POL00026716
POL00026716
Post Office Limited
Post Office Limited is registered in England and Wales.
Registered number 2154540
I cau
the community
Annual Report and Financial
Statements 2013/14
The Post Office is unique:
a commercial business set apart
by its public purpose. We believe
in the importance of connecting
communities and enhancing the
powerful role they play in all our
lives. We will stay true to this
commitment by meeting customer
needs through our unrivalled
local presence.
POL00026716
POL00026716
POL00026716
POL00026716
OVERVIEW 2-15
04 Quryear innumbers
06 Chalrman's foreword
08 Chief Executive's review
12. Strategy
BUSINESS REVIEW 16-37
18 Business mn detail
22 Branch network
26 Customer excellence
28 Ourpeople
34 Supporting colleagues and communities
STRATEGIC REPORT 38-45
40. Financial review
45° Business risk
GOVERNANCE 46-67
428, Board brographes " "
52 Corporate governance
57. Directors’ report
58 Directors’ remuneration report
FINANCIAL STATEMENTS . 68-119
70 Statement of Directors’ responsibuities
71 Independent auditors report to the members,
of Post Office Limited
72 Consolidated income statement
73. Consolidated statement of comprehensive mcome,
74 Consolidated statement of cash flows
75 Consolidated batance sheet
76 Consolidated statement of changes in equity
77 Notes to the financial statements
101 Parent Company financial statements
120 Corporate mformation
POL00026716
POL00026716
Overview !
“Creating a services hub
around our Post Office
has made it the focus
of our community and
an essential part of our
everyday lives
a To find out more about our
community services and projects
see page 36
OVERVIEW
intmain
POL00026716
POL00026716
POL00026716
POL00026716
POL00026716
POL00026716
CHAIRMAN’S FOREWORD
Helping our customers meet
their needs - traditional and new
"We have made
good progress
in our ambitious
programme to
transform the
Post Office
Alce Perkins
Chairman
nt
In this second Annual Report since the
Post Office became an independent business,
we describe the progress we made in
the year 2013/14 towards our goal of
commercial sustainability.
We have taken significant steps forward in four
important areas
+ Publishing a new strategy through to 2020
and securing funding from our shareholder,
Government, through to March 2018
Increasing our operating profit (including
our Network Subsidy Payment) before
exceptional items
+ Making big strides in transforming our network
+ Working with the people who deliver our
business and with our external stakeholders
in new mutual ways to engage them directly in
how we improve the running of our organisation
nen
mt
tga
“We have defined the unique role
of the Post Office as a commercial
business set apart by a fundamental
role in connecting communities and
helping them thrive and prosper.
Annual Report and Financial Statements 2013 /14
These achievernents were secured in a challenging
commercial market and we were unable to achieve
the revenue growth to which we aspwed However,
by improving our effictency and taking more cost
out of the business we achieved the increase in
operating profit before exceptional items set out
in this report Thus includes a reduction of the
losses in our Crown branches
Our new strategy, Securing the Future (published
in Novernber 2013), sets out the path we will
take to achieving commercial sustainability while
remaining at the heart of communities and further
developing our digital presence We will continue
to be a trusted partner, helping our customers
meet their needs — traditional and new
The fact that Government has settled our funding
through to March 2018 1s most welcome This
gives us certainty against which to plan the
further investment needed to complete our
transformation of the network and the discipline,
which we welcome, of reducing our reliance on
taxpayer subsidies
The way most people will experience the
transformation of the Post Office 1s by going
into one of our modernised branches We have
now transformed around 2,000 of our agency
branches and almost a third of the Crown
network Over 1,000 branches are now trading
on a Sunday and we are now open for an
additional 50,000 hours a week
We are also working with our people and
stakeholders in new mutual ways, with the
aim of improving engagement, increasing
focus on customers and becoming an
organisation that truly listens and learns
from those with an interest in the business
We demonstrated this commitment to broad
engagement by establishing the Post Office
Advisory Council, chaired by Tim Franklin,
one of our non-executive directors The Advisory
Council, which met for the first time in March
2014, will play an important role by giving
us the benefit of a cross-section of views,
skills and experience from the diverse
communities that have a stake in the
Post Office in the 21st century
We also completed work to define our public
purpose as a business during 2013/14 This
important work 1s a further example of mutual
ways of working the statement was drawn
up following a comprehensive process of
consultation and engagement with customers,
staff, subpostmasters and stakeholders For
the first time it describes the unique role of the
Post Office as a commercial business set apart
by a fundamental role in connecting communities
and helping them thrive and prosper We will
continue to embed this purpose across our
business and mark our progress in future reports
I would hke to thank the Post Office Chief
Executive, Paula Vennells, her team and all
the people who work so hard to support the
business as we continue along the path to
commercial sustainability I would also like to
thank my colleagues on the Board for their
work in supporting and challenging the Post
Office as we undergo this period of change
We were sorry to lose Susannah Storey, our
first Shareholder Executive representative,
from the Board and look forward to working
with her successor, Richard Callard
POL00026716
POL00026716
We have made good progress in our ambitious
programme to transform the Past Office We
know we have a long way to go and the path
1s not linear The many people who care about
the sustainability of the Post Office can take
comfort from the steps we have taken so
far and the increased pace at which we have
worked We wit! build on this, drawing on the
energy and commitment of our people to secure
the future of the Post Office for the benefit of
the communities that it serves
uence AEN SEAT NN
“’Our new strategy, Securing the
Future, sets out the path to achieving
commercial sustainability while
remaining at the heart of our
communities and developing our
digital presence further. We will
continue to be a trusted partner,
helping our customers meet their
needs - traditional and new.
[Annual Reportand Financial Statements 2013 /14
POL00026716
POL00026716
CHIEF EXECUTIVE'S REVIEW
A unique organisation with
a unique role in national life
"We need to
ensure that we
are putting the
customer first
every time
Paula Vennells
Chief Executive
The Post Office is changing, and the benefits
are becoming more evident
The 2013/14 financial year saw the number of
branches we have transformed exceed 2,000,
delivering longer opening hours and brighter
retail environments to customers across the
UK These branches, and our plans to drive the
transformation to every corner of the business,
underline to our cUstomers, subpostmasters and
colleagues the commitment of the Post Office to
remain at the heart of communities, connecting
people and providing access to key services into.
the future
nner
“Customer satisfaction is running at
over 95% in modernised outlets and
opening hours, which have increased
by over 62%, are proving popular,
with 9% of customers visiting
outside traditional opening hours.
Subpostmasters are benefitting
with increased retail sales.
‘Annual Report and Financial Statements 2013/14
But the maintenance and development of our
physical network 1s just part of how the Post
Office 1s developing as a business We have an
increased presence online and we are mvesting
1n technology to ensure that we are easier to
do business with
Our clear ambition as we make these changes
1s to ensure that we put the customer first every
tume and we are doing this by driving forward
with our modernisation and becoming a top
class retailer — fast, flexible and with a focus
on the detail
None of this 1s to cloud the reality of what was
a tough year In an increasingly competitive
market, our revenue was down by 4 5% with.
particular challenges in the mails market, and
itis clear that the Post Office must operate with
greater pace than ever before ~ and focus even
more on its customers and commercial realities
We demonstrated this clear-sighted approach
1n 2013/14 Delvery in our complex change
programmes was accelerated while we worked
hard with our partners to tackle the specific
issues faced in the mails market
Given this context it s pleasing therefore that
operating profit before exceptional items
increased again, up £13 mulhon from last year
This profit improvement was delivered through
greater cost control that more than offset the
decline in revenue At the same time we have
managed to prioritise investment in the key
transformation programmes as we work towards
future financial sustainability
In mails, telecoms and Government Services
we have put in place the fundamentals which
we believe will allow us to build and open up
new revenue streams in the future Meanwhile,
‘we are fast becoming a challenger brand in the
financial services market with 2 widening product
portfolio that now, significantly, includes a current
account offer
The decline in mails revenue was of course
disappointing but we remain confident that we
have the nght commercaal strategy in place and,
importantly, the right retail mindset to be able
to reverse this position
Strategy and funding
Its also important to reflect that 2013/14
was a momentous year in relation to our future
funding The planned £10 million fall in the
Network Subsidy Payment received from
Government underlines our increasing core
strength and ambition to achieve commercia
sustainability over the course of the next few
years Meanwhile we were also able to secure
the funding which wall allow the business to
continue its transformation and announce
the strategy that will defiver this change
To have done so while also making substantial
progress in transforming the agency network
was an achievement that stood out in 2013/14
We also took pleasing steps forward towards our
goal of transforming the Crown branch network,
those branches which are directly managed by
the Post Office More than 100 - almost a third
of the network ~ were modernised though the
year while the annual losses were reduced by
£11 million We are moving rapidly towards our
goal of financial breakeven in 2015 in this part
of our network
Pace and depth
These are major transformation programmes
in their own right but they sit within a larger
portfolio of structured transformation activities
which include mayor IT and business development
programmes 1am conscious of the risks and
complexities of running a number of large
multi-dimenstonal programmes in parallel, and
professional co-ordination structures have been
established to oversee implementation However,
1am also aware of the pace and depth of the
change required to sustain and build this company
for the future and there is 2 determination
within the Post Office to drive change forward
vyath confidence and vigour
‘As this demonstrates, the modernisation of the
Post Office reaches far beyond the changes to
‘our phystcal branch infrastructure Investment
in our mobile website, a Travel Money Card app
and the next generation of Post & Go automated
machines are just three examples of how we are
creating a digital and dynamic Post Office
POL00026716
POL00026716
We have also invested in a new e-commerce
platform that will give us the ability to improve
the quality and ease of use of our online
products and services This Common Digital
Platform represents a significant investment
in our digital future, enabling us to build our
emerging digital products and services on
a platform that will grow and flex with our
changing requirements over the coming years
‘oven
“The modernisation of the Post
Office means more, however, than
enhancing our physical branch
infrastructure. Investment in our
mobile website, a Travel Money Card
app and the next generation of Post &
Go machines are just three examples
of how we are creating a digital and
dynamic Post Office.
Pe
Change can however be difficult and the
industrial relations landscape proved testing
in 2013/14 Although we did experience strike
action, colleagues pulled together to ensure
that service disruptions were kept to a minimum
and the critical focus on customer service
was maintained
Alongside the work that has gone on to
transform the way we deliver our business
to customers the last year has also seen some
important developments in the way we work
as an organisation
We are commutted to the principle of developing
mutual ways of working This means providing
the opportunity for all involved in the Post Office
~ whether employees, subpostmasters and their
employees or wider stakeholders — to share
responsibility for building the business and
engaging in a two-way dialogue to get the
best for our customers
We launched in 2013/14 a Branch User Forum
and branch support programme to provide a
means through which our front line colleagues
can help shape the way the business works
‘More will follow on this track, while the new
Post Office Advisory Council is bringing us
crucial expertise and insight, which can only
benefit our business
‘Annual Report and Financall S:atements 2013/14
Core to this work was the unvetling of our public
purpose as a business We are proud of the
commitment to communities across the UK,
which lies at the heart of this The strategy,
which has been agreed wath Government,
ensures our commitment will be retained
and enhanced ~ for example, by establishing
a Community Investment Fund to support
subpostmasters in the ‘ast shop in the
village’ and help butld their businesses
We have since published four milestones that.
could point the way towards a mutualised Post
Office At the heart 1s the imperative of achieving
commercial sustainability ~ the key deliverable
without which mutualisation would not be
possible - alongside the work we are undertaking
to embed our public purpose within the business
and further build a culture of mutual two-way
engagement with all our people
Our work with Go ON UK, meanwhile, highlights
‘our commitment to helping make the UK the
most digitally skilled nation in the world through
assisting those who need to develop skills to
succeed online Our Online Centre Locator
signposts local digital training and IT learning
‘opportunities to anyone in any of our branches
who states their home postcode
‘Moen
unre nM
“Our work with Go ON UK, meanwhile,
highlights our commitment to helping
make the UK the most digitally
skilled nation in the world through
assisting those who need to develop
the skills to succeed online.
nu
‘Annual Report and Financial Statements 2013 /14
POL00026716
POL00026716
I would like to thank all those who have worked
$0 hard for the Post Office over the past year
‘Achieving our aims 1s not possible without the
commitment to customers and local communities,
as demonstrated by those working in branches
up and down the UK.
In February 2014 the Royal Saciety for the
encouragement of Arts, Manufactures and
Commerce (RSA) issued a report that outlined
the potential of Post Offices in modern Britain ft
characterised the Post Office in the following way
“The Post Office 1s an organisation like no other
Local Post Offices contribute enormously to the
Iife and soul of their communities, are an
essential vehicle for delivering public services,
and provide the vital infrastructure that our
businesses need to prosper’
Within this Annual Report and Financial
Statements, this powerful view 1s shown in a
number of ways alongside the financial results
that illustrate the commercial underpinnings
necessary to support it
We made significant strides in the transformation
of the business in 2013/14 in testing market
conditions This has given us the confidence to
continue to dave the change that will ensure,
1m the future, that the Post Office remains
vibrant, relevant and secure for the communities
it serves
STRATEGY
Shaping a commercial
POL00026716
POL00026716
Post Office that remains at
the heart of our communities
STRATEGY MODEL
Securing the Future
ununamcrmanim
In November 2013 we launched a strategy
+ Secunng the Future - which will see the
Post Office grow and develop as a retaler
through to the end of the decade The vision
set out was backed by Government through
a further £640 million mvestment of funding
‘over three years to assist us in transforming
‘our business
Securing the Future recognises the challenges
the Post Office faces and the changes that
must be made to ensure that the organisation
flounshes in the years to come
The core aim of Securing the Future is to set
out the steps the business plans to take to.
achieve the over-arching goal of commercial
sustainability This aim 1s underpinned by four
clear ambitions
Annual Report and Financial Statements 2013/14
eH OTHE Ae
To broaden and increase our market presence
To maintain our unrivalled physical network
and expand our digital services
To create an organisation and operating
model that 1s cost effective, agile and
customer focused
+ To be an organisation that lives and breathes
the principles of mutualisation
‘The delivery of Securing the Future will build 2
more commercial, customer-focused Post Office
that remains at the heart of communities,
with a purpose that shapes all we do We
will continue to be a trusted partner, helping
customers, existing and new, meet a new
generation of requirements
POL00026716
POL00026716
Background to the strategy
+ The economic downturn has impacted
margins across the high street
+ Our traditional markets are the scenes of
significant pressures as competitors assert
their presence
+ The volume and margins associated with
Government Services have reduced and new
business in this area has not materialised
as hoped
To stem the decline in traditional services, the
Post Office will bud on its established position
as a retailer of financial services and telecoms
products as well as introducing new services in
growing markets such as collections and returns
+ Our differentiator will be services that are
simple, fair and transparent and provide value
for money
+ Our breadth of offer will make our
propositions compelling to our customers
We will develop targeted product portfolios
that attract new customers The development
of our small business offering will be a key
focus in the short term
Secunng the Future not only sets the direction of
the Post Office through to 2020, but anticipates
us connecting communities across the UK by
serving the essential needs of our customers,
both individuals and small businesses The Post
Office will remain relevant to soceety by offenng
products and services that people want and need
via the medium that 1s most convenient to them
mse oun
nematic itso vac oat
As an organisation, the Post Office is
unique in its size and reach across the
UK as well as the trust that customers
place in us. We are determined to
continue to serve the UK’s changing
needs by connecting communities and
customers in ever more powerful ways.
‘Annual Report and Financial Statements 2013/14
STRATEGY
nee
sant
POL00026716
POL00026716
Building our future
In its 2010 policy document, Securing the Post
Office Network in the Digital Age, Government
set out an ambition to create the opportunity
for a mutually owned Past Office
Significant progress was made towards this,
goal during 2013/14
With the Stakeholder Forum, we developed
a clear definition of the Post Office's unique
purpose as a commercial business, a crucial
pre-requisite of a successful mutual organisation
The Stakeholder Forum included representatives
from the National Federation of Subpostmasters,
the Communications Workers Union, Consumer
Futures, the BBC, Mutuo and the British Youth
Council The Forum commussioned a public
engagement campaign that ran throughout the
summer of 2013 We asked our customers,
colleagues, subpostmasters and the public for
their views on the purpose of the business
We believe in the importance of
connecting communities and enhancing
the powerful role they play in our lives.
[Annual Report and Financial Statements 2013 / 14
This saw three key themes emerging trust,
access and community
A statement of purpose was then drawn up
and approved by the Post Office Board in
March 2014
“The Post Office 1s unique a commercial business
set apart by ts public purpose
‘We believe in the importance of connecting
communities and enhancing the powerful role
they play in all our lives
“We wall stay true to this commitment by meeting
customer needs through our unrivalled local
presence across the UK’
Work has now begun to embed this throughout
the business
We also made significant and successful steps to
embrace mutual ways of working These include
enhanced engagement surveys, the establishment
‘of a Branch User Forum, and the creation of the
Post Office Advisory Council
Post Office Advisory Council
The Advisory Council held its first meeting in
March 2014 following a national campaign to
recruit members from a range of backgrounds
The Advisory Council represents a unique mix
of people and skills from business, charities and
unions, which will help shape the future of the
Post Office
The Advisory Council will play an important role
an reflecting a cross-section of views, skills and.
experience from the diverse communities that
make up 21st century Britain it will help the
Post Office learn from those with an interest
in the business, enabling it to innovate and
support the transformation of the business
‘The Advisory Council 1s made up of 24 members
to allow a broad mux of people and interests
Members are appointed for a term of four years,
non-renewable, with the first appointments
mixed between two, three and four years to
maintain continuity Meetings will be held three
tumes a year
The Advisory Council will ensure the Post Office
remains at the heart of communities by providing
an innovative forum through which tdeas can be
shared and feedback sought
Milestones to mutualisation
Steps such as the creation of the Advsory Council
and the definition of our purpose have established
2 foundation upon which the Post Office and its
stakeholders can build a strong future In addition,
we have identified and published four key
milestones that will need to be met to create
the opportunity for mutualisation
POL00026716
POL00026716
+ Commercial sustainability must be achieved,
building on the successful delivery of our new
strategy This will mean developing a business
with a track record of revenue and profit
growth and positive cashflow generation,
which 1s able to operate wholly independently
Linked to this, a clear funding relationship with
Government will be defined and maintained
Such funding will be materially lower than
today and the relationship will need to provide
the Post Office with improved long-term
certainty and visibility as to its future
The Post Office will deliver measurable
success in embedding tts purpose statement
throughout the business and in meeting the
standards it sets
A culture of mutual engagement will be
further developed, demonstrated by strong
performance in key engagement measures
This will help to encourage new behaviours
that support a broad commitment across the
business to mutual ways of working, approaches
the business 1s adopting regardless of its
future ownership model
‘The Post Office will work closely with its
stakeholders to make progress towards these
milestones, reporting on progress annually
Anavat Report and Finareial Stateents 2013/14
POL00026716
POL00026716
Business review
“Drop & Go is easy to use
and really saves time at
busy periods, allowing me
to concentrate on running
my business and dealing
with my never-ending
to-do list
FG) 12874 out more about our mai
services and new innovations
see page 18
BUSI
ui
POL00026716
POL00026716
BUSINESS IN DETAIL
Mails and retail
Poe nseccn nc
£390 sition revenue
2012-2013 £409 million -4 6%
+ Over 21,000 Drop & Go pniority service customers
mutta
+ UK‘s largest collections and returns network launched
The respective markets for mails, retail products (such as packaging
and collectibles) and lottery are changing rapidly with the growth of
e-commerce, intensifying competition and increasing customer
demands for convenience, quality and value
These pressures increased during 2013/14
and combined with specific issues, including
mails pricing changes, reduced National Lottery
rollovers and the one-off prior year events such
as the Olympics and Diamond Jubilee, caused
overall revenues to return to 2011/12 levels
with Mails revenue declining by £16 million
and Retail and Lottery sales decreasing by
£3 million, a fall on the previous year of 4 6%
Actions were undertaken within the year to
address these factors and better position the
Post Office to take advantage of the underlying
e-commerce-driven market growth in packages
and parcels
tn the Mauls market the Post Office offers a
nationwide, accessible and trusted network
providing a full range of Royal Mail products and
services However, the year in which Royal Mat!
was privatised saw a rapidly changing marketplace
with growing competition There are increased
alternatives to Royal Mail postal products, while
networks of alternative retail locations for
‘Annual Report and Financial Statements 2013 /16
posting or pick up are growing, particularly
in more heavily populated urban areas Online
shoppers also increasingly expect competitive
prices and convenience when it comes to delivery
These factors, combined with short-term market
adjustments to postal pricing changes, created
tough trading conditions for the Post Office
Year-on-year revenues fell back and reversed
the growth of the previous year But despite
these pressures, the Post Office made significant
progress in realigning its offer to both meet
the competitive challenge and harness the
underlying growth fundamentals within the
parcels market
These measures included the development of
value added services as Drop & Go for small
business customers, by the year end more than
21,000 priority services customers were signed
up with strong future growth projected Working
closely with Royal Mail, the Post Office has :
expanded its small parcels category It has
introduced new approaches that enable
consumers and businesses to post a greater
range of items through the format delivering
better value and convenience These changes
were well received and helped turn around the
more pronounced volume declines in the first
half of the year
In partnership with Royal Mat! we also
announced our Click and Collect initiative in
May 2013 This allows Post Office branches
across the network to be used as convenient
parcel delivery option for online retailers We
are continuing to extend this service and are
confident that it targets a growing sector that
requires the trust, convenience and accessibility
that Post Offices offer
Improvements have also been also been made to
the Post & Go vending estate, thereby improving
the self-service options avatlable, and improved
equipment 1s now being rolled out into our
larger offices
Other retail sales include packaging and National
Lottery products (where the Post Office 1s one
of the largest distributors, with 6,000 outlets
offering the service) Sales were slightly down
year-on-year, impacted by fewer rollovers
The modernisation of the Post Office network,
with longer opening hours, improved retait
environments and enhanced sales skills, 1s well
underway and continues into 2014/15 It will
both ensure the size of the network 1s maintained
and enhance capabilities in Mails and Retail,
thereby meeting the changing needs and
requirements of consumers and small businesses
Steps include improving facilities for collecting
and returning items, greater ease in sending
mails and packages, and creating the conditions
for enhanced Retail and Lottery sales
Financial Services
‘umm cs TME
£279 million revenue
2012-2013 £281 millon -07%
+ Revenue from Personal Financial Services has increased
by 15 2%
+ Launch of current account
inet
wana
+ 100 mortgage specialists in branch and
220 financial specialists
+ Launch of Payment Services Provider service to SMEs
The UK savings market 1s still characterised by ultra-low base rates
Customer rates continue to decline, resulting in low demand for savings
products The March 2014 Budget will impact the industry by introducing
an increased ISA tax-free savings limit, creation of new Pensioner Bonds
and fundamental changes to the pension annurty rules
‘The mortgage market is extremely competitive,
with very low rates and new intermediaries
expected Organisations have been focused on
meeting the regulatory guidelines of the Mortgage
Market Review The credit card market 1s
consolidating, with outstanding balances declining
Regulation continues to impact the industry, with
the European Unton proposing to introduce a cap
on interchange fees for transactions
Motor insurance regulatory changes and strong
competition have driven premium reductions in
the market This 1s expected to be extended by
the My Licence launch, which will give insurers
the ability to check driving records Home
insurance premiums also dropped over the last
year, in spite of the severe weather conditions
This is the environment in which Personal
Financial Services at the Post Office continue to.
grow as we strive to be a significant challenger
to the traditional banks and insurers We offer
products that are simple, fair, transparent, and
value for money, supported by the widest access
from the largest retail network in the UK
We provide a well-established range of savings,
insurance and lending products in partnership
with the Bank of Ireland We remain the number
one provider of travel money and provide a range
of other services including over-the-counter
payment services, cash machines and access
to cash for 95 per cent of UK current account
debit card holders
Financial services are vital to our strategy of
growth and modernisation In the past financtal
year revenue declined slightly to £279 million but
this masks a transformation in the profile of our
financial services business Traditional products
such as bill payment, while important for footfall
into our branches, are declining in volume but
we are pleased to have won and retained key
POL00026716
POL00026716
contracts At the same time revenue from
Personal Financial Services has increased
by 152%
To support our customers, the Post Office
15 broadening the financial services offer
In 2023/14 we launched a range of current
account products, these are being trialled in
110 branches in the east of England and offer
an inclusive approach to banking We have also
offered customers the option of discussing
their mortgage needs in branch through the
deployment of 100 mortgage specialists across
the UK We have also entered the Buy-to-Let
mortgage market In addition to mortgage
speaalists, the Post Office has a further 220
financial specialists across the UK
We are increasingly supporting small and medium
enterprises (SMEs) This past year saw us launch
a Payment Service Provider platform, which
allows SMEs to take card, online and mobile
payments This illustrates our dedication to
supporting the needs of the business community,
which remain central to our growth aspirations
The Post Office 1s proud to remain the market
leader in retail foreign exchange and was voted
by the public as Best Foreign Exchange retailer
and Best Travel insurance Provider at the 2013,
British Travel Awards, for the seventh and eighth
year respectively
We have complemented our travel range by
adding further currencies to our award-winning
Travel Money Card, which has seen over one
milion loads since st was launched in May 2011
We have also launched a mobile app that allows
customers to manage their Travel Money Card
easily while abroad
‘Annual Report and Financial Statements 2013 /14
20
POL00026716
POL00026716
BUSINESS IN DETAIL
Government Services
unann
£1 46 million revenue
2012-2013 £164 million -11 0%
+ Seven year contract signed with HMPO
+ Growth in driving licence renewals
Performance in Government Services was impacted by lower margins
in Driver Vehicle and Licensing Agency (DVLA) services and the decline
1n traditional branch-based services This was offset to a degree by
higher volumes in the Passport Check & Send service, however, and
the decrease in revenue was in line with expectations
‘The Post Office offers a range of services for
Government departments, mcluding pensions and
benefits payments on behalf of the Department
for Work and Pensions (DWP), Passport Check
& Send for Her Majesty's Passport Office (HMPO),
driving-related services for DVLA and photograph
and fingerprint capture service for UK Visa
and Immigration
Revenue from Government Services fel! 11% from
£164 million to £146 million While revenue from
Passport Check & Send increased by £2 million,
revenue from the DVLA decreased by £14 million.
This was mainly due to lower fees per transaction
under a new contract that became effective from
Apnl 2013 Revenue from the payment of benefits
through the Post Office Card Account was £6
million lower, impacted by customer attrition
‘The DVLA framework contract for Front Office
Counter services which we secured in 2012
helped us win further Government business in
2013/14 We signed a seven-year contract for
Passport Check & Send, which 1s proving very
‘Annual Report and Financial Statements 2013 / 14
popular with customers Revenue continued to
grow after joint promotional efforts with HMPO
and we are working closely with Government to
develop services to support online applications
Our Application, Enrolment and Identity (AE!)
technology 1s used to support a variety of
transactions including biometric residence permits
applications and the 10-year renewal of driving
licences Following a joint marketing campaign
with the DVLA, which included radio adverts,
we saw growth in the renewal of 10-year
driving licence renewal applications
During the course of the year the Post Office
and DWP held discussions about the future
of the Post Office Card Account ahead of
the current contract expiring in 2015 An
announcement 1s expected in the coming
months, but it1s anticipated that access.
to pensions and benefits will continue
beyond March 2015 across the whole
Post Office network
in tine with the continued drive to reduce
Government expenditure, Digital by Default
will be a key priontty in 2014/15 The Cabinet
Office's Government Digital Service (GDS) is on
target to deliver 25 exemplar services by 2015.
