Royal Mail PLC Annual Report 2018

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FY2018 Annual Report · Royal Mail PLC

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Royal Mail plc

Annual Report and
Financial Statements
2017-18

Welcome

Strategic report

Governance

Financial
statements

Who we are ................................................................................................................... 02
Financial and operating performance summary ...................................................... 04
Chairman’s statement .................................................................................................. 05
Chief Executive Officer's review .................................................................................. 07
Market overview............................................................................................................ 11
Our business model ...................................................................................................... 14
Our strategy ................................................................................................................... 16
Key performance indicators ......................................................................................... 18
Financial review............................................................................................................. 21
UK Parcels, International & Letters (UKPIL) .......................................................... 21
General Logistics Systems (GLS) ............................................................................ 24
Group results ............................................................................................................. 26
Presentation of results and Alternative Performance Measures (APMs) ......... 34
Principal risks ................................................................................................................ 40
Corporate responsibility ............................................................................................... 47

Chairman’s introduction to corporate governance ................................................... 54
Responsibilities of the Board ....................................................................................... 56
Board of Directors ........................................................................................................ 58
Chief Executive’s Committee ....................................................................................... 62
Stakeholder engagement ............................................................................................ 64
Nomination Committee Report ................................................................................... 65
Audit and Risk Committee report ............................................................................... 69
Pensions Committee report ........................................................................................ 74
Directors’ remuneration report ................................................................................... 75
Directors’ report ............................................................................................................ 96

Independent auditor’s report ....................................................................................101
Consolidated income statement ...............................................................................106
Consolidated statement of comprehensive income ...............................................107
Consolidated balance sheet .......................................................................................108
Consolidated statement of changes in equity .........................................................109
Consolidated statement of cash flows .....................................................................110
Notes to the consolidated financial statements ......................................................111
Significant accounting policies ..................................................................................149
Royal Mail plc – parent Company financial statements .........................................159

Other
information

Group five year summary (unaudited) .....................................................................162
Shareholder information ............................................................................................164
Forward-looking statements .....................................................................................165

Annual Report and Financial Statements 2017-18

| 01

Royal Mail plc

| Who we are

Who we are

We operate in 43 countries around the world. In the UK, our
Company operates under the Royal Mail and Parcelforce Worldwide
brands. GLS provides geographical diversification for our
earnings and is a growth engine for the Group. It is expanding its
presence in European markets and through focused and targeted
acquisitions in the western US.

UK Parcels, International & Letters (UKPIL),
is the UK’s pre-eminent delivery company.
As the UK’s sole designated Universal
Service Provider1, we are proud to deliver
a ‘one price goes anywhere’ service on
a range of letters and parcels to over
30 million addresses (including 1.3 million
businesses) across the country, six days
a week. The Universal Service is vital for
economic growth. It is the physical fulfilment
arm of the digital economy and is crucial to
the UK’s economic future.

GLS is a force for growth. It is one of the
largest, ground-based deferred parcel
networks in continental Europe, covering
41 countries and nation states in Europe
and, following recent acquisitions, seven
states in the western US. It has a replicable
and scalable business model and key
strengths in business-to-business (B2B) and
business-to-consumer (B2C) markets.

Our position
Our vision is to be recognised as the best
delivery company in the UK and across
Europe. We deliver more parcels in the
UK each year than all of our competitors
combined. We want to be the strategic
partner of choice for the UK’s e-retailers.
The service and product improvements we
have put in place are delivering real benefits.

GDP is a material driver for letter volumes.
We continue to forecast a medium-term four
to six per cent annual decline in addressed
letter volumes (excluding political parties’
election mailings). We are demonstrating
the relevance and value of letters to all
our customers.

GLS has continued to deliver significant
growth in several key European markets.
Its ‘scale up and grow’ strategy has helped
expand its existing customer relationships
and establish new ones in higher growth
areas outside the EU. While it is largely a

1 Under the Postal Services Act 2011 (‘the Act’), Ofcom
is the regulator for postal services in the UK. Ofcom’s
primary regulatory duty for postal services is to
secure the provision of the Universal Postal Service.
This includes ensuring that an efficient provider of the
Universal Service can make a reasonable commercial
rate of return. Ofcom has designated Royal Mail as the
Universal Service Provider.

B2B business, it is gaining market share by
winning new business in both B2B and the
premium B2C parcel markets.

Our people
We employ around 159,000 people across
our Group; 141,000 are in the UK. We are
committed to preserving the trust members
of the public have in our hard-working
employees. In a survey undertaken by Ipsos
MORI, 81 per cent of our customers said
they are favourable to us; 88 per cent are
satisfied with the service we provide2.

We are pleased to have reached agreement
with the CWU on pensions, pay, a shorter
working week and certain operational
changes. Under the new Pensions, Pay and
Pipeline agreement ('the agreement'), both
parties will continue to work together to
transform our operation, to grow our product
portfolio and maintain our pre-eminent
position. For more information, see the Chief
Executive Officer’s Review on page seven.

GLS employs around 18,000 people.
GLS Denmark was rated as one of the
country’s best employers by Great Place
to Work. GLS France was ranked 11 out of
almost 100 freight transport and logistics
companies in a list of best French employers
by business magazine, Capital.

Our customers
Royal Mail Group offers services to
suit every customer: consumers, sole
traders, SMEs, large businesses and
access operators. GLS provides B2B and
premium B2C services across continental
Europe and in the western US, serving
270,000 customers.

We are pleased that Ofcom continued
to note that UK consumers believe they
are getting value for money from postal
services. In February 2018, the regulator
found that 77 per cent of residential
consumers were either fairly or very
satisfied with the value for money of postal
services. That is a two percentage point
increase year-on-year3.

2 Ipsos MORI Corporate Image Survey Winter 2017.
3 Ofcom Residential Postal Tracker, February 2018, p.405.

| Annual Report and Financial Statements 2017-18

GLS

GLS is one of the largest ground-based
deferred parcel delivery networks in
continental Europe. The GLS network covers
41 European countries and nation states
and seven US states through a combination
of wholly owned companies and partner
companies. Following the acquisitions of
Agencia Servicios Mensajería S.A.U. (ASM)
(2016) and Redyser Transporte (February
2018) in Spain, and Golden State Overnight
Delivery Services (GSO) (2016) and Postal
Express (April 2017) in the US, we have been
focusing on integrating these businesses
into GLS.

Our shareholders
Royal Mail is one of the most widely held
stocks in the UK. We have a large and
diverse shareholder base that includes many
of our own people. All eligible full-time
employees have received a maximum of
913 Free Shares, regardless of grade.
In total, 12 per cent of the Company
has been given to eligible colleagues –
the largest free stake made available
to employees as part of any major
UK privatisation.

We have a proactive programme of
engagement with all of our shareholders,
including institutional investors in the UK
and overseas.

Our progress
In the most competitive parcels market in
Europe, and against a backdrop of structural
decline in addressed letter volumes, UKPIL
continues to roll out new services and products.
It is adapting its operation to maintain its
position as the leading UK player in letters and
parcels. Using our PDA technology, we have
rolled out notifications of estimated delivery
windows for our Tracked products. UKPIL
parcel volumes and revenue increased over
the year, due to new contracts won with large
customers, including e-retailers.

GLS accounts for around 33 per cent of
the Group’s adjusted operating profit after
transformation costs. Recent acquisitions
in Spain and the western US mean that its
three major markets – Germany, France and
Italy – now account for 60 per cent of its total
revenue, compared with 63 per cent in the
prior period.

GLS has successfully expanded several
new B2C services across Europe:
FlexDeliveryService, ShopReturnService
and ShopDeliveryService. They have helped
win new contracts and more business from
existing customers. It has introduced a
range of IT systems to improve the parcel
process, such as scanning devices and
customer tracking systems.

UKPIL

UKPIL comprises Royal Mail’s UK business and international parcels and letters delivery
businesses under the ‘Royal Mail’ and ‘Parcelforce Worldwide’ brands. Royal Mail’s network
is unparalleled in the UK in its scale and scope. It supports the provision of services for
the collection, sorting and delivery of parcels and letters by Royal Mail. This includes those
services Royal Mail provides as the UK’s designated Universal Service Provider. Parcelforce
Worldwide is a leading provider of express parcel delivery services.

UKPIL
c.141,000

Employees

Mail Centres

c.1,350

Delivery Offices

c.11,400

Local Collect locations

c.48,0004

Vehicles

GLS
c.18,000

Employees

c.70

Network hubs

c.1,300

Depots

c.18,000

Parcel shops

4 Includes c.2,500 trailers.

Annual Report and Financial Statements 2017-18

| 03

UKPIL

GLS

GLS Network Partners

Strategic report | Governance | Financial statements | Other information

Royal Mail plc

| Financial and operating performance summary

Financial and operating
performance summary

Group financial summary1

Reported results (£m)

Revenue

Operating profit before transformation costs

Operating profit after transformation costs

Profit before tax

Basic earnings per share – continuing operations
(pence)

Proposed full year dividend per share (pence)

Adjusted results (£m)

Revenue

Operating profit before transformation costs

Operating profit after transformation costs

Margin

Profit before tax

Basic earnings per share (pence)

In-year trading cash flow

Net cash/(debt)

Business units

Underlying
change2

20bps

52 weeks ended
25 March 2018

52 weeks ended
26 March 2017

10,172

236

123

212

25.9p

24.0p

10,172

694

581

5.7%

565

45.5p

545

9,776

490

353

335

27.5p

23.0p

9,776

712

575

5.9%

559

44.1p

420

(338)

52 weeks
ended
25 March
2018

7,615

2,557

10,172

Revenue

52 weeks
ended
26 March
2017

7,658

2,118

9,776

Adjusted operating
profit before
transformation costs

52 weeks
ended
25 March
2018

52 weeks
ended
26 March
2017

Underlying
change2

flat

10%

503

191

694

548

164

712

(£m)

UKPIL

GLS

Group

Group performance1,2
• Revenue up two per cent on an underlying
basis, to £10.2 billion, driven by UKPIL and
GLS parcels growth.

• On a reported basis, operating profit
before transformation costs was
£236 million.

• Adjusted operating profit before

transformation costs was £694 million,
up one per cent on an underlying basis.

• Adjusted operating profit margin after
transformation costs of 5.7 per cent
increased by 20 basis points on an
underlying basis.

• Total net cash investment was

£445 million, down from £492 million

in 2016-17. In-year trading cash flow
increased to £545 million.

• The Group had a net cash position of
£14 million at 25 March 2018. This
benefitted by around £100 million from the
timing of the 2017-18 frontline pay award.

• The Royal Mail Pension Plan closed to

future accrual in its Defined Benefit form
on 31 March 2018. A new Defined Benefit
Cash Balance Scheme was put in place
from 1 April 2018. The overall ongoing
annual cash cost of pensions will continue
to be around £400 million.

• The Board is recommending a final

dividend of 16.3 pence per ordinary share,
giving a total dividend of 24.0 pence per
share for 2017-18, up four per cent.

1 Reported results are prepared in accordance with International Financing Reporting Standards (IFRS). Adjusted results
exclude the pension charge to cash difference and specific items, consistent with the way that financial performance is
measured by Management and reported to the Board.

2 Movements are presented on an underlying basis. For further details of reported results, adjusted and underlying

reconciliations to the closest IFRS measures where appropriate, see page 34.

3 These factors included a challenging industrial relations environment, some very severe weather, Cyber Week and

Australian flu. It will be for Ofcom to decide.

| Annual Report and Financial Statements 2017-18

Business performance1,2
• UKPIL revenue was unchanged. Parcel
revenue grew four per cent. Total letter
revenue declined by four per cent.

• UKPIL parcel volumes up five per cent.
Addressed letter volumes declined by
five per cent, in line with expectations.

• Underlying UKPIL operating costs

before transformation costs unchanged.
Exceeded our cost avoidance target,
avoiding £642 million over the last three
financial years. Transformation costs
were £113 million.

• UKPIL collections, processing and delivery

productivity improved by one per cent, outside
our target range (two to three per cent).

• Our regulatory First Class Quality of
Service performance was 91.6 per
cent (target: 93 per cent). Second Class
performance was within the target range
when allowing for sampling margin of
error. We are talking to Ofcom about
exceptional events3. If taken into account,
we estimate we would have achieved
our First Class target and exceeded the
Second Class one.

• GLS performed strongly. Revenue was
up 15 per cent, including the impact of
acquisitions on a constant currency basis.

• On an underlying basis, GLS revenue grew
10 per cent. Volumes were up nine per cent.

2018-19 outlook
• UKPIL parcel volume and revenue growth
rates anticipated to be at least the same
as 2017-18.

• Maintain outlook for addressed letter
volume declines of four to six per cent
per annum (excluding election mailings)
over medium-term. Expect decline to be
at higher end of range for 2018-19 due
to GDPR and, or, if business uncertainty
persists; may fall outside range in a period.

• Targeting to avoid around £230 million of
UKPIL costs. Productivity improvements
expected to be towards the upper
end of targeted two to three per
cent range. Transformation costs
expected to be at upper end of forecast
£130-150 million range.

• Expect continued good performance
in GLS. Margins may be impacted by
continuing labour market pressures.

• Total net cash investment expected to be

around £500 million.

• Remain committed to progressive
dividend policy going forwards.

Dividends and Free Shares
One of the many great things about Royal
Mail is its diverse shareholder base.
We estimate that nearly 20 per cent of our
Company is owned by its own employees and
retail investors. Eligible full-time employees
have now received a maximum of 913 Free
Shares. Taking into account the proposed
final dividend, those employees with the
full allocation of shares will have received
well over £863 in dividends before tax
since privatisation.

The Board is committed to our progressive
dividend policy. The Board recommends the
payment of a final dividend of 16.3 pence per
ordinary share on 31 August 2018, giving
a total dividend of 24.0 pence per share for
2017-18, subject to shareholder approval
at our 2018 Annual General Meeting (AGM).
The proposed total dividend is a four per cent
increase on the total dividend of 23.0 pence
per ordinary share for 2016-17.

Connecting companies,
customers and communities
We are proud to provide the Universal
Service. We believe that a modern and
contemporary Universal Service Obligation
(USO) is vital to the UK economy. It is the
delivery backbone of e-commerce in the
UK. The high fixed cost Universal Service
network is funded by the market. We need
to evolve with the market to win new
business and ensure the Universal Service is
financially sustainable.

Our ongoing transformation – one of the
largest of its kind in the UK – has enabled
us to barcode over 70 per cent of our
parcels, complete one of the largest PDA
rollouts across Europe and give customers
greater visibility of the mail delivery process
through Mailmark®.

We are the most trusted and the most
recommended parcel delivery company
in the UK. Our Net Promoter Score is
40 – over 10 points higher than our
nearest competitor.

As our gateway to continental Europe
and the western US, GLS is a strategically
important part of the Group. It offers
geographic diversification for our earnings
and access to around 270,000 customers.
Its recent expansion in the US has enabled
GLS to create an extensive parcel delivery
network along the West Coast. GLS also
recently expanded its FlexDeliveryService,
which makes it easier for online shoppers
to take delivery of goods purchased abroad.
The service is now available in a total of
20 countries in Europe.

Annual Report and Financial Statements 2017-18

| 05

Chairman’s statement

Throughout 2017-18, we have continued to drive the
transformation of our Company, thanks to the hard work
and dedication of our people. I have seen for myself the
great contribution made by our postmen and women to
the households, businesses and communities we serve
across the UK.

We operate in 43 countries around the world. GLS
provides geographical diversification for our earnings
and is a growth engine for the Group. It is expanding its
presence in European markets and through focused and
targeted acquisitions in the western US.

Turning to important Board changes, in April 2018,
outside the reporting period, we announced the
retirement later this year of our CEO, Moya Greene, and
the appointment of Rico Back as her successor from
1 June 2018. We also announced the appointment of
Sue Whalley as CEO of Post and Parcels, Royal Mail UK.

Strategic report | Governance | Financial statements | Other informationSo, we announced on 20 April 2018 that
Rico Back would succeed Moya as Group
CEO and join the Board on 1 June 2018.
Under Rico’s leadership, GLS has become the
leading delivery company of its kind in Europe,
making a highly valuable contribution to the
wider Royal Mail Group at the same time.
The Board believes that Rico’s track record,
his strong commercial acumen and his deep
understanding of the delivery industry mean he
is ideally placed to lead Royal Mail.

Alongside Rico’s appointment as Group CEO,
I am delighted to welcome Sue Whalley to our
Board as Chief Executive Officer of Post and
Parcels, Royal Mail UK. Sue is leading the very
important transformation of our UK business.
Her very significant experience in strategy
development, business transformation,
regulation and stakeholder management will
be of great value to us.

The effectiveness of the Board, its Committees,
the Executive Directors, Non-Executive
Directors, and the Chairman was assessed
in March 2018 by an external consultancy.
The results of this evaluation found that our
Board and each of the Committees function
very well. The findings of the evaluation are
discussed in more detail on page 67.

Thank you
Special companies are made special by
extraordinary people. Royal Mail is no
exception. I had the pleasure of overseeing
the Chairman’s Awards this year. They
highlight the remarkable work of our people
right across our organisation. Royal Mail’s
postmen and women are quite simply
the best in the business. Our customers
choose us because of the quality of service
they provide. Thanks to the continued hard
work of our people, Royal Mail is making a
difference on a daily basis – to businesses,
to consumers, to households and to local
communities. I look forward to another
year of working with this remarkable group
of people.

Peter Long
Chairman
16 May 2018

Royal Mail plc

| Chairman’s statement

A responsible employer
I am proud that, in a highly-competitive
commercial environment, Royal Mail
continues to fulfil its obligations to its
hardworking employees.

We make the seventh largest contribution of
any UK company to the UK economy. One in
every 194 jobs in the UK is provided by Royal
Mail. Our employment is disproportionately
weighted towards areas where there are
fewer job opportunities available, enabling
us to make a significant contribution to
social inclusion.

Thanks to the changes enabled by our
ground-breaking agreement with the CWU,
we will continue to offer the best terms and
conditions in the delivery industry by some
distance. We continue to work with the
Government in an effort to improve labour
standards across the ‘gig economy’. Our
postman and woman's pay compares very
well to the industry. Better labour standards
will lead to better service standards
for consumers.

The safety of our employees is always
our first priority. In 2017-18, we
delivered a nine per cent reduction in
road traffic collisions, one of our 2017-18
key performance indicators (KPIs).

A responsible company
I am consistently proud of, and humbled
by, the generosity of our people raising
money for good causes. Our Payroll Giving
scheme reached a significant milestone – our
employees have donated over £60 million
through the scheme since it launched in 1989.
We received a Lifetime Achievement award at
the National Payroll Giving Excellence Awards
in recognition of the success of our scheme.

We are committed to doing even more
in support of mental health awareness.
In May 2017, we announced our strategic
charity partnership with Action for Children,
Mind and Mental Health UK. We hope to
raise at least £2 million to enable Action for
Children to employ specialist youth workers
to deliver face-to-face support sessions for
8,000 young people aged 15-18 at risk of
developing mental health issues.

We also took further steps to manage our
environmental impact and carbon emissions.
For example, we purchased 100 electric
vans to be used by postmen and women on
their rounds. We have commissioned nine
electric-powered heavy goods vehicles to trial
for transporting mail between distribution
centres in London and the South East. Royal
Mail is the first UK fleet operator to trial these
new larger vehicles.

We welcome the introduction of the
Non-Financial Reporting Directive
which aims to increase transparency
on social and environmental issues.
Full details of non-financial matters
relevant to our business, including our
customers, our people, and our impact
on the environment, can be found in the
Corporate Responsibility section of this
report (see pages 48-53).

Our Board
We have been pleased to welcome new
members to the Board in the last 12 months.
Following last year’s AGM, on 20 July 2017,
Stuart Simpson was formally appointed
Chief Finance Officer and joined the Board.
Stuart brings a very detailed knowledge of
our business to this key role, which he has
developed over eight years working both at
the Group level and in our UK business.

Keith Williams and Simon Thompson joined
the Board during the year as Non-Executive
Directors, both also becoming members of
the Audit and Risk Committee. Keith has an
outstanding record as a business executive
with extensive financial and customer
service experience across the aviation, retail
and insurance sectors. Simon, currently
Chief Product Officer, Ocado plc, has proven
expertise in the digitisation of business and
customer experience across the financial,
retail and technology sectors.

Cath Keers stepped down in February 2018
as a Non-Executive Director, having served
almost eight years on the Board. Cath has
played a pivotal role in this tremendous period
of change. I am grateful for her contribution
and, on behalf of the Board, I wish her well for
the future.

On 20 April 2018, after the reporting
period, we announced that the Board and
Moya Greene, our CEO, had agreed the time
was right for her to retire. Moya will step
down as CEO on 1 June 2018, and from the
Board at the AGM; she will be providing advice
and counsel to our new CEO until September.

Under Moya’s leadership, Royal Mail has been
transformed, including our privatisation in
2013 and two significant, ground-breaking
agreements with the CWU. Alongside the
strong financial position Moya has secured
for the Company, there has been significant
investment in our UK operation in recent
years. The Board is extremely grateful to
Moya for her contribution to the Group over
the past eight years of service. We wish her
all the best in the future.

I am also delighted to say that our internal
succession planning allowed us to announce
the promotion of two exceptional executives
at the same time.

| Annual Report and Financial Statements 2017-18

Our performance
We are the UK’s number one delivery
company for letters and parcels. UKPIL
revenue was flat. This was due to a good
performance in UKPIL parcels, where
revenue was up four per cent; letter revenue
declined by four per cent. Parcels growth
was primarily driven by Royal Mail domestic
account parcel volumes (excluding Amazon,
they were up four per cent) and international
import parcel volumes. Addressed letter
volumes (excluding political parties’ election
mailings) declined by five per cent, in line with
our forecast range.

GLS revenue increased by 15 per cent,
including the impact of acquisitions, on a
constant currency basis in the year. It rose by
10 per cent on an underlying basis. Volumes
were up nine per cent. GLS now accounts for
33 per cent of the Group’s adjusted operating
profit after transformation costs, up from
29 per cent in 2016-17.

Winning in parcels
Competitive landscape
The UK is Europe’s most competitive parcels
market, with 15 key competitors. Consumers
are spending more online per head than in
any other major market, including the US
and China1. Pure play e-retailers (those that
trade online only) are now the leading drivers
of market growth. They overtook online
retailers with a store presence for the first
time in 20162.

As the Universal Service Provider, we provide
the delivery backbone for e-commerce in
the UK. We have 53 per cent of total market
share by volume, in an addressable market
growing at around three per cent per annum3.
Our strategy of targeting faster growing
sectors – like clothing and footwear – and
winning and retaining volumes is paying off.
This year, we delivered our biggest parcel
volume growth since privatisation. Royal Mail
Tracked 24®/48® and Tracked Returns® growth
is ahead of the market by some distance.

E-commerce is also fuelling international
growth. The largest European B2C parcels
markets outside the UK are Germany,
Italy and France – GLS’ largest markets.
Having recently expanded its international
FlexDeliveryService across 20 European
countries, GLS is well placed to capitalise
on opportunities for growth, particularly in
cross-border parcels.

1 Ofcom International Communications Market report,

December 2017.

2 Mintel online retailing report, July 2017.
3 Excludes Amazon Logistics and other retailers' own

delivery networks.

Annual Report and Financial Statements 2017-18

| 07

Chief Executive Officer's
review

This has been a challenging year. I am pleased that, in my
final review, I can report that we continued to grow, thanks to
the hard work and dedication of our people. Group revenue
reached £10 billion for the first time. We exceeded our cost
avoidance target, avoiding around £640 million of annualised
costs over the three financial years ending 2017-18.
Adjusted operating profit before transformation costs was
£694 million.

GLS has had another strong year, growing revenue
organically and through targeted and focused acquisitions in
higher growth markets. UKPIL’s performance was driven by
growth in parcels and a resilient performance in letters.

We are pleased to have reached a ground-breaking
agreement with the CWU on pensions, pay and a number of
customer-focused operational changes. It will help us to grow
our business, which means we can continue to provide the
best pay and terms and conditions for our people.

Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| Chief Executive Officer's review

Our progress

• Winning business with UK’s leading

e-retailers

• More barcoding and delivery
confirmation on UK parcels

• Expanding our parcels
automation programme

• Strong performance from GLS

Our service and product developments
are designed to meet customer demand
for faster delivery and more tracking
information. We won a number of new
contracts with large customers in our target
sectors of clothing and footwear. They include
New Look and Inditex. We also secured
more business from existing customers.
This includes growing the share of revenue
generated by our largest account customers.
Parcelforce Worldwide volumes were up
two per cent, driven by new contract wins
and existing customer relationships.

Over 70 per cent of Royal Mail parcels now
carry a barcode. In April 2017, we began
offering delivery confirmation for the majority
of those barcoded parcels. We introduced new
automated parcel sorting machines at our
Chelmsford, Home Counties North, Greenford
and Warrington Mail Centres, following the
successful installation of a parcel sorting
machine at our Swindon Mail Centre in the prior
year. They enable quicker and more accurate
scanning and sortation. Preparations are
underway for our sixth machine in the South
Midlands Mail Centre. Automation serves to
complement and enhance; it does not replace
our existing parcel sortation processes.

Our International business performed well.
This was driven by growth in cross-border
parcels, mainly from Asia into Europe.
It accounts for 20 per cent of UKPIL parcel
volumes and 18 per cent of revenue.
In exports, we are focusing on major
e-commerce retailers. We are also upgrading
our processing automation at our Heathrow
hub. It is helping to improve quality of service
and reduce cost.

While negotiations are ongoing and the
future UK-EU relationship remains unclear,
it is not possible to predict with any degree
of accuracy what impact Brexit could have
on Royal Mail Group. The main issues for us
relate to any potential economic downturn,
and changes associated with customs and
VAT processing. We are working closely
with Government on alternative models
for customs and tax collection after the UK
leaves the EU. We were pleased that the UK
Government explicitly referenced Royal Mail's
role in its recent Customs Bill White Paper.

GLS revenue growth was achieved in almost
all its markets. Volume growth was driven
by both international and domestic parcels.

We won more new business and new traffic
from existing customers.

GLS is a growth engine for the Group. It has
delivered consistent, strong underlying
growth. This is driven by its focus on B2B
parcels and the premium B2C market. Its
recent acquisitions in the western US and
Spain have helped further establish GLS as
a major player in and outside Europe. It now
operates in 41 European countries and seven
US states. Its largest markets – Germany,
Italy and France – account for 60 per cent of
GLS revenue. In Italy, GLS is now within the
top three players in the market. In Germany
and France, it is in the top five.

Defending letters
• Resilient performance in UK letters

• Maximising the value of letters

including the rollout of Mailmark®

• Coordinating with the industry and
our customers in the lead up to the
introduction of GDPR

• Leading industry response to stop

scam mail

Letters performed as expected. Addressed
letter volumes (excluding the impact of
political parties’ election mailings) were down
five per cent. Total letter revenue benefited
from 2017 General Election mailings and
declined by four per cent. Unaddressed letter
volumes (which typically have low average
unit revenue), were up six per cent. Our
performance in marketing mail was resilient.
Revenue was up one per cent.

The UK continues to have a relatively high
number of letters per capita compared to
other major countries. So, we continue to
forecast a medium-term four to six per
cent annual decline in UK addressed letter
volumes (excluding political parties’ election
mailings). The decline is broadly driven by
e-substitution. But, GDP is also a material
driver. We are closely monitoring the
economic environment in the UK.

We introduced a number of strategic
initiatives to demonstrate the value of
letters. Our Scheme for Growth incentivises
companies to grow their direct mail. It does
so by giving them discounts on incremental
volumes. We launched a Joint Industry
Committee to make the case for advertising
mail. Our Keep Me Posted and MAILMEN
campaigns are gaining traction. We also
commenced the rollout of Mailmark® to
unsorted mail. This offers customers more
detail on the progress of their mailing, and
online, customised reporting. It also ensures
that we bill accurately and are fairly paid for
the work we have done. Around 90 per cent
of in scope mail now has a Mailmark®.

Protecting customer data and treating it
with respect is a key priority for us. We have
been working closely with our customers
and industry stakeholders in the lead up to
the introduction of General Data Protection
Regulation (GDPR) in May 2018. We have also
outlined how mail can help our customers
thrive in a GDPR world.

Scam mail is a scourge. We launched a
new initiative impounding scam mail at
distribution centres before it reaches the
customer’s letterbox. This is part of our
rolling programme of moves to stop postal
scammers. We have stopped three million
items of scam mail since stepping up our
drive against fraudsters in November 2016.

Adding value and expanding
our networks
• GLS’ ‘scale up and grow’ strategy

progressing well

• Expansion in Spain following targeted

and focused acquisitions

•

Introduction of International Tracked
email notifications service

GLS occupies a leading position in all its
major markets. Its ‘scale up and grow’
strategy to strengthen its position in its core
markets and grow in higher growth areas
is progressing well. It has delivered strong
volume growth in key markets and targeted
acquisitions in Spain and the western US.

In February 2018, GLS acquired Spanish
express parcels delivery company Redyser
Transporte. Redyser will further strengthen
GLS’ position as Spain’s second biggest
national express parcels network following
the acquisition of ASM Transporte Urgente
in 2016. Since acquiring Redyser, the focus
has been on integration. This is going
well. The business is performing in line
with expectations.

Following its acquisitions of GSO (2016)
and Postal Express (April 2017), GLS now
provides a parcel service with full US west
coast coverage. GLS’ coverage in this area
enables it to offer shorter delivery times than
its competitors. This, in turn, is helping it to
win more business and benefit from growth
in interstate deliveries. We are integrating
Postal Express into GSO, with the first GLS
branded vans being deployed in the region
shortly. Integration costs and inflationary
pressure have negatively impacted our
operational costs and profitability in the
region in the period.

GLS is making the most of the opportunities
to harness growth in cross-border
e-commerce. Its FlexDeliveryService is a
great example of this strategy in action.
FlexDeliveryService makes it easier for online
shoppers to take delivery of goods purchased

| Annual Report and Financial Statements 2017-18

abroad. GLS also now offers its international
returns service, ShopReturnService, across
seven European countries.

In September 2017, we announced our
International Tracked email notifications
service. This enables overseas customers of
UK-based retailers to track the progress of
their parcels. The service, initially available
to customers who have a business account
with Royal Mail, has received positive initial
feedback. We also now have the capability
to offer tracked cross-border outbound and
returns services to our larger customers.

Strategic focus on costs and
investment
• Exceeded our three year £600 million

cost avoidance target

• Extended our Collection on

Delivery programme

• Ongoing investment programme

Underlying UKPIL operating costs before
transformation costs were flat. We have
exceeded our three year cost avoidance
target. We avoided around £640 million
of costs, while simultaneously delivering
service and product improvements.
We are disappointed to have missed our
productivity target of a two to three per
cent improvement per annum. This was
driven by the challenging industrial relations
environment for much of the year, high levels
of sickness-related absence and adverse
weather conditions in the last month of the
year. We continue to focus on controlling
costs and making investments in technology
to drive productivity.

We are constantly looking at ways to deliver
efficiency improvements across our cost
base. For example, we are extending our
Collection on Delivery programme. This is
where colleagues collect mail while they
are out on delivery. Over 50,000 post boxes
are now covered by this programme. We are
also reducing costs in central functions,
marketing, property and technology.

Since privatisation in 2013, we have invested
over £1.8 billion in our UK operations. This
year, we made a net cash investment of around
£445 million. Our ongoing investment programme
is one of the largest of its kind in the UK.

Becoming more
digitally-enabled
• PDA rollout complete

• Parcelforce Worldwide one-hour
delivery timeslot notification and
My Parcel Live

• GLS app and private customer portals

in Europe

Investing in technology and innovation
is a core part of our growth strategy.
We completed the rollout of our Postal Digital
Assistant (PDA) technology. This technology
has been used in the rollout of estimated
delivery windows for customers using our
Tracked 24®/48® service. As part of our
negotiations with the CWU during the year,
we reached an agreement on the use of 'PDA
outdoor actuals'. This enables us to gain a
better understanding of our outdoor delivery
and collection activities. This will help us meet
the increasing demand for new and improved
services. It will also ensure that workload
is fair and balanced for our postmen and
women. We are carrying out further trials
before national rollout.

Parcelforce Worldwide is expanding its range
of digital tools to enable customers to send
parcels more quickly and easily. It launched
its own app to give customers more control
over their deliveries. We also launched the
Parcelforce one-hour delivery timeslot
notification and ‘My Parcel Live’. A new
online tool also helps marketplace sellers’
customers to link their eBay and Amazon
accounts to their Parcelforce Worldwide
account. This makes it easier and quicker to
send several different parcels at once.

At GLS, comprehensive technology solutions
– scanning devices and customer tracking
systems – have been employed at every stage
of the parcel process. They help customers
track their parcel’s delivery status for both
national and cross-border shipments. We also
launched GLS-ONE for customers in Belgium
and Luxembourg. There are plans to expand
this next year. GLS-ONE offers maximum
flexibility as customers can now send a parcel
using the online portal, GLS app or one of
5,500 ParcelShops. They can either order a
pickup service from their home or workplace
or receive and send goods easily and securely
using a parcel box. We also upgraded the
GLS app this year. Recipients can track the
current position of a delivery vehicle and the
expected delivery window of their parcel. GLS
also carried out a Europe-wide upgrade of the
scanning terminals for incoming shipments at
its depots and hubs.

Our workforce
• Agreement with the Communication

Workers Union

• Employee engagement in line with

large company average

• Gender pay report shows men and
women are paid broadly the same

In February 2018, we announced
our agreement in principle with the
Communication Workers Union (CWU) on
pensions, pay, a shorter working week,
culture and operational changes. CWU

members overwhelmingly voted in favour
of the agreement in March 2018. This is an
affordable and sustainable agreement; it
enables us to continue to innovate and grow.
It puts us in a better position to serve our
customers’ evolving needs. The agreement
contains commitments to work together to
extend last letter delivery times and later
Latest Acceptance Times (LATs). These
changes are fundamental to our objective to
be the chosen delivery partner of e-retailers.
A joint review will help us to design a more
efficient and responsive pipeline. This should
enable more flexibility in our working
practices, new delivery methods that benefit
the single operational pipeline and add more
value to our service for our customers. The
phased introduction of a shorter working
week is dependent on the completion of trials
and the successful implementation of a range
of initiatives.

Just after the reporting period, we were also
pleased to announce that, following extended
discussions and difficult negotiations, we
have reached agreement with Unite on
pay, pensions and working arrangements
for junior and middle managers in Royal
Mail. Unite will ballot its members on the
agreement with a recommendation that they
accept. This is a positive position to reach and
much of the agreement commits both parties
to ongoing discussion to make Royal Mail the
success we all want it to continue to be.

As previously announced, the Royal Mail
Pension Plan closed to future accrual in its
previous Defined Benefit form on 31 March
2018. This step was necessary to avoid an
expected increase in cash contributions
to around £1.2 billion per annum – an
unaffordable amount. I know how important
pension benefits are to our colleagues; I have
heard from and spoken to many of them on
this subject. The pension arrangements we
have put in place are a good and fair outcome.
They compare favourably with the retirement
benefits offered in our industry and by other
large UK employers. Working together with
the CWU, we are lobbying Government to
make the necessary legislative and regulatory
changes to enable the introduction of a
Collective Defined Contribution pension
scheme. In the meantime, from 1 April 2018,
the Company has put in place transitional
arrangements. For Royal Mail Pension
Plan members, we implemented a Defined
Benefit Cash Balance Scheme. Members
of our Defined Contribution Plan have also
benefitted from an increased contribution
from the Company.

We saw an increase in our employee
engagement score, up from 57 points to 59,
which is in line with the Ipsos MORI norm
for large organisations. Engagement levels
also play a part in employee turnover. This
influences training and recruitment costs.

Annual Report and Financial Statements 2017-18

| 09

Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| Chief Executive Officer's review

Our employee turnover rate remained low
at 7.2 per cent. This compares well with the
average UK turnover rate of 23 per cent4.

We were pleased – but not complacent as
there is more to do – with the results of our
annual pay review. The average salaries for
male and female Royal Mail employees are
broadly the same. On a mean basis, women
are paid 2.1 per cent more than men. This
is because we have a greater proportion of
women in senior positions. On a median
basis, men are paid 1.5 per cent more than
women. This compares to an average UK pay
gap, according to the Government, of 9.7 per
cent5. Our difference in median pay rates is
due to men being more likely to select work
that qualifies for allowances, such as shift
work during the evening or at night.

Customer focus
• Mean business customer satisfaction
score of 78; in line with last year

• Named global sustainability leader of
the Transportation industry group in
the Dow Jones Sustainability Indices

For 2017-18, our mean business customer
satisfaction score was 78, in line with our
performance in 2016-17. In a recent survey
conducted by Ipsos MORI, 81 per cent of
customers said they were favourable towards
Royal Mail in 2017; 88 per cent said they were
satisfied with our services. This was well
above the average for all the brands in the
survey. The majority of our customers rated
us as delivering extremely or very good value
for money6.

We were disappointed that our full year
regulatory First Class Quality of Service
performance was 91.6 per cent, below our
target of delivering 93 per cent of First Class
mail the next working day. For Second Class
mail delivered within three working days,
our performance of 98.4 per cent was within
the 98.5 per cent annual regulatory target
range when allowing for the margin of error
in sampling.

We are talking to Ofcom about a number
of exceptional events during the year. They
impacted our Quality of Service performance.
These factors included a very challenging
industrial relations environment, some very
severe weather, Cyber Week falling outside
the exemption period and significantly
reduced staffing levels caused by the
Australian flu outbreak. We believe that, if the
2017-18 performance was adjusted for these
factors, we would have achieved our First
Class Target. We are asking Ofcom to take

4 Total UK turnover rate taken from www.xperthr.co.uk/
survey-analysis/labour-turnover-rates-2017/162496/

5 Data reported by over 10,000 companies with
more than 250 employees to the Government
Equalities Office.

6 Ipsos MORI Corporate Image Survey Winter 2017.

these issues into consideration. It will be for
Ofcom to decide.

forecast £130-150 million range due to the
expected productivity improvements.

We were disappointed that we have seen
an overall increase in complaints. This was
driven principally by an increase in ‘Denial
of receipt’ claims. We continue to highlight
the importance of correct doorstep scanning
and ensuring that if an item is left with a
neighbour, the appropriate details are written
on the ‘Something for You’ card.

We make the seventh biggest contribution
to the UK economy of any UK company
through our high quality employment, our
procurement activities and the taxes that
we pay. That is why we are delighted to be
named global sustainability leader of the
Transportation industry group in the Dow
Jones Sustainability Indices.

Current trading and outlook
Trading in the first few weeks of 2018-19 has
been in line with our expectations.

The UK parcels market remains highly
competitive. We anticipate that UKPIL
parcel volume and revenue growth rates
in 2018-19 will be at least the same as in
2017-18 due to the expected growth in our
tracked and international products, as well as
additional initiatives.

We maintain our outlook for addressed letter
volume declines of between four to six per
cent per annum (excluding political parties’
election mailings) over the medium-term.
However, due to the potential impact of GDPR
and, or, if business uncertainty persists, we
expect to be at the higher end of the range
of decline for 2018-19 and may fall outside
the range in a period. In addition, we are not
expecting any benefit from political parties’
election mailings in 2018-19.

The new Pensions, Pay and Pipeline
agreement provides a framework for the next
phase of transformation of our UK business
into a truly customer-focused organisation.
In this first year of the agreement we will
be working with our unions and people
to implement operational changes to
help retain and grow parcel volumes and
to lay the foundations for future growth
and productivity opportunities through
operational trials.

Our cost avoidance programme in UKPIL
is targeting to deliver around £230 million
costs avoided this year. This encompasses
productivity improvements towards the
upper end of our targeted two to three per
cent range. Higher variable costs associated
with increasing volumes of tracked and
international products are expected to
create some incremental cost pressures.
Transformation costs for the year are
expected to be at the upper end of our

GLS has performed consistently strongly
over the past few years and we expect
continued good performance in 2018-19
although margins may be impacted by
continuing labour market pressures in many
of its markets.

Total net cash investment is expected
to be around £500 million in 2018-19,
within which transformation operating
expenditure will reflect the expected
productivity improvements.

In-year trading cash flow in 2018-19
will reflect the payment of the 2017-18
frontline pay award in the first quarter of
2018-19. Given the good cash generation
characteristics of the business we remain
committed to our progressive dividend policy
going forwards.

As in previous years, the outcome for the full
year will be dependent on our performance
over the important Christmas period.

Thank you
As you may know, we announced that
the Board and I agreed that I will retire in
September 2018, and step down as CEO
on 1 June 2018. It has been my pleasure
and a great privilege to serve as CEO of this
cherished UK institution. I am proud of what
we have achieved over the last eight years.

I would like to warmly congratulate Rico Back
and Sue Whalley on their new roles, as our
Group CEO and CEO of Post and Parcels,
Royal Mail UK. I have had the privilege of
working closely with Rico and Sue for many
years. They are the best possible team to
continue to transform our business. I am
delighted that they have both been promoted
to the Board and into expanded roles.

We are pleased to have come to an
agreement with the CWU during the year.
We are determined to continue to provide
the best pay and terms and conditions in
our industry by some distance. Good labour
standards lead to better service standards
for customers. Our commitment to serving
our customers throughout this period has
enabled our good trading performance to
continue and helps to secure a sustainable
future for our people and our business.

I am honoured to have worked alongside
Royal Mail's people and the union leadership.
It is their hard work and dedication that
connects households, communities and
companies across the UK every day.

Moya Greene
Chief Executive Officer
16 May 2018

| Annual Report and Financial Statements 2017-18

Market overview

Royal Mail plays a crucial role in the UK economy. In particular,
we support the continued growth of e-commerce by providing
an unparalleled delivery network through the Universal Service.
In this section, we review the main market developments in
the UK. We have also increased our analysis of international
developments, given the fact that we now operate in 43 countries,
principally through GLS.

UK parcels market
E-commerce is responsible for generating
two in every three parcels sent in the UK.
It continues to drive parcel volume growth1.

In 2017, online retail grew four times
faster than the wider UK retail market. It is
forecast to make up 17 per cent of total retail
spending in 2018, rising to 20.3 per cent
by 20232.

The UK retail environment is becoming
tougher due to rising costs, the structural
shift to online retailing and a move by
consumers towards spending more on
experiences such as entertainment and
holidays. Retailers of all sizes are having to
work harder to remain relevant. Pure play
e-retailers (those who only trade online) are
driving consumer behaviour and growth.
Online fulfilment is a key differentiator. Key
retailers are investing in a range of flexible
online purchasing and delivery options.

The UK is Europe’s most competitive
parcels market, with 15 key competitors.
We estimate that the blended UK parcels
market3,4 is growing by around four per cent
a year5. Addressable growth of the market
is three per cent per year6. Parcel carriers
continue to invest in new capacity, resulting
in increased pricing pressure. We estimate
that there is 25 per cent overcapacity in the
parcels market, on average, throughout the
year. At the same time, traditional retailers
are improving their in-store collection and
delivery services.

1 Triangle Management Services/RMG, UK Fulfilment
Market Measure (2016), includes Access and Large
Letters and Amazon Logistics. Amazon Logistics value
is a Royal Mail management estimate.

2 GlobalData Report, 2017.
3 Internal estimate based on Triangle Management
Services/RMG Fulfilment Market Measure (2016);
defined as individually addressed parcels and packets,
generated and delivered in the UK, weighing up to
30kg that do not require special handling. Includes
access fulfilment large letters & parcels and excludes
click-and-collect, same-day, small local operators and
all international traffic.

4 Includes Amazon Logistics and other retailers’

own-delivery networks.

5 Based on GlobalData UK E-retail survey and RMG

market insight.

6 Excludes Amazon Logistics and other retailers’

own-delivery networks.

Online retailers are increasingly looking to
differentiate their customer proposition in
an intensely competitive retail marketplace.
Online retailers are also seeing an uplift in
subscription memberships. They provide
members with unlimited next day delivery
and returns on all orders within the pre-paid
period. One in four UK online shoppers now
subscribe to a delivery service, receiving an
average of three deliveries a month from
that retailer. Convenience and value for
money are the major reasons for taking out a
delivery subscription.

Growth areas
The rapid pace of change in the UK parcels
market is expected to continue. This
is due to low barriers to entry, greater
disintermediation and disruptive business
models. Ofcom estimates that next-day
parcels now account for 57 per cent of
domestic volumes7. Next-day delivery is often
used by online retailers as a promotional tool
in order to gain competitive advantage.

Online retail growth continues to be driven
by advances in fulfilment, easier returns,
new technology and ease of shopping.
Clothing and footwear is the fastest growing
sector online. It is also driving returns of
online purchases. They are forecast to reach
£5.4 billion in 20228.

Home is the delivery location of choice for
84 per cent of consumers, with nominated
safe place or neighbour becoming
increasingly important9. Other than home, the
most trusted alternative delivery locations
are the Post Office®, Royal Mail Customer
Service Point and a neighbour's house.
All three of these locations receive a 72 per
cent trust rating as alternatives to home10.
Nevertheless, click and collect is now an
established alternative, particularly during
peak periods, with the most popular delivery
location being the retailer's store.

The number of third party parcel shops and
lockers has grown quickly over the past five

years. Carriers, retailers and asset-light
technology companies are all seeking to
provide alternative convenient delivery
and returns locations. But, to date parcel
volumes handled by this channel remain
relatively small.

Consumers shop at a time and place
which suits them. This includes shopping
late in the evenings. Retailers have
extended their online order acceptance
times for next-day delivery. Some accept
orders as late as midnight. Carriers are
adapting their networks to facilitate
accepting parcels later in the night for
next-day delivery.

International parcels
E-commerce is also fuelling growth in
cross border parcels. In 2017, European
B2C e-commerce is expected to have
grown 14 per cent to €612 billion11.
In 2016-17, international outbound parcels
(exports) represented eight per cent of all
parcel volumes shipped, but 22 per cent
of revenue12.

Our study into the international
ambitions of small UK online retailers
found that 35 per cent of small
businesses think Europe holds the most
potential to generate new sales for
their business. 28 per cent think the
US and North America are the most
promising markets.

Consumers mainly purchase from
international sellers offering better prices,
unique products or specific brands. They
expect clear information about delivery
charges, a simple returns process and
a seamless cross border delivery and
returns experience. The top three countries
for cross-border purchases into the UK
are China, the US and Germany. Clothing
and footwear, jewellery and watches and
consumer electronics are the most frequently
purchased items13.

A recent Royal Mail study found there is a
keen appetite for exporting, with almost
two thirds (64 per cent) of SMEs looking to
increase international sales in 2018. It is a
particularly good time for UK businesses to
explore exporting options given the current
strength of the pound.

Outside the EU, Chinese e-commerce
marketplaces are developing more
international cross border services.
Alibaba has reported that the value of
goods sold on its marketplace on Singles’

7 Ofcom Annual Monitoring Update 2016-17.
8 GlobalData e-retail, April 2017.
9 IMRG UK Consumer Home Delivery Review 2017.
10 Royal Mail Delivery Matters 2017.

11 E-commerce European B2C Report 2017.
12 Including Amazon – Ofcom Annual Monitoring

Report, 2017.

13 IPC cross border e-commerce shopper survey 2017.

Annual Report and Financial Statements 2017-18

| 11

Strategic report | Governance | Financial statements | Other informationDomestic mail volumes: % change since peak to 2016

-73%

-63%

-60%

-52%

-51%

-50%

Denmark (peak 2001)

Greece (peak 2007)

Netherlands (peak 2002)

New Zealand (peak 2004)

Norway (peak 2001)

Italy (peak 2005)

Iceland (peak 2006)

Spain (peak 2004)

United Kingdom (peak 2004)

Ireland (peak 2007)

Portugal (peak 2001)

Canada (peak 2007)

Hungary (peak 2006)

Finland (peak 2001)

Japan (peak 2001)

France (peak 2007)

USA (peak 2006)

Cyprus (peak 2011)

Austria (peak 2008)

Switzerland (peak 2004)

Germany (peak 2004)

-42%

-40%

-37%

-35%

-34%

-33%

-31%

-30%

-21%

-19%

-18%

Royal Mail plc

| Market overview

Day (11 November) rose 39 per cent to
over $25 billion, breaking the 2016 record
of $18 billion. At nearly four times the
size of Black Friday and Cyber Monday
combined, Singles' Day is the world’s largest
shopping event.

UK letters market
The UK letters market is significantly more
competitive than people think. E-substitution
is a potent form of competition. Letter
volumes are in structural decline. Addressed
letter volumes per household are around half
their peak figure. But, the UK letters market
continues to have a relatively high number
of letters per capita compared to other
developed countries.

The UK's volume decline since
peak is mid‑range compared to
International peers

In letters, the UK ‘Access’ market is, by
some distance, the biggest in Europe. Access
competition is where a postal operator
other than Royal Mail collects mail from
the customer, sorts it and then transports
it to our Mail Centres for us to deliver.
This enables other operators to offer postal
services to larger business customers for
letters and large letters without setting
up a delivery network. Access operators
accounted for 61 per cent of addressed inland
letters in the nation’s postbag in 2016-1714.

We continue to see the impact of UK
economic developments and overall business
uncertainty in the UK on letter volumes,
in particular, advertising and business
letters. Customers are constantly looking
for ways to reduce mailing costs, especially
in the retail, financial services, utility and
Government sectors.

Since the EU referendum, overall advertising
market growth has slowed15. Television,
print and mail advertising declined in 2017,
with advertisers delaying or substituting
investment decisions and shifting from
traditional to cheaper digital forms of
advertising. Direct mail continues to perform
better than print media. Print media faces
ongoing double-digit declines. Digital forms
of advertising now account for one in every
two pounds spent on advertising in the UK.
In fact, mobile advertising overtook TV for the
first time in Q3, 2017.

With the introduction of General Data
Protection Regulation (GDPR) in May 2018,
we will continue to monitor developments
closely, including any impact on
advertising mail.

14 Ofcom Annual Monitoring Report, Nov 2017.
15 WARC Expenditure Report for the 2017 calendar year.

| Annual Report and Financial Statements 2017-18

Delivery matters

Singles Day

Strategic report

| Governance

| Financial statements

| Other information

84%of online shoppers prefer

to have items delivered to
their home.

74%of consumers trust

$25 billion

Singles Day in China is the world's
largest shopping event; nearly four
times the size of Black Friday and
Cyber Monday combined.

Royal Mail to deliver their
online purchases16.

M-commerce

52%

of younger consumers have purchased
via smartphone, but desktop remains
the most commonly used device18.

SME exports

64%Almost two thirds of SMEs are

looking to increase international
sales in 2018.

UK leading in e-commerce
E-commerce accounted for

16%of all retail trade in 2017,

the highest ever17.

16 Royal Mail Delivery Matters 2017.
17 GlobalData, 2018.
18 Mintel E-retail, 2017.

Annual Report and Financial Statements 2017-18
Annual Report and Financial Statements 2017-18

| 13
| 13

Strategic report | Governance | Financial statements | Other informationRoyal Mail plc
Royal Mail plc

| Our business model
| Our business model

Our business model

Operating in 43 countries, we have a clear vision to be recognised as the best delivery company in
the UK and across Europe. Our business model leverages our resources and relationships to deliver
high quality, value for money services for both sending and receiving customers. Our UK business
is unparalleled in size and scope. GLS provides geographical diversification for our earnings. It is a
growth engine for the Group. Through this combination, we generate cash to invest appropriately in
our UK operation and GLS, and pay dividends to our shareholders.

Operating through our resources and relationships

Our networks in 43 countries
Our role as the Universal Service Provider means Royal Mail has the capability to deliver to every address across the
UK. Our UK network is unparalleled in both size and scope. Such a network is expensive to run. But, it also offers us a

commercial advantage; we benefit when we deliver letters and parcels together.

We are improving the UK services we offer. Over 70 per cent of parcels are now barcoded; one-third can be tracked in some way.
Customers can drop off pre-paid items at 1,200 Customer Service Points; over 340 are now open on a Sunday. Through Local
Collect customers can collect their parcels from 11,400 sites. Parcelforce Worldwide provides additional fulfilment options. It
provides premium parcel services within the courier express market.

GLS, one of the largest European ground-based deferred delivery networks, offers reliable, high-quality parcel services,
complemented by logistics and express services. As a leading market player across Italy (top three), Germany and France
(top five), GLS is well positioned to capture the expected growth in its key markets. Although B2B is its core market, GLS is
focused on profitable B2C growth too. It is investing in technology and improvements to its customer experience to achieve this.

Our people
As one of the largest employers in the UK, we are proud to provide the best pay and terms and conditions in our
industry. One in every 194 jobs in the UK is provided by Royal Mail. Achieving our strategic priorities depends on our

people. We rely on them to fulfil the Universal Service and deliver high-quality customer service. Engaging our people within a
fair, rewarding and customer-focused culture is essential for our future success.

We are proud to offer around 18,000 GLS employees secure and fairly paid employment with long-term prospects and career
development. GLS works to promote a culture of openness and transparency. This year, GLS Denmark was rated as one of the
country’s best employers by the Great Place to Work Institute. GLS France was ranked 11 out of almost 100 freight transport
and logistics companies by business magazine, Capital.

Our customers and our Royal Mail and GLS brands
We deliver to over 30 million business and consumer addresses across the UK. Around 80 per cent of addresses are
within one kilometre of a Royal Mail parcel access point. GLS has more than 270,000 customers across Europe. It is a

highly respected brand. It is one of the leading players of its kind in continental Europe.

Research we commissioned found that 74 per cent of online shoppers trust Royal Mail to deliver their online purchases1. Royal Mail
ranked first globally in the Transportation Industry Group in the Dow Jones Sustainability Indices. We are also a constituent of the
FTSE4Good Index, ranked in the top eight per cent of companies.

Investment in our business
We continue to invest in our UK operation and, through GLS, in high growth markets through targeted and focused
acquisitions. We have invested £1.8 billion in our UK business since privatisation. Now that some of the larger projects
– rebuilding our legacy IT systems and resizing the UK network – are mostly complete, we have reduced our investment spend.
But, it remains substantial. Recent acquisitions by GLS have enabled us to scale up our presence in key European markets and
to build a presence in the western US. GLS is a force for growth for our Company.

1 Delivery Matters: Understanding the needs of online shoppers in the UK in 2017.

14
14

| Annual Report and Financial Statements 2017-18
| Annual Report and Financial Statements 2017-18

Strategic report

| Governance

| Financial statements

| Other information

Creating value
Continually improving our efficiency and productivity in the UK allows us to be more competitive.
This means we are better positioned to grow our existing customer relationships and win new business.
This, in turn, enables us to fund investment in our growth and maintain fair terms and conditions for our
people. GLS is a growth engine for the Group. We are investing in carefully scaling up GLS in a number of
its existing markets and in new territories like the western United States. As the returns it generates are
typically higher than our UK business, GLS is making an increasingly important financial contribution to
our Group. It is through the combination of our UK and GLS strategies that we aim to deliver sustainable
shareholder value.

Continually improving efficiency
• Automated parcel sorting live and rolling out

to further UK sites

• Adopting a strategic approach to costs
and efficiency and meeting our cost
avoidance targets

• Continuously improving productivity

• Improving the efficiency of our logistics

network; promoting more efficient driving
using telemetry technology

Maintaining financial flexibility
• Investing in new areas to support growth.
This includes the careful and focused
expansion of GLS outside Europe

• Using technology to be more cost-efficient

• Ensuring efficient investment spending

• The scaling up of GLS in some of its existing

European markets

Meeting changing customer expectations
• At GLS, investing in technology solutions to
improve customer tracking, e.g. GLS-ONE

• Increasing the number of parcels we barcode
and scan. Over 70 per cent of Royal Mail
parcels now carry a barcode

• The GLS FlexDeliveryService is now available
in 20 European countries. It makes it easier
for online shoppers to take delivery of goods
purchased through an overseas website

• Demonstrating the value of letters through
initiatives such as the Strategic Mailing
Partnership™

Engaged, motivated people
• Continuing to offer UK employees the best

pay and terms and conditions in the industry

• Ensuring UK employees have a meaningful

stake in the Company through the Free Share
offers

• Taking into account the final 2017-18

dividend, each eligible full-time employee,
with the full allocation of 913 free shares,
will have received over £863 (before tax) in
dividends since privatisation

Outputs
• Delivering a high quality,
financially sustainable
Universal Service to
maintain our trusted
UK brand.

• Progressing the GLS ‘scale
up and grow’ strategy.
This is through growth in
its existing markets and
targeted acquisitions in
higher growth areas.

• Continuing to invest in
our business and our
people, through effective
management of our
financial resources. This
includes a strategic focus
on costs.

• Driving the generation of
cash in UKPIL and GLS
to support progressive
dividends for our
shareholders.

Investing in our business and our people

Annual Report and Financial Statements 2017-18
Annual Report and Financial Statements 2017-18

| 15
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Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| Our strategy

Our strategy

We have a clear vision to be recognised as the best delivery company in the UK and across Europe.
Our strategy to achieve this leverages our strengths in the UK and overseas through GLS. We aim to
generate sustainable shareholder value and deliver our Universal Service commitment.

Our strategic priorities

Winning in parcels

Key initiatives:

• Growing Royal Mail Tracked 24®/48® to meet customer demand for faster

delivery and more tracking information

• Completed a national rollout of estimated delivery windows using our

PDA technology for customers using Royal Mail Tracked 24®/48®

• GLS has expanded its FlexDeliveryService to consumers in

20 European countries

• ShopReturnService, the international return service offered by GLS, is now

available across seven European countries

We have maintained our
pre-eminent position in the
UK by successfully pursuing
faster growing parts of the UK
parcels market while making
it easier for consumers, SMEs
and marketplace sellers to
use Royal Mail services. GLS
is scaling up and growing –
either through new services or
carefully targeted acquisitions
– in a number of the countries
it operates in, including the
western US. The returns it
generates are typically higher
than in our UK business.

Defending letters

Key initiatives:

Letters are important to our
customers. They account for
almost 55 per cent of our
UK revenue. We work with
customers and supply chain
partners to add value to mail,
promote its effectiveness, and
increase its efficiency.

• Launched Joint Industry Committee (JIC) to make the case for advertising mail

• Applied Mailmark® to around 90 per cent of in scope mail

• The Strategic Mailing Partnership™, a joint initiative with the mailing house
industry, to improve overall efficiency and operational processes and share
insight with respect to GDPR implications

• Leading industry response to prevent scam mail, including stopping three

million fraudulent items from reaching customers

Strategic
priorities,
enabled
by...

• Enhanced revenue protection measures

Growing in new areas

Key initiatives:

We are making the most of
our existing UK assets. We
are increasing our capability
through a range of investments.
GLS is a force for growth for
our Company. We are doing
so through our 'scale up and
grow' strategy for GLS. It is
progressing well. We are
also increasing our digital
capabilities across the Group,
particularly in e-commerce.

• Offering high volume customers later collection and delivery capability enabling

them to ship later into the evening for next day delivery of their customers' orders

• GLS acquired Redyser Transporte, a Spanish delivery company. This acquisition
will strengthen GLS' position as Spain's second biggest national express parcels
network following the acquisition of ASM Transporte Urgente in 2016

• Following its acquisition of GSO (2016) and Postal Express (April 2017), GLS

now provides a parcel service with full US west coast coverage. Postal Express
is being integrated into GSO. The first GLS branded vans to be deployed in the
region will do so shortly

• Continuing to rollout our UK fleet maintenance services to other businesses,

employees, friends and family

| Annual Report and Financial Statements 2017-18

Enabling our strategic priorities

Strategic focus on costs

Being more efficient and controlling
our costs means we are able to
be more competitive, which helps
us win and retain business, whilst
continuing to provide the best
employment terms and conditions in
the industry.

Key initiatives:
• Exceeded our three year cost avoidance target of £600 million.

We delivered around £640 million of avoided costs

• Continuing to optimise our network processes and operating
site requirements to reflect changes in customer demand and
automation capability

• Improving the efficiency of our logistics network, through the use

of telemetry

• Extended Collection on Delivery programme, where colleagues

collect mail while out on delivery. Over 50,000 postboxes are now
covered by this programme

• Reducing costs in central functions. Examples include senior

manager and marketing reviews

Technology and innovation

Key initiatives:

We invest in technology to support
our strategic priorities to win in
parcels, defend letters and grow
in new areas. We are investing
in our UK business and GLS to
improve our digital capabilities,
customer connectivity and scanning.
We continue to deploy technology to
drive efficiency and increase the pace
of change through our operation.

• Mobile apps for consumers in the UK and through GLS to access

a broader range of services and functionality

• Completed the rollout of our PDA technology across our entire

UK business

• Launched GLS-ONE for customers in Belgium and Luxembourg.

They can now send a parcel using the GLS online portal, app or one
of its 5,500 ParcelShops

• GLS upgraded its consumer app. Recipients can track the current
position of a delivery vehicle and the expected delivery window for
their parcel

• Introduced new functionality to our online postage service Click
& Drop, making it quicker and easier to buy online postage and
print address labels

• Developing international shipping solutions using the cross-border

capabilities of our subsidiary, Intersoft

• Around 90 per cent of in scope mail now has a Mailmark®. It has

been extended to unsorted mail during the year.

An engaged and motivated workforce

Key initiatives:

Our employees drive the success
of Royal Mail Group. We believe
good employment conditions
underpin this. Over 98.7 per cent
of our employees are permanent.
Our postman and woman pay
compares very well to the industry.
We have a proactive relationship with
our unions and a strategic focus on
efficiency in our UK operations.

• Reached an agreement with the Communication Workers Union
(CWU) on pensions, pay, a shorter working week, culture and
operational changes

• Employee engagement increased from 57 points to 59. Against a
backdrop of significant change for our business, we achieved an
above average employee engagement score for the last three years

• GLS Denmark was rated as one of the country’s best employers
by Great Place to Work. GLS France was ranked 11 out of almost
100 freight transport and logistics companies

Annual Report and Financial Statements 2017-18

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Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| Key performance indicators

Key performance indicators

The 2017-18 Corporate Balanced Scorecard includes 10 equal measures, all weighted at 10 per
cent. The 10 measures alongside the relevant key performance indicators (KPIs) are set out below.
The Corporate Balanced Scorecard links all managers’ remuneration to our performance against
a set of key financial and non-financial performance measures.

Further details on the links between our KPIs and Executive remuneration, and the Corporate
Balanced Scorecard for 2017-18, can be found in the Directors’ Remuneration Report on page 75.

Key

Link to strategy

Winning in parcels

Defending letters

Target/stretch

Growing in new
areas

Threshold

Below threshold

KPI and strategic link(s) Measured by

Key activities and achievements in the year

Reduction in road traffic
collisions (%)

Reduction in road
traffic collisions per
1,000 vehicles.

• This year, we reduced our reported road traffic collisions by

nine per cent

Employee engagement
(score)

First Class Retail Quality
of Service (%)

Average score from
the Ipsos MORI annual
employee opinion survey
measuring involvement,
alignment and loyalty
of colleagues through
a number of employee
engagement questions.

An independent, audited
measure of Quality of
Service for First Class
retail products delivered
by the next working day,
which may be adjusted
for force majeure1.

• Our employee engagement score was 59

• Increase of two points from 2016-17

• Held around 1,000 town hall briefing sessions, where we engaged with over

43,000 frontline colleagues

• Our First Class Quality of Service fell below the 93.0 per cent target

2017-18

• For Second Class mail, our performance of 98.4 per cent was within the

98.5 per cent annual regulatory target range when allowing for the margin
of error in sampling.

• Our performance was impacted by a number of exceptional factors. These
factors included a very challenging industrial relations environment, some
very severe weather, Cyber Week falling outside the exemption period and
significantly reduced staffing levels caused by the Australian flu outbreak.
We believe that, if the 2017-18 performance was adjusted for these factors,
we would have achieved our First Class Target. We are asking Ofcom to take
these issues into consideration. It will be for Ofcom to decide.

• We take Quality of Service very seriously and are subject to some of the

highest regulatory standards in Europe

• We are redoubling our efforts to tackle quality issues when they arise

Actual:
91.7% (below target)

2016-17:
93.2% (above target)

2015-16:
92.6% (threshold)

Mean business customer
satisfaction (score)

Results from the
customer satisfaction
survey completed by
business customers.

• Levels of satisfaction amongst our business customers were in line

2017-18

with last year, which were already very high

• Our considerable investment in a range of customer initiatives is delivering

results. e.g. including our significantly enhanced tracking capability

• We continue to have more access points for our customers – by some

margin – compared with our competitors

Actual: 78 (at stretch)

2016-17:
78 (above target)

2015-16:
76 (above threshold)

1 This accounts for the impact of factors which are beyond Royal Mail’s control, such as weather.

| Annual Report and Financial Statements 2017-18

Performance
against target

2017-18

Actual:
9.0% (above target)

2016-17:
12.3% (above target)

2015-16: not a KPI

2017-18

Actual: 59 (at stretch)

2016-17:
57 (above target)

2015-16:
57 (above target)

KPI and strategic link(s) Measured by

Key activities and achievements in the year

Customer complaints
(‘000)2

Number of complaints
(not claims) opened
by our Customer
Service team.

• There was an overall increase in complaints in 2017-18, driven

principally by the growth in tracked parcels.

• Complaints across some of our main complaint types, such as misdeliveries

and redirections, reduced during the year

• Continuing to improve the scanning of items and ensuring that appropriate
details are written on the ‘Something for You’ card if a customer is not home

Productivity for
collections, processing
and delivery (%)

UKPIL costs (£m)

Percentage change
year-on-year in the
number of weighted
items per gross
hour paid in Delivery
Units and Mail Centre
Units (delivery and
processing, including
regional logistics and
collections) and Regional
Distribution Centres.

Adjusted operating costs
for UKPIL.

• A one per cent improvement in productivity

• Productivity improvement was lower than our annual target of two to

three per cent due to the industrial relations environment, high-levels of
sickness-related absence and adverse weather conditions in the second
half, driving an increase in variable hours

• As part our agreement with the CWU, we will undertake a joint review of

sick absence management. We continue to focus on controlling costs and
making investments in technology to drive productivity

• Total adjusted UKPIL costs were flat on an underlying basis

• Cost avoided was £235 million in the year taking the total annualised

avoided cost to £642 million in the past three years. This is ahead of our
£600 million target

Group revenue (£m)4

Group revenue adjusted
for budgeted foreign
exchange rate.

