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Registered Number 2154540
Post Office Limited
Annual Report
& Consolidated Financial
Statements
2018/19
f waa
PRESENTED TO PARLIAMENT PURSUANT TO
SECTION 77 OF THE POSTAL SERVICES ACT 2000
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Post Office Limited is registered in England and Wales. Registered number
2154540.
Registered Office is Finsbury Dials, 20 Finsbury Street, London, EC2Y 9AQ.
Post Office and the Post Office logo are registered trademarks of Post Office
Limited.
Copyright 2019 The Post Office.
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Contents
Strategic Report I 02
Chairman's Foreword I 02
Chief Executive Statement I 04
Financial and Business Review I 06
Governance I 15
Corporate Governance I 15
Board of Directors I 15
Remuneration Committee Chairman’s Statement I 21
Management of Risk I 28
Our Principal Risks and Mitigations I 29
Directors' Report I 34
Financial Statements I 37
Directors’ Responsibilities Statement I 37
Independent Auditor’s Report I 38
Consolidated Income Statement I 41
Consolidated Statement of Comprehensive Income I 42
Consolidated Statement of Cash Flows I 43
Consolidated Balance Sheet I 44
Consolidated Statement of Changes in Equity I 45
Notes to the Financial Statements I 46
Company Financial Statements I 85
Corporate Information I 99
Post Office Limited
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Strategic Report
The Strategic Report forthe Post Office comprises the Chairman’s Foreword, Chief
Executive’s Statement and Financial and Business Review.
Chairman’s Foreword
I am pleased to report that the Post Office Limited has had another year of progress. Our focus
continues to be on creating stronger foundations to provide better services to our customers and to
support postmasters who run our branches. At the same time, we have been set a challenge by
Government to become, for the first time in recent history, a self-sustaining company free of public
subsidy. To achieve this, we are going to have to work harder than ever before. We must match the
pace of change in the industry, embrace new technology, adapt to market trends and meet the ever
rising expectations of our customers.
Our recent results show that we are effectively transforming the business to remain relevant, easily
accessible and the first choice for customers. We grew revenue by 2% to £972m and our trading profit
increased by £25 million to £60 million. We believe we are on the right track; the success of our
Banking Framework arrangements with the UK’s banks has seen us become the biggest high street
provider of cash and point of access for everyday banking services in the country. We are now the last
cash provider in thousands of communities, reflecting our social purpose in action, supporting the
consumers and small businesses which fuel local economies. There is more growth to come and we
are working hard to expand this offer, to simplify the processes underpinning it and provide a better
share of that success to our postmasters.
Elsewhere we performed well against strong competition and emerging market trends. Our Insurance
business continued to grow in the competitive travel market. Telecoms increased its customer base
whilst significantly shifting it towards broadband. In savings, we broadly maintained total balances,
against a backdrop of low interest rates, excess funding in the market, and new entrants offering very
competitive rights to quickly gain market share.
This year’s acquisition of Payzone Bill Payments Limited (“Payzone”) underscores our determination
to extend our reach and accessibility for both corporate and retail customers. The integration of
Payzone’s bill payments business will more than double the number of outlets at which these services
can be conveniently transacted to 25,000 sites. This provides us with a much stronger platform
through which to innovate and win new contracts from a wide range of corporate clients.
To support postmasters, we have been reviewing our ways of working to ensure that effort and
complexity are kept to a minimum, whilst looking to extend their product offering and rebalancing
transaction fees. Our ambition is to attract and retain high quality business people to deliver for all
our customers with energy and care. The ongoing litigation involving Post Office and a group of
postmasters is an important reminder that this aspect of our work reflects the fact that there have
been disagreements in the past on the management of contractual relationships. We are determined
in future to have the very best working relationship fit for today’s business environment, and that we
must always strive to do even better.
As ever, it is our people, whether working in branches across the country, in our supply chain or in
our support centres, who are making these changes happen and I would like to thank them for their
continued support and their dedication to making this business successful.
I would also like to express my appreciation to our Shareholder, the Secretary of State at the
Department for Business, Energy and Industrial Strategy (“BEIS”), as well as his Ministers and officials
in UK Government Investments and BEIS for their collaboration and support across the year. My
colleagues on the Post Office Board and the Executive Team have, once again, demonstrated real
drive and energy in addressing the many challenges involved in modernising the Post Office for future
generations.
I would like to extend particular thanks to Paula Vennells for her service over the past seven years as
Chief Executive, leading and transforming this unique business towards an even brighter future. During
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Paula‘s leadership, Post Office has grown from a company that was losing £120 million a year, with a
branch network in desperate need of modernising, to a strong, customer-focused, innovative and
profitable business. She is leaving the business in much better shape and I wish her every success for
the future.
Finally I would like to welcome Nick Read who takes over as her successor and wish him all the best
For the future, enn nnn
Tim Parker
Chairman
3 September 2019
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Chief Executive Statement
The Post Office matters more today than ever before. Providing essential services to millions of
consumers and small businesses, day-in, day-out, across the UK is a unique privilege. We are,
therefore, relentlessly focused on what needs to be done to evolve Post Office so it is relevant for
future generations, financially robust to weather new challenges, and always faithful to our central
purpose: being there for every customer in every community.
We are growing net revenue now and continue to improve our profitability. This money is invested in
the business so we continue to provide Postmasters and customers with free access to cash, reliable
systems, the ability to comply with regulations and access to competitive products that customers
want. Customers’ buying visits to Post Offices fell by just 1% last year, a significant achievement in
an increasingly online world. We are also expanding our own services online to ensure that customers
access our markets in the way they choose.
We are hugely grateful to Postmasters and I particularly want to thank them for the extraordinary
service they provide — Post Office does not exist without Postmasters and our customers benefit every
day from their care and willingness to go beyond their standard duties. This literally saves lives as
recognised in our recent awards, whether it’s checking on the vulnerable customer who hasn’t been
into their Post Office or helping a heart attack customer until the ambulance arrived.
