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POST OFFICE LTD BOARD MEETING (Company Number 2154540)
Meeting to be held at 09.45am on 21 May 2013
at 148 Old Street, London, EC1V 9HQ in the Board Room
Meeting to be preceded by the ARC which is due to end at 9.30
Then Board will start with a group photograph at 9.45 for use in the report and accounts.
10.00 1 I Government response to the funding and strategy plan. Sue Barton/Chris Day
Government/stakeholder interaction plan 2013/14 Mark Davies
10.30 2 I Network and Crown transformation: next steps and Kevin Gilliland
NFSP strategy
Update on CWU and Industrial Action
11.25 BREAK
11.35 3 I Annual report and accounts/results of external audit Alasdair Marnoch/
Chris Day
12.15 4 e Bonus payments for the year 2012/13 Neil McCausland
(recommendation from Remuneration Committee)
¢ LTiP and STiP Bonus scorecard measures
12.30 5 I Mark Russell CEO ShEx
General Discussion and LUNCH
14.00 6 I Front Office of Government Programme Martin Moran
14.20 7 I Minutes of Previous Meeting and matters arising Alice Perkins
Committee Meeting minutes for noting
Status Report
14.25 8 I Chief Executive’s Report Paula Vennells
14.40 9 I Financial performance update Chris Day
14.50 10 I Items for Noting
« Update on various Financial Services matters, Alwen Lyons
including Bank of Ireland (UK) plc capital &
liquidity
« Health and Safety Report
e Significant Litigation Report
e Sealings
Any other business Alice Perkins
15.00 CLOSE
Present: In Attendance:
Alice Perkins (Chairman) Mark Davies
Neil McCausland (SID) Sue Barton
Tim Franklin (NED) Kevin Gilliland
Virginia Holmes (NED) Martin Moran
Alasdair Marnoch (NED) Mark Russell
Susannah Storey (NED)
Paula Vennells (CEO)
Chris Day (CFO)
Alwen Lyons (Company Secretary)
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POST OFFICE LTD BOARD
Strategy and Funding Update
1. Purpose
This paper provides the Board with an update on the strategy and funding discussions that are
currently underway with BIS. It also highlights the need to establish appropriate governance
arrangements and delegated authority limits for the period of the funding discussions. The
stakeholder and communications plan to support the strategy is covered in a separate paper.
2. Current position and next steps
On 3 May 2013, the Board Strategy & Funding Sub-committee gave its approval and the 2013
to 2020 Strategic Plan was submitted to BIS. As highlighted, this was a draft document which
over the course of the coming months will be subject to review, discussion and negotiation.
Our expectation is that the process of engagement with BIS on the strategy and funding plan
will unfold over three broad phases:
« May to early June: a period of detailed discussions and due diligence with BIS officials
and their advisers (KPMG) through a series of deep dive meetings on different aspects
of the strategic plan. In parallel, we are preparing more detailed briefing notes to support
the engagement with Jo Swinson on our proposed approach to network transformation ,
to provide her with reassurance that we have carefully assessed the full range of options
and have a rigorous and credible plan to implement our recommended changes.
e« June/July: the endgame negotiations, where we will be seeking to land our requested
funding for 2015/16 and 2016/17 and secure the Minister's support for the key decisions
contained in our strategy, particularly in relation to network transformation. BIS has
provisionally indicated that this could be finalised by the week commencing 24 June, to
coincide with the timing of the Treasury's spending review (when BIS’s overall
settlement for 2015/16 will be finalised); however in practice the discussions could
continue through to summer Parliamentary recess on 18 July.
¢ July to Spring 2014: the focus of this period will be on three activities:
© making any public announcements on the agreed outcome of the strategic plan,
which is likely to come either just before summer recess or afterwards in
September or October;
o potentially commencing discussions with BIS on whether a longer-term funding
deal (for the years beyond 2016/17) can be agreed this side of the 2015 election.
This will be preceded by further work internally to assess the risks and
opportunities, which we will discuss with the Board in June and July before a final
decision is made on our position; and
0 starting the work with BIS officials to prepare our state aid submission, ahead of
the engagement with the European Commission which would commence in
spring 2014.
Strategy and Funding Update
Susan Barton Page 1 of 3 May 2013
Chris Day
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This programme of work is being overseen by a small Steering Group, chaired by Chris Day
with Alwen Lyons providing Company Secretariat.
3. Governance arrangements and delegated authorities
At the April Board meeting, the Board established a Strategy and Funding Sub-committee with
the delegated authority to sign off the draft Strategic Plan for submission into ShEx. The Sub-
committee has now fulfilled this role.
Over the coming weeks, it is likely that decisions of strategic importance to the Post Office will
need to be taken. These could relate to specific elements of the strategy as well as the specific
funding settlement. While the Board is due to meet in June, the agenda is already set and
there will be limited time for discussion of these areas. It is proposed that the Strategy and
Funding Sub-committee should continue to operate through the negotiation phase, and a
proposed set of financial and non-financial authority limits are attached for discussion at the
Board meeting.
4. Conclusion
This paper provides the Board with an update on the Strategy and Funding discussions along
with a request for clarity around future governance arrangements. This will continue to be
supplemented by weekly Chief Executive Strategy & Funding update emails.
Susan Barton
Chris Day
May 2013
Strategy and Funding Update
Susan Barton Page 2 of 3 May 2013
Chris Day
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Susan Barton Page 3 of 3 May 2013
Chris Day
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POST OFFICE LTD BOARD
Stakeholder/Communications Plan - Post Office Strategy Approach
1. Purpose
This paper sets out a proposed approach to engaging a wide range of stakeholders around
Post Office Limited’s strategy for 2013-2020. It does so in the context of a broader
communications plan. The paper is supported by a detailed stakeholder mapping and
planning document (which is available in the BoardPad reading room).
2. Background
21 The move to a planned approach in relation to network transformation is likely
to be extremely challenging in relation to stakeholder responses. The likely
dissent from the NFSP and some subpostmasters carries brand risk for the
Post Office through media channels and political risk for the coalition,
particularly if the approach is opposed by the Labour Party (which can be
judged to be a significant risk considering the party's careful positioning
around Royal Mail privatisation and less nuanced responses to Crown
transformation at a local level) and bleeds into the campaign set up recently
by the CWU and others to “Save the Royal Mail”.
2.2 A strategy aimed at addressing the NFSP in particular is being worked up in
tandem with this overall approach, and in particular in the run up to NFSP
conference on May 20.
2.3 The approach set out in this paper, however, assumes that the NFSP will
oppose the move to a planned approach to network transformation.
2.4 Moreover, even if the NFSP leadership could be persuaded to support the
planned approach, this would be unlikely to prevent significant subpostmaster
dissent which could lead to significant coverage in the media, and therefore
impact on political concerns at ministerial and constituency level.
2.5 The focus of this strategy is, therefore, to develop approaches aimed at
minimising the impact of dissent and at influencing the response of key
stakeholders, identified as:
« ministers, whose support for the strategy is critical in the short term and
on an ongoing basis: our stakeholder approach has to be alive to the
prospect of ministers agreeing the approach but subsequently
backtracking in the face of media/public/political dissent and seeking to
pressure Post Office into a “U-turn”
e MPs, whose concern about perceived “risks” to local services and an
increasing number of multiple/symbol operators running post offices could
galvanise broader opposition
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« Royal Mail Group, which could perceive media/stakeholder dissent
around our approach as a risk to privatisation and could see it fuelling the
“Save the Royal Mail” campaign.
2.6 It is critical to also consider the potential role of the media in both amplifying
stakeholder concerns and influencing their reactions. Adverse media
coverage would be highly influential in terms of the response of ministers,
while persistent media campaigns in regional media could become part of
political campaigning in the run up to the general election in 2015.
2.7. A key concern will be the way in which the move to a planned approach could
be portrayed as closures: it is therefore critical that we stress from the outset
guarantees around the size of the network, its potential growth and protection
for community post offices.
3. Proposal
3.1 Given the challenges set out above, the objective of the proposed strategy is
to develop a programme of engagement which:
¢ secures public and stakeholder support for the overall strategy,
emphasising customer voice
¢ builds a compelling national narrative around the strategy which
outweighs dissent at a local level
¢ highlights the benefits of the Network Transformation programme to date
and its potential for the future
¢ minimises opposition to the move to a planned approach in the
programme.
3.2 The strategy, for which a timeline is set out at Annex A, is therefore to
develop ways of countering opposition to the planned approach by
highlighting the:
* benefits of conversion for customers and retailers
* — safeguards in place for the network as a whole
« assurance that community post offices will be protected and receive
investment
support package for subpostmasters leaving or converting
« dangers of competitive challenge
«broader benefits of the new strategy, such as growth in financial services.
3.3 A core narrative is set out at Annex B. This provides a basis for further
development and tailoring for specific audiences.
3.4 As noted above, a key tactic in seeking to minimise the impact of dissent is
the proposal to enhance and amplify the voice of the customer in media
strategy and stakeholder engagement. Satisfaction with the new models runs
at 95%, while 20% of customers are using their post office within the new
opening hours where they can.
3.5 It is proposed therefore that particular emphasis is placed on bringing the
customer to the fore in relation to the changes we are proposing. Customer
voice is not currently sufficiently heard in broader public debates about the
future of the post office, at least not in relation to the positive benefits of
conversion. This strategy proposes ways to change that position.
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3.6 Building on these points, this stakeholder and communications strategy will be
underpinned by a range of tactics:
A proactive media campaign around the announcement of the strategy,
supported by one of our rostered PR agencies, to highlight the protection
and potential growth of the network alongside support for subpostmasters
and improved customer experience
Strategic media-handling in advance of the announcement in order to
prepare the ground (capitalising on forthcoming announcements such as
current account launch, launch of new digital skills database)
An intensive engagement approach with MPs, highlighting positive case
study constituencies and briefings for all MPs before introduction of
planned approach (set out in more detail at Annex C)
Strategic engagement with key stakeholders in advance of
announcement, with a particular focus on key ministers and advisers,
Royal Mail Group and influential and engaged coalition MPs (detailed
handling plans are being worked up)
Developing messaging which highlights the benefits of the new strategy,
the commercial case (including reduced reliance on the taxpayer) the
protection of the network, assurance that the community post office
network will be protected, the growth in the provision of post office
services and support for subpostmasters in the face of increasing
competitive threat
A proposed marketing campaign to bridge the period before and after the
launch of the strategy, aimed at highlighting customer benefits from
network transformation
Direct messaging/engagement with all subpostmasters around the
announcement
A campaign to heighten the impact of customer voice, to include polling
on attitudes to network transformation and customer value propositions
Securing the support (or silence) of key stakeholder groups (such as
those representing rural or consumer interests) in advance of strategy
announcement
Reviewing implementation plans from a stakeholder perspective, with the
involvement of a “control group” of interested parties including MPs and
Consumer Focus.
4. Risks/mitigation
4.4 This paper seeks to mitigate the risks around the planned approach from a
stakeholder perspective. The approach itself carries a degree of risk. It will be
critically important to tailor messages for specific audiences, while there is a
risk that the planned approach prompts comment which overshadows the
broader strategy to the point where it causes brand damage and feeds into
wider stakeholder issues, such as the CWU’s “Save the Royal Mail”
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campaign. The capacity for the planned approach to lead to negative press
coverage and stakeholder comment is significant.
4.2 There is the risk of leaks in relation to the proposal to offer “Chatham House”
briefings to selected stakeholders. These will be managed through careful
messaging and appropriate handling of stakeholders.
4.3 There is a specific risk around briefing opposition politicians in advance of any
announcement and we would work with BIS on this particular element.
4.4 — The strategy proposals could overshadow the business’ Annual Report and
Accounts, which is scheduled for publication on July 3. The intention would
be to position the Annual Report and Accounts in relation to the strategy
document in such a way that the former highlights the case for completing
network transformation as part of the Post Office’s strategy of modernisation,
growth and customer excellence.
5. Recommendations
The Board is asked to endorse the approach set out in this paper.
Mark Davies
21 May 2013
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ANNEX A
TIMELINE
There are three initial stages to this approach. For the purposes of this paper an
announcement in July is assumed.
« Negotiation/pre-announcement/preparation phase
e Announcement phase
e Pre-implementation phase
Further work to develop implementation plans is underway and will include stakeholder
considerations (building on the processes agreed with Consumer Focus).
Activity in each of the initial phase is set out below.
1. Preannouncement phase (May-June 2013): before any announcement is made, Post
Office will need to prepare the ground for the change to the planned approach. Key
stakeholders will need to be briefed and messaging to the media will need a change of
direction. It is therefore suggested that the following tactics are adopted:
+ stakeholder/communications workstream planning sessions with BIS communications
team, to include parliamentary messaging/ministerial announcement
+ development of specific workstream in MP engagement strategy to focus on move to
planned approach
* review of stakeholder elements of implementation process (with a closer working
relationship with Consumer Focus in their role verifying and overseeing the
consultation process)
+ detailed internal constituency-by-constituency analysis of impact
* planning and implementation of marketing campaign (for proposed launch in June)
* NFSP conference handling strategy (which is subject of a separate paper)
* message and PR campaign development and media handling strategy (to include
detailed analysis of customer satisfaction/service provision in relation to post offices
currently run by multiples/symbol group and potential polling activity to support this
narrative)
* Development of regional media campaign
* Chatham House briefings for selected coalition MPs, consumer groups, rural interest
groups
* Chief Executive briefing with Royal Mail, with further planning sessions with RMG
communications on media/stakeholder plans
+ Development of public-facing materials (including public version of strategy
document) and internal engagement campaign
+ Launch of Post Office Annual Report and Accounts (scheduled for July 3).
2. Announcement phase: this phase is aimed at raising broader awareness of the merits of
the 2020 strategy with a wider group of stakeholders and will include a full media
campaign. The general approach will be proactive, UK wide and will focus on the vision
for the remainder of the decade.
+ Parliamentary statement (to be discussed with BIS)
* Letter to all subpostmasters setting out new strategy
* Briefing/press conference with media
* Letter (with tailored messaging) from CEO to all MPs
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* Launch of Post Office 2020 strategy document and internal engagement campaign
(to include ExCo presentations/listening sessions).
3. Pre-implementation phase (July/August/September/October): this phase will be aimed at
preparing for the implementation of the planned approach ahead of the implementation
itself.
Launch of “public purpose” engagement process
Direct 1-2-1 engagement strategy with subpostmasters
Regional media campaign, including articles from CEO/others
Briefing sessions/engagement with all MPs to include regional events
Materials developed to outline the modernisation journey.
eoeeee
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ANNEX B
CORE NARRATIVE (TO BE ADAPTED/TAILORED) DURING PROCESS
This plan drives forward the work which began in 2010 to transform the Post Office. And it
goes further: it would mean growth in the post office network through a proposal to increase
the number of store formats and access points.
It completes the job of network transformation, with investment in the whole network by
2017.
It protects the Post Office for the nation and for local communities, supported by a long term
financial plan to provide a more certain future.
It pledges again that the days of large scale Post Office closure programmes are over and
provides more support for thousands of vital community post offices
But it goes further than that. It sets out:
¢ how we will grow to support and serve our customers as an ethical, multi-channel
retailer: proposing to increase the number of post office outlets on top of the
existing 11,800 network, leading the way in mails, but also growing fast in financial
services
¢ how we will play our part in getting the economy moving - boosting small
businesses and revitalising the high street while at the same time reducing our
reliance on the taxpayer.
e¢ how we will change to adapt to the challenges of the age and the prospect of
becoming a mutual business.
This strategy is not without challenge, but the steps we describe are essential to the future
success of the business. If we do not make these changes we risk falling behind in
increasingly competitive markets, missing out on the chance to improve services for
customers and hampering our ambitions of commercial sustainability.
We are determined not to let this business and this network fall back into decline.
Under our plans:
* Wewill look to grow the number of outlets we offer to ensure that customers are
able to access the services they need when they need them. We will be truly
universally accessible and inclusive across geography, social groupings and time.
« We will grow our range of products and services to ensure that customers have
access to the essential services they want
« We will grow our financial services business to become an even bigger
challenger in this crucial area.
We will play our part in revitalising the economy and society by:
¢ reducing our reliance on the taxpayer and working with Government to provide
public services which offer value for money
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¢ supporting small businesses by developing bespoke services, providing them
with the mails, banking and other services they need to grow their businesses and
grasp the opportunities of e-commerce
* protecting and investing in community post offices with the creation of a new
fund to offer them more support in delivering their essential services
¢ supporting subpostmasters to build their retail businesses with a new grant fund
¢ ensuring that our approach is founded on transparency, value for money and
ethical considerations
¢ strengthening our relationship with Royal Mail by modernising and boosting the
capacity of our network
And we will change too, ensuring we are:
e Ever more focused on customers through the introduction of new customer insight
functions
e Reducing our cost base as a leaner, more agile retailer
¢ Developing digital services which complement our unique physical network and
support the broader digital inclusion agenda.
Challenge
To bring forward benefits to customers and the taxpayer, we need to introduce a more
planned approach to the way we are transforming our network. We must take every step
possible to allow customers to access the benefits of network transformation.
This would require subpostmasters to go through the business case process which assesses
their potential for conversion to one of the successful new models which are bringing
benefits to our customers across the UK. The change removes the option as to when a
subpostmaster enters the process, and means we can bring the benefits of network
transformation to more customers.
The process will not apply to more than 3000 community post offices in rural areas.
The case for this change is compelling. If post offices do not adapt to the competitive
pressures which demand longer opening hours, then they will not survive as commercially
viable businesses.
And the evidence from the programme so far is that where offices have moved to the new
models, there is high customer satisfaction and increased revenues for
subpostmasters.
Customers have noticed that the Post Office is changing and they like what they see,
with 95pc customer satisfaction and 20pc of customers using new extended opening
hours.
This change in approach will not mean a reduction in Post Office branches. As we assess
the best, customer oriented model for a location, we pledge that there will be no outcome
whereby the community loses its post office: there will be no closures associated with
this change.
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And we will support subpostmasters in growing their retail businesses through the
introduction of a new grant fund.
It means that we can ensure that every community in the UK will start to reap the
benefits of network transformation.
Any subpostmaster who leaves or switches to the new models will receive the same
generous compensation and investment package as under the existing scheme. New
entrepreneurial entrants to the business will be welcomed and supported.
In taking this approach, we will ensure we protect Post Offices in areas where the new
models would not work: rural areas, for instance. Instead subpostmasters in those areas
will be offered support to help build their businesses through the introduction of a new
Community Post Office Fund.
Conclusion
Some of these changes will be difficult. The Post Office is at the heart of the nation, and
inspires great affection and sometimes emotion.
But this plan does not threaten that legacy: indeed that is the starting point of the strategy.
The trust and reach of the Post Office are unique selling points.
This plan seeks to build on them by connecting more effectively with customers, all at
the same time recognising that in these challenging times this critically important
business must strive for commercial sustainability.
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ANNEX C
MP ENGAGEMENT STRATEGY
Seeking the support of MPs for the approach is important in relation to both their response to
proposed changes in their constituencies (and the risk of political fallout) and ministers’
confidence that Post Office has the right approach to MP engagement.
The proposed approach to MP engagement in advance of the announcement is therefore to:
* review the existing consultation and related stakeholder engagement approach to
network transformation
* ensure engagement with all MPs and their offices before implementation of planned
approach
e invite a selected group of MPs (and their offices) to comment on the approach to
implementation from a stakeholder perspective
e engage Jo Swinson in the refinement of the implementation approach (including
potential meeting with Consumer Focus, which oversees and verifies the existing
consultation approach)
e map impact of planned approach against constituencies
e pre-brief selected coalition MPs on the plans to move to a planned approach
* target MPs and constituencies where there is clear evidence of support for the new
models.
Responsibility for the work set out above lies with the network transformation team and
the communications team.
Engagement with opposition politicians and devolved administrations, which could be
beneficial in advance of public announcement, should only be considered in conjunction
with BIS.
In terms of engagement on the day of the announcement and afterwards, the following
steps are proposed:
e all MPs receive new strategy and letter on day of announcement, with invitation to
regional briefing event
« key MPs invited to one-to-one meetings with CEO and/or network director
* supportive MPs provided with case study material and press packs to generate local
coverage (including articles/quotes/campaign materials)
e Westminster and constituency meetings/briefings with stakeholder engagement team
and public affairs team
e party conference activity
e implementation of specific strategies for devolved administrations and local
government.
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POST OFFICE LTD BOARD
Crown Network — Transformation Programme and Industrial Relations
1. Purpose and summary
1.1. This paper updates the Post Office Ltd (POL) Board on: our progress towards eradicating
the Crown network's operating loss by April 2015; the current situation, focusing on the
current industrial dispute and how we can resolve it; the next steps; and the risks to meeting
our objective. It also summarises the practical steps we are taking to realise benefits
through franchising, income growth in branch; staff savings; and property savings.
2. Background
2.1 The Crown network needs to be breaking even by April 2015 and we remain committed to
this target, as does Government". Our vision of a commercially viable, sustainable Crown
network is clear and all the action we are taking is designed to realise it.
2.2 Our progress to date has been encouraging. The Crown P&L is expected to out-turn at a
c£37m loss for 2012/13,” exceeding our Year 1 target of reducing the loss to £40m.
2.3 Despite this encouraging result, the programme remains high risk and as reported to the
Board in January we have embarked upon ‘Plan B’. This shift was a necessary response to
the significant reduction in projected income growth to 2014/15 from £18m to c£10m.
2.4 Plan B involves more cost cutting than the initial plan. We are targeting: £20m of staff
savings (previously £12m); £8m of savings from franchising (previously £6m); and no
change to property savings of £4m. These, collectively, will realise an additional £10m of
savings, offsetting the £8m reduction in income growth and the £2m negative impact of
other business-wide activity’.
2.5 The Board approved ‘Plan B’ in January 2013. Since then the CTP has progressed with the
implementation of the plans to demonstrate our commitment to transformation of the Crown
network by 2015. This has caused the CWU and its members to strike.
3 Current Situation
3.1. We are continuing with our modernisation plans for the Crown network despite the current
industrial relations dispute with the CWU. This is essential to hit our deadline, and to make
clear to stakeholders that we will take the tough choices needed to transform the Post
Office, not just on the issue of Crown Transformation but across the business eg. on
modernising our supply chain. We continue to engage with our colleagues and stakeholders
(including unions and the media) to state the case for transforming the Crown network.
3.2 Our 2013/14 target for the Crown P&L is to reduce the loss to c£23-24m. The CTP’s £8m
savings target for 2013/14, combined with income growth and the flow through from
efficiency savings made in 2012/13, will help deliver the improvement to the P&L. We will
achieve these savings through:
e Staff savings from the roll out of Self Service kiosks (c£2m);
* Divesting 26 branches (£1.5m). NB: This figure is the staff and property savings from
franchising. The Crown P&L benefit is £0.6m in year with a flow-through of £2.4m. The
' “We have to face economic reality. There are substantial losses incurred by the 373 branches that make up the Crown
segment of the network. In 2011-12, £46 million was lost just by those 373 branches. Eliminating those losses has to be key
element of the Post Office strategy to make the network sustainable in the long term. That is something we all want to see,
and the Government, of course, support Post Office Ltd in delivering that strategy.” Postal Affairs Minister, Rt Hon Jo Swinson
MP, speaking in Parliament on 13 April 2013.
? This figure will be confirmed once our accounts are audited and signed off at the end of May 2013.
3 As noted in CTP paper to POL Board 01.13 at paragraph 5.7. ‘Other’ includes reduction in Gamma income from original
Bank of Ireland deal, offset by business wide efficiencies.
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£0.9m in-year difference is explained by the transfer of branch income from the Crown
network P&L to the Agency Network P&L;
¢ — Staff savings from other Plan B activities (c£3m); and
e Property savings from Hosting, Mergers and other initiatives (CE2m).
Achieving the savings from roll-out of self-service kiosks, divestment and other Plan B
activities will be difficult without co-operation from branch colleagues and unions.
3.3 The CWU has rejected our pay offer and staged a series of strikes (four to date), backed by
an aggressive public campaign focused on franchising. It has also withdrawn from the
regular meetings to discuss Crown Transformation (the CMA is continuing to engage).
Furthermore, the CWU has ‘broken cover’, publicly and in meetings with government and
the Post Office, on its opposition in principle to eradicating the loss in the Crown network.*
3.4 We are holding our course, continuing to communicate openly with our Crown colleagues,
government stakeholders and Royal Mail to bolster support for our position. On colleague
engagement our focus is on re-engaging with our front line staff, helping them to
understand our Crown vision, in-branch investment and the case for change.
4 Options to resolve the dispute
4.1 We must be resolute on our longer-term vision for a profitable, transformed Crown network
while remaining responsive and flexible in our approach to resolving the dispute. Using this
commitment to a clear end goal as our basis, we have worked through the consequences of
each potential approach, taking account of how the dispute could develop; how colleagues’
attitudes may change; and the impact on the CTP plan and benefits.
4.2 We have set out the potential options, with likely pros and cons, below for discussion. We
have a clear preferred option for the present time of maintaining our resolve and continue
as we are (Option 4 below). This underpins our current approach which we will review
again at the start of Q2. This milestone is significant as our analysis shows that Q2 is the
point at which our benefits could potentially be affected (see Appendix B). We have
therefore put in place a review point for the start of Q2 and set out medium term options
and longer-term actions to increase pressure on the unions to reach agreement and
achieve our vision (see Section 5).
4.3 Option 1: Impose the pay offer. Possible but could result in payment without co-operation:
e We would need to demonstrate we had exhausted the collective bargaining process;
e It would only work if the majority of our staff want to accept the deal (not currently the
case given results of strike ballot and numbers of staff striking); and
e It would be, by definition, without union agreement, so does not guarantee an end to the
strike. The first payment requires buy-in to the plan as a whole, which the CWU would
not give at present. We would therefore derive no benefit from making the payments.
4.4 Option 2: Force the hand of colleagues. Possible but not recommended at present given
likely negative impact on staff engagement and limited current impact on CTP benefits:
« We can give notification of, and legally implement, greater penalties for striking (if
communicated in advance). These could include:
© Deducting a full days pay for half/part days strike action;
o Reducing or removing some of the non-consolidated payments we have offered
in return for support for Crown Transformation on the basis that ongoing industrial
action reduces these benefits; and/or
o Franchising more branches (NB: the financial benefit from this would be limited).
* This could play in to union hands — but colleagues must realise POL will take all
necessary actions to get the Crown network to profitability; and
4 “These are services and as taxpayers we value them and want our taxes to bring us services we value. It's not a simple
‘profit and loss’ calculation.” Billy Hayes, CWU General Secretary, 18 April 2013
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e Our analysis of the threat to benefits (see Appendix B) shows the current dispute would
have to continue in to Q2 to start having a potential impact on CTP staff savings. In this
instance, we would take unilateral action (eg. introducing the lower starting salary and
starting duty reviews to realise staff savings from automation) to stick to the plan without
union co-operation.
45 Qption 3: Compromise and negotiate a deal. Not possible at present without undermining
CTP and wider Post Office position due to CWU’s in principle opposition to our approach:
e The dispute would end but at a strategic cost to Post Office (reinforcing widely held view
that Post Office will capitulate in the face of union opposition to change);
* There is no common ground at present due to CWU refusal to accept key tenets of CTP,
notably franchising and no consolidated pay rise;
* It could be achieved through Acas — at present we are continuing informal talks with
Acas directly so its team better understand our wider Crown strategy and vision; and
e Any consolidated pay deal would be anathema to the NFSP (which sees our current
position as overly generous and would likely call for a read across to agents’ pay),
contrary to our public statements and at odds with public reaction to the CWU to date.
46 Option 4: Maintain our resolve and continue as we are. Recommended as the only way to
change Post Office culture on this issue and achieve our Crown Transformation objective:
e It is imperative if we are to persuade colleagues and unions of the unavoidable market
realities and our resolve to achieving our vision of a commercially viable Crown network;
e It must be linked to intensive engagement and a communications plan for our staff so
they see and come to support the rationale for our actions; and
e Our communications efforts must emphasise that we are not deterred by continued
industrial action and will continue to execute that plan.
47 We will continue to gather and analyse information to monitor the situation across the
network. This includes: the number of branches open on strike days; the number of staff
taking action; structured feedback from contingency managers and super briefers; union
communications; press and media coverage; branch by branch sales and service
performance; staff co-operation; and regular feedback from the line.
48 While we remain in dispute with the CWU we propose only to share information as deemed
necessary for collective bargaining purposes. This is necessary as the CWU is actively
using existing information to try and undermine our position (eg. in local public meetings on
franchising) and will seek to do the same with any additional information.
5 Next Steps
5.1 We will combine our firm stance on Crown Transformation with practical action to achieve
our vision in the future. Our current actions and next steps focus on:
« Engaging with staff and other stakeholders;
e Maintaining a constructive approach with the CWU and CMA;
e Reviewing and seeking to amend our myriad existing union agreements, many of which
are obsolete and commercially not fit for purpose; and
e Progressing with the CTP and related transformation in the Crowns (see Appendix A).
5.2 We are redeploying our super briefers to meet colleagues in branch, listen to their feedback
and understand and influence the mood and views of our people. We will hold regional
events to inform and discuss the current situation with staff from each branch.
5.3 We will continue to focus on our media and stakeholder engagement to ensure the public
understand the context of our actions and to maintain shareholder and Government
support. In addition, we are working closely with Royal Mail to understand the inter-
dependencies and potential implications of any strike action connected to privatisation.
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5.4 We have offered the CWU further talks to discuss the options to amend the pay offer
without compromising on the essence of the deal, eg. awarding a consolidated pay rise as
soon we can fund it from profits, and potential additional funding to the sales incentive
scheme to encourage faster sales growth.
5.5 We are exploring the option of serving notice on the agreements that we have with the
unions (COSA, IR Framework®, Conduct Code et al) on the basis they are not commercially
viable (eg., the COSA restricts our ability to move to more part-time working and to redeploy
staff). This is consistent with our original pay offer, which included re-negotiating the COSA
as one of the conditions attached to the payments.
5.6 Giving notice on the existing agreements would be predicated on developing a new, single
agreement that would give the Post Office the flexibility to make reasonable changes for
business reasons. The estimated time to achieve this would be circa 9 months including the
required 3 month collective staff consultation. If the IR situation fails to improve the case for
taking this comparatively radical step would become stronger.
6 Risks
6.1 The CTP remains inherently high risk, particularly given the continuing industrial action.
There are a number of risks to the delivery of the overall programme and the £8m savings
target in 2013/14, mainly relating to IR, which we list below (with mitigation in italics):
e Implementation of the plan delayed as a result of industrial action — our assessment (see
Appendix B) suggests a minimal risk at present (under £0.1m of in-year savings) and we
are continuing with the CTP. Further delay being mitigated through the actions below;
* Plan B savings of c£3m (c£12m for Years 2 and 3 of the programme) such as those from
automation could not be realised without union co-operation — we continue to engage
with CWU, CMA and colleagues directly in branch to explain our case, staff are co-
operating day-to-day and we are using our detailed branch-by-branch resource plan to
maximise possible benefits and implement savings without needing union support;
e A prolonged dispute could prove damaging to the public perception of POL — the
industrial action continues to generate limited media coverage, largely well down the
news agenda. We have used coverage to deliver clear messages about Crowns, been
proactive in delivering our messages through traditional and social media and plan to
increase the use of this approach in the coming weeks. There has been coverage of
franchising in some specific regions although this is outweighed by positive coverage
around network transformation, which continues to generate positive coverage (240 NTP.
examples in March alone, 93% of which were positive or balanced); and
e Using central managers to cover strikes could divert effort away from essential business
work across the business — managers are being deployed only when necessary (2/4
strikes to date). More branches remained open on 6 May although 70% of counter
colleagues participated in strike action. We will continue to monitor the situation and
deploy staff as and when necessary.
7 Recommendations
7.1 The Board is asked to endorse the proposed approach of:
e Maintaining a firm, consistent position with the CWU on our key points regarding
consolidated pay, franchising and the need to make any deal conditional on co-operation
in delivering transformation (Option 4 in section 4 of this paper);
« While we remain in dispute, only sharing information with the CWU where it is deemed
necessary for collective bargaining purposes; and
e Pushing ahead with the practical next steps outlined in Section 5 and Appendix A,
despite the continued lack of union engagement.
Crown Transformation Programme
May 2013
5 The COSA is the Crown Office Staffing Agreement and the IR Framework is the Industrial Relations Framework.
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APPENDIX A: Summary of progress on Crown Transformation
The Crown Transformation Programme is continuing to push forward with our plans to deliver income
growth and cost savings across the network. Key activities are summarised below for reference.
Staff savings
e The majority of staff savings (£12m) will be realised from the move to automation. We have
contracted with NCR, market leaders in retail self-service, to provide a next generation of
automation (aka ‘Post & Go’) for the Crown estate.
« The move from 253 machines to c700 will mean over 90% of Crowns will have at least 2 machines,
all selling priority services.
e We have agreed principles for our Crown Colleague resource planning which will be the basis for
duty reviews and realising staff savings across all branches.
Investment in branch to deliver income growth
« We are investing £70m in our branches to deliver our growth agenda. All 292 retained branches
now have a timeline for their transformation. The first branches will go-live in September 2014, with
45 complete before Christmas and 117 complete by the end of 2013/14.
« The roll-out will implement the Crown operating model, which is currently being piloted in
Nottingham, Peterborough, Chester and New Malden. Our pilots have evidenced that the operating
model works and also identified some specific points, such as the lay-out of the Mails zone and the
signage in branch, which we need to amend before roll-out. We are working with all areas of the
business on our review of the Operating Model and branch blueprint and will have an agreed
operating model 2.0 in June 2013.
Property savings
« We are making a number of branch changes to deliver property savings. This includes:
o Opening a new, flagship branch as a 2-in-to-1 in Derby branch in mid-May and vacating 2
existing branches;
Re-locating our branch in Milton Keynes in mid-June;
Hosting our Sheffield branch in Wilkinsons at the end of May;
Merging Broadgate branch in London with neighbouring Houndsditch at the end of May; and
Merging Brazennose branch in Manchester with neighbouring Spring Gardens in
September.
e Collectively, these changes will realise £754k of recurring savings for the Crown P&L.
e We have also started the procurement process for securing a new contact for Facilities
Management for the Crown Network which will start in February 2014 and are actively re-
negotiating rents as they expire.
o©o0o°0
Franchising
e All 70 branches which we intend to franchise are currently being advertised on the Post Office
website. We confirmed this list of 70 to colleagues and stakeholders in February (one month ahead
of schedule).We aim to implement at least 26 franchises by March 2014 as a milestone to achieving
the £8m savings target for this workstream.
e We will continue with the formal follow-up of the 150 expressions of interest in the branches we
have offered for franchising. Within this activity is the conclusion of our negotiations with WHS in
the next few weeks. If successful these negotiations will result in WHS taking more than 20 of the
franchises. This is an important message to send out as it demonstrates that we have momentum
and reduces the number of campaigning hot spots.
Integration with related Crown activity
e The Crown Transformation Programme has continued to work with the Crown General Manager
and his team, and with Financial Services, to integrate our change management.
e Our integrated roadmap includes significant investments in our branches, notably the Crown
Leadership Development Programme for Branch Managers, and the major changes to our FS
products and the support and supervisory structure which will deliver them.
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APPENDIX B: ASSESSMENT OF INDUSTRIAL DISPUTE IMPACT ON CTP BENEFITS
Summary
« The table below summarises the £8m of savings targeted by the CTP for 2013/14.
e Slippage of 3 months (assuming limited opportunity to catch up) could have a c£3m impact on
13/14 (in-year) benefits. This would not necessarily impact on our ability to deliver them by
March 2015.
¢ Impact at present is minimal (less than £0.1m) at present. This is largely because activities:
o Do not require union support at present, although could be jeopardised at a later date by
sustained opposition (eg. franchising);
© Do not require union support (eg. property savings); or
o Are in the planning stage at present (eg. Crown colleague resource planning).
* Continued lack of cooperation from unions in to Q2 would begin to impact on in-year savings
unless we took firm action to continue with our plan without union support.
Table B1: Assessment of Industrial Dispute of CTP Benefits
Description Full Year Impact of 3 Currently Current Impact
Savings Target Month Delay Impacted?
introducing automation an 1.7 (0.9) N 0.0
removing staff
[Divesting 26 branches and 1.5 (1.2) N 0.0
removing all staff*
(Churn and introducing a ne\ 1.0 0.0 Y 0.0
Starting Salary
Merging 3 branches and 0.7 (0.1) N 0.0
removing a proportion of staff
Review of Leave Reserves 0.6 (0.1) N 0.0
requirements
Branch Manager savings from} 0.4 0.0 N 0.0
holding vacancies and Post an
IGo staff reduction
(Additional Churn since Budget 0.4 0.0 N 0.0
set (already done)
IRM rent negotiations 0.4 0.0 N 0.0
(Closing 2 branches and opening 0.3 (0.1) N 0.0
tin a new location
Removing staff and introducing 0.2 0.0 Y 0.0
lhe Branch Support Role
Relocation of 2 branches 0.2 0.0 N 0.0
Removing temporary promotions 0.1 0.0 N 0.0
for Branch Managers
(Closing and hosting 2 branches 0.1 0.0 N 0.0
Renegotiations of leases 0.1 0.0 N 0.0
To be identified through the 0.3 (0.3) N 0.0
implementation of the manpower
Imodel
[TOTA
* This figure is the staff and property savings from franchising. The Crown P&L benefit is £0.6m in year with a
flow-through of £2.4m. The £0.9m in-year difference is explained by the transfer of branch income from the Crown
network P&L to the Agency Network P&L.
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APPENDIX C: INDUSTRIAL ACTION SUMMARY FOR PERIOD 30" MARCH - 7™ MAY 2013
Summary
e There have been 4 instances of strike action in a 5-week period, concentrated around the
weekends. On Easter Saturday (30" March) and Friday afternoon on the 19" April the business
decided not to deploy any support managers to branches as both occasions had limited impact on
customers. On Monday 29" April and 7" May support managers were deployed to 78 priority Crown
branches due to the high volume of customers on these two days and the potential impact on the
surrounding post office network.
* There is no clear pattern of strike activity and staff taking strike action is dependent on the duty
rotas. As a percentage of staff scheduled to work, those taking strike action has increased from
57% on the first strike day to 77% on the third strike day with a slight decline to 70% on the 4" day
which was the first full day of activity.
« There are 29 branches with no striking staff members to date — 5 of these are franchise proposal
branches. On the 7" May there were 51 branches (8 franchise proposals) with no striking members.
* The tables below detail: the number of branches open on strike days; the number of colleagues
taking strike action; and the actual staff on strike as a percentage of the total Crown colleague
population.
Table C1: Number of Crown branches open
30th March 19th April 29th April 7th May
Saturday Friday Monday Tuesday
Crowns Haif/Full day from 2.30pm from 1.00pm Full Day
Offices Open 136 152 221 244
Offices Closed 218 218 149 126
16 n/a na na
Table C1: Staff on strike as a percentage of those rostered to work
30th March 19th April 29th April 7th May
Saturday Friday Monday Tuesday
Payroll Deduction (BM Info) Half/Full day from 2.30pm from 1.00pm Full Day
Staff on Strike 1173 1339 1834 1711
Staff Scheduled 2056 2053 2395 2459
Staff Hours 5907 3782 6530 12602
Table C1: Staff on strike as a percentage of the total Crown colleague population
30th March 19th April 29th April 7th May
% Staff on Strike against Saturday Friday Monday Tuesday
total staff in Post Half/Full day from 2.30pm from 1.00pm Full Day
Staff_on Strike (BM Info) 1173 1339 1834 1714
Staff in Post (HRSAP 3905 3913 3904 3900
I % Staff on strike agai
total staff in Post
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APPENDIX D: IMPACT OF INDUSTRIAL ACTION ON CROWN PERFORMANCE
This appendix sets out the performance on Crown branches in the period since strike action
commenced. It focuses on income and customer experience.
Industrial action — Income
We have used comparable days from previous years to calculate the loss of gross income from
industrial action in the Crown branches. These income figures do not take into account additional
T&S costs for cover or savings from business migrating to Agency branches.
Our initial calculations suggest that this loss of income will also be more than offset by the non-
payment of wages to those staff who have taken industrial action.
Table D1: Loss of gross income from si action
Date of strike Duration Cost (£k)
Saturday 30" March (full day) 405,000
Friday 19™ April (2% hours) 62,000
Monday 29" April (4 hours) 81,000
Tuesday 7" May (full day) 198,000
Total nla 446,000
The chart below show the total Focus and Standard income performance versus target for this
financial year. Performance has been mixed across the weeks but generally the 70 potential
franchise branches’ performance is lower than the rest of the Crown network. However, circa one
third of these 70 are performing ahead of income target.
Graph D1: Total income performance during strike period
110%
105%
100% = % Income to Target
Crown Total
95%
= % Income to Target
Franchise
90%
= % Income to Target
_ Crown minus Franchise
80% r Y
Week Week Week Week Week Week YTD
01 O02 03 04 «(OS os
R
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Industrial Action - Customer Experience
* The table below shows the impact on customer waiting times during the industrial action on Monday
29" April. Average queue times increased to between 2.54 minutes and 8.50 minutes.
Table D2: Impact of strike on Monday April 29" on CMS waiting times
Average waiting time
Time period during day _I Monday 29th April I All Mondays 2013 Difference 29.04/All
09:00-09:59 00:02:45 00:01:42 00:01:03
10:00-10:59 00:04:07 00:02:47 00:01:20
11:00-12:59 00:06:33 00:03:55 00:02:38
12:00-12:59 00:06:30 00:04:17 00:02:13
00:08:29 00:04:29
NB: Strike period shown in amber (13:00-18:00)
* The table below shows the Mystery Shopper results for April. 2013 Targets have not yet been set
but, at 69.3 for waiting time %, the Crown network has fallen behind the 75% target set in 2012.
e However, given Bank Holidays and the impact of strikes, this is a good performance.
Table D:
rown branch Mystery Shopper results 013
Crown Branch Mystery Shopper Results April
Combined mystery shopping total 82.7%
The waiting experience - overall 85.9%
The waiting experience - queue management 69.6%
Sales conversation 79.5%
Queue Focus April
Average Queue time 3.54m
<05.00m 69.3%
05.01 - 10.00m 21.4%
10.01m> 9.2%
---END---
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POST OFFICE LIMITED BOARD
Annual Report and Financial Statements for 2012-13
1. Purpose
The purpose of this paper is to:
1.1 Invite the Post Office Limited Board to review and approve the Post Office
Limited Annual Report and Financial Statements for the 2012-13 financial
year and to delegate authority for reviewing final amendments and completing
the Annual Report and Financial Statements on behalf of Post Office Limited
to a Sub-Committee, the quorum for which to comprise any three of Alice
Perkins, Paula Vennells, Chris Day and Alasdair Marnoch.
2. Background
24 The ARC agreed a number of changes to the process for the production of the
Post Office Limited Annual Report and Financial Statements at its meeting in
November 2012. For the first time the Post Office has opted not take
advantage of exemptions available to it as a wholly owned subsidiary of Royal
Mail Holdings pic. The Annual Report and Financial Statements have been
produced as if Post Office Limited was a standalone group and follow the
content and style of a listed plc where that approach can be taken.
2.2 The following documents are attached to this paper:
Plan of the Annual Report contents;
Draft Annual Report;
Draft Financial Statements;
Initial design concepts;
Ernst & Young representation letter;
Background paper to support directors’ undertakings and statements
included within the Annual Report and Financial Statements;
* ARC briefing book to aid understanding of the financial statements.
eooeeee
2.3 A verbal update on the views of the Post Office Limited Audit Risk and
Compliance Sub-Committee will be given at the meeting following their
meeting at 8.30am on 21 May 2013.
3. Annual Report and Financial Statements approach and plan
3.1 The Annual Report and Financial Statements are planned for publication in
the first week of July against the backdrop of tight budgetary control within the
company, a difficult external economic environment which is putting pressure
on margins and discussions with Government around future strategy and
post-2015 funding positions.
3.2 We have developed the messages and content by working very closely with a
comprehensive range of stakeholders and contributors from across the
business to ensure it accurately reflects the progress we have made. ExCo
directors and their teams have been closely involved in the process. Please
note that the report will be copy edited for style and consistency.
3.3 The approach follows the overall positioning set out to the ARC in February:
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- solid progress on fundamentals creating confidence for the journey ahead
(with a sense that in key areas, such as Network and Crown
Transformation, the turnaround has started, albeit in difficult
circumstances);
- excitement at the innovation and change capabilities of this newly
independent company to deliver commercial and social value: the spirit of
a Start-up;
- fealism as to the task ahead, and empathy with subpostmasters and
colleagues as we work together in challenging circumstances.
3.4 The Financial Statements have been prepared by Finance and the Ernst &
Young audit work is largely complete. The Annual Report is still subject to
audit review. For the first time the Post Office has prepared consolidated
Financial Statements under International Financial Reporting Standards
(IFRS), which is in line with a majority of listed plcs. Post Office Limited still
has a statutory obligation to produce company accounts and these have been
prepared in accordance with the Companies Act 2006 and UK Generally
Accepted Accounting Practice (UK GAAP), consistent with prior years. A full
ARC briefing book it attached. This provides a more detailed analysis of the
results to aid understanding of the financial statements.
3.5 We have a project plan which is being led by the Communications team
working closely with Finance. The current timeline is:
* 15 May - ARC and Board receive report in Word format
* 20 May - Initial feedback from Board
* 21 May - ARC meeting reviews Annual Report together with the Financial
Statements and will be asked to recommend that the Board approves the
Annual Report and Financial Statements.
* 21 May - Board reviews the Annual Report together with the Financial
Statements and will be asked to approve it and delegate authority to a
Sub-Committee to approve final changes and sign on a later date
* 22 May - Further amendments made following Board feedback
* 21-29 May — share draft of Annual Report and Financial Statements with
Royal Mail and Shareholder Executive for review and comment
* 6 June ~ PDFs of designed pages for proofing and sign off
+ June — date to be confirmed - Board Sub-Committee approves final
version and signs. Ernst & Young sign the audit report.
* 7 June to beginning of July — building online version and printing hard copy
* wie 1 July — launch
4. Proposal
4.1. We have appointed Merchant Cantos, an agency which specialises in
producing annual reports for leading public and private organisations. They
have been working closely with the Communications team to produce the
report.
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4.2. Traditional paper copies of the report will be produced alongside an interactive
digital version which will be accessible via postoffice.co.uk. This will feature a
fresh and modern look and feel, including video interviews from the Chairman,
Chief Executive, members of staff, customers and subpostmasters.
4.3 The content includes an introduction from the Chairman and an executive
summary from the Chief Executive. In order to ensure that the Post Office
surprises with its approach, space had also been set aside for comments and
reflections from members of staff, customers and subpostmasters. A full
Corporate Governance section, Financial Review and Directors’
Remuneration Report are all included for the first time.
4.4. We are commissioning new photography and video content for the report and
have engaged an agency to support this. The project is funded from the
communications budget.
4.5 A full PR, stakeholder and colleague engagement plan, including defensive
Q&A is being developed around the report, including a launch event which
includes key stakeholders, suppliers, journalists and colleagues/
subpostmasters.
4.6 A number of options are being considered for using the Annual Report as a
platform for positive PR. These include our commitments to support digital
inclusion, our role in High Street renewal and the “public purpose"
engagement campaign, which is due to start in July. We propose taking a
tactical approach to this element of the report, making a final decision closer
to publication.
47 The structure of the report is designed to flow from the headline statements
from the Chairman and CEO through operational reviews and on to the
financial report, led by the CFO's review.
48 The design of the report will be such that the operational section will be
introduced with a "business at a glance" section which gives an overview of
each business area before going into more detail. This is important to
consider when reading the document. There may be elements which feel
repetitive but this will be considered in the layout and designs.
4.9 The design process will also allow opportunities for use of graphics such as
pie charts.
5. Going Concern
5.1 The ARC reviewed Going Concern at its March meeting. A summary of the
analysis is included in Section 12 of the ARC Briefing Book attached to this
paper. Based on the analysis in this paper there is headroom remaining until
March 2016 and it is believed that Post Office Limited will be able to meet its
liabilities as they fall due in the foreseeable future. It is therefore expected
that the Post Office Limited directors will consider it appropriate to prepare the
financial statements on a Going Concern basis.
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6. Audit
6.1 The audit work on the Financial Statements is substantially complete. The
Annual Report is still subject to audit review. No significant issues have
arisen to date.
6.2 The letter of representation which will be provided to Ernst & Young is
attached.
6.3 Each director is now required to make a public statement in the Directors’
Report as to the completeness of information provided to the external
auditors. The directors are asked to make the declaration at this stage.
7. Undertakings and statements
7.1 The financial statements contain certain undertakings and statements made
by the directors. These are summarised in an attachment to this paper.
8. Recommendation
8.1 The Post Office Limited Board is asked to:
e Review the Annual Report and Financial Statements and provide
individual comments to Chris Day and Mark R Davies by 9am on
Monday 20 May;
e Approve the approach to Going Concern and agree the Going Concern
status for Post Office Limited at the full year;
e Agree that it is appropriate for the Directors of Post Office Limited to
make the undertakings and statements in the financial statements;
¢ Confirm that, as individual directors, so far as they are aware, there is
no relevant audit information of which the auditor is unaware and that
each director has taken all reasonable steps to make themselves aware
of any relevant audit information and to establish that the auditor is
aware of that information;
¢ Approve the financial statements;
¢ Delegate authority for reviewing final amendments and completing the
Annual Report and Financial Statements on behalf of Post Office
Limited to a Sub-Committee, the quorum for which to comprise any
three of Alice Perkins, Paula Vennells, Chris Day and Alasdair
Marnoch;
e Authorise Alwen Lyons to sign the Directors’ Report and Chris Day and
Paula Vennells (or, in either’s absence, Alice Perkins) to sign the
balance sheet, each acting on behalf of the Board; and
« Approve the Letter of Representation to the auditor and authorise Paula
Vennells or Chris Day to issue it on behalf of the Post Office Limited
Board.
Chris Day
May 2013
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Registered Number 2154540
Post Office Limited
Financial Statements
2012-2013
DRAFT 12
Note: Disclosures highlighted are to be confirmed.
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Statement of directors’ responsibilities
The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial staternents for each financial year that give a true and fair view of the financial position of the
Group and of the Company and the financial performance and cash flows of the Group and of the Company for that period. Under that lw the
Directors have elected to prepare the Group consolidated financial statements in accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union and have elected to prepare the Company financial statements in accordance with United Kingdom Generally
Accepted Accounting Practice (United 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 understandatie
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 Group's financial position and financial performance;
State that applicable accounting standards have been followed, subject to any material departures disclosed and explained inthe
financial statements;
© Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue
in business.
The Directors are responsible for keeping adequate accounting records, which disclose, with reasonable accuracy at any time, the financial position of
the Group and of the Company to enable them to ensure that the Group consolidated financial statements comply with the Companies Act 2006 and
Article 4 of the IAS Regulation and the Company financial statements comply with the Companies Act 2006. They are also resporsible 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 in accordance with IFRS as adopted by the EU and in accordance with the
provisions of the Companies Act 2006 give a true and fair view of the assets, liabilities, financial position and profit of he Group;
© The Company financial statements prepared in accordance with United Kingdom Generally Accepted Accounting Practice, give a
true and fair view of the assets, liabilities, financial 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 risks and uncertainties thay face.
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Independent auditor’s report to the members of Post Office Limited
We have audited the consolidated financial staternents of Post Office Limited for the 53-week period ended 31 March 2013 which comprise the
Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated statement of cash flows, the Consolidated
balance sheet, the Consolidated staternent of changes in equity and the related notes 1 to 25. The financial reporting framework that has been
applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report
and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone otherthan 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 pageX the directors are responsible for the preparation of the group
financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and expressan opinion on the group
financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board's 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 staternents sufficient to give reasonable assurance that the
financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting
policies are appropriate to the group's circumstances and have been consistently applied 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 all the financial and non-
financial information in the annual report to identify material 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 group's affairs as at 31 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 Union; and
© have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matter 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 we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requiresus to report to you if, in our opinion:
‘* 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 parent company financial statements of Post Office Limited for the 53 week period ended 31 March 2013.
Ernst & Young LLP
Angus Grant (Senior statutory auditor)
for and on behalf of Ernst &Young LLP, Statutory Auditor
London
Notes:
1. The maintenance and integrity of the Post Office Limited's web site is the responsibility of the directors; the work carried out by the auditors does
not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the
financial statements since they were initially presented on the web site.
2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legslation in other
jurisdictions.
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Consolidated income statement
for the 53 weeks ended 31 March 2013 and the 52 weeks ended 25 March 2012
2013 2012
Notes £m £m,
Continuing operations
Turnover 1,024 980
Network Subsidy Payment 210 180
Revenue 1,234 1.160
People costs excluding restructuring costs 3 (259) (254)
Subpostmasters costs (478) (483)
Other operating costs (435) (393)
Share of post tax profit from joint ventures and associates 11 32 31
Operating profit before exceptional items 4 CA 61
Operating exceptional items 5 (47) (38)
= government grant 98 7
~ restructuring costs (79) (2)
~ other (66) (36)
Operating profit 47 23
Profit on disposal of property, plant and equipment 2 a
Loss on sale of associate (30) eI
Profit before financing and taxation 19 24
Finance costs 7 (4) (7)
Finance income 7 1 1
Net pensions interest a9 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 Mail Holdings plc financial statements for the year ended 25 March 2012 reported operating profit after modernisation costs but
before other exceptional items of £59m for Post Office Limited. In the income statement above the prior year result has been presented to exclude
modernisation costs consistent with 2013 where results are reported before all exceptional items.
