. Employee benefits – pensions (continued)
The following disclosures relate to the gains/losses and surplus/deficit in the schemes recognised for the RMPP and RMSEPP defined benefit plans in
the financial statements of the Group:
The Company and the RMPP Trustee are currently in discussion about the future funding requirements, and this could materially change the pension
costs and balance sheet amounts that are reported in future financial statements.
The real discount rate has decreased to 1.5 per cent since March 2012 when it was 1.8 per cent (March 2011 2.0 per cent).
The following disclosures relate to the gains/losses and surplus/deficit in the schemes recognised for the RMPP and RMSEPP defined benefit plans in
Demographic assumptions, for example mortality, remain unchanged from those made in March 2012 and March 2011.
the financial statements of the Group:
The following table shows the potential impact on the RMPP liabilities and pension deficit of changes in key assumptions:
The real discount rate has decreased to 1.5 per cent since March 2012 when it was 1.8 per cent (March 2011 2.0 per cent).
Demographic assumptions, for example mortality, remain unchanged from those made in March 2012 and March 2011.
The following table shows the potential impact on the RMPP liabilities and pension deficit of changes in key assumptions:
9. Employee benefits – pensions (continued)
c) Plans’ assets and liabilities
The combined plans’ assets and liabilities were:
Fair value of plans’ assets
Present value of plans’ liabilities
Surplus/(deficit) in schemes (pre IFRIC 14 adjustment)
IFRIC 14 adjustment
Surplus/(deficit) in schemes
At 31 March
2013
£m
3,343
(2,513)
830
(5)
825
Market value
At 25 March
2012
£m
28,616
(31,332)
(2,716)
–
(2,716)
At 27 March
2011
£m
25,762
(29,947)
(4,185)
–
(4,185)
b) Plans’ assets and expected rates of return and deficit calculation – RMPP and RMSEPP
The assets in the plans and the expected rates of return were:
b) Plans’ assets and expected rates of return and deficit calculation – RMPP and RMSEPP
The assets in the plans and the expected rates of return were:
2013
Equities
Bonds
Property
Cash/other
Equities
Derivatives
Bonds
Property
Fair value of plans’ assets
Present value of plans’ liabilities
Cash/other
Surplus/(deficit) in plans
Derivatives
6
Fair value of plans’ assets
required to determine the 2013-14 expense.
Present value of plans’ liabilities
£m
558
2,479
2013
218
£m
88
558
–
2,479
3,343
218
(2,513)
88
830
–
3,343
(2,513)
2012
£m
3,151
23,600
2012
1,319
£m
310
3,151
236
23,600
28,616
1,319
(31,332)
310
(2,716)
236
28,616
(31,332)
2011
£m
3,971
19,812
2011
1,480
£m
389
3,971
110
19,812
25,762
1,480
(29,947)
389
(4,185)
110
25,762
(29,947)
Long-term expected rate
of return
Long-term expected rate
7.7
of return
2012
% pa
5.7
2012
6.8
% pa
3.4
7.7
5.7
5.7
6.8
3.4
5.7
2013
% pa
n/a6
n/a6
2013
n/a6
% pa
n/a6
n/a6
n/a6
n/a6
n/a6
n/a6
n/a6
2011
% pa
8.2
6.2
2011
6.5
% pa
4.2
8.2
6.2
6.2
6.5
4.2
6.2
In accordance with the 2011 revision of IAS 19, which applies for financial periods beginning on or after 1 January 2013, the historic expected return on assets assumption is no longer
There is no element of the present value of Plans’ liabilities above, that arises from plans that are wholly unfunded.
Surplus/(deficit) in plans
(4,185)
(2,716)
830
Included within the pension assets are £1.4 billion (2012 £11.6 billion, 2011 £7.8 billion) of HM Government Bonds.
In accordance with the 2011 revision of IAS 19, which applies for financial periods beginning on or after 1 January 2013, the historic expected return on assets assumption is no longer
6
required to determine the 2013-14 expense.
There is no element of the present value of Plans’ liabilities above, that arises from plans that are wholly unfunded.
Included within the pension assets are £1.4 billion (2012 £11.6 billion, 2011 £7.8 billion) of HM Government Bonds.
The surplus in the RMSEPP is assumed to be available as a refund as per IFRIC 14 and, as such, is shown net of withholding taxation.
The surplus in RMPP is assumed to be available as a reduction to contributions and this future benefit is recognised within the net deferred taxation
asset. Therefore, no IFRIC 14 adjustment is required. The Directors do not believe that the current excess of pension scheme assets over the liabilities
on an accounting basis will result in an excess of pension assets on a funding basis. However, the Directors are required to account for the pension
scheme, based on their legal right to benefit from a surplus, using long-term actuarial assumptions current at the reporting date, as required
by IFRS.
There were no open equity derivatives within this portfolio at 31 March 2013.
The RMPP Trustee has elected to use interest rate and inflation rate swaps (‘derivatives’) to deliver the investment strategy whilst managing risk as
described below. These derivatives are recorded at market value within the table on the previous page and are commonly used by pension funds.
The interest rate and inflation rate swaps are used to hedge the exposure to movements in interest rates and inflation (which are key, long-term
assumptions used to estimate future pension liabilities). The economic exposure of these swaps held in a specific managed portfolio for this purpose
at 31 March 2013 is £1.53 billion (March 2012 £9.9 billion, March 2011 £6.6 billion).
The investment strategy of the RMPP Trustee aims to safeguard the assets of the RMPP and to provide, together with contributions, the financial
resource from which benefits are paid. Investment is inevitably exposed to risks. The investment risks inherent in the investment markets are partially
mitigated by pursuing a widely diversified approach across asset classes and investment managers. The RMPP Trustee recognises that there is a
natural conflict between improving the potential for positive return and limiting the potential for poor return. The RMPP Trustee has specified
objectives for the investment policy that balance these requirements.
The spread of investments continues to balance security and growth in order to pay the RMPP benefits when they become due. An actuarial
valuation will be undertaken at 31 March 2012 and the Trustee will seek to agree funding arrangements with the Company. As part of this exercise
the RMPP Trustee will be undertaking a full investment strategy review. On conclusion of the review, the RMPP’s Statement of Investment Principles
will be reviewed and updated.
d) Movement in Plans’ assets and liabilities
Changes in the present value of the defined benefit pension obligations are analysed as follows:
Opening net retirement benefit deficit at 26 March 2012, 28 March 2011 and 29 March 2010
Increase in value of pension assets 26-31 March 20127 (Actuarial gain)
Increase in value of pension liabilities 26-31 March 20127 (Actuarial loss)
Transfer of historic pension deficit to HM Government7
Net retirement benefit surplus/(deficit) at 1 April 2012, 28 March 2011 and
29 March 2010
Current service cost (see section (g) on page 81)
Movement in Company contributions accrued
Curtailment costs
Net pension interest credit/(charge) (see section (g) on page 81)
Employer’s contributions
Actuarial gains 1 April 2012 – 31 March 2013, 28 March 2011 – 25 March 2012 and
29 March 2010 – 27 March 20117
Closing net retirement benefit surplus/(deficit) (pre IFRIC 14 adjustment)
7 Taken directly to equity.
2013
£m
(2,716)
224
(652)
3,726
582
(412)
(2)
(17)
34
435
210
830
2012
£m
(4,185)
–
–
–
(4,185)
(384)
(5)
(31)
24
429
1,436
(2,716)
2011
£m
(7,477)
–
–
–
(7,477)
(423)
4
(33)
(155)
715
3,184
(4,185)
79
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
9. Employee benefits – pensions (continued)
e) Movement in plans’ assets and liabilities – RMPP and RMSEPP
Changes in the value of the plans’ assets and analysis is as follows:
Plans’ assets at beginning of period
Increase in value of pension assets 26-31 March 2012
Transfer of pension assets to HM Government
Company contributions paid
Employee contributions paid
Movement in Company contributions accrued
Finance income (expected rate of return)
Actuarial gains (additional increase in market values)
Benefits paid to members
Plans’ assets at end of period
Changes in the present value of the defined benefit pension obligations are analysed as follows:
Plans’ liabilities at beginning of period
Increase in value of pension liabilities 26-31 March 2012
Transfer of pension liabilities to HM Government
Current service cost
Employee contributions
Curtailment costs8
Finance cost
Actuarial (losses)/gains (recognised in statement of comprehensive income)
Benefits paid
Plans’ liabilities at end of period
2013
£m
28,616
224
(26,485)
435
136
(2)
163
273
(17)
3,343
2013
£m
(31,332)
(652)
30,211
(412)
(136)
(17)
(129)
(63)
17
(2,513)
2012
£m
25,762
–
–
429
134
(5)
1,651
1,738
(1,093)
28,616
2012
£m
(29,947)
–
–
(384)
(134)
(31)
(1,627)
(302)
1,093
(31,332)
2011
£m
24,017
–
–
715
141
4
1,594
437
(1,146)
25,762
2011
£m
(31,494)
–
–
(423)
(141)
(33)
(1,749)
2,747
1,146
(29,947)
8 The curtailment costs in the income statement are recognised on a consistent basis with the associated compensation costs. Estimates of both are included, for example, in any redundancy
provisions raised. The curtailment costs above represent the costs associated with those people paid compensation in respect of redundancy during the accounting period. Such payments may
occur in an accounting period subsequent to the recognition of costs in the income statement.
f) History of experience gains and losses – RMPP and RMSEPP
The cumulative amount of actuarial gains and losses recognised since transition to IFRSs at 29 March 2004 in the statement of comprehensive
income is a £212 million gain (2012 £430 million gain, 2011 £1,006 million loss).
2013
£m
3,343
(2,513)
830
2013
£m
497
101
2012
£m
28,616
(31,332)
(2,716)
2012
£m
1,738
(5)
2011
£m
25,762
(29,947)
(4,185)
2011
£m
437
(7)
2010
£m
24,017
(31,494)
(7,477)
2010
£m
4,156
626
2009
£m
18,670
(24,971)
(6,301)
2009
£m
(5,097)
(9)
Fair value of assets
Present value of liabilities
Surplus/(deficit) in plans
Experience adjustment on assets
Experience adjustment on liabilities
This disclosure is in accordance with IAS 19.
80
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
9. Employee benefits – pensions (continued)
e) Movement in plans’ assets and liabilities – RMPP and RMSEPP
Changes in the value of the plans’ assets and analysis is as follows:
9. Employee benefits – pensions (continued)
g) Recognised charges – RMPP and RMSEPP
A disaggregation of the amounts recognised in the income statement, statement of comprehensive income and directly in equity is as follows:
Plans’ assets at beginning of period
Increase in value of pension assets 26-31 March 2012
Transfer of pension assets to HM Government
Company contributions paid
Employee contributions paid
Movement in Company contributions accrued
Finance income (expected rate of return)
Actuarial gains (additional increase in market values)
Benefits paid to members
Plans’ assets at end of period
Changes in the present value of the defined benefit pension obligations are analysed as follows:
Plans’ liabilities at beginning of period
Increase in value of pension liabilities 26-31 March 2012
Transfer of pension liabilities to HM Government
Current service cost
Employee contributions
Curtailment costs8
Finance cost
Benefits paid
Plans’ liabilities at end of period
Actuarial (losses)/gains (recognised in statement of comprehensive income)
2013
£m
2012
£m
2011
£m
28,616
25,762
24,017
224
(26,485)
435
136
(2)
163
273
(17)
–
–
429
134
(5)
1,651
1,738
–
–
715
141
4
1,594
437
(1,093)
(1,146)
3,343
28,616
25,762
2013
£m
2012
£m
2011
£m
(31,332)
(29,947)
(31,494)
(652)
30,211
(412)
(136)
(17)
(129)
(63)
17
–
–
(384)
(134)
(31)
(1,627)
(302)
1,093
–
–
(423)
(141)
(33)
(1,749)
2,747
1,146
(2,513)
(31,332)
(29,947)
Analysis of amounts recognised in the income statement:
Analysis of amounts charged to operating profit before exceptional items:
– Current service cost
Total charge to operating profit before exceptional items
Analysis of amounts charged to operating exceptional items:
– Loss due to curtailments (within provision for restructuring charge – note 21)
Total charge to operating profit
Analysis of amounts charged/(credited) to financing:
– Interest on plans’ liabilities
– Expected return on plans’ assets
Total net credit/(charge) to financing
Net charge to income statement before deduction for taxation
Analysis of amounts recognised in the statement of comprehensive income:
– Actual return on plans’ assets
– Deduct: expected return on plans’ assets
Actuarial gains on assets (all experience adjustments)
– Experience adjustments on liabilities
– Effects of changes in actuarial assumption on liabilities
Actuarial (losses)/gains on liabilities
Total actuarial (losses)/gains recognised in the statement of comprehensive income before
deduction for taxation (see section (d) above)
8 The curtailment costs in the income statement are recognised on a consistent basis with the associated compensation costs. Estimates of both are included, for example, in any redundancy
provisions raised. The curtailment costs above represent the costs associated with those people paid compensation in respect of redundancy during the accounting period. Such payments may
occur in an accounting period subsequent to the recognition of costs in the income statement.
f) History of experience gains and losses – RMPP and RMSEPP
The cumulative amount of actuarial gains and losses recognised since transition to IFRSs at 29 March 2004 in the statement of comprehensive
income is a £212 million gain (2012 £430 million gain, 2011 £1,006 million loss).
Analysis of amounts recognised directly in equity:
– Transfer of pension assets to HM Government
– Transfer of pension liabilities to HM Government
Transfer of historic pension deficit to HM Government
2013
£m
2012
£m
2011
£m
(412)
(412)
(11)
(423)
(129)
163
34
(389)
660
(163)
497
101
(816)
(715)
(384)
(384)
(15)
(399)
(1,627)
1,651
24
(375)
3,389
(1,651)
1,738
(5)
(297)
(302)
(423)
(423)
(45)
(468)
(1,749)
1,594
(155)
(623)
2,031
(1,594)
437
(7)
2,754
2,747
(218)
1,436
3,184
(26,485)
30,211
3,726
–
–
–
–
–
–
Fair value of assets
Present value of liabilities
Surplus/(deficit) in plans
Experience adjustment on assets
Experience adjustment on liabilities
This disclosure is in accordance with IAS 19.
2013
£m
3,343
(2,513)
830
2013
£m
497
101
2012
£m
28,616
(31,332)
(2,716)
2012
£m
1,738
(5)
2011
£m
25,762
(29,947)
(4,185)
2011
£m
437
(7)
2010
£m
24,017
(31,494)
(7,477)
2010
£m
4,156
626
2009
£m
18,670
(24,971)
(6,301)
2009
£m
(5,097)
(9)
81
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
10. Changes in equity
There have been material changes to the share premium account and to total equity and these have created £1,318 million of distributable
reserves.
Share premium account
On 27 June 2012, the Company reduced the amount of its share premium account by £3,784 million with the Company reducing the deficit on its
distributable reserves by the same amount at that time. This reduction of capital was approved by a special resolution of the Company, supported by
a solvency statement made by its Directors pursuant to section 642 of the Companies Act 2006. The reduction was executed through a non-cash
accounting entry and has no effect on total equity and the number of the Company’s ordinary shares in issue or their nominal value.
Summary of movements in total equity
Total equity brought forward at 26 March 2012
Movement relating to defined benefit pension scheme (note 9(d)):
Increase in value of pension assets 26-31 March 2012
Increase in value of pension liabilities 26-31 March 2012
Transfer of historic pension deficit to Government on 1 April 2012
Actuarial gains 1 April 2012 – 31 March 2013
IFRIC 14 adjustment (note 9 (c))
Taxation on items taken direct to equity (deferred taxation relating to pensions)
Profit for the period
Other reserves movements in the period (release of gains on disposal of pension escrow gilts, foreign currency
translation losses and net gains on cash flow hedges)
Total equity carried forward at 31 March 2013
11. Events after the reporting period
£m
£m
(2,455)
224
(652)
3,726
210
3,508
(5)
(188)
860
570
(25)
1,405
This note confirms whether or not there have been any material events occurring between the end of the financial reporting period on
31 March 2013 and the publication of the Annual Report and Financial Statements.
On Friday 21 June 2013, the Group launched a consultation with members of the Royal Mail Pension Plan on a proposal to change the terms of the
Plan. Under the proposal, members’ basic pensionable pay under the Plan would increase by RPI (up to five per cent) each year, regardless of
whether members’ actual basic pay goes up by more or less. This change would, subject to the agreement of the Plan Trustee, allow the Company to
maintain its current rate of contributions.
If we are able to reach agreement with our unions on our proposal we would in return be able to commit that, at least until we have concluded our
next review in March 2018:
- The Plan would remain open to future accruals; and
- There would be no change to members’ contribution rate, accrual rates or normal retirement age.
An agreement of the type that we are proposing would, subject to its conditions, be legally binding on the Company, irrespective of any change of
ownership.
The consultation will conclude on 25 August 2013, following which the Company will consider the feedback received before making its final
decision, and then communicate the outcome to colleagues shortly afterwards.
82
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
There have been material changes to the share premium account and to total equity and these have created £1,318 million of distributable
The notes in this section provide details of people costs and numbers and other operating costs (e.g. pensions, depreciation and amortisation and
operating lease charges).
Other notes – income statement
10. Changes in equity
reserves.
Share premium account
On 27 June 2012, the Company reduced the amount of its share premium account by £3,784 million with the Company reducing the deficit on its
distributable reserves by the same amount at that time. This reduction of capital was approved by a special resolution of the Company, supported by
a solvency statement made by its Directors pursuant to section 642 of the Companies Act 2006. The reduction was executed through a non-cash
accounting entry and has no effect on total equity and the number of the Company’s ordinary shares in issue or their nominal value.
12. People information
13. Other operating costs
Summary of movements in total equity
Total equity brought forward at 26 March 2012
Movement relating to defined benefit pension scheme (note 9(d)):
Increase in value of pension assets 26-31 March 2012
Increase in value of pension liabilities 26-31 March 2012
Transfer of historic pension deficit to Government on 1 April 2012
Actuarial gains 1 April 2012 – 31 March 2013
IFRIC 14 adjustment (note 9 (c))
Taxation on items taken direct to equity (deferred taxation relating to pensions)
Profit for the period
translation losses and net gains on cash flow hedges)
Total equity carried forward at 31 March 2013
11. Events after the reporting period
Other reserves movements in the period (release of gains on disposal of pension escrow gilts, foreign currency
£m
£m
(2,455)
224
(652)
3,726
210
3,508
(5)
(188)
860
570
(25)
1,405
This note confirms whether or not there have been any material events occurring between the end of the financial reporting period on
31 March 2013 and the publication of the Annual Report and Financial Statements.
On Friday 21 June 2013, the Group launched a consultation with members of the Royal Mail Pension Plan on a proposal to change the terms of the
Plan. Under the proposal, members’ basic pensionable pay under the Plan would increase by RPI (up to five per cent) each year, regardless of
whether members’ actual basic pay goes up by more or less. This change would, subject to the agreement of the Plan Trustee, allow the Company to
If we are able to reach agreement with our unions on our proposal we would in return be able to commit that, at least until we have concluded our
maintain its current rate of contributions.
next review in March 2018:
- The Plan would remain open to future accruals; and
- There would be no change to members’ contribution rate, accrual rates or normal retirement age.
An agreement of the type that we are proposing would, subject to its conditions, be legally binding on the Company, irrespective of any change of
ownership.
The consultation will conclude on 25 August 2013, following which the Company will consider the feedback received before making its final
decision, and then communicate the outcome to colleagues shortly afterwards.
83
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
12. People information
Of the total Group operating costs, 60 per cent (2012 59 per cent, 2011 61 per cent) relate to our people. This note provides a breakdown of
our people costs and numbers.
People costs:
Wages and salaries
- UK based
- GLS
Pensions
- Defined benefit (UK)
- Defined contribution (UK)
- GLS (mainly Defined Contribution type)
Social security
- UK based
- GLS
Group total
Defined benefit pension rate:
Profit and loss
Cash flow
Defined contribution:
Employer contribution rates – Profit and loss and
cash flow9
4,072
282
412
17
309
50
53 weeks
March
2013
£m
4,354
429
5
359
5,147
18.2%
17.1%
3,890
290
384
11
287
53
Reported
52 weeks
March
2012
£m
4,180
395
5
340
4,920
17.1%
17.1%
3,940
274
423
9
287
48
52 weeks
March
2011
£m
4,214
432
5
335
4,986
17.8%
17.1%
1% - 7%
5% - 7%
5% - 7%
9 Employer contribution rates are 1 per cent for employees in the Entry Level category, and 5 per cent - 7 per cent for those in the Standard Level category, depending on the employees
selected contribution rate.
People numbers:
The number of people employed, calculated on a headcount basis, was:
UK Parcels, International & Letters (UKPIL)
UK partially owned subsidiaries (Romec, NDC 2000)
General Logistics Systems
Group total
The number of Full-Time Equivalents (FTE) employed was:
UK Parcels, International & Letters (UKPIL)
UK partially owned subsidiaries (Romec, NDC 2000)
General Logistics Systems
Group total
Period end employees
31 March
2013
149,940
4,030
13,646
167,616
25 March
2012
151,156
3,926
13,362
168,444
31 March
2013
151,191
3,655
9,272
164,118
Period end FTE
25 March
2012
153,751
3,813
9,198
166,762
27 March
2011
155,181
4,254
13,167
172,602
27 March
2011
158,376
4,214
9,021
171,611
31 March
2013
149,710
4,013
13,569
167,292
Average employees
25 March
2012
152,514
3,972
13,103
169,589
31 March
2013
154,362
3,655
9,232
167,249
Average FTE
25 March
2012
157,286
3,813
9,568
170,667
27 March
2011
157,317
4,244
13,120
174,681
27 March
2011
162,865
4,214
9,200
176,279
84
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
12. People information
our people costs and numbers.