We are very mindful of the pressures on Postmasters and we are absolutely committed to making it
easier for them to serve customers and run profitable businesses. We have announced an increase in
pay for banking deposits and will announce further improvements in the autumn. We are working hard
to improve training and support, prevent errors, resolve them more quickly and reduce Postmasters’
costs.
This year saw us complete our Network Transformation Programme, by far the biggest change we
have ever made, recognising that standalone Post Offices are rarely commercially viable. Investing in
and modernising over 7,700 branches has resulted in significant increases in opening hours and levels
of customer satisfaction. Over that period, we opened 440 new Post Offices in new locations, part of
our strategy to increase convenience and choice for customers who want easier access to our services
on their doorstep. With 11,638 branches as at the year-end (2018: 11,547), our network is more
stable than in the past. A detailed breakdown will be available in this year’s Network Report.
We are continuing to franchise branches to independent Postmasters, moving services from standalone
Post Offices into retailers’ premises. Post Office has always been a franchise network (93% in 1970)
and unless the underlying economics change, we will continue in this direction. It is clear that the
process by which we consult to make sure the new service works for everyone can, and should be,
improved. We have launched a review and will revert. with new ways to engage local communities.
We are consolidating and strengthening our position in some of our traditional markets, such as bill
payments. Following clearance by the Competition and Markets Authority in October 2018, the
successful acquisition of Payzone’s bill payments business gives us a combined network of 25,000
locations at which customers can conveniently pay for essential services.
We have retained our position as number one in letters and parcels, with significant growth in home
shopping returns offsetting the continued decline in stamps. Online shopping has continued to drive
strong growth in Collections and Return volumes and we are working closely with Royal Mail to
innovate and improve our customer offering. This year we launched the new ‘Labels to Go’ service for
online shoppers to print a returns label at their local Post Office, by simply using a QR code on their
mobile phone or tablet.
Our travel proposition also continues to grow as we leverage our market leading position in Travel
Money, using technology to enhance our offer. More than 300,000 customers are already using our
new Travel App. This enables customers to manage their Travel Money Card accounts 24/7 from
anywhere in the world, as well as providing easy access to travel insurance. Over 700 branches are
now offering Passport Digital Check and Send, enabling branches to process applications online,
dramatically improving the customer experience, while boosting security. To round off what has
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become a one stop shop for our customers’ travel needs, we made International Driving Permits
available in 2,500 branches across the country, selling 350,000 permits over two months.
Over 900,000 new customers registered for our GOV.UK Verify service, which provides a secure, and
re-usable, means of definitive identity assurance giving customers access to a range of online
Government services. The opportunity now is to build on this success and expand the benefits of
digital identity to a much broader range of users and organisations. We believe the Post Office is
ideally placed to help grow this wider market, and we are seeking to rekindle Government’s impressive
early interest and positive action in the development of this new and transformative technology. We
are also seeking to work closely with Government on its planned replacement services for the Post
Office Card Account, ensuring that vulnerable customers are looked after.
Concerns over bank branch closures across the country have grown louder across the year and
underscore just how important the continued availability of access to basic banking services through
the Post Office is to communities. Since its inception in January 2017, we have significantly grown the
volume of transactions we undertake on behalf of all the UK’s major banks and there is more to come.
So many people care deeply about Post Offices and can be very critical of us at Post Office Limited,
whether it’s over franchising, Postmaster pay, our conduct of the Group Litigation or the day to day
service we provide. My message to them and to all of our people is that we welcome the criticism -
we all want successful Post Offices open everywhere and for years to come. We will continually work
with our critics across the business to learn and improve.
It has been a privilege to lead Post Office for a few months and I welcome Nick Read to take us forward
and capture our very real opportunities. The thank you list is too long to repeat here but I would single
out Postmasters and front line colleagues who deliver for customers every day.
Alisdair Cameron
Interim Chief Executive
3 September 2019
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Financial and Business Review
Summary results
We delivered our third consecutive year of profit as we continue on the path to commercial
sustainability.
Operating profit was £6 million (2018: £47 million). This is after increased depreciation and
amortisation charges of £94 million (2018: £55 million), and exceptional items of £20 million (2018:
£3 million).
Trading profit increased by £25 million to £60 million (2018: £35 million). Our revenue grew by £16
million during 2018/19 to £972 million (2018: £956 million). Growth was driven by our Mails (5%),
Telecoms (4%), Identity (7%) and Insurance (15%) business areas.
As planned, the Network Subsidy Payment (“NSP”) from Government decreased by £10 million to £60
million (2018: £70 million). NSP is to cover the costs of loss making branches which deliver our social
purpose. It is our responsibility to demonstrate that the NSP received is equal to or less than the total
loss these social purpose branches create. If the loss is less than the NSP, we are obliged to pay the
difference back to Government. This reduction in the NSP has been offset by cost reductions of £1
million and revenue growth of £16 million. As a result, adjusted EBITDA increased by £15 million to
£120 million (2018: £105 million).
Profit and Loss Summary - Trading
2019 2018 Variance Variance
£m —£m £m %
Revenue 972 956 16 2
Costs (959) (960) 1 -
Other income . 14 5 9 180
Share of profit from joint venture 33 34 (1) (3)
Trading profit 60 35 25 71
Add: Network Subsidy Payment 60 70 (10) (14)
Operating profit before depreciation,
amortisation, exceptional items and 120 105 15 14
investments (adjusted EBITDA)
Depreciation and amortisation (94) (55) (39) (71)
Exceptional items (20) (3) (17) * (567)
Operating profit before investments 6 47. (41) (87)
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Significant accounting judgements
Going concern
The Group (being the Group of companies headed by Post Office Limited) has net assets of £244
million at 31 March 2019 (2018: £203 million) and headroom on the loan from BEIS of £385 million
(2018: £327 million). This is £185 million above the target minimum headroom of £200 million, hence
we are not at risk of breaching this limit. We have also been profitable at a trading profit level with
current year profit of £60 million (2018: £35 million) and shown a profit after tax of £40 million (2018:
£17 million).