We believe this will present opportunities to the
Post Office supporting customers who need to
establish their identity online or who require
face-by-face support and may not have the skills
needed to transact online or who require some
form of face-by-face guidance
‘An exciting development in 2014/15 wall be
the launch of our Identity Assurance service to
support Government's digital agenda We are
one of five providers of this service, which wit!
enable people to prove their identity safely and
securely when accessing certain Government
Services online
POL00026716
POL00026716
Telecoms
£1 24 million revenue
2012-2013 £129 million -3 9%
+ Upgraded physical infrastructure with a transfer
to a service managed by Fuyitsu
‘The Post Office 1s a significant player in the telecoms market with
around 450,000 customers in HomePhone and Broadband and the
largest network of mobile top-up terminals in the UK This places
usin a strong position for future development, although 2013/14
presented some significant challenges
Revenue in Telecoms fell 39%, from £129 million
to £124 million However, we were able to make
significant progress in buniding our infrastructure
to enable us to grow customer numbers in
the future
Our competitive residential phone and broadband
service 1s the sixth-largest fixed line telecoms
provider in the UK We are particularly competitive
in the HomePhone-only market, where we offer
market leading prices, and recent changes to our
broadband pricing have enhanced our competitive
positioning However, the market continues to be
dominated by the big four telecoms providers
September 2013 saw the transition of our
services from BT Wholesale to a managed service
provided by Fuyttsu This was a large project,
which upgraded our physical infrastructure as well
as our billing and customer management systems
There were some difficulties during the transition
that negatively impacted customer experience but
Post Office and its partners worked closely to fix
the issues
2
By making use of the TalkTalk network, the Post
Office can now provide our customers with access
to higher speed broadband services The move to
‘new billing and customer management systems
will enable us to deliver innovative sotutions to
meet the changing needs of our customers in
the future Additionally, it will make us easier
to do business with through improved customer
sign-up processes, email platform and better
self-service options
The new telecoms infrastructure will allow us to
develop more innovative propositions including
offering bespoke products for the SME market,
‘an area that is key to the growth agenda of the
Post Office
We maintain the largest network of mobile top-up.
terminals in the UK and customers can top-up
pre-paid mobile phones for the main networks in
any of our branches or via 1,800 external ATMs,
2013/14 saw’ 12 mulion top-up transactions
across the Post Office estate
We have ambitious plans for our telecoms
business over the next 12 months We are in
a position to leverage the new infrastructure
and deliver more compelling propositions in
HomePhone and Broadband to both SMEs and
residential customers, and we are excited about
the opportunity to make a real difference for
‘our customers in the mobile market
‘Annual Report and Financial Statements 2083/14
2
BRANCH NETWORK
Network modernisation
POL00026716
POL00026716
INTRODUCTION
The Post Office had 11,696 branches at the end
of the 2013/14 financial year, making it the
largest retail network in the UK. Our unrivalled
presence means we have branches within one
mile of 93% of the British population.
IN BRIEF
uate
11,696
Post Office branches
In our UK network
£20m
Community fund
announced by Post
Office to support
around 3,400 branches
as part of our new
strategy
9%
Of new customers
visit our new style
branches outside of
traditional hours
We are commuted to maintaining a network
of at least 11,500 branches, ensuring our
products and services are readily accessible
across the UK
We are investing heavily in our physical branches
with new style main and focal branches now
a feature of high streets Our branches are
increasingly supported by digital and telephone
services in line with our ambitions to be a
muitichannel retailer
Customer service
The Post Office 1s creating modern, commercially
sustainable branches that improve the customer
expenence
A highlight of 2013/14 was the pace at which
this modernisation programme increased, with
around 2,000 branches converted so far and
another 1,200 branches awaiting transformation
Improved customer service 1s fundamental to the
success of new style modernised branches and
this is being delivered by our subpostmasters
Longer hours and improved retatl environments
are benefitting millions of customers Over
50,000 extra opening hours have been created
each week with an average increase in opening
hours of 62% On average 9% of customers are
also visiting new style branches outside of
traditional hours and customer satisfaction is
consistently above 95% In addition, more than
1,000 branches are open on a Sunday, meeting
the demand for accessible services every day
of the week
Average waiting times are just 1 minute and
33 seconds in the smaller modernised branches
and 1 minute and 39 seconds in larger ones
Subpostmasters are also benefitting from more
efficient ways of working and an increase in
revenue, both from their Post Office activities,
‘Annual Report and Financial Statements 2013 /14
and their accompanying retail business Operator
satisfaction with main and local branches 1s
more than 85%,
The transformation of our network has received
the support of many MPs, with more than 300
officially opening a new branch in their constituency
In the past 18 months
Community focus
As part of Securing the Future, the Post Office
announced a £20 million Community Branch
Fund to support around 3,400 Post Office
branches that are effectively the ‘last shop in
the village’ In addition to providing Post Office
services, these branches operate the only retail
outlet in a community
The fund represents a significant investment into.
these subpostmasters’ businesses and their local
communities These branches will continue as
they currently operate to ensure our network
reach Is maintained and they will be able to
access funding to improve their service for
customers
Crown transformation programme
Work to modernise around 300 Crown branches
the Post Office directly manages - normally
larger branches in city and town centres -
continues at pace
Losses in the Crown network reduced to
£26 million from £37 milhon in because of a
transformation programme that aims to increase
revenue, enhance customer experience and
control costs
A total of 122 branches were modernised during
2013/14 and all branch transformations will be
complete by the end of 2014
Customers also have the choice to use new and
improved self-service facilities at many branches,
24
POL00026716
POL00026716
BRANCH NETWORK CONTINUED
to post mail, buy stamps and pay for retail
items, with staff on hand to help when needed
Growing Financial Services 1s a key part of
the Post Office's strategy and many of our
modernised Crown branches now feature private
consultation rooms, where customers can talk to
specialists about our range of financial products
and services
Increasing customer service and reducing our
operating costs is a significant part of our plans
to achieve break-even by 2015 Excellent
customer service will remain at the forefront,
however, and future staffing levels will be
matched to customer needs
Plans to find retail partners to operate up to
70 of our Crown branches continued and by
March 2014, 22 branches had been transferred
to new stores run by WH Smith and independent
retailers Reaction from customers and
colleagues has been extremely postive
Ina small number of locations, we are taking
the opportunity to relocate branches or
consolidate services from two branches into
fone focation This means we can offer improved
facilities for customers and reduce property
costs while ensuring the branches remain
at the heart of communities
Industnal action was called by the Communication
Workers Union (CWU) on a number of occastons
during 2013/14 in a dispute over pay and the
future of the Crown network While the Crown
estate accounts for less than 39 of the Post
Office network, we regret any inconvenience this
caused for customers Throughout the dispute,
many colleagues chose not to go on stake and,
supported by central staff and managers, the
vast majority of Crown branches remained open
as normal The Post Office and CWU agreed to
intensive talks in December 2013 to find a way
forward and an agreement was reached in April
‘Anaual Report and Financial Statements 2013 / 14
IT infrastructure
To meet the evolving needs of our customers
the Post Office 1s investing in new capabilities,
conlene as well as within branches, and in the
right skills to support the technology This year
we have engaged ATOS as our service integrator
This 1s a vital part of our modernisation plans,
to ensure we have the right capabilities, systems
and processes in place to allow customers to
access services when and where they want
Our branch network currently has over 230
Post & Go machines that allow customers to
undertake transactions without the need to go
to a counter During 2014/15 we will roll out
more than 500 self-service kiosks to some of
our biggest branches These enable customers
to access a greater range of services, including
priority mail services and mobile phone top-ups
The Post Office has also led the way in payment
technology and we have installed contactless
payment terminals across 30,000 counter
positions This makes the Post Office the biggest
user of contactless technology in Europe, allowing
customers to pay for transactions of up to £20
using contactless cards and smart phones with
a simple tap of their card or mobile phone
Over the past year we made further progress
in making the Post Office a truly integrated
multichannel business Our digital capability has
improved significantly and it is now possible to
make mortgage applications and use financial
services account management tools online We
also launched a Post Office Travel Money Card
mobile app, which was well received, it is the
first of a number of apps designed to help
customers navigate our product offerings
more easily
The recently launched Post Office mobile website
has received more than 25 million hits, proving
that our customers are keen to interact with the
business across a range of channels We have
also invested in a new e-commerce platform
that will give us the ability to improve the
quality and ease of use of our online products
and services
POL00026716
POL00026716
25
CASE STUDY/CROWN BRANCH
Belfast City Post Office branch
What's changed?
+ Open plan counters
+ Three private consultation rooms where
customers can discuss financial services
+ Self-service kiosks, with staff on hand
to help
Customer feedback
1/('ve always avoided self-service in shops and
supermarkets but ! tned using the machines
at the Belfast branch and I was really
impressed The first time I used them,
a member of staff was on hand to walk
me through the process and guided me every
step of the way I regularly post items abroad
so this 1s great for me —1t’s easy and it saves
a lot of me Now, if there's a kiosk free,
Il use it rather than the counter”
Richard Post on the new self-service kiosks
CASE STUDY/CROWN BRANCH
Merthyr Tydfil Post Office branch
What's changed? .
Private consultation room where
customers can discuss financial services
Dedicated travel services counter
Welcome point where host meets
and greets customers
Colleague feedback
411s much more welcoming How a Post
Office looks can really affect a customer's
experience We really needed a refresh
and it has already made us more
proactive as a team We're delighted
with the transformation
Customer Service Consultant
Tracy Hagerty
“(t's given us a more positive outlook
It feels like a 21st century design that is as
professional as any of the banks we compete
with Our front office has completely changed
and the impact was immediate for everyone
who works here”
Customer Service Consultant
Leanne John :
Annuat Report and Financlt Statements 2013 /14
POL00026716
POL00026716
26
CUSTOMER EXCELLENCE
Our customers
INTRODUCTION
Post Office has a diverse range of customers.
With over 17 million customer visits every week
and 95% of the UK population visiting a branch
each year, the communities we serve remain
at the very heart of what we do. In turn the
Post Office provides essential services for the
people of the UK.
IN BRIEF
(MSHA
3
Our brand
Voted one of the 3
most trusted brands
in the UK
90%
Customer satisfaction
For branch customers
that have used Drop &
Go or Post & Go
39.9m_
Unique visitors
To our website in
2013-14, a year on
year growth of 179%
Listening to customers 1s vital to improving
the service we offer New ways of doing
this include
+ A3,500-strong customer panel, which gives
us the ability to get the views of customers
Ina matter of days
The Voice of the Customer, which allows
customers to ‘tell us how we did today’ in
nearly 3,000 branches The programme has
already provided more than 130,000 customer
responses, enabling branches to make
immediate customer service changes as well
as dentifymg themes across the network We
also received more than 800 ‘wows’ every
week, a ‘wow’ 1s where customers take the
opportunity to praise outstanding service
Our website now gathers equivalent customer
feedback Feedback on our call centres will be
added during 2014/15
We completed extensive research with
customers, cotleagues and other stakeholders
to form the Post Office public purpose
The Post Office Advisory Council, which
provides regular customer input on the
future of the Post Office
‘Annual Report and Financial Statements 2013 / 14
Listening to customers has told us that
being easier to do business with is the
Most important improvement we can make
For customers this means
+ Extending opening hours
Making it easier to send parcels
Simpler purchase processes
Being able to do more on self-service
machines
These informed our customer priorities in
2013/14 and continue, in the current year
Over the past year we made great strides in
moving towards becoming a truly multichannel
business Our website had 399 million unique
visitors in 2013/14, a year-on-year increase of
17%, over 2.5 millon visits have been made to
our mobile website since its launch in December
2013, and over six milton people contacted the
Post Office via our tetephone contact centres
We are developing functionality across the
business that ensures we remain relevant to
customers’ lives For example, it 1s now possible
to book appointments ontine to see a mortgage
specialist in branch, for SMEs to use Drop & Go
as a convenient way to post mail and parcels,
and to use self-service kiosks at a number of
branches Branch customer satisfaction rises
to 90% for those that have used Drop & Go or
Post & Go compared with an overall branch
satisfaction of 87%
POL00026716
POL00026716
7
Last year we made good progress by reducing * Source - Voice of the
waiting times the average time a customer Customer 11 56 responses
waited in any branch before being served fell by
10 seconds to 2 minutes 50 seconds and 82 1% ~* Source -Stamp Shop
of customers were served within 5 minutes, an evaluation - 215 customers
improvement of 14 percentage points on the
previous year, 87% of customers told us the wait
time was acceptable Moreover, in modernised
branches average waiting times are just 1
minute and 33 seconds tn local branches and
1 minute and 39 seconds in main branches
‘This focus on the customer's experience was
particularly important in the busy period leading
up to Christmas We deployed extra colleagues in
‘our busiest branches, introduced longer opening
hours, launched a Christmas help hub on our
website and opened eight pop-up Christmas
Stamp Shops in busy retail locations, which
allowed customers to buy personalised stamps
95% of visitors to the pop-up Post Office had
a positive experience and 81% agreed that the
Chnistmas Stamp Shop made buying stamps fun .
and enyoyable**
wae as crt ce
vnnrtmt
Listening to customers has told us that
being easier to do business with is the
improvement that is most important
to them.
‘Annual Report and Financial Statements 2013/14
28
POL00026716
POL00026716
OUR PEOPLE
Engaged people are vital to the growth
of any commercial organisation
INTRODUCTION
The Post Office has set a clear strategy to
transform the business by 2020 and the success
of this is predicated on the contribution and
engagement of our people.
Engaging with our people
Having engaged teams is important to the
Post Office and 1s essential to the growth of any
commercial organisation To meet the aims in our
strategy we need all of our colleagues to deliver
on the promises that we make to customers,
communities, our partners and to Government
We value the opinions and ideas of our colleagues
Our annual employee engagement survey helps
us to gather views, to listen to our people and
to take action to make improvements It 1s a key
lever in supporting the shift that we need to
make to more mutual ways of working This
year we have partnered with Hay Group as an
independent research agency for our annual
survey We have also introduced an intenm Pulse
survey, recognising the importance of monitonng
engagement levels and gathering the views of
‘our people more regularly
‘Our overall engagement increased from 55%
to 57% Loyalty remains high with 74% of
employees saying they would hike to still be in
the business in two years’ time Our people are
also proud of Post Office products and services
with over three quarters (78%) willing to
recommend them to friends and family and
‘84% saying they understand what customers
want from Post Office
‘Annwal Report and Financial Statements 2013 / 14
While these figures are encouraging, we
recogruse that the significant transformation
Post Office 1s going through may have an impact
on the way people fee! We will be working hard
over the next 12 months to histen to and engage
with our people to address the key findings
This year also saw the introduction of the
Branch User Forum This group 1s made up of
subpostmasters and Crown branch colleagues,
giving them the opportunity to contribute to the
direction of the business The Forum means we
are in a better position to get things right first
time, for our people and our customers
This year we also conducted an engagement
survey with subpostmasters We recognise that
we need to have high levels of engagement
across the whole arganisation for us to deliver
our long-term strategy and to meet customer
needs It helped us to understand subpostmaster
advocacy in relation to the Post Office brand,
support the business strategy and to get a
better understanding of engagement, particularly
tn relation to how we could improve the business
in ways that have a clear commercial benefit
One of the core measures showed that
subpostmasters see the Post Office as important
for the future growth of their wider business
(85% positeve)
We wili be rolling out similar feedback surveys
with our subpostmasters in 2014/15
POL00026716
POL00026716
Our recent work with the National Federation
of Subpostmasters in developing our current
proposals for the network transformation
programme has been a great example of where
better engagement has resulted in a better
outcome Through sharing, trusting and
recognising that a stakeholder can add real value
to the business, together we have helped secure
an approach to developing our network which,
backed by additional Government funding, has
ensured that many more subpostmasters can
take advantage of investment in the network
We have also initiated a programme looking
at the training and support we provide to our
subpostmasters The purpose of this s to review
every touch point with our subpostmasters
and ensure we provide the right tools and
information ensuring a posttive experience for
our customers We have listened to and taken
feedback from our people in our agency branch
network and will continue to do so into next year
as the programme progresses
Investing in capability
We are committed to supporting the
development of our people night across the
organisation and have continued to look at
how we do this in new and innovative ways
We recognise that to improve the performance
of our business while changing the way we do
things, we need to build our leadership capability
We therefore launched a development programme
for senior leaders that burlds commercial acumen
and develops a collaborative approach to leading
the business
The Crown Leadership Development Programme
has also been introduced to help our Crown
managers deliver a strong retail offer and
enhanced customer experience So far more
than 300 managers have joined the scheme
In addition we have introduced a number of
workshops for line managers to drive and
enhance performance in their teams
We have also designed specific development
programmes for our Commercial and Financial
Services teams Our people's ability to develop
relationships with key clients and ensure we
comply with our responsibilities
29
CASE STUDY
Ismail Loonat
Subpostmaster, Batley, Yorkshire, and
Post Office Advisory Council member
Ismail has been a subpostmaster for 20
years He's been running his Post Office
branch in Batley for 10 years and Ismail is
heavily involved in the community, using the
office for community events including as a
classroom for local children at the weekend
“I've seen many changes over the years and I
always try to adapt and develop a long-term
strategy for my business I'm working on my
strategy for 2020 at the moment
“Batley 1s a really diverse community, and I try
to do lots of networking so people know who
we are and what they can use the Post Office
for We use the office as a focal point for the
community, which encourages people to come
and helps develop the business
“When I saw the advert for the Post Office
Advisory Council it sounded like the type of
thing I already do locally I have a real passion
for the Post Office and the community, so by
working wath the Advisory Council we have an
opportunity to share ideas and develop the
whole of the Post Office
“This sa really exciting chance to build on the
‘expenence we have across the whole of the
business and use customer insight to generate
new ideas”
LANHAM MENON MANNER unas
“I have a real passion for the
Post Office and the community.
usm
Annual Report and Financial Statements 2013/14
30
POL00026716
POL00026716
OUR PEOPLE
CASE STUDY
Beverley Meier
Acting Branch Manager, Horsham,
West Sussex
Beverley joined the Post Office 14 years ago,
working in a small village branch, before
moving to the Crown network Beverley
became Horsham’s Acting Branch Manager
and started the Crown Leadership
Excellence programme last year
“The programme has been really interesting
ve worked on the counter for a number
of years but the programme has really
challenged me to think differently, to think
ke a retailer
“Ive learnt some really practical things
For example, I now have a much better
understanding of my profit and loss
account and how I can personally affect
the performance of the business It’s also
changed the way I support my team
“i think the programme ts making me a
better manager and I want to continue to
progress I also want to use what I've learnt
to support the development of others”
mannii
“’The programme has really challenged
me to think differently, to think like
a retailer.
Annual Report and Financial Staterents 2013 /14
This year saw the introduction of the Mains
Live conferences, where subpostmasters came
together to talk about how we can grow the
business The sessions have focused on providing
additional support to subpostmasters, the
development of colleagues in branches and
driving customer excellence The conferences
have been well received with plans for further
roll out in 2014/5
In addition, we have refreshed our Post Office
behaviours across the business, creating the
benchmark for the way we will behave with
our customers and each other Aligning our
behaviours with the strategic direction of the
business will play a fundamental part in
delivering our strategy and demonstrating
mutual ways of working
Following on from the success of 2013/14's
management trainee scheme and pilot
apprenticeship scheme in the Human Resources
Service Centre, in 2014/15 we will welcome our
first graduate intake Seven graduates wali join
the business on two schemes General
Management and Finance
Drersity
‘The Post Office has an overall strategic
aim to build an inclustve organisation that is
representative of, and understands, its diverse
customer needs
We aim to be easy to do business with while
creating an inclusive culture that attracts,
develops and retains talent from the widest
available pool
We are proud of the progress we have made
in relation to gender equality Currently, 61 1%
of our non-managerial roles are female and
last year we saw a 1 4% increase in female
representation at first line managerial level
Our Chairman and Chief Executive are women
POL00026716
POL00026716
Last year we signed up as a member to
Government's Think, Act, Report initiative
Since then we have
Established a representative Diversity Forum
Launched an Unconscious Bias training
programme that has been completed by
‘over 80 managers, including the Executive
Committee
Launched a Women in Leadership Programme
that profiles femate role models and provides
networking opportunities
Launched a Female Mentoring scheme that
enabled 40 senior manager role models to
support other women
‘Taking positive action mn this way has led to an
8 1% increase in black, minority and ethnic (BME)
appointments and a 12 7% increase in female
appointments at senior levels This 1s a great
start but we recognise there 1s more we can do
Of our subpostmasters, 40% are female, whereas
Just 29% of entrepreneurs in the UK are female
We are equally proud of our BME representation,
with 28 6% of subpostmasters from black, minority
and ethnic backgrounds, against a UK average
of 131%
Helping youth get work experience
For the second year running we have offered
pad work experience over the Christmas period,
with 42 young people under the age of 24
carrying out eight weeks’ work experience in
Crown branches in London Since then, 10
individuals have been offered permanent
employment with the business
CASE STUDY
Bethany Hurst
Apprentice, HR Service Centre, Bolton
Bethany joined the Post Office in October
2012 “I was in college at the time and
decided university wasn't for me, so I
started looking for an apprenticeship and
saw the Post Office advertised The variety
of moving around in the different teams
1n HR really appealed to me
“This was my first proper job, so it was a
bit scary coming into the Centre, but people
were really friendly and genuinely interested
in me and made me feel valued I wasn't just
taken on and forgotten about *
Beth has now worked in each product
team within the HR Service Centve and has
recently picked up a rofe in the Pay team
“em really happy working in the Pay team
and want to stay with the Post Office long
term I'd hke to get my payroll qualification
next and move into management in
the future”
Bethany has been nominated by her
external NVQ assessor for the National
Apprentice of the year award
onatranmannaeun
’’People were really friendly and
genuinely interested in me and
made me feel valued.
‘Annual Report and Financial Statements 2013/14
3
2
OUR PEOPLE
une nieeneunteuucy
POL00026716
POL00026716
CASE STUDY
Katherine Mearman
Senior Manager, Commercial
Katherine works as part of the marketing
team tn London and has previously worked
for Orange and American Express
“Being part of the Post Office meant f had
the opportunity to take a leading role in
developing and growing a brand It was a real
chance to shape the future of the business *
Katherine is part of our Women in
Leadership programme and was recently
nominated for a Chartered Institute of
Marketing 'Women in Marketing’ award
aan
un sts
“The Women in Leadership programme
Provides a real springboard for women
who want to get on.
‘Annual Report and Financial Statements 2013/14
Safety, health and wellbeing
The Post Office intends to make healthy and
safe working a way of life
‘We continue to support and encourage
colleagues and unions to get involved by
providing free health checks, so far more
than 3,600 people have had one, or 46% of
‘employees The scheme also provides access
toan online wellbeing zone that allows them to
track progress on improving health and welfare
During 2014 we will use anonymous data from
the health checks to butld bespoke support
for staff
Last year was the fourth running that workplace
accidents were reduced, by 11% We also saw a
significant reduction in the seriousness of those
accidents, which was reflected in a further
reduction of accidents that resulted in absence
(30%), coupled with a reduction m the length
of absences (54%) There ts still more to do, but
the figures represent a significant improvement
on 2012/13
Looking ahead
Diversity, talent and engagement will continue
to be a key focus and play an integral part in
securing the future of the Post Office Developing
enutual ways of working, investing in the capability
of our people and putting the customer first will
ensure we have a commercully sustainable
business with a public purpose
CASE STUDY
POL00026716
POL00026716
3
CASE STUDY
Rita Patel
Subpostmaster, Royal Wootton Bassett,
Wiltshire
Gary Shorland
Mortgage Specialist, St Albans,
Hertfordshire
The Community Enterprise Fund was
introduced to encourage ideas that support
the community, including mentoring for
business start-ups, digital access and traming
Rita came up with WithIT, a drop-in class
for residents where they are taught how
to use tablet devices which was backed by
the Fund
“I thought 1t'd be a brillant idea to bring the
community together and I know many of my
‘customers have been keen to learn how to
use tablets
“The launch took place at the local library
and the turnout was fantastic 39 people
registered to attend regular ciasses and many
more have dropped into the branch since I
want to create a community hub where they
can make friends and learn something new
that they can then share
“The Community Enterprise Fund is a
fantastic idea”
Gary joined the Post Office in 2010
as a Financial Specialist and was one
of a team of seven who worked on the
Post Office mortgage trial
“I'd worked in the banking sector previously so
when I saw the role in Post Office advertised
and started to do some research into the
products and services, I was really surpnsed
by the scale of the product offering There
was obviously a lot of potential to grow
“Im really encouraged by the way things are
going The branch refurbishment will make us
more modern, exciting and professional and
will encourage more customers to come in
A key part for customers is that they can
come into a branch and speak to you
face-to-face That's so important when
making big financial decisions”
qc aang nese ent
"I thought it’d be a brilliant idea to
bring the community together and I
know many of my customers have
been keen to learn how to use tablets.
Hun
‘Annual Report and Financial Staternents 2013 /14
34
POL00026716
POL00026716
SUPPORTING COLLEAGUES AND COMMUNITIES
Social and Corporate Responsibility
The Post Office has a responsibility to be
inclusive, accessible and sustainable. We
developed and expanded our corporate and
social responsibility strategy during 2013/14
and continue to work towards meeting our
demanding goals in the current year.