• Group revenue was up two per cent

• Milestone group revenue of over £10 billion achieved in the year

Performance
against target

2017-18

Actual:
565 (below threshold)

2016-17:
517 (threshold)

2015-16:
476 (below threshold)

2017-18

Actual:
1.0% (below threshold)

2016-17:
2.7% (above target)

2015-16:
2.4% (above target)

2017-18

Actual:
£7,112m (above target)

2016-17:
£7,082m3 (above target)

2015-16:
not a KPI

2017-18

Actual:
£10,051m (above target)

2016-17: £9,455m 5
(threshold)

2015-16:
£9,191m5 (above target)

Group operating profit
before transformation
costs (£m)4

Adjusted Group
operating profit before
transformation costs,
adjusted for budgeted
foreign exchange rate.

• Adjusted Group operating profit before transformation costs increased

2017-18

by one per cent on an underlying basis

In-year trading cash
flow (£m)

In-year trading cash
flow before cash flows
relating to London
Development Portfolio.

• In-year trading cash flow was £444 million

• After adjusting for timing of 2017-18 frontline pay award of around

£100 million, which was paid in the first quarter of 2018-19

Actual:
£685m (above target)

2016-17:
£701m5 (threshold)

2015-16:
£738m5 (above target)

2017-18

Actual:
£444m (at stretch)

2016-17:
£420m (above target)

2015-16:
not a KPI

2 This year, we introduced delivery confirmation for standard parcels for the first time. It was decided that any related Denial of Receipt complaints should be excluded from complaints

reporting and KPIs for this year only. 14,274 complaints have therefore been excluded from this figure. All other Denial of Receipt complaints are included.

3 Prior year results include an adjustment to remove the impact of the underlying impact of weaker Sterling on UKPIL.
4 Reported results are adjusted to reflect a constant foreign exchange rate of £1/€1.19 in GLS.
5 Prior year results are on a reported basis, adjusted for budgeted foreign exchange rate.

Annual Report and Financial Statements 2017-18

| 19

Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| Key performance indicators

Adding value and convenient
services in the UK and at GLS

What we have done...

GLS' FlexDeliveryService is
now available in a total of
20 countries in Europe

GLS SameDay
offering same day
evening deliveries
in 11 cities

Launched GLS-ONE for
customers in Belgium and
Luxembourg, with plans to
expand this further
next year

Completed PDA rollout
across our UK network

Delivery confirmation
available on the
majority of barcoded
parcels

Improved service and
systems for
international
shipments

What’s in our plan...

Careful and focused
geographic expansion
through GLS

Parcels automation live
and rolling out to
further sites

Expanding our
relationships with
retailers and network
partners to stimulate
cross-border volumes
between the UK
and Asia

Increasing the number
of parcels we track

| Annual Report and Financial Statements 2017-18

Financial review

Reported results and Alternative Performance Measures (APMs)
Reported results are prepared in accordance with International Financial Reporting Standards (IFRS). Reported results are set out in the section
entitled ‘Presentation of results and Alternative Performance Measures’ on pages 34 to 35 and the audited Financial Statements on pages 106
to 110.

In addition to reported results, the Group’s performance in this Financial Review is also explained through the use of APMs that are not defined
under IFRS. Management considers that these measures provide a more meaningful basis on which to analyse business performance. They are
consistent with the way that financial performance is measured by Management and reported to the Board.

The APMs used are explained in the paragraphs entitled ‘Alternative Performance Measures’ on pages 35 to 38 and reconciliations to the closest
measure prescribed under IFRS are provided where appropriate. The analysis of underlying movements in adjusted results is set out in the
paragraph entitled ‘Underlying change adjustments’ on page 39. Commentary is provided on both reported and adjusted results.

UK Parcels, International & Letters (UKPIL)

Reported results

Summary results (£m)

Revenue

Operating costs

Operating profit before transformation costs

Transformation costs

Operating (loss)/profit after transformation costs

Operating (loss)/profit margin after transformation costs

Reported
52 weeks ended
25 March 2018

Reported
52 weeks ended
26 March 2017

7,615

(7,570)

(113)

(68)

(0.9%)

7,658

(7,332)

326

(137)

189

2.5%

UKPIL reported revenue declined by £43 million compared with 2016-17. Operating profit before transformation costs declined to £45 million,
mainly due to the International Accounting Standards (IAS) 19 pension charge. After lower transformation costs of £113 million, there was an
operating loss after transformation costs of £68 million.

Adjusted results
The adjustments made to reported results are set out in the paragraph entitled ‘Specific items and pension charge to cash difference adjustment’
on pages 27 to 28. The full UKPIL reported results are set out in the paragraph entitled ‘Segmental reported results’ on page 35.

Summary results (£m)

Letters and other revenue

Marketing mail revenue

Total letters revenue

Parcels revenue

Total revenue2

Operating costs before transformation costs

Operating profit before transformation costs

Transformation costs

Operating profit after transformation costs

Operating profit margin after transformation costs

Adjusted
52 weeks ended
25 March 2018

Adjusted
52 weeks ended
26 March 2017

Underlying
change1

3,051

1,101

4,152

3,463

7,615

(7,112)

503

(113)

390

5.1%

3,234

1,087

4,321

3,337

7,658

(7,110)

548

(137)

411

5.4%

(6%)

(4%)

Flat

(2%)

(17%)

20bps

1 Movements in revenue, costs, profits and margins are shown on an underlying basis, taking into account non-recurring or distorting items such as the first year impact of acquisitions
and foreign exchange translation in GLS and working days and the first year costs of the Apprenticeship Levy in UKPIL. More details are available in the paragraph entitled ‘Underlying
change adjustments’.

2 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 which may occasionally lead to a consequent change to this estimate.

Annual Report and Financial Statements 2017-18

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Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| UK Parcels, International & Letters (UKPIL)

Volumes (m)

Letters

Addressed letters

Unaddressed letters

Parcels

Core network

Parcelforce Worldwide

Total

Adjusted
52 weeks ended
25 March 2018

Adjusted
52 weeks ended
26 March 2017

Underlying
change1

11,269

3,109

1,132

1,230

11,922

2,934

1,073

1,169

(5%)

UKPIL delivered a resilient performance. Revenue was flat on an underlying basis. Total parcel revenue was up four per cent, offsetting total
letter revenue which was down four per cent.

Total parcel volumes increased by five per cent on an underlying basis. Performance in the last month of the year was impacted by adverse
weather conditions in the UK. Total parcel revenue growth of four per cent reflects the mix in domestic and international traffic channels.

Royal Mail domestic account parcels saw good growth. We won new customers and gained more traffic from existing customers. Royal Mail
domestic account parcel volumes, excluding Amazon, were up four per cent on an underlying basis. Royal Mail Tracked 24®/48® and Tracked
Returns®, our key e-commerce products, grew by 28 per cent. We expect growth from these products to moderate in 2018-19 due to the strong
historic performance. Amazon parcel traffic grew strongly due to higher volumes of letterbox-sized parcels. We continue to launch new initiatives
to win more volumes. They include providing later LATs for next day delivery.

Our international parcels business benefitted from our new initiative to attract cross-border traffic mainly from Asia into Europe. This accounted
for around two percentage points of the underlying parcel volume growth and around one percentage point of the parcel revenue growth in
the year, contributing £48 million of revenue. We are targeting continued growth in this product as we plan to expand the service to the US
in 2018-19. We saw improved import volumes outside our cross-border initiative, however contract export volumes were flat due to the
competitive market. Parcelforce Worldwide volumes increased by two per cent. This was driven by new contract wins and growth in existing
customers in a highly competitive express parcels market.

Addressed letter volumes (excluding political parties’ election mailings) declined by five per cent on an underlying basis, in line with our expectations.
Low average unit revenue (AUR) unaddressed letter volumes were up six per cent reflecting recent initiatives to encourage incremental volumes.
Total letter revenue (including marketing mail) decreased by four per cent, benefiting from revenue from mailings associated with the 2017 General
Election. Marketing mail revenue, which includes redirections and our Address Management Unit, increased by one per cent following last year’s
sharp slowdown due to business uncertainty.

We are monitoring the impact of continuing business uncertainty in the UK on letter volumes. We are also monitoring the potential impact of
the General Data Protection Regulation (GDPR), which takes effect from 25 May 2018. This may lead to a decline in marketing mail volumes.
We maintain our medium-term outlook for an annual decline of four to six per cent in addressed letter volumes (excluding political parties’
election mailings). However, due to the potential impact of GDPR and, or, if business uncertainty persists, we expect that addressed letter volume
decline will be at the higher end of the four to six per cent range in 2018-19 and may fall outside the range in a period.

Operating costs before transformation costs

(£m)

People costs

Non-people costs

Distribution and conveyance costs

Infrastructure costs

Other operating costs

Total

Adjusted
52 weeks ended
25 March 2018

Adjusted
52 weeks ended
26 March 2017

Underlying
change1

(4,908)

(2,204)

(798)

(751)

(655)

(7,112)

(4,865)

(2,245)

(828)

(740)

(677)

(7,110)

Flat

(2%)

(4%)

(3%)

Flat

Total adjusted operating costs before transformation costs were flat on an underlying basis. Whilst we have seen an increase in semi-variable
costs associated with the growth in tracked and international parcel volumes, this was largely offset by our cost avoidance programme.

The cost avoidance programme in UKPIL was ahead of our expectations. It delivered £235 million of costs avoided in the year, comprising people
costs of £90 million and non-people costs of £145 million. We delivered benefits across a number of initiatives during the year. They included
distribution optimisation, transformation of our IT infrastructure, management headcount reduction, improvements in network productivity,
terminal dues revenue protection activities, lower property costs and supplier contract renegotiations. We avoided annualised operating costs
of £642 million over the past three financial years, ahead of our £600 million target. We are planning to avoid a further £230 million of costs in
2018-19, including absorption of the shorter working week for full-time employees covered in the new Pensions, Pay and Pipeline agreement.

| Annual Report and Financial Statements 2017-18

Adjusted people costs were flat on an underlying basis. The five per cent frontline pay award effective from October 2017 was partially offset
by our cost avoidance programme activities, largely management headcount reduction and network productivity. The frontline pay award of
£101 million has been accrued this year and was paid in the first quarter of 2018-19. Bonus costs were £15 million lower as we missed our
annual bonus targets on productivity, complaints and Quality of Service. Taking into account factors including a challenging industrial relations
environment, severe weather, Cyber Week and Australian flu, we estimate we would have achieved our First Class Target and exceeded the
Second Class one. Higher volumes in Parcelforce Worldwide led to incremental people costs.

We saw a one per cent improvement in core network productivity. This was achieved through a 0.9 per cent reduction in core network hours,
with workload 0.1 per cent higher as the increase in parcel volumes was partially offset by declining letter volumes. Productivity was lower than
our annual improvement target of two to three per cent due to the industrial relations environment, high levels of sickness-related absence and
adverse weather conditions in the second half, which drove an increase in variable hours. We are targeting productivity improvement towards the
upper end of our two to three per cent target range in 2018-19.

The first year impact of the Apprenticeship Levy was £20 million, which we have excluded from underlying movements. As previously disclosed,
further changes in wage legislation such as the Working Time Directive may also impact people costs in the future.

Non-people costs decreased by two per cent on an underlying basis. Distribution and conveyance costs decreased by four per cent. This was
mainly due to terminal dues £14 million lower as increases of £6 million driven largely by volume were more than offset by savings from revenue
protection activities. Total diesel and jet fuel costs of £147 million were £12 million lower than the prior year due to lower pricing and improved
fleet management. We expect diesel and jet fuel costs to be broadly flat in 2018-19.

Infrastructure costs were one per cent higher on an underlying basis. This was largely driven by a £36 million increase in depreciation and
amortisation from investment in IT, new vehicles and other assets. We expect depreciation costs to increase by around £10 million in 2018-19.
Increased utilisation of technology to support growth in tracked parcels led to an increase in infrastructure costs in the year. We expect growth in
tracked parcel volumes to continue in 2018-19, driving a further increase in IT costs of around £15 million. Within infrastructure costs, the cost
avoidance programme delivered benefits in property through the integration of the Romec business, supplier contract renegotiations and lower
discretionary spend across the estate.

Other operating costs decreased by three per cent on an underlying basis due to cost avoidance activities, including savings on other supplier
contract renegotiations and lower marketing and discretionary spend. This more than offset an increase in customer service costs driven by
higher tracked parcel volumes.

Transformation costs

(£m)

Voluntary redundancy

Project costs

Total

Adjusted
52 weeks ended
25 March 2018

Adjusted
52 weeks ended
26 March 2017

(44)

(69)

(113)

(62)

(75)

(137)

Transformation costs of £113 million were below our expectation of around £130 million. This was due to the industrial relations environment,
which affected the pace of change and therefore voluntary redundancies in the year. There was a net decrease of around 660 employees in the
year largely reflecting management headcount reductions. At the year end, full time equivalent employees (FTEs)3 reduced by 185 to 147,985
FTEs reflecting the higher level of variable hours in the network to recover from the impact of adverse weather and sickness-related absences.
Project costs largely comprised initiatives supporting the cost avoidance programme. We continue to forecast transformation costs of between
£130-150 million per annum. However, we expect transformation costs to be at the higher end of the range in 2018-19 as we continue to drive
network productivity improvements.

Operating profit after transformation costs
Adjusted operating profit after transformation costs of £390 million was up four per cent on an underlying basis due to lower transformation
costs. Operating profit margin after transformation costs was 5.1 per cent. It is up 20 basis points compared with the prior year.

3 FTE numbers relate to the total number of paid hours (including part-time, full-time and agency hours) divided by the standard full-time working hours in the same period.

Annual Report and Financial Statements 2017-18

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| General Logistics Systems (GLS)

General Logistics Systems (GLS)

Reported results
The table below sets out a summary of the reported GLS Sterling and Euro results. GLS results are not subject to adjustment.

Summary results (£m)

Revenue

Operating costs

Operating profit

Margin

(€m)

Revenue

Operating costs

Operating profit

Volumes (m)

Reported
Year ended
March 2018

Reported
Year ended
March 2017

Underlying
change1

2,557

(2,366)

191

7.5%

2,899

(2,682)

217

584

2,118

(1,954)

164

7.7%

2,521

(2,325)

196

508

10%

10bps

10%

GLS continued to perform strongly. Performance in the year was impacted by the timing of Easter and other public holidays across Europe.
Excluding this impact, underlying revenue and volume movements would each have been two percentage points higher.

Volumes were up nine per cent on an underlying basis, with growth in both domestic and international volumes in most markets. Revenue
increased by 10 per cent, slightly better than volume growth due to price and product mix improvements in several markets. Revenue in Sterling
terms benefited from a £106 million impact from exchange rate movements and a £105 million impact from acquisitions. These have been
excluded from underlying movements. Including the impact of acquisitions, revenue was up 15 per cent on a constant currency basis.

Revenue growth was achieved in almost all markets and from a broad customer base. The largest customer accounted for around three per cent
of total GLS revenue. The three major markets, Germany, Italy and France, accounted for 60 per cent of total GLS revenue. This is down from
63 per cent in 2016-17, reflecting the impact of recent acquisitions and growth in other GLS markets.

Operating costs (£m)

People costs

Non-people costs

Distribution and conveyance costs

Infrastructure costs

Other operating costs

Total

Reported
Year ended
March 2018

Reported
Year ended
March 2017

Underlying
change1

(608)

(1,758)

(1,558)

(148)

(52)

(2,366)

(489)

(1,465)

(1,278)

(128)

(59)

(1,954)

10%

12%

(21%)

10%

Total operating costs were up 10 per cent on an underlying basis. They were broadly in line with volumes. People costs increased by eight per
cent as a result of higher semi-variable costs linked to volumes and higher rates of pay due to wage inflation. This was especially the case across
Central and Eastern European markets.

Distribution and conveyance costs were up 12 per cent. This was driven by higher volumes and sub-contractor costs due to labour market
conditions in many of GLS’ European markets and the US. This included around €5 million due to the four per cent minimum wage increase in
Germany from 1 January 2017. We expect these trends to persist in 2018-19, which may place pressure on operating margins.

Infrastructure costs increased by five per cent, principally due to the one-off provision release for IT related costs which benefited the prior year.
Other operating costs decreased by 21 per cent, due to a one-off provision release in the year and higher acquisition costs in the prior year.

Operating profit
Operating profit was £191 million with a margin of 7.5 per cent, 10 basis points higher compared with 2016-17 on an underlying basis. This was
slightly better than our expectations due to a stronger revenue performance. Operating profit in Sterling benefited from a £9 million impact from
exchange rate movements, which is excluded from underlying movements.

Germany
Germany remains the largest GLS market by revenue. Revenue grew by six per cent, driven by international volume, improved domestic pricing,
winning new customers and growing premium B2C volumes.

| Annual Report and Financial Statements 2017-18

Italy
GLS Italy continued to perform strongly. Revenue growth of 19 per cent reflected strong B2C volume growth driven by Amazon and other
customers. Given the strong performance over the last three years and the evolving competitive environment, it will be challenging to maintain
this rate of growth in the future.

France
In GLS France, revenue growth slowed to one per cent (2016-17: eight per cent). It was impacted by customer losses, lower new customer
acquisitions and fewer working days. Operating losses increased by €4 million to €12 million.

France remains a challenging market. While actions are underway which target a break even result, higher costs of sales, including those
associated with a changing mix of parcel size, means that it is unlikely we will achieve this in the short term. Despite the challenges in the
domestic market, GLS France continues to be integral to the GLS network by supporting exports from other markets into France, allowing
GLS to provide a comprehensive service across Europe.

Spain
Spain is now the fifth largest market for GLS in terms of revenue. Revenue grew by 13 per cent on an underlying basis, benefitting from nine
months’ incremental contribution from ASM. The integration of ASM into GLS Spain is progressing well and a number of operational activities
are being streamlined. ASM has exceeded performance expectations since acquisition due largely to strong volume growth and higher network
rationalisation opportunities.

We announced the acquisition of Redyser Transporte in February 2018. Redyser strengthens GLS’ position as Spain’s second largest national
express parcels network. It predominantly serves the express B2C parcels segment and delivers around 14 million parcels annually. It operates
through a network of over 200 agencies and franchisees and 12 own operated sites in Spain’s main cities. Redyser generated revenue of
approximately €45 million in the year ended 31 December 2017 and will be consolidated within our existing Spanish operations.

USA
We are pleased with the revenue development in Golden State Overnight (GSO), in particular, the growth in interstate traffic. However, profitability
was impacted by local cost pressures.

On 6 April 2017, we announced the acquisition of Postal Express, a regional overnight parcel carrier operating in the states of Washington,
Oregon and Idaho. Postal Express offers overnight parcel delivery mainly to B2B customers across a number of industries. GSO and Postal
Express are being integrated to create an interstate overnight parcel delivery service with full US west coast coverage and to realise operational
synergies and commercial benefits.

Postal Express' profitability during the period was impacted by its integration with GSO and yield management activities. These initiatives are
expected to result in improved financial performance going forward.

Other developed European markets (including Austria, Belgium, Denmark, Ireland, Netherlands and Portugal)
Revenue growth was achieved in the majority of the other developed European markets. There was continued strong volume and revenue growth
in Denmark due to changing dynamics in the market, driving higher B2C volumes. We are planning to increase the number of ParcelShops to
support our growth in this market.

Other developing/emerging European markets (including Croatia, Czech Republic, Hungary, Poland, Romania, Slovakia and Slovenia)
We saw revenue growth in all developing/emerging European markets. There was strong double digit growth in Croatia, Czech Republic,
Hungary, Poland, Romania and Slovenia. We will continue to invest in our network in these countries to take advantage of their growing
parcel markets.

Annual Report and Financial Statements 2017-18

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Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| Group results

Group results

Reported results

Summary Results

(£m)

Revenue

Operating costs

Operating profit before transformation costs

Transformation costs

Operating profit after transformation costs

Operating specific items

Operating profit

Non-operating specific items

Net finance costs

Net pension interest (non-operating specific item)

Profit before tax

Earnings per share (basic)

Reported
52 weeks ended
25 March 2018

Reported
52 weeks ended
26 March 2017

10,172

(9,936)

236

(113)

123

(57)

(16)

212

25.9p

9,776

(9,286)

490

(137)

353

(134)

219

(16)

120

335

27.5p

We achieved a milestone in 2017-18, delivering over £10 billion of Group revenue at £10,172 million. Group operating costs before transformation
costs increased by £650 million. This was due mainly to the IAS 19 pension charge in UKPIL and volume-related increases in GLS semi-variable
costs. Operating specific items decreased by £77 million (see paragraph entitled ‘Specific items and pension charge to cash difference
adjustment' on pages 27 to 28). Group operating profit decreased by £153 million to £66 million largely as a result of the increase to the IAS 19
pension charge. Profit before tax decreased to £212 million. Of the profit, UKPIL accounted for £39 million (2016-17: £183 million) while GLS
contributed £173 million (2016-17: £152 million). Basic earnings per share decreased from 27.5 pence to 25.9 pence. A full reconciliation of
reported to adjusted results is set out in the section entitled ‘Presentation of results and Alternative Performance Measures’ on pages 34 to 35.

Adjusted results

Group revenue

(£m)

UKPIL

GLS

Total

Adjusted
52 weeks ended
25 March 2018

Adjusted
52 weeks ended
26 March 2017

7,615

2,557

10,172

7,658

2,118

9,776

Underlying
change1

Flat

10%

Group revenue was up two per cent. This was driven by parcels growth in both UKPIL and GLS. Parcel revenue continued to grow as a percentage of
Group revenue and accounted for 59 per cent of Group revenue (2016-17: 56 per cent). The main factors impacting revenue in the year are described
in the sections entitled ‘UK Parcels, International & Letters (UKPIL)’ and ‘General Logistics Systems (GLS)’.

Group operating costs

(£m)

People costs

Non-people costs

Distribution and conveyance costs

Infrastructure costs

Other operating costs

Total

Adjusted
52 weeks ended
25 March 2018

Adjusted
52 weeks ended
26 March 2017

Underlying
change1

(5,516)

(3,962)

(2,356)

(899)

(707)

(9,478)

(5,354)

(3,710)

(2,106)

(868)

(736)

(9,064)

(5%)

1 Movements in revenue, costs, profits and margins are shown on an underlying basis. They take into account non-recurring or distorting items such as the first year impact of

acquisitions and foreign exchange translation in GLS and working days and the first year costs of the Apprenticeship Levy in UKPIL. More details are available in the paragraph entitled
‘Underlying change adjustments’.

| Annual Report and Financial Statements 2017-18

Group operating costs increased by two per cent on an underlying basis. This was mainly as a result of higher GLS semi-variable costs linked
to volumes. The main factors impacting operating costs in the year are described in the sections entitled ‘UK Parcels, International & Letters
(UKPIL)’ and ‘General Logistics Systems (GLS)’.

Group operating profit before transformation costs

(£m)

UKPIL

GLS

Total

Margin

Group operating profit after transformation costs

(£m)

UKPIL

GLS

Total

Margin

Adjusted
52 weeks ended
25 March 2018

Adjusted
52 weeks ended
26 March 2017

503

191

694

6.8%

548

164

712

7.3%

Adjusted
52 weeks ended
25 March 2018

Adjusted
52 weeks ended
26 March 2017

390

191

581

5.7%

411

164

575

5.9%

Group operating profit margin after transformation costs was up 20 basis points on an underlying basis. This was driven by lower transformation
costs in UKPIL.

Specific items and pension charge to cash difference adjustment

(£m)

Pension charge to cash difference adjustment (within people costs)

Operating specific items

Employee Free Shares charge

Amortisation of acquired intangible assets

Legacy/other credits/(costs)

Potential industrial diseases claims

Personal injury provision discount rate decrease

Other

Total operating specific items and pensions adjustment

Non-operating specific items

Profit on disposal of property, plant and equipment

Loss on disposal of business

Net pension interest

Total non-operating specific items

Total specific items and pensions adjustment before tax

Total tax credit on specific items and pensions adjustment

52 weeks ended
25 March 2018

52 weeks ended
26 March 2017

(458)

(33)

(16)

(8)

–

(10)

(515)

–

162

(353)

157

(222)

(105)

(11)

(18)

(6)

(4)

(8)

(356)

(2)

120

132

(224)

The IAS 19 pension charge to cash difference adjustment was £458 million (2016-17: £222 million). The difference between the pension charge
and cash cost largely comprises the difference between the relevant IAS 19 income statement pension charge rate of 41.1 per cent (2016-17:
28.8 per cent) and the actual cash payment agreed with the Royal Mail Pension Plan (RMPP) Trustee of 17.1 per cent of pensionable pay
(2016-17: 17.1 per cent). As a result of the introduction of the Defined Benefit Cash Balance Scheme (DBCBS) from 1 April 2018, the IAS 19
pension service charge rate for 2018-19 is projected to decrease to 18.9 per cent and the cash contribution rate will decrease to 15.6 per cent.
As a result, the pension charge to cash difference adjustment for 2018-19 is expected to reduce significantly to around £90 million.

Operating specific items in the year related mainly to the Employee Free Shares charge of £33 million (2016-17: £105 million). This decreased
as a result of the Share Incentive Plan (SIP) 2013 maturing in October 2016, partially offset by the charge in relation to the Free Shares awarded
in October 2016 (SIP 2016). The Employee Free Shares charge is expected to be around £26 million for 2018-19. This reflects the phasing of the
charge over the vesting period.

Amortisation of acquired intangible assets of £16 million (2016-17: £11 million) related mainly to the acquisitions by GLS.

Legacy costs in the prior year were driven by a reduction in the discount rate used to calculate the industrial diseases provision and the legislative
decrease in the discount rate used to determine personal injury claims announced in February 2017. Other specific items mainly related to the
integration of Romec into the Group.

Annual Report and Financial Statements 2017-18

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Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| Group results

Non-operating specific items included a profit on disposal of property, plant and equipment of £71 million (2016-17: £14 million). This arose due
largely to the £24 million overage payment in respect of the sale of Rathbone Place in 2011, £22 million from the completion of the sale of the
Phoenix Place plot at Mount Pleasant and the £20 million overage payment in respect of the sale of the Paddington Mail Centre in 2014. The profit
on disposal of property, plant and equipment in the prior year related mainly to the sale of a GLS property in Munich and the Maidstone Delivery
Office. The loss on disposal of business in the prior year related to the sale of NDC 2000 Limited (NDC) and reflected the transfer of cash and
other assets to the purchasers.

The net pension interest credit of £91 million (2016-17: £120 million) was lower than the prior year. This was due to the lower discount rate and
lower surplus for 2017-18 compared with 2016-17. The net pension interest for 2018-19 in relation to RMPP and RMSEPP is expected to be
around £80 million due to the lower pension surplus position at 25 March 2018 compared to 26 March 2017.

Net finance costs
Reported net finance costs were £16 million (2016-17: £16 million) comprising largely interest on the €500 million bond of £11 million
(2016-17: £11 million).

Facility

€500 million bond

Loans in overseas subsidiaries

Syndicated loan facilities

Total

Rate

2.5%

1.4%

LIBOR+0.55%

Facility
(£m)

435

1,050

1,487

Drawn
(£m)

435

–

437

Facility end date

2024

2018-23

2020-22

The blended interest rate on gross debt, including finance leases for 2018-19, is expected to be approximately three per cent. The retranslation
impact of the €500 million bond is accounted for within equity.

Taxation

(£m)

Reported

Profit before tax

Tax credit/(charge)

Effective tax rate

Adjusted

Profit before tax

Tax charge

Effective tax rate

52 weeks ended
25 March 2018

52 weeks ended
26 March 2017

n/a

378

(59)

16%

GLS

Group

173

(47)

27%

187

(52)

28%

212

n/a

565

(111)

20%

183

(20)

11%

398

(76)

19%

GLS

Group

152

(42)

28%

161

(45)

28%

335

(62)

19%

559

(121)

22%

The Group adjusted effective tax rate was 20 per cent (2016-17: 22 per cent).

The UK adjusted effective tax rate of 16 per cent (2016-17: 19 per cent) was lower than the prior year due to catch ups on patent box claims and
the reduction in the UK statutory rate from 20 per cent to 19 per cent in 2017-18.

The GLS adjusted effective tax rate of 28 per cent (2016-17: 28 per cent) was consistent with the prior year.

The Group reported tax was a credit of £46 million on a reported profit before tax of £212 million. This was due mainly to the one-off deferred
tax credit of £78 million which is a result of the closure of the RMPP to future accrual after 31 March 2018 and profits made on the disposal of
properties which, for tax purposes, are offset by reinvestment relief.

The one-off deferred tax credit was due to the change to the previous assumption that the surplus would be recoverable from a reduction in
contributions at some point in the future, which would have been taxed at the corporate tax rate. It is now assumed that the majority of the
surplus will be available through a refund, net of withholding tax. This withholding tax is a charge on the pension scheme and recognised in
the statement of comprehensive income by application of the International Financial Reporting Interpretation Committee (IFRIC) 14 guidance.
This one-off tax credit is an accounting adjustment with no cash benefit to the Company.

Excluding this one-off deferred tax credit, the total Group reported tax in the income statement would change from a credit of £46 million to a
charge of £32 million.

Earnings per share (EPS)
Adjusted basic EPS for continuing operations was 45.5 pence compared with 44.1 pence in the prior year. This largely reflected the decrease in
transformation costs.

| Annual Report and Financial Statements 2017-18

In-year trading cash flow

(£m)

EBITDA before transformation costs

Pension charge to cash difference adjustment

Adjusted EBITDA before transformation costs

Trading working capital movements

Share-based awards (SAYE, LTIP and DSBP) charge

Total investment

Income tax paid

Research and Development expenditure credit

Net finance costs paid

Total

52 weeks ended
25 March 2018

52 weeks ended
26 March 2017

577

458

1,035

(485)

(75)

(15)

545

793

222

1,015

(3)

(529)

(60)

–

(14)

420

In-year trading cash flow of £545 million was £125 million higher than the prior year. This was mainly due to the growth in adjusted EBITDA
before transformation costs, positive movements in trading working capital and a decrease in total investment.

Trading working capital inflow of £74 million was £77 million higher than the prior year. It benefited from the timing of the settlement of the
2017-18 frontline pay award of £101 million, which was paid in the first quarter of 2018-19. This was partially offset by £15 million higher bonus
payments relating to 2016-17 and higher terminal dues payments in the first half associated with the growth in export volumes seen in the
second half of 2016-17.

Income tax paid was £15 million higher than the prior year due to GLS tax payments.

Net cash investment

(£m)

Growth capital expenditure

Replacement capital expenditure

Transformation operating expenditure

Voluntary redundancy

Project costs

Total gross investment

Proceeds from disposal of property (excluding London Development Portfolio), plant and equipment

Total net investment

52 weeks ended
25 March 2018

52 weeks ended
26 March 20172

(224)

(136)

(125)

(56)

(69)

(485)

(445)

(190)

(197)

(142)

(67)

(75)

(529)

(492)

Total gross cash investment decreased by £44 million. Growth capital expenditure increased by £34 million as a result of continued
investment in strategic projects in UKPIL and GLS. They included operations modernisation, parcel IT systems and parcel innovation projects.
Replacement capital expenditure reduced by £61 million. This was driven by the completion of the IT transformation programme and lower
property refurbishments. Transformation operating expenditure was £17 million lower, due to the industrial relations environment affecting
the pace of change and voluntary redundancies in the year.

The proceeds from disposals of property (excluding London Development Portfolio), plant and equipment related to the £24 million overage for
Rathbone Place, £14 million from the sale of various smaller Mail Centres and Delivery Offices and £2 million from the sale of vehicles. The cash
payment from the £20 million overage due on the sale of the Paddington Mail Centre was received in April 2018.

Net cash/(debt)
The Group had a net cash position of £14 million at 25 March 2018. This compares with a net debt position of £338 million at 26 March 2017.
The net cash position benefitted by £101 million from the timing of the settlement of the 2017-18 frontline pay award. This was paid in the first
quarter of 2018-19.

2 We have reclassified £18 million of growth capital expenditure in the prior year as replacement capital expenditure and £1 million of project costs as voluntary redundancy cash

payments to more accurately reflect the nature of these cash investments.

Annual Report and Financial Statements 2017-18

| 29

Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| Group results

A reconciliation of net cash/(debt) is set out in the following table.

(£m)

Net debt brought forward at 26 March 2017 and 27 March 2016

Free cash flow

In-year trading cash inflow

Other working capital movements

Cash cost of operating specific items

Proceeds from disposal of property (excluding London Development Portfolio), plant and equipment

Cash impact of disposal of discontinued operations and subsidiary

Acquisition of business interests

Cash flows relating to London Development Portfolio

Acquisition of non-controlling interests

Debt transferred on acquisitions

Purchase of own shares

Employee exercise of SAYE options

Foreign currency exchange impact

Increase in finance lease obligations (non-cash)

Dividends paid to equity holders of the parent Company

Dividends paid to non-controlling interests

Net cash/(debt) carried forward

52 weeks ended
25 March 2018

52 weeks ended
26 March 2017

(338)

562

545

(3)

(12)

–

(18)

–

(3)

–

(2)

(231)

–

(224)

209

420

(6)

(61)

(3)

(126)

(34)

(18)

(10)

(53)

–

(30)

–

(222)

(8)

(338)

Movements in GLS client cash are included within other working capital movements. The amount held at 25 March 2018 was £24 million
(26 March 2017: £22 million).

The cash cost of operating specific items was an outflow of £12 million due to employer National Insurance contributions on the SIP 2013 and
2014 employee share sales, industrial disease settlements and Romec business integration costs. The cash costs of operating specific items
in the prior year largely comprised the French Competition Authority fine of €55 million paid in April 2016, as disclosed in 2015-16. Proceeds
from disposal of property (excluding London Development Portfolio), plant and equipment of £40 million is explained in the paragraph entitled
‘Net cash investment’ on page 29.

Cash inflow relating to the London Development Portfolio was £10 million. Infrastructure and enabling works costs of £33 million on the
Nine Elms and Mount Pleasant sites were offset by £43 million of receipts in relation to the two Mount Pleasant plots. Debt transferred on
acquisitions relates to £3 million of interest bearing loans and borrowings on GLS acquisitions.

The impact of foreign currency exchange rate movements reduced compared with the prior year. The exchange rate against Sterling in the prior
year was affected by the reaction to the outcome of the EU referendum. It has subsequently remained relatively consistent.

The £53 million cash outflow in the prior year was in relation to the Company purchasing its own shares in advance of the Save As You Earn
(SAYE) options exercised this year. Cash payments of £28 million were received from employees exercising their SAYE options to purchase
company shares this year.

Acquisition of business interests in the year largely related to the acquisition of Postal Express and Redyser by GLS. The acquisition of business
interests in the prior year related to the acquisitions of GSO and ASM by GLS and eCourier by UKPIL. The acquisition of non-controlling interests
in the prior year was mainly in respect of the Romec business.

A reconciliation of cash flows relating to acquisitions is shown in the following table.

(£m)

Postal Express

Redyser

Acquisition of business interests, net of cash acquired (see statutory cash flow statement)

Deferred consideration paid in respect of prior years' acquisitions

Acquisition of business interests

52 weeks ended
25 March 2018

(8)

(16)

(2)

(18)

| Annual Report and Financial Statements 2017-18

Approach to capital management
The Group has established four key objectives for capital management. Management proposes actions which reflect the Group’s investment
plans and risk characteristics as well as the macro-economic conditions in which we operate. The Board keeps this policy under constant review
to ensure that capital is allocated to achieve our stated objective of delivering sustainable shareholder value.

Objectives

Enablers

2017-18 Update

Meet the Group’s obligations as they fall due Maintaining sufficient cash reserves and committed

facilities to –
• meet all obligations, including pensions; and
• manage future risks, including those set out in the Principal

Risks section on pages 40 to 45

Support a progressive dividend policy

Generate sufficient in-year trading cash flow to cover the
ordinary dividend. Maintain sufficient distributable reserves to
sustain the Group’s dividend policy

At 25 March 2018, the Group had available resources of
£1,650 million (2016-17: £1,317 million); made up of cash and
cash equivalents of £600 million (2016-17: £299 million) and
undrawn committed revolving credit facilities of £1,050 million
(2016-17: £1,018 million).

The Group met the loan covenants and other obligations for its
revolving credit facility and €500 million bond.

As set out in the Viability Statement, the Directors have a
reasonable expectation that the Group will continue to meet its
obligations as they fall due.

Generated £545 million of in-year trading cash flow (2016-17:
£420 million) to cover the full year dividend of 24.0 pence
per share (2016-17: 23.0 pence per share) equivalent to
£240 million. In-year trading cash flow benefitted by
£101 million due to the timing of the cash payment of the
2017-18 frontline pay award.

Capital managed by the Group, excluding the net assets of the
pension scheme, is £2,274 million (2016-17: £1,806 million).

The Group had retained earnings of £4,381 million at
25 March 2018 (2016-17: £4,940 million). The Group considers
it has a maximum level of distributable reserves of around
£2 billion which excludes the impact of the pension surplus on
retained earnings, more than sufficient to cover the dividend.

Reduce the cost of capital for the Group

Target investment grade standard credit metrics i.e. no lower
than BBB- under Standard & Poor’s rating methodology

During the year, the Group maintained a credit rating of BBB
with a stable outlook from Standard & Poor’s.

Retain sufficient flexibility to invest in the
future of the business

Funded by retained cash flows and manageable levels of debt
consistent with our target credit rating

During the year, the Group made total gross investments of
£485 million (2016-17: £529 million) and acquisition of business
interests and non-controlling interests of £18 million (2016-17:
£144 million) while retaining sufficient capital headroom.

Pensions
Royal Mail Pension Plan (RMPP)
As previously announced, the RMPP in its previous Defined Benefit pension form, closed to future accrual after 31 March 2018. The legal right to
benefit from any surplus in the Plan has not changed as a result of this decision. Therefore, only one week of economic benefit is recoverable as a
reduction to future employer contributions at 25 March 2018, with the remaining surplus assumed to be available as a refund.

This has resulted in a change to the tax treatment of the economic benefit of the surplus. Following guidance from IFRIC 14, the accounting
surplus has been adjusted downwards by £1,134 million (2016-17: £nil million) as a result of this change. This represents the taxation that would
be withheld on the surplus amount.

The pre IFRIC 14 accounting surplus of the RMPP at 25 March 2018 was £3,250 million, comprising assets of £9,939 million and liabilities of
£6,689 million. The reduction in the pre IFRIC 14 accounting surplus of £558 million, compared with the position at 26 March 2017, is mainly
the result of the additional benefits accrued over the period being greater than the contributions paid during the period. After the IFRIC 14
adjustment, the accounting surplus of the RMPP was £2,116 million at 25 March 2018. This is an accounting adjustment with no cash benefit to
the Company.

It was agreed between the Company and the Trustee in May 2017 that the Company would continue to contribute 17.1 per cent of pensionable
pay until 31 March 2018. It was subsequently agreed with the Trustee that the employer contributions payable in respect of the period
1 September 2017 to 31 March 2018 would be held in pension escrow investments for the benefit of members.

In 2018-19, the IAS 19 pension service cost rate in respect of members’ service up to 31 March 2018 (i.e. for one week) will be charged to the
income statement at 41.0 per cent after which there will be no further IAS 19 pension service costs or regular cash contributions in respect of the
RMPP. There will still be a pension interest income/cost in respect of RMPP and the assets and liabilities will still be shown on the balance sheet.
The RMPP will still be subject to triennial actuarial valuations.

The actuarial funding position at 31 March 2018 will not be known until the actuarial valuation has been agreed between the Trustee and the
Company, with the results being very sensitive to the assumptions adopted at that date. However, based on the rolled forward assumptions used
for the March 2015 valuation, the RMPP actuarial surplus at 31 March 2018 was estimated to be £100 million (31 March 2017: £1,074 million).
There is no cash benefit to the Company from this current actuarial surplus. Any actuarial surplus will remain in the RMPP for the benefit of
members until the point at which all benefits have been paid out or secured.

Annual Report and Financial Statements 2017-18

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Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| Group results

Royal Mail Senior Executives Pension Plan (RMSEPP)
Based on the rolled forward assumptions used for the March 2015 valuation, the RMSEPP actuarial surplus at 31 March 2018 was estimated
to be £36 million (31 March 2017: £8 million), comprising assets of £479 million and liabilities of £443 million. The RMSEPP closed in
December 2012 to future accrual and the Company makes no regular future service contributions.

In accordance with the new Schedule of Contributions agreed for the period 29 March 2018 to 31 March 2025, deficit payments of £10 million per
annum are due to be paid for the period up to 31 March 2018 resulting in a final amount of £1 million being paid in 2018-19, together with £1 million
per annum for the period 1 April 2018 to 31 March 2025 in respect of the death-in-service lump sum benefits and administration expenses.

Transitional arrangements
Royal Mail and the CWU have agreed to work together to introduce a Collective Defined Contribution (CDC) scheme with a Defined Benefit Lump
Sum Scheme (DBLSS) sitting alongside it, subject to the necessary legislative and regulatory changes. This would provide one scheme for all
Royal Mail employees and would be the first of its type in the UK. The Company has put in place transitional arrangements from 1 April 2018
while it lobbies Government to make the necessary legislative and regulatory changes to enable a CDC scheme. As part of these transitional
changes, the Company has implemented a new Defined Benefit Cash Balance Scheme (DBCBS) within the RMPP, and an improved Royal Mail
Defined Contribution Plan (RMDCP).

Defined Benefit Cash Balance Scheme (DBCBS)
RMPP members have automatically started building up DBCBS benefits from 1 April 2018. If preferred, RMPP members can opt to join the
improved RMDCP instead of the DBCBS. Under the DBCBS, the Company guarantees a minimum lump sum at age 65, based on Company and
member contributions. The DBCBS will aim to provide increases to the lump sum each year, depending on investment performance.

The DBCBS will be accounted for as a defined benefit scheme and in a similar way to the RMPP. Specifically, the assets and liabilities that will
build up from the start of the scheme will be shown on the balance sheet. IAS 19 pension service charge rates based on market yields of high
quality corporate bonds and inflation at the start of the year will be charged to the income statement. Pension interest will be calculated on
the assets and liabilities at the end of 2018-19 for inclusion in the income statement from 2019-20 onwards. The scheme will be subject to
triennial valuations.

Under the DBCBS, the Company will contribute 15.6 per cent of DBCBS pensionable pay to the scheme. Of this, 13.6 per cent will go to the
member’s guaranteed lump sum. The remaining two per cent of the Company’s contribution will go to the cost of other member benefits,
including death in service and ill-health benefits. Members will contribute six per cent (including Pension Salary Exchange contributions where
the Group makes additional employee pension contributions in return for a reduction in basic pay). The IAS 19 pension service cost rate is
18.9 per cent for 2018-19. The pension charge is greater than the cash contribution rate as there is an assumed constructive obligation for annual
pension benefit increases of CPI plus two per cent. This means that the pension charge to cash difference adjustment for 2018-19 is expected to
reduce significantly to around £90 million.

Improved Royal Mail Defined Contribution Plan (RMDCP)
Under the RMDCP, Company contributions have increased by one percentage point in each tier, up to a maximum of ten per cent. Current and
future RMDCP members in the standard section will contribute at the highest contribution tier unless they opt to contribute at a lower level.

RMDCP members with a minimum of five years’ service, including four years’ continuous service at the standard level of contribution, can instead
choose to join the DBCBS.

Assuming that all RMPP and eligible RMDCP members join the DBCBS, the Company expects to contribute around £350 million in the 2018-19
financial year in respect of RMPP, RMSEPP and DBCBS with employees expected to contribute around £135 million. The Company expects
to contribute around £50 million to the RMDCP. Total employer contributions in respect of all pension schemes would therefore be around
£400 million.

Collective Defined Contribution (CDC) scheme and Defined Benefit Lump Sum Scheme (DBLSS)
Based on current intentions and legislation, the CDC will be accounted for as a defined contribution scheme with the Group's contributions being
charged to operating profit in the year to which the contributions relate. The CDC scheme will have fixed employer contributions of 13.6 per cent
and employee contributions of six per cent. Investment and longevity risk will be pooled between members and will target but not guarantee the
benefit the employee will receive in retirement. No benefit guarantees are underwritten by the employer. The DBLSS will be accounted for as a
defined benefit scheme with the accounting treatment expected to be similar to the transitional DBCBS.

Dividends
The final dividend of 15.6 pence per ordinary share in respect of the 2016-17 financial year was paid on 28 July 2017, following
shareholder approval.

The interim dividend of 7.7 pence per ordinary share in respect of the 2017-18 financial year was paid on 10 January 2018 to shareholders on the
register at the close of business on 8 December 2017.

The Board is recommending a final dividend of 16.3 pence per ordinary share, payable on 31 August 2018 to shareholders on the register at
the close of business on 27 July 2018, subject to shareholder approval at the AGM on 19 July 2018. This gives a total dividend for the year of
24.0 pence.

As previously stated, given the seasonality of the Group’s business, the Board would expect to pay an interim dividend each year equal to
approximately one-third of the prior year’s total dividend and to set the final dividend for each year in light of the full year performance of the
Group in line with the progressive dividend policy.

| Annual Report and Financial Statements 2017-18

Financial risks and related hedging
The Group is exposed to commodity price and currency risk. The Group operates hedging policies which are stated in the Notes to the Annual
Report and Financial Statements 2017-18. The forecast diesel and jet commodity exposures in UKPIL are set out below together with the
sensitivity of 2018-19 operating profit to changes in commodity prices and fuel duty.

2018-19 Exposure

Diesel

Jet fuel

Total

Forecast total
cost
£m

136

144

Fuel duty/
other costs (incl
irrecoverable
VAT) – not
hedged
2018-19
£m

Underlying
commodity
exposure (incl
irrecoverable
VAT)
2018-19
£m

Underlying
commodity
volume hedged
%

Residual
unhedged
underlying
commodity
exposure (incl
irrecoverable
VAT)
£m

Impact on
2018-19
operating profit
of a further
10% increase
in commodity
price
£m

Impact on
2018-19
operating profit
of a further 10%
increase in fuel
duty/other cost
£m

–

As a result of hedging, it is anticipated that the diesel and jet fuel commodity cost for 2018-19 will be £3 million lower. Without hedging, the
associated cost would be £9 million higher (based upon closing fuel prices at 25 March 2018).

The Group is exposed to foreign currency risk due to interest payments on the €500 million bond, certain obligations under Euro denominated
finance leases, trading with overseas postal administrations and various purchase contracts denominated in foreign currency. GLS’ functional
currency is the Euro which results in translational exposure to revenue, costs and operating profit.

The average exchange rate between Sterling and the Euro was £1:€1.13, representing a five per cent weakening in Sterling compared with
£1:€1.19 in 2016-17. This resulted in a £9 million increase in GLS’ reported operating profit before tax in 2017-18. The impact of foreign exchange
transactions in the UK was not material in 2017-18. The net impact on Group operating profit before tax was £8 million.

The Group manages its interest rate risk through a combination of fixed rate loans and leasing, floating rate loans/facilities and floating rate
financial investments. At 25 March 2018, all of the gross debt of £606 million was at fixed rates to maturity.

Counterparty risk is managed by limiting aggregate exposure to any individual counterparty based on their financial strength.

Property
Mount Pleasant
It was announced on 30 August 2017 that contracts had been exchanged for the sale of 6.25 acres of Royal Mail’s Mount Pleasant site
(comprising the Phoenix Place and Calthorpe Street plots) to Taylor Wimpey UK Ltd (part of the Taylor Wimpey plc group of companies) for a
total gross consideration of £193.5 million. The consideration is made up of £190 million in cash and the fair value of parking facilities to be
provided for Royal Mail of £3.5 million. The sale of the Phoenix Place plot to Taylor Wimpey UK Ltd completed in the first half of 2017-18.

As previously disclosed, significant further investment by Royal Mail is required for the works to separate the retained operational site from
the development plots. These works are expected to cost around £100 million. They are planned to be completed by 2021.

A deposit of £9.5 million was paid to Royal Mail following the exchange of contracts. We have received a further £33.3 million payment in
2017-18. Cash proceeds of £72.2 million are to be paid in contractually agreed staged payments over the 2018-19 to 2020-21 financial years
which, in aggregate, are expected to cover Royal Mail's outgoings on the separation and enabling works over this period. Further proceeds of
£75.1 million are then due in 2024 for the balance of the consideration. We are contractually guaranteed to receive a payment of £20.8 million
in 2018-19.

Completion on the Calthorpe Street plot is subject to completion of the separation and enabling works expected in 2021. Completion on the
Phoenix Place plot was unconditional. A profit on disposal of £22 million, based on an apportionment of the total consideration less the book
value of the plot (including an apportionment of the total cost of the separation and enabling works), was recognised in the period, following
completion of the sale.

Nine Elms
It was announced on 2 June 2017 that Royal Mail had exchanged contracts for the sale of two of the seven plots at its Nine Elms site to Greystar
Real Estate Partners, LLC for £101 million. A deposit of £3 million was paid into escrow following exchange of contracts. The remaining
£98 million payable is conditional on Greystar Real Estate Partners, LLC receiving planning consent from the London Borough of Wandsworth.

A detailed planning application has been submitted by Greystar. Subject to the planning process and timescales, consent is expected to be
granted in 2018-19. Around £30 million has been committed to be re-invested in the Nine Elms site for infrastructure works associated with
these plots. The remaining plots continue to be marketed for sale.

Rathbone Place
Overage agreements were made with Great Portland Estates plc on the sale of Rathbone Place in 2011. The resulting overage payment received
under these agreements was £24 million. This was recorded as a profit on disposal of property in the year.

Paddington Mail Centre
Overage agreements were made with Great Western Developments Limited on the sale of the Paddington Mail Centre in 2014. The resulting
overage payment received under these agreements was £20 million. This has been recorded as a profit on disposal of property in the period,
while the cash payment was received in April 2018.

Annual Report and Financial Statements 2017-18

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Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| Presentation of results and Alternative Performance Measures (APMs)

Presentation of results and Alternative Performance
Measures (APMs)

The Group uses certain Alternative Performance Measures (APMs) in its financial reporting that are not defined under International Financial
Reporting Standards (IFRS), the Generally Accepted Accounting Principles (GAAP) under which the Group produces its statutory financial
information. These APMs are not a substitute, or superior to, any IFRS measures of performance. They are used as Management considers them
to be an important means of comparing performance year-on-year and are key measures used within the business for assessing performance.

APMs should not be considered in isolation from, or as a substitute to, financial information presented in compliance with GAAP. Where
appropriate, reconciliations to the nearest GAAP measure have been provided. The APMs used may not be directly comparable with similarly
titled APMs used by other companies.

Reported to Adjusted results
The Group makes adjustments to results reported under IFRS to exclude specific items and the IAS 19 pension charge to cash difference
adjustment (see definitions in the paragraph entitled ‘Alternative performance measures’). Management believes this is a more meaningful basis
upon which to analyse the business performance (in particular given the volatile nature of the IAS 19 charge) and is consistent with the way
financial performance is reported to the Board.

IFRS can have the impact of causing high levels of volatility in reported earnings which do not relate to changes in the operational performance
of the Company. Management has reviewed the long-term differences between reported and adjusted profit after tax. Cumulative reported profit
after taxation for the six years ended 25 March 2018 was £2,890 million compared with cumulative adjusted profit after tax of £2,269 million.
Annual reported profit after tax showed a range of £222 million to £1,280 million. The principal cause of the difference and volatility is due to
pension-related accounting.

Further details on specific items excluded are included in the paragraph entitled ‘Specific items and pension charge to cash difference adjustment’
on pages 27 to 28. A reconciliation showing the adjustments made between reported and adjusted group results can be found in the paragraph
entitled ‘Consolidated reported and adjusted results reconciliation’ on pages 34 to 35.

Underlying change
Movements compared with prior year in volumes, revenue, costs, profits and margins are shown on an underlying basis. Underlying movements
improve comparability between periods by making adjustments to the prior year to take into account differences in working days in UKPIL and
movements in foreign exchange in GLS. We only adjust for items with an impact greater than £10 million. We have not adjusted for transactional
foreign exchange movements in UKPIL this year as the impact of £1 million was below the threshold.

In addition, adjustments are made for non-recurring or distorting items, which by their nature may be unpredictable, such as the first year impact
of acquisitions and changes in legislation such as the Apprenticeship Levy. For volumes, underlying movements are adjusted for working days in
UKPIL and the first year impact of acquisitions. It also excludes political parties’ election mailings in addressed letter volume movements.

The paragraph entitled ‘Underlying change adjustments’ on page 39 provides further details on the adjustments we have made to the prior year
to calculate the underlying change.

Presentation of results
Consolidated reported and adjusted results reconciliation
The following table reconciles the reported results, prepared in accordance with IFRS, to the adjusted results.

(£m)

Revenue

Operating costs

People costs

Non-people costs

Distribution and conveyance costs

Infrastructure costs

Other operating costs

Operating profit before transformation costs

Transformation costs

Operating profit after transformation costs

Operating specific items:

Employee Free Shares charge

Legacy/other costs

Amortisation of intangible assets in acquisitions

Operating profit

Reported

10,172

(9,936)

(5,974)

(3,962)

(2,356)

(899)

(707)

236

(113)

123

(33)

(8)

(16)

| Annual Report and Financial Statements 2017-18

52 weeks ended
25 March 2018

Specific items
and pension
adjustment

52 weeks ended
26 March 2017

Specific items
and pension
adjustment

Adjusted

Reported

–

(458)

–

(458)

–

(458)

(33)

(8)

(16)

(515)

10,172

(9,478)

(5,516)

(3,962)

(2,356)

(899)

(707)

694

(113)

581

–

581

9,776

(9,286)

(5,576)

(3,710)

(2,106)

(868)

(736)

490

(137)

353

(105)

(18)

(11)

219

–

(222)

–

(222)

–

(222)

(105)

(18)

(11)

(356)

Adjusted

9,776

(9,064)

(5,354)

(3,710)

(2,106)

(868)

(736)

712

(137)

575

–

575

(£m)

Reported

52 weeks ended
25 March 2018

Specific items
and pension
adjustment

52 weeks ended
26 March 2017

Specific items
and pension
adjustment

Adjusted

Reported

Non-operating specific items:

Profit on disposal of property, plant and
equipment

Loss on disposal of business

Earnings before interest and tax

Finance costs

Finance income

Net pension interest (non-operating
specific item)

Profit before tax

Tax charge

Profit for the period

Profit for the period attributable to:

Equity holders of the parent Company

Non-controlling interests

Earnings per share

Basic

Diluted

–

137

(19)

212

258

259

(1)

–

(444)

–

(353)

157

(196)

–

581

(19)

–

565

(111)

454

455

(1)

(2)

231

(18)

120

335

(62)

273

272

(2)

(344)

–

120

(224)

(59)

(165)

–

575

(18)

–

559

(121)

438

437

25.9p

25.7p

(19.6p)

(19.5p)

45.5p

45.2p

27.5p

27.3p

(16.6p)

(16.5p)

44.1p

43.8p

Segmental reported results
The following table presents the segmental reported results, prepared in accordance with IFRS.

(£m)

Revenue

People costs

Non-people costs

Operating profit before transformation costs

Transformation costs

Operating profit after transformation costs

Operating specific items

Operating profit

Non-operating specific items

Earnings before interest and tax

Net finance costs

Net pension interest (non-operating specific item)

Profit before tax

Tax charge

Profit for the period

52 weeks ended
25 March 2018

UKPIL
(UK
operations)

GLS
(Non-UK
operations)

7,615

(5,366)

(2,204)

(113)

(68)

(43)

(111)

(40)

(12)

132

2,557

(608)

(1,758)

191

–

191

(14)

177

–

177

(4)

–

173

(47)

126

52 weeks ended
26 March 2017

GLS
(Non-UK
operations)

2,118

(489)

(1,465)

164

–

164

(10)

154

155

(3)

–

152

(42)

110

Group

10,172

(5,974)

(3,962)

236

(113)

123

(57)

137

(16)

212

258

UKPIL
(UK operations)

7,658

(5,087)

(2,245)

326

(137)

189

(124)

(13)

120

183

(20)

163

Group

9,776

(5,576)

(3,710)

490

(137)

353

(134)

219

231

(16)

120

335

(62)

273

Alternative performance measures
Reported operating profit before and after transformation costs
These measures are in accordance with IFRS and are a means by which Management can understand the financial performance of the Group, taking
into account business as usual (BAU) costs e.g. people, distribution and conveyance, infrastructure and other operating costs excluding operating
specific items. They are presented before and after transformation costs, to provide Management with a view of the ongoing impact of the costs of
transforming the business.

Reported operating profit
This measure is in accordance with IFRS and is a means by which Management can understand the financial performance of the Group. It is based on
reported profit after transformation costs (see above) including operating specific items.

Annual Report and Financial Statements 2017-18

| 35

Strategic report | Governance | Financial statements | Other information
Royal Mail plc

| Presentation of results and Alternative Performance Measures (APMs)

Adjusted operating profit before and after transformation costs
These measures are based on reported operating profit before and after transformation costs (see above) further adjusted to exclude the
volatility of the pension charge to cash difference adjustment, which Management considers to be a key adjustment in understanding the
underlying profit of the Group at this level.

Adjusted operating profit
This measure is based on reported operating profit (see above) excluding the pension charge to cash difference adjustment and operating specific
items, which Management considers to be key adjustments in understanding the underlying profit of the Group at this level.

These adjusted measures are reconciled to the reported results in the table in the paragraph entitled ‘Consolidated reported and adjusted results
reconciliation’ on pages 34 to 35. Definitions of operating costs, the pension charge to cash difference adjustment, transformation costs and
operating specific items are provided below.

Adjusted operating profit margin after transformation costs
This is a fundamental measure of performance that Management uses to understand the efficiency of the business in generating profit. It calculates
‘adjusted operating profit after transformation costs’ as a proportion of revenue in percentage terms.

Earnings before interest, tax, depreciation and amortisation (EBITDA) before transformation costs
Reported EBITDA before transformation costs is reported operating profit before transformation costs with depreciation, amortisation and share of
associate company profits added back.

Adjusted EBITDA before transformation costs is reported EBITDA before transformation costs with the pension charge to cash difference adjustment
added back.

EBITDA is considered to be a useful measure of operating performance because it approximates the underlying operating cash flow by eliminating
depreciation, amortisation and the performance of associate companies.

The following table reconciles adjusted EBITDA before transformation costs to reported operating profit before transformation costs.

(£m)

Reported operating profit before transformation costs

Depreciation and amortisation

Share of post-tax profit from associates

Reported EBITDA before transformation costs

Pension charge to cash difference adjustment

Adjusted EBITDA before transformation costs

52 weeks ended
25 March 2018

52 weeks ended
26 March 2017

236

341

–

577

458

1,035

490

301

793

222

1,015

Adjusted earnings per share
Adjusted earnings per share is reported basic earnings per share, excluding operating and non-operating specific items and the pension charge
to cash difference adjustment. A reconciliation of this number to reported basic earnings per share is included in the adjusted results table in the
section entitled ‘Presentation of results’.

People costs
These are costs incurred in respect of the Group’s employees and comprise wages and salaries, pensions and social security costs.

Distribution and conveyance costs
These costs relate to non-people costs incurred in transporting and delivering mail by rail, road, sea and air including terminal dues and driver
sub-contractor costs.

Infrastructure costs
These are costs primarily relating to the day-to-day operation of the delivery network and include depreciation and amortisation, IT and property
facilities management costs.

Other operating costs
These are any operating costs which do not fall into the categories of people costs, distribution and conveyance costs or infrastructure costs
including for example, Post Office Limited agency costs, consumables and training.

Transformation costs
These costs relate to the ongoing transformation of the business, including management time and costs associated with the cost avoidance
programme, and other projects with the aim of making our operations more efficient or improving our customer offering. They also include voluntary
redundancy and other termination costs.

Pension charge to cash difference adjustment
This adjustment represents the difference between the IFRS income statement pension charge rate of 41.1 per cent and the actual cash payments
into the RMPP at 17.1 per cent. Management believes this adjustment is appropriate in order to eliminate the volatility of the IAS 19 accounting
charge and to include only the true cash cost of the pension plans in the adjusted operating profit of the Group.

Operating specific items
These are recurring or non-recurring items of income or expense of a particular size and/or nature relating to the operations of the business that, in
Management’s opinion, require separate identification. Management does not consider them to be reflective of year-on-year operating performance.
These include items that have resulted from events that are non-recurring in nature, even though related income/expense can be recognised in
subsequent periods.

| Annual Report and Financial Statements 2017-18

Employee Free Shares charge
These relate to accounting charges arising from the granting of free shares to employees upon the Government’s sales of its stake in the business
(SIP 2013, 2014, 2015 and 2016) with no direct cash impact on the Group.

Amortisation of intangible assets in acquisitions
These notional charges, which arise as a direct consequence of IFRS business combination accounting requirements, are separately identified as
Management does not consider these costs to be directly related to the trading performance of the Group.

Legacy/other costs
These costs relate either to unavoidable ongoing costs arising from historic events (industrial diseases provision) or restructuring costs
(Romec integration).

Non-operating specific items
These are recurring or non-recurring items of income or expense of a particular size and/or nature which do not form part of the Group’s trading
activity and in Management’s opinion require separate identification.

Profit/loss on disposal of property, plant and equipment (PP&E)
Management separately identifies recurring profit/loss on disposal of PP&E as these disposals are not part of the Group’s trading activity and are
driven primarily by business strategy.

Profit/loss on disposal of business
These non-recurring events are excluded on the basis that by their nature they are individually unique and therefore distort comparison of
year-on-year business performance.

Free cash flow
Free cash flow (FCF) is calculated as statutory (reported) net cash flow before financing activities, adjusted to include finance costs paid and exclude
net cash from the purchase/sale of financial asset investments. FCF represents the cash that the Group generates after spending the money required
to maintain or expand its asset base.

In-year trading cash flow
In-year trading cash flow reflects the cash generated from the trading activities of the Group. It is based on reported net cash inflow from operating
activities. It is adjusted to exclude other working capital movements and the cash cost of operating specific items and to include the cash cost of
property, plant and equipment and intangible asset acquisitions and net finance payments. Other working capital movements include movements in
GLS client cash held and in deferred revenue from stamps purchased in prior periods. In-year trading cash flow is used primarily by Management to
show cash being generated by operations less cash investment.

The following table reconciles in-year trading cash flow to the nearest IFRS measure ‘net cash inflow from operating activities’.

(£m)

Net cash inflow from operating activities

Adjustment for:

Other working capital movements

Cash cost of operating specific items

Purchase of property, plant and equipment

Purchase of intangible assets (software)

Net finance costs paid

In-year trading cash inflow

Reported
52 weeks ended
25 March 2018

Reported
52 weeks ended
26 March 2017

905

(219)

(141)

(15)

545

754

(230)

(157)

(14)

420

Net cash investment
Net cash investment is a measure of the cash utilised by the Group in the period on investment activities netted off against cash received on the
disposal of property, plant and equipment. It is a measure used by Management to monitor investment within the Group. The items making up
this balance in the statutory cash flow are indicated in the section ‘Condensed consolidated statement of cash flows’.

Annual Report and Financial Statements 2017-18

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Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| Presentation of results and Alternative Performance Measures (APMs)

Net cash/(debt)
Net cash/(debt) is calculated by netting the value of financial liabilities (excluding derivatives) against cash and other liquid assets. It is a measure
of the Group’s net indebtedness that provides an indicator of the overall balance sheet strength. It is also a single measure that can be used to
assess the combined impact of the Group’s indebtedness and its cash position. The use of the term net cash/(debt) does not necessarily mean
that the cash included in the net debt calculation is available to settle the liabilities included in this measure.

A reconciliation of net cash/(debt) to reported balance sheet line items is shown below.

(£m)

Loans/bonds

Finance leases

Cash and cash equivalents

Pension escrow (RMSEPP)

Net cash/(debt)

At 25 March
2018

At 26 March
2017

(437)

(169)

600

(463)

(194)

299

(338)

Net cash/(debt) excludes £178 million (2016-17: £nil) related to the RMPP pension scheme of the total £198 million (2016-17: £20 million)
pension escrow investments on the balance sheet which is not considered to fall within the definition of net cash/debt.

Adjusted effective tax rate
The adjusted effective tax rate is the adjusted tax charge or credit for the period expressed as a proportion of adjusted profit before tax. Adjusted
effective tax rate is considered to be a useful measure of tax impact for the period. It approximates the tax rate on the underlying trading
business through the exclusion of specific items and the pension charge to cash difference adjustment.

| Annual Report and Financial Statements 2017-18

Underlying change adjustments
Movements in volumes, revenue, costs, profits and margins are shown on an underlying basis. We have made adjustments for working days in
UKPIL (2017-18: 305.0; 2016-17: 305.6) and movements in foreign exchange in GLS (2017-18: £1:€1.13; 2016-17: £1:€1.19). We have also made
adjustments for the first year impact of acquisitions and changes in legislation such as the Apprenticeship Levy.

UKPIL will report a 53-week period (310.0 working days) in 2018-19. We will present adjusted results and underlying movements on a 52-week
basis. Our working week consists of 5.5 days. Therefore, the adjusted UKPIL working days for 2018-19 will be 304.5 days with an estimated
revenue and profit decrease of around £15 million.

