POL00026694
Post Office Limited
Post Office Limited 1s registered in England and Wales Registered number 2154540
The fabric
of our society
Annual Report and
Financial Statements
20128 ff ean
“A2FSB581"
POL00026694
POL00026694
Introduction
The Post Office is a commercial
business with a public purpose.
Our 11,780 branches sit at the heart of
communities across the UK. We employ
almost 8,000 people and work closely
with thousands more across our network.
The Post Office is focused on growing
as a business and modernising its
network, complemented by a
growing digital presence.
This was our story in 2012-13.
Operational
Overview
review
Performance
review
Governance
Financial
statements
POL00026694
POL00026694
Contents
Overview
2 Whoweare
4 Chairmans foreword
6 Chief Executivesreview
8 Strategy
Operational review
12 Business in detanl
16 Branch network
19 Supporting our network
20 Customer excellence
Performance review
24 Our people
28 Corporate responsibility
29
10-21
22-35
30
34
Financial review
Business risk
Governance 36-55
38
40
az
47
49
Board of Directors
Board biographies
Corporate governance
Directors report
Directors remuneration report
Financial statements 56-110
58
59
60
61
62
63
64
6S
92
93
94
95
96
mi
Statement of Directors responsibilities:
Independent audhtor s report to the
members of Post Office Limited
Consolidated come statement
Consolidated statement of
comprehensive income
Consolidated statement of cash flows
Consolidated balance sheet
Consolidated statement of
changes in equity
Notes to the consolidated
financial statements
Independent auditor s report to the
members of the parent Company
Post Office Limited
Balance sheet of the Company
Statement of total recognised
gains and losses
Reconcihation of movernents
in Shareholder s funds
Notes to the Company
financial statements
Corporate information
www postoffice couk
Ct)
POL00026694
POL00026694
2
Overview
Who we are
The Post Office
in numbers
Our aim is to provide customers with the
things that are important to them — from
maul to their broadband package, from car
insurance to their savings account Whether
customers come into a branch, are on the
move or shop online, we work hard to
deliver a great experience That's the
Post Office promise
11780 yon
customers visit a Post Office branch
each week, including a third of the
Uk’s small businesses
N°:
UK travel money provider
Annual Report and Financial Statements 2012.13,
POL00026694
POL00026694
Performance
review
Operational
review
'
Financial 3
Overview Governance I statements I
Other highlights
© Number one Mails retailer
© Largest deployer of contactless
enabled terminals in Europe
Sixth largest telecoms
provider in the UK
e754 branches offer world-
leaching identity technology
of all UK debit card holders
can access their cash through
our branches
99.7%
of UK population is within
three miles of a branch
7%
customer satisfaction
across our branches
POL00026694
POL00026694
4
Overview
Chairman's foreword
Fit for the future
founded on
our history
Itis with great pleasure and pride that
I write the foreword to the first Annual
Report and Financial Statements for the
Post Office as an independent business
Alice Perkins Chairman
Highlights
e Revenues are up for a second year, and
we are on the road to reducing our
relance on subsidy
e We are modernising branches and
providing new services to our customers
e The transition to independence has been
smooth without any loss of service
Annual Report and Financial Statements 2012 13,
This Report describes the way in which the
Post Office has embarked ona remarkable
Journey of transformation
‘Thanks to our Shareholder the government we
are vesting millions of pounds into our network
over three years upto Apnl 2015 There 1s
no longer a programme of Post Office branch
closures Instead we are modernising the network
and increasing our opening hours We are offering
new services and developing new methods of
interacting with our customers working with our
key partners in new ways cutting costs and
increasing our revenues
Allof this puts the Post Office on the path to.
securing financial sustanability for the long term.
Weare reducing our dependence on the taxpayer
to the minimum and changing our culture so that
we respond proactively to changes.in the world
around us in partnership with the key people on
whom we depend for the delivery of our services
Aseries of important changes have already
happened and many more are inthe pipeline
Moving to independence
We ceased tobe a subsidiary of Royai Mail Group
Limited in April 2012and began operating
independently as sister compamies under Royal
Mail Holdings plc Working closely with our
colleagues at Royal Mail Group good progress
was made during 2012.13 mn the complex process
of separating the two orgamsations ~ so much
so that the transition to date has been remarkably
smooth without any loss of service or impact
on standards
Thave completed the formation of my Board
and we are now operating Board governance in
keeping with best practice in the corporate world
Full details of the Board members and our Board
committees can be found on pages 40 and 44
Jam delighted to have been able to appoint such
able people with varied backgrounds who are
all commuted to supporting and challenging the
Post Office as it undergoes the changes which
must be made if we are to secure its future
POL00026694
POL00026694
I Overview
Operational I Performance Financial
Teview review Governance statements
se ines nthe changes tharneed'otakeplaceto Revenue upon
The Post Office has a long build on the successes set out inthis Report We Previous year
are equally clear that there are significant
and honourable 370-year additional chaltenges ahead the going snot easy
This turnaround hike any other requires people
history We need to retain the tireughout the organisation and thetr partners to
essence of what has made it — workin new ways We need to win new business
on commercial terms and manage our fixed costs
great and made it loved, moreeffectwvely whileatthesametmefnding Reduced Crown
the resources to operate on our own two feet and
while at the same time tomoderniee and ninovate losses by
making it fit for the future
39
We achieved a number of notable successes last
year For the second year running our revenues
are upon the previous year despite the difficult
economic environment and we are on the road to
reducing our rehance on the Network Subsidy
Payment received from the government
Modernisation and growth
We have made great headway in our plan to
modernise the network of branches run by
our agents 1 450 have signed up to be converted
into new operating models which give much
better service to customers resulting in higher
footfall and turnover And we have made real
improvements to the running of our Crown
branches where the operating loss has reduced
this year from £46 million to £37 milhon
‘The Post Office has won a number of new
government contracts under which we are
providing some completely new services and
enabling central and local government to realise
significant admmnistrative savings We are aiso
offering new financial services maintainingour
appeal to customers who come tous for the
reliabihty and transparency of our financial offers
Our mails business meanwhile remains the
market leader and is increasingly innovative
We are also on the path to creating the right
conditions for the mutuahsation of the Post Office
‘These require both financial sustainability and
completely new ways of working with our key
stakeholders across the board In the last year
we have taken the first steps towards achieving
both of these goals with our strong financial
performance on the one hand and the creation
and work of the Stakeholder Forum on the other
Iwould like to thank the Post Office Chief
Executive Paula Vennells her tearn and all the
people who work to support the Post Ottice
business and who have brought about the
remarkable changes we have already seenand
will see in the coming months and years 1 would
lke also to thank all those stakeholders and
partners with whom we work so closely
£9m
The Post Office has a long and honourable
370-year history We need to retain the essence
of what has made it great and made tt loved while
at the same time making tt fit for the future It 1s
mn that context that this Annual Report and
Financial Statements should be seen It reports
on the first steps of progress into the future ~
a future wich blends the trust integrity and
accessibility for which the Post Office is renowned
with the contemporary relevance mnovation
and professionalism of a financially sound
2ist-century business
POL00026694
POL00026694
6
Overview
Chief Executive's review
Transformation
is the key
for growth
The Post Office 1s committed to a strategy
which will grow and modernise our
business and ensure customer excellence
remains at our core -
Paula Vennells Chief Executive
Highlights
e Increase in revenue with growth in three
of our four product pillars
e A major transformation programme
delivering benefits to our customers
e Developing digital strategy to
complement unrivalled branch network
Annual Report and Financia! Statements 201213
Itis heartening to be able to report good progress
during the 201243 financial year The pages that
follow show we havestarted to turn the business
around — remaining at the heart of communities
while becoming increasingly commercial
and entrepreneurial
Inachallenging economic climate and with
particular pressures on the hngh street we have
grown revenue in thtee of our four product pillars
Turnover increased by £44 million to £1.02 bilhon
Mails and Retail revenue has grown by 4.3%
Financial Services by 6 4% and Telecoms by
75% while Government Services revenue
remained flat in the context of a very tight
fiscal and competitive environment
This 1s an encouraging performance
It demonstrates our increasing appetite for
Innovation the power of the Post Office brand,
and the continued attractiveriess to customers
of accessibility through a branch network of
11780 outlets
Sound financial performance
Itmeans we are able to report an increase of
£33 million to £94 million in operating profit before
exceptional tems This includes £210 milhon
received from the government in 201213 as a
subsidy to support the branch network The Post
Office is entrusted to provide key services to
citizens nationwide including the most remote as
well as the most deprived areas of the country We
are proud as a commercial business with a public
purpose to fulfil this critically important task and
are commuted to maintaining our network
The subsidy payment constituted 17% of revenue
1m 201213 It will deciine by £10 million in the
corning year and by afurther £40 miltion in
201415 Future extension of this payment will
depend on government spending decisions
beyond 2015 To achieve our ambition of reducing
dependency on the subsidy and securing
commercial sustainability its critical to continue
modernising and innovating growing revenue
and continuing to focus on our customers while
keeping a strong control on costs
In 2010 the government agreed £1 34 billion of
funding for the Post Office up to 2015 While
approximately half of this related to the network
subsidy the remainder wilt support the
modermisation of the Post Office
The activity undertaken in 2012-13 in pursunt of,
this goal has been unprecedented tn our history
A major transformation programme to modermse
the branch network began with hundreds of
branches converting to new more customer:
fnendly formats and we are building momentum
to convert many more
POL00026694
POL00026694
I Overview
Operational I Performance Financial 7
Teview review I Governance I statements
6 In 2012 weset up a Stakeholder Forum tobegina —_'Tyrnover
We have no illusions about
the hard work ahead, but our
determination to deliver the
business transformation of the
decade remains undimmed
99
There is no more visible indicator of a Post Office
that 1s changing for the better than the changes
customers seein their cities towns and villages
‘The evidence 1s that these changes are meeting
with approval customer satisfaction with the new
mam and jocal branch models runs at 95%!
while queue times in the local model have fallen
below a minute and customers are benefiting
from new opening hours stretching from early
morning to late evening Subpostmasters
switching to the new models have increased their
retail businesses Moreover the physical network
that 1s so central to our business is now being
complemented by a comprehensive digital
strategy aimed at {urther enhancing our service
tocusiomers
Challenges ahead
Naturally, a programme such as this involves
challenge The Post Office has made significant
progress for instance i reducing the losses in
the network of Crown branches directly managed
by the business There remains a long way to go
toreach the point where this part of the network
‘becomes profitable and that 1s why itis so
important that we complete the transformation
of the Crown network There will be other
challenges ahead but as our Chairman has noted
m her foreword we are determined to complete
a transformation which underpins the future of
the Post Office and brings more benefits to our
millions of customers
process which isa key step in our journey towards
potential future mutualisation that of defining the
public purpose of the Post Office In 2013 14 we
wall engage the public on this work witha view to
embedding this public purpose in our business
planrung and processes
Our ambition 1s to be more proactive in dehvering
our public purpose The Post Office is a long:
standing part of UK high streets and will work
hard to support their revival joming with others
tolead and develop solutions which help high
streets and other communities to survive and
thrive We will step up our work in supporting
small businesses by ensuring that we develop
more of the products and services they need
‘The Post Office will also work more closely with
those seeking to close the digital skills gap Asa
founder member of Go ON UK thechanty set up,
tomake the UK the most chgitally skilled nation in
the world the business will focus on building the
onhne skills of our people And we will work with
our partners to develop solutions that will help
enable the 16 milion people in the UK whodo not
have basic digital skills to access and enjoy the
benefits of being onhne
Support of our people
I would hike to say thank you to all of those who
have worked so hard for the Post Office over the
past year especially to those colleagues working,
in Post Office branches across the lengtin and
breadth of the UK and to the Post Office Executive
team for their outstanding commitment to the
success of our strategy
Finally Jam grateful to Alice Perkins and tothe
Board for their guidance throughout the year
They have strengthened our strategic oversight
and broughta level of focus and chaltenge to
decision making at the Post Office which has
helped both revitalise the company and energise
its commercial focus
The Post Office changed significantly over the
course of 201213 and for the better We have
no illusions about the hard work ahead but
our determination to deliver the business
transformation of the decade remains undimmed
£1.02bn
Customer
satisfachon
95%"
with converted
branches
™ Brass network
uanstormation
programme research
August 2012 March 2013
POL00026694
POL00026694
8
Overview
Strategy
Growing asa
business while
serving the UK’s
communities
Key objectives
The Post Office's strategy 1s based on being
commercially successful and growing asa
business while maintaining the key role that
Post Office branches play in supporting
communities across the UK We offer a range of
products in Mails and Retail, Financial Services,
Government Services and Telecoms through
our branch network, online and on the phone
Strategy model
Post Office
people
rae
Odermsav?
Annual Report and Financial Statements 2012 13
Growth ‘
Increase in turnover
+4.5%
201112 +0 9%
Objective
To grow revenue by introducing new
products and services across our
portfolio to offset declining revenue
from traditional product areas
Progress in 2012-13
We grew revenue by £44 million during
the financial year while also introducing
new products such as Post Office
in-branch mortgages and the Drop
& Go prionity mails service for small
busimess Customers
HSBC and First Direct have linked up
with the Post Office meaning 95% of all
UK debit card holders can now access
their cash at our branches
We attracted and retained clients in bill
payments, rolled out additional Lottery
terminals and introduced a new onhne
shop - www postofficeshop co uk
We won key contracts such as the
provision of counter services for
.the Driver and Vehicle Licensing
Agency (DVLA) and won a place
on the government's Identity
Assuranice framework
POL00026694
POL00026694
Operational I Performance I Financial 9
I_Overview Teview review aL Governance statements
Modernisation Customer excellence
Branch conversions Customer satisfaction
17500
additional opening hours
Objective
To modernise the Post Office and its
branches through the network and Crown
transformation programmes (to break even
by 2015)
Progress in 2012-13
During 201213 a total of 1 450 Post Office
agency branches either converted tonew
models with longer opening hours or
subpostmasters signed contracts to do so
With 507 of these converted dunng the
financial year, it means branches were open
for an additional 17500 hours per week by
the end of 201213
Our programme to transform the Crown
network of branches directly managed by the
Post Office made progress to reduce losses
with financial performance improving by
£9 million
‘The programme has also introduced new
ways of working, Including increased
automation in pilot branches
In-branch technology was also enhanced
with more automated Post & Go machines
and the completion of the rollout of new PIN
Pad payment devices
87%
across our branches"!
Objective
To put customers at the heart of
everything we do and investin
technology to offer more responsive
and customer-focused systems
Progress in 2012-13
On average, customer satisfaction stood at
87% in 2012-13 in our branches, while this
figure rose to 95% 1n newly converted
branches in the agency network
Customer wait times are down on the
previous year, while our Voice of the
Customer feedback scheme 1s now in
place in 2000 branches
We have improved our digital offering
with a full website redesign The site now
receives four million customer views per
month, with unique visitors up 30% year
on year
We piloted a new online booking system
for financial services customers and hope
to build on this in 2013-14
™ Quadrangte Brand
and Customer Insight
Programme 20u 1zand
201213
® Brass network
transformation
programme research
August 2012 March 2013
POL00026694
POL00026694
Operational
review
POL00026694
POL00026694
Operational I Performance Financial u
Overview Teview Teview Governance statements
I
1
I
1
Operational review 10-21
12 Business in detail
16 Branch network
19 Supporting our network
20. Customer excellence
POL00026694
POL00026694
12
Operational review
Business 1n detail
Mails and Retail
Revenue (€million)
409m
2011-12 £392m +4.3%
Highlights
« Launch of Drop & Go, a new service for
small businesses to drop off parcels and
pay quickly without queueing
e New online retail shop offers mailing
solutions, collectibles and office supplies
© 8% growth In parcels revenue
Annual Report and Financial Statements 201213
Mails and Retail is the largest
product area in the Post Office,
generating around 40% of the
business total turnover through
four categories of the product
portfoho ~- Mails, Parcels, Retail
and Lottery
We offer an unparalleled range of Royal Mail
Group mails and parcels products and services
from next day guaranteed courier services to
home shopping returns and collections
‘The Post Office 1s also one of the main Lottery
distributors in the Uk offering Camelot s National
Lottery products including scratch cards and
EuroMillhons in more than 6 000 outlets
In 2012 13 the Mails and Retanl area recorded
its most successful ever year with revenue
‘of £409 million representing growth of
£17 millon compared tothe previous year
‘This was driven by extremely strong commercial
performance across the product portfolio activity
relating to the Olympicsand Paralympics and our
best ever Chnistmastor mails and parcels sales
Dunngthe year the Post Office Mails team
enhanced services with Royal Mail to maximise
opportumnties from online shopping collection
and returns
Growth in Mails and Parcels business
The launch of our new Drop & Go priority service
for small business customers has helped us retain
and grow our Mails business Small businesses i
and online sellers can sign up for a pre-paid card.
to enable them to drop off their mail and have it
processed in their absence The Post Office now
thas more than 2 300 small businesses signed
up to the service
We achieved an 8% growth in parcels revenue
through a combination of an increase in onhne
buying and selling and contmued improvements
in frontline training and sales capability
Anew online shop was launched in July 2012
and has seen steady growth ever since The
shop offers an extensive range of mauling
solutions collectibles and office supphes
‘The rollout of an additional 1 850 Camelot Lottery
terminals helped the Post Office deliver a
5 2% growth in Lottery sales over the course.
of 2012.13 this has been further facihtated by
strong Lottery marketing .
Looking ahead the Post Office will continue to
develop smail business propositions to increase
value and convemience for this critical customer i
group In partnership with Royal Mail we will
maximse opportunites to grow the services
we provide in this sector particularly in the
fast-growing online shopping market
POL00026694
POL00026694
Operational
Performance
Overview I review
review
Governance
staternents
13
Financial Services
Revenue (£million)
281m
201112 £264m +6.4%
Highlights
e Reaffirmed strong partnership with Bank
of Ireland (UK) plc to build the Post Office
as a financial services challenger
« Reached agreement with HSBC and
First Direct for their debit card customers
to have free access to their cash at all
Post Office branches from spring 2013
« What Mortgage Awards 2012 Best Online
Lender, Best Fixed Rated Mortgage
Provider
The Financial Services business
1S a fast-growing part of the Post
Office, seeking to offer customers
simple, transparent and value-for-
money products, supported by
an unrivalled branch network
The Post Office provides a comprehensive range
of savings insurance (including car home and
travel) and lendmg products (including mortgages
and credit cards) and 1s the leading provider of,
relail foreign currency m the UK We also offer
over the counter payment services personal and
busmess partner banking and cash machines
‘The products are offered through strong
partnerships with third-party providers in
particular Bank of Ireland (UK) ple with whom
we have built a successful partnership since 2003
In 201213 the Fmancial Services business
dehvered £281 million n revenue - an increase
of 6 4% on the previous year
Strong banking partnership
Akey development in 201213 was the
renegobation and reconfirmation of the
arrangements with the Bank of Ireland (UK) ple
‘This partnership delivered significant growth
1m 201243 particularly im Growth Bonds Online
Saver and Reward Saver Together we extended
our award-winning mortgage range offering
competitive rates that featured regularly in
Best Buy tables and custorners can now access
Post Office mortgages in branches
We maintained our position as the market leader mn
foreign exchange and was voted by the publicas
Best Foreign Exchange retailer and Best Travel
Insurance Provider at the 2012 Bntish Travel
Awards for thesixth and seventh year respectively
Key contracts inthe bill payment market were
won and retamed ensuring that customers can
continue to use Post Office branches to pay bills
Contactless payment terminals were also installed
across 30000 counter positions making the Post
Office the largest deployer of contactless enabled
terminals in Europe these allow customers topay
for transactions of up to £20 using contactless cards
and Near Field Communication (NFC)-enabled
mobile phones
We also signed agreements with HSBC and First
Direct ensuring that 95% of UK debit card holders
can access their cash in a Post Office branch
The Financial Services business is a key focus for
the Post Officeand in May 2013 the Post Office
announced tt would launch a current account the
next step in our strategy of growing our Financial
Services business
POL00026694
POL00026694
14
Operational review
Business 1n detail continued
Government
Services
Revenue (£mullion)
164m
2011-12 £164m +0%
Highlights
* Won the DVLA framework contract
for the provision of Front Office
Counter Services
e Grew the Passport Check & Send service
with an increased market share
e Awarded a place on the DWP Identity
Assurance Framework contract
Annual Report and Financial Statements 2012 13
The Post Office offers a range
of essential front office counter
services on behalf of government
departments
We partner with the Department for Work and
Pensions for the Post Office card account which
allows customers to collect their state pension or
benefits incash either ina Post Office branch or
from a Post Office cash machine We also issue car
tax discs on behaif of the DVLA and capture
digital photographs for the renewal of dnving
licence photo counterparts
‘The Post Office uses ground breaking Application
Enrolment and Identity technology to offer a
paperless process for our customers 1n 754
Post Office branches nationwide
Nearly 90% of Government Services revenue
1s still generated by the traditional motoring
benefits and passport services In 201213 we
grew our passport Check & Send business and
increased our revenue from capturing customers
biometrics on behalf of the United Kmgdom
Border Agency (UKBA) This helped to offset the
dechne m benefits payments Revenue from the
Post Office card account dechned as customer
numbers continued to reduce Revenue from
motoring prnmanily the issuing of tax discs 1n our
branches was broadly flat compared to 201112
Retained key contracts
‘The retention in the face of strong competition
of the contract for Front Office Counter Services
provided on behalf of the Driver Vehicte Licensing
Agency (DVLA) wasakey development during
201213 This framework contract will allow other
government departments to contract with the
Post Office without a further procurement
process ‘The contracts for seven years with
an option to renew for a further three years
Inaddition the Post Office also won a place on the
Department for Work end Pensions (DWP) Identity
Assurance Framework contract now being
managed by the Cabinet Office Government
Procurement Service
Aswellas these signihcant contract wins the
Application Enrolment and Identity business
generated more than £12 million of revenue
and now accounts for more than 9% of total
Government Services revenue In 104 of the
754 Post Office branches with Application
Enrolment and Identity technology we capture
cigtal fingerprints photographs and electrome
signatures for the UKBA and in the full network
of 754 branches we capture photographs for
customers renewing their driving licences
In 2013-14 the Post Office expects to complete
the rollout of new services with the DVLA and
continue to grow the passport business while also
seeking to provide support for the government s
Digital by Default agenda
POL00026694
POL00026694
Operational I Performance I Financial 15
Overview review review Governance I statements
The Telecoms business
incorporates HomePhone and
Broadband, Mobile Top-ups and
International Phonecards
HomePhone and Broadband offers a competitive
fixed line phone and broadband service to just
under 500 000 residential customers making us
the sixth largest fixed line telecoms provider in
the UK
2012 13 was a positive year for the Telecoms
business withan 8% increase in revenue from
£120 milion to £129 milhon The HomePhone and
Broadband business performed particularly well
Telecoms with the revenue generated by the HomnePhone I
and Broadband business rising from £112 million 1
to £122 milhon an increase of just under 10% This :
achievement was driven by a stable custorner
base and changes to our service making it more
attractive to higher value customers
Revenue (€million) Mobile Top upailows customers to top up pre pay
mobile phones for the mam UK mobile networks
atany of ourbranches We saw a reduction in the
volume ot mobile top up transactions in branches
I J l as mobile networks look to mgrate customers
from pre-pay to post pay packages and customers
201112 £120m 47.5% top up less frequently However we still achieved
15 million transactions and maintain the largest
estate of top up terminalsin the UK
Improving our customer proposition
Highlights During the year the Post Office signed an
- agreement with Fuyitsu Services to provide the
e Increased revenue by £9 million HomePhone and Broadband services from the
2 ‘summer of 2013 This strategically important
© Signed new contract with Fuptsu Services agreement provides a platform from which to
© Mobile launch planned for 2013-14 develop and grow an agile and cost effective
business while strengthening our existing
customer proposition The new platform will 1
make tt easver for customers to sign up to our
services through branches and onhne The
customer expertence willbe enhanced with
improved online account management tools and
access to higher speed broadband services over
the TalkTalk network The agreement with Funtsu
Services will also enable the development of
‘bespoke services for the SME market
‘The International Phonecard business has been
an dechne for anumber of years and continues to
‘beimpacted as customers move to other low cost
international calling options such as Voice over
Internet Protocol solutions
‘The Post Office will aim to grow the Telecoms
business 1n 2013 14 but it will be a transitional
year as we migrate our services to our new
suppher The Post Office 1s also looking at
opportunities to enter the mobile market. I
during the coming financial year
POL00026694
POL00026694
16
Operational review
Branch network
Modernising
the Post Office
branch network
Introduction
The Post Office has an unrivalled network, with
a branch within three miles of more than 99% of
the population No other retailer can match the
reach that puts the Post Office at the heart of
communities across the UK
The business 1s committed to maintaining its
branch network, ensuring services are readily
accessible to communities across the UK This
network, increasingly enhanced by digital and
telephone services, lies at the core of the business
97% of Post Office branches in the network are run
in conjunction with retail partners on an agency
and franchise basis
Underpinning our commitment to the network
1s an unprecedented branch modernisation
programme — the largest investment in the
history of the Post Office — which 1s creating
modern, commercially sustainable branches
that are improving customer experience
This modernisation programme involves
transforming those branches that are
operated by other businesses or independent
subpostmasters on behalf of the Post Office
and 370 Crown branches directly owned and
managed by the Post Office
© Brass network
transformation
programme research
August 2012 March 2013
Annual Reportand Financial Statements 2012 13
Network transformation programme.
Depending on size independent operators of Post
Office branches are able to convert to one of two.
new models a main branch ora local branch
Main branches of which there are now 178
continue to offer a dedicated Post Office counter
often open plan inabrighter more modern
environment In addition the majority of services
wall continue to be available outside traditional
hours — for as long asthe host busmess 1s open ~
from the retail counter
Local branches of which there are now 329 fully
integrate the Post Office with the host business.
offering services from the retail posttion rather
than a dedicated Post Office counter This often
means services are avatlable for much ionger than
before in many cases from early morning unt
late at mght seven days a week
With 507 new-style main and local Post Office
branches already established subpostiasters
and customers across the UK are benefiting from
anew modern approach to offering Post Office
services Customersare responding positively
Independent research shows that customer
satisfaction scores at both modernised main and
local branches are consistently around 95%"
Subpostmasters are also benefiting from more
efficient ways of working and an increase in
revenue both from their Post Office activities and
them accompanying retail business
Interest in the new models remains strong with
subpostmasters at a further 943 branches already
signed up to be the first to convert during 2013 14
Subpostmasters
Supporting local communities
Subpostmasters and their colleagues
are vital to the Post Office network,
contributing to their local communities
with a trusted and valued face-to-face
service Effective communications across
the network are key to ensuring their
energy and talent is harnessed in building
a modernised and sustainable network
In 2012-13, a series of communication
channels has helped link the network
together. They include the Subspace
Online website, regular Subspace
magazine, network transformation
updates, roadshows, meetings, and
workshops to help boost sales. There
has been ongoing liaison with the
National Federation of Subpostmasters
as well as links to the retail chains
whose employees run a number of Post
Office branches within their stores.
POL00026694
POL00026694
!
Operational I Performance Fimancial 7
Overview review review Governance I statements __ 7
QCase study New branches.
Sandeep and Damandeep Sandhu 507
Greenwich main Post Office branch, 201213 we
London converted 507
“The refurbishment of branches 1s essential branches to thenew
It means our branches are 1mproving their main and local formats
aesthetics, such as flooring and lighting, to Contracts signed:
really compete and look professtonal The
Post Office has sustained Its trusted status and 943
now looks modern as well” Afurther 943
subpostnasters have
already signed up to
3 be converted to the
QCase study new models in 201314
Alicen Lawrie
Dingwall main Post Office branch, Increase in
The Highlands retail sales:
“The new open plan counters fit very well im 10%
the surroundings of my convenience store An average retail sales
It helps our staff to have more comfortable increase er 10% 1s being
conversations with our customers” reported across main
and local branches
Waiting time:
QCase study 55 secs
7 Average waiting
Johnny Kimber tumes in branches are
Drumaness local Post Office branch, BS seconds in local os
County Down immain branches
“Our Post Office services are now available for
an extra 69 hours every week, and this has
- already brought in new customers We'rea
much more realistic option for everyone now,
and the Post Office 1s a far more convemient
high street proposition”
AQ Case study .
Chitty Thavachelvam
Medway Parade local Post Office branch, .
