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ANNUAL
REPORT AND
FINANCIAL
STATEMENTS
2019-20
1
Financial Statements
159 Independent auditor’s report
166 Consolidated income statement
167 Consolidated statement
of comprehensive income
168 Consolidated balance sheet
170 Consolidated statement of changes in equity
171 Consolidated statement of cash flows
173 Notes to the consolidated financial statements
233 Significant accounting policies
247 Royal Mail plc – Parent Company
financial statements
Shareholder Information
250 Group five year summary (unaudited)
252 Shareholder information
253 Forward-looking statements
CONTENTS
Strategic Report
02 Overview
04 Who we are
06 Financial and operational highlights 2019-20
15
Interim Executive Chair’s statement
18 Delivering throughout the COVID-19 pandemic
19 Business review 2019-20
26 Market overview
28 Business model
30 Measuring our performance
32 Financial review
62 Principal risks and uncertainties
73 Viability statement
74 Corporate responsibility
86 Non-financial information statement
Corporate Governance
88 Chair’s introduction
90 Group Board of Directors
92 Executive Board – Royal Mail
94 Governance structure
96 Board in action
100 Board composition and diversity
101 Reporting against the 2018
Corporate Governance Code
102 Board induction programme
103 Annual evaluation of Board performance
and effectiveness
104 Engaging with our stakeholders
110 The Board’s considerations to our
stakeholders during the COVID-19 pandemic
112 Employee engagement
114 Nomination Committee
117 Audit and Risk Committee
126 Corporate Responsibility Committee
128 Directors’ Remuneration Report
154 Directors’ Report
157 Statement of Directors’ Responsibilities
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 2
Strategic Report
OVERVIEW
Keith Williams
Interim Executive Chair
ROYAL MAIL (UKPIL)
Our UK business has faced significant challenges for some years. Our heritage as
a letters-focused business means we are not as well positioned as we would like
to adapt to changing structural trends – fewer letters and more parcels. We have
not always responded as quickly as we might have to these trends. Along with cost
increases, this combination of factors drives financial pressures.
COVID-19 presents new, fundamental, challenges to our business model – and
to those of our customers. Securing a sustainable future and a contemporary
USO requires us to respond to this unprecedented global crisis as we adapt to the
changing realities of the marketplace.
We have a plan to ensure Royal Mail remains a key part of our economy, a good
employer, and the UK’s delivery partner of choice. Delivering it requires a step
change in the number of major initiatives we can successfully deliver in a short
period of time.
Firstly, we will continue to address key challenges posed by COVID-19. We are
implementing a range of immediate cost control activities and reviewing capital
investment. But, to ensure our long-term success, we must do more.
So, we are accelerating the delivery of our transformation plan to address the
longstanding challenges we face, created by fundamental shifts in the way we
communicate (fewer letters) and shop (more B2C parcels). Now, more than ever,
we need to change.
Finally, we are working with our unions, Government and the Regulator to ensure
the USO is financially underpinned, in a sustainable way, and future-proofed to
reflect changing customer needs and preferences. This will include working with
stakeholders on the shape of a national USO for the 21st Century.
GLS
At GLS, our strategy is about capitalising on growth opportunities in key markets,
while continuing to improve performance in some of the countries in which
we operate. The trend towards B2C parcel deliveries in some markets offers
opportunities, as we maintain margins through focused yield management.
We will focus investment on growing markets, strengthen our last mile delivery
network and broaden alternative delivery options as appropriate.
Together, these changes will add to the good cash generation which GLS has
today. Our priority over the short term is to focus on these improvements, while
looking at the longer-term opportunities for the business.
OUR GROUP
Royal Mail and GLS are two different businesses, with two different strategies.
At Royal Mail, our focus is on transformation; at GLS we aim to optimise
and continue to grow. In both cases, we are committed to fixing or exiting
underperforming businesses. We have put in place a new management structure,
where senior Royal Mail and GLS executives report directly to the Group Board.
This is all about greater focus and accountability, given our strategic imperatives,
In the short term, there are few synergies available between the two companies.
In the medium term, an international presence is clearly important; the opportunity
remains to create more value, and sustainable profits for shareholders.
For more detail, see the interim Executive Chair’s Statement (pages 15-16) and
the Business Review (pages 19-25).
Keith Williams
Interim Executive Chair
READER’S NOTE – IMPACT OF COVID-19 PANDEMIC
We are committed to providing thorough, appropriate updates
about how this unprecedented crisis is impacting our business.
This Report reviews the year to 29 March 2020. Reflecting FRC
guidelines, we deferred publication of our Full Year Results
until 25 June 2020. We have issued two trading updates
since year end. In this Report, we also provide an update on
trading for the first two months of the financial year. We have
suspended guidance for 2020-21 and beyond.
Our transformation
We are transforming from a UK-focused letters business
that delivers parcels, to a parcels-led, international business,
delivering letters in the UK. We operate across 40 countries
and nation states worldwide, including 36 in Europe. We are
a modern, digitally innovative brand, connecting customers,
companies and countries.
In common with many other companies, COVID-19 presents
new, fundamental challenges to our business model – and
to those of our customers. A key focus for us is a speedy and
effective response to the challenges posed by the pandemic.
But, this will only take us so far. It may not be enough.
Alongside these immediate actions, we must also continue
to change, to build a business that better reflects structural
shifts in the delivery market and the evolving demands of
our customers. We want to work with our unions on these
necessary changes, and with Government and the Regulator
on a future-proofed and sustainable Universal Service.
Our ambition and purpose
Our ambition is to build a parcels-led, more balanced, and more
diversified, international business. Our purpose is to connect
customers, companies and countries. We have real strengths:
our brands; our heritage; our reach; and our people. We are
transforming to leverage them and become the pre-eminent
delivery company in all our key markets.
Our people
We employ around 160,000 people across our Group, of which
over 140,000 are in the UK.
We are one of the largest employers in the UK, providing one
in every 194 jobs1. Our ‘feet on the street’ network of around
90,000 postmen and women are part of local communities.
Thanks to them, Royal Mail is the UK’s most trusted and
preferred delivery company2.
COVID-19
During the coronavirus crisis, our employees’ health
and wellbeing is our first priority. We have committed
around £40 million to date to buying equipment such as
hand sanitiser, disposable gloves and other additional
protective measures to keep our people safe. To support
UK employees who should not be attending work, we have
temporarily changed sick pay for those with less than a
year’s service. Where the absence is related to coronavirus,
these employees will receive the same sick pay as
employees with over a year’s service.
3
This Report focuses on: i) 2019-20 performance against
our strategic ambitions – management’s priority for the
overwhelming majority of the year; ii) the impact of the
pandemic since it was declared in mid-March 2020; and
iii) how COVID-19 affects our view of our business model
and future performance.
We are the best employer in the UK delivery sector by some
margin. Our frontline employees have the best pay and terms
and conditions in our industry. We have one of the largest
apprenticeship schemes in the country. At 6.7 per cent, our
annual staff turnover is well below the 21 per cent UK average.
GLS employs around 19,000 people worldwide. It aims to
continue being a reliable and responsible employer, whilst
offering an optimum working environment. During the year, GLS
Denmark won a CSR People award on account of its inclusive
approach. GLS Germany won a ‘Best Recruiter’ award, ranking
fourth out of the top 100 companies in Germany.
Our customers
As the UK’s sole designated Universal Service Provider3, we
deliver a ‘one-price-goes-anywhere’ service on a range of
letters and parcels to nearly 31 million addresses across the
country. We also provide a range of commercial services to
consumers, sole traders, SMEs, large businesses and retailers,
and other postal operators via our downstream network.
GLS provides a whole range of B2B and B2C services across
Europe and North America. B2B contributes just over half of
total volume. GLS is strengthening its B2C position across
Europe; for example in Denmark, Italy and Central and Eastern
Europe. Thanks to its extensive network, GLS is well positioned
to participate in cross-border parcel traffic growth.
Our shareholders
Royal Mail is one of the most widely held stocks in the UK.
One in four of our shares are in the hands of colleagues (who
own around eight per cent of our shares as Free Shares) and
retail investors. UK institutions represent 69 per cent of the
register. We have a proactive engagement programme, which
includes institutional investors in the UK and overseas and retail
shareholder associations.
We have a comprehensive, rolling programme of investor
relations events and encourage open, two-way communication.
Monthly reports are submitted to the Board, alongside analyst
notes and summaries of market feedback. You can find out
more on page 105.
Our stakeholders
Due to our unique role in UK life, and our geographic
diversification, we have many diverse stakeholders. Royal Mail
has an active outreach programme to help us understand their
concerns, and at the same time share the challenges we face as
we transform from a UK-focused letters business that delivers
parcels, to a parcels-led, international business that delivers
letters in the UK.
1
CEBR research, conducted for Royal Mail in May 2020.
2 Watermelon Research, 2019-20 Consumer Research Tracker.
3
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. Ofcom has designated Royal Mail as the Universal
Service Provider.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 4
Strategic Report
WHO WE ARE
Royal Mail Group consists of two principal subsidiaries. Around two thirds of our business
comes from our domestic operation, Royal Mail (UKPIL), and a third from our international
operations, GLS.
In the short term, there are limited synergies between the two companies. We have restructured
our management to focus on improving the position of each business, recognising their different
market positions and strategies.
ROYAL MAIL (UKPIL)
GENERAL LOGISTICS SYSTEMS (GLS)
Royal Mail (UKPIL) comprises our UK and international
parcels and letters delivery businesses under the ‘Royal Mail’
and ‘Parcelforce Worldwide’ brands. Royal Mail’s combined
letter and parcel delivery network supports the collection,
sorting and delivery of parcels and letters. This includes
services Royal Mail provides as the UK’s designated
Universal Service Provider. Parcelforce Worldwide is
a leading express parcel delivery provider.
We are the UK’s pre-eminent delivery company. This year,
we handled and delivered around 13 billion letters, and
around 1.3 billion parcels.
Our contribution to the UK economy, including through
employment and procurement, totalled £10.6 billion¹ last
year in terms of value added. We made the seventh largest
contribution to the UK economy of all UK corporations¹.
GLS is one of the largest ground-based, deferred parcel
delivery networks in Europe. Its network covers 36 countries
and nation states in Europe. It operates in eight states in the
Western US and Canada. This is through a combination of
wholly-owned companies and partner companies.
This year, GLS delivered 667 million parcels for its wide
customer base. Traditionally a business to business (B2B)
focused network, GLS is growing its business to consumer
(B2C) position, in line with its strategy. We have seen a
significant increase in B2C activity in many of our markets
in recent months as a result of COVID-19. Almost half
the items GLS delivers today are B2C. We expect B2C
volumes to grow to account for 58 per cent of overall
GLS volumes in 2020-21.
A long-term international presence is important to us.
GLS offers us product and geographical diversification.
It is at the forefront of some key environmental initiatives.
See page 82 for more information.
Employees
Vehicles (including 2,900 trailers)
Employees
Depots (including agencies)
141,500
c.48,500
19,000
c.1,400
Mail Centres
Local Collect network
Clients
37
c.11,200
240,000
ParcelShops
c.25,000
Network hubs
c.70
1
CEBR research, conducted for Royal Mail in May 2020, comprising direct and
indirect contributions.
5
INTERNATIONAL PRESENCE
GERMANY
GLS Germany is our most established business.
It has a strong market presence and a well-known brand.
GLS Germany is one of the leading parcel delivery companies
in Germany.
CENTRAL AND EASTERN EUROPE
We have a fast-growing presence in Central and Eastern
Europe (Croatia, Czech Republic, Hungary, Romania,
Slovakia and Slovenia). GLS Croatia and Slovakia achieved
the strongest revenue and profit growth in the region.
Around two thirds of GLS Germany volumes are currently
B2B. The Company intends to take advantage of growth in
the B2C market over the coming years.
In these regions, GLS tends to operate more in the B2C
space than its more established European peers.
ITALY
Over the last 15 years, Italy has grown to become one of
GLS’ largest markets. Together, Germany, France and Italy
represent 55 per cent of GLS revenue.
Italy has been one of the European countries most
affected by the COVID-19 outbreak, with more than
60 million citizens required to stay at home from
March to May. Across its operations, in Italy and beyond,
GLS provided equipment such as masks, gloves and
disinfectants to protect its people. In Naples, GLS
Italy supported the community by delivering medical
equipment to hospitals. In the town of Marche, GLS
delivered face masks hand-sewn by local tailors.
SPAIN
Following the acquisitions of ASM in June 2016 and Redyser
in February 2018, the integration of both companies has now
been completed.
Through these acquisitions, GLS Spain has become one of the
country’s biggest express parcel delivery networks. GLS Spain
has connected around 450 independent agents. These are
injecting volume into the network, as well as delivering
parcels for it. Due to this infrastructure, GLS Spain is
supporting its strong B2C capability – with B2C representing
the vast majority of its parcel volumes.
FRANCE
GLS France continues to be integral to the GLS network
by supporting exports from other markets into France and
allowing GLS to provide a comprehensive service across
Europe. GLS France offers shippers and recipients the
benefits of a high-density network and a wide range of
delivery services.
NORTH AMERICA
GLS US has 1,600 employees, 47 depots, three hubs, and
a customer service centre to support more than 20,000
customers. It operates in the states of California, Arizona,
Nevada, New Mexico, Oregon, Washington, Idaho and Utah.
Golden State Overnight and Postal Express have been fully
integrated into GLS US and transitioned into our proven
sub-contractor business model.
During the year, we acquired Mountain Valley Express,
a family owned business based in California that provides
freight transportation services to a broad range of customers.
Dicom, GLS’ Canadian arm, operates 25 depots and three
hubs in eastern Canada; a relatively densely populated part
of the country. In cooperation with partners, GLS offers
pan-Canadian logistics services across six time zones.
This includes integrated freight and logistics services.
GLS in North America now accounts for around 10 per cent
of GLS revenue. See page 23 for more information.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 6
Strategic Report
FINANCIAL AND OPERATIONAL
HIGHLIGHTS 2019-20
REPORTED GROUP FINANCIAL SUMMARY1, 2
Reported results (£m)
Revenue
Operating profit before specific items
Profit before tax
Basic earnings per share (pence)
Dividend per share (pence)
52 weeks
March 2020
53 weeks
March 2019
10,840
10,581
217
180
16.1
7.5
341
241
17.5
25.0
– Group revenue increased by £259 million, or £396 million after adjusting for the 53rd week in 2018-19.
– Reported operating profit before specific items down £124 million, driven by lower UKPIL profitability.
– Dividend per share of 7.5p reflects Board decision not to recommend final dividend for 2019-20.
– Total liquidity (including undrawn committed facilities) of around £1.9 billion. Includes £925 million syndicated bank loan
facility of which £225 million is undrawn.
– Operating specific items charge of £162 million, down £19 million. Includes £91 million non-cash impairment with respect
to Parcelforce Worldwide.
ADJUSTED GROUP FINANCIAL SUMMARY1, 2
Adjusted results (£m)
Revenue
Operating profit
Margin
Profit before tax
Basic earnings per share (pence)
In-year trading cash flow⁴
Net debt
Net debt (excluding IFRS 16 impacts)
*As at 29 March 2020; **As at 31 March 2019.
GROUP
52 weeks
March 2020
53 weeks
March 2019
52 weeks
March 2019
10,840
10,581
10,444
Change3
3.8%
376
(13.6%)
3.6%
(60 bps)
325
3.0%
275
19.6
556
411
3.9%
398
30.5
117
(1,132)*
(46)*
(300)**
(300)**
– Adjusted operating profit of £325 million, down 13.6 per cent. £312 million excluding impact of IFRS 16, within forecast range
of £300-340 million.
– Adjusted margin down 60 basis points, due primarily to significant cost headwinds in UKPIL.
– In-year trading cash flow of £556 million, due to positive impact of IFRS 16 (£141 million), working capital inflow and lower
capital expenditure.
– Net debt increased to £1,132 million, mainly due to IFRS 16.
7
Change³
(41.2%)
17.5%
–
Adjusted operating profit
52 weeks
March 2020
52 weeks
March 2019
199
177
–
117
208
–
325
376
(13.6%)
BUSINESS UNITS1, 2
£m
Royal Mail (UKPIL)
GLS
Intragroup
Group
ROYAL MAIL (UKPIL)
Revenue
52 weeks
March 2020
52 weeks
March 2019
7,720
3,161
7,595
2,888
(41)
(39)
10,840
10,444
Change³
1.6%
9.5%
5.1%
3.8%
– Parcel volumes up 2 per cent, lower than expected, due to threat of industrial action (Q3) and impact of COVID-19 on international
import volumes (Q4). Parcel revenue up 4.6 per cent, due to targeted pricing actions.
– Addressed letter volumes (excluding election mailings) down eight per cent, in line with guidance provided in Q3 trading update.
Total letter revenue down 0.9 per cent, benefitting from two elections in the period and targeted prices increases.
– £188 million of costs avoided, in line with guidance of £150-200 million.
– Productivity improvement of 1.0 per cent, below our original target of over 2 per cent. Due to necessary additional investment
to protect quality in Q3 and COVID-19.
– Adjusted operating costs up 2.8 per cent, driven by increased distribution and conveyance and people costs, including service
quality measures.
– Adjusted operating profit margin of 1.5 per cent (down 110 basis points) reflects lower UKPIL profitability.
GLS
– Volumes up 4 per cent excluding acquisitions, or 5 per cent including acquisitions. Revenue grew 6.3 per cent excluding
acquisitions, or 9.5 per cent including acquisitions.
– Adjusted operating profit including acquisitions of £208 million, up 17.5 per cent. Up 13.5 per cent excluding acquisitions.
– Adjusted operating profit margin of 6.6 per cent, up 50 basis points compared with prior period. In line with 6-7 per cent annual
target range.
1
2
3
4
Reported results are in accordance with International Financial Reporting Standards (IFRS). Adjusted results exclude the pension charge to cash difference adjustment (2019-20: £108 million;
2018-19: £70 million) and specific items (2019-20: £13 million credit; 2018-19: £87 million charge), consistent with the way financial performance is measured by Management and reported
to the Board.
For further details of reported results, adjusted and Alternative Performance Measures (APMs) used in the Financial Review for the full year ended 29 March 2020, including reconciliations
to the closest IFRS measures where appropriate, see the section entitled ‘Presentation of results and Alternative Performance Measures’ on page 54.
Comparisons with the prior year are against the adjusted 52 week results and are no longer presented on an underlying basis. All percentage changes represent the movement between the
results as presented. Any factors having a material impact on year on year comparisons are highlighted in the narrative to the results.
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, 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.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 8
Strategic Report – Financial and operational highlights continued
CURRENT TRADING
(FIRST TWO MONTHS OF 2020-21)
ROYAL MAIL (UKPIL)
– Revenue down £29 million, year on year. Excluding impact of European Parliamentary Elections in prior year, revenue
broadly flat.
– Addressed letter revenue down 23 per cent (excluding elections); volumes (excluding elections) down 33 per cent.
Advertising mail volumes down 63 per cent, significantly impacted by COVID-19. Business mail volumes more resilient;
down 19 per cent.
– Parcel volume and revenue growth of 37 per cent and 28 per cent, respectively.
– UK domestic account volumes (excluding Amazon) up 65 per cent. Cumulative growth in tracked products, mainly consisting
of Tracked 24®/48® and Tracked Returns®, of 76 per cent.
– Total costs up £80 million, driven by overtime and agency resource costs due to high levels of absence, social distancing
measures, protective equipment and parcel related volume costs.
– Operating profit down £108 million, year on year (including benefit of May 2019 election).
UK INITIATIVES
– Taking action on two initiatives (management restructure and non-people costs) to deliver annual operating profit benefit
in 2021-22 of £330 million.
– Management restructure, subject to consultation, targeting a reduction of c.2,000 roles out of a total population of c.9,700.
Largest reductions in senior executive roles and non-operational functions. Expected to cost around £150 million, targeting
annual benefit of £130 million in 2021-22.
– Targeting flat non-people costs, excluding depreciation, in 2021-22 versus 2019-20, with £200 million annual savings
in 2021-22 offset by increases in parcel volume related costs.
– We are seeking to open talks with CWU on the need for change, future pay, and to address the issues raised in the ongoing
industrial dispute. We expect that any pay inflation will be funded from productivity improvement cumulatively to March 2022.
– Capital expenditure review and reprioritisation: £250 million reduction across 2020-21 and 2021-22. Investment continues
at higher than historical levels, including in parcel automation and hubs.
– Following the impairment of Parcelforce Worldwide assets, we expect depreciation charges in the UK to be broadly flat
in 2020-21 versus 2019-20.
– No annual bonus for Executive Directors and Royal Mail executives in 2019-20.
GLS
– Increased volatility – B2C volumes have grown in most markets following onset of COVID-19. B2B volumes
negatively impacted.
– Revenue up 15 per cent including acquisitions, driven by growth in B2C.
– Operating profit margin improvement of 1.4 per cent.
GLS INITIATIVES
– Shift from B2B to B2C brings cost pressures – adopting a local market by market approach
– Implemented various measures to support network stability and quality. Focus on pricing, productivity and digital tools.
– Reviewing improvement plans for key focus markets.
9
OUTLOOK 2020-21
AND BEYOND
FINANCIAL OUTLOOK AND SCENARIOS
– Unprecedented nature of pandemic means outlook is challenging and volatile.
– Continue to expect Royal Mail (UKPIL) to be materially loss-making in 2020-21. GLS profitability may potentially be reduced.
– Two scenarios for 2020-21 set out how the businesses could perform under certain sets of assumptions, but these
are not guidance or forecasts.
– Scenario 1: assumes a UK GDP decline of 10 per cent for 2020-21 and COVID-19 restrictions continue to ease post June.
Royal Mail (UKPIL) revenue £200 to £250 million lower year on year, with £140 million of additional costs related to COVID-19
and £110 million due to higher parcel volumes. GLS revenue growth 5-7 per cent, operating margin of around 6 per cent.
– Scenario 2: assumes a deeper recession, with a UK GDP decline of 15 per cent for 2020-21. Royal Mail (UKPIL) revenue
£500 to £600 million lower year on year, with £155 million of additional COVID-19 related costs and £100 million of costs
associated with higher parcel volumes. GLS revenue growth of 0-2 per cent, operating margin of around 5 per cent.
DIVIDEND AND BALANCE SHEET
– No final dividend recommended for 2019-20.
– No dividend expected to be paid in respect of 2020-21. Ambition to re-commence dividend payments in 2021-22, supported
by GLS.
– Strong balance sheet: total liquidity, including undrawn committed facilities, around £1.9 billion. Under both scenarios
above, balance sheet and liquidity would be robust, with access to sufficient cash and unutilised facilities.
– The Group will provide a further update at its AGM on 8 September 2020.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 10
Strategic Report – Financial and operational highlights continued
UK MANAGEMENT
INITIATIVES
We have a plan to ensure Royal Mail remains a key part of our economy, a good employer, and the UK’s delivery partner of choice.
Delivering it requires a step change in the number of major initiatives we can successfully deliver in a short period of time.
Our plan consists of three main strands:
– Continuing to address the key challenges posed by COVID-19;
– Accelerating the pace of change in the UK, working closely with our unions; and
– Working with Ofcom and Government to ensure a financially-sustainable USO for the 21st Century.
In this section, we address the first strand, which is about tackling the impact of COVID-19.
CONTINUING TO ADDRESS THE KEY CHALLENGES POSED BY COVID-19
We have already announced steps to underpin our financial position. We have not recommended a final dividend for 2019-20.
No dividend is expected to be paid in respect of 2020-21. We are not paying annual bonuses to Executive Directors and Royal Mail
executives for 2019-20.
We have also announced two new initiatives we expect to collectively deliver an annual operating profit benefit in 2021-22 of
£330 million. They are: i) a proposed UK management restructure; and ii) a target of flat non-people costs, excluding depreciation,
in 2021-22 versus 2019-20. A review of capital expenditure has resulted in a reduction in Royal Mail (UKPIL) planned expenditure
of around £250 million across 2020-21 and 2021-22.
i) Management restructure
We have taken the difficult decision to consult Unite/CMA on a proposal to reduce, on a phased basis, the number of UK
management roles by around 2,000 this financial year. As part of this, around half of Royal Mail’s senior leaders and most senior
managers are expected to leave the Company in the next few months. The majority of overall impacted roles are expected to be
in central and support areas, rather than in our field operations. We were already talking informally to Unite/CMA about these
changes and will now start formal consultation.
This necessary change is about making us a leaner, more focused company. But, that does not detract from the fact that many hard
working, highly valued colleagues are expected to leave our business. We are committed to conducting the consultation process
carefully and sensitively, working closely with our people and their representatives. We will provide those leaving the business with
a package of support to help them transition to the next stage in their career, including life beyond Royal Mail. This will include
outplacement services such as CV writing, interview preparation, career choices and clarity on personal ambitions.
This proposal is expected to cost £150 million. Subject to consultation, we expect to deliver annual benefits of £130 million
in 2021-22.
ii) Flat non-people costs
We are targeting flat non-people costs, excluding depreciation, in 2021-22 versus 2019-20, with £200 million annual savings
in 2021-22 offset by increases in parcel volume related costs. This will be achieved through a number of activities, focused on
procurement, administrative costs and demand management.
iii) Capital expenditure review
A comprehensive review of UK capital expenditure means we will reduce spend in this area by around £250 million across 2020-21
and 2021-22. This will be through a combination of cancelling some projects, and deferring others.
We remain committed to our UK transformation programme and a substantial level of capital expenditure required to achieve it.
Alongside our continued focus on rolling out parcel automation, we expect two new dedicated parcel hubs to service some of
our traffic. We will keep under review when we will need a third hub.
11
SCENARIOS ASSESSING THE POTENTIAL
IMPACTS OF COVID-19 ON TRADING
FOR THE YEAR ENDING 28 MARCH 2021
Towards the end of 2019-20, COVID-19 meant we saw strong UK parcel e-commerce volumes, offset by significant reductions
in letter volumes, especially advertising mail. Imports were heavily impacted in our International parcels business. In addition,
we incurred costs in relation to overtime, social distancing and protective equipment.
We have evaluated the possible implications for Royal Mail (UKPIL) and GLS resulting from COVID-19 for the financial year ending
28 March 2021. Since the crisis started, there have been material changes in the volume trends for both letters and parcels in the
UK, and for parcels in GLS. Additionally, we now expect a deep recession in the UK and internationally during 2020.
Given the unprecedented level of uncertainty, we are unable to provide specific guidance for 2020-21. Instead, we have summarised
the impacts of COVID-19 on our business during the two-month period to the end of May 2020, and we have quantified two future
scenarios for the financial year 2020-21 to illustrate a range of potential impacts COVID-19 may have on our trading performance.
These scenarios do not represent Management’s view or outlook and are only provided for illustrative purposes.
1. IMPACTS OF COVID-19 FROM 29 MARCH 2020 TO END OF MAY 2020
ROYAL MAIL (UKPIL)
In the UK, the country went into lockdown on 23 March 2020, one week before our year end. The impacts on our business resulting
from COVID-19 are therefore most material in the period following the year end date.
Laid out below are the principal impacts on our UKPIL trading performance in April and May 2020, during lockdown.
2019-20 trend
(%)
April 2020
(%)
May 2020
(%)
Addressed letter volume decline (excluding elections)
Parcel volume growth
(8)
+2
Below summarises the key income statement impacts of COVID-19
Year on year UKPIL revenue change
Incremental overtime/agency costs,
including social distancing costs
Incremental protective equipment costs
UKPIL year on year operating profit deterioration
(33)
+31
April 2020
(£m)
(22)
(25)
(8)
(60)
2 months to
end May 2020
(%)
(33)
+37
(33)
+44
May 2020
(£m)
2 months to
end May 2020
(£m)
(7)*
(29)*
(15)
(5)
(40)
(13)
(48)*
(108)*
*May 2019 included the revenue and profits associated with the European elections, and this has contributed to the year on year impact. This is not adjusted in the figures reported above.
We exceeded our regulatory Quality of Service target for Second Class mail in the 2019-20 financial year, but we missed our target
for First Class mail. Until 15 March 2020, we believe we were meeting our First Class target, with a performance of 93.0 per cent.
During the fourth quarter of the financial year, our First Class performance was 93.2 per cent, excluding COVID-19. However,
including the impact of COVID-19 it was 91.6 per cent. We have been unable to measure our Quality of Service since lockdown
began in the UK.
GLS
In GLS, B2C volumes have grown materially in most markets following the onset of COVID-19, whilst B2B volumes have been
negatively impacted as businesses were forced to close. Overall, revenue and volume performance has remained good, and
margins have improved versus prior year. In the near term, a combination of the recessionary environment and the higher unit
costs of delivery associated with B2C parcels may have negative implications for margins.
Below summarises GLS trading performance in April and May 2020.
Year on year GLS revenue change
Year on year GLS operating profit margin improvement
April 2020
(%)
+14
+1.2
May 2020
(%)
+16
+1.5
2 months to
end May 2020
(%)
+15
+1.4
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 12
Strategic Report – Financial and operational highlights continued
2. 2020-21 SCENARIOS
We have evaluated the impacts that COVID-19 may have on 2020-21 trading under two scenarios.
Scenario 1: Lockdown in the UK continues to ease, with the progressive re-opening of businesses, leisure activities and schools
in line with Government guidance. A material recession results in GDP declining by 10 per cent for the financial year 2020-21,
which disproportionately impacts advertising mail. In GLS, parcel volume and revenue growth remains good, with impact to
margins effectively managed as the mix moves to a higher proportion of B2C.
Scenario 2: Lockdown in the UK continues to ease, with the progressive re-opening of businesses, leisure activities and schools.
A deeper, more protracted recession hits the global economy (resulting in a GDP decline of 15 per cent in the UK in the 2020-
21 financial year). A further lockdown is assumed during the autumn/winter in the UK. Letter volumes are severely impacted
throughout the year, and whilst parcel volumes benefit from a second lockdown period, the benefit is restricted due to network
capacity over the peak trading period and as a result of reduced consumer spending power. In GLS, whilst revenue and volume
performance remains good, margins are impacted by a stepped increase in B2C parcels, which carry a higher unit cost of delivery.
Scenario 2 is consistent with the stress test applied in assessing viability for the business, although the full viability assessment
also contemplated the impacts of industrial action in the UK.
In assessing the financial impact of the scenarios, we have made assumptions with respect to how the revenue trends and
incremental costs associated with COVID-19 may be impacted throughout the year.
ROYAL MAIL (UKPIL)
SCENARIO 1
Letter revenue decline
Parcel revenue growth
Domestic parcels revenue
International parcels revenue
UKPIL revenue decline*
HY1
HY2
2020-21
(22%)
(11%)
(16%)
20%
24%
2%
5%
8%
(7%)
12%
15%
(3%)
(£200-250m)
Net costs of mix change from letters to parcels
(£70m)
(£40m)
(£110m)
Incremental costs of absence, social distancing,
protective equipment and other COVID-19 costs
*Not adjusted for the impact of elections in 2019-20.
(£80m)
(£60m)
(£140m)
Full year letter revenue decline of 16 per cent, with the weighting of volume loss towards lower average unit revenue
advertising mail services. Letter volumes slowly recover through the year, following the easing of lockdown. But the recession
that follows, coupled with some customer behavioural change, means that the decline rate remains significantly higher than
the norm.
Parcel revenue growth of 12 per cent, with the weighting of volume growth towards lower average unit revenue account
parcels. The high account parcel growth experienced during lockdown reduces through the year as high street retailers
re-open, although volume growth remains higher than normal as social distancing and consumer nervousness remain, with
some permanent behavioural change as online retail penetration accelerates. Total parcel revenue growth rate is negatively
impacted by revenue declines in International parcels, as the impacts of material price increases on international delivery
and increased friction following Brexit reduce traffic.
The accelerated growth in parcel volumes requires investment in additional manual sortation resource and incremental
logistics costs.
The ‘one off’ impacts of COVID-19, including higher than usual absence levels, the provision of protective equipment, the
higher costs associated with the deployment of social distancing measures, together with increasing provision for bad debts,
increases operational costs in the year.
ROYAL MAIL (UKPIL) CONTINUED
SCENARIO 2
Letter revenue decline
Parcel revenue growth
Domestic parcels revenue
International parcels revenue
UKPIL revenue decline*
13
HY1
HY2
2020-21
(22%)
(22%)
(22%)
17%
22%
1%
4%
9%
(11%)
10%
15%
(6%)
(£500-600m)
Net cost of mix change from letters to parcels
(£65m)
(£35m)
(£100m)
Incremental costs of absence, social distancing,
protective equipment and other COVID-19 costs
*Not adjusted for the impact of elections in 2019-20.
(£85m)
(£70m)
(£155m)
Letter revenue decline of 22 per cent, with the weighting of volume loss is towards lower average unit revenue advertising mail
services. The combination of a severe recession and the impacts of a second lockdown in the autumn/winter mean that letter
volumes remain materially impacted across the year.
Parcel revenue growth of 10 per cent, due to weighting of volume growth towards lower average unit revenue account parcels.
The high account parcel growth experienced during lockdown reduces as high street retailers re-open. A further lockdown in
the autumn/winter does not drive the same growth in volumes, as network capacity is restricted in our busiest trading period.
Volume growth remains higher than normal as social distancing and consumer nervousness remain, with some permanent
behavioural change as online retail penetration accelerates. Total parcel volume growth rate is negatively impacted by volume
declines in International parcels, as the impacts of material price increases on international delivery and increased friction
following Brexit reduce traffic.
The accelerated growth in parcels volumes requires investment in additional manual sortation resource and incremental
logistics costs.
The ‘one off’ impacts of COVID-19, including higher than usual absence levels, the provision of protective equipment and the
higher costs associated with the deployment of social distancing measures, increases the operational costs in the year.
GLS
SCENARIO 1
Revenue growth rate
Margin
HY1
HY2
2020-21
8% to 12% Flat to 2%
5% to 7%
c. 6%
The business is able to successfully respond to the swing in mix towards B2C and preserve margins of around 6%.
SCENARIO 2
Revenue change
Margin
HY1
HY2
2020-21
7% to 9% Flat to (5%) Flat to 2%
c.5%
A more significant impact driven by stronger volume decline, leading to higher cost and price pressure.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 14
Strategic Report – Financial and operational highlights continued
MITIGATING ACTIONS
In order to preserve cash, a number of short term mitigating actions have already been taken in response to the COVID-19 crisis.
No dividend paid in 2020-21
Capital programmes ceased or paused
Bonus cancelled for senior managers and reduced for other managers
Expected saving
in 2020-21
(£m)
150
c.175
30
At the same time, we have concluded talks with our banks which have agreed to relax the covenant restriction on our loan facility.
The previous covenants have been removed for the next three testing dates (September 2020 and 2021, and March 2021) and
replaced with a basic liquidity covenant. The viability assessment and statement has been made in the light of this amendment.
The cash which has been preserved will, subject to satisfactory business performance in the coming period, be diverted into
investment in restructuring initiatives.
INTERIM EXECUTIVE
CHAIR’S STATEMENT
Keith Williams
Interim
Executive Chair
READER’S NOTE
On 15 May 2020, Keith Williams assumed the role of interim
Executive Chair, Royal Mail Group. This section deals with
the strategic challenges the Group is seeking to address.
It also covers the governance, market and societal changes
that impacted the Group during 2019-20. An update on our
commercial, operating and financial performance can be
found in the Business review 2019-20.
Introduction
These are extraordinary times.
When I became Chair in May 2019, who could have predicted the
COVID-19 pandemic, which has impacted the markets in which
we operate, and countless people, communities and countries
across the globe, in such a short time? I would like to take this
opportunity, on behalf of the Board, to express our deepest
condolences to the families of those who have lost their lives to
COVID-19, including the families of some of our own employees.
In recent weeks, we have also announced Executive changes,
including the departure of Group CEO, Rico Back. We have
restructured our management to improve the position of our
two main businesses – Royal Mail and GLS – recognising
their different market positions and strategies. This includes
the appointment of Stuart Simpson as interim CEO of Royal
Mail. I have assumed the role of interim Executive Chair to
lead discussions with stakeholders about an accelerated
pace of change across the business. I stepped down from our
Remuneration Committee when I took on this interim role.
We have announced that Martin Seidenberg has been appointed
CEO of GLS, with immediate effect. Martin joined GLS in 2015
as CEO of GLS Germany. He became GLS Group Area Managing
Director, GLS Germany and Parcelforce Worldwide, in 2018.
Prior to joining the Group, Martin spent 15 years at Deutsche
Post DHL, where he held a variety of logistics and parcel
business related roles.
Martin will report directly to me in my role as interim Executive
Chair. To ensure greater focus, he will report directly to the
Board once I return to the Chair’s role.
15
James Rietkerk has stepped down as GLS Chief Executive
Officer. James has served as GLS Chief Executive Officer since
June 2018. Prior to that, he was GLS Chief Financial Officer
since April 2001. James has made a significant contribution to
Royal Mail over his 19 years with us. He has been instrumental
in growing and building GLS into the business that it is today.
He leaves GLS in excellent shape, having delivered record
results in 2019-20, and a strong start to 2020-21. On behalf of
the Board, I would like to extend my thanks to James and wish
him well in the future.
The Board and I are cognisant of the requirements of the UK
Corporate Governance Code with respect to my current role.
It is an interim appointment, for a short time only. I expect to
remain in the Executive Chair role until a permanent CEO of
Royal Mail is appointed. And, of course, in the interim, Royal
Mail Group is my single biggest commitment.
Thank you
In a moment, I will deal with our key strategic themes. Before I
do, I want to say thank you to our stakeholders, during what has
been the most significant disruption to our lives, businesses and
the financial markets since the Second World War.
First and foremost, I want to offer my profound thanks to all my
colleagues across the Group. Our UK postmen and women are
playing a crucial role in mitigating the impact of the pandemic.
They are key workers on the frontline. Our GLS colleagues have
also gone the extra mile in the many countries in which they
operate to support their customers and communities.
Simply put, the efforts of our people across the Group are
humbling. On behalf of the Board, I want to say thank you to
each and every one of them.
Strategic themes
As we have previously announced, we continue to expect
Royal Mail (UKPIL) to be materially loss-making in 2020-21.
GLS profitability may potentially be reduced in 2020-21.
Royal Mail (UKPIL)
In reality, our UK business has been facing significant
headwinds for some years. We have not always been as agile
as we might have liked when responding to change in the
marketplace and customer needs. Operationally, our heritage
as a letters-focused business means we are not as well
positioned as we would like to handle fewer letters and more
parcels. These factors, alongside cost increases, are driving
significant financial pressures.
The COVID-19 pandemic presents new, fundamental, challenges
to our business model – and to those of our customers.
Ensuring a sustainable, contemporary Universal Service
requires us to respond to this unprecedented global crisis, as
well as adapting to the changing realities of our marketplace.
Clearly, the unprecedented nature of the COVID-19 pandemic
means the outlook is difficult and volatile. To assist our
stakeholders, we have introduced a scenario-based stress test.
This is about outlining what our business performance might
look like against certain base-case assumptions at a particular
point in time. We hope this is helpful; although it is not, of
course, either a specific forecast or guidance in its own right.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 16
Strategic Report – Interim Executive Chair’s statement continued
In response to the scenarios, we have a plan to ensure Royal
Mail remains a key part of the UK economy, a good employer,
and the nation’s delivery partner of choice. Delivering it requires
a step change in the number of major initiatives we can
successfully deliver in a short period of time.
Firstly, we are going to continue to tackle the challenges posed
by COVID-19. We are implementing a range of immediate cost
control activities and reducing capital expenditure in a measured
way. Regrettably, one of these measures could see around
2,000 of our managers leave our business. This is subject to
consultation with Unite/CMA. Change of this nature is never easy.
But, we have a good track record of managing these programmes
carefully and sensitively. We will provide anyone leaving the
business with a support package to help them transition to the
next stage in their career, including life beyond Royal Mail.
Secondly, we are accelerating the pace of change in the UK
to address the longstanding challenges we face, created by
fundamental shifts in the way we communicate (fewer letters)
and shop (more B2C parcels).
At the heart of this plan is our intention to move from being
a UK-focused letters business that also delivers parcels to an
international parcels business that delivers letters in the UK.
The rationale underpinning our strategy is, in fact, even more
compelling now that we are dealing with the consequences of
COVID-19. We believe it is very important to work with our unions
to bring about the urgent change needed to deliver our UK strategy.
We welcomed and appreciated CWU’s statement that the COVID-19
crisis was not the time to take industrial action. We signed a
joint statement with the CWU on 15 May in which we awarded a
£200 payment to our frontline employees to recognise their hard
work to keep services running throughout the current COVID-19
pandemic. We continue to engage, on a regular basis and at a
senior level, with CWU and Unite/CMA on our plans for change.
Our engagement with CWU follows our recent Joint Statement
with the union whereby both parties committed to work on setting
up a joint framework for talks to seek to resolve our dispute.
Finally, we do not believe that the COVID-19 mitigation
measures and the delivery of our transformation plan will be
enough, in themselves, to ensure a sustainable future.
We are also working with the Regulator and Government on
a review of the USO. This is all about ensuring it is financially
underpinned, in a sustainable way, and future-proofed to reflect
changing customer needs and preferences. As Ofcom continues
its User Needs Review about the Universal Service, we will
engage with many stakeholders on the shape of a national
USO for the 21st Century. We look forward to the debate and
engagement to come.
GLS
Turning to GLS, COVID-19 also presents significant challenges.
B2B volumes have been adversely impacted; companies have
scaled down their commercial activities. Conversely, we have
seen a significant increase in B2C activity. Almost half of GLS’
volumes (48 per cent) are now accounted for by B2C; we expect
that to grow to around 58 per cent by the end of 2020-21.
Fundamentally, our GLS strategy is about capitalising on
growth opportunities in its key markets, while continuing to
improve performance in some of the countries in which we
operate. This includes France, Spain and the United States,
markets where progress is taking longer to realise than initially
anticipated. Our aim is to fix performance issues. But, we
will consider all options, including exit, for underperforming
businesses. The trend towards B2C parcel deliveries in some
markets offers us opportunities, as we maintain margins
through focused yield management. We will focus investment
on growing markets, strengthen our last mile delivery network
and broaden alternative delivery options as appropriate.
If we can do all this, we will add to the good cash generation GLS
has today. We are focusing on these short term improvements,
while looking at longer-term opportunities for the business.
Dividend and balance sheet strength
As previously announced, the Board has decided not to
recommend a final dividend for 2019-20.
Royal Mail is one of the most widely-held stocks in the FTSE,
with a quarter of our shares owned by retail shareholders, or our
colleagues. We recognise many shareholders rely on the income
from their shareholdings. We have taken this necessary action in
the interests of the longer-term sustainability of our business.
Taking into account the very challenging external environment,
the Board has confirmed that we do not expect dividends to be
paid in respect of 2020-21. Our ambition is to re-commence
dividend payments in 2021-22, supported by GLS.
We have also publicly announced that, as part of a series of
measures to maintain our strong financial position, the Board
has decided not to award an annual bonus to Executive Directors
and Royal Mail executives for 2019-20. In recognition of the role
played by our UK frontline staff, around £25 million has been set
aside to be paid as a cash bonus. Eligible colleagues received a
cash recognition award of up to £200 in June.
We believe the Group has a strong balance sheet and high
levels of liquidity. Our total liquidity, including undrawn
committed facilities, stands at around £1.9 billion. This includes
a £925 million syndicated bank loan facility. Our existing
covenants have been waived until March 2022 and replaced with
a basic liquidity covenant. Under both our stress test scenarios,
our balance sheet and liquidity would be robust, with access to
sufficient cash and unutilised facilities. We also have the ability
to access the UK Government’s COVID-19 Corporate Financing
Facility if required.
Board changes
In May, we announced that the Board and Rico Back had
agreed he would step down as Group CEO and from the Board
with immediate effect, leaving Royal Mail on 15 August 2020.
Prior to his appointment as Group CEO, Rico was a senior
Group Executive and led the development and growth of GLS.
On behalf of the Board, I would like to again thank Rico for his
contribution to our business.
As previously noted, Stuart Simpson has been appointed
interim CEO of Royal Mail. Stuart has spent over a decade at
Royal Mail, including three years as Chief Finance Officer and a
Board member. We will conduct a comprehensive internal and
external search for a permanent CEO of Royal Mail.
We have refreshed and strengthened the Board. Baroness Sarah
Hogg joined us in October 2019 as a Non-Executive Director and
Senior Independent Director. Sarah brings with her a wealth of
experience from the private and public sectors, including strategy,
public policy and governance. She is currently Senior Independent
Non-Executive Director of the Financial Conduct Authority, having
been Chair of 3i Group plc and a Non-Executive Director of other
companies, including BG Group Plc and GKN Plc.
Lynne Peacock joined us in November as a Non-Executive
Director and Chair of the Remuneration Committee, taking
over from Simon Thompson, who had assumed this role on an
interim basis. Lynne has had a distinguished career, including
in regulated industries undergoing extensive transformation.
Lynne is currently a Non-Executive Director of TSB Banking
Group plc and a Non-Executive Director of Serco Group plc,
where she chairs the Remuneration Committee.
Having joined us in May 2019, Michael Findlay and Maria da
Cunha’s experience have already benefitted the Board during
a busy and challenging time for the Company.
Returning to my comments earlier, in relation to COVID-19,
on behalf of the Board, I would like to reiterate my profound
thanks to everyone at Royal Mail.
Finally, I want to pass on my thanks to Les Owen, who stepped
down as Chairman on 22 May 2019. Les stepped into the
role at a difficult time, showing integrity and leadership, and
generously sharing his knowledge and experience. He leaves
with my thanks for his considerable contribution; not just to the
Board but to Royal Mail as a whole, over many years.
Their dedication, fortitude, and, most of all, their commitment to
delivering a little cheer alongside the daily post, has reminded
the public of the crucial role we play in a digital world.
Keith Williams
Interim Executive Chair
24 June 2020
17
SECTION 172 STATEMENT
The following disclosure is made in line with the Companies (Miscellaneous Reporting) Regulations 2018.
The Board of Directors of Royal Mail plc consider, both individually and together, that they have acted in the way they consider,
in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole (having
regard to the stakeholders and matters set out in Section 172 of the Companies Act 2006) in the decisions taken during the
year ended 29 March 2020.
The detailed information regarding our engagement with stakeholders provided on pages 104-109 and the discussion of the
Board’s consideration of the Company’s stakeholders during the COVID-19 outbreak on pages 110-111 describe how the
directors have had regard to stakeholders’ interests when discharging the directors’ duties, and are incorporated by reference
in this Section 172 Statement.
Duty to promote the success of the Company
A director of a Company must act in the way he/she considers, in good faith, would be most likely to promote the success
of the Company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to:
The likely consequences of any decision in the long term
The decisions we make have an impact on the long-term success of the Company. It is important that the likely
consequences and the impact these decisions have on our stakeholders are considered.
The interests of the Company’s employees
Our people play a key role in helping us achieve our strategic priorities. Engaged, committed employees are crucial
to our success.
The need to foster the company’s business relationships with suppliers, customers and others
We play a crucial role in connecting customers, communities and companies and strong working relationships are
key to this.
The impact of the company’s operations on the community and the environment
Stakeholders rank our community and environmental impact as one of the most important issues. We are
committed to reducing our emissions and improving air quality for communities in which we operate.
The desirability of the company maintaining a reputation for high standards of business conduct
Our impact extends beyond our direct business operations. We expect high standards of business conduct from
our suppliers. We have the ability to be a force for change in raising standards of social, environmental and
ethical conduct.
The need to act fairly between members of the company
It is important our members are treated fairly and that we build open and constructive relationships across our
investor base.
The discussion of our environment commitments on pages 81-85 in our Corporate Responsibility section, including in
particular our decision for GLS Germany to become carbon neutral on page 82, and to launch initiatives to reduce our fleet and
building emissions on pages 82-83 are examples as to how we have regard to our impact on the community and environment.
The discussion of our transformation strategy on pages 19-25 provides examples of decisions taken in the long-term
interests of the Company, such as the decision to move ahead with extending our trial of automated clocking in and out for
frontline colleagues at a small number of UK sites on page 20, and the decision to start work on the first of our state of the
art parcel hubs in Warrington which would handle 40,000 items per hour once fully operational, also on page 20.
The stakeholder engagement analysis and the discussion of decisions taken during the COVID-19 pandemic on pages 110-111
provides examples of how we build and maintain business relationships with suppliers, customers and others and take into
account the interest of our colleagues.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 18
Strategic Report – Interim Executive Chair’s statement continued
DELIVERING THROUGHOUT
THE COVID-19 PANDEMIC
The COVID-19 pandemic has been an unprecedented challenge
for our customers across the world. The delivery of parcels and
letters has been a key way of keeping people connected, and
helping many people who have been unable to leave their homes.
We have worked hard to deliver the most comprehensive service
possible to all our customers.
Now more than ever, the Universal Postal Service has provided
a lifeline to businesses and communities across the UK.
Many retailers shifted their operations online once their
shops closed. Our continued operation has allowed numerous
small businesses to stay open throughout the pandemic, with
services such as Click & Drop and Parcel Postboxes providing
businesses with a simple and easy to use process for sending
products to customers no matter where they are.
We have received many messages and pictures from our
customers in praise of the lengths our people have gone to
during the coronavirus crisis. We have now seen over two
million comments, likes and shares from the public as part
of our #ThumbsUpForYourPostie campaign in the UK.
Protecting our people and our customers
During the crisis, every decision we have made has put the
health of our people and our customers first.
We put in place clear governance processes to ensure that
decisions on changing our procedures and policies can be taken
quickly, in line with emerging health and safety guidance from
government and the health authorities. We have established
Gold, Silver and Bronze response teams which have Executive,
Director and Senior Management leadership, providing regular
reports to the Plc Board.
Working with our unions, we quickly implemented a number
of changes to our mail handling procedures to protect our
colleagues and our customers. These have included:
– Introducing ‘contact free’ deliveries in Royal Mail, Parcelforce
Worldwide and GLS to enable effective social distancing.
– Implementing a new system in the UK to capture receipt
of signatures without requiring customers to touch Postal
Delivery Assistants (PDAs), and waiving the requirement for
customer signatures in GLS.
– Revising standard ways of working across our sites to
ensure that, wherever possible, colleagues stay two metres
apart (1.5 metres in certain countries, in line with national
government advice). In the UK, this included introducing a
‘one person, one van’ rule, rearranging indoor and outdoor
operations, and staggering shift start times to reduce the
number of colleagues on site at once.
– Committing around £40 million to buying equipment such
as hand sanitiser, disposable gloves and other additional
protective measures to keep our people safe. We have worked
in partnership with a range of suppliers across the world to
source protective equipment for our people. This has included
companies that have switched their production lines to
manufacture hand sanitiser, from a gin distillery in Germany
to fragrance companies in the UK.
– Encouraging UK customers to arrange free redeliveries
rather than visiting our Customer Service Points to
collect items. We increased the retention periods for
parcels and mail to ensure ample time for customers to
arrange redelivery.
– Working quickly to formulate and implement appropriate
sick pay and absence policies. Colleagues, including those
with less than a year’s service, have received Royal Mail sick
pay for coronavirus or self-isolation in line with our sick
pay policy.
– Providing a substantial contribution to the Rowland Hill Fund
to support colleagues who are struggling financially as a
result of the pandemic.
– Issuing clear guidance and posters to colleagues across
the Royal Mail, Parcelforce Worldwide and GLS networks on
effective hygiene and protective equipment.
Supporting the Government’s COVID-19 effort
We have been a key partner in the Government’s response.
We were pleased that the UK Government recognised our
people as key workers during the crisis.
We were chosen by the UK Government as a key partner in the
delivery and return of testing kits. We are collecting samples
from more than 30 regional testing sites at the end of every
day and delivering them to designated testing labs first thing
the next morning. We are providing home collections of testing
kits UK wide, seven days a week. Our people are also delivering
prescriptions, hospital appointments and other government
communications as a key priority.
We have supported the Government’s public information
campaign on coronavirus, delivering letters from the Prime
Minister to all UK households. In addition, we added a postmark
to millions of letters carrying the UK Government’s message to
“Stay Home, Protect the NHS, Save Lives”.
We have engaged with Government, Ofcom and other
stakeholders on a constant basis throughout the crisis.
Ofcom and Government have acknowledged that COVID-19 is
an emergency situation, and that a pragmatic approach has
been required in response. This included, but is not limited to,
a temporary six week relaxation of letter delivery frequency.
Normal services resumed on 13 June 2020.
BUSINESS REVIEW
2019-20
READER’S NOTE
This section reviews our financial, commercial and operating
performance for the full year to 29 March 2020. Our reported
results are prepared in accordance with International
Financial Reporting Standards (IFRS) and are set out in the
‘Group Results’ section of the Financial Review on pages
43 to 53.
In addition to reported results, the Group’s performance is
also explained through the use of Alternative Performance
Measures that are not defined under IFRS. Management is
of the view that these measures provide a meaningful basis
on which to analyse business performance.
We also provide updates about the impact of COVID-19
on our business.
Review of 2019-20¹
Looking back at the key elements of our financial performance
over a challenging year, we have achieved adjusted Group
operating profit of £325 million. Excluding the impact of IFRS
16, the performance of £312 million was within our target range
of £300-340 million.
Group revenue was up 3.8 per cent, driven by: GLS revenue
growth of 9.5 per cent; UK parcel revenue growth of 4.6 per
cent; and better than expected UK letter revenue, due to
targeted price increases and the benefit of two elections.
The revenue performance did not offset other financial
pressures. Adjusted UKPIL operating costs were up 2.8 per cent,
and the same elections that benefitted letter revenue meant
increased quality investment, contributing to a productivity
improvement of 1.0 per cent, below our initial target of over
two per cent. Adjusted UKPIL operating profit was down
41.2 per cent.
Focused yield management activities at GLS, including positive
developments in average pricing, contributed to strong growth
in adjusted operating profit to £208 million. But, adjusted Group
operating profit declined by 13.6 per cent.
In-year trading cash flow increased £439 million to £556 million,
due to the positive impact of IFRS 16 (£141 million), working
capital inflow and lower capital expenditure. Including undrawn
committed funds, our total liquidity is around £1.9 billion.
We have the ability to access the Covid Corporate Financing
Fund (CCFF) if required.
19
Progress against our strategic plan
In May 2019, we announced our plan to build a parcels-led,
more balanced, more diversified, international business.
Our plan is comprehensive. It seeks to address our challenges
through three strategic priorities:
– “Turnaround and grow” the UK;
– “Scale up and grow” GLS; and
– Enhancing our cross-border proposition.
1. Turnaround and grow the UK
Turnaround and grow the UK is at the heart of our
transformation plan. Our intention is to move from being a
UK-focused letters business that also delivers parcels, to an
international parcels business that delivers letters in the UK.
As the interim Executive Chair sets out on page 15, the strategic
rationale underpinning our transformation plan is even more
compelling now we are dealing with the consequences of
COVID-19.
Combined, the impacts on our UK business of the pandemic
and changing structural trends – fewer letters; more parcels
– mean a step change is required in terms of the number of
significant change programmes we can deliver over a short
period of time.
In 2019-20, UKPIL revenue increased by 1.6 per cent. This was
driven by a good performance in parcels, and lower than
expected letter revenue declines due to the benefit of a
European Parliamentary Election and a General Election in
the period. We have no reason to expect a similar benefit this
financial year. More broadly, UKPIL operating profit has fallen
by more than 70 per cent since its peak in 2014-15.
We are engaging with our unions on how we might accelerate
the pace of change in the UK (see page 22). Over time, the
successful delivery of our plan should change the dynamics
around the contributions of letters and parcels.
COVID-19 has made this even more pressing. It poses a
fundamental challenge to our business model; we are delivering
more parcels and fewer letters than ever before. Pursuing our
strategy to automate parcel handling and fix our delivery
network was already the right thing to do. These developments
underline the need to transform the business even more quickly,
working, as much as possible, with our key stakeholders.
1
All comparisons with the prior year are against the adjusted 52 week results.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 20
Strategic Report – Business review 2019–20 continued
1a) Renewed focus on productivity and operational excellence
In this foundation year of our change programme, we sought to
improve efficiency and productivity. Despite increasing UKPIL
costs, in part driven by our three-year pay deal with CWU, we
achieved costs avoided of £188 million, within our forecast
range. Productivity improved by 1.0 per cent, lower than our
original target of over two per cent. This reflects necessary
additional investment to support quality and delays to local
change initiatives due to the industrial relations environment.
We sought to embed a range of digitally-enabled work tools
to improve efficiency and productivity. We have completed
the deployment of our route optimisation tool. It improves
visibility of changes to delivery routes and is used to undertake
delivery revisions.
We scaled up the use of PDA Outdoor Actuals. Alongside our
Resource Scheduler tool, it draws data from across the
operation to enable better alignment of duty sets and rosters
to demand.
In January 2020, following the conclusion of our dispute
resolution procedures with CWU, we confirmed we were
moving ahead with key national and much-needed local change
initiatives that had been delayed, in some cases, by up to a year.
That included extending our trial of automated clocking in and
out for frontline colleagues at a small number of UK sites.
Handwritten signing-on sheets are the norm for most of our
UK employees. We want to move to “Automated Hours Data
Capture” (AHDC) to ensure that we resource adequately to the
workload demand in all our UK sites. The system also provides
health and safety and efficiency benefits. As well as rolling out
AHDC to further sites, we will be using data from PDA Outdoor
Actuals to optimise resource planning across the operation.
Growth of two per cent in UK parcel volumes continues to
be driven by online shopping. We are seeking to increase –
quickly – the number of parcels we sort automatically. We have
installed a further ten parcel machines, meaning we now have
20 machines at 16 Mail Centres. This has driven the percentage
of parcels sorted by machine to 33 per cent at year end, close
to three times the average number sorted automatically during
2018-19. We want to increase the overall proportion to over 80
per cent by installing automated machines in all Mail Centres
and building two dedicated parcel hubs by 2023-24.
The continued structural decline in UK letter volumes is driving
the removal of automated letter sorting machines in our Mail
Centres, with 79 machines – around 10 per cent of the total –
removed or decommissioned during the year.
1b) Network extension
A major part of our plan is the extension of the UK
network, specifically to handle larger and Next Day parcels.
The structural shift – not only in the UK delivery market, but
across the globe – towards Next Day or Same Day delivery
means it is expected to be the fastest growing delivery
time category.
We began to build out our network during the year. In July 2019,
we said we had started work on the first of our state-of-the-art
parcel hubs. Located in Warrington, close to major shippers,
it will handle 40,000 items per hour when fully operational.
We have chosen the supplier for automation and have
completed the fit out. In February 2020, we signed a conditional
agreement for a lease for our second parcel hub in the
Midlands. Once larger and Next Day items have been processed
at one of our hubs, they will be transported to a number of
our larger Delivery Offices. Some will go out on a second daily
van delivery.
In January 2020, we launched a van-based trial to test a
separate daily delivery of larger parcels and Next Day items.
The trial began in Swindon and was expanded to a small
number of additional sites. These trials are ongoing. Once they
are complete, we will work through the outcomes with our
people and their unions.
Our enhanced network will usher in a major increase in delivery
frequency for consumers and SMEs. There will potentially be
two deliveries a day in many parts of the country from 2023
onwards. Firstly, the usual combined delivery of letters and
small parcels. Secondly, the later daily delivery of large parcels
that have been ordered online, including in many instances the
night before.
Turnaround and grow: our progress
Renewed focus on productivity:
– Put in place 73 delivery revisions. Well-developed plans
for three more waves, completing an additional 300
during 2020-21.
– 1.4 per cent reduction in core network hours.
– Productivity improvement of 1.0 per cent, reflecting
investment to support quality.
Transform our network:
– Linehaul arrangements being updated and data shared
with Mail Centres for improvement opportunities.
– 11 Mail Centre layouts – optimising flow and processing
– approved.
1c) Letters and parcels
i. Parcels performance
Our performance in 2019-20 reflects the fundamental shift in
the way consumers and companies use delivery companies.
Account parcel volumes were up, with Tracked 24®/48® and
Tracked Returns® – our key e-commerce products – delivering
double-digit growth for the 12th consecutive year. We processed
2.6 million Tracked parcels on our busiest day. This growth
has been supported by the introduction of our Age and ID
Verification products, together with successful propositions
focused on the faster growing sectors and customers.
We continued to improve customer convenience and flexibility
with a series of product and service enhancements. In April 2019,
we launched earlier customer notifications. They advise recipients
the day before of their delivery day and give an estimated delivery
time. Over time, customers will receive shorter estimated delivery
windows. Around a third (33 per cent) of online shoppers want
to receive information about their parcel the day before delivery,
according to Royal Mail’s own research. Many competitor networks
only predict delivery times on the morning of delivery.
We rolled out a range of new features on our mobile app to help
senders and recipients manage their deliveries more effectively.
Senders can now check a price and buy one-off postage directly
through the app. Our UK “industry first” Augmented Reality
Parcel Sizer enables customers to work out the right postage.
It will also keep customers updated with automatic notifications
as their parcel moves through Royal Mail’s network, so there is
no need for them to check for information and updates.
In June 2019, Parcelforce Worldwide launched a new
Tariff Code look up tool. Tariff Codes are an internationally
recognised standard which enable the easy identification of
items by customs authorities, regardless of language barriers.
The tool enables customers to easily and quickly search for
the right product Tariff Codes for the item they wish to send.
In September 2019, the Parcelforce App was updated to include
new and improved tracking functionality, with the added ability
to select a preferred Post Office using a look up map tool
and address option. In addition, in August 2019, Parcelforce
Worldwide launched its new age verification service. ’Challenge
25’ ensures its catering supply customers can continue to
deliver bladed items, in preparation for the pending legislation
on the delivery of restricted items.
In October 2019, we completed the roll out of 1,400 Parcel
Postboxes, enabling 24-hour access for customers sending or
returning parcels. This is the first UK-wide network of parcel
posting boxes, and the biggest change to the postbox in its
160-year history.
21
We informed our colleagues in June 2020 that we are integrating
Parcelforce Worldwide and Royal Mail International more closely
into Royal Mail (UKPIL). Parcelforce Worldwide will retain its
brand identity and network. These changes will ensure that
we have one integrated domestic and international parcels
strategy that best serves the changing needs of the market and
customers. We will use our assets in a more integrated and
efficient way.
Parcelforce Worldwide saw increased costs pressures last year,
as a result of: product mix; inflation and lower productivity; and,
in the fourth quarter, the impact of COVID-19. This has triggered
an impairment review of Parcelforce Worldwide assets, and
consequently a non cash impairment charge of £91 million in
respect of certain assets. For more detail see Note 6.
ii. Letters performance
Addressed letter volumes (excluding election mailings) declined
eight per cent, within our expected revised range. Total letter
revenue was down 0.9 per cent, benefitting from two election
mailings and targeted price increases.
We are optimising our letters product portfolio and pricing
strategy. Business mail makes up the majority (c. 64 per
cent) of addressed mail volumes (excluding International and
elections). Advertising mail is around 27 per cent. Our range
of products, incentives and offers are designed to demonstrate
how mail can help their businesses. One example is our new
Partially Addressed product. Aimed at advertisers targeting
new customers, it allows them to reach recipients without using
personal data. Customers can access strictly non-personalised
geo-demographic data, from fully consented individuals.
Another product, Late Bookings, for unaddressed mail,
enables customers to access additional postcode sectors
at a significant discount.
Sustainability is an increasingly important issue for our
customers. Organisations are beginning to replace plastic
magazine wrappings with biodegradable starch ones. Over time,
we have invested in upgrading our large letter sorting machines
to enable processing of unwrapped items. We are also working
with a number of customers and mail producers to test
biodegradable wraps.
COVID-19 update: Letters and parcels
During the pandemic, and the associated lockdown period,
we have seen very strong growth in B2C UK parcels.
Domestic account volumes (excluding Amazon) were up
65 per cent in the first two months of 2020-21. Our tracked
products – mainly Tracked 24®/48® and Tracked Returns®
parcels, our key online retail products – are up 76 per cent.
International import volumes improved during April and May.
Addressed letter volumes (excluding the impact of elections)
have fallen 33 per cent as a consequence of the COVID-19
pandemic. Advertising mail volumes are down 63 per
cent, as businesses’ mailings are postponed or cancelled.
Business mail has been more resilient, declining by
19 per cent.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 22
Strategic Report – Business review 2019–20 continued
Our people
i. Our managers
The contribution and dedication of our managers is central to
the performance of our business. In October 2019, we were
pleased to confirm that managers who are members of Unite/
CMA voted in favour of a pay agreement recommended by
the union. Managers received a pay increase of 2.6 per cent,
backdated to 1 September 2019, and will receive a pay increase
of 2.7 per cent from 1 September 2020. They received an Annual
Bonus advance in December 2019. In recognition of their
continued contribution, we are paying a flat rate bonus payment
to all our managers (except our senior leaders) for the entire
year, adjusted for the December advance.
ii. Frontline colleagues
Our ongoing dispute with CWU has been one of the defining
issues of 2019-20. In May 2019, CWU informed us it considered
that we were not honouring and deploying our 2018 Agreement.
We have honoured all our Agreements – including the
2018 Agreement – to the letter. We have awarded two pay
increases (five per cent in 2017 and two per cent in April 2019).
We implemented the first hour’s reduction of the Shorter
Working Week, although we did not obtain all the cost saving
measures to pay for it. This amounted to a pay increase of
10 per cent in two years. We have worked closely with CWU,
and continue to do so, to lobby Government to enable Collective
Defined Contribution (CDC) pension schemes under UK law,
for the first time in the UK.
But, an analysis of the productivity and efficiency opportunities
in our Agreement found that, to fund it, there needed to be a
step change in the pace and focus of the initiatives within it,
and a greater focus on day-to-day operational excellence.
Industrial relations
Ballots for industrial action
Our Agreements are designed to support industrial stability.
Yet, in 2019-20, we saw six national ballots (Royal Mail and
Parcelforce Worldwide) for industrial action. On 15 October
2019, CWU announced a vote in favour of industrial action
amongst its Royal Mail members. On 13 November 2019,
the High Court granted an interim injunction against this
ballot. The Court of Appeal upheld this decision, following
a CWU challenge.
Employees within Parcelforce Worldwide are the subject of
separate ballot notices. We note that CWU did not achieve the
50 per cent turnout threshold with respect to its first
Parcelforce Worldwide ballot, which relates to honouring our
Agreements with CWU. The second ballot, which received a
vote in favour of industrial action, relates to our proposal to
transfer Parcelforce Worldwide into a new legal entity and TUPE
Parcelforce Worldwide’s 6,500 colleagues into the new company.
We never wanted to take legal action. We wrote to CWU setting
out the information on which our case was based. We asked
CWU to confirm it would refrain from taking industrial action,
due to clear evidence it had interfered with the ballot process.
CWU declined to do so.
We welcomed the High Court’s decision, and the subsequent
support of that judgment by the Court of Appeal. Trade union
legislation is designed to safeguard democratic integrity by
ensuring union members can vote in the privacy of their own
homes, rather than in any public process. As is the case with
any electoral process, it is vital our colleagues can vote without
any constraint imposed on them by any other party.
We are disappointed with the outcome of CWU’s subsequent
ballot for national industrial action. In February 2020, we offered
a six per cent, three-year pay proposal for our CWU-grade
people at Royal Mail. CWU did not accept this offer.
We welcomed and appreciated CWU’s statement that the
COVID-19 crisis was not the time to take industrial action.
We signed a joint statement with the CWU on 15 May in which
we awarded a £200 payment to our frontline employees to
recognise their hard work to keep services running throughout
the current COVID-19 pandemic. We continue to engage, on a
regular basis and at a senior level, with CWU and Unite/CMA
on our plans for change. Our engagement with CWU follows
our recent Joint Statement with the union whereby both parties
committed to work on setting up a joint framework for talks to
seek to resolve our dispute
COVID-19 update: Our people
Our people’s dedication, fortitude, and commitment has
reminded the public of the crucial role we play in a digital
world. Our UK postmen and women play a crucial role in
mitigating the impact of the pandemic. Our GLS colleagues
have also gone the extra mile in the many countries in which
they operate to support their customers and communities.
Protecting our people and the communities we serve has
been our top priority. We were one of the first delivery
companies to introduce contact free delivery. We changed
standard ways of working to ensure, wherever possible,
colleagues stay two metres apart. That includes a new rule
so that only one person is in a Royal Mail delivery vehicle at
any one time.
In recognition of their contribution as designated key
workers, around £25 million has been set aside as a cash
bonus for UK frontline colleagues. Those who, since March,
have been at work throughout the crisis will receive a cash
recognition award of up to £200 each.
2. Scale up and grow GLS
GLS’s ‘scale up and grow’ strategy to strengthen its position
in its core markets and build its business in higher growth
areas is helping increase our capacity, reach and expertise
across our Group. We are investing in our networks to take
advantage of the growth in the B2C market. We have increased
the number of parcel shops to support online shopping and
customer convenience.
Revenue growth was achieved in the majority of GLS’ developed
European markets. GLS Germany remains the largest GLS
market by revenue. Its revenue grew by 9.7 per cent, driven
by higher volumes and improved pricing. The German logistics
market remains highly competitive, including from Amazon
rolling out its own delivery service in most areas of the country.
There was continued strong volume and revenue growth
in Europe East as we continue to drive higher B2C volumes.
Croatia and Slovakia achieved the strongest revenue and
profit growth in Central and Eastern Europe. GLS Hungary
also delivered a strong performance, with double-digit revenue
growth. Following the expansion of capacity in its Budapest
hub in 2018-19, GLS Hungary has continued to expand its
customer base.
GLS’ presence in the Western United States allows it to offer
shorter ground delivery times than its competitors. This, in
turn, is enabling it to win more business and benefit from
growth in interstate deliveries. Our programme to integrate
Postal Express and Golden State Overnight, and move to GLS’
proven sub-contractor model, has been completed. Losses have
reduced during the period.
During the year, we acquired Mountain Valley Express, a family
owned business that provides freight transportation services
to a broad range of customers across the Western United
States. Dicom, our Canadian business and one of our largest
acquisitions in recent years, performed in line with expectations
for the year.
Following the acquisitions of Redyser and ASM in 2018 and
2016 respectively, we have now completed the integration
of both companies in GLS Spain. Efficiency will be further
improved by the rationalisation of a small number of network
overlaps. Performance in France remains behind plan.
In September 2019, GLS France announced the appointment of
a new Managing Director and a refreshed management team.
Together, they are leading improvement plans that focus on
quality and targeting profitable segments.
23
Across the GLS network, a number of initiatives are being
introduced with customer convenience in mind. In the
Netherlands, GLS introduced a Saturday Service, to support
B2C customers. In Italy, GLS launched a returns service for
easier customer returns. ReturnService streamlines the returns
process, giving the recipient a link to a dedicated web page
where they can organise their return. The customer can then
opt for home collection, drop-off elsewhere, or delivery to one
of over 150 GLS depots or to a GLS Shop.
To deal with growing parcel volumes across the network,
GLS has invested in a number of new hubs and depots across
Europe. In Amsterdam, GLS has constructed a new depot,
which doubles its capacity for parcel processing. The new
depot is also environmentally efficient, with solar panels on
the roof, supplying the depot with electricity and heat pump
heating to reduce consumption and CO2 emissions. There are
also charging stations for electric vehicles. We are, similarly,
enhancing depots and hubs across Europe to enhance the GLS
network and optimise the parcel handling process.
Scale up and grow GLS: our progress
Customer-focused service improvements:
– GLS Denmark extended ParcelShops service to receive
parcels six days a week.
– GLS Netherlands SaturdayService for online shoppers,
for goods ordered on a Friday.
– GLS Ireland customers will be able to post, collect or
return GLS parcels at c.400 service points in future.
New depots to increase capacity:
– Styria, Austria: increasing handling capacity by 70% –
handling 29,000 parcels a day.
– Amsterdam: facility allows twice the number of parcels
to be handled compared with previous facility.
– Essen, Germany: due to open Autumn 2020, depot will
act as regional distribution hub for other sites in the area,
as well as a European hub.
– Horsens, Denmark: taking total number of facilities in the
country to nine. The 3,200 sq m facility can handle 25,000
parcels a day, with room for further expansion.
COVID-19 update: GLS
Many GLS countries have been affected by the pandemic,
due to factors including increased sickness absence,
declining B2B volumes and high B2C share. B2B volumes
have been impacted by COVID-19, as companies have scaled
down their commercial activities. Conversely, we have seen
a significant increase in B2C activity in many of our markets.
Almost half of GLS’ volumes are now accounted for by B2C
and we expect that to grow to around 58 per cent in 2020-21.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 24
Strategic Report – Business review 2019–20 continued
In May 2019, Ofcom announced the conclusion of its
investigation into our Quality of Service performance for
2017-18. It confirmed that – in this specific circumstance – a
financial penalty is not appropriate. We welcome this decision.
At the same time, it announced that Ofcom had opened two
further investigations in relation to Royal Mail.
The first relates to our Quality of Service performance in
2018-19, in connection with First Class mail. We are
disappointed that our regulatory First Class Quality of Service
performance for 2018-19 was 91.5 per cent, below the target
to deliver 93 per cent of this mail the next working day.
Second Class Quality of Service met the regulatory target.
We delivered 98.6 per cent of this mail within three working
days, against a target of 98.5 per cent. We take our commitment
to delivering a high-quality service very seriously.
The second investigation relates to the regulated Second Class
Safeguard Cap. We confirmed in February 2019 that, due to
an error on our part, our new Second Class stamp price of
61 pence was one penny above the existing regulatory safeguard
cap for seven days. We apologised for this mistake as soon
as we realised we had made it. We sought to put it right by
donating the revenue that we expected to collect from the
error – around £60,000 – to our Charity of the Year, Action
for Children.
On 14 August 2018, Ofcom published its decision following its
investigation into whether Royal Mail had breached competition
law. The investigation was launched in February 2014, following
a complaint brought by TNT Post UK (now Whistl). Ofcom found
that Royal Mail had abused its dominant position in the market
for bulk mail delivery services in the United Kingdom by issuing
Contract Change Notices on 10 January 2014 which introduced
discriminatory prices. It fined Royal Mail £50 million.
Royal Mail lodged an appeal with the Competition Appeal
Tribunal (CAT) on 12 October 2018 to have both Ofcom’s decision
and fine overturned. On 12 November 2019, the CAT issued its
judgment, which upheld Ofcom’s decision and fine (which is
now payable). In January 2020, Royal Mail requested permission
to appeal the CAT’s judgment to the Court of Appeal (CoA).
On 30 March 2020, the CoA granted Royal Mail permission and
indicated that a hearing would be held over one to two days in
mid-2021.
In October 2018, Whistl filed a damages claim against Royal
Mail at the High Court relating to Ofcom’s decision. Whistl’s
High Court claim is on hold until after the completion of the
appeal process. Royal Mail believes Whistl’s claim is without
merit and will defend it robustly if Whistl decides to pursue it.
3. Enhancing our cross-border proposition
The large, and growing, cross-border market represents a
growth opportunity, predominantly centred on Europe, North
America and Asia. Revenue growth was achieved despite
challenging trading conditions.
The majority of cross-border volumes are deferred parcels
(including small parcels). While there are limited synergies to
be had in the short term, Royal Mail provides GLS with access
to the lightweight small parcel segment, where national postal
operators usually have a cost advantage, due to their final mile
networks. By combining the Royal Mail International and GLS
network propositions, we also aim to build our presence in the
larger export parcel market (above 2kg) – another growth area.
In July 2019, in collaboration with China Post, we launched a
new tracked and signed service to China. Customers can now
track their package, from arrival in a UK Mail Centre to arrival in
China, via Royal Mail. China is already the world’s largest online
market with ecommerce experiencing exceptional year on year
growth. According to our Delivery Matters research, 90 per cent
of online shoppers in China would make purchases online more
if there were a wider range of delivery and tracking options.
Key external issues
i. Regulatory environment
There have been significant changes to how universal service
operators across the world charge each other for postal
activity under the auspices of the Universal Postal Union (UPU).
These changes were driven at the governmental level, and
have considerable relevance to US arrangements in particular.
In essence, the US will now be charging (with effect from
1 July 2020) other countries a great deal more for delivery.
Royal Mail, unfortunately, will have to pass on these costs to
its customers, but will not profit in doing so. It is with regret
that we are making these USO parcel pricing changes. In doing
so, we have sought to minimise the impact on consumers
and small businesses sending parcels to the United States.
In addition, COVID-19 has meant we have had to use air freight
rather than scheduled, commercial, flights to ship mail to
the US. This is considerably more expensive, and for some
months we have borne the cost ourselves for most customers.
From July, we will need to also pass on this increased cost to
all our customers.
Quality of Service is a key priority for us; we know how much
this matters to our customers. We devote significant resources
to delivering a high quality of service. We published our
2019-20 Quality of Service results in May 2020. We exceeded
our annual regulatory target of 98.5 per cent for Second Class
mail, delivering 98.7 per cent within three working days.
We missed our annual regulatory target for First Class mail,
delivering 92.6 per cent the next working day, against a target
of 93.0 per cent. The full year outcome for First Class mail
was significantly impacted by COVID-19. This led to high levels
of coronavirus-related absences during the tail end of the
2019-20 financial year. Up until 15 March 2020, we were meeting
our First Class target with a performance of 93.0 per cent.
We believe, if the 2019-20 performance was adjusted to take
into account the impact of coronavirus, we would have achieved
our First Class target. We are asking Ofcom to take these issues
into consideration.
ii. COVID-19 update
COVID-19 has generated a range of major challenges in relation
to the provision of regulated postal services. Understandably,
our UK absence level increased significantly and, while it has
now moderated, it remains much higher than normal. At the
same time, the Company has, rightly, put in place a number
of important social distancing measures (e.g. one person per
van, etc.). These actions are vital to protect the safety of our
colleagues. But, they do impact, in a material way, our ability
to deliver to the requisite regulatory requirements.
At the beginning of the pandemic, we clearly communicated to
customers that service disruption was, despite our best efforts,
likely. We subsequently announced a six-week temporary
relaxation of delivery frequency arrangements in relation to
letters. This means that, for the six weeks to 13 June 2020,
letters were delivered five days a week; we continued to deliver
most parcels on a six days a week basis.
It is clear that it will take some time now for the UK to return
to “normal”. Accordingly, we expect that a range of social
distancing measures could remain in place, in one shape or
another, for some time. This may have a significant impact on
our operations even as we have also increased our investment
in quality measures. We are actively engaging with Ofcom on
these issues.
iii. USO sustainability
The postal USO is a highly specified, longstanding UK Universal
Service. As the physical delivery arm of e-commerce in the UK,
it is a key part of the country’s broadband economy. COVID-19
has again demonstrated the key role that the USO is playing in
connecting companies, customers and communities across the
nation. The postal USO is also the Post Office’s main customer
and is therefore key to ensuring its sustainability as well.
The unique structural circumstances relating to the USO,
however, remain very much in place. Ongoing, and significant,
structural decline in letters is coupled with intense competition
in parcels. The USO operates in a fragile ecosystem. There are
significant, and growing, risks to it, particularly in relation to
its financial sustainability. Royal Mail has noted these risks
before in a number of submissions to the Regulator and
the Government.
Providing the Universal Service means being able to deliver
to nearly 31 million addresses, six days a week. This requires
high volumes – and revenues – to fund doing so. But, given
the decline in letters, in the last ten years or so, the average
number of items per address has almost halved from two
to nearly one. At the same time, the ability of the regulated
business to make profits to sustain itself – the USO is entirely
market funded, with no Government funding – is coming under
significant strain. In the last five years, the profits made by
the Reported Business have fallen by about 95 per cent¹. It is
expected to be loss making in 2020-21.
25
Ofcom is continuing its User Needs Review about the Universal
Service. We believe that many of the key USO features are
valued by consumers and SMEs. They include uniformity,
universality, affordability and measurability. But, they all have
to be paid for at a time when COVID-19 has exacerbated the
underlying problems facing the USO. For example, since the
beginning of this financial year (2020-21) letter volumes have
declined about 33%, around four times the decline rate we saw
in 2019-20.
For its part, Royal Mail has a stretching self-help programme
in place. This involves significant investment in the Universal
Service when our finances are under challenge; we expect to be
materially loss-making in the UK this year. In addition, we plan
to address the very specific challenges presented by COVID-19.
We do not believe, however, that successful delivery of our
transformation and COVID-19 mitigation plans will be enough
in themselves to underpin the long-term stability of the USO.
That is why, alongside engaging with our unions on our own
plans to put Royal Mail in a better position, we are working
with the Regulator and Government on the Universal Service.
This is all about ensuring it is financially underpinned, in
a sustainable way, and future-proofed to meet customers’
changing priorities. Ofcom will embark on a public consultation
on the USO, and Royal Mail will engage, at the same time, with
many stakeholders on a USO for the 21st century. From its own,
detailed research, the Company anticipates that many of the
current features of the USO should remain in place, subject
to regulatory and Government approval. We look forward to
the debate and engagement to come, including ensuring the
Universal Service has the requisite financial resources to
sustain itself.
1
The Reported Business is the regulated entity, defined by Ofcom, which delivers the USO.
2019-20 Reported Business EBIT financeability margin is still subject to the Regulatory
Audit process.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 26
Strategic Report
MARKET
OVERVIEW
In the short time since the COVID-19 pandemic was declared in March 2020, it has caused severe disruption to retail and supply
chains around the world. In the postal industry, the crisis has augmented and accelerated underlying structural trends in letters
and parcels, specifically letters decline and B2C parcels growth. Consumers’ consumption habits have changed due to the spread
of the virus and stay-at-home measures implemented in many countries. Businesses have responded by implementing cost-cutting
programmes or prioritising spend on essential/strategically important initiatives. It is not yet clear to what extent these changes
will persist once the COVID-19 crisis has abated.
UK parcels
47.9%
of UKPIL revenue
Fast facts:
UK letters
52.1%
of UKPIL revenue
Digital disruption
Quality and value matter
Demand for faster services
Environmental concerns
COVID-19
UK e-commerce growth is outpacing the
wider retail market, primarily driven by
younger ‘digital native’ consumers. Retailer
investments in technology including visual
search, voice search and augmented reality
are supporting the switch from physical to
online shopping
Consumers have come to expect free delivery,
at a defined time and location to suit them,
and more control over deliveries. Subscription
boxes are increasing in popularity, driving
customer loyalty, order frequency and value
The rollout of 5G and superfast broadband is
supporting the growth in online shopping, at
all times and in all places. Fast, convenient
returns services have become essential
to enable stock recirculation and quicker
With environmental concerns growing in
importance, consumers are increasingly
looking for more sustainable deliveries,
With non-essential retailers closed
during the early stages of the pandemic,
e-commerce growth has been exceptionally
including zero emissions. Retailers and parcel
strong, with several weeks of significantly
operators are setting up city logistics hubs to
higher parcel volumes than usual. Online
reimbursement to shoppers
shorten final mile deliveries
retail adoption has increased, even among
those who have traditionally been ‘
digitally resistant’
UK e-commerce sales are estimated to have
grown by 13% in 2019, to account for just
under a fifth of all retail sales
34% of UK consumers belong to a subscription
or delivery pass scheme
Although speed of delivery is important,
83% of UK consumers prefer the retailer
they’re buying from to provide a range
of delivery speeds
Online shoppers are prepared to opt for
slower delivery if it means a reduction
Two in five people say they will shop online
more frequently, even after many UK shops
in emissions
reopen after lockdown
Letter volume decline in the UK has
accelerated as companies increasingly look to
reduce spending and switch to digital forms
of communication. Technology, automation
and advanced analytics are enabling greater
personalisation and effectiveness of marketing
communications
70% of people say mail, rather than email,
makes them feel valued and gives them a
better impression of the company that sent it
makes up 60% of the total UK advertising
market. With ever-increasing fixed and
mobile broadband speeds, digital advertising
is only likely to grow further, providing more
immersive, personalised and local advertising
experiences
sent by mail
Digital advertising has grown such that it now
Pressure is increasing to reduce or eliminate
UK letters were already impacted by
plastic packaging, including for magazines
lower business confidence due to Brexit
uncertainty, driving addressed letter
volume declines above our medium-term
forecasts. With many businesses closed
and advertisers cutting spend due to the
pandemic, we have seen an accelerated
decline in recent months
Fast facts:
Addressed letter volumes in the UK have
fallen more than 50% since 2004
49% of adults prefer to receive bills and
statements in the post
Direct mail remains the third largest
Collectively, 19 postal operators have reduced
UK direct mail advertising spend is
advertising medium in UK, behind digital
CO2 emissions by around 30% and electricity
expected to fall 21% in 2020. Addressed
and TV, but its share of the total advertising
use by 24% over 10 years
market has fallen from c.11% in 2010 to
c.5% in 2019
letter volumes (excluding election
mailings) declined 33% in first two months
of 2020-21
International
9.2%
UKPIL revenue from international
parcels to and from UK
Fast facts:
Data and technology are enabling more
frictionless trade, speeding up the
cross-border delivery process
UK consumers are very price sensitive when
shopping cross-border, with over half of UK
cross-border purchases for items valued at
below £20
Retailers and marketplaces are opening
Cross-border online shoppers increasingly
fulfilment centres closer to their international
expect transparency of information on
With air freight significantly constrained,
increased border controls and customs
sustainability of products they are purchasing
regulations, cross-border shipments were
significantly disrupted during the early
stages of the pandemic
customers to shorten supply chains.