Accessibility
The Post Office has long recognised the diverse
nature of the communities and the customers
we serve We aim to have one of the most
accessible branch networks in the country and to,
assist we provide subpostmasters with matched
funding to help finance branch improvements
We also make sure all employees are aware of
their obligations under the Equality Act 2010
and that they understand the benefits of
adopting a posttive approach towards meeting
the needs of disabled customers
The Post Office 1s also aware that not all
disabilities are necessarily visible or physical,
and we train employees to make adjustments
where needed to assist customers
And for those occasions when things do not go
to plan, we have a customer complaint system
that itis easy to use
Environment and sustainability
The Post Office 1s commutted to minimising
any adverse environmental impact
Our targets for 2013/14 included
+ 3% reduction in building energy use
+ 3% reduction in CO, from vehucle fuel
+ 3% reduction in water use
+ 70% of all waste generated to be recycled
All these targets were exceeded and we have
set challenging goals for the current year
‘Anouat Report and Financial Statements 2013 / 14
Buildings
A large percentage of Post Office buildings now
have low-energy lighting and low-water usage
utilities, while all fixtures and fittings are now
obtained, where possible, from sustainable
sources or from materials that can easily be
reused or recycled
Under the Network and Crown transformation
programmes, buildings must meet these
sustainability standards as well as complying
with accessibility legistation
Vehicles
By Spring 2014, 57% of our operational fleet
of 416 cash-in-transit vehicles met the current
Euro 5 emissions standard, with 55% of our fleet
incorporating exhaust gas reductron systems
Post Office Supply Chain over the past year has
achieved between 3 8-4 1Kg of CO; per drop
Waste
‘Most of our butidings are now participating
1n the Dry Mixed Recycling scheme where
everything that can be recycled 1s segregated
into separate bins or bags This 1s 2 key initiative
to reduce the dependence of the Post Office on
sending waste to landfill as tt s both expensive
and environmentally unsustainable
BBC Children in Need
In 2013/14 the Post Office continued its
long-running association with BBC Children
in Need We played a key role, raising over £1
million and in the process became the charity's
largest corporate partner Thousands ran a
number of activities including the BearFaced
campaign where exclusive paw print tattoos
were available to buy across the network
Supporting other charities and appeals
The Post Office has supported a number
of appeats during 2013/14, including the
Philippines Typhoon Appeal and The Prince's
Countryside Fund in its efforts to support rural
communities devastated by flooding in the south
west of England
In conjunction with our IT service provider, CSC,
the Post Office donated more than 200 PCs
and a similar number of mobile phones to the
Malaika Kids The computers help the chanty
support a schoo! for orphaned children in
‘Tanzania, giving them the opportunity to
learn ma safe environment
Your Charity
The Post Office 1s proud to encourage the
support of charitable causes In 2013/14 we
launched Your Charity, which enables teams
in Crown branches, central support and cash
centres to back toca! causes We also support
fundraising efforts with A Helping Hand This
provides matched funding of up to £200 per
application Your Chanty and A Helping Hand
will be extended to agency branches in 2014/15
POL00026716
POL00026716
Digital inclusion
As the world becomes increasingly digital, 1s
important to support the 11 million people in the
UK who lack basic online skills, many of whom
are our customers As a founder member of Go
ON UK the Post Office 1s committed to tackling
digital exclusion
Together with Tinder Foundation and other
partners, the Post Office launched the national
database Get Connected in branches in June
2013 Every branch can now help customers find
therr five nearest learning centres and libraries
for online training and internet access So far
this tool has had over 13,200 searches at over
5,000 Post Office branches
onenaa souseran Mesa Mt
We have developed and expanded our
Corporate and Social Responsibility
Strategy during 2013/14. We will
continue to strive to meet demanding
goals in the forthcoming year.
‘Aneust Report and Financial Statements 2013/14
35
POL00026716
POL00026716
SUPPORTING COLLEAGUES AND COMMUNITIES
The Post Office has also continued to be an
active partner of Go ON UK and was an integral ,
part of the Go ON North East, a six month 1
campaign to drive up digital skill levels in the I
north east of England The campaign launch in
October 2013 saw Post Office branches amplify I
the Get Connected campaign, signposting I
customers to local help A number of branches I
in the region ran free intemet taster sessions I
to reach out to those who need support Similar I
campaigns will launch in Northern {reland and !
the north west of England during 2014/15
Community Enterprise Fund
We have always been clear in our aim of
supporting community initiatives and in 2013/14
the Post Office joined forces with the Department
for Communities and Local Government to launch Business in the Community
the Community Enterprise Fund The £200,000 The Post Office has continued its work with
scheme invited bids from branches with Business in the Community We have partnered
innovative ideas to support the local community with three of the 27 Government-backed Town
or small businesses in the area Of those that Teams to help regenerate high streets in
applied, 25 recetved grants of up to £10,000 Brighton, Stockton-On-Tees and Sydenham,
each to implement their not-for-profit ideas and are heiping them plan for a thriving future
The successful bids included those that sought
to tackle isolation, improve digital exclusion and
provide a hub for the local community to use
The Cabinet Office also supported the Community
Enterprise Fund by awarding grants to three
Post Office branches that were working to
relieve rsolation
Royal Society of Arts (RSA) report
in February 2014 the RSA published Making
the Connection, a report that looked at the
many ways Post Office branches are becoming
community enterprise hubs and experimenting
with new business models to support communities
and generate income It found that a number of
subpostmasters, especially those that had won
grants from the Community Enterprise Fund,
were already trialling new products and services
HoH TEA NEAT NAENASINK EAHA
We have partnered with three of
the 27 Government-backed Town
Teams to help regenerate high streets
in Brighton, Stockton-On-Tees and
Sydenham and are helping them
plan for a thriving future.
samme
Anaial Report and Financial Statements 2013/14
British Forces Post Office (BFPO)
BFPO as part of the Defence Equipment and
‘Support organssation of the Ministry of Defence
(MOD) 1s responsible for providing an effective and
efficient postal and couner service, in order to
sustain the fighting power of members of the UK
‘Armed Forces and other entitled users worldwide
To enable access to these and other relevant
postal services, cash withdrawals, bill payments
and other Post Office services for those serving
abroad, the MOD currently manages a network of
27 BFPOs across the world, which sell a restricted
but similar range of products to those available in
UK Post Office branches averaging 4500 ~ 5000
transactions per week across the network
BFPO trainers attend Post Office training courses
and in addition they train their own staff as part
of their employment group upgrading courses
To assist this process from a continuation aspect
they also have 13 training sites
British Postal Museum & Archive (BPMA)
Caring for the visual, written and physical
records from almost 400 years of innovation
and service, The British Postal Museum &
Archive (BPMA) has worked to increase access
to the world-class archive and museum
collections of the former National Postal
Museum since 2004
Past Office is committed to the BPMA’s vision
to open a new, national museum for social and
communications history in Central London in
2016 The Postal Museum wll open up collections
from King Charles I to the present day, telling
the important story of the postal service's vital
role in shaping our country As well as engaging
in this fascinating history, visitors to the museum
will also be able to take a ride on a section of
the Old Post Office Underground Railway ~ Mat!
Rail ~ for the first time in its 100 year history
In 2013/14 the BPMA achieved
Planning permission for Mail Rail
Match funding for a second round application
to the Heritage Lottery Fund for £4 5m
Unprecedented media coverage in local,
national and international press, including BBC
Breakfast, The Daily Telegraph and Sky News
Cross-party support through an Adjournment
Debate in Parliament tabled by Emily Thornberry,
MP for Islington South and Finsbury, with a
response from Rt Hon Michael Fallon MP,
Munister of State for Business
Support from a number of public figures
including popular historian and TV presenter
Dan Snow, television news presenter Nicholas
‘Owen and Mayor of London, Boris Johnson
‘Along with Royal Mail Group, Post Office has
confirmed long-term funding arrangements
with the BPMA, providing 25 years of security
for tts public services
Asa key stakeholder in the BPMA, Post Office
continues to support the activity of the BPMA,
and its plans for The Postal Museum, and has
worked closely with the 8PMA on a number of
individual projects over the course of 2013/14
This has primarily focused on the First World
War Centenary and includes a tounng version
of the BPMA’s successful Last Post Exhibition,
which looks at the role of the Post Office during
the conflict The Post Office sponsored version
of this exhibition, launched in June 2014, will
be displayed in various Crown Post Offices
across the country
POL00026716
POL00026716
7
‘Annval Report and Financial Statements 2013 / 14
POL00026716
POL00026716
Strategic report
“Being open until 1Opm
means it’s much easier for
people to pop in and use
our Post Office services
on their way home in the
evening. It’s been really
great for our business
FINANCIAL REVIEW
POL00026716
POL00026716
Paving the way towards
financial sustainability
Chns Day
Chief Financial Officer
SUMMARY RESULTS
‘uuu cuusnunicnamin man
The Post Office has faced a challenging year with
decreases in turnover in each of the core product
pillars Despite this and a planned reduction of £10
millon in the Network Subsidy Payment, operating
cost savings have resulted in the operating profit
before exceptional items increasing by £13 million
to £107 million The costs of transformational
change tn the year were significant as the network
modernisation accelerated
uoiuenaaismsi
Key Financial Performance Indicators
2014 2013. Variance Vanance
em %
Tumover 979 1,024 (45) (44)
Operating profit
before exceptional
items 10794 3138
Operating loss
before depreciation,
amortisation,
exceptional items
and Network
Subsidy Payment 03) 16) 23198
Net cashflow (283) 151 (434)
‘Annual Report and Financial Statements 2013 / 14
Profit and Loss Summary
2014 2013 Variance Varlance
fm im im %
Turnover 979 1,024 (48) (44)
Network Subsidy
Payment 200 210 (10) 8)
Revenue 479 1,234 (55) (45)
People costs (255) (259) 4 15
Other operating
costs (850) (913) 6369
Total costs (1105) (172) 6757
Share of profit
from joint
ventures and
associates 330 131
Operating
profit before
exceptional
items 1079413138
Revenue
The Post Office's revenue decreased by £55
million (4 5%) to £1,179 million including a
decrease of £10 million in the Network Subsidy
Payment from Government The Post Office
segments income into four pillars Mails and
Retail, Financial Services, Government Services,
and Telecoms The pillars and their performance.
are detailed below
2014 2013. Variance Vanance
fm m %
im
Mails & Retail 390 409 (19) (46)
Financial
Services 279-281 07)
Government
Services 1460-16418) (110)
Telecoms 124129 6) G9)
Other income 40 4a mM 24)
Turnover 979 1,024 (45)_—«(44)
Network
Subsidy
Payment 200 21010) 8)
Revenue A479 1,234 (55) (45)
Mails and Retail
The Mauls and Retail pillar includes all the
services provided for Royal Mail and Parcelforce
It also includes Lottery and retatl services such
as sales of collectibles as well as packaging
and stationery
Mails and Retail revenue of £390 million
decreased by £19 million (2013 £409 mitlion)
Of this, turnover in relation to Royal Mail
products decreased by £16 million, driven
primanily by a reduction in consumer parcel
volumes and lower stamp sales In addition,
retail turnover decreased by £2 million due
to the one-off increase in the prior year for
collectibles relating to the Diamond Jubilee
and the Olympics memorabiha Revenue from
sales of Lottery tickets declined marginally
by £1 million
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
‘Across Financial Services in aggregate, revenue
decreased in 2014 by £2 milion to £279 million
{2013 £281 million)
Personal Financial Services revenue increased
by £15 million (15 2%) driven by strong growth
in savings commissions (partrcularly Growth
Bonds, Reward Saver and ISAs), insurance
and new mortgage products Revenue from
traditional financial services products, including
bill payment services, business banking services
and Postal Orders, declined This was due to
the increasing shift from paper-based to
electronically-delivered products and the
increasing use of alternative payment methods
In addition, the cessation of the Department of
Work and Penstons contract for cash cheques
(Green Giros) and the continued migration
of NS&l products through their own direct
channel have resulted m revenue decline
POL00026716
POL00026716
a
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), Her Majesty's Passport Office
{HMPO} and UK Visas and Immigration (UKV))
Government Services revenue of £146 million
decreased by £18 million (2013 £164 million)
Revenue from the Passport Check & Send service
increased by £2 million in line with growth in
the overall market Revenue from the DVLA
decreased by £14 million mainly due to lower
fees per transaction under the new contract
effective from 1 April 2013 Revenue from the
payment of benefits through the Post Office
Card Account was £6 million lower, impacted
by customer attrition
Telecoms
The Telecoms pillar includes the Post Office
HomePhone and Broadband services as well
as e-top up services and phonecards
Telecoms revenue of £124 millon (2013 £129
million) decreased by £5 million During the year
the HomePhone and Broadband service was
transitioned to a new provider and experienced
operational issues initially, which both the
provider and Post Office resolved as quickly
as possible The revenue from HomePhone and
Broadband decreased by £4 million, pimanily
due to a reduction in customer numbers driven
by reduced sales and marketing actwity following
the transition to the new supplier Revenue from
e-top ups was £1 million below prior year as
more customers moved away from pre-pay
and mobile networks reduced their transaction
fees However, the Post Office continues to be a
significant provider in the top-up market and its
share of the retail market has been maintained i
at approximately 5%
Other income
Other income 1s generated primaniy from
the Supply Chain business that manages and
distributes cash for Post Offices and for third
parties It also offers warehousing services,
mainly to Royal Mail Other income decreased
by £1 million to £40 million (2013 £41 million)
‘Annual Report and Financlal Statements 2013/14
FINANCIAL REVIEW
Network Subsidy Payment
The Network Subsidy Payment is Government
Grant revenue put towards the costs of
maintaining the Post Office network The
payment decreased by £10 million in the
year to £200 million, this will continue to
reduce as set out in the current funding
agreement with Government
Costs
Total costs decreased by £67 million to £1,105
milhon (2013 £1,172 million)
People costs
Pdople costs of £255 million (2013 £259
million) decreased by £4 milion reflecting
efficiency savings, particularly in the Crown
network driven by the Crown transformation
programme, and lower performance-related
bonuses, partly offset by some pay increases
and higher pension costs
Other operating costs
Other operating costs decreased by £63 million
to £850 million (2013 £913 million}, driven
largely by lower sales volumes resulting in tower
subpostmasters’ costs and cost of sales There
was also a decrease in investment in new
products and services which had been
particularly high during 2012/13
Joint venture and associate
Share of operating profit from the joint venture
(First Rate Exchange Services Holdings Limited)
was £33 million (2013 £32 million), £1 million
higher than in 2013 when the result also included
the associate, Midasgrange Ltd, until its sale
‘on 1 September 2012 First Rate Exchange
Services Holdings Limited results improved
mainly through delivering efficiencies in
operating costs
‘Annval Report and Financial Statements 2013 / 14
POL00026716
POL00026716
Exceptional items
re 2013
im im
Operating exceptional tems
Restructuring costs
including subpostmasters’
compensation (259) (79)
Impairment of investment,
property, plant and equipment (115) (66)
Royal Matl Pension Plan
amendment 102 -
Government Grant 317 98
Subtotal operating exceptional
items: 45 (47)
Non-operating exceptional
tems
Profit on disposa! of property,
plant and equipment 3 2
Loss on sale of associate + Go)
Net exceptional items 4875)
Restructuring costs
Restructuring costs include the costs of delivery
‘of major change Network transformation
resulted in costs of £94 million for subpostmasters’
compensation (2013 £12 million} and £97
million programme costs {2013 £40 million)
with the increases in each reflecting the greater
pace of transformation this year In addition
programme costs of £9 million (2013 Eni!) were
incurred 1n relation to Crown transformation
Costs of £21 million relate to IT transformation
(2013 £10 millon) that will create the appropriate
IT infrastructure for the future Redundancy
costs of £23 millon were incurred during the
year and mainly related to the Crown network
(2013 £11 million) There were further business
transformation payments charged in the year of
£5 million (2013 £4 million) In addition, a gain
of £102 million arose on the change to the terms
of the Royal Mail Pension Plan (see page 93)
Government Grant
In addition to the Network Subsidy Payment,
the Post Office receives Government Grant
funding towards the transformation programme
Government Grant funding of £215 million was
received in the year The additional Government
Grant funding 1s included within operating
exceptional items to match the associated costs
£102 million of the 2012/13 grant also remained
available for use in the year The entire balance
of £317 million of this Government Grant funding
has been allocated (2013 £98 million) in
accordance with the designation letters, dated
2 Apnil 2012 and 27 March 2013, from the
Department of Business, Innovation and Skills,
to cover £94 million capital expenditure (2013
£66 million), £88 million network transformation
related subpostmasters’ compensation (2013
POL00026716
POL00026716
£12 million) and £135 millon network and
TT transformation programme costs (2013
£20 million)
Cash Flow and Net Debt
Post Office Limited operates a Treasury function
and manages its own financial assets (including
network cash) and financial liabilities (mainly
Government loans)
The Treasury function derives its authonty 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 £688 million
{2013 £971 million) There was a net cash
‘outflow during the year of £283 million (2013
inflow £151 million) The outflow was driven by
the repayment of the opening loan balance of
£291 mullion Net debt (excluding cash in the
Post Office network) decreased by £183 million
year on year as shown in the table below
20142013
fm “im
Net cash inflow from operating
activities 69 257
Income tax recovered u "
Net cash outflow from investing
actwities (6) (24)
Net cash inflow before
financing activities 4 244
Add/deduct) movement in
cash in the network included
in net cash inflow wi aan
Finance costs paid @ @
Net decrease in net debt 13119
Net debt brought forward
at the beginning of the year (206) (325)
Total net debt carried forward
at the end of the year (23) _ (206)
Post Office Limited's borrowing facility from.
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 1s to minimise the
amount drawn down on the loan in order to
reduce its interest cost The facility is imited
to. a maximum of £115 billion or the amount
of security available (mainly network cash),
whichever 's the lower The maximum drawn
down under the facility during the year was
£261 million on 19 and 20 December 2013,
but there was no loan drawn down at 30 March
2014 The facility 1s available at two days’ notice
and has an end date of 31 March 2018
Pensions
Post Office Limited 1s the employer within the
Post Office Section of the Royal Mail Pension
Plan (RMPP) and is a participating employer
within the Royal Matl Defined Contribution
Plan (RMDCP) Royal Mail Group Limited is
the principal employer of the Royal Mat! Senior
Executives’ Pension Plan (RMSEPP) and Post
Office Limited 1s a participating employer within
RMSEPP RMPP and RMSEPP are both defined
benefit plans
On 1 April 2012 ~ after the granting of state ard
by the European Commission on 21 March 2012
~ almost all of the pension lrabilities 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 Roya! Mail pic and Post,
Office Limited each responsible for their own
sections in future This pensions transfer left
the RMPP fully funded on an actuarial basis in
respect of historic habilities at this date During
2013/14 there was a consultation exercise with
members of the defined benefit Royal Mail Pension
Plan on proposed changes to the terms These
changes were agreed on 15 October 2013 and
effective from 1 April 2014 The key change
1s to the definition of pensionable pay, which
broadly will increase in line with RPI (capped
at 5%) in future regardless of actual pay growth
‘The changes resulted in a one-off exceptional
gain of £102 million
The balance sheet pension position moved
from an asset of £97 million at March 2013
to an asset of £148 million at March 2014
The improvement in position is primarily due
to the change tn terms noted above offset by
an actuarial loss mainly arising from lower than
expected asset values
Both defined benefit plans closed to new members
in March 2008, and RMSEPP closed to future
accrual on 31 December 2012 New employees
are offered membership of the RMDCP
Annual Reportand Financal Statements 2013/14
43
FINANCIAL REVIEW
Pension cash payments for all plans
The future funding of ongoing pension
Events after the reporting period
In accordance with the funding agreement with
contributions into RMPP and deficit payments Government announced on 27 October 2010,
into RMSEPP was agreed with the respective for which State Aid approval was received on
pension trustees during the year and payments 28 March 2012, Post Office Limited recewed
were made in accordance with the agreements £330 mithion of funding on 1 April 2014
aoe 2013
fm fm
Regular pension contributions (23) (24)
Funding of the pension deficit -
RMSEPP mM @
Payments relating to
redundancy @ @
Net cash payments 25) (28)
The regular future service contributions cash
rate for RMPP expressed as a percentage of
pensionable pay remained at 17 19 (2013
1719) The regular rate of employee contributions
for the RMPP remains unchanged at 6%
Annual Report and Fmancial Staternents 2013 /14
POL00026716
POL00026716
POL00026716
POL00026716
BUSINESS RISK
45
‘The information below detaits the key business risks, their potential impact and how the Post Office manages them
Key risk
Changes in customer preferences
There 1s decline in the traditional Post Office
income streams as customer preferences change
New income streams may fail to grow sufficiently
to exceed the losses from traditional products
1m decline
Business transformation programmes
We are managing a significant number of change
programmes to modernise the Post Office and
enable its processes to operate independently of
those of Royal Mai! These include the network,
Crown and IT transformation programmes The
success of the Post Office strategic plan depends
‘on the successful reahsation of benefits from
these programmes
Engagement risk
The support of our staff and subpostmasters and
‘engagement with them dung this significant time.
‘of change 1s key to the successful delivery of our
strategy Withdrawal or lack of support from our
staff or subpostmasters, whether driven by
concems over existing programmes and initiates
‘or historic cases, could cause delays in the Post
Office transformation programmes and limit our
ability to meet business objectives
Regulatory & comphance
There 1s a isk of non-compliance with the
changing regulatory environment
The Post Office operates under an extensive
regulatory environment, including areas such
as financial and postal services, procurement,
competition law and data security
Business continuity
The Post Office has particular operational risks
relating to disruption of its services This includes
adverse weather conditions, industrial action,
systems breakdown and the failure of a
critical supplier
Impact
‘The Post Office might
not be able to reduce
its reliance on.
Government subsidy
Failure to implement
the modernisation
programme would
teave the Post Office
with an unsustainable
cost base and a
continued reliance
on significant
Government subsidy
Lack of support from
our staff and
subpostmasters would
Jeopardise our ability
to meet our strategie
goals of growth,
profitability and
reduced reliance on
Government subsidy
Fatlure to comply with
regulation could result
sn fines, adverse
outcomes for our
customers and
significant damage to
the Post Office brand
Breakdowns in the
network would reduce
quality of service,
increase costs and
damage the Post
Office's reputation
Mitigation
We have introduced new services in growth areas
and continue to refine and develop these product
offerings There 1s an active programme in place
to deliver the growth trajectory Progress 15
monitored rigorously and «isks to the programme
are actively managed
There are detailed plans in place to manage the
transformation and ensure it 1s delivered within
budget and on time The 2013/14 objectives
have been met Delivery 1s tracked monthly by
a Transformation Board made up of Executive
Committee members which provides direction
and oversight over the programmes’ delivery
We maintain a fluid and comprehensive engagement
programme with unions, staff and subpostmasters
These indude regular meetings with the National
Federation of Subpostmasters, the Communication
Workers Union and Unite, senior management
briefings to staff and subpostmasters, and events
to engage our people in our vision and strategy
We have a people plan aimed at addressing
staff motivation and skill needs This cludes
development of new leadership and reward
frameworks and increased focus on recruitment
and training We have created a Branch User
Forum and a branch support programme and
plan further initiatives
‘Our legal and compliance team works closely with
the relevant business owners in identifying new
requirements and monitoring compliance
Regular compliance tests are conducted across
the entire branch network, covenng a broad
range of regulatory requirements The results
are closely monitored and corrective action taken
where required
The Post Office brings together a wide range
of business continuity arrangements under
‘one central policy and governance framework
to ensure that the business is capable of
withstanding any significant threat to its ongoing
operations This inchudes contingency planning
and training in the event of disruption, such as
industnial action or IT failure The ability of key
suppliers to meet the Post Office's requirements
1s closely monitored
Chris Day
Crvet Financia Officer
Post Office Limited
25June 2014
‘Annwal Report and Financial Statements 2013 /14
POL00026716
POL00026716
Governance
“Before heading abroad
I just load up my Travel
Money Card using the
TMC app, without even
leaving my flat. Simple.
GOVERNANCE
‘sun
POL00026716
POL00026716
BOARD BIOGRAPHIES
Board of Directors
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 risk and comphance, nominations of the Board,
the business’ strategic aims, putting in place pensions and senior remuneration
the leadership to deliver them, superuising the Each committee is chaired by @ Non-Executive
management of the business and reporting to Director and operates within ts own agreed,
the Shareholder There are a number of Board documented Terms of Reference
committees which deal with specific topics
requiring independent oversight, inciuding aud,
nnieinundtenANHe
vnunet esto CANNON MEL
Alice Perkins CB, Chairman.
Joined the Board in July 2011
Chairman of the Nominations Committee and
Member of the Remuneration 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
Treasury Alice was also the Civil Service's Group HR Director in Cabinet
Office between 2001 and 2005 Before joining Post Office Limited as
Chairman, 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 couch at the JCA Group, and a member of the faculty at Meyler
Campbell where she teaches senior executives how to coach Alice was
appomted as a Non-Executive Director of the BBC Executive Board on
1 April 2014
‘Annual Report and Financial Stazements 2013 / 14
POL00026716
POL00026716
Neil McCausland, Sentor Independent Director
Joined the Board in September 2011
‘Chairman of the Remuneration Committee and a Member of the Audit.
Risk and Compliance Committee and the Nominations Committee,
Member of the Post Office Advisory Council
Neil has had a portfolio of non-executive roles over the last 10 years He 1s
currently Chatrman of four compantes Snow and Rock, a retail chain selling
skung and outdoor brands, bikes and running gear, Joules, an outdoor
ifestyle brand, Create Fertility, a chain of IVF clinics 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)
Paula Vennells, Chief Executive
Joined the Board in October 2010
49
Paula has worked for Post Office Limited 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 ple, latterly as
Group Commercial Director She began her career with Unilever and
LOreal and held directorships in sales and marketing with a number of
mayor retailers including Dixons Stores Group and Argos She 1s currently a
Non-Executive Director and Trustee for Hymns Ancient and Modern Group,
a Trustee of Go ON UK and a member of the Future High Street Forum,
mania
mewn
Chns Day, Chef Financial Officer
Jomed the Board in September 2011
Member of the Financial Services Committee and Pensions Committee
Chns joined Post Office Ltd in August 2011 from the BBC where he had
been Group Financial Controller since 2005 Prior to that, Chns spent 14
years at Grand Metropolitan/Diageo in a succession of Treasury/Corporate
Finance roles in the UK, and as Fiance Director in the Netherlands
and then Germany Previously Chris worked in investment banking at
Manufacturers Hanover Trust/Chemical Bank and as a financial management
consultant at KPMG, having started his career with Beecham Group
‘Annual Report and Financial Staternents 2013/14 .
POL00026716
POL00026716
BOARD BIOGRAPHIES CONTINUED
Richard Callard, Non-Executive Director
Joined the Board in March 2014
Richard Callard 1s the representative of the Department for Business,
Innovation and Skills on the Post Office Limited Board, and 1s an Execubve
Director at the Shareholder Executive in BIS. Richard is a Chartered
Accountant by background and joined ShEx from Deloitte corporate finance
1m 2007, where he advised the public and private sector on public private
partnerships and other infrastructure and project finance deals In addition
to his role on the Board of Post Office Limited, Richard leads the Post Office
and Green Investment Bank shareholder teams at BIS,
sen
nus
Hemant
yaaa
Tim Franklin, Non-Executive Director
Joined the Board in September 2012
Member of the Audit, Risk and Compliance Committee and Financial
Services Committee, Chairman of the Post Office Advisory Council
Tim Franklin joined the Board of Post Office Limited as a Non-Executive
Director on 19 September 2012 Tim’s executive career spans both
building societies and banking Prior to his board roles in the mutual
sector, 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 too He 1s a Non-Executive Director of HM
Land Registry where he chairs the Audit Committee and was previously
on the Boards of Reclaim Fund Limited, Mutual Plus Limited and the Link
Cash Machines Network
a euarcnnatena
scenes
uit
nanan nnn
Virgima Holmes, Non-Executive Director
Joined the Board in April 2012
Chairman of the Pensions Committee and the Financial Services Committee _
Virgima 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 Board and Chaurs the
Investment Committee of the Alberta Investment Management Corporation
in Canada Dunng the year, Virginia became the Chair of USS Investment
Management Limited, having formerly served as a trustee of the Universities
Superannuation Scheme and Chair of its Investment Committee She also
serves on the boards of Standard Life Investment Holdings Ltd
‘Annual Report and Financial Statements 2013 / 14
POL00026716
POL00026716
Alasdair Marnoch, Non-Executive Director ‘
Jomed the Board in May 2012
Chairman of the Audit, Risk and Compliance Committee
Alasdair Marnoch joined the Board of Post Office Limited as a Non-
Executive Director on 23 May 2012 A Chartered Accountant, he chairs
the Board’s Audit, Risk and Comphance Sub-Committee which reviews the
statutory accounts and financiat controls Alasdair has had wide experience
as Finance Director of a number of FMCG and service businesses, including
listed companies He was appointed as Chief Financial Officer at CPA Global,
the world’s leading provider of intellectual property management software
and services, in January 2014 Previously Alasdair served as CFO of the
Equiniti Group, a leading provider of complex administration and processing
services to the public and private sectors
innate
‘anata
Alwen Lyons, Company Secretary
Appointed in July 2011
Alwen Lyons joined the Post Office Limited in 1984 as a graduate entrant
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 Alwen served as a trustee on the Royal Mail Pension Plan Board
for 8 years and was Chair of the Audit and Risk Committee for 7 years
unre
a AEM
tence cacti
‘Annual Report and Financial Statements 2013/14
51
52
POL00026716
POL00026716
CORPORATE GOVERNANCE
Corporate governance
The shares in Post Office Limited
(the Post Office) were transferred from Royal
Mail Group Limited to Royal Mail Holdings plc
on I April 2012, and the Post Office has operated
independently since that date.