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Consolidated statement of comprehensive income
for the 53 weeks ended 31 March 2013 and the 52 weeks ended 25 March 2012
2013 2012
Notes £m £m
Profit for the financial year from continuing operations 49 30
Other comprehensive income:
Actuarial gains on defined benefit pension schemes 19 wu 108
Taxation on items taken directly to equity 8 (24) -
Total comprehensive income for the year 42 138
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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 %% 61
‘Adjustment for:
Depreciation and amortisation 4 - 4
Share of profit from joint ventures and associates 11 (32) (31)
Pension operating costs 25 24
Working capital movements: m1 24
Increase)/Decrease in trade and other receivables (138) 11
Increase in trade and other payables 207 45
Increase) in inventories (2) >
ncrease/(Decrease) in non-exceptional provisions 4 (2)
Pension operating costs paid (26) (27)
Cash payments in respect of operating exceptional items: 133 (27)
Business transformation (44) (12)
Government grant 200 7
Restructuring costs (a1) (15)
Other (45) =
Net cash inflow from operating activities 265 25
Income tax recovered 11 12
Cash flows from investing activities
Investment in associate (a4) 7
Dividends received from joint ventures and associates aa 40 38
Finance income received 1 7
Proceeds from sale of property, plant and equipment 2 2
Proceeds from disposal of associate 2 -
Purchase of property, plant and equipment (66) (33)
Net cash (outflow)/inflow from investing activities (32) 7
Net cash inflow before financing activities 244 4a
Cash flows from financing activities
Finance costs paid (3) (4)
Payments to finance lease creditors (3) (3)
(Repayment)/proceeds from bank borrowings (86) 2
Net cash (outflow) from financing activities (92) (5)
Net increase in cash and cash equivalents 152 39
Effect of exchange rates on cash and cash equivalents (a) (1)
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
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Consolidated balance sheet
at 31 March 2013, 25 March 2012 and 28 March 2011
2013 2012 2011
Notes £m £m £m
Non-current assets
Intangible assets 9 - - -
Property, plant and equipment 10 11 11 12
Investments in joint ventures and associates 11 60 89 %
Retirement benefit surplus 19 97 - -
Total non-current assets 168 100 108
Current assets
Inventories 8 6 5
Trade and other receivables 12 362 226 244
Cash and cash equivalents 13 971 820 782
Financial assets - derivatives 47/18 1 - -
Total current assets 1,342 1,052 1,028
Total assets 1,540 1,152 1,136
Current liabilities
Trade and other payables 14 (898) (583) (579)
Financial liabilities - interest bearing loans and borrowings 15 (294) (377) (375)
- obligations under finance leases 22 (3) (4) (4)
Provisions 16 (a9) 2 s
Total current liabilities (4,211) (964) (958)
Non-current liabilities
Financial liabilities - obligations under finance leases 22 (4) (6) (9)
Other payables 14 - (2) (5)
Provisions 16 7) (14) (26)
Retirement benefit obligation 19 : (206) (316)
Total non- current liabili (aa) (228) (356)
Net assets/(liabilities) 288 (40) (178)
Equity
Share capital 20 - - -
Share premium 465 465 465
Retained earnings (179) (552) (690)
Other Reserves 2 47 47
Total equity/(deficit) 288 (40) (178)
The financial statements on pages XX to XX were approved by the Board of Directors on XXX 2013 and signed on its behalf by:
P A Vennells CM Day
Chief Executive Chief Financial Officer
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Consolidated statement of changes in equity
for the 53 weeks ended 31 March 2013 and the 52 weeks ended 25 March 2012
Retained
Share earnings Other Total
premium £m reserves equity
Notes £m £m £m
At 26 March 2012 465 (552) 47 (40)
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 (45) -
Taxation of items taken directly to equity 8 - (21) = (21)
At 31 March 2013 465 (179) 2 288
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Opening other reserves of £47m comprised £2m relating to First Rate Exchange Services Holding Limited, the joint venture entity,
and £45m 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 £45m included in other reserves relating to Midasgrange Limited was
transferred to retained earnings.
Retained
Share earnings Other Total
premium £m reserves equity
Notes £m £m £m
At 28 March 2011 465 (690) 47 (178)
Profit for the year : 30 - 30
Actuarial gain on defined benefit pension
schemes 19 - 108 - 108
At 25 March 2012 465 (552) 47 (40)
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Notes to the financial statements
11. Accounting Poli
Financial year
The financial year ends on the last Sunday in March and for this reason these financial statements are made up to the 53 weeks ended
34 March 2013 (2012 - 52 weeks ended 25 March 2012)
Basis of preparation
The financial statements on pages XX to XX have been prepared in accordance with Intemational Financial Reporting Standards (IFRSs) as
adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. Unless
otherwise stated in the accounting policies below, the financial statements have been prepared under the historic cost accounting
convention.
For all periods up to and including the year ended 25 March 2012, the Group (comprising the Company and its subsidiary undertaking)
prepared its financial statements in accordance with United Kingdom Generally Accepted Accounting Practice. These financial statements
for the year ended 31 March 2013 are the first the Group has prepared in 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
periods 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 Group's opening statement of financial position was prepared as at 28 March 2011, the Group's
date of transition to IFRS as adopted by the European Union.
The Company is 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 consolidated financial statements comprise the financial statements of the Company and its subsidiary undertaking. Subsidiaries are
consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until 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. All intra-group balances, transactions, unrealised gains and losses resulting from intra
group transactions are eliminated in full
Changes in accounting policy and disclosures
The changes to accounting policies and disclosures which have been necessary as part of the transition 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 applied
The following new and revised accounting standards are relevant to the Group and are in issue but were not effective (and in some
instances have not yet been adopted by the EU) at the balance sheet date:
. Annual improvements to IFRS 2009-2011 Cycle
. IFRS 9 Financial Instruments: Classification and Measurement
. IFRS 10 Consolidated Financial Statements
. IFRS 11 Joint Arrangements
. IFRS 12 Disclosures of Interests in Other Entities
* IFRS 13 Fair Value Measurement [impact on derivative assets]
. IAS 1 (amended) Presentation of Items of Other Comprehensive Income
* IAS 12 (amended) Deferred Taxation: Recovery of Underlying Assets [impact being assessed by Group Tax]
* IAS. 19 (revised) Employee Benefits
. IAS 27 (revised) Separate Financial Statements
. IAS 28 (revised) Investments in Associates and Joint Ventures
* IAS 32 (amended) Offsetting Financial Assets and Liabilities [impact being assessed by Group Treasury]
The Directors do not expect that the adoption of the standards listed above will have a material impact on the financial statements of
the Group in future periods.
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Fundamental accounting concept - going concern
The Group has net assets at 31 March 2013 and has operated at a 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 £410m for 2012-13
Funding of £415m for 2013-14
Funding of £330m for 2014-15
Extension of the existing working capital facility with the Department for Business, Innovation & Skills (BIS) of
£4.15bn up to 34 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 facility was no longer deemed State Aid. £410m was received on 2 April 2012
This investment will take the form of a Government Grant and enable 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 local
branches are currently being rolled out across the United 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 are satisfied with the progress made towards modernisation during 2012-13 and that the plans in place and the
substantial investment 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.
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 in the foreseeable future. Accordingly, on that basis, the Directors consider that it is 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 judgements in applying its accounting policies which affect the amounts recognised in the accounts. The most
significant areas where judgements and estimates are made are discussed below:
Pension assumptions
The costs, assets and liabilities of the pensions operated by the Group are determined using methods relying on actuarial estimates and
assumptions. These pension figures are particularly sensitive to changes in assumptions for discount rates, mortality and inflation rates.
Details of the key assumptions are set out in Note 19.
Pension liabilities are measured on an actuarial basis using the projected unit credit method and discounted at a rate equivalent to the
current rate of return on a high quality corporate bond of equivalent currency and term. Judgement has been applied in determining that
for these purposes a high quality corporate bond constitutes AA rated or equivalent status bonds.
Provisions
The Group has recognised provisions where a present legal or constructive obligation exists as a result of a past event, where it is
probable that an outflow of resources will be required to settle 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.
Revenue
Tumover from Government, financial, mails and telephony services comprises the value of services provided. Tumover from all other
products comprises the commission received excluding VAT, from the Group's 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 telephony services is recognised evenly over the period to which the charges relate and revenue from calls is recognised at the time
the call is made, Turnover from all other transactions is recognised when the trans action is completed. All turnover is 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 appropriate.
Net revenue
Net revenue is calculated using revenue less cost of sales, which consists of directly attributable costs of delivering the service or product.
HEE
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Operating exceptional items
Operating exceptional items are items of income and expenditure arising from the operations of the business which, due to the nature of
the events giving rise to them, require separate presentation on the face of the income statement to allow a better understanding of
financial performance in the year, in comparison to prior years.
Intangible assets
Intangible assets acquired separately or generated internally are initially recognised at cost and are reviewed for impairment. An
impairment loss is recognised in the income statement for the amount by which the carrying value of the asset exceeds its recoverable
amount, which is the higher of an asset's net realisable value and its value in use.
Amortisation of intangible assets with finite lives is charged annually to the income statement on a straight-line basis as follows.
Software 1 to 6 years
Property, plant and equipment.
Property, plant and equipment is recognised at cost, including attributable costs in bringing the asset into working condition for its
intended use.
Depreciation of tangible fixed assets is provided on a straight-line basis by reference to cost and to the remaining useful economic lives of
assets and their estimated residual values. The lives assigned to major categories of tangible fixed assets are:
Range of asset lives
Land and buildings:
Freehold land Not depreciated
Freehold buildings Up to 50 years
Leasehold buildings 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
Impairment reviews
Unless otherwise disclosed in these accounting policies, assets are reviewed for impairment if events or changes in circumstances indicate
that the carrying value may be impaired. The Group assesses at each reporting date whether such indications exist. Where appropriate,
an impairment loss is recognised in the income statement for the amount by which the carrying value of the asset (or cash generating
unit) exceeds its recoverable amount, which is the higher of an asset's net realisable value and its value in use.
Leases
Finance leases, where substantially all the risks and rewards incidental to ownership of the leased item have passed to the Group are
capitalised at the inception of the lease with a corresponding liability recognised for the fair value of the leased item or, if lower, at the
present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease
liability so as to achieve a constant rate of interest on the remaining balance of the liability.
Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term,
Leases where substantially all the risks and rewards of ownership of the asset are retained by the lessor, are classified as operating leases
and rentals are charged to the income statement over the lease term. The aggregate benefit of incentives are recognised as a reduction
of rental expenses over the lease term on a straight-line basis.
Investments in joint ventures and associates
Investments in joint ventures and associates within the Group's financial statements are accounted for under the equity method of
accounting. Under this method the investment is carried in the balance sheet at cost plus post -acquisition changes in the Group's share of
the net assets of the joint venture/associates less any impairment in value. The income statement reflects the Group's share of post tax
profits from the joint venture/associates.
Inventories
Inventories include printing and stationery, retail and lottery products, is carried at the lower of cost and net realisable value after
adjusting for obsolete or slow-moving stock.
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Taxation
The charge for current income tax is based on the results for the year as adjusted for items which are not taxed or are disallowed. It is
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 recognised for all taxable and deductible temporary differences and unused tax assets and
losses except:
- initial recognition of goodwill
- the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction,
affects neither the accounting profit nor taxable profit and loss.
~ taxable temporary differences associated with investments in subsidiaries, associates and interest in joint ventures, where the timing of
the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the
foreseeable future and
- deferred tax assets are recognised only to the extent that it is probable that taxable profit will be available against which they can be
utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the tax asset is realised or
the liability is settled, based on tax rates that have been substantively enacted at the balance sheet date. Deferred tax balances are not
discounted.
Current and deferred tax is recognised in the income statements, except to the extent that it relates to items recognised in other
comprehensive income or directly to equity. In this case, the tax is also recognised in other comprehensive income or directly in 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 Limited and seconded to the Company until 31 March 2012. On 4
April 2012 they were transferred to be directly employed by the Company. Membership of occupational pension schemes is 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 fair value. Liabilities are measured on an actuarial basis using the
projected unit credit method and discounted at a rate equivalent to the current rate of return on a high quality corporate bond of
equivalent currency and term. The resulting defined benefit asset or liability is presented separately on the face of the balance sheet. Full
actuarial funding valuations are carried out at intervals not normally exceeding three years as determined by the Trustees and, actuarial
valuations are carried 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 from settlements, curtailments and past service costs. The net difference between the interest costs and the expected
return on plan assets is recognised as net pensions interest in the income statement. Actuarial gains and losses are recognised
immediately in the staternent of comprehensive income. Any deferred tax movement associated with the actuarial gains and losses is also
recognised in the statement of comprehensive income.
For defined contribution schemes, the Group's contributions 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 Group is sterling (€).
Transactions in foreign currencies are recorded at the spot exchange rate ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are retranslated at the functional rate of exchange ruling at the balance sheet date. Currently
hedge accounting is not applied to any monetary assets and liabilities. All differences are therefore taken to the income statement.
Trade receivables
Trade receivables are recognised and carried at original invoice amount less an allowance for any non-collectable amounts. An estimate
for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified.
Borrowing costs
Borrowing costs in relation to the working capital loan facility are 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.
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Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probably that an
outflow of resources will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. If the
effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at an appropriate
pre-tax rate.
Financial instruments
The classification of financial instruments included on the balance sheet is set out below:
Financial assets
Financial assets are classified into the following categories: at fair value through the income statement, loans and receivab les, and available
for sale as appropriate based on the purpose for which they were required. Financial liabilities are class ified as either fair value through the
income statement or as financial liabilities measured at amortised cost.
Financial liabilities ~ interest-bearing loans and borrowings
All loans and borrowings are classified as financial liabilities measured at amortised cost.
Financial liabilities - obligations under finance leases
All obligations under finance lease and hire purchase contracts are classified as financial liabilities measured at amortised cost.
Derivative financial instruments
The Group uses derivative financial instruments to manage its exposure to fluctuations in foreign exchange rates. Such derivative financial
instruments are initially stated at fair value. Hedge accounting has not been claimed for foreign exchange derivative 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 is no active market, fair value is determined using valuation techniques. These include using recent arm’s length market
transactions; reference to the current market value of another instrument which is substantially the same; and discounted cas h 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 as sets and liabilities are within Level 2 of the fair
value hierarchy as defined within IFRS 7.
For the purposes of disclosing the fair value of investments held at amortised cost in the balance sheet, in the absence of quoted market
prices, fair values are calculated by discounting the future cash flows of the financial instrument using quoted equivalent interest rates as
at close of business on the balance sheet date.
Derecognition of financial instruments
A financial asset or liability is derecognised when the contract that gives rise to it is settled, sold, cancelled or expires.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits (cash equivalents) with an
original maturity date of three months or less. In addition the Group uses Money Market funds as a readily available source of cash, and
these funds are also categorised as cash equivalents.
For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of
bank overdrafts. Cash equivalents are classified as loans and receivables financial instruments.
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2. Segmental reporting
In accordance with IFRS 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 available. The Group's CODM is the
Executive Committee as defined in the [Directors’ Report] on Page
The CODM has determined the operating segments based in 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. This is calculated using segmental revenue less
segmental cost of sales, which consists of directly attributable costs of delivering the service or product. The net revenue measure
excludes the effect of indirect costs and the effects of non-recurring expenditure such as redundancy costs and asset impairment. Interest
income and expenditure is not allocated to segments as this type of activity is driven by the central treasury function
Assets and liabilities as recognised on the Group balance sheet are not considered to be segmental assets or liabilities but rather are
managed by the Group's central functions. The information reviewed by the CODM does not include assets or liabilities split by segment. A
description of the activities of the business segments is included on Page XX within the financial commentary to the financial statements.
Revenue from a major customer represents approximately 27% of the Group's total revenue in 2013. This revenue was reported within
the Mails & Retail segment.
2013
Cost of Net
Revenue Sales Revenue
£m £m £m
Mails & Retail 409 (5) 404
Financial Services 284 (a) 280
Government Services 164 (30) 134
Telephony 129 (85) bb
Other 4a : 41
Sub total 1,024 (124) 903
Network Subsidy Payment 210 = 210
Total 1,234 (421) 1,413
2012
Cost of Net
Revenue Sales Revenue
£m. £m. £m.
Mails & Retail 392 (4) 388
Financial Services 264 (3) 261
Government Services 164 (28) 136
Telephony 120 (79) 44
Other 40 - 40
Sub- total 980 (414) 866
Network Subsidy Payment 180 - 180
Total 1,160 (114) 1,046
A reconciliation between underlying segment net revenue and profit before taxation is provided below:
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2013 2012
£m £m
Underlying segment net revenue 1,113 1,046
Indirect costs (1,051) (1.016)
Share of post tax profit from joint ventures and associates 32 34
Operating profit before exceptional items 9% 61
Operating exceptional items (58) (38)
Operating profit 36 23
Profit on disposal of property, plant and equipment 2 4
Loss on sale of associate (30) 2
Profit before financing and taxation 8 24
Finance costs (4) 7)
Finance income 1 1
Net pensions interest 2 2
Profit before taxation 7 20
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 security costs 19 17
Pension costs (note 19) 25 24
Total 259 254
Period end employees Average employees
2013 2012 2013 2012
Total employees 7,886 7798 7,842 7,734
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4. Operating profit from continuing operations before exceptional items
Operating profit from continuing operations before exceptional items is stated after charging:
2013 2012
£m £m.
Bureau de Change foreign currency exchange losses 1 4
Depreciation - a
Operating lease charges - Land and buildings 20 25
- Vehicles and equipment 62 62
Fees payable to the group's auditors for audit and other services: £000 £000
~ parent company and group audit 331 195
-taxation services - -
-other non-audit services 105 108
5. Operating exceptional items
2013 2012
£m £m.
Government grant 98 -
Business transformation (4) (3)
Network transformation including subpostmasters compensation (52) -
Restructuring - severance (11) 1
= other (12) a
Impairment of intangible assets (note 9) (25) (17)
Impairment of property, plant and equipment (note 10) (41) (19)
Total operating exceptional items (47) (38)
The £4m charge in respect of business transformation represents a provision for staff payments linked to changed working practices
(2012 £3m).
Due to ongoing operational losses (excluding Network Subsidy Payment) the carrying value of all property plant and equipment other
than freehold and long leasehold property has been impaired to the recoverable amount.
6. Directors’ emoluments
The Directors received the following emoluments:
2013 2012
£000 £000
Emoluments, excluding pension contributions and LTIP* 1,129 904
Contributions to pension schemes a 58
Amounts receivable under Long-Term Incentive Plans 218 -
*Figures include any cash supplements received in lieu of pension.
Directors accruing pension entitlements during the period under: 2013 2012
Number Number
Defined benefit schemes 0 2
Defined contribution schemes - ~
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The highest paid Director received the following emoluments:
2013 2012
£000 £000
Emoluments and LTIP, excluding pension contributions* 698 463
Company contributions to pension schemes 1 47
Transfer value of accrued pension benefits 315 284
* Figures include any cash supplements received in lieu of pensions.
7. Net finance costs
2013 2012
£m £m
Interest receivable a 4
Interest charge, unwinding discount on provisions. (a) (1)
Interest payable on loans (3) (6)
Total (3) (6)
8. Taxation
(a) Taxation gains recognised in the year
2013 2012
£m £m
Corporation tax credit for year (10) (11)
Tax under provided in previous years - 4
Current tax (10) (10)
Deferred tax relating to pension surplus taken to equit (24) -
Income tax credit reported in the consolidated income statement (31) (10)
(b) Factors affecting current tax credit on loss on ordinary activities
The tax assessed for the year differs from the standard rate of corporation tax in the UK of 24% (2012 26%).
explained below:
The differences are
2013 2012
£m £m
Profit 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) (15)
Expenditure disallowable for tax 1 2
Adjustment in respect of prior period - 1
Losses from disposals ineligible for relief 7 7
Effect of group relief surrenders to other companies = 5
Associates/joint venture profit after tax included in Group pre-tax profit (8) (8)
Total current tax (see above) (34) (20)
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(c) Factors that may affect future tax charges
The Group has unrecognised deferred tax assets of £190m (2012 £337m), comprising £0m (2012 £52m) relating to the retirement
benefit obligation, £133m (2012 £157m) relating mainly to fixed asset timing differences, and £57m (2012 £128m) relating to tax losses
that are available to offset against future taxable profits. The Group has rolled over capital gains of £3m (2012 £3m); no tax liability
would be expected to crystallise should the assets into which the gains have been rolled be sold at their residual value, as it is anticipated
that a capital loss would arise.
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 is included in these financial statements and is 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 1 April 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 Group’s unrecognised deferred tax assets by £25m.
Under the Postal Services Act 2011, trading losses which arose due to pension contributions and which are unused at 31 March 2013 will
be extinguished. The estimated gross value of the losses extinguished is £175m. The unrecognised losses carried forward disclosed above
are stated net of this amount.
(d) Tax effect of exceptional items
There is a tax credit on exceptional items of £nil (2012 £nil). This is calculated on a “with and without" basis assuming that losses are
surrendered firstly to joint ventures and secondarily to companies in the Royal Mail Group.
9. Intangible assets
2013 2012 2011
Cost £m £m £m
At 26 March 2012, 28 March 2011, 29 March 2010 183 166 155
Additions 25 17 12
Disposals : - (a)
At 34 March 2013, 25 March 2042, 27 March 2014 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 14
‘At 34 March 2013, 25 March 2042, 27 March 2014 208 183 166
Net book value
At 31 March 2013, 25 March 2012, 27 March 2011 - - -
The above intangible assets relate to software.
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10. Property, plant and equipment
Land and Buildings
Plant Fixtures
Long Short Motor and and
Freehold leasehold leasehold vehicles machinery equipment Total
£m £m £m £m Em £m £m
Cost
At 28 March 2011 78 17 113 34 1 696 939
Additions 4 = 5 1 Ss 13 18
Disposals - external (4) - - (a) - - (5)
Transfers from Royal Mail
Group Ltd 1 - 1 - - - 2
At 25 March 2012 79 17 114 34 1 709 954
Reclassification - 4 (a) 2 e e a
Additions 9 os 1 9 = 22 41
Disposals - external (a) = A (a) = (12) (14)
At 31 March 2013 87 18 144 42 4 719 981
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 - external (3) : : (a) : : (4)
At 25 March 2012 69 16 144 34 4 709 943
Depreciation 7 s a - 7 a a
Impairment (see note 5) 9 4 . 9 ” 22 41
Disposals - external (a) 2 Z (2) = (12) (14)
At 31 March 2013 77 17 114 42 1 719 970
Net book value
At 31 March 2013 10 1 al = = = 11
At 25 March 2012 10 4, = 5 = = 11
At 28 March 2011 11 4 : - - - 12
Depreciation rates are disclosed within accounting policies (note 1), No depreciation is provided on freehold land, which represents £3m
(2012 £3m) 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.
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11. Investments in joint ventures and associates
Post Office Limited
The following entities have been included in the consolidated financial statements using the equity method:
Joint ventures
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During 2012-13 and 2011-12, the Group's only joint venture investment was a 50% interest (1,000 £1 ordinary A shares) in First Rate
Exchange Services Holdings Limited, whose principal activity is the provision of Bureau de Change. First Rate Exchange Services Holdings
Limited is a company registered in the United Kingdom.
Associates
During 2011-12, the Group's only associate investment was a 49.99% interest (4.999 £0.01 ordinary A shares) in Midasgrange Limited,
whose principal activity is the provision of personal financial products. This investment was disposed of during the year ended 31 March
2013. At the date of disposal the carrying value of the Group's investment was £32m. Proceeds of £2m were received giving a loss on
disposal of £30m which has been recognised in the consolidated income statement.
Joint venture Associate Total
£m £m £m
Share of net assets
Total net investment at 26 March 2012 67 22 89
Share of post tax pre dividend profit/(loss) 33 (a) 32
Investment in associate o 1 11
Disposal a (32) (32)
Dividend (40) - (40)
Total net investment at 31 March 2013 60 - 60
Joint venture Associate Total
£m. £m. £m.
Share of net assets
Total net investment at 28 March 2011 73 23 96
Share of post tax pre dividend profit/ (loss) 32 (1) 31
Dividend (38) (38)
Total net investment at 25 March 2012 67 22 89
2013 2012 2011
Joint Total Joint — Associate Total Joint Associate Total
venture venture venture
Share of assets and liabilities: £m £m £m £m £m £m £m £m
Current assets 184 184 180 38 218 151 25 176
Non-current assets 3 3 3 18 21 2 v7 19
Share of gross assets 187 187 183 56 239 153 42 195
Current liabilities (127) (127) (116) (34) (150) (80) (19) (99)
Share of net assets 60 60 67 22 89 73 23 96
Share of revenue and profit:
Revenue 75 75 75 49 124 7h 39 113
Profit after tax 32 32 32 @) 31 29 (4) 25
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12. Trade and other receivables
2013 2012 2011
Current: £m £m £m
Trade receivables 32 39 45
Prepayments and accrued income 84 39 27
Client receivables 240 138 158
Other receivables 9 10 sl
Total 362 226 244
The Group receives and disburses cash on behalf of Government agencies and other clients to customers through its branch network.
Amounts owed from/to Government agencies and other clients are disclosed separately as client receivables (as above) and client
payables (see note 14.)
As at 31 March 2013 trade and other receivables of £1m (2012 £1m) were impaired and fully provided for. All movements on the
provision during the year have been less than £1m. Trade and other receivables of £8m (2012 £7m) were past due but not impaired.
The aging 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 = iL
Total 32 39
The fair value of trade and other receivables is not materially different from the carrying value.
13. Cash and cash equivalents
2013 2012 2011
£m £m £m
Cash in the Post Office Limited network 879 758 704
Short-term bank deposits 6 19 34
Money market fund investments 86 43 hk
Total cash and cash equivalents 971 820 782
Cash and cash equivalents comprise amounts held physically in cash, cash deposits available on demand or for three months or less.
Where interest is earned it is at a floating or short term fixed rate. The fair value of cash and cash equivalents is not materially different
from the carrying value.
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14. Trade and other payables
2013 2012 2011
£m £m £m
Current:
Trade payables 43 32 36
Accruals and deferred income 134 140 121
Advance customer payments 50 48 67
Social security 10 9 10
Client payables 528 332 314
Amounts due to pension schemes relating to redundancies - - 3
Amount due to other companies within the Royal Mail Holdings
Group 6 9 12
Capital payables 18 10 6
Business transformation 7 3 10
Government Grant deferred income 102 - =
Total 3898 583 579
Non-current:
Other payables - 2 5
Total 3898 585 584
Of the £200m Government Grant received £98m has been allocated against income statement expenditure in accordance with the terms
and conditions of the Grant. The remaining £102m has been deferred into the balance sheet as disclosed above. The fair value of trade
and other payables is not materially different from the carrying value.
15. Borrowings
2013 2012 2011
£m £m £m
BIS 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
(2012 1 day). The fair value of borrowings is not materially different from the carrying value. On maturity it is expected that further loans
will be drawn down under this facility, which expires in 2016. The undrawn committed facility, in respect of which all conditions precedent
had been met at the balance sheet date is £859m (2012 £773m.) The average interest rate on the drawn down loans is 1.0% (2012
0.8%).
The facility is currently restricted to funding the cash and near cash items held within the Post Office Limited network.
The facility (including drawn down loans) is 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 is an agreement not to grant security over the assets or to set up a vehicle that has the
same effect.
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16. Provisions
Crown
Conversions Network
Project Transformation Other Total
£m £m £m £m
At 26 March 2012 9 - 5 14
Charged in operating exceptional items - 10 12 22
Charged in operating costs ~ 6 6
Charged in financing costs 4 ~ - 1
Utilisation (3) - (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 £9m (2012 £5m) include property contracts, comprising 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
utilised within 5 years.
17. Financial assets and liabilities
The Group's financial assets and liabilities are shown in the table below:
2013 2012 2011
Current Non Total Current Non Total Current Non Total
current current current
£m £m £m £m £m £m £m
Cash and cash equivalents 971 971 820 “9 820 782 7 782
Derivative assets 1 - 1 - “ - - - -
BIS loan (291) a (291) (377) 2 (377) (375) - (375)
Finance leases obligations (3) (4) (7) (4) (6) (10) (4) (9) (43)
Total financial assets/
(liabilities) 678 (4) 674 439 (6) 433 403 (9) 394,
The Group's principal financial assets and liabilities comprise cash, money market liquidity investments, loans and finance leases. The
Group has various other financial instruments such as trade receivables and trade payables, which arise directly from operations are
disclosed further in Notes 12 and 14.
The Group enters into derivative transactions, which create derivative assets and liabilities, principally forward currency contracts, The
purpose is to manage the commodity and currency risks arising from the Group's operations.
The main risks arising from the Group's financial assets and liabilities are interest rate risk, liquidity risk, foreign currency risk and credit
risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below:
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Interest rate risk
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The Group's exposure to market risk for changes in interest rates relates to the Group's debt obligations and interest bearing financial
assets. The BIS loans to Post Office Limited of £291m (2012 £377m) are at short-dated fixed interest rates ~ average maturity 1 day
(2012 average 1 day), On maturity it is expected that further loans will be drawn down under this facility which expires in 2.016. The total
interest bearing financial assets of the Group of £92m (2012 £62m) are at short-dated fixed or variable interest rates.
The table below sets out the carrying amount by maturity of the Group's financial instruments that are exposed to interest rate risk.
Financial year ended 31 March 2013
Average Within 1-2 2-5 More than Total
Effective oneyear years years 5 years £m
interest £m £m £m £m
rate
Fixed rate
Short-term bank deposits 05 6 » = » 6
BIS loan 10 (291) ad al “ (291)
Obligations under finance leases 9.0 (3) (4) 2 = (7)
Total (288) (4) a s (292)
Floating rate
Money market fund investments Os 86 = = = 86
Non-interest bearing
Cash in Post Office network s 879 » = » 879
Derivative assets = 1 = = = 1
Total 880 - - : 880
Net total financial assets/(liabilities) 678 (4) = = 674
Financial year ended 25 March 2012
Average Within 1-2 2-5 More than Total
Effective oneyear years years 5 years £m
interest rate £m £m £m £m
Fixed rate
Short-term bank deposits 07 19 “ “ - 19
BIS loan 08 (377) “ = we (377)
Obligations under finance leases 9.0 (4) (3) (3) me (10)
Floating rate
Money market fund investments: 08 43 ~ - ~ 43
Non-interest bearing
Cash in Post Office network 7 758 ~ = = 758
Net total financial assets/(liabilities) 439 (3) (3) S 433
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Foreign currency risk
The Group is exposed to foreign currency risk resulting from balances held to operate Bureau de Change services, The Group's foreign
currency risk management objective is to minimise the impact on the Income Statement of fluctuations in the excha nge rates. The Group
aims to hedge 90% of significant 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 Services Holdings Limited.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Financial
credit risk 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 client related settlements for amounts paid out of
the Post Office network on their behalf.
The Group aims to minimise its financial credit risk through the application of risk management policies 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 is monitored centrally. The individual relationships and the contracts attached to them are managed by dedicated
teams and procedures are place to monitor any concentrations of credit risk. The level of bad debt incurred for the Group is less than 1%
(2012 less than 1%) of turnover.
Capital management
The Group's 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 its 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 monitor the level of debt in the Group, the working capital requirements and the forecast
cash flows. The Board and Executive Committee plan accordingly following this review process in order to meet the Groups capital
management objectives.
Liquidity risk
The Group's primary objective is to ensure that the Group has sufficient funds available to meet its financial obligations as they fall due.
This is achieved by aligning short-term investments and borrowing facilities with forecast cash flows. Typical short-term investments
include money market funds 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 £859m (2012 £773m) expires in 2016.
Sensitivity
As a result of the mix of fixed and variable 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.
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The tables below set out the gross (undiscounted) contractual cash flows of the Group's financial liabilities, For loans and finance leases,
these cash flows represent the undiscounted total amounts payable including interest.
2013
BIS Loan Finance Lease Total
Amounts falling due in: £m £m £m
One year or less 291 3 294
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 7 298
2012
BIS Loan Finance Lease Total
Amounts falling due in: £m £m £m
One year or less 377 4 381
More than 1 year but not more than 2 years 3 4 4
More than 2 years but not more than 5 years 2 4 4
More than 5 years = = =
Total 377 12 389
2011
BIS Loan Finance Lease Total
Amounts falling due in: £m £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 8
More than 5 years - : -
Total 375 16 391
18. Hedging programmes
Details of the Group's derivative financial instruments, used to manage the risks identified above are as follows:
Fair value of derivative financial instruments:
2012
Assets
£m
Currency hedges
Total
Currency hedges
The Group mitigates its foreign currency risk exposure principally through external foreign currency forward contracts with First Rate
Exchange Services Holdings Limited. At the year end the gain on unmatured currency hedges was £1m and taken to the income
statement as hedge accounting is not claimed. The hedges mature in April 2013.
Derivative values
At any point in time, the derivative in programmes above are either ‘in the money’ which means the hedged rates are better 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 liability is created
in the balance sheet (as detailed above.) The financial asset or liability is released when the derivative matures. The Groups hedging
transactions are settled net.
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19. Pensions
On 1 April 2012, almost all of the pension assets and liabilities 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 employees were transferred to be directly employed by Post Office Limited on the same date.
Royal Mail Group Limited is the principal employer in 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 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 liable 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 Limited recognised a balance sheet deficit based on employee numbers over 12 years and 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, giving the Post Office Limited approximately 7% of the total balance sheet deficit at the balance sheet date. The
current service cost, regular future service contributions and curtailments were computed separa tely for Royal Mail Group Limited and
Post Office Limited based on common factors/rates.
The disclosures in this note relating to the year ended 31 March 2013 reflect the Post Office Limited sectionalised RMPP scheme which is
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 relate to the year ending 31 March 2013 and show how the value of the assets and liabilities have been
calculated at the balance sheet date.
The Group 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 senior executives Defined benefit
Royal 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 Group contributions to these schemes was £1m
(2012 £m) 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.
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 31 March 2009 using the projected unit method. For RMPP, this valuation was
concluded at £10.3bn deficit. For RMSEPP, the valuation was concluded at £100m deficit. RMPP includes sections A, B and C each with
different terms and conditions:
* — Section A is for members (or beneficiaries of members) who joined before 1 December 1971;
* — Section B is for members (or beneficiaries of members) who joined after 1 December 1971 and before 1 April 1987 or to
members of Section A who chose to receive Section B benefits;
* Section C is for members (or beneficiaries of members) who joined after 1 April 1987 and before 1 April 2008.
Aseries 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 eamed before 1 April 2008 are still 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 their pension on reaching 60 but the normal retirement age increased to 65 for benefits
earned from 1 April 2010; and
© from 4 April 2010 it is possible to draw pension earned before the change to normal retirement age at 55, and continue
working while still contributing to the Pension Plan until the maximum level of benefits has been reached.
* — on 31 December 2012 RMSEPP was closed.
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Payment of £24m (2012 £23m) 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 as a percentage of pensionable pay, has remained at
17.1% (2012 17.1%), effective from April 2010. This rate is not expected to change materially during 2013-14. For RMSEPP, 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 £2m (2012 less than £1m) was
made by the Group during the year. Following the State Aid clearance granted on 21 March 2012 and the sub sequent transfer of the
historical pension deficit to HM Government on 1 April 2012 no RMPP deficit payment was made during 2011-12 or 2012-13. For
RMSEPP, deficit recovery payments will be £1m per annum, from 1 April 2010 to 31 January 2024.
A current liability of £nil (2012 £nil) has been recognised for payments to the pension schemes relating to redundancy. During the year,
payments of £2m (2012 £3m) 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 is large in the context of the Group and its finances, is materially sensitive to the
assumptions adopted. Small changes in these assumptions could have a significant impact on the surplus and overall income statement
charge. The major long-term assumptions were:
At 31 March 2013 = At 25 March 2012 At 28 March 2011
hpa %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 all members 33 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 23 28
Discount rate 48 54 5.5
Inflation assumption (RPI) 33 33 35
Inflation assumption (CPI) 23 23 28
Expected average rate of retum on assets ola 59 65
In June 2010, the Government announced that it was intending to change the inflation measure used to determine statutory mini mum
indexation in deferment and in payment from RPI to CPI from April 2014. Where relevant, the in flation assumption has changed from RPI
to CPI
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 retum 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 change in IAS 19
that will be implemented with effect from 1 April 2013 means that the expected average rate of return on assets is no longer required.
The following table shows the potential impact on the RMPP assets and pension surplus of changes in key assumptions:
£m
Changes in RPI and CPI inflation of +0.1% pa (4)
Changes in discount rate of +0.1%pa 4
Changes in real salary growth of +0.1% pa (6)
Changes in CPI assumptions of +0.1% pa (1)
An additional 1 year life expectancy (4)
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Mortality
The mortality assumptions for the RMPP sectionalised scheme are based on the latest self administered 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 1.25% floor. These are detailed below:
Average expected life expectancy from age 60: 2013 2012 2011
For a current 60 year old male RMPP member 26 years 26 years 26 years
For a current 60 year old female RMPP member 29 years 29 years 29 years
For a current 40 year old male RMPP member 29 years 29 years 29 years
For a current 40 year old female RMPP member. 32 years 32 years 32 years
b) Plans’ assets and expected rates of return
The assets in the plans and the expected rates of return for the Group were:
Market value 2013 Long-term expected rate
Sectionalised RMPP £m of return 2013 % pa
Equities 29 na
Bonds 205 nla
Property - nla
Other assets 9 nla
Fair value of RMPP assets 243
Present value of RMPP liabilities (144)
Surplus in plan 99
Market value 2013 Long term expected
Share of RMSEPP £m__rate of return 2013 % pa
Equities 146 nia
Bonds 193 nla
Property 19 nia
Other assets 3 nla
Fair value of plan assets for RMSEPP 361
Present value of plan liabilities for RMSEPP (347)
Surplus in plan for RMSEPP 14
Surplus in plan for the POL share
(at approximately 7%) of RMSEPP Fa
A retirement benefit surplus of £97m is disclosed on the balance sheet, representing the surplus in plans of £99m and £1m for RMPP
and RMSEPP respectively, and net of tax of £3m at a rate of 35% on the element of the surplus which is recoverable through a refund
from the plans.
Market value Market value Long term expected Long term expected
2012 2011 rate of return 2012 rate of return 2011
Combined plans £m £m %pa %pa
Equities 3,385 4,268 77 8.2
Bonds 25,610 21,409 57 6.2
Property 1,417 1,590 68 65
Other assets 333 418 34 42
Fair value of plans’ assets for the combined plans 30,745 27,685
Present value of plans’ liabilities for the
combined plans (33,667) (32,186)
Deficit in schemes for the combined plans (2,922) (4,501)
Deficit in schemes for _—_—_ share
(at approximately 7%) of combined plans (206) (316)
There is no element of the above present value of liabilities that arises from plans that are wholly unfunded.
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c) Movement in plans’ assets and liabilities
Changes in the fair value of the plans’ assets are analysed as follows:
Assets Sectionalised
RMPP 2013 £m
Assets in sectionalised 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 retum) 11
Actuarial gains (additional increases in market values) 43
Benefits paid to members (2)
Assets in sectionalised RMPP at end of period 240
Assets Share of
RMSEPP 2013
£m
Share of assets in RMSEPP at beginning of period 2
Contributions paid 2
Movement in contributions accrued -
Employee contributions paid -
Finance income (expected rate of return) 1
Actuarial gains (additional increases in market values) 1
Benefits paid to members -
Share of assets in RMSEPP at end of period 25
Assets combined plans 2012 2011
£m £m.
Share of assets in combined plans at beginning of period 1,923 1,797
Contributions paid 26 46
Movement in contributions accrued (3) 2
Employee contributions paid 10 a1
Finance income (expected rate of retum) 124 120
Actuarial gains (additional increases in market values) 131 33
Benefits paid to members (82) (86)
Share of assets in combined plans at end of period 2,129 1,923
Changes in the present value of the defined benefit pension obligations are analysed as follow:
Liabilities Sectionalised
RMPP 2013
£m
Liabilities in sectionalised RMPP at beginning of period (2,313)
Transfer of pension liabilities to government 2,239
Current service cost (24)
Curtailment costs* (2)
Finance cost (9)
Employee contributions (8)
Actuarial loss (recognised in statement of comprehensive income) (29)
Benefits paid 2
Liabilities in sectionalised RMPP at end of period (144)
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Liabilities Share of
RMSEPP 2013
£m
Share of liabilities in RMSEPP plans at beginning of period (22)
Current service cost -
Curtailment costs* -
Finance cost (1)
Employee contributions -
Actuarial gain/(loss) (recognised in statement of comprehensive income) (a)
Benefits paid -
Share of liabilities in RMSEPP at end of period (24)
Liabilities combined plans 2012 2011
£m £m
Share of liabilities in combined plans at beginning of period (2,239) (2,364)
Current service cost (23) (25)
Curtailment costs* > (3)
Finance cost (122) (132)
Employee contributions (10) (11)
Actuarial gain/(loss) (recognised in statement of comprehensive income) (23) 207
Benefits paid 82 86
Share of liabilities in combined plans at end of period (2,335) (2,239)
*The curtailment costs in the profit 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 curtailment costs above represent the costs
associated with those people paid compensation in respect of redundancy during the accounting period. Such payments may occur in an
accounting period subsequent to the recognition of costs in the income statement.
d) History of experience gains and losses
The cumulative amount of actuarial gains and losses recognised since transition to IFRS as adopted by the European Union at 26 March
2012 in the consolidated statement of comprehensive income is a gain of £14m,
Sectionalised Share of
RMPP___ RMSEPP 7% share of combined plans
2013 2013-2012 2011 2010 2009
£m £m £m £m £m £m
Fair value of assets 243 25 2,168 1.944 1,811 1.407
Present value of liabilities (isa) (24) (2.374) (2260) __ (2375) (2,882)
Surplus/(Deficit) in schemes 2 1 (206) (316)___(564) (475)
Experience adjustment on assets 46 1 131 33 313 (384)
Experience adjustment on liabilities (20) : : (a) 47 (a)
2013 2013 2012 2011 2010 2009
x % % % % %
Experience adjustment on assets as a % of
scheme assets 18.9 55 64 17 174 (27.3)
Experience adjustment on liabilities as a % of
scheme liabilities (13.9) 14 0.0 0.0 (2.0) 01
Deficit in the scheme as a % of scheme
liabilities : = 88 144 23.9 253
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e) Recognised charges
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An analysis of the separate components of the amounts recognised in the performance statements of the Group is 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 24
Total charge to operating profit before exceptional items
Analysis of amounts charged to operating exceptional items:
Loss due to curtailments (within provision - note 16) 2
Total charge to operating profit 26
Analysis of amounts charged/(credited) to net pensions interest:
Interest on plan liabilities 9
Expected return on plan assets (14)
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 comprehensive income
Transfer of pension liabilities to government 2,239
Transfer of pension assets to government (1,953)
Gain on transfer to government 286
Actual return on plan assets 57
Less: expected return on plan assets (11)
Less: taxation on surplus recoverable through plan refunds (3)
Actuarial gains on assets (all experience adjustments) 43
Experience adjustments on liabilities (20)
Effects of changes in actuarial assumptions on liabilities (9)
Actuarial losses on liabilities (29)
Total actuarial gains recognised in the statement of comprehensi 300
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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 a
Total charge to operating profit before exceptional items
Analysis of amounts charged to operating exceptional items:
Loss due to curtailments (within provision for organisational review - note 16) -
Total charge to operating profit a
Analysis of amounts charged/(credited) to net pensions interest:
Interest on plan liabilities 16
Expected return on plan assets (18)
Net pensions interest (2)
Share of net pensions interest (at approximately 7%) -
Net charge to the income statement 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 38
Less: expected return on plan (18)
Actuarial gains on assets (all experience adjustments) 20
Experience adjustments on liabilities 5
Effects of changes in actuarial assumptions on liabilities (23)
Actuarial losses on liabilities (18)
Total actuarial gains recognised in statement of comprehensive income in the Royal Mail
Holdings Group financial statements 2
Share of actuarial gains/(losses) recognised in statement of comprehensive income (at
approximately 7%)
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Combined plans 2012 2011
£m £m.
Analysis of amounts recognised in the income statement
Analysis of amounts charged to operating profit before exceptional items:
Current service cost 23 25
Total charge to operating profit before exceptional items 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’ liabilities for the combined plans 1,749 1,881
Expected return on plans’ assets for the combined plans (4,775) (4,714)
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 3,644 2.184
Less: expected return on plans’ assets for the combined plans (1,775) (1,714)
‘Actuarial gains on assets for the combined plans (all experience adjustments) 1,869 470
Experience adjustments on liabilities for the combined plans (5) (8)
Effects of changes in actuarial assumptions on liabilities for the combined plans (320) 2,962
Actuarial (losses)/ gains on liabilities for the combined plans (325) 2,954
Total actuarial gains recognised in statement of comprehensive income in the Royal
Mail Holdings Group financial statements 1,544 3.424
Share of actuarial gains/(losses) recognised in statement of comprehensive
income (at approximately 7%) 108 240
20. Called up share capital
2013 2012 2011
£ E, £
Authorised
Ordinary shares of £1 each 51,000 51,000 51,000
Total 51,000 51,000 51,000
Allotted and issued
Ordinary shares of £1 each 50,003 50,003 50,003
Total 50,003 50,003 50,003
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21. Commitments
Capital commitments contracted for but not provided in the financial statements amount to £48m (2012 £15m).
The Group is committed to the following minimum lease payments under non-cancellable operating leases:
Land and buildings IT equipment
2013 2012 2011 2013 2012 2011
£m £m £m. £m £m £m
Within one year 16 16 16 15 16 16
Between one and five years 42 44 43 - - -
Beyond five years 38 43 45 4 5 e
Total 96 103 104 15 16 16
22. Finance lease liabilities
2013 2012 2011
Present value Present value Present value
of minimum of minimum. of minimum
Minimum lease Minimum lease Minimum lease
payments payments payments payments payments payments
£m £m £m £m, £m. £m
Within one year 4 3 4 4 4 4
Between one and five years 4 4 8 6 12 9
Beyond five years - - = : : =
Total minimum lease
payments 8 7 12 10 16 13
Less amounts __ representing
finance charges (a) = (2) = (3) 7
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 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 is 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 restrictions concerning dividends, borrowings or additional leases. The leases have an average term of six years
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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 Limited during the year: The Group's 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.
Related party transactions
During the year the Group entered into transactions with the following 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 follows:
Amounts Amounts
Sales/recharges Purchases/ owed from related owed to related
to recharges from party including party including
related party related party outstanding loans outstanding loans
2013 «20122011 Ss 2013) 2012-2011) 2013) «2012 «2011 «2013 = 2012 2011
fm fm fm Em Em Em Em Em fm sm Em Em
Royal Mail Group Limited 371 359 346 37 33 35 - - - 4 8 11
Camelot Group plc - - 10 - - - - - - - - -
Romec Limited - - - 8 8 8 - - - 2 1 1
Midasgrange Limited 350d 30 1 1 3 - 4% 10 - al -
First Rate Exchange
Services Holdings
Limited 273 30.125 128132 7 3 9 14 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 Limited is a subsidiary company of the Group’s parent company, Royal
Mail Holdings plc. Camelot Group plc was an associate within the Royal Mail Holdings Group but was disposed of in 2010-11. 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 arm's length basis. Transactions with these entities are not disclosed owing to
the significant volume of transactions that are conducted.
Separately:
the Group has certain loan facilities with Government (note 15);
almost all of the pension assets and liabilities of the Royal Mail Pension Plan to Government (note 19);
« the Group has received a Government Grant of £200m, £98m of which was recognised through the income statement (note 5)
and £102m of which is deferred income within trade and other payables (note 14); 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
Committee at 31 March 2013. The aggregate remuneration of the key management personnel of the Post Office Group is set out below:
2013 2012
£000 £000
Short-term employee benefits 3,568 3,077
Post-employment benefits 119 232
Other long-term benefits 654 -
Termination benefits - :
Total 4,338 3,309
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24. 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 £415m of funding on 2 April 2013
25. Immediate and ultimate parent company
At 31 March 2013, the Directors regarded Royal Mail Holdings ple as the immediate and ultimate parent company. The largest group to
consolidate the results of the company is Royal Mail Group Holdings plc, a company registered in the United Kingdom. Royal Mail Group
Holdings plc financial statements can be obtained from the company website, www.royalmailgroup.com
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Parent Company Financial Statements
2012-2013
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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 34March 2013 which
comprise the company balance sheet, the company statement of total recognised gains and losses, the company reconciliation of movements
in shareholder's and the related notes 1 to 14. The financial reporting framework that has been applied in their preparation is applicable law
and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an
auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other
than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As explained more fully in the Directors’ Responsibilities Statement set out on pageX, 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. Qur responsibility is to audit and express an
opinion on the parent company financial statements in accordance with applicable law and International Standards on Auditing(UK and
Ireland). Those standards require us to comply with the Auditing Practices Board's 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 reasorable assurance
that the financial staternents are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
whether the accounting policies are appropriate to the parent company's circumstances and have been consistently applied and adequately
disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of thefinancial
statements, In addition, we read all the financial and non-financial information in the annual report to identify material 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 parent company financial statements:
give a true and fair view of the state of the companys affairs as at 311 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 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 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 if, n our opinion:
© adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been receival
from branches not visited by us; or
© the parent company financial statements are not in agreement with the accounting records and returns: or
* certain disclosures of directors’ remuneration specified by law are not made; or
© we have not received all the information and explanations we require for our audit.
Other matter
We have reported separately on the consolidated financial statements of Post Office Limited for the 53-week period ended 31 March 2013.
Ernst & Young LLP
Angus Grant (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
4, The maintenance and integrity of the Post Office Limited's web site is the responsibility of the directors; the work carried out by the
auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have
occurred to the financial statements since they were initially presented on the web site.
2. Legislation in the United Kingdom governing the preparation and dissemination of financial staternents may differ from legslation in other
jurisdictions.
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Balance sheet of the company
at 31 March 2013 and 25 March 2012
2013 2012
Notes £m £m
Intangible assets 2 - -
Tangible assets 3 11 11
Investments in joint ventures and associates 4 1 5
Retirement benefit surplus 12 97 =
Total fixed assets 109 16
Current assets
Stocks 8 6
Debtors - receivable within one year 5 362 226
Financial assets - investments 6 92 62
Financial assets - derivatives 1 4
Cash at bank and in hand 7 879 758
1,342 1052
Current liabilities
Creditors - amounts falling due within one year 8 (901) (587)
Financial liabilities - interest bearing loans and borrowings 9 (291) (377)
Net current assets 150 88
Total assets less current liabilities 259 104
Creditors - amounts falling due after more than one year 10 (4) (8)
Provisions for liabilities a4 (26) (14)
Retirement benefit obligation 12 - (206)
Net assets/(liabilities) 229 (124)
Capital and reserves
Called up share capital 13 - -
Share premium 14 465 465
Profit and loss account 14 (236) (589)
Shareholder’s surplus/(deficit) 229 (124)
The financial statements on pages XX to XX were approved by the Board of Directors on XXX 2013 and signed on its behalf by:
P A Vennells
Chief Executive
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Statement of total recognised gains and losses
for the 53 weeks ended 31 March 2013 and the 52 weeks ended 25 March 2012
2013 2012
Notes £m £m
Profit for the financial year 14 1% 37
Actuarial gains on defined benefit pension schemes 12 14 108
Taxation on items taken directly to equity (24) =
Total recognised gains for the financial year 14 67 145
There is no statement of historical cost profits and losses as the financial statements are produced under the historic cost
accounting convention.
Reconciliation of movements in shareholder’s funds
for the year ended 31 March 2013 and 25 March 2012
2013 2012
Notes, £m £m
Opening shareholder's deficit 14 (124) (269)
Total recognised gains for the financial year (see above) 67 145
Transfer of pension deficit to government 286 -
Closing shareholder’s surplus/ (deficit) 229 (124)
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Notes to the 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 (2012 52 weeks ended 25 March 2012).
Basis of preparation
The financial statements on pages XX to XX have been prepared in accordance with applicable UK Accounting Standards and law,
including the requirements of the Companies Act 2006. Unless otherwise 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 Companies Act 2006 Post Office Limited has not presented its own profit and loss account. The result
dealt with in the accounts of the company amounted to £74m profit (2012 £37m profit).
No cash flow statement has been presented as the Company is part of the Post Office Limited Group which has presented a consolidated
cash flow statement within its Group financial statements.
The company has taken advantage of the exemption conferred by FRS 29 not to disclose financial instrument information as the
Company is part of the Post Office Limited Group which has presented such disclosures in its Group financial statements.
Changes in accounting policy
The accounting policies are consistent with those of the previous year.
Intangible fixed assets
Intangible assets acquired separately or generated internally are initially recognised at cost and are reviewed for impairment. An
impairment loss is recognised in the profit and loss account for the amount by which the carrying value of the asset exceeds its
recoverable amount, which is the higher of an asset's net realisable value and its value in use.
Amortisation of intangible assets with finite lives is charged annually to the income statement on a straight-line basis as follows.
Software 1 to 6 years
Tangible fixed assets
Tangible fixed assets are recognised at cost, including attributable costs in bringing the asset into working condition for its intended use.
Depreciation of tangible fixed assets is provided on a straight-line basis by reference to net book value and to the remaining useful
economic lives of assets and their estimated residual values. The lives assigned to major categories of tangible fixed assets are:
Range of asset lives
Land and buildings:
Freehold land Not depreciated
Freehold buildings Up to 50 years
Leasehold buildings 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
Impairment reviews
Unless otherwise disclosed in these accounting policies, fixed assets are reviewed for impairment if 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 is 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, which is the higher of an asset's net realisable value and its value in use.
Leases
Finance leases, where substantially all the risks and rewards incidental to ownership of the leased item have passed to the Company are
capitalised at the inception of the lease with a corresponding liability recognised for the fair value of the le ased 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
liability so as to achieve a constant rate of interest on the remaining balance of the liability.
Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term
Leases where substantially all the risks and rewards of ownership of the asset are retained by the lessor, are classified as operating leases
and rentals are charged to the profit and loss account over the lease term. The aggregate benefit of incentives are recognise d as a
reduction of rental expenses over the lease term on a straight-line basis.
