Royal Mail PLC Annual Report 2022

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FY2022 Annual Report · Royal Mail PLC

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Connecting Customers,
Companies and Countries

Annual Report and Financial Statements
2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Introduction

2021-22 has been another challenging year. Despite this, in line
with our purpose, we have continued to connect customers, companies
and countries. We have also made some strategic progress, however
more needs to be done.

We need to accelerate and broaden the transformation of Royal Mail to meet the demands of our
customers, deliver financial benefits at a faster pace and support sustainable growth. Given the
rapid pace of change in our market, enhancements in technology and the backdrop of economic
uncertainty, this is more important than ever. We also need to continue to harness GLS’ growth
opportunities in a profitable way and ensure that GLS leverages its business model to become
more global, digital and diverse.

Demonstrating leadership in our environmental, social and governance (ESG) agenda is also
a core priority – not only for our business, but for all our stakeholders. We are continuously
reviewing everything we do through this lens, so that we can grow our contribution to society,
operate responsibly and provide the sustainable products and services our customers
increasingly want.

Contents

Strategic Report
Introduction
01
02 Who we are
03 Why invest
04 Chair’s statement
06 Chief Executive Officers’ operating reviews
10 Our marketplace
12 Our business model
14 Our strategy and progress
24 Measuring our performance
26 Our stakeholders
28 Section 172 statement
30 ESG review
46 TCFD statement
52

Risk management and our principal
risks and uncertainties

62 Viability statement
64 Financial review
76 Non-financial information statement

Corporate Governance
79 Chair’s introduction
81 Application of Code principles
82 Board of Directors
84 Board leadership and company purpose
91 Division of responsibilities
92 Composition, succession and evaluation
95 Nomination Committee Report
99 Audit and Risk Committee Report
107 Environmental, Social and Governance

Committee Report

110 Directors’ Remuneration Report
142 Directors’ Report
146 Statement of Directors’ Responsibilities

Financial Statements
148 Independent auditor’s report
157 Consolidated income statement
158 Consolidated statement of
comprehensive income
159 Consolidated balance sheet
161 Consolidated statement of changes

in equity

162 Consolidated statement of cash flows

Notes to the consolidated financial
statements

164 Royal Mail plc – Parent Company

financial statements

Additional Information
227 Shareholder information
228 Glossary of alternative
performance measures
IBC Forward-looking statements

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Who We Are

We are an international
business that provides postal
and delivery services across
our extensive networks.

Our purpose
To connect customers, companies and countries.

Our values
Our values, which shape our culture, underpin everything we
do. We focus on our customers and on providing reliable and
convenient value-for-money services. We want our people
to be proud to work for our businesses.

Royal Mail
Be positive – about
what we can achieve.

Be brilliant – for
our customers.

Be part of it – each one
of us is responsible.

GLS
Reliability

Security

Transparency

Flexibility

Sustainability

Our ambition
To build a more balanced and diverse parcels-led,
international business.

Our business
The Group consists of two principal operations. Our UK-
based operation, which includes Royal Mail and Parcelforce
Worldwide (Royal Mail), and our international operation,
General Logistics Systems (GLS).

Where we operate
Royal Mail operates throughout the UK and offers letter
and parcel delivery services internationally. GLS has a
growing international footprint which currently includes
around 40 countries and nation states.

Royal Mail plc
Annual Report and Financial Statements 2021-22

2021-22 Performance Highlights

Group revenue split1

33% 67%

£12,712m

Royal Mail
GLS

£8,514m
£4,219m

Group operating proﬁt split

57% 43%

£577m

Royal Mail
GLS

£250m
£327m

Group revenue split (parcels and letters)2

29% 71%

£12,712m

Parcels
Letters

£8,998m
£3,714m

2021-22 Group revenue includes £21 million which relates to
intragroup trading between Royal Mail and GLS.

2.. Parcel revenue includes GLS freight revenue.

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Why Invest

A compelling business combination focused on fulfilling our purpose and long-term
value creation.

Two geographically diverse and
cash generative businesses

Well positioned to capture
future growth

ƽ Extensive market presence spanning
around 40 countries and nation states.

ƽ Dual CEO structure ensures greater

strategic focus and effective execution.

ƽ Good cash generation to support growth
opportunities across both businesses.

ƽ Unparalleled capability to deliver to every
address in the UK as the sole designated
Universal Service Provider1.

ƽ Strong international network, local

expertise and an agile business model.

ƽ Well-recognised brands.

Read more about our business model on page 12 and 13.

Read more about the trends driving growth in our markets on page 10 and 11.

Continuously evolving

ƽ Transforming Royal Mail into a parcels-led
business with increased automation and
improved operational efficiency.

ƽ Strengthening GLS’ position in cross-border
and 2C, securing its leading position in 2B
markets and implementing innovative and
sustainable solutions centred around
customer needs.

Sustainability and responsibility
embedded in our strategies

ƽ Offering environmentally

sustainable solutions for our
customers and playing our part in
the transition to a low-carbon future.

ƽ Providing a safe, healthy and fair working

environment for our people.

ƽ Operating with integrity and transparency.

Read more about our strategic progress on pages 14 to 23.

Read more about our ESG approach on pages 30 to 45.

Clear capital allocation policy supports shareholder value
Invest in
the business

Maintain investment
grade credit rating2

Pay progressive
ordinary dividend

M&A
activity

£2.0bn

over last five years

BBB

Read more about our capital allocation policy on page 73.

£884m

over last five years

£463m

over last five years

Excess cash returned
to shareholders

£400m

over last five years

Under the Postal Services Act 2011, 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.

2. S&P rating as at May 2022.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Chair’s Statement

Keith Williams
Non-Executive Chair

2021-22 Group Financial Highlights

Revenue1

£12,712m

2020-21: £12,638m

Reported operating profit1

£577m

2020-21: £611m

Adjusted operating profit2

£758m

2020-21: £702m

Adjusted basic earnings per share2

60.0p

2020-21: 52.1p

FY dividend

20p

2020-21: 10p

Net debt2

£985m

2020-21: £457m

1.
2.

Reported result. Reported results are prepared in accordance with IFRS.
APM. APMs are not defined under IFRS. The APMs used to describe the
Group’s performance, including a reconciliation to reported results, are
explained on pages 228 to 232.
GLS Accelerate free cash flow is calculated as pre-IFRS 16 in-year trading
cash flow plus disposal proceeds. Includes four months of Rosenau Transport.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Overview
The past year has presented many challenges as the countries
in which we operate emerged from COVID-19 pandemic restrictions
and consumer behaviour continued to change. The pandemic has
resulted in a step up in the level of parcel volumes compared to
pre-pandemic levels. However, some of the tailwinds we experienced
last year have subsided, and while we have seen a recovery in letter
volumes in Royal Mail, parcel volumes and shifts in mix continue
to be volatile.

The Board would like to thank again all of our colleagues across
Royal Mail and GLS who have continued to work relentlessly to
play a key role and for their unstinting efforts to keep people,
businesses and countries connected.

In GLS we saw continued revenue growth, with a recovery in B2B
volumes and freight revenues, albeit operating profit was flat in
Euro terms, as expected given the absence of certain COVID-related
one-off benefits this year and escalating inflationary pressures. At
Royal Mail, our primary focus has been to provide our customers
with essential services whilst providing a safe environment for our
people. Whilst we made good progress in some areas, notably
Processing, we need to accelerate the pace of change elsewhere
to adapt our business to a post pandemic world, meet the ever-
changing demands of our customers, and restore quality.

Inflation rose throughout the second half of the year. Wage inflation
in tight labour markets, sharp increases in energy and fuel costs
exacerbated by the war in Ukraine and a cost of living squeeze
in many countries are resulting in an uncertain outlook for GDP
and consumer spending, creating significant headwinds as
we enter 2022-23.

Given this environment it is more important than ever that
we accelerate the transformation of Royal Mail to improve
efficiency and continue to harness GLS’ growth opportunities
in a profitable way.

Financial performance
Group revenue grew by 0.6%, driven by GLS. Group operating profit
was £577 million on a reported basis (2020-21: £611 million). Group
adjusted operating profit was £758 million (2020-21: £702 million),
driven by improved profitability at Royal Mail. GLS operating profit
in Euros was flat year-on-year, although lower in Sterling terms due
to adverse foreign exchange movements. Adjusted basic earnings
per share was 60.0 pence (2020-21: 52.1 pence).

Strategy
Royal Mail’s strategy is focused on transforming the business
into a more efficient parcels-focused operation that meets our
customers’ changing needs. We are making progress in some
areas, but more needs to be done in other areas to accelerate
the transformation of Royal Mail.

During the year we continued to improve and simplify our customer
offering, and launched a number of new products and services.
We also retained the top spot for recipient customer net promoter
score and have increased the gap between us and our second-place
competitor. However, our quality of service was impacted by high
levels of COVID-related absence.

Strategic Report

Corporate Governance

Financial Statements

Additional Information

“ It is more important than ever that
we accelerate the transformation of
Royal Mail and continue to harness
GLS’ growth opportunities.”

We made progress in our transformation programme, achieving
the major milestone of 50% automation in parcel sortation and our
first Hub in the North West is about to launch. We also delivered the
planned savings in non-people costs. However, delivery of savings
from our Pathway to Change agreement was below our initial
target, and we will take the learnings from this year into next to
improve execution.

We are now at a crossroads. We need to deliver the benefits from
change more quickly to deliver sustainable growth. We have made
significant operational change already, but this needs to translate
into real efficiency savings which deliver a financial benefit next
year and beyond. Delivery of our existing agreements and the
successful transition into the next agreements, as part of the
current negotiations with the CWU, will be key to future profitable
growth. We have made a substantial pay offer to our people which
will enable the change we need to remain competitive, grow and
secure their jobs for the future. Our market is changing quickly,
and agility in our response is key.

GLS continued to execute its Accelerate strategy successfully
during the year cementing the gains achieved during 2020-21,
generating c.€500 million of pre-IFRS 16 free cash flow3 in the
first two years against our target of €1 billion by 2024-25.

GLS further strengthened its international capabilities with the
acquisition of Mid-Nite Sun Transportation Ltd (operating as
Rosenau Transport), a freight business operating in Western
Canada. Rosenau Transport complements our existing business
and the combination gives us full national coverage, as well as
connecting our US and Canadian networks. GLS will continue
to look for selective bolt-on acquisitions to extend its current
footprint, enhance its portfolio and exploit network synergies.

There are also signs of positive revenue progress in previously
underperforming markets, France and US. However financial
results in the US have been impacted by higher unit operational
costs and strong inflationary pressures. As with Royal Mail,
GLS has more to do particularly to combat competitive and
inflationary pressures which we see ahead.

Responsible business
Being a responsible business and operating in a sustainable
way is fundamental to our Purpose. This is the right thing to
do and demonstrating leadership in our ESG (Environment,
Social and Governance) agenda is also essential if we are to
achieve competitive advantage, create value and deliver our
strategy. During the year we introduced new Group-wide
ESG Principles which are aligned with the UN Sustainable
Development Goals, and which encapsulate our commitment
to operate in a sustainable way.

In addition, Royal Mail has updated its environment strategy to
target Net Zero by 2040, and GLS has launched its own strategy,
tailored to its business of working with transport partners,
to reduce its emissions to zero by 2045. Both plans include
switching to renewable electricity, significantly increasing the
use of low/zero emission transport vehicles, and offering
customers sustainable delivery solutions.

Cash return to shareholders
In line with our capital allocation policy and the decision to reduce
the Group’s cash holdings, in November 2021, we announced a
£400 million return of capital to shareholders, via a share buyback,
and the payment of a special dividend. The special dividend was
paid alongside the interim dividend in January 2022 and the share
buyback completed in March 2022.

As announced in November 2021, provided our economic,
commercial and industrial relations environment remains
stable, over the next two years we would look to return to our
historic position of a broadly net nil cash position (pre-IFRS 16).
We will however keep this under review, taking into account any
capital requirements for M&A.

Ordinary dividend
The Board is proposing a final dividend of 13.3 pence per share.
Combined with the interim dividend of 6.7 pence per share paid in
January 2022, this gives an ordinary dividend for FY 2021-22 of
20 pence per share, and is in line with our sustainable progressive
dividend policy.

Board changes
Shashi Verma joined the Board as a Non-Executive Director on
29 September 2021 and became a member of the Nomination
Committee and the ESG Committee at the same time. As
announced on 1 February 2022, Rita Griffin will step down
from the Board at the end of our forthcoming AGM. Rita, who
has been a Non-Executive Director since December 2016, will
also step down as Chair of the ESG Committee and a member
of the Nomination Committee at the same time. On behalf of
the Board, I would like to thank Rita for her valued contribution
and wish her well for the future.

Lynne Peacock joined the ESG Committee on 1 February 2022.
She will succeed Rita as Chair of the ESG Committee at the
conclusion of our AGM and at the same time step down as Chair
of the Remuneration Committee. Maria da Cunha, who is an
existing member of the Remuneration Committee, will take
over from Lynne Peacock as Chair of this Committee. Maria
will continue in her role as Designated Non-Executive Director
for engagement with the workforce.

Outlook
Our detailed Outlook statement is included on pages 74 and 75.

Keith Williams
Non-Executive Chair
18 May 2022

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

CEO Royal Mail Operating Review

Overview
We are focused on transforming Royal Mail into a more efficient
parcels-focused business to reflect the changing needs of our
customers. We will continue to own trust at the doorstep, compete
on quality and cost whilst differentiating with our people and our low
CO2/parcel. Whilst 2021-22 presented operational challenges, with
Omicron and elevated levels of absence, we continued to benefit
from pandemic tailwinds, which are now dissipating. During the year,
we made progress on many of the six priorities we set ourselves.
We have made many changes to our management capability and
structures. We are laying the ground for the future of Royal Mail’s
network with our new state of the art North West hub, which will
launch in June 2022, and with our strategy to be Net Zero by 2040.

However, whilst we delivered benefits from Pathway to Change in
Processing, overall we did not make sufficient progress with our
change programme. Performance in Delivery was disappointing.
With growing inflationary pressures and a deteriorating macro-
economic outlook, we must change how we work today, accelerate
the pace of delivery and make sure we reflect the needs of the
customers and align our workload with our labour.

We continue to work with Unite/CMA through our joint transformation
agreement as we implement structural change. Whilst there was a
recent threat of industrial action both parties in mid-May have reached
agreement on some key principles and an agreed way forward.

We have entered into pay discussions with CWU, and as part of
these we have been informed CWU are making preparations for
possible ballots for industrial action. This does not necessarily
mean there will be industrial action. We want to reach agreement
with CWU, but industrial action, or the threat of it, is damaging for
our business and undermines the trust of our customers. It also
makes delivery of our change programme more difficult and puts
at risk our targets for 2022-23.

We remain committed to working closely with both our unions
to deliver the change we need to grow our business sustainably,
and ensure long-term job security for our great team.

Operating Review
In 2021-22 Royal Mail revenue decreased 1.6% to £8,514 million.
This was driven by a 6.5% decline in parcel revenue as a result
of the strong comparative period which included several months
of national and local lockdowns. This was partially offset by a
5.6% increase in letter revenue which had declined sharply during
the pandemic. Revenue from parcels accounted for 56% of total
Royal Mail revenue (2020-21: 59%). Adjusted operating profit was
£416 million (2020-21: £344 million). Adjusted operating profit
margin2 was 4.9%, up 90 basis points.

In-year trading cash inflow2 pre-IFRS 16 decreased by £164 million
to £178 million. Gross capital expenditure increased by £231 million
to £441 million largely driven by investment in our two new parcel
hubs, increased parcel automation across our network, vehicles,
including electric vehicles, and PDAs to support our frontline
colleagues. Further detail is included in the Financial Review.

Parcels
Domestic parcel volumes (ex. international) decreased by 7%
reflecting the lower levels of lockdown restrictions compared
to the prior year. Domestic parcel revenue (ex. international)
decreased by 2.4%, reflecting positive product/channel mix.
Domestic parcel volumes (ex. international) increased by 31%
compared to pre-pandemic levels, reinforcing our view that the

Simon Thompson
CEO Royal Mail

2021-22 Performance Highlights

Revenue1

£8,514m

2020-21: £8,649m

Adjusted operating profit2

£416m

2020-21: £344m

Royal Mail parcel/letter revenue split %

56% 44%

2020-21 split:

59%/41%

1.
2.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

pandemic has resulted in a step up in domestic parcel volumes
driven by increased e-commerce activity. Volumes for our premium
products, Tracked 24® / 48® and Tracked Returns®, continued to
grow by 17% in 2021-22 (2020-21: 79%). Excluding the effect of test
kits, Tracked 24® / 48® and Tracked Returns®, volume growth was
flat (2020-21: 74% growth).

Royal Mail continued to support the Government’s COVID-19
testing programme. We expanded capacity and prioritised delivery
and collection of test kits in response to increased demand around
Christmas due to Omicron. Over the year, test kits accounted for
around 7% of total parcel volume. Q4 2021-22 saw the highest
quarterly volume of tests kits; however there was a significant
step down in the final weeks of the year, as expected, following
the announcement of the withdrawal of free testing in England
from 1 April 2022.

We believe that in 2021-22 we grew our revenue share of the
domestic parcels market, based on our internal models.

International parcel volumes, including import and export
parcels for Royal Mail and Parcelforce Worldwide, were down
42% year-on-year, impacted by increased customs processing
requirements into the EU, reduced air freight capacity and
persistently higher conveyance costs compared to pre-pandemic.
International parcel revenue decreased 23.3% reflecting management
of price and mix – export volumes showed smaller declines than
import volumes over the year, and we saw increases in average
unit revenue for both import and export parcels.

Letters
Addressed letter volumes (excluding elections) were up 3%,
partially recovering the significant decline in the prior year,
but were down 18% compared to pre-pandemic, reflecting
the continued structural decline in the letters market.

Advertising Mail recovered strongly, with volumes up 30%
year-on-year. Business Mail volumes experienced a 1% decline
due to continued e-substitution of more transactional mailings
and tougher prior year comparators as the year progressed.

Total letter revenue, up 5.6%, benefitted from a positive price mix.

Supporting the COVID-19
testing programme

Since April 2020 Royal Mail has been a key partner for the
Government’s COVID-19 testing programme and played a
crucial role in the movement of test kits. During the year
the business serviced up to 1.1 million test kits a day and
effectively expanded capacity and prioritised delivery and
collection in response to increased demand. As part of this
programme, Royal Mail has operated a unique network of
35,000 priority postboxes for the rapid return of test kits
to laboratories.

Costs
Total adjusted operating costs decreased 2.5% to £8,098 million
(2020-21: £8,305 million).

Adjusted people costs were down 0.6%. The management restructure
programme, which led to a £93 million one off restructuring charge in
2020-21, delivered a sustainable £115 million benefit year-on-year, as
expected. The Pathway to Change agreement enabled us to implement
the largest amount of change to our operation in a single year, with
87% of planned activities completed and around 1,800 revisions
implemented (including 1,270 in Delivery). However, we delivered
savings of £59 million, at the lower end of our revised guidance range
and below our initial target of over £100 million. Whilst performance
in our processing sites was good, in our delivery units performance
was disappointing. We must do better. Going forward, the learnings –
which include ensuring operational stability before implementing
change, that we have the right leadership which involves our postmen
and women, and that everyone is committed to making it work – will
enable us to improve implementation in the future. We are committed
to making up the shortfall in our performance in 2022-23.

COVID-19 people costs were down £18 million, a lower reduction
than we had originally envisaged, due to an extended period of
social distancing requirements and absence rates remaining
elevated for longer than expected. The overall level of absence
was 8.0% in 2021-22 (2020-21: 8.5%), and a peak of 12.1% on
5 January 2022 driven by the Omicron wave (2020-21 peak
absence of 18.9%). This compares to pre-pandemic levels of
5-6%. This had a significant impact on our quality of service.

Pay costs increased by £122 million driven largely by the 1% pay
award for frontline staff, costs for the 1-hour reduction associated
with the shorter working week, along with costs related to working
time regulation holiday pay and managerial pay awards.

Productivity in the year was down 0.2% year-on-year as the
business was slower to take out costs in Delivery due to lower-
than-expected volumes following a faster-than-expected
reopening of the UK High Street and lower than anticipated
benefits from Pathway to Change.

In January 2022 we announced a further restructuring programme
to streamline operational management and improve focus on
performance at a local level. This resulted in a one-off voluntary
redundancy charge of £70 million in the fourth quarter. This
programme is expected to deliver annualised benefits of
£40 million, with £30 million in 2022-23.

Non-people costs decreased 6.4%. Our £200 million two-year
non-people cost saving plan was delivered, with £112 million
achieved in 2021-22. Distribution and conveyance costs decreased
as a result of lower terminal dues. However, there were increased
costs of vehicle hires and fuel as part of maintaining social
distancing measures. Infrastructure costs decreased driven
by lower depreciation and amortisation. Other operating costs
decreased due to a reduction in COVID-19 related costs by
£35 million and volume related savings.

Simon Thompson
CEO Royal Mail
18 May 2022

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

CEO GLS Operating Review

Martin Seidenberg
CEO GLS

2021-22 Financial Highlights

Revenue1

£4,219m

2020-21: £4,040m

Adjusted operating profit2

£342m

2020-21: £358m

GLS B2C/B2B volume split %

55% 45%

2020-21 split:

57%/43%

1.
2.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Overview
The demand for parcel services continued to grow in 2021-22,
with the structural shift in demand for B2C services brought about
by a change in consumer behaviour accelerated by the COVID-19
pandemic being confirmed. GLS continued to take advantage of
these trends, although due to a recovery in B2B volumes during
the year, the share of B2C volumes (55%) was marginally lower
compared with the unusually high level of the prior year (57%).
Nevertheless, this was still significantly higher than the pre-
pandemic B2C share of 48% in 2019-20. We are continuing to
pursue our Accelerate strategy, also targeting the B2C segment
and further building on our already strong presence in the
International and B2B segments. The war in Ukraine has brought
about some short-term uncertainty. However, assuming there
is an economic rebound in 2023-24, delivery of the Accelerate
operating profit of €500 million in 2024-5 and €1 billion cumulative
pre-IFRS 16 free cash flow3 (over the five-year period from
2020-21 to 2024-25) can still be achieved.

Operating Review
GLS performed well during the year with revenue growth of
4.4% to £4,219 million, driven by a combination of higher volumes,
better pricing and the contribution from the Rosenau Transport
business acquired in Canada. Adjusted operating margin declined
by 80 basis points. Operating margin in the prior year benefited
from some temporary positive effects related to the COVID-19
pandemic. During the year, the impact of foreign exchange
movements adversely impacted revenue by £207 million
and favourably impacted costs by £191 million, resulting
in a reduction in operating profit of £16 million.

We continue to invest in growth, with capital expenditure of
£162 million (2020-21: £136 million). In-year trading cash flow
remained strong, at £239 million, compared with £330 million in
the prior period. Further detail is included in the Financial Review.

Market performance
Similar to Royal Mail, there has been a structural shift in consumer
behaviour driven by the COVID-19 pandemic, with parcel volume
growth of 30% compared to pre-pandemic levels in 2019-20, and
revenue growth of 33.5% (37.2% in Euro terms, of which 35.0% is
organic) compared to the same period.

We saw revenue growth in almost all markets, driven by volume
and price/mix, but with inflationary cost pressures which resulted
in a decline in margin. GLS adjusted operating profit margin was
8.1% compared to 8.9% in the prior period, in line with expectations
and reflecting temporary positive effects in the prior year which
benefited margins, such as scale effects and pricing initiatives in
certain markets.

Performance in our key markets is highlighted below, with
revenue growth and cost development detailed in Euro terms.

Germany revenues grew by 8.1% driven by a combination of
volume growth and better pricing, but due to inflationary impact
on costs, operating profit year-on-year was lower. In Italy revenues
grew by 8.8%, benefitting from a recovery in B2B volumes and
better pricing, and with the resulting operating profit ahead of
the prior year.

Strategic Report

Corporate Governance

Financial Statements

Additional Information

“ We are committed to
maximising GLS’ potential
and we are already
delivering the benefits
of our ‘Accelerate GLS’
growth strategy.”

We are pleased with our performance in France where revenues
grew by 8.8%, driven by a recovery in B2B volumes and building on
customer wins achieved during the COVID-19 pandemic. Operating
losses narrowed further during 2021-22 in France, building on the
strong improvement delivered in the prior year, which showed a
significant reduction in losses compared with 2019-20.

Spain continued to perform well, with revenue growth of 7.7%.
Operating profit was slightly below the prior year, with some
margin compression resulting from higher operational costs.

The US reported revenue growth of 11.1%, driven by higher B2C
volumes and increasing freight revenues. However, higher unit
operational costs, driven by a shortage of drivers, which impacted
final mile and line-haul costs, and strong inflationary pressures
impacting the general cost base, resulted in a deterioration in profit
versus the prior year and an overall loss. Measures focussing on
improving unit costs and increasing the scale and quality of
revenues are underway.

Organic revenue growth in Canada was 16.7%, benefitting from
good growth in parcel volumes and a recovery in freight revenues,
as well as improved pricing. The business continues to perform
well, delivering margins above the group average. The acquisition
of Rosenau Transport which was completed on 1 December 2021
is performing in line with expectations. Initiatives to integrate
Rosenau Transport with the pre-existing business in Canada
to secure synergies are underway.

In our businesses in Eastern Europe we saw continued strong
growth in revenues driven by higher B2C volumes, with particularly
good performance in Hungary, Czech Republic and Croatia.

Martin Seidenberg
CEO GLS
18 May 2022

Enhancing operational efficiency

GLS is making active use of technology to improve
operations. In Germany, proactive performance
management in the last mile is enabled through a dispatch
app making it easier for dispatchers to track performance
metrics and take quick and necessary actions. Additionally,
a digital tool for depot yard management, a line haul app for
drivers, GPS tracking and a transport partner portal for
easier communication have been introduced for better
visibility and increased efficiency.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Our Marketplace

A number of trends have been driving structural change within our letters
and parcel markets. Since the pandemic parcel volume has increased while
letter volume has declined. In addition, customer demand for convenient and
sustainable services has continued to grow.

Key trends driving structural change

Trend

Digitalisation

E-commerce penetration continues to grow as retail
stores invest in digital platforms over physical
presence. As businesses increasingly rely on digital
forms of advertising and customer communications,
UK letter volume decline continues.
57%

43%

growth in UK e-commerce
sales 2019-20211.

of UK retail sales (excl. food &
fuel) now digital1.

Our response

As the UK’s sole Universal Service
Provider, we are well placed to capitalise
on technological advancements in our
market. We are investing in data and
technology to maximise the parcel
market growth opportunity including
increasing automation across our
businesses, developing innovative
customer apps and enhancing our
logistical and customs procedures
to ease international shipping.

Letter delivery will continue to be
an important part of Royal Mail’s
offering. We have launched unique
barcoded stamps which will enable the
introduction of added security features
and pave the way for innovative services
for our customers.

Read more on pages 56 to 61.

Royal Mail plc
Annual Report and Financial Statements 2021-22

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Corporate Governance

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Additional Information

Focus on customer
trust and growth

Making our services more convenient

In November 2021, Royal Mail enhanced its popular Parcel Collect
service with posties delivering pre-printed postage labels to
customers who need them. This makes Parcel Collect even more
convenient and accessible, and supports customers without a
printer. Since its launch in October 2020, the service has gained
momentum and has processed over five million parcels.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Our Strategy and Progress continued

Our mission is to own trust at the doorstep.
We believe that trust in our people, our brand, and our nationwide
hyper-local network is a platform for profitable growth. We are
focused on transforming our network as quickly as possible to
ensure we are operating efficiently and profitably, to make the
most of the opportunity we have in front of us. At the same time as
improving our efficiency, we are becoming a more agile, customer-
focused business. We will compete on quality and cost, win with
people and CO2, and once we have transformed and completed our
new pay deal with the union, our ambition over the medium term
is to deliver a sustainable 5%+ adjusted operating profit margin.

Performance in 2021-22 has highlighted the need for more wide-
ranging change and to accelerate the pace of our transformation to
adapt our business to a post pandemic world and deliver significant
benefits to all our stakeholders. Our change agenda is now even more
urgent and important than it was a year ago – this forms the basis of
our pay discussions with CWU and we want to work together to deliver
this change which will secure growth and jobs for the future.

Our strategy has three key pillars:

ƽ Customer: Improve and simplify our customer offering through
great quality of service and easy to understand and simple to
use products.

ƽ Trust: Rebuilding trust with our people and unions.

ƽ Growth: Grow our business, our share, and the market through
greater capacity and new innovative products and services.

Productivity is also important and our “ticket to play”, delivering
the change that we need such as our new parcel delivery model
and increasing our parcel automation, so we can compete on
cost and quality.

Progress against strategic priorities this year
In May 2021 we outlined the following six strategic priorities
for FY 2021-22:

ƽ Achieve our quality of service targets and being number

one on NPS (Net Promoter Score).

ƽ Deliver the CWU agreement on time and realise

£100+ million benefits.

ƽ Continue to increase our own internal Trust score.
ƽ Rapidly reduce managers’ daily activities and policies.
ƽ Achieve 50%+ parcel automation by the end of the financial year.
ƽ Deliver £110 million of non-people cost savings.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Despite the operational challenges of the past year, we have
achieved the majority of the targets we set ourselves. Royal Mail is
number one in the industry for Net Promoter Scores. Our internal
Trust Score has seen a significant increase from 62 to 68 in a year,
with participation in the survey growing from 48% to 69%. Through
our ‘Day in the Life of’ programme we have significantly reduced
the number of policies for managers and repurposed 1.6 million
hours of operational management time from daily administrative
tasks, allowing them to focus on their teams and their customers.
We reached 50% parcel automation as at end of March 2022, up
from 33% a year earlier. And we have delivered £112 million of
non-people cost savings, in line with our target of c. £110 million
in 2021-22 and £200 million over two years.

I would like to thank our people for their continued hard work
and dedication as we reinvent Royal Mail for the next generations.
This was never going to be easy, but we can already see the
benefits of many of the changes we have made.

However, there is much more to do and there were some
areas where our performance last year was not as we would
have wished, namely in delivering Pathway to Change efficiencies,
and service quality.

Customer
The first pillar of our strategy is all about the Customer: simplifying
and improving our customer offering, listening and adapting to
what our customers need, and delivering a great service every day.

At the start of the year we set out plans to get back to consistently
achieving our regulatory quality of service targets, which had
been suspended for part of the pandemic in recognition of the
challenges Royal Mail had to face with COVID-related absence,
and the introduction of more social distancing across our operation.
I am disappointed to say we have not achieved this. COVID-19 had
a more prolonged impact on our business than we had expected,
with high levels of absence during the ‘pingdemic’ in July and the
rise of Omicron in particular later in the year. Further, we have
faced challenges in recruitment due to a buoyant job market as
well as coping with the change of traffic mix in our operation,
with more parcels and fewer letters versus pre-pandemic.

“ We are focused on
transforming our network
as quickly as possible to
ensure we are operating
efficiently and profitably,
to make the most of the
opportunity we have in
front of us.”

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ƽ Barcoded stamps: As part of our modernisation drive, we are
rolling out unique barcodes on stamps to facilitate operational
efficiencies, enable the introduction of added security features
and pave the way for innovative services for customers. The
new barcoded stamps have a digital twin and the two are
connected by the Royal Mail App. Barcoded stamps currently
give customers the ability to watch and share exclusive videos
by scanning the barcode in the Royal Mail App, and further
developments are planned.

Accelerating our sustainability initiatives: We know when
speaking with our customers that they are increasingly looking
for less environmentally impacting delivery options. Thanks to
our ‘feet on the street’ delivery model, powered by over 90,000
postwomen and men, Royal Mail already has the lowest reported
CO2e grams per parcel amongst major UK parcel operators1.
But there is much more to do and reflecting our sustainability
commitment we have set an ambitious target for Royal Mail to
reduce average emissions per parcel from 205g CO2e in 2021-22
to 50g CO2e on our journey to net zero. We now aim to be a net zero
business by 2040, ten years earlier than our previous target date.
In the past year we have announced plans to introduce around 3,000
additional electric vans, have introduced low emission gas powered
trucks and trialled micro-electric vehicles in our network, and
announced that all our employee company cars will be electric by
2030. We are also planning to significantly increase rail transportation
and reduce our use of domestic flights to reduce our environmental
impact further.
1.

Based on competitors’ 2020 and 2021 published reports.

At the peak of Omicron, absence levels were double what we
would expect to see at that time of the year pre-pandemic, with
over 15,000 people off sick in January 2022. Although we took
immediate steps to restore a comprehensive service, which
involved recruiting additional temporary staff and establishing
a specialised dedicated Delivery task force to provide targeted
support to the most impacted offices, our Full Year Quality of
Service results were disappointing, at 81.8% for First Class
mail and 95.4% for Second Class mail.

We are delivering a good service in most delivery offices, but
there are a small number where the quality performance is
disproportionately impacting overall numbers. We have over
1,200 delivery offices, and around 4% are responsible for
around 23% of delayed items.

The experience of the past 12 months has shown that we need to
change our model in Delivery. In recent months, we have reduced
the leadership layers from eight to five to push decision making
close to the customer so we can act with speed. This has reduced
the maximum team size from 56 to 44, with two thirds of delivery
offices having average team sizes under 35.

During the year we launched or improved a number of new
products and services and scaled some of our existing ones:

ƽ Parcel Collect: Demand for our doorstep collection service,
Parcel Collect, continues to grow. We have collected around
5 million parcels since its launch in October 2020. During the
year we launched enhancements including offering customers
pre-printed labels and improving the booking process through
the new and improved Royal Mail App to eight steps and less
than 60 seconds.

ƽ Improved Royal Mail App: On the upgraded app, customers
can now easily track, send and collect items, and check the
estimated carbon emissions from their deliveries. Products
have been categorised into three tiers, making it easier for
customers to find the right postage for their needs online.
The number of users has grown from 4 million users to nearly
7 million (end of March 2021 to end of March 2022), and with
an iOS rating of 4.7 on the app store, it ranked in the top three
within the “Lifestyle” category.

ƽ Sunday services: Demand from our major commercial retail
customers for Sunday deliveries continues to grow. Around 75
of our major commercial retail customers now use this service,
including Moonpig and Bloom & Wild, compared to 45
customers in November 2021, with an exit rate in 2021-22 of
around 12 million items. We have set out plans to scale up our
Sunday services so that all customers – including businesses
large and small – can benefit from the e-commerce revolution.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Our Strategy and Progress continued

Changing our culture
and working practices

Initiatives to improve working practices are being
embedded across Royal Mail. To allow delivery office
managers to spend more time with their teams, our
‘Day in the Life Of’ (DILO) programme is now operating
in all delivery offices. To date, this programme has
removed significant amounts of reporting requirements
and administration, reducing the number of policies
from over 200 to 16. 1.6 million hours of managers’ time
has been repurposed and is now being spent focusing on
more effective team management and customer service.

Consumer workshops on the future of post and the Universal
Service (USO): We are proud to deliver the Universal Service and
remain committed to providing an affordable and sustainable ‘one
price goes anywhere’ service to all households across the UK. But
as customer needs change, so must we. The demand for parcels
continues to increase, while letter volumes are down by more than
60% since their peak in 2004-05. Given these significant changes
we continue to believe the best way to ensure that the Universal
Service remains relevant and meets customers’ needs is to
rebalance more towards parcels. To inform our thinking, we ran
a series of 15 consumer roadshows and a series of stakeholder
roundtables throughout February and March to explore what
people want from postal services in future. This showed that
there is support for Royal Mail to deliver parcels seven days and
– similarly to Ofcom’s User Needs research in 2020 – that a five
day a week letter service would meet the needs of most people.
It also highlighted the importance of tracking, safeplaces and
reducing the need for people to go to a Customer Service Point to
pick up undelivered parcels. We are currently considering these
findings, and look forward to working constructively with all our
stakeholders to ensure the Universal Service remains relevant
and sustainable for us all, now and in the future.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Trust
Our people are pivotal to the delivery of our mission to own trust
at the doorstep. They are the people our customers see every day.
Rebuilding their trust to work together to meet ever-changing
customer needs in an efficient way is our big unlock.

ƽ Delivering a positive step change in our relationship with
our people: We operate a monthly listening programme that
enables us to measure sentiment across our employee base.
Feedback through the year showed we are making progress and
we have seen trust scores improve across all our operational
areas. In total, trust scores have improved by 6 points, from
62 in April 2021 to 68 in April 2022, with 69% now taking part
in the survey compared with 48% a year ago. But there is still
too much variation unit to unit and we are actively working
on levelling performance up across our organisation.

ƽ Enable direct conversations between all our people: Building
a genuine two-way dialogue with our people is a key part of
rebuilding trust. Over 45,000 colleagues are now on Workplace
and are using it to recognise great work, share ideas and best
practice, access information and problem solve issues. My
Executive Board and I host a weekly Q&A and regular Live
events, where we engage with employees directly on issues
that really matter to them.

ƽ Putting in place the next generation of apprentices: During
the year we launched our Postal Apprenticeship programme.
This is one of the largest programmes of its kind in the UK.
ƽ Royal Mail Academy: A Royal Mail Academy has been set
up to train and invest in managers, starting with frontline
operational managers, by equipping them with the right
suite of skills to do the job effectively.

ƽ Driver Academy: Earlier this year we launched a new Driver

Academy, in partnership with CWU, to train and develop future
LGV and MGV drivers. The Driver Academy is comprised of four
training pathways, including an apprenticeship scheme with an
initial cohort of around 20 people, who will train to become road
ready category C+E qualified drivers within 13 months.

ƽ Strengthening our operational leadership team: In March
2022 Grant McPherson joined as Chief Operating Officer from
Jaguar Land Rover where he was Executive Director of Global
Manufacturing. At the same time Angela Noon was appointed as
our new Chief Financial Officer, having joined from Siemens UK
& Ireland where she was the CFO and Executive Director of
Siemens plc and Siemens Holdings Group companies. Mark
Briers joined earlier this year as Chief Analytics and Data Officer,
a newly created role that underlines the importance of turning
data into insight which can be used to improve our performance
and drive growth in our business. Mark previously worked at the
Alan Turing Institute, the UK’s national institute for data science
and artificial intelligence. Zareena Brown joined in October 2021
as our new Chief People Officer. Her prior role was at Britvic
where she was Chief Human Resources Officer. Zareena’s
role focuses on scaling our trust agenda, engagement with
our trade unions, championing diversity and inclusion, and
training and support.

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Industrial relations
We have entered into pay discussions with CWU and have
tabled what we believe is a fair pay offer that recognises
current inflationary pressures whilst enabling the
transformational change which will secure growth and
jobs for the future. Our total pay offer is worth up to 5.5%
for CWU grade colleagues:

ƽ 2% would be paid to all CWU grade colleagues as soon

as an agreement is reached, and this would be backdated
to April 2022;

ƽ A further 1.5% would be paid from the date upon which

we implement the changes agreed;

ƽ In addition, a new ‘above and beyond’ bonus – worth up

to 2% of salary.

This is the biggest pay offer we have made for many years.
However, we need to ensure that any deal sets us up for
tomorrow, and not just today. So as part of our negotiations
we want to agree a series of changes to our delivery model
and ways of working to ensure we can compete and adapt
more quickly to changing customer needs.

CWU has rejected our offer, and has informed Royal Mail it is
making preparations for a possible ballot for industrial action.
We believe this is premature and have entered into our formal
Dispute Resolution Procedures to try to secure agreement. This
process was put in place to help deal with this kind of situation.
We are going into it in good faith to try and reach an agreement
and give our people a pay increase as soon as possible.

In January 2022, as part of our transformation programme we
entered into a formal consultation with Unite/CMA to reorganise
our operational management and reduce management layers
from eight down to five. The proposals we put forward were
designed to simplify and streamline our operational structures
to ensure an improved focus on local performance and devolve
more accountability and flexibility to frontline operational managers.
Whilst there was a recent threat of industrial action both parties in
mid-May have reached agreement on some key principles and an
agreed way forward. Managers have now been informed of their
new roles and the new structure will be in place by the end of May 2022.

We want to reach agreement with CWU and to continue to work
with Unite/CMA as we implement structural change. Any industrial
action, or the threat of it, would be damaging for our business and
undermines the trust of our customers.

Delivering the Pathway to Change agreement
We implemented around 1,800 revisions across our operations;
defined and rolled out a new productivity standard with a three-year
flightpath to achieve in all units; introduced new Scan-in, Scan-Out
technology at 43 sites, including all Mail Centres and Regional
Distribution Centres to improve operational efficiency; rolled out
our new delivery to specification technology, an algorithm to deliver
mail as per the product specification and therefore reduce costs;
and agreed a new dispute resolution process which has reduced
the number of disagreements from 595 in November 2019, with
an average resolution time of 80 days, to 151 disagreements as
of the end of March, with an average resolution time of 36 days.

However, it was disappointing that we only delivered £59 million
of benefits, at the low end of our revised guidance range and less
than the £100+ million we had originally targeted. Following a pilot,
the delivery resourcing technology was not as user friendly as
expected so we are working to improve it. We plan to recommence
trials of an enhanced tool in the second half of 2022-23. And on
revisions, whilst we made good progress in Processing, in Delivery
we fell short of our target. Whilst 886 table top revisions delivered
2.1% productivity, and 166 structural or major change revisions
delivered 5.8% productivity, 203 structural revisions did not go
well and had a negative productivity impact of 7.2%.

We have been working closely with CWU to understand lessons
learnt into next year and beyond. There are three things that need to
be in place to ensure revisions go well; the operation must be stable
before deployment; leaders must be skilled at a revision and must
involve the frontline in all of the change; and it is important that
everyone is embracing the change and is committed to making it
work from day one. Going forwards the learnings from last year
will enable us to improve implementation.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Our Strategy and Progress continued

Growth
Transforming our network
Transforming our network and working practices to adapt to
parcels is key to our growth. We need to do this as quickly as
possible to ensure we are operating efficiently, and profitably,
to make the most of the opportunity we have in the market.

ƽ Two new hubs on their way: We are making great strides
in transforming our network into a more modern, efficient
and technology-enabled operation capable of handling larger
parcels more efficiently. Our state-of-the-art North West Hub
is on track to open in June 2022. The size of 4.5 football pitches,
the new Warrington-based plant will have the capacity to sort
over 800,000 parcels a day. Our Midlands Hub, based in
Daventry, is on track to open in Summer 2023.

ƽ A step change in parcel automation: In addition to the

new hub, this year we have also installed five parcel sorting
machines in mail centres across the country, including in
Nottingham, Chester and Cardiff. As at 31 March 2022, the
total number of machines in operation was 25. This number
will increase to around 39 by the end of 2022-23. As a result
of these initiatives we have achieved the major milestone
of 50% automation in parcel sortation – the target we set
last year. Furthermore, we are well on track to reach 70%
automation in parcels sortation by 2022-23 and 90% by 2023-24.

ƽ Expanding our healthcare offering: Royal Mail has played a

key role during the pandemic supporting the delivery of test kits
and Personal Protective Equipment (PPE) for the nation and
already deliver the majority of prescriptions ordered online.
We scaled our operation rapidly during the pandemic, and
have built the expertise and capability to play a leading role
in the growing market for online prescriptions and healthcare
deliveries. We will capitalise on the growth in this market
through a new dedicated healthcare offering, Royal Mail Health.

The future
As we enter 2022-23, the financial tailwinds from COVID have
receded. Wage inflation in tight labour markets, sharp increases
in energy and fuel cost exacerbated by the war in Ukraine, and
the cost of living squeeze are resulting in an uncertain outlook for
GDP and consumer spending and creating significant headwinds.
Against that backdrop, our focus is on delivering cost savings of
over £350 million and continued investment in the business.

Ongoing investment in our network will be around £350 million, on
hubs, technology advancements and best in class parcel processing.

In the medium term, we still see potential for a 5%+ adjusted
operating profit margin if we can complete our new pay deal
with the union and successfully deliver our change agenda.

But we must change how we work. Our change agenda is now
urgent and important and it cannot happen fast enough.

Transforming our operations
to drive growth

In June 2022, we will open our first super hub in Warrington.
The size of 4.5 football pitches, the North West hub has the
capacity to sort over 800,000 parcels a day. Parcel sortation
is 100% automated at the hub, with parcels being processed
at a rate of around 40,000 an hour. During the year, new
parcel sorting machines were installed at five sites.
Automated processes sort parcels up to four times more
quickly than manual sorting and these developments put us
well on track to achieve our target of 70% automation in our
UK parcels business by 2022-23 and 90% by 2023-24.

Royal Mail plc
Annual Report and Financial Statements 2021-22

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Accelerating GLS

Strengthening our top position in the
cross-border deferred parcel segment

We have continued to expand our ShopReturnService.
Online retailers are now able to offer this easy and
convenient return service to their consignees in Sweden
and the Baltic countries. As a result of our strong European
PUDO infrastructure, as of March 2022, return shipments
can be dropped off at parcel shops in 24 countries.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Our Strategy and Progress continued

Strengthening our
international capabilities

During the year, we have upscaled our network capacity
and footprint. We have invested in over 100 hubs and depots
to expand capacity and upgrade technology, including a new
depot in Granada, Spain and an extended hub in Jihlava,
Czech Republic. Both facilities became operational in
October 2021 and were critical in dealing with high volumes
during the busy December peak season.

We have also expanded our offering to include more convenient
services and products that enhance our customers’ experience.
With our growing fine meshed network of alternative pick-up points
(parcel shops and parcel lockers), we provide a good omni-channel
mix of last mile delivery solutions to our customers.

In December 2021 we completed the acquisition of Rosenau
Transport, a freight business operating in Western Canada.
Rosenau Transport complements our existing business in
Canada and the combination gives us full national coverage,
as well as connecting our US and Canadian networks.

Our scalable and flexible business model, together with our
proven track record of successfully integrating our network in
new markets, positions us well to further grow our international
footprint. We continue to consider a number of opportunities
capable of delivering long term sustainable value.

Strongly positioning in 2C market
and securing position in 2B segment

To increase brand awareness in the fast changing parcel
delivery market, GLS has refreshed its brand identity.
Building on GLS’ successful heritage, the new branding
reflects the business’ fresh, dynamic and flexible approach
and its increasing digital and technological capabilities.
GLS’ enhanced marketing activities have also increased
market visibility.

Strategic update: Accelerating GLS
Our ‘Accelerate GLS’ strategy, which builds on our distinctive
and proven business model is focused on:

ƽ Strengthening GLS’ top position in the cross border deferred

parcel segment.

ƽ Strongly positioning GLS in the 2C parcel market, whilst

securing its leading position in the 2B segment.

ƽ Inspiring the market through innovative digital and sustainable

customer-focused solutions.

We have made good progress executing this strategy at the
same time as delivering a good set of financial results, despite the
challenging market conditions described in the Operating Review.

Strengthening our top position in the cross border
deferred parcel segment
During the year we have further strengthened our international
capabilities. Our network capacity and footprint has been
significantly upscaled. This fiscal year we have been investing
in building, extending and upgrading over 100 hub and depots.
We are increasing capacity as well as investing in new sorters,
dim-weight scanners and other equipment to increase efficiency.
These investments will help us to unlock further growth and
maintain our high-quality levels.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

In February 2022, Saadi Al-Soudani, our Group Area Managing
Director for North America, Iberia and Nordics and Managing
Director International, also took on the role of Chief International
Officer. This newly created role reflects the strategic importance
of our international network expansion strategy. Saadi joined GLS
in 1993 and has held a number of senior management positions
across the business.

Strongly positioning in 2C market and securing position
in 2B segment/Inspiring the market
Innovation drives positive customer experiences and is essential
if we are to enhance our competitive advantage, win in our growth
markets and achieve our strategic ambitions.

We are continuing to strengthen our connection with our customers
through expansion of our digital offering. During the year we
launched new customer apps in a number of markets including
Spain and Denmark. These digital solutions make parcel delivery
more convenient, for example through real time tracking, and
enable us to engage directly with our customers and gather
valuable immediate feedback about their delivery experience.

We have also strengthened our market positioning through our
rebranding initiatives which helped to increase brand awareness
and position GLS as a new, modern and fresh brand.

Responding to changing
customer needs

We want to make it easy for people to send and receive
parcels, whether across borders or within the same city,
whilst protecting the environment for future generations.
Our long-term goal is to become an emissions-free company
and we have the ambition to reduce our emissions to zero
by 2045. We have set up our carbon emission compensation
programme to offset unavoidable emissions stemming
from our European GLS-operated sites and the entire journey
of GLS’ parcels. We have teamed up with ClimatePartner to
support projects that prevent CO2 from being emitted or
help to bring down emissions through natural CO2 sinks.

Launching more convenient
customer solutions

GLS is working on a number of digital solutions to increase
customer convenience. Recently GLS Germany launched a
live tracking app that significantly enhances the customer’s
delivery experience. Using the technology, customers can
now track the status of their parcel delivery in real-time,
and make changes to delivery dates and shipping addresses
while parcels are in transit. During January 2022, the app
had over four million hits.

In response to customer demand for more sustainable solutions
we are intensifying our efforts to make all aspects of our business
more sustainable. We have added over 1,200 low or zero emission
vehicles to our existing fleet and as of January 2022, over 80% of
GLS operated sites are using green electricity. We have also rolled
out our Climate Protect programme across our European footprint
now compensating all CO2 emissions across our entire European
logistics value chain through certified projects. Looking further
ahead our ambition is to reduce our emissions to zero by 2045.

The future
Uncertainty brought about by the war in Ukraine is expected
to have a negative impact on the macroeconomic environment,
global GDP and parcel growth. Therefore the 2022-23 operating
profit is forecasted to be in the range of €370 million to €410 million.

To remain on our long-term growth trajectory, we want to leverage
our business model and logistics know-how beyond our current
setup. We will push further to become more global, digital and
diverse. To achieve this, we will expand the network and our
sustainable delivery model and we will further digitalize and
diversify the GLS portfolio.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Measuring Our Performance

During the year we revised the KPIs we use to assess the Group’s performance.
The revisions include the introduction of a new adjusted operating profit margin
metric for Royal Mail and new GLS specific measures. These new metrics better
demonstrate the deliverability of each business’ strategy and, in particular,
our progress against our efficiency and profitable growth objectives.

Group revenue1

Group adjusted operating profit2

Royal Mail adjusted operating profit
margin2

Lost time accident frequency rate

(LTAFR) per 100,000 hours worked3

GLS adjusted operating profit in Euros2

GLS Accelerate free cash flow4, 5

£12,712m

£758m

4.9%

€402m

€213m

2021-22

2020-21

2019-20

£12,712m

£12,638m

2021-22

2020-21

£758m

£702m

2021-22

2020-21

4.9%

4.0%

£10,840m

2019-20

£325m

2019-20

1.5%

0.54

2021-22

€213m

€402m

€401m

2020-21

€307m

0.39

0.38

2020-21

2019-20

€238m

0.54

2021-22

2020-21

2019-20

Relevance

Demonstrates revenue growth across
Royal Mail and GLS.

Our primary measure of business performance.

Demonstrates efficiency and our
focus on driving profitable growth.

Targets a continually improving safety culture

Demonstrates efficiency and

for employees, customers and communities.

profitable growth.

Accelerate strategy targets around €1 billion

accumulated free cash flow generation over

the five years 2020-21 to 2024-25.

How we calculate

Total reported Group revenue.

Reported operating profit excluding pension
charge to cash difference adjustment and
operating specific items (see page 231).

Adjusted operating profit as a proportion
of revenue in percentage terms.

Total number of accidents resulting in an

Adjusted operating profit before specific

Pre-IFRS 16 in-year trading cash flow plus

absence on the next day or shift, per 100,000

items, in Euros.

disposal proceeds, in Euros.

hours worked.

Performance in 2021-22

ƽ Group revenue was £12,712 million,

ƽ Group adjusted operating profit grew by

ƽ Royal Mail adjusted operating profit margin

ƽ LTAFR increased by 38.5% compared to the

ƽ Performance was in line with revised

ƽ GLS Accelerate free cash flow of

£56 million to £758 million.

grew 90 basis points to 4.9%.

previous year.

guidance given in January 2022.

ƽ Profitability improved at Royal Mail,

primarily due to the delivery of a number of
cost saving initiatives which offset some of
the headwinds experienced in the year.

ƽ GLS adjusted operating profit was broadly
flat in Euro terms, but declined by 4.5% in
Sterling terms due to the strengthening of
Sterling during the year. Despite good
revenue growth, inflationary cost
pressures resulted in margin dilution.

ƽ Margin improvement was driven by the
recovery in letter revenue, cost saving
initiatives, including the Pathway to
Change agreement, and cost reduction
programmes initiated in the prior year.
We also saw reductions in COVID-19
related costs and international volume-
related costs.

ƽ These were partially offset by increased

pay and other operational costs.

ƽ Whilst absence associated with accidents

ƽ Adjusted operating profit was broadly

increased, the number of most severe

incidents decreased by 10% and our total

accident frequency rate reduced by 7.2%.

flat year-on-year as revenue growth was

offset by costs increases due to inflation

and volume growth.

€213 million remained robust, but below

the unusually high level of the prior year

which benefited from a strong positive

working capital movement.

ƽ GLS Accelerate free cash flow included

€190 million of capex and a step-up in tax

payments as assessments from the prior

year came through.

representing growth of 0.6% year-on-year,
and 17.3% compared with 2019-20.

ƽ As we emerged from COVID-19 restrictions,
the percentage of group parcel revenue
declined as non-essential retail reopened.
However, parcel revenue is still significantly
higher than prior to the pandemic.

ƽ In Royal Mail, revenue fell year-on-year
by 1.6%, with a decline in parcel revenue
partially offset by growth in letter revenue,
which recovered from the deterioration
experienced during the pandemic.

ƽ In GLS, revenue grew 4.4% year-on-year in
Sterling terms, driven by both domestic and
international parcel volumes and higher
freight revenue. Parcel volume growth was
driven by a recovery in B2B and continued
growth in B2C volumes, albeit at a lower
rate compared to the prior year.

Link to strategy

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Royal Mail

GLS

Customer

Trust

Growth

Connect Europe

Strengthen 2C parcel market
position and lead in 2B

Inspire the market

1. Reported result prepared in accordance with IFRS.
2.

APM. APMs are not defined under IFRS. The APMs used to
describe the Group’s performance, including a reconciliation
to reported results, are explained on pages 228 to 232.

3. Refers to direct employees only.
4.

GLS Accelerate free cash flow is calculated as pre-IFRS 16
in-year trading cash flow plus disposal proceeds.
€213 million includes four months of Rosenau Transport.

5. Five year target set in 2020-21.

Group revenue1

Group adjusted operating profit2

Royal Mail adjusted operating profit

£12,712m

£758m

margin2

4.9%

2021-22

2020-21

2019-20

£12,712m

£12,638m

2021-22

2020-21

£758m

£702m

2021-22

2020-21

4.9%

4.0%

£10,840m

2019-20

£325m

2019-20

1.5%

Lost time accident frequency rate
(LTAFR) per 100,000 hours worked3

GLS adjusted operating profit in Euros2

GLS Accelerate free cash flow4, 5

0.54

2021-22

2020-21

2019-20

€402m

0.54

2021-22

0.39

0.38

2020-21

2019-20

€238m

€402m

€401m

€213m

2021-22

€213m

2020-21

€307m

Relevance

Demonstrates revenue growth across

Our primary measure of business performance.

Demonstrates efficiency and our

Royal Mail and GLS.

focus on driving profitable growth.

Targets a continually improving safety culture
for employees, customers and communities.

Demonstrates efficiency and
profitable growth.

Accelerate strategy targets around €1 billion
accumulated free cash flow generation over
the five years 2020-21 to 2024-25.

How we calculate

Total reported Group revenue.

Reported operating profit excluding pension

Adjusted operating profit as a proportion

charge to cash difference adjustment and

of revenue in percentage terms.

operating specific items (see page 231).

Total number of accidents resulting in an
absence on the next day or shift, per 100,000
hours worked.

Adjusted operating profit before specific
items, in Euros.

Pre-IFRS 16 in-year trading cash flow plus
disposal proceeds, in Euros.

Performance in 2021-22

ƽ Group revenue was £12,712 million,

ƽ Group adjusted operating profit grew by

ƽ Royal Mail adjusted operating profit margin

ƽ LTAFR increased by 38.5% compared to the

ƽ Performance was in line with revised

ƽ GLS Accelerate free cash flow of

representing growth of 0.6% year-on-year,

£56 million to £758 million.

grew 90 basis points to 4.9%.

previous year.

guidance given in January 2022.

ƽ Whilst absence associated with accidents
increased, the number of most severe
incidents decreased by 10% and our total
accident frequency rate reduced by 7.2%.

ƽ Adjusted operating profit was broadly

flat year-on-year as revenue growth was
offset by costs increases due to inflation
and volume growth.

€213 million remained robust, but below
the unusually high level of the prior year
which benefited from a strong positive
working capital movement.

ƽ GLS Accelerate free cash flow included

€190 million of capex and a step-up in tax
payments as assessments from the prior
year came through.

and 17.3% compared with 2019-20.

ƽ Profitability improved at Royal Mail,

ƽ Margin improvement was driven by the

ƽ As we emerged from COVID-19 restrictions,

primarily due to the delivery of a number of

recovery in letter revenue, cost saving

the percentage of group parcel revenue

cost saving initiatives which offset some of

initiatives, including the Pathway to

declined as non-essential retail reopened.

the headwinds experienced in the year.

However, parcel revenue is still significantly

higher than prior to the pandemic.

ƽ In Royal Mail, revenue fell year-on-year

ƽ GLS adjusted operating profit was broadly

flat in Euro terms, but declined by 4.5% in

Sterling terms due to the strengthening of

by 1.6%, with a decline in parcel revenue

Sterling during the year. Despite good

Change agreement, and cost reduction

programmes initiated in the prior year.

We also saw reductions in COVID-19

related costs and international volume-

related costs.

partially offset by growth in letter revenue,

revenue growth, inflationary cost

ƽ These were partially offset by increased

pressures resulted in margin dilution.

pay and other operational costs.

which recovered from the deterioration

experienced during the pandemic.

ƽ In GLS, revenue grew 4.4% year-on-year in

Sterling terms, driven by both domestic and

international parcel volumes and higher

freight revenue. Parcel volume growth was

driven by a recovery in B2B and continued

growth in B2C volumes, albeit at a lower

rate compared to the prior year.

Link to strategy

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Our Stakeholders

Our purpose – connecting customers, companies and countries – demonstrates the
importance we place on our stakeholder relationships and our impact on wider society.
Our stakeholders are integral to the Group’s success and if we are to create sustainable
long-term value, we must take account of their issues and concerns.

Colleagues
Our workforce who underpin the delivery
of our strategy.

Customers
People who rely on and buy the
service we provide.

Shareholders
Shareholders, including our employees,
who provide capital to run our business.

Their key issues

Health, safety and wellbeing.

Fair, diverse and inclusive working environment.

Attractive pay and rewards.

Development opportunities.

How we engage across the Group

Two-way dialogue including weekly Q&A
sessions with the CEO Royal Mail, or members
of the Royal Mail Executive Board, and through
the Workplace platform, which was introduced
in 2021 to enhance the effectiveness of
employee engagement.

Listen and act on employee feedback through
the annual Big Trust survey, regular pulse
surveys, Employee Voice Forums and
People Panels.

Face-to-face programmes to enhance
colleagues’ understanding of our strategy.

Sharing of information through internal
communication channels including Courier
magazine, Royal Mail TV and Workplace.

How we engage at Board level

Designated Non-Executive Director workforce
engagement programme and regular Board
updates about the programme.

Regular ESG Committee Board updates.

Attendance at Employee Voice Forums.

Review of employee feedback and Board
discussion in relation to actions to address
any issues arising.

Site visits.

High-quality, value-for-money,
convenient and sustainable service.

Long-term sustainable value.

Strategy and execution.

Strong ESG performance.

Unions
Organisations that
represent the interests
of our workforce.

Protection of
workers’ interests.

Regulator

Governments

Suppliers

Ofcom, the body that oversees our

provision of the Universal Service.

Administrations that levy taxes and determine

Our commercial partners who

legislation that affects our business.

support our business.

Local communities

The people who our

activities may impact.

Their key issues

Effective delivery of our Universal

Effective delivery of our Universal Service

Fair commercial terms.

On-time payment.

Long-term relationships.

Positive social and

economic impact.

Sustainable business

operations.

Service Provider obligations.

Provider obligations.

Delivery of annual Quality of

Provision of employment.

Service targets.

Tax income.

Transitioning to a low-carbon future.

How we engage across the Group

regularly with Ofcom.

testing programme.

Dedicated regulation team engages

Royal Mail executive team meets with key

with Ofcom and participates in

politicians and civil servants, including the

regular meetings.

Postal Affairs Minister.

Public affairs engagement programme.

Regular updates and briefings.

Royal Mail executive team meets

Key partner for the Government’s COVID-19

Regular commercial dialogue.

Execute UK community

investment strategy.

GLS supports numerous

regional and national

charitable initiatives.

See pages 42 and 43.

Direct customer engagement.

Regular customer surveys.

Net promoter score monitoring.

Trustpilot reviews.

Complaint management and resolution.

Active investor relations (IR)
programme, including investor
meetings, multi-day roadshows and
participation in industry conferences.

Quarterly results announcements.

Regular meetings with
union representatives.

Elected union
representatives work with
Royal Mail management.

Engagement with GLS’
local works councils.

Regular Board updates on quality
of service.

Chair and Executive Directors
participation in shareholder meetings.

Annual General Meeting (AGM).

Remuneration Committee Chair engages
with shareholders on remuneration
matters as required.

Participation in IR programme.

Regular Board updates on investor
landscape from corporate brokers
and IR Director.

CEO Royal Mail and Group
CFO meet regularly with
senior union leaders.

How we engage at Board level

Group CFO updates Board

on Ofcom engagement.

Dedicated Ofcom team also

provide regular Board updates.

Regular Board updates on matters of relevance

Contracts considered critical in terms

Site visits.

including updates on relevant legislation.

of risk profile approved by Board prior

As appropriate, members of Public Affairs

to award.

team attend Board meetings and participate

ARC considers reports on payment

in discussions.

practices for relevant businesses.

Regular ESG Committee

updates to Board.

ESG Committee receives updates on

ESG-related consultations and policies.

Outcomes (see pages 28 and 29)

ƽ Improving trust scores. See page 38.

ƽ New and enhanced products and

services that meet customers’ needs.
See pages 15 to 17.

ƽ Actions to address quality issues.

See page 16.

ƽ Capital return which takes account
of shareholder feedback gathered
during the investor perception study
undertaken by Rothschild & Co
Investor Advisory in April 2021 (the
2021 investor perception study).

ƽ Recognising the growing importance
of ESG to investors, development of
Group-wide ESG framework.

ƽ Pathway to Change
agreement. See
page 19.

ƽ Continuing to make

progress towards the
implementation of the
Royal Mail Collective
Pension Plan, following
a successful union and
employee consultation.

Principal risks (see pages 56 to 61)

5 6 11

3 4 7 8

Royal Mail plc
Annual Report and Financial Statements 2021-22

1 2 3 4 5 6 7
8 9 10 11

1 5 6 11

1 5 7 9 10

2 3 5 7 8 10

2 3 4 10

5 7 8 10

Outcomes

ƽ Contribute to relevant consultations

ƽ £11.8 billion of gross value added by

ƽ 73,000 jobs indirectly supported

ƽ Provide 1 in 175 jobs

and the development of regulations

Royal Mail (direct and indirect contribution)1.

by Royal Mail in the wider economy1.

provided by Royal Mail

that meet stakeholders’ needs.

ƽ Delivered and collected COVID-19 test

ƽ Promote responsible business

in the UK1.

ƽ Annual regulatory Quality of

Service targets. See page 16.

kits and delivered vaccination letters to

practices through supply chain

ƽ £5.6 million community

households across the UK.

compliance. See page 45.

ƽ Ensured the effective movement of

ƽ Publish information on payment

investment in 2021-22.

See pages 42 and 43.

cross-border parcels post-Brexit.

ƽ Pensions Schemes Act passed, which

will enable our Collective Defined

Contribution Pension Scheme.

practices in line with the Duty to

Report on Payment Practices

and Performance.

Principal risks (see pages 56 to 61)

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Colleagues

of our strategy.

Their key issues

Health, safety and wellbeing.

High-quality, value-for-money,

Long-term sustainable value.

Fair, diverse and inclusive working environment.

convenient and sustainable service.

Strategy and execution.

Strong ESG performance.

Attractive pay and rewards.

Development opportunities.

of our workforce.

Protection of

workers’ interests.

employee engagement.

Listen and act on employee feedback through

the annual Big Trust survey, regular pulse

surveys, Employee Voice Forums and

People Panels.

Face-to-face programmes to enhance

colleagues’ understanding of our strategy.

Sharing of information through internal

communication channels including Courier

magazine, Royal Mail TV and Workplace.

How we engage at Board level

updates about the programme.

Regular ESG Committee Board updates.

Attendance at Employee Voice Forums.

Review of employee feedback and Board

discussion in relation to actions to address

any issues arising.

Site visits.

Outcomes (see pages 28 and 29)

Designated Non-Executive Director workforce

Regular Board updates on quality

Chair and Executive Directors

CEO Royal Mail and Group

engagement programme and regular Board

of service.

participation in shareholder meetings.

CFO meet regularly with

senior union leaders.

Annual General Meeting (AGM).

Remuneration Committee Chair engages

with shareholders on remuneration

matters as required.

Participation in IR programme.

Regular Board updates on investor

landscape from corporate brokers

and IR Director.

ƽ Improving trust scores. See page 38.

ƽ New and enhanced products and

ƽ Capital return which takes account

ƽ Pathway to Change

services that meet customers’ needs.

of shareholder feedback gathered

agreement. See

See pages 15 to 17.

during the investor perception study

page 19.

ƽ Actions to address quality issues.

undertaken by Rothschild & Co

ƽ Continuing to make

See page 16.

Investor Advisory in April 2021 (the

2021 investor perception study).

progress towards the

implementation of the

ƽ Recognising the growing importance

Royal Mail Collective

of ESG to investors, development of

Group-wide ESG framework.

Pension Plan, following

a successful union and

employee consultation.

Our workforce who underpin the delivery

People who rely on and buy the

Shareholders, including our employees,

Organisations that

Customers

Shareholders

Unions

service we provide.

who provide capital to run our business.

represent the interests

Regulator
Ofcom, the body that oversees our
provision of the Universal Service.

Governments
Administrations that levy taxes and determine
legislation that affects our business.

Suppliers
Our commercial partners who
support our business.

Local communities
The people who our
activities may impact.

How we engage across the Group

Two-way dialogue including weekly Q&A

Direct customer engagement.

sessions with the CEO Royal Mail, or members

of the Royal Mail Executive Board, and through

the Workplace platform, which was introduced

Regular customer surveys.

Net promoter score monitoring.

in 2021 to enhance the effectiveness of

Trustpilot reviews.

Active investor relations (IR)

programme, including investor

meetings, multi-day roadshows and

participation in industry conferences.

Quarterly results announcements.

Complaint management and resolution.

Regular meetings with

union representatives.

Elected union

representatives work with

Royal Mail management.

Engagement with GLS’

local works councils.

Royal Mail executive team meets
regularly with Ofcom.

Key partner for the Government’s COVID-19
testing programme.

Regular commercial dialogue.

Dedicated regulation team engages
with Ofcom and participates in
regular meetings.

Royal Mail executive team meets with key
politicians and civil servants, including the
Postal Affairs Minister.

Public affairs engagement programme.

Regular updates and briefings.

Execute UK community
investment strategy.

GLS supports numerous
regional and national
charitable initiatives.

See pages 42 and 43.

Their key issues

Effective delivery of our Universal
Service Provider obligations.

Effective delivery of our Universal Service
Provider obligations.

Delivery of annual Quality of
Service targets.

Provision of employment.

Tax income.

Fair commercial terms.

On-time payment.

Long-term relationships.

Positive social and
economic impact.

Sustainable business
operations.

Transitioning to a low-carbon future.

How we engage at Board level

Group CFO updates Board
on Ofcom engagement.

Dedicated Ofcom team also
provide regular Board updates.

Outcomes

ƽ Contribute to relevant consultations
and the development of regulations
that meet stakeholders’ needs.

ƽ Annual regulatory Quality of
Service targets. See page 16.

Regular Board updates on matters of relevance
including updates on relevant legislation.

As appropriate, members of Public Affairs
team attend Board meetings and participate
in discussions.

ESG Committee receives updates on
ESG-related consultations and policies.

Contracts considered critical in terms
of risk profile approved by Board prior
to award.

ARC considers reports on payment
practices for relevant businesses.

Site visits.

Regular ESG Committee
updates to Board.

ƽ £11.8 billion of gross value added by

ƽ 73,000 jobs indirectly supported

ƽ Provide 1 in 175 jobs

Royal Mail (direct and indirect contribution)1.

by Royal Mail in the wider economy1.

ƽ Delivered and collected COVID-19 test

kits and delivered vaccination letters to
households across the UK.

ƽ Ensured the effective movement of
cross-border parcels post-Brexit.
ƽ Pensions Schemes Act passed, which
will enable our Collective Defined
Contribution Pension Scheme.

ƽ Promote responsible business
practices through supply chain
compliance. See page 45.

ƽ Publish information on payment
practices in line with the Duty to
Report on Payment Practices
and Performance.

provided by Royal Mail
in the UK1.

ƽ £5.6 million community
investment in 2021-22.
See pages 42 and 43.

Principal risks (see pages 56 to 61)

5 6 11

3 4 7 8

1 2 3 4 5 6 7

1 5 6 11

1 5 7 9 10

2 3 5 7 8 10

2 3 4 10

5 7 8 10

8 9 10 11

1. Cebr research, conducted for Royal Mail in May 2022, comprising direct and indirect contributions.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Section 172 Statement

Our stakeholders are integral to the Group’s success. Our engagement with our
stakeholders helps us understand what matters to them. It builds trust, fosters stronger
relationships and ensures that we provide the products and services customers need,
which helps drive the Group’s long-term success.

Rosenau Transport acquisition

In October 2021, we announced that GLS had agreed to buy
Rosenau Transport, one of the largest independent freight
carriers in Western Canada. Following regulatory approval,
the acquisition completed in December 2021. As part of
the acquisition approval process, the Board considered
the transaction and decided that the acquisition was in the
best long-term interests of the Group and its stakeholders.
In reaching this decision, the Board considered the
following matters:

ƽ The combination creates a network which will
enable GLS to cover the vast majority of the
Canadian population and also provides a link to
GLS operations along the US West Coast. This
strengthened international network complements
GLS’ Accelerate strategy and its position as a
cross-border player.

ƽ The significant opportunity to create long-term

value through integration, harnessing new sales
opportunities created by the enlarged footprint
and insourcing existing GLS deliveries.

ƽ GLS’ and Rosenau Transport’s close strategic and
cultural fit, including a strong focus on quality,
reliability and customer service.

ƽ Rosenau Transport’s commitment to its local

communities and its established environmental strategy.

ƽ The impact of funding the acquisition on Royal Mail’s
pension schemes and the schemes’ obligations to
existing and former employees.

The outcomes of decisions are not always positive for all stakeholders.
On occasions the Board has to make difficult choices and prioritise
the interests of different stakeholders. In such circumstances, what
matters to each stakeholder is carefully considered and, after
taking account of all relevant factors, a decision is made based
on the long-term interests of the Group.

In relation to the decisions taken during the year ended 27 March
2022, and up until 18 May 2022, 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.

Examples of principal decisions made by the Board during the year,
and the stakeholder issues and section 172 matters considered as
part of the decision-making process, are set out on this page and
on the following page. We define ‘principal decisions’ as decisions
which are material or strategic to the Group, and/or significant to
any of our stakeholders. In each case, given the materiality and
importance of these matters, the relevant management team
made recommendations to the Board and, where relevant, its
Committees for consideration.

Group ESG Principles

In November 2021, the Board approved new Group ESG
Principles, having considered the following matters:

ƽ The Group’s purpose and its important societal role in
creating economic and social value for its employees
and customers and the communities where it operates.

ƽ Updates from the ESG Committee in relation to the
Principles confirming that they are built around the
issues that are most relevant to the Group’s
stakeholders and its businesses.