Of the total Group operating costs, 60 per cent (2012 59 per cent, 2011 61 per cent) relate to our people. This note provides a breakdown of
- Defined benefit (UK)
- Defined contribution (UK)
- GLS (mainly Defined Contribution type)
People costs:
Wages and salaries
- UK based
- GLS
Pensions
Social security
- UK based
- GLS
Group total
Defined benefit pension rate:
Profit and loss
Cash flow
Defined contribution:
Employer contribution rates – Profit and loss and
cash flow9
4,072
282
412
17
309
50
53 weeks
March
2013
£m
429
5
359
5,147
18.2%
17.1%
3,890
290
384
11
287
53
Reported
52 weeks
March
2012
£m
395
5
340
4,920
17.1%
17.1%
3,940
274
423
9
287
48
52 weeks
March
2011
£m
432
5
335
4,986
17.8%
17.1%
selected contribution rate.
People numbers:
The number of people employed, calculated on a headcount basis, was:
UK Parcels, International & Letters (UKPIL)
UK partially owned subsidiaries (Romec, NDC 2000)
General Logistics Systems
Group total
The number of Full-Time Equivalents (FTE) employed was:
UK Parcels, International & Letters (UKPIL)
UK partially owned subsidiaries (Romec, NDC 2000)
General Logistics Systems
Group total
Period end employees
Average employees
31 March
2013
149,940
4,030
13,646
25 March
2012
27 March
2011
151,156
155,181
3,926
13,362
4,254
13,167
31 March
2013
149,710
4,013
13,569
25 March
2012
27 March
2011
152,514
157,317
3,972
13,103
4,244
13,120
167,616
168,444
172,602
167,292
169,589
174,681
Period end FTE
Average FTE
31 March
2013
151,191
3,655
9,272
25 March
2012
27 March
2011
153,751
158,376
3,813
9,198
4,214
9,021
31 March
2013
154,362
3,655
9,232
25 March
2012
27 March
2011
157,286
162,865
3,813
9,568
4,214
9,200
164,118
166,762
171,611
167,249
170,667
176,279
12. People information (continued)
Directors’ emoluments:
Directors’ emoluments
Amounts earned under Long-Term Incentive Plans
2013
£000
3,753
-
2012
£000
3,398
-
2011
£000
2,345
-
Number of Directors accruing benefits under defined benefit schemes
-
-
-
13. Other operating costs
4,354
4,180
4,214
Below is an analysis of other operating costs in the income statement (e.g. pensions, depreciation and amortisation and operating lease charges)
that require specific disclosure under IFRS.
Operating profit before exceptional items is stated after charging the following other operating costs:
9 Employer contribution rates are 1 per cent for employees in the Entry Level category, and 5 per cent - 7 per cent for those in the Standard Level category, depending on the employees
The following information is relevant in understanding the extent of the Group’s regulatory costs and statutory audit costs:
1% - 7%
5% - 7%
5% - 7%
Research and development expenditure during the year amounted to £nil (2012 £nil, 2011 £nil).
UK Pension costs (note 9)
Depreciation and amortisation
Depreciation of property, plant and equipment (note 22)
Amortisation of intangible assets (mainly software – note 24)
Total
Operating lease charges on property, plant and equipment
Costs of inventories expensed
2013
£m
429
238
43
281
153
184
Regulatory body costs
Postcomm
Ofcom
Consumer Futures
Total
Auditor’s fees
Audit of statutory financial statements
Other fees to auditor:
Statutory audits for subsidiaries
Other services (including regulatory audits)
Taxation services
Total
2013
£m
-
5
3
8
2013
£000
402
1,566
208
228
2,404
2012
£m
395
268
33
301
150
174
2012
£m
6
2
3
11
2012
£000
402
2011
£m
432
250
36
286
151
157
2011
£m
10
-
3
13
2011
£m
402
1,706
669
78
2,855
1,398
471
55
2,326
The Group paid £80,850 additional amounts in 2013 in respect of the 2012 audit (£267,000 in 2012 in respect of 2011 audit, £nil in 2011 in
respect of the 2010 audit).
85
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
Other notes – financial assets, financial liabilities and hedging programmes
The notes in this section explain how the Group is financed, including details of associated risks, interest rates, additional loan facilities available
and hedging programmes in place to mitigate volatility in commodity prices and foreign currency exchange rates.
14. Financial assets and liabilities – introduction, summary and management of financial risk
15. Pension escrow investments
16. Cash and cash equivalents
17. Loans and borrowings
18. Financial liabilities net and gross maturity analysis
19. Financial assets and liabilities – additional analysis
20. Hedging programmes
86
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
Other notes – financial assets, financial liabilities and hedging programmes
14. Financial assets and liabilities – introduction, summary and management of financial risk
The notes in this section explain how the Group is financed, including details of associated risks, interest rates, additional loan facilities available
and hedging programmes in place to mitigate volatility in commodity prices and foreign currency exchange rates.
Below is a summary of financial assets (e.g. cash, investments and deposits) and liabilities (e.g. loans and finance lease obligations) and details of
how the various risks associated with these assets and liabilities are managed. Subsequent notes in this section provide more detailed
disclosures on specific financial assets and liabilities.
14. Financial assets and liabilities – introduction, summary and management of financial risk
15. Pension escrow investments
16. Cash and cash equivalents
17. Loans and borrowings
18. Financial liabilities net and gross maturity analysis
19. Financial assets and liabilities – additional analysis
20. Hedging programmes
Pension escrow investments
Cash and cash equivalents
Other bank and local authority deposits
Derivative assets
Total financial assets
BIS loans to Royal Mail Group Limited
Miscellaneous loans in subsidiaries
Total loans and borrowings
Finance leases obligations
Derivative liabilities
Total financial liabilities
Non-
current
£m
20
–
–
3
23
(973)
–
(973)
(226)
(1)
(1,200)
2013
Current
£m
–
351
1
9
361
–
–
–
(79)
(2)
(81)
Total
£m
20
351
1
12
384
(973)
–
(973)
(305)
(3)
(1,281)
Non-
current
£m
149
–
–
2
151
(1,522)
–
(1,522)
(231)
(1)
(1,754)
2012
Current
£m
–
473
31
9
513
–
–
–
(86)
(4)
(90)
Non-
current
£m
87
–
44
6
137
(1,477)
(1)
(1,478)
(184)
–
(1,662)
2011
Current
£m
–
319
1
36
356
–
–
–
(61)
(3)
(64)
Total
£m
87
319
45
42
493
(1,477)
(1)
(1,478)
(245)
(3)
(1,726)
Total
£m
149
473
31
11
664
(1,522)
–
(1,522)
(317)
(5)
(1,844)
Financial assets and liabilities – financial risk management objectives and policies
The Group’s principal financial assets and liabilities comprise short-term deposits, money market liquidity investments, Government gilt edged
securities, loans, finance leases and cash. The main purposes of these financial instruments are to raise finance and manage the liquidity needs of
the business operations. The Group has various other financial instruments such as trade receivables and trade payables, which arise directly from
operations and are not disclosed further in this section.
The Group enters into derivative transactions, which create derivative assets and liabilities, mainly commodity price swaps and forward currency
contracts, their purpose being to manage the commodity and currency risks arising from the Group’s operations.
It is, and has been throughout the year under review, the Group’s policy that no speculative trading in financial instruments shall be undertaken.
The main risks arising from the Group’s financial assets and liabilities are interest rate risk, foreign currency risk, commodity price risk, credit risk and
liquidity risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below.
Interest rate risk
The Group’s exposure to market risk for changes in interest rates relates to the Group’s loans and borrowings and interest bearing financial assets.
The BIS loans to Royal Mail Group Limited of £973 million (2012 £1,522 million, 2011 £1,477 million) are a mix of £nil (2012 £600 million, 2011
£600 million) floating interest rate and £973 million (2012 £922 million, 2011 £877 million) fixed interest rate with a combined average maturity
date of 2019 (2012 average maturity date of 2017, 2011 average maturity date of 2017). The total interest bearing financial assets of the Group
(excluding the non-current investments) of £336 million (2012 £487 million, 2011 £319 million) are at short-dated fixed or variable interest rates
with average maturity nine days (2012 average maturity 18 days, 2011 average maturity six days).
The Group’s policy is to manage its net interest expense using a mix of fixed and floating rate financial instruments. No external hedging
of interest rate risk is undertaken.
Foreign currency transaction risk
The Group is exposed to foreign currency transaction risk due to: trading with overseas postal operators for carrying UK mail abroad and delivering
foreign origin mail in UKPIL, and various purchase contracts denominated in foreign currency, all in UKPIL. These risks are mitigated by hedging
programmes managed by Group Treasury. Where possible, exposures are netted internally and any remaining exposure is hedged using a
combination of external spot and forward contracts. Hedging will not normally be considered for exposures of less than £1 million and hedging is
normally confined to 80 per cent of the forecast exposure, where forecast cash flows are highly probable.
Foreign currency translation risk
The Group’s functional currency is the pound Sterling. GLS’ functional currency is the Euro. GLS Euro profits are converted at the average exchange
rate for the year, which can result in reported growth which does not relate to underlying performance. This is addressed by using like-for-like
growth rates as described on page i.
GLS’ balance sheet is converted at year end rates, and movements relating to foreign currency translation are taken to equity.
87
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
14. Financial assets and liabilities – introduction, summary and management of financial risk
(continued)
The Group’s obligation to settle with overseas postal operators is denominated in Special Drawing Rights (SDRs) – a basket of currencies comprised of
US Dollar (US$), Japanese Yen, Sterling and Euro. Group Treasury operates a rolling 18-month hedge programme, which is subsequently reviewed
on a quarterly basis.
The Group’s obligations to settle conveyance charges in UKPIL in US$ have been hedged to March 2014.
The Group has two hedge programmes covering obligations to settle Euro invoices on automation projects in UKPIL.
The Group does not hedge the translation exposure created by the net assets of its overseas subsidiaries, mainly GLS. However, it does hedge the
transactional exposure created by inter-company loans with these subsidiaries.
Commodity price risk
The Group is exposed to fuel price risk arising from operating one of the largest vehicle fleets in Europe, which consumes over 130 million litres of
fuel per year, and a jet fuel price risk arising from the purchasing of air freight services. The Group’s fuel risk management strategy aims to reduce
uncertainty created by the movements in the oil and foreign currency markets. The strategy uses over-the-counter derivative products (in both US$
commodity price and US$/Sterling exchange rate) to manage these exposures, mainly on a combined basis.
In addition, the Group is exposed to the commodity price risk of purchasing electricity and gas. The Group’s risk management strategy aims to reduce
uncertainty created by the movements in the electricity and gas markets. These exposures are managed by locking into fixed rate price contracts with
suppliers and using over-the-counter derivative products to manage these exposures.
Credit risk
Royal Mail considers that a fair and equitable credit policy is in operation for all its account customers. The level of credit granted is based on a
customer’s risk profile assessed by an independent credit reference agent. The credit policy is applied rigidly within the regulated products area so
as to ensure that Royal Mail is not in breach of compliance legislation. Assessment of credit for the non-regulated products is based on commercial
factors, which are commensurate with the Group’s appetite for risk.
Royal Mail has a dedicated credit management team, which sets and monitors credit limits, and takes corrective action as and when appropriate.
The level of bad debt incurred for the whole Group is 0.1 per cent (2012 0.4 per cent) of turnover.
With respect to credit risk arising from other financial assets of the Group, which comprise cash, cash equivalent investments, available for sale
financial assets, held to maturity financial assets, held for trading financial assets, loans and receivables financial assets and certain derivative
instruments, the Group invests/trades only with high-quality financial institutions. The Group’s exposure to credit risk arises from default of the
counterparty, with a maximum exposure equal to the carrying amount of these instruments.
Liquidity risk
The Group’s primary objective is to ensure that the Group has sufficient funds available to meet its financial obligations as they fall due. This is
achieved by aligning short-term investments and borrowing facilities with forecast cash flows. Typical short-term investments include money market
funds, time deposits with approved counterparties, UK Government gilts and Treasury bills. Borrowing facilities are regularly reviewed to ensure
continuity of funding.
The unused facilities for Royal Mail Group Limited of £900 million expire in 2014 (2012 and 2011 £300 million expiring in 2014). Additionally, the
Group has £200 million (2012 and 2011 £200 million) of uncommitted lines of credit which are reviewed annually.
Capital management
Royal Mail Group Limited is a limited company whose shares are not traded and the Group regards its capital as share capital, share premium,
retained earnings and debt provided by the UK Government. The ultimate shareholder and the provider of the majority of debt to the Group is the UK
Government. The management of capital is closely linked to the Group’s relationship with its ultimate shareholder. The Group maintains its liquidity
requirements by the management of its internal funds and by the drawing down of equity and debt from its ultimate shareholder as well as drawing
on limited external debt facilities. The Group’s debt to equity ratio is determined by its ultimate shareholder.
Sensitivity
As a result of the mix of fixed and variable rate financial instruments and the currency and commodity hedge programmes in place, the
Group has no material exposure to operating profit from interest rate risk, exchange rate risk or commodity price risk (2012 and 2011 £nil).
The Group has an exposure to the exchange rate risk on translating the GLS net assets into Sterling on consolidation. The impact of a five per
cent strengthening of Sterling would have been to reduce the Group net assets by £31 million (2012 £39 million, 2011 £37 million).
88
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
(continued)
on a quarterly basis.
The Group’s obligation to settle with overseas postal operators is denominated in Special Drawing Rights (SDRs) – a basket of currencies comprised of
US Dollar (US$), Japanese Yen, Sterling and Euro. Group Treasury operates a rolling 18-month hedge programme, which is subsequently reviewed
The Group’s obligations to settle conveyance charges in UKPIL in US$ have been hedged to March 2014.
The Group has two hedge programmes covering obligations to settle Euro invoices on automation projects in UKPIL.
The Group does not hedge the translation exposure created by the net assets of its overseas subsidiaries, mainly GLS. However, it does hedge the
transactional exposure created by inter-company loans with these subsidiaries.
Commodity price risk
The Group is exposed to fuel price risk arising from operating one of the largest vehicle fleets in Europe, which consumes over 130 million litres of
fuel per year, and a jet fuel price risk arising from the purchasing of air freight services. The Group’s fuel risk management strategy aims to reduce
uncertainty created by the movements in the oil and foreign currency markets. The strategy uses over-the-counter derivative products (in both US$
commodity price and US$/Sterling exchange rate) to manage these exposures, mainly on a combined basis.
In addition, the Group is exposed to the commodity price risk of purchasing electricity and gas. The Group’s risk management strategy aims to reduce
uncertainty created by the movements in the electricity and gas markets. These exposures are managed by locking into fixed rate price contracts with
suppliers and using over-the-counter derivative products to manage these exposures.
Credit risk
Royal Mail considers that a fair and equitable credit policy is in operation for all its account customers. The level of credit granted is based on a
customer’s risk profile assessed by an independent credit reference agent. The credit policy is applied rigidly within the regulated products area so
as to ensure that Royal Mail is not in breach of compliance legislation. Assessment of credit for the non-regulated products is based on commercial
factors, which are commensurate with the Group’s appetite for risk.
Royal Mail has a dedicated credit management team, which sets and monitors credit limits, and takes corrective action as and when appropriate.
The level of bad debt incurred for the whole Group is 0.1 per cent (2012 0.4 per cent) of turnover.
With respect to credit risk arising from other financial assets of the Group, which comprise cash, cash equivalent investments, available for sale
financial assets, held to maturity financial assets, held for trading financial assets, loans and receivables financial assets and certain derivative
instruments, the Group invests/trades only with high-quality financial institutions. The Group’s exposure to credit risk arises from default of the
counterparty, with a maximum exposure equal to the carrying amount of these instruments.
The Group’s primary objective is to ensure that the Group has sufficient funds available to meet its financial obligations as they fall due. This is
achieved by aligning short-term investments and borrowing facilities with forecast cash flows. Typical short-term investments include money market
funds, time deposits with approved counterparties, UK Government gilts and Treasury bills. Borrowing facilities are regularly reviewed to ensure
The unused facilities for Royal Mail Group Limited of £900 million expire in 2014 (2012 and 2011 £300 million expiring in 2014). Additionally, the
Group has £200 million (2012 and 2011 £200 million) of uncommitted lines of credit which are reviewed annually.
Liquidity risk
continuity of funding.
Capital management
Royal Mail Group Limited is a limited company whose shares are not traded and the Group regards its capital as share capital, share premium,
retained earnings and debt provided by the UK Government. The ultimate shareholder and the provider of the majority of debt to the Group is the UK
Government. The management of capital is closely linked to the Group’s relationship with its ultimate shareholder. The Group maintains its liquidity
requirements by the management of its internal funds and by the drawing down of equity and debt from its ultimate shareholder as well as drawing
on limited external debt facilities. The Group’s debt to equity ratio is determined by its ultimate shareholder.
Sensitivity
As a result of the mix of fixed and variable rate financial instruments and the currency and commodity hedge programmes in place, the
Group has no material exposure to operating profit from interest rate risk, exchange rate risk or commodity price risk (2012 and 2011 £nil).
The Group has an exposure to the exchange rate risk on translating the GLS net assets into Sterling on consolidation. The impact of a five per
cent strengthening of Sterling would have been to reduce the Group net assets by £31 million (2012 £39 million, 2011 £37 million).
14. Financial assets and liabilities – introduction, summary and management of financial risk
15. Pension escrow investments
This note provides an analysis of various pension escrow investments provided as security to the Group’s Pension Trustees.
As from 1 April 2012, following the transfer of almost all of the RMPP pension liabilities and pension assets to HM Government, and hence the
removal of the historic pension deficit, £149 million of investments – which were previously held in pension escrow in Royal Mail Group Limited –
were released to the Company. These were subsequently sold and proceeds used to pay down loans to HM Government.
On 25 March 2013, the Company placed £20 million in a money market fund investment established to provide security to the Royal Mail Senior
Executives Pension Plan (RMSEPP) as part of a funding agreement with the RMSEPP Trustees. This is treated as an investment in the Group’s
balance sheet. RMSEPP was closed to future accruals on 31 December 2012.
The pension escrow investments are analysed in the table below:
Treasury bills
Gilt edged securities (index-linked)
Gilt edged securities (conventional)
Money market fund
Total pension escrow investments
2013
2012
Average
effective
interest rate
%
–
–
–
0.3
Average
effective
interest rate
%
0.4
4.3
4.8
–
£m
–
–
–
20
20
Average
effective
interest rate
%
–
4.7
4.8
–
£m
45
79
25
–
149
2011
£m
–
66
21
–
87
Treasury bills, index-linked gilt edged securities and conventional gilt edged securities are classified as available for sale financial instruments on the
basis that they are quoted investments that are not held for trading and may be disposed of prior to maturity. The investments are initially
recognised at fair value, being the purchase price. After initial recognition, interest is included in the reported profit/(loss) for the year, using the
effective interest rate method and the assets are measured at fair value with gains and losses being recognised in the Financial Assets Reserve until
the investment is derecognised.
The decrease in the pension escrow investments of £129 million in 2013 consists of £149 million relating to RMPP due to the sale of the
investments, offset by a £20 million money market investment established as security for RMSEPP. The increase in the RMPP related pension
escrow investments of £62 million in 2012 comprised £4 million interest on the investments, £14 million fair value gain deferred into equity and
£44 million paid into escrow on disposal of a property previously held under mortgage in escrow.
89
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
16. Cash and cash equivalents
Below is a summary of the cash and cash equivalents balances held by the Group.
Cash and cash equivalents include cash and other cash equivalent investments as shown below:
Cash at bank and in hand
Cash equivalent investments: short-term bank and local authority deposits and money market fund
investments
Total cash and cash equivalents
2013
£m
136
215
351
2012
£m
172
301
473
2011
£m
100
219
319
Cash and cash equivalents comprise cash at bank and in hand and short-term deposits (cash equivalents) with an original maturity date of three
months or less. In addition, the Group uses money market funds as a readily available source of cash, and these funds are also categorised as cash
equivalents. Where interest is earned, this is either at floating or short-term fixed rates based upon bank deposit rates. The fair value of cash and
cash equivalent investments is not materially different from the carrying value of £351 million (2012 £473 million, 2011 £319 million).
17. Loans and borrowings
Details of loans and borrowings, including interest rates, additional loan facilities available and any security provided against the loans are
provided below.
Below is a summary of loans and borrowings at the year end, the average interest rate, facility availability and security granted.
Senior Debt Facility (term loan)10
Senior Debt Facility (revolver)
GLS Funding Loan
Shareholder Loan
Total BIS loans to Royal Mail Group Limited
Loans
and
borrowings
£m
Further
committed
facility
£m
–
–
500
473
973
600
300
–
–
900
2013
Total
facility
£m
600
300
500
473
1,873
Average
interest rate
of loan
drawn down
%
Average
maturity date of
drawn loans
–
–
5.8
12.0
8.8
–
–
2023
2016
Average
maturity
date
of facility
2014
2014
2023
2016
10 On 30 March 2012, the Group agreed an amendment to this facility to permit repayment and reborrowing. The outstanding balance was repaid during April and May 2012, since when no
further drawdowns have been made.