Geographic strategic partnerships are
improving speed of delivery for shippers and
consumers
Just two marketplace platforms account
for 70% of UK cross-border purchases
Almost two thirds of UK consumers received
free shipping on their most recent cross-
border online purchase
35% of cross-border online shoppers say that
51% of UK cross-border consumers would like
The Universal Postal Union reported a
fast delivery is very important
the packaging of their parcels to be recyclable
record 21% drop in global postal volumes
between 23 January and 14 May 2020
European parcels
26.3%
Group revenue from European parcels
Parcel operators are investing in automated
processing and building capacity to meet
increased demand for e-commerce parcels.
They are building out parcel locker networks
for convenient contact free B2C deliveries
and returns
The increasing power of parcel shippers is
driving improvements in service levels, whilst
keeping prices low
Large online marketplaces are establishing
Parcel operators are committing to reduce
Post and parcel operators have reported
their own delivery operations, getting closer
carbon emissions, investing in electric/
to customers and cutting delivery lead times
renewable fuel vehicles and technology-
led delivery solutions. B2C urban delivery
solutions are being deployed to reduce
pollution and traffic congestion
significantly increased B2C parcel volumes,
particularly in high growth regions such as
Eastern Europe. B2B volumes have been
negatively impacted, especially in the early
weeks of the crisis
Fast facts:
Investment is increasing in new technologies
and processes to improve efficiency and
reduce final mile delivery costs
Shippers’ most valued criteria for choosing
parcel operators are price and reliability
Fast and flexible deliveries have become
The EU is aiming to be carbon neutral by 2050.
Due to the restrictions to personal
standard in mature European
e-commerce markets
Net Zero targets
Some European countries are adopting earlier
movement in many markets, demand for
home delivery – already the most popular
delivery option in many markets – has
been very strong
27
UK parcels
47.9%
of UKPIL revenue
Fast facts:
UK letters
52.1%
of UKPIL revenue
Digital disruption
Quality and value matter
Demand for faster services
Environmental concerns
COVID-19
UK e-commerce growth is outpacing the
wider retail market, primarily driven by
Consumers have come to expect free delivery,
at a defined time and location to suit them,
younger ‘digital native’ consumers. Retailer
and more control over deliveries. Subscription
investments in technology including visual
boxes are increasing in popularity, driving
search, voice search and augmented reality
customer loyalty, order frequency and value
are supporting the switch from physical to
online shopping
The rollout of 5G and superfast broadband is
supporting the growth in online shopping, at
all times and in all places. Fast, convenient
returns services have become essential
to enable stock recirculation and quicker
reimbursement to shoppers
With environmental concerns growing in
importance, consumers are increasingly
looking for more sustainable deliveries,
including zero emissions. Retailers and parcel
operators are setting up city logistics hubs to
shorten final mile deliveries
With non-essential retailers closed
during the early stages of the pandemic,
e-commerce growth has been exceptionally
strong, with several weeks of significantly
higher parcel volumes than usual. Online
retail adoption has increased, even among
those who have traditionally been ‘
digitally resistant’
UK e-commerce sales are estimated to have
34% of UK consumers belong to a subscription
grown by 13% in 2019, to account for just
or delivery pass scheme
under a fifth of all retail sales
Although speed of delivery is important,
83% of UK consumers prefer the retailer
they’re buying from to provide a range
of delivery speeds
Online shoppers are prepared to opt for
slower delivery if it means a reduction
in emissions
Two in five people say they will shop online
more frequently, even after many UK shops
reopen after lockdown
Letter volume decline in the UK has
70% of people say mail, rather than email,
accelerated as companies increasingly look to
makes them feel valued and gives them a
reduce spending and switch to digital forms
better impression of the company that sent it
of communication. Technology, automation
and advanced analytics are enabling greater
personalisation and effectiveness of marketing
communications
Digital advertising has grown such that it now
makes up 60% of the total UK advertising
market. With ever-increasing fixed and
mobile broadband speeds, digital advertising
is only likely to grow further, providing more
immersive, personalised and local advertising
experiences
Pressure is increasing to reduce or eliminate
plastic packaging, including for magazines
sent by mail
Fast facts:
Addressed letter volumes in the UK have
49% of adults prefer to receive bills and
fallen more than 50% since 2004
statements in the post
Direct mail remains the third largest
advertising medium in UK, behind digital
and TV, but its share of the total advertising
market has fallen from c.11% in 2010 to
c.5% in 2019
Collectively, 19 postal operators have reduced
CO2 emissions by around 30% and electricity
use by 24% over 10 years
UK letters were already impacted by
lower business confidence due to Brexit
uncertainty, driving addressed letter
volume declines above our medium-term
forecasts. With many businesses closed
and advertisers cutting spend due to the
pandemic, we have seen an accelerated
decline in recent months
UK direct mail advertising spend is
expected to fall 21% in 2020. Addressed
letter volumes (excluding election
mailings) declined 33% in first two months
of 2020-21
International
9.2%
UKPIL revenue from international
parcels to and from UK
Data and technology are enabling more
frictionless trade, speeding up the
cross-border delivery process
UK consumers are very price sensitive when
shopping cross-border, with over half of UK
cross-border purchases for items valued at
below £20
Retailers and marketplaces are opening
fulfilment centres closer to their international
customers to shorten supply chains.
Geographic strategic partnerships are
improving speed of delivery for shippers and
consumers
Cross-border online shoppers increasingly
expect transparency of information on
sustainability of products they are purchasing
With air freight significantly constrained,
increased border controls and customs
regulations, cross-border shipments were
significantly disrupted during the early
stages of the pandemic
Fast facts:
Just two marketplace platforms account
for 70% of UK cross-border purchases
Almost two thirds of UK consumers received
free shipping on their most recent cross-
35% of cross-border online shoppers say that
fast delivery is very important
51% of UK cross-border consumers would like
the packaging of their parcels to be recyclable
border online purchase
The Universal Postal Union reported a
record 21% drop in global postal volumes
between 23 January and 14 May 2020
European parcels
26.3%
Fast facts:
Group revenue from European parcels
and returns
They are building out parcel locker networks
for convenient contact free B2C deliveries
Parcel operators are investing in automated
The increasing power of parcel shippers is
processing and building capacity to meet
driving improvements in service levels, whilst
increased demand for e-commerce parcels.
keeping prices low
Large online marketplaces are establishing
their own delivery operations, getting closer
to customers and cutting delivery lead times
Parcel operators are committing to reduce
carbon emissions, investing in electric/
renewable fuel vehicles and technology-
led delivery solutions. B2C urban delivery
solutions are being deployed to reduce
pollution and traffic congestion
Post and parcel operators have reported
significantly increased B2C parcel volumes,
particularly in high growth regions such as
Eastern Europe. B2B volumes have been
negatively impacted, especially in the early
weeks of the crisis
Investment is increasing in new technologies
Shippers’ most valued criteria for choosing
and processes to improve efficiency and
parcel operators are price and reliability
reduce final mile delivery costs
Fast and flexible deliveries have become
standard in mature European
e-commerce markets
The EU is aiming to be carbon neutral by 2050.
Some European countries are adopting earlier
Net Zero targets
Due to the restrictions to personal
movement in many markets, demand for
home delivery – already the most popular
delivery option in many markets – has
been very strong
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 28
Strategic Report
BUSINESS MODEL
Our business model faced significant challenges prior to COVID-19. In addition, we expect the pandemic will have a profound
impact on our business model and those of our customers and competitors. It continues to be too early to calibrate the precise
impact of the pandemic. We believe, however, there will be an acceleration in the number of B2C parcels ordered online, both in
the UK and in our main overseas markets. At the same time, we are currently experiencing a very significant decline in UK letter
volumes. These trends underline the need to accelerate the pace of change in the UK. The uncertainty around our key UK volumes
means we have set out, elsewhere in this Report, a number of potential scenarios, as part of a stress test we have published.
As we refine our understanding over time, we will update the business model accordingly.
Business area
Market context
Inputs
Strategic priority and initiatives
Our KPIs
Value created
Value shared
L
I
P
K
U
S
L
G
S
T
E
K
R
A
M
L
L
A
Addressed letter
volume declines
accelerating,
due to COVID-19
B2C parcels growing
even more
International parcel
volumes impacted by
COVID-19 pandemic
B2B activity has
declined, due to
COVID-19
B2C volumes
increasing.
Expected to grow
at accelerated rate
due to COVID-19
Parcel markets
highly competitive
in most places we
operate. Expect this
to continue
Increasing labour
costs, reflecting
increasing sick
absence, overtime
and agency resource
Network
Our combined parcels and letters network
delivers the UK’s Universal Service with
a leading offering on service and price.
Through c. 1,200 Customer Service Points,
c.115,000 postboxes and over 11,600 Post
Office branches across the country, we are
the UK’s most accessible delivery operator.
As one of Europe’s largest ground based,
deferred parcel networks, GLS operates
in 36 countries and nation states
across Europe.
Together, Royal Mail International and GLS
have relationships with postal and other
partners around the world.
People
With over 140,000 UK colleagues, we deliver
c. 13bn letters and c. 1.3bn parcels a year
We provide the best terms and conditions
of employment in our industry in the UK.
We offer 19,000 GLS employees secure, fairly-
paid employment with long-term prospects
and career development. GLS promotes a
culture of openness and transparency.
Technology
We have a strong technology infrastructure
in all our businesses. In the UK, we securely
handle over 1.4bn data points daily. We innovate
to deliver improved products and services
for customers and transform our operations
to deliver efficiency gains. For example, new
digital work tools like Automated Hours
Data Capture, Resource Scheduler and PDA
Outdoor Actuals will deliver better alignment
of resources to workload and a data driven
approach to people management.
Investment
Since privatisation, we have invested heavily
in our UK business.
Our investment also supports targeted
and focused investment in GLS, as we
seek to grow organically and inorganically.
Overall investment will be reduced due to
COVID-19 pressures. It will remain sufficient
to drive our UK transformation and relevant
GLS activity.
Brands
COVID-19 has underlined the key role we
play delivering items at a time of crisis in
many countries.
Royal Mail’s postmen and women, our red vans
and our postboxes are part of the fabric of the
UK. Havas Media’s 2019 survey rated Royal
Mail one of the UK’s top three ‘meaningful’
brands. GLS is a highly respected brand,
with a leading position in the majority of its
European markets.
Turnaround
and grow in the UK
UK transformation even more important
due to COVID-19.
Renewed focus on productivity: operational
excellence and key work tools.
Extending our UK network to:
a) deliver a reduction in the unit cost of
handling larger and small parcels; and
b) secure productivity gains.
Market leading terms and conditions,
a major UK geographical presence and
enhanced customer service.
UK Parcels and Letters: becoming a parcels-
led business; letters remain important.
Read more – pages 19-22
Scale up
and grow GLS
Targeting revenue growth.
Stabilise and improve profit margins.
Continue to invest in profitable markets
and B2C capabilities.
Read more – page 23
Expand in
cross-border parcels
Leverage Royal Mail International’s
cross-border expertise and reach.
Limited synergies to be had between
Royal Mail and GLS in the short term. In the
medium term, an international presence
is clearly important.
Pan-European solution for Asian imports.
Read more – pages 24-25
The GLS business model is also undergoing significant change. B2C now accounts for almost half its volumes, with accelerated
growth to come in the short term, we believe, due to COVID-19. We continue to believe that GLS provides important revenue
diversification and cash generation characteristics for the Group. Our strategic priority continues to be to grow GLS, and that
an international presence is clearly important, albeit there are limited synergies between Royal Mail and GLS to be had in the
short term.
29
Business area
Market context
Inputs
Strategic priority and initiatives
Our KPIs
Value created
Scorecard group operating profit
Adjusted Group operating profit
£325
MILLION
2018-19
536
2019-20
353
£353
MILLION
Scorecard UKPIL costs
Dividends paid
7,365
7,574
£244
MILLION
2018-19
2019-20
£7,574
MILLION
Scorecard group revenue
2018-19
2019-20
10,481
10,800
£10,800
MILLION
First Class Retail Quality of Service
91.8
92.8
2018-19
2019-20
92.8%
Lost time accidents
2018-19
-9.2
2019-20
-22%
UK economy contributor
7TH
LARGEST
Capital expenditure across
Royal Mail and GLS
£342
MILLION
-22
Reductions in CO2 emissions
since 2004-5
31.9%
L
I
P
K
U
S
L
G
S
T
E
K
R
A
M
L
L
A
Addressed letter
volume declines
accelerating,
due to COVID-19
B2C parcels growing
even more
International parcel
volumes impacted by
COVID-19 pandemic
B2B activity has
declined, due to
COVID-19
B2C volumes
increasing.
Expected to grow
at accelerated rate
due to COVID-19
Parcel markets
highly competitive
in most places we
operate. Expect this
to continue
Increasing labour
costs, reflecting
increasing sick
absence, overtime
and agency resource
Turnaround
and grow in the UK
UK transformation even more important
due to COVID-19.
Renewed focus on productivity: operational
excellence and key work tools.
Extending our UK network to:
a) deliver a reduction in the unit cost of
handling larger and small parcels; and
b) secure productivity gains.
Market leading terms and conditions,
a major UK geographical presence and
enhanced customer service.
UK Parcels and Letters: becoming a parcels-
led business; letters remain important.
Scale up
and grow GLS
Targeting revenue growth.
Stabilise and improve profit margins.
Continue to invest in profitable markets
and B2C capabilities.
Expand in
cross-border parcels
Leverage Royal Mail International’s
cross-border expertise and reach.
Limited synergies to be had between
Royal Mail and GLS in the short term. In the
medium term, an international presence
is clearly important.
Pan-European solution for Asian imports.
Value shared
Investors
We are one of the most widely held stocks in the FTSE 250.
Through our comprehensive shareholder engagement
programme – from our largest investors to associations
representing retail shareholders – we are building open and
constructive relationships across our investor base.
The Board is not recommending a final dividend, due to the
significant and not yet fully understood financial implications
of the COVID-19 pandemic. No dividend is expected to be paid in
respect of 2020-21. Ambition to re-commence dividend payments
in 2021-22, supported by GLS.
Employees
As the UK’s Universal Service Provider, we are proud to be a
critical part of the UK’s infrastructure. Our “feet on the street”
network is providing a vital lifeline to the communities we serve
– especially during the COVID-19 crisis. We are proud to have
provided continued employment for our over 140,000 colleagues,
on enhanced sick absence terms.
GLS provides employment to approximately 19,000 colleagues
across 40 markets, including continental Europe, Canada and the
Western United States.
Customers
We touch the lives of tens of millions of people every year. As the
UK’s Universal Service Provider, we can connect nearly 31 million
householders and businesses every day. GLS serves over 240,000
clients across its markets, with an increasing proportion of
B2C customers.
Thanks to our scale and reach, we are proud to play a crucial
role in connecting customers, communities and companies
and supporting the democratic process through the delivery
of election mailings.
Regulatory and political stakeholders
Although we are strictly politically neutral, we engage with
Governments of all the markets we operate in, at all levels.
By constantly reinventing the role postal services play in modern
life, we seek to remain a relevant partner to companies and
consumers in an increasingly digital economy.
Ofcom is conducting a User Needs Review around the USO.
We believe that many of key USO features are valued by
consumers and SMEs. We look forward to the debate and
engagement to come, including ensuring the Universal Service
has the requisite financial resources to sustain itself.
Unions
We value the input of the CWU and Unite/CMA, and the role
they play in representing the interests of our workforce. We are
committed to open and constructive engagement with them about
all issues that affect our colleagues and their workplaces.
Local communities
We are creating long-term benefits for the communities we serve,
through our social and economic impact, and our community
investments. Stakeholders rank community impact as a key
issue for our business. They expect us to operate responsibly
and maintain our presence in local communities.
Suppliers
We engage with our suppliers through fair contracting processes,
and efficient ordering and payment. We proactively engage with
our suppliers to promote awareness of our policies and monitor
compliance with our Responsible Procurement Code. It sets
out the rigorous standards of ethical, social and environmental
conduct we expect.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information
30
Strategic Report
MEASURING
OUR PERFORMANCE
The 2019-20 Corporate Balanced Scorecard was refreshed and approved by our shareholders as part of our remuneration
policy at our 2019 Annual General Meeting. This reflected shareholders’ feedback as we prepared our remuneration policy.
They requested a simplification of our annual bonus measures, with more weight on the financial metrics.
The Board has determined that no bonuses will be paid for 2019-20 to Executive Directors or Royal Mail Executives.
KPI and strategic link(s) measured by1
Scorecard group operating profit2, 3, 4
Scorecard UKPIL costs3
Scorecard group revenue4
£353M
(2018-19: £536M)
17-18
18-19
£7,574M
(2018-19: £7,365M)
£10,800M
(2018-19: £10,481)
£685m
17-18
£7,112m
17-18
£10,051m
91.7%
£536m
18-19
£7,365m
18-19
£10,481m
91.8%
18-19
-9.2%
19-20
£353m
19-20
£7,574m
19-20
£10,800m
92.8%
19-20
-22%
A gateway level of performance must
be achieved for any award under the
Annual Bonus Scheme.
To improve efficiency and drive
operating costs to a lower rate
(as a function of volume).
Measured in the year 2019-20
including the impact of adopting
IFRS 16, after transformation costs
but before voluntary redundancy
charges. Adjusted for budgeted foreign
exchange rates.
Measured in the year 2019-20 as
total operating costs including the
impact of adopting IFRS 16 for UKPIL.
Includes transformation costs but
excludes voluntary redundancy charges
and GLS costs.
– Adjusted Group operating profit
decreased to £353 million.
– Adjusted UKPIL costs increased by
2.8 per cent on a like-for-like basis.
To incentivise revenue growth,
particularly in parcels in the UK and
across the GLS countries of operation.
Measured as total revenue for Royal Mail
Group, adjusted for the budgeted foreign
exchange rate.
– Group revenue was £10,800 million.
– Largely due to the lower level of
profitability in UKPIL and a change
in definition (prior year numbers were
exclusive of transformation costs;
current year includes transformation
costs, but does not include voluntary
redundancy charges).
– This was largely due to people costs
pressures (including frontline staff
and managers’ overall compensation)
which were not fully offset by
productivity gains.
– Prior year figures are on a 53 week
basis and exclude transformation
costs. Current year is on a 52 week
basis, including transformation
costs but excluding voluntary
redundancy charges.
Performance against target
2019-20:
£353m
(above threshold,
below target)
2018-192:
£536m
(below threshold)
2017-182:
£685m
(above target)
2019-20:
£7,574m
(above threshold,
below target)
2018-19:
£7,365m
(above threshold,
below target)
2017-18:
£7,112m
(above target)
2019-20:
£10,800m
(above target)
2018-19:
£10,481m
(above threshold)
2017-18:
£10,051m
(above target)
2019-20:
92.8%
2018-19:
91.8%
2017-18:
91.7%
(below target)
(below target)
(below target)
2019-20:
22%
reduction
(above target)
2018-19:
9.2%
reduction
2017-18:
–
Not a KPI
Link to strategy
Read more – pages 19-25
Read more – pages 19-22
Read more – pages 19-25
Read more – pages 19-22
Read more – pages 19-25
Reduction in Lost Time
Accident Frequency Rate
-22%
(2018-19: -9.2%)
First Class Retail
Quality of Service5
92.8%
(2018-19: 91.8)
17-18
18-19
19-20
Regulated measure ensures we
focus on the customer – and that
cost containment does not impact
service levels.
Targets a continually improving safety
culture for employees, customers
and communities.
Measured as the total number of
Measured as percentage of First Class
accidents resulting in an absence
retail products delivered by the next
on the next day or shift, per 100,000
working day, which may be adjusted
hours worked.
for force majeure.
– First Class Quality of Service: missed
of 0.38, down 22 per cent compared
93.0 per cent target, with performance
with 2018-19.
– Lost Time Accident Frequency Rate
of 92.8 per cent.
– Achieved 98.5 per cent Second Class
mail target, with performance of
98.8 per cent.
31
As a result, the number of KPIs on the Corporate Balanced Scorecard has been reduced from ten to five, with the three financial
measures (Group Operating Profit, UKPIL costs and Group revenue) accounting for up to 85 per cent of the annual bonus
opportunity. The Corporate Balanced Scorecard links all managers’ remuneration to our performance. Further details relating
to the link between our KPIs and Executive Remuneration, and the Corporate Balanced Scorecard for 2019-20, can be found
in the Directors’ Remuneration Report on page 128. Information on Executive Directors’ strategic objectives for 2019-20 can
be found in the Directors’ Remuneration Report.
First Class Retail
Quality of Service5
92.8%
(2018-19: 91.8)
17-18
18-19
19-20
Reduction in Lost Time
Accident Frequency Rate
-22%
(2018-19: -9.2%)
Key
‘Turnaround and grow’ in the UK
‘Scale up and grow’ GLS
Enhancing our cross-
border proposition
91.7%
91.8%
18-19
-9.2%
92.8%
19-20
-22%
Regulated measure ensures we
focus on the customer – and that
cost containment does not impact
service levels.
Measured as percentage of First Class
retail products delivered by the next
working day, which may be adjusted
for force majeure.
– First Class Quality of Service: missed
93.0 per cent target, with performance
of 92.8 per cent.
– Achieved 98.5 per cent Second Class
mail target, with performance of
98.8 per cent.
Targets a continually improving safety
culture for employees, customers
and communities.
Measured as the total number of
accidents resulting in an absence
on the next day or shift, per 100,000
hours worked.
– Lost Time Accident Frequency Rate
of 0.38, down 22 per cent compared
with 2018-19.
2018-192:
£536m
2017-182:
£685m
2019-20:
2018-19:
2017-18:
2019-20:
2018-19:
2017-18:
£7,574m
£7,365m
£7,112m
£10,800m
£10,481m
£10,051m
(above threshold,
(below threshold)
(above target)
(above threshold,
(above threshold,
(above target)
(above target)
(above threshold)
(above target)
2019-20:
92.8%
(below target)
2018-19:
91.8%
(below target)
2017-18:
91.7%
(below target)
below target)
below target)
2019-20:
22%
reduction
(above target)
2018-19:
9.2%
reduction
2017-18:
–
Not a KPI
Read more – pages 19-25
Read more – pages 19-22
Read more – pages 19-25
Read more – pages 19-22
Read more – pages 19-25
1
2
3
4
5
Financial KPIs are calculated using budgeted exchange
rates with adjustments made, ie: unbudgeted
acquisitions. As a result, the financial KPI figures
presented in this section are different to the adjusted
figures reported elsewhere.
In 2017-18 and 2018-19 we reported Group operating
profit before transformation costs.
Adjusted to reflect the cash impact of pensions.
This metric includes transformation costs but excludes
voluntary redundancy charges.
Reported results are adjusted to reflect a constant
foreign exchange rate of £1/€1.15 in GLS.
Adjustments are also made to remove the impact of
the first year of the Mountain Valley Express acquisition
in 2019-20.
The First Class Retail Quality of Service measure
comprises First Class stamped and metered mail.
First Class Regulatory Quality of Service, referenced
on pages 11, 24 and 76 of this report, comprises First
Class stamped and metered mail, plus single piece PPIs
(Printed Postage Impressions). PPIs enable customers
to print postage in-house directly onto labels or
envelopes, without the need for franking machines.
KPI and strategic link(s) measured by1
Scorecard group operating profit2, 3, 4
Scorecard UKPIL costs3
Scorecard group revenue4
£353M
(2018-19: £536M)
17-18
18-19
£7,574M
(2018-19: £7,365M)
£10,800M
(2018-19: £10,481)
£685m
17-18
£7,112m
17-18
£10,051m
£536m
18-19
£7,365m
18-19
£10,481m
19-20
£353m
19-20
£7,574m
19-20
£10,800m
A gateway level of performance must
To improve efficiency and drive
To incentivise revenue growth,
be achieved for any award under the
operating costs to a lower rate
Annual Bonus Scheme.
(as a function of volume).
particularly in parcels in the UK and
across the GLS countries of operation.
Measured in the year 2019-20
including the impact of adopting
Measured in the year 2019-20 as
total operating costs including the
Measured as total revenue for Royal Mail
Group, adjusted for the budgeted foreign
IFRS 16, after transformation costs
impact of adopting IFRS 16 for UKPIL.
exchange rate.
– Group revenue was £10,800 million.
but before voluntary redundancy
Includes transformation costs but
charges. Adjusted for budgeted foreign
excludes voluntary redundancy charges
exchange rates.
and GLS costs.
– Adjusted Group operating profit
– Adjusted UKPIL costs increased by
decreased to £353 million.
2.8 per cent on a like-for-like basis.
– Largely due to the lower level of
– This was largely due to people costs
profitability in UKPIL and a change
pressures (including frontline staff
in definition (prior year numbers were
and managers’ overall compensation)
exclusive of transformation costs;
which were not fully offset by
current year includes transformation
productivity gains.
costs, but does not include voluntary
redundancy charges).
– Prior year figures are on a 53 week
basis and exclude transformation
costs. Current year is on a 52 week
basis, including transformation
costs but excluding voluntary
redundancy charges.
Performance against target
2019-20:
£353m
below target)
Link to strategy
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information
32
Strategic Report
FINANCIAL
REVIEW
Reported results and Alternative Performance Measures (APMs)
Reported results are prepared in accordance with International Financial Reporting Standards (IFRS) and are set out in the
sections entitled ‘Presentation of results and Alternative Performance Measures’ (APMs), and ‘Consolidated financial statements’.
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 is of the view 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 we use are explained in the section entitled ‘Alternative Performance Measures’ and reconciliations to the closest
measure prescribed under IFRS are provided where appropriate.
Group, UKPIL and GLS reporting periods
The Group and UKPIL results are for the 52 week period to 29 March 2020. The GLS financial period is the 12 months to
31 March 2020.
Changes in disclosures and metrics used in external reporting
We have made changes to our financial and non-financial disclosures and metrics used in external reporting. This is to improve
transparency, accuracy and understanding and to eliminate ‘underlying’ movements. All numbers presented in this Financial
Review are on the new basis. A summary of the changes are set out below:
1. UK letters and parcels revenue and volumes have been allocated using a new methodology which reduces our reliance on
sampling by using Post Office traffic data. This change only impacts the allocation of revenue between stamped letters and
parcels and some international export products. Total UKPIL revenue remains unchanged.
2. Transformation costs are now incorporated within their relevant operating cost categories within UKPIL operating costs.
3. Comparisons with the prior year are no longer presented on an ‘underlying basis’. From the 2019-20 financial year onwards
no underlying adjustments in respect of working days, foreign exchange movements, acquisitions or any one-off items will be
made to the prior year. Any factors having a material impact on year on year comparisons are highlighted in the narrative to
the results.
The tables below and on the following pages reconcile the 52 weeks 2018-19 adjusted results presented in this Financial Review to
the 52 weeks 2018-19 adjusted results published previously. The reconciliation of the 53 weeks 2018-19 adjusted results are shown
on page 56.
UKPIL volumes
(m)
Parcels
Royal Mail
Parcelforce
Total parcel volume
Letters
Addressed
Unaddressed
Total letter volume
For footnotes, see page 35.
52 weeks
March 2019
as previously
published
Re-presented
52 weeks March
2019
Movement
1,224
99
1,323
10,266
2,880
13,146
(36)
–
1,188
99
(36)
1,287
230
10,496
–
2,880
230
13,376
33
Adjusted 52 weeks
March 2019
as previously
published
UK letters
and parcels
revenue
Transformation
costs
Re-presented
adjusted
52 weeks
March 2019
3,903
3,692
7,595
(4,975)
(4,975)
–
(2,288)
(827)
(819)
(642)
(7,263)
332
(133)
199
154
(154)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(87)
(41)
(46)
(46)
–
–
(46)
4,057
3,538
7,595
(5,062)
(5,016)
(46)
(2,334)
(827)
(819)
(688)
(133)
(7,396)
–
133
–
–
–
199
Adjusted 52 weeks
March 2019
as previously
published
Transformation
costs
Re-presented
adjusted
52 weeks
March 2019
10,444
–
10,444
(5,642)
(5,642)
–
(4,293)
(2,591)
(988)
(714)
(87)
(41)
(46)
(46)
–
–
(46)
(5,729)
(5,683)
(46)
(4,339)
(2,591)
(988)
(760)
(9,935)
(133)
(10,068)
509
(133)
376
–
133
–
–
–
376
UKPIL
(£m)
Revenue
Letters
Parcels
Total revenue
Operating costs
People costs
People costs
Voluntary redundancy costs¹
Non-people costs
Distribution and conveyance costs
Infrastructure costs
Other operating costs
Total operating costs
Adjusted operating profit before transformation costs
Transformation costs
Adjusted operating profit
Group
(£m)
Revenue
Operating costs
People costs
People costs
Voluntary redundancy costs¹
Non-people costs
Distribution and conveyance costs
Infrastructure costs
Other operating costs
Total operating costs
Adjusted operating profit before transformation costs
Transformation costs
Adjusted operating profit
For footnotes, see page 35.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 34
Strategic Report – Financial review continued
In-year trading cash flow
(£m)
Adjusted EBITDA
Trading working capital movements
Share-based awards (SAYE, LTIP and DSBP) charge adjustment
Total investment³
Income tax paid
Research and development expenditure credit
Net finance costs paid
In-year trading cash flow
For footnotes, see page 35.
53 weeks
March 2019
Transformation
costs
Voluntary
redundancy
charge to cash
difference²
Re-presented
53 weeks
March 2019
935
(237)
7
(133)
–
–
–
10
–
802
(227)
7
(487)
133
(10)
(364)
(91)
2
(12)
117
–
–
–
–
–
–
–
–
(91)
2
(12)
117
Impact of IFRS 16
The Group adopted IFRS 16 which replaced IAS 17 with effect from 1 April 2019. The results for the full year ended 31 March 2019
have not been restated for the impact of IFRS 16.
IFRS 16 has a material impact on the Group as it requires the recognition of assets and liabilities for the majority of leases.
Operating lease costs previously recognised in operating costs are replaced by a depreciation charge on the ‘right-of-use’ assets
and finance costs on the lease liabilities. The total cash outflow for lease payments does not change. However, the payments
related to the principal liabilities are now presented as cash outflows from financing activities, as opposed to the previous
treatment as cash outflows from operating activities. The impact of IFRS 16 on the 2019-20 Full Year results is set out below:
Impact on operating costs
(£m)
Decrease in distribution and conveyance costs (operating lease costs)
Increase in infrastructure costs
Property (operating lease costs)
Depreciation charge
Net decrease in operating costs
Net increase in operating profit
Impact on in-year trading cash flow
(£m)
Adjusted operating profit
Depreciation and amortisation
Adjusted EBITDA
Net finance costs paid
Net increase in in-year trading cash flow
UKPIL
(18)
8
(92)
100
(10)
10
GLS
(11)
8
(48)
56
(3)
3
Group
(29)
16
(140)
156
(13)
13
Group
13
156
169
(28)
141
Impact on opening balance sheet
(£m)
Property, plant and equipment
Trade and other receivables
Total assets
Current lease liabilities
Other current liabilities
Non-current lease liabilities
Other non-current liabilities
Total liabilities
Net assets
35
Group
1,045
(20)
1,025
(118)
5
(944)
33
(1,024)
1
Footnotes for Financial Review – Introduction section
1 Voluntary redundancy costs of £46 million were previously included in Transformation costs of £133 million. This is now
presented as a separate line.
2 The voluntary redundancy charge to cash difference represents the timing difference between when the voluntary redundancy
charge is expensed to the income statement and when the cash payment is made.
3 Re-presented investment of £364 million reflects total gross capital expenditure.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 36
Strategic Report – Financial review continued
ROYAL MAIL (UKPIL)
Reported results
Summary results
(£m)
Revenue
Operating costs
Operating profit before specific items
Operating specific items
Operating (loss)/profit
Operating (loss)/profit margin
For footnotes, see page 39.
Reported
52 weeks
March 2020
Re-presented¹
reported
53 weeks
March 2019
7,720
7,732
(7,711)
(7,568)
9
(149)
(140)
164
(92)
72
(1.8%)
0.9%
The detailed reported results for UKPIL are set out in the paragraph entitled ‘Segmental reported results’. Reported revenue
was £12 million lower than the prior year, although the prior year included £137 million of revenue relating to the 53rd week.
The current year includes £82 million of revenue from mailings relating to the European Parliamentary election and UK
General Election.
Operating profit before specific items decreased to £9 million, driven by increased distribution, conveyance and people costs,
including a higher pension charge to cash difference adjustment. Operating specific items were £149 million, largely comprising
a £91 million impairment charge relating to Parcelforce Worldwide assets, a provision for a regulatory fine of £50 million and
associated interest from Ofcom and the Employee Free Shares Charge of £4 million. Operating specific items in the prior year
largely related to the accounting consequences of the purchase of a further insurance policy for the Royal Mail Senior Executives
Pension Plan (RMSEPP), which resulted in a charge of £64 million, and the Employee Free Shares charge of £22 million.
UKPIL generated an operating loss of £140 million for the year, compared with an operating profit of £72 million in the prior year,
which included £35 million of operating profit in relation to the 53rd week.
37
Adjusted results
The Group makes adjustments to reported results under IFRS to exclude specific items and the IAS 19 pension charge to cash
difference adjustment as set out in the paragraph entitled ‘Specific items and pension charge to cash difference adjustment’.
Summary trading results
(£m)
Letters
Parcels
Revenue
Operating costs
Operating profit
Operating profit margin
Letters volumes (m)
Addressed letters
Addressed letters (excluding election mailings)
Unaddressed letters
Total letters
Parcels volumes (m)
Royal Mail
Parcelforce Worldwide
Total parcels
For footnotes, see page 39.
Adjusted
52 weeks
March
2020
4,021
3,699
7,720
Re-presented1
adjusted
53 weeks
March
2019
Re-presented1
adjusted
52 weeks
March
2019
4,136
3,596
7,732
4,057
3,538
7,595
(7,603)
(7,498)
(7,396)
Change2
(0.9%)
4.6%
1.6%
2.8%
117
1.5%
234
3.0%
199
(41.2%)
2.6%
(110bps)
10,047
10,709
10,496
2,603
2,928
2,880
12,650
13,637
13,376
1,211
1,210
1,188
101
100
99
1,312
1,310
1,287
(4%)
(8%)
(10%)
(5%)
2%
2%
2%
Total revenue was up 1.6 per cent. Parcel revenue, up 4.6 per cent, more than offset the letter revenue decline of 0.9 per cent.
See the Financial Highlights section on pages 6-14 for an update on the first two months of 2020-21.
Total parcel volumes increased by two per cent. Growth in domestic account parcels was partially offset by weaker imports,
a result of lower Sterling and in particular the impact of COVID-19 in the fourth quarter. Royal Mail domestic account parcel
volumes, excluding Amazon, were up five per cent as we won new customers and gained more traffic from existing customers.
In the second half, growth moderated due to the threat of industrial action. Royal Mail Tracked 24®/48® and Tracked Returns®
volumes, our key e-commerce products, grew by 18 per cent. This growth has been supported by the introduction of our Age and
ID Verification products together with some successful propositions focused on the faster growing sectors and customers. We saw
stronger e-commerce volumes in the fourth quarter due to the initial impact of COVID-19. This trend has continued into the new
financial year.
Our international parcels business experienced revenue growth in the year despite challenging trading conditions. Contract export
volumes have improved in the year, benefitting from significant new customer wins. At the start of the year, weaker Sterling driven
by Brexit uncertainty resulted in lower import volumes outside of our cross-border offering and compressed export margins.
Trading conditions in the third quarter showed improvements in import volumes with positive growth in cross-border performance.
However, the fourth quarter saw the onset of COVID-19 impacts in China and latterly in the US and Europe. Imports saw a
significant negative impact due to reduced economic activity and air freight capacity from China. Whilst more recently China import
volumes have improved, we have seen further impacts on international volumes due to reduced activity and conveyance availability
across Europe and the US.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 38
Strategic Report – Financial review continued
Parcelforce Worldwide volumes increased by two per cent, compared with one per cent in 2018-19, largely due to growth from
our regional small and medium-sized enterprise customers and strong import volumes from GLS.
Total parcel revenue increased by 4.6 per cent reflecting mix, targeted pricing actions, and volume growth.
Total letter volume decline was five per cent. Excluding political parties’ election mailings, addressed letter volumes were down
eight per cent, in line with revised expectations. Letter volumes were impacted by ongoing structural decline, weak economic
activity and ongoing business uncertainty.
In the final weeks of the year, the initial impact of the COVID-19 pandemic resulted in a rapid and significant reduction in advertising
mail, as marketing campaigns were either delayed or cancelled. In addition, meter traffic, mainly used by small and medium-sized
enterprises, has weakened significantly in the first two months of 2020-21. However, stamp traffic, supported by social customer
mailings, and large customer business mailings have been more resilient and impacted to a lesser extent.
Unaddressed letter volumes were down 10 per cent in 2019-20, due to intense competition and high levels of uncertainty. COVID-19
and resulting cancelled mailings have put further significant downward pressure on volumes in the first two months of 2020-21.
Total letter revenue decreased by 0.9 per cent, benefitting from mailings relating to the European Parliamentary election and
UK General Election of £82 million, and the introduction of targeted price rises. Advertising letters revenue of £612 million
(now comprising only addressed and unaddressed advertising letters products) was down 11.5 per cent reflecting the impact
of competition and business uncertainty.
Adjusted operating costs
(£m)
People costs
People costs
Voluntary redundancy costs
Non-people costs
Distribution and conveyance costs
Infrastructure costs
Other operating costs
Total
For footnotes, see page 39.
Adjusted
52 weeks
March
2020
Re-presented1
adjusted
53 weeks
March
2019
Re-presented1
adjusted
52 weeks
March
2019
(5,234)
(5,132)
(5,062)
(5,206)
(5,086)
(5,016)
Change2
3.4%
3.8%
(28)
(46)
(46)
(39.1%)
(2,369)
(2,366)
(2,334)
(867)
(793)
(709)
(842)
(826)
(698)
(827)
(819)
(688)
(7,603)
(7,498)
(7,396)
1.5%
4.8%
(3.2%)
3.1%
2.8%
Total adjusted operating costs increased by 2.8 per cent. As a result of adopting IFRS 16, there was a reduction in operating lease
costs of £110 million and an increase in the depreciation charge of £100 million, i.e. there was a net reduction of £10 million in
operating costs attributable to IFRS 16. Excluding this impact, adjusted operating costs increased by 2.9 per cent. The largest
contributing factor was people costs pressures (including frontline staff and managers’ overall compensation), which were not fully
offset by productivity gains.
Parcelforce Worldwide saw increased costs pressures driven by product mix, inflation, lower productivity and in Q4 the impact of
COVID-19. This has triggered an impairment review on Parcelforce Worldwide assets, and consequently an impairment charge of
£91m has been recognised within specific items in respect of certain assets of Parcelforce Worldwide (for more detail see note 6).
UKPIL adjusted people costs were 3.4 per cent higher, primarily due to frontline staff and managers’ overall compensation and the
cost of only partially absorbing the one hour reduction in the working week introduced in October 2018. We also made additional
investment to underpin our Quality of Service and protect deliveries over the UK General Election and Christmas, as well as
to maintain our services during the ongoing COVID-19 pandemic. More recently, we have incurred additional costs, including
increased overtime to support services during high absence rates due to the COVID-19 pandemic. Transformation costs of
£74 million are included in people costs, comprising £46 million of project costs and £28 million of voluntary redundancy costs.
We saw a 1.0 per cent improvement in productivity in the year, below our expectations, due to the impact of additional investment
to protect quality and the impact of COVID-19 in the second half. We achieved a 1.4 per cent reduction in core network hours.
There was a net reduction of around 703 full-time equivalent employees (FTE)³ to around 146,445 (compared with March 2019) as
we decreased variable hours. Workload declined by 0.3 per cent as growth in parcel volumes was offset by letter volume decline.
39
Non-people costs increased by 1.5 per cent (1.9 per cent excluding the positive impact from adopting IFRS 16), reflecting the
impact of CPI and costs pressures.
Distribution and conveyance costs increased by 4.8 per cent. This was largely driven by higher terminal dues and fuel costs,
partially offset by lower vehicle hire and maintenance costs. Terminal dues were £14 million higher driven by higher export
volumes, contracted rate rises and adverse foreign exchange rate movements. Total diesel and jet fuel costs increased to
£168 million (2018-19: £156 million). We expect diesel and jet fuel costs to be around £165 million in 2020-21 largely as a result
of our hedged position.
Infrastructure costs decreased by 3.2 per cent. Depreciation and amortisation costs were £63 million higher, driven by an increase
of £100 million due to adopting IFRS 16. The previous year also included one-off impairment costs. IT costs were also £13 million
lower in the year due to a one-off IT project cost in the prior year.
Other operating costs increased by 3.1 per cent. The impact of the UKPIL cost programme has been offset by a £32 million increase
in provisions for bad debt as a result of the deteriorating economic environment and £5 million for the purchase of protective
equipment to safeguard our frontline employees in response to the COVID-19 outbreak. Transformation project costs of £56 million
(2018-19: £46 million) are also included in other operating costs.
Total transformation costs were £130 million in the year (2018-19: £133 million), mainly relating to operations data projects
to support future productivity improvements and investment to upgrade our IT and parcel systems.
The UKPIL cost programme delivered £188 million of costs avoided in the year, comprising people costs of £99 million and non-
people costs of £89 million. This was largely driven by a reduction in core network hours including the partial absorption of the one
hour reduction in the working week, management headcount reduction arising from the organisational structure review at the end
of 2018-19, supplier contract renegotiations and the annual linehaul review.
Adjusted operating profit
Adjusted operating profit of £117 million includes a £10 million positive impact from the adoption of IFRS 16. Adjusted operating
profit margin was 1.5 per cent, down 110 basis points compared with 2018-19.
Footnotes for Financial Review – UKPIL section
1 2018-19 Full Year results have been re-presented as described in the section entitled ‘Changes in disclosures and metrics used
in external reporting.
2 Comparisons with the prior year are against the adjusted 52 week results, and are no longer presented on an underlying basis.
All percentage changes represent the movement between the results as presented. Any factors having a material impact on year
on year comparisons are highlighted in the narrative to the results.
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 year. The current year FTE is calculated on a 38 hour week basis.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 40
Strategic Report – Financial review continued
GENERAL LOGISTICS
SYSTEMS (GLS)
Reported results
Summary results
(£m)
Revenue
Operating costs
Operating profit before specific items
Operating specific items
Operating profit
Operating profit margin
Reported
March
2020
3,161
Reported
March
2019
2,888
(2,953)
(2,711)
208
(13)
195
177
(89)
88
6.2%
3.0%
The detailed reported results are set out in the paragraph entitled ‘Segmental reported results’. GLS reported revenue grew by
£273 million. Operating profit before specific items increased by £31 million. Operating specific items represented a net charge of
£13 million, largely due to an £18 million charge for the amortisation of acquired intangible assets, offset by a £5 million provision
release that is no longer required. The prior year included a charge of £68 million for the impairment of the Golden State Overnight
(GSO) and Postal Express businesses in the US and £19 million for the amortisation of acquired intangible assets. GLS operating
profit was £107 million higher than in the prior year.
Both the reported and the adjusted results for the full year 2019-20 include 12 months’ contribution from the acquisition of
Dicom. The prior year only includes seven months’ contribution. The current year also includes six months’ contribution from the
acquisition of the Mountain Valley Express (MVE) and Mountain Valley Freight Solutions businesses.
Adjusted results
The Group makes adjustments to reported results under IFRS to exclude specific items as set out in the paragraph entitled
‘Specific items and pension charge to cash difference adjustment’.
Summary trading results
(£m)
Revenue
Operating costs
Operating profit
Operating profit margin
(€m)
Revenue
Operating costs
Operating profit
Volumes (m)
For footnotes, see page 42.
Adjusted
March
2020
3,161
Adjusted
March
2019
2,888
(2,953)
(2,711)
208
6.6%
177
6.1%
Change¹
9.5%
8.9%
17.5%
50bps
3,614
3,274
10.4%
(3,376)
(3,073)
9.9%
238
201
18.4%
667
634
5%
41
The impact of COVID-19 on revenue and operating profit was not material from an overall GLS perspective. See the Financial
Highlights section on pages 6-14 for an update on the first two months of 2020-21.
Volumes were up five per cent. Excluding acquisitions, volumes were up four per cent. Volume growth moderated compared with
the prior year, reflecting the competitive environment and yield management activities. We saw growth in both domestic and
international volumes in most markets.
More recently, volumes have been above expectation, driven by higher B2C volumes as customers ordered more products online
due to the COVID-19 lockdown. It is too early to judge whether this trend will continue for the remainder of the financial year.
In the year, the impact of foreign exchange movements increased revenue by £26 million and operating costs by £24 million.
Consequently, there was no material foreign exchange impact on adjusted operating profit in Sterling terms.
Revenue increased by 9.5 per cent. Excluding acquisitions, revenue was up 6.3 per cent driven by a combination of higher volumes,
targeted price increases and customer mix effects. Revenue growth was achieved in the majority of markets. The three major
markets (Germany, Italy and France) accounted for 54.6 per cent of total GLS revenue (2018-19: 56.8 per cent), with the North
America markets contributing 10.0 per cent (2018-19: 7.4 per cent).
Germany
GLS Germany remains the largest GLS market by revenue. Revenue grew by 9.7 per cent, driven by higher international and
domestic volumes, and improved pricing. The German logistics market remains highly competitive, with other operators adding
capacity to their networks, including Amazon which is rolling out its own delivery service in most areas of Germany. Operating profit
margin improved compared with the prior year, benefitting especially from better pricing and good export volume development.
Italy
GLS Italy revenue grew by 2.7 per cent. Weak Italian GDP growth, Amazon expanding its own delivery network, and the competitive
environment have impacted growth. The Italian government imposed restrictions due to COVID-19 which also impacted GLS Italy
operations in February and March, with parcel flows in and out of the Lombardy and Venice regions particularly affected.
France
GLS France revenue growth slowed to 1.4 per cent due to weak domestic volumes. Operating losses in the year were €21 million,
€3 million higher than the prior year.
A new management team is in place to lead the turnaround. Turnaround plans in France are focused on improving quality to secure
new customers in more profitable segments. 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, and allowing GLS to provide a comprehensive service
across Europe.
Spain
GLS Spain revenue declined by 1.7 per cent in the year. Yield management activities to exit low margin customers have impacted
growth. Profitability was above break even in 2019-20, which represented an improvement from the €3 million loss reported in the
prior year. The integration of Redyser has been completed, with the focus now on optimising the operations and growing volumes
to further improve margin.
North America
The GLS US business plan, initiated last year, is progressing well. Revenue grew by 5.5 per cent excluding the impact of
acquisitions, driven by a combination of yield management activities and cost optimisation measures.
We secured additional capability to offer less-than-truckload (LTL) services in the states of California, Arizona and Nevada through
the acquisition of the Mountain Valley Express (MVE) and Mountain Valley Freight Solutions businesses on 30 September 2019.
LTL services are provided successfully by our Dicom business in Canada. We plan to augment our product offering in the US with
a similar LTL capability. Operational synergies between MVE and the existing GLS US businesses are expected to support the GLS
business plan.
Dicom’s performance has been in line with our expectations with revenue growth of 9.2 per cent on a like-for-like basis. We are
investing in the business to provide a platform for future growth. Canada represents an attractive market and also provides
geographic diversification for the Group.
Other developed European markets (including Austria, Belgium, Denmark, Ireland, Netherlands and Portugal)
Revenue growth was achieved in the majority of GLS’ other developed European markets. In particular, there was good volume and
revenue growth in Denmark and Belgium. In Denmark, higher B2C volumes supported by investment in ParcelShops is facilitating
the growth.
Other developing/emerging European markets (including Croatia, Czech Republic, Hungary, Poland, Romania, Slovakia
and Slovenia)
We saw strong, double digit revenue growth in all developing/emerging European markets. We continue to invest in our network
in these countries to take advantage of their growing parcel markets.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 42
Strategic Report – Financial review continued
Adjusted operating costs
(£m)
People costs
Non-people costs
Distribution and conveyance costs
Infrastructure costs
Other operating costs
Total
For footnotes, see page 42.
Adjusted
March
2020
Adjusted
March
2019
(722)
(667)
(2,231)
(2,044)
(1,960)
(1,803)
Change¹
8.2%
9.1%
8.7%
(198)
(73)
(169)
17.2%
(72)
1.4%
8.9%
(2,953)
(2,711)
Total adjusted operating costs increased by 8.9 per cent, or 5.8 per cent excluding acquisitions.
As a result of adopting IFRS 16, there was a reduction in operating lease costs of £59 million and an increase in the depreciation
charge of £56 million, resulting in a net reduction of £3 million in operating costs.
People costs increased by 8.2 per cent, or 4.0 per cent excluding acquisitions. This was due to wage inflation in most markets and
higher semi-variable costs linked to volume growth.
Non-people costs increased by 9.1 per cent, or 6.5 per cent excluding acquisitions. Distribution and conveyance costs increased
by 8.7 per cent, driven by volume growth and higher subcontractor rates resulting from tight labour markets. Infrastructure costs
increased by 17.2 per cent. Higher property-related costs (such as rent and rates, repairs and maintenance and utilities), together
with increased IT costs, were the principal drivers of the increase. Other operating costs increased by 1.4 per cent, broadly in line
with the prior year.
Adjusted operating profit
Adjusted operating profit of £208 million includes a £3 million positive impact from the adoption of IFRS 16. There was no material
foreign exchange impact on operating profit in Sterling terms. COVID-19 also did not have a material impact on operating profits.
Adjusted operating profit margin of 6.6 per cent was 50 basis points higher than the prior year.
Footnotes for Financial Review – GLS section
1 Comparisons with the prior year are no longer presented on an underlying basis. All percentage changes represent the
movement between the results as presented. Any factors having a material impact on year on year comparisons are highlighted
in the narrative to the results.
GROUP RESULTS
Reported results
Summary results
(£m)
Revenue
Operating costs
Operating profit before specific items
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)
For footnotes, see page 53.
43
Reported
52 weeks
March
2020
Re-presented1
reported
53 weeks
March
2019
10,840
10,581
(10,623)
(10,240)
217
(162)
55
89
(50)
86
180
341
(181)
160
15
(13)
79
241
16.1p
17.5p
Group revenue increased by £259 million, or £396 million after adjusting for the 53rd week in 2018-19. This was largely due to
higher parcel revenue in GLS and UKPIL, which more than offset the decline in UKPIL letters revenue. GLS acquisitions have also
contributed to the revenue increase. Group operating profit before specific items decreased by £124 million. This was primarily due
to higher operating costs. Operating specific items of £162 million largely comprised a £91 million impairment charge relating to
Parcelforce Worldwide assets, a provision for a regulatory fine of £50 million and associated interest from Ofcom and a £19 million
charge for the amortisation of acquired intangible assets. The prior year included a £68 million impairment relating to the GSO and
Postal Express businesses in GLS, a £64 million charge for the purchase of a further insurance policy for the RMSEPP, a £22 million
charge for the Employee Free Shares and a £20 million charge for the amortisation of acquired intangible assets. Non-operating
specific items of £89 million largely relate to the sale of Plots B and D and Plot C of Nine Elms in the year.
Profit before tax decreased to £180 million, of which UKPIL accounted for £nil (2018-19: £160 million) and GLS accounted for
£180 million (2018-19: £81 million). Basic earnings per share decreased to 16.1 pence. A full reconciliation of reported to adjusted
results is set out in the section entitled ‘Presentation of results’.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 44
Strategic Report – Financial review continued
Adjusted results
Group revenue
(£m)
UKPIL
GLS
Intragroup revenue
Total
For footnotes, see page 53.
Adjusted
52 weeks
March
2020
7,720
3,161
Adjusted
53 weeks
March
2019
7,732
2,888
Adjusted
52 weeks
March
2019
7,595
2,888
(41)
(39)
(39)
10,840
10,581
10,444
Change²
1.6%
9.5%
5.1%
3.8%
Intragroup revenue represents revenue from trading between UKPIL and GLS principally due to Parcelforce Worldwide operating
as GLS’ partner in the UK.
Group revenue growth of 3.8 per cent was driven by parcel growth in GLS and UKPIL, which more than offset the decline in
UKPIL letters revenue. Total parcel revenue continued to grow as a percentage of Group revenue, accounting for 62.9 per cent
(2018-19: 61.23 per cent). The main factors impacting revenue are described in the sections entitled ‘UK Parcels, International
& Letters (UKPIL)’ and ‘General Logistics Systems (GLS)’.
Group operating costs
(£m)
People costs
People costs
Voluntary redundancy costs
Non-people costs
Distribution and conveyance costs
Infrastructure costs
Other operating costs
Total
For footnotes, see page 53.
Adjusted
52 weeks
March
2020
Re-presented¹
adjusted
53 weeks
March
2019
Re-presented¹
adjusted
52 weeks
March
2019
(5,956)
(5,799)
(5,729)
(5,928)
(5,753)
(5,683)
Change²
4.0%
4.3%
(28)
(46)
(46)
(39.1%)
(4,559)
(4,371)
(4,339)
(2,786)
(2,606)
(2,591)
(991)
(782)
(995)
(770)
(988)
(760)
(10,515)
(10,170)
(10,068)
5.1%
7.5%
0.3%
2.9%
4.4%
Group operating costs increased by 4.4 per cent. As a result of adopting IFRS 16, there was a reduction in operating lease costs
of £169 million and an increase in the depreciation charge of £156 million. Overall, there was a net reduction of £13 million in
operating costs as a result of IFRS 16. Excluding this impact, adjusted operating costs increased by 4.6 per cent. The increase
in Group operating costs was largely due to an increase in people costs, as people cost pressures (including frontline staff and
managers’ overall compensation) in the UK were not fully offset by productivity gains. Distribution and conveyance costs were also
higher due to the impact of CPI, higher parcel volumes and the acquisitions in GLS. 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)’.
Distribution and conveyance costs include £41 million (2018-19: £39 million) of intragroup costs from the trading between UKPIL
and GLS principally due to Parcelforce Worldwide operating as GLS’ partner in the UK.
Group operating profit
(£m)
UKPIL
GLS
Total
Operating profit margin
45
Adjusted
52 weeks
March
2020
117
208
325
Adjusted
53 weeks
March
2019
234
177
411
Adjusted
52 weeks
March
2019
199
177
376
3.0%
3.9%
3.6%
Group operating profit margin was down 60 basis points, driven by the lower level of profitability in UKPIL.
Specific items and pension charge to cash difference adjustment
(£m)
Pension charge to cash difference adjustment (within people costs)
Operating specific items
Regulatory fine
Impairment of assets
Accounting impact of RMSEPP settlement
Employee Free Shares charge
Amortisation of acquired intangible assets
Legacy/other credits/(costs)
Industrial diseases claim cost
Release of property tax provision
Other
Total operating specific items
Non-operating specific items
Profit on disposal of property, plant and equipment
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
March
2020
53 weeks
March
2019
(108)
(70)
(51)
(91)
–
(4)
(19)
3
(2)
5
–
–
(68)
(64)
(22)
(20)
(7)
–
–
(7)
(162)
(181)
89
86
175
(95)
60
15
79
94
(157)
27
The difference between the pension charge and cash cost (pension charge to cash difference adjustment) largely comprises the
difference between the IAS 19 income statement pension charge rate of 20.8 per cent of pensionable pay for the Defined Benefit
Cash Balance Scheme (DBCBS) from 1 April 2019 and the actual employer cash payments agreed with the Trustee of 15.6 per cent.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 46
Strategic Report – Financial review continued
The pension charge to cash difference adjustment was £108 million in the year, £38 million higher than in 2018-19. This was largely
due to an increase in the pension charge rate for the DBCBS from 18.9 per cent in 2018-19, to 20.8 per cent in 2019-20. The rate is
higher than the expected rate of 19.6 per cent for 2019-20 as a result of a change in how the estimated mean term of the DBCBS
has been derived.
Following the Competition Appeal Tribunal judgment of 12 November 2019, a provision has been made for a fine of £50 million and
associated interest. Please see the “Principal Risks and Uncertainties” section for further details.
Following an impairment review of the Parcelforce Worldwide CGU it was identified that the carrying value of the assets exceeded
their value in use. This has resulted in a £91 million impairment recorded within specific items. The prior year impairment charge
related to goodwill and assets from the acquisition of the GSO and Postal Express businesses by GLS.
Operating specific items also include the Employee Free Shares charge of £4 million (2018-19: £22 million). This was lower than in
the prior year because of the vesting of the SIP 2015 scheme in the prior year. The charge for Employee Free Shares is not expected
to be material in the future.
Amortisation of acquired intangible assets of £19 million (2018-19: £20 million) largely relates to acquisitions in GLS.
Operating specific items in the prior year included a £64 million charge in relation to the purchase of a further insurance policy
for the RMSEPP.
Non-operating specific items include the net pension interest credit of £86 million (2018-19: £79 million), which was higher than
the prior year due to higher pension surplus position.
The profit on disposal of property, plant and equipment of £89 million (2018-19: £15 million) largely relates to the completion of the
sale of Plots B and D and Plot C of Nine Elms. The proceeds from the sale of Plots B and D were received in June 2019 and Plot C
in July 2019.
The tax credit on specific items related largely to deferred tax movements in relation to certain specific items.
Net finance costs
Reported net finance costs of £50 million (2018-19: £13 million) largely comprised interest on the €500 million bond of £11 million
(2018-19: £11 million), interest on the €550 million bond of £3 million (2018-19: £nil) and interest on leases of £30 million
(2018-19: £3 million). Interest on leases increased as a result of leases capitalised under IFRS 16. The syndicated bank loan facility
was amended in September 2019 and its maturity date extended to September 2024 with options to extend for a further two years.
Facility
€500 million bond
€550 million bond
Rate
2.5%
2.7%
Syndicated bank loan facility
LIBOR+0.70%
Total
Facility
(£m)
446
489
925
Drawn
(£m)
446
489
700
Facility
end date
2024
2026
2024
1,860
1,635
On 8 October 2019, Royal Mail plc issued a €550 million bond with a coupon of 1.25 per cent and maturity date of 8 October 2026.
The foreign exchange risk associated with this bond has been hedged using a cross currency swap. The combined interest rate
of the coupon and the cross currency swap is 2.7 per cent.
The interest rate on the syndicated bank loan facility is LIBOR + 0.70 per cent. This consists of a margin of 0.4 per cent and a
utilisation fee of 0.30 per cent as the facility was over two thirds drawn at 29 March 2020. The utilisation fee is 0.075 per cent when
the facility is under one third drawn.
The blended interest rate on gross debt, including leases for 2019-20, was approximately 3 per cent. The retranslation impact of the
€500 million and €550 million bonds is accounted for in equity.
47
52 weeks March 2020
53 weeks March 2019
UK
GLS
Group
UK
GLS
Group
–
31
n/a
83
(26)
180
50
180
(19)
160
(23)
81
(43)
241
(66)
27.8%
10.6%
14.4%
53.1%
27.4%
192
(53)
275
(79)
229
(40)
169
(53)
398
(93)
31.3%
27.6%
28.7%
17.5%
31.4%
23.4%
Taxation
(£m)
Reported
Profit before tax
Tax (charge)/credit
Effective tax rate
Adjusted
Profit before tax
Tax charge
Effective tax rate
The UK adjusted effective tax rate of 31.3 per cent (2018-19: 17.5 per cent) is higher than the prior year mainly due to an increase in
contingency provision against patent box claims. This effective tax rate is higher than the UK statutory rate of 19 per cent mainly as
a result of the increase in contingency provision described above and non-deductible expenditure, partially offset by a one-off, first
time recognition of a deferred tax asset on non-trading tax losses. The impact of these items is exaggerated this year due to a lower
adjusted UK profit before tax than in prior years.
The GLS adjusted effective tax rate of 27.6 per cent (2018-19: 31.4 per cent) is lower than the prior year mainly because 2018-19
included the derecognition of deferred tax assets in GLS US.
The Group reported effective tax rate is 10.6 per cent (2018-19: 27.4 per cent). This effective rate is significantly impacted by the
UK reported tax credit of £31 million (2018-19: £23 million charge) on a UK reported profit of £nil (2018-19: £160 million). The main
drivers of this tax credit include the net pension interest credit, on which there is no tax charge, profits made on operational
property disposals which are offset by reinvestment relief, an increased recognition of a deferred tax asset on the industrial disease
provision, and the effect of recalculating the deferred tax asset in the UK to 19 per cent. The impact of these items on the effective
tax rate was partially offset by the Regulatory fine for which there is no tax credit.
Adjusted earnings per share (EPS)
Adjusted basic EPS was 19.6 pence compared with 30.5 pence in the prior year reflecting the trading performance of the Group.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 48
Strategic Report – Financial review continued
In-year trading cash flow
(£m)
Adjusted operating profit
Depreciation and amortisation
Adjusted EBITDA
Trading working capital movements
Share-based awards (LTIP and DSBP) charge adjustment
Gross capital expenditure
Net finance costs paid
Research and development expenditure credit
Income tax paid
In-year trading cash flow
For footnotes, see page 53.
52 weeks
March
2020
Re-presented1
53 weeks
March
2019
325
516
841
155
4
411
391
802
(227)
7
(342)
(364)
(47)
14
(69)
556
(12)
2
(91)
117
In-year trading cash inflow was £556 million, compared with £117 million in the prior year. This was mainly due to trading working
capital inflow, lower capital expenditure, lower income tax paid and the impact of adopting IFRS 16. Including the impact of IFRS 16,
the capital elements of lease payments of £141 million, in-year trading cash inflow was £415 million.
Under IFRS 16, operating lease costs previously recognised in operating costs are replaced by a depreciation charge on the
assets and finance charge on the liabilities. As a result of adopting IFRS 16, adjusted operating profit increased by £13 million.
The depreciation charge also increased by £156 million, resulting in a £169 million increase in adjusted EBITDA. Net finance costs
increased by £28 million, reflecting the finance charge on liabilities. The net impact of IFRS 16 on in-year trading cash flow is an
increase of £141 million. The £141 million outflow appears in ‘Payment of capital element of obligations under lease contracts’
in the consolidated statement of cash flows. As such, there is no impact on overall cash flow from IFRS 16.
Trading working capital inflow of £155 million was £382 million higher than the prior year. The prior year included a 53rd week.
Payroll and VAT payments of £47 million and £17 million respectively were made in that week, which were not made in the current
year. There was no bonus payment for managers in 2019-20, as we missed our threshold profitability level for 2018-19. 2018-19
also included a £101 million payment in relation to the 2017-18 frontline pay award.
Income tax paid decreased by £22 million largely because tax paid in 2018-19 was higher than normal as there was no tax
relief in 2018-19 on payments made to the pension escrow in 2017-18. The increase in net finance costs paid of £35 million
largely comprised interest on leases capitalised under IFRS 16 and a £7 million loss in the market value of the RMPP pensions
escrow investments.
Gross capital expenditure
(£m)
Growth capital expenditure
Replacement capital expenditure
Total
52 weeks
March
2020
53 weeks
March
2019
(209)
(133)
(342)
(224)
(140)
(364)
Total gross capital expenditure was £342 million, of which GLS spend was £120 million. Growth capital expenditure in GLS was
£7 million higher than the prior year. This is offset by lower growth capital expenditure in UKPIL, reflecting delays to the delivery
of our transformation plan. Replacement capital expenditure was broadly in line with prior year. We continue to invest in strategic
projects in UKPIL and GLS, including expanding the GLS network, IT systems, activities supporting data projects, and building our
automated parcel hubs.
Net debt
A reconciliation of net debt is set out below.
(£m)
Net (debt)/cash brought forward at 1 April 2019 and 26 March 2018
Capitalisation of leases under IFRS 16
Free cash flow
In-year trading cash flow
Other working capital movements
Cash cost of operating specific items
Proceeds from disposal of property (excluding London Development
Portfolio), plant and equipment
Acquisition of business interests
Cash flows relating to London Development Portfolio
Purchase of own shares
Employee exercise of SAYE options
New lease obligation under IFRS 16 (non-cash)
Foreign currency exchange impact
Dividends paid to equity holders of the Parent Company
Net (debt) carried forward
For footnotes, see page 53.
49
53 weeks
March
2019
14
–
(71)
117
6
(6)
25
(220)
7
(10)
5
–
4
(242)
(300)
52 weeks
March
2020
(300)
(1,062)
653
556
7
(2)
12
(17)
97
(3)
–
(156)
(20)
(244)
(1,132)
Movements in GLS client cash are included within other working capital. The amount held at 29 March 2020 was £21 million
(2018-19: £20 million). The cash cost of operating specific items was an outflow of £2 million mainly consisting of industrial
disease settlements.
Proceeds from disposal of property (excluding the London Development Portfolio), plant and equipment of £12 million relate
to the sale of the Plymouth MDEC site, Basildon Delivery Office, Inverness Mail Centre, vehicle disposals and other small
property disposals.
Cash inflow relating to the London Development Portfolio was £97 million. Receipts of £123 million in relation to the Nine Elms
site and £21 million in relation to the Mount Pleasant site were offset by infrastructure and enabling works costs of £47 million.
Acquisition of business interests in the year largely related to the acquisition of the Mountain Valley Express (MVE) and Mountain
Valley Freight Solutions businesses, and deferred consideration on prior year acquisitions. The acquisition of business interests
in the prior year related to the acquisition of Dicom by GLS.
Purchase of own shares relates to the Group purchasing its own shares to meet Long-Term Incentive Plan (LTIP) requirements.
New lease obligations under IFRS 16 of £156 million is a result of adopting IFRS 16, and it relates to additional operating lease
commitments that were entered into during the year.
Net debt excluding the impact of IFRS 16 is £46 million.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 50
Strategic Report – Financial review continued
2019-20 approach to capital management
The Group had four key objectives for capital management during 2019-20. 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
2019-20 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
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
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
At 29 March 2020, the Group had available resources
of £1,874 million (2018-19⁴: £1,266 million), made up of
cash and cash equivalents of £1,619 million (2018-19⁴:
£216 million), current asset investments of £30 million
(2018-19: £nil), and undrawn committed syndicated bank
loan facilities of £225 million (2018-19: £1,050 million).
At 29 March 2020, the Group met the loan covenants and
other obligations for its syndicated bank loan facility and
€500 million and €550 million bonds.
Existing covenants have been waived until March 2022,
and replaced with a basic liquidity covenant. As a result,
the Directors have a reasonable expectation that the Group
will continue to meet its obligations as they fall due.
In the light of the current economic uncertainty, the Board
believes it is prudent not to recommend a final dividend
for the financial year 2019-20 and to suspend the 2020-
21 dividend. The dividend policy will be kept under review
and appropriate dividend payments reinstated as soon as
economic conditions allow. Our ambition is to re-commence
dividend payments in 2021-22, supported by GLS.
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 capital
investments of £342 million (2018-19: £364 million)
and acquisition of business interests of £17 million
(2018-19: £220 million) while retaining sufficient
capital headroom.
Future approach to capital management
Our objective is to maintain a prudent financial policy. We believe we need to retain prudent levels of financial gearing given the
high operational gearing inherent in our business. Balanced against this is the imperative to invest in the long-term sustainability
of the Group. Our strategic plan requires a step up in investment, predominantly in the UK, over the next five years. This is a priority
in our approach to capital management.
In the light of the current economic uncertainty, the Board believes it is prudent not to recommend a final dividend for the financial
year 2019-20 and to suspend the 2020-21 dividend. The dividend policy will be kept under review and appropriate dividend payments
reinstated as soon as economic conditions allow. Our ambition is to re-commence dividend payments in 2021-22, supported
by GLS.
51
Pensions
A summary of the plans operated by Royal Mail plc and the timelines in context of this Financial Review are as follows:
– Closed in December 2012
– Royal Mail Senior Executives Pension Plan (RMSEPP)
– To 31 March 2018
– Royal Mail Pension Plan (RMPP)
– Royal Mail Defined Contribution Plan (RMDCP)
– 1 April 2018 to 29 March 2020
– Defined Benefit Cash Balance Scheme (DBCBS)
– Enhanced Royal Mail Defined Contribution Plan (RMDCP)
– Proposed future scheme
– Collective Defined Contribution (CDC) together with a Defined Benefit Lump Sum Scheme (DBLSS)
The RMPP closed to future accrual in its previous form from 31 March 2018. The Group put in place transitional arrangements
from 1 April 2018. It also implemented a new DBCBS within the RMPP and improved the RMDCP.
Details of each of the plans operated by Royal Mail plc are set out below.
Defined Benefit Cash Balance Scheme (DBCBS)
RMPP members automatically started building up DBCBS benefits from 1 April 2018 (unless they opted to join the improved
RMDCP instead) together with eligible RMDCP members who opted to join.
The DBCBS guarantees members a minimum lump sum at age 65. It is therefore being accounted for as a defined benefit scheme
in a similar way to the RMPP. The DBCBS will aim to provide increases to the lump sum each year, depending on investment
performance. An IAS 19 deficit of £177 million (2018-19: £72 million) is shown on the balance sheet. The scheme is not in funding
deficit and it is not anticipated that deficit payments will be required. The DBCBS will be subject to triennial valuations from 2021.
An IAS 19 pension service charge of 20.8 per cent (2018-19: 18.9 per cent), equivalent to £388 million (2018-19: £362 million),
has been charged to the income statement for the DBCBS scheme. The pension charge is greater than the cash contribution rate
as the assumed rate of future increases in benefits (3.8 per cent) is greater than the assumed discount rate (2.2 per cent).
The Group has made contributions at 15.6 per cent (2019-20: £288 million; 2018-19: £297 million) of DBCBS pensionable pay
in respect of the scheme. Members contribute six per cent (including Pension Salary Exchange).
The IAS 19 pension service charge to cash difference adjustment for 2019-20 was £108 million (2018-19: £70 million).
Pension interest for 2020-21, calculated on the assets and liabilities as at 29 March 2020, will be a charge of £5 million.
Royal Mail Defined Contribution Plan (RMDCP)
Under the RMDCP, current and future RMDCP members in the standard section will contribute at the highest contribution tier
(employee: six per cent; employer: ten per cent) unless they opt to contribute at a lower level. The contribution rate for members
not in the standard section is employee: five per cent; employer: three per cent.
Royal Mail Pension Plan (RMPP)
The RMPP closed to future accrual in its previous form from 31 March 2018. The pre-withholding tax accounting surplus of the
RMPP at 29 March 2020 was £5,550 million (31 March 2019: £3,696 million), comprising assets of £11,683 million (31 March
2019: £10,458 million) and liabilities of £6,133 million (31 March 2019: £6,762 million). The pre-withholding tax accounting surplus
has increased by £1,854 million (31 March 2019: £434 million) in the period, as the increase in the ‘real’ discount rate since the
prior year (the difference between RPI and the discount rate based on corporate bond yields) has resulted in a lower value being
placed on scheme liabilities, whilst gilt yields have decreased in the period, increasing the value of scheme assets. The scheme’s
hedging arrangements are designed to reduce volatility in the actuarial funding valuation, rather than in the accounting valuation.
After the withholding tax adjustment, the accounting surplus of the RMPP was £3,608 million at 29 March 2020 (31 March
2019: £2,402 million). This is an accounting adjustment with no cash benefit to the Group. For 2020-21, the pension interest will
be a credit of £122 million.
The triennial valuation of the RMPP at 31 March 2018 was agreed on 19 July 2019. Based on this set of assumptions rolled
forwards, the RMPP actuarial surplus at 29 March 2020 was estimated to be around £575 million (31 March 2019: £50 million).
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 52
Strategic Report – Financial review continued
Royal Mail Senior Executives Pension Plan (RMSEPP)
The RMSEPP closed in December 2012 to future accrual and the Group makes no regular service contributions.
Following the purchase of an additional insurance policy in September 2018 in respect of all remaining pensioners and deferred
members it was decided to proceed to buy-out and wind-up of the Plan. As a result the purchase of the insurance policy was
treated as a settlement in the 2018-19 financial statements. The difference between the IAS 19 surplus before and after the
transaction resulted in £64 million being charged to the income statement as an operating specific item. Further progress towards
buy-out and winding-up of the Plan has been made in the current year, and the target is to have the process completed in 2021.
There is no charge in the current year.
All benefit payments due from the RMSEPP remain unchanged. The insurance policies held by the RMSEPP exactly match the
value and timing of the benefits payable to individual members and the fair value of those policies are deemed to be the present
value of the related obligations. Further details can be found in the paragraph entitled ‘Royal Mail Senior Executives Pension Plan
(RMSEPP)’ in Note 11 in the notes to the consolidated financial statements.
Based on the rolled forward assumptions used for the RMSEPP triennial valuation as at 31 March 2018 completed in the prior year,
the RMSEPP actuarial surplus at 31 March 2020 was estimated to be £9 million (31 March 2019: £10 million).
In accordance with the updated Schedule of Contributions agreed as part of that valuation, a final deficit payment of £1 million
was paid in 2018-19, together with £1 million in respect of death-in-service lump sum benefits and administration expenses.
In accordance with the Schedule of Contributions signed on 25 March 2019, £500,000 has been paid in 2019-20 and is due to be
paid per annum for the period 1 April 2020 to 31 March 2025.
Pension schemes are now under an obligation to address the issue of unequal Guaranteed Minimum Pensions (GMP). From the
Group’s perspective, the transfer of the RMPP’s historical pension liabilities to HM Government in 2012, in accordance with the
Postal Services Act 2011, included all of the plan’s GMP liabilities. The requirement to remove the inequality in former RMPP
benefits deriving from GMPs therefore rests with Government.
The RMSEPP, however, does still hold its GMP liabilities and will be required to take action to equalise benefits. The Trustees are
considering the approach to be taken to address the issue of unequal GMPs in respect of the RMSEPP scheme but estimate that
the cost of this will not be material.
Collective Defined Contribution (CDC) scheme and Defined Benefit Lump Sum Scheme (DBLSS)
We have, for some time, been working closely with the CWU and other stakeholders to make CDC a reality for Royal Mail and
its people.
The Pension Schemes Bill, which will enable CDC pension schemes for the first time under UK law, is now currently progressing
through Parliament. Once complete, and after any further legislative and regulatory changes have been made, Royal Mail aims
to set up the first scheme of this kind in the UK.
Based on current expectations, the CDC scheme will be accounted for as a defined contribution scheme. The DBLSS will be
accounted for as a defined benefit scheme with the accounting treatment expected to be similar to the transitional DBCBS. The new
arrangements will have fixed employer contributions of 13.6 per cent and employee contributions of six per cent.
In 2020-21, the employer and employee contributions are expected to be around £400 million in respect of all UK pension schemes.
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 2019-20. The forecast diesel and jet commodity exposures in UKPIL are set out below
together with the sensitivity of 2020-21 operating profit to changes in commodity prices and fuel duty.
Fuel duty/
other costs (incl
irrecoverable VAT)
– not hedged
2020-21
£m
Underlying
commodity
exposure (incl
irrecoverable VAT)
2020-21
£m
Underlying
commodity
volume hedged
%
Residual
unhedged
underlying
commodity
exposure (incl
irrecoverable VAT)
£m
Impact on
2020-21
operating profit
of a further
10% increase in
commodity price
£m
Impact on
2020-21
operating profit
of a further 10%
increase in fuel
duty/other cost
£m
100
2
102
56
7
63
88
82
87
4
1
5
–
–
–
10
–
10
Forecast
total cost
£m
156
9
165
2020-21 exposure
Diesel
Jet fuel
Total
For footnotes, see page 53.
53
As a result of hedging, it is anticipated that the diesel and jet fuel commodity cost for 2020-21 will be similar to 2019-20.
Without hedging, the associated cost would be around £23 million lower (based upon closing fuel prices at 29 March 2020).
The Group is exposed to foreign currency exchange risk in relation 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 foreign currency exchange risk
to revenue, costs and operating profit. The €550 million bond issued in October 2019 is fully hedged by a cross currency swap with
no residual exposure to foreign currency or interest rate risk.
The average exchange rate between Sterling and the Euro was £1:€1.14 (2018-19: £1:€1.13). The impact of exchange rates on GLS’
reported operating profit before tax in 2019-20 was not material. The impact of foreign exchange transactions in the UK was not
material in 2019-20. The net impact on Group operating profit before tax was not material.
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 29 March 2020, all the gross debt of £2,823 million was at fixed rates.
Property
We invested a total of £47 million in the year on works to separate the retained operational sites from the development plots
at Mount Pleasant and infrastructure works at Nine Elms.
Mount Pleasant
In the year, we received £21 million cash proceeds. Further cash proceeds are to be paid in contractually agreed staged payments in
2020-21, with the final balance of consideration to be paid in 2024. All proceeds received up to 2020-21, in aggregate, are expected
to cover Royal Mail’s outgoings on the separation and enabling works up to that point.
Nine Elms
In the year, we received £101 million (2018-19: £nil) cash proceeds on formal completion of the sale of Plots B and D on Nine Elms.
We have committed to reinvesting around £30 million for infrastructure works associated with these plots.
We have also received £22 million cash proceeds on formal completion of the sale of Plot C at the Nine Elms site to Galliard Homes.
Further investment will be required in relation to the infrastructure and Linear Park for the remaining plots when sold.
Dividends
The final dividend of 17.0 pence per share in respect of the 2018-19 financial year was paid on 4 September 2019, following
shareholder approval.
The interim dividend of 7.5 pence per share in respect of the 2019-20 financial year was paid on 15 January 2020, following
shareholder approval, to shareholders on the register at the close of business on 6 December 2019.
Dividend in respect of 2019-20
In the light of the current economic uncertainty, the Board believes it is prudent not to recommend a final dividend for the financial
year 2019-20. The dividend policy will be kept under review and appropriate dividend payments reinstated as soon as economic
conditions allow. Our ambition is to re-commence dividend payments in 2021-22, supported by GLS.
Footnotes for Financial Review – Group section
1 2018-19 full year results have been re-presented as described in the section entitled ‘Changes in disclosures and metrics used
in external reporting’.
2 Comparisons with the prior year are against the adjusted 52 week results, and are no longer presented on an underlying basis.
All percentage changes represent the movement between the results as presented. Any factors having a material impact on year
on year comparisons are highlighted in the narrative to the results.
3 On a 52 week basis and reflects the new revenue allocation methodology as described in the section entitled ‘Changes in
disclosures and metrics used in external reporting’.
4 Re-presented to exclude GLS client cash of £20 million.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 54
Strategic Report – Financial review continued
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
by Management, who 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 for, 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.
A full list of APMs used is set out in the section entitled ‘Alternative Performance Measures (APMs)’.
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 Group. Management has reviewed the long-term differences between reported and adjusted profit after tax.
Cumulative reported profit after taxation for the five years ended 29 March 2020 was £1,089 million compared with cumulative
adjusted profit after tax of £1,813 million. Annual reported profit after tax showed a range of £161 million to £273 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’. 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’.
55
Presentation of results
Consolidated reported and adjusted results
The following table reconciles the consolidated reported results, prepared in accordance with IFRS, to the consolidated 52 week
adjusted results.
(£m)
Revenue
Operating costs
People costs
People costs
Voluntary redundancy
Non-people costs
Distribution and conveyance costs
Infrastructure costs
Other operating costs
Operating profit before specific items
Operating specific items:
Impairment of assets
Accounting impact of RMSEPP settlement
Regulatory fine
Employee Free Shares charge
Amortisation of intangible assets in acquisitions
Legacy/other credits/(costs)
Operating profit/(loss)
Non-operating specific items:
Profit on disposal of property, plant and equipment
Earnings before interest and tax
Finance costs
Finance income
Net pension interest (non-operating specific item)
Profit before tax
Tax (charge)/credit
Profit for the period
Earnings per share
Basic
Diluted
For footnotes, see page 57.
52 weeks March 2020
Re-presented1 53 weeks March 2019
Specific items
and pension
adjustment2
Adjusted
Reported
Specific items
and pension
adjustment2
Adjusted
–
10,840
10,581
–
10,581
Reported
10,840
(10,623)
(108)
(10,515)
(10,240)
(70)
(10,170)
(6,064)
(108)
(5,956)
(5,869)
(6,036)
(108)
(5,928)
(5,823)
–
–
–
–
–
(108)
(91)
–
(51)
(4)
(19)
3
(28)
(46)
(4,559)
(4,371)
(2,786)
(2,606)
(991)
(782)
325
–
–
–
–
–
–
(995)
(770)
341
(68)
(64)
–
(22)
(20)
(7)
(70)
(70)
–
–
–
–
–
(70)
(68)
(64)
–
(22)
(20)
(7)
(5,799)
(5,753)
(46)
(4,371)
(2,606)
(995)
(770)
411
–
–
–
–
–
–
(270)
325
160
(251)
411
89
(181)
–
–
86
(95)
60
(35)
–
325
(56)
6
–
275
(79)
196
15
175
(18)
5
79
241
(66)
175
15
(236)
–
–
79
(157)
27
(130)
–
411
(18)
5
–
398
(93)
305
(28)
(4,559)
(2,786)
(991)
(782)
217
(91)
–
(51)
(4)
(19)
3
55
89
144
(56)
6
86
180
(19)
161
16.1p
16.1p
(3.5p)
19.6p
17.5p
(13.0p)
30.5p
(3.5p)
19.6p
17.5p
(13.0p)
30.5p
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 56
Strategic Report – Financial review continued
2018-19 adjusted results
2018-19 was a 53 week period. The table below reconciles the 2018-19 consolidated 53 week adjusted results to the 52 week
consolidated results as previously reported. The table also reconciles the 2018-19 adjusted 52 week results presented in this
Financial Review to the full year 2018-19 adjusted results published previously. More details can be found in the section called
“Changes in disclosures and metrics used in external reporting”.
(£m)
Revenue
Operating costs
People costs
People costs
Voluntary redundancy2
Non-people costs
Distribution and conveyance costs
Infrastructure costs
Other operating costs
Operating profit before transformation costs
Transformation costs
Adjusted operating profit
For footnotes, see page 57.
Adjusted
53 weeks
March 2019
as previously
published
Adjusted
52 weeks
March 2019
as previously
published
53rd week
revenue
and costs
Transformation¹
costs
Re-presented1
adjusted
52 weeks
March 2019
10,581
(137)
10,444
–
10,444
(10,037)
102
(9,935)
(133)
(10,068)
(5,712)
(5,712)
–
(4,325)
(2,606)
(995)
(724)
544
(133)
411
70
70
–
32
15
7
10
(35)
–
(35)
(5,642)
(5,642)
–
(4,293)
(2,591)
(988)
(714)
509
(133)
376
(87)
(41)
(46)
(46)
–
–
(46)
–
133
–
(5,729)
(5,683)
(46)
(4,339)
(2,591)
(988)
(760)
–
–
376
57
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
specific items
Operating specific items
Operating (loss)/profit
Non-operating specific items²
(Loss)/Earnings before
interest and tax
Net finance costs
Net pension interest
(non-operating specific item)
Profit before tax
Tax credit/(charge)
Profit for the period
52 weeks March 2020
Re-presented¹ 53 weeks March 2019
UKPIL
(UK
operations)
GLS
(Non-UK
operations)
Intragroup
eliminations
UKPIL
(UK
operations)
GLS
(Non-UK
operations)
Intragroup
eliminations
Group
Group
7,720
3,161
(41)
10,840
7,732
2,888
(39)
10,581
(5,342)
(722)
(2,369)
(2,231)
–
41
(6,064)
(5,202)
(667)
(4,559)
(2,366)
(2,044)
–
39
(5,869)
(4,371)
9
(149)
(140)
88
(52)
(34)
86
–
31
31
208
(13)
195
1
196
(16)
–
180
(50)
130
–
–
–
–
–
–
–
–
–
–
217
(162)
55
89
144
(50)
86
180
(19)
161
164
(92)
72
14
86
(5)
79
160
(23)
137
177
(89)
88
1
89
(8)
–
81
(43)
38
–
–
–
–
–
–
–
–
–
–
341
(181)
160
15
175
(13)
79
241
(66)
175
Footnotes for Financial Review – Presentation of Results and Alternative Performance Measures section
1 2018-19 Full Year results have been re-presented as described in the section entitled ‘Changes in disclosures and metrics used
in external reporting’. The impacts are the same for the 53 weeks March 2019 results.