ƽ Growing customer demand for sustainable products and
services provided by trusted and responsible businesses.

ƽ Maintaining trust is fundamental to the Group’s

reputation and long-term success and operating
responsibly is in the interests of all stakeholders.

ƽ The need to clearly articulate the Group’s ESG approach,
particularly in light of the 2021 investor perception study
that indicated that ESG factors are becoming
increasingly important in shareholders’ investment
decision-making process.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Share buy-back programme
and special dividend

The Group’s plan to return £400 million of capital to
shareholders was announced on 18 November 2021. In
deciding to reduce the Group’s cash holding via a share
buyback and special dividend, the Board considered the
following matters:

ƽ Shareholder feedback gathered during the 2021 investor

perception study.

ƽ Alignment of the proposal with the Group’s capital

allocation policy.

ƽ The need to create sustainable value over the medium to
long term and the impact of the cash return on Royal Mail
and GLS’ growth strategies. Given the significant cash flow
generation potential of each business, both are considered
capable of investing in and supporting their own organic
growth and innovation initiatives without constraint.
ƽ The impact on shareholders and, in particular, the

security of the ordinary dividend.

ƽ As part of the decision-making process about the

mechanism of the return, the Board took account of
the Group’s large retail shareholder base that includes
many of the Group’s employees. It was decided that a
special dividend of £199 million should be paid
alongside the interim dividend of 6.7 pence per share
on 12 January 2022.

ƽ The long-term consequences of the return including
the economic, commercial and industrial relations
environment over the next two years.

ƽ The impact on Royal Mail’s pension schemes and the

schemes’ obligations to existing and former employees.

Key

Likely consequences
of any decision in the
long term.

The interests
of employees.

The need to foster
business relationships
with suppliers,
customers and others.

The impact of operations
on the community and
the environment.

The desirability of
maintaining a reputation
for high standards
of business conduct.

The need to act fairly
as between members.

Operational management
reorganisation

In January 2022, the Board approved an operational
management reorganisation, subject to formal
consultation. In coming to its decision, the Board
considered the following matters:

ƽ The reorganisation aims to further streamline operations
and improve local-level performance. It supports the
Royal Mail transformation programme which is focused
on creating long-term value for all stakeholders.
ƽ The impact of the reorganisation on employees and, in
particular, the likely resulting job losses were carefully
considered. It was decided that in the longer-term
interests of the Group, the reorganisation should be
approved, however all steps should be taken to ensure that
the process was conducted sensitively, working closely
with impacted employees and their representatives.
ƽ The need to enhance customer service levels and how
implementation of the reorganisation is projected to
improve operational performance.

ƽ The cost of implementing the reorganisation and the
resulting impact on shareholder value. The charge of
around £70 million to be taken in the final quarter of
2021-22, was considered and balanced against the
annualised cost savings of around £40 million the
reorganisation is forecast to deliver.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

ESG Review

We seek to be an integral, trusted and valued part of every community, operating
in a responsible and sustainable way. Demonstrating leadership across the broad
ESG agenda is also essential to achieving a competitive advantage, creating value
and delivering on our strategy.

Our ESG approach
We recognise the impact that our operations have on society and
the continuing growth in demand for sustainable products and
services. We have, in response to this, developed new Group ESG
Principles that are built around the issues that are most relevant
to our stakeholders and our businesses. These Principles, which
are set out on the adjacent page, encapsulate our commitment to
operate in a sustainable way and support several United Nations
Sustainable Development Goals (SDGs). More detailed information
about Royal Mail’s approach to ESG is included in the Royal Mail
ESG Report, which is available at www.royalmailgroup.com/en/
responsibility/policies-and-reports. Information about GLS’ ESG
programme is available at www.gls-group.eu/GROUP/en/our-
responsibility.

To ensure that our ESG programmes are relevant to our
stakeholders, we take account of the priorities and areas they
consider most important via regular materiality assessments. The
materiality assessment and process we undertook during the year
is described in the Royal Mail ESG Report, which is available at
www.royalmailgroup.com/en/responsibility/policies-and-reports.
GLS is currently undertaking a full materiality assessment process
involving its own stakeholders.

Information about this assessment will be included in the GLS
ESG Report 2022 which will be published later this year. Our ESG
Principles will be regularly reviewed to ensure that they continue
to align to the key ESG issues that are most material to the Group
and its stakeholders.

We deliver our commitment to sustainability by implementing
key policies and processes and executing Royal Mail and
GLS’ ESG strategies. Reflecting its long heritage, its significant
societal role and predominantly UK focus, Royal Mail’s ESG
programme is well developed and is focused on delivering
trust at the doorstep, delivering on environmental and social
commitments, and ensuring we foster a culture where an
engaged, healthy and diverse workforce can thrive.

Our GLS business operates across a diverse geographic footprint,
in a multitude of legal and cultural settings, and with a variety
of different business models. GLS is in the process of developing
a company-wide ESG programme, while allowing countries
to tailor their activities to local needs and expectations. GLS’
corporate ESG activity focuses on areas where there are shared
requirements, such as health and safety, compliance, and
environmental commitments.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Our ESG Principles

Our ESG Principles are the foundation of our
wider business strategy to create stakeholder
value and achieve sustainable growth.
They focus on the topics identified by
our stakeholders as being material while
supporting a number of the UN SDGs.

Environment

Social

Governance

We aim to operate in an
environmentally responsible way,
focused on reducing the impacts
associated with our operations,
and playing our part in the
transition to a low-carbon future.

We aim to deliver economic and social
benefits for our people, our customers
and the communities we serve. As the
UK’s Universal Service Provider, we
are in a unique position to play an
active part in the UK economy.

We endeavour to act with integrity
and transparency in the interest of
our stakeholders, ensuring we have
effective mechanisms in place to
deliver our business operations in a
responsible manner. Our stakeholders
trust us to deliver for them. Maintaining
that trust, and operating with integrity,
are fundamental to protecting our
valued place in society.

Net zero

Circular economy

Safety

Culture

Social contribution

Integrity

Ethics

Transparency

Collaboration

Sustainable Development Goals

See pages 32 to 35

See pages 36 to 43

See pages 44 to 45

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

ESG Review continued

Environment

Supporting the transition to a low-carbon future

During the year the environmental strategies of Royal Mail and GLS were comprehensively
reviewed and updated. Both strategies now include pathways, targets and mitigating
actions that will help us reduce our environmental footprint and achieve our ambition
to become a low-carbon business, while offering a wide range of green solutions to
our customers.

Decarbonising our business
We recognise the need to take decisive steps to help tackle the
global climate emergency and prepare our business for a low-
carbon future. We are aim to take a leadership role in our industry’s
transition and to support the implementation of the Paris Agreement.

In this context, Royal Mail and GLS have set new decarbonisation
ambitions that focus on increasing the use of low- and zero-
emission transport, decarbonising our operations and reducing the
energy usage at our buildings. Our revised ambitions emphasise
the need to look beyond our own operations and engage our
stakeholders including our customers and suppliers.

Royal Mail
Building on its position as the UK’s greenest delivery option for
letters and parcels1, Royal Mail is launching a new ‘Steps to Zero’
environment strategy that brings forward its net zero ambition
to 2040. This ambition, which is aligned with the latest climate
science and a 1.5°C decarbonisation pathway, will be achieved by
reducing the business’ scope 1, 2 and 3 emissions.

As part of this strategy, Royal Mail will leverage the environmental
advantages of its final-mile foot delivery model, accelerate the
pace of its transition to low- and zero-emission transportation,
and reduce emissions from its network and estate. We also aim
to transform our operations and behaviours to embrace circularity
by enabling reuse models and reducing single-use items. Lastly, we
will use our size, scale and reputation to lead and champion change.

Aside from its Net Zero by 2040 goal, Royal Mail aims to reach
50g CO2e per parcel delivered, a reduction of c.75%. Royal Mail’s
average reported CO2e per parcel through its domestic network
is currently 205g, compared with the reported emissions of its
industry competitors of between c.300-500g per parcel, which
is largely as a result of its final-mile foot delivery model.

Carbon ambitions and targets

Royal Mail
Net zero by 2040 across scopes 1, 2 and 3 at UK operations
aligned to 1.5°C, the latest climate science1 and science-
based target standards.

To 2040 our targets are:

GHG emissions

90% reduction in scope 1, 2, and 3 emissions

Renewable electricity 100% by 2022

Delivery vehicles

100% zero emission by 2035

Company cars

100% zero emission by 2030

We will achieve this target by increasing our use of low- and
zero-emission transport alternatives, including rail, while
minimising the use of domestic air freight. We will also
decarbonise our network and buildings.

GLS
Zero emissions from scopes 1, 2 and 32 by 2045 across
European operations.

Offsetting

100% European emissions from 2022

Renewable electricity

Fleet

80% by 2022 (European locations
operated by GLS)

50% zero/low emission by 2030

100% of new vehicles will be low
or zero emission by 2035

100% by 2045

Company cars

100% zero emission by 2030

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, 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. We use the latest conversion factors from
the UK Government (source: www.gov.uk/government/collections/government-
conversion-factors-for-company-reporting).
Pathways will be developed to deliver this reduction, including the setting of
interim targets. GLS scope 3 emissions currently include the categories parcel
transport (Well-to-Wheel), water, waste, paper, business travel, Well-to-Tank
(WTT) emissions for scopes 1 and 2 WTT emission from fuel consumption of
company cars and shunters, franchises and subcontracted depots.

1. Based on reported CO2e per parcel.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

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Financial Statements

Additional Information

Over a billion steps a day

Our posties make a huge contribution to keeping emissions
low, taking over a billion steps a day. By enhancing this
unique ‘on foot’ delivery network and increasing the
electrification of our fleet, we will reduce emissions
generated during our final-mile deliveries, which
currently represent 13% of Royal Mail’s emission profile.

GLS
As part of its updated Climate Protect environmental strategy
GLS has the ambition to reduce its Scope 1, 2 and 3 emissions
to zero by 2045, as well as a compensation of 100% European
emissions from 2022.

GLS will reduce and avoid emissions by ensuring that new buildings
conform to its requirements for low-emission operations, which
have been trialled at the GLS EuropeanEcoHub in Essen, Germany,
and by working to increase the number of zero- and low-emission
vehicles, by piloting a variety of alternatives including e-vans and
light vehicles such as e-scooters.

While emission reduction and avoidance are key, GLS recognises
that compensation has an important role to play in helping to tackle
climate change. GLS therefore compensates the emissions of all
sold parcels and shipments of the GLS european subsidiaries, as
well as emissions from sites and business travel.

Our environmental performance
In 2021-22, our total UK carbon footprint decreased by 2% compared
with the previous year, due mainly to a reduction in Royal Mail vehicle
fuel use. This reduction is a result of lower volumes during the peak
period than the previous year and the deployment of almost 1,300
additional electric delivery vans. Normalised per £m revenue emissions
also remained the same when compared like-for-like. In the year, Royal
Mail and GLS also expanded the scope of their emissions reporting.

GLS now calculates parcel transport emissions for all European
subsidiaries, from pick-up to delivery, using methodology and
data certified according to EN 16258.

Royal Mail has increased its value chain scope 3 emissions
reporting to cover 100% of emissions across all relevant
categories. As a result of this expanded reporting scope, the
calculated total emissions of Royal Mail and Parcelforce have
increased by 626 KtCO2e, which accounts for a considerable
portion of the total 1,229.6 KtCO2e reported in the year.

Carbon emissions performance CO2e (’000 tonnes)1

Scope 1
Scope 2 (location-based)
Scope 3
Total

Tonnes CO2e per £1m revenue4

Scope 2 (market-based)

Total
488.9
82.0
702.0
1,272.9

FY2021/22

Royal Mail

468.5†
59.1†
702.0†5

1,229.6

GLS3
20.4
22.9
–
43.3

FY2020/212
Royal Mail
473.2
64.1
76.0
613.3

Total
488.6
86.7
76.0
651.3

GLS3
15.4
22.6

38.0

44.9

13.0

62.0

10.3

45.5

62.1

9.4

8.2

4.8

20.9

9.1

11.87

2,534,134 2,345,913

Energy Consumption kWh (’000)6
1.

150,327
We report our carbon emissions to the GHG Protocol Corporate Standard, which classifies a company’s emissions into three ‘scopes’. Scope 1 emissions are direct emissions from sources that
are owned or controlled by Royal Mail, including the combustion of fuel and operation of facilities. Scope 2 emissions are indirect emissions from the purchase of electricity, heat, steam and
cooling for own use. Scope 3 emissions are all other indirect emissions that occur in a company’s value chain and are voluntary to report. Royal Mail reports all its scope 3 emissions including
purchased goods and services, capital goods, fuel and energy related activities, upstream and downstream transportation and distribution, employee commute, business travel, waste disposal,
end-of-life treatment of sold products and investments.
2.
2020-21 data for Royal Mail has been restated following the provision of data which was previously estimated.
3. GLS emission data reflects the calendar year rather than the financial year. GLS does not report scope 3 emissions.
4. The tonnes CO2e per £1M revenue ratio comprises scope 1 and scope 2 (location-based) emissions only. This ratio provides an overview of our carbon efficiency as we continue to grow.
5.

Royal Mail has increased its scope 3 emissions reporting to cover 100% of GHG emissions across all value chain categories. This has increased scope 3 emissions reported by 626KtCO2e from
76.1KtCO2e to 702.0KtCO2e. This increase is not reflective of operational changes and is entirely down to increase reporting scope.

188,221 2,503,149

2,352,822

6. The data for Royal Mail relates to emissions and energy consumed in the United Kingdom and its offshore area.
7.
†

This number was misreported in the 2020-21 Annual Report as 30.8.
Included within PwC’s limited assurance scope. See page 45 for further details.

Royal Mail plc
Annual Report and Financial Statements 2021-22

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ESG Review continued

Environment

Compensation of emissions

In 2022, GLS will provide carbon neutral parcel delivery
to all European customers by offsetting emissions via
the climate protection programme Climate Protect.

One of the projects supported through the programme
is the protection of 100,000 hectares of rainforest in the
Peruvian Amazon. The area, which is home to some of
the richest biodiversity on the planet, is under threat
from the Transamazonica road project and agricultural
deforestation. The project supports the protection of the
area by working with the local population to help manage
the land sustainably. The preservation of the rainforest’s
valuable carbon sink helps to save some 660,000 tonnes
of carbon from the atmosphere each year.

As outlined within our 2020-21 Annual Report, energy efficiency is
aligned with our ambition to decarbonise, focusing on optimisation
and the deployment of more efficient technology. Initiatives to
reduce energy are detailed below.

For information on the metrics and targets associated with the
implementation of Royal Mail and GLS’ environment strategies,
see page 32.

Buildings
Energy used by buildings accounted for 13% of Royal Mail’s carbon
footprint in 2021-22. Meanwhile, electricity and gas use decreased
2%, making it broadly similar to the prior year’s consumption.

As parcel automation across the business increases and more
electric vehicle charging is introduced, energy management across
Royal Mail’s large property portfolio is an increasing priority area.

Last year, energy optimisation trials and energy audits identified
several opportunities for energy savings across our estate. As a
result, Royal Mail entered into a five-year energy performance
contract which aims to reduce energy consumption by 180 GWh
through the optimisation of existing building services, changing
workforce behaviours around energy use and improvements to
energy controls.

Royal Mail plc
Annual Report and Financial Statements 2021-22

In April 2022 Royal Mail switched to a 100% renewable (no nuclear)
tariff with EDF Energy. Furthermore, solar panels are installed at
seven Royal Mail sites and a solar feasibility study undertaken in
2021 identified around 230 additional sites that have the potential
to supply around 20% of Royal Mail’s current energy use. These
findings will be further investigated in the coming year, including
identifying funding and leaseholder solutions to secure solar
panel installations.

GLS total electricity consumption increased by 16.4%. This is
due to increasing parcel volumes, as well as consideration of
subcontracted eastern european sites, which were not included
in the previous year’s eco-footprint. However, efficiency for
heating increases, as our emissions per kWh decreased by 11%.

GLS has rolled out a number of carbon reduction and energy efficiency
measures to future-proof its buildings. These include the use of
regenerative heating systems and LED lighting, installation of solar
panels and purchasing green electricity whenever possible. More than
80% of GLS-operated sites in Europe will use renewable electricity
from 2022 on. All new GLS-operated buildings will have the space and
charging infrastructure for electric vehicles. Existing buildings will be
upgraded as far as possible to reduce their carbon emissions.

Building on the success of the GLS EcoHub in Essen, Germany,
GLS’ EcoHub in Jihlava in the Czech Republic has been expanded.
Originally constructed in 2012, including additional insulation and
LED lighting, the Jihlava hub is now equipped with a photovoltaic
system with an installed capacity of 300 kWp. The expandable
battery storage of 200 kWh enables the lighting of the exterior
area and the charging of e-vehicles at night at newly installed
charging stations.

Transport
Royal Mail’s domestic and international transport networks
represent two-thirds of our emission profile. Our carbon reduction
initiatives for transport are critically important if we are to meet
our net zero ambitions.

In 2021-22, we saw a 1% reduction in emissions relating to a
reduction in fuel usage from vehicle electrification and lower
peak volumes compared with last year.

Other key developments included:

ƽ We have continued to add more electric vans to our fleet,

and expect to have around 5,500 in operation by spring 2023,
compared to around 1,600 in operation at year end 2021-22.
ƽ Our first all-electric delivery office, which is in Bristol, has
reported a 37% reduction in maintenance costs and 73%
reduction in fuel costs (diesel versus electric), which is
estimated will reduce fleet emissions by c.29t CO2 per annum.
Including Bristol, 17 of our new and planned electric delivery
offices will be ‘all-electric’ by August 2022 as diesel vehicles are
removed from service. These 17 sites include Glasgow, Oxford,
Newport, Watford and Stevenage.

Working towards mass deployment of low- or zero-emission HGVs is
an essential part of Royal Mail’s plans to decarbonise its business.

Rail currently accounts for around 3-4% of Royal Mail’s distribution
network and the business is exploring ways to significantly
increase rail transportation and reduce its use of domestic flights.
The new Daventry-based Midlands Parcel Hub, which is due to open
in June 2023, has its own rail terminal, which will enable increasing
volumes of mail to be transported efficiently and sustainably.

Strategic Report

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Additional Information

Collaborating with strategic
partners to unlock innovation

We collaborate and partner with external organisations
that can help us to accelerate and deliver on our
sustainability ambitions. In the year Royal Mail joined
the Steering Committee of the UK Electric Fleet Coalition,
a group of more than 30 leading businesses advocating
a switch to electric vehicles. We have also joined the
EV Fleet Accelerator group, which aims to use electric
fleets as a catalyst to help accelerate the transition
to electric vehicles across the UK.

Responsible consumption
Royal Mail is committed to reducing waste and driving behaviours
to a circular economy approach and is targeting:

ƽ A 25% reduction in the volume of waste generated by 2030.
ƽ To undertake a complete review of packaging and single-

use resources by 2023.

Throughout the year, Royal Mail has been reviewing the packaging
it provides to its customers. Parcelforce will trial a plastic bag made
from 84% recycled content. The bag can be fully recycled and will
include guidance to help the recipient. This product significantly
reduces the volume of new plastic required in its manufacture.

In 2021-22, Royal Mail generated 40,046 tonnes of waste†, which
is virtually unchanged from the previous year.

Further information about our Royal Mail business’ waste and
water consumption is included in the Royal Mail ESG Report,
which is available at www.royalmailgroup.com/en/responsibility/
policies-and-reports.

Providing sustainable solutions
for customers and communities

To strengthen our competitive advantage and support our
customers’ ambitions to reduce their own carbon footprint,
Royal Mail aims to reduce the emissions associated with
parcel delivery to 50g CO2e per item (a reduction of 75% on
our current emissions per parcel of 205g CO2e). Our average
per parcel emissions is currently around half the reported
emissions of our key competitors.

During the year, the Royal Mail App was enhanced to include
an innovative feature that enables customers to see the
estimated CO2e emissions footprint associated with the
delivery of their parcel.

With 95% of GLS emissions coming from its transport fleet,
reduction of vehicle emissions is a key factor to achieving its
decarbonisation goals. Measures include fleet conversion,
reducing first and last miles emissions and converting depots.

Between 2019-21 GLS’ zero- and low-emission fleet has tripled in
size. Trials to add more e-vans, e-scooters and alternative-fuel
vehicles to the delivery network are continuing and, to facilitate
alternative delivery options, GLS is targeting to have at least one
depot with a minimum of six e-vans and adequate charging
infrastructure in each country where it operates.

GLS is also implementing a range of initiatives to reduce final-mile
emissions aligned to local requirements. For example, in Spain we
are using a new app that was launched in December 2021, through
which GLS customers are informed whether their delivery was
made via electric vehicle or e-bikes. Within two weeks of launching
the app, more than 80,000 deliveries were communicated to
consumers as zero final-mile emissions.

†

Included within PwC’s limited assurance scope. See page 45 for further details.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

ESG Review continued

Social

Delivering economic and social benefits

We positively impact society by connecting customers, countries and companies,
and aim to be an integral, valued and trusted part of every community that our service
reaches. Social issues are also important to our stakeholders, including our approach
to health, safety and wellbeing, engagement, diversity and inclusion.

Creating a safe and healthy
work environment

We want to create a safe and healthy working environment
for our people. Our goal is to ensure a workplace where everyone
is free from injury and enjoys good physical and mental health.

We recognise the impact of the pandemic on our people and have
provided ongoing and evolving support. Throughout 2021-22, we
kept our policies and COVID-19 risk controls under constant review
to ensure that we maintained compliance with government
guidance and minimised the risk to colleagues, particularly
during the peak period of December 2021.

Royal Mail
A strong health and safety culture is key to safeguarding our
people. Our Health and Safety policy outlines our commitment
to our people and is available at www.royalmailgroup.com/en/
responsibility/policies-and-reports. We implement the policy
through our integrated Safety, Health and Environment (SHE)
management system. This provides the framework for managing
risk, improving performance and maintaining a safe, healthy and
environmentally responsible workplace.

Empowering our managers to manage their health and safety
risks is also a focus. For example, in the year we launched a new
managerial upskilling programme within our delivery function in
which 155 of our delivery managers participated. The programme
included training on key safety topics such as risk management,
culture, inspections and accident investigations.

Royal Mail plc
Annual Report and Financial Statements 2021-22

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Financial Statements

Additional Information

Following a successful trial in November 2021, we have invested
in a new off-site risk assessment system that enables hazard
information to be displayed on our posties’ handheld scanners.
As we execute our strategy to transform Royal Mail, the
deployment of technology throughout the business will play
an increasingly important role.

Royal Mail currently operates three core health, safety and
wellbeing programmes:

ƽ ‘Feeling First Class’ encourages greater proactive ownership
around health issues. We now operate on-site flu clinics at
110 of our larger facilities.

ƽ ‘Stamp Out Aches and Pains’ helps our people improve their

awareness of musculoskeletal health.

ƽ ‘Because Healthy Minds Matter’ aims to reduce stigma and

normalise conversations around mental health. In October 2021,
we added a stress risk assessment tool to our ‘Stress toolkit’
and launched a second mental health e-learning product to help
managers better support their teams.

At the beginning of 2022, we launched our ‘Let’s Talk Menopause’
programme, which is designed to improve access to support, help
share experiences and normalise menopause conversations.
In March 2022 we also signed the Menopause Workplace pledge.
For further information on how we are supporting the pledge,
please see the Royal Mail ESG Report, which is available at
www.royalmailgroup.com/en/responsibility/policies-and-reports.

GLS
In March 2021, GLS launched an extensive Occupational Health
and Safety (OHS) Programme with 10 key projects covering
management, operational and office employees, as well as
transport partners and their drivers. Key to the success of the
programme is the need to create widespread awareness around
the importance of health and safety. To this end, GLS launched a
36-month awareness communication plan with the distribution
of posters and other materials to promote safe behaviours in the
workplace. In addition, training materials were created for all GLS
managers, as well as for transport partners and their drivers, the
latter with a specific focus on road safety.

Health and safety performance
We strive to continuously improve our health and safety
performance, and monitor and report our key safety metrics
regularly to the Board and the ESG Committee.

Our safety performance is set out in the table below. In 2021-22,
our Lost Time Accident Frequency Rate (LTAFR) increased by 38.5%
when compared with the previous year. Whilst absence associated
with accidents increased, the number of most severe incidents
decreased by 10% and our total accident frequency rate reduced by
7.2%. GLS’ employee LTAFR for the same period decreased to 2.28
compared with the previous year (2020-21: 2.44).

Royal Mail also monitors and reports its road traffic collisions
frequency rate (RTCFR) as a key safety performance metric. This
year, we reduced our RTCFR by 2.7% compared with 2020-21. In
the year, we ran 16 comprehensive road safety campaigns for our
drivers and developed the ‘Drive 360’ driver behaviour programme,
which focuses on the use of telemetry and driver coaching to
encourage safer and more fuel-efficient driving styles.

Group health and safety performance

Employees

Third parties2

Fatalities1

LTAFR

(per 100,000 hours worked)3

Sickness absence (%)4

2021-22

2020-21

2019-20

Royal Mail†

GLS†

Royal Mail

GLS

Royal Mail

GLS

0.54

7.98

2.28

4.98

0.39

8.48

2.44

4.79

0.38

5.87

–

2.46

–

The total number of fatalities due to accidents that have occurred as a result of Royal Mail or GLS undertakings. In GLS all fatal accidents are traffic accidents.

1.
2. Third parties include contractors, third-party drivers and members of the public.
3. Refers to direct employees only.
4. GLS publicly reported this data for the first time in 2020-21.
†

Included within PwC’s limited assurance scope. See page 45 for further details.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Our internal Trust Score has seen a significant increase from 62
to 68 in a year, with participation in the survey growing from 48%
to 69%. Key findings from the 2022 Trust Survey were:

ƽ 83% of colleagues said they felt safe at work.
ƽ 83% of colleagues feel trusted to do their job.
ƽ 50% of teams had a trust score of 70 or above.

Too few of our colleagues report that they’ve seen action taken
as a result of their feedback – acting on feedback is what matters
most and this is a key area of focus for us.

Our trade union partners play an active role in supporting great local
action plans and with their support we have we have developed
additional support and upskilling to ensure conversations happen
locally with greater visibility and involvement in making change
happen. This will be measured through our monthly Trust Check-in
approach that will re-commence in the summer.

Several GLS subsidiaries conduct employee surveys on a
regular basis. For example, in 2022, GLS Austria participated
in the employee engagement survey ‘Great Place to Work’, which
provided the positive feedback that GLS Austria is an attractive
employer. Following the survey, numerous workshops were
held with managers to discuss the survey results and respective
measures to be implemented. The survey also provided valuable
feedback on where there was potential for improvement. In spring
2021, GLS Denmark used its survey to better understand the impact
of the pandemic on work-life balance and job satisfaction. Overall,
it saw high scores in relation to the desire to work and wellbeing.
The survey found that many activities could be maintained and
conducted online via Microsoft Teams rather than postponing or
cancelling them.

Rewarding people fairly
We believe Royal Mail provides the best terms and conditions for
workers in our industry in the UK. Fair employment conditions
are the foundation of how we do business. We offer permanent
employees a competitive salary, paid holiday and a good pension.

In 2021-22, UK postmen and women on average earned 25% more
than the UK National Living Wage (NLW). All temporary workers
receive the NLW, with the majority receiving hourly pay above the
Real Living Wage.

Strategic Report

ESG Review continued

Social

We regret to report that three people tragically lost their lives
in accidents involving Royal Mail vehicles over the last year.
An employee died in a road traffic collision and two third parties
died in two other incidents. All accidents are thoroughly
investigated to determine root causes and identify the lessons
learnt. All investigations and findings are shared with relevant
Board members.

During the year a GLS employee tragically lost their life as a result
of an accident during a business trip. The total number of fatalities
related to activities of GLS’ partner companies fell from 24 to 18.
When excluding fatalities attributable to external third-party acts
or acts beyond our control, the number fell by more than 50%
compared with the preceding year, with nine fatalities in 2022
(2021: 19 fatalities). All fatal accidents in 2021-22, either related
to activities of partner companies or GLS itself, were roadside
accidents; as indeed have been all fatal accidents in recent years.
No fatal accidents have occurred on GLS premises.

As part of its OHS Programme (see above), GLS is working with its
partner companies to help prevent roadside accidents. Findings in
relation to accident root causes are also integrated into relevant
training materials.

This year Royal Mail’s level of sickness absence was 8.0%
compared to 8.5% in the prior year. While this slight reduction
was due to a lower level of COVID-related absences, very high
absence levels as a result of the pandemic continued through the
year, particularly in January 2022 due to the rise in Omicron cases.
In GLS, the sickness absence level increased from 4.79 to 4.98,
due to absences related to COVID-19.

Promoting a fair, inclusive and diverse workplace
We want to own ‘Trust at the Doorstep’ by being brilliant for
customers, having trusted relationships everywhere and by
growing our business. Our values – ‘Be Positive, Be Brilliant, Be
Part Of It’ – represent the way we do things at Royal Mail and help
share our engagement strategy. Culture and engagement are key
focus areas for the Board and are standing items on the agenda
for each ESG Committee.

The last 12 months has seen us continue to build on our agenda of
Trust. Owning trust at the doorstep is our mission and to achieve
this we must continue to build better relationships with our people.
We want to create an environment where:

ƽ More of our employees feel valued and respected.
ƽ Employees feel listened to and their feedback is actioned.
ƽ There are direct lines of communication between managers

and employees.

ƽ Processes are simpler and easier.
ƽ People have the tools they need to do their job effectively.
ƽ Employees take responsibility and are accountable for

their work.

ƽ Performance management is recognised and embraced

as a key lever for business success.

We measure our progress across these areas primarily through
our Trust Survey, which focuses on questions which build a picture
of trust and engagement, both locally and at a company level. The
survey is deployed through monthly pulse surveys and our annual
Big Trust survey. In 2022, over 97,000 colleagues took part in the
survey, representing 69% of our workforce.

Royal Mail plc
Annual Report and Financial Statements 2021-22

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Providing development opportunities
We aim to provide the tools, knowledge and resources for
people to have fulfilling careers at Royal Mail, and offer learning
and development opportunities to colleagues at all levels of
our organisation. In 2021-22, we invested £6 million in training,
equating to approximately 23,000 training days compared with
19,000 in 2020-21.

Royal Mail is on an ambitious transformation journey and to reflect
this we have rebranded our learning offer as ‘The Academy’. The
Academy will a promote a culture of learning, connection and
possibility, and will underpin our change programme. In particular,
it will develop the next generation of talent who will continue
to re-invent Royal Mail.

In 2021, we launched our new entry level Postal Apprenticeship
scheme. The programme is committed to increasing social mobility
and helping to provide opportunities to those who have been
impacted by the pandemic and the challenging and often difficult
circumstances that resulted. Further information about this
scheme and our new ‘Driver Career Path’ programme is included
in the Royal Mail ESG Report, which is available at
www.royalmailgroup.com/en/responsibility/policies-and-reports.

GLS also provides a range of learning and professional
development opportunities for its employees.

Working with our unions
In the UK we recognise two unions: the CWU and Unite/CMA.
Around 89% of our operational and administrative-grade
employees are members of the CWU and approximately 65% of our
managers are members of Unite/CMA. In the UK around 99% of
employees are covered by our agreements with these two unions.
We work closely with our unions with the aim of maintaining a
productive and positive relationship, and our agreements with them
are designed to support industrial stability. This year, the key focus
of our relationship with our unions has been to ensure colleague
safety while delivering customer services. The pandemic brought
major changes in customer demand, which had a big impact on
every one of our operating sites and required company, colleagues
and unions to respond.

At the same time, we have worked with the unions to secure
the financial position of the company and create the foundations
for future success. With Unite/CMA we negotiated and agreed the
Unite/ CMA Transformation Agreement which outlined our future
ways of working. We also consulted on a substantial restructure
of the management team and achieved a significant reduction
in numbers via voluntary redundancy schemes.

In 2022-23, we will continue negotiations with both Unite/CMA
and the CWU on a future pay deal.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

ESG Review continued

Social

Diversity, Equality and Inclusion (DEI)
We strive to create an inclusive, fair, respectful and accessible
working environment and continue to develop and evolve our DEI
strategy to achieve this.

DEI strategy, roadmap and ambitions
During the year, Royal Mail reviewed its approach to DEI. As part of
this review, we ran a series of ‘future focus’ workshops to listen to
the voices of colleagues at all levels. Their feedback and insights
are reflected in our refreshed/enhanced DEI ambition, strategy
and roadmap.

Royal Mail’s updated DEI strategy and roadmap directly supports
our business strategy. It aims to ensure that we have a workforce
that reflects the broad diversity of the customers and communities
we serve and that we offer an inclusive, fair and accessible
workplace where everyone can grow, develop and succeed. Key
areas of focus include the recruitment and retention of the best
diverse talent and DEI collaborations that benefit society more
broadly and the communities in which we operate.

The updated strategy includes the following strategic priorities:

ƽ Increase the diversity of leadership and talent across Royal Mail.
ƽ Transform our generational profile.
ƽ Partner with others to lead the way in social mobility.
ƽ Build an environment of inclusion, fairness and accessibility

for all.

ƽ Focus on creating vibrant and inclusive national networks open

to everyone.

Diversity profile
Our Group gender diversity profile is shown in the table below.

In our Royal Mail business, around 11% of our employees are from
an ethic minority background, which is broadly representative of
the UK population. Royal Mail is a signatory to Business in the
Community’s (BITC) Race at Work Charter, and actively participates
in BITC’s internal and external Mentoring Circles programme. This
programme offers our ethnic minority colleagues an opportunity
to be mentored by senior colleagues within our organisation
and across multiple industries.

Group gender diversity profile as at 27 March 2022

Royal Mail also complies with the Parker Review target for all
FTSE 100 boards to have at least one director from an ethnic
minority background by 2021 (see page 80).

The Board is responsible for defining the direction of our DEI
strategy and monitoring its implementation across our business.
The Royal Mail Executive Board oversees our programmes and
are responsible for driving culture change across the business.

Royal Mail 2025 diversity targets

To support the implementation of the updated DEI strategy
new diversity targets have been set see table below.

Female representation (all levels)1

Female representation (levels 1-6)

Ethnic minority (all levels)

Ethnic minority representation
(levels 1-6)

Youth representation
(frontline below level 6)

Position at
27 March
2022
(%)

Target
position
March 2025
(%)

19%†

28%

11%†

25%

33%

15%

11%

18%

†

Included within PwC’s limited assurance scope. See page 45 for further details.

Board1

Senior management2

Management

Administration

Operational

Total3, 4

Royal Mail

GLS

Female

Male

Female

4†

575†

1,430†

1,543†

6†

1,264†

4,877†

1,002†

24,987†

104,122†

28,539

111,271

492

2,741

3,616

6,888

Male

250

1,526

2,211

11,449

15,437

Total

Female

614

1,922

4,284

28,603

35,427

Male

1,514

6,403

3,213

115,571

126,708

4.
†

The Board as at 27 March 2022. Royal Mail Board numbers include both Royal Mail and Royal Mail Group employees. Total includes Board members not classified as employees,
the Chairman and Company Secretary. The GLS Board member refers to Martin Seidenberg as Group Board member.
For our ESG reporting, we define senior managers as persons graded in bands 1-9, 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 1-9. This definition of
senior management is used each year, ensuring alignment with our people management systems and consistent comparison on data year-on-year. GLS refers here to A and B level
employees and employees, which have a comparable degree of responsibility.
In total, 26 employees have no declared gender within the Royal Mail reporting system. These employees would add an additional 25 employees to total operations, and one additional
admin. The total headcount for Royal Mail is therefore 139,836 and overall headcount for the Group is 162,161.
Number excludes Pensions Trustees and Intersoft and eCourier.
Included within PwC’s limited assurance scope. See page 45 for further details.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Gender pay gap
We believe all our people should be rewarded fairly for their
work, regardless of gender. We are pleased to report that the
total average pay for male and female employees continues
to be broadly the same, with the pay gap (on a mean basis)
narrowing from the same period in 2020. Information on our
2021 Gender Pay Gap Report is included on page 123 and the full
report is available at www.royalmailgroup.com/en/responsibility/
our-people/investing-in-our-people/.

National employee networks operate across Royal Mail to galvanise
DEI activities across the business. Our One Royal Mail DEI Action
Group, which comprises senior leaders and representatives from
each network, meets quarterly to coordinate activities across all
networks. Information about our employee networks and their
activities during the year is included in the Royal Mail ESG Report,
which is available at www.royalmailgroup.com/en/responsibility/
policies-and-reports.

We remain committed to supporting disabled applicants
and colleagues at all stages of the employee cycle. We provide
training, career development and promotion opportunities, while
our operations managers complete Disability and Reasonable
Adjustments training to ensure that they are confident and effective
in supporting colleagues with disabilities. We provide support and
training for colleagues with existing disabilities and for those who
have become disabled during their employment. Royal Mail is
proud to be part of the UK’s Disability Confident scheme and
achieve Disability Confident Employer Status.

GLS is currently in the process of developing its own DEI
Programme to support its ambition to provide all employees
with an equal opportunity to succeed. The programme will focus
on promoting gender equality and ensuring an inclusive and
welcoming working environment where there is equal treatment
and development opportunities for all employees, including those
with disabilities and caring responsibilities.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Celebrating the heroes
of the pandemic

To celebrate the ‘heroes of the pandemic’, Royal Mail
launched a competition for children across the UK to design
a stamp. The competition received 606,049 entries and
secured a Guinness World Records title for the largest
postage stamp design competition. Designs covered a wide
range of heroes, including NHS workers, parents, carers,
refuse collectors, supermarket workers, public transport
staff, and postmen and postwomen. The final eight winning
designs, which were selected by His Royal Highness
The Prince of Wales, appeared on a new set of stamps
that were issued earlier this year.

Strategic Report

ESG Review continued

Social

Supporting our communities

Our social and economic impact
Royal Mail seeks to be an integral, valued and trusted
part of every community in which we operate.

In 2021-22, Royal Mail contributed £3.5 million to good causes
and charitable schemes. This included match giving for colleague
fundraising and the cost of our Articles for the Blind service.
In addition, our colleagues raised £2.1 million for charity.

Earlier this year, in recognition of the trust that was built in its
response to the challenge of the pandemic and the steps taken
to keep its business safe, Royal Mail won the Resilient Workforce
award and the Business Continuity award at the CIR Annual
Business Awards.

Community investment
We build on the economic and social impacts of our operations
by investing in strategic partnerships and finding ways to use
our heritage and business assets to contribute to society. Our
community investment strategy is structured into three key areas:

ƽ Leveraging our national scale: In response to reported
increases in domestic abuse during the pandemic, we
launched Online Safe Spaces (OSS) with the charity Hestia.
The service continues to provide support, advice and contact
numbers for those experiencing, or at risk of, domestic abuse.
Since launch, we estimate 1 million users have accessed the
service. During the year we also supported the launch of
Hestia’s ‘Fresh Start’ initiative to support women and children
staying at London refuges in gaining financial independence
and the security to flee domestic abuse. As part of this
partnership, Royal Mail offers free ‘in confidence’ redirections
to their new accommodation.

ƽ Using our local presence: As our people are present in every
community across the UK, we are uniquely placed to support
the search for missing people. Since 2014, we have posted alerts
from the charity Missing People to our postmen and women
via their handheld scanners. This year we supported Missing
People’s Home for Christmas Campaign, which included a
12-hour social media takeover to raise awareness around
the issue of missing people.

Our social and economic impacts on communities

7thlargest contribution of any UK

company to the UK economy1

1 in 175

people employed in the UK
by Royal Mail1

£11.8bn

of gross value added by Royal Mail
(direct and indirect contributions)1

£3.2bn

contributed through procurement
of goods and services1

73,000

jobs indirectly supported by
Royal Mail in the wider economy1

£3.5mcontributed to good causes

and charitable schemes

1. Cebr research, conducted by Royal Mail in May 2022, comprising direct and indirect contributions.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

ƽ Unlocking potential through education: Royal Mail

supports World Book Day and the National Literacy Trust’s
Vision for Literacy pledge, which aims to close the national
literacy gap and boost social mobility. A key activity in this
programme was to working closely with The Postal Museum
and Puffin Books to roll out The Postal Museum’s Jolly Postman
virtual learning sessions to schools across the country for free.

GLS community support
GLS supports numerous charitable projects by organising both
regional and nationwide initiatives. These include free parcel
shipping for aid organisations and the sponsorship of foundations
for people with developmental or physical disabilities. In addition,
the business makes financial contributions to support numerous
local charitable projects including kindergartens and hospitals.

The pandemic has intensified existing social and economic
challenges and created many new ones. We have played an
important role in the recovery of local communities and economies,
particularly by supporting the health of those affected by the virus.
Further information about our work in relation to the delivery and
collection of test kits, and the delivery of vaccination appointment
letters and prescriptions is included on page 7.

Royal Mail has supported the Disasters Emergency Committee
(DEC) with a dedicated PO Box for over 30 years, providing the
UK public with a way to respond to national appeals for overseas
disasters. In addition to the ongoing Coronavirus and Afghanistan
Crisis appeals, we launched our support for the DEC’s Ukraine
Crisis Appeal. As of March 2022, £374 million has been donated to
the three DEC appeals with an approximate average of 6% of UK
public donations made via the Royal Mail PO Box.

In response to the war in Ukraine, both Royal Mail and GLS have
introduced specific programmes and fundraising measures.
Royal Mail launched an internal fundraiser for the British Red
Cross, matching all employee donations. To further enhance our
support, Royal Mail has been working closely with the Ukrainian
Embassy in relation to the provision of logistics support. We have
supported vehicles travelling to Poland as part of the Ukrainian
Embassy’s aid effort and this activity is continuing. Across GLS,
a number of countries including, GLS Germany, Finland and Italy,
have donated to the Red Cross to purchase the goods needed.
GLS Slovenia, Germany and Romania have also provided transit
of goods to the border.

Following a volcanic eruption in La Palma, GLS Spain supported
several NGOs, city councils, and other associations in transporting
key items such as clothes, blankets and toys to the affected people
in La Palma. In addition, in collaboration with a school in Northern
Spain, children sent books to create a library for the La Palma
pupils whose school was swept away by the lava flow.

Protecting our customers
As the Universal Service Provider and a responsible business,
we have an obligation to support our customers and ensure that
our products and services are available and accessible to all.
During the year we introduced several new initiatives and cost
changes, including a reduction in the cost of our redirection service
for customers on Universal Credit. More information can be found
in the Royal Mail ESG Report at www.royalmailgroup.com/en/
responsibility/policies-and-reports.

Protecting human rights
We are committed to playing our part to uphold and protect
human rights in our businesses and across our supply chain
globally. We obey the laws, rules and regulations of every
country in which we operate and implement the UN Guiding
Principles on Business and Human Rights, the UN Declaration
of Human Rights and the International Labour Organization
Fundamental Conventions within our businesses and our
supply chain. These cover freedom of association, the abolition
of forced labour, equality and the elimination of child labour.

During the year, Royal Mail worked in conjunction with the UK
charity Unseen, which is working to stamp out modern slavery,
to launch a series of awareness materials and training
programmes. For the first time, a bespoke postmark was applied
to all UK stamped mail to support and raise awareness of Anti-
Slavery Day. In addition, updated modern slavery content has been
incorporated in Royal Mail’s induction and compliance training,
which is mandatory for all managers. GLS provides online supply
chain compliance training, which also covers modern slavery.
This training is mandatory for all personnel with purchasing
authority or depot supervisory function. In addition, modern
slavery issues are highlighted during face-to-face training with
relevant GLS managers.

We will continue to focus on assessing supply chain risks
in relation to modern slavery and human trafficking, and are
exploring options for certification of third-party suppliers
for correct employment standards and signposting them
to modern day slavery training materials.

Our Modern Slavery Act Statement is available at
www.royalmailgroup.com.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

ESG Review continued

Governance

Operating responsibly

Our stakeholders trust us to deliver for them. Maintaining this
trust by operating with integrity is essential if we are to succeed
and generate long-term value.

Management and oversight of
our ESG-related activities

We implement Group-wide policies and frameworks and
business specific strategies, policies and processes that are
tailored to the needs of our Royal Mail and GLS businesses and
their respective stakeholders. Information about key policies,
including the Group’s ESG Policy Statement, is set out on the
next page and their implementation is described throughout this
ESG Review. The Group’s ESG Policy Statement is available at
www.royalmailgroup.com/en/responsibility/policies-and-reports.

The ESG Committee provides Board level oversight of the
implementation of our ESG Principles (see page 31) across
the Group. Information about the ESG Committee’s activities
during 2021-22 is included on pages 107 to 109.

The Royal Mail and GLS Executive Boards, supported by dedicated
ESG functions, are responsible for ensuring effective execution
of their respective ESG strategy and alignment of targets,
policies and procedures with the Group’s ESG Principles
and ESG Policy Statement.

We assess the risks and opportunities arising from social and
environmental issues relevant to the Group at least once a year
and use our risk management framework to determine their
criticality. Information about our approach to risk management
is included on pages 52 to 55. As part of the Group’s remuneration
arrangements, relevant ESG performance metrics are reviewed
and incorporated into the Group’s incentive plans. Further
information is available on pages 112 to 116 and page 136.

Our ethical standards
We aim to foster a culture based on honesty, integrity, openness
and effective debate. The overarching business policies that set
out our approach to responsible business conduct, which includes
our supply chain, are outlined on the next page.

Royal Mail employees have access to our policies and guidance via
the intranet or our communications channel, MyRoyalMail. Royal
Mail operates a comprehensive ethics and compliance training
programme. All employees are required to undertake training
relevant to their role and our managers are required to complete
compliance refresher training annually which includes an
attestation of our Business Standards. The completion rate for this
annual training for FY2021-2022 was 99.8%. During the year, Royal
Mail provided additional training for colleagues with procurement
or supply chain management responsibilities, which covered
modern slavery, anti-bribery, and the identification and mitigation

Royal Mail plc
Annual Report and Financial Statements 2021-22

Our performance

The Group is independently rated as a leading
responsible business by numerous international
benchmarks for sustainability, including:

Included in both World and Europe Indices
for the transportation industry.

Ranked in the 89th percentile of companies.
Constituent of both FTSE4Good UK and Europe.

Rated as AA.

Scored B rating, ahead of industry
average of C.

Strategic Report

Corporate Governance

Financial Statements

Additional Information

of tax risks relating to suppliers. All colleagues are required to
complete annual mandatory compliance refresher training, which
includes an attestation of our business standards. Colleagues,
contractors, agency and casual workers, suppliers and business
partners are encouraged to report any suspected policy breaches
through our confidential Speak Up process.

GLS employees with computer access are assigned relevant policies
and guidance through an online system. Employees without computer
access can access print versions of the policies in the depot locations.
GLS’ compliance training approach consists of online training for
all white-collar employees, including employees with purchasing
or depot supervisory functions. These comprise modern slavery
awareness training and appropriate levels of anti-corruption training.

GLS operates a dedicated Whistleblowing Helpline that is
available for reporting and investigating allegations of criminal
acts or similar serious offences. GLS encourages employees,
business partners and third parties to report, in confidence,
any concerns they have.

Royal Mail has set a target to have 50 of its high-risk suppliers
and subcontractors reporting self-assessments or third-party
sustainability audits via Sedex by end of 2022-23. Currently, 40
suppliers are active on the system and Royal Mail is working with
Sedex to expand coverage, including launching an on-boarding
support programme to identify and sign-up more suppliers.

Our approach to responsible procurement also covers the timely
payment of our suppliers. Our latest Payment Practices report
(which was published in October 2021) showed the percentage of
invoices paid in 61 days or more fell to 2%, compared to the same
period in the prior year when 8% were paid in 61 days or more.

Reporting standards
We are committed to being as open and transparent as possible
about our business. Our ESG reporting meets:

ƽ The disclosure requirement Global Reporting Initiative (GRI)

Standards: Comprehensive option.

ƽ The requirements of the EU’s Non-Financial Reporting Directive.
ƽ Our obligations as a signatory to the United Nations Global Compact.

We engage PricewaterhouseCoopers LLP (PwC) to provide
limited assurance over certain non-financial performance
indicators and related assertions. Their assurance covers
environmental indicators and metrics used to monitor culture,
such as health and safety, sickness absence and diversity.
The assured metrics are included within this report and
are marked ‘†’. Their limited assurance engagement was
performed in accordance with the ISAE 3000 (Revised)
and ISAE 3410 standards and further information is available at
www.royalmailgroup.com/en/responsibility/policiesand-reports.

Policy

Scope

Group ESG Policy
Statement

Royal Mail Business
Standards

Sets out our ESG strategy, governance and commitments, including our support for the United
Nations (UN) Global Compact and Universal Declaration of Human Rights.

Outlines the behaviours Royal Mail expects from our employees, and others working on our behalf.
The standards are about doing the right thing, following the law, acting honourably and treating
others with respect. They help our people to do the best job for our customers, keep our people
safe and protect our reputation.

GLS Code of Business
Standards (the GLS Code)

Outlines the values and behaviours GLS expects from its employees and business partners.
It is available in local languages for all GLS employees and business partners in the 20 countries
where GLS has wholly owned subsidiaries.

Royal Mail Policy for the
Prevention of Bribery,
Corruption and the
Facilitation of Tax Evasion

GLS Anti-bribery Policy

Royal Mail Responsible
Procurement Code
(the Procurement Code)

Sets out our approach to minimising the risk of bribery and corruption taking place in any part of our
business. We have a strict zero-tolerance policy towards bribery and corruption, and our anti-bribery
and corruption policies apply to our employees and anyone performing services on our behalf.

Sets out our approach to minimising the risk of bribery and corruption taking place in any part of our
business. We have a strict zero-tolerance policy towards bribery and corruption. Our Anti-bribery
Policy applies worldwide, wherever GLS employees do business.

Outlines the environmental, social and ethical commitments and behaviours we expect from our
suppliers and aims to ensure that we only engage suppliers that meet our standards. This code, which
is based on the UN Global Compact Principles, requires our suppliers to adhere to the UN Declaration
of Human Rights, which is part of our commitment to implementing the UN Guiding Principles on
Business and Human Rights. We require our suppliers to communicate the Procurement Code in
full to all relevant employees within their organisations. The Procurement Code is available at
www.royalmailgroup.com/en/responsibility/policies-and-reports.

GLS Supplier
Code of Conduct

Sets out the standards GLS expects of its suppliers and is also based on the UN Global
Compact Principles framework. A copy is available at https://gls-group.eu/GROUP/en/about-us/
our-codes-of-conduct.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

TCFD Statement

We recognise climate change as a key global threat, and one that poses
particular risks and opportunities for our business. Identifying these risks
and opportunities enables us to enhance the resilience of the business and
take advantage of the opportunities it may offer.

We are committed to implementing the recommendations of the
Task Force on Climate-related Financial Disclosures (TCFD) and have
started working to develop our disclosures and embed processes
across the Group. Our TCFD Statement of Compliance is set out below
and in the adjacent column.

We have further work to do to develop our processes and enhance
our reporting in relation to TCFD. Specific recommendations not
fully implemented are outlined below, together with information
about how we plan to develop these areas in the future based on
timelines that will be determined and approved by the Board.

Governance of climate-related risks and opportunities
The Board is responsible for overseeing the management of our
climate-related risks and opportunities. It has delegated specific
responsibilities to its Committees and other relevant functions
across the Group, as summarised on the adjacent page.

Climate-related risk identification and analysis is a process in which
risk profiles are maintained by relevant members of the Royal Mail
and GLS senior management. The Audit and Risk Committee (ARC)
provides oversight of Group principal risks and progress against
mitigation strategies. The ARC is supported by the Royal Mail Risk
Management Committee and GLS Audit and Risk Committee. We
are also establishing a Group-wide TCFD working group which will
comprise representatives from Investor Relations, Finance, Risk and
ESG functions.

A standard risk scoring methodology, based on probability and
potential impact, is used to rank 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 more information on how the Royal Mail and GLS businesses
identify, manage and monitor risks (including climate-related risks)
please see pages 52 to 61.

ƽ Governance and risks: we describe the Board’s oversight of

climate-related matters in so far as they pertain to the broader
ESG landscape and strategy. Processes to ensure Board and
senior management oversight of specific climate-related risks
and opportunities are to be developed, together with
mechanisms to ensure management is informed about these
matters. The maintenance of risk profiles by relevant members
of the Royal Mail and GLS senior management to take account of
climate-related issues will be improved. In addition our future
disclosures will provide more detailed information about how
climate-related risks are managed and integrated into the
Group’s risk management framework.

ƽ Climate risk metrics: we have yet to fully define and implement
the metrics we will use to monitor and manage the identified
climate-related risks.

ƽ Financial impacts: we have not yet fully quantified the financial

impacts that climate-related risks and opportunities could have
on the Group over the short, medium and long term TCFD
horizons. We recognise the need to present a holistic picture of
the climate-related interdependencies that could affect our ability
to create value over time, and how these are integrated into our
financial planning process. In this context, carbon pricing will be
considered as part of our future financial planning.

TCFD Statement of Compliance
Set out below are our disclosures in accordance with Listing Rule 9.8.6R(8). We believe the recommendations listed below require further
development to fully meet TCFD guidelines. The page numbers refer to where information can be found on the progress that has been
made to date in each area.

Recommended disclosures

Board’s oversight of climate-related risks and opportunities.

Management’s role in assessing and managing climate-related risks and opportunities.

Climate-related risks and opportunities identified over the short, medium, and long term.

Impact of climate-related risks and opportunities on businesses, strategy, and financial planning.

Resilience of strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario.

Processes for identifying and assessing climate-related risks.

Processes for managing climate-related risks.

Page numbers

46 and 47

50 and 51

How processes for identifying, assessing, and managing climate-related risks are integrated into overall risk management.

46 and 47

Metrics used to assess climate-related risks and opportunities in line with its strategy and risk management process.

Scope 1, Scope 2, and, if appropriate, Scope 3 GHG emissions, and the related risks.

Targets used to manage climate-related risks and opportunities and performance against targets.

–

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Climate-related governance

The Board

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Role

Relevant experience

Accountable for and oversees management of climate-
related opportunities, risks and performance.

In early 2021, the Board received training on ESG-related topics.
Also see Board member biographies on pages 82 and 83.

Key focus during 2021-22

The Board has continued to increase its focus on climate-
related matters as the ESG landscape evolves. This has
included discussions on increased regulatory requirements,
and changing investor, customer and consumer expectations.
ESG also forms part of wider Board discussions on strategy
and investor relations, and the Board receives ESG
Committee updates from the ESG Committee Chair on any
material issues that are discussed.

See pages 84 to 90

Board activities related to climate change included:

ƽ Approved new Group ESG Principles, which include
our role in the transition to a low-carbon future.
ƽ Reviewed and approved the environmental and

sustainability principal risk.

ƽ Reviewed and approved updated environment

strategies for Royal Mail and GLS.

ƽ Reviewed environmental sustainability metrics and

performance targets.

ƽ Reviewed and approved climate and environmental-

related disclosures of the Annual Report.

ƽ Reviewed quarterly update from the ESG Committee in

relation to progress with development of climate-related
strategy and key activities.

Specific responsibilities are delegated to the Board’s Committees

Audit and Risk Committee

ESG Committee

Remuneration Committee

Oversees the Group’s risk management
systems and reviews the policies and
processes for identifying and assessing
the risks to which the Group is exposed,
which include environmental and
sustainability principal risk, and the
management of those risks.

Oversees the Group’s ESG agenda, with
a focus on the Group’s environment
strategies and performance. During
the year the Committee reviewed the
GLS and Royal Mail strategies, and
recommended their approval to the Board.

Determines how ESG metrics,
including environmental and
climate, will be considered within
the remuneration policy and how
they will be taken into consideration
in determining the final incentive
pay decisions.

See pages 99]to 106

See pages 107 to 109]

See pages 110 to 141]

Executive leadership and their functions oversee day-to-day management

Royal Mail Executive Board
GLS Executive Board

Royal Mail
Risk Management Committee

GLS
Audit and Risk Committee

Responsible for day-to-day assessment
and management of climate-related risks
and opportunities, and the delivery of
each business’ environmental strategies.

Identifies principal risks, including
environmental and sustainability,
and oversees plans to mitigate.

We are also establishing a TCFD working group to ensure discussion and interpretation of climate-related risks and
opportunities and, appropriate business planning.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Royal Mail

Target – Net zero by 2040
Scopes 1, 2 and 3 at all UK operations (Royal Mail
and Parcelforce), aligned to 1.5°C and the latest
climate science, and science-based target standards.

GLS

Target – by 2045
Ambition to reduce Scope 1, 2 and 3 emissions to zero
by 2045 across European operations.

Strategic Report

TCFD Statement continued

Climate transition strategies
We are committed to providing sustainable solutions for our
customers and communities and managing the transition to a
low-carbon economy through science-based decarbonisation
strategies. During the year, Royal Mail and GLS set new ambitions
to decarbonise their respective businesses and developed bespoke
environmental strategies. These strategies include increasing the
use of low and zero-emission transport, reducing emissions across
operations overall, and reducing energy usage at buildings. For
more information about our environmental strategies, please see
pages 32 to 35.

Identification of main climate risks and opportunities
The Group has applied the following three-step approach to identify
and analyse the impact of climate-related risks in different scenarios
to facilitate medium- to long-term business planning:

1) Based on the defined climate scenarios, hold workshop

discussions with representatives from across the business to
discuss the material climate risks in key areas of our operations,
supply chain and markets.

2) Map the impact pathways of the material climate risks identified.

3) Assess the scale of the climate risks and opportunities

for the business.

Time horizons and climate risk scenarios
We determine our climate risks and opportunities based on
our operations, locations and legal obligations. In 2021-22 we
worked with external specialists to better understand the long-
term impacts of climate change on our business. This included
a qualitative climate change risk and opportunity assessment
to understand the different climate issues that could impact the
business in the future under different scenarios. These scenarios
derive from the Network for Greening the Financial System
(NGFS), a peer-reviewed and publicly available third-party
source, and are summarised below.

We reviewed material climate risks against the following three
time horizons in which risks could have an impact:

ƽ Short term: < 2030, with a focus on transition risk and

significant policy frameworks.

ƽ Medium term: between 2030 and 2040, with a focus on

transition risks and policy frameworks aligned to meet climate
goals and some physical impacts.

ƽ Long term: > 2040, largely focused on physical risks to take into

account climate science projections.

In line with TCFD recommendations, we also conducted a review
against the climate risk scenarios detailed in the graphic on the
following page.

Royal Mail plc
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Additional Information

Description of time horizons and climate-risk scenarios

Rapid scenario (1.5 degrees):
rapid transition.
Transition risks are maximised and physical
risks, although present, are relatively low.

Policy frameworks begin to increase and take effect to facilitate
rapid decarbonisation. Key considerations for Royal Mail and
GLS are to ensure that environment and business strategies are
aligned with, or are ahead of the policy requirements. Decarbonisation
plans of both businesses will require regular review to ensure they
remain at pace with climate science and are aligned to requirements
across all areas of operation. In this scenario, physical risks should
be limited.

Orderly (<2 degrees): long-term orderly
transition to low-carbon economy.
Climate policy gradually becomes more
stringent and physical risks are present
but relatively low, while transition risks
are moderate to high.

The implementation of policy is slower than in the rapid scenario,
which reduces the impact on the business of any sudden policy
changes. This scenario would need regular reviews of decarbonisation
plans and business strategy to ensure that plans remain aligned
across all areas of operation. In this scenario, physical risks
are present, but are considered relatively low, and should be
integrated into business continuity and business risk mitigation
and adaptation planning.

Disorderly (2-3 degrees): sudden disorderly
transition to low-carbon economy.
Climate policies are not introduced until
2030. Emissions reductions are sharper
than in an orderly scenario to limit warming
to the same target. Physical risks rise and
transition risks are maximised.

A sudden increase in climate-related policy would be introduced
around 2030 following years of largely ineffective policies.
Physical risks are higher within this scenario requiring more
significant planning for business continuity to avoid or mitigate
disruption to operations.

No transition (>4 degrees): failed
transition to low-carbon economy.
Only current policies implemented, and
national targets are not met. Emissions
continue to grow, leading to severe physical
risks but with limited transition risks.

The business would be required to comply with current
policy only from a regulatory perspective. However, the
physical impacts of climate change would be significant,
causing disruption to operations and the value chain. In this
scenario, transition risks should be integrated into our business
continuity and business risk mitigation and adaptation planning.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

TCFD Statement continued

Main climate risks and opportunities
The Group has done an initial assessment of the climate-related
risks and opportunities with the highest potential to impact the
business under the range of time horizons and scenarios outlined
above. It has yet to fully assess what the impact of the risks
identified will be on all areas of the business, such as products,
services, supply chain. To date, we have concluded that:

Transition opportunities in our markets
Climate change offers the Group significant commercial
opportunities. As consumer demand for more ethical business
practices and products continues to grow, the Group can create
more sustainable delivery mechanisms and ‘greener’ products and
services that can help it to expand market share. Furthermore, the
Group can achieve important savings through renewable energy.

Transition opportunities with investors and via partnerships
Climate change offers the Group significant opportunities in
financial markets and by collaborating with key external partners.
As investor expectations continue to shift in favour of businesses
that take decisive action to tackle the threat of climate change, the
Group has the opportunity to differentiate by taking a leadership
role with regard to ESG more broadly. At the same time, the
transition of the Group’s fleet to low- and zero-emission vehicles
such as EVs will offer new opportunities for partnerships with
a wide range of companies including competitors and energy
providers to create efficiencies and support the development
of charging infrastructure.

ƽ The relative materiality of climate-related risks and opportunities

varies across the Group’s business areas.

ƽ Extreme weather events are a material physical risk, based on

internal stakeholder engagement but less material than
transition risks.

ƽ A ban on the sale of petrol and diesel vehicles is the most material

transition risk, based on internal stakeholder engagement.
ƽ In each case, the Group’s products and services will have to

respond to shifts in customer demand.

Physical risks
These are defined as risks which arise from the physical effects
of climate change, such as an increase in extreme weather
events. These are already having an impact on the Group, but
are considered to be less materially significant to the Group
than transition risks. Even so, the physical risks below would
have a negative impact on the Group’s delivery of service.

Transition risks
These are business-related risks that follow societal and economic
shifts toward a low-carbon future. They are considered to be very
material to the Group due to the reliance of its business model on
its fleet for operations, where the majority of the Group’s CO2e
emissions come from. The transition risks detailed in the adjacent
column could have a negative impact on the Group’s business model.

Group priority physical risks

Business element impacted

Risk rating

Time horizon

Extreme weather events (e.g. storms, flooding) impacting operations.

Operations, Market

High

Medium
to Long

Impacts of changing climate on employee wellbeing.

Operations

Damage to facilities/equipment at sites/data centres reducing connectivity. Operations

Medium Medium
to Long

Medium Long

Chronic changes in physical environment. Increased frequency of
extreme weather events including chronic sea level rise and changing
weather patterns causing supply chain disruption.

Supply chain, Operations

High

Medium

Group priority transition risks

Business element impacted

Risk rating

Time horizon

Introduction of a carbon tax increasing the cost of running the Group’s
large commercial vehicle fleet and property.

Ban on the sale of petrol and diesel vehicles requiring alternative
fuel vehicles.

Operations, Market

Medium Short

Operations, Supply chain

High

Reputational damage as peers transition more successfully/swiftly.

Operations, Market

Growing costs due to increased demand for electricity, especially
from renewable sources.

Operations, Market

High

Royal Mail plc
Annual Report and Financial Statements 2021-22

Short to
Medium

Medium

Short to
Medium

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Group priority transition risks

Enhanced investment in energy efficiency through a
greater proportion of renewable energy sourced for the Group.

Increasing customer/consumer demand for clean
delivery mechanisms and new products/services.

Business element impacted

Risk rating

Time horizon

Operations, Supply chain

Medium Medium

Operations, Market

High

Short to
Medium

Financial impacts
Our Royal Mail business has begun reviewing the estimated
potential financial implications associated with two transition
risks, which are likely to impact the business within the next five
years (GLS has not yet performed a quantitative analysis of its
transition risks).

1. Ban on the sale of petrol and diesel vehicles requiring alternative
fuel vehicles. Such a ban would have wide ranging impact on our
transition to EVs by 2030. This year we have focused on the impact
of taxation and duty changes, including a distance-based road
pricing system, and potentially increased taxation for fossil fuel
and electricity.

While both transition risks are not individually material to the
business, suitable mitigations can be put in place to reduce the
financial risk to our business over time. These are:

2. This is the estimated increased cost impact of growing demand
for electricity, especially from renewable sources, as we continue
to automate and electrify our operations towards 2030, but does
not reflect potential savings from self-generating renewables.

Transition risk

Likelihood and timeframe

Financial impact estimate

1. The transition to electric vehicles
changes the road, fuel and vehicle
taxation system.

Likelihood:
Likely

Risk timeframe:
By 2030

Increase in operating cost:
Range £0-20M

Impact:
Not material

2. Growing costs due to increased
demand for electricity, especially
from renewable sources.

Likelihood:
Likely

Risk timeframe:
By 2030

Increase in operating cost:
£20-50M

Impact:
Not material

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Risk Management

Through the implementation of risk management processes that
promote a sound control environment, we seek to identify, assess
and manage risks that could impact our business.

Risk management framework
Risk management processes and controls are utilised across
the Group. The Board has overall accountability for ensuring
that we operate sound risk management procedures and, on at
least an annual basis, the Board assesses their effectiveness
(see page 87).

The Board has delegated responsibility for reviewing the
effectiveness of the Group’s risk management and internal control
systems to the Audit and Risk Committee (the ARC). The ARC seeks
to ensure that the Group operates prudent and effective controls
that allow significant risks to be identified, assessed and managed.
The ARC, in turn, is supported by the Risk Management (RM)

Committee, the Finance Committee and the GLS Audit and Risk
Committee in fulfilling its duties.

Risk management policies and procedures are utilised across the
Group and we provide training and guidance to relevant personnel.
Management teams across Royal Mail and GLS are responsible for
the management of specific operational risks and developing
actions to mitigate their impact.

Our risk management processes and controls are designed to
manage rather than eliminate risk. Taking on manageable risks
is an inherent part of the Group’s commercial activities and the
framework we operate can only provide reasonable and not
absolute assurance against misstatement or loss.

Our risk management framework

Top down

Principal
risk management

Board

ARC

ƽ Review external environment.
ƽ Set risk appetite.
ƽ Determine strategic response.

ƽ Assess effectiveness of risk management
process and internal control systems.

ƽ Monitor principal risks.
ƽ Report on principal risks and uncertainties.

Risk Management Committee

GLS Audit and Risk Committee

Finance Committee

ƽ Identify principal risks.
ƽ Oversee mitigation plans.
ƽ Monitor progress towards risk appetite.

ƽ Consider completeness of identified risks

and adequacy of mitigation activity.
ƽ Consider aggregate of risks across

the business.

Royal Mail & GLS Executive Boards

Royal Mail Business Unit Leadership

GLS Regional Management

ƽ Execution and delivery of mitigating actions.
ƽ Report on progress towards risk appetite.

ƽ Report current and emerging risks.
ƽ Identify, evaluate and mitigate risks.
ƽ Maintain risk profiles.

Bottom up

Business unit/Regional*
risk management

Third line

ƽ Independent assurance
by internal and external
providers over adequacy
and effectiveness of
mitigation provided
to the Board.

Second line

ƽ Compliance monitoring
and oversight of first
line through regular
reviews, assessments
and dedicated
oversight functions.

First line

ƽ Primary controls

to manage risks in
day-to-day operations.

* During the year GLS commenced the implementation of regional risk management which will complete during the 2022-23 financial year.

Royal Mail plc
Annual Report and Financial Statements 2021-22

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Additional Information

Risk appetite
The Board sets the Group’s risk appetite. This determines the
target level of risk we are prepared to take to achieve our strategic
objectives over the medium to long term and the extent of controls
we need to operate in order to mitigate such risks.

The ARC monitors the Group’s risk management activity within
the risk appetite throughout the year. Focused discussions
on progress towards target risk levels take place at the RM
Committee and ARC meetings at least twice a year.

Our Royal Mail and GLS management teams are accountable
for identifying and managing risks and for delivering the
Group’s objectives in accordance with the Group’s risk appetite.

To achieve our strategic objectives, it is necessary to take on,
or accept, certain risks. In doing so, we seek to ensure that:

ƽ We clearly understand our significant risks, their likelihood

and potential impact.

ƽ The level of risk we take, or accept, is balanced against the

potential benefits.

Risk appetite

Risk category

Risk appetite level and link to principal risks1
(see pages 56 to 61)

Strategic/
External

Moderate to high

The Group takes well-informed and
well-managed risks to achieve strategic
objectives if potential benefits outweigh
risks, particularly where the external risks
are less in Management’s direct control.

Our risk appetite ranges across low, low to moderate and moderate
to high tolerance levels and is broadly mapped against three risk
categories as illustrated in the adjacent table.

Operational/
Financial

Low to moderate

The Group works to achieve strategic
objectives through accepting, managing
and/or reducing risk to a low to moderate
level, as appropriate.

Low

The business seeks to reduce the risk to
a low level as far as practically possible.

Legal,
compliance
and regulatory

The icons on this page and the following page are colour coded to illustrate the risks that relate to Royal Mail (red) and those that relate to GLS (blue).

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Risk Management continued

Risk heatmap

t
c
a
p
m

High

Moderate to high

Principal risks (see pages 56 to 61)

Failure to reduce our cost base

Economic and political environment

Major breach of information security, data
protection regulation and/or cyber-attack
Customer expectations and our responsiveness
to market changes

Industrial action

Talent – workforce for the future

Our UK regulatory framework

Environmental and sustainability

Actual or suspected breaches of material law
and/or regulation

Business continuity and operational resilience

Health, safety and wellbeing

Low

Low to moderate

Likelihood

Our principal and emerging risks
Our principal and emerging risks are assessed by the Board on a
bi-annual basis and monitored by the ARC across the year. The
Board confirms that robust risk assessments were completed
during the financial year.

Our principal risks are detailed on pages 56 to 61. They are ordered
on a net risk basis which takes into account the estimated magnitude
of potential impact and probability of occurrence. Our principal
risks are also reflected in the key assumptions that form part of
our viability assessment process (see pages 62 and 63).

The graphic above illustrates our assessment of the likelihood of
our principal risks occurring and their estimated impact, and takes
into account the mitigating actions in place to manage each risk.

Net risks can move depending on circumstances at any time.
Movements compared to prior year have been highlighted on
pages 56 to 61.

War in Ukraine
Following the commencement of the war in Ukraine and the
imposition of sanctions on Russia, we have assessed the potential
impact on the Group. We do not rely on goods or services procured
from or sold into impacted regions and we do not own any business
assets in those regions. While there is no direct impact, we have
identified a number of areas that are indirectly affected. A prolonged
war could result an extended period of higher inflation and energy
costs, reduced consumer spending and an increased threat of
cyber-attacks. We have reflected this indirect impact in the following
existing principal risks which are set out on pages 56 and 57:

ƽ Failure to reduce our cost base – inflationary cost pressures.
ƽ Economic and political environment – reduction in consumer

confidence due to increased cost of living and lower GDP growth.
ƽ Major breach of information security, data protection regulation

and/or cyber-attack – increased threat of cyber-attacks.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

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Additional Information

Risk identification, analysis and response

Strategy and objectives

Risk analysis

Identification

Description and scope

Assessment

Impact/likelihood

Risk response

Tolerate/Mitigate/Transfer

Monitoring

Reporting

Identification, analysis and response
The identification and analysis of individual risks is a continuous
process that takes account of the internal and external business
environment as well as the effectiveness of the risk controls we
operate. Principal risk profiles are maintained by relevant members
of the Royal Mail and GLS Executive Boards. Business Unit risk
profiles are also maintained at functional levels across the Royal
Mail business. During the year, GLS started to develop regional
level risk profiles across its business which will be fully
implemented during 2022-23.

Gross, net and target risk scores are evaluated as a product of
impact and likelihood, and are represented visually on heatmaps
within risk profiles to facilitate analysis and Management focus.
These risk profiles provide visibility to Management over the
effectiveness of control activities and mitigations. Each risk is
assessed considering the likelihood of the event occurring based
on multiple factors, the full range of potential impacts and their
severity should the event occur.