We have the following funding agreed with BEIS: a working capital facility of £950 million to 31 March
2021; a further £50 million facility available to provide same day liquidity to 4 April 2020; NSP of £50
million for 2019/20 and 2020/21 respectively; and we also have investment funding of up to £210
million available for the period from April 2018 to March 2020. Investment funding of £168 million
was received in 2018/19.
After careful consideration of the plans for the coming years, we continue to believe that Post Office
will be able to meet its liabilities as they fall due for the next 12 months. Accordingly, on that basis,
the Directors consider that it is appropriate that these financial statements have been prepared on a
going concern basis.
Key Financial Performance Indicators
2019 2018 Variance
£m —m —m
Revenue 972 956 16
Operating profit before depreciation, amortisation, 120 105 15
exceptional items and investments (adjusted
EBITDA) (note 23)
Operating profit before depreciation, amortisation,
exceptional items, investments and Network 60 35 25
Subsidy Payment (trading profit) (note 23)
Profit for the financial year 40 17 23
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Profit and Loss
As disclosed in the consolidated income statement in the financial statements on page 41, we have split
the results of the Group between trading and investments. Together these combine to give the results
of the Group. This presentation clearly separates the underlying trading of the business from the change
activity being undertaken to ensure the future sustainability of the Post Office. In the following sections,
we consider each of the columns of our consolidated income statement which combine to give an
operating profit of £40 million (2018: £15 million). Once finance income/costs, taxation credit/charge
have been factored in, the profit for the financial year is £40 million (2018: £17 million). See the
consolidated income statement on page 41 for full details.
2019 2018 Variance
£m —£m £m
Operating profit
Operating profit before depreciation, amortisation,
exceptional items and investments (adjusted 120 105 15
EBITDA)
Depreciation and amortisation (94) (55) (39)
Exceptional items (20) (3) (17)
Operating profit before investments 6 47 (41)
Investments 34 (32) 66
Operating profit 40 15 25
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Revenue
The Post Office business is organised into three strategic business units, Retail, Financial Services &
Telecoms (including Insurance) and Identity. Revenue from our subsidiary Post Office Management
Services Limited is included within the Insurance line below. Revenue from our subsidiary Payzone Bill
Payments Limited (“Payzone”) is included within the Payment Services line below. The divisions and
their performance are detailed on the next pages:
2019 2018 Variance Variance
£m —£m £m %
Retail
Mails 350 334 16 5
Retail & Lottery 42 45 (3) (7)
Payment Services 27 27 - -
Cash & Banking Services 161 158 3 2
Financial Services & Telecoms
Financial Services 113 127 (14) (11)
Telecoms 153 147 6 4
Insurance 55 48 7 15
Identity 58 54 4 7
Other* 13 16 (3) (19)
Revenue 972 956 16 2
* Relates to Supply Chain income (£10 million) predominantly for warehousing of Royal Mail stock, transport of high value
mails and release of Bank of Ireland deferred income (£3 million).
The grouping of products has altered in 2018/19 as a result of changes to internal reporting, with Post
Office Card Account (“POCA”) revenue moving from Government Services to Cash & Banking Services.
Remaining Government Services revenue has been moved into the Identity business unit. Banking
Services and ATMs revenue have also moved into Cash & Banking Services from Financial Services.
Commission income relating to Government Services has been reclassified from revenue to other
income because it did not fall within the scope of IFRS 15 Revenue from Contracts with Customers.
The impact of these changes on the reported 2017/18 performance of the divisions is detailed below:
Commission Banking 2018
2018 POCA income Identity Services ATMs reclassified
£m —m ém —m £m ém —m
Retail
Mails 334 - - - - - 334
Retail & Lottery 45 - - - - - 45
Government Services 99 (40) (5) (54) - - -
Payment Services 57 - - - - (30) 27
Cash & Banking Services - 40 - - 88 30 158
Financial Services & Telecoms
Financial Services 215 - - - (88) - 127
Telecoms 147 - - - - - 147
Insurance _ 48 - - - - - 48
Identity - - - 54 - - 54
Other 16 > : : - - 16
Revenue 961 - (5) - - - 956
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Retail
The Retail business encompasses our position as the United Kingdom’s number one mails provider, as
well as providing Cash & Banking and Payment services.
Mails
Mails includes the sale of parcels and other mails products provided by Royal Mail and Parcelforce.
Underlying trading revenue is up £16 million (5%) year on year. Growth in parcels (7%) and home
shopping returns (35%) is partially offset by the continuing decline in stamps. In addition, there were
planned reductions in the fixed fee element of the contract with the Royal Mail Group plc of £2 million.
Retail & Lottery
Retail & Lottery revenue has decreased by £3 million to £42 million (2018: £45 million). The reduction
reflects the changing shape of our branch network; although, a higher number of lottery rollovers did in
part offset the trend toward online sales.
Payment Services
Payment Services includes bill payment transactions. Revenue has remained flat at £27 million (2018:
£27 million). The acquisition of Payzone contributed £4 million to revenue, offset by reduced volumes in
the reseller market of £4 million.
Cash & Banking Services
Cash & Banking Services comprise of POCA, Banking and ATM services. Revenue has increased by £3
million to £161 million (2018: £158 million). ATMs revenue has remained stable despite market decline.
POCA revenue has decreased in line with expectations. This has been offset by significant year on year
growth in Banking Services as high street banks continued to close branches, and following the switch
made to automated deposit transactions from October 2018.
Financial Services & Telecoms
Financial Services
Our Financial Services products include mortgages, credit cards, savings and travel money, in addition
to postal orders. Revenue decreased by £14 million to £113 million (2018: £127 million).
The majority of the decrease is due to Bank of Ireland products, down £12 million to £45 million (2018:
£57 million). The competitive, customer and regulatory environments remain tough; the continued low
rate environment and Bank of England funding scheme are putting pressure on Mortgage margins and
savings rates. Mortgages are also challenged by pricing constraints, but the expansion into the Broker.
channel is compensating for this.
Revenue from Postal Orders declined by £2 million as this legacy product continues to decline in the
marketplace. The impact of Brexit uncertainty, weak sterling and tighter AML regulations continue to
impact MoneyGram and to a lesser extent travel money, which has remained stable year on year.