2 Details of specific items in the pension adjustment can be found under ‘Specific items and pension charge to cash difference
adjustment’ in the Group Results section.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 58
Strategic Report – Financial review continued
ALTERNATIVE PERFORMANCE
MEASURES (APMS)
This section lists the definitions of the various APMs disclosed throughout the Annual Report and Accounts and Financial Review.
They are used by Management, who considers them to be an important means of comparing performance year-on-year, and are
key measures used within the business for assessing business performance.
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’. Definitions of operating costs, the pension charge to cash difference adjustment, and operating
specific items are provided below.
Adjusted operating profit margin
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’ as a proportion of revenue in percentage terms.
Earnings before interest, tax, depreciation and amortisation (EBITDA) before specific items
EBITDA is reported operating profit before specific items with depreciation and amortisation and share of associate company
profits added back.
Adjusted EBITDA is EBITDA before specific items 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 to reported operating profit before specific items.
(£m)
Reported operating profit before specific items
Depreciation and amortisation
EBITDA
Pension charge to cash difference adjustment
Adjusted EBITDA
52 weeks
March
2020
53 weeks
March
2019
217
516
733
108
841
341
391
732
70
802
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, temporary resource, pensions
and social security costs. People costs relating to projects and voluntary redundancy costs are also included.
Distribution and conveyance costs
These costs relate to non-people costs incurred in transporting and delivering mail by rail, road, sea and air, together with costs
incurred by international mail carriers, Parcelforce Worldwide delivery operators and GLS.
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. Non-people costs relating
to projects are included. Other operating costs exclude operating specific items.
59
Pension charge to cash difference adjustment
This adjustment represents the difference between the IAS 19 income statement pension charge and the actual cash payments.
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.
For the DBCBS, applicable from 1 April 2019, this represents the difference between the IAS 19 income statement pension charge
rate of 20.8 per cent (2018-19: 18.9 per cent) and the actual cash payments of 15.6 per cent.
The prior year adjustment also included an adjustment for one week in respect of the RMPP which closed on 31 March 2018.
This represented the difference between the IAS 19 income statement pension charge rate of 41.0 per cent to 31 March 2018 and
the actual cash payments agreed with the RMPP Trustee of 17.1 per cent of pensionable pay to 31 March 2018.
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.
Regulatory fine
Following the Competition Appeal Tribunal judgment of 12 November 2019, a provision has been made for a fine of £50 million and
associated interest. Please see the Principal Risks and Uncertainties section for further details.
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 2016), as well as partnership and matching shares, with no direct cash impact on the Group.
Impairment of assets
These costs relate to impairment of: a business or CGU (Parcelforce Worldwide in the reporting year); goodwill (GLS US network
in 2018-19); or specific assets.
Accounting impact of RMSEPP settlement
These costs relate to the purchase of insurance policies for the RMSEPP. This involves purchasing an insurance policy that
provides cash flows that exactly match the value and timing of the benefits payable to the members it covers. These are accounting
adjustments in relation to the write off of the closing surplus as a result of the purchase of the policy and have no cash impact to
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/credits
These costs/credits relate either to unavoidable ongoing costs arising from historic events (industrial diseases provision),
restructuring costs, or historic provisions not utilised.
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 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.
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, 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 years.
In-year trading cash flow is used primarily by Management to show cash being generated by operations less cash investment.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 60
Strategic Report – Financial review continued
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 flow
52 weeks
March
2020
950
53 weeks
March
2019
493
(7)
2
(265)
(77)
(47)
556
(6)
6
(264)
(100)
(12)
117
Gross capital expenditure
Gross capital expenditure is a measure of the cash utilised by the Group in the year on capital investment activities. It is a measure
used by Management to monitor capital investment within the Group. The items making up this balance in the statutory cash flow
are indicated in the section ‘Consolidated statement of cash flows’.
Net debt
Net 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
debt does not necessarily mean that the cash included in the net debt calculation is available to settle the liabilities included in this
measure. Details of the borrowing facilities in place and the amounts drawn can be found in the section titled ‘Net finance costs’.
A reconciliation of net debt to reported balance sheet line items is shown below.
(£m)
Loans/bonds
Leases
Cash and cash equivalents
Investments
Client cash
Pension escrow (RMSEPP)
Net debt
52 weeks
March
2020
(1,635)
(1,188)
1,619
30
21
21
53 weeks
March
2019
(431)
(125)
216
–
20
20
(1,132)
(300)
Leases have increased due to the capitalisation of leases as a result of adopting IFRS 16. The Group recognised a ‘right of use’
asset and a corresponding lease liability based on the leases held on transition. Additions and modifications to leases since
transition are also captured within this balance.
Cash and cash equivalents increased by £1,403 million largely as a result of free cash flow of £653 million (2018-19: £71 million
outflow), proceeds from the €550 million bond issue of £489 million and drawings of £700 million on the syndicated bank loan
facility, offset by dividends paid of £244 million (2018-19: £242 million) and payment of capital element of obligations under lease
contracts of £172 million (2018-19: £56 million).
The short-term deposit of £30 million represents a short-term cash deposit with a relationship bank which matures in July 2020.
61
Net debt excludes £180 million (2018-19: £187 million) related to the RMPP pension scheme of the total £201 million
(2018-19: £207 million) pension escrow investments on the balance sheet which is not considered to fall within the definition
of net debt.
The RMPP escrow agreement specifies that the funds must be used for the benefit of members, on a basis to be agreed between
the Plan Trustee and the Company. The funds are therefore not available to management for corporate purposes (outside of
pension arrangements) and so the RMPP escrow is excluded from net debt.
The RMSEPP escrow agreement specifies that the funds will be returned to the Company once they are no longer required for
security purposes and therefore the RMSEPP escrow is included within net debt.
Adjusted effective tax rate
The adjusted effective tax rate is the adjusted tax charge or credit for the year 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 year. It approximates the tax rate on the
underlying trading business through the exclusion of specific items and the pension charge to cash difference adjustment.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 62
Strategic Report
PRINCIPAL RISKS
AND UNCERTAINTIES
TRANSFORMATION AND THE RISK OF INDUSTRIAL ACTION
There is extensive trade union recognition in respect of our workforce in the UK, with strong and active trade unions.
As Royal Mail Group continues to transform in order to remain competitive in the letters and parcels markets, including
delivering its ‘turnaround and grow’ plan in the UK, there remains a risk of industrial action.
INDUSTRIAL ACTION
Principal risk
Status
How we are mitigating the risk
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.
The absence of major industrial action
is a key assumption underpinning
the ‘turnaround and grow’ plan in the
UK. The plan requires a high level of
operational change in an increasingly
competitive market. This has already put
additional strain on the stability of our
industrial relations.
Widespread localised or national industrial
action would cause material disruption to
our business in the UK. It would likely 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, which may lead to enforcement
action and fines.
During the year, the threat of industrial
action has impacted our UK business:
– Our UK ‘turnaround and grow’ plan
is behind schedule, in part due to the
industrial relations environment.
– Additional investment was required to
protect service quality to manage the
impact of the threat of industrial action on
Christmas and during the December 2019
UK General Election, which has impacted
productivity for 2019-20.
– a small number of customers moved
volumes to other carriers due to the threat
of industrial action in December 2019.
Following the High Court ruling that the
CWU’s October 2019 ballot for industrial
action was unlawful and void, we
approached CWU in January 2020 to offer
mutual interest talks. CWU withdrew from
those talks.
On 4 February 2020, CWU announced a
timeline for a further ballot for industrial
action. On 17 March 2020, it confirmed 94.5
per cent of Royal Mail members who voted
were in favour of industrial action. CWU has
stated its intention to defer industrial action
as we prioritise dealing with the COVID-19
pandemic and protecting our people
and customers.
When we offered talks at the beginning
of the year, we were clear we needed
to proceed with key national trials and
local operational improvements. All have
been delayed by the industrial relations
environment, in some cases, by well over
a year. Since then, we have made progress
with trials of automated clocking in and out
and separate van delivery of larger and Next
Day parcels. We have also commenced a
small number of local change initiatives.
We are working with CWU during the COVID-19
pandemic to ensure we achieve our objectives
to: i) safeguard the health and wellbeing of our
people and the communities we serve; and ii)
continue to deliver the best possible service
to our customers during this unprecedented
crisis. This has led to the temporary
introduction of enhanced sick absence terms,
and changes to ways of working.
We welcomed and appreciated CWU’s
statement that the COVID-19 crisis was not
the time to take industrial action. We continue
to engage, on a regular basis and at a senior
level, with CWU and Unite/CMA on our plans
for change. Our engagement with CWU follows
our recent Joint Statement with the union
whereby both parties committed to work on
setting up a joint framework for talks to seek
to resolve our dispute.
We have honoured all our Agreements with
CWU. This includes two pay awards and
an hour’s reduction in the working week,
amounting to an effective pay increase of
around 10 per cent over two years. All the
appropriate dispute resolution procedures
have been followed and completed.
Our Agenda for Growth agreement with
CWU provides a joint commitment to
improved industrial relations and to
resolving disputes at pace in a way that is
beneficial to both employees and Royal Mail.
There is a prescribed resolution process for
disputes. The Agreement has legally binding
protections for the workforce in respect of
future job security and our employment
model. These can be rescinded in certain
circumstances, including in the event of
national industrial action.
63
Key
Link to strategy (see page 19)
Relative severity
Change during the year
Speed at which the risk could impact
‘Turnaround and grow’ in the UK
High
Increasing risk
Fast: 6 months
‘Scale up and grow’ GLS
Medium
Decreasing risk
Medium: 6-12 months
Enhancing our cross-border proposition
Low
Stable
New
Slow: >12 months
PENSION ARRANGEMENTS
Principal risk
Status
How we are mitigating the risk
We recognise pension benefits are
important. We will continue to provide
sustainable and affordable pensions
arrangements for our people.
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 CWU.
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.
We are continuing to work with CWU and
Government to introduce the necessary
legislative and regulatory changes so that
we can introduce our proposed CDC pension
scheme as soon as possible.
The overall ongoing cash cost of the
transitional arrangements and the proposed
CDC scheme is expected to continue to be
around £400 million a year.
The Pension Schemes Bill, of which CDC
is a part, was tabled on 7 January 2020 and
has started its progress through Parliament.
The passage of the Bill depends on factors
including the amount of parliamentary time
made available.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information
64
Strategic Report – Principal risks and uncertainties continued
EFFICIENCY
Principal risk
Status
How we are mitigating the risk
Royal Mail must become more efficient
and flexible to compete effectively in the
parcel and letter markets.
The success of our strategy relies on
the effective control of costs across all
areas of the business and the delivery
of efficiency benefits.
We continue to operate a tight
balance between achieving efficiency
improvements and delivering high
service levels. This requires careful
management of efficiency and Quality
of Service.
In May 2019, Royal Mail launched its
‘turnaround and grow’ plan in the UK,
with a range of financial and operating
ambitions. There is a risk we will not
be able to deliver our transformation
programme and meet our required
cost avoidance and productivity
improvement targets during the life
of the plan.
COVID-19 has meant we, rightly,
have had to introduce a range of
social distancing measures in our
processing and delivery operations
(e.g. changing standard ways of
working including one person per van).
These arrangements may continue for
some time. In turn, they may have an
adverse impact on productivity.
UK profits have declined more than
70 per cent since 2014-15, while costs
have increased. Prior to COVID-19,
the industrial relations environment
was slowing the rate of change in
the UK operation. Our productivity
improvement for the year was 1.0 per
cent, lower than our initial forecast
of over 2 per cent.
The ‘turnaround and grow’ plan focuses
on efficiency and productivity in our
UK network through a range of new,
digitally enabled work tools, operational
excellence and targeted investments.
It maximises the benefits, particularly
in delivery and processing, of joint letter
and parcel delivery, and facilitates our
transition to a parcels-led business
where UK letters are important.
Our ‘turnaround and grow’ plan in the
UK is behind schedule. Combined with
the impact of the COVID-19 pandemic,
we believe it will now take longer to
achieve the targets we have set, at a
time when we need to be accelerating
the pace of change in the UK.
Our UK costs are increasing as we
make necessary investment in quality
measures and protective equipment
for our people. This makes it even
more important that we increase
our efficiency.
Following the onset of the COVID-19 pandemic, we are
prioritising the protection of our people and customers,
whilst keeping mail and parcels moving. We have
already committed around £40 million on buying
equipment such as hand sanitiser, disposable gloves
and other additional protective measures to keep our
people safe.
The outlook for our UK business is challenging.
Before the COVID-19 pandemic took hold, our UK
transformation was behind schedule. But, we had made
progress in key areas relating to improving productivity.
This included:
Seeking to embed a range of digitally-enabled
work tools to improve efficiency and productivity.
We completed the deployment of our route optimisation
tool in March 2020, which has improved visibility of
changes to delivery routes and this has been used to
deliver our first phase of delivery revisions.
We are scaling up trials for Resource Scheduler, which
draws together data from across the operation to enable
better alignment of duty sets and rosters to demand.
In January 2020, following the conclusion of our dispute
resolution procedures with CWU, we confirmed we were
moving ahead with key national and much-needed local
change initiatives that had been delayed, in some cases,
by up to a year. That includes extending our successful
trial of automated clocking in and out for frontline
colleagues at a small number of UK sites.
We installed a further 10 parcel machines, meaning
we now have 20 machines at 16 Mail Centres. This has
driven the percentage of parcels sorted by machine to
33 per cent, close to three times the average number
sorted automatically during 2018-19. Work has started
on the next phase of this automation programme, which
will add further machines into parcel sorting operations.
We want to increase the overall proportion to over
80 per cent by installing automated machines in all Mail
Centres by 2023-24 and building dedicated parcel hubs.
Work continues on the parcel hubs. We have chosen the
supplier for automation and have completed the fit out
for the North West hub. We have signed a conditional
agreement for a lease for our second parcel hub in
the Midlands.
We are implementing a range of immediate cost
control activities and reducing capital expenditure
in a measured way:
– Management restructure, subject to consultation,
targeting a reduction of c.2,000 roles out of a total
population of c.9.700.
– £250 million capital expenditure reduction across
2020-21 and 2021-22. Investment continues at higher
than historical levels, including in parcel automation
and hubs.
– Targeting flat non-people costs, excluding depreciation,
in 2021-22 versus 2019-20, with £200 million annual
savings in 2021-22 offset by increases in parcel volume
related costs.
65
CUSTOMER EXPECTATIONS AND ROYAL MAIL’S RESPONSIVENESS TO MARKET CHANGES
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
Principal risk
Status
How we are mitigating the risk
Changes in customer expectations, and in
the markets in which the Group operates,
could impact the demand for products
and services.
Given the major cultural shift underway
in UK society – more e-commerce and
therefore fewer letters and more parcels
– it is very important Royal Mail changes too.
While we expect to handle many more
parcels in the years to come, we think UK
letter volumes will continue to decline.
This structural decline is driven by
e-substitution, lower GDP, the impact of
GDPR and business uncertainty. We expect
it to accelerate this year, due to the impact
of COVID-19.
There is a high degree of uncertainty about
letter volumes due to the effect of COVID-19
and any subsequent economic slowdown.
In addition, we may see a paradigm-shift as
online retailing activity accelerates, driving
more parcel growth. At GLS, B2C volumes
have increased significantly in recent years
as part of our strategy. The pandemic
is accelerating a shift from B2B to B2C,
although the relative proportions vary from
market to market.
Our focus on productivity, through
operational excellence and key work tools,
is vital to remaining competitive in the UK
parcels market – one of the most developed
e-commerce markets in the world. So too is
our network redesign, which, in combination
with productivity gains, should protect UK
business, to some extent, from changes in
customer demand.
Addressed letter volumes (excluding
elections) did not show the expected level of
recovery in the second half. Advertising mail
in particular has been significantly impacted
by COVID-19, as marketing campaigns
are delayed or cancelled and moved to
digital platforms. While B2C mail volumes
have been more resilient, restrictions on
individuals and businesses have adversely
impacted unsorted and stamped mail.
Due to the highly uncertain external
environment we are unable to provide
specific letter volume market guidance.
However, we do expect letter volumes to
decline substantially this year. See our
stress test scenarios on pages 11-14.
The UK domestic and international parcels
markets are highly competitive, with
innovative delivery solutions including
convenient, reliable delivery and return
options, and improved tracking services.
During the COVID-19 pandemic, UK
e-commerce growth has significantly
outpaced the wider UK retail market,
resulting in very strong B2C volumes;
initially we saw the strongest growth in
sectors providing goods associated with
the lockdown, and while these continue to
be strong all other major sectors have now
recovered. International import and export
parcel traffic had been adversely affected
by the COVID-19 pandemic.
Our network provides strong economics,
particularly in the combined delivery of
letters and small parcels. It is not currently
optimised for the anticipated increase in
Next Day and larger parcels.
At GLS, we are focused on delivering a range
of consumer-led solutions as we deliver
more B2C parcels. At the same time, yield
management is a key focus for us, to ensure
profitable growth.
We are transforming from a UK-focused
letters business that delivers parcels,
to a parcels-led, international business.
Letters will remain an important part of
our business.
We will continue to deliver customer focused
enhancements enabled by our ‘turnaround
and grow’ plan. This includes leveraging parcel
technology investments to bring to market new
features to improve convenience and customer
control in the UK and internationally, such as
in-flight redirections, predicted day of delivery/
shorter delivery windows, parcel post-boxes
and doorstep collections.
We will continue with our UK network
transformation and increasing automation to:
a) maximise the benefits of delivering letters
and small parcels together; and b) handle
more Next Day and larger parcels more
efficiently. This will facilitate e-commerce
growth and increase demand for our services.
This year we will focus on winning and
retaining as much of the current exceptional
parcel growth as possible, with an emphasis
on those customers and sectors that
represent long-term growth opportunities.
We will continue to support this with regular
service feature developments and continuous
enhancements to our digital access and
service channels such as the Royal Mail App.
Our range of letter products, incentives and
offers are designed to demonstrate how mail
can help businesses. We will deploy a range of
appropriate incentives to encourage customers
to reconnect with using mail. New initiatives
will also follow, designed to contemporise key
product segments like consumer mail. We will
also continue to promote the value of mail,
including as and when the lockdown is lifted
over time.
As announced in June 2020, we are integrating
Parcelforce Worldwide and Royal Mail
International more closely into Royal Mail.
These changes will ensure that we have one
integrated domestic and international parcels
strategy that best serves the changing needs
of the market and customers.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information
66
Strategic Report – Principal risks and uncertainties continued
ECONOMIC AND POLITICAL ENVIRONMENT
Principal risk
Status
How we are mitigating the risk
Historically, there has been a correlation
between economic conditions and the
level of letter and B2B parcel volumes.
Low rates of economic growth 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.
We are entering a period of significant
uncertainty. The COVID-19 pandemic is
taking us into uncharted territory and the
extent to which UK and global economic
activity will decline over the next few
months is expected to be steeper than the
financial crisis of 2008-09. How the economy
will fare in three to six months is equally
unclear and there is a risk that there may
be additional spikes in COVID-19 infection
rates. Economic forecasters are divided
over how long the crisis will last and what a
recovery will look like. These are matters we
are unable to predict with any certainty.
In addition, while the UK has left the EU and
entered a transition period which runs to
31 December 2020, it is not clear whether
this deadline will continue to hold or what
the outcome will mean for future UK and EU
trading arrangements.
The Board continues to monitor the
economic and wider external environment
in the UK and our other markets.
Specific areas of focus include:
– Business uncertainty, alongside the
recent slowdown in economic activity
due to the COVID-19 pandemic, which
is impacting letter volumes, including
business and advertising mail.
– In the UK, B2C parcel volumes have
remained strong, supported by an
increase in e-commerce as people shop
more online. In the UK and some EU
markets, international import and export
parcel traffic has been adversely affected
but is now in recovery.
– In the overseas market in which GLS
operates, B2B volumes have fallen whilst
B2C volumes have increased.
The extent to which these trends will be
sustained depends in part on the evolution
of the response to the pandemic in
each country.
– For 2020-21, there will almost certainly
be a sharp and sustained economic
downturn in our core markets. As in the
UK, economic growth in the Eurozone
is expected to slow down sharply in the
short term. The medium-term outlook
is highly uncertain.
Royal Mail’s letters business performance
remains closely aligned to UK economic
growth. We therefore expect significant
incremental rates of decline in the short
term. Thereafter, the outlook for letters
will be highly dependent on how the
crisis evolves and Government’s public
policy response.
As previously announced, due to these
factors, we expect Royal Mail (UKPIL) to be
materially loss-making in 2020-21; while
GLS profitability may potentially be reduced.
In addition, over the medium to long term,
both our letters and parcels business
outlook will be shaped by events relating
to the future trading relationship between
the UK and the EU, which remains unclear.
It is not possible to predict with any degree
of accuracy the impact the UK’s departure
from the EU could have on the Group.
Macroeconomic risk assessments are
embedded within our letters forecasting
processes. In addition, a set of economic
scenarios have been constructed to inform
a range of scenarios that could be associated
with COVID-19. These are being revised
regularly as more information is obtained.
The Group has the following strategies
in place:
– Maintaining a strong liquidity position,
with good levels of cash, limited financial
debt and retaining access to a £925 million
syndicated bank loan facility.
– Existing covenants have been waived until
March 2022, and replaced with a basic
liquidity covenant.
– A cost avoidance programme to effectively
manage cash and spending.
– Business initiatives to respond to fluid
competitive pressures.
– A measured reduction in investment in the
short term to underpin our financial position.
– The Group has the ability to access the
Covid Corporate Financing Facility (CCFF),
if required.
Internal procedures are also in place to
monitor and manage ongoing risks associated
with the UK leaving the EU. Material risks
are reported to and handled through a Brexit
steering group comprising senior executives.
We believe the immediate risk to our domestic
operations is low. The impact on cross-border
parcel volumes will depend on the nature
of the UK’s future trading relationships,
and what the future EU/UK customs and
VAT arrangements will be. At the end of the
transition period, we expect the rules which
apply to non-EU imports to be extended to
EU items. Similarly, we would expect the
EU to treat UK imports as it does non-EU
imports today.
Strategies to address these risks include:
– Accelerating the pace of change in the UK
to deliver the requisite efficiency benefits.
– Arrangements are in place to manage the
expected impact of changes to customs
processing.
– Working closely with Government to put
in place systems to ensure the movement
of cross-border parcels continues to
operate effectively.
Royal Mail regularly engages 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 with
politicians and policy makers.
67
SCALE UP AND GROW GLS
Principal risk
Status
How we are mitigating the risk
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.
Royal Mail Group is well positioned to
grow through its subsidiary, GLS. It has a
replicable and scalable business model
founded on the development of strong
regional businesses.
Our GLS strategy is about growing the
business. It remains very well positioned
as a deferred delivery business with good
market positions in many countries. GLS is
an important source of cash flow generation
and revenue diversification for Royal Mail
Group. In the short term, there are few
synergies available between Royal Mail and
GLS. In the medium term, an international
presence is clearly important.
The large, and growing, cross-border
market represents a growth opportunity.
The majority of cross-border volumes are
deferred parcels (including small parcels);
express parcels account for less than a
quarter of volumes. This is a growth area
for the Group.
Our five-year plan aims to build a parcels-led,
more balanced, more diversified business.
This includes increasing the proportion of
Group revenue generated by parcels through
our ‘scale up and grow’ plan for GLS and
cross-border parcels.
Our strategy is designed to ensure GLS builds
on its strong, 30-year track record and makes
a major contribution to the Group’s product
and geographical diversification. The focus
will be on profitable revenue growth, including
focused yield management.
The acceleration of the shift from B2B to
B2C will be addressed through initiatives
to improve last mile productivity to offset
cost pressures.
We are conducting a review of recent
acquisitions and implementing improvement
plans in key markets.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 68
Strategic Report – Principal risks and uncertainties continued
REGULATORY AND LEGISLATIVE ENVIRONMENT, AND OPERATIONAL RISKS
The UK business operates in a regulated environment. GLS entities operate in a number of different jurisdictions and are
subject to various national laws and regulations. Changes in legal and regulatory requirements could impact our ability
to meet our targets and goals.
OUR UK REGULATORY FRAMEWORK
Principal risk
Status
How we are mitigating the risk
USO finances are fragile. There are
significant, and growing, risks to the
USO’s financial sustainability. Given the
continuing structural decline in addressed
letter volumes, and broader changes in
the parcels market, Ofcom is continuing
its monitoring of Royal Mail. It has brought
forward some of the work it plans to
undertake as part of its next review of the
regulation of Royal Mail, which, overall,
will be completed in 2022. Ofcom’s
review of the regulatory framework could
lead to further intervention which could
undermine the financial sustainability of
the Universal Service.
Ofcom will continue to be focused on
monitoring Royal Mail’s efficiency. It will
complete its bottom-up cost model of our
operations and a review of our efficiency.
It is also conducting research on user
needs to assess whether the postal
services market is meeting the reasonable
needs of postal users.
The Universal Service, as we have
stressed to Ofcom and Government, needs
to meet the 21st century requirements
of consumers and SMEs. In short, a
contemporary USO is required. We have
also noted the importance of considering
the revenue pools needed to sustain the
Universal Service, alongside the legitimate
needs of consumers and SMEs. Given that
the USO has high, fixed costs, irrespective
of volume, it is also crucial to focus on
underpinning USO and non-USO revenue
pools to fund it.
As a result of the COVID-19 pandemic,
we initially indicated that there could
be some service disruption across the
country. We subsequently announced a
six-week temporary relaxation of delivery
frequency arrangements in relation to
letters. For that period, letters were
delivered five days a week; we continued
to deliver most parcels on a six days a
week basis. Normal services resumed
on 13 June 2020.
We welcomed Ofcom’s statement that it
would take a pragmatic approach to any
changes to our regulated services during
this unprecedented crisis.
A key aim of our ‘turnaround and grow’ plan for
our UK business is to underpin the sustainability
of the Universal Service. The plan will be
challenging to execute. We will continue to ask
Ofcom for its support, wherever possible, to
facilitate its delivery. In doing so, we will note that
our transformation is designed to help us become
even more efficient and better placed to respond
to changing customer demands. We will stress
the power and economic value of the Universal
Service as it makes commerce happen across
the UK and connects customers, companies
and countries.
Ofcom is conducting a User Needs Review about
the Universal Service. We believe that many of
the key USO features are valued by consumers
and SMEs. They include uniformity, universality,
affordability and measurability. But, they all
have to be paid for at a time when COVID-19 has
exacerbated the underlying problems facing the
USO. For example, since the beginning of this
financial year (2020-21) letter volumes have
declined about 33 per cent, around four times
the decline rate we saw in 2019-20.
For its part, Royal Mail has a stretching self-help
programme in place. This involves significant
investment in the Universal Service when our
finances are under challenge; we expect to
be materially loss-making in the UK this year.
In addition, we plan to address the very specific
challenges presented by COVID-19. We do not
believe, however, that successful delivery of our
transformation and COVID-19 mitigation plans
will be enough in themselves to underpin the
long-term stability of the USO.
That is why, alongside engaging with our unions on
our own plans to put Royal Mail in a better position,
we are working with the Regulator and Government
on the Universal Service. This is all about ensuring
it is financially underpinned, in a sustainable way,
and future-proofed to reflect changing consumer
and SME needs and preferences. Ofcom will
embark on a public consultation on the USO, and
Royal Mail will engage, at the same time, with
many stakeholders on a USO for the 21st century.
From its own, detailed research, the Company
anticipates that many of the current features of the
USO should remain in place, subject to regulatory
and Government approval. We look forward to
the debate and engagement to come, including
ensuring the Universal Service has the requisite
financial resources to sustain itself.
69
COMPETITION ACT INVESTIGATION
Principal risk
Status
How we are mitigating the risk
Royal Mail’s appeal of the CAT’s judgment
will be heard by the CoA in mid-2021.
Whistl’s High Court claim is on hold until
after the completion of the appeal process.
On 14 August 2018, Ofcom published
its decision following its investigation
into whether Royal Mail had breached
competition law. The investigation was
launched in February 2014, following a
complaint brought by TNT Post UK (now
Whistl). Ofcom found that Royal Mail
had abused its dominant position in the
market for bulk mail delivery services in
the United Kingdom by issuing Contract
Change Notices on 10 January 2014 which
introduced discriminatory prices. It fined
Royal Mail £50 million.
In October 2018, Whistl filed a damages
claim against Royal Mail at the High Court
relating to Ofcom’s decision.
The Group robustly defended its conduct in
written and oral representations made to
Ofcom during the investigation and lodged
an appeal with the Competition Appeal
Tribunal (CAT) on 12 October 2018 to have
both Ofcom’s decision and fine overturned.
The main hearing for the appeal to the
CAT took place in June and July 2019.
On 12 November 2019 the CAT handed down
its judgment on RMG’s appeal, which upheld
Ofcom’s decision and the £50 million fine.
As a result, Royal Mail has made a provision
for the fine, which is now payable to Ofcom.
In January 2020, Royal Mail requested
permission to appeal the CAT’s judgment
to the Court of Appeal (CoA). On 30 March
2020, the CoA granted Royal Mail permission
and indicated that a hearing would be held
over one to two days in mid-2021.
CAPABILITY – TALENT AND STRATEGIC WORKFORCE PLANNING
Principal risk
Status
How we are mitigating the risk
This risk brings together our risks
of “Strategic workforce planning” and
“Talent and capability” that were previously
presented separately.
Our performance, operating results and
future growth depend on our ability to
attract and retain talent with the appropriate
level of expertise.
The capability, experience and cohesion
of senior management are integral to
our transformation.
Workforce planning could be adversely
impacted by an ageing workforce, and a
reduction in available workforce due to the
impacts of demographic change, Brexit and
increasing automation.
Executive search activity has continued to
bring in external hires with key capabilities.
We operate an internal Executive talent review
and succession planning process and have in
place leadership development programmes.
Leadership initiatives to aid the transformation
agenda are in design; along with our approach
for increasing diversity across this population,
including 2024 targets agreed with the
Inclusive Action Steering Group.
Resources, delivery methods and timescales
for these and other activities in development
are being impacted as a result of COVID-19.
We are monitoring the demographic profile
of our workforce and tracking key external
metrics such as the employment rate
and demographics. We undertake market
research and analysis and we perform
industry benchmarking.
A Strategic Workforce Plan has been developed
during 2019-20 and will be reviewed once the
impact of COVID-19 is more clearly understood.
Voluntary turnover in senior management
is at similar levels to prior years but
remains a business risk.
As our workforce ages, it may be incapable
of fulfilling physically demanding roles.
We are developing a strategy to attract and
retain younger workers, which means we
need to review our employment proposition.
Our transformation, including
implementation of our Enterprise strategy
and increased automation, will change
the nature of some roles, requiring new
and different skills. We need to be able to
upskill our existing workforce to develop
these skills and ensure we can attract
and retain people with the right skills for
our organisation.
The impact of Brexit on the employment
market is largely still unknown. It may
influence the availability of workers,
particularly if freedom of movement is
at risk.
The medium and long-term impact of
COVID-19 on Royal Mail is unknown.
However, the mail mix/profile, and the
economy generally, is likely to be quite
different coming out of the crisis, for which
scenarios are currently being modelled.
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Strategic Report – Principal risks and uncertainties continued
HEALTH, SAFETY AND WELLBEING
Principal risk
Status
How we are mitigating the risk
The health, safety and wellbeing of our
employees, contractors, agency workers
and members of the public are of the utmost
importance. There is a risk that a health
and safety incident or global health crisis
could result in the serious injury, ill health
or death of employees, contractors, agency
workers or members of the public.
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, failure to manage the health and
wellbeing of our employees could also lead
to financial losses and reputational damage
through increased sickness absence, lower
productivity, failure to deliver the USO, civil
action or criminal prosecution.
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 is more difficult to control.
Due to this wide reach and the number
of people affected by the business’
undertakings, the risk of serious harm
to people cannot be totally mitigated.
We acknowledge that every health and
safety incident has a human impact.
An integrated Safety, Health and
Environment Management System (SHEMS)
is in place to manage our risks and achieve
legal compliance; ongoing maintenance
addresses any emerging compliance gaps
or risk controls. We continue to identify
opportunities for simplification to make the
SHEMS more accessible for managers.
The COVID-19 pandemic poses a new
and increased risk to public health.
Our employees are classified as key workers
as we form part of the country’s essential
infrastructure. We have an important
role to play in keeping letters and parcels
moving during the pandemic. This means
that the effectiveness of our controls and
processes to protect our employees is even
more important.
We will continue to review SHEMS to identify
any further opportunities for streamlining and
simplification. We are investing in improved
technology so risk assessment processes can
be completed more easily by managers and
better meet business needs.
Operational implementation of SHEMS is
monitored via an annual audit programme.
A professional and independent SHE function
provides 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. Senior leaders are committed
to driving full compliance to SHEMS.
We have taken action to mitigate the risks to
our employees and customers posed by the
COVID-19 pandemic, including enhancing our
sick pay policy and updating our operating
procedures to limit contact between
colleagues and customers.
We have implemented PHE and WHO
instructions and guidance through the
development of internal policies, procedures,
risk assessments, instructions and
guidance. These arrangements have been
communicated to employees through a
dedicated, comprehensive multi-media
communications campaign.
71
MAJOR BREACH OF INFORMATION SECURITY, DATA PROTECTION REGULATION AND/OR CYBER ATTACK
Principal risk
Status
How we are mitigating the risk
We collect, process and store confidential
business and sensitive personal information
due to the nature of our operations. As a
result, we are subject to a range of laws,
regulations and contractual obligations
around the governance and protection
of various classes of data to protect our
customers, suppliers and employees.
In common with all major organisations,
we are the potential target of cyber-attacks
that could threaten the confidentiality,
integrity and availability of data and trigger
material service and/or operational
interruption. A major breach of information
security, data protection laws, regulations
and/or cyber-attack could adversely impact
our reputation, and result in financial loss,
regulatory action, business disruption and
loss of stakeholder confidence.
Given the evolving nature, sophistication
and prevalence of these threats, including
those presented by the current COVID-19
pandemic and our – still growing – reliance
on technology and data for operational and
strategic purposes, this continues to be
a principal risk.
As external threats become more
sophisticated, and the potential impact of
service disruption increases, we continue
to invest in security enhancement and data
protection in response to the changing threats
we face. We continue to support the education
of our employees and stress the importance
of maintaining vigilance across the business,
whilst recognising that we cannot provide
absolute mitigation against the risks. This is
especially imperative during altered ways of
working due to COVID-19. As a result of the
pandemic, changes have been required to
our operational processes and to working
practices, including those of third-party
suppliers who process our data.
ENVIRONMENT AND SUSTAINABILITY
Principal risk
Status
How we are mitigating the risk
Climate change and regulatory actions
designed to mitigate its impact may
have adverse operational, financial and
reputational consequences.
The cost of operations could increase as
a result of actions to mitigate and adapt
to climate change. These include the
introduction of Clean Air Zones, the future
ban of petrol and diesel vehicles, and net-
zero emission targets for towns and cities.
An increase in the frequency of extreme
weather events may result in disruption
to our operations. It may also impact our
ability to meet USO or other contractual
requirements. We may also see price
rises as a result of resource scarcity, such
as water shortages, and increased costs
associated with insurance premiums,
investment in equipment to protect the
business from extreme weather events,
and any associated repairs.
In common with all major organisations,
there could also be a risk of reputational
damage – impacting our ‘licence to operate’
– if the business is perceived to not be
responding appropriately to stakeholder
expectations for action on climate change.
With the UK’s largest ‘feet on the street’
network of around 90,000 postmen and
women, Royal Mail plays a key role in
keeping carbon emissions low.
We have a requirement to maintain a
large fleet of vehicles. Growth in parcels
is also driving up our energy demand.
We recognise our responsibility to reduce
our environmental impacts.
Our environmental programmes have
already reduced our UK emissions by
31.9 per cent since 2004-05. The GLS
‘ThinkGreen’ initiative delivers targeted
measures on key environmental issues.
These include a reduction in emissions
and the responsible handling of resources
across areas of transport, buildings and
business travel.
We continue to invest and implement
changes to improve the efficiency of our
operations. This includes investment in
zero- and low-emission vehicles and the
installation of efficient equipment across
our property estate.
We engage our people in our efforts to
become more efficient and reduce our
use of natural resources.
We are launching our new environmental
strategy in 2020-21. It has three key pillars:
emissions reduction, cleaner air, and resource
efficiency. Our target is for our operations to
be net-zero by 2050.
We are increasing the number of electric and
alternative fuel vehicles in our fleet to reduce
emissions and improve air quality. We are
investing in innovative technologies, such as
telemetry, and driver training programmes,
to reduce the amount of fuel we use. We also
continually work to optimise our transport
network, to ensure it is as efficient as possible.
GLS continues to expand urban logistics
projects, such as emission-free delivery cities,
and grow its alternative fuel vehicle fleet.
We are also taking proactive steps to reduce
our energy and water consumption, and
reduce the amount of waste we send to
landfill. For example, we have invested in new
boilers and energy efficient lighting.
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72
Strategic Report – Principal risks and uncertainties continued
BUSINESS CONTINUITY AND CRISIS MANAGEMENT
Principal risk
Status
How we are mitigating the risk
We have a responsibility to provide sustained
and continued postal services under the
Universal Service. There is a risk that we
may fail to successfully respond to, recover
from, or reduce the impact of a major threat
or disruptive incident that could cause
widespread operational disruption and
financial loss to the Group.
Previously this risk was monitored at
business unit and functional level but
was not considered a principal risk due to
the modular and geographically diverse
nature of our operations providing natural
mitigation. The widespread and enduring
nature of the current global pandemic has
increased the likelihood of the inherent risk
materialising, and as such this is now being
recognised as a principal risk to the Group.
The outbreak of the virus COVID-19
has been declared a pandemic by the
World Health Organization and now
presents an unprecedented global crisis.
Governments worldwide have imposed
restrictions on the movement of people and
imposed necessary measures which have
had, and continue to have, a significant
effect on our UK and International
businesses. Royal Mail staff are recognised
by Government as key workers, essential to
keeping the country connected during this
time. We are adapting and responding to the
rapidly evolving risks accordingly, in line with
our already existing Business Continuity
Management Framework.
Following the onset of the COVID-19 pandemic,
we are prioritising the protection of our people,
the country and our customers, whilst keeping
mail and parcels moving.
We are actively monitoring the rapidly
evolving COVID-19 threat and have invoked a
comprehensive business continuity and crisis
management response across the Group in
line with our framework.
We are engaging closely with the Government,
public health authorities, Ofcom, and
customers to implement necessary changes
in response to government, PHE and WHO
advice. For example, we are limiting contact
between colleagues in our operations, with
customers on delivery and at Customer
Service Points. Steps have been taken to
minimise the impact on services as much
as possible.
The pandemic has brought together all
functions across the business in a cohesive
response. We have established Gold, Silver and
Bronze response teams which have Executive,
Director and Senior Management leadership,
providing regular reports to the Plc Board.
Daily communications are cascaded to all
employees to keep them informed of current
developments. We are in regular dialogue
with Government officials, key stakeholders
and suppliers.
VIABILITY STATEMENT
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 continue to
relate to the successful deployment of the key elements of the
Journey 2024 plan communicated in May 2019, namely:
– Transforming and growing our UK business;
– Scaling up and growing GLS; and
– Enhancing our cross-border proposition.
Further details on these factors can be found on pages 19-25.
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 2023 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 matches
our business planning cycle, which allows financial modelling
to be supported by the budget and business plan approved by
the Board.
Given the recent economic uncertainty arising from COVID-19,
we expect to see significant volatility in the short term reducing
our expected performance for 2020-21. This includes significant
impacts on:
– advertising mail and addressed letter volumes within Letters
in the UK;
– Tracked Returns® and Post Office volumes within Parcels
in the UK;
– Business to Business volumes in GLS; and
– additional costs of taking necessary measures to protect
the health and safety of customers and employees and of
temporary resource to cover increased absence levels.
We believe that trading conditions will partially recover as we
move through into 2021-22.
The key assumptions within the Group’s financial forecasts are
as follows:
– A three-month lockdown in the UK, resulting in a GDP
decline of 10 per cent in FY21 followed by recovery from
FY22 onwards.
– UKPIL Letter revenue to suffer a material decline in FY21 due
to adverse impacts in advertising mail and addressed letter
volumes, with the decline decelerating in FY22 and FY23
– UKPIL Parcel revenue expected to continue to grow, primarily
driven by an upsurge in online shopping.
– GLS parcel volume and revenue growth remains good, with
impact to margins effectively managed as the mix moves to
a higher proportion of B2C growth.
– People costs reflect an extensive set of operational initiatives
with phased implementation.
– COVID-19 related one-off charges of c.£140 million are
included within the plan.
– The current Regulatory Framework was extended in March 2017
through to March 2022. It is therefore assumed that there is
no change in the Regulatory Framework over this period.
73
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 62-72 but focused on those that could have
a plausible and severe financial impact over the plan horizon.
This year, the Directors considered:
(i) a second wave of COVID-19 in the UK resulting in a
further three-month lockdown between October and
December 2020 (Principal risk: Business continuity
and crisis management);
(ii) deteriorating economic and market conditions which
could result in letters volume decline greater than
our projected range (Principal risk: Economic and
political environment);
(iii) the Brexit transition period ending without a trade deal
having been reached, which could cause economic
conditions to deteriorate further (Principal risk:
Economic and Political Environment);
(iv) increased competition in the UK parcels sector
(Principal risk: Customer expectations and Royal Mail’s
responsiveness to market changes);
(v) the potential impact of industrial action (Principal risk:
Industrial action); and
(vi) delays to our UKPIL transformation plan (Principal risk:
Efficiency).
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) suspending the dividend;
(ii) reducing variable hours and cost of sales;
(iii) removing discretionary pay;
(iv) reducing our internal investment; and
(v) reducing our one-off projects.
Consideration was also given to the large fixed cost base
required to deliver the Universal Service Obligation in
its current form. The downside scenarios were tested to
determine whether the Group would remain solvent.
Unprecedented uncertainty exists in respect of the potential
impact of COVID-19 in 2020-21. We have made our assessment
based on our best view of the severe but plausible downside
scenarios that we might face. If outcomes are significantly
worse, the Directors would need to consider what additional
mitigating actions were needed, for example assessing the
value of our asset base to support liquidity. Consequently, the
Directors have concluded that to stress test a level of increased
severity (beyond the downside scenario) which may cast doubt
about the Group’s ability to continue to be viable over the three
year assessment period is not currently reasonable.
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, meet its liabilities as they fall due,
retain sufficient available cash and not breach any covenants
under any drawn facility over the period to March 2023.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 74
Strategic Report
CORPORATE
RESPONSIBILITY
1st
SUSTAINABILITY
£10.6bn
UK ECONOMY
1st ranked globally in Transportation
and Transportation Infrastructure
industry, Dow Jones Sustainability Index
£10.6 billion added to the UK economy
in 2019-201
£64m
22%
CHARITABLE CONTRIBUTIONS
HEALTH AND SAFETY
32%
REPRESENTATION
£64 million raised through payroll giving
since the launch of our scheme in 1989
22 per cent reduction in Lost Time
Accident Frequency rate from 2018-19
32 per cent of senior managers
are female
2%
CARBON EMISSIONS
14%
DIVERSITY
2 per cent reduction in C02e this year
14 per cent of employees identify
themselves as BAME. This is broadly
representative of the UK population2
75
Introduction
Our Group purpose – through Royal Mail and
GLS – is to ‘Connect customers, companies
and countries’.
We use this feedback to tailor our activity and reporting.
For example, in response to feedback, we have provided more
information about how we manage environmental issues in
this chapter. We will provide a full description of our materiality
assessment in our 2019-20 CR Report.
In the UK we have a specific legal duty to deliver the Universal
Service; the one-price-goes-anywhere service on a range of
letters and parcels to nearly 31 million addresses across the
country, six days a week. This legal corporate purpose makes
us very different to other companies.
Our purpose is underpinned by our strategy, values and
corporate culture. Our corporate responsibility (CR) strategy,
in turn, supports the delivery of our business strategy. It also
protects our trusted position in society. Effective management
of environment, social and governance (ESG) issues can result
in significant benefits and competitive advantage.
Our CR strategy comprises the following six key objectives:
– Delivering economic and social benefit to the communities
we serve;
– Managing the environmental impacts of our
business operations;
– Driving colleague advocacy for the Group and its role
in communities;
– Delivering our transformation responsibly;
– Operating with integrity; and
– Communicating our management of CR openly
and transparently.
We report progress against our objectives under the main areas
of Customers, People, Community, Environment and Suppliers.
Members of the senior leadership team take responsibility for
each of these areas.
Determining materiality
We communicate proactively with stakeholders and offer a
range of channels for them to engage with us. We seek to
understand their perspectives about our business and our
responsibilities as an important part of the social and economic
infrastructure of the countries in which we operate.
This year, we completed our materiality assessment; we do this
every two years. We sought stakeholders’ views through one-
to-one interviews, surveys and an external stakeholder panel.
The assessment identified the following issues as being of most
importance to both Royal Mail and our stakeholders:
– Climate change
– Engagement and culture
– Labour standards and human rights
– Customer service
– Health, safety and wellbeing
– Diversity
– Community impacts
Governance and management
The Board receives regular updates on CR activity. It also
reviews and approves our annual CR Report. In 2019-20, we
further strengthened our governance with the introduction
of a separate Board Committee for CR. Its members include
Non-Executive Directors Rita Griffin (Chair), Maria da Cunha
and Simon Thompson, our designated Non-Executive
Director for engagement with the workforce. The Committee
oversees the Company’s performance in Environment, Social
and Governance matters and ensures we maintain our
CR standards.
The Committee met twice during the year. It will meet at least
three times a year going forward. Its Chair provides a regular
update to the Board on its activities. A full report on its activities
during the year can be found on page 126.
Reporting on progress
We are committed to being as open and transparent as
possible about our business. We have an extensive suite of
policies covering material social, environment and governance
matters. These are published on our website:
→ www.royalmailgroup.com/en/responsibility/
policies-and-reports/.
Our CR Report meets the disclosure requirements of the
Global Reporting Initiative (GRI) Standards. We report to a
‘Comprehensive’ level. The full CR Report will be published
later this year.
Our reporting meets the requirements of the EU’s Non-
Financial Reporting Directive. It also meets our reporting
obligations as a signatory to the United Nations Global Compact.
We engage PricewaterhouseCoopers to verify reported
non-financial performance indicators and related assertions.
This assurance includes environmental indicators as well as
those indicators used to monitor culture, such as health and
safety, diversity and breaches to our Business Standards.
Assurance is performed in accordance with two internationally
recognised standards: ISAE 3000/3410 and AA100AS.
The auditor’s statement will be published in our 2019-20
CR Report.
Monitoring and evaluation
Royal Mail occupies a trusted position in society. According to a
recent survey, four in five UK consumers have a favourable view
of the company. This exceeds the score for a number of British
companies. Around 80 per cent agree we play an important role
in society, the economy and in local communities3.
1
2
CEBR research, conducted for Royal Mail in May 2020, comprising direct and
indirect contributions.
In 2020 we used an online Employee Engagement Survey for the first time, which replaced
the paper-based survey we previously used. The combination of this change, and the onset
of the pandemic as the survey launched, meant that response rates were low. This data is
from the 2019 Employee Engagement Survey, which remains an accurate representation
of our workforce demographic.
3 Watermelon Research, 2019-20 Consumer Research Tracker.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 76
Strategic Report – Corporate responsibility continued
We are also independently rated as a leading responsible
business by the most prestigious international benchmarks for
sustainability. This is on account of our strong environmental,
social and governance performance.
– In 2019, we were named global leader of the Transportation
and Transportation Infrastructure industry in the Dow Jones
Sustainability Indices for the third consecutive year.
– We rank in the 96th percentile of companies included in
the FTSE4Good.
– We are rated AA (Leader) by MSCI.
– We are included in the Vigeo Eiris UK Top 20 Index. We are
currently the only Transport & Logistics company to be
included in the UK index.
– We respond to the annual CDP Climate Change questionnaire.
In 2019, we achieved a B score, ahead of our industry average
score of C.
We use the results of these benchmarks to identify areas
for improvement in both our management and our reporting
of CR issues.
Sustainability risks and opportunities
We assess risks and opportunities arising from social and
environmental issues relevant to our business at least once a
year. We use our risk management framework to determine the
criticality of risks. More information about our approach to risk
management can be found on pages 123-125.
Environment and sustainability has been identified as a
Principal Risk to the business (see page 71). In line with
the recommendations of the Task Force on Climate-related
Financial Disclosures (TCFD), we consider both physical and
transitional risks posed by climate change. We also work to
identify opportunities presented by the effective management of
environmental issues. Opportunities can support a competitive
advantage, and lead to stakeholder and customer advocacy
as well as cost savings. We disclose a detailed assessment of
the risks and opportunities related to environmental issues on
pages 84-85 of this section. We will aim to support this early
assessment of risks and opportunities with a full scenario
analysis in 2020-21, as recommended by the TCFD.
Our customers
We are proud of the role we play connecting customers,
companies and countries. Our ambition is to build a parcels-led,
more balanced, and more diversified, international business.
We aim to achieve this through our strategy.
Keeping the country connected
Royal Mail played an important role in the response to the
COVID-19 pandemic. In all instances, the health and wellbeing
of our people and the communities we serve was our priority.
We committed around £40 million to buying equipment such as
hand sanitiser, disposable gloves and other additional protective
measures to keep our people safe.
Our people worked hard to deliver as comprehensive a
service as possible throughout the crisis. We are a lifeline for
communities across the country. The delivery of parcels and
letters is a way of keeping the country connected, businesses
operating, and helping many people who may not have the
option to leave their homes.
We supported Government with the delivery and return of
coronavirus tests for NHS and social care frontline staff.
The initiative enabled NHS staff to receive and complete a
coronavirus test at home. Many customers relied on Royal Mail
to bring them medication and pharmaceutical supplies, hospital
appointments and other crucial communications.
We worked with the CWU to implement measures to protect our
people and customers. We adjusted our operational processes
for items that could not fit through letterboxes, and those that
required a signature. For example, we paused the use of hand-
held devices to capture signatures, instead logging the name
of the person accepting the item. For customers collecting
mail from us, we issued guidance on how to reduce contact
and maintain safe distances in our Customer Service Points.
We also supported the UK Government’s public information
campaign on coronavirus, designed to provide information and
guidance to UK households. In addition, we added a coronavirus
postmark to millions of mail items during the course of the
crisis. The postmark featured the UK Government’s message
to “Stay Home, Protect the NHS, Save Lives”.
Internationally, through GLS, we changed our processes to
enable contactless deliveries. We also waived the requirement
for customer signatures to confirm delivery. Delivery drivers
and warehouse personnel were issued with clear guidance on
hygiene and Personal Protective Equipment (PPE). To address
supply shortage of hand sanitiser, GLS Germany worked with
a local gin distillery which had converted part of its production
line to make alcohol based viricidal hand gel.
Our products and services
In an increasingly competitive market, we aim to make our
services simple and flexible to meet the changing needs of our
customers. We continue to provide a high level of customer
service and introduce new and enhanced products and services.
We exceeded our annual regulatory Quality of Service target of
98.5 per cent for Second Class mail, delivering 98.7 per cent of
mail within three working days. We missed our annual regulatory
target for First Class mail, delivering 92.6 per cent the next
working day, against a target of 93.0 per cent. Up until 15 March,
Royal Mail was meeting its First Class target with a performance
of 93.0 per cent. The full year outcome for First Class mail was
significantly impacted by the coronavirus crisis. This led to
high levels of coronavirus-related absences during the tail end
of the 2019-20 financial year. We believe that, if the 2019-20
performance was adjusted to take into account the impact of
COVID-19, we would have achieved our First Class target. We are
asking Ofcom to take these issues into consideration.
In 2019-20, our mean business customer satisfaction score
improved to 79.3 points. Our consumer sending satisfaction
score remained stable at 81. Almost 90 per cent of business
customers rated Royal Mail as being ‘Easy to Do Business With’1.
In March 2020, we increased the price of our First and Second
Class stamps to 76p and 65p respectively. These changes were
necessary to help ensure the sustainability of the one-price-
goes-anywhere Universal Service. We understand that many
companies and households are finding it hard in the current
economic climate. As a result, we considered our pricing changes
very carefully. Royal Mail’s stamp prices are still amongst the best
value in Europe compared with other postal operators.
77
We also launched earlier customer notifications for parcel
customers. Recipients are now advised of the delivery window
for their parcel the day before delivery. We are also now able
to provide a two-hour delivery window, compared with four
hours last year. This forms part of our investment to improve
convenience for our customers and their recipients.
In July, GLS Italy launched a new ‘ReturnService’. It aims to
streamline and simplify the return management process.
Customers can generate a link to a dedicated webpage for
recipients to organise their return. Recipients can choose from
a home pickup or a designated drop-off option. The service also
allows the customer to monitor the status of the shipment.
We take complaints very seriously. We aim to resolve customer
issues and identify any underlying causes. This year, we
received 567,536 complaints, a 2.6 per cent decrease compared
with the prior year, despite delivering more parcels2.
Operating with integrity
Royal Mail’s Business Standards describe the behaviours we
expect of our people. Broadly, these cover: doing the right
thing, following the law, acting honourably and treating others
with respect. All new employees are required to complete an
e-learning course about our Business Standards when they
join the company.
We have a strict zero-tolerance policy towards bribery and
corruption. Our dedicated Anti-Bribery and Corruption policy
is groupwide: it applies to both Royal Mail and GLS, and anyone
performing services on our behalf. It sets out our approach
to minimising the risk of bribery and corruption taking place
in any part of our business. It is published on our website
at the following address: → www.royalmailgroup.com/en/
responsibility/policies-and-reports/.
All employees are required to complete an annual anti-bribery and
corruption course. New employees are required to undertake this
when they join the company. We also deliver face-to-face training
for colleagues in high risk roles. We encourage employees to use
our confidential whistleblowing helpline, ‘Speak up’, to report
any wrongdoing, suspected or otherwise. It is also available to
suppliers, business partners, and their employees. In 2019-20,
almost all (99.7 per cent) of Royal Mail managers assigned the
annual compliance refresher training completed it. This included
attesting that they comply with our Business Standards.
GLS also has a Code of Business Standards that outlines the
values and standards of behaviour that it expects from its
employees and subsidiary companies. The Code is available
in 20 different languages for all GLS employees and business
partners. It is supported by a dedicated GLS Whistleblowing
policy and helpline. This is for the reporting and investigation
of allegations of violation of its Code of Business Standards.
GLS encourages employees, business partners and third parties
to report, in confidence, any concerns they have.
Human rights
Royal Mail Group is dedicated to protecting human rights
throughout our operations. We work to implement the UN
Guiding Principles on Business and Human Rights, as well
as the UN Declaration of Human Rights and the International
Labour Organization Fundamental Conventions. These cover
freedom of association, the abolition of forced labour, equality
and the elimination of child labour.
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
provides details of the approach we take. It sets out the risks we
have identified and the steps we have taken to mitigate them.
We strive for continuous improvement and welcome feedback
from stakeholders. Our full statement is available at the
following address: → www.royalmailgroup.com.
Emerging issues
We make a major social and economic contribution through our
support for e-commerce. The digital economy is crucial to the UK’s
economic future. UK residents spend more money per person
online than any other major European country3. We deliver a
significant proportion of physical e-commerce in the UK.
At the same time, the growth of e-commerce has given rise
to new CR issues. As provider of the Universal Service, with
a trusted position at the heart of UK communities, we have
a responsibility to help tackle them.
– Drugs in the post. We understand the tremendous harm that
illegal drugs cause in the community. We work closely with
law enforcement agencies to stop the carriage and delivery
of illegal drugs. Border Force postal command personnel are
stationed at our major international operations. In addition,
we screen suspicious items using X-ray machines and deploy
sniffer dogs to help detect them. We received around 1,800
reports of suspicious packages this year which resulted in the
seizure of items.
– Bladed items in the post. We have reviewed the way we
handle bladed items through the post this year. The Offensive
Weapons Act 2019 will make it an offence to deliver bladed
items to a person under the age of 18. We have launched
a new product for business customers where the age of a
recipient will be checked before a package is handed over,
thereby helping our customers to comply with the legislation.
Fraudulent mail
Royal Mail never knowingly delivers scam mail. We understand
the upset and distress that it can cause. We work closely with
employees, industry partners and law enforcement agencies
to tackle the issue. We championed an industry-wide Code
of Practice some years ago. It commits all major UK mail
operators to share intelligence that will help to eliminate scam
mail from our networks. We have stopped almost 5 million
items of scam mail from reaching our customers since 2016.
Over time, our combined initiatives have significantly reduced
the amount of fraudulent mail scammers attempt to have
delivered in the UK.
Our people
We have set out the considerable measures we put in place to
protect our colleagues and customers during the COVID-19
pandemic, and to maintain as comprehensive as possible a
service during the crisis, on page 18.
1
2
A change in research partner in 2019-20 means the mean business customer satisfaction
and Easy To Do Business With scores are not comparable to previous years.
The 2.6 per cent figure is calculated based on a 2018-19 restated figure from 578,614 to
582,984 due to a change in complaints reporting methodology. Note that 2018-19 consisted
of 53 weeks and 2019-20 of 52 weeks.
3
E-commerce in Europe, PostNord, 2019.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 78
Strategic Report – Corporate responsibility continued
Working with our unions
A productive and cooperative working relationship with our
unions is a core part of our strategy. We recognise two unions:
the Communication Workers Union (CWU) and Unite/CMA.
Around 89 per cent of our operational and administrative grade
employees are members of CWU. Approximately 65 per cent
of our managers are members of Unite/CMA1. In total, around
98 per cent of our people are covered by agreements with these
two unions.
In March 2020, CWU balloted its members on industrial action.
We were disappointed that CWU members voted in favour of
industrial action. With a 63.4 per cent turnout – and taking into
account frontline employees who are not union members –
56.4 per cent backed industrial action.
We welcomed CWU’s statement, following the ballot outcome,
that now is not the time to take industrial action. We contacted
CWU to work together to protect our people, our country and
our company.
As the coronavirus crisis has developed, we worked with CWU to
formulate and implement the appropriate sick pay and absence
policy for our colleagues. Colleagues, including those with
less than one year’s service, received full pay in relation to any
coronavirus illness or self-isolation.
Engagement and culture
Our people play a key role in helping us to achieve our strategic
priorities. Engaged, committed employees are crucial to
our success.
We measure employee engagement through our annual
Employee Engagement Survey. We also use the survey to
measure our Culture Index, to help us understand colleagues’
alignment to our values and behaviours. This year, our Culture
Index scored 57 points. We also monitor employee retention
rates and the levels of diversity across the organisation.
Culture and engagement are standing items on the agenda for
the new Corporate Responsibility Committee. The Committee
will review outcomes of our employee engagement and
inclusion activities, such as our Employee Engagement
Survey and the Employee Voice Forums, as well as monitoring
whistleblowing, and bullying and harassment complaints.
This year, we asked employees to complete our Employee
Engagement Survey online, for the first time. This enabled us
to access survey results and address them more quickly than
in previous years. It also enabled employees to complete the
survey in their own time and wherever they chose to do so.
Unfortunately, the national lockdown for COVID-19 began in
the same week as the survey launch. We consequently saw a
significantly reduced response rate. While the survey showed
some positive results – including an engagement score of 61 –
they are not comparable to prior years due to the sample size
of respondents.
In 2019-20, our turnover rate was 6.7 per cent (compared to
7.2 per cent the prior year). This compares well with the
average UK turnover rate of 20.9 per cent. The average tenure
of colleagues is 17 years.
We involved around 200 colleagues in our quarterly People
Panel events in 2019-20. These events create an opportunity
for us to listen to colleagues’ insights on key initiatives and
collaboratively discuss solutions. Outcomes of these events
are fed into our business planning processes.
We also held our ‘Employee Voice’ forums. Simon Thompson
hosts these forums, as part of his responsibility as designated
Non-Executive Director for engagement with the workforce.
They provide a space for informal face-to-face conversation,
with a Board member, on topics related to our strategic
objectives. We have held two sessions since April 2019.
See pages 112-113 for more information.
In February, we launched our ‘Ambassador Programme’.
This involves over 300 senior Operations leaders briefing
colleagues face-to-face about our transformation. It aims to
help colleagues understand what the transformation means for
them personally and enables them to provide feedback directly
to our leadership team.
Our target culture, supported by our values and behaviours,
is defined as:
We’re proud to work for Royal Mail. What we do matters to
people. We listen. We’re trusted. Each of us is respected.
We go the extra mile for our customer 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.
SAFETY METRICS
Sick absence (%)
Lost Time Accident Frequency Rate (per 100,000 hours worked)
Reduction in road traffic collisions from previous year (%)*
*Data reported within this table is for UKPIL only.
1
Figure based on latest membership numbers provided by Unite/CMA in 2016.
2019-20
2018-19
2017-18
2016-17
5.87
0.38
2.5
5.41
0.49
5.3
5.09
0.54
9.0
4.63
0.49
12.3
79
Health and safety
Ensuring a safe and healthy working environment is a top
priority. We include a safety measure in our Corporate Balanced
Scorecard. This links managers’ remuneration to safety
performance improvement.
Our groupwide Health and Safety policy outlines our
commitment to our people. It is operationalised through our
integrated Safety, Health and Environment (SHE) Management
system. This provides the framework for managing risk,
improving our safety performance and maintaining a safe,
healthy and environmentally responsible workplace.
This year, we launched a new ‘Safety Risk Assessment’
e-learning training course for managers. We recorded a Lost
Time Accident Frequency Rate (LTAFR) of 0.38 per 100,000 hours
worked, a decrease of 22 per cent compared with 2018-19.
Our Road Traffic Collision Frequency Rate is another key safety
metric. We invest in driver training and road safety campaigns
to promote safe behaviours. This year, we reduced our Road
Traffic Collision Frequency Rate by 2.5 per cent compared with
2018-19.
Despite our best efforts to reduce road accidents, we regret to
report that seven people tragically lost their lives last year in
accidents involving our vehicles. We thoroughly investigate all
accidents to determine the root cause and identify any lessons
to be learned. Our investigations and findings are discussed by
the Board.
We also recorded an increase in sick absence this year,
from 5.41 per cent in 2018-19 to 5.87 per cent in 2019-20.
Musculoskeletal and mental health issues remain the leading
long-term causes. Our efforts are focused on addressing these.
We continue to deliver initiatives to support colleagues’
mental health. We aim to increase awareness, reduce stigma
and provide tools and guidance for better mental health.
We currently have 315 health and wellbeing ambassadors,
up from 160 last year. They play an important role locally, in
promoting mental and physical health and offering peer-to-peer
support. Our approach was recognised by a number of high-
profile awards during the year.
Diversity and inclusion
Royal Mail believes that diversity involves more than just a
workforce with representation from a wide variety of groups.
It also involves giving every one of those groups a voice and
valuing the contributions from all of our people. We are committed
to creating a welcoming and inclusive environment for everyone,
placing fairness, diversity and respect at the heart of our business.
We aim to create a welcoming and inclusive working environment
for all our people. We are a signatory of the Race at Work Charter.
We also support Business in the Community’s Gender and Race
Equality campaigns to understand and follow best practice.
We are proud to have achieved the target set out in the
Hampton-Alexander review to have 33 per cent female
representation on our Board. As at 24 June 2020, females made
up 50 per cent of the Royal Mail plc Board. We understand
the importance of diversity at Board level, and throughout
our organisation.
We welcome the Parker Review target for all FTSE 250 boards
to have at least one director from an ethnic minority background
by 2024. Our Nomination Committee has adopted this aspiration
in its policy.
We replaced our Diversity Council with an Inclusive Action
Steering Group (IASG) this year. The IASG oversees our diversity
and inclusion programme and is responsible for driving culture
change. Our six diversity network groups will now report to the
IASG through a national network group. It is hoped that this
structure will bring streams of activity together to maximise
impact on shared issues.
GENDER DISTRIBUTION (NUMBER OF PEOPLE)
Royal Mail (UKPIL)*
GLS
Total
Female
Male
Female
Male
Female
Royal Mail plc Board**
Senior Management***
Management
Administration
Operational
Total****
4
748
1,577
1,388
4
1,585
5,661
959
41
211
4
789
Male
4
1,796
2,663
2,822
5,628
9,442
22,873
103,862
3,121
10,448
25,994
114,310
26,586
112,069
5,825
13,481
32,411
125,550
*Royal Mail (UKPIL) total excludes Property and Facilities Solutions Limited (PFSL). Following the integration of PFSL to the Group, diversity data for this part of the business has not yet been fully
incorporated into the UKPIL management systems. It is therefore not possible to report this data for 2019-20. Total 138,655 rather than the c141,500 UKPIL employees.
**Royal Mail plc Board as at 24 June 2020.
***For our Corporate Responsibility reporting, we define senior managers as persons graded in bands 1-6, being employees responsible for planning, directing or controlling the activities of the
Company, or a strategically significant part of it. It does not include those members of the Royal Mail plc Board who would otherwise classify as employees within bands 1-6. This definition of
senior management is used each year, ensuring alignment with our people management systems and consistent comparison of data year-on-year.
****Number excludes those members of the Royal Mail plc Board who are not also employees.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 80
Strategic Report – Corporate responsibility continued
Royal Mail celebrates diversity and inclusion events throughout
the year. Our ongoing inclusion campaign, ‘Altogether Different’,
includes focused national inclusion weeks in September
and January.
We continue to take steps to make our recruitment process
more inclusive and accessible. We are committed to recruiting
diverse talent so that our workforce reflects the communities
we serve. Royal Mail is dedicated to supporting disabled
applicants from application through to employment. We provide
training, career development and promotion opportunities.
Royal Mail is proud to have achieved Disability Confident
Employer status. We continue to ensure all Operations
managers undergo mandatory Disability and Reasonable
Adjustments training. This is to ensure they are confident and
effective in supporting colleagues with disabilities. We provide
support and training as required for colleagues with existing
disabilities or for those who have become disabled during their
employment, for example in assistive technology and software.
Gender diversity
In 2019-20, in the UK Royal Mail was named as one of The
Times Top 50 Employers for Women for the sixth consecutive
year1. Royal Mail’s diversity strategy aims to increase the
number of women in management positions. Supporting female
colleagues’ career development is a key part of this.
Rewarding colleagues fairly for their work is another key
priority. Every year, we conduct a company-wide review of pay
for men and women in our UK business. This year’s review
confirmed that average salaries paid to men and women
are broadly the same. However, more men are in work
that qualifies for allowances, such as shift work during the
evening or night. As a result, on a mean basis, women are
paid 2.1 per cent less than men. On a median basis, men
are paid 3.5 per cent more than women. This compares to
a national average gender pay gap on a median basis of 17
per cent across all industries, calculated by the ONS in 2019.
We pay bonuses equally to men and women on a median basis.
However, on a mean basis, bonuses are higher for women,
as there is a higher proportion of women in our management
population, compared to the operational population. Our full
Gender Pay Report is available at → www.royalmailgroup.com/
en/responsibility/our-focus-areas/our-people/.
Rewarding people fairly
We have the best terms and conditions in our industry in the
UK. We offer permanent employees a competitive salary,
paid holiday and a good pension. Around 99 per cent of our
employees are on permanent contracts. Sixty-eight per cent
of our employees are full-time, with 32 per cent working
part-time, up from 31 per cent the prior year.
Our frontline employees’ annual pay has increased by 15.2 per cent
since our privatisation in October 2013. Over the same period,
UK national average annual earnings have increased 13 per
cent2. In 2019-20, postmen and women earned 42 per cent more
than the National Living Wage. At approximately £393 million
per annum, we believe we make one of the largest cash
contributions to our employees’ pensions of any UK company.
Many of our people are shareholders in the Company. As such,
they have a meaningful stake in its success. Around 100 million
free shares were gifted to colleagues at privatisation.
Work life balance
We strive to support employees to manage a work life
balance. We want to ensure our people have a positive
experience at work when they have a family – whether
that is supporting them during their pregnancy, parental
or adoption leave, or during their return to the workplace.
We have formal policies for maternity and adoption leave
and offer employees up to 26 weeks’ fully paid leave.
Investing in our future
We offer learning and development opportunities to colleagues
at all levels of our organisation. This supports the delivery of
our business strategy. We aim to provide the tools, knowledge
and resources for people to have fulfilling careers at Royal Mail.
In 2019-20, we invested nearly £7.4 million in training, equating
to around 20,000 training days. This is an increase of £0.5 million
since 2018-19.
Apprenticeships and graduate schemes are key to bringing
new talent into the organisation. In 2019-20, over 400 people
were enrolled in our apprenticeship and graduate schemes.
We offered opportunities in technology, logistics management
and engineering.
Our communities
We are a valued and trusted part of our communities. We use
our core business competencies, people and brand to benefit
good causes.
We make the seventh biggest contribution – in terms of gross
value added – of any UK company to the UK economy3. This is
through the employment we provide, the suppliers we work with
and the taxes we pay. One in every 194 jobs in the UK is provided
by Royal Mail4. We provide employment in every community,
including in some of the UK’s most disadvantaged areas.
In 2019-20, the Company contributed £5.2 million to good
causes and charitable schemes. This includes matched giving
for colleague fundraising and the cost of our Articles for the
Blind service. In addition, our colleagues raised £2.8 million
for charity. Over the last 30 years, our people have donated
£64 million through payroll giving alone.
Caritas
GLS Germany partners with Caritas. Last year, colleagues
volunteered time to visit Caritas sites and spend time with
the charity’s beneficiaries. Each site received a monetary
donation and gift in kind. Gifts ranged from gardening tools
to swimming kits for children.
Action for Children
Our people have raised around £1.6 million for Action for
Children, including matched giving from Royal Mail, since
the launch of our partnership in 2017. We are funding an
innovative mental health programme in schools. The ‘Blues
Programme’ helps young people understand situations that
can trigger anxiety, fear or depression, and teaches them
coping mechanisms.
81
Almost 3,000 young people participated in the six-week ‘Blues’
course in 2019-20. Eighty-one per cent of students reported
increased confidence. Seventy-two per cent reported improved
relationships at school.
The positive impact of the programme has enabled the charity
to secure additional funding for it. Three GP practices have
purchased the ‘Blues course’ for their local schools. It will also
be part of mental health programmes being delivered by Local
Authorities in Derbyshire, Staffordshire and Gwent.
Using our local presence
Our long-standing partnership with the charity Missing People
supports the search for vulnerable adults and children. As the
eyes and ears of their communities, our postmen and women
are uniquely placed to help. We send descriptions of missing
people to frontline colleagues’ PDAs. We also make office-based
colleagues aware through our network of business television
screens. Last year, we issued 31 alerts, with 27 people found
safe and well.
Our suppliers
Our impact extends beyond our direct business operations.
Through our extensive supply chain, we have an opportunity to
raise standards of social, environmental and ethical conduct.
We also generate significant economic value for communities.
This year, we contributed around £2.3 billion in the UK through
our procurement of goods and services alone.
Our UK suppliers are required to comply with our Responsible
Procurement Code of Conduct. It is based on the Ten Principles
of the UN Global Compact. It helps us manage risks in the
supply chain and promote responsible practices across
human rights, labour rights, environment and anti-corruption.
The GLS Supplier Code of Conduct is based on the same UN
framework and covers the same subjects. Any perceived
violation of the principles and values of the Code would be
investigated. Our Responsible Procurement Code is published
at the following address: → www.royalmailgroup.com/en/
responsibility/policies-and-reports/.
We believe we only engage suppliers that meet our standards
in social, environmental and ethical practices. Once engaged,
we work with suppliers on an ongoing basis to ensure a high
level of conduct. If we find that a supplier is failing to meet our
standards, and any remedial action is found to be inadequate,
we would terminate our dealings with them.
Our environment
Royal Mail Group is committed to Delivering a Cleaner Future.
Environmental considerations are a fundamental part of the way
we operate. With the UK’s largest ‘feet on the street’ network of
around 90,000 postmen and women, Royal Mail plays a key role
in keeping emissions low.
Sustainable management of natural resources is a
commercial imperative, as well as an environmental one.
Effective management of environmental issues can present
a competitive advantage.
We are working to implement the recommendations of
the Task Force on Climate-related Financial Disclosures.
This means ensuring we have appropriate governance, risk
management, strategy and metrics to address the impacts
of climate change on our business.
Strategy and metrics
Royal Mail is undergoing a major transformation programme,
covering every aspect of our operations, namely: collections,
processing, logistics, sorting and delivery. Potential climate
change impacts have been considered as part of this
programme. For example, we are investing in new zero
emissions vehicles to deliver sustainable reductions in
emissions, while ensuring that we continue to meet our
customers’ expectations.
This year, we have developed a new, more stretching
environment strategy. Our strategy includes the
following targets:
– Delivering net zero: we will be a net zero carbon emission
business by 2050. This target will be periodically reviewed
and brought forward if possible.
– Clean air: 100 per cent of our fleet will be powered by
alternative fuel by 2050.
– Responsible consumption: we will reduce waste generated,
and water used, by 25 per cent by 2030.
Our long-term carbon reduction target aligns to the Paris
Agreement of the United Nations Convention on Climate
Change. This aims to limit global temperature increase to well
below 2 degrees Celsius. See pages 82-83 for more information
about our strategy to reduce building and fleet emissions,
as well as our use of resources.
Governance
The Board oversees the management of climate-related
opportunities and risks. It is supported by the Risk
Management Committee and the Audit and Risk Committee.
The management of climate-related risk is integrated into the
Company’s overarching risk management framework.
Our Environment Policy is published at
→ www.royalmailgroup.com/responsibility.
Risk management
‘Environment and sustainability’ is one of our Principal
Risks, given its major significance internally and externally.
The underlying Environmental Risk and Opportunity Register
is maintained by the Environment Governance Board. In line
with TCFD recommendations, we consider both ‘physical’
climate impacts, such as flooding, and transitional risks, such
as regulatory actions designed to limit global warming. We also
consider potential opportunities presented by environmental
issues such as climate change.
The Risk Management Committee reviews business units’
risk registers on a regular basis. It ensures risks on the
Company’s consolidated Environmental Risk and Opportunity
Register are reflected in business units risk registers, as
appropriate. Risks may be owned by several different units,
depending on their salience. As such, they may appear on
multiple units’ registers.
1
2
3
The 2020 results have been delayed until July 2020, so the results are unknown at this time.
Office for National Statistics.
CEBR research, conducted for Royal Mail in May 2020, comprising direct and
indirect contributions.
4
CEBR research, conducted for Royal Mail in May 2020.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 82
Strategic Report – Corporate responsibility continued
A standard methodology, based on probability and potential
impact, is used to rank environmental risks based on their
significance and materiality. Where climate-related risks
and opportunities are identified, individual business units are
required to factor the actual and potential impacts into their
strategy and financial planning, and develop mitigation plans
as necessary. For example, relevant business units would be
required to factor increasing stakeholder expectations for clean
delivery methods – and related risks and opportunities – into
their strategies.
Royal Mail is on a journey to quantify both its climate risks and
opportunities based on our operations, our locations and our
legal obligations. In line with the recommendations from the
TCFD, we plan to undertake a detailed scenario analysis in
2020-21 to better understand the financial impacts of risks
and opportunities facing our business. Our current view of
risks and opportunities is set out in the table on pages 84-85.
Carbon emissions performance
In 2019-20, our total UK carbon footprint decreased by two per
cent compared with the previous year. On a normalised basis,
emissions decreased by two per cent per £1 million of revenue
last year. The table below sets out our Group carbon dioxide
equivalent (CO2e) emissions for 2019-20.*
GLS Germany
In October 2019, GLS Germany became carbon neutral.
All parcels sent from or within Germany are transported in
a carbon-neutral way. GLS invests in projects to support a
reduction in emissions and offsets unavoidable emissions
through a certified afforestation project in Indonesia.
GLS Germany has also purchased 100 per cent renewable
electricity for all of its sites.
Fleet emissions
As the Universal Service Provider, we are required to maintain
a large fleet of vehicles. Nearly two-thirds of our emissions
stem from our vehicles and transport. Improving our fleet fuel
efficiency will, therefore, be a key part of delivering our carbon
reduction targets. We are committed to taking action to reduce
our emissions and improve air quality.
Our vehicle strategy is focused on three areas:
– Improving fuel efficiency, through behaviour and
driving styles;
– Investing in alternative fuel vehicles, advanced technology
and vehicle types; and
– Ensuring an efficient transport network, using cutting-edge
routing technology and maximising capacity in our vehicles.
We continue to trial and deploy technology to reduce our
environmental impact. In 2019-20, we successfully introduced
new trucks fuelled with Bio-CNG. These offer significant
reductions in CO2e and air emissions when compared with
their diesel equivalent.
We use telemetry systems to influence safer and more
fuel-efficient driving. In 2019-20, telemetry helped us save
approximately 177,000 litres of diesel. This equates to around
459 tonnes of CO2e. Approximately 61 per cent of our vehicle
fleet is fitted with telemetry.
We use a combination of road, rail and air to deliver letters
and parcels. We maximise capacity by loading mail items as
efficiently as possible. During the year, we added 211 double
deck trailers to our fleet. These deliver a four per cent fuel
efficiency improvement and greater load capacity. We minimise
our use of air transport to reduce CO2e emissions and costs.
We only use airmail to meet our First Class, Special Delivery
and priority traffic obligations.
CARBON EMISSIONS PERFORMANCE CO2e EMISSIONS (‘000 TONNES)*
Scope 1
Scope 2
Scope 3
Total
2019-20
Total
UKPIL
460.2
443.8
92.1
80.5
70.6
80.5
GLS
16.4
21.5
2018-19**
Total
UKPIL
459.6
100.4
80.9
445.4
80.1
80.9
GLS
14.2
20.3
632.8
594.9
37.9
640.9
606.4
34.5
Tonnes CO2e per £1m revenue
Scope 2 (market based)
43.2
77.1
10.2
33.0
39.4
78.4
9.7
29.7
Energy Consumption ‘000 kWh
2,337,343
2,191,154
146,189
2,316,580
2,188,675
127,905
*We report our carbon emissions in line with the Greenhouse Gas (GHG) Protocol Corporate Standard. The standard classifies a company’s GHG emissions into three ‘scopes’. Scope 1 emissions
are direct emissions from sources that are owned or controlled by Royal Mail, including combustion of fuel and operation of facilities. Scope 2 emissions are indirect emissions from the purchase
of electricity, heat, steam and cooling purchased for own use. 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. UK and offshore
data is reported within the UKPIL column above. GLS data includes all global emissions and consumption, excluding the UK and offshore, for scopes 1 and 2. Scope 3 data is not included.
Annual energy consumption (kWh) is obtained from both actual (invoices) and estimated (modelled) consumption used for our reported scope 1 and 2 carbon footprint. Where conversion of
units to kWh is required, the latest conversion factors from the UK Government are used; source www.gov.uk/government/collections/government-conversion-factors-for-company-reporting.
**2018-19 data has been restated for scope 1 emissions following the provision of data which was previously estimated. Scope 2 market based data has been restated following an update to
emission factors associated.
83
The Corriere Espresso
GLS Italy continues to expand its fleet of LNG-powered
line vehicles this year. It now has 56 in operation. By the
end of 2020, GLS Italy plans to further expand its fleet of
LNG trucks.
Buildings emissions
Royal Mail maintains a large property portfolio, ranging in size,
age and use. Climate change legislation and uncertain energy
prices make energy management a key priority. Energy used by
buildings contributed 24 per cent of our carbon footprint last year.
We identified a series of practical, cost effective initiatives,
to help reduce our consumption and the associated emissions.
These include behavioural change programmes, and the
installation of hardware, such as additional roll out of LED
lighting and controls. Our Energy Bureau system highlights
sites with highest usage or those with abnormal consumption
patterns. This enables us to better understand our usage and
target energy and cost savings.
The majority of our buildings are heated using gas boilers.
During 2019-20, we replaced 112 gas boilers with more
efficient systems.
Our total electricity consumption decreased by 0.7 per cent
in 2019-20. Our gas consumptions decreased by 6.7 per cent.
Overall, emissions arising from our buildings reduced by
8.3 per cent.
In February, GLS Netherlands opened a new depot in
Amsterdam. The building uses a geothermal heat pump and
solar panels to reduce CO2e emissions. The roof has been fitted
with prismatic domes to capture sunlight to illuminate the
distribution hall naturally. Charging stations for electric
vehicles are also available.
Focus on air quality
We recognise the impact of poor air quality on some of the
communities in which we operate. We understand we have a
role to play in improving air quality. This is a key part of our
environment strategy. Long-term, our aim is that 100 per cent
of our fleet will be powered by renewable energy by 2050.
In 2019-20, we introduced another 193 electric vehicles into
our fleet, bringing our current total to 295. At Mount Pleasant,
one of our largest Mail Centres, we have 87 electric vehicles in
operation. This is helping to reduce emissions from our fleet
in central London.
We continue to trial electric vehicles in different class sizes.
We are currently working to trial and deploy trikes, micro
vehicles and other alternative fuel vehicles such as Bio-CNG
trucks. The outcomes of trials inform our forward-planning
and vehicle purchase strategy.
GLS operates emission-free deliveries in four Dutch city centres
– Apeldoom, The Hague, Utrecht and Zwolle – using E-Vans.
Resource efficiency
In 2019-20, we set new targets for resource efficiency. We aim
to reduce the amount of waste generated, and the amount of
water consumed, by 25 per cent by 2030, compared with 2018-
19 levels. As part of this, we will undertake a full “cradle to
grave” review of packaging waste generated by our business.
We manage our waste in accordance with the waste hierarchy.
During 2019-20, we generated 38,692 tonnes of waste, an
increase of 10 per cent from the prior year. We continue to focus
on reducing waste generated, while increasing the amount
of materials we reuse, redeploy or recycle. Our ‘Green Parts’
initiative, for example, extracts parts from vehicles that are due
to be decommissioned. We then look to reuse these parts in
our fleet. We saved the business over £2.4 million in 2019-20
doing this.
We are committed to reducing our water use. Reducing our
water consumption also presents a cost-saving opportunity
for Royal Mail. We mainly use water for domestic purposes,
such as keeping washroom facilities, vehicles and equipment
clean. This year, we undertook a review of our vehicle washing
activities. A trial of waterless washing was successfully
completed during the year. Following the trial at our Home
Counties North Mail Centre, we are looking to use this method
of washing for the whole fleet at the site in early 2020-21.
We will also assess the suitability of rolling out waterless
washing to other UK sites this year. In 2019-20, our water
consumption was around 1,419,440 m3.
Apprentices
In 2019-20 our Apprentices led a project to design and
develop new waste signage. They used materials from
obsolete High Capacity Trolleys. The signs are now part
of a wider project around improving waste management
on Royal Mail (UKPIL) sites.
Our taxation strategy
Our taxation strategy is published at
→ www.royalmailgroup.com/en/responsibility/
policies-and-reports.
Our strategy sets out our key principles and approach.
Royal Mail has a low risk appetite in relation to tax matters.
We make decisions with due regard to our reputation, integrity
and status as a company listed on the London Stock Exchange.
We comply with all applicable tax laws.
Non-financial information statement
The Company has complied with the Non-Financial Reporting
Directive in sections 414CA and 414CB of the Companies Act 2006.
The Strategic Report was approved by the Board on 24 June 2020
and signed on its behalf by:
Keith Williams
Interim Executive Chair
24 June 2020
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 84
Strategic Report – Corporate responsibility continued
OUR EARLY VIEW FOR KEY CLIMATE
CHANGE RISKS AND OPPORTUNITIES
Risk
Activity
How we are mitigating the risk
EXTREME WEATHER EVENTS
An increase in the frequency and impact
of extreme weather events, such as
flash flooding, storms and prolonged
heatwaves, will result in damage to
buildings and equipment, and endanger
our people and customers.
Extreme weather events may result in
disruption to our operations, impacting
our ability to meet the USO and/or other
contractual obligations.
Risk of increased costs associated with
insurance premiums, investment in flood
defences and storm mitigation, and any
associated repairs.
We recognise the increased frequency of
weather events and the potential impact this
has on our ability to deliver the USO.
Records show trends of increasing rainfall on
seasonal and annual timescales. For example,
since 1998, the UK has seen six of the ten
wettest years on record. Rainfall experienced
in a single extreme event is made 59 per cent
more likely by climate change. Seven of our
sites (including parking) have been affected
by flooding in the past two years.
We are seeing an increase in the number and
intensity of storms – including high winds
which may impact our ability to deliver the
USO and other contractual obligations.
We continue to monitor and record delivery
routes not completed due to adverse weather.
IMPACT OF CHANGING CLIMATE ON EMPLOYEE WELLBEING
Working conditions for employees
may change due to more extreme and
unpredictable weather patterns.