We identify emerging risks through various discussions with
Management and subject matter experts and other external
insights. All relevant information is captured in a horizon-scanning
radar which serves to illustrate our potential exposures across a
number of risk categories and helps us assess whether we are
adequately prepared for new and potential future risks and any
opportunities they may create.

Monitoring and reporting
Throughout the year, Royal Mail business unit leadership teams
regularly review the risk profiles covering their functional areas
of responsibility. Formal risk assessments are undertaken on
a bi-annual basis to coincide with the Group’s full- and half-year
reporting cycle. GLS’ principal risk profile is reviewed by subject
matter experts and GLS Executive Board members twice a year.
In 2022-23 this bi-annual review process will be supplemented
by the regional risk profile reviews described above. The outcomes
of these bi-annual assessments are reviewed by the RM Committee,
the GLS Audit and Risk Committee and the ARC, and are used to
inform and determine the Group’s principal risks.

Emerging risks
We report the results of emerging risk activity to the ARC, taking into
account of both external and internal factors to ensure that a holistic
view is taken. We have increased the frequency of emerging risk
reporting as part of the half-year and year-end risk assessments.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Our Principal Risks and Uncertainties

Detailed below are the principal risks we consider could threaten our
business model, the execution of our strategy, and the preservation and
creation of sustainable value for shareholders and other stakeholders.
How we seek to mitigate these risks is also explained below.

Risk

Status

Controls and actions to mitigate

1. Failure to reduce our cost base (previously called ‘Efficiency’) – High risk

We must become more efficient and agile
to compete effectively in the parcel and
letter markets.

The success of our strategy relies on the
reduction of our cost base whilst managing
wider economic pressures and the Industrial
Relations environment to deliver productivity
benefits across all areas of the business.

Failure to reduce costs while at the same time
delivering high-quality services could result in
a loss of customers, market share and revenue.

In common with many businesses, there are
inflationary cost pressures across the Group,
exacerbated by the war in Ukraine including
labour, energy and other supply costs.

While our delivery network in Royal Mail provides
a strong competitive position, particularly in the
combined delivery of letters and small parcels,
it is not currently optimised for the increased
demand for flexible acceptance times and
larger parcels.

Effective working relationships with our trade
unions are key to the delivery of ongoing
efficiency benefits (see risk 5. Industrial action).

In GLS, we need to ensure that our networks and
processes are optimised to withstand inflationary
cost pressures and support sustainable growth.

We have a number of initiatives in place to
drive efficiency across the Group, including:

ƽ Transforming our UK business from

a letters-led to a parcels-led operation
through network optimisation.

ƽ Building dedicated parcel hubs and installing

automated parcel sorting machines.

ƽ Embedding a range of digitally enabled

work tools.

ƽ Simplifying products and services
and developing customer-focused
technology solutions.

ƽ Accelerating GLS’ pricing and

productivity initiatives.

ƽ Reviewing the operational efficiency

of GLS’ networks.

For further detail on initiatives to improve
productivity see pages 19 and 20.

2. Economic and political environment – High risk

Macro-economic conditions and/or the political
environment across our markets may adversely
affect the Group’s ability to control costs and
maintain and grow revenue due to reducing
volumes or by driving customers to adopt
cheaper products or formats for sending
letters and parcels.

We continue to monitor the economic, political
and wider external environment across all
of our markets.

The economic outlook has worsened and is
dependent on the extent to which the global
economy recovers following the pandemic. A
prolonged war in Ukraine could have an adverse
effect on our costs, supply chain, business
confidence and customer behaviour, which will
impact letter and parcel volumes.

Prolonged fiscal tightening, including increased
business rates, employment taxes, tax policies
including subcontractors and a potential online
UK sales tax, could increase our costs or impact
consumer confidence, which could affect parcel
and letter volumes.

ƽ Regular review and update of scenarios to
inform a range of medium- and long-term
economic outcomes and strategic actions to
maintain a strong liquidity position, with good
levels of cash and limited financial debt.

ƽ Hedging exposure to commodity costs

and pricing initiatives to offset inflationary
cost pressures.

ƽ Executing an efficiency programme to build

resilience into the operating model and agility
to respond to revenue and cost headwinds.

ƽ Ongoing monitoring of political and policy
changes and regular engagement with
politicians and policy makers, as appropriate.

Royal Mail plc
Annual Report and Financial Statements 2021-22

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Corporate Governance

Financial Statements

Additional Information

Royal Mail strategy

GLS strategy

Change in risk score during the year

Customer

Trust

Growth

Connect Europe

Strengthen 2C parcel market
position and lead in 2B

Increasing risk – Low to Moderate
/ Moderate to High risk
Decreasing risk – Moderate to
Low / High to Moderate risk

Inspire the market

Stable risk – no change

Risk

Status

Controls and actions to mitigate

3. Major breach of information security, data protection regulation and/or cyber-attack – High risk

Given the evolving nature, sophistication and
prevalence of these threats, including those
presented by the war in Ukraine, the hybrid
workforce driven by the pandemic and an
increasing reliance on technology and data
for operational and strategic purposes, this
continues to be a principal risk.

We also recognise that in a business with more
than 161,000 people and large quantities of
documentation, there is a possibility of human
error in the protection of data.

Due to the nature of our business, we collect,
process and store confidential business and
personal information. 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, employees,
shareholders and suppliers.

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.

Also, a major breach of information security,
data protection laws and regulations and/or
cyber-attack could adversely impact our
reputation, resulting in financial loss,
regulatory action, business disruption
and loss of stakeholder confidence.

4. Customer expectations and our responsiveness to market changes – High risk

Failure to deliver against existing and changing
customer needs and expectations (including
quality of service) could impact the demand for
our products and services.

Our success at growing new areas of business
is dependent on identifying profitable and
sustainable areas of growth and having in
place appropriate structures to support
transformation.

The pandemic and, in particular, the rapid growth
in online business and increased parcel volumes,
has accelerated structural changes in our
markets. To remain competitive, it is more
important than ever that we meet customers’
evolving expectations, such as the increasing
importance of ESG (see risk 8. Environmental and
sustainability), and continue to harness growth
opportunities in a sustainable and profitable way.

The economic outlook has worsened as a result of
the pandemic and a prolonged war in Ukraine
could further affect business confidence and
consumer spending, which in turn could adversely
affect parcel and letter volumes.

ƽ Continually investing in cyber resilience
including enhancing our cyber control
capabilities across our technology estate
to protect our customers, colleagues,
services and assets.

ƽ Strengthening our preparedness to quickly
detect and respond to threats before they
become incidents, including ransomware.

ƽ Ongoing assurance of organisational and
technical measures, including disaster
recovery and assessment of third-party
supplier controls.

ƽ Promoting good behaviours and stressing
the importance of maintaining vigilance
through regular communication, training
and awareness across our workforce.

ƽ Encouraging an open and prompt reporting
culture so appropriate remedial action can
be taken as soon as possible.

ƽ Data privacy and protection policies and
compliance programme, which includes
assessment and monitoring of data risks
across the global business.

We are becoming more customer centric and we
are responding to market changes by:

ƽ Restoring Royal Mail’s quality of service.

ƽ Driving new product development based on
customer feedback, including increasing the
proportion of products that can be tracked and
other incentives to encourage reconnection
with letters and mail services.

ƽ Leveraging our UK footprint as the sole
designated Universal Service Provider.

ƽ Delivering sustainable growth and customer

innovation through the Accelerate GLS strategy.

ƽ Growing new areas of business and expanding

service offerings.

ƽ Pricing/surcharge opportunities that do not

inhibit value growth.

For further information see pages 10 and 11 and
pages 14 to 23.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Our Principal Risks and Uncertainties continued

Risk

Status

Controls and actions to mitigate

5. Industrial action – High risk

There is extensive trade union representation
across our UK workforce, with strong and
active trade unions.

One or more material disagreements or
disputes could result in widespread localised
or national industrial action.

We may be unable to obtain the necessary
legislative changes to enable us to implement
the Royal Mail Collective Pension Plan (RMCPP),
as agreed with the CWU.

Industrial action could cause material
disruption to our UK business and likely
result in an immediate and potentially ongoing
significant loss of Group revenue. It may also
affect Royal Mail’s ability to restore Quality
of Service and meet targets prescribed
by Ofcom, which may lead to enforcement
action, fines and loss of customers.

ƽ Royal Mail CEO, Group CFO and members of

the Royal Mail Executive Board regularly meet
with union leaders.

ƽ Joint implementation of the Pathway to

Change agreement.

ƽ Regular engagement with CWU and

Government to introduce the necessary
legislative and regulatory changes for RMCPP.

ƽ Engagement with unions on the 2022 pay deal
and the operational management restructure.

ƽ Use of the dispute resolution procedures to

reach agreement.

ƽ Operational contingency plans in the event of

industrial action.

ƽ Continuing to rebuild trust with our employees
through engagement, communication and
supporting them in the delivery of the
business goals.

The success of Royal Mail is reliant on the
dedication of its people and the delivery of
its transformation programme. One of our
strategic priorities is to rebuild trust and develop
positive working relationships with our people
and unions. As a result of the increasingly
uncertain external environment, competition and
growing inflationary costs, the transformation of
the Royal Mail business needs to be accelerated.
This, together with a rise in the cost of living, is
increasing the risk of industrial action.

The Pension Schemes Bill, of which RMCPP is
a part, received Royal Assent in February 2021
and is now allowed by law. However, further
regulatory changes and approvals will be
required by the Government/Pensions Regulator
before our scheme can be established.

CWU submitted a pay claim in February 2022 and
we have entered discussions. We have made an
offer on pay which CWU has rejected. CWU has
informed Royal Mail it is making preparations for
a possible ballot for industrial action. We have
entered into our formal Dispute Resolution
Procedures to try to secure agreement.

Unite/CMA have informed us of their intention to
issue a consultative ballot to test their members’
will for any further action in relation to the
operational management restructure announced
in January 2022. This does not constitute a formal
ballot for any industrial action.

6. Talent – workforce for the future (previously called ‘Capability – talent and strategic workforce planning’) – Moderate risk

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

In Royal Mail, workforce planning could be
adversely impacted by an ageing workforce
and a reduction in available workforce due to
socio-economic factors, demographic change
and increasing digitalisation.

The Royal Mail transformation programme,
together with the structural changes in the letter
and parcel delivery markets, is changing the
nature of some roles and creating the need for
new and different skills.

We need to upskill and develop our existing
workforce, and attract new people with the
right capabilities and behaviours to support
the delivery of our strategic ambitions.

A high level of employee trust and engagement
is essential if we are to deliver Royal Mail’s
transformation and growth strategy.

As GLS’ business continues to grow, the need for
strong and effective management in all regions
are essential.

ƽ Regular Senior Management talent reviews

and succession planning supported by external
recruitment where key skills are required.

ƽ Leadership development programmes to

support transformation and strengthening
performance management.

ƽ Diversity, equality and inclusion (DEI) initiatives

to accelerate DEI across our teams.

ƽ Implementation of a workforce plan aligned
with the strategy and commercial outlook.

ƽ Generational change initiatives including Postal
Apprenticeships and the Royal Mail Academy.

ƽ Regular trust and employee engagement
surveys, improved communications and
use of digital tools.

ƽ GLS regional management succession planning.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Risk

Status

Controls and actions to mitigate

7. Our UK regulatory framework – Moderate risk

The continuing structural decline in addressed
letter volumes, and broader changes in the
parcels market poses significant risks to the
financial sustainability of the Universal Service
Obligation (USO).

There is a further risk that Ofcom fails to change
and modernise the regulatory framework in
order to preserve the scale and relevance of the
postal USO, or chooses to change the framework
in a way which impacts our customer strategy or
is commercially disadvantageous to Royal Mail.

Given the scale of our transformation in Royal Mail
and the pace of change in the postal sector, we
need the right regulatory framework in place to
make a reasonable return on our investment and
have the commercial flexibility to innovate and
keep pace with the market and consumer needs.

Ofcom is undertaking a review of postal regulation
and published its consultation in December 2021.

Ofcom has stated that the current system is
generally working well for people and businesses
who use postal services, and we support Ofcom’s
proposal not to extend Access regulation. However,
we are disappointed that Ofcom has not taken this
opportunity to allow tracking on USO services as
consumers increasingly demand more visibility
over their deliveries.

We expect the outcome in Q2 2022-23, with
any resulting changes likely to take effect
from April 2023.

We are engaged in a number of activities that
are focused on securing the future sustainability
of the USO, including:

ƽ Active participation in Ofcom’s consultation

process, including providing detailed,
evidence-based submissions to Ofcom.

ƽ Executing the Royal Mail transformation
plan to underpin the sustainability of the
USO. This will help us become even more
efficient and better placed to respond to
changing customer demands.

ƽ Working with Ofcom, Government and the

unions more broadly to ensure that the Royal
Mail business is financially sustainable.

ƽ Extensive stakeholder engagement programme

during the review of postal regulation.

8. Environmental and sustainability (see also our TCFD Statement on pages 46 to 51) – Moderate risk

Transition risks:
As our customers and stakeholders seek to
adapt to climate change, demand is increasing
for more sustainable products and services. The
cost of operations could increase as we adapt to
government and regulatory changes in response
to a drive to net zero emissions and air quality
targets for towns and cities.

In common with all major organisations,
there is a risk of reputational damage and/or
loss of revenue if we do not meet stakeholder
expectations for action on climate change.

Physical risks:
An increase in the frequency of extreme
weather events may result in disruption
to our operations and impact our ability
to meet customer expectations, the USO
or other contractual requirements. We may
also see price rises as a result of resource
scarcity, increased operational costs and
required investment to protect the business
from extreme weather events.

Demonstrating leadership on ESG issues,
including the environmental impact of our
activities, is the right thing to do. It is also
essential if we are to achieve competitive
advantage, create value and deliver our strategy.

Delivering a sustainable network has been
embedded in Royal Mail and GLS’ strategies for
some time. We are increasing our focus in this
area. During the year we developed Group ESG
Principles and updated Royal Mail and GLS’
environmental strategies (see pages 30 to 33).

We continue to review our business strategies
to address and manage the most important
ESG issues, embed these into our processes
and seek to comply with the guidelines of the
TCFD for environmental risks.

ƽ Development of a Group-wide ESG framework.

ƽ Executing enhanced Royal Mail and

GLS environmental strategies including
accelerated ambitions for decarbonisation.
(see pages 32 and 33).

ƽ Investing in zero- and low-emission vehicles
and installing efficient equipment across our
property estate.

ƽ Investing in innovative technologies, such as
telemetry, and driver training programmes,
to improve operational efficiency and reduce
our fuel consumption.

ƽ Opening new EcoHubs with renewable energy
generation and sustainable infrastructure
across GLS’ network.

ƽ Engaging our people in our efforts to

become more efficient and reduce our
use of natural resources.

ƽ Reducing our energy and water consumption

and reducing the amount of waste we generate.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Our Principal Risks and Uncertainties continued

Risk

Status

Controls and actions to mitigate

9. Actual or suspected breaches of material law and/or regulation (previously called ‘Competition Act investigation’) –
Moderate risk

Failure to comply with relevant material laws
and regulations that apply to our business,
including competition, anti-bribery, Ofcom
essential conditions and quality of service
targets, trade sanctions and corporate
governance. Actual or suspected breaches
could result in financial loss, fines, regulatory
enforcement action, criminal charges,
debarment and/or reputational damage
impacting our ability to operate and grow.

This risk previously focused on the competition
law investigation relating to the Royal Mail
business, which is described on pages 216 and
218. It has been broadened and now reflects all
the material laws and regulations that the Group
must comply with. There has been continued
focus on controls in relation to competition
law and as such the overall risk to the Group
has decreased.

In May 2021, the Group’s appeal against the
Competition Appeal Tribunal’s judgement to
uphold Ofcom’s decision to fine Royal Mail £50
million was rejected by the Court of Appeal (CoA),
The Group is now seeking permission from the
Supreme Court to appeal the CoA’s judgment.

Our quality of service results for the 2021-22
year showed that the difficult and exceptional
ongoing impact of COVID-19 had impacted our
performance and Royal Mail did not meet its
regulatory quality targets.

ƽ Policies, training and guidance to colleagues to
raise awareness of risks, required mitigation
and expected standards of conduct.

ƽ Regular assessment of risks and advice by

specialist lawyers.

ƽ Horizon scanning to prepare for legislative

changes and developing policies and processes
to address them.

ƽ Monitoring of compliance and provision

of assurance.

ƽ Fostering a culture where colleagues can
speak up so we can promptly address any
issues and stop them happening again.

ƽ Quality of service monitoring and

restoration activity.

10. Business continuity and operational resilience (previously called ‘Business continuity and crisis management’) –
Moderate risk

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, our customers and our supply chain. This
could also impact on the ability of Royal Mail to
meet its regulatory obligations.

Royal Mail is classified by the Department
for Business, Energy & Industry Strategy as
critical national infrastructure and also has a
responsibility to provide sustained and continued
postal services under the USO. The temporary
relaxation by Ofcom of some Universal Service
requirements during the pandemic has now
ended. The pandemic has been a robust test
of our business continuity arrangements.

GLS has a growing geographical footprint and has
an interconnected international network across
Europe and the US.

ƽ Regular comprehensive reviews of business

continuity and crisis management governance
including operational contingency plans.

ƽ Established functional response teams,

comprising Senior Management and executive
leadership, embedded across the business.

ƽ Tactical arrangements in place to support

operational incident management.

ƽ Regular testing of disaster recovery plans

and alignment with business continuity plans.

ƽ Ongoing monitoring of operational processes

to minimise disruption related to the pandemic
whilst keeping our people and customers safe.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Risk

Status

Controls and actions to mitigate

11. Health, safety and wellbeing – Moderate risk

A health and safety incident or global health
crisis could result in the serious injury, ill health
or death of our people 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/or reputational damage.

Within GLS there are also health and safety
risks associated with subcontractors utilised
across the business.

Failure to manage the health and wellbeing of
our people could lead to reputational damage,
loss of employee goodwill and financial losses
through increased sickness absence, lower
productivity, and failure to deliver the USO,
civil action or criminal prosecution.

The health, safety and wellbeing of our people,
customers and members of the public is of
paramount importance.

We have many employees, including seasonal
staff and agency workers. We also operate a very
large fleet of vehicles, employ a large number of
contractors and interact extensively with members
of the public. A large proportion of our people
spend most of their time working outdoors, on
foot or driving, where the environment is
unpredictable and more difficult to control.

Due to our wide reach and the number of people
affected by the Group’s undertakings, the risk
of serious harm to people cannot be totally
mitigated. We acknowledge that every health
and safety incident has a human impact.

In common with many businesses, the pandemic
has had an adverse effect on short- and
long-term employee absence throughout the year
with peaks in infection rates, isolation and NHS
delays for routine procedures. As a result of these
factors, the overall risk has increased.

ƽ Policies, procedures, systems and

tools, supported by tailored training and
awareness programmes to embed a
compliance culture and engage our
employees in safety improvement.

ƽ Monitor health and safety performance
metrics and undertake regular audits
against our systems and processes.

ƽ Extensive employee health and wellbeing
policies and programmes to support
absence and return to workplace.

ƽ Continuing to streamline and simplify the
various health and safety systems in place
to enhance their effectiveness.

ƽ Group-wide measures to protect and
support our employees through the
pandemic, ensuring necessary safety
precautions, in line with Public Health
England and World Health Organization
guidance and provision of wellbeing support.

ƽ Communications to employees through a

dedicated, comprehensive multi-media campaign.

Further information is provided on pages 36 to 38.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Viability Statement

The Directors have assessed the prospects of the Group and its viability over the longer
term as part of their ongoing risk management and monitoring processes.

Assessment period
While the Directors have no reason to believe that the Group will not
be viable over the longer term, they have assessed the viability of the
Group over a three-year period to March 2025 (the Viability Period)
taking into account the Group’s current financial position and the
potential impact of our principal risks. This time period is considered
appropriate as it aligns with the Group’s three-year business planning
cycle (Business Plan) and is consistent with the time horizon used to
determine the probability and likely impact of our principal risks.
A three-year period is also the most appropriate time horizon over
which to assess the commercial and economic environment across
the Group’s letter and parcel markets. Forecasting beyond three years
is considered too long given the uncertainties created by the evolving
economic and competitive market dynamics.

Process, key factors and assumptions
This Viability Statement should be read in conjunction with the
Group’s business model and strategy, which are set out on pages
12 and 13 and 14 to 23 respectively.

The Group’s viability is assessed as part of our regular strategy and
budget reviews, financial forecasting, capital structure and ongoing
risk management. The assessment takes into account a number of
matters including:

ƽ The Group’s strategic priorities and Business Plan. Financial
planning and forecasting processes covering the Group’s
profitability, cash flows and other key financial metrics underpin the
Business Plan, which comprises a budget for the next financial year
(based on a detailed commercial and operational assessment)
together with a projection for the following two years.
ƽ The large fixed cost base required to deliver the Universal

Service Obligation in its current form.

ƽ The Group’s principal risks and the measures in place to mitigate

those risks. (See pages 56 to 61).

ƽ The Group’s capital structure and the allocation of capital to

support Royal Mail and GLS’ respective growth strategies (see
page 72). This includes capital investment, liquidity position
(including liquidity available from the syndicated loan facility (see
page 206)), debt maturity profile, credit rating and dividend policy.

The key assumptions used in relation to the Business Plan that
supports the viability assessment are as follows:

ƽ No further lockdowns expected however increased macro-
economic pressures impacting letters and parcels for both
Royal Mail and GLS.

ƽ Royal Mail: Addressed letter volume (excluding elections)
decline high single digit percentage in 2022-23, increase
National Insurance contributions of around £50 million,
reduced test kit volumes and inflationary pressures on pay
agreement – assume agreement is reached with both CWU
and Unite/CMA without prolonged industrial dispute.

ƽ GLS: High single digit revenue growth in 2022-23, increasing
cost pressure due to driver and labour shortages and higher
minimum wages in key markets (e.g. Germany). Operating
profit for 2022-23 in the range of €370 – €410 million.

ƽ GLS €500 million ‘Accelerate’ operating profit target in 2024-25

(assuming economic rebound in 2023-24).

Royal Mail plc
Annual Report and Financial Statements 2021-22

ƽ Cost mitigations to help offset headwinds include operations

management restructuring, ongoing and flow through Pathway
to Change savings, reduction in absence and removal of residual
costs from COVID-19, next phase of non-people cost reduction and
further automation of parcel sortation in both Royal Mail and GLS.

ƽ See outlook on pages 74 and 75 for further information.

Scenario modelling
The Business Plan projections were stress tested by modelling
multiple downside scenarios which have the greatest potential to
threaten the Business Plan. The scenarios, which are detailed on
the adjacent page, take account of the Group’s principal risks, and
analyse financial impact over the Viability Period. The scenarios
were tested in aggregate to determine whether the Group would
be able to sustain its operations over the Viability Period.

The scenarios took into account:

ƽ The levels of committed capital and expenditure required to
support Royal Mail and GLS’ respective growth strategies.
ƽ The Group’s €500 million bond which matures in July 2024,
within the Viability Period. The Business Plan assumes this
facility would be refinanced on similar commercial terms.
However, in the very unlikely event that this is not possible,
to ensure that the obligation is satisfied, other options could
be considered including using capital generated, reducing
investment or reviewing dividend payments.

ƽ The actions undertaken to manage and mitigate the Group’s

principal risks (see pages 52 to 61).

ƽ Short-term cost and cash saving actions available to the

Group including:
ƽ Reducing variable hours and cost of sales in response

to lower revenue.

ƽ Reducing discretionary pay.
ƽ Reducing one-off projects.
ƽ Reducing internal investment.
ƽ Reviewing dividend policy.

Based on our best view of the severe but plausible downside
scenarios and the outcome of the assessments undertaken,
the Directors have concluded that the Group has reasonable
expectation to remain viable supported by:

ƽ Short-term cost and cash saving actions.
ƽ Sufficient liquidity available to meet obligations.
ƽ The syndicated loan facility (see page 206).
ƽ Continued access to the debt markets.

The outcome of the assessments has also confirmed the importance
of maintaining a conservative balance sheet, including a net cash
position on a pre-IFRS 16 basis. See our capital allocation policy on
page 72 for further information.

If outcomes are significantly worse, the Directors would need
to consider what additional mitigating actions were needed
including 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 scenarios)
which may cast doubt on the Group’s ability to continue to be
viable over the Viability Period is not currently reasonable.

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Scenarios modelled
and assumptions

Scenario:

Deteriorating economic and market conditions.

Assumptions:

Further letter volume decline. Continued impact
of lower international and cross-border volume.

Principal risks
(see pages 56 to 61)

ƽ Economic and political environment

ƽ Customer expectations and our

responsiveness to market changes

ƽ Business continuity and operational

resilience

Scenario:

Increased competition in the UK parcels sector including
changes in consumer expectations and/or market disruption.

ƽ Customer expectations and our

responsiveness to market changes

Assumptions:

Lower parcel revenues.

Scenario:

Potential impact of industrial action or incurring costs to avoid it.

ƽ Industrial action

Assumptions:

Lower operating profit as a result of industrial relations.

ƽ Failure to reduce our cost base

ƽ Customer expectations and our

responsiveness to market changes

Scenario:

Delays in relation to the Royal Mail transformation plan.

ƽ Failure to reduce our cost base

Assumptions:

Lower productivity improvements.

Scenario:

Increasing inflationary pressures on staff and non-staff costs.

ƽ Economic and political environment

Assumptions:

Increased non-people costs in Royal Mail.

GLS margin decline.

Scenario:

Cyber-attack triggering material service and/or operational interruption.

Assumptions:

Cyber breach impacting revenue collection for one week.

ƽ Failure to reduce our cost base

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

ƽ Business continuity and
operational resilience

Scenario:

Continued high sick rate absence.

ƽ Health, safety and wellbeing

Assumptions:

Sick absence above historic average.

Going Concern Statement
The consolidated Financial Statements have been prepared on
a going concern basis. The financial performance and position
of the Group, its cash flows and its approach to capital
management are set out in the Financial Review on pages
64 to 75. The Board reviewed the Group’s projections for the
next 12 months in conjunction with the downside scenarios
used to stress test the Viability Period. There were no material
uncertainties causing doubt in relation to the Group’s ability to
continue as a going concern. Accordingly, the Board concluded
that it was appropriate to continue to adopt the going concern
basis of accounting. For further information, see Note 1 to the
consolidated Financial Statements on pages 164 to 176.

Viability Statement
Based on the results of their analysis, including a number of
severe but plausible scenarios assessed in aggregate, 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 or undrawn facility over the
three financial years to March 2025.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Financial Review

“ Solid performance
assisted by COVID-19
related tailwinds,
but an increasingly
challenging backdrop.”

Mick Jeavons
Group Chief Financial Officer

Summary results (£m)1

Revenue

Royal Mail
GLS
Intragroup revenue3

Operating costs

Royal Mail
GLS
Intragroup costs3

Operating profit before specific items
Operating specific items

Operating profit
Operating profit margin

Royal Mail
Royal Mail Operating profit margin

GLS
GLS Operating profit margin

Profit on disposal of property, plant and equipment
(non-operating specific item)
Net finance costs
Net pension interest (non-operating specific item)

Profit before tax
Tax (charge)/credit
Profit after tax

Earnings per share (basic) – pence
In-year trading cash flow

Royal Mail
GLS

Gross capital expenditure

Royal Mail
GLS

Net debt

Reported
52 weeks
March
2022

Specific
items and
pension
adjustment

12,712
8,514
4,219
(21)
(12,128)
(8,272)
(3,877)
21
584
(7)
577
4.5%

250
2.9%

327
7.8%

72
(51)
64
662
(50)
612

61.7p
519
280
239

(603)
(441)
(162)
(985)

–
–
–
–
(174)
(174)
–
–
(174)
(7)
(181)
–
(166)
–

(15)
–

72
–
64
(45)
62
17

1.7p
–
–
–

–
–
–
–

Adjusted2
52 weeks
March
2022

12,712
8,514
4,219
(21)
(11,954)
(8,098)
(3,877)
21
758
–
758
6.0%

416
4.9%

342
8.1%

–
(51)
–
707
(112)
595

60.0p
519
280
239

(603)
(441)
(162)
(985)

Reported
52 weeks
March
2021

Specific
items and
pension
adjustment

Adjusted²
52 weeks
March
2021

12,638
8,649
4,040
(51)
(12,020)
(8,389)
(3,682)
51
618
(7)
611
4.8%
271
3.1%

340
8.4%

36
(38)
117
726
(106)
620

62.0p
770
440
330

(346)
(210)
(136)
(457)

–
–
–
–
(84)
(84)
–
–
(84)
(7)
(91)
–
(73)
–

(18)
–

36
–
117
62
37
99

9.9p
–
–
–

–
–
–
–

12,638
8,649
4,040
(51)
(11,936)
(8,305)
(3,682)
51
702
–
702
5.6%
344
4.0%

358
8.9%

–
(38)
–
664
(143)
521

52.1p
770
440
330

(346)
(210)
(136)
(457)

Reported results are prepared in accordance with IFRS. In addition, the Group’s performance is 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 also consistent with the way financial performance is measured by Management and
reported to the Board. The APMs used are explained on pages 228 to 232 and reconciliations to the closest measure prescribed under IFRS are provided where appropriate.
The Group makes adjustments to reported results under IFRS to exclude specific items and the IAS 19 pension charge to cash difference adjustment. A full reconciliation of reported to adjusted
results is explained on page 228 to 232
Intragroup revenue and costs represent trading between Royal Mail and GLS, principally a result of Parcelforce Worldwide operating as GLS’ partner in the UK.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Group results
Group and Royal Mail results are for the 52-week period
to 27 March 2022. GLS results are for the 12 months to
31 March 2022.

Year-on-year Group revenue grew despite the unusually
strong performance seen in the prior year. As we emerged
from COVID-19 restrictions, Group parcel revenue declined
marginally as non-essential retail reopened. However, parcel
revenue is still significantly higher than prior to the pandemic due
to an acceleration in customer behaviour towards e-commerce.

In Royal Mail, letter revenue has recovered from the deterioration
experienced during the pandemic, albeit this market is still in
structural decline with revenue down 7.6% versus the pre-
pandemic year.

The pandemic has continued to impact the Group over the last
year. At times we experienced elevated absence rates along with
inefficiencies whilst social distancing rules were maintained. This
impacted our ability to deliver our UK targets on both service
quality and the full benefits from operational change activity. We
also faced some additional challenges including rising pay costs,
labour shortages, the ongoing weakness in the international
market and the emergence of the cost of living crisis.

Against this challenging backdrop, reported operating profit before
specific items was £584 million (2020-21: £618 million), £34 million
lower than the prior year. Operating specific items were a cost of
£7 million (2020-21: £7 million) and non-operating specific items
were a credit of £136 million (2020-21: credit of £153 million).

On a reported basis the Group operating profit margin reduced
by 30bps to 4.5%, largely due to the increased pension charge
to cash difference adjustment.

Adjusted Group operating profit improved by £56 million to
£758 million (2020-21: £702 million) mainly driven by profit
improvement in Royal Mail. Adjusted Group operating profit
margin improved by 40bps to 6.0%. GLS experienced margin
compression primarily as a result of the economic environment.
The GLS prior year margin was unusually strong due to
lockdowns. Royal Mail delivered margin improvement despite
several cost headwinds. These headwinds were more than offset
by cost saving initiatives including the successful completion of
the management restructure (announced in June 2020).

Reported profit before tax of £662 million (2020-21: £726 million)
comprises a £346 million profit in Royal Mail (2020-21: £398 million
profit) and a £316 million profit in GLS (2020-21: £328 million profit).
Basic reported earnings per share decreased to 61.7 pence
(2020-21: 62.0 pence).

52 weeks ending March

% change

Revenue (£m)

Group5

Royal Mail

Total Parcels

Domestic Parcels (excluding international)6

International Parcels7

Letters

GLS⁸

Volume (m units)

Royal Mail

Total Parcels

Domestic Parcels (excluding international)6

International Parcels7

Addressed letters (excluding elections)

GLS

2022

20214

20204

12,712

12,638

10,840

8,514

4,800

4,021

779

3,714

4,219

8,649

5,133

4,118

1,015

3,516

4,040

2022 vs
2021

2022 vs
2020

0.6%

(1.6)%

(6.5)%

(2.4)%

17.3%

10.3%

29.7%

42.0%

7,720

3,702

2,831

871

(23.3)%

(10.6)%

4,018

3,161

5.6%

4.4%

(7.6)%

33.5%

52 weeks ending March

% change

2022

2021

2020

2022 vs
2021

2022 vs
2020

1,517

1,365

152

7,961

870

1,735

1,475

260

7,718

838

1,312

1,039

273

9,703

667

(13)%

(7)%

(42)%

16%

31%

(44)%

(18)%

30%

4. The prior years’ letter and parcel revenue split has been re-presented to reflect a reallocation of international revenue between letters and parcels.
5. Royal Mail and GLS revenue does not equal Group revenue due to the elimination of intragroup trading (2021-22: £21 million, 2020-21: £51 million, 2019-20: £41 million).
6. Domestic Parcels excludes import and export for both Royal Mail and Parcelforce Worldwide.
7.
8. The results for the full year 2021-22 include four months of contribution from the acquisition of Rosenau Transport on 1 December 2021. The prior year does not include any contribution.

International includes import and export for Royal Mail and Parcelforce Worldwide.

Group revenue grew by 0.6% in the year with parcel revenue accounting for 71% of total revenue (2020-21: 72%), a slight reduction to
the prior year due to the recovery of letter revenue and the decline in Royal Mail parcel revenue as a result of the strong comparative.
Compared with the pre-pandemic year (2019-20), Group revenue grew by 17.3%.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Financial Review continued

Segment – Royal Mail
Royal Mail adjusted operating profit improved 20.9% to £416 million
(2020-21: £344 million). Adjusted operating profit margin was
4.9%, a 90 bps improvement on the prior year primarily due to the
delivery of a number of cost saving initiatives which offset some
of the headwinds experienced in the year. Reported operating
profit was £250 million (2020-21: £271 million), the deterioration
was largely due to an increase in the pension charge to cash
difference adjustment.

Revenue
Overall, Royal Mail revenue reduced slightly on the prior year (1.6%)
as pandemic restrictions were relaxed and our traffic mix adjusted.

Letters
Total letter revenue grew 5.6% versus the prior year, with volumes
for addressed letters excluding elections up 3%. These increases
are against a prior year base which included sharp declines seen
at the start of the pandemic.

The pandemic particularly impacted Advertising Mail. The recovery
in Advertising Mail volumes in the current year was therefore more
pronounced, with growth of 30%. This was partially offset by a
marginal decline in Business mail volumes (down 1%) as they
reverted to their pattern of structural decline experienced prior
to the pandemic. Business mail revenue benefitted from positive
pricing actions.

Parcels revenue represented 56% of total Royal Mail revenue,
compared with 59% in the prior year, driven by the recovery of
letter revenue in the year.

Parcels
Total parcel revenue was down year-on-year by 6.5% with volumes
down 13%; however, the comparative year was unusually strong
as it included several months of national and local lockdowns when
non-essential retail was closed. This drove e-commerce activity
and parcel volumes. During the current year, non-essential retail
was closed for just two weeks. Revenue benefitted from a positive
price mix which partially mitigated the decline in volumes.

Domestic parcels (excluding international) volumes were down 7%
driven by the relaxation of pandemic restrictions. Domestic parcels
(excluding international) revenue was down 2.4% at a lower rate
than volumes due to positive product/channel mix.

We saw a significant year-on-year increase in COVID-19 test
kit revenue. COVID-19 test kits accounted for around 7% of
total parcel volumes.

Royal Mail’s premium products, Tracked 24®/48® and Tracked
Returns® performed well with volumes growing 17% (2020-21: 79%
growth). Excluding the effect of test kits, Tracked 24®/48® and
Tracked Returns®, volume growth was flat (2020-21: 74% growth).

As previously disclosed, International has seen significant
headwinds with volumes down 42% year-on-year. In the main,
this decline has been driven by external factors including reduced
air freight capacity and the transition to a new trade deal with the
European Union.

Parcelforce Worldwide revenue, which is included in the domestic
and international lines above, reduced as a result of the reopening
of non-essential retail. The impact of Britain’s withdrawal from the
European Union also impacted cross-border volumes.

Comparison with pre-pandemic year (2019-20)
Parcels
Total parcel revenue was up 29.7% versus the pre-pandemic year
with volumes up 16%. This has been driven by the acceleration
in customer behaviour to e-commerce. The current year also
includes the delivery of COVID-19 test kits; there were no test kit
volumes included in 2019-20.

Compared with 2019-20, domestic parcels (excluding international)
revenue increased by 42.0% with volumes up by 31%.

International volumes have decreased significantly versus
the pre-pandemic year, down 44%. In the main this has been
driven by the external factors outlined previously.

Letters
Total letter revenue is down 7.6% versus the pre-pandemic
year with volumes for addressed letters excluding elections
down 18% in the same period. This is reflective of the ongoing
structural decline in the letters market. The 2019-20 year also
included the European Parliamentary election and the UK General
election; if the effects of the elections are removed then the decline
in letter revenue is significantly reduced.

Advertising mail volumes declined 12% versus 2019-20 with low
AUR unaddressed advertising letter volumes, down 9%, driven
by the impact of the pandemic and ongoing e-substitution.

Business mail volumes were lower than 2019-20 levels by 17%.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Pay costs increased by £122 million year-on-year. This includes
the cost of the frontline 1% pay award, effective from the start of
FY 2021-22, costs for the one hour reduction in the working week,
which was largely implemented in the second half of the year, along
with costs associated with working time regulation holiday pay, and
costs associated with managerial pay awards.

Productivity was down 0.2% year-on-year as the business was
slower to take out costs following the reopening of the UK High
Street. The reopening occurred more rapidly than we anticipated
and had a more immediate impact on parcel volumes. Additionally
we failed to deliver all the targeted operational benefits from
Pathway to Change. These factors offset the cost saving initiatives,
resulting in broadly flat people costs.

Non-people costs
Non-people costs decreased by 6.4% versus the prior year.

Our two-year non-people cost savings plan, which aimed to
maintain flat non-people costs, excluding depreciation and
volume related costs, delivered in full, with £112 million of
benefits delivered in 2021-22.

Within non-people costs, we estimate the costs associated with
the pandemic to be £30 million (2020-21: £65 million). The prior
year COVID-19 non-people costs mainly related to the purchase
of protective equipment to safeguard our frontline employees.
In the current year, costs have been incurred in order to maintain
social distancing measures, including investment in additional
vehicle hires and fuel to support the increased number of fleet.

Distribution and conveyance costs decreased by 7.9% driven by
lower international volumes. As a result, terminal dues were
£72 million lower, year-on-year. This decrease has been partially
offset by the additional costs outlined above. Total diesel and jet
fuel costs increased to £191 million (2020-21: £187 million) due to
the impact of the unhedged volume, which is subject to spot prices.

Infrastructure costs decreased year-on-year, of which depreciation
and amortisation costs were c.£20 million lower. This was driven by
the comparative including accelerated depreciation and amortisation
following a review of our investment portfolio. Before these
adjustments, underlying depreciation was broadly flat.

Other operating costs decreased by 8.1%, largely driven by the
decrease in COVID-19 costs discussed above. Transformation
programme costs of £58 million (2020-21: £45 million) are also
included in other operating costs.

Adjusted operating costs2

(£m)

People costs

People costs excluding
voluntary redundancy

Adjusted
52 weeks
March
2022

Adjusted
52 weeks
March
2021

% change

(5,583)

(5,619)

(0.6)%

(5,502)

(5,510)

(0.1)%

Voluntary redundancy costs

(81)

(109)

(25.7)%

Non-people costs

Distribution and
conveyance costs

Infrastructure costs

Other operating costs

Total

(2,515)

(2,686)

(6.4)%

(971)

(802)

(742)

(1,054)

(7.9)%

(825)

(807)

(2.8)%

(8.1)%

(8,098)

(8,305)

(2.5)%

The Group makes adjustments to reported results under IFRS to exclude specific items and
the IAS 19 pension charge to cash difference adjustment. A full reconciliation of reported to
adjusted results is explained on pages 228 to 232.

Total adjusted operating costs decreased by 2.5% year-on-year.
We estimate that total COVID-19 related costs reduced by
£53 million to £92 million. Pay inflation and other operational
cost increases were more than offset by cost saving initiatives
including the successful completion of our management
restructure (announced in June 2020) and non-people related
cost reduction programmes. These initiatives, in addition to
the benefits derived from our Pathway to Change agreement,
delivered cost savings of c.£285 million in the year.

People costs
People costs excluding voluntary redundancy costs were broadly
flat, with the decline in voluntary redundancy costs mainly due to a
£93 million charge in the prior year for the management restructure
announced in June 2020 compared with £70 million in the current
year for a further restructuring announced in January 2022. This
programme looks to streamline operational management and
improve focus on performance at a local level.

Transformation costs declined by £6 million.

The management restructure programme (announced in June
2020) delivered in line with our expectations, with sustainable
benefits of £115 million in the year.

We delivered £59 million of efficiencies from the Pathway to
Change agreement. This was at the lower end of the revised
guidance provided on 25 January 2022. Although this was
disappointing against the initial expectation of over £100 million,
the shortfall was almost entirely driven by the challenges in the
delivery function. Changes implemented in Processing and
Logistics were successful.

Despite higher absence rates during the peak period (November
2021 to January 2022) when the Omicron variant was prevalent and
during the ‘Ping-demic’ in July, COVID-19 people costs were down
£18 million year-on-year to £62 million. The reduction is due to
prior year absence rates being particularly high when the pandemic
began. Non-COVID absences were up year-on-year. In the current
year the average total absence rate was 8.0% compared with 8.5%
in the prior year. The highest single day of absence was 12.1% in the
current year compared with 18.9% in the prior year.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Financial Review continued

Segment – GLS⁸

Summary results⁹ (£m)

Revenue

Operating costs

Operating profit before
specific items

(€m)

Revenue

Operating costs

Operating profit before
specific items

Operating costs

March
2022

4,219

March
2021

4,040

(3,877)

(3,682)

% change

(£m)

4.4%

5.3%

People costs

Non-people costs

Distribution and conveyance
costs

Infrastructure costs

Other operating costs

Total

342

358

(4.5)%

4,959

4,525

9.6%

(4,557)

(4,124)

10.5%

402

401

0.2%

March
2022

(908)

March
2021

(851)

(2,969)

(2,831)

(2,606)

(2,480)

(257)

(106)

(249)

(102)

(3,877)

(3,682)

% change

6.7%

4.9%

5.1%

3.2%

3.9%

5.3%

Total reported operating costs in Sterling terms increased by 5.3%,
or 4.2% excluding acquisitions. Cost increases in Euro terms were
around 500 bps higher than the reported increases in Sterling due
to the strengthening of Sterling during the year.

Costs were impacted by significant increases in inflation rates
during the year in the markets in which GLS operates. A combination
of higher fuel costs, wage inflation and driver shortages all
contributed to increases in subcontractor costs for collection,
delivery and line-haul services. The impact from higher minimum
wages (for example in Germany) and rising utility costs also
resulted in an increase in the GLS cost base. The reported increase
in Euro terms is presented below.

(€m)

People costs

Non-people costs

Distribution and conveyance
costs

Infrastructure costs

Other operating costs

Total

March
2022

(1,067)

(3,490)

March
2021

(954)

(3,170)

% change

11.8%

10.1%

(3,064)

(2,777)

10.3%

(302)

(124)

(279)

(114)

8.2%

8.8%

(4,557)

(4,124)

10.5%

People costs
People costs increased by 11.8%, or 9.6% excluding acquisitions,
due to a combination of factors including 4% higher volumes,
higher unit operational labour costs driven by wage inflation
across GLS’ markets, and further investments in the organisation
to support the rollout of our Accelerate strategy.

Non-people costs
Non-people costs increased by 10.1%, or 9.3% excluding
acquisitions. Distribution and conveyance costs were up 10.3%,
or 9.7% higher excluding acquisitions, driven by the 4% increase
in volumes and higher sub-contractor rates for collection, delivery
and line-haul services due to inflationary effects. Infrastructure
and other operating costs increased by 8.2% and 8.8% respectively
(5.4% and 7.9% respectively excluding acquisitions), principally due
to higher marketing costs related to initiatives to raise awareness
of the GLS brand and higher depreciation associated with increased
capital expenditure.

The results for the full year 2021-22 include four months of contribution from the acquisition
of Rosenau Transport on 1 December 2021. The prior year does not include any contribution.
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 section entitled
‘Specific items and pension charge to cash difference adjustment’. As the pension charge to
cash difference is not applicable to GLS, the operating profit before specific items is the same
on a reported and adjusted basis, and thus no separate adjusted measures have
been presented.

Operating profit before specific items in Euro terms was broadly flat
despite revenue growth. Margin deteriorated by 80 bps, to 8.1%, due
to operational cost pressures including general inflation and driver
shortages across most markets. Unusually strong profits were
also made in the prior year during the initial lockdown period.

In Sterling terms, operating profit before specific items was
£342 million (2020-21: £358 million). Foreign exchange movements
adversely impacted revenue by £207 million and favourably
impacted costs by £191 million resulting in a net reduction to
operating profit of £16 million.

Revenue
Revenue increased by 4.4% in Sterling terms (9.6% in Euro terms).
Excluding acquisitions, revenue was up 3.3% in Sterling terms,
driven by growth in domestic and international volumes, higher
freight revenue and better pricing. Revenue grew despite the
unusually strong performance in the previous year. Revenue
growth was achieved in almost all markets, with good performances
in Eastern Europe, the US, Canada, Italy, France, Germany and
Spain. GLS’ European markets represented 89.6% of total revenue
(2020-21: 90.8%), with the North American market contributing
10.4% (2020-21: 9.2%).

Volumes were up 4%, driven by recovery of B2B volumes, with B2C
volumes also higher but with a lower growth rate than the prior
year. B2C volume share was 55% compared with 57% in the prior
year. GLS domestic and international volumes grew by 4% and 5%
respectively. International volume growth was impacted by Britain’s
withdrawal from the European Union, which led to reduced parcel
flows between Europe and the UK. Excluding UK traffic, export
volume growth was double-digit.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Country overview
The following individual market summaries detail revenue growth
in Euro terms.

In Germany, the largest GLS market by revenue, revenue grew
by 8.1%, driven by a combination of better pricing and higher
volumes. Operating profit decreased due to the operational cost
pressures. Minimum wage increases of 25% will be phased in
between 1 January 2022 and 1 October 2022, and as a result we
implemented strong price increases on 1 January 2022 to help
mitigate cost pressures.

GLS Italy revenue grew by 8.8%, driven by higher volumes and
better pricing. Prices benefited from a recovery in B2B volumes
with a higher average weight. Operating profit improved compared
with the prior year, which represented a strong performance.

GLS Spain revenue grew by 7.7%, driven by higher domestic
volumes. Operating profit was slightly below the prior year,
with some margin compression resulting from higher unit
operational costs.

GLS France revenue grew by 8.8%, benefiting from higher
domestic volumes and better pricing. Volume growth was driven
by higher B2B volumes, which compensated for a decline in B2C.
Losses narrowed further in 2021-22, demonstrating that the
strong progress achieved in reducing losses in the prior year
has been cemented.

There was continued strong performance in Eastern Europe,
with revenues up 13.3% and good growth in B2C volumes.

In the US, revenue grew by 11.1% driven by higher B2C volumes,
better pricing and higher freight revenues. Higher unit operational
costs, driven by a shortage of drivers which impacted final-mile
and line-haul costs, and inflationary pressures, impacting the
general cost base, resulted in financial performance below the
prior year and an overall loss. Measures focused on improving
unit operational costs and the quality of revenue, including yield
management activities, are underway.

In Canada, the acquisition of Rosenau Transport was completed
on 1 December 2021, increasing significantly the scale of our
operations in North America. The integration of Rosenau with
our pre-existing business Dicom to secure synergies is underway.
Rosenau Transport to date is performing in line with expectation.
GLS Canada revenue increased by 16.7% on an organic basis,
benefiting from good growth in parcel volumes, higher freight
revenues as well as improved pricing. The business continues
to perform well, delivering margins above the group average.

Revenue growth in GLS’ other developed European markets was
3.9%. Performance was negatively impacted by lower volumes
due to Britain’s withdrawal from the European Union and the
highly competitive nature of these mature markets.

Other developing markets, where GLS has a high exposure to B2C,
continued to grow strongly with overall revenue growth of 13.3% in
the year. Particularly good growth rates were achieved in Hungary,
the Czech Republic and Croatia.

Other Group financial performance measures
Specific items and pension charge to cash difference adjustment

(£m)

Pension charge to cash difference
adjustment (within people costs)

Operating specific items

Legacy/other items

Amortisation of intangible
assets in acquisitions

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
2022

52 weeks
March
2021

(174)

(84)

(16)

(7)

136

(45)

(19)

(7)

117

153

The pension charge to cash difference adjustment largely comprises
the difference between the IAS 19 income statement pension charge
rate of 24.6% (2020-21: 19.5%) for the Defined Benefit Cash Balance
Scheme (DBCBS) from 29 March 2021 and the actual cash payments
agreed with the Trustee of 15.6% (2020-21: 15.6%). The charge was
£174 million in the year (2020-21: £84 million), £90 million higher
than in 2020-21. The increase in the IAS 19 pension charge rate is
due to the decrease in the net discount rate (versus CPI) between
March 2020 and March 2021.

The legacy items largely relate to an £11 million credit
(2020-21: £16 million credit) in respect of Industrial Diseases
claims as a result of the use of updated models issued by the
Institute and Faculty of Actuaries’ Asbestos Working Party in late
2021, along with an increase in the discount rate versus the prior
year. The prior year amount largely related to a partial release of
the Industrial Diseases provision after it was re-assessed following
indicative guidance published by the Institute and Faculty of
Actuaries’ Asbestos Working Party in advance of their full update.

Amortisation of acquired intangible assets of £16 million
(2020-21: £19 million) largely relates to acquisitions made
by GLS in recent years in Canada, Spain, the US and Italy.

The profit on disposal of property, plant and equipment of
£72 million (2020-21: £36 million) primarily relates to the sale
of Plots E, F and G at the Nine Elms development site. The prior
year profit largely related to the sale of two London Development
Portfolio plots (Plot A at the Nine Elms development site and
Calthorpe Street at the Mount Pleasant development site).
Further detail is provided on page 73.

Net pension interest credit of £64 million (2020-21: £117 million)
is calculated by reference to the net pension surplus at the start
of the financial year. The decrease in the year of £53 million is as a
result of a lower overall pension surplus and lower discount rate
used at 28 March 2021, compared with 29 March 2020.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Financial Review continued

The tax credit of £62 million (2020-21: £37 million) includes a net
credit of £30 million (2020-21: £37 million) in relation to the tax
effect of certain specific items and the pension charge to cash
difference. The balance also includes a net credit of £32 million
(2020-21: £nil) in relation to the remeasurement of certain UK
deferred tax assets and liabilities to the future UK corporation
tax rate of 25%.

Net finance costs
Reported net finance costs of £51 million (2020-21: £38 million)
comprise interest on bonds (including cross-currency swaps)
of £24 million (2020-21: £24 million), interest/fees on the bank
syndicate loan facility of £2 million (2020-21: £6 million), interest
on leases of £29 million (2020-21: £26 million) and other net interest
payable of £2 million (2020-21: £1 million receivable). This is offset
by interest income of £6 million (2020-21: £17 million) which
includes £1 million (2020-21: £12 million) interest on the Royal Mail
Pension Plan (RMPP) escrow investments. The value of these
investments bounced back in 2020-21 from a sharp fall at the end
of 2019-20, causing the high interest income figure in 2020-21.

The bank syndicate loan facility was extended by one year to
September 2026; there are no further extension options in the
agreement. In the year, the interest reference rate was amended
from LIBOR to SONIA10 (SOFR11 for any drawings in US Dollars).
Interest is compounded daily and a credit adjustment spread
(CAS) of between 0.0% and 0.3% is added using the ISDA12
published five-year historical mean on fixing date (5 March 2021).

10. SONIA – Sterling OverNight Indexed Average.
11. SOFR – Secured Overnight Financing Rate.
12. ISDA – International Swaps and Derivatives Association.

The blended interest rate on gross debt, including leases for 2021-22,
is approximately 3%. The impact of retranslating the €500 million and
€550 million bonds is accounted for in equity. See Note 7 of the
Financial Statements (page 181) for further information.

Taxation
The Group’s reported effective tax rate is 7.6% (2020-21: 14.6%). This
is 11.4% lower than the UK statutory rate of 19%. The difference is
mainly due to the remeasurement of deferred tax balances to the
future UK statutory rate of 25%, which reduces the effective rate by
4.8%; net pension interest credit, on which there is no tax charge,
which reduces the rate by 2.1% and the reduction in uncertain tax
provision mainly in respect of patent box claims due to progress in
ongoing discussions with UK authorities, which reduces the rate by
3.3%. The effective tax rate is further reduced by 3.6% in relation to
profits on operational property disposals which have no tax charge
as the profits qualify for reinvestment relief and a Super-deduction
capital allowances claim which creates an enhanced credit for
qualifying capital expenditure. These amounts are partially offset
by higher overseas tax rates in relation to the GLS business, and
other items that are not allowable for tax purposes.

The GLS adjusted effective tax rate of 23.6% (20-21: 23.3%), is
reflective of higher statutory tax rates in the more profitable GLS
countries and is broadly in line with the prior year.

The Royal Mail adjusted effective tax rate of 9.0% (2020-21: 19.6%), is
lower than both the prior year and the UK statutory rate mainly due to
the reduction in the uncertain tax provision in relation to the patent
box claims and the Super-deduction capital allowances claim.

Earnings per share (EPS)
Reported basic EPS was 61.7 pence (2020-21: 62.0 pence)
and adjusted basic EPS was 60.0 pence (2020-21: 52.1 pence).

In-year trading cash flow1

(£m)

Adjusted operating profit

Depreciation and amortisation

Adjusted EBITDA

Trading working capital movements13

Share-based awards (LTIP and DSBP) charge adjustment

Gross capital expenditure

Net finance costs paid

Dividend received from associate undertaking

Research and development expenditure credit

Income tax paid

In-year trading cash flow13

Capital element of operating lease repayments14

Pre-IFRS 16 in-year trading cash flow

52 weeks ending March 2022

52 weeks ending March 2021

Royal Mail

416

397

813

(36)

(441)

(41)

–

(23)

280

(102)

178

GLS

342

143

485

–

(162)

(11)

–

(85)

239

(64)

175

Group

Royal Mail

758

540

1,298

(24)

(603)

(52)

–

(108)

519

(166)

353

344

415

759

(31)

(210)

(29)

–

(54)

440

(98)

342

GLS

358

139

497

–

(136)

(12)

–

(71)

330

(58)

272

Group

702

554

1,256

(346)

(41)

–

(125)

770

(156)

614

13.

14.

Reported results are prepared in accordance with IFRS. In addition, the Group’s performance is 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 also consistent with the way financial performance is measured by management
and reported to the Board. The APMs used are explained on pages 228 to 232 and reconciliations to the closest measure prescribed under IFRS are provided where appropriate.
Trading working capital movements and thus in-year trading cash flow have been re-presented to include deferred revenue movements (including Stamps In The Hands Of the Public (SITHOP))
which were previously presented in other working capital.
The capital element of lease payments of £192 million (2020-21: £188 million) shown in the statutory cash flow is made up of the capital element of operating lease payments of £166 million
(2020-21: £156 million) and the capital element of finance lease payments of £26 million (2020-21: £32 million).

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

In-year trading cash flow
In-year trading cash inflow was £519 million, compared with
£770 million in the prior year. This decrease was mainly due
to higher capital expenditure in Royal Mail.

In Royal Mail, the current year includes a provision for the
management restructure to further streamline operations;
however, the majority of the associated cash payments have not
been paid and thus the working capital position has benefitted
year-on-year. By excluding the effect of the current and prior year
restructures (both the cash paid and the provisions raised), the
year-on-year working capital movement would be £59 million
outflow. During the current year deferred revenue on stamps
purchased in prior year fell by £44 million (2020-21: £8 million
increase) resulting in a £52 million year-on-year outflow which
explains the majority of the movement. The reduction in deferred
revenue was largely as a result of customer stamp holdings falling
back to pre-pandemic trends.

GLS trading working capital inflow reduced by £40 million
year-on-year. Prior year working capital development benefited
positively from higher than normal customer payments in
advance of the Easter weekend in March 2021, part of which
unwound during 2021-22.

Total gross capital expenditure was £603 million
(2020-21: £346 million), of which GLS spend was £162 million
(2020-21: £136 million). Royal Mail capital expenditure was
£441 million in total (2020-21: £210 million), of which £205 million
(2020-21: £91 million15) was transformational spend. Transformational
spend increased as we invested in parcel hubs and automation.
Royal Mail maintenance spend increased by £117 million to
£236 million (2020-21: £119 million15). This additional spend
predominantly relates to vehicle purchases, including £74 million
in relation to electric vehicles. We are continuing our commitment
to invest in Royal Mail infrastructure, road to net zero and
innovative product portfolio.

Income tax paid decreased by £17 million. Royal Mail income
tax paid of £23 million was £31 million lower than the prior year,
mainly due to the effect of the Super-deduction enhanced capital
allowances claims. GLS income tax paid of £85 million was
£14 million higher than the prior year as tax assessments
relating to the higher profits in the previous year were received.

The capital element of operating lease repayments of
£166 million (2020-21: £156 million) reflects the net impact
on in-year trading cash flow as a result of adopting IFRS 16.
The increase is due to new leases in the year, notably the
Midlands Hub. Excluding the impact of this, in-year trading
cash flow was £353 million (2020-21: £614 million).

15.

The comparative transformation and maintenance spend has been re-presented to reflect
the reallocation of certain projects from maintenance to transformation following a review
of the portfolio.

Net debt¹
A reconciliation of net debt is set out below.

(£m)
Net debt brought forward at 29 March 2021
and 30 March 2020
Free cash flow

In-year trading cash flow16
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
Movement in GLS client cash17
New or increased lease obligations under
IFRS 16 (non-cash)
Foreign currency exchange impact
Share buyback
Dividends paid to equity holders
of the Parent Company
Net debt carried forward
Operating leases18
Pre-IFRS 16 net cash19

52 weeks
March
2022

52 weeks
March
2021

(457)
420
519
(4)

10
(204)

99
(17)
(5)

(380)
21
(201)

(366)
(985)
1,292
307

(1,132)
780
770
(4)

5
(4)

13
–
20

(173)
48
–

–
(457)
1,079
622

16.

17.

18.

19.

Reported results are prepared in accordance with IFRS. In addition, the Group’s performance is
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 also consistent with the way financial performance is measured by
management and reported to the Board. The APMs used are explained on pages 228 to 232 and
reconciliations to the closest measure prescribed under IFRS are provided where appropriate.
In-year trading cash flow has been re-presented following the re-allocation of deferred revenue
(including SITHOP) from other working capital to trading working capital to reflect the trading
nature of this balance. GLS client cash movements, which were previously disclosed in other
working capital are now presented separately outside of free cash flow.
GLS client cash movements are presented as part of the working capital movements line in the
statutory cashflow.
This amount represents leases that would not have been recognised on the Balance Sheet prior
to the adoption of IFRS 16.
This measure is considered as the Group’s banking covenants are calculated on a pre-IFRS 16 basis.

The cash cost of operating specific items was an outflow of
£4 million (2020-21: £4 million) consisting mainly of Industrial
Diseases claims and National Insurance related to employee
free share payments.

Acquisition of business interests of £204 million relates mainly
to the acquisition of Rosenau Transport. The prior year balance
of £4 million related to deferred consideration in relation to prior
period acquisitions of Mountain Valley Express (MVE) and Mountain
Valley Freight Solutions.

The net cash inflows relating to the London Development Portfolio
were £99 million (2020-21: £13 million). Further details are provided
in the London Development Portfolio section on page 73.

The amount of GLS client cash held at 27 March 2022 was
£36 million (2020-21: £41 million).

New or increased lease obligations under IFRS 16 of £380 million
(2020-21: £173 million) relate to additional lease commitments
that were entered into during the year. Property lease additions,
modifications and acquisitions totalled £335 million
(2020-21: £121 million), of which £81 million relates to the Midlands
hub; £148 million relates to 243 Royal Mail property rent reviews,

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Financial Review continued

lease regears and renewals (a larger amount than previous years due to the phasing of lease contracts); £24 million is for property leases
taken on as part of the Rosenau acquisition; and £82 million relates to a number of other GLS properties reflecting capacity increases, rent
reviews and renewals/extensions. Lease obligations have also increased by £45 million (2020-21: £52 million) as a result of Royal Mail
vehicle and plant and machinery additions and modifications.

Approach to capital management
The Group has a clear capital allocation framework: invest in our business to support growth, maintain our investment grade rating,
pay a sustainable dividend and retain flexibility for selective acquisitions. Given the high operational leverage in our business, we
will continue to keep low levels of financial leverage. As announced at the half year end, in the current risk environment, we believe
running a Group net nil cash position on a pre-IFRS 16 basis is appropriate. The net cash position (pre-IFRS 16) at 27 March 2022 was
£307 million (2020-21: £622 million). We currently do not propose to pay any further special dividends. We expect both Royal Mail
and GLS to be independently cash generative businesses. In line with this framework, the Group’s key 2021-22 capital management
objectives are detailed below together with a progress update.

Objectives

Enablers

2021-22 update

Meet the
Group’s
obligations
as they
fall due.

Maintaining sufficient cash
reserves and committed
facilities to:

ƽ Meet all obligations,
including pensions.

ƽ Manage future
risks, including
the principal risks.

At 27 March 2022, the Group had available resources of £2,096 million (2020-21: £2,457
million) made up of cash and cash equivalents (excluding GLS client cash) of £1,101 million
(2020-21: £1,532 million), current asset investments of £70 million (2020-21: £nil) and
undrawn committed bank syndicate loan facilities of £925 million (2020-21: £925 million).

At 27 March 2022, the Group met the loan covenants (which were reinstated following
the expiry of the waiver agreed in 2020-21) and other obligations for its bank syndicate
loan facility, and €500 million and €550 million bonds.

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

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.

The Group reported £353 million of pre-IFRS 16 in-year trading cash flow (2020-21: £614
million), sufficient to cover the proposed full-year ordinary dividend (subject to approval at
the AGM) of 20.0 pence per share (final dividend of 13.3 pence per share combined with the
interim dividend of 6.7 pence per share paid in January 2022) (2020-21: 10.0 pence per share).

Capital managed by the Group, excluding the pension scheme surplus net of
withholding tax payable, is £2,611 million at 27 March 2022 (2020-21: £2,416 million).

The Group had retained earnings of £5,248 million at 27 March 2022 (2020-21: £4,802
million). The Group considers it has a maximum level of distributable reserves of
around £2 billion, which excludes the impact of the pension surplus on retained
earnings, more than sufficient to cover the dividend.

During the year, the Group maintained a credit rating of BBB with Standard & Poor’s
and the outlook was revised from negative to positive.

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 £603 million
(2020-21: £346 million) and acquisition of business interests of £204 million
(2020-21: £4 million) while retaining sufficient capital headroom.

Both Royal Mail and GLS generated cash to fund their own organic investment and
contribute towards inorganic investment and capital distribution (see page 70).

Maintain
suitable
financial
leverage.

Retain sufficient leverage,
commensurate with the
Board’s assessment of
the risk environment.

In November 2021, the Directors stated that they expect to move towards a net
nil cash position (pre-IFRS 16) over the next two years from a net cash position
at 26 September 2021 of £685 million.

During the year, the Group made a special dividend payment of 20.0 pence per
share (2020-21 nil) and completed a share buyback of 43,806,525 ordinary shares
for £201 million (2020-21: nil).

The net cash position (pre-IFRS 16) at 27 March 2022 was £307 million (2020-21:
£622 million).

Royal Mail plc
Annual Report and Financial Statements 2021-22

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Corporate Governance

Financial Statements

Additional Information

Financial risks and related hedging
The Group is exposed to commodity price and currency risk.

Royal Mail operates a three-year layered rolling hedging strategy
for fuel and energy. Royal Mail has hedges in place for 92% of total
underlying commodity costs for 2022-23; as a result, a further 10%
increase in underlying commodity costs would reduce operating
profit by just £2 million. However, a 10% increase in fuel duty/other
additional costs would reduce operating profit by £15 million.

Without hedging, diesel and jet fuel costs for 2022-23 would
be around £45 million higher, while gas and electricity costs would
be around £54 million higher, based upon closing commodity prices
at 27 March 2022.

GLS generally out-sources its collection, delivery and line-haul
activities to sub-contractors, and therefore is not significantly
directly exposed to higher fuel costs. Nevertheless, there is an
indirect exposure, as increasing fuel costs for sub-contractors
lead to higher rates for their services as they seek to pass on
the higher fuel costs incurred.

GLS has very limited direct exposure to diesel costs. GLS does
not hedge exposure to energy costs, a further 10% increase
in energy costs would increase energy costs by £4 million.

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 interest
rate swap with no residual exposure to foreign currency or interest
rate risk.

The average exchange rate between Sterling and the Euro
was £1:€1.18 (2020-21: £1:€1.12). This resulted in a £16 million
decrease in GLS’ reported operating profit before tax in
2021-22 (2020-21: £7 million increase). The net impact on
Group operating profit before tax was a £16 million decrease
(2020-21: £7 million increase).

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 27 March 2022, all
the gross debt of £2,213 million (2020-21: £2,051 million) was
at fixed rates.

London Development Portfolio
The current year net cash inflows relating to the London
Development Portfolio were £99 million, consisting of receipts
of £111 million for Nine Elms, offset by the cost of enabling works
of £4 million at Mount Pleasant and £8 million at Nine Elms.

In total we have invested £12 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.

1) Mount Pleasant
This development site includes the sale of 6.25 acres to develop
c.680 residential units. In 2017 an agreement was reached
with Taylor Wimpey UK Ltd (Taylor Wimpey) for the sale of the
Calthorpe Street development site, subject to specific separation
and enabling works for the site being completed. The sale was
completed, and the site handed over to Taylor Wimpey in March
2021, following the successful completion of the separation and
enabling works. The combined proceeds for the Calthorpe Street
site, and the adjacent Phoenix Place site (sold to Taylor Wimpey
in 2017-18) was £193.5 million (including £3.5 million non-cash
consideration). For accounting purposes, £39.5 million of the
proceeds were allocated to Phoenix Place and £154 million to
Calthorpe Street. £115 million of the total combined cash proceeds
for both sites has been received as at 27 March 2022 (no proceeds
were received in the current year). The remainder of the cash is
due to be received through a stage payment in 2023-24 (£66 million)
and a final payment in 2024-25 (£9 million).

2) Nine Elms
This site covers the sale of 13.9 acres with planning consent
to develop 1,911 residential units, split into various plots:

ƽ Plots B and D sale completed June 2019 for £101 million

to Greystar Real Estate Partners, LLC.

ƽ Plot C1 sale completed June 2019 for £22.2 million

to Galliard Homes.

ƽ Plot A sale completed December 2020.
ƽ Plots E, F and G sale completed January 2022 for

£111.2 million to London Square Developments Ltd.

Further investment by Royal Mail will be required in relation
to infrastructure obligations.

Royal Mail plc
Annual Report and Financial Statements 2021-22

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Financial Review continued

Pensions
Royal Mail makes contributions to two main schemes in the UK;
the Royal Mail Defined Contribution Plan (RMDCP), and the DBCBS
of the Royal Mail Pension Plan.

The Group also operates two additional UK defined benefit schemes
which are closed to future accrual, the legacy section of the RMPP,
and the Royal Mail Senior Executives Pension Plan (RMSEPP).

Royal Mail aims to introduce a new pension scheme, the RMCPP, in
the second half of the next financial year, subject to the necessary
legislative changes and regulatory approvals being obtained. This
will replace the existing DBCBS and the RMDCP, and will comprise
a Defined Benefit Lump Sum (DBLS) Section, similar to the existing
DBCBS, and a Collective Defined Contribution (CDC) Section –
the first CDC scheme in the UK.

The CDC Section will be accounted for as a defined contribution
scheme and the DBLS Section as a defined benefit scheme with
the accounting treatment expected to be similar to the DBCBS.
The new arrangements will have fixed employer contributions
of 13.6%, plus an additional 1.0% for employees who choose to
save for an additional lump sum payment. Standard employee
contributions will be 6.0%.

Cash pension costs
The Group’s cash pension costs in respect of all UK pension
schemes were £395 million in the 2021-22 financial year,
excluding Pension Salary Exchange (PSE).20

When the design of the RMCPP was agreed in 2018, the fixed
employer contribution rate of 13.6% of pensionable pay was
designed to be affordable and sustainable for Royal Mail. The
expected cost of RMCPP based on pensionable payroll at that time
was approximately the same as the cost of the existing schemes,
at around £400 million per year. The new RMCPP is expected to
increase cash pension costs by c.£30 million per annum, based
on current payroll, when it is introduced. The main reason for
the increase is that although the estimated cost of the RMCPP
as a percentage of pensionable pay will remain broadly the same
as in 2018, payroll costs have increased. In addition, since the
RMPP closed to accrual in 2018, the cost of existing plans has
been reducing over time relative to overall pay costs, as DBCBS
members leave and are replaced by new employees who join
the RMDCP, at a lower employer contribution rate.

Defined benefit schemes – balance sheet position
An IAS 19 deficit of £390 million (2020-21: £394 million) is shown on
the balance sheet in respect of the DBCBS; however, the scheme is
not in funding deficit and it is not anticipated that deficit payments
will be required.

The RMPP scheme closed to future accrual in its previous form
from 31 March 2018. The pre-withholding tax accounting surplus
of the RMPP at 27 March 2022 was £4,182 million (28 March
2021: £3,666 million). The pre-withholding tax accounting surplus
has increased by £516 million (28 March 2021: £1,884 million
decrease) in the year, largely as a result of a significant increase
in the ‘real’ discount rate (the difference between RPI and the
discount rate based on corporate bond yields), which has
significantly reduced liabilities. This has been offset by a decrease
in the value of the RMPP assets as a result of a large increase in
index-linked gilt yields, against which the assets are hedged.

20. Includes £12 million insurance premium costs which are reported within wages and salary costs.

Royal Mail plc
Annual Report and Financial Statements 2021-22

The RMSEPP closed in December 2012 to future accrual
and the Group makes no regular service contributions. The
Scheme’s liabilities are now substantially covered by buy-in
insurance policies and the scheme is expected to be wound
up imminently. The pre-withholding tax accounting surplus
at 27 March 2022 was £8 million (28 March 2021: £9 million).

Further details of all the Group’s pension arrangements can
be found in Note 11 to the Consolidated Financial Statements.

Dividends
On 12 January 2022, an interim dividend of 6.7 pence per share
was paid to shareholders on the register at the close of business
on 3 December 2021. On the same date, a special dividend of
£199 million was paid. The Board is recommending the payment of
a final dividend of 13.3 pence per share in respect of 2021-22. This
dividend will be paid on 6 September 2022 to shareholders on the
register as at 29 July 2022, subject to approval at the 2022 AGM.

Outlook
The trading environment is uncertain for both Royal Mail and
GLS. All of our markets are impacted by the more challenging
global economy, including increasingly high levels of inflation and
expectations of lower future economic growth. Whilst the positive
revenue impacts from COVID-19 such as growth in online retail
and test kits are abating, we still have additional COVID-related
cost and inefficiency in our networks.

Royal Mail
In Royal Mail, it is clear that the scale of both the revenue and cost
headwinds we face now require an acceleration in pace and an
extension in scope of our business transformation.

We expect revenue to decline in 2022-23, in particular the first half
which has strong comparatives in the prior year, which included a
period of lockdown. We anticipate a reduction in test kit volume,
and the domestic parcels market in the UK is now expected to
decline year on year. For addressed letter volumes excluding
elections, our current models suggest a high single digit
percentage decline.