West London
“I've been able to extend my retail counter, '
and I ve noticed new customers coming
through the door who are now able to take
advantage of Post Office services until 10 30pm
on Sunday nights”
POL00026694
POL00026694
18
Operational review
Branch network continued
Crown transformation programme
‘The Post Office 1s investing in 292 of its Crown branches These are usually
larger branches in towns or city centres and are directly managed by the
Post Office
Crown branches are fundamental to the future of the Post Office, and real
progress has been made towards the target of turning around the current
losses to achieve break-even by March 2015 Dunng 201213 the losses for
this part of the network reduced from £46 million to £37 million The ongoing
transformation builds on this progress and is based on increasing revenue
improving customer experience anid controlling costs
Customers will beneftt from brighter more modern branches with improved
layouts Many of these will give customers the option to use self-serve
Post & Go machines private consultation areas for financial services and the
benefit of longer opening hours More open plan counters will be mtroduced
and we will have more team members on the shop floor greeting and guiding
customers This new approach has been tnalled with notable success across
both customer and fmanciat measures at a range of branches
Insix locations where we have two branches in close proximity to each
other we are takmg the opportumty of merging branches which will create
ranches with improved facilities for customers ‘There are two further
instances where combining two branches into one new site will provide the
best experience for customers For a further 70 branches we are looking for
retail partners to operate branches on our behalf This approach will ensure
we maintain a high standard of service while putting the branch on a stronger
commercial footing for the future
Acase study
Birmingham Post Office branch
What's changed?
« Redesign of the branch
to improve customer flow
« Extra Post & Go
machines with staff
on hand to offer help
« Extended opening hours
¢ Two internal ATM.
machines added
Customer feedback
“Really impressed This has
brought the Post Office into
the 21st century”
“Thke the self-service machines
very much It makes it so much
easier and quicker to come in
and do what you need to”
“The changes are time saving
and the staff are very helpful”
Annual Report and Financial Statements 201213
Qcase study
New Malden Post Office branch
What's changed?
Redesign of the branch toimprove
customer flow
« Retail area repositioned for customer
convenience
« New mails zone with one extra Post
& Goand staff on hand to offer help
« Private consultation room for
financial services
Customer feedback
“Customer service at this Post Office
1s fantastic”
“The counter clerk was happy and '
informative I was very 1mpressed*
“Its very convenient, offers a lot of
services has pleasant staff and has
recently been refurbished”
“There wasn't a long line to waitin The
chap who served me was very helpful
polite and fnendly You can't beat good
customer service with a smile”
POL00026694
POL00026694
Performance
review
‘Operational
review
Financlal
Overview Governance I statements
19
Supporting our network
Technology
The Post Office continues to invest in
technology to ensure the development
of high-quality, reliable services that will
improve the customer experience
There has been significant investment
in the key systems that underpin our
service to customers
The Cash Supply Chain business in numbers
The Post Office customer base contains
some of the most financially dependent
members of the UK population Soa key
dnver for the business 1s providing rehable
access to cash through its cash and
valuables in transit (CV1T) operation
Collected:
£42bn
In 2012-13, our Cash Supply Cham
business collected and delivered
more than £42 billion of cash, coin,
foreign exchange secure stock
(stamps postal orders, etc) and
transactional stock (government
forms and leaflets)
Processed:
£5.3bn
of customers momes are
processed and banked on
the day after collection
Drop & Go .
Small business customers can now drop off their
mail and parcels without waiting
Post &Go
Additional Post & Go self service machines enable
customers to save time by posting mail and
parcels without the need for assistance from
abranch colleague
Point-of-sale system
This provides a service to 30 000 counter
positions At peak times the system handles '
around I 000 transactions per second
Extending helpdesk availability
We have extended the helpdesk openmg hours
to support the increase in opening hours in
branches Branch colleagues can use the helpdesk
for longer so that they can respond to customer
quenes quickly
New financial services customer
booking service
The Post Office undertook a priot with selected
customers to enable thern to book appointments
onhne with im branch fmancial services
specialists Weare looking to extend this facility
toall customers in the near future
Market share:
3ra largest
Our CViT operation is the third
largest in the UK
20
POL00026694
POL00026694
Operational review
Customer excellence
Putting customer
needs at heart
of our offer
Measuring satisfaction
For more than three centuries, the Post Office
has provided services central to the everyday
lives of people in the UK As we move forward
asa growing business, our customers remain
at the heart of what we do and how we
measure our success
In 201213 we carned out extensive research to
better understand our diverse customer base and
their needs
Customers value the Post Office and rate our
customer service highly but they want the Post
Office to be easier to do business with and offer
them a greater choice of ways to interact with
the business
Using this feedback will help shape the ongoing
development of a mult channel strategy for the
future that optimises convemience choice and
relevance for Post Office customers.
Wait times down
‘The Post Office made some significant progress
cover the past year with the relationsmps we have
with our many customers 18 mithon customers
visit our branches every week a third of small
businesses (SMEs) 1n the UK use our services.
each week 417 millon individual customers visit
‘our website each year and nearly eght million
customers talk to our 34 UK and Republic of
Ireland contact centres each year
In 2012 13 the Post Office achieved impressive
customer satisfaction rates with 87% of customers
saying they were happy with the service they
received a figure consistent with 201-42"
Annual Report and Financial Statemet
Underlying these high ratings was a reduction in
wait times The average watt time in 201213 was
three minutes, which was 12 seconds quicker than.
1m 201112 and one minute and eight seconds
quicker than in 2010 11%
201213
QCase study
Durham Crown branch"
In line with the high street, the Post
Office has introduced automated
self-service kiosks that help customers
save time. The Post & Go kiosks help
customers post letters and parcels
and buy stamps and packaging. One
customer commented: “Post Office
colleague Michael was very welcoming
when I came into the branch. He asked.
if [needed help with anything while
1 was posting a parcel, if there was
anything important inside and if I
needed to get it there for the next day
Michael then helped me to process it
through the Post & Go machines near
the door It was so easy.”
Our research also showed we need tore engage
customers with the overall Post Office brand in.
order to achieve future growth We therefore
launched a brand campaign in October 2012
Inviting customers sider the Post Office
ma different way
‘The Post Office understands the importance of
customer service curing the lead up to Chnstmas
We put extra effort into making Christmas easier
for our customers This formed a business wide
project during November and December winch
contnibuted to improved sales performance and
customer perception Chrismas Makers (Post
Office managementand support staff working
mbbranches) longer opening hours onhne help
pop up Post Office branches and discounted
stamp arrangements were hghhghted to customers
by press outdoor and digital advertising and PR
Allof tis delivered our best ever Chnstmas
performance with our core Mails product
range exceeding last year by 38% with 86% of,
customers saying they were satisfied with their
experience in branch”
‘There was also a positive impact on wail times in
December with an average want time during that
busy month of three minutes and 47 seconds ~
80 seconds quicker than the previous year and.
three minutes and 27 seconds quicker than 20114
I Overview
POL00026694
POL00026694
Operational
review
Performance
review
Financial
Governance I statements
21
QCase study
Small businesses
It is estimated that up to a third of
the UK’s small businesses visit a Post
Office branch at least once a week’,
This is often for mail services, with Post
Office branches providing a convenient
access point to the onward postal
distribution system. In an increasingly
digital age, this means that these
businesses are able to transact
Voice of the Customer programme
Our new Voice of the Customer programme to tell
us how we did today was piloted in 150 branches
Ituses pre printed till receipts cards and a Quick
Response codeto invite customers to give
feedback online via mobile or by telephone
Atthe end of March 2013 we had feedback from
36500 customer visits This feedback helps
the Post Office address customer issues at
branch level quickly (for example by making
plans for dealing with busy mes and reducing
queue times) as well as helping to develop an
overall strategy to address common themes
across our network
Customers also have the opportumity to praise
service whereitis above and beyond and more
than 700 individual wows are received weekly
Following our successful pilot the Voice of the
Customer 1s now in place m more than 2 000 of
our largest branches and will be rolled out toall
newly transformed branches in 2013 14
beyond their immediate geographical
environment, taking orders by post,
phone and internet and being able to
fulfil them throughout the country and
the world. The Post Office network acts
asa critical part of the infrastructure
supporting the growth of small
businesses throughout the UK.
Empathica Voice of the
Customer Programme
201213
9 Brass network
transformation
programmeresearch
‘August 201210 March
2013
Quadrangle Small
Business insight
Programme Apnt 2011 to
December 2012
© Quadrangte Brand and
Customer Insight
Programme 2011 2and
2012 1341 000 largest Post
Otfice branches)
© ABa Mystery Shopping
Programme 201213
© Empathica Vox of the
Customer Programme
December 2012
22
POL00026694
POL00026694
Performance
review
Annual Report and Financial Statements 201213
Performance
review
‘Operational
review
Financial
statements
Overview Governance
POL00026694
POL00026694
23
Performance review 22-35
24
28
30
34
Our people
Corporate responsibility
Financial review:
Business risk
See page 26 toread about
Shahidul slams story
24
POL00026694
POL00026694
Performance review
Our people
Working with our
people to build
the business
Our people vision
© The Post Office will attract and develop
great people who have pride in and
a passion for delivering value for
customers and reflect the diverse
communities we serve
¢ Everyone will have a strong sense of
ownership for their work, demonstrating
initiative and flexibility, working well
together to adapt to the rapidly changing
needs of our markets
© We will have an environment where our
people work 1n partnership with all those
who contribute to the success of our business
® The Post Office will be a place where
people are valued and respected,
and are encouraged and supported
to fulfil their potential and rise to the
commercial challenge
Annual Report and Financial Statements 201213
The Post Office 1s proud of tts hentage and equally
proud of the unique role our colleagues play at
the heart of communities The Post Office also
recognises the important role our support teams
play in delivering the business strategy We strive
to nurture our people so they feel valued trusted
and commntted to putting the customer first
We also continue toplace a high emphasis on
the health safety and wellbeing of our people
This year saw the troduction of our core values
Care Challenge anc Commit These three criteria
sit at the centre of everything we do and are
intnnsic to how the Post Office interacts with
customersand colleagues Our values underpin
our employee proposition and help to deliver the
best possible customer expenence while at the
same time giving everyone within the business
the chance to fulfil their potential
Q casestudy
James Reid
Property Lead,
Network transformation programme
James joined the Post Office from
Royal Mail a year ago on the network
transformation programme as a Field
Change Adviser in South Wales
James saw the role as a great opportunity
to develop and support the change
across the network “The role was really
rewarding and Ireally enjoyed working
with the subpostmasters.
“[then saw the Property Lead role
advertised and went for it It did mean
moving down to London, but Ihave
been made to feel really welcome
I feel really proud that my managers
saw potential in me and have helped
me settle into a new role and a new city.
“I think I have achieved a lot this year
and feel 1 am making a real difference
Seeing converted branches opening,
and knowing you have helped to do
that, feels great Iam here for a career ‘
and see my long-term future with
the Post Office.”
POL00026694
POL00026694
\ :
Operational I Performance I Financial
Overview review . review Governance Statements + . 25 _
6 Q Case study
I feel more valued and Ashley Hall
Change Analyst,
understand the contribution
I make to the wider business
99
‘The Post Office 1s particularly proud of the
progress made in relation to talent diversity
people development and engagement
Engaging with our people
We value the opinions and ideas of our colleagues
Cur employee engagement survey which was
conducted in 2012 1s managed by independent
research company Ipsos MORI The survey helps
the Post Office understand how colleagues are
feeling about the business what 1s going well and
where we can improve
Learning and development
‘The Post Office continues to support the
development of people right across the orgamisation
Our people have undertaken a broad range of
development activities this year including
introduction of Discovery Days for new
managers ensuring they have the tools to
succeed in their new roles
supporting the development of a Post Office
procurement function utilising internal expertise
external traming and professional qualifications
introduction of the Certificate of Professional
Business Practice in the Information Services
team in partnership with Sheffield Hallam
University sharing skills knowledge and best
practice actoss the orgamsation and
bullding the capability and commercial skills of
our managers through the development of the
Crown Leaderstup Excellence programme
Ashley jomed the Post Office 13 years
ago In 2012, Ashley was an
administrator in the Information.
Services team when he became one
of the successful applicants for the
Certificate in Professional Business
Practice introduced by the Post Office
with Sheffield Hallam University.
“The course was a great opportunity to
develop in my current role. I couldn't
have unagined the difference it has
made to mem just 12 months. I've been
actively encouraged by my managers to
improve my skills and make a positive
contribution to the business.”
Ashley has since moved to his new
role in the Finance team.
“I’ve now had the opportunity to work
in another part of the business and
continue with my qualification
It’s really broadened my horizons.
Personally, I feel more valued and
understand the contribution I make
to the wider business”
26
POL00026694
POL00026694
Performance review
Our people continued
sé
I've started to really believe
in myself and feel like I have
a future here
93
Talent and diversity
Becoming an organisation workmg independently
of Royal Maul Group Limited has required an
increase in capability and expertise across a range
of areas New found corporate responsibilities
have been taken on across the breadth of the
professional functions Coupled with the goal of
ensuring a high performing sustamable business
we have put in place a robust assessment and.
development approach looking at both
performance and the future potential of our
semior leaders with the overall aim of raising
the capability of our people
Raising our leadership capability and performance
standazds will continue to be an mportant focus
which the Post Office will deliver through its
Leadership Development programme
At ttus stage of our development building talent
and diversity ments special attention The
Board has therefore delegated authontty to
the Nominations Commuttee to monitor the
development of a talent management programme
for senior levels of the organisation
We have also introduced a range of initiatives to
promote an inclusive workforce These incude
establishing a diversity forum recruiting young
people under 24 on the Paid Work Experience
programme and launching our Trainee
Manager scheme
The Post Office 1s also proud of the progress made
an gender equality Our Chairman and CEO are
wornen The Board has equal numbers of male
and female Directors and women make up half of
the Executive Committee To ensure we maintain
this focus we have pledged our support to the
governments Think, Act, Report initiative
whichis aimed at improving gender equality
im the workplace
Our general policy will be to recrunt for talent
usinga range of tools including encouraging
‘open applications through our attraction
website engaging specialist recruitment
consultancies and operating specific talent
attraction campaigns
Challenges remam but we are confident our
commutment to building a culture of inclusion
will continue to make the Post Office relevant
toits increasingly diverse customer base
‘We view our approach to diversity as an integral
part of talent management This year we have
developed two programmes taking positive
action on beth fronts
Annual Report and Fmancial Statements 2012 13
Paid Work Experience programme
Over the last 12 months the government and
media have both highiighted the problem with
high unemploymentin inner city areas especially
among young people The Paid Work Experience
programme aims to provide a period of paid
employment durmg the Christmas period for
young people and those furthest from the labour
market The Post Office employed 61 individuals
inthe lead up to Christmas 1n some of the busiest
Crown branches across London and Greater
Manchester The imitative led to 39 individuals
being offered further employment Due to the
success of the scheme in 201344 the Post Office
intends to extend the programme within the
branch network
Q Case study
Shahidul Islam
Paid Work Experience programme
Shahudul joined the business in
November 2012 through the Paid Work
Experience scheme At16, he was our
youngest candidate He currently works
in Houndsditch, London.
“Ileft school in the summer and started
looking for work. I had tried a number
of companies but with no luck. I was
really pleased when I got my role with
the Post Office
“Everyone has been really supportive.
My managers have helped me a lot and
are always there for me [learned a lot
of new skills and met different people
from different walks of life. I thmk my
main achievement has been developmg
my communication skulls.
“Te changed a lot in the time Ihave been
here. I've started to really believe in.
myself and feel like I have a future here”
POL00026694
POL00026694
i
Operational I Performance Financial 27
Overview review review Governance I statements
Trainee Manager scheme Q Case study
The scheme was designed to take positive action Bushra Ali
toattract young people to consider a career with
the Post Office working with our colleagues and
customers in our Crown branches We employed
eight individuals under the age of 24 to workin
the London area ‘The trainees have subsequently
undertaken a development programme including
a foundation degree senior manager mentoring
and regular learning sessions The scheme has
already seen positive results with three
progressing to other managenal roles in the
business The tramees continue to progress and
have provided a welcome mnjection of new ideas
and enthusiasm
Accelerated Development
scheme for senior leaders
We are currenily piloting a mgh potential
development programme for new entrants
at the senior leadership level This focuses on
accelerated career progression across a range
of roles within the business alongside targeted
personal development m which individuais
draw ona range of available activity including
coaching mentoring and behavioural workshops
Safety, health and wellbeing
The safety and wellbeing of our people is of
paramount importance to the Post Office This
year we have embarked on an extensive
programme of health checks that will enable alt
our employees io understand how healthy they
are and learn about what they can do to reduce
the risk of tlIness and improve their wellbeing
‘The Post Office aims to fulfilits business mission
without compromising the safety of customers
employees suppliers and all those affected by
our activities We want to make healthy and safe
working a way of life
To this end the business ensures that
we comply fully with the relevant legislation
the health and safety responsibilities of
our employees are clearly defined allocated
and understood
+ we encourage and help all our people to
carry out their responsibihties under effective
health and safety management systems with
safe premises equipment and processes.
through instruction and traming we
improve our employees capability to
manage and work safely
we support and encourage our people to get
involved in the health and safety performance
of our business and pursue a healthy and
safe hfestyle and
we monitor and review how well we put our
health and safety policies into practice
Trainee Manager, Network
Bushra joined the Post Office a year ago
through the Trainee Manager scheme
“[hadn’t ever considered a career
with the Post Office, but after meeting
the people at the interview and seeing
their passion, I couldn't wait to join”
In the last 12 months, Bushra has
worked in five different branches and
was part of the Post Office team in the
Olympic village during London 2012
She is also undertaking a foundation
degree in Retail Management.
“It's challenging domg my degree
alongside work, but it’s given me so
many practical skills I can apply to
work I've gained confidence and
learned so much about our products
and services, as well as developing my
leadership skills I'm really grateful
for the support I've received from my
managers and mentor. I'm still really
enjoying myself and I'm keen to
become a Branch Manager.”
Looking ahead
‘The Post Office wants people who are capable of
delivering a tumaround strategy Therefore we
aim to continue building people capability to
foster a culture of continuous learning to increase
‘our peoples understanding of our business in
acommercial context along with our social
purpose to develop a proactive talent and career
management process that recognises the value
in diversity and to continue to nurture a culture
where people are actively encouraged and valued
as role models of Care Challenge and Commit
POL00026694
POL00026694
28
Performance review
Corporate responsibility
Supporting
colleagues and
communities
As acommercial business with a public
purpose, the Post Office 1s strongly
conscious of the need to operate
responsibly, sustainably, and witha
commiutment to furthering accessibility
and inclusion
Disability and accessibihty
The Post Office strives to be or
receive an excellent experience
In 201213 the Post Office
of the most
accessible organisations mn the UK ensuring that,
colleagues with disability needs are provided with
all the support they need and cisabled customers
‘We set ourselves some challenging goals for 201213
+ 5% reduction in building energy use
+ 5% reduction in CO, from vehicle fuel
+ 5% reduction in water use and
+ 55% of all waste generated to be recycled
Year-end performance against these goals was
encouraging in that we achieved or exceeded
three out of four goals Our performance m
reducing building energy use was sigmficantly
affected by the unusually severe weather
conditions during the winter of 2012 13
Change control
All business projects and suppher contracts are
teviewed for environmental impacts
Buildings
A large percentage of Post Office buildings now
have low energy hghting and low water usage
ubhties and all fixtures and fittings are obtamed
wherever possible, from sustamable sources
or from materials that can easily be reused
or recycled
Vehicles
Anew concept vehicle will go on trialin the
second financral quarter of 2013-14 which willalso
utihse telemetry systems that will enable us to
improve overall fuel efficiency Our amis that this
will become our flagship vehicle for the future
Waste
launched the Post Office Disabihty Helpline to
provide solutions anid specialist equipment to
employees with disability or accessibihtty issues
provided grants to agency branches to upgrade
their outlets to make them more accessible and
created and meta panel of accessibihty experts
fromn disabihty organisations on a regular basis,
whose role 1s to advise on the accessibility
issues facing disabled people and our people
Most of our builchngs are now participating inthe
Dry Mixed Recycling scheme where everything
that can be recycled s segregated into separate
bins or bags In addition 100% of all our
confidential waste is now shredded pulped
and sent to manufacture recycled paper
Sustainable operations
Environment
The Post Office recogmises tts environmental
Tesponsibilities and 1s committed tommmising
its adverse environmental impact by means of a
continuous improvement process
Annual Report and Financial Statements 2012 13
We actively look for opportunities to ensure that
all the paper we uses from sources accredited by
the Forest Stewardship Council (FSC) and include
the FSC logo on all of our point of sale literature
Currently some 90% of all the paper we buy 1s
from FSC accredited mxed sources This means
the pulp used has come from well managed
forests, controlled sources or recycled wood
or fibres
POL00026694
POL00026694
Operational I Performance Financral 29
Teview review Governance ‘statements
Charity giving The Post Office 1s also focused on providing basic
We have been major supporters of BBC Children
in Need for several years In 2012 the branch
network played a leading role in Children in
Needs BearFaced iniative Our activities helped
raise more than £1 million for Children in Need
a record amount for the Post Office
Digital inclusion
Asa founder partner of Go ON UK the Post Office
1s committed to helping the k6 million people in
the UK who lack the skills or confidence to benefit
from new digital services
We plan to launch the Online Centre Locator mall
of our 11780 branches in June 2013 which for the
first time will signpost customers across the UK
to their nearest cigita! training location We are
working with a number of partners to deliver this
database which covers thousands of learning
centres across the UK
By Apnil2015 23 of the governments key services
vall be Digital by Default Tohelp people who
may not have access to or know how to use
the internet, the Post Office is working with the
government and community partners to ensure
people cari go toa Post Office branch to get the
help they need to access these services ina safe
and trusted environment
digital skills traming and support to all permanent
Post Office colleagues We will be progressing this
initiative during the next financial year
Business In the Community
In 2012 13 the Post Office becamea standalone
member of the Business in the Communnty (BITC)
scheme working to develop both our support for
BITC and a wider communmnty role in Ime with our
public purpose
Our work with the BITC-led high street task force 1s
offering the Post Office an opportunity to partner
with three of the 27 government backed Town
‘Teams to help redefine and regenerate their high
streets The Post Office 1s now working with the
Sydenharn Stockton on Tees and Brighton teams
and their local communnhes to help regenerate
snterest and actwity and ultimately provide a
Jong term future for these areas so that they can
survive and thnve
The Post Office also supports the BITC Rural
Action Group in its work to help communities in
villages and rural areas across the UK where often
the Post Office plays an important social and
economic role in providing services to those who
otherwise may feel isolated
POL00026694
POL00026694
30
Performance review
Financial review
Paving the way
towards financial
sustainability
Chris Day Chief Financial Officer
Summary results
The Post Office has delivered a sound
performance ints first year operating asan
independent business Turnover has increased
by 45% with strong results in three of the
four core product pillars This has enabled
investment n driving future revenue growth
through building the Post Office brand and
developing new and improved services While
the scale of transformational change required
toreach the goal of commercial sustamabihty
remains considerable our performance in 201213
was a significant step in the nght direction
Key Financial Performance Indicators.
Turnover (£m) Operating profit
before exceptional
1,024
items (£m)
2012 980 94
2012 61
Annual Report and Financial Statements 201213,
Profit and loss summary
2013 © 2012" Vanance Variance
*
em tm tm
Turover 1024 «98044. 45,
Network
Subsidy
Payment 210180 -30__—*167
Revenue 12341160 74 64
People costs (259) (254) 5) (20)
Other operating
costs (913) (876) (37), 42)
Share of profit
fromjoint
ventures and
associates 32 31 132
Operating
profit before
exceptional
items 94 61 33. 541
* Note that Royal Mail Holdmgs pic Annual Report and.
Financial Statements 201 12 reported operating profit after
modernisation costs but before other exceptional tems
of £59 million The pnor year result has been presented
to exclude modernisation costs consistent with 2012 13
where results are reported beforeall exceptional tems
Revenue
The Post Offices revenue increased by £74 million
(6 4%) to £1 234 million including an increase of
£30 millon in the Network Subsidy Payment
from the government The Post Office segments
revenue into four pillars Mails and Retail Financial
Services Government Services and Telecoms The
pillars and their perforrnarice are analysed below
2013 ©2012 Variance Variance
fm &m ém %
MailsandRetal 409 392 17 43
Financial .
Services 281.264 17 64
Government
Services 164 164 ~
‘Telecoms 129-120 9 75
Other aa 40 1 25
Turnover 1,024 980 44
Network
Subsidy
Payment 210 180 30 167
Revenue 1,234 1160 74 64
Operatinglossbefore Operating
coceptional tems . cash flow (£m)
(116) 2012 38
2012 (119)
POL00026694
POL00026694
Operational I Performance
Finanaal 31
Overview review review
Governance I statements
Mails and Retail
‘The Mails and Reta! pillar includes all the services
provided for Royal Mail and Parcelforce It also
includes Lottery and retail services such as sales
of collectibles as well as packaging and stationery
Mauls and Retail revenue of £409 million increased
by £17 milhon (2012-£392 million) Of ths
turnover in relation to Royal Mail products
increased by £13 milhon driven pnmanly by
strong parcel and premium product volumes and
the impact of the stamp price rise introduced on
30 April 2012 In addition retail turnover increased
by £2mullion due to the collectibles relating to the
Diamond Jubilee and Olympics memorabilia The
rollout of I 850 additional terminals contributed to
an increase of £2 mihon in revenue from sales of
Lottery tickets
Financial Services
‘The Financial Services pillar includes Post Office
branded personal financial services products
cash machines and travel services as well as
traditional services such as bill payment and
over the-counter banking transactions
Fimancial Services revenue in 2013 increased by
£17 milhon to £281 milion (2012-£264 milhon)
During the year the Post Office sold its 49 9%
share ints financial services associate
Midasgrange Ltd to the majority Shareholder
and long-term banking partner Bank of Ireland
(UK) ple This was part of a wider agreement to
restructure this established relationship aligrung
the partners to build a significant long-term
financial services business Through this
agreement the Post Office will offer an mcreasing
range of transparent and value for money
financial products and services providing benefit
tocustomers subpostmasters and the Post Office
Personal Financial Services revenue rose by
£24 milhon driven by strong growth in savings
products (particularly Growth Bonds Online Saver
and Reward Saver)and the introduction of new
mortgage products Revenue from traditional
financial services products including bill payment
services and Postal Order sales declined
‘This was due tothe increasing provision of
electronic alternatives to paper based products
and the increasing use of alternative payment
methods Revenue was impacted by the winding
down of the Department for Work and Pensions
contract for cash cheques and green giros and the
decision by National Savings and Investments
{NS&I) to provide most of their products through
their own direct channel
Government Services
‘The Government Services pillar covers services
provided under contract to government
departments This includes services in relation to
the work of the Department for Work and Pensions
(DWP) the Driver and Velncle Licensing Agency
(DVLA) and the identity and Passport Service (IPS)
Government Services revenue of £164 rmlhon
remained flat (2012-£164 milhon) though revenue
from the Passport Check & Send service mcreased
by £3 million due to higher volumes from growth 1n
both our markel share and the overall market
Conversely revenue from identity-telated services
did not grow as expected Revenue from the
payment of benefits through the Post Office Card
Account was £4 million lower than in the previous,
year as customer numbers continued to decline
Telecoms
The Telecoms pillar includes the Post Offices
HomePhone and Broadband services mobile
top up services and international phonecards
Telecoms revenue of £129 million represented
an increase of £9 million (20i2-£120 milhon)
Revenue from HomePhone and Broadband
rose by £10 million primarily due to creased
customer numbers following the introduction in
May 2012 of more competitive service packages
Revenue from our Mobile top up business was
£1 milhon below the previous year as more
customers migrated away from pre pay and
mobile networks reduced ther transaction fees
Despite this reduction in income the Post Office
1s stilla significant provider in the top-up market
anditts share of the retail market has been
maintained at approximately 5%
Other
Other revenue was generated pnmanily from the
Cash Supply Chain business which manages and.