There is a risk of increased employee
absence associated with heatwaves,
slips and trips in snow and icy conditions,
flooding, or storm damage to employees’
homes/assets.
Warmer climates could result in the
increased transmission of diseases and
viruses as mosquitos and other disease
carrying vectors are able to survive longer
in new regions.
A large proportion of our employees
predominantly work outdoors. Our physically
demanding roles may become more difficult
to fulfil in extreme weather conditions such as
heatwaves. This could be exacerbated within
certain demographic groups.
We have recorded increases in slips, trips
and falls during extreme weather events and
storm conditions.
P R
We undertake an assessment of sites for flood
risk as part of our due diligence and business
continuity processes, which includes the use
of routing tools to divert mail, for example.
Implementation of a flood alert system across
700 of our sites. The system strengthens
forecast capabilities ensuring business
continuity arrangements can be invoked.
Ongoing, targeted investment in local
flood defences.
P R
Ensuring that our people have the right
equipment to deal with all weather conditions
is an important element of our Health &
Safety approach. We use a severe weather risk
assessment approach to identify and manage
extremes. This is reflected in our Health &
Safety risk register and reviewed periodically.
We regularly review and adjust uniforms to
ensure they are appropriate to changing weather
conditions, for example, snow shoe spikes for
operations staff and improved quality and water
resistance of uniforms.
Our communication channels provide
employees with guidance during weather events
i.e. taking regular breaks and carrying water
during heatwaves.
INTRODUCTION OF CLEAN AIR AND ULTRA-LOW EMISSION ZONES
Risk of increased operational costs and
fines if the business is unable to operate
a delivery fleet that fully complies with the
increasing standards and requirements
associated with emissions.
A number of cities and locations across
the UK and Europe have introduced, or are
consulting on, measures relating to clean air.
These include Clean Air, Ultra-Low and
Zero Emission Zones.
We engage with local authorities as they
consult on potential plans for cleaner air
or other measures.
Our fleet strategy ensures our continued
compliance with local clean air measures
to avoid associated financial penalties.
BAN ON THE SALE OF PETROL AND DIESEL VEHICLES
T R
T R
Increased uncertainty on the effective
date for the ban of petrol, diesel and
hybrid vehicles. Uncertainly increases
the risk of non-compliance, and inability
to suitably plan for operational and
purchasing changes required.
In support of net zero ambitions, the EU and
UK governments have set dates for the ban
of the sale of vehicles driven by fossil fuels.
Governments are continually reviewing these
dates and consulting on potentially bringing
them forward. In the UK, for example, the
Government is consulting to bring the current
date of such a ban forward to 2035 or earlier.
Our environmental commitments across
the Group incorporate a strong focus on the
transition to a low carbon/low emission fleet.
The business will engage with consultations
relating to the ban on the sale of fossil
fuelled vehicles.
Our fleet strategies will be reviewed periodically
to ensure our fleet remains compliant with any
changes to requirements.
We continue to trial and deploy alternative fuel
vehicles, non-vehicle delivery and collaborative
models across the business.
Key
P Physical
T Transitional
R Risk
O Opportunity
Risk
Activity
How we are mitigating the risk
SHIFTING CUSTOMER DEMAND
Increasing customer demand for clean
delivery mechanisms may require
additional investment to ensure no
loss of market share to new entrants
or competitors.
Customer relationship management
programmes ensure strong long-term working
relationships. We work to support customers
on their environmental improvement journeys.
Regular consumer and marketplace surveys
ensure we are informed of emerging
patterns of behaviours and consumer/
customer interest.
Our environment and fleet strategies respond
to increasing customer demand for clean
delivery mechanisms.
We continue to invest in and deploy new
technology vehicles, and tools to promote
efficiency i.e. telemetry, driver training.
Opportunities identified include the increased
demand for doorstep collections.
85
T R O
CARBON TAX
Introduction of a carbon tax would
increase energy, fuel and associated
operational costs.
Royal Mail Group operates a large commercial
vehicle fleet and property estate, both of which
consume energy and fuel which are subject to
some current taxation.
WATER SCARCITY
Changing weather patterns will result
in water scarcity in numerous locations
globally. There is a risk this would
increase costs and introduce new controls
on its usage.
The water industry has committed to making
water services resilient to a changing climate
and to reduce emissions to net zero. Its plans
include encouraging customers to use
less water.
We predominantly use water for domestic/
washroom facilities and vehicle washing.
SUPPLY CHAIN
Extreme weather events may lead to
potential shortages in the raw materials
for, or the production of components for,
our vehicles, equipment and operational
supplies. Shortages may result in
price increases.
Our Procurement Risk Register lists the
risks that are deemed critical to our business
relating to the supply chain. We regularly
review this risk register, to identify new risks
and opportunities to mitigate them.
T R
Our environment improvement programmes aim
to increase efficiency and reduce consumption
of both energy and fuel sources. This will
mitigate the impact of any additional carbon tax
to the business.
A reduction in the use of fossil-based fuels and
energy forms a key part of our environment
improvement programmes.
P R
Royal Mail (UKPIL) has set water
consumption reduction targets as part of its
environmental strategy.
We plan to roll out waterless vehicle washing
to reduce our water usage.
Our building standards include the use of water
efficient equipment.
P R
We require all suppliers to commit to comply
with our corporate responsibility codes for
procurement, which cover social, environmental
and ethical issues, or to demonstrate compliance
with the codes. The codes specifically cover
suppliers’ management of carbon emissions.
We have business continuity plans which
operate at a supplier category level to ensure we
can put alternative suppliers in place for critical
suppliers and goods. Additionally, critical and
bottleneck suppliers are required to have their
own continuity plans and maintain them on our
supplier management portal.
T R O
Growing interest from shareholders relating
to ESG performance, including disclosure and
mitigation of climate change risks.
We communicate proactively with our
stakeholders through a range of channels.
We regularly engage with them to obtain their
views and to understand their expectations.
STAKEHOLDER EXPECTATIONS
Risk of reputational damage, and
potential legal action, through the
failure to respond appropriately
to stakeholder expectations and
disclosure requirements.
Flow of capital to the business would be
impacted if the business fails to engage
and respond to increasing investor
expectations on ESG risks, including
climate change.
Opportunity to differentiate Royal Mail
Group from its competitors and peers
by providing clear direction and action
on climate risk.
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 86
Strategic Report – Corporate responsibility continued
NON-FINANCIAL
INFORMATION STATEMENT
The Non-Financial Reporting requirements contained within sections 414CA and 414CB of the Companies Act 2006 are addressed
within this statement using cross references to indicate pertinent sections within this report.
This report refers to a range of policies that support our performance across environment, social and governance topics.
The majority of the policies are available to read in full on our websites:
→ www.royalmailgroup.com/en/responsibility/policies-and-reports/ → www.gls-group.eu/EU/en/compliance.
ENVIRONMENT MATTERS
Where material information can be found in the strategic report:
– Our environmental approach and policy outcomes, pages 81–83
– Section 172 Statement – Having regard of the impact of the Company’s operations on the community and the environment, page 109
– Related principal risk: Environment and sustainability, page 71
– Further risks and opportunities outlined in the Task Force on Climate-related Financial Disclosures (TCFD) table, pages 84-85
MATERIAL POLICIES
HOW WE MONITOR THE EFFECTIVENESS OF THE POLICIES
Environment policy
Our Groupwide commitment to managing our environmental impacts including
our engagement with our people, customers and suppliers.
– Performance against key environmental metrics,
including carbon, water and waste
– Regular audits against our Safety, Health and
Environment Management System, which is
aligned to ISO 14001
– Inclusion of environmental criteria to supplier
selection frameworks. Ongoing engagement and
monitoring of performance
THE COMPANY’S EMPLOYEES
Where material information can be found in the strategic report:
– Our people approach and policy outcomes, pages 77-80
– Section 172 Statement – Having regard to the interests of the Company’s employees, page 106
– Related principal risks: Industrial action; Pension arrangements; Health, safety and wellbeing; and Capability – talent and strategic
workforce planning, pages 62-70
MATERIAL POLICIES
HOW WE MONITOR THE EFFECTIVENESS OF THE POLICIES
Our Business Standards (Royal Mail UKPIL)
Code of Business Standards (GLS)
Outline the values and standards of behaviour we expect. They are about doing the
right thing, following the law, acting honourably and treating others with respect.
Health and Safety policy
Our Groupwide commitment to managing health and safety risks, removing
or reducing the likelihood of injury or harm to its employees or others.
Equality and Fairness policy (UKPIL)
Outlines our principles and approach to promoting equality, diversity and fairness
at all stages of employment.
Speak Up (Whistleblowing) policy (UKPIL)
Whistleblowing policy (GLS)
Our commitments to investigating suspected wrongdoing, including the system
for raising concerns and our respect for whistleblower confidentiality.
– Our annual Employee Engagement Survey
enables us to quantify employee engagement and
alignment with workplace culture
– Regular audits against our Safety, Health and
Environment Management System
– Monitoring health and safety performance metrics
– Tracking workforce diversity across job levels and
different business areas
– Monitoring the number of contacts made across
our whistleblowing channels (i.e. by telephone,
email, etc.)
SOCIAL AND COMMUNITY MATTERS
Where material information can be found in the strategic report:
– Our customers approach and policy outcomes, pages 76-77
– Our people approach and policy outcomes, pages 77-80
– Our community approach and policy outcomes, pages 80-81
– Our supply chain approach and policy outcomes, page 81
– Related principal risk: Our UK regulatory framework, page 68
MATERIAL POLICIES
HOW WE MONITOR THE EFFECTIVENESS OF THE POLICIES
Corporate Responsibility policy
Sets out our Groupwide commitment and approach to responsibly managing our impacts
on, and relationships with, our people, customers, communities and environment.
Responsible Procurement Code of Conduct (UKPIL)
Supplier Code of Conduct (GLS)
Expectations of our suppliers, business partners and contractors to adopt and apply
standards consistent with Royal Mail across social, ethical and environmental issues.
– Quantification of our socio-economic impact in the
UK to understand the level of benefit we deliver
to the communities we serve
– Achieving high scores or rankings in sustainability
benchmarks and indices, where high levels of
disclosure are required
– Investigating breaches to our supplier codes, plus
effective monitoring and auditing of high-risk suppliers
87
RESPECT FOR HUMAN RIGHTS
Where material information can be found in the strategic report:
– Human rights approach and policy outcomes, page 77
MATERIAL POLICIES
HOW WE MONITOR THE EFFECTIVENESS OF THE POLICIES
– Regular monitoring of high-risk supplier
categories for evidence of breaches to our
standards
– Embedding of human rights risks into our
compliance risk monitoring programme
– Strict resourcing controls governing the
onboarding of new permanent, temporary and
contract staff to ensure compliance with vetting
standards
Corporate Responsibility policy
Our Groupwide commitment to respecting and implementing internationally
recognised codes such as the UN Guiding Principles on Business and Human
Rights; the 30 Articles of the United Nations Universal Declaration of Human Rights;
and the International Labour Organization’s (ILO) Fundamental Conventions.
Equality and Fairness policy (UKPIL)
Our principles and approach to promoting equality, diversity and fairness at all
stages of employment. This includes a commitment to employing people based
on merit.
Recruitment Vetting policy (UKPIL)
Sets out the policy for Right to Work and vetting checks for all roles within Royal Mail
Group to ensure we meet our legal, regulatory and contractual obligations.
Responsible Procurement Code of Conduct (UKPIL)
Supplier Code of Conduct (GLS)
Expectations of our suppliers, business partners and contractors to adopt and
apply standards consistent with Royal Mail, such as adherence to UN Universal
Declaration of Human Rights. Suppliers and sub-contractors are expected to enforce
effective systems and controls to ensure that modern slavery and human trafficking
do not take place anywhere in our supply chains.
ANTI-BRIBERY AND CORRUPTION MATTERS
Where material information can be found in the strategic report:
– Our approach to operating with integrity and policy outcomes, page 77
MATERIAL POLICIES
HOW WE MONITOR THE EFFECTIVENESS OF THE POLICIES
Anti-Bribery and Corruption policy
Our Groupwide policy outlines our zero-tolerance approach, setting the standards
of behaviour expected to minimise the risk of bribery, including gifts and hospitality.
Our Business Standards
Code of Business Standards (GLS)
Outline the values and standards of behaviour we expect. They are about doing the
right thing, following the law, acting honourably and treating others with respect.
Responsible Procurement Code of Conduct (UKPIL)
Supplier Code of Conduct (GLS)
Expectations of our suppliers, business partners and contractors to adopt and apply
standards consistent with Royal Mail i.e. prevention of the use of any form of bribery
or improper offers of payment.
– Mandatory annual compliance training for
all employees
– Annual manager attestations to maintain our
Business Standards
– Regular screening of suppliers to check for
instances of corruption
– Monitoring the number of contacts made across
our whistleblowing channels (i.e. by telephone,
email, etc.)
Non-financial information
Section
Business model
Key non-financial performance indicators
Business model
Measuring our performance
Corporate responsibility
Pages
28-29
30-31
74-85
Further information regarding our customers, environment, people, communities, supply chain, human rights and business
integrity will be available in our 2019-20 Corporate Responsibility Report, which will be available on our website later in 2020.
→ www.royalmailgroup.com/en/responsibility/policies-and-reports/.
On behalf of the Board
Keith Williams
Interim Executive Chair
24 June 2020
Royal Mail plcAnnual Report and Financial Statements 2019–20Strategic ReportFinancial StatementsCorporate GovernanceShareholder Information 88
Corporate Governance
CHAIR’S
INTRODUCTION
Keith Williams
Interim
Executive Chair
On behalf of the Board, I am pleased to present this year’s
Corporate Governance Report, my first as Chair of the Board.
It should be read in conjunction with pages 1-87 of the Annual
Report and Financial Statements. Here, we expand on the
ways in which the Board has addressed communication with
stakeholders, corporate culture and diversity.
Board changes
I am delighted to have been appointed as Chair of the
Company in May 2019. I would like to extend my thanks to my
predecessors, Peter Long and Les Owen, who both provided
strong stewardship and saw the Company through a time of
major change.
We have undergone a considerable refresh of the Board
throughout the year to broaden and enhance the skills
and experience of our Directors. I would like to thank the
Nomination Committee for their involvement in this process.
We have welcomed four new Non-Executive Directors to the
REPORTING AGAINST THE UK CORPORATE
GOVERNANCE CODE 2018 (CODE)
The Code, published in July 2018 by the Financial
Reporting Council, applied to Royal Mail’s financial
year ended 29 March 2020. This Corporate Governance
section describes how Royal Mail applied the Code’s main
principles during the year.
Throughout the financial year, Royal Mail has been in
compliance with the relevant provisions of the Code.
As announced on 15 May 2020, Rico Back stood down
as Group Chief Executive Officer (CEO) and from the
Board. Keith Williams assumed the role of interim
Executive Chair with immediate effect. As a result of
this appointment Keith also stood down as a member
of the Remuneration Committee in line with the Code
requirements. Keith is expected to remain in this
executive role until a permanent CEO of Royal Mail is
appointed. A comprehensive internal and external search
for a permanent CEO of Royal Mail is underway.
The Code is publicly available at →
www.frc.org.uk
Board this year, Michael Findlay, Maria da Cunha, Baroness
Sarah Hogg and Lynne Peacock. They have all immersed
themselves into the Company and brought a variety of
welcomed skill sets to the Board. You can find the biographies
for all of our Directors on pages 90-91. We have provided a
thorough and tailored induction programme for the new Non-
Executive Directors, details of which can be found on page 102.
I would like to extend a warm welcome to our new Board
members, and I look forward to continuing to work with them
over the coming years.
In July 2019, Orna Ni-Chionna stood down from the Board and
as Chair of the Remuneration Committee. In her nine years
with us, we benefitted greatly from Orna’s skills and expertise.
We thank her for her contribution to the Company.
We announced in May 2020 that Rico Back stood down as
Group Chief Executive Officer (CEO) and from the Board.
Rico made a significant contribution to the evolution of our
business over his 20 years with us. On behalf of the Board,
I would like to extend my thanks to Rico and wish him well
in the future. Following Rico’s departure, I have assumed the
role of interim Executive Chair to lead the Company whilst a
comprehensive search for a CEO of Royal Mail is conducted.
Compliance with the UK Corporate Governance Code 2018
As Chair, it is my role to promote the highest levels of
governance across the organisation. As a Board, we place a
high value on good governance and welcome the long-term
benefits of a well governed Company for our stakeholders.
It is important to ensure these values are embedded within
our culture and that all stakeholders are engaged in our
journey. We welcomed the Financial Reporting Council’s (FRC)
review of the Code, which applied to companies with financial
years beginning on or after 1 January 2019. We can confirm that
the Company complied in full with the provisions of the 2018
Code for the year ended 29 March 2020. Further information
on how the Company has applied the principles of the Code is
set out on page 101. The Board receives regular updates on
Corporate Governance developments throughout the year from
both internal and external sources.
The Directors’ duties under Section 172 of the Companies Act
2006 help to underpin good governance. Details of how the
Board takes account of shareholder and wider stakeholder
interests in its strategic planning and decision making
processes are set out on page 111.
Stakeholders
The Board recognises the importance of increasing focus on
a wider range of stakeholders, in addition to our investors.
We continue to take into account all stakeholder views and
interests in our decision-making processes and vision for the
Company. As a significant contributor to the economy in the UK,
we are aware of our responsibilities to local communities, and
our contribution to society. We have made good progress this
year to improve our engagement with all of our stakeholders.
We were pleased to announce the formation of an additional
Board Sub-Committee in September 2019. The Corporate
Responsibility Committee (CRC), chaired by Rita Griffin,
oversees our performance in Environmental, Social and
Governance (ESG) matters and our Corporate Responsibility
standards. This will include engagement with our suppliers,
customers and investors on ESG matters. You can find out
more about the work of the Committee on pages 126-127.
Simon Thompson continues to lead on Board engagement with
the workforce. This year, Simon has worked with the business
to drive our Employee Voice Forums. Further information about
our engagement with our workforce is on pages 112-113.
We believe it is very important to work with our unions to
bring about the wholesale change needed to deliver our UK
strategy. We were disappointed with the outcome of ballots for
industrial action during the course of the year. We welcomed
and appreciated CWU’s statement that the COVID-19 crisis
was not the time to take industrial action. We signed a joint
statement with the CWU on 15 May in which we awarded a £200
payment to our frontline employees to recognise their hard
work throughout the current COVID-19 pandemic. We continue
to engage, on a regular basis and at a senior level, with CWU
and Unite/CMA on our plans for change. Our engagement with
CWU follows our recent Joint Statement with the union whereby
both parties committed to work on setting up a joint framework
for talks to seek to resolve our dispute.
We have faced unprecedented times with the outbreak of
COVID-19 in 2020. The pandemic only began to impact our
business in the final weeks of the financial year. As a Board,
we have taken a number of decisions which we believe are in
the best interest of the long-term success of the Company and
to protect our stakeholders. COVID-19 has changed the way
we interact with each other and has further highlighted the key
role our people play in society. Royal Mail has implemented a
number of operational changes to protect our employees and
customers during this time.
The institutional investor community continues to be a strong
and influential force in shaping Corporate Governance. I have
met with a range of our largest shareholders over the year,
providing investors with the opportunity to discuss particular
areas of interest, or to raise any concerns, personally with me.
Engagement with our stakeholders is vital as we embark on a
period of major change. I, along with my Board members, have
continued to engage with our stakeholders throughout the year.
We will look at ways to further communicate and engage with
them during the year ahead. Details of how we engage with all
of our stakeholders are covered on pages 104-111.
Strategy
Royal Mail’s strategy presentation on 22 May 2019, our first since
listing in 2013, provided an update on our strategy for the next five
years. Our UK business has been facing significant challenges for
some years. Our history as a letters business means we are not
as well positioned as we would like to efficiently and effectively
deliver the growing numbers of parcels. Alongside cost increases,
this is driving significant financial pressures.
The COVID-19 pandemic presents new, fundamental, challenges
to our business model. Securing a sustainable future and
a contemporary Universal Service requires us to adapt to
the challenges of the past, and to quickly respond to this
unprecedented global crisis.
Our GLS strategy is about growing the business, while
continuing to improve performance in some of the countries in
which we operate. In the foreseeable future, it is an important
source of cash flow generation and revenue diversification.
In the short term, there are limited synergies available between
Royal Mail and GLS. In the medium term, an international
presence is clearly important; the opportunity remains to create
value, and sustainable profits, for shareholders.
Culture, diversity and inclusion
The Board sets the vision, purpose and values of the Group
and strongly believes that good governance should also focus
on the culture within which all our businesses and employees
operate and conduct themselves. We recognise the importance
of a diverse workforce and an inclusive culture, which promotes
respect and has a positive impact on performance. Our culture
supports the delivery of our purpose to “connect customers,
89
companies and countries”. The Board continues to take overall
responsibility for the monitoring of culture. It will also be a
particular focus of the newly created CRC.
I will lead the business and the development of our culture on
a day to day basis along with the senior management team,
until a new CEO of Royal Mail is appointed. You can read more
about our Company culture and how we embed this throughout
the organisation on page 78.
Royal Mail encourages diversity. Our Equality and Fairness
policy and our ‘Thrive’ campaign aims for transparency,
diversity and fairness at all stages of employment and raises
awareness of diversity across our employee base.
During the year, we have celebrated events from each diversity
workstream, including BAME, gender, LGBT, disability and
youth, parents and carers. We are proud that average pay
continues to be broadly the same for men and women. However,
more men are in work that qualifies for allowances, such as
shift work during the evening or night. This means that, on
a mean basis, women are paid 2.1 per cent less than men.
On a median basis, men are paid 3.5 per cent more than women.
We pay bonuses equally to men and women on a median basis.
For further details see our 2019 Gender Pay Report
→ www.royalmailgroup.com/en/responsibility/our-focus-areas/
our-people/.
Following a review in February 2020, the Board concluded
that its Diversity Policy remained fit for purpose. A report
on the progress made against the objectives set is on page
116. The Company has achieved the target introduced by the
Lord Davies review for the proportion of women on FTSE 350
company boards to increase from the current 25 per cent
target to 33 per cent by 2020. As at 24 June 2020, the Board’s
proportion of female directors was 50 per cent (four out of
eight). The Executive Board, in consultation with the Nomination
Committee, has considered and reviewed our high potential
individuals, taking into account the skills and experience
required for each subsidiary Company and diversity from a
BAME and gender perspective. This has led to some changes to
the membership of subsidiary Boards and we are pleased that,
on the majority of our UK subsidiary Boards, we have increased
female and BAME representation. Further details on the review
and the Board’s approach to diversity can be found on page 100.
Conclusion
We conducted an externally facilitated Board evaluation in late
2019 and early 2020; details of the process and outcome of this
evaluation can be found on page 103. I am pleased with the
progress that has been made this year to refresh the Board
composition, which I believe remains effective and continues to
work well. I am confident that the Board has the right balance of
skills, expertise and independence to continue to deliver strong
governance, whilst allowing the Executive team to implement
and deliver the strategy.
The 2020 AGM will be held on Tuesday 8 September 2020
at 13.00. Full details of the business to be considered at the
meeting and the special arrangements that will be in place in
light of the COVID-19 outbreak will be included in the Notice
of Annual General Meeting that will be sent to shareholders
by their chosen communication means and published on our
website at: → www.royalmailgroup.com/en/investors/annual-
general-meetings/.
Keith Williams
Interim Executive Chair
24 June 2020
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 90
Corporate Governance
GROUP BOARD
OF DIRECTORS
Keith Williams
Interim Executive Chair
Stuart Simpson
Interim Chief Executive Officer
of Royal Mail
Baroness Sarah Hogg
Senior Independent
Non-Executive Director
Rita Griffin
Non-Executive Director
Simon Thompson
Non-Executive Director
Designated Non-Executive
Director for engagement
with the workforce
Michael Findlay
Non-Executive Director
Maria da Cunha
Non-Executive Director
Lynne Peacock
Non-Executive Director
N
A N
C N
C N R
A N R
C N R
R A N
Skills and Experience
Keith is a highly regarded
business leader with extensive
industrial relations, operational
and customer service
experience. Keith is a chartered
accountant and worked in the
UK and internationally before
joining British Airways plc in
1998. He worked there for 18
years, including five years as
CFO, three years as CEO and two
years as Executive Chairman.
During that time, he led the
transformation of the Company,
building a leaner and more
customer focused organisation
with a sustainable future.
Prior to British Airways, Keith
worked for companies including
Reckitt and Colman, Apple
Computer Inc., and Boots.
He was also an Executive Board
member and Chair of the Audit
Committee at Transport for
London until 2016. His previous
non-executive roles include
appointments at Aviva plc and
the John Lewis Partnership.
Appointed to the Board
– Non-Executive Director
on 1 January 2018.
– Non-Executive Deputy Chair
on 7 November 2018.
– Non-Executive Chair
on 22 May 2019.
– Interim Executive Chair
on 15 May 2020.
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. Rita is currently Chief
Operating Officer for Global
Petrochemicals at BP plc, one
of three main divisions of BP’s
downstream business. She has
held a number of leadership
positions within BP plc in
manufacturing, logistics, retail
and functional organisations.
Rita was previously Chief
Marketing Officer, BP plc.
Skills and Experience
Simon has extensive experience
as a global business leader
with proven expertise in the
digitisation of business and
the customer experience.
Simon is currently the Chief
Product Officer of Ocado plc
and has held senior executive
positions at Apple Computer
Inc., HSBC, lastminute.com,
Wm Morrison Supermarkets
plc, Motorola Inc. and Honda
Europe Ltd. In 2019, Simon was
appointed as the Designated
Non-Executive Director for
engagement with the workforce.
Skills and Experience
Stuart has significant finance,
strategy and operational
experience. Prior to Royal Mail,
Stuart worked in the automotive
industry for 15 years, where he
held senior roles in both finance
and strategy, primarily based
outside of the UK. He joined
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. Stuart was
appointed Chief Finance Officer
in July 2017 and in November
2018 took on the additional
responsibility of Chief Operating
Officer. Stuart stood down from
these additional responsibilities
in April 2020 following the
outbreak of COVID-19, to
enable him to focus on his
responsibilities as Chief Finance
Officer. He was appointed
interim Chief Executive Officer
of Royal Mail in May 2020.
Skills and Experience
Sarah has extensive business
and Government experience.
She was previously Chair of
3i Group plc and has been
a Non-Executive Director of
numerous companies including
BG Group plc and GKN plc.
She has served as Lead
Independent Non-Executive
Director of HM Treasury and
Chair of the Financial Reporting
Council. Sarah was Head of the
Prime Minister’s Policy Unit
under John Major, and previously
Economics Editor of several
leading newspapers including
The Times, The Telegraph and
The Economist.
Sarah was created a Life Peer
in 1995 and sits in the House
of Lords as a crossbencher.
She received a Lifetime
Achievement award at the
Non-Executive Director awards
in 2017.
Appointed to the Board
– Chief Finance Officer and
Executive Director on
20 July 2017.
Appointed to the Board
– Senior Independent
Non-Executive Director
on 1 October 2019.
Appointed to the Board
– Non-Executive Director
on 1 December 2016.
– Chief Finance and Operating
Officer on 7 November 2018.
– Chief Finance Officer on
1 April 2020.
– Interim Chief Executive Officer
of Royal Mail on 15 May 2020.
Appointed to the Board
– Non-Executive Director
on 1 November 2017.
– Designated Non-Executive
Director for engagement
with the workforce on
26 February 2019.
Skills and Experience
Skills and Experience
Skills and Experience
Michael has spent 27 years in
Maria has extensive experience
Lynne has over 20 years’
investment banking, working for
in dealings with trade unions,
experience as an Executive and
firms including Robert Fleming
transformation programmes and
Non-Executive Director both
& Co, UBS and most recently
employee engagement. Maria is
in the financial services and
Bank of America Merrill Lynch.
a former senior executive of
non-financial services sectors.
He retired from Bank of America
British Airways plc where she
This includes as Chief Executive
Merrill Lynch in 2016, where
worked for 18 years until 2018.
Officer of Woolwich plc and
he was Co-Head of Investment
Maria was BA’s Head of Legal
Chief Executive Officer of
Banking for the UK and Ireland,
and Government and Industry
National Australia Bank Europe
having previously been the
Affairs for four years before
Limited (NAB). She has been
Co-Head of Corporate Broking
becoming its Director of People
involved in a variety of successful
EMEA. He was, from 2009 until
and Legal in 2011, responsible
transactions including an IPO
2016, a Non-Executive Director
for human resources, legal,
and FTSE 100 listing, the sale
of UK Mail Group plc, where he
risk and compliance. Prior to
of Woolwich plc to Barclays
became Senior Independent
joining BA, Maria held various
and the disinvestment of NAB’s
Director and Chair of the
positions with Lloyds of London,
Irish operations.
Remuneration Committee and a
Lovells LLP and the Law College
member of the Audit Committee.
of Europe.
Michael is currently Chair of
Morgan Sindall Group plc.
Prior to moving into financial
services, Lynne held positions
with Unilever plc and Tate & Lyle
plc. She was previously Non-
Executive Director at Standard
Life Aberdeen plc, Scottish
Water, Jardine Lloyd Thompson
Group plc and Nationwide
Building Society.
Appointed to the Board
– Non-Executive Director
on 22 May 2019.
Appointed to the Board
– Non-Executive Director
on 22 May 2019.
Appointed to the Board
– Non-Executive Director
on 1 November 2019.
External appointments
– Chair of Halfords Group plc.
External appointments
– None.
– Independent Chair of a review
of the British Railways on
behalf of the UK Government.
External appointments
– Senior Independent
Director of the Financial
Conduct Authority.
– Non-Executive Director
of Times Newspapers
Holdings Limited.
External appointments
– Chief Operating Officer for
Global Petrochemicals, BP.
External appointments
– Chief Product Officer of
Ocado Group plc.
– Director of BP Chemicals
Investments Limited and
BP Chemicals East China
Investment Limited.
– Member of the Digital
Advisory Board of Coca-Cola
European Partners.
External appointments
– Chair of Morgan Sindall
Group plc.
External appointments
– Non-Executive Director
of De La Rue plc.
– Chair of London Stock
– Panel Member of
Exchange plc
– Non-Executive Director
of Jarrold & Sons Limited.
the Competition and
Markets Authority.
External appointments
– Non-Executive Director
of Serco Group plc.
– Non-Executive Director
of TSB Banking Group plc.
– Non-Executive Director
of TSB Bank plc.
– Chair of Trustees
of the Westminster
Society for People with
Learning Disabilities.
Board Committee membership
A
Audit and Risk Committee
C
Corporate Responsibility Committee
N
Nomination Committee
R
Remuneration Committee
Chair of Committee
Keith Williams
Interim Executive Chair
Stuart Simpson
Baroness Sarah Hogg
Rita Griffin
Interim Chief Executive Officer
Senior Independent
Non-Executive Director
of Royal Mail
Non-Executive Director
Michael Findlay
Non-Executive Director
Maria da Cunha
Non-Executive Director
Lynne Peacock
Non-Executive Director
Simon Thompson
Non-Executive Director
Designated Non-Executive
Director for engagement
with the workforce
N
A N
C N
C N R
A N R
C N R
R A N
Skills and Experience
Michael has spent 27 years in
investment banking, working for
firms including Robert Fleming
& Co, UBS and most recently
Bank of America Merrill Lynch.
He retired from Bank of America
Merrill Lynch in 2016, where
he was Co-Head of Investment
Banking for the UK and Ireland,
having previously been the
Co-Head of Corporate Broking
EMEA. He was, from 2009 until
2016, a Non-Executive Director
of UK Mail Group plc, where he
became Senior Independent
Director and Chair of the
Remuneration Committee and a
member of the Audit Committee.
Michael is currently Chair of
Morgan Sindall Group plc.
Skills and Experience
Maria has extensive experience
in dealings with trade unions,
transformation programmes and
employee engagement. Maria is
a former senior executive of
British Airways plc where she
worked for 18 years until 2018.
Maria was BA’s Head of Legal
and Government and Industry
Affairs for four years before
becoming its Director of People
and Legal in 2011, responsible
for human resources, legal,
risk and compliance. Prior to
joining BA, Maria held various
positions with Lloyds of London,
Lovells LLP and the Law College
of Europe.
Skills and Experience
Lynne has over 20 years’
experience as an Executive and
Non-Executive Director both
in the financial services and
non-financial services sectors.
This includes as Chief Executive
Officer of Woolwich plc and
Chief Executive Officer of
National Australia Bank Europe
Limited (NAB). She has been
involved in a variety of successful
transactions including an IPO
and FTSE 100 listing, the sale
of Woolwich plc to Barclays
and the disinvestment of NAB’s
Irish operations.
Prior to moving into financial
services, Lynne held positions
with Unilever plc and Tate & Lyle
plc. She was previously Non-
Executive Director at Standard
Life Aberdeen plc, Scottish
Water, Jardine Lloyd Thompson
Group plc and Nationwide
Building Society.
Appointed to the Board
– Chief Finance Officer and
Executive Director on
20 July 2017.
Appointed to the Board
– Senior Independent
Non-Executive Director
on 1 October 2019.
Appointed to the Board
– Non-Executive Director
on 1 December 2016.
Appointed to the Board
– Non-Executive Director
on 22 May 2019.
Appointed to the Board
– Non-Executive Director
on 22 May 2019.
Appointed to the Board
– Non-Executive Director
on 1 November 2019.
Appointed to the Board
– Non-Executive Director
on 1 November 2017.
– Designated Non-Executive
Director for engagement
with the workforce on
26 February 2019.
BOARD DIVERSITY
Male
Female
As at 24 June 2020
NON-EXECUTIVE
DIRECTOR TENURE*
1-2 years
2-6 years
As at 24 June 2020
91
4
4
4
2
External appointments
External appointments
– Chair of Halfords Group plc.
– None.
– Independent Chair of a review
of the British Railways on
behalf of the UK Government.
External appointments
– Senior Independent
Director of the Financial
Conduct Authority.
– Non-Executive Director
of Times Newspapers
Holdings Limited.
External appointments
External appointments
– Chief Operating Officer for
– Chief Product Officer of
Global Petrochemicals, BP.
Ocado Group plc.
– Director of BP Chemicals
– Member of the Digital
Investments Limited and
BP Chemicals East China
Investment Limited.
Advisory Board of Coca-Cola
European Partners.
External appointments
– Chair of Morgan Sindall
Group plc.
External appointments
– Non-Executive Director
of De La Rue plc.
– Chair of London Stock
– Panel Member of
Exchange plc
– Non-Executive Director
of Jarrold & Sons Limited.
the Competition and
Markets Authority.
Tenure data includes
Non-Executive Directors only.
External appointments
– Non-Executive Director
of Serco Group plc.
– Non-Executive Director
of TSB Banking Group plc.
– Non-Executive Director
of TSB Bank plc.
– Chair of Trustees
of the Westminster
Society for People with
Learning Disabilities.
Skills and Experience
Keith is a highly regarded
Skills and Experience
Skills and Experience
Skills and Experience
Skills and Experience
Stuart has significant finance,
Sarah has extensive business
Rita has considerable experience
Simon has extensive experience
business leader with extensive
strategy and operational
and Government experience.
in developing and implementing
as a global business leader
industrial relations, operational
experience. Prior to Royal Mail,
She was previously Chair of
strategies and leading
and customer service
Stuart worked in the automotive
3i Group plc and has been
experience. Keith is a chartered
industry for 15 years, where he
a Non-Executive Director of
substantial transformation
programmes, which she has
with proven expertise in the
digitisation of business and
the customer experience.
accountant and worked in the
UK and internationally before
joining British Airways plc in
1998. He worked there for 18
years, including five years as
held senior roles in both finance
numerous companies including
gained through her career at BP
Simon is currently the Chief
and strategy, primarily based
BG Group plc and GKN plc.
outside of the UK. He joined
Royal Mail Group in 2009, was
appointed as Deputy Chief
She has served as Lead
Independent Non-Executive
Director of HM Treasury and
Group. Rita is currently Chief
Operating Officer for Global
Product Officer of Ocado plc
and has held senior executive
Petrochemicals at BP plc, one
positions at Apple Computer
of three main divisions of BP’s
Inc., HSBC, lastminute.com,
CFO, three years as CEO and two
Operations Officer in January
Chair of the Financial Reporting
downstream business. She has
Wm Morrison Supermarkets
years as Executive Chairman.
2014 and was subsequently
Council. Sarah was Head of the
held a number of leadership
plc, Motorola Inc. and Honda
During that time, he led the
appointed as Director of Group
Prime Minister’s Policy Unit
positions within BP plc in
Europe Ltd. In 2019, Simon was
transformation of the Company,
Finance in July 2015. Stuart was
under John Major, and previously
manufacturing, logistics, retail
appointed as the Designated
building a leaner and more
appointed Chief Finance Officer
Economics Editor of several
and functional organisations.
Non-Executive Director for
customer focused organisation
in July 2017 and in November
with a sustainable future.
2018 took on the additional
leading newspapers including
The Times, The Telegraph and
Rita was previously Chief
Marketing Officer, BP plc.
engagement with the workforce.
responsibility of Chief Operating
The Economist.
Officer. Stuart stood down from
these additional responsibilities
in April 2020 following the
outbreak of COVID-19, to
enable him to focus on his
responsibilities as Chief Finance
Officer. He was appointed
interim Chief Executive Officer
of Royal Mail in May 2020.
Sarah was created a Life Peer
in 1995 and sits in the House
of Lords as a crossbencher.
She received a Lifetime
Achievement award at the
Non-Executive Director awards
in 2017.
Prior to British Airways, Keith
worked for companies including
Reckitt and Colman, Apple
Computer Inc., and Boots.
He was also an Executive Board
member and Chair of the Audit
Committee at Transport for
London until 2016. His previous
non-executive roles include
appointments at Aviva plc and
the John Lewis Partnership.
Appointed to the Board
– Non-Executive Director
on 1 January 2018.
– Non-Executive Deputy Chair
on 7 November 2018.
– Non-Executive Chair
on 22 May 2019.
– Interim Executive Chair
on 15 May 2020.
– Chief Finance and Operating
Officer on 7 November 2018.
– Chief Finance Officer on
1 April 2020.
– Interim Chief Executive Officer
of Royal Mail on 15 May 2020.
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20
92
Corporate Governance
EXECUTIVE BOARD
– ROYAL MAIL
Keith Williams
Interim Executive Chair (Group)
Stuart Simpson
Interim Chief Executive Officer
of Royal Mail
Mel Tomlin
Chief of Staff
Sally Ashford
Chief HR Officer
Christian Herrlich
Chief Information Officer
Achim Dünnwald
Chief Operating Officer
Mark Amsden
Shane O’Riordain
James Rietkerk
Group General Counsel and
Managing Director of
GLS Chief Executive Officer
Company Secretary
Chief Risk and
Governance Officer
Corporate Affairs, Regulation
and Marketing
Skills and Experience
For Keith’s biography please
refer to Group Board of Directors
on page 90.
Skills and Experience
For Stuart’s biography please
refer to Group Board of Directors
on page 90.
Skills and Experience
Mel has performed a number
of senior roles across the
Group both in the UK and
internationally, most recently
as Chief of Staff for GLS and
Royal Mail Parcels. She has
held senior Group roles in
Strategy, HR and Customer
Experience. Previously Mel
held a number of international
Operational Director roles and
was Managing Director of GLS
Ireland. Prior to joining Royal
Mail, she held senior general
management roles in the
construction materials industry
in both the UK and US.
Skills and Experience
Sally joined Royal Mail in
June 2015 to head up
Reward and Recognition and
subsequently became HR
Director of Parcels. She was
appointed Group Chief
Human Resources Officer
in June 2018. Sally has over
25 years’ experience in Human
Resources specialising in
reward, performance, talent
and organisation design. Prior
to joining Royal Mail, Sally
was HR Director for Telefonica
Europe. Sally has also worked
in a variety of HR related roles
at O2, BT and Tesco.
Skills and Experience
Christian joined Royal
Mail in June 2017 and was
appointed Group Chief
Information Officer in July 2018.
Christian is responsible for
Royal Mail’s technology estate
and specifically for driving
digital transformation and IT
innovation across the business.
Christian has more than 20
years’ experience in the postal
& parcels industry, providing
leadership for numerous
successful IT transformations.
He was previously Managing
Director IT at GLS for five years.
Prior to that, Christian spent
13 years at Deutsche Post DHL,
most recently in the role of
Parcels CIO.
Skills and Experience
Skills and Experience
Achim was appointed as Chief
Mark joined Royal Mail in
Skills and Experience
Shane joined Royal Mail in
Operating Officer in April 2020
April 2019. Mark is the former
November 2010 and was
and is responsible for leading
General Counsel and Company
appointed to his current role
Skills and Experience
James was Chief Financial
Officer of GLS from 2001 to
2018. He was appointed Chief
Executive Officer of GLS and
the UK operations. He also
continues to lead the Strategy
and Transformation function
Secretary of Wm Morrison
Supermarkets plc, and the
former Interim Company
in 2018. Previously, he had
responsibility for Strategy and
joined the Executive Board
Pricing in addition to Corporate
in June 2018. Prior to joining
as it continues to develop and
Secretary of Yorkshire Water.
Affairs and Regulation.
implement projects to support
Prior to joining Morrisons,
the transformation of our UK
Mark was for 14 years a
Before joining Royal Mail,
Shane was Corporate Affairs
Royal Mail, James was a
Group Financial Controller at
Charter plc. He qualified as
business. Achim has extensive
partner in the international
and Group Economics Director
a Chartered accountant with
experience in the international
law firm Addleshaw Goddard
for a range of major financial
Price Waterhouse.
postal and logistics sectors,
including most recently as
LLP where he specialised in
services organisations, including
corporate litigation and headed
Flemings, Halifax, HBOS
CEO DHL Parcel, which is part
up Addleshaw’s national IT
and Lloyds Banking Group.
of the Deutsche Post DHL
litigation practice.
Shane was previously a diplomat
in the Irish Foreign Service.
Group. Prior to that, he was a
partner with the consulting firm
McKinsey & Company, where
he led the global post, express
and parcels service line, and
worked for postal operators in
Europe, North America, and the
Middle East.
Appointed to the
Executive Board
– 8 June 2018.
Appointed to the
Executive Board
– 8 June 2018.
Appointed to the
Executive Board
– 1 August 2018.
Appointed to the
Executive Board
– 25 March 2019.
Appointed to the
Executive Board
– 8 April 2019.
Appointed to the
Executive Board
– 8 June 2018.
Appointed to the
Executive Board
– 8 June 2018.
External appointments
– None.
External appointments
– Member of Telefonica
Deutschland supervisory
Board and Chair of its
Remuneration Committee.
External appointments
– None.
External appointments
– Advisory Board Member,
Seven Senders GmbH.
External appointments
External appointments
External appointments
– None.
– None.
– None.
93
Keith Williams
Stuart Simpson
Mel Tomlin
Interim Executive Chair (Group)
Interim Chief Executive Officer
Chief of Staff
Sally Ashford
Chief HR Officer
Christian Herrlich
Chief Information Officer
Achim Dünnwald
Chief Operating Officer
of Royal Mail
Mark Amsden
Group General Counsel and
Company Secretary
Chief Risk and
Governance Officer
Shane O’Riordain
Managing Director of
Corporate Affairs, Regulation
and Marketing
James Rietkerk
GLS Chief Executive Officer
Skills and Experience
Skills and Experience
Skills and Experience
Skills and Experience
For Keith’s biography please
For Stuart’s biography please
Mel has performed a number
Sally joined Royal Mail in
Skills and Experience
Christian joined Royal
refer to Group Board of Directors
refer to Group Board of Directors
of senior roles across the
June 2015 to head up
Mail in June 2017 and was
on page 90.
on page 90.
Group both in the UK and
Reward and Recognition and
appointed Group Chief
internationally, most recently
subsequently became HR
Information Officer in July 2018.
as Chief of Staff for GLS and
Royal Mail Parcels. She has
held senior Group roles in
Strategy, HR and Customer
Experience. Previously Mel
Director of Parcels. She was
Christian is responsible for
appointed Group Chief
Human Resources Officer
in June 2018. Sally has over
Royal Mail’s technology estate
and specifically for driving
digital transformation and IT
25 years’ experience in Human
innovation across the business.
held a number of international
Resources specialising in
Christian has more than 20
Operational Director roles and
reward, performance, talent
years’ experience in the postal
was Managing Director of GLS
and organisation design. Prior
& parcels industry, providing
Ireland. Prior to joining Royal
Mail, she held senior general
management roles in the
to joining Royal Mail, Sally
leadership for numerous
was HR Director for Telefonica
successful IT transformations.
Europe. Sally has also worked
He was previously Managing
construction materials industry
in a variety of HR related roles
Director IT at GLS for five years.
in both the UK and US.
at O2, BT and Tesco.
Prior to that, Christian spent
13 years at Deutsche Post DHL,
most recently in the role of
Parcels CIO.
Skills and Experience
Mark joined Royal Mail in
April 2019. Mark is the former
General Counsel and Company
Secretary of Wm Morrison
Supermarkets plc, and the
former Interim Company
Secretary of Yorkshire Water.
Prior to joining Morrisons,
Mark was for 14 years a
partner in the international
law firm Addleshaw Goddard
LLP where he specialised in
corporate litigation and headed
up Addleshaw’s national IT
litigation practice.
Skills and Experience
Shane joined Royal Mail in
November 2010 and was
appointed to his current role
in 2018. Previously, he had
responsibility for Strategy and
Pricing in addition to Corporate
Affairs and Regulation.
Before joining Royal Mail,
Shane was Corporate Affairs
and Group Economics Director
for a range of major financial
services organisations, including
Flemings, Halifax, HBOS
and Lloyds Banking Group.
Shane was previously a diplomat
in the Irish Foreign Service.
Skills and Experience
James was Chief Financial
Officer of GLS from 2001 to
2018. He was appointed Chief
Executive Officer of GLS and
joined the Executive Board
in June 2018. Prior to joining
Royal Mail, James was a
Group Financial Controller at
Charter plc. He qualified as
a Chartered accountant with
Price Waterhouse.
EXECUTIVE
BOARD DIVERSITY
Male
Female
7
2
As at 24 June 2020
Skills and Experience
Achim was appointed as Chief
Operating Officer in April 2020
and is responsible for leading
the UK operations. He also
continues to lead the Strategy
and Transformation function
as it continues to develop and
implement projects to support
the transformation of our UK
business. Achim has extensive
experience in the international
postal and logistics sectors,
including most recently as
CEO DHL Parcel, which is part
of the Deutsche Post DHL
Group. Prior to that, he was a
partner with the consulting firm
McKinsey & Company, where
he led the global post, express
and parcels service line, and
worked for postal operators in
Europe, North America, and the
Middle East.
Appointed to the
Executive Board
– 8 June 2018.
Appointed to the
Executive Board
– 8 June 2018.
Appointed to the
Executive Board
– 1 August 2018.
Appointed to the
Executive Board
– 25 March 2019.
Appointed to the
Executive Board
– 8 April 2019.
Appointed to the
Executive Board
– 8 June 2018.
Appointed to the
Executive Board
– 8 June 2018.
External appointments
– None.
External appointments
– None.
External appointments
– Member of Telefonica
Deutschland supervisory
Board and Chair of its
Remuneration Committee.
External appointments
– Advisory Board Member,
Seven Senders GmbH.
External appointments
– None.
External appointments
– None.
External appointments
– None.
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 94
Corporate Governance
GOVERNANCE
STRUCTURE
Board structure and leadership
The Board is responsible for the stewardship of the Group,
overseeing its strategy, conduct and affairs to create sustainable
value for the benefit of its shareholders. The Board, led by
Keith Williams, is accountable for the long-term success of
the Company, setting the Group’s strategic objectives and
monitoring performance against those objectives. The day-
to-day management of the Group is currently also led on an
interim basis by Keith Williams, following the announcement
that Rico Back had stood down as Group CEO in May 2020.
A comprehensive search is underway for a CEO of Royal Mail
(UKPIL).
The Board recognises that, to be successful over the long term,
it has a wider duty to a broader stakeholder community whose
support is required to create sustainable value. It is therefore
essential that the Board considers the impact of the business
and its decisions on our colleagues, customers, shareholders,
suppliers and the communities in which the Company operates.
Pages 104-111 highlight how we consider and engage with
our stakeholders.
The Board has undergone a considerable refresh during 2019
to enhance the skills and experience of our Board members.
The Non-Executive Directors play a key role in challenging
our Management team and ensuring the highest levels of
governance are adhered to throughout the organisation.
The Board has adopted the governance framework as set out
below, which assists us in the exercise of our responsibilities,
namely providing strategic direction to the Company to create
long-term shareholder value.
The Board has established several Committees and has
delegated authority to them to carry out certain tasks.
The Board was pleased to announce the formation of a new
Corporate Responsibility Committee (CRC) in September 2019,
which recognises the importance of Corporate Responsibility to
the Group. The CRC is responsible for promoting a culture that
emphasises and sets high standards for corporate responsibility
and reviews corporate performance against those standards.
The Terms of Reference of each Board Committee, and the
Matters Reserved for the Board, have been reviewed during the
year. Relevant changes have been made in line with the Code.
These documents are available at → www.royalmailgroup.com.
The minutes of each meeting are made available to and
approved by Committee Members on a timely basis.
Each Committee Chair reports to the Board on matters
discussed at Committee meetings and highlights any significant
issues that require the Board’s attention.
THE BOARD
AND ITS
COMMITTEES
THE BOARD
The Board has four Committees that are set
out below.
The Board is responsible for the stewardship of the Company, overseeing its strategy,
conduct and affairs to create sustainable value for the benefit of its shareholders.
It is responsible for the long-term success of the Group. The Board:
More information →
www.royalmailgroup.com/en/about-us/
governance/
– sets the Company’s values and standards, making sure that they align with its
strategic aims and the desired business culture;
– has oversight and accountability for the interests of wider stakeholders;
– sets the objectives and strategy, and monitors performance and risk management; and
– approves major contracts, investments, internal controls and key policies.
NOMINATION
COMMITTEE
AUDIT AND RISK
COMMITTEE
REMUNERATION
COMMITTEE
CORPORATE RESPONSIBILITY
COMMITTEE
Committee Chair
Keith Williams
Committee Chair
Michael Findlay
Committee Chair
Lynne Peacock
Committee Chair
Rita Griffin
– Reviews the balance and composition
– Reviews, and recommends for
– Determines, and recommends for
– Oversees the Company’s
of the Board and its Committees
including in relation to skills,
knowledge, independence, diversity
and experience.
– Ensures a progressive renewal of
Board membership through orderly
succession planning.
– Considers talent reviews and
succession planning for
Senior Executives.
– Oversees progress against the
Company’s diversity policy.
the Board’s approval, all financial
statements and associated
disclosures.
the Board’s approval, the framework
for the remuneration of the Group’s
Senior Executives.
– Determines and recommends for
the Board’s approval the individual
remuneration arrangements for
the Chair, the Executive Directors,
Executive Board and the Company
Secretary.
– Agrees targets for any performance
related incentive schemes.
– Advises the Board on the Company’s
overall risk appetite, tolerance and
strategy, and reviews the policies
and processes for identifying
and assessing the risks to which
the Company is exposed and the
management of those risks.
– Satisfies itself that internal controls
and risk management processes
work effectively.
– Oversees the financial performance
of the Group, including GLS.
– Oversees the relationship with
the external auditor, ensuring
the effectiveness of the external
audit process.
performance in Environment, Social
and Governance (ESG) matters
and Corporate Responsibility (CR)
standards to ensure they are in
alignment with the Group strategy.
– Reviews, and recommends for the
Board’s approval, the Company’s
Corporate Responsibility policies
and practices.
– Focuses its efforts on the ESG issues
that are of most importance to the
Company and its stakeholders and
remains attuned to the changing
needs and expectations of society.
– Monitors and reviews the Company
culture and whistleblowing
arrangements.
Read more – pages 114-116
Read more – pages 117-125
Read more – pages 128-153
Read more – pages 126-127
95
Governance documents available
on our website
More information →
www.royalmailgroup.com/en/about-us/
governance/
– Matters Reserved for the Board
– Committee Terms of Reference
– Role Profiles
– Board Diversity Policy
SEPARATION OF ROLES
As at year end there was a clear division of responsibilities between the roles of the
Chair, CEO and Senior Independent Director (SID). These roles were set out in writing
and agreed by the Board and can be seen below. The separation of roles enhances
independent oversight of executive management and ensures no one individual
has unfettered powers or decision making authority. Subsequent to the year end,
our Group CEO left the business. Keith Williams has assumed the role of interim
Executive Chair of the Group and Stuart Simpson was appointed interim CEO of
Royal Mail. Keith will remain in this executive role for a short period until the search
for a CEO of Royal Mail is complete. Once the restructure has been completed, the
roles and responsibilities of the Board will be updated and agreed by the Board.
CHAIR
SENIOR
INDEPENDENT DIRECTOR
INDEPENDENT
NON-EXECUTIVE DIRECTORS
GROUP CHIEF
EXECUTIVE OFFICER
– Responsible for the executive
leadership and day-to-day
management of the Company.
– Leads the Company’s Executive
Board and is responsible for
implementing 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 and engages with
key stakeholders.
– Acts as a sounding board for the
Chair and serves as a trusted
intermediary for the other Directors.
– Leads the annual appraisal of the
Chair’s performance.
– Available to meet with shareholders,
should they have issues or concerns.
– Responsible for the leadership
and management of the Board
and for promoting high ethical and
governance standards.
– Ensures an effective and
complementary Board, including
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
accept in implementing its strategy.
– With support from the Company
Secretary, promotes the highest
standards in corporate governance
and provides all new Directors with
a thorough and tailored induction
programme.
– Ensures effective relationships exist
between all Directors, driving a
culture that supports constructive
discussion, challenge and debate.
– Maintains effective communications
with shareholders, ensuring their
views are understood and considered
appropriately during Board
discussions.
CHIEF
FINANCE OFFICER
COMPANY
SECRETARY
– 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.
– Provides advice to Board members,
particularly in relation to corporate
governance practices, induction
training and personal development.
– Ensures that Board procedures are
complied with, applicable rules are
followed and that good information
flows exist to the Board and between
its Committees.
– Communicates with shareholders as
appropriate and ensures due regard
is paid to their interests.
– Ensures the Board has high quality
information, adequate time and
appropriate resources in order to
function effectively and efficiently.
– Considers Board effectiveness
in conjunction with the Chair and
provides support to the Chair
as required.
– Responsible for contributing sound
judgement and objectivity to the
Board’s deliberations and overall
decision-making process.
– Provide constructive challenge and
monitor the Executive Directors’
delivery of the strategy within
the Board’s risk and governance
structure.
– Provide independent insight and
support based on relevant experience.
– Satisfy themselves of the integrity
of financial information and of the
effectiveness of financial controls and
risk management systems.
– Determine the appropriate level of
remuneration for Executive Directors
and ensure there is appropriate
succession planning in place at both
Executive and Board level.
– Engage with internal and external
stakeholders, and feed back insights
as to their views in relation to
Company culture.
DESIGNATED NON-EXECUTIVE
DIRECTOR FOR ENGAGEMENT
WITH THE WORKFORCE
– Represents the Board in engagement
with the workforce.
– Develops a thorough understanding
of the workforce’s views and the
Company culture.
– Develops, implements and feeds back
on employee engagement initiatives in
conjunction with Senior Management.
– Provides an employee voice in the
Boardroom by raising relevant
matters on issues raised.
– Communicates to the workforce the
outcomes and developments made
by the Board on specific matters.
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 96
Corporate Governance
BOARD
IN ACTION
BOARD AND COMMITTEE ATTENDANCE
Keith Williams1
Stuart Simpson11
Sarah Hogg2
Rita Griffin3
Simon Thompson4
Michael Findlay5
Maria da Cunha6
Lynne Peacock7
Les Owen8
Orna Ni-Chionna9
Rico Back10
Board
Nomination
Committee
Audit and Risk
Committee
Remuneration
Committee
Corporate
Responsibility
Committee
2/2
1/1
4/4
2/2
2/2
2/2
2/2
2/2
2/2
3/3
2/2
2/2
4/4
3/3
2/2
2/2
2/2
2/2
6/6
4/4
4/4
3/3
1/1
2/2
9/9
8/9
5/5
9/9
9/9
8/8
8/8
4/4
1/1
3/3
9/9
1
2
3
4
Keith Williams was appointed as Chair on 22 May 2019. Keith stepped down as Chair of the Audit and Risk Committee on appointment and was appointed to the Remuneration Committee
on 25 September 2019. Keith assumed the role of interim Executive Chair of the Company and ceased to be a member of the Remuneration Committee on 15 May 2020.
Sarah Hogg was appointed as Senior Independent Director and as a member of the Audit and Risk Committee and Nomination Committee on 1 October 2019.
Rita Griffin stood down from the Remuneration Committee and Audit and Risk Committee on 25 September 2019 and 1 October 2019 respectively and was appointed as Chair of the Corporate
Responsibility Committee on 25 September 2019.
Simon Thompson was appointed as Senior Independent Director on an interim basis on 18 July 2019. Simon stepped down from this role on 1 October 2019, following the appointment
of Sarah Hogg. Simon was appointed as interim Chair of the Remuneration Committee on 18 July 2019 and stepped down from this role on 1 November 2019, following the appointment
of Lynne Peacock. Simon remains a member of the Remuneration Committee. Simon stood down from the Audit and Risk Committee and was appointed to the Corporate Responsibility
Committee on 25 September 2019.
5 Michael Findlay was appointed to the Board on 22 May 2019 and as Chair of the Audit and Risk Committee on 30 May 2019. Michael was also appointed to the Nomination Committee and
Remuneration Committee on 25 September 2019.
6 Maria da Cunha was appointed to the Board on 22 May 2019. Maria was also appointed to the Nomination Committee, Remuneration Committee and Corporate Responsibility Committee
on 25 September 2019.
7
8
9
Lynne Peacock was appointed to the Board on 1 November 2019. Lynne was also appointed as Chair of the Remuneration Committee and as a member of the Nomination Committee and Audit
and Risk Committee on 1 November 2019.
Les Owen stood down as Chair of the Board and as Chair of the Nomination Committee on 22 May 2019.
Orna Ni-Chionna stood down as Senior Independent Director and as Chair of the Remuneration Committee on 18 July 2019.
10 Rico Back stood down from the Board on 15 May 2020.
11 Stuart Simpson was unable to attend one Board meeting due to illness. Stuart was provided with the papers in advance of the meeting.
The attendance above reflects the number of scheduled
meetings held during the financial year. There were also a
number of ad-hoc Board and Committee meetings to deal
with matters arising outside of the usual meeting schedule.
The majority of Directors made themselves available at short
notice for these meetings.
2019-20 Board meetings
The details of the Board’s scheduled meetings and attendance
during 2019-20 can be found above. The Non-Executive
Directors and the Chair met on several occasions without
the Executive Directors present. These meetings are an
important way to develop working relationships between the
Non-Executive Directors and to assess the performance of
senior management.
The Non-Executive Directors regularly met with Management
and spent extra time increasing their understanding of the
business through site visits, informal briefing sessions and
networking sessions. This allows discussions to take place
in a different format to Board meetings and helps to “open
out” discussions, enabling formal Board meetings to be
more focused. It also helps to reframe The Non-Executive
Directors’ views of their roles, recognising that attendance
at Board meetings is only one part of their role and enabling
them to engage as proactively and frequently as possible with
the business.
Directors unable to attend a Board or Committee meeting
receive the relevant papers prior to the meeting with the
opportunity to provide in advance any comments to the Chair or
the relevant Committee Chair. The minutes of the meeting and
all papers are also available for the Directors to review for their
future reference, through use of an online Board portal.
Board activities
The Board’s annual plan is designed to ensure that sufficient
time is allocated to ensure all necessary matters are addressed.
The agendas are adjusted throughout the course of the year
to prioritise relevant issues and ensure focused consideration
of strategic priorities. Sufficient time is provided for the Chair
to meet privately with the SID and Non-Executive Directors to
discuss any issues arising.
97
The table on pages 97-99 outlines specific areas the Board focused on during the year and up until 24 June 2020.
The Board reviews key transactions and projects, financial performance and health and safety updates at every Board meeting.
It also regularly reviews:
– Business strategy;
– Key risks;
– The market;
– Operational matters;
– Customer service;
– Diversity and inclusivity;
– Corporate responsibility;
– Governance;
– Compliance and legal matters;
– Whistleblowing and culture; and
– Stakeholder-related matters, including
the makeup of the share register
and investor relations programme;
community engagement; and human
resources and wider employee matters.
Committee Chairs are provided with a standing agenda item to update the Board on the work of the Committees.
Board members and, as appropriate, individuals from the relevant business areas, are invited to present on key items,
allowing the Board the opportunity to debate and challenge on initiatives directly with the Senior Management team along
with the Executives.
MATTER CONSIDERED
ACTIVITY
STRATEGY AND BUSINESS PLAN
Group strategy
The Board considered corporate and material transactions and projects to ensure that proposed transactions
were aligned with the Group’s strategy and risk appetite.
Participated in strategy sessions covering UK business functions and GLS.
Monitored, reviewed and/or approved:
– The UK transformation programme;
– Relations with CWU and assessment of productivity and efficiency opportunities in the 2018 Agreement;
– Long-term growth in parcels; and
– Technology developments including automation.
Business plan
and budget
Reviewed and approved the 2020-21 business plan/budget and monitored progress against the Group’s
long-term business plan.
Considered and approved the Capital Allocation Framework.
Monitored progress against annual budget and financial targets for the Group.
LEADERSHIP
Organisational change
and development
of talent in pipeline
Monitored and received updates on structural changes within the Executive Leadership team.
Considered recommendations from the Nomination Committee and HR about succession and developing
talent for colleagues below Executive Board level.
Approved recommended changes to subsidiary board compositions.
Board composition
and succession
planning for Board
Progressed the appointment of Non-Executive Directors. Four Non-Executive Directors joined the Board
during 2019.
Continued to refresh Board membership including Board succession planning, with a focus on diversity.
Refreshed and implemented a new Non-Executive Director Induction Plan.
Created a new Corporate Responsibility Committee.
Reviewed and refreshed the Committee compositions.
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 98
Corporate Governance – Board in action continued
MATTER CONSIDERED
ACTIVITY
STAKEHOLDER ENGAGEMENT
Unions/Industrial
relations
Received regular updates on discussions with unions and the industrial relations environment.
Group CEO and Senior Management met regularly with CWU.
Ofcom
Group CEO met regularly with Ofcom.
Reviewed updates of Management engagement with Ofcom.
Investor relations
and Shareholders
Regularly reviewed investor relations updates and reports at Board meetings.
Received updates provided by Corporate Brokers.
The Chair, Senior Independent Director and Company Secretary between them met with institutional
shareholders and proxy advisory groups throughout the year and provided updates to the Board on
these discussions.
Breakfast meeting hosted by the Non-Executive Directors with a number of investors.
Against the backdrop of the UK Stewardship Code, assessed how the Group engages with existing and
potential shareholders.
Considered feedback and response to the Capital Markets Day held in May 2019.
Tracked progress of commitments made at the Capital Markets Day.
Pensions
Held discussions and received updates on how the Collective Defined Contribution (CDC) scheme would work
and its impact on stakeholders.
Engagement with
the workforce
Simon Thompson (Designated NED for engagement with the workforce) held Employee Voice Forums in the UK
and reported his findings to the Board. In addition, Simon has discussed remuneration with employees during
these sessions.
Reviewed the results of the Employee Engagement Survey.
Through the People Panel, reviewed and oversaw the development of an action plan following the results
of our Employee Engagement Survey.
Met with senior leaders in informal settings to get to know people based in different sites and in the
talent pipeline.
Met with employees during a Board site visit to the GLS hub in Hungary.
Culture
Discussed and reviewed the Group’s culture in detail, particularly in the March Board meeting.
Visited numerous operational sites across the UK and Europe to experience and assess the culture and
attended two full Board employee voice forums with employees.
GOVERNANCE
UK Corporate
Governance
Code 2018
Board agendas
and meetings
Reviewed and considered the changes to the 2018 UK Corporate Governance Code which included:
– Reviewing and/or approving changes to the Matters reserved for the Board, Committee Terms of Reference,
Role of the Chair, SID and Group CEO;
– The importance of the Company’s purpose being articulated and its linkage to the new strategy, culture and
the Remuneration Policy;
– An update on Directors’ duties to Section 172 of the Companies Act 2006 and the introduction of a Section 172
report to be included within the Annual Report;
– Action to be taken as a result of significant votes against, received at an Annual General Meeting; and
– The enhanced responsibilities of the Board in monitoring and assessing culture, monitoring and
understanding of the Company’s emerging and principal risks, and engagement with stakeholders.
Reviewed agendas and topics for discussion, identified key topics to be focused on over the course of the year.
Reviewed and approved, where appropriate (upon recommendation from the appropriate Committee):
– Modern Slavery Statement;
– Whistleblowing Policy;
– Corporate Responsibility Policy and Report;
– Annual Report and Accounts; and
– Dividend payments.
The Board is regularly updated by the Group General Counsel and Company Secretary on legal matters,
emerging regulation and governance changes.
Regularly updated by the Director of Internal Audit and Risk on risk and audit matters.
Received regular updates from the Group Legal team including any ongoing litigation claims.
Reviewed the Environmental Strategy.
Reviewed the Vehicle Strategy.
Reviewed and approved a number of proposed changes to subsidiary Company Board compositions.
Board and Committee
Evaluations
An externally facilitated Board evaluation took place in Q4 2019 and Q1 2020 and the Board considered
the findings at the March 2020 meeting.
Detailed recommendations arising from the Board evaluation were developed.
99
MATTER CONSIDERED
ACTIVITY
RISK AND INTERNAL CONTROLS
Health & Safety
Received regular updates on health, safety and wellbeing matters.
GDPR
Received regular updates on the Company’s compliance with GDPR.
Cyber Security
Received updates on cyber security and the associated risks.
Reviewed the updated cyber security improvement plan.
Brexit
Reviewed and discussed potential impacts of Brexit and the threat of the US administration taking the US postal
service out of the Universal Postal Union.
Considered the Company’s response to various scenarios.
Oversaw planning for Brexit and associated customs clearance impacts.
General Election
Reviewed and discussed the impacts and potential risks of the General Election.
Put in place plans to ensure adequate operational capacity was in place to deal with increased volumes.
Considered the Company’s response to various scenarios including how best to preserve shareholder value
in a re-nationalisation scenario.
Whistleblowing
Received reports from the Audit and Risk Committee and the Corporate Responsibility Committee, particularly
to gauge the Company’s approach to bullying, harassment and anti-bribery and corruption risks.
Emerging and
Principal Risks
OPERATIONAL
Reviewed the updated Whistleblowing Policy.
Received regular updates on emerging and principal risks.
Conducted a horizon scanning exercise to determine and understand the emerging risks to the Company.
Received regular updates on the outbreak of COVID-19. This included updates on the Company’s impact
assessment and contingency plans to protect our employees and customers.
Group CEO Reports
Discussed regular Group CEO reports on the operating performance of the Group’s business functions and
progress of recent acquisitions.
Received updates from the GLS CEO.
Received updates on management structure and management succession planning.
Received updates on the performance of subsidiary companies.
Received updates on the Group’s property portfolio including discussions regarding the sale of the
Nine Elms plots.
Property
FINANCIAL
Performance Reports
Regularly discussed and considered reports on performance of different business functions.
Cost reduction
Reports and
announcements
Dividend Policy
Regularly reviewed cost/efficiency with particular focus on UK business.
Considered and approved half year, full year and trading updates.
Considered the Dividend Policy and the level of dividend cover.
Strategy
The Board presented our strategy for the next five years on 22 May 2019. A range of presentations set out the plans to develop
the UK operation to meet changing customers’ requirements. See pages 19-25.
The Board dedicated a significant amount of time and focus to detailed discussions of the strategy. Alongside the annual review
of the budget and business plan, this included a number of specific Board meetings to discuss the Company’s transformation
programme and dedicated reviews of the productivity and efficiency opportunities under the 2018 Agreement with the
Communication Workers Union (CWU). Throughout the year, the Board held a number of additional meetings to discuss industrial
relations, the possible threat of industrial action and the impact this could have on the Company. In addition, the Board discussed
the GLS “scale up and grow” strategy which included consideration of a number of acquisition proposals and an expansion into
cross-border parcels.
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 100 Corporate Governance
BOARD COMPOSITION
AND DIVERSITY
The delivery of the Company’s strategy depends on attracting
and retaining the right skills across the Group. This starts with
the Board, as well as the Executive Management team and
their direct reports. A list of the Company’s current Directors,
including their biographies, can be found on page 90-91.
As at 24 June 2020, the Board comprised the interim Executive
Chair, six independent Non-Executive Directors and one
Executive Director with wide-ranging backgrounds and varying
industry and professional experience. The Company complies
with the Code’s recommendation that at least half the Board,
excluding the Chair, should be Non Executive Directors whom
the Board considered to be independent. The Company’s
Chair, Keith Williams, was deemed to be independent upon
appointment. Following the year end, Keith Williams assumed
the role of Executive Chair on an interim basis. Keith will
resume the role of Non-Executive Chair once the search for a
CEO of Royal Mail (UKPIL) has been completed.
A strong governance framework alone is not enough to deliver
our strategic objectives. The framework needs to be managed
and overseen by an effective Board that sets the tone for the
Group’s culture, values and ethical behaviours. Royal Mail
recognises the importance and benefits of having a diverse
Board. The Board considers that diversity should not be limited
to gender. A diverse Board should include and make good use
of differences in skills, geographic and industry experience,
background, race, gender and other characteristics of Directors.
The Board seeks to construct an effective, robust, well balanced
and complementary Board, whose capability is appropriate for
the nature, complexity and strategic demands of the business.
The Nomination Committee leads the process for Board
appointments as detailed in the Nomination Committee Report.
The Code requires that the Board and its Committees should
have the appropriate balance of skills, experience, independence
and knowledge of the Company to enable duties and
responsibilities to be discharged appropriately. These factors
are taken into consideration when recruiting Board members
to ensure the Board is effective and able to discharge its duties.
The Board considers that each Director brings relevant and
complementary skills and experience to the Board and each
Director has sufficient time to allocate to the Company.
The Board and the Nomination Committee actively consider
the structure, size and composition of the Board and its
Committees when considering new appointments and
succession planning. A range of diversity factors are taken
into account when determining the optimum composition of
the Board and its Committees. These factors are considered
alongside the need to balance the composition of the Board and
Committees and refresh them over time to meet the changing
needs of the organisation.
The Company’s Non-Executive Directors come from a wide range
of industries, backgrounds and geographic locations. They have
appropriate experience of organisations with international reach,
transformation programmes and industrial relations. The skills
and expertise of the Board have been extended and reinforced
through the appointments of Maria da Cunha and Michael Findlay
(from 22 May 2019), Baroness Sarah Hogg and Lynne Peacock
(from 1 October 2019 and 1 November 2019, respectively).
The Nomination Committee will continue to consider and
develop succession plans for the Board and its Committees.
When considering Board appointments and internal promotions
at a senior level, the Company will continue to take account of
relevant codes and voluntary guidelines and the performance of
peer companies, while seeking to ensure that each post is offered
strictly on merit to the best available candidate.
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.
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.
Time commitments
The terms of appointment for the Non-Executive Directors
require them to devote a minimum average 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
contribute to specific initiatives. Since his appointment, the
Chair has devoted a minimum of two days per week to the
Company. This has increased considerably since taking on the
role of interim Executive Chair. Since last year, the Chair has
stepped down as a Non-Executive Director of Aviva plc and the
John Lewis Partnership, ensuring sufficient time to devote to
his responsibilities at Royal Mail. The Non-Executive Directors
were required to declare any significant outside commitments
prior to their appointment with an indication of the time
commitment involved. Any new external appointments which
may impact existing time commitments will be considered by
the Chair and agreed by the Board in advance.
Conflicts of interest
The Companies Act 2006 and the Articles of Association (the
Articles) require the Board to consider any potential conflicts
of interest. The Board operates a policy to identify and, where
appropriate, manage potential conflicts of interest for Directors.
The Board considers the conflicts during the financial year
and, if appropriate, authorises each Director’s reported
actual, and potential, conflicts of interest. Each Director
abstains from approving their own reported potential conflicts.
The Board will continue to monitor the status of each conflict or
potential conflicts.
The conflicts of interest register was reviewed during the year
by the Board. It concluded that where Directors’ conflicts were
appropriately authorised, the process for authorisation was
operating effectively.
Related party 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 are required
to be reviewed and monitored by the Board. As at 29 March
2020, no Director had advised the Board of any related party
transactions. Note 29 on pages 226-227 sets out the Group’s
related party transactions over the year.
REPORTING AGAINST THE 2018
CORPORATE GOVERNANCE CODE
101
The Financial Reporting Council’s 2018 UK Corporate Governance Code applied to Royal Mail’s financial year ended 29 March 2020.
The table below highlights where you can find information on how the Code’s Principles have been applied. As confirmed on page
88, the Company complied with all relevant Provisions of the Code during the financial year.
CODE PRINCIPLE
1. BOARD LEADERSHIP AND COMPANY PURPOSE
PAGE
A. Effective leadership, promotion of long-term success, value generation and social contribution
1-87, 94
B. Purpose, values, strategy and cultural alignment
C. Resources and controls
D. Stakeholder engagement
E. Workforce engagement
2. DIVISION OF RESPONSIBILITY
F. Role of the Chair
G. Composition of the Board
H. Role and time commitment of the Non-Executive Directors
I. Role of the Company Secretary
3. COMPOSITION, SUCCESSION AND EVALUATION
J. Appointments to the Board and succession planning
K. Skills, experience and knowledge of the Board
L. Board evaluation
4. AUDIT, RISK AND INTERNAL CONTROL
M. Internal and External Audit
N. Fair, balanced and understandable
O. Risk management and internal control framework
5. REMUNERATION
P. Remuneration policies and practices
Q. Executive remuneration
R. Remuneration outcomes and independent judgement
1-87, 126-127
117-125
88-89, 104-111
112-113
95
100
95, 100
95
100, 114-116
90-91, 100
103
117-125
117-125
117-125
128-153
128-153
128-153
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 102 Corporate Governance
BOARD INDUCTION
PROGRAMME
Upon appointment, Directors are provided with a thorough
induction process. The process has been designed to suit
their individual needs and ensure they receive the required
knowledge to fulfil their role as a Non-Executive Director.
The tailored and comprehensive programme is agreed through
discussion with the Chair and arranged and supported by the
Company Secretary. The induction programme comprises
various meetings with Senior Management and visits to
operational sites. These sessions ensure that new Directors are
adequately informed and equipped to participate effectively in
Board discussions, with a sound understanding of the long-
term strategy, business operations, the sectoral and regulatory
context and Company culture. Committee members are provided
with additional induction sessions specific to their Committee’s
remit. The Corporate Responsibility Committee will be holding
an induction session in 2020-21, where all Board members will
be invited to attend.
After the initial induction phase, Directors are welcome to
meet with key personnel throughout the business at any time
to continue their familiarisation with the Company’s business,
strategy, values and culture.
Four Non-Executive Directors joined the Company in 2019.
Multiple induction days were held throughout the year at various
locations with senior members of Management. Directors were
provided with an overview of relevant business areas and engaged
in open discussion to ensure all queries were addressed.
The invitation to attend the induction sessions was extended to
existing Directors as an opportunity to build relationships with
the new Non-Executive Directors and to refresh their knowledge
of the Company. In addition, the Non-Executive Directors met
on a number of occasions, without the Executive team present,
to promote effective working relations and to maximise the
effectiveness of the Board.
Q&A WITH LYNNE PEACOCK
How have your found your first six months as a Director at Royal Mail?
The Company is operating in a rapidly changing market. The COVID-19 crisis
has seen the acceleration of the decline in letters and the growth in parcels; this
change reinforces the strategy announced in 2019. There is huge scope for the
various parts of the business to work together to satisfy these changing needs
and build a business that is efficient, diversified and growing. The composition
of the Board has changed significantly over the last 12 months with a number
of new appointments. The range of skills is broad and complementary, and this
is evident in the quality of debates.
What do you believe are Royal Mail’s greatest strengths?
The Group combines a business which delivers to nearly 31 million addresses
in the UK and a parcels business with significant geographical reach.
Harnessing these strengths to satisfy changing customer needs is a huge
opportunity. Within the UK, the business is more than a delivery service;
our employees are valued and trusted by the communities which they serve.
Having recently attended the overall induction programme, what were
your impressions of the programme?
The induction process was excellent. It was helped by the fact that some other
Directors were also going through induction at the same time, so the sessions
were collective meetings. The induction consisted of a wide range of briefings and
site visits. Sadly, the COVID-19 crisis meant that our visit to GLS in Germany had
to be postponed, but I am looking forward to completing this as soon as practical.
What were your key highlights from the induction sessions?
The Group has some fantastic people, many of whom are very long serving with
tremendous corporate knowledge. The opportunities presented by delivering
on our announced strategy were also apparent.
Site visits
In addition to formal induction days, a number of site visits were
held for the Non-Executive Directors to deepen their knowledge
and understanding of the Company at an operational level and
provide opportunities to meet with employees.
Examples of the business areas covered during the induction
days and a timeline of the full induction programme can be
found below.
Topics covered during induction sessions
– Corporate Finance
– Health & Safety
– Operations
– Risk
– Communication and Marketing
– Regulation
– Internal Audit
– Technology & Cyber Security
– Letters and Parcels
– Parcelforce Worldwide
– Investor Relations
– Remuneration
– Property
– Pensions
INDUCTION PROGRAMME
Two formal induction days
held at the head office
Visits to local
distribution offices
Corporate governance
training session provided
by external law firm
Site visit and Board meeting
to GLS hub in Budapest
Non-executive director visit
to Heathrow Worldwide
Distribution Centre
Visits to the
Postal Museum
You recently visited a Royal Mail Delivery Office. How has that visit helped
your understanding of the business?
The Delivery Office visit was first class. Although just for a day, it was great to go
out on one of the delivery rounds with a postal worker. It was clear that he knew
his local community extremely well and was valued by them. The decline in letter
volumes and the growth in parcels was also apparent from the visit.
Have you attended any additional induction sessions in your role as Chair
of the Remuneration Committee? How have these helped you to fulfil your
role as Chair of the Committee?
In addition to meeting the senior management team, I have met with the key
HR people and the Reward team, plus our external remuneration advisers and
our brokers. This has given me different perspectives on our reward philosophy
and its implementation.
How important do you believe it is to engage with our investors and wider
stakeholder groups?
It is vital that the interests of the company and its key stakeholders are aligned.
Engaging, consulting and acting on the needs of different stakeholders is critical
for the development of a culture and strategy that achieves long-term sustainable
success. As a Board, we are keen to engage with all of our stakeholders to ensure
their interests are heard and considered as part of our strategic decision making.
Since joining the Board, I have been impressed with the progress that has been
made on improving our engagement with stakeholders and the comprehensive
engagement programme that is in place. The Board will continue to develop
the engagement programme to ensure continued compliance with its duties
under Section 172 to promote the success of the company for the benefit of its
members as a whole. Engagement with our stakeholders takes place in multiple
forms as can be seen in the table on pages 104-111. Following my appointment
as Chair of the Remuneration Committee, I have personally written to our major
investors to update them on our remuneration developments and have provided
updates on feedback received from our major investors during Board meetings.
I look forward to engaging further with our stakeholders over the coming years.
ANNUAL EVALUATION OF BOARD
PERFORMANCE AND EFFECTIVENESS
103
Progress against the 2018-19 internal Board evaluation
In 2018-19, the performance and effectiveness of the Board
was reviewed through an internally facilitated evaluation
process. Agreed actions included a strengthening of the Board
composition to include Directors with experience in people
related change and engagement, industrial relations and
relevant industry experience. In addition, Directors recognised
the need to spend more time on training (in particular on
Company related issues such as regulation and the wider
competitive environment), and to receive clearer, shorter
discussion papers.
The Nomination Committee has conducted a thorough and
robust recruitment process to strengthen the composition of
the Board. Four Non-Executive Directors have been appointed
throughout the year. The Board has also spent additional time,
during meetings and induction sessions, focusing on Company
related issues such as regulation, the market and health and
safety. The Board noted the considerable amount of change that
it would undergo throughout the year. It was agreed that the
Director recruitment process be completed before an external
Board evaluation facilitator was engaged to review the Board
performance in 2019-20.
2019-2020
EXTERNAL BOARD EVALUATION
SELECTION OF EXTERNAL
EVALUATION PROVIDER
AGREE REMIT
AND SCOPE
INFORMATION GATHERING
AND MEETING OBSERVATION
FEEDBACK AND
REPORT FINDINGS
Initial meetings between the
Chair, the Company Secretary
and IBE were used to agree
the remit, scope, timing, and
practicalities of the evaluation.
This included agreement of
a proposed agenda and the
appropriate mechanisms
to ensure a suitably
comprehensive assessment
could be carried out.
In accordance with best
practice, an external
effectiveness review is
carried out with external
facilitation once every three
years. The selection process
was led by the Chair and
Company Secretary, who, with
their knowledge of different
providers, confirmed the
appointment of Independent
Board Evaluation (IBE) in
2019. IBE is an independent
consultancy and has no other
relationship with Royal Mail
or individual Directors.
Between November 2019 and
February 2020, the Evaluation
team conducted its research,
reviewed key documents and
attended Board and Committee
meetings. Support materials
for briefing purposes were
provided by the Company.
In January and February
2020, detailed interviews were
conducted with every Board
member. All participants were
interviewed for 1.5 hours by
Ffion Hague according to a
set agenda, tailored for the
Board. In addition, the team
interviewed Senior Managers
within the business and key
advisers who have regular
contact with the Board or
its Committees.
Draft conclusions were
discussed with the Chair
and subsequently discussed
with the whole Board at its
meeting on 12 March 2020
with Ffion Hague present.
The conclusions of that
discussion are recorded in
the minutes of the meeting.
Following the Board meeting,
Ffion Hague gave feedback
to Committee chairs on
the performance of each
Committee and discussed
the report on the Chair’s
performance with the Senior
Independent Director.
In addition, the Chair received
a report with feedback on
individual Directors.
THIS EXTERNALLY FACILITATED SELF-EVALUATION
OF THE BOARD FOCUSED ON:
– Board composition, dynamics and relationships
with Senior Management;
– Strategic oversight;
– Succession planning; and
– Included a review of the Chair’s performance.
The Board agreed that the refresh of Board membership has
brought in some very relevant and useful skills and the Board
dynamics are improving. Board members also agreed that while
progress has been made, there is further to go in addressing
some issues such as clarifying the long-term strategy and
succession-planning for key roles. The Board has therefore
agreed a plan for the coming year that includes a stronger
focus on long-term strategy, Group governance structures
and succession planning for key roles, enshrined in a set of
Board objectives.
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 104 Corporate Governance
ENGAGING WITH
OUR STAKEHOLDERS
COMPANIES ACT 2006, SECTION 172
DUTY TO PROMOTE THE SUCCESS OF THE COMPANY
A director of a Company must act in the way he/she considers,
in good faith, would be most likely to promote the success of
the Company for the benefit of its members as a whole, and
in doing so have regard (amongst other matters) to:
The likely consequences of any decision
in the long term
The interests of the Company’s employees
The need to foster the Company’s business
relationships with suppliers, customers and others
The impact of the Company’s operations on the
community and the environment
The desirability of the Company maintaining a
reputation for high standards of business conduct
The need to act fairly as between members
of the Company
The Board considers these factors, as appropriate, when
making strategic decisions on behalf of the Group.
The discussion of our environment commitments on pages
81-83 in our Corporate Responsibility section, including in
particular our decision for GLS Germany to become carbon
neutral (page 82), and to launch initiatives to reduce our
fleet and building emissions (pages 82 and 83) are examples
as to how we have regard to our impact on the community
and environment.
The discussion of our transformation strategy on pages
19-25 provides examples of decisions taken in the long-term
interests of the Company, such as the decision to move ahead
with extending our trial of automated clocking in and out for
frontline colleagues at a small number of UK sites (page 20)
and the decision to start work on the first of our state of the
art parcel hubs in Warrington which would handle 40,000
items per hour once fully operational (page 20).
The stakeholder engagement analysis and the discussion
of decisions taken during the COVID-19 pandemic on pages
110-111 provides examples of how we build and maintain
business relationships with suppliers, customers and others
and take into account the interest of our colleagues.
TO CREATE FUTURE SUCCESS, WE NEED TO
ENGAGE WITH ALL STAKEHOLDERS WHO ARE
WILLING TO ENGAGE WITH US POSITIVELY.