Royal Mail will also incur costs associated with an increase
in Employer National Insurance (c.£50 million per annum) and
flow through costs associated with the 1 hour shorter working
week, granted in the middle of 2021-22 (c.£40 million). In addition,
we have pay deals to agree this year with both CWU and Unite, the
impact of which is currently uncertain. The CWU pay deal is most
material in terms of value, with 1% of pay equating to c.£45 million
of cost inflation.

In order to offset the revenue and cost headwinds, we
have identified a number of cost saving initiatives. Already
in deployment, or associated with agreements already made
with our trade unions, are initiatives totalling over £350 million.
These include the benefits from our ongoing operational
management restructuring (£30 million saving in 2022-23 and
£40 million annualised, plus the non-recurrence of the £70 million
restructuring charge), the next phase of productivity improvements
from our Pathway to Change agreement with CWU, removal of
residual costs from COVID-19, including rental vans and resource
covering absence, and the next phase of non-people cost reduction.

Our three-year rolling hedging strategy for fuel and energy is also
mitigating some of the energy cost inflation we are facing, which
when combined with fuel surcharges introduced into some contract
prices, means we should not see a negative impact year on year.

Strategic Report

Corporate Governance

Financial Statements

Additional Information

We are also looking to mitigate the above headwinds through price
increases and growth initiatives. We have already increased domestic
prices of our letter services by an average of c.7%, and parcel
prices by an average of c.4%, in addition to the fuel surcharge.

Overall, assuming a pay deal for change can be agreed broadly
in line with our current offer and without material industrial
disruption, current analyst consensus of £303 million (as at
18 May 2022)21 is within our range of potential outcomes for the
year, however the level of current headwinds presents risks to
the downside. The first half will be more challenging, given the
strong comparatives from last year when COVID-19 restrictions
were still in force, and benefits from some transformation
initiatives more second half weighted.

In the medium term, we still see potential for a 5%+ margin if we
can complete our new pay deal with the union and successfully
deliver our change agenda.

GLS
In GLS, there are similar inflationary pressures from fuel, energy
and wages – in some of our markets (e.g. Germany) we are seeing
material minimum wage increases. We also face a challenging
GDP backdrop with decreasing consumer confidence and spending
in many markets, with stronger comparator periods in the prior
year, when lockdown restrictions were still in force. As a result, we
expect a slowdown in volume growth and margin pressure in 2022-23.

To mitigate these pressures, we are looking to continuously
evaluate pricing during the year ahead, including fuel surcharging,
and to improve yield management, alongside the development of
further automation and digital tools to optimise efficiency across
both final mile and linehaul networks.

Revenue growth is expected to be a high single digit percent,
with an operating profit between €370 million – €410 million.

We believe the €500 million ‘Accelerate’ operating profit target
in 2024-25 is still achievable if there is a rebound in GDP growth in
2023-24 to pre-pandemic levels; though if the current challenging
macro-economic conditions persist, it may require a longer
timeframe to achieve the target.

21. Based on company collated consensus for Royal Mail adjusted operating profit in FY 2022-23 of

£303m as at 18 May 2022; based on 10 analysts’ estimates, all received after 25 January 2022.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Non-Financial Information Statement

In accordance with sections 414CA and 414CB of the Companies Act 2006, the table below sets out where information can be found in this
Annual Report relating to non-financial matters, including our commitment and approach to responsibly managing our relationships with
our people, customers, communities and the environment. It also highlights, where relevant, the policies to support our performance in
these areas, how we monitor their effectiveness and their outcomes.

How we monitor effectiveness
ƽ Measure performance against key environmental metrics.
ƽ Monitor the scores and rankings in sustainability benchmarks and indices.
ƽ Regular audits against our Environment management systems.
ƽ Include environmental criteria in supplier selection frameworks and

monitor suppliers’ performance (Royal Mail).

ƽ Board oversight of performance by the ESG Committee. Pages 107 to 109.
Risk management
ƽ Principal risk: Environment and sustainability. Page 59.
ƽ Implementation of TCFD recommendations. Pages 46 to 51.

How we monitor effectiveness
ƽ Monitor health and safety performance metrics and undertake regular

audits against our SHE management systems. Page 36.

ƽ Regular employee engagement forums and surveys allow us to monitor

culture and engagement. Pages 26, 38, 84, 85 and 90.

ƽ Track workforce diversity across job levels and different business areas

against targets. Page 40.

ƽ Monitor the contact across our whistleblowing channels and investigate

concerns/incidents raised. Pages 45 and 85.

ƽ Designated Non-Executive Director for engagement with the workforce.

Page 90.

ƽ Board oversight of performance by the ESG Committee. Page 107 to 109.

Risk management
ƽ Principal risks: Industrial action, Talent – workforce for the future and

Health, safety and wellbeing. Pages 58 and 61.

How we monitor effectiveness
ƽ Annual research of our socio-economic impact in the UK to understand
the level of benefit we deliver to the communities we serve. Page 42.

ƽ Monitor the scores and rankings in sustainability benchmarks and indices.
ƽ Monitor customer feedback. Page 26.
ƽ Monitor service performance. Page 26.
ƽ Investigating breaches to our supplier codes, plus effective monitoring

and auditing of high-risk suppliers (Royal Mail).

ƽ Monitor payment practices (Royal Mail).
ƽ Board oversight of performance by the ESG Committee. Page 107 to 109.
Risk management
ƽ Principal risks: Customer expectations and our responsiveness to market

changes, Our UK regulatory framework and Business continuity and
operational resilience. Pages 57, 59 and 60.

Environment
Material policies

Environment policy (Royal Mail)
Environmental Standard (GLS)
Outlines our commitments to responsible management of natural resources,
climate change mitigation and adaptation, pollution prevention and protection of
the environment. Includes engagement with our people, customers and suppliers.

Outcomes
ƽ Our environment strategies, approach and policy outcomes. Pages 32 and 33.
ƽ Environmental performance against key metrics including carbon emissions

and waste generation (pages 33 to 35).

ƽ The Board factors the impact of the Group’s operations on the community

and the environment into its decision making. Page 28.

Employees
Material policies

Our Business Standards (Royal Mail)
Code of Business Standards (GLS)
Page 45.

People policy (Royal Mail)
A single policy statement which sets out our overarching commitment to
colleagues throughout their employment with Royal Mail.

Royal Mail and GLS Speak Up (Reporting) policies
Our commitments to investigating suspected wrongdoing, including the system
for raising concerns and our respect for whistleblower confidentiality.

Royal Mail and GLS Health and Safety policies
Our commitments to managing health and safety risks, removing or reducing
the likelihood of injury or harm to its employees or others.

Group Equality and Fairness policy
Outlines our principles and approach to promoting equality, diversity and fairness
at all stages of employment.
Page 97.
Outcomes
ƽ Our people strategies, approach and policy outcomes. Pages 38 to 41.
ƽ Our health, safety and wellbeing performance. Page 36 to 38.
ƽ Our gender diversity profile. Page 40.
ƽ Feedback from employee engagement activities and surveys. Pages 26, 38, 84,

85 and 90.

ƽ The Board factors the interests of our employees into its decision making. Page 29.
Social and community
Material policies

Group ESG policy statement
Page 45.

Responsible Procurement Code of Conduct (Royal Mail)
Supplier Code of Conduct (GLS)
Page 45.

Outcomes
ƽ Our customer-centric strategy, service performance and customer feedback

scores. Pages 14 to 17 and page 26.

ƽ Our community investment approach and policy outcomes including UK

social and economic contribution. Page 42 and 43.

ƽ Our supply chain approach and policy outcomes including monitoring of

suppliers (monitoring for Royal Mail only). Page 45.

ƽ Payment practices, available at www.gov.uk/check-when-businesses-pay-

invoices (Royal Mail).

ƽ The Board factors the interests of suppliers, customers and other stakeholders

into its decision making. Pages 28 and 29.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Respect for human rights
Material policies

Group ESG policy statement
Page 45.

Group Equality and Fairness policy
Page 97.

Recruitment Vetting policy (Royal Mail)
Sets out the policy for Right to Work and vetting checks for all roles within
Royal Mail Group to ensure that we meet our legal, regulatory and
contractual obligations.

Responsible Procurement Code of Conduct (Royal Mail)
Supplier Code of Conduct (GLS)
Page 45.
Outcomes
ƽ Human rights approach and policy outcomes. Page 43.
ƽ Number of high-risk suppliers signed up to Sedex. Page 45.

Anti-bribery and corruption
Material policies

Policy for the Prevention of Bribery, Corruption and the Facilitation of Tax
Evasion (Royal Mail)
Anti-bribery Policy (GLS)
Page 45.

Our Business Standards (Royal Mail)
Code of Business Standards (GLS)
Page 45.

Responsible Procurement Code of Conduct (Royal Mail)
Supplier Code (GLS)
Page 45.

Royal Mail and GLS Speak Up (Reporting) policies
Page 45.
Outcomes
ƽ Our approach to ethics and compliance and policy outcomes. Page 44 and 45.
ƽ Completion rate of compliance training against target. Page 44.

Other non-financial information
Our Business Model
Measuring Our Performance (non-financial KPIs)
ESG Review

How we monitor effectiveness
ƽ Embed human rights risks into our compliance risk monitoring

programme.

ƽ Monitor high-risk supplier categories for evidence of breaches to

our standards.

ƽ Operate strict resourcing controls that govern the onboarding of new
permanent, temporary and contract staff to ensure compliance with
vetting standards (Royal Mail).

ƽ Board oversight and review of Modern Slavery Act Statement by the ESG

Committee. Page 109.

Risk management
ƽ Our risk management framework governs how we identify, assess and
manage such risks. The risk appetite determines the level of risk we are
prepared to accept. Pages 52 to 55.

ƽ Our Modern Slavery Act Statement available at https://www.

royalmailgroup.com/media/11528/modern-slavery-statement-2020-21.pdf

How we monitor effectiveness
ƽ Provision of mandatory compliance training for employees. Page 44.
ƽ Require annual manager attestations to maintain our Royal Mail Business

Standards. Page 44.

ƽ Country Manager attestations as part of Quarterly Compliance Reporting

(GLS).

ƽ Regular screening of suppliers to check for instances of corruption.
ƽ Monitoring the number of contacts made across our whistleblowing

channels. Page 85.

Risk management
Our risk management framework governs how we identify, assess and
manage such risks. The risk appetite determines the level of risk we are
prepared to accept. Pages 52 to 55.

Page

12 and 13
24 and 25
30 to 45

Most of the policies and procedures referred to above are available at www.royalmailgroup.com/en/responsibility/policies-and-reports
and www.gls-group.eu/GROUP/en/about-us/our-code-of-conduct.

This Strategic Report was approved by the Board on 18 May 2022 and signed on its behalf by:

Keith Williams
Non-Executive Chair

Mick Jeavons
Group Chief Financial Officer

Royal Mail plc
Annual Report and Financial Statements 2021-22

Corporate Governance

Corporate
Governance

79 Chair’s introduction
81 Code application
82 Board of Directors
84 Board leadership and company purpose
91 Division of responsibilities
92 Composition, succession and evaluation
95 Nomination Committee Report
99 Audit and Risk Committee Report
107 Environmental, Social and Governance

Committee Report

110 Directors’ Remuneration Report
142 Directors’ Report
146 Statement of Directors’ Responsibilities

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Chair’s Introduction

Keith Williams
Non-Executive Chair

Key priorities

ƽ Ensuring the safety of our people and customers.

ƽ Continuing to provide a vital frontline service to keep
our customers, companies and countries connected.

ƽ Monitoring the transformation of Royal Mail and the

execution of GLS’ Accelerate strategy.

ƽ Overseeing implementation of the Group’s capital

allocation policy.

ƽ Ensuring that despite different ways of working, the highest
levels of governance continue to operate across the Group,
including effective risk management measures and controls.

Dear Shareholder,
On behalf of the Board, I am pleased to present this year’s
Corporate Governance Report.

As explained in my letter on pages 4 and 5, we have continued
to face a number of challenges this year. Throughout the year,
the Board has focused on a number of key priorities, which are
detailed in the adjacent column.

Purpose, culture and values
The importance and relevance of our purpose – connecting
customers, companies and countries – and the unique contribution
our businesses make to society, have been magnified during the
past two years. Our culture, which is shaped by our values, is a key
enabling factor in delivering our purpose and strategic ambitions.
To ensure that a trusting, inclusive and customer-focused
environment is in place across the Group, the Board continues
to monitor and review the Group’s culture on a regular basis.
See pages 84 and 85.

Stakeholders
Our stakeholders are integral to the Group’s success, and
our purpose demonstrates the importance we place on
our relationships with them. To ensure that we understand
our stakeholders’ views and interests, we engage with them
in a number of ways (see pages 26 and 27). Our Directors’
duties under section 172 of the Companies Act 2006 underpin
our decision-making processes. Our section 172 statement on
pages 28 and 29 includes examples of how the Board factored
stakeholder views and interests into decisions it made this year.

Environmental, social and governance
As highlighted on page 30 and 31, we have developed new Group-
wide ESG Principles which are built around the issues that are most
relevant to our stakeholders and our businesses.

Royal Mail has also updated its environmental strategy to target
net zero by 2040, and GLS has launched its own strategy, tailored
to its business of working with transport partners, to reduce its
emissions to zero by 2045. See pages 32 and 33.

Capital return
In the early days of the pandemic, the Board made the decision
to not pay a final dividend for 2019-20 whilst the Company
determined the impact of the pandemic on its finances. With
more visibility on the Group’s strategic progress and performance,
in November 2021 the Board reviewed the Group’s cash holdings.
In line with our capital allocation policy, we decided cash was
available to return to shareholders and announced our intention
to return up to £400 million of cash to shareholders through a share
buyback programme and a special dividend. The special dividend
of 20 pence per share was paid to shareholders alongside the
interim dividend on 12 January 2022 and the share buyback
programme was completed in March 2022.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Board evaluation
To ensure that it sets the correct tone and continues to operate
effectively, we are committed to annually reviewing the Board’s
performance. Full details of the internal evaluation undertaken
in March 2022, including the methodology and key findings, are
set out on page 94. While the overall outcome of the evaluation was
positive, to ensure continuous improvement, the Board agreed that
a number of actions should be implemented (see page 94).

Compliance with the 2018 UK Corporate Governance Code1
(the Code)
The Board confirms that for the year ended 27 March 2022 the
Company complied with all relevant Provisions in the Code.
This governance section explains how we have applied the
Code’s Principles during the year.

Conclusion
I hope that you find this report useful and I look forward to
engaging with shareholders at our forthcoming AGM.

Keith Williams
Non-Executive Chair
18 May 2022

Corporate Governance

Chair’s Introduction continued

Board and Committee changes
There were two additions to the Board in the year. Martin Seidenberg,
CEO GLS, joined as an Executive Director on 1 April 2021, and
Shashi Verma joined as a Non-Executive Director on 29 September
2021. Shashi also joined the Nomination Committee and ESG
Committee. Biographical information about Martin and Shashi
is included on pages 82 and 83.

As announced on 1 February 2022, Rita Griffin has decided not to
seek re-appointment at our forthcoming AGM, which is scheduled
to be held on 20 July 2022, and she will step down from the Board
at the end of the meeting. Rita, who has been a Non-Executive
Director since December 2016, will also step down as Chair of the
ESG Committee and a member of the Nomination Committee at
the same time. On behalf of the Board, I would like to thank Rita
for her valued contribution and wish her well for the future.

Lynne Peacock joined the ESG Committee on 1 February 2022.
Subject to her re-appointment to the Board at our forthcoming
AGM, Lynne will succeed Rita as Chair of the ESG Committee at the
conclusion of the AGM and, at the same time, step down as Chair
of the Remuneration Committee. Subject to her re-appointment
to the Board at our forthcoming AGM, Maria da Cunha, who is an
existing member of the Remuneration Committee, will take over
from Lynne Peacock as Chair of this Committee at the conclusion
of the AGM. Maria will continue in her role as Designated Non-
Executive Director for engagement with the workforce.

Diversity and inclusion
To effectively fulfil our purpose and deliver long-term value for our
stakeholders, we must foster an inclusive culture, employ people
with different viewpoints and promote diversity in its broadest
sense, including professional, educational, skills, age, gender
and ethnicity. This approach enhances our decision making and
supports delivery of our strategy. Further information about our
current diversity profile and the steps we are taking to improve
this are set out on pages 40 and 41.

The composition of the Board aligns with the ambitions set by
the Parker Review and the FTSE Women Leaders Review, as well
as those announced by the Financial Conduct Authority. As at
27 March 2022, the proportion of women on our Board was 40%.
However, when Rita Griffin leaves the Board in July 2022, the
proportion of women on our Board will drop to 33%. Our ambition is
to further increase gender diversity on the Board, and the
Nomination Committee will consider the FTSE Women Leaders
recommendations and the FCA targets as part of its annual review
of the Board Diversity Policy this coming year.

Female colleagues continue to be under-represented in our
senior leadership roles. During the year, recognising that we
need to accelerate our progress in this important area, we
introduced gender balanced shortlisting for all recruitment
into our most senior grades at Royal Mail (see page 97).

Also recognising that ethnic minority colleagues continue to be
under-represented in senior management roles, we introduced
ethnic diversity targets for Royal Mail (see page 40).

The Code is available at www.frc.org.uk.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Application of Code Principles

Information about how we have applied the Code’s Principles during the year ended
27 March 2022 can be found as indicated below.

Code Principle

1. Board leadership and company purpose

A. Effective leadership, promotion of long-term success, value generation and social contribution

B. Purpose, values, strategy and cultural alignment

C. Resources and controls

D. Stakeholder engagement

E. Policies and practices and mechanisms to raise workforce concerns

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. Effective and efficient Board

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

Page

28 and 29
82 to 86

2
14 to 23
84 and 85

52 to 61
87 and 88
105

26 to 29
90

44 and 45
90

91
94

91 and 92

91
98

96 to 98

82 and 83
95

104
106

146

52 to 55
105

115

126 to 141

110 to 113

Royal Mail plc
Annual Report and Financial Statements 2021-22

Corporate Governance

Board of Directors

N R
Keith Williams
Independent Non-Executive Chair

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
Non-Executive Chair on 1 February 2021

Skills and experience
ƽ Proven business leader with significant chair and
board leadership experience. Keith spent 18 years
at British Airways, including five years as CFO,
three years as CEO and two years as Executive
Chair, during which time he led the transformation
of British Airways. Formerly a Non-Executive
Director and Deputy Chairman of the John Lewis
Partnership, a Non-Executive Director of Aviva plc
and an Executive Board member and Chair of the
Audit Committee at Transport for London.
ƽ Extensive industrial relations, operational

and customer service experience.

ƽ Chartered accountant.

Significant external appointments
ƽ Chair of Halfords Group plc

Simon Thompson
Chief Executive Officer of Royal Mail

Martin Seidenberg
Chief Executive Officer of GLS

Appointed to the Board
Non-Executive Director on 1 November 2017
Chief Executive Officer of Royal Mail on 11 January 2021

Skills and experience
ƽ Extensive experience as a global business leader.
ƽ Proven track record in delivering digital

transformation and enhanced customer experience.
Simon has held senior positions at HSBC, Ocado plc,
Honda Motor Europe Ltd, Motorola Inc,
lastminute.com, Apple Inc. and Wm Morrison
Supermarkets plc.

ƽ Former Royal Mail Designated Non-Executive

Director for workforce engagement.

Significant external appointments
ƽ Member of the Digital Advisory Board of Coca Cola

Europacific Partners

Appointed to the Board
1 April 2021

Skills and experience
ƽ Significant international and logistics experience.
Martin spent 15 years with Deutsche Post DHL in
a variety of senior logistics, parcel-related and
strategic roles including CEO of the DACH region
at DHL Supply Chain.

ƽ Deep knowledge of GLS, having joined in 2015

as Chairman of GLS Germany, becoming GLS Group
CEO in June 2020.

Significant external appointments
ƽ None

E N
Rita Griffin
Independent Non-Executive Director

Maria da Cunha
Independent Non-Executive Director

E N R

Michael Findlay
Independent Non-Executive Director

A N R

Appointed to the Board
1 December 2016

Designated Non-Executive Director
for engagement with the workforce

Appointed to the Board
22 May 2019

Skills and experience
ƽ Significant experience in developing and

implementing strategies and leading substantial
transformation programmes. During her long
career at BP plc, Rita held various roles including
Vice President of Downstream Transformation and
Chief Operating Officer of Global Petrochemicals.

Significant external appointments
ƽ None

Subject to her re-appointment at the AGM, Maria will
become Chair of the Remuneration Committee at the
conclusion of the AGM.

Appointed to the Board
22 May 2019

Skills and experience
ƽ Extensive experience in industrial relations,
transformation programmes and employee
engagement gained through her 18-year career
at British Airways, where Maria was the Director
of People, Legal and Government and Industry
Affairs, and the Director of People and Legal.

ƽ Qualified solicitor with significant risk, compliance
and legal knowledge, having held various positions
with Hogan Lovells, Lloyds of London and Law
College of Europe.

Significant external appointments
ƽ Non-Executive Director of De La Rue plc
ƽ Panel Member of the Competition and

Markets Authority

Skills and experience
ƽ Extensive strategy, finance and M&A experience.
Michael spent 27 years in investment banking at
Robert Fleming & Co, UBS and most recently Bank
of America Merrill Lynch, where he was Co-Head
of Investment Banking and Corporate Broking
for the UK and Ireland.

ƽ Significant knowledge of the letters and parcel

sector. He is a former Non-Executive Director of
UK Mail Group plc, where he was also the Senior
Independent Director, Chair of the Remuneration
Committee and a member of the Audit Committee.

Significant external appointments
ƽ Chair of Morgan Sindall Group plc
ƽ Chair of London Stock Exchange plc (a subsidiary

of London Stock Exchange Group plc)

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Committee membership key

A Audit and Risk

E ESG

N Nomination

R Remuneration

Committee Chair

Mick Jeavons
Group Chief Financial Officer

Appointed to the Board
11 January 2021

Skills and experience
ƽ Significant financial, logistics and industrial

relations experience. Mick joined Royal Mail in
1993 and has held various senior roles, including
Corporate Finance Director at the time of the IPO
in 2013 and Chief of Staff to the then CEO.

ƽ Chartered accountant.

Significant external appointments
ƽ None

Baroness Hogg
Senior Independent Non-Executive Director

A E N

Appointed to the Board
1 October 2019

Skills and experience
ƽ Extensive board and governance experience,
having served as Chair of 3i Group plc and as
a Non-Executive Director of several companies,
including BG Group and GKN plc. Baroness Hogg
won the Sunday Times Lifetime Achievement Award
for Non-Executive Directors in 2017.

ƽ Significant political and regulatory experience
through her former roles as Lead Independent
Non-Executive Director of HM Treasury, Chair of the
Financial Reporting Council and Head of the Prime
Minister’s Policy Unit under John Major. She was
granted a life peerage in 1995 and sits in the House
of Lords as a crossbencher.

Significant external appointments
ƽ None

Lynne Peacock
Independent Non-Executive Director

R A E N

E N
Shashi Verma
Independent Non-Executive Director

Mark Amsden
Group General Counsel and Company Secretary

Appointed to the Board
29 September 2021

Appointed
8 April 2019

Skills and experience
ƽ Proven business leader with extensive experience
in developing innovative technology. Shashi is
currently the Director of Strategy and Chief
Technology Officer at Transport for London (TfL),
a role in which he is responsible for the operation
of TfL’s revenue collection system. He also led the
development and implementation of contactless
payments on TfL’s systems.

ƽ Significant customer service experience gained
through his responsibility for integrating TfL’s
customer-facing activities and for running its
customer service operations.

Skills and experience
ƽ Significant legal and company secretarial
experience. Mark was the former General
Counsel and Company Secretary of Wm Morrison
Supermarkets plc and the interim Company
Secretary of Yorkshire Water. Formerly a partner
at Addleshaw Goddard LLP, where he specialised
in corporate litigation and headed up the national
IT litigation practice.

ƽ Data and technological experience. Mark helped
oversee Morrisons move online with Ocado and
then Amazon, and dealt with the response to
Morrisons’ employee data theft in 2014.

Significant external appointments
ƽ None

Subject to her re-appointment at the AGM, at the
conclusion of the meeting, Lynne will cease to serve as
Chair of the Remuneration Committee, but will continue
to serve as a member of that Committee. At the same
time, she will become Chair of the ESG Committee.

Appointed to the Board
1 November 2019

Skills and experience
ƽ Significant board and executive experience, having
served as the CEO of National Australia Bank Europe
Limited (NAB) and the CEO of Woolwich plc. Lynne
was formerly a Non-Executive Director at Standard
Life Aberdeen plc, Scottish Water, Jardine Lloyd
Thompson Group plc and Nationwide Building Society.

ƽ Transactional experience gained through her

involvement in Woolwich plc’s IPO and FTSE 100
listing and its sale to Barclays, the disinvestment
of NAB’s Irish operations and the integration of
Clydesdale and Yorkshire Banks.

Significant external appointments
ƽ Senior Independent Director of Serco Group plc
ƽ Non-Executive Director of TSB Banking Group plc
ƽ Senior Independent Director of TSB Bank plc

(a subsidiary of TSB Banking Group plc)

Royal Mail plc
Annual Report and Financial Statements 2021-22

Corporate Governance

Board Leadership and Company Purpose

An effective Board
As outlined on pages 82, 83 and 88, our Directors have proven capabilities and the right balance of skills and expertise to oversee the
delivery of the Group’s strategy and its long-term success. In particular, their different backgrounds and experience ensure diversity
of thought, constructive debate, due consideration of all relevant stakeholders and an effective decision-making process.

Purpose, values and culture
If we are to achieve long-term success, it is essential that our culture, and the values which shape it, are aligned with our purpose and
strategy. We aim to foster a trusting and inclusive culture. In addition, given our societal role and the strategic importance of strong
customer relations, it is vital that customer-centricity underpins everything we do. The Board endorses the Royal Mail and GLS values
which are described on page 2 and regularly monitors the Group’s culture using several mechanisms as detailed below.

How the Board and/or its Committees monitored and assessed culture during the year

Activity

Insight gained

Outcome

Board reviewed feedback
from employee surveys

Valuable information about the issues that matter
to our people (see page 38).

Enabled the Board to assess implementation of the
Group’s strategy from an employee perspective.

Deepened understanding of the working environment across
the Group and the effectiveness of embedding our values in
everything we do.

Assisted the Board in monitoring the progress of initiatives
to improve relationships with our people and unions, and
rebuild trust.

Understood how the survey feedback translates into local action
plans, leading in turn to improved working environments.

Feedback from our people about customer reaction to new
products and service quality taken into account as part of
the Board and Management’s review of Royal Mail’s new
product offerings and plans to improve customer service.

Board considered regular
updates from the
Designated Non-Executive
Director for engagement
with the workforce

Direct and immediate feedback from our people and an
opportunity to see our operations first-hand. Observations
arising from dialogue this year included clear evidence of a
cohesive and strong culture across GLS and a committed
workforce in Royal Mail. Within Royal Mail colleagues again
expressed concerns about having the right tools to do the job.

In response to previous concerns around Royal Mail
colleagues having the right tools for the job, almost 80,000
new personal digital devices were rolled out. There is still
some work to be done to enable our people to provide a
great service and we will explore ways to do so in the
coming year.

Health, safety and
wellbeing updates reviewed
at every ESG Committee
and Board meeting

Key information about our health and safety performance
which identified a need to improve accident rates and health
and safety awareness across the GLS business and improve
the health and safety culture across the Royal Mail business.

Details of infection and absence rates as a result of the
pandemic and the effectiveness of the controls put in place
in response to the pandemic.

Discussed and monitored the roll out of the awareness
and training programme to improve safety across the
GLS business (see page 37).

Discussed initiatives to improve health and safety culture
across the Royal Mail business, including moving to a culture
of reporting near misses, appointing a dedicated Health and
Safety leader, reviewing 10% of safety assessments for
postie walks each month, and providing the Board and Royal
Mail Executive Board with health and safety training to
ensure awareness of their responsibilities.

Considered level of pandemic-related absences in
discussions about Royal Mail service quality issues in
January and February 2022, along with ways to address
them.

Board level ongoing monitoring and review to ensure that
effective health and safety processes and procedures
are in place.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Activity

Insight gained

Outcome

ESG Committee reviewed
Royal Mail absence levels

Information on frontline absence rates for the year to date with
a comparison against prior year and pre-pandemic levels,
which identified a need to reduce absence levels.

Information on the split of long-term and short-term
absence and what the leading causes are for each.

The scale of pandemic-related absence levels.

In relation to long-term sickness, the effectiveness of actions
taken to support people coming back into the workforce.

Discussed initiatives to drive a reduction in sickness-
related absences including launching a taskforce to look
at short-term absence and launching a communications
campaign to increase awareness of the support available
for employees.

ESG Committee reviewed
Royal Mail frontline
employee turnover
and the findings of
a new exit survey

Information on employee turnover in 2021-22 including
the rate of employees who had left within one year and a
comparison against pre-pandemic levels. The exit survey
provided a deeper understanding of why people are leaving us,
particularly in areas where the workforce is under-
represented such as female, minority ethnic and younger
colleagues, and identified three themes focused on
relationships with management, job expectations and working
hours.

Reviewed and discussed a range of initiatives to increase
employee retention including improving the onboarding
process, the role of workplace coaches and working with
hiring managers to ensure that recruitment levels are in
line with business needs and to monitor the hours worked
compared with the contracted hours of new entrants.

Royal Mail whistleblowing
reports reviewed at
ESG Committee
or ARC meetings

Information on the total number of whistleblowing reports
being registered on a quarterly basis, which rose above the
UK benchmark for the first time, suggesting an increase in
trust in the process and the drive from within the business
from the top down to an open and transparent culture.

Information on the anonymous reporting rates, which
had decreased and was at the lowest rate since 2019 but
remained high overall, suggesting fears around retaliation
and confidentiality remain.

Updates on key cases and actions being taken to address
issues raised.

Considered initiatives to reduce anonymous reporting
and build greater trust in the whistleblowing process,
including publishing more redacted case studies and
implementing and publicising an anti-retaliation process.

Reviewed proposals to proactively monitor the timeliness
of investigations and their escalation and plans to increase
resources to reduce the time taken to review reports prior
to their closure.

Royal Mail and GLS
whistleblowing processes
reviewed by the ARC and
the Board

The end-to-end process of Royal Mail and GLS’ whistleblowing
process, which demonstrate that both businesses operate a
robust and effective process that enable our workforce to raise
issues of concern.

Content of whistleblowing reports for Royal Mail and GLS.

Considered minor improvements to enhance Royal Mail’s
whistleblowing process including introducing performance
measures into different elements of the whistleblowing
process in the coming year to track timeliness of dealing
with issues raised.

The ARC and the Board will continue to monitor the
effectiveness of the whistleblowing processes on a
bi-annual basis.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Corporate Governance

Board Leadership and Company Purpose continued

Governance framework
Our governance framework, which is set out below, assists us in the exercise of our duties and responsibilities, including setting
and monitoring the Group’s strategic direction and creating long-term value for our shareholders and other stakeholders.

Governance framework

The Board

ƽ Responsible for the stewardship of the Group and its long-term success.

ƽ Sets the objectives and strategy, and monitors performance and

ƽ Sets the Group’s values and standards, making sure that they align with

risk management.

its strategic aims and the desired business culture.

ƽ Approves major contracts, investments, internal controls and

ƽ Oversees and has accountability for stakeholders’ interests.

key policies.

Nomination
Committee

Committee Chair:

Keith Williams

ƽ Reviews the balance and

composition of the Board and
its Committees including in
relation to skills, knowledge,
independence, diversity
and experience.

ƽ Ensures a progressive

renewal of Board
membership through orderly
succession planning.

ƽ Considers talent reviews and

succession planning for
senior executives.

ƽ Oversees progress against
the Group’s diversity policy.

See pages 95 to 98.

Audit and Risk
Committee

Committee Chair:

Michael Findlay

ƽ Reviews, and recommends
for the Board’s approval, all
Financial Statements and
associated disclosures.

ƽ Advises the Board on the

Group’s overall risk appetite,
tolerance and strategy, and
reviews the policies and
processes for identifying and
assessing the risks to which
the Group is exposed and the
management of those risks.

ƽ Satisfies itself that internal

controls and risk
management processes
generally work effectively,
including the Group’s
whistleblowing
arrangements.

ƽ Oversees the financial

performance of the Group.

ƽ Oversees the relationship
with the external auditor,
ensuring the effectiveness of
the external audit process.

See pages 99 to 106.

Remuneration
Committee

Committee Chair:

Lynne Peacock

Environmental, Social and
Governance Committee

Committee Chair:

Rita Griffin

ƽ Determines, and

ƽ Oversees the Group’s

recommends for the Board’s
approval, the framework for
the remuneration of the
Group’s senior executives.

ƽ Determines and recommends
for the Board’s approval the
individual remuneration
arrangements for the Chair,
the Executive Directors, the
Executive Board of Royal Mail
and GLS and the Company
Secretary.

ƽ Agrees targets for any
performance-related
incentive schemes.

See pages 110 to 141.

performance in relation to
ESG matters and standards
to ensure that they are
in alignment with the
Group strategy.

ƽ Reviews, and recommends
for the Board’s approval,
the Group’s ESG policies
and practices.

ƽ Focuses its efforts on the

ESG issues that are of most
importance to the Group and
its stakeholders and remains
attuned to the changing
needs and expectations
of society.

ƽ Monitors and reviews
the Group’s culture.

ƽ Monitors and reviews health
and safety and wellbeing
arrangements.

ƽ Monitors and reviews the

Group’s community efforts
and its help for vulnerable
customers.
See pages 107 to 109.

Matters reserved for the Board’s approval are available at www.royalmailgroup.com/en/about-us/governance.

The responsibilities the Board has delegated to its Committees are available at https://www.royalmailgroup.com/en/about-us/management-and-committees.

Board and Committee agendas
The Board’s annual plan is designed to ensure that enough time is allocated to address all necessary matters, and meeting agendas are adjusted to
prioritise relevant issues and ensure focused consideration of strategic priorities.

Committee meeting agendas are informed by a forward planner which is developed from each Committee’s Terms of Reference and reviewed and
updated regularly to reflect areas identified by Committee members for additional focus.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Board meetings and attendance
The Board met on nine scheduled occasions during the year
in addition to a number of ad hoc meetings. Each Director
has committed to attending all scheduled Board meetings and
would only fail to do so in exceptional circumstances. Similarly,
every effort is made by Directors to attend ad hoc meetings. On
the rare occasion that a Director cannot attend a meeting, they are
provided with the papers in advance of the meeting and are given
the opportunity to provide comments to the Chair. The table below
shows the number of scheduled Board meetings each Director
attended and the number of meetings they were entitled to attend
during the year ended 27 March 2022. As pandemic restrictions
eased during the year, Board meetings were held in person where
appropriate and possible in accordance with guidance at the time.
Whilst the Board welcomes the return of physical meetings, it is
keen to continue to harness the benefits of virtual meetings and
will continue to invite some colleagues to present virtually and
will also hold Committee meetings virtually where appropriate.

Governance at a glance
The Non-Executive Directors and the Chair meet regularly 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 also meet regularly with Senior
Management, and spend time increasing their understanding of
the business. These meetings also enable Senior Management to
benefit from the Non-Executive Director skill set and experience.
These meetings help to ‘open out’ discussions, enabling formal
Board meetings to be more focused. It also helps the Non-
Executive Directors recognise that attendance at Board
meetings is only one part of their role.

Board activities
The specific areas the Board focused on during the year and up
until 18 May 2022 are outlined on pages 88 and 89. In addition, at
every Board meeting a number of standing items are reviewed,
including health and safety and wellbeing reports, customer
service, regulatory updates and market developments. At each

Board meeting, Committee Chairs update the Board on the recent
work of their Committee. Individuals from relevant business areas,
as appropriate, present on key items, which enables the Board to
debate and challenge Management’s proposed initiatives and plans
and meet key individuals from the businesses. During the year, over
60 Royal Mail and GLS Senior Managers presented at or attended
one or more Board or Committee meetings.

Effectiveness of risk management and internal control
The Board has overall accountability for the Group’s risk
management and internal control systems and has delegated
to the ARC a number of activities, including objectives related
to risk control, governance, financial control and statutory
reporting. Information about the ARC’s activities is included
on pages 99 to 106.

During the year, the Board reviewed the Group’s risk management
and internal control systems, covering all material controls
including financial, operational and compliance controls, and
determined they were generally effective in the year. The Board
also considered recommendations from the ARC to improve the
effectiveness of the control environment in light of the increasing
global risk facing the business as it transforms. See page 105 for
further information of the key activities underway.

The Board also determined the Group’s risk appetite and carried
out a robust assessment of the Group’s principal and emerging
risks. Information about the Group’s principal risks is included on
pages 56 to 61.

Conflicts of interest
The Group operates a policy to identify and, where appropriate,
manage Directors’ potential conflicts of interest. Any potential
conflict must be notified to and authorised by the Board. Each
Director abstains from approving their own potential conflicts.
Directors also have an ongoing obligation to 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.

Board attendance

Director

Keith Williams

Joined

Chair

Baroness Hogg

Senior Independent Director (SID)

Rita Griffin

Non-Executive Director

Michael Findlay

Non-Executive Director

Maria da Cunha

Non-Executive Director

Lynne Peacock

Non-Executive Director

Shashi Verma1

Non-Executive Director

Mick Jeavons

Group Chief Financial Officer

Simon Thompson

CEO of Royal Mail

Martin Seidenberg

CEO of GLS

Attendance
(scheduled
meetings)

Board composition

9/9

5/5

9/9

1. Shashi Verma joined the Board as a Non-Executive Director on 29 September 2021.

Executive Directors
Independent
Non-Executive Directors
Non-Executive Chair

3
6

Royal Mail plc
Annual Report and Financial Statements 2021-22

Corporate Governance

Board Leadership and Company Purpose continued

Board gender balance

Male
Female

Board tenure

0-2 years
2-5 years
5+ years

6
4

3
6
1

Board ethnicity

White
Indian

Board key skills and experience

Industrial relations/
employee engagement

Customer
Transformation
Finance
Regulated industries
Corporate governance
Audit, risk management
and compliance

9
1

5
3
3
8
7
7

Board activities

Matter considered

Activity

Strategy and business plan

Strategy

ƽ Dedicated a significant amount of time to discussing, monitoring and reviewing the implementation
of Royal Mail and GLS’ respective strategies, including participating in a dedicated strategy day.

ƽ Considered and approved GLS’ acquisition of Rosenau Transport.
ƽ Reviewed and the approved the GLS medium and longer-term strategy plans and GLS Accelerate.
ƽ Discussed and reviewed the implementation of Royal Mail’s transformation programme and approved
proposals to further streamline operational management to improve performance at local levels.

ƽ Received updates on Royal Mail’s pricing strategy.

Business plans

ƽ Reviewed and approved business plans and budgets.
ƽ Monitored progress against the annual budgets and the Group’s financial targets.
ƽ Considered and approved the capital allocation framework.

COVID-19

ƽ Received regular COVID-19 updates, including impact assessments, contingency plans and the

measures being deployed to protect the Group’s workforce and customers.

Leadership

Board composition and
succession planning

ƽ Considered and approved the appointment of Shashi Verma as a new Non-Executive Director.
ƽ Continued to consider Board membership, including Board succession planning and Committee

composition, with a focus on diversity and ethnicity.

ƽ Considered and approved changes to membership of the Remuneration and ESG Committees.
ƽ Received updates on the talent work conducted by Korn Ferry (see page 96).

Organisational change

ƽ Considered and approved a corporate restructure to reflect the new Group management structure.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Board activities continued

Matter considered

Activity

ESG

ƽ Reviewed and approved the Group’s ESG Principles (see page 31).
ƽ Discussed and reviewed the Group’s culture (see page 84 and 85) including the role to be played

by the ESG Committee in monitoring culture.

ƽ Approved the 2020-21 Corporate Responsibility Report.
ƽ Undertook in-depth review of Royal Mail diversity, equality and inclusion programmes and

associated targets.

Stakeholders

ƽ Regularly reviewed the Directors’ section 172 duties and responsibilities.
ƽ Considered the feedback from employee surveys and oversaw the development of an action plan

to address several issues (see page 84).

ƽ Considered reports covering employee feedback provided by the Designated Non-Executive

Director for engagement with the workforce and from the Chair of the ESG Committee.

ƽ Received regular updates on shareholder sentiment and the Group’s investor relations programme.
ƽ Received regular updates on discussions with unions and the industrial relations environment.
ƽ Reviewed regular updates including updates in relation to Management’s engagement with Ofcom

about the Universal Service Obligation, and Ofcom’s regulatory review.

Operational

ƽ Reviewed and discussed operating performance reports prepared by the CEOs of Royal Mail

and GLS, including the impacts arising from the war in Ukraine.
ƽ Received updates on aspects of the Group’s property portfolio.
ƽ Reviewed and discussed Royal Mail’s plan for the Christmas peak.

Financial

Performance

Dividend

ƽ Regularly discussed and considered the Group’s financial performance.
ƽ Regularly reviewed the cost-control initiatives being implemented across the Group.

ƽ Reviewed the dividend and capital allocation policies, taking into account the continued pandemic.
ƽ Considered and approved the decision to pay an interim and final dividend for 2021-22.
ƽ Considered and approved the decision to pay a special dividend.

Share buyback

ƽ Reviewed and approved a £200 million share buyback programme.

Reporting

ƽ Considered and approved full-year results, interim results and trading updates.
ƽ Considered and approved this Annual Report, including the going concern and viability statements

Risk and internal controls

on page 63.

Health and safety

ƽ Received regular updates on health, safety and wellbeing matters, including absence levels.

Principal and emerging risks ƽ Received regular updates on the Group’s principal and emerging risks.

ƽ Considered and reset the Group’s risk appetite position.

Cyber security

Whistleblowing

Governance

ƽ Received updates on cyber security and the associated risks, including in relation to operational technology.
ƽ Participated in cyber security training.

ƽ Reviewed reports in relation to the whistleblowing helplines.

ƽ Considered findings of the Board evaluation and agreed actions to improve and enhance a number

of areas (see page 94).

ƽ Reviewed and approved changes to the Matters Reserved for the Board and the Committees’ Terms

of Reference.

ƽ Reviewed and approved, upon recommendation from the relevant Committee (where appropriate),
the Group’s Modern Slavery Act Statement, Treasury Policy, Anti-bribery and Corruption Policy, the
Board’s Diversity Policy and the ESG Policy.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Corporate Governance

Board Leadership and Company Purpose continued

The Board’s engagement with stakeholders
To deliver our strategy and create long-term sustainable value,
we need to build constructive relationships with our stakeholders.
By understanding their issues and concerns, we can factor their
views into our Boardroom discussions to help drive our long-term
success as well as assess the potential impact our decisions have
on our various stakeholders.

Our stakeholders and the channels we use to engage with them
are described on pages 26 and 27. Our section 172 statement is on
pages 28 and 29 together with examples of principal decisions and
how the Board considered the section 172 matters.

Workforce engagement
Many of the decisions we make could impact our colleagues and it
is therefore important that we engage with them and understand
their views. As our people are pivotal to our long-term success, it
is also important that they understand our strategy and objectives
and have an opportunity to share their insights, particularly about
our customers who they engage with daily.

Ordinarily the Board visits at least one operational site a year;
however, as a result of the pandemic, the Board was unable to
undertake any visits during the year and several planned visits
were cancelled due to the pandemic. It is hoped that site visits
will resume later this year. Maria da Cunha is the Designated
Non-Executive Director for engagement with the workforce
and has held this role since January 2021. While the continued
pandemic has prevented travel to GLS’ operations, Maria has
held five virtual Employee Voice Forums with GLS colleagues,
and seven face-to-face Employee Voice Forums with Royal Mail
colleagues. Colleagues from operational and central functions,
including delivery, fleet and engineering, property and facility
solutions and our Parcelforce business participated in these
forums. Maria submits a periodic written report to the Board
covering key observations and themes arising from her discussions.

Engagement with customers
Our customers rely on the service we provide, and it is therefore
important that we engage with them about any decisions that
will impact them. As we seek to ensure that the Universal Service
stays relevant and sustainable, the Board felt it was appropriate
to gather feedback on Royal Mail’s proposals from its customers
via consumer roadshow events, which were held from January
to March 2022. The findings were then shared with Ofcom.

Engagement with Regulator
We have regular contact with Ofcom (see page 27). We are
participating in its current Review of Postal Regulation and we have
called for tracking on USO services. This is a subject that the Board
regularly discusses and feels strongly about, particularly in light of
customer demand for more visibility. As part of our recent
response to Ofcom consultations, we have put in a detailed,
evidence based submission demonstrating the importance of
allowing tracking in the USO, supporting better customer
outcomes.

Engagement with investors
We operate a comprehensive investor relations programme. The
Director of Investor Relations, John Crosse, provides a monthly
report to the Board which covers feedback from this programme
and updates on the investor landscape. Our corporate brokers also
provide updates to the Board as required.

Keith Williams and, separately, Mick Jeavons and John Crosse, met
with major shareholders to understand their views on governance
and performance against strategy. The AGM is a key forum for the
Board to engage with shareholders. After holding a closed meeting
for our AGM in 2020, we had hoped to welcome shareholders in
person to our 2021 AGM, but unfortunately in light of the
uncertainty around restrictions on social contact, we strongly
encouraged shareholders not to attend the AGM in person but
instead to attend and participate electronically. Further, following a
positive COVID-19 test result by an employee at the proposed venue,
the Board decided, in the interests of health and wellbeing, that only
a limited number of Company representatives should attend.
Accordingly, other than the Chair, Group CFO and the CEO of Royal
Mail, who attended in person, all Directors participated in the
meeting virtually. Reflecting our commitment to constructive
engagement, shareholders were invited to submit questions in
advance of the meeting, in person or via a virtual platform during
the meeting. We responded to any questions not answered at the
AGM via email after the meeting. In general, those were questions
specific to that shareholder, not questions of wider shareholder
interest. We look forward to welcoming shareholders in person at
our forthcoming AGM.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Division of Responsibilities

The role of each Director, which is summarised below, ensures a clear division of responsibility between executive and non-executive
Board members, which supports the integrity of the Board’s operations.

Non-Executive

Chair

ƽ Responsible for the leadership and management of the Board
and for promoting high ethical and governance standards.

ƽ Ensures an effective and complementary Board, including appropriate

contribution and sufficient challenge from the Directors.

ƽ 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.

ƽ Ensures effective relationships exist between all Directors, driving a culture

ƽ Ensures that the Board determines the nature and extent of the significant

that supports constructive discussion, challenge and debate.

risks that the Group is willing to accept in implementing its strategy.

ƽ Maintains effective communications with shareholders, ensuring that their

views are understood and considered appropriately during Board discussions.

Senior Independent Director

ƽ Acts as a sounding board for the Chair and serves as a trusted intermediary

for the other Directors.

ƽ Leads the annual appraisal of the Chair’s performance.
ƽ Available to meet with shareholders, should they have issues or concerns.

Independent Non-Executive Directors

ƽ Responsible for contributing sound judgement and objectivity to the Board’s

deliberations and overall decision-making process.

ƽ Provide constructive challenge and monitor the Executive Directors’ delivery

ƽ Determine the appropriate level of remuneration for Executive Directors
and ensure that there is appropriate succession planning in place at both
Executive and Board level.

of the strategy within the Board’s risk and governance structure.

ƽ Engage with internal and external stakeholders and feedback insights

ƽ Provide independent insight and support based on relevant experience.
ƽ Satisfy themselves of the integrity of financial information and of the
effectiveness of financial controls and risk management systems.

as to their views in relation to Group culture.

Designated Non-Executive Director for engagement with the workforce

ƽ Represents the Board in engagement with the workforce.
ƽ Develops a thorough understanding of the workforce’s views and the

ƽ Provides an employee voice in the Boardroom by raising relevant matters on

issues raised.

Group culture.

ƽ Communicates to the workforce the outcomes and developments made by

ƽ Develops, implements and feeds back on employee engagement initiatives

the Board on specific matters.

in conjunction with Management.

Executive

Group Chief Financial Officer

ƽ Responsible for providing strategic financial leadership of the Group and the

day-to-day management of the Group finance function.

ƽ Develops and monitors the control systems designed to preserve Group

ƽ Ensures commercial focus across all business activities.
ƽ Supports and advises the CEOs and CFOs of both Royal Mail and GLS.
ƽ Oversees the Group’s treasury, investor relations, tax and pension

assets and report accurate financial results.

arrangements and monitors regulation.

Chief Executive Officer – Royal Mail

Chief Executive Officer – GLS

ƽ Responsible for the executive leadership and day-to-day management

of Royal Mail.

of GLS.

ƽ Leads the Royal Mail Executive Board.
ƽ Responsible for implementing the delivery of the Royal Mail strategy and
commercial objectives as agreed by the Board and in accordance with the
Group’s risk appetite and business plans.

ƽ Leads the GLS Executive Board.
ƽ Responsible for implementing the delivery of the GLS strategy and

commercial objectives as agreed by the Board and in accordance with
the Group’s risk appetite and business plans.

ƽ Responsible for promoting Royal Mail’s culture, values and behaviours

ƽ Responsible for promoting GLS’ culture, values and behaviours and

and engagement with employees and key stakeholders.
ƽ Provides support to the Chairman and Group CFO with

shareholder relationships.

engagement with employees and key stakeholders.
ƽ Provides support to the Chairman and Group CFO with

shareholder relationships.

Company Secretary

ƽ Provides advice to Board members, particularly in relation to corporate
governance practices, induction training and personal development.
ƽ Ensures that Board procedures are complied with, applicable rules are

followed and that good information flows exist to the Board and between
its Committees.

ƽ Communicates with shareholders as appropriate and ensures that due

ƽ Ensures that the Board has high-quality information, adequate time and
appropriate resources in order to function effectively and efficiently.

ƽ Considers Board effectiveness in conjunction with the Chair and provides

support to the Chair as required.

ƽ Considers the appropriateness of risk management.
ƽ Otherwise overviews the policies needed across the Group, to keep it safe,

regard is paid to their interests.

legal and compliant.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Corporate Governance

Composition, Succession and Evaluation

Board composition
The delivery of the Group’s strategy and long-term success
depends on attracting and retaining the right skills across the
Group. This starts with the Board. The Board comprises six
independent Non-Executive Directors, an independent Non-
Executive Chair and three Executive Directors. They have wide-
ranging backgrounds and relevant and complementary skills
and experience. Biographical information for each Director
is included on pages 82 and 83.

Board appointments
The Nomination Committee leads the process for Board
appointments and seeks to construct an effective, robust, well-
balanced and complementary Board, with the appropriate balance
of skills, experience, independence and knowledge of the Group to
enable duties and responsibilities to be discharged appropriately.

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.
They also take account of a range of diversity factors together with
the need to balance the composition of the Board and Committees
and refresh them over time to meet the changing needs of the
Group. Further details on the Nomination Committee’s work in
this area are included on pages 95 to 96.

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

Board induction programme
We develop a tailored and comprehensive induction programme
for each externally appointed Director which aims to ensure that
new appointees are equipped to fulfil their role and participate
in Board discussions as quickly as possible. The programme
includes one-to-one meetings with the Chair, the Group CFO,
the CEO Royal Mail, the CEO GLS, the Company Secretary and
the Non-Executive Directors. It also includes various meetings
with Senior Management, visits to our key operational sites and
postie walks. Shashi Verma joined the Board in September 2021
and a summary of his key induction meetings and visits is set out in
the adjacent column.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Shashi Verma’s induction programme

September 2021

ƽ Individual meeting with the CEO GLS.

October 2021

ƽ Individual meeting with the CEO Royal Mail.

ƽ Individual meeting with the Director of Investor Relations.

December 2021

ƽ Individual meetings with various members of the Royal Mail

Executive Board.

ƽ Site visit to the Mount Pleasant delivery office and meeting staff.

ƽ Overview of regulation with the Director of Regulation

and Competition Policy.

ƽ Individual meetings with the Company’s brokers.

ƽ Overview of IT and cyber security with the Chief Information

Security Officer.

ƽ Overview of pensions with the Director of Pensions.

ƽ Individual meeting with the external auditor.

ƽ Site visit to the Hammersmith delivery office and meeting staff.

ƽ Postie walk in Hammersmith.

ƽ Overview of competition law with the Assistant General Counsel

of Competition, Regulation and Data.

February 2022

ƽ Site visit to the North West Hub with the Company Secretary.

April 2022

ƽ Individual meetings with Royal Mail’s newly appointed Chief
Information Officer, Chief Finance Officer, Chief Information
Security Officer and interim Safety Director.

ƽ Site visit to the Heathrow Worldwide Distribution Centre and meeting staff.

“ Despite restrictions imposed due to the
pandemic, my induction programme
has been very informative and well
organised. I have particularly valued
meeting employees across various parts
of our UK business, and I look forward to
visiting GLS operations later this year as
overseas travel constraints are removed.”

Strategic Report

Corporate Governance

Financial Statements

Additional Information

2020-21 Board evaluation progress report
During 2020-21, the Board’s performance and effectiveness were evaluated with the assistance of Independent Board Evaluation,
an independent consultancy that had no other relationship with the Group or its individual Directors. Details of how the evaluation
was conducted can be found in the Annual Report and Financial Statements 2020-21. The key actions arising from the evaluation
and progress to date are set out below.

Actions

Progress

Board focus and discussion

ƽ Concentrate the Board’s agenda on
strategic or tactical matters and
overseeing the Group’s performance.
ƽ Ensure that sufficient time is allowed
for discussions in relation to strategy,
succession and talent management,
ESG and culture change.

Composition

ƽ Recruit two additional Non Executive
Directors, including at least one from
a minority ethnic background, with
skills complementary to those of
the existing Board members.

Expectations around running a plc

ƽ Develop a programme for

incoming Directors and Royal
Mail and GLS Executive Board
members to supplement their
understanding of the Board and
stakeholders’ expectations.

ƽ Agree a revised set of performance
measures aligned to the Group’s
key strategic objectives.

ƽ Schedule a Board session to discuss
and further develop the Group’s
stakeholder engagement activities.

Talent and succession planning

ƽ Conduct a comprehensive talent

assessment across the Royal Mail
and GLS Senior Management teams
and develop plans to create a strong
talent pipeline.

ƽ The Board has spent more time discussing strategic matters and overseeing

performance during the year, with an increased focus on the Board Committees
doing the heavy lifting and avoiding duplication by the Board.

ƽ Board and Committee meetings have devoted more time to considering matters
related to strategy, succession and talent management, ESG and culture change.

ƽ Shashi Verma joined the Board in September 2021. His skills complement those
of the existing Board members and his appointment fulfils our commitment
to the Parker Review.

ƽ A comprehensive induction programme was provided to Shashi Verma (see page 92).
ƽ The Royal Mail Executive Board has been refreshed to include executives with

previous listed plc experience gained outside Royal Mail.

ƽ The Director of Investor Relations presented the 2021 investor perception study
to the Board in July 2021. This has helped supplement the Company’s depth of
understanding of investor needs and plc expectations. Our investor engagement
plan was updated to take account of relevant perception study feedback.
ƽ Maria da Cunha, as Designated Non-Executive Director for engagement with
the workforce, has kept the Board updated on employee stakeholder views
in both Royal Mail and GLS. When pandemic restrictions permitted and, in
accordance with safety guidance, the CEOs of both companies have continued
to meet colleagues, seeking to better understand their views.

ƽ Royal Mail and GLS have both continued to review and enhance their respective

reporting regimes, taking into account the Board’s request to see more emphasis
on lead indicators including appropriate ESG metrics. As part of the drive to take
a more data driven approach to reporting, the Royal Mail Executive Board now
has a Chief Data and Analytics Officer, an Executive Board appointment.

ƽ The KPIs used to assess Group performance were revised during the year (see

pages 24 and 25).

ƽ The Nomination Committee oversaw a comprehensive talent assessment for
key critical management roles in both Royal Mail and GLS. The assessment
was conducted by Korn Ferry and coordinated by the Company Secretary and
the Interim Chief People Officer of Royal Mail. This has resulted in a refresh of talent
in some key roles, the introduction of a comprehensive psychometric recruitment
evaluation process for new senior hires and documented succession plans. Since
we introduced our two CEO reporting structure, 30% of our senior roles within
our Royal Mail business have been replaced. Further details are included on page 96.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Corporate Governance

Composition, Succession and Evaluation continued

2021-22 Board and Committee evaluation
In March 2022, the Board’s effectiveness and performance were evaluated through the process detailed below, which was facilitated by
the Company Secretary. The evaluation considered the Board’s composition, diversity and how effectively Board members work together
to achieve objectives.

2021-22 evaluation process

Stage 1

Stage 2

Evaluation development

Evaluation process and review

Stage 3

Actions agreed

Questionnaires for Board, Committee and
individual Director evaluations developed by
the Company Secretariat team.

Questionnaires issued in March 2022 to
Board members and Senior Management
who regularly attend Board and/or
Committee meetings. Completed
questionnaires returned to the Company
Secretary, who then prepared draft reports
of the findings for discussion. Reports
shared with, and reviewed by, relevant
Board and Committee Chairs for feedback
and comment.

Reports presented, and actions agreed at,
the relevant Board and Committee meetings
in May 2022.

The key findings from the Board evaluation and the priority actions agreed for 2022-23 are detailed below. Key findings from each of the
Committee evaluations and the actions agreed for 2022-23 are set out in the respective Committee Reports across pages 95 to 141.

Key findings and priority actions arising from 2021-22 Board evaluation

Key findings

Strategy

Actions

ƽ Revisit the wider Company strategy, ensuring more regular discussions take place.
ƽ Ensure that Royal Mail develops, in conjunction with its stakeholders, a clear, longer term plan

for its transformation.

ƽ Reconsider the key KPIs used in both businesses, to determine that they remain appropriate in

current market conditions, and especially with Royal Mail’s move to being a parcels-led
business.

Workforce and unions

ƽ Be cognizant of the views of our workforce and of the negotiations with our unions.
ƽ Increase the time spent on employee engagement, particularly within GLS now that international

travel has become easier.

Reporting

ƽ Develop more standardised and consistent ways for reporting to the Board.
ƽ Further improve the quality of papers, particularly the executive summaries.

Composition

ƽ Recruit two additional Non-Executive Directors, preferably one with audit and finance experience

and one with international logistics experience.

Individual Director performance
Individual Director performance was considered by Board
members via a questionnaire and to help facilitate one-to-one
meetings with the Chair and each individual Director. The findings,
in combination with the individual skills and time commitment
of each Director, confirmed that all Directors are considered
to contribute effectively, and support the proposal for those
Directors to stand for re-appointment at the 2022 AGM.

Chair performance
The performance of the Chair was evaluated by the Senior
Independent Director, with feedback also provided by the rest of
the Board. The feedback confirmed that Keith Williams provided
strong leadership to the Board throughout the year, facilitated
constructive and inclusive Board discussions and helped to call
on individual Non-Executive Director experiences to support
the Executive as appropriate. It also confirmed that he devoted
sufficient time to the role.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Nomination Committee Report

Keith Williams
Non-Executive Chair

Main objectives for 2021-22

ƽ Complete a talent assessment for key critical management roles in both
Royal Mail and GLS and oversee a development programme in respect
of these roles.

ƽ Map short, medium, and long-term succession planning for critical roles

in Royal Mail and GLS.

ƽ Recruit up to two additional Non-Executive Directors to the Board, one of
which should have appropriate finance and audit experience, and deliver
on the Board’s aspiration to appoint at least one Director from an ethnic
minority background by 2024.

ƽ Understand and address issues to facilitate the career development

of female colleagues.

Key activities in 2021-22

ƽ Concluded an extensive external search leading to the appointment
of Shashi Verma as a Non-Executive Director in September 2021.

ƽ Completed a senior leaders’ development assessment programme

with the support of Korn Ferry.

ƽ Mapped short, medium, and long-term succession plans for Royal Mail

Executive Board roles.

2022-23 priorities

ƽ Accelerate progress in female and ethnic representation across our Senior

Leadership population.

ƽ Review talent capability and development and succession planning within
Royal Mail and GLS, particularly with a view to longer range succession
planning.

ƽ Consider succession plans for the CEO Royal Mail, CEO GLS and Group CFO.

ƽ Recruit up to two additional Non-Executive Directors, preferably one with

audit and finance experience and one with international logistics
experience.

Committee membership and attendance

Director

Keith Williams
(Chair since 22 May 2019)

Joined

19 April 2018

Maria da Cunha

Michael Findlay

Rita Griffin

Baroness Hogg

Lynne Peacock

Shashi Verma1

25 September 2019

19 April 2018

1 October 2019

1 November 2019

29 September 2021

Joined as member with effect from 29 September 2021.

Attendance
(scheduled
meetings)

2/2

1/1

Dear Shareholder,
I am pleased to update you on the Committee’s activity for the year
ended 27 March 2022.

Committee composition and meetings
The table in the adjacent column contains information about the
Committee’s membership and the number of scheduled meetings
each Director attended and was entitled to attend during the year
ended 27 March 2022.

During the year, several additional meetings took place, including to
consider an externally facilitated talent assessment, set up and
then later progress the appointment of Shashi Verma, and to
discuss Committee changes in light of Rita Griffin’s decision not to
seek re-appointment at our forthcoming AGM.

Formal Committee meetings were attended by the Company
Secretary, the Chief People Officer and other members of the
Senior Management team, where relevant. In line with our Conflicts
of Interest Policy, Directors are asked to absent themselves from
any discussions regarding their own re-appointment or succession.
The Committee is supported by the Company Secretary.

Role of the Committee
The Committee’s role and responsibilities are summarised on page 86.

Committee activity
The key activities of the Committee during 2021-22 are set out on
pages 95 to 98.

Board composition
During the year, the Committee reviewed Board composition,
assessing the tenure, experience, skills, knowledge and the
re-appointment and independence of each Director. In response
to the findings of the 2020-21 Board evaluation (see page 93),
the Committee oversaw the external search for two new Non-
Executive Directors, and as a result of that search, the Committee
recommended to the Board the appointment of Shashi Verma,
which was subsequently approved by the Board and announced
on 30 September 2021. Details on Shashi’s induction programme
can be found on page 92.

Following Rita Griffin’s decision not to seek re-appointment at our
forthcoming AGM, discussions also took place in relation to the
composition of the Board’s Committees. Following consideration
and review, the changes outlined on page 80 were approved.

Non-Executive Director succession and re-appointments
The Committee monitors the tenure of Non-Executive Directors to
ensure that it plans sufficiently in advance of retirements from the
Board to ensure orderly succession of Non-Executive Directors.

All Directors are required to stand for appointment or re-appointment
at each AGM. Ahead of the 2022 AGM, the Committee considered
the performance and effectiveness of each Director as well as their
skills and time commitment. The Committee concluded that all
Directors were valuable members of the Board and subsequently
recommended to the Board that all Directors, with the exception of
Rita Griffin who will retire from the Board at conclusion of the AGM,
should stand for re-appointment at our forthcoming AGM. Biographical
information for each Director is included on pages 82 and 83.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Corporate Governance

Nomination Committee Report continued

Keith Williams, Michael Findlay and Maria da Cunha all reached
three years’ service in their current roles in May 2022. Following
their confirmation that they were willing to continue to serve
for a further three-year term, the Committee considered and
recommended to the Board that their terms be extended for
a further three years, subject to annual re-appointment by
shareholders at the 2022 AGM.

The Committee reviewed the Board’s skills matrix during the
year, and re-affirmed its wish to appoint at least one additional
Non-Executive Director with audit and finance experience, and
identified further international logistics experience would be useful.
The Committee is currently engaged in an external search for a
Non-Executive Director with audit and finance experience and a
Non-Executive Director with international logistics experience.

Executive and Senior Management succession
Given the critical importance of the Royal Mail transformation
programme to the Group’s success, during the year the
Committee spent significant time considering talent
requirements and succession planning across the senior
levels of the Royal Mail business.

The Committee considered the findings of a succession mapping
exercise for the Royal Mail Executive Board. This exercise was
co-ordinated by the Interim Chief People Officer at the request
of the CEO Royal Mail and asked Royal Mail Executive Board
members to identify their emergency covers and short, medium,
and long-term successors.

The Committee identified that there was a lack of female and ethnic
minority successors and very few successors available in the short
and medium term. In order to strengthen the pipeline, a new talent
identification and development programme, ‘Royal Mail Diamonds’,
will be launched shortly.

At the same time, in response to the findings of the 2020-21
Committee evaluation, the Committee launched a senior leaders’
development assessment programme with the support of Korn
Ferry aimed at identifying, nurturing and developing the Group’s
future leaders. Korn Ferry was selected as it was thought its
effective diagnostics would help the Company assess a larger
cohort in the effort to manage career development and spot talent.

The Company agreed a success profile with Korn Ferry which
set out what competencies, experiences, traits and drivers
our ‘leaders of the future’ should possess to deliver our strategy.
Each individual was then assessed against the success profile
via psychometric testing and interviews with Korn Ferry coaches
and market partners.

Korn Ferry presented its final report to the Committee in June 2021
which provided a gap analysis of what talent the Company needed
versus what talent it currently had and identified what actions
needed to be taken to develop or recruit the talent needed to deliver
Royal Mail’s strategy.

Following presentation of the report, individuals met with their
Korn Ferry coach to discuss their report and feedback, how best
to achieve their future aspirations and what this meant in terms
of their personal and professional development. Discussions then
took place between the individuals, their line manager and HR to
explore ways that they could support the individual in achieving
their future aspirations.

As a result of the senior development assessment programme,
and to support the operational and strategic needs of Royal Mail
as it delivers its transformation programme, there has been a
refresh of talent in levels 1 to 5 at Royal Mail, with around 30%
of those roles having been replaced with external hires. A new
recruitment process has also been implemented which involves
putting all new senior and mid-level hires through a comprehensive
psychometric evaluation process.

Board Diversity Policy objectives
Maintain 33% female representation on the Board.

Place emphasis on developing diversity within the Group and
achieve 33% female representation in senior leadership positions.
Compliance with the Parker Review.

Signatories of the Voluntary Code of Conduct for Executive
Search Firms.

Implementation and results
Female representation on the Board as at 27 March 2022
was 40%.
Female senior leadership representation within the Group
as at 27 March 2022 was 28%.
Following the appointment of a new Non-Executive Director,
the composition of the Board aligns with the Parker Review.
See page 97.

Consider the Policy when recruiting Non-Executive Directors.
Consider candidates for Non-Executive Director positions from
a wider pool.

See page 97.
Appointed a new Non-Executive Director with no prior FTSE
board experience.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Recruitment process
In response to the 2020-21 Board evaluation (see page 93), the
Committee oversaw the external search for up to two additional
Non-Executive Directors during the year.

The Committee agreed the candidate specification and engaged
an external search agency, Audeliss, to undertake the search
on behalf of the Committee. Audeliss has specialist expertise in
sourcing candidates from diverse backgrounds and the Committee
determined that the firm had the relevant skills and experience to
successfully undertake the brief. Audeliss is a signatory to the
Voluntary Code of Conduct for Executive Search Firms, which
promotes gender diversity and best practice for corporate Board
recruitment searches. Audeliss has no other connection to the
Group or any of its Directors.

A long list of candidates was prepared and compared against
the Committee’s latest Board composition, diversity and skill set
review. Due consideration was given to the Board Diversity Policy
and the fact that the Company wished to deliver on its aspiration
to appoint at least one Non-Executive Director from an ethnic
minority background.

A short-list of candidates was then prepared and those shortlisted
attended interviews with the Chair and the Directors.

Following those interviews, feedback was gathered and Shashi
Verma was identified as the preferred candidate due to his track
record of successful technology-led innovation and transformation
gained in his current role as Director of Strategy and Chief
Technology Officer for Transport for London. The Committee
noted the key role technology and automation has to play in
the Group’s customer offering and the transformation of Royal
Mail, and considered that the Group would benefit greatly from
Shashi’s experience. Further information about Shashi’s
background is included on page 83 and details about his
induction programme are set out on page 92.

Diversity and inclusion
We recognise the importance of fostering a diverse and
inclusive culture across the Group. To fulfil our purpose and
support the delivery of Royal Mail and GLS’ growth strategies,
it is essential that our workforce reflects the broad diversity of
the customers and communities we serve. We must offer an
inclusive, fair and accessible workplace where all our people
can grow, develop and succeed.

Our Board Diversity Policy aims to ensure that the Board has
the appropriate balance of skills, experience and background
to deliver the Group’s purpose, strategy and values. The table
below sets out the Diversity Policy’s current objectives, how the
Committee has implemented them and the outcomes as at the
date of this Annual Report. A copy of the Policy is available
at www.royalmailgroup.com/en/about-us/governance.

The Committee is aware of the recommendations set out in the
FTSE Women Leaders ‘Achieving Gender Balance’ report, which
was published in February 2022, and will consider these, and the
FCA targets, as part of its annual review of the Board Diversity
Policy this coming year.

During the year Royal Mail updated its strategy to increase diversity
across the business and improve inclusivity. The business has also
set new targets in these key areas which will be monitored and
reviewed on a regular basis by the ESG Committee. GLS’ Diversity
and Inclusion Programme, which is currently being developed, will
be considered by the ESG Committee in the coming year.

Our Group Equality and Fairness Policy outlines our approach
to promoting equality, diversity and fairness at all stages of
employment. A copy is available at www.royalmailgroup.com/en/
responsibility/policies-and-reports.

Senior leadership diversity
The gender diversity profile of our Senior Management and their
direct reports as at 27 March 2022 is set out below.

We are disappointed that we have not yet met our current target of 33%
female representation in senior leadership roles. We need to intensify
our efforts if we are to achieve this and have therefore introduced
gender balanced shortlisting for all recruitment into our most senior
grades at Royal Mail.

The Board recognises that ethnic minority colleagues are still
under-represented in Senior Management roles. During the year,
Royal Mail introduced ethnic diversity targets (see page 40).

Senior Management* and direct reports
gender diversity

Male
Female

72%
28%

For these purposes, Senior Management is defined as the first layer of management below
Board level, including the Company Secretary, in accordance with the Code.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Corporate Governance

Nomination Committee Report continued

Following successful completion of background checks and
references, the Committee considered Shashi’s time commitments
and potential conflicts of interest and confirmed that, in their
opinion, Shashi would be able to devote sufficient time to the
Company and did not have any current conflicts of interest.

Committee evaluation
The Committee’s annual evaluation of its performance was
undertaken as part of the Board effectiveness evaluation
(see page 94). The key actions identified for implementation in
2022-23 are set out below.

Following a recommendation from the Committee, the Board
approved the appointment of Shashi and it was announced on
30 September 2021. Shashi is subject to re-appointment by
shareholders at the 2022 AGM.

Time commitments
The terms of appointment of each Non-Executive Director require
them to devote, on average, a minimum of two days a month to
the Group’s business. In practice, they tend to devote considerably
more time than this, supporting projects where their areas of
expertise contribute to specific initiatives.

The Committee has reviewed the time each of the Non-Executive
Directors has spent discharging their duties to the Company and
confirms that each has demonstrated that they have sufficient time
to fulfil their role properly.

Each Non-Executive Director is 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.

Actions

Review talent capability and development and succession
planning within Royal Mail and GLS, particularly with a
view to longer range succession planning.

Consider succession plans for the CEO Royal Mail, CEO
GLS and Group CFO.

Recruit two additional Non Executive Directors, preferably
one with international logistics experience and one with
audit and finance experience.

Keith Williams
Chair of the Nomination Committee
18 May 2022

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Audit and Risk Committee Report

Michael Findlay
Chair

Main objectives for 2021-22

ƽ Ensure that further progress is made in relation to improving

financial controls.

ƽ Prepare for changes in the corporate reporting and control landscape.

ƽ Further integrate GLS risk and control processes into the Group framework.

ƽ Integrate emerging risks monitoring into reporting processes, including

creating a rolling emerging risks prioritisation as new information
becomes available.

ƽ Continued focus on cyber security risk.

ƽ Ensure that risk is managed appropriately at Group level, including use

of consistent measures across the Group.

Key activities in 2021-22

ƽ Assessed the impact of proposals contained within the Business, Energy

and Industrial Strategy White Paper ‘Restoring trust in audit and corporate
governance’ (the BEIS White Paper).