distributes cash for Post Offices and for third
parties Italso offers warehousing services mainly
to Royal Mail This revenue increased marginally
to £41 milhon (2012-£40 millon) reflecting the
growth incashin transit income from third partes
Network Subsidy Payment
The Network Subsidy Payment is government
grant revenue towards the costs of mamtaming
the Post Office network This payment increased
by £30 million from the previous year to £210
mulhion (2012-£180 million) a figure that will begin
toreduce with effect from 2013-14 as set out in the
current funding agreement with the government
POL00026694
POL00026694
32
Performance review
Financial review continued
Costs Exceptional items
‘Total costs rose by £42 milhon to £1172 milion 2013-2012 j
(2012-£1 130 million) tm im
People costs
People costs of £259 million (2012-£254 milhon)
have mcreased by £5 miJhon reflecting historical
pay agreements and the associated costs of
bringing a number of functions in house following
our separation from Royal Mail
Other operating costs
Other operating costs have increased by
£37 million to £913 million (2012-£876 milion)
driven largely by additional programmed
investinent spend mainly related to future revenue
growth ambitions This one off mvestment spend
included an increase in media spend to raise
customer awareness of Post Office services
focused campaigns on travel related services and
mortgages and the development of new and
improved services There were also increases in
the cost of sales reflecting greater sales volumes
and in property related costs
Joint venture and associate
Share of operating profit from the jomt venture
(First Rate Exchange Services Holdings Limited)
and associate (Midasgrange Ltd unt its sale on
1 September 2012) was £32 million (2012-£31 million)
First Rate Exchange Services Holdings Limited
Tesults improved despite lower retail sales due to
market conditions This was achieved mainly by
driving efficiencies in operating costs Post Office
Limited s interest in the associate company
Midasgrange Lid was sold during the year
and made a loss on disposal of £30 millon
Annual Reportand Financial Staternents 201213
Operating exceptional items
Restructunng costs including
subpostmasters compensation (79) (2)
Impairment of
non current assets (66) (36)
Government grant 98 :
Subtotal of operating
exceptional items 47) 38)
Non operating exceptional items
Profit on disposalof property
plant and equipment 2 1
Loss on sale of associate G0) -
Net exceptional items (5) (37)
Restructuring costs
Restructuring costs mclude the costs of delivery
of major change Network transformation resulted
m costs of £12 milhon for subpostmasters
compensation and £40 million of programme costs
Costs of £10 million relate to IT transformation I
which will create the IT infrastructure appropriate
for a business with ambitious growth plans I
Redundancy costs of £11 milhon were incurred
during the year mainly relating to the Crown
network Business transformation payments of
£4 million 2012-£3 million) are payments that *
are periodically made to staff as an incentive
m order to secure agreement for significant
changes n working practices in order to
improve business efficiency
Government grant
In addition to the Network Subsidy Payment
to support the network the Post Office also
receives government grant funding towards its
transformation programme Government grant
funding of £200 million was received in the year
‘This is included within operating exceptional
items to match the associated costs £98 million of
this government grant funding has been allocated
in accordance with the designation letter dated
2 Apri! 2012 from the Department of Business
Innovation and Skills to cover £66 million capital
expenditure £12 milhon network transformation
related subpostmasters compensation and
£20 millon network transformation
programme costs
Cash flow and net debt
Following the transfer of Post Office Limited from
the ownership of Royal Mail Group Limted to
Royal Mail Hotdings plc on 1 April 2012 Post Office
Limited has operated an independent treasury
function and manages its own financial assets
(ncluding network cash) and financial labintes
(mainly government loans)
POL00026694
POL00026694
Overview
Operational
review
Performance
review Governance
Financial
statements
33
‘The treasury function denves its authonity from
the Board and provides regular reports for Board
review It has the authonty to undertake financial
transactions relating to the management of the
underlying business risks but it does not engage
in speculative transactions and does not operate
asa profit centre The principal financial
instruments utthsed are deposits and borrowings
The cash position of the business remains strong
with cash and cash equivalents of £971 milion
(2012-£820 mtthon) mostly in the Post Office
branch network anda net cash inflow during the
year of £151 million Within working capital both
client receivables and client payables increased,
sigmificantly compared to the previous year
largely due to the year-end date falling on the
Easter weekend which increased cash flows
and delayed settlements
Net debt (excluding cash in the Post Office
network) decreased by £119 million year on year
as shown n the table below
2013
£m
Net deb: brought forward at
25 March 2012 (325)
Net cash inflow before fmancing
activities (see page 62) 244
Deduct increase in cash m the network
included in net cash inflow aai)
Finance costs paid @
Total net debt carried forward at
3% March 2013 (206)
Post Office Limited s borrowing facility from.
the government and the associated Framework
Agreement imposes constraints on the purposes
for which the facility can be used and the
avatlabihty of external borrowing Post Office
Limited s treasury policy 1s to mimmmuse the,
amount drawn down on the loan in order to
reduce the interest charge The facility 1s hrmited
toa maximum of £1 15 billion or the amount
of secuntty available (mainly network cash),
whichever 1s the lower The maximum drawn
down under the facihty during the year was
£499 million on 30 March 2012 The facility
1s available at two days notice
At31 March 2013 the Company was financed
as follows
Borrower: Average
Post Office Interest Facility loan
Limited rate’ end Facility Utiiised matunty
Purpose % date £m = Em_— date
Network
cash 10 2016 1,150 291 2013
* Average interest rate of loan drawn down
Pensions
Post Office Lumted 1s a participating employer
within the Post Office section of the Royal Mail
Pension Plan (RMPP)and is a participating employer
within the Royal Mail Defined Contribution
Plan (RMDCP) Royal Matt Group Limnted is the
principal employer of the Royal Mail Senior
Executives Pension Plan (RMSEPP) and Post
Office Limited is a participating employer within
RMSEPP RMPP and RMSEPP are both defined
benefit plans
On] Apmi 2012 - after the granting of state aid
by the European Commission on 21 March 2012
~ almost all of the pension habilities and pension
assets of the Royal Mail Pension Plan (RMPP)
built up until 31 March 2012 were transferred
to HM Government On this date the RMPP was
also sectionalised with Royal Mat! Group Limited
and Post Office Limited each responsible for their
own sections in future This pensions transfer
left the RMPP fully funded on an actuarial basis
mrespect of historic liabilities at this date
‘The balance sheet pension position under IAS19
moved from a deficit of £206 milhon at March
2012 io an asset of £97 million at March 2013
‘The improvernent in position is primarily due
to the transfer to government noted above.
Both defined benefit plans closed to new members.
in March 2008 and RMSEPP closed to future:
accrual on 3] December 2012 New employees
are offered membersmp of RMDCP
Pension cash payments for all plans
The future funding of ongoing pension
contributions into RMPP and deficit payments into
RMSEPP is being discussed with the respective
pension trustees The payments for 2013 disclosed
in the table below were based on the arrangements
that were in place for the 2012 financial year
2013-2012
sm
Regular pension contributions (24) (24)
Fanding of the pension deficit -
RMSEPP @) -
Payments relating to redundancy (2) @
Net cash payments (28) (27)
‘The regular future service contributions cash
rate for RMPP expressed as a percentage of
pensionable pay remamed at 171% (2012-17 1%)
‘The regular rate of employee contributions for
the RMPP remams unchanged at 6%
Events after the reporting period
In accordance with the funding agreement with
government announced on 27 October 2010
for which state aid approval was received on
28 March 2012 Post Office Lirmted received
£415 million of funding on 2 April 2013
34
POL00026694
POL00026694
Performance review
Business risk
The information below details the key business risks their mpact and how the Post Office manages these risks
Key nsk
Changes in customer
preferences
‘There is decline m the traditional
Post Office income streams as customer
preferences change
New income streams may fail to grow
sufficiently to exceed the losses from
traditional products in decline
Funding
Asset out innote 2 Post Office Limited
has a funding agreement with
government until 31 March 2015 with
a working capital facility unl 31 March
2016 There isa risk that funding
beyond these dates cannot be
negotiated or that state aid approval
isnot granted in time
Business
transformation
programmes
We are managing a sigmificant number
of change programmes to modernise
the Post Office and enable its processes
to operate independently of those
of Royal Mail Group These include the
network Crown and IT transformation
programmes The success of the Post
Office strategic plan depends on the
successful realisation of benefits from.
these programmes
Annual Report and Financial Statements 2012 13
Impact
‘The Post Office might not be able to
reduce its reliance on government
subsidy
Funding s required beyond 2015
mm order to complete the business
modermsation and sustain the non
profitable elements of the network
The working capital facility is required
to fund the cash in the network
Failure to implement the modernisation
programme would leave the Post Office
with an unsustainable cost base and a
continued reliance on significant
government subsidy
Mitigation
We have introduced new services in
growth areas and continue to refine and
develop these product offerings There
are detailed plans in place to deliver the
growth trajectory and progress against
these plans is monitored ngorously
Planning 1s well underway for the
future period beyond 2015 and
discussions will commence shortly
with government
We have detailed plans in place to
manage the transformation and ensure
itis delivered within budget and on
time Delivery is tracked monthly by
a Transformation Board made up of
Executive Committee members which
provides direction and oversight over
the programmes delivery
POL00026694
POL00026694
Operational
Overview Teview
Key nsk
Engagement risk
‘The support of our staff and
subpostiasters and engagement
wath them during thts sigmfcant
tume of change ts key to the successful
delivery of our strategy Withdrawal
or lack of support from our staff or
subpostmasters in the network could
cause delays in the Post Office
transformation programmes and lnmt
our abihty to meet business objectives
Regulatory
& compliance
There1sa risk of non comphance with ,
the changing regulatory environment
The Post Office operates under an
extensive regulatory environment
mcluding areas such as financial and
postal services procurement
competition law and data security
Business continuity
‘The Post Office has particular
‘operational risks relating to disruption
of its services
This includes adverse weather conditions
industrial action systems breakdown,
and the failure of a critical suppher
Performance
review
Fimanciat
Governance I statements
35
Impact
Lack of support from our staff and
subpostmasters would jeopardise our
ability to meet our strategic goals of
growth profitabihty and reduced
reliance on government subsidy
Failure to meet regulatory requirements
could result in fines and negative
impacts on our reputation as well as the
costs of investigation and resolution
Breakdowns in the network would
reduce quality of service mcrease
costs and/or damage our reputation
Mitigation
Wemaintain a fluid and comprehensive
engagement programme with unions
stafl and subpostmasters These include
regulat meetmgs with the National
Federation of Subpostmasters (NFSP)
the Cornmumication Workers Union
(CWU) and Unite semor management
briefings to staff and subpostmasters
andevents to engage our people in our
vision and strategy
We havea people plan aimed at addressing
staff motivation and skillneeds Ths
includes development of new leadership
and reward frameworks and increased
focus on recruitment and traming
Our legal and compliance team works
closely with the relevant business
owners in identifying new requirements
and monitoring compliance against
existing ones
The Risk and Comphance Committee
monitors key risks and our actions to.
mitigate them
Disaster recovery and business
contmuity plans are under continuous
development and review in line with
business change This includes
contingency planning and training
mm the event of disruption such as
industrial action or FT failure
Key supphers ability to continue to
meet the Post Offices requirements 1s,
closely monitored
POL00026694
POL00026694
36
Governance
Annual Report and Financial Statements 201213
POL00026694
POL00026694
Performance
Teview
Operational
review
Fimancial
statements
Overview Governance
POL00026694
POL00026694
38
Governance
Board of Directors
Annual Report and Financial Statements 2012 13
POL00026694
POL00026694
Overview
Operational
review
Performance
review
Governance
Financial
statements,
39
From eft to right
Tim Franktin
Alasdair Marnoch
Paula Vermells
Alice Perkins
Chnis Day
Susannah Storey
Neil McCausland
Vuginia Holmes
Alwen Lyons
POL00026694
POL00026694
40
Governance
Board biographies
Board
Post Office Limited's Board of Directors
is Chaired by Alice Perkins CB As Non-
Executive Chairman, she 1s independent
both of the executive management of
Post Office Limited and of its special
Shareholder The Board comprises the
Chairman, five other Non-Executive
Directors and two Executive Directors
Board responsibilities
The responsibilities of the Board include
setting the business’ strategic aims, putting
im place the leadership to deliver them,
supervising the management of the business
and reporting to the Shareholder
‘There are a number of Board committees
which deal with specific topics requiring
independent oversight, including audit, nsk
and comphance, nominations of the Board,
pensions and senior remuneration
Each committee is chaired by a
Non-Executive Director and operates
within its own agreed, documented
Terms of Reference
Annual Report and Financia! Statements 201213
Alice Perkins CB
Post Office Limuted Chairman
(Chairman of Nominations
Sub-Committee and the Mutualisation
Sub-Committee)
Alice Perkins hada wide ranging career in the
awvilservice which included policy and
operational roles mhealth social security and
public spending in HM Treasury She was the Civi!
Services Group HR Director m the Cabinet Office
between 2001 and 2005 Before joining the Post
Office as Charman in September 201] Alice
served as Non Executive Director on the boards of
Littlewoods BAA and TNS where she also chatred
the Remuneration Committee Alice is an external
member of the Oxford University Council a
busmess coach at the JCA Group and a member of
the faculty at Meyler Campbell where she teaches
semtior executives how to coach
Neil McCausland
Senior Independent Director
(Chairman of Remuneration
Sub-Committee)
Neil McCausland has had a portfolio of Non
Executive roles over the last 10 years He1s
currently Chairman of three compames
Snow+Rock a retail chain selling skung and
outdoor brands bikesand running gear sk n a
chain of skin treatment clinics specialising n laser
haw removal and Create Health a chain of
IVF clinics Until recently he was Chairman of
footwear company Kurt Geiger and a Governor of
Nuffield Health which operates hospitals and
health clubs Neil began his career at Marks &
Spencer before becoming Managing Director
of C&A and Chief Executive of NAAFI an
MODagericy
Tim Franklin
Non-Executive Director
Tim Franklin joined the Board as a Non Executive
Director on i9 September 2012 Tim was
Cief Operating Officer of the Co operative
Banking Group until the end of 2011 having
previously served as Managing Director of the
Britannia Building Society Prior to that he was
Director of Customer Programmes and Loyalty
and Managing Director of Savings at Barclays
Tims experience extends across the pnvate and
public sectors He 1s also.a Non Executive Director
of HM Land Registry and was previously on the
Boards of Reclaim Fund Limited Mutual Plus
Lumted and the Link Cash Machmes Network
POL00026694
POL00026694
Operational I Performance Financial
Overview _I “review review I Governance I statements 41
Virginia Holmes Paula Vennells
Non-Executive Director Chief Executive
(Chairman of Pensions Sub-Committee)
Virgmia Holmes brings to the Board extensive
knowledge of the financial services industry
including both investment management and
banking Her experience includes serving as Chiet
Executive of AXA Investment Managers in the UK
and more than a decade with the Barclays Bank
Group where she ultimately served as Managing
Director of the Barclays Bank Trust Company
‘Virginia currently serves on the boards and chairs
the investment committees of both the Alberta
Investment Management Corporation in Canada
and the Universities Superannuation Scheme in
the UK She also serves on the boards of Standard
Life Investments Lirnited and JPMorgan
Claverhouse Investment Trust ple
Alasdair Marnoch
Non-Executive Director
(Chairman of Audit, Risk and
Comphance Sub-Committee)
Alasdair Marnoch joined the Board of the Post
Office as a Non-Executive Director on 23 May 2012
Achartered accountant he chairs the Boards
Audit Risk and Comphance Sub Commitee
which reviews the statutory accounts and
fmancial controls Alasdair has had wide
experience as Finance Director of a number of
FMCG and service businesses including listed
companies Most recently he served as CFO of the
Equinit: Group a leading provider of complex
administration and processing services to the
public and private sectors
Susannah Storey
Non-Executive Director
Susannah Storey is the representative of the
Department for Business Innovation and Skills on
the Post Office Board She has recently been
appointed Directer of Corporate Strategy and
Change at the Department of Energy and Climate
‘Change Susannah has been a civil servant since
2006 workingat the Shareholder Executive until
2013 ina number of roles including Head of the
Royal Mail and Postal Services team and Chiet
Operating Officer Prior to the Shareholder
Executive Susannah worked m investment
banking at Citigroup and Schroders speciahsing
in UK corporate finance
Paula Vennells has worked for the Post Office
since 2007 in anumber of senior roles including
Managing Director She became Chief Executive
‘onl Apnl 2012 Previously Paula spent five years
with Whitbread plc latterly as Group Commercial
Director She began her career with Unilever and
LOréal and held Directorships in sales and
marketing with a number of major retailers
including Dixons Stores Group and Argos She1s
currently a Non Executive Director and Trustee
for the Hymns Ancient and Modern group
Chris Day
Chief Fmancial Officer
Chis Day joined the Post Office in August 2011
from the BBC where he had been Group Financial
Controller since 2005 Prior to that Chris spent 14
years in FMCG with Grand Metropohtan/Diageo in
a succession of treasury and corporate finance
rolesin the UK and as Finance Director in the
Netherlands and subsequently in Germany/
Austria Earherin his career Chris worked
asa financial management consultant at KPMG
having started his career with Beecham Group
Alwen Lyons
Company Secretary
Alwen Lyons joined the Post Office in 1984 asa
graduate and has worked at a senior levelin
several directorates including Network Finance
and Marketing She became Company Secretary
in July 2011 after leading the project to separate
Post Office Limted from Royal Mail Group
POL00026694
POL00026694
42
Governance
Corporate governance
The shares 1n Post Office Limited
(the Post Office) were transferred from
Royal Mail Group Limited to Royal Mail
Holdings plc on 1 Apnl 2012, and the Post Office
has operated independently since that date
Corporate governance principles
As the Post Office 1s not a company whose shares
are listed and traded ona public exchange itis not
formally required to report on its comphance with
the UK Corporate Governance Code (the Code)
Nonetheless the Board of the Post Office believes
this is an appropnate benchmark for reporting on
corporate governance
During the year the Post Office has further
established a full Board and Committee structure
and has set principles for good governance which
follow the provisions of the Code, so far as they can
apply toa government owned entity which has no
private or inshtutional external Shareholders
Legal ownership structure
‘The Post Office 1s a wholly owned subsidiary of
Royal Mail Holdings ple The Secretary of State
for Business Innovation and Skills (BIS) holds a
special share in Post Office Limited The Special
Shareholder s rights are set out in the Post Office
Limited articles of association
Legal ownership structure
Shareholder
Execubve (within the
Department for
Business, Innovation
and Skills)
Royal Mail
Holdings pic
Astrong Ink remains between Royal Mail Group
Limited and the Post Office the Post Office hasa
strategic agreement in place to contmue to supply
Royal Mail Group Limited productsand services
through ttsnetwork That link1s currently reinforced
inthe corporate structure by a common group
holding company (Royal Mail Holdings plo) which
holds shares in both Post Office Limited and Royal
Mail Group Limited
Neither Royal Mail Holdings pic nor BIS through
its Shareholder Executive (ShEx) have any
day to-day involvement in the operations of the
Post Office or the management of its branch
network and staff
The Board
Ahie Perkins was appointed as Chanman of the
Board in July 2011 marking the first step on the
road to building an independent Board for the
Post Office Neil McCausland joined in September
2011 as the Senior Independent Director and mn the
year under review a further four Non-Executive
Directors have been appointed each bringing
particular skilis and experience relevant to the
business targets of growth modernisation
customer focus and business efficiency
‘The Board is unusual in having a fernale Chairman
and Chief Executive and being equally balanced
between men and women The Board compnises
two Executive Directors and six independent
Royal Mail Group
Limited
Annual Report and Financial Statements 2012 12
First Rate
Exchange Services Post Office
Holdings Limited ‘Management Services
oint venture Lumnted
with Bol)
First Rate Exchange
Services Limited
Operational I Performance Financial
Overview review Teview Governance I statements
POL00026694
POL00026694
43
Non Executive Directors including the Chairman
‘This provides a strong level of independent
challenge to decision making and enables the
Post Office to call ona wide range of experience
and opimon Short biographies of all members
of the Board appear on pages 40-41
‘The Nominations Committee hiaises with ShEx
in BIS to obtain the Special Shareholder s consent
for all Directors’ appointments The Remuneration
Committee agrees the terms under which they
serve including Non Executive Directors fees and
any changes in the total remuneration for each.
Executive Director The Executive Directors
contracts provide for six months notice of
termination tobe given by the Director and 12
months notice to be given by the orgamsation
Non Executive Directors are not employees of
the Post Office but provide services under the
terms of an individual Letter of Appointment
signed at the commencement of their Directorship
All Non Executive Duectors are entirely
independent of the Post Office having no ether
connection or financial interest other than as
customers and taxpayers
Non-Executive Directors’ terms of office
Unexpred
Date ot Term termat Committee
Director appointment ofoffice 31 March 2013 memberships
Rolling Nominations
Alice 21 July 12 month (Char)
Perkins 2011 contract n/a Remuneration
Tim 19September Byears,
Frankhn 2012 years 172 days ARC
Pensions (Chair)
Virgima 4 Apni 2years, —_ Nominations
Holmes 2012 3 years days Remuneration
Remuneration
Neil 22 September 2years (Chair) ARC
McCausland 2011 4 years 175 days Nominations
Alasdair 23 May 2years
Marnoch 2012 Byears 58days — ARC(Cham)
Susannah 18 Apnl 2 years ARC
Storey 2012 Syears 18 days Pensions
Board meetings
‘The Board meets at least eight times a year with
an additional strategy away day and has a format
schedule of matters reserved tot
‘The Board s responsibihties include setting
the Post Offices strategic ams puttingin place the
leadership to put them into effect supervising the
management of the business and reporting tothe
Shareholder During the year to3] March 2013
the Board has focused on financial performance
network transformation and the people and
capability of the business Over the last six
months the Boards primary focus was on
setting the strategic direction for the business in
preparation for completion dunng 2013-14 of the
Strategic Plan and Funding Agreement with the
government for the period after March 2015
During the year under review the Board estabhshed
sub committees which met regularly toundertake
more detailed reviews in specialist financial
reporting areas as recommended by the Code
Such focus areas included accounting pohcy and
practices nskand controls pensions executive
remuneration the processes for evaluation of
performance and the nomination and appointment
of new Directors or the removal of Directors from.
the Board The full terms of reference for the
Board sub-committees can be found on the
Post Office website
The table on the following page shows the
attendance of the Directors at meetings of the
Board and its preipal committees during
the year
POL00026694
POL00026694
Governance
Corporate governance continued
1 5
f, # « &s
$2 2 22 EEA
is 8 Goa #
Director g 8 83 #2 3 a8
Alice Perkins 8/8 - 4/4 2l2 - 3/3
Chris Day 8/8 - - - UT 3/3
Tim Frankhin* 5/5 2/3 - - - 2/2
Virginia Holmes 8/8 - 4/4 22 UT 2/3
Neil McCausland 8/8 4/4 4/45 2/2 - 3/3
Alasdair Marnoch* WW 414 - - - 3/3
Susannah Storey* 8/8 3/3 - - 6/6 2i3
Paula Vennells 8/8 - - - - 3/3
* From date of appointment
Board sub-committees
Audit Risk and Compliance Committee
The Aucht Risk and Comphance Committee (ARC)
1s made up of four Non Executive Directors and ts
chaired by Alasdair Marnoch The ARC considers
Post Office Limited s nancial reporting including
accounting policies and internal financial
controls it looks at the levels of risk which exist
within the Post Office and the steps taken to
mitigate those risks
One of the ARCs primary responsibilities during
the period was to review both the half year
trading statement and the full year friancial
statements to assess the validity of assumptions
made the accounting policies used and consider
the ways in which the Post Office should present
tts financial performance
Asecond major responsibility has been to
promote the development of a nisk management
framework suited to the complex nature of
the Post Office busmess This will take some
time, and isa key focus area for the coming year
‘The development of risk management and control
procedures and the establishment of a full internal
audit programme are areas of high priority
In this penod a new Head of Internal Audht was
appointed and the transition from using the Royal
Maul Group Limiteds internal audit function to
building a new internal team began
‘The ARC works with both the internal audit
team and Ernst & Young the external auditor
The appomtment and terms of engagement
of the external auditor including the proposed
fee structure were considered and their
independence assessed The Audit Comrmittee
considered the scope and planming of the external
financial audit and assessed the effectiveness
of the audit process There 1sno current intention
to change the existing audit relationship but the
ARC will continue to monntor the independence
of the auditor and will in future years consider
Annual Report and Financial Statements 201213,
whether the audit should be put out to
compentive tender in line with best practice
applying to hsted companies
Remuneration Committee
The Remuneration Committee 1s made up of
three Non-Executive Directors and is chaired
by Neil McCausland the Senior Independent
Director The committee 1s responsible for making
recommendations to the Shareholder on the
remuneration of the Executive Directors in
accordance with thearticles of association In
doing so it also reviews the remuneration policy
and packages of the most senior leadership team
being the roles which report directly to the Chef
Executive It also obtains information on salary
levels across the business and within external
‘orgamisations of comparable size 1n order to set
remuneration levelsin an appropriate context
‘The Chief Executive may attend meetings at the
invitation of the Chairman to discuss matters
relating to the remuneration of the Clnef Financial
Officer and members of the Executive Committee
but the commuttee upholds the principle that no
individual may be involved in discussions
concerning ther own remuneration
‘The committee 1s able to consult on remuneration
matters with the Human Resources and Corporate
Services Director with other members of the
Human Resources tearn and with external
consultants In the year under review advice
was primarily obtained from New Bridge Street
on market practice and benchmark development
New Bridge Street consultants have no other links
with the Post Office which could compromise
their independence
No material changes can be made to Directors
base salaries benefits or incentives without the
Special Shareholders consent Further details of
the schemes now in place and a table setting out
the remuneration paid to all Directors1n the year
to3i Match 2013 are provided im the Directors
remuneration report on page 49
Nominations Committee
The Nominations Committee 1s made up of
three Non Executive Directors and ts chaired
by Alice Perkins theChairman It met for the first
tume in December 2012 with Director appointments
upto that time having been made according
to specific critena following discussions with
the Special Shareholder
The primary role of this commuttee is torecommend
tothe Board any changes in Boatd membership
and manage the process for recruiting and
replacing Directors The Board 1s complete and no
immediate changes are expected The committee
will keep under review the balance of skilis
experience and diversity available within the
Board and each of the Board sub committees
The Nominations Commuttee will also oversee the
process for Board andcommnttee performance
evaluation and monntor talent and diversity,
Performance
review
Operational
Overview review
Governance
POL00026694
POL00026694
Financial
statements
45
(see page 26) The Chief Executive may attend
meetings at the invitation of the Chairman to
discuss matters relating to the talent and
diversity policies
Pensions Committee
‘The Pensions Committee 1s made up of two
Non-Executive Directors and one Executive
Director and 1s chaired by Virginia Holmes
With the pensions transfer in April 2012
(see page 33) government assumed the
obhgations for past service habihties of the Royal
Mai! Pension Plan (RMPP) in return for a
substantial transfer of assets The transfer was.
made possible following European Union
approval for UK Government state aid
As part of the transfer the pension fund was
sectionalised with the Post Office assuming
responsibility for that part of the pension fund.
which relates to Post Office employees
and pensioners
‘The Board has delegated authority to the Pension
Sub Committee to appomt professional advisers
to enter into negotiations with the trustees of the
RMPP on the forthcoming valuahon of the funds
to agree the investment strategy for the Post Office
section and to momtor funding levels and
mvestment performance The committee reports
back to the full Board so that its work can dovetail
with executive recommendations and union
negotiations on pay and benefits
In August 2012 the committee recommended to
the Board the appointment of Aon Hewitt as its
mvestment adviser Working with Aon Hewitt and
with Towers Watson is actuarial adviser the
commnttee has satisfied itself as to the fair value
of assets transferred into the Post Office section
at 1 Apnl 2012 The commnitee has agreed a
revised investment strategy with the trustees
of the RMPP with the aim of mamtaiming the
Jong term sustainabahity of the scheme and
protecting against an unmanageable increase in
habihties for the Post Office in the future
Mutualisation Sub-Committee
The Mutualisation Sub-Committee 1s chaired by
Alice Perkins and its memberships the same as
that of the full Board It met for the first time on
4 July 2012 the week in which the government
pubhshed the response to its consultation
Building a Mutual Post Office The commttee 1s
responsible for ensuring that the work to develop
proposals for the mutualisation of Post Office
Limited is provided with strategic direction has
the appropriate level of stakeholder involvement
and has adequate support
‘The focus of the committee has been toconstder
the financial cultural and business implications
‘of mutualisation to ensure that progress on
mutualsation supports and enables the successful
delivery of the Post Offices transformation
programme The committee looks at mutual ways of
working to improve the performance of the business
and the Post Office s progress towards mutualisation:
Performance evaluation
‘The Board intends to carry out an annual evaluation
of the effectiveness of the Board and of the Board
sub committees The initial performance
evaluation will take the form of an assessment
by the Chairman External evaluations willbe
completed every three years
Executive Committee
Below main Board level the Executive Committee
(ExCo) 1s the most senior management body and
is made up of the Chief Executive and each of her
durect reports supported by some business unit
heads who report to members of the Executive
Committee The committee works within the
delegated author ties estabhshed by the Board
‘The ExCo implements the strategy agreed by
the Board and monitors business performance
and development at a day to-day level Itmeets
formally at least once a month to discuss
proposals for new business development receive
financial and other performance reports and
address urgent »ssues that have arisen within
the business and require semior level resolution
‘Twice yearly it eviews the results of personal
performance assessments undertaken throughout
the organisation
The Cluef Executive Chief Fmancial Officer and
Company Secretary attend both Board and ExCo
meetings This faciitates and strengthens the
communication channels between the senior
leadership team and the Board and its committees
‘The Terms of Reference of the ExCo have been set
out im writing and are available to download from
the Post Office website
Risk managernent
The Post Office has adopted the requirements
of the FRC Guide to Corporate Governance and
established an approach to the management
ofnisk tailored to meet the demands of anew
business with ambitious plans for expansion
mits chosen markets
‘The Board takes ownership of risk management
through its Audit Risk and Compliance
Committee (ARC) The business Risk and
Compliance Commnttee reports into the ARC
ands responsible for
+ review and challenge of risk management
+ approval and endorsement of policies
tomntigatenisk and
+ development of the risk management
framework
This committee 1s chaired by the Director of
HR and Corporate Services and reports to the
Post Office ExCo The committee comprises.
members of the ExCo and other semor managers
POL00026694
POL00026694
46
Governance
Corporate governance continued
During the year under review the Post Office set
upits own Internal Audit department as part of a
three lines of defence model (see diagram below)
Internal Audtt provides independent assurance
and advice on the risk management framework
and its future strategy and evolution and reports
directly tothe ARC
Comphance with the business regutatory
responsibihties in Fmancial Services is managed
through established joint regulatory risk
committees with the Post Offices partner the
Bank of Ireland (UK) pic
Risk framework
‘The Post Office has set out the components of risk
management in its risk framework This framework
1s described at high level in the diagram below
Strategic objectives q rogaine I
Ronmngthebusmess €]
Roskmanagement 3
+ Identification Internat B
‘Assessment q controls &
‘Management framaework
+Reporung
Assurance measures and monttoring
Business continmty <4
Istlinefunctions > 2ndline —3rdline
‘The framework ubhsesa three lines of defence
inodel to establish accountability and responsibihty
for the effective operation of this framework
+ Day-to-day risk management I
( Ast Line of Defence inl ‘ess I
er
( ‘3rd Line of Defence + Independent assurance
Ist line of defence 1s responsible for managing risk
in day to day business operations
2nd line of defence comprises central functions
whch oversee regulatory comphance and provide
advice on the operation of the framework
3rd line of defence provides independent
assurance in respect of the Post Offices regulatory
risk management
‘The risk framework is supported by the Risk and
Compliance team with dedicated resources in
place to administer the tools and commuttees
muse to manage risk
Annual Report and Financial Statements 2012
Progress
Over the past 12 months each directorate has
gone through a process of identifying and
assessing the nsks associated with achievement
of its respective objectives In addiion the key
strategic prograrnmes of the business capture
them own risks
The top 12 risks from each of these sources together
with the respective mitigation plans are reviewed
by the Risk and Compliance Committee toassess
the robustness of risk assessment and management
‘The above assessment will be supplemented in
the first quarter of the new financial year with a
top down assessment of the Company s risks by
the Post Office Executive Committee
Rusk appetite
Over the next 12 months the Post Office willbe
fully developing its risk appetite statements for
each of the key risks with a view to establishing
where additional tisk may be taken to generate
new opportunities and/or where further treatment
of existing risks is required
Business continuity
As part of the development of risk management
the Post Office is bringing together a wide range
of business continuily arrangements throughout
the business under one central pohcy and
governance frarnework to ensure that the Post
Office 1s capable of withstanding any significant
threat to its ongoing operations
Performance
review
Operational
Overview Teview
Governance
POL00026694
POL00026694
Financial
statements
47
Directors’ report
‘The Directors present the Group Annual Report
and Financial Statements for Post Office Limited
‘These financial statements relate to the 53 weeks
ended 31 March 2013
Principal activities
‘The Group s principal achvities are the provision
of access toa wide range of mails government
financial travel and retail services through its
network of Post Office branches and other
channels across the United Kingdom (UK)
Review of the business and expected
future developments.