Corporate Governance Statement
The Post Office 1s committed to conducting the
Group's business ethically and in accordance with
high standards of corporate governance
As the Post Office 1s not a company with shares
hsted and traded on a public exchange, it s 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 1s an appropriate benchmark for
reporting on corporate governance
The Post Office's corporate governance structure
follows the spinit of the provisions of the Code in
so far as they can apply to a Government-owned
‘Annual Report and Financial Statements 2013/14
entity, which has no private or institutional
external shareholders
Legal Ownership Structure
The Post Office 1s a wholly owned subsidiary of
Postal Services Holding Company Limited (formerly
named 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 nghts are set out in the Post Office
Limited Articles of Association
A strong link remains between the Post Office
and Royal Mail, underpinned by a contractual
agreement to continue to supply Royal Mail
products and services through the Post Office
POL00026716
POL00026716
CORPORATE GOVERNANCE
Neither Postal Services Holding Company Limited
nor BIS, through its Shareholder Executive
(Sh€x), have any day-to-day involvement in the
operations of the Post Office or the management
of its branch network and staff, although Richard
Callard, (Executive Director, Post Office Limited
and Green Investment Bank, Shareholder
Executive) sits on the Board of Post Office
Limited as the shareholder representative
The Board
The Board 1s comprised of the Chairman, the
Chief Executive, the Chief Financial Officer and
five Non-Executive Directors
The Board 1s responsible for 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
Short biographies of all members of the Board
appear on pages 48-51 of this Annual Report
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
Post Office
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 Tim
Franklin, Virginia Holmes, Alasdas Marnoch and
Neil McCausland all met during the year, and
continue to meet, the criteria for independence as
set out in the Code, and are therefore considered
by the Board to be independent
Board Meetings
The Board meets at least eight times a year and
has a formal Schedule of Matters Reserved to it
During the year to 30 March 2014 the Board
has focused on the Strategy, Financial
Performance, Network and Crown Transformation,
and the capability of the bustness
To assist in the execution of its corporate
governance responsibilities, the Board has Audit
Risk & Compliance, Nominations, Pensions and
Remuneration Sub-Committees in place During
Non-Executive Directors’ Terms of Office
Duector Date of appantment
the year under the review, the Board established
2 Financial Services Sub-Committee to provide
guidance, oversight and authorisation to the
development of the Post Office's financial
services programmes and activities Also during
the year, the Mutualisation Sub-Committee was
taken back into the Board
The Schedule of Matters reserved for the
Board and the full Terms of Reference for the
Board Sub-Committees can be found on the
Post Office website
‘The table overleaf shows the attendance of
the Directors at meetings of the Board and
its principal Sub-Committees during the year
Additional Board meetings and ad hoc extra
meetings were held by teleconference for specific
time-critical issues only
The Non-Executive Directors also meet at least
twice a year without the Executive Directors
Board Sub-Committees
Audtt, Risk and Compliance Committee
The Audit, Risk and Compliance Committee
(ARC) 1s chaired by Alasdair Marnoch The other
members are Tim Franklin and Neil McCausland,
all are mdependent Non-Executwe Directors
The Board considers that the Commuttee’s
members have broad commercial knowledge
and extensive business leadership experience,
and that this constitutes a broad and suitable
mix of business and financial experience
‘The ARC considers the Post Office'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 further
developing its risk management, internal control
and internal audit procedures
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
Unexpired term at
Alice Perkins 21 July 2011
Richard Collard 26 March 2014
Tim Franklin 19 September 2012
Virgina Holmes 4 April 2012
Alasdair Marnoch 23 May 2012
Neil McCausland 22 September 2011
Term of office 30 March 2034 Committee memberships
Rolling 12 n/a Nominations (Chait),
month contract Remuneration
Until removal Coe ofa
4 years 2 years, 173 days ARC, Financial Services
3 years Tyear,Sdays Financial Services (Chatr),
Pensions (Chair),
Nominations, Remuneration
3 years 1 year, 49 days ARC (Chair)
4 years 1 year, 176 days Remuneration (Chair),
ARC, Nominations
‘Annual Report and Financial Statements 2013/14
POL00026716
POL00026716
CORPORATE GOVERNANCE
Directors’ attendance of meetings
Additonal Financial
Main Board fereeces — Nommateom Pensions Remuneration
bwector Board meetings ARC Committee "committee Committee Committee
Alice Perkins 3/9 "7 36 6/6 3/5
Richard Callard we
Chns Day 8/9 67 si6t 2 919
Tam Franklin 919 an 6/6 2 °
Virginia Holmes a9 ar 2R 6/6 919 5/5
Alasdaw Marnoch a9 “7 6/6
Neil McCausland 8/9 si 6/6 6/6 5/5
Paula Vennells 9 6/7 4/6 2/2 s/ét st
Susannah Storey" 8/9 47 5/9
“trom date of appointment t imattendance by invitation
ways in which the Past Office should present
its financial performance
A second mayor responsibility has been to
promote the development of a risk management
framework suited to the complex nature of the
Post Office business Ths is under way, supported
by an agreed strategy The development of risk
management and control procedures and the
establishment of a full internal audit programme
remain areas of high priority
A-small internal audit function is now established
supported by co-sourcing arrangements with a
mayor firm The Royal Mail Internal Audit function
provided an internal audit service until the
summer of 2013 The Post Office Internal Audit
function focuses on higher-level risk areas
providing independent assurance to the ARC,
Particularly on strategic and mayor change/IT
tisks The Head of internal Audit now reports to
the General Counsel on an administrative basts
and the ARC Chairman on a functional basis,
tn line with corporate governance best practice
‘The Head of internal Audit attends the ARC and
meets with the ARC Chairman with or without
management through the year
The ARC works with both the internal audit
team and Ernst & Young, the external auditor
Remuneration Committee
The Remuneration Committee 1s a formal
committee of the Board and has powers
delegated to it under the Articles of Association
Its remit 1s set out in the Terms of Reference
formally adopted by the Board, which were last
reviewed in February 2014 The Remuneration
Committee is chaired by Neil McCausland, the
Senior Independent Director The other members
are Alice Perkins and Virginia Holmes They are
all mdependent Non-Executive Directors
The Commttee is responsible for making
recommendations to ShEx on the remuneration
of the Executive Directors in accordance with the
Articles of Association In doing so, it reviews the
remuneration policy and packages of the most
senior leadership team, being the roles which
‘Annual Report and Financial Statements 2013 / 14
# Susannah Storey left the Board on 26/03/2014
report directly to the Chief Executive It also
obtains information on salary levels across the
business and within external organisations of
comparable sze in order to set remuneration
levels within an appropriate context
‘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 Group People 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 Consultants on market practice and
benchmark development New Bridge Street
Consultants have no other links with the Post
Office that could compromise their independence
No maternal 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 30 March 2014, are provided in the '
Directors’ Remuneration Report on page 58
POL00026716
POL00026716
CORPORATE GOVERNANCE
Nominations Committee
The Nominations Committee 1s chaired by Alice
Perkins The other members are Virginia Holmes
and Neil McCausland They are all independent
Non-Executive Directors
The primary role of this Commuttee 1s to
recommend to the Board any changes in Board.
membership and to manage the process for
recrutting and replacing Directors This excludes
the Non-Executive Director nominated by the
Shareholder as their representative 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 also
oversees the process for Board and Sub-
Committee performance evaluation
During the year the Committee has continued
to focus on building the overall capability of
the organisation through the consideration and
approval of Executive appointments, ensuring
effective performance and development of
the Senior Leadership, and overseeing the
diversity agenda
Pensions Committee
The Pensions Committee is chaired by Virginia
Holmes The other member 1s Chris Day, Chief,
Financial Officer Susannah Storey resigned from
the Pensions Committee on 26 March 2014
The purpose of the Pensions Committee 1s to
make recommendations to the Board in respect
of pensions and pre-retirement nisk benefits,
provision within the Post Office and to put into
effect appropriate investment strategies for the
Post Office section of the Royal Mail Pension
Plan (RMPP) on behalf of the Board and in
line with the Board's investment beliefs
The Pensions Committee, with the assistance of
AON Hewitt, oversaw the investment of RMPP
assets in line with the investment strategy
previously agreed with the Trustee of the RMPP
The transition 1s ongoing and 1s due to be
completed in 2014
2013 saw the agreement to the implementation
of a cap on pensionable pay at RPI {to a maximum
of 59) each year, therefore reducing the salary
risk to the RMPP These changes were effective
from 1 Apnt 2014 and allowed the Post Office
to manage the costs associated with the RMPP
and ensured the secunty of the RMPP for the
foreseeable future
The Committee also recommended to the Board
2 proposed change to the Royal Mail Defined
Contribution Plan (RMOCP) This proposal would
change the structure of the plan by increasing
the Post Office's contnbution to the RMDCP as
laid out in the table below
The plan members were consulted on the
changes This consultation ended on 23 May
2014, with the changes taking effect from
1 June 2014
38
Asummary of the changes are below
Current Proposed
Employee Employer Employee Employer
fe Rate rare
3% 5% Removed Removed.
4% 6% 4% 7%
5% 7% 5% 8%
: : 6% 9%
The proposed change was agreed by the Board
in March 2014
Financial Services Committee
During the year a new Committee was formed
to provide guidance on, oversight of and
authonsation for the development of the Post
Office's financial services The Committee first
met in January and its remit from the Post
Office Board includes the activities of First Rate
Exchange Services Limited ("FRES"), a 50% joint
venture with the Bank of Ireland The Committee
has the delegated authonty of the Post Office
Board for Financial Services matters
The Committee 1s charred by Virginia Holmes
The other members are Tim Franklin,
Non-Executive Director, and Chris Day,
Chief Financial Officer
Performance Evaluation
A board effectiveness review was carried out in
July 2013 in the form of an informal assessment,
by the Chairman and Non-Executive Directors
An appraisal of the personal effectiveness of the
Chairman was carried out by Neil McCausland,
Senior Independent Director
‘Annuat Report and Financlal Statements 2013/14
POL00026716
POL00026716
CORPORATE GOVERNANCE
The Executive Committee
Below main Board level, the Executive Committee
(ExCo) is the most senior management body and
1s made up of the Chuef Executive and each of her
direct reports, supported by some business unit
heads who report to members of the Executive
Committee ExCo works within the delegated
authorities established by the Board
The ExCo implements the strategy agreed by
the Board and monutors 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 resofution
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
teadershtp team and the Board and its
Committees
The Terms of Reference of the ExCo were
reviewed in May 2014 and are available for
download from the Post Office website The
ExCo 1s supported by four Sub-Committees
responsible for Transformation, Risk and
Compliance, Commercial and Financial issues
Risk Management
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 support the Post Office strategy
and the ambitious plans for expansion in its
chosen markets
Oversight of risk management is carried out
by the ARC on behalf of the Post Office Board
With a reporting line to the ARC, the Risk and
Compliance Committee 1s responstble on behalf
of the ExCo for
+ The review and challenge of risk management
+ The approval and endorsement of policies
to mitigate risk
+ The development of the risk management
framework
This Committee 1s chaired by the General
Counsel and reports to the ExCo The Committee
comprises members of the ExCo, including the
Chief Executive
The Business also governs financial and related
regulatory risk with its partner, the Bank of
{retand, through established joint regulatory
risk committees
‘Annuat Report and Financial Statements 2013/14
Risk Management Framework
‘The components of risk management in the risk,
framework were set out in the 2012/13 Annual
Report and Accounts and are available on the
Post Office website
‘The risk framework is supported by the Risk and
‘Compliance Team, with dedicated professional
resource in place to support and advise line
management and assist the risk committees
in their management of risk
Progress
The ExCo has identified and refined the top
‘sks in the organisation, focusing on those that
affect the 2020 strategy These risks, with their
response plans, are regularly reviewed at the
Risk and Compliance Committee and the ARC
to assure the robustness of risk assessment
and management
Risk Appetite
The Post Office 1s developing its risk appetite
statement with a view to establishing where
additional risk may be taken to generate new
‘opportunities and/or where further treatment
of existing risks 15 required
Business Continuity
‘As part of the Post Office approach to risk
management, the Post Office brings together a
wide range of business continutty arrangements
‘throughout the Group under one central policy
and governance framework to ensure that
the business 1s capable of withstanding any
significant threat to its ongoing operations
‘The Post Office 1s committed to ensuring its
business has adequate resilience and planning
that protects its customers, clients, brand and
reputation from business continuity threats,
risks and incidents
POL00026716
POL00026716
DIRECTORS’ REPORT
The Directors present the Group Annual Report
and Financial Statements for the year ended 30
March 2014
Expected future developments.
Expected future developments are detailed in
pages 12 to 16
Results and dividends.
The profit after taxation for the year was £170
million (2013 £49 milhon) The Directors do not
recommend the payment of a dividend (2013
Enil dividend)
Political contributions
No political contributions were made in the year
(2013 Enul)
Research and development
There was no research and development
‘expenditure during the year (2013 én!)
Directors and their interests
The following served as Directors during the
yeas
R J Callard (appointed 26 March 2014)
CM Day
TA Franklin
VAHolmes
A Marnoch
NW McCausland
A Perkins CB
S.J Storey (resigned 26 March 2014)
PA Vennells
No Director has a beneficial interest in the share
capital of Post Office Limited The emoluments
of Directors are set out in the Directors’
Remuneration Report which appears on pages
58 to 66
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 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-onented
sales culture This ambition is further supported
by a range of bonus schemes that are based
on the achievement of business targets
Underpinning all of this is a need for dignity at
work, where everybody feels valued, s treated
fairly and equally, and where everyone plays
a full part in helping the business to achieve
Its goals
Regular employee opinion surveys are conducted
to allow employees to express their views and
37
‘opinions on important issues This two-way
communication encourages all employees
to contribute towards making business
improvements
Corporate Responsibility
The Post Office 1s committed to carrying out
its activities in a socially responsible manner
tn respect of the environment, employees,
customers and local communities Further
information can be found on page 34
Disabled employees
The Post Office's policy 1s to give full
consideration to applications for employment
from disabled persons Employees who become
disabled while employed receive full support
through the provision of training and special
equipment to facilitate continued employment
where practicable The Post Office provides
training, career development and promotion
to disabled employees wherever appropriate
Post balance sheet events
In accordance with the funding agreement with
Government announced on 27 October 2010,
for which state aid approval was received on
28 March 2012, Post Office Limited received
£330 million of funding on 1 April 2014
Going Concern
After analysis of the financial resources available
and cash flow projections for the Post Office, the
Directors have concluded that it s appropriate that,
the financial statements have been prepared on a
going concern basis Further details are provided
in accordance with the fundamental accounting
concept in note 1 to the financial statements
Audit information
The Directors confirm that, so far as they are
aware, there 1s no relevant audit information i
of which the auditor 1s 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
1s aware of that information
Auditor
The auditor, Emst & Young LLP, 1s deemed
to be reappointed under section 48712) of
the Companies Act 2006
By Order of the Board
Secretary
Post Office Limited
{company number 2154540)
148 Old Street, London ECIV 9HQ '
25 June 2014 :
Annual Report and Financial taternents 2013/14
58
POL00026716
POL00026716
DIRECTORS REMUNERATION REPORT
Neil McCausland
Chair, Committee
‘unronnatnes RM
Statement by the Chair of the
Remuneration Committee
1 welcome the opportunity to outline our progress.
on Executive Remuneration during our second
year as an independent business This year has
been tough although significant progress has
been made towards our strategic objectives We
continue to operate ina challenging environment
and our remuneration framework reflects
these conditions
The Post Office has set a clear strategy for the
remainder of this decade to create a thnving
business with a strong purpose The strategy
will reduce our reliance on the taxpayer, thus
leading the business to financial sustainability
and a network used and accessed by ali sectors
of the population
When setting the performance criteria for the
2013/14 incentive schemes, the targets were
deliberately made significantly more stretching
than previously and as a result, bonuses paid
this year are less than the preceding year
osu een coer
“’This year has been tough although
significant progress has been made
towards our strategic objectives.
We continue to operate ina
challenging environment and our
remuneration framework reflects
these tough conditions.
‘Annual Report and Financial Statements 2013 /14
The remuneration framework for 2014/15
maintains the broad principles set in 2012/13 of
stretching measures and targets The measures
in the short-term incentive plan have been
reviewed and slightly adjusted to align with our
business objectives The performance measures
in the long-term incentwe plan remain the same
to ensure continuity and focus on achieving the
long-term business strategy
The Executive Duectors have not received
an increase to base pay for three years An
extensive benchmarking exercise was carried
‘out during 2012/13 which showed that the
levels of the Executive Directors’ fixed
remuneration 1s below the lower quartile of
the market median We recognise that this
means a growing gap between the business
and the market median may become difficult
in the future
We have throughout the year reviewed policies
and have, with the advice of our remuneration
consultants, reviewed the clawback clause in
relation to both the short-term and long-term
incentive schemes to align with market and
best practice
The Post Office 1s owned by Government
and we have regular dialogue with our Speciat
Shareholder on all matters related to the
remuneration of our Executive Directors
The Remuneration Committee is comfortable
that the current policy provides the strong link
between reward and performance to continue
the transformational journey I commend this
report to our stakeholders
The Remuneration Report
This report has been prepared in accordance
with the provisions of the Large and Medium-
sized Compantes and Groups (Accounts and
Reports) Regulations 2008, as amended 1n 2013,
to the extent that they are applicable for Post
Office in its capacity as an unlisted company
In line with the recent changes to Government
legistation for reporting pay, the remuneration
report has been spht into two sections The
Remuneration Policy Report sets out the
Committee's policy for remuneration and its
link to the business strategy The Annual Report
on Remuneration sets out how this policy was
apphied during the year under review, the
remuneration received by directors in the year
under review and how the Committee intends to
implement the policy in the current financial year
Both sections of the report (pages 58 to 66} have
been approved by the Remuneration Committee
and the Board
GRO
Ren weCaNTa NO”
Chau, Remuneration Committee
Post Office Limited
25 June 2014
POL00026716
POL00026716
DIRECTORS’ REMUNERATION REPORT
Remuneration Policy report
The Committee 1s responsible for setting
the remuneration packages for the Chief
Executive and Chief Financial Officer and
determining the overall remuneration
policy for the senior team reporting into
the Chief Executive
The Committee's intention 1s that the
remuneration policy should align with the
business strategy and nsk profile so that
individuals are motwated to deliver the
Post Office's objectives and protect its value
The Post Office remuneration strategy 1s
based on the following
+ Attracting and retaining the right people
within an agreed policy to fead and deliver
the strategic plan
+ Using incentives appropriately to reward
the achievement of the turnaround strategy
and promote the iong-term viability of
the organisation
Reinforcing an emerging culture of mutual
ways of working and partnership
Providing a transparent approach to the
disclosure of pay
39
Remuneration policy summary
The table [overleaf] descabes the current
remuneration and the breakdown of the
packages for the Executive Directors, which
compnise fixed pay (base salary, benefits and
cash in leu of pension contributions) and pay
at risk (STIP and LTIP)
The remuneration framework for the Execute
Directors requires consent from the Special
Shareholder each year During 2013/14, the
only matenal change made to the structure
of remuneration was that the Chief Financial
Officer's STIP structure was amended in order
to align it with the Chief Executive's (albert with
a lower overall percentage of salary available)
Annual Report and Financial Statements 2013/14
Remuneration policy table
Link to strategy
Base salary
Determined by reference to the skills
and responsibilities of the individual
When determining base salary increases,
consideration 1s given to () pay and
employment conditions elsewhere in
the Past Office and (ji) market data
on comparable roles
Benefits
Participation in hfe and health assurance
schemes, company car and private
medical schemes are part of Post
Office-wide benefit programmes
Pension
Pension provision is provided by the
Post Office and 1s available to ail
‘employees to help them meet their
retirement needs and provide a
competitive remuneration package
Executive Directors receive a salary
supplement in heu of pension
scheme membership
Short-term Incentive Plan
(STIP)
The STIP drives and rewards
performance over a single financial
year, against a set of key financial and
operational targets taken from the
balanced scorecard, set each year
according to the current prorities
for the business
STIP awards are also linked to the
achievement of personal performance
objectives
Annual Report and nancial Statements 2013 / 14
POL00026716
POL00026716
Operation
Directors’ sataries are reviewed annually
in July of each year The external pay
benchmarking group 1s a basket of
comparators, selected and agreed
with the Special Shareholder
There has been no increase to base
salary since 2011
The value of the benefits package
's monitored by the Committee and
benchmarked against comparator
‘organisations
Asalary contribution in lieu of
pension 1s paid as a cash supplement
to the Chief Executive and Chief
Financial Officer
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
80% of the STIP award 1s based on a
balanced scorecard and 20% 1s based on
individual performance objectives which
are agreed wath the Board and require
approval by the Special Shareholder
The balanced scorecard 1s set annually
to include a mix of financial and
non-financial measures (including
customer, modernisation and employee
engagement measures) The precise
metrics and their weightings are
determined at the start of each
financial year
STIP awards may be subject to clawback
as described in more detail on page 63
Maximum values
There is no a formal cap set on salanes
However, when reviewing salaries, the
Commuttee also pays close attention to
the level of salary increases across the
rest of the workforce
The value of the core benefit 1s
reasonable and in proportion with
the market
25% of salary
The maximum STIP opportunity for the
Chief Executive 1s 80% of salary (with
48% of salary being payable for on-target
performance) The maximum STIP
opportunity for the CFO 1s 6796, with
40% payable for on-target performance
POL00026716
POL00026716
6
Maximum values
Link to strategy -Operation
Long-Term Incentive Plan
(LTIP)
The LTIP 1s designed to reward and retain
key executives and senior managers and
toncentivise the achievement of longer
term performance goals
The payout of the award 1s based on
the achievement of strategic targets
linked to the tonger term development
growth of a sustainable business
Up to 98% of salary for the Chief
Executive and up to 49% of salary for
the Chief Financial Officer is payable at
maximum performance
Performance measures for the LTIP
are drawn from the Post Office
Strategic Plan agreed with the
Special Shareholder
LTIP awards are made annually The
performance targets are agreed with
the Special Shareholder in advance of
each grant and will be described
annually in the Report on Remuneration
LTIP awards may be subject to clawback
as described in more detail on page 63
Non-Executive Directors’ fees
To attract and retain a high calibre
Chatman and Non-Executive Directors
The fees for the Chairman are reviewed
by the Committee and approved by the
Special Shareholder The fees of the
Non-Executive Directors are reviewed
by the Executive Directors and
submitted to the Special Shareholder
The Chatman is pard a single fee to
cover all her duties The Non-Executive
Directors are paid a basic fee together
with additional fees for chainng Board
Sub Commuttees or the role of Senior
Independent Director No fees to the
Chairman or Non-Executive Directors
There 1s no prescribed maximum annual
increase The Committee 1s guided by
the general increase for employees and
the Fxecutwve Directors
The Chairman currently receives single
fee of £100,000 The non-executive
directors receive a base fee of £35,000
- £40,000 together with additional fees
of £5,000 - £10,000 for chairing Board
Sub Committees and for the role of
Senior Independent Director
are pensionable
The fees have not been reviewed
since appointment
Notes to the policy table
The framework ts approved by the Special Shareholder
Differences in remuneration policy for the Executive
Duectors and employees generally
+ The remuneration policy for the Executive Directors
inevitably takes account of their level of responsibility
and their influence over the Company's performance
Accordingly, a higher proportion of their total remuneration
package 1s at risk and subject to performance (under the
STIP and LIP}, with the incidence and potential amounts
payable under such incentives across the workforce being
determined by role and grade within the organisation
Choice of performance measures and approach to target
setting under the STIP and LTIP
+ Under the STIP, performance 1s based on achievement
against a balanced scorecard and personal performance
The balanced scorecard measures achievement of the
Company's key operational objectives and includes
metrics for financial performance, customer, people and
modernisation The Committee reviews the components
of the scorecard each year and vanes them as appropriate
to reflect the pnonties for the business in the year ahead
Under the balanced scorecard, a sliding scale of targets is
set for each metric to encourage continuous improvement
and challenge the delivery of stretch performance
Under the LTIP, a minimum level of operating profit
must always be met in order for any payment to be
made The metrics were carefully chosen to align with
the Company's long-term strategic plan, as agreed with
the Special Shareholder
‘Annwat Report and Financial Statements 2013/14
POL00026716
POL00026716
DIRECTORS’ REMUNERATION REPORT
Performance scenarios 2014/2015
The chart below shows 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
1s no STIP or LTIP payout, (fixed pay only),
on-target performance (STIP and LTIP paying
out at a target level) and maximum performance
(full payout of STIP and LTIP)
Approach to recruitment remuneration
The remuneration package for a new Executive
Director would normally be set in accordance
with the terms of the Company's remuneration
policy in force at the tme of appointment
The salary for a new Executive Director may
be set below the normal market rate, with
phased increases over the first few years as
the Executive Director gains experience in
their new role
Sometimes, to facilitate an external recruitment,
it may be necessary to consider reasonable
compensation for remuneration relinquished at
a former employer {buyout award) Should this
be the case, the terms of any buyout award
would reflect (as far as 1s reasonably possible}
the nature, performance conditions and time
horizons attaching to the remuneration foregone
with the overall package tailored to the individual
‘Any such award would require approval by the
Special Shareholder
For an internal appointment, any variable pay
element awarded in respect of thei previous
role will be allowed to pay out according to its,
terms, adjusted as relevant to take into account
their appointment
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 The balanced
scorecard used for the STIP for Executive
Directors 1s also used to assess performance
in the annuat bonus for Post Office managers,
providing alignment between performance
and 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
Service contracts normally continue until the
Executive Director's agreed retuement date or
such other date as the parties agree The service
contracts contain provisions for early termination
In summary, the contractual provisions are
as follows
Other than for certain events
such as gross misconduct
(in which no notice must be
provided by the Company),
twelve months to be given by
the Post Office and six months
by the director
Payments in lieu of notice of
salary and benefits including
health cover, a company car or
car allowance, life and health
insurance and cash allowance
1 lieu of pension equivalent
to 25% of base salary
Payments in tieu of notice
are not pensionable
There are no enhanced
provisions on a change
of control
Notice period
Remuneration-
related
provisions
Change of
control
In some circumstances, the Commuttee may also,
at its discretion, pay a bonus to the Executive
Director equivalent to the amount that they would
have been entitled to and earned under the STIP
and LTIP, pro-rated over the portion of the year
that they were in service The Committee will take
into account the reason for the Executive Director
leaving the company and the contnibution made
to the performance conditions
‘Annual Report and Financia! Statements 2013 / 14
POL00026716
POL00026716
DIRECTORS REMUNERATION REPORT
Under the LTIP, the default treatment is that any
outstanding awards will lapse on termination of
employment However, in certain prescribed
good leaver circumstances, the awards remain
subject to performance conditions measured to
the end of the performance period, and reduced
by reference to the portion of the period they
were employed The definition of good teaver
status 1s set out in the rules
Clawback provision
Executive Directors have clawback clauses in
their contracts, as welll as the STIP and LTIP
rules, which provide for the return of any
‘over-payments in the event of misstatement of
the accounts, error or gross misconduct on the
part of an Executive Director These provisions
are structured in line with market best practice
63
Non-Executive Directors
Non-Executive Directors’ Letters of Appointment
are described in the Corporate Governance
statement (see page 52)
Statement of consideration
of shareholder's wews
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 the
framework for Executive Director Remuneration
‘Anowal Reportand Financaal Statements 2003/14
POL00026716
POL00026716
DIRECTORS’ REMUNERATION REPORT
Annual Report on Remuneration
Remuneration for each director for the Financial Year 2013/2014 (audited)
Cashin
Annualised Actual lieu of
salaryltees salaryifees Benefits _pension sve uP Total Toral
Nome 2013/2014 2013/2014 2013/2014 2013/2014 2013/2014 2013/2014 2013/2014 7012/2013,
Non-Executive Directors
Tim Franklin® £40,000 £37,097 : - - - £37097 £18,667"
Virginia Holmes! £40,000 £37,097 - - - + £37097 £34,708"!