ƽ Reviewed the BEIS White Paper and the Group’s plans to conduct a detailed
review of its processes, controls and remediation activity in preparedness
for any changes that may be implemented as a result of the BEIS White
Paper proposals.

ƽ Reviewed recommendations following an independent external quality

assessment of Internal Audit and reviewed and approved a response plan.

ƽ Monitored and reviewed the Group’s principal and emerging risks with a focus

on cyber security, industrial relations, efficiency and supply chain risks.

ƽ Oversaw the development of a new three-year strategy for the Risk Assurance
function (previously named Internal Audit and Risk Management function).

2022-23 priorities

ƽ Monitor developments in relation to the BEIS White Paper proposals

and build a response plan.

ƽ Continue to focus on strengthening and monitoring financial controls.

ƽ Monitor progress made against Risk Assurance’s three-year strategy.

ƽ Continue to enhance the quality of financial reporting including the

application of accounting judgements.

ƽ Monitor the effectiveness of actions in place to mitigate risks with a

particular emphasis on cyber risk.

ƽ Establish a regional risk management process within GLS and integrate

it within the Group Framework.

ƽ Develop a framework to provide further clarity and more effective

management of key fraud risks.

Committee membership and attendance

Director

Michael Findlay
(Chair since 30 May 2019)

Baroness Hogg

Lynne Peacock

Joined

30 May 2019

1 October 2019

1 November 2019

Attendance
(scheduled
meetings)

5/5

Dear Shareholder,
I am pleased to update you on the Committee’s activity for the year
ended 27 March 2022.

Committee composition and meetings
The table in the adjacent column contains information about the
membership of the Committee and the number of scheduled
meetings each Director attended and was entitled to attend during
the year ended 27 March 2022. An additional meeting was held in
June 2021 to consider and approve the 2020-21 regulatory
financial statements.

The Board considers that I have recent and relevant financial
experience, having spent nearly 30 years in investment banking.
I was also previously a Non-Executive Director of UK Mail Group plc
and a member of its audit committee. The Board considers the
Committee as a whole has competence relevant to the Company’s
businesses (see pages 82 and 83). To further strengthen the
Committee, we are engaged in an external search for a Non-
Executive Director with relevant finance experience.

Committee meetings were routinely attended by the Non-Executive
Chair, the CEO Royal Mail, the CEO GLS, the Group CFO, the Director
of Risk Assurance, the Director of Financial Control, the Group
General Counsel and Company Secretary, and representatives from
the external auditor, KPMG. Other members of Senior Management
were invited to attend certain meetings as appropriate.

The Committee meets regularly with the external auditor and the
Director of Risk Assurance, independent of the Executive Directors,
to ensure that reporting, forecasting and risk management
processes are subject to rigorous review throughout the year.

Role of the Committee and its advisers
The Committee’s role and responsibilities are summarised on
page 86.

To support the Committee in carrying out its responsibilities, it
receives independent assurance from the Risk Assurance and
Compliance functions. The Committee is also supported by the Risk
Management Committee, the GLS Audit and Risk Committee (GLS
ARC) and the Group General Counsel and Company Secretary. I
regularly attend the GLS ARC, along with the Director of Risk
Assurance and the Group General Counsel and Company Secretary.

The Committee is also supported by the external auditor, which
provides regular reports across a wide range of issues in support
of the Committee’s oversight responsibilities, as well as the
Group’s actuary, Willis Towers Watson Limited, which provides
expert opinion and long-term assumption advice with respect
to pension accounting, and Aon Limited, which provides similar
expertise in relation to other long-term liabilities.

Royal Mail plc
Annual Report and Financial Statements 2021-22

Corporate Governance

Audit and Risk Committee Report continued

Committee activity
The key activities of the Committee during 2021-22 are set out in the table below.

Matter considered

Activity

Financial Reporting
Half-year and full-year results
Significant matters and
judgements
Fair, balanced and
understandable
Going concern and viability
statement
Pension assumptions
Covenant compliance
Regulatory accounts
Alternative Performance
Measures

External Auditor
Re-appointment

KPMG reports

Effectiveness
Independence and objectivity
Audit and non-audit services
and fees
Audit cycle

ƽ Reviewed and satisfied itself on the integrity of the half-year and full-year results, including consideration of the significant

accounting judgements, legal claims, contingent liabilities and contingent assets, the policies being applied, and the
statutory audit findings.

ƽ Reviewed and assessed the Annual Report and Financial Statements to be fair, balanced and understandable (see page

101).

ƽ Considered the going concern basis of preparation of the Financial Statements (see page 101).
ƽ Considered the Viability Statement (see page 101).
ƽ Reviewed the Group’s key pension assumptions for the half-year and full-year Financial Statements.
ƽ Reviewed covenant compliance at the half year and full year.
ƽ Reviewed and approved the regulatory financial statements 2020-21.
ƽ Reviewed the APMs (see page 101).

ƽ Recommended to the Board the re-appointment of KPMG as external auditor.
ƽ Reviewed and approved the external auditor’s engagement letter.
ƽ Reviewed and recommended to the Board the approval of the external auditor’s letter of representation.
ƽ Reviewed KPMG’s control findings and audit findings, including significant judgements, and the audit opinion for the

half-year and full-year results.

ƽ Reviewed and approved KPMG’s audit plan and strategy.
ƽ Conducted a review of the effectiveness of the external audit process (see page 104).
ƽ Reviewed the independence and objectivity of the external auditor (see page 104).
ƽ Reviewed and approved the external audit fee including any non-audit services fees.

ƽ Reviewed the external audit cycle and identified improvements for future audits.

Internal Control and Risk Management
Financial control

ƽ Received regular updates on internal financial controls and the Company’s programme of activity to further enhance the

controls environment.

Risk Management Committee
Risk appetite
Principal and emerging risks

ƽ Received regular updates on the proceedings of the Risk Management Committee meetings.
ƽ Reviewed and monitored the Group’s risk appetite.
ƽ Assessed the risks that might impact the achievement of the Group’s strategy, including consideration of whether these

Risk profile

Cyber security

Effectiveness
BEIS Consultation

Internal Audit
Strategy

Internal Audit

Effectiveness and strategy
Risk Assurance Charter
Independence and objectivity

should be categorised as a principal risk to the business.

ƽ Reviewed the final principal risks and uncertainties statement for the Annual Report and Financial Statements.
ƽ Discussed new and emerging risks and the interrelationships between the principal risks.
ƽ Reviewed changes to the Group’s risk profile on a bi-annual basis and held deep-dive discussions on principal risk areas

including industrial relations.

ƽ Received regular cyber security updates.
ƽ Participated in three deep-dive discussions.
ƽ Reviewed the control environment around systems access, operational technology and customer scams.
ƽ Reviewed the effectiveness of the risk management and internal control systems (see page 105).
ƽ Discussed the BEIS White Paper proposals.
ƽ Considered a BEIS White Paper impact assessment.

ƽ Oversaw the development of a new three-year strategy for the Risk Assurance function, including the development

of a global risk management and audit approach and plans to build the function’s technology audit and data
analytics capabilities.

ƽ Reviewed and approved the Internal Audit plan.
ƽ Received regular updates on Internal Audit activity.
ƽ Reviewed progress against the Risk Assurance strategy and external quality assessment response plan (see page 106).
ƽ Reviewed and approved changes to the Risk Assurance Charter.
ƽ Reviewed the independence and objectivity of Internal Audit.

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Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Matter considered

Activity

Treasury and Taxation
Treasury Policy
Tax strategy and risk

Pensions
Pensions Committee
Pension schemes

ƽ Reviewed and recommended to the Board the approval of changes to the Group’s Treasury Policy.
ƽ Reviewed and recommended to the Board the approval of the revised tax strategy for 2022-23.
ƽ Reviewed bi-annually the Group’s tax risks.

ƽ Received Pensions Committee meeting updates.
ƽ Received an update on the governance of the Company’s pension schemes.
ƽ Received an update on the progress for the launch of the proposed Royal Mail Collective Plan.

Whistleblowing, Compliance and Fraud
Whistleblowing

Compliance
Fraud
Bribery

Governance
Forward planner
Terms of Reference

Risk management
Payment practices
ARC report
Evaluation

ƽ Reviewed regular whistleblowing reports.
ƽ Reviewed the end-to-end process of Royal Mail and GLS’ whistleblowing process.
ƽ Received regular updates from the Compliance Director.
ƽ Reviewed the Company’s procedures for detecting fraud.
ƽ Reviewed the Company’s systems and controls for the prevention of bribery.
ƽ Reviewed recommendations and progress on actions from a bribery risk assessment conducted by an external

consultant.

ƽ Reviewed the Committee’s 2022 forward planner.
ƽ Reviewed and recommended the Board approve changes to the Committee’s Terms of Reference.
ƽ Approved changes to the Terms of Reference for the GLS ARC, the Pensions Committee and the Risk Management

Committee.

ƽ Reviewed and approved changes to the Risk Management Policy.
ƽ Received an update on duty to report payment practices and performance for the half year and full year.
ƽ Approved the Committee’s report for the Annual Report and Financial Statements 2021-22.
ƽ Received updates on the status of actions identified in the 2020-21 Committee evaluation.
ƽ Reviewed the findings from the 2021-22 Committee evaluation and agreed priority actions for 2022-23 (see page 106).

Going concern and viability statements
The Board’s going concern and viability statements are set out
on page 63.

The Committee considered the basis of preparation of the Financial
Statements as a going concern, as set out in Note 1 to the Financial
Statements. The Committee also reviewed the form and basis of
conclusion underlying the long-term Viability Statement.

In undertaking these assessments, the Committee reviewed the
business plan, taking account of the Group’s principal risks (see
pages 56 to 61), capital structure and the severe but plausible
downside scenarios (see pages 62 to 63). The Committee reviewed
and challenged the appropriateness of the scenarios modelled, the
mitigating factors, and the three-year viability assessment period
reflecting the Group’s outlook and the effects of the macro-
economic uncertainties faced by the Group.

As a result of the procedures performed, and the responses
received from Management on the challenges raised, the
Committee satisfied itself that the going concern basis of
preparation is appropriate and that the Group is commercially
viable over the duration of its assessment period.

Fair, balanced and understandable
At the request of the Board, the Committee assessed whether
the Annual Report and Financial Statements 2021-22, taken as
a whole, were fair, balanced and understandable, and provide
the information necessary for shareholders to assess the
Group’s position, performance, business model and strategy.
The Committee’s assessment took into account:

ƽ Internal verification of factual content.
ƽ Comprehensive reviews undertaken by the Group’s legal team

and key members of the Senior Management team.

ƽ Consistency checks against the Group’s market disclosures

and strategy.

ƽ External reviews undertaken by advisers and external auditor.

The Committee concluded that the Annual Report and Financial
Statements 2021-22 were fair, balanced and understandable,
and the Board confirmed this view. The Board’s statement is
contained on page 146.

Alternative performance measures
Following guidance in the FRC’s 2021 Thematic Review of APMs,
the Committee reviewed the Group’s APMs to ensure that they
remain relevant, are given no more than equal prominence to
GAAP measures, have a reasonable materiality threshold and
have good quality reconciliations between the APM and the closest
GAAP measure. The Committee challenged the use of ‘pre’ and ‘post’
IFRS 16 measures and was satisfied with Management’s response
that both pre and post IFRS 16 disclosures were provided in relation
to cash flow and net debt, given the pre IFRS 16 measures are used
for capital markets and for loan covenant purposes.

Royal Mail plc
Annual Report and Financial Statements 2021-22

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Corporate Governance

Audit and Risk Committee Report continued

Significant matters and application of judgements
During the year, the Committee considered and discussed a number of significant matters and/or judgements made by Management.
The table below details the key issues discussed and the actions taken.

Matter

Action taken by the Committee

Deferred revenue – advance customer payments
The Group recognises advance customer payments on its
balance sheet, predominantly relating to stamps and meter
credits purchased by customers but not used at the balance
sheet date. The majority of the balance is made up of stamps
sold to the general public. Consistent with the previous
reporting period, Management has used a number of different
data sources to calculate the estimated deferred revenue
liability. These data sources include: revenue data related to
stamp sales through the Post Office network, historic trends of
deferred revenue balances, changes to the number of working
days during the period, price rises and adjustments to reflect
posting patterns around key events close to the reporting year
end, e.g. Mothering Sunday and Easter.

Management uses judgement in applying a weighting to the
components of the data sources. This judgement impacts
revenue, profit and net assets.

At 27 March 2022 the Group recognised £160 million
(March 2021: £218 million) of deferred revenue in respect
of stamps sold to the general public but not used at the
balance sheet date.

Pensions – defined benefit obligations
The valuation of the defined benefit pension plan obligations
relies on the estimation of long-term assumptions, i.e. discount
rate, inflation, mortality and pension increases. Small movements
in these assumptions can lead to material impacts on the
balance sheet.

The valuation of certain unquoted pension scheme assets also
includes a high degree of estimation uncertainty.

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.

Accounting for GLS acquisition: Rosenau Transport
The Group acquired the business of Rosenau Transport on
1 December 2021. IFRS 3 required the purchase price to be
allocated between tangible assets, intangible assets and
goodwill (see Note 12 to the Financial Statements).

The Committee examined a report from Management
summarising the deferred revenue calculation. We compared
the level of deferred revenue recognised by Management at
each reporting date to ensure a consistent approach.

Separately, the external auditor reviewed the statistical
processes and assessed the judgemental assumptions made.

The Committee concluded that the level of deferred revenue
remained appropriate.

Royal Mail has now introduced barcoded stamps to replace
non-barcoded stamps. The majority of non-barcoded stamps
will be valid until 31 January 2023. A Stamp Swap Out scheme
was launched on 31 March 2022 where non-barcoded stamps
can be swapped for stamps with barcodes. The Committee
has requested that Management considers the impact that
this change may have on the SITHOP balance going forward.

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 (pages 186 to 195) to the Financial Statements.
Changes in the assumptions were summarised for the
Committee, including changes in demographic assumptions
resulting from mortality studies undertaken for the recent
triennial valuation, and explanations were provided for the
movements in returns on scheme assets, particularly as a
result of the liability hedging strategy. The results of the
assumption benchmarking were also discussed.

The external auditor used its own independent actuarial
experts to confirm that the assumptions used were
reasonable and appropriate.

The Committee was also satisfied with the approach taken
to verify third-party valuations for unquoted scheme assets
and the associated disclosures.

GLS Management reviewed the purchase price allocation
exercise which was undertaken with advice from an
independent external consultant. A summary of this exercise
was presented to the Committee who concluded that the
accounting and valuation conclusions were appropriate.

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Royal Mail plc
Annual Report and Financial Statements 2021-22

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Corporate Governance

Financial Statements

Additional Information

Matter

Action taken by the Committee

Impairment testing
During the year an impairment test was carried out in respect of:

Parent Company, Royal Mail plc (see pages 169 and 170)

The carrying amount of the Parent Company’s investments
in, and amounts due from, subsidiaries represents 83%
(2020-21: 70%) and 17% (2020-21: 30%) of the Parent Company’s
total assets respectively. Their recoverability is not at a high
risk of significant misstatement or subject to significant
judgement. However, due to the materiality in the context of the
Parent Company Financial Statements, this is considered to be
the area that has the greatest effect on the Parent Company
balance sheet.

Provisions for liabilities
The Group has significant provisions in relation to voluntary
redundancy, compensation and associated costs of £70 million,
mainly as a result of an operational reorganisation announced
in January 2022. The Group has also recognised provisions for
industrial diseases claims, property decommissioning costs
and litigation claims. Judgement is exercised in making the
assumptions that form the basis of the provisions calculations
(see Notes 1 and 25 to the Financial Statements).

The Committee received confirmation from Management that it
had adequately assessed the recoverability of investments
in subsidiaries and intercompany indebtedness, by assessing
and confirming that the net assets of the relevant subsidiaries
(being an approximation of their minimum recoverable amount)
were in excess of their carrying value at the balance sheet date.

The Committee reviewed the methodology and key assumptions
used in determining significant provisions, including the basis for
any release of provisions. The Committee considered the past
utilisation of each provision, when reviewing the appropriateness
of the provision. The Committee concluded that the amounts
recorded in respect of provisions were appropriate, represented
the current best estimate of each liability, and that associated
disclosures were appropriate.

Royal Mail plc
Annual Report and Financial Statements 2021-22

103

Corporate Governance

Audit and Risk Committee Report continued

External auditor
KPMG was appointed by shareholders as the Group’s statutory
auditor at the 2015 AGM following a formal tender process
undertaken in 2014. The firm’s re-appointment was confirmed
by shareholders at the 2021 AGM. The current lead audit partner,
Ian Griffiths, has served for two years but has been in the
Company’s audit team for seven years. To ensure an independent
and objective audit process, Ian Griffiths will be replaced by
Andrew Bradshaw at the end of the 2021-22 audit process.
The external audit contract will be put out to tender at least
every 10 years in line with the provisions of the UK Competition
and Markets Authority’s Statutory Audit Services for Large
Companies Market Investigation (Mandatory Use of Competitive
Tender Processes and Audit Committee Responsibilities) Order
2014 (the CMA Order). The Committee therefore considers that
it would be appropriate to conduct an external audit tender by
no later than the 2025-26 reporting year, by which time KPMG
will have been the Group’s external auditor for 10 years.

We have complied in all material respects throughout the year
with the CMA Order.

Effectiveness of the external audit process
The Committee is responsible for the relationship with the external
auditor, including examining the effectiveness of the audit process.

At its meeting in May 2022, the Committee carried out its annual
review of the external auditor’s performance and the effectiveness
of the external audit process, taking into account:

ƽ The terms and scope of the external auditor’s engagement,

as set out in its engagement letter.

ƽ The audit work plan for the financial year 2021-22.
ƽ The effectiveness of the working relationship and

interactions with the Committee.

ƽ The quality of the audit, the handling of significant
judgements by the external auditor and responses
to questions from the Committee.

ƽ A report from KPMG on its own internal quality procedures.
ƽ Feedback from the Committee evaluation process which

confirmed that KPMG’s performance during the year was good.
ƽ Feedback from the external auditor effectiveness survey, which
was completed by key stakeholders involved in the external
audit process and confirmed that the KPMG audit team had
sufficient experience and technical and industry knowledge,
was well resourced with sufficient continuity of people within
the team, communicated clearly and constructively, and
displayed adequate professional scepticism.

Based on its review, the Committee concluded that the external
audit process had been completed effectively, that KPMG’s
engagement had been managed well and that there had been an
appropriate level of challenge from the audit team. To ensure a
continuous improvement in the audit process, the Committee
identified a number of areas which could be enhanced, including
the provision of more insight and added value in terms of
communicating future potential risks; providing updates on best
practice and industry trends, including on controls; and providing
regular updates on accounting and governance developments.
These matters will be discussed with KPMG and addressed as
part of the overall 2022-23 audit planning.

104

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Annual Report and Financial Statements 2021-22

Assessment and safeguarding the independence
and objectivity of the external auditor
The Committee considered the independence and objectivity
of the external auditor through:

ƽ Assurances provided by the external auditor on the
safeguards in place to maintain independence.

ƽ Oversight of the Non-Audit Services Policy (see below).
ƽ Reviewing the external auditor’s non-audit services and

fees (see below).

ƽ Oversight of the Ex-Auditor Employment Policy.

The Committee concluded that it is satisfied with the
independence and objectivity of KPMG.

Non-Audit Services Policy
Our Non-Audit Services Policy governs the process for approving
certain non-audit services provided by the external auditor. The
purpose of the Policy 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. The Policy is
overseen and was reviewed by the Committee during the year to
ensure that it remained fit for purpose. As a result, the Policy was
updated to provide a list of permitted non-audit services and to
explicitly state that fees must be on a fixed fee basis.

In general, the external auditor is not approached to perform
non-audit work. The Committee does, however, currently permit
the external auditor to provide non-audit-related services, insofar
as permitted by auditor independence rules, and the external
auditor may be engaged to perform such 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
has delegated authority to the Group CFO to pre-approve
assignments up to £25,000, with an annual limit of £500,000.

External auditor fees
The Committee keeps under review the services and fees incurred
by the external auditor. Total fees for audit and audit-related
work during the year amounted to £3,453,000, and total fees
for non-audit services during the year amounted to £420,000,
which represented around 12% of the external audit fee. Non-audit
services primarily related to a review of opinion on the half year
Financial Statements and a regulatory audit. The Committee was
satisfied that the non-audit work was best handled by the external
auditor because of its knowledge of the Group, and that undertaking
the work did not put under threat the independence of the external
auditor. All non-audit services were approved in accordance with
the Non-Audit Services Policy.

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 £146,000 in 2021-22.

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Re-appointment of external auditor
The Committee concluded that it is satisfied with the independence
and objectivity of KPMG. This, together with the findings that the
external audit process was effective, supports the Committee’s
recommendation to the Board that it seeks shareholder approval
at the 2022 AGM for the re-appointment of KPMG as the external
auditor for the year ending 26 March 2023.

Risk management and internal control
The Board believes that effective risk management and a sound
internal control environment are fundamental to the Group’s
success. It has established a risk management framework to
ensure that we identify, assess and manage risks that could impact
our business (see pages 52 to 55) and reviews the effectiveness of
this framework annually. The Committee supports the Board
through its ongoing review of the Group’s principal and emerging
risks (see pages 54 to 61) and by advising the Board on the Group’s
overall risk appetite and the effectiveness of risk management and
internal control systems.

In relation to the Group’s financial reporting process, the
Committee relies on a number of specific internal control
mechanisms to ensure that the Group provides accurate, timely
financial results and implements accounting standards and
judgements effectively including in relation to going concern
and viability. The Committee receives:

ƽ Regular updates on the evolving regulatory environment including
FRC advice, best practice guidance and the requirements of the
Code and the Disclosure Guidance and Transparency Rules.
The Committee also receives reports on proposed changes
to legislation and regulatory reviews and the potential impacts.
ƽ Management reports including analysis of results, forecasts and
comparisons against last year’s results, and assurance from the
external auditor.

Review of risk management and internal control systems
The Committee has reviewed the effectiveness of the Group’s risk
management and internal control systems. This covered all material
controls including financial, operational and compliance controls.

The evaluation process is ongoing throughout the year. An annual
paper is presented to the Committee and Board providing a summary
of risk and assurance activity to support their annual assessment.
The assessment included consideration of the following:

ƽ Output from the key functions that implement the Group’s

risk framework (see page 52).

ƽ Deep-dive discussions of principal risks with their respective

Executive Board member risk owners scheduled throughout the
year focused on existing controls and additional actions required.

ƽ Quarterly reporting from Compliance and Ethics on the

operating effectiveness of compliance controls.

ƽ Progress made against the Internal Audit plan and the
conclusions provided by the independent audit reports
issued in the year.

ƽ Timeliness of implementation of actions agreed to mitigate

the risks and control gaps identified in internal audits.

ƽ The findings of the external quality review of the effectiveness,

independence and objectivity of Internal Audit.

ƽ Year-end finance letters to the Group CFO to confirm

compliance with relevant legislation, financial reporting
and controls requirements.

ƽ The opinion and reports of the external auditor.

Whilst the Committee considered the system of risk management
and internal control to be generally effective in the year, in light of
the increasing global risks facing the business as it transforms,
there is recognition of the need to improve its effectiveness. Key
activity underway and planned to be performed in 2022/23 includes:

ƽ Formalising, systemising and strengthening our financial controls.
ƽ Further improving our cyber security controls in response

to increasing external threats.

ƽ Developing a formalised assurance map across the Group’s

principal risks.

ƽ Integrating risk management and Internal Audit activity across

the Group.

Royal Mail plc
Annual Report and Financial Statements 2021-22

105

Actions

Further integrate GLS issues into the agenda.

Increase focus on risk mitigation.

Schedule updates on internal controls improvement
programmes.

Michael Findlay
Chair of the Audit and Risk Committee
18 May 2022

Corporate Governance

Audit and Risk Committee Report continued

Internal audit
Internal Audit provides independent assurance to the Committee
and the Board on the effectiveness of the internal control systems
and elements of the risk management process. Internal Audit sits
within the Risk Assurance function which is led by the Director of
Risk Assurance, who joined the Group in August 2021. He has direct
access to me and the Board Chair, which ensures the independence
of the function.

At each Committee meeting, an update on Internal Audit activity
is provided, including an overview of audits completed in the
period, with a focus on unsatisfactory audits; progress made
against the Internal Audit plan; and the status of actions arising
from completed audits.

An Internal Audit plan aligned to the Group’s principal risks is
developed annually and updated for changes in risks and priorities
with the Committee’s approval. Prior to the start of the new
financial year, the Committee reviewed and approved the Internal
Audit plan, which incorporates thematic audits that encompass
both the Royal Mail and GLS businesses.

During the year, the Committee oversaw the development of,
and approved, a new three-year strategy which will enhance the
effectiveness of the Risk Assurance function and supports the
Group’s strategic development. The strategy reflects the findings
of an independent external assessment (see below) and insights
from the Director of Risk Assurance’s first 100 days. The Committee
will regularly monitor progress made against the strategy.

Effectiveness of Internal Audit
In accordance with the Chartered Institute of Internal Auditors
Standards (CIIA Standards), during the year, Deloitte, on behalf
of the Committee, conducted an independent external quality
assessment (EQA) on the effectiveness of Royal Mail Internal
Audit (RM IA) and GLS Internal Audit (GLS IA). The EQA findings
concluded that:

ƽ RM IA was an established team within the context of a
mature organisation, with a clearly defined remit and
policies and procedures.

ƽ RM IA’s ways of working demonstrate a high degree of
conformance to the CIIA Standards and display many
attributes of a high-performing team.

ƽ Opportunities to enhance the effectiveness of RM IA were

identified, including digitising ways of working; increasing skills
in digital and IT audit; building closer relationships with second-
line assurance teams; and building greater business knowledge
within the team.

ƽ GLS IA was assessed to be at a developing state of maturity

with reference to CIIA Standards, with opportunities to improve
quality assurance, independence and objectivity, and evolve
the nature and performance of audit work to a pure third-line
assurance function that aligns to principal risks.

The Committee considered the EQA findings and recommendations
and, as part of the development of the Risk Assurance function’s
new strategy (see above), ensured that processes were in place to
address the recommendations.

106

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Environmental, Social and Governance Committee Report

Rita Griffin
Chair

Main objectives for 2021-22

ƽ Development, approval and implementation of Royal Mail and GLS

environmental strategies.

ƽ Focus on health, safety and wellbeing performance.

ƽ Focus on culture, diversity and building trust.

ƽ Review ESG governance, including supporting documentation.

Key activities for 2021-22

ƽ Reviewed the development, implementation and impact of both the Royal

Mail and GLS environmental strategies and targets.

ƽ Oversaw the delivery of health and safety initiatives to drive a reduction in

accidents and injuries across the Group.

ƽ Reviewed Royal Mail’s target culture, with specific focus on effectiveness
of culture, engagement programmes and progress on rebuilding trust.

ƽ Reviewed ongoing COVID-19 precautions, support for employee wellbeing

and sickness absence levels.

ƽ Oversaw the development and adoption of overarching Group ESG

Principles and supporting governance framework.

2022-23 priorities

ƽ Oversee development of detailed plans to implement effectively and

communicate the Royal Mail and GLS environment strategies, including
monitoring progress against stated ambitions.

ƽ Oversee and monitor health, safety and wellbeing performance to ensure

that we keep our employees and customers safe and well.

ƽ Continue to monitor Royal Mail’s culture and engagement performance

against values and target culture.

ƽ Monitor diversity, equality and inclusion programmes, and monitor

progress against published Royal Mail targets.

ƽ Monitor the development and implementation of an ESG framework

across GLS.

ƽ Enhance engagement with investors in relation to ESG matters.

ƽ Ensure that ESG is a fundamental part of business decision making and

governance.

Committee membership, meetings and attendance

The table below shows the number of meetings each Director attended and
the number of meetings they were entitled to attend during the year ended
27 March 2022.

Director

Joined

Rita Griffin
(Chair since 25 September 2019)

25 September 2019

Maria da Cunha

Baroness Hogg

Shashi Verma1

Lynne Peacock2

25 September 2019

4 February 2021

29 September 2021

1 February 2022

Joined as a member with effect from 29 September 2021.

1.
2. Joined as a member with effect from 1 February 2022.

Attendance
(scheduled
meetings)

4/4

2/2

1/1

Dear Shareholder,
I am pleased to update you on the Committee’s activity for the
year ended 27 March 2022. Given the increase in the use of ESG
terminology across the Group and amongst our key stakeholders,
in December 2021 the Committee recommended to the Board that
the Corporate Responsibility Committee should be renamed the
ESG Committee. The Board approved this recommendation in
March 2022.

Information about the Group’s ESG programme and performance
during the year is included on pages 30 to 45. Our ESG programme
supports the delivery of the Group’s purpose – to ‘connect
customers, companies and countries’ – and defines what we do and
how we do it.

As announced on 1 February 2022, I am not seeking re-
appointment to the Board at the forthcoming AGM. In recent years
we have made good progress in developing responsible,
sustainable practices in both our businesses. And this year I am
particularly pleased that we have established the foundations for a
new Group-wide ESG framework which is built around the issues
that are most relevant to our stakeholders and our business. Lynne
Peacock, who joined the Committee on 1 February 2022, will
succeed me as Chair at the end of our forthcoming AGM. I wish her,
the other members of the Committee and everyone across the
Group the very best for the future.

Committee meetings were also attended by the CEOs Royal
Mail and GLS and, as required, by the Royal Mail Director of
Corporate Affairs, Chief People Officer and the Director of Safety.
The Committee is also supported by the Company Secretary and
members of the ESG teams for both Royal Mail and GLS. I would
like to thank the members for the open and constructive
discussions that take place during our meetings and their
personal commitment to our wide-ranging and impactful agenda.

In September 2021, Shashi Verma joined the Committee. Shashi
brings specific logistics and customer service operations expertise,
which the 2020-21 Committee evaluation process noted would
enhance the Committee’s overall skills and experience.

Committee activity
The Committee’s key objectives for the year are outlined on the
adjacent column. Performance in each of these areas is tracked
using an ESG dashboard tool which is a standing item at every
Committee meeting.

The main areas the Committee focused on during the year are also
detailed in the adjacent column and below. The Committee is also
responsible for keeping abreast of emerging ESG issues and
addressing any areas of concern in relation to the Group’s culture
and issues raised by its internal stakeholders.

Royal Mail plc
Annual Report and Financial Statements 2021-22

107

Corporate Governance

Environmental, Social and Governance Committee Report continued

Group ESG Principles
During the year, the Committee oversaw the development of
overarching ESG Principles for the Group. The establishment
of these Principles reflects the Group’s aspiration to be a leader
in ESG matters. It also addresses feedback from the 2020-21
Committee evaluation process, which highlighted the need for the
Committee to create a strategic framework and review priorities.

Aligned to key UN Sustainability Development Goals, and material
ESG issues identified for the business, the Principles set out
commitments across the full ESG agenda.

Environment
With growing expectations from customers and investors,
this is a strategically important area for the business.

The Committee spent a considerable proportion of its time focusing
on the detailed plans being developed to support delivery of the
Royal Mail and GLS environmental strategies (see pages 32 and 33).
Throughout the year, the Committee monitored the implementation
of activities to reduce emissions along with performance against
key metrics.

The Committee also reviewed each business’ environmental
strategy to ensure alignment to the overarching ESG Principles,
and integration with the respective business strategies. The
Committee discussed the different approaches set out within
the two environment strategies, and the reasons for them. The
Committee concluded that both strategies were currently suited to
their relevant stakeholder needs and would continue to be reviewed
as stakeholder expectations and other requirements develop.

In relation to the development of Royal Mail’s environmental
strategy, the Committee undertook a detailed review of the
business’ current net zero ambition from 2050 and considered
aligning it to a 1.5-degree pathway and the Science Based Target
Initiative Net Zero standard. Following this review and discussion,
the Committee recommended to the Board that it approve an
updated ambition of Net Zero by 2040. The Board approved this
recommendation and Royal Mail has now brought forward its net
zero target to 2040.

The Committee also reviewed GLS’ environmental strategy
and supporting targets, which included the intention to become
climate neutral in Europe from 2022 through the compensation
of emissions, with a longer-term ambition to reduce scope 1, 2
and 3 emissions to zero by 2045.

Social
Health, safety and wellbeing
The health, safety and wellbeing of the Group’s workforce, and
those impacted by our operations, is a key priority and is a standing
Committee agenda item. Throughout the year, the Group continued
to implement measures to protect and support our people through
the COVID-19 pandemic, ensuring that necessary safety precautions,
wellbeing and mental health support were available. The Committee
monitored the utilisation and effectiveness of these measures and
regularly reviewed employee absence rates.

The Committee also discussed the roll out of the GLS Occupational
Health and Safety (OHS) awareness and training programme
designed to improve safety across the GLS business. The
Committee noted that the roll out of the programme included
management training and development of specific content for
transport partners. The Committee discussed the metrics
developed to monitor the effectiveness of the OHS programme.

Culture
The Committee is responsible for monitoring the Group’s culture
and works with Management to ensure that culture is aligned to the
Group’s strategy. Culture and engagement are standing items on
the Committee’s agenda, and at each Board meeting I provide an
update to the Board.

The Committee monitored the development of the Royal Mail
culture target and supporting canvas which set out the journey
towards the business’ target culture and the key activities to deliver
it. The Committee continued to monitor Trust pulse survey results
and employee feedback, and discussed the actions being taken in
response to key findings and areas for improvement. More
information can be found on pages 84 and 85.

During the year, the Committee reviewed in detail the levels and
causes of sickness absence within Royal Mail. Sickness absence is
a key metric which forms part of the KPI dashboard reviewed by the
Committee. Understanding the trends and the impact of COVID-19
was a key area of focus. In addition, the Committee was provided
with an overview of employee turnover and how this had changed
since the pandemic. In an increasingly competitive labour market,
understanding and addressing why people leave is another key
area of focus for the Committee.

The Committee also undertook an in-depth review of the Royal
Mail diversity, equality and inclusion programmes and associated
targets, and suggested potential areas of focus for the design of
the Culture aspects of the future GLS ESG Framework.

All these activities provide the Committee with an understanding
of the current culture and performance across the Group.

108

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Committee evaluation
The Committee’s annual evaluation of its performance was
undertaken as part of the Board effectiveness evaluation (see page
94). The key actions identified for implementation in 2022-23 are set
out below.

Actions

Ensure there is appropriate time on the agenda to discuss
the key subject areas for both Royal Mail and GLS.

Ensure papers are better and more focused, making
it clearer what Management expect of, and from,
the Committee.

Schedule sessions on supply chain for both Royal Mail
and GLS.

Rita Griffin
Chair of the Environmental, Social and Governance Committee
18 May 2022

Governance
In addition to developing the Group’s ESG Principles, the Committee
reviewed and updated its Terms of Reference to align with an ESG
structure, commitments of the ESG Principles, and the Committee
focus areas. The Committee also confirms the appointment of John
Crosse, Group Director, Investor Relations as Executive Group
Sponsor for ESG.

In February 2021, all members of the Committee, together with
other members of the Board and members of the Royal Mail
and GLS Executive Boards, participated in a programme of ESG
briefings. The programme incorporated presentations by external
experts on the ESG landscape, stakeholder expectations, the
importance of a strong culture and climate risks and opportunities,
including the requirements of the TCFD reporting framework. In
addition, key legislation updates, government consultations, best
practice and emerging themes were presented to the Committee
at each meeting as part of a horizon scanning and consultations
paper. An induction plan for new Committee members will be
developed in early 2022-23.

Stakeholder engagement and reporting
The Committee is regularly briefed on feedback and dialogue
with the Group’s stakeholders, including investors, customers
and regulators, and factors this information into its discussions
and decision-making process.

During the year, the Committee reviewed and approved the
updated Group CR policy which sets out the standards to which
the Group commits, as well as the standards expected of its
business partners and supply chain. The Committee recommended
to the Board that the Policy should be retitled ESG Policy, and its
content restructured to align with the Group’s ESG Principles.

In line with its responsibility to review and approve key public
disclosures, during the year, the Committee reviewed the 2021-22
Annual Report ESG content, the Royal Mail 2021-22 ESG Report and
the Group Modern Slavery Act Statement. These disclosures were
all recommended to the Board for approval.

Royal Mail plc
Annual Report and Financial Statements 2021-22

109

Corporate Governance

Directors’ Remuneration Report

Lynne Peacock
Chair

2022-23 priorities

Specific priorities for the Remuneration Committee (Committee) in the
forthcoming year, in addition to its usual scheduled activities, will include:

ƽ Review of the Directors’ Remuneration Policy ahead of its renewal at the

Annual General Meeting in 2023.

ƽ Review of Remuneration Committee advisers.

ƽ Explore how workforce engagement can be strengthened in relation

to the development of executive remuneration policy.

ƽ Review the ongoing alignment between the Group’s incentives

and any changes in the strategic priorities of GLS and Royal Mail,
including considering the future types of ESG measures in the
Group’s incentive plans.

Committee membership, meetings and attendance

The table below shows the number of scheduled meetings each Director
attended, and the number of meetings they were entitled to attend during
the year ended 27 March 2022.

Director

Joined

Lynne Peacock
(Chair since 1 November 2019)

1 November 2019

Maria da Cunha

Michael Findlay

Keith Williams

25 September 2019

4 February 2021

Attendance
(scheduled
meetings)

5/5

110

Royal Mail plc
Annual Report and Financial Statements 2021‑22

Dear Shareholder,
On behalf of the Board, I am pleased to present our 2021‑22
Remuneration Report, my third and final as Chair of the Committee.
As announced in January 2022, I shall be stepping down as
Committee Chair in July 2022 when I assume responsibility for
chairing the ESG Committee. I am delighted that Maria da Cunha,
who has been a Committee member since September 2019,
will succeed me.

2021‑22 has been yet another challenging and difficult year. It is,
therefore, important to set out in more detail relevant context
and information on the activities and decisions we have made
as a Committee.

Setting the scene and the context within which
remuneration decisions have been made
The Committee remains acutely aware of the adverse impact that
the pandemic has had on our stakeholders, including customers,
shareholders, and broader society. This was, as last year, a factor
in this year’s remuneration decisions.

ƽ No direct UK Government pandemic support (such as the

receipt of furlough payments) was utilised by the Group during
the pandemic, although it is acknowledged that UK Government
intervention to support the economy has mitigated some of the
risks resulting from the pandemic.

ƽ We have worked hard to deliver the most comprehensive

service possible to all our customers during the pandemic.
However, there have been a number of factors that have
impacted our service levels, including COVID‑19‑related
absence, meaning Quality of Service in Royal Mail has not been
as we would have liked. Absence increased over Christmas and
into early January 2022 to peak at around 12% (c.15,000 people),
double pre‑pandemic levels. This has resulted in increased costs
and impacted Quality of Service in some areas of the country.

ƽ Royal Mail remained a key partner for the UK Government’s
COVID‑19 testing programme, continuing to deliver personal
protective equipment to care homes, GP surgeries and social
care providers. We continued to deliver and collect COVID‑19
tests across the UK and we responded quickly to UK
Government requests to increase capacity for the delivery of
testing kits in December 2021 after the Omicron variant was
identified.

ƽ In November 2021, the Board announced that it was returning
£400 million of capital to shareholders through a £200 million
share buyback and £200 million special dividend paid alongside
our interim dividend.

ƽ As part of Royal Mail’s transformation programme, we began
a formal consultation in January 2022 on a reorganisation
to streamline operational management to improve focus
on performance at a local level. This is expected to deliver
a £40 million annualised benefit. However, this has resulted
in a voluntary redundancy charge of £70 million in 2021‑22.
Projects such as these are always difficult as we lose colleagues
from the business and we have taken all necessary steps to
ensure that the process is conducted sensitively, working
closely with impacted employees and their representatives.

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Group performance
We made some good progress during the year:

ƽ Group adjusted operating profit increased 8.0% year‑on‑year
to £758 million. Group revenue increased 0.6% to £12.7 billion,
with parcels making up 71% of Group revenue.

ƽ GLS continued to perform well, driven by a combination of

higher volumes, better pricing and the contribution from the
Rosenau Transport business acquired in Canada. Revenue
increased by 4.4% to £4.2 billion (2020‑21: £4.0 billion)
with revenue in Germany, the largest GLS market by revenue,
growing by 8.1%. Revenue was driven by volume and price/mix,
but inflationary cost pressures resulted in a decline in adjusted
operating profit margin by 80 basis points to 8.1%. GLS adjusted
operating profit was £342 million, down 4.5% on 2020‑21.

ƽ Royal Mail revenue decreased 1.6% to £8.5 billion. This was

driven by a 6.5% decline in parcel revenue after a very strong
performance in the prior year as a result of national and
local lockdowns. This was partially offset by a 5.6% increase
in letter revenue which had declined sharply during the
pandemic. Revenue from parcels accounted for 56% of total
Royal Mail revenue (2020‑21: 59%). Adjusted operating profit
was £416 million (2020‑21: £344 million) and adjusted operating
profit margin was 4.9%, up 90 basis points.

2021-22 remuneration outcomes
Short-term incentive plan (STIP)
In reviewing the formulaic outcome of STIP measures against the
targets set for Executive Directors, the Committee considered broader
aspects of the Company’s performance during the year, including the
outcomes for shareholders and customers as described above.

In terms of the Royal Mail STIP scorecard, financial measures
account for 75% of the potential payout. In assessing the profit
element under the scorecard, the Committee determined that it
was appropriate to exclude the £70 million cost of reorganisation
to streamline operational management to reflect that the
restructure had not been envisaged at the time the target was set.
This resulted in an adjusted operating profit for STIP purposes of
£486 million. Notwithstanding the above, there was no payout
under the element of the scorecard for the CEO Royal Mail and
Group CFO, as threshold performance was not achieved. Revenue
performance resulted in an outturn above threshold.

Quality of Service levels in Royal Mail were not as we would have
liked in 2021‑22. As Quality of Service is one of the Royal Mail
scorecard measures, there is no payout under this particular
measure as threshold performance was not achieved.

Financial performance in GLS were good and there was strong
progress against the non‑financial measures (which had a 25%
weighting). This resulted in a payout between target and maximum
under the scorecard for the CEO GLS.

The Group CFO has a Group STIP scorecard with a combination of
GLS and Royal Mail financial measures (amounting to 75% of the
scorecard). Non‑financial measures (ESG and strategic priorities)
made up the balance of the scorecard.

The Committee considered that the formulaic outcomes under the
respective scorecards for Executive Directors were reflective of the
underlying performance, and decided against exercising discretion
(positive or negative) beyond that outlined above.

This means that the respective payouts are:

Executive Director

Mick Jeavons –
Group CFO

Martin Seidenberg –
CEO GLS

Simon Thompson –
CEO Royal Mail

Scorecard

Group

GLS

Royal Mail

STIP payout
(as a % of maximum)

48.50%

95.00%

17.97%

In Royal Mail, members of its Executive Board share the same STIP
scorecard as the CEO Royal Mail, meaning that the STIP payout for
them was 17.97%. In GLS, the Committee decided that STIP
payments should be made to its Executive Board in light of the good
financial performance during 2021‑22: each of the area managing
directors in GLS have STIP scorecards which are aligned to their
individual areas of geographical responsibility.

Long-term incentive plan (LTIP)
The performance period for the 2019 Royal Mail LTIP concluded at
the end of March 2022. Only Mick Jeavons had a 2019 Royal Mail
LTIP. Following an assessment of the performance conditions, the
aggregate level of awards vesting is 100%, broken down as follows:

ƽ Relative Total Shareholder Return (TSR): 100% vesting

(40% weighting).

ƽ Group EBITDA: 100% vesting (40% weighting).
ƽ Group parcel revenue: 100% vesting (20% weighting).

The Committee considered the outcome fair and appropriate in the
context of the Group’s wider performance over the last three years,
and decided against exercising discretion to alter this formulaic
outcome. The value delivered by the 100% vesting outcome and
included in the single total figure of remuneration is based on a
share price of £4.28 (the 13‑week average to 27 March 2022)
compared with the share price at grant in 2019 of £2.06. This
increases the award outcome value by 107%.

Martin Seidenberg was granted cash and share‑based GLS LTIP
awards prior to his appointment as an Executive Director. These
are subject to GLS financial performance and in respect of the
performance period ending 31 March 2022 the awards vested in
full. The Committee felt this outcome fair and appropriate in the
context of the GLS’s good performance over recent years. More
information is set out on page 129.

Royal Mail plc
Annual Report and Financial Statements 2021‑22

111

Corporate Governance

Directors’ Remuneration Report continued

Total remuneration
Based on the above STIP and LTIP each Executive Director’s
2021‑22 remuneration is shown below. The Committee believes
the respective single figures of total remuneration are appropriate
in the context of the wider stakeholder experience.

Royal Mail actively helped to address potential financial hardship
for its colleagues and their dependants via the Rowland Hill Fund,
contributing £750,000 since April 2020 which has been used to
provide any required support. Financial education support also
continues to be made available.

In June 2021, Royal Mail reached an agreement with the CWU on
‘top up’ holiday pay arrangements for all colleagues at grades
represented by CWU within Royal Mail Group Limited. We recognise
that many colleagues perform regular overtime (over and above
scheduled attendance) and, with effect from April 2021, such
overtime will now be included in the calculation of holiday pay.

Board changes and implications for remuneration
Martin Seidenberg, CEO GLS, was made an Executive Director and
joined the Board on 1 April 2021. Details of his remuneration were
disclosed in last year’s Annual Report. The remuneration decisions
made in respect of his appointment were in accordance with the
Policy approved by the shareholders.

2022-23 executive remuneration
Executive Director salary changes
The Committee reviewed the salaries of its Executive Directors
in the context of increases for the wider workforce.

The Committee decided to apply a 3.6% increase for UK‑based
Executive Directors, effective 1 April 2022 in line with the 3.6%
effective increase in 2021‑22 for frontline colleagues represented
by the CWU (who are the majority of the UK workforce), which
comprised a 1% increase and, following implementation of local
revisions, a reduction in the working week from 38 to 37 hours
a week. An increase of 5.7% was agreed in respect of the CEO
GLS, Martin Seidenberg, who is based in continental Europe and
oversees GLS operations throughout Europe and North America.
The Committee noted that the weighted average salary increase
(effective April 2022) in GLS’ eight largest markets was 5.7%.

Pension arrangements
All Executive Directors receive a pension of 13.6% of salary, which
is aligned with the benefit that will be provided to all eligible
employees under the proposed Royal Mail Collective Pension Plan
which will be launched after all the relevant enabling regulations
have been passed and The Pensions Regulator has authorised the
plan. The 13.6% is less than the 15.6% of salary benefit currently
received by the majority of Royal Mail colleagues in the UK.

Continued use of ESG measures in our 2022-23 incentive plans
ESG‑related measures are included within the STIP scorecard.
25% of the scorecard for the CEO Royal Mail and his management
team is based on health and safety, customer service and
environmental metrics.

Health and safety is an important priority for the Company and it,
together with customer service, has been a key measure in Royal
Mail’s incentive plans for a number of years (not just for the CEO
Royal Mail and his leadership team, but the broader management
population in the UK).

During recent months, the Committee reviewed emerging best
practice in relation to the use of ESG performance measures in
incentive plans and considered whether to adapt or extend the use
of ESG measures to our long‑term incentive plans, with specific
environmental quantitative targets.

Group CFO
Mick Jeavons
£’000s

Total

LTIP

STIP

Pensions/beneﬁts

Salary

420

1,339

541

306

1,669

393

703

CEO GLS
Martin Seidenberg
£’000s

Total

LTIP

STIP

Pensions/beneﬁts

Salary

493

CEO Royal Mail
Simon Thompson
£’000s

Total

LTIP

STIP

Pensions/beneﬁts
Salary

525

753

142

2021 LTIP grants
As outlined in the 2020‑21 Annual Report, the Committee delayed
the grant of the 2021 LTIP awards until August 2021, due to the
uncertainty around the ability to set long‑term financial targets.
The measures and targets were confirmed at the time of grant via
a stock exchange announcement and full details of the targets are
set out in this report. The terms of these awards also provide the
Committee with the ability to review the outcome at vesting,
taking into account the underlying performance of the Group.

Supporting colleagues during the pandemic and ensuring
fairness in their pay
Throughout the year we have supported our colleagues, prioritising
their wellbeing, safety and security.

Our UK colleagues are classified as key workers and form part of
the country’s essential infrastructure, keeping parcels and mail
moving during the pandemic. We prioritised putting in place interim
arrangements to mitigate the risks associated with this important
role, for example enhancing our employee sick pay provision and
updating our operating procedures to limit contact between
colleagues and customers.

112

Royal Mail plc
Annual Report and Financial Statements 2021‑22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

The Committee is aware of investor sentiment for ESG measures
to be relevant to strategy, measurable and quantifiable. During
the year, Royal Mail and GLS’ respective environmental strategies
were updated (see pages 32 and 33). In the coming year, the
Committee will consider whether to further amend the Group’s
incentive plans to align with the refreshed strategies. Such review
will form part of the broader review of the Directors’ Remuneration
Policy (the Policy) scheduled for renewal next year.

However, for the 2022‑23 STIP the following changes are being
introduced:

ƽ The CEO GLS and Group CFO will continue to have a 10%

weighting assigned to health and safety, mirroring that in Royal
Mail. However, a safety measure has been extended to GLS
executives for the first time as part of their STIP arrangements.
ƽ The CEO GLS and his leadership team will have a 7.5% weighting

assigned to sustainability.

2022 LTIP awards
The measures that will apply to the 2022 LTIP awards are set out on
page 137. These follow the principle of ensuring that Executive
Directors are incentivised to deliver the key long‑term priorities
relevant for their role, with 40% of the award based on Group TSR
to ensure alignment with overall Group performance.

The Committee wishes to ensure that financial targets for the 2022
LTIP awards are set appropriately in the context of an uncertain
outlook especially relating to the impact of ongoing geopolitical
uncertainty in Europe and the status of pandemic restrictions in our
markets. Given this continuing uncertainty around the long‑term
business environment, the Committee has agreed to delay the
target setting for these awards. The associated targets will be
therefore confirmed at the time of grant via a stock exchange
announcement. The grant of the 2022 LTIP awards is likely to be
made no later than August 2022.

At 27 March 2022, the Company’s share price was 360.10 pence,
which compares to the 2021 LTIP grant price of 500 pence: a
reduction of 28%. However, over the last two financial years until
27 March 2022, the share price has been as low as £1.46 and the
average share price during this period was £3.76 and therefore
the current share price is within the range over this period. As the
stock markets remain unsettled in light of the on going geopolitical
environment, the Committee will monitor share price performance
up to the point of grant of the 2022 LTIP to ensure award levels are
appropriate. As in previous years, the Committee will retain the
discretion to review vesting outcomes to ensure that these are
reflective of the underlying performance during the period.

Shareholder engagement
We remain committed to maintaining an open and transparent
engagement with our shareholders. We were very pleased that
the Remuneration Report was very strongly supported in July 2021,
with over 99.7% voting in favour. This was on the back of the
strong endorsement of our Policy by shareholders in September
2020. I would like to thank shareholders again for their constructive
feedback over recent years (including during the adoption of the
former policy in 2019), 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 this year’s AGM.

As the Policy is due for renewal in 2023, we anticipate engaging
with shareholders about any changes to our remuneration
approach in late 2022 and early 2023.

Consideration of the wider workforce views
In addition to its primary role of reviewing Executive Directors’
remuneration and the remuneration of other executives in GLS
and Royal Mail, 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. As in previous years, the Committee reviewed
the gender pay gap reporting and remuneration practices
across the Group. In 2021‑22 the ARC discussed the operation of
Royal Mail’s pension plans (all Committee members were invited
to this session). As a Board, we also discuss details of any pay
arrangements for the UK workforce represented by the CWU
and Unite/CMA.

The Board and the Committee recognise the importance of seeking
feedback from colleagues to inform decision‑making in addition
to the regular consultations members of the Royal Mail Executive
Board have with the CWU and Unite/CMA.

In April 2022, 69% of colleagues responded to the Royal Mail’s
annual trust survey, which sought to understand colleague
sentiment in respect of range of matters including a range of
people‑related topics. Key insights are presented to the Royal
Mail Executive Board and ESG Committee for discussion, and
team results shared with the workforce so that local action
plans can be developed. Maria da Cunha is Committee member
which allows any insights she has from her role as the designated
Non‑Executive Director for engagement with the workforce, to
be fed directly into Committee discussions.

Further information on our workforce engagement is included
on pages 26 and 90.

Summary
Our colleagues across the Group continue to work tirelessly
to support our customers during yet another challenging year.
As a Committee, we have sought to make decisions which
recognise their efforts, balanced with our desire to reflect
the Group’s performance and an uncertain outlook.

I trust that you find the Remuneration Report clear and informative.
We hope that you will support our Remuneration Report at the
forthcoming AGM.

Lynne Peacock
Chair of the Remuneration Committee
18 May 2022

Royal Mail plc
Annual Report and Financial Statements 2021‑22

113

Corporate Governance

Our Remuneration at a Glance (unaudited)

2022-23 Executive Directors’ remuneration structure
The table below summarises the implementation of the Policy for Executive Directors in 2022‑23.

Financial year 2022-23

2023-24

2024-25

2025-26

2026-27

Implementation for 2022–23

Salary

Benefits

STIP

Performance
Period

Deferral period
Malus and clawback provisions apply

LTIP

Performance period
Malus provisions apply

Holding period
Clawback provisions apply

ƽ Mick Jeavons – £435,000.

ƽ Martin Seidenberg – €613,050.

ƽ Simon Thompson – £543,750.

ƽ Salaries may be reviewed during the year.

ƽ No change in how Remuneration

Policy operated.

ƽ Pension contribution and or allowance 13.6%.

ƽ Other benefits may include healthcare and

car allowance (or car).

ƽ Maximum remains 150% of salary

(100% cash and 50% deferred in shares
for three years).

ƽ Target 75% of salary (50% cash and

25% shares).

ƽ Measures 75% financial and 25% ESG

or other strategic priorities.

ƽ Maximum remains 150% of salary.

ƽ Shares vest after three years subject to
performance, with a further two‑year
holding period.

ƽ Relative TSR 40% and financial

measures 60%.

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Strategic Report

Corporate Governance

Financial Statements

Additional Information

Aligning our remuneration approach to business strategy
and stakeholder interests
To generate value for stakeholders, we are focused on building
a more balanced and diverse parcels‑led, international business.
Recognising that Royal Mail and GLS have different market
positions, strengths and opportunities, we have developed
separate strategies to drive sustainable growth in each
business and at all times meet changing customer needs.

Our remuneration approach is aligned to our strategy, thereby
incentivising, as appropriate, great customer service and the
creation of long‑term value for all of our stakeholders.

The following table provides a summary of how our incentive
framework in 2022‑23 is aligned with our business strategy and
the results that it delivers. Many of the incentive measures are
key performance indicators (KPIs) (see pages 24 and 25).

Financial measure

RM revenue/

parcel revenue GLS cashflow

RM profit/
GLS EBITA

ESG measure

Other measure

RM service
quality

Health

& safety Environmental

Relative
TSR

Individual
priorities



Short‑term
incentive plan

Long‑term
incentive plan

Link to strategy

Royal Mail

GLS

Strategic icon key

Royal Mail

GLS

Customer

Trust

Growth

Connect Europe

Strengthen 2C parcel market
position and lead in 2B

Inspire the market

The Committee believes that its executive remuneration policies and practices support the respective strategies in Royal Mail
and GLS and promote long‑term sustainable success, with reward linked to the successful delivery of such long‑term strategy.
The remuneration, including incentive arrangements for the respective executive teams, is aligned to our purpose and values (see
page 2), with a focus on customers and other stakeholders an integral part of our executive remuneration approach.

Executive Directors’ variable remuneration in 2021-22
As a result of the Company’s FY2021‑22 performance (against financial, ESG and strategic measures), STIP awards are payable to
Executive Directors as shown below. The Committee considered that these outcomes were appropriate in the context of the Group,
GLS and Royal Mail’s overall performance and that of the Executive Directors during the year.

The performance period for the 2019 RM LTIP concluded at the end of March 2022. The outcome is shown below and more details on the
progress against individual measures is show on pages 127 and 128.

2021‑22 RM STIP (% of salary)

2019 RM LTIP vesting (% of salary)

Executive Directors’ total single figure of remuneration

2021‑22 total remuneration (£’000s)

M Jeavons

M Seidenberg

S Thompson

72.8%

100%

142.5%

N/A

27.0%

N/A

M Jeavons

M Seidenberg

S Thompson

1,339

1,669

753

Royal Mail plc
Annual Report and Financial Statements 2021‑22

115

Corporate Governance

Our Remuneration at a Glance (unaudited) continued

Additional information

UK CEO (and other Executive Directors) shareholding requirement (% of salary)

UK CEO’s actual shareholding as a proportion of his salary (note: appointed 11 January 2021)

Mean gender pay gap

Mean gender bonus pay gap

CEO pay ratio

Percentage/Ratio

200%

9.6%

+1.4%

‑5.1%

23:1

How does our Directors’ Remuneration Policy address the key features set out in the UK Corporate Governance Code?
The table below details how the Committee addressed Provision 40 of the Code in respect of Directors’ remuneration:

Provision

Clarity

Approach

ƽ The Committee undertook extensive shareholder engagement during the development of its Remuneration Policies in 2019 and 2020,
and redesigned the relevant annual reports to ensure that both the changes to the Policy, and decisions taken on Directors’ pay, were
transparent and in line with best practice.

ƽ The Committee consults annually with shareholders to seek their views on the operation of the Policy in the year.
ƽ Information on how remuneration is structured for all employees and how it is aligned to Directors’ remuneration is included in the

Directors’ Remuneration Report.

Simplicity

ƽ The Policy consists of a) fixed remuneration and b) variable remuneration comprising one Short‑Term Incentive and one Long‑Term

Incentive only. The objective of each element, as well as how they operate, is included in the Policy.

ƽ The Short‑Term Incentive Plan was simplified as part of the Remuneration Policy adopted in 2019, including a reduction in the number

of measures, with links to our strategic objectives clearly set out.

Risk

Predictability

ƽ The combination of reward for short‑term business performance, paid partly in cash and partly in deferred shares, and long‑term

performance, with incentive measures covering shareholder returns, financial and non‑financial elements, ensures that the
incentives drive the right behaviours for the Group, its shareholders, employees and customers. Incentive plans include non‑financial
risks such as health and safety and environmental protection.

ƽ Our incentive plans are also subject to malus and clawback provisions.

ƽ Threshold, target and maximum pay scenarios are set out in the Remuneration Report section.
ƽ 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

ƽ There is a clear and direct link between business performance and individual rewards through our incentive plans.
ƽ The Committee retains the discretion to adjust formulaic outcomes of incentive plans if they do not reflect the underlying

performance of the Group.

Alignment
with culture

ƽ The Committee has worked hard to design the Remuneration Policy that directly supports our strategic priorities, and aligns our

Directors and wider management to these outcomes.

ƽ Our incentive plans include both financial measures and ESG measures. These ESG measures focus on our customers, health and

safety and environment.

ƽ All Royal Mail 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.

In accordance with Code Provision 41, the Directors’ Remuneration Report describes the work of the Committee, including those areas
mentioned in that Provision. The table below highlights some of those areas:

Provision

Approach

Operation of policy

ƽ The Committee believes that the Remuneration Policy operates as intended in terms of Company performance and the quantum of

remuneration delivered.

Shareholder
engagement

Workforce
engagement

ƽ We undertook substantial engagement with our shareholders as part of the development of a new remuneration policy in 2019 and
then again in the run up to the 2020 AGM when we made further changes to the policy. We are grateful for this feedback and input
received over the last 36 months that has shaped our thinking and decision making.

ƽ During 2021‑22, we consulted leading investors in the run up to the AGM on our remuneration approach and prior to the end of the year

we provided an update on executive remuneration matters to our 15 largest investors (who represented over 60% of our share
register), inviting their feedback.

ƽ An outline of our approach to workforce engagement in set out on pages 26 and 90.
ƽ The Committee will be exploring in the coming years how such engagement can be strengthened in relation to the development

of executive remuneration policy.

116

Royal Mail plc
Annual Report and Financial Statements 2021‑22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Directors’ Remuneration Policy (unaudited)

The Company’s Remuneration Policy was approved by 99% of shareholders at the AGM on 8 September 2020. The following tables
summarise the key elements of our Remuneration Policy. The Policy is not subject to a shareholder vote this year. The Policy is set
out in full on pages 133 to 140 of the Annual Report and Financial Statements 2019‑20.

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.

M Jeavons (Group CFO) – £435,000

M Seidenberg (CEO GLS) – €613,050

S Thompson (CEO Royal Mail) – £543,750

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.

For newly appointed Executive Directors
the pension allowance will be in line with
employer contribution for the majority
of the workforce

Company contribution to a defined contribution pension scheme and/or a cash
supplement (in lieu of pension).

Royal Mail plc
Annual Report and Financial Statements 2021‑22

117

Corporate Governance

Directors’ Remuneration Policy (unaudited) continued

Executive Director variable remuneration

At a glance – maximum opportunity

Operation

Performance measures

Short-Term Incentive Plan (or annual bonus)

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% of salary,
split between two plans: an
annual cash bonus award of up
to 100% of salary and a deferred
share bonus award of up to 50%
of salary. Target opportunity of
75% of salary.

The total annual incentive opportunity
is provided as follows:

ƽ Two thirds is payable in cash, paid at the
end of the annual performance period.
ƽ 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 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:

ƽ 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.

ƽ 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% of salary.

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.

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:

ƽ The Executive Director’s continued
employment at the date of vesting.

ƽ 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.

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.

118

Royal Mail plc
Annual Report and Financial Statements 2021‑22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Application of malus and clawback

At a glance – maximum opportunity

Operation

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.

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.

Shareholding guidelines – during employment

Purpose and link to strategy
To ensure alignment between remuneration and long‑term shareholder value creation.

Shareholding guideline
of 200% of salary.

Executive Directors 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% of salary to be held in
granted shares for two years
after leaving.

On cessation, Executive Directors 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% 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.

Information on remuneration for new Executive Directors, what happens when an Executive Director leaves, or what happens
in case of a takeover is included in the full Policy, published in last year’s Annual Report and Financial Statements for 2019‑20.

Royal Mail plc
Annual Report and Financial Statements 2021‑22

119

Corporate Governance

Directors’ Remuneration Policy (unaudited) continued

Remuneration Policy for Non-Executive Directors (including the 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 the
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 12 months’ notice. Copies
of the Executive Directors’ service contracts will be available for
inspection at our forthcoming 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.

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 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 is required by either party
(four months’ notice in the case of the Chair of the Board).

120

Royal Mail plc
Annual Report and Financial Statements 2021‑22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

All Employee Remuneration (unaudited)

The Committee is directly responsible for the remuneration of the Executive Directors and respective Royal Mail and GLS Executive
Boards. The Committee is also given regular updates and, as required, takes 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 Royal Mail organisation is set out below.

Operational

Managers

Senior managers

Senior leaders

Salary

Allowances
and overtime

Based on role, location
and service, progression
typically based on service.
Salary increases
negotiated with the CWU
and applied to the pay
scales. No personal
or performance‑
related element.

Eligible for allowances
(including functional, shift
and legacy allowances),
overtime and scheduled
attendance (a form of
planned overtime).

Middle and junior
managers typically have a
similar fixed pay structure
to operational colleagues,
with pay scales that they
progress through based
on service.

Some roles at this level are
also eligible for shift pay,
overtime and allowances.

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.

Not eligible.

Pension

The majority of employees are members of the Royal Mail Defined Benefit Cash
Balance Scheme (DBCBS), with a Royal Mail contribution at 15.6% 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 Royal Mail Defined Contribution Plan (DCP), with
Company contributions up to 10% of salary.

However, on the launch of the new Royal Mail Collective Pension Plan, all eligible
colleagues will participate in this plan (rather than the current DBCBS and DCP).
Company contributions will be up to 13.6% of salary.

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.

Managers are eligible for a management STIP based
on corporate and personal performance.

Eligible for a ‘Christmas
Supplement’ reflecting
their huge effort and
impact during our busiest
period. Not linked to
personal performance.

LTIP

Not eligible.

Eligible for annual
management STIP with a
cash and deferred share
element based on
corporate and personal
performance.

Royal Mail Executive
Board eligible.

Benefits

Short-term
incentive
(STIP)/bonuses

Royal Mail plc
Annual Report and Financial Statements 2021‑22

121

Corporate Governance

All Employee Remuneration (unaudited) continued

The chart shows an indicative summary of the relationship between
fixed and variable pay across Royal Mail. There is no discretionary
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.

Illustration of typical split of ﬁxed and variable remuneration

Executive
Director

43.1%

56.9%

Alignment between our approach to Directors’
remuneration and other colleagues
In developing the 2019 Remuneration Policy and the subsequent
updated Remuneration Policy in 2020, the 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 that 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 for
Royal Mail, against which it can assess the Company’s reward
arrangements. Across the Group we are working towards reward
arrangements that:

ƽ Deliver both value for our people and a return on investment for

Senior leader

65.4%

34.6%

the business.

ƽ Incentivise and recognise high performance.
ƽ Are aligned with the markets in which we operate and compete.
ƽ Drive efficiencies by taking a consistent cross‑

business approach.

ƽ 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 Royal
Mail executives are typically set at levels which mirror those being
applied for managerial populations which in turn are set in the
context of pay levels agreed with our trade unions for employees
whose pay is collectively bargained. In addition, the different
incentive and commission plans in operation across Royal Mail
support the delivery of the Company‑wide priorities which are part
of the STIP, 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, Maria da
Cunha 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 about our workforce engagement activities is set out
on pages 26 and 90.

Board level 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. There was also a detailed overview
of how frontline remuneration is structured and managed in
Royal Mail.

In addition, the ARC was updated on proposals to implement a
Collective Pension Plan and the Board discussed remuneration
arrangements in respect of the workforce represented by both
the CWU and Unite/CMA.

Senior manager

85.9%

Manager

Operational

91.7%

99.1%

14.1%

8.3%

0.9%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Fixed

Variable (at target)

Transforming company car provision
Royal Mail announced in July 2021 its 2025 roadmap for the
decarbonisation of its company car and business mileage
allowances policies. These changes are part of Royal Mail’s
commitment to reduce its environmental impact and achieve
net zero by 2040 and should ensure we deliver an all‑electric
company car fleet by 2030.

The roadmap consists of three key dates:
ƽ 1 October 2021: from this date, the 1,500 most senior
managers have only been able to order EVs through
MyDrive.

ƽ 1 April 2023: from this date, only hybrid and electric
vehicle (EV) cars will be available to order through
MyDrive (Royal Mail’s all employee salary sacrifice car
plan). Business mileage reimbursed (in a private or
company car) will only be available at the appropriate
hybrid and EV rates even if the vehicle is diesel or petrol.
ƽ 1 April 2025: from this date, only EVs will be available to
order through MyDrive. Business mileage reimbursed
(in a private or company car) will only be available at
appropriate EV rates.

We are delighted with the uptake since the announcement
last summer, with the CEO Royal Mail participating in the
plan. Colleagues are able to acquire a company car (leased
with our partner, Zenith) through our salary sacrifice
arrangement. As at March 2022, there were 3,167 company
cars in the fleet, of which 620 were EV. Of the orders placed
between October 2021 and March 2022, 83% were EV.

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Strategic Report

Corporate Governance

Financial Statements

Additional Information

Gender pay gap reporting
The Company’s 2021 Gender Pay Gap Report, published during 2021‑22, continues to show that average pay for men and women is broadly
the same. On a median basis, our gender pay gap is 3.0%. This compares with a national average gender pay gap on a median basis of
15.4% across all industries, calculated by the Office of National Statistics (ONS) in October 2021. On a mean basis, the pay gap has fallen
for a second consecutive year to 1.4%.

We 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 as shown below.

Gender pay gap – multi year view
Royal Mail and national average (ONS survey)

18.00%

16.00%

14.00%

12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%

17.00%

15.50%

15.40%

3.50%

2.10%

2019

National average pay gap (ONS)
Royal Mail mean pay gap
Royal Mail median pay gap

2.60%

1.90%

2020

3.00%

1.40%

2021

Most frontline colleagues in the UK are eligible, as part of their
agreed contractual terms, to receive up to £200 payable at
Christmas. This means we pay incentives (as defined under the
gender pay gap regulations) to the vast majority of our employees:
in 2021, 98% of men and 98% of women received bonuses (in 2020,
this was 98% and 96% respectively). Those who are ineligible have
typically not reached the minimum service requirement or not
obtained a minimum personal performance threshold. In the year
to April 2021, on a median basis bonuses were slightly higher for
men but in favour of women on a mean basis (i.e. –5.1% in 2021).
Year‑on‑year, there was a reduction in the mean bonus gap in
favour of women. Two reasons for the year‑on‑year movement
in the bonus gap were, firstly, the one‑off COVID‑19 recognition
payment paid to all staff (other than senior leaders) in July 2020
and, secondly, lower discretionary bonus payments to senior
managers and senior leaders: there is a higher proportion of
women in senior managerial positions, compared with the
operational population.

A negative percentage means the gap is in favour of females
whereas a positive percentage means a gap in favour of males.

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.

CEO pay ratio
The CEO pay ratio is set out below, 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. The CEO pay ratio for 2019 and 2020 is based
on the remuneration of the former Group CEO. Since 2021 it has
been based on the remuneration of the CEO Royal Mail.

2021

Mean

Median

Total
pay gap

1.4%

3.0%

Bonus
gap

‑5.1%

7.9%

Year

2022

2021

2020

2019

Method

Option A

25th percentile
pay ratio

50th percentile
pay ratio

75th percentile
pay ratio

26:1

22:1

31:1

28:1

23:1

20:1

28:1

26:1

20:1

17:1

24:1

22:1

Royal Mail plc
Annual Report and Financial Statements 2021‑22

123

Corporate Governance

All Employee Remuneration (unaudited) continued

The table below sets out the salary, full pay and benefits value
received by UK employees identified at the 25th, 50th and 75th
percentiles, during 2021‑22. There are over 83,000 operational
colleagues on the salary of £23,884 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 2021‑22.

2021‑22

Salary

Total pay and benefits

25th percentile 50th percentile 75th percentile

£23,884

£28,803

£23,884

£32,465

£23,946

£38,388

There has been a small percentage point increase in the pay ratio
between 2020‑21 and 2021‑22.

The primary reason for this is the increase in the CEO Royal Mail’s
remuneration in 2021‑22. The headline amount of fixed
remuneration for the CEO Royal Mail is unchanged year‑on‑year.
However, he received a STIP payment in respect of 2021‑22 in
contrast to 2020‑21 when no STIP was payable, as he was ineligible

because he joined towards the end of the financial year. Although
the amount of the STIP was significantly less than target, the STIP
payment has the effect of increasing the ratio to 23:1.

The Committee is satisfied that the individuals identified within
each relevant percentile appropriately reflect the employee
pay profiles at those quartiles and that the overall picture
presented by the ratios is consistent with our pay, reward
and progression policies.

Pay relativities are just one of many factors that we take into
consideration in developing a fair remuneration framework
in Royal Mail.

We have also detailed the potential ratios based on the CEO Royal
Mail’s theoretical fixed, target and maximum pay as set out in
the Policy. It is important to note that a high proportion of the CEO
Royal Mail’s pay is based on performance against the short‑ and
long‑term incentive plans, and that payouts can vary significantly
year‑on‑year, affecting the ratio going forward.

Illustrative pay ratios based on diﬀerent remuneration outcomes for the CEO Royal Mail

Median employee pay
versus UK CEO’s 2021-22
ﬁxed remuneration

Median employee pay
versus UK CEO’s actual
2021-22 remuneration

Median employee pay
versus UK CEO’s 2021-22
target remuneration

Median employee pay versus
UK CEO’s 2021-22
maximum remuneration

10%

20%

30%

40%

50%

60%

70%

80%

124

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Annual Report and Financial Statements 2021‑22

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Financial Statements

Additional Information

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 with the total remuneration of the CEO as set out in the single figure
of total remuneration 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 2021‑22 remuneration. 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 Royal Mail. At Royal Mail, over 47,000 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.

Employer pension
contributions

Actual employer pension contributions have been included (not 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.