(£m)

Revenue

UKPIL

GLS

Group

Costs

UKPIL

People

Non-people costs

Distribution and conveyance costs

Infrastructure costs

Other operating costs

Operating costs before
transformation costs

GLS

Operating costs

Group

People

Non-people costs

Distribution and conveyance costs

Infrastructure costs

Other operating costs

Operating costs before
transformation costs

Profit, margins and EPS

UKPIL

Operating profit before
transformation costs

Transformation costs

Operating profit after transformation
costs

Margin

GLS

Operating profit

Margin

Group

Operating profit before
transformation costs

Transformation costs

Operating profit after transformation
costs

Margin

Profit before tax

Tax

Profit for the period

Profit attributable to equity holders of
the parent Company

Basic earnings per share (pence)

Adjusted
52 weeks
ended
25 March 18

Adjusted
52 weeks
ended

26 March 17 Working days

Wage
legislation

Foreign
exchange

Acquisitions

Underlying
52 weeks
ended
26 March 17

Underlying
change

7,615

2,557

10,172

(4,908)

(2,204)

(798)

(751)

(655)

7,658

2,118

9,776

(4,865)

(2,245)

(828)

(740)

(677)

(7,112)

(7,110)

(2,366)

(1,954)

(5,516)

(3,962)

(2,356)

(899)

(707)

(9,478)

503

(113)

390

(5,354)

(3,710)

(2,106)

(868)

(736)

(9,064)

548

(137)

411

5.1%

5.4%

191

7.5%

694

(113)

581

5.7%

565

(111)

454

455

45.5

164

7.7%

712

(137)

575

5.9%

559

(121)

438

437

44.1

(15)

–

(15)

–

(15)

–

(15)

–

(20)

–

(20)

–

(20)

–

(20)

–

(20)

–

(15)

–

(15)

(20)

–

(20)

–

106

–

(97)

(24)

(73)

(64)

(6)

(3)

(97)

–

105

–

7,643

2,329

9,972

(4,885)

(2,245)

(828)

(740)

(677)

(7,130)

Flat

10%

Flat

(2%)

(4%)

(3%)

Flat

(105)

(2,156)

10%

(49)

(56)

(44)

(7)

(5)

(105)

–

(5,447)

(3,839)

(2,214)

(881)

(744)

(9,286)

513

(137)

376

4.9%

173

7.4%

686

(137)

549

5.5%

533

(5%)

(2%)

(17%)

20bps

10%

10bps

(17%)

20bps

Annual Report and Financial Statements 2017-18

| 39

Strategic report | Governance | Financial statements | Other information

Royal Mail plc

| Principal risks

Principal risks

The Governance section describes in detail how the Group manages its risk from the Group Board
level, its respective sub-committees and throughout the organisation. Further details can be found
on pages 54-99.

The table below details each principal business risk, those aspects that would be impacted were the risk to

materialise, our assessment of the current status of the risk and how the Group mitigates it.

Key
Link to strategy

Winning in parcels

Defending letters

Growing in new areas

Relative severity

Change during the year

Speed at which the risk could impact

High

Medium

Low

Increasing risk

Decreasing risk

Stable

Fast: 6 months

Medium: 6-12 months

Slow: >12 months – 5 years

Principal risk

Status

How we are mitigating the risk

New Pension, Pay and Pipeline agreement and the risk of industrial action
There is extensive trade union recognition in respect of our workforce in the UK with a strong and active trade union. As Royal Mail Group continues to pursue
the necessary efficiency programmes in order to remain competitive in the letters and parcels markets and implements the new Pensions, Pay and Pipeline
agreement, there remains a risk of industrial action.

Industrial action

There is a risk that one or more material disagreements
or disputes between the Group and its trade unions
could result in widespread localised or national
industrial action.

Widespread localised or national industrial action
would cause material disruption to our business in the
UK and would be likely to result in an immediate and
potentially ongoing significant loss of revenue for the
Group. It may also cause Royal Mail to fail to meet the
Quality of Service targets prescribed by Ofcom, leading
to enforcement action and fines.

The Agenda for Growth agreement developed jointly
with the Communication Workers Union (CWU)
represented a fundamental change in our relationship
with the CWU, and continues to promote stability in
industrial relations.

In February 2018, we announced the new Pensions,
Pay and Pipeline agreement (the “agreement”) with the
CWU. As part of the agreement, Royal Mail and the CWU
have committed to a broad programme of operational
change, as well as pension reform, changes to pay and
terms and conditions and a vision to achieve a 35-hour
working week by 2022.

The agreement requires a high level of operational
change in an increasingly competitive market, which
may put additional strain on the stability of our
industrial relations.

Our Agenda for Growth agreement with the CWU
provides a joint commitment to improved industrial
relations and to resolving disputes at pace and in a way
that is beneficial to both employees and Royal Mail.

Under the Agenda for Growth, there is a prescribed
resolution process for disputes which requires trained
mediators nominated by and representing both the
CWU and the business. This must be followed before
any industrial action can take place.

The Agenda for Growth agreement has legally binding
protections for the workforce in respect of future
job security and our employment model. This can be
rescinded in the event of national industrial action if
the appropriate dispute resolution processes have not
been followed.

| Annual Report and Financial Statements 2017-18

Principal risk

Pension arrangements

Status

How we are mitigating the risk

We recognise that pension benefits are important to
our people and that we need to continue to provide
sustainable and affordable pensions arrangements
that are acceptable to our people and unions.

We have closed the Royal Mail Pension Plan (RMPP)
to future accrual in its previous Defined Benefit
form and introduced a Defined Benefit Cash Balance
Scheme from 1 April 2018.

We are lobbying Government to make the necessary
legislative and regulatory changes required to
introduce the CDC pension scheme.

There is a risk that we may be unable to obtain
the necessary legislative changes to enable us
to implement the UK’s first Collective Defined
Contribution (CDC) pension scheme as agreed with
the CWU.

Efficiency

Both this transitional arrangement and the CDC
scheme are expected to contain pension costs at
about £400 million per annum.

Royal Mail must become more efficient and flexible
in order to compete effectively in the letter and parcel
markets and grow revenue.

The success of our strategy relies on the effective
control of costs across all areas and the delivery of
efficiency benefits.

We continue to operate a tight balance between
achieving efficiency improvements whilst having
some of the highest service specifications of any
major country in Europe. This requires careful
management of efficiency and Quality of Service.

In February 2018 we announced the agreement with
with the CWU. As part of the agreement, Royal Mail
and the CWU have committed to a broad programme
of operational change, as well as pension reform,
changes to pay and terms and conditions and a vision
to achieve a 35-hour working week by 2022.

We are continuing to see the positive impact
of our cost avoidance activities across the UK
business. This has involved focus on our efficiency
performance in all areas, while providing quality
service to our customers through our engaged
workforce. Our cost avoidance programme achieved
£235 million of costs avoided in 2017-18, despite the
industrial relations environment.

However, the negotiation of fundamental changes
to our pension and other terms and conditions
impacted productivity performance, which has fallen
below the lower range of our two to three per cent
target. It also impacted progress in some business
as usual transformation initiatives.

Coming out of a difficult industrial relations
environment and given the scale of change
underpinning the agreement, there is a risk we
will be unable to make the required short-term
business as usual and/or programme level cost
avoidance changes in a timely way consistent with
the agreement.

The agreement creates a platform for Royal Mail and
CWU to work jointly together to rebuild confidence
and trust, deliver change and pursue opportunities to
support growth and efficiency. This includes trialling
new delivery methods, a new resource scheduling
system and automated hours data capture, as
well as progressing towards a shorter working
week dependent on progress on efficiency and
change initiatives.

The implementation of the agreement will be
underpinned by a rigorous programme comprising
the initiatives within the agreement.

The agreement also includes proposals for a series
of Forums that will allow us to work collaboratively
with our unions to agree efficiency improvements
and growth opportunities.

This includes a fundamental review of the pipeline
over three, five and seven years, an innovation forum
as well as a forum to monitor progress to move
towards a shorter working week.

We exceeded our target on cost avoidance and have
over 200 projects and initiatives both in and outside
of the core operations, which underpin the cost
avoidance target of £230 million in 2018-19.

We continue to scope additional cost avoidance
opportunities beyond 2018-19.

Annual Report and Financial Statements 2017-18

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Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| Principal risks

Principal risk

Status

How we are mitigating the risk

Changes in market conditions and customer behaviour
The industry sectors in which we operate remain highly competitive, with customers demanding more and our competitors responding quickly to these
changing demands.

Customer expectations and Royal Mail’s
responsiveness to market changes

Changes in customer expectations, and changes
in the markets in which the Group operates, could
impact the demand for our products and services.

There is a risk that our product offerings and
customer experience may not adequately meet
evolving customer expectations, or that we are
unable to innovate or adapt our commercial and
operational activities fast enough to respond to
changes in the market.

We expect the letters sector to remain in
structural decline, in the medium-term, driven by
e-substitution, lower GDP, the possible impact of
GDPR and continuing business uncertainty.

We expect addressed letter volumes (excluding
political parties’ election mailings) to continue to
decline in the range of four – six per cent per annum
in the medium-term. For 2018-19, we expect to be at
the higher end of the range of decline for the full year
due to the impact of GDPR. However, during 2018-19
the rate could move outside of this range for a period
during the year.

GDPR may drive risk-averse behaviour, leading to
a reduction in marketing mail volumes in 2018-19.
However, marketing mail does not fall within the
scope of The Privacy and Electronic Communications
Regulations (PECR), which affect marketing by
electronic means, such as email and SMS.

We have produced a guide, which highlights
key aspects of the new GDPR legislation when
communicating and marketing to customers,
including how mail can help our customers thrive in
a GDPR world. We are also undertaking intervention
activity with our largest posting customers and cold
data providers.

During the year, we helped launch JIC MAIL (Joint
Industry Committee) to offer standardised data on
mails reach and frequency of mailing demonstrating
more clearly to the market how consumers interact
with direct mail. It is the first time that the mail
industry has had independent data to indicate
frequency and usage.

The parcels sector is competitive and evolving.
Competition in the UK domestic and international
markets is intense, with competitors offering
innovative solutions that include convenient,
reliable delivery and return options, and improved
tracking services.

The UK has one of the most developed e-commerce
markets in the world. Growth available in the
addressable UK parcels market has been impacted
by Amazon's activities. Amazon is both a customer
of and a competitor to the Group. Capacity expansion
in the sector continues to exert downward pressure
on prices.

In the parcels business, disintermediation in online
marketplaces may divert traffic to other carriers.

There is a continuing requirement to invest in
targeted growth and innovation to meet challenges in
the marketplace, as well as reducing cost to ensure
better price competitiveness. We use continuous
in-depth market monitoring and research to track
how well we match our customers’ expectations,
including relative to our competitors, and to predict
volume trends.

We continue to invest and introduce, at pace, new
and improved products and services that enhance
customers’ online and delivery experience; and,
expand our core offering to small and medium sized
businesses and marketplace sellers. We target
investments that will extend our value chain offer and
increase our presence in faster growing areas of the
parcels sector. We are investing in new equipment to
respond to both our sending and receiving customers
evolving needs such as timely and accurate
tracking information.

The agreement creates opportunities to implement
initiatives such as later acceptance times. Estimated
delivery window, enhanced collection and returns
options are also key initiatives that are underway.

| Annual Report and Financial Statements 2017-18

Principal risk

Status

How we are mitigating the risk

Economic and political environment

Historically, there has been a correlation between
economic conditions and the level of letter and B2B
parcel volumes. Flat or adverse economic conditions
could impact our ability to maintain and grow
revenue, either by reducing volumes or encouraging
customers to adopt cheaper products or formats for
sending letters and parcels.

The Labour Party’s 2017 manifesto included a pledge
to bring a number of private companies, including
Royal Mail, back into public ownership.

Growing in new areas

Our success in growing in new areas of business is
dependent on such factors as our continued ability
to identify new profitable and sustainable areas of
business, implementing appropriate investments,
and having in place suitable structures to support
continued transformation of the business.

The Board continues to monitor the economic
environment including possible implications
of Brexit on the UK economy and the Group’s
operations. Specific areas of focus include:

• Business uncertainty, with the recent slowdown
in economic activity, is possibly an indicator that
business customers will look to reduce costs and
compete aggressively for contracts, impacting
letter volumes, in particular marketing mail.

• A decline in the value of Sterling, which impacts

our International business in terms of the
exchange rate effect on imports and exports and
through the impact of higher inflation resulting
from increases in the prices of UK imported
goods and services. Movements in the Sterling
exchange rate could also result in higher import
prices, increase terminal dues and impact
domestic inflation rates leading to higher fuel and
wage increases.

•

The terms on which the UK leaves the
EU’s customs union and VAT territory.
Our International business is one of the largest
third parties involved in the collection of tax
and duties on behalf of HMRC. Changes to
customs arrangements could impact processing
procedures and charges for international
mail, customer demand and the achievability
of regulated Quality of Service standards for
EU mail.

Economic growth in the Eurozone has shown signs of
improvement but remains fragile in some countries
(notably Italy). The Board will, however, continue
to monitor this position in terms of the impact on
our international parcel volumes, including those
handled by GLS.

We are closely monitoring the development of
Labour Party policy on renationalisation.

Macroeconomic risk assessments are embedded
within the monthly Letters forecasting processes.

The Group also has the following strategies in place:

• A cost avoidance programme to respond to

possible revenue headwinds.

• Business initiatives that are responding to

fluid competitive pressures (especially in the
advertising arena).

• A possible, absorbable reduction in investment

in the short-term to protect the cash and
indebtedness position of the business.

Risks associated with Brexit are continually
monitored and material risks reported to senior
executives. An internal working group has
been established, comprising taxation, legal
and regulatory/policy experts, to work with the
International business to update its Brexit scenario
analysis as events unfold and new information
becomes available.

We are working closely with Government to put in place
systems to ensure the movement of cross-border
parcels continues to operate effectively. The UK
Government explicitly referenced the importance of the
passage of small parcels via Royal Mail in the Customs
Bill White Paper. We are also engaging with Ofcom and
the Department for Business, Energy, and Industrial
Strategy (BEIS) on the applicability of Quality of
Service targets after the UK leaves the EU.

Royal Mail engages regularly with politicians and
policy makers, and closely monitors the potential
impact of political and policy changes on the
Company. The Company runs an extensive public
affairs programme of engagement with politicians
and policy makers. We regularly demonstrate the
significant progress that the Company has made
since privatisation in 2013.

Royal Mail Group is well positioned to grow in
new markets through its subsidiary, GLS. It has a
replicable and scalable business model founded on
the development of strong regional businesses.

Through increasing its footprint and focusing on
growth opportunities in areas such as the deferred
parcels space and B2C parcels market, GLS is
well positioned to support Royal Mail Group’s
overall strategy.

We are continuing to seek opportunities to develop
a broader revenue base and growth in the UK
and overseas.

Our acquisitions are primarily delivered through a
targeted and focused expansion of GLS’ geographic
footprint, investing behind a proven operating model
with a track record of identification, integration and
optimisation of acquisitions over many years.

We are also developing partnerships with retailers
and network partners to stimulate cross-border
volumes between the UK and Asia, as well as
working with China Post to provide Chinese
and UK customers with faster delivery and
tracking services.

We also have a number of small-scale initiatives
to seek new revenues, which leverage our existing
assets. As an example, during 2017 Royal Mail
launched a third party fleet offering to the market
providing maintenance solutions.

The agreement includes the establishment of a
forum to assess new business opportunity ideas.

Annual Report and Financial Statements 2017-18

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Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| Principal risks

Principal risk

Status

How we are mitigating the risk

Regulatory and legislative environment
The business operates in a regulated environment. Changes in legal and regulatory requirements could impact our ability to meet our targets and goals.

Absence of a sustainability framework to
sustain the USO

USO finances are fragile. The regulatory system
applies some constraints to Royal Mail’s ability
to compete for traffic to support the costs of the
Universal Service network. It imposes operational
requirements not applied generally to the industry.
These may impact our revenues and our ability
to compete in the highly competitive sectors in
which we operate. This could ultimately impact
our ability to deliver the Universal Service on a
sustainable basis.

Ofcom will continue to be focused on monitoring Royal
Mail’s efficiency. It will build a detailed delivery cost
model to help inform its view on how cost might change
over time under different scenarios. It will also be used
to review the allocation of Royal Mail’s delivery costs
between parcels and letters.

Ofcom is due to consult on the level of the Second
Class Safeguard cap. The outcome could impact our
commercial flexibility.

We undertake extensive engagement with Ofcom
across all workstreams, including the cost modelling
review and Second Class Safeguard cap consultation.
We will provide comprehensive, evidence-led reports
setting out our position.

We are continuing to lobby BEIS and Ofcom to tackle
emerging issues of USO sustainability. We are
arguing for fundamental changes in the regulatory
environment including:

We have been lobbying Ofcom to introduce
fundamental changes to the regulatory environment.
This includes a greater focus on sustainability. Ofcom
has not taken forward our proposal for a proactive
sustainability framework. It has also not taken forward
the opportunity to raise consumer protection standards
across the industry.

Royal Mail is refuting all of the allegations.

In its annual concurrency report published on 30 April,
the Competition and Markets Authority stated that
Ofcom expects to make a decision in this case before
summer 2018. However, Ofcom has not published a
formal timetable (or provided any such timetable to
Royal Mail).

•

greater focus on sustainability including
through the prompt introduction of a proactive
sustainability framework; and

a level playing field across the whole industry,
including higher consumer protection standards
in parcels and lifting labour standards across the
delivery sector.

This investigation remains a key agenda item on
all updates to both the Royal Mail Board and Audit
and Risk Committee. We are working closely
with our external advisers at every stage of this
investigation and our position remains that we have
been fully compliant with competition law. We have
refuted in our written and oral representations all of
the allegations that Ofcom has put forward, and we
will continue to defend our case.

Competition Act investigation

In January 2014, Royal Mail issued Contract Change
Notices (CCNs) under the terms of the access
contract regime.

In February 2014, Ofcom announced that they would
investigate some of these CCNs. The opening of the
investigation automatically suspended the CCNs that
were the subject of the investigation. These CCNs
were therefore never implemented.

Ofcom issued a Statement of Objections in July
2015. This statement sets out Ofcom’s provisional
view that Royal Mail breached competition law by
engaging in conduct that amounted to unlawful
discrimination against postal operators competing
with Royal Mail in delivery.

Depending on the outcome of the Ofcom investigation
and any appeal, Royal Mail may be fined.

Employment legislation and regulation

Changes to laws and regulations relating to
employment (including the interpretation and
enforcement of those laws and regulations) could,
directly or indirectly, increase the Group’s labour
costs. Given the size of the Group’s workforce, this
could have an adverse effect on the Group.

Recent case law has suggested that, in some
circumstances, regular overtime and commission
payments should form part of holiday pay
calculations. The legal position remains unclear
as case law is still evolving in this area. We have
concluded an agreement with the trade union about
initial steps to mitigate the concern about holiday pay
for part timers. Further discussions are also planned
on this subject.

We continue to monitor developments in case law
relating to the application of the Working Time
Directive in respect of holiday pay calculations. Based
on our estimates of the potential financial impact, we
believe that we have made sufficient provision for any
historic liabilities that may arise.

We liaise with the CBI, HMRC and HM Treasury
to influence employment tax developments and
minimise the impacts for Royal Mail as far as possible.

| Annual Report and Financial Statements 2017-18

Principal risk

Status

How we are mitigating the risk

Health, safety and wellbeing

The business has a large number of employees
including seasonal staff and agency workers.
It also operates a very large fleet, employs a large
number of contractors and interacts extensively
with members of the public. A large proportion of
our employees spend most of their time working
outdoors, on foot or driving, where the environment
cannot be controlled. Despite the very significant
focus on our people’s wellbeing, due to this wide
reach and the number of people affected by the
business’s undertakings, the risk of serious harm to
people cannot be totally mitigated.

The potential fines for very large organisations
(as defined by the Health and Safety Executive)
have greatly increased as a result of the Sentencing
Guidelines – health and safety breaches now have
a much greater financial impact for the business.
We acknowledge that every health and safety
incident has a human impact.

An integrated Safety, Health and Environment
System was completed and deployed in 2017-18.
We continue to work to ensure full and consistent
implementation is achieved across all parts of
the business.

We are reviewing our Safety, Health and
Environment Management System (SHEMS) to
ensure that the Standards contained within it achieve
legal compliance and adequately control our key
risk areas.

Operational implementation of the SHEMS is
monitored via an annual audit programme and a
professional and independent SHE function is in
place to provide advice, support and guidance on the
implementation of standards.

There is an annual SHE initiative and
communications plan in place. This is informed
by a review of compliance data, risk data, KPI
performance and legislative requirements.

Employees have access to health and wellbeing
assistance through our Feeling First Class website,
First Class Support helpline and Occupational
Health provision.

SHE performance is discussed and reviewed by the
board and senior leaders are committed to driving
full compliance to the SHE Management System.

While no material losses related to cyber security
or data breaches have been identified, given the
increasing sophistication and evolving nature of this
threat, and our reliance on technology and data for
operational and strategic purposes, we consider
cyber security and/or a breach of data protection
regulation a principal risk.

As external threats become more sophisticated, and
the potential impact of service disruption increases,
we continue to invest in cyber security. Recognising
that this risk cannot be eliminated, we continuously
review our security enhancement and investment
plans to reflect the changes in the threats we face.

For GDPR we are undertaking activities across the
Group to work towards compliance. This includes
protecting us from data breaches, managing
information rights and managing our marketing
permissions correctly.

The way in which we conduct our business, despite
having a rigorous health and safety regime, can
occasionally have a human impact. That is why
the health, safety and wellbeing of our employees,
contractors, agency workers and members of
the public is of the utmost importance to us.
We acknowledge that there is a risk that a health and
safety incident or failure could result in the serious
injury, ill health or death of employees, contractors,
agency workers or members of the public. This
risk is a key focus for us, given the potential human
impact and the corporate ramifications. We are
including it now in our Principal Risks to reflect its
major internal significance.

Such an incident may lead to criminal prosecution or
fines by the enforcing authority or civil action by the
injured party resulting in large financial losses and
reputational damage for the Group.

Similarly, inadequate arrangements for effectively
managing the health and wellbeing of our
employees could also lead to financial losses
and reputational damage – through increased
sickness absence, lower productivity, civil action or
criminal prosecution.

Major breach of information security,
data protection regulation and/or
cyber-attack

We are subject to a range of regulations,
contractual compliance obligations, and customer
expectations around the governance and
protection of various classes of data. In common
with all major organisations, we are the potential
target of cyber-attacks that could threaten the
confidentiality, integrity and availability of data in
our systems.

A cyber security incident could also trigger material
service and/or operational interruption.

A major breach of data protection regulation is
also considered a risk that could result in financial
and reputational damage, including loss of
customer confidence.

Attracting and retaining senior
management

Our performance, operating results and future
growth depend on our ability to attract and retain
talent with the appropriate level of expertise.

Voluntary turnover in senior management continues
at similar levels to previous years but remains a
business risk.

The Group’s remuneration policy sets out that the
overall remuneration package should be sufficiently
competitive to attract, retain and motivate executives
with the commercial experience to run a large,
complex business in a highly challenging context.

We operate a succession planning process and
have in place talent identification and development
programmes. Our succession planning enabled us to
announce two major internal promotions in April 2018.

Annual Report and Financial Statements 2017-18

| 45

Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| Principal risks

The Directors have assessed the viability
of the Group as part of their ongoing risk
management and monitoring processes.
The Directors have considered their
stewardship responsibilities, previous
viability statements, the nature of the
business and its investment and planning
periods when making this assessment.

The key factors affecting the Group’s
prospects are:

• Strategic focus on costs

• Technology and innovation

• An engaged and motivated workforce

Further details on these factors can be
found on page 17.

While the Directors have no reason to
believe that the Group will not be viable
over the longer term, they consider the
three financial years to March 2021 to
be an appropriate planning time horizon
to assess Royal Mail’s viability and to
determine the probability and impact of our
principal risks. This is the same time frame
as our existing medium-term planning
cycle and therefore a period over which
planning assumptions and the impact of
strategic initiatives are scrutinised. This
period also aligns with the performance
criteria in our long-term incentive
plans (LTIP).

Business divisions prepare detailed annual
forecasts for a 12 month period and
project performance over three years with
reference to economic assumptions and
strategic initiatives.

The key assumptions within the Group’s
financial forecasts include:

• Parcels revenue continues to grow in line
with the addressable UK parcels market.

• Addressed letter volumes continue to

decline by between four and six per cent
per annum.

• No change in stated dividend policy.

• No change in capital structure given the
Group has a €500 million bond which
expires in 2024 and a revolving credit
facility, the majority of which expires
in 2022.

Assessment of viability
The key assumptions within the projections
were stress-tested with reference to risks
set out in the Principal Risks section on
pages 40-45 but focused on those that
could have a plausible and severe financial
impact over the plan horizon.

This year, the Directors considered:

(i) the potential impact of industrial action;

(Principal risk: Industrial Action)

(ii) deteriorating economic and market

conditions which could result in letters
volume decline greater than our
projected four to six per cent range
(Principal risk: Economic and Political
Environment) and

(iii)increased competition in the UK parcels

sector. (Principal risk: Customer
expectations and Royal Mail’s
responsiveness to market changes)

These risks were quantified to create a
downside scenario that took into account
the levels of committed capital and
expenditure, as well as other short

term cost and cash actions which could
mitigate the impact of the risks. Mitigating
actions included:

(i) reducing variable hours and cost

of sales

(ii) removing discretionary pay

(iii) reducing our internal investment

(iv)suspending our acquisition programme

Consideration was also given to the large
fixed cost base required to deliver the
Universal Service Obligation in its current
form. The downside scenario was tested
to determine whether the Group would
remain solvent.

We are pleased to have reached a
ground-breaking agreement with the
CWU on pay, pensions and a number of
customer-focused operational changes.
The Royal Mail Pension Plan (RMPP) closed
to future accrual in its previous Defined
Benefit form from 31 March 2018 and Royal
Mail and the CWU have committed to work
towards the introduction of a Collective
Defined Contribution (CDC) scheme for
all employees. This will be subject to
necessary legislative changes being
enacted. A Defined Benefit Lump Sum
Scheme will sit alongside it. Transitional
pension arrangements commenced on
1 April 2018 and will continue until a CDC
scheme can be established. It is anticipated
that the ongoing annual cash cost of
pensions to the Company will continue to
be around £400 million. In making their
assessment of viability, the Directors
have assumed that future cash pension
contributions remain around this level.

Viability Statement
Based on the results of their analysis,
the Directors have a reasonable
expectation that the Group will be able
to continue in operation and meet its
liabilities as they fall due over the period to
March 2021.

| Annual Report and Financial Statements 2017-18

Strategic report

| Governance

| Financial statements

| Other information

Responsibility leader

Global sustainability leader
of the Transportation
industry group in the Dow
Jones Sustainability Indices

FTSE4Good

Royal Mail is a constituent of the
FTSE4Good Index, ranking in the
top eight per cent of companies

Our
performance

Industry leader in the FTSE
Women on Boards Leadership
Index

Gender pay report shows men
and women are paid broadly
the same

85%of people in the UK think

Royal Mail is an important part
of local communities
Ipsos MORI Corporate Image Survey Winter 2017

reduction in Road Traffic
Collision Frequency rate

29%

£60m

reduction in carbon emissions
since 2004-05

Won the Lifetime Achievement
Award for payroll giving

Annual Report and Financial Statements 2017-18
Annual Report and Financial Statements 2017-18

| 47
| 47

Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| Corporate responsibility

Corporate responsibility

Our corporate responsibility (CR) strategy is an integral part of
realising our core strategic priorities. The objectives at the heart
of our business and corporate responsibility strategies are the
same – to generate sustainable shareholder value.

Our CR strategy comprises six key objectives:

• Deliver economic and social benefit to the

communities we serve

• Drive colleague advocacy for the Group

and its community role

• Manage the environmental impacts of our

business and operations

• Deliver our transformation responsibly

• Operate with integrity

• Communicate our management of
corporate responsibilities openly
and transparently

Our CR objectives support the delivery of
our business strategy. We report progress
against them under the areas of customer,
people, community, environment and
suppliers. Our CEO has overall responsibility
for CR. Members of the senior leadership
team take responsibility for each of the major
strands of our CR agenda.

We are committed to communicating with
our stakeholders openly and transparently.
We welcome the UK Government’s
Non-Financial Reporting Directive. This aims
to increase transparency around companies’
responses to social and environmental issues.
In line with the requirements of the Directive,
this section summarises information relating
to Royal Mail’s position and performance in
relation to social and environmental matters
material to our Company. We publish a full
report on the outcomes and impacts of our
activities in our annual CR report. It is prepared
in accordance with the Global Reporting
Initiative (GRI) Standards: Comprehensive
option. It is reviewed by the Board prior to
being published. The CR policies and reports
referred to in this chapter are available at the
following address: www.royalmailgroup.com/
responsibility.

We engage an external auditor to assure our
key non-financial performance indicators.
They cover customer, people, community
investment and environment metrics.
The assurance process involves data
testing and a review of the key structures,
systems, processes and controls for
managing and recording information. This
is done to ensure that the data we report

is reliable and complete. Assurance is
performed in accordance with internationally
recognised reporting standards – ISAE
3000 (Revised)/3410 and AA1000AS. Our
2017-18 assurance statement will be
available on our website from June 2018 at
www.royalmailgroup.com/responsibility/
cr-reports.

Social and environmental risk
management
We assess risks arising from the social
and environmental issues relevant to our
business at least once a year. We use our risk
management framework to determine their
criticality. The risks deemed most critical to
the Company are set out on pages 40-45,
in the Principal Risks section of this report.
More information about our approach to
risk management is given in the Governance
section, on pages 69-73. Our non-financial
key performance indicators are available on
pages 18-19.

Measuring our progress
We are independently rated as a leading
responsible business. In 2017, we were
named global leader of the Transportation
industry group in the Dow Jones
Sustainability Indices. We were ahead
of over 135 companies in ground-based
transportation, marine and aviation
industries. We have been included every year
we have been eligible, since our flotation.

We were also included in the FTSE4Good
Global Index again in 2017. We were ranked in
the top eight per cent of companies included.
This was because of our environmental,
social and governance performance.

Our customers
We are proud of the role we play in connecting
customers, businesses, organisations and
communities, including those in remote and
rural areas. Our vision is to be recognised
as the best delivery company in the UK
and across Europe. This means putting the
customer at the heart of everything we do.

We are adapting our business to respond
to fast-changing consumer expectations.
We are investing in technologies that give
customers more visibility over their deliveries.
In the UK, we are using our PDA technology

| Annual Report and Financial Statements 2017-18

to provide notifications of the estimated
time of delivery. We have also launched
new digital tools for Parcelforce Worldwide
customers. They offer real-time tracking of
parcels and the opportunity to specify in-flight
delivery options. In Europe, GLS expanded
its FlexDeliveryService. It is now available in
20 countries. This service makes it easier for
online shoppers to take delivery of goods they
have purchased abroad, with a wide range of
delivery options to their home country.

Royal Mail is a key delivery partner for small
and medium enterprises (SMEs) in the UK.
We provide simple, flexible and value for
money postage choices. We integrated a
number of additional e-commerce platforms
and online marketplaces into our Click &
Drop service. They include Shopify, Magento
and Not On The High Street. Click & Drop
makes it easier for small retailers using
these sites to purchase postage and print
address labels.

Our Corporate Balanced Scorecard includes
three customer service performance indicators.
In 2017-18, our mean business customer
satisfaction score remained stable at 78. Our
consumer satisfaction score improved by one
point to 73. We were disappointed to record an
increase in the number of customer complaints,
from 517,000 to 565,000. This was driven
primarily by the growth in tracked parcels.
Complaints across some of our main complaint
types, such as misdeliveries and redirections,
reduced during the year, as a result of ongoing
initiatives. We continue to work to improve the
scanning of items and ensuring that appropriate
details are written on the ‘Something for You’
card, if a customer is not home to take delivery
of a parcel.

We also ask our own people how customer-
focused they think our products and services
are, in our annual Employee Survey.
We achieved a customer focus score of 70,
an increase of one point compared with the
previous year.

Scam mail
We are committed to tackling the scourge of
scam mail. We will never knowingly deliver
it. Scam mail is upsetting and distressing for
victims and their families. Royal Mail works
closely with law enforcement agencies and
the National Trading Standards Scams Team
to tackle this issue. Since November 2016,
as a result of a range of initiatives, we have
stopped over three million items of scam
mail from reaching customers.

Our people
Our people are fundamental to our ability
to achieve our strategic priorities. We rely
on them to fulfil the Universal Service and
to go the extra mile to deliver high quality
customer service. Engaging our people within

a fair, rewarding and customer-focused
culture is essential for our future success.

companies in a list of best French employers
by business magazine, Capital.

Pay, pensions and terms
& conditions
Royal Mail is proud to be a responsible employer.
We believe good employment conditions lead to
better service standards for consumers. Around
71 per cent of our UK employees work full time,
with 29 per cent part-time. Over 98.7 per cent of
our UK employees are on permanent contracts.
All permanent Royal Mail and Parcelforce
Worldwide employees earn considerably
above the Living Wage. They receive benefits
associated with permanent employment, such
as paid holiday and a good pension. We are
committed to continuing to provide the best
pay and terms and conditions in our industry.
In turn, we continually work with our unions
to agree changes to our labour model and
working practices to enable our business to
remain competitive.

During the year, we reached an agreement with
the Communication Workers Union (CWU) on
a new pensions, pay and pipeline deal. We kept
colleagues informed of our negotiations with
the CWU through internal communications and
regular face-to-face events. We held around
1,000 town hall briefing sessions across
across the country. We reached over 43,000
frontline colleagues. We also briefed around
2,500 frontline managers across a series
of events. See the Chief Executive Officer’s
review on page nine for more information
about the new deal.

Engagement and culture
Engaged employees are essential to the
customer-focused culture we are building.
Employee engagement is one of the two
people-related key performance indicators
on our Corporate Balanced Scorecard.
It is measured through our annual
Employee Survey.

We saw an increase in our employee
engagement score, from 57 points to 59.
Engagement levels also play a part in
employee turnover. This influences training
and recruitment costs. In 2017-18, our
employee turnover rate remained low at
7.2 per cent. This compares well against the
average UK turnover rate of 23 per cent1.

During 2017-18, GLS Denmark was rated as
one of the country’s best employers by Great
Place to Work. In their summary statement,
award judges praised GLS Denmark’s
approach to work life balance and personal
development. GLS France was ranked 11 out
of almost 100 freight transport and logistics

1 Total UK turnover rate taken from www.xperthr.co.uk/
survey-analysis/labour-turnover-rates-2017/162496/

2 Reduction in road traffic collisions was added to the

Corporate Balanced Scorecard in 2016-17.

Creating a culture of ownership
Around 91 per cent of Royal Mail employees
are shareholders in the Company. Twelve per
cent of the Company was gifted to eligible
Royal Mail employees on, and following,
privatisation. All of our eligible full-time
employees received a maximum of 913 Free
Shares, regardless of grade. Employees that
have been with Royal Mail since privatisation
have each received dividends – before tax – of
over £863.

Our Save As You Earn (SAYE) scheme, which
launched in 2014, matured in December
2017. More than 36,000 employees entered
the scheme to be able to exercise options
over 15 million shares at a 20 per cent
discount. At year end, over 21,000 employees
had exercised that option.

Health and safety
The health, safety and wellbeing of our
workforce is an enduring priority for us.
We publish our group-wide Health and
Safety policy on our website. This outlines
our commitment to maintaining a safe and
healthy workplace.

In 2017-18, we recorded a Lost Time
Accident Frequency Rate (LTAFR) of 0.54 per
100,000 hours worked. That is an increase
of 9.4 per cent compared with 2016-17. Our
LTAFR was impacted by an increase in falls
occurring while postal staff were out on
deliveries. These types of accidents accounted
for 40 per cent of all lost time accidents in
2017-18, as a result of the adverse weather
during the second half of the year.

Road traffic collisions are another common
cause of accidents. We are working hard
to reduce the number of accidents we
are involved in. The Road Traffic Collision
Frequency Rate is one of the measures on our
Corporate Balanced Scorecard. This year, we
reduced our Road Traffic Collision Frequency
Rate by nine per cent. We continue to invest in
driver training and road safety campaigns to
promote safe driver behaviours. We increased
the frequency and scope of our road safety
communications to cover more key risk areas.
They include driver distractions and vulnerable
road users. We updated our driver training
to improve awareness of our most common
road accident type: slow manoeuvring. GLS
conducts an annual road safety campaign,

Safety metrics

Sick absence (%)

Lost Time Accident Frequency Rate

5.09

0.54

Reduction in road traffic collisions (%)2

aimed at the transport partners that
deliver parcels on their behalf. It includes a
recommended set of road safety measures
and communications materials. They include
awareness-raising posters, safety stickers
for vans and items promoting GLS’ ’10 golden
rules’ of road safety for delivery drivers.

It is with great regret that we report that four
people lost their lives in connection with our
activities in the UK in the past year following
road traffic accidents. We liaise closely with
the relevant authorities. We complete our
own detailed investigations to determine the
root cause of each accident and identify any
lessons that can be learned. Investigations
are discussed at Board level and outcomes
are communicated across the Group.

During the year, there was an increase in sick
absence, from 4.63 per cent to 5.09 per cent.
Musculoskeletal and mental health issues
remain the leading causes of long-term
illness among our people.

We launched a five-year mental health
strategy, “Because Healthy Minds Matter”.
It aims to increase awareness of mental
health issues; reduce the associated stigma;
and provide tools and guidance to help
colleagues and their loved ones in times
of need.

We also launched a pilot Mental Health
Ambassador programme, supported by
our unions. Around 9,000 managers have
completed a new, mandatory mental health
e-learning course. More than 700 managers
have, in addition, completed our face-to-face
Mental Health First Aid Awareness training
course. Around 85,000 mental health
information booklets have been distributed to
UK colleagues.

In May 2017, we launched a three year
partnership with Action for Children, Mind
and Mental Health UK as part of our strategic
commitment to mental well-being. The
partnership covers training, awareness-raising,
communications, pro-bono support and work
placements and fundraising. See page 51 for
more information.

Building on work we undertook in the
prior year, we also launched a range of
initiatives to tackle musculoskeletal injuries.
We developed new training materials
for our people. We delivered an internal
communications campaign to promote safe
lifting techniques, especially when handling
parcels. In addition, we created an e-learning

2017-18

2016-17

2015-16

2014-15

4.63

0.49

12.3

4.51

0.49

N/A

4.74

0.70

N/A

Annual Report and Financial Statements 2017-18

| 49

Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| Corporate responsibility

course for managers to help manage
musculoskeletal problems in the workplace.

Promoting diversity
Royal Mail employs a diverse mix of people
that reflects the communities we serve.
We are committed to being an equal
opportunities employer. We proactively seek
to recruit people from socially excluded
groups. It is our policy to provide equal
opportunities for our employees. We do so
based on an individual's performance and
skills, with no discrimination.

Gender diversity
At our year end, 33 per cent of our Board
were female. This accords with Lord Davies’
recommendation of 33 per cent female
Board representation by 2020. At senior
management level, 31 per cent of our
colleagues are women, compared with
17 per cent in operational grades. In 2017-18,
Royal Mail was named as one of The Times
Top 50 Employers for Women for the fifth
consecutive year. In February 2018, we
were named top of our industry in the FTSE
Women on Boards Leadership Index. The
index ranks almost 900 companies from ten
different industries on their combined gender
diversity and social impact score.

We are addressing the gender balance
across our organisation through a number of
initiatives. We launched a Managerial Cover
programme for frontline manager roles.
This is about providing dedicated resource
to cover days off and annual leave. As well
as developing the skills of existing frontline
employees, the programme ensures that
the operation continues to run smoothly
while the permanent manager is absent. The
programme is due to create around 800 new
managerial roles across the country. To date,
we have promoted 54 females into frontline
managerial roles. We have placed a further
42 female new joiners into these positions.

This year, we are celebrating the
100th anniversary of the first women in
Britain getting the right to vote through
a multi-faceted internal and external
communications campaign. We are inviting
colleagues to nominate one hundred
inspirational women to be profiled in our
internal communications, to celebrate
the achievements of women in our
workforce. We also released a special Vote
100 stamp issue featuring images from
the Suffragette movement.

Gender pay
We conduct a Company-wide pay review on
an annual basis, to identify any discrepancies
in salaries paid to males and females.
This year, our review was conducted in
accordance with the new UK gender pay gap

reporting regulations. We were pleased to
find that, as in previous years, the average
salaries paid to men and women are broadly
the same. On a mean basis, women are
paid 2.1 per cent more than men. Women
are paid more on a mean basis due to the
fact that we have a greater proportion of
women in senior positions. On a median
basis, men are paid 1.5 per cent more than
women. The difference in median pay rates
is because men are more likely to select
work that qualifies for allowances, such as
shift work during the evening or at night.
Our full Gender Pay Report is available at the
following address: www.royalmailgroup.com/
responsibility/our-people.

Ethnic diversity
Royal Mail’s ethnic profile is broadly
representative of the UK population. Around
10 per cent of our employees declare
themselves to be from ethnic minority
backgrounds. We work with Business in the
Community’s (BITC) Opportunity Now and
Race for Opportunity programmes. They
promote best practice in equal opportunities.

Supporting people with
disabilities
As a Level 2 employer of the Disability
Confident programme, we are committed
to employing people with disabilities and
supporting disabled employees during
employment. Approximately 11 per cent
of our employees identify themselves as
having a disability. We make reasonable
adjustments to the workplace to support
employees who are, or become disabled.
We provide training as required, for example
in assistive technology and software.

This year, our Disability Steering Group
reviewed our Disability Confident and
Reasonable Adjustments training and toolkits
to ensure they provided managers with the
right guidance when supporting disabled
colleagues. The review identified several
changes that will be made to simplify the
tools that we offer.

Inclusive workplaces
We are proud to be part of Stonewall’s
Diversity Champions programme.
It campaigns for equality for lesbian, gay,
bisexual and transgender people (LGBT).
Stonewall helps us identify areas for
improvement within our LGBT programme.
This year, we focused on promoting
transgender awareness and trans-inclusive
policies and facilities. The transgender
sub-group of the LGBT steering group
held a Gender Intelligence workshop in
London. We also launched a transgender
awareness film featuring transgender Royal
Mail employees from across the country.
In addition, members of our LGBT&Friends
Diversity Steering Group attended Pride and
Sparkle events across the country, including
Glasgow, Manchester, London, Isle of Wight
and Cardiff.

Training and career development
We are committed to investing in our people
at all levels. We aim to provide our employees
with the tools, knowledge and resources to
deliver our business strategy while offering
fulfilling careers and opportunities for
continual development.

We invested £9.8 million in training,
delivering the equivalent of around
18,000 training days. More than 1,100
logistics employees attended our Fleet
Management training programme. Nearly
500 colleagues were trained on new parcel
sorting machinery. This will enhance
our capability in the parcels market. This
will enable us to offer a better service to
our customers.

GLS Denmark undertook a large-scale
learning and development project to make
it easier to share knowledge and experience
across departments. Around 300 site visits
took place. Colleagues in adjacent fields are
working together to share best practice.

Our communities
Royal Mail seeks to be an integral, valued
and trusted part of every community that
our service reaches. Our main contribution
to communities is our social and economic

Gender distribution
(number of people)

Royal Mail plc Board

Senior Management3

Management

Administration

Operational

UKPIL

GLS

Female

Male

Female

Male

730

1,460

1,387

1,619

5,445

970

301

3,414

3,105

20,967

105,556

1,953

9,132

3 Includes direct reports of Chief Executive's Committee members.

| Annual Report and Financial Statements 2017-18

impact. We leverage our assets – our core
business competencies, infrastructure, people
and brand – to benefit good causes. Our
Corporate Responsibility Policy outlines how
we interact with, and manage our impacts on,
the communities that we serve.

We make the seventh biggest contribution of
any UK company to the UK economy. One in
every 194 jobs in the UK is provided by Royal
Mail. We make a significant contribution to
social inclusion. That is through the vital
employment and earnings that we bring to
some of the UK’s poorer regions.

In 2017-18, Royal Mail contributed
£7.1 million directly to good causes and
schemes for disadvantaged groups. That
includes around £440,000 in matched giving
and grant schemes to support employees’
fundraising for charities and good causes.
In addition, our people donated £2.7 million
to hundreds of charities and good causes
across the UK. Over the last 29 years, our
people have given £60 million through our
payroll giving scheme. We won the Lifetime
Achievement award at the National Payroll
Giving Excellence Awards in 2017.

We launched a new mental health charity
partnership in 2017, with Action for Children,
Mind and Mental Health UK. As part of our
partnership with Action for Children, our
lead charity partner, we are raising funds
to deliver the 'Blues Programme'. Over the
next three years, this aims to help around
8,000 young people aged 15-18 years. It is a
six-week course delivered by specialist youth
workers. It enables young people to identify
situations that can trigger anxiety, fear or
depression and teaches them a range of
coping strategies.

We partner with the charity Missing People
to distribute missing person alerts through
our network of handheld scanners. For the
third consecutive year, we funded the charity’s
Child Rescue Alert system. This allows
members of the public to sign up for alerts to
their mobile phones. We also funded Missing
People’s crisis line over the Christmas period.
This provides round-the-clock support for the
families of missing people.

In the Netherlands, GLS works with Heppie,
a Dutch charity supporting deprived children.
GLS participates in excursions and covers
the costs of around 50 bus tours per year.
GLS also transports equipment for the
charity. In Germany, employee volunteers
visited nursing homes over the festive period,
decorating Christmas trees and spending time
with elderly people in six cities. GLS Belgium
launched a new volunteering programme,
supporting employees, transport partners
and delivery drivers to volunteer their time to
engage with local causes.

Our environment
Managing our use of natural resources is
a strategic imperative for us. Increasing
our efficiency and reducing resource use
helps us to control our costs and support
business performance, and conserve the
natural environment in which we operate.
Our Environment Policy sets out our
environmental impacts. This includes
energy, water and waste as well as how
we work with customers and suppliers on
environmental issues.

We refreshed our environment strategy to
help drive continuous improvement in our
performance. The five-year strategy has the
following key objectives:

• Embedding internal and external

environment standards;

• Actively anticipating and responding to

emerging environmental issues;

• Adopting existing and new technologies
to help us to reduce our emissions and
resource use;

• Building environmental awareness and
encouraging behavioural change in our
workforce; and,

• Promoting the benefits of strong
environmental management with
customers and through our supply chain.

We will monitor our performance against our
strategy using three existing targets. They
are: reducing our total carbon emissions,
reducing our water consumption, and
increasing waste diverted from landfill.

Climate change risks and
opportunities
We welcome the recommendations of the
Taskforce on Climate-related Financial
Disclosures (TCFD), an industry-led
taskforce founded by the Financial Stability
Board. The recommendations aim to
standardise climate-related financial
reporting to make it easier for investors
to assess the impact of climate-related
risks and opportunities. They encourage
companies to make disclosures on
governance, risk management, strategy
and metrics to support their approach to
addressing the impacts of climate change.

Expectations for reporting in these areas
will grow. As a first step, we have convened
an internal working group to oversee the
adoption of the TCFD’s recommendations.
We anticipate reporting further on these areas
in future. This includes through our 2018
CDP submission.

Our approach to risk management is detailed
on pages 69-73. The Risk Management
Committee (RMC) and Audit and Risk
Committee have overall responsibility for

the oversight of risk management on behalf
of the Board. These committees support
the establishment, communication and
integration of risk management throughout
the business. Climate-related risks and
opportunities are assessed and managed
using the Company’s overarching risk
management framework. In line with the
TCFD’s recommendations, we consider
both physical and transitional risks in this
assessment, amongst other types of risk.

To date, we have not identified any climate-
related risks that have been assessed as
reaching principal risk level. However, we
recognise that climate change presents both
risks and opportunities for our Company.
Our main climate-related risks include price
rises as a result of resource scarcity, and the
financial impact of adapting our business to
meet changing environmental legislation.
These risks are balanced by opportunities.
They are improving our energy and fuel
efficiency, and reducing associated operating
costs. We develop risk controls and mitigation
plans for climate-related risks identified
as reaching certain risk and impact levels.
We also monitor emerging policy-related risks.
We align our policy engagement with our
overall climate strategy.

The RMC reviews business unit risk registers
on a regular basis. It ensures that all risks on
the Company’s consolidated environmental
risk register are reflected in business
units’ risk registers as appropriate. Where
climate-related risks and opportunities
are identified, individual business units are
required to factor the actual and potential
impacts into their strategies and financial
planning as necessary.

Our public commitment to reducing our
carbon emissions relates to the identified
climate-related risks and opportunities.
Our target is to maintain our carbon
emissions at 20 per cent below the levels in
2004-05 until 2020-21. Around two-thirds
of our carbon emissions are derived from
our vehicles and transport. Therefore, a vital
part of maintaining our performance against
our carbon emissions reduction target is
improving our fleet fuel efficiency. We closely
monitor our fleet fuel efficiency. We take into
account the volume of mail items we handle
and the amount of fuel we use to deliver
them. In 2017-18, we emitted 4.8 per cent
less CO2e per cubic metre of items carried,
compared with the previous year.

Carbon emissions
The table below sets out our Group carbon
dioxide equivalent (CO2e) emissions. Our total
UK carbon footprint decreased by four per
cent compared with the previous year. On a
normalised basis, emissions decreased by
4.1 per cent per £1 million revenue.

Annual Report and Financial Statements 2017-18

| 51

Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| Corporate responsibility

CO2e Emissions
(’000 tonnes)

Scope 1

Scope 2

Scope 3

Total

2017-18

2016-17

2015-16

Total

UKPIL

GLS

Total

UKPIL

GLS

Total

UKPIL

451.1

436.6

118.1

83.8

98.3

83.8

14.5

19.8

458.2

444.9

134.4

116.3

13.3

18.1

473.7

458.4

152.2

134.1

87.7

88.7

GLS

15.3

18.2

653.0

618.7

34.3

680.3

648.9

31.4

714.6

681.2

33.4

Tonnes CO2e per £1m revenue

81.3

Scope 2 (market-based)

38.3

8.5

29.8

40.3

84.7

14.3

26.0

40.7

88.8

14.1

26.6

We quantify and report our organisational greenhouse gas emissions according to the Defra Environmental Reporting Guidelines 2013 and have utilised the UK Government 2017
Conversion Factors for Company Reporting in order to calculate carbon dioxide equivalent emissions from corresponding activity data. The standards classify a company’s GHG
emissions into three ‘scopes’. Scope 1 emissions are direct emissions from sources that are owned or controlled by Royal Mail, such as the fuel used in our vehicles. Scope 2 emissions
are indirect emissions from the generation of purchased energy, such as the emissions from our electricity consumption and district heating. We have reported all material Scope 1 and
Scope 2 emissions for which we consider ourselves responsible and exclude immaterial sources such as fugitive emissions from air conditioning in owned vehicles. Scope 3 emissions
are all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions. For Royal Mail, this
includes GHGs emitted through the use of third party road or air freight for the transportation of mail. Scope 3 emissions are included in UKPIL reporting only.

In 2017-18, UKPIL emissions (including
Scopes 1, 2 and 3) were 29.1 per cent below
those in 2004-05. This is the baseline year for
our emissions reduction target. Maintaining
this performance will be challenging. Parcel
volumes are increasing. Demands on our
vehicles and fuel consumption will continue
to grow. We are pursuing energy-saving
opportunities across our fleet and property
portfolio. We are exploring more efficient
ways of balancing the air, rail and road
transport that we use to deliver mail items.
We are training our employees in more
energy-efficient behaviours.

Fleet emissions
As provider of the UK’s Universal Service
Obligation, we have a requirement to maintain
a large fleet of vehicles to enable us to
deliver mail to over 30 million addresses,
six-days-a-week. The growth in parcels is
driving up our energy demand. We recognise
our responsibility to reduce emissions
associated with our fleet and help improve
air quality in the communities in which we
operate. Our approach to reducing fleet
emissions focuses on three key areas.
They are: investing in new vehicles and
technologies, changing driving styles, and
making our transport network more efficient.

We are undertaking a number of trials and
initiatives in our current fleet to drive down
fuel consumption. When older vehicles
come to the end of their lifecycle, they are
replaced with new vehicles that meet the
latest emissions standards. Our fleet also
includes electric and liquefied natural gas
(LNG) vehicles. This year, we purchased
100 electric vans to be used by postmen and
women on their delivery rounds. We have
commissioned nine electric-powered heavy
goods vehicles to trial for transporting mail
between distribution centres in London and
the South East. Over time, we plan to increase

the number of alternative fuel or advanced
technology vehicles in our fleet. Our longer-
term ambition is to transition to a low carbon
fleet and ensure that we are investing in a
fleet that meets future legislation.

We also use telemetry systems to promote
safer and more efficient driving. Around
42 per cent of our vehicle fleet is fitted with
telemetry. In 2017-18, using telemetry saved
us approximately 500,000 litres of diesel,
equating to 1,300 tonnes of CO2e.

Reducing our use of air transport helps to
lower our CO2e emissions and reduce costs.
During 2017-18, we replaced air transport
with road services between Newcastle and
East Midlands Airport. This has reduced
associated CO2e emissions by approximately
3,000 tonnes per annum.

During 2017–18, GLS have added a number
of alternative fuel vehicles to reduce their
fleet emissions. Five electric vehicles
were introduced in GLS Spain, along with
10 natural gas vehicles in Romania. GLS
Italy continues to use low emission forms of
transport with 64 electric vehicles and five
cargo bikes in regular operation.

Buildings emissions
Reducing energy use in our buildings is
another key priority. We reviewed our use of
gas boilers to heat our buildings. As a result,
we replaced 43 boilers with modern, energy
efficient condensing boilers. These are able
to recover emitted water vapour to generate
more heat.

We continue to replace inefficient fluorescent
lights with LED lighting. This year, we fitted
LED lights at a further 30 UK sites, including
Delivery Offices and staff car parks. Several
GLS sites in Denmark also benefitted from
new LED lighting saving approximately
75,000 kWh, the equivalent of 26.4 tCO2e.

| Annual Report and Financial Statements 2017-18

Improved heating controls at GLS Denmark’s
Taastrup depot helped to save a further
172,090 kWh of energy.

Waste and water management
We aim to minimise the amount of waste we
send to landfill. In 2017-18, our target was to
divert 93 per cent of our waste from landfill.
In total, we diverted 99 per cent of our waste
from landfill, six per cent more than our target
for the year.

Water is a precious natural resource. We are
committed to reducing our consumption
of it. In 2017-18, our target was to reduce
our water consumption by three per
cent compared with the previous year.
Unfortunately, we narrowly missed our
target, reducing the amount of water used by
one per cent.

Our suppliers
In the UK, we contribute around £2.3 billion
to the economy annually procuring goods and
services from around 5,000 suppliers. Royal
Mail suppliers are required to comply with our
Responsible Procurement Code of Conduct.
The Code sets out the ethical, social and
environmental standards that we expect. This
includes compliance with the Ten Principles of
the United Nations Global Compact. Suppliers
must also comply with our mail security
procedures and our approach to anti-bribery
and corruption. Although we work extensively
to address any risks and ensure our suppliers
have corrective action plans in place, there are
still occasional instances where suppliers fail
to meet the standards we expect from them.
We may, ultimately, terminate dealings with
a supplier if we find that our codes are not
being complied with.

Ethical principles are embedded in the
Partner Code used by GLS Germany. The
Code requires suppliers working with GLS to

Our taxation strategy
Our taxation strategy is published on
our website, at the following address:
www.royalmailgroup.com/responsibility/
policies. Our taxation strategy sets out our
taxation principles. There is also a detailed
description of our approach. Royal Mail
has a low risk appetite in relation to tax
matters. We are committed to complying
with all applicable tax laws. We will make
decisions in relation to tax with due regard
to our reputation, integrity and status as a
Group whose shares are listed on the London
Stock Exchange.

The Strategic Report was approved by the
Board on 16 May 2018 and signed on its
behalf by:

Moya Greene
Chief Executive Officer
16 May 2018

Stuart Simpson
Chief Finance Officer
16 May 2018

adhere to principles relating to anti-bribery
and corruption and health and safety. Further
information about our approach to supply
chain risk management is available in our
2017-18 Corporate Responsibility Report.

Anti-bribery and corruption
Royal Mail has a strict zero-tolerance policy
on bribery and corruption. The principles of
the UK Bribery Act are embedded within our
Anti-bribery and Corruption Policy. This is
available on our website.

Our Business Code of Conduct sets out the
standards and behaviours we expect of our
colleages. This includes our zero-tolerance
approach to bribery and corruption.
We encourage our people to report any
instances of bribes or suspected bribes
to Group Compliance, or through our
confidential Speak Up line. GLS’ Code of
Business Standards, updated in 2018, also
reinforces our strict approach to any form of
corruption. The Code is available to all all GLS
employees. It is translated into 20 languages.

We provide our people with online and
face-to-face training to support our approach
to bribery and corruption, as well as annual
compliance campaigns for colleagues within
operations. We monitor the outcomes of this
training regularly. Where knowledge gaps
are identified, we adapt our training and issue
internal communications to ensure that our
people remain informed on our approach.
Further information is available in our
2017-18 Corporate Responsibility Report.

Human rights
We are committed to upholding and
respecting human rights. Our commitment is
embedded in our company-wide Corporate
Responsibility Policy, our Responsible
Procurement Code and our Business Code
of Conduct. In addition to obeying the laws,
rules and regulations of every country in
which we operate, we implemented and
commit to respect the United Nations
Universal Declaration of Human Rights
and the International Labour Organization
Fundamental Conventions. They cover
freedom of association, the abolition of forced
labour, equality and the elimination of child
labour. Our risk of human rights violations
is relatively low. But, we recognise that
human rights violations, including forced
labour and trafficking, can occur in all sectors
and countries. As a responsible business,
we are committed to playing our part to
help eliminate it. Our Modern Slavery Act
statement details the steps we take to help
prevent any incidence of modern slavery
both in our own business and in our supply
chains. It is available at the following address:
www.royalmailgroup.com.

Annual Report and Financial Statements 2017-18

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| Corporate governance

Corporate governance

”As a Board, we highly value good governance and
believe that it is essential for the sustainable growth
of our business.”

Chairman’s introduction
Dear shareholder,
On behalf of the Board, I am pleased to
present this year’s corporate governance
report. There are considerable changes going
on in the corporate governance environment,
principally with the proposed introduction of
a new UK Corporate Governance Code (the
Code). This aims to ensure companies such
as ours are focused on their stakeholders,
corporate culture and diversity.

Why is good governance
important to Royal Mail?
We require first-rate governance principles
and practices that are adhered to and
embedded throughout the organisation.
Undoubtedly, a robust and well considered
governance framework enables us, the
Directors, to discharge our duties and
oversee the Group’s performance for the
benefit of all of our stakeholders.

I am very conscious that governance is not
just a box-ticking exercise but is required
for a company to keep up with a changing
business environment. During the year, we
considered various developments in the
corporate governance arena and how we will
address some of the requirements of the
revised Code to ensure its spirit is embedded
in our Board behaviours.

Why is culture an important
success factor for
Royal Mail?
As I mentioned last year, our Board
is committed to promoting a culture
of uncompromising ethical standards
throughout the business, based on honesty,
integrity, openness and effective debate.
We appreciate that a strong culture within
the organisation can both protect and
generate value.

I endorse our Group’s cultural ethos,
which is:

We are proud to work for Royal Mail.
What we do matters to people. We listen.
We are trusted. Each of us is respected.
We go the extra mile for our customers
and for each other. Everyone contributes
and works together to deliver our
promises, finding ways to be more
successful – faster and better than before
and beating our competition.

How key is stakeholder
engagement to continually
developing a successful
Royal Mail?
As a Universal Service Provider and as we
grow our business outside of the UK, our
stakeholders are becoming more diverse. As a
customer-led operation, effective stakeholder
engagement is extremely important to us.
It plays a critical part in the success and on-
going sustainability of the business and helps
our understanding of material issues.

See page 64 for further details on
our stakeholder engagement and our
various initiatives.

What have the changes been
to the Board composition
this year?
We have continued to refresh the Board.
I discuss this on page 6 as well as in the
Nomination Committee report on page 65.
We recently announced changes to our Board.
The Board and Moya Greene have agreed
that she will retire in September 2018, after
more than eight years as CEO. Rico Back will
assume the role of Group Chief Executive
Officer and join the Board on 1 June 2018.
Sue Whalley will join the Board and take on
the role of Chief Executive Officer of Post and
Parcels, Royal Mail UK, at the same time.

| Annual Report and Financial Statements 2017-18

Moya will step down as CEO on 1 June 2018.
She will step down from the Board on 19 July
2018, the date of the Company’s AGM, and
will not be standing for re-election. Moya will
remain at the Company until 14 September
2018 in order to provide advice and counsel,
working closely with Rico to ensure an
orderly handover.

How is diversity taken into
account when considering
governance at Royal Mail?
As a Board, we know how important a diverse
workforce and a culture where people feel
included and respected are to ensure a positive
impact on business performance. I strongly
believe that the business benefits from a Board
and senior management team that is diverse
in all aspects – not just gender – and that this
facilitates better decision-making.

Our Equality and Fairness Policy ensures
transparency, diversity and fairness at all
stages of employment. I am proud that we
employ a diverse mix of people. We are
committed to ensuring that our workforce
reflects the communities it serves. As a
Board, we will continue to promote diversity
in its broadest sense.

Read more on our Diversity Policy and
initiatives on page 66 and on the skills
and experience of our Board members on
pages 58-60.

Compliance with the UK Corporate
Governance Code 2016

Royal Mail complied in full with the
provisions of the Code published in April
2016, which applied throughout the
financial year ended 25 March 2018. The
Code is issued by the Financial Reporting
Council (FRC) and is publicly available for
review at http://www.frc.org.uk.

How is the effectiveness of
the Board and Committees
evaluated?
Under my personal direction, an evaluation of
the Board, its Committees and the individual
Directors is carried out annually. I, together
with the Chairs of the Committee, find this
a very valuable tool. It allows Directors and
other senior management to provide effective
and constructive observations. It ensures
continuous improvement in our performance
as leaders of the business.

Following an internal evaluation last year,
and in anticipation of a more in-depth
external evaluation in the autumn of 2018
by Independent Board Evaluation, the Board
carried out a lighter touch evaluation in
March 2018. This was also facilitated by
Independent Board Evaluation. The results
of this evaluation found that our Board and
each of the Committees function very well.

Board Activities

They continue to make an effective contribution
to the leadership and progression of the Group.
The findings are discussed in more detail on
page 67.

What drives the
Board’s approach to
succession planning?
Succession planning, both at Board level and
within our senior management community,
is vital to the stability of the Group. We have
developed a clear and robust skills matrix
to ensure all appointments and promotions
maintain the focus on the delivery of
our strategy. It is very pleasing that our
succession planning recently enabled us
to make two major internal promotions.
Alongside Rico Back’s appointment as
Group Chief Executive Officer, we were
delighted to welcome Sue Whalley onto
the Board. We receive recommendations

for appointments to the Board from the
Nomination Committee. The Nomination
Committee also considers appointments to
the senior executive team taking into account
the challenges and opportunities facing
the Company.

What is on the agenda for
2018?
The activities of the Board for 2017-18 and
our objectives for 2018-19 are set out in the
table below. During the reporting year, we
have focused considerably on our strategy
and identifying new growth opportunities.
We also worked closely with our unions and
employees to reach a successful conclusion
to our pay and pension negotiations.

Peter Long
Chairman
16 May 2018

Activity

Board objective 2017-18

What we have done

Board objectives 2018-19

Group strategy

Finalise negotiations and agreements
with unions on pension and pay

Continued focus on cost reduction in the
UK business

Favourable agreement reached with
unions and ongoing Group-wide cost
avoidance objectives achieved

Revenue growth
opportunities

Grow in new areas through targeted
and focused acquisitions as well as
leveraging our existing assets

Technological
developments

Refresh our approach to technology to
improve operational performance

GLS acquired the Spanish express
parcels delivery company Redyser
Transporte and the US overnight parcel
delivery company Postal Express

Postal Digital Assistant (PDA) was
successfully completed, with the PDA
Service Transformation Project now
being rolled out

Introduction of technological solution to
ensure compliance with General Data
Protection Regulation (GDPR)

Oversee the delivery of the changes under
the new agreement. Continue to optimise
our network processes to reflect changes
in customer demand and automation
capability and continued cost reduction

Develop a broader revenue base and
grow in the UK and overseas

Continue to deploy technology to drive
efficiency and increase the pace of
change throughout our operation

Digitalisation of
Royal Mail

Board composition

Define a digital strategy which identifies
and embraces technology relevant for
our future

Review the Board composition and
ensure there is the appropriate skill and
expertise

Succession planning
and talent pipeline

Focus on succession planning and
talent pipeline

Security, including
cyber risk and data
protection

Review controls around security in
particular, including cyber risk and
data protection

Appointment of Non-Executive Director
with significant digital experience

Increase our digital capabilities across
the Group, particularly in e-commerce

Refreshed the Board skills matrix to
facilitate the identification of suitable
candidates during the appointment of
new Non-Executive Directors

Appointed Rico Back as Group Chief
Executive Officer, Stuart Simpson and
Sue Whalley as Executive Directors and
Keith Williams and Simon Thompson as
Non-Executive Directors

Undertook a security review. Assessed
the controls around cyber risk as well
as disaster recovery and business
continuity plans

Ensure the smooth transition of the
newly appointed Directors

Continuously review the skills matrix
and succession for Board and senior
management

Continue to monitor cyber risk and
assess the Group’s resilience

Health and safety

Continue to prioritise health and safety
in the Group

Board reviews monthly health and safety
KPIs at each Board meeting

Raise awareness of the importance of
health and safety across our operations

Rolled out compulsory mental health
training to managers

Annual Report and Financial Statements 2017-18

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| Responsibilities of the Board

Responsibilities of the Board

Board leadership
The Board
The Board is responsible for the stewardship
of the Company and overseeing its conduct
and affairs to create sustainable value
for the benefit of its stakeholders. The
Board is committed to ensuring that it
provides effective leadership and promotes
uncompromising ethical standards, setting
the tone for the Company.

The Board members all have the knowledge,
talent and experience to perform the duties
required of a Director of the business. At the
end of the year, the Board comprised the
Chairman, two Executive Directors and six
Non-Executive Directors. The Board reviews
the independence of its Non-Executive
Directors as part of its Annual Board
Effectiveness review. It considers that each of
the Non-Executive Directors is independent.
This means that, in the view 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
impact their judgement. Full biographies of
each of the Directors are on pages 58-60.

Board meetings
The Board holds regular scheduled meetings
throughout the year. It met eight times during
the year. See the table for Board attendance
on page 61.