Information contained within the Chief Executives
review (page 6) and the Financial review (page 30)
consiitutes the busmess review required by the
Compames Act 2006 ands incorporated ito this
Directors report by reference
Results and dividends
The profit after taxation for the year was
£49 million (2012-£30 million) The Directors
donot recommend the payment of a dividend
(2012-mil dividend)
Pensions
In note 19 of the financial statements on 1 April
2012 almost all of the pension assets and habilities
of the Royal Mail Pension Plan were transferred
to HM Government On this date the Royal Mail
Pension Plan was aiso sectionalised with
Royal Mail Group Limited and Post Office Limited
responsible for their own sections All employees
were transferred to be directly employed by
Post Office Limited on the same date
Royal Maul Group Limited 1s the principal
‘employer in the Royal Mail Senor Executive
Pension Plan and for the Royal Mail Defiried
Contribution Plan Post Office Limited became
a parlicipating employer for both of these plans
with effect from 1 Apnl 2012 Post Office Limited
continues to account for approximately 7% of the
Royal Mail Senior Executive Pension Plan scheme
as it has done previously Both defined benefit,
schemes were closed tonew members in 2008,
and the Royal Mail Senor Executive Plan closed
on 31 December 2012 New employees are
offered membership of the Royal Mail Defined
Contribution Plan
‘The consolidated balance sheet pension surplus
of £97 million (2012-£206 millon deficit) has
arisen pnneipally due to the transfer of pension
assets and liabilities to HM Government
Pnor tol Apni 2012 Royal Mail Group Lumted had
the legal retationshup with the trustees of both
defined benefit plans and as such, the trustees
held Royal Mail Group Limited hable for the
actuarial deficit in the scheme Allemployees
were employed by Royal Mail Group Limited and
seconded to Post Office Limited under an
agreement between Post Office Limited and
Royal Mail Group Limited Post Office Limited met
the full costs of employment and was responsible
for the funding of the pension deficit attributable
to these employees Consequently Post Office
Limited recognised a balance sheet deficiton full
adoption of [AS 19 by Royal Mail Holdings ple
based on employee numbers over 12 years which I
represented approximately 7% of the total balance
sheet deficit at that time The net pension mterest !
deficit recovery payments and actuarial gains or
losses were also allocated on this basis The
current service cost regular future service
contributions and curtailments were computed
separately for Royal Mat] Group Lumted and Post
Office Lumied based on common factors/ates
Political and charitable contnbutions
During the year charitable coniributions of
£989702 (2012-£320 108) were made No politcal
contributions were made in the year (2012-ml)
Research and developrnent
Research and development expenditure during
the year amounted tom (2012-n1l)
Policy on the payment of suppliers
‘The Post Office policy is to use its purchasing
power fairly Payment terms are agreed in
advance Its policy to abide by the agreed terms
‘The business has sought to comply with the
Department for Business, Innovation and Skills
(BIS) Better Practice Code The number of days
purchases in creditors at the balance sheet date
was 24 days (2012-33 days)
Land and buildings
‘The net book value of land and buildings based.
‘ona historic cost accounting policy and excluding
fit out 1s £11 million (2012-£11 milion) In the
opinion of the Directors the aggregate value of the
Post Offices land and buildings at the year end
exceeded their net book value by £73 milhon
(2012-£45 million)
Directors and their interests
‘The following served as Directors of Post Office
Limited during the year ended 31 March 2013 and
remain in post as at the date of approval of these
financial statements
A Perkins CB
NW McCausland
V A Holmes {appointed 4 April 2012)
SJ Storey (appointed 18 April 2012)
A Marnoch (appointed 23 May 2012)
‘TA Frankhin (appointed i9 September 2012)
PA Vennells”
CM Day*
‘Executive Directors
No Director has a beneficial interest in the
share capital of Post Office Limited Allthe
POL00026694
POL00026694
48
Governance
Directors report continued
Non-Executive Directors are considered to be
independent havingno financial connection
with Post Office Limited other than by virtue
of the fees paid for their services asa Director
‘The emoluments of Directors are set out in the
Directors remuneration report opposite
Insurance and qualifying third-party
indemnity provisions for Directors
Post Office Limited maintanns Directors and
officers habihty insurance for the benefit of all
Directors and officers of Post Office Lirmited
A partial qualifying third party indemnity
provision (as defined in section 234 of the
Compemes Act 2006) was and remains mn force
for the benefit of all the Directors of Post Office
Limited and former Directors who held office
durmg the year The mdemmty 1s granted under
article 129 of the articles of association of Royal
Maul Holdings pic the ultymate parent company
The indemnity 1s partialin that tt does not
allow Post Office Limited to cover the costs of
an unsuccessful defence of a third-party claim
People
‘Our goal is to ensure that all employees are
engaged and involvedin the business and are
aligned and equipped to meet business objectives
As part of our commitment to drive better service
for customers we continue to focus on improving
the quahty of our leadership professionalising key
roles recognising the importance of diversity and
achieving greater employee involvement in
decision making
Training and development programmes have
been put in place to support our ambition to create
a high performance customer criented sales
culture This ambition is further supported by
a range of bonus schemes which are based on
the achievement of business targets
Underpinning all of this 1s aneed for dignity at
work where everybody feels valued ands treated
fairly and equally with everyone playing a full
part in helping the business to achieve its goals
Regular employee engagement surveys are
conducted to allow employees an opportunity,
to express their views and opinions on important
issues This two way communication encourages
allemployees to contribute to making business
improvements
Corporate responsibihty
Post Office Limited 1s commuted to carrying out
its activities m a socially responsible manner in
respect of the envizonment employees
customers and local communities Further
mformation can be found on page 28
Annual Report and Financial Statements 201213
Disabled employees
The Post Offices policy 1s to give full consideration
toapphcations for employment from disabled
people Employees who become disabled while
employed receive full support through the
provision of training and spectal equipment
to facihtate continued employment where
practicable The business provides training
career development and promotion to disabled
employees wherever appropriate
Post balance sheet events
In accordance with the funding agreement with
government announced on 27 October 2010
for which state aid approval was received on
28 March 2012 Post Office Limited received
£415 mullion of funding on 2 April 2013
On 21 June 2013 Post Office Lirnited launched
a consultation with members of the Royal Mail
Pension Plan: on a proposal to change the terms
ofthe plan which wil! conclude on 25 August
2013 Post Office Limited will consider the
feedback before making its final decision and
communicating it to colleagues
Going concern
After analysis of the financial resources available
and cash flow projections for Post Office Limited
the Directors have concluded its appropriate
to prepare the financial statements on a going
concern basis Further details are provided in
accordance with the fundamental accounting
concept in note 1 of the financial statements.
Audit information
The Directors confirm that so far as they are
aware theres no relevant audit information
of which the auditor is unaware and each
Director has taken all reasonable steps to
make themselves aware of any relevant audit
information anid to establish that the auditor
1s aware of that information
Auditor
‘The auditor Ernst & Young LLP is deemed to
be reappointed under section 4872) of the
Companies Act 2006
AlwenLyons
Secretary, Post Office Limited.
(company number 2154540)
148 Old Street London ECIV 9HQ
16 July 2013
POL00026694
POL00026694
Operational I Performance
Financial
I Overview Teview review Governance I statements
49
Directors’ remuneration report
Neil McCausland
Chair, Remuneration Committee
T welcome this opportunity to outline our progress
on executive remuneration during the year
Remuneration is a highly sensitive issue in the
challenging economic environment in which
we operate Asa publicly owned business funded
by the taxpayer with a commercial and public
purpose we recognise the need for transparency
and accountabihty on Directors remuneration
and the need to establish a responsible approach
toremuneration
Once the Post Office Board appointment process
was complete in September 2012 a Remuneration
Committee was set up to take responsibility for
executive remuneration The members of the
committee are independent Non Executive
Directors (NEDs) and no individual participates
in discussions about thei own remuneration
We have used the recommended governance
pnnciples and proposed legislative changes on the
disclosure of executive rernuneration to prepare
this report and toaid the development of the
remuneration strategy
The committee recommends the strategy and
policy for Executive Directors remuneration
to the Post Office Board for its approval taking
into account their potential impact across the
organisation Prior written consent of the
Special Shareholder is required in respect of any
variation or amendment to the remuneration
of the Executive Directors During tius first year
Ihave held regular dialogues with officials
and munisters in the Department for Business
Innovation and Skills to build working
relationships and a common understanding
of the issues
‘The Post Office has begun the journey toturn
around the business to become sustainable
organisation characterised by a strong performance
culture and active stakeholder participation and
engagement Weare planning for the future of the
business so the longer term remuneration pohcy
becomes very important We have dehberately
made no changes to the remuneration policy for
the Executive Directors during ths first year as,
we build track record of solid achievements
against challenging targets
The framework for the Executive Directors
Temuneration was inherited from Royal Matt
Group An extensive remuneration benchmarking
exercise was undertaken during the year and data
from similar sized organisations in three distinct
sectors was considered ‘The organisations used
for the benchmarking activity came from the
mutual government-owned and PLC sectors
The results of the benchmarking showed that the
levels of Post Office executive reward for both
fixed and total remuneration are substantially
below the market median The Remuneration
Committee mindful of the governments
constrannits on executive pay agreed that while tt
would not recommend any changes, the relative
market position of the Executive Directors would
be kept under review Any recommended future
change in remuneration for Executive Directors
would be subject to Special Shareholder approval
‘The Chief Execute Paula Vennells and the
Chief Financial Officer Chris Day were appointed
totheir roles prior to] April 2012 the date at which
the Post Office began operating independently
from Royal Mail Group While the responsibihties
of the Chief Executive and Chef Fmancial Officer
have increased signmficantly their remuneration
framework remains unchanged
For the financial year ended 31 March 2013
the committee was satisfied that there had been
a clear link between the performance of the
business and payments under the two incentive
plans the Short Term incentive Plan (STIP)and
the Long Term Incentive Plan (LTIP) Details of
STIP and LTIP targets and the results achieved
are shown on pages 53 54
‘The remuneration policy will remain largely
unaltered for 2013-14 and the Remuneration
Committee is in discussion with the Special
Shareholder on the future remuneration
framework for executive Directors The Post Office
isundergoinga fundamental transformation and
we anticipate that each year progressively more
demanding targets will be set for the STIPand
LTIP in order to achieve our goal of financial
sustamabinty
The Remuneration Committee 1s comfortable that
the current policy providesa strong link between
reward and performance and I commend this
report to our stakeholders
POL00026694
POL00026694
50
Governance
Directors’ remuneration report continued
The remuneration report
‘This report has been prepared in accordance
with the provisions of the Companies Act 2006
to the extent that they are applicable for an.
unhsted company The committee has also where
practicable adopted early the proposed legislative
requirements for disclosure of Directors pay beng
put forward for UK listed compames
Accordingly the remuneration report has been
split into two sections a policy report and an
implementation report The policy report sets
out the policy for the remuneration of Directors
andits hnk to the business strategy The
implementation report sets out how this policy
‘was applied during the year under review and the
remuneration received by Directors Both sections
of the report (pages 49 55) have been approved by
the Remuneration Committee and the Board
Neil McCausland
Chan, Remuneration Committee,
Post Office Limited
GRO
Annual Report and Financial Statements 201213
Policy report
‘The committee is responsible for setting the
remuneration packages for the Chief Executive and
Chief Financial Officer and deterring the overall
remuneration policy for the Chief Executive s
direct reports and the Company Secretary
The committees intention 1s that the remuneration
policy should align with the business strategy
and risk profile so that individuals are motivated
to deliver the Post Offices objectives and protect
Its brand value The Post Office remuneration
strategy 1s based on the following
+ attracting and retaining the right people
within an agreed policy to lead and deliver
the strategic plan
using incentives appropnately to reward
the achievement of the turnaround strategy
and promote the long-term viability of
the orgamsation
reinforcing an emerging culture of co-ownershp,
and partnership and
providing a transparent approach tothe
disclosure of pay
Remuneration policy summary
‘The table opposite describes the current
remuneration pohcy and the breakdown of the
packages for the Executive Directors which
comprise fixed pay (base salary benefits and cash
in heu of pension contbuttons) and pay at risk
(STIP and LTIP)
‘The remuneration framework for the Executive
Drrectors requires consent from the Special
Shareholder each year The Board 1s recommending
that the framework remains the same for 2013-14
asit wasn 201213 with the exception of the STIP
design for the Chief Financial Officer
POL00026694
POL00026694
Operational I Performance Financial 51
Overview review review Governance statements
Remuneration policy table
Element Link to strategy Operation Performance Maximum values
penod
Base Determined by reference to Directors salaries arereviewed = - The current salanes tor
salary theskitisand responsibilities —_armuaily in July of each year the Executive Directors
of the individual are
Consideration is given to pay Chief Executive
and employment conditions £250 000
elsewhere in the Post Office Chief Financial Officer
when determining base salary €215000
increases and to market data
on comparable roles
Benefits Particrpation in life and ‘The value of the benefits - ‘The total value of the
health assurance schemes package Is monitored by the benefits package for
company car and private Remuneration Committee 201213 was £9779
medical schemes are and benchmarked against
part of Post Office wide comparator organisations
benefit programmes .
Pension Pension provisions provided A salary contnibution in heu. - 25% of salary
by the Post Office and is of pensions paid as a cash
available to all employees supplement to the Chief
to help them meet their Executive and Cinef
retementneedsand provide — Financial Officer
a competitive remuneration
package Executive Directors
receive a salary supplement
in heu of pension
scheme membership
Short Term The STiPdnivesandrewards The metrics and target ranges One year The maximum STIP
Incentive performance againstasetof are agreed annually with the opportunity for the Chief
Plan key financialand operational Board and the Special Executive 1s 80% of
(STIP) targets taken from the Shareholder as part of the salary (with 48% of salary
balanced scorecard seteach —_ annual business and budget being payable for
year according tothe current planning cycle on-target performance)
priorities for the business ‘TheSTIP metrics are a mxture ‘The STIP arrangements
STIP awards are also linked to —_ of financial (45%) customer for the Cinef Financial
theachievementof personal _ (20%) modernisation (25%) and Officer are currently
performance objectives employee engagement (10%) under review with the
measures which hnk directly mtention of ahgmng
to the overall strategy them with the
80% of the STIP award 1s based Chiet Executives STIP
on the balanced scorecard and framework The Special
20% 1s based on individual Shareholder s consent
performance objectives which wall be required for any
are agreed with the Board and changes
will require approval by the
Special Shareholder
Long Term TheLTIPisdesignedtoreward Performancemeasutesforthe Three financial 70% of salary for the
Incentve and retam key executives LTIP are drawn from the Post. years, Chief Executive and 35%
Plan and semior managers Office Strategic Plan agreed of salary for the Chief
{LTIP) and to mcentivise the with the Specia! Shareholder Financial Officer is
achievement of longer term
performance goals
‘The payout of the award is
based on the achievement
of strategic targets linked
to the longer-term
development growth of
a sustainable business
The intentions to award
an LTIP subject to Special
Shareholder agreement
The proposed awards follow
athree year cycle Awards
for 2013 will be based on
access criteria and a profit
measure target
payable at target
performance
Up to 98% of salary for
the Chief Executive and
up to 49% of salary for the
Chief Financial Officer 1s
payable at maximum
performance
52
POL00026694
POL00026694
Governance
Directors’ remuneration report continued
Performance scenarios 2013-2014
The charts below show the quantum and
composition of the current remuneration
policy for the Executive Directors under three
performance scenarios These are scenarios
showing potential remuneration assuming there
is no STIP or LTIP payout (fixed pay only) on
target performance (STIP and LTIP paying out
ata target level) and maximum performance
(full payout of SPIP and LTIP)
For the Chief Fmancial Officer the above values
are indicative as the proposed changes to the
Chief Financial Officer s STIP are still subject to
the agreement of the Special Shareholder
Statement of pay considerations elsewhere
in the Post Office
The commnttee takes into account the pay and
employment conditions of employees elsewhere
inthe Post Office when setting the remuneration
pohcy for the Executive Directors For example,
when determining salary increases for the
Executive Directors consideration is given
to the policy and budget apphed elsewhere
toother employees
The balanced scorecard used for the STIP
for Executive Directors 1s also used to assess
performance in the STIP for Post Office managers,
providing alignment between performance
reward for all employees at manager level
and above
Annual Report and Financial Statements 2012 13
Contracts and loss of office payment policy
Each of the Executive Directors has a signed.
acontract with the Post Office
Key terms of the contract
Notice period 12 months tobe given
by the Post Office
and six months by
the Director
Remuneration related Salary and benefits
provisions including health cover
a company car or car
allowance life and
health insurance and
cash allowance in heu
of pension equivalent
to 25% of base salary
Clawback provision
Executive Directors have clawback clauses in
their contracts as well as the STIP and LTIP
rules which provide for the return of any over-
payments in the event of misstatement of the
accounts error or gross misconduct on the part
of anexecutive These provisions are in hne
with market best practice
Non-Executive Directors
‘The fees paid to the Chairman are approved
by the Special Shareholder Fees for the Non,
Executive Directorsare determined by the
Executive Directors and are submiited to the
Special Shareholder for approval taking into
account time commitment and responsibilities
The fees paid to the Chairman and Non Executive
Directors are not pensionable and they receive
no other benefits
Non Executive Directors letters of appointment
are described in the Corporate governance
statement on page 43
Statement of consideration of
Shareholder s views
‘The Chairman of the Committee communicates
regularly with the Shareholder Executive on
behalf of the Special Shareholder on all matters
concermng executive remuneration and the
Special Shareholder approves all aspects of the
framework for Executive Director remuneration
POL00026694
POL00026694
overnew I Renew I "Yerew’" I Governance I statements 53
Implementation report
Remuneration for each Director (audited)
Actual Cashin :
Annualised salary/fees Heuot
Name salary/fees 2012 2013 Benefits pension ‘SsTIP ‘LTP Total \
Non-Executive Directors
‘Tim Franklin £35000 £18667 - - - - £18667
Virginia Holmes £35000 £34708 - - - - £34708
Alasdair Marnoch £45000 £38589 - - - - £38589
Neil McCausland £50000 £50000 - - - - £50000
Alice Perkins £100000 £100000 - - - - £100000
Susannah Storey!!! - £0 - - - - £0
Executive Directors
Paula Vennells £250000 £250000 £9779 £62500 £157936 £217508 £697723
Chris Day £215000 £215000 £9779 £53750 £129053 - £407582
£706964 £19558 £116250 £286989 £€217508 £1 347269
4! Susannah Storey was an employee of the Shareholder Executive of the Department for Business Innovation and Skills In March 2013 she moved to the
Department of Enezgy and Climate Change She receives no Director s fee
2 The salaries for Paula Vennelis and Chris Day remain unchanged Theres no planned merease for the review mn Suly 2013
Pay at risk paid to Executive Directors
in 2012.13 (audited)
a) Short Term Incentive Plan 2012-13
The STIP 1s based on the Post Office balanced
scorecard for 2012 13 Six measures from the
scorecard were identified for use in the STIP
‘These relate to financial performance (50%) the
customer experience (25%) and achievement of
specific objectives related to the modernisation
programme (25%) Financial performance was
assessed through the use of stretching revenue
and operating proht targets Strong growth in the
business during the year delivered revenue
excluding Network Subsidy Payment of
£102 billion which was between target and
stretch performance This growth in revenue
coupled with cost control meant that operating,
profit of £94 2 mihon was in excess of the stretch
hurdle Significant improvements were made in
‘our interaction with customers with reductions
in queue times and call centre targets bemg
achieved Overall performance exceeded the
onvtarget level across all the six measures and
was in excess of the stretch hurdie for two measures
Chief Executive
‘The STIP payable to the Chief Executive is based
on the balanced scorecard (80%) and personal
performance (20%) The balanced scorecard
element paid out 55 5% of salary out of amaximum
of 64% of salary For the personal elernent following,
a review of the achievements of the personal
objectives by the Chairman the Remuneration
Committee judged that the Chief Executive
had achieved 80% of her individual objectives
leading toa bonus for this element of 77% of
salary Taking account of both the financiaj and
personal elements the total STIP awarded to the
Cmef Executive for 2012-13 was 63% of salary,
Chief Fimancial Officer
The STIP payable to the Chief Financial Officer
for 2012:13 was based on the balanced scorecard
with a multipher applied based on personal
performance within the plan year His borus based
onthe balanced scorecard was 40% of salary
The multupher that was apphed resulted in an.
increase by a factor of 1S Taking accountof both
fmancial and personal elements the total STIP
awarded to the Chief Financial Officer for 2012 13
was 60% of salary
As shown nthe policy section above theintention
1sto harmonise the STIP design for the Chief
Financial Officer with that of the Chief Executive
and remove the multipher These changes will
be subject to Special Shareholder approval
POL00026694
POL00026694
54
Governance
Directors’ remuneration report continued
b) Long Term Incentive Plan
awards 2010-2013
The LTIP award to pay out this year 1s based on the three year performance period ended 31 March 2013 The award value for the
Cinef Executive was 70% of salary with a maximum stretch value of I 4 times the target award (98% of salary) No award was made
to the Chnef Financial Officer because he had not commenced employment with the Post Office on the award date The primary
performance condition for the 2010 award was operating profit (sliding scale of targets)
Operating profit for the year ended 31 March 2013 (£94 2 million) was between the target and stretch level The resulting payout
under the 2010 LTIP was 87% of salary for the Chief Executive Other Post Office employees also participated in this scheme
receiving awards of between 25% and 43% of salary
Outstanding Long Term Incentive awards
Under the remuneration policy LTIP awards are granted annually The Chief Executive Officer and Chief Financial Officer have the
following outstanding awards
Target award Stretchaward __ Performance period
Paula Vennells Chief Executive Officer
Three years to
2011 LTIP £175000 £245000 31 March 2014 .
Three years to
2012 LTIP £175000 £245000 31 March 2015
Chnis Day Chef Financial Officer
‘Three years to
2011 LTIP £50 167* £70 234 31 March 2014
Three years to
2012 LTIP £75 250 £105 350 31 March 2015
“TIP award pro rated because Chief Financtal Officer commenced employment 1 August 2011
Both the 2011 and 2012 LTIP awards are subject to challenging financial and strategic performance conditions based on business
profitability and the maintenance of the network in Ine with the Shareholder s objectives
Annual Report and Fmancial Statements 2012 13
POL00026694
POL00026694
Operational I Performance Financiat 55
Overview review review Governance statements
Total pension entitlements (audited)
Paula Vennells and Chnis Day each receive a cash supplement of 25% base pay in leu of pension scheme membership
Paula Vennells accrued benefits under the Royal Mail Sentor Executives Pension Plan (an HMRC-approved defined benefit
occupational pension scheme) until S April 2012 when she left the scheme
Accrued benetit at ‘Transter value of
25 March 2012 or date Accrued benefit at _Increase in accrued increase betore
‘ofappointment tothe 31March2013ordate —_—benefitsduning the inflation less Director s
Boardiflater of leaving ifearlier period (net of inflation) contributions
Ageat yearend 54 pa pa pa pa '
Paula Vennells £14721 £15225 £180 £3340
‘Transfer value at
25 March 2012 orat ‘Movements 1n the
date of appointment to ‘Transfer value at Transfersin, received Member's contributions period less Directors
Board if tater 31 March 2013 during the period im the period contributions
Paula Vennells £283759 £314926 : £204 £30963
Relative importance of the spend on pay (audited)
‘Total people costs at Post Office Limited (excluding exceptional items) for the year ended 31 March 2013 were £259 million, of
which £1 35 millon related to Duectors pay This compares to total revenue excluding Network Subsidary Payment of £1 02 billion,
Outside Directorships
Subject to Board approval the Executive Directors are permitted to take on non-executve positions with other companies and are
allowed to retain the fees received in respect of such positions Paula Vennells 1s a Director of Hymns Ancient and Modern and
received a fee of £6 000 in respect of the year ended 31 March 2013
POL00026694
POL00026694
56
Financial
statements
POL00026694
POL00026694
I Operational I Performance Financial 57
[__Overview review teview Governance I statements
58 Statement of Directors responsibilities
59 Independent auditor s report to the
members of Post Office Limited
60 Consolidated income statement
61 Consolidated statement of
comprehensive income
62 Consolidated statement of cash flows
63 Consolidated balance sheet
64 Consolidated statement of
changes n equity
65 Notes totheconsolidated
financial statements
92 Independent auditor s report to the
members of the parent Company
Post Office Lirmted
93 Balance sheet of the Company
94 Statement of total recognised
gains and losses
95 Reconcihation of movements
in Shareholder s funds
96 Notes tothe Company
financial staternents
111 Corporate information
58
POL00026694
POL00026694
Financial statements
Statement of Directors’ responsibilities
‘The Directors are responsible for preparing the Annual Report
and Financial Statements in accordance with applicable law
and regulations
Company law requires the Directors to prepare financial
statements for each financial year that give a true and fair view
of the financial position of the Group and of the Company and
the fmancial performance and cash flows of the Group and of
the Company for that period Under that law the Directors have
elected to prepare the Group consolidated financial statements
in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union and have elected to
prepare the Company financial statements in accordance with
United Kingdom Generally Accepted Accounting Practice
(Umted Kingdom Accounting Standards and applicable law)
In preparing those financial statements the Directors are
required to
+ select suitable accounting policies and apply them.
consistently
present information including accounting policies in a
manner that provides relevant reliable comparable and
understandable information
provide additional disclosures when compliance with the
specific requirements in IFRS is insufficient to enable users to
understand the impact of particular transactions other events
and conditions on the Groups financial position and financial
performance
state that applicable accounting standards have been
followed subject to any material departures disclosed and
explamed in the financial statements and
prepare the financial statements on the going concern basis
unless itis inappropriate to presume that the Company will
continue in business
Annual Report and Financial Statements 201213
‘The Duectors are responsible for keeping adequate accounting
records witch disclose with reasonable accuracy at any time
the financial position of the Groupand of the Company to
enable them to ensure that the Group consolidated financial
statements comply with the Compamies Act 2006 and Article 4
of the IAS Regulation and the Company financial statements
comply with the Compamies Act 2006 They are also
responsible for safeguarding the assets of the Group and
Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities
‘The Directors confirm that to the best of their knowledge
+ the Group consolidated financial statements prepared
imaccordance with IFRS as adopted by the EU andin
accordance with the provisions of the Companies Act 2006
give a true and fair view of the assets habilities financial
position and profit of the Group
the Company financial statements prepared in accordance
with United Kingdom Generally Accepted Accounting
Practice give a true and fair view of the assets llabihnes
fimancial position and profit of the Company and '
the management report contained in this report includes a fair
view of the development and performance of the business and
the position of the Group as a whole and of the Company
together with a description of the principal nsks and
uncertainties they face
POL00026694
POL00026694
Independent auditor's report
to the members of Post Office Limited
We have audited the consolidated financial statements of
Posi Office Limited for the 53 week period ended 31 March
2013 which compnise the Consolidated income statement
the Consolidated statement of comprehensive income the
Consolidated statement of cash flows the Consolidated balance
sheet the Consolidated statement of changes inequity and
the related notes 1to 25 The financial reporting framework
that has been applied in their preparation 1s applicable law and
International Financia! Reporting Standards (IFRSs) as adopted
by the European Union
This report is made solely to the Company s members asa
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 audhtor 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.