The calculation also includes:

ƽ A projected short‑term incentive plan payment for frontline managers and other managers payable

in June 2022.

ƽ Payments of up to £200 to frontline colleagues made annually before Christmas.
ƽ The projected value of awards vesting under the 2019 Royal Mail LTIP based on a performance outcome

of 100% and a share price of £4.28 (being the 13‑week average to 27 March 2022).

Royal Mail plc
Annual Report and Financial Statements 2021‑22

125

Corporate Governance

Annual Report on Directors’ Remuneration (audited)

This part of the Directors’ Remuneration Report sets out how the Policy has been applied for 2021‑22. This detailed information,
set out below, has been audited by the Company’s independent auditor, KPMG LLP.

Single figure table – Executive Directors (audited)

£’000

Salary2

Benefits3

Pension5

Total fixed

Short‑term
incentive6

Long‑term
incentive7,8

Total variable

Total

2022

2021

2022

2021

2022

2021

2022

2021

2022

2021

2022

2021

2022

2021

2022

2021

Mick Jeavons

Martin Seidenberg1,4

Simon Thompson

420

493

525

–

117

–

492

573

611

110

–

136

306

703

142

–

541

393

–

847

– 1,096

–

142

0 1,339

110

– 1,669

–

753

136

Notes
1. Martin Seidenberg’s remuneration in the table above reflects the period from his appointment as an Executive Director on 1 April 2021.
2.

The Committee reviewed the Executive Directors’ salaries and decided against making any increases during 2021‑22 as the salaries had only recently been reviewed on their respective
appointments to the Board.
Benefits in the case of UK‑based Executive Directors include healthcare provision with notional annual premium of up to £2,300 and the cash allowance of £13,160 which can be used to fund
(under a salary sacrifice arrangement) the lease of an electric company car. Martin Seidenberg is based in Germany and has elected to take a company car, which had an annual cost of €15,203.
Under the Remuneration Policy the Company may provide to Executive Directors, in certain circumstances, additional benefits, including 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. At the time of this report, Martin Seidenberg’s relevant country tax returns covering the period to 31 March 2022 had not been finalised. If the Company has to make additional payments
in respect of related tax liabilities for this period, details will be disclosed in next year’s Annual Report.
For 2021‑22, the pension amount shown for Mick Jeavons and Martin Seidenberg was paid as a cash allowance in lieu of pension. For Simon Thompson, up to £4,000 (on an annualised basis)
was paid into the Royal Mail Defined Contribution Plan, with the balance paid as a cash allowance.
Any STIP has one third deferred into shares subject to continued employment for three years. No further performance conditions are attached. Details of the 2021‑22 STIP outturn are set out on pages 127
to 129.
Mick Jeavons’ RM 2019 LTIP has a 100% performance vesting outcome (see page 129 for more detail). Based on a share price of £4.28, the 13‑week average to 27 March 2022, the estimated
value of the 2019 LTIP to be delivered to Mick Jeavons is £540,795. As the grant price was £2.06, the amount relating to share price appreciation is £280,506 (see below). The final value will be
restated in the 2022‑23 Directors’ Remuneration Report based on the share price at vesting in August 2022.
The 2022 LTIP figure shown for Martin Seidenberg relates to historic grants under the GLS LTIP with performance period(s) ending in 2021‑22. More information on the GLS LTIP is shown on
page 129. There is no element attributable to share price appreciation for the 2019 GLS LTIP as this is a cash‑based award. Part of the 2020 LTIP is delivered in shares. Based on a grant price of
£1.8002 and a 13‑week average price of £4.28, the amount relating to share price appreciation is £96,645, i.e. 238% (see below).

LTIP vesting and share appreciation

Recipient

Award

Value at award

Value lapses

Adjusted value at award

Share price growth

Current estimated value

Mick Jeavons

Martin Seidenberg

2019 RM LTIP

2020 GLS LTIP (shares)

£260,289

–

£260,289

£280,506

£540,795

£70,159

–

£70,159

£96,645

£166,804

126

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Annual Report and Financial Statements 2021‑22

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Corporate Governance

Financial Statements

Additional Information

2021-22 short-term incentive outcome (unaudited)
The Committee followed a four‑step process for determining
STIP awards.

1. Assess the earnings (financial) gateway: The Committee
concluded that a minimum level of financial performance had
been attained in Royal Mail and GLS and that the payment of
STIPs was affordable.

2. Consider eligibility: The Committee considered that each
Executive Director had exhibited an appropriate level of personal
performance and conduct and was deemed to have met the
gateway requirement to be eligible for an incentive.

3. Evaluate performance against the relevant business
scorecard for the Executive Director: Details of the scorecard
outcomes can be seen below. Setting STIP targets at the outset of
2021‑22 was challenging in the context of an uncertain and fluid
outlook, especially given many countries had not yet begun easing
pandemic restrictions. Notwithstanding this, the Committee set
targets at the outset of the year, considering internal and external

forecasts. The Committee was satisfied that the ranges set out in
the table below represented challenging but realistic targets,
and that significant out‑performance of internal reference
points at the time they were set would be required to achieve
a maximum payout.

4. Review broader business performance and finalise awards:
The Committee can make an upwards or downwards adjustment
to the scorecard outcome for broader performance. In line with
the provisions of the Code, the Committee carefully considered
whether the respective formulaic outcome could be justified in the
context of Royal Mail and GLS’ overall performance. In so doing the
Committee reviewed the following:

ƽ Business performance during 2021‑22, including progress

against operational and strategic goals.

ƽ The quality of underlying earnings and whether any significant

one‑off factors influenced the results.

ƽ The experience of our shareholders and customers over the year.

2021-22 STIP scorecards

Measure

Weighting

Targets

Assessment

CEO Royal Mail – Simon Thompson

37.5%

Threshold – £500m

£486m1

Target – £600m

Maximum – £700m

Adjusted Royal
Mail UK operating
profit1

Royal Mail UK
revenue

Health and safety

10.0%

Target – £8,737m

Maximum – £8,999m

20% reduction in Total Accident
Frequency Rate year‑on‑year

7.2% reduction

37.5%

Threshold – £8,475m

£8,514m

14.22/37.5

First Class Retail
Quality of Service

7.5%

Target – 93%

Maximum – 93.2%

81.8% in 2021‑22.
Service not as we would have liked it

Environment

7.5%

Committee assessment of:

Refreshed strategy developed.

ƽ Progress around defining and executing
a strategy on the sustainable impact of
our business.

ƽ In‑year progress towards environment

commitments (evidenced through progress
against agreed Board emission targets).

Much activity achieved in year (see pages 32 to 35)

Tonnes CO2e per £1m revenue – 62.0
(2020‑21: 62.1)

Energy Consumption kWh (‘000) – 2.346m
(2020‑21: 2.353m)

Alternative performance measures are not defined under IFRS. The APMs used to describe the Group’s performance, including a reconciliation to reported results, are explained
on pages 228 to 232. For STIP purposes, adjusted operating profit excludes £70 million cost of reorganisation to streamline operational management (see explanation below).

Outcome

0.0/37.5

0.0/10.0

0.0/7.5

3.75/7.5

In terms of the Royal Mail STIP, scorecard financial measures account for 75% of the potential payout. In assessing the profit element
under the scorecard, the Committee determined that it was appropriate to exclude the £70m cost of reorganisation to streamline
operational management to reflect that the restructure had not been envisaged at the time the target was set. This resulted in an adjusted
operating profit for STIP purposes of £486m. Notwithstanding the above, there was no payout under the profit element of the scorecard for
the Royal Mail CEO and Group CFO, as threshold performance was not achieved.

Royal Mail plc
Annual Report and Financial Statements 2021‑22

127

Corporate Governance

Annual Report on Directors’ Remuneration (audited) continued

2021-22 STIP scorecards (continued)

Measure

Weighting

Targets

CEO GLS – Martin Seidenberg

Assessment

Adjusted GLS
EBITA1

75%

Threshold – €366.6m

€401.6m

Target – €381.9m

Maximum – €397.2m

Health and safety

10%

Successfully develop and implement new health
and safety programme across GLS.

Strategic priorities 15%

Committee assessment of:

ƽ Satisfactory progress against the Accelerate

GLS strategy in 2021‑22.

ƽ Improvement in external perceived value of GLS
(such as through a change in EBIT multiple).

ƽ Strengthening of governance standards

within GLS.

The Occupational Health and Safety awareness
and training programme now rolled‑out, which
Included management training and development
of specific content for transport partners.
However, safety levels need to improve further
for both employees and our transport partners.
Details of GLS’ employee safety and accident
record is set out on page 37.

Continued to execute successfully Accelerate,
generating over €500m of free cash flow in
the first two years against the €1 bn target by
2024‑25. International capabilities strengthened
e.g. Rosenau Transport acquisition in Canada.

Improved GLS valuation: analyst notes generally
positive on GLS, highlighting that GLS is considered
to be a strong, stable and well managed business.
Reliable and good financial results of GLS underpin
this development and valuation strength.

Strengthened governance consistent with
Group standards, such as information security.
Improved operating rhythm and Group interaction
in terms of business performance reviews and
formal supervisory board and GLS audit and risk
committee meetings.

Group CFO – Mick Jeavons

Adjusted Royal
Mail UK operating
profit1

Adjusted GLS
EBITA1

37.5%

Threshold – £500m

See above

Target – £600m

Maximum – £700m

37.5%

Threshold – €366.6m

See above

Target – €381.9m

Maximum – €397.2m

Health and safety

10%

20% reduction in Total Accident
Frequency Rate year‑on‑year

See above

Strategic priorities 15%

Committee assessment of:

ƽ Progress against milestones relating

to Royal Mail transformation.

ƽ Continuing to optimise financial

management and reporting to drive
benefits across the Group.

ƽ Effective management of Tax and Treasury
across the Group including optimising
benefits in relation to cash flow.

Achieved 50% parcel automation and over 1,700
revisions and realignment activities deployed,
but delivery below expectations. £59m benefits
delivered from Pathway to Change which was
at low end of revised £55 to £80m range.

Improved governance and changes to internal
processes and leadership helped delivered
positive financial benefits.

Strong cash generation: £519m in‑year trading
cash flow, including increased capex of £257m.

Group’s reported effective tax rate 7.6% (2020‑21:
14.6%). 11.4% lower than the UK statutory rate of
19%. See pages 70 to 71 for more information.

Outcome

75.0/75.0

5.0/10.0

15.0/15.0

0.0/37.5

37.5/37.5

0.0/10.0

11.0/15.0

Notes
1.

Alternative performance measures are not defined under IFRS. The APMs used to describe the Group’s performance, including a reconciliation to reported results, are explained on
pages 228 to 232.

128

Royal Mail plc
Annual Report and Financial Statements 2021‑22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

2021-22 STIP outturn

Maximum award (% of salary)

Salary

Committee assessment on performance under the relevant scorecard

Discretion applied (+/- % pts)

Final outcome for 2021-22

– as a % of maximum

– as a % of salary

– as an amount

M Jeavons

M Seidenberg

S Thompson

150%

£420,000

€ 580,000

£525,000

48.5%

0.0%

48.5%

72.75%

95.0%

0.0%

95.0%

142.5%

17.97%

0.0%

17.97%

26.96%

£305,550

€ 826,500

£141,514

Royal Mail LTIP (unaudited)
2019 LTIP outcomes
The 2019 LTIP was based on performance against a relative TSR measure, with a performance period from 1 April 2019 to 31 March 2022
and financial performance, as set out below:

Measure

TSR vs FTSE 50‑150
(excluding mining and financial companies)

Group EBITDA1,2

Group parcels revenue

Total vesting

Weighting

Threshold

Maximum

Achievement

Performance vesting

40%

20%

Median
10%

£925m
10%

£7.0bn
5%

Top quartile
40%

88th percentile
40/40

£1,200m
40%

£7.8bn
20%

£1,358m
40/40

£8.85bn
20/20

100/100

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.
2. Performance measure assumes £160 million impact from the adoption of IFRS 16 ‘Leases’.

The Committee agreed that the level of vesting (100%) was a fair and reasonable outcome, having reviewed Royal Mail’s wider
performance (both financial and operational) and the share price performance over the three‑year period. It concluded that the level of
vesting was justified and, therefore, no discretion was exercised to adjust the formulaic outcome. Due to the above performance, 100%
of the 2019 LTIP will vest in full in August 2022.

GLS LTIP outcomes
Martin Seidenberg was granted cash and share‑based GLS LTIP awards prior to his appointment as an Executive Director. These awards
continue to vest on their normal schedule. Since 2021, Martin Seidenberg has been eligible for the Royal Mail LTIP and has not received
any further grants under the GLS LTIP. Under the GLS LTIP, the maximum possible award was 98% of salary.

The performance conditions are based on adjusted GLS profit performance with a separate target set for each of the three financial years
of the vesting period: 25% of the award is based on achievement in year one; with 37.5% based on achievement in years two and three
respectively. Although performance is assessed annually, awards vest after three years subject to continued employment.

The single figure table includes the second and third tranche of Martin Seidenberg’s 2020 and 2019 GLS LTIP award, respectively, for
which the performance period ends in FY2021‑22. The 2020 and 2019 awards vest in July 2023 and August 2022, respectively
subject to continued employment.

Award

2019 GLS LTIP – tranche 3

2020 GLS LTIP – tranche 2 (cash)

2020 GLS LTIP – tranche 2 (shares)

Outcome
(% of max)

Value vesting
(€)

Shares
vesting

Value

vesting (£)2,3

100%

150,675

115,763

–

38,973

128,125

98,438

166,804

The single figure table in 2022‑23 Annual Report will include the final tranche of Martin Seidenberg’s 2020 GLS LTIP award.

1.
2. Cash awards converted for reporting purposes using the year end exchange rate of £1:€1.176.
3. Share awards converted for reporting purposes using the average 13 week share price to 27 March 2022 (£4.28).

Royal Mail plc
Annual Report and Financial Statements 2021‑22

129

Corporate Governance

Annual Report on Directors’ Remuneration (audited) continued

Other outstanding LTIP awards (unaudited)
The following grants under the 2020 and 2021 Royal Mail LTIP remain outstanding at 27 March 2022. The performance conditions are set
out below:

Measure

2020 RM LTIP

Threshold

Maximum

Weighting

Performance

Vesting
(% of award)

Performance

Vesting
(% of award)

TSR vs FTSE 51‑150
(excluding mining and financial companies)

40%

Median

Group EBITDA

Group parcels revenue

Total

2021 RM LTIP

Total Shareholder Return vs FTSE 51‑150
(excluding mining and financials) comparator group

Adjusted Royal Mail
UK operating profit

Royal Mail UK
parcels revenue

Adjusted GLS EBITA

GLS cashflow

Total

Simon Thompson

Mick Jeavons

Simon Thompson

Mick Jeavons

Martin Seidenberg

Mick Jeavons

Martin Seidenberg

Mick Jeavons

£1,070m

£7.65bn

Median

£656.1m

£5,344.7m

€410m

€281.2m

40%

20%

100%

40%

20%

10%

40%

20%

10%

100%

Upper
quartile

£1,380m

£8.45bn

Upper
quartile

£801.9m

£5,907.3m

€449.9m

€310.8m

10%

25%

10%

2.5%

10%

2.5%

25%

40%

20%

100%

40%

20%

10%

40%

20%

10%

100%

The amount of the LTIP share awards outstanding for each of the Executive Directors is shown in the following table, as at 27 March 2022.

Award

Mick Jeavons

2019 RM LTIP1

2020 RM LTIP2

2021 RM LTIP3

Martin Seidenberg

2019 GLS LTIP4

2020 GLS LTIP (cash)4

2020 GLS LTIP (shares)4

2021 RM LTIP3

Simon Thompson

2021 RM LTIP3

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

–

150%

–

150%

–

390

630

342

262

–

37.5%

–

37.5%

2021–22

2022–23

2023–24

2021–22

2022–23

2023–24

126,354

128,108

125,831

‑

103,929

147,098

150%

788

37.5%

2023–24

157,289

The 2019 RM LTIP award was granted on 8 August 2019 at a price of £2.06 per share. The level of vesting is 100%. Shares will vest in August 2022.

1.
2. The 2020 RM LTIP award was granted on 27 November 2020 at a price of £3.0443 per share.
3. The 2021 RM LTIP award was granted on 12 August 2021 at a price of £5.0067 per share.
4.

The 2019 GLS LTIP was granted on 8 August 2019. The 2020 GLS LTIP, granted on 24 July 2020, comprises a cash‑based award and a share‑based award. The maximum cash award value of the 2019 and
2020 LTIP is €401,800 and €308,700 respectively. The values in the table above have been converted using an illustrative FX rate of £1:€1.176. The aggregate level of vesting for the 2019 GLS LTIP is 100%.

130

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Annual Report and Financial Statements 2021‑22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Shareholder dilution
All awards vesting under the Group’s share plans are satisfied by the transfer of existing shares or, where appropriate, the issuance
of new shares. The Group’s share plans contain limits that govern the amount of shares that may be issued to satisfy any subsequent
exercise of awards. These limits are in line with those stated in the Investment Association’s Principles of Remuneration. The Group
operates employee benefit trusts that are administered by independent trustees and which hold shares to meet various obligations
under the Group’s share plans. As each Executive Director is within the class of beneficiary of these trusts, they are deemed, for the
purposes of the Companies Act 2006, to have an interest in the trusts’ shares.

Shareholding levels (audited)
Directors’ shareholdings
The table below sets out details of the shareholdings of the Directors as at 27 March 2022 (except where noted below). There has been
no change in the Directors’ interests in the Company’s ordinary share capital between 27 March 2022 and 18 May 2022 (being the latest
practicable date prior to the publication of this Annual Report) except as noted below.

Chair of the Board

Keith Williams

Executive Directors

Mick Jeavons

Martin Seidenberg

Simon Thompson

Non-Executive Directors

Maria da Cunha

Michael Findlay

Rita Griffin

Sarah Hogg

Lynne Peacock

Shashi Verma

Number
of shares
owned on
27/03/221

Number
of shares
owned on
28/03/21

Policy
shareholding
requirement

Current
shareholding
(as a %
of salary)2

Share awards
not subject to
performance

Share awards
subject to
performance
(LTIP 2019,
2020, 2021)

56,800

–

62,963

9,800

20,892

15,000

16,690

20,000

12,000

11,309

–

47,376

–

15,000

16,690

20,000

12,000

11,309

–

200%

–

36.3

4.8

9.6

–

22,862

‑

–

380,293

251,027

157,289

–

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, excludes
any unvested share awards and includes (if appropriate) any shares held by persons closely associated with the Directors.
Value of beneficial shareholding based on the average share price during FY2021‑22 (484 pence) and where required converted using an illustrative FX rate of £1:€1.176. Values include any vested LTIP
shares subject to a holding period but exclude any unvested Deferred Share Bonus Plan (DSBP) awards. Mick Jeavons, Martin Seidenberg and Simon Thompson were appointed Executive Directors
on 11 January 2021, 1 April 2021 and 11 January 2021 respectively. Each is expected to build their shareholding over time. As at 27 March 2022, none have met their shareholding requirement.

Royal Mail plc
Annual Report and Financial Statements 2021‑22

131

Corporate Governance

Annual Report on Directors’ Remuneration (audited) continued

Payments for loss of office and payments to former
Executive Directors (audited)
Rico Back
As disclosed in both last year’s and the FY2019‑20 Remuneration
Report, Rico Back stepped down from the Board on 15 May 2020
and left the Group on 15 August 2020. In line with his contractual
entitlements, he was due to receive nine monthly payments in lieu
of notice (PILON) totalling £480,000, which represented the balance
of his 12‑month notice period. The final two PILON instalments
were made in April and May 2021, each totalling £53,333.

Rico Back retained a deferred share bonus award granted in 2018
(52,243 shares). This award vested in full on 21 June 2021 and the
closing share price on vesting was 582.20 pence.

Further details of the treatment of his share awards and his
post‑employment shareholding requirement were set out in
the 2020‑21 Annual Report.

Stuart Simpson
As disclosed in last year’s Remuneration Report, Stuart Simpson
stepped down from the Board on 11 January 2021 and left the
Group on 31 January 2021. In line with his contractual entitlements,
he was due to receive twelve monthly PILONs totalling £450,000,
which represented his 12‑month notice period. His termination
arrangements with Royal Mail provided that his PILON payments
are reduced from any amounts he receives from alternative paid
employment. Stuart Simpson was appointed to a new role on
21 September 2021. As consequence of this new role, no further
PILONs are payable from October 2021. During 2021‑22 six PILON
instalments were made, five of £37,500 each and a final pro rata
payment of £25,000 in September 2021.

Stuart Simpson retained a deferred share bonus award granted in
2018 (56,350 shares). This award vested in full on 21 June 2021 and
the closing share price on vesting was 582.20 pence. Stuart
Simpson’s 2018 Royal Mail LTIP award over 98,474 shares lapsed on
9 August 2021 as the performance conditions were not met.

Further details of the treatment of his share awards and his
post‑employment shareholding requirement were set out in
the 2020‑21 Annual Report.

Executive Director fees from external positions
(unaudited)
The Executive Directors are entitled to receive fees from
external appointments.

Mick Jeavons, Martin Seidenberg and Simon Thompson did not
hold any external appointments at other listed companies for the
last reported financial year during the period they were appointed
to the Board.

Executive Director terms of employment (unaudited)
The Executive Directors are employed under service contracts with
an indefinite term.

Date of contract

Notice period
from RMG
(months)

Notice period
from employee
(months)

Mick Jeavons

10 January 2021

Martin Seidenberg

25 June 2020

Simon Thompson

10 January 2021

Copies of the Executive Directors’ service contracts will be
available for inspection at our forthcoming AGM.

Relative importance of spend on pay (unaudited)
The table below shows the percentage change in ordinary dividends
and overall expenditure on people compared with the previous
financial year. The Company considers overall expenditure on
colleague remuneration 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.

Ordinary dividend per
share (pps) – paid in
the year1

People costs (£m)2

Group revenue (£m)

2021-22

2020-21

% change

16.7

–

N/A

6,491

12,712

6,470

12,638

0.3

0.6

Dividends paid in 2021‑22 include FY2020‑21 final dividend of 10 pence and the H1 2021‑22
interim of 6.7 pence. The special dividend of 20 pence paid in January 2022 is not included.
Group adjusted people costs include £115 million transformation costs of which £81 million
relates to voluntary redundancy (2020‑21: £149 million of which £109 million relates to
voluntary redundancy costs). Excludes any pension adjustments. See page 67 and pages
178 to 180 for more commentary.

132

Royal Mail plc
Annual Report and Financial Statements 2021‑22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Comparison of change in Directors’ remuneration versus employee remuneration (unaudited)
We monitor year‑on‑year changes between the movement in remuneration for executives between performance years compared with the
wider workforce. The relevant disclosure requirement is for this comparison to be made against the employees of the Parent Company.
On the basis that Royal Mail plc (the Parent Company) does not employee any staff, we have voluntarily disclosed the comparisons against
a UK managerial population (internally graded level 2‑9) as the Committee considers this provides a representative comparison (with
remuneration that is structured similarly, e.g. all managers are eligible for annual bonuses and are eligible for employee benefits). The
table below sets out the year‑on‑year percentage change in salary, benefits and annual incentives for the Directors of the Board against
an average full‑time equivalent UK manager.

Salary/fee
% change

Benefits
% change

STIP
% change

21-22 vs
20-21

20-21 vs
19-20

21-22 vs
20-21

20-21 vs
19-20

21-22 vs
20-21

20-21 vs
19-20

Executive Directors

Mick Jeavons

346.8

N/A

351.0

N/A

Martin Seidenberg

N/A

–

N/A

–

N/A

–

Simon Thompson

348.7

N/A

359.1

N/A

Commentary in respect of 21-22 vs 20-21

Part year in 2020‑21
Headline salary and benefits unchanged

Executive Director from 1.4.21
No comparative period

Part year in 2020‑21
Headline salary and benefits unchanged

Company Chair and
Non-Executive Directors

Keith Williams

Maria da Cunha

Michael Findlay

Rita Griffin

Sarah Hogg

Lynne Peacock

Shashi Verma

Royal Mail managers

–

16.9

–

7.8

6.9

1.3

N/A

4.6

11.9

27.5

33.9

‑1.5

87.1

141.9

N/A

‑0.1

–

N/A

‑6.2

N/A

4.2

N/A

‑22.9

N/A

0.2

–

– Became Designated Non‑Executive Directors for the
workforce from 2.21
ESG Committee fee increased from 4.21

ESG Committee fee increased from 4.21

Joined ESG Committee from 2.21
ESG Committee fee increased from 4.21

Joined ESG Committee from 2.22

Appointed 29.9.2021 so no comparative period

Executive Directors
Percentage change figures for 2020‑21 to 2021‑22 are calculated using the respective figures in the single total figure for the remuneration.

Non-Executive Directors
Fee levels were unchanged between 2020‑21 and 2021‑22, other than the introduction of a fee for being Designated Non‑Executive Director
for the workforce and an increase in the ESG Committee fees. The percentage increases in the above table reflect changes in responsibilities,
e.g. Committee memberships, or that the individual was not a Director for the whole year.

Manager
Employee data is based on full‑time equivalent Royal Mail managers as at the relevant March year end, with calculations on a mean basis.
As the manager population will change yearly and the mean average (as opposed to median) considers the full range of data, it is expected
that this will provide a more consistent year‑on‑year comparison.

The salary percentage change calculation considers the full‑time equivalent mean employee annual salary at March year end plus
allowances, such as for temporary promotions, paid during the respective years. The very small reduction between 2019‑20 and 2020‑21
reflects the decision not to review manager salaries in 2020 and employee headcount changes.

Employee benefits are calculated on a per capita basis covering the car allowance or a cash equivalent and value of the medical cover.
Changes in the percentage will primarily be caused by two factors: changes in population and changes in employee benefit choices
(including more electric company cars being selected which have a lower taxable benefit value). The reduction in the average benefit value
in 2021‑22 also reflects changes in the operation of benefits including the removal of cash alternative allowance, a move which was
introduced to promote take up of the medical cover.

For the 2021‑22 STIP, a uniform forecast scorecard has been assumed for all eligible managers (as the year‑end performance management process for
managers remains ongoing as at the date of this report with individual STIPs not yet determined). In 2020‑21, the Committee decided not to make any
payments to managers under the discretionary STIP. In recognition of managers’ ongoing commitment to the business, a flat rate payment was made to
eligible managers at levels 6‑9 but no recognition payment was made to managers at levels 2‑5.

Royal Mail plc
Annual Report and Financial Statements 2021‑22

133

Corporate Governance

Annual Report on Directors’ Remuneration (audited) continued

CEO pay over the last 10 years (unaudited)
The total remuneration figure for the Group CEO and/or CEO Royal Mail over the last 10 years is shown in the table below. The STIP payout
and the LTIP vesting level as a percentage of the maximum opportunity are also shown.

Chief Executive Officer

Simon Thompson

Rico Back

Stuart Simpson

Simon Thompson

Rico Back

Moya Greene

Rico Back

Moya Greene

Single figure
of total
remuneration
(£’000)

STIP awarded
as % of
maximum

Royal Mail
LTIP vesting
as % of
maximum

753

462

136

868

647

235

1,790

1,901

1,529

1,522

1,360

1,962

N/A

71%

80%

82%

85%

77%

80%

N/A

43%

46%

59%

69%

100%

Financial year

2021‑22

2020‑21

2019‑20

2018‑19

2017‑18

2016‑17

2015‑16

2014‑15

2013‑14

2012‑13

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 Company’s TSR, since the date of the first
day of trading. During the performance period, the Company has been a constituent of both the FTSE 100 Index and the FTSE 250 Index,
therefore both indices are shown for comparison.

TSR chart

250

200

150

)
d
e
s
a
b
e
r
(
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S

l
a
t
o
T

100

171

109

104

140

119

112

157

119

104

145

139

130

193

146

127

225

175

140

174

168

161

148

140

118

111

11 Oct 13

30 Mar 14

29 Mar 15

27 Mar 16

26 Mar 17

25 Mar 18

31 Mar 19

29 Mar 20

28 Mar 21

27 Mar 22

RMG

FTSE 100

FTSE 250

134

Royal Mail plc
Annual Report and Financial Statements 2021‑22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Policy implementation in 2022-23 (unaudited)
The following tables set out how the Committee proposes to operate the Policy for Executive Directors next year.

Element

Implementation of Policy in 2022‑23

Base salary

No change in approach. We will continue to review the salary of each Executive Director annually and will do the
same in 2022‑23. Salaries effective from 1 April 2022 shall be as follows:

CEO Royal Mail (Simon Thompson) £543,750, an increase of 3.6%

CEO GLS (Martin Seidenberg) €613,050, an increase of 5.7%

Group CFO (Mick Jeavons) £435,000, an increase of 3.6%

Benefits

No change in approach to benefit provision for 2022‑23.

Pension allowance

No change in approach and pension allowance remains 13.6% of salary. This is lower than the current employer
contribution rate for the majority of the UK workforce (which is 15.6% of salary). However, it is in line with the
anticipated contribution rate under the new Proposed Collective Pension Plan.

Short-Term
Incentive Plan

No change in maximum STIP opportunity of 150% of salary, split between a cash award of up to 100% of salary
and a deferred share award of up to 50% of salary.

Target opportunity remains 75% of salary.

A minimum of 75% of the targets shall be financial, based on the performance of the business for which
the executive is responsible, with the remainder including robust operational KPIs and strategic objectives.
The measures are set out below. Targets for these measures will be disclosed retrospectively in next year’s
Annual Report.

Long-Term
Incentive Plan

No change in maximum award of 150% 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:

ƽ The Executive Director’s continued employment at the date of vesting.

ƽ The satisfaction of the performance conditions.

Threshold performance will equate to no more than 25% of the award vesting.

The Committee has reviewed the measures used for the 2021 LTIP and is comfortable that they remain
appropriate, and so is not proposing any change. The measures (and approach to targets) are set out below.

The Committee will evaluate the positioning of the share price when it comes to grant the 2022 LTIP awards.
In the event that the share price is significantly below the 2021 LTIP grant price, the Committee will consider
the appropriate course of action (such as scaling back the 2022 LTIP awards or an adjustment on vesting). As
appropriate, details will be included in a stock exchange announcement at the time of grant. As in previous years,
the Committee will retain the discretion to review vesting outcomes to ensure that these are reflective of the
underlying performance during the period

Shareholding
guideline

200% of salary for Executive Directors.

Post‑cessation requirement: 200% of salary (or holding at the point of departure) to be held in granted shares for
two years after leaving.

Royal Mail plc
Annual Report and Financial Statements 2021‑22

135

Corporate Governance

Annual Report on Directors’ Remuneration (audited) continued

Incentive measures 2022-23
Following the changes to the Executive Director population in 2020‑21, the Committee sets separate incentive scorecards for each of the
Executive Directors, reflecting their areas of responsibility (i.e. Group, Royal Mail or GLS). Details of the measures and targets (where not
considered commercially sensitive) set for 2022‑23 awards are provided below.

2022-23 Short-Term Incentive Plan: measures and weightings
The 2022‑23 scorecard reflects our strategic priorities. The targets are set annually by the Committee considering the relevant business’
annual financial plan, strategy and its priorities for the next few years within the context of the economic environment. The Committee
considers financial and operational targets to be commercially sensitive and that it would be detrimental to the Group’s interests to
disclose them before the end of the financial year. Financial measures make up 75% of each Executive Director’s scorecard. Non‑financial
and strategic measures are assessed by the Committee using a combination of quantitative and qualitative assessment.

As in previous years, the Committee will, prior to reviewing scorecard performance assess whether an earnings gateway has been met
and that the payment of STIP awards is affordable.

Measure

Weighting

Measure type

Targets

CEO Royal Mail – Simon Thompson

Adjusted Royal Mail UK operating profit

Royal Mail UK revenue

Health and safety

First Class Quality of Service

Environment

37.5%

10.0%

5.0%

Financial

ESG

Strategic priorities

5.0%

Strategic

Disclosed retrospectively.

Committee assessment of progress around the execution
of a strategy on the sustainable impact of our business and
in‑year progress towards environment commitments.

Committee assessment of progress to optimise the benefits
(financial and non‑financial) from increased best practice
and knowledge sharing between Royal Mail and GLS.

CEO GLS – Martin Seidenberg

Adjusted GLS EBITA

Health and safety

Environmental

Strategic priorities

75%

10%

7.5%

Financial

Disclosed retrospectively.

ESG

Disclosed retrospectively.

Committee assessment of progress in the roll‑out of the
GLS Environmental programme.

Strategic

Committee assessment of:

ƽ Progress to optimise the benefits (financial and non‑

financial) from increased best practice and knowledge
sharing between Royal Mail and GLS.

ƽ Progress against the main pillars of the Vision 2031

strategy: digitalisation, geographic expansion, moving
into adjacent segments and development of global cross
border.

Per CEO Royal Mail scorecard.

Per CEO GLS scorecard.

Per CEO Royal Mail scorecard.

Committee assessment of:

ƽ Progress to optimise the benefits (financial and non‑

financial) from increased best practice and knowledge
sharing between Royal Mail and GLS.

ƽ Progress against Royal Mail transformation milestones.

ƽ Continuing to optimise a) financial management and

reporting to drive benefits across the Group and b) tax
and treasury management for cashflow benefit.

Group CFO – Mick Jeavons

Adjusted Royal Mail UK operating profit

Adjusted GLS EBITA

Health and safety

Strategic priorities

37.5%

10%

15%

Financial

ESG

Strategic
priority

136

Royal Mail plc
Annual Report and Financial Statements 2021‑22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

2022 Long-Term Incentive Plan (unaudited)
The measures that will apply to the 2022 LTIP awards are set out below.

The Committee wishes to ensure that any LTIP financial targets are set appropriately in the context of an uncertain macro‑economic
outlook and the Group’s performance in Q1 2022‑23. The associated targets will be confirmed at the time of grant via a stock exchange
announcement. The grant of the 2022 LTIP awards is likely to be made no later than August 2022.

Threshold

Maximum

2022 LTIP measure

Total Shareholder Return vs FTSE 51‑150 (excluding mining
and financials) comparator group1

Adjusted Royal Mail UK
operating profit

Simon Thompson

Mick Jeavons

Royal Mail UK parcels revenue

Simon Thompson

Adjusted GLS EBITA

Martin Seidenberg

Mick Jeavons

GLS cashflow

Total

Mick Jeavons

Martin Seidenberg

Mick Jeavons

Weighting

Performance

Vesting
(% of award)

Median

40%

20%

10%

40%

20%

10%

100%

10%

2.5%

10%

2.5%

25%

Performance

Upper
quartile

Vesting
(% of award)

40%

20%

10%

40%

20%

10%

100%

TSR will be measured using a three‑month averaging (at the start and end) over a three‑year measurement period. Threshold vesting will occur for median ranked performance, rising on a straight‑line
basis to full vesting for upper quartile performance or above.

Royal Mail plc
Annual Report and Financial Statements 2021‑22

137

Corporate Governance

Annual Report on Directors’ Remuneration (audited) continued

Remuneration scenarios under the Policy
The charts below set out the remuneration scenarios for the Executive Directors in 2022‑23, including an indication of maximum
remuneration receivable assuming Company share price appreciation of 50% during the LTIP performance period.

Illustrative remuneration scenarios (£’000s)

3,000

2,500

2,000

1,500

1,000

500

Simon Thompson

Martin Seidenberg

Mick Jeavons

£2,602

15%

£2,208

36%

31%

36%

31%

£1,421

28%

£633

£2,409

15%

£2,046

36%

31%

36%

31%

£1,322

28%

£598

£2,085

£1,815

15%

36%

31%

36%

31%

£1,151

28%

£510

100%

44%

28%

23%

100%

44%

28%

23%

100%

44%

28%

23%

Fixed

On target

Max

Max
(with share
price growth)

Fixed

On target

Max

Max
(with share
price growth)

Fixed

On target

Max

Max
(with share
price growth)

Fixed

STIP

LTIP

Share price growth

Assumptions
Fixed remuneration: Includes current salary, pension allowance at 13.6% and, in the case of the Group CFO and CEO Royal Mail, a benefits
value of £15,400 and, in the case of the CEO GLS, a benefits value of €15,203.

On target: STIP is 75% of salary (including the deferred element) and LTIP is 75% of salary.

Maximum: STIP is 150% of salary (including the deferred element) and LTIP is 150% of salary under the Policy.

Maximum with 50% 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% over the performance period.

No dividend equivalents on share‑based incentives have been applied in any of the above scenarios.

Martin Seidenberg’s remuneration converted using a rate of £1:€1.201 for the purposes of this illustration.

Single figure table – Non-Executive Directors (audited)

£’000

Keith Williams

Maria da Cunha

Michael Findlay

Rita Griffin

Sarah Hogg

Lynne Peacock

Shashi Verma1

Fees

2022

300

2021

300

–

Other

2022

2021

–

Total

2022

300

2021

300

–

1. Shashi Verma was appointed a Non‑Executive Director from 29 September 2021 and his fees in the table above reflect the period from that date.

138

Royal Mail plc
Annual Report and Financial Statements 2021‑22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Non-Executive Director fee levels (unaudited)
Non‑Executive Directors are paid an annual fee and additional fees for being Chair or a member of Board Committees and, if appropriate,
other additional time commitments. During 2021‑22, the Chair of the Board did not receive any additional fees for membership of Board
Committees. The fees remained unchanged during 2021‑22 and are set out below, together with the relevant fees effective from 1 April
2022 (representing a 3.6% increase). This is the first increase in fees since 2019 (other than an adjustment last year to the ESG Committee
rates).

Non‑Executive Director fees

Chair of the Board

Base fee

Senior Independent Director

Designated Non‑Executive Director for engagement with the workforce

Committee fees

Audit and Risk Committee

Chair

Membership

Remuneration Committee

Chair

Membership

Nomination Committee

Chair

Membership

Environmental, Social and

Chair

Governance Committee

Membership

Until March 22

From April 22

£300,000

£310,800

£50,000

£10,000

£51,800

£10,360

Until March 22

From April 22

£15,000

£6,000

£15,000

£6,000

£0

£4,000

£15,000

£6,000

£15,540

£6,216

£15,540

£6,216

£0

£4,144

£15,540

£6,216

Non-Executive Chair of the Board and Non-Executive Director terms of appointment (unaudited)
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, with the exception of the Non‑Executive Chair for whom the
notice period is four months. The dates of the Non‑Executive Chair of the Board’s and Non‑Executive Directors’ letters of appointment are
set out in the following table:

Date of contract

Unexpired term at 27 March 2022 (months)

Keith Williams

Maria da Cunha

Michael Findlay

Rita Griffin

Sarah Hogg

Lynne Peacock

Shashi Verma

22 March 2019

6 June 2019

8 June 2020

9 August 2019

16 September 2019

13 October 2021

Non-Executive Director Policy implementation in 2022-23 (unaudited)
The applicable Non‑Executive Director fees for 2022‑23 are shown in the table above.

Royal Mail plc
Annual Report and Financial Statements 2021‑22

139

Corporate Governance

Annual Report on Directors’ Remuneration (audited) continued

Remuneration Committee (unaudited)
Remuneration Committee members and meetings
The members of the Committee and their attendance at meetings during FY2021‑22 is shown on page 110.

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 members of the respective GLS and Royal Mail Executive Boards.

Committee activities in the year

Directors’ remuneration

Review of the Directors’ Remuneration Policy and implementation

Review of fixed and variable remuneration

Senior management remuneration

Contractual terms, recruitment and termination

Review of fixed and variable remuneration

All employee remuneration

Group‑wide discretionary incentives

Annual salary review approach

Incentive performance measures, targets and outcomes

Frontline reward (including recognition) in Royal Mail

Deep dives: European remuneration, Share Incentive Plan, Manager
remuneration

Reward policies and rules review

Reward governance

Review regulatory, investor and market developments

Remuneration disclosures (such as DRR and gender pay gap)

Review shareholder feedback

Terms of Reference, Committee evaluation, advisers

May

July

Oct

Jan

Mar



In addition, the Committee met in April and May 2022 to consider (and, where appropriate, approve):

ƽ The draft Directors’ Remuneration Report.

ƽ Salary and fixed remuneration for Executive Directors and other executives.

ƽ The extent to which any 2021‑22 STIP performance measures had been satisﬁed, together with individual award levels.

ƽ The measures and associated targets for the 2022‑23 STIP and 2022 LTIP.

ƽ Outcomes from the Committee evaluation process.

140

Royal Mail plc
Annual Report and Financial Statements 2021‑22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Advice to the Remuneration Committee
The Committee takes information and advice from inside and outside the Company. Internal support was provided by the Chief People
Officer, the Director of Reward and Performance, and the Group General Counsel and Company Secretary, and other senior leadership as
appropriate. No individual was present when matters relating to their own remuneration were discussed.

The Committee seeks advice from independent external advisers as appropriate. Deloitte was initially appointed in October 2018 following
a competitive tendering process led by the Committee. Deloitte provided information to the Committee regarding external market trends
and other Committee matters during 2021‑22. The total fees paid to Deloitte in respect of this advice were £26,145 (2020‑21: £46,235).
Deloitte also provided tax, technology, internal audit, strategy and business consulting services to the Group during the financial year.

Deloitte is a signatory to the Remuneration Consultants Group Code of Conduct, was appointed by the Committee and reports directly to
the Committee Chair. The Committee Chair can meet with advisers without Management present. The Committee is satisfied that the
advice it receives is objective and independent. There are no connections between Deloitte and individual Directors to be disclosed.

Management’s advice to the Committee was also supported by the provision of market insights and data from Deloitte, FIT Remuneration
Consultants and Willis Towers Watson, and legal advice from Addleshaw Goddard.

Remuneration Committee evaluation
The Committee’s effectiveness and performance was evaluated as part of the process described on page 94. The evaluation noted the
Committee and its chairmanship was functioning very well. Members of the Committee indicated that the quality of papers had improved
significantly and they were well supported by the internal reward team.

The key actions for 2022‑23 are to:

ƽ Support the incoming Committee Chair as she settles into her new role.

ƽ Further review workforce remuneration and consider how to strengthen workforce views when setting executive remuneration.

ƽ As part of the Committee review of remuneration advisers, clarify how the Committee uses advisers and optimises their contribution.

Shareholder voting and consideration of shareholder views
We undertook substantial engagement with our shareholders as part of the development of a new Remuneration Policy in 2019 and then
again in the run up to the 2020 AGM when we made further changes to the Policy. We are grateful for the feedback and input received over
the last 36 months.

At the 2021 Annual General Meeting on 21 July 2021, shareholders approved the Directors’ Remuneration Report published in the 2020‑21
Annual Report and Financial Statements, receiving a strong vote in favour. The most recent vote on the Remuneration Policy, which was
effective from the date of the 2020 AGM for up to three years, also received shareholder support in excess of 99%.

Recent votes on the Directors’ Remuneration Report

Recent votes on the Directors’ Remuneration Policy

2019 AGM

2020 AGM

2021 AGM (see below)

2021 AGM voting (breakdown)

Votes for

682,563,983

Votes against

Votes witheld

1,488,211

352,913

For

97.63

99.09

99.78

Against

2.37

0.91

0.12

2019 AGM

2020 AGM

2020 AGM voting (breakdown)

99.8%

Votes for

0.2%

Votes against

Votes witheld

642,589,878

4,659,090

48,823,734

For

99.94

99.28

Against

0.36

0.72

99.3%

0.7%

We remain committed to ongoing dialogue with our shareholders and taking into consideration shareholder views on our Policy and
practices. We also look forward to engaging with shareholders in the run up to our Policy’s renewal in 2023. In the meantime, the
Committee Chair and Chair of the Board will continue to maintain contact as required with the Company’s key shareholders about relevant
remuneration issues.

Lynne Peacock
Chair of the Remuneration Committee
18 May 2022

Royal Mail plc
Annual Report and Financial Statements 2021‑22

141

Corporate Governance

Directors’ Report

Mark Amsden
Group General Counsel
and Company Secretary

The location of information required to be disclosed in the
Annual Report under Listing Rule 9.8.4R is as follows:

Listing Rule 9.8.4R disclosures

Statement of the amount of interest capitalised

Dividend waivers

Page

197 and 198,
and 201

142

Dividend waivers
The Trustee of the Royal Mail Share Incentive Plan (Plan) will not
receive any dividends on Free Shares which it has not been possible
to award to, or which have been forfeited by, participants in the Plan.

Capital
Purchase of own shares by the Company
At the 2021 AGM, the Company was authorised by its shareholders
to purchase up to a maximum of 10% of its ordinary shares. This
authority was valid at the end of the Company’s financial year and
will remain in place until the 2022 AGM, when the Directors will
seek a similar authority.

In November 2021, the Company announced that it had entered into
a non-discretionary agreement with Merrill Lynch International in
relation to the purchase of the Company’s ordinary shares of one
pence each for an aggregate purchase price of up to £200 million
(the Programme). The Programme began on 18 November 2021
and was successfully completed on 8 March 2022. Its purpose was
to reduce the Company’s share capital.

During the above period, 43,806,525 shares were purchased, with
a nominal value of one penny. The aggregate amount paid for these
shares was £201 million, including stamp duty of £1 million and this
represented 4.4% of the called up share capital.

The Programme was conducted within certain pre-set parameters
and in accordance with the Company’s general authority to
repurchase ordinary shares. The Programme was also conducted
within the parameters prescribed by the UK versions of the Market
Abuse Regulation (EU) 596/2014 and the Commission Delegated
Regulation (EU) 2016/1052, and in accordance with Chapter 12 of
the UK Listing Rules.

The Directors present their Report, together with audited
Financial Statements for the year ended 27 March 2022.

This Directors’ Report together with the Strategic Report on
pages 1 to 77 form the Management Report for the purpose
of Disclosure Guidance and Transparency Rule (DTR) 4.1.5R
and DTR 4.1.8R.

Information incorporated by reference
The following information is incorporated in the Directors’
Report by reference and can be found on the pages of this
Annual Report as indicated in the table below:

Business model

Strategy for delivering objectives

Results

Financial assets and liabilities

Principal risks

Environmental, Social and Governance

Greenhouse gas emissions
and energy reporting

Disabled employees

Our people

Diversity

Going Concern and Viability Statements

Dividend

Corporate Governance Report

Future developments

Statement of Directors’ Responsibilities

Employee share schemes

Research and development

Page

12 and 13

14 to 23

64 to 71

208 to 215

56 to 61

30 to 45

30 to 33 and
46 to 51

36 to 41

40 and 41

62 and 63

78 to 141

14 to 23

146

202 and 203

142

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Share capital
As at 27 March 2022, the Company’s issued share capital comprised
956,193,475 ordinary shares of one penny each as set out in Note 26
to the accounts on page 217.

Directors
Details of the current Directors are included on pages 82 and 83 and
information about changes to the membership of the Board during
the year is included on page 5.

Ordinary shareholders have the right to receive notice of, attend,
vote and speak at general meetings (whether in person or by
proxy). A holder of ordinary shares is entitled to one vote per
ordinary share held when a vote is taken on a poll. Shareholders
also have the right to receive a dividend, if recommended and
declared. Shareholders may transfer all or any of their certificated
or uncertificated shares in the Company. All such rights are subject
to certain exceptions and restrictions provided in the Company’s
Articles of Association (the Articles) and in any applicable legislation.
These include where rights are suspended for non-disclosure of an
interest in shares, where share transfers do not comply with specific
requirements, and where any amounts on shares owing by a
shareholder to the Company are overdue. The rights and obligations
of members, and restrictions on transfer, are set out in full in the
Articles, which can be found on the Company’s website. The
Company is not aware of any agreements between shareholders
that may result in restrictions on the transfer of securities and/or
voting rights.

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.

Authority of the Directors to allot shares
At the 2021 AGM, the Company obtained 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 2021 allotment
authority. The Directors will be seeking to renew this authority
at the 2022 AGM, although the Company has no current plans
to exercise such authority if given.

At the 2021 AGM, the Directors were also empowered to allot
shares for cash (and/or to sell any treasury shares) on a non-pre-
emptive basis in connection with pre-emptive offers and, otherwise
than in connection with such offers, up to a maximum aggregate
nominal amount of £500,000 (representing approximately 5% of
the Company’s issued share capital at that time). The Directors
were also given an additional power to allot shares for cash (and/or
to sell any treasury shares) on a non-pre-emptive basis up to a
maximum aggregate nominal amount of £500,000 (representing
approximately 5% of the Company’s issued share capital at that
time) for use in connection with acquisitions and/or specified capital
investments. The Directors will be seeking to renew these powers
at the 2022 AGM.

Appointment and replacement of Directors
The 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 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 AGM, Directors are required to retire under the Articles if
they have: (i) been appointed by the Board since the previous AGM;
(ii) been in office at the last two AGMs, but did not retire at either;
and (iii) 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 of its Directors retire at every AGM in line
with the recommendations of the Code. Directors who retire from
office at the AGM 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.

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 are set out in the Directors’ Remuneration
Report on page 131.

Directors’ and officers’ insurance
The Company maintains directors’ and officers’ liability insurance
which provides appropriate cover for legal action brought against
its Directors. This is reviewed annually. Qualifying pension scheme
indemnity provisions were in force during the course of the financial
year ended 27 March 2022 for the benefit of the Trustees of Royal
Mail UK’s pension schemes, and such indemnity provisions are in
force at the date of approval of this report.

Royal Mail plc
Annual Report and Financial Statements 2021-22

143

Corporate Governance

Directors’ Report continued

Substantial shareholding
As at 27 March 2022, the Company had been notified, in accordance with DTR 5, of the following interests amounting to 3% or more of the
voting rights in the issued ordinary share capital of the Company.

Shareholder

Vesa Equity Investment

RWC Partners

UBS Asset Management

BlackRock Inc.

Schroder Investment Management

Aberdeen Standard Investments

Vanguard Group

Columbia Threadneedle Investments

Number of shares

199,432,580

66,201,803

60,235,232

52,541,557

50,587,637

46,196,278

39,784,696

30,386,690

% voting rights disclosed
at time of notification

% of voting rights as at
27 March 20221

20.0

6.6

6.0

5.5

5.1

4.6

4.0

3.0

20.9

6.9

6.3

5.5

5.3

4.8

4.2

3.2

As a result of the Programme and the resulting reduction in the Company’s share capital, the percentage figures have been recalculated to provide a more accurate year-end picture.

During the period between 27 March 2022 and 18 May 2022, being the latest practicable date prior to publication of this Annual Report, the
Company received the following notifications in accordance with DTR 5.

Shareholder

Vesa Equity Investment

BlackRock Inc.

Number of shares

% voting rights

200,944,533

58,011,369

21.0

6.1

ƽ 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.

ƽ 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.

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 27 March 2022, a total of 2,265,008 shares (2021-21: 572,816
shares) were held by the EBT on behalf of the Company. The EBT
will not receive any dividends payable on shares which it holds at
the relevant time.

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:

ƽ 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.

ƽ 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.

144

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Stakeholders
Engagement with UK employees, suppliers and customers
Disclosure on how the Company communicates with its employees,
encourages their involvement and achieves a common awareness
on the part of all employees of the financial and economic factors
affecting the performance of the Company is included on pages 36
to 39, 84 and 85 and 90.

Information on how the Company engages with its employees,
customers and suppliers, how the Directors have regard to their
interests, and the effect of that regard is set out on pages 26 and 27,
84 and 85 and 90.

Payment practices
Our Responsible Procurement Code of Conduct sets out how we work
with our suppliers and is available at www.royalmailgroup.com/en/
responsibility/policies-and-reports. We publish key statistics and other
information on our payment practices in line with the Duty to Report on
Payment Practices and Performance on the BEIS website. Information
is published on a six-monthly basis.

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. Further information is included in Note 31 on
page 219.

Political donations and expenditure
No form of political donation, or expenditure, was made during
the year. The Company intends to continue this policy 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 1
on page 164.

Post balance sheet events
There were no post balance sheet events to report in relation to 2021/22.

By Order of the Board

Mark Amsden
Group General Counsel and Company Secretary
18 May 2022

ESG
Greenhouse gas emissions and energy reporting
Information regarding the Group’s greenhouse gas emissions,
energy consumption and energy efficiency action required to
be disclosed in this Directors’ Report can be found on pages 33
and 34.

TCFD disclosures
Information regarding the Group’s climate-related financial
disclosures consistent with the TCFD recommendations can
be found on pages 46 to 51.

Other disclosures
Company’s Articles
Any amendments to the Articles may be made in accordance with
the Companies Act 2006 by way of a special resolution. Our Articles
have been reviewed and we are proposing some updates via a
special resolution at this year’s AGM. Further details of the
amendments are included in our Notice of AGM.

Our current Articles are available at www.royalmailgroup.com/en/
about-us/governance/.

Royal Mail plc
Annual Report and Financial Statements 2021-22

145

Corporate Governance

Statement of Directors’ Responsibilities in respect
of the Annual Report and Financial Statements

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.

Responsibility statement of the Directors in respect
of the annual financial report
The Directors as at the date of this Directors’ Report, whose names
and functions are set out on pages 82 and 83, confirm that to the
best of their knowledge:

ƽ 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.

ƽ The Directors’ Report and the Strategic Report include a fair

review of the development and performance of the business and
the position of the Company and the undertakings included in
the consolidation taken as a whole, together with a description
of the principal risks and uncertainties that they face.

The Directors consider that 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 was approved by the Board of
Directors and is signed on its behalf by:

Keith Williams
Non-Executive Chair

Mick Jeavons
Group Chief Financial Officer
18 May 2022

The Directors are responsible for preparing the Annual Report and
the Group and Parent Company Financial Statements in accordance
with applicable law and regulations.

Company law requires the Directors to prepare Group and Parent
Company Financial Statements for each financial year. Under that
law they are required to prepare the Group Financial Statements in
accordance with UK-adopted international accounting standards
and applicable law, and have elected to prepare the Parent
Company Financial Statements in accordance with UK accounting
standards and applicable law, 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 the Group’s profit or loss for that period. In preparing each of
the Group and Parent Company Financial Statements, the Directors
are required to:

ƽ Select suitable accounting policies and then apply them consistently.
ƽ Make judgements and estimates that are reasonable,

relevant and reliable.

ƽ For the Group Financial Statements, state whether they have
been prepared in accordance with UK-adopted international
accounting standards.

ƽ Assess the Group and Parent Company’s ability to continue

as a going concern, disclosing, as applicable, matters related
to going concern.

ƽ 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 that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in the UK governing the
preparation and dissemination of Financial Statements may
differ from legislation in other jurisdictions.

In accordance with Disclosure Guidance and Transparency Rule
4.1.14R, the financial statements will form part of the annual
financial report prepared using the single electronic reporting
format under the TD ESEF Regulation. The auditor’s report on these
financial statements provides no assurance over the ESEF format.

146

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Financial Statements

Contents

148 Independent Auditor’s Report
157 Consolidated Income Statement
158 Consolidated Statement of Comprehensive Income
159 Consolidated Balance Sheet
161 Consolidated Statement of Changes in Equity
162 Consolidated Statement of Cash Flows
164 Notes to the Financial Statements

164 1. Basis of preparation and accounting policies
176 2. Segment information
178 3. Revenue
178 4. Operating costs
179 5. People information
180 6. Specific items and pension charge to cash difference adjustment
181 7. Net finance costs
181 8. Taxation
185 9. Earnings per share
186 10. Dividends
186 11. Retirement benefit plans
196 12. Acquisition of businesses
197 13. Property, plant and equipment
198 14. Leases
200 15. Goodwill
201 16. Intangible assets
202 17. Investments in associates
202 18. Share-based payments
203 19. Non-current assets held for sale
204 20. Trade and other receivables
205 21. Cash and cash equivalents
205 22. Current trade and other payables
206 23. Loans and borrowings
208 24. Financial assets and liabilities and risk management
216 25. Provisions
217 26. Share capital and reserves
218 27. Commitments
218 28. Contingent liabilities and contingent assets
218 29. Related party information
219 30. Events after the balance sheet date
219 31. Related undertakings of Royal Mail plc

224 Royal Mail plc – Parent Company Financial Statements

Royal Mail plc
Annual Report and Financial Statements 2021-22

147

Financial Statements

Independent Auditor’s Report To The Members Of Royal Mail Plc

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 and Risk Committee.

We were first appointed as auditor by the shareholders on
23 July 2015. The period of total uninterrupted engagement
is for the seven financial years ended 27 March 2022. 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.

1 Our opinion is unmodified
We have audited the Financial Statements of Royal Mail plc
(“the Company”) for the 52 weeks ended 27 March 2022 which
comprise the Consolidated Income Statement, Consolidated
Statement of Comprehensive Income, Consolidated Balance
Sheet, the Consolidated Statement of Changes in Equity, the
Consolidated Statement of Cash Flows, Parent Company
Statement of Changes in Equity, Parent Company Balance
Sheet, and the related notes, including the Group accounting
policies in Note 1 on pages 164 to 176 and Parent Company
accounting policies in Note 1 on page 225.

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 27 March
2022 and of the Group’s profit for the 52 weeks then ended;

– the Group Financial Statements have been properly prepared in
accordance with UK-adopted international accounting standards;

– 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.

Overview

Materiality: Financial
Statements as a whole

£25 million (2020-21: £18 million)

4.9% of normalised Group profit before tax, averaged over three years (2020-21: 4.1%
of normalised Group profit before tax)

Coverage

93.1% of the total profits and losses that made up Group profit before tax (2020-21: 95.4%)

Risks of material misstatement

vs 2020-21

Recurring risks

Deferred revenue associated with advance customer payments arising from stamps sold

Valuation of certain unquoted pension scheme assets

Valuation of pension scheme liabilities

Recoverability of Parent Company’s investment in subsidiaries and debt due from group
entities (Parent Company only)

148

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Key audit matters: our assessment of risks
of material misstatement

Key audit matters are those matters that, in our professional
judgement, 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.

Group

The risk

Our response

Deferred revenue associated with
advance customer payments arising
from stamps sold
£160 million; (2020-21: £218 million)

Refer to page 102 (Audit and Risk
Committee Report), page 166 (accounting
policy) and page 178 (financial disclosures).

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. 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 accurately, 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 methodology allows for adjustments
for unusual trends identified where
deemed required.

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.

We performed the tests below rather
than seeking to rely on any of the Group’s
controls because the nature of the balance
is such that we would expect to obtain audit
evidence primarily through the detailed
procedures described.

Our procedures included:

– Methodology choice: We challenged
the Group on the appropriateness of
the methodology in place for performing
the calculation, including benchmarking
the approach against that taken by other
global postal service providers.

– Methodology implementation: We

assessed whether the methodology had
been correctly applied and we challenged
the need for any adjustments through
consideration of possible alternatives.

– Independent re-performance: We
tested the individual inputs used in
the Group’s calculation to check the
accuracy of the balance.

– Challenge of the outcome: We challenged
the Group’s estimate by generating a range
of plausible outcomes using alternative
data points, and alternative methods of
calculating the estimate. We assessed
and evaluated the methodology and
compared the outcomes to assess the
appropriateness of the estimate made.
We have assessed the estimate for
indicators of management bias.

– Assessing transparency: We considered
the adequacy of the Group’s disclosures in
respect of deferred revenue associated
with advance customer payments arising
from stamps sold, particularly in relation
to the degree of estimation uncertainly.

Our results
We found the estimate of deferred revenue
to be acceptable (2020-21: acceptable).

Royal Mail plc
Annual Report and Financial Statements 2021-22

149

Financial Statements

Group

The risk

Our response

Valuation of certain
unquoted pension
scheme assets
Refer to page 102 (Audit
and Risk Committee Report),
page 166 (accounting policy)
and page 192 (financial
disclosures).

Subjective valuation:
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
192. Small changes in the estimates used
to value these assets would have a
significant effect on the financial position
of the Group.

As part of our risk assessment, we
determined that the valuation of certain
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.

We performed the tests below rather than seeking to
rely on any of the Group’s controls because the nature
of the balance is such that we would expect to obtain
audit evidence primarily through the detailed
procedures described.

Our procedures included:

– Fund managers’ credentials: We assessed the

competence, independence and integrity of the Group’s
actuarial expert and 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.

– Assessing transparency: We considered the adequacy
of the Group’s unquoted plans’ assets disclosures in
respect of the accuracy of the asset split by category.

Our results
We found the valuation of these certain pension
scheme assets as mentioned above to be acceptable
(2020-21 result: acceptable).

Group

The risk

Our response

Valuation of pension
scheme liabilities
Royal Mail Pension
Plan Defined Benefit
Obligation value:
£6,960 million, Defined
Benefit Cash Balance
Scheme value: £1,926 million;
(2020-21: Royal Mail
Pension Plan Defined
Benefit Obligation value:
£7,775 million, Defined
Benefit Cash Balance
Scheme value: £1,586 million)

Refer to page 102 (Audit and
Risk Committee Report),
page 165 (accounting policy)
and pages 194 and 195
(financial disclosures).

Subjective valuation:
Significant estimates are made in
valuing the Group’s post retirement
defined benefit plan obligations
including in particular the discount rate,
the inflation assumptions, mortality
and pension 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.

We performed the tests below rather than seeking to
rely on any of the Group’s controls because the nature
of the balance is such that we would expect to obtain
audit evidence primarily through the detailed
procedures described.

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.

– 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 (2020-21 result: acceptable).

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Financial Statements

Additional Information

Group

The risk

Our response

Recoverability of Parent
Company’s investment
in subsidiaries and debt
due from Group entities
(Parent Company only)
Investments – £2,912 million
(2020-21: £2,127 million).
Debt due from Group
entities - £611 million;
(2020-21: £895 million).

Refer to page 103 (Audit
and Risk Committee Report),
page 225 (accounting policy)
and page 226 (financial
disclosures).

Low risk, high value:
The carrying amount of the
Parent Company’s investments
in subsidiaries and debt due from
Group entities represents 100%
(2020-21: 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.

We continue to perform procedures over the Royal Mail Senior
Executives Pension Plan which we included in our valuation
of pension scheme liabilities key audit matter in the prior year.
However, given wind up of the scheme is imminent and there
is an insurance policy in place equal to the value of the liability,
we have not assessed this as one of the most significant risks
in our current year audit and, therefore, it is not separately
identified in our report this year.

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 £25 million (2020-21 £18 million).

Materiality is based on normalised profit before tax, averaged
over the past three years. For the current and prior years, profit
before tax was normalised for the profit on disposal of property,
plant and equipment. The item not included in the benchmark
was subject to audit procedures by the Group team, and the
quantum of this item is disclosed in Note 2 of the Financial
Statements. Materiality represents 4.9% of the normalised profit
before tax measure, averaged over three years, of £507 million
(2020-21: 4.1% of normalised PBT of £437 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 0.20% (2020-21: 0.14%) and total
assets, of which it represents 0.2% (2020-21: 0.2%), where they
provide more consistent measures year on year than Group profit
before tax.

We performed the tests below rather than seeking to rely
on any of the Parent Company’s controls because the nature
of the balance is such that we would expect to obtain audit
evidence primarily through the detailed procedures described.

Our procedures included:

– Tests of detail: Compared the carrying amount of 100% of
investments with the relevant subsidiary’s 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 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.

Our results
We found the carrying amounts of investments and intercompany
receivables to be acceptable (2020-21: acceptable).

Materiality for the Parent Company Financial statements
as a whole was set at £4.2 million (2020-21: £3 million),
determined with reference to a benchmark of Company net
assets amounting to £2,602 million, of which it represents 0.2%
(2020-21: £2,084 million and 0.1%).

In line with our audit methodology, our procedures on individual
account balances and disclosures were performed to a lower
threshold, performance materiality, so as to reduce to an acceptable
level the risk that individually immaterial misstatements in individual
account balances add up to a material amount across the
Financial Statements as a whole.

Performance materiality for the Group and Parent Company was
set at 75% (2020-21: 75%) of materiality for the Financial Statements
as a whole, which equates to £18.7 million (2020-21: £13.5 million)
for the Group and £3.15 million (2020-21: £2.2 million) for the Parent
Company. We applied this percentage in our determination of
performance materiality because we did not identify any factors
indicating an elevated level of risk.

We agreed to report to the Audit and Risk Committee any corrected
or uncorrected identified misstatements exceeding £1.25 million
(2020-21: £0.9 million), in addition to other identified misstatements
that warranted reporting on qualitative grounds.

Of the Group’s 21 (2020-21: 23) reporting components, we
subjected 3 (2020-21: 4) to full scope audits for group purposes
and 1 (2020-21: none) to specified risk-focused audit procedures
over cash and cash equivalents, people costs and management
override of controls. The latter was not individually financially
significant enough to require a full scope audit for group purposes,
but did present specific individual risks that needed to be addressed.

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Financial Statements

The components within the scope of our work accounted for
99.7% of revenue (2020-21: 99.7%), 93.1% of the total profits
and losses that made up Group profit before tax (2020-21: 95.4%),
and 99.3% of total assets (2020-21: 99.5%).

For the residual 17 components (2020-21: 19), we performed
an analysis at an aggregated group level to re-examine our
assessment that there were no significant risks of material
misstatement within these.

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 approved the component materialities, which ranged from
£4.2 million to £20 million (2020-21: £3 million to £15 million),
having regard to the mix of size and risk profile of the Group
across the components.

The work on 1 of the 3 full scope components (2020-21: 1 of the 4
full scope components) was performed by component auditors
and the rest, including the audit of the Parent Company, was
performed by the Group team.

The Group audit team held regular video conference meetings with
all in scope components. These meetings involved explanation of
Group audit instructions, involvement in planning audit procedures,
discussing progress updates and emerging findings, reviewing
outcomes of testing performed and involvement in discussing
audit findings with component management. The Group audit team
reviewed the audit documentation of component auditors through
various stages of their work. The Group team also attended the
component virtual clearance meetings. At these meetings, the
findings reported to the Group team were discussed in more
detail, and any further work required by the Group team was
then performed by the component auditor.

The scope of the audit work performed was predominately
substantive as we placed limited reliance upon the Group’s
internal control over financial reporting.

4 The impact of climate change on our audit
In planning our audit, we have considered the potential impact of
climate change on the Group’s business and its Financial Statements.

The Group has set out to reduce its emissions to zero by 2045.
The majority of the Group’s carbon emissions are in the domestic and
international transport network, and the Group continues to develop
its assessment of climate change. Climate change initiatives impact
the Group in a variety of ways including opportunities and risks relating
to operational and supply chain decarbonisation and the potential
reputational impact associated with the Group’s delivery of its climate
related initiatives. Further information is provided on pages 44 to 51.

While the Group has set out its climate transition strategies,
the Group continues to assess and develop the consequences
of this in terms of capital expenditure, the cost base and impacts
on cash flows.

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The Group considered the impact of climate change and the
Group’s targets in the preparation of the Financial Statements,
including an evaluation of critical accounting estimates and
judgements. The Group concluded that this did not have a
material effect on the consolidated Financial Statements.

As part of our audit, we have made enquiries of Management
to understand the extent of the potential impact of climate
change risks on the Group’s Financial Statements, including their
assessment of critical accounting estimates and judgements,
and the effect on our audit. We have performed a risk assessment
to evaluate the potential impact, including the estimates made
regarding useful economic lives of property, plant and equipment,
and the valuation of certain unquoted pension assets.

We held discussions with our own climate change professionals
to challenge our risk assessment.

Taking into account the expected remaining useful lives of
property, plant and equipment, and the nature of unquoted
pension assets, we assessed that there is not a significant
impact on our audit for this financial year. There was no
significant impact of climate on our key audit matters.

We have read the Group’s disclosure of climate related
information in the front half of the annual report as set out on
pages 44 to 51 and considered consistency with the Financial
Statements and our audit knowledge.

5 Going concern
The Directors have prepared the Financial Statements on the
going concern basis as they do not intend to liquidate the Group
or the Company or to cease their operations, and as they have
concluded that the Group’s and the Company’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”).

We used our knowledge of the Group, its industry, and the
general economic environment to identify the inherent risks to
its business model and analysed how those risks might affect
the Group’s and Company’s financial resources or ability to
continue operations over the going concern period. The risks
that we considered most likely to adversely affect the Group’s
and Company’s available financial resources and EBITDA/net
debt metrics relevant to debt covenants over this period were:

– the impact of deteriorating economic and market conditions

impacting Royal Mail and GLS;

– increased competition in the UK parcels sector;

– the pace of transformation in the UK business and the

impact this has on cost control; and

– the potential impact of industrial action or incurring costs

to avoid it.

We also considered less predictable but realistic second order
impacts, such as the potential outcome of the contingent liabilities
and provisions related to regulatory investigations that could
affect demand in the Group’s markets.

Strategic Report

Corporate Governance

Financial Statements

Additional Information

We considered whether these risks could plausibly affect the
liquidity or covenant compliance in the going concern period by
assessing the degree of downside assumption that, individually
and collectively, could result in a liquidity issue, taking into
account the Group’s current and projected cash and facilities
(a reverse stress test).

Our procedures also included:

– Critically assessing assumptions in the Directors’ base case
and severe but plausible downside scenarios relevant to
liquidity and covenant metrics, considering the forecasted
operating levels and how these relate to both pre-COVID-19
and COVID-19 levels of performance.

– Comparing past budgets to actual results to assess the

Directors’ track record of budgeting accurately.

– Inspecting the confirmation from the lender of the level of

committed financing, and the associated covenant requirements.

We considered whether the going concern disclosure in Note 1
to the Financial Statements gives a full and accurate description
of the Directors’ assessment of going concern, including the
identified risks and, dependencies, and related sensitivities.

Our conclusions based on this work:

– we consider that the Directors’ use of the going concern basis
of accounting in the preparation of the Financial Statements
is appropriate;

– we have not identified, and concur with the Directors’

assessment that there is not, a material uncertainty related
to events or conditions that, individually or collectively, may
cast significant doubt on the Group’s or Company’s ability to
continue as a going concern for the going concern period;

Fraud and breaches of laws and regulations –
ability to detect

Identifying and responding to risks of material misstatement
due to fraud

To identify risks of material misstatement due to fraud (“fraud
risks”) we assessed events or conditions that could indicate an
incentive or pressure to commit fraud or provide an opportunity
to commit fraud. Our risk assessment procedures included:

– Enquiring of Directors, the Audit and Risk Committee,
Internal Audit and Risk Management, and inspection of
policy documentation as to the Group’s high-level policies
and procedures to prevent and detect fraud, including
the internal audit function, and the Group’s channel for
‘whistleblowing’, as well as whether they have knowledge
of any actual, suspected or alleged fraud.

– Reading Board, Audit and Risk Committee, Nomination
Committee and Remuneration Committee minutes.

– Considering remuneration incentive schemes (Royal Mail
Long Term Incentive Plan and Deferred Share Bonus Plan)
and performance targets for Management and Directors.

– Using analytical procedures to identify any unusual or

unexpected relationships.

We communicated identified fraud risks throughout the audit
team and remained alert to any indications of fraud throughout
the audit. This included communication from the Group audit
team to full scope component audit teams of relevant fraud
risks identified at the Group level and request to full scope
component audit teams to report to the Group audit team any
instances of fraud that could give rise to a material misstatement
at the Group level.

– we have nothing material to add or draw attention to in

relation to the Directors’ statement in Note 1 to the Financial
Statements on the use of the going concern basis of accounting
with no material uncertainties that may cast significant doubt
over the Group and Company’s use of that basis for the going
concern period, and we found the going concern disclosure in
Note 1 to be acceptable; and

As required by auditing standards, and taking into account
possible pressures to meet profit targets, we perform procedures
to address the risk of management override of controls, in
particular the risk that Group Management may be in a position
to make inappropriate accounting entries and the risk of bias in
accounting estimates and judgements such as deferred revenue
in relation to advanced customer payment.

– the related statement under the Listing Rules set out on

page 63 is materially consistent with the Financial Statements
and our audit knowledge.

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 above conclusions are not a guarantee that
the Group or the Company will continue in operation.

On this audit, our only fraud risk is in relation to deferred revenue
in relation to advance customer payments. We do not believe
there is a fraud risk related to other revenue streams because
the low value, high volume nature of transactions reduces the
opportunities for fraudulent activity.

We did not identify any additional fraud risks.

Further detail in respect of deferred revenue associated with
advance customer payments arising from stamps sold is set
out in the key audit matter disclosures in section 2 of this report.