During the year, the Non-Executive
Directors and the Chairman met on six
occasions without the Executive Directors
being present. These meetings are an
important way to develop the working
relationships between the Non-Executive
Directors and to assess the performance
of senior management. In addition, the
Senior Independent Director met with
the Non-Executive Directors to assess
the Chairman’s performance without the
Chairman being present.

Information and support
The Board receives business and financial
performance reports at each Board meeting
and reports on health and safety, regulation,
market dynamics and governance. The
Directors receive regular updates and
training on matters such as developments
in corporate governance and compliance
policies. The Company Secretary is
responsible for ensuring the timely provision
of information to the Directors. In addition,
the Directors also have access to an online
Directors’ Reference Manual to support them
in the performance of their duties.

Directors participate in a comprehensive
and tailored induction programme following
appointment to the Board. The Chairman and
the Company Secretary are responsible for
the induction. See page 67, which outlines
Rita Griffin's induction.

Ongoing training is also provided to the
Board. Additional training is available on
request, where appropriate. The Board is
also kept up to date with legal, regulatory
and governance matters by the Company
Secretary at each Board meeting.

Board terms of appointment
Copies of the Directors’ service contracts
and letters of appointment are available
for inspection at the Company’s registered
office during normal office hours and by the
shareholders at each AGM.

Time commitments
The terms of appointment for the Non-
Executive Directors require them to devote a
minimum of two days a month to working for
the Company. In practice, they tend to devote
considerably more time than this, supporting
projects where their areas of expertise can
drive specific initiatives.

The Non-Executive Directors were required to
declare any of their other significant outside
commitments prior to their appointment.
Any new external appointments which may
impact existing time commitments are
considered by the Chairman and agreed by
the Board.

External appointments
Peter Long’s directorships (see biography
on page 58) qualify as his other significant
commitments for the purposes of the
Companies Act 2006. These were discussed
upon his appointment to the Board and
during this financial year. The Board has
considered the time commitment required
of the Chairman’s role. It believes that Peter
Long continues to lead and support the Board
and that he clearly provides the appropriate
time commitment required. The Board
considers that there is no impact on his role
or performance as Chairman as a result of
his external directorships.

The Board believes that there are significant
benefits to both the Group and the
individual when Executive Directors accept
Non-Executive Directorships from companies
outside the Group. During the year, Moya
Greene was appointed as a Non-Executive
Director of EasyJet plc. It was announced on
15 February 2018 that Moya Greene will be
appointed as a Non-Executive of Rio Tinto plc
in the second half of 2018. The date has now
been confirmed as 17 September 2018.

Conflicts of interest
The Companies Act 2006 and the Articles
require the Board to consider any potential
conflicts of interest. The Board considers
the conflicts during the financial year and,
if appropriate, authorises each Director’s
reported actual and potential conflicts of
interest regularly. The conflicts of interest
register was reviewed several times during
the year by the Board.

It concluded that where Directors' conflicts
were appropriately authorised, the process
for authorisation was operating effectively.
Each Director abstains from approving their
own reported potential conflicts. The Board
operates a policy to identify and, where
appropriate, manage potential conflicts of
interest for Directors. The Board will continue
to monitor the status of each conflict. It will
review potential conflicts of interest and take
action to mitigate them as necessary.

Related parties internal controls are in
place to ensure Directors advise the Board
of any related party transactions involving
themselves or their connected persons and
that these are conducted on an arm’s length
basis. Directors have an ongoing obligation to
advise of any changes that would be reviewed
and monitored by the Board. As at 25 March
2018, no Director had advised the Board
of any related party transactions. Note 26
on page 144 sets out the Group’s related
party transactions.

Board Committees and
governance structure
The Board has delegated authority to its
Committees to carry out certain tasks. This is
defined in each Committee’s respective terms
of reference available at royalmailgroup.com
The Committees established by the Board
are shown on page 57. The minutes of each
Committee meeting are made available to
Directors on a timely basis. In addition, each
individual Committee’s Chair reports to the
Board on matters discussed at Committee
meetings and highlights any significant
issues that require the Board’s attention.

Other committees
TopCo Committee
The TopCo Committee provides overall
support to the Chief Executive Officer in
discharging her responsibilities both for
managing the business and of accountability
to the Board. The Committee also oversees
performance management and outlook
for the business, achievement of KPIs and
the Corporate Balanced Scorecard, the
Company’s compliance with the Market
Abuse Regulations, disclosures and any other

| Annual Report and Financial Statements 2017-18

significant business issues. The Committee
normally meets monthly and on an ad hoc
basis as necessary. It is chaired by the Chief
Executive Officer.

Chief Executive’s Committee
The Chief Executive’s Committee (CEC)
supports the Chief Executive Officer on
matters concerning the Group’s overall
framework, including risk management,

financial and operating performance, annual
and strategic plans, external stakeholders,
industrial relations and health and safety
policy. The Committee also develops and
monitors deployment of the Group’s strategy,
annual operating plans and budgets for Board
approval. The Committee meets monthly. It is
chaired by the Chief Executive Officer.

Risk Management Committee
The Risk Management Committee is a
committee of the CEC with a reporting line
to, and which supports, the Audit and Risk
Committee. It meets to promote and support
the establishment, communication and
embedding of risk management throughout
the business. The Committee meets quarterly
and is chaired by the Chief Executive Officer.

The Board and its Committees

The Board
Responsible for the long-term success of the Group, the Board sets the tone in building company culture. It has oversight and accountability
for the wider stakeholders, it sets the objectives and strategy and monitors performance and risk management. It approves major contracts,
investments, internal controls and key policies.

▼
Nomination Committee
Reviews the balance and
composition of the Board and
its Committees in relation to the
diversity of skills, knowledge,
independence and experience.
Ensures a progressive renewal
of Board membership through
orderly succession planning.
Considers talent reviews and
succession planning for senior
executives.

▼
Audit and Risk Committee
Reviews and recommends for
approval by the Board all financial
statements and associated
disclosures. Continuously
satisfies itself that internal
controls and risk management
processes work effectively.

▼
Pensions Committee
Reviews the performance of the
Royal Mail pension schemes.
It does so alongside policy and
strategy considerations and
investment matters because of
the significance of the Group’s
pension plans to its financial
management and its employees.

▼
Remuneration
Committee
Determines, and recommends
for the Board’s approval, the
framework for the remuneration
of the Group's senior executives.
This includes individual
remuneration arrangements
for the Chairman, the Executive
Directors and the Company
Secretary. Agrees targets for any
performance-related incentive
schemes.

Board roles

Chairman*

Responsible for the leadership and management
of the Board and for promoting high
ethical standards. Ensures an effective and
complementary Board, including the appropriate
contribution and sufficient challenge from the
Directors. Ensures the Board determines the
nature and extent of the significant risks that the
Company is willing to embrace in implementing
its strategy. With support from the Company
Secretary, promotes the highest standards
in corporate governance. Maintains effective
communications with shareholders and makes the
Directors aware of their views.

Senior Independent Director

Non-Executive Directors

Acts as a sounding board for the Chairman and
serves as a trusted intermediary for the other
Directors. Leads the annual appraisal of the
Chairman’s performance. Available to meet with
shareholders should they have issues or concerns.

Responsible for contributing sound judgement and
objectivity to the Board’s deliberations and overall
decision-making process, providing constructive
challenge and monitoring the Executive Directors’
delivery of the strategy within the Board’s risk
and governance structure. Satisfying themselves
of the integrity of financial information and of
the effectiveness of financial controls and risk
management systems is another key role.
Determine the appropriate level of remuneration
for Executive Directors.

Chief Executive Officer*

Chief Finance Officer

Company Secretary

Responsible for the executive leadership and
day-to-day management of the Company, to
ensure the delivery of the strategy as agreed by
the Board and in accordance with the Group’s
risk appetite and business plan. Promotes the
Company’s culture and standards.

Responsible for providing strategic financial
leadership of the Company and the day-to-day
management of the finance function. Develops
and monitors the control systems designed to
preserve Company assets and report accurate
financial results.

Advises the Board members, particularly in
relation to corporate governance practices,
induction training and development. Ensures that
Board procedures are complied with, applicable
rules followed and that good information
flows exist to the Board and its Committees.
Communicates with shareholders as appropriate
and ensures due regard is paid to their interests.

* The division of responsibilities between the Chairman and the Chief Executive Officer is available and fully documented at www.royalmailgroup.com.

Annual Report and Financial Statements 2017-18

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| Board of Directors

Board of Directors

Peter Long N*
Chairman

Appointed to the Board
As Non-Executive Director and
Chairman-designate on 18 June 2015.
Became Chairman on 1 September 2015.

Skills and experience:
Peter is a respected business leader with
over 20 years’ experience in FTSE 100
customer-focused companies. Considerable
knowledge of finance, transformation and
consumer experience. Formerly Senior
Independent Director for both Rentokil
Initial plc and RAC plc and a Non-Executive
Director for Debenhams. Also previously
Chief Executive of First Choice Holidays plc,
Sunworld, International Leisure Group
Travel Division and TUI Travel plc.

External appointments:
Deputy Chairman of the TUI AG Supervisory
Board, Executive Chairman of Countrywide
plc and Non-Executive Chairman of Parques
Reunidos Servicios Centrales S.A.U.

Moya Greene C*
Chief Executive Officer

Appointed to the Board*
6 September 2013

Skills and experience:
Moya has extensive leadership experience
gained both in the private and public
sectors. Significant knowledge of the
postal and transport sectors as well as a
strong track record of strategic planning,
finance skills and customer experience.
Formerly, President and Chief Executive
Officer of Canada Post Corporation. Also
held positions as Non-Executive Director of
Great-West Lifeco Inc. and of Tim Hortons
Inc as well as various senior positions in
Bombardier and Canadian Imperial Bank
of Commerce.

External appointments:
Non-Executive Director of easyJet plc and a
Trustee of Tate.
*Original appointment dates to the Board of a Royal Mail
parent company:
– Royal Mail Holdings plc 15 July 2010 to 1 April 2012
– Royal Mail Group Limited 1 April 2012 to

12 September 2013

Non-Executive Director of Rio Tinto (from
17 September 2018).
The Board and Moya Greene have agreed that that she
will retire in September 2018. Moya will step down as
Chief Executive Officer on 1 June 2018. She will step
down from the Board on 19 July 2018, the date of the
Company’s AGM, and will not be standing for re-election.

Orna Ni-Chionna R* A N
Senior Independent Director

Appointed to the Board*
20 September 2013

Skills and experience:
Orna brings a wide range of experience
in retail and strategy gained in
consumer-focused businesses having
previously been Senior Independent
Director at HMV plc, Northern Foods plc and
Bupa. Formerly, Non-Executive Director
of the Bank of Ireland UK Holdings plc and
Bristol & West plc. Prior to this she was a
former Partner at McKinsey & Company.

External appointments:
Non-Executive Director and Chair of
Remuneration Committee at Burberry
Group plc, Non-Executive Director of Sage
plc, Deputy Chair of the National Trust,
Trustee of Sir John Soane's Museum and
Chair of Client Service at Eden McCallum.

*Original appointment dates to the Board of a Royal Mail
parent company:
– Royal Mail Holdings plc 1 June 2010 to 1 April 2012,

Senior Independent Director on 1 April 2011

– Royal Mail Group Limited 1 April 2012 to

12 September 2013

Key to membership of Board
committees

A – Audit and Risk Committee

N – Nomination Committee

P – Pensions Committee

R – Remuneration Committee

C – Chief Executive’s Committee

* – Chair of the Committee

| Annual Report and Financial Statements 2017-18

Rita Griffin A R
Non-Executive Director

Appointed to the Board
1 December 2016

Paul Murray A* N P R
Non-Executive Director

Appointed to the Board*
20 September 2013

Les Owen P* A R
Non-Executive Director

Appointed to the Board
20 September 2013

Skills and experience:
Rita has considerable experience in
developing and implementing strategies
and leading substantial transformation
programmes, which she has gained through
her career at BP group. She has held a
number of leadership positions within BP
plc in manufacturing, logistics, retail and
functional organisations. Most recently,
Non-Executive Director of BP's joint venture
in China, Shanghai Secco Petrochemical
Company Limited. Previously, Chief
Marketing Officer, BP plc and Chief
Operating Officer for several BP businesses
including automotive fuels, aviation fuels,
LPG, lubricants and retail.

Skills and experience:
Paul has a broad range of experience in
finance and technology gained from a
cross-section of industries. Previously,
Non-Executive Director of Independent
Oil and Gas plc, Thomson SA and Tangent
Comunications plc, Senior Independent
Director of Taylor Nelson Sofres plc,
and Group Finance Director of Carlton
Communications plc and LASMO plc.

External appointments:
Non-Executive Director and Chair of the
Audit and Risk Committee at Qinetiq Group
plc. Non-Executive Director of Ventive Ltd
and Naked Energy Ltd.

*Original appointment dates to the Board of a Royal Mail
parent company:
– Royal Mail Holdings plc 1 August 2009 to 1 April 2012
– Royal Mail Group Limited 1 April 2012 to

12 September 2013

Skills and experience:
Les is a qualified actuary with over 35 years’
experience in the financial services industry.
Extensive operational, financial, pensions
and insurance experience. Previously
Chief Executive Officer roles with AXA Asia
Pacific Holdings and AXA Sun Life plc and a
member of the Global AXA Group Executive
Board. Held various Non-Executive Director
positions at Just Retirement Group plc,
CPP Group plc and the Post Office Limited
as well as Chairman of Jelf Group plc.

External appointments:
Non-Executive Director of Computershare
and Discovery Holdings.

*Original appointment dates to the Board of a Royal Mail
parent company:
– Royal Mail Holdings plc 27 January 2012 to

1 April 2012

– Royal Mail Group Limited 1 April 2012 to

12 September 2013

Changes to the Board during the year

• Matthew Lester left the Company

following the AGM on 20 July 2017.
• Stuart Simpson joined the Board on

20 July 2017.

• Simon Thompson joined the Board on

1 November 2017.

• Keith Williams joined the Board on

1 January 2018.

• Cath Keers stepped down from the Board

on 28 February 2018.

• On 20 April 2018, we announced that Moya
Greene is stepping down from the Board
on 19 July 2018. Rico Back will assume
the role of Group Chief Executive Officer
and join the Board on 1 June 2018 and Sue
Whalley will join the Board on 1 June 2018.

There have been no other changes to the
Board during the year.

Annual Report and Financial Statements 2017-18

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Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| Board of Directors

Board of Directors

Stuart Simpson P C
Chief Finance Officer

Appointed to the Board
20 July 2017

Simon Thompson A
Non-Executive Director

Appointed to the Board
1 November 2017

Keith Williams A
Non-Executive Director

Appointed to the Board
1 January 2018

Skills and experience:
Stuart has significant finance, strategy and
operational experience. Prior to joining
Royal Mail, Stuart worked in the automotive
industry for 15 years, where he held senior
roles in both finance and strategy, based in
the UK and internationally. He joined the
Royal Mail Group in 2009, was appointed
as Deputy Chief Operations Officer in
January 2014 and was subsequently
appointed as Director of Group Finance in
July 2015.

Skills and experience:
Simon has an outstanding record as
a global business leader with proven
expertise in the digitisation of business and
customer experience. He was most recently
appointed Chief Product Officer of Ocado
Group PLC. Over his career, Simon has held
senior executive positions at Apple Inc,
HSBC, lastminute.com, Wm Morrison
Supermarkets plc, Motorola Inc, Honda
Motor Europe Ltd.

External appointments:
Simon is a member of the Digital Advisory
Board of Coca Cola European Partners.

Skills and experience:
Keith is highly regarded as a business
leader with extensive financial and
customer service experience. Previously,
he held senior executive positions in a
number of major corporations including
Reckitt and Coleman, Apple Computer
Inc and Boots, Iberia Aerolíneas and
International Consolidated Airlines Group.
Worked at British Airways for nearly
20 years, was appointed Chief Executive
in 2011 and Executive Chairman in
2014. Also an Executive board member
and Chair of the Audit Committee for
Transport for London until 2016. He is a
chartered accountant.

External appointments:
Non-Executive Director and Deputy
Chairman of John Lewis and Non-Executive
Director and Chair of the Audit Committee
at Aviva plc.

| Annual Report and Financial Statements 2017-18

Board composition and experience matrix

Experience and skills
Strategy

Customer experience

Digital technology

Logistics

Finance

Retail

International

Composition
■ A Executive
■ B Non-Executive

Tenure
■ A Over 6 years
■ B 3-6 years
■ C 0-3 years

Gender
■ A Male
■ B Female

Age
■ A 50-55
■ B 55-60
■ C Over 60

2
7

5
0
4

6
3

3
2
4

Board and Committee attendance
Directors unable to attend a Board or Committee meeting always receive the relevant papers prior to the
meeting with the opportunity to provide any comments to the Chairman or the relevant Committee Chair.
The minutes of the meeting are also available for the Directors to review for their future reference.

Board Nomination
Committee

Audit and Risk
Committee

Pensions
Committee

Remuneration
Committee

1 Peter Long stepped down from Remuneration

Committee on 1 July 2017.

Peter Long1

Moya Greene2

Matthew Lester3

Stuart Simpson4

Rita Griffin5

Cath Keers6

Paul Murray7

Orna Ni-Chionna

Les Owen

Simon Thompson8

Keith Williams9

4/4

8/8

7/8

2/2

6/6

8/8

5/7

7/8

8/8

4/4

2/2

1/1

4/4

5/5

4/4

5/5

3/3

2/2

1/1

2 Moya Greene was unable to attend the Board meeting

on 23 March 2018 due to illness.

3 Matthew Lester retired from the Board on 20 July 2017.
4 Stuart Simpson joined the Board on 20 July 2017.
5 Rita Griffin was appointed to the Remuneration

Committee on 1 July 2017.

6 Cath Keers stepped down from the Board on

28 February 2018. She was unable to attend the Board
meeting on 17 October 2017 as this meeting was
convened at short notice and Cath already had prior
work commitments on that day. In addition, Cath was
unable to attend the Board meeting on 22 February
2018 due to personal circumstances.

7 Paul Murray was unable to attend the Board meeting on
17 October 2017 as this meeting was convened at short
notice and Paul already had prior work commitments
on that day. In addition, Paul was travelling at the time
of the Remuneration Committee on 6 July 2017.

8 Simon Thompson joined the Board on

1 November 2017.

9 Keith Williams joined the Board on 1 January 2018.

4/4

4/5

5/5

Annual Report and Financial Statements 2017-18

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Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| Chief Executive’s Committee

Chief Executive’s Committee

In addition to the Royal Mail plc Board, the Chief Executive’s Committee (CEC) manages
the key strategies of the Group within an overall framework of financial risk and
business controls to meet the needs of stakeholders.

Moya Greene
Chief Executive Officer

Stuart Simpson
Chief Finance Officer

Member of TopCo, see page 56.

See ‘Board of Directors’ on pages 58-60.

Rico Back*
Chief Executive Officer, GLS

Member of TopCo, see page 56.

Current role
Rico was appointed as Chief Executive
Officer of GLS in October 1999.

Previous work history
Rico has been a senior Royal Mail Group
executive and CEO of the Royal Mail
major European subsidiary, GLS, for
18 years. He was a founding member
of German Parcel in 1989, which Royal
Mail acquired in 1999. This business was
subsequently rebranded as GLS and under
Rico's leadership, it is now the leading
ground-based deferred parcel company
in continental Europe. Rico has nearly
30 years' experience as a senior executive in
the international parcels industry.

*Rico Back will assume the role of Group CEO of the
Company and join the Board on 1 June 2018.

Sue Whalley*
Managing Director of Royal Mail Letters
and Network

Member of TopCo, see page 56.

Current role
Sue joined Royal Mail in 2006 and was
appointed Chief Operations Officer in
January 2014, and, subsequently, Managing
Director of Royal Mail Letters and Network.
Sue has been responsible for leading a
transformation of the UK business, with
specific focus on safety, quality, efficiency,
culture and innovation.

Previous work history
Sue was previously the Regulation and
Government Affairs Director and led the
programme for privatisation at Royal
Mail. Prior to that, Sue was a Consultant
at McKinsey & Company for 17 years, the
last six of which were as a partner in the
London office.

*Sue Whalley will join the Board on 1 June 2018, when
she will also assume the expanded role of Chief
Executive Officer of Post and Parcels, Royal Mail UK.

Biographies
For further detail on the biographies, please see our website at www.royalmailgroup.com

| Annual Report and Financial Statements 2017-18

Stephen Agar
Managing Director, Consumer and
Network Access

Current role
Joined Royal Mail in 1991, appointed
Managing Director, Consumer and Network
Access in October 2011. Responsible for the
regulated letters business (both USO and
Access), Philatelic and Postcodes.

Previous work history
A barrister who started his career in the
Government Legal Service before moving to
Racal Electronics plc.

Stephen Cameron
UK Operations Director

Maaike de Bie
General Counsel

Current role
Joined Royal Mail in 1985, appointed UK
Operations Director in March 2016.

Current role
Joined Royal Mail in January 2014,
appointed General Counsel in April 2016.

Previous work history
Previously Deputy Chief Operations Officer
alongside role as Operations Strategy
Director. Successfully led the initial phase of
Royal Mail’s comprehensive transformation
programme across UK operations.

Previous work history
Appointed Acting General Counsel in
September 2015, previously General
Counsel for the EMEA division of GE
Capital Commercial Distribution France,
a financial services unit of the General
Electric Company.

Jon Millidge
Group HR Director

Mick Jeavons
Chief of Staff

Current role
Joined Royal Mail in 1985, appointed Group
HR Director in February 2014. Pension
Scheme Trustee of the Royal Mail Defined
Contribution Plan.

Previous work history
Previously Company Secretary from May
2010 to February 2014 and prior to that was
the Acting Group HR Director.

Current role
Joined Royal Mail in September 1993,
appointed Chief of Staff in June 2015.

Previous work history
Has performed a wide range of senior
roles, most recently, Corporate Finance
Director responsible for Group Investment,
Procurement and the UK Finance teams.

Phil Morris
Group Chief Technology Officer

Current role
Joined Royal Mail in January 2012,
appointed Group Chief Technology Officer
in April 2017, following his interim
appointment as Group Chief Information
Officer in May 2016.

Previous work history
Previously IT Director for Strategy,
Architecture, Security and Service.
Partnership at the PA Consulting Group.

Shane O'Riordain
Managing Director, Corporate Affairs,
Marketing, Regulation and Customer Experience

Current role
Joined Royal Mail in November 2010.
Appointed to current role in 2016. Previously
had responsibility for Strategy and Pricing in
addition to Corporate Affairs and Regulation.

Previous work history
The Corporate Affairs Director for a range of
major financial services organisations, including
Flemings, Halifax, HBOS and Lloyds Banking Group.
Previously a diplomat in the Irish Foreign Service.

Annual Report and Financial Statements 2017-18

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Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| Stakeholder engagement

Stakeholder engagement

Listening to and engaging with our stakeholders

Why it is important to engage
We at Royal Mail, as the Universal Service Provider, and as we grow our operations outside the UK,
are very focused on the diversity of our stakeholders. The support of our stakeholders is integral to
our success and the ongoing sustainability of our business. We actively seek their views on the roles
and responsibilities of the Group.

Our stakeholder engagement activities
are set out in detail in our Corporate
Responsibility Report, which will be
published in June 2018. This highlights the
importance of engaging with stakeholders in
the following ways:

•

to earn and retain trust and respect and
protect the Royal Mail brand;

to demonstrate active and visible
leadership in stakeholder engagement;

to help provide positive outcomes for local
communities; and

to ensure the continued provision of the
Universal Service in the UK.

It is important for us to understand the
concerns of our stakeholders, including those
who may be vulnerable because of their age,
race, ethnicity, sexual orientation, gender,
status in the community or any other factor.
As such, we have a dedicated, regular and
inclusive programme for engaging different
stakeholder groups in a culturally appropriate
manner through informal and formal events.

Our stakeholder engagement policy
is published on our corporate website
www.royalmail.com

Shareholder relations
Communication with shareholders is given
high priority within the Group. We do this
through a range of channels. We proactively
encourage stakeholder engagement. The full
Annual Report and Financial Statements with
information on the Group’s strategy and its
implementation are made available to all our
shareholders. It can be found on our website
at royalmailgroup.com. We also publish on
our website our first quarter and nine month
trading updates and half year results. They
contain timely information about the Group.

Presentations are given following the
announcements of the half year and full
year results. They are available to watch live
and on replay on our website.

The Annual General Meeting is used to
communicate with all investors. The Board
encourages shareholders to attend and
engage with the Board. See the case study on
this page for details on our 2017 AGM.

There is regular dialogue with our
institutional shareholders. The Chairman and
the Senior Independent Director (SID) are
also available to consult with shareholders.
The Board regularly receives an update on
interaction with investors and shareholders
to ensure it has an understanding of their
views. In addition, the SID provides a point
of contact for those shareholders who wish
to raise issues with the Board, other than
through the Chairman.

AGM

The Annual General Meeting (AGM) is
normally held in July each year. It is
an opportunity for shareholders to ask
questions and to hear directly from the
Board on the Group’s performance and
strategic direction. The Board members
are also available after the meeting for
shareholders to speak to informally.

Each resolution is proposed separately.
The voting is conducted by poll and
shareholders can vote for or against or
withhold their vote.

At the 2017 AGM, all Directors were
subject to re-election. The exception were
Matthew Lester, who stepped down after
the AGM, and Nick Horler, who stepped
down prior to the AGM. Our 2017 AGM was
well attended. All our proposed resolutions
were passed, with votes in favour ranging
from 91.47 per cent to 99.99 per cent.
Following the meeting, the results of votes
lodged for and against each resolution
were announced as soon as possible to the
London Stock Exchange and displayed on
the Group’s website.

The Group’s next AGM is on Thursday
19 July 2018. Details of the business to be
discussed will be found in the Notice of
AGM. In accordance with the Code, this
is posted to registered shareholders at
least 20 working days in advance of the
meeting. It will also be available on our
website at royalmailgroup.com

| Annual Report and Financial Statements 2017-18

Nomination Committee report

“As a Committee, we have the important role of
ensuring that the Board of Royal Mail and its senior
executives have the appropriate mix of diversity, skills
and experience to make the right decisions to deliver
the Group’s strategy.”

Dear shareholder,
As Chair of the Nomination Committee, I am
pleased to present the Committee’s report for
the year ended 25 March 2018.

During the reporting year, alongside me, the
Committee members were Orna Ni-Chionna
and Paul Murray. After careful consideration,
it was agreed that Rita Griffin, Les Owen,
Simon Thompson and Keith Williams would
be appointed to the Committee with effect
from 19 April 2018. The meetings of the
Committee are also attended by the Group
HR Director, as required, and supported
by the Company Secretary. The Chief
Executive Officer and other Non-Executive
Directors may also be requested to attend
when required. The number of Committee
meetings held during 2017-18 and members’
attendance is set out on page 61. The full
Terms of Reference for the Committee can be
found on our website at royalmailgroup.com

The following report outlines Board and
Committee changes, the Committee’s
priorities during the year, progress made and
the priorities for 2018-19.

Board and Committee
changes
We have had an active year. There were a
number of changes to the Board composition
during the year.

We announced in April 2018 that Moya Greene
will retire in September 2018 having served
on the Board for more than eight years as
Chief Executive Officer. Moya will step down
from the Board on 19 July 2018, the date of
the Company’s AGM. I would like to extend my
sincere thanks to Moya for her tremendous
contribution to the Board during a defining
time for Royal Mail. We wish her the very best
for the future.

Rico Back will succeed Moya and assume the
role of Group Chief Executive Officer of the
Company and join the Board on 1 June 2018.

I led the search for Moya's successor in my
role as Chair of the Nomination Committee.
We are also delighted to appoint Sue Whalley
to the Board in her role as Chief Executive
Officer of Post and Parcels, Royal Mail UK,
with effect from 1 June 2018.

We were delighted to appoint Simon
Thompson on 1 November 2017 as a
Non-Executive Director and as a member
of the Audit and Risk Committee. The Board
employed the executive search firm The Up
Group to assist with Simon’s appointment.

On 1 January 2018, the Board was delighted
to appoint Keith Williams as a Non-Executive
Director and a member of the Audit and
Risk Committee. The Board employed the
executive search firm Egon Zehnder to assist
with Keith’s appointment. The Company
also employs Egon Zehnder for both senior
executive appointments and for some
executive development.

For both appointments, the Committee
considered candidates against objective
criteria, having due regard to the benefits of
Board diversity, and, following interviews with
other Directors, recommended to the Board
the appointments of Simon Thompson and
Keith Williams as Directors of the Company.

Cath Keers retired on 28 February 2018,
having served on the Board as a
Non-Executive Director for nearly eight years.
Cath also stepped down as a member of the
Nomination and Audit and Risk Committees
at that time. I would like to thank Cath for
her valued contribution. She has played a
pivotal part through a tremendous period of
change for the Company. We wish her well for
the future.

Paul Murray will be stepping down
from the Board following the AGM on
19 July 2018, having served on the Board
as a Non-Executive Director for almost nine
years. I would like to thank Paul for his valued
contribution as a Non-Executive Director

and Chair of the Audit and Risk Committee.
He has also held an important role and been
essential during a period of significant change
for the Company. We also wish him well for
the future. Following careful consideration,
and taking into account his extensive financial
experience, the Committee concluded that
Keith Williams will succeed Paul as the Chair
of the Audit and Risk Committee and we look
forward to welcoming Keith into the role.

After careful consideration, the Committee
concluded that Rita Griffin should be
recommended to the Board as a member
of the Remuneration Committee and that
I would step down from the Remuneration
Committee, both with effect from 1 July 2017.

An external evaluation of the Committee
was carried out in 2017-18. The evaluation
concluded that the Nomination Committee
operated very well. The evaluation is
discussed in greater detail on page 67.

Directors’ re-election
The Committee considered the performance
of each individual Director, including
whether they continued to be effective and
demonstrate commitment to their roles.
Following a performance evaluation of
each Director and the Board as a whole, all
Directors are considered by the Board to be
fully effective. This supports the proposal for
their re-election at the AGM.

Peter Long
Chairman
16 May 2018

Annual Report and Financial Statements 2017-18

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Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| Nomination Committee report

Board diversity
The Board promotes diversity in its broadest
sense, including education, skills, age, gender
and ethnic diversity. It is our strong belief that
a diverse Board with different backgrounds
and viewpoints in decision-making
benefits the Group’s stakeholders and
business performance.

This year, our Board gender diversity metric
has slightly reduced. At our year-end, there
was a representation of 33 per cent females
on the Board. This conforms with Lord
Davies' recommendation of 33 per cent
female by 2020.

During the year, Simon Thompson and
Keith Williams were appointed to the Board.
They bring different skills and experience to
complement the Board’s discussions and
decision-making. Simon has extensive digital
transformation experience. Keith has strong
financial expertise and is a respected business
leader. Both have significant experience in
customer-focused operations.

See the Board biographies and the skills
and experience matrix on pages 58-61 for
further information.

Policy
The Board has adopted a Board and Diversity
Policy to ensure transparency and diversity
in making appointments to the Board on
the recommendation of the Nomination
Committee. This Policy sets out Royal
Mail’s approach to diversity. It ensures
transparency and diversity and fairness at all
stages of employment. The Policy expresses
the Group's commitment of creating an

environment in which all individuals are able
to make best use of their skills, free from
discrimination or harassment.

Through its Board effectiveness review, the
Board assesses that it is compliant with
that Policy. The principles of that Policy are
embedded in the Board appointment process.

The Policy was implemented during the
recruitment of both Keith Williams and Simon
Thompson. During their recruitment, both
the long list and short list addressed diversity
in its broadest form. We also support the
Hampton-Alexander Review recommendation
of 33 per cent target for women in senior
leadership positions by 2020. It is the
Board’s intention to progress towards the
recommendations of the Parker Review.
It proposes each FTSE 100 Board have at
least one director from an ethnic minority
background by 2021.

The Nomination Committee, however, does
not feel that it is appropriate to set a quota
on diversity nor does it believe that this is
the best way of achieving a balanced Board.
We instead use a robust skills matrix to
ensure there is the appropriate experience
among the Board members.

There is also an adopted Equality and
Fairness Policy. This is our overarching policy
for diversity within the Group and is approved
by the Board annually. A copy of the Equality
and Fairness Policy is available on our
website at royalmailgroup.com

Ensuring a diverse pipeline
through succession planning
The Nomination Committee ensures there
is the correct balance of skills, experience
and expertise amongst Non-Executive
Directors so they can lead decision-making
and assess the performance and strategy of
the Company.

The Board places a strong emphasis on
increasing diversity in senior leadership.
There are initiatives in place to achieve
this. They include the Spingboard women’s
development programme, which has been
helping encourage women into leadership
positions since 2005.

We have a Diversity Council, which reports
to the Chief Executive Committee, which
monitors and progresses the Group’s diversity
performance. As an employer, Royal Mail
has put in place many initiatives to adapt our
culture and to encourage women to get into
management positions. The Council looks
not just at women but also colleagues from
different ethnic backgrounds, parents and
carers, disabled colleagues, young people
and LGBT people. We know that women and
ethnic minorities are underrepresented in
our industry. We encourage them into our
workforce by using balanced shortlisting,
career development opportunities and
mentoring and networking events.

Last year's priorities, actions and next year’s priorities

2017-18 priorities

Progress over the year

2018-19 priorities

Review the structure, size and composition of
the Board.

Identified suitable Board candidate.
Recommended the appointment of Simon
Thompson and Keith Williams.

Continued focus on succession planning for both
Board and senior management.

Review the structure, size and composition of
the Committees.

Recommended changes to the Remuneration
Committee, with Rita Griffin being appointed and
Peter Long stepping down.

Continued focus on diversity in the broadest sense.
Ensuring the skills and experience within the
Group help deliver its strategic framework.

Consider whether the Non-Executive Directors
continue to be independent and effective and
have demonstrated commitment to the role and
thus should be recommended to the Board for
re-election at the AGM.

The Committee reviewed the tenure of the
Non-Executive Directors against the provisions of
the Code. All Directors were considered to be fully
effective. The Board supported the proposal for
their re-election at the 2017 and 2018 AGMs.

Undertake a rigorous review of the independence
of the longer-serving Board members.

Promoting diversity throughout the business.

Candidates proposed by the Up Group and
Egon Zehnder were from diverse backgrounds,
in all aspects.

Continue to promote diversity in the broadest
sense at Board and senior executive levels.

Annual evaluation of the Committee’s
performance.

An external evaluation concluded that the
Nomination Committee operated very well.

A further external evaluation is planned for
autumn 2018.

Annual review of the Committee’s Terms
of Reference.

Detailed review of the Committee Terms
of Reference.

Following a detailed review in 2016-17, it was
concluded that no further changes are required
in 2017-18. A further review will be undertaken
towards the end of 2018 once the revised UK
Corporate Governance Code has been published.

| Annual Report and Financial Statements 2017-18

Case Study: Directors’ induction programme

December 2016 – Rita joined the board
Induction programme prepared and sent to Rita prior to appointment
On appointment, full access to the online Directors’ Reference Manual, which contains the following
key documents:
Introduction to Royal Mail
Royal Mail Corporate Governance and Directors’ Duties
Appointment and Board processes
Royal Mail share and dealing regulations
Corporate Strategy
Treasury Risk Management
Capital Structure, Business Plan and
Capital Investment and Procurement Spend
February to July 2017
Meetings with key executives:
Board
Chairman

Role of the Board and its Committees
Board Effectiveness Review
Articles of Association
Corporate history and Group structure
Code of Business Standards
Business Integrity and Group Policies
Directors’ and Officers’ Liability Insurance

External Stakeholders
Lawyers

Executives
Managing Director of
Royal Mail Letters
and Network
Chief Executive Officer (GLS)
Company Secretary
Chief of Staff
All corporate function heads

Brokers
Audit partner

Corporate history
Finance overview
Regulation
Competitors
Unions – pay and pensions

Governance framework
Board evaluation
Talent and succession

Chief Executive Officer
Chief Finance Officer
Non-Executive Directors

Briefings on the business:
Overview of the business
Strategy and vision
Board objectives
Key business issues/risks
Digital

“My structured induction
programme gave me
a thorough insight
into the business: its
operations, its markets
and its people. It was a
great way of getting to
know the business.”

Site and Operational visits
Tour of the Heathrow Worldwide Distribution Centre
Visit to GLS operations in Frankfurt
Nine Elms Delivery Office in London
Walk with a postman

Depot in Milan
Mount Pleasant Mail Centre
Swindon Mail Centre

Board evaluation

Topic

Succession planning

Business
transformation/
strategy

GLS expansion

Digital

Findings of the
2016-17 evaluation

Actions taken during
2017-18

Findings of the
2017-18 evaluation

Board should continue to progress
the Board succession plan for both
Executive and Non-Executive Directors.
Ensure smooth succession plan for the
Executive Directors.

Ensure adequate time is spent on
labour issues as part of the business
transformation agenda for the UK
business. Ensure sufficient time is given
to growth opportunities in the UK.

Board skills reviewed to ensure
continued alignment with strategy.
Succession planning a real focus all year.

Two major internal promotions, Group
Chief Executive Officer and Chief Executive
Officer of Post and Parcels, Royal Mail UK.

Continue to review the skills required
following strategy review and
discussions to ensure an appropriate
succession plan for the Board and the
Executive Committee.

Adequate time spent on labour issue and
pensions. Continued focus on growth
opportunities in the UK.

Ensure adequate time is spent on UK
growth, digital transformation, ways of
working, costs and efficiency.

Ensure full Board support is provided
to Management on the execution of this
strategic priority.

Increased understanding of this key
strategic priority to fully understand
global opportunities.

Continue to explore global opportunities
in an appropriate and meaningful way.

Explore more deeply what ‘digital’
means for the Royal Mail Group and its
relevance for the Group's customers.

An area of continuing focus to
understand the Group’s position in a
technology-led world.

Digital transformation continues to be a
priority for 2018-19.

Annual Report and Financial Statements 2017-18

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| Nomination Committee report

Committees’ evaluation

Topic

Audit and Risk
Committee

Remuneration
Committee

Nomination Committee

Pensions Committee

Findings of the
2016-17 evaluation

Actions taken during
2017-18

Findings of the
2017-18 evaluation

Provide full support to ensure the
successful transition to a new Director
of Internal Audit and Risk Management.
Continue to focus on the Group’s risk
appetite and the risk framework with
in-depth reviews into specific areas that
might materially impact the delivery
of the Group’s strategy. Introduce
an enhanced training programme to
complement the induction programme
for new Directors to widen their
knowledge both from a corporate
governance and regulatory perspective
and to give depth to their knowledge of
the Group.

Ensure greater transparency by the
Committee of the Senior Management
Team. Review the remuneration strategy
for the broader Royal Mail management.
Introduce regular formal training
sessions into the annual meeting cycle
to understand emerging governance
themes, legislation changes and other
trends in remuneration matters.

Support the Board in delivering the
Board succession plan for both the
Executive and Non-Executive Directors.
Responsible for reviewing the talent and
succession planning across the senior
leadership group.

Continue to fully understand the broader
pension developments. Ensure full
awareness at Board level. Provide
relevant pensions training to both the
Board and the Committee. Complete
the 2018 Pension Review. Determine
appropriate future investment strategy
for the pensions within the Group.

Successful transition and support for the
new Director of Internal Audit and Risk
Management. Group assurance map
discussed and developed. Continued
focus on the in-depth reviews together
with Committee’s training programme.

Agreed to increase time spent on
in-depth reviews to ensure maximum
challenge. Continue with education and
training programme. Review the risk
register to ensure adequate time is spent
on emerging risks and scenario planning.

Understanding of the senior
management team has improved.

Internal and external support to the
Committee worked well. Sufficient
external data and briefings were
provided to the Committee on an
ongoing basis.

To continue with briefings from PwC on
the remuneration landscape and trends
as well as increasing benchmarking data
for comparisons.

Continue undertaking an annual bonus
review. Assess appropriate measures as
part of the wider policy review.

Progress with succession for the Board
and executive. Better understanding of
wider talent pool.

Good progress made with the CWU
with regards pensions. Pension issues
regularly discussed at Board and
therefore greater understanding of
broader issues.

Ensure smooth transition for change
of CEO and Executive Directors Board
changes. Maintain focus on talent
review and succession planning
for key executives. Plan for future
Non-Executive Directors appointments
to fill any skill gaps identified.

Review terms of reference to reflect
agreed future structure of Groups’
pension schemes. Continue to keep
Board appraised of Committee’s
deliberations. Review future remit
of Committee.

| Annual Report and Financial Statements 2017-18

Audit and Risk Committee report

“The Committee continues to ensure accounting
treatment, risk management and control and
assurance processes follow best practice.”

Dear shareholder,
As Audit and Risk Committee Chair, I am
pleased to present the Committee’s report
for the year ended 25 March 2018.

We have two fundamental responsibilities
which inform the work we do as a
Committee. The first is to review and
recommend for approval by the Board
all financial statements and associated
disclosures. The second is to continually
satisfy ourselves that internal controls and
risk management processes put in place by
Management are working effectively.

As required by the UK 2016 Corporate
Governance Code, the Board has confirmed
that I have the recent and relevant financial
experience to chair this committee, and my
fellow Committee members bring a wide
range of financial expertise, in particular,
Rita Griffin, Les Owen and Keith Williams.

This will be my last report as Chair of the
Committee as I will be stepping down from
the Board following the AGM on 19 July
2018. Keith Williams, who has extensive
financial experience, will succeed me and I
wish him well in this role.

Committee advisers
To help us with our responsibilities, the
Committee receives independent assurance
from the Group’s Internal Audit (IA) and
Risk Management (RM) Director. We also
receive regular reports from the compliance
function as well as the external auditor,
KPMG, across a wide range of issues
in support of their respective oversight
responsibilities. The Committee is further
supported by the Risk Management
Committee (RMC) (page 57).

We also obtain support from external
experts, with the Group’s actuary, Willis
Towers Watson Limited, providing expert
opinion and long-term assumption advice
with respect to pension accounting.
Aon Limited provides similar expertise

Last year's priorities, actions and next year’s priorities

2017-18
priorities

Evolving practice in
external reporting

Assurance mapping
across the Group

Prioritised risk reviews

Oversight of significant
financial judgements
and external audit

Progress over the year

2018-19
priorities

Prioritisation of cyber risk
and continued focus on the
Group’s capability to respond
to cyber or data breech
incidents.

Successful implementation of
the GDPR Programme across
the Group.
Continue focus on
Group-wide compliance.
Continue effective oversight
of the management of risks
in GLS

Continued prioritisation of
risk reviews and internal
controls, including a focus
on the Group’s Business
Continuity Programme.

Continued oversight
of significant financial
judgements and
external audit.

Modern Slavery Act supply chain
review and compliance.
Early adoption of IFRS 9 ‘Financial
Instruments’. Review of impact
of IFRS 15 and IFRS 16. Greater
insight into accounting treatment
for pensions.

General Data Protection
Regulation (GDPR) updates and
compliance.
Assessment of going concern,
viability and covenant compliance.
Review of compliance framework
(including GLS) including
receiving quarterly updates from
Group Compliance.
Review of GLS risk management
arrangements to enable effective
governance and oversight of risks.

Review of principal risks, including
the implications of the UK
Referendum on EU Membership.
Review of risk management
and internal controls. Receiving
regular updates from IA and RM
on the results of their reviews and
the strengthened risk and control
self-assessment processes.

Financial reporting, particularly
information presented by
Management on significant
accounting judgements and
policies adopted in respect of
the Company’s half and full
year results. This includes an
assessment of whether the
statements were fair, balanced
and understandable.

Annual Report and Financial Statements 2017-18

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| Audit and Risk Committee report

in relation to other long-term liabilities.
The Committee has concluded that these
companies have the required expertise and
resources to provide the necessary advice.

The Committee also relies on the advice and
information provided by the General Counsel
with respect to specific provisions and
other contingent liabilities. The Committee
is satisfied that the General Counsel has,
or has access to, the relevant necessary
expertise and resources and that the company
conducting the statistical surveys also has the
relevant necessary expertise and resources.
The external auditor has full access to these
experts and, using its own actuarial and
statistical experts, is able to provide further
assurance to the Committee on these matters.

Committee members and
meetings
The members of the Committee are all
independent Non-Executive Directors, being
Orna Ni Chionna, Rita Griffin, Les Owen,
Simon Thompson and Keith Williams, with
me as Chair. Cath Keers was a member of the
Committee until she stepped down from the
Board at the end of February 2018.

Meetings of the Committee were also
attended, where relevant, by the Chairman
of the Board, the Chief Executive Officer,
the Chief Finance Officer, the Director of
Internal Audit and Risk Management and
other members of senior management and
representatives from the external auditor,
KPMG. The Committee is supported by the
Company Secretary.

Meeting cycle and agenda items
The Committee has a meeting planner,
approved once a year, which provides a
framework for each meeting agenda. During
2017-18, meetings were primarily focused on
the half year and full year results as required
by the financial calendar. The remainder of
the meetings considered internal audit and
risk management matters.

The number of Committee meetings held
during 2017-18 and members’ attendance
is set out on page 61. The full Terms of
Reference for the Committee can be found on
our website at royalmailgroup.com

The Statutory Audit Services for
Large Companies Market Investigation
(Mandatory Use of Competitive Tender
Processes and Audit Committee
Responsibilities) Order 2014

We have complied fully throughout the
year with the Statutory Audit Services
Order 2014 issued by the Competition and
Markets Authority.

Paul Murray
Chair, Audit and Risk Committee
16 May 2018

Audit Committee effectiveness
An external evaluation of the Committee
was carried out in 2017-18. The evaluation
concluded that the Audit and Risk Committee
operated very well. The evaluation is
discussed in greater detail on page 67.

Effectiveness of the external
audit process
Meetings between the senior audit team and
Finance have been held at least monthly,
giving the opportunity for any concerns to
be raised and addressed on a timely basis.
KPMG’s 2017 Audit Quality Inspection
Report has also been discussed.

The Committee received a report on the
areas of audit risk identified by KPMG and
approved their proposed audit approach.
The Committee also reviewed and approved
the respective engagement letters for the
statutory and regulatory audits.

At the end of the half year review and year
end statutory audit, the Committee received
reports from KPMG covering significant
issues identified and discussed during the
audit visits. In addition KPMG presented
updates on their data and analytics approach,
and their control findings. These reports were
compared with the matters that Management
had identified, to ensure consistency.
The Committee also held regular private
meetings with the external auditor.

The formal evaluation of the external audit
process is being addressed using an online
questionnaire. It was completed shortly
before our full year results announcement
and responses were sought from individuals
who had been closely involved in the audit
(predominantly IT, Finance and HR) as well
as Executive and Non-Executive Directors,
and audit partners and team members.

The results of the online questionnaire will
be supplemented using meetings with key
stakeholders following the conclusion of
the year end audit and will focus on the
execution of the audit; the preparedness
of the business; sufficiency of resources;
communication and interaction; and
overall satisfaction.

While the outcome of the meetings will not
be available until after the signing of the
financial statements, the feedback from
the online survey and the review of reports
presented by Management and KPMG to
their May 2018 meeting have enabled the
Committee to conclude that there has been
appropriate focus on the primary areas of
audit risk and KPMG have applied robust
challenge and scepticism throughout.

Safeguarding the independence
and objectivity of the
external auditor
The Committee has a policy in respect of
non-audit work. This requires Management
to seek pre-approval prior to the
engagement of the external auditor for the
provision of any non-audit services. This is
to ensure that the level of fees earned from
non-audit services and the type of services
provided do not impair the external auditor’s
independence and objectivity. In general,
the external auditor is not approached to
perform non-audit work.

However, the auditor may be engaged to
perform non-audit services if they are
uniquely placed to undertake them, or if the
performance of the non-audit services will
support a future statutory audit (including
the provision of buyer assist due diligence).
The engagement may follow a competitive
tender process.

The Committee currently permits the
external auditor to provide non-audit
services in respect of audit-related services,
tax services and other services to the extent
that is permitted by auditor independence
rules. The Committee has delegated
authority to the Chief Finance Officer to
pre-approve assignments up to £25,000,
with an annual limit of £500,000.

During the year, KPMG has been engaged
to provide non-audit services. Total fees
earned for non-audit services during
2017-18 were £197,000, which represented
around 9 per cent of the external audit fee.
In addition to the fees earned from the
Company, KPMG has been engaged by the
respective Pension Trustee as external
auditor of the Royal Mail Pension Plan and
the Royal Mail Defined Contribution Plan, the
fees for which were £129,000 in 2017-18.

The Committee also has a policy that
restricts the recruitment or secondment of
individuals employed by the external auditor
into positions that provide financial reporting
oversight where they could exercise
influence over the financial or regulatory
statements of the Group or the level of audit
and non-audit fees.

KPMG was appointed as external auditor in
July 2015, following a competitive tender
process during the 2014-15 financial year.
Under the current regulations, the Company
will be required to tender no later than the
2025 -26 financial year. The current audit
partner will be required to rotate after the
2019-20 audit.

The Committee has recommended the
reappointment of KPMG as the Group’s
external auditor to the Board for approval by
shareholders at the AGM in July 2018.

| Annual Report and Financial Statements 2017-18

Key activity in relation to the financial statements
The main areas of focus for the Committee during the year in relation to the financial statements were:

Matter considered

What the Committee did

One-off matters considered due to their materiality or nature

Ofcom investigation
(Contingent liability, see note 25 on page 143)
An Ofcom investigation was launched in February 2014, following a complaint
brought by TNT Post UK (now Whistl), relating to certain Contract Change Notices
issued by the Group in January 2014. As part of that investigation, on 28 July 2015,
the Group received a Statement of Objections setting out Ofcom’s provisional,
preliminary findings of anti-competitive conduct.

Following the receipt of the Statement of Objections, the Committee sought detailed
background information from General Counsel and an assessment of accounting
treatment from Management.

This investigation remains a key agenda item on all updates to the Audit and Risk
Committee. We have continued to review and challenge Management's assessment
of the issue with reference to the accounting standards.

We concluded that it continues to be appropriate to treat this issue as a contingent
liability. The Committee has reviewed and approved the wording of its disclosure.

Ongoing matters considered due to their materiality and/or the application of judgement

Advance customer payments
(£283 million, see note 19 on page 134)
Included within Advance customer payments is an estimate of the amounts of
stamps and meter credits that have been sold but not used prior to the reporting
date. At March 2018, this estimate totalled £234 million (March 2017: £240 million).

Although the relevant survey and extrapolation is conducted by an independent
company, the level at which a stamp holding is considered to be abnormal, and
therefore excluded from the estimate, is a judgement made by Management.
This judgement impacts revenue, profit and net assets.

We continued to review and challenge the outcome from the statistical survey at
the half year and full year, along with the judgement made by Management as to
the level at which a stamp holding is considered abnormal. We compared the level
of deferred income recognised by Management at each reporting date to ensure a
consistent application. Separately, the auditor used its own experts to review the
statistical processes and assess the judgemental assumption. We concluded that
the level of deferred revenue remained appropriate.

Royal Mail Defined Benefit Pension Surplus
(£2,163 million, see balance sheet and note 9 on page 120)
The valuation of the pension liabilities and assets relies on the estimation of
long-term assumptions such as RPI/CPI and mortality and the selection of
appropriate asset valuation methods. Small movements in these assumptions can
lead to material impacts on the balance sheet.

In view of the complexity of accounting for pension schemes, significant focus
is required on the associated disclosure to ensure that it is fair, balanced and
understandable.

Key long-term assumptions were prepared by the Group’s actuary, Willis Towers
Watson Limited, and benchmarked against prevailing economic indicators and
other large pension schemes. The assumptions were reviewed and approved by
the Pensions Committee (see report on page 74). All of these assumptions are
disclosed in Note 9 to the financial statements. Changes in the assumptions were
summarised for the Committee and explanations provided for the returns on
scheme assets, particularly as a result of the liability hedging strategy.

The auditor used its own independent actuarial experts to confirm that the
assumptions used were reasonable and appropriate.

Industrial diseases claims provision
(£83 million, see note 22 on page 142)
The Group is liable for claims brought by employees (past and current) and by
individuals who were employed in the General Post Office Telecommunications
division and whose employment ceased prior to October 1981. The provision covers
the estimate of claims that could be received over the next 25-35 years. Changes to
the provision will impact the income statement and net assets.

Impact of changing employment legislation
(see business risks on page 44)
The Group has a large workforce and changes to laws and regulations relating to
employment can have a significant effect on the Group’s results.

Allocation of Mount Pleasant disposal proceeds
(See significant accounting policies on page 149)
Contracts were exchanged on 30 August 2017 for the sale of 6.25 acres of Royal
Mail’s Mount Pleasant site (comprising the Phoenix Place and Calthorpe Street
plots) for a total gross consideration of £193.5 million. The sale of the Phoenix Place
plot has been recognised in the current accounting year, whereas the sale of the
Calthorpe Street site will be recognised upon completion of certain enabling works.

Management have applied judgement in allocating the transaction proceeds
between the two plots on a different basis to the schedule of cash receipts agreed
with the purchaser.

To determine whether the level of provisioning in the balance sheet was reasonable,
the Committee examined reports from Management and estimates of the gross
provision (including the number of claims incurred but not received and the
associated expected cash outflow, undiscounted) calculated by Aon Limited. The
discount factor used by Aon, as advised by Management, to calculate the present
value of the provision was validated against applicable bond rates.

We received KPMG’s comments on the assumptions and the calculation used to
reach the discounted provision and concluded that the approach taken to setting the
provision continued to be appropriate.

Throughout the year, the Committee received regular updates on relevant
employment law cases from the General Counsel along with impact assessments of
judgements on the Group.

In light of the legal updates, we examined reports prepared by Management to
determine whether their interpretation of the potential liabilities for the Group
was appropriate.

We concluded that these potential liabilities were accounted for appropriately based
on the legal assessments provided by the General Counsel.

The Committee examined reports from Management.

We received KPMG’s comments on the assumptions and the calculation used
to calculate the allocation of proceeds and concluded that the approach taken
was appropriate.

Annual Report and Financial Statements 2017-18

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| Audit and Risk Committee report

Risk management and internal
control overview
The Board collectively, including the
Committee members, believes that effective
risk management and a sound control
environment are fundamental to the Group.
The Code requires the Board to maintain
sound risk management and internal control
systems, to review their effectiveness at
least annually and to report on this review
to shareholders. A sound system of internal
control depends on a thorough and regular
evaluation of the nature and extent to which
the Group is exposed to risk.

The Group’s risk management and internal
control system is designed to manage
– rather than eliminate – risk. Taking on
manageable risk is an inherent part of
undertaking the commercial activities of
the Group. The system can only provide
reasonable, not absolute, assurance against
material misstatement or loss.

There is an ongoing process for identifying,
evaluating and managing the principal risks
faced by the Group in accordance with the
guidance detailed by the Code. These include
financial, operational and compliance
risks, and risks to reputation. The process
has been in place throughout the year
and up to the date of approval of these
financial statements.

In addition, the Directors carry out a robust
risk assessment of the principal risks facing
the Group as set out on pages 40-45. These
include those principal risks that threaten
the business model, future performance,
solvency and liquidity of the Group. These
reviews have been informed by the financial
evaluation of severe but plausible scenarios
of our principal risks. This has also been
used to support our Viability Statement on
page 46.

Internal control framework
The Group has in place an internal control
framework in relation to the Group’s
financial reporting process and the Group’s
process for preparing consolidated
accounts. This framework includes an
established organisational structure
with clear lines of responsibilities,
approval levels and delegated authorities.
It also includes policies and procedures to
ensure that adequate accounting records are
maintained and transactions are recorded
accurately. Robust quarterly business
unit performance reviews by the Chief
Executive Officer and Chief Finance Officer
and a rigorous preparation process for the
consolidated financial results (including
technical and disclosure reviews) are also
part of the framework.

Royal Mail governance and three lines of defence

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Chief Executive’s Committee

Audit and Risk Committee

Risk Management
Committee

Senior Management

First line

Second line

Third line

Operational and business
management

Internal monitoring and
assurance mechanisms

Independent assurance

Primary business-as-usual
controls over the risks to
the business, located in the
day-to-day operation.

Internal monitoring and
oversight of the fi rst line,
through regular reviews,
assessments and dedicated
oversight functions.

Independent evaluation of the
adequacy and effectiveness of
risk management, control and
governance processes by IA
and RM and other assurance
providers external to the
business.

RCSA1 – Monitoring and reporting of risks and internal controls

1Risk & Control Self-Assessment

Role of the Committee in assessing the principal risks

Review of principal
risk areas

The Committee routinely assessed the risks that might impact
the achievement of the Business Plan, including consideration
of whether these should be categorised as a principal risk to
the business (see Principal Risks on pages 40-45). Committee
discussions on risk also covered new and emerging risks
and the interrelationships between the significant risks to
the business.

In particular, the Committee reviewed changes to the
Group Risk Profile on a quarterly basis and held ‘deep dive’
discussions of principal risk areas with risk owners. The
Committee holds the business to account for the management
of risk and operation of control across the Group.

Deep dive discussions

During the year, deep dive risk discussions included:

• revenue diversification;

• required pace and level of cost reduction;

• parcels risk management;

• GDPR;

• economic environment;

• business continuity and disruption; and

• executive talent.

| Annual Report and Financial Statements 2017-18

1 Risk & Control Self-Assessment.

an independent accounting firm
(appointed by Ofcom) as part of Royal
Mail’s Designated Universal Service
Provider condition requirements.

– The Universal Service Obligation 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.

In the carrying out of these activities,
the Board considers it has fulfilled its
obligations under the Code in respect of risk
management and internal controls. Further
details of the Principal Risks and how they
are managed and mitigated can be found on
pages 40-45.

Risk management framework

The Group-wide risk management
framework includes risk governance,
risk identification, measurement and
management, and risk reporting, and
sets out the ‘top-down’ and ‘bottom-up’
approach to risk identification for the Group.

During the year, the business has:

• assessed its approach to risk

management in line with the Code
requirements, reviewed its Risk
Management Policy and continued
to strengthen the management and
monitoring of risk within the Group
including strengthening the Risk & Control
Self-Assessment (RCSA) process; and

• continued its emerging risk identification

process through regular structured
dialogue with subject matter experts
across the business.

The Group’s approach to risk management
is based on the underlying principle of line
management accountability for effective
implementation of internal controls to
manage risk as illustrated below.

Speak up line
Arrangements are in place to enable
employees to raise concerns about potential
wrongdoings in confidence and to ensure
independent investigation of such matters.
During the year, Compliance reported to the
Committee on the number of cases received
and an analysis of the outcomes through
the Employee Confidential Disclosure
(EDC) Committee.

Assessing the effectiveness of
the system of risk management
and internal control
In addition to the specific constitution,
meetings, reliance on experts, and focus
areas highlighted above, the Committee
uses a number of mechanisms to help it to
arrive at its conclusions on the effectiveness
of the system of risk management
and internal control in the business.
These include:

1. Risk governance
The Board has delegated responsibility for
specific review of risk and control processes
to the Committee, and the Committee,
in turn, is supported by the RMC to help
discharge its duties. The RMC meets to
promote and support the establishment,
communication and embedding of risk
management throughout the Group.
It also seeks to ensure that risks that
are significant at Group level are being
effectively managed. The RMC oversees
and evaluates a ‘bottom-up’ assessment
of risks on a quarterly basis. It receives
presentations from business units on the

operation of risk management and control
processes on a cyclical basis.

2. Assurance from internal audit
IA and RM provide independent assurance
to the Committee, Executive Management
and the Board on the effectiveness of the
internal control system and elements of the
risk management process. This includes
compliance with the Risk Management
Mandatory Standards and validation of
mitigation plans for Group level risks. IA and
RM establish and agree with the Committee
an annual plan of assignments and activities
covering the whole Group, including GLS,
based on discussions with the Board and
Management. This also takes into account
known issues in the business, areas of
importance to the delivery of the Business
Plan, areas subject to strong or emerging
regulation or legislation, or specific issues in
the industry. During the year, the Committee
evaluated the performance of IA and RM.
It concluded that the function continued to
be effective.

The IA work programme during 2017-18
included more than 30 risk-based reviews
in the UK and over 140 reviews in GLS,
covering both depots and head office. The
programme was focused towards the key
business priorities and included:

– business transformation and key

programme reviews, including PDA
Service Transformation, Parcels
systems programme activity and
identity-based products;

– major business process reviews
including data loss prevention,
payroll, aviation security, operational
compliance and IT disaster recovery;

– continued rolling programme of

review of the basic business controls
and independent validations related
to the management of Group-level
risks; and

– conformance of key units/functions

to defined Risk Management
Mandatory Standards.

3. External audit activity
External audits and reviews take place
during the year to provide Management,
the Board and Ofcom with assurance on
specific matters. The following activities
are included:

– The external auditor performs a

statutory year-end audit.

– The external auditor performs an

audit of the regulatory accounts as
part of the Universal Service Provider
accounting requirements.

– The externally measured end-to-end

Quality of Service is audited by

Annual Report and Financial Statements 2017-18

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| Pensions Committee report

Pensions Committee report

“The Committee was pleased with Management’s
agreement with the CWU over pensions, pay and
working conditions and is confident that this is the
right result for Royal Mail and our stakeholders.”

Last year's priorities, actions and next year’s priorities

2017-18
priorities

Progress over
the year

2018-19
priorities

Conclusion of 2018 Pension
Review and proposals for future
pension benefits prior to being
recommended to the Board
for approval

Agreement reached with the CWU
on future pension arrangements
and approved by the Board

Successfully deliver key
outputs from negotiations in
relation to pensions, including
investment strategy

The implementation of 2018
Pension Review outcomes and
communication to members

Oversight of implementation of
revised pension arrangements
and member communications

Support Management’s work
with UK Government to introduce
necessary CDC legislation
and regulations

Results and implications of
RMPP’s 2015 valuation

Reviewed and agreed key pension
assumptions

Consider results and implications
of RMPP’s 2018 valuation

Future investment strategy
for pension schemes within
the Group

Investment strategy continuously
reviewed as part of the 2018
Pension Review

Annual review of Committee’s
Terms of Reference

Carried out review of the
Committee’s Terms of Reference

Review and recommend to
Audit and Risk Committee
key assumptions relating to
accounting for Royal Mail’s
pension liabilities

Review of interim and full year
assumptions carried out

Ongoing Committee and
Board training to ensure good
understanding of broad pension
developments and issues

Continue to provide
recommendations on pension
matters of strategic importance
to Board and Audit and Risk
Committee where necessary

Review and recommend to
Audit and Risk Committee
key assumptions relating to
accounting for Royal Mail’s
pension liabilities

Revised pension
arrangements
The Committee has focused on the proposed
revised pension arrangements so as to
advise and support Management in their
negotiations with our unions. It has also
kept the Board fully advised. Royal Mail
is committed to providing sustainable
and affordable pension arrangements
acceptable to our people and our unions; we
are pleased with the agreement reached.
Now, together with the CWU, the Group is
lobbying Government to make the necessary
legislative and regulatory changes to
establish the UK’s first Collective Defined
Contribution scheme (CDC), providing
new, innovative pension benefits for Royal
Mail employees. The Committee will

continue to provide oversight as revised
pension arrangements are introduced.
It will ensure both the Board and the Audit
and Risk Committee are kept appraised
as appropriate.

Committee membership
Alongside me, the members of the
Committee are Paul Murray and Stuart
Simpson. Committee meetings are also
attended, as required, by the Group HR
Director, the Chief of Staff, the Legal
Director for Pensions and Employee
Benefits, the Head of Pensions Strategy
and representatives from the Company’s
pensions advisers, Willis Towers Watson
Limited. The Committee is supported by the
Company Secretary.

Dear shareholder,
As Chair of the Pensions Committee, I am
pleased to present the Committee’s report
for the year ended 25 March 2018. Due to the
significance of the Group’s pension schemes
to its financial management and affairs,
the Pensions Committee has an important
role in providing oversight and review of
pension matters.

In July 2017, Matthew Lester stepped
down from the Board and this Committee
and we welcomed Stuart Simpson as a
member. I would like to express my thanks
to Matthew for his contribution. The number
of Committee meetings held during the
year and members’ attendance is set out on
page 61. The full Terms of Reference for the
Committee can be found on our website at
royalmailgroup.com

This has been a busy year for the Committee
given the ongoing pension negotiations with
the Communication Workers Union (CWU).
Having announced in February 2018 that an
agreement in principle had been reached
over pensions, among other matters, we will
now work on the successful implementation
of the revised pension arrangements for
our employees.

An external evaluation of the Committee was
carried out in 2017-18. It concluded that the
Pensions Committee operated very well. The
evaluation is discussed in greater detail on
page 67.

The following report goes into more detail on
the revised pension arrangements. It outlines
the Committee’s priorities during the year,
the progress we have made and our priorities
for 2018-19.

Les Owen
Chair, Pensions Committee
16 May 2018

| Annual Report and Financial Statements 2017-18

Directors’ remuneration report

Dear shareholder,

On behalf of the Board, I am pleased to present our Remuneration
Report for 2017-18. As mentioned elsewhere, this year has been
one of significant change for the Group: we continued on our
path of growing our parcels business – in the UK and overseas –
and we reached a ground-breaking agreement with the CWU,
which includes important operations changes to implement
more ambitious transformational change over the coming years.
Since the year end, we have announced that Moya Greene will
step down as Chief Executive in June and will leave the Group in

September. She has been an outstanding Chief Executive, whose impressive leadership skills and
commitment to the Company have been apparent to any shareholder or stakeholder who has met
her. I am delighted that the new leadership team includes two of our longest serving and most
trusted senior executives, who will strive to sustain her legacy and lead the organisation through its
next successful chapters.

Performance in 2017-18
We had a good year, during which our
revenue exceeded £10 billion, and adjusted
Group Operating Profit before transformation
costs was £685 million for bonus purposes.
It is testament to the dedication of our
people right across the Group that they have
managed to keep the operations running
smoothly during severe weather conditions,
the threat of industrial action and a winter flu
epidemic. I am delighted that their success
has been recognised by investors, as we
returned to the FTSE 100 in March this year.