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Investments in joint ventures and associates
Investments in joint ventures and associates within the Company's financial statements are stated at cost less any accumulate d
impairment losses.
Investments in subsidiaries
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 Company's investment in Post Office Management Services Limited, a 100% subsidiary of the Company
and is less than £1m.
Stocks
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 is generally provided in full on timing differences at the balance sheet date, at rates expected to apply when the tax liability
(or asset) crystallises based on substantively enacted tax rates and law. Timing differences arise from the inclusion of item s of income and
expenditure in taxation computations in periods different from those in which they are included in the financial statements.
Deferred tax is not recognised in the following instances:
- _ on gains on disposal of fixed assets where, on the basis of available evidence, it is more likely than not that the taxable gain will be
rolled over into replacement assets and charged to tax 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 is more likely than not that there will be
suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.
Deferred tax assets and liabilities are not discounted. Deferred tax is charged or credited directly to reserves if it relates to items that are
credited or charged directly to reserves. Otherwise it is recognised in the profit and loss account.
Pensions and other post-retirement benefits
People working for the Company were employed by Royal Mail Group Limited and seconded to the Company until 31 March 2012. On 1
April 2012 they were transferred to be directly employed by the Company. Membership of occupational pension schemes is open to most
permanent UK employees of the Company. All members of defined benefit schemes are contracted out of the eamings related part of the
State pension scheme.
The pension plans’ assets of the defined benefit schemes are measured at fair value. Liabilities are measured on an actuarial basis using
the projected unit credit method and discounted at a rate equivalent to the current rate of return on a high quality corporate bond of
equivalent currency and term. The resulting defined benefit asset or liability is presented separately on the face of the balance sheet, 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
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 is 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 (STRGL).
Any deferred tax movement associated with the actuarial gains and losses is also recognised in the STRGL.
For defined contribution schemes, the Company's contributions 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 is sterling (£).
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction (or at the contracted rate if the
transaction is covered by a forward foreign currency contract). Monetary assets and liabilities denominated in foreign currencies are
retranslated at the rate of exchange ruling at the balance sheet date (or the appropriate forward contract rate). All differences are taken
to the profit and loss account.
Debtors
Debtors are recognised and carried at original invoice amount less an allowance for any non-collectable amounts. An estimate for
doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified.
Financial 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 meth od. Gains
and losses are recognised in the profit and loss account when the investments are derecognised or impaired, as well as through the
amortisation process.
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1. Accounting Policies (continued)
ancial liabilities ferest-bearing loans and borrowings
All loans and borrowings are classified as financial liabilities measured at amortised cost. Borrowing costs are recognised as an expense
when incurred.
Financial lial s - obligations under finance lease and hire purchase contracts
All obligations under finance lease and hire purchase contracts are classified as financial liabilities measured at amortised cost.
Borrowing costs
Borrowing costs are recognised as an expense when incurred unless they are directly attributable to the construction or devel opment 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 is determined by reference to bid prices at the close of business on the balance sheet d ate. Where
there is no active market, fair value is determined using valuation techniques. These include using recent arm's length market
transactions; reference to the current market value of another instrument which is substantially the same; and discounted cas h 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 finan cial instrument using quoted equivalent interest rates as
at close of business on the balance sheet date.
Derecognition of financial instruments
A financial asset or liability is derecognised when the contract that gives rise to it is settled, sold, cancelled or expires.
Government grants
Government grants of a revenue nature are recognised to match costs in relation to the performance of certain specified activ ities.
2. Intangible assets
2013 2012
Cost £m £m
At 26 March 2012 and 28 March 2011 183 166
Additions 25 a7
Disposals e “
At 31 March 2013 and 25 March 2012 208 183
Amortisation and impairment
At 26 March 2012 and 28 March 2011 183 166
Impairment 25 a7
At 31 March 2013 and 25 March 2012 208 183
Net book value
At 31 March 2013 and 25 March 2012 S Bp
The above intangible assets relate to software.
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3. Tangible fixed assets
Land and Buildings
Plant Fixtures
Long Short Motor and and
Freehold leasehold leasehold vehicles machinery equipment Total
£m £m £m £m £m £m £m
Cost
At 26 March 2012 79 a7 114 34 1 709 954
Reclassification “ 1 (a) - - - -
Additions 9 ~ 1 9 ~ 22 41
Disposals - external ie) = - (a = (12) (14)
At 31 March 2013 87 18 114 42 1 719 981
Depreciation
At 26 March 2012 69 16 114 34 1 709 943
Depreciation 3 7 3 3 7 7 7
Impairment (see note 5) Ly 1, - 9 - 22 41
Disposals - external (2) - = (0) - (12) (14)
At 31 March 2013 7 17 114 42 1 719 970
Net book value
At 31 March 2013 10 1 = = = = 11
At 26 March 2012 10 1 = EI = ns 11
Depreciation rates are disclosed within accounting policies (note 1). No depreciation is provided on freehold land, which represents £3m
(2012 £3m) of the total cost of properties
4. Investments in joint ventures and associates
2013 2012
£m £m
Investment in joint ventures and associates a 5
Joint ventures
During 2012-13 and 2011-12, the Company's only joint venture investment was a 50% interest (1,000 £1 ordinary A shares) in First
Rate Exchange Services Holdings Limited with a carrying value of £0.6m (2012 £0.6m), whose principal activity is the provision of Bureau
de Change. First Rate Exchange Services Holdings Limited is a company registered in the United Kingdom.
Associates
During 2011-12, 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 £4.6m (2011 £4.6m), whose principal activity is the provision of personal financial products. This
investment was disposed of during the year ended 31 March 2013.
5. Debtors - receivable within one year
2013 2012
£m £m
Trade debtors 32 39
Prepayments and accrued income 84 39
Client debtors 240 138
Other receivables 9 10
Total 362 226
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6. Current financial assets - investments
2013 2012
£m £m
Money market funds 86 43
Short-term deposits - bank 6 19
Total 92 62
7. Cash at bank and in hand
2013 2012
£m £m
Cash in the Post Office Limited network 879 758
8. Creditors - amounts falling due within one year
2013 2012
£m £m
Trade creditors and accruals 178 172
Advance customer payments 50 48
Social security 10 9
Client creditors 528 332
Obligations under finance lease and hire purchase contracts 3 4
Amount due to other group companies 5 9
Capital creditors 18 10
Business transformation payments 7 3
Government Grant 102 0
Total 904 587
9. Financial liabilities - interest bearing loans and borrowings
Analysis of loans and committed facilities:
2013 2012
£m £m
Loans drawn down 294 377
Total facility 1,150 1,150
The loans under the facility are short dated on a programme of liquidity management and mature on average 1 day after the year end
(2012 1 day). On maturity it is expected that further loans will be drawn down under this facility, which expires in 2016. The undrawn
committed facility, in respect of which all conditions precedent had been met at the balance sheet date is £859m (2012 £773m,) The
average interest rate on the drawn down loans is 1.0% (2012 0.82).
The facility is currently restricted to funding the cash and near cash items held within the Post Office Limited network.
The facility (including drawn down loans) is 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 is an agreement not to grant security over the assets or to set up a vehicle that has the
same effect.
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10. Creditors - amounts falling due after more than one year
2013 2012
£m £m
Obligations under finance lease and hire purchase contracts 4 6
Other payables - 2
Total 4 8
11. Provisions for liabilities
Crown
Conversions Network
Project Transformation Other Total
£m £m £m £m
At 26 March 2012 9 - 5 14
Charged in operating exceptional items - aa 12 22
Charged in operating costs ~ 6 6
Charged in financing costs 4 - - 1
Utilisation (3) - (14) (a7)
At 31 March 2013 7 10 9 26
Other provisions of £9m (2012 £5m) include property contracts, comprising 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
utilised within 5 years.
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12. Pensions
On 4 April 2012, almost all of the pension assets and liabilities 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 employees were transferred to be directly employed by Post Office Limited on the same date.
Royal Mail Group Limited is the principal employer in 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 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 liable 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 Limited recognised a balance sheet deficit based on employee numbers over 12 years and represented approximately 7% of
the total balance sheet deficit at that time. The net pensions interest, deficit recovery payments and actuarial gains or los ses were also
allocated on this basis, giving the Post Office Limited approximately 7% of the total balance sheet deficit at the balance sheet date. The
current 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
The disclosures in this note relating to the year ended 31 March 2013 reflect the Post Office Limited sectionalised RMPP scheme which is
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 relate to the year ending 31 March 2013 and show how the value of the assets and liabilities have been
calculated at 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 senior executives Defined benefit
Royal 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
£41m (2012 £1m) 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 31 March 2009 using the projected unit method. For RMPP, this valuation was
concluded at £10.3bn deficit. For RMSEPP, the valuation was concluded at £100m deficit. RMPP includes sections A, B and C each with
different terms and conditions:
© — Section A is for members (or beneficiaries of members) who joined before 1 December 1971;
* — Section B is for members (or beneficiaries of members) who joined after 1 December 1971 and before 1 April 1987 or to
members of Section A who chose to receive Section B benefits;
* Section C is 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 34 March 2008;
© all pensions and benefits earned before 1 April 2008 are still linked to final salary at the time of retirement;
© from 4 April 2008, defined benefits building up for employee members of the Plan are earned on a career salary basis;
employees can continue to take their pension on reaching 60 but the normal retirement age increased to 65 for benefits
earned from 1 April 2010; and
«from 4 April 2010 it is possible to draw pension earned before the change to normal retirement age at 55, and continue
working while still contributing to the Pension Plan until the maximum level of benefits has been reached.
* on 31 December 2012 RMSEPP was closed.
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Payment of £24m (2012 £23m) was made by the Company during the year in respect of regular future service contributions, nearly all
relating to RMPP. The regular future service contributions for RMPP, expressed as a percentage of pensionable pay, has remained at
17.1% (2012 17.1%), effective from April 2010. This rate is not expected to change materially during 2013-14. For RMSEPP, these
contributions have remained at 35.9% (2012 35.9%) until its closure.
The Company pays 7% of the total deficit payment required to fund the deficit in RMSEPP and a payment of £2m (2012 less than £1m)
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 1 April 2012 no RMPP deficit payment was made during 2011-12 or 2012-13. For
RMSEPP, deficit recovery payments will be £1m per annum, from 1 April 2010 to 31 January 2024.
A current liability of £nil (2012 £nil) has been recognised for payments to the pension schemes relating to redundancy. During the year,
payments of £2m (2012 £3m) 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:
b) Major long-term assumptions
The size of the RMPP pension surplus, which is large in the context of the Company and its finances, is materially sensitive to the
assumptions adopted. Small changes in these assumptions could have a significant impact on the surplus and overall income statement
charge. The major long-term assumptions were:
At 31 March 2013 = At 25 March 2012 At 28 March 2011
hpa %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 all members 33 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 23 28
Discount rate 48 54 5.5
Inflation assumption (RPI) 33 33 35
Inflation assumption (CPI) 23 23 28
Expected average rate of return on assets ola 59 65
In June 2010, the Government announced that it was intending to change the inflation measure used to determine statutory mini mum
indexation in deferment and in payment from RPI to CPI from April 2011. Where relevant, the inflation assumption has changed from RPI
to CPI
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 retum 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 change in IAS 19
that will be implemented with effect from 1 April 2013 means that the expected average rate of return on assets is no longer required.
The following table shows the potential impact on the RMPP assets and pension surplus of changes in key assumptions:
£m
Changes in RPI and CPI inflation of +0.1% pa (4)
Changes in discount rate of +0.1%pa 4
Changes in real salary growth of +0.1% pa (6)
Changes in CPI assumptions of +0.1% pa (1)
An additional 1 year life expectancy (4)
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Mortality
The mortality assumptions for the RMPP sectionalised scheme are based on the latest self administered 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 1.25% floor. These are detailed below:
Average expected life expectancy from age 60: 2013 2012 2011
For a current 60 year old male RMPP member 26 years 26 years 26 years
For a current 60 year old female RMPP member 29 years 29 years 29 years
For a current 40 year old male RMPP member 29 years 29 years 29 years
For a current 40 year old female RMPP member 32 years 32 years 32 years
b) Plans’ assets and expected rates of return
The assets in the plans and the expected rates of return for the Company were:
Market value 2013 Long-term expected rate
Sectionalised RMPP £m of return 2013 % pa
Equities 29 na
Bonds 205 nla
Property - nla
Other assets 9 nla
Fair value of RMPP assets 243
Present value of RMPP liabilities (144)
Surplus in plan 99
Market value 2013 Long term expected
Share of RMSEPP £m__rate of return 2013 % pa
Equities 146 nia
Bonds 193 nla
Property 19 nia
Other assets 3 nla
Fair value of plan assets for RMSEPP 361
Present value of plan liabilities for RMSEPP (347)
Surplus in plan for RMSEPP 14
Surplus in plan for the POL share
(at approximately 7%) of RMSEPP Fa
A retirement benefit surplus of £97m is disclosed on the balance sheet, representing the surplus in plans of £99m and £1m for RMPP
and RMSEPP respectively, and net of tax of £3m at a rate of 35% on the element of the surplus which is recoverable through a refund
from the plans.
Market value Market value Long term expected Long term expected
2012 2011 rate of return 2012 rate of return 2011
Combined plans £m £m %pa %pa
Equities 3,385 4,268 77 8.2
Bonds 25,610 21,409 57 6.2
Property 1,417 1,590 68 65
Other assets 333 418 34 42
Fair value of plans’ assets for the combined plans 30,745 27,685
Present value of plans’ liabilities for the
combined plans (33,667) (32,186)
Deficit in schemes for the combined plans (2,922) (4,501)
Deficit in schemes for_~— share
(at approximately 7%) of combined plans (206) (316)
There is no element of the above present value of liabilities that arises from plans that are wholly unfunded.
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c) Movement in plans’ assets and liabilities
Changes in the fair value of the plans’ assets are analysed as follows:
Assets Sectionalised
RMPP 2013 £m
Assets in sectionalised 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 retum) 11
Actuarial gains (additional increases in market values) 43
Benefits paid to members (2)
Assets in sectionalised RMPP at end of period 240
Assets Share of
RMSEPP 2013
£m
Share of assets in RMSEPP at beginning of period 2
Contributions paid 2
Movement in contributions accrued -
Employee contributions paid -
Finance income (expected rate of return) 1
Actuarial gains (additional increases in market values) 1
Benefits paid to members -
Share of assets in RMSEPP at end of period 25
Assets combined plans 2012 2011
£m £m.
Share of assets in combined plans at beginning of period 1,923 1,797
Contributions paid 26 46
Movement in contributions accrued (3) 2
Employee contributions paid 10 a1
Finance income (expected rate of return) 124 120
Actuarial gains (additional increases in market values) 131 33
Benefits paid to members (82) (86)
Share of assets in combined plans at end of period 2.129 1,923
Changes in the present value of the defined benefit pension obligations are analysed as follo
Liabilities Sectionalised
RMPP 2013
£m
Liabilities in sectionalised RMPP at beginning of period (2,313)
Transfer of pension liabilities to government 2,239
Current service cost (24)
Curtailment costs* (2)
Finance cost (9)
Employee contributions (8)
Actuarial loss (recognised in statement of comprehensive income) (29)
Benefits paid 2
Liabilities in sectionalised RMPP at end of period (144)
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Liabilities Share of
RMSEPP 2013
£m
Share of liabilities in RMSEPP plans at beginning of period (22)
Current service cost -
Curtailment costs* -
Finance cost (1)
Employee contributions -
Actuarial gain/(loss) (recognised in statement of comprehensive income) (a)
Benefits paid -
Share of liabilities in RMSEPP at end of period (24)
Liabilities combined plans 2012 2011
£m £m
Share of liabilities in combined plans at beginning of period (2,239) (2,361)
Current service cost (23) (25)
Curtailment costs* > (3)
Finance cost (122) (132)
Employee contributions (10) (11)
Actuarial gain/(loss) (recognised in statement of comprehensive income) (23) 207
Benefits paid 82 86
Share of liabilities in combined plans at end of period (2,335) (2,239)
*The curtailment costs in the profit 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 curtailment costs above represent the costs
associated with those people paid compensation in respect of redundancy during the accounting period. Such payments may occur in an
accounting period subsequent to the recognition of costs in the income statement.
d) History of experience gains and losses
The cumulative amount of actuarial gains and losses recognised since transition to IFRS as adopted by the European Union at 26 March
2012 in the consolidated statement of comprehensive income is a gain of £14m,
Sectionalised Share of
RMPP___RMSEPP 7% share of combined plans
2013 2013-2012 2011 2010 2009
£m £m £m £m £m £m
Fair value of assets 243 25 2,168 1.944 1,811 1.407
Present value of liabilities (isa) (24) (2.374) (2260) __ (2375) (2,882)
Surplus/(Deficit) in schemes 2 1 (206) (316)___(564) (475)
Experience adjustment on assets 46 1 131 33 313 (384)
Experience adjustment on liabilities (20) : : (a) 47 (a)
2013 2013 2012 2011 2010 2009
x % % % % %
Experience adjustment on assets as a % of
scheme assets 18.9 55 64 17 174 (27.3)
Experience adjustment on liabilities as a % of
scheme liabilities (13.9) 14 0.0 0.0 (2.0) 01
Deficit in the scheme as a % of scheme
liabilities : = 88 144 23.9 253
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e) Recognised charges
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An analysis of the separate components of the amounts recognised in the performance statements of the Company is 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 24
Total charge to operating profit before exceptional items
Analysis of amounts charged to operating exceptional items:
Loss due to curtailments (within provision - note 11) 2
Total charge to operating profit 26
Analysis of amounts charged/(credited) to net pensions interest:
Interest on plan liabilities 9
Expected return on plan assets (14)
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 comprehensive income
Transfer of pension liabilities to government 2,239
Transfer of pension assets to government (1,953)
Gain on transfer to government 286
Actual return on plan assets 57
Less: expected return on plan assets (11)
Less: taxation on surplus recoverable through plan refunds (3)
Actuarial gains on assets (all experience adjustments) 43
Experience adjustments on liabilities (20)
Effects of changes in actuarial assumptions on liabilities (9)
Actuarial losses on liabilities (29)
Total actuarial gains recognised in the statement of comprehensi 300
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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 a
Total charge to operating profit before exceptional items
Analysis of amounts charged to operating exceptional items:
Loss due to curtailments (within provision for organisational review - note 11) -
Total charge to operating profit a
Analysis of amounts charged/(credited) to net pensions interest:
Interest on plan liabilities 16
Expected return on plan assets (18)
Net pensions interest (2)
Share of net pensions interest (at approximately 7%) -
Net charge to the income statement 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 38
Less: expected return on plan (18)
Actuarial gains on assets (all experience adjustments) 20
Experience adjustments on liabilities 5
Effects of changes in actuarial assumptions on liabilities (23)
Actuarial losses on liabilities (18)
Total actuarial gains recognised in statement of comprehensive income in the Royal Mail
Holdings Group financial statements 2
Share of actuarial gains/(losses) recognised in statement of comprehensive income (at
approximately 7%)
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Combined plans 2012 2011
£m £m.
Analysis of amounts recognised in the income statement
Analysis of amounts charged to operating profit before exceptional items:
Current service cost 23 25
Total charge to operating profit before exceptional items 23 25
Analysis of amounts charged to operating exceptional items:
Loss due to curtailments (within provision for organisational review - note 11) - 2
Total charge to operating profit 23 27
Analysis of amounts charged/(credited) to net pensions interest:
Interest on plans’ liabilities for the combined plans 1,749 1,881
Expected return on plans’ assets for the combined plans (4,775) (4,714)
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 3,644 2.184
Less: expected return on plans’ assets for the combined plans (1,775) (1,714)
Actuarial gains on assets for the combined plans (all experience adjustments) 1,869 470
Experience adjustments on liabilities for the combined plans (5) (8)
Effects of changes in actuarial assumptions on liabilities for the combined plans (320) 2,962
‘Actuarial (losses)/ gains on liabilities for the combined plans (325) 2,954
Total actuarial gains recognised in statement of comprehensive income in the Royal
Mail Holdings Group financial statements 1,544 3.424
Share of actuarial gains/(losses) recognised in statement of comprehensive
income (at approximately 7%) 108 240
13. Called up share capital
2013 2012
£ £
Authorised
Ordinary shares of £1 each 51,000 51,000
Total 51,000 51,000
Allotted and issued
Ordinary shares of £1 each 50,003 50,003
Total 50,003 50,003
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14. Reserves
Share Retained 2013
premium earnings _—‘Total
£m £m £m
Balance at 26 March 2012 465 (589) (124)
Profit for the financial year - 7h Th
Actuarial gains on defined benefit pension schemes - 14 14
Taxation on items taken directly to equity - (21) (24)
Transfer of pension deficit to government - 286 286
At 31 March 2013 465 (236) 229
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Corporate information
Registered Office
Post Office Limited
148 Old Street
LONDON
EC1V 9Ha
Auditor
Ernst & Young LLP
1 More London Place
LONDON
SE1 2AF
Solicitor
Linklaters LLP
One Silk Street
LONDON
EC2Y 8HQ
Post Office Limited
Actuary
Towers Watson Limited
Watson House
London Road
REIGATE
Surrey
RH2 9PQ
Consumer Body
Consumer Focus
4th Floor
Artillery House
Artillery Row
London
SWIP RT
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Post Office Limited Annual Report and Financial Statements 2012-13
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Section: Overview
Title: Who we are
At the Post Office our aim is to provide customers with the things that are important to them-
from mail to their broadband package, car insurance to their savings account. Whether customers
come into branch, are on the move, or shop online, we will ensure they can trust us to always
deliver a great experience. That's the Post Office promise.
Heading: The Post Office in numbers
e The largest retail network in the UK
¢ 11,780 branches
© 99.7% of the population within three miles of a branch
e Number one travel money provider
e Fast-growing UK financial services provider
e Biggest accepter of contactless payments in Europe
e 18 million customers a week, including half of the UK's small businesses
e 15 billion inland addressed items handled every year
e 95% of all UK debit card accounts accessible through our branches
e The sixth largest telecoms provider in the UK
¢ 87% customer satisfaction across our branches
¢ One of the most trusted brands in the UK
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Section: Overview
Chairman's foreword
It is 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.
The Report describes the way in which the Post Office has embarked on a remarkable turnaround
to reverse the trend of years of declining revenues, sustained branch closures and a reputation for
inconvenience and queues.
Thanks to our Shareholder, the government, we are investing millions of pounds into our
network over the three years up to April 2015. There is no longer a programme of Post Office
branch closures. Instead, we are modernising the network, increasing our opening hours, offering
new services, developing new methods of interacting with our customers, working with our key
partners in new ways, cutting costs and increasing our revenues.
All of this puts the Post Office on the path to securing financial sustainability for the long term,
reducing our dependence on the taxpayer to the minimum, and changing our culture so that we
are always on the front foot, responding to changes in the world around us in partnership with the
key people on whom we depend for the delivery of our services. If we are successful in achieving
these changes, in particular financial sustainability, the conditions for the successful mutualisation
of the Post Office could be in place - a prospect which could help to secure the kind of self-
sustaining Post Office we all want to see in the future.
A series of important changes has already happened and many more are in the pipeline.
We ceased to be a subsidiary of Royal Mail Group Limited in April 2012 and began operating
independently. Since then, I have 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 are on pxx. I am delighted to have been able to appoint such
able people with varied backgrounds who are all committed to supporting and challenging the Post
Office as it pursues the changes which must be made if we are to secure its future.
We achieved a number of notable successes last year. For the second year running, our revenues
are up on the previous year despite the difficult economic environment. We are on the road to
reducing our reliance on the Network Subsidy Payment received from the government. We have
made great headway in our plan to modernise the network of branches run by our agents. 1450
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 £xx million to
£37 million.
We have 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
administrative savings. We are also offering new financial services, maintaining our appeal to
customers who come to us for the reliability and transparency of our financial offers. Our mails
business, meanwhile, remains the market leader and is increasingly innovative.
We are clear about the way forward for the Post Office and about the changes which need to take
place to build on the successes set out in this Report. We are equally clear, that there are
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significant challenges ahead; the going is not easy. This turnaround, like any other, requires people
throughout the organisation and their partners to work in new ways. We need to win new business
on proper commercial terms - something which is difficult in current economic circumstances. And
we need to reduce our high fixed costs while at the same time finding the resources to operate on
our own two feet and to modernise and innovate - catching up after years of under-investment.
I would like to thank the Post Office Chief Executive, Paula Vennells, her team and all the people
who work to support the Post Office business, and have brought about the remarkable changes we
have already seen and will see in the coming months and years. I would like also to thank all those
stakeholders and partners with whom we work so closely.
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 it loved, while at the same time making it fit for the future. It is
in that context that this Annual Report and Financial Statements should be seen. They report on
the first steps of progress into the future - a future which blends the trust, integrity and
accessibility, for which the Post Office is renowned, with the contemporary relevance, innovation
and professionalism of a financially sound 21st century business.
Alice Perkins
Chairman
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Section: Overview
Title: Chief Executive's review
The Post Office is committed to a strategy which will grow and modernise our business business
and customer excellence is always at its core. It is heartening, therefore, to be able to report good
progress in these endeavours during the 2012-13 financial year. In essence, the evidence on the
pages which follow shows that we have started to turn the business around, remaining at the
heart of communities while becoming increasingly commercial and entrepreneurial.
In a challenging economic climate, and with particular pressures on the high street, we can report
strong progress in attracting the revenue so important to underpinning the business and
sustaining the network. Revenue has grown in three of our four pillars during 2012-13, with
turnover increasing by £44 million to £1.02 billion. Mails and Retail revenue has grown by 4.3%,
Financial Services by 6.4%, and Telecoms by 7.5%, while Government Services revenue remained
flat in the context of the very tight fiscal environment resulting in reducing volumes and margins.
This is an encouraging performance. It demonstrates our increasing appetite for innovation, the
power of the Post Office brand and the continued attractiveness to customers of accessibility
through a branch network of 11,780 outlets, and our inherent principles of trust, transparency and
fairness.
This solid progress means we are able to report an increase of £33 million to £94 million in
operating profit before exceptional items. This includes £210 million received from the government
in 2012-13 as a subsidy to support the branch network. This enabled the provision of key general
and economic 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
fulfill this critically important task, and we are committed to maintaining the network.
The subsidy payment constituted 17 % of revenue in 2012-13 and will decline by £10 million in
the coming year and by a further £40 million in 2014-15. Future extension of this payment will
depend on government-spending decisions beyond 2015. To achieve our ambition of reducing
dependency on the subsidy and achieving commercial sustainability, it is critical to continue
modernising and innovating, growing revenue and continuing to focus on our customers while
keeping a strong control on costs.
The significant practical progress which has been made in strategy implementation is therefore
very welcome. In 2010 the government pledged £1.34 billion of funding for the Post Office up to
2015. While half of this related to the network subsidy the remainder was pledged to support the
modernisation of the Post Office.
The activity undertaken in 2012/13, in pursuit of this goal, has been unprecedented in our history.
A major transformation programme to modernise the branch network began, with hundreds of
branches converting to new, more customer-friendly, formats and building the momentum to
convert many more.
There is no more visible indicator of a Post Office that is changing for the better than the changes
customers see in their cities, towns and villages. And the evidence is that these changes are
meeting with approval: customer satisfaction with the new ‘main’ and ‘local’ branch models runs at
95%! while queue times in the ‘local’ model have fallen below a minute and customers are using
new opening hours stretching from early morning to late evening. Subpostmasters switching to the
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new models, meanwhile, are able to increase their retail businesses. Moreover, the physical
network that is so central to our business is now being complemented by online and telephone
channels, further enhancing the convenience of our service to customers.
Naturally, a programme such as this involves challenge. The Post Office has made significant
progress, for instance, in reducing the losses in the network of Crown branches directly managed
by the business. There remains a long way to go to reach the point where this part of the network
breaks even, and that is why we are holding firm in relation to our position on pay and franchising
in the Crown network. There will be other challenges ahead, but as our Chairman has noted in 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.
If our financial and practical progress has been encouraging in 2012-13, so has our pursuit of new
ways of running the business. In 2012 we set up astakeholder forum to begin a process which is a
key step in our journey toward potential future mutualisation, that of defining the public purpose of
the Post Office. In 2013-14 we will complete this work and over the summer ahead we will
engage the public on this work, with a view to embedding this public purpose in our business
planning and processes.
It is a process in tune with our ambitions to be more proactive in delivering our public purpose.
The Post Office is a long-standing part of UK high streets and will work hard to support their
revival in challenging economic times, joining with others to lead and develop solutions which help
high streets and other communities to survive and thrive. We will step up our work in supporting
the growth of small business by ensuring that we develop more of the products and services they
need to grow. We are also working with the Business in the Community high street task force,
supporting the work of ‘town teams’ in Sydenham, Stockton-on-Tees and Brighton, work which
complements our membership of the High Street Forum co-chaired by the Department for
Communities and Local Government and Alliance Boots.
The Post Office will also work ever more closely with those seeking to close the digital skills gap,
work which is so important to a thriving economy. As a founder member of Go On UK, the charity
set up to make the UK the most digitally skilled nation in the world, the business will focus on
building the online skills of our people. We will also work with our partners to develop solutions
which will enable the 16 million people in the UK, who still do not have basic online skills, to access
and enjoy the benefits of being online.
As Chief Executive of this great business, I would like to thank all those who have worked so hard
for it over the past year, whether they are members of our staff or those whose businesses deliver
our services.
lam particularly grateful to Alice Perkins and to the Board for their guidance throughout the year.
They have strengthened our strategic oversight in relation to the markets in which we operate -
Mails and Retail, Financial Services, Government Services and Telecoms - and brought a level of
focus and challenge 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 2013-13, 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.
Paula Vennells Chief Executive
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Section: Overview
Title: Strategy
Boxout: [THE STRATEGY WILL BE DEPICTED THROUGH GRAPHICS SETTING OUT OVERALL
OBJECTIVES AND EVIDENCE OF PROGRES DURING THE FINANCIAL YEAR 12/13]
Key objectives
The Post Office strategy is based on being commercially successful and growing as a business,
while maintaining the key role that Post Office branches play in supporting communities across the
UK.* Our people are fundamental to the way we do business; they are at the core of everything we
do and are therefore critical to the success of the Post Office strategy.
Growth
Objective: A key part of our strategy to 2015 is to grow income by introducing new products and
services across our portfolio to offset declining income from traditional product areas.
Evidence from 2012-13: Introduced new products such as Post Office mortgages while also
attracting and retaining clients - RBS and HSBC signed up to partner banking - and winning new
contracts such as the DVLA licensing contract.
Modernisation
Objective: To modernise the Post Office and the network through the Network Transformation
programme, Crown Transformation programme (to break even by 2015) and investment in
technology to improve customer-facing systems.
Evidence from 2012-13: To date, a total of 1,450 branches have either been converted or
subpostmasters have signed contracts to have their branches modernised in 2012-13. 507 local
and main branch conversions have resulted in 17,500 additional opening hours. Crown
transformation: progress to reduce losses - financial performance improved by £9 million;
successfully introduced new ways of working including increased automation and longer opening
hours in pilot branches.
This year has seen the completion of the rollout of new PIN Pad payment devices, making the Post
Office the largest contactless payment network in Europe.
Customer excellence
Objective: To put customers at the heart of everything we do, transform our technology to offer
more responsive and customer-focused systems.
Evidence from 2012-13: Improvement in online capabilities, including a full website redesign. Our
website now receives four million customer views per month, with unique visitors 30% up year on
year. In 2012-13, overall customer satisfaction across 1,000 of our largest branches was 87%
[ Quadrangle Brand and Customer Insight Programme 2011-12 & 2012-13 (1,000 largest branches)
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* This strategic approach is fully consistent with the government's policy document on the Post
Office Network ‘Securing the future of the Post Office Network in the Digital Age’. *
* This strategic approach is fully consistent with the government's policy document on the Post Office Network
‘Securing the future of the Post Office Network in the Digital Age’.
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Section: Operational review
Title: Branch network
Modernising the Post Office branch network
The Post Office has an unrivalled network, with a branch within three miles of 99% of the
population. No other retailer can match the reach which puts the Post Office at the heart of
communities across the UK.
The business is committed to maintaining its branch network of more than 11,700 outlets,
ensuring services are readily accessible to communities across the UK. The physical network,
increasingly enhanced by digital and telephone services, lies at the core of the business. 97% of the
Post Office branches in the network are run in conjunction with retail partners on an agency and
franchise basis.
Underpinning the commitment to the network is an unprecedented branch modernisation
programme - the largest investment in the history of the Post Office - which is 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 the 370 (offering
public access) Crown branches directly owned and managed by the Post Office.
Network Transformation programme
Dependent on size, independent operators of Post Office branches are able to convert to one of
two new models - a main branch or a local branch.
Main branches, of which there are now 178, continue to offer a dedicated Post Office counter,
often open plan, in a brighter more modern environment. In addition, the majority of services will
continue to be available outside traditional hours - for as long as the host business is open - from
the retail counter.
The local model, for smaller branches (329 (NB need to use the figures as of March 31)), fully
integrates the Post Office with the host business, offering services from the retail position rather
than a dedicated Post Office counter. This often means services are available for much longer than
before - in many cases from early morning until late at night, seven days a week.
With more than 507 new-style main and local Post Office branches already established during
2012-13, subpostmasters and customers across the UK are benefiting from a new modern
approach to offering Post Office services. Customers are responding positively to longer opening
hours, brighter environments and open plan counters. Independent research shows customer
satisfaction scores at both these modernised main and local branches are consistently around 95%.
Subpostmasters are also benefiting from more efficient ways of working as well as increases in
both their Post Office revenue and accompanying retail business.
Interest in the new models remains strong, with subpostmasters at a further 943 branches already
signed up to convert during 2013-14.
Box out
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Postal Affairs Minister, Jo Swinson, joined us at the Bishop's Hull local Post Office in Somerset to
celebrate the opening of more than 500 new model branches in the network. She said: “The Post
Office is the cornerstone of many residents and businesses. With more than 11,700 branches, it
provides unparalleled reach into communities up and down the country. The government
recognises this value which is why we have made a clear commitment to its future.”
Graphic: insert px of Jo Swinson
Boxout: Breakdown of the Post Office network to be inserted on these pages once numbers have
been cross-referenced with other figures
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Section: Operational review
Title: Network transformation case studies
Greenwich main Post Office, London
Sandeep and Damandeep Sandhu have enjoyed a smooth transition of their branch. They believe
the modernisation programme will give the Post Office a much more competitive edge on the high
street.
Sandeep said: “The refurbishment of branches is essential. It means our branches are improving
the aesthetics such as flooring and lighting to really compete and look professional. The Post Office
has sustained its trusted status and now looks modern as well.”
Note to design: px available
Dingwall main Post Office, The Highlands
Alicen Lawrie’s branch is open from 7am to 9pm on weekdays allowing many customers working
in nearby Inverness to visit at either end of the day. She said: “The new open plan counters fit very
well in the surroundings of my convenience store. It helps our staff have more comfortable
conversations with our customers.”
Note to design: px available
Steve Roper, Sowerby Bridge main Post Office, West Yorkshire
“Staff prefer the open plan counters. The branch is a much friendlier environment and it’s easier to
have quality conversations with customers. We also have a private conversation area at the other
side of the branch where we can speak to customers about financial services, telecoms products,
savings and life insurance offers because people feel more at ease in privacy.”
Note to design: px available
Drumaness local Post Office, County Down
Johnny Kimber and his customers have welcomed the new open-plan format and longer opening
hours in the busy branch. He said: “Our Post Office services are now available an extra 69 hours
every week, and this has already brought in new customers. We're a much more realistic option for
everyone now and the Post Office is a far more convenient high street proposition.”
Note to design: px available
Medway Parade local Post Office, West London
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Chitty Thavachelvam is winning new business every day after converting to a local model. She said
“lve been able to extend my retail counter, and have noticed new customers coming through the
door, who are now able to take advantage of Post Office services until 10.30pm on Sunday nights.”
Note to design: px available
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Section: Operational review
Title: Network transformation in numbers
507
New branches
We now have 507 new main and local branches open across the UK
1450
Contracts signed
507 branches have already been converted while a further 943 subpostmasters are already signed
up to be converted to the new models in 2012-13, making a total of 1,450
87%
Increase in opening hours
Across our main and local estate there has been an average increase in opening hours of 87%
following conversion to the new model (34% increase for mains and 117% increase for locals on
average)
71%
Subpostmaster satisfaction
Subpostmaster satisfaction in transformed branches is also high with an average score of 71%
10% Increase in retail sales
An average retail sales increase of 10% is being reported across mains and locals
Customer reaction
95%
Satisfied customers
Customers are continuing to demonstrate high levels of satisfaction with the models, with
satisfaction levels at 95% for both mains and locals
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55
Seconds
Average waiting times in branches are 55 seconds in local branches two minutes in main branches
20% (locals) and 8% (mains)
Visiting branches outside traditional opening hours
Customers are delighted with the extension of opening hours and the added convenience. On
average, 20% of customers are visiting local branches outside of core hours and 8% in mains
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Section: Operational review
Crown Transformation programme
Ata time when other high street brands are disappearing, the Post Office is investing in 294 of our
Crown branches. These are usually larger branches in towns or city centres, are those 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 breakeven by March
2015. Over the last year, the losses for this part of the network have reduced from £46 million to
£37 million. The on-going transformation builds upon this progress and is based on increasing
income, improving the customer experience and controlling costs.
Customers will benefit from brighter, more modern branches with improved layouts. Many 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 introduced and
we will have more team members on the shop floor greeting and guiding customers. This new
approach has been trialled with notable success across both customer and financial measures at a
range of branches.
In six locations we will take the opportunity of merging branches in close proximity to create larger
branches with improved facilities for customers. For a further 70 we are looking for retail partners
to operate branches on our behalf. This approach will ensure we maintain a high standard of
service in an area while putting the branch on a stronger commercial footing for the future.
Case study: Nottingham Post Office transformed November 2012
(images available of this branch)
What changed?
«Redesign of the branch with new customer zones
« New ways of working with more colleagues on the shop floor
e Financial Services consultation area with two private rooms
e Earlier opening on Mondays and Tuesdays
* New signage throughout the branch
e Four extra Post & Go machines with staff on hand to offer help
What's the feedback?
« Waiting times have reduced, with 63% of customers being served within five minutes
compared with 49% before transformation and 36% during the same period in the previous
year
«Increase in income by 9% year on year
* Twice as many customers choosing to use the self-serve Post & Go
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Case study: New Malden Post Office transformed February 2013
(images available of this branch)
What changed?
«Redesign of the branch to improve customer flow
¢ Retail area repositioned to drive income
* New mails zone with one extra Post & Go and staff on hand to offer help
* Private consultation room for Financial Services
What's the feedback?
+ Waiting times have almost halved to an average of 2.37mins
* Increase in revenue by 6% year on year
e Three times as many customers choosing to use the self-serve Post & Go machines
Case study: Birmingham Post Office transformed November 2011
(images available of this branch)
What changed?
« Redesign of the branch to improve customer flow
e Extra Post & Go machines with staff on hand to offer help
« Extended opening hours
« Added two internal ATM machines
What's the feedback?
«Increase in income by 44% year on year
« Government Services revenue has risen by 43% year on year
¢ Mails and Retail sales are up 7% year on year
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Case study: Derby
(image available of this branch)
A brand new centrally located Post Office branch opened in Derby city centre in May 2013. The
new branch, offering longer opening hours, 10 counter positions, self-serve mails zone and private
consultation areas, replaces two branches that were located on the fringes of the city. The move to
the newly refurbished premises will secure the long-term future of the Post Office in Derby city
centre and follows a 12-week public consultation.
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Operational review: Branch network
Title: Supporting our network
Boxout: Technology (to be checked by IT)
The Post Office is continuing to invest in technology to ensure the continued provision of high-
quality, reliable services which improve customer service. There has been significant investment in
the key systems that underpin our service to customers.
Drop & Go
Launch of Drop & Go self-service machines for small businesses - A pre-paid card lets business
customers drop off their mail and parcels and pay quickly and have them processed without
waiting
Post & Go
Rolled out Post & Go self-service machines - These enable customers to save time by posting mail
and parcels without the need for a branch colleague
Pin Pad payment devices
e Completion of the rollout of 30,000 new Pin Pad payment devices, making the Post Office
the largest contactless payment network in Europe. Contactless payments allow customers
to make purchases of £20 or less simply by tapping their contactless enabled card or
mobile over electronic readers, saving time and improving the overall customer experience
in branch.
Horizon point-of-sale system
e Provides a secure and reliable service to 33,000 counter positions. At peak times, it
handles around 1,000 transactions per second. (INCLUDE ANY ENHACEMENTS MADE TO.
HORIZON IN 2012-13?)
Extending helpdesk availability
e [T has extended the helpdesk opening hours to support the increase in opening hours in
branches. With longer opening hours, customers can access postal services at a time
convenient to them while branch colleagues can use the helpdesk for longer so that they
can respond to customer queries quickly.
New customer relationship management system
Copy to be added
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Boxout: Supply chain
The Post Office customer base contains some of the most financially dependent members of the
UK population. Therefore, a key driver for the business is providing reliable access to cash.
e The Supply Chain, part of the 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). Included 754,000 Cash and Valuables in Transit
(CViT) visits to and from these branches
* £3 billion of customers monies are processed and banked on the day after collection
e CViT operation is the third largest in the UK after G4S and Loomis
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Section: Operational review
Title: Business at a glance
Mails and Retail
Mails and Retail is the largest product area in the Post Office, generating up to 40% of the
business’ total turnover. Our long-term partnership with Royal Mail Group and diverse customer
base is central to retaining our position as the UK’s number one mails and parcels retailer.
The Post Office offers an unparalleled range of Royal Mail Group mails and parcels products and
services. These include everything from next-day guaranteed courier services to home shopping
retums and collections.
In the Post Office mails and parcels business, small businesses are critical and account for up to
one third of our income and include many online sellers and small local enterprises.
The business’ relationship with Camelot means that the Post Office is one of the main lottery
distributors in the UK, offering a range of Camelot national lottery products including scratch cards
and EuroMillions in more than 6,000 outlets. The Post Office also works with Vow Retail Ltd to
offer customers high-quality stationery, office supplies and collectible product ranges through
selected branches and online.
Boxout: Mails and Retail revenue grew from £392 million in 2011-12 to £409 million in 2012-13,
an increase of 4.3%
Financial Services
Our Financial Services business is a fast-growing UK financial services provider, aiming to challenge
the traditional banks by offering simple, transparent and value-for-money products, supported by
an unrivalled network.
The portfolio includes a broad range of products tomeet the needs of a large and diverse customer
base, which we offer through strong partnerships with third-party providers, of which Bank of
freland (UK) plc is one. The Post Office and Bank of Ireland (UK) plc have built a successful business
since 2003, providing financial services across the Post Office network in the UK.
The Financial Services business includes the Post Office-branded personal financial services
products, foreign currency, payments services (such as bill payment), personal and busness partner
banking and ATMs.
Our personal Financial Services products include a comprehensive range of insurance products such
as car, home and travel; savings products such as Growth Bond, Online Saver, and Cash ISA; and
lending products such as mortgages and credit cards.
The Financial Services business is a key focus for the Post Office as the organisation continues to
build a commercially sustainable business.
Boxout: Financial Services revenue grew from £264 million in 2011-12 to £281 million in 2012-
13, an increase of 6.4%
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Government Services
The Government Services business offers a range of essential services in our branches on behalf of
a number of government departments. These services are used by a variety of customers including
pensioners collecting their state pension, customers who want to renew their passport, drivers
buying their car tax or renewing their driving licence using state-of-the-art technology.
The Post Office partners with the Department for Work and Pensions for the Post Office card
account, which allows customers to collect their state pension or benefits in cash, either in a Post
Office branch or from a Post Office ATM. We also issue car tax discs on behalf of the DVLA and
capture digital photographs for the renewal of driving licence photo counterparts. The Post Office
uses ground-breaking Application Enrolment and Identity technology which offers a paperless
process for our customers in 754 Post Office branches nationwide. One example is our contract
with UK Border Agency where foreign nationals can enrol for an identity card. In addition, the
Passport Check & Send service for customers applying for a passport, helps ensures their
applications are error free and processed quickly.
Boxout: Government Services revenue remained flat year on year at £164 million
Telecoms
The Telecoms business incorporates three main product areas: HomePhone and Broadband,
Mobile Top-up and International Phone cards.
HomePhone and Broadband offers a competitive fixed line phone and broadband services to just
under 500,000 residential customers, making us the sixth largest telecoms provider in the UK.
Customers are attracted by our low-cost services, UK-based call centre and ability to pay bills in
cash at any of our branches. This service will be migrating to a managed service provided by
Fujitsu in the summer of 2013.
Mobile Top-up allows customers to top-up their pre-pay mobile phone for all the main UK mobile
networks at any of our branches. The Post Office has the UK's largest estate of top-up enabled
terminals in the UK. This is run through an agreement with E-Pay.
International Phonecards, a service run through an agreement with Econet Mobile, are pre-paid
products enabling customers to make low-cost international phone calls so that they can stay in
touch with friends and family overseas.
Box-out: Telecoms revenue grew from £120 million in 2011-12 to £129 million in 2012-13, an
increase of 7.5%
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Section: Operational Review
Title: Mails and Retail
Mails and Retail is core to the Post Office's offering to individual customers and small businesses in
the UK. The Mails and Retail business generated revenue of £409 million in 2012-13,
representing growth of £17 million compared to the previous year.
Extremely strong commercial performance across the product portfolio, activity relating to the
Olympics and Paralympics and our best Christmas mails and parcels sales ever has made this the
single most successful year for the Mails and Retail part of the business.
The Post Office gives customers access to an unrivalled mails and retail product range combined
with unparalleled expertise and professionalism from its frontline teams. Revenue grew across all
four main categories of the product portfolio (Mails, Parcels, Retail and Lottery) in 2012-13. This
was delivered by:
Creating and enhancing Royal Mail services
The Post Office Mails team enhanced services with Royal Mail to maximise opportunities from
online shopping collection and returns. The launch of our new Drop & Go priority service for small
business customers has helped us retain and grow our Mails business. Small businesses and eBay
customers 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 has more than 2,300 small businesses signed up
to the service with further enhancements planned for the year ahead.
General parcels market growth
We have achieved an 8% growth in parcels revenue through a combination of a boom in online
shopping and eBay customers and continued improvements in frontline training and sales
capability.
Launching online retail shop
The new online shop was launched in July 2012 and has seen steady growth ever since. The shop
offers an extensive range of mailing solutions, collectibles and office supplies.
Expanding our network of Lottery terminals
The rollout of an additional 1,850 Camelot Lottery terminals has helped the Post Office deliver a
5.2% growth in Lottery sales over the course of 2012-13; this has been further facilitated by
strong Lottery marketing.
Overall, the Post Office consolidated its position as the number one distributor of mails and parcel
products in the UK. The strength, quality and convenience of the Lottery and retail product ranges
added further value to Post Office customers.
Looking ahead, the Post Office will continue to develop small business propositions to increase
value and convenience for this critical customer group. We will maximise opportunities to grow the
services we provide in this sector, in partnership with Royal Mail, particularly in the fast-growing
online shopping market.
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Boxout: Key highlights
e@ 30% growth in Retail revenue
© 8% increase in Parcels revenue
e 5.2% growth in Lottery sales
e 3.5% growth in Mails revenue
Boxout: Key launches
e Drop & Go launch - A prepaid card lets small businesses drop off parcels and pay quickly
without queuing - by the end of 2012-13, 2,300 small business customers had signed up
e New online retail shop offering mailing solutions, collectibles and office supplies
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Section: Operational Review
Title: Financial Services
The Financial Services business is placing the Post Office as a challenger in the sector and giving
customers a real mainstream alternative. The Post Office aims to offer simple, relevant and value-
for-money products, supported by excellent customer service and an unrivalled network.
The comprehensive range of financial products and services covers savings, credit cards, mortgages
insurance, foreign currency, payments services (such as bill payments), personal and business
partner banking and ATMs.
In 2012-13 we continued to build an award-winning financial services business*, challenging the
market with simple, value-for-money and transparent products. In achieving this, the Post Office
delivered £281 million in revenue - an increase of 6.5% on last year - which was driven
predominantly by growth in savings and lending
Financial Services works with a range of partners and suppliers and a key development in the last
year has been the renegotiation and reconfirmation of the arrangements with Bank of Ireland (UK)
ple. The strong partnership with Bank of Ireland (UK) ple, which dates back to2003, delivered
significant growth in 2012-13, particularly in the Personal Financial Services area - Growth Bonds,
Online Saver and Reward Saver. We also extended our award-winning mortgage range, offering
competitive rates that featured regularly in Best Buy tables. The Financial Services business
continues to improve accessibility of its products to customers, including making mortgages
available in branch.
The Post Office maintained its position as the market leader in foreign exchange against a backdrop
of a challenging travel market. The public also voted the Post Office the Best Foreign Exchange
retailer and Best Travel Insurance Provider at the 2012 British Travel Awards, for the sixth and
seventh year respectively.
Our Financial Services team won and retained key contracts in the bill payment market, ensuring
that customers can continue to use their local, convenient Post Offce branches throughout the UK
to pay bills.
Contactless payment terminals were installed across 30,000 counter positions in our extensive
network across the UK. This move makes the Post Office the biggest user of contactless acceptance
technology in Europe, allowing customers to pay for transactions of up to £20 using contactless
cards and Near Field Communication (NFC) enabled mobile phones
We continued to work on our personal banking offering, and increased access of UK bank accounts
in our network by signing new agreements with HSBC and First Direct. 95% of all UK debit card
holders can now access their accounts from a Post Office branch.
The Financial Services business is a key focus for the Post Office as the organisation continues to
build a commercially sustainable business. In 2013-14 the Post Office is announcing a current
account, the next step in our strategy of growing an already well-established financial services
portfolio.
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Extensive research into the current account market tells us that customers want simplicity,
transparency and good value for money. With more branches than all the UK banks combined, the
Post Office is very excited at the prospect of offering a current account through the most accessible
retail network in the UK. The currentaccount has already launched in a small number of Post Office
branches during spring 2013 with a wider rollout planned for later in the financial year.
Growth will help the Post Office achieve the goals of providing customers with the option to service
all their financial needs under one roof and allowing the Post Office to become the leading financial
services challenger brand in the UK.
Boxout: Highlights
Best Travel Insurance Provider at the 2012 British Travel Awards, as voted by the public,
for the seventh successive year
Best Foreign Exchange / Travel Money Retailer at the 2012 British Travel Awards, as voted
by the public, for the sixth successive year
Agreement with HSBC and First Direct for their customers to have free access to their
accounts at all of our Post Office branches from spring 2013
The Post Office became the biggest accepter of contactless payments in Europe
What Mortgage Awards 2012: Best Online Lender, Best Fixed Rated Mortgage Provider
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Section: Operational Review
Title: Government Services
The Post Office is, and will remain, the front office for government delivering services on behalf of
government departments through the Post Office branch network and online channels. In 2012-
13 we grew our passport Check & Send business by 12.5% and increased our revenue from
capturing customers’ biometrics on behalf of the United Kingdom Border Agency (UKBA) by 284%.
The main priority in 2012-13 was to retain the contract for Front Office Counter Services provided
on behalf of the Driver Vehicle Licensing Agency (DVLA). This framework contract will allow other
government departments to contract with the Post Office without having to run a further
procurement process. The contract is for seven years with an option to renew for a further three
years.
In November the Post Office was successful in retaining the DVLA framework contract for Front
Office Counter Services. In addition, the Post Office also won a place on the Department for Work
and Pensions (DWP) Identity Assurance Framework contract which is now being managed by the
Cabinet Office, Government Procurement Service. It was particularly pleasing to be awarded a
place on the Identity Assurance Framework and to retain the DVLA Front Office Counter Services
contract against strong competition
As well as these significant contract wins, our new world-leading Application Enrolment and
Identity business generated more than £12 million of revenue and now accounts for more than 9%
of our total Government Services revenue. This service, available in 104 Post Office branches,
captures digital finger prints, photographs and electronic signatures for the UKBA and photographs
for customers renewing their driving licences. It also allows the Post Office to extend the services
offered and includes increased security features such as the ability to record transactions in
branch.
Nearly 90% of Government Services revenue is still generated by the traditional motoring, benefits
and passport services. We saw significant growth in our passport and existing Identity business,
which helped to offset the decline in benefits payment. Income from the Post Office card account
declined as customers continue to migrate to bank accounts. Income from motoring, primarily the
issuing of tax discs in our branches, was broadly flat compared to 2011-12.
In 2013-14 the Post Office expects to complete the rollout of new services with the DVLA and
continue to grow the passport business. The year will also see the Post Office laying the
foundations for future growth in the Government Services market as we seek to support the
rollout of Universal Credit and the government's Digital by Default agenda.
Boxout: Key highlights
e Won the DVLA framework contract for the provision of Front Office Counter Services
e Growth in the Passport Check & Send service with an increased market share
e Awarded a place on the DWP Identity Assurance framework contract
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Section: Operational review
Title: Telecoms
The Post Office Telecoms business consists of HomePhone and Broadband, Mobile Top-up and
International Phonecards. 2012-13 was a very positive year for the business as it achieved an 8%
increase in revenue from £120 million to £129 million. The HomePhone and Broadband business
performed particularly well, offsetting weakening performance in our Mobile Top-up business. The
Post Office was also able to increase profitability of the portfolio.
At the beginning of the year, the Post Office signed an agreement with Fujitsu Services to provide
the HomePhone and Broadband services from the summer of 2013. This is a strategically
important agreement as it provides us with a platform from which we will be able to develop and
grow our business in an agile and cost-effective way. The new platform will make it easier for
customers to sign up to our services through branches and online. It will also reduce our cost base
and provide improved and flexible back office IT systems. The customer experience will be
enhanced with improved online account management tools and access to higher speed broadband
services over the TalkTalk network. The agreement with Fujitsu Services will also enable the
development of bespoke services for the SME market.