Keith Williams
Interim Executive Chair
The role of the Board is to promote the long-term sustainable
success of the Company, generating value for shareholders
and contributing to wider society. The Board recognises that
the Company has multiple stakeholders and its obligations to
have regard to the interests of stakeholders and certain other
factors in complying with the broader section 172 duty of the
Companies Act 2006. Our Board decisions can have a significant
impact on each stakeholder group. The long-term success
of our business is dependent on the way we engage with our
stakeholders. We have worked hard, as a Board, throughout the
year to improve our stakeholder engagement. By understanding
our stakeholders, we can factor their views into Boardroom
discussions and assess the potential impact of our decisions
on each stakeholder group, in accordance with Section 172.
Royal Mail communicates proactively with its stakeholders
through a range of channels. We regularly engage with them to
obtain their views and understand their needs and expectations.
Our purpose of connecting customers, companies and countries
demonstrates the importance we place on stakeholder
relationships and our impact on wider society. We seek to obtain
stakeholders’ views about our role and responsibilities as a key
part of the UK’s economic and social infrastructure. We take
issues raised by them into account in our decision making.
During the year, the Board considered the revised Code and
discussed its duty under Section 172. The Board focused on
reviewing key stakeholder groups, discussing its current level
of engagement and how it can continue to ensure stakeholder
views are incorporated into the decision-making process.
In 2019, we appointed Simon Thompson as our designated
Non-Executive Director for engagement with the workforce.
Simon has helped to launch our Employee Voice Forum and has
improved our engagement with employees. See the Employee
Voice Forum section on pages 112-113 for more information
about our engagement with our workforce.
Of course, stakeholder engagement goes further than our
employees. We want to ensure the views of all stakeholders
are heard and considered in the Boardroom.
Engagement can take place in multiple forms. In some
instances, one or more members of the Board may be involved
directly in the engagement (such as with a shareholder,
employee or other investor networking forums). In each case,
it is important for all members of the Board to gain sufficient
understanding of the issues relating to every stakeholder
group. Board members are invited to provide updates during
Board meetings on any engagement they have had with our
stakeholders. Committee Chairs are given a standing agenda
item to update the Board on the views and recommendations
made by the Committee. We continue to develop our
stakeholder engagement programme to ensure the Board has
had regard to its duty under Section 172. This includes ensuring
the interests of key stakeholders, and the likely consequences
of any decisions in the long term, have been taken into account.
As explained in the Strategic Report on page 17, the Board
considers that it has complied with its duties under Section
172 of the Companies Act 2006. This section includes more
information about our engagement with our stakeholders
and a case study on the Board’s considerations towards its
stakeholders during the COVID-19 outbreak.
105
IDENTIFYING OUR STAKEHOLDERS
Suppliers
Shareholders
OUR
STAKEHOLDERS
Local Communities
Government
Regulator
Colleagues
Unions
Customers
SHAREHOLDERS
We have one of the broadest shareholder bases in the FTSE.
One in four Royal Mail Group shares are held by retail investors or colleagues (who own eight per cent of our shares).
Our shareholders expect long-term sustainable value on their investments. We have a comprehensive rolling programme of investor relations
events and encourage open, two-way communication.
Engaging with our shareholders helps us to understand and address their concerns when making decisions in their long-term interests.
HOW DO WE ENGAGE?
OUTCOMES
Following various meetings with investors, the Board agreed that the Corporate
Responsibility Committee should be created to allow greater Board focus on
Environment, Social and Governance (ESG) matters.
The Board considered it was in the best interest of the long-term success of the
Company not to recommend a final dividend for the year. You can read more about
the Board’s considerations to its stakeholders on this decision below.
Lynne Peacock, Chair of the Remuneration Committee, wrote to our largest
Institutional Investors to provide an update on the work of the Remuneration
Committee. This included a proposal to make changes to the remuneration policy
which will be subject to shareholder approval at the AGM in September 2020.
The proposed changes can be seen on page 139. The Committee has considered
feedback received in its discussions.
Engagement with our major investors allowed the Board to take their views into
consideration when reviewing our transformation plan.
The Chair and Senior Independent Director (SID) met
with numerous major shareholders to understand their
views on governance and performance against strategy.
Feedback from these meetings is provided to the Board.
All Directors attended the 2019 Annual General Meeting.
Shareholders were provided with the opportunity to ask
questions and to engage with the Board.
The Board receives monthly reports from the Director
of Investor Relations. These reports provide clarity on the
investor landscape and help to update Directors on our
investors’ views.
The Chair responded to major investors to update them
on the steps being taken to protect our employees
and the long-term success of the Company during the
COVID-19 outbreak.
Our corporate brokers provide updates to the Board
as required.
Our corporate website provides a dedicated investor section
which contains all London Stock Exchange regulatory
announcements and a copy of all of our Annual Reports.
A webcast of our results presentations is also available
to shareholders.
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 106 Corporate Governance – Engaging with our stakeholders continued
COLLEAGUES
Royal Mail employs around 160,000 people across our Group.
Our employees are our greatest asset. We are proud of the role our people play in society and they are crucial to the success of our transformation.
We engage with our colleagues to understand their needs and how our decisions will impact them. Our colleagues underpin our strategy and it is
important they are engaged on our journey.
HOW DO WE ENGAGE?
OUTCOMES
Board engagement
Simon Thompson, the designated Non-Executive Director
for engagement with the workforce, led an extensive
colleague engagement programme throughout the year,
details of which can be found below. Simon provides an
update on each Employee Voice Forum to the Corporate
Responsibility Committee. He has a standing Board agenda
item to update them on his engagement with our colleagues.
A report from Simon Thompson on engagement with the
workforce is included on pages 112-113.
The majority of the Directors attended two Employee Voice
Forums: one in Northampton and another in Exeter.
Our annual UK Employee Engagement Survey tracks overall
engagement, culture and areas for improvement.
Internal communications
We run one of the UK’s largest face-to-face engagement
programmes, from ‘Town Halls’ with senior Executives and
Ambassador visits, through to team briefings and regular
conference calls.
Internal communication channels include a monthly
magazine, a weekly TV programme, daily intranet
and extranet updates, WhatsApp and, since 2019 and
Facebook Workplace.
The Global Compliance and Sustainability Director submits
a Health and Safety Report to each Board meeting and a
Health & Wellbeing report to the CRC.
The Board reviews and approves the Gender Pay Gap report
and the Whistleblowing Report annually.
The Board is presented with the Annual Employee Survey results. These results
provide the Board with a rich source of employee feedback and help to shape the
agenda and discussion topics for the Employee Voice Forums. The results have also
given the Board a great insight into the Company’s culture. As a result of the survey
the Board has requested greater focus on culture to enhance its monitoring and
oversight. The Board recognises culture as a key component to the success of the
Company’s transformation.
Discussions on the transformation programme consider the impacts of any proposed
changes on our colleagues, the environment and the long-term success of the
Company. You can read more about our transformation on pages 19-25.
There were seven themes identified from the Employee Voice Forums highlighted
as needing swift attention:
– Policy – “Unfairness everywhere”
– Pride – “I am proud to wear the badge”
– Speed – “Why are we waiting, we should be going more quickly”
– Strategy – “What should I do? What does this change mean to me?”
– Tools – “We are not given the tools to be successful”
– Training – “Please make me the best I can be”
– Trust – “I only trust people like me”
Following the identification of these key themes, the Ambassador programme was
launched in 2020 as a way of educating our colleagues on our strategy and what the
changes meant for them. The Board recognises there is more to do in this area and
will be looking to make further improvement during 2020-21.
During the COVID-19 pandemic, our first priority was to protect our people. A number
of operational changes were introduced to safeguard the health and wellbeing of
colleagues during this unprecedented crisis. All updates were shared in a timely
manner with colleagues through our internal communications channels. See page18
for more information.
107
UNIONS
We value the input of the Communication Workers Union (CWU) and Unite/CMA, and the role they play in representing the interests
of our workforce.
We are committed to open and constructive engagement with them.
A productive and cooperative working relationship with our unions is a core part of our strategy.
HOW DO WE ENGAGE?
OUTCOMES
The Group CEO and CFO met with senior union leadership
during the year. This year, this has included meetings about
the significant financial challenges we face in the UK and
protecting our people during the COVID-19 pandemic.
Updates on these meetings are provided to the Board.
Engagement across our business
Elected union members in every operational unit, office and
plant work closely with managers on a daily basis to plan
resources, assess workload and share key initiatives with
colleagues. Joint working groups consult on aspects of change
and deployment, determined by our framework agreements.
Negotiations on national agreements, including pay, pensions,
terms and conditions, take place at a national level.
Honouring our Agreements
We are honouring our Agreements with CWU. This includes
making two pay awards and implementing the first hour of
the Shorter Working Week. This equates to an effective pay
increase of 10 per cent over a two-year period.
Working together
As part of our 2018 Agreement, the Royal Mail Pension
Plan (RMPP) closed in its previous form on 31 March 2018.
We are working with CWU and Government to underpin the
retirement plans of employees through a Collective Defined
Contribution (CDC) scheme. The Pension Schemes Bill,
which enables CDC, is currently passing through Parliament.
GLS Works Councils
GLS Works Councils are formed by employees in
specific locations in line with the applicable national law.
GLS Germany elected its first Works Council in November
2000. Since it was set up, the council has addressed areas
such as working schedules and working behaviours.
CUSTOMERS
The Board was disappointed that we saw six national CWU ballots (for Royal Mail and
Parcelforce Worldwide) for industrial action, and outcomes in favour of taking action.
The Board does not believe there are any grounds for the current dispute. We have
honoured our Agreements with CWU.
The Company entered into mediation with CWU and made it clear that under our
Dispute Resolution Procedure, set out in the Agenda for Growth, we were committed
to reaching an amicable resolution.
In 2019, the High Court and Court of Appeal ordered and upheld an injunction
against national industrial action. It ruled CWU’s ballot of Royal Mail employees was
unlawful. We did not take the decision to go to the High Court lightly. We sought to
reach resolution outside the courts. Trade union legislation is designed to safeguard
democratic integrity by ensuring union members can vote in the privacy of their own
homes, rather than in any public process.
Following the outcome of its second ballot, we welcomed CWU’s assertion in March
2020 that now is not the right time for Royal Mail employees to take industrial
action. We have been able to work with them on a number of measures to protect
our colleagues – including being one of the first UK delivery companies to introduce
contact free delivery.
We believe it is very important to work with our unions to bring about the wholesale
change needed to deliver our UK strategy. We continue to engage, on a regular
basis and at a senior level, with CWU and Unite/CMA on our plans for change.
Our engagement with CWU follows our recent Joint Statement with the union
whereby both parties committed to work on setting up a joint framework for talks
to seek to resolve our dispute.
Following a review of the Board’s skills and experience it was felt that the Board
could benefit from additional Industrial Relations experience. This was considered
as part of the recruitment process and Maria da Cunha was appointed to the Board
in May 2019. Maria brings extensive experience in Industrial Relations which has
been a valuable asset to Board discussions.
As the UK’s Universal Service Provider, Royal Mail delivers to nearly 31 million addresses across the country. GLS has over 240,000 customers
across 40 countries. All customers – whether consumers, marketplace sellers and SMEs or the biggest companies and e-retailers – expect high
quality, access to up-to-date delivery information, and value for money.
Engaging with our customers helps us to understand their changing needs and preferences and allows us to make decisions to improve our
service offering.
HOW DO WE ENGAGE?
OUTCOMES
Our Retail target for First Class Quality of Service is a
2019-20 KPI. Regular updates are provided to the Board
on our Quality of Service metrics.
Each quarter, we review our performance against a large
number of measures, reflecting our performance, and that
of our competitors.
Mean customer satisfaction – a key advocacy measure –
was 79 points. Our Net Promoter Score was +43. This is
market leading in our sector.
Feedback
Every year we survey thousands of customers,
including consumers. We also conduct touchpoint
surveys to understand customers’ experiences with
a range of products, including Tracked and Special
Delivery Guaranteed.
A number of operational changes were introduced to protect our customers
and the service provided to them during the COVID-19 outbreak. See page 18
for more information.
Board discussions around potential strike action have included consideration
on the impact this would have on our customers.
The Board has discussed and regularly reviews its Universal Service Obligations
and the impact on customers. This was a particularly important consideration for
the Board when the decision to temporarily relax the Universal Service Obligation
on Saturday letter deliveries for a six-week period was made.
Discussions on the transformation programme consider the impacts of proposed
changes on our customers and how this will improve the customer experience.
You can read more about our transformation on pages 19-25.
There have been a number of improvements made to the service and products we
offer our customers as a result of customer feedback. You can read more about these
changes on page 21. These improvements are as a result of the need to foster good
customer relations.
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 108 Corporate Governance – Engaging with our stakeholders continued
REGULATOR
Ofcom has a comprehensive monitoring regime for us as the UK’s Universal Service Provider.
We provide detailed information on our Quality of Service, complaints, financial and volumetric performance and efficiency metrics, as required
by regulatory reporting obligations.
We seek to actively participate with regulatory bodies to develop regulations that meet the needs of all stakeholders.
HOW DO WE ENGAGE?
OUTCOMES
The Chair and CEO provide updates to the Board on
engagement with Ofcom.
The Group CEO, CFO and Managing Director of Corporate
Affairs, Regulation and Marketing lead engagement with
Ofcom’s senior representatives on a wide range of issues.
We have a dedicated regulatory team who work with Ofcom
at all levels. It leads on responding to Ofcom’s consultations
and regularly engages with the regulator through face-to-
face meetings.
The designated regulatory team are invited to attend Board
meetings to provide updates on engagement or changes in
the regulatory environment.
The end of 2019-20 saw a significant increase in
engagement with the Regulator as a result of the COVID-19
outbreak, which challenged our ability to provide regulated
services across the UK against a backdrop of high levels of
sick absence.
We have an open dialogue with Ofcom and share, as
appropriate, information it needs. We continue to press our
case for a supportive regulatory environment that will help
to keep the Universal Service market-funded.
In November 2019, the Competition Appeal Tribunal (CAT) upheld Ofcom’s decision
to fine Royal Mail £50 million for abusing a dominant position by announcing price
changes. The Board announced that it would seek permission to appeal to the Court
of Appeal. The Board welcomed the Court of Appeal’s decision in March 2020 to
review the CAT’s judgment in this case.
Ofcom is conducting a User Needs Review around the USO. We believe that many of
the key USO features are valued by consumers and SMEs. They include uniformity,
universality, affordability and measurability. But, they all have to be paid for at a
time when COVID-19 has exacerbated the underlying problems facing the USO.
For example, since the beginning of this financial year (2020-21) letter volumes have
declined about 33%, around four times the decline rate we saw in 2019-20.
For its part, Royal Mail has a stretching self-help programme in place. This involves
significant investment in the Universal Service when our finances are under
challenge; we will be materially loss-making in the UK this year. In addition, we plan
to address the very specific challenges presented by COVID-19. We do not believe,
however, that successful delivery of our transformation and COVID-19 mitigation
plans will be enough in themselves to underpin the long-term stability of the USO.
That is why, alongside engaging with our unions on our own plans to put Royal Mail in
a better position, we are working with the Regulator and Government on the Universal
Service. This is all about ensuring it is financially underpinned, in a sustainable way,
and future-proofed to reflect changing consumer and SME needs and preferences.
Ofcom will embark on a public consultation on the USO, and Royal Mail will engage,
at the same time, with many stakeholders on a USO for the 21st century. From its own,
detailed research, the Company anticipates that many of the current features of the
USO should remain in place, subject to regulatory and Government approval. We look
forward to the debate and engagement to come, including ensuring the Universal
Service has the requisite financial resources to sustain itself.
GOVERNMENT
We remain strictly neutral on political matters but engage with political stakeholders to remain informed on all economical developments which
could impact our stakeholders.
Royal Mail is uniquely positioned as the provider of the Universal Service. It is important we engage with the Government to ensure this service
continues to be provided to our customers.
HOW DO WE ENGAGE?
OUTCOMES
The Board agenda has been strongly focused on governmental issues this year.
Discussions included consideration to issues such as the implications and
preparations for a ‘no deal’ Brexit, operational plans to ensure Royal Mail had
the capacity to deliver a successful General Election for our customers, and our
campaign for Collective Defined Contribution pension legislation.
We are working with the Government to ensure the effective movement of cross-
border parcels. We are also developing a new model for the collection of taxes and
duties with Government.
Prior to the outcome of the December General Election, the Board received updates
on Labour’s proposals to renationalise the Company and the possible impacts of
renationalisation on stakeholders. Consideration was given to all stakeholders during
the planning phase of a possible renationalisation.
Following continued engagement with the Government throughout the COVID-19
pandemic, we supported the Government with the delivery and return of coronavirus
tests for NHS and social care frontline staff. The initiative enabled NHS staff to
receive and complete a coronavirus test at home. Many customers relied on Royal
Mail to bring them medication and pharmaceutical supplies, hospital appointments
and other crucial communications. We also supported the UK Government’s public
information campaign on coronavirus, designed to provide information and guidance
to UK households.
In 2019-20, Executives met with key politicians, including
the Postal Affairs and Pensions Ministers, the Cabinet Office
and the Chancellor of the Duchy of Lancaster.
The Board receives regular updates and briefings on
matters of political relevance to the business.
The Public Affairs team was invited to attend Board meetings,
as appropriate, to provide updates and advise on the
political environment. Updates on engagement with political
stakeholders were provided to the Board as appropriate.
The Public Affairs team meets a range of political and
Government stakeholders. This includes politicians in
Westminster as well as ministers and officials from HMT,
HMRC, BEIS, DIT, DfT, DfE, DWP and the Home Office. This
is replicated in the devolved administrations in Scotland,
Wales, Northern Ireland and the EU institutions in Brussels.
The team runs one of the UK’s largest political stakeholder
programmes, with c. 200 meetings throughout 2019-20.
This included the ‘walking in a postie’s shoes’ programme,
where individuals accompany a postman or woman on their
round, and the Christmas visits programme.
We have engaged with UK Government and the devolved
administrations on the impact of COVID-19 on the business.
Consultations
We monitor and respond to Government consultations
affecting our business, including those focusing on
environmental, employment and pensions issues.
We respond to relevant Parliamentary Select
Committee inquiries.
LOCAL COMMUNITIES
We are creating long-term benefits for the communities we serve, through our social and economic impact, and our community investments.
Stakeholders rank community impact as a key issue for our business. They expect us to operate responsibly and maintain our presence in
local communities.
HOW DO WE ENGAGE?
OUTCOMES
109
The Directors’ induction programme includes visits to local
Operational sites to better understand the contribution we
make to our communities.
The Chair of the CRC provides an update to the Board
following each meeting.
Members of the designated Corporate Responsibility team
are standing attendees of the CRC and are invited to provide
updates on our work in the community.
The Board reviews and approves the annual Corporate
Responsibility Report.
We work with the Centre for Economics and Business
Research (Cebr) to assess our contribution to the UK
economy. This helps the Board to understand the value
we add to UK society above and beyond delivering the mail.
Key programmes
We encourage involvement in local communities through
the provision of matched giving, grants and volunteering
opportunities, enabling colleagues to support local and
national charities.
Our employees are the eyes and ears of local communities,
which is reflected in our involvement with the charity
Missing People.
Following engagement with investors on the importance of ESG, the Board created
a Corporate Responsibility Committee (CRC) in September 2019 to focus on the
Company’s Corporate Responsibility programme. The CRC’s remit includes oversight of:
– Environment, Social and Governance (ESG) matters
– Health & Safety
– Culture
– Whistleblowing
We have seen new and ambitious targets from governments, investors, key
customers and competitors on our personal and collective responsibility to the
environment and, in turn, society. As a result, we have been working to develop a new
environment strategy, with three distinct pillars, addressing the areas where we have
most material environmental impacts: delivering net-zero CO2e emissions, cleaner
air and resource efficiency.
Our customers tell us that sustainability has become an increasingly important issue
for them. Organisations are beginning to replace plastic magazine wrappings with
biodegradable starch ones. We are working with a number of customers and mail
producers to test biodegradable wraps.
In Germany, GLS has launched KlimaProtect. This small, additional charge for all
parcel senders is primarily invested in CO2e offsetting and other sustainability projects.
This year, we completed our materiality assessment; we do this every two years.
We sought stakeholders’ views through one-to-one interviews, surveys and an
external stakeholder panel. The assessment identified the following issues as being
of most importance to both Royal Mail and our stakeholders:
– Climate change
– Engagement and culture
– Labour standards and human rights
– Customer service
– Health, safety and wellbeing
– Diversity
– Community impacts
We use this feedback to tailor our activity and reporting. For example, in
response to feedback, we have provided more information about how we manage
environmental issues.
SUPPLIERS
Through our extensive supply chain, we have an opportunity to raise standards of social, environmental and ethical conduct.
We work with a broad range of suppliers who must state or demonstrate compliance with our Responsible Procurement Code (Our Code).
We proactively engage with our suppliers to promote awareness of our policies and monitor compliance with Our Code. It sets out the high
standards of ethical, social and environmental conduct we expect.
HOW DO WE ENGAGE?
OUTCOMES
In response to Shareholder feedback, the Board created a Corporate Responsibility
Committee in September 2019 to focus on the Company’s Corporate Responsibility
programme. The CRC’s remit includes oversight of our relationship with suppliers
and our payment practices. The Corporate Responsibility Report includes an update
on supply chain activities.
We believe the immediate risk of Brexit to our domestic operations is low. However,
we continue to work with key suppliers to ensure our supply chain remains secure.
Group procurement operates in accordance with Group
Delegated Authorities with relevant contract award
approvals being submitted to the CFO, CEO and/or relevant
Board members.
The Chairs of the Audit and Risk Committee and Corporate
Responsibility Committee provide updates on engagement
with our suppliers at each Board meeting.
A report is provided to the Audit and Risk Committee on
Payment Practices regulation for relevant businesses.
The Board reviews and approves the annual Modern Slavery
Statement. Our latest Modern Slavery Statement is available
at www.royalmailgroup.com/responsibility.
New contracts considered critical in terms of risk profile
(including business dependency, financial status, reputation,
compliance and safety) may be referred for Board approval
prior to award.
Members of the procurement team are invited to attend
Corporate Responsibility Committee meetings to provide
updates on supplier management and relationships.
Our supplier management portal tracks whether suppliers
are meeting their ethical, social and environmental
obligations, contractual requirements and KPIs.
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 110 Corporate Governance
THE BOARD’S CONSIDERATIONS TO OUR
STAKEHOLDERS DURING THE COVID-19 OUTBREAK
The Board held multiple ad hoc meetings to discuss and consider the impact of the outbreak of COVID-19 on our stakeholders.
The Board received expert updates on Government guidance, received medical advice and engaged with its stakeholders
throughout the pandemic.
The postal service is a key part of the UK’s infrastructure and the delivery of parcels and letters is an important way of keeping
the country connected and businesses operating, and helping many people who may not have the option to leave their homes.
It was important to ensure the Company could continue to deliver this service to the country, whilst ensuring the safety and
wellbeing of our employees and customers and the long-term success of the Company. You can read more about the Board’s
considerations towards its stakeholders below.
STAKEHOLDER IMPACT
OUTCOMES
CONSIDERATION: THE OUTBREAK OF COVID-19 COULD CAUSE SIGNIFICANT ECONOMIC UNCERTAINTY
Shareholders – The Board recognises the importance of dividend payments to our
investors. The outbreak of COVID-19 caused significant economic uncertainty and
the Board felt it was necessary to preserve cash during this time to safeguard the
financial stability and long-term success of the Company.
Colleagues – The economic uncertainty could cause our colleagues to worry
about their own personal financial situation. The Board wanted to ensure that our
colleagues did not put themselves or others at risk by coming into work if they
displayed symptoms of COVID-19 and provide reassurance that newer members
of staff would not be financially disadvantaged by following government guidance
and staying at home.
Suppliers – we continued to engage with our suppliers to understand the effect
of the pandemic on their financial stability and ability to continue in operations.
The Board had regard to the following matters in reaching its decisions:
– S172 (1)(a) The likely consequences of any decision in the long term
– S172 (1)(f) The need to act fairly as between members of the Company
CONSIDERATION: OUR EMPLOYEES AND CUSTOMERS COULD BE AT RISK OF INFECTION
Colleagues – The Board recognised the growing risk of the virus and the effect
this could have on our colleagues’ physical and mental wellbeing.
Customers – It was important to the Board to also protect our customers from
the risk of infection.
Suppliers – We have worked in partnership with a range of suppliers across the
world to source protective equipment for our people. This has included companies
that have switched their production lines to manufacture hand sanitiser, from a gin
distillery in Germany to fragrance companies in the UK.
Unions – We engaged with the Unions when agreeing the measures that should
be taken to protect our employees and customers from the risk of infection.
The Board agreed that a final dividend should not
be recommended.
Executive Director Bonus payments would not be paid
for the year 2019-20.
Temporary enhanced sick pay terms were introduced
for any colleague who experienced or showed symptoms
of COVID-19, with less than one year’s service.
We have engaged with our suppliers throughout the
pandemic who may be experiencing financial difficulties.
This engagement has allowed us to understand the
individual needs of our suppliers and has included
discussions regarding the availability of the RBS supplier
financing scheme and individual cases where we have
offered flexibility on our payment terms. Enrolment in the
supplier finance platform delivers a working capital solution,
whereby suppliers to an accredited buyer can receive
immediate settlement of their receivable at a discounted
rate, following buyer approval of their invoice. We aim to
support our suppliers where possible and maintain our
working relationships with them.
A number of operational changes were made to the way
we deliver to our customers. For example, we put in place
a number of important social distancing measures (e.g.
one person per van, etc.). We were one of the first delivery
companies in the UK to introduce “contact free” delivery.
You can read more about this on page 18.
Internal communications were regularly issued to
employees to update them on the operational changes and
colleagues’ measures to protect themselves and those
around them. In addition, updates were shared on the latest
government advice and hints and tips on ways to protect
physical and mental wellbeing during the pandemic.
Temporary enhanced sick pay terms were introduced for
any colleague who experienced or showed symptoms of
COVID-19, with less than one year’s service.
Personal Protective Equipment (PPE) was sourced
and delivered to all operational sites. The Board has
already committed to investing £40 million in PPE for our
frontline colleagues.
The Board had regard to the following matters in reaching its decisions:
– S172(1)(b) The interest of the Company’s employees
– S172(1)(c) The need to foster the Company’s business relationships with suppliers, customers and others
– S172(1)(d) The impact of the Company’s operations on the community and the environment
– S172(1)(e) The desirability of the Company maintaining a reputation for high standards of business conduct
111
STAKEHOLDER IMPACT
OUTCOMES
CONSIDERATION: OUR WORKFORCE COULD BECOME OVERWHELMED DUE TO INCREASED POSTAL DEMAND AND INCREASED LEVELS OF ABSENTEEISM
Implemented a six-week temporary relaxation of delivery
frequency arrangements in relation to letters to ease the
pressure on our people.
Frontline colleagues who, since March, have been at work
throughout the crisis will receive a cash recognition award
of up to £200 in June.
Colleagues – Our frontline staff have played a key role in society during the
COVID-19 pandemic, fulfilling a vital role with respect to the collection and
delivery of parcels, home testing kits and Government information. The Board
was conscious of the increased workloads on our people and the long-term
detrimental effect this could have on our colleagues and their wellbeing. We sought
feedback from colleagues on workloads and the Board recognised the significant
contribution our people have made during this period.
Customers – As a result of the COVID-19 pandemic, we initially indicated that there
could be some service disruption across the country. We saw a substantial switch
from letters to parcels in the UK during the COVID-19 outbreak. UK parcels volume
was up 31 per cent and parcels revenue up 20 per cent. There were 308 million
fewer addressed letters (down 33 per cent). Letter revenue was down 23 per cent,
offset, in part, by 36 million more parcels. Subsequently, and in line with colleague
feedback, the Board considered a temporary relaxation of delivery frequency
arrangements in relation to letters. For a six-week period, letters were delivered
five days a week; we continued to deliver most parcels on a six days a week basis.
Normal services resumed on 13 June 2020. The Board considered that this decision
would not materially impact customers and would ease the pressure on our people
during this unprecedented time.
Regulator – We engaged with the Regulator on a regular basis.
The Board had regard to the following matters in reaching its decisions:
– S172(1)(b) The interest of the Company’s employees
– S172(1)(c) The need to foster the Company’s business relationships with suppliers, customers and others
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 112 Corporate Governance
EMPLOYEE
ENGAGEMENT
Simon Thompson
Designated
Non-Executive Director
for engagement
with the workforce
Introduction
I was delighted to be appointed as the Company’s designated
Non-Executive Director for engagement with the workforce
in February 2019.
This role is crucial to making sure the Board is better informed
of our business reality, since the vast majority of our decisions
could impact our colleagues around the world.
It is clear to me that our frontline teams have a unique
understanding of both the ever changing needs of the consumer
and the competitive nature of the market in which we compete.
We are determined to make sure this insight is actively sought
and central to our decision making.
I would like to take this opportunity to thank our Company
Secretariat team, the Human Resources team and our
management teams at all levels around the world, who have
willingly granted me an “access all areas” pass.
We have continued to use existing research tools, and
have added a number of formal gatherings and a series of
informal, unstructured site visits, which are proving to be the
most productive.
As a final point, one of our key learnings is that we need to
improve how we explain to our colleagues what our business
change means to them on an individual basis, both for the
short and the long term. My strong sense is they want to help,
and when armed with the correct information, they will
happily do so.
EMPLOYEE VOICE FORUM
“I only trust people like me”
“Unfairness everywhere”
In February 2019, we launched
our new Employee Voice Forum
at our National Distribution Centre
in Northampton. It was attended
by the whole Board. The Forums,
chaired by Simon Thompson, aim
to provide the global workforce with
a voice on key matters. They enable
the Board to hear first-hand from
employees across the Group and
to consider their views when
deliberating Board matters.
We communicate learnings
from the Forums in our monthly
newspaper, Courier, on Royal Mail
TV and through our new employee
social media channels.
There were seven themes that
were highlighted as needing swift
attention. We are working with
the management teams to ensure
timely resolution.
“Please make me
the best I can be”
“We are not given
the tools to be
successful”
G
IN
N
I
A
R
T
T
O
O
L
S
S T
U
R
T
POLIC
Y
P
R
I
D
E
SPEED
EMPLOYEE
VOICE FORUM
FINDINGS
STRATEG Y
“I am proud to
wear the badge”
“Why are we waiting,
we should be going
more quickly”
“What should I do?
What does this change mean to me?”
113
Purpose of the designated Non-Executive Director
for engagement with the workforce
As the Employee Board Representative, it is my role to make
sure that when making decisions we can answer the question:
“what would our colleagues think of that?”
In 2019, as an additional new activity, we launched the Employee
Voice Forum as an opportunity to meet and listen to the views
of our colleagues across multiple operational sites.
During our AGM in Exeter last year, we gathered a number
of our colleagues who enjoyed the opportunity to freely ask
questions directly to the Group CEO, CFO and a number
of Board members. Following the event, we published a
highlights video to all of our colleagues summarising the key
topics discussed.
Alongside our National Operations Director, I spent a number
of days travelling around the UK informally meeting colleagues
in groups of twenty. We learnt that having no formal agenda
and simply asking the question “what would you like to discuss
today?” started a mutually beneficial, two way conversation.
During the past year our colleagues have voted for industrial
action on two occasions; this has meant that the majority of
our time has been spent focusing on Royal Mail in the UK.
Outside of the UK, my Board colleagues and I visited our GLS
operation in Hungary to learn about how the business has
successfully grown. We seized the opportunity to walk the
operations and enjoyed informal discussions with the leadership
to learn more about life at GLS.
I am conscious that we do need to learn more about life at
GLS, and due to its extensive geographical coverage, we will be
investigating digital tools to enable us to do this effectively over
the coming year.
Following these meetings, I produce a written report and
provide an update to the Corporate Responsibility Committee.
I also have a standing agenda item at the main Board meeting
to update on any key themes.
As a Board, we also review and discuss the annual Employee
Survey results and the output of the People Panels which both
provide an additional useful source of feedback.
It is worth noting that all of my Board colleagues spend time
visiting the operations, so we are not reliant on my voice alone.
As a Board, we will continue to develop our employee
engagement programmes and I very much look forward to
meeting many more of our colleagues over the coming years.
I accept that not every conversation I have had has been
100 per cent happy, but I am delighted to report that they have
always been 100 per cent valuable.
Simon Thompson
Designated Non-Executive Director
for engagement with the workforce
PEOPLE PANELS
EMPLOYEE ENGAGEMENT SESSIONS
Our “People Panel” sessions
were set up as part of our Group
Engagement Action Plan.
The People Panel consists of
colleagues representing a broad
cross-section of roles and grades
within Royal Mail. The Panels are
run by the Employee Experience
team and help to shape new
initiatives designed to make
Royal Mail a better place to work.
Our most recent People Panel was
held in January 2020 at our Greenford
Mail Centre. Over 40 colleagues from
across the business joined us.
Employee Voice Forums
– National Distribution Centre
Board Meetings
– Hungary
in Northampton
– Exeter
Site Visits
– Southwark Delivery Office
– Kennington/Walworth Delivery Office
– Croydon Delivery Office
– London Central Delivery Office
– Leicester Delivery Office
– Nottingham Delivery Office
– Salford Delivery Office
– Manchester East Delivery Office
– Manchester Plant
– Edinburgh Hub
– Edinburgh West Delivery Office
– Edinburgh South Delivery Office
– GLS Hub, Hungary
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 114 Corporate Governance
NOMINATION
COMMITTEE
Keith Williams
Nomination
Committee Chair
Committee members
Keith Williams
Baroness Sarah Hogg
Rita Griffin
Simon Thompson
Michael Findlay
Maria da Cunha
Lynne Peacock
In line with our conflicts of Interest policy, directors are asked
to absent themselves from any discussions regarding their
own reappointment or succession.
Introduction
I am pleased to update you on the Committee’s activity for
the year ended 29 March 2020. I was appointed Chair of the
Committee in May 2019. I would like to pass my thanks to the
previous Chair, Les Owen, for the considerable work undertaken
throughout his tenure to refresh the Board. I have previously
commented on the substantial, but necessary, refresh of the
Board that has taken place this year within my Chair’s report
and would like to thank my fellow Committee members for
their welcome support and guidance during this process, which
included a number of additional ad hoc meetings. It is important
that we have a wide range of skills and experience on the Board
to allow the Company to prosper and grow over the long term
and in the best interest of our stakeholders. You will find an
overview of the recruitment process for our new Non-Executive
Directors later in the Report.
Composition of the Committee
The Committee is chaired by the Chair of the Board.
Its composition meets the recommendations of the Code,
with the majority of members being independent.
Committee objectives for 2019-20
– Appointment of additional Non-Executive Directors to
the Board, ensuring a thorough and tailored induction
programme for each new director.
– Ensure a clearer and more robust succession planning
process for the Board and Executive Management.
– In planning future Non-Executive appointments, ensure there
is a balance of skills and diversity in the broadest sense on
the Board.
I am pleased with the progress that has been made against
the Committee’s objectives this year. Michael Findlay and
Maria da Cunha were appointed as Non-Executive Directors
on 22 May 2019. Baroness Sarah Hogg was appointed as
Senior Non-Executive Director with effect from 1 October 2019
and Lynne Peacock was appointed as Non-Executive Director
with effect from 1 November 2019. In addition, there were a
number of Committee membership changes, details of which
can be found below. You can find out more about the induction
programme for our new Non-Executive Directors on page 102.
I would like to thank Simon Thompson for taking on the role
of Senior Independent Director and Chair of the Remuneration
Committee on an interim basis, when Orna Ni-Chionna stood
down at the AGM in July 2019, pending the arrival of Sarah
Hogg and Lynne Peacock, respectively. The Committee also
recommended the creation of a Corporate Responsibility
Committee in response to shareholder feedback. The initial
members of the Committee are Rita Griffin (Chair), Maria da
Cunha and Simon Thompson.
We announced in May 2020 that Rico Back stood down as Group
Chief Executive Officer (CEO) and from the Board. Rico has
made a significant contribution to the evolution of our business
over his 20 years with us and I wish him well for the future.
The Committee will play a key role in our search for a new CEO
of Royal Mail (UKPIL) during 2020.
Other areas of focus for the Committee this year included
a review of the organisational structure, Board and Senior
Management succession planning, global talent programme
and diversity. The composition of the Group’s subsidiary Boards
were reviewed and refreshed taking into account development
needs, gender and BAME diversity.
The Committee reviewed and updated its Terms of Reference
taking into consideration the 2018 Code. The Committee’s
updated Terms of Reference are available on our website:
→ www.royalmailgroup.com/en/about-us/management-and-
Committees/nomination-Committee/.
Board diversity
The Board has reviewed its Diversity Policy and confirms that
it remains fit for purpose and in line with policy guidance.
The policy includes measurable objectives and a commitment
to aspire to achieve the diversity targets of the Parker and
Hampton-Alexander reviews. The policy also includes a
commitment to only engage with search firms who are
signatories of the Voluntary Code of Conduct for Executive
Search Firms. The Policy is reviewed annually by the Nomination
Committee and progress against the objectives is reported on
later in my report.
NON-EXECUTIVE DIRECTOR
RECRUITMENT PROCESS
Executive Search Firm – We have engaged Ridgeway Partners
Limited to lead the process of finding suitable candidates to join
our Board. Ridgeway Partners are a signatory to the Voluntary
Code of Conduct for Executive Search Firms, which promotes
gender diversity and best practice for corporate Board recruitment
searches. Ridgeway Partners have no other connection to the
Company or any of its directors.
Long list – We ensure that the long list of candidates will include
at least 50% female candidates and is compared against the
Committee’s latest review of the composition, diversity and skill set
of the Board.
Short list – The Committee reviews and considers the long list and
produces a short list of candidates it deems to be suitable candidates
to progress to interview.
Interviews – Candidates are invited to attend a number of interviews
with variations of the Chair, Directors, Company Secretary and
Chief HR Officer.
Candidate selection – The results of the interviews are formulated
and the Nomination Committee will agree on its preferred candidate,
subject to satisfactory referencing.
References – Background checks and references are taken for all
preferred candidates.
Conflicts – The Company Secretary, with Ridgeway Partners,
considers if preferred candidates have any conflicts of interest.
Appointment – Upon receipt of satisfactory references, the
Nomination Committee will recommend its preferred candidate
to the Board for approval.
Announcement – Once Board approval has been received and the
candidate has accepted the position, we will make an announcement
to the market of the new Board appointment.
Induction – All new Directors undergo a thorough and tailored
induction programme, details of which can be found on page 102.
AGM – Directors appointed throughout the year are subject to
shareholder approval at the AGM subsequent to their appointment.
Indeed, all Directors who wish to continue in their roles seek
re-appointment at each Annual General Meeting.
Committee changes
There were a number of Committee membership changes
during the year, following the refresh of the Board composition.
Audit and Risk Committee
– Sarah Hogg and Lynne Peacock were appointed with effect
from 1 October 2019 and 1 November 2019 respectively.
– Rita Griffin and Simon Thompson stood down
on 1 October 2019.
115
Nomination Committee
– When Les Owen stepped down in May 2019, I assumed the
role of the Chair of the Committee upon my appointment
as Chair of the Board.
– Maria da Cunha and Michael Findlay were appointed with
effect from 25 September 2019.
– Sarah Hogg and Lynne Peacock were appointed with effect
from 1 October 2019 and 1 November 2019 respectively.
Remuneration Committee
– Simon Thompson took over from Orna Ni-Chionna as the
interim Chair when Orna stood down in July 2019.
– Keith Williams, Maria da Cunha and Michael Findlay were
appointed with effect from 25 September 2019.
– Rita Griffin stood down with effect from 25 September 2019.
– Lynne Peacock succeeded Simon Thompson as Chair with
effect from 1 November 2019.
– Keith Williams stood down with effect from 15 May 2020
following his appointment as Executive Chair.
Corporate Responsibility Committee
– The Company was pleased to announce the formation of a
Corporate Responsibility Committee effective 25 September
2019 which comprised Rita Griffin, Simon Thompson and
Maria da Cunha.
– Rita Griffin was appointed as Chair of the Committee.
Committee evaluation
The Committee’s performance was externally evaluated by
IBE as referred to on page 103. Committee members noted
the extensive work conducted during 2019 to appoint four
new Non-Executive Directors and members were hopeful that
the Committee will be able to turn its attention to succession
planning and talent-mapping across the organisation.
The Committee concluded that it was performing effectively.
More information on the Board effectiveness process can be
found on page 103. The key priorities for 2020-21 are to:
– Focus on talent management and succession plans; and
– Keep the Board composition under review and in line with
the Board skills matrix and diversity policy.
Directors’ independence and re-appointment
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. The Board has a majority of
independent Directors. Full biographies of each of the Directors
are on pages 90-91.
The Committee considered the performance of each individual
Director, including whether they continued to be effective and
demonstrate commitment to their roles. All Directors are
considered by the Board to be fully effective. This supports the
proposal for those Directors standing for re-appointment at
the AGM.
Keith Williams
Chair of the Nomination Committee
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 116 Corporate Governance – Nomination Committee Report continued
REVIEW OF PROGRESS AGAINST DIVERSITY POLICY
The Board Diversity Policy (the Policy) sets out our approach
to transparency and diversity in making appointments to the
Board on the recommendation of the Nomination Committee.
The Board promotes diversity in its broadest sense, including
professional, education, skills, age, gender and ethnic
diversity. It is our belief that a diverse Board, with different
backgrounds and viewpoints in decision making, benefits the
Group’s stakeholders and the performance of the business.
The Nomination Committee reviews and assesses progress
against the Diversity Policy. The principles of this Policy
are embedded in the appointment process for Directors
and Senior Executives. During the year, the Board reviewed
the Policy and has reported on progress against the Policy
targets. All appointments to the Board are based on merit and
considered against a range of objective criteria.
The Board will report annually against the objectives in the
Policy and other initiatives taking place within the Company to
promote gender and other forms of diversity. Progress against
each objective is described below.
Endeavour to achieve target for 33 per cent female
representation on the Board:
The Board is committed to its target for female representation
and is mindful of the target set out in the Hampton-Alexander
Review of 33 per cent female representation. The Committee
will continue to make recommendations for new appointments
to the Board based on merit, with candidates measured
against objective criteria and with regard to the skills and
experience they would bring to the Board. As at 24 June 2020,
the female representation on the Board represents 50 per cent
of the membership.
The Board places emphasis on development of diversity
within the Group. Royal Mail is committed to further pursuing
diversity, as appropriate and on merit, within the Group
senior management roles and intends to meet where possible
the recommendations of the Hampton-Alexander Review of
33 per cent women in senior leadership positions:
We continue to strengthen the pipeline of senior female executives
within the business. Our initiatives are outlined on pages 79-80.
The gender balance amongst our senior management for 2019-20
was 37 per cent female to 63 per cent male. For this purpose, and
in line with the 2018 Code, we have defined senior management
as the executive board and their direct reports. The executive
board comprised 9 individuals, with 48 direct reports. In 2019-20,
Royal Mail was named as one of The Times Top 50 Employers for
Women for the sixth consecutive year1.
Aspiration to achieve the recommendations of the Parker
Review by having at least one director on the Board from
an ethnic minority background:
The Committee has adopted this in its Policy and the Board
continues to consider candidates from a wide range of
backgrounds. The Company has established mentoring
schemes to increase female and BAME representation across
the organisation and has implemented the Spring Forward
programme aimed at supporting those relatively new to
management, including a BAME programme for under-
represented colleagues in higher positions.
In searches for candidates, engage with executive search
firms which are signatories to the Voluntary Code of Conduct
for Executive Search Firms:
The Board supports the provisions of the Voluntary Code
of Conduct for Executive Search Firms and will only engage
those who have signed up to this Code. The Board’s current
executive search firm is a signatory to the Code.
Report annually against these objectives and other initiatives
taking place within the Company to promote gender and other
forms of diversity:
The Board places a strong emphasis on increasing diversity
in senior leadership. It is proud of the many initiatives that
were in place during the year to achieve this, such as the
Springboard women’s development programme which,
since 2005, has helped to encourage women into leadership
positions. Other schemes include the following:
– The Inclusive Action Steering Group, which monitors and
progresses the Group’s diversity performance in terms of
women, ethnic background, parents and carers, disabilities,
young and LGBT.
– Working with Business in the Community’s (BITC)
Opportunity Now and Race for Opportunity programmes.
– Mentoring schemes to increase female and
BAME representation.
– Women’s Steering Group:
– “W” magazine for women in Royal Mail with copies sent
to every woman in the business. Details networking
events, role models and showcasing activity.
– Series of International Women’s Day events and talks.
– Spring Forward programme aimed at supporting those
relatively new to management, including a BAME
programme for under-represented colleagues in
higher positions.
– Everywoman online personal and professional
development platform available to all colleagues.
There is also an adopted Equality and Fairness Policy which is
our overarching policy for diversity within the Group. A copy of
the Equality and Fairness Policy is available on our website at
→ www.royalmailgroup.com/en/responsibility/policies-and-
reports. This Policy provides a statement of Royal Mail Group’s
commitment to diversity.
The Board will report annually on the outcome of the Board
evaluation, and the composition and structure of the Board.
The Board continues to commit to report annually on the
outcome of the Board evaluation, and the composition and
structure of the Board.
Read more – Corporate Responsibility (pages 74-87]
1
The 2020 results have been delayed until July 2020, so the results are unknown
at this time.
AUDIT AND
RISK COMMITTEE
Michael Findlay
Audit and Risk
Committee Chair
Committee members
Michael Findlay
Baroness Sarah Hogg
Lynne Peacock
117
Introduction
I was pleased to become the Chair of this Committee upon my
appointment to the Board on 22 May 2019 and I would like to
thank my predecessor, Keith Williams, for his work with the
Committee and for his support during the transition period.
It was an interesting year to become Chair of the Committee.
As is clear elsewhere in the Annual Report, the Group has
faced a number of significant challenges as it pursues its new
strategy against a backdrop of: declining letters and growing
parcel volumes in an increasingly competitive market; an
ongoing dispute with the Communication Workers Union (CWU)
including the threat of industrial action; the potential of re-
nationalisation; Brexit; the US administration’s initiative to take
the US Postal Service (USPS) out of the Universal Postal Union
(UPU); and the slowdown in GDP growth – a key determinant of
letter volume movement. Towards the end of the financial year
we faced unprecedented times with the outbreak of COVID-19.
This global pandemic caused significant uncertainty and
concern to both individuals and business alike and remains
a very real and emerging risk. It has been a busy year.
During the year, the Committee focused on the Group’s financial
performance and the integrity of the Group’s financial reporting,
including the annual and half-year financial statements
and announcements. This included a thorough review of the
Company’s going concern, viability and covenant compliance.
We also focused on the Group’s principal and emerging risks
and uncertainties, including an ongoing review of the outbreak
of COVID-19 to ensure our employees, customers and suppliers
were protected and that we were putting plans in place to
be able to continue to provide a key service to the nation, as
well as meet our regulatory obligations. The Committee also
reviewed the key accounting areas of judgment, the adequacy
and effectiveness of the Group’s system of internal controls,
including whistleblowing, and the effectiveness, performance
and objectivity of the internal and external audit functions.
The Corporate Responsibility Committee (CRC), created in
September 2019, has taken over ownership of monitoring
culture from the Audit and Risk Committee. During the year,
Internal Audit & Risk Management (IA&RM) has completed a
review of cultural themes within the business. IA&RM has since
completed an audit of the Group’s controls for assessing and
monitoring culture. The report is being finalised and will be
reported to the Board in due course.
The Committee has also worked closely with IA&RM to enhance
the reporting of emerging and principal risks to the Board.
The Committee was pleased with the extensive annual “horizon
scanning” exercise conducted by IA&RM to assess and evaluate
the emerging risk environment and the level of insight this
has provided to the Board to support its decision-making
process. IA&RM engaged with numerous stakeholders across
the business and sought views from subject matter experts on
the exercise, which has helped to shape and progress Board
discussions on risk.
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 118 Corporate Governance – Audit and Risk Committee continued
The Committee, along with management and the external
auditor, considered the impact of reporting recommendations
published by the Financial Reporting Council (FRC), as well as
the new accounting and reporting requirements introduced by
International Financial Reporting Standards (IFRS).
The Committee has reviewed and updated the Stamps in the
Hands of the Public (SITHOP) methodology and continues to
review IFRS 16 Leases and its impact on the Group’s financial
statements. IFRS 16 was a particular area of focus. The Group
has in excess of three million square metres of property, many
of which are leasehold in the UK.
Other areas of continued focus were: the Group’s preparedness
for Brexit, especially for a potential ‘no deal’ Brexit; reviewing
the Group’s internal controls and systems of risk management;
and, in particular, monitoring the Group’s risks and their linkage
to the Group strategy.
As a Committee, we have developed the agenda to enable
us to have active oversight of our remit and to facilitate deep
dives into key areas of strategic focus. Deep dives were
presented to the Committee, by the management team, on
the economic environment including Brexit, the threat of the
US administration withdrawing from the UPU, the impact and
associated risks of the General Election, the threat of possible
industrial action, cyber security and data regulations and the
sustainability of the regulatory framework. This facilitated
a healthy debate between the management team and the
Committee and enhanced knowledge on these topics.
The Committee holds meetings with the external auditor and
Director of IA&RM, independent of the Executive team, to
ensure that the reporting, forecasting and risk management
processes are subject to rigorous review throughout the year.
Lastly, we have also reviewed and updated our Terms of
Reference. Following the creation of the CRC, the following
topics will now form part of the CRC’s oversight remit on behalf
of the Board.
– Modern Slavery;
– Whistleblowing; and
– Monitoring and Assessment of Culture.
Culture and Whistleblowing remain matters reserved for
the Board.
Composition of the Committee
There has been a refresh of the Committee composition
throughout the year. The Committee composition complies
with the Code. All members are independent Non-Executive
Directors. The Board considers that the Chair has the relevant
and recent financial skills and experience required to fulfil
this role for the purposes of the Code and the FRC’s Guidance
on Audit Committees. Meetings of the Committee were also
attended, where relevant, by the Chair of the Board, the Group
Chief Executive Officer, the Chief Financial Officer, the Director
of Internal Audit and Risk Management and other members
of Senior Management together with representatives from the
external auditor, KPMG LLP. The Committee is supported by the
Company Secretary. I would like to thank my fellow Committee
members and those who have served on the Committee
throughout the year for their continued support and constructive
input into Committee discussions.
The full Terms of Reference for the Committee can be found
on our website at: → www.royalmailgroup.com.
Committee activity
The Committee has an extensive agenda of items of business
focusing on the audit, assurance and risk processes within
the business which it deals with in conjunction with senior
management, the external auditor, IA&RM and the financial
reporting team. The Committee has oversight of GLS and has
taken on the oversight of the Group’s Pension arrangements
from the now defunct Plc Pensions Sub-Committee.
Committee evaluation
The Committee’s performance was externally evaluated
by Independent Board Evaluation as referred to on page
103. Committee members noted the refreshed Committee
composition and new chairmanship which was functioning
well. The challenge over the next year is to gain a better insight
into financial controls and governance across the Group and to
provide the Board with assurance that the control environment
remains effective.
More information on the Board effectiveness process can be
found on page 103. The key priorities for 2020-21 are to:
– Work with the Secretary to improve the quality of Committee
papers to allow Committee members to effectively discharge
their duties; and
– Enhance oversight of the Group’s governance processes and
financial controls.
Michael Findlay
Chair of the Audit and Risk Committee
119
Items of business considered by the Committee during the year are set out in the table below.
Reviewing the draft full and half year results for 2019-20
including key areas of judgement, the Group’s viability,
covenant compliance, going concern and contingent
liabilities for approval by the Board.
Reviewing the effectiveness of the risk management and
internal control systems prior to making a recommendation
to the Board.
Reviewing the draft 2019-20 Annual Report &
Financial Statements including significant financial
reporting judgements.
Reviewing and discussing the reports from the financial
reporting team on the financial statements, considering
management's significant accounting judgements, and
the policies being applied, and how the statutory audit
contributed to the integrity of the financial reporting.
Reviewing the performance and financial reporting of GLS.
Reviewing the proposed audit strategy for the 2019-20
statutory audit, including the level of materiality to be
applied by KPMG, audit reports from KPMG on the financial
statements and the areas of particular focus for the audit,
and tasking management to resolve any issues relating
to internal controls and risk management systems.
Reviewing and monitoring the principal and emerging risk
profile of the Group.
Reviewing the Cyber Security Strategy and risk appetite.
Biannual oversight and monitoring of the Group's
compliance with the Bribery Act 2010, which the Board
then reviews annually.
Reviewing the Group’s pension assumptions.
Considering and approving the Committee’s revised Terms
of Reference to ensure they were in line with the Code and
best practice.
Conducting deep dive sessions on key topics such as Brexit,
the USPS potential withdrawal from the UPU, industrial
relations, cyber security and data regulations, and the
sustainability of the regulatory framework.
Monitoring the outbreak of COVID-19 and assessing the
impact on the Group particularly in relation to the year end
financial position. There has been focus on developing and
implementing mitigating actions and processes to ensure
that the Group can continue to operate in an effective
control environment.
Considering and reviewing the FRC letter to Audit
Committee Chairs and Finance Directors.
Reviewing the conclusions of the Committee's
Annual Evaluation.
Reviewing the basis of preparation of the financial statements
as a going concern (prior to making a recommendation to the
Board) as set out in the accounting policies.
Monitoring and reviewing incidents of whistleblowing
(this has subsequently moved to the Corporate
Responsibility Committee).
Reviewing the viability statement in conjunction with the
external auditor following the outbreak of COVID-19.
Monitoring Payment Practices and reviewing and approving
the Modern Slavery Statement.
Reviewing the interim and final dividend recommendations
and advising the Board on the appropriateness of the
proposed dividends.
Reviewing and approving the Internal Audit Plan for the
Group for the year which included the approval of an audit
on the effectiveness of monitoring and assessment of
culture by the business.
Conducting an Annual Review of the effectiveness of the
external audit process.
Reviewing and approving the UK and GLS Internal
Audit budget.
Reviewing and approving the non-audit services and related
fees provided by the external auditor and approving the policy
on non-audit services provided by the auditor for 2019-20.
Considering the resources available to Internal Audit and
confirming these are appropriate.
Considering the issues and findings brought to the
Committee's attention by the internal audit team and
satisfying itself that management has resolved or is in the
process of resolving any outstanding issues or concerns.
Reviewing and considering the impairment of Royal Mail
(UKPIL).
Reviewing covenant compliance on an ongoing basis.
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 120 Corporate Governance – Audit and Risk Committee continued
Key judgment areas
The main areas of focus for the Committee during the year in relation to the financial statements were:
MATTER
ACTION TAKEN BY COMMITTEE
This investigation remains a key agenda item and regular
updates have been provided to the Committee throughout
the year. We have continued to review and challenge
Management’s assessment of the issue with reference
to the accounting standards.
We concluded that it is now appropriate to make a provision
for the £50 million fine.
ONE OFF MATTERS CONSIDERED DUE TO THEIR MATERIALITY OR NATURE
Ofcom alleged infringement of competition law
On 14 August 2018, Ofcom published its decision following
its investigation into whether Royal Mail had breached
competition law. The investigation was launched in February
2014, following a complaint brought by TNT Post UK (now
Whistl). Ofcom found that Royal Mail had abused its dominant
position in the market for bulk mail delivery services in the
United Kingdom by issuing Contract Change Notices on
10 January 2014 which introduced discriminatory prices.
It fined Royal Mail £50 million.
On 12 November 2019, the Competition Appeal Tribunal
(CAT) issued its judgment, which upheld Ofcom’s decision
finding that Royal Mail had breached competition law and the
£50 million fine it imposed. As a result, the £50 million fine is
now payable and, accordingly, a liability has been recognised
in these financial statements.
ONGOING MATTERS CONSIDERED DUE TO THEIR MATERIALITY AND/OR THE APPLICATION OF JUDGEMENT
Advance customer payments
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.
The Committee examined reports from Management
summarising the revised methodology. We compared the
level of deferred revenue 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 assumptions.
We concluded that the level of deferred revenue
remained appropriate.
The majority of this balance is made up of stamps sold to
the general public. To determine the amount of sales to
defer, previously estimates of stamp volumes held by the
general public at the year end were made on the basis of
monthly surveys performed by an independent third party.
As surveys of this nature are inherently subjective and rely
on the number and demographic profile of respondents,
management has adopted a modified approach utilising a
number of different data sources to calculate the estimated
deferred revenue liability.
Management uses judgement in applying a weighting to
the component parts of the data sources. This judgement
impacts revenue, profit and net assets.
The independent survey used previously has also been
referenced this year as an additional data source to support
the calculation of the deferred revenue adjustment, rather
than being the sole basis on which the deferred revenue
number is based.
As at 29 March 2020 the Group recognised £185 million
(March 2019: £188 million) deferred revenue in respect of
stamps sold to the general public but not used at the balance
sheet date.
121
MATTER
ACTION TAKEN BY COMMITTEE
Pension surplus calculation and recognition
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. All of these assumptions are disclosed
in Note 11 (page 192) 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.
Impact of changing employment legislation
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.
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.
We examined reports prepared by Management to determine
whether their interpretation of the potential liabilities for the
Group was appropriate.
Impairment test – Royal Mail UK CGU
During the year this CGU was tested for impairment.
At 29 March 2020 the carrying value of this CGU was
£1,313 million. The recoverable amount, assessed as being
the ‘value in use’ was calculated based on the Board’s three
year forecast free cash flows, with the assumption that the
subsequent years will be in line with the performance of
year three. Cash flows into perpetuity are assumed to have
a growth rate of nil.
The calculated value in use of the CGU exceeds its carrying
value by £478m. The Group has conducted sensitivity analysis
on the impairment test for each of the key assumptions.
The Committee examined reports from Management
summarising the outcome of the impairment reviews and the
sensitivity analysis that had been performed by Management.
We also received KPMG’s comments on the assumptions and
the calculation used to perform the impairment review.
We concluded that the approach taken was appropriate.
Impairment test – Parcelforce Worldwide CGU
As a result of delays in the transformation of the
Parcelforce Worldwide business an impairment review
of the Parcelforce Worldwide CGU was undertaken.
This impairment assessment identified that the carrying
value of the CGU was in excess of its recoverable amount
which resulted in a £91 million impairment charge, which
was reported as a specific item within the UKPIL segment.
The Committee examined reports from Management
summarising the outcome of the impairment reviews
performed. Further details of the assumptions can be found
in Note 6 (page 180) of the financial statements. We also
received KPMG’s comments on the assumptions and the
calculation used to perform the impairment review.
We concluded that the approach taken was appropriate.
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 122 Corporate Governance – Audit and Risk Committee continued
Committee advisers
To help the Committee with our responsibilities, the Committee
receives independent assurance from IA&RM. The Committee
also received 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).
We also obtain support from external experts, such as the
Group’s actuary, Willis Towers Watson Limited, who provide
expert opinion and long-term assumption advice with respect
to pension accounting. Aon Limited provides similar expertise
in relation to other long-term liabilities.
The Committee also relies on the advice and information
provided by the Group General Counsel with respect to specific
provisions and other contingent liabilities. The Committee is
satisfied that the Group General Counsel has, or has access to,
the relevant necessary expertise and resources. The external
auditor has full access to these experts where required and,
using its own actuarial and statistical experts is able to provide
further assurance to the Committee on these matters.
The Statutory Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive Tender Processes
and Audit Committee Responsibilities) Order 2014
We have complied in all material respects throughout the year
with the Statutory Audit Services Order 2014 issued by the
Competition and Markets Authority.
Effectiveness of the external audit process
The Committee, on behalf of the Board, is responsible for the
relationship with the external auditor, and part of that role is to
examine the effectiveness of the audit process. Audit quality is a
key requirement of the external audit process. The performance
of the Company’s external auditor, KPMG LLP, is kept under
review by the Board and the Committee. The Committee
undertakes a formal assessment of the external audit process
each year and assesses the quality of audit against some of the
following criteria:
– Provision of timely and accurate industry specific and
technical knowledge
– Maintaining a professional and open dialogue with the
Audit Committee Chair and members at all times
– Delivery of an efficient audit and the ability to meet objectives
within the agreed timeframes
– The quality of its audit findings, management’s response
and stakeholder feedback
The Committee reviews and approves the terms of engagement
of the external auditor and monitors its independence.
This includes overseeing, and in certain circumstances approving,
the engagement of the external auditor for non-audit work.
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. The Committee also
received a report on the areas of audit risk identified by KPMG
and approved its proposed audit approach.
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 its data analytics approach, and
its 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.
Overall, the Committee and KPMG both considered that the
2019-20 external audit process had been completely effectively
notwithstanding the challenges presented by the outbreak of
COVID-19. It agreed that KPMG’s engagement was managed
well and there had been an appropriate level of challenge from
the audit team. The Committee identified key lessons from this
review which have been considered for the 2020-2021 audit.
Safeguarding the independence and objectivity of the
external auditor
The Committee has a policy in respect of non-audit work which
requires Management to seek 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 it is 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) and would not compromise the auditor’s
independence. The engagement may follow a competitive
tender process.
The Committee currently permits the external auditor to provide
non-audit related services, tax services and other services
insofar as permitted by auditor independence rules.
The Committee has delegated authority to the Chief Financial
Officer to pre-approve assignments up to £25,000, with an
annual limit of £500,000. Non-audit services above this limit
require prior approval from the Committee.
During the year, KPMG has been engaged to provide certain,
agreed upon services. Total fees earned for non-audit services
during 2019-20 were £447,000 which represented around
16 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 £131,500 in 2019-20. KPMG has now
adopted a policy of not undertaking non-audit work for audit
clients unless there is a clear requirement for the auditor to
perform this work.
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 retender no later than the 2025-26 financial year and the
current audit partner will be required to rotate after the 2019-20
audit. The Committee intends to complete a competitive tender
process no later than 2025-26 unless the annual reviews of
audit effectiveness or other circumstances dictate otherwise.
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 September 2020.
123
The Committee remains satisfied that KPMG continued to be
independent. In addition, KPMG annually reports on whether
and why it deems itself to be independent.
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 Board has delegated responsibility for
reviewing the effectiveness of the Group’s systems of internal
control to the Committee. The Committee seeks to ensure
that the Group operates within a framework of prudent and
effective controls that allow risks to be identified, assessed
and effectively managed.
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, including financial,
operational and compliance risks, and risks to reputation.
The process has been in place throughout the year and up
to the date of the 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 62-72.
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 which has
also been used to support our Viability Statement on page 73.
Annual cycle of activities
Phase
April –
May
June –
July
August –
September
October –
November
December –
January
February –
March
Business Unit
Leadership Teams
Risk Management
Committee
Audit and
Risk Committee
IA&RM
3
2
3
2
3
3
8
1
4
6
10
1
4
6
10
9
1
1
6
5
6
4
8
6
7
5
7
1
1
6
1
6
4
8
5
9
7
5
6
7
5
5
1
2
3
4
5
Group Risk Update – Quarterly update on movements in gross,
net and target risk, including progress on actions towards target
risk and risk appetite
Business Unit Risk Workshop – IA&RM facilitation of risk
workshops to assess key risks to business objectives
Business Unit Risk Update – Quarterly risk update and approval
by Leadership Teams (GLS approval through GLS ARC)
Principal Risks and Uncertainties – Review of disclosure for the
Annual Report & Accounts (April – June) and interim disclosure
for half year results (Oct–Nov)
Audit Plan Update – Six monthly review of the audit plan to align
assurance work to Corporate and Business risks
6
7
8
9
Group Risk Deep Dives – Risk owner presentation of Group Risk
to provide an overview of status and mitigating actions.
Scheduled on a priority basis
Business Unit Risk Update – Update of key themes and
movements on Business Unit risk profile – “bottom-up”
assessment of risk for consideration on GRP
Horizon Scanning Risk Workshops/Discussions – Robust
assessment of emerging risks with Executive Board members
and Senior Management
Annual Review of Risk Management
Policy and Framework
10
Risk Management and Internal Control Effectiveness
Assessment – IA&RM facilitation of Annual Review of Risk
Management and Internal Control environment
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20
124 Corporate Governance – Audit and Risk Committee continued
The IA&RM work programme during 2019–20 included
26 risk-based audits in the UK and over 120 audits in GLS,
covering compliance with business controls in depots and
head offices in addition to one risk-based audit. The UK internal
audit programme was risk focussed and included audits of
key strategic and business priorities including:
– Governance of major business transformation
and programmes;
– Major business processes and regulatory requirements; and
– Monitoring and assessment of Culture.
External audit activity – External audits and reviews take place
during the year to provide Management, the Board and Ofcom
with assurance on specific matters. Activity includes:
– the external auditor performs a statutory year-end audit;
– the external auditor performs an audit of the regulatory
accounts as part of Universal Service Provider
accounting requirements;
– the externally measured end to end Quality of Service is
audited by an independent accounting firm (appointed by
Ofcom) as part of Royal Mail’s Designated Universal Service
Provider condition requirements; and
– 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 62-72.
Assessing the effectiveness of the system of risk
management and internal control
The Committee has completed its review of the effectiveness
of the Group’s system of internal control and risk management.
During this review the Committee did not identify any significant
weaknesses in the preparation of the financial statements.
In addition, the Committee monitored and reviewed the
effectiveness of the Group’s Internal Audit & Risk Management
function. The Director of Internal Audit and Risk Management
has a standing agenda item at each meeting to update the
Committee on audit activities and progress of the audit plan.
The Committee regularly reviews and monitors the audit
activity and, where necessary, will request updates from the
appropriate Executive Board member on any unsatisfactory
audit reports.
In addition to the specific composition, meetings, reliance on
experts, and focus areas highlighted above, the Committee uses
several 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:
Governance over Risk and Control – The Board has delegated
responsibility for specific review of risk and control processes
to the Committee. The Committee, in turn, is supported by
the Risk Management Committee (RMC) and the Finance
Committee, to help discharge its duties. The RMC met five
times over the course of 2019-20 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 and supports the business in complying with the Risk
Management Mandatory Standards and the reporting of key
controls and mitigation plans for Group level risks. The Finance
Committee supports the Committee in reviewing the Company’s
financial performance and reports to the Committee. 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 and conducts deep dive analysis of Group risks.
Assurance from internal audit – Internal Audit & Risk
Management (IA&RM) provides 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. IA&RM establishes and agrees
with the Committee a bi-annual rolling plan of assignments and
activities covering the whole Group, including GLS, based on
discussions with the Board and Management. This considers
key areas of business risk, areas of importance to the delivery
of the strategy, geographical spread, 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&RM. It concluded that the function continued
to be effective.
125
ROYAL MAIL GOVERNANCE AND THREE LINES OF DEFENCE
ROYAL MAIL PLC BOARD
E
C
N
A
N
R
E
V
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F
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D
F
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EXECUTIVE BOARD
AUDIT AND RISK COMMITTEE
RISK MANAGEMENT COMMITTEE
SENIOR MANAGEMENT
FIRST LINE
SECOND LINE
OPER ATIONAL AND
BUSINESS MANAGEMENT
INTERNAL MONITORING AND
A SSUR ANCE MECHANISMS
THIRD LINE
INDEPENDENT
A SSUR ANCE
Primary business-as-usual
controls over the risks to
the business, located in the
day-to-day operation.
Internal monitoring and
oversight of the first 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
ROLE OF THE COMMITTEE IN ASSESSING THE PRINCIPAL RISKS
Review of
principal
risk areas
Deep dive
discussions
– 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 62-72). 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.
During the year, ‘deep dive’ risk discussions included the following:
– Regulatory Sustainability Framework
– Economic Environment including Brexit and the US administration’s initiative to take the USPS out
of the UPU
– Cyber Security and Data Regulations
– Industrial Relations
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20
126 Corporate Governance
CORPORATE
RESPONSIBILITY
COMMITTEE
Rita Griffin
Corporate Responsibility
Committee Chair
Committee members
Rita Griffin
Simon Thompson
Maria da Cunha
COMMITTEE FOCUS
The Committee considers issues and performance in
the following areas to ensure consideration is given to
all stakeholder groups that could be impacted by the
Company’s corporate responsibility standards.
M U N IT
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S
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Y G R O U P S
EM
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S
T
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O
ENVIR
ISSUES
CONSIDERED
SOCIET Y &
CUSTOM E R S
Introduction
I am delighted to present the first of our Corporate
Responsibility Committee reports. The Committee was
established in September 2019, recognising the growing
importance of Environment, Social and Governance (ESG)
matters within the business, and across our key stakeholder
groups. The Committee oversees our agenda across the
business. It will aim to ensure the Company’s continued position
as an industry leader in ESG matters.
This report details the work undertaken by the Committee
during the year. A detailed report on the Company’s corporate
responsibility performance during the year can be found on
pages 74-87.
I would like to thank the members of the Corporate
Responsibility Committee for the open and constructive
discussions that take place during our meetings and their
personal commitment to our wide ranging and impactful
agenda. Corporate responsibility (CR) is now a key area of focus
for many Boards. I welcome the creation of this Committee to
allow us to push forward on our CR agenda.
Committee activity
The Committee’s first priority was to define its Terms
of Reference (TORs). The TORs are published at:
→ www.royalmailgroup.com/en/about-us/management-and-
committees/corporate-responsibility-committee.
I am pleased that the TORs formally enshrine the Company’s
Groupwide commitment to sustainability leadership. The TORs
set out the Committee’s responsibility for overseeing the
Company’s ESG performance in each of its material impact
areas. The Committee is also responsible for keeping abreast
of emerging issues. It has a mandate to address any area of
concern both with internal stakeholders and the Board.
The Committee further agreed key areas of focus for the
next year or so. Having consulted extensively both internally
and externally with various stakeholders, the Committee
recommended to the Board that its focus should be on culture
and diversity, the environment strategy, and health, safety
and wellbeing performance. Previously, these subjects were
monitored by the Board and other Committees. For example,
the Audit and Risk Committee was responsible for monitoring
culture. Performance in each of these areas will be tracked
as part of a standing item on Committee meeting agendas
throughout the year.
The Committee met twice since its creation in September 2019.
Committee meetings were also attended by the Group Chair
and, as required, by the Managing Director of Corporate Affairs,
Marketing and Regulation, members of the CR team, Chief HR
Officer and the Global Compliance and Sustainability Director.
The Committee is supported by the Company Secretary and the
Corporate Responsibility team.
127
The Committee focused on the following main areas during
its meetings:
– Development and approval of the Committee’s remit,
Terms of Reference and ambitions
– Review of Group Health & Safety and the Group Health &
Wellbeing Reports
– Review of the Company’s economic and social contribution
and corporate purpose
– External presentation on Environment, Social and Governance
matters, expectations and trends
– Update on Corporate Responsibility strategy, policy
and performance
– Review and approval of the new environment strategy for
Royal Mail
– In-depth review of the Company’s culture and
diversity programmes
– Updates on Employee Voice Forums and engagement with
the workforce
– Overview of the emerging corporate responsibility issues
presented by e-commerce
The Committee spent a significant proportion of its time
focusing on Royal Mail’s role as a leader across ESG matters;
reviewing aspirations, commitments and performance to
date. Topics included climate change, and the emerging
issues presented by e-commerce, such as supply chain
ethics – specifically human and labour rights. A full induction
programme has been developed to ensure each Committee
member understands these key CR related risks and
opportunities, and the governance in place to manage these
presently within the organisation. The intention is for the CR
induction to be attended by all Board members during 2020-21.
The Committee is responsible for updating and approving the
Company’s CR policy. The policy sets out the standards to which
the Company commits, as well as the standards expected of its
business partners and supply chain. In addition, the Committee
is taking responsibility for reviewing and approving key public
disclosures, such as the annual Corporate Responsibility
Report, on behalf of the Board. In response to increased
interest from our stakeholders, the Company’s disclosure on
environmental issues and on diversity and inclusion has been
augmented in this year’s CR Report. There is also greater
disclosure about the Company’s management of health, safety
and wellbeing. This area of focus is particularly important in
light of the COVID-19 pandemic that blighted the country at the
end of the last financial year and is still impacting us now.
The updates to the revised 2018 UK Corporate Governance
Code have placed enhanced emphasis on the Board’s role in
monitoring and assessing the Company’s culture. The Code
states that the Board should establish the Company’s purpose,
values and strategy. It must satisfy itself that these and its
culture are aligned and that all directors act with integrity, lead
by example and promote the desired culture. Our Company
purpose is to ‘Connect customers, companies and countries’.
Alongside this, in the UK we have a specific legal duty to
deliver the Universal Service. This means we also have a legal
corporate purpose, which makes us very different to other
companies. The social and economic impact of the resources
that we expend to deliver our corporate purpose is brought to
life in our CR programme. It is what we do, and how we do it,
that is at the essence of our role as a good corporate citizen.
More information can be found in the Corporate Responsibility
section on pages 74-87.
The Board believes that the Company’s culture should promote
integrity and openness, value diversity and be responsive to the
views of shareholders and wider stakeholders. The Committee
has taken responsibility of monitoring culture from the Audit
and Risk Committee and will work with the Management team
to ensure culture is aligned to the Company’s strategy.
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.
The Committee will take over responsibility for monitoring the
Company’s Whistleblowing policy and Whistleblowing reports
from the Audit and Risk Committee during 2020-21. Culture is
a standing item on the Committee agenda. It will encompass
updates on the Employee Voice Forums, Employee Engagement
Survey results, bullying and harassment complaints and
monitoring the various inclusion and diversity initiatives in place
across the organisation. The Committee will provide reports
to the Board, as whistleblowing and culture remain matters
reserved for the Board. Simon Thompson provides a detailed
report of his engagement with employees during the year on
pages 112-113 of this report.
Committee evaluation
As the Committee is in its first year of formation it did not form
part of the external Board and Committee evaluation conducted
in 2019-20, details of which can be found on page 103.
The Committee will undergo an internal evaluation in 2020-21
and be included within the next externally facilitated evaluation
in 2022.
Rita Griffin
Chair of the Corporate Responsibility Committee
Governance Documents available on our website
More information →
www.royalmailgroup.com
– Committee Terms of Reference
– Corporate Responsibility Report
– Corporate Responsibility Policy
– Modern Slavery Statement
– Whistleblowing Policy
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 128 Corporate Governance
DIRECTORS’
REMUNERATION REPORT
Lynne Peacock
Remuneration
Committee Chair
Dear Shareholder
On behalf of the Board, I am pleased to present our 2019-20
Remuneration Report, my first as Chair of the Remuneration
Committee. I would like to extend my thanks to Orna Ni-Chionna,
who stepped down following the 2019 AGM, after nine years
of service on the Board. Orna chaired the Remuneration
Committee for the majority of this period. I would also like to
thank Simon Thompson, who took on the role of interim Chair
of the Committee prior to my appointment in November 2019.
Their hard work and commitment have helped in the adoption
of a new Remuneration Policy. It has created a strong foundation
on which to make executive remuneration decisions in the
coming years.
Our Remuneration Policy
I was delighted that the Company received such a high level of
support from shareholders for the 2019 Remuneration Policy.
Key changes were to:
– reduce the proportion of the short-term bonus that would
be payable for achieving target performance;
– reduce the number of annual bonus measures, with
increased weighting on financial measures (now accounting
for 75 per cent of the total);
– rebalance the ratio of our short and long-term incentives;
– reduce the cash pension allowance for new Executive
Directors to be in line with the current employer pension
contribution for the majority of the workforce;
– introduce a post-cessation shareholding requirement for
the Executive Directors.
The changes to our Policy achieve an appropriate balance
between incentivising Executive Directors and ensuring that
variable remuneration will only be payable for performance that
delivers sustainable value to shareholders.
Changes to our Remuneration Policy
The Committee believes the Policy largely remains appropriate
and continues to meet best practice. However, following the
Senior Management changes announced on 15 May 2020, it has
become apparent that we need to make some limited, albeit
important, changes to the Policy so that it can be administered
effectively in these changed circumstances. As such we will be
seeking shareholder approval for these changes at our AGM
in early September.
The Committee appreciates that it is unusual to seek
shareholder support for a new Policy so soon after securing
strong support for the existing one. However, the Committee
believes investors will understand that the Senior Management
changes, including appointment of a CEO of Royal Mail at Board
level, necessitate some minor changes to be made.
The new Policy will also give the Committee flexibility in the
future to appoint other Executive Directors, who may not be
based in the UK. For the avoidance of doubt, it remains the
Board’s intention that, if in the future any Group CEO were to
be reappointed, they would be based in the UK (and on a UK
contract of employment).
The revisions to the Policy are:
– Benefits. In the event that the Company appointed a director
(Executive or Non-Executive) who was based outside the
UK, the reimbursement of business travel costs to the UK to
attend Board meetings may be subject to taxation. To avoid
any breach of the Policy, the Company is changing the Policy
to provide that an overseas based director can be reimbursed
for a) any reasonable travel and accommodation costs and
b) any associated taxation thereon.
– Annual incentive. Since the adoption of the Policy, the
Company has appointed an Executive Director responsible
for its UK business. The Policy provided that a minimum level
of Group earnings must be achieved before an annual bonus
was payable. The new Policy would give the Remuneration
Committee the flexibility to set this minimum level of
earnings at a Group or an appropriate business unit level
e.g. Royal Mail (UKPIL).
– Contractual arrangements. To provide the Committee
flexibility should it decide to appoint in the future an Executive
Director based outside the UK, the contractual terms and
conditions for such a director can align to local laws in the
applicable jurisdiction of employment and the Policy can be
interpreted to ensure compliance with such local laws where
necessary. By way of example, the current Policy provides
that Executive Directors will have contracts of employment
with payment in lieu of notice provisions. However, in some
European countries such provisions are prohibited under
employment law. In addition, the new Policy would give the
Committee the flexibility to cover the additional tax liability
incurred by a new Executive Director (based outside the
UK) when performing duties outside their home country.
This ensures they are not subject to a greater tax burden as
a result. There is a risk that part of a director’s remuneration
will be taxed in the UK (as well as in their home country) if
they travel to the UK to attend Board or other meetings.
– Pension. A reduction in the pension contribution rate for
existing Executive Directors from 17.5 per cent to 15.6 per cent,
mirroring the current rate for the majority of the workforce.
This change will be effective 1 April 2021 (the start of the next
financial year).
The new Policy is set out on pages 133-140.
129
2019-20 Group performance and remuneration outcomes
As the interim Executive Chair said in his statement, these
are extraordinary times. The COVID-19 pandemic has been an
unprecedented challenge for our customers across the world.
We have worked hard to deliver the most comprehensive service
possible to all our customers.
As discussed elsewhere in the Annual Report and Accounts,
we have had successes: GLS reported good growth and we
continued to make progress in all our safety metrics, and our
employee engagement also improved. We achieved adjusted
Group operating profit of £325 million. Excluding the impact
of IFRS 16, the profit performance of £312 million was within
our target range of £300-340 million.
In 2019-20, Royal Mail (UKPIL) revenue increased by 1.6 per
cent. This was driven by a good performance in parcels, and
lower than expected letter revenue partially offset by the
benefit of a European Parliamentary Election and a UK General
Election in the period. Costs remained a challenge in the UK,
and we failed to achieve the productivity targets that we had
set ourselves. This resulted in adjusted UKPIL operating profit
being down 41.2 per cent. We have no reason to expect similar
benefits (such as the elections) this financial year, and continue
to expect Royal Mail (UKPIL) to be materially loss-making in
2020-21.
At year end, the Committee decided that it was not appropriate
to award annual bonuses to the Executive Directors.
This reflects the Board’s decision not to recommend a final
dividend and an outlook that was difficult to predict, making
the preservation of cash (including bonuses) sensible.
The performance period for the 2017 Long Term Incentive
Plan (LTIP) concluded at the end of March 2020. This was the
second award granted under the 2016 Remuneration Policy,
with the single metric of relative total shareholder return (TSR)
compared to the FTSE 100 excluding mining and financial
companies. Threshold performance was not met, so no part
of this award will vest.
As referenced in previous remuneration reports, our former
Group CEO, Rico Back, had some outstanding LTIP awards
arising from his prior role at GLS. The Committee reviewed
the performance of the 2017 LTIP award against the financial
targets and concluded that the outcome against these targets
was reasonable and supportable within the context of GLS’
aggregate performance over the last three years and decided
that no upwards or downwards discretion was required.
The resulting outcome for Rico Back is reported in the 2019-20
Single Figure Table.
In May 2020, the Company announced that, in recognition of the
role played by frontline colleagues maintaining services during
the COVID-19 pandemic, it had set aside around £25 million to
be paid as a cash bonus. Over 130,000 frontline colleagues who,
since March 2020, have been at work throughout the COVID-19
crisis will be eligible to receive a cash recognition award of up
to £200 paid in June 2020.
Shareholder engagement
We remain committed to maintaining an open and transparent
engagement with our shareholders. We were very pleased
that our current Remuneration Policy was strongly endorsed
by shareholders in July 2019, with over 99 per cent voting in
favour. I would like to thank shareholders for their constructive
feedback over the last 15 months, which continues to feed
into our Committee discussions and shape our approach
to remuneration.
We look forward to continuing our discussions with
investors in the coming months in the run up to the Annual
General Meeting.
Board changes and implications for remuneration
A number of Board changes are mentioned elsewhere in
the Annual Report and Accounts; but I also will summarise
them here in the context of reporting on the implications
for remuneration.
On 15 May 2020, we announced that Rico Back had stepped
down as Group Chief Executive with immediate effect.
As outlined in the stock exchange announcement, Rico will
remain an employee for three months until 15 August 2020,
on garden leave. The Committee determined that the following
termination arrangements were fair and reasonable, consistent
with the Directors’ Remuneration Policy and in line with his
contractual entitlements.
– On termination Rico Back will receive nine equal monthly
payments in lieu of notice totalling £480,000, which
represents the balance of his 12-month notice period.
These payments will be reduced by any amounts that Rico
Back receives from alternative paid employment.
– There is no eligibility to receive any annual bonus in respect
of 2019-20 or 2020-21.
– The 2018 and 2019 Royal Mail Long Term Incentive Plan
awards will lapse.
– Rico Back will retain his unexercised GLS long-term
incentive plan award which was granted to him prior to his
appointment as Group CEO and which is due to vest, subject
to performance, in July 2020.
– Rico Back will also retain a deferred share bonus award
granted in 2018. This award will continue to vest over the
original vesting period i.e. there is no acceleration of vesting
and the award will remain subject to malus. The Committee
decided this was appropriate as the award related to a prior
performance year (2017-18) and has already been earned.
Keith Williams was appointed as Chair of the Board on 22 May
2019. His fees were set at £300,000 per annum, which is the
same level that his predecessor, Les Owen, received. Keith was
subsequently appointed interim Executive Chair on 15 May 2020.
Despite stepping up as interim Executive Chair, Keith asked to
remain on the same fee he was paid as non-exec Chair of the
Board. He declined to participate in any of the Group’s pension
or incentive plans (such as the annual bonus plan or long-
term incentive plan). Keith will not be subject to the executive
shareholding guideline requirements.
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 130 Corporate Governance – Directors’ Remuneration Report continued
Stuart Simpson was appointed interim CEO of Royal Mail on
15 May 2020. During this period he will receive a temporary
increase to his fixed pay of £75,000 per annum. This increase
is not pensionable and will not be included when determining
incentive opportunities. The Committee considered that this
was an appropriate repositioning of his fixed remuneration in
light of his significantly expanded responsibilities and being
accountable to the Board for the UK business.
Through 2019-20, as reported elsewhere, the Board has
focused on renewing and strengthening its membership.
Orna Ni-Chionna stepped down as Chair of the Remuneration
Committee and Senior Independent Director at the Annual
General Meeting in July 2019. Orna has been replaced as Senior
Independent Director by Baroness Sarah Hogg (appointed on
1 October 2019). Maria da Cunha and Michael Findlay joined
the Board on 22 May 2019. Both have joined the Remuneration
Committee, and Michael was appointed as Chair of the Audit
and Risk Committee on 30 May 2019. A Corporate Responsibility
Committee (CR Committee) was set up in September 2019.
Rita Griffin has been appointed as Chair. Fees for the CR
Committee have been set at a lower level than for the Audit and
Risk, and Remuneration Committees. There have been no other
changes to the Non-Executive Director fee structure, as set out
in the 2019 Policy.
Consideration of the wider workforce remuneration
In addition to its primary role of reviewing Executive Directors’
and other executives’ remuneration, the Committee, and
the Board more generally, continue to exercise oversight of
other colleagues’ remuneration. The Committee takes into
consideration pay policy across the wider workforce as part of
its decision making on executive remuneration. The Committee
reviews the gender pay gap reporting and remuneration
practices across the Group. As a Board, we also discuss details
of any pay arrangements for the workforce represented by the
Communication Workers Union and Unite/CMA.