Respective responsibilities of Directors
and auditors
As explained more fully in the Directors Responsibilities
Statement set out on page 58 the Directors are responsible
for the preparation of the group financial statements and
for being satisfied that they givea true and fair view Our
responsibility 1s to audit and express an opinion on the group
financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland) These
standards require us to comply with the Auditing Practices
Boards Ethical Standards for Auditors
Scope of the audit of the fmancial statements
An audit involves obtaimng evidence about the amounts and
disclosures in the financial statemenis sufficient to give
reasonable assurance that the financial statements are free
from matertal misstatement whether caused by fraud or error
‘This includes an assessment of whether the accounting
pohcies are appropriate to the groups circumstances and
have been consistently applied and adequately disclosed
the reasonableness of significant accounting estimates made
by the Directors and the overail presentation of the financial
statements In addition we read ail the financial and non-
financial information in the annual report to identify matenal
inconsistencies with the audited financial statements If we
become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report
Opinion on financial statements
In our opinion the group financial statements
+ givea true and fair view of the state of the groups affairs
as ai 3] March 2013 and of its profit for the 53-week period
then ended
+ have been properly prepared in accordance with IFRSs as
adopted by the European Umon and
+ have been prepared in accordance with the requirements of
the Companies Act 2006
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion the information given in the Directors Report for
the financial year for which the group financial statements are
prepared is consistent with the group financial statements
Matters on which weare required to report
by exception
We have nothing to repoilin respect of the following matters
where the Companies Act 2006 requites us to report to you if
in our opinion
+ certain disclosures of Directors remuneration specified by
law are not made or
+ we have not received ali the information and explanations
we require for our audit
Other matter
We have reported separately on the parent company financial
statements of Post Office Limited for the 53 week period ended
31 March 2013
Angus Grant (Senior statutory auditor)
for and on behalf of Ernst & Young LLP Statutory Auditor
London
16 July 2013
POL00026694
POL00026694
60
Financial statements
Consolidated income statement
for the 53 weeks ended 31 March 2013 and the 52 weeks ended 25 March 2012
2013 2012
Notes. £m im
Continuing operations
‘Turnover ° 1,024 980
Network Subsidy Payment 210 180
Revenue 1,234 1160
People costs excluding restructuring costs 3 (259) (254) :
Other operating costs 913) (876) '
Share of post tax profit from jomt ventures and associates re 32 3t
Operating profit before exceptional ftems* 4 94 6i
Operating exceptional tems 5 an 3)
- government grant 98 -
~ restructuring costs (79) 2)
- other 66) G6)
Operating profit 47 23
Profit on disposal of property plant and equipment 2 1
Loss on sale of associate i Go) -
Profit before financing and taxation 19 24
Finance costs . 7 @ e)
Finance income 7 1 1
Net penisions interest 19 2 2
Profit before taxation 18 20
Taxation credit 8 31 10
Profit for the financial year from continuing operations 49 30
* Note that the Royal Matt Holdings pic financia) statements for the year ended 25 March 2012 reported operating profit alter modermsation costs but before:
other exceptional items of £59 miilion for Post Office Limited in the rncome statement above the prior year result has been presented to exchide,
moder nusatlon costs consisteni with 2013 where results are reported before all excepliona! items
Annual Report and Financial Statements 2012 13
POL00026694
POL00026694
Operationat I Performance Financial
Overview Teview review Governance statements 61
Consolidated statement of comprehensive income
for the 53 weeks ended 31 March 2013 and the 52 weeks ended 25 March 2012
232012
Notes. em cm
Profit for the financial year from continuing operations 49 30
Other comprehensive income
Actuarial gains on defined benefit pension schemes 19 14 108
Taxation on tems taken directly toequity 8 @n
Total comprehensive income for the year 42 138
POL00026694
POL00026694
62
Financial statements
Consolidated statement of cash flows
for the 53 weeks ended 31 March 2013 and the 52 weeks ended 25 March 2012
2013 2012
Notes: £m £m
Cash flows from operating activities
Operating profit before exceptional items 94 61
Adjustment for 7
Depreciation and amortisation 4 - 1
Share of profit from jomnt ventures and associates u 2) an
Pension operating costs ° 25 24
Working capital movements 63 24
(increase)/dectease in trade and other receivables (138) 13
Increase in trade and other payables 199 14
Increase in inventories (2) ay
Increase/(decrease) in non exceptional provisions 4 ce)
Pension operating costs paid (26) @7
Cash receiptsi{payments) in respect of operating exceptional items 133 27)
Government grant ' 200 -
Restructuring costs (52) (27)
Other as) -
Net cash inflow from operating activities 257 25
Income tax recovered il 12
Cash flows from investing activities
Investment in associate an -
Dividends received from joint ventures and associates ret 40 38
Finance income received 1 -
Proceeds from sale of property plant and equipment 2 2
Proceeds from disposal of associate 2 -
Purchase of non-current assets cc) 3)
Net cash (outflow)/inflow from investing activities (2a) 7
Net cash inflow before financing activities 244 44
Cash flows from financing activities
Finance costs paid @) @
Payments to finance lease creditors @ 3)
(Repayment)/proceeds from bank borrowings (86) 2
Net cash (outflow) from financing activities 92) 6)
Net increase in cash and cash equivalents 152 39
Effect of exchange rates on cash and cash equivalents a GH)
Cash and cash equivalents at the beginning of the year 13 820 782
Cash and cash equivalents at the end of the year 13 971 820
Annua) Report and Financial Statements 2012 13
POL00026694
POL00026694
I ne OPerew I I vewiew'” I Governance I statement 63
avery st —
Consolidated balance sheet
at 31 March 2013, 25 March 2012 and 28 March 2011
2013 2012 2013
Notes tm tn tm
Non-current assets
Intangible assets 9 - - -
Property plant and equipment 10 WL u 12
Investments in joint ventures and associates li 60 89 96
Retuement benefit surplus 19 97 - -
Trade and other receivables 12 10 -
Total non-current assets 178 100 108
Current assets
Inventories 8B 6 Ss
‘Trade and other receivables 12 352 226 241
Cash and cash equivalents 13, 971 820 782
Financial assets - derivatives 17/8 1 - -
Total current assets 1,332 1052 1028
Total assets 1,510 1152 1136
Current liabilities
‘Trade and other payables 14 (874) (583) 79)
Financial habiiities - interest bearing loans and borrowings 15 (291) (377) (375)
- obligations under finance leases 22 @) (4) @)
Provisions 16 ag) - -
Total current labilities (1,187) (964) (958)
Non-current liabilities
Financial liabilities - obligations under finance leases 22 @ 6) @)
Other payables 14 (24) 2) 6)
Provisions 16 @ 4) (26)
Retirement benefit obligation 19 - (206) (316)
Total non-current liabilities (35) (228) (356)
Net assets/(iabilities) 288 (40) (178)
Equity
Share capital 20 - - -
Share premium 465 465 465
Retaied earnings «79) (552) (690)
Other Reserves 2 47 47
Total equity/(deficit) 288 (40) (178)
‘The financial statements on pages 60 to 90 were approved by the Board of Directors on 16 July 2013 and signed on its behalf by
PAVennells I : CMDay i GRO i
Chief Executive I : Chief Financial Officer I
POL00026694
POL00026694
64
Financial statements
Consolidated statement of changes 1n equity
for the S3 weeks ended 31 March 2013 and the 52 weeks ended 25 March 2012
Share Retained Other Total
premium earnings reserves equity, \
Noes em —m £m £m
At 26 March 2012 465 (552) 47 0
Profit for the year - 49 - 49
Actuarial gain on defined benefit schemes 19 - 14 - 14
Transfer of pension deficit to government 19 - 286 - 286
Sale of interest in associate - 45 a5) -
Taxation of items taken directly to equity 8 - (a1) - ay ‘
At31 March 2013 465 79) 2 288
Opening other reserves of £47 million comprised £2 mulhon relating to First Rate Exchange Services Holdings Limited the joint
venture entity and £45 million that was recognised on the formation of Midasgrange Limited the associate entity In September
2012 the Group disposed of its interest in the associate and therefore £45 million mcluded in other reserves relating to Midasgrange
Lirmted was transferred to retained earnings
Share Retained ‘Other ‘Total
premium — earnings reserves equity
Notes om =m fn Sin
At 28 March 2011 465 690) 47 (78)
Profit for the year - 30 - 30
Actuanal gam on defined benefit pension schemes 19 7 108 - 108
At 25 March 2012 465 (352) 47 (40)
Annual Report and Financial Statements 2012 13
POL00026694
POL00026694
Performance
review
Financial
statements
Operational
review
65
Overview Governance
Notes to the consolidated financial statements
1 Accounting policies
Financial year
The financial year ends on the last Sunday tn March and for this
reason these financial statements are made up to the 53 weeks
ended 31 March 2013 (2012 - 52 weeks ended 25 March 2012)
Basis of preparation
‘The financial statements on pages 60 to 90 have been prepared
maccordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union and with those parts
of the Compamies Act 2006 applicable to compantes reporting
under IFRS Unless otherwise stated in the accounting policies
below the financial statements have been prepared under the
histone cost accounting convention
For all periods up toand including the year ended 25 March
2012 Post Office Limited (the Company) prepared its fmancial
statements n accordance with United Kingdom Generally
Accepted Accounting Practice These financial statements for
the year ended 3] March 2013 are the first the Group (comprising
the Company and its subsidiary undertaking) has prepared m.
accordance with IFRS as adopted by the European Union
Accordingly the Group has prepared financial statements.
which comply with IFRS as adopted by the European Union
applicable for penods ending on or after 31 March 2013 together
with comparative period data as at and for the year ended
25 March 2012 In preparing these financial statements the
Groups opening statement of financial position was prepared
as at 28 March 20]? the Group's date of transition to IFRS as
adopted by the European Union
‘The Company 1s incorporated and domiciled in the United
Kingdom ‘The Group consolidated financial statements are
presented in Sterling and all values are rounded to the nearest
£m except where otherwise indicated
Basis of consolidation
‘The consohdated financial statements comprise the financial
statements of the Company and its subsidiary undertaking
Subsidianes are consolidated from the date of acquisition
being the date on which the Group obtains control and
continue to be consolidated unt] the date when such control
ceases The financial statements of the subsidiaries are prepared
for the same reporting period as the parent company using
consistent accounting policies Allintra group balances
transactions unrealised gains and losses resutting from
intra group transactions are eliminated m full
Changes in accounting policy and disclosures
‘The changes to accounting policies and disclosures which have
been necessary as part of the trarisition to reporting under IFRS
as adopted by the European Union have had no effect on the
income statement or net asset position
Accounting standards issued but not yet apphed
The following new and revised accounting standards are
relevant to the Group and are in tssue but were not effective
{and in some instances have not yet been adopted by the
European Umion)at the balance sheet date
Annual improvements to IFRS 2009-2011 Cycle
IFRS 7 (amended) Offsetting Financial Assets and
Financial Liabilities:
+ IFRS 9 Financial Instruments Classification
and Measurement
+ IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements
IFRS 12 Disclosures of Interests m Other Entities
IFRS 13 Fair Value Measurement
+ 1AS 1 (amended) Presentation of Items of Other
Comprehensive Income
JAS 19 revised) Employee Benefits
1AS 27 Separate Financial Statements
IAS 28 Investments 1n Associates and Joint Ventures
+ TAS 32 (amended) Offsetting Financial Assets and Liabihties
‘The Directors do not expect that the adoption of the standards
listed above will have a material 1mpact on the financial
statements of the Group mm future periods
Fundamental accounting concept - going concern,
‘The Group has net assets at 31 March 2013 and has operated
ata profit before exceptional items during 2012 13 for the fifth
year running
A funding agreement with government was announced on
27 October 2010 which provided for
+ Funding of £410 million for 2012 13
+ Funding of £415 million for 2013-14
+ Funding of £330 mithon for 2014 1S
+ Extension of the existing working capital facihty with the
Department for Business Innovation & Skills (BIS) of
£115 billion up to 31 March 2016
State Aid approval for the funding for 2012-13 to 2014 15 was
received on 28 March 2012 and it was also recognised that the
working capital facihty was no longer deemed State Aid £410
million was received on 2 April 2012
‘This investment will take the form of a government grant and
enabie the Group to modernise the branch network and the
continuation of the Network Subsidy Payment recognises the
major social value that Post Offices provide to communities
New main and loca! branches are currently being rolled out
across the Umted Kingdom Customers are beginning to benefit
from a much better retail experience including extended
opening hours This programme is designed to make the
Post Office network more self sustaining and over time less
dependant on direct subsidy This programme will not involve
branch closures
The Directors ate satished with the progress made towards
modermisation during 201213 and that the plans in place and
the substantial mvestment secured will enable the Group to
continue to modernise and to secure its future However they
note that the scale of change required remains significant so
not without risk
66
POL00026694
POL00026694
Financial statements
Notes to the consolidated financial statements continued
1 Accounting policies continued
After careful consideration of the plans for the coming years
the Directors continue to believe that Post Office Limited will
be able to meet its liabilities as they fall due for the foreseeable
future Accordingly on that basis the Directors consider that
ats appropriate that these financial statements have been
prepared on a going concern basis
Critical accounting estimates and judgements
in applying accounting policies
‘The Group makes certain estimates and assumptions regarding
the future Estimates and assumptions are continually evaluated
based on historical experience and other factors In the future
actual experience may differ from these estimates and
assumptions In addition the Group has to make yudgements
inapplying tts accounting policies which affect the amounts
tecogmised in the accounts The most significant areas where
judgements and estimates are made are discussed below
Pension assumptions
‘The costs assets and liabilites of the pensions operated by
the Group are determined using methods relying on actuanal
estimates and assumptions These pension figures are
particularly sensitive to changes in assumptions for discount
rates mortality and inflation rates The Group exercises its
judgement in determining the assumptions to be adopted
after discussion with its Actuary Details of the key assumptions
are set outin note 19
Pension habilities are measured on an actuarial basis using
the projected unit crecht method and discounted at arate
equivalent to the current rate of return ona high quality
corporate bond of equivalent currency and term Judgement
has been applied in deterrmning that for these purposes a
high quality corporate bond constitutes AA rated or equivalent
status bonds
The pension deficit transfer to HM Government on 1 Apnl 2012
was taken directly through equity as in managements judgement
thns transaction was undertaken with HM Government inits
capacity as the owner of Royat Mail Holdings pic the Company s
parent company rather than in its capacity as government
Provisions
‘The Group has recognised provisions where a present legal or
constructive obligation exists as a result of a past event where it
1s probable that an outflow of resources will be required tosettle
the obligation and a reliable estimate of the amount can be made
Provisions are detailed in note 16 Due to the nature of provisions.
the future amount settled may be different from the amount
that has been provided
Impairment of non-current assets
The Group assesses whether there are any indicators of
impairment for all non current assets at each reporting date
Due to ongoing operational losses (excluding the Network
Subsidy Payment) the carrying value of intangible assets and
all property plant and equipment other than freehold and long
leasehold property has been impaired to the recoverable amount
Revenue
Turnover from government financial mails and telecoms
services comprises the value of services provided Turnover
fromall other products comprises the commission received
excluding VAT from the Groups principal activities in providing
access to a wide range of financial and retail services through
its network of Post Office branches across the UK and other
channels Turnover relating to line rental for telecoms services
is Tecognised evenly over the period to which the charges relate
Annual Report and Financial Statements 2012 13
and revenue trom calls 1s recognised at the time the call1s
made Turnover from all other transactions 1s recognised
when the transaction 1s completed All tumover 1s derived
wholly from within the United Kingdom
The Network Subsidy Payment is government grant revenue
recognised to match the related costs of making available the
network of public Post Offices that the Secretary of State for
Business Innovation and Skills considers appropnate
Net revenue
Net revenues calculated using revenue less the directly
attributable costs of delivering the service or product
Operating exceptional items
Operating exceptional items are items of income and
expenditure arising from the operations of the business which
due to the nature of the events giving nse to them require
separate presentation on the face of the mcome statement to
allow a better understanding of financial performance in the
year in comparison to prior years
Intangible assets
Intangible assets acquired separately or generated internally
are imtially recogmsed at cost and are reviewed for impairment
An impairment loss 1s recognised in the income statement for
the amount by which the carrying value of the asset exceeds
Its recoverable amount whichis the higher of an asset s net
realisable value and its value in use
Amortisation of mtangible assets with finite hves is charged
annually to the income statement on a straight line basis
as follows
Software 1to 6 years
Where intangible assets are impaired to their recoverable amount
on acquisition the above range of asset lives 1s not applied
Property plant and equipment
Property plant and equipment 1s recognised at cost incluchng
attributable costs in bringing the asset into working condition
for its intended use
Depreciation of tangible fixed assetsts provided on a straight
hne basis by reference tocost and tothe remaining useful
economic hives of assets and therr estimated residual values
‘The lives assigned to major categones of tangible fixed
assets are
Range of asset lives
Land and buildings
Freehold land
Freehold burldings
Leasehold buildings
Not depreciated
Up to 50 years
‘The shorter of the period of the
lease 50 years or the estimated
Tematning useful fe
Plant and machnery 3-15 years
Motor vehicles andtrailers 2-12 years
Fixturesand equipment _2- 15 years
Where property plant and equipment 1s impanred to xs
recoverable amount on acquisition the above ranges of
asset lives arenot apphed Thists currently the case for plant
and machinery motor vehicles and tratlers and fixtures
and equipment
Performance
review
Operational
Overview review
Governance I statements
POL00026694
POL00026694
Financtal
67
Impairment reviews
Unless otherwise disclosed in these accounting pohcies
assets are reviewed for impairment if events or changes
in circumstances indicate that the carrying value may be
impaired The Group assesses at each reporting date whether
‘such indications exist Where appropriate an impamrment
loss is recognised in the income statement for the amount by
which the carrying vatue of the asset (or cash generating unit)
exceeds its recoverable amount which isthe higher of an
asset s net realisable value and its value in use
Leases
Finance leases where substantially all the risks and rewards
incidental to ownership of the leased item have passed to
the Group are capitalised at the inception of the lease with
a corresponding liability recognised for the fair value of the
leased item or if lower at the present value of the minimum lease
payments Lease payments are apportioned between the finance
charges and reduction of the lease habihty soas to achievea
constant rate of interest on the remaining balance of the hability
Capitalised leased assets are depreciated over the shorter
of the estimated useful hfe of the asset and the lease term
Leases where substantially all the risks and rewards of
ownership of the asset are retained by the iessor are classified
as operating leases and rentals are charged to the income
statement over the lease term The aggregate benefit of
incentives are recognised as a reduction of rental expenses
over the lease term ona straight line basis
Investments in joint ventures and associates
Investments in joint ventures and associates within the
Groups financial statements are accounted for under the
equity method of accounting. Under this method the investinent
1s carried in the balance sheet at cost plus post acquisition changes
inthe Groups share of the net assets of the joint venture/associates
less any impairment in value The income statement reflects the
Groups share of post tax profits from the jomt venture/associates
Inventories
Inventories include printing and stationery retail and Lottery
products 1s carried at the lower of cost and net realisable value
after adjusting for obsolete or slow moving stock
Taxation
‘The charge for current income tax 1s based on the results for the
year as adjusted for items which are not taxed or are disallowed
Itis calculated using tax rates in legislation that has been
enacted or substantively enacted by the balance sheet date
Deferred income tax assets and liabilities are recogmsed for all
taxable and deductible temporary differences and unused tax
assets and losses except
intial recogmition of goodwill
the initial recognition of an asset or liability in a transaction that
is ot a business combination and at the time of the transaction
affects neither the accounting profit nor taxable profit and loss
taxable temporary differences associated with investments
insubsidiartes associates and interest in joint ventures
where the timing of the reversal of the temporary difference
can be controlled and its probable that the temporary
difference will not reverse in the foreseeable future and
deferred tax assets are recognised only to the extent that it
1s probable that taxable profit will be available against which
they can beutihsed
Deferred tax assets and habihties are measured at the tax rates
that are expected to apply to the period when the tax asset 1s,
realised or the lability 1s settled based on tax rates that have
been substantively enacted at the balance sheet date Deferred
tax balances are not discounted
Current and deferred tax istecognised in the income statements
except to the extent that it relates to kems recognised in other
comprehensive mcome or directly to equity In this case the tax
1s also recognised in other comprehensive mcome oF directly m
equity respectively Further details on deferred tax can be
found in note 8 to the financial statements
Pensions and other post-retirement benefits
People working for the Company were employed by Royal Mail
Group Limnted and seconded to the Company until 31 March
2012 On I April 2012 they were transferred to be directly
employed by the Company Membership of occupational pension
schemes 1s open to most permanent UK employees of the
Company All members of defined benefit schemes are contracted
out of the earnings related part of the State pension scheme
‘The pension assets of the defined benefit schemes are measured at
far value Liatuhties are measured on an actuanal basis using the
projected unit credit method and discounted at a rate equivalent
tothe current rate of return ona high quality corporate bond of
equivalent currency and term The resulting defined benefit asset
cor hability is presented separately on the face of the balance sheet
Full actuanal funding valuations are carried out at intervals not
normally exceeding three yearsas determined by the Trusteesand
actuarial valuations are carned out at each balance sheet date and
form the basis of the surplus or deficit disclosed
For defined benefit schemes the amounts charged to operating
profit as part of staff costs are the current service costs and any
gains and losses arising fromsettlements curtailments and past
service costs The net difference between the interest costs and
the expected return on plan assets 1s recognised as net pensions
interest in the income statement Actuarial gains and losses are
Tecognised immediately in thestatement of comprehensive
income Any deferred tax movernent associated with the
actuarial gains and losses's also recognised in the statement
of comprehensive income
For defined contnbution schemes the Groups contributions are
charged to operating profit as part of staff costs 1n the period to
which the contributions relate
Foreign currencies
‘The functional and presentational currency of the Group
1s sterling (£)
‘Transactions in foreign currencies are recorded at the spot
exchange rate ruhng at the date of the transaction Monetary
assets and liabilities denominated in foreign currencies are
retranslated at the functional rate of exchange rulingat the
balance sheet date Currently hedge accounting 1s not apphed to
any monetary assets and liabilities All differences are therefore
taken to the income statement
Trade receivables
‘Trade receivables are recognised and carried at originat
mvoice amount less an allowance for any non collectable
amounts An estimate for doubtful debts 1s made when
collection of the full amount is no longer probable
Bad debts are wnitten off when identified
68
POL00026694
POL00026694
Financial statements
Notes to the consolidated financial statements continued
1 Accounting policies continued.
Borrowing costs
Borrowing costs in relation to the working capital loan facility
ate recognised as an expense when incurred unless they are
directly attributable to the construction or development of
a qualifying asset in which case they are capitalised using
the weighted average cost of borrowing for the period of
construction/development
Government grants
Government grants are shown separately in the income
‘statement to match the expenditure to which they relate
Provisions
Provisions are recognised when the Group hasa present
‘obligation (legai or constructive) as a resullt of a past event
itis probable that an outflow of resources will be required to
settle the obhgation and a rehable estimate can be made of
the amount of the obligation If the effect of the time value of
money 1s material provisions are determined by discounting
the expected future cash flows at an appropriate pre tax rate
Financial instruments
The classification of financial instruments included on the
balance sheet is set out below
Financial assets
Financial assets are classified mto the following categories at
fair value through the income statement, loans and receivables
and available for sale as appropriate based on the purpose for
which they were required Financial habilittes are classified as
either fair vaiue through the income statement or as financial
habihties measured at amortised cost
Financial liabihties - interest-bearing loans
and borrowings
All loans and borrowings are classified as financial habihties
measured at amortised cost
Financial habihties - obgations under finance leases
All obligations under finance lease and hire purchase contracts
are classified as financial habihties measured at amortised cost
Derivative financial instruments
‘The Group uses derivative financial instruments to manage
ats exposure to fluctuations in foreign exchange rates Such
denvative hnancial nstruments are stated at fa value
Hedge accounting has not been claimed for foreign exchange
derwvative instruments
Fair value measurement of financial instruments
‘The fair value of quoted investments is determined by reference
to bid prices at the close of business on the balance sheet date
Where there ts no active market fair value ts determined using
valuation techmiques These include using recent arms length
market transactions reference to the current market value of
another instrument which is substantially the same and
discounted cash flow analysis and pricing models Specifically
in the absence of quoted market prices derivatives are valued
by using quoted forward prices for the underlying currency and
discounted using quoted interest rates Hence derivative assets
and habihties are within Level 2 of the fair value hierarchy as
defined within IFRS7
Annuat Report and Financiat Statements 2012 13
For the purposes of disclosing the fair value of investments
held at amortised cost in the balance sheet im 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 thebalance
sheet date
Derecognition of financial instruments
A financial asset or abihty 1s derecognised when the contract
that gives nse tot is settled sold cancelled or expires
Cash and cash equivalents
Cash and cash equivalents mn the balance sheet comprise cash
at bank and in hand and short-term deposits (cash equivalents)
with an onginal maturity date of three months or less In
addition the Group uses Money Market funds asa readily
available source of cash and these funds are also categorised
ascash equivalents
For the purpose of the statement of cash flows cash and cash
equivalents consist of cash and cash equivalents as defined
above net of bank overdrafts Cash equivalents are classified
as loans and receivables financial nstruments
2 Segmental reporting
maccordance with [FRS 8 Operating segments an operating
segment is defined as a business activity whose operating
results are reviewed by the chief operating decision maker
(CODM) and for which discrete information is avanlable
‘The Groups CODM 1s the Executive Committee as defined
1n the Corporate Governance section on page 45
‘The CODM has determined the operaling segments based
on the information reviewed by them for the purposes of
allocating resources and assessing performance Operating
segments have not been aggregated in order to present
reportable segments All segmental activities are located
wholly within the United Kingdom
‘The CODM assesses the performance of the operating segments
based on net revenue Thisis calculated using segmental
revenue less the directly attributable costs of delivering the
service or product The net revenue measure excludes the
effect of indirect costs and the effects of non recurrmg
expenditure such as redundancy costs and asset impairment
Interest income and expenditure is not allocated to segments as
this type of activity 1s driven by thecentral treasury function
Assets and ltabihties as recognised on the Group balance sheet
are not considered to be segmental assets or habilities but rather
are managed by the Groups cential functions The information
reviewed by the CODM does not include assets or liabilities
sphit by segment A description of the activities of the business
segments 1s included from page 12 of the Operational review
Revenue from a major customer represents approximately 27%
of the Groups total revenue in 2013 This revenue was reported,
within the Mails & Retail segment
'
Performance I
POL00026694
POL00026694
overnew I SReneor I Pevtew satement 69
I I Governance I statements
. 2013
Directly
atbutable Net
Revenue costs revenue
em em em
Mails & Retail 409 6) 404
Financial Services 281 @ 280
Government Services 164 (G0) 134
Telecoms 129 (65) 44 I
Other 41 - 4.
Sub total 1,024 (2) 903
Network Subsidy Payment 210 - 210
Total 1,234 (121) 1,113
2ora
Directly
attnbutable Net
Revenue tests revenitie
¢m em em
Mails & Retail 392 (4) 388
Financial Services 264 @ 261
Government Services 164 (28) 136
Telecoms 120 79) a
Other 40 - 40
Sab total 980. (lid) ~~—«866
Network Subsidy Payment 180 - 180
Total 1160 (414) 1046
A reconciliation between underlying segment net revenue and profit before taxation 1s provided below
2013012
fm em
Underlying segment net revenue 1113 1046
Indirect costs 05 016)
Share of post tax profit from joint ventures and associates 32 31
Operating profit before exceptional items 04 Bl
Operating exceptional tems a G8)
Operating profit a7 23
Profit on disposal of property plant and equipment 2 1
Loss on sale of associate 30 -
Profit before financing and taxation 19 24
Finance costs oy )
Finance ncome 1 1
Net pensions interest 2 2
Profit before taxation 18 20
POL00026694
POL00026694
70
Financial statements
Notes to the consolidated financial statements continued
3 Staff costs and numbers
Employment and related costs were as follows
2013 2012
People costs excluding restructuring costs £m €m
Wages and salaries 215 213
Social secuntty costs 19 7
Pension costs (note 19) 25 24
Total 259 254
Perlodend employees Average employees
2013 2012 2013 2012
Total employees 7,886 7798 7,842 7734
‘Total employee numbers can be categorised as follows
7 2013, 2012
Administration 1,345 1290
Crown Offices 4511 4833 ‘
Supply Chan 1,585 1581
Network and Crown transformation programmes 445 94
Total 7886 7798
4 Operating profit from continuing operations before exceptional tems
Operating profit from continuing operations before exceptional items 1s stated after charging
2013 2012
£m —m
Subpostmasters fees 478 483
Bureau de Change foreign currency exchange losses 1 1
Depreciation - 1
Operating lease charges - Land and buildings 20 25
~ Vehicles and equipment 62 62
Fees payable to the groups audhtors for audit and other services £000 £000
- parent company and group audit 331 195
~ taxation services - -
- other non audtt services 103 108
5 Operating exceptional items
2013 2012
fm £m
Government grant 98 -
Business transformation @ @ .