Senior Debt Facility (term loan)
Senior Debt Facility (revolver)
GLS Funding Loan
Shareholder Loan
Total BIS loans to Royal Mail Group Limited
Loans
and
borrowings
£m
600
–
500
422
1,522
Further
committed
facility
£m
–
300
–
–
300
2012
Total
facility
£m
600
300
500
422
1,822
Average
interest rate
of loan
drawn down
%
2.2
–
5.8
12.0
6.1
Average maturity
date of drawn
loans
2014
–
2023
–11
Average
maturity
date
of facility
2014
2014
2023
–11
11 Loan facilities are repayable on the later of March 2016 and the release of the pension escrow investment. As from 1 April 2012, following the transfer of almost all of the RMPP pension
liabilities and pension assets to HM Government, the loan facilities are repayable in March 2016.
90
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
Below is a summary of the cash and cash equivalents balances held by the Group.
Cash and cash equivalents include cash and other cash equivalent investments as shown below:
Cash equivalent investments: short-term bank and local authority deposits and money market fund
Cash at bank and in hand
investments
Total cash and cash equivalents
2013
£m
136
215
351
2012
£m
172
301
473
2011
£m
100
219
319
Cash and cash equivalents comprise cash at bank and in hand and short-term deposits (cash equivalents) with an original maturity date of three
months or less. In addition, the Group uses money market funds as a readily available source of cash, and these funds are also categorised as cash
equivalents. Where interest is earned, this is either at floating or short-term fixed rates based upon bank deposit rates. The fair value of cash and
cash equivalent investments is not materially different from the carrying value of £351 million (2012 £473 million, 2011 £319 million).
17. Loans and borrowings
provided below.
Details of loans and borrowings, including interest rates, additional loan facilities available and any security provided against the loans are
Below is a summary of loans and borrowings at the year end, the average interest rate, facility availability and security granted.
10 On 30 March 2012, the Group agreed an amendment to this facility to permit repayment and reborrowing. The outstanding balance was repaid during April and May 2012, since when no
Senior Debt Facility (term loan)10
Senior Debt Facility (revolver)
GLS Funding Loan
Shareholder Loan
Total BIS loans to Royal Mail Group Limited
further drawdowns have been made.
Senior Debt Facility (term loan)
Senior Debt Facility (revolver)
GLS Funding Loan
Shareholder Loan
Loans
and
borrowings
Further
committed
£m
–
–
500
473
973
facility
£m
600
300
–
–
900
Loans
and
borrowings
£m
600
–
500
422
Further
committed
facility
£m
300
–
–
–
2013
Total
facility
£m
600
300
500
473
1,873
Total
facility
£m
600
300
500
422
Average
interest rate
of loan
drawn down
maturity date of
Average
drawn loans
%
–
–
5.8
12.0
8.8
2.2
%
–
5.8
12.0
6.1
–
–
2023
2016
loans
2014
–
2023
–11
2012
Average
interest rate
of loan
Average maturity
drawn down
date of drawn
Average
maturity
date
of facility
2014
2014
2023
2016
Average
maturity
date
of facility
2014
2014
2023
–11
Total BIS loans to Royal Mail Group Limited
1,522
300
1,822
11 Loan facilities are repayable on the later of March 2016 and the release of the pension escrow investment. As from 1 April 2012, following the transfer of almost all of the RMPP pension
liabilities and pension assets to HM Government, the loan facilities are repayable in March 2016.
16. Cash and cash equivalents
17. Loans and borrowings (continued)
Senior Debt Facility (term loan)
Senior Debt Facility (revolver)
GLS Funding Loan
Shareholder Loan
Miscellaneous loans and borrowings in subsidiaries
Total BIS loans to Royal Mail Group Limited
Loans
and
borrowings
£m
600
–
500
377
1
1,478
Further
committed
facility
£m
–
300
–
–
–
300
2011
Total
facility
£m
600
300
500
377
1
1,778
Average
interest rate
of loan
drawn down
%
3.0
–
5.8
12.0
4.5
6.3
Average maturity
date of drawn
loans
2014
–
2023
–11
2012
The undrawn committed facilities, in respect of which all conditions precedent had been met at the balance sheet date, expire as follows:
Average
maturity
date
of facility
2014
2014
2023
–11
2012
2011
£m
–
–
300
300
2013
£m
900
–
–
900
2012
£m
–
300
–
300
Facility
end date Security
2014 Fixed charges over Royal Mail Holdings plc’s
shares in Royal Mail Group Limited and Royal
Mail Group Limited’s shares in Royal Mail
Estates Limited. Floating charges over all
assets of Royal Mail Holdings plc, Royal Mail
Group Limited and Royal Mail Estates Limited.
–12 None
2021-
2025
Fixed charges over any Royal Mail Group
Limited loans to General Logistics Systems
B.V., any Royal Mail Group Limited loans to
subsidiaries of General Logistics Systems B.V.
and Royal Mail Investments Limited’s shares
in General Logistics Systems B.V. Floating
charge over non-regulated assets of Royal
Mail Group Limited.
Expiring in one year or less
Expiring in more than one year, but not more than two years
Expiring in more than two years
Total
The following securities apply to the Group’s committed facilities:
Royal Mail Group Limited Senior Debt
Facility
2013
Facility
£m
900
Facility
end date
2014
2012
Facility
£m
900
Facility
end date
2014
2011
Facility
£m
900
Royal Mail Group Limited Shareholder
Loan facility
Royal Mail Group Limited other drawn
down loans
473
2016
422
–12
500 2021-
2025
500 2021-
2025
377
500
1,873
1,822
1,777
12 Loan facilities are repayable on the later of March 2016 and the release of the pension escrow investment. As from 1 April 2012, following the transfer of almost all of the RMPP pension
liabilities and pension assets to HM Government, the loan facilities are repayable in March 2016.
The Royal Mail Group Limited Shareholder Loan increased by £51 million (2012 £45 million, 2011 £40 million) as a result of accrued interest added
to the loan balance.
The security in place in the previous year was as disclosed above – with the exception of £nil (2012 £60 million, 2011 £102 million) mortgages over
certain Group properties which were established in March 2011.
The BIS loan to Royal Mail Group Limited becomes repayable immediately on the occurrence of an event of default under the loan agreements.
These events of default include non-payment, insolvency and breach of covenant relating to interest and total indebtedness.
It is not anticipated that the Group is at risk of breaching any of these obligations.
91
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
18. Financial liabilities net and gross maturity analysis
This note focuses on loans and borrowings, finance leases and derivatives and provides further details on when amounts fall due, both for
principal and for total contractual payments (e.g. including interest).
Amounts falling due in:
One year or less or on demand (current)
More than one year (non-current)
More than one year but not more than two years
More than two years but not more than five years
More than five years
Total
Amounts falling due in:
One year or less or on demand (current)
More than one year (non-current)
More than one year but not more than two years
More than two years but not more than five years
More than five years
Total
Amounts falling due in:
One year or less or on demand (current)
More than one year (non-current)
More than one year but not more than two years
More than two years but not more than five years
More than five years
Total
Loans
and
borrowings
£m
2013
Finance
leases
£m
Derivative
liabilities
£m
–
973
–
473
500
973
Loans
and
borrowings
£m
–
1,522
600
–
922
1,522
Loans
and
borrowings
£m
–
1,478
–
601
877
1,478
79
226
56
139
31
305
2
1
1
–
–
3
2012
Finance
leases
£m
Derivative
liabilities
£m
86
231
52
142
37
317
4
1
1
–
–
5
2011
Finance
leases
£m
Derivative
liabilities
£m
61
184
47
103
34
245
3
–
–
–
–
3
Total
£m
81
1,200
57
612
531
1,281
Total
£m
90
1,754
653
142
959
1,844
Total
£m
64
1,662
47
704
911
1,726
Obligations under finance leases are either unsecured or secured on the leased assets. These are repayable in variable and fixed amounts over their
maturity periods. The average interest rate is four per cent (2012 and 2011 four per cent). The average maturity date is more than five years (2012
and 2011 more than five years).
92
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
18. Financial liabilities net and gross maturity analysis
This note focuses on loans and borrowings, finance leases and derivatives and provides further details on when amounts fall due, both for
principal and for total contractual payments (e.g. including interest).
18. Financial liabilities net and gross maturity analysis (continued)
The tables below set out the gross (undiscounted) contractual cash flows of the Group’s financial liabilities. For overdrafts, loans and finance lease
contracts, these cash flows represent the undiscounted total amounts payable including interest. For derivatives which are settled gross, these cash
flows represent the undiscounted gross payment due and do not reflect the accompanying inflow. For derivatives which are settled net, these cash
flows represent the undiscounted forecast outflow.
Amounts falling due in:
One year or less or on demand (current)
More than one year (non-current)
More than one year but not more than two years
More than two years but not more than five years
More than five years
Amounts falling due in:
One year or less or on demand (current)
More than one year (non-current)
More than one year but not more than two years
More than two years but not more than five years
More than five years
Amounts falling due in:
One year or less or on demand (current)
More than one year (non-current)
More than one year but not more than two years
More than two years but not more than five years
More than five years
Total
Total
Total
Loans
and
borrowings
£m
2013
Finance
leases
£m
Derivative
liabilities
£m
2012
Finance
leases
£m
Derivative
liabilities
£m
973
–
–
473
500
973
Loans
and
borrowings
£m
1,522
600
–
–
922
1,522
Loans
and
borrowings
£m
1,478
–
–
601
877
1,478
79
226
56
139
31
305
86
231
52
142
37
317
61
184
47
103
34
245
Total
£m
81
1,200
57
612
531
1,281
Total
£m
90
1,754
653
142
959
1,844
Total
£m
64
1,662
47
704
911
1,726
2
1
1
–
–
3
4
1
1
–
–
5
3
–
–
–
–
3
Amounts falling due in:
One year or less or on demand (current)
More than one year (non-current)
More than one year but not more than two years
More than two years but not more than five years
More than five years
Total
Less interest
Net total
Amounts falling due in:
One year or less or on demand (current)
More than one year (non-current)
More than one year but not more than two years
More than two years but not more than five years
More than five years
2011
Finance
leases
£m
Derivative
liabilities
£m
Total
Less interest
Net total
Obligations under finance leases are either unsecured or secured on the leased assets. These are repayable in variable and fixed amounts over their
maturity periods. The average interest rate is four per cent (2012 and 2011 four per cent). The average maturity date is more than five years (2012
and 2011 more than five years).
Amounts falling due in:
One year or less or on demand (current)
More than one year (non-current)
More than one year but not more than two years
More than two years but not more than five years
More than five years
Total
Less interest
Net total
Gross
loans and
borrowings
commitments
£m
Gross
finance lease
instalments
£m
2013
Sub-total
£m
Gross
payments on
derivatives
settled gross
£m
Gross
payments on
derivatives
settled net
£m
29
1,435
29
752
654
1,464
(491)
973
87
330
61
147
122
417
(112)
305
Gross
loans and
borrowings
commitments
£m
Gross
finance lease
instalments
£m
46
2,081
646
88
1,347
2,127
(605)
1,522
98
344
60
153
131
442
(125)
317
Gross
loans and
borrowings
commitments
£m
Gross
finance lease
instalments
£m
49
2,144
51
717
1,376
2,193
(715)
1,478
72
297
54
112
131
369
(124)
245
116
1,765
90
899
776
1,881
(603)
1,278
2012
Sub-total
£m
144
2,425
706
241
1,478
2,569
(730)
1,839
2011
Sub-total
£m
121
2,441
105
829
1,507
2,562
(839)
1,723
120
2
2
–
–
122
n/a
n/a
2
1
1
–
–
3
n/a
n/a
Gross
payments on
derivatives
settled gross
£m
Gross
payments on
derivatives
settled net
£m
316
3
3
–
–
319
n/a
n/a
3
1
1
–
–
4
n/a
n/a
Gross
payments on
derivatives
settled gross
£m
Gross
payments on
derivatives
settled net
£m
379
3
3
–
–
382
n/a
n/a
2
–
–
–
–
2
n/a
n/a
Total
£m
238
1,768
93
899
776
2,006
n/a
n/a
Total
£m
463
2,429
710
241
1,478
2,892
n/a
n/a
Total
£m
502
2,444
108
829
1,507
2,946
n/a
n/a
93
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
19. Financial assets and liabilities – additional analysis
This note provides an analysis of the pound Sterling carrying values of the financial assets and liabilities held in various foreign currencies, along
with details of interest rates, interest rate risk and maturity timescales.
Table 1 shows all the financial assets and liabilities in detail and on a net basis. Table 2 shows the net amount by currency. Table 3 shows the
respective assets/liabilities by whether they are fixed, floating or non-interest bearing. Table 4 shows the effective interest rate and maturity
analysed as fixed rate, floating rate and non-interest bearing.
Carrying amounts and fair values
Trade receivables, payables, prepayments, accruals and client payables have been omitted from this analysis on the basis that carrying value is a
reasonable approximation for fair value. Pension scheme assets and liabilities are also excluded. Fair values have been calculated using current
market prices (forward exchange rates/commodity prices) and discounted using appropriate discount rates. There are no material differences
between the fair value (transaction price) of all financial instruments at initial recognition and the fair value calculated using these valuation
techniques. The fair value of the BIS loans to Royal Mail Group Limited (non-current) is £1,165 million at 31 March 2013 (2012 £1,698 million,
2011 £1,563 million). The fair value of ‘Obligations under finance leases’ is £308 million (2012 £327 million, 2011 £248 million). For all other
financial instruments fair value is equal to the carrying amount.
The tables below also set out the carrying amount of the currency of the Group’s financial instruments:
Table 1
Financial assets
Cash at bank or in hand
Cash equivalent investments
– Money market funds
– Short-term deposits – local government
– Short-term deposits – bank
Cash and cash equivalents
Financial assets – investments (current)
– Short-term deposits – Government/local government
– Short-term deposits – bank
Financial assets – investments (non-current) – bank deposits
Financial assets – pension escrow investments (non-current)
– Money market funds
– Treasury bills
– Gilt edged securities (conventional)
– Gilt edged securities (index linked)
Derivative assets – current
– non-current
Total financial assets
Financial liabilities
Obligations under finance leases (current)
Financial liabilities – loans and borrowings (non-current)
– BIS loans to Royal Mail Group Limited
– Miscellaneous loans in subsidiaries (non-current)
Obligations under finance leases (non-current)
Derivative liabilities – current
Derivative liabilities – non-current
Total financial liabilities
Net total financial assets
Level
Classification
Loans and receivables
Loans and receivables
Loans and receivables
Loans and receivables
Loans and receivables
Loans and receivables
Loans and receivables
Available for sale
Available for sale
Available for sale
Amortised cost
Amortised cost
Amortised cost
Amortised cost
1
1
1
1
2
2
2
2
2013
Total
£m
136
215
88
7
120
351
1
1
–
–
20
20
–
–
–
9
3
384
2012
Total
£m
172
301
271
–
30
473
31
1
30
–
149
–
45
25
79
9
2
664
2011
Total
£m
100
219
98
29
92
319
1
1
–
44
87
–
–
21
66
36
6
493
(79)
(973)
(973)
–
(226)
(2)
(1)
(1,281)
(897)
(86)
(1,522)
(1,522)
–
(231)
(4)
(1)
(1,844)
(1,180)
(61)
(1,478)
(1,477)
(1)
(184)
(3)
–
(1,726)
(1,233)
94
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
19. Financial assets and liabilities – additional analysis
This note provides an analysis of the pound Sterling carrying values of the financial assets and liabilities held in various foreign currencies, along
with details of interest rates, interest rate risk and maturity timescales.
Table 1 shows all the financial assets and liabilities in detail and on a net basis. Table 2 shows the net amount by currency. Table 3 shows the
respective assets/liabilities by whether they are fixed, floating or non-interest bearing. Table 4 shows the effective interest rate and maturity
analysed as fixed rate, floating rate and non-interest bearing.
Carrying amounts and fair values
Trade receivables, payables, prepayments, accruals and client payables have been omitted from this analysis on the basis that carrying value is a
reasonable approximation for fair value. Pension scheme assets and liabilities are also excluded. Fair values have been calculated using current
market prices (forward exchange rates/commodity prices) and discounted using appropriate discount rates. There are no material differences
between the fair value (transaction price) of all financial instruments at initial recognition and the fair value calculated using these valuation
techniques. The fair value of the BIS loans to Royal Mail Group Limited (non-current) is £1,165 million at 31 March 2013 (2012 £1,698 million,
2011 £1,563 million). The fair value of ‘Obligations under finance leases’ is £308 million (2012 £327 million, 2011 £248 million). For all other
financial instruments fair value is equal to the carrying amount.
The tables below also set out the carrying amount of the currency of the Group’s financial instruments:
Table 1
Financial assets
Cash at bank or in hand
Cash equivalent investments
– Money market funds
– Short-term deposits – local government
– Short-term deposits – bank
Cash and cash equivalents
Financial assets – investments (current)
– Short-term deposits – Government/local government
– Short-term deposits – bank
Financial assets – investments (non-current) – bank deposits
Financial assets – pension escrow investments (non-current)
– Money market funds
– Treasury bills
– Gilt edged securities (conventional)
– Gilt edged securities (index linked)
Derivative assets – current
– non-current
Total financial assets
Financial liabilities
Obligations under finance leases (current)
Financial liabilities – loans and borrowings (non-current)
– BIS loans to Royal Mail Group Limited
– Miscellaneous loans in subsidiaries (non-current)
Obligations under finance leases (non-current)
Derivative liabilities – current
Derivative liabilities – non-current
Total financial liabilities
Net total financial assets
Level
Classification
Loans and receivables
Loans and receivables
Loans and receivables
Loans and receivables
Loans and receivables
Loans and receivables
Loans and receivables
Available for sale
Available for sale
Available for sale
Amortised cost
Amortised cost
Amortised cost
Amortised cost
1
1
1
1
2
2
2
2
2013
Total
£m
136
215
88
7
120
351
20
20
1
1
–
–
–
–
–
9
3
384
(79)
(973)
(973)
–
(226)
(2)
(1)
(1,281)
(897)
2012
Total
£m
172
301
271
–
30
473
31
1
30
149
–
–
45
25
79
9
2
664
2011
Total
£m
100
219
319
98
29
92
1
1
–
44
87
–
–
21
66
36
6
493
(86)
(1,522)
(1,522)
–
(231)
(4)
(1)
(1,844)
(1,180)
(61)
(1,478)
(1,477)
(1)
(184)
(3)
–
(1,726)
(1,233)
19. Financial assets and liabilities – additional analysis (continued)
There are no financial assets or liabilities designated at fair value through the income statement on initial recognition.
The criteria for codification of ‘Level’ in the above table is described in the accounting policy ‘Fair value measurement of financial instruments’ on
page 121.
Derivative assets - £9 million current, £3 million non-current (2012 £9 million current, £2 million non-current, 2011 £36 million current, £6 million
non-current) and liabilities £2 million current, £1 million non-current (2012 £4 million current, £1 million non-current, 2011 £3 million current, £nil non-
current) are valued at fair value. Effective changes in the fair value of derivatives, which are part of a designated cash flow hedge under IAS 39, are
deferred into equity. All other changes in derivative fair value are taken directly to the income statement.
None of the financial assets listed above are either past due or considered to be impaired.
The net total financial assets are held in various different currencies as summarised in the table below. The majority of the non-Sterling financial
assets are held within cash at bank, or in hand.
Table 2
Net total financial (liabilities)/assets 2013
Net total financial (liabilities)/assets 2012
Net total financial (liabilities)/assets 2011
Sterling
£m
(1,005)
(1,343)
(1,416)
US$
£m
5
11
74
Euro
£m
66
118
87
Other
£m
37
34
22
Total
£m
(897)
(1,180)
(1,233)
Interest rate risk
Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. Interest on financial instruments classified as
fixed rate is fixed until the maturity of the instrument.
The tables below set out the carrying amount by maturity of the Group’s financial instruments that are exposed to interest rate risk. The pension
escrow investments of £20 million at 31 March 2013 represent a money market fund investment established to provide security to the Royal Mail
Senior Executives Pension Plan (RMSEPP) in support of a deficit recovery period agreed with the Trustee in 2013 and as such are disclosed as
maturing in more than five years.