Looking forward
The Committee has decided to postpone the grant of the 2020
Long Term Incentive Plan until later in 2020. This enables us
to consider the impact of the COVID-19 pandemic and calibrate
appropriate measures and targets when markets are less
volatile and the performance outlook is more certain.
In July 2018, the new UK Corporate Governance Code (“Code”)
was published, which formally applied to Royal Mail with effect
for the 2019-20 financial year. The Committee welcomes the
new Code. Over the last 18 months it has held discussions as
to how the provisions that were not already satisfied could be
implemented in the most effective manner for the Company
and our stakeholders. The Committee is pleased to note that in
most areas of the Code, practice at Royal Mail was already very
well-aligned. This included the areas of pension provision, post-
employment shareholding requirements, incentive structures,
the Committee’s remit, and our oversight of wider employee pay
and conditions.
Over the course of 2020, we will continue to monitor how
best practice develops in these areas, especially in relation to
the adoption of Environmental, Social and Governance (ESG)
incentive measures. Health and Safety is an important priority
for the Company and is a key measure among our bonus plans
(for Executive Directors, our leadership teams and the broader
senior management population). However, in the coming year,
the Committee will review whether broader ESG measures may
be appropriate in the Company’s incentive plans.
Summary
2019-20 was a challenging year, ending with the onset of
the COVID-19 pandemic, which has been an unprecedented
challenge for our customers across the world. The delivery
of parcels and letters has been a key way of keeping people
connected and helping many people who have been unable to
leave their homes. As a Committee, we have sought to make
decisions which recognise the efforts of our colleagues and our
underlying business performance, balanced with our desire
to reflect a) an uncertain outlook and b) the Board’s decision
around the dividend.
I trust that you find the Remuneration Report clear and
informative, and that the Committee has your support for both
our new Remuneration Policy and Remuneration Report at the
forthcoming AGM.
Lynne Peacock
Remuneration Committee Chair
OUR REMUNERATION
AT A GLANCE (UNAUDITED)
131
Executive Directors’ Remuneration Policy
At the July 2019 Annual General Meeting, an updated
Directors’ Remuneration Policy was approved by shareholders.
Among the key changes in relation to Executive Directors’
remuneration were:
– A rebalancing of our incentive plans to weight them more
strongly to the long term, ensuring Executive Directors
are incentivised to execute the strategy and create value
for shareholders;
– A reduction in the annual bonus payable for
target performance;
– Simplification of our annual bonus measures, with
more weight on financial measures (in 2019-20, this was
75 per cent);
– Long-term incentive plan based on a broader set of
measures, stretching financial and shareholder return
measures, creating long-term alignment, with a two-year
holding period post vesting;
– A reduction in the cash pension allowance for new Executive
Directors to be in line with the current employer pension
contribution for the majority of the workforce; and
– Introduction of post-cessation shareholding requirements,
with Executive Directors required to retain shares worth
100 per cent of their shareholding guideline for two years
upon stepping down from the Board.
Subject to shareholder approval at the AGM, the Policy will
also provide for a reduction in the pension contribution rate for
existing Executive Directors from 17.5 per cent to 15.6 per cent,
mirroring the current rate for the majority of the workforce.
Executive Directors’ remuneration structure in 2020-21
Keith Williams, as interim Executive Chair, will continue to
receive a fee of £300,000. He is not eligible to participate in any
incentive plans, to receive any cash benefit allowances or to
participate in any pension plan.
The table below summarises the implementation of the
Remuneration Policy for Stuart Simpson in 2020-21.
Financial year
2020/1
2021/2
2022/3
2023/4
2024/5
2025/6
2026/7
Implementation for 2020-21
Salary
Benefits
Annual
bonus
LTIP
Awarded
Deferred
Malus and clawback applies
Awarded
Performance
period
Holding
period
Malus applies
Clawback applies
– Salary remains £450,000
– Salaries may be reviewed during the year
– While acting as interim CEO, Royal Mail an acting up
allowance of £75,000 p/annum is received. It does not
impact benefits, bonus or LTIP
– No change in how Remuneration Policy is operated
– Pension allowance remains at 17.5% of salary only
– Other benefits include healthcare and car benefit/
allowance
– Maximum 150% of salary (100% cash and 50% deferred
in shares for three years)
– Target 75% of salary (50% cash and 25% shares)
– Measures and targets to be finalised later in 2020
– Maximum 150% of salary
– Shares vest after three years subject to performance,
with a further two year holding period
– Measures and targets to be finalised prior to grant later
in 2020
Executive Directors’ variable remuneration
No annual bonuses were awarded to Executive Directors in respect of 2019-20. This reflects the Board’s decision not to recommend
a final dividend and an outlook that was difficult to predict, which made the preservation of cash sensible.
The performance period for the 2017 LTIP concluded at the end of March 2020. For any portion of the award to vest, median relative
TSR performance was required against this comparator group. As this has not been achieved, this award will not vest.
2019-20 annual bonus (% of salary)
2017 RM LTIP vesting (% of salary)
R Back
S Simpson
0%
0%
0%
0%
Executive Directors will also receive an LTIP award later in 2020. It is envisaged that the measures will be relative TSR and financial
performance measures, as set out in the current Remuneration Policy.
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 132 Corporate Governance – Directors’ Remuneration Report continued
Executive Directors’ total single figure of remuneration
2019-20 total remuneration (£’000s)
Year on year change
R Back
S Simpson
868
N/A1
544
0%
1
Rico Back was not on the Board for all of 2018-19, which makes a year on year comparison of remuneration inappropriate. Rico Back’s 2018-2019 total single figure of remuneration was
£647,000, which reflects his earnings from the date of his appointment as an Executive Director in June 2018. However, the level of his salary, pension and benefits were unchanged between
1 June 2018 and 29 March 2020.
Additional information
Former Group CEO shareholding requirement (% of salary)
Former Group CEO’s actual shareholding as a proportion of his salary
Median gender pay gap
Median gender bonus pay gap
Former Group CEO pay versus median UK employee
Percentage/Ratio
200%
550%
3.5%
0.0%
28:1
UK Corporate Governance Code Requirements
The table below details how the Committee addressed the principles set out in the UK Corporate Governance Code in respect
of Directors’ remuneration:
PROVISION
Clarity
Simplicity
APPROACH
– The Committee undertook extensive shareholder engagement during the development of the current
Remuneration Policy, and redesigned the report to ensure both the changes to the Policy, and
decisions taken on Directors’ pay were transparent and in line with latest practice.
– Information on how remuneration is structured for all employees and how it is aligned to Directors’
remuneration is included in the Directors’ Remuneration Report.
– Our Remuneration Policy consists of a) fixed remuneration and b) variable remuneration comprised
of one annual and one long-term incentive plan only. The objective of each element, as well as how
they operate, is included in the Policy.
– Incentive schemes have been simplified under the current Remuneration Policy, including a
reduction in the number of measures, with links to our strategic objectives clearly set out.
Risk
– The combination of reward for short-term business performance (paid partly in cash and partly in
deferred shares) and long-term performance (with measures covering shareholder returns, financial
and non-financial elements) ensures the incentives drive the right behaviours for the Group, its
shareholders, employees and customers.
– The Committee retains the discretion to adjust formulaic outcomes of these plans if they do not
reflect the underlying performance of the Group.
– Our incentive plans are also subject to malus and clawback provisions.
Predictability
– Threshold, target and maximum pay scenarios are set out in full as part of the new Remuneration
Policy section.
– Maximum variable remuneration award levels are capped. Other than vesting levels, which are driven
by performance outcomes, the only source of variation in final payouts is the fact that part of the
variable remuneration is awarded in shares and so is linked to the share price.
Proportionality
– There is a clear and direct link between Group performance and individual rewards through our
incentive plans.
Alignment
with culture
– The Committee has worked hard to design a Remuneration Policy that directly supports our strategic
priorities, and aligns our Directors and wider management to these outcomes.
– Our incentive plans include both financial measures, and those that focus on our customers and
employees. All our managers’ individual performance is considered against our Company values:
be positive, be brilliant, be part of it. Therefore, we assess our managers against not only what they
have achieved, but also how they do things.
NEW DIRECTORS’
REMUNERATION POLICY (UNAUDITED)
133
The Company’s existing Directors’ Remuneration Policy was
approved by 99.64 per cent of shareholders at the AGM on
18 July 2019.
As outlined in the Committee Chair’s statement, the Company
is proposing a new Directors’ Remuneration Policy, as set out
below. Subject to shareholder approval at the Annual General
Meeting to be held in September 2020, this Remuneration Policy
will take effect from the date of the 2020 AGM and, if approved,
will apply for up to three years.
The Board and the Remuneration Committee conducted a
detailed review of the Remuneration Policy in 2019 and, at
that time, considered the views of shareholders, the strategic
objectives of the Group, the remuneration of all colleagues,
market benchmarking and best practice.
Following careful consideration, the Remuneration Committee
decided, in light of the recent Senior Management changes
announced on 15 May 2020, to make some limited, albeit
important, changes to the Remuneration Policy so that it can
be administered effectively. The changes are summarised in the
table below. The new Policy also ensures continued regulatory
compliance and alignment with evolving best practice in many
areas, such as executive pensions.
Overview of the changes to the Remuneration Policy
AREA OF POLICY
DESCRIPTION OF CHANGE
Pension
Benefits
With effect from 1 April 2021 (the start of the Company’s financial year), the rate for existing Executive
Directors eligible for a pension will reduce from 17.5 per cent to 15.6 per cent, the current rate for the
majority of the workforce.
In the event that the Company appointed a director (Executive or Non-Executive) who was based
outside the UK, the reimbursement of business travel costs to the UK to attend Board meetings may
be subject to taxation.
To avoid any breach of the Policy, the Company is changing it to provide that an overseas based director
can be reimbursed for a) any reasonable travel and accommodation costs and b) any associated
taxation thereon.
Annual incentive
Performance measures
Since the adoption of the current Remuneration Policy, the Company has appointed an Executive
Director responsible for its UK business.
The current Policy provided that a minimum level of Group earnings must be achieved before an
annual bonus was payable. The new Policy gives the Remuneration Committee the flexibility to set this
minimum level of earnings at a Group or an appropriate business unit level.
Appointment
of new
Executive Director
A statement clarifying that any new Executive Director’s contractual terms, as outlined in the Policy,
shall always be subject to local laws in any applicable jurisdiction and that the contract can be
amended to ensure compliance with such local laws where necessary.
The new Policy gives the Remuneration Committee flexibility, if it so wished, to appoint, by way of
example, an Executive Director based outside the UK on a non-UK employment contract, where local
laws mean the terms of employment differ from those in the UK.
In the event that the Company appointed an Executive Director who was based outside the UK, there
is a risk that part of their remuneration will be taxed in the UK (as well as their home country) if they
travel to the UK to attend Board or other meetings. The Company is changing the Policy to give the
Committee the flexibility to cover the additional tax liability incurred by a new Executive Director (based
outside the UK) when performing duties outside their home country. This ensures they are not subject
to a greater tax burden as a result.
The current Policy provides that
a) the Company may terminate the contract by making a payment in lieu of any unexpired notice period,
with such payment in lieu of notice being limited to a maximum of 12 months’ base salary; and
b) service contracts for Executive Directors expressly provide for the use of monthly phased payments
in the event of a payment in lieu of notice with a reduction in amounts paid if the executive obtains
alternative paid employment.
The new Policy clarifies that these provisions can be adapted if not permitted by relevant law.
This gives the Remuneration Committee flexibility, if it so wished, to appoint an Executive Director on
an employment contract without, by way of example, payment in lieu of notice provisions, which are
prohibited under employment law in some European countries.
Termination of
Executive Director
– Payment in
Lieu of Notice
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 134 Corporate Governance – Directors’ Remuneration Report continued
Proposed Remuneration Policy
Executive Director Fixed Remuneration
AT A GLANCE
BASE SALARY
OPERATION
Purpose and link to strategy
Reflects the scope and responsibility of the role, while taking account of the skills and experience of the individual. Used to
attract and retain talented executives to deliver the business strategy.
Interim Executive Chair (Keith Williams):
£300,000 (effective 15 May 2020)
Interim CEO Royal Mail (Stuart Simpson):
£450,000 (effective 20 July 2017) plus an interim
allowance £75,000 (effective 15 May 2020)
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 and 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 financial advice and relocation allowances on recruitment.
UK based Executive Directors are entitled to participate in any SIP
or SAYE schemes currently available to employees.
Where an Executive Director is based outside the UK, but is required
to travel to the UK to fulfil the responsibilities of their role and to attend
Board meetings, they may be subject to tax on their business travel
expenses to and from the UK and on the provision of any accommodation
in the UK. Although in reality it represents a business expense, the tax
treatment requires that their travel and accommodation expenses are
then included as benefits. Because of the business context, the tax
liabilities will be covered by the Company on a grossed-up basis.
PENSION
Purpose and link to strategy
To provide a competitive post-retirement income.
CEO Royal Mail (Stuart Simpson): currently
17.5 per cent of salary
Company contribution to a defined contribution pension scheme and/or
a cash supplement (in lieu of pension).
For newly appointed Executive Directors the
pension allowance will be in line with the
employer contribution for the majority of
the workforce
With effect from 1 April 2021 (start of the Company financial year), the
pension allowance contribution rates for current Executive Directors
will be reduced to 15.6 per cent, the current rate for the majority of
the workforce.
135
Executive Director Variable Remuneration
AT A GLANCE –
MAXIMUM OPPORTUNITY
OPERATION
ANNUAL BONUS
PERFORMANCE MEASURES
Purpose and 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
150 per cent of salary,
split between two
plans: an annual cash
bonus award of up to
100 per cent of salary
and a deferred share
bonus award of up to
50 per cent of salary.
Target opportunity of
75 per cent of salary.
The total annual incentive opportunity is provided
as follows:
– Two thirds is payable in cash, paid at the end
of the annual performance period;
– One third 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 and clawback provisions will apply to both
elements of the award.
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.
In 2020-21, 75 per cent of the measures
shall be financial, with the remainder being
operational KPIs or strategic objectives.
In addition, the Committee will set a
minimum level of earnings that must be
achieved (which may be at a Group or an
appropriate business unit level) 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 and 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 150 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 or at the end of
three years. The Committee may change
the balance of the measures, or use
different measures for subsequent awards,
as appropriate.
The underlying performance of the business
will also be taken into account when
determining the vesting.
The grant of the 2020 LTIP awards is
likely to be made towards the end of 2020.
The measures and any associated targets
will be confirmed at the time of grant via
stock exchange announcement.
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.
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 136 Corporate Governance – Directors’ Remuneration Report continued
AT A GLANCE –
MAXIMUM OPPORTUNITY
OPERATION
APPLICATION OF MALUS AND CLAWBACK
PERFORMANCE MEASURES
Malus and clawback
may be applied
by the Committee
in the event of:
i. discovery of a material misstatement resulting in an adjustment in the Company’s accounts;
ii. discovery that the grant or vesting of an award was based on error or inaccurate or
misleading information;
iii. conduct by an Executive Director that amounts to fraud or gross misconduct;
iv. conduct by an Executive Director that results, or could result, in serious reputational damage
to the Group;
v. conduct by an Executive Director that has caused a material failure of risk management;
vi. the Company enters involuntary administration or insolvency process; and
vii. an Executive Director breaching any restrictive covenants or confidentiality obligations that
apply after the termination of their employment.
Events iv) to vii) only apply to awards granted after 1 April 2019.
AT A GLANCE
OPERATION
SHAREHOLDING GUIDELINES – DURING EMPLOYMENT
Purpose and link to strategy
To ensure alignment between remuneration and long-term shareholder value creation.
Shareholding
guideline of
200 per cent of salary.
Executive Directors (other than the interim Executive Chair) are expected to keep any shares they
already own and any shares released under the LTIP and the Deferred Share Bonus Plan (DSBP)
(except for those sold to cover any tax and social security obligations) until this is achieved.
SHAREHOLDING GUIDELINES – POST CESSATION
Purpose and link to strategy
To ensure continued alignment of Executive Directors with shareholders as they transition out of the business.
200 per cent of salary
to be held in granted
shares for two years
after leaving.
On cessation, Executive Directors (other than the interim Executive Chair) are required to maintain
their shareholding guideline for two years. The number of shares to be held will be based on the
shares vested under executive share schemes only (including the shares from any DSBP award
that are yet to vest, based on a net calculation) and will be determined by the share price on the
date of cessation. If an Executive Director has not yet reached the 200 per cent of salary guideline
at the point of departure, they will be required to hold any shares granted under executive shares
schemes for two years. The post cessation shareholding requirement will be included in Settlement
Agreements for Executive Directors on leaving the business.
137
Remuneration for a new Executive Director
The following table sets out the remuneration arrangements for a new Executive Director.
ELEMENT
Salary
Benefits
Pension
allowance
Incentives
POLICY
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 including but not limited to a) relocation allowance on recruitment and b) covering additional
tax incurred by a non UK based Executive Director when performing their duties outside their home
country (such as visiting the UK for Board or other meetings) to ensure they are not subject to a greater
tax burden as a result.
The pension allowance paid to any newly appointed Executive Director will be aligned to the wider
workforce pension arrangements as outlined in the Remuneration Policy.
Incentive arrangements for new Executive Directors will be in accordance with the approved
Remuneration Policy in force at the time of appointment. Under the Remuneration Policy:
– maximum total annual incentive opportunity award in any year would be 150 per cent of salary,
split between cash and shares (100 per cent and 50 per cent respectively)
– maximum LTIP award would be 150 per cent of salary (with the ability to offer up to 300 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.
Other
The Committee always seeks to use its judgement to ensure that any remuneration package is set
such that the Company is able to attract the right calibre of individual required, whilst maintaining
a responsible attitude to executive compensation.
The terms and conditions for any new Executive Director contract as outlined in this Policy shall always
be subject to local laws in any applicable jurisdiction and be amended to ensure compliance with such
local laws where necessary.
What happens when an Executive Director leaves?
ELEMENT
POLICY
Payment in
lieu of notice
The Company may terminate the contract by making a payment in lieu of any unexpired notice period
(unless dictated by applicable law). The payment in lieu of notice is limited to a maximum of 12 months’ base
salary (unless dictated by applicable law). Service contracts for Executive Directors will expressly provide for
the use of monthly phased payments (unless dictated by applicable law) in the event of a payment in lieu of
notice with a reduction in amounts paid if the executive obtains alternative paid employment.
Other payments
Payment in lieu of accrued holiday, incidental expenses, outplacement services and payments relating
to post-termination restrictions 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.
Post-Cessation
Shareholding
Executive Directors will be required to maintain their shareholding guideline for two years. The number
of shares to be held will be based on the shares granted under executive share schemes only and will
be determined by the share price on the date of cessation. If an Executive Director has not yet reached
the 200 per cent of salary guideline at the point of departure, they will be required to hold any shares,
granted under executive shares schemes for two years.
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 138 Corporate Governance – Directors’ Remuneration Report continued
The following table sets out the position under the incentive plans on cessation of employment:
ELEMENT
GOOD LEAVER REASON1
OTHER REASON2
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.
– to determine that an executive is a good leaver
– to determine whether to pro-rate the bonus to time.
The normal approach 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.
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.
– 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 approach 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.
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).
Lapse of any
unvested
LTIP awards.
– 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 approach 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.
What happens in case of a takeover?
The Committee’s Policy on the vesting of incentives on a change of control is summarised below.
ELEMENT
TAKE-OVER
COMMITTEE DISCRETION
Annual Bonus:
Cash Awards
Pro-rated to time and
performance to the date
of the takeover.
The Committee’s normal approach is that it will pro-rate the bonus for
time. It is the Committee’s intention to use its discretion to not pro-rate
in circumstances only where there is an appropriate business case
which will be explained in full to shareholders.
Annual Bonus:
Deferred
Share Awards
Subsisting deferred share
awards may vest on
a takeover.
The Committee has discretion regarding whether to pro-rate the award
to time. The Committee’s normal approach is that it will not pro-rate
awards for time. The Committee will make this determination depending
on the circumstances of the takeover.
LTIP
Subsisting LTIP awards may
vest on a takeover, pro-rated
to time and performance.
The Committee will determine the proportion of the LTIP award which
vests taking into account, among other factors, the period of time the
LTIP award has been held by the participant and the extent to which any
applicable performance conditions have been satisfied at that time.
In the event of a demerger, the Committee has wide flexibility as to what should happen to awards, including whether all or part
of an award should vest and on what terms, or whether an award should continue on amended terms.
139
Executive Directors’ Remuneration opportunity under the new Policy
The following charts set out the remuneration scenarios under the Policy for the Executive Directors in 2020-21.
It should be noted that there is no change to the target or maximum remuneration receivable for the Executive Directors, compared
with the previous Policy scenarios. As outlined in the Committee Chair’s statement, the interim Executive Chair is not entitled to
participate in any pension arrangements or incentive plans.
Illustrative remuneration scenarios
Keith Williams (fixed only) and Stuart Simpson
2,500
2,000
1,500
1,000
500
0
15%
29%
34%
34%
29%
32%
27%
26%
26%
48%
100%
100%
Fixed
Keith Williams
Fixed
On Target
Maximum
Stuart Simpson
Maximum with
share price
growth
Fixed
Annual Bonus
LTIP
Share price growth
Assumptions
Fixed remuneration: For the interim Executive Chair this includes current salary only. For the Interim CEO of Royal Mail the total
includes current salary, as well as an acting up allowance of £75,000 per annum, pension allowance at 17.5 per cent and a benefits
value of £15,360.
On target: Bonus is 75 per cent of salary (including the deferred element) and LTIP is 75 per cent of salary.
Maximum: Bonus is 150 per cent of salary (including the deferred element) and LTIP is 150 per cent of salary under the Policy.
Maximum with 50 per cent share price appreciation: The share price embedded in the LTIP calculation for the ‘maximum with
share price growth’ bar chart is assumed to increase by 50 per cent over the performance period.
No dividend equivalents on share-based incentives have been applied in any of the above scenarios.
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 140 Corporate Governance – Directors’ Remuneration Report continued
Remuneration Policy for Non-Executive Directors (including any Non-Executive Chair of the Board)
AT A GLANCE
OPERATION
Purpose and link to strategy
Provides a level of fees to support recruitment and retention of Non-Executive Directors and a Chair of the Board with the
necessary experience to fulfil the leadership role required of them.
Non-Executive Directors are paid an annual fee and
additional fees for being Chair of a Committee or a member
of a Committee and, if appropriate, other additional
time commitments.
The Chair of the Board does not receive any additional fees
for membership of Committees.
The Board is responsible for setting the remuneration of the
Non-Executive Directors. The Remuneration Committee is
responsible for setting the Chair of the Board’s fees.
The fees for Non-Executive Directors and the Chair of the
Board 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 Chair of the Board 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 Chair of the Board and may
settle any tax incurred in relation to these. Non-Executive
Directors and the Chair of the Board do not participate in
any variable remuneration or benefits arrangements.
Service contracts and letters of appointment
The Company’s policy is that the Executive Directors are employed under service contracts. The contracts have an indefinite term
and are normally terminated by the Executive Director with six months’ written notice and by the Company with twelve months’
notice. In the case of the interim Executive Chair, his contract may be terminated with two months’ notice. Copies of the Executive
Directors’ service contracts are available for inspection at the Company’s AGM.
Subject to Board approval, it is the Company’s policy to allow each Executive Director to accept one Non-Executive Director
position on the board of another listed company. The fees for such appointments are retained by the Executive Directors and,
as appropriate, are disclosed in the Remuneration Report. In addition, the interim Executive Chair will be permitted to retain his
external commitments at the time of his appointment.
The Non-Executive Directors (including the Non-Executive Chair of the Board) are appointed by rolling letters of appointment.
The Non-Executive Directors are appointed for up to three years, subject to annual review and reappointment. The fees for new
Non-Executive Directors appointed will be set in accordance with the terms of the approved Remuneration Policy in force at the
time of appointment. One month’s notice is required by either party (four months’ notice in the case of the Chair of the Board).
ALL EMPLOYEE
REMUNERATION (UNAUDITED)
141
The Committee is directly responsible for the remuneration of the Executive Directors and the Executive Board. The Board and
the Remuneration Committee are also given regular updates and, as required, take key decisions on incentive plans that cascade
through the organisation. The Committee takes changes in workforce remuneration into account when making decisions on
executive remuneration. A summary of remuneration across the UK organisation is set out below.
OPERATIONAL
MANAGERS
SENIOR MANAGERS
SENIOR LEADERS
Salary
Based on role, location
and service, progression
typically based on service.
Salary increases negotiated
with the Communication
Workers Union and applied to
the pay scales, no personal or
performance related element.
Middle and junior
managers typically
have a similar fixed pay
structure to operational
colleagues, with
pay scales that they
progress through based
on service.
Pay based on
the role and
an individual’s
experience and
skills, within
broad bands.
Pay based on the role
and an individual’s
experience and
skills, and external
market positioning.
Allowances
& Overtime
Eligible for allowances
(including functional, shift and
legacy allowances), overtime
and scheduled attendance (a
form of planned overtime).
Some roles at this
level are also eligible
for shift pay, overtime
and allowances.
Not eligible.
Not eligible.
Pension
The majority of employees are members of the Royal Mail Defined Benefit Cash
Balance scheme, with company contribution at 15.6 per cent of salary, into which
participants transferred after the closure of the final salary pension plan.
Option of cash
allowance in lieu of
company contributions.
New hires are eligible for the RM Defined Contribution scheme, with company
contributions up to 10 per cent of salary.
Benefits
Annual
Bonus
Employee paid for flexible benefits (e.g. childcare vouchers,
cycle to work scheme, car leasing, insurances, season
ticket loans) and all employee share plans.
Car allowance and healthcare, in addition to
employee paid for flexible benefits and all
employee share plans.
Eligible for a ‘Christmas
Supplement’ reflecting their
huge effort and impact during
our busiest period. Not linked
to personal performance.
Managers are eligible for a management
cash bonus based on corporate and personal
performance. Some senior managers also have
a deferred share element to their bonus.
Eligible for annual
management bonus
with a cash and deferred
share element based
on corporate and
personal performance.
LTIP
Not eligible
Not eligible
Not eligible
Executive Board
The chart shows an indicative summary of the relationship between fixed and variable pay across the organisation. There is no
performance related pay for operational roles. Colleagues at this level influence their remuneration through working additional,
or antisocial, hours.
All our managers have an element of performance-related pay – with Executive Directors having the highest proportion of their
pay at risk.
Executive Director
Senior Leader
Senior Manager
Manager
Operational
0%
20%
40%
60%
80%
100%
Fixed
Variable (at target)
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 142 Corporate Governance – Directors’ Remuneration Report continued
Alignment between our approach to Directors’
remuneration and other colleagues
In developing the 2019 Remuneration Policy, the Remuneration
Committee carefully considered the remuneration arrangements
across the Group. The Committee receives information on wider
workforce demographics and remuneration on a regular basis, to
ensure the Committee has a good understanding of the structure
and application of reward policies throughout the Group.
The Committee has agreed a set of Guiding People
Principles, against which it can assess the Company’s reward
arrangements. Across the Group we are working towards
reward arrangements that:
– Deliver both value for our people and a return on investment
for the business;
– Incentivise and recognise high performance;
– Are aligned with the markets in which we operate
and compete;
– Drive efficiencies by taking a consistent cross business
approach; and
– Are well communicated, holistic and understood by
our people.
When making decisions about executive remuneration, the
Committee ensures, for example, that pay review budgets for
senior managers and executives are set at levels which are
typically lower than the same as those agreed with our trade
unions for employees whose pay is collectively bargained.
In addition, the different incentive and commission plans
in operation across the Group support the delivery of the
Company-wide annual bonus plan, through which the Executive
Directors are incentivised. The broader workforce did not
have direct input into the Policy, but its application is heavily
influenced by remuneration arrangements for all employees.
As well as being a Committee member, Simon Thompson is
also the designated Non-Executive Director for engagement
with the workforce, which allows any key themes from employee
engagement activity to be fed into Committee discussions.
Further information on this is set out on page 112-113.
2019
Total Pay Gap
Bonus Gap
Mean
Median
2.1%
–24.6%
3.5%
0.0%
We pay bonuses equally to men and women on a median basis
and in favour of women on a mean basis (i.e. -24.6 per cent
in 2019), as there is a higher proportion of women in our
management population, compared with the operational
population. We continue to pay bonuses to the vast majority
of our employees (97 per cent of men and 94 per cent of
women). Those who are ineligible have typically not reached
the minimum service requirement.
While we are pleased that our Gender Pay Gap reporting shows
that the Company has no significant pay gap, we continue to
focus on improving the representation of women at all levels
of the organisation. Our gender strategy focuses on attracting,
retaining, and developing female talent at all levels of the
organisation. We have female representation and recruitment
targets for operational roles, as well as a wide range of
initiatives in place to achieve them. These include: mandatory
recruitment and unconscious bias training; gender balanced
shortlisting; targeted development programmes; women’s
networking events and campaigns, as well as employee
resource groups that represent the interests of women across
our LGBTQ+, Women’s, Parents and Carers, Youth, BAME, and
Disabled networks. We will also continue to work in partnership
with external organisations, such as Business in the
Community, Everywoman, Working Families, and Employers for
Carers, to further enhance our gender strategy and champion
best practice.
CEO pay ratio
The CEO Pay Ratio is set out below for 2020, as required under
the Large and Medium-sized Companies and Groups (Accounts
and Reports) Regulations 2008 (Regulations), with the required
explanation, and further contextual information in relation to
methodology and assumptions used.
Committee oversight of all employee remuneration
During the year, the Committee received updates on key
activities and discussed material changes to all employee
remuneration policies and arrangements as well as an overview
of how remuneration is managed in GLS.
Year
2020
2019
Method
25th percentile
pay ratio
50th percentile
pay ratio
75th percentile
pay ratio
Option A
Option A
31:1
28:1
28:1
26:1
24:1
22:1
In addition, the Board was updated on a) proposals to implement a
Collective Defined Contribution pension plan and b) remuneration
arrangements in respect of the workforce represented by the
Communication Workers Union and Unite/CMA.
Gender Pay Gap reporting
The Company’s 2019 Gender Pay Gap report, published during
the 2019-20 financial year, continues to show that average pay for
men and women is broadly the same. On a mean basis, men are
paid 2.1 per cent more than women, and 3.5 per cent on a median
basis. This compares with a national average gender pay gap on
a median basis of 17 per cent across all industries, calculated by
the ONS in 2019. We would expect to see small changes in the
Total Pay Gap each year due to changes in the composition of the
workforce, and the payment of allowances and shift pay, which
can vary between men and women year on year.
The table below sets out the salary, full pay and benefits value
received by employees identified at the 25th, 50th and 75th
percentiles, during the 2019-20 financial year. There are over
88,000 operational colleagues on the salary of £23,025 on a
full-time equivalent basis across the business. The difference
in total pay and benefits is due to the different allowances,
overtime, shift payments and pension arrangements received
by these employees during the 2019-20 year.
2019-20
Salary
25th percentile
50th percentile
75th percentile
£23,025
£23,025
£23,923
Total pay and benefits
£28,064
£30,947
£36,221
143
The reason for the small percentage point increase in the
pay ratio between 2018-19 and 2019-20 is the increase in the
former Group CEO’s total remuneration, rather than a reduction
in the remuneration of other colleagues. The former Group
CEO’s 2019-20 remuneration includes the value of a long-term
incentive award (totalling £90,918), which has the impact of
moving the pay ratio at the 50th percentile from 26:1 to 28:1.
We have also detailed the potential ratios based on the former
Group CEO’s theoretical fixed, target and maximum pay for the
last financial year as set out in the Remuneration Policy. It is
important to note that a high proportion of the former Group
CEO’s pay is based on performance against the short and
long-term incentive plans, and their payouts can vary
significantly year on year affecting the ratio going forward.
In 2019-20, the former Group CEO did not receive a salary
increase or an annual bonus payment in relation to the 2019-20
financial year. As no annual bonus was awarded this year, the
pay ratio was lower. This is consistent with a high proportion
of the remuneration for the former Group CEO and other
senior executives being variable i.e. at risk, compared with
our operational colleagues.
Illustrative CEO pay ratios based on different remuneration outcomes for the former Group CEO
Median employee pay versus
Group CEO’s fixed remuneration
Median employee pay versus Group
CEO’s actual 2019-20 remuneration
Median employee pay versus
Group CEO's target remuneration
Median employee pay versus Group
CEO's maximum remuneration
25
28
57
88
0
20:1
40:1
60:1
80:1
100:1
How we have calculated our pay ratios
Under the Regulations, companies are required to identify the employee with pay and benefits at the 25th, 50th and 75th percentiles
of all UK employees for the relevant financial year and compare to the total remuneration of the former Group CEO as set out in the
Single Figure Table.
The Company has chosen to use Option A to identify the employees at the 25th, 50th and 75th percentiles and their respective pay
and benefits, as it is recognised that this is the most accurate approach. All UK employees as at year-end have been included in the
reporting, with employees ranked based on their remuneration for the 2019-20 financial year. The data assumptions included in our
reporting are set out below:
ELEMENT
DESCRIPTION
Base salary
The Regulations require that full time equivalent salaries are used to identify P25, P50 and P75 in
order to ensure comparability across the organisation. At Royal Mail, over 44,000 colleagues work
part-time, primarily in operational roles, and may have working hours changes through the year.
We have, therefore, used the full-time equivalent salary, as at year-end, as the salary figure to
rank our employees.
Allowances
and overtime
This includes a range of functional, shift, location, role-based allowances, and overtime, included
on an actual basis (not pro-rated for part-time colleagues, or annualised for new starters).
Taxable benefits
Taxable benefits included are car allowance and healthcare (or equivalent cash amount).
Employer
pension contributions
Actual employer pension contributions have been included (not been pro-rated for part-time
colleagues or annualised for new starters).
Incentives
The Regulations require that incentives relating to the relevant financial year are included. In some
cases, the decision on the level of bonuses and LTIP vesting is not made until after the publication
of this report.
Management bonuses included a projected bonus pay-out in respect of 2019-20 for frontline
managers and other junior managers, inclusive of any advance payment made during the year.
The vesting for the 2017 Royal Mail LTIP is assumed to be zero. As our management population
make up only a small proportion of the workforce, in practice incentives (actual or estimates) do
not have any material impact on the quartile numbers.
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 144 Corporate Governance – Directors’ Remuneration Report continued
ANNUAL REPORT ON DIRECTORS’
REMUNERATION (AUDITED)
This part of the Directors’ Remuneration Report sets out how the current Remuneration Policy has been applied for the Financial
Year 2019-20. This detailed information, set out below, has been audited by the Company’s independent auditors, KPMG LLP.
Single figure table – Executive Directors
£'000
Salary1
Benefits2
Annual Bonus Plan3
Long Term
Incentive Plan4
Pension Allowance5
Total
Total Fixed
Total Variable
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
R Back6
640
533
S Simpson
450
450
25
15
21
15
0
0
0
0
91
0
0
0
112
79
93
79
868
647
777
647
544
544
544
544
91
0
0
0
Notes
1
2
3
4
5
6
The Committee reviewed the Executive Directors’ salaries and decided against making any increases during the 2019-20 financial year. Rico Back’s and Stuart Simpson’s salaries were set
on their respective appointments as the Group CEO and CFO.
Benefits include car benefit and healthcare provision (or a cash equivalent allowance).
There were no annual bonus payments (cash or deferred) in relation to both 2019-20 and 2018-19.
As the threshold performance level over the period to 31 March 2020 was not achieved, any 2017 RMG LTIP award lapsed in full and a value of zero is included above. The 2020 figure shown
for Rico Back relates to historic grants under the GLS LTIP with performance periods ending in 2019-20. There is no element attributable to share price appreciation.
For 2020, the full amount for Rico Back is paid as an allowance in lieu of pension. For Stuart Simpson, £10,000 is paid into the Royal Mail Defined Contribution Plan, with the balance paid
as an allowance.
Rico Back joined the Board on 1 June 2018, and all amounts for 2018-19 above reflect his service as an Executive Director.
2019-20 annual bonus outcome (unaudited)
The performance period for the annual bonus is the same as the financial year, with achievement being assessed against financial
and non-financial targets, and a set of strategic objectives. A minimum level of operating profit is required to be achieved before the
annual bonus pays out. The maximum bonus opportunity for the former Group CEO and CFO was 150 per cent of salary, of which
one-third is delivered in deferred shares.
Prior to its end of year review of performance and specifically achievement against the scorecard measures, the Committee
decided that, in light of the Board’s decision to preserve cash and not recommend a final dividend in respect of 2019-20, it was not
appropriate to award annual bonuses to the Executive Directors.
Maximum award (% of salary)
2019-20 annual bonus (£’000)
R Back
S Simpson
150%
150%
£0
£0
As the performance outturn determines the value of the deferred share award granted, no deferred share award will be granted to
the Executive Directors in relation to the 2019-20 financial year. The Committee noted that the non-payment of 2019-20 bonuses
would also be applied to other executives.
Notwithstanding the decision around the payment of bonuses, the Committee reviewed the formulaic outcome under the scorecard,
as well as the Company’s underlying financial, operational and strategic progress during the year: see broader assessment of the
UK business performance in the Committee Chair’s letter on page 129. A review of performance against the bonus measures is
set out below. The figures in the table may differ slightly from the financials reported elsewhere in the Annual Report and Accounts
(see footnote for basis of calculation)
Measure
Group operating profit1
UKPIL costs1
Group revenue1
First Class Retail Quality of Service²
Reduction in Lost Time Accident Frequency Rate
Strategic objectives
Total
Weighting
Threshold
Target
Max
Actual
30%
25%
£309m
£363m
£417m
£353m
£7.72bn
£7.569bn
£7.418bn
£7.57bn
20%
£10.44bn
£10.78bn
£11.09bn
£10.8bn
7.5%
7.5%
10%
100%
–
2%
93.0%
93.2%
92.8%
5%
8%
22.3%
See below
1
2
Financial targets and actuals are based on reported results subject to adjustments approved by the Remuneration Committee. Bonus targets and results are based on a 52-week basis, in line
with audited outcomes. Group revenue and Group operating profit are calculated at budgeted foreign exchange rates and exclude the impact of GLS unbudgeted acquisitions.
Until the onset of the COVID-19 pandemic, the Company was forecast to exceed its First-Class target of 93.0%. However, service levels in the fourth quarter were impacted by coronavirus,
resulting in an outcome for the year of 92.8%.
145
Details of the strategic objectives, and performance against these, is set out below:
2019-20 OBJECTIVE
PROGRESS
Progress on specific
milestones in the
turnaround plan.
Increase the focus
on productivity whilst
laying the foundations
of the extension of
our UK network.
Despite increasing UKPIL costs, in part driven by our three-year pay deal with CWU, we have
achieved costs avoided of £188 million, within our forecast range. Productivity improved by
1.0 per cent. This was lower than our target of over two per cent, reflecting necessary additional
investment to support a high-quality service and delays to local change initiatives due to the
industrial relations environment.
In July 2019, we confirmed we had started work on the first of two state of the art parcel hubs.
In March 2020, we signed a conditional agreement for a lease for our second parcel hub in the
Midlands. We have also commenced trials of separate van delivery for larger and Next Day parcels.
We have begun to embed digitally-enabled work tools to improve efficiency and productivity.
We have completed the deployment of our route optimisation tool.
In January 2020, following the conclusion of our dispute resolution procedures with CWU, we
confirmed we were moving ahead with key national and much-needed local change initiatives t
hat had been delayed, in some cases, by up to a year.
Scale up and grow
GLS. Drive profitable
revenue growth and
margin improvement
in GLS.
Revenues at £3,161 million were up 9.5 per cent year on year (or excluding acquisitions 6.3 per cent).
Revenue growth was particularly strong in cross-border and Europe East and was supported by
a good development in average prices (base price increases, mix effects and surcharges).
Operating Profit margin at 6.6 per cent, within our target 6-7 per cent range. A year on year growth
of 50 bps.
Financial performance in GLS US and GLS Spain improved year on year. Profit improvements
in GLS France will take longer to realise.
Enhance our cross-
border proposition.
Leverage the
combined Royal Mail
and GLS networks
to drive profitable
cross-border
revenue growth.
Revenue growth was achieved despite challenging trading conditions.
At the start of the year, international volumes were impacted by uncertainty relating to the
UK’s departure from the EU. In the fourth quarter of the year, the onset of COVID-19 impacted
international volumes.
Cross-border initiatives which were progressed during the year included:
– Launching a new tracked and signed service, in collaboration with China Post.
– RM International was able to increase it parcel weight offering from 2kg up to 5kg for 16 countries.
RM Group now has four “extra-terrestrial office of exchanges” (Liège, Neuenstein, Ansfelden and
Amsterdam) supporting GLS to access the postal network.
2017 LTIP outcome
Royal Mail LTIP
The 2017 LTIP was based on performance against a relative TSR measure, with a performance period from 1 April 2017
to 31 March 2020, as set out below:
Measure
TSR versus FTSE 100
(excluding mining and financial companies)
Weighting
100%
Threshold
Maximum
Achievement
Performance
Vesting
Median
50%
Top Quartile Below Median
0%
100%
The Remuneration Committee agreed that the performance of the 2017 LTIP was in line with the wider performance of the business
and, therefore, chose not to exercise discretion on the outcome of this plan. Due to the above performance, the 2017 LTIP will not
vest in July 2020. There is, therefore, no element attributable to share price appreciation.
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 146 Corporate Governance – Directors’ Remuneration Report continued
GLS LTIP
As disclosed in previous Directors’ Remuneration Reports, Rico Back was granted GLS LTIP awards prior to his appointment as
Group CEO. These awards continue to vest on their normal schedule. From 2018, Rico Back has been eligible for the Royal Mail
LTIP and did not receive any further grants under the GLS plan. Under the GLS LTIP, participants receive a maximum award of 98
per cent of salary, 40 per cent in shares and 60 per cent in cash. The performance conditions are based on GLS profit performance.
A separate target is set for each of the three financial years of the vesting period: 25 per cent of the award is based on achievement
in year one; with 37.5 per cent based on achievement in years two and three respectively. Performance is assessed annually and
banked, ahead of vesting at the end of the three-year period.
The Single Figure Table, therefore, shows the third tranche of Rico Back’s 2017 GLS LTIP award, his final award under this plan, for
which the performance period ends in the 2019-20 year. This award formally vests in July 2020. The value shown is made up of a
cash element of €77,868, which has been converted for reporting purposes using the year end exchange rate of GBP1:EUR1.1184,
and a share element of 11,731 shares. The share element has been valued for the purposes of reporting in the table at £1.8152
based on the three-month average closing share price from 1 January 2020 to 31 March 2020 (£21,294 in total).
Other outstanding LTIP awards
The following grants under the 2018 RMG LTIP and 2019 RMG LTIP remain outstanding at 29 March 2020. The performance
conditions are set out below:
Measure
2018 RMG LTIP
TSR vs FTSE 100
(excluding mining and financial companies)
2019 RMG LTIP
TSR vs FTSE 50-150
(excluding mining and financial companies)
Group EBITDA1
Group Parcels Revenue Growth
Total
Threshold
Maximum
Weighting
Performance
Vesting
(% of award)
Performance
Vesting
(% of award)
100%
Median
50% Upper Quartile
100%
Median
£925m
£7.0bn
40%
40%
20%
100%
10% Upper Quartile
£1,200m
£7.8bn
10%
5%
25%
40%
40%
20%
100%
1
Outturn of Group EBITDA after three years, adjusted back to budgeted exchange rates. Includes project costs but excludes voluntary redundancy costs and exceptional charges.
Performance measure assumes £160m impact from the adoption of IFRS16 ‘leases’
The amount of the LTIP share awards outstanding for each of the Executive Directors is shown in the following table, as at
29 March 2020.
Award
Rico Back
2017 GLS LTIP (cash and shares)
2018 RMG LTIP
2019 RMG LTIP
Stuart Simpson
2017 RMG LTIP
2018 RMG LTIP
2019 RMG LTIP
Max value of
award at grant
(% of salary)
Max value of
award at grant
(£’000)
% vesting at
threshold
performance
(% of salary)
Final year of
performance
period
Number of
shares at grant
98%
100%
112.5%
100%
100%
112.5%
525
640
720
450
450
506
42%
2019–20
53,154
50%
2020–21
140,052
28%
2021–22
349,905
50%
2019–20
113,857
50%
2020–21
98,474
28%
2021–22
246,027
1
2
3
4
5
The level of vesting for the 2017 GLS LTIP is 42 per cent and 22,399 shares will vest in July 2020. The balance will lapse.
The level of vesting for the 2017 RMG LTIP is 0 per cent and shares will lapse in July 2020.
The 2017 LTIP award was granted on 28 July 2017 at a price of £3.95 per share.
The 2018 LTIP award was granted on 9 August 2018 at a price of £4.57 per share. Rico Back’s 2018 LTIP will lapse on 15 August 2020.
The 2019 LTIP award was granted on 8 August 2019 at a price of £2.06 per share. Rico Back’s 2019 LTIP will lapse on 15 August 2020.
147
Shareholding levels
The table below sets out details of the shareholdings of the Executive and Non-Executive Directors as at 29 March 2020
(except where noted below). There has been no change in the Directors’ interests in the ordinary share capital of the Company
between 29 March 2020 and 15 May 2020 except as noted below.
Executive Directors
Rico Back
Stuart Simpson
Chair of the Board
Les Owen4
Keith Williams
Non-Executive Directors
Maria da Cunha
Michael Findlay
Rita Griffin
Sarah Hogg
Orna Ni-Chionna
Lynne Peacock
Simon Thompson
Number of
shares owned on
29/03/201
Number of
shares owned on
31/03/19
Policy
shareholding
requirement
Current
shareholding
(as a % of salary)2
Share awards
not subject to
performance3
Share awards
subject to
performance
(LTIP 2017,
2018, 2019)
1,664,583
585,839
46,294
41,112
200%
200%
551%
52,243
543,111
22%
89,246
458,358
81,058
81,058
50,000
15,000
16,690
20,000
12,000
0
–
–
0
–
14,851
14,851
11,309
0
–
0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
2
3
For Directors who have stepped down from the Board, the number of shares owned is shown as at the date they stepped down. The number of shares is based on beneficial shareholdings and
excludes any unvested share awards. Rico Back’s and Stuart Simpson’s shareholdings as at 31 March 2019 have been restated as these inadvertently included unvested deferred share awards
in the totals. The amounts shown last year were 613,528 and 88,400 respectively.
Value of beneficial shareholding based on the average share price during 2019-20 (211.78p), including any LTIP shares subject to a holding period. Excludes any unvested Deferred Share Bonus
Plan (DSBP) awards.
Includes the DSBP awards and any matching shares awarded in 2019/20. During the financial year of 2019/20, Stuart Simpson was awarded 24 Matching shares through the Partnership and
Matching Share Arrangement. Between the end of the financial year and 15 May 2020, Stuart Simpson acquired a further 129 Partnership shares and was awarded a further four Matching
shares through the Partnership and Matching Share Arrangement.
4
Les Owen’s shares were owned by a connected person.
Directors’ shareholdings as at 29 March 2020
Rico
Back
Stuart
Simpson
3,683
42,611
547,604
1,512,000
152,583
595,354
0%
100%
200%
300%
400%
500%
600%
700%
800%
% of salary
Shareholding requirement
Other beneficial shareholdings including from vested share awards
Shares purchased voluntarily from own funds
Unvested share awards, including those subject to future performance
Value of shares based on average share price during 2019-20 (212p)
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20
148 Corporate Governance – Directors’ Remuneration Report continued
Payments for loss of office and payments to former Executive Directors
Sue Whalley
As was disclosed in last year’s Remuneration Report, Sue Whalley stepped down from the Board on 7 November 2018 and left the
Company on 31 March 2019. In line with her contractual entitlements, she was due to receive payments during 2019-20 in lieu of
approximately seven months’ basic salary (a total of £272,966). According to the terms of her contract, Sue Whalley confirmed that
she was receiving income from alternative employment, and her final payment was reduced accordingly by £38,923.71.
Further information related to her departure is set out on page 137 of last year’s Remuneration Report.
Rico Back
It was announced on 15 May 2020 that Rico Back had stepped down as Group Chief Executive with immediate effect. As outlined
in the stock exchange announcement on the same date, Rico Back will remain an employee for three months until 15 August 2020.
The Committee determined that the following termination arrangements were fair and reasonable, consistent with the Directors’
Remuneration Policy and in line with his contractual entitlements.
– On termination Rico Back will receive nine monthly payments in lieu of notice totalling £480,000, which represents the balance
of his 12-month notice period. These payments will be reduced by any amounts that Rico Back receives from alternative
paid employment.
– There is no eligibility to receive any annual bonus (cash or deferred) in respect of 2019-20 or 2020-21.
– The 2018 and 2019 Royal Mail Long Term Incentive Plan awards will lapse: the total shares under award were 489,957.
– Rico Back will retain a deferred share bonus award granted in 2018 (52,243 shares). This award will continue to vest as scheduled
in June 2021 i.e. there is no acceleration of vesting and the award will remain subject to malus (i.e. the potential claw-back of any
unvested element). The Committee decided this was appropriate as the award related to a prior performance year (2017-18) and
has already been earned.
– Rico Back will retain his unexercised GLS long-term incentive plan award which was granted to him prior to his appointment
as Group CEO and which is due to vest, subject to performance, in July 2020.
– Tranche 1 of this GLS LTIP met its performance conditions in 2017-18 and will vest in July 2020 in line with the terms of the
plan (€70,812 and 10,668 shares).
– Tranche 2, relating to performance year 2018-19, was waived by Rico Back in 2019.
– Tranche 3, relating to performance year 2019-20, is due to vest in July 2020, subject to performance conditions and the plan
rules. There are no further awards outstanding under the GLS LTIP.
– Rico Back will receive a capped contribution of £50,000 (excluding VAT) towards legal fees incurred in connection with his
departure; and a capped contribution of £25,000 (excluding VAT) towards outplacement support.
– Rico Back is not eligible for any further payments for loss of office.
Under the Remuneration Policy, there is a requirement to retain certain shares for two years following termination of employment.
This holding requirement applies to shares vested under share awards granted to an Executive Director under an executive
share plan only. On Rico Back’s termination this shareholding requirement continues to apply to his unvested Royal Mail DSBP
award, as his Royal Mail LTIP awards granted to him after his appointment as an Executive Director will lapse as part of the
leaving arrangements.
Executive Director fees from external positions (unaudited)
The Executive Directors are entitled to receive fees from external appointments. However, neither Rico Back nor Stuart Simpson
held external appointments at other listed companies for the last reported financial year.
Executive Director terms of employment (unaudited)
The Executive Directors are employed under service contracts. The dates of these contracts are:
Keith Williams
Rico Back
Stuart Simpson
Date of Contract
15 May 2020
20 April 2018
15 May 2017
Notice Period
from RMG
months
2
12
12
The contracts have an indefinite term. Stuart Simpson’s contract may be terminated by him with six months’ written notice and the
Company can terminate the contract with twelve months’ notice. In view of the interim nature of Keith Williams’ appointment, his
contract may be terminated by either side with two months’ notice. Copies of the Executive Directors’ service contracts are available
for inspection at the Company’s AGM.
149
Relative importance of spend on pay (unaudited)
The table below shows the percentage change in dividends and overall expenditure on people compared with the previous financial
year. The Company considers overall expenditure on staff pay in the context of its general finances. For reference, revenue has also
been included because this measure represents the income the Company received during the year and provides a clear illustration
of the ratio of people costs to income.
Dividend per share (pps)
People costs (£m)
Revenue (£m)
2019-20
2018-19
% Change
24.5
5,956
24.3
5,729
10,840
10,444
0.8%
4.0%
3.8%
Note: Revenue and Costs are shown on a 52-week basis for both reporting years to make sure the comparison year on year is correct. Adjusted People Costs for 2018-19 include people transformation
costs (previously reported separately).
Change in CEO pay vs average employee pay (unaudited)
The table below shows the percentage change in the former Group CEO’s salary, benefits and annual bonus between 2019-20 and
2018-19, compared with the average for all UK employees.
Former Group CEO2
UK employees
Salary
% change¹
Benefits
% change
Annual bonus
% change5
0%
0%
2.0%3
–2.9%4
N/A
N/A
1
2
3
4
5
Royal Mail plc is a holding company and does not have any employees. The data above is based on average salary costs for UK based employees of Royal Mail Group Limited. This is considered
the most representative comparator group as it covers most employees.
Rico Back was appointed Group CEO during 2018-19. The annualised value of his salary and benefits has been unchanged since his appointment.
The salary percentage change is based on employee headcount as of the end of March 2020. The calculation takes into account the full-time equivalent employee annual salary at March year-end
plus allowances, such as overtime and scheduled attendance, paid during the respective years.
Employee benefits are calculated on a per capita basis which includes a) car allowance or a cash equivalent and b) value of the medical cover (including any cash equivalent). There has been no
material change in the underlying value of benefits year on year. The percentage reduction shown in the table has been primarily caused by two factors: a) changes in population and b) changes
in employee benefit choices e.g. cash equivalent amounts are often lower than the value of a benefit in kind.
The Group operates a discretionary management annual bonus plan. For 2018-19, there was no pay-out to the former Group CEO or other UK managers, therefore, no year on year change
is shown.
CEO pay over the last 10 years (unaudited)
The total remuneration figure for the Group CEO over the last ten 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.
Chief Executive Officer
Rico Back
Moya Greene/Rico Back
Moya Greene
Financial Year
Total
Remuneration
(£’000)
Annual bonus
awarded as %
of maximum
Royal Mail LTIP
vesting as %
of maximum
2019–20
2018–19
2017–18
2016–17
2015–16
2014–15
2013–14
2012–13
2011–12
2010–11
868
882
1,790
1,901
1,529
1,522
1,360
1,962
1,107
778
0%
0%
71%
80%
82%
85%
77%
80%
74%
41%
N/A
0%
43%
46%
59%
69%
100%
100%
–
–
Adam Crozier
2010–11
2,428
–
100%
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 150 Corporate Governance – Directors’ Remuneration Report continued
TSR comparison (unaudited)
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 both the FTSE 100 Index and the FTSE 250 Index. While the Company is currently part of the FTSE
250, the Company was a constituent of the FTSE 100 Index for part of the period, therefore both indices are shown for comparison.
)
d
e
s
a
b
e
r
(
n
r
u
t
e
R
r
e
d
l
o
h
e
r
a
h
S
l
a
t
o
T
200
150
100
50
171
109
104
100
140
119
112
139
145
130
157
119
104
193
146
127
148
140
92
120
114
54
11 Oct 2013
30 Mar 2014
29 Mar 2015
27 Mar 2016
26 Mar 2017
25 Mar 2018
31 Mar 2019
31 Mar 2020
RMG
FTSE 100
FTSE 250
Policy implementation in 2020-21 (unaudited)
The following tables sets out how the Committee proposes to operate the Policy for Executive Directors next year:
KEITH WILLIAMS
ELEMENT
IMPLEMENTATION OF POLICY IN 2020-21
Base salary
On appointment as interim Executive Chair, salary set at £300,000.
Other
There is no eligibility to any cash allowances, medical benefit or pension provision.
There is no eligibility to participate in any short-term or long-term incentive plans.
There is no shareholding requirement or post-cessation of employment shareholding requirement.
STUART SIMPSON
ELEMENT
IMPLEMENTATION OF POLICY IN 2020-21
Base salary
We review the salary of each Executive Director annually. Current salaries:
– Interim CEO Royal Mail (Stuart Simpson) £450,000 plus, effective 15 May 2020, an acting up allowance
of £75,000 per annum (non-pensionable and not applicable when determining annual bonus or
LTIP opportunities).
Benefits
No change in approach to benefit provision for 2020-21.
Pension
allowance
Annual bonus
The allowance levels provision for existing Executive Directors is currently 17.5 per cent. However, from
1 April 2021, this will reduce to 15.6 per cent, which is the current employer contribution rate for the
majority of the workforce.
Maximum total annual incentive opportunity of 150 per cent of salary, split between a cash bonus
award of up to 100 per cent of salary and a deferred share bonus award of up to 50 per cent of salary.
Target opportunity of 75 per cent of salary, with 50 per cent in respect of an annual cash bonus award and
25 per cent in respect of a deferred share bonus award.
In the coming months, the Remuneration Committee will consider the impact of COVID-19 on the Company’s
performance and ensure that measures and targets for the annual bonus are set appropriately in the context
of any financial outlook. Targets will be disclosed retrospectively in next year’s Annual Report. It is envisaged
that 75 per cent of the measures shall be financial based on the performance of the business for which the
executive is responsible. As in previous years, the Remuneration Committee will set a minimum earnings
gateway which should be met before any bonus is payable to an Executive Director. This earnings gateway
will be set in the context of the 2020-21 outlook for the Group or relevant business unit.
151
Long Term
Incentive Plan
Maximum award of 150 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 Remuneration Committee will consider the impact of COVID-19 on the Company’s performance
and ensure that any financial targets for the LTIP are set appropriately in the context of the
outlook. The measures and any associated targets will be confirmed at the time of grant via stock
exchange announcement.
The grant of the 2020 LTIP awards has been postponed for the time being and is likely to be made towards
the end of 2020.
Threshold performance will equate to no more than 25% of the award vesting.
Shareholding
guideline
200 per cent of salary for Executive Directors.
Post-cessation requirement: 200 per cent of salary (or holding at the point of departure) to be held
in granted shares for two years after leaving.
Single figure table – Non-Executive Directors
£'000
Fees
Other
Total
2020
2019
2020
2019
2020
2019
Chair of the Board
Les Owen
Keith Williams
Non-Executive Directors
Maria da Cunha
Michael Findlay
Rita Griffin
Sarah Hogg
Orna Ni-Chionna
Lynne Peacock
Simon Thompson
43
195
268
66
51
56
65
38
21
31
71
–
–
66
–
81
–
63
0
0
0
0
0
0
0
0
0
0
0
–
–
0
–
0
–
0
43
195
268
66
Les Owen stepped down as Chair of the Board
Keith Williams was appointed as Chair on 22 May 2019
51
56
65
38
21
31
71
–
–
66
–
81
–
63
Maria da Cunha joined on 22 May 2019
Michael Findlay joined on 22 May 2019
Sarah Hogg joined on 1 October 2019
Orna Ni-Chionna stepped down on 18 July 2019
Lynne Peacock joined on 1 November 2019
Non-Executive Director fee levels
Non-Executive Directors are paid an annual fee and additional fees for being Chair or a member of Committees, and if appropriate,
other additional time commitments. During 2019-20 the Chair of the Board did not receive any additional fees for membership of
Committees. The Corporate Responsibility Committee was established on 25 September 2019. The fees for the other roles, which
remained unchanged during the year, are set out below.
Non-Executive Director Fees
Chair of the Board
Base Fee
Senior Independent Director
Committee Fees
Audit & Risk Committee
Remuneration Committee
Nomination Committee
Corporate Responsibility Committee
£300,000
£50,000
£10,000
Chair Membership
£15,000
£15,000
£0
£10,000
£6,000
£6,000
£4,000
£5,000
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20
152 Corporate Governance – Directors’ Remuneration Report continued
Chair of the Board and Non-Executive Director terms of appointment
The Non-Executive Directors are appointed by rolling letters of appointment. The Non-Executive Directors are appointed for
up to three years, subject to annual review and re-appointment. The fees for new Non-Executive Directors appointed will be
set in accordance with the terms of the approved Remuneration Policy in force at the time of appointment.
One month’s notice to terminate the appointment is required by either party. The dates of the Chair of the Board’s and
Non-Executive Directors’ letters of appointment are set out in the following table:
Keith Williams
Maria da Cunha
Michael Findlay
Rita Griffin
Sarah Hogg
Lynne Peacock
Simon Thompson
Date of Contract
22 March 2019
6 June 2019
6 June 2019
November 2016
9 Aug 2019
16 September 2019
1 November 2017
Unexpired Term at
29 March 2020 (months)
27
27
27
3
39
39
15
Until 15 May 2020 and prior to his appointment as an Executive Director, Keith Williams, as Chair of the Board, had a non-executive
contract that could be terminated by four months’ notice. He received an annual fee of £300,000. Rita Griffin signed a renewed
appointment letter in June 2020. Her re-appointment shall be for a term commencing from the Annual General Meeting (‘AGM’)
in September 2020 until the conclusion of the Company’s AGM occurring approximately three years from that date.
Non-Executive Director Policy implementation in 2020-21
The following table sets out how the Committee proposes to operate the Policy for Non-Executive Directors next year:
ELEMENT
IMPLEMENTATION OF POLICY IN 2020-21
Fees
As set out under the proposed Remuneration Policy on page 140, Non-Executive Directors will be paid
an annual fee and additional fees for being Chair or a member of Committees, and, if appropriate, other
additional time commitments. The fees as at 25 June are shown in the table on page 151.
The Non-Executive Chair of the Board (when appointed) does not receive any additional fees for
membership of Committees.
Remuneration Committee (unaudited)
Remuneration Committee members and meetings
The members of the Remuneration Committee and their
attendance at meetings during the 2019-20 financial year is
shown on page 96. Keith Williams stood down as a member
of the Remuneration Committee on 15 May 2020, following
his appointment as interim Executive Chair.
Role and focus of the Remuneration Committee
The Committee is responsible for recommending to the Board
the Remuneration Policy for Executive Directors and senior
management, and for setting the remuneration packages
for Executive Directors and other designated executives.
During the year, the activities included:
– Discussing shareholder feedback during the year in relation
to Directors’ remuneration;
– Determining the pay-outs from the annual bonus
arrangements for 2018-19;
– Approving the 2019-20 annual bonus plan targets;
– Approving the 2019 LTIP awards and their associated
performance measures and targets;
– Reviewing senior executives’ remuneration arrangements;
– Reviewing the approach to remuneration in GLS;
– Reviewing the Committee’s terms of reference and
performance; and
– Reviewing broader all employee remuneration arrangements
including the annual salary review, Gender Pay Gap
Reporting, the alignment of incentives to support the
transformation of our UK business and the review of certain
reward policies.
In addition, the Committee met in May and June 2020
to consider (and, where appropriate, approve):
– the draft Directors’ Remuneration Report;
– the termination arrangements for the former Group
Chief Executive;
– Reviewing the satisfaction of the TSR performance measure
attached to the legacy share awards;
– the remuneration arrangements for the new interim
Executive Chair and Interim CEO of Royal Mail;
153
– approaches to recognise the contribution of frontline
colleagues during the COVID-19 pandemic;
– salary and fixed remuneration for senior executives; and
– the extent to which the 2019-20 bonus plan performance
measures had been satisfied, together with individual
award levels.
Specific priorities for the Committee in the forthcoming year,
in addition to its usual scheduled activities, will include:
– Finalising the measures and associated targets for both
a) 2020-21 annual bonus plan and b) 2020 LTIP;
– Considering any further steps which are required to respond
to the new UK Corporate Governance Code, including
emerging market practice; and
– Discussing Environmental, Social and Governance measures
in incentive plans: market practice among other listed
companies and future use in Royal Mail’s plans.
The full Terms of Reference for the Committee have
been updated to reflect the changes to the UK Corporate
Governance Code and can be found on our website:
→ www.royalmailgroup.com/en/about-us/management-and-
committees/remuneration-committee.
Advice to the Remuneration Committee
The Committee takes information and advice from inside and
outside the Company. Internal support was provided by Sally
Ashford, the Chief HR Officer, Neil Cuthbertson, Director of
Reward and Performance, Mark Amsden, Group General
Counsel and Company Secretary, and other senior leadership
as appropriate. 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. Deloitte provided information to
the Committee regarding external market trends and other
Committee matters during 2019-20. The total fees paid
to Deloitte in respect of this advice were £91,700. Deloitte also
provided tax, technology, internal audit, strategy and business
consulting services to the Group during the financial year.
Deloitte are signatories to the Remuneration Consultants
Group Code of Conduct, were appointed by the Committee and
report directly to the Chair of the Committee. The Chair of the
Committee meets regularly with advisers without Management
present. The Committee is satisfied that the advice it receives
is objective and independent.
Remuneration Committee evaluation
The Committee’s performance was externally evaluated
by Independent Board Evaluation as referred to on page
103. Committee members noted the refreshed Committee
composition and new chairmanship which was functioning well.
Members of the Committee are all described as highly engaged
and knowledgeable on the issue of remuneration. The key
priorities for 2020-21 are to:
– Work with the Secretary to continue improving the quality
of Committee papers.
– Enhance the development of remuneration principles and
guidelines across the organisation.
Shareholder voting and consideration of shareholder views
We undertook substantial engagement with our shareholders
in 2018-19 as part of the development of our current
Remuneration Policy. We are grateful for the feedback and
input received which allowed us to refine our proposals. We are
delighted with the strong positive vote received on both our
Remuneration Policy and Report in 2019. We remain committed
to ongoing dialogue with our shareholders and taking into
consideration shareholder views on our Remuneration
Policy and practices. The Committee Chair and Chair of the
Board maintain contact as required with the Company’s key
shareholders about relevant remuneration issues.
The table below shows both the advisory vote on the 2018-19 Remuneration Report at the AGM on 18 July 2019, and the vote on the
Remuneration Policy, which was effective from the date of the 2019 AGM for up to three years.
Approval of Remuneration Report
602,426,861
97.63
14,614,486
2.37 617,041,347
687,765
Approval of Remuneration Policy
580,068,473
99.64
2,124,419
0.36 582,192,892 35,526,464
Votes for
% For
Votes against
% Against
Total votes cast
Votes withheld
(abstentions)
Approved by the Board on 24 June 2020 and signed by
Lynne Peacock
Remuneration Committee Chair
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 154 Corporate Governance
DIRECTORS’
REPORT
The Directors present their Report, together with audited
financial statements for the year ended 29 March 2020.
This Directors’ Report together with the Strategic Report
on pages 1-87 form the Management Report for the basis
of Disclosure Guidance and Transparency Rule (DTR) 4.1.5R.
The following information is incorporated in the Directors’
Report by reference and can be found on the pages of the
Annual Report as indicated in the table below:
Business model
Strategy for delivering objectives
Results
Financial assets and liabilities
Principal risks
Corporate responsibility
Greenhouse gas emissions
Disabled employees
Our people
Diversity
Going concern/Viability statement
Post-balance sheet events
Dividend
Corporate Governance Report
Research and development
Future developments
Statement of Directors’ Responsibilities
Page
28
19
32
214
62
74
81
80
77
79
73
227
6
88
20 & 62
20 & 62
157
Listing Rule 9.8.4R disclosures
The location of information required to be disclosed in the
Annual Report under Listing Rule 9.8.4R is as follows:
Statement of the amount of interest capitalised
Dividend waivers
Page
199
154
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.
Share capital
As at 29 March 2020, the Company’s issued share capital
comprised 1,000,000,000 ordinary shares of one penny each as
set out in Note 6 to the accounts on page 225. Although a block
listing of 5,000,000 shares was undertaken in November 2014,
to date no new shares have been issued.
Subject to the Articles of Association (the Articles), any
member may transfer all or any of his or her certificated shares
by an instrument of transfer. The Board may decline to register
a transfer of any share which is not fully paid.
The Company is not aware of any agreements between
shareholders that may result in restrictions on the transfer
of securities and/or voting rights. Ordinary shareholders have
the right to receive notice of, attend, vote and speak at general
meetings. A holder of ordinary shares is entitled to one vote
per ordinary share held when a vote is taken on a poll.
Employees allocated Free Shares under the Free Shares Offer,
or who participate in the Partnership and Matching Plan, whose
shares 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 shares by instructing the Trustee how to vote
on their behalf.
Substantial shareholding
As at 29 March 2020, the Company had been notified, in
accordance with DTR 5, of the following interests amounting
to three per cent or more of the voting rights in the issued
ordinary share capital of the Company. Since 29 March 2020
the Company has been notified that Vesa Equity Investment
increased its shareholding to 81,953,615 and its percentage
voting rights to 8.20 per cent. BlackRock decreased its
percentage voting rights below 5 per cent on 23 June 2020.
Shareholder
Number of
shares
Schroder Investment Management
147,030,405
RWC Partners
UBS Asset Management
BlackRock
66,201,803
60,235,332
57,179,679
Aberdeen Standard Investments
46,196,278
Vanguard Group
Vesa Equity Investment
39,784,696
30,500,000
Columbia Threadneedle Investments 30,386,690
% voting
rights
14.7
6.6
6.0
5.7
4.6
4.0
3.1
3.0
Authority of the Directors to allot shares
At the 2019 AGM, the Company acquired shareholder consent
to allot Ordinary Shares in the Company and to grant rights
to subscribe for, or to convert any security into, shares in the
Company up to a maximum nominal amount of £6,666,666
(representing approximately two-thirds of the Company’s issued
share capital at that time), of which one half may be allotted or
made the subject of rights in any circumstances and the other
half may be allotted or made the subject of rights pursuant
to a rights issue. As at the date of this Directors’ Report, no
new shares have been allotted pursuant to the 2019 allotment
authority. The Directors will be seeking to renew this authority
at the 2020 AGM, although the Company has no current plans
to exercise such authority if given.
Purchase of own shares by the Company
At the 2019 AGM, the Company was authorised by its
shareholders to purchase up to a maximum of 100,000,000
of its Ordinary Shares. The Company’s Employee Benefit Trust
purchased 1,000,000 of its Ordinary shares during the year
ended 29 March 2020. The Directors will be seeking to renew
this authority at the 2020 AGM.
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
page 50. The Board reviewed the Group’s projections for the
next 12 months and, after due consideration, considered it
appropriate to continue to adopt the going concern basis of
accounting. For further information, see Note 1 to the financial
statements on page 173.
Special rights
There are no persons holding securities that carry special
rights with regard to the control of the Group.
Employee Benefit Trust (EBT)
As at 29 March 2020, a total of 1,029,706 shares
(2018-19: 70,331 shares) were held by the EBT on behalf
of the Company.
Company’s Articles of Association (Articles)
The Articles may be amended by special resolution in
accordance with the Companies Act 2006 and are available at
→ www.royalmailgroup.com/en/about-us/governance/.
155
Directors
Details of the current Directors can be found on pages 90-91.
The following Board changes have occurred during the year:
Les Owen
Retired 22 May 2019
Keith Williams
Appointed Chair 22 May 2019
Appointed interim Executive
Chair on 15 May 2020
Michael Findlay
Appointed 22 May 2019
Maria da Cunha
Appointed 22 May 2019
Orna Ni-Chionna
Retired 18 July 2019
Baroness Sarah Hogg
Appointed 1 October 2019
Lynne Peacock
Appointed 1 November 2019
Stuart Simpson
Appointed as interim CEO
of Royal Mail 15 May 2020
Rico Back
Retired 15 May 2020
Appointment and replacement of Directors
The Company’s Articles provide that the Company may by
ordinary resolution at a general meeting elect any person
to act as a Director, provided that, if he or she has not been
recommended by the Board, written notice of the proposed
appointment is given to the Company in accordance with the
Articles and that the Company receives written confirmation
of that person’s willingness to act as a Director. The Company’s
Articles also provide that the Board may at any time appoint as
a Director any person who is willing to act as such. Unless the
Company decides otherwise, the maximum number of Directors
permitted is 15.
At every Annual General Meeting, the following Directors are
required to retire under the Articles: (i) any Director appointed
by the Board since the previous Annual General Meeting; (ii) any
Director who has been in office at the last two annual general
meetings, but did not retire at either; and (iii) any Director who
has 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 meeting. Notwithstanding the requirements
of the Articles, the Company’s current practice is that all its
Directors retire at every Annual General Meeting in line with
the recommendations of the Financial Reporting Council’s UK
Corporate Governance Code. Directors who retire from office at
the Annual General Meeting are eligible for re-appointment by
the shareholders.
In addition to any power of removal conferred by the Companies
Act 2006, the Company may by special resolution remove any
Director before the expiration of his or her period of office and
may (subject to the Articles) by ordinary resolution appoint
another person who is willing to act as a Director in his or her
place. The Articles also set out the circumstances in which
a Director shall vacate office.
Strategic ReportFinancial StatementsCorporate GovernanceShareholder InformationRoyal Mail plcAnnual Report and Financial Statements 2019–20 156 Corporate Governance – Director’s Report continued
Directors’ powers
The business of the Company is managed by the Board which
may exercise all the powers of the Company, subject to the
provisions of the Articles, the Companies Act 2006 and any
resolution of the Company.
Directors’ interests
Details of the Directors’ share interests, and where applicable
their connected persons, can be found in the Directors’
Remuneration Report on page 148.
Directors’ and officers’ insurance
The Company also maintains Directors’ and officers’ liability
insurance which is reviewed annually.
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 that they ought
to have taken as a director to make themselves aware of any
relevant audit information and to establish that the Auditor
is aware of that information.
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.
Financial instruments
The Group’s financial risk management objectives and policies
in relation to its financial instruments are summarised in
Note 24 on page 214.
Change of control
The following agreements contain provisions permitting
exercise of termination or other rights in the event of a change
of control of the Company:
– 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.
– The €550 million bond issued by the Company in October
2019 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.
The Company does not have agreements with any Director or
employee that would provide compensation for loss of office
or employment resulting from a takeover except that provisions
of the Company’s share schemes and plans may cause options
and awards granted to employees under such schemes and
plans to vest on a takeover.
Branches
As a global Group, our interests and activities are held or
operated through subsidiaries, branches, joint arrangements
or associates and subject to the laws and regulations of the
relevant jurisdictions in which they operate. More details can
be found on pages 226-227.
Engagement with UK employees, suppliers and customers
Disclosure on how the Company has achieved a common
awareness on the part of all employees, customers, suppliers
and others of the financial and economic factors affecting the
performance of the Company can be found of pages 76-81.
Greenhouse gas emissions and risks associated
Information regarding the Company’s greenhouse gas
emissions can be found on pages 82-85. Details on key
environmental, social and governance (ESG) risks faced by the
business are also set out on those pages, and pages 62-72.
Streamlined Energy and Carbon Reporting (SECR)
We have complied with the SECR framework and reported on
the emission sources required under the Companies (Directors’
Report) and Limited Liability Partnerships (Energy and Carbon
Report) Regulations 2018 on pages 82-83.
By Order of the Board
Mark Amsden
Company Secretary
24 June 2020
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
IN RESPECT OF THE ANNUAL REPORT
AND FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report
and the Group and Parent Company financial statements in
accordance with applicable law and regulations.
Responsibility statement of the Directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
157
– the financial statements, 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 Directors’ Report and the Strategic Report include a
fair review of the development and performance of the
business and the position of the issuer and the undertakings
included in the consolidation taken as a whole, together with
a description of the principal risks and uncertainties that
they face.
We consider the Annual Report and Financial Statements,
taken as a whole, are fair, balanced and understandable
and provide the information necessary for shareholders to
assess the Group’s position and performance, business model
and strategy.
This responsibility statement is approved by the Board
of Directors and is signed on its behalf by:
Keith Williams
Interim Executive Chair
24 June 2020
Stuart Simpson
Interim Chief Executive Officer of Royal Mail
24 June 2020
Company law requires the Directors to prepare Group and
Parent Company financial statements for each financial year in
accordance with applicable law and regulations. Under that law
they are required to prepare the Group financial statements in
accordance with International Financial Reporting Standards
as adopted by the European Union (IFRSs 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 IFRSs 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 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 which comply 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.
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OUR FINANCIAL SECTION
158
OUR FINANCIAL SECTION
CONTENTS
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171
Independent auditor’s report
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated statement of cash flows
173 Notes to the consolidated financial statements
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174
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178
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180
181
182
187
187
188
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201
204
206
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208
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211
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247
1. Basis of preparation
2. Segment information
3. Revenue
4. Operating costs
5. People information
6. Specific items and pension cost to cash difference adjustment
7. Net finance costs
8. Taxation
9. Earnings per share
10. Dividends
11. Retirement benefit plans
12. Acquisition of businesses
13. Property, plant and equipment
14. Leases
15. Goodwill
16. Intangible assets
17. Investments in associates
18. Share-based payments
19. Non-current assets held for sale
20. Current trade and other receivables
21. Cash and cash equivalents
22. Current trade and other payables
23. Loans and borrowings
24. Financial assets and liabilities and risk management
25. Provisions
26. Share capital and reserves
27. Commitments
28. Contingent liabilities
29. Related party information
30. Events after the reporting period
31. Related undertakings of Royal Mail Plc
Significant accounting policies
Royal Mail Plc – Parent Company financial statements
Financial Statements
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF ROYAL MAIL PLC
TO THE MEMBERS OF ROYAL MAIL PLC
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159
1 Our opinion is unmodified
We have audited the financial statements of Royal Mail plc
(“the Company”) for the 52 week period ended 29 March 2020
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, including the accounting policies on
page 233 to 246.
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
29 March 2020 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 first appointed as auditor by the shareholders on 23
July 2015. The period of total uninterrupted engagement is for
the five financial years ended 29 March 2020. 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
£18 million (2018-19: £18 million)
7.5% (2017-18: 4.7%) of normalised Group
profit before tax
98.0% of normalised Group profit before tax
(2018-19: 97.3% normalised Group profit
before tax)
Risk of material misstatement vs 2018-19
Event Driven
Recurring risks
New: Carrying value of the Royal
Mail UK cash generating unit
New: Going concern
Deferred revenue associated
with advance customer
payments arising from stamps
sold
Valuation of certain unquoted
pension scheme assets
Valuation of pension scheme
liabilities
New: Accuracy of property lease
accounting
Recoverability of Parent
Company’s investment in
subsidiaries and debt due from
group entities (Parent Company
only)
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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.
Carrying value of Royal Mail UK CGU
Refer to page 121 (Audit and Risk Committee report), page 241
(accounting policy) and page 236 (financial disclosures).
The risk
Forecast based valuation
There is a risk, particularly in light of economic uncertainty
(including the impact of COVID-19) and delays in implementing
the transformation plan for the UK business, that the business
may not meet the expected growth projections in order to
support the carrying value of the Royal Mail UK cash
generating unit.
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INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF ROYAL MAIL PLC
TO THE MEMBERS OF ROYAL MAIL PLC
The carrying value of the Royal Mail UK cash generating unit
is supported through a value in use calculation that has
underlying assumptions of varying sensitivity. The estimated
recoverable amount is subjective due to the inherent
uncertainty involved in forecasting and discounting future
cash flows.
The effect of these matters is that, as part of our risk
assessment, we determined that the value in use has a high
degree of estimation uncertainty, meaning that the carrying
value of the Royal Mail UK cash generating unit has a potential
range of reasonable outcomes greater than our materiality for
the financial statements as a whole. The key sources of
estimation uncertainty, as set out on page 236, disclose the
sensitivities estimated by the Group.
Our response
– Data comparisons: We assessed the impairment model for
mathematical accuracy as well as internal consistency with
the board approved 3 year budget.
– Historical comparisons: We analysed the Group’s previous
forecasts against actual outcomes to assess the historical
reliability of forecasting.
– Benchmarking assumptions: With the assistance of our
valuation specialists in respect of the discount rate applied
to forecasts, we critically evaluated the risk adjusted
discount rates, having regard for market observable data
with regard to risk free rates and returns on equity for
comparator companies.
– Sensitivity analysis: We performed sensitivity analysis over
revenue growth/GDP assumptions, cost reduction
assumptions and the discount rate taking into account the
possible impact of COVID-19 in the value in use calculations.
– Comparing valuations: We compared the sum of the
discounted cash flows for all CGUs to the Group’s market
capitalisation to assess the reasonableness of those
cash flows.
– Assessing transparency: We considered the adequacy of
the Group’s disclosures with respect to the impairment
analysis and the carrying value of the Royal Mail UK cash
generating unit.
Our results
We found the carrying value of the assets within the Royal Mail
UK CGU to be acceptable.
Going concern
Refer to page 73 (Viability statement), Going Concern on page
155 (Director’s Report) and page 173 (accounting disclosures).
The risk
Disclosure quality
The financial statements explain how the Board has formed a
judgement that it is appropriate to adopt the going concern
basis of preparation for the Group.
That judgement is based on an evaluation of the inherent risks
to the Group’s business model and how those risks might
affect the Group’s financial resources or ability to continue
operations over a period of at least a year from the date of
approval of the financial statements.
The risks most likely to adversely affect the Group’s available
financial resources over this period are:
– Deteriorating economic and market conditions, made worse
by the impact of COVID-19, which could result in greater
than anticipated letter volume declines, impede parcels
volume growth and increases in costs of delivery.
– Industrial strike action which could exacerbate the
challenges created by COVID-19 and lead to further delays
in delivering the transformation plan.
– The business falling behind forecasts and the Board
being unable to manage cost targets given the uncertain
economic environment.
The risk for our audit was whether or not those risks were
such that they amounted to a material uncertainty that may
have cast significant doubt about the ability to continue as a
going concern. Had they been such, then that fact would have
been required to have been disclosed.
Our response
– Funding assessment: We examined correspondence and
supporting documentation with third party funding
providers, assessing the Group’s existing lending
arrangements and existing loan and covenant terms.
– Historical comparisons: We analysed the Group’s previous
forecasts against actual outcomes to assess the historical
reliability of forecasting.
– Benchmarking assumptions: We challenged the
appropriateness of key assumptions in the cash flow
projections, applying our sector knowledge and experience
based on our historical knowledge of the Group, together
with market and other externally available information.
– Sensitivity analysis: We considered sensitivities over the
level of financial resources and impact on covenants taking
account of reasonably possible (but not implausible)
adverse effects that could arise from the key risks posed
to achieving the forecasts, individually and collectively.
– Mathematical accuracy; We checked the mathematical
accuracy of the cash flow projections and recalculated the
forecast covenant calculations based on the terms of the
Group’s borrowing facilities.
– Evaluating directors’ intent; We evaluated the achievability
of the actions the Directors consider they would take to
improve the position should the risks materialise by
assessing the mitigating actions they could implement
– Assessing transparency: We assessed the appropriateness
of relevant disclosures, including both the going concern
disclosure in Note 1 of the financial statements and also the
commentary elsewhere in the annual report.
Our results
We found the going concern disclosure without any material
uncertainty to be acceptable (2018-19: Going concern
disclosure without any material uncertainty: acceptable).
Deferred revenue associated with advance customer
payments arising from stamps sold
£185 million (2018-19: £188 million)
Refer to page 120 (Audit Committee Report), page 235
(accounting policy and estimates and judgements note)
Financial Statements
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF ROYAL MAIL PLC
TO THE MEMBERS OF ROYAL MAIL PLC
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161
The risk
Subjective estimate
Revenue is recognised on delivery of letters, not at the point
stamps are sold to customers. There can be a considerable
delay, because stamps held by customers remain valid
indefinitely. Therefore the Group estimates the value of
advance customer payments and defers revenue to reflect
the value of services still to be performed.
As the Group is unable to track individual stamps, the
calculation and methodology of the advanced customer
payments balance is inherently subjective. The calculation is
derived from a combination of data sources including ratios
based on historic sales data and deferred revenue associated
with advance customer payments arising from stamps sold,
current sales and volumes trends. The results are challenged
by a third party survey to poll independently a sample of the
UK population to assess the value of stamps held. The
methodology provides a data range for the stamps in the
hands of the public balance. The methodology allows for
management adjustments for unusual trends identified.
As part of our risk assessment, we determined that the
stamps in the hands of the public balance has a high degree of
estimation uncertainty, with a potential range of reasonable
outcomes greater than our materiality for the financial
statements as a whole, and possibly many times that amount
and could be subject to manipulation. The financial
statements (page 235) disclose the sensitivity of the deferred
revenue balance estimated by the Group.
Our response
Our procedures included:
– Methodology choice: We challenged the Group on the
appropriateness of the new methodology in place for
performing the calculation, including benchmarking the
approach against that taken by other global postal service
providers.
– Independent re-performance: We tested the individual
inputs used in the Group’s calculation to check the accuracy
of the balance.
– Methodology implementation: We assessed whether the
methodology had been correctly applied and we challenged
adjustments made by the Group through consideration of
possible alternatives.
– Challenge of the outcome: We challenged the Group’s
estimate by generating a range of plausible outcomes using
internal and external data sources, alternative adjustments
and alternative methods of calculating the estimate. With
the support of KPMG statistical specialists, we assessed and
evaluated the methodology used and recalculated the
results produced by the Group’s independent third party
specialist and compared the outcomes to assess the
appropriateness of the estimate made.
– Assessing transparency: We considered the adequacy
of the Group’s disclosures in respect of the deferred
revenue adjustment, particularly the sensitivity to
changes in key assumptions.
Our results
We found the estimate of deferred revenue to be acceptable
(2018-19: acceptable).
Valuation of certain unquoted pension scheme assets
Refer to page 121 (Audit Committee Report), page 234
(accounting policy) and page 194 (financial disclosures).