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We performed procedures including:

– Identifying journal entries and other adjustments to test

for all full scope components and that over which specified
audit procedures are performed, based on risk criteria and
comparing the identified entries to supporting documentation.
These included those posted to accounts with an associated
fraud risk, round sum journals posted in period 12, post close
journals and unusual journals posted to revenue, cash and
borrowing accounts.

– Evaluated the business purpose of significant unusual transactions.

– Assessing whether the judgements made in making accounting
estimates are indicative of a potential bias, including assessing
the estimate of deferred revenue associated with advance
customer payments for bias.

We discussed with the Audit and Risk Committee and those
charged with governance matters related to actual or suspected
fraud, for which disclosure is not necessary, and considered any
implications for our audit.

Identifying and responding to risks of material misstatement
related to compliance with laws and regulations
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, and through
discussion with the Directors and other management (as required
by auditing standards), and from inspection of the Group’s
regulatory and legal correspondence and discussed with the
Directors and other management the policies and procedures
regarding compliance with laws and regulations. As the Group
is regulated, our assessment of risks involved gaining an
understanding of the control environment including the entity’s
procedures for complying with regulatory requirements.

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 audit team to full-scope component audit teams of relevant
laws and regulations identified at the Group level, and a request
for full scope component auditors to report to the Group audit
team any instances of non-compliance with laws and regulations
that could give rise to a material misstatement at the 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 pensions 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 or the loss of
the Group’s license to operate. We identified the following areas
as those most likely to have such an effect: GDPR compliance,
health and safety, anti-bribery and corruption, employment law,
PCI compliance, money laundering, foreign corrupt practices,
environmental protection, export control, consumer rights act,
misrepresentation act, contract law, distance selling regulations,
competition legislation and price fixing, and the postal services
act as enforced by Ofcom, in recognising the 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. Therefore if a breach
of operational regulations is not disclosed to us or evident from
relevant correspondence, an audit will not detect that breach.

The Competition Act investigation and potential follow on claims
are is discussed in Note 25 and we have assessed the disclosures
made against our understanding from legal correspondence to
help us assess the related implications.

Context of the ability of the audit to detect fraud
or breaches of law or regulation
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 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 fraud, as these may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal controls. Our audit procedures are designed to detect
material misstatement. We are not responsible for preventing
non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.

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.

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Financial Statements

Additional 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
We are required to perform procedures to identify whether
there is a material inconsistency between the Directors’
disclosures in respect of emerging and principal risks
and the viability statement, and the Financial Statements
and our audit knowledge.

Based on those procedures, we have nothing material to add
or draw attention to in relation to:

– the Directors’ confirmation within the viability statement
on pages 62 and 63 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

how emerging risks are identified, 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.

We are also required to review the viability statement, set
out on pages 62 and 63 under the Listing Rules. Based on the
above procedures, we have concluded that the above disclosures
are materially consistent with the Financial Statements and our
audit knowledge.

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 judgements 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 perform procedures to identify whether there
is a material inconsistency between the Directors’ corporate
governance disclosures and the Financial Statements and our
audit knowledge.

Based on those procedures, we have concluded that each of the
following is materially consistent with the Financial Statements
and our audit knowledge:

– 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;

– the section of the annual report describing the work of the Audit
and Risk Committee, including the significant issues that the
Audit and Risk Committee considered in relation to the
Financial Statements, and how these issues were addressed;
and

– the section of the annual report that describes the review of

the effectiveness of the Group’s risk management and internal
control systems.

We are required to review the part of the Corporate Governance
Statement relating to the Group’s compliance with the provisions
of the UK Corporate Governance Code specified by the Listing
Rules for our review, and to report to you if a corporate
governance statement has not been prepared by the company.
We have nothing to report in these respects.

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.

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9 Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 146,
the Directors are responsible for: the preparation of the Financial
Statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to
enable the preparation of Financial Statements that are free from
material misstatement, whether due to fraud or error; assessing
the Group and Parent Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going
concern; and using the going concern basis of accounting unless
they either intend to liquidate the Group or the Parent Company or
to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about
whether the Financial Statements as a whole are free from
material misstatement, whether due to fraud or 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 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.

The Company is required to include these Financial Statements
in an annual financial report prepared using the single electronic
reporting format specified in the TD ESEF Regulation. This
auditor’s report provides no assurance over whether the annual
financial report has been prepared in accordance with that format.

10 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.

Ian Griffiths (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor

Chartered Accountants

15 Canada Square
London
E14 5GL

18 May 2022

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Financial Statements

Additional Information

Consolidated Income Statement
For the 52 weeks ended 27 March 2022 and 52 weeks ended 28 March 2021

Continuing operations
Revenue
Operating costs1

People costs
Distribution and conveyance costs
Infrastructure costs

Other operating costs

Operating profit before specific items2
Operating specific items

Operating profit
Profit on disposal of property, plant and equipment (non-operating specific item)2

Profit before interest and tax
Finance costs
Finance income

Net pension interest (non-operating specific item)2

Profit before tax
Tax charge

Profit for the year

Earnings per share
Basic

Diluted

1
2

Operating costs are stated before operating specific items.
For further details on alternative performance measures used, see pages 228 to 232.

Reported
52 weeks 2022
£m

Reported
52 weeks 2021
£m

12,712

(12,128)

(6,665)
(3,556)
(1,059)

(848)

12,638

(12,020)

(6,554)
(3,483)
(1,074)

(909)

584

(7)

577

649
(57)
6

662

(50)

612

618

(7)

611

647
(55)
17

117

726

(106)

620

61.7p

61.4p

62.0p

61.8p

Notes

4/5

6/25

7
7

6/11

Royal Mail plc
Annual Report and Financial Statements 2021-22

157

Financial Statements

Consolidated Statement of Comprehensive Income
For the 52 weeks ended 27 March 2022 and 52 weeks ended 28 March 2021

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)/receivable on distribution of RMPP and RMSEPP surplus
Remeasurement gains/(losses) of the defined benefit surplus in RMPP and RMSEPP
Remeasurement gains/(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 gain on hedge of a net investment (€500 million bond)

Net gain on hedge of a net investment (Euro-denominated lease payables)

Designated cash flow hedges

Gains on cash flow hedges deferred into equity
(Gains)/losses on cash flow hedges released from equity to income
Losses released from equity to the carrying value of non-financial assets
Gain/(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
Loss 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/(expense) for the year

Total comprehensive income/(expense) for the year

Reported
52 weeks 2022
£m

Reported
52 weeks 2021
£m

Notes

612

620

11
11(c)
11(d)

414

(181)
457
172

(34)

–

(12)
11

117
(24)
2
2

8
–
(1)

(21)

497

1,109

(1,448)

660
(1,998)
(136)

(23)

(45)
20

11
23
–
(2)

8
(2)
(1)

(7)

(1,441)

(821)

158

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Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Consolidated Balance Sheet
At 27 March 2022 and 28 March 2021

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
Lease liabilities
Derivatives
Income tax payable

Provisions

Reported at
27 March 2022
£m

Reported at
28 March 2021
£m

Notes

13
15
16
17

24
24
11
20

24
24

21/24

3,571
428
488
1

213
30
2,723
94

116

7,664

–

34
1,659
41

70
74

1,137

3,015

10,679

3,007
378
468
5

212
5
2,389
100

153

6,717

18
1,640
9

–
2

1,573

3,242

9,985

(2,332)

(2,377)

14/24
24

(213)
(8)
(10)

(176)

(197)
(12)
(15)

(124)

(2,739)

(2,725)

Royal Mail plc
Annual Report and Financial Statements 2021-22

159

Financial Statements

Consolidated Balance Sheet continued
At 27 March 2022 and 28 March 2021

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

Reported at
27 March 2022
£m

Reported at
28 March 2021
£m

Notes

23/24
14/24
24
11
25

(872)
(1,128)
(36)
(390)
(94)
(32)

(54)

(2,606)

(5,345)

5,334

10
5,248

5,334

(895)
(959)
(36)
(394)
(105)
(18)

(48)

(2,455)

(5,180)

4,805

10
4,802

(7)

4,805

The Financial Statements were approved and authorised for issue by the Board of Directors on 18 May 2022 and were signed on its
behalf by:

Keith Williams
Non-Executive Chair

Mick Jeavons
Group Chief Financial Officer

160

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Consolidated Statement of Changes in Equity
For the 52 weeks ended 27 March 2022 and 52 weeks ended 28 March 2021

Reported at 29 March 2020

Profit for the year

Other comprehensive (expense)/income for the year

Total comprehensive (expense)/income for the year
Transactions with owners of the Company,
recognised directly in equity
Share-based payments (see Note 18)

Employee Free Shares issue
Long Term Incentive Plan (LTIP)
Deferred Share Bonus Plan (DSBP)
Deferred tax on share-based payments

Settlement of DSBP

Reported at 28 March 2021

Profit for the year

Other comprehensive income for the year

Total comprehensive income for the year
Transactions with owners of the Company,
recognised directly in equity
Purchase of own shares¹
Share buyback
Dividend paid to equity holders of the Parent Company
Share-based payments (see Note 18)
Employee Free Shares issue
LTIP

DSBP

Reported at 27 March 2022

Shares required for employee share schemes.

Retained
earnings
£m

Foreign currency
translation
reserve
£m

Hedging
reserve
£m

Share
capital
£m

–

–
–
–
–

–

–
–
–

–
–

–

5,625

620

(1,448)

(828)

1
1
3
1

(1)

4,802

612

414

1,026

(17)
(201)
(366)

1
2

Total
equity
£m

5,621

620

(1,441)

(821)

1
1
3
1

(1)

4,805

612

497

1,109

(17)
(201)
(366)

1
2

(44)

–

–
–
–
–

–

(14)

–

–
–
–

–
–

–

(23)

–
–
–
–

–

–
–
–

–
–

–

5,248

5,334

A description of the reserves in the above table is included in Note 26.

Royal Mail plc
Annual Report and Financial Statements 2021-22

161

Financial Statements

Consolidated Statement of Cash Flows
For the 52 weeks ended 27 March 2022 and 52 weeks ended 28 March 2021

Cash flow from operating activities
Profit before tax
Adjustment for:
Net pension interest (non-operating specific item)
Net finance costs
Profit on disposal of property, plant and equipment (non-operating specific item)

Specific items (operating)

Operating profit before specific items¹
Adjustment for:

Depreciation and amortisation

EBITDA before specific items¹
Working capital movements

Increase in inventories
Increase in receivables
(Decrease)/increase 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
Dividend received from associate undertaking
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 equipment²
Acquisition of business interests, net of cash acquired
Purchase of intangible assets (software)²
Payment of deferred consideration in respect of prior years’ acquisitions

(Purchase)/sale of financial asset investments

Net cash outflow from investing activities

Net cash inflow before financing activities

Reported
52 weeks 2022
£m

Reported
52 weeks 2021
£m

Notes

11
7
6

6/11

662

(64)
51
(72)

584

540

1,124

(29)

(14)
(16)
(54)
3

174
3

(4)

1,268
(108)

–

1,160

5
4

10
99
(519)
(204)
(84)
–

(70)

(759)

401

726

(117)
38
(36)

618

554

1,172

–
(376)
375
16

84
4

(4)

1,297
(125)

1,173

–
16

5
13
(289)
–
(57)
(4)

(286)

887

162

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Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Cash flow from financing activities
Finance costs paid
Share buyback
Purchase of own shares
Payment of capital element of obligations under lease contracts
Cash received on sale and leasebacks
Repayment of loans and borrowings

Dividends paid to equity holders of the Parent Company

Net cash outflow from financing activities
Net decrease in cash and cash equivalents
Effect of foreign currency exchange rates on cash and cash equivalents

Cash and cash equivalents at the beginning of the year

Cash and cash equivalents at the end of the year

1
2

For further details on APMs used, see pages 228 to 232.
Items comprise total gross capital expenditure within ‘in-year trading cash flow’ measure (see Financial Review).

Reported
52 weeks 2022
£m

Reported
52 weeks 2021
£m

Notes

(56)
(201)
(17)
(192)
–
–

(366)

(832)

(431)
(5)

1,573

1,137

(57)
–
–
(188)
1
(700)

–

(944)

(57)
(10)

1,640

1,573

Royal Mail plc
Annual Report and Financial Statements 2021-22

163

Financial Statements

Notes to the Consolidated Financial Statements

1. Basis of preparation and accounting policies
General information
Royal Mail plc (the Company) is incorporated in the United Kingdom (UK). The Consolidated Financial Statements have been produced
in accordance with UK-adopted international accounting standards (‘UK-adopted IFRS’).

The Consolidated Financial Statements of the Company for the 52 weeks ended 27 March 2022 (2020-21: 52 weeks ended 28 March 2021)
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 27 March 2022 were authorised for issue by the Board on 18 May 2022.

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, derivative financial instruments and the
assets and liabilities relating to the acquisition of businesses, which are measured at fair value.

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 27 March 2022 (2020-21: 52 weeks ended 28 March 2021). GLS’ reporting year-end date is 31 March each year.
There were no significant transactions between the respective reporting dates that required adjustment in the Financial Statements.

Presentation of results and accounting policies
As stated above, the Consolidated Financial Statements have been produced in accordance with UK-adopted international accounting
standards (‘UK-adopted IFRS’), i.e. on a ‘reported’ basis. In some instances, APMs are used by the Group to provide ‘adjusted’ results.
This is because Management is of the view that these APMs provide a useful basis on which to analyse underlying 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 explained on pages 228 to 232.

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 reviewed both the current business projections and severe but plausible downside scenarios and assessed these
against cash at bank and in hand of £276 million, cash equivalent investments of £825 million, current asset investments of £70 million
and the undrawn bank syndicate loan facility of £925 million, at 27 March 2022. The downside scenarios included a consideration of
deteriorating economic and market conditions impacting Royal Mail and GLS, increased competition in the UK parcels sector, a slower
pace of transformation in the UK business and the impact this has on cost control, and the potential impact of industrial action or
incurring costs to avoid it. See pages 62 to 63 for more information on the downside scenarios.

The severe but plausible downside case indicates that the Group would not expect to draw on the bank syndicate loan facility in order
to maintain sufficient liquidity and would not breach any of its covenants.

The Directors are of the view that there are sufficient cash and committed undrawn facilities in place (‘headroom’) to meet obligations
over the period to May 2023. In the event of a severe but plausible downside, prepared in line with the viability scenarios included within
this Annual Report, cash/liquidity headroom is expected to remain significantly above £1 billion.

Consequently, the Directors are satisfied that the Group will have sufficient funds to continue to meet its liabilities as they fall due for at
least 12 months from the date of approval of the Financial Statements and therefore have prepared the Financial Statements on a going
concern basis.

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 2021-22 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.

164

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

1. Basis of preparation and accounting policies (continued)
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 Consolidated Financial Statements are consistent with those in the Annual
Report and Financial Statements for the year ended 28 March 2021, along with the adoption of new and amended accounting standards
with effect from 29 March 2021 as detailed below:

New and amended accounting standards adopted in 2021-22
Interest Rate Benchmark Reform – Phase 2 (amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
The Group has adopted Phase 2 of the Interest Rate Benchmark Reform with effect from 29 March 2021. The amendments do not
have an effect on the Group as it does not have any financial instruments that reference LIBOR. The interest reference rate in the bank
syndicate loan facility was amended in the period from LIBOR to SONIA (Sterling OverNight Indexed Average) (SOFR (Secured Overnight
Financing Rate) for any drawings in US Dollars). Interest is compounded daily and a credit adjustment spread of between 0.0% and 0.3%
is added using the ISDA (International Swaps and Derivatives Association) published five-year historical mean on fixing date 5 March
2021. The bank syndicate loan facility was undrawn throughout the period and therefore is unaffected by the amendment in the period.

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 at the balance
sheet date:

Annual improvements to IFRS 2018-2020

IAS 1 (Amended) – Classification of Liabilities as Current or Non-current

IAS 1 (Amended) – Disclosure of Accounting Policies

IAS 8 (Amended) – Definition of Accounting Estimates

IAS 12 (Amended) – Deferred Tax Related to Assets and Liabilities Arising From a Single Transaction

IAS 16 (Amended) – Property, Plant and Equipment: Proceeds Before Intended Use

IAS 37 (Amended) – Onerous Contracts – Cost of Fulfilling a Contract

IFRS 3 (Amended) – Reference to Conceptual Framework

IFRS 17 – Insurance Contracts

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.

Sources of estimation uncertainty
The preparation of Consolidated Financial Statements necessarily requires Management to make certain estimates and judgements
that can have a significant impact on the Financial Statements. These estimates and judgements are continually evaluated and are
based on historical experience and other factors, including expectations of future events that are believed to be reasonable under
the circumstances. The areas involving a higher degree of judgement or complexity, or areas where there is thought to be a significant
risk of a material adjustment to the Consolidated Financial Statements within the next financial year as a result of the estimation
uncertainty are disclosed below.

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 judgement in determining the assumptions
to be adopted, after discussion with a qualified actuary. Details of the key actuarial assumptions used and of the sensitivity of these
assumptions for the RMPP and DBCBS pension plans are included within Note 11.

Royal Mail plc
Annual Report and Financial Statements 2021-22

165

Financial Statements

Notes to the Consolidated Financial Statements continued

1. Basis of preparation and accounting policies (continued)
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:

ƽ Equities listed on recognised stock exchanges are valued at the closing bid price, or the last traded price, depending on the

convention of the stock exchange on which they are quoted.

ƽ Bonds are measured using a combination of broker quotes and pricing models making assumptions for credit risk, market risk

and market yield curves.

ƽ Pooled investment vehicles are valued using published prices or the latest information from investment managers, which includes

any necessary fair value adjustments.

ƽ Properties are valued on the basis of open market value as at the year-end date, in accordance with Royal Institute of Chartered

Surveyors (RICS) Valuations Standards (under ‘Red Book’ guidelines) adjusted for any capital expenditure and impairments since
that valuation.

ƽ 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:

ƽ 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.

ƽ 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.
ƽ 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 is 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.

Deferred revenue
The Group recognises advance customer payments on its balance sheet, predominantly relating to stamps and meter credits
purchased by customers but not used at the balance sheet date (see Note 22).

The majority of this balance is made up of stamps sold to the general public. Management utilises 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. Royal Mail has
now introduced barcoded stamps to replace non-barcoded stamps. The majority of non-barcoded stamps will be valid until 31 January
2023. A Stamp Swap Out scheme was launched on 31 March 2022 where non-barcoded stamps can be swapped for stamps with
barcodes. Management will consider the impact that this change may have on the SITHOP balance going forward.

At 27 March 2022 the Group recognised £160 million (2020-21: £218 million) deferred revenue in respect of stamps sold to the general
public but not used at the balance sheet date. In 2021-22, stamp sales reverted closer to pre-pandemic levels, which meant that some
of the build-up in holdings seen in 2020-21 was utilised. The primary sources of data used to derive this estimate are as follows:

ƽ Revenue data related to stamp sales through the Post Office network.
ƽ Historic trends of deferred revenue balances.
ƽ Changes in the number of working days during the period.
ƽ Price rises.
ƽ Adjustments to reflect posting patterns around key events close to the reporting year end, e.g. Mothering Sunday, Easter.

Stamp holding days implied by the applying the above methodology, fell year-on-year to 31 days (2020-21: 39 days).

Other estimates
Provisions – industrial diseases
The Group has a potential liability for industrial diseases claims relating to individuals who were employed in the General Post Office
Telecommunications division and whose employment ceased 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 at the year-end date, which incorporates independent expert actuarial advice.

The Institute and Faculty of Actuaries (UK Asbestos Working Party), on whose modelling actuaries rely for their calculations for
asbestos-related ill-health claims, confirmed during this reporting year that the provisional guidance that they issued in February 2021
is supported by the subsequent revision of all the different models it maintains. This now established guidance indicates a significant
reduction in future liabilities for such claims.

166

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

1. Basis of preparation and accounting policies (continued)
In view of the above, Management has applied a consistent approach to that of previous years and recognised a provision at 27 March
2022 between the medium and high estimates provided by the actuarial consultant. This has resulted in a release of £11 million
(2020-21: £16 million), recognised in the income statement as an operating specific item. The closing provision balance at 27 March
2022 was £56 million (2020-21: £69 million) (see Notes 6 and 25).

A 50 basis points decrease to the 1.77% discount rate used at 27 March 2022 would result in a £3 million increase in the overall provision.
Any income statement movements arising from a change in accounting estimate are disclosed as an operating specific item.

Business acquisition – Mid-Nite Sun Transportation Ltd (operates as ‘Rosenau Transport’)
Identifiable assets acquired and liabilities and contingent liabilities assumed in business acquisitions are measured initially at their fair
values at the acquisition date. The fair value of an asset or liability represents the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants. An independent valuer was used to assist in the valuation of
the Rosenau Transport acquisition.

In determining the fair value of the intangible assets acquired, risk-adjusted future cash flows discounted using discount rates specific
to the asset were used. In determining cash flows, a combination of historical data and estimates regarding revenue growth, profit
margins and operating cash flows were used:

ƽ Customer relationships were measured using estimates of future cash flows and expected customer retention rates.
ƽ Brands were measured by estimating the savings realised by owning or holding the right to use the brand name (as opposed to

paying a royalty fee to a third party). This includes an estimate of the projected revenues attributable to the brand, potential royalty
rates and the estimated life of the brand to a third party.

ƽ Other tangible assets and liabilities were measured by estimating the current cost to purchase or replace the assets, taking into

account available market data for the sale or transfer of such assets.

The excess of the consideration transferred, when comparing the fair value of the net identifiable assets acquired, has been recorded
as goodwill.

Certain property assets and deferred tax liabilities have provisional fair values at the reporting date. The Group has one year from the
acquisition date to remeasure the fair values of the acquired assets and liabilities and the resulting goodwill, if new information is
obtained relating to conditions that existed at the acquisition date.

Acquisition-related costs are expensed as incurred. Details of the Rosenau Transport acquisition during the period are disclosed in
Note 12.

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).

Further details of the major revenue streams in each operating segment are provided below:

Royal Mail plc
Annual Report and Financial Statements 2021-22

167

Financial Statements

Notes to the Consolidated Financial Statements continued

1. Basis of preparation and accounting policies (continued)
Royal Mail
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 subcontractor costs. 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 and consumables. Non-people costs relating to projects are also
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 24.6% (2020-21: 19.5%) for the
DBCBS pension plan and the cash contribution rate agreed with the Trustee of 15.6%. 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 (see Note 6 and Note 11).

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.

Legacy/other items
Legacy items are unavoidable ongoing costs arising from historical events e.g. industrial diseases provision or Employee Free Shares
costs.

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 representative of the trading performance of the Group.

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 the business’ operations strategy.

Net pension interest
Management separately identifies pension interest income as this is not part of the Group’s trading activity and is driven by actuarial
calculations and assumptions which fluctuate each year.

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. 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 vest based on a combination of non-market

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and market conditions. Share-based payments awarded as part of the Deferred Share Bonus Plan 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 Monte-Carlo simulation 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 the following:

ƽ Initial recognition of goodwill.
ƽ 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.

ƽ 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.

ƽ 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.

Earnings per share
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.

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 their distinct, individually
identifiable cash flows. These CGUs for impairment testing purposes are Royal Mail excluding Parcelforce Worldwide 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 considers 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 has typically been allocated to one of the major networks designated as CGUs, i.e. mainland Europe; US Freight
(previously known as Mountain Valley Express); US excluding US Freight; and, in Canada, Dicom. The exception to this approach
is the current year acquisition of Rosenau Transport, which has been treated as a separate CGU for the current year.

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Financial Statements

Notes to the Consolidated Financial Statements continued

1. Basis of preparation and accounting policies (continued)
Impairment test for goodwill and CGUs
In assessing whether there has been an impairment of goodwill, a 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 cash flows.
Details of the impairment review of the GLS CGUs are included in Note 15.

Royal Mail excluding Parcelforce Worldwide CGU
At 27 March 2022, the carrying value of this CGU was £1,366 million (2020-21: £1,174 million). The CGU has been assessed for
impairment by comparing the carrying value of the CGU with its recoverable amount, assessed as being the ‘value in use.’ The value in
use has been calculated based on three-year forecast free cash flows, with the assumption that years four and five will be in line with
the performance of year three. Cash flows into perpetuity are assumed to have a growth rate of 0.5% (2020-21: 0.5%).

The recoverable amount was deemed to be significantly in excess of the carrying value of the CGU. The Group has conducted sensitivity
analysis on the impairment test for each of the key assumptions. This did not identify any plausible outcomes that would require the
CGU to be impaired.

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 in the 2019-20 reporting year. This review identified that the carrying value of the CGU was in excess of its
recoverable amount, which resulted in all non-monetary assets being written off and a £91 million impairment charge being reported
as a specific item in the income statement within the Royal Mail segment. For this reporting year, Management considers that it is not
appropriate to reverse the impairment charge, as the business has still to establish a sustainable financial performance.

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 Royal Mail 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

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

Fixtures and equipment

2 to 15 years

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 is expensed in the income statement
as incurred.

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An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from
its use. 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 recognised in the income statement (non-operating specific item) 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.

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 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 assets 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. Development costs capitalised and included as an asset within the Financial Statements have not
been treated as a realised loss for the purpose of determining distributable reserves.

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 10 years

Investments 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 (currently
netted off other operating costs as the values are not material enough for separate disclosure).

Any goodwill arising on acquisition of an associate, representing the excess of the cost of the investment compared with the Group’s
share of the net fair value of the identifiable assets, liabilities and contingent liabilities acquired, is included in the carrying amount
and not amortised.

Borrowing costs
Interest on borrowings related to the construction or development of qualifying assets is capitalised, until such time as the assets
are substantially ready for their intended use. Borrowing costs capitalised are deducted in determining taxable profit in the reporting
year in which they are incurred.

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Financial Statements

Notes to the Consolidated Financial Statements continued

1. Basis of preparation and accounting policies (continued)
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.

Leases
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 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. Lease interest is shown within finance costs in the
statement of cash flows. 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.

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.

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 in the main, historically, not been exercised due to ongoing
operational requirements. Management has 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. In only exceptional cases, when reasonably certain that it will enact the break,
are leases recognised to the break date only. The unrecognised non-discounted cash flows in relation to these leases are £7 million
(2020-21: £15 million).

The Group adopts a practice of not including extension options in its leases. Where such clauses exist, they are not material.

IFRS 16 – incremental borrowing rates
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.

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.

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 has concluded that for the Royal Mail 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 Royal Mail 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, Royal Mail 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. Royal Mail has 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 Royal Mail. 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.

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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 and prior year, considerations around COVID-19 and the macro-economic situation has resulted in an increase to
expected credit losses above our standard provisioning rate. The below rates have been applied to the Royal Mail debt. In GLS rates are
country specific to reflect the economic conditions of individual countries.

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

2021-22
%

0.21
1.96
12.57

57.69

2020-21
%

0.10
1.88
16.55

73.13

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 the 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. This scheme does not therefore 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 27 March 2022 was £66 million (28 March 2021: £36 million).

Capital management
The Group has established five key objectives for capital management. Details of these objectives are included in the Financial Review.

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.

The subsequent measurement of financial instruments depends on their classification as follows:

Financial assets measured at amortised cost
These are non-derivative financial assets which are held for the purpose of collecting contractual cash flows (held to collect), including
interest. 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.

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Financial Statements

Notes to the Consolidated Financial Statements continued

1. Basis of preparation and accounting policies (continued)
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 invests surplus cash in money market funds which hold
baskets of cash, cash equivalent and high-credit-rating debt-based securities with short-term maturity. These funds are highly liquid
and investments can be redeemed either the same day or within a week, so are categorised as cash equivalents on the basis they are
a readily available source of cash. 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 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 money market fund investment and a Royal Mail
Pension Plan money market fund investment. See Note 11 to the Financial Statements for further details.

Financial assets – other investments
Other investments comprise short-term deposits (other investments) with banks with an original maturity of more than three months.
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’ (see
details of the fair value hierarchy below).

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 in the reporting year.

Fair value measurement of financial instruments
All assets and liabilities for which fair value is measured or disclosed in the Financial Statements are categorised within the fair value
hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).

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.

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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 and the €550 million bond,
the disclosed fair values are calculated as the closing market bond prices converted to Sterling using the closing spot Sterling/Euro
exchange rate.

For the purposes of comparing carrying amounts with 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 explained further in the ‘Other estimates’
section of this Note.

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.

Contingent assets
Contingent assets are possible assets whose existence will be confirmed by the occurrence or non-occurrence of uncertain future
events that are not wholly within the control of the entity. Contingent assets are not recognised, but they are disclosed when it is more
likely than not that an inflow of benefits will occur. However, when the inflow of benefits is virtually certain, an asset is recognised on
the Balance Sheet, because the asset is no longer considered to be contingent.

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
Defined benefit pension plan assets are measured at fair value. Listed securities are valued at bid price or the last traded price, depending
on the convention of the stock exchange on which they are quoted. 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 in the basis of open market value at the year end date, in accordance with RICS valuation standards.
Further details on the measurement of pension assets are included within the ‘Key Sources of Estimation Uncertainty’ section above.
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, i.e. ‘withholding 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 Trustee and,
with appropriate updates and accounting adjustments at each balance sheet date, form the basis of the surplus disclosed.

For defined benefit plans, the amounts charged to operating profit are the current service costs and any gains and losses arising from
settlements, curtailments and past service costs. The amount resulting from applying the plan’s discount rate (for liabilities) to the
pension surplus at the beginning of the reporting year is recognised as net pension interest in the income statement. Remeasurement
gains and losses are recognised immediately in the statement of comprehensive income. Any deferred tax movement associated with
the remeasurement gains and losses is recognised immediately in the statement of comprehensive income. The Group recognises a
constructive obligation to provide future increases to benefits under the lump sum DBCBS. This is charged to current service costs in
the income statement. Further details on the constructive obligation are included within Note 11 to the Financial Statements.

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.

Royal Mail plc
Annual Report and Financial Statements 2021-22

175

Financial Statements

Notes to the Consolidated Financial Statements continued

1. Basis of preparation and accounting policies (continued)
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, only 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. Other than the €500 million bond and the Euro-denominated leases mentioned above,
currently, hedge accounting is not claimed for any other monetary assets and liabilities except the €550 million 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.

2. Segment information
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. 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 pages 228 to
232). 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.

52 weeks 2022

Continuing operations
Revenue
People costs
Non-people costs
Operating profit
before specific items
Operating specific items
Operating profit
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

Royal Mail
(UK operations)
£m
8,514
(5,583)
(2,515)

GLS
(Non-UK
operations)
£m
4,219
(908)
(2,969)

Adjusted

Eliminations1
£m
(21)
–
21

Group
£m
12,712
(6,491)
(5,463)

Royal Mail
(UK operations)
£m
–
(174)
–

416
–
416

–

416
(49)
10

–

377

342
–
342

–

342
(15)
3

–

330

–
–
–

–

–
7
(7)

–

758
–
758

–

758
(57)
6

–

707

(174)
8
(166)

(95)
–
–

(31)

Specific items,
and pension
adjustment in
people costs

GLS
(Non-UK
operations)
£m
–
–
–

–
(15)
(15)

(14)
–
–

–

(14)

Reported

Group
£m
12,712
(6,665)
(5,463)

584
(7)
577

649
(57)
6

662

176

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

2. Segment information (continued)

52 weeks 2021

Continuing operations

Revenue
People costs

Non-people costs

Operating profit before
specific items

Operating specific items

Operating profit

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

Royal Mail
(UK operations)
£m

8,649
(5,619)

(2,686)

344

–

344

–

344
(49)
21

–

316

Adjusted

GLS
(Non-UK
operations)
£m

4,040
(851)

(2,831)

358

–

358

–

358
(13)
3

–

348

Eliminations1
£m

(51)
–

–

–
7
(7)

–

Specific items, and pension
adjustment in people costs

Reported

Royal Mail
(UK operations)
£m

GLS
(Non-UK
operations)
£m

–
(84)

–

(84)

(73)

(35)
–
–

117

–
–

–

(18)

(2)

(20)
–
–

–

(20)

Group
£m

12,638
(6,470)

(5,466)

702

–

702

–

702
(55)
17

–

664

Group
£m

12,638
(6,554)

(5,466)

618

(7)

611

647
(55)
17

117

726

Revenue and non-people costs eliminations relate to intragroup trading between Royal Mail and GLS, due to Parcelforce Worldwide being GLS’ partner in the UK.
Finance costs/income eliminations relate to intragroup loans between Royal Mail and GLS.

The depreciation and amortisation costs shown 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 2022

Depreciation

Amortisation of intangible assets (mainly software)

Royal Mail
(UK operations)
£m

(309)

(88)

GLS
(Non-UK
Operations)
£m

(132)

(11)

Total
£m

(441)

(99)

Non-current assets

2,879

1,703

4,582

52 weeks 2021

Depreciation

Amortisation of intangible assets (mainly software)

Royal Mail
(UK operations)
£m

(308)

(107)

GLS
(Non-UK
Operations)
£m

(124)

(15)

Total
£m

(432)

(122)

Non-current assets

2,596

1,362

3,958

Royal Mail plc
Annual Report and Financial Statements 2021-22

177

Financial Statements

Notes to the Consolidated Financial Statements continued

3. Revenue

52 weeks 2022

Parcels

Letters

Total

52 weeks 2021

Parcels

Letters

Total

Royal Mail
£m

4,800

3,714

8,514

Royal Mail²

£m

5,133

3,516

8,649

GLS
£m

4,219

–

4,219

GLS
£m

4,040

–

4,040

Intragroup
revenue1
£m

(21)

–

(21)

Intragroup
revenue1
£m

(51)

–

(51)

Group
£m

8,998

3,714

12,712

Group²
£m

9,122

3,516

12,638

1
2

Eliminations relate to intragroup revenue from trading between Royal Mail and GLS. This is due to Parcelforce Worldwide being GLS’ partner in the UK.
The prior year’s letter and parcel revenue split has been re-presented to reflect a reallocation of international revenue between letters and parcels.

During the year, around £300 million (2020-21: £290 million) of revenue was recognised which was previously held as a deferred
revenue balance at 28 March 2021 (2020-21: 29 March 2020). This balance largely 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).

4. Operating costs
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)1

Other operating costs
Post Office Limited charges

Inventory expensed

52 weeks
2022
£m

(6,665)

52 weeks
2021
£m

(6,554)

(271)
(198)

(540)

(441)

(99)

(361)

(36)

(343)
(202)

(554)

(432)

(122)

(405)

(53)

Excludes £16 million (2020-21: £19 million) amortisation of intangible assets in acquisitions, presented as an operating specific item in the income statement.

178

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

4. Operating costs (continued)
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

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
2022
£m

52 weeks
2021
£m

(6)

(1)

(7)

52 weeks
2022
£’000

(1,420)

(1,613)
(265)
(144)

(11)

(3,453)

(5)

(1)

(6)

52 weeks
2021
£’000

(1,318)

(1,510)
(240)
(131)

(11)

(3,210)

The 2021-22 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 £111,500 for the audit of the Royal Mail Pension Plan (2020-21: £105,971) and £34,500 for the audit of the
Royal Mail Defined Contribution Plan (2020-21: £32,950).

5. People information

Wages and salaries
Royal Mail1

GLS

Pensions (see Note 11)
Defined benefit UK
Defined contribution UK
Defined benefit and defined contribution Pension Salary Exchange UK

GLS

Social security
Royal Mail

GLS

Total people costs

People costs include £81 million (2020-21: £109 million) in relation to voluntary redundancy costs.

Defined benefit pension plan rates:
Income statement – DBCBS
Cash flow – DBCBS
Defined contribution pension plan average rate:
Income statement and cash flow²

52 weeks
2022
£m

(5,398)

(4,587)

52 weeks
2021
£m

(5,363)

(4,605)

(811)

(747)

(441)
(116)
(181)

(9)

(520)

(432)

(88)

(758)

(683)

(369)
(111)
(194)

(9)

(508)

(424)

(84)

(6,665)

(6,554)

24.6%
15.6%

19.5%
15.6%

8.9%

9.3%

Employer contribution rates are 3% for employees in the entry level category and 10% for the majority of those employees in the standard level category.

Royal Mail plc
Annual Report and Financial Statements 2021-22

179

Financial Statements

Notes to the Consolidated Financial Statements continued

5. People information (continued)
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

Royal Mail
GLS

Total

52 weeks
2022

157,241
21,808

179,049

52 weeks
2021

159,403
17,644

177,047

52 weeks
2022

157,990
20,719

178,709

52 weeks
2021

158,194
16,618

174,812

52 weeks
2022

140,035
22,325

162,360

52 weeks
2021

137,285
21,307

158,592

52 weeks
2022

138,757
21,062

159,819

52 weeks
2021

138,949
20,245

159,194

For Royal Mail, 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. GLS has changed its FTE calculation methodology in the reporting year to align better with Royal Mail. This change has been applied
prospectively and no changes have been made to prior year numbers.
These people numbers represent permanent employees. These figures include Royal Mail Pension Trustees, Intersoft and eCourier headcount.

Directors’ remuneration

Directors’ remuneration5

Amounts earned under Long Term Incentive Plans

Number of Directors accruing benefits under defined contribution plans

52 weeks
2022
£’000

(3,530)

(934)

52 weeks
2021
£’000

(1,503)

–

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 Directors’
Remuneration Report on page 110. The highest paid Director details are included in the single figure tables of the Directors’ Remuneration Report on page 126.

6. Specific items and pension charge to cash difference adjustment

Pension charge to cash difference adjustment (within People costs)
Operating specific items:
Legacy/other items
Amortisation of intangible assets in acquisitions

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
2022
£m

(174)

9
(16)

(7)

136

129

52 weeks
2021
£m

(84)

12
(19)

(7)

117

153

146

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 24.6% (2020-21: 19.5%) of pensionable pay for the DBCBS
from 29 March 2021 and the cash contribution rate agreed with the Trustee of 15.6%.

Legacy/other items mainly comprise an £11 million release (2020-21: £16 million release) of the industrial diseases provision, following
the publication, in late 2021, of updated scenarios on future asbestos-related ill-health claims by the Institute and Faculty of Actuaries
(UK Asbestos Working Party) (see Note 25 for further details).

The tax credit of £62 million (2020-21: £37 million) includes a net credit of £30 million (2020-21: 37 million) in relation to the tax effect
of certain specific items and the pension charge to cash difference and, a net credit of £32 million (2020-21: £nil) in relation to the
remeasurement of certain UK deferred tax assets and liabilities at the future UK corporation tax rate of 25%.

180

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Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

7. Net finance costs

Unwinding of discount relating to industrial diseases claims provision

Other interest payable

Bank syndicate loan facility
Loans and borrowings
Unused facility fees
Arrangement fees
€500 million and €550 million bonds
Interest rate swap costs on €550 million bond
Leases
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

8. Taxation

Tax charged in the income statement
Current income tax:
Current UK income tax charge

Foreign tax

Current income tax charge

Amounts over/(under)-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 over-provided in previous years

Total deferred income tax credit

Tax charge in the consolidated income statement

Tax (charged)/credited to other comprehensive income
Deferred tax:
Tax (charge)/credit in relation to remeasurement gains of the defined benefit pension schemes

Tax charge on revaluation of cash flow hedges

Total deferred income tax (charge)/credit

Total tax (charge)/credit in the consolidated statement of other comprehensive income

52 weeks
2022
£m

52 weeks
2021
£m

(1)

(56)

–
(1)
(1)
(17)
(7)
(29)
3

(4)

(57)

(51)

(1)

(54)

(3)
(1)
(2)
(17)
(7)
(26)
4

(2)

(55)

(38)

52 weeks
2022
£m

52 weeks
2021
£m

(11)

(81)

(92)

(73)

32
(17)

(50)

(34)

(21)

(55)

(48)

(82)

(130)

(4)

(134)

–
25

(106)

(7)

Royal Mail plc
Annual Report and Financial Statements 2021-22

181

Financial Statements

Notes to the Consolidated Financial Statements continued

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

Tax credit for loss arising on share-based payments

Total deferred income tax credit recognised directly in equity

52 weeks
2022
£m

52 weeks
2021
£m

(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 27 March 2022 and 52 weeks ended 28 March 2021 is shown below.

Profit before tax

At UK statutory rate of corporation tax of 19% (2020-21: 19%)
Effect of different tax rates on non-UK profits and losses
Tax over/(under)-provided in previous years¹
Non-deductible expenses
Tax reliefs and incentives
Uncertain tax positions
Tax effect of property disposals
Tax effect of closure of RMPP to future accrual
Net pension interest credit
Net decrease in tax charge resulting from non-recognition of certain deferred tax assets and liabilities
Share-based payments – deferred tax-only adjustments
Super-deduction enhanced capital allowances

Effect of change in tax rates

Tax charge in the consolidated income statement

52 weeks
2022
£m

662

52 weeks
2021
£m

726

(126)
(10)
27
(9)
5
(1)
10
(3)
14
(3)
–
14

(50)

(138)
(12)
(1)
(6)
4
(2)
26
(2)
23
1
1
–

–

(106)

Tax over/(under)-provided in previous years includes a £23 million credit relating to a reduced uncertain tax provision against prior year claims under the patent box regime.

182

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Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

8. Taxation (continued)
Deferred tax

Deferred tax by
balance sheet category
52 weeks 2022

Liabilities
Accelerated capital
allowances
Intangible assets

Hedging derivative
temporary differences

Jurisdictional right of offset

Deferred tax liabilities

Assets
Deferred capital allowances
Pensions temporary
differences
Provisions and other
Employee share schemes
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
29 March
2021
£m

Credited/
(charged) to
income
statement
£m

Charged
to other
comprehensive
income
£m

Credited/
(charged)
directly in equity
£m

Acquisition of
subsidiaries
£m

Jurisdictional
right of offset
£m

At
27 March
2022
£m

(7)
(50)

–

(57)

(48)

75
32
3

15
1

162

(9)

153

105

(17)
–

–

(17)

–

(17)

(32)

59
(5)
–

18
–

–

–
–

(18)

–

(18)

–

(34)
–
–

–
–

(3)

(37)

–

(37)

(55)

–
–

–

–
–
(1)

1
–

–

(10)
(1)

–

(11)

–

(11)

–

–
–
–

–
–

–

–
–

–

–
–
–

–
–

–

(40)

(34)
(51)

(18)

(103)

(54)

100
27
2

34
1

–

165

(49)

116

(11)

–

Royal Mail plc
Annual Report and Financial Statements 2021-22

183

Financial Statements

Notes to the Consolidated Financial Statements continued

8. Taxation (continued)

Deferred tax by balance sheet
category 52 weeks 2021

Liabilities
Accelerated capital
allowances

Intangible assets

Jurisdictional right of offset

Deferred tax liabilities

Assets
Deferred capital allowances
Pensions temporary
differences
Provisions and other
Employee share schemes
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
30 March
2020
£m

Credited/
(charged) to
income
statement
£m

Credited/
(charged) to other
comprehensive
income
£m

Credited directly
in equity
£m

Credited/
(charged) to
foreign exchange
reserve
£m

Jurisdictional
right of offset
£m

At
28 March
2021
£m

(8)

(54)

(62)

(54)

33
25
–

34
2

118

(8)

110

–

16
8
2

(19)
(1)

–

26
–
–

–
–

(7)

–

–
–
1

–
–

–

–
(1)
–

–
–

–

(1)

–

(1)

–

–
–
–

–
–

–

(1)

–

(7)

(50)

(57)

(48)

75
32
3

15
1

162

(9)

153

105

Deferred tax assets and liabilities are offset within the same jurisdiction where the Group has a legally enforceable right to do so.
Below is an analysis of the deferred tax balances (after offset) for balance sheet presentation purposes.

At
27 March
2022
£m

At
28 March
2021
£m

(54)

106

116

(48)

143

153

105

Deferred tax – balance sheet presentation

Liabilities
GLS group

Deferred tax liabilities

Assets
GLS group

Net UK position

Deferred tax assets

Net deferred tax asset

184

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Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

8. Taxation (continued)
The deferred tax position shows a decreased net asset in the reporting year to 27 March 2022. This is mainly due to an increase in
accelerated capital allowances due to the Super-deduction and an increase in the deferred tax liability on derivatives used for hedging.
The overall decrease was partially offset by an increase in the amount of tax losses carried forward and the effect of the increased UK
corporation tax rate from 19% to 25%.

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 fixed
assets and intangible assets in relation to acquisitions in Canada.

At 27 March 2022, the Group had unrecognised tax losses and temporary differences of £256 million (2020-21: £263 million) with a tax
value of £75 million (2020-21: £73 million). Unrecognised deferred tax in relation to tax losses comprises £72 million (2020-21: £70 million)
relating to losses of £244 million (2020-21: £236 million) in GLS that are available for offset against future profits if generated in the
relevant GLS companies, and £2 million (2020-21: £1 million) in relation to £7 million (2020-21: £6 million) of historical UK non-trading
and capital losses carried forward. Other unrecognised amounts comprise £1 million (2020-21: £2 million) relating to GLS other
temporary differences of £5 million (2020-21: £21 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 £177 million (2020-21: £186 million) of capital losses, the tax effect of which is
£44 million (2020-21: £35 million) in respect of assets previously qualifying for industrial buildings allowances, that would arise if the
assets were sold at net book value. Further temporary differences exist in relation to £444 million (2020-21: £383 million) of gains for
which rollover relief has been claimed, the tax effect of which is £111 million (2020-21: £73 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 Government has announced that the corporation tax rate will rise to 25% from April 2023. In accordance with accounting
standards, the deferred tax balances in these Financial Statements have been adjusted to effect this change.

9. Earnings per share

Profit for the year (£ million)
Weighted average number
of shares issued (million)2
Basic earnings per share (pence)

Diluted earnings per share (pence)

52 weeks 2022

Specific items
and pension
adjustment1

Adjusted

Reported

n/a
n/a

n/a

595

992
60.0

59.7

620

999
62.0

61.8

52 weeks 2021

Specific items
and pension
adjustment1

n/a
n/a

n/a

Reported

612

992
61.7

61.4

Adjusted

521

999
52.1

51.9

1
2

Further details of the specific items and pension adjustment total can be found in the Financial Review on page 69.
During the year 43,806,525 shares were purchased as part of the buyback programme announced on 18 November 2021 (see Note 26).

The diluted earnings per share for the year ended 27 March 2022 is based on a weighted average number of shares of 996,495,404
(2020-21: 1,003,489,831) to take account of the potential issue of 2,087,313 (2020-21: 2,020,587) ordinary shares resulting from the
Deferred Share Bonus Plans and 2,304,879 (2020-21: 2,042,060) ordinary shares resulting from the Long Term Incentive Plans.
These plans are for certain Senior Management and are disclosed in more detail in Note 18.

The 2,265,008 (2020-21: 572,816) 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.

Royal Mail plc
Annual Report and Financial Statements 2021-22

185

Financial Statements

Notes to the Consolidated Financial Statements continued

10. Dividends

Dividends on ordinary shares

Final dividend paid
Interim dividend paid

Special dividend paid

Total dividends paid

52 weeks
2022
Pence per share

52 weeks
2021
Pence per share

52 weeks
2022
£m

52 weeks
2021
£m

10.0
6.7

20.0

36.7

–
–

–

100
67

199

366

–
–

–

The Board has reviewed the performance of the Group during the 2021-22 reporting year and concluded that it is appropriate to pay a
final dividend of 13.3 pence per share, payable on 6 September 2022 to shareholders on the register at 29 July 2022, subject to approval
at the 2022 AGM (2020-21: 10 pence final dividend).

Some shares are held by the Trustee of the Royal Mail Share Incentive Plan on behalf of the Company to satisfy future share awards.
The Trustee does not receive any dividends on the shares it holds, hence the value of dividends paid being lower than the number of
shares in issue multiplied by the pence per share.

11. Retirement benefit plans
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 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 pension service costs3
UK defined benefit plan’s employer contributions4
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

Pension charge to cash difference adjustment

UK pension plans – active members
UK defined benefit plan

UK defined contribution plan

Total

52 weeks
2022
£m

52 weeks
2021
£m

(441)
(116)

(181)

(738)

(9)

(747)

(267)
(125)

(181)

(573)

(174)

(369)
(111)

(194)

(674)

(9)

(683)

(285)
(120)

(194)

(599)

(84)

At 27 March
2022
’000

At 28 March
2021
’000

132

128

These pension service costs are charged to the income statement. They represent the cost (as a percentage of pensionable payroll – 24.6% (2020-21: 19.5%)) of the
increase in the defined benefit obligation due to members earning one more years’ 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. Also included are pensions administration costs for the RMPP of
£9 million (2020-21: £9 million) and the DBCBS of £5 million (2020-21: £5 million) and a £6 million past service cost in respect of the estimated liability for historic
Guaranteed Minimum Pension (GMP) costs in RMPP that has arisen in the year. Further details are provided under the heading ‘Guaranteed Minimum Pensions’ below.
Eligible employees who are enrolled into PSE opt out of making employee contributions to their pension and the Group makes additional contributions in return for a
reduction in basic pay.
For simplicity, these values exclude the impact of any timing differences in pension payments and represent the equivalent cash costs of the amounts charged to the
income statement in the year.
The employer contribution cash flow rate of 15.6% forms part of the payroll expense and is paid in respect of the DBCBS (2020-21: 15.6%). These contribution rates are
fixed, with actuarial funding valuations carried out every three years to determine whether additional deficit contributions are required. These actuarial valuations are
required to be carried out on assumptions determined by the Trustee and agreed by Royal Mail. The most recent triennial valuation at 31 March 2021 has recently been
completed and no additional contributions are required.

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Additional Information

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 UK 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 (excluding PSE) have increased from £111 million in 2020-21 to £116 million due to
a significant increase in RMDCP membership in the year, offset by a reduction in the average employer’s contribution rate from
9.3% in 2020-21 to 8.9% in 2021-22.

UK Defined Benefit plans
Royal Mail Pension Plan (RMPP)5 and Defined Benefit Cash Balance Section (DBCBS)
The legacy section of the Royal Mail Pension Plan, the RMPP, closed to future accrual in its previous form from 31 March 2018, and was
replaced in 2018 by a new section of the scheme, the DBCBS.

The legacy RMPP includes sections A, B and C, each with different terms and conditions.

Joining date for
members (or
beneficiaries
of members)

Terms

Section A

Section B

Section C

Before 1 December 1971

On or after 1 December 1971
and before 1 April 1987

On or after 1 April 1987 and before
1 April 2008

for members of Section A who chose
to receive Section B benefits.

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.

Pension of 1/60th of pensionable
salary for each year of pensionable
service, until 31 March 2018.

Members wishing to take a tax free
lump sum on retirement do so in
exchange for a reduced pension.

Any references to the RMPP relate to the scheme’s defined pension liabilities built up to 31 March 2018. From 1 April 2018 members began building up DBCBS benefits.

The DBCBS has been in place since 1 April 2018, when the RMPP closed. This is a transitional arrangement until the proposed Royal
Mail Collective Pension Plan (RMCPP) commences.

DBCBS members build up a guaranteed lump sum benefit of 19.6% 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. The Group would be obligated to make the necessary contributions to
ensure that members received at least the guaranteed lump sum amount. From an assessment of announcements and internal
communications made to members of the scheme to date and taking into account the increases granted to date, Management is
however of the view that there is a requirement to recognise a constructive obligation to provide an increase to the lump sum for
accounting purposes. The increase awarded from 1 April 2022 is CPI (at 3.41%) plus 1.5%. Future liabilities of the scheme have been
calculated assuming increases of CPI plus 2.0%, although the nature of the scheme means that actual increases could be lower or
higher than this amount.

The Group signed an updated Schedule of Contributions on 17 May 2022. This covers a period of five years from the date of certification
of the schedule, i.e. until May 2027. In accordance with this schedule, the Group is required to make payments totalling 15.6% of
pensionable payroll in respect of DBCBS.

Royal Mail plc
Annual Report and Financial Statements 2021-22

187

Financial Statements

Notes to the Consolidated Financial Statements continued

11. Retirement benefit plans (continued)
Pensions governance and management
Royal Mail Pensions Trustees Limited acts as the corporate Trustee to the Royal Mail Pension Plan (comprising the RMPP and DBCB
Sections). There are currently seven Trustee Directors that sit on the Trustee Board. There are two vacancies for employer-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 Board on its responsibilities and ensure that decisions are fully implemented.

The Trustee Board is responsible for:

Monitoring the covenant of
the participating employers

Investing contributions

To help protect benefits, the Trustee Board monitors the financial strength of the participating employers.

The Trustee Board 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.

Keeping members informed

The Trustee Board sends active members an annual benefit illustration together with a summary
of the RMPP’s annual report and accounts.

Acting in the best interests
of all RMPP beneficiaries

The Trustee Board must pay all benefits as they fall due under the Trust Deed and Rules.

An agreement has been made with the Pension Trustee to ringfence certain employer contributions in an escrow arrangement. 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. See Note 24 to the Financial Statements for further details.

Royal Mail Senior Executives Pension Plan (RMSEPP)
This scheme for executives closed in December 2012 to future accrual, therefore the Group makes no regular future service
contributions.

In September 2018 an insurance policy was purchased in respect of all remaining pensioners and deferred members, following which it
was decided to proceed to buy out and wind up the plan. The wind-up of RMSEPP had previously been expected to complete in 2020-21,
but it was delayed by the need for further clarity over the approach to GMP equalisation. This has now been resolved with most of the
GMP liabilities settled and the Trustee now expects this to complete in the 2022-23 financial 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 is deemed to be the present value of the related obligations. The
total value of the buy-in annuity policies in place is £312 million (28 March 2021: £364 million) and is included as a pension asset and a
pension liability at 27 March 2022.6

An updated Schedule of Contributions was agreed in May 2021, with no further contributions to be paid for the 2021-22 financial year.
Contributions in respect of death-in-service lump sum benefits and administration, and wind-up expenses after that point, should the
scheme remain in operation, will be set at £500,000 per annum from April 2022, and will be paid annually in arrears.

Unfunded pension
A liability of £2 million (2020-21: £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 the Trustee for the purposes of calculating contributions and funding requirements. For the RMPP,
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 difference between the funding and accounting valuations for the DBCBS arises from the different financial assumptions used
for the calculations of each, in particular the discount rates used and the assumptions for discretionary increases to the lump sum
benefits. The discount rate used for funding purposes is higher than that used for accounting purposes. In addition, as described above,
under IAS 19 the Group recognises a constructive obligation for a set increase to benefits, currently CPI plus 2.0%, for accounting
purposes, however for funding purposes the increases are set based on the level of the available assets. This results in the accounting
liabilities for the DBCBS being higher than the funding liabilities.

In accordance with IAS 19.

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Financial Statements

Additional Information

11. Retirement benefit plans (continued)
The updated triennial valuation for RMPP and the first triennial valuation for the DBCBS at 31 March 2021 have recently been approved.
Since the RMSEPP scheme is expected to be wound up imminently, the Trustee does not intend to carry out a full triennial valuation at
31 March 2021. The estimated funding positions for the RMPP and DBCBS are shown below.

RMPP

DBCBS

Date of valuation

31 March 2021 (agreed on 17 May 2022)

Valuation

The triennial valuation has been agreed with the
Trustee and the approach has changed to a self-
sufficiency basis. The surplus calculated for the
purposes of the March 2021 triennial valuation was
£661 million. Based on a set of assumptions which
form the basis for the March 2021 valuation and then
rolled forward, the actuarial surplus at 31 March 2022
was estimated to be around £500 million.

The first full valuation has been performed as at 31 March
2021 and was agreed on 17 May 2022

A draft funding position at 31 March 2022 has 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 £40 million at 31 March 2022.

Below is a summary of the combined plans’ assets and liabilities on an accounting (IAS 19) basis.

Fair value of plans’ assets (11(b) below)

Present value of plans’ liabilities

(Deficit)/surplus in plans (pre-withholding tax payable)7

Withholding tax payable 7

(Deficit)/surplus in plans

DBCBS

RMPP and RMSEPP

At
27 March
2022
£m

1,536

(1,926)

(390)

n/a

(390)

At
28 March
2021
£m

1,192

(1,586)

(394)

n/a

(394)

At
27 March
2022
£m

11,462

(7,272)

4,190

(1,467)

2,723

At
28 March
2021
£m

11,814

(8,139)

3,675

(1,286)

2,389

Any reference to a withholding tax adjustment relates to withholding tax payable on distribution of a pension surplus.

Having taken legal advice with regard to the rights of the Group under the Trust deeds and rules, the Directors believe there is an
obligation to recognise a pension surplus for the RMPP on an accounting basis. The Directors do not believe that the surplus in the
RMPP on an accounting basis is a useful measure of the scheme’s funding position, however, the Directors are required to account for
the plans based on the Group’s legal right to benefit from a surplus. 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 at some point in the future, using current
long-term accounting assumptions at the reporting date. This is a technical adjustment made on an accounting basis and there is no
cash benefit from the surplus.

This surplus is presented on the balance sheet net of a withholding tax adjustment of £1,464 million (at 28 March 2021: £1,283 million)
in respect of the RMPP, which represents the tax that would be withheld on the surplus amount. 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.

Included in the IAS 19 figures in the table above is a RMSEPP surplus at 27 March 2022 of £8 million (at 28 March 2021: £9 million
surplus) (pre-withholding tax payable). As the RMSEPP is also closed to future accrual, the surplus is considered to be available
as a refund as per IFRIC 14 at some point in the future and, as such, is shown on the balance sheet net of a withholding tax adjustment
of £3 million (at 28 March 2021: £3 million), which represents the tax that would be withheld on the surplus amount.

Under the terms of the DBCBS, any surplus would be awarded to members and therefore if this section was found to be in surplus the
defined benefit liabilities would increase to equal the asset value under IAS 19.

Royal Mail plc
Annual Report and Financial Statements 2021-22

189

Financial Statements

Notes to the Consolidated Financial Statements continued

11. Retirement benefit plans (continued)
Guaranteed Minimum Pensions
Pension schemes are now under an obligation to address the issue of unequal Guaranteed Minimum Pensions (GMP’s). 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 RMPP’s accrued GMP liabilities for members. The requirement to remove the inequality in former RMPP benefits deriving from
GMP’s for those members therefore rests with HM Government. Following the decision by the High Court in Lloyds Banking Group
Pensions Trustees Limited versus Lloyds Bank plc (2020), however, which determined that schemes are also obliged to equalise
GMP’s by topping up payments for any past members who have transferred out of a scheme since May 1990, the Trustee has sought
legal advice as to whether this decision also applies in the case when liabilities transferred to another scheme before April 2012.
The Trustee now considers that the Lloyds judgment is likely to give rise to a residual liability for statutory transfers out which
included GMP benefits between May 1990 and March 2012 and expects that this will require top up payments to be made for affected
former members. The Trustee is currently reviewing historic data to calculate the exact expected impact, which will take some time
to complete, but the Group’s Corporate Actuary has provisionally estimated the cost to be c.£6 million, based on historic values of
transfers out of the scheme. This has been charged to the income statement in the year as a past service cost. This cost will be
funded from the RMPP assets and no additional employer contributions are expected to be required.

The RMSEPP retained all historic GMP liabilities. All unequal GMP liabilities relating to deferred and pensioner members have been settled
in the year. The scheme’s actuaries are now carrying out an exercise to calculate equalisation amounts in relation to members who have
previously transferred out of the plan. This is expected to be completed shortly and the cost of these is expected to be minimal.

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) – RMPP/RMSEPP
Retail Price Index (RPI) – DBCBS
Consumer Price Index (CPI) – RMPP/RMSEPP
Consumer Price Index (CPI) – DBCBS
Discount rate – RMPP/RMSEPP8
– nominal
– real (nominal less RPI)
Discount rate – DBCBS9
– nominal
– real (nominal less RPI)
Rate of increase in pensionable salaries10
Rate of increase for deferred pensions – RMPP
Rate of pension increases – RMPP Sections A/B
Rate of pension increases – RMPP Section C10
Rate of pension increases – RMSEPP members transferred from Section A or B of RMPP
Rate of pension increases – RMSEPP all other members10
Rate of pension increases – DBCBS benefits
Life expectancy from age 60 – for a current 40/60 year old male RMPP member

At 27 March
2022

At 28 March
2021

3.5%
3.8%
3.2%
3.4%

2.8%
(0.7%)

3.2%
3.3%
2.9%
2.8%

2.0%
(1.2%)

2.8%
(1.0%)
RPI – 0.1%
CPI
CPI
RPI – 0.1%
CPI
RPI – 0.1%
CPI + 2.0%
27/25 years

1.9%
(1.4%)
RPI – 0.1%
CPI
CPI
RPI – 0.1%
CPI
RPI – 0.1%
CPI + 2.0%
28/26 years

Life expectancy from age 60 – for a current 40/60 year old female RMPP member

29/27 years

30/28 years

8
9

The discount rate reflects the average duration of the RMPP benefits of around 24 years (2020-21: 25 years).
The discount rate reflects the average duration of the DBCBS benefits of 14.7 years (2020-21: 14.5 years). The pension service cost applicable from 29 March 2021 is based
on 28 March 2021 assumptions.
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 5.0%, which results in the average long-term pension increase assumption being 10 basis points lower than the RPI long-term assumption.

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Strategic Report

Corporate Governance

Financial Statements

Additional Information

11. Retirement benefit plans (continued)
Mortality
As part of the actuarial valuation as at 31 March 2021, the Scheme Actuary has carried out an updated mortality experience analysis
in respect of the legacy RMPP. As a result of that analysis, the RMPP assumptions are based on the latest Self-Administered Pension
Scheme (SAPS) S3 mortality tables with appropriate scaling factors (96% for male pensioners and 113% for female pensioners).
Future improvements for accounting purposes now use the parameters identified from that analysis but have been based on the most
up-to-date CMI 2021 core projections (smoothing factor 7.5 with a long-term trend of 1.5% per annum). The impact of these changes is
to reduce the balance sheet liabilities of the RMPP by c.£220 million and those of RMSEPP by c.£9 million. No adjustments have been
made to mortality assumptions at year end to reflect the potential effects of COVID-19, as it is still considered too soon to make a
judgement on the impact of the pandemic on future mortality improvements.

Cash commutation allowance
In previous periods a 15% allowance had been made for active members of Section C of RMPP commuting their pension upon retirement.
Recent commutation experience and expectations for the future, taking into account that most members will now have the benefit of a
cash lump sum upon retirement under the DBCBS, suggest that commutations are likely to be far smaller in the future. As a result, for
the 2021-22 year end this allowance has been reduced to nil. This has had the effect of increasing the RMPP’s liabilities by c.£135 million
at 27 March 2022.

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% per annum
Decrease in discount rate of 0.1% per annum
Increase in CPI assumption (assuming RPI
remains constant) of 0.1% per annum

Increase in constructive obligation of 0.1% per annum

At 27 March 2022

At 28 March 2021

Potential
increase in
DBCBS liabilities
£m

Potential
increase in
RMPP liabilities
£m

Potential
increase in
DBCBS liabilities
£m

Potential
increase in
RMPP liabilities
£m

–

30
30

280

170
170

–

25
25

320

190
190

–

Royal Mail plc
Annual Report and Financial Statements 2021-22

191

Financial Statements

Notes to the Consolidated Financial Statements continued

11. Retirement benefit plans (continued)
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% change in assumption. For the RPI/CPI gap, the
approach is the same for DBCBS, but for legacy RMPP, the liabilities as at 27 March 2022 are considered to derive an accurate impact
in percentage terms. This percentage is then applied to the liabilities at March 2022. 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.

b) RMPP, RMSEPP and DBCBS assets

Equities
UK
Overseas

Bonds
Fixed interest – UK

– Overseas

Pooled investments
Absolute return
Equity
Private equity
Fixed interest
Private debt
Property
Liability-driven investments11
Property (UK)
Cash and cash equivalents
Other
Derivatives

RMSEPP buy-in annuity policies

Total plans’ assets

1
23

416
496

–
347
–
21
–
–
8,277
–
403
–
–

–

9,984

At 27 March 2022

Quoted
£m

Unquoted
£m

Total
£m

20
55

512
800

477
347
62
596
451
63
8,319
626
403
(52)
7

312

At 28 March 2021

Quoted
£m

Unquoted
£m

2
43

303
231

–
121
–
347
–
–
9,247
–
444
(3)
(1)

–

21
31

20
113

412
–
208
146
463
54
(16)
459
–
–
(3)

364

Total
£m

23
74

323
344

412
121
208
493
463
54
9,231
459
444
(3)
(4)

364

19
32

96
304

477
–
62
575
451
63
42
626
–
(52)
7

312

3,014

12,998

10,734

2,272

13,006

This portfolio comprises gilt and swap contracts that are designed to hedge the majority of the interest rate and inflation risk associated with the plans’ obligations.
At 27 March 2022 it included £8,401 million (28 March 2021: £9,068 million) of index-linked gilts, £691 million (28 March 2021: £454 million) of bonds, £145 million (28 March
2021: £157 million) in short-term money market funds and £26 million of swaps (28 March 2021: £(18) million), offset by negative fair value investments of £900 million
(28 March 2021: £457 million) in repurchase agreements and £44 million (28 March 2021: £27 million asset) in cash and similar instruments.

Included within the Group’s defined benefit pension scheme assets are assets with a fair value estimated to be £274 million that are
based on non-observable inputs at 27 March 2022. Estimates of the fair value of these assets have been performed using the latest
available statements of each of the funds that make up this balance updated for any subsequent cash movements between the
statement date and the year end reporting date.

There were no open equity futures or options derivatives within this portfolio at 27 March 2022 (28 March 2021: £nil). £8.4 billion
(28 March 2021: £9.1 billion) of HM Government bonds are primarily included in the liability-driven investments balance above. The plans’
assets do not include property or other assets used by the Group or shares of Royal Mail plc at 27 March 2022 (28 March 2021: £nil).

In light of the current war in Ukraine, the Trustee of the Royal Mail Pension Plan has carefully reviewed its exposure to Russian-
domiciled investments. The Plan has no current exposure to direct investments in Russia and as such is compliant with all economic
sanctions currently in force. The Trustee is also actively working with fund managers and advisers to ensure that the appropriate
restrictions are put in place to prevent any future exposure.

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Financial Statements

Additional Information

11. Retirement benefit plans (continued)
Risk exposure and investment strategy
The Group’s defined benefit schemes face similar risks to other UK defined benefit schemes. Some of the key financial risks and
mitigating actions are set out in the table below.

Investment
market
movements

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.

In addition to property and cash, the RMSEPP holds two buy-in annuity policies totalling £312 million at 27 March 2022
(28 March 2021: £364 million) to match its liabilities.

Interest rates and
inflation changes

The legacy RMPP section’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. It has done this predominantly through investment in index-linked gilts and derivatives.

The nature of the risks and their mitigation are similar for the DBCBS, although the level of hedging is less than the RMPP.

In the RMPP section, many of the inflation linked increases that apply are restricted to a maximum increase of 5%
in any year. The scheme’s rules therefore give some protection from the risk of significantly high levels of inflation.

Equity exposure

The equity exposure of the legacy RMPP section 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.

The TRS has a market value as at 27 March 2022 of £nil (28 March 2021: negative £2 million) included in the
derivative values above. The TRS economically offsets £100 million of the plan’s global equity market exposure
at 27 March 2022 (28 March 2021: £60 million).

Changes in life
expectancy

The RMPP’s liabilities could be 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.

Changes in
corporate and
Government
bond yields

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 legacy RMPP’s assets include corporate bonds, HM Government bonds and interest rate derivatives that are
expected to partly offset the impact of movements in the discount rate. The RMPP section is hedged against gilt
movements to limit the impact on funding (and therefore cash) but, to the extent that gilts move differently to
corporate bonds, the accounting liability is more exposed.

Further details on ‘key sources of estimation uncertainty’ relating to pension assets can be found in Note 1, including details of how the
assets have been valued.

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193

Financial Statements

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, the fair value of the plans’ assets and the net defined benefit surplus are
analysed as follows:

Retirement benefit surplus
(before withholding tax payable)
at 29 March 2021 and 30 March 2020
Amounts included in the income statement:
Ongoing UK defined benefit pension
plan and administration costs
(included in people costs)

Pension interest income/(cost)12

Total included in profit before tax

Amounts included in other comprehensive
income – remeasurement (losses)/gains
Actuarial (loss)/gain arising from:
Financial assumptions
Demographic assumptions
Experience assumptions

Return on plans’ assets
(excluding interest income)

Total remeasurement (losses)/gains
of the defined benefit surplus

Other
Employer contributions

Benefits paid

Total other movements

Retirement benefit surplus
(before withholding tax payable)
at 27 March 2022 and 28 March 2021

Withholding tax payable

Retirement benefit surplus
(net of withholding tax payable)
at 27 March 2022 and 28 March 2021

Defined benefit asset

Defined benefit liability

Net defined benefit surplus

2022
£m

2021
£m

2022
£m

2021
£m

2022
£m

2021
£m

11,814

11,989

(8,139)

(6,429)

3,675

5,560

(9)

235

226

–
–
–

(492)

–

(86)

(9)

262

253

–
–
–

(347)

–

(81)

(6)

(162)

(168)

905
94
(50)

–

(140)

(1,748)
–
97

(15)

905
94
(50)

(9)

122

113

(1,748)
–
97

–

(492)

(347)

949

(1,651)

457

(1,998)

–

11,462

n/a

11,814

n/a

(7,272)

n/a

(8,139)

n/a

4,190

(1,467)

3,675

(1,286)

n/a

2,723

2,389

Pension interest income results from applying the plans’ discount rate at 28 March 2021 to the plans’ assets at that date. Similarly, the pension interest cost results from
applying the plans’ discount rate as at 28 March 2021 to the plans’ liabilities at that date.

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Financial Statements

Additional Information

11. Retirement benefit plans (continued)
d) Movement in DBCBS assets, liabilities and net position
Changes in the value of the defined benefit pension liabilities, the fair value of the plans’ assets and the net defined benefit deficit during
the reporting year are analysed as follows:

Defined benefit asset

Defined benefit liability

Net defined benefit deficit

Retirement benefit deficit at
29 March 2021 and 30 March 2020
Amounts included in the
income statement
Ongoing UK defined benefit pension
plan and administration costs
(included in people costs)

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
Experience assumptions

Return on plan assets

Total remeasurement gains/(losses)
of the defined benefit deficit

Other
Employer contributions14
Employee contributions

Benefits paid

Total other movements

Retirement benefit deficit at
27 March 2022 and 28 March 2021

2022
£m

1,192

(5)

–
–

361
3

(55)

309

2021
£m

730

(5)

–
–

103

384
4

(44)

344

2022
£m

2021
£m

2022
£m

2021
£m

(1,586)

(907)

(394)

(177)

(515)

(35)

(550)

107
51

–

158

–
(3)

(455)

(25)

(480)

(271)
32

–

(239)

–
(4)

(520)

(9)

(529)

107
51

172

361
–

–

361

(460)

(5)

(465)

(271)
32

103

(136)

384
–

–

384

1,536

1,192

(1,926)

(1,586)

(390)

(394)

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195

Financial Statements

Notes to the Consolidated Financial Statements continued

12. Acquisition of businesses
On 1 December 2021, GLS, acquired 100% of the share capital of Mid-Nite Sun Transportation Ltd (operates as ‘Rosenau Transport’).

GLS also acquired the assets and liabilities of Servi Henares S.L (acquired on 1 October 2021) and Ascoli & Fermo (acquired on
1 October 2021) which are included in the ‘Other’ column in the table below.

This information includes the fair value of the identifiable assets and liabilities recognised as at the date of the acquisitions. Costs related
to the acquisitions recognised as an expense within other operating costs in the income statement amounted to £1 million.

Land and building assets acquired1
Other 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

Deferred tax liabilities1

Net assets acquired
Cash paid during the year

Consideration deferred

Total consideration

Rosenau
Transport
£m

Other
£m

122
32
43
15
4

262
(7)
(28)

(11)

216

204

216

–
–
5
–
–

8
–
–

–

Total
£m

122
32
48
15
4

270
(7)
(28)

(11)

224

207

224

These fair values have been determined on a provisional basis.

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 predominately relate to customer relationships, trademarks and brands. The goodwill of £49 million
arising on these acquisitions is tax deductible.