Many other factors have contributed to our
success this year. We have continued to
transform our network to handle parcels
more efficiently, which is increasingly
important as they become a greater
proportion of our revenue. The UK parcels
business delivered four per cent revenue
growth in the year. Investment in GLS has
enabled it to expand through acquisition
and organic growth. Safety continues to
be a fundamental part of how we operate
across the Group, shown by a continuing
reduction in the rate of road traffic collisions
this year. You will see later in this report that
we are enhancing our assessment of safety
performance for the new financial year, to
reflect its importance.

Of course, our main focus is on the future.
The Pensions, Pay and Pipeline agreement

that has been reached with the CWU is core
to the ongoing success of our business. The
intensity of the negotiations was, in part,
due to the fact that all sides are committed
to providing good jobs for people in our
communities, with a fair level of pay allowing
them to expect a reasonable standard of
living. Our aim now is to implement the
agreement successfully – delivering an
innovative approach to pension provision
alongside new ways of working, in order to
meet changing market demands.

We remain committed to our policy of
treating our people fairly, as is apparent
from our Gender Pay Report published in
February 2018. Under the new reporting
regulations we showed that, as in previous
years, the average salaries of men and
women are broadly the same. On a median
hourly rate basis, men are paid 1.5 per
cent more than women. This compares to
a median pay gap of 9.7 per cent among all
companies that have reported.

Board changes
In last year’s report, we advised that
Matthew Lester, our Chief Finance Officer
(CFO), had decided to leave the business in
July 2017. Stuart Simpson, who had been
our Group Finance Director, stepped up into
the role and joined the Board following the
2017 AGM. Stuart’s remuneration package
was determined in accordance with the

Remuneration Policy and was set out in last
year’s Report. Stuart has already made an
excellent contribution to the Board and I look
forward to continuing to work with him.

As I have already mentioned, the Board
and Moya Greene have agreed that she will
retire from the Group in September, stepping
down from the Board at the AGM in July.
I have worked with Moya since she joined
Royal Mail in 2010. In my role as Chair of
the Remuneration Committee, I have seen
her firm commitment to always doing the
right thing for the people in this business,
whether that be on levels of pay, terms
and conditions, or the investment that is
needed to allow people to do their jobs to
the best of their abilities. Personally, I will
miss her wise counsel and superb insight
into this complex organisation. I would like
to take this opportunity to thank Moya for
her outstanding contribution to the Group
over the last eight years, which has left us in
the strong position we are in today. Details
of Moya’s remuneration arrangements on
departure are on pages 86-88.

I am very much looking forward to working
with our two new Executive Directors,
Rico Back and Sue Whalley. Both of these
individuals are well known to the Board
as they have been senior leaders in the
Company for many years. Rico Back, our
new Group CEO, has been with the Group
for 18 years, latterly working closely with

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our UK parcels team; and Sue Whalley, who
will run our UK business, has been with the
Group for 11 years. Sue worked closely with
Moya to conclude the operational aspects of
our agreement with the CWU. She will now
be responsible for delivering the multitude of
complex operational arrangements that were
agreed, which are necessary for this business
to continue to transform and grow.

Scorecard outturn of just below target: strong
performance in our financial metrics, safety
and employee engagement was offset by
misses in customer complaints, Quality of
Service and productivity. We were delighted
to achieve another increase in business
customer satisfaction, where we are often
rated as the number one delivery provider
compared with our competitors.

completed, with EPS achieving a better
than expected result. The detailed results of
the performance known to date are shown
on pages 91-92. The estimated vesting
outcome of 44.3 per cent is based on the
TSR performance at the end of the Financial
Year, and will be finalised once the three year
performance period has been completed in
July 2018.

As you would expect, the Committee took
great care in determining the remuneration
packages for these new Executive Directors.
We are keenly aware of the sensitivity
surrounding executive compensation and aim
to balance that against our wish to attract
and retain highly talented and experienced
leaders so that we can do well in our
increasingly competitive marketplace. We set
out details of Rico and Sue’s remuneration
in their new roles in our announcement on
20 April 2018. This information can also be
found on pages 83-84.

Remuneration outcomes in
2017-18
This year has seen strong financial
performance across the Group, despite the
challenges of sustained severe weather
conditions in many parts of the country and a
complex industrial relations environment for
much of the year. These factors are reflected
in the results of both our Annual Bonus
and our Long-Term Incentive Plan (LTIP).
Full detail on these outcomes is explained
further in this report and a summary of our
performance is as follows:

Annual bonus
The Corporate Balanced Scorecard accounted
for 80 per cent of the potential Annual Bonus
for Executive Directors. A series of strategic
objectives, which were set by the Committee,
represented the remaining 20 per cent of
the potential bonus. Our performance in
2017-18 resulted in a Corporate Balanced

The Committee deemed that Moya Greene
had achieved the strategic objectives in full,
resulting in a cash bonus of 71 per cent of
salary. Stuart Simpson almost achieved the
maximum against the strategic objectives
resulting in a bonus award of 69 per cent
of salary. The difference in achievement
between Moya and Stuart is due to Stuart
joining the Board part way through the
performance year. As I mentioned, he has
made an excellent contribution so far.
Stuart’s award is pro-rated to reflect the
portion of the performance period that he
was Group Finance Director and then CFO.
Under the Deferred Share Bonus Plan (DSBP),
this same value will usually be awarded in
shares to each Director, to be granted in the
summer and deferred for three years. This
will be the case for Stuart Simpson. For
Moya Greene, the Committee has decided
to grant this award in cash, as she will be
leaving the business. More on this particular
point is provided on page 86.

Further detail about our performance against
the Annual Bonus measures is given on
pages 90-91.

Long-Term Incentive Plan (LTIP)
The 2015 LTIP is due to vest in July
2018, once the outcome under the Total
Shareholder Return (TSR) metric is
known. The performance periods for
the other two metrics, Earnings per
Share (EPS) and Operating Profit Margin
before Transformation Costs, have been

The impact of the
Remuneration Policy on
delivering our strategic aims
The Policy that we introduced in 2016
aims to provide balanced incentives which
complement each other in pursuit of our
strategic objectives. This Company will only
thrive in the long term if we successfully
deliver at pace each year and the measures
in the Annual Bonus reflect that philosophy.
We have been able to use shares in our
reward schemes for four years now, since
IPO. Our DSBP, introduced two years ago,
also provides better alignment between
strategy and reward.

The use of relative TSR as the single metric
for the LTIP provides 100 per cent alignment
with shareholder returns: our executives are
rewarded only if shareholders are better off
as a result of investing in our company.

With the implementation of the revised UK
Corporate Governance Code and working
towards a new Remuneration Policy to
be voted on in 2019, we will continue our
dialogue with our shareholders on director
pay arrangements. Together with the rest
of the Board, I look forward to hearing your
views on our remuneration arrangements
and will be available to answer any questions
you may have at the AGM.

Orna Ni-Chionna
Chair, Remuneration Committee
16 May 2018

Our current Remuneration Policy

What is our current Remuneration Policy for Executive Directors?
Our current Remuneration Policy was approved by shareholders at our AGM on 21 July 2016.

The improvements we made in this Policy were intended to reward delivery at pace on the objectives required to achieve sustainable success,
while maintaining appropriate flexibility in target setting from year to year. In summary, the objectives for our Remuneration Policy are to:

• Be more aligned with our fast-changing marketplace and with what our executives need to focus on year on year

•

Incentivise sustained year on year improvements, with the aim of delivering long-term value for shareholders

Increase the proportion of remuneration which is delivered in the form of deferred equity, from around 25 per cent (prior to the current
Policy) to 40 per cent of the total, and encourage long-term shareholding supported by an increase in the shareholding requirement for our
Executive Directors.

Under our Policy, a larger proportion of the overall package is linked to performance, more is delivered in shares and the potential payout is over
a longer timeline than prior to its introduction.

| Annual Report and Financial Statements 2017-18

Executive Remuneration Principles
Remuneration Principles

Overall package

Incentive levels and structure

Alignment with shareholders

The overall remuneration package should take account of the dynamics of the market in which we operate.
Our incentive targets need to be flexible enough to ensure that we can reward performance appropriately.

Incentive payouts should be based primarily on the achievement of relevant operational, financial and strategic
goals, as well as the creation of long-term shareholder value.

Management interests should be aligned to the interests of shareholders, including through building a
significant Royal Mail shareholding.

Policy table
The following tables summarise the key elements of our remuneration, its purpose and link to strategy and the maximum opportunity. The
Policy is not subject to a shareholder vote this year. The full Policy can be found at http://www.royalmailgroup.com/about-us/management-and-
committees/remuneration-committee.

Fixed remuneration

At a Glance

Base Salary

Operation

Purpose & Link To Strategy
Reflects the scope and responsibility of the role, whilst taking account of the skills and experience of the individual.

Used to attract and retain talented executives to deliver the business strategy.

CEO (Moya Greene): £547,800 (effective 1 January 2015)

CFO (Stuart Simpson): £450,000 (effective 20 July 2017)

Salary levels for the Executive Directors are normally reviewed annually. The Committee takes into account
factors such as the performance of the Company, the performance of the Executive Director, any changes in role
and responsibility, assessment against relevant comparator groups, internal relativities and the level of increase
being offered to our frontline employees.

Increases will normally be in line with the broader employee population. Increases may be made above this level
to take account of changing circumstances such as a change in responsibility, progression in the role, individual
performance or a significant increase in the scale or size of the role.

Benefits

Purpose & Link To Strategy
To support the attraction and retention of talented executives by providing a competitive offering.

The value of the benefits stated is the maximum cost to
the Company of providing them

Benefits currently include the provision of a company car and health insurance, or the cash equivalent of these
benefits. Life assurance and health screening are also provided. Additional benefits may be offered, such as
relocation allowances on recruitment.

Moya Greene is contractually entitled to financial advice, use of a driver for business-related travel and two
return flights to Canada each year.

Executive Directors are entitled to participate in the SAYE scheme, with monthly deductions being taken for a
period of three or five years. The savings can be used to purchase shares at a discounted price set at the start
of each plan.

Pension Allowance

Purpose & Link To Strategy
To provide a competitive post-retirement income.

CEO (Moya Greene): £200,000 per annum
cash allowance

CFO (Stuart Simpson): 17.5 per cent of salary
cash allowance

Company contribution to a defined contribution pension scheme and/or a cash supplement (in lieu of pension).

The Committee maintains historical rates of pension allowance for existing Executive Directors, in line with
their contracts. However, it has adopted a lower pension allowance of 17.5 per cent for newly appointed
Executive Directors.

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Variable remuneration

At a Glance – maximum opportunity

Operation

Performance measures

Annual bonus

Purpose & Link To Strategy
Designed to reward achievement of key strategic, financial and operational priorities for the year, to deliver strong performance in service of longer term
strategic goals and creation of long-term shareholder value. Part of the total annual incentive opportunity is a deferred share award encouraging a long-term
view, providing alignment with shareholders’ interests.

Maximum total annual incentive opportunity of 200 per
cent of salary, split equally between two plans, an annual
cash bonus award and a deferred share bonus award.
Two thirds earned for target performance.

The total annual incentive opportunity is provided
as follows:

Aligned to the Corporate Balanced Scorecard for the
Executive Directors each year.

• one half is payable in cash, paid at the end of the

annual performance period

• one half is granted as a deferred share award,
after the end of the performance period and
subject to continued employment over the three
year vesting period.

Deferred share awards will be granted to Executive
Directors in the form of a conditional share award.
The Committee will normally award dividend
equivalents on deferred shares to plan participants to
the extent that they vest.

Malus provisions will apply to the deferred share
award over the three year vesting period. A clawback
mechanism will apply to the cash bonus for a period
of three years following the bonus determination.

Annual performance measures and weightings will
be selected at the start of each financial year to align
with the key strategic, financial and operational
priorities of the business.

The measures themselves may change on an annual
basis as financial and operational priorities of the
business change.

For 2018-19 year, 80 per cent of the Annual Bonus
will be based on the scorecard targets, and 20 per
cent will be based on the achievement against
strategic objectives.

A minimum of 50 per cent of the scorecard targets
shall be financial, with the remainder including
robust operational, customer and people KPIs.

A minimum level of operating profit must be achieved
before any bonus is payable to an Executive Director.

The Committee may use its discretion to:

• change the performance measures and targets and the weighting attached to the performance measures and targets part-way through a performance year if there is a

significant and material event which causes the Committee to believe that the original measures, weightings and targets are no longer appropriate;

• make downward or upward movements to the amount of bonus earned resulting from the application of the performance measures, if the Committee believes that the

bonus outcomes are not a fair and accurate reflection of business performance.

Long-Term Incentive Plan

Purpose & Link To Strategy
Supports executive recruitment and retention, with an appropriate balance between short-term performance and the creation of long-term, sustainable
shareholder value.

Maximum award level of 100 per cent of salary.

Awards are granted annually to Executive Directors
in the form of a conditional share award.

These will vest at the end of a three year period
subject to:

• the Executive Director’s continued employment at

the date of vesting; and

• the satisfaction of the performance conditions.

The Committee will normally award dividend
equivalents on those shares to the extent that
they vest.

Following the vesting, there is a holding period of
two years when Executive Directors cannot sell the
vested shares other than to pay tax.

Malus provisions apply over the performance period.
Clawback will apply over the holding period.

Performance measures and/or weightings reflect
the business strategy at the time, and are measured
over three years. The Committee may change the
balance of the measures, or use different measures
for subsequent awards, as appropriate.

For the 2018 award, 100 per cent of the award will be
dependent on TSR against the FTSE 100 (excluding
mining and financial companies). If the Group’s
relative TSR performance is ranked at median,
50 per cent of the award will vest, increasing to full
vesting if performance is in the top quartile of the
group. The underlying performance of the business
will also be taken into account when determining
the vesting.

In exceptional circumstances the Committee retains the discretion to:

• vary or waive the performance conditions applying to LTIP awards if the Board considers it appropriate and the new performance conditions are deemed reasonable and

are not materially more or less difficult to satisfy than the original conditions.

| Annual Report and Financial Statements 2017-18

Shareholding guideline

At a Glance

Operation

Purpose & Link To Strategy
To ensure alignment between remuneration and long-term shareholder value creation.

Shareholding guideline of 200 per cent of salary

Directors are expected to keep any shares they already own and any shares released under the LTIP and the
DSBP (except for those sold to cover any tax and social security obligations) until this is achieved.

The periods over which malus and clawback operate under our Policy

Start of Performance Period

+1 Years

+2 Years

+3 Years

+4 Years

+5 Years

Annual Cash Bonus

Performance period,
subject to malus

Subject to clawback

Cash award paid

Deferred Share
Award

Pre-grant performance
period, subject to malus

Vesting Period, subject to malus

Long-Term
Incentive Award

Performance period, subject to malus terms

Holding period, subject to clawback

Deferred shares
released

Award vests subject
to performance

Post-tax shares
released

What is the Remuneration Policy for the Chairman and Non-Executive Directors?

Chairman and Non-Executive Directors Policy

Purpose & Link To Strategy
Provides a level of fees to support recruitment and retention of Non-Executive Directors and a Chairman with the necessary experience to fulfil the leadership
role required of them.

Operation

The Board is responsible for setting the remuneration of the Non-Executive Directors. The Remuneration Committee is responsible for setting the Chairman’s fees.

Non-Executive Directors are paid an annual fee and additional fees for chairmanship of committees. The Chairman does not receive any additional fees for membership
of committees.

The fees for Non-Executive Directors and the Chairman are set at broadly the median of the comparator group. Fees are reviewed annually based on equivalent roles in the
comparator group used to review salaries paid to the Executive Directors. In general, the level of fee increase for the Non-Executive Directors and the Chairman will be set
taking account of any change in responsibility and will take into account the general rise in salaries across the UK workforce.

The Company will pay reasonable expenses incurred by the Non-Executive Directors and Chairman and may settle any tax incurred in relation to these.

Non-Executive Directors and the Chairman do not participate in any variable remuneration or benefits arrangements.

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How do the KPIs for the annual bonus and LTIP link to the Group strategy?

Annual bonus
80 per cent of the performance in the Annual Bonus is measured through the Corporate Balanced Scorecard. This Scorecard tracks a range of
short-term measures that are critical to the creation of long-term, sustainable shareholder value and the delivery of our strategy. There are no
changes to the overall structure of the Scorecard which continues to be made up of ten equally weighted metrics. The Committee has reviewed
and made some adjustments to the Safety and Customer Complaints metrics, which will apply for the beginning of the 2018-19 performance
period. The Road Traffic Collisions measure will be replaced with a composite Safety Index metric to ensure a broader focus on safety and
embedding a stronger safety culture across the Group. The Customer Complaints metric will be replaced with a composite Premium Parcel
Performance metric. This will measure our quality of service across the suite of our premium tracked parcel products – Special Delivery, Royal
Mail Tracked 24®/48® and Tracked Returns®.

People

15%

Customer

15%

First Class quality of service
Composite parcels quality

Mean business customer
satisfaction
Total customer
complaints

Strategy

40%

Employee customer focus

Employee engagement

Sick absence rate

Accident rate

UKPIL non-

people costs

UKPIL people costs

Productivity for

collections,

processing &

delivery

Free cashﬂow

Group operating proﬁt

Total Group Revenue

Efﬁciency

15%

Financial

15%

rin
e
v
i
l
e
D

•

g great cu st o m

Composite
Premium Parcel
Performance

s e r v i c e through enga

First Class
Retail Quality
of Service (%)

Employee
engagement
(score)

e
d,

Composite
Safety Index

v
e

p
e
o
p
l
e
, a

Mean business
customer
satisfaction
(score)

Productivity
for collections,
processing and
delivery (%)

In-year trading
cash ﬂow (£m)

Group
operating
proﬁt before
transformation
costs (£m)

Group
Revenue (£m)

le business results for all

UKPIL
costs (£m)

chieving sustain

20 per cent of performance in the plan will be assessed against a series of strategic objectives. The following objectives have been agreed
between the Chairman and the CEO. They will be used in conjunction with the Corporate Scorecard to measure the performance of the Executive
Directors at the end of the 2018-19 financial year:

1. Accelerate the expansion of our international business while avoiding undue risk.

Embed the new UK Post and Parcels system, by driving value from letters, investing in network development, implementing the deal with
the CWU and progressing the Collective Defined Contribution pension arrangement.

Focus the Head Office functions to support the delivery of our strategy and business results, by simplifying processes and implementing
transformational programmes.

LTIP
Our LTIP has a single metric directly reflecting shareholder value achieved, including dividends, relative to other large quoted companies.
The Committee believes relative TSR is an appropriate measure of strategy implementation over a three year period. It rewards the creation
of value for shareholders through the successful execution of our strategy. TSR also reflects the importance of dividend yield to the Group’s
shareholders and the Company’s commitment to a progressive dividend policy. In the event that the underlying financial performance of the
Group is not reflected in the TSR performance, the Committee would retain discretion to adjust the award.

| Annual Report and Financial Statements 2017-18

What is the remuneration opportunity under the Policy?
The following charts set out the remuneration scenarios under the Policy for the Executive Directors and the actual level of the single figure for
the year being reported on. We have included the single figure so that you can see where against our Policy scenarios the actual remuneration for
the year sits. For the CFO, the Actual 2017-18 data shows the full year equivalent earnings, in order to provide a reasonable comparison to the
Policy charts.

CEO (£000s)

Fixed Remuneration

Variable Remuneration

Maximum

On Target

31%

42%

23%

£2,421

20%

18%

£1,840

Minimum

100%

£777

Actual
2017-18

43%

22%

13%

£1,797

250

500

750

1000

1250

1500

1750

2000

2250

2500

Fixed Remuneration

Annual Bonus

Deferred Share Award

LTIP

CFO (£000s)

Fixed Remuneration

Variable Remuneration

Maximum

28%

24%

£1,894

On Target

37%

22%

19%

£1,466

Minimum

100%

£544

Actual
2017-18

43%

24%

£1,272

250

500

750

1000

1250

1500

1750

2000

2250

2500

Fixed Remuneration

Annual Bonus

Deferred Share Award

LTIP

Assumptions
Minimum/fixed remuneration: This includes salary (CEO: £547,800, CFO: £450,000), pension allowance (CEO: £200,000, CFO: £78,750 – 17.5 per cent of salary) and benefits (CEO: £29,000,
CFO: £15,000). Moya Greene has not taken all her benefits entitlement during the year.
On target:
Bonus: For the cash bonus, on target is two-thirds of maximum and the same value is used for the deferred share award.
LTIP: The expected value is taken as 60 per cent of maximum.
Maximum:
Bonus: For the cash bonus this is 100 per cent of salary and the same value is used for the deferred share award.
LTIP: For the LTIP this is 100 per cent of salary.
Actual 2017-18:
No assumptions have been made in relation to future share price movements or dividend reinvestments. The estimated impact of share price growth from the date of grant to the vesting
for the 2015 LTIP, due to vest in July 2018, is 4 per cent of the total estimated value shown in the charts above.

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How will the Policy be implemented in 2018-19?
The following table sets out how the Committee proposes to operate the Policy next year.

Element

Base salary

Implementation of Policy in 2018-19

We review the salary of each Executive Director annually. Any increases in salary will be less than or equal to the general
increase provided to employees. The salaries of our new Executive Directors have been set in accordance with the
Remuneration Policy. The salaries for the Executive Directors for 2018-19 are:

• Current Group CEO (Moya Greene) £547,800;

• New Group CEO (Rico Back) £640,000*;

• CFO (Stuart Simpson) £450,000;

• CEO of Post and Parcels, Royal Mail UK (Sue Whalley) £450,000.

*The increase in the new Group CEO’s salary reflects the Remuneration Committee’s desire that the fixed remuneration
(base salary, cash pension allowance and benefit entitlement) is broadly the same as that of the current CEO. The higher
base salary reflects the lower cash pension allowance as part of our Remuneration Policy.

Benefits

No change to benefit provision for 2018-19.

Pension Allowance

No change to pension allowance provision for 2018-19. The pension allowances for the Executive Directors for 2018-19 are:

• Current CEO (Moya Greene) £200,000;

• New CEO (Rico Back) £112,000 (17.5% of salary);

• CFO (Stuart Simpson) £78,750 (17.5% of salary);

Annual Bonus

No change to the Annual Bonus structure for 2018-19.

• CEO of Post and Parcels, Royal Mail UK (Sue Whalley) £78,750 (17.5% of salary).

The maximum total annual incentive opportunity for the Executive Directors will remain at 200 per cent of salary, as per
agreed Policy, half delivered in cash and half in deferred shares.

For the 2018-19 Annual Bonus, 80 per cent of the award will be based on achievement against the Corporate Balanced
Scorecard, in which at least 50 per cent of the measures will be financial, with the remainder focused on operational, customer
and people-related targets. 20 per cent of the award will be based on achievement against strategic objectives.

The Committee is of the opinion that, given the commercial sensitivity arising in relation to the detailed financial targets
used for the Annual Bonus, the disclosure of precise targets for the Annual Bonus in advance would not be in shareholders’
interests. Actual targets, performance achieved and awards made will be published at the end of the performance periods so
that shareholders can fully assess the basis for any payouts under the Plan.

LTIP

No change to the LTIP for 2018-19.

The Executive Directors will be eligible for an award equivalent to 100 per cent of salary.

100 per cent of the award will be based on the Group’s relative TSR performance against the FTSE 100 (excluding mining and
financial companies).

The vesting schedule will measure the Group’s performance over three years as follows:

• 50 per cent of the award will vest if TSR performance is equal to the median TSR of the companies in the comparator group;

• Maximum vesting will occur if TSR is equal to, or greater than, the upper quartile TSR of the comparator group.

The award is subject to straight line vesting between these two points.

In the event that the underlying financial performance of the Group is not reflected in the TSR performance, the Committee
would retain discretion to adjust the award.

Shareholding guidelines

200 per cent of salary for Executive Directors.

Non-Executive & Chairman
Fees

The Chairman and the Executive Directors reviewed the fees paid to Non-Executive Directors. They agreed, given the increasing
governance requirements requiring increased time spent on Royal Mail business, that their fees should be increased accordingly
(the base fee reflects the level of commitment required by the Company for their individual Non-Executive Director profile):

Annualised 2017-18 Fees

Annualised 2018-19 Fees

Base Fee

Chair Fee

Total

Base Fee

Chair Fee

Total

Rita Griffin

Paul Murray

£50,000

Orna Ni-Chionna1

£50,000

Les Owen

£50,000

Simon Thompson

£50,000

Keith Williams

£50,000

–

£15,000

£25,000

£10,000

–

£50,000

£65,000

£75,000

£60,000

£50,000

£62,000

£64,000

£60,000

£62,000

£56,000

–

£15,000

£25,000

£10,000

–

£62,000

£79,000

£85,000

£72,000

£56,000

1 The Chair’s fees shown above for Orna Ni-Chionna also include the fee for her role as Senior Independent Director.

| Annual Report and Financial Statements 2017-18

What would the remuneration arrangements be for a new Executive Director?
Salaries for new Executive Directors appointed to the Board will be set in accordance with the terms of the approved Remuneration Policy in
force at the time of appointment. In particular, they will take account of the appointee’s skills and experience, as well as the scope and market
rate for the role.

Benefits consistent with those offered to other Executive Directors under the approved Remuneration Policy in force at the time of appointment
will be offered, including the discretion to offer additional benefits such as relocation allowance on recruitment. Following the shareholder
consultation we undertook in 2016-17, the pension allowance paid to any newly appointed Executive Director is 17.5 per cent of salary.
All existing arrangements will remain the same.

Incentive arrangements for new Executive Directors will be in accordance with the approved Remuneration Policy in force at the time of
appointment. This means the maximum total annual incentive opportunity in any year would be 200 per cent of salary, split equally between cash
and deferred shares, and the maximum LTIP award would be 100 per cent of salary (with the ability to offer up to 200 per cent of salary for the
year of recruitment).

For an externally appointed Executive Director, the Company may offer additional cash or share-based payments that it considers necessary
to buy out current entitlements from the former employer that will be forfeited on recruitment. Any such arrangements would reflect the type
of award (for example, cash or shares); time horizons; and levels of conditionality of the remuneration foregone. In order to facilitate buy-out
arrangements, existing incentive schemes will be used to the extent possible, and the Committee will retain discretion on the application of
holding periods, performance conditions and performance periods.

For an internally appointed Executive Director, any outstanding variable pay element, such as an LTIP awarded in respect of the prior role, will
continue on its original terms.

The fees for Non-Executive Directors appointed will be set in accordance with the terms of the approved Remuneration Policy in force at the time
of appointment.

The Committee always seeks to ensure that any remuneration package is set such that the Company is able to attract the right calibre of
individual required, whilst taking account of affordability, and therefore the Committee must be allowed to exercise its judgement.

What are the remuneration arrangements for our new Executive Directors?
Our two new Executive Directors, as detailed below, have been appointed in line with this Policy.

Rico Back
Rico Back will assume the role of Group CEO and join the Board on 1 June 2018. The Remuneration Committee has determined the
following remuneration package for him in line with the shareholder approved Policy. The table sets out the elements of the package and the
Committee’s rationale:

Element

Salary

Detail

£640,000

Rationale

• The objective of the Committee was that the total fixed remuneration for the new CEO would be broadly in line
with the former CEO, recognising the difference in package mix with a lower pension allowance provided to the
new CEO but with a higher salary.

• The base salary has appropriately been set within the lower quartile of the Company’s comparators (lower

quartile salary in the FTSE 100 is £793,000).

Pension

17.5% of salary pension
allowance.

• This is substantially lower than the pension allowance paid to the former CEO and is in line with the commitment

made in the Policy that the Committee “would adopt a lower percentage for newly appointed Executive
Directors, up to median FTSE100 levels.”

• The pension contribution level is in the lower quartile of the Company’s comparators (lower quartile pension

contribution in the FTSE 100 is 24%).

Benefits

In line with the Policy.

• Standard Company benefits package.

Note: Rico Back will continue to use appropriate scheduled commercial flights when travelling directly between
Zurich and London. He will personally bear the costs for these flights and his accommodation in London.

Total Fixed
Remuneration (salary,
pension and benefits)

£790K

• The position of the total fixed remuneration externally is appropriately within the lower quartile of the

Company’s comparators (lower quartile total fixed remuneration in the FTSE 100 is £921,000).

Annual Bonus

Maximum 200% of
salary (see above for
details of the operation
of the Annual Bonus for
2018-19).

• The Committee recognises that the absolute value of bonus potential for the new CEO has been increased due to

the increase in base salary. The Committee wishes to highlight that:

• This level of incentive is comparable to the appropriate comparator group within the FTSE 100, i.e. the lower
quartile, and will be underpinned by the performance conditions, which have been set for 2018-19 to be
suitably challenging.

• 50% of any bonus earned will be awarded in shares, continuing the build-up and retention of a shareholding

to ensure a shared ownership experience between the CEO and shareholders.

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Element

LTIP

Total Incentive
Opportunity

Total Target
Remuneration (based
on target performance
for the bonus and LTIP)

Detail

Rationale

100% of salary
(see above for details of
the operation of the LTIP
for 2018-19).

• As with the bonus, the Committee recognises that the potential value to the new CEO has been increased due to

the increase in the base salary, whilst remaining in the lower quartile of the FTSE 100 comparator group.

• The requirement for the corporate strategy to deliver sustainable shareholder returns in order for any LTIP
award to be earned is extremely important to ensure alignment with shareholders and other stakeholders
in the Company. Therefore the increased opportunity is seen by the Committee as further strengthening
that alignment.

300% of salary.

• The total incentive opportunity is set by the shareholder approved Policy.

£2,031,600

• The Committee believes that the total remuneration (i.e. all elements) remains at an appropriate level for the

Company, taking into account its position in society and ensuring fairness with all stakeholders.

• The position of the total remuneration externally is appropriately within the lower quartile of the Company’s

comparators (lower quartile total remuneration in the FTSE 100 is £2,787,000).

Shareholding
Requirement

200% of salary

The current shareholding of the new CEO (as a percentage of his new salary) is just over 60% which is a positive
start to building up the required holding.

Legacy Arrangements relating to employment as CEO of GLS Holdings
The new Group CEO is an internal candidate having headed up GLS Holdings and UK Parcels prior to his promotion. He therefore has a number
of existing awards under the incentive arrangements operated by GLS. In line with the Policy set out above, these awards will continue to vest on
their original terms and be disclosed in the relevant Annual Report on Remuneration when vested.

Bonus
Rico Back will be entitled to a pro-rated bonus for the part of the 2018-19 financial year during which he is CEO of GLS Holdings. For the balance
of the financial year, he will have a pro-rated bonus potential based on his role as Group CEO.

Sue Whalley
Sue Whalley will assume the new role of CEO of Post and Parcels, Royal Mail UK and join the Board on 1 June 2018. The Remuneration
Committee has determined the following remuneration package for her, in line with the shareholder approved Policy:

Base Salary
Pension Allowance
Maximum Annual Bonus
Maximum LTIP

£450,000
17.5%
200%
100%

The external positioning of the remuneration package is consistent with the other Executive Directors and set appropriately within the lower
quartile of the FTSE 100.

In line with Royal Mail Group’s other Executive Directors, Sue Whalley will be expected to retain any share-based awards until she has a
shareholding equivalent to 200 per cent of salary.

Legacy Arrangements
In line with our Policy for an internally appointed Executive Director, the outstanding LTIP awards in relation to her prior service will continue on
their original terms, and will be reported in the relevant Annual Report on Remuneration when vested.

Bonus
Sue Whalley will be entitled to a pro-rated bonus for the part of the 2018-19 financial year during which she carries out her current role. For the
balance of the financial year, she will have a pro-rated bonus potential based on her role as CEO of Post and Parcels, Royal Mail UK.

What are the Executive Directors’ terms of employment?
The Executive Directors are employed under service contracts. The dates of these contracts are:

Moya Greene

Stuart Simpson

Rico Back

Sue Whalley

Date of Contract

Notice Period from RMG (months)

15 July 2010

15 May 2017

20 April 2018

The contracts have an indefinite term that may be terminated by the Executive Directors with six months’ written notice. The Company
can terminate contracts with twelve months’ notice. Copies of the Executive Directors’ service contracts are available for inspection at the
Company’s AGM.

| Annual Report and Financial Statements 2017-18

What are the terms of appointment for the Chairman and Non-Executive Directors?
The Non-Executive Directors (including the Chairman) are appointed by rolling letters of appointment. The Non-Executive Directors are appointed
for up to three years, subject to annual review and re-election. One month’s notice is required by either party (four months’ notice in the case of
the Chairman). The dates of the Chairman’s and Non-Executive Directors’ letters of appointment are set out in the following table.

Peter Long

Rita Griffin

Cath Keers

Paul Murray

Orna Ni-Chionna

Les Owen

Simon Thompson

Keith Williams

Date of Contract

18 June 2015

1 December 2016

20 September 2016

1 November 2017

1 January 2018

Unexpired Term at 25 March 2018
(months)

Retired 28 February 2018

The Company follows the UK Corporate Governance Code’s recommendation that all directors of FTSE 350 companies be subject to annual
re-appointment by shareholders.

What happens when an Executive Director leaves?
Moya Greene’s contract dates from her appointment to the Company in 2010, when it was in State ownership. As disclosed in the Prospectus
and as has been set out in every Directors’ Remuneration Report since Listing, her contract may be terminated immediately by the Company.
Unless the Company terminates the contract due to gross misconduct or a material breach of the obligations under the service contract, it
would be required to make a payment equalling 12 months’ base salary and an annual cash bonus referable to the relevant 12 month period.
The assessment of the annual bonus award would be made in line with normal practice for determining bonuses. We disclosed the detail of
Moya Greene’s contractual entitlement on 20 April 2018, when we announced her retirement. For more information, please see pages 86-88.
The bonus provision is not replicated in any other contracts and would not be part of the terms of appointment of a new Executive Director.

Payment in lieu of accrued holiday, incidental expenses and outplacement services may be paid/provided for as appropriate. Any statutory
entitlements or sums to settle or compromise claims in connection with a termination (including, at the discretion of the Committee,
reimbursement for legal advice) would be paid as the Committee considers necessary.

The Company has an explicit Policy on mitigation. Service contracts for Executive Directors do include express provisions for the use of monthly
phased payments, a requirement for the departing executive to seek to mitigate any loss and a reduction in amounts paid if the executive obtains
alternative paid employment.

Under Stuart Simpson’s service contract and the Policy for future hires, the Company may terminate the contract by making a payment in lieu of
any unexpired notice period. The payment in lieu of notice is limited to a maximum of 12 months’ base salary.

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The following table sets out the position under the incentive plans on cessation of employment:

Good Leaver Reason1 Other Reasons2

Committee Discretion

Annual Bonus:
Cash Awards

Performance conditions will
be measured at the bonus
measurement date. Bonus
will normally be pro-rated.

No bonus payable for
year of cessation.

Annual Bonus:
Deferred
Share Awards

All subsisting deferred share
awards will normally vest on
the normal vesting date.

Lapse of any unvested
deferred share awards.

Lapse of any unvested
LTIP awards.

LTIP

Pro-rated to time and
performance in respect of
each LTIP award. Awards will
vest on the normal vesting
date and the holding period
will apply, except in the case
of death when awards will
vest on date of cessation of
employment (and no holding
period will apply).

• to determine that an executive is a good leaver and

• to determine whether to pro-rate the bonus to time. The normal Policy is that bonus

will be pro-rated

provided that where any discretion is exercised there is an appropriate business case
which will be explained to shareholders.

• to determine that an executive is a good leaver

• to vest deferred shares at the date of cessation of employment

• to determine whether to pro-rate the award to time. The normal Policy for existing
awards is that they will not be pro-rated; provided that where any discretion is
exercised there is an appropriate business case which will be explained in full
to shareholders

• In respect of the year of cessation, discretion may be exercised to provide a pro-rated

deferred share award based on achievement of performance conditions as measured at
the bonus measurement date.

• to determine that an executive is a good leaver

• to measure performance over the original performance period or at the date of

cessation of employment

• to vest the shares on date of cessation of employment

• to determine whether to pro-rate the award to time. The normal Policy is that awards

will be pro-rated; and

• to disapply the holding period

provided that where any discretion is exercised there is an appropriate business case
which will be explained in full to shareholders.

1 A good leaver reason is defined as cessation in the following circumstances: death; injury, ill-health or disability, as established to the satisfaction of the Committee, redundancy with
the agreement of the Committee, retirement with the agreement of the Committee, the company employing the executive ceasing to be a member of the group, the business or part
of the business to which the executive’s office or employment relates being transferred to a person who is not a member of the group, or any other reason where the Committee in its
discretion so permits.

2 Cessation of employment in circumstances other than those set out above is cessation for other reasons.

How did the Committee apply the Policy to Moya Greene?
In line with the Policy set out above, Moya Greene’s cessation of employment qualifies for good leaver status due to her retirement with the
consent of the Committee. The Remuneration Committee has, therefore, made the following determinations consistent with this status.

Ongoing remuneration
Fixed
Following Moya Greene stepping down as CEO from 1 June 2018, she will remain an employee of the Company until September 2018. During
this period she will continue to receive her current salary, benefits and pension contribution. The annual rates for these fixed elements of the
remuneration package are set out in the table below:

Element

Salary

Pension Allowance

Estimated Value of Benefits (variable based on benefits taken up)

Annual Rate (£)

£547,800

£200,000

£43,000

Bonus 2017-18
Moya Greene will have been employed for the full financial year and therefore qualifies for a bonus based on the level of satisfaction of the
performance conditions. The Committee will apply its normal procedure in determining bonuses, with bonuses payable to all participants,
including Moya, following the end of the financial year in June 2018. The bonus payment to Moya will be payable solely in cash, with no element
provided in deferred bonus shares. The Committee determined to make the payment in cash to reflect the proximity of her departure to the bonus
payment date and given the equity exposure already provided post her retirement from existing awards under the Company’s share plans.

Bonus 2018-19
Moya Greene will be eligible to receive a bonus for the 2018-19 financial year in which she ceases employment with the Company. The terms of
her bonus participation are:

• She is eligible solely to receive the cash element of the Annual Bonus Plan which has a maximum value of 100 per cent of salary;

• The Committee has not exercised its discretion for her to qualify for the element of the Annual Bonus provided in deferred shares (maximum
value 100 per cent of salary). This decision was made to reflect her contractual entitlement to an element of the bonus as part of her payment
for loss of office (see below). This means that the total bonus opportunity in respect of 2018-19 is in line with the normal maximum of 200 per
cent of salary;

• The bonus will be pro-rated to the period of time she works during the financial year;

| Annual Report and Financial Statements 2017-18

• The corporate scorecard performance conditions will be measured at the end of the financial year (the element of the bonus (20 per cent)

which is based on individual objectives will be measured at the point of her cessation of employment);

• Any bonus payment will be made at the same time as to other Executives following the end of the financial year.

Long-Term Incentive Plan 2018-19
There will be no award to Moya Greene in respect of the 2018-19 financial year to reflect her retirement during the year. Details of the treatment
of existing share awards are set out below.

Existing Share Awards
Moya Greene holds a number of existing awards under the following Company share plans:

• The Royal Mail plc Deferred Share Bonus Plan.

• The Royal Mail plc Long-Term Incentive Plan (pre and post 2016).

2017 Deferred Share Award
The performance conditions for the Deferred Share Award were satisfied at the date of grant with the only ongoing condition being continued
employment at the vesting date. Dividend equivalents will be provided on vesting on the number of shares vested. In line with Policy for good
leavers, the 2017 Deferred Share Award will not lapse on Moya’s cessation of employment but vest on the original vesting date. The following
table sets out details of the Award:

Date of Grant

20 June 2017

Vesting Date

21 June 2020

Number of Shares

99,663

2015 LTIP Award
The performance periods for the 2015 LTIP will have been completed prior to Moya’s cessation of employment. In addition, Moya will be
employed at the vesting date and therefore the 2015 LTIP will automatically be eligible to vest in accordance with the rules of the LTIP. Dividend
equivalents will be provided on vested shares on the vesting date. The following table sets out details of the Award:

Date of Grant

23 July 2015

Vesting Date

23 July 2018

See page 92 for the current estimate of the level of award vesting.

Number of Shares

105,057

2016 & 2017 LTIP Awards
In line with the Policy, the Committee has determined that the following treatment will apply to these awards:

• The maximum number of shares capable of vesting will be pro-rated to the amount of the performance period completed on the date of

Moya’s cessation of employment;

• The number of shares vesting will be calculated based on the level of satisfaction of the performance conditions at the end of the original

performance period;

• A two year holding period will apply to shares following vesting, or a holding period of two years following cessation, whichever is earlier;

• Dividend equivalents will be provided on vested shares on the vesting date.

The following table sets out details of the LTIP Awards:

Date of Grant

21 July 2016

28 July 2017

Payment for Loss of Office

Vesting Date

21 July 2019

28 July 2020

Pro-rated Number of Shares Capable
of Vesting (subject to performance
conditions)

86,838

65,450

As disclosed in our announcement on 20 April 2018, the Company is legally required to make a payment to Moya as part of her employment
contract, which was approved by Government in 2010 when Royal Mail was in State ownership. This requirement was disclosed in our
Prospectus and has been set out in every Directors’ Remuneration Report since Listing. The payment comprises:

• 12 months’ base salary (based on the annual rate applicable at the date of cessation of employment);

• 12 months’ cash bonus. The Committee has determined that:

•

the reference period to calculate the bonus is the 12 month period in which the cessation occurs (2018-19); and

the value of the bonus should be based on the target bonus for this period.

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The following table sets out the amount of this payment:

Salary

£547,800

Target Bonus (67% of maximum)

Total Payment

£367,000

£914,800

How do the remuneration arrangements for Executive Directors compare with
arrangements for employees across the Company?
Although employees have not been directly consulted on the Remuneration Policy, or its application, the remuneration arrangements across
the Group are taken into consideration by the Committee when making decisions about Executive remuneration. For example, pay review
budgets for senior managers and executives are capped at lower rates than agreed with our trade unions for employees whose pay is
collectively bargained. In addition, the different incentive and commission schemes in operation across the Group all support the delivery of the
Company-wide annual bonus scorecard, through which the Executive Directors are incentivised.

Therefore although the broader workforce has not input into the Policy, its application is heavily influenced by remuneration arrangements for
all employees.

How does the change in the Chief Executive's pay compare to that for Royal Mail employees?
The table below shows the percentage change in the Chief Executive's salary, benefits and annual bonus between 2017-18 and 2016-17,
compared with the average for all employees across the Group. The small reduction in the average salary shown for ‘All Employees’ is not due
to a reduction in the terms and conditions we offer our employees overall. However, the data is impacted by employee turnover and a change
in the mix of employees across our grades. Over the last five years our frontline employees have received an increase of 15.4 per cent of salary,
including an increase of five per cent effective from 1 October 2017.

Salary1

Benefits2

Cash Bonus

Chief Executive Officer
Moya Greene

Average of All Employees

2017-18

2016-17

% Change

2017-18

2016-17

% Change

£547,800

£29,000

£386,800

£547,800

£43,000

£439,883

-32.6%

-12.1%

£28,724

£28,919

£48

£868

£48

£853

-0.7%

0.2%

1.8%

1 Full time equivalent salary including overtime and shift allowances
2 All taxable benefits. There has been no change to the contractual benefit entitlement for the CEO but she has made no use of her flight benefit during the financial year, hence the

decrease in value.

What is the Company’s Policy on Directors holding external positions?
It is the Company’s Policy to allow each Director to accept one Non-Executive Director position on the board of another company. The fees for
such appointments are retained by the Executive Directors and are disclosed below.

Did the Executive Directors receive fees from external positions?
The Executive Directors are entitled to receive fees from external appointments. Moya Greene was appointed as a Non-Executive Director at
easyJet plc on 19 July 2017 and received fees of £42,077 for the last reported financial year. Moya Greene will be joining the Board of Rio Tinto
Ltd on 17 September 2018. Stuart Simpson held no external appointments for the last reported financial year. Matthew Lester is a Non-Executive
Director at Man Group plc and received fees of £33,494 for the period from 1 April 2017 to 31 July 2017, when his employment with Royal Mail
ceased. He joined the Board of Capita plc, effective 1 March 2017, and received fees of £22,308 for the period from 1 April 2017 to 31 July 2017.

| Annual Report and Financial Statements 2017-18

£'000

Chairman

Peter Long

Annual Report on Directors’ Remuneration
This part of the Directors' Remuneration Report sets out details of how the current Remuneration Policy has been applied for the Financial Year
2017-18. This detailed information, set out below and on the following pages, has been audited by the Company's independent auditors, KPMG LLP.

Single figure for total remuneration (audited)

Salary/
Fees

Benefits1

Annual Bonus
Plan2

Deferred
Share Bonus
Plan3

Long-Term
Incentive
Plan4

Pension
Allowance5

Other

Total

2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017

300

–

Executive Directors

Moya Greene

Stuart Simpson6

Matthew Lester7

548

315

158

548

–

475

Non-Executive Directors

Rita Griffin

Nick Horler8

Cath Keers9

Paul Murray

Orna Ni-Chionna

Les Owen

Simon Thompson10

Keith Williams11

–

387

216

–

440

–

381

–

387

216

–

440

–

246

110

–

230

200

–

210

–

190

–

300

1,797

1,901

923

227

–

1,271

–

TOTAL

1,687

1,636

603

821

603

440

356

440

318

390

3,613

3,785

There has been no change to the contractual benefits entitlement, which includes medical insurance and car allowance. Moya Greene is also entitled to two return flights to Canada.
However, she has not made use of that benefit during the financial year, hence the decrease in value.

2 Bonuses are determined based on the salary as at 1 January 2018 in line with the Company’s Policy for all staff. Bonus payments are made in cash.
3

The DSBP is a deferred share award, granted at the end of the annual performance period, the grant being of equal value to the Annual Bonus, and subject to continued employment
over a three year vesting period. The award for Moya Greene will be made in cash, as explained on page 86. The DSBP award for Stuart Simpson reflects his period of service as an
Executive Director. His full year DSBP award (including service prior to his appointment as CFO) was £285,400. As disclosed in the 2017 report, Matthew Lester did not receive a DSBP
award in relation to the 2016-17 year.
The current year figure relates to an estimated vesting of the 2015 LTIP award as shown in the 2015 LTIP Outturn section below. The 2015 LTIP is due to vest in July 2018, once the
outcome under the TSR metric (which has a performance period that runs from the July 2015 grant date for three calendar years) is known. The prior year figure relates to the 2014 LTIP
award. This amount has been updated since the 2017 report, as the 2014 LTIP vested after publication of the Report, which showed the estimated vesting. The share price used to estimate
the value on vesting was £4.20, the actual share price on vesting was £3.98. The combination of the actual share price, and the application of dividend equivalents (as set out in the Policy)
led to an increase in the value of the LTIP vesting for Moya Greene of £21,000 and for Matthew Lester of £19,000 from that set out in the 2016-17 Directors’ Remuneration Report.
For Moya Greene, £10,000 is paid into the Royal Mail Defined Contribution Plan and the remaining £190,000 is paid as an allowance. The full amount for Matthew Lester was paid as
an allowance. 7% of salary (of a total pension allowance of 17.5% of salary) for Stuart Simpson is paid into the Royal Mail Defined Contribution Plan.
Stuart Simpson joined the Board on 20 July 2017. All amounts for 2017-18 above are pro-rated to reflect his service as an Executive Director, with the exception of the LTIP, where the
full estimated vesting amount is shown.
7 Matthew Lester left RMG on 31 July 2017.
8 Nick Horler retired from the Board on 28 February 2017.
9
Cath Keers retired from the Board on 28 February 2018.
10 Simon Thompson joined the Board on 1 November 2017.
11 Keith Williams joined the Board on 1 January 2018.

The following sections outline how the data in the table above was determined, with regard to Base Salary and incentives.

Were Base Salaries reviewed in the year?
The Committee has reviewed the salaries of our Executive Directors and decided not to make an increase to Moya Greene’s salary in 2017-18.
This has not changed since January 2015. Stuart Simpson’s salary was set on his appointment to the role of CFO. The following table compares salary
increases of Executive Directors with frontline staff over the last five years:

% increase in salary

Moya Greene1

Stuart Simpson2

Average frontline employee3

2017-18

2016-17

2015-16

2014-15

2013-14

–

1.6%

10%

–

2.8%

–

1 Over the last five years, Moya Greene has received total salary increases of 10 per cent.
2 Stuart Simpson’s salary was set at £450,000 on appointment as an Executive Director, in accordance with the current Remuneration Policy.
3 Over the last five years our frontline employees have received an increase of 15.4 per cent of salary, including an increase of five per cent effective from 1 October 2017.

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What was the outcome of the Annual Cash Bonus?
The performance period for the Annual Cash Bonus is the same as the financial year, with achievement being assessed against a range of
financial and non-financial targets, as set out in the Corporate Balanced Scorecard, and against a set of strategic objectives. The maximum cash
bonus opportunity for the CEO and CFO was 100 per cent of salary.

Performance against the Corporate Scorecard makes up 80 per cent of the bonus for Executive Directors. The table below contains a summary of
the performance metrics and achievement against these for the 2017-18 year.

Corporate Balanced Scorecard

Measure

Weighting

Threshold

Target

Road Traffic Collisions per 1,000 vehicles reduction (%)

Employee Engagement

First Class Retail Quality of Service (%)

Mean Business Customer Satisfaction

Total Customer Complaints (’000)

Productivity for Delivery, Collections & Processing (%)

Total UKPIL Costs (£m)

Total Group Revenue (£m)

Group Operating Profit Before Transformation Costs (£m)

In-year Trading Cashflow (£m)

10%

0.0

–

76.2

548.8

2.0

(7,391)

9,706

545

338

7.0

532.8

2.5

(7,246)

10,006

645

388

Scorecard Achievement (as % of target)

100%

Max

12.0

93.2

77.8

516.8

3.0

(7,101)

10,306

745

438

Actual

Outcome as
% of Target

9.0

91.7

564.8

1.0

(7,112)

10,051

685

444

12.0%

15.0%

0.0%

15.0%

0.0%

14.6%

10.8%

12.0%

15.0%

94.4%

Financial targets and actuals are based on reported results subject to adjustments approved by the Remuneration Committee. Group revenue and Group operating profit before
transformation costs are adjusted for foreign exchange movements. The achievement for In-Year Trading Cashflow has been adjusted to reflect the cash impact of the frontline pension
and pay agreement for 2017-18.

The remaining 20 per cent of the bonus for Executive Directors is based on achievement against Strategic Objectives set by the Board.
Achievement against the Strategic Objectives for 2017-18 was assessed by the Chairman and ratified by the Remuneration Committee.
Performance was determined to be very strong due to the significant progress made against the following:

1. Apply sufficient resource focused on global parcels to enable acceleration of our rate of expansion (primarily via acquisition).

Two acquisitions were closed during the year, Postal Express in the United States and Redyser Transporte in Spain. These two acquisitions
have added £29 million revenue during the financial year. GLS now provides a parcel service with full US West Coast coverage when the
previous acquisition, GSO, is also considered. Such expansion in the US has helped to create a strong overnight parcels delivery network
with the capability to deliver along the West Coast. This provides the ability to offer shorter delivery times than our competitors, which in
turn is enabling us to win more business and benefit from growth in interstate deliveries. Further acquisitions were considered but not
pursued, following due diligence. We continue to build and maintain a strong pipeline of future potential transactions.

2. Continue to drive profitable growth in GLS, our parcels business in Europe.

GLS has managed to sustain strong underlying revenue and profit progression in Europe. This has been achieved despite growing cost
pressures, including the increase in the minimum wage in Germany and subcontractor cost pressures in many key markets, which
have compressed margins. To drive revenue, GLS has expanded its premium business to consumer (B2C) service, FlexDeliveryService,
which is now available in 20 countries. Improvements have also been made in inner city logistics, trialling micro hubs in Germany and
environmentally friendly delivery methods in Italy. In February 2018, GLS acquired Redeyser Transporte. Redeyser will further strengthen
GLS’ position as Spain’s second biggest national express parcels network, following the acquisition of ASM Transporte Urgente in
June 2016.

3. Deliver the next stage of the parcels strategy in the UK, including enhancement of the customer proposition at acceptable cost

through technology deployment.
There has been significant progress in continuing to improve our technology for parcels customers. Online business sales orders exceeded
the previous year’s busiest day by 17 per cent. In Parcelforce Worldwide (PFW), My Parcel Live and the PFW App are live and fully deployed.
There have been over 45,000 downloads of the app to date. E-order capability has been launched for both account and retail customers, and
‘Interconnect’ international notifications have been launched for exports to 180 countries.

Implement the steps necessary to defend the sustainability of the core UK business in the face of continuing and substantial
declines in letter volumes and revenues.
A Joint Industry Committee has been established to further promote the value of mail. Alongside that there has been continued focus on
protecting the value of mail with distinct strategies for marketing, publishing, social and transactional mail. Around 90 per cent of in scope
mail now has a Mailmark®. In other revenue streams, third party vehicle maintenance has grown, reaching the break-even point. Over 28,000
vehicles have visited our workshops. Following comprehensive negotiations with the CWU, the Royal Mail Pension Plan, our legacy defined
benefit pension scheme, has now closed to future accrual. An innovative cash balance pension arrangement was successfully launched in
April 2018, and we have started the process of jointly lobbying Government to make the necessary legislative and regulatory changes to
enable the introduction of a Collective Defined Contribution scheme.

| Annual Report and Financial Statements 2017-18

The Chairman determined that the performance of Moya Greene against the Strategic Objectives was at maximum. This was ratified by the
Remuneration Committee. When added to the outcome of the Corporate Balanced Scorecard, the total bonus as a percentage of salary was
71 per cent, giving an annual cash bonus of £386,800. This amount will also be awarded to Moya Greene on her departure in cash, following the
Committee’s decision to award cash rather than shares under the deferred share bonus plan, bearing in mind the proximity to her departure and
the remaining value of LTIPs.

Bonus for Moya Greene (CEO)

Weighting

Target
(% of salary)

Max
(% of salary)

Achievement
(% of target)

Outcome
(% of salary)

Corporate Balanced Scorecard

Strategic Objectives

Total (as % of salary)

80%

20%

100%

54%

13%

67%

80%

20%

100%

94.4%

150%

51%

20%

71%

The CEO determined that due to Stuart Simpson joining the Board part way through the year, the performance against the Strategic Objectives
was at 18 per cent (out of a maximum of 20 per cent). This was ratified by the Remuneration Committee. When added to the outcome of the
Corporate Balanced Scorecard, the total bonus as a percentage of salary was 69 per cent. For the period from 20 July 2017 when he was
appointed as an Executive Director, this gives an annual cash bonus of £216,100.

Bonus for Stuart Simpson (CFO)

Weighting

Target
(% of salary)

Max
(% of salary)

Achievement
(% of target)

Outcome
(% of salary)

Corporate Balanced Scorecard

Strategic Objectives

Total (as % of salary)

80%

20%

100%

54%

13%

67%

80%

20%

100%

94.4%

134%

51%

18%

69%

In line with the Remuneration Policy and subject to Committee approval, this performance outturn determines the value of the deferred share
award to be granted to the CFO, equal to the value of his bonus. For this year, Stuart Simpson’s total bonus was £285,400, including his award
prior to joining the Board. Therefore this amount will be granted, subject to approval, under the deferred share bonus plan. This award will vest in
three years.

What was the outturn of the 2015 LTIP?
The 2015 award was based on achievement against two performance conditions to be achieved by 25 March 2018 and a third condition, TSR, to
be achieved by July 2018. The tables below show the performance conditions and the estimated vesting of this plan. The final outcome of the plan
will depend upon the relative share price performance in the last three months of the performance period. Performance targets for the 2015 LTIP
were not previously published due to commercial sensitivity.

Performance conditions:

Performance
conditions

Weighting Definition

Earnings per share
(EPS)

50%

Adjusted operating
profit margin before
transformation costs

35%

15%

Total Shareholder
Return (TSR)
versus FTSE 100
comparator group

‘Basic EPS excluding
specific items’ as reported
in the Annual Report and
Accounts of the Company

Adjusted operating
profit margin before
transformation costs as
reported in the Annual
Report and Accounts of
the Company

The change in the
Net Return Index
(as calculated by an
independent financial
information provider)
for Royal Mail compared
with the ranked Net
Return Indices of the
comparator group.

Target
measurement
period

Financial year
2017-181,2

3 calendar years
from the date
of grant of the
award3

Threshold

Maximum

Target

Vesting
(% of award) Target

Vesting
(% of award)

40.8 pence

12.5%

44.7 pence

50%

7.2%

8.75%

8.3%

35%

Median

7.5%

Top Quartile

15%

1 Results include an adjustment to remove the impact of weaker sterling on UKPIL.
2 Results are adjusted to reflect a constant foreign exchange rate of £1/€1.42 in GLS.
3 TSR calculation:

TSR2 – TSR1.
TSR1

TSR1 is its average Net Return Index over each weekday (excluding Saturdays) during the three months period ending on the first day of the TSR Performance Period.
TSR2 is its average Net Return Index over each weekday (excluding Saturdays) during the three months period ending on the last day of the TSR Performance Period.

Annual Report and Financial Statements 2017-18

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Royal Mail plc

| Directors’ remuneration report

Actual achievement:

Performance conditions

Earnings per share (EPS)

Threshold

40.8 pence

Maximum

44.7 pence

Outcome

43.0 pence

Adjusted operating profit margin
before transformation costs

Total Shareholder Return (TSR)
versus FTSE 100 comparator group

7.2%

8.3%

6.92%

Median

Top Quartile

Estimated 60th
percentile

Estimated 10.5%

Vesting
(% of award)

33.8%

Estimated 2015
LTIP Vesting
(% of award)

44.3%

The 2015 LTIP is due to vest in July 2018, once the outcome under the TSR metric (which has a performance period that runs from the July 2015
grant date for three calendar years) is known. For the TSR metric, the average TSR for the three months period ending 31 March 2018 is used in
order to calculate the estimated vesting above. At the end of the TSR performance period, the outcome will be recalculated based on the average
TSR over the three month period ending on the last day of the TSR performance period.

What previous LTIP awards remain outstanding at the year end? (audited)
The grants made for the 2016 LTIP and the 2017 LTIP remain outstanding. The performance conditions for both LTIPs are:

Measure

Weighting

Performance

Vesting
(% of award)

Performance

Vesting
(% of award)

TSR versus FTSE 100
(excluding mining & financial companies)

100%

Median

50%

Top Quartile

100%

Threshold

Maximum

The amount of the LTIP awards outstanding, for each of the Executive Directors, is shown in the following table, as at 25 March 2018:

Executive Director

Moya Greene

Stuart Simpson

Year

2016

2017

2016

2017

Type

LTIP shares

Maximum
value of
award
at grant
(% salary)

100%

Maximum
value of
award at
grant (£’000)

% vesting at
threshold
performance
(% of salary)

548

245

450

50%

Final year of
performance
period

Number of
shares at
grant

2018-19

2019-20

2018-19

2019-20

107,800

138,602

48,213

113,857

It should be noted that on Matthew Lester’s cessation of employment, his 2015 and 2016 LTIP awards lapsed and he was not granted a 2017 LTIP
award. The pro-rated number of shares capable of vesting for Moya Greene under the 2016 and 2017 LTIPs can be found on page 87.

| Annual Report and Financial Statements 2017-18

Following these LTIP awards, what are the current shareholding levels of the Board?
(audited)
The table below sets out details of the shareholdings of the Executive and Non-Executive Directors as at 25 March 2018. There has been no
change in the Directors’ interests in the ordinary share capital of the Company between 25 March 2018 and 16 May 2018 except as noted in (2)
and (3) below.

Number
of shares
owned
outright on
25/03/18

Number
of shares
owned
outright on
26/03/17

Value of
shares
owned
outright on
25/03/181

Number
of options
granted
under SAYE
plan

Shareholding
Requirement

Chairman

Peter Long

Executive Directors

Moya Greene

Stuart Simpson

Matthew Lester4

Non-Executive Directors

Rita Griffin

Cath Keers

Paul Murray

Orna Ni-Chionna

Les Owen

Simon Thompson

Keith Williams

–

100,000

–

200%

–

72,163

25,936

59,468

–

3,030

15,943

13,953

3,030

–

40,173

–

30,591

–

3,030

15,617

3,313

3,030

–

£381,887

£137,253

£314,705

–

590

–

Value of
conditional
share
awards not
subject to
performance
conditions
(DSBP)2

Conditional
share awards
subject to
performance
conditions
(LTIP 2015,
2016, 2017)3

–

£439,883

£430,490

351,459

209,056

–

1 Value based on closing share price on 23/03/18.
2 Includes the DSBP granted in respect of the 2016-17 Annual Bonus and to be granted to Stuart Simpson in respect of his full 2017-18 Annual Bonus.
3 Shares include those which are subsequently due to vest following the end of the performance period in July 2018.
4 The number of shares shown for Matthew Lester is as at his date of leaving the Company, 31 July 2017, rather than 25 March 2018.

Data is reported prior to the sale of shares required to cover tax obligations.

The impact of pre-IPO LTIP awards vesting in cash rather than shares means that it will take some time for the Executive Directors to achieve the
minimum required level of shareholding guideline.

Were any payments made for loss of office during the financial year?
Our Chief Finance Officer (CFO), Matthew Lester left the business in July 2017, after nearly seven years of service with the Company. As reported
in the 2017 report, his 2014 LTIP award vested, but his outstanding LTIP awards lapsed in accordance with the plan rules, and he was not eligible
for the award of deferred shares that formed part of the 2016-17 bonus. He did not receive any payment for loss of office.

Were any payments made to past Directors during the financial year?
No payments were made to past Directors during the year.

What has the pay for the CEO been over the last nine years?
The total remuneration figure for the CEO over the last nine years is shown in the table below. The annual bonus payout and the LTIP vesting level
as a percentage of the maximum opportunity are also shown.

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

Chief Executive Officer

Adam
Crozier

Total Remuneration (£'000)

858

Annual Bonus awarded as
% maximum

LTIP vesting as
% maximum

–

Adam
Crozier

2,428

–

Moya
Greene

778

41%

Moya
Greene

1,107

Moya
Greene

1,962

Moya
Greene

1,360

Moya
Greene

1,522

Moya
Greene

1,529

Moya
Greene

1,901

Moya
Greene

1,797

74%

80%

77%

85%

82%

80%

71%

100%

–

100%

69%

59%

46%

est. 44%

Annual Report and Financial Statements 2017-18

| 93

Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| Directors’ remuneration report

How does TSR compare to that
of other similar companies?
Total Shareholder Return (TSR) is the measure
of the returns that a company has generated for
its shareholders, reflecting both movement in the
share price and dividends, which are assumed to be
reinvested, over a period of time. The graph shows
the TSR of the Company, since the date of the first
day of trading, relative to the FTSE 100 Index. The
FTSE 100 Index has been chosen for comparison as
the Company has been a constituent of the Index for
the majority of the period shown, and it provides a
benchmark of the performance of other large UK
listed companies.

250

200

150

100

)
d
e
s
a
b
e
r
(

n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S

a
t
o
T

171

140

157

145

193

100

104

112

104

130

127

11 October
2013

Royal Mail

30 March
2014

29 March
2015

FTSE 100

27 March
2016

26 March
2017

25 March
2018

TSR over the Financial Year

FY 2013-14*

FY 2014-15

FY 2015-16

FY 2016-17

FY 2017-18

Royal Mail plc

FTSE 100

71%

-18%

12%

-7%

-8%

25%

33%

-2%

* The chart and table show performance since the first day of conditional trading following the IPO (11 October 2013); in accordance with the Code, they will show an increasing

timeframe in the coming years.

How much does Royal Mail
spend on pay?
The chart shows the Company's actual
spend on pay (for all employees) relative
to dividends, revenue and operating profit.
Revenue has been included because this
measure represents the amount of money
the Company received during the year and
provides a clear illustration of the ratio of
people costs to income.

12,000

10,000

8,000

m
£

6,000

4,000

2,000

2017-18

2016-17

Revenue

2017-18
2016-17
Adjusted People Costs

2017-18

2016-17

Adjusted Operating Proﬁt

2017-18
2016-17
Declared Dividends

Note: the data used for Revenue and Adjusted Operating Proﬁt in the chart are not adjusted for foreign exchange
movement, which is included in the outturn for the Scorecard.

| Annual Report and Financial Statements 2017-18

Which of the Board members sit on the Remuneration Committee, and how frequently do
they meet?
The members of the Committee are shown in the table below.

Number of meetings eligible to attend

Number of meetings attended

Chair

Orna Ni-Chionna

Members

Rita Griffin1

Peter Long2

Paul Murray3

Les Owen

1 Rita Griffin was appointed to the Remuneration Committee on 1 July 2017.
2 Peter Long stepped down from Remuneration Committee on 1 July 2017.
3 Paul Murray was travelling at the time of the Remuneration Committee on 6 July 2017 and was unable to attend the meeting.

Role of the Remuneration Committee
•

to determine and recommend for the Board’s approval the overall design of the remuneration of the senior executives of the Group;

•

to determine the individual remuneration arrangements for the Chairman, the Executive Directors, the Company Secretary and the members
of the Chief Executive’s Committee; and

to agree the targets for any performance-related incentive schemes applicable to senior executives.

The full Terms of Reference for the Committee can be found on our website:
http://www.royalmailgroup.com/about-us/management-and-committees/remuneration-committee.

Does the Remuneration Committee seek advice from internal and external advisors?
The Committee takes information and advice from inside and outside the Company. Internal support was provided by Jon Millidge, the Group
HR Director (supported by other members of the HR department and senior leadership as appropriate) and Kulbinder Dosanjh, the Company
Secretary. No individual was present when matters relating to his or her own remuneration were discussed.

The Committee seeks advice from independent external advisors as appropriate. The appointed advisors, PwC, were selected through a
competitive tendering process, led by the Chair of the Remuneration Committee, and appointed in October 2014. PwC provided information to
the Committee regarding external market trends and advice on executive remuneration design. The total fees paid for advice to the Committee
were £84,400.

PwC has provided tax, technology, finance, operations, and other HR, commercial and strategic consulting services to the Group during the
financial year.