Over the course of the year, the Post Office boosted revenue generated by the HomePhone and
Broadband business increasing from £112 million to £122 million, an increase of just under 10%.
This achievement has been driven by two key factors: first, the customer base is very stable, driven
by solid customer acquisition across all channels, and a reduction in customer churn, particularly in
high-value segments. Second, a number of changes to our service offering were implemented
which has made it more attractive to higher value customers, while improving customer retention.
The Post Office has seen a reduction in the volume of mobile top-up transactions in our branches
as mobile networks actively look to migrate customers from post-pay to pre-pay packages and
customers top-up less frequently. However, we still achieved 15 million transactions and remain
the largest estate of top-up enabled retail outlets in the UK.
The International Phonecard business has been in decline for a number of years and continues to
be impacted as customers move to solutions such as Skype.
The Post Office will continue to grow the Telecoms business in 2013-14, both in terms of revenue
and customers, but it will be a transitional year as we migrate our services to our new supplier.
This transition will provide the platform to enable our Telecoms business to grow rapidly in the
future. The Post Office is also looking at opportunities to enter the mobile market during the
coming financial year so that we are able to offer our customers the full suite of telecoms
products.
Boxout: Highlights
e £9 million increase in revenue
e New contract signed with Fujitsu Services
Mobile launch planned for 2013-14
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Section: Performance Review
Title: Our people
The Post Office is proud of its heritage and equally proud of the unique role our colleagues play at
the heart of communities, serving a public purpose, while becoming increasingly commercial and
entrepreneurial. The Post Office also recognises the important role our support teams play in
delivering the business strategy. We strive to nurture our people, ensuring they feel valued, trusted
and committed to putting the customer first. The Post Office is ambitious about the future and
confident of the key role our people will play in achieving that vision.
This year saw the introduction of our core values - Care, Challenge and Commit. These three
values sit at the centre of everything we do and are intrinsic to how the Post Office interacts with
customers and colleagues. Our values underpin our employee proposition and help to deliver the
best possible customer experience, while at the same time giving everyone within the business the
chance to fulfil their potential.
The Post Office is 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. Our employee engagement survey, which was
conducted in 2012, is managed by independent research company Ipsos MORI. The survey helps
the Post Office understand how colleagues are feeling about the business, what is going well and
where we can improve.
The survey saw many positive results, especially compared to similar companies:
« An impressive response rate of 76%
e An increase in the Engagement Index score from 62% to 68% from the previous year
© 84% of employees would recommend Post Office services to friends and family (retail
norm 71%)
© 76% of employees feel proud to work for the Post Office (retail norm 49%)
While the survey demonstrated a number of positive results, we are keen to continue with this
progress and ensure we listen to our colleagues and build on this success for next year and
beyond.
Learning and development
The Post Office continues to support the development of people right across the organisation.
Our people have undertaken a broad range of development activities this year including:
e Introduction of ‘Discovery Days’ for new managers, ensuring they have the tools to
succeed in their new roles
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e Supporting the development of a Post Office procurement function, utilising internal
expertise, external training 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 across the organisation
¢ Building the capability and commercial skills of our managers through the development
of the Crown Leadership Excellence programme which will launch in spring 2013.
Talent and diversity
Becoming an organisation working independently of Royal Mail Group 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 sustainable business, we have put in place a robust assessment and
development approach, looking at both performance and future potential of our senior leaders
with the overall aim of raising the capability of our people.
Raising our leadership capability and performance standards will continue to be an important
focus which the Post Office will deliver through its Leadership Development programme.
At this stage of our development, building talent and diversity merits special attention. The Board
has, therefore, delegated authority to the Nominations Committee to monitor the development of
a talent management programme for senior levels of the organisation.
As part of this, we have introduced a range of initiatives to promote an inclusive workforce. These
include establishing a diversity forum; recruiting young people under 24 on the Paid Work
Experience programme and launching our Trainee Manager scheme
The Post Office is also proud of the progress made in gender equality. Our Chairman and CEO are
women. 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
government's Think, Act, Report initiative which is aimed at improving gender equality in the
workplace.
Our general policy will be to recruit for talent, using a range of tools, including encouraging open
applications through our attraction website, engaging specialist recruitment consultancies and
operating specific talent attraction campaigns.
Challenges remain, but we are confident our commitment to building a culture of inclusion will
continue to make the Post Office relevant to its 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 both fronts.
Paid Work Experience programme
Over the last 12 months, the government and media have both highlighted the problem with high
unemployment in inner city areas, especially among young people. The Paid Work Experience
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programme aims to provide a period of paid employment during the Christmas period for young
people and those furthest from the labour market. The Post Office employed 61 individuals in the
lead up to Christmas in some of the busiest Crown branches across London and Greater
Manchester. The initiative led to 39 individuals being offered further employment. Due to the
success of the scheme, in 2013-14 the Post Office intends to extend the programme within the
branch network.
Trainee Manager scheme
The scheme was designed to take positive action to attract 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 work in 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 managerial roles in the business. The trainees continue to progress and have provided a
welcome injection of new ideas and enthusiasm.
Accelerated development scheme for senior leaders
We have started to inject talent into different levels of the organisation and are currently piloting a
high-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 in which individuals draw upon a range of available activity
including coaching, mentoring and behavioural workshops.
Safety, health and wellbeing
The safety and wellbeing of our people is of paramount important to the Post Office. This year we
have embarked on an extensive programme of health checks that will allow all our employees to
understand how healthy they are, and learn about what they can do to reduce the risk of illness
and improve their wellbeing
The Post Office aims to fulfil its 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:
we comply fully with the relevant legislation
e that 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 responsibilities through effective
health and safety management systems, with safe premises, equipment and processes
we improve our employees’ capability to manage and work safely, through instruction and
training
we support and encourage our people to get involved in the health and safety performance
of our business and pursue a healthy and safe lifestyle and
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we monitor and review how well we put our health and safety policies into practice.
Looking ahead
The Post Office wants people who are capable of delivering a turnaround strategy. Therefore, we
aim to continue building people capability; to foster a culture of continuous learning; to increase
our people's understanding of our business in a commercial 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.
Boxout 1
Post Office Engagement Survey - Highlights
90
80
70
o 60
£ 50
8 40
é 30 @PO Ltd 2012
20 @PO Ltd 2011
10 Gindustry norm
. Zs 2
I uf
38 343
3¢ 32
OH}
Question
Boxout 2
Our people vision
Great performance through great leadership
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 in 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, are encouraged and supported to
fulfil their potential and rise to the commercial challenge.
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Section: Performance review
Title: Our people
Case studies
James Reid - Property Lead, Network Transformation programme
Picture required
James joined the Post Office from Royal Mail a year ago on the Network Transformation
programme as a Field Change Advisor 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 I really enjoyed working with the subpostmasters.
“I then saw the Property Lead role advertised and went for it. It did mean moving down to London,
but I have been made to feel really welcome. I feel really proud that my managers saw potential in
me and have helped me settle in to a new role and a new city.
“I think I have achieved a lot this year and feel I am making a real difference. Seeing converted
branches opening and knowing you have helped to do that, feels great. I am here for a career and
see my long-term future with the Post Office.”
Ashley Hall - Change Analyst, Finance
Picture required
Ashley joined the Post Office 13 years ago. A year ago, 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 imagined the
difference it has made to me in 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.
“lve 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.”
Bushra Ali - Trainee Manager, Network
Picture required
Bushra joined the Post Office a year ago through the Trainee Manager scheme.
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“I 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 working in the Olympic village during London 2012. She is also undertaking a foundation
degree in Retail Management.
“It’s challenging doing 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 really keen to become a Branch
Manager.”
Shahidul Islam - Paid Work Experience
Picture required
Shahidul joined the business in November, through the Paid Work Experience scheme. He was our.
youngest candidate at 16. He currently works in Houndsditch.
“I left 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 and my managers have helped me a lot and are always there
for me. I learnt a lot of new skills and met different people from different walks of life. I think my
main achievement has been developing my communication skills.
“lve changed a lot in the time I have been here, I've started to really believe in myself and feel like I
have a future here.”
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Section: Performance Review
Title: Our customers
It is essential to our growth strategy that our customers feel they get a first-class experience every
time. So, we are rigorously focused on putting them at the heart of the business. In 2012-13 we
carried out extensive research to better understand our diverse customer base and their needs.
Research has shown what we do well and where we need to improve. Customers value the Post
Office and rate our customer service highly, but tell us they want the Post Office to be easier to do
business with and that we should offer them a greater choice of ways to interact with the Post
Office.
Using this feedback will help shape the ongoing development of a multi-channel strategy for the
future that optimises convenience, choice and relevance for Post Office customers.
Customer satisfaction
The Post Office has made some significant progress over the past year with the relationships we
have with our many customers. 18 million customers visit our branches every week, half the small
businesses (SMEs) in the UK use our services each week, 34 million visit our website each year and
nearly eight million customers talk to our 34 UK and Republic of Ireland contact centres each year.
In 2012-13 the Post Office experienced impressive customer satisfaction rates with 87% of
customers saying they were happy with the service they received, consistent with 2011-12"
Underlying these high customer satisfaction ratings, there has been a reduction in wait times. The
average wait time in 2012-13 was three minutes, which is 12 seconds quicker than 2011-12 and
one minute and eight seconds quicker than 2010-11
Our research also told us that we needed to re-engage customers with the overall Post Office
brand in order to achieve future growth. We, therefore, launched a brand campaign in October
inviting customers to consider the Post Office in a different way.
The Post Office understands how important customer service is during the lead up to Christmas.
As a result, we put extra effort into making Christmas easier for our customers. This formed a
business-wide project during November and December which contributed to improved sales
performance and customer perception. Christmas Makers (Post Office management and support
staff working in branches), longer opening hours, online help, pop-up Post Office branches and
discounted stamp arrangements were highlighted to customers by press, outdoor and digital
advertising and PR. This helped to demonstrate how we were making strides to be easier to deal
with. All of this delivered our best ever Christmas performance, with our core Mails product range
exceeding last year by 3.8%, with 86% of customers saying they were satisfied with their experience
in branch®)
©] Quadrangle Brand and Customer Insight Programme 2011-12 & 2012-13 (1,000 largest branches)
©] Empathica Voice of Customer Programme: December 2012
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There was also a positive impact on wait times in December with an average wait time of three
minutes and 47 seconds - 80 seconds quicker than last year and three minutes and 27 seconds
quicker than 2011
Voice of Customer programme
The Post Office is constantly looking at ways to improve customer satisfaction and offer more
convenient channels for customers to provide feedback. Our new Voice of Customer programme to
‘tell us - how we did today’ was piloted in 150 branches this year. It uses pre-printed till receipts,
cards and a QR code to invite customers to give feedback online, via mobile or by telephone.
At the end of March 2013, we had feedback from 36,500 customer visits. This feedback helps the
Post Office address customer issues at branch level quickly (such as plans for dealing with busy
times and reducing queue times), as well as helping to develop an overall strategy to address
common themes across the network.
Customers also have the opportunity to praise service where it is ‘above and beyond’ and more
than 700 individual ‘wows’ are received weekly!
Voice of Customer is in place in more than 2,000 of our largest branches and will be rolled out to
all newly transformed branches in 2013-14.
A key focus in 2013-14 will be to make the Post Office an easier organisation to do business
with. The modernisation of the network and Crown branches, coupled with our multi-channel
strategy, and offering more transparent and relevant products and services will be essential in
ensuring this happens and that the customer view remains at the heart of the Post Office's
strategy.
©] Ba Mystery Shopping Programme 2012-13
©] Empathica Voice of Customer Programme 2012-13
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Section: Performance review
Title: Our customers
Boxout
Transformed branches
Customers in transformed network branches are already enjoying even higher levels of satisfaction
than the rest of the network:
In both main and local branches, 95% of customers were satisfied”!
e Average wait time in transformed network branches was one minute and one second”!
71% of subpostmasters were satisfied with their new Post Office branch"!
Case study:
In line with the high street, the Post Office has introduced automated self-service kiosks which help
customers save time. The Post & Go kiosks help customers post letters and parcels and buy
stamps and packaging. One customer commented: “Michael (Post Office) was very welcoming when
I came into branch. He asked if I needed help with anything while I was posting a parcel. He asked
if there was anything important inside and if I needed to get it there for the next day which neither
applied to me. Michael then helped me to process it through the Post & Go machines near the
door; it was so easy.”
Durham Crown branch'*!
Case study: Small businesses
It is estimated that up to half of the UK’s small businesses will visit a Post Office 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 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 as a critical part of the infrastructure supporting the growth of
small businesses throughout the UK.
I Brass Network Transformation Programmeresearch: August 2012-March 2013
'] Brass Network Transformation Programmeresearch: August 2012-March 2013
"I Brass Network Transformation Programmeresearch: August 2012-March 2013
9) Empathica Voice of Customer Programme 2012/13
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This Post Office infrastructure also provides a wider suite of services that can conveniently meet
the needs of local small businesses - including banking and cash services as well as insurance,
travel and Government services. The strong local relationships with small businesses are
strengthened by the empathy and understanding of their needs from subpostmasters who are
typically running the Post Office in a small business themselves.
This is an area of development for Post Office. Service enhancements have been developed to
meet small business needs, such as ‘Drop and Go’ whereby local businesses can drop off packages
at their local office and the Post Office will apply the postage and billing afterwards. This is an
approach that will continue to develop strongly over the next few years as the Post Office plays its
role in promoting growth in a sector that is so critical for growth and employment prospects across
the UK.
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Section: Performance Review
Title: Corporate responsibility
Environment
The Post Office recognises its environmental responsibilities and is committed to minimising our
adverse environmental impact by means of a continuous improvement process.
We embrace environmental considerations in the business management process and decision
making throughout the organisation.
We set ourselves some challenging goals for 2012-13:
e 5% reduction in building energy use
« 5% reduction in CO2 from vehicle fuel
e 5% reduction in water use
e 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 in reducing building energy use was significantly affected by the
unusually severe weather conditions during the winter of 2012-13.
Activities
Change control
All business projects and supplier contracts are reviewed for environmental impacts and
recommendations made to positively influence them so that they make use, whenever possible, of
sustainable raw materials and examine responsible end-of-life considerations.
Buildings
A large percentage of Post Office buildings now have low-energy lighting, low-water usage utilities,
and all fixtures and fittings are now obtained, wherever possible, from sustainable sources or from
materials that can easily be reused or recycled.
Vehicles
The Post Office is continually looking at technological advances and new materials to reduce the
weight of our vehicles so they use less fuel. A new concept vehicle will go on trial in the second
financial quarter of 2013-14. This vehicle will also utilise telemetry systems, which will enable us
to improve overall fuel efficiency. Our aim is that this vehicle will become our flagship for the
future, further supporting our environmental aspirations
By autumn 2013 three quarters of our operational fleet of 420 vehicles will also meet the current
Euro 5 emissions standard, and 50% of the fleet will have been adapted to accommodate exhaust
gas reduction systems and deliver improved performance.
Waste
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Most of our buildings are now participating in the Dry Mixed Recycling scheme where everything
that can be recycled is now segregated into separate bins or bags. This is a key initiative to reduce
dependence of the Post Office on sending waste to landfill, something that is both expensive and
environmentally unsustainable. In addition to this, 100% of all our confidential waste is now
shredded, pulped and sent to manufacture recycled paper.
The Post Office measures and looks to reduce the amount of packaging that is produced and the
quantity of electrical and electronic equipment that will end up in waste streams once they have
reached the end of their useful life. To assist the Post Office in meeting these obligations, we have
arrangements with Biffa, our prime waste contractor and Valpak, who specialise in the treatment
of electrical waste.
Sustainable operations
We actively look for opportunities to ensure that all of the paper we use is from sources accredited
by the Forest Stewardship Council and aim to advertise this fact by including the FSC logo on all of
our point-of-sale literature. Currently, some 90% of all the paper we buy is from FSC accredited
"mixed" sources. This means that the pulp used has come from either well managed forests,
controlled sources or from recycled wood or fibres. In addition, we have also reduced the amount
of packaging associated with our retail sales by some 44%.
Disability and accessibility
The Post Office strives to be one of the most accessible organisations in the UK by ensuring
colleagues with disability needs are provided with all of the support they need and disabled
customers receive an excellent customer experience
In 2012-13 the Post Office achieved the following:
e Following separation from Royal Mail, the Post Office Disability Helpline was launched to
provide solutions and specialist equipment to help employees with disability or accessibility
issues
e Provided grants to agent branches to upgrade their outlets to make them more accessible
e Ensured accessibility was an integral part of the Network Transformation programme. We also
developed a new Post Office Accessibility Guide and incorporated disability training as a core
part of Network Transformation training
e The Post Office created and meet a panel of accessibility experts from disability organisations
on a regular basis. Their role is to advise on accessibility issues facing disabled people, new and
best industry practise, and changes and developments within the Post Office that may impact
on disabled customers and our people.
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Section: Performance review
Title: Corporate responsibility
Charity Giving
The Post Office has a rich history of charity giving with our people and customers supporting a
wide variety of causes. We have been major supporters of BBC Children in Need for several years.
In 2012, the branch network increased its impact by playing a leading role in Children in Need’s
BearFaced initiative. This gave extra impetus to our fundraising, helping engage customers and
branches to have fun and get involved. Our fund raising activities helped raise more than £1m for
Children in Need, a record amount for the Post Office.
We have also developed Your Charity this year, an exciting new approach to our fundraising
activity. Your Charity empowers branches and teams to choose their own charity to support. The
rollout has already started and will continue throughout 2013.
Digital inclusion
As a founder partner of Go ON UK, the Post Office is committed to helping the 16 million people in
the UK who have either never used, or rarely use the internet develop the necessary digital skills to
enjoy the benefits of being online.
The internet has become an integral part of everyday life so we want to ensure our own people
have the necessary digital skills to get the most out of being online.
We are committed to providing the basic digital skills training and support to all our permanent
Post Office colleagues and we will be progressing this initiative during the next financial year.
To help customers become digitally literate, we plan to launch the Online Centre Locator in all of
our 11,780 branches in June 2013, which for the first time will signpost customers across the UK
to their nearest digital training location. We are working with a number of partners to deliver this
database which covers 1000s of learning centres across the UK.
We also participated in a number of digital inclusion campaigns in 2012-13, including Go on Give
an Hour which encouraged those online to help a friend, family member or neighbour to get
online.
Business in the community scheme
In 2012/13 the Post Office became a standalone member of the Business in the Community (BITC)
scheme, working to develop our support for both BITC and a wider community role in line with our
public purpose.
Our work with the BITC-led high street task force is offering the Post Office an opportunity to work
with three of the 27 government-backed Town Teams to help redefine and regenerate their high
streets. The Post Office is now working with the Sydenham, Stockton on Tees and Brighton teams
and the local communities to help regenerate interest, activity and ultimately provide a long- term
future for these areas so that they can survive and thrive. As a part of every community across the
UK, the Post Office is proud to be playing its part in this pilot work protecting the sustainability of
these local amenities and retail hubs.
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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 providing services to those who otherwise may feel isolated.
The Post Office takes pride in being a responsible business and looks forward to developing its
relationship and support further in the coming year.
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Section: Performance review
Title: Financial review
Chris Day [Insert picture]
Chief Financial Officer
Summary results
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The Post Office has delivered a sound performance in its first year operating as an independent
business. Turnover has increased by 4.5% with strong performance in three of the four core product
pillars. This has enabled investment in building the Post Office brand and driving future revenue
growth. Whilst the scale of transformational change required to reach the goal of commercial
sustainability remains significant our performance in 2012-13 was a significant step in the right
direction.
Key Financial Performance Indicators
2013 2012
Variance Variance
£m £m
£m %
Turnover 1,024 980 44 45
Operating profit before exceptional items 94 61 33 541
Operating loss before exceptional items and 25
Network Subsidy Payment (216) (219) 3
Operating cashflow 151 38 113 >100%
Operating profit before exceptional items was £94 million (2012 - £61 million), and there was a
cash inflow of £151 million (2012 - £38 million).
Profit and Loss Summary
2013 2012*
&m €m Variance Variance
£m %
Turnover 1,024 980 44 45
Network Subsidy Payment 210 180 30 16.7
Revenue 1,234 1,160 74 6.4
People costs (259) (254) (5) (2.0)
Subpostmasters’ costs (478) (483) 5 1.0
Other operating costs (435) (393) (42) (10.7)
Share of profit from joint ventures and associates 32 31 1 3.2
Operating profit before exceptional items 94 61 33 54.1
* Note that Royal Mail Holdings plc Annual Report and Financial Statements 2011-12 reported
operating profit after modernisation costs but before other exceptional items of £59 million. The
prior year result has been presented to exclude modernisation costs consistent with 2013 where
results are reported before all exceptional items.
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Revenue
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The Post Office's revenue increased by £74 million (6.4%) to £1,234 million including an increase of
£30 million in the Network Subsidy Payment from the government. The Post Office segments
income into four pillars; Mails & Retail, Financial Services, Government Services and Telecoms. The
pillars and their performance are analysed below.
2013 2012
&m &m Variance Variance
£m %
Mails & Retail 409 392 17 43
Financial Services 281 264 17 64
Government Services 164 164 i°) =
Telecoms 129 120 9 75
Other income 44 40 1 25
Turnover 1,024 980 44 45
Network Subsidy Payment 210 180 30 16.7
Revenue 1,234 1,160 74 6.4
( >
Revenue - Prior Year to Current Year
30
1
m8 - I
tm I
I
2012 Mails & : Financial ‘Government Telecoms Other , Network : 2013
Revenue Retail Services Services Income Subsidy Revenue
Payment
X S
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Mails & Retail
The Mails and Retail 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.
Mails and Retail revenue of £409 million increased by £17 million (2012: £392 million). Of this,
turnover in relation to Royal Mail products increased by £13 million, driven primarily by strong parcel
and premium product volumes and the impact of the stamp price rise introduced on 30 April 2012 In
addition, retail tumover increased by £2 million due to the collectibles relating to the Diamond Jubilee
and the Olympics memorabilia. The rollout of 1,850 additional terminals contributed to an increase of
£2 million in income from sales of lottery tickets.
Financial Services
The Financial Services pillar includes Post Office branded personal financial services products, ATMs
and travel services as well as traditional services such as bill payment and over-the-counter banking
transactions.
Financial Services revenue in 2013 increased by £17 million to £281 million (2012: £264 million).
During the year the Post Office sold its 49.9% share in its financial services associate, Midasgrange
Limited, to the majority shareholder and long-term banking partner, Bank of Ireland (UK) ple. This
was part of a wider agreement to restructure this long-term relationship, aligning the partners to
build a significant long-term financial services business. Through this agreement, the Post Office will
offer an increasing range of transparent and vale-for-money financial products and services,
providing value to customers, subpostmasters and the Post Office.
Personal Finance Services income rose by £24 million driven by strong growth in savings products
(particularly Growth Bonds, Online Saver and Reward Saver) and the introduction of new mortgage
products. The value of savings held in Post Office branded accounts increased by £2 billion to almost
£18 billion. Revenue from traditional financial services products including bill payment services and
Postal Orders declined. This was due to the increasing provision of electronic alternatives to paper
based products and the increasing use of alternative payment methods. Revenues were impacted by
the wind down of the Department of Work and Pensions contract for Cash Cheques (Green Giros) and
the decision by 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 Vehicle Licensing Agency (DVLA) and the Identity and Passport
Service (IPS).
Government Services revenue of £164 million remained flat (2012- £164 million), though income
from the Passport Check & Send service increased by £3 million due to higher volumes from growth
in both our market share and the overall market. Conversely, the anticipated growth in income from
identity-related services has been disappointing. Revenue from the payment of benefits through the
Post Office Card Account was £4 million lower impacted by customers continuing to migrate to
receiving benefits through bank accounts.
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Telecoms
The Telecoms pillar includes the Post Office HomePhone and Broadband services as well as e-top
up services and phonecards.
Telecoms revenue of £129 million (2012 - £120 million) increased by £9 million. Income from
HomePhone and Broadband rose by £10 million primarily due to increased customer numbers
following the introduction in May 2012 of more competitive service packages. Income from e-top
ups was £1 million below prior year as more customers migrated away from pre-pay and mobile
networks reduced their transaction fees. Despite this reduction in income,the Post Office is still a
significant provider in the top-up market and its share of the retail market has been maintained at
approximately 5%.
Other income
Other income is generated primarily from the Supply Chain business which manages and distribute
cash for Post Offices and for third parties. It also offers warehousing services, mainly to Royal Mail
Other income increased marginally to £41 million (2012: £40 million) reflecting the growth in cash
in transit income from third parties.
Network Subsidy Payment
The Network Subsidy Payment is government grant revenue towards the costs of maintaining the
Post Office network. The payment increased by £30 million in the year to £210 million; this will
begin to reduce with effect from 2013-14 as set out in the current funding agreement with the
government.
Costs
Total costs rose by £42 million to £1,172 million (2012: £1,130 million).
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Costs - Prior Year to Current Year
(42)
5
2012 People Costs Subpostmasters’ Other operating 2013
costs: costs
People costs
People costs of £259 million (2012 - £254 million) have increased by £5 million reflecting the
associated costs of bringing a number of functions irhouse, following separation from Royal Mail,and
historical pay agreements. These are partially offset by efficiency savings in the Crown network.
Subpostmasters’ costs
Subpostmasters’ costs of £478 million are £5 million lower than last year (2012 - £483 million). This
includes decreases in fixed costs arising from the introduction of the new network models.
Other operating costs
Other operating costs have increased by £42 million to £435 million (2012- £393 million), driven
largely by additional programmed nvestment spend. This one-off investment spend was £50 million
(2012 - £26 million) and included an increase in media spend to raise customer awareness of Post
Office services in addition to focused campaigns on travel-related services and mortgages together
with 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 joint ventures (First Rate Exchange Services Limited) and associate
(Midasgrange Ltd until its sale on 1 September 2012) was £32 million (2012- £31 million). First
Rate Exchange Services Limited results improved despite lower retail sales due to market conditions.
This has been achieved mainly through driving efficiencies in operating costs. Post Office Limited’s
interest in the associate company, Midasgrange Ltd was sold during the year and made a loss on
disposal of £30 million.
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Exceptional Items
2013 2012
Exceptional items £m £m
Operating exceptional items:
Restructuring costs including subpostmasters’ (79) (2)
compensation
Impairment of investment, property, plant and equipment (66) (36)
Government grant 98
Subtotal operating exceptional items (47) (38)
Non-operating exceptional items:
Profit on disposal of property, plant and equipment 2 1
Loss on sale of associate (30)
Net exceptional items (75) (37)
Restructuring costs
Restructuring costs include the costs of delivery of major change. Network transformation resulted in
costs of £12 million for subpostmasters’ compensation and £40 million programme costs. Costs of
£10 million relate to IT transformation which will create the IT infrastructure appropriate for a
business with ambitious growth plans. Redundancy costs of £11 million were incurred during the
year and mainly related to the Crown network. Business transformation payments of £4 million
(2012 - £3 million) are payments that are sometimes made to staff as an incentive in order to
secure agreement for significant changes in working practices 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 the transformation programme. Government grant funding of
£200 million was received in the year. The additional government grant funding 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 April 2012, from the
Department of Business, Innovation and Skills, to cover £66 million capital expenditure, £12 million
network transformation related subpostmasters’ compensation and £20 million network
transformation programme costs
Treasury
Following the transfer of Post Office Limited from the ownership of Royal Mail Group Ltd to Royal
Mail Holdings plc on 1 April 2012, Post Office Limited has operated an independent Treasury
function and manages its own financial assets (including network cash) and financial liabilities (mainly
government loans).
The Treasury function derives its authority from the Board and provides regular reports for Board
review. It has the authority to undertake financial transactions relating to the management of the
underlying business risks, however, it does not engage in speculative transactions and does not
operate as a profit centre. The principal financial instruments utilised are deposits and borrowings.
The cash position of the business remains strong with cash and cash equivalents of £971 million
(2012 £820 million) and a net cash inflow during the year of £151 million.
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Net debt (excluding cash in the Post Office network) decreased by £119 million year on year as
shown in the table below:
2013
£m
Net debt brought forward at 25 March 2012 (325)
Net cash inflow before financing activities (see page XX) 244
Deduct: Increase in cash in the network included in net cash inflow (21)
Finance costs paid (4)
Total net debt carried forward at 31 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 availability
of external borrowing. Post Office Limited's treasury policy is to minimise the amount drawn down
on the loan in order to reduce the interest charge. The facility is limited to a maximum of £1.15
billion or the amount of security available (mainly network cash), whichever is the lower. The
maximum drawn down under the facility during the year was £499 million on 30 March 2012. The
facility is available at two days’ notice.
At 31 March 2013 the company was financed as follows:
Borrower: Post Office Limited Average
Interest Loan
Purpose rate* Facility Facility Utilised maturity
i end date £m £m date
Network Cash 1.0 2016 1,150 291 2013
* Average interest rate of loan drawn down
Pensions
Post Office Limited is 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 Mail Group Ltd 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 a career average basis.
On 1 April 2012 - after the granting of state aid by the European Commission on 21 March 2012 -
almost all of the pension liabilities and pension assets of the Royal Mail Pension Plan (RMPP), built
up until 31 March 2012, were transferred to HM Government. On this date, the RMPP was also
sectionalised, with Royal Mail Group Ltd and Post Office Limited each responsible for their own
sections in future. This arrangement left the RMPP fully funded on an actuarial basis in respect of
historic liabilities at this date.
The balance sheet pension position moved from a deficit of £206 million at March 2012 to an asset
of £97 million at March 2013. The improvement in position is primarily due to the transfer to
government noted above.
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Both defined benefit plans are now closed to new members. RMSEPP closed on 31 December 2012
and has no active members. New employees are offered membership of the defined contribution
plan.
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
£m £m
Regular pension contributions (24) (24)
Funding of the pension deficit - RMSEPP (2) -
Payments relating to redundancy (2) (3)
Net cash payments (28) (27)
The regular future service contributions cash rate for RMPP expressed as a percentage of
pensionable pay remained at 17.1% (2012 - 17.1%). The regular rate of employee contributions for
the RMPP remains 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 Limited received £415 million
of funding on 2 April 2013.
Chris Day
Chief Financial Officer
Post Office Limited
XX June 2013
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Section: Performance review
Title: Business Risk
Ref required to Corporate Governance section
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The information below details the key business risks, their impact and how the Post Office
manages these risks.
Key Risk
Impact
Mitigation
1. Changes in customer
preferences
There is decline in the
traditional Post Office income
streams as customer
preferences change.
The revenue growth plans in
personal financial services,
mails, government and
telecoms are ambitious. New
income streams may fail to
grow sufficiently to exceed the
losses from traditional products
in decline
Projected reduction in
government subsidy is not
delivered.
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 rigorously.
2. Funding
As set out in note xx, Post
Office Limited has a funding
agreement with government
until 31 March 2015 with a
working capital facility until 3
March 2016. There is a risk
that funding beyond these
dates cannot be negotiated or
that state aid approval is not
granted in time.
Funding is required beyond
2015 in order to complete the
business modernisation and
sustain the non-profitable
elements of the network. The
working capital facility is
required to fund the cash in the
network.
Planning is well underway
for the future period beyond
2015 and discussions will
commence shortly with
Government.
3. Business transformation
programmes
We are managing a significant
number of change programmes
Failure to implement the
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to modernise the Post Office
and enable its processes to
operate independently from
those of Royal Mail Group.
These include the network,
Crown and IT transformation
programmes. The success of
the Post Office strategic plan
depends upon the successful
realisation of the benefits from
these programmes
modernisation will leave the
Post Office with an
unsustainable cost base and a
continued reliance on
significant government subsidy.
We have detailed plans in
place to manage the
transformation and ensure
it is 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.
4.Engagement risk
The support and active
engagement with our people
and subpostmasters during this
significant time of change is key
to the successful delivery of our
strategy. Withdrawal or lack of
support from our employees or
subpostmasters in the network
could cause delays in the Post
Office transformation
programmes and limit our
ability to meet business
objectives.
Lack of support from our
people and subpostmasters will
jeopardise our ability to meet
our strategic goals of growth,
profitability and reduced
reliance on government
subsidy,
We maintain a fluid and
comprehensive engagement
programme with unions,
staff and subpostmasters.
These include regular
meetings with the National
Federation of
subpostmasters (NFSP).
Communication Workers
Union (CWU) and Unite,
senior management
briefings to staff and
subpostmasters, as well as
events to engage our people
in our vision and strategy.
We have a people plan
aimed at addressing staff
motivation and skill needs.
This includes development
of new leadership and
reward frameworks and
increased focus on
recruitment and training
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5. Regulatory & compliance
There is a risk of non-
compliance with the changing
regulatory environment. We
operate under an extensive
regulatory environment
including areas such as
financial and postal services,
procurement, competition law
and data security regulations.
Failure to meet regulatory
requirements could result in
fines, negative impacts on our
reputation, as well as costs of
investigation and resolution
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 Compliance
Committee monitors key
risks and actions to mitigate
them.
6.Business continuity
The Post office has particular
operational risks around
disruption of its services
This includes adverse weather
conditions, industrial action,
systems breakdown or failure
of a critical supplier.
Breakdowns in the network
would reduce quality of service,
increase costs and/or damage
our reputation.
Disaster recovery and
business continuity plans
are under continuous
development and review in
line with business change.
This includes contingency
planning and training in the
event of disruption such as
industrial action or IT
failure.
Key suppliers’ ability to
continue to meet Post
Office’s requirements is
closely monitored.
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Section: Governance
Board biographies
Board:
Post Office Limited’s Board of Directors is chaired by Alice Perkins CB. As Non-Executive Chairman
she is 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 company’s strategic aims, providing the
leadership to put them into effect, 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, risk and compliance, 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.
Alice Perkins CB - Post Office Limited Chairman (Chairman of Nominations Sub-Committee)
Alice had a wide-ranging career in the civil service, which included policy and operational roles in
health, social security and public spending in the HM Treasury. Alice was also the Civil Service’s
Group HR Director in the Cabinet Office between 2001 and 2005. Before joining the Post Office as
Chairman in September 2011, she served as Non-Executive Director on the boards of Littlewoods,
BAA and TNS, where she also chaired the Remuneration Committee, Alice is an external member
of the Oxford University Council, a business coach at the JCA Group, and a member of the faculty
at Meyler Campbell where she teaches senior executives how to coach.
Neil McCausland - Senior Independent Director (Chairman of Remuneration Sub-Committee)
Neil has had a portfolio of non-executive roles over the last 10 years. He is currently Chairman of
three companies. Snow and Rock, a retail chain selling skiing and outdoor brands, bikes and
running gear; Dwell, a multi-channel contemporary furniture retailer; and Skin, a chain of skin
treatment clinics specialising in laser hair removal. 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 MOD agency).
Alasdair Marnoch - Non-Executive Director (Chairman of Audit, Risk and Compliance Sub-
Committee) - being updated
Alasdair Marnoch joined the Board of the Post Office as a Non-Executive Director on 23 May
2012. A Chartered Accountant, he chairs the Board’s Audit, Risk and Compliance Sub-Committee
which reviews the statutory accounts and financial controls. Alasdair has had wide experience as
Finance Director of a number of FMCG and service businesses, including listed companies. Most
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recently, he served as CFO of the Equiniti Group, a leading provider of complex administration and
processing services to the public and private sectors.
Tim Franklin - Non-Executive Director
Tim Franklin joined the Board as a Non-Executive Director on 19 September 2012. Tim was Chief
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. Tim’s
experience extends across the private and public sectors. He is also a Non-Executive Director of
HM Land Registry and was previously on the Boards of Reclaim Fund Limited, Mutual Plus Limited
and the Link Cash Machines Network.
Virginia Holmes - Non-Executive Director (Chairman of Pensions Sub-Committee)
Virginia brings to the Board extensive knowledge of the financial services industry including both
investment management and banking. Her experience includes serving as Chief Executive of AXA
Investment Managers UK and more than a decade with the Barclays Bank Group where she
ultimately served as Managing Director of 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 Ltd and JPMorgan Claverhouse Investment Trust plc.
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 as Director of Corporate Strategy and
Change at the Department of Energy and Climate Change. Susannah has been a civil servant since
2006, working at the Shareholder Executive until 2013 in a number of roles including Head of the
Royal Mail and Postal Services team and Chief Operating Officer. Prior to the Shareholder
Executive, Susannah worked in investment banking at Citigroup and Schroders, specialising in UK
Corporate Finance.
Paula Vennells - Chief Executive
Paula has worked for the Post Office since 2007 in a number of senior roles including Managing
Director. She became Chief Executive on 1 April 2012. Previously, Paula spent five years with
Whitbread plc as Group Commercial Director. She began her career with Unilever and L’Oreal and
held directorships in sales and marketing with a number of major retailers including Dixons Stores
Group and Argos. She is currently a Non-Executive Director and Trustee for Hymns Ancient and
Modern Group.
Chris Day - Chief Financial Officer
Chris 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 Metropolitan/Diageo
in a succession of Treasury/Corporate Finance roles in the UK, and as Finance Director in the
Netherlands and subsequently Germany/Austria. Earlier in his career Chris worked as a financial
management consultant at KPMG having started his career with Beecham Group.
Alwen Lyons - Company Secretary
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Alwen Lyons joined the Post Office in 1984 as a graduate and has worked at a senior level in
several directorates including network, finance and marketing. She became the Company Secretary
in July 2011, after leading the project to separate Post Office Limited from Royal Mail Group.
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Section: Governance
Title: Corporate governance
Corporate governance statement
The shares in Post Office Limited (the “Post Office”) were transferred from Royal Mail Group Ltd to
Royal Mail Holdings plc on 1 April 2012 and the Post Office has operated independently since that
date.
Corporate governance principles
As the Post Office is not a company whose shares are listed and traded on a public exchange, it is
not formally required to report on its compliance with the UK Corporate Governance Code (the
“Code”). Nonetheless, the Board of the Post Office believes this is an appropriate 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 to a Government-owned entity which has no private or institutional external shareholders.
Legal ownership structure
The Post Office is a wholly owned subsidiary of Royal Mail Holdings plc. 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 the Association. These include
a requirement for Post Office Limited to obtain the Special Shareholder's consent for Directors’
remuneration arrangements.
A strong link remains between Royal Mail and the Post Office - the Post Office has a long-term
agreement in place to continue to supply Royal Mail products and services through its network.
That link is currently reinforced in the corporate structure by a common group holding company
(Royal Mail Holdings plc) which holds shares in both Post Office Limited and Royal Mail Group Ltd.
Neither Royal Mail Holdings plc 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.
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The Board
Alice Perkins was appointed as Chairman 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, in the year under review, a further four Non-
Executive directors have been appointed, each bringing particular skills and experience relevant to
the business targets of growth, modernisation, customer focus and business efficiency.
The Board is unusual in having a female Chairman and Chief Executive and being equally
balanced between men and women. The Board, comprises two Executive Directors and six
independent Non-Executive Directors, including the Chairman. This provides a strong level of
independent challenge to decision-making and enables the Post Office to call upon a wide range
of experience and opinion. Short biographies of all members of the Board appear on page X of
this Annual Report.
The Remuneration Committee liaises with ShEx in BIS to obtain Special Shareholder’s consent for
all Directors’ appointments and 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 to be given by the
director and 12 months’ notice to be given by the organisation.
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 Directors are entirely independent of the Post Office, having no other
connection or financial interest, other than as customers and taxpayers.
Non-Executive Directors’ Terms of Office
Director Date of appointment Term of Unexpired term Committee
office at 31 March memberships
2013
Alice Perkins. 21 July 2011 Nominations
I (Chair)
Remuneration
Tim Franklin 19 September 2012 ' ARC
Virginia Holmes 4 April 2012 Pensions (Chair)
Nominations
I Remuneration
Neil McCausland 22 September 2011 Remuneration
‘ (Chair)
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ARC
i Nominations
Alasdair Marnoch 18 May 2012 ARC (Chair)
i
Susannah Storey 18 April 2012 1 ARC
Pensions
Board meetings
The Board meets at least eight times a year, with an additional strategy away day, and has a
formal schedule of matters reserved to it.
The Board’s responsibilities include setting the Post Office’s strategic aims, providing the leadership
to put them into effect, supervising the management of the business and reporting to the
shareholder. During the year to 31 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
Board's primary focus was on setting the strategic direction for the business, in preparation for
completion during 2013-14 of the Strategic Plan and Funding Agreement with Government for the
period 2015-20.
During the year under review, the Board established sub-committees which met regularly to
undertake more detailed reviews in specialist areas, as recommended by the Code. Such focus
areas included accounting policy and practices, risk and 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 References for the Board sub-committees can be found on the Post Office
website.
The following shows the attendance of the directors at meetings of the Board and its principle
committees during the year:
Board I ARC Mutualisation I Nominations I Pension Remuneration
Committee Committee Committee Committee
Alice Perkins 8/8 3/4" 13/3 2/2 - 4/4
Chris Day 8/8 4/4" 3/3 - 77 -
Tim Franklin* 5/5 2/3 2/2 - - -
Virginia Holmes 8/8 - 2/3 2/2 17 4/4
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Neil McCausland 8/8 4/4 3/3 2/2 - 4/4
Alasdair 17 4/4 3/3 © o S
Marnoch*
Susannah 8/8 3/3 2/3 - 6/6 -
Storey*
Paula Vennells 8/8 - 3/3 - - 2/2"
*from date of appointment
tin attendance, by invitation
Board sub-committees
Audit, Risk and Compliance Committee
The Audit, Risk and Compliance Committee (“ARC”) is made up of five Non-Executive Directors and
is chaired by Alasdair Marnoch. The ARC considers Post Office Limited’s financial 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.
During the year the Post Office has been building its own risk management, internal control and
internal audit procedures and this will be an area for further development during the coming year.
One of the ARC's primary responsibilities during the period was to review both the half-year
trading statement and the full-year accounts, to assess the validity of assumptions made and the
accounting policies used and to consider the ways in which the Post Office should present its
financial performance.
A second major responsibility has been to promote the development of a risk management
framework suited to the complex nature of the Post Office business. This will take some time and is
a 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 period, a new Head of Internal Audit was appointed and the transition from using the Royal
Mail internal audit function to building a new internal team had begun.
The ARC works with both the internal audit team and Ernst & Young, the external auditor.
Remuneration Committee
The Remuneration Committee is made up of three Non-Executive Directors and is chaired by Neil
McCausland, the Senior Independent Director. The committee is responsible for making
recommendations to the shareholder on the remuneration of the Executive Directors in accordance
with the articles 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 Chief Executive. It also
obtains information on salary levels across the business and within external organisations of
comparable size in order to set remuneration levels within an appropriate context.
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The Chief Executive may attend meetings, at the invitation of the Chairman, to discuss matters
relating to the remuneration of the Chief Financial Officer and members of the Executive
Committee, but the committee upholds the principle that no individual may be involved in
discussions concerning their own remuneration:
The committee is able to consult on remuneration matters with the Human Resources & Corporate
Services Director, other members of the Human Resources team 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 Special
Shareholder consent. Further details of the schemes now in place, and a table setting out the
remuneration paid to all directors in the year to 31 March 2013, are provided in the Directors’
Remuneration Report on page X.
Nominations Committee
The Nominations Committee is made up of three Non-Executive Directors and is chaired by Alice
Perkins, the Chairman. It met for the first time in December 2012, with director appointments up
to that time having been made according to specific criteria, following discussions with the
shareholder.
The primary role of this committee is to recommend to the Board any changes in Board
membership and manage the process for recruiting and replacing directors. The Board is complete
and no immediate changes are expected. The committee will keep under review the balance of
skills, experience and diversity available within the Board and each of the Board sub-committees.
The Nominations Committee will also oversee the process for Board and committee performance
evaluation, and monitor talent and diversity (see pxx). The Chief Executive may attend meetings, at
the invitation of the Chairman, to discuss matters relating to the talent and diversity policies.
Pension Committee
The Pensions Committee is made up of two Non-Executive Directors and one Executive Director
and is chaired by Virginia Holmes.
The Pensions Solution, adopted in April 2012, saw a substantial transfer of assets from the Royal
Mail Pension Plan (RMPP) to the government, in return for the government assuming the
obligations for past service liabilities. The transfer was made possible following European Union
approval for UK government state aid.
As part of the solution, the pension fund was sectionalised, with the Post Office assuming
responsibility for that part of the pension fund that relates to Post Office employees and
pensioners.
The Board has delegated authority to the Pension Sub-Committee to appoint professional advisers,
to enter into negotiations with the trustees of the RMPP on the forthcoming valuation of the funds,
to agree the investment strategy for the Post Office sections and to monitor funding levels and
investment 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.
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In August 2012 the committee recommended to the Board the appointment of AON Hewitt as its
investment advisers. Working with AON Hewitt and with Towers Watson, its Actuarial advisers, the
committee has satisfied itself as to the fair value of assets transferred into the Post Office section
at 1 April 2012 and agreed a revised investment strategy with the trustees of the RMPP with the
aim of maintaining the long term sustainability of the Scheme and protecting against an
unmanageable increase in liabilities for the Post Office in the future.
Mutualisation Sub-Committee
The Mutualisation Sub-Committee is chaired by Alice Perkins, the Chairman of the Post Office and
its membership is the same as that of the full Board. It met for the first time on 4 July 2012, the
week in which the government published the response to its consultation ‘Building a Mutual Post.
Office’. The committee is responsible for ensuring that the work to develop proposals for the
mutualisation of Post Office Limited is provided with strategic direction, involves the appropriate
level of stakeholder involvement and has adequate support.
The focus of the committee has been to consider the financial, cultural and business implications of
mutualisation to ensure that progress on mutualisation supports and enables the successful delivery
of the Post Office's transformation programme and the delivery of its future commercial strategy,
which is an essential perquisite of any change in governance.
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. Following this internal review, external evaluations will be completed every three
years.
Executive Committee
Below main Board level, the Executive Committee (ExCo) is the most senior management body and
is made up of the Chief Executive and each of her direct reports, supported by some business unit
heads who report to members of the Executive Committee. The committee works within the
delegated authorities established by the Board.
The ExCo implements the strategy agreed by the Board and monitors business performance and
development at a day-to-day level. It meets formally at least once a month to discuss proposals for
new business development, receive financial and other performance reports, and address urgent
issues which have arisen within the business requiring senior level resolution. Twice yearly, it
reviews the results of personal performance assessments undertaken throughout the organisation.
The Chief Executive, Chief Financial Officer and the Company Secretary attend both Board and
ExCo meetings which facilitates 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 in writing and are available to download
from the Post Office website.
Risk management
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The Post Office has adopted the requirements of the FRC Guide to Corporate Governance and
established an approach to the management of risk, tailored to meet the demands of a new
business with ambitious plans for expansion in its chosen markets.
The Board takes ownership of risk management through its Audit, Risk and Compliance Committee
(ARC). The Business’ Risk & Compliance Committee reports into the ARC and is responsible for:
The Board takes ownership of risk management and has asked its Audit and Risk Committee to co-
ordinate a proposed approach in this area for:
review and challenge of risk management
© approval and endorsement of policies to mitigate risk and
development of the risk management framework.
This committee is chaired by the Director of HR & Corporate Services and reports to the Post Office
Executive Committee. The committee comprises members of the executive committee and other
senior managers.
During the year the Post Office set up its own Internal Audit department as part of the ‘three lines of
defence’ model (see below). Internal Audit provides independent assurance and advice on the risk
management framework, its future strategy and evolution, and reports directly to the ARC.
The business also governs financial and related regulatory risk with its partner, the Bank of Ireland
(UK) plc through established joint regulatory risk committees.
Risk management framework
The Post Office has set out the components of risk management in its risk framework. This
framework is described at high level in the diagram below.
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Programme risk
Strategic objectives
: u mitigation
Running the business
Risk management
Int
contro
framework
Management
Reporting
Business continuity management
<< I" line functions ————> 2" line 3 line
The framework utilises a ‘three lines of defence’ model to establish accountability and responsibility
for the effective operation of this framework.
1 line of defence - is responsible for managing risk in day-to-day business operations
2" line of defence - comprises central functions which oversee regulatory compliance and provide
advice on the operation of the framework
3" line of defence - provides independent assurance in respect of the Post Office's regulatory risk
management
The risk framework is supported by the Risk & Compliance team, with dedicated resource in place to
administer the tools and committees in use to manage risk.
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Progress
Over the past 12 months, each directorate has gone through a process of identifying and assessing
the risks associated with achievement of its respective objectives. These risks are recorded on a
software tool to enable aggregation, comparison and risk reporting. In addition, the key strategic
programmes of the business capture their own risks.
The top 12 risks from each of these sources, together with the respective mitigation plans, are
reviewed by the Risk & Compliance Committee to assess 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.
Risk appetite
Over the next 12 months the Post Office will be fully developing its risk appetite statements for each
of the key risks, with a view to establishing where additional risk 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 continuity arrangements throughout the business under one central policy and governance
framework to ensure that the Post Office is capable of withstanding any significant threat to its
ongoing operations.
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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 activities are the provision of access to a 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 Executive's Review (pxx) and the Financial Review (pxx)
constitutes the business review required by the Companies Act 2006 and is incorporated into this
directors’ report by reference.
Results and dividends
The profit after taxation for the year was £38 million (2012 - £30 million). The directors do not
recommend the payment of a dividend (2012 nil dividend).
Pensions
As explained in note 19 on 1 April 2012, almost all of the pension assets and liabilities of the Royal Mail
Pension Plan were transferred to HM Government. On this date the Royal Mail Pension Plan was also
sectionalised with Royal Mail Group Ltd 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 Mail Group Ltd is the principal employer in the Royal Mail Senior Executive Pension Plan and for
the Royal Mail Defined Contribution Plan. Post Office Limited became a participating employer for both
of these plans with effect from 1 April 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 to new members in 2008 and the Royal Mail Senior Executive Plan closed
on 31 December 2012. New employees are offered membership of the Royal Mail Defined Contribution
Plan.
The balance sheet pension surplus of £97m (2012 - £206m deficit) has arisen principally due to the
transfer of pension assets and liabilities to HM Government.
Prior to 1 April 2012, Royal Mail Group Ltd had the legal relationship with the trustees of both defined
benefit plans and, as such, the trustees held Royal Mail Group liable for the actuarial deficit in the
scheme. All employees were employed by Royal Mail Group Ltd and seconded to Post Office Limited
under an agreement between Post Office Limited and Royal Mail Group Ltd. 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 based on employee
numbers over 12 years and represented approximately 7% of the total balance sheet deficit at that time.
The net pension interest, deficit recovery payments and actuarial gains or losses were also allocated on
this basis, giving Post Office Limited approximately 7% of the total balance sheet deficit at the balance
sheet date. The current service cost, regular future service contributions and curtailments were
computed separately for Royal Mail Group Ltd and Post Office Limited based on common factors/rates.
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Political and charitable contributions
During the year charitable contributions of £989,702 (2012 - £320,108) were made. No political
contributions were made in the year (2012 fnil).
Research and development
Research and development expenditure during the year amounted to £nil (20114 £nil)
Policy on the payment of suppliers
The Post Office policy is to use its purchasing power fairly. Payment terms are agreed in advance for all
major contracts. For lower value transactions, the standard payment terms printed on the purchase
order apply. It is 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 upon a historic cost accounting policy and excluding fit-
out, is £11 million (2012 - £11 million). In the opinion of the Directors, the aggregate market value of
Post Office's land and buildings at the year end exceeded their net book value by £73 million (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
N W McCausland
V A Holmes (appointed 4 April 2012)
S J Storey (appointed 18 April 2012)
A Maroch (appointed 23 May 2012)
T A Franklin (appointed 19 September 2012)
P A Vennells *
CM Day *
*Executive Directors
No director has a beneficial interest in the share capital of Post Office Limited. All the Non-Executive
Directors are considered to be independent, having no financial connection with Post Office Limited
other than by virtue of the fees paid for their services as a director. The emoluments of directors are set
out in the Directors’ Remuneration Report (pxx).
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Insurance and qualifying third-party indemnity provisions for directors
Post Office Limited maintains directors’ and officers’ liability insurance for the benefit of all directors and
officers of Post Office Limited.
A partial qualifying third-party indemnity provision (as defined in section 234 of the Companies Act
2006) was and remains in force for the benefit of all the directors of Post Office Limited and former
directors who held office during the year. The indemnity is granted under article 129 of Articles of
Association or Royal Mail Holdings plc, the ultimate parent company. The indemnity is partial in that it
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 involved in 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 quality of our leadership, professionalising key roles, recognise
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-oriented 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 is a need for dignity at work, where everybody feels valued, is 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 all employees to
contribute towards making business improvements.
Corporate responsibility
Post Office Limited is committed to carrying out its activities in a socially responsible manner in respect
of the environment, employees, customers and local communities. Further information can be found in
on page X.
Disabled employees
The Post Office's policy is to give full consideration to applications for employment from disabled people.
Employees who become disabled while employed receive full support through the provision of training
and special equipment to facilitate continued employment where practicable. The business provides
training, career development and promotion to disabled employees wherever appropriate.
Post balance sheet events
[To be confirmed post year end.]
Going concern
After analysis of the financial resources available and cash flow projections for Post Office Limited, the
directors have concluded it is 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.
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Audit information
The directors confirm that, so far as they are aware, there is no relevant audit information of which the
auditor is unaware and that each director has taken all reasonable steps to make themselves aware of
any relevant audit information and to establish that the auditor is aware of that information.
Auditor
The auditor, Ernst & Young LLP, is deemed to be reappointed under section 487(2) of the Companies
Act 2006.
By order of the Board
Alwen Lyons
Secretary
Post Office Limited (company number 2154540)
148 Old Street, London EC1V 9HQ
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Section: Governance
Title: Directors’ remuneration report
Statement by the Chair of the Remuneration Committee
I 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
and, as a publicly funded business with a commercial and public purpose, we embrace the
transparency and accountability required to establish a responsible approach to remuneration.
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 their own remuneration. We have used the recommended governance principles and
proposed legislative changes on the disclosure of executive remuneration to prepare this report and to
aid the development of the remuneration strategy.