Alasdair Marnoch £45,000 £45,000 : : : - £45,000 £38,589"
Neil McCausland £50,000 £50,000 : : : - £50,000 £50,000
Alice Perkins £100,000 £100,000 - - - £100,000 £100,000
Susannah Storey" £0 £0 - . : : £0 £0
Richard Callard®™ £0 £0 : : - - £0 £0
Executive Directors
Paula Vennells £250,000 £250,000 £9,494 £62,500 £76,608 £145,250 £543,852 £697,723
Chris Day £215,000 £215,000 £9,494 £53,750 £54,042 £41,639 £373,925 £407,582
Total 2013/2014 £740,000 £734,194 £18,988 £116,250 £130,650 £186,889 _£1,186,971_£1,347,269 '
Susannah Storey was an employee of the Shareholder Executive of the Depariment for Business, Innovation and Skills tn
March 2013 she moved to the Department of Energy and Climate Change She receives no director fee and resigned from
the Board on 26 March 2014,
1 Richard Callard 1s an employee of the Shareholder Executive of the Department for Business, innovation and Skills and joined
‘the Board on 26 March 2014 He receives no director s fee
1 The salaries for Paula Vennells and Chris Oay remain unchanged There 1s no planned Increase for the review in July 2014
1 TIm Franklin joined the Board 19 September 2012 Virginia Holmes jomed the Board 4 April 2012 and Alasdair Marnoch
o1ned the Board 23 May 2012 and all receved a pro rated payment for 2012/2013
11 Tim Franklin and Virginia Holmes received £5.000 as a result of taking on the Chairmanship of adi
tonal committees
Benefits comprise a company car (or cash equivaten), partleipation wn life and health assurance schemes and private
medical provision
Pay at risk paid to Executive Directors in 2013-14 (audited)
a) Short Term Incentive Plan 2013-14
Performance metrics
‘The STIP payable to both the Executive
Directors 1s based on the 2013/14 Post Office
balanced scorecard (80%) and personal
performance (20%) Six measures in the
scorecard were identified for use in the STIP
These relate to financial performance (45%),
customer experience (20%), our people (10%)
and achievement of specific obyectives related
to the modernisation programme (25%)
Financial performance was assessed through
the use of stretching net revenue and operating
profit targets The net revenue target was not met
but due to cost control the operating profit target
of £102 million was exceeded Our modernisation
programme contunues as the Post Office proceeds
on it journey to transformation Our customers
and our people are cntically important and
stretching targets were set to indicate this Overalt
performance was satisfactory but not all targets
were achieved
b) Long-Term Incentive Plan awards
2011-2014
The LTIP award to pay out this year is based
on the three-year performance penod ended 30
March 2014 The award values were as follows
Basis of award
Maximum value of
award ifall performance Vesting determined
Executive Type of award granted Value of award targets are met by performance over
70% of salary Three financial years
Paula Vennells Cash target award £145,250 £245,000 to 30 March 2014
35% of salary Three financial years
Chris Day Cash target award £41,639" £70,234" to 30 March 2014
+ 2011/12 UTP award pro rated as Chris Day commenced employment 1 August 2011
‘Annual Report and Financial Statements 2013 /14
DIRECTORS’ REMUNERATION REPORT
The primary performance condition for the 2011
award was operating profit (sliding scales of
targets) based on the strategy plan
Operating profit before exceptional items for the
year-ended 30 March 2014 (£107 millon) was
between the target and stretch level
The STIP and LTIP awarded to the Chief
Executive and Chief Financial Officer expressed
as a percentage of salary 1s shown below
POL00026716
POL00026716
65
su ump
2012/2013 Payment 2013/2014 Payment 2012/2013 Payment 2013/2014 Payment
28% of salary 25 % of salary 28 % of salary 25 % of salary
Chief Executive 63% 31% 87% 58%
Chief Financial Officer 60% 25% N/A 19%
Outstanding interests in Long-Term Incentive Plan
Under the remuneration policy, LTIP awards
are granted annually The Chief Executive and
Chief Financial Officer have the following
outstanding awards
Target award _Stretch award
Performance perlod
Paula Vennells - Chief Executive
2012 LTIP
2013 LTIP
Chis Day - Chief Financial Officer
2012 LTIP
2013 LTIP
£175,000 £245,000
£175,000 ‘£245,000
£75,250 £105,350
£75,250 £105,350
Three years to 29 March 2015
Three years to 27 March 2016
Three years to 29 March 2015
Three years to 27 March 2016
Both the 2012 and 2013 LTIP awards are
subject to challenging financial and strategie
performance conditions based on business
profitability and the maintenance of the network
in line with the Special Shareholder’s objectives
Total pension entitlements (audited)
Paula Vennells and Chris Day each receive a
cash supplement of 25% base pay in lieu of
pension scheme membership
Paula Vennelis was previously an active member
of the Royal Mail Senior Executives Pension Plan
(an HMRC approved defined benefit occupattonat
pension scheme) until 5 April 2012 when she
left the scheme Asa result she retains past
pensionable service up until the date she left,
any increases in the deferred pension amount
1s due to revaluation not new accrual
Relative mportance of the spend on
pay (audited)
The figure below shows the change in employee
costs between 2013 and 2014 relative to total
revenues
2014 2013 % difference
Total People Costs «£255m) (259m) 15%
Of which related to Directors’ pay {E119m} {£1 35m) 119%
Total revenue excluding Network Subsidy Payment £979m £1,024m 4.4%
Remuneration of the Chief Executive over time
The table below shows the total remuneration of —_ together with her STIP and LTIP payouts
the Chief Executive over three financial years, n that year
2012" 2013 2014
Total remuneration £462,505 £697,723 £543,852
STIP (96 of maximum) 86% 79% 38%
No LTIP vested 99% 59%
LTP vesting (% of maximum)
MThe Post Office became independent from the Rayal Mail on 1 Apnl 2012 Hence, the Commttee has chosen to set out the
Chuef Executives pay data since thes date
‘Annual Report and Financial Staternents 2013 /14
POL00026716
POL00026716
DIRECTORS REMUNERATION REPORT
How the Committee intends to.
implement the remuneration policy
tn 2014/15
Salanes
Salaries for the Executive Directors for 2014/15
are unchanged from last year, at £250,000 for
Paula Vennells and £215,000 for Chns Day
The next salary review will take place in
July 2015
The Chief Executive has not been awarded any
increase in pay since April 2011 There was no
increase 1n pay in April 2012, when the company
began operating independently from the Royal
Mail Group and the role of the Chief Executive
significantly increased The remuneration of the
Chief Executive and Chief Financial Officer has
been benchmarked and analysis shows both
Executive Directors are below the lower quartile
of the market median
Performance targets for the STIP and
LTIP awards to be granted in 2014
and beyond
For 2014, the STIP will continue to be based on
performance agamnst a balanced scorecard (80%)
and personal performance (20%)
The LTIP targets will continue to operate with
a performance target which 1s predominantly
linked to the Company's operating profit
performance
The Commuttee has chosen not to disclose, in
advance, the actual targets applying, as these
are deemed to be commercially sensitive
Statement of Consideration of
Shareholders Views
When setting the Remuneration Policy for
the Executive Directors the Remuneration
Committee take into consideration the views
of the Special Shareholder The policy for pay
at risk concentrates on ensuring remuneration
15 performance lead with targets aligned with
those of the Shareholder
The current economic and political chmate
1s taken into account in terms of restraint on
pay to reflect the current practice in the public
sector All remuneration for the Executive
Directors requires Spectal Shareholder approval
‘Annual Report and Financial Statements 2013 / 1
Fees for the Chairman and
Non Executive Directors
No annuat increase 1s proposed to the fees
to the Chairman and the other Non-Executive
Directors An increase in fees has been made to
two Non-Executive Directors who have taken on
additional roles chairing Board Sub Committees
Their fees are set out in the policy report
Membership of the Committee
The members of the Committee are listed
1m the table below All of these are independent
Non-Executive Directors In total the Committee
met five times and all committee members.
attended each meeting
Committee members
Neil McCausland
Alice Perkins
Virginia Holmes
The Chief Executwe attends the meeting by
invitation of the Chairman and assists the
Committee in its deliberations, except in matters
relating to her own remuneration No directors
are involved in deciding their own remuneration
The Committee also receives advice from the
Group People Director, with other members
of the Human Resources team and with
external consultants
External Advisors
In the year under review, advice on matters.
related to executive remuneration was primarily
obtained from New Bridge Street (NBS), an Aon
Hewitt company The total fees paid to NBS in
respect of tts services to the Committee during
the year were £27K Fees are generally agreed
in advance for each piece of work carried out
by NBS
NBS 1s a signatory to the Remuneration
Consultants’ Code of Conduct The Committee
has reviewed the operating processes in place
at NBS and 1s satisfied that the advice that it
receives 1s objective and independent
Outside directorships
Subject to Board approval, the Executive
Directors are permitted to take on Non-
Executive positions with other companies
Paula Vennells is a Director of Hymns Ancient
and Modern and recewed a fee of £6,350 in
respect of the year ended 31 March 2014
POL00026716
POL00026716
Financial statements
“Post Office has a really
interesting proposition
for graduates because it’s
undergoing such change.
It’s an exciting time to be
joining the business and
I guess we'll be able to
make a real impact.
ts 2013/14
‘Annual Report and Financial Statement
70
POL00026716
POL00026716
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Strategic
report, Directors’ report and the financial statements in
accordance with applicable law and regulations
Company law requires the Directors to prepare financial
statements for each financial year that give a true and fair
view of the financial position of the Group and of the Company
and the financial performance and cash flows of the Group
and of the Company for that period Under that law the
Directors have elected to prepare the Group consolidated
financial statements in accordance with international Financial
Reporting Standards (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) including Financial Reporting Standard
101 ‘Reduced Disclosure Framework’ In preparing those
financial statements, the Directors are required to
Select surtable accounting policies and apply thern
consistently,
Present information, including accounting policies, in
a manner that provides relevant, reliable, comparable
and understandable information,
Provide additional disclosures when compliance with the
specific requirements in IFRS as adopted by the European
Union 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, subyect to any material departures disclosed
and explained in the financial statements,
Prepare the financial statements on the going concern
basis unless st 1s inappropriate to presume that the
Company will continue in business,
‘Annual Report and Financial Statements 2013 / 14
The Directors are responsible for keeping adequate accounting
records which disctose, 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
responsible for safeguarding the assets of the Group and
Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities,
The Directors confirm that to the best of their knowledge
+ The Group consolidated financial statements, prepared
in accordance with [FRS 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 the Group,
The Company financial statements prepared in accordance
vath United Kingdom Generally Accepted Accounting
Practice, including Financial Reporting Standard 101
‘Reduced Disclosure Framework’, give a true and fair view
of the assets, lablities, 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 descnption of the principal
risks and uncertainties they face
POL00026716
POL00026716
n
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF POST OFFICE LIMITED
We have audited the consolidated financial statements of
Post Office Limited for the 52-week period ended 30 March
2014 which compnise the Consolidated income statement,
the Consolidated statement of comprehensive income, the
Consohdated statement of cash flows, the Consolidated
balance sheet, the Consolidated statement of changes in
equity and the related notes 1 to 24 The financial reporting
framework that has been applied in their preparation
1s applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union
This report 1s 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 page 70, 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
tesponsibility 1s to audit and express an opinion on the group
financial statements in accordance with applicable faw 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 obtaiing evidence about the amounts
and disclosures in the financial statements 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 groups 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 financiai
statements In addition, we read all the financial and non-
financial information in the annual report to identify matertal
inconsistencies with the audited financial statements and to
identify any information that 1s apparently materially incorrect
based on, or materially inconsistent with, knowledge acquired
by us in the course of performing the audit 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
give a true and fair view of the state of the group's affairs
as at 30 March 2014 and of its profit for the 52-week
penod 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 Strategic Report
and the Directors’ Report for the financial year for which the
group financial statements are prepared 1s 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 requires us to report to you
if, sn 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 52-week period
ended 30 March 2014
Angus Grant (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
25 June 2014
Annual Report and Financial Statements 2013/14
2
POL00026716
POL00026716
CONSOLIDATED INCOME STATEMENT
FOR THE 52 WEEKS ENDED 30 MARCH 2014 AND THE 53 WEEKS ENDED 31 MARCH 2013
" 014 2013
Notes tm tm
Continuing operations
‘Turnover ° 979 1,024
Network Subsidy Payment 200 210
Revenue 1479 1,234
People costs excluding restructuring costs 3 55) 259)
Other operating costs (850) 1913)
Share of post tax profit from joint ventures and associates n 33 32
Operating profit before exceptional ttems 4 107 94
Operating exceptional items 7 "O's 45 (47)
= Government Grant 37 98
= Royal Mail Pension Plan amendment 102 :
~ restructuring costs an )) (79)
-other as) ty)
Operating profit 152 a7
Profit on disposal of property, plant and equipment 3 2
Loss on sale of associate " : G0)
Profit before financing and taxation 155 19
Finance costs : . 7 @) )
Finance income 7 1 1
Net financing income relating to pensions 1B 5 2
Profit before taxation 158 78
Taxation credit 8 12 34
Profit for the financial year from continuing operations 170 49
‘Annual Report and Financial Staternents 2013 /14
POL00026716
POL00026716
B
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE $2 WEEKS ENDED 30 MARCH 2014 AND THE $3 WEEKS ENDED 31 MARCH 2013
2014 2013
Notes fm im
Profit for the financial year from continuing operations 170 49
Other comprehensive income . . -
Remeasurements on defined benefit surplus 18 (52) 4
Income tax effect 8 (2 2
Total comprehensive income for the year né a2
There are no other comprehensive income items that will be reclassified to the profit and loss in subsequent periods
Annual Report and Financial Statements 2013/14
POL00026716
POL00026716
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE 52 WEEKS ENDED 30 MARCH 2014 AND THE 53 WEEKS ENDED 3! MARCH 2013
Notes im fin
Cash flows from operating activities
Operating profit before exceptional items . . ° 107 94
Adjustment for
Oepreciation and amortisation 4 - :
Share of profit from joint ventures and associates n (33) @2)
Pension operating costs ” 25
Working capital movements 20) 63
Decrease/(increase) in trade and other receivables a5 (138)
(Decreasey/increase in trade and other payables (67) 199
Decrease/(increase) in inventories 2 (e2) F
Inctease in non-exceptional provisions : 4
Pension operating costs paid (2a) (26)
Cash receipts in respect of operating exceptional items 2 133
Government Grant 215 200 '
Restructuring costs 170) (52)
Other (33) (15)]
Net cash inflow from operating activities 69 257
Income tax recovered WW u
Cash flows from investing activities
Investment in associate - ay
Dividends received from joint ventures and associates n 32 40
Finance income received ’ ’
Proceeds from sale of property, plant and equipment 3 2 j
Proceeds from disposal of associate - 2
Purchase of non-current assets (102) 58)
Net cash outflow from investing activities (66) 24)
Net cash inflow before financing activities 4 244
Cash flows from financing activities
Finance costs paid ° @ @
Payments to finance lease creditors Oy 8)
Repayment of borrowings from BIS (290) (86)
Net cash outflow from financing activities (297) (92)
Net (decrease)/increase in cash and cash equivalents (283) 152
Effect of exchange rates on cash and cash equivalents : a
Cash and cash equivalents at the beginning of the year B 971 820 '
Cash and cash equivalents at the end of the year B 688 971
For the purposes of the consolidated statement of cashflows, cash and cash equivalents consists of £738 million included
In note 13, net of a bank overdraft of £50 million which 1s disclosed in note 14
Annual Report and Financial Statements 2013/14
POL00026716
POL00026716
7s
CONSOLIDATED BALANCE SHEET
AT 30 MARCH 2014 AND 31 MARCH 2013
2014 2013
Notes tm tm
Non-current assets
Intangible assets 9 - -
Property, plant and equipment 10 10 "
Investments in joint ventures and associates . " 6 60
Retirement benefit surplus 18 148 97
Trade and other receivables 2 15 10
Tota! non-current assets 234 178
Current assets !
Inventones ° 6 8 .
Trade and other receivables 302 352
Cash and cash equivalents 3 738 on
Financial assets — derivatives 17 ° 1
Total current assets 10461332
Total assets 1,280 «1,510
Current habilities
Trade and other payables 14 (767) (874)
Financial liabilities - interest bearing loans and borrowings 15 - (291)
- obligations under finance leases 2 @ @
Provisions : 16 (70) 09)
Total current habilities (840) (1,187)
Non-current liabilities
Financial habulities - obligattons under finance leases 2 - @)
Other payables 14 (28) (24)
Provisions 16 @) a”
Total non-current liabilities (36) (35)
Net assets 404 288
Equity .
‘Share capital 19 : -
Share premium . . 465 465 i
Retained earnings ©) 079) '
Other Reserves 2 2 '
Total equity 404 288
The financial statements on pages 72 to 100 were approved by the Board of Directors on 25 June 2014 and signed on its
behalf by
PA Vennell~ CM Day
Chief Executive Chief Financial Officer
‘Annual Report and Financia Statements 2013/14
POL00026716
POL00026716
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE 52 WEEKS ENDED 30 MARCH 2014 AND THE $3 WEEKS ENDED 31 MARCH 2013
Share Retained Other Total
premum eammings reserves, «= coaulty
notes ‘m tm tm im
At 1 April 2013 465 (179) 2 288
Profit for the year - 170 - 170
Remeasurements on defined benefit surplus acy = (52) = (52)
Income tax effect 8 -@ : @
At 30 March 2014 465 (63) 2 404
Other reserves of £2 million relate to First Rate Exchange Services Holdings Limited, the joint venture entity
a Share Retoned Other Total
At 26 March 2012 465 (552) 47 (40)
Profit for the year - 49 - 49
Remeasurements on defined benefit surplus ay > 14 - 14
Transfer of pension deficit to Government 18 - 286 - 286
Sale of interest in associate - 45 (45) -
Income tax effect 8 > (21) - {21)
At 31 March 2013 465 79) 2 288
‘Annual Report and Financial Statements 2013 /14
POL00026716
POL00026716
NOTES TO THE FINANCIAL STATEMENTS
1 Accounting Policies
Financial year
The financial year ends on the last Sunday in March and for
this reason these financial statements are made up to the
52 weeks ended 30 March 2014 (2013 - 53 weeks ended
31 March 2013)
Basis of preparation
The financial statements on pages 72 to 100 have been
prepared in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union and
with those parts of the Companies Act 2006 applicable to.
compantes reporting under IFRS Unless otherwise stated in
the accounting policies below, the financial statements have
been prepared under the histoncal cost accounting convention
The Company 1s incorporated and domiciled in the United
Kingdom The Group consolidated financial statements are
presented in sterling and all values are rounded to the
nearest £m except where otherwise indicated
Basis of consolidation
The consolidated financial statements compnise 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 tn accounting policy and disclosures
The Group applies, for the first time, IAS 19 (Revised 2011)
Employee Benefits This has not required restatements of
previous financaal statements as the effect of the application
Of IAS 19R 1s not material in the opinion of the Directors IAS
19R includes a number of amendments to the accounting for
defined benefit plans, including actuarial gains and losses that
are recognised in other comprehensive income (OC!) and
permanently excluded from profit and loss which 1s consistent
with the existing policy of the Group, expected returns on
plan assets that are no longer recognised in profit or loss,
instead, there 1s a requirement to recognise interest on the
net defined benefit asset in profit or loss, calculated using the
discount rate used to measure the defined benefit surplus
Other amendments include new disclosures, such as,
quantitative sensitivity disclosures
In the case of the Group, the transition to IAS 19R and the
difference in accounting for interest on plan assets and
unvested past service costs has not had a maternal impact
on the net defined benefit plan surplus The Group has
not early adopted any other standard, interpretation or
amendment that has been issued but 1s not yet effective
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
+ IFRS 9 Financial Instruments Classification and Measurement
+ IFRS 10 Consolidated Financial Statements
+ IFRS 11 Joint Arrangements
IFRS 12 Disclosure of involvement with Other Entities
1AS 27 Separate Financial Statements
IAS 28 Investments in Associates and Joint Ventures
+ IAS 32 Offsetting Financial Assets and Financial Liabilities
- Amendments to IAS 32
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
Fundamental accounting concept — going concern
After careful consideration of the plans for the coming years,
the Directors continue to believe that Post Office Limited
will be able to meet its liabilities as they fall due for the
foreseeable future Accordingly, on that basis, the Directors
consider that it 1s appropriate that these financial statements,
have been prepared on a going concern basis.
The Group has net assets at 30 March 2014 and has
operated at a profit before exceptional tems during
2013-14 for the sixth year running A funding agreement
with Government was announced on 27 October 2010
which provided for
+ Funding of £410 million for 2012-13
+ Funding of £415 million for 2013-14
+ Funding of £330 millon for 2014-15
Extension of the extsting working capital facility with the
Department for Business, Innovation & Skills (BIS) of £115
billion up to 31 March 2016
State Aid approval for the funding for 2012-13 to 2014-15,
was received on 28 March 2012 and it was also recognised
that the working capital facility was no longer deemed State
Aid £410 million was received on 2 April 2012 and £415
million was received on 2 Apri! 2013
An additional funding agreement with Government was
announced on 27 November 2013 which provided for
Funding of £280 million for 2015-16
Funding of £220 million for 2016-17
Funding of £140 million for 2017-18
Extension of the existing working capital facility with the
Department for Business, Innovation & Skills (BIS) amended
with a limit of £950 millon from 31 March 2015 up to
31 March 2018
State Aid approval for the funding for 2015-16 to 2017-18
has not yet been received
This investment takes the form of a Government Grant and
enables 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 ts designed to
make the Post Office network more self-sustaining and,
over time, less dependent on direct subsidy This will not
involve a branch closure programme
The Directors are satished with the continued progress made
towards modernisation during 2013-14 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
Annual Report and Finarciel Statements 2013/14
7
NOTES TO THE FINANCIAL STATEMENTS
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 histoncal expenence and other factors In the future,
actual experience may differ from these estimates and
assumptions In addition the Group has to make yudgements.
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 labilities 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 The Group exercises its
judgement in determining the assumptions to be adopted,
after discussion with its Actuary Details of the key
assumptions are set out in note 18
Pension habilities 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
The prior year pension deficit transfer to HM Government
‘on 1 April 2012 was taken directly through equity, as in
management's judgement this transaction was undertaken
with HM Government in its capacity as the owner of Royal
Mail Holdings pic, the Company's former parent company,
rather than in its capacity as Government
Provisions
The Group has recognised provisions where a present legal
or constructive obligation exists as a result of a past event,
where it is probable that an outflow of resources wall 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
Impairment of non-current assets.