Financial year ended 31 March 2013
Table 3
Cash
Cash equivalent investments
Financial asset investments (current)
Pension escrow investments
Derivative - assets
- liabilities
BIS loans to Royal Mail Group Limited
Obligations under finance leases
Net total financial (liabilities)/assets
Financial year ended 25 March 2012
Table 3
Cash
Cash equivalent investments
Financial asset investments (current)
Pension escrow investments
Derivative - assets
- liabilities
BIS loans to Royal Mail Group Limited
Obligations under finance leases
Net total financial (liabilities)/assets
Fixed rate
£m
18
127
1
-
-
-
(973)
(305)
(1,132)
Floating rate
£m
102
88
-
20
-
-
-
-
210
Non-interest
bearing
£m
16
-
-
-
12
(3)
-
-
25
Fixed rate
£m
28
30
31
25
-
-
(922)
(317)
(1,125)
Floating rate
£m
127
271
-
124
-
-
(600)
-
(78)
Non-interest
bearing
£m
17
-
-
-
11
(5)
-
-
23
Total
£m
136
215
1
20
12
(3)
(973)
(305)
(897)
Total
£m
172
301
31
149
11
(5)
(1,522)
(317)
(1,180)
95
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
19. Financial assets and liabilities – additional analysis (continued)
Fixed rate
£m
12
121
1
21
44
-
-
(877)
(1)
(245)
(924)
Floating rate
£m
87
98
-
66
-
-
-
(600)
-
-
(349)
Non-interest
bearing
£m
1
-
-
-
-
42
(3)
-
-
-
40
Average
effective
interest rate
%
Within
1 year
£m
1-2
years
£m
2-5
years
£m
More than
5 years
£m
Total
£m
100
219
1
87
44
42
(3)
(1,477)
(1)
(245)
(1,233)
Total
£m
18
120
7
3.2
0.4
0.4
7.7
8.8
3.6
0.6
0.4
0.3
18
120
7
1
–
(79)
67
102
88
–
190
16
9
(2)
23
280
–
–
–
–
–
(56)
(56)
–
–
–
–
–
3
(1)
2
(54)
–
–
–
–
(473)
(139)
(612)
–
–
–
–
–
–
–
–
(612)
–
–
–
–
(500)
(31)
(531)
1
(973)
(305)
(1,132)
–
–
20
20
–
–
–
–
(511)
102
88
20
210
16
12
(3)
25
(897)
Financial year ended 27 March 2011
Table 3 (continued)
Cash
Cash equivalent investments
Financial asset investments (current)
Pension escrow investments
Financial asset investments (non-current)
Derivative - assets
- liabilities
BIS loans to Royal Mail Group Limited
Miscellaneous loans and borrowings in subsidiaries
Obligations under finance leases
Net total financial (liabilities)/assets
Financial year ended 31 March 2013
Table 4
Fixed rate
Cash at bank
Cash equivalent investments:
– Short-term deposits – bank
– Short-term deposits – HM Government/local government
Financial assets – investments (current)
– Short-term deposits – HM Government/local government
BIS loans to Royal Mail Group Limited
Obligations under finance leases
Total
Floating rate
Cash at bank
Cash equivalent investments:
– Money market funds
Pension escrow investments – money market finds
Total
Non-interest bearing
Cash at bank or in hand
Derivative assets
Derivative liabilities
Total
Net total financial assets/(liabilities)
96
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
19. Financial assets and liabilities – additional analysis (continued)
19. Financial assets and liabilities – additional analysis (continued)
Financial year ended 27 March 2011
Financial year ended 25 March 2012
Table 3 (continued)
Cash
Cash equivalent investments
Financial asset investments (current)
Pension escrow investments
Financial asset investments (non-current)
Derivative - assets
- liabilities
BIS loans to Royal Mail Group Limited
Miscellaneous loans and borrowings in subsidiaries
Obligations under finance leases
Net total financial (liabilities)/assets
Financial year ended 31 March 2013
Table 4
Fixed rate
Cash at bank
Cash equivalent investments:
– Short-term deposits – bank
– Short-term deposits – HM Government/local government
Financial assets – investments (current)
– Short-term deposits – HM Government/local government
BIS loans to Royal Mail Group Limited
Obligations under finance leases
Cash equivalent investments:
– Money market funds
Pension escrow investments – money market finds
Total
Floating rate
Cash at bank
Total
Non-interest bearing
Cash at bank or in hand
Derivative assets
Derivative liabilities
Total
Fixed rate
Floating rate
Non-interest
bearing
£m
£m
12
121
1
21
44
-
-
(877)
(1)
(245)
(924)
£m
87
98
-
66
-
-
-
-
-
(600)
(349)
40
Total
£m
100
219
1
87
44
42
(3)
(1,477)
(1)
(245)
(1,233)
Total
£m
18
120
7
1
102
88
20
210
16
12
(3)
25
1
-
-
-
-
-
-
-
42
(3)
–
–
–
–
–
–
20
20
–
–
–
–
Average
effective
interest rate
%
Within
1 year
£m
1-2
years
£m
2-5
years
£m
More than
5 years
£m
(56)
(56)
(473)
(139)
(612)
(500)
(31)
(531)
(973)
(305)
(1,132)
3.2
0.4
0.4
7.7
8.8
3.6
0.6
0.4
0.3
18
120
7
1
–
(79)
67
102
88
–
190
16
9
(2)
23
–
–
–
–
–
–
–
–
–
–
3
(1)
2
–
–
–
–
–
–
–
–
–
–
–
–
Net total financial assets/(liabilities)
280
(54)
(612)
(511)
(897)
Table 4
Fixed rate
Cash at bank
Cash equivalent investments:
– Short-term deposits – bank
Financial assets – investments (current)
– Short-term deposits – HM Government/local government
– Short-term deposits – Bank
Financial assets – pension escrow investments (non-current)
– Gilt edged securities (conventional)
BIS loans to Royal Mail Group Limited
Obligations under finance leases
Total
Floating rate
Cash at bank
Cash equivalent investments:
– Money market funds
Financial assets – pension escrow investments (non-current)
– Treasury bills
– Gilt edged securities (index linked)
BIS loans to Royal Mail Group Limited
Total
Non-interest bearing
Cash at bank or in hand
Derivative assets
Derivative liabilities
Total
Net total financial assets/(liabilities)
Average
effective
interest rate
%
Within
1 year
£m
1-2
years
£m
2-5
years
£m
More than
5 years
£m
4.2
0.7
7.7
2.4
4.8
8.7
3.8
0.5
0.8
0.4
4.3
2.2
28
30
1
30
–
–
(86)
3
127
271
–
–
–
398
17
9
(4)
22
423
–
–
–
–
–
–
(52)
(52)
–
–
–
–
(600)
(600)
–
2
(1)
1
(651)
–
–
–
–
–
–
(142)
(142)
–
–
–
–
–
–
–
–
–
–
(142)
–
–
–
–
25
(922)
(37)
(934)
–
–
45
79
–
124
–
–
–
–
(810)
Total
£m
28
30
1
30
25
(922)
(317)
(1,125)
127
271
45
79
(600)
(78)
17
11
(5)
23
(1,180)
97
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
19. Financial assets and liabilities – additional analysis (continued)
Financial year ended 27 March 2011
Average
effective
interest rate
%
Within
1 year
£m
1-2
years
£m
2-5
years
£m
More than
5 years
£m
3.9
0.6
0.8
7.7
0.4
4.8
8.4
4.3
4.5
0.8
0.7
4.7
3.0
12
29
92
1
–
–
–
(61)
–
73
87
98
–
–
185
1
36
(3)
34
292
–
–
–
–
5
–
–
(47)
–
(42)
–
–
–
–
–
–
6
–
6
(36)
–
–
–
–
24
–
–
(103)
(1)
(80)
–
–
–
(600)
(600)
–
–
–
–
(680)
Total
£m
12
29
92
1
44
21
(877)
(245)
(1)
(924)
87
98
66
(600)
(349)
–
–
–
–
15
21
(877)
(34)
–
(875)
–
–
66
–
66
–
–
–
–
(809)
1
42
(3)
40
(1,233)
Table 4
Fixed rate
Cash at bank
Cash equivalent investments:
– Short-term deposits – bank
– Short-term deposits – bank
Financial assets – investments (current)
– Short-term deposits – HM Government/local
government
Financial assets – investments (non-current) – bank deposits
Financial assets – pension escrow investments (non-current)
– Gilt edged securities (conventional)
BIS loans to Royal Mail Group Limited
Obligations under finance leases
Miscellaneous loans in subsidiaries
Total
Floating rate
Cash at bank
Cash equivalent investments:
– Money market funds
Financial assets – pension escrow investments (non-current)
– Gilt edged securities (index linked)
BIS loans to Royal Mail Group Limited
Total
Non-interest bearing
Cash at bank or in hand
Derivative assets
Derivative liabilities
Total
Net total financial assets/(liabilities)
98
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
19. Financial assets and liabilities – additional analysis (continued)
20. Hedging programmes
Financial assets – investments (current)
– Short-term deposits – HM Government/local
government
Financial assets – investments (non-current) – bank deposits
Financial assets – pension escrow investments (non-current)
Financial year ended 27 March 2011
Table 4
Fixed rate
Cash at bank
Cash equivalent investments:
– Short-term deposits – bank
– Short-term deposits – bank
– Gilt edged securities (conventional)
BIS loans to Royal Mail Group Limited
Obligations under finance leases
Miscellaneous loans in subsidiaries
Total
Floating rate
Cash at bank
Cash equivalent investments:
– Money market funds
– Gilt edged securities (index linked)
BIS loans to Royal Mail Group Limited
Total
Non-interest bearing
Cash at bank or in hand
Derivative assets
Derivative liabilities
Total
Financial assets – pension escrow investments (non-current)
Average
effective
interest rate
%
Within
1 year
£m
1-2
years
£m
2-5
years
£m
More than
5 years
£m
3.9
0.6
0.8
7.7
0.4
4.8
8.4
4.3
4.5
0.8
0.7
4.7
3.0
12
29
92
1
–
–
–
–
(61)
73
87
98
–
–
185
1
36
(3)
34
292
(47)
(42)
–
–
–
–
5
–
–
–
–
–
–
–
–
–
6
–
6
–
24
–
–
(103)
(1)
(80)
–
15
21
(877)
(34)
(875)
(600)
(600)
66
–
66
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£m
12
29
92
1
44
21
(877)
(245)
(1)
(924)
87
98
66
(600)
(349)
1
42
(3)
40
Net total financial assets/(liabilities)
(36)
(680)
(809)
(1,233)
Information regarding the various hedging programmes in place to mitigate volatility in commodity prices and foreign currency exchange rates is
provided below.
The hedging programmes use a number of financial derivative products to manage volatility in commodity prices and foreign exchange. If these
hedges are ‘in the money’, i.e. hedged rates are better than the current market rate, then a derivative asset is recognised and if they are ‘out of
the money’, a derivative liability is recognised. We show the full picture in this note even though the balance sheet amounts are not material in
the context of the Group’s total assets and liabilities.
The purpose of the Group’s hedging programmes is to mitigate volatility in commodity prices and foreign exchange rates. As explained in note 14,
interest rate risk is managed using an appropriate mix of fixed and variable rate financial instruments. There are no significant concentrations of
credit risk. Accounting rules require the Company to choose whether to designate effective cash flow hedge programmes or not (subject to various
tests). The impact of not designating a cash flow hedge programme is that all gains or losses on the derivatives in the programme have to be taken
immediately to the income statement and cannot be deferred into equity. The Group had the following designated cash flow hedge programmes
during the current and previous year.
Hedging activities
The diesel fuel hedge programme uses forward commodity price swaps in US$ or Sterling and forward currency purchase contracts to hedge the
exposure arising from commodity price and US$/Sterling exchange rates for forecast diesel fuel purchases.
The jet fuel hedge programme uses forward commodity price swaps and forward currency purchase contracts to hedge the exposure arising from
commodity price and US$/Sterling exchange rates for forecast jet fuel usage.
The air conveyance hedge programme uses US$ forward currency purchase contracts to hedge the exposure arising from US$/Sterling exchange
rates for forecast air conveyance purchases.
Three capital programmes (one of which completed during the year) use Euro forward currency purchase contracts to hedge the exposure arising
from Sterling/Euro exchange rates for contracted capital expenditure on automation projects.
The electricity hedge programme uses forward commodity price swaps to hedge the exposure arising from electricity prices.
The gas hedge programme uses forward commodity price swaps to hedge the exposure arising from gas prices.
The Group had undesignated cash flow hedge programmes for UKPIL overseas postal operator liabilities and the transactional exposure created by
inter-company loans with GLS. The derivative balances of these programmes are not material.
Commodity price hedging
The Group’s normal operating activities result in the consumption of fuel (both diesel and jet), electricity and gas. The prices of these commodities can
be volatile, so the Group enters into price swap contracts to lock future purchases (at an agreed volume) into a known price. For diesel and jet these
price swaps are sometimes entered into on the US$ price for the commodity (based upon available market prices), in which case the Group uses
forward foreign currency contracts to lock into a combined Sterling price for the commodity. The following table shows the commodity, risk, the
amount of the exposure and the percentage of the expected consumption hedged. The Group hedges the cost of the underlying commodity and any
irrecoverable VAT that is incurred on this cost. It does not hedge any fuel duty. The exposures shown in the following table exclude the costs of fuel
duty and are based upon the hedges in place combined with market prices at the balance sheet date for the unhedged amounts. Fuel duty (and the
associated VAT) add an additional cost of approximately £100 million to diesel costs each year. Total fuel costs for 2013-14 are estimated to be
£196 million.
99
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
20. Hedging programmes (continued)
Commodity
Diesel fuel
Jet fuel
Electricity
Gas
Risk
US$ price and $/£ exchange rate movements
US$ price and $/£ exchange rate movements
£ price movement
£ price movement
Commodity
Diesel fuel
Jet fuel
Electricity
Gas
Risk
US$ price and $/£ exchange rate movements
US$ price and $/£ exchange rate movements
£ price movement
£ price movement
Commodity
Diesel fuel
Jet fuel
Electricity
Gas
Risk
US$ price and $/£ exchange rate movements
US$ price and $/£ exchange rate movements
£ price movement
£ price movement
Exposure (excluding fuel duty) and expected consumption hedged 2013
March Year ending 2014 March Year ending 2015
%
hedged
Exposure
£m
%
hedged
Exposure
£m
80
16
18
14
93%
92%
83%
81%
82
16
18
14
79%
−
54%
56%
March Year ending 2016
%
Exposure
hedged
£m
83
16
19
14
9%
−
6%
7%
Exposure (excluding fuel duty) and expected consumption hedged 2012
March Year ending 2013
%
hedged
March Year ending 2014
%
Exposure
hedged
£m
March Year ending 2015
%
Exposure
hedged
£m
91%
90%
83%
78%
86
16
17
14
51%
52%
85%
80%
84
16
17
13
9%
−
20%
9%
Exposure
£m
83
15
19
15
Exposure (excluding fuel duty) and expected consumption hedged 2011
March Year ending 2012
%
hedged
90%
90%
76%
88%
Exposure
£m
59
13
15
8
March Year ending 2013
%
Exposure
hedged
£m
29%
73
30%
16
26%
17
40%
11
March Year ending 2014
%
Exposure
£m
hedged
−
75
−
16
−
18
−
11
Foreign currency hedging for non-commodity items
As highlighted in note 14, the Group, where possible, nets exposure to foreign currency internally. The remaining net exposure may be hedged with
external forward foreign currency contracts. The underlying exposures, (e.g. the foreign postal administration liabilities) and the derivatives are both
revalued to current market prices at the balance sheet dates, meaning that no net gains or losses arise in the income statement.
The following table shows for each hedge programme, the risk and the percentage hedged of the next 12 months’ exposure:
Hedge programme
Air conveyance
Capital programmes
Overseas postal operator liabilities
GLS inter-company loan
Risk
$/£ exchange rate movements
€/£ exchange rate movements
SDR/£ exchange rate movements
€/£ exchange rate movements
Percentage of next 12 months’ exposure that
has been hedged
At
25 March
2012
89%
86%
36%
100%
At
31 March
2013
92%
95%
17%
100%
At
27 March
2011
90%
87%
41%
100%
The next 12 months’ exposure is calculated as the combination of the cost of settling liabilities during the next 12 months and the cost of revaluing
unsettled liabilities at the end of 12 months.
As highlighted in note 14, the Company does not hedge the translational exposure created by the net assets or profits of its overseas subsidiaries,
mainly GLS.
Derivative values
At any point in time, the derivatives in these cash flow hedge programmes are either ‘in the money’ which means the hedged rates are better than
current market rates or ‘out of the money’ which means the hedged rates are worse than current market rates. The gains (‘in the money’) and losses
(‘out of the money’) at the balance sheet date are deferred into equity (where the hedge is effective) and an associated financial asset or financial
liability is created in the balance sheet. The financial asset/liability is either realised in cash or used to discharge a liability when the derivative matures.
The amounts deferred into equity are released from equity to the income statement or to the initial carrying amount of non-financial assets when
the hedged transaction occurs. The following tables show the derivative contracts entered into at 31 March 2013, 25 March 2012 and 27 March
2011 and the associated derivative assets and liabilities.
100
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
20. Hedging programmes (continued)
20. Hedging programmes (continued)
Commodity/
currency
Nominal
amount
Maturity date
Average contracted
commodity price/
exchange rate
2013
Diesel fuel
Diesel fuel
Diesel fuel
Jet fuel
Jet fuel
Air conveyance
Capital programmes
Electricity
Gas
Cash flow hedges
Other derivatives
Total
2012
Diesel fuel
Diesel fuel
Diesel fuel
Jet fuel
Jet fuel
Air conveyance
Capital programmes
Electricity
Gas
Cash flow hedges
Other derivatives
Total
Diesel fuel
US$
Diesel fuel
Jet fuel
Jet fuel
US$
Euro
Electricity
Gas
182,000 tonnes
$169m
93m litres
17,000 tonnes
$17m
$29m
€4m
535,000 MWh
33m therms
US$931/tonne
US$1.56/£
£0.5/litre
Apr 13 – Apr 15
Apr 13 – Apr 15
Apr 13 – Oct 15
Apr 13 – Dec 13 US$1,016/tonne
Apr 13 – Dec 13 US$1.56/£
Apr 13 – May 14 US$1.60/£
Jun 13 – Oct 14
Apr 13 – Oct 15
Apr 13 – Oct 15
£0.82/€
£55/MWh
£0.70/therm
Commodity/
currency
Nominal
amount
Maturity date
Average contracted
commodity price/
exchange rate
Diesel fuel
US$
Diesel fuel
Jet fuel
Jet fuel
US$
Euro
Electricity
Gas
191,000 tonnes
$184m
32m litres
29,000 tonnes
$29m
$28m
€21m
695,000 MWh
40m therms
US$963/tonne
US$1.58/£
£0.5/litre
Apr 12 – Oct 14
Apr 12 – Oct 14
May 13 – Jul 14
Apr 12 – Sep 13 US$1,017/tonne
Apr 12 – Sep 13 US$1.58/£
Mar 12 – Apr 13 US$1.60/£
Mar 12 – Jun 12 £0.84/€
Apr 12 – Oct 14
Apr 12 – Oct 14
£55/MWh
£0.70/therm
Commodity
Diesel fuel
Jet fuel
Electricity
Gas
Risk
US$ price and $/£ exchange rate movements
US$ price and $/£ exchange rate movements
£ price movement
£ price movement
Commodity
Diesel fuel
Jet fuel
Electricity
Gas
Commodity
Diesel fuel
Jet fuel
Electricity
Gas
Risk
US$ price and $/£ exchange rate movements
US$ price and $/£ exchange rate movements
£ price movement
£ price movement
Risk
US$ price and $/£ exchange rate movements
US$ price and $/£ exchange rate movements
£ price movement
£ price movement
Exposure (excluding fuel duty) and expected consumption hedged 2013
March Year ending 2014 March Year ending 2015
March Year ending 2016
Exposure
%
Exposure
%
Exposure
hedged
hedged
hedged
Exposure (excluding fuel duty) and expected consumption hedged 2012
March Year ending 2013
March Year ending 2014
March Year ending 2015
Exposure
%
Exposure
%
Exposure
£m
80
16
18
14
£m
83
15
19
15
£m
59
13
15
8
93%
92%
83%
81%
hedged
91%
90%
83%
78%
hedged
90%
90%
76%
88%
£m
82
16
18
14
£m
86
16
17
14
£m
73
16
17
11
79%
−
54%
56%
hedged
51%
52%
85%
80%
hedged
29%
30%
26%
40%
£m
83
16
19
14
£m
84
16
17
13
£m
75
16
18
11
%
9%
−
6%
7%
%
hedged
9%
−
20%
9%
hedged
%
−
−
−
−
Exposure (excluding fuel duty) and expected consumption hedged 2011
March Year ending 2012
March Year ending 2013
March Year ending 2014
Exposure
%
Exposure
%
Exposure
Foreign currency hedging for non-commodity items
As highlighted in note 14, the Group, where possible, nets exposure to foreign currency internally. The remaining net exposure may be hedged with
external forward foreign currency contracts. The underlying exposures, (e.g. the foreign postal administration liabilities) and the derivatives are both
revalued to current market prices at the balance sheet dates, meaning that no net gains or losses arise in the income statement.
The following table shows for each hedge programme, the risk and the percentage hedged of the next 12 months’ exposure:
Hedge programme
Air conveyance
Capital programmes
Overseas postal operator liabilities
GLS inter-company loan
Risk
$/£ exchange rate movements
€/£ exchange rate movements
SDR/£ exchange rate movements
€/£ exchange rate movements
Percentage of next 12 months’ exposure that
has been hedged
At
31 March
2013
92%
95%
17%
100%
25 March
27 March
At
2012
89%
86%
36%
100%
At
2011
90%
87%
41%
100%
The next 12 months’ exposure is calculated as the combination of the cost of settling liabilities during the next 12 months and the cost of revaluing
unsettled liabilities at the end of 12 months.
As highlighted in note 14, the Company does not hedge the translational exposure created by the net assets or profits of its overseas subsidiaries,
mainly GLS.
Derivative values
At any point in time, the derivatives in these cash flow hedge programmes are either ‘in the money’ which means the hedged rates are better than
current market rates or ‘out of the money’ which means the hedged rates are worse than current market rates. The gains (‘in the money’) and losses
(‘out of the money’) at the balance sheet date are deferred into equity (where the hedge is effective) and an associated financial asset or financial
liability is created in the balance sheet. The financial asset/liability is either realised in cash or used to discharge a liability when the derivative matures.
The amounts deferred into equity are released from equity to the income statement or to the initial carrying amount of non-financial assets when
the hedged transaction occurs. The following tables show the derivative contracts entered into at 31 March 2013, 25 March 2012 and 27 March
2011 and the associated derivative assets and liabilities.