PwC are signatories to the Remuneration Consultants Group Code of Conduct and report directly to the Chair of the Committee. The Chair of the
Committee meets regularly with its advisers without Management present. The Committee is satisfied that the advice it receives is objective
and independent.

2017 Voting By Shareholders
The table below shows the advisory vote on the 2016-17 Remuneration Report at the AGM on 20 July 2017, and the vote on the Remuneration
Policy, which was effective from the date of the 2016 AGM for up to three years.

Approval of Remuneration Report

Votes For

548,642,126

% For

91.47%

Votes
Against

51,145,932

Approval of Remuneration Policy

523,665,626

83.46%

103,807,987

% Against

8.53%

16.54%

Total Votes
Cast

Votes withheld
(abstentions)

599,788,058

627,473,613

22,890,191

7,731,040

The Remuneration Committee feels that the strong level of support for the implementation of the Remuneration Policy last year does not require
the Committee to make any changes to its implementation for the next financial year.

Approved by the Board on 16 May 2018 and signed by

Orna Ni-Chionna
Chair, Remuneration Committee

Annual Report and Financial Statements 2017-18

| 95

Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

| Directors’ report

Directors’ report

The Directors present their report together with audited financial
statements for the year ended 25 March 2018.

Strategic report
To enable an assessment of 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 facing
the Group. This information can be found in
the following sections of the Annual Report
and Financial Statements 2017-18 and are
incorporated by reference.

The information required to be disclosed in
the Annual Report under Listing Rule 9.8.4R
is marked with an asterisk below.

Index

Business model

Strategy for delivering objectives

Results

Page

Financial assets and liabilities

135

Principal risks

Corporate responsibility

Greenhouse gas emissions

Disabled employees

Our people

Going concern

Viability statement

Long-Term Incentive Plans*

Statement of the amount of
interest capitalised*

Dividend waiver*

132

127
and
130

Disclosure Guidance and
Transparency Rules
The Strategic Report and the Directors’
Report together include the management
report required by DTR 4.1 of the Disclosure
Guidance and Transparency Rules of the
UK Financial Conduct Authority (Disclosure
Guidance and Transparency Rules), the
Directors having consulted with the
Management on such matters.

Corporate governance statement
The Disclosure Guidance and Transparency
Rules require certain information to
be included in a Corporate Governance
Statement in the Directors’ Report. This
information can be found in the Statement
of Corporate Governance on pages 54-55.
It is incorporated into this Directors’ Report
by reference.

Shares
Final dividend
The Board recommends a final dividend
of 16.3 pence per ordinary share, giving a
total dividend for the year of 24.0 pence
per ordinary share. The final dividend will
be payable on 31 August 2018, subject to
shareholder approval, to shareholders whose
names appear on the register of members on
27 July 2018.

Dividends and distribution
The Company may by ordinary resolution
from time-to-time declare dividends not
exceeding the amount recommended by
the Board. Subject to the Companies Act
2006, the Board may pay interim dividends,
and also any fixed rate dividend, whenever
the financial position of the Company, in
the opinion of the Directors, justifies its
payment. If the Board acts in good faith, it is
not liable to holders of shares with preferred
or pari passu rights for losses arising from
the payment of interim or fixed dividends
on other shares. All dividends shall be
apportioned and paid pro rata according to
the amounts paid up on the shares.

Dividend waivers
The trustee of the Royal Mail Share Incentive
Plan will not receive any dividends (other
than any special dividend declared by the
Board) on Free Shares which it has not been
possible to award to, or which have been
forfeited by, participants in the plan.

Political donations
No political donations were made during the
year. The Company intends to continue its
policy of not making such donations for the
foreseeable future.

Future developments
Possible future developments are described
in Our Strategy on pages 16-17 and Principal
Risks on pages 40-45 of the Strategic Report.

| Annual Report and Financial Statements 2017-18

Share capital
As at 25 March 2018, the Company’s issued
share capital comprised 1,000,000,000
ordinary shares of one penny each as set out
in Note 23 to the accounts on page 142.

A block listing of 5,000,000 shares was
undertaken in November 2014. To date, no
new shares have been issued.

Rights and obligations attaching to
shares voting
Subject to the provisions of the Articles, and
to any special rights or restrictions as to
voting attached to any class of shares in the
Company (of which there is none), members
will be entitled to vote at a general meeting
as follows:

• On a show of hands, every member

present in person has one vote. Every
proxy present who has been duly
appointed by appointing one or more
members will have one vote, except
that a proxy has one vote for and one
vote against if the proxy has been duly
appointed by more than one member and
the proxy has been instructed by one or
more members to vote for and by one or
more other members to vote against.

• For this purpose, the Articles provide that,
where a proxy is given discretion as to
how to vote on a show of hands, this will
be treated as an instruction by the relevant
member to vote in the way that the proxy
decides to exercise that discretion.

• On a poll, every member has one vote per
share held by them and they may vote
in person or by appointing one or more
proxies. Where they appoint more than
one proxy, the proxies appointed, taken
together, shall not have more extensive
voting rights than the member could
exercise in person.

In the case of joint holders of a share, the
vote of the senior holder who tenders a
vote, whether in person or by proxy, shall
be accepted to the exclusion of the votes of
the other joint holders and, for this purpose,
seniority shall be determined by the order
in which the names stand in the register in
respect of the joint holding.

No member shall be entitled to vote at any
general meeting or class meeting in respect
of any share held by him, or her, if any call
or other sum then payable by him or her in
respect of that share remains unpaid or if a
member has been served with a restriction
notice (as defined in the Articles) after failure
to provide the Company with information
concerning interests in those shares required
to be provided under the Companies Act 2006.
Currently, all issued shares are fully paid.

Voting instructions may be submitted
electronically at www.sharevote.co.uk by
following the online instructions.

Employees allocated Free Shares under the
Employee Free Shares Offer, which are held
in trust by the Trustee of the Royal Mail Share
Incentive Plan, are entitled to exercise any
voting rights in respect of such Free Shares
by instructing the Trustee how to vote on
their behalf.

Deadline for voting rights
Full details of the deadlines for exercising
voting rights in respect of the resolutions
to be considered at the AGM, to be held on
19 July 2018, will be set out in the Notice
of AGM.

Special rights
There are no persons holding securities that
carry special rights with regard to the control
of the Group.

Transfer of shares
Subject to the Articles, any member may
transfer all or any of his or her certificated
shares by an instrument of transfer in any
usual form or in any other form which the
Board may approve. The instrument of
transfer must be signed by or on behalf of the
transferor and (in the case of a partly-paid
share) the transferee.

The transferor of a share is deemed to remain
the holder until the transferee’s name is
entered in the register.

The Board can decline to register any transfer
of any share which is not a fully paid share.
The Board may also decline to register a
transfer of a certificated share unless the
instrument of transfer:

is duly stamped or certified or otherwise
shown to the satisfaction of the Board
to be exempt from stamp duty and is
accompanied by the relevant share
certificate and such other evidence of
the right to transfer as the Board may
reasonably require;

ii.

is in respect of only one class of share; and

iii. if to joint transferees, is in favour of not

more than four such transferees.

rights to subscribe for or to convert any
security into shares in the Company:

up to a nominal amount of
£3,333,333; and

comprising equity securities up to a
nominal amount of £6,666,666 (such
amount to be reduced by any allotments
made under paragraph (a) above) in
connection with an offer by way of a
rights issue;

The authorities conferred on the Directors
to allot securities under paragraph (a)
and (b) will expire on the date of the 2018
AGM or close of business on 30 July 2018,
whichever is sooner, (the ‘Expiry Date’).
The Directors will be seeking a new authority
for the Directors to allot shares and to
grant subscription and conversion rights to
ensure that the Directors continue to have
the flexibility to act in the best interests of
shareholders when opportunities arise by
issuing new shares or granting such rights.

The Board was also given authority to allot
equity securities for cash or to sell Ordinary
Shares as treasury shares for cash subject
to certain limitations, such authority to apply
until the Expiry Date.

Purchase of own shares by the Company
By a resolution passed by shareholders on
20 July 2017, at the AGM, the Company was
authorised to purchase up to a maximum
number of 100,000,000 of its Ordinary Shares
pursuant to certain limitations, such power
to apply until the Expiry Date. The Company
did not repurchase any of its Ordinary Shares
during the year ended 25 March 2018.

The Directors require express authorisation
from shareholders to purchase our own
shares. Accordingly, at the 2018 AGM, the
Directors will seek authority to make market
purchases of up to a maximum of ten per
cent of issued share capital. At the present
time, the Company has no plans to exercise
this authority.

Employee Benefit Trust (EBT)
As at 25 March 2018, a total of 513,230
(2016-17 9,582,175) shares were held by the
EBT on behalf of the Company.

Registration of a transfer of an uncertificated
share may be refused in the circumstances
set out in the uncertificated securities rules
(as defined in the Articles) and where, in the
case of a transfer to joint holders, the number
of joint holders to whom the uncertificated
share is to be transferred exceeds four.

Substantial shareholdings
As at 25 March 2018, the Company had been
notified, in accordance with the Disclosure
Guidance and Transparency Rules, of the
following interests amounting to three per
cent or more of the voting rights in the issued
ordinary share capital of the Company:

Authority of the Directors to allot shares
By a resolution passed by shareholders on
20 July 2017, at the AGM, the Directors were
authorised, subject to certain limitations,
to allot shares in the Company and to grant

Shareholder

Number
of shares

% of
voting
rights

BlackRock, Inc

55,076,360

5.50%

As at 16 May 2018, the Company had been
notified, in accordance with the Disclosure
Guidance and Transparency Rules, of the
following interests amounting to three per
cent or more of the voting rights in the issued
ordinary share capital of the Company:

Shareholder

Number
of shares

% of
voting
rights

BlackRock, Inc

55,076,360

5.50%

Amendment to the Company’s Articles
of Association
Any amendments to the Company’s Articles
may be made in accordance with the
provisions of the Companies Act 2006 by way
of special resolution.

Directors
Indemnity of Directors
To the extent permitted by the Companies
Acts, the Company may indemnify any
Director or former Director of the Company or
any associated company against any liability
and may purchase and maintain for any
Director or former Director of the Company
or any associated company insurance against
any liability.

These types of indemnity are qualifying
third-party indemnities as defined by section
243 of the Companies Act 2006. No amount
was paid under this provision during the year.

Appointment and replacement
of Directors
Unless otherwise determined by ordinary
resolution of the Company, the Directors shall
be no fewer than two and no more than 15
in number.

Directors may be appointed by the Company
by ordinary resolution or by the Board.

In accordance with the Code, all Directors
of the Company are subject to annual
re-election.

A Director appointed by the Board holds office
only until the next AGM and is then eligible for
election by the shareholders.

The Company’s Articles provide that, at each
AGM, all those Directors who have been in
office at the time of the two preceding AGMs
and who did not retire at either of them, or
who have held office with the Company, other
than employment or executive office, for a
continuous period of nine years or more at
the date of the AGM, shall retire from office
and may offer themselves for re-appointment
by shareholders. The Board has, however,
decided to follow the Code as referred to
above so that all Directors are subject to
annual re-election.

In addition to any power of removal conferred
by the Companies Act 2006, the Company

Annual Report and Financial Statements 2017-18

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| Directors’ report

may by special resolution remove any
Director before the expiration of his or her
period of office.

Directors and their interests
The Directors of the Company during the
year are given on pages 58-60. Details of
the interests of the Directors and, where
applicable, their Connected Persons in
the Ordinary Shares of the Company and
of Long-Term Incentive Plan Awards over
Ordinary Shares of the Company are set out
in the Directors’ Remuneration Report on
pages 75-96.

There are procedures in place to deal with
any conflicts of interest and these have
operated effectively.

Powers of the Directors
The business of the Company will be
managed by the Board who may exercise all
the powers of the Company, subject to the
provisions of the Articles, the Companies
Act 2006 and any ordinary resolution of
the Company.

Directors’ annual bonus and Long-Term
Incentive Plan awards upon a change
in the control of the Company
Upon a change of control of the Company,
share awards under the annual bonus and
vesting under the 2014 LTIP or 2016 LTIP
arrangements could pay out on a pro-rated
basis if the performance conditions have
been met. The performance-testing period
would automatically end on the date of the
change in control. Awards granted less
than 12 months prior to a change in control
would typically be pro-rated, unless the
Remuneration Committee decides otherwise.

Events after the reporting period
There were no events after the reporting period.

Financial risk management
The Group’s financial risk management
objectives and policies and the main risks
arising from the Group’s financial assets and
liabilities are summarised in Note 21 to the
accounts on page 135. See the financial risks
and related hedging contained on page 33 of
the Financial Review in the Strategic Report.

Change of control
The following agreements contain provisions
permitting exercise of termination or other
rights in the event of a change of control:

• The Mails Distribution Agreement with Post
Office Limited provides for the supply of
certain services to the Group and allows for
a request for renegotiation of terms in the
event of a change of control of either party
where such change of control is likely to
have a material adverse effect on the party
not undergoing the change of control.

• The Syndicated Loan Facility with various
financial institutions provides the Group
with a revolving credit facility for general
corporate and working capital purposes.
The agreement contains provision on
a change of control of the Group for
negotiation of the continuation of the
agreement or cancellation by a lender.

• The €500 million bond issued by the

Company in July 2014 contains provisions
such that, on a change of control that is
combined with a credit rating downgrade
in certain circumstances, the noteholders
may require the Company to redeem or, at
the Company’s option, purchase the notes
for their principal amount, together with
interest accrued to (but excluding) the
date of redemption or repurchase.

Branches
As a global Group, our interests and
activities are held or operated through
subsidiaries, branches, joint arrangements
or associates which are established in, and
subject to the laws and regulations of, many
different jurisdictions.

New products and services
In the ordinary course of business, the Group
develops new products and services in each
of its business units.

Environmental, Social and
Governance risks
The Strategic Report, together with
greenhouse gas (GHG) emissions which are
discussed on page 52, sets out key
environmental, social and governance (ESG)
risks faced by the business.

The Board identifies and assesses significant
risks, including those relating to ESG matters,
through the maintenance and review of the
Group Risk Register. This contains significant
current risks, including ESG risks, which are
identified at an early stage as part of the
long-term business perspective.

Emerging risk identification is conducted by
experts in the business and risk management
is owned and managed at the operational
level, supported centrally. An independent
effectiveness review by an independent
external auditor confirmed good links between
the strategy of the Company and currently
identified risks and that appropriate
importance is placed on risk management by
executives within the Group. The Company
maintains a range of policies and procedures
for managing business risks, which include
ESG-related matters.

The Board annually reviews the Company’s
Corporate Responsibility Report, which covers
in detail the Group’s non-financial ESG
performance. The report is prepared in
alignment with the reporting framework of the

Global Reporting Initiative Index and the
Company’s performance is assessed against
international sustainability indices. The
Company reports progress against corporate
responsibility objectives under five areas:
Customer, People, Community, Suppliers and
Environment. See page 48 for a summary of
key corporate responsibility aspects.

Going concern
These consolidated financial statements have
been prepared on a going concern basis.
The financial performance and position of
the Group, its cash flows and its approach
to capital management are set out in the
Financial Review on pages 21-39. The Board
has reviewed the Group’s projections for
the next 12 months. The Directors have a
reasonable expectation that the Group has
adequate resources to continue in operational
existence for at least 12 months.

Viability Statement
The Viability Statement is set out on page 46
of the Strategic Report.

Audit information
The Directors confirm that, so far as
they are aware, there is no relevant audit
information (as defined in section 418 of the
Companies Act 2006) 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.

The Directors confirm full compliance with
the Competition and Markets Authority’s
Statutory Audit Services Order. Further
information about the audit transition can
be found on page 70 of the Audit and Risk
Committee Report.

This confirmation is given and should be
interpreted in accordance with the provisions
of section 418 of the Companies Act 2006.

Disclaimer
The Disclaimer can be found on page 65 of
the Report.

By Order of the Board.

Kulbinder Dosanjh
Company Secretary
16 May 2018

Royal Mail plc
100 Victoria Embankment
London
EC4Y OHQ

Company number 08680755

| Annual Report and Financial Statements 2017-18

reasonably open to them to safeguard the
assets of the Group and to prevent and detect
fraud and other irregularities.

Under applicable law and regulations, the
Directors are also responsible for preparing a
Strategic Report, Directors’ Report, Directors’
Remuneration Report and Corporate
Governance Statement that complies with
that law and those regulations.

The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Company’s website. Legislation in the UK
governing the preparation and dissemination
of financial statements may differ from
legislation in other jurisdictions.

The Directors consider that the Annual Report
and Financial Statements 2017-18, when
taken as a whole, are fair, balanced and
understandable and provides the information
necessary for shareholders to assess the
Group’s position and performance, business
model and strategy.

Each of the Directors, whose names and
function are set out on pages 58-60 confirm
that, to the best of their knowledge:

•

the financial statements, which have been
prepared in accordance with the applicable
set of accounting standards, give a true
and fair view of the assets, liabilities,
financial position and profit or loss of the
Company and the undertakings included in
the consolidation taken as a whole; and

the Strategic Report includes a fair review
of the development and performance
of the business and the position of the
Company and the undertakings included
in the consolidation taken as a whole,
together with a description of the principal
risks and uncertainties that they face.

This responsibility statement is approved by
the Board of directors and is signed on its
behalf by:

Moya Greene
Chief Executive Officer

Stuart Simpson
Chief Finance Officer

Statement of Directors’
responsibilities in respect of the
Annual Report and Financial
Statements 2017-18
The Directors are responsible for preparing
the Annual Report and the Group and parent
Company financial statements in accordance
with applicable law and regulations.

Company law requires the Directors to
prepare Group and parent Company financial
statements for each financial year. Under that
law, they are required to prepare the Group
financial statements in accordance with IFRS
as adopted by the EU and applicable law, and
have elected to prepare the parent Company
financial statements in accordance with UK
Accounting Standards, including FRS 101
‘Reduced Disclosure Framework’.

Under company law, the Directors must not
approve the financial statements unless they
are satisfied that they give a true and fair view
of the state of affairs of the Group and parent
Company and of their profit or loss for that
period. In preparing each of the Group and
parent Company financial statements, the
Directors are required to:

• select suitable accounting policies and then

apply them consistently;

• make judgements and estimates that are
reasonable, relevant, reliable and prudent;

•

for the Group financial statements, state
whether they have been prepared in
accordance with IFRS as adopted by the EU;

for the parent Company financial statements,
state whether applicable UK Accounting
Standards have been followed, subject to any
material departures disclosed and explained
in the parent Company financial statements;

• assess the Group and parent Company's
ability to continue as a going concern,
disclosing, as applicable, matters related to
going concern; and

• use the going concern basis of accounting
unless they either intend to liquidate the
Group or the parent Company or to cease
operations, or have no realistic alternative but
to do so.

The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the parent
Company’s transactions and disclose with
reasonable accuracy at any time the financial
position of the parent Company and enable
them to ensure that its financial statements
comply with the Companies Act 2006. They
are responsible for such internal control as
they determine is necessary to enable the
preparation of financial statements that are
free from material misstatement, whether
due to fraud or error, and have general
responsibility for taking such steps as are

Annual Report and Financial Statements 2017-18

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Financial
statements

Independent auditor’s report to the members of Royal Mail plc .................101
Consolidated income statement ...........................................................................106
Consolidated statement of comprehensive income .........................................107
Consolidated balance sheet ...................................................................................108
Consolidated statement of changes in equity ...................................................109
Consolidated statement of cash flows ................................................................110

Notes to the financial statements ...............................................................................
1. Basis of preparation...............................................................................................111
2. Segment information ............................................................................................112
3. Operating costs .......................................................................................................114
4. People information.................................................................................................115
5. Net finance costs ....................................................................................................116
6. Taxation ....................................................................................................................116
7. Earnings per share .................................................................................................119
8. Dividends .................................................................................................................120
9. Retirement benefit plans .......................................................................................120
10. Acquisition of businesses ....................................................................................126
11. Property, plant and equipment ..........................................................................127
12. Goodwill .................................................................................................................129
13. Intangible assets ..................................................................................................130
14. Investments in associates and joint venture ....................................................130
15. Share-based payments ......................................................................................131
16. Assets held for sale ..............................................................................................133
17. Current trade and other receivables .................................................................133
18. Cash and cash equivalents .................................................................................134
19. Current trade and other payables .....................................................................134
20. Loans and borrowings ........................................................................................134
21. Financial assets and liabilities and risk management ....................................135
22. Provisions ..............................................................................................................141
23. Share capital and reserves .................................................................................142
24. Commitments .......................................................................................................142
25. Contingent liabilities ............................................................................................143
26. Related party information ..................................................................................143
27. Related undertakings of Royal Mail plc ............................................................145

Significant accounting policies .............................................................................149
Royal Mail plc – parent Company financial statements .................................159

100

| Annual Report and Financial Statements 2017-18

Independent auditor’s
report

to the members of Royal Mail plc

Opinions and conclusions arising from our audit

1. Our opinion is unmodified
We have audited the financial statements of Royal Mail plc
(“the Company”) for the 52 weeks ended 25 March 2018 which
comprise the Consolidated income statement, Consolidated statement
of comprehensive income, Consolidated and parent Company balance
sheet, the Consolidated and parent Company statement of changes
in equity, the Consolidated statement of cash flows and the related
notes, and the Significant accounting policies on page 149.

In our opinion:

•

the financial statements give a true and fair view of the state of the
Group’s and of the parent Company’s affairs as at 25 March 2018
and of the Group’s profit for the 52 weeks then ended;

the Group financial statements have been properly prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union;

the parent Company financial statements have been properly
prepared in accordance with UK accounting standards, including
FRS 101 Reduced Disclosure Framework and

the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.

Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are
described below. We believe that the audit evidence we have obtained
is a sufficient and appropriate basis for our opinion. Our audit opinion
is consistent with our report to the audit committee.

We were appointed as auditor by the Directors on 23 July 2015.
The period of total uninterrupted engagement is for the three
financial years ended 25 March 2018. We have fulfilled our ethical

responsibilities under, and we remain independent of the Group in
accordance with, UK ethical requirements including the FRC Ethical
Standard as applied to listed public interest entities. No non-audit
services prohibited by that standard were provided.

Overview

Materiality:
Group financial
statements as
a whole

Coverage

£20m (2016-17: £20m)

5% (2016-17: 5%) of adjusted
profit before tax

99.5% (2016-17:100%) of Group profit
before tax

Risks of material misstatement

vs 2016-17

Recurring risks

Deferred revenue associated with
advance customer payments arising
from stamps sold

◀▶

Valuation of pension scheme assets
and liabilities

◀▶

Industrial disease claims provision ◀▶

Ofcom competition investigation

Recoverability of parent Company’s
investment in subsidiaries and debt
due from group entities (parent
Company only)

◀▶

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Independent auditor’s report

2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include
the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest
effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below
the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to
address those matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our
results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in
forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.

Our results

We found the estimate
of deferred revenue to
be acceptable (2016-17
result: acceptable).

We found the valuation
of the pension obligation
and assets to be
acceptable (2016-17
result: acceptable).

The risk

Our response

Deferred revenue associated
with advance customer
payments arising from
stamps sold
£179 million (2016-17:
£184 million)

Refer to page 71 (Audit and Risk
Committee Report), page 150
(accounting policy)

Subjective estimate
Deferred revenue is estimated
for advance payments made by
households who purchase stamps
in advance of actual usage. The
Group estimates the amounts that
have been sold but not used at year
end and defers revenue to reflect
the fact that the service will need
to be provided by the Group during
future accounting periods for
pre-purchased stamps.

As no unique identification of the
stamps unused is possible, the
calculation and methodology of
the advance customer payments
balance is inherently subjective
by nature and is based on inputs
including third party surveys and
Group sales data. The methodology
adjusts for stamp holdings which
are considered to be abnormal.

Valuation of pension scheme
assets and liabilities
£3,323 million surplus
(pre-IFRIC 14 adjustment),
net of £7,038 million liability;
(2016-17: £3,855 million surplus
(pre-IFRIC 14 adjustment), net
of £5,992 million liability)

Subjective valuation
Significant estimates are made in
valuing the Group’s post retirement
defined benefit plan obligations,
including in particular the discount
rate, the inflation assumptions,
mortality and pension
increases assumptions.

Refer to page 71 (Audit and
Risk Committee Report),
page 149 (accounting policy)
and page 122 (financial
disclosures).

Significant estimates are made
in valuing certain of the pension
schemes assets comprising
unquoted equity investments,
unquoted derivatives, mutual funds
and fixed income bonds.

Small changes in the assumptions
and estimates used to value the
Group’s pension obligations and
assets would have a significant
effect on the financial position of
the Group.

Our procedures included:
Our statistical expertise: with the
assistance of our own statistical specialists,
assessing and evaluating the methodology
used by the Group’s independent third
party specialist to determine the number of
stamps held at the balance sheet date and
its consistent application year on year.

Benchmarking assumptions:
challenging key assumptions and inputs
to the calculation, including survey size,
household data and caps in place to
address the impact of abnormal holdings.

Survey specialist’s credentials: assessing
the competence, independence and integrity
of the Group’s third party survey specialist
which provides the survey data.

Independent re-performance: testing
the survey data used in the calculation,
agreeing inputs to the survey specialist’s
results, and re-performing the calculation
of deferred revenue and comparing this to
the Group’s result.

Benchmarking approach: comparing
the approach with that adopted by other
global postal service providers.

Assessing transparency: considering
the adequacy of the Group’s disclosures in
respect of the deferred revenue adjustment.

Our procedures included:
Benchmarking assumptions: challenging
key assumptions applied, being the
discount rate, inflation rate, mortality and
pension increases (following the decision
to close the RMPP scheme to future
accrual from 1 April 2018) with the support
of our own actuarial specialists, including
a comparison of key assumptions against
market data.

Tests of details: we obtained third
party valuation confirmations directly
from fund managers. We compared
those confirmations with unaudited
NAV statements and tested the ability
of fund managers to prepare accurate
valuations by validating these amounts to
financial statements.

Actuary’s and fund managers’
credentials: assessing the competence,
independence and integrity of the Group’s
actuarial expert and third party expert
fund managers.

Assessing transparency: considering
the adequacy of the Group’s disclosures in
respect of the sensitivity of the surplus to
key assumptions.

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| Annual Report and Financial Statements 2017-18

2. Key audit matters: our assessment of risks of material misstatement

Industrial disease
claims provision
£83 million, (2016-17:
£84 million)

Refer to page 71 (Audit and
Risk Committee Report),
page 149 (accounting policy)
and page 141 (financial
disclosures).

The risk

Subjective estimate
A number of judgments are
made in the assessment of the
Group’s liability for industrial
disease claims including the future
number of claims, average cost of
claims, future claims inflation and
discount rate.

Small changes in these judgements
would have a significant effect on
the financial position of the Group.

Ofcom competition
investigation
contingent liability

Refer to page 71 (Audit and Risk
Committee Report), page 156
(accounting policy) and
page 143 (financial disclosures)

Recoverability of parent
Company’s investment in
subsidiaries and debt due
from group entities (Parent
Company only)
Investments – £2,081 million;
(2016-17: £2,040 million)

Debt due from group entities
£434 million; (2016-17:
£396 million)

Refer to page 160
(accounting policy) and
page 161 (financial disclosures).

Dispute outcome
An investigation by Ofcom is
ongoing regarding alleged anti-
competitive conduct. Ofcom’s
provisional view is that Royal
Mail breached competition law by
engaging in conduct that amounted
to unlawful discrimination against
a postal operator competing with
Royal Mail’s delivery service.

Depending on the outcome of
the Ofcom investigation and any
appeal, Royal Mail may be fined.
No provision is currently recognised
as the outcome of the investigation
is currently unknown.

Low risk, high value
The carrying amount of the
parent Company’s investments in
subsidiaries and debt due from
Group entities represents 100 per
cent (2016-17: 100 per cent) of the
Company’s total assets.

Their recoverability is not at a high
risk of significant misstatement.
However, due to their materiality in
the context of the parent Company
financial statements, this is
considered to be the area that had
the greatest effect on our overall
parent Company audit.

Our results

We found the estimation
regarding the provision
for industrial diseases to
be acceptable (2016-17
result: acceptable)

We found the approach
taken in considering the
accounting implication
of the investigation
and the contingent
liability disclosures to
be acceptable (2016-17
disclosures: acceptable)

We found the carrying
value of investments
and the recoverability of
intercompany receivables
to be acceptable
(2016-17 result:
acceptable)

Our response

Our procedures included:

Our valuation expertise: with the
assistance of our own valuation
specialists, assessing the method used
by the Group’s independent adviser to
calculate the provision including our
experience of models used in the market
for comparative types of provisions.

Benchmarking assumptions:
challenging the assumptions used,
including the discount rate and the
historical incidence of claims, in the
calculation of the provision, including
a comparison against the UK Asbestos
Working Party Update 2009.

Third party provider credentials:
assessing the competence, independence
and integrity of the Group’s third party
adviser used in estimating the industrial
disease provision.

Assessing transparency: considering
the adequacy of the Group’s disclosures in
respect of this provision.

Our procedures included:

Enquiry with lawyers: inspecting
relevant correspondence and holding
discussions with the Group’s in house
team and external legal advisers to
understand the current position of
the investigation.

Accounting analysis: challenging the
assessment performed by the Directors
to determine if the criteria for recognising
a provision have been met at the
period end.

Assessing transparency: Considering
the adequacy of the Group’s disclosures in
respect of the contingent liability.

Our procedures included:

Tests of detail: Compared the carrying
amount of 100 per cent of investments
with the relevant subsidiaries’ draft
balance sheet to identify whether their
net assets, being an approximation of
their minimum recoverable amount, were
in excess of their carrying amount and
assessing whether those subsidiaries
have historically been profit-making.

Assessing transparency: Assessing
the adequacy of the parent Company’s
disclosures in respect of the investment in
subsidiaries and group debtor balance.

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Independent auditor’s report

3. Our application of
materiality and an
overview of the scope of
our audit

Materiality for the Group financial statements
as a whole was set at £20 million (2016-17:
£20 million).

The materiality is based on an adjusted
profit before tax measure. In 2016-17 the
adjustments were to add back the IFRS 2
charge for Employee Free Shares issued, the
loss on disposal of business operations and
exclude the profit on disposal of property,
plant and equipment. In 2017-18 a further
adjustment has been made to reflect a four
year average of annual pension costs due
to the significant impact in the current year.
The items not included in the benchmark
were all subject to audit procedures by the
Group team. The materiality of £20 million
(2016-17: £20 million) represents 5 per cent
of the adjusted profit before tax measure
of £404 million (2016-17: 5 per cent;
£428 million).

Materiality for the parent Company financial
statements as a whole was set at £17 million
(2016-17: £18 million), determined with
reference to a benchmark of net assets, of
which it represents 1 per cent (2016-17:
1 per cent).

We reported to the Audit and Risk Committee
any corrected or uncorrected identified
misstatements exceeding a profit before tax
impact of £1.0 million (2016-17: £1.0 million)
or a reclassification impact of £5.0 million
(2016-17: £5.0 million), in addition to other
identified misstatements that warranted
reporting on qualitative grounds.

Of the Group’s 23 (2016-17: 23) reporting
components, we subjected four (2016-17:
three) to full scope audits for Group
purposes. The components within the scope
of our work accounted for 99.7 per cent of
revenue, 99.5 per cent of profit before tax and
99.8 per cent of total assets.

The work on two (GLS and RMPFS) of the
four components (2016-17: one of the three
components) was performed by component
auditors and the rest by the Group team.

The Group team instructed component
auditors as to the significant areas to be
covered, including the relevant risks detailed
above and the information to be reported
back. The Group team also approved the
component materialities, which ranged
from £6 million to £17 million (2016-17:
£17 million), having regard to the mix of
size and risk profile of the Group across
the components.

The Group team visited the GLS component
and held telephone meetings with the RMPFS
component (2016-17: GLS component) at the
planning, execution and finalisation stages
of the audit including to assess the audit risk
and strategy. The Group team attended the
key clearance meetings and Audit and Risk
Committees. Video and telephone conference
meetings were also held regularly with the
component auditors. Part of these visits
and meetings included discussion of the
findings reported to the Group team in more
detail, and any further work required by the
Group audit team was then performed by the
component auditor.

4. We have nothing to report

on going concern
We are required to report to you if:

• we have anything material to add or
draw attention to in relation to the
Directors’ statement in Note 1 to the
financial statements on the use of the
going concern basis of accounting with
no material uncertainties that may cast
significant doubt over the Group and
Company’s use of that basis for a period
of at least twelve months from the date of
approval of the financial statements; or

•

the related statement under the Listing
Rules set out on page 98 is materially
inconsistent with our audit knowledge.

We have nothing to report in these respects.

5. We have nothing to report
on the other information
in the Annual Report
The Directors are responsible for the other
information presented in the Annual Report
together with the Financial Statements. Our
opinion on the Financial Statements does not
cover the other information and, accordingly,
we do not express an audit opinion or,
except as explicitly stated below, any form of
assurance conclusion thereon.

Our responsibility is to read the other
information and, in doing so, consider
whether, based on our financial statements
audit work, the information therein is
materially misstated or inconsistent with the
financial statements or our audit knowledge.
Based solely on that work we have not
identified material misstatements in the
other information.

Strategic report and
Directors’ report

Based solely on our work on the
other information:

• we have not identified material

misstatements in the Strategic report and
the Directors’ report;

•

in our opinion the information given
in those reports for the financial
year is consistent with the financial
statements; and

in our opinion those reports have
been prepared in accordance with the
Companies Act 2006.

Directors’ Remuneration report
In our opinion the part of the Directors’
Remuneration report to be audited has been
properly prepared in accordance with the
Companies Act 2006.

Disclosures of principal risks and
longer-term viability
Based on the knowledge we acquired during
our Financial Statements audit, we have
nothing material to add or draw attention to in
relation to:

•

the Directors’ confirmation within the
Viability Statement on page 46 that they
have carried out a robust assessment
of the principal risks facing the Group,
including those that would threaten its
business model, future performance,
solvency and liquidity;

the Principal Risks disclosures describing
these risks and explaining how they are
being managed and mitigated; and

the Directors’ explanation in the Viability
statement of how they have assessed the
prospects of the Group, over what period
they have done so and why they considered
that period to be appropriate, and their
statement as to whether they have a
reasonable expectation that the Group will
be able to continue in operation and meet
its liabilities as they fall due over the period
of their assessment, including any related
disclosures drawing attention to any
necessary qualifications or assumptions.

Under the Listing Rules we are required
to review the Viability statement. We have
nothing to report in this respect.

104

| Annual Report and Financial Statements 2017-18

related financial statement items. Further
detail in respect of competition law is set
out in the key audit matter disclosures in
section 2 of this report.

We communicated identified laws and
regulations throughout our team and
remained alert to any indications of
non-compliance throughout the audit. This
included communication from the Group to
component audit teams of relevant laws and
regulations identified at Group level, with
a request to report on any indications of
potential existence of non-compliance with
relevant laws and regulations (irregularities) in
these areas, or other areas directly identified
by the component team.

As with any audit, there remained a higher
risk of non-detection of non-compliance with
relevant laws and regulations (irregularities),
as these may involve collusion, forgery,
intentional omissions, misrepresentations,
or the override of internal controls.

8. The purpose of our audit
work and to whom we
owe our responsibilities
This report is made solely to the Company’s
members, as a body, in accordance with
Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken
so that we might state to the Company’s
members those matters we are required
to state to them in an auditor’s report and
for no other purpose. To the fullest extent
permitted by law, we do not accept or assume
responsibility to anyone other than the
Company and the Company’s members, as a
body, for our audit work, for this report, or for
the opinions we have formed.

Richard Pinckard (Senior Statutory Auditor)

for and on behalf of KPMG LLP, Statutory
Auditor
Chartered Accountants
15 Canada Square, London, E14 5GL

16 May 2018

Corporate governance disclosures
We are required to report to you if:

• we have identified material inconsistencies

between the knowledge we acquired
during our financial statements audit
and the Directors’ statement that they
consider that the Annual Report and
Financial Statements taken as a whole
is fair, balanced and understandable
and provides the information necessary
for shareholders to assess the Group’s
position and performance, business model
and strategy; or

•

the section of the Annual Report
describing the work of the Audit and Risk
Committee does not appropriately address
matters communicated by us to the Audit
and Risk Committee.

We are required to report to you if the
statement of Corporate Governance does not
properly disclose a departure from the eleven
provisions of the UK Corporate Governance
Code specified by the Listing Rules for
our review.

We have nothing to report in these respects.

6. We have nothing to report
on the other matters on
which we are required to
report by exception
Under the Companies Act 2006, we are
required to report to you if, in our opinion:

• adequate accounting records have not
been kept by the parent Company, or
returns adequate for our audit have not
been received from branches not visited
by us; or

•

the parent Company financial
statements and the part of the Directors’
remuneration report to be audited are not
in agreement with the accounting records
and returns; or

• certain disclosures of directors’

remuneration specified by law are not
made; or

• we have not received all the information

and explanations we require for our audit.

We have nothing to report in these respects.

7. Respective

responsibilities
Directors’ responsibilities
As explained more fully in their statement set
out on page 99, the Directors are responsible
for: the preparation of the Financial
Statements including being satisfied that they
give a true and fair view; such internal control
as they determine is necessary to enable the
preparation of financial statements that are

free from material misstatement, whether
due to fraud or error; assessing the Group
and parent Company’s ability to continue as
a going concern, disclosing, as applicable,
matters related to going concern; and using
the going concern basis of accounting unless
they either intend to liquidate the Group or the
parent Company or to cease operations, or
have no realistic alternative but to do so.

Auditor’s responsibilities
Our objectives are to obtain reasonable
assurance about whether the Financial
Statements as a whole are free from material
misstatement, whether due to fraud or other
irregularities (see below), or error, and to issue
our opinion in an auditor’s report. Reasonable
assurance is a high level of assurance, but
does not guarantee that an audit conducted
in accordance with ISAs (UK) will always
detect a material misstatement when it exists.
Misstatements can arise from fraud, other
irregularities or error and are considered
material if, individually or in aggregate, they
could reasonably be expected to influence
the economic decisions of users taken on the
basis of the financial statements.

A fuller description of our responsibilities
is provided on the FRC’s website at
www.frc.org.uk/auditorsresponsibilities.

Irregularities – ability to detect
We identified areas of laws and regulations
that could reasonably be expected to have a
material effect on the financial statements
from our sector experience and through
discussion with the directors and other
management (as required by auditing
standards), and from inspection of the group’s
regulatory and legal correspondence.

We had regard to laws and regulations in areas
that directly affect the financial statements
including financial reporting (including related
company legislation) and taxation legislation.
We considered the extent of compliance
with those laws and regulations as part
of our procedures on the related financial
statement items.

In addition we considered the impact of
laws and regulations in the specific areas of
health and safety, anti-bribery, employment
law, competition law, postal regulation
(as relevant to Royal Mail’s UK regulated
business), and certain aspects of company
legislation recognising the financial and
regulated nature of the group’s activities
and its legal form. With the exception of any
known or possible non-compliance, and as
required by auditing standards, our work
in respect of these was limited to enquiry
of the Directors and other management
and inspection of regulatory and legal
correspondence. We considered the effect of
any known or possible non-compliance in
these areas as part of our procedures on the

Annual Report and Financial Statements 2017-18

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Royal Mail plc

Consolidated income statement

For the 52 weeks ended 25 March 2018 and 52 weeks ended 26 March 2017

Continuing operations

Revenue
Operating costs1

People costs

Distribution and conveyance costs

Infrastructure costs

Other operating costs

Operating profit before transformation costs2
Transformation costs
Operating profit after transformation costs2
Operating specific items

Employee Free Shares charge

Legacy/other costs

Amortisation of intangible assets in acquisitions

Operating profit

Non-operating specific items

Profit on disposal of property, plant and equipment

Loss on disposal of business

Earnings before interest and tax

Finance costs

Finance income

Net pension interest (non-operating specific item)

Profit before tax

Tax credit/(charge)

Profit for the year

Profit for the year attributable to:

Equity holders of the parent Company

Non-controlling interests

Earnings per share

Basic

Diluted

Reported
52 weeks
2018

Notes

£m

Reported
52 weeks
2017
£m

3/4

10,172

(9,936)

(5,974)

(2,356)

(899)

(707)

236

(113)

123

(33)

(8)

(16)

137

(19)

212

258

9(c)

9,776

(9,286)

(5,576)

(2,106)

(868)

(736)

490

(137)

353

(105)

(18)

(11)

219

(2)

231

(18)

120

335

(62)

273

259

(1)

272

25.9p

25.7p

27.5p

27.3p

1 Operating costs are stated before transformation costs, Employee Free Shares charge, legacy/other costs and amortisation of intangible assets in acquisitions.
2 These measures of performance are both before operating specific items.

106

| Annual Report and Financial Statements 2017-18

Consolidated statement of
comprehensive income

For the 52 weeks ended 25 March 2018 and 52 weeks ended 26 March 2017

Profit for the year
Other comprehensive (expense)/income for the year from continuing operations:
Items that will not be subsequently reclassified to profit or loss:
Amounts relating to pensions accounting

IFRIC 14 adjustment relating to defined benefit surplus
Remeasurement gains of the defined benefit surplus
Deferred tax

Items that may be subsequently reclassified to profit or loss:
Foreign exchange translation differences

Exchange differences on translation of foreign operations (GLS)
Net loss on hedge of a net investment (€500 million bond)
Net loss on hedge of a net investment (Euro-denominated finance lease payables)
Tax on above items

Designated cash flow hedges

Gains on cash flow hedges deferred into equity
(Gains)/losses 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
Tax on above items

Total other comprehensive (expense)/income for the year
Total comprehensive (expense)/income for the year
Total comprehensive (expense)/income for the year attributable to:
Equity holders of the parent Company
Non-controlling interests

Reported
52 weeks
2018
£m
258

Reported
52 weeks
2017
£m
273

Notes

(658)
(1,144)
10
476

9
9(c)
6

(4)
1
(5)
-
-
2
11
(7)
(1)
(1)
(660)
(402)

(401)
(1)

405
113
399
(107)

18
63
(38)
(3)
(4)
32
22
16
(1)
(5)
455
728

727
1

Annual Report and Financial Statements 2017-18

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Royal Mail plc

Consolidated balance sheet

At 25 March 2018 and 26 March 2017

Non-current assets
Property, plant and equipment
Goodwill
Intangible assets
Investments in associates and joint venture
Financial assets

Pension escrow investments
Derivatives

Retirement benefit surplus – net of IFRIC 14 adjustment
Other receivables
Deferred tax assets

Assets held for sale
Current assets
Inventories
Trade and other receivables
Income tax receivable
Financial assets
Derivatives

Cash and cash equivalents

Total assets
Current liabilities
Trade and other payables
Financial liabilities

Interest-bearing loans and borrowings
Obligations under finance leases
Derivatives

Income tax payable
Provisions

Non-current liabilities
Financial liabilities

Interest-bearing loans and borrowings
Obligations under finance leases
Derivatives

Provisions
Other payables
Deferred tax liabilities

Total liabilities
Net assets
Equity
Share capital
Retained earnings
Other reserves
Equity attributable to parent Company
Non-controlling interests
Total equity

Reported
at 25 March
2018
£m

Reported
at 26 March
2017
£m

Notes

11
12
13
14

21
21
9

21
18/21

2,016
324
608
5

198
5
2,163
13
72
5,404
50

25
1,160
3

15
600
1,803
7,257

2,062
316
567
7

20
4
3,839
13
15
6,843
37

23
1,117
7

8
299
1,454
8,334

(1,927)

(1,810)

21/24
21

20/21
21/24
21
22

(1)
(59)
(3)
(33)
(59)
(2,082)

(436)
(110)
(4)
(103)
(41)
(45)
(739)
(2,821)
4,436

10
4,381
45
4,436
-
4,436

(33)
(64)
(9)
(12)
(88)
(2,016)

(430)
(130)
(2)
(108)
(47)
(603)
(1,320)
(3,336)
4,998

10
4,940
47
4,997
1
4,998

The financial statements were approved and authorised for issue by the Board of Directors on 16 May 2018 and were signed on its
behalf by:

Moya Greene
Chief Executive Officer

Stuart Simpson
Chief Finance Officer

108

| Annual Report and Financial Statements 2017-18

Consolidated statement of changes in
equity

For the 52 weeks ended 25 March 2018 and 52 weeks ended 26 March 2017

Reported at 27 March 2016
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Transactions with owners of the Company, recognised directly in equity

Release of Post Office Limited separation provision
Dividend paid to equity holders of the parent Company
Dividend paid to non-controlling interests
Acquisition of non-controlling interests
Recognition of put options for non-controlling interests
Disposal of subsidiary
Acquisition of subsidiary
Share-based payments (see Note 15)

Employee Free Shares issue1
Save As You Earn (SAYE) scheme
Long-Term Incentive Plan (LTIP)2

Purchase of own shares3
Settlement of LTIP 2013
Reported at 26 March 2017
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Transactions with owners of the Company, recognised directly in equity

Dividend paid to equity holders of the parent Company
Share-based payments (see Note 15)

Employee Free Shares issue1
Save As You Earn (SAYE) scheme
Long-Term Incentive Plan (LTIP)2
Deferred Share Bonus Plan (DSBP)

Employee exercise of SAYE options
Deferred tax on share-based payments
Settlement of LTIP 2014
Reported at 25 March 2018

Share
capital
£m
10
-
-
-

Retained
earnings
£m
4,451
272
405
677

Foreign
currency
translation
reserve
£m
22
-
18
18

Hedging
reserve
£m
(25)
-
32
32

Equity
holders of
the parent
£m
4,458
272
455
727

Non-
controlling
interests
£m
9
1
-
1

-
-
-
-
-
-
-

-
-
-
-
-
10
-
-
-

1
(222)
-
(15)
(6)
-
-

100
2
9
(53)
(4)
4,940
259
(658)
(399)

(231)

-
-
-
-
-
-
-
10

35
1
3
2
28
5
(3)
4,381

-
-
-
-
-
-
-

-
-
-
-
-
40
-
(4)
(4)

-
-
-
-
-
-
-
36

-
-
-
-
-
-
-

-
-
-
-
-
7
-
2
2

-
-
-
-
-
-
-
9

1
(222)
-
(15)
(6)
-
-

100
2
9
(53)
(4)
4,997
259
(660)
(401)

(231)

35
1
3
2
28
5
(3)
4,436

-
-
(8)
(6)
-
(1)
6

-
-
-
-
-
1
(1)
-
(1)

-
-
-

-
-
-
-

Total
equity
£m
4,467
273
455
728

1
(222)
(8)
(21)
(6)
(1)
6

100
2
9
(53)
(4)
4,998
258
(660)
(402)

(231)

35
1
3
2
28
5
(3)
4,436

1 Excludes £2 million credit (2016-17: £5 million charge) for National Insurance, recognised in the income statement, included in provisions on the balance sheet.
2 Excludes £1 million charge (2016-17: £1 million charge) for National Insurance, recognised in the income statement, included in provisions on the balance sheet.
3 Shares required for employee share schemes.

A description of the reserves in the above table is included in Note 23.

Annual Report and Financial Statements 2017-18

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Royal Mail plc

Consolidated statement of cash flows

For the 52 weeks ended 25 March 2018 and 52 weeks ended 26 March 2017

Cash flow from operating activities
Profit before tax
Adjustment for:

Net pension interest
Net finance costs
Profit on disposal of property, plant and equipment
Loss on disposal of business
Legacy/other costs
Amortisation of intangible assets in acquisitions
Employee Free Shares charge
Transformation costs

Operating profit before transformation costs1
Adjustment for:

Depreciation and amortisation
Share of post-tax loss from associates and joint venture

EBITDA before transformation costs1
Working capital movements
Increase in inventories
Increase in receivables
Increase in payables
Net (increase)/decrease in derivative assets
Decrease in provisions (non-specific items)
Pension charge to cash difference adjustment
Share-based awards (SAYE, LTIP and DSBP) charge
Cash cost of transformation operating expenditure2
Cash cost of operating specific items
Cash inflow from operations
Income tax paid
Research and development expenditure credit
Net cash inflow from operating activities
Cash flow from investing activities
Finance income received
Proceeds from disposal of property (excluding London Development Portfolio), plant and equipment (non-operating specific item)
London Development Portfolio net proceeds/(costs) (non-operating specific item)
Disposal of business (non-operating specific item)
Purchase of property, plant and equipment2
Acquisition of business interests, net of cash acquired
Purchase of intangible assets (software)2
Payment of deferred consideration in respect of prior years’ acquisitions
Net cash outflow from investing activities
Net cash inflow before financing activities
Cash flow from financing activities
Finance costs paid
Acquisition of non-controlling interests
Purchase of own shares
Employee exercise of SAYE options
Payment of capital element of obligations under finance lease contracts
Cash received on sale and leasebacks
Drawdown of loan facility
Repayment of loans and borrowings
Dividends paid to equity holders of the parent Company
Dividend paid to non-controlling interests
Net cash outflow from financing activities
Net increase/(decrease) 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 year
Cash and cash equivalents at the end of the year

1 See APMs section on page 34 for a definition of these measures
2 Items comprise total gross investment within ‘In-year trading cash flow’ measure (see Financial Review).

110

| Annual Report and Financial Statements 2017-18

Notes

Reported
52 weeks
2018
£m

Reported
52 weeks
2017
£m

212

335

(91)
16
(71)
-
8
16
33
113
236

341
-
577
71
(2)
(7)
89
(9)
-
458
6
(125)
(12)
975
(75)
5
905

3
40
10
-
(219)
(16)
(141)
(2)
(325)
580

(18)
-
-
28
(63)
35
-
(32)
(231)
-
(281)
299
2
299
600

(120)
16
(14)
2
18
11
105
137
490

301
2
793
(9)
(2)
(40)
56
2
(25)
222
11
(142)
(61)
814
(60)
-
754

3
37
(34)
(3)
(230)
(122)
(157)
(4)
(510)
244

(17)
(18)
(53)
-
(74)
41
31
(7)
(222)
(8)
(327)
(83)
14
368
299

11/13
14

18
18

Notes to the consolidated
financial statements

1. Basis of preparation
This Note explains how these consolidated financial statements have been prepared, including details of; the basis of preparation on an
IFRS basis; use of non-IFRS performance measures; and the Directors’ going concern assessment.

General information
Royal Mail plc (the Company) is incorporated in the United Kingdom (UK). The consolidated financial statements are produced in
accordance with the Companies Act 2006 and applicable International Financial Reporting Standards (IFRS) as adopted by the European
Union (EU). The UK is the Company’s country of domicile.

The consolidated financial statements of the Company for the 52 weeks ended 25 March 2018 (2016-17: 52 weeks ended
26 March 2017) comprise the Company and its subsidiaries (together referred to as ‘the Group’) and the Group’s interest in its associate
undertakings and joint venture.

The consolidated financial statements for the 52 weeks ended 25 March 2018 were authorised for issue by the Board on 16 May 2018.

Basis of preparation and accounting
The consolidated financial statements are presented in Sterling (£) as that is the currency of the primary economic environment in which
the Group operates. All values are rounded to the nearest whole £million except where otherwise indicated. The consolidated financial
statements have been prepared on an historic cost basis, except for pension assets and derivative financial instruments which have been
measured at fair value.

Accounting reference date
The financial reporting year ends on the last Sunday in March and, accordingly, these financial statements are prepared for the 52 weeks
ended 25 March 2018 (2016-17: 52 weeks ended 26 March 2017).

Presentation of results and accounting policies
The Group’s significant accounting policies, including details of new and amended accounting standards adopted in the reporting year, can
be found after the Notes to the consolidated financial statements.

The consolidated financial statements and associated Notes have been prepared in accordance with IFRS as adopted by the EU and as
issued by the International Accounting Standards Board (IASB) (i.e. on a ‘reported’ basis). In some instances, Alternative Performance
Measures (APMs) are used by the Group to provide ‘adjusted’ results. This is because Management are of the view that these APMs
provide a more meaningful basis on which to analyse business performance and is consistent with the way that financial performance is
measured by Management and reported to the Board. Details of the APMs used by the Group are provided on page 34.

Going concern
In assessing the going concern status of the Group, the Directors are required to look forward a minimum of 12 months from the signing
date of these financial statements to ensure that there is sufficient headroom to enable the Group to pay its creditors as they fall due.

The Directors have reviewed business projections and assessed these against committed and undrawn funding facilities (£1,050 million at
25 March 2018) and other liquid resources available to the Group (cash at bank £172 million and cash equivalent investments
£404 million at 25 March 2018). Cash and cash equivalents and funding facilities available to the Group are described in further detail in
Notes 18 and 20.

The Directors are satisfied that these facilities, coupled with business projections, show that the Group will continue to operate for a
minimum of 12 months from the signing date of these financial statements.

The Group’s Viability Statement can be found on page 46.

Annual Report and Financial Statements 2017-18

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Notes to the consolidated
financial statements (continued)

2. Segment information
The Group’s revenue, costs and earnings before interest and tax are segmented in this Note to align with how business performance is
managed and reported to the Royal Mail plc Board.

The Group’s operating segments are based on geographic business units whose primary services and products relate to the delivery of
parcels and letters. These segments are evaluated regularly by the Chief Executive’s Committee and the Royal Mail plc Board – the Chief
Operating Decision Maker (CODM) as defined by IFRS 8 ‘Operating Segments’ – in deciding how to allocate resources and assess
performance.

A key measure of segment performance is operating profit before transformation costs (used internally for the Corporate Balanced
Scorecard). This measure of performance is disclosed on an ‘adjusted’ basis, a non-IFRS measure, excluding specific items and the pension
charge to cash difference adjustment (see APMs section on page 34). This is consistent with how financial performance is measured internally
and reported to the CODM.

Segment revenues have been attributed to the respective countries based on the primary location of the service performed. Transfer prices
between segments are set at an arm’s length/fair value on the basis of charges reached through negotiation between the relevant business
units that form part of the segments. Trading between UKPIL and GLS is not material.

52 weeks 2018

Continuing operations
Revenue
People costs
Non-people costs
Operating profit before transformation costs
Transformation costs
Operating profit after transformation costs
Operating specific items

Employee Free Shares charge
Legacy/other costs
Amortisation of intangible assets in acquisitions

Operating profit
Non-operating specific items

Profit on disposal of property, plant and equipment

Earnings before interest and tax
Finance costs
Finance income
Inter-segment interest
Net pension interest (non-operating specific item)
Profit before tax

Adjusted

UKPIL
(UK
operations)
£m
7,615
(4,908)
(2,204)
503
(113)
390

GLS
(Non-UK
operations)
£m

Group
£m

2,557 10,172
(5,516)
(3,962)
694
(113)
581

(608)
(1,758)
191
-
191

Specific
items and
pension
adjustment1

Reported

£m

Group
£m
- 10,172
(5,974)
(3,962)
236
(113)
123

(458)
-
(458)
-
(458)

-
-
-
390

-
390
(18)
1
5
-
378

-
-
-
191

-
191
(1)
2
(5)
-
187

-
-
-
581

-
581
(19)
3
-
-
565

(33)
(8)
(16)
(515)

71
(444)
-
-
-
91
(353)

(33)
(8)
(16)
66

71
137
(19)
3
-
91
212

1 A £119 million credit for specific items and a £458 million charge for the pension charge to cash difference adjustment relate to UKPIL. A £14 million charge for specific items
relates to GLS.

112

| Annual Report and Financial Statements 2017-18

Notes to the consolidated
financial statements (continued)

2. Segment information (continued)

52 weeks 2017

Continuing operations
Revenue
People costs
Non-people costs
Operating profit before transformation costs
Transformation costs
Operating profit after transformation costs
Operating specific items

Employee Free Shares charge
Legacy/other costs
Amortisation of intangible assets in acquisitions

Operating profit
Non-operating specific items

Profit on disposal of property, plant and equipment
Loss on disposal of business
Earnings before interest and tax
Finance costs
Finance income
Inter-segment interest
Net pension interest (non-operating specific item)
Profit before tax

Adjusted

UKPIL
(UK
operations)
£m
7,658
(4,865)
(2,245)
548
(137)
411

GLS
(Non-UK
operations)
£m
2,118

(489)
(1,465)
164
-
164

-
-
-
411

-
-
411
(17)
1
3
-
398

-
-
-
164

-
-
164

(1)
1
(3)
-
161

Group
£m
9,776
(5,354)
(3,710)
712
(137)
575

-
-
-
575

-
-
575
(18)
2
-
-
559

Specific
items and
pension
adjustment1

Reported

£m
-
(222)
-
(222)
-
(222)

(105)
(18)
(11)
(356)

14
(2)
(344)
-
-
-
120
(224)

Group
£m
9,776
(5,576)
(3,710)
490
(137)
353

(105)
(18)
(11)
219

14
(2)
231
(18)
2
-
120
335

1 A £7 million credit for specific items and a £222 million charge for the pension charge to cash difference adjustment relate to UKPIL. A £9 million charge for specific items relates
to GLS.

The depreciation and amortisation and share of loss from associates and joint venture below are included within operating profit before
transformation costs in the income statement.

The non-current assets below are included within non-current assets on the balance sheet but exclude financial assets, retirement benefit
surplus and deferred tax.

52 weeks 2018
Depreciation
Amortisation of intangible assets (mainly software)2
Share of post-tax loss from associates and joint venture

Non-current assets

52 weeks 2017
Depreciation
Amortisation of intangible assets (mainly software)2
Share of post-tax loss from associates and joint venture

Non-current assets

2 Includes £16 million (2016-17: £11 million) presented as an operating specific item in the income statement.

UKPIL
(UK
operations)

£m
(207)
(83)
-

GLS
(Non-UK
Operations)
£m
(39)
(28)
-

Total
£m
(246)
(111)
-

2,160

806

2,966

UKPIL
(UK
operations)

£m
(198)
(56)
(1)

GLS
(Non-UK
Operations)
£m

(37)
(21)
(1)

Total
£m
(235)
(77)
(2)

2,199

766

2,965

Annual Report and Financial Statements 2017-18

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Royal Mail plc

Notes to the consolidated
financial statements (continued)

3. Operating costs
This analysis of operating costs in the income statement includes amounts that require either separate disclosure under IFRS or have
been disclosed because of their nature and/or materiality.

Operating profit before transformation costs is stated after charging the following operating costs:

People costs (see Note 4)

Distribution and conveyance costs
Charges from overseas postal administrations
Fuel costs
Operating lease costs – vehicles
Short-term vehicle hire

Infrastructure costs
Depreciation and amortisation

Depreciation of property, plant and equipment (see Note 11)
Amortisation of intangible assets (see Note 13)1

52 weeks
2018
£m
(5,974)

52 weeks
2017
£m
(5,576)

(342)
(147)
(21)
(28)

(341)
(246)
(95)

(356)
(159)
(17)
(32)

(301)
(235)
(66)

1 Excludes £16 million (2016-17: £11 million) amortisation of intangible assets in acquisitions, presented as an operating specific item in the income statement

Other operating costs
Post Office Limited charges
Inventory expensed
Operating lease costs - property, plant and equipment

(341)
(35)
(152)

(343)
(49)
(143)

Research and development (R&D)
During the year, the Group continued to develop products and services within the business. See the Strategic Report for more details.

Regulatory body costs
The following disclosure is relevant in understanding the extent of costs in relation to the regulation of the Group.

Ofcom administrative charge
Citizens Advice/Consumer Council for Northern Ireland
Total

Statutory audit costs
Disclosure of statutory audit costs is a requirement of the Companies Act 2006.

Auditor’s fees
Audit of Group statutory financial statements
Other fees to Auditor:
Regulatory audit
Other assurance
Other non-audit services
Total

52 weeks
2018
£m
(3)
(2)
(5)

52 weeks
2017
£m
(4)
(3)
(7)

52 weeks
2018
£000
(2,146)

52 weeks
2017
£000
(2,178)

(125)
(72)
-
(2,343)

(122)
(44)
(342)
(2,686)

The 2017-18 fees relate to the services of the Group’s appointed auditor KPMG LLP who, in addition to the above amounts, were paid by the
respective Trustees, £98,000 for the audit of the Royal Mail Pension Plan (2016-17: £88,000) and £31,000 for the audit of the Royal Mail
Defined Contribution Plan (2016-17: £28,000).

114

| Annual Report and Financial Statements 2017-18

Notes to the consolidated
financial statements (continued)

4. People information
People costs account for 60 per cent (2016-17: 60 per cent) of total Group operating costs. The analysis below provides details of people
costs and numbers as well as specific disclosures in relation to Directors’ remuneration. Further details on Directors’ remuneration paid
can be found in the Directors’ remuneration report.

People costs

Wages and salaries

UK-based
GLS

Pensions (see Note 9)
Defined benefit UK
Defined contribution UK
UK defined benefit and defined contribution Pension Salary Exchange (PSE)
GLS

Social security
UK-based
GLS

Total people costs

Defined benefit pension plan rates:
Income statement
Cash flow
Defined contribution pension plan average rate:
Income statement and cash flow1

People numbers
The number of people employed during the reporting year was as follows:

52 weeks
2018
£m
(4,506)
(3,976)
(530)
(1,006)
(791)
(57)
(151)
(7)
(462)
(391)
(71)

52 weeks
2017
£m
(4,371)
(3,949)
(422)
(776)
(568)
(51)
(151)
(6)
(429)
(368)
(61)

(5,974)

(5,576)

41.1%
17.1%

28.8%
17.1%

6.3%

6.0%

Full-time equivalents2

Headcount

Year end

Average

Year end

Average

UKPIL
GLS – continuing operations
Total

Directors’ remuneration

52 weeks
2017

52 weeks
2018

52 weeks
2017
147,985 148,170 149,281 151,601 141,162 141,819 141,034 142,579
13,694 12,617 17,955 17,136 17,812 16,912
161,851 161,136 162,975 164,218 159,117 158,955 158,846 159,491

52 weeks
2018

13,866 12,966

52 weeks
2017

Directors’ remuneration3
Amounts earned under Long-Term Incentive Plans (LTIP)

Number of Directors accruing benefits under defined benefit plans
Number of Directors accruing benefits under defined contribution plans

52 weeks
2018
£000
(3,257)
(356)

52 weeks
2017
£000
(3,345)
(440)

-
2

-
1

1 Employer contribution rates are one per cent for employees in the entry level category and seven to nine per cent for those in the standard level category, depending on the

employees’ selected contribution rate.

2 These people numbers relate to the total number of paid hours (including part-time, full-time and agency hours) divided by the number of standard full-time working hours in the

same year.

3 These amounts include any cash supplements received in lieu of pension. Details of the highest paid Director are included in the Directors’ remuneration report.

Annual Report and Financial Statements 2017-18

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Royal Mail plc

Notes to the consolidated
financial statements (continued)

5. Net finance costs
This Note provides details of 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 accounting
standard IAS 19 ‘Employee Benefits’.

Unwinding of discount relating to industrial diseases claims provision
Interest payable on financial liabilities

Syndicated bank loan facility

Loans and borrowings
Unused facility fees
Arrangement fees

€500 million bond – 2.375% Senior Fixed Rate Notes due July 2024
Finance leases
Capitalisation of borrowing costs on specific qualifying assets
Other finance costs

Finance costs
Finance income - interest receivable on financial assets
Net finance costs

52 weeks
2018
£m
(2)
(17)

52 weeks
2017
£m
(2)
(16)

-
(2)
(1)
(11)
(4)
3
(2)

(19)
3
(16)

(1)
(2)
(1)
(11)
(4)
4
(1)

(18)
2
(16)

6. Taxation
This Note provides details about current tax (charges)/credits on profit and deferred tax (charges)/credits relating to the impact of past
events on expected future tax. The Note also provides details about the tax impact of specific items.

Tax (charged)/credited in the income statement
Current income tax:
Current UK income tax charge
Foreign tax
Current income tax charge
Amounts overprovided in previous years
Total current income tax charge
Deferred income tax:
Effect of change in tax rates
Relating to origination and reversal of temporary differences
Amounts overprovided in previous years
Total deferred income tax credit/(charge)
Tax credit/(charge) in the consolidated income statement

Tax credited/(charged) to other comprehensive income
Current tax:
Tax credit on foreign currency translation
Deferred tax:
Tax charge in relation to remeasurement gains of the defined benefit pension surplus
Tax credit/(charge) in relation to the change in manner of recovery of the defined benefit pension surplus
Tax charge on revaluation of cash flow hedges
Tax charge on foreign currency translation
Total deferred income tax credit/(charge)
Total credit/(charge) in the consolidated statement of other comprehensive income

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| Annual Report and Financial Statements 2017-18

52 weeks
2018
£m

52 weeks
2017
£m

(45)
(51)
(96)
-
(96)

(4)
133
13
142
46

(16)
(45)
(61)
1
(60)

9
(20)
9
(2)
(62)

(2)
478
(1)
-
475
475

(42)
(65)
(5)
(5)
(117)
(116)

Notes to the consolidated
financial statements (continued)

6. Taxation (continued)
In addition to the amount charged to the income statement and other comprehensive income, the following amount relating to tax has been
recognised directly in equity:

Deferred tax:
Change in estimated excess tax deductions related to share-based payments
Total deferred income tax credit recognised directly in equity

52 weeks
2018
£m

52 weeks
2017
£m

5
5

-
-

Reconciliation of the total tax credit/(charge)
A reconciliation of the tax credit/(charge) in the income statement and the UK rate of corporation tax applied to accounting profit for the
52 weeks ended 25 March 2018 and 52 weeks ended 26 March 2017 is shown below.