The Group assesses whether there are any indicators of
impairment for all non-currents assets at each reporting
date Due to ongoing operational losses (excluding the
Network Subsidy Payment) the carrying value of intangible
assets and all property plant and equipment other than
freehold and long leasehold property has been impaired
to the recoverable amount
Revenue
Turnover from Government, financial, mails and telephony
services comprises the value of services provided Turnover
from all other products comprises the commission received
excluding VAT, from the Group's principal actwaties 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 1s recognised evenly over the period to which the
charges relate and revenue from calls is recognised at the
time the call 1s made Turnover from all other transactions
1s recognused when the transaction is completed All turnover
1s derived wholly from within the United Kingdom
Annual Report and Financial Statements 2013/18
POL00026716
POL00026716
The Network Subsidy Payment 1s 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 revenues calculated using revenue less the directly
attributable costs of delivering the service or product
Operating exceptional items
Operating exceptional items are items of income and
expenditure arising from the operations of the business which,
due to the nature of the events giving 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 1s recognised in the income statement for
the amount by which the carrying value of the asset exceeds
its recoverable amount, which 1s the higher of an asset’s net
realisable value and its value in use
Amortisation of intangible assets with finite lives ts charged
annually to the income statement on a straight-line basis
as follows
Software 1 to 6 years
Where intangible assets are impaired to their recoverable
amount on acquisition the above range of asset lives 1s
not applied
Property, plant and equipment
Property, plant and equipment 1s recognised at cost, including
attnbutable costs in bringing the asset into working condition
for its intended use
Depreciation of tangible fixed assets 1s provided on a straightline
basis by reference to cost and to the remaining useful econamic
lives of assets and therr estimated residual values The hves
assigned to major categories of tangible fixed assets are
Range of asset lives
Land and buildings
Freehold land
Freehold buildings
Not depreciated
Up to 50 years
The shorter of the peniod of
the lease, 50 years or the
estimated remaining useful life
Leasehold buildings
Plant and machinery 3-35 years
Motor vehicles and tratlers 2-12 years
Fixtures and equipment 2-15 years
Where property, plant and equipment is impaired to its
recoverable amount on acquisition the above ranges of
asset lives are not applied This 1s currently the case for
plant and machinery, motor vehicles and trailers and fixtures
and equipment
Impairment reviews
Unless otherwise disclosed in these accounting policies,
assets are reviewed for impairment if events or changes
POL00026716
POL00026716
NOTES TO THE FINANCIAL STATEMENTS
1m 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 mcome statement for the amount
by which the carrying value of the asset (or cash generating
unit) exceeds its recoverable amount, which 1s the higher of
an asset’s net realtsable 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 lability recognised for the fair value of the
leased stem 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 achteve a constant rate of interest on the remaining
balance of the habrlity
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-acquisitron changes in the Group's share of the net
assets of the joint venture/associates less any impamrment
in value The income statement reflects the Group's share
of post tax profits from the yomnt venture/associates The
financial statements of the joint venture are prepared for
the same reporting period as the Group
Inventories
Inventories 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
Taxation
The charge for current income tax s based on the results for the
year as adjusted for items which are not taxed or are disallowed
Its calculated using tax rates tn 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 1s 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 1s probable that the
temporary difference will not reverse in the foreseeable
future, and
+ deferred tax assets are recognised only to the extent that it
4s probable that taxable profit will be available against which
they can be utilised
Deferred tax assets and habuilties are measured at the tax
rates that are expected to apply to the period when the tax
asset Is realised or the lability 1s settled, based on tax rates
that have been substantively enacted at the balance sheet
date Deferred tax balances are not discounted
Current and deferred tax 1s 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 \s 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 1 April 2012 they were transferred to be directly
employed by the Company Membership of occupational
pension schemes 1s open to most permanent UK employees
of the Company All members of defined benefit schemes are
contracted out of the earnings-related part of the State
pension scheme
The penston assets of the defined benefit schemes are
measured at fair value Liabilities are measured on an
actuanal 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 sesulting defined benefit asset or lability 1s
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 1s
recognised as net pensions interest in the income statement
Actuarial gains and losses are recognised immediately in the
statement of comprehensive income
Any deferred tax movement associated with the actuarial
gains and losses 1s 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 1s
sterling (£)
Transactions in foreign currencies are recorded at the spot
exchange rate ruling at the date of the transaction Monetary
assets and habilities denominated in foreign currencies are
retransiated at the functional rate of exchange ruling at the
balance sheet date Currently hedge accounting 1s not applied
to any monetary assets and liabilities All differences are
therefore taken to the income statement
‘Annual Report and Finanaa! Staterrents 2013/14
79
80
NOTES TO THE FINANCIAL STATEMENTS
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 foan facility
are recognised as an expense when incurred unless they are
directly attnbutable to the construction or development of a
qualifying asset, in which case they are capitalised using the
weighted average cost of borrowing for the penod of
construction/development
Government Grants
Government Grants are shown separately in the income
statement to match the expenditure to which they relate
Provisions
Provisions are recognised when the Group has a present
obligation (iegal or constructive) as a result of a past event,
Its probable that an outflow of resources will be required to
settle the obligation, and 2 reliable estimate can be made of
the amount of the obligation If the effect of the time value of
money 15 material, provisions are determined by discounting
the expected future cash flows at an appropriate pre-tax rate
Financtal instruments
The classification of financial instruments included on the
balance sheet 1s set out below
Financial assets
Financial assets are classified into the following categories
at fair value through the income statement, loans and
receivables, and available for sale as appropriate based on the
purpose for which they were required Financial liabilities are
classified as either fair value through the income statement
or as financial liabilities measured at amortised cost
Financial habilities - interest-bearing loans
and borrowings
All loans and borrowings are classified as financial liabilities
measured at amortised cost
Financial habilities - obligations under
finance leases
All obligations under finance lease and hire purchase contracts
are classified as financial habilities measured at amortised cost
Derivative financial instruments
The Group uses denvative financial instruments to manage
its exposure to fluctuations in foreign exchange rates Such
derivative financial instruments are 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 1s no active market, fair value 1s determined
using valuation techniques These include using recent arm's
length market transactions, reference to the current market
value of another instrument which 1s substantially the same,
‘Annual Report and Financial Statements 2013 / 14
POL00026716
POL00026716
and discounted cash flow analysis and pricing models
Specifically, m 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
denvative assets 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 15 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 matuntty date of three months
or less In addition the Group uses Money Market funds as
2 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
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 1s available
The Group's CODM 1s the Executive Committee as defined
in the Corporate Governance section on page 56
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 1s calculated using
segmental revenue tess the directly attributable costs of
delivering the service or product The net revenue measure
excludes the effect of indirect costs and the effects of
non-recurring expenditure such as redundancy costs and
asset impairment Interest income and expenditure 1s not
allocated to segments as this type of activity 1s 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 1s included from page 18 of the
Business review
Revenue from a major customer represents approximately
30% of the Group's total revenue in 2014 This revenue was
reported within the Mails & Retail segment
POL00026716
POL00026716
81
NOTES TO THE FINANCIAL STATEMENTS
2014
Directly
atenibutable net
Revenve costs revenue
em im im
Mails & Retarl 390 @ 386
Financial Services 279 ) 278
Government Services 146 0) n6
Telecoms 126 78) 46
Other 40 - 40
Sub total 979 ay 866
Network Subsidy Payment 200 : 200
Total 1179 (13) 1,066
“ev 2013
Drectly
attnburable Net
flevenue cote revenue
fs tm tm
Mails & Retail 409 (5) 404
Financaal Services 281 ) 280
Government Services 164 (30) 134
Telecoms 129 (85) 44
Other 4 - 41
Sub-total 1/024 a2) 903
Network Subsidy Payment 210 - 210
Total 1.234 (yun
A reconcitiation between underlying segment net revenue and profit before taxation is provided below
m . “ “ 2014 2013
fm tm
Underlying segment net revenue 1,066 13
Indirect costs (992) (1,051)
Share of post tax profit from joint ventures and associates 33 32
Operating profit before exceptional items 107 94
Operating exceptional items 45 a7)
Operating profit 152 47
Profit on disposal of property, plant and equipment 3 2
Loss on sale of associate : 0)
Profit before financing and taxation 155 ary
Finance costs @ 4)
Finance income 1 1
Net pensions interest 5 2
Profit before taxation 158 18
‘Annual Report and Financal Staternents 2013/14
82
POL00026716
POL00026716
NOTES TO THE FINANCIAL STATEMENTS
3 Staff costs and numbers
Employment and related costs were as follows
2014 2013
People costs excluding restructuring costs fm £m
Wages and salaries 208 215
Social secuntty costs 20 19
Pension costs (note 18) EA 25 I
Total 255 259 .
’ Period end employees Average employees
2014 2013 2014 2013
Total employees 7,787 7.886 7,950 7,842
Total employee numbers can be categonsed as follows
Administration
Crown Offices
Supply Chain
Network and Crown transformation programmes
Total
4 Operating profit from continuing operations before exceptional items
Operating profit from continuing operations before exceptional items Is stated after charging
Subpostmasters’ fees
Bureau de Change foreign currency exchange losses/(gains)
Depreciation
Operating lease charges ~ Land and busldings
~ Vehicles and equipment
Fees payable to the group's auditors for audit and other services
~ parent company and group audit
~ audit related assurance services
~ other non-audit services
2014 2013
1,691 1,345,
3,946 45
1,553 1,585
597 445
7787 7886
2014 2013
tm tm
448 478
2 a
19 20
a2 62
f000 £000
314 Bu
40 : ‘
103 103
‘Annual Report and Financtal Statements 2013 / 14
POL00026716
POL00026716
83
NOTES TO THE FINANCIAL STATEMENTS
5 Operating exceptional items
— “— Be 2013
tm tm
Government Grant 317 98
Royal Mail Pension Plan amendment 102 :
Restructuring
Business transformation 5) @)
Network transformation including subpostmasters compensation (191) (52)
Crown transformation . 0) -
Restructuring - severance ° (23) a
~ other . . an 2)
Other
Impaument of intangible assets (note 9) a2) (25)
Impairment of property, plant and equipment (note 10) (73) a)
Total operating exceptional tems 45 (47)
For further information in relation to the Royal Mail Pension
Plan amendment refer to note 18 Restructuring costs are
those incurred in order to implement the mayor transformation
programmes primarily the Crown and Network programmes
which are discussed further in the Financial Review on
6 Directors’ emoluments
The Directors received the following emoluments
page 42 Due to ongoing operational losses (excluding
Network Subsidy Payment) the carrying vatue of intangible
assets and all property plant and equipment other than
freehold and long leasehold property has been impaired
to the recoverable amount
2s 2013
r000 £000
Emoluments, excluding pension contributions and Long-Term Incentive Plans {LTIP)* 1,000 1129
Contributions to pension schemes - 1
Amounts receivable under LTIP 187 218
*Figures anclude any cash supplements cecewed Ia keu of pension
Directors accruing pension entitlements during the period under
2018 2013
Number ___Number
Defined benefit schemes - :
Defined contribution schemes - -
The highest paid Director received the following emoluments
2or8 2013
f000 £000
Emoluments and LTIP, excluding pension contributions but including cash supplements
received in lieu of pensions 544 698
Company contabutions to pension schemes : 1
Annual Report and Financit Statements 2013/14
POL00026716
POL00026716
NOTES TO THE FINANCIAL STATEMENTS
7 Net finance costs
2018 2013
fm om
Interest receivable 1 1
Interest charge, unwinding discount on provisions o) a
Interest payable on foans @) @
Total (2) (3)
8 Taxation
(a) Taxation gains recognised in the year
2014 2013
fm tn
Corporation tax credit for year ) 10)
Tax under provided in previous years 0) :
Current tax (10) {10}
Deferred tax credit relating to the origin and reversal of temporary differences 5) a
Effect of change in tax rate 3 :
Income tax credit reported in the consolidated income statement (12) en
Deferred income tax of £2 million (2013 £21 million) has been charged to equity relating to actuarial movements in the
rettrement benefit surplus This offsets the deferred tax credit of £2 million (2013 £21 milton) that has been reported in
the consolidated income statement
(b) Factors affecting current tax credit on profit on ordinary activities
The tax assessed for the year differs fram the standard rate of corporation tax in the UK of 23% (2013 24%) The differences
are explained below
2004 2013
im im
Profit on ordinary activities before tax 158 18
Profit on ordinary activities multiplied by the standard rate of corporation tax
in the UK of 23% (2013 24%) 36 4
Net decrease in tax charge resulting from recognition of deferred tax assets a) 5)
Expenditure disallowable for tax 1 1
Adjustment in respect of prior period io) -
Losses from disposals ineligible for relief - 7
Effect of group relief surrenders to other companies 1 -
Associates/joint venture profit after tax included in Group pre-tax profit (8) (8)
Total current tax (see above) 12) 1)
(c) Deferred tax
Deferred tax assets relate to the following
Balance sheet income statement
aoa 2013 201 2013
im tn tm sn
Pensions temporary differences en) en - -
Losses available for offset against future taxable income 2 21 2 2
. Tota! deferred tax asset = i
Income statement 2 21
‘Annual Report and Financial Staternents 2013/14
POL00026716
POL00026716
NOTES TO THE FINANCIAL STATEMENTS
(d) Factors that may affect future tax charges
The Group has unrecognised deferred tax assets of £144
million (2013 £190 million), compnsing £94 million (2013
£133 milhon) relating manly to fixed asset timing differences,
£5 million (2013 £0 million) relating to timing differences
‘on provisions and £45 million (2013 £57 million} relating to
tax losses that are available to offset against future taxable
profits The Group has rolled over capital gains of £3 million
(2013 £3 million), no tax lability would be expected to
crystallise should the assets into which the gains have
9 Intangible assets
been rolled be sold at their residual value, as it 1s anticipated
that a capital loss would anse
Finance Act 2013 reduced the main rate of corporation tax
to 21% with effect from 1 April 2014 and to 20% with effect
from 1 Apni! 2015 Following these changes the deferred
tax balances were reduced from 23% to 20% The impact
of this change on deferred tax balances 1s included in these
financial statements
: “ae ““ "18 3013
tn tn
Cost
At 1 Apnl 2013, 26 March 2012 208 183
Additions 42 25
Disposals - a) :
At 30 March 2014, 31 March 2013, 243, (208
‘Amortisation and impairment
At 1 April 2013, 26 March 2012 208 183
Disposals . ° a :
Impairment (see note 5) 42 25
At 30 March 2014, 31 March 2013 243 208
Net book vatue
At 30 March 2014 31 March 2013
The above intangible assets relate to software
‘AnnualReport and Financial Statements 2013 /14
POL00026716
POL00026716
NOTES TO THE FINANCIAL STATEMENTS
10 Property, plant and equipment.
_ Land and buildings
Plant Fortures
tong short Motor and and
Freehold leasehold leasehold vehicles machinery equipment Total
fim im tm Em m fm fm
Cost
At 1 April 2013 . 87 18 ™4 2 1 ng 981
Reclassification 5) 3 . - 2 -
Additions 20 : 4 7 : 4a 2
Disposals @Q) a) (8) &) a (23) (39)
At 30 March 2014 100 7 13 44 1 239 4,014
Depreciation
At 1 April 2013 7 id N46 2 7 ng 970
Impairment (see note 5) 16 : 7 7 : 43 B
Disposals Q) a (8) 5) a 23) (39)
‘At 30 March 2014 Ey 16 13 44 1 239 1,004
Net book value
At 30 March 2014 9 v - = - = 10
At31 March 2013 10 1 : : : : u
Depreciation rates are disclosed within accounting policies {note 1) No depreciation 1s provided on freehold land, which
represents £3 million (2013 £3 million) of the total cost of properties
Annual Report and Financal Statements 2013 / 14
NOTES TO THE FINANCIAL STATEMENTS
11 Investments in joint ventures and associates
The following entities have been included in the consolidated
financial statements using the equity method
Joint ventures
During 2013-14 and 2012-13, the Group's only joint venture
investment was a 50% interest (1,000 £} ordinary A shares)
in First Rate Exchange Services Holdings Limited, whose
principal activity 1s the provision of Bureau de Change
First Rate Exchange Services Holdings Limited 1s a company
registered in the United Kingdom
Associates
POL00026716
POL00026716
7
During 2012-13, the Group's only associate investment was a
49.99% interest (4,999 £0.01 ordinary A shares} in Midasgrange
Limited, whose principal activity 1s the provision of personal
financial products This investment was disposed of dunng
the year ended 31 March 2013
wanture Associate ora!
tm tm tm
Share of net assets
Total net investment at 1 April 2013 60 - 60
Share of post tax pre dividend profit 33 : 33
Dividend 2) : 2)
Total net investment at 30 March 2014 61 - 61
—_—_—_—_—_ Tolntventure Associate Total
tn im tm
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 : " n
Disposal : : G2) G2) :
Dividend, . (40) : (40)
Total net investment at 31 March 2013, 60 : 60 '
" _vwe —_—Au 2014 “en 2013
Joint Joint
venture venture
tn fm
Share of assets and labiities
Current assets 175 184
Non-current assets 7 7 Ss 3
Share of gross assets 180 187
Current habibties - m9) 02)
Share of net assets Gl 60
Share of revenue and profit
Revenue 7 75
Profit after tax 33 3
‘Annwial Report and Financial Statements 2013/14
NOTES TO THE FINANCIAL STATEMENTS
12 Trade and other receivables
2014 2013
tm tm
Current
Trade receivables 54 32
Prepayments and accrued income ° 82 n
Chent recewvables ° 158 240
Other receivables 8 9
Total 302 352
Non-current
Prepayments and accrued income - 1s 10
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 chent payables (see note 14)
As at 30 March 2014 trade and other receivables of £17
mtlion (2013 £16 million) were impaired and fully provided
for During the year £2 million (2013 £2 million) of the
provision has been utilised and an additional £3 million
(2013 £4 million) has been provided for Trade and other
receivables of £18 million (2013 £8 million) were past due
but not imparred The aging analysis of the past due amounts
are as follows
2014 2013
Em im
Provided for or not yet overdue 36 24
Past due not more than one month 0 7
Past due more than one month and not more than two months 1
Past due more than two months 6 :
Total 34 32
The fair value of trade and other receivables 1s not materially different from the carrying value
13 Cash and cash equivalents
wn mm m mv “
im im
Cash in the Post Office Limited network 708 879
Short-term bank deposits 30 6
Money market fund investments : 86
Total cash and cash equivalents 738 71
Cash and cash equivalents comprise amounts held physically
1n cash, cash depostts available on demand or for three months
or less For the purposes of the consolidated statement of cash
flows, cash and cash equivalents consists of £738 million
defined above, net of a bank overdraft of £50 mihon which
15 disclosed in note 14
‘Annwal Report and Financial Statements 2013 /14
Where interest 1s earned its at 2 floating or short-term
fixed rate The fair value of cash and cash equivalents is
not matenally different from the carrying value
POL00026716
POL00026716
POL00026716
POL00026716
89
NOTES TO THE FINANCIAL STATEMENTS.
14 Trade and other payables
2014 2013
fm fm
Current
Bank overdraft En -
Trade payables 55 49
Accruals and deferred income 133 i)
Advance customer payments 37 50
Social security 4 10
lent payables 437 528
Capital payables 31 18
Business transformation i0 7
Government Grant deferred income : 102
Total 767 874
Non-current
Other payables 28 24
Of the £215 million {2013 £200 million) Government Grant £102 million) has been deferred into the balance sheet as
received, £215 million (2013 £98 mullion) has been allocated disclosed above The fair value of trade and other payables
against income statement expenditure in accordance with the __1s not materially different from the carrying value
terms and conditions of the Grant The remaining £nul (2013
15 Financial habilities — interest bearing loans and borrowings
2014 2013
fm im
Department of Business, Innovation & Skills loans drawn down : 291
The loans under the facility are short dated on a programme —_—_The facility 1s currently restricted to funding the cash and
of liquidity management and mature on average I day after near cash items held within the Post Office Limited network
the year end (2013 1 day) The fair value of borrowings is The facility (including drawn down loans) 1s secured by a
not materially different from the carrying value On matunty gating charge over all assets of Post Office Limited and a
itis expected that further loans will be drawn down under negative pledge over cash and near cash items The negative
‘this facility, which expires in 2018 The undrawn committed pledge 1s an agreement not to grant security over the assets
facility, n respect of which all conditions precedent had been Gr to set up a vehicle that has the same effect
met at the balance sheet date 1s £1,150 milion (2013 £859
million) The average interest rate on the drawn down loans
15 10% (2013 10%)
‘Annual Report and Finanaasl Statements 2013/14
POL00026716
POL00026716
I
NOTES TO THE FINANCIAL STATEMENTS
16 Provisions
Crown Conversions
project Network transformatron Other Total
fm fm fm im
At 1 April 2013 7 10 9 26
Charged in operating exceptional
items Q) 3 27 v8
Charged in operating costs : : 6 6
Utiisation @) (52) a7 (72)
‘At 30 March 2014 2 51 25 78
Disclosed as
Current 2 48 20 70
Non-current : 3 3 a
2 51 25 78
The Crown Conversions project relates to past franchising ‘Other provisions of £25 million (2013 £9 mullron) include
of Crown offices and onerous property lease provisions are property contracts, onerous lease obligations and personal
expected to be utilised within four years injury claims
The Network Transformation provision relates to the major
transformation programme which 1s discussed further in the
Financial Review on page 42
17 Financial assets and liabilities
The Group's financial assets and liabilities are shown in the table below
201 2013
Non Non
Current. current Total Current’ current Yous!
fm im im fm fm Em \
Cash and cash equivalents 738 - 738 97 - ot
Denivative assets : - : 1 : 1
Bank overdraft (50) - (50) - - -
BIS toan : - - (29) - (29
Finance leases obligations (3) id @) 3) (4) (7)
Total financial assets/liabilities) 685 - 685 678 4) 674
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
duectly from operations are disclosed further tn notes 12
and 14
The Group enters into derivative transactions, which create
denvative assets and Itabilities, principally forward currency
contracts The purpose 1s to manage the currency risks
anising from the Group's operations
The main risks arising from the Group's financial assets
and habihties 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
summansed opposite
Ansual Report and Financial Statements 2013/14
Interest rate risk
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 £nil (2013 £291 million) are at short-dated fixed interest
rates - average matuntty 1 day (2013 average 1 day) On
matunty it +s expected that further loans will be drawn down
under this facility which expires in 2018 The total interest
bearing financial habrlities of the Group of £20 million (2013,
assets of £92 mullion) are at short-dated fixed or vanable
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
POL00026716
POL00026716
91
NOTES TO THE FINANCIAL STATEMENTS
Financial year ended 30 March 2014
. merge Wehin 12 25 More than
effective 1 year years years Syears, Tota!
aterest rate im fm fm £m fm
Fixed rate
Short-term bank deposits/(overdrafts) 05 (20) - : - (20)
BIS loan 10 : - : : -
Obligations under finance leases us (3) : - - (3)
Total (23) - : : (23)
Floating rate
Money market fund investments 04 : - : - -
Non-interest bearing
Cash in Post Office network : 708 - : - 708
Net total financial assets 685 : : - 685
Financial year ended 31 March 2013
_ ™ average
effects = Within 12 25 More than
interest re Vyear years years Syears Total
% im im im fm Ea
Fixed rate
Short-term bank deposits 05 6 - - - 6
BIS toan 10 (291) - - - (291)
Obligations under finance leases 100 (3) 4) a a (7)
Total (288) @ : : (292)
Floating rate
Money market fund investments 05 86 : : - 86
Non-interest bearing
Cash in Post Office network - 879 - : : 879
Denvative assets : 1 - : : 1
Total 880 : : 880
Net total financial assets/{habilities) 78 @) - : 674
Foreign currency risk
The Group 1s exposed to foreign currency risk resulting from
balances held to operate Bureau de Change services The
Group's foreign currency risk management objective 1s to
minimise the impact on the Income Statement of fluctuations
in the exchange 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 «ask principally through external forward foreign
currency contracts with a number of providers including
Furst 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 chent 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 hmited to mayor banks and financial
institutions The policy restricts the exposure to any one
counterparty by setting appropriate credit limits
Business credit nsk ts monitored centrally The individual
relationships and the contracts attached to them are managed
by dedicated teams and procedures are in place to monitor any
concentrations of credit nsk The level of bad debt incurred for
the Group 1s fess than 2% (2013 less than 19) 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 1n the Post
Office Network) are to safeguard its ability to continue as a
going concer and to maintain an optimal capital structure
in order to support the business and maximise stakeholder
value In managing the Group's capital levels the Board and
the Executive Committee regularly monitor the level of debt
1n 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 Group's capital management objectives
‘Annual Report and Financial Statements 2013/14
POL00026716
POL00026716
NOTES TO THE FINANCIAL STATEMENTS.
Liquidity risk
The Group's primary objective 1s 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 short-term bank
deposits with approved counterparties Borrowing facilities
are regularly reviewed to ensure continutty of funding The
unused facility for the Group of £1,150 million (2013 £859
rmailhon) expires in 2018
Sensitivity
Asa result of the mix of fixed and vanable rate financial
instruments and the currency hedge programmes in place,
the Group has no matenal exposure to risk from interest
rate or exchange rate prices
The tables below set out the gross (undiscounted) contractual
cash flows of the Group's financial lrabilites For loans and
finance teases, these cash flows represent the undiscounted
total amounts payable including interest
2016
Bistoan ease Total
im tm tm
‘Amounts falling due in
One year or less : 8) by)
More than 1 year but not more than 2 years - - -
More than 2 years but not more than 5 years . . .
More than 5 years - . .
Total : “8 @
" ™ " " 2013
wis ton "lease =Total
tm tn tm
Amounts falling due in
One year or less 291 4 298
More than 1 year but not more than 2 years - 4 4
More than 2 years but not more than 5 years - - -
More than 5 years - . .