The committee recommends the strategy and policy for Executive Directors’ remuneration to the Post
Office Board for their 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 this first year I have held regular dialogues with
officials and ministers in the Department for Business Innovation & Skills to build working relationships
and a common understanding of the issues.
The Post Office has begun the journey to turnaround the business to become a sustainable
organisation, characterised by sound cost control in a performance culture and active stakeholder
participation and engagement. We are planning the future of the business for the next 10 years so the
longer term remuneration policy becomes very important We have deliberately made no changes to
the remuneration policy for the Executive Directors during this first year as we build a track record of
solid achievements against challenging targets.
The framework for the Executive Directors’ remuneration was inherited, with neither the Board nor
the Remuneration Committee involved in its creation. The Remuneration Committee faces a difficult
situation in which it needs to incentivise senior leaders during the transition to turn the business
around while working within a constrained framework and challenging circumstances. There is limited
scope to flex the remuneration framework and reward mechanism to suit the circumstances and
reward appropriately.
The Chief Executive, Paula Vennells, and the Chief Financial Officer, Chris Day, were appointed to their
roles prior to 1 April 2012, the date the Post Office commenced operating independently from Royal
Mail Group. While the responsibilities of the Chief Executive and Chief Financial Officer have increased
significantly, their remuneration remains unchanged.
An extensive remuneration benchmarking exercise was undertaken during the year and data from
similar-sized organisations from 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 the levels of Post Office executive reward for both fixed and total
remuneration are substantially below the market median. The Remuneration Committee agreed
that whilst it would not recommend any immediate remedial action, the relative market position of
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the Executive Directors would be kept under review. Any recommended future change in
remuneration for Executive Directors would be subject to Special Shareholder approval.
For the financial year ended 31 March 2013, the committee was satisfied that there had been a clear
link between 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 in the Implementation section of the Remuneration Report.
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 is undergoing a fundamental transformation and we anticipate that each
year progressively more demanding targets will be set for the STIP and LTIP in order to achieve our
goal of financial sustainability.
The Remuneration Committee is comfortable that the current policy provides a strong link between
reward and performance and I commend this report to our stakeholders.
Neil McCausland
Chair, Remuneration Committee
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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 unlisted company. The committee has also, where
practicable, adopted early the proposed legislative requirements for disclosure of directors’ pay
being put forward for UK listed companies. 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 and its link 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 have been approved by the Remuneration Committee and the
Board.
Remuneration policy report
The committee is responsible for setting the remuneration packages for the Chief Executive and
Chief Financial Officer and determining the overall remuneration policy for the Chief Executive's
direct reports and the Company Secretary.
The committee’s intention is that the remuneration policy should align with the business strategy
and risk profile so that individuals are motivated to deliver the Post Office’s objectives and protect
its brand value. The Post Office remuneration strategy is based on the following:
e Attracting and retaining the right people within an agreed policy to lead and deliver the
strategic plan
e Using incentives appropriately to reward the achievement of the turnaround strategy and
promote the long-term viability of the organisation
e Reinforcing an emerging culture of co-ownership and partnership
e Providing a transparent approach to the disclosure of pay
Remuneration policy summary
The table [overleaf] describes the remuneration policy for the year ended 30 March 2014 and the
breakdown of the packages for the Executive Directors, which comprise of fixed pay (base salary,
benefits and cash in lieu of pension contributions) and pay at risk (STIP and LTIP).
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Remuneration policy table
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Element
Link to strategy
Operation
Performance
period
Maximum values
Base
salary
Determined by reference to the skills and
responsibilities of the individual.
Consideration is given to pay and
employment conditions elsewhere in the
Post Office when determining base salary
increases and to market data on
comparable roles
Directors’ salaries are reviewed annually. The next review is
scheduled for July 2014.
The current salaries for the Executive
Directors, as at 1 April 2013, are:
Benefits
Participation mn life and health assurance
schemes, company car and private medical
schemes are part of Post Office -wide
benefit programmes to retain talented staff
and encourage greater health and
wellbeing
The value of the benefits package is monitored by the
Remuneration Committee and benchmarked against comparator
organisations.
Pension
Pension provision is provided by the Post
Office and is available to all employees to
help them meet their retirement needs and
provide a competitive remuneration
package. Executive Directors receive a
salary supplement in lieu of pension
scheme membership.
Short
term
Incentive
Plan
(STIP)
The STIP drives and rewards performance
against a set of key financial and
operational targets taken from the balanced
scorecard, set each year according to the
current priorities for the business
STIP awards are also linked to the
achievement of personal performance
The metrics and target ranges are agreed annually with the
Board and the Special Shareholder as part of the annual
business and budget planning cycle.
The STIP metrics are a mixture of financial (45%), customer
(20%) modernisation (25%), employee engagement (10%)
measures which link directly to the overall strategy.
80% of the STIP award is based on the balanced scorecard and
One year
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objectives.
20% is based on individual performance objectives which are
agreed with the Board and will require approval by the Special
Shareholder.
Long-
Term
Incentive
Plan
(LTIP)
The LTIP is designed to reward and retain
key executives and senior managers and to
incentivise the 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.
Performance measures for the LTIP are drawn from the Post
Office Funding Agreement agreed with the Special Shareholder.
The intention is to award an LTIP subject to Special Shareholder
agreement. The proposed awards follow a three-year cycle.
Awards for 2013 will be based on access criteria and EBITDAS
targets.
Three
financial
years
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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, (i.e. fixed pay only), on-
target performance (i.e. STIP and LTIP paying out at a target level) and maximum
performance (full payout of STIP and LTIP)
£800,000 7
£700,000 I
£600,000 }
£500,000 }
£400,000 }
£300,000
£200,000
£100,000 }
inimum On-Target
Minimum I On-Targe
Maximum
Paula Vennelis Chris Day
Chief Executive Officer Chief Financial Officer
*subject to Special Shareholder approval
Statement of pay considerations elsewhere in the Post Office
The committee takes into account the pay and employment conditions of employees elsewhere
in the Post Office when setting the remuneration policy for the Executive Directors. For
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example, when determining salary increases for the Executive Directors, consideration is given
to the policy and budget applied elsewhere to other employees. The balanced scorecard used
for the STIP for Executive Directors is 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.
Contracts and loss of office payment policy
Each of the Executive Directors has a signed contract with the Post Office.
Key terms of the contract
Notice period H
Remuneration-related i G R O '
provisions i i
Clawback provision
Non-Executive Directors
The fees paid to the Chairman are approved by the Special Shareholder. Fees for the Non-
Executive Directors are determined by the Executive Directors and are submitted to the Special
Shareholder for approval taking into account time commitment and responsibilities.
Non-Executive Directors’ Letters of Appointment are described in the Corporate Governance
statement (pxx).
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 concerning executive remuneration and the Special
Shareholder approves all aspects of Executive Director Remuneration.
75
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Implementation report
Remuneration for each director (audited)
Name Annual Actual salary/ Benefits Cash in STIP LTIP Total
fees fees lieu of
2012-2013 pension
Non-Executive Directors
Tim Franklin
Virginia Holmes
Alasdair Marnoch
Neil McCausland
Alice Perkins
Susannah Storey (Note 1)
Executive Directors (Note 2)
Paula Vennelis
Chris Day
Pay at risk paid to Executive Directors in 2012-13 (audited)
a) Short Term Incentive Plan 2012-13
The Short Term Incentive Plan is based on the Post Office balance 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
76
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to the modernisation program (25%). Financial performance was assessed through the use of
stretching revenue and operating profit targets. Strong growth in the business during the year
delivered revenue of [(£1.02bn)] which was between target and stretch performance. Tight cost
control meant that operating profit [(£94.2m)] 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 being achieved. Overall, performance exceeded the on-target level across all the
six measures and was in excess of the stretch hurdle for two measures.
Chief Executive
Outstanding Long-Term Incentive awards
77
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Target award Stretch award Performance period
Paula Vennells - Chief Executive Officer
2011 LTIP
2012 LTIP ; ;
Chris Day - Chief Financiat i
2011 LTIP H H
2012 LTIP i :
*LTIP award pro-rated as commenced employment 1 August 2011
Both the 2011 and 2012 LTIP awards are subject to challenging financial and strategic
performance conditions.
Total pension entitlements (audited)
Age at Year end Accrued benefit at 25 Accrued benefit at 31 _Increase in accrued Transfer value of increase
March 2012 or date = March 2013 or date of — benefits during the before inflation less Directors’
of appointment to leaving if earlier period (net of inflation) contributions
the Board if later
Paula Vennells
Age at Year end Transfer value at 25 March Transfer value at Transfers in Member's Movements in the
2012 or at date of 31 March 2013 received contributions in _period less
appointment to Board if during the the period Directors’
later period contributions
£ £ £
£
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Paula Vennells
Relative importance of the spend on pay (audited)
Total people costs at Post Office Limited (excluding exceptionals) for the year ended 31 March
2013 were £259 million, of which £1.4 million related to Directors’ pay. This compares to total
revenues of £1.02 billion
Outside directorships
Subject to Board approval, the Executive Directors are permitted to take on Non-Executive
positions with other companies and are allowed to retain the fees received in respect of such
positions. Paula Vennells is a Director of Hymns Ancient and Modern and a fee of £xx in respect of
the year ended 31 March 2013.
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Representation Letter to Ernst & Young
xx June 2013
Ernst & Young
4 More London Place
London SE1 2AF
Dear Sirs,
This representation letter is provided in connection with your audit of the consolidated and
parent company financial statements of Post Office Limited (“the Group and Company’) for
the 53 weeks ended 31 March 2013 (“the period”). We recognise that obtaining
representations from us concerning the information contained in this letter is a significant
procedure in enabling you to form an opinion as to whether the consolidated and parent
company financial statements give a true and fair view of the financial position of the Group
and Company financial position of Post Office Limited as of 31 March 2013 and of its results
of operations and its cash flows for the period then ended in accordance with IFRS and UK
GAAP respectively.
We understand that the purpose of your audit of our consolidated and parent company
financial statements is to express an opinion thereon and that your audit was conducted in
accordance with International Standards on Auditing (UK and Ireland), which involves an
examination of the accounting system, internal control and related data to the extent you
considered necessary in the circumstances, and is not designed to identify - nor necessarily
be expected to disclose — all fraud, shortages, errors and other irregularities, should any
exist.
Accordingly, we make the following representations, which are true to the best of our
knowledge and belief, having made such inquiries as we considered necessary for the
purpose of appropriately informing ourselves:
A. Financial Statements and Financial Records
We have fulfilled our responsibilities, as set out in the terms of the audit engagement letter
dated 25 February 2013, for the preparation of the consolidated financial statements in
accordance with IFRS and the standalone company financial statements in accordance with
UK GAAP.
We acknowledge, as members of management of the Group and Company, our
responsibility for the fair presentation of the financial statements. We believe the financial
statements referred to above give a true and fair view of (or ‘present fairly, in all material
respects’) the financial position, results of operations and cash flows of the Group and
Company in accordance with IFRS and UK GAAP respectively, and are free of material
misstatements, including omissions. We have approved the consolidated and parent
company financial statements.
The significant accounting policies adopted in the preparation of the financial statements are
appropriately described in the financial statements.
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As members of management of the Group and Company, we believe that the Group and
Company have a system of internal controls adequate to enable the preparation of accurate
Group financial statements in accordance with IFRS and the Company financial statements
in accordance with UK GAAP that are free from material misstatement, whether due to fraud
or error.
We believe that the effects of any unadjusted audit differences, summarised in the
accompanying schedule, accumulated by you during the current audit and pertaining to the
latest period presented are immaterial, both individually and in the aggregate, to the Group
and Company financial statements taken as a whole. We have not corrected these
differences identified by and brought to the attention from the auditor because we do not
believe that they are material to the reader's understanding of the Group and Company
financial statements.
B. Fraud
We acknowledge that we are responsible for the design, implementation and maintenance of
internal controls to prevent and detect fraud.
We have disclosed to you the results of our assessment of the risk that the Group and
Company financial statements may be materially misstated as a result of fraud.
We have disclosed to you all significant facts relating to any frauds, suspected frauds or
allegations of fraud known to us that may have affected the Group and Company (regardless
of the source or form and including, without limitation, allegations by “whistle-blowers”),
whether involving management or employees who have significant roles in internal control.
Similarly, we have disclosed to you our knowledge of frauds or suspected frauds affecting
the entity involving others where the fraud could have a material effect on the Group and
Company financial statements. We have also disclosed to you all information in relation to
any allegations of fraud or suspected fraud communicated by employees, former employees,
analysts, regulators or others, that could affect the Group and Company financial
statements.
C. Compliance with Laws and Regulations
We have disclosed to you all known actual or suspected noncompliance with laws and
regulations whose effects should be considered when preparing the Group and Company
financial statements.
D. Information Provided and Completeness of Information and Transactions
We have provided you with:
Access to all information of which we are aware that is relevant to the preparation of the
Group and Company financial statements such as records, documentation and other matters
as agreed in terms of the audit engagement.
Additional information that you have requested from us for the purpose of the audit and
Unrestricted access to persons within the entity from whom you determined it necessary to
obtain audit evidence.
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All material transactions have been recorded in the accounting records and are reflected in
the Group and Company financial statements.
We have made available to you all minutes of the meetings of shareholders, directors and
committees of directors (or summaries of actions of recent meetings for which minutes have
not yet been prepared) held through to the most recent meeting on xx May 2013.
We confirm the completeness of information provided regarding the identification of related
parties. We have disclosed to you the identity of the Group's related parties and all related
party relationships and transactions of which we are aware, including sales, purchases,
loans, transfers of assets, liabilities and services, leasing arrangements, guarantees, non-
monetary transactions and transactions for no consideration for the period ended, as well as
related balances due to or from such parties at the year end. These transactions have been
appropriately accounted for and disclosed in the consolidated financial statements.
We have disclosed to you, and the Group and Company has complied with, all aspects of
contractual agreements that could have a material effect on the Group and Company
financial statements in the event of non-compliance, including all covenants, conditions or
other requirements of all outstanding debt.
E. Liabi
ies and Contingencies
All liabilities and contingencies, including those associated with guarantees, whether written
or oral, have been disclosed to you and are appropriately reflected in the Group and
Company financial statements.
We have informed you of all outstanding and possible litigation and claims, whether or not
they have been discussed with legal counsel.
We have recorded and/or disclosed, as appropriate, all liabilities related litigation and claims,
both actual and contingent, and have disclosed in the Group and Company financial
statements all guarantees that we have given to third parties.
F. Subsequent Events
Other than those disclosed, there have been no events subsequent to period end which
require adjustment of or disclosure in the Group and Company financial statements or notes
thereto.
G. Accounting Estimates
We believe that the significant assumptions we used in making accounting estimates,
including those measured at fair value, are reasonable.
Accounting estimates recognized or disclosed in the Group and Company financial
statements:
+ We believe the measurement processes, including related assumptions and models,
we used in determining accounting estimates is appropriate and the application of
these processes is consistent.
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+ The disclosures relating to accounting estimates are complete and appropriate in
accordance with the applicable financial reporting framework.
+ The assumptions we used in making accounting estimates appropriately reflects our
intent and ability to carry out specific courses of action on behalf of the entity, where
relevant to the accounting estimates and disclosures.
+ No subsequent event requires an adjustment to the accounting estimates and
disclosures included in the Group and Company financial statements.
H. Going Concern
Note 1 to the Group and Company financial statements discloses all of the matters of which
we are aware that are relevant to the Company's ability to continue as a going concern,
including significant conditions and events, our plans for future action, and the feasibility of
those plans.
ies
I. Contingent Liabili
We are unaware of any violations or possible violations of laws or regulations the effects of
which should be considered for disclosure in the Group and Company financial statements
or as the basis of recording a contingent loss (other than those disclosed or accrued in the
Group and Company financial statements).
We are unaware of any known or probable instances of non-compliance with the
requirements of regulatory or governmental authorities, including their financial reporting
requirements, and there have been no communications from regulatory agencies or
government representatives concerning investigations or allegations of non-compliance.
Yours Faithfully,
Chief Financial Officer
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Accompanying schedule of audit differences
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32
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ase 168 (amy co)
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UNDERTAKINGS AND STATEMENTS MADE BY DIRECTORS
Overview
A statement of the Directors’ responsibilities regarding the preparation of the
financial statements is included in the Annual Report and Financial Statements. The
financial statements also make specific references to Directors’ responsibilities.
These are set out below.
Directors’ Report - land and buildings
This Directors’ Report states "The net book value of the Group’s land and buildings,
based upon a historic cost accounting policy and excluding fit-out, is £11m (2012
£11m). In the opinion of the Directors, the aggregate market value of Post Office
Limited’s land and buildings exceeds this net book value by £73m (2012 £45m).”
Commentary. The figure has been reached based on the external valuation carried
out in March 2011 which covered almost all properties and on the basis that the
property market has been static. The properties transferred from Royal Mail were
valued in September 2012 and their value forms £30m of both the total value and the
difference in excess of net book value as they are recorded on the balance sheet at
a net book value of Enil.
Directors’ Report — audit information
This paragraph states “The Directors confirm that, so far as they are aware, there is
no relevant audit information of which the auditor is unaware and that each director
has taken all reasonable steps to make themselves aware of any relevant audit
information and to establish that the auditor is aware of that information”
Commentary. This statement is a requirement of the Companies Act introduced for
the first time in the financial statements year ending 25 March 2007. The Ernst &
Young Audit and Risk Committee report states that, to the best of their knowledge,
they have had all the information necessary to enable them to complete the audit.
Directors’ Report - Going concern
This paragraph states “After analysis of the financial resources available and cash
flow projections for Post Office Limited, the Directors consider that it is appropriate to
prepare the financial statements on a going concern basis”.
Commentary. A going concern update is included in Section 12 of the ARC Briefing
Book which is included with these papers.
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Statement of Directors’ responsibi
s in relation to the financial statements
This is the statement recording the Directors’ responsibilities and that they consider
the financial statements to be true and fair.
Commentary. An enterprise wide integrated accounting system (ESFS) is in
operation, which is supplemented by Royal Mail Group wide finance policies, as well
as Post Office’s own policies, and an internal control environment. This ensures that
the underlying accounting records are not materially misstated. Consolidation
systems and processes ensure all appropriate intercompany transactions are
eliminated. The Post Office Limited management accounts are reviewed by the Post
Office Executive Committee and Board on a monthly basis. All numbers are sourced
from the same underlying finance records.
It can be concluded, therefore, that the financial statements prepared give a true and
fair view of the state of affairs of the Group and Company. This view is supported by
the findings of the external audit.
Signatures
A minimum of one Director needs to be given delegated authority to sign the financial
statements on behalf of the Board as a whole. It is recommended, however, that
Paula Vennells and Chris Day both sign the balance sheet. Alice Perkins is
recommended in the event that either is unavailable.
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The fabric
of our society
Annual Report and Accounts 2013
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Post Office Annual Report 2013, Operations Performance Governance Financials
4
+ Revenueincreasedin 2012/13 by £xx million to
lernal Revenues (£m) £1,xxxmillion, with growth in our Mails, Retailand
FinancialServicesbusinesses
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fugiaectemes mintius.
For more information visit
our online annual report at
www.postoffice/ar2013.com
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=z 3
Who we are
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POST
OFFICE.
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Post Office Annual Report 2013,
4
Chairman’s statement
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Overview
. rn rn Ayear of significant progress
Post Office network
I Heading
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Operations, Performance Governance Financials
5
Financial Services
Imisation programme
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Post Office Annual Report 2013,
6
Chief Executive’s review
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A year of significant progress
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table growth Quiaspe audam
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Operations, Performance Governance Financials
i
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Post Office Annual Report 2013,
10
Operations Performance Governance Financials
11
Businessat aglance
Government services Mails and retail lancial services
Telephony
—
=D ¢
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1.2 million
2012: 0.9 million
Overview
To read more about Government
Services go to page xx
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2012: 2.1 million
Overview
To read more about Government
Services go to page xx
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To read more about Government
Services go to page xx
Life insurance sales
+21%
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2012: 3.1 million
Overview
To read more about Government
Services go to page xx
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Governance Financials,
25
‘OverviewI Operations figegeaEMes
Performance
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Post Office Annual Report 2013,
26
Our people
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GRO
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Post Office Annual Report 2013, ‘OverviewI Operations, Performance Governanc
56 57
Consolidated income statement oup balance sheet
Note 2o12em 2014 Em Note 2012 2011 £m
Non-current assets rent assets
" 582 607 " 582 607
12 1328 124.0 12 1328 1240
508 455 508 455
264 284 264 284
13 289 34.0 13 289 340
44 25 44 25
94 29 94 229
in 12 10 12 10
3124 3280 3124 3280
Current assets t assets
14 104.8 835 14 1048 835
f 2965 2858 2965 2858
in 26 35 26 35
34 61 314 631
19 444 19 444
446.9 4803 446.9 4803
Total assets 759.0 2083 Jssets 759.0 8083
I iabitties
18 305 204
3720 3634
Group statement of. OB
total recognised gains and losses 8
4002 4409
Nina 2011 £m rent liabilities
18 650 953
Non-current assets 30 99
" 58.2 607 97 14
12 1328 124.0 45 42
508 455 56 153
284 284 878 1361
13 289 30 bilities 497.0 5770
44 25
04 29 ets 2620 2313
mn 12 10
3124 328.0
Current assets 02 02
14 104.8 335 12 08
i 2965 2858 Ea 330
rn 26 35 2193 1908
34 634 attributable to owners of the parent company 254.8 2248
119 a4
446.9 4803 72 65
Total assets 759.0 8083 ma aa
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merchantcantos P : t :
Post Office 1
Limited SSS q
Client Project
Annual Report Post Office Limited Annual Report 2013
2013,
Job no. Date
Strapline 25 April 2013
introducing the
theme
OBC FC
Corporate Contents Overview Overview Overview: Overview: Overview: Overview: Overview: I Overview:
statement Chairman's Chairman's Chief Chief Chief Chief
statement statement executive's executive's executive's I executive's
Highlights (key Who we are- I What we do- review review review review
stats) Care, key stats in
Challenge, numbers
- Financial Commit
- Operational
[
[
IFC 1 2 3 4 5 6 7 8 9
Overview: Overview: Operational Operational Operational —_I Operational Operational _I Operational Operational _I Operational
Strategy Strategy review review review review review review review: review:
Branch network I Branch network I__I Branch networkI Branch network Branch networkI Include Business ata I Business ata
-Network and I Transformation Transformation I Transformation Transformation I customer base glance glance
Crown trans ~ Network and small
Crown businesses, Mails and Govt services,
supply chain Retail, Telephony
and normal Financial
customers? services
10 1 12 13 14 15 16 7 18 19
Operational Operational Operational Operational Performance I Performance Performance Performance Performance Performance
review review review review review review review review Review Review
Mails & Retail I Financial Govt ServicesI Telephony Our People —_I Our People: Our People: —_I Our People:
services case study case study Our customers: I Our customers:
case study
20 21 2 23 24 25 26 ar 28 29
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merchantcantos P . t .
2
Client Project
Post Office Limited Annual Report 2013
Job no. Date
25 April 2013
Performance Performance Performance I Performance Performance I Performance Performance Performance Performance Governance
Review Review Review Review review review review review review
Financial Financial Financial Financial Business risk I Business risk Business risk Contents
csR csR overview overview overview overview
30 31 32 33 34 35 36 37 38 39
Governance § —_ I Governance: Governance _I Governance Governance _I Governance Governance _I Governance Governance —_I Governance
Board of pxs Board of Pxs Directors’ Corporate Corporate Corporate Corporate Corporate Corporate Directors’
Director re report Governance Governance _I Governance Governance _I Governance Governance _I remuneration
ind Blogs: an report p43-xx
Alwen Alwen Alwen Alwen Alwen Alwen Alwen Alwen Alwen Karen Hamer
40 a a2 Ey “4 ro 6 a 48 49
Governance _I Governance Governance —_I Governance Governance —_I Governance Governance _I Governance Financials
Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Contents
remuneration I remuneration remuneration — I remuneration remuneration I remuneration remuneration I remuneration Pg56-xx
report p43-xx _I report p43-xx report p43-xx _I report p43-xx report p43-xx _I report p43-xx report p43-xx _I report p43-xx
Karen Hamer I Karen Hamer Karen Hamer I Karen Hamer Karen Hamer I Karen Hamer Karen Hamer I Karen Hamer
50 81 82 53 54 55 56.96 96 IBC
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Pagination
3
Client Project
Client Project
Job no. Date
Job no. Date
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Post Office Limited
Audit, Risk and Compliance Board Sub-Committee
Briefing Book
Full Year ended 31 March 2013
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Section
1. Glossary
2. Introduction
3. Accounting Policies
4, Primary Statements
5. Operating profit
6. Revenue
7. Costs and people
8. Quality of earnings
9. Pensions
10. — Exceptional items and provisions
11. Interest, cash, debt, funding and hedging
12. — Going Concern
13. Property, plant and equipment and non-current assets held for sale
14. — Goodwill. Investments and intangibles
15. Working Capital
16. Provisions
17. Litigation and claims- potential claims regarding Horizon
18. Taxation
Page
10
14
19
20
26
28
30
33
34
35
40
4a
42
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1
Glossary review
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Below is a listing of key abbreviations used throughout this document with the full meaning
given:
Abbreviation Meaning
ATM Automated teller machine
BIS Department for Business Innovation & Skills
CWU Communications Workers Union
DVLA Driver & Vehicle Licensing Authority
DWP. Department of Work & Pensions
Eagle Deal in August 2012 to sell POFS to the Bank of Ireland,
restructure commission rates for personal financial
services and extend the contract to 2023
FOoG Front Office of Government
FRES First Rate Exchange Services
Gamma A contract variation made in 2007 with POFS generating
£100m cash and income over a number of years in
return for a series of commitments through to 2020
Horizon Horizon Next Generation- Counter system
JV Joint venture
LTIP Long Term Incentive Programme
NBV Net Book Value
NS&l National Savings & Investments
NSP Network Subsidy Payment
NTP Network Transformation Programme
POCA Post Office Card Account
PFS Personal Finance Services
POFS Post Office Financial Services
POOC Project One Off Costs
RMPP. Royal Mail Pension Plan
RMSEPP Royal Mail Senior Executive Pension Plan
RMDCP Royal Mail Defined Contribution Plan
SGEI Services of General Economic Interest
UKBA United Kingdom Borders Agency
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Introduction
This Briefing Book has been prepared to explain the Post Office Limited results for the year
ended 31 March 2013. It is a summary of the key data, trends and analyses to be read in
conjunction with the Annual Report & Financial Statements, which readers may find useful to
further their own understanding of the results for 2012-13. Post Office Limited has opted not
to take advantage of the Companies Act exemption from the preparation of consolidated
accounts as it is a wholly owned subsidiary within the Royal Mail Holdings plc group which
prepares group accounts. The Annual Report & Financial Statements therefore report
consolidated results.
Most of the analyses are based on the comparison of this year’s actual results to prior year.
This year consists of 53 weeks (2012 was 52 weeks).
Comparison against budget is discussed in the Monthly Performance Report presented to the
Post Office Limited Board on a monthly basis.
Accounting policies
This is the first year that Post Office Limited has reported its results since operating
independently and it has been decided to report under International Financial Reporting
Standards (IFRS). The changes to accounting policies and disclosures, which have been
necessary as part of the transition to reporting under IFRS as adopted by the European
Union, have had no effect on the income statement or net asset position.
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4. Primary Statements
4.1 Post Office Limited Consolidated Income Statement.
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Post Office Limited Consolidated income Statement for the year ended 31 March 2013 and 25 March 2012
2012-13 2011-12
Section £m £m
Continuing operations
Turnover 1,024 980
Network Subsidy Payment 210 180
Revenue 6 1,234 1,160
People Costs 7.2 (259) (254)
Subpostmasters costs 7.2.4 (478) (483)
Other operating costs 73 (435) (393)
Share of post tax profit from joint venture and associates 32 31
Operating profit before operating exceptional items 5 94 61
Operating exceptional items 10 (47) (38)
Operating profit 47 23
Profit on disposal of fixed assets 10 2 1
Loss on sale of associate 10 (30)
Profit before financing and taxation 19 24
Net interest payable 111 (4) (7)
Finance income 1 i
Net pensions interest 2 2
Profit before taxation 18 20
Taxation credit 31 10
Profit for the financial year from continuing operations 49 30
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4.2 Post Office Limited Consolidated Cashflow Statement
Post Office Limited consolidated cashflow statement for the full year to 31 March 2013
2013 2012
Notes £m £m
Cash flows from operating activities
Operating profit before exceptional items 9% 61
Adjustment for:
Depreciation and amortisation 7 1
Share of profit from joint ventures and associates 14.3 (32) (31)
Pension operating costs 25 24
Working capital movements: 1 24
(Increase)/Decrease in trade and other receivables (138) 11
Increase in trade and other payables 207 18
(Increase) in inventories (2) -
Increase/(Decrease) in non-exceptional provisions 4 (2)
Pension operating costs paid (26) (27)
Cash payments in respect of operating exceptional items: 133 (27)
Business transformation (44) (12)
Government grant 200 7
Restructuring costs (a4) (15)
Other (12) =
Net cash inflow from operating activities 265 25
Income tax recovered 11 12
Cash flows from investing activities
Investment in associate (a4) =
Dividends received from joint ventures and associates 14.3 40 38
Finance income received 1 -
Proceeds from sale of property, plant and equipment 2 2
Proceeds from disposal of associate 2 .
Purchase of property, plant and equipment (66) (33)
Net cash (outflow)/inflow from investing activities (32) 7
Net cash inflow before financing activities 244 44
Cash flows from financing activities
Finance costs paid (3) (4)
Payments to finance lease creditors (3) (3)
(Repayment)/proceeds from bank borrowings (86) ia
Net cash (outflow) from financing activities (92) (5)
Net increase in cash and cash equivalents 152 39
Effect of exchange rates on cash and cash equivalents (1) (a)
Cash and cash equivalents at the beginning of the year 820 782
Cash and cash equivalents at the end of the year 11.2 9714 820
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4.3 Post Office Limited Consolidated Balance Sheet
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Post Office Limited consolidated balance sheet at 31 March 2013 and 25 March 2012 and 28 March 2011
2013 2012 2011
Notes £m £m £m
Non-current assets
Intangible assets - = =
Property, plant and equipment 13 1 11 12
Investments in joint ventures and associates 141 60 89 %
Retirement benefit surplus 97 7 7
Total non-current assets 168 100 108
Current assets
Inventories 151 8 6 5
Trade and other receivables 15.2 362 226 241
Cash and cash equivalents 112 971 820 782
Financial assets - derivatives 1 - »
Total current assets 1,342 1,052 1,028
Total assets 1,510 1,152 1,136
Current liabilities
Trade and other payables 153 (898) (583) (579)
Financial liabilities - interest bearing loans and borrowings 11.2 (291) (377) (375)
~ obligations under finance leases 112 (3) (4) (4)
Provisions 16 (a9) = =
Total current liabilities (1,211) (964) (958)
Non-current liabilities
Financial liabilities - obligations under finance leases 11.2 (4) (6) (9)
Other payables e (2) (5)
Provisions 16 (7) (14) (26)
Retirement benefit obligation - (206) (316)
Total non- current liabilities (14) (228) (356)
Net assets/(liabilities) 288 (40) (178)
Equity
Share capital ~ es -
Share premium 465 465 465
Retained earnings (179) (552) (690)
Other Reserves 2 47 AT
Total equity/(deficit) 288 (40) (178)
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5. Operating profit
51 Operating profit bridge analysis
74 5
=
(5)
£m %
(41)
61
F : 1 - 1 - 1
2012 Revenue People Costs Subpostmasters’ Non People 2013
Costs Costs/Other
5.2 Explanations for key movements are as follows:
e Revenue explanation is in section 6.
e The £5.4m increase in People costs was mainly due to:
o Higher wages and salaries and NI costs of £5.2m due to pay awards, increased use
of people, both temporary and permanent such as FOoG and the new
Communications Directorate and the impact of the 53” week,
o Higher pension costs of £1.4m due to the higher IAS19 rate,
o Higher temporary resource costs of £2.1m driven by modernisation and separation
programmes, and higher agency labour in Network prior to change implementation.
Year on year the headcount figure has increased by 88, primarily due to the NTP
programme,
©. This was offset by lower productivity & bonus costs of £3.8m, largely due to long
term incentive scheme costs over accrued in the prior year by £1.9m and corrected
in 2012-13.
e Subpostmasters’ costs were £4.8m lower than last year, this includes decreases in
fixed costs arising from the introduction of new network models.
e Non people costs/other (including project one off costs) were higher by £40.5m mainly
due to:
o £26.3m higher project one off costs (POOC), (see section 7.3.15),
o Last year’s compensation costs included a £2.4m release relating to WHS TUPE
transfers,
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£3.5m increase in marketing and legal fees (after offsetting the £10m skills group
costs within the People and Agent Related line) due to marketing costs of £2.2m
relating to brand development, and legal costs of £1.3m relating to primarily to
separation and modernisation programmes,
£4.3m increase in property facilities and maintenance costs, due work transferred in
post separation and increased rates relating to a higher number of ATM machines,
£6.9m higher cost of sales was mainly driven by increased Telephony bandwidth
costs and higher UKBA volumes as a result of rolling out more ID Services terminals,
and also due to higher Retail costs due to the Olympic and Jubilee collectables,
This was offset by £5.0m lower Group overheads costs as a result of separation.
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6. Revenue
2012-13 2011-12 Variance
£m £m £m
External Revenue 862 801 61
Internal Revenue 372 359 13
Total Revenue 1,234 1,160 74
61 Post Office Limited - External revenue analysis
~
Post Office Limited External Revenue Bridge £m
862
30
17
_
804 bs I = I
° ‘= =
2012" Government Other Retail Lottery Telephony Financial Network = (2013
Services Services ‘Subsidy
Payment
= es
The increase in year on year external revenue of £61m (7%) to £862m (2011 £801m) is
driven by the £30m increase in the Network Subsidy Payment, and an increase of £31m in
like for like income.
The following commentary gives further detail on the external revenue variances by
category:
6.1.1 Financial Services
Financial Services income has increased by £16.5m (6.2%) year on year. This continues the
trend of increases in new products offsetting the decline of traditional products. The main
variances are:
* a £23.7m increase in PFS savings products (Online Saver, Growth Bonds, Reward
Saver and Instant Saver- £6.5m, £6.4m, £4.5m and £3.0m favourable respectively).
10
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This includes the benefit of the renegotiated commission rates following the ‘Eagle’
deal, and
e a £0.9m increase in ATM revenue, driven by increased volumes as machines reach
maturity and the rollout of new machines.
This was offset by
¢ a £3.3m decline in NS&l revenues as NS&I look to provide most of their products,
particularly savings, through their own direct channel,
« a £1.6m net decrease in Banking revenue from:
o a £4.0m fall from the DWP. Volumes continue to fall as the Government is
migrating customers to other payment methods, offset by
o a £0.2m increase in business banking revenues due to rate reduction from
renegotiated contract, and
o an increase of £2.2m in personal banking driven by the new RBS contract and
adjustment in the prior year.
« A£2.1m decrease from Payment Services due to:
o a £1.0m decline from bill payments, as utilities and other bill payment clients
continue to migrate customers to other payment methods such as direct debit and
online, and
o a £2.7m decrease in Postal Order income (including write back of uncashed Postal
Orders over 2 years old).
6.1.2 Telephony
The Telephony Services pillar includes the Post Office Homephone and Broadband services,
as well as mobile top-up services and phonecards.
Telephony Services revenue of £129m (2012: £120m) has increased by £9m. Income from
the Post Office Homephone and Broadband product rose by £10m, primarily due to higher
customer numbers, following the introduction in May 2012 of more competitive service
packages to attract and retain customers. Income from mobile top-ups was £2m below prior
year, as transaction volumes declined due to the mobile networks actively migrating
customers away from pre-pay, and also reducing their transaction fees. Despite this
reduction in income, Post Office is still a significant player in the top-up market. Our share of
the retail market has been maintained as we have seen a slower decline in volumes than
many retailers.
6.1.3 Retail & Lottery
Retail and Lottery revenues have increased by £4.4m (9.5%):
e Lottery is £2.0m higher than last year, driven by the large amount of rollovers, new
draws (Euromillions twice a week) and more terminals,
« Retail up £2.4m benefiting from collectibles for the Olympic and Paralympic games, as
well as the Diamond Jubilee.
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6.1.4 Government Services
Government Services revenue is flat year on year but included the following movements:
e £2.6m higher Passport income due to both higher price and higher volumes,
e — £5.5m higher AEI UKBA income as this is a new product,
This was offset by
e £4.1m adverse variance from AEI DVLA, due to last year having a one off payment of
£3.0m relating to service levels
e £4.2m adverse from falling numbers of POCA accounts, through natural attrition,
migration of customers to bank accounts and lower commissions linked to lower
LIBOR.
6.1.5 Other
Year on year increase of £0.6m was primarily due to:
« Increased revenues from External Cash in transit services and the remainder from
Gamma income.
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6.2
Post Office Limited - Internal Revenue Analysis
XY
Post Office Limited Internal Revenue Bridge £m
2012
Mails
372
2013
6.2.1 Mails
The £13.0m (3.8%) increase in Mails Revenue is driven by strong volumes and the price
increase in May 2012.
« Approximately £8.8m was driven by price, and £4.2m by volume increases.
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« The new Mails Distribution Agreement resulted in a reduction in fixed fee of £30.3m,
which is more than offset by increases in variable commissions across the product range.
Mails Income is analysed in the table below:
2012-13 2011-12 Variance Volume Price
£m £m £m £m £m
Special Delivery 53.2 53.3 (0.1) 07 (0.8)
Parcelforce 24/48 83 65 17 25 (0.7)
Labels 100.2 83.9 163 28 13.5
Stamps 35.2 318 34 (1.7) 5.2
Royal Mail Parcels 62 75 (1.3) (0.4) (2.0)
International Express & Non Express. 34.9 29.9 5.0 (0.8) 58
Other Parcelforce 81 8.2 (0.1) 0.4 (0.5)
Other Royal Mail 37.8 19.4 18.4 07 17.7
Total Variable Income 283.9 240.6 43.3 42 39.0
Fixed Fee 744 104.7 (30.3) S (30.3)
Total Mails 358.3 345.3 13.0 42 88
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7. Costs and People
This section discusses expenditure, excluding exceptionals.
7.1 Total Costs Analysis (excluding exceptionals)
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The following provides a breakdown of costs for the year ending 31 March 2013 compared to
the year ending 25 March 2012
Section 2012-13 2011-12 Variance
£m £m £m
Expenditure - (pre- exceptional)
Wages & Salaries 182 179 (3) (2%)
Overtime 9 8 (1) (15%)
Productivity/Bonus 15 19 4 20%
Employers NI 19 17 (2) (12%)
Pensions 25 24 (1) (6%)
Projects (temp people resource) 2 3 Al, 28%
Temporary Resource 7 5 (2) (45%)
PEOPLE COSTS 7.21 259 254 (5) (2%)
Subpostmasters' costs 7.24 478 483 5) 1%
Collection, Delivery & Conveyance Charges 734, 1 1 (0) (12%)
Compensation Ta.2 1 (2) (3) 127%
Property Facilities 733 8 6 (2) (39%)
Property Maintenance 73.4 6 4 (2) (48%)
Vehicles 73.5 2 2 (0) (10%)
Computers & Telephones 73.6 79 79 0) 0%
Consultancy, Marketing & Legal Fees 7.3.7 27 13 (14) (103%)
Staff & Agent Related Costs & Consumables 73.8 2 12 10 86%
Finance 73.9 16 16 0 0%
Cost of Sales 7.3.10 121 114 (7) (6%)
Other Operating Costs 7341, 21 18 (3) (16%)
Depreciation 7.8.12 0 0 0 6%
Interbusiness Expenditure 7.3.13 85 85 0) 0%
Group Overheads 7.3.14 15 20 5 24%
Projects (excluding temporary people resource & IB) 4315: 50 24 (26) (110%)
Total Other Operating Costs 73 435 393 (42) (11%)
TOTAL EXPENDITURE (Pre Exceptionals) 1172 1130 (42) (4%)
14
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7.2
7.21
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People Costs (2013 £259m vs 2012 £254m)
People costs (2013 £259m vs 2012 £254m)
People costs have increased in total by £5.4m (2.1%) to £259.3m, representing 22.1% (2012
22.5%) of the cost base. The number of people employed increased by 88 to 7,886 at 31
March 2013 (2012 7,798), primarily due to the Network Transformation Programme. NTP
people costs are included within exceptional costs.
The people cost movement comprises:
7.2.2
7.2.3
A total increase of £3.1m (2%) in Wages and Salaries an increase reflecting the impact of
the agreed pay awards and the 53™ week.
Overtime has increased by £1.2m (15%).
Employers NI has increased by £2.1m (24).
Pension costs have increased by £1.4m (6%), as a result of a change in the IAS 19 rate for
the RMPP service cost to 18.2% (2012 17.1%), driven by market conditions at 25 March
2012.
Productivity costs have decreased by £3.8m (20%), largely due to long term incentive
scheme costs over accrued in the prior year by £1.9m and corrected in 2012-13.
Temporary resource costs have increased by £2.1m (45%), driven by recruitment to support
various projects and higher agency labour in Network. This has been offset by a decrease in
other project resource of £0.7m.
People Numbers
The following analysis shows the movements in the number of people employed during the
year.
The People numbers were as follows:
Period end employees Average employees
34 March 2013 25 March 2012 2013 2012
Total employees 7,886 7.798 7,842 7.734
Average Cost Per Employee
The 2013 average number of employees for the year ending 31 March 2013 was 7,842
(2012 7,734). The average annual cost per employee (excluding exceptional costs and
exceptional heads) based on these averages has increased by £1,415 (4.3%) to £34,000
(2012 £32,585) due to pay awards and recruitment.
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7.24
73
234
4.3.2
4.3.38
7.3.4
7.3.5
7.3.6
Bok
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Subpostmasters costs (2012 £478m vs 2011 £483m)
Total subpostmasters costs decreased by £4.7m (1%) due to the one off payment made in
2012 of £400 to all subpostmasters and this has offset the increase of £4.2m reflecting
the increase in stamps tariff and increase sales.
There have been savings of £2.0m in fixed pay arising from the introduction of new local
models and savings in VAT/NI of £2.6m largely due to the improved VAT recoverable rate.
The average annual cost per subpostmaster branch (excluding VAT and NI) is £43,727
(2011 £43,568). This is a 0.4% increase on the prior year.
2012-13 2011-12
MAIN 178 25
LOCAL 329 177
Franchise 367 409
MSPO. 580 603
SPSO 8,882 9,209
Locally Funded 11 12
Total Subpostmaster Branches 10,347 10,435
Outreach 939 888
Satellite 121 123
Crown 373 373
Total Branches 11,780 11,819
Other Operating Costs (2012 £435m vs 2011 £393m)
Collection, Delivery & Conveyance charges have generally remained flat year on year.
Compensation costs have increased by £3.0m, mainly due to a one off provision release
relating to the CWU TUPE claim for the WHS transfers in 2011-12 of £2m.
Property Facilities costs have increased by £2.3m, due to a provision for ATM business rates
£1.7m (see section 16) and electricity charges.
Property Maintenance costs have increased by £2.0m, due to the increased number of Post
& Go machines requiring annual maintenance.
Vehicles costs have remained flat.
Computers and Telephones costs have decreased by £0.4m year on year. £1.5m is due to
cheque processing now classified as other operating costs, therefore the underlying variance
is an increase of £1.0m which is due to increased Prism charge.
Consultancy, Marketing & Legal Fees have increased by £13.8m. £10m of this is offset with
the line staff and agent related costs below for Skills group off charges for the greater
16
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project activity. The remainder relates to increased marketing costs and increased legal costs
relating primarily to separation.
7.3.8 Staff & Agent Related Costs & Consumables have decreased by £10.3m. This needs to
offset with the line above as £10m is due to Skills group off charging to projects. Other
variances in this section were reduced training and printing costs.
7.3.9 Finance costs have remained flat.
7.3.10 Cost of Sales has increased by £6.9m (6%), driven by bandwidth payments of £5.4m for
Telephony customers and £2.0m due to new UKBA volumes as a result of rolling out more
ID Services terminals. The main reasons are detailed below:
Cost of Sales
2013 2012 Variance
£m £m £m Comments
Increase bandwith charges of £5m partly
Home Phone 85 79 (6) (78) ue to higher customers
Increase sales due to collectable
Retail 5 4 (4) (24%) _ products for the Jubilee and the
Olympics
Financial Services 4 3 2 52% Decrease in Travel Insurance sales
Increase due to higher UKBA volumes as
AEI UKBA 30 28 (2) (7%) a result of rolling out more ID Services
terminals
Total 121 114 (7) (6%)
7.3.11 Other Operating costs have increased by £3.0m (16%) primarily due to reclassification of
cheque processing costs. (see 7.3.6).
7.3.12 Depreciation costs have remained flat.
7.3.13 Interbusiness expenditure has remained flat and is detailed below:
Interbusiness 2012-13 2011-12 Variance
£m £m £m
Official Mail 16 14 (2)
Call Centres 5 4 (4)
Facilities Management 15 17 2
Vehicle Services 6 6 is)
Romec 10 (2)
Property 32 35 3
Other 1 4 ie)
Total Interbusiness 85 85 0
7.3.14 Group overhead expenditure has decreased by £4.8m due to separation as work transfers
over to the Post Office.
17
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Project expenditure (excluding temporary people resource and IB) has increased by
£26.3m to £50.0m due to the acceleration of work towards full implementation of major
transformation programmes. This includes Brand Marketing, IT Delivery, Finance Roadmap
and Front Office of Government as well as the costs of separation from Royal Mail.
The £50m spent on projects is analysed below:
2012-13 Project Expenditure £m
Customer Engagement (Brand & Mortgage Campaign) 18
Financial Services (Eagle -Sales Capability & Current Account)
FOoG (DVLA Tender & Home Office Development)
Telephony (Fixed Line Tender, Contract negotiations and Migration)
Independence (Legal & Consultancy)
Mails (Collections & Returns, Drop & Go Rollout, and Online Retail Shop)
Finance (Road Map)
IT Delivery (Saleforce Licences & Horizon Evolution)
Property ( Across Network & 148 Old Street Re-design Project)
Communications
London Games Programme
6
5
4
3
3
2
HR & Compliance (Recruitment & Training) 2
2
2
A
1
1
Supply Chain (ATM Replenishment & Joining the Scottish Notes Circulation Scheme)
Grand Total 50
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8.1
8.2
8.3
8.4
8.5
8.6
8.7
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Quality of Earnings
2012-13 2011-12 Growth
Post Office Limited (consolidated) £m £m £m %
Reported profit before other exceptional items 94 61 33 54%
Network Subsidy Payment (210) (180) (30) (17%)
Project one off costs (including temporary resource & interbusiness) 53 26 27 (104%)
Reported profit before project one off costs, exceptional items and NSP. (63) (93) 30 32%
Litigation re 2007-08 (2)
Release of savings stamps provision (a)
VAT/NI recovered re prior year Subpostmasters’ fees (1) 0
VAT recovery re earlier years (2) 2
LTIP over -accrued in 2011-12 (2) 2
Total adjustments (5) EI
Total (68) (92) 24 26%
This table shows underlying operating profit performance adjusted for one off items and items
relating to previous years. Each item in the table is explained further below:
NSP has increased from £180m in 2011-12 to £210m in 2012-13 and has been accounted
for as a government grant in both years.
Project one off costs. Project one off costs are non exceptional costs of project activity in the
year. They increased in 2012-13 as work increased, particularly to build the brand and drive
future revenue growth. These costs do not form part of the underlying ongoing performance
of the company.
Litigation relating to 2007-08. This cost relates to a provision for litigation relating to the
CWU challenge regarding the transfer of people to WH Smith during 2007-08. £6m was
raised in 2008-09 and £4m of it released in 2009-10 when the CWU lost their initial
challenge. All routes of challenge were exhausted during 2011-12 and the remaining £2m
was released.
Release of savings stamps provision. Post Office Savings Stamps were found to be vulnerable
to fraud and a provision was raised for potential fraudulent encashments made. They were
withdrawn from sale in May 2010 and holders of savings stamps were encouraged to cash
them. The level of encashment was less than anticipated and the provision was reduced
substantially in 2010-11. Savings stamps continue to be cashed but the levels are low and
the provision was further reduced during 2011-12.
VAT/NI recovered relating to Subpostmasters’ fees is a correction of the VAT rate. VAT and NI
claims are often completed a year or more after the year to which they relate. During 2012-
13 £1.8m of VAT was recovered relating to 2011-12 following a rate change. £0.8m of NI
was recovered relating to Subpostmasters’ fees of which most related to 2011-12. During
2011-12 £1m of NI was recovered relating to 2010-11 and earlier.
VAT recovery re earlier years reflects the refund received following a correction of the
recovery rate for 2011-12 during 2012-13.
Long term incentive scheme costs (LTIP) over accrued in the prior year by £1.9m and
corrected in 2012-13.
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Pensions
Background
The UK pension plans were sponsored by Royal Mail Group Limited until 1 April 2012 and are
set out below. On 1 April 2012 almost all of the assets and liabilities 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. Deferred pensioner members and pensioner members were transferred to the
Government's new Royal Mail Statutory Pension Scheme. Royal Mail Group Limited is the
principal employer in the Royal Mail Senior Executive Pension Plan (RMSEPP) and the Royal
Mail Defined Contribution Plan (RMDCP). Post Office Limited became a participating employer
in both with effect from 1 April 2012.
Royal Mail Pensions Trustees Limited manages the main defined benefit scheme Royal Mail
Pension Plan (RMPP) which has around 5,200 Post Office active members.
Scheme Eligibility Type
Royal Mail Pension Plan (RMPP) UK employees Defined benefit
Royal Mail Senior Executive Pension Plan (RMSEPP) I UK senior executives (closed) I Defined benefit
Royal Mail Defined Contribution Plan (RMDCP) UK employees Defined contribution
A series of changes to RMPP began to take effect on 1 April 2008 as follows:
e the plan closed to new members from 31 March 2008;
e all pensions and benefits earned before 1 April 2008 are still linked to final salary at the
time of retirement;
e from 1 April 2008, defined benefits building up for employee members of the plan are
earned on a career salary basis;
e employees can continue to take their pension on reaching 60 but the normal retirement age
increased to 65 for benefits earned from 1 April 2010; and
e since 1 April 2010 it has been possible to draw pension earned before the change to normal
retirement at 60, and continue working while still contributing to the pension plan until the
maximum level of benefits has been achieved.
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 Post Office for a year.
RMSEPP closed on 31 December 2012.
Pension Accounting within Post Office Limited
Since 1 April 2012, Post Office Limited employees are in a separate section of RMPP and the
assets and liabilities are assessed independently. The Post Office Limited Directors are
responsible for the selection of the pension assumptions for the Post Office section for the
2012-13 year. Details of these are in Section 9.3 below. The Post Office continues to account
for a 7% share of RMSEPP in the same way as previously and as explained below.
20
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Prior to 1 April 2012, the assets and liabilities of both of the defined benefit schemes, as
measured under accounting standards, were reported as a net pension deficit in the
consolidated balance sheet of Royal Mail Holdings plc, the ultimate parent company. The gross
assets and liabilities and Post Office Limited's share of the net deficit were significant assets
and liabilities. The Directors of Royal Mail Holdings plc were responsible for the selection of the
pension assumptions for the 2011-12 year.
Before 1 April 2012 Royal Mail Group Limited had the legal relationship with the Trustees of
the defined benefit schemes and, as such, the Trustees held Royal Mail Group Limited liable for
the actuarial deficit in the schemes. However, under an agreement between Post Office Limited
and Royal Mail Group Limited, Royal Mail Group Limited provided employees engaged in the
business of Post Office 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 FRS 17
and its international equivalent, IAS 19. This was based on employee numbers over 12 years
and represented approximately 7% of the total balance sheet deficit (pre deferred tax) at that
time. The net pensions interest, deficit recovery payments and actuarial gains or losses were
also allocated on this basis, giving the Post Office approximately 7% of the total balance sheet
deficit (pre deferred tax) at the balance sheet date. The current 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.
9.3. Assumptions
IAS 19 requires a number of assumptions. The choice of assumptions used for the calculations
is the responsibility of the Directors, based upon advice given by an independent actuary. The
assumptions cover price inflation, discount rate, salary increases and increases to pensions in
deferment and payment. The key assumptions based on market conditions at 31 March 2013
are set out in the table below. The assumptions for the year ended 25 March 2012 and earlier
years, were made by the Directors of Royal Mail Holdings plc with the advice of the actuarial
advisors to the Group.
Towers Watson has confirmed that the assumptions have been determined in a manner
consistent with those used for the disclosures at 25 March 2012, and previous reporting dates
with two adjustments overlaid. In previous years, no allowance has been made for the impact
of maximum and minimum pension increases, or to lower the retail prices index price inflation
assumption to reflect a price inflation risk premium. These are included for this financial year
as many other schemes apply these adjustments and they are appropriate to make. The table
below also shows a column excluding these adjustments for comparison.
Conversations with Royal Mail management indicate that it is their intention to adopt the
assumptions as set out below, although this will not be formally agreed until their Board
meeting in May.
Royal Mail Group Limited will set the assumptions for the RMSEPP. Post Office Limited will be
allocated a 7% share of gains and losses consistent with previous years. These assumptions will
be consistent with those used for RMPP.