Profit before tax

At UK statutory rate of corporation tax of 19% (2016-17: 20%)
Effect of higher taxes on overseas earnings
Tax overprovided in previous years
Non-deductible expenses
Tax effect of property disposals
Release of deferred tax liability resulting from closure of Royal Mail Pension Plan to future accrual
Uncertain current tax positions
Tax reliefs and incentives (including previous years)
Net increase in tax charge resulting from non-recognition of deferred tax assets and liabilities
Effect of change in tax rates
Tax credit/(charge) in the income statement

Tax on specific items and pension adjustment

Continuing operations
Total tax credit on specific items and pension adjustment

52 weeks
2018
£m
212

52 weeks
2017
£m
335

(40)
(7)
-
(7)
17
78
(2)
12
(1)
(4)
46

(67)
(9)
10
(5)
5
-
-
-
(5)
9
(62)

52 weeks
2018
£m
157
157

52 weeks
2017
£m
59
59

The tax credit on specific items of £157 million (2016-17: £59 million) comprises tax at statutory rates on certain specific items and the
pension adjustment of £81 million credit (2016-17: £48 million credit), plus certain tax-only adjustments of £76 million credit
(2016-17: £11 million credit). The tax-only adjustments comprise; the impact of the closure of the RMPP to future accrual from 31 March
2018 of £78 million credit (2016-17: £nil million); the impact of property transactions of £2 million credit (2016-17: £2 million credit); and
the impact of changes in tax law of £4 million charge (2016-17: £9 million credit).

Effective tax rate
The Group reported tax in the income statement was a credit of £46 million on a reported profit of £212 million. This arises mainly due to
the one-off deferred tax credit of £78 million related to the closure of the RMPP to future accrual after 31 March 2018.

GLS pays tax in a number of territories. The majority of its profits in the reporting year to 25 March 2018 were earned in territories where
the tax rate is above the UK statutory tax rate. Certain subsidiaries, notably GLS France, continue to not recognise deferred tax credits on
losses made during the reporting year as they are not sufficiently certain of their capacity to utilise them in the future. These factors
contribute to GLS having a higher effective tax rate for the year than the UK statutory rate.

Annual Report and Financial Statements 2017-18

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Royal Mail plc

Notes to the consolidated
financial statements (continued)

6. Taxation (continued)
Deferred tax

Deferred tax by balance sheet category
52 weeks 2018
Liabilities
Accelerated capital allowances
Pensions temporary differences
Employee share schemes
Intangible assets
Hedging derivatives temporary differences
Deferred tax liabilities
Assets
Deferred capital allowances
Provisions and other
Losses available for offset against future taxable income
R&D expenditure credit
Deferred tax assets

At
27 March
2017
£m

(Charged)/
credited to
income
statement
£m

(Charged)/
credited to
other
comprehensive
income
£m

(Charged)/
credited
directly to
equity
£m

Acquisition of
subsidiaries
£m

R&D
credit
£m

At
25 March
2018
£m

(16)
(647)
(11)
(36)
(1)
(711)

37
20
62
4
123

13
170
5
(9)
-
179

(23)
(1)
(14)
1
(37)

-
476
-
-
(1)
475

-
-
-
-
-

-
-
5
-
-
5

-
-
-
-
-

-
-
-
(3)
-
(3)

-
-
-
-
-

-
-
-
-
-
-

-
-
-
(4)
(4)

(3)

(4)

(3)
(1)
(1)
(48)
(2)
(55)

14
19
48
1
82

Net deferred tax asset

(588)

142

475

At
28 March
2016
£m

(Charged)/
credited to
income
statement
£m

(Charged)/
credited to
other
comprehensive
income
£m

(Charged)/
credited
directly to
equity
£m

Acquisition of
subsidiaries
£m

R&D
credit
£m

At
26 March
2017
£m

(1)
(565)
(25)
(33)
4
(620)

78
19
63
-
160

(460)

(13)
25
15
17
-
44

(41)
-
(5)
-
(46)

(2)

(2)
(107)
-
(3)
(5)
(117)

-
-
-
-
-

-
-
(1)
-
-
(1)

-
-
-
-
-

-
-
-
(17)
-
(17)

-
1
4
-
5

(117)

(1)

(12)

-
-
-
-
-
-

-
-
-
4
4

(16)
(647)
(11)
(36)
(1)
(711)

37
20
62
4
123

(588)

At 25 March
2018
£m

At 26 March
2017
£m

(45)
-
(45)

11
61
72
27

(50)
(553)
(603)

15
-
15
(588)

Deferred tax by balance sheet category
52 weeks 2017
Liabilities
Accelerated capital allowances
Pensions temporary differences
Employee share schemes
Intangible assets
Hedging derivatives temporary differences
Deferred tax liabilities
Assets
Deferred capital allowances
Provisions and other
Losses available for offset against future taxable income
R&D expenditure credit
Deferred tax assets

Net deferred tax liability

Deferred tax – balance sheet presentation
Liabilities
GLS group
Net UK position
Deferred tax liabilities
Assets
GLS group
Net UK position
Deferred tax assets
Net deferred tax asset/(liability)

118

| Annual Report and Financial Statements 2017-18

Notes to the consolidated
financial statements (continued)

6. Taxation (continued)
The deferred tax position shows a decreased overall liability in the reporting year to 25 March 2018. This decrease in the liability is primarily
as a result of the closure of the RMPP to future accrual after 31 March 2018.

GLS has deferred tax assets and liabilities in various jurisdictions which cannot be offset against one another. The main elements of the
liability relate to goodwill and intangible assets in GLS Germany, for which the Group has already taken tax deductions, and intangible assets
in relation to acquisitions in Spain and the US.

At 25 March 2018, the Group had unrecognised deferred tax assets of £83 million (2016-17: £73 million) comprising £78 million
(2016-17: £68 million) relating to tax losses of £300 million (2016-17: £259 million), mainly in GLS, that are available for offset against
future profits if generated in the relevant GLS companies, and £5 million (2016-17: £5 million) in relation to £29 million (2016-17: £30
million) of UK capital losses carried forward. The Group has not recognised these deferred tax assets on the basis that it is not sufficiently
certain of its capacity to utilise them in the future.

The Group also has temporary differences in respect of £202 million (2016-17: £211 million) of capital losses, the tax effect of which is
£34 million (2016-17: £36 million) in respect of assets previously qualifying for industrial buildings allowances. Further temporary
differences exist in relation to £406 million (2016-17: £212 million) of gains for which rollover relief has been claimed, the tax effect of
which is £69 million (2016-17: £36 million). No tax liability would be expected to crystallise on the basis that, were the assets (into which the
gains have been rolled over) to be sold at their residual values, no capital gain would arise.

Changes to UK corporation tax rate
The UK corporation tax rate reduced from 20 per cent to 19 per cent on 1 April 2017 and it will reduce to 17 per cent on 1 April 2020. In
the future, this will reduce the Group’s current tax charge accordingly. In accordance with accounting standards, the effect of these rate
reductions on deferred tax balances has been reflected in these financial statements, dependent upon when temporary differences are
expected to reverse.

7. Earnings per share
This Note explains the calculation of the Group’s earnings per share. The adjusted earnings per share (a non-IFRS measure) is a key
indicator used by Management to assess earnings performance.

Attributable to equity holders of the parent Company

Profit for the year (£million)
Weighted average number of shares issued (million)
Basic earnings per share (pence)
Diluted earnings per share (pence)

52 weeks 2018

Specific
items and
pension
adjustment1

Reported

259
999
25.9
25.7

(196)
n/a
n/a
n/a

Adjusted

455
999
45.5
45.2

52 weeks 2017
Specific
items and
pension
adjustment1

Reported

272
990
27.5
27.3

(165)
n/a
n/a
n/a

Adjusted

437
990
44.1
43.8

1 Further details of the specific items and pension adjustment total can be found in the Financial Review on page 27.

The diluted earnings per share for the year ended 25 March 2018 is based on a weighted average number of shares of 1,005,852,049
(2016-17: 996,593,330) to take account of the potential issue of 5,762,572 ordinary shares resulting from the Long-Term Incentive Plans (LTIP) for
certain senior management, 133,961 ordinary shares resulting from the Deferred Share Bonus Plans (DSBP) for certain senior management and
468,746 ordinary shares resulting from the Save As You Earn (SAYE) scheme (see Note 15).

The 513,230 shares held in an Employee Benefit Trust for the settlement of options and awards to current and former employees, are treated as
treasury shares for accounting purposes (see Note 23). The Company, however, does not hold any shares in treasury.

Annual Report and Financial Statements 2017-18

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Royal Mail plc

Notes to the consolidated
financial statements (continued)

8. Dividends
This Note provides details on the amount of dividends paid to equity holders of the parent Company during the year. Details are also
provided on the amount of dividends per share which have been paid and proposed.

Dividends on ordinary shares
Final dividends paid
Interim dividends paid
Total dividends paid

52 weeks
2018
Pence per share

52 weeks
2017
Pence per share

15.6
7.7
23.3

15.1
7.4
22.5

52 weeks
2018
£m

154
77
231

52 weeks
2017
£m

149
73
222

In addition to the above dividends paid, the Directors are proposing a final dividend for the year ending 25 March 2018 of 16.3 pence per
share, equivalent to £163 million. This dividend will be paid to shareholders on 31 August 2018 subject to approval at the AGM to be held on
19 July 2018.

9. Retirement benefit plans
This Note explains the pension plans in the Group and sets out the accounting, surplus valuation, key assumptions and sensitivities in
accordance with IAS19 ‘Employee Benefits’. In applying IAS 19, the Group has recognised a pension asset of £2,163 million at 25 March
2018, compared with £3,839 million at 26 March 2017.

Summary pension information

Ongoing UK pension service costs
UK defined benefit plan (including administration costs)1
UK defined contribution plan
UK defined benefit and defined contribution plans’ Pension Salary Exchange (PSE) employer contributions
Total UK ongoing pension service costs
GLS defined contribution type plan costs
Total Group ongoing pension service costs
Cash flows relating to ongoing pension service costs
UK defined benefit plan employer contributions2
Defined contribution plans’ employer contributions
UK defined benefit and defined contribution plans’ PSE employer contributions
Total Group cash flows relating to ongoing pension service costs
RMSEPP deficit correction payments
Pension related accruals (timing difference)
Pension charge to cash difference adjustment

UK pension plans – active members
UK defined benefit plan
UK defined contribution plan
Total

52 weeks
2018
£m

52 weeks
2017
£m

(791)
(57)
(151)
(999)
(7)
(1,006)

(321)
(64)
(151)
(536)
(10)
(2)
(458)

(568)
(51)
(151)
(770)
(6)
(776)

(336)
(57)
(151)
(544)
(10)
-
(222)

At 25 March
2018
’000

At 26 March
2017
’000

83
47
130

88
45
133

1 These pension service costs are charged to the income statement. They represent the cost (as a percentage of pensionable payroll – 41.1 per cent (2016-17: 28.8 per cent)) of the

increase in the defined benefit obligation due to members earning one more year’s worth of pension benefits. They are calculated in accordance with IAS 19 and are based on
market yields (high quality corporate bonds and inflation) at the beginning of the reporting year. Pensions administration costs for the Royal Mail Pension Plan (RMPP) of £7 million
(2016-17: £5 million) continue to be included within the Group’s ongoing UK pension service costs.

2 The employer contribution cash flow rate (17.1 per cent in both the current and prior year) forms part of the payroll expense and is paid in respect of the RMPP. This includes
payments into RMPP pension escrow investments. The contribution rate is set following each actuarial funding valuation, usually every three years. These actuarial funding
valuations are required to be carried out on assumptions determined by the Trustee and agreed by Royal Mail.

120

| Annual Report and Financial Statements 2017-18

Notes to the consolidated
financial statements (continued)

9. Retirement benefit plans (continued)
In the period, the Group operated the following plans.

UK Defined Contribution plan
Royal Mail Group Limited, the Company’s main operating subsidiary, operates the Royal Mail Defined Contribution Plan (RMDCP). This plan
was launched in April 2009 and is open to employees who joined the Group from 31 March 2008, following closure of the RMPP to new
members.

Ongoing UK defined contribution plan costs have increased from £82 million in 2016-17 to £93 million (including £36 million PSE costs).
This is mainly due to the continued increase in plan membership and an increase in the average employer’s contribution rate from 6.0 per
cent in 2016-17 to 6.3 per cent in 2017-18.

UK Defined Benefit plans

Royal Mail Pension Plan (RMPP)
The 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. Benefits provided are based on final salary in respect of service to 31 March 2008, and on career salary
blocks for each year of service, revalued annually, for service from 1 April 2008.

Royal Mail Pensions Trustees Limited acts as the corporate Trustee to the RMPP. Within the Trustee, there is a Trustee Board of nine
nominated Trustee Directors. The Trustee Board is supported by an executive team of pension management professionals. They provide
day-to-day plan management, advise the Trustee on its responsibilities and ensure that decisions are fully implemented.

The Trustee has several responsibilities. It must always act in the best interests of all RMPP beneficiaries – including active members,
deferred members, pensioners and beneficiaries. Specifically, it must pay all benefits as they fall due under the Trust Deed and Rules. The
Trustee is responsible for:

• monitoring the RMPP - to help protect benefits, the Trustee monitors the financial strength of the participating employers;

•

investing contributions - the Trustee invests the member and employer contributions in a mix of equities, bonds, property and other
investments including derivatives. It holds the contributions and investments on behalf of the members; and

keeping members informed - the Trustee sends active members an annual benefit illustration together with a summary of the RMPP’s
annual report and accounts.

Royal Mail Senior Executives Pension Plan (RMSEPP)
Royal Mail Group Limited also contributes to a smaller defined benefit plan for executives: RMSEPP. This closed in December 2012 to future
accrual, therefore the Group makes no regular future service contributions. Under the February 2013 Funding Agreement with the Trustee,
the Group agreed to make deficit correction payments of £10 million per annum until at least the date on which the 2018 valuation is
completed. Deficit correction payments in 2017-18 were £10 million (2016-17: £10 million). The Group has now agreed a new Funding
Agreement dated 27 March 2018. Consistent with that, a new Schedule of Contributions was agreed for the period 29 March 2018 to
31 March 2025. No further deficit payments will be paid in respect of the period after 31 March 2018. Payments of £1 million per annum
will be paid for the period 1 April 2018 to 31 March 2025 in respect of the continued provision of death-in-service lump sum benefits and
expenses of administering the Plan.

In April 2016, the RMSEPP Trustee purchased a ‘buy-in’ policy of insurance in respect of pensions in payment to its oldest members. This is
considered an asset of the RMSEPP and does not confer any rights to individual members. All benefit payments due from the RMSEPP
remain unchanged. The insurance policy exactly matches the value and timing of the benefits payable under the RMSEPP (for the oldest
members). The fair value is deemed to be the present value of the related obligation. The buy-in policy valued at £148 million is included as
a pension asset and a pension liability at 25 March 2018.

A liability of £2 million (2016-17: £2 million) has been recognised for future payment of pension benefits to a past Director.

2018 Pensions Review
In January 2017, the Company consulted RMPP members about its proposal for the future of the RMPP. The consultation closed on 10 March 2017.
Following a review of member feedback, on 13 April 2017, the Company announced that it had not found an affordable way to keep the RMPP open
in its current form after March 2018. It therefore made the decision to close the RMPP3 to future accrual in its current form on 31 March 2018.

On 8 May 2017, after the 2016-17 balance sheet date, agreement was reached between the Company and the RMPP Trustee on the
March 2015 actuarial funding valuation and a revised Schedule of Contributions. In accordance with this Schedule of Contributions, the
service contribution rate for 2017-18 remained at 17.1 per cent. The March 2015 valuation continued to show the plan in surplus and
therefore no deficit correction payments were required.

An agreement has been made with the Pension Trustee to ringfence certain employer contributions in an escrow arrangement in order to give the
Trustee and the Company more flexibility over how these assets are best used for the benefit of members in future.

3 The decision was made to close Sections B and C of the RMPP to future defined benefit pension accrual. Section A of the Plan which has a small number of active members remains

open to future accrual.

Annual Report and Financial Statements 2017-18

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Strategic report | Governance | Financial statements | Other informationRoyal Mail plc

Notes to the consolidated
financial statements (continued)

9. Retirement benefit plans (continued)
One week of RMPP service contributions was paid during 2018-19 up to when the scheme closed on 31 March 2018. This payment was
paid at 17.1 per cent in accordance with the 8 May 2017 Schedule of Contributions. As the March 2015 valuation continued to show the
scheme in surplus, no deficit correction payments are expected to be made.

Future pension arrangements
A new Defined Benefit Cash Balance Scheme (DBCBS) has been put in place from 1 April 2018. This is a transitional arrangement until the
proposed Collective Defined Contribution (CDC) scheme can be established. Improvements to the RMDCP are also being made. Further details
can be found in the Financial Review.

The Company signed a new Schedule of Contributions on 27 March 2018. This covers the period of five years from the date of certification of
the schedule i.e. until March 2023. In accordance with this schedule, the Company is required to make payments totalling 15.6 per cent per
annum in respect of DBCBS.

In 2018-19 the Company expects to contribute around £400 million in respect of all UK pension schemes. This amount comprises £350
million in respect of RMPP, RMSEPP and DBCBS and £50 million in respect of RMDCP. Employees are expected to contribute around £135
million, including through PSE.

Accounting and actuarial funding surplus position (RMPP and RMSEPP)
In addition to the accounting valuations calculated in accordance with IAS 19, actuarial funding valuations are carried out every three years
by actuaries commissioned by trustees for purposes of calculating contributions and funding requirements. The main difference between the
accounting and actuarial funding valuations is that different rates are used to discount the projected scheme liabilities. The accounting
valuation uses yields on high quality corporate bonds. The actuarial funding valuation uses gilt yields. The combined plans’ assets and
liabilities on an accounting (IAS 19) basis and on an actuarial funding basis (based on an approximate update of the principles and
assumptions relevant to the 2015 actuarial funding valuation) are shown below.

Fair value of plans’ assets (9(b) below)4
Present value of plans’ liabilities
Surplus in plans (pre IFRIC 14 adjustment)
IFRIC 14 adjustment
Surplus in plans

Accounting (IAS 19)

Actuarial funding

At 25 March
2018
£m
10,361
(7,038)
3,323
(1,160)
2,163

At 26 March
2017
£m
9,847
(5,992)
3,855
(16)
3,839

At 31 March
2018
£m
10,461
(10,318)
143
n/a
143

At 31 March
2017
£m
10,066
(8,984)
1,082
n/a
1,082

4 Difference between accounting and actuarial funding asset fair values arises from the different year end dates used for the valuation of the assets under both methods.
There is no element of the present value of the plans’ liabilities above that arises from plans that are wholly unfunded.

The Directors do not believe that the current excess of plans’ assets over the liabilities on an accounting basis will result in an excess of
pension assets on an actuarial funding basis. However, the Directors are required to account for the plans based on their legal right to benefit
from a surplus, using long-term actuarial funding assumptions current at the reporting date, as required by IFRS. As the Group has a legal
right to benefit from a surplus, under IAS 19 and IFRIC 14, it must recognise the economic benefit assumed to arise from either a reduction
to its future contributions or a refund of the surplus. This is a technical adjustment made on an accounting basis. There is no cash benefit
from the surplus.

The legal right to benefit from a surplus has not changed as a result of the Company’s decision to close the RMPP from 31 March 2018.
However, after that date, any surplus will no longer be assumed to be recoverable as a reduction to future employer contributions. Therefore,
at 25 March 2018 only one week of economic benefit is recoverable as a reduction to future employer contributions. The remaining surplus
is assumed to be available as a refund. This surplus is presented net of an IFRIC 14 adjustment of £1,134 million (2016-17: £nil million) on
the balance sheet, which represents the taxation that would be withheld on the surplus amount.

Included in the IAS 19 figures in the table above is an RMSEPP surplus at 25 March 2018 of £73 million (pre IFRIC 14)
(2016-17: £47 million surplus).

As RMSEPP is closed to future accrual, the surplus is assumed to be available as a refund as per IFRIC 14 and, as such, is shown net of
taxation withheld in both years.

122

| Annual Report and Financial Statements 2017-18

Notes to the consolidated
financial statements (continued)

9. Retirement benefit plans (continued)
The following disclosures relate to the major assumptions, sensitivities, assets and liabilities in the RMPP and RMSEPP and DBCBS
assumptions.
a) Major long-term assumptions used for accounting (IAS 19) purposes – RMPP, RMSEPP and DBCBS
IAS 19 assumptions will be derived separately for the legacy RMPP and DBCBS, in particular taking into account the different weighted
durations of the future benefit payments. RMSEPP will continue in line with legacy RMPP benefits.

The major assumptions used to calculate the accounting position of the pension plans are as follows:

Retail Price Index (RPI)
Consumer Price Index (CPI)
Discount rate5
– nominal
– real (nominal less RPI)

Rate of increase in pensionable salaries6
Rate of increase for deferred pensions
Rate of pension increases – RMPP Sections A/B
Rate of pension increases – RMPP Section C6
Rate of pension increases – RMSEPP members transferred from Section A or B of RMPP
Rate of pension increases – RMSEPP all other members6
Rate of pension increases – DBCBS benefits
Life expectancy from age 60 – for a current 40/60 year old male RMPP member
Life expectancy from age 60 – for a current 40/60 year old female RMPP member

At 25 March
2018
3.1%
2.1%

At 26 March
2017
3.2%
2.2%

2.4%
(0.7%)
RPI–0.1%
CPI
CPI
RPI–0.1%
CPI
RPI–0.1%
CPI+2.0%
28/26 years
31/29 years

2.5%
(0.7%)
RPI–0.1%
CPI
CPI
RPI–0.1%
CPI
RPI–0.1%
-
28/26 years
31/29 years

5 The discount rate reflects the long average duration of the RMPP of around 30 years. Whilst DBCBS benefits have a significantly shorter average duration (11 ½ years), the same

discount rate is justified.

6 The rate of increase in salaries, and the rate of pension increase for Section C members (who joined RMPP on or after April 1987) and RMSEPP ‘all other members’, is capped at

five per cent, which results in the average long-term pension increase assumption being 10 basis points lower than the RPI long-term assumption.

Mortality
The RMPP assumptions are based on the latest Self-Administered Pension Scheme (SAPS) S2 mortality tables with appropriate scaling
factors (116 per cent for male pensioners and 109 per cent for female pensioners). Future improvements are based on the CMI 2015 core
projections with a long-term trend of 1.5 per cent per annum.

Sensitivity analysis for RMPP liabilities
The RMPP liabilities are sensitive to changes in key assumptions. The potential impact of the largest sensitivities on the RMPP liabilities is as follows:

Key assumption change
Additional one year of life expectancy
Increase in inflation rate (both RPI and CPI simultaneously) of 0.1% p.a.
Decrease in discount rate of 0.1% p.a.
Increase in CPI assumption (assuming RPI remains constant) of 0.1% p.a.

Potential
increase in
liabilities
£m
240
180
180
35

This sensitivity analysis has been determined based on a method that assesses the impact on the defined benefit obligation, resulting from
reasonable changes in key assumptions occurring at the end of the reporting year. Changes inverse to those in the table (e.g. an increase in
discount rate) would have the opposite effect on liabilities. The average duration of the RMPP obligation is 30 years (2016-17: 30 years).

Annual Report and Financial Statements 2017-18

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Royal Mail plc

Notes to the consolidated
financial statements (continued)

9. Retirement benefit plans (continued)
b) RMPP and RMSEPP assets

Equities

UK
Overseas

Bonds

Fixed interest – UK

– Overseas

Index linked – UK
Pooled investments

Managed funds
Unit Trusts
Property (UK)
Cash and cash equivalents
Other
Derivatives
Total plans’ assets

At 25 March 2018

Quoted
£m

Unquoted
£m

Total
£m

At 26 March 2017
Unquoted
£m

Quoted
£m

15
411

336
600
175

1,149
6,682
28
426
2
(92)
9,732

106
25

12
67
148

-
-
271
-
-
-
629

121
436

348
667
323

1,149
6,682
299
426
2
(92)
10,361

22
561

306
938
26

1,018
6,004
26
320
5
(25)
9,201

126
27

11
14
151

–
–
317
–
–
–
646

Total
£m

148
588

317
952
177

1,018
6,004
343
320
5
(25)
9,847

There were no open equity futures or options derivatives within this portfolio at 25 March 2018 (2016-17: £1 million). £6 billion
(2016-17: £5 billion) of HM Government Bonds are primarily included in Unit Trusts above. The plans’ assets do not include property or
assets used by the Group, but do include shares of the Royal Mail plc with an approximate market value of £84,000 at 25 March 2018
(2016-17: £21,000).

Risk exposure and investment strategy
The investment strategy of the RMPP Trustee aims to safeguard the assets of the Plan and to provide, together with contributions, the
financial resource from which benefits are paid. Investments are inevitably exposed to risks. The risks inherent in the investment markets are
partially mitigated by pursuing a widely diversified approach across asset classes and investment managers. The RMPP uses derivatives (such
as swaps, forwards and options, from time to time) to reduce risks whilst maintaining expected investment returns. 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 seeks to balance these requirements.

RMPP’s liabilities and assets are impacted by movements in interest rates and inflation. In order to reduce the risk of movements in these
rates driving the RMPP into a funding deficit, the RMPP Trustee has hedged the funding liabilities which it was estimated would be built up
by March 2018. It has done this predominantly through investment in index-linked gilts and derivatives (interest rate and inflation rate swaps
and Gilt repurchase agreements) held in Unit Trust pooled investments providing economic exposure to gilts and swap rates.

The change in value of the liability-hedging assets is predominantly reflected in the Unit Trust values above, which have increased from
£6,004 million at 26 March 2017 to £6,682 million at 25 March 2018.

The notional value covered by the inflation rate swaps (full exposure to the relevant asset class incurred by entering into a derivative
contract) held in a specific managed portfolio for this purpose at 25 March 2018 was £2.4 billion (2016-17: £2.3 billion). The notional value
covered by the interest rate swaps at 25 March 2018 was £3.2 billion (2016-17: £1.9 billion).

The equity exposure of RMPP has been reduced by means of a short Total Return Swap (TRS). This is a derivative that can be used to reduce
exposure to a particular asset class without selling the physical assets held. TRS were introduced in order to reduce downside risk whilst
broadly maintaining the existing expected returns. The TRS have a market value as at 25 March 2018 of £21 million (2016-17: £(17) million
included in the derivative values above. The TRS economically offset £257 million as at 25 March 2018 (2016-17: £260 million) of the
Plan’s global equity market exposure.

The spread of investments continues to balance security and growth in order to pay the RMPP benefits when they become due.

In addition to holding return-seeking assets, RMSEPP holds long-dated index linked gilts of £175 million (2016-17: £26 million) and the
buy-in annuity policy of £148 million at 25 March 2018 (2016-17: £151 million) to match its liabilities. In order to increase the level of
interest rate and inflation hedging, RMSEPP has borrowed £115 million (2016-17: £nil million) of the UK Government Bonds it holds via Gilt
repurchase agreements. These are included in the derivative values above.

124

| Annual Report and Financial Statements 2017-18

Notes to the consolidated
financial statements (continued)

9. Retirement benefit plans (continued)
c) Movement in RMPP and RMSEPP assets, liabilities and net position
Changes in the value of the defined benefit pension liabilities, fair value of the plans’ assets and the net defined benefit surplus are analysed
as follows:

Retirement benefit surplus (pre IFRIC 14 adjustment) at 27 March 2017 and
28 March 2016
Amounts included in the income statement
Ongoing UK defined benefit pension plan and administration costs (included in people costs)
Pension interest income/(cost)7
Total included in profit before tax
Amounts included in other comprehensive income – remeasurement gains/(losses)
Actuarial (loss)/gain arising from:
Financial assumptions
Demographic assumptions
Experience assumptions
Return on plans’ assets (excluding interest income)
Total remeasurement gains/(losses) of the defined benefit surplus
Other
Employer contributions8
Employee contributions
Benefits paid
Curtailment costs
Movement in pension-related accruals
Total other movements
Retirement benefit surplus (pre IFRIC 14 adjustment) at 25 March 2018 and
26 March 2017
IFRIC 14 adjustment
Retirement benefit surplus (net of IFRIC 14 adjustment) at 25 March 2018 and
26 March 2017

Defined benefit asset
At 26
March
2017
£m

At 25
March
2018
£m

Defined benefit
liability

Net defined benefit
surplus

At 25
March
2018
£m

At 26
March
2017
£m

At 25
March
2018
£m

At 26
March
2017
£m

9,847

7,374

(5,992)

(3,815)

3,855

3,559

(7)
251
244

(5)
265
260

(899)
(160)
(1,059)

(683)
(145)
(828)

(906)
91
(815)

(688)
120
(568)

-
-
-
62
62

272
5
(70)
-
1
208

-
-
-
1,791
1,791

476
6
(55)
-
(5)
422

(53)
-
1
-
(52)

-
(5)
70
(3)
3
65

(1,711)
243
76
-
(1,392)

-
(6)
55
(5)
(1)
43

(53)
-
1
62
10

272
-
-
(3)
4
273

(1,711)
243
76
1,791
399

476
-
-
(5)
(6)
465

10,361
n/a

9,847
n/a

(7,038)
n/a

(5,992)
n/a

3,323
(1,160)

3,855
(16)

n/a

2,163

3,839

In addition to the above items which affect the net defined benefit surplus, estimated curtailment costs of £nil million (2016-17: £4 million)
have been provided for in transformation costs in the income statement, along with the associated redundancy costs.
7 Pension interest income results from applying the plans’ discount rate at 26 March 2017 to the plans’ assets at that date. Similarly, the pension interest cost results from applying

the plans’ discount rate as at 26 March 2017 to the plans’ liabilities at that date.

8 Excludes payments into pension escrow investments of £178 million (2016-17: £nil million).

Annual Report and Financial Statements 2017-18

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Royal Mail plc

Notes to the consolidated
financial statements (continued)

10. Acquisition of businesses

This Note provides details of the Group’s business acquisitions which relate to the acquisitions by GLS of Postal Express in the United States
of America and Redyser Transporte (Redyser) in Spain.

Acquisitions made in the year for a total consideration of £16 million in respect of Postal Express and Redyser are detailed below.
This information includes the provisional fair value of the identifiable assets and liabilities recognised as at the date of acquisition.

Tangible assets acquired
Intangible assets recognised on acquisition
Trade and other receivables
Cash and cash equivalents
Goodwill recognised on acquisition
Total assets acquired
Trade and other payables
Interest bearing loans and borrowings
Tax liabilities
Net assets acquired
Cash paid during the year
Deferred consideration
Total consideration

52 weeks
2018

Total
£m
3
12
13
-
11
39
(16)
(3)
(4)
16
16
-
16

The fair value of trade debtors is equal to the gross contractual amounts receivable. An initial review of trade debtors has not indicated any
recoverability issues.

The intangible assets recognised at fair value on acquisition relate to customer lists, software and brands. The goodwill of £11 million arising
on these acquisitions is indicative of the acquired business knowledge of products and markets, and synergies that are expected through the
integration of services.

No material fair value adjustments have been identified in respect of the remaining assets and liabilities acquired in the year.

Revenue generated from these entities since the date of acquisition is £29 million and the combined loss is £5 million. If these combinations
had taken place at the beginning of the financial year, revenue generated would have been £64 million and the combined loss would have
been £4 million. The profitability of these entities was impacted by higher operating costs as a result of integration activity.

There are no non-controlling interests in relation to these acquisitions.

126

| Annual Report and Financial Statements 2017-18

Notes to the consolidated
financial statements (continued)

11. Property, plant and equipment
Below are details of the Group’s property, equipment and vehicle assets, which are recorded at their historic cost (i.e. what the Group paid
for them) less accumulated depreciation, reflecting their usage within the business over their useful life – from two to 50 years.

Land and buildings

Freehold
£m

Long
leasehold
£m

Short
leasehold
£m

Plant and
machinery
£m

Motor
vehicles
£m

Fixtures
and
equipment
£m

Cost
At 27 March 2017
Exchange rate movements
Reclassification
Additions
Disposals
Acquisition of business
Reclassification to non-current assets held for sale
At 25 March 2018
Depreciation and impairment
At 27 March 2017
Exchange rate movements
Reclassification
Depreciation (see Note 3)
Disposals
Reclassification to non-current assets held for sale
At 25 March 2018

Net book value
At 25 March 2018
At 26 March 2017

Net book value comprises:
Owned assets
Finance leased assets
At 25 March 2018

1,743
3
(23)
93
(26)
-
(23)
1,767

894
1
(1)
44
(8)
(8)
922

845
849

845
-
845

287
-
2
4
(1)
-
-
292

186
-
-
6
(1)
-
191

101
101

88
13
101

799
-
19
17
(8)
-
-
827

572
-
-
42
(3)
-
611

216
227

213
3
216

1,129
2
1
45
(27)
2
-
1,152

736
2
1
57
(26)
-
770

382
393

298
84
382

702
-
1
62
(42)
1
-
724

339
1
-
58
(37)
-
361

363
363

142
221
363

Total
£m

5,053
8
-
239
(118)
3
(23)
5,162

2,991
5
-
246
(88)
(8)
3,146

393
3
-
18
(14)
-
-
400

264
1
-
39
(13)
-
291

109
129

2,016
2,062

109
-
109

1,698
318
2,016

Annual Report and Financial Statements 2017-18

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Royal Mail plc

Notes to the consolidated
financial statements (continued)

11. Property, plant and equipment (continued)

Cost
At 28 March 2016
Exchange rate movements
Reclassification
Additions
Disposals
Acquisition of business
Reclassification to non-current assets held for sale
At 26 March 2017
Depreciation and impairment
At 28 March 2016
Exchange rate movements
Depreciation (see Note 3)
Disposals
Reclassification to non-current assets held for sale
At 26 March 2017

Net book value
At 26 March 2017
At 27 March 2016

Net book value comprises:
Owned assets
Finance leased assets
At 26 March 2017

Land and buildings

Freehold
£m

Long
leasehold
£m

Short
leasehold
£m

Plant and
machinery
£m

Motor
vehicles
£m

Fixtures
and
equipment
£m

1,646
29
(18)
98
(1)
1
(12)
1,743

843
10
42
-
(1)
894

849
803

849
-
849

281
2
4
2
(2)
1
(1)
287

179
1
7
(1)
-
186

101
102

90
11
101

773
-
14
14
(2)
-
-
799

532
-
42
(2)
-
572

227
241

223
4
227

1,078
16
-
61
(28)
2
-
1,129

698
10
56
(28)
-
736

393
380

300
93
393

654
5
-
73
(34)
4
-
702

314
3
51
(29)
-
339

363
340

147
216
363

454
10
-
28
(100)
1
-
393

318
7
37
(98)
-
264

129
136

129
-
129

Total
£m

4,886
62
-
276
(167)
9
(13)
5,053

2,884
31
235
(158)
(1)
2,991

2,062
2,002

1,738
324
2,062

Depreciation rates are disclosed within ‘Significant accounting policies’. No depreciation is provided on land, which represents £223 million
(2016-17: £211 million) of the total cost of properties.

The net book value of the Group’s property, plant and equipment includes £122 million (2016-17: £149 million) in respect of assets in the
course of construction. The net book value of the Group’s land and buildings includes £389 million (2016-17: £407 million) in respect of
building fit-out.

The £239 million (2016-17: £276 million) additions include £1 million (2016-17: £nil million) borrowing costs capitalised at a rate of 2.5 per
cent in relation to specific qualifying assets.

128

| Annual Report and Financial Statements 2017-18

Notes to the consolidated
financial statements (continued)

12. Goodwill
This Note provides details of the Group’s goodwill, which mostly relates to its overseas subsidiary, GLS including its business acquisitions
in the year.

Cost
At 27 March 2017 and 28 March 2016
Exchange rate movements
Acquisition of businesses
Disposal of businesses
Reclassification of goodwill in respect of prior year acquisition
At 25 March 2018 and 26 March 2017
Impairment
At 27 March 2017 and 28 March 2016
Exchange rate movements
At 25 March 2018 and 26 March 2017

Net book value:
At 25 March 2018 and 26 March 2017
At 26 March 2017 and 27 March 2016

2018
£m

2017
£m

703
1
11
-
-
715

387
4
391

324
316

559
57
90
(1)
(2)
703

353
34
387

316
206

The carrying value of goodwill of £324 million (2016-17: £316 million) at the balance sheet date includes £261 million (2016-17:
£251 million) in relation to GLS’ European network (cash generating unit – CGU). The carrying value of the GLS European network, excluding
interest-bearing and tax-related assets and liabilities, is £719 million (2016-17: £642 million). The operating profit before transformation
costs is £193 million (2016-17: £164 million) for the year.

The carrying value of the GLS European network of £719 million represents a multiple of 3.7 (2016-17: 3.9) of operating profit before
transformation costs. The recoverable amount of this CGU, being its net realisable value (i.e. ‘fair value less costs to sell’) for the purposes of
the impairment review, has been assessed with reference to EBITDA earnings multiples for quoted entities in a similar sector of 7.3 (fair
value hierarchy level 2 input). On this basis, the CGU’s 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 59 per cent to 3.0 to reduce the net realisable value to below the
carrying value.

A further £46 million (2016-17: £48 million) of goodwill relates to the GLS US network. This is a second GLS CGU comprising Golden State
Overnight Delivery Services Inc. (GSO) and Postal Express. An internal assessment by GLS management has determined that the recoverable
amount of the US network, including goodwill of £46 million (2016-17 £48 million), exceeds the carrying value of this CGU.

The recoverable amount of GLS’ US network is based on ‘value in use’, using five-year forecast cash flows, including terminal growth rates of
two per cent and a pre-tax discount rate of 12.5 per cent, including a risk premium for the US. The forecast cash flows would need to reduce
by more than 30 per cent to reduce the value in use to below the carrying value.

The remaining goodwill of £17 million (2016-17: £17 million) arising from an aggregation of goodwill on business acquisitions, each being a
separate CGU within the UKPIL business unit, is not material in the context of the Group’s total goodwill.

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Notes to the consolidated
financial statements (continued)

13. Intangible assets
Intangible assets, mainly software, are recorded in much the same way as the Group’s physical assets such as property and vehicles,
but with shorter useful lives over which they are amortised (one to eleven years).

Cost
At 27 March 2017 and 28 March 2016
Exchange rate movements
Additions
Disposals
Acquisition of business
Reclassification of goodwill in respect of
prior year acquisition
At 25 March 2018 and 26 March 2017

Amortisation and impairment
At 27 March 2017 and 28 March 2016
Exchange rate movements
Amortisation (see Note 3)
Disposals
At 25 March 2018 and 26 March 2017

Net book value:
At 25 March 2018 and 26 March 2017
At 26 March 2017 and 27 March 2016

2018

2017

Master
franchise
licences
£m

Customer
listings
£m

Software
£m

Brands
£m

Total

£m

Master
franchise
licences
£m

Customer
listings
£m

Software
£m

Brands
£m

Total
£m

21
-
-
-
-

-
21

21
-
-
-
21

-
-

72
(1)
-
-
5

-
76

43
-
5
-
48

28
29

807
(1)
143
(6)
2

-
945

279
-
100
(6)
373

572
528

14
(1)
-
-
5

914
(3)
143
(6)
12

-
18 1,060

4
-
6
-
10

347
-
111
(6)
452

8
10

608
567

21
-
-
-
-

-
21

21
-
-
-
21

-
-

36
7
3
-
26

-
72

32
4
7
-
43

29
4

670
5
126
(12)
16

2
807

223
2
66
(12)
279

-
-
-
-
14

-
14

-
-
4
-
4

727
12
129
(12)
56

2
914

276
6
77
(12)
347

528
447

10
-

567
451

The intangible assets detailed above have finite lives and are being written down on a straight-line basis. The £143 million
(2016-17: £129 million) additions include £2 million (2016-17: £4 million) borrowing costs capitalised at a rate of 2.5 per cent in relation to
specific qualifying assets.

The Group holds individually material intangible assets totalling £233 million (2016-17: £192 million). These assets relate to various
IT initiatives taking place across the business. They have an average remaining useful life of eight years (2016-17: seven years).

14. Investments in associates and joint venture
This Note provides details of the Group’s associate and joint venture companies, including the Group’s share of the revenue, profit and
net assets of these entities.

Details of the associates and joint venture of the Group are listed below. To ensure that the reported share of the results of these companies
aligns with the Group’s reporting year ended 25 March 2018 (2016-17: 26 March 2017), information provided by each of the respective
companies is analysed and an estimate of profit/loss accrued as appropriate.

Associate company
Quadrant Catering Limited
Mallzee Limited
Market Engine Global Pty Limited
Joint venture company
ParcelLock GmbH

Principal activities

Country of incorporation

Reporting date

Catering services
Personal shopping application (‘app’)
Software development

United Kingdom
United Kingdom
Australia

30 September
30 April
30 June

Parcel locker provision

Germany

31 December

%
ownership
2018

%
ownership
2017

51.0
21.1
34.5

33.3

51.0
25.0
34.5

33.3

The majority of board membership and voting power to direct relevant activities in Quadrant Catering Limited (Quadrant) is held by the other
investor company. For this reason, it is Management’s view that the Group does not have control over Quadrant. It is therefore not
considered to be a subsidiary in line with IFRS 10 'Consolidated Financial Statements'.

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| Annual Report and Financial Statements 2017-18

Notes to the consolidated
financial statements (continued)

14. Investments in associates and joint venture (continued)
Movements in interests in associates

Cost
At 27 March 2017 and 28 March 2016
Share of loss after tax for the year from continuing operations1
Impairment2
At 25 March 2018 and 26 March 2017

Movements in interest in joint venture

Cost
At 27 March 2017 and 28 March 2016
Share of loss after tax for the year from continuing operations1
At 25 March 2018 and 26 March 2017

2018
£m

2017
£m

7
-
(2)
5

8
(1)
-
7

2018
£m

2017
£m

-
-
-

1
(1)
-

There are no significant restrictions on the ability of the associates or joint venture to transfer funds to the Group in the form of cash
dividends or repayment of loans and advances.

1 The share of loss after tax is included within ‘Other operating costs’ in the income statement.
2 The impairment is included within ‘Legacy/other costs’ in the income statement.

15. Share-based payments
This Note provides details about the Free Shares awarded to employees, including the associated accounting charge to the Group’s
income statement under IFRS 2 'Share-based Payment', and the number of shares held at the end of the reporting year. Details of
shares awarded under the Long-Term Incentive Plan (LTIP) , Deferred Shares Bonus Plan (DSBP), and Save As You Earn (SAYE)
scheme are also included.

Employee Free Shares
Employee Free Shares are held on behalf of employees in a tax-advantaged Share Incentive Plan (SIP).

The shares are held in a Trust administered by Equiniti Share Plan Trustees Limited (Equiniti) and may only be distributed to, or for the
benefit of, eligible employees. The Trust is funded by the Company and has therefore been consolidated within these financial statements.

2013 and 2014 SIP
613 shares were awarded in October 2013 to each eligible full-time employee. A further 116 shares were allocated to eligible full-time
employees in April 2014. Part-time eligible employees were allocated a pro-rata number of shares in both allocations. For both full-time and
part-time eligible employees, the award of shares is subject to them remaining employees of Royal Mail Group Limited over the vesting
period. The vesting period for each award is three years from the award date with all allocated shares to be equity-settled.

2015 SIP
On 5 October 2015, ordinary shares representing one per cent of the Company were granted free of charge to eligible full-time employees
by HM Government. This was in addition to a portion of the unallocated shares arising from earlier SIP schemes. Accordingly, each eligible
full-time employee received 103 shares as their 2015 SIP allocation with part-time eligible employees being allocated a pro-rata number of
shares. All allocated shares will be equity-settled.

2016 SIP
On 6 October 2016, ordinary shares representing one per cent of the Company were granted free of charge to eligible full-time employees
by HM Government. Accordingly, each eligible full-time employee received 81 shares as their 2016 SIP allocation with part-time eligible
employees being allocated a pro-rata number of shares. All allocated shares will be equity-settled.

A charge to the income statement of £33 million (including a net £2 million National Insurance credit) has been made for the year ended
25 March 2018 for all four SIP allocations (see page 27 of Financial Review).

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Royal Mail plc

Notes to the consolidated
financial statements (continued)

15. Share-based payments (continued)
A reconciliation of the ordinary shares held in the SIP at 25 March 2018 is shown below.

Total shares remaining in SIP at 27 March 2017
Shares sold/transferred out of SIP during the reporting year (fully vested)
Shares transferred out of SIP during the reporting year (‘good leavers’) 1
Total shares remaining in SIP at 25 March 2018

Number of
shares
93,760,834
(6,643,092)
(5,200,562)
81,917,180

1 ‘Good leavers’ refers to former employees whose shares vested under specific circumstances, in accordance with the rules of the scheme.
Of the total shares remaining in the scheme, 79,457,694 have been allocated to current employees. The remaining 2,459,486 shares are
unallocated and have arisen as a result of forfeitures.

Award of shares under the Long-Term Incentive Plan (LTIP)
An LTIP award was granted to senior management on 28 March 2015 (2015 LTIP). This award is equity-settled with the fair value of the
shares awarded, being set at the grant date market value of 511.0 pence. The maximum shares that have the potential to vest under this
scheme are 2,487,477.

2016 LTIP
LTIP awards were granted to senior management on 21 July 2016 and 8 December 2016 (together the 2016 LTIP). The vesting period of
three years from 1 April 2016, and the performance conditions are identical for both awards. These awards are equity-settled with the fair
value of the shares awarded being calculated using a Monte-Carlo simulation, taking into account dividend accrual, and set at 333.0 pence
and 278.0 pence, respectively. The maximum shares that have the potential to vest under the 2016 LTIP are 2,530,857.

2017 LTIP
LTIP awards were granted to senior management on 28 July 2017 and 11 December 2017 (together the 2017 LTIP). The vesting period of
three years from 1 April 2017, and the performance conditions are identical for both awards. These awards are equity-settled with the fair
value of the shares awarded being calculated using a Monte-Carlo simulation, taking into account dividend accrual, and set at 203.0 pence
and 283.0 pence, respectively. The maximum shares that have the potential to vest under the 2017 LTIP are 2,416,818.

A charge to the income statement of £4 million (including £1 million National Insurance) has been made for the year ended 25 March 2018
in relation to all LTIP schemes (2016-17: £10 million, including £1 million National Insurance).

The LTIP shares are not part of the SIP explained above. Further details of each LTIP plan, including performance conditions, can be found in
the Directors’ remuneration report on page 75.

Deferred Shares Bonus Plan (DSBP)
DSBP awards were granted to senior management on 20 June 2017 (2016 DSBP). The vesting period is three years from 1 April 2017. This
award is equity-settled with the fair value of the shares awarded, being set at the grant date market value of 441.4 pence. The maximum
shares that have the potential to vest under the scheme are 595,813.

Save As You Earn (SAYE) share option scheme
On 24 July 2014, a SAYE share option scheme was introduced for eligible employees. Under the terms of the scheme, the Board permits the
grant of options in respect of ordinary shares in the Company to those employees who enter into an HMRC-approved SAYE savings contract.

These contracts are for a term of three years, with contributions from employees of an amount between £5 and £59 each month. The
options purchased may be exercised during the six month period following the end of the contract at an exercise price of not less than 80 per
cent of the average of the mid-market quotations of an ordinary Share over the three dealing days immediately preceding the offer date.

A charge to the income statement of £1 million has been made for the year ended 25 March 2018 (2016-17: £2 million) in relation to the
SAYE scheme. The fair values of the options have been calculated using the Black-Scholes share option pricing model.

The table below shows the movements in share options during the reporting year.

Balance at the beginning of the reporting year
Options exercised
Options expired
Options forfeited
Balance at the end of the reporting year

Number of
options
12,871,610
(8,968,438)
(381,677)
(749,015)
2,772,480

For SAYE options exercised during the year (by ‘good leavers’), the weighted average share price at the date of exercise was 433.3 pence.
The weighted average exercise price for each of the above categories of share options is 360 pence.

As a result of reaching the end of the contribution period and scheme rules in relation to ‘good leavers’, 2,748,990 (2016-17: 130,360)
share options were exercisable at 25 March 2018 at a weighted average exercise price of 360 pence.

132

| Annual Report and Financial Statements 2017-18

Notes to the consolidated
financial statements (continued)

16. Assets held for sale
This Note provides details of the assets classified as held for sale at the beginning and end of the reporting year. Assets and liabilities are
classified in this way when their carrying value is to be recovered principally through a sale transaction and a sale is considered highly
probable. Their value in the balance sheet is the lower of their carrying amount and fair value less costs to sell. At the reporting date of
25 March 2018, only certain surplus property assets are held for sale.

The balance sheet values of the assets held for sale during the reporting year are shown below.

Property assets held for sale
Total

At 25 March
2018
£m
50
50

At 26 March
2017
£m
37
37

Property assets held for sale
Non-current assets held for sale of £50 million (2016-17: £37 million) relate to land and buildings in UKPIL which are being actively
marketed with a view to a sale within 12 months. The carrying value relates primarily to the remaining plots at the Nine Elms site and the
in-year increase represents expenditure to enhance the site. An assessment of the fair value of the properties was made at the time of their
reclassification to ‘held for sale’ and no adjustment to the carrying amount of these properties was necessary.

17. Current trade and other receivables
The following information relates to amounts owed to the Group by third-parties and also the loss allowance for bad and doubtful debts
that the Group has provided for in the financial statements.

Trade receivables
Accrued income
Prepayments
Total

At 25 March
2018
£m
999
37
124
1,160

At 26 March
2017
£m
979
36
102
1,117

Movements in the loss allowance for bad and doubtful debts are shown below. The early adoption of IFRS 9 has had no material impact on
the opening loss allowance.

At 27 March 2017 and 28 March 2016
Receivables provided for during the year
Release of allowance
Utilisation of allowance
Acquisition of business
Exchange difference on foreign denominated allowance
At 25 March 2018 and 26 March 2017

The amount of trade receivables that were past due but not impaired are shown below.

Not yet overdue
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

2018
£m
(35)
(24)
9
19
(5)
-
(36)

2017
£m
(26)
(14)
6
5
(5)
(1)
(35)

At 25 March
2018
£m
883
88
16
12
999

At 26 March
2017
£m
890
71
9
9
979

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Notes to the consolidated
financial statements (continued)

18. Cash and cash equivalents
This Note details the Group’s cash balance and other short-term investments that can be readily converted into cash.

Cash and cash equivalents at 25 March 2018 and at 26 March 2017 are as follows:

Cash at bank and in hand
Client cash
Cash equivalent investments: Short-term bank and local authority deposits and money market fund investments
Total cash and cash equivalents

At 25 March
2018
£m
172
24
404
600

At 26 March
2017
£m
144
22
133
299

Cash and cash equivalents comprise amounts held physically in cash, bank balances available on demand and deposits for three months or
less, dependent on the immediate cash requirements of the Group. Where interest is earned, this is either at floating or short-term fixed
rates based upon bank deposit rates.

Client cash is cash collected from consignees by GLS on behalf of its posting customers.

19. Current trade and other payables
The following details relate to amounts owed by the Group to third-parties and deferred revenue for services still to be provided.

Trade payables and accruals
Advance customer payments (mainly for stamps held, not yet used by customers)
Social security
Client creditors
Capital expenditure payables
Other
Total

At 25 March
2018
£m
(1,449)
(283)
(104)
(32)
(48)
(11)
(1,927)

At 26 March
2017
£m
(1,317)
(289)
(100)
(31)
(60)
(13)
(1,810)

The fair value of trade and other payables is not materially different from the carrying value.

20. 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.

Syndicated bank loan facilities
€500 million bond – 2.375% Senior Fixed Rate Notes
Loans in overseas subsidiaries
Total

Loans and
borrowings
£m
-
435
2
437

Further
committed
facility
£m
1,050
-
-
1,050

Total
facility
£m
1,050
435
2
1,487

At 25 March 2018

Average
interest rate
of loan drawn
down
%

Basis of interest
rate chargeable
n/a LIBOR plus 0.55%
Fixed at 2.5%
2.5
1.4
Fixed at 1.4%
2.4

Average
maturity date
of loan
drawn down
Year
n/a
2024
2020
2024

Average
maturity date
of loan
facility
Year
2022
2024
2020
2022

Loans and
borrowings
£m
32
430
1
463

Further
committed
facility
£m
1,018
-
-
1,018

Total
facility
£m
1,050
430
1
1,481

At 26 March 2017
Average
interest rate
of loan drawn
down
%
1.3
2.5
2.0
2.4

Basis of interest
rate chargeable
LIBOR plus 0.55%
Fixed at 2.5%
Fixed at 2.0%

Average
maturity date
of loan
drawn down
Year
2017
2024
2017
2024

Average
maturity date
of loan
facility
Year
2022
2024
2017
2022

134

| Annual Report and Financial Statements 2017-18

Notes to the consolidated
financial statements (continued)

20. Loans and borrowings (continued)
The €500 million bond, issued in July 2014, is shown net of issue discount and fees and at a closing spot rate of £1/€1.145. The effective
interest rate on the bond (2.5 per cent) consists of the interest coupon of 2.375 per cent plus the unwinding of the discount and fees on
issuing the bond (0.08 per cent). The bond is designated as a hedge of the net investment in GLS, which has the Euro as its functional
currency. During the year, a loss of £5 million (2016-17: £38 million) on the retranslation of this borrowing was transferred to other
comprehensive income, which offsets the gains on translation of the net investment in GLS. There was no hedge ineffectiveness in the
current or comparative reporting years.

The syndicated bank loan facility can be cancelled and any loans drawn under the facility can become 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 (excluding arrangement fees), adjusted net debt and EBITDA. It is not anticipated that the Group is at risk of
breaching any of these obligations.

The covenants require the Group to maintain the (leverage) ratio of adjusted net debt to EBITDA below 3:1 and EBITDA to interest (excluding
certain arrangement fees) above 3.5:1. Adjusted net debt consists of net debt plus Letters of Credit (contingent liabilities in respect of the
UKPIL insurance programme, where the possibility of an outflow of economic benefits is considered remote) and is adjusted for exchange
rate movements during the year. The Group’s leverage ratio at 25 March 2018 is 0.2:1 (2016-17: 0.6:1). The Group’s ratio of EBITDA to
interest (excluding certain arrangement fees) at 25 March 2018 is 38.6:1 (2016-17: 53.1:1). Accordingly, the Group comfortably meets the
covenants tests within its syndicated bank loan facilities agreement.

The interest rate chargeable on the syndicated bank loan facility would increase if more than one third of the facility was drawn and also if
the Group's leverage ratio exceeded 1:1. Under the loan agreement, the maximum interest rate chargeable would be LIBOR plus 1.45 per
cent. The €500 million bond becomes repayable immediately on the occurrence of an event of default under the bond agreement. These
events of default include non-payment and insolvency. It is not anticipated that the Group is at risk of breaching any of these obligations.

The undrawn committed facilities, in respect of which all conditions precedent had been met at the balance sheet date, were £1,050 million
of which £952 million are maturing in March 2022 with the remaining £98 million maturing in March 2020 (2016-17: £1,018 million of
which £923 million are maturing in March 2022 and £95 million maturing in March 2020).
There is no security in place under the syndicated bank loan facilities or the bond.

21. Financial assets and liabilities and risk management

In considering the financial assets and liabilities of the Group, Management use judgment to assess the materiality to users of the financial
statements, at a Group level, of each of the disclosure areas highlighted in IFRS 7 ‘Financial instruments: Disclosures’. This assessment is
based on both the magnitude and nature of the financial instruments involved and informs the level of disclosure of the risk management
objectives and policies in place across the Group provided in this Note.

The following table summarises the disclosures:
Disclosure requirement
a) Classification, carrying amount and fair values of financial assets and liabilities - Carrying amounts and fair value of each category of financial
assets and liabilities.
b) Movement in liabilities arising from financing activities – A reconciliation of the opening and closing balances of liabilities arising from financing
activities.
c) Foreign currency risk management - How Management address the risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in foreign exchange rates.
d) Commodity price risk management - How Management address the risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in market prices.
e) Interest rate risk management - How Management address the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in market interest rates.
f) Liquidity risk management - How Management address the risk that an entity will encounter difficulty in meeting obligations associated with financial
liabilities that are settled by delivering cash or another financial asset.
g) Credit risk management - How Management address the risk that one party to a financial instrument will cause a financial loss for the other party by
failing to discharge an obligation.
h) Sensitivity analysis - How the income statement and balance sheet would have been affected by changes in commodity prices and exchange rates in
the reporting year.

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Notes to the consolidated
financial statements (continued)

21. Financial assets and liabilities and risk management (continued)

a) Classification, carrying amount and fair value of financial assets and liabilities

The following table shows the classification, carrying amount and fair value of the Group’s financial assets.

Level Classification

At 25 March
2018
Carrying Amount
£m

At 25 March
2018
Fair Value
£m

At 26 March
2017
Carrying Amount
£m

At 26 March
2017
Fair Value
£m

Financial assets
Cash
Cash equivalent investments

Money market funds
Short-term deposits – bank

Cash and cash equivalents
Pension escrow investments – money market funds
Derivative assets (current)
Derivative assets (non-current)
Total financial assets

2
2

Amortised cost
Amortised cost

Amortised cost

196
404
206
198
600
198
15
5
818

166
133
133
-
299
20
8
4
331

The following table shows the classification, carrying amount and fair value of the Group’s financial liabilities.

Level Classification

At 25 March
2018
Carrying Amount
£m

At 25 March
2018
Fair Value
£m

At 26 March
2017
Carrying Amount
£m

At 26 March
2017
Fair Value
£m

Financial liabilities
Syndicated bank loans (current loans and borrowings)
Loans in overseas subsidiaries (current loans and borrowings)
Obligations under finance leases (current)
€500 million bond
Loans in overseas subsidiaries (non-current loans and
borrowings)
Obligations under finance leases (non-current)
Derivative liabilities (current)
Derivative liabilities (non-current)
Total financial liabilities
Net total financial assets/(liabilities)

2
2

Amortised cost
Amortised cost
Amortised cost
Amortised cost

Amortised cost
Amortised cost

-
(1)
(59)
(435)

(1)
(110)
(3)
(4)
(613)
205

-
(1)
(59)
(474)

(1)
(116)
(3)
(4)
(658)
160

(32)
(1)
(64)
(430)

(130)
(9)
(2)
(668)
(337)

(32)
(1)
(64)
(464)

(137)
(9)
(2)
(709)
(378)

As a result of the early adoption of IFRS 9, money market funds, short term deposits and the pension escrow money market funds have been
classified as ‘Amortised cost’. They were previously classified as ‘Loans and receivables’. There was no change in their carrying or fair value
on transition.

The ‘Level’ classification in the above table is explained in the ‘Fair value measurement of financial instruments’ section of ‘Significant
accounting policies’.

The main purpose of these financial instruments is 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
considered further in this Note.

No speculative trading in financial instruments has been undertaken during the current or comparative reporting years, in line with
Group policy.

136

| Annual Report and Financial Statements 2017-18

Notes to the consolidated
financial statements (continued)

21. Financial assets and liabilities and risk management (continued)
b) Movement in liabilities arising from financing activities

The following table reconciles the opening and closing balances of liabilities arising from financing activities.

At 27 March 2017
Movements through income statement
Interest payable on financial liabilities
Movements through cash flow
Finance costs paid
Repayment of loans and borrowings
Payment of capital element of finance lease
contracts
Cash received on sale and leasebacks
Other movements
Non-cash increase in finance lease
Reclassification between categories
Effect of business combinations
Effect of foreign currency exchange rates
At 25 March 2018

Interest bearing loans
and borrowings
(current)
£m
(33)

Interest bearing loans
and borrowings (non-
current)
£m
(430)

Obligations under
finance leases
(current)
£m
(64)

Obligations under
finance leases (non-
current)
£m
(130)

(3)

3
32

-
-

-
(1)
(1)
2
(1)

(11)

11
-

-
-

-
1
(2)
(5)
(436)

-
-

63
-

-
(58)
-
-
(59)

(4)

4
-

-
(35)

(2)
58
-
(1)
(110)

Total
£m
(657)

(18)

18
32

63
(35)

(2)
-
(3)
(4)
(606)

c) Foreign currency risk management
Foreign currency transaction risk
UKPIL is exposed to foreign currency risk due to interest payments on the €500 million bond, certain obligations under Euro-denominated
finance leases, trading with overseas postal administrations and various purchase contracts denominated in foreign currency. GLS’ functional
currency is the Euro. It also has some exposure to non-Euro currencies, principally in emerging European markets, and to the US Dollar.

Where possible, exposures are netted internally. Any remaining exposure is hedged using a combination of external spot and forward
purchase and sale contracts. Hedging will not normally be considered for exposures of less than £1 million. Hedging is normally confined to
80 per cent of the forecast exposure, where forecast cash flows are highly probable.

The following table shows for each hedge programme, the risk and the percentage hedged of the next 12 months’ exposure:

Hedge programme
Capital programmes
Overseas postal administrations

Risk
€/£ exchange rate movements
SDR/£ exchange rate movements

Percentage of next 12 months’
exposure that has been hedged

At 25 March
2018
91%
21%

At 26 March
2017
96%
40%

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.

Foreign currency translational risk
The Group’s functional currency is Sterling (£). GLS Euro profits are converted at the average exchange rate for the year which can result in
reported growth or decline that does not relate to underlying performance. GLS’ balance sheet is converted at year end exchange rates and
movements related to foreign currency translation are taken to equity.

The €500 million bond issued in July 2014 acts as a hedge of part of the translation exposure created by the net assets of GLS. Royal Mail
also entered into €31 million of Euro-denominated finance leases during the year (2016-17: €30 million). This similarly acts as a hedge of
the net assets of GLS. The remaining net assets of GLS in excess of the bond and lease payables are not hedged. Foreign currency exchange
differences arising from the translation of the net assets of GLS, the €500 million bond and the Euro-denominated finance lease payables, at
closing Sterling/Euro exchange rates, are deferred into equity. These exchange differences would be released from equity to the income
statement as part of the gain or loss if GLS was sold. During the year, foreign currency exchange losses on the bond of £5 million
(2016-17: £38 million) and foreign exchange losses on the lease payables of £1 million (2016-17: £4 million) were deferred into equity.
There was no hedge ineffectiveness in the current or prior reporting years.

Annual Report and Financial Statements 2017-18

| 137

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Royal Mail plc

Notes to the consolidated
financial statements (continued)

21. Financial assets and liabilities and risk management (continued)

The net total financial assets and liabilities are held in various different currencies as summarised in the table below. The majority of the
non-Sterling financial assets and liabilities (other than the €500 million bond and €78 million of finance leases) are held within cash or
derivatives.

Net total financial assets/(liabilities) at 25 March 2018
Net total financial assets /(liabilities) at 26 March 2017

Sterling
£m
521
27

US$
£m
19
(21)

Euro
£m
(381)
(385)

Other
£m
46
42

Total
£m
205
(337)

d) Commodity price risk management
UKPIL 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 forward commodity price swaps
in US Dollar or Sterling and forward currency purchase contracts to manage these exposures.

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 price
contracts with suppliers and using forward commodity price swaps in Sterling.

As the GLS business relies on the use of subcontractors, responsible for purchasing their own fuel, GLS has no direct exposure to diesel
costs. The only other significant commodity exposure within GLS is electricity, which is fragmented across its European bases. In view of the
other highly hedged positions, the Group takes the view that the unhedged exposure arising from the commodities in GLS does not add
significant risk to the Group.

e) Interest rate risk management
The Group’s policy is to manage its net interest expense using an appropriate mix of fixed and floating rate financial instruments, combined
with external hedging of interest rate risk, as appropriate, to keep a high percentage of its gross debt fixed. At 25 March 2018, there was no
external hedge of interest rate risk (2016-17: none). Interest on financial instruments classified as floating rate is re-priced at intervals of
less than one year. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument.
The analysis below sets out the carrying amount of the Group’s financial instruments that are exposed to interest rate risk.

Average
effective
interest
rate
%

0.6

1.4
2.5
2.7

0.2
0.4
0.5

0.4

At 25 March 2018

Within
1 year
£m

1-2 years
£m

2-5 years
£m

More than
5 years
£m

Total
£m

(1)
-
(59)
10

73
206
128

-
407

123
15
(3)
135
615
(63)
552

(1)
-
(27)
(28)

-
-
-

-
-

-
4
(4)
-
4
(32)
(28)

-
-
(69)
(69)

-
-
-

-
-

-
1
-
1
1
(69)
(68)

-
(435)
(14)
(449)

-
-
-

198
198

-
-
-
-
198
(449)
(251)

(2)
(435)
(169)
(536)

73
206
128

198
605

123
20
(7)
136
818
(613)
205

Fixed rate
Cash equivalent investments – bank deposits
Financial liabilities

Loans in overseas subsidiaries
€500 million bond
Obligations under finance leases

Total
Floating rate
Cash at bank
Cash equivalent investments – money market funds
Cash equivalent investments – bank deposits
Financial assets

Pension escrow investments – money market funds (non-current)

Total
Non-interest bearing
Cash at bank or in hand
Derivative assets
Derivative liabilities
Total
Total financial assets
Total financial liabilities
Net total financial assets/(liabilities)

138

| Annual Report and Financial Statements 2017-18

Notes to the consolidated
financial statements (continued)

21. Financial assets and liabilities and risk management (continued)

Fixed rate
Financial liabilities

Syndicated bank loans
Loans in overseas subsidiaries
€500 million bond
Obligations under finance leases

Total
Floating rate
Cash at bank
Cash equivalent investments – money market funds
Financial assets

RMSEPP pension escrow – money market funds (non-current)

Total
Non-interest bearing
Cash at bank or in hand
Derivative assets
Derivative liabilities
Total
Total financial assets
Total financial liabilities
Net total financial assets/(liabilities)

Average
effective
interest
rate
%

1.3
2.0
2.5
2.8

0.2
0.4

0.3

At 26 March 2017

Within
1 year
£m

1-2 years
£m

2-5 years
£m

More than
5 years
£m

(32)
(1)
-
(64)
(97)

78
133

-
211

88
8
(9)
87
307
(106)
201

-
-
-
(55)
(55)

-
-

20
20

-
4
(1)
3
24
(56)
(32)

-
-
-
(63)
(63)

-
-

-
-
(1)
(1)
-
(64)
(64)

-
-
(430)
(12)
(442)

-
-

-
-
-
-
-
(442)
(442)

Total
£m

(32)
(1)
(430)
(194)
(657)

78
133

20
231

88
12
(11)
89
331
(668)
(337)

Drawings under the syndicated bank loan facilities are at fixed rate to maturity (which must be 6 months or less). There are no balances
outstanding at 25 March 2018 (2016-17: £32 million). The total interest-bearing financial assets of the Group (excluding the RMPP and
RMSEPP pension escrow investments) of £477 million (2016-17: £211 million), which consist of the fixed and floating rate cash and cash
equivalent investments, plus current financial asset investments, are at short-dated fixed or variable interest rates with an average maturity
of four days (2016-17: an average maturity of one day). These short-dated financial instruments are maturity-managed to obtain the best
value out of the interest yield curve.