Total 291 8 299
‘Annual Report and Finanaal Statements 2013 / 14
POL00026716
POL00026716
NOTES TO THE FINANCIAL STATEMENTS
18 Penstons
The disclosures in this note relating to the year ended
30 March 2014 and the comparatives for the year ended
31 March 2013 reflect the Post Office Limited sectionalised
RMPP scheme which 1s independently operated by the Group
and the approximate 7% share of the RMSEPP scheme Royal
Mail Group Limited 1s the principal employer in Royal Mail
Senior Executive Pension Plan (RMSEPP) and Post Office
Limited became a participating employer with effect from
1 Apnit 2012
‘During the year there was a consultation exercise with
members of the defined benefit Royal Mail Pension Plan on
proposed changes to the terms These changes were agreed
15 October 2013 and effective from 1 Apri! 2014 The key
change was to the definition of pensionable pay which broadly
93
will increase in line with RPI {capped at 5%) in future
regardless of actual pay growth The changes have resulted
In a one-off exceptional gain of £102 million
IAS 19 has been applied retrospectively from 26 March
2012 Expected returns on plan assets of defined benefit
plans are not recognised in profit or loss interest on net
defined benefit surplus 1s recognised in profit or loss,
calculated using the discount rate used to measure the
net pension surplus The impact of transition to 1AS 19R
retrospectively 1s not material to the Group, and therefore
no restatement has been required
The disclosures in this note 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 Mai! Penston Plan (RMPP}
Royal Mail Senior Executive Pension Plan {RMSEPP)
Royal Mail Defined Contribution Plan (RMDCP)
Defined benefit
Defined benefit
Defined contribution
UK employees
UK sentor executtves
UK employees
Defined Contribution
‘The charge in the income statement for the defined
contribution schemes and the Group contributions to these
schemes was £2 million (2013 £1 million) during the year
Anew defined contribution plan (RMDCP) was launched in
Apni 2009 New recruits joing from 31 March 2008 are
able to begin paytng 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 RMPP was carried
out as at 1 April 2012 using the projected unit method For
RMPP, this valuation was concluded at £135 million surplus
The latest full actuarial funding valuation of RMSEPP was
carried out as at 31 March 2012 using the projected unit
method For 100% of the RMSEPP plan, the valuation was
concluded at £83 million deficit RMPP includes sections
A.B and C each with different terms and conditions
Section A 1s for members (or beneficiaries of members)
who joined before 1 December 1971,
Section B 1s 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 1s 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 Apri! 2008 The changes encompassed
the Plans closed to new members from 31 March 2008,
all pensions and benefits earned before i April 2008
are still inked 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 Apni 2010,
from 1 April 2010 it ts possible to draw pension earned
before the change to normal retirement age at 55, and
continue working while stil contributing to the Pension Plan
until the maximum level of benefits has been reached, and
+ RMSEPP was closed to future accruals on 31 December 2012
Payment of £21 millon (2013 £23 million) was made by the
Group during the year in respect of regular future service
contributions, nearly all relating to RMPP The regular future .
service contributions for RMPP, expressed as a percentage
of pensionable pay, has remained at 171% (2013 171%),
effective from April 2010 This rate 1s not expected to change
materially during 2014-15 For RMSEPP, these contributions
have remained at 35 9% (2013 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 £1 million
(2013 £2 million) was made by the Group during the year
No RMPP deficit payments were made during 2012-13 or
2013-14 For RMSEPP, deficit recovery payments will be £1
million per annum, from 1 April 2010 to 31 January 2024
Accurrent liability of £nil (2013 £nil} has been recognised
for payments to the pension schemes relating to redundancy
During the year, payments of £1 million (2013 £2 million)
relating to redundancy were made
‘The weighted average duration of the RMPP fund 1s 28 years,
and for the RMSEPP fund is 20 years Over the next financial
reporting period to 29 March 2015 itis expected that employer
contributions to the plans will be £21 million and £1 milhion
for RMPP and RMSEPP respectively
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
‘Annual Report and Financial Statements 2013/14
NOTES TO THE FINANCIAL STATEMENTS
a) Major long-term assumptions
The size of the RMPP pension surplus, which is large inthe \
context of the Group and its finances, 1s materially sensitive to
POL00026716
POL00026716
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
1m relation to both RMPP and RMSEPP were
#030 ana
March 2018 March 2013
‘wpe ‘wn
Rate of increase in salanes 32 43
Rate of pension increases - RMPP sections A/B 23 23
Rate of pension increases - MPP section C 32 32
Rate of pensions increases ~ RMSEPP members transferred from Section A or B of RMPP 24 33
Rate of pension increases - RMSEPP all other members ° 33 32
Rate of increase for deferred pensions - RMSEPP members transferred from Section A or B of RMPP- 24 33
Rate of increase for deferred pensions 23 23
Discount rate 45 48
Inflation assumption (RPI) - RMP 33 “33
Inflation assumption (CPI) - RMP 23 23
Inflation assumption (RPI) — RMSEPP 34 33
Inflation assumption (CPI) - RMSEPP 24 23
In June 2010, Government announced that it was intending
to change the inflation measure used to determine statutory
minimum indexation in deferment and in payment from RPI
to CPI from April 2011 Where relevant, the inflation
assumption has changed from RPI to CPI
The ultimate cost of the RMPP plan to the company will
depend upon future events rather than the assumptions
made The assumptions made may not be borne out in
practice and as such the cost of the plan may be higher
(or lower) than disclosed
In common with other defined benefit schemes, the main
isk in relation to the arrangements is the value of the
assets does not keep pace with the increase in the value
of the llabilities This can arise for many reasons, but the
most significant risks are as follows
Investment risk
If the assets of the arrangements fall short of expectations,
this will lead to a decrease in the funded status
Asset volatility
The arrangements hold return seeking assets (including
equities and property) which are expected to outperform
corporate bonds in the long term but give exposure to
volatility and risk in the short term RMPP does, however,
invest in liability driven investment (LD!) assets which
mitigates the impact of terest rate and inflation volatility
on the funded status
‘Annual Report and Financial Starements 2013/14
Inflation risk
Higher inflation rates than expected will act to increase the
plan abilities as benefits will increase to a higher level than
assumed The arrangements have a maximum pension
increase (generally 5% per annum) written into the rules
which limits the increase for many benefits, so limiting the
impact of high inflation This includes pensionable pay in
RMPP, which was amended with effect from 1 April 2014
In addition, the arrangement holds assets that increase in
value as price inflation expectations rise, so mitigating the
Impact of rising inflation expectations These assets include
LDI assets in respect of RMPP
Changes in bond yrelds,
A decrease in corporate bond yields will increase the plan
habihties, although this wal be partially offset by an increase
tn the value of the bond holdings and, to some extent, the
LDI assets
Pensioner longevity
if members live longer than expected, the liabilities would
increase because pensions would be paid for a longer time
Liabilities accrued in the Royal Matt Pension Plan to 31 March
2012 were transferred to the Royal Mail Statutory Pension
Scheme These liabilities are no longer an obligation of the
company and consequently the transfer resulted ina
significant removal of pension risk from the company
POL00026716
POL00026716
95 I
NOTES TO THE FINANCIAL STATEMENTS
The following table shows the potential impact on the RMPP assets and pension surplus of changes in key assumptions
2004 2013
fr fm
Changes in RPI and CPI inflation of +0 1% pa ey (4)
Changes in discount rate of +0 1% pa 3 4
Changes in real salary growth of +0 1% pa oy Co)
Changes in CPI assumptions of +0 1% pa i) 0)
An additional 1 year life expectancy 8) @)
The sensstivity analysis has been prepared using projected
benefit cash flows as at the latest full actuarial valuation of
the plan The same method was applied as at the previous
reporting date The accuracy of this method 1s limited by
the extent to which the profiles of the plan cash flows have
changed since those valuations although any change is
not expected to be material in the context of the above
sensitivity analysis
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
atlow for ‘medium cohort projections with a 1 25% floor
These are detailed below
2013
Average expected hfe expectancy from age 60
For a current 60-year-old male RMPP member 26 years 26 years
For a current 60-year-old female RMPP member 29 years 29 years
For a current 40-year-old male RMPP member 29 years 29 years
For a current 40-year-old female RMPP member B2years 32 years
b) Plans’ assets
The assets in the plans for the Group were
Market value Market value
aot4 3013
tm ‘mn
Sectionalised RMPP
UK equities 1 2
Overseas equities 18 27
Government bonds . - 2
Corporate bonds . 18 134
Property 5s -
Cash and cash equivalents . 38 69
Other assets* 80 9
Fair value of RMPP assets 260 243
Present value of RMPP liabiiities (90) 044)
Surplus in plan before asset ceiling adjustment 170 99
Less effect of asset ceiling 23) @
Surplus in plan after asset ceiling adjustment 147 96
“Other assets include a diverse range of managed funds which include investment in real estate, worldwide equities and emerging debt
‘Annual Report and Financial Statements 2013/ 14
POL00026716
POL00026716
NOTES TO THE FINANCIAL STATEMENTS
Market value Market value 1
2014 2013
fm tm
Share of RMSEPP
UK equities 1 4
Overseas equities 9 6
Government bonds : -
Corporate bonds B R
Property 2 1
Other assets 1 2
Fair value of share in plan assets for RMSEPP. 26 25
Present value of share in plan habilities for RMSEPP (24) (2a)
Surplus in plan for the share of RMSEPP before asset ceiling adjustment 2 1
Less effect of asset ceiling WJ -
Surplus in plan for share of RMSEPP after asset cetling adjustment 1 1
A retirement benefit surplus of £148 million 1s disclosed on the There 1s no element of the above present value of liabilities
balance sheet, representing the surplus in plans of £170 million _ that arises from plans that are wholly unfunded
and £2 millon for RMPP and RMSEPP respectively, and net The major categories of RMPP plan assets as a percentage
of tax of £24 million at a rate of 35% on the element of the of total plan assets are as follows
surplus which 1s recoverable through a refund from the plans
_ “ee 2014 2013
% %
Securities with quoted price in an active market
UK equities : 1
Overseas equities 7 "
Government bonds - 1
Corporate bonds 45 55
Property 2 -
Cash and cash equivalents 5 28
Other assets 3 4
Total quoted securities 100 100
c) Movement in plans’ assets and lrabilities
Changes in the fair value of the plans’ assets are analysed as follows
Sectionalised AMPP 2014
‘Sectionallsed RMPP 2013
tm tm
Assets
Assets in sectionalised RMPP at beginning of period 243 2,108
Transfer of pension assets to Government - (1,953)
Contributions pard 2 25
Employee contributions paid a 8
Finance income 12 Ww
Actuarial (losses)/gains (24) 46
Benefits paid to members : : a @
Assets in sectionalised RMPP at end of period 260 243
‘Annual Report and Financial Statements 2013 / 14
POL00026716
POL00026716
I
7 :
NOTES TO THE FINANCIAL STATEMENTS
Share of RMSEPP 2014 Share of RMSEPP 2013
tm tm
Assets
‘Share of assets in RMSEPP at beginning of period 25 20
Contributions paid 1 2
Movement in contributions accrued - -
Employee contributions paid . - -
Finance income 1 1
Actuarial gains - i
Benefits paid to members 0) :
Share of assets im RMSEPP at end of period 26 25
Changes in the present value of the defined benefit pension obligations are analysed as follows
Sectlonalived RMPP 2014 Sectionalised RMPP 2013
£m fm
Liabilities
Liabilities in sectionalised RMPP at beginning of period asa), 2.313)
Roya! Mail Pension Plan amendment 102 -
Transfer of pension liabilities to Government - 2,239
Current service cost 5), 24)
Curtailment costs* . oy 2)
Finance cost , a i)
Employee contributions 8) ®)
Actuarial loss @) 29)
Benefits paid 1 2
Liabilities in sectionahsed RMPP at end of period (90) (144)
“ve “ee m “_e ™ __ Share of RMSEPP_ 2014 ‘Share of RMSEPP- zal 3
abiities
Share of liabilities in RMSEPP plans at beginning of period 24), 22)
Current service cost - -
Curtailment costs” - -
Finance cost o) ao
Employee contributions ° . ° se -
Actuarial gain/tloss) - Oo)
Benefits paid 1 -
Share of labilives in RMSEPP at end of period a) (24)
“The curtailment costs in the sncome statement are recognised on a consistent basis wiih the associated compensation costs Estumates 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
‘Annual Report and Financial Statements 2013 /14
POL00026716
POL00026716
NOTES TO THE FINANCIAL STATEMENTS
d) Recognised charges
An analysis of the separate components of the amounts recognised in the performance statements of the Group 1s as follows
Secvonsieg MPF 2014 Sectonalied RMPP 2013
Analysis of amounts recognised in the income statement
Analysis of amounts charged to operating profit before exceptional items ° ’
Current service cost 25 24
Total charge to operating profit before exceptional items
Analysts of amounts (credited)/charged to operating exceptional items . .
Royal Mail Pension Plan amendment (102) ~
Loss due to curtailments 1 2
Total (credit)/charge to operating profit 76) 26
Analysts of amounts charged/{credited) to net pensions interest
Interest on plan habilities 7 9
Interest income on plan assets 12) i)
Net pensions credit to financing o) 2)
Net (crediti/charge to the income statement before deduction for tax cn) 24
Analysis of amounts recognised in the statement of changes in equity
Transfer of pension liabilities to Government - (2,239
Transfer of pension assets to Government - 1,953)
Gain on transfer to Government = 286
Total gains recognised in the statement of changes in equity 7 286
‘Analysts of amounts recognised in the statement of comprehensive income ~
Actual return on pian assets 42), 87
Less expected interest income on plan assets (12) co
Less taxation on surplus recoverable through plan refunds {20) GB)
Actuarial (iosses)/gains on assets (all experience adjustments) (4a) 3
Experience adjustments on liabilities - 20)
Effects of changes in actuarial assumptions on liabilities ® °)
Actuanial losses on liabilities 8) (29)
Total actuarial (losses)/gains recognised in the statement of comprehensive
income (52) “4
19 Called up share capital
™ _ " " 2014 2013
ia t
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 $0,003
Total 50,003__50,003
‘Annual Report and Financial Statements 2013/14
POL00026716
POL00026716
99
NOTES TO THE FINANCIAL STATEMENTS
20 Commitments i
Capital commitments contracted for but not prowded in the The Group ts committed to the following minimum lease I
financial statements amount to £68 million (2013 £48 million) —_—_ payments under non-cancellable operating leases !
Land and buildings IT equipment ,
2014 2013 2016 2013
im im im in
Within one year 20 16 - 15
Between one and five years 45 42 - -
Beyond five years 3 38 : :
Total 96 96 - 15
21 Finance lease habilities
21a 2013
Present Present
value value
of minimum ‘of minimum
Minmum lease Mimmum lease
Payments payments payments payments
Within one year 3 3 4 3
Between one and five years : : 4 4
Total minimum lease payments 3 3 8 7
Less amounts representing finance charges : : ay 2
Present value of minimum lease payments 3 3 7 7
Of which
Current 3 3 3 3
Non-current : : 4 4
The aggregate finance charges allocated for the period in
respect of finance leases was £470,680 (2013 £738,859)
The fair value of finance lease liabilities 1s not materially
different from the carrying value
22 Related party disclosures
Joint venture
The following company ts a joint venture of the Group
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
Company Country of incorporation % Holding Puncipat activities
Furst Rate Exchange Services
Holdings Limited United Kingdom. 50 Bureau de Change
Associates
The following company was an associate of Post Office Limited during the prior 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
‘Annual Report and Financlat Statements 2013/14
POL00026716
POL00026716
NOTES TO THE FINANCIAL STATEMENTS
Related party transactions
Dunng 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 owed from Amounts owed to
Salestrecharges to Purchases/recharges related party including related party including
related party trom related party outstanding loans outstanding loans
2014 2013 2014 2013 2004 2013 2014 2013
im fm im in im fm im tm
Royal Mail plc 356 371 40 37 29 : 50 4
Romec Limited - 10 8 - : 8 2
Midasgrange Limited - 35 : 1 - : : :
First Rate Exchange Services
Holdings Limited 27 Ed 125 125 5 7 6 i
The sales to and purchases from related parties are made Separately
at normal market prices Balances outstanding at the year
end are unsecured, interest free and settlement 1s made
by cash Royal Mati pic is an associate of Postal Services
Holding Company Limited Midasgrange Limited was an
associate of the Group until September 2012 and First Rate
Exchange Services Holdings Limited is a yoint venture of
the Group
The Group trades with numerous Government badies on an
arm’s length basis Transactions with these entities are not
disclosed owing to the significant volume of transactions that
are conducted
the Group has certain loan facilities with Government
(note 15),
the Group has received a Government Grant of £215
million, £215 million of which was recognised through
the income statement, 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 30 March 2014 The aggregate
remuneration of the key management personnel of the Post
Office Group ts set out below
wm own r aon
£000
Short-term employee benefits 3,582
Post-employment benefits 59
Other long-term benefits 439
Total 4,080
23 Post balance sheet events
In accordance with the funding agreement with Government
announced on 27 October 2010, for which State Aid approval
24 Immediate and ultimate parent company
‘At 30 March 2014, the Directors regarded Postal Services
Holding Company Limited as the immediate and ultimate
parent company The largest group to consolidate the results
‘Annual Report and financial Statements 2013/14
was received on 28 March 2012, Post Office Limited received
£330 millon of funding on 1 April 2014
of the company 1s Postal Services Holding Company Limited,
a company registered in the United Kingdom
POL00026716
POL00026716
Parent Company
Financial statements
2013-14
102
POL00026716
POL00026716
INDEPENDENT AUDITOR'S REPORT FO THE MEMBERS OF POST OFFICE LIMITED
We have audited the parent company financial statements
of Post Office Ltd for the 52-week period ended 30 March
2014 which comprise the Statement of Comprehensive
Income, Statement of Changes in Equity, Balance Sheet and
the related notes 1 to 22 The financial reporting framework
that has been apphed in thew preparation 1s applicable law
and United Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice) including Financial
Reporting Standard 101 ‘Reduced Disclosure Framework’
This report ts 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 page 70, the directors are responsible
for the preparation of the parent company financial statements
and for being satisfied that they give a true and fair view Our
responsibility ts to audit and express an opinion on the parent
company financial statements in accordance with applicable
taw 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
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 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 the financial
statements In addition, we read all the financial and non-
financial information in the annual report to identify matenal
inconsistencies with the audited financial statements and to
identify any information that 1s apparently materially incorrect
based on, or materially inconsistent with, the knowledge
acquired by us in the course of performing the audit If we
become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report
‘Annual Report and Financial Statements 2013 14
Opinion on financial statements
In our opinion the parent company financial statements
give a true and fair view of the state of the company’s
affairs as at 30 March 2014,
+ 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 matter prescribed by the
Companies Act 2006
in our opinion the information given in the Strategic Report
and the Directors’ Report for the financial year for which the
financial statements are prepared 1s 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
Xf, n our opinion
adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us, or
the parent company financial statements are 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 group financial
statements of Post Office Ltd for the 52-week period
ended 30 March 2014
G4r& Yo
Angus Grant (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
25 June 2014
POL00026716
POL00026716
i
103
Company statement of comprehensive income at 30 March 2014
2014 2013
Notes im fm
Profit for the financial year 169 4
Other comprehensive income
Remeasurements on defined benefit surplus 3 52) 4
Income tax effect 2) (2)
Totat comprehensive income for the year 1s 67
There are no other comprehensive income items that will be reclassified to the profit and loss in subsequent periods
‘Annual Report and Financ Statements 2013/14
POL00026716
POL00026716
Company balance sheet at 30 March 2014
= “208
Notes im im im
Intangible assets 2 - . :
Tangible assets 3 10 " "
Investment in subsidiaries 4 : - 0
Investments in joint ventures and associates 5 1 1 s
Retirement benefit surplus 13 148 7 : 1
Total non-current assets 159 109 6
Current assets
Stocks 6 8 6
Debtors - receivable within one year 6 302 382 226
Debtors ~ receivable in more than one year 6 6 10 -
Financial assets - investments 7 30 92 62
Financial assets - derivatives - 1 :
Cash at bank and in hand 8 708 879 758
1,061 1,342 1,052
Current habihties
Creditors - amounts falling due within one year 9 (70) (877) (587)
Financial abilities - interest bearing loans and borrowings 10 : (291) G77)
Net current assets 291 174 88
Total assets less current habilities 450 283 104
Creditors - amounts falling due after more than one year " (28) (28) @)
Provisions for lrabilitres i (78) (26) (14)
Retirement benefit obligation 1B : : (206)
Net assets/tiabilities) 344 29 (124)
Capital and reserves
Called up share capital 4 - - -
Share premium 465 465 465
Profit and loss account on (236) (589)
Shareholder’s surplus/(deficit) 344 29 (124)
The financial statements on pages 103 to 119 were approved by the Board of Directors on 25 June 2014 and signed on its
GRO I
behalf by
PA Vennells
Chief Executive
‘Annual Reportand Financ Statements 2033/14
Chief Financial Officer
POL00026716
POL00026716
10s
Company statement of changes tn equity at 30 March 2014
Share Retained Total
premium —eainings equity
Notes tm tm ‘tm
Att April 2013, 465 (236) 229
Profit for the year . - 169 169
Remeasurements on defined benefit surplus B : (52) 52)
Income tax effect : Q) @
At 30 March 2014 465 TED) 344
i
ee I
At 26 March 2012 465 (589) (124) I
Profit for the year - % 7
Remeasurements on defined benefit surplus B 7 4 4 :
Transfer of pension deficit to Government 286 286
Income tax effect - Qn en
At 31 March 2013 465____(236) 229
‘Annual Report and Financial Statements 2013 / 14
NOTES TO THE FINANCIAL STATEMENTS.
1 Accounting Policies
‘The accounting policies which follow set out those which apply
In preparing the financial statements for the year ended 30
March 2014
Financial year
The financial year ends on the last Sunday in March and
accordingly, these financial statements are made up to the
52 weeks ended 30 March 2014 (2013 53 weeks ended
31 March 2013)
Authorisation of financial statements and
statement of compliance with FRS 101
The parent company financial statements of Post Office Limited
(the ‘Company’ for the year ended 30 March 2014 were
authorised for issue by the Board of Directors on 25 June
2014 and the balance sheet was signed on the Board's behalf
by PA Vennells and C M Day Post Office Limited is a limited
company incorporated and domiciled in England and Wales
These financial statements were prepared in accordance
with Financial Reporting Standard 101 Reduced Disclosure
Framework (FRS 101) and in accordance with the applicable
accounting standards These financial statements are prepared
under the historical cost 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 £169 million profit (2013 £74 million profit)
The results of Post Office Limited are included in the
consolidated financial statements of Postal Services
Holding Company Group which will be available from
Companies House
Basis of preparation
The Company has transitioned to FRS 101 from previously
extant UK Generally Accepted Accounting Practice for all
periods presented The Company has adopted FRS 101 early
which 1s permitted under the Standard Transition tables
showing all matenal adjustments are disclosed in note 22
The Company has taken advantage of the following disclosure
exemptions under FRS 101
(@) the requirements of IFRS 7 Financial Instruments
Disclosures
(b) the requirements of paragraphs 91-99 of (FRS 13 Fair
Value Measurement
(@) the requirement in paragraph 38 of IAS 1 ‘Presentation of
Financial Statements’ to present comparative information
in respect of
I paragraph 73(e) of IAS 16 Property, Plant and Equipment
paragraph 118(e) of IAS 38 Intangible Assets
(d} the requirements of paragraphs 10(d), 10(f), 39(¢) and
134-136 of IAS 1 ‘Presentation of Financial Statements’
(©) the requirements of IAS 7 Statement of Cash Flows
(f)_ the requrements of paragraphs 30 and 31 of IAS 8 ‘Accounting
Policies, Changes in Accounting Estimates and Errors’
(g) the requirements of paragraph 17 of IAS 24 ‘Related
Party Disclosures’
(h) the requirements of IAS 24 ‘Related Party Disclosures’ to
disclose related party transactions entered into between
two or more members of a group, provided that any
subsidiary which 1s a party to the transaction 1s wholly
owned by such a member
‘Annual Repor and Financial Statements 2013/14
POL00026716
POL00026716
In making an assessment of the Company's ability to continue
25.2 going concern, the Directors have considered the going
concern assessments made in relation to the Group (see note
1 on page 77) and are of the view that itis appropriate that
these financial statements have been prepared on a going
concern basis
Critical accounting estimates and judgements
in applying accounting policies
The Company 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 expertence may differ from these
estimates and assumptions In addition the Company 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.
Penston assumptions
The costs, assets and fiabilittes of the pensions operated
by the Company 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 The Group
exercises its judgement in determining the assumptions
to be adopted, after discussion with its Actuary Details
of the key assumptions are set out in note 13 of the
Company financial statements
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 @
high quality corporate bond constitutes AA rated or equivalent
status bonds
‘The prior year pension deficit transfer to HM Government
‘on 1 Apnl 2012 was taken directly through equity, as in
management's judgement this transaction was undertaken
with HM Government in its capacity as the owner of Royal
Mail Holdings plc, the Company's former parent company,
rather than in its capacity as Government
Provisions
‘The Company has recognised provisions where a present legal
or constructive obligation exists as a result of a past event,
where it 1s probable that an outflow of resources will be
required to settle the obligation and a reliable estimate of the
amount can be made Provisions are detailed in note 12 Due
to the nature of provisions the future amount settled may be
different from the amount that has been provided
Impairment of non-current assets
The Company assesses whether there are any indicators of
impairment for all non-currents assets at each reporting date
Due to ongoing operational losses (excluding the Network Subsidy
Payment) the carrying value of intangible assets and all property
plant and equipment other than freehold and long leasehold
property has been impaired to the recoverable amount
Intangible fixed assets
Intangible assets acquired separately or generated internally
are initially recognised at cost and are reviewed for
impairment An impairment loss 1s recognised in the profit
and loss account for the amount by which the carrying value
POL00026716
POL00026716
NOTES TO THE FINANCIAL STATEMENTS
of the asset exceeds its recoverable amount, which 1s the
higher of an asset's net realisable value and its value in use
Amortisation of intangible assets with finite fives 1s charged
annually to the profit and loss account on a straight-line basis
as follows
Software 1 to 6 years
Where intangible fixed assets are imparred to their
recoverable amount on acquisition the above range of asset
lives ts not applied
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 1s 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
Freehold buildings
Not depreciated
Up to 50 years
The shorter of the period of
the lease, 50 years or the
estimated remaining useful life
Leasehold buildings
Plant and machinery 3-15 years
Motor vehicles and trailers 2-12 years
Fixtures and equipment 2-15 years
Where tangible fixed assets are impaired to their recoverable
amounts on acquisition the above ranges of asset lives are
not applied This 1s currently the case for plant and machinery,
motor vehicles and trailers and fixtures and equipment
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 15
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 15 the higher of an
asset's net realisable value and its value in use
Leases
Finance jeases, where substantially all the risks and rewards
incidental to ownership of the leased ttem have passed to the
Company are capitalised at the inception of the lease with
a corresponding habality 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 lability 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
107
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 tease 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
Company's financial statements are stated at cost less
any accumulated impairment losses
Investments in subsidtaries
Investments in subsidianes 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,
8 100% subsidiary of the Company and is less than £1m
Stocks
Stocks, which include printing and stationery, retail and lottery
products, are cared at the lower of cost and net reatisable
value after adjusting for obsolete or slow-moving stock '
Deferred tax
Deferred tax is generally provided in full on timing differences
at the batance 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 items 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 1s more likely than not that the taxable
gain will be rolled over into replacement assets and charged
to tax only when there 1s a commitment to dispose of those
replacement assets,
‘on unremitted earnings of subsidiaries and associates
where there is no commitment to remit those earnings, and
deferred tax assets are recognised only to the extent that
the Directors consider that it 1s more likely than not that
there will be suitable taxable profits from which the future
reversal of the underlying timing differences can be deducted
Deferred tax assets and habilities are not discounted
Deferred tax is charged or credited directly to reserves
«fit relates to items that are credited or charged directly
to reserves Otherwise 1s recognised in the profit and
loss account
Pensions and other post-retwement benefits
People working for the Company were employed by Royal Mail
Group Limited and seconded to the Company until 31 March
2012 On 1 Apni 2012 they were transferred to be directly
employed by the Company Membership of occupational
pension schemes 1s open to most permanent UK employees
of the Company All members of defined benefit schemes
are contracted out of the earnings-related part of the State
pension scheme
‘The pension plans’ assets of the defined benefit schemes
are measured at fair value Liabilities are measured on an
actuanaal basis using the projected unit credit method and
discounted at a rate equivalent to the current rate of return,
‘ona high quality corporate bond of equivalent currency and
term The resulting defined benefit asset or ability 1s presented
‘Annual Report and Financial Staternents 2013/14
NOTES TO THE FINANCIAL STATEMENTS,
separately on the face of the balance sheet, net of any
associated deferred tax bafance Full actuanal 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 beneftt schemes, the amounts charged to
operating profit. as part of staff costs, are the current service
costs and any gains and losses arising from settlements,
curtailments and past service costs
The net difference between the interest costs and the
expected return on plan assets 1s recognised as net pensions
interest in the profit and loss account Actuarial gains and
losses are recognised immediately tn the statement of
comprehensive income Any deferred tax movement
associated with the actuanal gains and losses 1s also
recognised in the statement of comprehensive income
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
1s sterling (£)
Transactions in foreign currencies are recorded at the rate
ruling at the date of the transaction (or at the contracted rate
af the transaction ts 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 1s made when collection of the full amount
15 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 method Gains and losses are recognised in the
profit and loss account when the investments ate derecognised
‘or impaired, as well as through the amortisation process
‘Annual Report and Financial Statements 2013 / 14
POL00026716
POL00026716
Financial liabilities — interest-bearing loans
and borrowings
All loans and borrowings are classified as financial habulities
measured at amortised cost Borrowing costs are recognised
a5 an expense when incurred
Financial habilities ~ obligations under finance
lease and hire purchase contracts
All obligations under finance lease and hire purchase contracts
are dlassified 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
development of a qualifying asset, in which case they are
capitalised using the weighted average cost of borrowing
for the periad 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 date Where there is no active market, fair value 1s
determined using valuation techniques These include using
recent arm’s length market transactions, reference to the
current market value of another instrument which 1s
substantially the same, and discounted cash flow analysis
and pricing models
For the purposes of disclosing the fair value of investments
held at amortised cost in the balance sheet, in the absence of
quoted market prices, far 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 ability is derecognised when the contract
that gives rise to its 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 actwities
Auditor’s remuneration
‘The remuneration paid to auditors 1s disclosed in the Group
financial statements (note 4)
Director's emoluments
The emoluments paid to Directors are disclosed in the Group
financial statements (note 6)
POL00026716
POL00026716
109
NOTES TO THE FINANCIAL STATEMENTS
2 Intangible assets
" " 2014
tm
Cost
At 1 Apnit 2013 208
Additions ° 42
Disposals _ 7 ”
At 30 March 2014 243
Amortisation and impairment
At 1 April 2013 208
Disposals ”
imparment 42
At 30 March 2014 243
Net book value
At 30 March 2014 and 1 April 2013 — : =
The above intangible assets relate to software
3 Tangible fixed assets
“ne ™ Land and buildings “en .