Telecoms
Telecoms includes Post Office HomePhone, Broadband and Fibre services.
Telecoms revenue of £153 million increased by £6 million (2018: £147 million) as customer numbers
have increased.
Insurance
Post Office Insurance provides Travel, Life and General insurance policy cover. Insurance revenue has
grown by £7 million to £55 million (2018: £48 million). The increase was driven mainly by growth in our
Over SOs Life insurance and Travel insurance businesses.
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Identity
Identity provides Home Office, DVLA and Verify services. Identity revenue has grown by £4 million to
£58 million (2018: £54 million) due to the launch of Universal Credit in Verify. A new pricing
arrangement with the Government Digital Service in November 2018 significantly reduced average
margin for the Verify service, and will do so in the future.
Costs
Total costs decreased by £1 million to £959 million (2018: £960 million).
People costs of £193 million increased by £4 million (2018: £189 million) due to pay increases.
Average headcount reduced from 5,066 in 2017/18 to 4,700 in 2018/19 reflecting the evolving shape of
our operations and the effect of the Network and DMB transformation programmes. Closing headcount for
the year was 4,391 (2018: 5,020). .
Other operating costs decreased by £5 million to £766 million (2018: £771 million) of which £3 million
relates to landlord compensation payments, with other controlled cost savings noted, especially in IT.
Depreciation and amortisation
Depreciation and amortisation charges increased to £94 million (2018: £55 million); a number of
significant assets under construction came into use during the year and are now being depreciated or
amortised.
Exceptional costs
On 11 April 2016, a High Court claim was issued on behalf of a number of postmasters against Post
Office in relation to various legal, technical and operational matters, many of which have been the
subject of significant external focus for a number of years.
The litigation is very complex and the Judge ordered that it will be heard as a series of trials.
The first trial, which finished on 5 December 2018, was about determining the legal construction of the
contract between Post Office and postmasters. The Judgment from this trial was made public on 15
March 2019.
On 23 May 2019, the Court awarded the Claimants their costs in respect of the first trial. As a result,
Post Office was instructed to make a payment on account of £6 million. These costs have been
recognised in 2018/19 as they reflect conditions that existed at the end of this reporting period.
The second trial, about technical matters concerning Post Office’s Horizon computer system started on
11 March 2019 and concluded on 2 July 2019 when the Judge retired to consider his judgment. The
judgment is not expected to be handed down before mid-September 2019.
Neither the first nor second trial have or will determine liability or the individual claimants’ cases. A
further third trial has been scheduled for March 2020, but the fourth trial has not yet been set down.
Further, a number of the Claimants assert that they have been convicted of criminal offences arising
from their roles at Post Office, with 31 of those cases being considered by the Criminal Cases Review
Commission (“CCRC”). The CCRC has the power to refer cases to the Court of Appeal who, in turn,
have the power to overturn a conviction. This could then lead to claims for compensation.
To date, the Claimants have not asserted the aggregate value of their claims in any of the Particulars
of Claim filed in the litigation.
While the Directors recognise that an adverse outcome would be material, they are currently unable to
determine whether the outcome of these proceedings would have a material adverse impact on the
consolidated position of the Group, and are unlikely to be able to do so until the Court has made further
determinations and the Claimants have provided the necessary information about the value of their
claims, The Directors continue to keep this under close review.
The Post Office Group Litigation represents a possible obligation arising from past events, whose
existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future
events not wholly within the control of the Group.
The costs of £20 million included in exceptional items relate to Post Office defending the Post Office
Group Litigation (2018: £3 million) during the financial year.
On 14 June 2018, an Employment Tribunal claim was issued on behalf of a number of postmasters
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against Post Office in which they seek to establish that they are "workers" of Post Office and therefore
have rights to holiday pay.
Post Office's position is that postmasters are independent contractors in business on their own account,
not workers, and this is supported by previous case law. However, if postmasters were to establish they
are workers they would gain a number of additional rights such as to take and be paid for annual leave
and a right to receive the National Minimum Wage/National Living Wage. This would likely result in
future increased business costs and retrospective claims for compensation.
The litigation is at a relatively early stage. Post Office and the Claimants are currently going through a
process of agreeing ‘test cases’. It is anticipated that this process will be complete by 11 October 2019.
On 11 October 2019 there will be a hearing, which will set a date for a future preliminary hearing to
decide whether or not the Claimants have worker status. No date has been set for that hearing but Post
Office does not expect it to take place prior to April 2020.
That first hearing will only determine the legal principle of whether postmasters (or some categories of
postmaster) are workers. Should the Claimants succeed on this point, a further trial will be required to
decide the value of their quantum of their claims. No date has been set for this at present.
To date, the Claimants have not asserted the value of their claims.
This litigation represents a possible obligation arising from past events, whose existence will be
confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly
within the control of the Group.
While the Directors recognise that an adverse outcome could be material, they are currently unable to
determine whether the outcome of these proceedings would have a material adverse impact on the
consolidated position of the Group, and are unlikely to be able to do so until the Employment Tribunal
has determined the worker status question and the Claimants have provided the necessary information
about the value of their claims. The Directors continue to keep this under close review.
Joint venture
Post Office Limited has a joint venture with the Bank of Ireland with each holding 50% of First Rate
Exchange Services Holdings Limited. The principal activity of the business is the supply of foreign
exchange in the UK to the Post Office and others. The share of operating profit from the joint venture
was £33 million (2018: £34 million).
Capital and investment costs
Investment costs included in the consolidated income statement are shown below:
2019 2018
£m £m
Investment funding 168 70
Restructuring:
Business transformation . (14) (16)
Network programmes (68) (63)
IT transformation (13) (6)
Severance (39) (17)
Total restructuring costs (134) (102)
Unwinding of discount on provisions (1) (2)
Total investment income/ (charge) 33 (34)
Restructuring costs include the costs of delivery for major change programmes. In addition, we have
incurred £139 million (2018: £151 million) of capital spend, primarily on IT transformation projects, as
disclosed in notes 8 and 9. Combined with restructuring costs of £134 million (2018: £102 million), the
total invested in the year was £273 million (2018: £253 million).