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March March March March March March
2013 2013 2012 2011 2010 2009
% pa Nominal a
Inflation (RPI) 3.3 3.6 EE) 35 3.6 a2
Inflation (CPI) 2.3 2.6 23) 28 3.6 3.2
Rate of increase in pensions RPI 33 3.6 33 35 3.6 32
Rate of increase in pensions RPI (capped) ” 3.2 3.6 33 35 3.6 3.2
Rate of increase in pensions CPI” 2.3 26 23 28 36 32
Rate of increase in salaries” 43 4.6 43 45 46 42
Expected average rate of return” n/a n/a 5.9 65 67 69
Discount rate (i.e. bond rate) 48 48 Es 55 5.6 64
Pension increases in accordance with RPI are applicable to pensions in payment for RMPP Section C and all RMSEPP members, and
RMSEPP deferred pensions for members not transferred from Section A/B of RMPP. The RMPP Section C increases are capped at 5%
resulting in a lower assumption of increases by 10 basis points
Pension increases in accordance with CPI are applicable to RMPP Section A/B pensions in payment and all other deferred pensions not.
mentioned above.
The rate of increases in salaries is set at RPI + 1%.
The expected rate of return is not required due to changes in IAS 19.
Demographic assumptions, for example mortality, remain unchanged from those made in
March 2012. It is normal practice for these to be updated following the conclusion of a funding
valuation and, given the ongoing discussions with the RMPP Trustee, it would be anticipated
that the demographic assumptions will be reviewed for the 2014 financial year end.
Income Statement
Post Office Limited recognised pension costs of £25m (2012 £24m) in operating profit before
exceptional items. Of this charge, £1m (2011 £1m) related to the defined contribution scheme.
The amount charged to the loss before taxation for the defined benefit schemes is analysed
below.
RMPP & RMSEPP: Amounts recognised within profit 2012-13 = 2011-12 Variance
before taxation £m £m £m
Current service cost 24 23 (a)
Net pension charge to operating profit before 24 23 (a)
exceptionals
Loss due to curtailments (exceptional charge included within
2 0 (2)
provision for restructuring charge)
Net pension charge to operating profit 26 23 (3)
Net interest (credit)/charge to financing (2) (2) a
Net pension charge to income statement before taxation 24 21 (3)
Overall, the net pension charge to income statement before taxation has increased by £3m
(14%). The impact on the income statement is a £1m (4%) increase in the charge to operating
profit before exceptionals (£3m after exceptionals).
The current service cost is intended to represent the amount by which the liabilities will
increase due to employing active members for one more year. The current service cost,
expressed as a percentage of pensionable pay, has increased to 18.2% for RMPP (2012 17.1%)
and 37.6% for RMSEPP (2012 34.9%), as a result of market conditions at 25 March 2012.
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The curtailment cost of £2m (2012 £nil) is the cost within the net exceptional redundancy
provisions charge that relates to the receipt of early pensions. The timing of exit and hence the
crystallisation of the liability to the scheme may occur in an accounting period subsequent to
the recognition of costs in the income statement i.e. in a different period to which the
redundancy provision was charged. This liability is matched by payments from the Post Office
and is within the short-term pension redundancy payable recognised on the balance sheet.
These curtailments therefore do not appear in the analysis of the movement in the pension
deficit. (see section 9.7 below).
The net interest credit of £2m (2012 £2m), a non-cash item, is reported under finance income
and reassessed annually. It consists of two components:
e a 7% share of the Royal Mail Group expected return on plan assets of £158m for the year
(2012 £1,775m). Assessed by applying the expected average rate of return on assets as at
the prior year end, to the expected average fair value of scheme assets for the year; and
¢ a 7% share of the Royal Mail Group interest on plan liabilities of £123m for the year (2012
£1,749m). Assessed by applying the discount rate as at the prior year end to the expected
average scheme liabilities for the year.
For 2013-14 this will be calculated on the Post Office section of RMPP and will continue to
include a 7% share of RMSEPP. IAS 19 has changed for the coming year so that the expected
average rate of return applied to the assets will be the discount rate.
Cashflow
The following cash flows exclude payments made by employees:
2012-43 2011-12 Variance
£m £m £m
Defined Benefit Schemes (RMPP & RMSEPP):
Regular pension contributions 23 23 -
Funding of pension deficit 2 0 (2)
Payments relating to redundancy 2 3 1
27 26 ()
Defined Contribution Schemes: Regular pension 4 4 -
contributions
28 27 @)
Regular contributions of £23m have remained flat. The regular rate of employer contributions
for the RMPP remained at 17.1% of pensionable pay (2012 17.1%), effective from April 2010.
The regular rate of employee contributions for the RMPP remains unchanged at 6%. The
regular future service contributions for RMSEPP remained unchanged at 35.9% of pensionable
pay (2011 35.9%) from April 2010 until the scheme closed on 31 December 2012.
These contribution rates, at 17.1% for RMPP and 35.9% for RMSEPP, are likely to be different
to the current service cost charged to operating profit of 18.2% and 37.6% respectively during
the period (see above). However, the rates are not directly comparable. For example, the cash
rate is adjusted for expected returns on past investments, but this is excluded from the income
statement rate - hence the separate income statement interest charge.
There was no RMPP deficit payment (2012 £nil) as a result of State Aid clearance granted on
21 March 2012 and the subsequent transfer of the historical pension deficit to HM
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Government on 11 April 2012. RMSEPP deficit payments of £2m (2012 <£1m) have been made
during the year. There have been no employee deficit contributions.
9.6 Balance Sheet
The following amounts in the balance sheet relate to pensions:
34 March 25 March
2013 2012
RMPP & RMSEPP: Amounts recognised in the balance sheet £m £m
Pension deficit (non current “retirement benefit obligation”) 7 (206)
Pension redundancy payable (within current “provisions”) nil nil
9.7 Pension Surplus/(Deficit)
Scheme assets are assessed at fair value at the balance sheet date. For example, quoted
equities are valued at the latest ‘bid’ price. Scheme liabilities are discounted using a high quality
corporate bond rate. The IAS 19 surplus/deficit is usually therefore different to the cash
funding surplus/deficit (the “actuarial” valuation) assessed by the Trustees, for which the
scheme liabilities are discounted using the expected returns available on scheme assets.
The IAS 19 pension valuation has changed from a deficit of £206m at 25 March 2012 to a
surplus of £97m at 31 March 2013. The improvement of £303m principally relates to the
transfer of historic liabilities to Government The movements in the pension position during the
year were as follows:
RMPP & RMSEPP: Pension deficit £m £m
Pension deficit at beginning of year (206)
Pre { Company's pension costs (current & past service cost) (24)
Exceptionals Company's pension payments (regular & deficit contributions) 25
Operating pension payments excess over pension costs by a
Net interest credit 2
Transfer to Government 286
Actuarial gain (net of withholding tax of £3m) 14
Pension surplus at end of year 97
The actuarial gain includes the difference between the long-term expected rate of return on
plan assets and the actual return during the period, and the impact of changes in assumptions.
Actuarial gains and losses are recorded directly in the statement of total recognised gains and
losses (and not the profit and loss account). The actuarial gain of £14m during the year arose
primarily due to a greater than expected increase in assets as a result of changes in market
conditions, partly offset by an increase in liabilities due to changes in long term assumptions.
9.8 Pension Redundancy Payable
The pension redundancy payable of £nil (2012 £nil) relates to the additional “top up” payments
made to the pension schemes for members that have exited the business on redundancy and
will be paid an early pension, and is partly based on estimates. All amounts had been settled at
the year end.
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9.9 Assessment of recoverability of surplus under IFRIC 14
In order to recognise a surplus it is necessary to prove that the Post Off ver
surplus either through lower future contributions or through a refund.
Towers Watson has calculated
that Post Office Limited would be able to recover £91 million of the £99 million surplus in
RMPP through lower contributions and the remaining £8 million could therefore be recovered
through a refund. For the RMSEPP scheme, Royal Mail has advised that the £1m surplus could
be covered through a refund. The element of surplus that is recoverable through a refund
would be subject to a 35% withholding tax and therefore the overall surplus on the balance
sheet has been reduced by £3 million to £97 million. The element that is recoverable through
lower contributions has resulted in a deferred tax liability of £2m (see section 18.2).
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10.
10.1
10.2
10.3
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Exceptional Items and Provisions
This section discusses the exceptional items on the income statement together with
movements in the related balance sheet provisions/payables.
Exceptional items summary
The following exceptional items were recognised in the consolidated income statement for the
years ended 31 March 2013 and 25 March 2012
2012-13 2011-12
Exceptional items Section £m £m
Operating Exceptionals:
Government Grant 10.2 98 -
Restructuring costs including Subpostmasters compensation 10.3 (79) (2)
Impairments 10.4 (66) (36)
Total operating exceptionals (47) (38)
Non operating exceptionals:
Profit on disposal of property 2 1
Loss on sale of associate 10.5 (30) =
Net Exceptional costs (86) (37)
Government Grant - In April 2012 the Post Office received grants totalling £200m from the
Government, primarily to fund capital projects and subpostmasters’ compensation. £98m of
this sum has been utilised during the year, the remainder is brought forward into 2013-14 and
is included as deferred income in the March 2013 financial statements.
Restructuring costs - include the costs of delivery of a major change in the network. Network
Transformation introduces new style agency offices and seeks to improve fundamentally the
profitability of the Crown network. IT Transformation will create the IT infrastructure
appropriate for an independent group with ambitious growth plans.
Network Transformation resulted in costs of £12m for Subpostmasters’ compensation and
£40m programme costs. Redundancy costs of £14m mainly related to the Crown network,
costs of £10m related to transforming our IT infrastructure and there was £2m related to the
professional fees associated with the sale of Midasgrange Limited.
The £40m spent on Network Transformation is analysed below:
Network Transformation
Branch Fit Out (Inc. Signage /Scales etc)
Horizon Implementation
Legal-New Operating Model Contracts
Management Consultancy
Marketing
CTP Pilot design/scoping
Professional Fees -Site Survey
Staff
Skills Group Internal Consultancy Resource
Project Management (Roll Out)
Total
i
3
ts enIetesIisIeoroIrofoofeo
=
S
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10.4 Impairments (2013 £66m vs 2012 £36m)
Other impairments charged in exceptional items comprise:
2011-12
Impairment Section £m
Property, plant and equipment 13.3 19
Intangible assets 13.3 17
Total impairments 36
Section 13.3 identifies the impaired capital expenditure as summarised above.
10.5 Loss on sale of associate (2013 £30m vs 2012 £0m)
During the year the investment in Midasgrange Limited was sold for proceeds of £2m. At the
date of sale the investment had a carrying value of £32m giving a loss on disposal of £30m.
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11. Interest, Cash, Debt, Funding and Hedging
11.1 Net finance costs (interest) (2013 £3m vs 2012 £6m)
The Post Office incurred net finance costs of £3m in the year to 34 March 2013 (2012 £6m).
2012-13 2011-12
Finance costs & investment income £m £m
Interest received on investments - UK 1 A,
Total finance income 1 1
Interest charged on Government borrowings (1) (3)
Interest payable on finance leases (4) (a)
Unwinding of discounts (4) (a)
Other finance costs @ (2)
Total finance costs (4) (7)
Net finance cost (3) (6)
Interest payable on the BIS Loan reduced during 2012-13 as the average borrowing volume
significantly decreased from the previous year. This arose through the receipt of £200m
government grants, of which £102m was not utilised during the year, plus an increase of
£30m in the NSP.
The discount unwind relates to the provision in respect of the WH Smith onerous contract.
Other finance costs include commitment fees to BIS for the Post Office credit facility, and
charges to RBS for their note sorting facility.
11.2 Cash, cash equivalents and debt within the balance sheet
The following table highlights the movements in cash, cash equivalents, debt and investments
during the year:
31 March 25 March
2013 2012
Net cash/debt analysis Section £m £m
Cash in the Post Office Limited network 11.3 870 759
Other cash at bank 9 @
Cash equivalent investments 92 62
Total cash and cash equivalents 971 820
Loans, repayable on demand or less than 1 year 11.4 (291) (377)
Obligations under finance leases (current) 11.5 (3) (4)
Total current financial liabilities (294) (381)
Obligations under finance leases (non-current) 41.5 (4) (6)
Total 673 433
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11.3. Cash within the Post Office Limited network (2013 £870m vs 2012 £759m)
The £111m (15%) increase in Post Office network cash year on year is mainly due to the year
end coinciding with Easter which necessitated increased branch and cash centre holdings to
respond to customer behaviour.
11.4 Loans and borrowings (2013 £291m vs 2012 £377m)
The table below details the breakdown and movement on the loans and borrowings year on
year:
31 March 25 March Net
2013 2012 (repayment)
Loans and Borrowings £m £m £m
Working Capital loan 291 377 (86)
11.5 Obligations under finance leases (current & non-current) (2013 £7m vs 2012 £10m)
The obligations under finance leases have decreased by £3m during the year attributable to
lease repayments in 2012-13. Lease types are shown in section 13.2.
11.6 Loan facilities
At year end the Post Office had no external (non Government) borrowing facilities in place.
11.7 Derivative assets
A derivative asset of £1m has been recognised on the balance sheet representing the gain on
open foreign exchange forward contracts that were in place at the year end.
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12.
121
12.2
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Going concern
Post Office Limited has net cash and cash equivalents of £971m (section 11.2) and a
borrowing facility of £1,150m of which £291Mm (section 11.4) was drawn down at 34 March
2013.
Background
On 24 March 2010 a funding agreement was agreed that provided up to £180m for
compensation for losses sustained in parts of the network in 2011-12, as well as providing
access to the working capital facility to 31 March 2016. These arrangements received State
Aid approval on 23 March 2011 through the working capital facility was limited until 31
March 2012.
A further funding agreement with Government was announced on 27 October 2010 which
provided for:
Funding of £410m for 2012-13 (received 2 April 2012)
Funding of £415m for 2013-14 (received 2 April 2013)
Funding of £330m for 2014-15
Extension of the existing working capital facility with BIS of £1.15bn up to 31
March 2016
State Aid approval for the funding for 2012-13 to 2014-15 was received on 28 March 2012.
It was also recognised that the working capital facility was no longer deemed State Aid
However, no drawing under the Facility may extend past the Final Maturity Date (31 March
2016).
The going concern analysis is based on the latest draft 2020 strategic plan financials
presented to the Post Office Board on 27 February 2013. The Post Office Board approved the
2013-14 budget on 20 March 2013 but the cash flow budget has since changed, reflecting
the reversal of the significant inflow in 2012-13 in excess of forecast. The cumulative position
across the two years is unchanged.
Assessment for the Post Office
Post Office has finished implementing its 2005-11 strategic plan and has completed its
closure programme. It posted an operating profit before exceptional items for the first time
for a number of years in 2008-09 and has continued to do so, but still operates with a cash
outflow with the exception of 2012-13. The 2011-15 plan is intended to reverse the trend of
an increasing Network Subsidy Payment (NSP) with the draft strategic plan beyond 2014-15
continuing that reducing trend.
The 2011-15 strategic plan updated for latest views has been shown in Table 11 of this
section, and shows that Post Office has sufficient cash headroom to continue to trade. The
available facility has been defined to include network cash, ATM cash, ATM debtor, POCA
debtor and SGEI cheques.
The one year funding deal for 2011-12 added the ability to borrow up to £50m from other
sources, as well as the up to £50m in finance leases previously allowed which would improve
the headroom capacity shown if required.
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12.3. Summary conclusion
Based on the analysis there is available borrowing headroom until March 2016. Royal Mail
Group Limited is a key trading partner with Post Office Limited and, in arriving at the
conclusion that Post Office Limited is a going concern, the assumption is made that Royal Mail
Group Limited is a going concern or that an alternative mails provider would work similarly
with Post Office Limited providing a similar level of income.
It is believed that Post Office Limited will be able to meet its liabilities as they fall due in the
foreseeable future. It is therefore expected that the directors will consider it appropriate to
prepare the accounts on a going concern basis.
Post Office Limited Funding Analysis
Table 1 March 2013
£m (cumulative apart from free cash flow) 2011-12 = 2012-13. 2013-14 2014-15 2015-16
Opening Funds (321) (336) (204) (222) (279)
Borrowing facilities 1,150 1,150 1,150 1,150 1,150
Restriction due to level of network cash (326) (98) (350) (350) (350)
edie from other sources - finance leases, bank overdraft 1 14 9 4
Latest plan free cashflow before assumed non NSP grant (45) *(68) **(233) (227) (231)
injection
Non NSP grant injection per October 2010 plan *200 **215 170
Closing Funds Headroom 509 862 587 525 290
Downside impact of no NSP beyond March 2015 (130)
Adjusted Headroom pre risk 509 862 587 525 160
In year total cash flow:
&m Q3 FYF and board == Outturn and latest
approved budget budget
2012-13 (28) #732
2013-14 140 **(18)
Cumulative 112 114
*/** See breakdown in table 1 above
Table 2: Risks, with management actions
£m (cumulative) 2011-12 2012-13. 2013-14 = 2014-15 = 2015-16
Headroom pre risk (as above) 509 862 587 525 160
Risks
Financial Services growth slower than plan (3) (8) (18)
Network Transformation benefits are not fully delivered (2) (6) (9)
Crown Transformation benefits are not fully delivered (5) (10) (15)
Pension contribution rates increase (4) (8) (12)
Headroom post risks 509 862 573 493 106
Notes:
2011-12 shows the year end outturn and last years are the latest view of the strategic plan
Available facilities are defined as network cash, ATM cash, ATM debtor, POCA debtor and SGEI
cheques.
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Table 1
This table shows the October 2010 strategic plan cashflow updated for the 2013-14 budget,
and the initial 2020 strategic plan projections for 2014-15 and beyond. It demonstrates
positive headroom throughout the plan period.
Table 2
This table sets out the impact of theoretical downside scenarios if the plan does not generate
the income streams anticipated, the network programmes fail to deliver the benefits and if the
pension scheme costs increase.
Clearly mitigating management actions could be initiated but there remains sufficient
headroom, even if they are not taken. There are a range of management actions including
implementing non-people cost saving initiatives and closing non NSP offices without
compensation, and the overriding principle is that management will take whatever action is
required to mitigate any risk that materialises.
There are further actions that could be taken but are not required. These include the sale of
property and/ or tax losses.
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13. Property, plant and equipment and non-current assets held for sale
13.1 Net Book Values
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The net book value (NBV) of land and buildings, plant and fixtures and intangible fixed assets
was £11m (2012 £11m). The movements in the year were as follows:
Land and Vehicles, plant
Intangible fixed
buildings and fixtures assets Total
Movement in NBV £m £m £m £m
NBV at 26 March 2012 14 - - 14
Add capital expenditure 10 31 25 66
Less disposals - - - -
Less depreciation - - - -
Less impairment (10) (34) (25) (66)
NBV at 31 March 2013 14 - : 14
13.2 Assets held under finance leases
The value of equipment held under finance leases is £nil (2011: £nil) having been impaired in
the years in which it was acquired. The two finance leases held are:
e Counter printers, capitalised and impaired in 2006-7 with an asset value of £10m, expires
2014-15;
e Identity equipment in branches, capitalised and impaired in 2010-11, with an asset value
of £8m, expires 2014-15.
The finance lease for Supply Chain cash boxes expired during 2012-13.
13.3 Capital expenditure
The following table summarises capital expenditure to 31 March 2013:
Vehicles,
Land & plant &
buildings fixtures Intangibles Total
Capital expenditure analysis £m £m £m £m
Technology Roadmap - - 14 14
Network Transformation 2 14 2 18
Pinpads - 4 - 4
Telephony - 1 - 1
Finance Roadmap - - 2 2
FO0G Front Office of Govt - - 2 2
Mails, Retail = > 2 @
Vehicles - 9 - 9
Property 8 = = 8
Other (items <£1m) = 3 3 6
Total 10 31 25 66
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14.
141
14.2
14.3
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Goodwill, investments and intangibles
Investments in joint ventures and associates
2012-13 2011-12
£m £m
Investment in joint ventures and associates 60 89
Joint ventures
During 2012-13 and 2011-12, Post Office Limited’s only joint venture investment was a 50%
interest) in First Rate Exchange Services Holdings Limited, whose principal activity is the provision
of Bureau de Change.
Associates
During 2011-12 Post Office Limited’s only associate investment was a 49.99% interest in
Midasgrange Limited whose principal activity is the provision of personal financial products. This
investment was disposed of to the Bank of Ireland during 2012-13.
Movements in investments in JV and associate
Joint venture Associate Total
£m £m £m
Share of net assets
Total net investment at 26 March 2012 67 22 89
Share of post tax pre dividend profit/(loss) 33 @ 32
Investment in associate = 11 11
Disposal - (32) (32)
Dividend (40) = (40)
Total net investment at 31 March 2013 60 = 60
Joint venture and associate
The table below contains details of the share of post tax profits and dividend payments.
Consolidated (Share of Profit) Company (Dividend)
2011-
2012-13 12 2012-13 2011-12
Share of — Share of
post tax post tax Dividends Dividends
Joint ventures and profit profit Variance Received Received Variance
associates £m £m £m £m £m £m
First Rate (FRES) 33 32 1 40 38 2
Midasgrange «) ty) . . - -
Limited(POFS)
The share of post tax profit from FRES has remained consistent year on year.
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15
15.1
15.1.1
15.1.2
15.2
Working capital
Inventories (2013 £8m vs 2012 £6m)
31. March 25 March
2013 2012
£m £m
Scratchcards 4
Retail 2
Total 6
The movement in inventory is immaterial year on year.
Cost of Sales, Retail
Cost of sales in 2012-13 was £5.1m (2011-12: £4.1m).
Inventory written off
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The provision for stock write downs and discrepancies has increased to £0.5m in 2013 from
£0.2m in 2012. Shrinkage and obsolete stock written off in 2012-13 was £0.4m (2011-12
£0.4m).
Trade receivables
Receivables are tabulated below, followed by a detailed explanation of the various balances.
Receivables
31. March 2013
25 March 2012
Trade receivables 32 39
Client receivables 240 138
Prepayments and accrued income 81 39
Other receivables 9 10
Total 362 226
15.2.1 Trade receivables: Current (due within one year)
Trade receivables
31 March 2013
25 March 2012
Sales ledger 18 22
Doubtful debt provision (a) (1)
Homephone debtors 14 12
Homephone provision (6) (5)
Subpostmasters debt 14 16
Subpostmasters debtors provision (9) (9)
POFS, FRES cost recovery 2 5
Total 32 39
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The decrease in invoiced debt year on year is largely explained by the £nil debtor at March
2013 for DWP card account income (March 2012 DWP debtor: £5m). Mainly the DWP adhere
to agreed terms and pay the month following invoice receipt though there are instances when
the DWP settle in-month, including March 2013.
Other variances largely net off, however note that the Bank of Ireland March 2013 balance
includes £6m of cost recovery and £5m transactional debt. (March 2012 £2m and £2m).
Transactional invoices are larger following the sale of Midasgrange. The process for cost
recovery has also changed following the sale, with invoicing in advance such that the Bank of
Ireland is in a creditor position. However delays in settling these invoices explain why a debtor
continues to exist.
Receivable balances remaining in relation to former subpostmasters of £9m have been
provided for in full in line with previous years. This is due to the difficulty in recovering these
amounts. The remaining £5m of subpostmaster debt which is unprovided against relates to
current subpostmasters debt which are usually settled through a deduction from
remuneration. The balances are provided for when they reach 60 days old for single
subpostmasters or 90 days for multiples.
A profile of the trade receivables is as follows:
Trade receivables
31 March 2013 25 March 2012
DWP. -
Bank of Ireland (2012: POFS) 11
FRES -
Partner banks -
Bank of Ireland (ATM commission)
Bill payment partners
Subpostmasters
Others
Total 18 22
FRERBRNNWRO
ween
Ageing of trade receivables:
Debtors over 60 days overdue: March 2013 £0.4m (March 2012: £0.4m).
The Post Office does not have a general risk in relation to bad debts due to the agency nature
of our client base. Among those ageing at March 2013 are £0.5m RBS, £0.5m Bank of
Ireland and £0.1m Lloyds.
Debts written off during the year did not originate from the trade debtor base. Write-offs
included £1.5m for Homephone debtors which are provided for in full when the debt is over
60 days old.
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15.2.2 Client receivables
Analysis of the significant client balances at year end is as follows:
Client receivables
31. March 2013 25 March 2012
ATM (Bank of Ireland) 123 77
Card Account (JP Morgan) 76 31
Partner banks 29 18
Others 12 12
Total 240 138
The reason for the significant increase in Client levels over March 2012 due to the coinciding
of the March 2013 year end with Easter, which has increased transactional activity and also
temporarily extended settlement feel into 2013-14 because of the bank holiday.
The trend for the ATM debtor to increase year on year as more ATMs are installed and also
through increased usage of the existing estate continues. Additionally partner bank debtors
have increased through increased transaction activity, and also HSBC joining as a trading
partner during 2012-13.
15.2.3 Prepayments and accrued income 2013 £81m (2012 £39m)
15.3
Accrued income represents the majority of this amount (March 2013: £34m, March 2012:
£35m), and year on year the product components are similar. The larger accruals at March
2013 are: DWP card account income for March £7m, Homephone £6m and Bank of Ireland
commissions £8m.
Additionally there are prepayments of £47m of on the balance sheet at March 2013 (March
2012 £3m). There are two main elements: a £28m advance payment to Fujitsu in respect of
the 2013-14 managed service, and £13m - also to Fujitsu - for set-up costs for their take-on
of the Telephony contract, this latter prepayment will be amortised over the life of that
contract.
Payables: amounts due within one year
A summary of payables categories is:
Section 34 March 2013 25 March 2012
Trade payables 15.3.4 43 32
Accruals and deferred income 15.3.1 134 140
Client payables 15.3.2 528 332
Advance customer payments 15.3.3 50 48
Capital payables 15.3.4 18 10
Social security 10
Business transformation 7 3a
Amounts due to group companies 6
Government grant deferred
income 10.2 102 :
Total 898 583
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15.3.1 Trade payables and accruals
15.3.2
Trade payables and accruals
31 March 2013
25 March 2012
Trade payables 43 32
Accruals, GRNI cy) 50
Agent, employee pay balances 24 61
Productivity, bonus schemes 16 17
Deferred income (Gamma) 31 -
Others 6 12
Total 177 172
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The increase in purchase ledger and GRNI accruals is driven by the current significant levels
of project activity.
Agent and employee pay balances represents March salaries and remuneration which were
paid in March 2013 (2012: paid following year end).
During the year POFS and the Bank of Ireland paid a total of £40m of contractual Gamma
payments of which £31m remains to be amortised at March 2013.
Client payables
31 March 2013
25 March 2012
Santander 183 139
NS&l 28 45
DVLA 107 18
Utility companies 24 15
Bank of Ireland 8 13
BACS 59 83
Others 119 99
Total 528 332
All balances are impacted by the Easter bank holiday coinciding with the Post Office's year
end, having the effect of increasing the settlement timescale temporarily. Additionally the
DVLA balance relates to car tax renewals and was most affected by the coinciding of year end
with calendar month end.
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15.3.3 Client advances
This category also includes specific, non-client, creditors as follows:
Client advances
31 March 2013 25 March 2012
Client advances, deferred income 23 20
Postal order liability 17 18
Homephone line rental advance
payments 10 10
Total 50 48
15.3.4 Capital payables
The increase over 2011-12 reflects the increased pace of capital project activity in Q4,
particularly Network Transformation and Technology roadmap.
15.4 Payables: amounts due after one year
Payables due after one year
31 March 2013 25 March 2012
Amounts due under finance
leases 4 6
Bank of Ireland deferred brand
income - 2
Total 4 8
The 10 year brand income contract with Bank of Ireland becomes fully amortised during
2013-14, the remaining one year's amortisation is included within accruals and deferred
income.
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Provisions
Provisions (2013 £26m vs 2012 £14m)
Crown
Conversions Network
Project Transformation Other Total
£m £m £m £m
At 26 March 2012 9 ~ 5 4
Charged in operating exceptional 10
items = 12 22
Charged in operating costs - 6 6
Charged in financing costs 1 - - 1
Utilisation (3) - (14) (17)
At 31 March 2013 7 10 9 26
Included within current liabilities 9!
Included within non current liabilities 7
The network transformation provision
relates to
subpostmasters who have signed up to the new contract terms at March 2013.
compensation payments due to
Other provisions include property contracts, being amounts from onerous lease obligations,
and personal injury claims. Additionally at March 2013 the provisions balance includes £2.1m
for sales capability investment arising from the revised contract with Bank of Ireland (Eagle
provision) and £1.7m following a recent court case in Scotland in which it was decided that
external ATMs were subject to business rates. The Ratings Agency intends to seek application
of this judgement to the rest of the UK and therefore a provision has been made for rates
backdated to 2010.
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17. Litigation and Claims- Potential Claims regarding Horizon
17.1. Post Office Limited has received notification of five potential claims from former
subpostmasters. Each of these subpostmasters had their appointments terminated following
the discovery at audit of significant cash losses at their respective branches. Two of the
subpostmasters were subsequently prosecuted and pleaded guilty to false accounting.
17.2. Each has claimed wrongful termination of contract on the basis that the losses are alleged to
have arisen due to the unfairness of the system devised by Post Office Limited and/or have
been generated by a computer error in the Horizon system. More specifically, it is alleged
that (a) the accounting procedures in place are unfair in that they do not permit
subpostmasters to properly verify losses which are alleged to have been incurred, (b) the
Horizon system itself contains inherent defects and/or (c) the training and support for
subpostmasters using the system is inadequate,
17.3. Each subpostmaster is claiming circa £150,000 by way of damages.
17.4 Four of the claims have not progressed beyond the pre-action stage (i.e. there are no live
court proceedings). Post Office Limited has strongly denied liability and rebutted the
allegations made. The fifth claim was struck out by the Court and cannot be pursued further.
17.5. The last correspondence received on these matters was in December 2011. Post Office
Limited is not aware of any further substantive steps having been taken to advance these
claims through the Courts since that date.
17.6 Post Office Limited continues to receive challenges to the integrity of the Horizon system
and it is possible that further claims may be received. Reports in the press have previously
suggested that solicitors Shoosmiths may have consulted on between 85 and 150 potential
cases in total.
17.7. Subpostmasters have also made complaints about Horizon to Members of Parliament, and
through the “Justice for Subpostmasters Alliance”, an organisation “established to raise
awareness of the issues within the Post Office Horizon system”.
17.8 Post Office Limited has commissioned an independent third party, Second Sight Support
Services Limited, to investigate these cases, which investigation is ongoing.
17.9 On the basis of the evidence to date, no provision has been made and it is not considered
appropriate to make any disclosure on this matter. This position is being actively monitored.
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18.1
18.2
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Taxation
Income statement - taxation credit 2013 £(17)m (2012 £(10)m)
A breakdown of the tax credit is shown in the table below:
2012-13 2011-42
£m £m
Corporation tax credit for year (10) (44)
Tax over provided in previous years - HS
Current tax (10) (20)
Deferred tax (21) -
Taxation credit in the consolidated income statement (34) (20)
Factors affecting tax credits
A deferred tax credit of £21m has been recognised in relation to the retirement benefit
surplus on the balance sheet. During 2012-13 the pension deficit was transferred to
government and consequently the defined benefit pension scheme is now in surplus. A
proportion of this surplus is considered to be recoverable through future contributions and
therefore creates a deferred tax liability which is taken through Group reserves. The
equivalent amount of deferred tax asset has been recognised through the income statement
as the credit detailed above.
The Group has significant tax losses of £57m (2012 £128m) that are available for offset
against future taxable profits. It also has £133m (£157m) of unrecognised deferred tax
assets relating to fixed asset timing differences. These tax losses/deferred tax assets could
be recognised in the future should suitable taxable profits arise. The tax
losses/unrecognised deferred tax assets means that the Group should not incur any tax
charges for the foreseeable future.
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POST OFFICE LTD
Post Office Short Term Incentive Plan (STIP) and Long Term Incentive Plan (LITP)
Outturn and Payments for 2012/2013
1. Purpose
The purpose of this paper is to:
1.1 To inform the Board of the outturn of the 2012/2013 scorecard measures for the STIP
and recommend to the Board the STIP payments to be made to Paula Vennells, Chief
Executive and Chris Day, Chief Financial Officer.
1.2 To inform the Board of the outturn of the LTIP measures for awards dated April 2010 and
to recommend to the Board the LTIP payment to be made to Paula Vennells, Chief
Executive.
2. STIP Scorecard Outturn, application of Framework and Payments
2.1. The Post Office Scorecard 2012/2013 was based on 3 distinct sections, Financial
Performance, Customer Measures and Modernisation containing 18 measures, 6 of
which were bonus worthy.
2.2 Details of the target and actual performance are in appendix 1.
2.3. The STIP for Paula Vennells, Chief Executive is based 80% on the Post Office
Scorecard and 20% on personal objectives with a total on-target potential of 48% of
salary and maximum stretch potential of 80%. The annual salary of the CEO is £250,000.
2.4 The STIP payment to be made to the Chief Executive based only on the results of the
scorecard (excluding payment for achievement of personal objectives) is £138,736. The
Remuneration Committee agreed the Chief Executive had met 80% of her personal
objectives and therefore the total award recommended is £157,936. This equates to 63%
of salary.
2.5 The current STIP design for the CFO has an on-target bonus of 30% with a total stretch
potential of 45% linked to the achievement of the business scorecard. The result is then
factored by personal performance, ranging from 0 to x2, as determined by the annual
appraisal (PDR) rating, which can make the STIP range 0% - 90%. The annual salary of
the CFO is £215,000.
2.6 The STIP payment due to the Chief Financial Officer before the PDR multiplier is applied
is £86,035. The Chief Financial Officer has been awarded a PDR score of 4, giving a
multiplier of 1.5, therefore the payment to be made is £129,053. This equates to 60% of
salary.
3. LTIP Outturn, application of Framework and Payments
3.1 Paula Vennells, Chief Executive was given an LTIP award dated April 2010 which has
been tested during the financial year 2012/2013. This award was based on 70% of her
base salary with a potential stretch of 98%.
3.2. Chris Day, Chief Financial Officer commenced employment with the Post Office in
August 2011 and therefore was not eligible for an award under this plan year.
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3.3 This award was subject to two predetermined performance conditions to be tested during
the financial year 2012/2013. The first performance condition is operating profit which
only paid out dependent on the performance of the second condition, Network Contract
Conversions. Details of the targets and actual performance are in appendix 2.
3.4 The LTIP payment to be made to the Chief Executive is £217,508.
4 Recommendation
The Remuneration Committee has met, reviewed and endorsed these recommendations which
it now commends to the Board for formal approval. The Board is asked to:
4.1 Note the outturn of the STIP against the scorecard targets and accept the
recommendations for the STIP payments for the Chief Executive Officer and Chief
Financial Officer of £157,936 and £129,053 respectively.
4.2 Note the outturn of the LTIP against the performance conditions and accept the
recommendation for the LTIP payment for the Chief Executive Officer of £217,508.
Neil McCausland
Chair, Remuneration Committee
May 2013
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Appendix 1
Post Office Scorecard 2012/2013 STIP Measures - Results
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Executive
2012/13 Committee CEO
%Bonus Threshold Target Stretch Outturn {including CFO) Performance
(POL Scorecard 80%)
Growth
Total Revenue (excluding NSP) £m 25.0% 1,000.0 1,015.8 1,046.3 1,023.6 28.20% 29.27%
Operating Profit £m 25.0% 84.0 84.0 92.4 94.2 37.50% 41.67%
Customer
Queue time % <5 minutes - Top 1k branches 12.5% 77.9% 78.9% 82.8% 80.7% 15.35% 16.30%
Call Centres 3D 12.5% 95.0% 100.0% 110.0% 105.6% 15.97% 17.13%
Modernisation
Crown Profit/(Loss) £m 12.5% (42.3) (40.3) (36.3) (37.0) 17.62% 19.32%
Network Conversions (Mains & Locals) 12.5% 960 1,200 1,345 1,450 18.75% 20.83%
Post Office Scorecard Results 100.0% 133.39% 144.52%
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Appendix 2
Post Office Long Term Incentive Plan (LTIP) Measures - Results for 2012/13
2012/13 SLP
Threshold Target Stretch Outturn Performance
Primary Performance Condition
Operating Profit £m 58.8 84.0 100.8 94.2 124.29%
% Payout 70% 100% 140% 124.29%
Secondary Performance Condition
Network Conversions (Mains & Locals) 960 1,200 1,450 100.00%
% Payout 50% 100% 100.0%
Post Office LTIP Results 124,.29%
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POST OFFICE LTD
Post Office Short Term Incentive Plan (STIP) Measures and Design 2013/2014
Post Office Long Term Incentive Plan (LTIP) Measures 2013/2016
1. Purpose
Following the Remuneration Committee meeting of 1 May 2013, the Committee wish to inform
and commend to the Board for final approval the framework and measures proposed for
2013/14 STIP & LTIP schemes. Therefore, the purpose of this paper is to:
1.1 Inform the Board of the Scorecard measures for 2013/2014 for STIP.
1.2 Recommend for adoption the STIP design for the Chief Financial Officer for 2013/2014.
1.3 Inform the Board of the LTIP performance conditions for the award dated April 2013.
1.4 Ask the Board to note the framework of the STIP and LTIP design and measures for the
Chief Executive and Chief Financial Officer requires Special Shareholder approval.
2 STIP Measures 2013/2014
2.1 The purpose of the STIP is to use short term variable reward to incentivise the delivery of
the business strategy and drive turnaround. The Remuneration Committee has reviewed
the bonus worthy measures from the business scorecard, these have been modified from
2012/13 to better align with the company strategy with the inclusion of revised customer
and people measures. All of the figures are based on the budget. There are 6 measures
subject to STIP in the Post Office Scorecard (see appendix 1) split into 4 sections which
are explained further below.
= Growth - Total Net Income and Operating Profit
= Customer — Easy to do Business With (ETDBW)
«= People — Engagement Index
* Modernisation — Crown Profit/Loss and Network Conversions
2.2 Growth
The target figure for net income is the budget figure and it should be noted that the
threshold figure is to maintain the growth achieved in 2012/2013 (over a 53 week year)
recovering the decline, whilst stretch is approximately half way to the 2014/2015 strategic
plan target.
It has been a challenge to build a financial budget that can deliver £890m income which
is the threshold figure. The target includes an additional £10m above plan. Of which
£5m has not been fully underpinned but, is planned to arise from the brand activity and a
further £5m is still to be identified.
For the operating profit both the threshold and target are the same and is the budget
figure of £102m, with the stretch being challenging at £120m which is approximately half
way to the strategic plan target for 2014/2015. The Network Subsidy Payment is worth
£10m less in 2013/2014 and with a profit target of £102m the plan target represents a
real year on year improvement of £17.8m.
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2.3 Customer
The metric of ETDBW gives a score to indicate how easy to do business with the Post
Office is. A major concern in terms of the customer experience is that the Post Office is
seen by key customer segments as an organisation that is hard work to do business
with. The measure has been relatively stable for the last 18 months and is based on
industry based methodology. The targets set are stretching and have been set in the
context of 3 year targets what are guided by our strategic aspirations. Over time there is
an aspiration to move to the use of Net Promoter Score (NPS) at the business level;
however there are some drawbacks with its use as a bonus worthy measure as it is
distorted for the Post Office because of the impact of mails where customers currently do
not believe they have a choice. To further understand NPS for the Post Office the
business will, during the coming year, be introducing measurement of NPS at a channel
level and a product level.
24 People
The engagement score is extremely important to indicate how our people are feeling.
The suggested figure for plan is to maintain the score achieved in 2012/2013 however
for target the proposal is to show an improvement of +1% and for stretch +2%. It is felt
in the current climate this is achievable but testing.
2.5 Modernisation
Focus must be maintained on turning the Crown Network around into a profit making part
of the business and therefore an essential measure in the STIP. The loss threshold and
target has been set at a level that is consistent with the Post Office operating profit target
of £102m. The improvement required to achieve stretch is approximately in line with the
improvement in the Post Office operating profit required to achieve stretch.
A similar argument can be made for the importance of the number of Network
Conversions. The targets for 2013/2014 are cumulative and therefore include the 1,450
conversions in 2012/2013. The threshold is set consistently with the threshold for the
LTIP (2011/2014) at 2,880. The 3,000 target is derived from assessment of the minimum
and maximum potential for contract signature across each journey type, for each model.
The stretch is set consistently with the LTIP (2011/2014) target.
2.6 We have deliberately increased the Threshold and Stretch targets, where appropriate, by
making the budget more challenging and being progressively tougher with targets but
ensuring the stretch is achievable whilst maintaining the motivation of the leadership
team to overachieve. The key to determining how this principle has been applied is in
how stretching the plan and targets are.
3. The Design of the STIP for the Chief Financial Officer
3.1 The current STIP design for the CFO is the same as that of ExCo. The on-target bonus
is 30% with a total stretch potential of 45%. The result is then factored by personal
performance, ranging from 0 to x2, as determined by the annual PDR rating, which can
make the STIP range 0% - 90%.
3.2 I The Remuneration Committee agreed to align the STIP design for the Chief Financial
Officer to that of the Chief Executive, meaning 80% of the bonus potential is based on
the Post Office Scorecard and 20% of bonus potential is based on the achievement of
personal objectives. There will be no PDR multiplier but a strong personal performance
element has been built into the design.
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3.3. The Remuneration Committee want the range of the STIP for the CFO to fall between
that of ExCo (30% On-target and Stretch of 45%) and the CEO (48% on-target and
Stretch of 80%). The external benchmarking would support this relative positioning.
Therefore it is proposed the on-target STIP will increase from 30% of salary to 40% of
salary with a total potential stretch of 67%, maintaining the stretch multiplier at 1.67 in
line with the CEO.
4. LTIP Performance Conditions and Design
4.4 There are two performance conditions. The first performance condition is to maintain the
Access Criteria as set out in the funding Agreement with the Government and this will act
as a gateway. If the Access Criteria is not met no payment will be made under the
scheme.
4.2 The second condition is Earnings Before Interest and Tax, Depreciation, Amortisation
and Subsidy (EBITDAS). This is effectively the controllable element of the existing
operating profit target. The elements that are not known at this stage are the Network
Subsidy and whether the business will have reached a position to cease impairing fixed
assets. If impairment ceases there will be additional depreciation and amortisation
charges that are not included within plan targets at this stage. The proposed target
therefore excludes subsidy, depreciation and amortisation.
4.3 The threshold target has been set at 80% to ensure focus on accelerating the turnaround
of the business, ensuring the leadership of the Post Office are required to perform at a
high level to achieve pay-out. Previously the finance metric for the LTIP (operating profit)
was at 70%, by raising the threshold target performance over the 3 year period of the
LTIP, it will drive success within the business.
44 Payment against the target will be.on.a straiaht line sliding scale assuming the first _.
5. Recommendations
The Remuneration Committee has met, reviewed and endorsed these recommendations which
it now commends to the Board for formal approval. The Board is asked to:
5.1 Accept the recommendations of the Scorecard Measures subject to STIP for 2013/2014
5.2 Approve the change to the STIP design for the Chief Financial Officer.
5.3. Accept the recommendation for the LTIP performance conditions for the awarded dated
April 2013.
5.4 To note the framework for the STIP and LTIP design and measures for the Chief
Executive and Chief Financial Officer require Special Shareholder approval.
Neil McCausland
Chair, Remuneration Committee
May 2013
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Appendix 1
Proposed Post Office Scorecard for 2013/2014
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Key Performance Indicators
Bonus %
2012-13 results
Threshold 2013/2014
Target 2013/2014
Stretch 2013/2014
Growth
a I cs
a
I Modernisation
2012/2013 is a 53 week year
22013/2014 is a 52 week year
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POST OFFICE LTD BOARD
Update on Front Office for Government Business — May 2013
1. Purpose
The purpose of this paper is to:
1.1 Provide an update to the Board as to the current position of the Front Office for
Government (FOoG) Business and to update the Board’s understanding as to
the revised FOOG strategy.
2. Background
2.1 Although current and projected FOoG income has fallen substantially behind the
original strategic plan agreed at the beginning of 2009/10 as part of the 5 year
plan, it remains a crucial part of Post Office Ltd strategy as it:
e isa very profitable part of the portfolio
* offers significant growth potential
« provides hooks for our Customer Value Propositions
¢ drives footfall in branches
« provides income for sub postmaster across the network and
« it demonstrates our public purpose that is expected by Government and
customers.
New Net Target £25m £50m £100m £150m £200m
Income Forecast £21.3m £24m £48m £81m £98m
Target £142.2m £156.2m £196.1m £239.2m £284.1m
Total Net
Actual/
Income £133.2m £115m £130.0m £157m £172m
Forecast
2.2 Going forward we will focus on six major opportunities that will deliver the future
income:
* a Post Office card account plus (POca plus) proposal for DWP
« an Identity (ID) proposition for DWP in support of Universal Credit
« develop and deliver a range of services for the IPS to support their migration
to the provision of Digital by Default services
« work with Government Digital Services (GDS) to develop the identity,
assisted digital and step out (removal of paper) additions to support the
Governments Digital by Default agenda
« develop the DVLA account, offering new assisted digital solutions
* work with the UKBA to support development of an accelerated application
process
2.3. Asa consequence we have re-focused the team on to these main objectives and
will have a greater focus on the four main departments that will have the greatest
influence on our future income; Cabinet Office, Home Office (IPS and UKBA),
DWP and DfT (DVLA).
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3. Activities/Current Situation
3.1 As a result of the above refocusing, the team will reduce from twenty one to
sixteen people with the Sales Director and the supporting sales team leaving the
business enabling us to reduce our staff budget by 20%. We will also reduce the
numbers of contractors who support the business saving a further £1m per
annum and when compared to 2012/13, overall spend will reduce by 60%.
3.2 Post Office card account currently generates £90m of gross income,
approximately 10% of Post Office income and underpins our cash business. If we
do not provide POca, we do not need to distribute cash around the network. We
pay out £20bn of cash per year of which we estimate that £1bn is spent in the
host retail store. We have engaged with DWP to ascertain the appetite for a
future for POca. Initial work suggests that in the current POca customer base
there are 1m pensioners who will continue to need a POca type product in future
and 0.5m people of working age who will need help to budget monthly when
Universal Credit is introduced. The current position is:
* we have engaged with DWP at senior level (Commercial Director)
« DWP recognise the politics at play and the sensitivity of the Post Office
network to politicians
e Universal Credit will impact on this audience
* we are conducting detailed research of our customer base to help inform our
strategy
« DWP accept there will need to be new payment methods but believe it to be
lower than 1m customers.
e DWP are producing an options paper for their Finance Director
« DWP has indicated they believe ministers would consider customer charging
* we have a working hypothesis that is currently being fully evaluated prior to
presentation to ExCo
3.3 Identity Assurance supporting Universal Credit. We have recently, along with
seven other identity providers, won a place on the Identity Assurance Framework
which has been transferred from DWP to Government Procurement Service
(GPS) in the Cabinet Office. GPS has confirmed there will only be one call off
under this framework and we are working closely with them to agree the
structure of this contract. Francis Maude recently committed that all Government
Departments would use IDA in future and that HMRC would be the first user.
e the call off contract under the existing framework is forecast, but not
guaranteed, to be for up to 600,000 customers over an 18 month period and
will be launched in October 2013. Within that 18 month period Post Office will
be paid £20.50 for each customer identity account. Our market share will be
dependent on the number of existing identity providers who launch a service
in October 2013 and the actual size of the market generated by Government
during this period
e following the launch of the first call off contract, GPS will issue a new tender
for the next phase of the service. This is expected to be issued in November
2013 and for the service under this procurement process to go live in April
2014
« as the market becomes established GPS are predicting a market of 75m
customers (citizens and businesses) by 2017
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e as we are the only provider with a significant national retail network and
current Government standards suggest that up to 50% of customers will not
be able to verify their identity on line, there is a further opportunity for us to
provide wholesale face to face services for other identity providers. This could
be a significant opportunity with the launch of Universal Credit where
significant numbers of customers are expected to need a face to face identity
verification service.
3.4 Support IPS to deliver digital services. We are in the process of migrating the
IPS check and send contract into the DVLA Front Office Counter Services
framework contract. This will deliver a 7 year contract with IPS for the existing
passport check and send service, worth £20m of existing income) and will also
allow for future development of an automated passport service using our AEI
capability. We will be testing a premium check and send service this summer
which IPS hope will relieve pressure on their own front counters. IPS has
indicated they will look to adopt use of AE! in late 2014 which will be worth
approximately £20m p.a of new income.
3.5 Working with Government Digital Services. We are closely engaged with
GDS on the development of an assisted digital proposition in support of the
Governments Digital by Default agenda. They have estimated that it currently
costs Government £4bn to carry out 236.5m non digital transactions. They
believe Digital by Default will allow them to reduce this to £1.3bn to carry out 74m
non digital transactions. This is the assisted digital market but the £1.3bn
includes some service costs that Government will retain. GDS also recognises
that customers will not migrate to digital services and therefore savings cannot
be made, if existing channels are left in place. We have confirmed this with case
studies on car tax where 50% still use the Post Office 9 years after the on line
service was introduced. We have fortnightly meetings with GDS. We know that:
* assisted digital will need to be in place by end of 2014-15 financial year
* our 2019-20 income only assumes that we get a 3% share of the estimated
on-going cost to Government of serving non digital transactions (£1.3bn)
* we are better engaged than any other providers in this space
* we may need political support to persuade GDS that POL already has
contractual cover through the DVLA framework
« HMRC has approached us separately and they have confirmed they believe
the DVLA framework gives them the contractual cover they need
3.6 Developing the DVLA contract. Our original plan assumed that we could
develop the range of services we could offer for DVLA. The numbers in our
revised plan only reflect the services we currently undertake for DVLA with some
minor enhancements. The opportunity still exists to become the Digital by Default
partner for DVLA offering assisted digital services such as change of vehicle
keeper, first time driving licence applications, change of address etc. This will
allow us to grow the income from DVLA by c50% by 2019-20 worth circa. £10m
p.a.
3.7 Developing the UKBA contract. We are working closely with the new Visa and
Immigration Directorate (formerly UKBA), to develop the range of services we
offer to their customers which will deliver an additional £4m p.a of income They
have already issued a number of change requests and we are currently working
with them on:
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«providing biometric equipment (AEI units) for domestic and international use
«providing a super-premium service for VIP enrolments
« supporting the extension of biometric residency permits
3.8 The delivery of these objectives is underpinned by the delivery of our stakeholder
plan.
4. Conclusion
4.1 As we have highlighted in the strategy plan shared with BIS, there is a reliance
on our retaining POca income and footfall and the delivery of new FOoG income.
There remains a significant opportunity for Post Office as a Front Office for
Government however, Government also needs to demonstrate its commitment to
this strategy by using the DVLA framework to give commercial cover for the
delivery of assisted digital services and finding a way to allow Post Office to
continue to offer a Benefits Payment solution post 2015-17 (POca plus solution).
5. Recommendation
The Board is asked to note:
5.1 the revised income forecasts and progress to date; and
5.2 the change in approach
Martin Moran
21°" May 2013
Update on Front Office For Government Business Martin Moran Page 4 of 4
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POLB 13(3")
POLB 13/14-13/25
POST OFFICE LIMITED
(Company no. 2154540)
Minutes of a Board meeting held on 20 March 2013
at 148 Old Street, London EC1V 9HQ
Present:
Alice Perkins Chairman
Neil McCausland Senior Independent Director
Tim Franklin Non-Executive Director
Virginia Holmes Non-Executive Director
Alasdair Marnoch Non-Executive Director
Susannah Storey Non-Executive Director
Paula Vennells Chief Executive
Chris Day Chief Financial Officer
In attendance:
Kevin Gilliland Network and Sales Director (item 13/14)
Nick Kennett Financial Services Director (item 13/15)
Paul Havenhand Head of Insurance and Travel (item 13/15)
Jeremy Law Head of FS Sales Strategy (item 13/15)
Sue Barton Strategy Director (item 13/16)
Sarah Hall Head of Financial Control and Compliance (item 13/18)
Alwen Lyons Company Secretary
POLB 13/14 INTRODUCTION
(a) A quorum being present, the Chairman opened the meeting and
welcomed Kevin Gililland.
The Board congratulated and thanked Kevin Gilliland and his team for
delivering the 1200 Network conversion target. Kevin Gilliland accepted
the thanks on behalf of his whole team and recognised the support of the
Board through what had been a challenging year.
Kevin Gilliland left the meeting
Susannah Storey informed the meeting that she had resigned from her
role in the Department of Business, Innovation and Skills (BIS) to take up
the position of Director of Strategy and Change at the Department of
Energy and Climate Change (DECC). Her new role would not affect her
position on the Post Office Board, but she would relinquish her role at the
ARC after today’s meeting.
POLB 13/15 FINANCIAL SERVICES 2020 STRATEGY
Nick Kennett, Paul Havenhand and Jeremy Law joined the meeting.
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(a)
(b)
(c)
(d)
(e)
(f)
Nick Kennett introduced the Financial Services 2020 Strategy with the
objective of creating a challenge brand in the FS market place. He
recognised that the plan was ambitious, but in his view achievable, and
explained that the strategy was built in separate steps each of which
would return to the Board for sign off as appropriate. His ambition is to
build the capability in the Business and take more control of the value
chain for products as existing contracts expire and therefore create
additional customer benefit and profitability for the Post Office.
The Board discussed the phasing approach using changes in the Travel
Insurance model to establish the foundation for the strategy.
Phase 1
The proposal to bring Travel insurance ‘in-house’ as opposed to
outsourcing was debated and the CFO explained that the decision would
be part of the wider outsourcing work. The Board discussed and agreed
that it might make sense to bring the work in house to resolve any issues
before out-sourcing. The Board stressed the need to retain ownership of
the Brand and customer but asked the CEO to consider fully whether
running such operations were a core competence of the Business, to be
reviewed at sign-off for phase 1.
Phase 2
Nick Kennett explained the process for any buy-out of Bank of Ireland’s
(Bol) interest in insurance which had been agreed as part of the Eagle
negotiations. The Board supported early exploratory discussion with the
Bol and using KPMG to establish the possible value. Nick Kennett would
return to the Board in July having explored the options.
Phase 3
Paul Havenhand explained the advantages of using a standard
technology insurance platform and integrating general insurance onto
that platform and away from the Junction contract. The Board supported
the Insurance phasing and asked for more pace where possible. The
Board was disappointed that more cross- pillar products would not be
included and asked for more work to undertaken to accelerate the
customer database which was planned for 2020.