Derivative
asset
non-
current
fair value
£m
Derivative
asset
current
fair value
£m
Derivative
liability
non-
current
fair value
£m
Derivative
liability
current
fair value
£m
–
1
2
–
–
–
–
–
–
3
–
3
3
2
–
–
–
1
–
1
1
8
1
9
(1)
–
–
–
–
–
–
–
–
(1)
–
(1)
(1)
–
–
–
–
–
–
(1)
–
(2)
–
(2)
Derivative
asset
non-
current
fair value
£m
Derivative
asset
current
fair value
£m
Derivative
liability
non-
current
fair value
£m
Derivative
liability
current
fair value
£m
1
–
1
–
–
–
–
–
–
2
–
2
7
1
–
1
–
–
–
–
–
9
–
9
–
–
–
–
–
–
–
(1)
–
(1)
–
(1)
–
(1)
–
–
–
–
–
(2)
–
(3)
(1)
(4)
101
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
20. Hedging programmes (continued)
Commodity/
currency
Nominal
amount
Maturity date
Average contracted
commodity price/
exchange rate
Diesel fuel
US$
US$
Euro
Electricity
Gas
148,000 tonnes
$118m
$25m
€67m
378,000 MWh
24m therms
US$795/tonne
Apr 11 – Jan 13
Apr 11 – Jan 13
US$1.57/£
Mar 11 – Apr 12 US$1.63/£
Mar 11 – Apr 12 £0.85/€
Apr 11 – Jan 13
Apr 11 – Apr 13
£46/MWh
£0.56/therm
2011
Diesel fuel
Diesel fuel
Air conveyance
Capital programmes
Electricity
Gas
Cash flow hedges
Other derivatives
Total
Derivative
asset
non-
current
fair value
£m
Derivative
asset
current
fair value
£m
Derivative
liability
non-
current
fair value
£m
Derivative
liability
current
fair value
£m
4
–
–
–
1
-
5
1
6
17
–
–
2
3
3
25
11
36
–
–
–
–
-
–
–
–
–
–
(1)
–
–
-
–
(1)
(2)
(3)
Other derivatives represent hedges by the Group of other foreign exchange and commodity price exposures, which are not designated under IAS 39
(including the hedge of the trading balance with overseas postal operators and the hedge of inter-company loans with overseas subsidiaries).
There are timing differences between the maturity of the derivatives and the maturity of the underlying hedged transaction. For example, the diesel
derivatives that hedge the exposure to purchasing fuel in March 2013 mature in April 2013. Hence at 31 March 2013, the balance sheet includes
the market value of these derivatives but the cumulative gains and losses on these derivatives have been released from the hedging reserve to the
income statement to match the exposure to purchasing fuel in March 2013. Therefore there are differences between derivative balances (shown
above) and the balance on the hedging reserve.
102
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
20. Hedging programmes (continued)
Other notes – balance sheet
The notes in this section provide additional information regarding certain assets and liabilities on the Group balance sheet, most notably
provisions, mainly in relation to transformation costs, and fixed and intangible assets and goodwill.
21. Provisions
22. Property, plant and equipment
23. Goodwill
24. Intangible assets
25. Investments in associates
26. Current trade and other receivables
27. Current trade and other payables
28. Issued share capital and reserves
29. Commitments
30. Related party information
Commodity/
currency
Nominal
amount
Maturity date
Average contracted
commodity price/
exchange rate
Diesel fuel
148,000 tonnes
Apr 11 – Jan 13
US$795/tonne
$118m
$25m
€67m
Apr 11 – Jan 13
US$1.57/£
Mar 11 – Apr 12 US$1.63/£
Mar 11 – Apr 12 £0.85/€
Electricity
378,000 MWh
Apr 11 – Jan 13
£46/MWh
24m therms
Apr 11 – Apr 13
£0.56/therm
2011
Diesel fuel
Diesel fuel
Air conveyance
Capital programmes
Electricity
Gas
Cash flow hedges
Other derivatives
Total
US$
US$
Euro
Gas
Derivative
asset
non-
current
fair value
£m
Derivative
asset
current
Derivative
liability
non-
current
Derivative
liability
current
fair value
fair value
fair value
£m
£m
£m
4
–
–
–
1
-
5
1
6
17
–
–
2
3
3
25
11
36
–
–
–
–
-
–
–
–
–
–
(1)
–
–
-
–
(1)
(2)
(3)
Other derivatives represent hedges by the Group of other foreign exchange and commodity price exposures, which are not designated under IAS 39
(including the hedge of the trading balance with overseas postal operators and the hedge of inter-company loans with overseas subsidiaries).
There are timing differences between the maturity of the derivatives and the maturity of the underlying hedged transaction. For example, the diesel
derivatives that hedge the exposure to purchasing fuel in March 2013 mature in April 2013. Hence at 31 March 2013, the balance sheet includes
the market value of these derivatives but the cumulative gains and losses on these derivatives have been released from the hedging reserve to the
income statement to match the exposure to purchasing fuel in March 2013. Therefore there are differences between derivative balances (shown
above) and the balance on the hedging reserve.
103
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
21. Provisions
A summary of the provisions that have been made in the accounts, including for transformation costs are shown below.
Exceptional
Transformation
£m
186
Non-
transformation
£m
–
254
–
(113)
(159)
6
174
89
–
(7)
(148)
–
108
87
–
(17)
(73)
–
105
69
36
105
73
35
108
133
41
174
30
–
–
–
–
30
19
–
(2)
(6)
2
43
48
–
–
(5)
1
87
18
69
87
7
36
43
3
27
30
Other
£m
47
–
23
(7)
(15)
–
48
–
32
(2)
(12)
–
66
–
27
(17)
(22)
–
54
32
22
54
52
14
66
31
17
48
Total
£m
233
284
23
(120)
(174)
6
252
108
32
(11)
(166)
2
217
135
27
(34)
(100)
1
246
119
127
246
132
85
217
167
85
252
At 28 March 2010
Arising during the year:
– charged in operating exceptional items
– charged in other operating costs
Unused amounts reversed
Utilised in the year
Discount rate adjustment
At 27 March 2011
Arising during the year:
– charged in operating exceptional items
– charged in other operating costs
Unused amounts reversed
Utilised in the year
Discount rate adjustment
At 25 March 2012
Arising during the year:
– charged in operating exceptional items
– charged in other operating costs
Unused amounts reversed
Utilised in the year
Discount rate adjustment
At 31 March 2013
Disclosed as:
Current at 31 March 2013
Non-current at 31 March 2013
Current at 25 March 2012
Non-current at 25 March 2012
Current at 27 March 2011
Non-current at 27 March 2011
104
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
21. Provisions (continued)
Transformation provisions (charged as transformation operating exceptional items)
Transformation exceptional provisions of £105 million (2012 £108 million, 2011 £174 million) principally comprise redundancy schemes of
£92 million (2012 £87 million, 2011 £156 million). A further £13 million (2012 £21 million, 2011 £18 million) relates to onerous property contracts
associated with restructuring. Current transformation provisions of £69 million are expected to be utilised in 2013-14, with the remainder due within
two to three years, except for onerous property provisions of £1 million, expected to be utilised within three to five years, and a further £3 million
over a period greater than five years.
Non-transformation provisions (charged as other operating exceptional items)
Included in non-transformation provisions of £87 million at 31 March 2013 (2012 £43 million, 2011 £30 million) is £67 million (2012 £39 million,
2011 £30 million) for potential industrial diseases claims relating to both current and former employees of the Group.
Royal Mail Group’s liability in respect of former employees arose in 2010 as a result of a Court of Appeal judgment that held the Group liable for
diseases claims brought by individuals who were employed in the General Post Office telecommunications division and whose employment ceased
prior to October 1981. Consequently, a provision was first recognised in 2010-11.
The Group has derived its current provision by using estimates and ranges calculated by its actuary, which are based on current experience of claims,
and an assessment of potential future claims, the majority of which are expected to be received over the next 25 to 30 years. The Group has a
rigorous process of ensuring that only valid claims are accepted. £4 million of this provision is expected to be utilised in 2013-14.
The remaining £20 million (2012 and 2011 £nil) relates to IT systems costs associated with Post Office Limited separation, of which £14 million is
expected to be utilised in 2013-14, with the remainder expected to be utilised in the following year.
Other provisions (charged in normal operating expenses)
‘Other’ provisions of £54 million (2012 £66 million, 2011 £48 million) mainly comprise onerous lease obligations, decommissioning costs and
estimated exposures resulting from legal claims incurred in the normal course of business. The majority of ‘Other’ provision amounts are expected
to be utilised in 2013-14, with £3 million onerous lease obligations and decommissioning costs expected to be utilised within two to three years,
£12 million within three to five years and a further £7 million over a period greater than five years.
21. Provisions
A summary of the provisions that have been made in the accounts, including for transformation costs are shown below.
At 28 March 2010
Arising during the year:
– charged in operating exceptional items
– charged in other operating costs
– charged in operating exceptional items
– charged in other operating costs
– charged in operating exceptional items
– charged in other operating costs
Unused amounts reversed
Utilised in the year
Discount rate adjustment
At 27 March 2011
Arising during the year:
Unused amounts reversed
Utilised in the year
Discount rate adjustment
At 25 March 2012
Arising during the year:
Unused amounts reversed
Utilised in the year
Discount rate adjustment
At 31 March 2013
Disclosed as:
Current at 31 March 2013
Non-current at 31 March 2013
Current at 25 March 2012
Non-current at 25 March 2012
Current at 27 March 2011
Non-current at 27 March 2011
Exceptional
Transformation
transformation
Non-
£m
186
254
–
(113)
(159)
6
174
89
–
(7)
(148)
–
108
87
–
(17)
(73)
–
105
69
36
105
73
35
108
133
41
174
£m
–
30
–
–
–
–
30
19
–
(2)
(6)
2
43
48
–
–
(5)
1
87
18
69
87
7
36
43
3
27
30
Other
£m
47
–
23
(7)
(15)
–
48
–
32
(2)
(12)
–
66
–
27
(17)
(22)
–
54
32
22
54
52
14
66
31
17
48
Total
£m
233
284
23
(120)
(174)
6
252
108
32
(11)
(166)
2
217
135
27
(34)
(100)
1
246
119
127
246
132
85
217
167
85
252
105
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
22. Property, plant and equipment
Below are details of the Group’s property, automation equipment and vehicles, which are recorded at their historic cost (what we paid for them)
less; accumulated depreciation (reflecting their usage within the business over their useful life - from 3 to 50 years); and impairments relating to
underperformance of assets in their objective of generating economic benefits.
Cost
At 26 March 2012
Exchange rate movements
Reclassification
Additions
Disposals
Legal entity transfer to POL
Reclassification to non-current
assets held for sale
At 31 March 2013
Depreciation and impairment
At 26 March 2012
Exchange rate movements
Reclassification
Depreciation (note 13)
Impairment (note 5)
Disposals
Legal entity transfer to POL
Reclassification to non-current
assets held for sale
At 31 March 2013
Net book value
At 31 March 2013
At 26 March 2012
Land and buildings
Long
leasehold
£m
Freehold
£m
Short
leasehold
£m
Plant and
machinery
£m
Motor
vehicles
£m
Fixtures and
equipment
£m
1,528
4
(29)
176
(33)
(22)
(2)
1,622
801
1
–
40
21
(16)
(11)
(1)
835
787
727
259
–
1
4
(2)
–
–
262
157
–
–
6
–
(1)
–
–
162
100
102
633
–
27
19
(29)
–
–
650
403
–
(1)
46
–
(16)
–
–
432
218
230
1,224
2
1
47
(87)
–
–
1,187
735
2
–
68
–
(87)
–
–
718
469
489
448
1
–
110
(21)
–
–
538
262
–
1
46
–
(20)
–
–
289
249
186
328
2
–
36
(4)
–
–
362
240
1
–
32
–
(4)
–
–
269
93
88
Total
£m
4,420
9
–
392
(176)
(22)
(2)
4,621
2,598
4
–
238
21
(144)
(11)
(1)
2,705
1,916
1,822
Depreciation rates are disclosed within accounting policies (page 119). No depreciation is provided on land, which represents £196 million
(2012 £199 million, 2011 £166 million) of the total cost of properties. The net book value of the Group’s property, plant and equipment held under
finance leases amounts to £378 million (2012 £320 million, 2011 £262 million) comprising £208 million (2012 £137 million, 2011 £152 million)
vehicles, £146 million (2012 £154 million, 2011 £88 million) plant and machinery and £24 million (2012 £29 million 2011 £22 million) land and
buildings. The net book value of the Group’s property, plant and equipment includes £206 million (2012 £171 million, 2011 £146 million) in respect
of assets in the course of construction. The net book value of the Group’s land and buildings includes £382 million (2012 £389 million, 2011
£383 million) in respect of building fit-out.
The £392 million (2012 £327 million, 2011 £262 million) additions include borrowing costs capitalised in relation to specific qualifying assets of £nil
(2012 £2 million, 2011 £nil).
106
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
22. Property, plant and equipment
22. Property, plant and equipment (continued)
Below are details of the Group’s property, automation equipment and vehicles, which are recorded at their historic cost (what we paid for them)
less; accumulated depreciation (reflecting their usage within the business over their useful life - from 3 to 50 years); and impairments relating to
underperformance of assets in their objective of generating economic benefits.
Cost
At 26 March 2012
Exchange rate movements
Reclassification
Additions
Disposals
Legal entity transfer to POL
Reclassification to non-current
assets held for sale
At 31 March 2013
Depreciation and impairment
At 26 March 2012
Exchange rate movements
Reclassification
Depreciation (note 13)
Impairment (note 5)
Disposals
Legal entity transfer to POL
Reclassification to non-current
assets held for sale
At 31 March 2013
Net book value
At 31 March 2013
At 26 March 2012
Land and buildings
Freehold
£m
Long
leasehold
£m
Short
leasehold
£m
Plant and
machinery
£m
Motor
vehicles
£m
Fixtures and
equipment
£m
1,528
259
1,224
448
4
(29)
176
(33)
(22)
(2)
1,622
801
1
–
40
21
(16)
(11)
(1)
835
787
727
(2)
262
157
–
1
4
–
–
–
–
6
–
–
–
162
100
102
633
–
27
19
(29)
–
–
650
403
–
(1)
46
–
–
–
432
218
230
1,187
47
(87)
2
1
–
–
735
2
–
68
–
(87)
–
–
718
469
489
110
(21)
1
–
–
–
538
262
–
1
46
–
(20)
–
–
289
249
186
(1)
(16)
Total
£m
4,420
9
–
392
(176)
(22)
(2)
4,621
2,598
4
–
238
21
(144)
(11)
(1)
2,705
1,916
1,822
328
2
–
36
(4)
–
–
362
240
1
–
32
–
(4)
–
–
269
93
88
Depreciation rates are disclosed within accounting policies (page 119). No depreciation is provided on land, which represents £196 million
(2012 £199 million, 2011 £166 million) of the total cost of properties. The net book value of the Group’s property, plant and equipment held under
finance leases amounts to £378 million (2012 £320 million, 2011 £262 million) comprising £208 million (2012 £137 million, 2011 £152 million)
vehicles, £146 million (2012 £154 million, 2011 £88 million) plant and machinery and £24 million (2012 £29 million 2011 £22 million) land and
buildings. The net book value of the Group’s property, plant and equipment includes £206 million (2012 £171 million, 2011 £146 million) in respect
of assets in the course of construction. The net book value of the Group’s land and buildings includes £382 million (2012 £389 million, 2011
£383 million) in respect of building fit-out.
(2012 £2 million, 2011 £nil).
The £392 million (2012 £327 million, 2011 £262 million) additions include borrowing costs capitalised in relation to specific qualifying assets of £nil
Cost
At 28 March 2011
Exchange rate movements
Reclassification
Additions
Disposals
Reclassification to non-current
assets held for sale
At 25 March 2012
Depreciation and impairment
At 28 March 2011
Exchange rate movements
Reclassification
Depreciation (note 13)
Impairment (note 5)
Disposals
Reclassification to non-current
assets held for sale
At 25 March 2012
Net book value
At 25 March 2012
At 28 March 2011
Cost
At 29 March 2010
Exchange rate movements
Reclassification
Additions
Disposals
Reclassification to non-current
assets held for sale
At 27 March 2011
Depreciation and impairment
At 29 March 2010
Exchange rate movements
Reclassification
Depreciation (note 13)
Impairment (note 5)
Disposals
Reclassification to non-current
assets held for sale
At 27 March 2011
Net book value
At 27 March 2011
At 29 March 2010
Land and buildings
Long
leasehold
£m
Freehold
£m
Short
leasehold
£m
Plant and
machinery
£m
Motor
vehicles
£m
Fixtures and
equipment
£m
1,524
(16)
(32)
127
(55)
(20)
1,528
797
(4)
(9)
46
1
(14)
(16)
801
727
727
260
(1)
–
2
(1)
(1)
259
153
(1)
–
6
–
(1)
–
157
102
107
580
–
32
29
(8)
–
633
357
–
9
45
–
(8)
–
403
230
223
1,178
(8)
–
114
(60)
–
1,224
718
(5)
–
82
–
(60)
–
735
489
460
438
(3)
–
28
(15)
–
448
224
(2)
–
54
–
(14)
–
262
186
214
312
(5)
–
27
(6)
–
328
214
(4)
–
35
–
(5)
–
240
88
98
Land and buildings
Long
leasehold
£m
Freehold
£m
Short
leasehold
£m
Plant and
machinery
£m
Motor
vehicles
£m
Fixtures and
equipment
£m
1,647
(5)
(73)
73
(106)
(12)
1,524
821
(1)
(40)
44
2
(19)
(10)
797
727
826
250
–
(4)
19
(5)
–
260
150
–
(3)
7
–
(1)
–
153
107
100
494
–
77
12
(3)
–
580
280
–
42
38
–
(3)
–
357
223
214
1,139
(2)
(2)
85
(42)
–
1,178
678
(2)
–
74
10
(42)
–
718
460
461
422
(1)
3
43
(29)
–
438
195
–
1
53
–
(25)
–
224
214
227
290
(1)
(1)
30
(6)
–
312
186
(1)
–
34
–
(5)
–
214
98
104
Total
£m
4,292
(33)
–
327
(145)
(21)
4,420
2,463
(16)
–
268
1
(102)
(16)
2,598
1,822
1,829
Total
£m
4,242
(9)
-
262
(191)
(12)
4,292
2,310
(4)
–
250
12
(95)
(10)
2,463
1,829
1,932
107
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
23. Goodwill
This note provides details of the goodwill at the start and end of the reporting period, most of which relates to the Group’s acquisition of its
overseas subsidiary, General Logistics Systems (GLS).
Cost
At 26 March 2012 and 28 March 2011 and 29 March 2010
Exchange rate movements
Acquisition of businesses
At 31 March 2013 and 25 March 2012 and 27 March 2011
Impairment (including amortisation up to the date of transition to IFRS)
At 26 March 2012 and 28 March 2011 and 29 March 2010
Exchange rate movements
At 31 March 2013 and 25 March 2012 and 27 March 2011
Net book value
At 31 March 2013 and 25 March 2012 and 27 March 2011
At 26 March 2012 and 28 March 2011 and 29 March 2010
2013
£m
599
8
4
611
410
5
415
196
189
2012
£m
628
(32)
3
599
431
(21)
410
189
197
2011
£m
636
(11)
3
628
439
(8)
431
197
197
The Group’s investment in General Logistics Systems (GLS) occurred substantially over the 1998-99 and 1999-2000 financial years. In 2001-02,
£256 million of the goodwill recognised on acquisition was impaired, based on the forecast under-performance of GLS. Whilst this forecast under-
performance did not fully materialise, the goodwill impairment could not be reversed, as this is not permitted under IFRS. In retrospect, this
impairment would not have been recognised based on GLS’ actual financial performance.
The remaining impairment amount of £159 million at 31 March 2013 relates to amortisation prior to the Group’s transition to IFRS in 2005-06, and
the impact of foreign exchange rates on translation of Euros to pounds Sterling.
The carrying value of goodwill arising on business combinations of £196 million (2012 £189 million, 2011 £197 million) at the balance sheet date
includes £194 million (2012 £187 million, 2011 £195 million) relating to the GLS business segment. In line with the Group’s accounting policy (see
page 118), this goodwill has been reviewed for impairment. An impairment loss is recognised for the amount by which the carrying value of an asset
or cash generating unit exceeds the recoverable amount. The recoverable amount is the higher of net realisable value and value in use. The net
assets of GLS, excluding interest bearing and taxation related assets and liabilities, is £487 million (2012 £446 million, 2011 £450 million) at
31 March 2013 and the operating profit before exceptional items is £101 million (2012 £128 million, 2011 £118 million) for the year (note 3). The
carrying value of GLS represents a multiple of 4.8 (2012 3.5, 2011 3.8) on operating profit before exceptional items. The net realisable value of GLS,
for the purposes of the impairment review (i.e. the ‘fair value less costs to sell’), has been assessed with reference to earnings multiples for quoted
entities in a similar sector. On this basis, the net realisable value has been assessed to be in excess of the carrying value. The earnings multiples
referenced would need to reduce by more than 30 per cent to reduce the net realisable value to below the carrying value.
108
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
23. Goodwill
24. Intangible assets
This note provides details of the goodwill at the start and end of the reporting period, most of which relates to the Group’s acquisition of its
overseas subsidiary, General Logistics Systems (GLS).
Intangible assets, mainly software, are recorded in much the same way as our physical assets such as property and vehicles, but with shorter
useful lives over which they are amortised (three to six years).
At 26 March 2012 and 28 March 2011 and 29 March 2010
Cost
Exchange rate movements
Acquisition of businesses
At 31 March 2013 and 25 March 2012 and 27 March 2011
Impairment (including amortisation up to the date of transition to IFRS)
At 26 March 2012 and 28 March 2011 and 29 March 2010
At 31 March 2013 and 25 March 2012 and 27 March 2011
Exchange rate movements
Net book value
At 31 March 2013 and 25 March 2012 and 27 March 2011
At 26 March 2012 and 28 March 2011 and 29 March 2010
2013
£m
599
8
4
611
410
5
415
196
189
2012
£m
628
(32)
3
599
431
(21)
410
189
197
2011
£m
636
(11)
3
628
439
(8)
431
197
197
The Group’s investment in General Logistics Systems (GLS) occurred substantially over the 1998-99 and 1999-2000 financial years. In 2001-02,
£256 million of the goodwill recognised on acquisition was impaired, based on the forecast under-performance of GLS. Whilst this forecast under-
performance did not fully materialise, the goodwill impairment could not be reversed, as this is not permitted under IFRS. In retrospect, this
impairment would not have been recognised based on GLS’ actual financial performance.