The risk
Significant estimates are made in valuing certain unquoted
pension schemes assets (which comprise properties, equity
funds, mutual funds and private fixed income bonds), which
are hard to value and make up a significant portion of
unquoted pension scheme assets reported on page 194. Small
changes in the estimates used to value these assets would
have a significant effect on the financial position of the Group.
The estimation uncertainty associated with the hard to value
unquoted assets has increased due to the impact of COVID-19
because of the increased valuation uncertainty with certain of
these assets, particularly properties
As part of our risk assessment, we determined that the
valuation of the unquoted pension scheme assets include a
high degree of estimation uncertainty, with a potential range
of reasonable outcomes greater than our materiality for the
financial statements as a whole, and possibly many times
that amount.
Our response
Our procedures included:
– Fund managers’ credentials: We assessed the competence,
independence and integrity of the Group’s third party expert
fund managers.
– Tests of details: We obtained third party valuation
confirmations directly from fund managers. We compared
those confirmations with unaudited net asset value
statements and tested the ability of fund managers to
prepare accurate valuations by performing a retrospective
review comparing a sample of the net asset value
statements available during the year to audited financial
statements.
– Our property valuation expertise: We obtained third party
valuations and used our internal valuation specialists
to assess the valuation methodology and challenge key
assumptions, particularly in light of the impact of COVID-19
on property values.
– Assessing transparency: We considered the adequacy
of the Group’s disclosures in respect of the accuracy
of the asset split by category and impact of COVID-19
on asset valuations.
Our results
We found the valuation of the hard to value unquoted scheme
assets as mentioned above to be acceptable (2018-19
result: acceptable).
Valuation of pension scheme liabilities
Refer to page 121 (Audit Committee Report), page 234
(accounting policy) and page 188 (financial disclosures).
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INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF ROYAL MAIL PLC
TO THE MEMBERS OF ROYAL MAIL PLC
The risk
Subjective valuation
Significant estimates are made in valuing the Group’s post
retirement defined benefit plan obligations of £7,341 million
(2018-19: £7,571 million), including in particular the discount
rate, the inflation assumptions, mortality and pension
increase assumptions.
Small changes in the assumptions and estimates used to
value the Group’s pension obligations would have a significant
effect on the financial position of the Group.
As part of our risk assessment, we determined that the
valuation of the Group’s pension scheme liabilities include a
high degree of estimation uncertainty, with a potential range
of reasonable outcomes greater than our materiality for the
financial statements as a whole, and possibly many times that
amount. The financial statements (Note 11) disclose the
sensitivity of the liabilities to key assumptions estimated
by the Group.
Our response
Our procedures included:
– Benchmarking assumptions: We challenged the key
assumptions applied in the calculation of the liability,
including the discount rate, inflation rate, mortality and
pension increases with the support of our own actuarial
specialists to compare key assumptions against market
data, including assessing the impact of COVID-19
on key assumptions.
– Actuary’s credentials: We assessed the competence,
independence and integrity of the Group’s actuarial expert.
– Assessing transparency: We considered the adequacy of
the Group’s disclosures in respect of the sensitivity of the
liability to key assumptions.
Our results
We found the valuation of the pension obligation to be
acceptable (2018-19 result: acceptable).
Accuracy of property lease accounting on transition
to IFRS 16
Land and Buildings right of use assets – £963 million. Total lease
liabilities - £1,188 million.
Refer to page 118 (Audit Committee Report), page 237
(accounting policy), page 201 (financial disclosures).
The risk
Accounting application
The application of IFRS 16 to the Group’s 990 property leases
for the first time represents a complex, one-off transition. A
significant risk of misstatement arises due to the possibility
that transition options and practical expedients may not have
been completely or appropriately applied, and transition date
recognition and measurement adjustments may not have been
accurately recorded.
There is a risk that the lease population is not completely
identified on transition and that subsequent to transition, new
contracts entered into are within the scope of IFRS 16, or
modifications to existing leases are not identified or
accurately recorded. Judgement is required in assessing
lease lengths and there is a risk that these assessments are
not accurately applied.
Given the scale of the lease portfolio, there is a data integrity
risk around the accuracy of input and calculation.
Our response
– Assessing principles: We evaluated management’s process
for identifying lease contracts, which we assessed based
on the selected transition approach and practical
expedients applied.
– Test of details: We tested a sample of lease contracts to
assess the, accuracy and relevance of the data driving the
transition adjustments and used in determining the lease
liabilities on an ongoing basis.
– Our sector experience: We challenged management’s
assumptions with respect to lease length, extensions and
the exercising of break clauses with reference to contracts
and legal rights, as well as our understanding of the facts
and circumstances surrounding the Group’s trade. We
challenged management’s assumptions with respect to the
discount rate applied.
– Historical comparisons: We compared assumed lease terms
with actual terms of leases which have expired or been
renewed during the period.
– Assessing transparency: We assessed the completeness,
accuracy and relevance of the IFRS 16 disclosures.
Our results
We found the accuracy of the lease accounting to be
acceptable (2018-19 lease accounting prepared under
IAS 17: acceptable)
Recoverability of Parent Company’s investment in
subsidiaries and debt due from Group entities (Parent
Company only)
Investments – £2,122 (2018-19: £2,111 million). Debt due from
Group entities - £935 million (2018-19: £427 million).
Refer to page 248 (accounting policy) and page 249
(financial disclosures).
The risk
The carrying amount of the Parent Company’s investments in
subsidiaries and debt due from Group entities represents
100% (2018-19: 100%) 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 response
Our procedures included:
– Tests of detail: Compared the carrying amount of 100% 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 subsidiary audit: Assessing the audit work
performed on the subsidiary balance sheet and considering
Financial Statements
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF ROYAL MAIL PLC
TO THE MEMBERS OF ROYAL MAIL PLC
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the results of that work on the subsidiary’s profit and
net assets.
– Comparing valuations: We compared the carrying amount
of the Parent Company’s investments to the Group’s
market capitalisation.
– Assessing transparency: Assessing the adequacy of the
Parent Company’s disclosures in respect of the investment
in subsidiaries and Group debtor balance.
Our results
We found the carrying value of investments and the
recoverability of intercompany receivables to be acceptable
(2018-19: acceptable).
The judgment in determining whether the Ofcom competition
investigation fine should result in the recognition of a
contingent liability or a provision was identified as a key audit
matter in the prior year. This is no longer considered to be a
key audit matter since the Competition Appeal Tribunal
announced their decision on 12 November 2019 that the fine
issued by Ofcom would be upheld. Accordingly, a provision has
now been recognised.
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 £18.0 million (2018-19: £18.0 million).
Materiality is based on profit before tax, normalised for the
IFRS 2 charge for Employee Free Shares, and the profit on
disposal of property plant and equipment, the regulatory fine,
and the impairment charge in respect of Parcelforce. The
items not included in the benchmark were all subject to audit
procedures by the Group team, and the quantum of these
items is disclosed in note 2 of the financial statements.
Additional adjustments were made in 2018-19 for the
settlement in respect of the RMSEPP pension scheme buy-in
and the impairment charge in respect of GSO and Postal
Express. Materiality represents 7.5% of the adjusted profit
before tax measure of £241 million (2018-19: 4.7%;
£385 million).
Due to the volatility in the Group’s results in recent financial
years, as part of our materiality assessment we also
considered the scale of the business, the level of judgement
and precision within the Group’s key accounting judgements,
as well as how the level of materiality compares to other
relevant benchmarks such as revenue, of which it represents
0.2% and total assets, of which it represents 0.2%, where they
provide more consistent measures year on year than Group
profit before tax.
Materiality for the Parent Company financial statements as a
whole was set at £3 million (2018-19: £3 million), determined
with reference to a benchmark of net assets, of which it
represents 1% (2018-19: 1%).
We agreed to report to the Audit Committee any corrected or
uncorrected identified misstatements exceeding £4.5 million
(2018-19: £4.5 million) in respect of misstatements which
relate solely to classification within the balance sheet, and
£0.9 million (2018-19: £0.9 million) in respect of all other
misstatements, in addition to other identified misstatements
that warranted reporting on qualitative grounds.
Of the Group’s 24 (2018-19: 20) reporting components, we
subjected four (2018-19: four) to full scope audits for Group
purposes. The components within the scope of our work
accounted for 99.7% of revenue, 98.0% of adjusted profit
before tax and 99.8% of total assets.
The work on two (GLS and Royal Mail Property and Facilities
Solutions) of the four components (2018-19: two of the four
components) was performed by component auditors and the
rest, including the audit of the Parent Company, 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 set the components’ materialities, which
ranged from £3 million to £15 million (2018-19: £3 million to
£16 million), having regard to the mix of size and risk profile
of the Group across the components.
On account of travel restrictions in place during the
performance of the audit the Group team did not visit the
component auditors and instead held virtual conference
meetings with the GLS and RMPFS component auditors (2018-
19: visited the GLS component and held telephone meetings
with RMPFS) at the planning, execution and finalisation stages
of the audit including to assess the audit risk and strategy.
The Group team attended the key virtual clearance meetings
and visited one of the key GLS sub-components in Spain at the
planning stage of the audit. Telephone conference meetings
were also held regularly with the component auditors. At
these meetings the findings were 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
The Directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the
Company or the Group or to cease their operations, and as
they have concluded that the Company’s and the Group’s
financial position means that this is realistic. They have also
concluded that there are no material uncertainties that could
have cast significant doubt over their ability to continue as a
going concern for at least a year from the date of approval of
the financial statements (“the going concern period”).
Our responsibility is to conclude on the appropriateness of the
Directors’ conclusions and, had there been a material
uncertainty related to going concern, to make reference to
that in this audit report. However, as we cannot predict all
future events or conditions and as subsequent events may
result in outcomes that are inconsistent with judgements that
were reasonable at the time they were made, the absence of
reference to a material uncertainty in this auditor's report is
not a guarantee that the Group and the Company will continue
in operation.
We identified going concern as a key audit matter (see section
2 of this report). Based on the work described in our response
to that key audit matter, 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
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INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF ROYAL MAIL PLC
TO THE MEMBERS OF ROYAL MAIL PLC
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 157 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 emerging and 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 73 that they have carried out a robust assessment of
the emerging and 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.
Our work is limited to assessing these matters in the context
of only the knowledge acquired during our financial
statements audit. As we cannot predict all future events or
conditions and as subsequent events may result in outcomes
that are inconsistent with judgments that were reasonable at
the time they were made, the absence of anything to report on
these statements is not a guarantee as to the Group’s and
Company’s longer-term viability.
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 & Risk Committee does not appropriately
address matters communicated by us to the Audit &
Risk Committee.
We are required to report to you if the Corporate Governance
Statement does not properly disclose a departure from the
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 157,
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.
Financial Statements
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF ROYAL MAIL PLC
TO THE MEMBERS OF ROYAL MAIL PLC
165
165
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we
have properly planned and performed our audit in accordance
with auditing standards. For example, the further removed
non-compliance with laws and regulations (irregularities) is
from the events and transactions reflected in the financial
statements, the less likely the inherently limited procedures
required by auditing standards would identify it. In addition, as
with any audit, there remained a higher risk of non-detection
of irregularities, as these may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal controls. We are not responsible for preventing non-
compliance and cannot be expected to detect non-compliance
with all laws and regulations.
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
24 June 2020
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 general commercial and sector
experience, through discussion with the Directors and other
management (as required by auditing standards), from
inspection of the Group’s regulatory and legal correspondence
and discussed with the directors and other management the
policies and procedures regarding compliance with laws and
regulations. 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.
The potential effect of these laws and regulations on the
financial statements varies considerably.
Firstly, the Group is subject to laws and regulations that
directly affect the financial statements including financial
reporting legislation (including related companies legislation),
distributable profits legislation, taxation legislation and
pension legislation and we assessed the extent of compliance
with these laws and regulations as part of our procedures on
the related financial statement items.
Secondly, the Group is subject to many other laws and
regulations where the consequences of non-compliance could
have a material effect on amounts or disclosures in the
financial statements, for instance through the imposition of
fines or litigation. We identified the following areas as those
most likely to have such an effect: competition law,
employment law, postal regulation, GDPR and health and
safety legislation recognising the financial and regulated
nature of the Group’s activities. Auditing standards limit the
required audit procedures to identify non-compliance with
these laws and regulations to enquiry of the directors and
other management and inspection of regulatory and legal
correspondence, if any. Through these procedures, we
became aware of actual or suspected non-compliance and
considered the effect as part of our procedures on the related
financial statement items. The identified actual or suspected
non-compliance was not sufficiently significant to our audit to
result in our response being identified as a key audit matter.
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166
166
CONSOLIDATED INCOME STATEMENT
CONSOLIDATED INCOME STATEMENT
FOR THE 52 WEEKS ENDED 29 MARCH 2020
FOR THE 52 WEEKS ENDED 29 MARCH 2020
AND 53 WEEKS ENDED 31 MARCH 2019
AND 53 WEEKS ENDED 31 MARCH 2019
Continuing operations
Revenue
Operating costs2
People costs
Distribution and conveyance costs
Infrastructure costs
Other operating costs
Operating profit before specific items3
Operating specific items
Regulatory fine
RMSEPP settlement
Employee Free Shares charge
Impairment of assets
Legacy/other credits/(costs)
Amortisation of intangible assets in acquisitions
Operating profit
Profit on disposal of property, plant and equipment (non-operating specific item3)
Profit before interest and tax
Finance costs
Finance income
Reported
52 weeks
2020
£m
Notes
Re-
presented1
reported
53 weeks
2019
£m
3
10,840
10,581
4/5
(10,623)
(10,240)
(6,064)
(2,786)
(991)
(782)
(5,869)
(2,606)
(995)
(770)
217
341
6/25
11(c)
6
6
6
6
6
7
7
(51)
–
(4)
(91)
3
(19)
55
89
144
(56)
6
86
180
(19)
161
–
(64)
(22)
(68)
(7)
(20)
160
15
175
(18)
5
79
241
(66)
175
16.1p
16.1p
17.5p
17.5p
Net pension interest (non-operating specific item)
11(c)
Profit before tax
Tax charge
Profit for the year
Earnings per share
Basic
Diluted
8
9
9
1
2
3
Operating costs include £130 million which would previously have been reported as 'Transformation costs'. These costs are now incorporated within their relevant operating cost categories, which better
reflects the ongoing costs of the business. The comparative period costs of £133 million have therefore been re-presented.
Operating costs are stated before operating specific Items which Include; the Regulatory fine, RMSEPP settlement, Employee Free Shares charge, Impairment of assets, Legacy/other costs and
Amortisation of intangible assets in acquisitions.
For further details on Alternative Performance Measures (APMs) used, see the section of the Financial Review entitled ‘Presentation of Results and Alternative Performance Measures’.
Financial Statements
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE 52 WEEKS ENDED 29 MARCH 2020
FOR THE 52 WEEKS ENDED 29 MARCH 2020
AND 53 WEEKS ENDED 31 MARCH 2019
AND 53 WEEKS ENDED 31 MARCH 2019
167
167
Profit for the year
Other comprehensive income/(expense) for the year from continuing operations:
Items that will not be subsequently reclassified to profit or loss:
Amounts relating to pensions accounting
Withholding tax payable on distribution of RMPP and RMSEPP surplus
Remeasurement gains of the defined benefit surplus in RMPP and RMSEPP
Remeasurement losses of the defined benefit deficit in DBCBS
Deferred tax associated with DBCBS
Items that may be subsequently reclassified to profit or loss:
Foreign exchange translation differences
Exchange differences on translation of foreign operations (GLS)
Net (loss)/gain on hedge of a net investment (€500 million bond)
Net (loss)/gain on hedge of a net investment (Euro-denominated lease payables)
Tax on above items
Designated cash flow hedges
(Losses)/gains on cash flow hedges deferred into equity
Gains on cash flow hedges released from equity to income
Gains on cash flow hedges released from equity to the carrying amount of
non-financial assets
Loss on cross currency swap cash flow hedge deferred into equity
Loss on cross currency swap cash flow hedge released from equity to income –
interest payable
Gain on cost of hedging deferred into equity
Gain on cost of hedging released from equity to income – interest payable
Tax on above items
Total other comprehensive income for the year
Total comprehensive income for the year
Notes
11
11(c)
11(d)
8
8
8
Reported
52 weeks
2020
£m
161
Reported
53 weeks
2019
£m
175
1,122
(648)
1,773
(3)
-
3
20
(15)
(2)
–
(49)
(46)
(1)
–
(21)
3
6
(1)
11
239
(138)
383
(8)
2
(9)
(16)
5
1
1
(3)
14
(17)
(1)
–
–
–
–
1
1,076
1,237
227
402
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168
CONSOLIDATED BALANCE SHEET
CONSOLIDATED BALANCE SHEET
AT 29 MARCH 2020 AND 31 MARCH 2019
AT 29 MARCH 2020 AND 31 MARCH 2019
Non-current assets
Property, plant and equipment
Goodwill
Intangible assets
Investments in associates
Financial assets
Pension escrow investments
Derivatives
RMPP/RMSEPP retirement benefit surplus – net of withholding tax payable
Other receivables
Deferred tax assets
Assets held for sale
Current assets
Inventories
Trade and other receivables
Income tax receivable
Financial assets
Investments
Derivatives
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Financial liabilities
Interest-bearing loans and borrowings
Lease liabilities
Derivatives
Income tax payable
Provisions
Reported at
29 March 2020
£m
Reported at
31 March 2019
£m
Notes
13
15
16
17
24
24
11
8
19
3,120
2,066
390
558
5
201
–
380
631
5
207
4
3,614
2,408
12
110
8,010
25
19
20/24
1,282
24
24
21/24
6
30
5
1,640
2,982
11,017
12
64
5,777
36
27
1,310
7
–
8
236
1,588
7,401
22/24
(2,041)
(1,883)
23/24
14/24
24
25
(700)
(201)
(35)
(5)
(113)
–
(37)
(3)
(8)
(58)
(3,095)
(1,989)
Financial Statements
CONSOLIDATED BALANCE SHEET (CONTINUED)
CONSOLIDATED BALANCE SHEET (CONTINUED)
AT 29 MARCH 2020 AND 31 MARCH 2019
AT 29 MARCH 2020 AND 31 MARCH 2019
Non-current liabilities
Financial liabilities
Interest-bearing loans and borrowings
Lease liabilities
Derivatives
DBCBS retirement benefit deficit
Provisions
Other payables
Deferred tax liabilities
Total liabilities
Net assets
Equity
Share capital
Retained earnings
Other reserves
Total equity
169
169
Reported at
29 March 2020
£m
Reported at
31 March 2019
£m
Notes
23/24
14/24
24
11
25
8
26
(935)
(987)
(32)
(177)
(112)
(4)
(54)
(2,301)
(5,396)
5,621
10
5,625
(14)
5,621
(431)
(88)
(2)
(72)
(104)
(41)
(55)
(793)
(2,782)
4,619
10
4,576
33
4,619
The financial statements were approved and authorised for issue by the Board of Directors on 24 June 2020 and were signed on
its behalf by:
Keith Williams
Interim Executive Chair
Stuart Simpson
Interim Chief Executive Officer Royal Mail
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170
170
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE 52 WEEKS ENDED 29 MARCH 2020
FOR THE 52 WEEKS ENDED 29 MARCH 2020
AND 53 WEEKS ENDED 31 MARCH 2019
AND 53 WEEKS ENDED 31 MARCH 2019
Reported at 25 March 2018
Profit for the year
Other comprehensive income/(expense) for the year
Total comprehensive income/(expense) for the year
Transactions with owners of the Company, recognised directly
in equity
Dividend paid to equity holders of the Parent Company
Reversal of put options for non-controlling interests
Share-based payments (see Note 18)
Employee Free Shares issue
Long-Term Incentive Plan (LTIP)
Deferred Share Bonus Plan (DSBP)
Purchase of own shares1
Employee exercise of SAYE options
Deferred tax on share-based payments
Settlement of LTIP 2015
Reported at 31 March 2019
IFRS 16 transition adjustment
Reported at 1 April 2019 on transition to IFRS 16
Profit for the year
Other comprehensive income/(expense) for the year
Total comprehensive income/(expense) for the year
Transactions with owners of the Company, recognised directly
in equity
Gains on cash flow hedges released from equity to the carrying
amount of non-financial assets
Dividend paid to equity holders of the Parent Company
Share-based payments (see Note 18)
Employee Free Shares issue
Long-Term Incentive Plan (LTIP)
Deferred Share Bonus Plan (DSBP)
Purchase of own shares1
Deferred tax on share-based payments
Reported at 29 March 2020
1 Shares required for employee share schemes.
A description of the reserves in the above table is included in Note 26.
Share
capital
£m
10
–
–
–
–
–
–
–
–
–
–
–
–
10
–
10
–
–
–
–
–
–
–
–
–
–
Retained
earnings
£m
4,381
175
239
414
(242)
2
23
4
3
(10)
5
(1)
(3)
4,576
1
4,577
161
1,122
1,283
–
(244)
7
2
2
(3)
1
Foreign
currency
translation
reserve
£m
36
–
(9)
(9)
–
–
–
–
–
–
–
–
–
27
–
27
–
3
3
–
–
–
–
–
–
–
Hedging
reserve
£m
9
–
(3)
(3)
–
–
–
–
–
–
–
–
–
6
–
6
–
(49)
(49)
Total
equity
£m
4,436
175
227
402
(242)
2
23
4
3
(10)
5
(1)
(3)
4,619
1
4,620
161
1,076
1,237
(1)
–
(1)
(244)
–
–
–
–
–
7
2
2
(3)
1
10
5,625
30
(44)
5,621
Financial Statements
CONSOLIDATED STATEMENT OF CASH FLOWS
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE 52 WEEKS ENDED 29 MARCH 2020
FOR THE 52 WEEKS ENDED 29 MARCH 2020
AND 53 WEEKS ENDED 31 MARCH 2019
AND 53 WEEKS ENDED 31 MARCH 2019
Cash flow from operating activities
Profit before tax
Adjustment for:
Net pension interest
Net finance costs
Profit on disposal of property, plant and equipment
Regulatory fine
RMSEPP settlement
Employee Free Shares charge
Impairment of assets
Legacy/other (credits)/costs
Amortisation of intangible assets in acquisitions
Operating profit before specific items2
Adjustment for:
Depreciation and amortisation
EBITDA before specific items2
Working capital movements
Increase in inventories
Decrease/(increase) in receivables
Increase/(decrease) in payables
Net decrease in derivative assets
Increase in provisions (non-specific items)
Pension charge to cash difference adjustment
Share-based awards (LTIP and DSBP) charge
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 (non-operating specific item)
Purchase of property, plant and equipment3
Acquisition of business interests, net of cash acquired
Purchase of intangible assets (software)3
Payment of deferred consideration in respect of prior years’ acquisitions
Purchase of financial asset investments
Net cash outflow from investing activities
Net cash inflow/(outflow) before financing activities
171
171
Reported
52 weeks
2020
£m
Notes
Re-
presented1
reported
53 weeks
2019
£m
180
241
11(c)
7
6
6
11(c)
6
6
6
6
13/16
11
7
(86)
50
(89)
51
–
4
91
(3)
19
(79)
13
(15)
–
64
22
68
7
20
217
341
516
733
162
(1)
13
126
19
5
108
4
(2)
1,005
(69)
14
950
6
12
97
(265)
(15)
(77)
(2)
(30)
(274)
676
391
732
(221)
(2)
(176)
(51)
2
6
70
7
(6)
582
(91)
2
493
5
25
7
(264)
(212)
(100)
(4)
–
(543)
(50)
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172
172
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE 52 WEEKS ENDED 29 MARCH 2020
FOR THE 52 WEEKS ENDED 29 MARCH 2020
AND 53 WEEKS ENDED 31 MARCH 2019
AND 53 WEEKS ENDED 31 MARCH 2019
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 lease contracts
Cash received on sale and leasebacks
Proceeds from loans and borrowings
Repayment of loans and borrowings
Dividends paid to equity holders of the Parent Company
Net cash inflow/(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
Reported
52 weeks 2020
£m
Notes
Re-presented
reported
53 weeks 2019
£m
(53)
–
(3)
–
(172)
6
1,189
(1)
(244)
722
1,398
6
236
1,640
(17)
(4)
(10)
5
(56)
13
-
(1)
(242)
(312)
(362)
(2)
600
236
10
21
21
1 Transformation costs are no longer presented as a separate line item and are included in ‘operating profit before specific items’. The transformation costs to cash difference is now
presented in working capital (provisions). The comparative period cash flows have therefore been re-presented on this basis.
2 For further details on Alternative Performance Measures (APMs) used, see the section of the Financial Review entitled ‘Presentation of Results and Alternative Performance Measures’.
3
Items comprise total gross capital expenditure within ‘In-year trading cash flow’ measure (see Financial Review).
Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
173
173
1. Basis of preparation
This Note explains how these consolidated financial statements have been prepared, including details of; the basis of
preparation; 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 29 March 2020 (2018-19: 53 weeks ended
31 March 2019) comprise the Company and its subsidiaries (together referred to as ‘the Group’) and the Group’s interest
in its associate undertakings.
The consolidated financial statements for the 52 weeks ended 29 March 2020 were authorised for issue by the Board on
24 June 2020.
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 are measured at fair value.
Accounting reference date
The Group’s financial reporting year ends on the last Sunday in March and, accordingly, these financial statements are prepared
for the 52 weeks ended 29 March 2020 (2018-19: 53 weeks ended 31 March 2019). 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 of the last Sunday in March, a full year of GLS results is consolidated into the Group.
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 at the end of 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,
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 is 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 58.
The consolidated income statement and consolidated statement of cash flows have been re-presented for the comparative
period. This is to reflect the Group’s decision to no longer report transformation costs as a separate line item, instead including
them within their relevant operating costs categories.
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 date of approval of these financial statements to consider whether it is appropriate to prepare the financial statements on a
going concern basis.
The Directors have prepared business projections which are consistent with a lifting of the current COVID-19 lockdown
restrictions from early July 2020, but with a GDP decline of 10 per cent in the 2020-21 reporting year, followed by a recovery
thereafter, affecting both the UK business and GLS.
The Directors have also considered a severe, yet plausible, downside scenario that assumes a second wave of COVID-19 in the
UK resulting in a further three-month lockdown during the autumn/winter in the UK, and a further deterioration in economic
conditions impacting the UK and GLS. Whilst letter volumes could decline at a faster rate under this scenario, parcel volumes
would be expected to remain broadly flat, or slightly ahead and overall margin would decline. This downside also assumes the
potential impact of industrial action and continued spend on Protective Equipment and social distancing measures to protect
our workforce. The scenario also takes into account the mitigating actions that are in the control of the Directors, such as
suspending the dividend or reducing variable hours and cost of sales.
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174
174
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Basis of preparation (continued)
The Directors have reviewed both the business projections consistent with a lifting of the current COVID-19 lockdown
restrictions from early July 2020 and the downside scenario business projections and assessed these against committed and
undrawn funding facilities of £225 million at 29 March 2020 through the syndicated bank loan facility and other liquid resources
available to the Group (cash at bank £209 million and cash equivalent/current asset investments of £1,440 million at 29 March
2020). The Directors have obtained a covenant waiver from its syndicate bank which removes the syndicated bank loan facility
net debt/EBITDA and EBITDA/interest covenant tests for September 2020, March 2021 and September 2021, but which are
replaced by a minimum liquidity covenant of £250 million. The Directors have also received approval from the Bank of England
for the COVID Corporate Financing Facility (the ‘CCFF’) of up to £600 million. The CCFF can be drawn by the Group up to March
2021, and is available for a period of up to 12 months from the draw down date.
The downside case indicates that the Group would not need to draw on both the CCFF and the syndicated bank loan facility
at the same time in order to maintain sufficient liquidity.
The Directors are satisfied that these facilities, coupled with business projections, show that the Group will continue to operate
for a minimum of twelve months from the date of approval of these financial statements.
The financial statements do not include any adjustments that would result from the going concern basis of preparation
being inappropriate.
The Group’s Viability Statement can be found on page 73.
2. Segment information
The Group’s revenue, costs and profit 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 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 specific items (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 58). 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
175
175
2. Segment information (continued)
52 weeks 2020
Adjusted
Specific items, and pension
adjustment in people costs
Reported
Continuing operations
Revenue
People costs
Non-people costs
UKPIL
(UK operations)
£m
7,720
(5,234)
GLS
(Non-UK
operations)
£m
3,161
(722)
(2,369)
(2,231)
Operating profit before specific items
117
208
Operating specific items
Regulatory fine
Employee Free Shares charge
Impairment of assets
Legacy/other (costs)/credits
Amortisation of intangible assets
in acquisitions
–
–
–
–
–
–
–
–
–
–
Operating profit
117
208
Profit on disposal of property, plant and
equipment (non-operating specific item)
Profit before interest and tax
Finance costs
Finance income
Net pension interest (non-operating
specific item)
Profit before tax
–
117
(49)
15
–
83
–
208
(18)
2
–
192
Eliminations1
£m
Group
£m
UKPIL
(UK operations)
£m
GLS
(Non-UK
operations)
£m
(41)
10,840
(5,956)
(4,559)
–
(108)
–
–
41
–
–
–
–
–
–
–
–
–
11
(11)
–
–
325
(108)
–
–
–
–
–
325
–
325
(56)
6
–
275
(51)
(4)
(91)
(2)
(1)
(257)
88
(169)
–
–
86
(83)
Group
£m
10,840
(6,064)
(4,559)
217
(51)
(4)
(91)
3
(19)
55
89
144
(56)
6
86
180
–
–
–
–
–
–
5
(18)
(13)
1
(12)
–
–
–
(12)
1 Revenue and non-people costs eliminations relate to intragroup trading between UKPIL and GLS, due to Parcelforce Worldwide being GLS’ partner in the UK. Finance costs/income
eliminations relate to intragroup loans between UKPIL and GLS.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
176
176
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Segment information (continued)
Re-presented2
53 weeks 2019
Continuing operations
Revenue
People costs
Non-people costs
Operating profit before specific items
Operating specific items
RMSEPP settlement
Employee Free Shares charge
Impairment of assets
Legacy/other costs
Amortisation of intangible assets in
acquisitions
UKPIL
(UK operations)
£m
7,732
(5,132)
(2,366)
234
Adjusted
GLS
(Non-UK
operations)
£m
2,888
(667)
(2,044)
177
–
–
–
–
–
–
–
–
–
–
Operating profit
234
177
Profit on disposal of property, plant
and equipment (non-operating
specific item)
Profit before interest and tax
Finance costs
Finance income
Net pension interest (non-operating
specific item)
Profit before tax
–
234
(17)
12
–
229
–
177
(10)
2
–
169
Specific items, and pension
adjustment in people costs
Reported
Eliminations3
£m
Group
£m
UKPIL
(UK operations)
£m
GLS
(Non-UK
operations)
£m
(39)
10,581
–
39
–
(5,799)
(4,371)
411
–
(70)
–
(70)
(64)
(22)
–
(5)
(1)
–
–
–
–
–
411
(162)
–
411
(18)
5
–
398
15
(147)
–
–
79
(68)
–
–
–
–
–
–
–
–
9
(9)
–
–
Group
£m
10,581
(5,869)
(4,371)
341
(64)
(22)
(68)
(7)
(20)
160
15
175
(18)
5
79
241
–
–
–
–
–
–
(68)
(2)
(19)
(89)
–
(89)
–
–
–
(89)
2 The comparative period has been re-presented to incorporate changes to the presentation of costs (see the income statement for more details).
3
Revenue and non-people costs eliminations relate to intragroup trading between UKPIL and GLS, due to Parcelforce Worldwide being GLS’ partner in the UK. Finance costs/income
eliminations relate to intragroup loans between UKPIL and GLS.
The depreciation and amortisation below are included within ‘operating profit before specific items’ in the income statement.
The non-current assets below exclude financial assets, retirement benefit surplus and deferred tax and are included within
non-current assets on the balance sheet.
52 weeks 2020
Depreciation4
Amortisation of intangible assets (mainly software)
UKPIL
(UK
operations)
£m
GLS
(Non-UK
Operations)
£m
(306)
(90)
(106)
(14)
Total
£m
(412)
(104)
Non-current assets
2,695
1,390
4,085
4
Includes £156 million resulting from the adoption of IFRS 16.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
177
177
2. Segment information (continued)
53 weeks 2019
Depreciation
Amortisation of intangible assets (mainly software)
Non-current assets
3. Revenue
UKPIL
(UK operations)
£m
(213)
(120)
GLS
(Non-UK
Operations)
£m
(45)
(13)
Total
£m
(258)
(133)
2,103
991
3,094
This disclosure provides a disaggregation of Group revenue by type. Revenue is recognised net of Value Added Tax and
principally relates to the rendering of services derived from contracts with customers.
52 weeks 2020
Letters and other revenue
Advertising Letters
Parcels
Total
Re-presented2
53 weeks 2019
Letters and other revenue
Advertising Letters
Parcels
Total
UKPIL
£m
3,409
612
3,699
7,720
UKPIL
£m
3,431
705
3,596
7,732
GLS
£m
–
–
3,161
3,161
GLS
£m
–
–
2,888
2,888
Intragroup
revenue1
£m
–
–
(41)
(41)
Intragroup
revenue1
£m
–
–
(39)
(39)
Group
£m
3,409
612
6,819
10,840
Group
£m
3,431
705
6,445
10,581
1 Eliminations relate to intragroup revenue from trading between UKPIL and GLS. This is due to Parcelforce Worldwide being GLS’ partner in the UK.
2 UK letters and parcels revenue and volumes have been allocated using a new methodology which reduces our reliance on sampling by using Post Office traffic data. This change only
impacts the allocation of revenue between stamped letters and parcels and some international export products. Total UKPIL revenue remains unchanged.
During the year, around £290 million (2018-19: £280 million) of revenue was recognised which was previously held as a deferred
revenue balance at 31 March 2019 (2018-19: 25 March 2018). This balance mainly relates to stamps held and not yet used by
customers and is recognised as ‘advance customer payments’ within ‘current trade and other payables’ (see Note 22).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
178
178
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. 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 specific items is stated after charging the following operating costs:
People costs (see Note 5)
Distribution and conveyance costs
Charges from overseas postal administrations
Fuel costs
Infrastructure costs
Depreciation, amortisation and impairment
Charge for property, plant and equipment (see Note 13)
Charge for intangible assets (see Note 16)2
Re-
presented1
reported
53 weeks
2019
£m
52 weeks
2020
£m
(6,064)
(5,869)
(361)
(183)
(348)
(156)
(516)
(412)
(104)
(391)
(258)
(133)
1 The comparative period has been re-presented to incorporate changes to the presentation of costs (see the income statement for more details).
2 Excludes £19 million (2018-19: £20 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
(351)
(41)
(354)
(34)
Regulatory body costs
The following disclosure is relevant in understanding the extent of ongoing compliance costs in relation to the regulation
of the Group.
Ofcom administrative charge
Citizens Advice/Citizens Advice Scotland/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:
Audit of the accounts of subsidiaries
Review of the interim financial information
Regulatory audit
Other assurance
Total
52 weeks
2020
£m
53 weeks
2019
£m
(5)
(1)
(6)
(3)
(2)
(5)
52 weeks
2020
£000
53 weeks
2019
£000
(1,247)
(988)
(1,453)
(1,396)
(219)
(128)
(100)
(215)
(125)
–
(3,147)
(2,724)
The 2019-20 fees relate to the services of the Group’s appointed auditor KPMG LLP. In addition to the above amounts, KPMG
LLP was paid by the respective Trustees, £102,500 for the audit of the Royal Mail Pension Plan (2018-19: £165,000) and £29,000
for the audit of the Royal Mail Defined Contribution Plan (RMDCP) (2018-19: £35,000).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
179
179
5. People information
People costs account for 57 per cent (2018-19: 57 per cent) of total Group operating costs (before specific items). 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
UKPIL
GLS
Pensions (see Note 11)
Defined benefit UK
Defined contribution UK
Defined benefit and defined contribution Pension Salary Exchange (PSE) UK
GLS
Social security
UKPIL
GLS
Total people costs
Defined benefit pension plan rates:
Income statement – RMPP
– DBCBS
Cash flow
– RMPP
– DBCBS
Defined contribution pension plan average rate:
Income statement and cash flow2
52 weeks
2020
£m
(4,904)
(4,267)
Re-presented1
reported
53 weeks 2019
£m
(4,753)
(4,173)
(637)
(679)
(397)
(97)
(178)
(7)
(481)
(403)
(78)
(580)
(635)
(374)
(82)
(172)
(7)
(481)
(401)
(80)
(6,064)
(5,869)
–
20.8%
–
15.6%
41.0%
18.9%
17.1%
15.6%
8.6%
8.0%
The comparative period has been re-presented to incorporate changes to the presentation of costs (see the income statement for more details).
1
2 Employer contribution rates are three per cent for employees in the entry level category and ten per cent for the majority of those in the standard level category. For the remaining standard
level employees, the employer contribution is either eight or nine per cent, depending on the employees’ selected contribution rate.
People numbers
The number of people employed, expressed as both full-time equivalents and headcount, during the reporting year was as follows:
Full-time equivalents3
Headcount4
Year end
Average
Year end
Average
52 weeks
2020
53 weeks
2019
52 weeks
2020
53 weeks
2019
52 weeks
2020
53 weeks
2019
52 weeks
2020
53 weeks
2019
146,445
147,148
149,351
149,212
141,466
142,757
142,444
141,792
15,818
14,969
15,721
14,954
19,306
19,221
19,191
19,198
162,263
162,117
165,072
164,166
160,772
161,978
161,635
160,990
UKPIL
GLS
Total
3
4
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.
These people numbers are based on permanent employees.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
180
180
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. People information (continued)
Directors’ remuneration
Directors’ remuneration5
Amounts earned under Long-Term Incentive Plans (LTIP)
Number of Directors accruing benefits under defined contribution plans
52 weeks
2020
£000
53 weeks
2019
£000
(1,964)
(2,300)
(91)
1
–
2
5
These amounts include any cash supplements received in lieu of pension, details of the pension contributions are included in the Single Figure Tables of the Director's Remuneration Report
on page 144. The highest paid Director details are included in the Single Figure Tables of the Directors’ Remuneration Report on page 144.
6. Specific items and pension cost to cash difference adjustment
These are both recurring and non-recurring income/expense items which in Management’s view should be disclosed
separately to provide greater understanding of the underlying performance of the business. The definitions for these items
are provided in the section on Alternative Performance Measures on page 58.
Pension charge to cash difference adjustment (within People costs)
Operating specific items:
Impairment of assets
Legacy/other credits/(costs)
Regulatory fine
Amortisation of intangible assets in acquisitions
Employee Free Shares charge
RMSEPP settlement
Total operating specific items
Non-operating specific items:
Profit on disposal of property, plant and equipment
Net pension interest
Total non-operating specific items
Total specific items
Tax credit on certain specific items and the pension charge to cash difference
52 weeks
2020
£m
(108)
53 weeks
2019
£m
(70)
(91)
3
(51)
(19)
(4)
–
(68)
(7)
–
(20)
(22)
(64)
(162)
(181)
89
86
175
13
60
15
79
94
(87)
27
The difference between the pension charge and cash cost (pension charge to cash difference adjustment) largely comprises the
difference between the IAS 19 income statement pension charge rate of 20.8 per cent of pensionable pay for the Defined Benefit
Cash Balance Scheme (DBCBS) from 1 April 2019 and the actual employer cash payments agreed with the Trustee of 15.6
per cent.
An impairment review of the Parcelforce Worldwide business identified that the carrying value of the assets exceeded their
value in use, resulting in a £91 million impairment (see ‘Key sources of estimation uncertainty’ within the ‘Significant
accounting policies’ section).
Following the Competition Appeal Tribunal judgment of 12 November 2019, a provision for a fine from Ofcom of £50 million
and £1 million associated interest has been made in the financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
181
181
7. Net finance costs
This Note provides details of interest payable on loans and 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
Unused facility fees
Arrangement fees
€500 million and €550 million bonds
Interest rate swap costs on €550 million bond
Leases
Loss on RMPP pension escrow investments
Capitalisation of borrowing costs on specific qualifying assets
Other finance costs
Total finance costs
Total finance income – interest receivable on financial assets
Total net finance costs
52 weeks
2020
£m
53 weeks
2019
£m
(2)
(54)
(1)
(2)
(14)
(3)
(30)
(6)
4
(2)
(56)
6
(50)
(2)
(16)
(2)
(1)
(11)
–
(3)
–
2
(1)
(18)
5
(13)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
182
182
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. Taxation
This Note provides details about current tax on profit and deferred tax relating to the impact of past events on expected
future tax.
Tax charged in the income statement
Current income tax:
Current UK income tax charge
Foreign tax
Current income tax charge
Amounts over-provided 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 under-provided in previous years
Total deferred income tax credit/(charge)
Tax charge in the consolidated income statement
Tax credited to other comprehensive income
Current tax:
Tax credit on foreign currency translation
Deferred tax:
Tax credit in relation to remeasurement gains of the defined benefit pension schemes
Tax credit on revaluation of cash flow hedges
Total deferred income tax credit
Total tax credit in the consolidated statement of other comprehensive income
52 weeks
2020
£m
53 weeks
2019
£m
(5)
(55)
(60)
5
(55)
6
35
(5)
36
(21)
(48)
(69)
5
(64)
–
3
(5)
(2)
(19)
(66)
–
–
11
11
11
1
2
1
3
4
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
183
183
8. 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/(charge) recognised directly in equity
52 weeks
2020
£m
53 weeks
2019
£m
1
1
(1)
(1)
Reconciliation of the total tax charge
A reconciliation of the tax charge in the income statement and the UK rate of corporation tax applied to accounting profit for the
52 weeks ended 29 March 2020 and 53 weeks ended 31 March 2019 is shown below.
Profit before tax
At UK statutory rate of corporation tax of 19% (2018-19: 19%)
Effect of different tax rates on non-UK profits and losses
Tax under-provided in previous years1
Non-deductible expenses
Impairment of goodwill
Tax reliefs and incentives (including previous years) 2
Tax effect of property disposals (including previous years)
Tax effect of closure of RMPP to future accrual
Net pension interest credit
Insurance policy settlement for the RMSEPP
Regulatory Fine
Net decrease/(increase) in tax charge resulting from non-recognition of certain deferred tax assets
and liabilities
Share-based payments - deferred tax-only adjustments
Effect of change in tax rates
Tax charge in the consolidated income statement
52 weeks
2020
£m
180
53 weeks
2019
£m
241
(34)
(5)
–
(4)
–
(13)
21
(2)
17
–
(10)
6
(1)
6
(19)
(46)
3
(3)
(6)
(13)
6
5
(2)
15
(12)
–
(8)
(5)
–
(66)
1
In 2018-19 the tax under-provided of £3 million is different to the total tax underprovided in the income statement of £5 million as certain items have been disaggregated, specifically, tax
overprovided of £2 million related to tax reliefs and incentives and tax overprovided of £1 million relating to the tax effect of property disposals.
2 Tax reliefs and incentives of £(13) million includes £(16) million in relation to an increase in an uncertain tax provision for tax relief claimed in prior years.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
184
184
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. Taxation (continued)
Deferred tax
Deferred tax by balance sheet category
52 weeks 2020
Liabilities
Accelerated capital allowances
Employee share schemes
Intangible assets
Hedging derivatives temporary differences
Jurisdictional right of offset
Deferred tax liabilities
Assets
Deferred capital allowances
Pensions temporary differences
Provisions and other
Losses available for offset against
future taxable income
R&D expenditure credit
Hedging derivative temporary
differences
Jurisdictional right of offset
Deferred tax assets
Net deferred tax asset
At
1 April
2019
£m
(Charged)/
credited to
income
statement
£m
Credited to
other
comprehensive
income
£m
Credited to
changes in
equity
£m
Charged to foreign
exchange reserve
£m3
Jurisdictional
right of offset
£m
At
29 March
2020
£m
(6)
(1)
(57)
(1)
(65)
10
(55)
6
13
18
35
2
–
74
(10)
64
9
(2)
–
4
–
2
–
2
8
20
7
(1)
–
–
34
–
34
36
–
–
–
1
1
–
1
–
–
–
–
–
10
10
–
10
11
–
1
–
–
1
–
1
–
–
–
–
–
–
–
–
–
1
–
–
(1)
–
(1)
–
(1)
–
–
–
–
–
–
–
–
–
(1)
–
–
–
–
–
(2)
(2)
–
–
–
–
–
–
–
2
2
–
(8)
–
(54)
–
(62)
8
(54)
14
33
25
34
2
10
118
(8)
110
56
3 Included in foreign exchange translation differences - exchange differences on translation of foreign operations within Other comprehensive income.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
185
185
8. Taxation (continued)
Deferred tax by balance sheet category
53 weeks 2019
Liabilities
Accelerated capital allowances
Pensions temporary differences
Employee share schemes
Intangible assets
Hedging derivatives temporary differences
Jurisdictional right of offset
Deferred tax liabilities
Assets
Deferred capital allowances
Pensions temporary differences
Provisions and other
Losses available for offset against
future taxable income
R&D expenditure credit
Jurisdictional right of offset
Deferred tax assets
At
26 March
2018
£m
(Charged)/
credited to
income
statement
£m
Credited to
other
comprehensive
income
£m
Charged
directly to equity
£m
Acquisition of
subsidiaries
£m
At
31 March
2019
£m
(3)
(1)
(1)
(48)
(2)
(55)
10
(45)
14
–
19
48
1
82
(10)
72
–
1
1
6
–
8
–
8
(8)
11
(1)
(13)
1
(10)
–
(10)
–
–
–
–
1
1
–
1
–
2
–
–
–
2
–
2
3
–
–
(1)
–
–
(1)
–
(1)
–
–
–
–
–
–
–
–
(3)
–
–
(15)
–
(18)
–
(18)
–
–
–
–
–
–
–
–
(6)
–
(1)
(57)
(1)
(65)
10
(55)
6
13
18
35
2
74
(10)
64
(1)
(18)
9
Net deferred tax asset
27
(2)
Deferred tax assets and liabilities are offset within the same jurisdiction where the Group has a legally enforceable right to do
so. The following is the analysis of the deferred tax balances (after offset) for balance sheet presentation purposes.
Deferred tax – balance sheet presentation
Liabilities
GLS group
Deferred tax liabilities
Assets
GLS group
Net UK position
Deferred tax assets
Net deferred tax asset
At 29 March
2020
£m
At 31 March
2019
£m
(54)
(54)
8
102
110
56
(55)
(55)
7
57
64
9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
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186
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. Taxation (continued)
The deferred tax position shows an increased overall asset in the reporting year to 29 March 2020. This is primarily due to the
increase in accounting deficit of the DBCBS pension scheme, the effect of the increased UK corporation tax rate from 17 per
cent to 19 per cent and the deferred tax asset recognition from losses on derivatives used for hedging.
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 Canada and Spain.
At 29 March 2020, the Group had unrecognised tax losses and temporary differences of £278 million (2018-19: £333 million) with
a tax value of £80 million (2018-19: £85 million). Unrecognised deferred tax in relation to tax losses comprises £73 million
(2018-19: £63 million) relating to losses of £249 million (2018-19: £215 million) in GLS, that are available for offset against
future profits if generated in the relevant GLS companies, and £1 million (2018-19: £9 million) in relation to £7 million (2018-19:
£51 million) of historical UK non-trading and capital losses carried forward. Other unrecognised amounts comprise £6 million
(2018-19: £5 million) relating to GLS other temporary differences of £22 million (2018-19: £18 million) and £nil (2018-19: £8
million) relating to UK other temporary differences of £nil (2018-19: £49 million). 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 £187 million (2018-19: £191 million) of capital losses, the tax effect of
which is £35 million (2018-19: £32 million) in respect of assets previously qualifying for industrial buildings allowances. Further
temporary differences exist in relation to £388 million (2018-19: £421 million) of gains for which rollover relief has been
claimed, the tax effect of which is £74 million (2018-19: £72 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 is 19 per cent. The previously announced reduction to 17 per cent has been redacted following the
Budget 2020. In accordance with accounting standards the deferred tax balances in these financial statements have been
adjusted to effect this change.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
187
187
9. 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.
Profit for the year (£million)
Weighted average number of shares issued
(million)
Basic earnings per share (pence)
Diluted earnings per share (pence)
52 weeks 2020
Specific
items and
pension
adjustment1
53 weeks 2019
Specific
items and
pension
adjustment1
Adjusted
Reported
(35)
196
175
(130)
n/a
n/a
n/a
999
19.6
19.6
1,000
17.5
17.5
n/a
n/a
n/a
Reported
161
999
16.1
16.1
Adjusted
305
1,000
30.5
30.5
1 Further details of the specific items and pension adjustment total can be found in the Financial Review on page 45.
The diluted earnings per share for the year ended 29 March 2020 is based on a weighted average number of shares of
1,001,079,845 (2018-19: 1,000,375,291) to take account of the potential issue of 658,250 (2018-19: 445,534) ordinary shares
resulting from the Deferred Share Bonus Plans (DSBP) and 1,451,301 (2018-19: nil) ordinary shares resulting from the Long
Term Incentive Plans (LTIP). These plans are for certain senior management and are discussed in more detail in Note 18.
No ordinary shares (2018-19: 88) were issued in respect of the Save As You Earn (SAYE) scheme which ceased in the prior year.
The 1,029,706 (2018-19: 70,331) 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 26). The Company, however, does not
hold any shares in treasury.
10. 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.
Dividends on ordinary shares
Final dividends paid
Interim dividends paid
Total dividends paid
52 weeks
2020
Pence per
share
53 weeks
2019
Pence per
share
52 weeks
2020
£m
53 weeks
2019
£m
17.0
7.5
24.5
16.3
8.0
24.3
169
75
244
162
80
242
In view of the current economic uncertainty, the Board believes it is prudent not to recommend a final dividend for the financial
year ended 29 March 2020 (31 March 2019: 17.0 pence per share).
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. 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 IAS 19 ‘Employee Benefits’. In applying IAS 19, the Group has recognised a RMPP/RMSEPP
pension asset of £3,614 million at 29 March 2020, compared with £2,408 million at 31 March 2019, and a DBCBS pension
liability of £177 million at 29 March 2020 (at 31 March 2019: £72 million).
Summary pension information
Ongoing UK pension service costs
UK defined benefit plans (including administration costs)1
UK defined contribution plan
UK defined benefit and defined contribution plans’ Pension Salary Exchange (PSE) employer
contributions2
Total UK ongoing pension service costs
GLS pension costs accounted for on a defined contribution basis
Total Group ongoing pension service costs
Cash flows relating to ongoing pension service costs
UK defined benefit plans’ employer contributions3
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 death in service and administration expenses
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
2020
£m
53 weeks
2019
£m
(397)
(97)
(178)
(672)
(7)
(679)
(288)
(104)
(178)
(570)
(1)
–
(108)
(374)
(82)
(172)
(628)
(7)
(635)
(304)
(89)
(172)
(565)
(2)
2
(70)
At 29 March
2020
‘000
At 31 March
2019
‘000
79
54
133
83
51
134
1
These pension service costs are charged to the income statement. They represent the cost (as a percentage of pensionable payroll – 20.8 per cent (2018-19: 41.0 per cent for the RMPP until
31 March 2018 and 18.9 per cent for the DBCBS from 1 April 2018) 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 RMPP of £9 million (2018-19: £8 million) and the DBCBS of £4 million (2018-19: £2 million) continue to be included within the Group’s ongoing UK pension service costs.
2 Eligible employees who are enrolled into Pension Salary Exchange (PSE) opt out of making employee contributions to their pension and the Group makes additional contributions in return
3
for a reduction in basic pay.
The employer contribution cash flow rate of 15.6 per cent forms part of the payroll expense and is paid in respect of the DBCBS (2018-19 contributions included RMPP contributions of 17.1
per cent to 31 March 2018 and DBCBS contributions of 15.6 per cent from 1 April 2018). These contribution rates are set following each actuarial funding valuation, usually every three years.
These actuarial valuations are required to be carried out on assumptions determined by the Trustee and agreed by Royal Mail, and will be required in respect of the DBCBS, the first full
valuation for this will be performed as at 31 March 2021.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
189
189
11. Retirement benefit plans (continued)
In the period, the Group operated the following plans.
UK Defined Contribution plan
Royal Mail Group Limited, the Group’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 £135 million in 2018-19 to £169 million (including £72 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 8.0 per cent in 2018-19 to 8.6 per cent in 2019-20. This increase is largely as a result of members
electing to transfer to the standard section which is subject to higher Group contribution rates, following a Government-
mandated increase in contribution rates for members not in the standard section from 3 per cent to 5 per cent on 6 April 2019.
UK Defined Benefit plans
Royal Mail Pension Plan (RMPP)4
The RMPP is funded by the payment of contributions to separate trustee administered funds. The RMPP includes sections A, B
and C, each with different terms and conditions.
– Section A is for members (or beneficiaries of members) who joined before 1 December 1971;
– Section B is for members (or beneficiaries of members) who joined on or after 1 December 1971 and before 1 April 1987, or
for members of Section A who chose to receive Section B benefits; and
– Section C is for members (or beneficiaries of members) who joined on or after 1 April 1987 and before 1 April 2008.
Section A/B members built up a pension of 1/80th of pensionable salary plus a tax-free lump sum of 3/80ths of pensionable
salary for each year of pensionable service, until 31 March 2018.
Section C members built up a pension of 1/60th of pensionable salary for each year of pensionable service, until 31 March 2018.
If they want to take a tax-free lump sum at retirement they do so by exchanging some of their pension.
From 1 April 2018, Section A/B and C members began building up benefits on a DBCBS basis.
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.
No RMPP service contributions were made during 2019-20. One week of 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 2018 valuation continued to show the scheme in surplus, no deficit correction payments are
expected to be made.
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 Group more flexibility over how these assets are best used for the benefit of members in
future. These contributions are not considered to be Plan assets as the Trustee does not have control over the assets. This
balance is included within non-current financial assets. Further information on the classification and carrying value of these
assets is disclosed within Note 24 to the Financial Statements, ‘Financial assets and liabilities and risk management’.
4 Any references to the RMPP relate to the scheme’s defined pension liabilities built up to 31 March 2018. Members built up DBCBS benefits from 1 April 2018.
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190
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. Retirement benefit plans (continued)
Defined Benefit Cash Balance Scheme (DBCBS)
A Defined Benefit Cash Balance Scheme (DBCBS) has been in place since 1 April 2018. This is a transitional arrangement until
the proposed Collective Defined Contribution (CDC) scheme can be established. Active former Section A/B and C members are
accruing benefits under the DBCBS from 1 April 2018. Section F of the RMPP is for active former RMDCP members who became
eligible to join the RMPP and have accrued DBCBS benefits from 1 April 2018.
DBCBS members build up a guaranteed lump sum benefit of 19.6 per cent of their pensionable pay each year. Although there
are no guaranteed increases to this lump sum the aim is to provide above inflation increases, and the Trustee invests the
scheme assets accordingly. If the value of the DBCBS assets were to fall below the value of the members’ guaranteed lump
sum benefits then no increases would be awarded until asset values had recovered as the Group has a legal obligation to
prevent a decrease in the asset value. From an assessment of announcements and internal communications made to members
of the scheme to date and taking into account the first increase granted in March 2020, Management is of the view that there is
a constructive obligation to provide an increase to the lump sum, as scheme members would have a reasonable expectation of
returns of CPI plus two per cent.
The Group signed a Schedule of Contributions on 19 July 2019. This covers a period of five years from the date of certification of
the schedule i.e. until July 2024. In accordance with this schedule, the Group is required to make payments totalling 15.6 per
cent per annum of pensionable payroll in respect of DBCBS.
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. In accordance with the Schedule of
Contributions agreed as part of the 2018 triennial valuation, a final deficit payment of £1 million was paid in 2018-19, together
with £1 million in respect of death-in-service lump sum benefits and administration expenses. In accordance with the new
Schedule of Contributions signed on 25 March 2019, £500,000 has been paid in 2019-20 and is due to be paid per annum for the
period 1 April 2020 to 31 March 2025.
Following the purchase of an additional insurance policy in September 2018 in respect of all remaining pensioners and deferred
members it was decided to proceed to buy-out and wind-up the Plan. As a result, the purchase of the insurance policy was
treated as a settlement in the 2018-19 financial statements. The difference between the IAS 19 surplus before and after the
transaction resulted in £64 million being charged to the income statement as an operating specific item. Further progress
towards buy-out and winding-up of the Plan has been made in the current year, and the target is to have the process completed
in 2021.
All benefit payments due from the RMSEPP remain unchanged. The insurance policies held by the RMSEPP exactly match the
value and timing of the benefits payable to individual members and the fair value is deemed to be the present value of the
related obligations. The total value of the buy-in annuity policies in place is £296 million (31 March 2019: £335 million) and is
included as a pension asset and a pension liability at 29 March 20205.
A liability of £2 million (2018-19: £2 million) has been recognised for future payment of pension benefits to a past Director.
Accounting and actuarial funding surplus position (RMPP, RMSEPP and DBCBS)
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 the 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 and the actuarial funding
valuation uses gilt yields. As the accounting discount rate is higher than the actuarial funding discount rate, this leads to a lower
computed liability.
The triennial valuation of RMPP at 31 March 2018 was agreed on 19 July 2019. Based on this set of assumptions rolled forward,
the RMPP actuarial surplus at 29 March 2020 was estimated to be around £575 million. The DBCBS will be subject to triennial
actuarial valuations in the future and the first full valuation for this will be performed as at 31 March 2021. A draft DBCBS
funding position has however been calculated based on the assumption that the funding surplus is equal to the amount held in
respect of the risk reserve. Under this method, the DBCBS actuarial surplus was estimated to be around £18 million.
Below is a summary of the combined plans’ assets and liabilities on an accounting (IAS 19) and actuarial funding basis.
5
In accordance with IAS 19.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
191
191
11. Retirement benefit plans (continued)
DBCBS Accounting
(IAS 19)
DBCBS Actuarial
funding
RMPP and RMSEPP
Accounting (IAS 19)
RMPP and RMSEPP
Actuarial funding
At 29 March
2020
£m
At 31 March
2019
£m
At 31 March
2020
£m
At 31 March
2019
£m
At 29 March
2020
£m
At 31 March
2019
£m
At 31 March
2020
£m
At 31 March
2019
£m
730
402
735
402
11,989
10,803
11,700
10,877
(907)
(474)
(717)
(393)
(6,429)
(7,097)
(11,116)
(10,818)
(177)
n/a
(177)
(72)
n/a
(72)
18
n/a
18
9
n/a
5,560
3,706
(1,946)
(1,298)
9
3,614
2,408
584
n/a
584
59
n/a
59
Fair value of plans’
assets (11(b) below)6
Present value of plans’
liabilities
(Deficit)/surplus in plans
(pre withholding tax
payable)7
Withholding tax payable
(Deficit)/surplus in
plans8
6
The difference between accounting and actuarial funding asset fair values on 29 and 31 March 2020 arises from the different year end dates used for the valuation of the assets, and in both
years due to the valuation of the RMSEPP buy-in assets under both methods.
7 Any reference to a withholding tax adjustment relates to withholding tax payable on distribution of a pension surplus.
8 On an actuarial funding basis, the excess of DBCBS assets over liabilities is as a result of the risk reserve.
There is no element of the present value of the plans’ liabilities above that arises from plans that are wholly unfunded.
Having taken legal advice with regard to the rights of the Group under the Trust deeds and rules, the Directors believe there is a
right to recognise a pension surplus on an accounting basis. The Directors do not believe that the surplus in the RMPP on an
accounting basis will result in a surplus on an actuarial funding basis. However, the Directors are required to account for the
plans based on the Group’s 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 in the RMPP and RMSEPP, under
IAS 19 and IFRIC 14, it must recognise the economic benefit it considers 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 Group’s decision to close the RMPP, however any
surplus is no longer considered to be recoverable as a reduction to future employer contributions. Therefore the surplus is
considered to be available as a refund. This surplus is presented net of a withholding tax adjustment of £1,942 million (at 31
March 2019: £1,294 million) on the balance sheet, which represents the tax that would be withheld on the surplus amount.
Included in the IAS 19 figures in the table above is a RMSEPP surplus at 29 March 2020 of £10 million (pre-withholding tax
payable) (at 31 March 2019: £10 million 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.
As the RMSEPP is also closed to future accrual, the surplus is considered to be available as a refund as per IFRIC 14 and, as
such, is shown net of a withholding tax adjustment of £4 million (at 31 March 2019: £4 million) on the balance sheet, which
represents the tax that would be withheld on the surplus amount.
The Company does not currently expect that the total cash contribution rate for all of the schemes as a percentage of
pensionable pay will materially change over the next five years nor does it expect any deficit payments to be required.
Guaranteed Minimum Pensions (GMP)
Pension schemes are now under an obligation to address the issue of unequal Guaranteed Minimum Pensions (GMP). From
Royal Mail’s perspective, the transfer of RMPP’s historical pension liabilities to HM Government in 2012, in accordance with the
Postal Services Act 2011, included all of the Plan’s GMP liabilities. The requirement to remove the inequality in former RMPP
benefits deriving from GMPs therefore rests with Government.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. Retirement benefit plans (continued)1
Guaranteed Minimum Pensions (GMP) (continued)
The RMSEPP, however, does still have its GMP liabilities and will be required to take action to equalise benefits. The Trustees’
actuaries estimate that the cost of GMP equalisation will be less than £0.5 million. This is still subject to further legal
clarification on exact equalisation requirements, and also to the actual equalisation approach adopted.
The following disclosures relate to the major assumptions, sensitivities, assets and liabilities in the RMPP, RMSEPP
and DBCBS.
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. The 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 rate – RMPP/RMSEPP9
– nominal
– real (nominal less RPI)
Discount rate – DBCBS10
– nominal
– real (nominal less RPI)
Rate of increase in pensionable salaries11
Rate of increase for deferred pensions
Rate of pension increases – RMPP Sections A/B
Rate of pension increases – RMPP Section C11
At 29 March
2020
At 31 March
2019
2.5%
1.7%
2.2%
(0.3%)
2.2%
(0.4%)
3.2%
2.2%
2.4%
(0.8%)
2.2%
(1.0%)
RPI–0.1%
RPI–0.1%
CPI
CPI
CPI
CPI
RPI–0.1%
RPI–0.1%
Rate of pension increases – RMSEPP members transferred from Section A or B of RMPP
CPI
CPI
Rate of pension increases – RMSEPP all other members11
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
RPI–0.1%
RPI–0.1%
CPI+2.0%
CPI+2.0%
28/26 years 28/26 years
30/28 years 29/27 years
The discount rate reflects the average duration of the RMPP benefits of around 27 years
9
10 The discount rate reflects the average duration of the DBCBS benefits of 15 years. The pension service cost applicable from 1 April 2019 is based on 31 March 2019 assumptions.
11 The rate of increase in salaries, and the rate of pension increase for Section C members (who joined the 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.
Retail Price Index
Historically the Group’s calculations have been based on an assumed gap of 100bps between RPI and CPI rates. The UK
Statistics Authority and HM Treasury are however currently jointly consulting on reforming the methodology of the Retail Price
Index (RPI) with a view to abolishing this measure and replacing this with something close to CPI as a universal measure of
inflation. As a result, the market appears to be pricing in a narrower gap between RPI and CPI, particularly after 2030. The
Group has therefore adjusted its assumption for this measure to an 80bps gap, being the weighted average of the expected gap
over the duration of the liabilities. The impact of this adjustment is approximately £65 million for RMPP and £25 million for
DBCBS. It is expected that the RPI CPI gap will continue to decrease in future periods.
Mortality
The RMPP assumptions are based on the latest Self-Administered Pension Scheme (SAPS) S2 mortality tables with appropriate
scaling factors (118 per cent for male pensioners (2018-19: 118 per cent) and 116 per cent for female pensioners (2018-19: 116
per cent)). Future improvements are based on the CMI 2017 core projections (smoothing factor 8.0 (2018-19: 8.0)) with a long-
term trend of 1.5 per cent per annum (2018-19: 1.5 per cent). These assumptions were adopted following a mortality study
undertaken as part of the March 18 actuarial valuation.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
193
193
11. Retirement benefit plans (continued)
Sensitivity analysis for RMPP and DBCBS liabilities
The RMPP and DBCBS liabilities are sensitive to changes in key assumptions. The potential impact of the largest sensitivities
on the RMPP and DBCBS 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.
Increase in constructive obligation of 0.1% p.a.
Increase in inflation rate (both RPI and CPI simultaneously) of 0.5% p.a.
Decrease in discount rate of 0.5% p.a.
Increase in CPI assumption (assuming RPI remains constant) of 0.5% p.a.
Potential
increase in
DBCBS liabilities
£m
Potential
increase in
RMPP
liabilities
£m
2019-20
2019-20
–
13
13
13
13
70
65
70
230
155
155
30
–
780
680
170
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. The discount rate and RPI
sensitivities are calculated using the mean term of the relevant section to derive the impact of a 0.1 per cent / 0.5 per cent
change in assumption. For the RPI/CPI gap, the approach is the same for DBCBS, but for legacy RMPP, the liabilities as at 31
March 2019 are considered to derive an accurate impact in percentage terms. This percentage is then applied to the liabilities at
March 2020. This approach is unchanged from the prior year, although any change in mean terms will impact the sensitivities.
Changes inverse to those in the table (e.g. an increase in discount rate) would have the opposite effect on liabilities.
As a result of the current COVID-19 pandemic, there has been significant volatility in these assumptions in recent months. At
the end of May corporate bond yields had fallen significantly and as a result the discount rate was 100 basis points lower than
the rate at the year end date for the DBCBS scheme and 90 basis points lower than the rate at year end for the RMPP scheme.
The majority of the scheme’s liabilities are however, hedged with government gilts, and yields in these have decreased from
2.35 per cent to 1.52 per cent in the same period.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. Retirement benefit plans (continued)
b) RMPP, RMSEPP and DBCBS assets
At 29 March 2020
At 31 March 2019
Quoted
£m
Unquoted
£m
Total
£m
Quoted
£m
Unquoted
£m
Total
£m
10
393
337
450
649
152
80
501
202
52
7,396
295
385
(5)
(27)
335
–
74
69
394
649
152
80
501
202
52
270
295
–
(6)
(20)
335
Equities
UK
Overseas
Bonds
Fixed interest – UK
– Overseas
Pooled investments
Absolute return
Equity
Private equity
Fixed interest
Private debt
Property
Liability-driven investments12
Property (UK)
Cash and cash equivalents
Other
Derivatives
RMSEPP buy-in annuity policies
Total plans’ assets
–
21
292
137
–
–
–
–
–
–
9,104
–
468
3
–
–
10,024
21
33
18
82
496
86
163
402
455
59
234
343
–
–
6
21
54
310
219
496
86
163
402
455
59
10
319
268
56
–
–
–
–
–
–
9,338
7,126
343
468
3
6
–
385
1
(7)
–
296
2,695
296
12,719
8,158
3,047
11,205
12 A portfolio of largely gilt and swap contracts that is designed to hedge the majority of the interest rate and inflation risk associated with the Plans’ obligations. At 29 March 2020 it included
£9.3 billion of index-linked gilts, £353 million in short-term money market funds and £132 million of swaps, offset by negative fair value investments of £505 million of repurchase
agreements and £77 million of cash and similar instruments.
There were no open equity futures or options derivatives within this portfolio at 29 March 2020 (2018-19: £nil). £8.8 billion (2018-
19: £7 billion) of HM Government bonds are primarily included in the liability-driven investments balance above. The plans’
assets do not include property or assets used by the Group or shares of Royal Mail plc at 29 March 2020 (2018-19: £nil).
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
195
195
11. Retirement benefit plans (continued)
The 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 liability-driven investments providing
economic exposure to gilts and swap rates. The nature of risks and their mitigation process are similar for the DBCBS.
The change in value of the liability-hedging assets is predominantly reflected in the liability-driven investment values, which
have increased from £7,396 million at 31 March 2019 to £9,338 million at 29 March 2020.
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 29 March 2020 was £2.4 billion (2018-19: £2.4
billion). The notional value covered by the interest rate swaps at 29 March 2020 was £0.3 billion (2018-19: £1.5 billion).
The equity exposure of the 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 has a market value as at 29 March 2020
of £9 million (2018-19: £(20) million) included in the derivative values above. The TRS economically offsets £62 million at 29
March 2020 (2018-19: £303 million) of the Plan’s global equity market exposure.
The RMPP’s liabilities are impacted by longer than expected life expectancy resulting in higher than expected payout levels.
Although this risk is not hedged, mortality studies are undertaken as part of actuarial funding valuations and where appropriate
updated assumptions are adopted for accounting valuations.
A fall in yields on AA- rated corporate bonds, used to set the IAS 19 discount rates, will lead to an increase in the IAS 19
liabilities. The RMPP’s assets included corporate bonds, HM Government bonds and interest rate derivatives that are expected
to partly offset the impact of movements in the discount rate. However, yields on these assets may diverge compared with the
discount rate in some scenarios.
In the pension schemes, many of the Inflation linked increases that apply are restricted to a maximum increase of five per cent
in any year. Therefore, the pension schemes give some protection from this risk of significantly higher levels of inflation (i.e.
above five per cent a year), as many of the increases in the schemes would be restricted to five per cent in this scenario.
The spread of investments continues to balance security and growth in order to pay the RMPP benefits when they become due.
In addition to property and cash, the RMSEPP holds two buy-in annuity policies totalling £296 million at 29 March 2020 (2018-19:
£335 million) to match its liabilities.
Further details on key sources of estimation uncertainty relating to pension assets can be found in the significant accounting
policies section, ‘Key sources of estimation uncertainty and critical accounting judgments’, including details on how the assets
have been valued.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. 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 (before withholding
tax payable) at 1 April 2019 and 26 March 2018
Amounts included in the income statement:
Ongoing UK defined benefit pension plan and
administration costs (included in people costs)
RMSEPP settlement – operating specific item
Pension interest income/(cost)13
Total included in profit before tax
Amounts included in other comprehensive
income – remeasurement gains/(losses)
Actuarial gain/(loss) arising from:
Financial assumptions
Demographic assumptions
Experience assumptions
Return on plans’ assets (excluding interest income)
1,020
Total remeasurement gains of the defined benefit
surplus
1,020
Other
Employer contributions14
Employee contributions
Benefits paid
Curtailment costs
Movement in pension-related accruals
Total other movements
Retirement benefit surplus
(before withholding tax payable) at 29 March 2020
and 31 March 2019
Defined benefit asset
Defined benefit liability
Net defined benefit surplus
2020
£m
2019
£m
2020
£m
2019
£m
2020
£m
2019
£m
10,803
10,361
(7,097)
(7,038)
3,706
3,323
(9)
–
258
249
–
–
–
1
–
(84)
–
–
(83)
(8)
(64)
247
175
–
–
–
344
344
3
–
(78)
–
(2)
(77)
–
–
(169)
(169)
751
(17)
19
–
753
–
–
84
–
–
84
(5)
–
(168)
(173)
(197)
169
67
–
39
–
–
78
–
(3)
75
(9)
–
89
80
751
(17)
19
1,020
1,773
1
–
–
–
–
1
(13)
(64)
79
2
(197)
169
67
344
383
3
–
–
–
(5)
(2)
11,989
10,803
(6,429)
(7,097)
5,560
3,706
Withholding tax payable
n/a
n/a
n/a
n/a
(1,946)
(1,298)
Retirement benefit surplus
(net of withholding tax payable)
at 29 March 2020 and 31 March 2019
n/a
n/a
n/a
n/a
3,614
2,408
13 Pension interest income results from applying the plans’ discount rate at 31 March 2019 to the plans’ assets at that date. Similarly, the pension interest cost results from applying the plans’
discount rate as at 31 March 2019 to the plans’ liabilities at that date.
14 Excludes payments into pension escrow investments of £nil (2018-19: £7 million) but includes PSE contributions of £nil (2018-19: £1 million).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
197
197
11. Retirement benefit plans (continued)
d) Movement in DBCBS 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 deficit
since the start of the scheme on 1 April 2018 are analysed as follows:
Defined benefit asset
Defined benefit liability
Net defined benefit deficit
Retirement benefit at 1 April 2019 and
26 March 2018
Amounts included in the income statement
Ongoing UK defined benefit pension plan and
administration costs (included in People costs)
Pension interest income/(cost)15
Total included in profit before tax
Amounts included in other comprehensive
income – remeasurement losses
Actuarial gain/(loss) arising from:
Financial assumptions
Experience assumptions
Return on plan assets
Total remeasurement (losses)/gains of the defined
benefit deficit
Other
Employer contributions16
Employee contributions
Benefits paid
Total other movements
2020
£m
402
(4)
13
9
–
–
(51)
(51)
390
4
(24)
370
2019
£m
–
2020
£m
(474)
2019
£m
–
2020
£m
(72)
2019
£m
–
(2)
–
(2)
–
–
8
8
403
4
(11)
396
(485)
(16)
(501)
(465)
–
(465)
(489)
(3)
(492)
(467)
–
(467)
49
(1)
–
48
–
(4)
24
20
(16)
–
–
49
(1)
(51)
(16)
(3)
(16)
–
8
(8)
–
(4)
11
7
390
403
–
–
–
–
390
403
Retirement benefit deficit at 29 March 2020
and 31 March 2019
730
402
(907)
(474)
(177)
(72)
15 Pension interest income results from applying the plans’ discount rate at 31 March 2019 to the plans’ assets at that date. Similarly, the pension interest cost results from applying the plans’
discount rate as at 31 March 2019 to the plans’ liabilities at that date.
Includes PSE contributions of £106 million (2018-19 £110 million).
16
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
198
198
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. Acquisition of businesses
This Note provides details of the acquisition of 100 per cent of the share capital of Mountain Valley Express (MVE) and
Mountain Valley Freight Solutions (MVFS) by GLS.
On 30 September 2019, General Logistics Systems North America Inc., a subsidiary of General Logistics Systems (GLS),
acquired MVE and MVFS, leading overnight and second day freight service providers based in California. This information
includes the fair value of the identifiable assets and liabilities recognised as at the date of acquisition. Costs related to this
acquisition recognised as an expense within other operating costs in the income statement amounted to £0.4 million.
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
Loans and leases
Net assets acquired
Cash paid during the year
Consideration deferred
Total consideration
MVE and MVFS
Total
£m
17
7
5
2
2
33
(3)
(10)
20
17
3
20
The fair value of trade debtors is equal to the gross contractual amounts receivable. A review of trade debtors did not indicate
any recoverability issues.
The intangible assets recognised relate to customer lists and brands. The goodwill of £2 million arising on this acquisition is
non-tax deductible.
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 £22 million and profit is £1 million. If these combinations
had taken place at the beginning of the financial year, revenue generated would have been £47 million and the profit would have
been £3 million.
There are no non-controlling interests in relation to this acquisition.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
199
199
13. Property, plant and equipment
Below are details of the Group’s property, equipment and vehicle assets, including ‘right of use assets’ recognised on
adoption of IFRS 16 ‘Leases’, which are recorded at their historic cost less accumulated depreciation, reflecting their usage
within the business over their useful life. Further information about the right-of use assets can be found in Note 14.
Cost
At 31 March 2019
Adoption of IFRS 16
At 1 April 2019
Exchange rate movements
Reclassification1
Modifications
Additions
Disposals2
Acquisition of business (Note 12)
Reclassification to non-current assets held for sale
At 29 March 2020
Depreciation and impairment
At 31 March 2019
At 1 April 2019
Exchange rate movements
Reclassification
Charge for the year
Impairment3
Disposals2
Reclassification to non-current assets held for sale
At 29 March 2020
Net book value:
At 29 March 2020
At 1 April 2019
At 31 March 2019
Land and
buildings
£m
Plant and
machinery
£m
Motor
Vehicles
£m
Fixtures and
equipment
£m
3,008
944
3,952
23
3
15
234
(18)
8
(29)
1,180
14
1,194
7
9
2
63
(19)
1
–
763
83
846
2
–
–
126
(61)
8
–
424
4
428
5
(2)
–
26
(18)
–
–
Total
£m
5,375
1,045
6,420
37
10
17
449
(116)
17
(29)
4,188
1,257
921
439
6,805
1,800
1,800
5
2
213
34
(17)
(3)
2,034
2,154
2,152
1,208
815
815
4
(2)
78
18
(16)
–
897
360
379
365
377
377
2
–
88
-
(55)
–
412
509
469
386
317
317
4
–
33
6
(18)
–
342
97
111
107
3,309
3,309
15
–
412
58
(106)
(3)
3,685
3,120
3,111
2,066
Includes a £10 million balance sheet reclassification from inventories to plant and machinery.
Includes £31 million relating to the clear-down of balances relating to certain GLS assets that have been fully depreciated and are no longer in use.
1
2
3 Relates to the impairment of the Parcelforce Worldwide CGU outlined in Note 6.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. Property, plant and equipment (continued)
Cost
At 26 March 2018
Exchange rate movements
Reclassification
Additions
Disposals
Acquisition of business
Reclassification from non-current assets held for sale
At 31 March 2019
Depreciation and impairment
At 26 March 2018
Exchange rate movements
Reclassification
Charge for the year4
Impairment
Disposals
Reclassification to non-current assets held for sale
At 31 March 2019
Net book value:
At 31 March 2019
At 25 March 2018
Net book value comprises:
Owned assets
Finance leased assets
At 31 March 2019
Land and
buildings
£m
Plant and
machinery
£m
Motor
vehicles
£m
Fixtures and
equipment
£m
Total
£m
2,886
1,152
(6)
2
127
(12)
3
8
(3)
(2)
57
(26)
2
–
3,008
1,180
724
(1)
–
79
(51)
12
–
763
400
5,162
(1)
–
35
(10)
–
–
(11)
–
298
(99)
17
8
424
5,375
1,724
770
361
291
3,146
(1)
2
89
–
(9)
(5)
1,800
1,208
1,162
1,194
14
1,208
(1)
(2)
72
1
(25)
–
815
365
382
296
69
365
(1)
–
60
2
(45)
–
377
386
363
167
219
386
(1)
–
37
1
(11)
–
317
107
109
107
–
107
(4)
–
258
4
(90)
(5)
3,309
2,066
2,016
1,764
302
2,066
4
Includes £12 million accelerated depreciation relating to a reassessment of the remaining useful lives of letters sorting machinery, recognised prospectively in ‘infrastructure costs’ in the
income statement.
Depreciation rates are disclosed within ‘significant accounting policies’. No depreciation is provided on land, which represents
£232 million (2018-19: £229 million) of the total cost of properties.
The net book value of the Group’s property, plant and equipment includes £231 million (2018-19: £207 million) in respect of
assets in the course of construction. The net book value of the Group’s land and buildings includes £303 million (2018-19: £362
million) in respect of building fit-out.
The £459 million (2018-19: £298 million) additions include £3 million (2018-19: £1 million) borrowing costs capitalised at a rate
of 2.5 per cent in relation to specific qualifying assets.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
201
201
14. Leases
This Note provides details of the Group’s leased assets, including those ‘right of use’ (ROU) assets and corresponding
liabilities recognised on the balance sheet on the adoption of IFRS 16 ‘Leases’ on 1 April 2019, the first day of the
reporting year.
The adoption of IFRS 16 significantly impacts the Group balance sheet at the 1 April 2019 transition date, ROU assets have been
recognised as ‘property, plant and equipment’ along with the associated lease liabilities. Certain prepayment, onerous lease provision
and rent incentive balances have also been impacted. The table below shows the line by line impact on the balance sheet.
IFRS 16 transition impact on the Group balance sheet
Non-current assets
Property, plant and equipment
Deferred tax assets
Other non-current assets
Assets held for sale
Current assets
Trade and other receivables
Other current assets
Total assets
Current liabilities
Trade and other payables
Lease liabilities
Provisions
Other current liabilities
Non-current liabilities
Lease liabilities
Deferred tax liabilities
Provisions
Other non-current liabilities
Total liabilities
Net assets
Equity
Retained earnings
Other equity
Total equity
Reported at
31 March 2019
£m
IFRS 16 impact
£m
Reported at
1 April 2019
£m
2,066
1,045
3,111
64
3,647
5,777
36
1,310
278
1,588
7,401
–
–
1,045
–
(20)
–
(20)
1,025
64
3,647
6,822
36
1,290
278
1,568
8,426
(1,883)
4
(1,879)
(37)
(58)
(11)
(118)
1
–
(155)
(57)
(11)
(1,989)
(113)
(2,102)
(88)
(55)
(104)
(546)
(793)
(944)
(1,032)
–
1
32
(55)
(103)
(514)
(911)
(1,704)
(2,782)
(1,024)
(3,806)
4,619
1
4,620
4,576
43
4,619
1
–
1
4,577
43
4,620
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. Leases (continued)
Reconciliation of operating lease commitments to the equivalent IFRS 16 lease liabilities at 31 March 2019
Undiscounted operating lease future minimum lease payments at 31 March 2019
Irrecoverable VAT included in future minimum lease payments at 31 March 20191
Impact of discounting2
Short-term/low-value leases3
Other reconciling items (net)
IAS 17 operating lease liabilities at 31 March 2019 in scope for IFRS 16
£m
(1,327)
88
182
18
(23)
(1,062)
Irrecoverable VAT was included in the operating lease commitments at 31 March 2019, under IFRS 16 this irrecoverable VAT is not included in the lease liability.
1
2 The previously disclosed lease commitments are undiscounted, whilst the IFRS 16 obligations have been discounted using RMG’s incremental borrowing rate.
3
The Group has elected to apply the exemption from recognising leases for short-term and low value assets on the balance sheet.
The Group primarily leases office buildings and letter and parcel processing facilities. At 29 March 2020 the Group held
approximately 1,110 land and building leases (994 at 1 April 2019 on transition to IFRS 16). The Group also has leases for some
of its vehicle fleet and plant and equipment used in the operation. Leases are negotiated on an individual basis and may include
extension or termination options.
The lease liabilities are reported as follows in the balance sheet:
Lease liabilities
Current liabilities
Lease liabilities due within one year
Non-current liabilities
Lease liabilities due between one and five years
Lease liabilities due beyond five years
The right of use assets resulting from lease agreements are detailed below.
Right of use assets
At 29 March 2020
Cost
Additions
Accumulated depreciation and impairment losses
Depreciation charge
Carrying amount
Land and
Buildings
£m
Plant and
machinery
£m
Motor
vehicles
£m
Fixtures and
equipment
£m
1,096
109
(133)
(128)
963
195
3
(125)
(25)
70
504
29
(275)
(55)
229
4
–
(1)
(1)
3
At 29 March 2020
At 31 March
2019
Present value of
lease
payments
£m
Present value of
lease
payments
£m
(201)
(37)
(575)
(412)
(74)
(14)
Total
£m
1,799
141
(534)
(209)
1,265
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
203
203
14. Leases (continued)
Leases in the income statement
Leases are presented in the income statement as detailed below.
Other operating income
Sublease income
Material expenses
Expenses from short-term/low-value leases
Variable lease payments not included in the measurement of lease liabilities
Depreciation and impairment losses
Depreciation of right-of-use assets
Net finance costs
Interest expense on lease liabilities
52 weeks
2020
£m
3
(44)
(10)
(209)
(30)
The Group engages in sale and leaseback transactions for plant and machinery and vehicles, cash received from these
transactions in the year was £6 million (2018-19: £13 million).
The Group has £6 million of lease liabilities and right of use assets that are unrecognised at 29 March 2020 resulting from
leases that have been signed but are yet to commence.
At 29 March 2020, the Group have signed a conditional agreement for a lease. Subject to discharge of the conditions, the
intention is to complete the lease during the 2021-22 financial year. When completed, the lease liability and right of use asset
to be recognised is expected to be approximately £80 million.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. Goodwill
This Note provides details of the Group’s goodwill, which mostly relates to its overseas subsidiary, GLS.
Cost
At 1 April 2019 and 26 March 2018
Exchange rate movements
Acquisition of businesses
At 29 March 2020 and 31 March 2019
Impairment
At 1 April 2019 and 26 March 2018
Exchange rate movements
Impairments (Operating specific item)
At 29 March 2020 and 31 March 2019
Net book value:
At 29 March 2020 and 31 March 2019
At 31 March 2019 and 25 March 2018
2020
£m
821
25
2
848
441
17
–
458
390
380
2019
£m
715
(7)
113
821
391
(3)
53
441
380
324
GLS Europe
The carrying value of goodwill of £390 million (2018-19: £380 million) at the balance sheet date includes £270 million (2018-19:
£257 million) in relation to GLS’ European network (GLS Europe CGU - cash generating unit). The carrying value of the GLS
European network, is £787 million. The CGU has been assessed for impairment by comparing the carrying value of the CGU to
its recoverable amount, being the CGU’s value in use. The value in use has been calculated by discounting cash flows for a five
year period with the period beyond five years assumed to have a perpetuity growth rate of 0.4 per cent. All cash flows of the CGU
have been discounted to present value at the CGU’s post-tax WACC of 9.0 per cent. The pre-tax discount rate was 10.0 per cent.