It was acknowledged that this was a wider IT and Horizon issue and the
Board asked for a paper on IT Architecture and Customer Database
Development, with particular focus on future FS requirements.
Sales Capability
Jeremy Law updated the meeting on the new sales structure and the
progress made with mortgage specialists and the sales process. He is
confident that the new structure will drive the sales capability in the
Business. The Board asked for reassurance that the line management
structure will still be focussed on compliant sales. It was explained that
although the first line manager was part of the FS sales structure and
therefore a trained FS specialist, the second line compliance oversight
was outside the FS structure and accountable to Susan Crichton, HR and
Corporate Service Director
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(9)
(h)
(i)
(i)
(k)
Regulation
The Board asked if the changes in the Travel insurance structure would
change the regulatory environment for the Business. Paul Havenhand
explained that the Post Office is not a regulated principal in its own right,
and that the plan would not change this position. Tim Franklin stressed
that the regulator landscape was not clear and that regulators may at
some point deem distributors to be covered by regulation, at which point
the Post Office would be included. However any change in regulation
would affect the Business irrespective of the proposed plan.
Current Account update
Nick Kennett updated the Board that the Bol have now agreed three out
of four of the proposed measures for evaluating the Current Account
pilot. The only area still to be agreed is the commercial impact. The
Chairman reported a conversation with Christopher Fisher, Chairman of
Bank of Ireland UK plc., who explained that this is a big investment for
the Bank which still requires Group approval. The CEO stressed the
seriousness of the issue and reassured the Board that the Business
realised the importance of drawing the negotiations to a speedy
conclusion. Tim Franklin proposed that if the negotiations do not reach a
satisfactory conclusion, the Business should consider procuring at
alternative platform.
Investment requirement
The Board asked for a paper for the July meeting setting out the
investment required for the FS strategy, including any effect on self-
funding and state aid.
The paper should cover; Brand; IT (including interdependencies with the
IT transformation); People and Compliance
The seven year P&L would also be produced showing the investment
milestones.
FS strategy
The Board asked Nick Kennett what his level of confidence was in
delivering the strategy. He was over 80% certain of delivering the
strategy and the revenue targets.
The Board:
(i) endorsed the overall 2020 Financial Services Strategic Vision;
(ii) requested that the strategy be refined taking into account the ideas
raised at the Board;
(iii) confirmed that the Business should progress step 1 of the Insurance
plan, albeit keeping in mind the out-sourcing option
(iv) asked the Business to work out their ‘Plan B’ to take effect if the
strategy became impossible to deliver.
Nick Kennett, Paul Havenhand and Jeremy Law left the meeting
MUTUALISATION
Susan Barton joined the meeting
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(a)
(c)
(d)
(e)
(f)
(9)
The paper on Mutualisation was discussed by the Board. The Chairman
reminded the Board of the Government's policy on Mutualisation, as
enshrined in the Postal Services Act, which meant that any strategy and
funding request needed to acknowledge this ambition.
The CEO explained that the strategy and funding document would
highlight three areas which needed the Government's support;
(i) funding to complete modernisation of the Network;
(ii) a long term funding agreement for unprofitable branches; and
(iii) a more planned non-voluntary approach to Network
Transformation
She explained that the Post Office’s support for mutualisation could be
important for achieving the funding agreed. The Board believed that the
funding was needed to achieve financial sustainability and turn around
irrespective of mutualisation, but accepted the reason for linking the
funding and mutualisation.
The Board stressed the need for the Government to agree the definition
of ‘financial sustainability’, and the financial pre-conditions required
before mutualisation, and for these to be made public.
It was agreed, that the Business should ask Rothschilds to update their
report to include the new strategy and get their view on sustainability and
balance sheet requirements in the light of this, within a tightly managed
set of Terms of Reference and budget.
Susan Barton explained mutualisation Option 2 in the paper and the
areas it covered:
Internal Engagement
The Board agreed that the work on engagement should progress with
pace
Stakeholder Forum — Public Purpose of the Post Office
Two draft definitions of the Public Purpose of the Post Office are to be
presented to the Stakeholder Forum on the 22" March for discussion.
The CEO assured the Board that the Forum would consider their
effectiveness for a successful commercial business. The Board stressed
the importance that the Public Purpose statement should not hamper the
Business in driving the turn around and achieving financial sustainability.
The Board would need sufficient time to consider the proposal during the
summer, well before they were asked to agree the draft which resulted
from the consultation exercise.
Governance
The Business was asked to consider its future stakeholder engagement
and the most effective meeting structure to be put on place.
It was agreed that the word ‘Trust’ in Option 2 be replaced by an
‘oversight body’, which could possibly be the Board or the ARC.
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(h)
(a)
(b)
(c)
(d)
(a)
(b)
(c)
(d)
(e)
(f)
The Board confirmed that the strategic plan should be developed around
a revised version of Option 2 taking into account the Board’s discussions.
FINANCIAL PERFORMANCE UPDATE
The CFO presented the monthly finance and performance report for
February 2013, which continued to show a strong operating performance
in the current year.
He explained that the Crown Offices were on track to deliver their target
for this year and that he was now more confident that the Crown loss
could be reduced to a breakeven exit rate by the end of 2014/15,
following adoption of the ‘Plan B’ measures.
The Board noted that the Government grant was underspent and asked if
this had any implications. The CFO assured the Board it would have no
effect on receiving the next funding or the State Aid position.
The Board noted the Financial performance report for February 2013.
2013/2014 BUDGET
Sarah Hall joined the meeting
The Board considered the proposed budget for 2013/2014, and noted the
actions that had been taken in response to the challenges given to the
Business by the Board at the Budget meeting held on 13 February 2013.
The CFO reported that the Business had accepted the additional
challenge of keeping income flat despite the 53 week year effect by
holding a central target of £5m which would be allocated after the first
quarter, and which was counterbalanced by an additional £5m of ring-
fenced cost.
The CFO explained that the budget assumed 1800 NT mains and locals
conversions next year but that any changes brought about by the
McKinsey modelling would not have a significant impact on the 2013/14
profit target.
The Board asked the CFO to consider a measure of the underlying
profit/(loss) exit rate at the year-end which flows through into next year,
as this would give a good measure of progress and show the size of the
challenge in future years.
The Board discussed the fluctuations in the operating cashflow and the
ability to forecast future requirements. Sarah Hall explained the volatility
caused to network cashflows over Easter and month ends and the CFO
assured the Board that he continues to monitor the position.
The Budget for 2013/2014 was approved.
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(9)
(a)
(c)
(d)
(e)
(a)
(b)
(c)
(d)
(e)
(f)
The development of the Key Performance Indicators for 2012-2013 was
noted and would return to the Board for sign off. The Board discussed
their preference to use Net Promoter Score (NPS) as the customer
measure instead of Easy TO Do Business With. The CEO explained that
this was a holding position for 2013/14 and that NPS would be tracked
through the year for use in 2014/15.
Sarah Hall left the meeting
CHIEF EXECUTIVE’S REPORT
The Board noted the CEO’s report and discussed the following specific
items:
Project Rainbow
The CEO updated the Board and informed them that no action was to be
taken by the ICO, because of the low risk and the actions taken at the
time. She assured them that the Business remained prepared to respond
if any further action was required.
The CEO shared a letter from a Branch Manager supporting the stance
on the Branch pay and possible industrial action. She had also had the
same reaction from branch staff during a visit with the Minister.
The quarterly meeting with Moya Greene CEO RMG had taken place and
click and collect had been discussed.
The Health and Safety report, which included risk reduction activities,
appended to the CEO's report was noted.
MINUTES OF PREVIOUS MEETING AND MATTERS ARISING
The minutes of the Board meeting held on 23 January 2013 were
approved for signature by the Chairman.
The Status Report, showing matters outstanding from previous Board
meetings, was noted.
The Board noted the minutes of the Pensions Committee meeting held
on 22 January 2013.
The Board also noted the minutes of the Nominations Committee
meeting held on 7 November 2012.
Minutes of the Remuneration Committee meeting held on 5 February
2013 had been circulated to members of the Board who had no personal
interest in the matters discussed. The minutes were noted by the Board.
It was noted that the minutes of each of the above Committee meetings,
provided for information, had been formally approved by the relevant
Committee.
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POLB 13/22
POLB 13/23
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Company Secretary
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(a)
(b)
(a)
(b)
(c)
(a)
TREASURY RISK MANAGEMENT
The Board considered the proposed framework, policies and authorities
for Treasury Risk Management, which had been reviewed by the Audit,
Risk and Compliance Committee (“ARC”) in February 2013 and was
being recommended for adoption.
The Board approved:-
(i) the Treasury Risk Management approach;
(ii) the Treasury Governance and reporting framework, including the
delegation of authorities to enable efficient Treasury operations; and
(iii) the Treasury Policies and authorities
ITEMS FOR NOTING
The Board noted the update on the Front Office for Government
Programme. It was reported that a full Board Presentation and
discussion would be included on the May 2013 Board agenda.
The Significant Litigation report was noted.
The Board noted the Report on Sealings.
It was resolved that the affixing of the Common Seal of the Company to
the documents set out against items numbered 840 to 864 inclusive in
the seal register is hereby confirmed.
ANY OTHER BUSINESS
It was agreed that the Board away day on the 18" and 19" June should
commence with a Board dinner on the 18" including a pre-dinner
speaker.
The following day would look at three areas:
(i) People- organisational design; the structure of the new business
model; resource/people and talent management
(ii) Mails- what the world will look like in 5 to10 years and how we will
respond to the challenges.
(iii) A stakeholder session — involving 4-5 guests including SME
representative. To discuss a customer focussed issue.
CLOSE
There being no further business, the meeting was then closed.
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POLB 13(4"")
POLB 13/26-13/30
(Company no. 2154540)
Minutes of a Board meeting held on 9 April 2013
at 148 Old Street, London EC1V 9HQ
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Present:
Alice Perkins Chairman
Neil McCausland Senior Independent Director
Tim Franklin Non-Executive Director
Virginia Holmes
Alasdair Marnoch
Susannah Storey
Paula Vennells
Chris Day
In attendance:
Kevin Gilliland
Non-Executive Director
Non-Executive Director
Non-Executive Director
Chief Executive
Chief Financial Officer
Network and Sales Director (item 13/27)
Sue Barton Strategy Director (item 13/27)
Mark Davies Communications Director (item 13/27)
Robin Nuttall McKinsey (item 13/27)
Jules Seeley McKinsey (item 13/27)
Gill Catcheside
Assistant Company Secretary
POLB 13/26 INTRODUCTION
(a) A quorum being present, the Chairman opened the meeting.
POLB 13/27 NETWORK TRANSFORMATION
(a)
(b)
(c)
Kevin Gilliland, Sue Barton, Mark Davies, Robin Nuttall and Jules Seeley
joined the meeting.
Robin Nuttall tabled a paper on Transforming the Post Office Network
which outlined the conclusions from Phase 1 of the programme and an
assessment of the changes required to make the next phase of Network
Transformation a commercial success, which the Directors noted and
discussed.
The Board discussed the declining environment for many Post Offices,
and the probability that without transformation to counter economic
realities, the Business would continue to decline further. The Chairman
suggested that was the right time to modernise the Business, even if this
meant difficult changes for people.
Kevin Gilliland advised the Board that as long as fixed pay continued for
Sub Postmasters (“SPM”), the Business would not be able to convert the
bulk of the network by 2020 and that the 2015 conversion target was no
longer viable.
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(d)
(e)
(f)
(9)
(h)
(i)
(i)
It was noted that at the March board meeting, the Directors had accepted
the recommended approach, and the need to move to a mandatory
programme.
Kevin Gilliland undertook to prepare a commercial analysis of the
conversions completed to date. It was agreed that, although data varied
from branch to branch, it would be good to be able to gain a sense of
what had been achieved so far.
Assessment of new approach
Kevin Gilliland reported that the different new models i.e. Mains, Locals,
Basics, Community and Outreach had been tested to ensure that they
gave the business flexibility to response to changes in market conditions.
It was noted that it was economically better for a SPM to have a Main
model, but that the Business would benefit (on a P&L basis) from more
Local models. Susan Barton advised that current SPMs were used to
over generous fixed pay remuneration, but that the Business needed to
change this to become more competitive. The Board agreed that this
would be a painful transition, but that it was necessary to achieving a
successful commercial retailing Business going forward.
The Directors discussed the strategic approach to partnering with
Symbol Groups and Multiple convenience retailers, and the appetite that
these retailers had for the new models. The latter had not yet expressed
their views on these and Kevin Gilliland advised that the Business was in
the early stages of engaging with these retailers at a senior level. The
Board recognised the risk that these retailers might not sign up to the
new models. Virginia Holmes suggested that the Board would feel more
comfortable once meaningful discussions were held with the Multiples
and Symbols Groups, and the Board agreed this needed to progress as
quickly as possible.
Neil McCausland raised his concerns that SPMs were being incentivised
to leave the business rather than to convert their branches to new
models, and that this could lead to a serious loss of experience in the
network. Susan Barton outlined the approach that would be taken which
would include helping businesses to produce business cases which
would be tested to ensure commercial viability before conversion. If the
SPM could not produce a viable business case, the business would
consider either an OnSite conversion with a different retailer, or a move
to anew site. However, the Directors were advised that no business
would be closed until another Local was open and trading.
Susan Barton advised that it might be positioned to consider enhanced
compensation for OnSite conversion as these were easier to deliver.
However, it was noted that this could possibly lead to back-dated
challenges from other branches who had already converted as part of
phase 1. The Board also discussed the probability of making more
help/advice available to those who were going to convert to support them
in making a success of it.
Robin Nuttall outlined competitors’ (PayPoint, CollectPlus and
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MyHermes) activities, advising that they were growing extremely rapidly
and constituted a real competitive threat. Jules Seeley outlined the
experience of other agency driven networks in other countries. The
Board recognised that the Business’ competitors were already
contracting with the Multiple and Symbol groups and the opportunity for
the Post Office might be time-constrained. Robin Nuttall advised that the
revised model could be executed even if a large retailer such as the
Coop were not involved. The Chairman pointed out that the Board did
not have time on its side. A decision on Network Transformation needed
to be taken as part of the funding request and therefore was being driven
by a tight external timetable.
(k) I Mark Davies outlined the Communications strategy to support the
Government Funding Agreement and the McKinsey Proposals for a
switch to a mandatory network transformation programme. Virginia
ACTION: Mark Holmes asked that competitors’ activities should be included in the
Davies strategy to highlight the sense of urgency.
(1) I Susan Barton, Kevin Gilliland, Mark Davies, Robin Nuttall and Jules
Seeley left the meeting.
(m) Paula Vennells advised the Board that if a decision were taken not to
approve the revised Network Transformation and continue with the
current conversion programme, the business would reach a position
where not enough volunteers would come forward, and the Business
would have to pay high levels of fixed fees to run inefficient offices from
public monies. She noted that this could then result in a large closure
programme in 4-5 years.
(n) Paula Vennells thanked the Board for their input. She believed that the
new approach was right for the Business, and that any other approach
would be sub-optimal. It was recognised that the transformation would
not be easy, but that the Board had to deliver the best outcome for the
Post Office.
(0) Chris Day advised the Board that, in his opinion, time was of the essence
and the window of opportunity was limited for implementing the
McKinsey Proposals; the Business was at a crisis point and needed to
take action. The funding and political cycles were noted. It was agreed
ACTION: Kevin that the McKinsey Proposal needed to address the expected competitor
Gilliland response.
(p) Whilst noting the high risk nature of the McKinsey Proposal, and the
flexibility that would be required throughout the process, the Directors
approved the approach to achieving network transformation and the
Business’ long-term objectives. It was also agreed that it would be useful
ACTION: Kevin to have Chatham House style conversations with a number of the large
Gilliland Multiples to assess their appetite for the Scheme as soon as possible,
and that the messaging to Government should be positioned as a
ACTION: Mark refinement of the existing strategy highlighting the consequences of not
Davies being implemented.
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(q
(a
(b)
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) The Chairman thanked the Directors for an excellent discussion.
STRATEGY AND FUNDING
) The paper outlining the response to the actions from the Board Strategy
session on 27 February 2013 was noted.
) Chris Day tabled an update on funding requirements continuing revised
proposals which the Directors discussed.
(c) The Board agreed that part of the Investment funding could be used in
(d
(e
(f)
Community post offices to respond to growth (in areas such as packets).
This would be a presented to BIS as “more for the same investment”.
) The Directors agreed that an early statement on Mutualisation and the
definition of financial sustainability would be helpful. In answer to a
query from Alasdair Marnoch, Chris Day advised the Board that the
2015/16 was the earliest point at which the business could achieve
breakeven, but that this was the most optimistic case and would still
require on-going NSP at that point.
) The proposed funding levels, as outlined in the paper were accepted, it
being noted that the funding requirement should be presented as “more
for the same investment”. The strategy would only succeed if the
Government accepted the underlying assumptions contained in the plan;
a move to a mandatory NT programme; acknowledgement that our
financial projections assume an extension to the POCA contract by 2
years, and that Post Office would like to be positioned as the preferred
identity partner. It was also agreed that the messaging on mutualisation
should be clear i.e. that financial sustainability must be achieved before
the Post Office be mutualised.
Sue Barton would be asked to submit a draft Strategy and Funding
document to Paula Vennells and Chris Day by 12 April, with the intention
of it being circulated to Board members by 17 April. Paula Vennells
undertook to propose a timetable for announcement of the Strategy.
(g) It was resolved that a Sub-Committee be formed to finalise the Strategy
and Funding Agreement, comprising Alice Perkins, Chris Day and Paula
Vennells.
ANY OTHER BUSINESS
(a) Paula Vennells advised the Board that CWU was visiting the offices on
10 April 2013 for further discussions. It was noted that a letter had been
sent to colleagues advising them of this development, whilst making it
clear that POL’s stance had not changed.
CLOSE
There being no further business, the meeting was then closed.
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POLARC13 (1st)
POLARC13/1- 13/8
POST OFFICE LIMITED
(Company no. 2154540)
Minutes of a meeting of the AUDIT, RISK AND COMPLIANCE SUB-COMMITTEE held on
Wednesday 13 February 2013 at 1.15pm
at 148 Old Street, London EC1V 9HQ
Present:
Alasdair Marnoch Chairman of Committee
Neil McCausland Senior Independent Director
Susannah Storey Non-Executive Director
In attendance:
Alice Perkins Chairman, Post Office Limited
Paula Vennells Chief Executive (CEO)
Chris Day Chief Financial Officer (CFO)
Susan Crichton HR & Corporate Services Director
Sarah Hall Head of Financial Control and Compliance
Alwen Lyons Company Secretary
Mark Davies Communications Director (item 13/4 only)
Malcolm Zack Head of Internal Audit
Stephen Collins Audit Manager, Royal Mail Group Internal Audit (item 13/5 only)
Apologies for absence: Tim Franklin
POLARC13/1 INTRODUCTION
(a) I A quorum being present, the Chairman of the Committee opened the
meeting and welcomed all those present.
POLARC13/2 MINUTES OF THE LAST MEETING AND MATTERS ARISING
(a) I The minutes of the meeting held on 13 November 2012 were approved
for signature by the Chairman of the Committee.
(b) I The CFO reported that there was one final item to agree before he
ACTION: could confirm the external audit fees payable for 2012/2013 but he was
Chris Day content with the value being offered and would report the final fee to
the Committee once it had been finalised.
(c) I The following minutes were noted:-
Post Office Limited and Bank of Ireland (UK) Regulatory Risk
Committee held on 16 November 2012
Post Office Limited and Bank of Ireland (UK) Regulatory Risk
Committee held on 12 December 2012
Post Office Risk & Compliance Committee held on 21 January 2013.
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(d) I It was agreed that in future, instead of the minutes of the above Risk
Committees being presented to the ARC for noting, Susan Crichton, as
ACTION: Chair of the Risk & Compliance Committee would provide a summary
Susan Crichton of the key issues covered.
(e) I Susan Crichton explained the changes to the Post Office’s Speak Up
Policy (Whistleblowing) and the plan to communicate to Staff in April.
The policy was noted by the Committee who requested a report on the
ACTION: issues raised at the end of 2013-2014, with any significant matters
Susan Crichton highlighted in the interim.
POLARC13/3 RISK MANAGEMENT WITHIN POST OFFICE LIMITED
Risk Management Strategy 2013-2014
(a) I Malcolm Zack presented the Post Office Limited’s Risk Management
Strategy for 2013-2014. The current status of the Enterprise Risk
Management (ERM) framework was noted.
(b) I The next stage of the ERM development was agreed and would be
recommended to the Post Office Limited Board.
(c) I The Committee discussed the Risk Management Strategy for 2013-
2014 and the relationship between the Risk & Compliance Committee,
the Audit and Risk Committee, the Executive Committee and the
ACTION: Board. It was agreed following the completion of the Strategy both the
Susan Crichton/ Business and the Board would identify the key material risks (top 5-10)
Alasdair Marnoch which would be brought back to the ARC in the autumn for
consideration.
(d) I Regulatory Risk Framework and Controls
The Committee considered the Regulatory Risk Framework currently
in place for Post Office Limited and thanked the Business for the
comprehensive list of regulation identified.
(e) I Susan Crichton stressed the need for a clear view on risk appetite and
ACTION: the costs involved with assurance and mitigation. She asked the
Susan Crichton/ Committee to recognise that this was work in progress. The Committee
Alasdair Marnoch endorsed the proposed approach to monitoring, and agreed that the
Committee should review the Regulatory Risk Framework later in the
year once the risk appetite work had been completed.
(f) I Treasury Risk Management
The CFO presented the Treasury risk management framework,
policies and authorities to the Committee. The Chairman thanked him
for the full report and the Committee discussed each principal treasury
risk, as set out below.
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(g) I Foreign exchange Risk
The CFO explained that, although large volumes of currency were held
by the Business, the value at risk was relatively small. Tim Franklin
had asked the Business to consider the effect of reducing the number
of currencies held as this would reduce complexity and cost. The CFO
acknowledged that the ‘long tail’ of currencies with relatively few sales
did add complexity.
The Chairman asked if forward hedging a month was effective. The
CFO explained that the current regime was very risk averse and time
consuming and was an area which he would reconsider.
(h) I Interest Rate Risk
The CFO explained that the Business was affected by both sides of
the interest rate market and that he would only be concerned if the
market became volatile.
(i) I Insurance Risk
The Committee asked the Business to consider the need for
ACTION: Susan Professional Indemnity Insurance cover as it moved into the area of
Crichton financial services advice.
(j)_ I Counterparty Risk
The CFO presented the list of counterparties and reassured the
Committee that any proposed additions would be presented to the
Committee for approval. The Committee asked that the list be updated
to show the parent company and highlight where a parent company
guarantee existed. The list of counterparties was noted.
The Committee discussed the flow of Government funds and the
ACTION: possible advantage for the Business and the Government of a different
Chris Day approach. The CFO was asked to explore the possibility with ShEx but
ensuring this would not put receiving the agreed funding at risk.
(k) I Governance and Reporting
The governance and reporting explained in the paper was discussed. It
was agreed that policy breaches identified by management and any
ACTION: oversight processes should be notified to internal audit. The Head of
Malcolm Zack Internal Audit would report any significant policy breach to the
Committee.
The Committee noted the treasury risks to which the Post Office was
exposed. It was agreed that the proposed framework of treasury
policies and procedures, including the governance and reporting
ACTION: Chris mechanisms and associated approvals and limits, be recommended to
Day the Post Office Board in March.
POLARC13/4 ANNUAL REPORT AND ACCOUNTS
Mark Davies joined the meeting
(a) I The Committee considered the plans for the publication of the Post
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Office’s Report and Accounts (R&A) for the financial year 2012/2013
which included the key messages, together with a proposed timeline
for clearance of the report. It was agreed that the R&A should aim to
change people’s perception of the Business by being concise and
engaging, showing solid progress but with a sense of realism and
excitement.
The Chairman advised the Business to compare the R&A to those
ACTION: produced by mid-cap or small private limited companies as these were
Mark Davies often more concise than those produced by big corporations.
(b) I Neil McCausland explained the pressure from Government for full
disclosure in the Directors’ Remuneration Report. The Remuneration
Committee had agreed with advice from New Bridge Street
ACTION: (Remuneration Consultants) an appropriate level of disclosure.
Neil McCausland/ Susannah Storey recommended checking with ShEx that we are in line
Susannah Storey with the other companies in which they hold a share.
The Committee stressed the need to be prepared for the questions
ACTION: which would be raised by the disclosures in the Directors’
Mark Davies Remuneration Report.
(c) I The first draft of the Board Chairman’s Foreword had been circulated
ACTION: All and the Committee were asked to provide comments to Mark Davies
and Alice Perkins.
Tim Franklin had asked that the Business consider if there was a
ACTION: subject on which it would want to make a public statement in the R&A.
Mark Davies/ He gave, as an example, the easy way in which customers were able
Alwen Lyons to move their bank current accounts.
The plans for the publication of the Post Office’s Report and Accounts
for the financial year 2012/2013 were noted. The Committee asked for
a high level detailed milestone plan showing when the Board would be
required to input and who was signing off which parts of the document.
Mark Davies left the meeting.
POLARC13/5 INTERNAL AUDIT
(a) I Stephen Collins joined the meeting.
(b) I Malcolm Zack presented the activity report for the internal audit
function, which the Committee noted.
(c) I The Chairman asked that future Internal Audit Reports include the
outcomes required from the Audit and a timeline showing when those
outcomes would be delivered so that they could be tracked. Susan
Crichton explained that this detail was scrutinised by the Risk and
Audit Committee and it would be included in the summary requested
by the ARC. _(POLARC 13/2 (d)).
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d
Malcolm Zack reported the progress in setting up the Post Office
internal audit team and how this would enable a more flexible
approach.
The proposed internal audit plan for the financial year 2013/2014 was
ACTION: considered and reviewed. The Business was asked to ensure it had
Malcolm Zack enough focus on the major transformation programmes in both
Network and IT.
ACTION: All The Chairman asked that any other comments be forwarded to the
Head of Internal Audit.
It was agreed that
(i) the remaining contracted 100 man days from the Royal Mail
ACTION: Internal audit function be utilised in the first quarter of the
Malcolm Zack 2013/2014 financial year, with a view to exiting from the Royal
Mail support by 30 June 2013 at the latest;
(ii) the Internal audit plan for 2013/2014 be approved subject to an
increased focus on transformation programmes; and
(iii) a copy of the approved Internal Audit plan be circulated to the
ACTION: Risk and Compliance Committee, and the Executive
Malcolm Zack Committee.
Stephen Collins left the meeting
POLARC13/6 MATTERS REFERRED TO ARC BY THE BOARD
Update report on Information Security
(a) I The Committee noted the paper on Information Security. The
Chairman explained that he had already asked Lesley Sewell to focus
ACTION: on the immediate actions required to ensure the matter was
Lesley Sewell progressed to mitigate the significant risks.
ACTION: The Committee asked for an update in the CEO’s Board Report
Lesley Sewell explaining the specific actions being taken.
(b) I Bank of Ireland (UK) plc Capital and Liquidity
The Committee noted Bank of Ireland (UK) plc’s capital and liquidity
position against its regulatory and Eagle contract requirements, which
had met the terms of the joint venture agreement. Tim Franklin had
assured the Chairman that he was comfortable with the current
position and the on-going agreed monitoring.
POLARC13/7 ANY OTHER BUSINESS
None was reported.
POLARC13/8 CLOSE
There being no further business, the meeting was declared closed.
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NC 13/1-13/5
POST OFFICE LIMITED
(Company no. 2154540)
Minutes of a meeting of the Nominations Committee held on 5 February 2013
at 148 Old Street, London EC1V 9HQ
Present:
Alice Perkins Chairman
Neil McCausland Senior Independent Director
Virginia Holmes Non-Executive Director
In attendance:
Paula Vennells Chief Executive
Susan Crichton HR and Corporate Services Director
Fay Healey Chief HR Officer
Alwen Lyons Company Secretary
NC13/1 INTRODUCTION
A quorum being present, the Chairman opened the meeting.
NC13/2 MINUTES OF PREVIOUS MEETING AND MATTERS ARISING
(a) The minutes of the meeting held on 7 November 2012 were approved for
signature by the Chairman of the Committee.
Terms of Reference (NC 12/2)
(b)
It was noted that the Committee’s Terms of Reference had been revised and
then approved by the Board on 23 January 2013.
NC 13/3 PROCESS FOR EVALUATION OF BOARD AND COMMITTEE
EFFECTIVENESS
(a) The Committee discussed the process for evaluating the effectiveness of the
Board and its Committees.
(b) It was agreed that:-
(i) an informal evaluation of the workings of the Board and
ACTION: Committees would be undertaken by the Board Chairman in
Chairman the summer of 2013. It was noted that the Board assessment
guidelines, shared with the Committee, would be used.
(ii) the Chairman would interview each Board member and the
Company Secretary on a non-attributable basis. It was noted
that the overall findings would be fed back to the Board, and
individual feedback given on a 1:1 basis by the Chairman.
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ACTION: (iii) an appraisal of the effectiveness of the Chairman would be co-
Neil ordinated by Neil McCausland to the same timescale.
McCausland
(c) The Committee agreed that the first external Board effectiveness review
would take place by mid 2014, a year before the first NED appointment was
due to expire.
NC 13/4 SENIOR TALENT
(a) The Committee noted the update on the current status of senior talent
management. They discussed the business’ approach to ensure candidates
from diverse backgrounds were being considered for appointments. Fay
Healey informed the Committee of an initiative using ‘Diversity Jobs’ which
was being progressed.
(b) Susan Crichton assured the Committee of the business’ focus on diversity,
with training on diversity awareness and interview and selection planned for
next year. The Chairman asked the business to be rigorous in its challenge
to improve diversity but stressed the need to ensure that the best candidates
with future potential were chosen.
(c) Susan Crichton informed the Committee that the graduate recruitment
budget had unfortunately been cut for next year. The Committee recognised
ACTION: that the business was under pressure to cut budgets and had to make
Susan difficult decisions but would like them to do all they could to protect the
Crichton graduate scheme which could bring young, diverse and bright people into
the business. The CEO agreed and committed to revisit the decision on
graduate recruitment.
(d) The Chairman asked for a report for the next meeting updating the
ACTION: Committee on the progress and changes in the SLT since their evaluation
Susan earlier in the year, tracking changes in the ‘misaligned’ population and
Crichton highlighting leavers and new appointments.
NC 13/5 ANY OTHER BUSINESS AND DATES FOR FUTURE MEETINGS
There being no further business, the meeting was then closed.
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PC 13/07-13/13 POST OFFICE LTD
PENSIONS SUB-COMMITTEE
Minutes of a meeting of the Pensions Sub-Committee of the Board
held at 148 Old Street, London EC1V 9HQ on Monday 4 March 2013
Present: Virginia Holmes (VH) — in the Chair
Chris Day (CD) (by conference call)
Susannah Storey (SS) (by conference call)
In Attendance: Susan Crichton (SC) HR & Corporate Services Director
Sarah Hall (SH) Head of Financial Control and Compliance
Ken Potter (KP) Pensions Adviser
lan McKnight (IM) RMPTL (Item 13/12 only)
Gill Catcheside (GC) Secretariat
PC 13/07 OPENING OF MEETING
A quorum being present, VH opened the meeting.
PC 13/08 MINUTES OF PREVIOUS MEETING AND MATTERS ARISING
The minutes of the meeting held on 22 January 2013 were approved for
signature by VH.
The following matters arising from the minutes were discussed:
ACTION: GC a) It was agreed that an Actions list should be available for future meetings.
ACTION: GC b) GC undertook to check if the revised Pensions Committee’s Terms of
Reference had been approved by the Board. (Minute PC 13/02e))
c) It was noted that the Board would be updated on pension risks at the March
2013 meeting as the February meeting had become a “strategy” meeting.
(Minute PC 13/05a)) It was hoped that at future Board meetings, Pensions
Risks would become a separate agenda item, instead of being part of the
CEO's report. It was agreed that Pension Risk matters would be a separate
item reported by ARC to the Board as required. _It was further agreed that
Pension Risk matters should go to RCC (Risk & Compliance Committee)
initially, and then be noted by ARC. GC undertook to remove the item from
ACTION: SCIGC future Committee agendas.
d) Report on recent interaction with the Trustees
CD advised the Committee that he had not yet met with Gerry Degaute, Chief
Executive of Royal Mail Pension Trustees Ltd (RMPT), but hoped that a
meeting would be arranged in the next 2-3 weeks.
e) Project Robin
SC reported that negotiations regarding Project Robin had been ongoing
between Royal Mail and its unions, but that the unions had indicated that they
could not support the strategy because of the outstanding pay and other
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issues. It was noted that CD/SC had written to the Unions clarifying the Post
Office pensions strategy and were trying to get them in for further discussions.
SC advised that a letter would be sent out to all pension participants on 18
March 2013 outlining Project Robin with a consultation document paper being
issued no later than 23 March 2013.
KP reported that he thought union agreement was required for the necessary
tule change in order to make Wren binding on any future owner of RMG. It
was noted that the Trustee had circulated a list of conditions at the last
meeting, which were effectively the terms under which they would accept the
Rule change. It was further noted that they would be effected by a
Memorandum of Understanding to be circulated to the employers.
KP/SC undertook to continue to liaise with the Shareholder Executive on the
ACTION: KP/SC issue, and to keep the Committee updated of developments.
VH noted that it was important for the timetable to be adhered to in order to
agree the Scheme valuation by the end of June 2013. VH asked what would
happen to the valuation were, for example, POL to agree its contribution
schedule but not Royal Mail Group Limited (“RMG’”). KP advised that this
would result in the late submission of the Scheme valuation and would need to
be discussed and notified to The Pensions Regulator.
f) Pensions Valuation discussions with the Trustee and actuaries
The note circulated by KP to the Committee regarding the Pensions Valuation
discussions with RMPT and actuaries was noted. CD advised that the
engagement discussion with RMPTL had been encouraging and would
hopefully provide value for POL, and that the mindset of the Executive
Committee and the Board had provided helpful input.
KP reported that he had met with Mercer and AON Hewitt and had gained the
impression that the parties were not far apart in their assumptions for the
Valuation. It was noted that there was a need for clearer labelling of asset
class categories so that the overall investment allocation could be seen and
measured against POL’s agreed strategy which could then be notified to the
Trustee. It was also noted that the Trustee would be reluctant to move into
higher equity allocations going forward at the 17.1% contribution rate.
PC 13/09 INITIAL REVIEW OF ASSUMPTIONS FOR REPORT AND ACCOUNT
DISCLOSURES UNDER IAS19 AND FRS17
The paper on IAS 19 Employee Benefits - key assumptions principles was
considered by the Committee. SH advised that the assumptions would be used
for calculating the Pension balance sheet position and would not impact on the
Valuation. It was noted that the Board was responsible for setting the
assumptions but that the Committee would initially review the assumptions and
then make a recommendation to the Board for approval.
The Committee noted that although POL represented 7% of the RMG pension
pot and that some assumptions would need to be aligned, it had a good level
of challenge on a demographic basis if it wanted to change some of the
assumptions in relation to this.
SH advised that Towers Watson had reviewed the assumptions taking into
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account rates at the end of January 2013 as an estimate for the position at the
end of March 2013. It was noted that Towers Watson had indicated that the
assumptions were consistent with those being considered by RMG and were
consistent with the approach taken in 2012.
SH reported that the assumptions would indicate a surplus of £36m and would
lead to an increase in the profit and loss account charge for the 2013-14 year.
The Committee discussed the future rates of increase in salary assumption
which had assumed that salary growth would be at RPI +1%. It was noted that
under Crown proposals, there would be no consolidated pay increase for three
years which, if overlaid as an assumption, would result in an increase in the
surplus from £36m reported in the paper to up to £104m. It was noted that it
might be appropriate to assume no pay increase for 2012-13 but that this
might not be appropriate for subsequent years.
The Committee discussed additional possible adjustments to the assumptions
raised in the paper and requested further clarification on them at the meeting
to finalise the assumptions. It was noted that any adjustments would need to
be agreed with RMG.
It was agreed that the key assumption principles, as outlined in the paper, be
adopted as working guidelines, and that the final assumptions should be
ACTION: SH confirmed at the meeting to be held on 4 April 2013 by conference call. SH
undertook to ascertain RMG’s proposals.
PC 13/10 PROFESSIONAL FEES
The Committee noted the professional fees incurred to date for the Scheme,
and discussed the proposed fees for AON Hewitt and Towers Watson.
It was agreed that
(i) a fee of £5,000 for AON Hewitt be approved for work related to and/or
attendance at the next two Pension Committee meetings;
(ii) a fee of £25,000 for Towers Watson be approved for completion of year
end reporting; and
(iii) a fee of £4,300 for Towers Watson be approved for work associated with
the pension implications of transferring employees from the DVLA in relation to
the new DVLA contract.
VH suggested that the costs incurred during the first year of separation would
be a good learning curve for next year, but that all future costs should be
challenged to ensure that there was no repeat charging of set-up costs.
PC 13/11 ANY OTHER BUSINESS
a) Briefing note on the UK Rating Downgrade
The briefing note from AON Hewitt on the UK Rating Downgrade was noted.
b) Date of next meeting
It was agreed that the next meeting would take place at 9am on Thursday 4
April 2013 at 148 Old Street, London EC1V 9HQ, at which Key Assumption
Principles and Investments would be discussed.
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PC 13/12 INVESTMENTS
lan McKnight (“IM”) joined the meeting.
The Committee considered the paper from IM on the Investments for the POL
section of RMPP, together with feedback on the paper from AON Hewitt. VH
asked that, in future, the paper should be more detailed and informative for the
Committee.
IM outlined the initial asset allocation for the Pensions Solution, and the target
investment returns and liability hedging levels. It was noted that a Statement
of Investment Principles had yet to be formalised, as agreed at the time of the
Pensions Solution.
It was reported that RMPTL was undertaking a further investment strategy
review, and the Committee discussed the Trustee’s current position with
regard to the target return of Gilts + 1.5% and proposed strategic allocation for
the growth assets, and liability hedging.
The Committee noted that AON Hewitt had been uncomfortable with a period
of six years for pre-hedging of future accrual, and had recommended that
three years was a more suitable timeframe with further hedging arranged
when appropriate. IM advised that any concerns that the Committee had
should be raised via himself, by letter to RMPT or at the Implementation
Working Group (‘“IWG’). It was noted that the next meeting of IWG would be
held on 28 March 2013.
VH indicated that that there was still a mis-match between POL’s proposed
investment strategy and that proposed by RMPTL which needed to be
ACTION: CD/KP. addressed. CD and KP undertook to close down the liability hedging mis-
match outside of the meeting and report back to the Committee.
With regard to asset allocation, it was reported that the Scheme was
overweight in LDIs and underweight in alternative assets. IM advised that the
apparent underweight in alternative assets would even out once the private
debt allocation had been filled. The Committee felt that there was a mis-match
on terminology of asset class choices which needed to be made clearer. It
was agreed that an absolute return of 6.2% on assets was too low, and that
the Scheme would be comfortable with taking more risk with higher volatility. It
was noted that historically the Scheme had been risk-averse, but that, going
forward, the policy would be reconsidered.
IM and KP undertook to review the terminology of asset class choices used to
clarify labelling so that comparisons between POL’s request and actual
proposed by the Trustee could be made more easily.
ACTION: IM/KP
The rebalancing strategy was discussed. It was noted that “one way”
rebalancing from return seeking to liability hedging was used for existing
assets, with new monies allocated in line with the Plan’s overall target asset
allocation. IM advised that it would take 1-2 years for the new monies to reach
target asset allocation levels.
IM reported that, for Investment Managers’ performance, separation of data
between POL and RMG was not yet available, but estimated that the POL
assets had performed better overall than the RMG assets. It was agreed that
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ACTION: IM it would be useful to include a longer time frame for Investment Managers’
performance, and that the data should be provided on a quarterly basis.
The Committee agreed that there were a number of issues which needed to
be addressed:-
(i) the strategic liability hedging assumptions;
(ii) the strategic asset allocation, and clarification of terminology; and
(iii) a clear understanding of costs.
It was further agreed that the Scheme should look into the possibility of equity
ACTION: CD options in the shorter term, and also review the investment criteria. CD
. undertook to raise these issues at the IWG.
IM agreed to attend the Pension Committee meetings, initially on a quarterly
basis moving to once every six months. GC undertook to liaise with IM on
meeting dates and submission of information to meetings.
ACTION: IM/GC
PC 13/13 CLOSE
There being no further business, the meeting was declared closed.
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PC 13/014-13/17 POST OFFICE LTD
PENSIONS SUB-COMMITTEE
Minutes of a meeting of the Pensions Sub-Committee of the Board
held by telephone conference on Monday 8 April 2013
Present: Virginia Holmes (VH) — in the Chair
Chris Day
In Attendance: Susan Crichton HR & Corporate Services Director
Sarah Hall Head of Financial Control and Compliance
Ken Potter Pensions Adviser
Billy Weir (BW) Towers Watson
Apologies for Absence: Susannah Storey
PC 13/14 OPENING OF MEETING
A quorum being present, VH opened the meeting.
PC 13/15 ASSUMPTIONS FOR REPORT AND ACCOUNT DISCLOSURES UNDER
1AS19 EMPLOYEE BENEFITS
The Committee discussed the basis of the assumptions for Report and
Account disclosures under IAS19 and FRS17, as set out in the paper
circulated on 5 April 2013.
BW explained the additional adjustments to the assumptions proposed to be
made this year for the first time. The Committee noted that a surplus would be
reported but that this was still to be quantified.
The Committee was satisfied that the assumptions proposed were in line with
ACTION: CD acceptable practice and consequently agreed them for recommendation to the
. Board for the IAS 19 calculations as at 31 March 2013.
PC 13/16 ANY OTHER BUSINESS
(a) Date of next meeting
It was agreed that the next meeting would take place at 10am on Wednesday
1 May 2013 at 148 Old Street, London EC1V 9HQ.
PC 13/17 CLOSE
There being no further business, the meeting was declared closed.
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REMCOM
13/11-13/19
POST OFFICE LTD
REMUNERATION COMMITTEE
Minutes of a meeting of the Remuneration Committee of the Board
held at 148 Old Street, London EC1V 9HQ on Wednesday 13 March 2013
Present: Neil McCausland (Committee Chairman)
Alice Perkins
Virginia Holmes
In Attendance: Paula Vennells (PV) CEO
Susan Crichton SC) HR and Corporate Services Director
Fay Healey (FH) Chief HR Officer
Jane Williams (JW) Interim Head of Reward
Alwen Lyons Company Secretary
REMCOM OPENING OF MEETING AND CONSTITUTION OF COMMITTEE
13/11
(a) IA quorum of two directors being present, the Chairman of the Committee
opened the meeting and welcomed those attending.
REMCOM MINUTES OF PREVIOUS MEETING AND MATTERS ARISING
13/12
(a) IThe minutes of the meeting held on 5 February 2013 were approved for
signature by the Chairman of the Committee.
(b) INeil McCausland advised that a letter had been sent to Jo Swinson, Post
Office Minister, putting on record the Post Office’s view regarding the
remuneration strategy. No reply had been received or was expected.
REMCOM UPDATE ON LTIP (PAY-OUT 2015)
13/13
(a) IThe Committee noted the progress made on the Long Term Incentive
Plan (‘LTIP”) 2012/2013 (pay-out 2015).
It was reported that the performance measures and rules for the Chief
Executive and Chief Finance Officer had been approved by the
Shareholder Executive by letter dated 4 March 2013, and that a Deed of
Grant had been signed by Alice Perkins and Neil McCausland and the
rules approved by Neil McCausland for the rest of the eligible participants.
(b) IThe Committee discussed the timing of the communication to those
affected by the scheme. It was agreed that the communication be put on
hold until after the Board Meeting on the 9” April as the Network
conversion target in the strategy should then be clear. The Chairman
asked that any communication stress the importance of the scheme to
tewards the SLT commitment to driving the Business to Financial
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Sustainability.
(c) IThe Chairman thanked Karen Hamer for her hard work and perseverance
in getting consent for the Scheme.
REMCOM POTENTIAL OUTTURN OF STIP/LTIP 2012/2013
13/14
Paula Vennells left the meeting.
(a) IThe potential outturn of the 2012/2013 Annual Bonus and the 2012 LTIP
were noted. The quantum of the awards shown in the paper were
calculated in line with rules and for illustrative purposes only assumed the
delivery of all personal objectives by the CEO and a 3 PDR marking for
the CFO. It was further noted that the LTIP award only related to the
Chief Executive as the Chief Finance Officer had been appointed August
2011 and was not eligible for an award.
(b) IThe Committee discussed the likely scale of the bonus payments and
noted that the STiP was a similar amount to that awarded in 2011/12. The
increase in the CEOs award was due to the LTIP.
(c) IThe Chairman acknowledged that the performance had been between
target and stretch and that the above target outtrun for this years would
become the base form next year.
REMCOM INCENTIVE PLAN MEASURES FOR SHORT TERM INCENTIVE PLAN
13/15 (“STIP”) AND LTIP
(a) IThe Committee considered the proposed measures for STIP (2013/2014)
and LTIP (Award date 2013; to be tested March 2016) and reviewed the
principle of any threshold level below target.
ACTION: (b) IThe Committee agreed that the Business should try to remove the legacy
FH issue of the CFO’s PDR bonus multiplier and recommended a move to a
similar 20% for personal objectives as per the CEO.
The Committee reiterated that the setting of personal objectives for the
CEO was the role of the Board Chairman and not within the authority of
ithe Shareholder.
(c) IPaula Vennells re-joined the Committee
(d) IThe Committee stressed the need to ensure the business continued to
drive performance with bonuses only paid for genuine improvements.
STiP
(e) IThe metrics for the STiP were discussed and the following measured and
bonus allocation was agreed:
Operating Profit 25% of bonus. No lower threshold
Total Revenue 20% of bonus
Easy to do Business with 20% of bonus
Employee engagement 10% of bonus
Crown Profit (loss) 15% of bonus
Network conversions 15% of bonus
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(f) IThe Committee considered using Net Promoter Score (NPS) instead of
Easy to do Business With (ETDBW) as the Customer measure but
ACTION: agreed that for 2013/14 it would have both on the scorecard but bonus
FH would be allocated to ETDBW with a view to consider moving to NPS in
2014/15. The Committee asked the Business to provide a paper
explaining the ETDBW metric and how it would be measures.
(g) IThe People engagement score was also discussed and it was recognised
that in a year of significant change and likely industrial action it would be
important to measure people engagement but recognise that to keep the
ACTION: performance level from the April 2013 result would be a good
FH achievement.
The Business also committed to developing an engagement index for
agents to me measured during the year building a database to enable a
hard target next year.
(h) IThe Committee was comfortable that the bonus threshold could be below
target but that the range, when compared to 2012/13, should tighten
below target and expand above. As a guide it was suggested that
whereas last year’s revenue had a threshold of £15m and a stretch of
£30m, this year the range should be a threshold of £10m and a stretch of
£35m. It was reiterated that Operating profit would not have a threshold
and would only pay on target.
LTiP
(i) IThe Committee agreed that the Network Access Criteria would remain a
gateway to the bonus and that Operating Profit would be one of the
ACTION: measures. It discussed two ratio measures; total costs: revenue, and
CFO variable costs: revenue, and asked the Business to analyse theses in
relation to the plan.
The CEO asked that the use of an absolute measure of new network
contracts signed be considered alongside the ration measures to see
which would be most effective in driving change.
ACTION: (j) IThe measures and suggested tragets would return to the REMCOM in
May.
FH
(k) I Paula Vennells left the meeting
REMCOM CLAWBACK FOR SCHEME RULES
13/16
(a) IThe Committee considered the proposed Clawback clause for the
Executive Directors in the STIP 2012/2013. It requested that the Business
ACTION: return with a recommendation from New Bridge Street on the possible
FH changes to clawback, including a definition of when it applies and an
alignment of timescales.
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REMCOM DISCLOSURE
13/17
(a) I The latest draft of the Directors’ Remuneration Report was considered.
The Committee asked that it be amended to take into consideration
comments for New Bridge Street and then shared with Mark Davies
ACTION: Communications Director, to align with the rest of the Report and
FH Accounts narrative. The new draft would then be share with the
Committee.
REMCOM ANY OTHER BUSINESS AND DATE OF NEXT MEETING
13/18
(a) I The next meeting of the Committee was scheduled for Wednesday 1
May 2013.
REMCOM CLOSE
13/19 There being no further business, the meeting was then closed.
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POST OFFICE LIMITED BOARD
Status Report
No. I REFERENCE ACTION BY WHOM STATUS
1. Network Transformation and Crown Offices
1a I January 2013 Idea of high profile event suggested for early adopters being planned. Mark Davies Ongoing
POLB 13/03(h)
1b I January 2013 Stakeholder and communications plan to be drawn up covering key points of Mark Davies Completed.
POLB 13/03(q)(v) I Crown transformation and Crown pay proposals.
2. Finance
2a I January 2013 To check with ShEx what has to be reported to Brussels. CFO to email the Board] Chris Day/ The funding for Post Office is
POLB 13/07(c) regarding actions being taken. Susan Crichton based on cumulative
performance over 3 years up
to March 2015 — so an
underspend in the first year is
not an issue in itself. Post
Office Finance has checked
with ShEx who have
confirmed that there is no
need to report the current
financial position of Post
Office to Brussels. Post
Office does have to provide a
report to BIS, independently
verified by Deloitte, later this
year which compares last
year’s performance against
the calculation agreed with
Brussels for SGEI costs.
This report will be shared
with the Board.
2b I November 2012 I CFO would produce a project spend benefits realisation analysis for ARC to give I Chris Day After discussion with the
POLB12/122(c) more detail on project spend against forecast. ARC Chairman, this will be in
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the Finance and
Performance update to the
May Board.
2c I March 2013 CFO to consider for the 2013/14 budget a measure of the underlying profit/(loss) I Chris Day Complete
POLB13/18 exit rate at the year-end which would flow through into next year, as this would
give a good measure of progress and show the size of the challenge in future
years.
3. Strategy
3a I January 2013 A Champion on ExCo for the Digital Programme to be nominated. Martin Moran To discuss at the June
POLB 13/04(e) Implementation of Digital Programme to proceed with all urgency, working in Strategy day or July Board.
alignment with the strategic plan. Updates on progress to be brought back to the
Board.
3b I November 2012 I “Point person” to be identified for SME’s, across pillars Martin Moran SME team to be headed by
Strategy Evening Martin Moran at ExCo level.
Programme Manager still to
be identified - expected to be
in position end May 2013.
Monthly meetings set up for
“SME Hit Squad’ April-June
2013.
3c I March 2013 Business to consider fully whether running Travel insurance ‘in-house’ was a Nick Kennett To July Board
POLB13/15(c) core competence for the business. To be reviewed at sign-off for phase 1.
3d I March 2013 Business to hold early exploratory discussions with Bank of Ireland regarding Nick Kennett To July Board
POLB13/15(d) possible buy-out of insurance, using KPMG to establish possible value.
3e I March 2013 Paper to be prepared on IT Architecture and Customer Database Development, I Sue Barton/ See Appendix A
POLB13/15(e) with particular focus on future FS requirements. Lesley Sewell/
Nick Kennett
3f I March 2013 Business to reach agreement with Bank of Ireland for proposed measures for Nick Kennett Complete
POLB13/15(h) evaluating the Current Account pilot. If not completed satisfactorily, consider
procuring an alternative platform.
3g I March 2013 Business to prepare Board paper on investment requirement for the FS Nick Kennett To July Board
POLB13/15(i) strategy, including any effect on self-funding and state aid.
Seven year P&L to also be produced showing the investment milestones. Chris Day
4. People and Remuneration
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POLB 12/116 (h)
framework at the February Board meeting.
4a I November 2012 I The Board asked the Business to set clear objectives for delivery and Susan Crichton Complete
POLB 12/116 (g) I behaviours before the beginning of the next financial year; and introduce more
rigorous performance management to ensure the extremes of performance are
recognised and managed appropriately.
4b I November 2012 I The Board requested an update on the people and performance management Susan Crichton The People Plan will be
presented as part of the June
Sa
Post Office Insurance will work with BGL to evaluate the impact on the business
model (including income and incentives) and management proposes to update
the board later in 2013 of any changes.
Nick Kennett
To July Board
6. Mutualisation. : : :
POLB 13/05(b)
(including escalation and looking again at the MDA as necessary).
6a_ I March 2013 Business to ask Rothschilds to update Mutualisation report to include the new Chris Day Verbal update to may Board.
POLB13/16(d) strategy, and get their view on sustainability and balance sheet requirements in
the light of this, within a tightly managed set of Terms of Reference and budget.
6b I March 2013 Board to have sufficient time to consider proposed Public Purpose statement Alwen Lyons Possible time at July
POLB13/16(f) during the Summer. Mutualisation Sub Committee
after the Board has been
diarised.
6c I March 2013 Business to consider its future stakeholder engagement and the most effective Sue Barton/Alwen =I On-Going.
POLB13/16(g) meeting structure to be put in place. Lyons
: 7. Other Actions :
7a I January 2013 Business to reassess the Click and Collect and Failed Deliveries services Martin Moran Conversations have now
started with retail clients
including M&S and Amazon.
POL and RMG plan to launch
with at least one major client
prior to the Xmas lockdown
on IT development.
Failed Deliveries continue on
a BAU basis; conversations
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on a wholesale transfer of
this work are continuing.
7b I November 2012 A plan to be presented to enable members of the Board and ExCo to have Sue Barton/ Still to be organised.
POLB12/120 (c) _I greater exposure to the people involved in the Stakeholder Forum. Alwen Lyons
7c I March 2013 Organise Board awayday for 18-19 June. Alwen Lyons Underway
POLB13/23(a)
APPENDIX A
March 2013 POLB13/15(e)
There are a number of activities, detailed below, which are currently underway and by October we will have a view of the business and
technology roadmap to support our strategic aspirations, at which point a paper will be placed in the Board reading room.