These are offset by Government funding, recognised to match the associated costs. Government funding
for 2018/19 of £168 million (2018: £70 million) was received in quarterly instalments and was fully
recognised in the year.
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BEIS has approved funding of up to £210 million which is available for the period from April 2018 to
March 2020. The maximum available in 2018/19 was £168 million and this was received in full.
Cash flow and net debt
Cash and cash equivalents amounted to £572 million (2018: £655 million) at the year-end. There was
a net cash outflow during the year of £83 million (2018: £25 million).
Net debt (excluding cash in the Post Office network) decreased by £69 million year on year as shown
in the table below.
2019 2018
£m —£m
BEIS loan at the start of the year (623) (561)
Investment funding 168 70
Restructuring costs (121) (116)
Other cash inflows from operating activities 76 66
Net cash inflow from operating activities 123 20
Dividends received from joint ventures 33 34
Acquisition of businesses (17) (6)
Proceeds from the sale of property, plant and equipment 4 5
Purchase of tangible and intangible non-current assets (160) (135)
Net cash outflow from investing activities (140) (102)
Net cash outflow from financing activities (8) (5)
Decrease in cash and cash equivalents : 83 25
BEIS loan at the end of the year (565) (623)
Cash (excluding cash in the Post Office Network) 23 12
Total net debt carried forward at the end of the year (542) (611)
Post Office Limited seeks to minimise the amount drawn down on the loan from BEIS in order to
reduce its interest cost. The facility is limited to a maximum of £950 million, the unused facility at the
end of the year was £385 million (2018: £327 million). The maximum drawn down under the facility
during the year was £744 million on 13 April 2018. The facility is available at two days’ notice and has
an end date of 31 March 2021.
Post Office Limited’s borrowing facility from the Government limits the purposes for which the facility
can be used and, together with borrowing limits contained in the Articles of Association, imposes
constraints on the availability of external borrowing.
The Bank of England Note Circulation Scheme
The continued participation in the Note Circulation Scheme (“NCS”) assures that Post Office Limited has
an adequate supply of notes to meet customer demand across its network and provides a mechanism
for enabling Post Office Limited to hold Bank of England owned notes. At the end of the year £227 million
(2018: £238 million) of Bank of England owned notes were held. See note 22 on page 83 for further
details on the NCS.
Post Office also has an arrangement in Scotland with a commercial banking partner whereby surplus
Scottish notes are sold to the partner overnight for repurchase the next day. At the end of the year a
total of £3 million (2018: £17 million) was outstanding under this arrangement.
The above amounts were not recognised on the Post Office balance sheet at year end.
Pensions
Post Office Limited is the principal employer of the Post Office Section of the Royal Mail Pension Plan
(“RMPP”), which is independent of the Royal Mail section of the RMPP. Royal Mail Group Limited is the
Post Office Limited corporate. postoffice.co.uk I PAGE 13
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principal employer of the Royal Mail Senior Executives Pension Plan (*RMSEPP”) and Post Office Limited
is a participating employer within RMSEPP. RMPP and RMSEPP are both defined benefit plans. The Post
Office operates a defined contribution scheme — the Post Office Pension Plan.
Both defined benefit plans are closed to new members and closed to future accrual.
In 2016/17, a Memorandum of Understanding was executed by Post Office with the Trustee of RMPP.
This removed the unconditional right to refund from the RMPP. As a result of these events the surplus
relating to this Plan was derecognised.
In 2017/18, the Trustees of the pension scheme entered into an agreement with Rothesay Life PLC in
which a pension buy-in was effected by the purchase of two bulk annuities. Under the purchase
agreements, the Trustees of the pension plan bought an asset that provides income which matches
closely the benefit payments from the pension plan, achieving a material risk reduction as changes in
income mirror changes in benefits due to, for example, inflation and longevity.
The accounting surplus reduced by the difference between the insurance premium and the value of the
insured liabilities, creating a ‘loss’ on buy-in. There was also an ancillary premium as part of the buy-in
agreement which transferred to the insurer the risk of incorrect data being used to price the premium.
These items were recognised in Other Comprehensive Income in 2017/18. As Post Office had no right
to a future surplus in the scheme, there was an equal and opposite adjustment to the asset ceiling
through Other Comprehensive Income. As a result, there was no effect on the net assets position of the
Group.
The immaterial deficit payments into RMSEPP were agreed with the pension trustees during the year
and payments were made in accordance with the agreements. The net cash payments made are detailed
below:
2019 2018
£m —m
Regular pension contributions (20) (20)
Funding of the pension deficit - RMSEPP - (1)
Payments relating to redundancy (4) (5)
Net cash payments ; (21) (26)-
The income statement charge to trading for the year was £13 million (2018: £17 million) in relation
to the defined contribution scheme. There was no charge (2018: £nil) in relation to the defined benefit
scheme.
On behalf of the Board
Alisdair Cameron
Interim Chief Executive
3 September 2019
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Corporate Governance
Legal Ownership and Structure
Post Office Limited (“the Company”) is ; :
wholly owned by the Secretary of State Secretary of State for Business,
for Business, Energy and Industrial Eneroy & Industral Strategy
Strategy (“BEIS”). BEIS holds a special -
share in the Company, the rights of Post Office Limited
which are enshrined within the Post
Office Limited Articles of Association { I
(http://corporate.postoffice.co.uk/our- Fis ate Exchange Services Rost Ofice Management Services Bayeane Bil Payments
leadership). soften nt ete dh Sok 1008 nea 100m ond
‘of tretand (UK) ple
BEIS has no day to day involvement in
the operations of the Company or in Firs Rave Exchange Services
the management of its branch network 100% rane oy FRESH
and staff. Through UK Government .
Investments ("UKGI”), BEIS monitors the Company’s performance, in particular its compliance with
minimum network access criteria and provision of specified services. BEIS has the right to’appoint
Non-Executive Directors to the Board and typically appoints a UKGI employee for this purpose. Tom
Cooper currently holds this position.