Network transformation including subpostmasters compensation (52) -
Restructuring - severance an 1
- other (2) -
Impairment of intangible assets (note 9) (25) an
Impairment of property plant and equipment (note 10) (41) (19)
Total operating exceptional items 47) (38)
Due to ongoing operational losses (excluding Network Subsidy Payment) the carrying value of intangible assets and all property
plant and equipment other than freehold and long leasehold property has been impaired to the recoverable amount
Annual Report and Financial Statements 201213
POL00026694
POL00026694
Operational I Performance Financial :
Overview Teview review Governance I statements 71
6 Directors’ emoluments
‘The Directors received the following emoluments
2013 2012
£000 £000
Emoluments excluding pension contributions and LTIP but including cash supplements received
in heu of pension 1,129 904
Contributions to pension schemes : 1 58
Amounts receivable under Long Term Incentive Plans 218 =
Directors accrumg pension entitlements during the period under
“2013 2012
Number Number
Defined benefit schemes ° 2
Dehned contnbution schemes = =
The highest paxd Director received the following emoluments
2013 2012 I
£000 £000
Emoluments and LTIP excluding pension contributions but including cash supplements received
inhieu of pension 698 463 t
Company contnibutions to pension schemes 1 47 i
‘Transfer value of accrued pension benefits 315 284
7 Net finance costs
2013 2012
£m em '
Interest receivable 1 1
Interest charge unwinding discount on provisions w a)
Interest payable on loans @ 6)
Total @) ©)
8 Taxation I
(a) Taxation gaims recognised in the year I
2013 2012 I
fm em I
Corporation tax credit for year ao) ap \
‘Tax under provided in previous years - 1
Current tax ao a0) I
Deferred tax credit relating to the origin and reversal of temporary differences (21) :
Income tax credit reported in the consolidated income statement ery) 10) I
Deferred tax of £21 million has been charged to equity relating to actuarial movements in the retirement benefit surplus 1
This offsets the deferred tax credit of £21 million that has been reported in the consolidated income statement
POL00026694
POL00026694
72
Financial statements
Notes to the consolidated financial statements continued
8 Taxation continued
(b) Factors affecting current tax credit on profit on ordinary activities
‘The tax assessed for the year differs from the standard rate of corporation tax in the UK of 24% (2012 26%) The differences are
explained below
2013 2012
em em
Proht on ordinary activities before tax 18 20
Profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 24% (2012-26%) 4 5
Net decrease in tax charge resulting from recognition of deferred tax assets (35) as)
Expenditure disallowable for tax 1 2
Adjustment in respect of prior period - 1 I
Losses from disposals ineligible for relief 7 - '
Effect of group rehef surrenders to other companies - 5 I
Associates/jomt venture profit after tax included in Group pre tax proht @) ® :
Total current tax (see above) GD 0
(©) Deferred tax
Deferred tax assets relate to the following
Balance sheet Income statement
2013 2012 2013 2012
em fm fm fm
Pensions temporary differences (21) - - -
Losses available for offset agaist future taxable income 2a - 21 -
Total deferred tax asset - -
Income statement 21
(a) Factors that may affect future tax charges
‘The Group has unrecognised deferred tax assets of £190 million (2012-£337 milion) comprising £133 million (2012-£157 million)
relating mainly to fixed asset timing differences £57 millon (2012-£128 million) relating to tax losses that are available to offset
against future taxable profits and £0 million (2012-£52 million) relating to the retirement benefit obligation The Group has rolled
over capital gains of £3 millon (2012-£3 millon) no tax hability would be expected to crystallise should the assets into which the
gains have been rolled be sold at ther residual value as it 1s anucipated that a capital loss would arise
Finance Act 2012 reduced the main rate of corporation tax to 23% with effect from 1 April 2013 The effect of this change on deferred
tax balances ts mcluded in these financial statements ands detailed above In the 2012 Autumn Statement the Chancellor of the
Exchequer announced that the main rate of corporation tax will be 21% for the year commencing I Apnil 2014 and in the March 2013
Budget he announced that the rate will be further reduced to 20% with effect from 1 April 2015 in accordance with accounting
standards the effect of these rate reductions on deferred tax balances has not been reflected in these accounts due to the relevant
legislation not having been substantively enacted at the balance sheet date A reduction to 20% would based on losses and
temporary differences at 31 March 2013 reduce the Groups unrecognised deterred tax assets by £25 milion
Under the Postal Services Act 2011 trading losses which arose due to pension contributions and which are unused at 31 March 2013
willbe extinguished The estimated gross value of the losses extinguished 1s £175 millon The urirecognised losses carried
forward disclosed above are stated net of this amount
(e) Tax effect of exceptional iterns
‘There isa tax credit on exceptional items of Emil (2012-£mil) This 1s calculated ona with and without basis assuming that losses
are surrendered firstly to joint ventures and secondarily to compamies in the Royal Mail Holdings Group '
POL00026694
POL00026694
Operational I Performance
9 Intangible assets
2013 2012 201l
Cost im £m fm
At 26 March 2012 28 March 2011 29 March 2010 183 166 155
Additions 25 7 12
Disposals = - a)
At31 March 2013, 25 March 2012, 27 March 2011 208 183 166
Amortisation and impairment
At.26 March 2012 28 March 2011 29 March 2010 183 166 155
Impairment (see note 5) - 25 17 1h
At 31 March 2013, 25 March 2012, 27 March 2011 208 183 166
Net book value
At 31 March 2013, 25 March 2012, 27 March 2011 - - -
‘The above intangible assets relate to software
10 Property, plant and equipment
Land and buildings 1
Plant Fixtures 1
Long Short Motor and and .
Freehold leaschold leasehold vehicles. machmery equpment Total
fm Em £m Em em tm fm
Cost
At 28 March 2011 78 17 113 34 1 696 939
Additions 4 - - 1 - 13 18
Disposals a - - wo - 6)
Transfers from Royal Mail Group Limited 1 : 1 : - - 2
At 25 March 2012 79 17 114 34 1 709 954
Reclassification - 1 ch) - - - -
Additions 9 - 1 9 - 22 41
Dis a - : wo - az «aay
At 31 March 2013 87 18 114 42 1 719 981
Depreciation
At 28 March 2011 67 16 113 34 1 696 927
Depreciation 1 - - - - - 1
Impairment (see note 5) 4 - 1 1 13 19
Disposals 6) - : a - - @)
At 25 March 2012 69 16 114 34 1 709 943
Depreciation - od - - - - -
Impairment (see note 5) 9 1 - 9 - 22 4
Disposals @ - - o - aay aay
At 31 March 2013 17 17 114 42 1 79 970
Net book value
At 31 March 2013 10 1 - - : : u
At 25 March 2012 10 1 - : - : i
At 28 March 2011 11 1 = : - = 12
Depreciation rates are disclosed within accounting policies (note 1) No depreciation 1s provided on freehold land which represents
£3 million (2012-£3 millon) of the total cost of properties
During the year the legal ownership of a number of properties were transferred from Royal Mail Group Limited to Post Office Lirmted_
for noconsideration
74
POL00026694
POL00026694
Financial statements
Notes to the consohdated financial statements continued
ll Investments in joint ventures and associates
The following entities have been included in the consolidated financial statements using the equity method
Joint ventures
During 2012 13 and 201112 the Groups only joint venture investment was a 50% interest (1 O00 £1 ordinary A shares) in First Rate
Exchange Services Holdings Limited whose principal actvity 1s the provision of Bureau de Change First Rate Exchange Services
Holdings Limited 1s a company registered in the United Kingdom
Associates
During 2011-12 the Groups only associate mvestment was a 49 99% interest (4 999 £0 Ol ordinary A shares) in Midasgrange Limited
whose principal acuvily 1s the provision of personal fmancial products ‘This mvestment was disposed of during the year ended
31 March 2013 At the date of disposal the carrying value of the Groups mvestment was £32 million Proceeds of £2 million were
received giving a loss on disposal of £30 million winch has been recognised in the consolidated income statement
Joint
venture Associate Total
em £m tm
Share of net assets
Total net investment at 26 March 2012 67 22 89
Share of post tax pre dividend profitloss) 33 ct) 32
Investment in associate - i il
Disposai - @2) 2)
Dividend 40) - oy
Total net investment at 31 March 2013 60 - 60
Jomnt
venture Associate Total
tm €m tm
Share of net assets
Total net investment at 28 March 2011 73 23 96
Shate of post-tax pre dividend profit/(loss) 32 ra) 31
Dividend G8) - (38)
Total net investment at 25 March 2012 67 22 89
(2013 2012 2011
Joint Joint Jomt
venture otal venture Associate Total venture Associate Total
Share of assets and liabilities £m &m £m fm fm fm £m em
Current assets 184 184 180 38 218 151 25 176
Non current assets 3 3 3 18 ai 2 7 19
Share of gross assets 187 187 183 56 239 153 42 195
Current habilities a2) a2) a6) Ga) 50) (80) ag) 99)
Share of net assets 60 60 67 22 89 7B 23 96
Share of revenue and profit
Revenue 7 5 75 49 124 74 39 113
Profitiloss) after tax 33 33 32 a 31 29 @) 25
Annual Report and Financial Statements 201213
POL00026694
POL00026694
Operational I Performance Financial
Overview Teview Teview Governance I statements 75
I
12 Trade and other receivables H
2013 2012 2011 i
fm em &m
Current 1
‘Trade receivables 32 39 45
Prepayments and accrued income n 39 27
Chent receivables 240 138 158 .
Other receivables 9 10 11
Total 352 226 241
Non-current
Prepayments and accrued income 10 -
‘The Group recerves and disburses cash on behalf of government agencies and other chents to customers through its branch
network Amounts owed from/to government agencies and other clients are disclosed separately as client receivables (as above)
and chent payables (see note 14)
Asat 3i March 2013 trade and other receivables of £7 million (2012-£5 millon) were impaired and fully provided for During
the year £2 million (2012-£4 milhon) of the provision has been ubhsed and an additional £4 nition (2012-£2 millon) has been
provided for Trade and other receivables of £8 million (2012-£7 million) were past due but not impaired ‘The ageing analysis of
the past due amounts are as follows
2013 2012
£m £m
Provided for or not yet overdue 24 32
Past due not more than one month 7 3
Past due more than one month and not more than two months 1 3
Past due more than two months: -
Total 32 39
The fair value of trade and other receivables 1s not materially different from the carrying value
13 Cash and cash equivalents
2013 2012 2011
fen om fm
Cashin the Post Office Limited network 879 758 704
Short term bank deposits 6 19 34
Money market fund investments 86 43 44
Total cash and cash equivalents 971 820 782
Cash and cash equivalents comprise amounts held physically in cash cash deposits available on demand or within three months
or less Where interest 1s earned 1s at a floating or short term fixed rate The fair value of cash and cash equivalents is not
materially different from the carrying value
POL00026694
POL00026694
76
Financial statements
Notes to the consolidated financial statements continued
14 Trade and other payables
2013 2012 2011
em em £m
Current
Trade payables 43 32 36
Accruals and deferred income 110 140 121
Advance customer payments 50 48 67
Social security . 10 9 10 '
Chent payables 528 332 314
Amounts due to pension schemes relating to redundancies - - 3 .
Amount due to other comparnes w:thin the Royal Mat! Holdings Group 6 9 12
Capital payables 18 10 6
Business transformation 7 3 10
Government grant deferred income 102 ~ =
Total 874 583 579
Non-current
Other payables 24 2 5
Of the £200 million government grant received £98 milhon has been allocated against income statement expenditure in
accordance with the terms and condhtions of the grant ‘The remainirig £102 million has been deferred into the balance sheet as
disclosed above The fair value of trade and other payables 1s not materially different from the carrying value
15 Financial liabilities - interest bearing loans and borrowings
2013 2012 2011
£m em £m
Department of Business, Innovation & Skills loans drawn down 291 377 375
‘The loans under the facility are short dated on a programme of liquidity management and mature on average 1 day after the year
end (20121 day) The fair value of borrowings 1s not matenally different from the carrying value On maturity It 1s expected that
further loans will be drawn down under this facility which expires in 2016 The undrawn committed facihty in respect of which
ali conditions precedent had been met at the balance sheet date 1s £859 millon (2012-£773 million) The average interest rate on
the drawn down loans 1s 10% (2012 08%)
‘The facihty ts currently restricted to funding the cash and near cash items held within the Post Office Limited network
‘The facility Gnclucing drawn down loans) is secured by a floating charge over all assets of Post Office Lamited and a negative
pledge over cash and near cash items The negative pledge 1s an agreement not to grant security over the assets or to set up
a vehicle that has the same effect
Annual Report and Financial Statements 2012 13
POL00026694
POL00026694
I I
Operational I Performance I Financial 77
I Overview review I review I Governance I statements
16 Provisions ‘
Crown '
Conversions Network
Project transtormation Other Total i
£m fam £m £m
At 26 March 2012 9 - s 14 ‘
Charged in operating exceptional items - 10 12 _ 22
Charged in operating costs - - 6 6
Chargedin financing costs 1 - - 1
Utihsation Q) - (14) a7)
At 31 March 2013 7 10 9 26
Disclosed as
Current 4 8 7 19
Non current 3 2 2 7
7 10 9 26
Other provisions of £9 million (2012-£5 milion) include property contracts amounts from onerous lease obligations and personal
injury claims
Amounts charged in financing costs relate to the unwinding of discounted long-term provisions
The Crown Conversions project relates to past franchising of Crown offices and onerous property lease provisions are expected
tobe utihsed within 5 years
17 Financial assets and habiltties
‘The Groups financial assets and labilities are shown in the table below
2013 2012 2011
Non- Non Non
Current’ current Total = Current’ = current Total © Current’ «— current Total
£m £m £m sm em £m fm em £m 1
Cash and cash equivalents 971 - 971 820 - 820 782 - 782 .
Derivative assets 1 - 1 - - - - - -
BIS loan (291) - (291) (377) - (377) (375) - (375)
Finance leases obhgattons @) @) @ (4) (6) (1c) (a) (9) G3)
Total financial assets/
abilities) 678 @ 674 439 © 433 403 o@ 394
‘The Groups principal financial assets and labihties compnse cash money market hquidity vestments loans and finance leases
‘The Group has various other financial instruments such as trade recenvables and trade payables which anise directly from
operations and are disclosed further in notes 12. and 14
‘The Group enters into denvative transactions which create derivative assets arid habilites principally forward currency
contracts The purpose is to manage the currency risks arising from the Group s operations
‘The main risks arising from the Groups financial assets and liabilities are interest rate risk hquicity nsk foreign currency risk
and credht risk The Board reviews and agrees policies for managing each of these risks and they are summarised below
Interest rate risk
‘The Groups exposure to market nsk for changes in interest rates relates to the Groups debt obligations and mterest bearing
fmancial assets The BIS loans to Post Office Limited of £291 million (2012-£377 million) are at short dated fixed interest rates -
average maturity I day (2012 average 1 day) On maturity itis expected that further loans will be drawn down under this facility
which expires in 2016 The total interest bearing financial assets of the Group of £92 millon (2012-£62 million) are at short-dated
fixed or variable interest rates
POL00026694
POL00026694
78
Financial statements
Notes to the consolidated financial statements continued
17 Financial assets and habilities continued
‘The table below sets out the carrying amount by maturity of the Groups financial instruments that are exposed to interest rate risk
Financial year ended 31 March 2013
Average
effective
interest Within 12 25 Morethan
rate year years years Sears Total
* fm £m £m £m tm
Fixed rate
Short-term bank deposits os 6 - - - 6
BISloan 10 (291) - - - (291)
Obligations under finance leases 100 @) @ : - @
Floating rate
Money market fund investments 05 86 - - - 86
Non-Interest bearing
Cashin Post Office network - 879 - - - 879
Denwvative assets - 1 - - - 1
Net total financial assets/(iabilities) 678 @ = - 674
Fmancial year ended 31 March 2012
Average
effective Webin 12 25 Morethan
interest rate lyear years: years Syears Total
% fm =m tm ¢m em
Fixed rate
Short-term bank deposits 07 19 - - - 19
BISloan 08 (377) - - - 377)
‘Obligations under finance leases 90 @ @ @ - ao
Floating rate
Money market fund vestments os 43 - - - 43
Non-interest bearing
Cash in Post Office network = 758 - - - 758
Net total financial assets/(habilities) 439 2 3) - 433
Foreign currency risk
‘The Group 1s exposed to foreign currency nsk resulling from balances held to operate Bureau de Change services The Groups
foreign currency risk management objective 1s to mimimise the impact on the income statement of fluctuations in the exchange
rates The Group aims to hedge 90% of sigmificant forecast future currency balances (principally but not restricted to US dollar
and Euro) to match the anticipated holding period of the currency The Group hedges its foreign currency risk principally through:
external forward foreign currency contracts with First Rate Exchange Ser vices Holdings Limited
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resuluing in financial loss to the Group
Financial crecit nsk arises from cash balances (including bank deposits and cash and cash equivalents) held by the Group and
business credit risk arises from exposures to customers Business risk includes commissions receivable and chent related
settlements for amounts paid out of the Post Office network on their behalf
The Group aims to minimise its financial credtt risk through the appheation of risk management pohcies approved by the Board
Counterparties are limited to major banks and financial institutions The policy restricts the exposure to any one counterparty
by setting appropriate credit limits
Business credit risk 1s monitored centrally The individual relationships and the contracts attached to them are managed by
dedicated teams and procedures are in place to monitor any concentrations of credit risk The level of bad debt incurred for the
Groups less than 1% (2012 less than 1%) of turnover
Annual Report and Financial Statements 2012 13,
POL00026694
POL00026694
Operational I Performance Financtal 79
Overview Teview Teview Governance I statements
Capital management
The Groups objectives when managing capital (defined as the net of borrowings and amounts due under finance leases and cash
and cash equivalents excluding cash in the Post Office network) are to safeguard i's ability to continue as a going concern and to
maintain an optimal capital structure in order to support the business and maximise stakeholder value In managing the Groups
capital levels the Board and the Executive Committee regularly morntor the level of debt in the Group the working capital
requirements and the forecast cash flows The Board and Executive Commnttee plan accordingly following this review process
mm order to meet the Groups capital management objectives
Liquidity risk
The Groups primary objective is to ensure that the Group has sufficient funds available to meet its financial obligations as they
falldue This 1s achieved by ahgming short-term investments and borrowing facilities with forecast cash flows Typical short term
investments include money market funds and short term bank deposits with approved counterparties Borrowing facilities are
regularly reviewed to ensure continuity of funding The unused facility for the Group of £859 milion (2012-£773 milhon) expires
mn 2016
Sensitivity
Asa result of the mix of fixed and vartable rate financial instruments and the currency hedge programmes in place the Group
has no material exposure to risk from interest rate or exchange rate prices
The tables below set out the gross (undiscounted) contractual cash flows of the Groups financial habihties For loans and finance
leases, these cash flows represent the undiscounted total amounts payable including interest
2013
Finance
BiSloan lease Total
Amounts falling due in £m £m £m i
One year or less 291 4 295 '
More than 1 year but not more than 2 years - 4 4 !
More than 2 years but not more than 5 years - - -
More than 5 years - - -
Total 291 8 299
2012
Finance
BIS Ioan ease Total
Amounts faing due in £m fm fm
One year or less 377 4 381
More than 1 year but not more than 2 years - 4 4
More than 2 years but not more than 5 years - 4 4
More than 5 years - - -
Total 377 12 389
2011
Finance
. BISioan lease Total
Amounts falting duein fm £m €m
One year or less 375 4 379
More than 1 year but not more than 2 years. - 4 4 :
More than 2 years but not more than 5 years ~ 8
More than 5 years =
Total 375 16 391
POL00026694
POL00026694
— - I
80 - :
Financial statements
Notes to the consolidated financial statements continued
18 Hedging programmes
Details of the Groups denvative financial instruments used to manage the risks identified above are as follows
° 2013 2012
Assets Assets I
Fair value of derivative financial instruments sm em I
Currency hedges i = :
Total 1 =
Currency hedges
‘The Group mitigates its foreign currency risk exposure pnneipally through external foreign currency forward contracts with
First Rate Exchange Services Holdings Lurmited At the year end the gain on unmatured currency hedges was £1 million and taken
to the income statement as hedge accounting ts not clatmed The hedges mature in Apnil 2013
Derivative values
Atany point in time the denwatives above are either inthe money which means the hedged rates are belter than the current
market rates or out of the money which means that the hedged rates are worse than the current market rates The resulting gains
and losses as at the balance sheet date are recognised in the income statement An associated financial asset or hability 1s created
in the balance sheet (as detatled above ) The financial asset or lability reduces to zero as the derivative approaches maturity
The Group s hedging transactions are seitled net
19 Pensions
On1 Apmi2012 almost all of the pension assets and habihties of the Royal Mail Pension Plan (RMPP) were transferred to
HM Government On this date the RMPP was also sectionalised with Royal Mat! Group Limited and Post Office Limited responsible
for their own sections All Post Office Limited employees were transferred to be dectly employed by Post Office Limited on the
same date
Royal Mail Group Limited 1s the principal employer in the Royal Mail Senior Executive Pension Plan (RMSEPP) and Post Office
Limited became a participating employer with effect from 1 April 2012 Post Office Limited continues to account for approximately
7% of the RMSEPP scheme as it has done previously
Prior to 1 Apri 2012, Royal Mail Group Limited had the legal relationshup with the Trustees of both RMPP and RMSEPP and as
such the Trustees held Roya] Mail Group Limited hable for the actuanal deficit in the scheme All employees were employed by
Royal Mail Group Limited and seconded to Post Office Limited under an agreement between Post Office Limited and Royal Mail
Group Limited Post Office Limited met the full costs of employment and was responsible for the funding of the pension deficit
attributable to these employees Consequently Post Office Limited recognised a balance sheet deficit on full adoption of 1AS19 by
Royal Mail Holdings plc based on employee numbers over 12 years which represented approximately 7% of the total balance sheet
deficit at that time The net pensions interest deficit recovery payments and actuarial gains or losses were also allocated on this
basis The current service cost regular future service contnbutions and curtailments were computed separately for Royal Mail
Group Limted and Post Office Limited based on common factors/rates
The disclosures 1n this note relating to the year ended 31 March 2013 reflect the Post Office Limited sectionased RMPP scheme
which 1s independently operated by the Group and the approximate 7% share of the RMSEPP scheme The comparative figures
for the year ended 25 March 2012 and the opening position at 28 March 2011 represent approximately 7% of the previous combined
RMPP and RMSEPP plans
‘The disclosures in this note show how the value of the assets and habihities have been calculated at the balance sheet date
‘The Group participates in pension schemes as detailed below
Name Eligibility '
Royal Mau! Pension Plan (RMPP) UK employees Defined benefit
Royal Mail Semior Executive Pension Plan (RMSEPP) UK semor execunves Defined benefit :
Royal Mail Defined Contribution Plan (RMDCP) UK employees Defined contribution
Defined contribution
‘The charge in the income statement for the defined contribution schemes and the Group contributions to these schemes was
£1 million (2012-£1 million) during the year A new defined contribution plan (RMDCP) was launched in April 2009 New recruits
joining from 31 March 2008 are able to begin paying contributions to the new plan after they have worked for the Group for a year
Annual Report and Financial Statements 201213
POL00026694
POL00026694
Operational Performance Financial
Overview review review I Governance I statements 81
Defined benefit
Both RMPP and RMSEPP are funded by the payment of contributions to separate trustee admnistered funds The latest full
actuana! funding valuation of both schemes was carried out as at 31 March 2009 using the projected unit method For RMPP this
valuation was concluded at £103 billion deficit For RMSEPP the valuation was concluded at £100 millon deficit RMPP includes
Sections A Band C each with different terms and conditions
+ Section A 1s for members (or beneficiaries of members) who joined before I December i971
+ Section Bis for members (or beneficiaries of members) who joined after 1 December 1971 and before 1 April 1987 or to members
of Section A wha chose to receive Section B benefits
+ Section Cis for members (or beneficiaries of members) who joined after 1 April 1987 and before 1 April 2008
A series of changes to RMPP and RMSEPP began to take effect on 1 April 2008
The changes encompass
the plans closed to new members from 31 March 2008
all pensions and benefits earned before 1 April 2008 are stil! linked to final salary at the time of rerement
fromm] April 2008 defined benefits bunlding up for employee members of the plan are earned on a career salary basis,
employees can contimie to take their pension on reaching 60 but the normal retirement age increased to 65 for benefits earned
from] April 2010
from 1 Apn 2010111s possible to draw pension earned before the change tonormal retirement age at55 and continue working while still
contributing to the Pension Pian until the maximum level of benefits has been reached and
+ RMSEPP was closed to future accrual on 31 December 2012
Payment of £23 million (2012-£23 million) was made by the Group during the year in respect of regular future service
contributions nearly all relating to RMPP The regular future service contributions for RMPP expressed asa percentage of
pensionable pay has remained at 171% (20:2 171%) effective from April 2010 This rate 1s not expected to change materially during
2013-14 For RM: P these contributions have remained at 35 9% (2012 35 9%) until its closure
The Group pays 7% of the total deficit payment required to fund the deficit in RMSEPP and a payment of £2 million (2012 less than
£1 milhon) was made by the Group during the year Following the State Aid clearance granted on 2] March 2012 and the subsequent
transfer of the historical pension deficit to HM Government on I April 2012 no RMPP deficit payment was made during 201112 or
201213 For RMSEPP deficit recovery payments will be £1 milhon per annum frorn 1 April 2010 to 31 January 2024
A current hability of £nil (2012-€ni) has been recognised for payments to the pension schemes relating to redundancy During the
year payments of £2 million (2012-€3 million) relating to redundancy were made
The following disclosures relate to the gains/losses and surplus/deficit in the scheme recognised for RMPP and RMSEPP defined
benefit plans in the financial statements of the Group
a) Major long-term assumptions
The size of the RMPP pension surplus which s large in the context of the Group and its finances 1s materially sensitive to the
assumphons adopted Small changes in these assumptions could have a significant impact on the surplus and overall incorne
statement charge The major long term assumptions were
At31 March At25 March At 28 March
2013 201
12 2011
pa %pa %pa
Rate of increase in salaries 43 43 45
Rate of pension increases - RMPP Sections A/B 23 23 28
Rate of pension increases - RMP? Section C 32 33 35
Rate of pension increases - RMSEPP members transferred from Section A or Bof RMPP_ 33 33 35
Rate of pension increases - RMSEPP ail other members 32 33 35
Rate of increase for deferred pensions - RMSEPP members transferred from
Section A or B of RMPP 33 33 35
Rate of increase for deferred pensions 23 a3 28
Discount rate 48 51 55
Inflation assumption (RPI) 33 33 35
Inflation assumption (CPD 23 23 28
Expected average rate of return on assets nfa 59 65
In June 2010 the government announced that 1t was intending to change the inflation measure used to determine statutory
immmum indexation in deferment and in payment from RPI to CPI from Aprit 2011 Where relevant the mflation assumption
haschanged from RPI to CPI
POL00026694
POL00026694
82
Financial statements
Notes to the consolidated financial statements continued
19 Pensions continued
‘The above assumptions relate to both defined benefit plans with the exception of the expected average rate of return on assets
which was computed for the combined assets of the plans The expected average rate of return on assets was a weighted average I
of the long term expected rate of return of each principal asset class (see Section b) The expected average rate of return was I
computed at each balance sheet date based on the market values and long term rate of return of each principal asset class as at
that date The change in IAS 19 that will be implemented with effect from I April 2013 means that the expected average rate of
return on assets 1s no tonger required
The following table shows the potential impact on the RMPP assets and pension surplus of changes in key assumptions
2013
£m
Changes in RPI and CPI inflation of +01% pa @
Changes in discount rate of +0 1% pa 4
Changes mm real salary growth of +0 1% pa ©
Changesin CPI assumptions of +0 1% pa aw
Anadditional 1 year hfe expectancy @
Comparative information in relation to the potential impact of changes in key assumptions has not been included as this would
Tepresent Post Office Limited s share of the combined RMPP scheme and the above 31 March 2013 information 1s1n relation to the
sectionalised RMPP scheme and therefore comparison would not be meaningful
Mortality
‘The mortahty assumptions for the RMPP sectionahised scheme are based on the latest self admmmistered pension scheme (SAPS)
mortality tables with appropriate scaling factors (106% for male pensioners and 101% for female pensioners) For future
improvements the assumptions allow for medium cohort projections with a] 25% floor These are detailed below
Average expected life expectancy from age 60 2013 2012 2011
Fora current 60 year old male RMPP member 26years 26ycars 26 years
Fora current 60 year old female RMPP member 29years 29years 29 years
Fora current 40 year old male RMPP member 29years 29years 29 years
Fora current 40 year old female RMPP member B2years 32years 32 years
b) Plans’ assets and expected rates of return
‘The assets n the plans and the expected rates of return for the Group were
Long term
expected
‘Market rate of
value return
2013 2013
Sectionalised RMPP im ‘%pa
Equities 29 nia
Bonds 205 n/a j
Property - nia .