The remaining impairment amount of £159 million at 31 March 2013 relates to amortisation prior to the Group’s transition to IFRS in 2005-06, and
the impact of foreign exchange rates on translation of Euros to pounds Sterling.
The carrying value of goodwill arising on business combinations of £196 million (2012 £189 million, 2011 £197 million) at the balance sheet date
includes £194 million (2012 £187 million, 2011 £195 million) relating to the GLS business segment. In line with the Group’s accounting policy (see
page 118), this goodwill has been reviewed for impairment. An impairment loss is recognised for the amount by which the carrying value of an asset
or cash generating unit exceeds the recoverable amount. The recoverable amount is the higher of net realisable value and value in use. The net
assets of GLS, excluding interest bearing and taxation related assets and liabilities, is £487 million (2012 £446 million, 2011 £450 million) at
31 March 2013 and the operating profit before exceptional items is £101 million (2012 £128 million, 2011 £118 million) for the year (note 3). The
carrying value of GLS represents a multiple of 4.8 (2012 3.5, 2011 3.8) on operating profit before exceptional items. The net realisable value of GLS,
for the purposes of the impairment review (i.e. the ‘fair value less costs to sell’), has been assessed with reference to earnings multiples for quoted
entities in a similar sector. On this basis, the net realisable value has been assessed to be in excess of the carrying value. The earnings multiples
referenced would need to reduce by more than 30 per cent to reduce the net realisable value to below the carrying value.
Cost
At 26 March 2012
Additions
Disposals
Acquisition of business
At 31 March 2013
Amortisation and impairment
At 26 March 2012
Impairment (note 5)
Amortisation (note 13)
Disposals
At 31 March 2013
Net book value
At 31 March 2013
At 26 March 2012
Master
franchise
licences
£m
2013
Customer
listings
£m
Software
£m
23
–
–
–
23
23
–
–
–
23
–
–
30
–
–
2
32
26
–
2
–
28
4
4
248
44
(5)
–
287
117
(1)
41
(5)
152
135
131
The £44 million (2012 £43 million, 2011 £62 million) additions include borrowing costs capitalised in relation to specific qualifying assets of
£1 million (2012 £nil, 2011 £1 million).
Cost
At 28 March 2011
Additions
Disposals
Acquisition of business
Exchange rate movements
At 25 March 2012
Amortisation and impairment
At 28 March 2011
Impairment (note 5)
Amortisation (note 13)
Disposals
Exchange rate movements
At 25 March 2012
Net book value
At 25 March 2012
At 28 March 2011
Master
franchise
licences
£m
2012
Customer
listings
£m
Software
£m
24
–
–
–
(1)
23
24
–
–
–
(1)
23
–
–
29
–
–
2
(1)
30
25
–
2
–
(1)
26
4
4
216
43
(10)
–
(1)
248
94
3
31
(10)
(1)
117
131
122
Total
£m
301
44
(5)
2
342
166
(1)
43
(5)
203
139
135
Total
£m
269
43
(10)
2
(3)
301
143
3
33
(10)
(3)
166
135
126
109
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
24. Intangible assets (continued)
Cost
At 29 March 2010
Additions
Disposals
Acquisition of business
At 27 March 2011
Amortisation and impairment
At 29 March 2010
Impairment (note 5)
Amortisation (note 13)
Disposals
At 27 March 2011
Net book value
At 27 March 2011
At 29 March 2010
Master
franchise
licences
£m
2011
Customer
listings
£m
Software
£m
24
–
–
–
24
22
–
2
–
24
–
2
27
–
–
2
29
22
–
3
–
25
4
5
170
62
(16)
–
216
78
1
31
(16)
94
122
92
Total
£m
221
62
(16)
2
269
122
1
36
(16)
143
126
99
The intangible assets above, none of which have been internally generated, have finite lives and are being written down on a straight-line basis.
110
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
24. Intangible assets (continued)
Amortisation and impairment
Cost
At 29 March 2010
Additions
Disposals
Acquisition of business
At 27 March 2011
At 29 March 2010
Impairment (note 5)
Amortisation (note 13)
Disposals
At 27 March 2011
Net book value
At 27 March 2011
At 29 March 2010
Master
franchise
licences
£m
2011
Customer
listings
£m
Software
£m
24
–
–
–
24
22
–
2
–
24
–
2
27
–
–
2
29
22
–
3
–
25
4
5
170
62
(16)
–
216
78
1
31
(16)
94
122
92
Total
£m
221
62
(16)
2
269
122
1
36
(16)
143
126
99
The intangible assets above, none of which have been internally generated, have finite lives and are being written down on a straight-line basis.
25. Investments in associates
This note provides details of the Group’s associate companies, including its share of the net assets of these entities.
Details of the Group’s two associate companies are provided in note 30. During March 2013 it was announced that one of these companies,
G3 Worldwide Mail N.V. (Spring), was to be sold and, accordingly, the Group’s share of its net assets was reclassified to the ‘assets held for sale’
category on the Group balance sheet. G3 Worldwide Mail N.V. (Spring) was subsequently sold on 2 April 2013, after the balance sheet date.
The reporting year end date for Quadrant Catering Limited was 30 September 2012 (30 September 2011) and for G3 Worldwide Mail N.V. (Spring)
was 31 December 2012 (31 December 2011). To ensure that the reported share of profit/loss of these two associate companies align with the
Group’s reporting period ending 31 March 2013 (2012 25 March 2012), an estimated profit/loss, using forecasts from the respective companies’
management reporting systems, was used for the month of March 2013.
There are no significant restrictions on the ability of associates to transfer funds to the Group in the form of cash dividends, repayment of loans
or advances.
Share of net assets
Total net investments in associates
Share of net assets
Total net investments in associates
Share of net assets
Goodwill
Total net investments in associates
Share of assets and liabilities:
Current assets
Non-current assets
Share of gross assets
Current liabilities
Non-current liabilities
Share of gross liabilities
Share of net assets
Share of revenue and profit:
Revenue
Profit after taxation
At
26 March
2012
£m
3
3
Share of post
taxation pre
dividend
profit
£m
1
1
Impairment
£m
–
–
Disposal
£m
–
–
Reclassification
£m
(1)
(1)
Dividend
£m
–
–
At 31 March
2013
£m
3
3
At
28 March
2011
£m
9
9
At
29 March
2010
£m
35
11
46
Share of post
taxation pre
dividend
profit
£m
1
1
Share of post
taxation pre
dividend
profit
£m
3
–
3
Impairment
£m
(3)
(3)
Disposal
£m
–
–
Dividend
£m
(4)
(4)
At 25 March
2012
£m
3
3
Impairment
£m
–
(2)
(2)
Disposal
£m
(20)
(9)
(29)
2013
£m
6
–
6
(3)
–
(3)
3
61
1
Dividend
£m
(9)
–
(9)
At 27 March
2011
£m
9
–
9
2012
£m
2011
£m
10
1
11
(8)
–
(8)
3
68
1
25
3
28
(18)
(1)
(19)
9
341
3
111
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
26. Current trade and other receivables
The following details relate to amounts owed to the Group by third parties (including Post Office Limited) and also the level of bad and doubtful
debts that the Company has provided for in the financial statements.
Trade receivables
Prepayments and accrued income
Income taxation receivable
Total
Movements in the provision for bad and doubtful debts were as follows:
At 26 March 2012 and 28 March 2011 and 29 March 2010
Receivables provided for during the year
Release of provision
Utilisation of provision
At 31 March 2013 and 25 March 2012 and 27 March 2011
The amount of trade receivables that were past due but not impaired are as follows:
Past due not more than one month
Past due more than one month and not more than two months
Past due more than two months
Total past due but not impaired
Provided for or not yet overdue
Provision for bad and doubtful debts
Total
27. Current trade and other payables
The following details relate to amounts owed by the Group to third parties (including Post Office Limited).
Trade payables and accruals
Advance customer payments (for stamps held, not yet used by customers)
Social security
Capital expenditure payables
Other
Total
112
2013
£m
758
241
5
1,004
2012
£m
759
275
2
1,036
2013
£m
35
11
(10)
(6)
30
2013
£m
93
8
29
130
658
(30)
758
2012
£m
19
26
(4)
(6)
35
2012
£m
60
12
33
105
689
(35)
759
2011
£m
820
86
–
906
2011
£m
23
8
(4)
(8)
19
2011
£m
62
10
18
90
749
(19)
820
2013
£m
1,076
375
102
48
10
1,611
2012
£m
1,044
292
85
47
44
1,512
2011
£m
1,004
241
85
44
20
1,394
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
26. Current trade and other receivables
28. Issued share capital and reserves
The following details relate to amounts owed to the Group by third parties (including Post Office Limited) and also the level of bad and doubtful
Details of the authorised share capital of the Company and that which has been issued are as follows.
debts that the Company has provided for in the financial statements.
Trade receivables
Prepayments and accrued income
Income taxation receivable
Total
Movements in the provision for bad and doubtful debts were as follows:
At 26 March 2012 and 28 March 2011 and 29 March 2010
Receivables provided for during the year
Release of provision
Utilisation of provision
At 31 March 2013 and 25 March 2012 and 27 March 2011
The amount of trade receivables that were past due but not impaired are as follows:
Past due not more than one month
Past due more than one month and not more than two months
Past due more than two months
Total past due but not impaired
Provided for or not yet overdue
Provision for bad and doubtful debts
Total
27. Current trade and other payables
Advance customer payments (for stamps held, not yet used by customers)
Trade payables and accruals
Social security
Capital expenditure payables
Other
Total
1,004
1,036
2013
£m
758
241
5
2013
£m
35
11
(10)
(6)
30
2013
£m
93
8
29
130
658
(30)
758
2012
£m
759
275
2
2012
£m
19
26
(4)
(6)
35
2012
£m
60
12
33
105
689
(35)
759
2011
£m
820
86
–
906
2011
£m
23
8
(4)
(8)
19
2011
£m
62
10
18
90
749
(19)
820
2013
£m
1,076
375
102
48
10
2012
£m
1,044
292
85
47
44
2011
£m
1,004
241
85
44
20
1,611
1,512
1,394
Authorised share capital
Ordinary shares of £1 each
Special Rights Redeemable Preference Share (Special Share) of £1 each
Total
Issued and called up share capital
Ordinary shares of £1 each
Special Rights Redeemable Preference Share (Special Share) of £1 each
Total
2013
£
100,000
1
100,001
2012
£
100,000
–
100,000
2011
£
100,000
–
100,000
2013
£
50,000
1
50,001
2012
£
50,000
–
50,000
2011
£
50,000
–
50,000
The Special Share can be redeemed at any time by its holder (the Secretary of State for Business, Innovation & Skills), subject to such redemption
being compliant with the Companies Act 2006. The Company cannot redeem the Special Share without the prior consent of its holder. No premium
is payable on redemption.
On distribution in a winding up of the Company, the holder of the Special Share is entitled to repayment of the lower of (a) the capital paid up on the
Special Share in priority to any repayment of capital to any other member; and (b) an amount equal to 24 per cent of the assets available for
distribution to equity holders of the Company. The Special Share does not carry any rights to vote.
Under section 63(7) of the Postal Services Act 2000, for the purposes of the Companies Act 2006, certain shares issued shall be treated as if their
nominal value had been fully paid up.
Under section 72 of the Postal Services Act 2000, the Secretary of State for Business, Innovation & Skills may issue directions to Royal Mail Holdings
plc (the Company’s parent company) which, depending on the particulars of that direction, could result in the establishment of a separate reserve in
equity by the Company.
Other reserves identified in the consolidated statement of changes in equity
Financial Assets Reserve
The Financial Assets Reserve is used to record fair value changes on available for sale financial assets.
Foreign Currency Translation Reserve
The Foreign Currency Translation Reserve is used to record the gains and losses arising from 29 March 2004 on translation of assets and liabilities
of subsidiaries denominated in currencies other than the reporting currency.
Hedging Reserve
The Hedging Reserve is used to record gains and losses arising from cash flow hedges since 28 March 2005.
The following details relate to amounts owed by the Group to third parties (including Post Office Limited).
Dividends
The Directors do not recommend a dividend (2012 £nil dividend).
113
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
29. Commitments
The information below includes details of committed future rental payments for the use of assets which the Group does not legally own, and are
either not recognised on the Group’s balance sheet (operating leases); or are recognised on the Group’s balance sheet (finance leases) on the
basis that the risks and rewards incidental to ownership of the finance leased assets lie with Royal Mail Group.
Operating lease commitments
The Group is committed to the following future minimum lease payments under non-cancellable operating leases at 31 March 2013 and
25 March 2012 and 27 March 2011:
Within one year
Between one and five years
Beyond five years
Total
Land and buildings
2013
£m
125
391
507
2012
£m
132
414
535
1,023 1,081
2011
£m
130
412
476
1,018
Vehicles and equipment
2013
£m
13
14
–
27
2012
£m
11
18
–
29
2011
£m
11
13
–
24
IT equipment
2013
£m
8
17
–
25
2012
£m
13
16
3
32
2011
£m
20
19
–
39
2013
£m
146
422
507
1,075
Total
2012
£m
156
448
538
1,142
2011
£m
161
444
476
1,081
Existing leases for UK land and buildings have an average term of 13 years and lease renewals tend to have a 10-year term with a break in year five.
Existing land and buildings leased overseas by the GLS subsidiary have an average lease term of eight years. Vehicle leases generally have a term of
between one and seven years, depending on the asset class, with the average term being two years – the existing leases have an average term
remaining of one year. The IT commitments relate to 10-year contracts, with an average term remaining of four years.
Finance lease commitments
Within one year
Between one and five years
Beyond five years
Total minimum lease payments
Less amounts representing finance charges
Present value of minimum lease payments
2013
2012
2011
Minimum
lease payments
£m
87
208
122
417
(112)
305
Present value
of minimum
lease
payments
£m
79
195
31
305
–
305
Minimum
lease payments
£m
98
213
131
442
(125)
317
Present value
of minimum
lease payments
£m
86
194
37
317
–
317
Minimum
lease payments
£m
72
166
131
369
(124)
245
Present value
of minimum
lease payments
£m
61
150
34
245
–
245
The Group has finance lease contracts for vehicles (47 per cent), land and buildings (10 per cent) and plant and equipment (43 per cent). The leases
have no terms of renewal, purchase options or escalation clauses and there are no restrictions concerning dividends, borrowings or additional leases.
Vehicle leases have a term of between one and seven years, depending on the class of vehicle, with the average term being four years. Property
leases have a term of between 1 and 106 years with the average term being 41 years. The term of the plant and equipment leases range from five
to eight years with the average being five years.
Capital commitments
The Group has commitments of £42 million at 31 March 2013 (25 March 2012 £81 million, 27 March 2011 £140 million) which are contracted for
but not provided for in the financial statements.
114
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
Operating lease commitments
25 March 2012 and 27 March 2011:
The Group is committed to the following future minimum lease payments under non-cancellable operating leases at 31 March 2013 and
Land and buildings
Vehicles and equipment
IT equipment
2013
£m
125
391
507
2012
£m
132
414
535
2011
£m
130
412
476
2013
2012
2012
2011
£m
13
14
–
27
£m
11
18
–
29
2011
£m
11
13
–
24
2013
£m
8
17
–
25
£m
20
19
–
£m
13
16
3
32
Total
2012
£m
156
448
538
2013
£m
146
422
507
2011
£m
161
444
476
Total
1,023 1,081
1,018
39
1,075
1,142
1,081
Within one year
Between one and five years
Beyond five years
Existing leases for UK land and buildings have an average term of 13 years and lease renewals tend to have a 10-year term with a break in year five.
Existing land and buildings leased overseas by the GLS subsidiary have an average lease term of eight years. Vehicle leases generally have a term of
between one and seven years, depending on the asset class, with the average term being two years – the existing leases have an average term
remaining of one year. The IT commitments relate to 10-year contracts, with an average term remaining of four years.
Finance lease commitments
2013
2012
2011
Present value
of minimum
Minimum
lease
Minimum
Present value
of minimum
Minimum
Present value
of minimum
lease payments
payments
lease payments
lease payments
lease payments
lease payments
£m
87
208
122
417
(112)
305
£m
79
195
31
305
–
305
£m
98
213
131
442
(125)
317
£m
86
194
37
317
–
317
£m
72
166
131
369
(124)
245
£m
61
150
34
245
–
245
Within one year
Between one and five years
Beyond five years
Total minimum lease payments
Less amounts representing finance charges
Present value of minimum lease payments
to eight years with the average being five years.
Capital commitments
but not provided for in the financial statements.
The Group has finance lease contracts for vehicles (47 per cent), land and buildings (10 per cent) and plant and equipment (43 per cent). The leases
have no terms of renewal, purchase options or escalation clauses and there are no restrictions concerning dividends, borrowings or additional leases.
Vehicle leases have a term of between one and seven years, depending on the class of vehicle, with the average term being four years. Property
leases have a term of between 1 and 106 years with the average term being 41 years. The term of the plant and equipment leases range from five
The Group has commitments of £42 million at 31 March 2013 (25 March 2012 £81 million, 27 March 2011 £140 million) which are contracted for
29. Commitments
30. Related party information
The information below includes details of committed future rental payments for the use of assets which the Group does not legally own, and are
either not recognised on the Group’s balance sheet (operating leases); or are recognised on the Group’s balance sheet (finance leases) on the
basis that the risks and rewards incidental to ownership of the finance leased assets lie with Royal Mail Group.
This note provides details of amounts owed to and from related parties, which include Post Office Limited, the Royal Mail Pension Plan (RMPP),
the Group’s associate companies, and payments to key management personnel. Details of the Group’s principal subsidiaries and associates are
also provided.
Related party transactions
During the year the Group entered into transactions with related parties. The transactions were in the ordinary course of business and included
administration and investment services recharged to the Group’s pension plan, Royal Mail Pension Plan (RMPP), by the Royal Mail Pensions Trustees
Limited subsidiary. The material transactions entered into, and the balances outstanding at the year end reporting date were as follows:
Counter-party
business segment
Sales/recharges
to related party
Purchases/
recharges from
related party
Royal Mail Pension Plan (RMPP)
Quadrant Catering Limited
G3 Worldwide Mail N.V. (Spring)
Post Office Limited
UKPIL
UKPIL
UKPIL
UKPIL/Other
2013
£m
2
–
–
37
2012
£m
9
–
–
33
2011
£m
9
–
–
2013
£m
–
26
6
2011
£m
–
34
6
35 371 359 346
2012
£m
–
35
6
Amounts
owed from related
party including
outstanding loans
Amounts
owed to related
party including
outstanding loans
2013
£m
–
1
3
6
2012
£m
–
–
4
9
2011
£m
–
–
3
12
2013
£m
–
–
–
–
2012
£m
–
3
–
–
2011
£m
v
3
1
–
On 1 April 2012 Post Office Limited became a sister company to Royal Mail Group Limited and the transactions summarised above are in respect of
trading between the two entities from that date. Quadrant Catering Limited and G3 Worldwide N.V. (Spring) were both associate companies of the
Group during the reporting year.
The sales to and purchases from related parties are made at normal market prices. Balances outstanding at the year end are unsecured, interest
free and settlement is made by cash.
The Group trades with numerous HM Government bodies on an arm’s length basis. Transactions with these entities are not disclosed owing to the
significant volume of transactions that are conducted.
Key management compensation
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Total compensation earned by key management
2013
£000
3,753
–
–
3,753
2012
£000
3,398
–
–
3,398
2011
£m
2,345
–
–
2,345
Key management comprises Executive and Non-Executive Directors of the Royal Mail Group Limited Board at 31 March 2013.
HM Government is the Company’s sole shareholder and accordingly the Directors have no interest in the shares of the Company.
Royal Mail Group Limited - principal subsidiaries
Royal Mail Holdings plc is the immediate and ultimate parent company of Royal Mail Group Limited. These Royal Mail Group Limited consolidated
financial statements include the financial results of the principal subsidiaries listed below:
Company
Royal Mail Investments Limited
General Logistics Systems B.V.
Royal Mail Estates Limited
Romec Limited
Principal activities
Holding company
Parcel services
Property holdings
Facilities management
The legal structure of the Group is shown on page i.
Country of incorporation
United Kingdom
Netherlands
United Kingdom
United Kingdom
% equity
interest
2013
100
100
100
51
% equity
interest
2012
100
100
100
51
% equity
interest
2011
100
100
100
51
115
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
30. Related party information (continued)
Associates
The following companies were the principal associates of the Group at the balance sheet date:
Company
Quadrant Catering Limited
G3 Worldwide Mail N.V. (Spring) Mail services
Principal activities
Catering services
Country of incorporation
United Kingdom
Netherlands
%
ownership
2013
51
32.45
%
ownership
2012
51
32.45
%
ownership
2011
51
32.45
The majority of Board membership and voting power in Quadrant Catering Limited is held by the Group’s business partner, hence it is not a
subsidiary company. The investment in Quadrant Catering Limited is held by Royal Mail Group Limited.
The investment in G3 Worldwide Mail N.V. (Spring) was held by Royal Mail Investments Limited. During March 2013 it was announced that
G3 Worldwide Mail N.V. (Spring), was to be sold and accordingly, the Group’s share of its net assets was transferred to the ‘assets held for sale’
category on the Group balance sheet. G3 Worldwide Mail N.V. was subsequently sold on 2 April 2013, after the balance sheet date.