Plant Fixtures
ong Short Motor and ond
Freehold leasehold teasehold —vehles._—-machinery equipment Total
im tm em tm fm fm tm
Cost
“at + April 2013 87 Ww n4 42 1 ng 981
Reclassification (5) - 3 - - 2
Additions 20 : 4 7 - 4 iz)
Disposals @) a ®) 6) : (23) @9)
At 30 March 2014 700 7 13 aa 1 7391004
Depreciation
Atl April 2013 77 7 4 RQ 1 ng 970
impairment (see note 5 1n the Group
Financial Statements) 16 7 7 - 3 73
Disposals @) Oo) @ ) : 3) 9)
At 30 March 2014 ” 16 V3 44 1 739 1,004
Net book value
At 30 March 2014 9 1 10
At April 2013 10 1 : 2 : : fa
Depreciation rates are disclosed within accounting policies
(note 1) No depreciation 1s provided on freehold land, which
represents £3 million (2013 £3 mithon) of the total cost
of properties,
4 Investment in subsidiaries
The carrying value of £100 relates solely to the Company's
investment in Post Office Management Services Limited, a
100% subsidiary of the Company
‘Annual Report and Financsal Statements 2013/14
10
POL00026716
POL00026716
NOTES TO THE FINANCIAL STATEMENTS
5 Investments in joint ventures
2014 2013
tm tm
Investment in joint ventures 7 1
Joint ventures First Rate Exchange Services Holdings Limited 1s a company.
9 9
During 2013-14 and 2012-13, the Company's only joint registered in the United Kingdom
venture investment was a 50% interest (1,000 £1 ordinary
A shares) in First Rate Exchange Services Holdings Limited Associates
with a carrying value of £0.6 milion (2013 £0 6 milion), Details of associates are disclosed in the Consolidated
whose principal activity 1s the provision of Bureau de Change Group financial statements {note 11)
6 Debtors
2014 2013
im tm
Receivable within one year
Trade debtors 54 32
Prepayments and accrued income 82 7
Chent debtors 158 240
Other receivables 8 9
Total 302 352
Receivable after more than one year
Prepayments and accrued income 15 10
7 Current financial assets ~ investments
2016 2013
tm im
Money market funds : 86
Short-term deposits ~ bank 30 6
Total 30 92
8 Cash at bank and in hand
2012
tm
Cash in the Post Office Limited network 708 879
9 Creditors — amounts falling due within one year
201 2013
tm fm
Bank overdraft 50 :
Trade creditors and accruals 188 159
Advance customer payments 37 50
Social security “4 10
Chent creditors 43 528
Obligations under finance leases 3 3
Capital creditors 31 18
Business transformation payments 10 7
Government Grant - 102
Total 770 877
‘Annual Report and Financial Statements 2013/14
POL00026716
POL00026716
mw
NOTES TO THE FINANCIAL STATEMENTS.
10 Financia! liabilities - interest bearing loans and borrowings
2014 2013
Em fm
Department of Business, Innovation & Skills loans drawn down, : 291
1,150 1150
Total facility
The loans under the facility are short dated on a programme
of liquidity management and mature on average I day after
the year end (2073 1 day) On matunty it 1s expected that
farther loans will be drawn down under this facility, which
expires in 2018 The undrawn committed facility, in respect
of which all conditions precedent had been met at the balance
sheet date is £1,150 million (2013 £859 million) The average
interest rate on the drawn down loans is 10% (2013 10%)
The facility 1s currently restricted to funding the cash and
near cash items held within the Post Office Limited network
‘The facility (including drawn down loans) 1s secured by a
foating charge over all assets of Post Office Limited and a
negative pledge over cash and near cash items The negative
pledge 1s an agreement not to grant security over the assets
or to set up a vehicle that has the same effect
11 Creditors ~ amounts falling due after more than one year
2014 2013
tm tm
‘Obligations under finance leases a
Other payables 28 24
Total 28 28
12 Provisions for lrabilities
™ ve eens Crowe Conversions ee network _ ™
Project Transformation other Total
tm fm im tm
‘ACT Apnil 2013, 7 10 9 26
Charged in operating 7 . :
exceptional items @ 93 7 ns
Charged in operating costs - : 6 6
Utiksation @ (52) an (72)
‘At 30 March 2014 2 31 25 78
The Crown Conversions project relates to past franchising
of Crown offices and onerous property lease provisions are
expected to be uttlised within four years
The Network Transformation provision relates to the major
transformation programme which ts discussed further in the
Financial Review on page 42
‘Other provisions of £25 million (2013 £9 million} include
property contracts, onerous lease obligations and personal
injury claums
‘Annwal Report and Financia! Statements 2013/14
12
POL00026716
POL00026716
NOTES TO THE FINANCIAL STATEMENTS
13 Pensions
The disclosures in this note relating to the year ended
30 March 2014 and the comparatives for the year ended
31 March 2013 reflect the Post Office Limited sectionalised
RMPP scheme which 1s independently operated by the
‘Company and the approximate 7% share of the RMSEPP
scheme Royal Mail Group Limited 1s the principal employer
mm Royal Mail Senior Executive Pension Plan (RMSEPP) and
Post Office Limited became a participating employer with
effect from 1 April 2012
During the year there was a consultation exercise with
members of the defined benefit Royal Mail Pension Plan
‘on proposed changes to the terms These changes were
agreed on 15 October 2013 and effective from 1 April 2014
The key change was to the definition of pensionable pay which
broadly will increase in line with RPI (capped at 5%) in future
regardless of actual pay growth The changes have resulted
In a one-off exceptional gain of £102 million
The disclosures tn this note 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}
Royal Mail Senior Executive Pension Plan (RMSEPP)
Royal Matt Defined Contribution Plan (RMDCP)
Defined benefit
Defined benefit
Defined contribution
UK employees
UK senior executives
UK employees
Defined Contribution
The charge in the profit and loss account for the defined
contribution schemes and the Company contributions to these
schemes was £2 million (2013 £1 million) during the year
‘Anew 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 RMPP was cared
out as at 1 April 2012 using the projected unit method For
RMPP, this valuation was concluded at £135 million surplus
The latest full actuanal funding valuation of RMSEPP was
carried out as at 31 March 2012 using the proyected unit
method For 100% of the RMSEPP plan, the valuation was
concluded at £83 million deficit RMPP includes sections
‘A,B and C each with different terms and conditions
+ Section A ts for members (or beneficiaries of members)
who joined before 1 December 1971,
Section B 1s 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 Cis for members (or beneficiaries of members)
who joined after 1 April 1987 and before 1 April 2008
A seres of changes to RMPP and RMSEPP began to take
effect on 1 April 2008 The changes encompassed
the Plans closed to new members from 31 March 2008,
all penstons and benefits earned before 1 April 2008
are still inked to final salary at the time of retirement,
from 1 April 2008, defined benefits building up for
employee members of the Plan are eamned on a career
salary basis,
Annual Report and Financia! Statements 2013/14
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,
from 1 April 2010 it ts possible to draw pension earned
before the change to normal retirement age at 55, and
continue working while still contributing to the Pension Plan
unt the maximum level of benefits has been reached, and
+ RMSEPP was closed to future accruals on 31 December 2012
Payment of £21 million (2013 £23 million) was made by the
Company during the year in respect of regular future service
contnbutions, nearly all relating to RMPP The regular future
service contributions for RMPP, expressed as a percentage
of pensionable pay, has remamned at 171% (2013 171%),
effective from April 2010 This rate is not expected to change
materially during 2014-15 For RMSEPP, these contributions
have remained at 35 9% (2013 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 £1 million
(2013 £2 million) was made by the Company during the year
No RMPP deficit payments were made during 2012-13 or
2013-14 For RMSEPP, deficit recovery payments will be £1
mullion per annum, from 1 April 2010 to 31 January 2024
A current liability of Enil (2013 £ntl) has been recognised for
payments to the pension schemes relating to redundancy
During the year, payments of £1 million (2013 £2 million)
telating to redundancy were made
The weighted average duration of the RMPP fund is 28 years,
and for the RMSEPP fund 1s 20 years Over the next financial
reporting period to 29 March 2015 it 1s expected that
‘employer contributions to the plans wall be £21 million
and £1 million for RMPP and RMSEPP respectively
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
NOTES TO THE FINANCIAL STATEMENTS
a) Major long-term assumptions
The size of the RMPP pension surplus, which ts large in
the context of the Company and its finances, 1s materially
POL00026716
POL00026716
sensitive to the assumptions adopted Smail changes in these
assumptions could have a significant impact on the surplus
and overall profit and loss charge The mayor long-term
assumptions in relation to both RMPP and RMSEPP were
_ “en At30March At 31 March
Dos 203
Pr Xa
Rate of increase in salaries 32 43
Rate of pension increases ~ RMPP sections A/B . = 23 23
Rate of pension increases -RMPP sectionC ° 32 32
Rate of pensions increases - RMSEPP members transferred from Section A of B of RMPP . 24 33
Rate of pension increases - RMSEPP all other members 33 32
Rate of increase for deferred pensions - RMSEPP members transferred from Section Aor BofRMPP 24 33
Rate of increase for deferred pensions : 23 23
Discount rate 4s 48
Inflation assumption (RP!) ~ RMPP 7 . 33 33
Inflation assumption (CPI) - RMPP 23 23
Inflation assumption (RPI) - RMSEPP- 34 33
Inflation assumption (CPI) - RMSEPP 24 23
In June 2010, Government announced that it was intending Inflation risk
to change the inflation measure used to determine statutory
minimum indexation in deferment and in payment from RPI
to CPI from April 2011 Where relevant, the inflation
assumption has changed from RP! to CPI
The ultimate cast of the RMPP plan to the Company wall
depend upon future events rather than the assumptions
made The assumptions made may not be borne out in
practice and as such the cost of the plan may be higher
{or lower} than disclosed
In common with other defined benefit schemes, the main risk
in relation to the arrangements 1s the value of the assets does
not keep pace with the mcrease in the value of the labilmes
This can anise for many reasons, but the most significant risks
are as follows
Investment risk
If the assets of the arrangements fall short of expectations,
this will lead to a decrease in the funded status
Asset volatility
The arrangements hold return seeking assets (including
equities and property) which are expected to outperform
corporate bonds in the long term but give exposure to
volatility and nsk in the short term RMPP does, however,
invest in lability dnven investment (LDI) assets which
mutigates the impact of interest rate and inflation volatility
on the funded status
Higher inflation rates than expected will act to increase the
plan habilities as benefits will increase to a higher level than
assumed The arrangements have a maximum pension
increase (generally 5% per annum) written into the rules
which limits the increase for many benefits, so limiting the
impact of high inflation This includes pensionable pay n
RMPP, which was amended with effect from 1 April 2014
In addition, the arrangement holds assets that icrease in
value as price inflation expectations rise, so mitigating the
impact of rising inflation expectauons These assets include
LDI assets in respect of RMPP*
Changes in bond yields
A decrease in corporate bond yields will increase the plan
habilties, although this will be partially offset by an increase
1n the value of the bond holdings and, to some extent, the
LOI assets
Pensioner longevity
if members tive longer than expected, the liabilities would
increase because pensions would be paid for a longer time
Liabilities accrued in the Royal Mail Pension Pian to 31 March
2012 were transferred to the Royal Mail Statutory Pension
Scheme These liabilities are no longer an obligation of the
Company and consequently the transfer resulted in a
significant removal of pension nsk from the Company
The following table shows the potential impact on the RMPP
assets and pension surplus of changes in key assumptions.
— 2014 2013
im tm
Changes in RPI and CPI inflation of +0 1% pa 8) @
Changes in discount rate of +01%pa ° ° es 30 4
Changes in real salary growth of +0 1% pa a So ) ©
“Changes in CPl assumptions of 01% pa oes ees oe oo
An additional 1 year life expectancy — : : a #
‘Anmnsal Report and Financiat Statements 2013/14
3
m4
POL00026716
POL00026716
NOTES TO THE FINANCIAL STATEMENTS
The sensitivity analysis has been prepared using projected Mortality
benefit cash flows as at the latest full actuarial valuation of, The mortality assumptions for the RMPP sectionalised
the plan The same method was applied as at the previous scheme are based on the latest self administered pension
reporting date The accuracy of this method 1s limited by scheme (SAPS) mortality tables with appropriate scaling
the extent to which the profiles of the plan cash flows have factors (106% for male pensioners and 101% for female
changed since those valuations although any change 1s pensioners) For future improvements the assumptions
not expected to be material in the context of the above allow for ‘medium cohort’ projections with 2 125% floor
sensitivity analysis These are detailed below
2014 2013 '
‘Average expected life expectancy from age 60
For a current 60-year-old male RMPP member 26 years 26 years
For a current 60-year-old female RMPP member 29 years 29 years
For a current 40-year-old male RMPP member 29 years 29 years
For a current 40-year-old female RMPP member B2years 32 years
b) Plans’ assets
The assets in the plans for the Company were
Market value
2016
Market value
2013
fm im
Sectionalised RMPP
UK equities 1 2
Overseas equities 18 27
Government bonds : 2
Corporate bonds 18 134
Property 5 :
Cash and cash equivalents 38 69
Other assets* 80 9
Fair value of RMPP assets, 260 243
Present value of RMPP habilities (90) (144)
Surplus in plan before asset ceiling adjustment 170 99
Less effect of asset ceiling ~ (23) @)
Surplus in plan after asset ceiling adjustment 147 96
“Other aziets mclude a diverse range of managed funds which wiclude mvesiment in realestate worldwide equities and emerging debt
2014 2013
im sm
Share of RMSEPP
UK equities 1 4
Overseas equities 9 6
Government bonds
Corporate bonds 3 2
Property 2 1
Other assets 1 2
Fair value of share in plan assets for RMSEPP_ 26 25
Present value of share in plan habilities for RMSEPP (24) Qa)
Surplus in plan for the share of RMSEPP before asset ceiling adjustment 2 1
Less effect of asset ceiling o :
Surplus in plan for share of RMSEPP after asset ceiling adjustment
‘Annusal Report and financial Statements 2033/14
POL00026716
POL00026716
ns
I
NOTES TO THE FINANCIAL STATEMENTS I
Aretement benefit surplus of £148 million s disclosed onthe _There 1s no element of the above present value of liabilities
balance sheet, representing the surplus in plans of £170 million that arises from plans that are wholly unfunded
and £2 milion for RMPP and RMSEPP respectively, and net of The major categones of RMPP assets as a percentage
tax of £24 million at a rate of 3596 on the element of the of total pian assets are as follows
surplus which 1s recoverable through a refund from the plans
2014 a3
* *
Secunties with quoted price in an active market
UK equities . ’
Overseas equities 7 "i
Government bonds : . 1
Corporate bonds . 45 SS
Property 2 -
Cash and cash equivalents 15 28
Other assets 31 4
Total quoted secunties 100 700
<) Movement in plans’ assets and habilities
Changes in the fair value of the plans’ assets are analysed as follows
Sectionatised RMPP 2014 Sectyonatised AMPP 2013
fm Em
Assets
Assets in sectionalised RMPP at beginning of period 243 2,108
Transfer of pension assets to Government - 1953)
Contributions paid 2 25
Employee contributions paid 8 8
Finance income 2 W
Actuarial (loss\/gain 24) 46
Benefits paid to members a @
Assets in sectionalised RMPP at end of period 260 243
™ Share of RMSEPP 2014 Share of RMSEPP 2013,
fm tm
Assets
Share of assets in RMSEPP at beginning of period 25. 2
Contributions paid : ° 1 2
Movement in contributions accrued - -
Employee contributions paid - :
Finance income 1 a
Actuarial gains — - 1
Benefits paid to members ° — oO . ° om TO.
Share of assets in RMSEPP at end of period 26 25
‘Annual Report and Financial Statements 2013 / 14
116
POL00026716
POL00026716
i
'
I
NOTES TO THE FINANCIAL STATEMENTS
Changes in the present value of the defined benefit pension obligations are analysed as follows
Sectionalsed RMPP 2014 Sectionalised RMPP 2033
Em im
Liabilities
Liabilities in sectionalised RMPP at beginning of period (144) (2,313)
Royal Mail Pension Plan amendment 102 -
Transfer of pension liabilities to Government : 2,239
Current service cost (25) (24)
Curtailment costs* ay 2)
Finance cost {7} 9)
Employee contributions @) @)
Actuarial loss (8) (29)
Benefits paid i 2
Liabilities in sectionalised RMPP at end of period (90) (144)
Share of RMSEPP 2014
Share of RMSEPP 2013,
fm
Em
Liabilities.
Share of ltabilities in RMSEPP plans at beginning of period (24) (22)
Current service cost - .
Curtailment costs* : :
Finance cost a a)
Employee contnibutions 7 :
Actuarial loss : a
Benefits paid 1 :
Share of liabilities in RMSEPP at end of period (24) (4)
“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 assoclated with those peoole 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 profit
and loss account
‘Annual Report and Financial Statements 2013/14
NOTES TO THE FINANCIAL STATEMENTS
) Recognised charges
POL00026716
POL00026716
Ww
An analysis of the separate components of the amounts recognised in the performance statements of the Company is as follows
2014 sectionalised RMPP
Ed
2033 sectionalised RMPP
im
‘Analysts of amounts recognised in the profit and loss account
Analysis of amounts charged to operating profit before exceptional items
Current service cost 25 24
Total charge to operating profit before exceptional items
Analysis of amounts charged to operating exceptional tems
Royal Mail Pension Plan amendment (102) -
Loss due to curtailments 1 2
Total (credit/charge to operating profit 76) 26
Analysis of amounts charged/(credited) to net pensions interest
Interest on plan liabilities 7 9
Interest income on plan assets a2) a)
Net penstons credit to financing o) @)
Net (credit)/charge to the profit and loss account before deduction for tax “(en) 24
‘Analysis of amounts recognised in the statement of changes in equity
Transfer of pension liabilities to Goverament - 2,239
Transfer of pension assets to Government : 1,953)
Gain on transfer to Government 286
Total gains recognised in the statement of changes in equity : 286
‘Analysis of amounts recognised in the statement of comprehensive income
Actual return on plan assets (12) 57
Less expected interest income on plan assets (12) (qu)
Less taxation on surplus recoverable through plan refunds (20) 8
Actuarial (losses)/gamns on assets (all experience adjustments) (aay 3
Experience adjustments on abilities - (20)
Effects of changes in actuarial assumptions on liabilities 8) °
‘Actuanal losses on labilities 8) 29)
Total actuarial (losses)/gains recognised in the statement of ~
comprehensive income 62) 14
14 Share Capital
_—_ — _e " 2014 2013
% %
Authonsed
Ordinary shares of £1 each 51,000 _51,000
Total 51,000 51,000
Allotted and wsued
Ordinary shares of £1 each 50,003 50,003
Total 50,003 50,003
‘Annual Report and Financal Statements 2013/14
1B
NOTES TO THE FINANCIAL STATEMENTS,
15 Commitments
Capital commitments contracted for but not provided in the
financial statements amount to £68 million (2013 £48 millon)
Details of the Company commitments under non-cancellable
operating leases are disclosed in the Group financial
statements (note 20)
16 Finance lease habilities
Details of the Company's finance lease liabilities are disclosed
in the Group financial statements (note 21)
17 Related party disclosures
Details of transactions with related parties are disclosed
tn the Group financial statements (note 22)
18 Operating exceptional items
Details of operating exceptional items are disclosed in the
Group financial statements (note 5)
19 Taxation
Details of the taxation gains recognised in the year are
disclosed in the Group financial statements (note 8a)
20 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
£330 million of funding on 1 April 2014
21 Immediate and ultimate parent company
At 30 March 2014, the Directors regarded Postal Services
Holding Company Limited as the immediate and ultimate
parent company The largest group to consolidate the results
of the Company 1s Postal Services Holding Company Limited,
a. company registered in the United Kingdom Postal Services
Holding Company Limited financial statements can be
‘obtained from Companies House
‘Annual Report and Financial Statements 2013/14
POL00026716
POL00026716
22 Transition to FRS 101
For all periods up to and including the year ended
31 March 2013, the Company prepared tts financial
statements in accordance with the previously extant
United Kingdom generally accepted accounting practice
{UK GAAP) These financial statements, for the year ended
30 March 2014 are the first the Company has prepared
in accordance with FRS 101
Accordingly, the Company has prepared individual financial
‘statements which comply with FRS 101 applicable for periods
beginning on or after 26 March 2012 and the significant
accounting policies meeting those requirements are described
in the relevant notes
In preparing these financial statements, the Company has
started from an opening balance sheet as at 26 March 2012,
the Company's date of transition to FRS 101, and made those
changes in accounting policies and other restatements required
for the first-time adoption of FRS 101 As such, this note
explains the principal adjustments made by the Company in
restating its previously published UK GAAP financial statements
for the year ended 31 March 2013 No restatements are
required in relation to the Company balance sheet for the
year ended 25 March 2012
On transitron to FRS 101, the Company has applied the
requirements of paragraphs 6-33 of IFRS 1 ‘First time
adoption of International Financial Reporting Standards’
IERS 1 allows first-time adopters certain exemptions from
the general requirements to apply IFRSs as effective for
March 2014 year ends retrospectively The Company has
taken advantage of the following exemptions
Cumulative actuarial gains and losses on pensions and other
post employment benefits are recognised in full in equity on
the date of transition to IFRS This 1s the same treatment as
under UK GAAP
POL00026716
POL00026716
ng
NOTES TO THE FINANCIAL STATEMENTS.
" FRSION .
femeasurements! vas
ux case “Tectassdncations total
Notes en em tn
Reconciliation of equity as at 31 March 2013
Intangible assets : : .
Tangible assets n - n
Investment in subsidianies : - -
Investments mn joint ventures and associates 1 - 1
Retirement benefit surplus 1 100 fe 97
Debtors ~ receivable after more than one year 2 10 fo) -
Total non-current assets 122 (3) 109
Current assets
Stocks 7 8 - a
Debtors - receivable within one year 352 : 352
Debtors - receivable after more than one year 10 10
Financial assets ~ investments 2 - 2
Financial assets ~ denvatives 4 : i
Cash at bank and in hand 879 7 879
1,332 10 1,342
Current liabilities .
Creditors - amounts falling due within one year 77) - (877)
Financial liabulities - interest bearing loans and borrowings 90 ee)
Net current assets 164 10 174
Total assets less current liabilities 286 @ 283
Creditors - amounts falling due after more than one year 8) : (28)
Provisions for tiabilities (26) > (26)
Net assets 232 @) 229
Capital and reserves
Called up share capital - - -
Share premium 465 - 465
Profit and loss account (233) @) 236)
Shareholder's surplus 232 @ 29
1 Under IFRS the retirement benefit surplus as at 31 March
2013 was assessed under IFRIC 14 which requires the
maximum asset to be recognised using appropriate recovery
methods An element of the defined benefit surplus on the
balance sheet was recoverable through a reduction in future
pension contributions which created a separate deferred tax
ability The remainder was recoverable through a refund
from the pension scheme which was subject to a tax deduction
at 35% which was shown net against the pension surplus
Under UK GAAP no retirement benefit surplus ts recognised
based on refunds, and the surplus as at 31 March 2013
was recoverable fully through a reduction in future pension
contributions and therefore created a larger deferred
tax lability
The impact of transition to FRS 101 has been to decrease the
retirement benefit surplus as at 31 March 2013 by £3 million
in order to recognise the tax deduction on the element of
the surplus recoverable through a refund from the pension
scheme This also had the effect of reducing the actuarial
gain recognised through reserves from £17 million under
UK GAAP, to £14 mifhion under FRS 101
The effect of the transition on reported profit of the Company
for the year ended 31 March 2013 1s as follows
fm
Profit for the year ended 31 March 2013
under UK GAAP 76
Deferred tax asset @
Profit for the year ended 31 March 2013
under IFRS 74
The corresponding movement in the deferred tax hability
1s taken through the Company statement of comprehensive
income, and therefore has no overall effect on equity
2 The use of FRS 101 requires preparation of a balance
sheet in accordance with ‘The Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations
2008" which requires presentation of debtors falling due
after more than one year within current assets
‘Annual feport and Financial Statements 2013/14
120
POL00026716
POL00026716
NOTES TO THE FINANCIAL STATEMENTS.
Corporate information
Registered Office
Post Office Limited
148 Old Street
LONDON
ECIV 9HQ
Auditor
Ernst & Young LLP
1 More London Place
LONDON
SEI 2AF
Solicitor
Linklaters LLP
One Silk Street
LONDON
EC2Y 8HQ
Actuary
‘Towers Watson Limited
Watson House
London Road
REIGATE
Surrey
RH2 9PQ
Consumer Body
Citizens Advice
Consumer Futures,
Citizens Advice Bureau
200 Aldersgate Street
London
ECIA 4HD
Citizens Advice Scotland
1st Floor, Spectrum House
2 Powderhall Road
Edinburgh
EH7 468
Citizens Advice Cymru
Ground Floor, Quebec House
Castlebndge
5-19 Cowbridge Road East
Cardiff
CF1I 9AB
The General Consumer Council for Northern Ireland
Post Offices NI
The Consumer Council
FREEPOST BE 618
BELFAST
BT4 1BR
Annual Report and Finandal Statements 2013/14
Designed and produced by Open Agency, www openagency com
Printed by Linney Group Limited
The Post Office Annual Report has been printed on Regency Satin paper which contains
matenial sourced from responsibly managed forests certified in accordance with the FSC
‘(Forest Stewardship Council} Regency Satin is made from 10% recovered fibre using an ECF
{€lemental Chlorine Free) bleaching process and 1s manufactured under strict environmental
management systems in adherence to the international 150 14001 standard EMAS
(Eco- Management & Audit Scheme) and the IPPC (Integrated Potlution Prevention
and Contro}) regulation
POL00026716
POL00026716
POL00026716
POL00026716
Post Office Limited 1s registered in England and Wales Registered number 2154540 Registered Office ss 148 Old Street Landon EC1V SHO
Post Office and the Post Office togo are registered trade marks of Post Olfice Lumited