Other assets 9 n/a
Farr value of RMPP assets 243
Present value of RMPP liabilities aaa)
Surplus im plan before iFRIC 14 adjustment 99
Less IFRIC 14 adjustment @)
Surplus In plan after IFRIC 14 adjustment 96
Annual Report and Financial Statements 2012 12
POL00026694
POL00026694
Operational I Performance
Overview
Financial
review review Governance statements 83
Long-term
expected
Market rate of
value return
2013 2013
Share of RMSEPP £m %pa
Equities 146 nla
Bonds 193 nla
Property 19 nfa
Other assets 3 nla
Fant value of plan assets for RMSEPP 361
Present value of ptan habthties for RMSEPP 47)
Surplus mn plan for RMSEPP 14
Surplus in plan for the POL share (at approximately 7%) of RMSEPP 1
Aretirement benefit surplus of £97 million 1s disclosed on the balance sheet representing the surplus in plans of £99 million and
£i milion for RMPP and RMSEPP respectively net of tax of £3 millon at a rate of 35% on the element of the surplus which is
Tecoverable through a refund from the plans
Long term Long term
expected expected
Market Market rateof rateof
value vale return return
2012 2011 2012 2011
Combined plans £m £m ‘%pa %pa
Equities 3385 4268 7 82
Bonds 25610 21409 Ss? 62
Property 1417-1590 68 65
Other assets 333 418 34 42
Farr value of plans assets for the combined plans 30745-27685
Present value of plans habihties for the combined plans (33667) (32186)
Deficit in schemes for the combined plans (2922) (4,501)
Deficit in schemes for share (at approximately 7%) of combined plans (206) (316)
‘Theres no element of the above present value of habilities that arises from plans that are wholly unfunded
c) Movement in plans' assets and habilties
Changes in the fair value of the plans assets are analysed as follows
Sectionalised
RMPP 2013
Assets £m
Assets in sectionalised RMP? at beginning of period 2,108
‘Transfer of pension assets to government (4,953)
Contributions paid 25
Employee contributions paid 8
Finance income (expected rate of return) uu
Actuanal gains (additional increases in market values) 46
Benefits paid to members @
Assets in sectionalised RMPP at end of period 243
POL00026694
POL00026694
84
Financial statements 7
Notes to the consolidated financial statements continued
19 Pensions continued
Shareot
RMSEPP 2013
Assets fm
Share of assets in RMSEPP at beginning of period 21
Contributions paid 2
Movement in contnbutions accrued -
Employee contributions paid -
Finance income (expected rate of return) 1
Actuanal gains (additional increases in market values) 1
Benefits paid to members -
Share of assets in RMSEPP at end of period 25
2012 2011
Assetscombined plans er £m
Share of assets 1n combined plans at beginning of period 1923 1797
Contnibutions paid 26 46
Movement in contributions accrued @ 2
Employee contnbutions pard 10 uw
Finance income (expected rate of return) 124 120
Actuarial gains (additional increases m market values) 131 33
Benefits paid tomembers (82) (6)
Share of assets in combined plans at end of period
2129 1923
Changes in the present value of the defined benefit pension obligations are analysed as fotlows
Sectionalised
RMPP 2013
Liatnhties —m
Lyabihties in sectionalised RMPP at beginning of period (2,313)
Transfer of pension habihties to government 2,239
Current service cost (24)
Curtailment costs* @
Finance cost 9)
Employee contributions )
Actuarial loss (recognised in statement of comprehensive income) (9)
Benefits paid 2
Liabilities in sectionalised RMPP at end of period 4a)
Share of
RMSEPP 2013
Liabilities fm
Share of habihties in RMSEPP plans at beginning of period (22)
Current service cost -
Curtailment costs* -
Finance cost a@
Employee contnibutions -
Actuarial loss (recognised in statement of comprehensive mcome) w
Benefits paid -
Share of liabilities in RMSEPP at end of period (a)
Annual Report and Financial Statements 2012 13
POL00026694
POL00026694
Operational Performance Financial
Overview I ‘review review I Governance I statements 85
7 2012 2011
Liabilities combined plans: tm im
Share of habilities in combined plans at beginning of period (2239) (236)
Current service cost (23) (25)
Curtanlment costs* . @
Finance cost a2 32)
Employee contributions ° ao) ay
Actuarial (loss)/gamn (recognised in statement of comprehensive income) (23) 207
Benefits paid 82 86
Share of habilities in combined plans at end of penod 2335) (2239)
"The curtailment costs In the Income statement are recognised on a consistent basis with the associated compensation costs Estimates of both are
Included for example inany redundancy provisions raised The curtailment costs above represent the costs associated with those people paid .
comperisation in respect of redundancy during the accounting period Such payments may occur in an accounting period subsequent to the recogmiion ‘
‘of costsin the income statement
d) Uistory of experience gains and losses
The cumulative amount of actuanal gains and losses recognised since transition to IFRS as adopted by the European Umon on
28 March 2011 1s a gain of £122 milion as recognised in the consolidated statement of comprehensive income
Sectionalisea —_Shareot
RMPP
RMSEPP 7% share of combined plans
2013 2013 2012 2011 2010 2009,
&m em ein fm &m fm
Farr value of assets, 243 25 «2168 ~=—1944 1811 1407
Present value of hiabilines aaa) (24) (2374) (2260) (2.375) __ (1.882)
Surplus/(deficit) in schemes 99 1 (208) B16) 64) (475)
Experience adjustment on assets 46 1 131 33 313 (384)
Expenence adustment on habihties (20) - - a) 47 ay
2013 2013 2012 2011 2010 2009
% % % % * %
Expervence adjustment on assets as a % of scheme assets 189 55 61 7 174 (273)
Experience adjustment on habilities asa
% of scheme habilities 3.9) 14 00 00 (20) o1
Deficit in the scheme as a % of scheme habihties - > 88 141 239 253
POL00026694
POL00026694
Financial statements
86
Notes to the consohdated financial statements continued
19 Pensions continued
e) Recognised charges
Ananalysis of the separate components of the amounts recognised in the performance statements of the Group 1s as follows
2013
sectionalised
RMPP
£m
Analysis of amounts recognised in the income statement
Analysis of amounts charged to operating profit before exceptional Items
Current service cost,
Analysis of amounts charged to operating exceptional Items
Loss due to curtailments (within provision - note 16)
24
Total charge to operating profit
26
Analysis of amounts charged/(credited) to net pensions interest
Interest on plan habihities
Expected return on plan assets
(11)
Net pensions credit to financing
(2)
Net charge to the income statement before deduction for tax
24
Analysis of amounts recognised in the statement of changes in equity
‘Transfer of pension hatihties to government
‘Transfer of pension assets to government
2,239
4,953) 1
Gain on transfer to government
286
Total gains recognised in the statement of changes in equity
Analysis of amounts recognised in the statement of comprehensive Income
Actual return on plan assets
Less expected return on plan assets
Less taxation on surphis recoverable through plan refunds
57
an
3)
Actuarial gains on assets (all experience adjustments)
43
Experience adjustments on habihties
Effects of changes in actuarial assumptions on habihties
(20)
9)
Actuarial losses on hatntities
(29)
Total actuarial gains recognised in the statement of comprehensive Income
14
Annual Report and Financial Statements 2012 13
POL00026694
POL00026694
Operational I Performance Financial 87
Overview Teview review Governance I statements _
2013 share
of RMSEPP
£m
Analysis of amounts recognised in the income statement
Analysis of amounts charged to operating profit before exceptional items .
Current service cost 1
Analysis of amounts charged to operating exceptional items
Loss due to curtailments (within provision for organisational review - note 16) -
Total charge to operating profit 1
Analysis of amounts charged/(credited) to net pensions interest
Interest on plan habihties 16
Expected return on plan assets (18) I
Net pensions interest @) I
Share of net pensions interest (at approximately 7%) : H
Net charge to the income statement before deduction for tax - I
Analysis of amounts recognised in the statement of comprehensive income In the Royal Mail Holdings Group ‘
financial statements
Actual return on plan assets 38 '
Less expected return on planassets as)
Actuarial gains on assets (all experience adjustments) 20
Experience adjustments on habilities 5
Effects of changes in actuarial assumptions on habilities (23)
Actuarial losses on habilities ae)
Total actuarial gains recognised In the statement of comprehensive income in the Royal Mail Holdings Group
financial statements 2
Share of actuarial gains/losses) recognised in the statement of comprehensive income (at approximately 7%) ~
POL00026694
POL00026694
88
Financial statements
Notes to the consolidated financial statements continued
19 Pensions continued
2012 zou
Combined plans fm em
Analysis of amounts recognised in the income statement
Analysis of amounts charged to operating profit before exceptional items
Current service cost 23 25
Analysis of amounts charged to operating exceptional items
Loss due to curtailments (within provision for organisational review - note 16) - 2
Total charge to operating profit 23 27
Analysis of amounts charged/(credited) to net pensions interest
Interest on plans habihties for the combined plans 1749 1881
Expected return on plans assets for the combined plans (1775) (1714)
Net pensions interest for the combined plans (26) 167
Share of net pensions interest (at approximately 7%) (2) 12
Net charge to the income statement before deduction for tax 21 39
Analysis of amounts recognised in the statement of comprehensive income in the Royal Mail Holdings
Group financial statements
Actual return on plans assets for the combined plans 3644 2184
Less expected return on plans assets for the combined plans (1775) 714)
Actuarial gains ori assets for the combined plans {all experience adjustments) 1869 470
Expenence adjustments on habilines for the combined plans &) @)
Effects of changes in actuanal assumptions on habilities for the combined plans (320) 2962
Actuarial (losses)/gains on liabihties for the combined plans 2954
Total actuarial gains recognised in the statement of comprehensive income in the Royal Mail Holdings
Group financial statements 1944 3424
Share of actuarial gains recognised in the statement of comprehensive income (at approximately 7%) 108 240
20 Called up share capital
2013 zoia zou
= B t
Authorised
Ordinary shares of £1 each 51,000 510600 51000
Total 51,000 51000 51000
Allotted and issued
Ordinary shares of £1 each 50,003 50003 50003
Total 50,003 50003 50003
Annual Report and Financial Statements 2012 13
POL00026694
POL00026694
Operational I Performance Financial :
Overview review review Governance statements 89
21 Commitments
Capital commitments contracted for but not provided in the financial statements amount to £48 million (2012-£15 milion)
The Group 1s commntted to the following minimum lease payments under non-cancellable operating leases
Land and buildings TT equipment
2013, 2012 2011 2013 2012 2011
tm fm em £m im tm
‘Within 1 year 16 16 16 15 16 16
Between 1 and 5 years 42 44 43 - - -
Beyond 5 years 38 43 45 - - =
Total 96 103 104 15 16 16
22 Finance lease habilities
2013 2012 2011
Present
value Present Present
of value ot vaiue ot
minimum numum minimum
Minimum Jease = Minimum lease =Mimimum lease
payments payments payments payments payments
fm fm 2 em cm
Within 1 year 4 3 4 4 4 4
Between 1 and S years 4 4 & 6 12 9
Beyond 5 years - bl - - -
Total minimum lease payments 8 7 12 10 16 13
Less amounts representing finance charges i) - @ - @ -
Present value of minimum lease payments 7 7 10 10 13 13
Of which
Current 3 3 4 4 4 4
Non-current 4 4 6 6 9 =) '
The aggregate finance charges allocated for the period in respect of finance leases was £738 859(2012-£1,011 232) The fair value of
finance lease liabilities 1s not materially different from the carrying value
‘The Group has finance lease contracts for equipment ‘The leases have no terms for renewal purchase options or escalation clauses
and there are no restnictions concerning dividends borrowings or additional leases The leases have an average term of six years
23 Related party disclosures.
Joint venture
The following Company is a joint venture of the Group
Company Country of incorporation % Holding Principal activities
First Rate Exchange Services Holdings Limited United Kingdom 50 Bureau de Change
Associates
The following Company was an associate of Post Office Lumited during the year The Groups interest was disposed of in
September 2012
Company Country of incorporation % Holding Principal activities
Midasgrange Limited United Kingdom 50 Financial services
All shareholdings are equity shares
POL00026694
POL00026694
Financial statements
Notes to the consolidated financial statements continued
23 Related party disclosures continued
Related party transactions
During the year the Group entered into transactions with the followmg related parties The transactions were in the ordinary
course of business The transactions entered into and the balances outstanding at the financial year end were as foilows
Amounts owed trom Amounts owed to
Sales/recharges Purchases/recharges related party including related party including
torelated party from related party outstanding loans outstanding loans
2013 2012 2031 2013 2012 2011 2013 2012 2011 2013 2012 2011
=m em em em tm cm em £m {nm £m im tm
RoyalManGroupLimited 371 «359346373335 - - - 4 8 il
Camelot Group ple - - 10 - - - - - - - - -
Romec Limited - - - 8 8 8 - - - 2 1 1
Midasgrange Limited 35001 30 1 1 3 - 14 10 - 1 -
First Rate Exchange
ServicesHoldings Limited 2731 30. 125 128 132 7 3 9 1 8 1
The sales to and purchases from related parties are made at normal market prices Balances outstanding at the year end are :
unsecured interest free and settlement is made by cash Royal Mail Group Limtted is a subsidiary company of the Groups parent
company Royal Mail Holdings plc Camelot Group plc was an associate within the Royal Mail Holdings Group but was disposed
of 1n 2010 Il Romec Limited is a subsidiary of Royal Mail Group Limited Midasgrange Limited was an associate of the Group until
September 2012 and First Rate Exchange Services Holdings Limited is a joint venture of the Group
‘The Group trades with numerous government bodies on an arms length basis Transactions with these enilives are not disclosed
‘owing to the significant volume of transactions that are conducted
Separately
+ the Group has certain loan facihties with government (note 15)
+ almost all of the pension assets and habihties of the Rayal Mail Pension Plan were transferred to government (note 19)
+ the Group has received a government grant of £200 milton £98 milhon of which was recognised through the income statement
(note §) and £102 million of which 1s deferred income within trade and other payables (note !4) and
+ the Group has received the Network Subsidy Payment from government (note 1}
Key management comprises Executive and Non Executive Directors of the Post Office Limited Board and the members of the
Executive Commnttee at 31 March 2013 The aggregate remuneration of the key management personnel of the Post Office Group
1s set out below
2013 2012
£000 £000
Short term employee benefits 3568 3077
Post-employment benefits — 119 232
Other tong term benefits 651 -
‘Termination benefits td
Total 43383309
24 Post balance sheet events
Inaccordance with the funding agreement with government announced on 27 October 2010, for which State Ard approval was
received on 28 March 2012 Post Office Limited received £415 mithon of funding on 2 April 2013
On 21 June 2013 Post Office Limited launched a consultation with members of the Royal Manl Pension Plan on a proposal to
change the terms of the plan which will conclude on 25 August 2013 Post Office Limited will consider the feedback before making
its final decision and communicating it to colleagues
25 Immediate and ulmate parent company
At31 March 2013 the Directors regarded Royal Mail Holdings plc as the immediate and ultimate parent company The largest
group to consolidate the results of the Company 1s Royal Mail Holdings plc a company registered inthe United Kingdom
Royal Mail Holdings ptc financial statements can be obtained from the company website www royalinallgroup com
Annual Report and Financial Statements 2012 13
POL00026694
POL00026694
91
Financial statements
Post Office Limited
Parent Company
Financial Statements
201213
POL00026694
POL00026694
92
Financial statements I
Independent auditor's report to the members of Post Office Limited
We have audited the parent company financial statements of
Post Office Limited for the 53-week period ended 31 March 2013
which comprise the Company balance sheet the Company
statement of total recognised gains and losses the Company
reconciiiation of movements in Shareholder s funds and the
related notes 11018 The financial reporting framework that has
been applied in their preparation 1s applicable law and United
Kingdom Accounting Standards (United Kingdom Generally
Accepted Accounting Practice)
‘This report is made solely to the Companys members asa
body in accordance with Chapter 3 of Part 16 of the Companies
Act 2006 Our audil work has been undertaken so thal we might
state to the Company s members those maiters we are required
to state to them in an auditor s report and for no other purpose
To the fullest extent permntted by law we do notaccept or
assume responsibility to anyone other than the Company and
the Company s members as a body for our audit work for this
Teport or for the opinions we have formed
Respective responsibilities of Directors and auditors
As explained more fully in the Directors Responsibilities
Statement sel out on page 58 the Directors are responsible for
the preparation of the parent company financial statements
and for being satisfied that they give a true and fair view Our
responsibility 1s to audit and express an opimon on the parent
company financial statements in accordance with applicable
law and Internationa) Standards on Auditing (UK and Ireland)
‘Those standards require us to comply with the Auditing
Practices Boards Ethical Standards for Auditors
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are [ree
from material misstatement whether caused by fraud or error
This includes an assessment of whether the accounting
policies are appropmiate to the parent company s circumstances
and have been consistently apphed and adequately disclosed
the reasonableness of significant accounting estimates made by
the Directors and the overall presentation of the financial
statements In addition we read al! the financial and non
financial information in the annuat report to identify material
inconsistencies with the audited financial statements [f we
become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report
Opinion on financial statements
Jn our op:mon the parent company fnancsal statements
+ give a true and fair view of the state of the Company s affairs
asat 31 March 2013
+ have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice and
+ have been prepared in accordance with the requirements of
the Compamies Act 2006
Annual Report and Financial Statements 201213
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion the information given in the Directors Report
for the financial period for which the financial statements
are prepared is consistent with the parent company
financial statements
Matters on which we are required to report
by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you
ifn 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 are notin
agieement 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
Other matter
We have reported separately on the consolidated financial
statements of Post Office Limited for the 53-week period ended
31 March 2013
Angus Grant (Semior statutory auditor)
for and on behalf of Ernst & Young LLP Statutory Auditor
London
16 Suly 2013
POL00026694
POL00026694
Operational Performance Financial 93 1
Overview ' review review Governance statements i
Balance sheet of the Company
at 31 March 2013 and 25 March 2012
. 2013 2012
Notes £m £m
Intangible assets 2 - -
Tangible assets 3 lL li
Investment in subsidianes 4 - -
Investments in joint ventures and associates 5 1 5
Retirement benefit surplus 13 100 -
Debtors - receivable after ore than one year 6 10 -
Total non-current assets 122 16
Current assets
Stocks 8 6
Debtors - receivable within one yeat 6 352 226
Financial assets ~ investments 7 92 62
Financial assets - derivatives 1 -
Cash at bank and in hand 8 879 758
1,332 1052
Current liabilities :
Creditors - amounts falling due within one year 9 (877) (587)
Financial habihties - interest bearing loans and borrowings 10 (291) (377)
Net current assets 164 88
Total assets less current Habilitles 286 104
Creditors - amounts falling due after more than one year 11 (28) (8)
Provisions for habilities 12 (26) a4) I
Retirement benefit obligation 13 - (206)
Net assets/(labilities) 232 24)
Capital and reserves
Called up share capital 14 . 1
Share premium 15 465 465 I
Profit and loss account 15 (233) (S89)
Shareholder’s surplus/(deficit) 232 (24)
The financial statements on pages 93 to 110 were approved by the Board of Directors on 16 July 2013 and signed on its behalf by
PAVennells I G RO I cMDay
} ! Chef Financial Officer
Chief Executive
POL00026694
POL00026694
94
Financial statements
Statement of total recognised gains and losses
for the 53 weeks ended 31 March 2013 and the 52 weeks ended 25 March 2012 I
. 2013 2012
Notes €m £m
Profit for the financial year 15 76 37
Actuarial gains on defined benefit pension schemes 13 17 108
‘Taxation on items taken directly to equity (23) -
‘Total recognised gains for the financial year 70 145
There ts no statement of historical cost profits and losses as the financial statements are prochiced under the historic cost
accounting convention
Annual Report and Financial Statements 2012 13,
POL00026694
POL00026694
Operational. Performance Financial
Overview I“ Teview review. I Governance I statements 95
Reconciliation of movements 1n Shareholder’s funds
for the year ended 31 March 2013 and 25 March 2012
20132012
Notes &m £m
Opening Shareholder’s deficit 15 24) (269)
Total recognised gains for the financial year 70 145
Transfer of pension deficit to government 13 286 -
Closing Shareholder’s surplus/(deficit) 232 24)
96
POL00026694
POL00026694
Financial statements
Notes to the Company financial statements
1 Accounting policies
The following accounting policies apply throughout Post Office
Limited (the Company)
Financial year
The financial year ends on the last Sunday in March and
accordingly these financial statements are made up to
the 53 weeks ended 31 March 2013 (201252 weeks ended
25 March 2012)
Basis of preparation
The financial statements on pages 93 to 110 have been prepared
i accordance with apphcable UK Accounting Standards and
law including the requirements of the Companies Act 2006
Unless other wise stated in the accounting policies below the
financial statements have been prepared under the historic
cost accounting convention
As permitted by Section 408 of the Compamies Act 2006 Post
Office Lumted has not presented its own profit and loss account
The result dealt with in the accounts of the Company amounted
to £76 milhen profit (2012-£37 milhon profit)
No cash flow statement has been presented as the Company
1s part of the Post Office Lumted Group which has presented
a consolidated cash flow statement within tts Group
financial statements
‘The Company has taken advantage of the exemption conferred
by FRS 29 not to disclose financial instrument information as
the Company 1s part of the Post Office Limited Group which has
presented such disclosures in its Group financial statements
In making an assessment of the Company s ability to continue
asa going concern the Directors have considered the going
concern assessments made in relation to the Group (see note 1
on page 65) and are of the view that it is appropriate that
these financial statements have been prepared ona gong
concern basis
Changes In accounting policy
‘The accounting pohtcies are consistent with those of the
previous year
Intangible fixed assets
Intangible assets acquired separately or generated internally
are initially recogmsed at cost and are reviewed for impairment
An impairment loss 1s recognised in the profit and loss account
for the amount by which the carrying value of the asset
exceeds its recoverable amount which 1s the higher of an
asset s net realisable value and its value in use
Amorhisation of intangible assets with fimte hves is charged
annuaily to the income statement on a straight-line basis
as follows
Software 1to 6 years
Where intangible fixed assets are impaired to therr recoverable
amount on acquisition the above range of asset lives 1s
notapplied
Tangible fixed assets
Tangible fixed assets are recognised at cost including,
attributable costs in bringing the asset into working condition
for its intended use
Annual Report and Financzal Statements 2012 13
Depreciation of tangible fixed assets is provided on a straight Ime
basis by reference to cost and to the remaming useful economic
lives of assets and their estimated residual values The hives
assigned to major categories of tangible fixed assets are
Range of asset lives
Land and buildings
Freehold land
Freehold buildings
Leasehold buildings
Not depreciated
Upto SO years
‘The shorter of the period of the
lease 50 years or the estimated
remaining useful life
Plant and machinery 3-15 years
Motor vehicles and trailers 2-12 years
Fixtures and equipment 2-15 years
Where tangible fixed assets are impaired to their recoverable
amounts on acquisition the above ranges of asset lives are not
applied ‘This 1s currently the case for plant and machmery
motor vehicles and trailers and fixtures and equipment
Impairment reviews
Unless other wise disclosed in these accounting policies fixed
assets are reviewed for impairment f events or changes in
circumstances indicate that the carrying value may be impaired
‘The Company assesses at each reporting date whether such
indications exist Where appropriate an impairment loss 1s
recognised in the profit and loss account for the amount by
which the carrying value of the asset (or cash generating unit)
exceeds its recoverable amount whichis the higher of an
assets net realisable value and its value m use
Leases
Finance leases where substantially all the risks and rewards
incidental to ownership of the leased item have passed to the
Company are capitalised at the ception of the lease with a
corresponding liabihty recognised for the fair value of the
leased item or if lower at the present value of the minimum
lease payments Lease paymentsare apportioned between the
fmance charges and reduction of the lease hability soas to
achieve a constant rate of interest on the remaining balance
of the habiity
Capitalised leased assets are depreciated over the shorter of the
estimated useful life of the asset and the lease term
Leases where substantially all the risks and rewards of
ownership of the asset are retained by the lessor are classified
as operating leases and rentals are charged to the profit and loss,
account over the lease term ‘The aggregate benefit of incentives
are recognised as a reduction of rental expenses over the lease
term ona straight line basis
Investments in joint ventures and associates
Investments n jomt ventures and associates within the
Company s financial statements are stated at cost less any
accumulated impairment losses
Investments in subsidianes
Investments in subsidiaries within the Company s financial
statements are stated at cost less any accumulated impairment
losses The carrying value relates solely to the Companys
investment in Post Office Management Services Limited a 100%
subsidiary of the Company and is less than £1 million
POL00026694
POL00026694
Operational I Performance Financial
Overview Teview review Governance statements 97
Stocks For defined contribution schemes the Companys contnibutions
Stocks which include printing and stationery retail and Lottery
products are carried at the lower of cost and net realisable
value after adjusting for obsolete or slow-moving stock
Deferred tax
Deferred tax 1s generally provided in full on tring differences
at the balance sheet date at rates expected to apply when
the tax liabihty (or asset) crystallises based on substantively
enacted tax rates and law Timing differences arise from the
inclusion of items of mcome and expenditure in taxation
computations in periods different from those in which they
are included in the fmancial statements
Deferred taxis not recogmsed in the following instances
+ on gains on disposal of fixed assets where on the basis of
available evidence itis more hikely than not that the taxable
gain will be ro!led over into replacement assets and charged
totax only when there is a commitment to dispose of those
replacement assets
‘on unremitted earnings of subsidiaries and associates where
there is no commitment to remit those earnings and
deferred tax assets are recognised only to the extent that the
Directors consider that it 1s more likely than not that there will
be suitable taxable profits from which the future reversal of
the underlying ting differences can be deducted
Deferred tax assets and habihtres are not discounted Deferred
tax 1s charged or credited directly to reserves if tt relates to
items that are credited or charged directly to reserves
Otherwise it is recognised in the profit and ioss account
Pensions and other post-retirement benefits
People working for the Company were employed by Royal Mail
Group Limted and seconded to the Company until3] March 2012
On1 April 2012 they were transferred to be directly employed
by the Company Membership of occupational pension schemes.