Obligations under finance leases are either unsecured or secured on the leased assets. The average interest rate is 2.7 per cent (2016-17:
2.8 per cent). The average maturity date is more than five years (2016-17: more than five years).

The RMPP pension escrow investment of £178 million (2016-17: £nil million) represents a money market fund investment, established with
the agreement of the Pension Trustee for the benefit of members.

The RMSEPP pension escrow investment of £20 million (2016-17: £20 million) represents a money market fund investment established to
provide security to the Royal Mail Senior Executives Pension Plan (RMSEPP), in support of a deficit recovery plan agreed with the Trustee in
June 2013 and updated in 2018. The next scheduled review point in the agreement is in 2025 and the investment is therefore disclosed as
maturing in more than five years.

f) Liquidity risk management
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. Borrowing facilities are regularly reviewed to
ensure continuity of funding. The unused facilities for the Group of £1,050 million expire in 2020-22 (2016-17: £1,018 million expiring
in 2020-22).

Below is a summary of the gross (undiscounted) contractual cash flows of the Group’s financial liabilities. The cash flows for the €500 million
bond and Euro-denominated finance leases represent the undiscounted total amounts payable (interest and nominal repayment) which have
been converted to Sterling at 25 March 2018 market forward exchange rates. For derivatives that are settled gross, these cash flows
represent the undiscounted gross payment due and do not reflect the accompanying inflow. For derivatives that are settled net, these cash
flows represent the undiscounted forecast outflow.

Annual Report and Financial Statements 2017-18

| 139

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Royal Mail plc

Notes to the consolidated
financial statements (continued)

21. Financial assets and liabilities and risk management (continued)

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
Less exchange rate adjustment
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

Total
Less interest
Less exchange rate adjustment
Net total

At 25 March 2018

Gross
loans and
borrowings
commitments
£m

Gross
finance lease
instalments
£m

Gross
payments on
derivatives
settled gross
£m

Gross
payments on
derivatives
settled net
£m

Sub-total
£m

11
537
11
34
492

548
(76)
(35)
437

62
231
32
77
122

293
(122)
(2)
169

73
768
43
111
614

841
(198)
(37)
606

91
-
-
-
-

91
n/a
n/a
n/a

3
4
4
-
-

7
n/a
n/a
n/a

At 26 March 2017

Gross
loans and
borrowings
commitments
£m

Gross
finance lease
instalments
£m

Gross
payments on
derivatives
settled gross
£m

Gross
payments on
derivatives
settled net
£m

Sub-total
£m

43
535
11
32
492

578
(85)
(30)
463

67
235
59
70
106

302
(107)
(1)
194

110
770
70
102
598

880
(192)
(31)
657

94
-
-
-
-

94
n/a
n/a
n/a

6
2
1
1
-

8
n/a
n/a
n/a

Total
£m

167
772
47
111
614

939
n/a
n/a
n/a

Total
£m

210
772
71
103
598

982
n/a
n/a
n/a

g) Credit risk management
The level of credit granted to customers is based on a customer’s risk profile, assessed by an independent credit referencing agent.
The credit policy is applied rigidly within the regulated products area to ensure that UKPIL is not in breach of compliance legislation.
Assessment of credit for non-regulated products is based on commercial factors, commensurate with the Group’s appetite for risk. An
analysis of aged debt is included within Note 17.

The Group’s exposure to credit risk from other financial assets arises from default of the counterparty, with a maximum exposure equal to
the carrying amount of these instruments. At 25 March 2018, 73 per cent of financial assets (2016-17: 95 per cent) were held with AA or
above rated counterparties.

GLS operates a decentralised credit management model, with each country responsible for managing the credit risk associated with its
customers. Where appropriate, external credit checks are performed for new and existing customers, taking into account the customer
profile, expected volume of business and consequent risk to the respective GLS companies.

None of the financial assets is either past due or considered to be impaired.

h) Sensitivity analysis
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 2017-18 operating profit risk from interest rate risk or commodity price risk (2016-17: £nil million
risk). Further details of the Group’s exposure to commodity price risk can be found in the Financial Review.

The Group has an exposure to the exchange rate risk on translating the GLS profits; on trading with overseas postal administrations; on
various purchase contracts and on the interest on the €500 million bond and Euro-denominated finance leases. The impact of a ten per
cent strengthening of Sterling across all currencies on forecast profits/trade during 2017-18 would be to reduce the Group operating
profit by £3 million (2016-17: £4 million). However, changes in exchange rates could also cause other impacts on operating profit
including a change in import/export volumes.

140

| Annual Report and Financial Statements 2017-18

Notes to the consolidated
financial statements (continued)

21. Financial assets and liabilities and risk management (continued)
The Group has an exposure to the exchange rate risk on translating the GLS net assets into Sterling on consolidation. This is partially
offset by an exposure on translating the €500 million bond and Euro-denominated finance leases into Sterling at each balance sheet date.
The impact of a ten per cent strengthening of Sterling against all currencies at 25 March 2018 would have been to reduce the Group net
assets by £24 million (2016-17: £19 million).

22. Provisions
This Note provides an analysis of the Group’s constructive or legal obligations, resulting from a past event, that have been provided
for in the financial statements.

At 27 March 2017
Arising during the year:
Charged in transformation costs and operating specific items
Released in operating specific items
Charged in other operating costs
Unused amounts released
Utilised in the year
Foreign exchange rate adjustment
Unwinding of discount – industrial diseases claims
At 25 March 2018

Disclosed as:
Current
Non-current
At 25 March 2018
Disclosed as:
Current
Non-current
At 26 March 2017

Transformation
costs
£m
(13)

Specific
items
£m
(113)

(44)
-
-
-
56
-
-
(1)

(1)
-
(1)

(13)
-
(13)

(6)
8
-
-
6
1
(2)
(106)

(13)
(93)
(106)

(21)
(92)
(113)

Other
£m
(70)

-
-
(27)
15
27
-
-
(55)

(45)
(10)
(55)

(54)
(16)
(70)

Transformation costs
Transformation costs provisions comprise £1 million (2016-17: £13 million) in respect of redundancy schemes.

Specific items and Other provisions
Below is a summary of the ageing profile of Specific items and Other provisions.

At 25 March 2018

Expected period of settlement

Within one
year
£m

One to two
years
£m

Two to
five years
£m

After five
years
£m

(3)
-
(5)
-
(5)
(13)

(12)
(31)
-
-
(2)
(45)

(3)
(5)
(1)
-
-
(9)

-
-
(2)
-
(2)
(4)

(3)
-
-
(1)
-
(4)

(5)
(1)
-
-
-
(6)

(74)
-
-
(6)
-
(80)

-
-
-
-
-
-

Total
£m

(83)

(5)
(6)
(7)
(5)
(106)

(17)
(32)
(2)
-
(4)
(55)

Within one
year
£m

(3)
(4)
(11)
-
(3)
(21)

(15)
(36)
-
(1)
(2)
(54)

Specific items

Industrial diseases claims
German property tax
Employee Free Shares - NI
Legacy property costs
Other

Total
Other

Property onerous lease and
decommissioning obligations
Litigation claims
LTIP – NI
Operational transformation
Other

Total

At 26 March 2017

Expected period of settlement
After five
years
£m

Two to five
years
£m

One to two
years
£m

(3)
-
-
-
-
(3)

-
(2)
-
-
(4)
(6)

(3)
-
(2)
(1)
-
(6)

(6)
(2)
(2)
-
-
(10)

(75)
-
-
(8)
-
(83)

-
-
-
-
-
-

Total
£m
(196)

(50)
8
(27)
15
89
1
(2)
(162)

(59)
(103)
(162)

(88)
(108)
(196)

Total
£m

(84)
(4)
(13)
(9)
(3)
(113)

(21)
(40)
(2)
(1)
(6)
(70)

Annual Report and Financial Statements 2017-18

| 141

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Royal Mail plc

Notes to the consolidated
financial statements (continued)

22. Provisions (continued)
The potential liability for industrial diseases claims relating to both current and former employees of the Group arose in 2010 as a result of a
Court of Appeal judgement 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 actuarial adviser, 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.

23. Share capital and reserves
This Note details the number of shares Royal Mail plc has issued, and any special features of the issued shares. A description of certain
reserves that form part of total equity is also included.

Authorised and issued
1,000,000,000 ordinary shares of £0.01 each
Total

At 25 March
2018
£m
10
10

At 26 March
2017
£m
10
10

Of the issued ordinary shares, a total of 513,230 (2016-17: 9,582,175) are held by an Employee Benefit Trust (EBT) administered by Sanne
Fiduciary Services Limited. These shares are treated as treasury shares for accounting purposes in accordance with IAS 32 ‘Financial
Instruments: Presentation’. The Company, however, does not hold any shares in treasury. The EBT is funded by the Company and has been
consolidated within these financial statements.

Reserves included in the consolidated statement of changes in equity
Foreign currency translation reserve
The ‘Foreign currency translation reserve’ is used to record the gains and losses arising since 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 since 28 March 2005 from cash flow hedges.

24. 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 leased assets lie with the Group.

Operating lease commitments
The Group is committed to the following future minimum lease payments under non-cancellable operating leases:

Within one year
Between one and five years
Beyond five years
Total

Land and buildings

Vehicles and equipment

IT equipment

Total

At 25 March
2018
£m
(135)
(395)
(457)
(987)

At 26 March
2017
£m
(130)
(369)
(445)
(944)

At 25 March
2018
£m
(23)
(64)
(15)
(102)

At 26 March
2017
£m
(21)
(61)
(26)
(108)

At 25 March
2018
£m
(4)
(5)
-
(9)

At 26 March
2017
£m
(5)
(10)
-
(15)

At 25 March
2018
£m
(162)
(464)
(472)
(1,098)

At 26 March
2017
£m
(156)
(440)
(471)
(1,067)

Existing leases for UK land and buildings have an average term of 17 years and lease renewals are agreed with the lessor as appropriate. Existing
land and buildings leased overseas by the GLS subsidiary have an average lease term of 10 years. Vehicle leases generally have a term of between
one and seven years, depending on the asset class, with the average term being six years. The existing leases have an average term remaining of five
years. The majority of the IT commitments relate to three contracts, with an average term remaining of two years.

142

| Annual Report and Financial Statements 2017-18

Notes to the consolidated
financial statements (continued)

24. Commitments (continued)
Finance lease commitments

Within one year
Between one and five years
Beyond five years
Total minimum lease payments
Less future finance charges
Less exchange rate impact
Total

At 25 March 2018

At 26 March 2017

Minimum
lease
payments
£m
(62)
(109)
(122)
(293)
122
2
(169)

Present value of
minimum lease
payments
£m
(59)
(96)
(14)
(169)
-
-
(169)

Minimum
lease
payments
£m
(67)
(129)
(106)
(302)
107
1
(194)

Present value of
minimum lease
payments
£m
(64)
(118)
(12)
(194)
-
-
(194)

The Group has finance lease contracts for vehicles, land and buildings and plant and equipment. The leases have no terms of renewal,
purchase options, escalation clauses or restrictions concerning dividends, borrowings or additional leases. Vehicle leases have a term of
between one and five years, depending on the class of vehicle, with the average term being three years. Property leases have a term of
between nine and 109 years with the average term being 48 years. The terms 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 £62 million (2016-17: £27 million) for property, plant and equipment, £14 million (2016-17: £16 million) for
vehicles and £11 million (2016-17: £4 million) for intangible assets, which are contracted for but not provided for in the financial statements.

25. Contingent liabilities
Contingent liabilities are possible obligations depending on the outcome of uncertain future events, or present obligations where
outflows of resources are not certain or cannot be measured reliably. This disclosure has been included on the basis that the Group may
be subject to a financial penalty, dependent on a future Ofcom decision.

On 28 July 2015, the Group received a Statement of Objections setting out Ofcom's provisional, preliminary findings of anti-competitive conduct in
relation to certain Contract Change Notices issued by the Group in January 2014. Ofcom’s investigation was launched in February 2014 following a
complaint brought by TNT Post UK (now Whistl).

The Group has robustly defended its conduct in written and oral representations made to Ofcom and continues to defend itself.

In its annual concurrency report published on 30 April the Competition and Markets Authority stated that Ofcom expects to make a decision in this
case before Summer 2018. However, Ofcom has not published a formal timetable (or provided any such timetable to Royal Mail).

The Group continues to maintain that it has not infringed competition law and its representations to Ofcom have been made on that basis.

26. Related party information
This Note provides details of amounts owed to and from related parties, which include 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 reporting year the Group entered into transactions with related parties as follows:

Sales/recharges to:

RMPP (administration and investment service recharge)

Purchases/recharges from:

Associate undertaking (Quadrant Catering Limited)

Amounts owed to:

Associate undertaking (Quadrant Catering Limited)

52 weeks
2018
£m

52 weeks
2017
£m

(7)

(1)

(8)

(1)

Annual Report and Financial Statements 2017-18

| 143

Strategic report | Governance | Financial statements | Other information

Royal Mail plc

Notes to the consolidated
financial statements (continued)

26. Related party information (continued)
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.

Key management compensation

Short-term employee benefits
Post-employment benefits
Other long-term benefits
Share-based payments
Total

52 weeks
2018
£000
(14,592)
(70)
(551)
(3,679)
(18,892)

52 weeks
2017
£000
(11,174)
(44)
(734)
(4,102)
(16,054)

In July 2017, the Group made a payment of €6.6 million to Mr Rico Back as consideration for the termination of his contract of employment
(and all rights and obligations contained within it) with GLS and its replacement with a new GLS contract. The original contract dated back to
2000 when the Post Office, then in State ownership, acquired German Parcel. It gave Mr Back certain management control rights relating to
the governance of what subsequently became GLS, in order to retain its entrepreneurial focus. They included right of veto on decisions and
membership of GLS’ management board. In addition, Mr Back was only required to give the Company three months’ notice and there were
substantial payments for termination of his employment in certain circumstances. This arrangement was rooted in the fact that Mr Back was
a shareholder in German Parcel, and its Managing Director, at the time of its acquisition by the Post Office. The Board came to the conclusion
that some of the provisions of the original contract were increasingly inappropriate and needed to be removed. The growing importance of
GLS for Royal Mail Group and our greater investment to accelerate its growth makes it important that it is integrated more closely with the
rest of the Group, while maintaining its overall entrepreneurial focus and ethos. In addition, as part of the buyout, Mr Back’s fixed pay was
rebased downwards.

Key management are considered to be the Executive and Non-Executive Directors of Royal Mail plc, all other members of the Chief
Executive’s Committee (see page 62) and the remainder of the Persons Discharging Managerial Responsibilities.

The ultimate parent and principal subsidiaries
Royal Mail plc is the ultimate parent Company of the Group. The consolidated financial statements include the financial results of Royal Mail Group
Limited and the other principal subsidiaries listed below. The reporting year end for these entities is 25 March 2018 unless otherwise indicated.

Company
General Logistics Systems B.V.1
Royal Mail Estates Limited
Royal Mail Investments Limited
RM Property and Facilities Solutions Limited
(formerly Romec Limited)

Principal activities
Parcel services holding company
Property holdings
Holding company

Country of incorporation
Netherlands
United Kingdom
United Kingdom

% equity
interest
2018
100
100
100

% equity
interest
2017
100
100
100

Facilities management

United Kingdom

100

The Company has complied with section 410 of the Companies Act 2006 by including, in these financial statements, a schedule of interests in
all undertakings (see Note 27).

1 GLS’ reporting year end date is 31 March each year. No adjustment is made in the financial statements in this regard on the basis that, irrespective of the Group’s reporting year
end date (last Sunday in March) a full year of GLS results is consolidated into the Group.

144

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Notes to the consolidated
financial statements (continued)

27. Related undertakings of Royal Mail plc
This Note provides a full list of the related undertakings of Royal Mail plc in line with Companies Act requirements.

In accordance with Section 409 of the Companies Act 2006 a full list of related undertakings, the country of incorporation, registered office
address and the effective percentage of equity owned, as at 25 March 2018 is disclosed below. Unless otherwise stated, the share capital
disclosed comprises ordinary or common shares which are held by subsidiaries of Royal Mail plc Group.

Subsidiary undertakings included in the consolidation

Share Class

% held by Group

Company Name
Austria
Traunuferstrasse 105A, A-4052 Ansfelden, Austria
General Logistics Systems Austria GmbH
Belgium
Humaniteitslaan 233, 1620 Drogenbos, Belgium
General Logistics Systems Belgium N.V.
GLS Belgium Distribution S.A/N.V.
China
Suite 966, 9F, No.2 bldg, China Central Place, No.79, Jian Guo Rd, Chao Yang District, Beijing
EBP Consultancy (Beijing) Co. Ltd1
Croatia
10360 Popovec, Varazdinska ulica 116, Croatia
General Logistics Systems Croatia D.O.O
Czech Republic
Prumyslova 5619/1, 58601 Jihlava, Czech Republic
General Logistics Systems Czech Republic S.R.O

Denmark
Kokmose 3, 6000 Kolding, Denmark
General Logistics Systems Denmark A/S
Kokholm 13, 6000 Kolding, Denmark
General Logistics Systems Express A/S
Finland
Rydöntie 22, 20360 Turku, Finland
General Logistics Systems Finland 0y
France
14 Rue Michel Labrousse, CS 93730, 31037 Toulouse Cedex 01, France
General Logistics Systems France S.A.S
GLS Invest France S.A.S

1 100% of the equity contribution. No shares are issued by EBP.

100.000

€1,090,092.51 Ordinary shares

€100.00 Ordinary shares
€4.27 Ordinary shares

HRK760,000.00 Ordinary shares

CZK2,970,000.00 Ordinary shares
CZK30,000.00 Ordinary shares

DKK100.00 Ordinary shares

DKK1,000.00 Ordinary shares

100.000

100.000
100.000

100.000

100.000
100.000

100.000

€50.00 Ordinary shares

100.000

€50.00 Ordinary shares
€21.00 Ordinary shares

100.000
100.000

Annual Report and Financial Statements 2017-18

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Royal Mail plc

Notes to the consolidated
financial statements (continued)

27. Related undertakings of Royal Mail plc (continued)

Company Name
Germany

Share Class

% held by Group

£1.00 Ordinary shares

100.000

€25,000.00 Ordinary shares
€2,561,572.32 Cash contribution

€178,249,643.37 Cash contribution
€127,822.97 Ordinary shares
€7,720,507.41 Ordinary shares
€153,387.56 Ordinary shares

€25,564.59 Ordinary shares

HUF30,000,000.00 Ordinary shares

€1.2697 Ordinary shares
€1.00 Ordinary shares
€1.00 Redeemable Preference shares
US$1.00 Ordinary shares
US$1.00 Redeemable Preference shares

€10,000.00 Ordinary shares
€1,011,000.00 Ordinary shares
€0.52 Ordinary shares
€255.00 Ordinary shares

100.000
100.000

100.000
100.000
100.000
100.000

100.000

100.000
100.000
100.000
100.000
-

100.000
100.000
100.000
81.667

€100.00 Ordinary shares

€50.00 Ordinary shares
€0.50 Ordinary shares
€50.00 Ordinary shares

100.000

100.000
100.000
100.000

PLN1.721 Ordinary shares

100.000

Doerrwiese 2, 36286 Neuenstein, Germany
Der Kurier Beteiligungsgesellschaft mbH
Der Kurier GmbH & Co. KG
GLS Germany-Str. 1-7, 36286 Neuenstein, Germany
General Logistics Systems Germany GmbH & Co. OHG
GLS IT Services GmbH
GLS Beteiligungs GmbH
GLS Verwaltungs-und Service GmbH
Pinkertweg 49, 22113 Hamburg, Germany
Overnight Services GmbH Vermittlung Ueberregionaler Kurierdienste
Guernsey
PO BOX 160, Dixcart House, St Peter Port, GY1 4EY, Guernsey
Postcap (Guernsey) Limited
Hungary
GLS Europa utca 2, 2351 Alsonemedi, Hungary
GLS General Logistics Systems Hungary Kft.
Ireland
Unit 1 Stadium Business Park, Ballycoolin Road, Ballycoolin, Dublin, D11 DK24, Ireland
General Logistics Systems Ireland Limited
RM Financing Operations Limited

RMF Operations Designated Activity Company

Italy
Via Basento No. 19, 20098 San Giuliano Milanese, Italy
Agone S.R.L
General Logistics Systems Enterprise S.R.L
General Logistics Systems Italy S.P.A.
Gruppo Executive Societa Consortile a.R.L
Luxembourg
Avenue de Luxembourg, 2 a 4950 Bascharage
General Logistics Systems Belgium S.A. Succursale de Luxembourg2
Netherlands
Breguetlaan 28-30, 1438 BC Oude Meer, Netherlands
General Logistics Systems B.V.
Proostwetering 40, 3543 AG Utrecht, Netherlands
General Logistics Systems Netherlands B.V.
GLS Netherlands Holding B.V.
GLS Netherlands Services B.V.
Poland
UL. Teczowa 10, Gluchowo, 62-052 Komorniki, Poland
General Logistics Systems Poland Spolka Z.O.O.

2 Branch of GLS Belgium. No shares are issued or held.

146

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Notes to the consolidated
financial statements (continued)

27. Related undertakings of Royal Mail plc (continued)

Share Class

€200,000.00 Ordinary shares

RON4,000.00 Ordinary shares

€99,600.00 Ordinary shares

€751,127.00 Ordinary shares

Company Name
Portugal
Rua da Bica, No. 10, 2669-608 Venda do Pinheiro, Portugal
General Logistics Systems Portugal Lda
Romania
106, Str. Dorobantilor, 550231 Sibiu, Romania
GLS General Logistics Systems Romania Srl
Slovakia
Lieskovska cesta 13, 96221 Lieskovec, Slovakia
GLS General Logistics Systems Slovakia S.R.O.
Slovenia
Cesta v Prod 84, 1000 Ljubljana, Slovenia
General Logistics Systems D.O.O.
Spain
Avenida Fuentemar 18, 28823 Coslada, Madrid, Spain
General Logistics Systems Spain S.A
Pologono Industrial Cabezo Cortado calle Practicante Pedro Pardo, no. 2 31.010 Espinardo (Murcia), Spain
Redyser Transporte, S.L
Cargociclos Barcelona, S.L
Phonored Soluciones, S.L
United Kingdom
100 Victoria Embankment, London, EC4Y 0HQ, United Kingdom
Angard Staffing Solutions Limited
Community Couriers Ltd3
Consignia (Customer Management) Limited3
Consignia Limited3
DGMH Clayton Limited3
Envision Licensing Limited3

Intersoft Systems & Programming Limited
IRED Partnership Limited3
Nine Elms Parkside Estate Management Limited
Parcelforce Limited
Phatware Limited3
POSG Limited3
Revisecatch Limited
RM (International) Limited
Royal Mail Courier Services Ltd
Royal Mail Enterprises Limited
Royal Mail Estates Limited
Royal Mail Finance (No2) Limited3
Royal Mail Finance Limited3
Royal Mail Group Limited
Royal Mail Innovations Limited
Royal Mail Investments Limited
Senditnow Limited3
Storefeeder Ltd
Viacode Limited3
Century House, 19 High Street, Marlow, Buckinghamshire, SL7 1AU, United Kingdom
NetDespatch Ltd

3 In liquidation

% held by Group

100.000

100.000
100.000
100.000

100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000

61.000
14.377

€ 9,758,136 Share capital

€207,585 Share capital
€43,832 Share capital
€3,020 Share capital

£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary-A shares
£1.00 Ordinary-B shares
£1.00 Ordinary-C shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£0.01 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares
£1.00 Ordinary shares

£0.001 Ordinary-A shares
£0.001 Ordinary-B shares

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Royal Mail plc

Notes to the consolidated
financial statements (continued)

27. Related undertakings of Royal Mail plc (continued)

Company Name
Highbank House, Exchange Street, Stockport, Cheshire, SK3 0ET, United Kingdom
RM Property and Facilities Solutions Limited (formerly Romec Limited)

Share Class

% held by Group

Romec Enterprises Limited
11 Ironmonger Lane, London, EC2V 8EY, United Kingdom
Royal Mail Pensions Trustees Limited
USA
1679 S. Dupont Highway, Suite 100, Dover, Delaware 19901, USA

GLS U.S. Holding Inc.

GSO Delivery Inc.

7901 Stoneridge Drive, Suite 400, Pleasanton, CA 94588, USA
Golden State Overnight Delivery Services, Inc.
3400 Capital Blvd SE 101, Tumwater, WA 98501, USA
Postal Express, Inc.

Associates and joint venture undertakings

£1.00 Ordinary shares
£1.00 B shares
£1.00 C shares
£1.00 Ordinary shares

£1.00 Ordinary shares

1,000 Shares Common Stock, USD 0.001 par
value per share
1,000 Shares Common Stock, USD 0.001 par
value per share

1,000 Shares Common stock

428.57 Shares Common stock

98.040
0.980
0.980
100.000

100.000

100,000

100.000

Company Name

Share Class

% held by Group

Associates

Australia
Level 1, 60 Toorak Road, South Yarra, VIC 3141
Market Engine Global Pty Limited
United Kingdom
Hayweight House, 5th Floor, 23 Lauriston Street, Edinburgh, Scotland, EH3 9DQ, United Kingdom
Mallzee Ltd
Parklands Court, 24 Parklands, Birmingham Great Park, Rubery, Birmingham, West Midlands, B45 9PZ, United Kingdom
Quadrant Catering Limited

AUD1.00 Preference shares

£1.00 Ordinary-A shares

£0.01 Ordinary shares

34.474

21.050

51.000

Germany
Mittelweg 162, 20148 Hamburg, Germany
ParcelLock GmbH

Joint venture

€50,000.00 Ordinary shares

33.333

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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, including unrealised profits arising from intra-Group transactions, have been eliminated in full.
Transfer prices between business segments are set at arm’s length/fair value on the 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 interests 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 interests balance is presented within equity in the consolidated balance sheet, separately from
equity attributable to shareholders of the Company.

Changes in accounting policy and disclosures
The accounting policies applied in the preparation of these financial statements are consistent with those in the Annual Report and Financial
Statements for the year ended 26 March 2017, and the adoption of new and amended accounting standards with effect from
27 March 2017 as detailed below:

New and amended accounting standards adopted in 2017-18
IFRS 9 ‘Financial Instruments’ (early adoption)

IAS 7 (Amended) ‘Disclosure Initiative’

IAS 12 (Amended) ‘Recognition of Deferred Tax Assets for Unrealised Losses’

Annual improvements 2014-2016

The adoption of these amendments to the standards has not had a material impact on the financial performance or position of the Group.

The early adoption of IFRS 9 has been made in accordance with all transitional provisions and disclosure requirements of the standard.
The adoption of IFRS 9 has had no impact on the current or prior year financial statements or earnings per share. The principal impacts of
the new standard are a change in policy for the recognition of trade receivable bad debt provisions and a change in the way that financial
assets are classified. Further details of these changes can be found in the relevant policy sections.

Key sources of estimation uncertainty and critical accounting judgements
The preparation of consolidated financial statements necessarily requires Management to make certain estimates and judgements that can
have a significant impact on the financial statements. These estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The areas
involving a higher degree of judgement or complexity, or areas where there is thought to be a significant risk of a material adjustment to the
consolidated financial statements within the next financial year as a result of the estimation uncertainty are disclosed below.

Sources of estimation uncertainty

Pensions
The value of defined benefit pension plan liabilities and assessment of pension plan costs are determined by long-term actuarial assumptions.
These assumptions include discount rates (which are based on the long-term yield of high-quality corporate bonds), inflation rates 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 a qualified actuary.
Details of the key actuarial assumptions used and of the sensitivity of these assumptions for RMPP are included within Note 9.

Defined benefit pension plan assets are measured at fair value. Where these assets cannot be valued directly from quoted market prices, the Group
applies judgement in selecting an appropriate valuation method, after discussion with an expert fund manager. The assumptions used in valuing
unquoted investments are affected by current market conditions and trends, which could result in changes to the fair value after the measurement
date. Details of the carrying value of the unquoted pension plan asset classes can be found in Note 9.

Provisions
Due to the nature of provisions, a significant part of their determination is based upon estimates and/or judgements concerning the future.
The industrial diseases claims provision is considered to be the area where the application of judgement has the most significant impact.
The industrial diseases claims provision arose as a result of a Court of Appeals judgement in 2010 and relates to individuals who were
employed in the General Post Office Telecommunications division prior to October 1981.

The provision requires estimates to be made of the likely volume and cost of future claims, as well as the discount rate to be applied to these,
and is based on the best information available as at the year end, which incorporates independent expert actuarial advice. The result of a
0.5 per cent decrease in the discount rate estimate would be a £6 million increase in the overall industrial diseases provision. Any income
statement movements arising from changes in accounting estimates are disclosed as an operating specific item. The carrying value of this
provision is included within Note 22.

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Significant accounting policies (continued)

Critical accounting judgements

Deferred revenue
The Group recognises advance customer payments on its balance sheet, predominantly relating to stamps and meter credits purchased by
customers but not yet used at the balance sheet date (see Note 19). The valuation of this deferred revenue is based on a number of different
estimation and sampling methods using external specialist resource as appropriate.

The majority of this balance is made up of stamps sold to the general public. For sales to the general public, estimates of stamp volumes held
are made on the basis of monthly surveys performed by an independent third-party. In order to avoid over-estimation of the typical number
of stamps held, Management applies a cap to the results to exclude what are considered to be abnormal stamp holdings from the estimate.
The level at which holdings are capped is judgemental and is currently set at 99 of each class of stamp per household. The impact of applying
alternative capping values on the year end public stamp deferred revenue balance is shown in the table below.

Public stamp holdings value (£m)

At 25 March 2018

At 26 March 2017

Capped
As reported
99

179

184

154

152

300

188

200

Uncapped

188

216

The value of stamps and meter credits held by retail and business customers are more directly estimated through the analysis of sales
volumes and monthly meter sampling. Further adjustments are also made for each type of sale to take into account volume purchasing of
stamps when price changes are announced.

The results of the above procedures are reviewed by Management in order to make a judgement of the carrying amount of the accrual. The
total accrual is held within current trade and other payables but a portion (which cannot be measured) will relate to stamps and meter credits
used one year or more after the balance sheet date.

Allocation of costs for sale of Mount Pleasant
Contracts were exchanged on 30 August 2017 for the sale of 6.25 acres of Royal Mail’s Mount Pleasant site (comprising the Phoenix Place
and Calthorpe Street plots) for a total gross consideration of £193.5 million. The consideration is made up of £190 million in cash and the
fair value of the parking facilities provided to Royal Mail of £3.5 million. The sale of the Phoenix Place plot has been recognised in the current
accounting year whereas the sale of the Calthorpe Street site will be recognised upon completion of certain enabling works.

Management have applied judgement in allocating the transaction proceeds between the two plots on a different basis to the schedule of
cash receipts agreed with the purchaser. This is to more accurately reflect the commercial substance of the transaction, which is that some of
the proceeds of the Phoenix Place sale would be used to fund the Calthorpe Street enabling works. The allocation of total contract proceeds
has been carried out according to the relative fair value method described in IFRIC 15 ‘Agreements for the Construction of Real Estate’.
In applying this method proceeds which can be directly attributed to funding completion of the enabling works have been allocated to the
Calthorpe Street plot proceeds, with the remaining proceeds being allocated proportionately according to the final residential development
area of the two sites.

Revenue
Revenue recognised in the income statement is net of value added tax 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. Contracted services that have not
yet been rendered at the balance sheet date are designated as deferred income.

Revenue from direct sales of products or services is recognised when services are rendered, goods are delivered and the amount of revenue
that will flow to the Group can be measured reliably. Where payments are received for a service to be provided over a specified length of
time, payments received are recognised as deferred revenue and released to the income statement over the period that the service is
performed.

Revenue derived from Network Access agreements is recognised when the delivery of the related items is complete. Where products are sold
through third-party agents, but the responsibility to fulfil the service still lies with the Group, the revenue receivable is recognised gross with
any commission payments being charged to operating costs.

Revenue relating to public, retail and business stamp and meter sales is recognised when the sale is made, adjusted to reflect a value of
stamp and meter credits held but not used by the customer. Further details on this ‘deferred revenue’ adjustment are provided in the ‘Key
sources of estimation uncertainty and critical accounting judgements’ section above.

General Logistics Systems
Revenue is derived from specific contracts and is recognised when the delivery of an item is complete.

People costs
These are costs incurred in respect of the Group’s employees and comprise wages and salaries, pensions and social security costs.

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Significant accounting policies (continued)

Distribution and conveyance costs
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.

Infrastructure costs
These are costs primarily relating to the day-to-day operation of the delivery network and include depreciation/amortisation, IT and property
facilities management costs. These costs are disclosed separately on the face of the income statement.

Operating specific items
These are recurring or non-recurring items of income or expense of a particular size and/or nature relating to the operations of the business
that, in Management’s opinion, require separate identification. Management does not consider them to be reflective of year-on-year
operating performance. These include items that have resulted from events that are non-recurring in nature, even though related
income/expense can be recognised in subsequent periods.

Employee Free Shares charge
These relate to accounting charges arising from the granting of free shares to employees upon the Government’s sales of its stake in the
business (SIP 2013, 2014, 2015 and 2016) with no direct cash impact on the Group.

Amortisation of intangible assets in acquisitions
These notional charges, which arise as a direct consequence of IFRS business combination accounting requirements, are separately identified
as Management does not consider these costs to be directly related to the trading performance of the Group.

Legacy/other costs
These costs relate either to unavoidable ongoing costs arising from historic events (industrial diseases provision) or restructuring costs
(Romec integration).

Non-operating specific items
These are recurring or non-recurring items of income or expense of a particular size and/or nature which do not form part of the Group’s
trading activity and in Managements’ opinion require separate identification.

Share-based payments
The Group operates a number of equity-settled, share-based compensation schemes under which the Group receives services from employees as
consideration for equity instruments (shares) of the Company. These include the HMRC-approved (Employee Free Shares) Share Incentive Plan (SIP)
and the Save As You Earn (SAYE) scheme. Both schemes are based on non-market conditions and do not vest until the employee completes a
specific period of service. Share-based payments awarded as part of Long-Term Incentive Plans (LTIP) vest based on a combination of non-market
and market conditions. Share-based payments awarded as part of the Deferred Share Bonus Plan (DSBP) is a deferred share award, granted to
Executive Directors at the end of the annual performance period, the grant being of equal value to the Annual Bonus, and subject to
continued employment over a three year vesting period. The fair value of the employee services received in exchange for the grant of the shares is
recognised as an expense in the income statement, with a corresponding credit entry in equity, as per the requirements of IFRS 2 ‘Share-based
Payment’. The total amount expensed is determined by reference to the fair value of the equity instruments at the date on which they are granted.
The fair value of each award is measured with reference to the share price upon issue and using the Black-Scholes model where appropriate.

The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied.
No expense is recognised for awards that do not ultimately vest. At each balance sheet date before vesting, the cumulative expense is calculated,
representing the extent to which the vesting period has expired and Management’s best estimate of the achievement or otherwise of service
conditions and of the number of equity instruments that will ultimately vest. The movement in cumulative expense since the previous balance
sheet date is recognised in the income statement, with a corresponding entry in equity. The social security contributions payable in connection
with the grant of shares is considered an integral part of the grant itself, and the charge is treated as a cash-settled transaction.

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Royal Mail plc

Significant accounting policies (continued)

Income tax and deferred tax
The charge for current income tax is based on the results for the reporting year as adjusted for items that are non-assessable or disallowed.
It is calculated using rates that have been substantively enacted at the balance sheet date.

Deferred income tax assets and liabilities are recognised for all taxable and deductible temporary differences and unused tax assets and
losses except:

•

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 tax 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 tax assets is reviewed at each balance sheet date against internal forecasts of future profits against which
those assets may be utilised and increased or reduced to the extent that it is probable that sufficient taxable profit will be available to allow
them to be utilised.

Where tax returns remain subject to audit with the relevant tax authorities in the various jurisdictions in which the Group operates, a
provision is made for uncertain tax items where the agreed amount could differ materially from management’s estimates. Any such
provisions are included within the relevant current and deferred tax carrying amount.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the tax asset is realised or the
liability is settled, based on tax rates (and tax laws) that have been substantively enacted at the balance sheet date. Deferred tax balances are
not discounted.

Current and deferred tax is charged or credited directly to equity if they relate to items that are charged or credited directly to equity,
otherwise it is recognised in the income statement.

Where tax credits are claimed against eligible research and development costs, these amounts are credited against the relevant expense or
capitalised asset to match the accounting treatment applied to the original expenditure.

Earnings per share (EPS)
Basic earnings per share (EPS) from continuing operations is calculated by dividing the profit/loss from continuing operations (adjusted for
the non-controlling interests’ share of profit) by the weighted average number of ordinary shares in issue. The total Group EPS is calculated
in the same way, except that it also includes profit/loss from discontinued operations.

Diluted EPS is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all
potentially dilutive ordinary shares arising from share-based payment schemes. These potential shares are treated as dilutive only when their
conversion to ordinary shares would decrease EPS from continuing operations.

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 an operating unit that offers different products and serves largely different markets.

The Board monitors the operating results of its main operating units separately for the purpose of making decisions about resource allocation
and performance assessment. Segment performance is evaluated based on operating profit before and after transformation costs.

Operating segments are made up of business units based in the UK, other parts of Europe and the United States with the latter two being
relevant to the GLS operations. The UK operating segment comprises the various business units which make up UKPIL. There is no
aggregation of operating segments.

Segment revenues have been attributed to the respective countries based on the primary location of the service performed. Transfer prices
between segments are set at arm’s length/fair value on the basis of charges reached through negotiation between the relevant 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 IFRS.

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Significant accounting policies (continued)

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 cost, the 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
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

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or
disposal. Any gain or loss arising at derecognition of the asset (calculated as the difference between the net disposal proceeds and the
carrying amount of the asset) is included in the income statement in the year that the asset is derecognised. Gains or losses from the disposal
of assets are recognised in the income statement at the point that all significant risks and rewards of ownership are transferred.

All subsequent expenditure on property, plant and equipment is capitalised if it meets the recognition criteria, and the carrying amount of
those parts replaced is derecognised. All other expenditure including repairs and maintenance expenditure is recognised in the income
statement as incurred.

Business combinations and goodwill
Business combinations 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.
For the purpose of such impairment reviews, goodwill is allocated to the relevant cash-generating units (CGUs), or groups of CGUs, which are
expected to benefit from synergies of the combination.

A goodwill impairment loss is recognised in the income statement for the amount by which the carrying value of the related CGU, or group of
CGUs, exceeds the recoverable amount, which is the higher of a CGU’s net realisable value and its value in use.

Goodwill arising on the acquisition of equity accounted entities is included in the cost of those entities and therefore not reported on 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 a finite useful life, with key strategic assets generally having the longest lives. Those with a finite
life are amortised over their useful life, but 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 intangible 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
Brands

3 to 10 years
3 to 10 years
1 to 3 years

Investment in associates
The Group’s investments in its associate companies are accounted for under the equity method of accounting. Under the equity method, an
investment is carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of the net assets of the associate, less
any impairment in value. The income statement reflects the Group’s share of annual post-tax profits from the associates (netted off other
operating costs as the values are not material enough for separate disclosure).

Any goodwill arising on acquisition of an associate, representing the excess of the cost of the investment compared with 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.

Borrowing costs
Interest on borrowings related to the construction or development of qualifying assets is capitalised, until such time as the assets are substantially ready
for their intended use. Borrowing costs capitalised are deducted in determining taxable profit in the reporting year in which they are incurred.

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Significant accounting policies (continued)

Non-current assets held for sale and discontinued operations
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. Following their classification as held for sale, the assets (including those in a disposal
group) cease to be depreciated.

A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of
operations, that has been disposed of, or that meets the criteria to be classified as held for sale. Discontinued operations are presented in the
consolidated statement of comprehensive income as a single line which comprises the post-tax profit or loss of the discontinued operation up
to the date of disposal, and any post-tax gain or loss recognised on any remeasurement of the disposal group to fair value less costs to sell,
or on the disposal of the assets or disposal groups constituting discontinued operations.

Impairment reviews
Unless otherwise disclosed in these accounting policies, assets and cash-generating units 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 is recognised as a reduction of
rental expense over the lease term on a straight-line basis.

In addition to lease contracts, other significant arrangements or contracts are assessed (by reference to IFRIC 4) to determine whether, in
substance, they are, or contain, a lease. This assessment is based on the substance of the arrangement at inception date, including whether
the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.

Trade receivables
Trade receivables are recognised and carried at the original invoice amount less an allowance for any non-collectable amounts. This
allowance is calculated by first creating an allowance for identified trade receivables where collection of the full amount is no longer probable
and then applying lifetime expected credit loss (ECL) rates to the remaining unprovided balance. ECL rates have been set by ageing category
based on historic loss rates with adjustments made to reflect forward-looking information where material. Movements in the loss allowance
are recognised in the income statement within other operating costs. At the point that a debt is considered unrecoverable, it is written off
against the allowance for trade receivables. Subsequent recoveries of amounts previously written off are credited against other operating
costs in the income statement.

Inventories
Inventories are valued on a weighted average cost basis and carried at the lower of cost and net realisable value. Cost includes all direct
expenditure and other costs attributable in bringing inventories to their present location and condition. The principal stock balance relates to
engineering spare parts.

Trade payables
Trade payables are recorded initially at fair value and subsequently measured at amortised cost. Generally this results in their recognition at
their nominal value.

Capital management
The Group has established four key objectives for capital management. Details of these can be seen in the Financial Review on page 31.

Financial instruments
Financial assets within the scope of IFRS 9 ‘Financial Instruments’ are classified as financial assets at: fair value through the profit and loss
(FVTPL) if they are not part of an effective hedge designation (held for trading); amortised cost: or fair value through other comprehensive
income (FVOCI) as appropriate. Financial liabilities within the scope of IFRS 9 are classified as either financial liabilities at FVTPL 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 reporting
date. 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 FVTPL, any directly attributable transactional costs. The Group only has financial assets and liabilities measured
at amortised cost and derivative assets and liabilities measured at FVTPL if they are not part of an effective hedge designation.

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Significant accounting policies (continued)

The subsequent measurement of financial instruments depends on their classification as follows:

Financial assets measured at amortised cost
Non-derivative financial assets which are held for the purpose of collecting contractual cash flows, including interest, are classified as financial
assets measured at amortised cost. These assets are carried at amortised cost with finance income recognised in the income statement using
the effective interest rate method. Any gains or losses are recognised in the income statement when the assets are derecognised or impaired.

Financial liabilities measured at amortised cost
All non-derivative financial liabilities are classified as financial liabilities measured at amortised cost. These liabilities are measured at
amortised cost with finance costs recognised in the income statement using the effective interest method. Any gains or losses are recognised
in the income statement when the liabilities are derecognised or impaired.

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 financial assets at amortised cost.

Financial assets – pension escrow investments
Pension escrow investments comprise a money market fund investment established to provide security to the Royal Mail Senior Executive
Pension Plan (RMSEPP) in support of a deficit recovery plan agreed with the Pension Trustee in 2013 and a money market fund investment
established with the agreement of the Trustee for the benefit of members.

Financial assets – other investments
Other investments comprise short-term deposits (other investments) with banks with an original maturity of three months or more. Short-
term deposits are classified as financial assets at amortised cost.

Financial liabilities – interest-bearing loans and borrowings
All loans and borrowings are classified as financial liabilities measured at amortised cost. The €500 million bond is measured at amortised
cost in Euro and converted to Sterling at the closing spot Sterling/Euro exchange rate.

Financial liabilities – obligations under finance leases
All obligations under finance leases are classified as financial liabilities measured at amortised cost. The Euro-denominated finance lease
creditors are measured at amortised cost in Euro and converted to Sterling at the closing Sterling/Euro exchange rate.

Derivative financial instruments and hedging programmes
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
attributable either to a particular risk associated with a recognised asset or liability, or to a highly probable forecast transaction.

In relation to cash flow hedges to hedge the interest rate, 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 reporting year in which the hedged firm commitment affects the net profit/loss,
for example when the hedged transaction actually occurs.

Derivatives that do not qualify for hedge accounting are classified as fair value through profit and loss and any gains or losses arising from
changes in fair value are taken directly to the income statement in the year. Derivatives are valued by using quoted forward prices for the
underlying commodity/currency and discounted using quoted interest rates (both as 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 13 ‘Fair Value Measurement’.

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 reporting year.

Fair value measurement of financial instruments
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value
hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or

indirectly (i.e. derived from prices).

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Significant accounting policies (continued)

Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The fair value of quoted investments is determined by reference to bid prices at the close of business on the balance sheet date.

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.

The Group determines whether any transfers have occurred between levels in the hierarchy by reassessing categorisation at the end of each
reporting year. For the purposes of disclosing the Level 2 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 as at close of business on the balance sheet date. For the €500 million bond, the disclosed fair value is calculated as the closing
market bond price converted to Sterling using the closing spot Sterling/Euro exchange rate.

For the purposes of comparing carrying amounts to fair value, fair values have been calculated using current market prices (bond price,
interest rates, forward exchange rates and commodity prices) and discounted using appropriate discount rates.

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-tax
rate. Accounting estimates used in calculating the provisions are discussed further in the ‘Key sources of estimation uncertainty and critical
accounting judgements’ part of this accounting policies section.

Contingent liabilities
Contingent liabilities are possible obligations whose existence depends on the outcome of uncertain future events or present obligations
where the outflows of resources are uncertain or cannot be measured reliably. Contingent liabilities are not recognised in the financial
statements but are disclosed unless an outflow of resources is considered to be remote.

Dividends
Distributions to owners of the Company are not recognised in the income statement under IFRS, but are disclosed as a component of the
movement in shareholders’ equity. A liability is recorded for a dividend when the dividend is approved by the Company’s shareholders but not
paid at the year end. Interim dividends are recognised as a distribution when paid.

Pensions and other post-retirement benefits
The pension assets for the defined benefit plans are measured at fair value (Fair value levels 1 and 2). Unlisted securities and other pooled
investment vehicles are valued at the Trustee’s valuation using published prices, the latest information from investment managers, or at cost
less any necessary provisions for impairment. Direct property held is valued using the latest external RICS surveyor valuations (under “Red
Book” guidelines) adjusted for any capex spend and impairments since that valuation. 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. The amount of any
pension surplus that can be recognised is limited to the economic benefits unconditionally available in the form of refunds or reductions in
future contributions. Where the economic benefit to be obtained is in the form of a refund, this is recognised less taxation expense, in line
with IFRIC 14. The Group considers this taxation to be a tax, other than income tax and the pension surplus is presented net of this tax on
the balance sheet.

Full actuarial/cash funding 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 surplus disclosed.

For defined benefit plans, 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 amount resulting from applying the Plan’s discount rate (for liabilities) to the pension
surplus at the beginning of the reporting year is recognised as net pension interest in the income statement. Remeasurement gains and
losses are recognised immediately in the statement of comprehensive income. Any deferred tax movement associated with the
remeasurement gains and losses is also recognised immediately in the statement of comprehensive income.

For defined contribution plans, the Group’s contributions are charged to operating profit within people costs in the year to which the
contributions relate. Overseas subsidiaries make separate arrangements for the provision of pensions and other post-retirement benefits.

Foreign currencies
The functional and presentational currency of Royal Mail plc is Sterling (£). The functional currency of the overseas subsidiaries in Europe is
mainly the Euro (€) and for the overseas subsidiaries in the United States it is the Dollar (US$).

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 year, being a reasonable approximation to the actual
transaction rate. The exchange rate differences arising on the translation, since the date of transition to IFRS, are taken directly to the foreign
currency translation reserve in equity.

Foreign currency exchange differences arising from translation of the €500 million bond and the Euro-denominated finance leases (designated

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Significant accounting policies (continued)

as hedges of the net investment in GLS) to closing Sterling/Euro exchange rates are deferred to the foreign currency translation reserve in
equity. These exchange differences would be released from equity to the income statement as part of the gain or loss if GLS was sold.

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 their historic cost in a foreign currency are translated using the exchange rates as at the
dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at
the date when the fair value is determined.

Accounting standards issued but not yet applied
The following new and amended 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:

IAS 19 (Amended) ‘Plan Amendment, Curtailment or Settlement’*
IAS 28 (Amended) ‘Long-term Interests in Associates and Joint Ventures’*
IAS 40 (Amended) ‘Transfers of Investment Property’
IFRS 2 (Amended) ‘Classification and Measurement of Share-based Payment Transactions’
IFRS 4 (Amended) ‘Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts’
IFRS 9 (Amended) ‘Prepayment features with negative compensation’
IFRS 10 (Amended) and IAS 28 (Amended) ‘Sale of Assets between an Investor and its Associate or Joint Venture’*
IFRS 15 ‘Revenue from Contracts with Customers’
IFRS 15 (Amended) ‘Clarifications to IFRS 15’
IFRS 16 ‘Leases’
IFRS 17 ‘Insurance Contracts’*
IFRIC 22 ‘Foreign Currency Transactions and Advance Consideration’*
IFRIC 23 ‘Uncertainty over Income Tax Treatments’*
Annual Improvements 2015-2017*
* Not yet endorsed by the EU

With the exception of IFRS 16, the Directors do not expect that the adoption of the amendments, interpretations and annual improvements
listed above will have a material impact on the financial performance or position of the Group in future periods. Of these accounting
standards, IFRS 16 and IFRS 15 are explained in more detail below as they are considered of particular relevance to the Group.

IFRS 16 ‘Leases’
This standard was issued in January 2016 and replaces IAS 17 ‘Leases’. The standard is effective for accounting periods beginning on or
after 1 January 2019 with early adoption permitted where IFRS 15 has also been adopted. The standard will bring the majority of leases
previously classed as operating leases onto the balance sheet, with a corresponding lease liability also recognised, with some exemptions
allowed for low value and short term leases. The approach to lessor accounting remains largely unchanged.

Upon adoption, IFRS 16 may be applied on either a full retrospective basis, requiring restatement of comparative year information, or on a
modified retrospective basis, where the impact of the standard is recognised as a movement through equity on the date of adoption.

Although the impact is yet to be fully quantified, the adoption of the standard will result in a material: increase in property, plant and
equipment and corresponding lease liability balances; decrease in operating costs; increase in finance costs; increase in cash flows from
financing activities; and decrease in cash flows from operating activities.

A project has been established to assess the impact of IFRS 16 on the financial performance and position of the Group and to steer all
aspects of IFRS 16 implementation. The project is sponsored by Group Finance and has a steering committee in place to provide governance
and oversight. The main objectives of the project are to: identify all leases within the Group; collect the required data for each lease;
determine appropriate discount rates to apply to each lease; make required policy decisions (including the application of any practical
expedients to be taken and the transition approach to be adopted); and update existing lease accounting policies in compliance with the
standard. In addition, a review of the current lease accounting systems in place across the Group is ongoing, with a view to identifying and
implementing any required changes in advance of the transition date.

Currently, unless specified otherwise, the Group does not expect to early adopt these new or amended standards.

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Significant accounting policies (continued)

IFRS 15 ‘Revenue from Contracts with Customers’
This standard, issued in May 2014, with further amendments issued in April 2016, replaces IAS 18 ‘Revenue’, IAS 11 ‘Construction Contracts’
and related interpretations. The standard is effective for accounting periods beginning on or after 1 January 2018 and will be adopted by the
Group in the 2018-19 reporting period. The standard introduces a single, five-step revenue recognition model that is based upon the
principle that revenue is recognised at the point that control of goods or services is transferred to the customer. Under the new model, total
contract consideration must be allocated to each performance obligation within the contract, based on stand-alone selling price, and be
recognised over the period in which the performance obligation is satisfied.

The standard also introduces increased revenue disclosure requirements, including disaggregation of revenue into categories that depict
how the nature, amount, timing and uncertainty of revenue is affected by economic factors, and further information on deferred
revenue movements.

As part of IFRS 15 implementation the Group has carried out a review of current revenue recognition policies by principal revenue stream to
determine whether the existing policies in place meet the five-step revenue recognition model. In particular the implementation work has
focussed on existing areas of revenue recognition judgement for the Group such as deferred revenue and incentive scheme accounting, and
on ensuring processes are in place to meet the new disclosure requirements.

Whilst the impact of this new standard is being continually reviewed, its adoption is unlikely to have a material impact on the Group’s financial
performance or position. This is due to the fact that the majority of revenue contracts within the Group do not involve multiple performance
obligations and occur over short timescales with revenue largely recognised at the point of delivery.

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Royal Mail plc – parent Company
financial statements

The Annual Report and Financial Statements primarily relates to the consolidated results of Royal Mail plc Group’s trading entities. The
mandatory disclosures in this section relate to the financial statements of the ultimate parent company, Royal Mail plc (the Company).

Statement of changes in equity
For the 52 weeks ended 25 March 2018 and 52 weeks ended 26 March 2017

At 28 March 2016
Profit for the year
Purchase of own shares
Share-based payments
Dividend paid
At 26 March 2017
Profit for the year
Employee exercise of SAYE options
Share-based payments
Dividend paid
At 25 March 2018

Balance sheet
At 25 March 2018 and 26 March 2017

Registered number: 08680755

Non-current assets
Investment in subsidiary
Total non-current assets
Current assets
Trade and other receivables
Current liabilities
Trade and other payables
Provisions
Net current assets
Interest bearing loans and borrowings
Net assets
Equity
Share capital
Retained earnings
Total equity

Share
capital
£m
10
-
-
-
-
10
-
-
-
-
10

Retained
earnings
£m
1,930
218
(53)
111
(222)
1,984
230
28
41
(231)
2,052

Total
equity
£m
1,940
218
(53)
111
(222)
1,994
230
28
41
(231)
2,062

At 25 March
2018
£m

At 26 March
2017
£m

Notes

2,081
2,081

2,040
2,040

434

396

(18)
-
416
(435)
2,062

10
2,052
2,062

(12)
-
384
(430)
1,994

10
1,984
1,994

The balance sheet was approved and authorised for issue by the Board of Directors on 16 May 2017 and signed on its behalf by:

Stuart Simpson
Chief Finance Officer

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Royal Mail plc – parent company
financial statements (continued)

1. Parent Company accounting policies
Accounting reference date
The financial reporting year ends on the last Sunday in March and accordingly, these financial statements are made up for the 52 weeks
ended 25 March 2018 (2016-17: 52 weeks ended 26 March 2017).

Authorisation of financial statements and statement of compliance with FRS 101
The financial statements of the Company for the year ended 25 March 2018 were authorised for issue by the board of Directors on
16 May 2017. The Company is incorporated and domiciled in England and Wales.

These financial statements were prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (FRS 101)
and in accordance with applicable accounting standards. The amendments to FRS 101 (2015-16 Cycle) issued in July 2016 and effective
immediately have been applied.

The Company has not presented its own income statement as permitted by section 408 of the Companies Act 2006. However, the results of
the Company are presented in Note 4 of these financial statements.

Basis of preparation
The Company has applied FRS 101 for all periods presented. The accounting policies which follow, set out those policies which apply in
preparing the financial statements for the reporting year ended 25 March 2018.

The Company has taken advantage of the following disclosure exemptions under FRS 101:
(a) the requirements of IFRS 7 ‘Financial Instruments: Disclosures’1;

(b) the requirements of paragraphs 91-99 of IFRS 13 ‘Fair Value Measurement’ (disclosure of valuation techniques and inputs used for fair
value measurement of assets and liabilities)1;

(c) the requirement in paragraph 38 of IAS 1 ‘Presentation of Financial Statements’ to present comparative information in respect of:
(i) paragraph 79(a)(iv) of IAS 1 (reconciliation of shares outstanding);

(d) the requirements of paragraphs 10(d), 10(f), 16, 38A, 38B-D, 40A-D, 111 and 134-136 of IAS 1 ‘Presentation of Financial Statements’;

(e) the requirements of IAS 7 ‘Statement of Cash Flows’;

(f) the requirements of paragraph 17 and 18(a) of IAS 24 ‘Related Party Disclosures’ (details of key management compensation and related
party transaction amounts);

(g) the requirements in IAS 24 ‘Related Party Disclosures’ to disclose related party transactions entered into between two or more members
of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member; and

(h) the requirements of paragraphs 30 and 31 of IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’.

Changes in accounting policy
The accounting policies are consistent with those of the previous year.

Key sources of estimation uncertainty and critical accounting judgements
Due to the relatively straightforward nature of the Company and its activities, it is Management’s view that there are no significant estimates
or accounting judgements applied in the preparation of these financial statements.

Investment in subsidiary
The investment in subsidiary is stated at cost plus deemed capital contributions arising from share-based payment transactions, less any
accumulated impairment losses.

Trade receivables
Trade receivables are recognised at the original invoice amount less an allowance for any non-collectable amounts, including where collection
is no longer probable.

1 Exemption taken as equivalent disclosures are included within the consolidated financial statements of Royal Mail plc.

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Royal Mail plc – parent company
financial statements (continued)

2. Directors’ remuneration
The Directors of the Company are not paid any fees by the Company for their services as Directors of the Company. The Directors are paid
fees by other companies of the Group. This remuneration is disclosed in the Group consolidated financial statements (see Note 4).
3. Auditor’s remuneration
The auditor of the Company is not paid fees by the Company. The auditor of the Company is paid fees by other companies of the Group.
This remuneration is disclosed in the Group consolidated financial statements (see Note 3).
4. Income statement
The Company is a non-trading company. The profit for the year of £230 million (2016-17: £218 million) is primarily the net sum of: the
£233 million dividends received from Royal Mail Group Limited; management charges to and from Royal Mail Group Limited; and net interest
on the €500 million Bond and intercompany balances. A profit of £5 million and a loss of £5 million (2016-17: both £38 million), on the
translation of Euro-denominated assets and liabilities has also been recognised in the year.
5. Taxation
There is no tax charge/credit for the year.
6. Investment in subsidiary

At 27 March 2017 and 28 March 2016
Investment in subsidiary – charge for Employee Free Shares/LTIP/DSBP/SAYE1
At 25 March 2018 and 26 March 2017

1 Excludes £1 million credit (2016-17: £6 million charge) associated National Insurance costs

At 25 March
2018
£m
2,040
41
2,081

At 26 March
2017
£m
1,929
111
2,040

7. Trade and other receivables
This balance mainly consists of an intercompany loan to Royal Mail Group Limited amounting to the proceeds from the issue of the
€500 million bond (see Note 9).
8. Provisions
In relation to the transfer of Royal Mail Group Limited to the Company in 2013-14, a provision of less than £1 million remains.
9. Interest-bearing loans and borrowings
In July 2014 the Company issued €500 million 2.375 per cent Senior Fixed Rate Notes due July 2024 with a fixed annual interest coupon of
2.375 per cent. The proceeds raised were loaned to Royal Mail Group Limited.

10. Share capital

Authorised and issued
1,000,000,000 ordinary shares of £0.01 each
Total

At 25 March
2018
£m

At 26 March
2017
£m

10
10

Of the issued ordinary shares, a total of 513,230 (2016-17: 9,582,175) are held by an Employee Benefit Trustee (EBT) administered by
Sanne Fiduciary Services Limited. These shares are treated as treasury shares for accounting purposes in accordance with IAS 32 ‘Financial
Instruments: Presentation’. The Company, however, does not hold any shares in treasury.

The EBT is funded by the Company and has been treated as an extension of the Company for accounting purposes within these
financial statements.

Annual Report and Financial Statements 2017-18

| 161

Strategic report | Governance | Financial statements | Other information

Royal Mail plc

| Group five year summary (unaudited)

Group five year summary (unaudited)

This five year summary includes the financial performance and position of the DPD SL subsidiary, up to and including the 2014 reporting
year, after which time it was sold (on 31 March 2015).

Income statement - Reported
Revenue
Operating profit before transformation costs
Transformation costs
Operating profit after transformation costs
Operating specific items
Non-operating specific items
Earnings before interest and tax
Finance income – net pension interest (non-operating specific item)
Finance costs
Profit before tax
Tax credit/(charge) (specific items and other)
Profit after tax

Income statement – Adjusted
Revenue
Operating profit before transformation costs
Transformation costs
Operating profit after transformation costs
Finance costs
Profit before tax
Tax
Profit after tax

Financial reporting year (52 weeks) ended March

2018
£m
10,172
236
(113)
123
(57)
71
137
91
(16)
212
46
258

2017
£m
9,776
490
(137)
353
(134)
12
231
120
(16)
335
(62)
273

2016
£m
9,251
485
(191)
294
(156)
29
167
113
(13)
267
(45)
222

2015
£m
9,328
611
(145)
466
(248)
133
351
75
(26)
400
(72)
328

Financial reporting year (52 weeks) ended March

2018
£m
10,172
694
(113)
581
(16)
565
(111)
454

2017
£m
9,776
712
(137)
575
(16)
559
(121)
438

2016
£m
9,251
742
(191)
551
(13)

538
(118)

420

2015
£m
9,328
740
(145)

595
(26)

569
(138)
431

2014
£m
9,456
671
(241)
430
1,213
21
1,664
69
(67)
1,666
(386)
1,280

2014
£m
9,456
729
(241)
488
(67)
421
(110)
311

162

| Annual Report and Financial Statements 2017-18

Group five year summary (unaudited) (continued)

Balance sheet
Property, plant and equipment
Intangible assets
RMPP escrow investments
Inventories
Trade and other receivables
Trade and other payables
Other net assets/(liabilities)
Provisions
Goodwill
Investments in associates
Net operating assets and investments in associates
Cash and cash equivalents
RMSEPP escrow investments
Loans and borrowings
Other net financial liabilities
Net cash/(debt)
Deferred tax assets/(liabilities)
Net assets before pension surplus
Pension surplus
Net assets

People numbers – year end headcount
UKPIL
GLS
Group total

At March financial reporting year end date

2018
£m
2,016
608
178
25
1,176
(1,968)
30
(162)
324
5
2,232
600
20
(437)
(169)
14
27
2,273
2,163
4,436

2017
£m
2,062
567
-
23
1,137
(1,857)
26
(196)
316
7
2,085
299
20
(463)
(194)
(338)
(588)
1,159
3,839
4,998

2016
£m
2,002
451
-
21
1,038
(1,741)
(18)
(247)
206
9
1,721
368
20
(392)
(220)
(224)
(460)
1,037
3,430
4,467

2015
£m
1,935
300
-
20
960
(1,708)
(33)
(253)
182
5
1,408
287
20
(366)
(216)
(275)
(504)
629
3,367
3,996

2014
£m
1,992
195
-
22
939
(1,683)
(23)
(268)
197
4
1,375
366
20
(600)
(341)
(555)
(175)
645
1,889
2,534

Financial reporting year (52 weeks) ended March

2018
141,162
17,955
159,117

2017
141,819
17,136
158,955

2016
142,544
13,991
156,535

2015
146,109
14,409
160,518

2014
152,440
13,811
166,251

Annual Report and Financial Statements 2017-18

| 163

Strategic report | Governance | Financial statements | Other information

Royal Mail plc

| Shareholder information

Shareholder information

Registered office
Royal Mail plc, 100 Victoria Embankment, London, EC4Y 0HQ

Registered in England and Wales

Company number 08680755

Company Secretary
Kulbinder Dosanjh

Registrar
Equiniti, Aspect House, Spencer Road, Lancing, West Sussex,
BN99 6DA

www.shareview.co.uk

Tel: 0371 384 2656 (from outside the UK: +44 (0)121 415 7086)
Lines are open 8:30am to 5:30pm UK time, Monday to Friday,
excluding public holidays in England and Wales.

Financial Calendar

Trading update – 17 July 2018

Annual General Meeting – 19 July 2018

Ex-dividend date – 26 July 2018

Record date – 27 July 2018

Payment date – 31 August 2018

Managing your shares online
Shareholders are able to access an electronic version of shareholder
information by registering through Shareview, a platform provided
by Equiniti, the Company’s registrars.

This service allows you to:

•

Manage your shares online.

Receive notifications of new shareholder information by e-mail.

Arrange dividend payments.

Update personal records.

Please go to www.shareview.co.uk for full details of the shareholder
services and to register. When registering, you will need to have
your 11-digit shareholder reference number to hand, which is found
on your dividend tax voucher, share certificate or form of proxy.

Should you change your mind at a later date, you may amend your
request to receive electronic communication by entering your
Shareview portfolio online and amending your preferred method of
communication from ‘email’ to ‘post’.

Shareholder fraud
Share scams are often run from ‘boiler rooms’ where fraudsters
cold-call investors offering them worthless, overpriced or even non-
existent shares. While they promise high returns, investors usually
end up losing their money.

5,000 people contact the Financial Conduct Authority (FCA) about
share fraud each year, with victims losing an average of £20,000.
As much as £200 million is lost in the UK each year.

It is strongly advised that you only deal with financial services firms
that are authorised by the FCA. You can report a firm or scam by
contacting the FCA Consumer Helpline on 0800 111 6768 or using
the reporting form at https://www.fca.org.uk/consumers/report-scam-
unauthorised-firm. If you have already bought or sold shares through
a ‘boiler room’, be especially careful as fraudsters are likely to target
you again or sell your details to other criminals.

Information for investors
Our website provides information for investors, such as trading
updates, share price information, AGM and dividend information,
shareholder FAQs and results and reports.

The website can be accessed via
http://www.royalmailgroup.com/investor-centre.

164

| Annual Report and Financial Statements 2017-18

Strategic report

| Governance

| Financial statements

| Other information

Forward looking statements

Disclaimers
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.

Annual Report and Financial Statements 2017-18

| 165

Royal Mail, the cruciform, Parcelforce Worldwide and the Parcelforce Worldwide logo are
trade marks of Royal Mail Group Limited. The GLS arrow logo is a trade mark of General Logistics
Systems Germany GmbH & Co. OHG. Annual Report 2017-18 © Royal Mail Group Limited 2018.
All rights reserved.