Corporate Governance Overview 2018/19
The Company maintains standards of corporate governance appropriate for our ownership structure,
commitment to social purpose and strategy to achieve commercial sustainability. We review our
corporate governance arrangements to ensure they remain appropriate for our developing business
needs and relevant legal and regulatory advances.
Board of Directors
The Board is responsible for setting the business’ strategic aims, putting in place the leadership to
deliver them, maintaining appropriate oversight of the management of the business, reporting to the
Shareholder and determining the Company’s vision, values and organisational culture.
During 2018/19 the Board comprised an independent Non-Executive Chair, the Group Chief Executive,
the Chief Finance and Operating Officer and five Non-Executive Directors (one of whom is designated
the Senior Independent Director and four of whom are independent). Non-Executive Directors are not
employees of Post Office Limited but provide services under the terms of an individual letter of
appointment, signed at the commencement of their directorship.
Directors’ statutory duties are set out in the Companies Act 2006. The primary duty of the Directors
is to promote the success of the Company for the benefit of its Government shareholder and the wider
stakeholder community.
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Tim Parker, Independent
Chairman, Chairman of the
Nominations Committee and
member of the Remuneration
Committee
Joined the Board 1 October 2015
Alisdair Cameron, Chief Finance
and Operating Officer throughout
the 2018/19 financial year and
Interim Chief Executive from 5
April 2019.1
Joined the Board 28 January 2015
Ken McCall, Senior Independent
Director, Chair of the Remuneration
Committee and member of the
Audit, Risk and Compliance and
Nominations Committees
Joined the Board 21 January 2016
Tim Franklin, Non-Executive Director
and member of the Audit, Risk and
Compliance Committee
Joined the Board 19 September 2012
Shirine Khoury-Haq, Non-
Executive Director and member of
the Nominations and Remuneration
Committee?
Joined the Board 24 May 2018
Carla Stent, Non-Executive Director
and Chair of the Audit, Risk and
Compliance Committee
Joined the Board 21 January 2016
Tom Cooper, Non-Executive
Director, and member of the Audit,
Risk and Compliance and
Remuneration Committees
Joined the Board 27 March 2018
Paula Vennells, Group Chief
Executive, throughout the 2018/19
financial year?
Joined the Board 18 October 2010
Company Secretary:
Veronica Branton
Appointed as Company Secretary 25
July 2019
Jane Macleod
Served as Company Secretary
from her appointment on 30
August 2017 until 31 May 2019
' Alisdair Cameron was appointed interim Chief Executive on 5 April 2019 and a handover period
commenced until Paula Venneils’ resignation on 30 April 2019.
2 Shirine Khoury-Haq ceased her role as Non-Executive Director on 18 July 2019.
3 Paula Vennells resigned as Group Chief Executive on 30 April 2019.
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Non-Executive Directors are usually appointed for an initial term of three years with the scope to
renew for a second term, subject to Board approval and the approval of BEIS. Ken McCall and Carla
Stent were reappointed for a second term of three years on 29 January 2019 as Senior Independent
Director and Non-Executive Director, respectively. As the Board representative of UKGI, Tom
Cooper's appointment period is determined by the Secretary of State for BEIS.
Biographies of all current members of the Board can be found on the Post Office Limited website:
corporate. postoffice.co.uk/our-leadership.
Board
Role and responsibilities
The Board is accountable to the Secretary of State for BEIS, as the sole shareholder, for the
performance of the Company and is required to seek consent for certain matters, as included in the
Articles of Association. The Shareholder is briefed regularly on the performance of the business and
the progress to deliver the strategy.
The Board is also responsible for oversight of legal and regulatory compliance, delivery of the
strategy, providing constructive challenge to the Group Executive and communicating with the
Shareholder. The Board has a schedule of matters reserved for its decision and has approved Terms
of Reference for its committees, which are available on the Post Office Limited website.
The Board annually reviews the strategy, approves the annual budget and business plan required to
deliver the strategic objectives for that year; the last approval was 30 April 2019. The Board regularly
reviews reports on performance against that plan and receives periodic business reports from senior
management. Directors are briefed on matters to be discussed at Board and Committee meetings
by papers distributed in advance of meetings, as well as management presentations.
In setting the risk appetite for Post Office Limited the Board has established a framework to manage
and mitigate risk. The Board takes guidance from its Audit, Risk and Compliance Committee, and
has oversight of risk management. This Committee receives reports from the executive Risk and
Compliance Committee, from the internal and external audit teams and from operational
management. Further detailed information on the management of risk within Post Office Limited,
together with identification of principal risks, their impacts and mitigation can be found in the
management of risk section on pages 28 to 33.
Key focus and achievements in 2018/19
During the year to 31 March 2019, the Board continued to oversee the Post Office Limited’s strategic
plan to achieve commercial sustainability and profitability.
This included project approvals, monitoring of developments in IT strategy, and services in the digital
space. These developments are designed to enhance customer experience and offer services that
meet customer needs in a digital age while continuing to serve our social purpose.
The Company acquired Payzone Bill Payments Limited on 24 October 2018. The business has over
25 years’ experience in the bill payments industry and offers payment terminals for bills, tickets,
lottery and mobile top up in convenience stores, enabling these businesses to generate revenue and
increase footfall.
The Board approved the appointment of new external auditors, following the resignation of Ernst &
Young LLP at the end of their term of engagement. PricewaterhouseCoopers LLP were appointed as
the Company’s external auditors on 31 July 2018 following a tender process.
The Board also focused on a revised banking framework to provide banking services in Post Office
branches on behalf of UK banks and approved investment for the Branch Hub (a self-service portal
for branch operators and business owners to access support).
The Board receive regular health and safety reports and reviewed the Conflicts of Interest Policy.
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The Board also reviewed and approved the Company's 2017/18 Modern Slavery Act Statement.
The Board continued to monitor the progress of the ongoing Group Litigation Order.
Conflicts of Interest and Independence
The Board may, in the furtherance of its duties, seek independent professional advice at the expense
of Post Office Limited. During the period, no Director sought independent professional advice.