Revenue generated from these businesses since the date of acquisition is £45 million and profit is £4 million. If these combinations had
taken place at the beginning of the financial year, revenue generated would have been £126 million and the profit would have been
£9 million.

Of the deferred consideration of £17 million, £14 million is contingent on the performance of the acquired businesses.

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Financial Statements

Additional Information

13. Property, plant and equipment

Cost
At 29 March 2021
Exchange rate movements
Reclassification
Modifications
Additions
Disposals
Acquisition of subsidiary

Reclassification to non-current assets held for sale

At 27 March 2022

Depreciation and impairment
At 29 March 2021
Exchange rate movements
Reclassification
Modifications
Charge for the year
Disposals

Reclassification to non-current assets held for sale

At 27 March 2022

Net book value:

At 27 March 2022

At 28 March 2021

Land and
buildings
£m

Plant and
machinery
£m

Motor vehicles
£m

Fixtures and
equipment
£m

4,242
(15)
–
41
427
(160)
122

(27)

4,630

2,222
(6)
–
(1)
228
(160)

(1)

2,282

2,348

2,020

1,278
(10)
(1)
–
203
(7)
4

–

1,467

907
(5)
–
–
73
(7)

–

968

499

371

991
2
1
–
125
(34)
27

–

1,112

465
1
1
–
101
(31)

–

537

575

526

423
(3)
2
–
99
(27)
1

–

495

333
(2)
2
–
39
(26)

–

346

149

Total
£m

6,934
(26)
2
41
854
(228)
154

(27)

7,704

3,927
(12)
3
(1)
441
(224)

(1)

4,133

3,571

3,007

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197

Financial Statements

Notes to the Consolidated Financial Statements continued

13. Property, plant and equipment (continued)

Cost
At 30 March 2020
Exchange rate movements
Reclassification
Modifications
Additions
Disposals

Reclassification to non-current assets held for sale

At 28 March 2021

Depreciation and impairment
At 30 March 2020
Exchange rate movements
Modifications
Charge for the year
Disposals

Reclassification to non-current assets held for sale

At 28 March 2021

Land and
buildings
£m

Plant and
machinery
£m

Motor vehicles
£m

Fixtures and
equipment
£m

4,188
(40)
(1)
52
202
(149)

(10)

4,242

2,034
(13)
5
218
(22)

–

2,222

1,257
(16)
3
1
103
(66)

(4)

1,278

897
(8)
–
85
(65)

(2)

907

921
(7)
2
19
99
(43)

–

991

412
(3)
–
95
(39)

–

465

439
(8)
(3)
–
33
(38)

–

423

342
(6)
–
34
(37)

–

333

Total
£m

6,805
(71)
1
72
437
(296)

(14)

6,934

3,685
(30)
5
432
(163)

(2)

3,927

Depreciation rates are disclosed within Note 1. No depreciation is provided on land, which represents £279 million
(2020-21: £239 million) of the total cost of property assets.

The net book value of the Group’s property, plant and equipment includes £292 million (2020-21: £115 million) in respect of assets in the
course of construction. The net book value of the Group’s land and buildings includes £290 million (2020-21: £316 million) in respect of
building fit-out.

The £854 million (2020-21: £437 million) additions include £2 million (2020-21: £4 million) borrowing costs capitalised at a rate of 2.65%
(2020-21: 2.5%) in relation to specific qualifying assets.

14. Leases
The Group primarily leases office buildings and letter and parcel processing facilities. At 27 March 2022, the Group held approximately
1,150 land and building leases (2020-21: 1,039). The Group also has leases for some of its vehicle fleet and plant and equipment used in
operations. 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:

At 27 March
2022

At 28 March
2021

Present value of
lease payments
£m

(213)

(631)

(497)

(197)

(560)

(399)

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

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Financial Statements

Additional Information

14. Leases (continued)
The right of use assets resulting from lease agreements are detailed below:

Right of use assets

At 27 March 2022
Cost
of which additions
Accumulated depreciation
Deprecation charge

Total

Right of use assets

At 28 March 2021
Cost
of which additions
Accumulated depreciation

Deprecation charge

Total

Land and
buildings
£m

Plant and
machinery
£m

Motor vehicles
£m

Fixtures and
equipment
£m

1,489
268
(368)

(146)

1,121

159
10
(122)

(15)

519
31
(315)

(52)

204

7
2
(4)

(1)

Land and
buildings
£m

Plant and
machinery
£m

Motor vehicles
£m

Fixtures and
equipment
£m

1,193
73
(258)

(136)

935

188
3
(137)

(22)

519
31
(296)

(52)

223

5
1
(3)

(2)

Total
£m

2,174
311
(809)

(214)

1,365

Total
£m

1,905
108
(694)

(212)

1,211

Leases in the income statement
Leases are recognised in the income statement as detailed below:

Other operating income
Sublease income
Material expenses
Expenses from short-term/low-value leases
Depreciation
Depreciation of right of use assets
Net finance costs
Interest expense on lease liabilities

52 weeks
2022
£m

52 weeks
2021
£m

(50)

(214)

(29)

(42)

(212)

(26)

The Group enters into sale and leaseback transactions for plant and machinery and vehicles. Cash received from these transactions in
the year was £nil (2020-21: £1 million).

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199

Financial Statements

Notes to the Consolidated Financial Statements continued

15. Goodwill

Cost
At 29 March 2021 and 30 March 2020
Exchange rate movements
Disposal of business

Acquisition of business

At 27 March 2022 and 28 March 2021

Impairment
At 28 March 2021 and 29 March 2020
Exchange rate movements

Disposal of business

At 27 March 2022 and 28 March 2021

Net book value:

At 27 March 2022 and 28 March 2021

At 28 March 2021 and 29 March 2020

2022
£m

809
(8)
–

850

431
(9)

–

422

428

378

2021
£m

848
(35)
(4)

–

809

458
(23)

(4)

431

378

390

GLS Europe
The carrying value of goodwill of £428 million (2020-21: £378 million) at the balance sheet date includes £254 million (2020-21: £258 million)
in relation to GLS’ European network (GLS Europe CGU). The carrying value of the GLS European network is £791 million (2020-21: £696 million).
The CGU has been assessed for impairment by comparing the carrying value of the CGU with 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% (2020-21: 0.4%). All cash flows of the CGU have been discounted to present value at
the CGU’s post-tax discount rate of 9.0% (2020-21: 9.0%) which reflects current market assessments of the time value of money and
the risks specific to the asset or CGU. The pre-tax discount rate is 12.1% (2020-21: 12.1%). The recoverable amount was deemed to be
significantly in excess of the carrying value of the CGU.

GLS US excluding US Freight
The GLS US businesses represent two separate CGUs, comprising the US West Coast operations (General Logistics Systems US Inc.
(GLS US) – previously known as GSO and Postal Express Inc. (PEX)), and US Freight. In 2018-19, all the goodwill in the GLS US/PEX CGU
was fully impaired, along with other tangible and intangible fixed assets. The GLS US/PEX turnaround plan is progressing, driven by
strong revenue growth.

US Freight
The carrying value of goodwill in relation to US Freight (previously known as Mountain Valley Express) is £1 million (2020-21: £1 million).
An impairment review has been performed comparing the carrying amount of the US Freight CGU of £22 million (2020-21: £19 million),
with 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% (2020-21: 0.7%). All cash flows of the CGU have been
discounted to present value at the CGU’s post-tax discount rate of 13.0% (2020-21: 13.0%) which reflects current market assessments
of the time value of money and the risks specific to the asset or CGU. The pre-tax discount rate is 18.0% (2020-21: 18.1%). This impairment
assessment identified that the CGU’s recoverable amount exceeds its carrying value by £12 million (2020-21: £12 million). Sensitivity
analysis has been performed on each of the key assumptions, which did not identify any plausible outcomes that would require the
CGU to be impaired.

GLS Dicom Canada
The value of the goodwill in respect of GLS Dicom Canada at 28 March 2021 is £132 million (2020-21: £106 million). The goodwill
balance has increased predominately as a result of £20 million of goodwill reallocated from the GLS Rosenau Transport Canada CGU.
The carrying value of this CGU is £219 million (2020-21: £195 million). To assess the CGU for impairment, the carrying amount has been
compared with 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 1.7% (2020-21: 1.8%). All cash flows have been discounted to present value using
a post-tax discount rate of 9.1% (2020-21: 8.6%). The pre-tax discount rate is 12.4% (2020-21: 11.6%). Based on these assumptions, the
value in use was in excess of the carrying value. Sensitivity analysis has been performed on each of the key assumptions, which did not
identify any plausible outcomes that would require the CGU to be impaired.

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Financial Statements

Additional Information

15. Goodwill (continued)
GLS Rosenau Transport Canada
During the reporting year, GLS acquired Rosenau Transport, which resulted in the recognition of £46 million of goodwill. As a result
of synergies between this CGU and the Dicom CGU £20 million of the goodwill was allocated to Dicom with the balance remaining in
the GLS Rosenau Transport Canada CGU. Further, as a result of foreign exchange movements the goodwill at year end was valued at
£28 million. An impairment review has been performed comparing the carrying amount of the Rosenau Transport CGU, of £205 million,
with 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 1.7%. All cash flows of the CGU have been discounted to present
value at the CGU’s post-tax discount rate of 9.1%, which reflects current market assessments of the time value of money and the risks
specific to the asset or CGU. The pre-tax discount rate is 12.4%. Sensitivity analysis has been performed on each of the key assumptions,
which did not identify any plausible outcomes that would require the CGU to be impaired.

Other Group goodwill
The remaining goodwill of £13 million (2020-21: £13 million) arising from small business acquisitions, each being a separate CGU,
is supportable but not material in the context of the Group’s total goodwill.

16. Intangible assets

Cost
At 29 March 2021
and 30 March 2020
Exchange rate
movements
Additions
Disposals
Reclassification
Acquisition of
business

At 27 March 2022
and 28 March 2021
Amortisation
and impairment
At 29 March 2021
and 30 March 2020
Exchange rate
movements
Charge for the year
Reclassification
Disposals

At 27 March 2022
and 28 March 2021

Net book value:

At 27 March 2022
and 28 March 2021
At 28 March 2021
and 29 March 2020

2022

2021

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

(1)
–
–
–

–

(1)
–
–
–

–

127

1,117

1,294

129

1,087

1,269

5
–
–
–

(2)
83
(10)
(5)

–

1
–
–
–

3
83
(10)
(5)

171

1,183

1,413

1
13
–
–

105

730

(1)
101
(6)
(10)

826

1
1
–
–

–
115
(6)
(10)

814

925

369

387

488

468

(1)
–
–
–

–

(1)
–
–
–

–

(2)
–
–
–

–

(7)
54
(16)
(1)

–

127

1,117

(2)
13
–
–

624

(5)
127
–
(16)

730

387

463

(2)
–
–
–

–

(2)
1
–
–

(12)
54
(16)
(1)

–

1,294

711

(10)
141
–
(16)

826

468

558

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 software assets includes £62 million (2020-21: £43 million) in respect of assets in the course of construction. The £83 million
(2020-21: £54 million) additions include £1 million (2020-21: £1 million) of borrowing costs capitalised at a rate of 2.65% (2020-21: 2.5%)
in relation to specific qualifying assets.

The Group holds individually material intangible assets totalling £111 million (2020-21: £133 million). These assets relate to various
IT initiatives taking place across the business and are tested annually for impairment. They have an average remaining useful life of
five years (2020-21: six years).

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201

Financial Statements

Notes to the Consolidated Financial Statements continued

17. Investments in associates
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 27 March 2022 (2020-21: 28 March 2021), 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
Quadrant Catering Limited

Market Engine Global Pty Limited

Charac Limited

Market research
Catering services
Software
development

UK
UK

31 March
30 September

Australia

30 June

Digital pharmacy
prescription services UK

31 March

%
ownership
2022

%
ownership
2021

20.0
51.0

34.5

33.3

20.0
51.0

34.5

–

On 22 April 2021, the funding model for JICMAIL Limited changed and, as a consequence, Royal Mail has only Board representation
and is no longer a capital contributor to the company.

The majority of board membership and voting power to direct relevant activities in Quadrant Catering Limited (‘Quadrant’) is held by
the other investor company and is therefore not considered to be a subsidiary in line with IFRS 10 ‘Consolidated Financial Statements’.
Quadrant ceased trading with effect from 30 September 2020 and is now in the process of being wound up. As part of this process,
on 18 June 2021 the Group received a final dividend from Quadrant of £5.1 million.

On 25 April 2022, Market Engine Global Pty Limited was officially deregistered by the Australian Securities and Investments
Commission and it has provided a return of capital to the Group which amounted to less than £30,000.

On 11 February 2022, the Group acquired its share of Charac Limited for £1 million.

Movements in interests in associates

Cost
At 29 March 2021 and 30 March 2020

Acquisition

Dividend received

At 27 March 2022 and 28 March 2021

2022
£m

2021
£m

(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.

18. Share-based payments
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.

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 27 March 2022, there had been 42 (2020-21: 30) such monthly awards and a total of 1,309,873 (2020-21: 959,671) Matching Shares had
been awarded to eligible staff members at a weighted average market price of 314.4 pence (2020-21: 252.8 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 £2 million (including a £1 million National Insurance charge) has been made for the year ended
27 March 2022 (2020-21: £2 million charge including a net £1 million National Insurance credit) for all SIP allocations.

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18. Share-based payments
A reconciliation of the ordinary shares held in the SIP at 27 March 2022 and 28 March 2021 is shown below.

Total shares remaining in SIP at 29 March 2021 and 30 March 2020
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 27 March 2022 and 28 March 2021

Number
of shares
2021-22

Number
of shares
2020-21

53,789,835
(7,906,372)

68,182,273
(10,390,847)

(5,465,559)

(4,001,591)

40,417,904

53,789,835

‘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, 38,596,514 (2020-21: 51,752,858) have been allocated to current employees. The remaining
1,821,390 (2020-21: 2,036,977) shares are unallocated and have arisen as a result of forfeitures.

Award of shares under the Long Term Incentive Plan

Award year

2019
2019
2020

2021

Grant date Shares vest from

08/08/2019
12/12/2019
27/11/2020

08/08/2022
12/12/2022
27/11/2023

12/08/2021

12/08/2024

Fair value/share (pence)
Monte-Carlo simulation

Market-based
conditions

Non-market-
based conditions

Maximum
number of
potential shares
to vest

84.0
100.0
272.3

305.6

210.9
232.2
309.3

500.7

1,212,590
–
623,510

666,566

A charge to the income statement of £2 million (including £nil for National Insurance) has been made for the year ended 28 March 2022
in relation to all LTIP schemes (2020-21: £2 million, including £1 million for National Insurance).

The one employee accruing awards under the December LTIP 2019 scheme, forfeited their shares during the year.

Award of shares under the Deferred Share Bonus Plan

Award year

2019
2020
2020

2021

Grant date Shares vest from

18/07/2019
24/07/2020
24/07/2020

18/07/2022
24/07/2022
24/07/2023

01/12/2021

01/12/2023

Fair value/share
(pence)

Maximum
number of
potential shares
to vest

218.7
180.0
180.0

502.4

86,875
486,471
486,471

42,596

A charge to the income statement of £2 million (including £1 million for National Insurance) has been recognised for the year ended
27 March 2022 in relation to all DSBP schemes (2020-21: £3 million, including £nil for National Insurance).

19. Non-current assets 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
27 March
2022
£m

–

At
28 March
2021
£m

Property assets held for sale
During the year, £26 million costs relating to the Nine Elms site were classified as ‘held for sale’. Subsequently, all costs relating to the
Nine Elms site were transferred to the income statement, within ‘profit on disposal of property, plant and equipment’, leaving a £nil
balance at 27 March 2022 (2020-21: £26 million).

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203

Financial Statements

Notes to the Consolidated Financial Statements continued

20. Trade and other receivables

Current trade and other receivables

Trade receivables
Accrued income

Prepayments

Total

Movements in the loss allowance for bad and doubtful debts are shown below.

At 29 March 2021 and 30 March 2020
Receivables provided for during the year
Release of allowance
Utilisation of allowance
Reclassification

Exchange differences

At 27 March 2022 and 28 March 2021

At
27 March
2022
£m

1,507
46

106

1,659

2022
£m

(79)
(12)
34
9
(2)

(1)

(51)

The Group’s approach to loss allowance for bad and doubtful debts is explained in the accounting policies in Note 1.

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

Non-current other receivables

Other receivables

Total

At
27 March
2022
£m

1,350
112
18

1,507

At
27 March
2022
£m

At
28 March
2021
£m

1,513
43

1,640

2021
£m

(69)
(42)
18
13
–

(79)

At
28 March
2021
£m

1,310
161
22

1,513

At
28 March
2021
£m

100

Other receivables mainly relates to deferred proceeds in respect of the disposal of part of the Mount Pleasant site to Taylor Wimpey UK Ltd.

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21. Cash and cash equivalents

Cash at bank and in hand
Client cash

Cash equivalent investments: Short-term bank and money market fund investments

Total

At
27 March
2022
£m

276
36

825

1,137

At
28 March
2021
£m

265
41

1,267

1,573

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 and allocated to a separate payables account in the balance sheet so it can be tracked and reconciled.

22. Current trade and other payables

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
27 March
2022
£m

(1,870)
(254)
(121)
(36)
(41)

(10)

(2,332)

At
28 March
2021
£m

(1,829)
(299)
(142)
(57)
(40)

(10)

(2,377)

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 38 days (2020-21: 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 adhere to 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.

The balance owed on the facility at 27 March 2022 was £66 million (28 March 2021: £36 million).

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Financial Statements

Notes to the Consolidated Financial Statements continued

23. Loans and borrowings

At 27 March 2022

Loans and
borrowings
£m

Further
committed
facility
£m

Average interest
rate of loan
drawn down
%

Total facility
£m

Bank syndicate loan facility
€500 million bond – 2.375%
Senior Fixed Rate Notes

€550 million bond – 1.25%
Senior Fixed Rate Notes

Total

–

416

456

872

925

–

925

416

456

1,797

n/a

2.5

2.7

2.6

Basis of interest
rate chargeable

SONIA+CAS
+0.475%1
Fixed at
2.5%

Fixed at
2.7%

Average
maturity date of
loan drawn
down
Year

Average
maturity date of
loan facility
Year

n/a

2024

2026

2025

2026

2024

2026

Loans and
borrowings
£m

Further
committed
facility
£m

Total facility
£m

Bank syndicate loan facility
€500 million bond – 2.375%
Senior Fixed Rate Notes

€550 million bond – 1.25%
Senior Fixed Rate Notes

Total

–

427

468

895

925

–

925

427

468

1,820

At 28 March 2021

Average interest
rate of loan
drawn down
%

n/a

Basis of interest
rate chargeable

LIBOR plus
0.475%

2.5 Fixed at 2.5%

Fixed at
2.7%

2.7

2.6

Average maturity
date of loan
drawn down
Year

Average maturity
date of loan
facility
Year

n/a

2024

2026

2025

2024

2026

2025

The total margin over Sterling OverNight Indexed Average (SONIA) consists of a 0.40% margin, a credit adjustment spread (CAS) and a utilisation fee of 0.075% (for
drawings less than one third of the total facility). Interest is compounded daily and a CAS of between 0.0% and 0.3% is added using the International Swaps and Derivatives
Association (ISDA) published five-year historical mean on fixing date (5 March 2021).

The €500 million bond, issued in July 2014, is shown net of issue discount and fees and at a closing spot rate of £1/€1.201 (2020-21: £1/€1.170).
The effective interest rate on the bond of 2.5% (2020-21: 2.5%) consists of the interest coupon of 2.375% (2020-21: 2.375%) plus the unwinding
of the discount and fees on issuing the bond of 0.08% (2020-21: 0.08%). 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 gain of £11 million (2020-21: £19 million gain) on the retranslation of this borrowing
was transferred to other comprehensive income, which offsets the losses 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% 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% (2020-21: 2.7%). The €550 million bond is shown net of issue discount and fees and at a closing spot rate of
£1/€1.201 (2020-21: £1/€1.170). The effective interest rate on the bond plus the cross-currency swap (2.7%) consists of the interest
coupon of 1.25% plus the effects of the cross-currency swap (1.00%) and the unwinding of the discount and fees on issuing the bond
(0.40%). The revaluation of the bond is hedged by the cross-currency swap. During the year, a gain of £12 million (2020-21: £21 million
gain) on the retranslation of this borrowing was transferred to other comprehensive income, which is offset by the losses on the
cross-currency swap. There was no hedge ineffectiveness in the current or comparative reporting years.

In October 2021, the bank syndicate loan facility was extended by one year to September 2026. There are no further extension options
in the agreement. In August 2021, the interest reference rate was amended from LIBOR to SONIA (for any drawings in US Dollars).
Interest is compounded daily and a CAS of between 0.0% and 0.3% is added using the ISDA¹ published five-year historical mean on
fixing date (5 March 2021). The bank syndicate 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.

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Additional Information

23. Loans and borrowings (continued)
Such events of default include non-payment, insolvency and breach of covenants. On 22 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. From March 2022, the facility reverted to the previous covenants. It is not
anticipated that the Group is at risk of breaching any of these amended obligations.

The financial covenants, which apply again from March 2022 onwards, require the Group to maintain the (leverage) ratio of adjusted
net debt to EBITDA below 3.5:1 and EBITDA to interest 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
Royal Mail insurance programme, where the possibility of an outflow of economic benefits is considered remote), plus bank guarantees
provided to HMRC (in order to facilitate the movement of parcels from Europe efficiently through to our network, 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 27 March 2022 is -0.2:1 (2020-21: -0.4:1). The Group’s ratio of EBITDA to interest at 27 March
2022 is 46.3:1 (2020-21: 84.6:1). The minimum liquidity covenant, which fell away in March 2022, required the Group to maintain at least
£250 million of liquidity defined as cash, cash equivalents, current asset investments and undrawn, committed facilities. The Group’s
liquidity at 27 March 2022 is £2,153 million (2020-21: £2,519 million). Accordingly, the Group comfortably meets the covenants tests
within its bank syndicate loan facility agreement.

The interest rate chargeable on the bank syndicate 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 compounding
SONIA plus 2.35%. 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
£925 million maturing in September 2026 (2020-21: £925 million maturing in September 2025).

There is no security in place under the bank syndicate loan facility or the bonds.

The bank syndicate 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.

Royal Mail plc
Annual Report and Financial Statements 2021-22

207

Financial Statements

Notes to the Consolidated Financial Statements continued

24. Financial assets and liabilities and risk management
The following disclosures are included in this Note:

a) Classification, carrying amount and fair value 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.

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:

Financial assets
Cash

Cash equivalent investments

Money market funds

Short-term deposits – bank

Cash and cash equivalents
Current asset investments –
short-term deposits – bank
Pension escrow investments

Trade and other receivables1
Derivative assets (current)

Derivative assets (non-current)

Total financial assets

At
27 March
2022
Carrying amount
£m

At
27 March
2022
Fair value
£m

At
28 March
2021
Carrying amount
£m

At
28 March
2021
Fair value
£m

Level

Classification

1
1

2
2

FVTPL

Amortised
cost

Amortised
cost
FVTPL
Amortised
cost
FVTPL

FVTPL

312

825

725

100

1,137

70
213

1,553
74

3,077

312

825

725

100

1,137

70
213

1,553
74

3,077

306

1,267

1,207

1,573

–
212

1,556
2

3,348

306

1,267

1,207

1,573

–
212

1,556
2

3,348

The comparative year 2020-21 has been re-presented to exclude prepayments of £84 million (see Note 20).

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Corporate Governance

Financial Statements

Additional Information

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:

Financial liabilities

Obligations under leases (current)

€500 million bond

€550 million bond

Obligations under leases (non-current)

Trade and other payables2
Derivative liabilities (current)

Derivative liabilities (non-current)

Total financial liabilities

Net total financial liabilities

Level

Classification

Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
Amortised
cost
FVTPL

FVTPL

2
2

At
27 March
2022
Carrying
Amount
£m

At
27 March
2022
Fair
Value
£m

At
28 March
2021
Carrying
Amount
£m

At
28 March
2021
Fair
Value
£m

(213)

(416)

(456)

(213)

(429)

(453)

(1,128)

(1,110)

(2,078)
(8)

(36)

(4,335)

(1,258)

(2,078)
(8)

(36)

(4,327)

(1,250)

(197)

(427)

(468)

(959)

(2,078)
(12)

(36)

(4,177)

(829)

(197)

(460)

(495)

(993)

(2,078)
(12)

(36)

(4,271)

(923)

The comparative year 2020-21 has been re-presented to exclude £299 million advance customer payments (deferred revenue) (see Note 22).

Derivatives that do not qualify for hedge accounting are classified as fair value through profit and loss and any gains or losses
arising from changes in fair value are taken directly to the income statement in the year. The ‘Level’ classification in the above
table is explained in the ‘Fair value measurement of financial instruments’ section of Note 1.

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.

Royal Mail plc
Annual Report and Financial Statements 2021-22

209

Financial Statements

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 29 March 2021
Movements through income statement:
Interest payable on financial liabilities
Movements through cash flow:
Finance costs paid3
Payment of capital element of lease contracts
Other movements:
Reclassification between categories
Increase in lease obligations (non-cash)

Effect of foreign currency exchange rates

At 28 March 2022

Interest-bearing
loans and
borrowings
(non-current)
£m

Obligations
under leases
(current)
£m

Obligations
under leases
(non-current)
£m

Total
£m

(895)

(197)

(959)

(2,051)

(19)

19
–

–
–

–

–
192

(208)
–

–

(29)

29
–

208
(380)

(48)

48
192

–
(380)

(872)

(213)

(1,128)

(2,213)

Finance costs paid of £56 million in the Statement of Cash Flows also includes £7 million interest on cross-currency swaps and £1 million other finance costs.

At 30 March 2020
Movements through income statement:
Interest payable on financial liabilities
Movements through cash flow:
Finance costs paid4
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 2021

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

Total
£m

(700)

(3)

3
700
–
–

–
–

–

(935)

(20)

20
–
–
–

–
–

(895)

(201)

(987)

(2,823)

–

–
–
188
–

(184)
–

–

(197)

(26)

26
–
–
(1)

184
(173)

(959)

(49)

49
700
188
(1)

–
(173)

(2,051)

Finance costs paid of £57 million in the Statement of Cash Flows also includes £7 million interest on cross-currency swaps and £1 million other finance costs.

c) Foreign currency risk management
Foreign currency transaction risk
Royal Mail 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% of the forecast exposure, where forecast cash flows are highly probable.

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Corporate Governance

Financial Statements

Additional Information

24. Financial assets and liabilities and risk management (continued)
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
27 March
2022

100%

38%

At
28 March
2021

100%

42%

Included within derivative liabilities as at 27 March 2022, are capex hedges which have been designated as hedged instruments for
84 million Euro (2020-21: 92 million Euro) with a net derivative liability value of £6 million (2020-21: £5million). The movement in the
fair value of these hedge programmes of £2 million loss (2020-21: £5 million loss) has been recognised in other comprehensive income.
There has been no hedge ineffectiveness in these hedge programmes in either year.

Royal Mail’s obligation to settle with overseas postal administrations is denominated in Special Drawing Rights (SDR) – a basket of
currencies which comprise US Dollar, Japanese Yen, Chinese Renminbi, Sterling and Euro. 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.
At 27 March 2022, Royal Mail had €19 million of Euro-denominated lease payables outstanding (2020-21: €38 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 Royal Mail 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 gains on the bond of £11 million (2020-21: £19 million gain) and foreign exchange gains
on the lease payables of £1 million (2020-21: £2 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. Included within
derivative liabilities as at 27 March 2022 is the cross-currency swap which has been designated as a hedged instrument and which had
a net derivative liability value of £38 million (2020-21: £35 million). The movement in the fair value of this hedge instrument of £2 million
gain (2020-21: £4 million loss) has been recognised in other comprehensive income. There has been no hedge ineffectiveness in this
hedge programme in either year.

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 £392 million of leases) are
held within cash or derivatives.

Net total financial liabilities at 27 March 2022

Net total financial assets/(liabilities) at 28 March 2021

Sterling
£m

(94)

345

US$
£m

(24)

(21)

Euro
£m

(1,126)

(1,122)

Other
£m

(14)

(31)

Total
£m

(1,258)

(829)

d) Commodity price risk management
Royal Mail is exposed to fuel price risk arising from operating one of the largest vehicle fleets in Europe – which consumes over
150 million litres of fuel per year – and a jet fuel price risk arising from purchasing 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 to mitigate this risk by entering into a combination of US Dollar and forward currency purchase
or Sterling contracts to manage these exposures as it sees fit.

Royal Mail plc
Annual Report and Financial Statements 2021-22

211

Financial Statements

Notes to the Consolidated Financial Statements continued

24. Financial assets and liabilities and risk management (continued)
In addition, the Group is exposed to the commodity price risk via its requirement to 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.

Included within derivative assets as at 27 March 2022 are diesel and jet contracts and gas contracts which have been designated as
hedge instruments. The diesel and jet hedges are for 324 million litres of fuel (2020-21: 321 million litres) with a net derivative asset
value of £72 million (2020-21: £2 million net liabilities). The gas hedges are for 24 million therms of gas (2020-21: 22 million therms)
with a net derivative asset value of £32 million (2020-21: £1 million). The movement in the fair value of these three hedged programmes
of £119 million gain (2020-21: £16 million gain) has been recognised in other comprehensive income and hedge ineffectiveness of
£4 million gain (2020-21: £nil) has been recognised within other operating costs.

As the GLS business relies generally on the use of subcontractors, who are responsible for purchasing their own fuel, GLS has no
direct exposure to diesel costs. The only other significant commodity exposure within GLS relates to electricity and gas, 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 27 March 2022, there was
no external hedge of interest rate risk (2020-21: none). Interest on financial instruments classified as floating rate is re-priced at intervals
of less than one year. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument.

The analysis below sets out the carrying amount of the Group’s financial instruments that are exposed to interest rate risk.

At 27 March 2022

Average
effective
interest rate
%

Within
one year
£m

One to
two years
£m

Two to
five years
£m

More than
five years
£m

0.6

0.4

2.5
2.7

2.3

0.0

0.3
0.8

0.9

–
–

–

–
–

(213)

(113)

(191)

–

(416)
(456)

(440)

(1,312)

151

725
70

–

946

161
1,553
(2,078)
74

(8)

(298)

2,834

(2,299)

535

–

–
–

–
–
–
27

(5)

(196)

(148)

–

–
–

–

–
–
–
3

(31)

(28)

(1,343)

(1,340)

–

–
–

(497)

–

–
–

192

–
–
–
–

–

192

(497)

(305)

Total
£m

(416)
(456)

(1,341)

(2,113)

151

725
70

213

1,159

161
1,553
(2,078)
104

(44)

(304)

3,077

(4,335)

(1,258)

Fixed rate
Cash equivalent investments – bank deposits
Current asset investment –
short-term deposits – bank
Financial liabilities
€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

Financial assets – pension escrow
investments (non-current)

Total

Non-interest bearing
Cash at bank or in hand
Trade and other receivables
Trade and other payables
Derivative assets

Derivative liabilities

Total

Total financial assets

Total financial liabilities

Net total financial assets/(liabilities)

212

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Corporate Governance

Financial Statements

Additional Information

24. Financial assets and liabilities and risk management (continued)

Average effective
interest rate
%

Within
one year
£m

One to
two years
£m

Two to
five years
£m

More than
five years
£m

At 28 March 2021

Fixed rate
Financial liabilities
€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

Financial assets – pension escrow
investments (non-current)

Total

Non-interest bearing
Cash at bank or in hand
Trade and other receivables1
Trade and other payables2
Derivative assets

Derivative liabilities

Total

Total financial assets

Total financial liabilities

Net total financial assets/(liabilities)

2.5
2.7

2.2

–

0.1

0.2

1.1

–
–

(197)

1,207

–

1,330

243
1,556
(2,078)
2

(12)

(289)

3,131

(2,287)

844

–
–

(180)

–

–
–
–
4

(7)

(3)

(187)

(183)

(427)
–

(380)

(807)

–

–
–
–
1

(11)

(10)

(818)

(796)

–
(468)

(399)

(867)

–

191

–
–
–
–

(18)

191

(885)

(694)

Total
£m

(427)
(468)

(1,156)

(2,051)

1,207

212

1,542

243
1,556
(2,078)
7

(48)

(320)

3,348

(4,177)

(829)

1
2

The comparative year 2020-21 has been re-presented to exclude prepayments of £84 million (see Note 20).
The comparative year 2020-21 has been re-presented to exclude £299 million advance customer payments (deferred revenue) (see Note 22).

Drawings under the bank syndicate loan facility are at fixed rate to maturity (which must be six months or less). At 27 March 2022, there
were no drawings (2021-22: nil). The total interest-bearing financial assets of the Group (excluding the RMPP and RMSEPP pension
escrow investments) of £1,046 million (2020-21: £1,330 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
eight days (2020-21: an average maturity of one day). These short-dated financial instruments are maturity-managed to obtain the best
value out of the interest yield curve.

Obligations under leases are either unsecured or secured on the leased assets. The average interest rate is 2.3% (2020-21: 2.2%).
The average maturity date is more than five years (2020-21: more than five years).

Net debt excludes £192 million (2020-21: £191 million) in respect of the RMPP element of the total £213 million (2020-21: £212 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 £192 million (2020-21: £191 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.

Royal Mail plc
Annual Report and Financial Statements 2021-22

213

Financial Statements

Notes to the Consolidated Financial Statements continued

24. Financial assets and liabilities and risk management (continued)
The RMSEPP pension escrow investment of £21 million (2020-21: £21 million) was established to provide security to the RMSEPP. It is
expected that the investment will be available to Royal Mail within the next two years and it is therefore disclosed as maturing in one to
two years. The escrow investment comprises a money market investment. The RMSEPP escrow agreement specifies that the funds will
be returned to the Group 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. In October 2021, the bank syndicate loan facility was extended by one year to September 2026.
There are no further extension options in the agreement. The unused committed facilities of the Group of £925 million expire in 2026
(2020-21: £925 million expiring in 2025).

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 27 March 2022 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 cash inflow. For derivatives that are settled net, these cash flows represent
the undiscounted forecast cash outflow.

Gross loans and
borrowings
commitments
£m

Gross lease
instalments
£m

Gross trade and
other payables
£m

Gross payments
on derivatives
settled gross
£m

Gross payments
on derivatives
settled net
£m

Sub-total
£m

At 27 March 2022

964

948

–

980
(61)

(47)

872

222

2,078

2,316

1,407

200

477

730

1,629
(288)

–

1,341

–

2,078
–

–

2,078

2,371

216

1,425

730

4,687
(349)

(47)

4,291

133

558

530

–

691
n/a

n/a

–

–
n/a

n/a

Total
£m

2,449

2,929

244

1,955

730

5,378
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

214

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Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

24. Financial assets and liabilities and risk management (continued)

Gross loans and
borrowings
commitments
£m

Gross lease
instalments
£m

Gross trade and
other payables2
£m

Gross payments
on derivatives
settled gross
£m

Gross payments
on derivatives
settled net
£m

Sub-total
£m

At 28 March 2021

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

999

480

503

1,015
(77)

(43)

895

203

2,078

1,204

186

414

604

1,407
(251)

–

1,156

–

2,078
–

–

2,078

2,297

2,203

202

894

1,107

4,500
(328)

(43)

4,129

137

615

504

752
n/a

n/a

–

8
n/a

n/a

Total
£m

2,441

2,819

261

947

1,611

5,260
n/a

n/a

The comparative year 2020-21 has been re-presented to exclude £299 million advance customer payments (deferred revenue) (see Note 22).

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 Royal Mail 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 27 March 2022, 77% (2020-21: 96%) 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.

Other than trade and other receivables, which are disclosed within Note 20, 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 2021-22 profit from interest rate risk or commodity price risk (2020-21: £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 GLS profits; on trading with overseas postal administrations; on
various purchase contracts; and on the interest on the €500 million bond and Royal Mail Euro-denominated leases. The impact of a
10% strengthening of Sterling across all currencies on forecast profits/trade during 2021-22 would be to reduce the Group operating
profit by £24 million (2020-21: £20 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 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 10% strengthening of Sterling against all currencies at 27 March 2022 would have been to reduce the Group net
assets by £55 million (2020-21: £45 million).

Royal Mail plc
Annual Report and Financial Statements 2021-22

215

Financial Statements

Notes to the Consolidated Financial Statements continued

25. Provisions

At 29 March 2021
Released/(charged)
Reclassifications
Utilised

Unwinding of
discount

At 27 March 2022
Disclosed as:
Current

Non-current

At 27 March 2022
Disclosed as:
Current

Non-current

At 28 March 2021

Charged as specific items

Charged in operating costs

Industrial
diseases
£m

Regulatory fine
£m

Other
£m

Voluntary
redundancy
£m

Property
decommissioning
£m

Litigation
claims
£m

(69)
11
–
3

(1)

(56)

(8)

(48)

(56)

(6)

(63)

(69)

(52)
–
–
–

–

(52)

–

(52)

–

(52)

(7)
–
–
1

–

(6)

–

(6)

(1)

(6)

(7)

(14)
(81)
–
25

–

(70)

–

(70)

(14)

–

(14)

(23)
2
–
1

–

(20)

(5)

(15)

(20)

(3)

(20)

(23)

(47)
(34)
(3)
31

–

(53)

(39)

(14)

(53)

(44)

(3)

(47)

Other
£m

(17)
(1)
1
4

–

(13)

(2)

(11)

(13)

(4)

(13)

(17)

Total
£m

(229)
(103)
(2)
65

(1)

(270)

(176)

(94)

(270)

(124)

(105)

(229)

Specific items provisions
The Group has a potential liability for industrial diseases claims relating to individuals who were employed in the General Post Office
Telecommunications division and whose employment ceased prior to October 1981. The provision is derived using estimates and
ranges calculated by its actuarial adviser, 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 for ensuring that only
valid claims are accepted.

The Institute and Faculty of Actuaries (UK Asbestos Working Party), on whose modelling actuaries rely for their calculations for
asbestos-related ill-health claims, published updated models during the 2021 calendar year. This new guidance indicates a significant
reduction in future liabilities for such claims. Management has worked with its actuarial adviser in considering this guidance and, as
a result, released £11 million of the provision balance, recognised as an operating specific item in the income statement (see Note 6).

In January 2020, Royal Mail requested permission to appeal the Competition Appeal Tribunal’s judgment to the Court of Appeal (CoA) in
respect of the Ofcom fine. On 30 March 2020, the CoA granted Royal Mail permission and the hearing took place on 20 and 21 April 2021.
On 7 May 2021, the CoA dismissed the appeal. Royal Mail awaits a decision on its request for permission to appeal the CoA’s judgment
from the Supreme Court.

Operating costs provisions
In January 2022, Royal Mail announced a management restructure affecting over 3,000 managerial level employees, mainly within
its operational function. This is a significant restructure within the operational area and the functions that support it, resulting in
the recognition of a provision for £70 million, representing voluntary redundancy compensation and associated costs for around
700 managers.

Property decommissioning obligations represent an estimate of the costs of removing fixtures and fittings and restoring the leased
property to its original condition.

Provisions for litigation claims, based on best estimates as advised by external legal experts, mainly comprise outstanding liabilities
in relation to road traffic accident and personal injury claims.

216

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Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

25. Provisions (continued)
Below is a summary of the ageing profile of the provisions.

At 27 March 2022

Expected period of settlement

At 28 March 2021

Expected period of settlement

Within one
year
£m

One to two
years
£m

Two to five
years
£m

After five
years
£m

Within one
year
£m

One to two
years
£m

Two to five
years
£m

After five
years
£m

Total
£m

Specific items
Industrial disease
claims
Employee Free Shares
– NI
Legacy property costs

Regulatory fine

Total

Operating costs
Voluntary redundancy
Property
decommissioning
Litigation claims
LTIP – NI
Employee benefits

Other

Total

(8)

(3)

(9)

(36)

(56)

–
–

(52)

(60)

(70)

(5)
(39)
–
(1)

(1)

(116)

–
–

–

(3)

–

(4)
(11)
(1)
(1)

–

(17)

–
–

–

(9)

–

(5)
(3)
–
(1)

(1)

–
(6)

–

(42)

–

(6)
–
–
(6)

(1)

–
(6)

(52)

(114)

(70)

(20)
(53)
(1)
(9)

(3)

(10)

(13)

(156)

(6)

(1)
–

(52)

(59)

(14)

(3)
(44)
–
(2)

(2)

(65)

26. Share capital and reserves

Authorised and issued

956,193,475 (2020-21: 1,000,000,000) ordinary shares of £0.01 each

Total

Total
£m

(69)

(1)
(6)

(52)

(128)

(14)

(23)
(47)
(2)
(10)

(5)

(3)

–
–

–

(3)

–

(6)
(2)
(2)
(2)

(2)

(9)

–
–

–

(9)

–

(8)
(1)
–
(1)

(1)

(51)

–
(6)

–

(57)

–

(6)
–
–
(5)

–

(14)

(11)

(101)

At 27 March
2022
£m

At 28 March
2021
£m

Of the issued ordinary shares, a total of 2,265,008 (2020-21: 572,816) 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.

On 18 November 2021, the Company announced a share buyback programme. As a result, 43,806,525 ordinary shares were purchased
by the Company during the year at an average purchase price of 458.3 pence per share for a total consideration of £200.8 million. All of
the purchased shares were subsequently cancelled.

A capital redemption reserve of £438,065 (43,806,525 ordinary shares of £0.01 each) was recognised during the year.

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 on translation of assets and liabilities of
subsidiaries denominated in currencies other than the reporting currency.

Hedging reserve
The hedging reserve is used to record gains and losses arising from cash flow hedges.

Royal Mail plc
Annual Report and Financial Statements 2021-22

217

Financial Statements

Notes to the Consolidated Financial Statements continued

27. Commitments
Capital commitments
The Group has commitments of £123 million (2020-21: £116 million) for property, plant and equipment, £59 million (2020-21: £nil) for
vehicles and £6 million (2020-21: £1 million) for intangible assets, which are contracted for but not provided for in the Financial Statements.

Lease commitments
The Group has £7 million of lease commitments (2020-21: £16 million) relating to leases that have been signed but not yet commenced
at the year-end date. These commitments have not been provided for in the Financial Statements.

28. Contingent liabilities and contingent assets
Contingent liability
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 details of regulatory fine in Note 25). Whistl’s High Court claim is on hold
until after the completion of any further appeal process. Royal Mail believes Whistl’s claim is without merit and will defend it robustly
if Whistl decides to pursue it.

Contingent asset
Royal Mail is pursuing a follow-on damages claim in the UK Competition Appeal Tribunal against DAF Trucks in relation to the European
Commission’s decision of 19 July 2016 finding that DAF participated in an illegal cartel with other European truck manufacturers. The
trial is taking place in Spring 2022 with the Competition Appeal Tribunal likely to issue their judgement later in the year. If Royal Mail is
successful with this claim, any damages may be awarded but the amount and timing is uncertain.

29. Related party information
Related party transactions
During the reporting year, the Group entered into transactions with related parties as follows:

Sales/recharges to:
RMPP – Defined benefit pension plan (administration and investment service recharge)

Mallzee Ltd

Purchases/recharges from:
Associate undertaking (Quadrant Catering Limited)

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
Termination benefits

Share-based payments

Total

52 weeks
2022
£m

52 weeks
2021
£m

–

52 weeks
2022
£’000

(4,094)
(5)
(346)
–

(1,008)

(5,453)

(4)

52 weeks
2021
£’000

(3,037)
(10)
(267)
(1,233)

(1,339)

(5,886)

Key management are considered to be the Executive and Non-Executive Directors of Royal Mail plc, plus a specific population of
Persons Discharging Managerial Responsibilities. Remuneration relates to the period for which they are key management.

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 27 March 2022
unless otherwise indicated.

218

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Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

29. Related party information (continued)

Company

Principal activities Country of incorporation

General Logistics Systems B.V.1

Parcel services holding company Netherlands

Royal Mail Estates Limited
RMGLS Holdco Limited

Property holdings
Holding company

RM Property and Facilities Solutions Limited

Facilities management

UK
UK

% equity
interest
2022

% equity
interest
2021

100

100
100

100

100
100

100

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 409 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 balance sheet date
There were no events to report after the balance sheet date.

31. Related undertakings of Royal Mail plc
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 27 March 2022, 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, 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.

Canada

10500 Ryan Avenue, Dorval, Quebec, H9P 2T7

Dicom Dedicated Fleet, Inc.

Share class % held by Group

€1,090,092.51 Ordinary shares

100.000

€100.00 Ordinary shares

Ordinary shares, no par value

100.000

Common shares, no par value

100.000

1055, Hastings Street West, Suite 1700, Vancouver (British Columbia), V6E 2E9

GLS Logistics Systems Canada Ltd.

Common shares, no par value

100.000

3400 7th Avenue SW, #350, Edmonton, Alberta, T2P 3N9

A-Crop-Olis Warehousing Inc

Medicine Hat Express Inc

Mid-Nite Sun Transportation Ltd

Rosenau Transport Ltd

Wheels Transport Ltd

China

Suite 966, 9F, No.2 bldg, China Central Place, No.79, Jian Guo Rd,
Chao Yang District, Beijing

EBP Consultancy (Beijing) Co. Ltd

Croatia

Class A Common shares

100.000

–

100.000

Royal Mail plc
Annual Report and Financial Statements 2021-22

219

Financial Statements

Notes to the Consolidated Financial Statements continued

31. Related undertakings of Royal Mail plc (continued)

Company name

Stupničke Šipkovine 22, 10255 Donji Stupnik, Croatia

Share class % held by Group

General Logistics Systems Croatia d.o.o

HRK 760,000.00 Ordinary shares

100.000

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

General Logistics Systems Express A/S

Finland

Rydöntie 6, 20360 Turku, Finland

General Logistics Systems Finland 0y

France

14 Rue Michel Labrousse, CS 93730, 31037 Toulouse Cedex 01, France

General Logistics Systems France S.A.S

GLS Invest France S.A.S

Germany

Dörrwiese 2, 36286 Neuenstein, Germany

Der Kurier Beteiligungsgesellschaft mbH

Der Kurier GmbH & Co. KG

GLS Germany-Str. 1-7, 36286 Neuenstein, Germany

CZK2,970,000.00 Ordinary shares
CZK30,000.00 Ordinary shares

100.000
100.000

DKK100.00 Ordinary shares

DKK1,000.00 Ordinary shares

100.000

€50.00 Ordinary shares

100.000

€50.00 Ordinary shares

€12.71 Ordinary shares

100.000

€25,000.00 Ordinary shares

€2,561,572.32 Cash contribution

100.000

General Logistics Systems Germany GmbH & Co. OHG

€47,968,004.75 Cash contribution

GLS IT Services GmbH

GLS Beteiligungs GmbH

GLS Verwaltungs-und Service GmbH

GLS eCom Lab GmbH

GLS Mobility Solutions GmbH

Wendenstraße 349, 20537 Hamburg, Germany

€127,822.97 Ordinary shares

€7,720,507.41Ordinary shares

€153,387.56 Ordinary shares

€100,000.00 Ordinary shares

Overnight Services GmbH Vermittlung üeberregionaler Kurierdienste

€25,564.59 Ordinary shares

100.000

Guernsey

PO BOX 160, Dixcart House, St Peter Port, GY1 4EY, Guernsey

Postcap (Guernsey) Limited

Hungary

GLS Európa utca 2, 2351 Alsónémedi, Hungary

£1.00 Ordinary shares

100.000

GLS General Logistics Systems Hungary Csomag-Logisztikai Kft.

HUF30,000,000.00 Ordinary shares

100.000

Ireland

Unit 1 Stadium Business Park, Ballycoolin Road, Ballycoolin,
Dublin, D11 DK24, Ireland

RM Financing Operations Limited

RBK Chartered Accountants, Block A, Park View House, Beech Hill Office Campus,
Beech Hill Road, Clonskeagh Dublin 4, DO4 X7V2, Ireland

220

Royal Mail plc
Annual Report and Financial Statements 2021-22

€1.00 Ordinary shares
€1.00 Redeemable preference shares

100.000
100.000

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Company name

RMF Operations Designated Activity Company

Share class % held by Group

US$1.00 Ordinary shares
US$1.00 Redeemable
preference shares

100.000
–

Unit 200 Northwest Business Park, Ballycoolin, Dublin 15, Ireland

General Logistics Systems Ireland Limited

€1.269738 Ordinary shares

100.000

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

Zae Op Zaemer 24, 4950 Bascharage, Luxembourg

€10,400.00 Ordinary shares

€1,016,000.00 Ordinary shares

€0.52 Ordinary shares

€0.51 Ordinary shares

100.000

84.22

General Logistics Systems Belgium S.A. Succursale de Luxembourg1

–

The Netherlands

Breguetlaan 28-30, 1438 BC Oude Meer, The Netherlands

General Logistics Systems B.V.

Proostwetering 40, 3543 AG Utrecht, The Netherlands

General Logistics Systems Netherlands B.V.

GLS Netherlands Holding B.V.

GLS Netherlands Services B.V.

Poland

Ul. Tęczowa 10, Gluchowo, 62-052 Komorniki, Poland

General Logistics Systems Poland Spolka zo.o

Portugal

Rua da Bica, No. 10, 2669-608 Venda do Pinheiro, Portugal

General Logistics Systems Portugal Lda

Romania

3, Str. Stefan cel Mare, Parcul Industrial Selimbar, 557260 Selimbar, Romania

GLS General Logistics Systems Srl

Slovakia

Budča 1039, 962 33 Budča, Slovakia

GLS General Logistics Systems Slovakia s.r.o

Slovenia

Cesta v Prod 84, 1000 Ljubljana, Slovenia

€100.00 Common shares

100.000

€50.00 Ordinary shares

100.000

PLN1,721.00

100.000

€102,000.00 quota
€97,900.00 quota
€100.00 quota

100.000

RON4,000.00 Ordinary shares
RON396,000.00 Ordinary shares

100.000
100.000

SK2,970,000.00 Ordinary shares
SK30,000.00 Ordinary shares

100.000
100.000

General Logistics Systems, logisticne storitve, d.o.o.

€751,127.00 Ordinary shares

100.000

Spain

Avenida Fuentemar 18, 28823 Coslada, Madrid, Spain

Branch of GLS Belgium. No shares are issued or held.

Royal Mail plc
Annual Report and Financial Statements 2021-22

221

Financial Statements

Notes to the Consolidated Financial Statements continued

31. Related undertakings of Royal Mail plc (continued)

Company name

Distribuidora de Electrodomésticos Aceval, S.A.

General Logistics Systems Spain S.A

185 Farringdon Road, London, EC1A 1AA

Angard Staffing Solutions Limited

Intersoft Systems & Programming Limited

Nine Elms Parkside Estate Management Company Limited2

Parcelforce Limited

Revisecatch Limited

RM (International) Limited

RMSEPP Pensions Trustees (2050) Limited

Royal Mail Courier Services Ltd

Royal Mail Enterprises Limited

Royal Mail Estates Limited

Royal Mail Group Limited

Royal Mail Innovations Limited

RMGLS Holdco Limited

RM Finance CAD Ltd

Storefeeder Ltd

Highbank House, Exchange Street, Stockport, Cheshire, SK3 0ET, United Kingdom

RM Property and Facilities Solutions Limited (formerly Romec Limited)

Romec Enterprises Limited

11 Ironmonger Lane, London, EC2V 8EY, United Kingdom

Royal Mail Pensions Trustees Limited

Registered Agent Solutions Inc.

838 Walker Road, Suite 21-2 Dover, Delaware 19904, US

General Logistics Systems North America Inc.

4000 Executive Parkway, Suite 295, San Ramon, CA 94583, US

General Logistics Systems US Interim, Inc

General Logistics Systems US, Inc

Postal Express, Inc.

9 East Loockerman Street, Suite 311, Dover, Delaware 19901, US

Dicom JD, LLC.3

6750 South Longe Street Suite 100 Manteca, CA 95206 US

Share class % held by Group

€0.42 Ordinary shares

€60.10 Ordinary shares

100.000

£1.00 Ordinary shares

£0.01 Ordinary shares

£1.00 Ordinary shares

£1.00 Ordinary shares
CAD1.00 Ordinary shares

£1.00 Ordinary shares

£1.00 Ordinary shares
£1.00 B shares
£1.00 C shares

100.000

100.000
100.000

100.000

98.040
0.980
0.980

£1.00 Ordinary shares

100.000

£1.00 Ordinary shares

100.000

USD 0.001 common stock

100.000

USD 1.00 Common stock

Common stock, no par value

100.000

100 Shares, no par value

100.000

GLS US Freight, Inc. (previously Mountain Valley Express Co, Inc.)

Common shares

GLS Solutions, Inc. (previously MVE Supply Chain Solutions, Inc.)4

Common stock, no par value

100.000

2
Limited by guarantee.
3 Member managed company.
4

Trades under the name Mountain Valley Freight Solutions.

222

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Annual Report and Financial Statements 2021-22

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Corporate Governance

Financial Statements

Additional Information

Associate undertakings

Company name

Associates

Australia

Level 1, 60 Toorak Road, South Yarra, VIC 3141

Market Engine Global Pty Limited5

United Kingdom

24a Nottingham Road, Loughborough, LE11 1EU

Charac Limited

30 Finsbury Square, London, EC2A 1AG

Quadrant Catering Limited

70 Margaret Street, London, W1W 8SS, United Kingdom

JICMAIL Limited2

Investments

Company name

Investments

United Kingdom

Share class % held by Group

AUD1.00 Preference shares

34.474

B Ordinary shares

£1.00 Ordinary A shares

33.300

51.000

–

20.000

Share class % held by Group

Suite 2, Ground Floor Orchard Brae House, 30 Queensferry Road, Edinburgh, EH4

Mallzee Ltd

Aviva, Wellington Row, York, North Yorkshire, YO90,1WR

Voyager Park South Management Company Limited2

Deregistered 25 April 2022.

£0.01 Ordinary shares

19.500

Ordinary shares

5.500

Royal Mail plc
Annual Report and Financial Statements 2021-22

223

Financial Statements

Royal Mail plc
Parent Company Financial Statements

Statement of changes in equity
For the 52 weeks ended 27 March 2022 and 52 weeks ended 28 March 2021

At 29 March 2020

Loss for the year

Share-based payments

At 28 March 2021
Profit for the year
Share buyback
Purchase of own shares
Share-based payments

Dividend paid

At 27 March 2022

Balance sheet
At 27 March 2022 and 28 March 2021
Registered number: 08680755

Non-current assets
Investment in subsidiaries

Trade and other receivables

Total non-current assets

Current liabilities
Trade and other payables

Net current liabilities

Interest-bearing loans and borrowings

Net assets

Equity
Share capital

Retained earnings

Total equity

Share capital
£m

–

–
–
–
–

–

Retained
earnings
£m

2,072

(3)

2,074

1,098
(201)
(17)
4

(366)

2,592

Total equity
£m

2,082

(3)

2,084

1,098
(201)
(17)
4

(366)

2,602

At 27 March
2022
£m

At 28 March
2021
£m

Notes

2,912

611

3,523

(49)

(872)

2,602

2,592

2,602

2,127

895

3,022

(43)

(895)

2,084

2,074

2,084

The balance sheet was approved and authorised for issue by the Board of Directors on 18 May 2022 and signed on its behalf by:

Mick Jeavons
Chief Financial Officer

224

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Corporate Governance

Financial Statements

Additional Information

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 27 March 2022 (2020-21: 52 weeks ended 28 March 2021).

Authorisation of Financial Statements and statement of compliance with FRS 101
The Financial Statements of the Company for the year ended 27 March 2022 were authorised for issue by the Board of Directors on
18 May 2022. 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 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 Parent Company Financial Statements.

Basis of preparation
The Financial Statements have been prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework
(‘FRS 101’). In preparing these Financial Statements, the Company applies the recognition, measurement and disclosure requirements
of UK-adopted international accounting standards (‘UK-adopted IFRS’) in conformity with the requirements of the Companies Act 2006,
but makes amendments where necessary in order to comply with Companies Act 2006, and has set out below where advantage of the
FRS 101 disclosure exemptions has been taken:

(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.

(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 except for the following new policy:

Business combinations under common control
The Company undertakes ‘common control business combinations’ using the book value (carry-over) basis of accounting. During the
reporting year, this policy has been applied to the transfer of RMGLS Holdco Limited to the Company, from Royal Mail Group Limited
(see Note 6).

Key sources of estimation uncertainty and critical accounting judgements
Due to the relatively straightforward nature of the Company and its activities, it is Management’s view that there are no significant
estimates or accounting judgements applied in the preparation of these Financial Statements.

Investment in subsidiaries
The investment in subsidiaries is stated at cost, and includes 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.

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) and in
the Group Directors’ Remuneration Report on page 110.

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).

Exemption taken as equivalent disclosures are included within the Consolidated Financial Statements of Royal Mail plc.

Royal Mail plc
Annual Report and Financial Statements 2021-22

225

Financial Statements

Royal Mail plc Parent Company Financial Statements continued

4. Income statement
The Company is a non-trading company. The profit for the year of £1,098 million (2020-21: loss of £3 million) is primarily the net sum of:
a £781 million dividend (2020-21: £nil) received from Royal Mail Group Limited; a £324 million dividend received from RMGLS Holdco
Limited (2020-21: £nil); management charges to and from Royal Mail Group Limited; and net interest on the €500 million bond, the
€550 million bond and intercompany balances with Royal Mail Group Limited. A profit of £23 million (2020-21: profit of £40 million)
on retranslation of the bond liabilities and a loss of £23 million (2020-21: loss of £40 million) on the retranslation of intercompany
balances with Royal Mail Group Limited has also been recognised in the year.

5. Taxation
There is no tax charge/credit for the year.

6. Investment in subsidiaries

At 29 March 2021 and 30 March 2020 – investment in Royal Mail Group Limited
Distribution of RMGLS Holdco Limited to Royal Mail plc by Royal Mail Group Limited
Transfer of investment in Royal Mail Group Limited to RMGLS Holdco Limited
Issue of shares by RMGLS Holdco Limited to RM plc – settlement of Royal Mail Group Limited transfer

Charge for Employee Free Shares/LTIP/DSBP – investment in Royal Mail Group Limited

At 27 March 2022 and 28 March 2021

At 27 March
2022
£m

At 28 March
2021
£m

2,127
781
(2,127)
2,127

2,912

2,122
–
–
–

2,127

On 28 June 2021, Royal Mail Group Limited transferred its subsidiary, RMGLS Holdco Limited (previously known as Royal Mail
Investments Limited, which holds the investment in GLS B.V.) to the Company. Subsequently, on 31 August 2021, Royal Mail Group
Limited was transferred to RMGLS Holdco Limited in exchange for an issue of shares by RMGLS Holdco Limited to RM plc. All
transactions were undertaken at book value. The primary objective of this internal restructure is to align the legal entity structure
with the Group’s new governance structure – two separate CEOs for the UK and GLS businesses, who each run their own respective
group and report to the Royal Mail plc Board.

7. Trade and other receivables
This balance 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 €550 million bond (see Note 9). The intercompany loan is deemed to be a non-current asset for the year ended
March 2022, as the Company’s intention at the balance sheet date is 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 comprises £40 million (2020-21: £34 million) intercompany payables with Royal Mail Group Limited and £9 million
(2020-21: £9 million) external interest payable.

9. Interest-bearing loans and borrowings
In July 2014, the Company issued €500 million 2.375% Senior Fixed Rate Notes due July 2024 with a fixed annual interest coupon
of 2.375%. The proceeds raised were loaned to Royal Mail Group Limited. In October 2019, the Company issued €550 million 1.25%
Senior Fixed Rate Notes due October 2026 with a fixed annual interest coupon of 1.25%. The proceeds raised were loaned to
Royal Mail Group Limited.

10. Share capital

Authorised and issued
956,193,475 (2020-21; 1,000,000,000) ordinary shares of £0.01 each

Total

At 27 March
2022
£m

At 28 March
2021
£m

Of the issued ordinary shares, a total of 2,265,008 (2020-21: 572,816) 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.

226

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Shareholder Information

Annual General Meeting
The 2022 AGM will be held on Wednesday 20 July 2022. Full
details of the business to be considered at the meeting will
be included in the Notice of Annual General Meeting that will
be sent to shareholders and published on our website at
www.royalmailgroup.com/en/investors/annual-general-meetings/.

Final dividend
The Board is recommending the payment of a final dividend of
13.3 pence per share. This dividend will be paid on 6 September
2022 to shareholders on the register as at 29 July 2022, subject
to approval at the 2022 AGM. Combined with the interim dividend
of 6.7 pence per share paid in January 2022, this gives an ordinary
dividend for FY 2021-22 of 20 pence per share.

Managing your shares online
Shareholders can register through Shareview, via a platform provided
by the Company’s registrars, to access shareholder information online
at www.shareview.co.uk. This service allows you to:

ƽ Manage your shares online.
ƽ Receive notifications of new shareholder information by e-mail.
ƽ Arrange dividend payments.
ƽ 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.

Be scam smart
Investment scams are designed to look like genuine investments.

Spot the warning signs
Have you been:

ƽ Contacted out of the blue?
ƽ Promised tempting returns and told the investment is safe?
ƽ Called repeatedly?
ƽ Told the offer is only available for a limited time?

If so, you might have been contacted by fraudsters.

Avoid investment fraud
Reject cold calls. If you have received unsolicited contact about
an investment opportunity, the chances are it is a high-risk
investment or a scam. You should treat the call with extreme
caution. The safest thing to do is to hang up.

Check the FCA Warning List
The FCA Warning List is a list of firms the FCA has identified
as operating without its authorisation.

Get impartial advice
Think about getting impartial financial advice before you hand
over any money. Seek advice from someone unconnected to
the firm that has approached you.

Report a scam
If you suspect that you have been approached by fraudsters,
please tell the FCA using the reporting form at www.fca.org.uk/
consumers/report-scam-us. You can also call the FCA Consumer
Helpline on 0800 111 6768.

If you have lost money to investment fraud, you should report it to
Action Fraud on 0300 123 2040 or online at www.actionfraud.police.uk.

Find out more at www.fca.org.uk/scamsmart.

Remember: if it sounds too good to be true, it probably is.

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/en/investors/.

If you have any queries relating to your shareholding, you can also
email shareholderquestions@royalmail.com.

Company contact details
Registered office
Royal Mail plc
185 Farringdon Road
London
EC1A 1AA

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
Barclays Bank plc

Royal Mail plc
Annual Report and Financial Statements 2021-22

227

Additional Information

Glossary of Alternative Performance Measures

Presentation of results and alternative performance measures (APMs)

The Group uses certain APMs in its financial reporting that
are not defined under IFRS, the Generally Accepted Accounting
Principles (GAAP) under which the Group produces its statutory
financial information.

These APMs are not a substitute for, 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 are set out in the section entitled
‘Alternative Performance Measures’.

Further details on specific items excluded from adjusted
operating profit are included in the paragraph ‘Specific items
and pension charge to cash difference adjustment’ in the
Financial Review. A reconciliation showing the adjustments
made between reported and adjusted Group results can be found
in the section headed ‘Consolidated reported and adjusted results’.

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. Management believes
this is a useful basis upon which to analyse the business’
underlying 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 tax
for the five years ended 27 March 2022 was £1,826 million
compared with cumulative adjusted profit after tax of
£2,071 million. Annual reported profit after tax showed a
range of £620 million to £161 million while adjusted profit
after tax showed a range of £595 million to £196 million.
Pensions-related accounting and specific items can cause
increased volatility in results.

228

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

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:

52 weeks March 2022

52 weeks March 2021

Group (£m)

Revenue

Operating costs

People costs

People costs (excluding voluntary redundancy)

Voluntary redundancy

Non-people costs

Distribution and conveyance costs

Infrastructure costs

Other operating costs

Operating profit before specific items

Operating specific items:

Legacy/other items

Amortisation of intangible assets in acquisitions

Operating profit

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)1

Profit before tax

Tax charge

Profit for the year

Earnings per share (pence)

Basic

Diluted

Specific
items and
pension
adjustment1

Adjusted

Reported

Specific
items and
pension
adjustment1

Reported

12,712

–

12,712

12,638

(12,128)

(174)

(11,954)

(12,020)

(6,665)

(6,584)

(81)

(5,463)

(3,556)

(1,059)

(848)

584

(16)

577

649

(57)

662

(50)

612

61.7p

61.4p

(174)

–

(174)

(16)

(181)

(109)

–

(45)

1.7p

(6,491)

(6,410)

(81)

(5,463)

(3,556)

(1,059)

(848)

758

–

758

–

758

(57)

–

707

(112)

595

(6,554)

(6,445)

(109)

(5,466)

(3,483)

(1,074)

(909)

618

(19)

611

647

(55)

117

726

(106)

620

60.0p

59.7p

62.0p

61.8p

Adjusted

12,638

(11,936)

(6,470)

(6,361)

(109)

(5,466)

(3,483)

(1,074)

(909)

702

–

702

–

702

(55)

–

664

(143)

521

52.1p

51.9p

–

(84)

–

(84)

(19)

(91)

(55)

–

117

9.9p

1. Details of specific items and the pension adjustment can be found under ‘Specific items and pension charge to cash difference adjustment’ in the Financial Review.

Royal Mail plc
Annual Report and Financial Statements 2021-22

229

Additional Information

Glossary of Alternative Performance Measures continued

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

Group (£m)

Revenue

People costs

Non-people costs

Operating profit before specific items

Operating specific items1

Operating profit

Profit on disposal of property, plant and
equipment (non-operating specific item)1

Earnings before interest and tax

Net finance costs

Net pension interest
(non-operating specific item)1

Profit before tax

Tax credit/(charge)

Profit for the year

52 weeks March 2022

52 weeks March 2021

Royal Mail

Intragroup
eliminations

GLS

Group

Royal Mail

8,514

4,219

(21)

12,712

(5,757)

(908)

(2,515)

(2,969)

–

(6,665)

(5,463)

8,649

(5,703)

(2,686)

GLS

4,040

(851)

(2,831)

Intragroup
eliminations

Group

(51)

12,638

–

(6,554)

(5,466)

242

250

321

(39)

346

370

342

(15)

327

328

(12)

–

316

(74)

242

–

584

(7)

577

649

(51)

662

(50)

612

260

271

309

(28)

117

398

(30)

368

358

(18)

340

(2)

338

(10)

–

328

(76)

252

–

618

(7)

611

647

(38)

117

726

(106)

620

1. Details of specific items and the pension adjustment can be found under ‘Specific items and pension charge to cash difference adjustment’ in the Financial Review.

230

Royal Mail plc
Annual Report and Financial Statements 2021-22

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Alternative Performance Measures

This section lists the definitions of the various APMs disclosed
throughout the Annual Report and Financial Statements. 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.

Adjusted operating profit
This measure is based on reported operating profit 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 ‘Consolidated reported and adjusted
results’. Definitions of the pension charge to cash difference
adjustment, and operating specific items are provided below.

Adjusted operating profit margin
This is a 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 added back.

Adjusted EBITDA is EBITDA before specific items with the pension
charge to cash difference adjustment added back.

The following table reconciles adjusted EBITDA to reported
operating profit before specific items.

(£m)

Reported operating profit before
specific items

Depreciation and amortisation

EBITDA before specific items

Pension charge to cash difference adjustment

Adjusted EBITDA

52 weeks
March
2022

52 weeks
March
2021

584

540

1,124

174

1,298

618

554

1,172

1,256

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 ‘Presentation of results’.

People costs
These are costs incurred in respect of the Group’s employees
and comprise wages and salaries, temporary resource, pensions,
bonus and social security costs. People costs relating to projects
and voluntary redundancy costs are also included.

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 this represents the difference between the IAS 19
income statement pension charge rate of 24.6% (2020-21: 19.5%)
and the actual cash payments of 15.6%.

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.

Amortisation of intangible assets in acquisitions
These 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 items
These costs/credits relate either to unavoidable ongoing costs
arising from historic events (such as the industrial diseases
provision) or historic provisions not utilised. They also include
any adjustments arising from asset impairment.

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
Management separately identifies the 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 and GLS client cash movements. GLS client cash
movements were previously presented in FCF but have now been
removed as this better reflects cash movements available to the
Group. As a result the comparative period has been re-presented.
FCF represents the cash that the Group generates after spending
the money required to maintain or expand its asset base. FCF is
also shown on a pre-IFRS 16 basis as it is used to support dividend
cover analysis, taking into account all cash flows related to the
operating businesses.

The following table reconciles free cash flow to the nearest IFRS
measure ‘net cash inflow before financing activities’.

(£m)
Net cash inflow before financing activities
Adjustments for:
Finance costs paid
Movement in GLS client cash
Purchase/(sale) of financial asset investments
Free cash flow

Capital element of operating
lease repayments¹
Pre-IFRS 16 free cash flow

Reported
52 weeks
March
2022
401

Re-presented
reported
52 weeks
March
2021
887

(56)
5
70
420

(166)
254

(57)
(20)
(30)
780

(156)
624

The capital element of lease payments of £192 million (2020-21: £188 million) shown in
the statutory cash flow is made up of the capital element of operating lease payments of
£166 million (2020-21: £156 million) and the capital element of finance lease payments of
£26 million (2020-21: £32 million).

Royal Mail plc
Annual Report and Financial Statements 2021-22

231

Additional Information

Alternative Performance Measures (APMs) continued

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

Operating leases¹

Pre-IFRS 16 net cash

At
27 March
2022

At
28 March
2021

(872)

(895)

(1,341)

(1,156)

1,101

1,532

–

(985)

(457)

1,292

307

1,079

622

This amount represents leases that would not have been recognised on the Balance Sheet
prior to the adoption of IFRS 16.

Loans and bonds decreased by £23 million, largely as a result
of favourable exchange rate movements on the value of bonds.

Cash and cash equivalents and Investments decreased by
£361 million, largely as a result of the payment of £366 million
in external dividends (2020-21: no dividends paid) and £201 million
share buyback offset by free cash inflow of £420 million
(2020-21: £780 million inflow) and by the capital element of
lease repayments of £192 million (2020-21: £188 million).

Net debt excludes £192 million (2020-21: £191 million) related to the
RMPP pension scheme of the total £213 million (2020-21: £212 million)
pension escrow investments on the balance sheet which is not
considered to fall within the definition of 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.
The adjusted effective tax rate is considered to be a useful measure
of the tax impact for the year. It approximates to the tax rate on the
underlying trading business through the exclusion of specific items,
including the pension charge to cash difference adjustment.

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 movements
in GLS client cash and the cash cost of operating specific items
and to include the cash cost of property, plant and equipment and
intangible asset acquisitions, net finance payments and dividends
received from associates. The prior period has been re-presented
to reflect the re-allocation of deferred revenue (including SITHOP)
into trading working capital (included within net cash inflow from
operating activities). These balances were previously excluded
from in-year trading cash flow as part of other working capital
movements. In-year trading cash flow is used primarily by
Management to show cash being generated by operations less cash
investment. In-year trading cash flow is also shown on a pre-IFRS
16 basis as it is used to support dividend cover analysis, taking
into account all cash flows related to the operating businesses.

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

(£m)

Reported
52 weeks
March
2022

Re-presented
reported
52 weeks
March
2021

Net cash inflow from operating activities

1,160

1,173

Adjustments for:

Movement in GLS client cash

Cash cost of operating specific items

Purchase of property, plant and equipment

Purchase of intangible assets

Dividends received from associates

Net finance costs paid

In-year trading cash flow

Capital element of operating
lease repayments¹

Pre-IFRS 16 in-year trading cash flow

(519)

(84)

(52)

519

(166)

353

(20)

(289)

(57)

–

(41)

770

(156)

614

The capital element of lease payments of £192 million (2020-21: £188 million) shown in
the statutory cash flow is made up of the capital element of operating lease payments
of £166 million (2020-21: £156 million) and the capital element of finance lease payments
of £26 million (2020-21: £32 million).

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 Note 23
of the Financial Statements (page 206). Net debt is also shown
on a pre-IFRS 16 basis as the banking covenants are calculated
on a pre-IFRS 16 basis.

232

Royal Mail plc
Annual Report and Financial Statements 2021-22

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 logo is a registered trademark
of General Logistics Systems B.V. Annual Report 2021-22 © Royal Mail Group
Limited 2022. All rights reserved.