The recoverable amount was deemed to be significantly in excess of the carrying value of the CGU.
GLS US excluding Mountain Valley Express (MVE)
The GLS US businesses represent two separate CGUs, comprising the US West coast operations (Golden State Overnight
Delivery Services Inc. (GSO) and Postal Express Inc. (PEX)), and the newly acquired Mountain Valley Express and Mountain
Valley Freight Solutions businesses. In the prior year, all the goodwill in the GSO/PEX CGU was fully impaired, along with other
tangible and intangible fixed assets. The GLS US turnaround plan, initiated last year, is progressing well with losses in GSO
and PEX reduced by £7m during the year.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
205
205
15. Goodwill (continued)
Mountain Vallley Express (MVE)
During the reporting year, GLS acquired Mountain Valley Express and Mountain Valley Freight Solutions (together 'MVE') which
resulted in the recognition of £2 million goodwill. An impairment review was performed comparing the carrying amount of the
MVE CGU of £20 million, to its recoverable amount. The recoverable amount has been calculated by discounting cash flows for a
five year period with the period beyond five years assumed to have a perpetuity growth rate of 0.7 per cent. All cash flows of the
CGU have been discounted to present value at the CGU’s post-tax WACC of 13.0 per cent. The pre-tax discount rate was 18.0 per
cent. This impairment assessment identified that the CGU has headroom of £9 million.
GLS Canada
In the prior reporting year, GLS acquired Dicom Canada which resulted in the recognition of £110 million goodwill. The value
of the goodwill at 29 March 2020 is £106 million. The carrying value of this CGU is £211 million.
To assess the CGU for impairment, the carrying amount has been compared to its value in use which has been calculated by
discounting cash flows covering a period of five years with the period beyond five years assumed to have a perpetuity growth
rate of 1.4 per cent. All cash flows have been discounted to present value using a post-tax discount rate of 10.0 per cent.
The pre-tax discount rate was 13.0 per cent. Based on these assumptions the CGU has a headroom of £29 million.
For the MVE and GLS Canada CGUs, sensitivity analysis has been conducted on the impairment tests for each of the key
assumptions. The assumptions used and the impact of sensitivities on these assumptions are shown below.
CGU
Mountain Valley Express (MVE)
GLS Canada
Carrying
value
£m
20
211
Goodwill
Value in use
£m
2
106
£m
29
240
Used in impairment
assessment
Rate required to erode
headroom
Discount
rate (post
tax)
%
13.0
10.0
Perpetuity
growth rate
%
0.7
1.4
Discount
rate (post
tax)
%
17.4
11.1
Perpetuity
(decline) rate
%
(8.3)
(0.1)
The remaining goodwill of £13 million (2018-19: £13 million) arising from an aggregation of goodwill on business acquisitions,
each being a separate CGU within the UKPIL segment, is supportable but not material in the context of the Group’s total
goodwill.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
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206
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. Intangible assets
Intangible assets, mainly software, are recorded in 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 ten years).
2020
2019
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
157
1,025
27
1,230
21
76
945
18
1,060
3
–
–
–
2
–
3
75
(36)
(16)
6
–
1
–
–
1
9
75
(52)
7
–
–
–
–
(6)
–
–
87
(2)
94
(22)
10
2
–
–
7
(6)
94
(22)
104
24
129
1,087
29
1,269
21
157
1,025
27
1,230
21
3
–
–
–
62
3
12
–
(36)
495
21
599
21
2
110
33
(16)
–
1
–
–
8
123
33
(52)
–
–
–
–
48
(3)
10
7
–
373
10
452
(1)
138
7
(22)
2
5
4
–
(2)
153
18
(22)
24
41
624
22
711
21
62
495
21
599
–
–
88
95
463
530
7
6
558
631
–
–
95
28
530
572
6
8
631
608
Cost
At 1 April 2019 and
26 March 2018
Exchange rate
movements
Additions
Disposals1
Acquisition of
business
At 29 March 2020
and 31 March 2019
Amortisation and
impairment
At 1 April 2019 and
26 March 2018
Exchange rate
movements
Charge for the year2
Impairment3
Disposals1
At 29 March 2020
and 31 March 2019
Net book value:
At 29 March 2020
and 31 March 2019
At 31 March 2019
and 25 March 2018
Includes £26 million relating to the clear-down of balances relating to certain GLS assets that have been fully depreciated and are no longer in use.
Includes £nil (2018-19: £30 million) impairment relating to certain operational assets, recognised in ‘infrastructure costs’ in the income statement.
1
2
3 Relates to the impairment of the Parcelforce Worldwide CGU discussed in Note 6.
The intangible assets detailed above have finite lives and are being written down on a straight-line basis. The net book value of
the Group’s intangible assets includes £60 million (2018-19: £81 million) in respect of assets in the course of construction. The
£75 million (2018-19: £94 million) additions include £1 million (2018-19: £1 million) of borrowing costs capitalised at a rate of 2.5
per cent (2018-19: 2.5 per cent) in relation to specific qualifying assets.
The Group holds individually material intangible assets totalling £162 million (2018-19: £212 million). These assets relate to
various IT initiatives taking place across the business. They have an average remaining useful life of seven years (2018-19: eight
years).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
207
207
17. Investments in associates
This Note provides details of the Group’s associate companies, including the Group’s share of the revenue, profit and net
assets of these entities.
Details of the associates 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 29 March 2020 (2018-19: 31 March 2019), information provided by each of the
respective companies is analysed and an estimate of profit/loss accrued as appropriate.
Principal activities
Country of incorporation
Reporting date
Associate company
JICMAIL Limited
Market research
United Kingdom
31 March
Quadrant Catering Limited
Catering services
United Kingdom
30 September
Market Engine Global Pty Limited Software development
Australia
30 June
%
ownership
2020
%
ownership
2019
20.0
51.0
34.5
20.0
51.0
34.5
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’.
Movements in interests in associates
Cost
At 1 April 2019 and 26 March 2018
At 29 March 2020 and 31 March 2019
2020
£m
2019
£m
5
5
5
5
There are no significant restrictions on the ability of the associates to transfer funds to the Group in the form of cash dividends
or repayment of loans and advances.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
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208
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. 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) and Deferred Shares Bonus Plan (DSBP) 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.
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. The vesting period for the award is three years
from the award date with all allocated shares to be equity-settled.
Partnership and matching shares
Beginning in October 2018, a partnership and matching share scheme was introduced for eligible employees. Under the terms
of the scheme employees may elect to purchase a limited number of Royal Mail plc shares through monthly payroll deductions
at the current market price (partnership shares). For every five partnership shares purchased, the employee receives one
unallocated SIP share (matching shares), up to a maximum of two matching shares per month, free of charge.
At 29 March 2020 there had been eighteen (2018-19: six) such monthly awards and a total of 587,056 (2018-19: 191,468)
matching shares had been awarded to eligible staff members at a weighted average market price of 239.8 pence (2018-19: 295.7
pence). The vesting period for each award is three years from the award date with all allocated shares to be equity-settled.
A charge to the income statement of £4 million (including a net £3 million National Insurance credit) has been made for the year
ended 29 March 2020 (2018-19: £22 million charge including a net £1 million National Insurance credit) for all SIP allocations
A reconciliation of the ordinary shares held in the SIP at 29 March 2020 and 31 March 2019 is shown below.
Total shares remaining in SIP at 1 April 2019 and 26 March 2018
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 29 March 2020 and 31 March 2019
Number of shares 2019-20
Number of shares 2018-19
75,183,435
(2,897,538)
(4,103,624)
68,182,273
81,917,180
(2,368,290)
(4,365,455)
75,183,435
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, 65,863,180 (2018-19: 72,589,514) have been allocated to current employees. The
remaining 2,319,093 (2018-19: 2,593,921) shares are unallocated and have arisen as a result of forfeitures.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
209
209
18. Share-based payments (continued)
Award of shares under the Long-Term Incentive Plan (LTIP)
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 2017 LTIP did not vest, as the threshold performance
level over the period to 29 March 2020 was not achieved and has lapsed in full.
2018 LTIP
LTIP awards were granted to senior management on 9 August 2018 (2018 LTIP) with a vesting period of three years from 1 April
2018. This award is 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 160.0 pence. The maximum number of shares that have the potential to vest
under the 2018 LTIP are 893,551.
2019 LTIP
LTIP awards were granted to senior management on 8 August 2019 and 12 December 2019 (together the 2019 LTIP) with a
vesting period of three years from 1 April 2019. This award is 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 84.0 pence (August 2019 award) and
211.0 pence (December 2019 award) for market based conditions and 100.0 pence (August 2019 award) and 232.0 pence
(December 2019 award) for non-market based conditions. The maximum number of shares that have the potential to vest under
the 2019 LTIP are 2,298,348.
A charge to the income statement of £2 million (including £nil million for National Insurance) has been made for the year ended
29 March 2020 in relation to all LTIP schemes (2018-19: £3 million, including £1 million credit for 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 128.
Deferred Shares Bonus Plan (DSBP)
2016 DSBP
DSBP awards were granted to senior management on 20 June 2017. The vesting period is three years from grant date. 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 number of shares that have the potential to vest under the scheme are 557,261.
2017 DSBP
DSBP awards were granted to senior management on 20 June 2018. The vesting period is three years from grant date. This
award is equity-settled with the fair value of the shares awarded, being set at the grant date market value of 506.5 pence.
The maximum number of shares that have the potential to vest under the scheme are 453,212.
2018 DSBP
DSBP awards were granted to senior management on 18 July 2019. This award is equity-settled with the fair value of the
shares awarded, being set at the grant date market value of 218.7 pence. Some awards vest two years after the grant date (the
maximum number of shares that have the potential to vest under this tranche are 916,234) and 109,737 shares vest three years
after the grant date.
A charge to the income statement of £2 million (including £nil million for National Insurance) has been made for the year ended
29 March 2020 in relation to all DSBP schemes (2018-19: £3 million, including £nil million credit for National Insurance).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
210
210
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. Non-current 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 29 March 2020, 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 29 March
2020
£m
At 31 March
2019
£m
25
25
36
36
Property assets held for sale
Non-current assets held for sale of £25 million (2018-19: £36 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 mainly relates to the remaining plots at the Nine
Elms site.
The decrease in the carrying value results primarily from the sale of certain property in the period, most notably two plots at the
Nine Elms site. An assessment of the fair value of all 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.
20. 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
Movements in the loss allowance for bad and doubtful debts are shown below.
At 1 April 2019 and 26 March 2018
Receivables provided for during the year
Release of allowance
Utilisation of allowance
Acquisition of business
At 29 March 2020 and 31 March 2019
At 29 March
2020
£m
At 31 March
2019
£m
1,165
1,176
27
90
31
103
1,282
1,310
2020
£m
(39)
(64)
14
20
–
(69)
2019
£m
(36)
(17)
5
10
(1)
(39)
The Group’s approach to loss allowance for bad and doubtful Debts is explained in ‘Statutory accounting policies’.
The age profile of the trade receivables balance is 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
At 29 March
2020
£m
At 31 March
2019
£m
1,039
105
13
8
1,046
101
16
13
1,165
1,176
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
211
211
21. 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 at bank and in hand
Client cash
Cash equivalent investments: Short-term bank and money market fund investments
Total
At 29 March
2020
£m
At 31 March
2019
£m
209
21
1,410
1,640
141
20
75
236
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. It is maintained in separate bank
accounts to the cash of the business so it can be tracked and reconciled.
22. 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 29 March
2020
£m
At 31 March
2019
£m
(1,490)
(1,369)
(294)
(128)
(31)
(83)
(15)
(291)
(126)
(28)
(60)
(9)
(2,041)
(1,883)
The fair value of trade and other payables is not materially different from the carrying value. The average credit period taken for
trade purchases is 41 days (2018-19: 40 days).
The Group operates a supply chain finance arrangement for small and medium suppliers. This form of reverse financing allows
suppliers to obtain early access to funding. Suppliers may choose to access payment as soon as their invoices are processed
rather than Royal Mail standard payment terms by paying a financing fee to the scheme provider. The Group pays the provider
of the scheme on the due date of the invoices, therefore this scheme does not assist the Group in the management of
working capital.
As the scheme has not led to a substantial modification in the terms of the financial liability, the Group continues to treat the
amounts owed within trade payables. All cash flows associated with the programme are included within operating cash flows
as they continue to be part of the normal operating cycle of the Group. There is no impact on net debt, as amounts owed
continue to be reported within trade payables.
The balance owed on the facility at 29 March 2020 was £25 million (31 March 2019: £27 million).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
212
212
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
23. 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.
At 29 March 2020
Loans and
borrowings
£m
Further committed
facility
£m
Average interest
rate of loan drawn
down
%
Total facility
£m
700
446
489
1,635
225
–
–
225
925
446
489
1,860
0.9
2.5
2.72
1.9
Basis of interest
rate chargeable
LIBOR plus
0.70%1
Fixed at
2.5%
Fixed at
2.7%2
Average maturity
date
of loan
drawn down
Year
Average maturity
date
of loan
facility
Year
2020
2024
2024
2024
2026
2023
2026
2025
Syndicated bank loan
facilities
€500 million bond – 2.375%
Senior Fixed Rate Notes
€550 million bond – 1.25%
Senior Fixed Rate Notes
Total
1 The total margin over LIBOR consists of a 0.40 per cent margin and a utilisation fee of 0.30% (as the facility was over two thirds drawn at 29 March 2020, the utilisation fee is 0.075 per cent
when the facility is under one third drawn).
2 On 8 October 2019, Royal Mail plc issued a €550 million bond with coupon of 1.25 per cent and maturity date of 8 October 2026. To hedge the foreign exchange risk, Royal Mail chose to take
out a cross currency swap. The combined interest rate of the coupon and the cross currency swap is 2.7 per cent.
At 31 March 2019
Loans and
borrowings
£m
Further committed
facility
£m
Average interest
rate of loan drawn
down
%
Total facility
£m
Basis of interest
rate chargeable
Average maturity
date
of loan
drawn down
Year
Average maturity
date
of loan
facility
Year
–
1,050
1,050
LIBOR plus
0.55%
n/a
n/a
2022
430
1
431
–
–
1,050
430
1
1,481
Fixed at
2.5%
Fixed at
0.9%
2.5
0.9
2.5
2024
2024
2022
2024
2022
2022
Syndicated bank loan
facilities
€500 million bond – 2.375%
Senior
Fixed Rate Notes
Loans in overseas
subsidiaries
Total
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
213
213
23. 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/€1.118
(2018-19: £1/€1.158). The effective interest rate on the bond of 2.5 per cent (2018-19: 2.5 per cent) consists of the interest
coupon of 2.375 per cent (2018-19: 2.375 per cent) plus the unwinding of the discount and fees on issuing the bond of 0.08 per
cent (2018-19: 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 £15 million (2018-19: £5 million gain) 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.
On 8 October 2019, Royal Mail plc issued a €550 million bond with coupon of 1.25 per cent and maturity date of 8 October 2026.
To hedge the foreign exchange risk, Royal Mail chose to take out a cross currency swap. The combined interest rate of the
coupon and the cross currency swap is 2.7 per cent. The €550 million bond is shown net of issue discount and fees and at a
closing spot rate of £1/€1.118. The effective interest rate on the bond plus the cross currency swap (2.7 per cent) consists of the
interest coupon of 1.25 per cent plus the effects of the cross currency swap (1.00 per cent) and the unwinding of the discount
and fees on issuing the bond (0.40 per cent). The revaluation of the bond is hedged by the cross currency swap. The exchange
rate on the Bond on issue in October 2019 of £1/€1.120 was similar to the closing spot rate of £1/€1.118, meaning that there
was no material loss on the retranslation of this borrowing and no corresponding movements on the cross currency swap.
There was no hedge ineffectiveness in the current year.
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 covenants. On 24 June 2020, a covenant amendment was agreed that waived the financial covenants relating to
interest (excluding arrangement fees), adjusted net debt and EBITDA until March 2022, replacing them with a quarterly
minimum liquidity covenant. It is not anticipated that the Group is at risk of breaching any of these amended obligations.
The existing financial covenants require the Group to maintain the (leverage) ratio of adjusted net debt to EBITDA below 3.5:1
and EBITDA to interest (excluding certain arrangement fees) above 3.5:1. The covenant ratios are calculated on an IAS 17 basis
for leases. Adjusted net debt consists of net debt less leases capitalised under IFRS 16, 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. EBITDA is adjusted to deduct operating lease expense on
leases capitalised under IFRS 16 and to remove transformation costs and certain specific items (the pension charge to cash
difference is not removed). Interest is adjusted to remove interest on leases capitalised under IFRS 16. The Group’s leverage
ratio at 29 March 2020 is 0.2:1 (2018-19: 0.5:1). The Group’s ratio of EBITDA to interest at 29 March 2020 is 36.0:1 (2018-19:
72.8:1). Accordingly, the Group comfortably meets the covenants tests within its syndicated bank loan facilities agreement. The
minimum liquidity covenant requires the Group to maintain at least £250 million of liquidity defined as cash, cash equivalent,
current asset investments and undrawn, committed facilities (excluding the Covid Corporate Financing Facility).
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 2.05 per cent. The €500 million bond and the €550 million bond become repayable immediately on the occurrence
of an event of default under the bond agreements. 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
£225 million maturing in September 2024 (2018-19: £1,050 million of which £952 million maturing in March 2020 and £98 million
maturing in March 2020).
There is no security in place under the syndicated bank loan facilities or the bonds.
The syndicated bank loan facility 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 and the €550 million bond both contain provisions such that, on a
change of control that is combined with a credit rating downgrade in certain circumstances, the noteholders may require the
Group to redeem or, at the Group’s option, purchase the notes for their principal amount, together with interest accrued to
(but excluding) the date of redemption or repurchase.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24. Financial assets and liabilities and risk management
In considering the financial assets and liabilities of the Group, Management use judgement 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 addresses 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 addresses 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 addresses 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 addresses 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 addresses 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.
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 29 March
2020
Carrying amount
£m
At 29 March
2020
Fair value
£m
At 31 March
2019
Carrying amount
£m
At 31 March
2019
Fair value
£m
Financial assets
Cash
Cash equivalent investments
Money market funds
Short-term deposits – bank
Cash and cash equivalents
1
1
1
Current asset investments – short-term deposits –
bank
1
Pension escrow investments
Trade and other receivables
Derivative assets (current)
Derivative assets (non-current)
Total financial assets
1
2
2
2
FVTPL
Amortised
cost
Amortised
cost
FVTPL
Amortised
cost
FVTPL
FVTPL
230
1,410
1,370
230
1,410
1,370
40
40
1,640
1,640
30
201
30
201
161
75
35
40
236
–
207
161
75
35
40
236
–
207
1,282
1,282
1,310
1,310
5
–
5
–
8
4
8
4
3,158
3,158
1,765
1,765
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
215
215
24. Financial assets and liabilities and risk management (continued)
The following table shows the classification, carrying amount and fair value of the Group’s financial liabilities.
Level
Classification
At 29 March
2020
Carrying Amount
£m
At 29 March
2020
Fair Value
£m
At 31 March
2019
Carrying Amount
£m
At 31 March
2019
Fair Value
£m
Financial liabilities
Sydicated bank loans ( current loans and
borrowings )
Obligations under leases (current)
€500 million bond
€550 million bond
Loans in overseas subsidiaries (non-current loans
and borrowings)
Obligations under leases (non-current)
Trade and other payables
Derivative liabilities (current)
Derivative liabilities (non-current)
Total financial liabilities
Net total financial liabilities
2
2
2
2
2
2
2
2
2
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
FVTPL
FVTPL
(700)
(701)
–
–
(201)
(201)
(37)
(37)
(446)
(467)
(430)
(454)
(489)
(465)
–
–
–
(1)
–
(1)
(987)
(982)
(88)
(95)
(2,041)
(2,041)
(1,883)
(1,883)
(35)
(32)
(35)
(32)
(3)
(2)
(3)
(2)
(4,931)
(4,924)
(2,444)
(2,475)
(1,773)
(1,766)
(679)
(710)
Derivatives that do not qualify for hedge accounting are classified as fair value through profit and loss (FVTPL) and any gains or
losses arising from changes in fair value are taken directly to the income statement in the year. 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24. 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 1 April 2019
Movements through income statement
Interest payable on financial liabilities
Movements through cash flow
Finance costs paid
Drawdown of loan facility
Bond Issue
Repayment of loans and borrowings
Payment of capital element of lease contracts
Cash received on sale and leasebacks
Other movements
Reclassification between categories
Increase in lease obligations (non-cash)
Effect of foreign currency exchange rates
At 29 March 2020
Interest-bearing
loans and
borrowings
(current)
£m
Interest-bearing
loans and
borrowings
(non-current)
£m
Obligations
under leases
(current)
£m
Obligations
under leases
(non-current)
£m
Total
£m
–
–
–
(700)
–
–
–
–
–
–
–
(700)
(431)
(155)
(1,032)
(1,618)
(17)
16
–
(489)
1
–
–
–
–
(15)
(935)
–
–
–
–
–
172
–
(218)
–
–
(201)
(30)
(47)
30
–
–
–
–
(6)
46
(700)
(489)
1
172
(6)
218
(156)
(11)
(987)
–
(156)
(26)
(2,823)
Interest-bearing
loans and
borrowings
(current)
£m
Interest-bearing
loans and
borrowings (non-
current)
£m
Obligations
under finance
leases (current)
£m
Obligations
under finance
leases
(non-current)
£m
(436)
(59)
(110)
Total
£m
(606)
At 26 March 2018
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
Reclassification between categories
Effect of foreign currency exchange rates
At 31 March 2019
(1)
(2)
2
1
–
–
–
–
–
(11)
11
–
–
–
–
5
(431)
–
–
–
56
–
(34)
–
(37)
(3)
(16)
3
–
–
16
1
56
(13)
(13)
34
1
(88)
–
6
(556)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
217
217
24. Financial assets and liabilities and risk management (continued)
c) Foreign currency risk management
Foreign currency transaction risk
UKPIL is exposed to foreign currency risk due to interest payments on the €500 million and €550 million bonds, certain
obligations under Euro-denominated 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, to the US Dollar and the Canadian 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
Risk
€/£ exchange rate movements
Overseas postal administrations
SDR/£ exchange rate movements
Percentage of next 12 months’
exposure that
has been hedged
At 29 March
2020
At 31 March
2019
98%
26%
82%
84%
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 €6 million of UKPIL Euro-denominated leases during the year (2018-19: €15 million). This similarly
acts as a hedge of the net assets of GLS. The remaining net assets of GLS in excess of the €500 million 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 UKPIL Euro-denominated lease payables, at closing Sterling/Euro exchange rates, are recognised in the
statement of comprehensive income. These exchange differences would be released 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 £15 million (2018-19: £5 million gain)
and foreign exchange losses on the lease payables of £2 million (2018-19: £1 million gain) were recognised in the statement of
comprehensive income. There was no hedge ineffectiveness in the current or prior reporting years.
The €550 million bond issued in October 2019 is perfectly hedged for foreign currency risk by a cross currency swap.
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 and €550 million bonds and £393 million
of leases) are held within cash or derivatives.
Net total financial liabilities at 29 March 2020
Net total financial (liabilities)/assets at 31 March 2019
Sterling
£m
(554)
(259)
US$
£m
(43)
17
Euro
£m
(1,141)
(446)
Other
£m
(35)
9
Total
£m
(1,773)
(679)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24. Financial assets and liabilities and risk management (continued)
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 29 March 2020, there was no external hedge of interest rate risk (2018-19: 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
219
219
24. Financial assets and liabilities and risk management (continued)
The analysis below sets out the carrying amount of the Group’s financial instruments that are exposed to interest rate risk.
Fixed rate
Current asset investments – short-term deposits –
bank
Financial liabilities
Syndicated bank loan
€500 million bond
€550 million bond
Lease obligations
Total
Floating rate
Cash at bank
Cash equivalent investments – money market
funds
Cash equivalent investments – bank deposits
Average
effective
interest
rate
%
1.1
0.9
2.5
2.7
2.6
0.0
0.6
0.2
Financial assets - Pension escrow investments
(non-current)
(0.9)
Total
Non-interest bearing
Cash at bank or in hand
Trade and other receviables
Trade and other payables
Derivative assets
Derivative liabilities
Total
Total financial assets
Total financial liabilities
Net total financial liabilities
At 29 March 2020
Within
one year
£m
One to
two years
£m
Two to
five years
£m
More than
5 years
£m
30
(700)
–
–
(201)
(871)
116
1,370
40
–
1,526
114
1,282
(2,041)
5
(35)
(675)
2,957
(2,977)
(20)
–
–
–
–
(187)
(187)
–
–
(446)
–
(388)
(834)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(16)
(16)
–
(203)
(203)
(3)
(3)
–
(837)
(837)
–
–
–
(489)
(412)
(901)
–
–
–
201
201
–
–
–
–
(13)
(13)
201
(914)
(713)
Total
£m
30
(700)
(446)
(489)
(1,188)
(2,793)
116
1,370
40
201
1,727
114
1,282
(2,041)
5
(67)
(707)
3,158
(4,931)
(1,773)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24. Financial assets and liabilities and risk management (continued)
Fixed rate
Financial liabilities
Loans in overseas subsidiaries
€500 million bond
Obligations under leases
Total
Floating rate
Cash at bank
Cash equivalent investments – money market
funds
Cash equivalent investments – bank deposits
Financial assets - Pension escrow investments
(non-current)
Total
Non-interest bearing
Cash at bank or in hand
Trade and other receviables
Trade and other payables
Derivative assets
Derivative liabilities
Total
Total financial assets
Total financial liabilities
Net total financial liabilities
Average
effective
interest
rate
%
0.9
2.5
2.7
0.1
0.8
0.9
0.9
At 31 March 2019
Within
one year
£m
One to
two years
£m
Two to
five years
£m
More than
5 years
£m
Total
£m
–
–
(37)
(37)
70
35
40
–
145
91
1,310
(1,883)
8
(3)
(477)
1,554
(1,923)
(369)
–
–
(30)
(30)
–
–
–
–
–
–
–
–
4
(2)
2
4
(32)
(28)
(1)
–
(44)
(45)
–
–
–
–
–
–
–
–
–
–
–
–
(45)
(45)
–
(430)
(14)
(444)
–
–
–
207
207
–
–
–
–
–
–
207
(444)
(237)
(1)
(430)
(125)
(556)
70
35
40
207
352
91
1,310
(1,883)
12
(5)
(475)
1,765
(2,444)
(679)
Drawings under the syndicated bank loan facilities are at fixed rate to maturity (which must be six months or less). At 29 March
2020 there were drawings of £700 million (2018-19 £nil). The total interest-bearing financial assets of the Group (excluding the
RMPP and RMSEPP pension escrow investments) of £1,556 million (2018-19: £145 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 three days (2018-19: an average maturity of three days). These short-dated
financial instruments are maturity-managed to obtain the best value out of the interest yield curve.
Obligations under leases are either unsecured or secured on the leased assets. The average interest rate is 2.6 per cent (2018-
19: 2.7 per cent). The average maturity date is more than five years (2018-19: more than five years).
Net debt excludes £180 million (2018-19: £187 million) related to the RMPP pension scheme of the total £207 million (2017-18:
£198 million) pension escrow investments on the balance sheet which is not considered to fall within the definition of net debt.
The RMPP pension escrow investment of £180 million (2018-19: £187 million) represents a money market fund investment,
established with the agreement of the Pension Trustee for the benefit of members. The RMPP escrow agreement specifies that
the funds must be used for the benefit of members, on a basis to be agreed between the Plan Trustee and the company. The
funds are therefore not available to management for corporate purposes (outside of pension arrangements) and so the RMPP
escrow is excluded from net debt.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
221
221
24. Financial assets and liabilities and risk management (continued)
The RMSEPP pension escrow investment of £21 million (2018-19: £20 million) was established to provide security to the
RMSEPP. The next scheduled review point in the agreement is in 2025 and the investment is therefore disclosed as maturing in
more than five years. The escrow investment comprises a money market investment of £21 million (2018-19: £20 million
comprising £14 million money market investment and a loan of £6 million to the Plan Trustees. The RMSEPP escrow agreement
specifies that the funds will be returned to the company once they are no longer required for security purposes and therefore
the RMSEPP escrow is included within net debt.
f) Liquidity risk management
The Group’s primary objective is to ensure that it 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 committed facilities of the Group of £225 million expire in 2024
(2018-19: £1,050 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 and €550 million bonds and non-sterling-denominated leases represent the undiscounted total amounts payable
(interest and nominal repayment) which have been converted to Sterling at 29 March 2020 market forward exchange rates.
For derivatives that are settled gross (including the cross currency swap), 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.
At 29 March 2020
Gross
loans and
borrowings
commitments
£m
Gross lease
instalments
£m
Gross trade and
other payables
£m
Sub-total
£m
Gross
payments on
derivatives
settled gross
£m
Gross
payments on
derivatives
settled net
£m
Amounts falling due in:
One year or less or on demand
(current)
719
210
2,041
2,970
More than one year (non-current)
1,066
1,192
2,258
101
569
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
–
–
–
–
2,041
–
–
17
198
516
533
1,785
(101)
(49)
1,635
426
568
1,402
(214)
–
1,188
2,041
215
13
942
1,101
5,228
(315)
(49)
4,864
39
517
670
n/a
n/a
n/a
Total
£m
3,100
2,846
244
984
1,618
5,946
n/a
n/a
n/a
29
19
16
3
–
48
n/a
n/a
n/a
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
222
222
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24. Financial assets and liabilities and risk management (continued)
At 31 March 2019
Gross
loans and
borrowings
commitments
£m
Gross
finance lease
instalments
£m
Gross
trade and other
payables
£m
Sub-total
£m
Gross
payments on
derivatives
settled gross
£m
Gross
payments on
derivatives
settled net
£m
10
514
39
207
11
35
32
471
524
(63)
(30)
431
51
121
246
(119)
(2)
125
1,883
–
–
–
–
1,883
–
–
1,883
1,932
721
46
83
592
2,653
(182)
(32)
2,439
91
–
–
–
–
91
n/a
n/a
n/a
3
2
2
–
–
5
n/a
n/a
n/a
Total
£m
2,026
723
48
83
592
2,749
n/a
n/a
n/a
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
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 20.
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 29 March 2020, 96 per cent (2018-19: 83 per cent) of financial
assets 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 2019-20 profit for the year from interest rate risk or commodity price risk (2018-
19: £nil 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 UKPIL Euro-denominated
leases. The impact of a ten per cent strengthening of Sterling across all currencies on forecast profits/trade during 2019-20
would be to reduce the Group operating profit by £2 million (2018-19: £13 million). However, changes in exchange rates could
also cause other impacts on operating profit, including a change in import/export volumes.
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 leases into Sterling at each balance
sheet date. The impact of a ten per cent strengthening of Sterling against all currencies at 29 March 2020 would have been to
reduce the Group net assets by £38 million (2018-19: £27 million).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
223
223
25. 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.
Reported at 31 March 2019
IFRS 16 opening adjustments
Reported at 1 April 2019 on transition to IFRS 16
Arising during the year:
Charged in operating specific items
Charged in other operating costs
Amounts reclassified in the period1
Utilised in the year
Unwinding of discount – industrial diseases claims
At 29 March 2020
Disclosed as:
Current
Non-current
At 29 March 2020
Disclosed as:
Current
Non-current
At 31 March 2019
At 26 March 2018
Arising during the year:
Charged in operating specific items
Charged in other operating costs
Unused amounts released
Utilised in the year
Unwinding of discount – industrial diseases claims
At 31 March 2019
Disclosed as:
Current
Non-current
At 31 March 2019
Disclosed as:
Current
Non-current
At 25 March 2018
Specific
items
£m
(100)
-
(100)
(45)
-
-
2
(1)
(144)
(57)
(87)
(144)
(9)
(91)
(100)
Specific
items
£m
(106)
(1)
–
3
6
(2)
(100)
(9)
(91)
(100)
(13)
(93)
(106)
Other
£m
(62)
2
(60)
-
(62)
(16)
57
–
(81)
(56)
(25)
(81)
(49)
(13)
(62)
Other
£m
(56)
–
(73)
4
63
–
Total
£m
(162)
2
(160)
(45)
(62)
(16)
59
(1)
(225)
(113)
(112)
(225)
(58)
(104)
(162)
Total
£m
(162)
(1)
(73)
7
69
(2)
(62)
(162)
(49)
(13)
(62)
(46)
(10)
(56)
(58)
(104)
(162)
(59)
(103)
(162)
1
£16 million was reclassified to Other provisions during the period (previously presented within accruals) in respect of GLS liabilities, mainly in respect of employee benefits and litigation claims.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
25. Provisions (continued)
Below is a summary of the ageing profile of specific items and other provisions.
At 29 March 2020
At 31 March 2019
Expected period of settlement
Expected period of settlement
Within one
year
£m
One to two
years
£m
Two to five
years
£m
After five
years
£m
Total
£m
Within
one year
£m
One to
two years
£m
Two to five
years
£m
After five
years
£m
Specific items
Industrial diseases
claims
German property tax
Employee Free Shares –
NI
Legacy property costs
Regulatory fine
Other
Total
Other
(5)
(3)
(9)
(68)
(85)
–
–
–
(51)
(1)
(57)
–
–
–
–
–
–
–
(1)
–
–
–
–
(6)
–
–
–
–
(7)
(51)
(1)
(3)
(10)
(74)
(144)
(3)
–
(4)
–
–
(2)
(9)
Total
£m
(83)
(5)
(4)
(6)
–
(2)
(3)
(5)
–
–
–
–
(9)
(68)
–
–
(1)
–
–
–
–
(5)
–
–
(8)
(10)
(73)
(100)
Voluntary redundancy
(12)
–
–
–
(12)
(11)
–
–
–
(11)
Property
decommissioning
obligations
Litigation claims
LTIP – NI
Employee benefits
Other
Total
(3)
(38)
–
(2)
(1)
(56)
(2)
(2)
(1)
(1)
–
(6)
(5)
–
–
(7)
(3)
(4)
–
–
–
–
(15)
(4)
(14)
(40)
(1)
(10)
(4)
(81)
(5)
(30)
–
–
(3)
(49)
(3)
(1)
(1)
–
–
(5)
(3)
(5)
–
–
–
–
–
–
–
–
(16)
(31)
(1)
–
(3)
(3)
(5)
(62)
On 14 August 2018, Ofcom published its decision following its investigation into whether Royal Mail had breached competition
law. The investigation was launched in February 2014, following a complaint brought by TNT Post UK (now Whistl). Ofcom found
that Royal Mail had abused its dominant position in the market for bulk mail delivery services in the United Kingdom by issuing
Contract Change Notices on 10 January 2014 which introduced discriminatory prices. It fined Royal Mail £50 million. Royal Mail
lodged an appeal with the Competition Appeal Tribunal (CAT) on 12 October 2018 to have both Ofcom’s decision and fine
overturned. On 12 November 2019, the CAT issued its judgment, which upheld Ofcom’s decision and fine. In light of the CAT
judgment, a provision has been made for £51 million, charged to operating specific items, representing the fine and associated
interest.
In January 2020, RMG requested permission to appeal the CAT’s judgment to the Court of Appeal (CoA). On 30 March 2020, the
CoA granted Royal Mail permission and indicated that a hearing would be held over one-to-two days in mid-2021.
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.
Provisions for litigation claims mainly comprise outstanding liabilities in relation to road traffic accident and personal
injury claims.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
225
225
26. 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 29 March
2020
£m
At 31 March
2019
£m
10
10
10
10
Of the issued ordinary shares, a total of 1,029,706 (2018-19: 70,331) 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.
27. Commitments
The information below relates to committed capital expenditure and lease agreements that have not yet been recognised on
the balance sheet.
Capital commitments
The Group has commitments of £52 million (2018-19: £73 million) for property, plant and equipment, £26 million (2018-19: £8
million) for vehicles and £nil (2018-19: £3 million) for intangible assets, which are contracted for but not provided for in the
financial statements.
Lease commitments
The Group has £6 million of lease commitments relating to leases that have been signed but not yet commenced at the year end
date. The Group has also signed a conditional agreement for a lease that when completed, is expected to result in the
recognition of an £80 million lease liability and right of use asset. These commitments have not been provided for in the
financial statements.
28. 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.
In October 2018, Whistl filed a damages claim against Royal Mail at the High Court relating to Ofcom’s decision of 14 August
2018, which found that Royal Mail had abused its dominant position (see Note 25). Whistl’s High Court claim is on hold until after
the completion of any further appeal process. Royal Mail believe Whistl’s claim is without merit and will defend it robustly if
Whistl decides to pursue it.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
29. Related party information
This Note provides details of amounts owed to and from related parties, which include the Group’s defined benefit pension
plans (RMPP and RMSEPP), 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)
Amounts owed from:
RMSEPP1
52 weeks
2020
£m
53 weeks
2019
£m
6
(7)
(1)
–
5
(7)
(1)
6
1
In December 2018 Royal Mail Group Ltd, a subsidiary of Royal Mail plc, agreed to a loan of £7,750,000 being made from the RMSEPP escrow to the Trustees of that Pension Plan. This
facilitated completion of the purchase of an insurance policy settlement. This loan was unsecured and was repaid with the proceeds from the sale of Plan investments, as they were received
by the Trustees. The loan was fully repaid during the reporting year.
Balances outstanding at the reporting 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
2020
£000
53 weeks
2019
£000
(5,083)
(4,999)
(30)
(272)
(1,004)
(6,389)
(23)
(135)
(1,531)
(6,688)
Key management are considered to be the Executive and Non-Executive Directors of Royal Mail plc, all other members of the
Executive Board and the remainder of the Persons Discharging Managerial Responsibilities.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
227
227
29. Related party information (continued)
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 29
March 2020 unless otherwise indicated.
Company
Principal activities
Country of incorporation
General Logistics Systems B.V.2 Parcel services holding company Netherlands
Royal Mail Estates Limited
Property holdings
Royal Mail Investments Limited Holding company
United Kingdom
United Kingdom
RM Property and Facilities
Solutions Limited
Facilities management
United Kingdom
% equity
interest
2020
% equity
interest
2019
100
100
100
100
100
100
100
100
2 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.
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 31).
30. Events after the reporting period
This Note confirms whether or not there have been any material events occurring between the end of the financial reporting
year on 29 March 2020 and the publication date of the Annual Report and Financial Statements.
Covid Corporate Financing Facility
On 30 April 2020 the Bank of England approved Royal Mail plc’s application for the Covid Corporate Financing Facility. This
provides a £600 million facility in line with other corporates of the same credit rating. There have been no drawings of this
facility since the balance sheet date.
Management changes
On 15 May 2020 the Royal Mail plc Board and Rico Back agreed that he would step down as Group CEO and from the Board with
immediate effect and leave Royal Mail on 15 August 2020.
Keith Williams assumed the role, with immediate effect, of interim Executive Chair to lead discussions with stakeholders about
an accelerated pace of change across the business. He is expected to remain in this executive role until a permanent CEO of
Royal Mail is appointed. Stuart Simpson has been appointed interim CEO of Royal Mail. This is a Board appointment. Michael
Jeavons was appointed as interim Group CFO.
A comprehensive internal and external search for a permanent CEO of Royal Mail will be undertaken. In order to ensure greater
focus, this permanent CEO of Royal Mail will report directly to the Board once Keith Williams returns to the role of non-
executive Chairman.
Loan covenant amendment
On 24 June 2020, a covenant amendment was agreed that waived the financial covenants relating to interest (excluding
arrangement fees), adjusted net debt and EBITDA until March 2022, replacing them with a quarterly minimum
liquidity covenant.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
31. 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 29 March 2020 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
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
Share Class
% held
by Group
Ordinary shares
100.000
€100.00 Ordinary shares
100.000
€4.27 Ordinary shares
100.000
Suite 966, 9F, No.2 bldg, China Central Place, No.79, Jian Guo Rd, Chao Yang District, Beijing
EBP Consultancy (Beijing) Co. Ltd
Canada
10500, av. Ryan Dorval Quebec H9P 2T7
Dicom Dedicated Fleet, Inc.
–
100.000
Common shares, no par value
100.000
1055, West Hastings Street, Suite 1700, Vancouver BC V6E 2E9
GLS Logistics Systems Canada Ltd
Common shares, no par value
100.000
Croatia
10010360 Popovec, Varazdinska ulica 116, Croatia
General Logistics Systems Croatia d.o.o
Czech Republic
Průmyslová 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 6, 20360 Turku, Finland
General Logistics Systems Finland 0y
France
Ordinary shares
100.000
Ordinary shares
100.000
DKK100.00 Ordinary shares
100.000
DKK1,000.00 Ordinary shares
100.000
€50.00 Ordinary shares
100.000
14 Rue Michel Labrousse, CS 93730, 31037 Toulouse Cedex 01, France
General Logistics Systems France S.A.S
GLS Invest France S.A.S
€50.00 Ordinary shares
100.000
€271.21 Ordinary shares
100.000
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
229
229
31. Related undertakings of Royal Mail plc (continued)
Company Name
Germany
Doerrwiese 2, 36286 Neuenstein, Germany
Der Kurier Beteiligungsgesellschaft mbH
Der Kurier GmbH & Co. KG
GLS Germany-Str. 1-7, 36286 Neuenstein, Germany
Share Class
% held
by Group
Ordinary shares
100.000
€2,561,572.32 Cash contribution
100.000
General Logistics Systems Germany GmbH & Co. OHG
€47,968,004.75 Cash contribution
100.000
GLS IT Services GmbH
GLS Beteiligungs GmbH
GLS Verwaltungs-und Service GmbH
GLS eCom Lab GmbH
Wendenstraße 349, 20537 Hamburg, Germany
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
100.000
100.000
100.000
100.000
Overnight Services GmbH Vermittlung Ueberregionaler Kurierdienste
Ordinary shares
100.000
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
£1.00 Ordinary shares
100.000
Ordinary shares
100.000
RM Financing Operations Limited
RMF Operations Designated Activity Company
General Logistics Systems Ireland Limited
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
€1.00 Ordinary shares
100.000
€1.00 Redeemable Preference
shares
US$1.00 Ordinary shares
US$1.00 Redeemable Preference
shares
100.000
100.000
–
Ordinary shares
100.000
€10,000.00 Ordinary shares
€1,014,000.00 Ordinary shares
€0.52 Ordinary shares
€0.51 Ordinary shares
100.000
100.000
100.000
83.670
General Logistics Systems Belgium S.A. Succursale de Luxembourg1
–
–
1
Branch of GLS Belgium. No shares are issued or held.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
31. Related undertakings of Royal Mail plc (continued)
Company Name
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
Share class
% held
by Group
€100.00 Ordinary shares
100.000
€50.00 Ordinary shares
€0.50 Ordinary shares
€50.00 Ordinary shares
100.000
100.000
100.000
General Logistics Systems Poland Spolka zo.o
PLN1,721.00 Ordinary shares
100.000
Portugal
Rua da Bica, No. 10, 2669-608 Venda do Pinheiro, Portugal
General Logistics Systems Portugal Lda
Ordinary shares
100.000
Romania
106, Str. Dorobantilor, 550231 Sibiu, Romania
GLS General Logistics Systems Romania Srl
Slovakia
Budca 1039, 962 33 Budca, Slovakia
GLS General Logistics Systems Slovakia s.r.o
Slovenia
Cesta v Prod 84, 1129 Ljubljana, Slovenia
RON4,000.00 Ordinary shares
100.000
Ordinary shares
100.000
General Logistics Systems, logisticne storitve, d.o.o.
Ordinary shares
100.000
Spain
Avenida Fuentemar 18, 28823 Coslada, Madrid, Spain
General Logistics Systems Spain S.A
United Kingdom
100 Victoria Embankment, London, EC4Y 0HQ, United Kingdom
Angard Staffing Solutions Limited
Intersoft Systems & Programming Limited
Nine Elms Parkside Estate Management Company Limited2
Parcelforce Limited
Revisecatch Limited
RM (International) Limited
Royal Mail Courier Services Ltd
Royal Mail Enterprises Limited
Royal Mail Estates Limited
Royal Mail Group Limited
Royal Mail Innovations Limited
2 Limited by guarantee.
€60.10 Ordinary shares
100.000
£1.00 Ordinary shares
100.000
£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
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
231
231
31. Related undertakings of Royal Mail plc (continued)
Company name
Royal Mail Investments Limited
RM Finance CAD Ltd
Storefeeder Ltd
Century House, 19 High Street, Marlow, Buckinghamshire, SL7 1AU, United Kingdom
NetDespatch Ltd3
Share class
% held
by Group
£1.00 Ordinary shares
100.000
£1.00 Ordinary shares
100.000
£1.00 Ordinary shares
100.000
£0.001 Ordinary–A
shares
£0.001 Ordinary–B
shares
£0.001 Ordinary–C
shares
£0.001 Ordinary–D
shares
69.044
16.231
4.691
10.034
Highbank House, Exchange Street, Stockport, Cheshire, SK3 0ET, United Kingdom
RM Property and Facilities Solutions Limited (formerly Romec Limited)
£1.00 Ordinary shares
98.040
Romec Enterprises Limited
11 Ironmonger Lane, London, EC2V 8EY, United Kingdom
£1.00 B shares
£1.00 C shares
0.980
0.980
£1.00 Ordinary shares
100.000
Royal Mail Pensions Trustees Limited
£1.00 Ordinary shares
100.000
USA
1679 S. Dupont Highway, Suite 100, Dover, Delaware 19901, USA
General Logistics Systems North America Inc.
7901 Stoneridge Drive, Suite 400, Pleasanton, CA 94588, USA
General Logistics Systems US, Inc
3400 Capital Blvd SE 101, Tumwater, WA 98501, USA
Postal Express, Inc.
676, N. Michigan Ave, Suite 3700, Chicago IL 60611
Dicom JD, LLC.4
6750 South Longe Street Suite 100 Manteca, CA 95206 United States
USD 0.001 Common
stock
100,000
1,000 Shares Common
stock
100.000
428.57 Shares Common
stock
100.000
–
100.000
Mountain Valley Express co, Inc
Ordinary shares
100.000
6750 South Longe Street Suite 100 Manteca, CA 95206 United States
MVE Supply Chain Solutions, Inc5
Ordinary shares
100.000
3 Sold on 31 March 2020
4 Member managed company
5 Trades under the name Mountain Valley Freight Solutions
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
31. Related undertakings of Royal Mail plc (continued)
Associate undertakings
Company Name
Associates
Australia
Level 1, 60 Toorak Road, South Yarra, VIC 3141
Market Engine Global Pty Limited
United Kingdom
Share Class
% held
by Group
AUD1.00
Preference
shares
34.474
Parklands Court, 24 Parklands, Birmingham Great Park, Rubery, Birmingham, West Midlands, B45 9PZ, United Kingdom
Quadrant Catering Limited
70 Margaret Street, London, W1W 8SS, United Kingdom
JICMAIL Limited2
Investments
Company Name
Investments
United Kingdom
Hayweight House, 5th Floor, 23 Lauriston Street, Edinburgh, Scotland, EH3 9DQ, United Kingdom
Mallzee Ltd
Aviva, Wellington Row, York, North Yorkshire, YO90,1WR
Voyager Park South Management Company Limited2
£1.00
Ordinary–A
shares
51.000
–
20.000
Share Class % held by Group
£0.01 Ordinary
shares
19.500
Ordinary
shares
5.500
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financial Statements
SIGNIFICANT ACCOUNTING POLICIES
SIGNIFICANT ACCOUNTING POLICIES
233
233
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 intragroup balances and transactions, including unrealised profits arising from intragroup 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.
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 31 March 2019, along with the adoption of new and amended accounting standards
with effect from 1 April 2019 as detailed below:
New and amended accounting standards adopted in 2019-20
IFRS 16 ‘Leases’
The Group has adopted IFRS 16 with effect from 1 April 2019. Under IFRS 16, all lease contracts, with limited exceptions,
are recognised on the balance sheet as right-of-use assets, representing the right to use the underlying assets, and lease
liabilities, representing an obligation to make lease payments. The principal asset classes impacted by this change are property
and motor vehicles previously held under operating leases.
The Group has applied IFRS 16 using the modified retrospective approach for all leases previously classed as operating leases
under IAS 17. The modified retrospective approach allows a combination of the following two approaches when measuring the
carrying value of right of use assets on a lease by lease basis:
i.
as if the standard had been applied since the lease commencement date; and/or
ii. at an amount equal to the lease liability at the date of adoption.
At the time of the Group’s annual results announcement in May 2019, Management intended to adopt a mixture of approaches
(i) and (ii) on a lease by lease basis. Subsequent experiences in deploying IFRS 16 resulted in a revision to this approach and the
approach outlined in (ii) above has been adopted for these leases.
Under this revised approach, IFRS 16 has resulted in an increase in ‘operating profit before specific items’ of £13 million.
The £1 million adjustment to equity relates to the irrecoverable VAT element of lease prepayments and lease incentives at the
transition date.
In view of the above, the comparative period information has not been restated and has been presented, as previously reported,
under IAS 17. Details of the impact of transition on the financial statements are given in Note 14.
IFRIC 23 ‘Uncertain Tax Positions’ (IFRIC 23)
The Group has adopted IFRIC 23 with effect from 1 April 2019. IFRIC 23 clarifies how to apply the recognition and measurement
requirements in IAS 12 ‘Income Taxes’ where there is uncertainty over income tax treatments. Controls and procedures are in
place in the Group to monitor the tax treatments assuming a 100 per cent detection risk by the relevant tax authorities, although
the impact of this new guidance does not have a material impact on the financial performance or position of the Group.
IAS 28 (Amended) ‘Long-term Interests in Associates and Joint Ventures’
The Group has adopted the amendment to IAS 28 in respect of ‘Long-term Interests in Associates and Joint Ventures’ with
effect from 1 April 2019. The amendment clarifies that the Financial Instrument exclusion for interests in associates and joint
ventures accounted for in accordance with IAS 28 only applies to interests in company accounts which are accounted for using
the equity method. The Group equity accounts for all associates and thus the adoption of this amendment does not have an
effect on the financial position of the Group.
IFRS 9 (Amended) ‘Prepayment Features with Negative Compensation’
The Group has adopted the amendment to IFRS 9 in respect of ‘Prepayment Features with Negative Compensation’ with effect
from 1 April 2019. The amendment allows for termination rights to be measured at amortised cost or fair value through other
comprehensive income (dependent on business model) even in the case of negative compensation payments. The Group reviews
its termination rights and measures the payment regardless of the signage in line with the business model adopted for the
instrument. The new guidance does not have a material impact on the financial performance or position of the Group.
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New and amended accounting standards adopted in 2019-20 (continued)
IAS 19 (Amended) ‘Plan Amendment, Curtailment or Settlement’
The Group has adopted the amendment to IAS 19 in respect of ‘Plan Amendment, Curtailment or Settlement’ with effect from 1
April 2019. The amendment clarifies that the past service cost (or of the gain or loss on settlement) is calculated by measuring
the defined benefit liability/asset using updated assumptions and comparing benefits offered and plan assets before and after
the plan amendment/curtailment/settlement but ignoring the effect of the asset ceiling. The Group has used the updated
assumptions from the remeasurement to determine the current service cost and net interest for the remainder of the reporting
period after the change to the plan.
Annual Improvements 2015-2017
The Group has adopted the annual improvements to IFRS in the 2015-17 cycle with effect from 1 April 2019. This cycle includes
the below amendments which do not have a material impact on the financial performance or position of the Group.
IFRS 3 Business Combinations (Amended) – The amendment clarifies that when an entity obtains control of a business that
is a joint operation, it remeasures previously held interests in that business.
IFRS 11 Joint Arrangements (Amended) – The amendment clarifies that when an entity obtains joint control of a business that
is a joint operation, the entity does not remeasure previously held interests in that business.
IAS 12 Income Taxes (Amended) – The amendment clarifies that the requirement to recognise the income tax consequence
of dividends where the transactions or events that generated distributable profits are recognised, applies to all income tax
consequences of dividends.
IAS 23 Borrowing costs (Amended) – The amendment clarifies that if any specific borrowing remains outstanding after the
related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally
when calculating the capitalisation rate on general borrowings.
Other accounting standards
The Directors do not expect that the adoption of any other new or amended standards issued during the reporting period that
are not yet effective will have a material impact on the financial performance or position of the Group in future periods.
Sources of estimation uncertainty and critical accounting judgments
The preparation of consolidated financial statements necessarily requires Management to make certain estimates and
judgments that can have a significant impact on the financial statements. These estimates and judgments 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 judgment 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.
Cash Generating Units (CGUs) of the Group
The Group consists of a number of CGUs, each possessing largely independent cash inflows. The UK network, through which
millions of letters and parcels pass each day is considered by Management to comprise two separate CGUs due to the distinct,
individually identifiable cashflows. These CGUs for impairment testing purposes are Royal Mail UK and Parcelforce Worldwide.
Certain other non-core entities are considered to be separate CGUs, albeit these are not material at a Group level.
In GLS, Management consider each country’s operations to represent a separate CGU. In relation to the testing of goodwill for
impairment however, the operating and financial synergies arising on new business combinations within the GLS group are felt
by Management to primarily benefit contiguous parts of the GLS network. For this reason, goodwill arising on new business
acquisitions is allocated to one of the four major networks designated as CGUs i.e. mainland Europe, Mountain Valley Express
(MVE), USA excluding MVE, and Canada.
Key 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
judgment 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 the RMPP and DBCBS are included within Note 11.
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. For the main classes of assets:
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Key sources of estimation uncertainty (continued)
– Equities listed on recognised stock exchanges are valued at closing bid price, or the last traded price, depending on the
convention of the stock exchange on which they are quoted;
– Bonds are measured using a combination of broker quotes and pricing models making assumptions for credit risk, market
risk and market yield curves;
– Pooled investment vehicles are valued using published prices or the latest information from investment managers which
includes any necessary fair value adjustments; and
– Properties are valued on the basis of open market value as at the year end date, in accordance with RICS Valuations
Standards. As a result of the current situation with regards the COVID-19 pandemic, we have been advised by our valuers that
conditions exist in the real estate markets that may result in uncertainty in the reliability of these valuations. Nonetheless,
these represent the best estimate of the current valuation at the year end date and have been adjusted by our valuers to
account for the expected impact of COVID-19, based on the information available at the time that the valuation was prepared.
For exchange-traded derivatives that are assets, fair value is based on bid prices. For exchange-traded derivatives that are
liabilities, fair value is based on offer prices.
Non-exchange traded derivatives are valued as follows:
– Open forward foreign currency contracts at the balance sheet date are over the counter contracts and are valued using
forward currency rates at that point. The unrealised appreciation or depreciation of open foreign currency contracts is
calculated by the difference between the contracted rate and the rate to close out the contract;
– Open option contracts at the balance sheet date are over the counter contracts and fair value is calculated taking into account
the strike price, maturity date and the underlying asset of the option. The unrealised appreciation or depreciation of open
option contracts is calculated as the difference between the premiums paid for the options and the price to close out the
options; and
– Interest rate and credit default swaps are over the counter contracts and fair value is the current value of the future expected
net cash flows, taking into account the time value of money and market data at the year end.
The value of the RMSEPP insurance policies held by the Group are equal to the accounting defined benefit obligation of the
scheme as at the year end date.
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 11.
It is not currently practical to provide a quantitative estimate of the impact of COVID-19 on the Group’s schemes. The schemes’
assets are invested across multiple sectors and locations and accordingly returns will vary due to these factors and the specific
nature of the underlying asset. Scheme assets that could be significantly impacted include equities, bonds, property and pooled
investments. The Trustees of the pension schemes have designed and implemented investment strategies taking a long-term
view and have built in resilience to withstand short-term fluctuations that may impact the schemes.
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 22).
The majority of this balance is made up of stamps sold to the general public. To determine the amount of sales to defer,
previously, an estimate of stamp volumes held by the general public at the year-end was made on the basis of monthly surveys
performed by an independent third party. As surveys of this nature are inherently subjective and rely on the number and
demographic profile of respondents, Management have adopted a modified approach utilising a number of different data
sources to calculate the estimated deferred revenue liability given that stamps can be held and used for varying time periods.
At 29 March 2020 the Group recognised £185 million (2018-19: £188 million) deferred revenue in respect of stamps sold to the
general public but not used at the balance sheet date. The primary sources of data used to derive this estimate are as follows:
– Revenue data related to stamp sales through the Post Office network;
– Historic trends of deferred revenue balances;
– Changes in the number of working days during the period; and
– Adjustments to reflect posting patterns around key events close to the reporting year end e.g. Mothering Sunday, Easter
Analysis has been undertaken to understand the sensitivity of the reported deferred revenue balance to the methodology by
which it is calculated. This analysis has shown that the amount reported is unlikely to fall outside a range of +/- £20 million
(2018-19: +/- £22 million). This sensitivity arises because of Management’s judgment in applying a weighting to the component
parts of the data sources. Average stamp holding days has remained consistent year-on-year at 43 days (2018-19: 44 days).
Management are of the view that this new process will remove the reliance on a single data source, allow the timely close of
critical period ends, and improve the accuracy of the estimated result.
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Key sources of estimation uncertainty (continued)
Impairment test for goodwill and CGUs
In assessing whether there has been an impairment of goodwill, CGU or in some instances a specific asset, Management
determines whether the carrying value is higher than the recoverable amount. The recoverable amount is the higher of a CGU
or asset’s fair value less costs to sell (realisable value) and value in use. The value in use of the CGU/asset is calculated based
on its discounted cashflows. The key estimates that can impact the value in use calculations are changes to the growth rates
applied to derive the terminal value, the adjusted EBITDA figure, excluding one-off uncommitted transformation expenditure
and benefits, or a movement in the discount rate applied to the future cash flows. These are key estimates as they are
subjective in nature and significant assumptions are required. Any changes to assumptions may lead to impairment charges
being recognised. For the annual impairment test for goodwill, the Group has considered the impact of the assumptions used in
the GLS CGU tests and has conducted sensitivity analysis on the impairment tests as disclosed in Note 15.
Royal Mail UK CGU
During the reporting period this CGU was tested for impairment. At 29 March 2020 the carrying value of this CGU was £1,313
million. The recoverable amount, assessed as being the ‘value in use’ is calculated based on the Board’s three year forecast
free cash flows, with the assumption that the subsequent years will be in line with the performance of year three. Cash flows
into perpetuity are assumed to have a growth rate of nil.
Cash flows have been discounted at the Group’s pre-tax WACC of 9.0 per cent to reflect current market assessments of the time
value of money and the risks specific to the CGU. The headroom of the CGU is £478 million. The Group has conducted sensitivity
analysis on the impairment test for each of the key assumptions. The assumptions used and the impact of sensitivities on these
assumptions are shown below.
The perpetuity growth rate included in the impairment model is nil. If the perpetuity rate decreased to a decline of 4.5 per cent
into perpetuity the headroom of the Royal Mail UK CGU would be eroded to nil. The pre-tax discount rate for the Royal Mail UK
is 9.0 per cent. An increase in the pre-tax discount rate to 11.7 per cent would result in no headroom.
A key sensitivity in the Royal Mail UK impairment model is adjusted EBITDA excluding one-off uncommitted transformation
expenditure and benefits. If each year in the plan was to decrease by 8.1 per cent the CGU would have no headroom.
Parcelforce Worldwide CGU
As a result of delays in the transformation of the Parcelforce Worldwide business, an impairment review of the Parcelforce
Worldwide CGU was undertaken during the reporting period. This impairment assessment identified that the carrying value of
the CGU was in excess of its recoverable amount which resulted in a £91 million impairment charge reported as a specific item
within the UKPIL segment.
The recoverable amount of the CGU was calculated as the value in use and considered cash flows for the business forecasted
for five years. The cash flows were discounted to present value at the pre-tax WACC of 9.0 per cent. As a result of the
recoverable amount being significantly lower than the carrying value, all non-monetary assets were written off, this consisted
of £58 million tangible assets and £33 million intangible assets.
GLS Canada CGU
In assessing whether there has been any impairment of goodwill, Management determines whether the CGU carrying value is
higher than the recoverable amount of the underlying CGU. The recoverable amount is the higher of a CGU’s fair value less
costs to sell (realisable value) and value in use. In the case of goodwill allocated to the GLS Canada CGU, the realisable value
is estimated using five year forecast cash flows. Details of the impairment review of the CGU and the relevant estimates and
assumptions are included in Note 15.
Critical accounting judgments
Provisions – Industrial diseases
Due to the nature of provisions, a significant part of their determination is based upon estimates and/or judgments 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 Appeal 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. A 500bps decrease to the 0.7 per cent discount rate used at 29 March 2020 would result in a £6 million increase
in the overall provision. If the number and value of expected claims per annum increased/decreased by ten per cent, the
provision would increase/decrease by £6 million. 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 25.
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Critical accounting judgments (continued)
IFRS 16 – Incremental borrowing rates (IBR)
Under IFRS 16, lease liabilities are initially recognised at the commencement date at the present value of future lease payments
discounted at the rate inherent in the lease or, where this is not readily determinable, an appropriate IBR. In practice, the rate
inherent in the lease is not readily determinable for the majority of leases previously classed as operating leases under IAS 17
and so an IBR is used. These leases primarily relate to property and motor vehicles. In addition, an IBR has also been applied
when calculating the opening transition lease liability balances.
The IBR is the rate of interest that a lessee would have to pay to borrow, over a similar term, and with a similar security, the
funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The
methodology used to obtain these rates and how they are applied to assets with different lease terms, is an area of
significant judgement.
In considering the appropriate IBR to apply, the Group has adopted a three-step approach. This approach begins with an
appropriate risk-free base rate; adjusts this rate to reflect the cost of company specific unsecured borrowing; and, finally,
considers the need to adjust the rate determined to reflect the underlying leased asset acting as collateral.
From the evidence obtained, Management have concluded that for the UKPIL business, lenders do not make adjustments to the
borrowing rates offered on lending, based upon the underlying asset to be obtained. The key factors in the borrowing rates
available to UKPIL are judged to be the current credit rating of the Group (BBB) and the length of the borrowing term required.
On the basis of the work performed, UKPIL has treated assets being held for a similar length of time as having a similarly
calculated IBR, with assets being grouped according to lease length, both at transition and in the future. By grouping assets in
this way, a rate card has been produced, to be updated periodically, which can be applied to all future leases requiring an IBR.
UKPIL have based IBR rates on UK BBB corporate bond yields, adjusted to reflect the different payment profile between a bond
and a lease.
The GLS business has followed a similar methodology and grouping by lease length to that used in UKPIL. However, instead of
basing the yields on corporate bond yield curves, which are not readily obtainable for all GLS currencies, a sovereign bond yield
curve for the relevant country has been used as the starting point and an appropriate margin applied to this based upon
consideration of consolidated GLS quantitative and qualitative information.
The weighted average lessee’s incremental borrowing rate applied to lease liabilities recognised on the balance sheet at the
date of initial application is three per cent in UKPIL and two per cent in GLS. Sensitivity analysis performed as part of the IFRS
16 implementation work, identified that a movement of 100 bps in the incremental borrowing rate would lead to a movement
in lease liabilities recognised of around four per cent.
Accounting policies
Revenue
Revenue relates principally to the delivery of letters and parcels for a wide range of public and private customers. In the
majority of cases contracts contain a single service performance obligation, which is satisfied at the point of delivery.
Transaction prices for services rendered are typically fixed and agreed in advance with the price being allocated in full to the
single delivery performance obligation.
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’ section above.
In some cases, payment for services may be received in advance for a service that is due to be performed over a longer period
of time, for example a 12 month redirection service. In these cases, the payment is initially recognised on the balance sheet as a
contract liability (deferred revenue), with revenue recognised on a straight-line basis over the life of the contract, in line with the
performance of the service.
Where products are sold through third party agents, such as the Post Office, but the responsibility to fulfil the service lies with
the Group, the revenue receivable is recognised gross with any commission payments being charged to operating costs. Where
sales are known to have occurred through a third party vendor at the balance sheet date, and the proceeds are yet to be
received, revenue for the sale is recognised, with the amount still to be received recognised as a contract asset
(accrued revenue).
In some instances volume-based incentives may be offered to customers, which leads to variable transaction prices. In these
cases the relevant contracts are continually assessed, and revenue for services performed to date at the period end recognised
in line with the expected contract outturn price. Where incentives are issued in the form of sales-based vouchers an element of
the initial sales proceeds, proportional in value to the voucher issued, is held as a contract liability and released to revenue
upon use or expiry of the voucher.
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Accounting policies (continued)
Further details of the major revenue streams in each operating segment are provided below:
UK Parcels, International and Letters (UKPIL)
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.
Account revenue is derived from specific contracts and recognised when the delivery of an item is complete. Contracted
services that have been paid for but not yet rendered at the balance sheet date are designated as deferred revenue.
Revenue derived from Network Access agreements is recognised when the delivery of the related items is complete.
General Logistics Systems (GLS)
Revenue is derived from specific parcel 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. These costs are disclosed separately on the face of the income statement.
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, 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.
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. Non-people costs
relating to projects are included. Other operating costs exclude operating specific items.
Pension charge to cash difference adjustment
This adjustment represents the difference between the IAS 19 income statement pension charge rate of 20.8 per cent for the
DBCBS from the 1 April 2019 and the actual cash payments agreed with the Trustee of 15.6 per cent. Management is of the view
that 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.
Regulatory fine
In view of the Competition Appeal Tribunal judgment of 12 November 2019, a provision has been made in the financial
statements for a fine of £50 million and associated interest (see Note 25).
Employee Free Shares charge
This relates to accounting charges arising from the granting of free shares to employees upon the Government’s sales of its
stake in the business (SIP 2015 and 2016) with no direct cash impact on the Group.
Impairment of assets
These costs relate to impairment of: a business or CGU (Parcelforce Worldwide in the reporting year); goodwill (GLS US
network in 2018-19); or specific assets.
Legacy/other credits/costs
Legacy costs are unavoidable ongoing costs arising from historical events (industrial diseases provision). Other credits/costs
include a property tax provision release and restructuring costs in the reporting year.
Amortisation of intangible assets in acquisitions
These charges, which arise as a direct consequence of the application of IFRS 3 ‘Business Combinations’, are separately
identified as Management does not consider these costs to be directly related to the trading performance of the Group.
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Accounting policies (continued)
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.
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.
Net pension interest
Management separately identifies pension interest income as this is not part of the Group’s trading activity and is driven
primarily by actuarial calculations.
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). The scheme is based on non-market conditions and does 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.
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 and associates, 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 it relates 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.
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Accounting policies (continued)
Earnings per share (EPS)
Basic EPS from continuing operations is calculated by dividing the profit/loss from continuing operations by the weighted
average number of ordinary shares in issue.
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 the ‘operating profit before
specific items’ measure.
The reportable operating segments are made up of business units based in the UK - within the UKPIL segment, along with other
parts of mainland Europe, the US and Canada which are the constituent parts of the GLS segment. 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.
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, or the estimated
remaining useful life
3 to 15 years
2 to 12 years
2 to 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.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)Financial Statements
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Accounting policies (continued)
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.
Non-current assets held for sale
Non-current assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to
sell. Non-current assets are classified as held for sale if their carrying amounts will be recovered principally through a sale
transaction, rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the
asset is available for immediate sale in its present condition. Management must be committed to the sale, which should be
expected to qualify for recognition as a completed sale within one year from the date of classification. Following their
classification as held for sale, the assets (including those in a disposal group) cease to be depreciated.
Impairment reviews
Unless otherwise disclosed in these accounting policies, assets and CGUs 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 CGU) exceeds its recoverable amount, which is the higher of an asset’s net realisable value and
its value in use.
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SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounting policies (continued)
Leases
The Group has adopted IFRS 16 with effect from 1 April 2019. Previously the Group determined at contract inception whether a
contract contained a lease under IFRIC 4. Under IFRS 16 a contract is, or contains, a lease if the contract conveys the right to
control the use of an identified asset for a period of time in exchange for consideration.
Under IAS 17, leases were classed as either operating or finance leases based on whether the lease transferred substantially
all the risks and rewards of ownership, with only those leases identified as finance leases being recognised on the balance
sheet. Under IFRS 16, the Group recognises a right of use asset and a lease liability at the lease commencement date for the
majority of leases.
The right of use asset is measured initially at cost and is subsequently adjusted for any accumulated depreciation, impairment
losses or certain remeasurements of the lease liability.
The lease liability is measured initially at the commencement date at the present value of future lease payments discounted at
the rate inherent in the lease (for leases previously classed as finance leases) or, where this is not readily determinable, an
appropriate ‘incremental borrowing rate’ (IBR). In practice, the majority of the lease calculations are performed using an IBR.
The lease liability is subsequently increased by the interest cost and decreased by payments made. The lease liability may also
be remeasured where there are changes in future lease payments or changes in the assessment of future extension or
termination options.
Whilst the majority of leased assets were brought onto the balance sheet, the Group has elected to apply the exemption from
recognising leases for low value assets in line with existing Group policy, or short-term leases (with a lease term of under 12
months) on the balance sheet. The Group continues to recognise lease expenses for these assets on a straight-line basis in the
income statement over the lease term.
Where possible, the Group allocates the consideration in each contract between any lease and non-lease components, however,
where this is not possible the Group has elected to apply the practical expedient of including all of the contract costs in the
calculation of the lease asset and liability recognised as a single lease component.
For assets previously classed as finance leases, the carrying values of the right of use assets and lease liabilities held as at 31
March 2019 under IAS 17 have been determined to be equal to the carrying value brought forward at 1 April 2019 under IFRS 16.
The Group has also adopted the practical expedient to grandfather the accounting treatment of the assets and liabilities relating
to these leases, to still include the irrecoverable VAT element (which is excluded for all new leases).
Application of IFRS 16 by the Group has no impact on lessor accounting for leases previously classed as finance leases.
At transition, for leases classed as operating leases under IAS 17, lease liabilities were measured at the present value of the
remaining lease payments, discounted using a calculated IBR as at 1 April 2019.
Right-of-use assets at transition are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid
or accrued lease payments or rent incentives.
In adopting IFRS 16 the following practical expedients have been applied at transition to leases previously classed as operating
leases under IAS 17:
– only apply IFRS 16 to those contracts that were previously identified as leases under IAS 17 and IFRIC 4;
– apply a single discount rate to portfolios of leases with similar characteristics;
– not apply IFRS 16 to operating leases with a remaining lease term of less than 12 months and to continue to recognise these
lease costs through the income statement as they are incurred;
– rely on an assessment of whether the lease contract is onerous under IAS 37 at 31 March 2019 as an alternative to
performing an impairment review of the right of use assets created. Where this is the case the carrying amount of the assets
is adjusted by the onerous lease provision; and
– exclude initial direct costs from the measurement of the right of use asset.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)Financial Statements
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Accounting policies (continued)
The Group has lease break options in place for a majority of its property lease agreements. These options provide the Group
with greater flexibility in managing the UK estate. These break options have historically not been exercised due to ongoing
operational requirements. Management have therefore made the decision that the reasonably certain length of the lease is the
full lease term, assuming the break option will not be exercised.
The Group adopts a practice of not including extension options in its leases, where such clauses exist exceptionally they
are immaterial.
Further details of the impact of IFRS 16 on the financial statements are disclosed in Note 14.
Trade receivables
Trade receivables are recognised and carried at the original invoice amount less an allowance for any non-collectable amounts.
This loss 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 historical loss rates, with adjustments made to reflect forward-looking
information where material. In the current year considerations around COVID-19 and the macroeconomic situation arising has
resulted in an increase to expected credit losses above our standard provisioning rate.
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
2019-20
2018-19
0.08%
1.86%
18.2%
0.02%
0.34%
2.67%
75.13%
13.30%
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.
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.
The Group operates a supply chain finance arrangement for small and medium suppliers. This form of reverse financing allows
suppliers to obtain early access to funding. Suppliers may choose to access payment as soon as their invoices are processed
rather than Royal Mail standard payment terms by paying a financing fee to the scheme provider. The Group pays the provider
of the scheme on the due date of the invoices, therefore this scheme does not assist the Group in the management of
working capital.
As the scheme has not led to a substantial modification in the terms of the financial liability, the Group continues to treat the
amounts owed within trade payables. All cash flows associated with the programme are included within operating cash flows as
they continue to be part of the normal operating cycle of the Group. There is no impact on net debt, as amounts owed continue
to be reported within trade payables.
The balance owed on the facility at 29 March 2020 was £25 million (31 March 2019: £27 million).
Capital management
The Group has established four key objectives for capital management. Details of these can be seen in the Financial Review
on page 50.
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)
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 (held to collect), 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. . Money market funds are
designated as fair value through profit and loss (FVTPL), all other cash equivalents are classified as financial assets at
amortised cost.
Financial assets – pension escrow investments
Pension escrow investments comprise a Royal Mail Senior Executives Pension Plan (RMSEPP) money market fund investment,
a Royal Mail Pension Plan (RMPP) money market fund investment and a short-term loan to the RMSEPP Trustees.
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 and €550 million
bonds are measured at amortised cost in Euro and converted to Sterling at the closing spot 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 FVTPL 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.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)Financial Statements
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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Accounting policies (continued)
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).
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 judgments’ 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 (levels 1 and 2). Unquoted securities and other
pooled investment vehicles are valued 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 Royal Institute of Chartered
Surveyors (RICS) 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 tax expense, in line with IFRIC 14.
The Group considers this tax 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.
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SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounting policies (continued)
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 (€), in the US it is the Dollar (US$) and in Canada it is the Canadian Dollar (CAD).
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 leases
(designated 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
during the month 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 except the €550m bond which is hedged by a cross currency swap. 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 historical 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 1 (Amended) and IAS 8 (Amended) ‘Definition of Material’
IFRS 3 (Amended) ‘Definition of a Business’
IFRS 7 (Amended), IFRS 9 (Amended) and IAS 39 (Amended) ‘Interest Rate Benchmark Reform’
IFRS 10 (Amended) and IAS 28 (Amended) ‘Sale of Assets between an Investor and its Associate or Joint Venture’*
IFRS 17 ‘Insurance Contracts’*
*
Not yet endorsed by the EU.
The Directors do not expect that the adoption of the amendments, interpretations and annual improvements listed above (which
the Group does not expect to early adopt) will have a material impact on the financial performance or position of the Group in
future periods.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)Financial Statements
ROYAL MAIL PLC
ROYAL MAIL PLC
PARENT COMPANY FINANCIAL STATEMENTS
PARENT COMPANY FINANCIAL STATEMENTS
247
247
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 29 March 2020 and 53 weeks ended 31 March 2019
At 25 March 2018
Profit for the year
Purchase of own shares
Employee exercise of SAYE options
Share-based payments
Dividend paid
At 31 March 2019
Profit for the year
Purchase of own shares
Share-based payments
Dividend paid
At 29 March 2020
Balance sheet
At 29 March 2020 and 31 March 2019
Registered number: 08680755
Non-current assets
Investment in subsidiary
Trade and other receivables
Total non-current assets
Current assets
Trade and other receivables
Current liabilities
Trade and other payables
Net current (liabilities)/assets
Interest-bearing loans and borrowings
Net assets
Equity
Share capital
Retained earnings
Total equity
Share capital
£m
10
–
–
–
–
–
10
–
–
–
–
10
Retained
earnings
£m
2,052
235
(10)
5
30
(242)
2,070
238
(3)
11
(244)
2,072
Total equity
£m
2,062
235
(10)
5
30
(242)
2,080
238
(3)
11
(244)
2,082
At 29 March
2020
£m
At 31 March
2019
£m
Notes
6
7
7
8
9
10
2,122
935
3,057
2,111
–
2,111
–
427
(40)
(40)
(935)
2,082
10
2,072
2,082
(28)
399
(430)
2,080
10
2,070
2,080
The balance sheet was approved and authorised for issue by the Board of Directors on 24 June 2020 and signed on its behalf by:
Stuart Simpson
Interim Chief Executive Officer Royal Mail
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ROYAL MAIL PLC
ROYAL MAIL PLC
PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
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 prepared for the
52 weeks ended 29 March 2020 (2018-19: 53 weeks ended 31 March 2019).
Authorisation of financial statements and statement of compliance with FRS 101
The financial statements of the Company for the year ended 29 March 2020 were authorised for issue by the Board of Directors
on 24 June 2020. 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 issued in March
2018 and effective from 1 January 2019 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 to 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 20 March 2020.
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 requirements of the second sentence of paragraph 110 and paragraphs 113(a), 114, 115, 118, 119(a) to (c), 120 to 127
and 129 of IFRS 15 ‘Revenue from Contracts with Customers’;
(d) 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);
(e) 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’;
(f) the requirements of IAS 7 ‘Statement of Cash Flows’;
(g) the requirements of paragraphs 17 and 18(a) of IAS 24 ‘Related Party Disclosures’ (details of key management
compensation and related party transaction amounts);
(h) 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
(i) 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 judgments
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 judgments 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.
Financial Statements
ROYAL MAIL PLC
ROYAL MAIL PLC
PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
249
249
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 5).
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 4).
4. Income statement
The Company is a non-trading company. The profit for the year of £238 million (2018-19: £235 million) is primarily the net sum
of: the £245 million dividends (2018-19: £242 million) received from Royal Mail Group Limited; management charges to and
from Royal Mail Group Limited; and net interest on the €500 million bond, the €550 million bond and intercompany balances.
A loss of £15 million (2018-19: loss of £5 million) and a profit of £15 million (2018-19: profit of £5 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 1 April 2019 and 26 March 2018
Investment in subsidiary – charge for Employee Free Shares/LTIP/DSBP
At 29 March 2020 and 31 March 2019
At 29 March
2020
£m
At 31 March
2019
£m
2,111
11
2,122
2,081
30
2,111
The investment comprises 100 per cent of the share capital of Royal Mail Group Limited.
The value in use of the constituent CGUs that comprise the investment exceeds the carrying value of the investment as
disclosed in the ‘Key sources of estimation uncertainty’ section of ‘Significant accounting policies’ and Note 15 of the Group
financial statements.
7. Trade and other receivables
This balance mainly consists of intercompany loans to Royal Mail Group Limited amounting to the proceeds from the issue of
the €500 million bond and the issue of the €550m million bond (see Note 9). The intercompany loan is deemed to be a non -
current asset for the year ended March 2020, as the Company’s intention at the balance sheet date is now that the loans will not
to be settled by Royal Mail Group Limited within the next 12 months.
8. Trade and other payables
This balance mainly comprises a £29 million (2018-19: £21 million) intercompany trading position with Royal Mail Group Limited
and £10 million (2018-19: £7 million) external interest payable.
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. In October 2019 the Company issued
€550 million 1.25 per cent Senior Fixed Rate Notes due October 2026 with a fixed annual interest coupon of 1.25 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 29 March
2020
£m
At 31 March
2019
£m
10
10
10
10
Of the issued ordinary shares, a total of 1,029,706 (2018-19: 70,331) 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.
Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20
250
250
GROUP FIVE YEAR SUMMARY (UNAUDITED)
GROUP FIVE YEAR SUMMARY (UNAUDITED)
Five year summary
Income Statement – Reported
Revenue
Operating profit before specific items
Operating specific items
Profit on disposal of property, plant and equipment
(non-operating specific item)
Profit before interest and tax
Finance income – net pension interest
(non-operating specific item)
Finance costs
Profit before tax
Tax (charge)/credit (specific items and other)
Profit after tax
Income Statement - Adjusted
Revenue
Operating profit
Finance costs
Profit before tax
Tax
Profit after tax
Financial reporting year ended March
52 weeks
53 weeks
52 weeks
2020
£m
2019
£m
2018
£m
10,840
10,581
10,172
217
(162)
341
(181)
89
144
86
(50)
180
(19)
161
15
175
79
(13)
241
(66)
175
123
(57)
71
137
91
(16)
212
46
258
2017
£m
9,776
353
(134)
12
231
120
(16)
335
(62)
273
2016
£m
9,251
294
(156)
29
167
113
(13)
267
(45)
222
At March financial reporting year end date
52 weeks
53 weeks
52 weeks
2020
£m
2019
£m
2018
£m
2017
£m
2016
£m
10,840
10,581
10,172
9,776
9,251
325
(50)
275
(79)
196
411
(13)
398
(93)
305
581
(16)
565
(111)
454
575
(16)
559
(121)
438
551
(13)
538
(118)
420
Shareholder Information
GROUP FIVE YEAR SUMMARY (UNAUDITED)
GROUP FIVE YEAR SUMMARY (UNAUDITED)
251
251
Balance sheet
Property, plant and equipment
Intangible assets
Pension escrow investments
Inventories
Trade and other receivables
Trade and other payables
Other net (liabilities)/assets
Provisions
Goodwill
Investments in associates
Net operating assets and investments in associates
Cash and cash equivalents
Pension escrow investments
Investments
Loans and borrowings
Other net financial liabilities
Net (debt)/cash
Deferred tax assets/(liabilities)
Net assets before pension surplus
Pension surplus
Net assets
At March financial reporting year end date
2020
£m
2019
£m
2018
£m
3,120
2,066
2,016
558
180
19
631
187
27
608
178
25
2017
£m
2,062
567
–
23
2016
£m
2,002
451
–
21
1,294
1,322
1,176
1,137
1,038
(2,045)
(1,924)
(1,968)
(1,857)
(1,741)
(36)
(225)
390
5
3,260
1,640
21
30
(1,635)
(1,188)
(1,132)
56
2,184
3,437
5,621
42
(162)
380
5
2,574
236
20
–
(431)
(125)
(300)
9
2,283
2,336
4,619
30
(162)
324
5
2,232
600
20
–
(437)
(169)
14
27
2,273
2,163
4,436
26
(196)
316
7
2,085
299
20
–
(463)
(194)
(338)
(588)
1,159
3,839
4,998
(18)
(247)
206
9
1,721
368
20
–
(392)
(220)
(224)
(460)
1,037
3,430
4,467
Financial reporting year ended March
52 weeks
53 weeks
52 weeks
People numbers – year end headcount
2020
2019
2018
2017
2016
UKPIL
GLS
Total
141,466
142,757
141,162
141,819
142,544
19,306
19,221
17,955
17,136
13,991
160,772
161,978
159,117
158,955
156,535
Royal Mail plcAnnual Report and Financial Statements 2019–20Financial StatementsCorporate GovernanceShareholder InformationStrategic Report
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 www.royalmailgroup.com/
investor-centre.
If you have any queries relating to your shareholding you
can also email shareholderquestions@royalmail.com.
Company contact details
Registered office
Royal Mail plc, 100 Victoria Embankment,
London, EC4Y 0HQ
Registered in England and Wales
Company number 08680755
Investor Relations
investorrelations@royalmail.com
Director of Investor Relations – John Crosse
Company Secretariat
cosec@royalmail.com
Company Secretary – Mark Amsden
Company advisers
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.
Independent auditor
KPMG LLP
Corporate brokers
Bank of America Merrill Lynch
Barclays Bank plc
252 Shareholder Information
SHAREHOLDER
INFORMATION
Annual General Meeting
The 2020 AGM will be held on Tuesday 8 September 2020.
Full details of the business to be considered at the meeting
and the special arrangements that will be in place in light of the
Coronavirus (COVID-19) outbreak will be included in the Notice
of Annual General Meeting that will be sent to shareholders
by their chosen communication means and published on our
website at: → www.royalmailgroup.com/en/investors/annual-
general-meetings/.
Final dividend
The Board announced in March 2020 that it would not
recommend a final dividend due to the COVID-19 pandemic.
The Board felt it was in the best interest of the Company and
its shareholders to preserve cash during this uncertain period.
An interim dividend was paid to shareholders in January
2020 giving a total dividend for the year of 7.5 pence per
ordinary share.
Dividend waivers
The Trustee of the Royal Mail Share Incentive Plan (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.
Managing your shares online
Shareholders can register through Shareview, a platform
provided by the Company’s registrars, to access shareholder
information online at www.shareview.co.uk. This service allows
you to:
– Manage your shares online;
– Receive notifications of new shareholder information
by e-mail;
– Arrange dividend payments;
– Update personal records.
When registering, you will need to have your shareholder
reference number which can be found on your share certificate,
dividend voucher or AGM voting documents.
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 £1.2 billion is lost in investment fraud 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 → 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.
253
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.
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Royal Mail, the Cruciform and the Parcelforce Worldwide logo are registered trademarks of Royal Mail Group Limited.
The GLS arrow logo is a registered trademark of General Logistics Systems Germany GmbH & Co. OHG.
Annual Report 2019-20 © Royal Mail Group Limited 2020. All rights reserved.
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Financial StatementsCorporate GovernanceShareholder InformationStrategic ReportRoyal Mail plcAnnual Report and Financial Statements 2019–20