In accordance with the Companies Act 2006, the Articles of Association give the Directors power to
authorise conflicts of interest.
During the period, none of the Directors had a material interest in any contract of significance with
Post Office Limited or any of its subsidiaries. At all times during the periods of their appointments in
2018/19, the independent Directors met the criteria for independence set by the Board.
Post Office Limited has arranged appropriate insurance cover in respect of legal action against
Directors of Post Office Limited and its subsidiaries.
Tim Parker, Ken McCall, Tim Franklin, Shirine Khoury-Haq and Carla Stent are considered
Independent Non-Executive Directors. Tom Cooper is not an independent Non-Executive Director as
he is a shareholder representative. Paula Vennells and Alisdair Cameron held executive roles
throughout the financial year, and as such were not independent directors.
Board Meetings
During 2018/19 the Board met 12 times (including additional meetings held either in person or by
telephone). A record of Directors’ attendance (attended/eligible to attend)* at the Board and its
Committees is set out in the table below:
Director Board Board Audit, Risk and Nominations Remuneration
(additional) Compliance Committee Committee
Committee
Chairman
Tim Parker 8/8 4/4 - 4/4 6/6
Executive Directors
Paula Vennells 7/8 1/4 - - -.
Alisdair Cameron 8/8 4/4 - - -
Non-Executive
Directors
Ken McCall 8/8 4/4 4/5 4/4 6/6
Tom Cooper 8/8 3/4 5/5 - 5/6
Tim Franklin 8/8 2/4 4/5 - -
Shirine Khoury-Haq 8/8 4/4 - 3/4 5/6
Carla Stent 8/8 4/4 5/5 - -
4 Directors who are not members of a committee may attend meetings from time to time, at the invitation of
the Chair.
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Committees
To assist in the execution of its corporate governance responsibilities, the Board has established
three committees which deal with specific topics requiring independent oversight. The Audit, Risk
and Compliance, Nominations, and Remuneration Committees are each chaired by an independent
Non-Executive Director.
The Board retains overall oversight but delegates responsibilities and authorities to its committees
to operate within the Terms of Reference approved by the Board. The Terms of Reference for all
committees are reviewed annually to assess that each Committee discharged its duties effectively in
accordance with the Terms of Reference. The reviews conducted in March 2019 raised no issues.
Terms of Reference for the committees are available on the Post Office Limited website:
www.corporate. postoffice.co.uk/our-leadership.
Nominations Committee
Role and Membership
The duties and responsibilities of the Nominations Committee are included in the Terms of Reference,
which are available on the Post Office Limited website: www.corporate.postoffice.co.uk/our-
leadership.
The Committee is chaired by Tim Parker, Chairman, and the other members during the year were
Shirine Khoury-Haq, Non-Executive Director and Ken McCall, Senior Independent Director.
Work of the Committee in 2018/19
During the year the Committee considered the skills and experience required by the Board for a new
Group Chief Executive and a new Non-Executive Director and worked with Russell Reynolds (search
consultants) on the proposed appointments. The Committee approved re-appointments to subsidiary
boards and the appointment of a new Chair of Post Office Management Services Limited.
The Nominations Committee monitored the independence and internal process for the evaluation of
the Board and Board sub-committees and considered developments in corporate governance and
how these should apply to the Company.
The Committee considered the reporting requirements under the Companies (Miscellaneous
Reporting) Regulations 2018 and a section will be introduced to the 2019/20 Annual Report to show
how the requirements of Section 172 of the Companies Act 2006 were fulfilled, including having
regard for the views of the shareholder, employees, customers and suppliers when making decisions.
Remuneration Committee
The role, membership and work of the Remuneration Committee is detailed in the Remuneration
Committee Chairman’s Statement on pages 21 to 27.
Audit, Risk and Compliance Committee
Role and Membership
The duties and responsibilities of the Audit, Risk and Compliance Committee are included in the
Terms of Reference which are available on the Post Office Limited website:
www.corporate. postoffice.co.uk/our-leadership.
The Committee is chaired by Carla Stent, Non-Executive Director, and the other members during the
year were Ken McCall, Senior Independent Director, Tom Cooper, Non-Executive Director and Tim
Franklin, Non-Executive Director.
The Board considers that the Committee’s members have broad commercial knowledge and
extensive business leadership experience and that this constitutes an appropriate mix of business
and financial experience and expertise.
The Directors of Risk & Compliance and Head of Internal Audit attended all of the meetings of the
Committee and also met the Committee Chair, independently and regularly, throughout the year.
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The external auditor was invited to, and attended, all meetings of the Committee except on 31 July
2018, where the Committee recommended to the Board the appointment of new external auditors
PricewaterhouseCoopers LLP.
Further detailed information on the management of risk within Post Office Limited, together with
identification of principal risks, their impacts and mitigation, can be found in the Management of Risk
section on pages 28 to 33.
Work of the Committee in 2018/19
During the year, the Committee reviewed the Annual Report and Financial Statements for 2017/18,
including consideration of the principal and strategic risks, and recommended Board approval.
The Committee approved the annual audit plans for the internal and external auditors. The
Committee received and challenged, where appropriate, internal audit reports.
The Committee reviewed the risk management framework for the Company, including its appetite
for risk, self-assessment of the control framework and areas of specific risk highlighted by the
Executive Risk and Compliance Committee. It reviewed and approved relevant policies, such as
financial crime and protecting personal data, as part of an annual review cycle.
Board and Committee Effectiveness Evaluations
The Board recognises that an effective Board is vital to the success of the Company and the business.
Ken McCall, Senior Independent Director, led an internal Board effectiveness evaluation in December
2018 which included a formal evaluation of the performance of the Board, its Committees and the
Chair.
The Board evaluation was conducted by internal questionnaire and, following a review of the results,
recommendations were presented to the Board. The feedback and scores were positive but areas for
additional focus were identified, including closer engagement with and understanding of
stakeholders’ perspectives, particularly postmasters and employees; the competitor landscape and
franchising models; and periodic scheduling of meetings without the executives.
As part of the Board review process, each Board Committee undertook a review of its effectiveness.