1s open to most permanent UK employees of the Company
Ailmembers of defined benefit schemes are contracted out
of the earnings related part of the State pension scheme
The pension plans assets of the defined benefit schernes are
measured at fair value Liabilities are measured on an actuarial
basis using the projected unit credit method and discounted at
a rate equivalent to the current rate of return ona high quality
corporate bond of equivalent currency and term The resulting
defined benefit asset or liability 1s presented separately on the
face of the balance sheet net of any associated deferred tax
balance Full actuarial valuations are carried out at intervals not
normally exceeding three years as determined by the Trustees
and with appropriate updates and accounting adjustments
at each balance sheet date form the basis of the surplus or
deficit disclosed
For defined benefit schemes the amounts charged to operating
profit as part of staff costs are the current service costs and
any gains and losses arising from settlements curtailments and
past service costs
The net difference between the interest costs and the expected
return on plan assets 1s recognised as net pensions interest
In the profit and loss account Actuarial gains and losses are
recognised immediately in the statement of total recognised
gains and losses (STRGI.) Any deferred tax movement associated
with the actuanal gamnsand losses 1s also recognised m the STRGL
are charged to operating profit as part of staff costs in the
period to which the contributions relate
Foreign currencies
The functional and presentational currency of the Company
as sterling (£)
Transactions in foreign currencies are recorded at the rate
ruling at the date of the transaction Monetary assets and
habiliies denominated m foreign currencies are retranslated
at the rate of exchange rulingat the balance sheet date
Alldifferences are taken to the profit and loss account
Debtors
Debtors are recogmsed and carried at onginal invoice amount
less an allowance for any non collectable amounts An estimate
for doubiful debts1s made when collection of the full amount
isno longer probable Bad debts are written off when identified
Financial assets - investments (current assets)
Financial assets - investments in the balance sheet comprise
short-term deposits and money market funds All financial
assets - investments are classified as loans and receivables and
are measured at amortised cost using the effective interest rate
method Gains and losses are recognised in the profit and loss
account when the mvestments are derecognised or impaired
as well as through the arnortisation process
Financial habilities - interest-bearing loans
and borrowings
Allloans and borrowings are classified as financial liabilities
measured at amortised cost
Fimancial habilities - obhgations under
finance leases
All obhgations under finance leases are classified as financial
habihties measured at amortised cost
Borrowmg costs
Borrowing costs in relation to the working capital loan facility
are recognised as an expense when incurred untess they are
directly attributable to the construction or development of
a@ qualifying asset in which case they are capitalised using
the weighted average cost of borrowing for the period of
construction/development
Fair value measurement of financial instruments
The fair value of quoted investments 1s determined by
reference to bid prices at the close of business on the balance
sheet date Where there 1s noactive market fair values
determined using valuation techniques These include using
recent arms length market transactions reference to the
current market value of another instrument which is
substantially the same anddiscounied cash flow analysis
and pricing models
For the purposes of disclosing the fair value of investments
held at amortised cost in the balance sheet in the absence of
quoted market prices fair values are calculated by discounting
the future cash flows of the financial instrument using quoted
equivalent interest rates asat close of business on the balance
sheet date
98
POL00026694
POL00026694
Financial statements
Notes to the Company financial statements continued
1 Accounting policies continued
Derecognition of financial instruments
A financial asset or lability 1s derecognised when the contract that gives rise toit1s settled sold cancelled or expires
Government grants
Government grants of a revenue nature are recognised to match costs im relation to the performance of certain specified activities,
Auditor's remuneration
‘The remuneration paid to auditors 1s disclosed in the Group financaal statements (note 4)
Directors emoluments
The emoluments paid to Directors are disclosed in the Group financial statements {note 6)
2 Intangible assets
2013 2012
Cost £m €m
At 26 March 2012 and 28 March 2011 ~ 183 166 I
Additions 25 7 I
Disposals - -
At31 March 2013 and 25 March 2012 208 183
Amortisation and impairment
At 26 March 2012 and 28 March 2011 183 166
Impairment 25 7
At 31 March 2013 and 25 March 2012 208 183
Net book value
At 31 March 2013 and 25 March 2012 : :
The above intangible assets relate to software
3 Tangible fixed assets
Land and buildings
Plant Fixtures
Long Short Motor and and
Freehold leasehold leasehold vehicles machinery equipment Total
‘£m £m fm tm £m £m fm
Cost
At 26 March 2012 79 17 114 34 1 709 954
Reclassification - 1 w - - - -
Additions 9 - 1 9 7 22 41
Disposals @ : : @ - (a2) aa) i
At31 March 2013 87 18 114 42 1 719 981
Depreciation
At 26 March 2012 69 16 114 34 1 709 943
Depreciation - - - - - - -
Impairment 9 1 - 9 - 22 41
Disposals w - = (6) - 2) aay
At 31 March 2013 7 17 114 42 1 719 970
Net book value
At31 March 2013 10 1 - - : - rot
At 26 March 2012 10 1 - - : : 11
Depreciation rates are disclosed within accounting policies (note 1) No depreciation is provided on freehold land which represents
£3 milhon (2012-£3 milhon) of the total cost of properties
During the year the legal ownership of a number of properties were transferred from Royal Mail Group Limited to Post Office
Limited for no consideration
Annual Report and Financial Statements 2012 13
POL00026694
POL00026694
Performance
review
Operational
Overview Teview
Financial
statements
99
Governance
4 Investment in subsidiaries
The carrying value of £1 relates solely to the Company s investment in Post Office Management Services Limited a 100%
subsidiary of the Company
5 Investments 1n joint ventures and associates
2013 2012 j
£m £m
Investment in joint ventures and associates 1 5 ‘
Joint ventures
During 2012 13 and 201112 the Company s only jomt venture investment was a 50% interest (1000 £1 ordinary A shares) in First Rate
Exchange Services Holdings Limited with a carrying value of £0 6 million (2012-£0 6 million) whose principal activity 1s the
provision of Bureau de Change First Rate Exchange Services Holdings Limited 1s a company registered in the United Kingdom
Associates
During 201112 the Company s only associate investment was a 49 99% interest (4 999 £0.01 ordinary A shares) in Midasgrange
Limited with a carrying value of £4 6 milion whose principal activity ts the provision of personal financial products
This investment was disposed of during the year ended 31 March 2013
6 Debtors
2013 2012
Recetvable within one year £m fm
Trade debtors 32 39
Prepayments and accrued income ma 39
Chent debtors 240 138
Other receivables 9 10
Total 352 226
Recervable after more than one year
Prepayments and accrued income 10 -
7 Current financial assets - investments 1
2013 2012 '
£m =m
Money market funds 86 43
Short-term deposits - bank 6 19
Total 92 62
8 Cash at bank and tn hand
2013 2032
em em
Cash In the Post Office Limited network 879 758
9 Creditors - amounts falling due within one year
2013 2012
tm £m
Trade creditors and accruals 153 172
Advance customer payments . 50 48
Social secunty 10 9
Chent creditors 528 332 1
Obligations under finance leases 3 4 :
Amount due to other compamies within the Royal Mail Holdings Group . 6 9
Capital creditors 18 10
Business transformation payments 7 3
Government grant : 102 -
Total 877 587
POL00026694
POL00026694
100
Financial statements
Notes to the Company financial statements continued
10 Financial habilities - interest bearing loans and borrowings
2013 2012
fm fm
Department of Business, Innovation & Skills loans drawn down 291 377
Total facility 1150 1,150
The loans under the facility are short dated on a programme of liquidity management and mature onaverage I day after the
year end (20121 day) On maturity it s expected that further loans will be drawn down under this faciity which expires in 2016
The undrawn commntted facihty in respect of which all conditions precedent had been met at the balance sheet date is
£859 million (2012-£773 milhon) ‘The average mnterest rate on the drawn down loans 1s 10% (2012 0 8%)
The facihty is currently restricted to funding the cash and near cash items held withm the Post Office Limited network
The facility (cluding drawn down ioans) 1s secured by a floating charge over all assets of Post Office Limited and a negative pledge
over cash and near cash items The negative pledge 1s an agreement not to grant security over the assets or to set up a vehicle that
has the same effect
11 Creditors - amounts falling due after more than one year
2013 2012
£m fm
Obligations under finance leases 4 6
Other payables 24 2
Total 28 8 I
12 Provisions for habiliies I
Network
project transformation Other Total
£m fm £m £m
At 26 March 2012 9 - 5 14
Charged m operating exceptional items - 10 12 22
Charged tn operating costs - - 6 6
Charged in financing costs 1 - oe 1
Uithsation ie) - (1a) a7)
At 31 March 2013 7 10 9 26
Other provisions of £9 million (2012-£5 million) miclude property contracts amounts from onerous lease obligations and personal
injury claims
Amounts charged in financing costs relate to the unwinding of discounted long-term provisions
The Crown Conversions project relates to past franchising of Crown offices and onerous property lease provisions are expected
to be utihsed within 5 years
13 Pensions
On1 April 2012 almost all of the penston assets and habihties of the Royal Mail Pension Plan (RMPP) were transferred to
HM Government On this date the RMPP was also sectionalised with Royal Mail Group Limited and Post Office Limited responsible
for their own sections All Post Office Limited employees were transferred to be directly employed by Post Office Limited on the
samedate
Royal Mail Group Limited is the principal employer in the Royal Mail Semor Executive Pension Plan (RMSEPP) and Post Office
Limited became a participating employer with effect from 1 April 2012 Post Office Limited continues to account for approximately
7% of the RMSEPP scheme ast has done previously
Prior tol April 2012 Royal Mail Group Limited had the legal relationship with the Trustees of both RMPP and RMSEPP and as such
the Trustees held Royal Mail Group Limited lable for the actuarial deficit in the scheme All employees were employed by Royal
Mail Group Limited and seconded to Post Office Limited under an agreement between Post Office Limited and Royal Mail Group
Limited Post Office Limited met the full costs of employment and was responsible for the funding of the pension deficit
attributable to these employees Consequently Post Office Lirmted recognised a balanice sheet deficit on full adoption of FRS 17 .
based on employee numbers over 12 years which represented approximately 7% of the total balance sheet deficit at that tme
Thenet pensions interest deficit recovery payments and actuarial gains or losses were also allocated on this basis The current i
service cost regular future service contributions and curtailments were computed separately for Royal Mail Group Limited and ‘
Post Office Limited based on common factors/rates
Annual Report and Financiat Statements 201213,
POL00026694
POL00026694
Operational I Performance Financial
Overview review review I Governance I statements 101
The disclosures in this note relating to the year ended 31 March 2013 reflect the Post Office Limited sectionalised RMPP scheme
which ts independently operated by Post Office Limited and the approximate 7% share of the RMSEPP scheme The comparative
figures for the year ended 25 March 2012 and the opening position at 28 March 2011 represent approximately 7% of the previous
combined RMPP and RMSEPP plans
‘The disclosures in this note show how the value of the assets and liabilities have been calculatedat the balance sheet date
The Company participates in pension schemes as detailed below
Name Eligibility
Royal Mail Pension Plan (RMPP) UK employees Defined benefit
Royal Mail Senior Executive Pension Plan (RMSEPP) UK semor executives Defined benefit
Royat Mail Defined Contribution Plan (RMDCP) UK employees Defined contribution
Defined contribution
The charge in the profit and loss account for the defined contribution schemes and the Company contributions to these schemes
was £1 milion (2012-£1 milhon) during the year A new defined contribution plan (RMDCP) was launched in April 2009 New
recruits joining from 31 March 2008 are able to begin paying contributions to the new plan after they have worked for the
Company for a year
Defined benefit
Both RMPP and RMSEPP are funded by the payment of contributions to separate trustee administered funds The latest full actuarial
funding valuation of both schemes was carried out as at 3] March 2009 using the projected unit method For RMPP this valuation
was concluded at £10 3 billion deficit For RMSEPP the valuation was concluded at £100 million deficit RMPP includes Sections A B
and C each with different terms and conditions
+ Section A 1s for members (or beneficiaries of members) who joined before 1 December 1971
+ Section Bis for members (or beneficiaries of members) who joined after 1 December 1971 and before 1 April 1987 or to members of
Section A who chose to receive Section B benefits and
+ Section Cis for members (or beneficiaries of members) who joined after 1 Aprti 1987 and before I April 2008
A senes of changes to KMPP and RMSEPP began to take effect on 1 April 2008.
‘The changes encompass
+ the plans closed to new members from 31 March 2008
+ all pensions and benefits earned before I April 2008 are stil! linked to final salary at the time of retirement
+ from 1 April 2008, defined benefits building up for employee members of the plan are earned on a career salary basis
employees can continue to take thei pension on reaching 60 but the normal retirement age increased to 65 for benefits earned
from 1 Apri} 2010
from 1 April 2010 tt is possible to draw pension earned before the change to normal retirement age at 55 and continue working
while still contnbuting to the Pension Plan until the maximum level of benefits has been reached and
+ RMSEPP was closed to future accrual on 31 December 2012
Payment of £23 milion (2012-£23 million) was made by the Company during the year in respect of regular future service
contributions nearly ali relating to RMPP The regular future service contributions for RMPP expressed as a percentage of
pensionable pay has remained at 171% (2012171) effective from April 2010 This rate 1s not expected to change materially
during 2013414 For RMSEPP these contributions have remained at 35 9% (2012 35 9%) until tts closure
The Company pays 7% of the tota! deficit payment required to fund the deficit n RMSEPP and a payment of £2 million (2012 less
than £1 milhon) was made by the Company during the year Following the State Aid clearance granted on 21 March 2012 and the
subsequent transfer of the historical pension deficit to HM Government on I April 2012 no RMPP deficit payment was made during
201M12 or 2012 13 For RMSEPP deficit recovery payments will be £1 million per annum from I April 2010 to 3} January 2024
Acurrent habilty of £m (2012-Enil) has been recognised for payments to the pension schemes relating to redundancy During the
year payments of £2 million (2012-£3 million) relating to redundancy were made
‘The following disclosures relate to the gains/losses and surplus/deficit in the scheme recognised for RMPP and RMSEPP defined
benefit plans in the financial statements of the Company
POL00026694
POL00026694
102
Financial statements
Notes to the Company financial statements continued
13 Pensions continued
a) Major long-term assumptions
‘The size of the RMPP pension surplus which slarge in the context of the Company and its finances 1s materially sensitive to the
assumptions adopted Small changes in these assumptions could have a sigmficant impact on the surplus and overall profit and
loss charge The major long term assumptions were
At31March At 25 March At 28 March
2013 2012 2011
2012
pa % pa %pa
Rate of increase in salaries 43 43 45
Rate of pension increases - RMPP Sections A/B 23 23 28
Rate of pension increases - RMPP Section C 32 33 35
Rate of pension increases - RMSEPP members transferred from
Section A or Bof RMPP 33 33 35
Rate of pension increases - RMSEPP all other members 32 33 35
Rate of inctease for deferred pensions - RMSEPP members transferred from
Section A or Bof RMPP 33 33 35
Rate of increase for deferred pensions 23 23 28
Discount rate 48 51 55
Inflation assumption (RPD) 33 33 35
Inflation assumption (CPI) 23 23 28
Expected average rate of return on assets 49 59 65
In June 2010 the government announced that it was intending to change the inflation measure used to determine statutory
minimum indexation in deferment and in payment from RPI to CPI from April 2011 Where relevant the inflation assumption has .
changed from RPI to CPI 1
The above assumptions relate to both defined benefit plans with the exception of the expected average rate of return on assets
which was computed for the combined assets of the plans The expected average rate of return on assets was a weighted average
of the long term expected rate of return of each principal asset class (see Section B) The expected average rate of return was
computed at each balance sheet date based on the market values and long term rate of return of each principal asset class as
at that date
‘The following table shows the potential impact on the RMPP assets and pension surpius of changes n key assumptions
2013
im
Changes in RPI and CPI inflation of +01% pa @
Changes in discount rate of 10.1% pa 4
Changes in real salary growth of +01% pa 6)
Changes In CPI assumptions of +0 1% pa @M
Anaddhtional 1 year hfe expectancy @)
Comparative information in relation to the potential impact of changes in key assumptions has not been included as this would
represent Post Office Limited s share of the combined RMPP scheme and the above 3] March 2013 information 1s in relation to the
sectionalised RMPP scheme and therefore comparison would not be meaningful
Mortality
The mortahty assumptions for the RMPP sectionahsed scheme are based on the latest self admumstered pension scheme (SAPS)
mortahty tables with appropriate scaling factors (106% for male penstoners and 101% for female penisioners) For future mprovements
the assumptions allow for medium cohort projections with a] 25% floor These are detailed below
Average expected life expectancy from age 60. “2013 2012 2011
For a current 60 year old male RMPP member 26years 26years 26 years
For a current 60 year old female RMPP member 29years 29 years 29 years
For a current 40 year old male RMPP member 29years 29 years 29 years
For a current 40 year old female RMPP member B2years 32years 32 years
Annual Report and Financial Statements 2012 13
POL00026694
POL00026694
'
Operational Performance Financial 3
Overview Teview Teview Governance I statements 10 _
b) Plans’ assets and expected rates of return
‘The assets in the plans and the expected rates of return for the Company were
Long-term
expected
Market rateof
value return
2013 2013
Sectionalised RMPP_ £m pa
Equities 29 72
Bonds 205 43
Property - 67
Other assets 9 72
Fair value of RMPP assets 243
Present value of RMPP liabilities 4a)
Surplus in plan 99
Long term
expected
Market rateof
value return
2013 2013
Share of RMSEPP =m %pa
Equities 146 69
Bonds 193 39
Property 19 67
Other assets 3 33
Fanr value of plan assets for RMSEPP 361
Present value of plan habihties for RMSEPP (347)
Surplus m plan for RMSEPP 14
Surplus in plan for the POL share (at approximately 7%) of RMSEPP_ 1
The expected return on assets makes allowances for the agreed investment strategies of the arrangements
Under United Kingdom Generally Accepted Accounting Practice the Company has recogmised a deferred tax habihty through
the staternent of total recognised gains and losses of £23 milhon as the entire asset recorded on the balance sheet has been
deemed recoverable through reductions in future contributions ‘This s offset by the recognition through the profit and loss
account of a deferred tax asset of £23 nnllion in respect of tax losses
Longterm Long term
expected expected
Market Market Tate of rate of
value value return return
2012 2011 2012 2011
Combined ptans fm em spa %pa
Equities 3385 4268 77 82
Bonds 25610 21409 57 62
Property 1417 1590 68 65
Other assets 3330. 418 34 42
Fair value of plans assets for the combined plans 30745 27685
Present value of plans liabihties for the combined plans (33667) (32186) I
Deficit in schemes for the combed plans (2.922) (4501)
Deficit in schemes for share (at approximately 7%) of combined plans (206) (316) I
There is no element of the above present value of labihties that anses from plans that are wholly unfunded
POL00026694
POL00026694
104
Financial statements
Notes to the Company financial statements continued :
13 Pensions continued '
c) Movement in plans’ assets and habilities
Changes in the fair value of the plans assets are analysed as follows
Sectionalised
RMPP 2013
Assets im
Assets n sectronalised RMPP at beginning of period 2,108
Transfer of pension assets to government (1,953)
Contributions paid 25
Employee contributions paid 8
Finance income (expected rate of return) 1
Actuarial gains (additional increases in market values) 46
Benefits paid to members @
Assets in sectionalised RMPP at end of period _ 243
Share of
RMSEPP 2013
Assets Em
Share of assets in RMSEPP at beginning of period at
Contnbutions paid 2
Movement in contnibutions accrued -
Employee contributions paid -
Finance income (expected rate of return) 1
Actuarial gams (additional increases in market values) 1
Benefits paid to members -
Share of assets in RMSEPP at end of period 2s
2012 2011
Assets combined plans £m em
Share of assets in combined plans at beginning of period 1923 1797
Contnbutions paid 26 46
Movement in contributions accrued @ 2
Employee contributions paid 10 u
Finance income (expected rate of return) 124 120
Actuarial gains (additional increases in market values) 131 33
Benefits paid to members (2) 6)
Share of assets in combined plans at end of period 2.129 1923
Annual Report and Financial Statements 201213
POL00026694
POL00026694
I { Operational I Performance Financial
{Overview I review 4 review Governance I statements , 105
Changes in the present value of the defined benefit pension obhgations are analysed as follows
Sectionalised
RMPP 2013
Liabilities fm
Liabilities in sectionalised RMPP at beginning of period (2,313)
Transfer of pension habilites to government 2,239
Current service cost (24)
Curtailment costs* @
Financecost )
Employee contributions @ :
Actuanal loss (29) ‘
Benefits paid 2
Liabilities in sectionalised RMPP at end of period (44)
Share of
RMSEPP 2013
Liabihtes: £m
Share of abilities it RMSEPP plans at beginning of period (22)
Current service cost -
Curtailment costs* -
Finance cost wo
Employee contributions -
Actuarial loss a
Benefits paid -
Share of liabilities in RMSEPP at end of period (2a) i
2012 2011
Liabilities combined plans ém em
Share of abilities in combmed plans at beginning of penod (2239 (2361)
Current service cost (23) (25)
Curtailment costs* - @
Finance cost 22) 32)
Employee contributions ao) an
Actuarial (loss)/gan (23) 207
Benefits paid 82 86
Share of habilities in combined plansat end of period (2335) (2239)
* The curtailnent costs in the pro:tt and loss account are recognised on a consistent basis with the associated compensation costs Estimates of both are
included for example in any redundancy provisions raised The curtarlment costs above represent the cosis associated with those people paid
‘compensation in respect of redundancy during the accounting pertod Such payments may occur 1n an accounting period subsequent to the recognition,
of costs in the profit and loss account
POL00026694
POL00026694
106
Financial statements
Notes to the Company financial statements contmued
13 Pensions continued
d) History of experience gains and losses
‘The cumulative amount of actuarial gams and losses recognised since transition to FRS 1? at 29 March 2004 in the statement
of total recognised gains and losses 1s £49 million gain (2012 a gain of £32 million) The Directors are unable to determine how
much of the pension scheme deficit recogmsed in transition to FRS 17 1s attributable to actuarial gainsand losses since inception of
the pension schemes Consequently the Directors are unable to determine the cumulative amount of actuarial gains and losses
that would have been recognised in the statement of total recognised gains and losses between inception of the penston schemes
and transition to FRS 17
Sectionallsed Shareot
RMPP _RMSEPP 7% share of combined plans
2013 2013 2012 2018 2010 2009
£m £m fra fm tm =m
Fanr value of assets: 243 25 2168 1944 1811 1407
Present value of habilities (14a) (24) (2374) —(@260) (2375) __((1. 882)
Surplusdefeit)in schemes 99 1 (208) (316) (564) @75)
Experience adjustment on assets 46 1 131 33 313 84)
Experience adjustment on habilities (20) - - a 47 a)
2013 2013 2012 2011 2010 2009
x % 3 % « %
Experience adjustment on assets as a % of scheme assets 189 55 61 17 174 (273)
Experience adjustment on habilities as a
% of scheme habilities a39) 14 oo 00 (20) o1
Deficit in the scheme asa % of scheme habihties : - 88 141 239 253
Annual Report and Financial Statements 2012.13,
POL00026694
POL00026694
Operational I Performance Financial
Overview Teview review I Governance I statements 107
vtview _I___review _I__ review _ I Governance I stat I
I
I
'
e) Recognised charges
Ananalysis of the separate components of the amounts recogmised in the performance statements of the Company 1sas follows
2013
sectionallsed
RMPP
im
Analysis of amounts recognised in the profit and loss account
Analysis of amounts charged to operating profit before exceptional items
Current service cost - 24
Analysis of amounts charged to operating exceptional items
Loss due to curtarlments (within provision - note 12) 2
Total charge to operating profit 26
Analysis of amounts charged/(credited) to net pensions interest
Interest on plan habihbes 9
Expected return on plan assets an
Net pensions credit to financing @
Net charge to the profit and loss account before deduction for tax 24
Analysis of amounts recognised in the reconciliation of movements in Shareholder’s funds
‘Transfer of pension haailities to government 2,239
‘Transfer of pension assets to government (1.953)
Gain on transfer to government 286
‘Total gains recognised in the reconciliation of movements In Shareholder’s funds 286
Analysis of amounts recognised in the statement of total recognised gains and losses
Actual return on plan assets 57
Less expected return on plan assets av
Actuarial gains on assets (all experience adjustments) 46
Experience adjustments on liabilities (20)
Effects of changes in actuarial assumptions on habihties @
Actuarial losses on liabilities (29) I
‘Total actuarial gains recognised in the statement of total recognised gains and losses 7 I
POL00026694
POL00026694
108
Financial statements :
Notes to the Company financial statements continued :
13 Pensions continued
‘ 2013 share
of RMSEPP-
fm
Analysis of amounts recognised in the profit and loss account
Analysts of amounts charged to operating profit before exceptional items
Current service cost 1
Analysts of amounts charged to operating exceptional items
Loss due to curtatiments (within provision - note 12) :
Total charge to operating profit 1 i
Analysis of amounts charged/(credited) to net pensions interest 1
Interest on plan habihties 16 ‘
Expected return on plan assets aa)
Net pensions interest @
Share of net pensions interest (at approximately 7%) >
Net charge to the profit and loss account before deduction for tax =
Analysis of amounts recognised in the statement of comprehensive income in the Royal Mail Holdings Group
financial statements
Actual return on plan assets 38
Less expected return on plan assets (ag)
Actuarial gains on assets (all experience adjustments) 20
Experience achustments on abilities 5
Effects of changes in actuarial assumptions on abilities (23)
Actuarial losses on abilities aa)
‘Total actuarial gains recognised in the statement of comprehensive income in the Royal Mail Holdings Group
financial statements 2 !
Share of actuarial gains/(osses) recognised in the statement of total recognised gains and losses,
{at approximately 79) -
Annuat Report and Financial Statements 201213
POL00026694
POL00026694
Operational I Performance I rinanciat I
Overview review review I Governance I statements 109,
. 2012 2011 I
Combined plans em fm I
Analysis of amounts recognised in the profit and loss account '
Analysis of amounts charged to operating profit before exceptional items
Current service cost 23 25
Analysis of amounts charged to operating exceptional Items
Loss due to curtailinents (within provision - note 12) - 2
Total charge to operating profit 23 27
Analysis of amounts charged/(credited) to net pensions Interest
Interest on plans habilities for the combined plans - 1749 «1881
Expected return on plans assets for the combined plans 775) 1714)
Net pensions interest for the combined plans (26) 167
Share of net pensions interest (at approximately 7%) @ 12
Net charge to the profit and loss account before deduction for tax 21 39
Analysis of amounts recognised in the statement of comprehensive income in the Royal Mall Holdings
Group financial statements
Actual return on plans assets for the combined plans 3644 2184
Less expected réturn on plans assets for the combined plans a77s)__a714)
Actuanal gains on assets for the combined plans (all experience adjustments) 1869 470
Experience adjustments on habilities for the combined plans 6) (8)
Effects of changes in actuarial assumptions on liabiliues for the combined plans (20) __2962
Actuanal (losses)/gains on habihties for the combined plans G25) ___-2954
Total actuarial gains recognised in the statement of comprehensive income In the Royal Mail Holdings
Group financial statements 1544-3424
Share of actuarial gains recognised in the statement of total recognised gains and losses
(at approximately 7%) 108 240
14 Called up share capital
2013 2012
£ £
Authorised _
Ordinary shates of £1 each 51,000 51000
Total 51,000 51,000
Allotted and issued
Ordinary shares of £1 each 50,003 50003
Total 50,003 50003
15 Reserves
Share Retained 2013
premium earnings ‘Total I
fm fm 'm I
Balance at 26 March 2012 465 89) (124) I
Profit for the financial year - 76 76 I
Actuanal gains on defined benefit pension schemes . - 17 1”
‘Taxation on items taken directly to equity - @p (23)
Transfer of pension deficit to government 7 - 286 286
At 31 March 2013 465 {233) 232
POL00026694
POL00026694
pute)
Notes to the Company financial statements continued
16 Related party disclosures
Details of transactions with related parties are disclosed in the Group financial statements (note 23)
17 Post balance sheet events
In accordance with the funding agreement with government announced on 27 October 2010, for which State Aid approval was
teceived on 28 March 2012 Post Office Limited received £415 million of funding on 2 April 2013
On 2 June 2013 Post Office Lumted launched a consultation with members of the Royal Mai! Penston Plan ona proposal to
change the terms of the plan which will conclude on 25 August 2013 Post Office Limited wit! consider the feedback before making
its final decision and communicating tte colleagues
18 Immediate and ultimate parent company
At3i Match 2013 the Directors regarded Roya! Mail Holdings pic as the mmediate and ultumate parent company The largest
group to consolidate the results of the Company 1s Royal Mail Holdings plc, a company registered 1n the United Kingdom
Royal Mail Holdings plc financial statements can be obtained from the company website www royalmatlgroupcom
Annual Report and Financial Statements 2012 13
POL00026694
POL00026694
Corporate information
Registered Office
Post Office Lirmited
148 Old Street
LONDON
ECIV 9HQ
Auditor
£rnst & Young LLP
1 More London Place
LONDON
SE12AF
Thank you
The Post Office 1s a urique part of our society and 1s grateful to
all those stakeholders who work so hard to support our work as
acommercial business with a pubhc purpose In particular we
would hke to thank
the three government mmusters with whom we worked
with during 201213 - Edward Davey Norman Lamb and
Jo Swinson - and all those at the Shareholder Executive
at the Department for Business Industry and Skills
the National Federation of Subpostmasters in particular
George Thomson (General Secretary) and Mervyn Jones
(Commercial Director) and its Executive Committee
Communication and Managers Association (CMA) sector of
Unite in particular Brian Scott (Assistant National Secretary)
+ Communication Workers Union (CWU) in particular
Andy Furey (Assistant Secretary) and Dave Ward
(Deputy General Secretary)
Actuary
‘Towers Watson Limited
Watson House
London Road
REIGATE.
Surrey
RH29PQ I
Solicitor
Linklaters LLP
One Silk Street
LONDON
EC2Y 8HQ
+ Our colleagues at Royal Mail Group Limited in particular
Chairman Donald Brydon and Chief Executive Moya Greene
All the members of the Stakeholder Forum who are working,
to help us define the public purpose of the Post Office
‘The consumer business orgamisations and pubhic interest
groups with whom we work including Consumer Futures
Age UK and Citizens Advice and
All the business partners and supphers with whom we work
including Bank of Ireland (UK) ple Fuyitsu government
departments and agencies and many others '
But most of all wed like to thank our subpostmasters their
teams and ail our colleagues who work for the Post Office -
those directly serving commumities across the UK and those
‘who support this great business
POL00026694
POL00026694
Designed and produced by MerchantCantos wwwmerchantcantos com
Printed by Linney Group Limited
‘The Post Office Annual Report has been printed on Regency Satin papet which contains material G
sourced from responsibly managed forests certihed in accordance with the FSC (Forest Stewardship, { 5 MIX
Council) Regency Satin is made from 10% recovered fibre using an ECF (Elemental Chlorine Free) From responsttie
bleaching process and Is manufactured under strict environmenta! management systems in Fsc
adherence to the international {SO !4001 standard EMAS (Eco Management & Audit Scheme) and the weemns_ FSC? CO08188
IPPC (Integrated Pollution Prevention and Control) regulation
POL00026694
POL00026694
Post Office Limited is registered tn England and Wales Registered number 2154540 Registered Office 1s 148 Old Street London ECIV SHQ
‘The Post Office Post Otfice and the Post Office logo are registered trademarks of Post Olfice Limited