116
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Notes to the consolidated financial statements (continued)
30. Related party information (continued)
Associates
The following companies were the principal associates of the Group at the balance sheet date:
Company
Quadrant Catering Limited
Principal activities
Catering services
G3 Worldwide Mail N.V. (Spring) Mail services
Country of incorporation
United Kingdom
Netherlands
%
%
%
ownership
ownership
ownership
2013
51
32.45
2012
51
32.45
2011
51
32.45
The majority of Board membership and voting power in Quadrant Catering Limited is held by the Group’s business partner, hence it is not a
subsidiary company. The investment in Quadrant Catering Limited is held by Royal Mail Group Limited.
The investment in G3 Worldwide Mail N.V. (Spring) was held by Royal Mail Investments Limited. During March 2013 it was announced that
G3 Worldwide Mail N.V. (Spring), was to be sold and accordingly, the Group’s share of its net assets was transferred to the ‘assets held for sale’
category on the Group balance sheet. G3 Worldwide Mail N.V. was subsequently sold on 2 April 2013, after the balance sheet date.
Significant accounting policies
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiary undertakings. The financial statements of
the major subsidiaries are prepared for the same reporting year as the Company, using consistent accounting policies.
All intra-group balances and transactions have been eliminated in full. Transfer prices between business segments are set on a basis of charges
reached through negotiation with the respective businesses.
Subsidiaries are consolidated from the date on which control is obtained by the Group and cease to be consolidated from the date on which control is
no longer held by the Group. Where the Group ceases to hold control of a subsidiary, the consolidated financial statements include the results for the
part of the reporting year during which the Group held control.
Non-controlling interest represents the portion of profit/loss, gains/losses and net assets relating to subsidiaries that are not attributable to members
of the Company. The non-controlling interest balance is presented within equity in the consolidated balance sheet, separately from parent
shareholder’s equity.
Changes in accounting policy and disclosures
The accounting policies adopted are consistent with those of the previous financial year. The Group adopted the amendment to IAS 12 ‘Income Taxes’
during the year although this currently has no impact on the Group’s financial position or performance. No other new or amended/revised accounting
standards were required to be adopted by the Group during the reporting period.
Key sources of estimation, uncertainty and critical accounting judgements
Deferred taxation
Assessment of the deferred taxation asset requires an estimation of future profitability. Such estimation is inherently uncertain in a market subject to
various competitive pressures. Should estimates of future profitability change in future years, the amount of deferred taxation recognised will also
change accordingly. The carrying values of the deferred taxation assets and liabilities are included within note 7.
Provisions
Due to the nature of provisions, a significant part of their determination is based upon estimates and judgements concerning the future.
Restructuring provisions, including for redundancy and property costs, are derived based upon the most recent business plan for direct expenditure,
where plans are sufficiently detailed and appropriate communication to those affected has been undertaken. This includes the expected number of
employees impacted, rate of compensation per employee, rental costs and expected period of properties remaining vacant and dilapidation costs.
The industrial diseases claims provision is based on the best information available at the year end, including independent expert advice.
Pensions
The value of plan assets and liabilities is determined by long-term actuarial assumptions which include salary growth, inflation rates, returns on
investments and mortality rates. Differences arising from actual experience or future changes in assumptions will be reflected in the Group’s
consolidated statement of comprehensive income. The Group exercises its judgement in determining the assumptions to be adopted, after discussion
with its Actuary.
The pension deficit transfer to HM Government on 1 April 2012 was taken directly through equity as, in management’s judgement, this transaction
was undertaken with HM Government in its capacity as the owner of Royal Mail Holdings plc, the Company’s parent company, rather than in its
capacity as Government.
Deferred revenue
The Group recognises advance customer payments on its balance sheet (see note 27) relating to stamps and meter credits purchased by customers
but not used at the balance sheet date. The valuation of this deferred revenue is based on a number of different estimation and sampling methods
using external specialist resource as appropriate, the results of which are reviewed by management in order to make a judgement of the carrying
amount of the accrual.
Investments in associates
The Group’s investments in its associates are accounted for under the equity method of accounting. Under the equity method, the investment is
carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of the net assets of the associates, less any impairment in
value. The income statement reflects the Group’s share of post taxation profits from the associates.
Any goodwill arising on acquisition of an associate, representing the excess of the cost of the investment compared to the Group’s share of the net
fair value of the identifiable assets, liabilities and contingent liabilities acquired, is included in the carrying amount and not amortised.
Royal Mail Group Limited
Annual Report and special purpose Financial Statements for the year ended 31 March 2013
117
Royal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Financial statements
Revenue
Revenue reported in the income statement is net of value added taxation and comprises Turnover which principally relates to the rendering of
services as follows:
UK Parcels, International & Letters
Account revenue is derived from specific contracts and recognised when the delivery of an item is complete. Prepaid revenue mainly relating to
stamp and meter income is recognised when the sale is made, adjusted to reflect a value of stamp and meter credits held but not used by the
customer.
General Logistics Systems
Revenue is derived from specific contracts and is recognised at the time of delivery.
Distribution and conveyance
Distribution and conveyance costs relate to non-people costs incurred in transporting and delivering mail. These include conveyance by rail, road, sea
and air, together with costs incurred by international mail carriers and Parcelforce Worldwide delivery operators and GLS. These costs are disclosed
separately on the face of the income statement.
Operating exceptional items
Operating exceptional items are items of income and expenditure arising from the operations of the business which, due to the nature of the events
giving rise to them, require separate presentation on the face of the income statement to allow a better understanding of financial performance in
the year, in comparison to prior years.
‘ColleagueShare’ - legacy share scheme
This scheme introduced in 2007-08, was a five-year scheme spanning the accounting years from April 2007 to March 2012 and comprised both a
‘share’ plan and a related stakeholder dividend throughout the life of the scheme.
The costs of the scheme were included in the income statement as an exceptional item throughout the life of the scheme and corresponding liabilities
were included within payables or provisions as appropriate.
Operating profit
Operating profit is the profit arising from the normal, recurring operations of the business and after charging operating exceptional items defined
above. It excludes the non-operating exceptional items for profit or loss on disposal of businesses and profit or loss on disposal of property, plant and
equipment. These items are not part of the normal recurring operations of the business but are material, so are presented separately on the face of
the income statement to allow a better understanding of financial performance in the year, in comparison to prior years.
Goodwill
Business combinations on or after 29 March 2004 are accounted for under IFRS 3 Business Combinations using the purchase method.
Any excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent
liabilities at the date of acquisition is recognised in the balance sheet as goodwill and is not amortised.
After initial recognition, goodwill is stated at cost less any accumulated impairment losses. Goodwill arising from business combinations is reviewed
for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.
An impairment loss is recognised in the income statement for the amount by which the carrying value of the asset (or cash generating unit) exceeds
its recoverable amount, which is the higher of an asset’s net realisable value and its value in use. For the purpose of such impairment reviews,
goodwill is allocated to the relevant cash generating units.
Goodwill arising on the acquisition of equity accounted entities is included in the cost of those entities and therefore not reported in the balance sheet
as goodwill.
Intangible assets
Intangible assets acquired as part of a business combination are capitalised separately from goodwill if the fair value can be measured reliably on
initial recognition. Intangible assets acquired separately or development costs that meet the criteria to be capitalised are initially recognised at cost
and are assessed to have either a finite or indefinite useful life. Those with a finite life are amortised over their useful life and those with an indefinite
life are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.
An impairment loss is recognised in the income statement for the amount by which the carrying value of the asset exceeds its recoverable amount,
which is the higher of an asset’s net realisable value and its value in use.
Amortisation of intangible assets with finite lives is charged annually to the income statement on a straight-line basis as follows:
Customer listings
Software
118
3 to 4 years
3 to 6 years
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Significant accounting policies (continued)
Revenue reported in the income statement is net of value added taxation and comprises Turnover which principally relates to the rendering of
Account revenue is derived from specific contracts and recognised when the delivery of an item is complete. Prepaid revenue mainly relating to
stamp and meter income is recognised when the sale is made, adjusted to reflect a value of stamp and meter credits held but not used by the
Revenue
services as follows:
UK Parcels, International & Letters
customer.
General Logistics Systems
Distribution and conveyance
separately on the face of the income statement.
Operating exceptional items
the year, in comparison to prior years.
‘ColleagueShare’ - legacy share scheme
Revenue is derived from specific contracts and is recognised at the time of delivery.
Distribution and conveyance costs relate to non-people costs incurred in transporting and delivering mail. These include conveyance by rail, road, sea
and air, together with costs incurred by international mail carriers and Parcelforce Worldwide delivery operators and GLS. These costs are disclosed
Operating exceptional items are items of income and expenditure arising from the operations of the business which, due to the nature of the events
giving rise to them, require separate presentation on the face of the income statement to allow a better understanding of financial performance in
This scheme introduced in 2007-08, was a five-year scheme spanning the accounting years from April 2007 to March 2012 and comprised both a
‘share’ plan and a related stakeholder dividend throughout the life of the scheme.
The costs of the scheme were included in the income statement as an exceptional item throughout the life of the scheme and corresponding liabilities
were included within payables or provisions as appropriate.
Operating profit
Operating profit is the profit arising from the normal, recurring operations of the business and after charging operating exceptional items defined
above. It excludes the non-operating exceptional items for profit or loss on disposal of businesses and profit or loss on disposal of property, plant and
equipment. These items are not part of the normal recurring operations of the business but are material, so are presented separately on the face of
the income statement to allow a better understanding of financial performance in the year, in comparison to prior years.
Goodwill
Business combinations on or after 29 March 2004 are accounted for under IFRS 3 Business Combinations using the purchase method.
Any excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent
liabilities at the date of acquisition is recognised in the balance sheet as goodwill and is not amortised.
After initial recognition, goodwill is stated at cost less any accumulated impairment losses. Goodwill arising from business combinations is reviewed
for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.
An impairment loss is recognised in the income statement for the amount by which the carrying value of the asset (or cash generating unit) exceeds
its recoverable amount, which is the higher of an asset’s net realisable value and its value in use. For the purpose of such impairment reviews,
goodwill is allocated to the relevant cash generating units.
Goodwill arising on the acquisition of equity accounted entities is included in the cost of those entities and therefore not reported in the balance sheet
as goodwill.
Intangible assets
Customer listings
Software
Intangible assets acquired as part of a business combination are capitalised separately from goodwill if the fair value can be measured reliably on
initial recognition. Intangible assets acquired separately or development costs that meet the criteria to be capitalised are initially recognised at cost
and are assessed to have either a finite or indefinite useful life. Those with a finite life are amortised over their useful life and those with an indefinite
life are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.
An impairment loss is recognised in the income statement for the amount by which the carrying value of the asset exceeds its recoverable amount,
which is the higher of an asset’s net realisable value and its value in use.
Amortisation of intangible assets with finite lives is charged annually to the income statement on a straight-line basis as follows:
3 to 4 years
3 to 6 years
Property, plant and equipment
Property, plant and equipment is recognised at cost, including directly attributable costs in bringing the asset into working condition for its intended
use. Depreciation of property, plant and equipment is provided on a straight-line basis by reference to net book value and to the remaining useful
economic lives of assets and their estimated residual values. The useful lives and residual values are reviewed annually and adjustments, where
applicable, are made on a prospective basis. The lives assigned to major categories of property, plant and equipment are:
Land and buildings:
Freehold land
Freehold buildings
Leasehold buildings
Plant and machinery
Motor vehicles and trailers
Fixtures and equipment
Not depreciated
Up to 50 years
The shorter of the period of the lease, 50 years or the estimated remaining useful life
3-15 years
2-12 years
2-15 years
Non-current assets held for sale
Non-current assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Non-current assets
are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use.
This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition.
Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date
of classification.
Impairment reviews
Unless otherwise disclosed in these accounting policies, assets are reviewed for impairment if events or changes in circumstances indicate that the
carrying value may be impaired. The Group assesses at each reporting date whether such indications exist. Where appropriate, an impairment loss is
recognised in the income statement for the amount by which the carrying value of the asset (or cash generating unit) exceeds its recoverable
amount, which is the higher of an asset’s net realisable value and its value in use.
Leases
Finance leases, where substantially all the risks and rewards incidental to ownership of the leased item have passed to the Group, are capitalised at
the inception of the lease with a corresponding liability recognised for the fair value of the leased item or, if lower, at the present value of the
minimum lease payments. Lease payments are apportioned between the finance charges and capital element of the lease liability to achieve a
constant rate of interest on the remaining balance of the liability. Capitalised leased assets are depreciated over the shorter of the estimated useful
life of the asset and the lease term.
Leases where substantially all the risks and rewards of ownership of the asset are retained by the lessor, are classified as operating leases and
rentals are charged to the income statement over the lease term. The aggregate benefit of incentives are recognised as a reduction of rental expense
over the lease term on a straight-line basis.
A leasehold land payment is an upfront payment to acquire a long-term leasehold interest in land. This payment is stated at cost and is amortised on
a straight-line basis over the period of the lease.
Trade receivables
Trade receivables are recognised and carried at original invoice amount less an allowance for any non-collectable amounts. An estimate for doubtful
debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified.
Financial instruments
Financial assets within the scope of IAS 39 Financial Instruments: Recognition and Measurement are classified as: financial assets at fair value
through the income statement (held for trading); held to maturity investments, loans and receivables or available for sale financial assets as
appropriate. Financial liabilities within the scope of IAS 39 are classified as either financial liabilities at fair value through the income statement or
financial liabilities measured at amortised cost.
The Group determines the classification of its financial instruments at initial recognition and re-evaluates this designation at each financial year end.
When financial instruments are recognised initially, they are measured at fair value, being the transaction price plus, in the case of financial
instruments not at ‘fair value through the income statement’, any directly attributable transactional costs.
The subsequent measurement of financial instruments depends on their classification as follows:
Loans and receivables
Non-derivative financial assets with fixed or determinable payments that are not quoted on an active market, do not qualify as trading assets and
have not been designated as either ‘fair value through the income statement’ or available for sale, are carried at amortised cost using the effective
interest rate method if the time value of money is significant. Gains and losses are recognised in the income statement when the loans and
receivables are derecognised or impaired, as well as through the amortisation process.
119
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
Available for sale financial assets
‘Available for sale financial assets’ are non-derivative financial assets that are designated as such or are not classified in any of the three preceding
categories. After initial recognition, interest is taken to the income statement using the effective interest rate method and the assets are measured at
fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised, or until the investment is
deemed to be impaired at which time the cumulative gain or loss previously reported in equity is included in the income statement.
Financial liabilities at fair value through the income statement (held for trading)
Derivatives liabilities are classified as held for trading unless they are designated as hedging instruments. They are carried in the balance sheet at fair
value with gains or losses recognised in the income statement.
Financial liabilities measured at amortised cost
All non-derivative financial liabilities are classified as financial liabilities measured at amortised cost. Non-derivative financial liabilities are initially
recognised at the fair value of the consideration received, less directly attributable issue costs. After initial recognition, non-derivative financial
liabilities are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the income statement
when the liabilities are derecognised or impaired, as well as through the amortisation process.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits (cash equivalents) with an original
maturity date of three months or less. In addition, the Group uses money market funds as a readily available source of cash, and these funds are also
categorised as cash equivalents.
For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of bank overdrafts.
Cash equivalents are classified as loans and receivables financial instruments.
Financial assets – pension escrow investments
Financial assets – pension escrow investments comprise cash at bank, conventional gilt edged securities, index-linked gilt edged securities and
Treasury bills.
Conventional gilt edged securities, index-linked gilt edged securities and Treasury bills are classified as available for sale financial instruments on the
basis that they are quoted investments that are not held for trading and may be disposed of prior to maturity.
Financial assets – other investments
Financial assets – other investments comprise short-term deposits (other investments) with Government, local government or banks with an original
maturity of three months or more. Short-term deposits are classified as loans and receivables financial instruments.
Financial liabilities – interest-bearing loans and borrowings
All loans and borrowings are classified as financial liabilities measured at amortised cost.
Financial liabilities – obligations under finance leases
All obligations under finance leases are classified as financial liabilities measured at amortised cost.
Derivative financial instruments
The Group uses derivative instruments such as foreign currency contracts in order to manage the risk profile of any underlying risk exposure of the
Group, in line with the Group’s treasury management policies. Such derivative financial instruments are initially stated at fair value.
For the purpose of hedge accounting, hedges are classified as cash flow hedges where they hedge exposure to variability in cash flows that is either
attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction.
In relation to cash flow hedges to hedge the foreign exchange or commodity price risk of firm commitments that meet the conditions for hedge
accounting, the portion of the gain or loss on the hedging instrument that is determined to relate to an effective hedge is recognised directly in equity
and the ineffective portion is recognised in the income statement.
When the hedged firm commitment results in the recognition of a non-financial asset or non-financial liability, then at the time the asset or liability is
recognised, the associated gains or losses that had previously been recognised in equity are included in the initial measurement of the acquisition cost
or other carrying amount of the asset or liability. For all other cash flow hedges, the gains or losses that are recognised in equity are transferred to
the income statement in the same year in which the hedged firm commitment affects the net profit/loss, for example when the hedged transaction
actually occurs.
For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to the income
statement in the period.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge
accounting. At that point, any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecast transaction
occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the income
statement for the year.
120
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Significant accounting policies (continued)
Available for sale financial assets
‘Available for sale financial assets’ are non-derivative financial assets that are designated as such or are not classified in any of the three preceding
categories. After initial recognition, interest is taken to the income statement using the effective interest rate method and the assets are measured at
fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised, or until the investment is
deemed to be impaired at which time the cumulative gain or loss previously reported in equity is included in the income statement.
Financial liabilities at fair value through the income statement (held for trading)
Derivatives liabilities are classified as held for trading unless they are designated as hedging instruments. They are carried in the balance sheet at fair
value with gains or losses recognised in the income statement.
Financial liabilities measured at amortised cost
All non-derivative financial liabilities are classified as financial liabilities measured at amortised cost. Non-derivative financial liabilities are initially
recognised at the fair value of the consideration received, less directly attributable issue costs. After initial recognition, non-derivative financial
liabilities are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the income statement
when the liabilities are derecognised or impaired, as well as through the amortisation process.
Cash and cash equivalents
categorised as cash equivalents.
Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits (cash equivalents) with an original
maturity date of three months or less. In addition, the Group uses money market funds as a readily available source of cash, and these funds are also
Cash equivalents are classified as loans and receivables financial instruments.
Financial assets – pension escrow investments
Financial assets – pension escrow investments comprise cash at bank, conventional gilt edged securities, index-linked gilt edged securities and
Treasury bills.
Conventional gilt edged securities, index-linked gilt edged securities and Treasury bills are classified as available for sale financial instruments on the
basis that they are quoted investments that are not held for trading and may be disposed of prior to maturity.
Financial assets – other investments
Financial assets – other investments comprise short-term deposits (other investments) with Government, local government or banks with an original
maturity of three months or more. Short-term deposits are classified as loans and receivables financial instruments.
Financial liabilities – interest-bearing loans and borrowings
All loans and borrowings are classified as financial liabilities measured at amortised cost.
Financial liabilities – obligations under finance leases
All obligations under finance leases are classified as financial liabilities measured at amortised cost.
Derivative financial instruments
The Group uses derivative instruments such as foreign currency contracts in order to manage the risk profile of any underlying risk exposure of the
Group, in line with the Group’s treasury management policies. Such derivative financial instruments are initially stated at fair value.
For the purpose of hedge accounting, hedges are classified as cash flow hedges where they hedge exposure to variability in cash flows that is either
attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction.
In relation to cash flow hedges to hedge the foreign exchange or commodity price risk of firm commitments that meet the conditions for hedge
accounting, the portion of the gain or loss on the hedging instrument that is determined to relate to an effective hedge is recognised directly in equity
and the ineffective portion is recognised in the income statement.
When the hedged firm commitment results in the recognition of a non-financial asset or non-financial liability, then at the time the asset or liability is
recognised, the associated gains or losses that had previously been recognised in equity are included in the initial measurement of the acquisition cost
or other carrying amount of the asset or liability. For all other cash flow hedges, the gains or losses that are recognised in equity are transferred to
the income statement in the same year in which the hedged firm commitment affects the net profit/loss, for example when the hedged transaction
actually occurs.
statement in the period.
statement for the year.
For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to the income
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge
accounting. At that point, any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecast transaction
occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the income
Fair value measurement of financial instruments
The fair value of quoted investments (including conventional gilt edged securities, index-linked gilt edged securities and Treasury bills)
is determined by reference to bid prices at the close of business on the balance sheet date. Hence the conventional gilt edged securities, index-linked
gilt edged securities and Treasury bills are within Level 1 of the fair value hierarchy as defined within IFRS 7.
Where there is no active market, fair value is determined using valuation techniques. These include using recent arm’s length market transactions;
reference to the current market value of another instrument which is substantially the same; and discounted cash flow analysis and pricing models.
Specifically, in the absence of quoted market prices, derivatives are valued by using quoted forward prices for the underlying commodity/currency and
discounted using quoted interest rates (both at the close of business on the balance sheet date). Hence derivative assets and liabilities are within
Level 2 of the fair value hierarchy as defined within IFRS 7.
For the purposes of disclosing the fair value of investments held at amortised cost in the balance sheet, in the absence of quoted market prices, fair
values are calculated by discounting the future cash flows of the financial instrument using quoted equivalent interest rates at close of business on
the balance sheet date.
Income taxation and deferred taxation
The charge for current taxation is based on the results for the year as adjusted for items that are non-assessable or disallowed. It is calculated using
rates that have been enacted or substantively enacted at the balance sheet date.