All of the activities support the 15 — 20 Strategy, and include the capabilities to deliver the FS income growth and have been included in our IT
plans and funding. We are currently defining our Customer Management Strategy and subsequently the technology roadmap. Javelin have
supported the definition of the strategic digital requirements which has included customer, complemented by a project to define our customer
management strategy by the end of June led by Nick Fox in Marketing, supported by Berkeley. We will take a pragmatic and incremental
approach to how we will deliver our customer management capability.
In addition, for Financial Services we are working with BOI to pilot a more detailed analysis/segmentation exercise to identify cross/up-sell
opportunities at a very granular level. The outcome is to generate targeted campaigns to fewer customers. This is a pilot and will inform our
strategic approach.
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POST OFFICE LTD BOARD
Chief Executive’s Report
1. Mails
Following the introduction of Royal Mail’s new tariffs in April, there has been a significant
degree of negative feedback about the price for medium parcels, particularly from small
businesses, eBay customers and sub-postmasters. While it is too early to reach definitive
conclusions, these concerns appear to be reflected in the emerging trading data, with the
loss of 1°‘ class volumes higher than expected and the uplift in Parcelforce volumes not
yet on track to achieve the required full year run rate. We have communicated our
concerns to Royal Mail at a senior level, and they have agreed to hold weekly review
meetings to assess the trading impacts and consider the full range of potential actions to
mitigate any material adverse impacts on our business.
Drop and Go has now attracted over 2,500 customers, with the rate of new sign-ups
running at around 50 a week. Average spend levels on the live accounts are higher than
originally anticipated at £3,800 per annum, generating £650 income for Post Office. A
programme of activity is in place to accelerate the growth in new accounts, including
removing the initial minimum deposit, shortening the application form to reduce effort and
increasing our direct marketing to small businesses. The impact of these initiatives will be
monitored closely through the weekly trading board. Further enhancements are planned
for later this year, including multi-channel top-up and account management capabilities.
We are also investigating with Royal Mail the potential for volume-based discounts for
customers, which may provide part of the solution to the concerns around the new parcel
tariffs highlighted above.
Final testing of our Click and Collect technical solution is underway, ahead of a joint
announcement with Royal Mail to launch the service in the next few weeks. Meetings have
taken place with several major retailers, including Marks and Spencer, Amazon and eBay,
with the aim of securing them as the early adopters from July. We have set aside some
budget to assist with their IT costs if required. In contrast to the current proposition from
Collect+, the service will be offered to clients and consumers at no additional charge
compared to the alternative option of home delivery; the pricing structure will be reviewed
over the next 6 months and beyond in light of the volumes achieved.
We will provide an update on mails segregation performance and our discussions with
Royal Mail on redefining targets at the Board meeting, taking into account the impact of
the NFSP’s latest actions.
2. Financial Services
CEO
Our current account trial was launched on 13 May through an event in Norwich involving
Jo Swinson and the local MP (Simon Wright). The launch was preceded by a concerted
programme of media and stakeholder briefing, including meetings with ten MPs, the
Treasury, the Financial Conduct Authority, the Prudential Regulation Authority,
Consumer Focus and Which. This helped to secure widespread and largely positive
coverage on the day, including a very supportive press release from Consumer Focus
which highlighted that we are “well-placed to provide some leadership in the banking
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market”. There was inevitably more critical commentary from some quarters on our
account charging structure, particularly the Daily Telegraph and Daily Mail, and we will
need to continue our programme of media and stakeholder engagement to move the
public debate forwards in this area.
We will provide an update on the first week of sales figures and early customer feedback
at the Board meeting.
3. Marketing
We are continuing our programme of activity to address the Post Office’s long-term brand
challenges, as the platform for achieving our future growth targets. Brand marketing
through March and April has been focused on highlighting our position as a major financial
services provider, particularly through our strong mortgage offering. Early indications from
our consumer surveys suggest that the campaign has delivered tangible progress in
changing perceptions, demonstrated by industry average recall of 26% in the target
market, 83% being surprised by our mortgage offer and our financial services credibility
doubling with those who have seen the advert.
The post campaign evaluation also provided useful insights for the next stage of the
programme, including the importance of highlighting our multi-channel capabilities and the
need to showcase products other than mortgages to demonstrate our relevance to a
broader range of consumer groups. During June through to the end of August our brand
marketing will move to demonstrating our strong capabilities in travel.
In addition the Post Office brand metrics are showing progress in underlying consumer
perceptions. The gradual decline in recent years has been halted and key metrics have
begun to rise. For example over the last 12 months the net promoter score 3 month rolling
average has moved from -3 to 7, ‘brand on the way up’ has moved from 20% to 25% and
‘easy to do business with’ from 41% to 47%. Website visits are up 30% year on year since
the launch of our brand advertising and the web site redesign.
The mortgage brand activity has been complemented by a direct response campaign
focused on our lowest ever mortgage rates. Within the context of a highly competitive
market, this has delivered a 52% increase in monthly mortgage enquiries and a 10% year
on year increase in applications totalling £348 million in the last 3 months.
4. Multi-channel strategy
The programme of work to implement our digital and multi-channel strategy is progressing
according to plan. Detailed specifications have been drawn up for our new ‘Common
Digital Platform’, which will supersede our existing public website with significantly
enhanced capabilities for customers to transact with us online across a broad range of
product lines. The target date for initial launch is November 2013. We are also developing
a version of our website optimised for mobile devices: the initial version launched next
month will simply mirror the capabilities available on our existing website, but in parallel to
the development of the Common Digital Platform this will eventually offer a much wider
range of ‘on the move’ transactional capabilities.
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Work is also underway to develop a detailed roadmap to ensure that the in-branch
customer experience is aligned with our digital capabilities, enabling customers to transact
with us seamlessly across different channels and increasing the productivity of branches.
We have identified 21 key projects needed to deliver these outcomes, which range across
activities such as reviewing branch formats, updating our MI strategy, redefining the roles
and responsibilities of colleagues in a multi-channel environment (supported by
appropriate engagement and training) and reviewing remuneration models to incentivise
the right behaviours. These workstreams will commence from June 2013 with the full
change programme completed by December 2015.
Underpinning the above projects, we are also finalising the specification and
implementation plan for our ‘single view of customer’ technical solution, which will enable
us to manage customer data and insights more effectively to drive a higher conversions
rate for sales interactions. This is complemented by a two month project to define our
data management strategy, looking at issues such as what marketing consents we
request and how these should be integrated into new and existing contracts.
5. Project Robin
As discussed with the Pensions Committee on 1 May, we have agreed with Royal Mail to
delay our consultation with staff on the proposed reforms to the pension scheme. Royal
Mail wished to avoid the risk of this feeding into the CWU’s ballot of members on pay and
privatisation issues, which is due to be sent out on 22 May. While this means the changes
will not be in place before the scheme valuation is due to be completed on 30 June, we
are not expecting this to be a major problem for the Trustee or regulator given that the
scheme is currently in surplus and we can be seen to be working on a significant rule
change to manage the long-term liabilities. We will provide an update on the situation at
the Board meeting.
6. Stakeholder Forum
The Stakeholder Forum completed the first stage of its process to define the public
purpose of the Post Office at its meeting on 22 March, the output of which is available in
the BoardPad reading room. It was agreed that the next stage should be to test the
emerging definition with wider stakeholders and the public. We have therefore
established a public engagement working group to co-ordinate this process, comprising
communications and research experts from the organisations involved in the Forum. To
ensure impartiality and consistency in the collection of evidence, we are using a
consultancy with experience in customer engagement and quantitative and qualitative
market research, with a view to beginning a wide ranging and public facing campaign in
June. We plan to invite the consultants to seek the views of the Board at the July
meeting.
The Stakeholder Forum will reconvene in the autumn to consider the evidence from the
engagement exercise and agree a final definition to propose to the Post Office Board and
Government.
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POST OFFICE AUDIT, RISK AND COMPLIANCE COMMITTEE
Update on various Financial Services matters, including
Bank of Ireland (UK) plc capital & liquidity
1. Purpose
The purpose of this paper is to:
1.4 update the Committee on the Bank of Ireland (UK) plic’s (“Bol”) capital and
liquidity position against its regulatory and Eagle contract requirements;
1.2 provide an update on the implementation of the Capital Requirements Directive
IV (CRD IV) and its potential impact on the capital requirements on Bol;
1.3. update the Committee on Project Polo; and
1.4. update the Committee on the current Co-operative Bank plc situation and any
potential impact on the Post Office.
2. Bank of Ireland (UK) - Capital and Liquidity position
2.1 Acondition of the Financial Services Joint Venture Agreement (“FSJVA’) is that
Bol must attest bi-annually that it is meeting the capital and liquidity thresholds
set out in the agreement.
2.2 The Bank’s capital and liquidity reports are part of the early warning system that
would enable the Post Office to take action in accordance with the termination
provisions of the agreement, should this become necessary.
2.3. Bol has certified as at 31°* December 2012 (Bol’s year-end) that:
e Bol’s Core Tier 1 Capital Ratio exceeded the amount required under the
FSJVA;
e Bol was holding a surplus over its regulatory liquidity requirements;
« Bol is meeting the Capital Planning Buffer as set by the regulator.
2.4 Bol also confirmed that at no stage in the six months to 31°' December 2012 did it
breach any of the termination thresholds.
2.5 On 30" January 2013 Post Office executives met with the tripartite regulators
(Bank of England, HM Treasury and Financial Services Authority) to confirm the
status of the Post Office’s relationship with Bol and the termination structure and
processes. No material issues were raised by any party.
2.6 Post Office is of the view that Bol remains well capitalised with surplus liquidity.
The position has not deteriorated since the signing of Eagle.
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3. CRD IV Update
3.1. The European Parliament passed CRD IV on 16" April 2013 and it is now in legal
drafting review ahead of formal adoption. The UK’s Prudential Regulation
Authority (“PRA”) will seek to implement the requirements from 1° January 2014.
¢ In order to achieve this, the PRA intends to carry out two consultations on
the changes. It is expected that the majority of existing capital requirement
rules will be replaced by the new rules. The main consultation will begin in
mid-2013.
3.2 Following implementation, the FSJVA requires Bol to certify to the Post Office
that it is meeting the new standards.
4. POLO update
4.1. On 13" May 2013 Post Office and Bol launched the Polo current account in 29
branches in East Anglia.
4.2 To enable the launch the Parties concluded the first operational Product Note’.
4.3. Under Eagle all contracts in place at the time of signing were included in specific
conditions relating to the sharing of any contract liability between the parties.
4.4 As part of the finalisation of the Polo Product Note, Bol requested that its contract
with Affinion International Limited? should be included in these conditions. Bol’s
request was that, although the contract was not signed at the time of Eagle, Post
Office was closely involved in the selection of Affinion, took part in the on-site
operational reviews and made comments on the early draft of the contract. The
potential liability risks potentially resulting from this contract are seen as slight.
4.5 To avoid a delay to the launch of Polo, Post Office agreed to Bol’s request.
4.6 Post Office is working with Bol to establish a monitoring framework for this
contract.
5. Co-operative Bank pic update
5.1. On 9" May Moody’s downgraded the Co-operative Bank's credit rating from Baa1
to B1 (“junk” status), and continues to hold it on negative watch. Moody’s has
assessed that Co-Operative Bank has significantly lower levels of capital than its
peers and is currently, by its own assessment below the Basle Ill CET 1 ratio of
7.0% at 6.7% (in January 2013).
5.2 The bank is in discussions with the PRA about improving its capital position,
which could include selling its insurance business and potentially seeking more
capital from the parent group.
5.3. The Post Office is monitoring the situation for the commercial opportunities this
may present as well as any exposure we have to Co-operative Bank through our
The Product Note is the structure, established under Eagle, which establishes the product and
distribution strategy, roles and responsibilities of each party, commission payments, withdrawal
arrangements and other relevant matters and must be agreed prior to the launch of any product.
2 The 3rd party that manages elements of the Package account.
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personal banking and bill payment business. Currently our overnight exposure to
Co-operative Bank is very low (c£1 million owing from the bank and c£10m due
from the Post Office).
6. Recommendations
The Committee is asked to:
6.1 note the update.
Nicholas Kennett
Director, Financial Services
21 May 2013
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POST OFFICE LTD BOARD
Health & Safety Report
1. Purpose
The purpose of this paper is to:
-1__ Provide an update on safety performance.
1.2. Outline risk reduction activities.
2. Current Situation
2.1 Injury accidents, for year end 2012/13, showed a marginally positive trend against
the previous year, reducing by 2.6% against a target reduction of 5%. The relatively
neutral performance is primarily due to a significant increase in slips trips and falls
due to the wet/severe weather and manual handling incidents which has affected
Supply Chain performance, in particular. Accidents involving absence have
decreased by 6% against a target reduction of 5%. The “per 1000 staff in post”
comparison indicator, which takes account of head count fluctuation year on year, is
showing a slightly more favourable trend for ‘all accidents’.
Table 1 All Injury accidents and those resulting in absence (Cumulative)
350
300
250
2 —e 2011/12 All
5 20 #201213 All
3 150 - 2011/12 Absence
@ 00 2012/13 Absence
1
et
0
Pi P2 P3 P4 P5 P6 P7 P8& PY P10 P11 P12
Period
2.2. The number of days lost due to accidents out turned ahead of target showing a
10.9% reduction against a target reduction of 5%. (Table 2) Indicating that while
there is a relatively neutral trend on the frequency of accidents there is a
positive trend on the severity, or level of injury, of those accidents
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Table 2 Days lost resulting from injury accidents (Cumulative)
1400
1200
1000
800 2011/12
& 600 —e- 2012/13
400
200
t)
P1 P2 P3 P4 P5 P6 P7 P8& PQ P10 P11 P12
Period
2.3. The number of road traffic collisions (RTCs) cumulative to year end is showing
an improving trend with ‘at fault’ collisions down 12% from 125 to 110. Total
RTCs are showing a reduction of 11.9% on last year from 252 to 222. (Table 3
refers). While road traffic collisions account for less than 3% of the overall
number of injury accidents they have the potential for high impact in terms of
injury, loss and possible corporate manslaughter actions. The activities that are
contributing to the improved performance are identified in 3.1 below.
Table 3 Road Traffic Collisions (cumulative)
300
250
La
g 200 2011/12 All
«
= 2012/13 All
3 150
5 —e 2011/12 ‘at fault’
2 100 2012/13 ‘at fault’
2
50
t')
P1 P2 P3 P4 P5 P6 P7 P& P9 P10 P11 P12
Period
2.4 The majority of accidents currently fall into three main categories: lifting and
handling, stepping and striking and outdoor falls. These are high frequency
events with, in the majority, relatively low impact. The lower frequency types of
incident carry the potential for very high impact, for example, assaults and road
traffic collisions. Table 4 refers.
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Table 4. Types of accident
Assaults
Animals.
Handtools
Lifting/handling
Objects falling
Stepping/striking
Falls outdoors
DAccidents
@Accidents with absence
Falls indoors
Fire, Elec etc.
Vehicles RTA
Machinery
25 Robberies on Post Office Cash and Valuables in Transit (CViT) crews are up
from 35 to 52. Physical injuries during robberies, of which there have been 15
compared to 16 last year, remain relatively minor in severity. Fire arms continue
to play a relatively minor, but more frequent, part in CViT robberies with 8 of the
52 robberies being enabled by the presence and/or threat of use of fire arms
compared to 4 last year. There have been no occasions where the guns were
discharged. Risk reduction activities are identified at 3.2. (Appendix 1 —
Significant Incidents refers)
2.6 Robberies and attempted robberies on the Post Office network, at year end, are
one lower than last year —- 116 compared to 117. Supporting activities have
been introduced to continue to mitigate this risk. Risk reduction activities are
identified at 3.2. (Appendix 1 — Significant Incidents refers)
Burglaries and attempted burglaries (which do not involve personal attack) are
down significantly from 156 to 86 compared to the full year last year.
27 The Post Office Health and Safety Policy ‘Statement of Intent’ has been
reviewed and agreed by the ExCo Sub Committee for Health and Safety and is
attached for noting at appendix 2. The full Policy is available in the Reading
Room. The signatory is in line with the overall accountabilities enshrined in the
Health and Safety at Work Act.
3. Act
ities
3.1 Road Risk
Current activities to mitigate road risk are:
e Road risk forum established to scope and develop road risk reduction initiatives
and activities
¢ Analysis of effectiveness of face to face training given to top 50 high risk drivers
has indicated that accidents amongst this community have reduced significantly
following the refresher training
e Eye sight checks for operational drivers are in place
e Technical accident reduction interventions on new vehicles e.g. Reversing aids
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¢ Analysis and evaluation of data (e.g. risk profiles) to determine further accident
reduction interventions
Introduction of coloured ‘high visibility’ seat belts on new vehicles
Safety team input and concurrence for vehicle specification and changes
Safe driver of the year award introduced
Weekly case conferences to ensure consistent approach to accident
investigation, follow up activity and sharing of best practice
3.2 Robbery/Burglary Risk
Current activities to mitigate robbery and burglary risk are:
¢ Active liaison activities with the police and increased police support activity
¢ Liaison with Met. Police on the increase in gun enabled robberies
¢ Introduction of new deterrent technologies e.g. Smartwater — a solution that
contains a unique identifier that is released automatically in the event of a
robbery, spraying those involved and enabling identification of the individuals
involved in the robberies
e Significant reduction in opportunities for duress type robberies linked to the
introduction of single person vehicles
Increased security support visits to Post Offices in ‘hotspot’ areas
Increased use of crime alert communication techniques to Post Offices
Trialling new point of transfer arrangements to reduce exposure
Increased use of surveillance vehicles
3.3 Health and Wellbeing
Current activities to enhance wellbeing
e Programme of visits to Crown offices to offer and encourage the use of health
check equipment that provides a wide range of indicators on physical wellbeing
e Programme of visits extended to Supply Chain units
Plans in place to visit all Post Office Crown Branches and Supply Chain sites
within 12 — 18 months
Health and wellbeing ‘Team Talk’ modules
Development of a wellbeing intranet landing page
Development of a wellbeing booklet and associated communications
Enhanced Occupational health service provision from January 2013
4. Residual Risks
4.1 Driving activities have the potential for high impact/loss and remain a significant
residual risk. However, the actions identified above are aimed at mitigating that
risk and improving performance.
5. Recommendation
The Post Office Ltd Board is asked to:
5.1 note the overall safety performance;
5.2 note the risk reduction activities; and
5.3 note the attached H&S Policy ‘Statement of Intent’.
Susan Crichton
21 May 2013
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Appendix 1
Significant Incidents (Period 1)
Crowns and Network
Location [Loss [Circumstances
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: Appendix 2
Post OFFICE LTD HEALTH AND SAFETY POLICY
Working safely, staying healthy.
We will fulfil our business mission without compromising the safety of our
colleagues, customers, suppliers and all those affected by our activities.
We will make healthy and safe working a way of life.
Pursuing this aim reflects the high value we place on our people and all those
touched by our business activities.
To achieve this, we will:
e comply fully with relevant legislation
e ensure that the health and safety responsibilities of our people are
clearly defined, allocated and understood.
e encourage and help all our people to carry out their responsibilities,
through effective health and safety management systems, with safe
premises, equipment and processes.
e improve our capability to operate, manage and work safely, through
instruction and training.
e support and encourage our people and unions to get involved in the
health and safety performance of our business
e support and encourage our people and unions to get involved in
pursuing a healthy and safe way of living and working
e monitor and review how well we put our health and safety policies into
practice.
Everyone is responsible for health and safety. Each manager is accountable for
the health and safety of those under their control.
Paula Vennells - Chief Executive Date: 24" April 2013
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MAY 2013
POST OFFICE LIMITED MATTERS — DISPUTE RESOLUTION
PART (A) - PRIVILEGED AND CONFIDENTIAL —- CLAIMS OVER £500K OR THOSE OF A SENSITIVE NATURE
Horizon claims I POL/HF/R I Simon Baker POL has received various claims from I Following consultation with MPs, Second I Bond Pearce
Ww subpostmasters (SPMs) alleging wrongful} Sight Support Services Ltd (an
termination of contract and/or damages I independent investigator) is reviewing
based on alleged defects in the Horizon I various cases where SPMs allege that
system and POL's internal processes. Horizon caused losses in their branches.
These allegations were initially made in 5 I POL has also reached an agreement with
claims brought through the SPMs' solicitors, I Second Sight and Justice For
Shoosmiths. Shoosmiths is not currently I Subpostmasters Alliance (an organisation
progressing these claims through the courts. I “established to raise awareness of the
issues within the Post Office Horizon
Similar allegations are also being made} system”) whereby individual
through SPMs' MPs, and in defences to I subpostmasters could raise concerns with
court proceedings brought by POL to} Horizon within a “no blame” framework,
recover debts from SPMs. provided such claims were brought by
28.02.13.
Second Sight is investigating these
concerns with JFSA. POL is cooperating
with Second Sight's investigation by
providing background data and
explanations to discrete issues raised.
Claim for I POL/HF/R_ I Angela A former subpostmaster (SPM) has sought I The parties are waiting for the Court to list I DAC.
Judicial Review I W Van-Den-Bogerd ‘judicial review" of POL's decision to I the case for hearing, which is unlikely to I Beachcrofts
terminate his SPM contract. be before June 2013.
The SPM claimed that POL's termination I POL has tried to engage the SPM is
process was flawed and infringed his I settlement discussions, and continues to
Human Rights. He has asked the court to _I explore options for resolving the claim
Significant Litigation Report Susan Crichton Page 1 of 3
15 May 2013
POL-0024186
POL00027545
POL00027545
Strictly Confidential
review POL's decision and find that it was I before any Court hearing.
unlawful and/or an abuse of power.
POL is asking the Court to dismiss the
claim on the grounds that itis a commercial
matter which the Court cannot review, and
in any event POL did not breach the SPM's
rights.
PART (B) — PRINCIPAL CRIMINAL CASES BROUGHT BY POST OFFICE LIMITED
ESCRIPTION
Two assistant sub postmasters accused of covering shortages by
delaying the processing of business deposits to Santander. Case
concerned 40 deposit slips being suppressed with a total value of
£34,115.50.
Both defendants pleaded guilty, and were sentenced to 5 months and 6 months
imprisonment (suspended for 12 months) respectively. Civil recovery of the
outstanding debt is being considered
Sub postmaster accused of theft of £78,660.63.
Defendant pleaded guilty on 05/02/13 and was sentenced to 2 years
imprisonment. A timetable has been set for confiscation proceedings to
determine the sum payable to POL, with a final hearing set for 07/06/13.
Significant Litigation Report
Susan Crichton Page 2 of 3
15 May 2013
POL-0024186
Strictly Confidential
POL00027545
POL00027545
RIPT
Two brothers in partnership as subpostmasters accused of theft and/or
fraud of £237,240.64.
On 09/10/12 on the second day of trial, one Defendant pleaded guilty to
theft/fraud of £99,000. This was accepted by the prosecution and no evidence
was offered against the other defendant. On 20/11/12 the guiltydefendant was
sentenced to 17 months imprisonment. A timetable has been set for
confiscation proceedings to determine the sum payable to POL, witha final
hearing set for 20/05/13.
Subpostmaster accused of theft of £77,905.02.
The case has been committed to the Crown Court. There will be a hearing on
03/06/13 to determine the details of trial.
POL has recovered £62,992.78 to date.
Subpostmaster accused of theft of £57,811.79.
Defendant pleaded guilty and on 28/11/12 was sentenced to 9 months
imprisonment (suspended for 18 months) and 180 hours unpaid community
work. A timetable has been set for confiscation proceedings to determine the
sum payable to POL, with a final hearing set for 25/03/13.
POL has recovered £43,988.03 to date.
Subpostmaster accused of two offences of theft of £9,999.43 and
£175,260, and two offences of false accounting.
The case has been committed to the Crown Court. There will be a hearing on
25/07/13 to determine the details of trial. A restraint order has been obtained to
assist recovery of the financial loss.
Subpostmaster accused of fraud of £115,172.11.
Defendant pleaded guilty and on 03/05/13 was sentenced to 16 months
imprisonment. A timetable has been set for confiscation proceedings to
determine the sum payable to POL, with a final hearing set for 20/09/13.
POL has recovered £61,000 to date.
Subpostmaster accused of theft of £197,107.36.
There will be a hearing on 28/05/13 to determine the details of trial.
Subpostmaster accused of theft of £16,565.30.
Defendant pleaded guilty and on 08/04/13 was sentenced to 12 months
imprisonment (suspended for 18months) and 200 hours unpaid community
work.
Subpostmaster accused of two offences of theft of £15,301.17 and
£175,260, and one offence of false accounting.
On 03/05/13 the Defendant pleaded guilty to the offences and will be sentenced
on 31/05/13.
Significant Litigation Report Susan Crichton Page 3 of 3
15 May 2013
POL-0024186
POL00027545
POL00027545
POST OFFICE LIMITED BOARD
Sealings 13 March — 14 May 2013
Register of Sealings
The Directors are invited to consider the seal register and approve the affixing of the Common Seal of the Company to the documents set out against items
numbered 865 to 1039 inclusive in the seal register.
“The Directors resolve that the affixing of the Common Seal of the Company to the documents set out against items numbered 865 to 1039 inclusive in the
seal register is hereby confirmed.”
Alwen Lyons
Company Secretary
21 May 2013
Page 1 of 19
POL-0024186
POST OFFICE LIMITED
POL00027545
POL00027545
Date 5 7 Company Number
14/05/2013 Extract from the Register of Sealings 2154540
Seal Number Date of Date of Persons Attesting Destination of
/ File Ref. Sealing Authority Description of Document Lo To Document Document
865 13/03/2013 13/03/2013 Lease of premises at Part Basement at} Alwen Lyons Jean Reynolds
“properties Limited.
866 13/03/2013 13/03/2013 :I Alwen Lyons Jean Reynolds
ishby Brewster Associ
and Big Sur Properties Limited.
867 13/03/2013 13/03/2013 i Alwen Lyons Jean Reynolds
Properties Limited.
868 13/03/2013 13/03/2013 Alwen Lyons Jean Reynolds
869 13/03/2013 13/03/2013 Le Alwen Lyons Jean Reynolds
if Pro} : _.
870 13/03/2013 13/03/2013 Licence to Underlet premises at I GRO} Alwen Lyons Jean Reynolds
i- GRO _between Post Office
Limited, Big Sur Properties Limited and Southern Electric
Power Distribution PLC
871 13/03/2013 13/03/2013 Licence to carry out works ati. Alwen Lyons Jean Reynolds
Cc Gl Office
"Limited and Big Sur Prop:
872 20/03/2013 20/03/2013 Legal Charge relating to :_ II Alwen Lyons Rodric Williams.
873 20/03/2013 20/03/2013 Alwen Lyons Jean Reynolds
Office Limited.
874 27/03/2013 27/03/2013 _ Group Relief Surrender Deed between Royal Mail Estates I Alwen Lyons Charles Colquhoun
Date 14/05/2013 Registered Office: 148 OLD STREET, LONDON, EC1V 9HQ, ENGLAND Page 2 of 19
POL-0024186
POST OFFICE LIMITED
POL00027545
POL00027545
Date 5 7 Company Number
14/05/2013 Extract from the Register of Sealings 2154540
Seal Number Date of Date of Persons Attesting Destination of
/ File Ref. Sealing Authority I Description of Document To Document Document
Limited and Post Office Limited.
875 27/03/2013 27/03/2013 Lease (999 years) relating to i Alwen Lyons, Gill Catcheside I Jean Reynolds
C etween Royal Mail Estates Limited arid Post
Office Limited.
876 27/03/2013 27/03/2013 Lease (999 years) relating to ;_ Alwen Lyons, Gill Catcheside I Jean Reynolds
877 27/03/2013 27/03/2013 Alwen Lyons, Gill Catcheside I Jean Reynolds
878 27/03/2013 27/02/2013 Alwen Lyons Jean Reynolds
if tween Royal Mi
Group Limited and Post Office Limited.
879 27/03/2013 27/03/2013 Lease relating to! GRO Alwen Lyons Jean Reynolds
_ Post Office Limited.
880 27/03/2013 27/03/2013 Lease (999 years) relating t Alwen Lyons Jean Reynolds
881 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
_between Royal Mail
Estates Limited and Post Office ited.
882 27/03/2013 27/03/2013 _Lease relating to Alwen Lyons Jean Reynolds
883 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
884 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
and Post Office Limited.
Date 14/05/2013 Registered Office: 148 OLD STREET, LONDON, EC1V 9HQ, ENGLAND Page 3 of 19
POL-0024186
POST OFFICE LIMITED
POL00027545
POL00027545
Date 5 7 Company Number
14/05/2013 Extract from the Register of Sealings 2154540
Seal Number Date of Date of Persons Attesting Destination of
/ File Ref. Sealing Authority I Description of Document To Document Document
885 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
886 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
887 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
Mail Estates Limited and Post
888 27/03/2013 27/03/2013 Lease (999 years) relating to I. Alwen Lyons Jean Reynolds
G petwe
Limited and Post Office Limited.
889 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
890 27/03/2013 27/03/2013 }I Alwen Lyons Jean Reynolds
891 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
892 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
893 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
894 27/03/2013 27/03/2013 Lease (999 years) relating t Alwen Lyons Jean Reynolds
Royal Mail Estates Limited'a
895 27/03/2013 27/03/2013 _ Lease (999 years) relating to} Alwen Lyons Jean Reynolds
Date 14/05/2013 Registered Office: 148 OLD STREET, LONDON, EC1V 9HQ, ENGLAND Page 4 of 19
POL-0024186
POST OFFICE LIMITED
POL00027545
POL00027545
Date 5 7 Company Number
14/05/2013 Extract from the Register of Sealings 2154540
Seal Number Date of Date of Persons Attesting Destination of
/ File Ref. Sealing Authority Description of Document To Document Document
ibetween Royal Mail Estates
896 27/03/2013 27/03/2013 }I Alwen Lyons Jean Reynolds
RO_ etween Royal
Mail Estates Limited and Post Office Limited.
897 27/03/2013 27/03/2013 Lease (999 years) relating to § GR _} I Alwen Lyons Jean Reynolds
between Royal Mail Estates Limited
and Post Office Limited.
898 27/03/2013 27/03/2013 Lease (999 years) relating t Alwen Lyons Jean Reynolds
899 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
900 27/03/2013 27/03/2013 ~ i Alwen Lyons Jean Reynolds
etween Royall Mail Estates Limited and
Post Office Limited.
901 27/03/2013 27/03/2013 Lease of the Post Office forming part of the premises known I Alwen Lyons Jean Reynolds
902 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
903 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
r GRO tween Royal Mail Group Limited and
‘PO8t OHfice Lifted.
904 27/03/2013 27/03/2013 Lease of the Post Office forming part of the premises known I Alwen Lyons Jean Reynolds
_ between Royal Mail Group Limited and Post Office Limited.
905 27/03/2013 27/03/2013 __ Lease of the Post Office forming part of the premises known I Alwen Lyons Jean Reynolds
Date 14/05/2013 Registered Office: 148 OLD STREET, LONDON, EC1V 9HQ, ENGLAND Page 5 of 19
POL-0024186
POST OFFICE LIMITED
POL00027545
POL00027545
Date 5 7 Company Number
14/05/2013 Extract from the Register of Sealings 2154540
Seal Number Date of Date of Persons Attesting Destination of
/ File Ref. Sealing Authority I Description of Document To Document Document
906 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
907 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
between Royal Mail Estates Limited and Post™
ited.
908 27/03/2013 27/03/2013 Lease of the Cas! Alwen Lyons Jean Reynolds
_ Post Office Limited.
909 27/03/2013 27/03/2013 Lease of the Cash-l Alwen Lyons Jean Reynolds
910 27/03/2013 27/03/2013 Lease of the Cash-l it Co id fe rt of the I Alwen Lyons Jean Reynolds
L etween Royal Mail Estates Limited and
Post Office Limited.
911 27/03/2013 27/03/2013 Lease of the Cash-In-Transit Compound forming part of the I Alwen Lyons Jean Reynolds
i {o) {
Post Office Limited.
912 27/03/2013 27/03/2013 Lease of the Cash-In-Transit Compound forming part of the I Alwen Lyons Jean Reynolds
-premises known.as {7 ]
i GRO between Royal Mail Group Limited and
‘Post Office Limited.
Date 14/05/2013 Registered Office: 148 OLD STREET, LONDON, EC1V 9HQ, ENGLAND Page 6 of 19
POL-0024186
POST OFFICE LIMITED
POL00027545
POL00027545
Date 5 7 Company Number
14/05/2013 Extract from the Register of Sealings 2154540
Seal Number Date of Date of Persons Attesting Destination of
/ File Ref. Sealing Authority I Description of Document To Document Document
913 27/03/2013 27/03/2013 _Lease of part of the premises known a: Alwen Lyons Jean Reynolds
Office Limited and Royal Mail Group Limited.
914 27/03/2013 27/03/2013 Lease (999 years) relating to Ground, First and Secon: Alwen Lyons Jean Reynolds
915 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
916 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
Post Office Limited and Royal Mail slates Limled. enteseseceeenes
917 27/03/2013 27/03/2013 — Lease of part of the premises known as!_______ GRY _..1I Alwen Lyons Jean Reynolds
etween Royal Mail Group
918 27/03/2013 27/03/2013 known as GRO. Alwen Lyons Jean Reynolds
919 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
920 27/03/2013 27/03/2013 in to Paignton DO/CO,: +) Alwen Lyons Jean Reynolds
etween Royal Mail Estates
Limited and Post Office Limited. a
921 27/03/2013 27/03/2013 Lease (999 years) relating to: GRO Alwen Lyons Jean Reynolds
922 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
Date 14/05/2013 Registered Office: 148 OLD STREET, LONDON, EC1V 9HQ, ENGLAND Page 7 of 19
POL-0024186
POST OFFICE LIMITED
POL00027545
POL00027545
Date 5 7 Company Number
14/05/2013 Extract from the Register of Sealings 2154540
Seal Number Date of Date of Persons Attesting Destination of
/ File Ref. Sealing Authority I Description of Document To Document Document
Limited and Post Office Limited.
923 27/03/2013 27/03/2013 Lease (999 years) relating to: GRO Alwen Lyons Jean Reynolds
Post Office Limited.
924 27/03/2013 27/03/2013 pease. (999. wears) telaling to Bognor Regis we Alwen Lyons Jean Reynolds
GR etween Royal Mail
imite aa Post Office Limited.
925 27/03/2013 27/03/2013 elating to Wokingham Alwen Lyons Jean Reynolds
petween Royal Mail Estates
926 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
and Post Office Limited.
927 27/03/2013 27/03/2013 Lease Soe relating toi “GR Alwen Lyons Jean Reynolds
between koamares
928 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
929 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
Limited and Post Office Limite
930 27/03/2013 27/03/2013 Lease (999 years) relating to,_ Alwen Lyons Jean Reynolds
931 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
932 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
tween Royal Mail Estates
Limited and Post Office Limited.
Date 14/05/2013 Registered Office: 148 OLD STREET, LONDON, EC1V 9HQ, ENGLAND Page 8 of 19
POL-0024186
POST OFFICE LIMITED
POL00027545
POL00027545
Date 5 7 Company Number
14/05/2013 Extract from the Register of Sealings 2154540
Seal Number Date of Date of Persons Attesting Destination of
/ File Ref. Sealing Authority To Document Document
933 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
934 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
935 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
936 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
937 27/03/2013 27/03/2013 }I Alwen Lyons Jean Reynolds
938 27/03/2013 27/03/2013 }] Alwen Lyons Jean Reynolds
H between Royal Mail Group Limited and
Post Office Limited.
939 27/03/2013 27/03/2013 Lease (999 years) relating t } Alwen Lyons Jean Reynolds
ro 7 . etween Royal Mail
Estates Limited and Post Offic nities
940 27/03/2013 27/03/2013 Lease (999 years) relating t GRO I I Alwen Lyons Jean Reynolds
Q Royal Mail Estatés Limited
941 27/03/2013 27/03/2013 need Alwen Lyons Jean Reynolds
ie etween Royal Mail Group
Limited and Post Office Limited.
942 27/03/2013 27/03/2013 Lease (999 years) relating t Alwen Lyons Jean Reynolds
943 27/03/2013 27/03/2013 __ Lease (999 years) relating to! GRO. Alwen Lyons Jean Reynolds
Date 14/05/2013 Registered Office: 148 OLD STREET, LONDON, EC1V 9HQ, ENGLAND Page 9 of 19
POL-0024186
POST OFFICE LIMITED
POL00027545
POL00027545
Date 5 7 Company Number
14/05/2013 Extract from the Register of Sealings 2154540
Seal Number Date of Date of Persons Attesting Destination of
/ File Ref. Sealing Authority of Document To Document Document
944 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
945 27/03/2013 27/03/2013 GRO. Alwen Lyons Jean Reynolds
Royal Mail Estates Limited and Post Office Limited.
946 27/03/2013 27/03/2013 Lease (999 years) relating tot Alwen Lyons Jean Reynolds
i ‘between Royal Mail Estates Limited and
947 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
948 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
[ etween Royal
Mail Estates Limited and Post Office Limited.
949 27/03/2013 27/03/2013 Lease of the Post Office forming part of the premises known I Alwen Lyons Jean Reynolds
between Royal Mail Group Limited and Post Office Limited.
950 27/03/2013 27/03/2013 Leas i in ises known I Alwen Lyons Jean Reynolds
asi... between
951 27/03/2013 27/03/2013 st Office forming part of { Alwen Lyons Jean Reynolds
‘between Royal Mail Group Limited and
Post Office Limited.
952 27/03/2013 27/03/2013 Lease of the Post Office forming part of the premises known I Alwen Lyons Jean Reynolds
953 27/03/2013 27/03/2013 Lease of the Post Office forming part of the premises known I Alwen Lyons Jean Reynolds
Date 14/05/2013
Registered Office: 148 OLD STREET, LONDON, EC1V 9HQ, ENGLAND
Page 10 of 19
POL-0024186
POL00027545
POL00027545
POST OFFICE LIMITED
Date 5 7 Company Number
14/05/2013 Extract from the Register of Sealings 2154540
Seal Number Date of Date of Persons Attesting Destination of
/ File Ref. Sealing Authority ‘iptis To Document Document
954 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
between Royal Mail Estates Limited and Post Office Limited.
955 27/03/2013 27/03/2013 Lease of the Post Office forming part of the premises known_I Alwen Lyons Jean Reynolds
956 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
Post Office Limited.
957 27/03/2013 27/03/2013 Lease of the Post Office forming part of the premises known.I Alwen Lyons Jean Reynolds
as} GRO H
7 étween Royal Mail Estates Limited and
Post Office Limited.
958 27/03/2013 27/03/2013 Lease of the Cash-I Alwen Lyons Jean Reynolds
959 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
960 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
961 27/03/2013 27/03/2013 I Lease (999 years) relating to Alwen Lyons Jean Reynolds
etween Royal
ited.
962 27/03/2013 27/03/2013 _ Lease (999 years) relating t Alwen Lyons Jean Reynolds
Date 14/05/2013 Registered Office: 148 OLD STREET, LONDON, EC1V 9HQ, ENGLAND Page 11 of 19
POL-0024186
POST OFFICE LIMITED
POL00027545
POL00027545
Date 5 7 Company Number
14/05/2013 Extract from the Register of Sealings 2154540
Seal Number Date of Date of Persons Attesting Destination of
/ File Ref. Sealing Authority I Description of Document To Document Document
i 0 between
Royal Mail Estates ited and Post Office Limited.
963 27/03/2013 27/03/2013 Le q GRO ‘Alwen Lyons Jean Reynolds
H etweer Royal Mail Estatés Limited” I
and Post Office Limited.
964 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
Mail Estates Limited and Post Of
965 27/03/2013 27/03/2013 Lease (999 years) relating to: Alwen Lyons Jean Reynolds
966 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
967 27/03/2013 27/03/2013 Lease (999 years) relating to ¢ Alwen Lyons Jean Reynolds
tbetween Royal Mail Estates Limited and
Post Office Limited. .
968 27/03/2013 27/03/2013 Lease (999 years) relating to t. Alwen Lyons Jean Reynolds
cC : GRO I between Royal
Mail Estates Limited and Post Office Limited.
969 27/03/2013 27/03/2013 (9! ) Fe Alwen Lyons Jean Reynolds
Limited and Post Office Limited.
970 27/03/2013 I 27/03/2013 Lease (999 vears) relating toi. :I Alwen Lyons Jean Reynolds
i GRO
971 27/03/2013 27/03/2013 Lease (999 years) relating t Alwen Lyons Jean Reynolds
i be
Limited and Post Office Limi
972 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
tween Royal Mail
Date 14/05/2013
Registered Office: 148 OLD STREET, LONDON, EC1V 9HQ, ENGLAND
Page 12 of 19
POL-0024186
POST OFFICE LIMITED
POL00027545
POL00027545
Date 5 7 Company Number
14/05/2013 Extract from the Register of Sealings 2154540
Seal Number Date of Date of Persons Attesting Destination of
/ File Ref. Sealing Authority I Description of Document To Document Document
Estates Limited and Post Office Limited.
973 27/03/2013 27/03/2013 Lease (999 years) relating tof GRO i Alwen Lyons Jean Reynolds
. tween Royal Mail Estates
974 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
975 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
976 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
between Royai Mail Estates Limited and Post Office Limited.
977 27/03/2013 27/03/2013 Lease (999 years) relating t } Alwen Lyons Jean Reynolds
978 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
979 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
980 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
981 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
982 27/03/2013 27/03/2013 : Alwen Lyons Jean Reynolds
t ‘between Royal Mail Estates Limited
and Post Office Limited.
Date 14/05/2013
Registered Office: 148 OLD STREET, LONDON, EC1V 9HQ, ENGLAND
Page 13 of 19
POL-0024186
POST OFFICE LIMITED
POL00027545
POL00027545
Date 5 7 Company Number
14/05/2013 Extract from the Register of Sealings 2154540
Seal Number Date of Date of Persons Attesting Destination of
/ File Ref. Sealing Authority I Description of Document To Document Document
983 27/03/2013 27/03/2013 Lease (999 years) relating t Alwen Lyons Jean Reynolds
‘ ies
4
Limited and Post Office Limited.
984 27/03/2013 27/03/2013 Lease (999 years) re wwe mney Alwen Lyons Jean Reynolds
L_. . GRO, yal Mail Estates Limited
and Post Office I.
985 27/03/2013 27/03/2013 elating tol. _.II Alwen Lyons. Jean Reynolds
ibetween Royal Mail Estates Limited and
Post Office Limited. oe
986 27/03/2013 27/03/2013 Lease (999 years) relating to }___ I Alwen Lyons Jean Reynolds
987 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
988 27/03/2013 27/03/2013 I Alwen Lyons Jean Reynolds
‘Post Gtfice Limited.
989 27/03/2013 27/03/2013 Lease (999 years) relating t Alwen Lyons Jean Reynolds
990 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
991 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
992 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
_ Royal Mail Estates Limited an Of
993 27/03/2013 27/03/2013 __ Lease (999 years) relating to! GRO I_I Alwen Lyons Jean Reynolds
Date 14/05/2013
Registered Office: 148 OLD STREET, LONDON, EC1V 9HQ, ENGLAND
Page 14 of 19
POL-0024186
POST
OFFICE LIMITED
POL00027545
POL00027545
Date 5 7 Company Number
14/05/2013 Extract from the Register of Sealings 2154540
Seal Number Date of Date of Persons Attesting Destination of
/ File Ref. Sealing Authority cripti To Document Document
t GRO petween Royal Mail Estates
Liniited aiid Post Office Liffiifed.
994 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
995 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
996 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
997 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
“estates” cme oar Post Officé Littiited.
998 27/03/2013 27/03/2013 Lease of the Post Office forming part of the premises known I Alwen Lyons Jean Reynolds
petween Royal Mail Group Limited and Post Office
Limited.
999 27/03/2013 27/03/2013 Lease of the Post Office forming part of the premises known I Alwen Lyons Jean Reynolds
and Post Office Limited.
1000 27/03/2013 27/03/2013 — Lease.of the Post Office forming_oart.of the oremisesII now Alwen Lyons Jean Reynolds
as GRO
etween Royal Mail Estates Limited and Post
Office Limited.
1001 27/03/2013 27/03/2013 Lease of office on the fourth floor of Alwen Lyons Jean Reynolds
‘Mail Group Limited.
1002 27/03/2013 Alwen Lyons Jean Reynolds
27/03/2013
..Wease(Q99 years) relating tol.
GRO __petween
Royal Mail Estates Limited and
Date 14/05/2013
Registered Office: 148 OLD STREET, LONDON, EC1V 9HQ, ENGLAND
Page 15 of 19
POL-0024186
POST OFFICE LIMITED
POL00027545
POL00027545
Date 5 7 Company Number
14/05/2013 Extract from the Register of Sealings 2154540
Seal Number Date of Date of Persons Attesting Destination of
/ File Ref. Sealing Authority I Description of Document To Document Document
Post Office Limited.
1003 27/03/2013 27/03/2013 _I I Alwen Lyons. Jean Reynolds
between Royal Mail Estates
Limited and Post Office Limited.
1004 27/03/2013 27/03/2013 Lease (999 years) relating t Alwen Lyons Jean Reynolds
1005 27/03/2013 27/03/2013 Alwen Lyons Jean Reynolds
Royal Mail Esta
‘ed and Post Office Limited.
1006 28/03/2013 28/03/2013 Deed relating to Insurance Rent Arrangements relating to Alwen Lyons Jean Reynolds
leases pursuant to the Royal Mail Property Transfer
Scheme (No. 2) 2013 between Royal Mail Estates Limited,
Royal Mail Group Limited and Post Office Limited.
1007 28/03/2013 28/03/2013 Termination Request Letter between Co-Operative Group Alwen Lyons Kate Newton
Limited and Post Office Limited relating to Lampeter,
Larkhall, Leyburn, Lion Green, London Road and Mildenhall
branches.
1008 28/03/2013 28/03/2013 Termination Request Letter between Co-Operative Group Alwen Lyons Kate Newton
Limited and Post Office Limited relating to Stokesley and
Southdown Road branches.
1009 28/03/2013 28/03/2013 Termination Request Letter between Co-Operative Group Alwen Lyons Kate Newton
Limited and Post Office Limited relating to Budleigh
Salterton branch.
1010 28/03/2013 28/03/2013 Termination Request Letter between Co-Operative Group Alwen Lyons Kate Newton
Limited and Post Office Limited relating to Wolverton,
Woodhouse and Worle branches.
1011 28/03/2013 28/03/2013 Termination Request Letter between Co-Operative Group Alwen Lyons Kate Newton
Limited and Post Office Limited relating to Westbury,
Westhill, Whitby, Whitley Bay, Wilton and Wolseley Road
branches.
Date 14/05/2013
Registered Office: 148 OLD STREET, LONDON, EC1V 9HQ, ENGLAND
Page 16 of 19
POL-0024186
Date
14/05/2013
POST OFFICE LIMITED
Extract from the Register of Sealings
POL00027545
POL00027545
Company Number
2154540
Seal Number
/ File Ref.
Date of
Sealing
Date of
Authority
Description of Document
Persons Attesting
To Document
Destination of
Document
1012
28/03/2013
28/03/2013
Termination Request Letter between Co-Operative Group
Limited and Post Office Limited relating to Plympton, Rose
Hill, Seafield, Shawlands, St Budeaux and Standish
branches.
Alwen Lyons
Kate Newton
1013
28/03/2013
28/03/2013
Termination Request Letter between Co-Operative Group
Limited and Post Office Limited relating to Moortown, New
Washington, North Shields, Park Gate and Parkway
branches.
Alwen Lyons
Kate Newton
1014
28/03/2013
28/03/2013
Termination Request Letter between Co-Operative Group
Limited and Post Office Limited relating to Frecheville,
Glossop, Hanford, Herne Bay, Kinross and Kirkham
branches.
Alwen Lyons
Kate Newton
1015
1016
28/03/2013
28/03/2013
28/03/2013
28/03/2013
Termination Request Letter between Co-Operative Group
Limited and Post Office Limited relating to Dunoon,
Dunscroft, Embankment Road, Enderby, Fair Hill and
Fishponds branches.
Termination Request Letter between Co-Operative Group
Limited and Post Office Limited relating to Crook, Dawley,
Devonport and Dumbarton branches.
Alwen Lyons
Alwen Lyons
Kate Newton
Kate Newton
1017
28/03/2013
28/03/2013
Termination Request Letter between Co-Operative Group
Limited and Post Office Limited relating to Buxton,
Campbeltown, Canmoney, Castlederg and Cockermouth
branches.
Alwen Lyons
Kate Newton
1018
28/03/2013
28/03/2013
Termination Request Letter between Co-Operative Group
Limited and Post Office Limited relating to Banchory, Barry
Road, Blairgowrie, Brandon, Brecon and Broxtowe Lane
branches.
Alwen Lyons
Kate Newton
1019
28/03/2013
28/03/2013
Termination Request Letter between Co-Operative Group
Limited and Post Office Limited relating to Abbots Cross,
Addiscombe Exchange, Allerton and Avonmouth Road
branches.
Alwen Lyons
Kate Newton
Date 14/05/2013
Registered Office: 148 OLD STREET, LONDON, EC1V 9HQ, ENGLAND
Page 17 of 19
POL-0024186
POST OFFICE LIMITED
POL00027545
POL00027545
Date 5 7 Company Number
14/05/2013 Extract from the Register of Sealings 2154540
Seal Number Date of Date of Persons Attesting Destination of
/ File Ref. Sealing Authority I Description of Document To Document Document
1020 28/03/2013 28/03/2013 Termination Request Letter between Co-Operative Group Alwen Lyons Kate Newton
Limited and Post Office Limited relating to Ardenlee, Craigy
Hill, Crossroads, Avenue and Mirfield branches.
1021 28/03/2013 28/03/2013 Agreement for Lease, Licence for Alterations and Lease Alwen Lyons Jean Reynolds
1022 28/03/2013 28/03/2013 Under lease by reference to superior lease relati Alwen Lyons Jean Reynolds
und Floor Post Office a’
between Post Office Limited and
Roppongi Investments Limited.
1023 28/03/2013 28/03/2013 Rent Deposit Deed «olatina to. oremisas..at-Rarme.. @rauind Alwen Lyons Jean Reynolds
Floor Post Office, I GRO
between Post Office Limited and Roppongi investments
Limited.
1024 28/03/2013 28/03/2013 Agreement for Lease of premises at Former Ground Floor I Alwen Lyons Jean Reynolds
Post Office,
Post Office Limited and Roppongi Investments Limited.
1025 02/04/2013 02/04/2013 Termination Request Letter between Co-Operative Group Alwen Lyons Kate Newton
Limited and Post Office Limited relating to Forest Row
branch.
1026 02/04/2013 02/04/2013 Termination Request Letter between Co-Operative Group Alwen Lyons Kate Newton
Limited and Post Office Limited relating to Stotfold,
Thatcham, Thirsk, Thurso, West Bridgford and West Street
branches.
1027 05/04/2013 05/04/2013 Deed of Surrender of Lease at Part Ground Floor, Midway I Alwen Lyons Jean Reynolds
House, 1 Elliott Way (Nexus Point), Birmingham B6 7AP
between Bank of Scotland Pic and Post Office Limited.
1028 05/04/2013 05/04/2013 ~—_ Lease of Part First Floor Premises,i” Alwen Lyons Jean Reynolds
[ “t between Wilkinsof Hardware Stores
‘Limited and Post Office Limited. ae
1029 05/04/2013 05/04/2013 Licence for Alterations of Part First Floor Premises,; GRO II Alwen Lyons Jean Reynolds
Date 14/05/2013
Registered Office: 148 OLD STREET, LONDON, EC1V 9HQ, ENGLAND
Page 18 of 19
POL-0024186
POST OFFICE LIMITED
POL00027545
POL00027545
Date 5 7 Company Number
14/05/2013 Extract from the Register of Sealings 2154540
Seal Number Date of Date of Persons Attesting Destination of
/ File Ref. Sealing Authority To Document Document
d and Post Office Limited.
1030 15/04/2013 15/04/2013 Licence to Occupy between Derwent Holdings Limited and I Alwen Lyons Jean Reynolds
Post Office Limited relating to Totem Signage at The
Ellesmere Shopping Centre, Walkden, Greater Manchester.
1031 23/04/2013 22/03/2013 I Lease of! Gill Catcheside Jean Reynolds
between Post Office Limited and
1032 23/04/2013 22/04/2013 Licence to carry out works relating to Unit N1, Theatre Gill Catcheside Jean Reynolds
District, Milton Keynes between UGS MK Limited and Post
Office Limited.
1033 25/04/2013 Trust deed constituting the Post Office Healthtrust between I Alwen Lyons Piero D'Agostino
the Post Office Limited, Charles Colquhoun, Karen Hamer
and Multiplex Financial Trustees Limited.
1034 30/04/2013 25/04/2013 + Counterpart Licence to Affix. .and.Retain.Sianane.relatina.to I Alwen Lyons Jean Reynolds
Part First Floor Premises, GRO
tween Wilkinson Hardware Stores Limited and POL
1035 30/04/2013 30/04/2013 Lease of First Floor Premises, 489 Union Street, Aberdeen I Alwen Lyons Jean Reynolds
between POL and Intelligent Plant Limited
1036 30/04/2013 30/04/2013 Licence to carry out alterations relating to 205 Old Street Alwen Lyons Jean Reynolds
between Old Street Trustee (Jersey) 1 Ltd and Old Street
Trustee (Jersey) 2 Ltd and POL
1037 13/05/2013 10/05/2013 TR1 (surrender) for; Alwen Lyons Jean Reynolds
1038 13/05/2013 10/05/2013 Alwen Lyons Jean Reynolds
1039 13/05/2013 10/05/2013 Alwen Lyons Jean Reynolds
Date 14/05/2013
Registered Office: 148 OLD STREET, LONDON, EC1V 9HQ, ENGLAND
Page 19 of 19
POL-0024186