Deferred income taxation assets and liabilities are recognised for all taxable and deductible temporary differences and unused taxation assets and
losses except:
For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of bank overdrafts.
• Initial recognition of goodwill;
• The initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither
the accounting profit nor taxable profit and loss;
• Taxable temporary differences associated with investments in subsidiaries, associates and interest in joint ventures, where the timing of the
reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future;
and
• Deferred taxation assets are recognised only to the extent that it is probable that taxable profit will be available against which they can be utilised.
The carrying amount of deferred taxation assets is reviewed at each balance sheet date and increased or reduced to the extent that it is probable
that sufficient taxable profit will be available to allow them to be utilised.
Deferred taxation assets and liabilities are measured at the taxation rates that are expected to apply to the period when the taxation asset is realised
or the liability is settled, based on taxation rates (and taxation laws) that have been substantively enacted at the balance sheet date. Deferred taxation
balances are not discounted.
Current and deferred taxation is charged or credited directly to equity if it relates to items that are credited or charged directly to equity, otherwise it
is recognised in the income statement.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of
resources will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. If the effect of the time value
of money is material, provisions are determined by discounting the expected future cash flows at an appropriate pre-taxation rate.
Pensions and other post-retirement benefits
The pension assets for the defined benefit plans are measured at fair value. Liabilities are measured on an actuarial basis using the projected unit
credit method and discounted at a rate equivalent to the current rate of return on a high quality corporate bond of equivalent currency and term. The
resulting defined benefit asset or liability is presented separately on the face of the balance sheet. Full actuarial valuations are carried out at intervals
not normally exceeding three years as determined by the Trustees and, with appropriate updates and accounting adjustments at each balance sheet
date, form the basis of the deficit disclosed. All members of defined benefit schemes are contracted out of the earnings-related part of the State
pension scheme.
For defined benefit schemes, the amounts charged to operating profit are the current service costs and any gains and losses arising from
settlements, curtailments and past service costs. The net difference between the interest costs and the expected return on plan assets is recognised
as net pension interest in the income statement. Actuarial gains and losses are recognised immediately in the statement of comprehensive income.
Any deferred taxation movement associated with the actuarial gains and losses is also recognised in the statement of comprehensive income.
For defined contribution plans, the Group’s contributions are charged to operating profit within people costs in the period to which the contributions
relate. Overseas subsidiaries make separate arrangements for the provision of pensions and other post-retirement benefits.
121
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
Foreign currencies
The functional and presentational currency of Royal Mail Group Limited is pound Sterling (£). The functional currency of the overseas subsidiaries in
Europe is mainly the Euro (€).
The assets and liabilities of foreign operations are translated at the rate of exchange ruling at the balance sheet date. The trading results of foreign
operations are translated at the average rates of exchange for the reporting period, being a reasonable approximation to the actual transaction rate.
The exchange rate differences arising on the translation, since the date of transition to IFRSs, are taken directly to the Foreign Currency Translation
Reserve in equity.
Transactions in foreign currencies are initially recorded in the functional currency by applying the spot exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at
the balance sheet date. Currently hedge accounting is not claimed for any monetary assets and liabilities. All differences are therefore taken to the
income statement, except for differences on monetary assets and liabilities that form part of the Group’s net investment in a foreign operation. These
are taken directly to equity until the disposal of the net investment occurs, at which time they are recognised in profit or loss.
Non-monetary items that are measured in terms of historic cost in a foreign currency are translated using the exchange rates at the dates of the
initial transactions. Non-monetary items measured at fair value in foreign currency are translated using the exchange rates at the date when the fair
value is determined.
Contingent liabilities
Contingent liabilities are not disclosed if the possibility of losses occurring is considered to be remote.
Segment information
The Group’s operating segments are organised and managed separately according to the nature of the products and services provided, with each
segment representing a business unit that offers different products and serves largely different markets. Management monitors the operating results
of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is
evaluated based on operating profit/loss.
There is no aggregation of operating segments. The operating units that make up the three operating segments are detailed in note 3.
The operating segments comprise operations in both the UK and other parts of Europe, the latter being relevant to the GLS business segment.
The UK operations include the UKPIL and ‘Other’ segments.
Segment revenues have been attributed to the respective countries based on the location of the customer.
Transfer prices between the segments are set on a basis of charges reached through negotiation with the respective business units that form part of
the segments.
There are no differences in the measurement of the respective segments’ profit/loss and the consolidated financial statements prepared under IFRSs.
122
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Significant accounting policies (continued)
Foreign currencies
Europe is mainly the Euro (€).
Reserve in equity.
The functional and presentational currency of Royal Mail Group Limited is pound Sterling (£). The functional currency of the overseas subsidiaries in
The assets and liabilities of foreign operations are translated at the rate of exchange ruling at the balance sheet date. The trading results of foreign
operations are translated at the average rates of exchange for the reporting period, being a reasonable approximation to the actual transaction rate.
The exchange rate differences arising on the translation, since the date of transition to IFRSs, are taken directly to the Foreign Currency Translation
Transactions in foreign currencies are initially recorded in the functional currency by applying the spot exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at
the balance sheet date. Currently hedge accounting is not claimed for any monetary assets and liabilities. All differences are therefore taken to the
income statement, except for differences on monetary assets and liabilities that form part of the Group’s net investment in a foreign operation. These
are taken directly to equity until the disposal of the net investment occurs, at which time they are recognised in profit or loss.
Non-monetary items that are measured in terms of historic cost in a foreign currency are translated using the exchange rates at the dates of the
initial transactions. Non-monetary items measured at fair value in foreign currency are translated using the exchange rates at the date when the fair
value is determined.
Contingent liabilities
Segment information
Contingent liabilities are not disclosed if the possibility of losses occurring is considered to be remote.
The Group’s operating segments are organised and managed separately according to the nature of the products and services provided, with each
segment representing a business unit that offers different products and serves largely different markets. Management monitors the operating results
of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is
evaluated based on operating profit/loss.
There is no aggregation of operating segments. The operating units that make up the three operating segments are detailed in note 3.
The operating segments comprise operations in both the UK and other parts of Europe, the latter being relevant to the GLS business segment.
The UK operations include the UKPIL and ‘Other’ segments.
Segment revenues have been attributed to the respective countries based on the location of the customer.
Transfer prices between the segments are set on a basis of charges reached through negotiation with the respective business units that form part of
the segments.
There are no differences in the measurement of the respective segments’ profit/loss and the consolidated financial statements prepared under IFRSs.
Accounting standards issued but not yet applied
The following new and revised accounting standards are relevant to the Group and are in issue but were not effective (and in some instances have
not yet been adopted by the EU) at the balance sheet date:
• Annual improvements to IFRSs 2009-2011 Cycle
• IFRS 7 (amended) Offsetting Financial Assets and Financial Liabilities
• IFRS 9 Financial Instruments: Classification and Measurement
• IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements
• IFRS 10, IFRS 12 and IAS 27 Investment Entities (amendments)
• IFRS 11 Joint Arrangements, IAS 28 Investments in Associates and Joint Ventures
• IFRS 12 Disclosures of Interests in Other Entities
• IFRS 13 Fair Value Measurement
• IAS 1 (amended) Presentation of Items of Other Comprehensive Income
• IAS 19 (revised) Employee Benefits
• IAS 32 (amended) Offsetting Financial Assets and Liabilities
• IAS 36 (amended) Impairment of Assets
• IAS 39 (amended) Financial Instruments: Recognition and Measurement
The Directors do not expect that the adoption of the standards listed above will have a material impact on the financial statements of the Group in
future periods, except as follows:
IAS 19 (revised) Employee Benefits
The key impact will be to replace the separate assumptions for expected return on plan assets and discounting of scheme liabilities and
replace them with one single discount rate for the net surplus or deficit. This net interest income/cost will be measured based on the plan’s
discount rate. Asset returns greater or less than the accounting discount rate will be recognised in the Statement of Comprehensive Income
(SOCI).
123
Financial statementsRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013
Group five year summary
(unaudited)
Income statement
Revenue
Operating profit before exceptional items
Operating exceptional items – transformation costs
Operating profit after transformation costs before other
operating exceptional items
Other operating exceptional items
Non-operating exceptional items
Earnings before interest and taxation (EBIT)
Finance (interest) income and costs, including net pension interest
Profit/(loss) before taxation
Taxation
Profit/(loss) after taxation
Free cash flow#
EBITDA before transformation costs
Working capital
Other pension payments
Transformation investment in UKPIL
Other exceptional items
Other capital expenditure
Other (dividends, taxation, interest)
Cash inflow/(outflow) before disposal of assets
Disposal of assets
Free cash inflow/(outflow)
# An explanation of ‘free cash flow’ is provided in note 8.
Balance sheet
Property, plant and equipment
Intangible assets (mainly software)
Inventories
Trade and other receivables
Trade and other payables
Other net assets/(liabilities)
Provisions
Goodwill (mainly relates to GLS)
Investments in associates
Net operating assets and investments in associates
Cash and cash equivalents
Pension escrow investments
Loans and borrowings
Other net financial liabilities
Net debt
Other net assets/(liabilities) (deferred taxation)
Net assets before pension deficit and pension escrow investments
Pension surplus/(deficit)
Net assets/(liabilities)
People numbers – period end employees
UK Parcels, International & Letters (UKPIL)
General Logistics Systems (GLS)
UK partially owned subsidiaries
Group total
124
Adjusted
52 weeks
March
2013
£m
9,146
598
(195)
403
Reported
53 weeks
March
2013
£m
9,279
635
(195)
440
(77)
4
367
(43)
324
246
570
2013
£m
915
142
(3)
(404)
(26)
(261)
(81)
282
52
334
2013
£m
1,916
139
24
1,012
(1,647)
–
(246)
196
3
1,397
351
20
(973)
(304)
(906)
89
580
825
1,405
Financial year ending March
2012
£m
8,764
381
(229)
2011
£m
8,415
210
(192)
2010
£m
8,547
332
(185)
2009
£m
8,695
280
(179)
152
(57)
182
277
(76)
201
(51)
150
2012
£m
681
(19)
(45)
(429)
(37)
(150)
(87)
(86)
240
154
2012
£m
1,822
135
32
1,036
(1,548)
4
(217)
189
3
1,456
473
149
(1,522)
(286)
(1,186)
(9)
261
(2,716)
(2,455)
18
(48)
106
74
(239)
(165)
(123)
(288)
2011
£m
493
(58)
(292)
(377)
(7)
(176)
(59)
(476)
230
(246)
2011
£m
1,829
126
33
906
(1,423)
40
(252)
197
9
1,465
319
87
(1,478)
(200)
(1,272)
(2)
191
(4,185)
(3,994)
147
4
2
153
(388)
(235)
(87)
(322)
2010
£m
595
31
(395)
(325)
(8)
(234)
(64)
(400)
10
(390)
2010
£m
1,932
99
32
911
(1,536)
10
(233)
197
46
1,458
171
178
(1,183)
(123)
(957)
90
591
(7,477)
(6,886)
101
(26)
3
78
(137)
(59)
(290)
(349)
2009
£m
523
63
(341)
(427)
–
(237)
(85)
(504)
11
(493)
2009
£m
1,884
78
26
934
(1,572)
(4)
(248)
206
38
1,342
214
166
(805)
(94)
(519)
153
976
(6,301)
(5,325)
2011
2012
2013
2009
149,940 151,156 155,181 160,291 167,396
13,059
13,167
4,438
4,254
167,616 168,444 172,602 177,393 184,893
13,646
4,030
13,362
3,926
12,885
4,217
2010
Royal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Financial statements
Income statement
Revenue
Operating profit before exceptional items
Operating exceptional items – transformation costs
Operating profit after transformation costs before other
operating exceptional items
Other operating exceptional items
Non-operating exceptional items
Earnings before interest and taxation (EBIT)
Finance (interest) income and costs, including net pension interest
Profit/(loss) before taxation
Taxation
Profit/(loss) after taxation
Free cash flow#
EBITDA before transformation costs
Working capital
Other pension payments
Transformation investment in UKPIL
Other exceptional items
Other capital expenditure
Other (dividends, taxation, interest)
Cash inflow/(outflow) before disposal of assets
Disposal of assets
Free cash inflow/(outflow)
# An explanation of ‘free cash flow’ is provided in note 8.
Balance sheet
Property, plant and equipment
Intangible assets (mainly software)
Inventories
Trade and other receivables
Trade and other payables
Other net assets/(liabilities)
Provisions
Goodwill (mainly relates to GLS)
Investments in associates
Cash and cash equivalents
Pension escrow investments
Loans and borrowings
Other net financial liabilities
Net debt
Adjusted
52 weeks
March
2013
£m
9,146
598
(195)
403
Financial year ending March
2012
£m
2011
£m
8,764
8,415
2010
£m
8,547
332
(185)
2009
£m
8,695
280
(179)
Reported
53 weeks
March
2013
£m
9,279
635
(195)
440
(77)
4
367
(43)
324
246
570
2013
£m
915
142
(3)
(404)
(26)
(261)
(81)
282
52
334
2013
£m
1,916
139
24
–
(246)
196
3
351
20
(973)
(304)
(906)
89
580
825
1,405
381
(229)
152
(57)
182
277
(76)
201
(51)
150
2012
£m
681
(19)
(45)
(429)
(37)
(150)
(87)
(86)
240
154
2012
£m
1,822
135
32
4
(217)
189
3
473
149
(1,522)
(286)
(1,186)
(9)
261
(2,716)
(2,455)
210
(192)
18
(48)
106
74
(239)
(165)
(123)
(288)
2011
£m
493
(58)
(292)
(377)
(7)
(176)
(59)
(476)
230
(246)
2011
£m
1,829
126
33
906
40
(252)
197
9
319
87
(1,478)
(200)
(1,272)
(2)
191
(4,185)
(3,994)
147
4
2
153
(388)
(235)
(87)
(322)
2010
£m
595
31
(395)
(325)
(8)
(234)
(64)
(400)
10
(390)
2010
£m
1,932
99
32
911
10
(233)
197
46
171
178
(1,183)
(123)
(957)
90
591
101
(26)
3
78
(137)
(59)
(290)
(349)
2009
£m
523
63
(341)
(427)
–
(237)
(85)
(504)
11
(493)
2009
£m
1,884
78
26
934
(4)
(248)
206
38
214
166
(805)
(94)
(519)
153
976
1,012
(1,647)
1,036
(1,548)
(1,423)
(1,536)
(1,572)
Net operating assets and investments in associates
1,397
1,456
1,465
1,458
1,342
Other net assets/(liabilities) (deferred taxation)
Net assets before pension deficit and pension escrow investments
Pension surplus/(deficit)
Net assets/(liabilities)
People numbers – period end employees
UK Parcels, International & Letters (UKPIL)
General Logistics Systems (GLS)
UK partially owned subsidiaries
Group total
(7,477)
(6,886)
(6,301)
(5,325)
2013
2012
2011
2010
2009
149,940 151,156 155,181 160,291 167,396
13,646
4,030
13,362
3,926
13,167
4,254
12,885
4,217
13,059
4,438
167,616 168,444 172,602 177,393 184,893
Statement of Directors’
responsibilities in relation to
the Group financial statements
The Directors are responsible for preparing the Directors’ Report and the special purpose financial statements. The Directors have prepared the
Group financial statements in accordance with note 1.
In preparing these financial statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;
•
• make judgements and accounting estimates that are reasonable and prudent;
•
state whether the basis of preparation in accordance with note 1 has been followed, subject to any material departures disclosed and
explained by the financial statements; and
prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in
•
business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and
disclose with reasonable accuracy at any time the financial position of the Company. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Donald Brydon
Moya Greene
125
Royal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Financial statements
Independent Auditor’s Report
to the members of
Royal Mail Group Limited
Independent Auditor’s Report to the Directors of Royal Mail Group Limited
We have audited the Group financial statements of Royal Mail Group Limited for the year ended 31 March 2013, which comprise the Consolidated
income statement, the Consolidated statement of comprehensive income, the Consolidated statement of changes in equity, the Consolidated balance
sheet, the Consolidated statement of cash flows and the related notes 1 to 30. The financial statements have been prepared by Directors of Royal
Mail Group Limited based on the basis of preparation described in note 1 of the financial statements.
Directors’ responsibility for the financial statements
Directors are responsible for the preparation of these Group financial statements in accordance with note 1 and for such internal control as the
Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud
or error.
The Directors are also responsible for the preparation of the Directors’ remuneration report, which they have voluntarily prepared on the basis set
out on page 46.
Auditor’s responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International
Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures
selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due
to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation of the financial statements in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the entity’s internal control. Our audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by Directors, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In addition, you have requested us to report on whether:
• The part of the Directors’ remuneration report that has been described as audited has been properly prepared in accordance with the basis of
preparation set out on page 46; and
• The information given in the Directors’ report is consistent with the Group financial statements.
Opinion of financial statements
In our opinion:
• The financial statements of Royal Mail Group Limited for the year ended 31 March 2013 are prepared, in all material respects, in accordance with
the basis of preparation described in note 1.
Opinion on other matters
In our opinion:
• The part of the Directors’ remuneration report that has been described as audited has been properly prepared in accordance with the basis of
preparation set out on page 46; and
• The information given in the Directors’ report is consistent with the Group financial statements.
Basis of accounting and restriction on use
Without modifying our opinion, we draw attention to note 1 to the financial statements, which describe the basis of accounting. The financial
statements are prepared to assist Royal Mail Group Limited to illustrate the results of Royal Mail Group Limited if Post Office Limited had never been
a subsidiary. As a result, the financial statements may not be suitable for another purpose. Our auditor’s report is intended solely for Royal Mail
Group Limited, in accordance with our engagement letter dated 7 March 2013 and should not be used by other parties.
Richard Wilson
for and on behalf of Ernst & Young LLP,
Statutory Auditor
London
31 July 2013
126
Royal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013Financial statements
Forward looking statements
Forward looking statements
The Group is subject to a number of risks relating to future events and other risks, uncertainties and assumptions relating to its business and
operations, concerning, among other things, the results of operations, financial condition, prospects, growth and strategies of the Group and the
industries, markets and territories in which it operates.
This document does not constitute or form part of and should not be construed as: (a) an invitation, offer or solicitation to purchase, subscribe
for, or otherwise acquire or dispose of any shares or other securities of any member of the Group; or (b) any advice or recommendation with
respect to any shares or other securities of any member of the Group, and should not be used as the basis of any investment decision.
This document contains certain forward looking statements concerning the Group’s business, financial condition, results of operations and
certain of the Group’s plans, objectives, assumptions, projections, expectations or beliefs with respect to these items. Forward looking
statements are sometimes, but not always, identified by their use of a date in the future or such words as ‘anticipates’, ‘aims’, ‘due’, ‘could’,
‘may’, ‘will’, ‘should’, ‘expects’, ‘believes’, ‘intends’, ‘plans’, ‘potential’, ‘targets’, ‘goal’ or ‘estimates’.
Forward looking statements involve known and unknown risks, uncertainties and other factors, which may cause the Group’s actual financial
condition, performance and results to differ materially from the plans, goals, objectives and expectations set out in the forward looking
statements included in this document. Accordingly, readers are cautioned not to place undue reliance on forward looking statements.
By their nature, forward looking statements relate to events and depend on circumstances that will occur in the future and are inherently
unpredictable. Such forward looking statements should, therefore, be considered in light of various important factors that could cause actual
results and developments to differ materially from those expressed or implied by these forward looking statements. These factors include,
among other things: changes in the economies and markets in which the Group operates; changes in the regulatory regime within which the
Group operates; changes in interest and exchange rates; the impact of competitive products and pricing; the occurrence of major operational
problems; the loss of major customers; undertakings and guarantees relating to pension funds; contingent liabilities; the impact of legal or other
proceedings against, or which otherwise affect, the Group; and risks associated with the Group’s overseas operations.
All written or verbal forward looking statements, made in this document or made subsequently, which are attributable to the Group or any
persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. No assurance can be given that the
forward looking statements in this document will be realised; actual events or results may differ materially as a result of risks and uncertainties
facing the Group. Subject to compliance with applicable law and regulation, the Company does not intend to update the forward looking
statements in this document to reflect events or circumstances after the date of this document, and does not undertake any obligation to do so.
127
Other informationRoyal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 Corporate information
Registered Office and Group Head Office
Royal Mail Group Limited
100 Victoria Embankment
LONDON
EC4Y 0HQ
Telephone: 020 7250 2888
Registered No: 4138203
Royal Mail, the Cruciform, the colour red, Parcelforce Worldwide and the Parcelforce Worldwide
logo are registered trademarks of Royal Mail Group Limited. Group Annual Report and Financial
Statements 2013 © Royal Mail Group Limited 2013. All rights reserved.
Corporate websites
Information made available on the Group’s websites does not, and is not intended to, form part
of these Financial Statements.
Auditor
Ernst & Young LLP
1 More London Place
LONDON
SE1 2AF
Regulator (Ofcom)
Riverside House
2a Southwark Bridge Road
LONDON
SE1 9HA
Actuary
Towers Watson Limited
Watson House
London Road
REIGATE
Surrey
RH2 9PQ
Consumer body
Consumer Futures
Fleetbank House
Salisbury Square
LONDON
EC4Y 8JX
128
Royal Mail Group LimitedAnnual Report and special purpose Financial Statements for the year ended 31 March 2013 R
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Royal Mail, the Cruciform, the colour red and the Parcelforce Worldwide logo are registered trade marks, of Royal Mail
Group Limited. The GLS arrow logo is a registered trade mark of General Logistics Systems Germany GmbH & Co. OHG.
Annual Report 2012-13 © Royal Mail Group Limited 2013. All rights reserved.