The feedback and scores were positive. Each Committee considered the feedback from the evaluation
and agreed ‘actions. The Audit, Risk & Compliance Committee decided to increase the number and
length of meetings held annually to reflect the range and scope of legal and regulatory compliance
and risk management issues across a span of business lines. It also agreed that Non-Executive
Members of the Committee would hold separate meetings with the Head of Internal Audit
periodically. The Nominations Committee added a succession planning review to its-forward agenda
and the Remuneration Committee commissioned a report on the group remuneration framework and
the approvals process.
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Remuneration Committee Chairman’s Statement
This Directors’ remuneration report for 2018/19, outlines the remuneration framework we've
followed over the past financial year and how we intend to improve on this going forward.
During a year in which conditions have continued to be very difficult on the UK’s high streets, with
many businesses retreating, the Post Office has made strong progress against the trend.
We have completed a major transformation our Network Transformation Programme that is helping
to keep Post Office branches at the heart of communities throughout the UK, with the business again
returning a profit to reinvest and reduce our reliance on taxpayers.
Taking the right steps for stability and sustainability in our network has been crucial to provide the
foundation from which to move forward. Our Chief Executive, Paula Vennells, who stepped down at
the end of April after 7 years, leaves a legacy of turning the business around from a £120 million
loss to a modernised, profitable organisation, thanks to her leadership and commitment. From the
strong position in which Paula left the company, the Group Executive continues to be energetically
focussed on responding to the challenges facing the business in an era of very fast-paced change.
2018/19 pay outcomes
The performance criteria used to determine both short-term and long-term incentives for the
2018/19 financial year were stretching as in previous years. The short-term incentive plan (“STIP”)
is based on a balanced scorecard of measures that ensures continued alignment with our business
strategy. The performance measures for the long-term incentive plan (“LTIP”) continue to focus on
Post Office becoming a commercially sustainable business over time, measured predominantly by
financial results.
Our response to the UK Corporate Governance Code (2018)
Whilst not a legal requirement, in next year’s report we will carefully consider application of the UK
Corporate Governance Code (“the Code”) to our policy and disclosures, to the extent that it is
relevant and practicable for Post Office. In this year’s report we have already taken some steps
towards application of the Code.
Shareholder engagement
Each year the Remuneration Committee (“the Committee”) takes into account the views of BEIS.
The Committee communicates with BEIS on developments of the remuneration aspects of corporate
governance generally and any changes to the Company’s executive pay arrangements in particular.
All remuneration for the Executive Directors requires BEIS approval.
Implementation of this policy going forward
Over the next year, we intend to operate our policy as we have in previous years. The Committee is
confident that the current policy ensures that there continues to be a strong link between reward
and performance. This report has been prepared in accordance with the provisions of the Large and
Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, to the extent that
they are applicable for Post Office in its capacity as an unlisted company.
Remuneration Policy
Summary of Remuneration Policy
The Committee is responsible for setting the remuneration packages for the Chief Executive Officer
(“CEO”) and Chief Finance and Operating Officer (“CFOO”) as well as determining the remuneration
policy for the Group Executive.
The Committee’s intention is that the remuneration policy aligns with the business strategy and risk
profile so that individuals are motivated to deliver the Post Office objectives and protect its value.
The Post Office remuneration strategy is based on the following:
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« Attracting and retaining the right people within an agreed policy to lead and deliver the
strategic plan;
« Using incentives appropriately to reward the achievement of the turnaround strategy and
promote the long-term viability of the organisation;
« Reinforcing an emerging culture of mutual ways of working and partnership; and
e Providing a transparent approach to the disclosure of pay.
This table sets out the key elements of the Remuneration Policy for Executive Directors. The
remuneration framework for the Executive Directors requires consent from BEIS each year.
Element and link to
strategy
Operation
Opportunity
Base Salary
To recruit and reward
individuals based on their
skills and for the
responsibilities required.
Salaries are normally reviewed on an annual basis, in
July.
When determining base salary increases, consideration
is given to (i) pay and employment conditions elsewhere
in the Post Office and (ii) market data on comparable
roles.
The external pay benchmarking group is a basket of
comparators, selected and agreed with BEIS.
There is no formal cap set on
salaries.
Any increase in Executive
Directors’ salaries will typically be
no more than that applied to the
wider workforce.
Benefits
To provide market
competitive benefits to
enable the recruitment and
retention of high-calibre
individuals.
The value of the benefits package is monitored by the
Committee and benchmarked against comparator
organisations.
Participation in life insurance and health cover schemes
are part of Post Office wide benefit programmes and a
grade / level dependent. Roles at grade 3a and above
are eligible for Company car schemes.
The range and value of benefits is
reasonable with regards to role
grade/level and is aligned to the
market.
Pension
To provide market
competitive pensions
packages.
Executive Directors receive a salary supplement in lieu
of pension scheme measurement.
The — pension —_contribution
scheme/cash allowance is
currently under review for new
hires.
Short-Term Incentive
Plan (STIP)
To reinforce and reward
improved in-year financial,
operational and personal
performance.
The metrics and target ranges are agreed annually with
the Board and BEIS as part of the annual business and
budget planning cycle.
80% of the target STIP award is based on a business
scorecard and 20% is based on individual performance
objectives which are agreed with the Board and require
approval by BEIS.
The business scorecard is 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.
Maximum opportunity under STIP
as % of salary for different levels
of performance are as follows:
CEO:
Threshold: 38%
Target: 48%
Maximum: 80%
FOO:
Threshold: 32%
Target: 40%
Maximum: 67%
Long-Term Incentive
Plan (LTIP)
To reward and retain key
executives and senior
managers on the
achievement of strategic
longer term targets linked
to the development and
growth of a sustainable
business.
LTIP awards are made annually.
Performance measures for the LTIP are drawn from the
Post Office Strategic Plan agreed with BEIS.
The performance targets are agreed with BEIS in
advance of each grant and will be described annually in
the Report on Remuneration.
LTIP awards may be subject to clawback.
Maximum opportunity under LTIP
as % of salary for different levels
of performance are as follows:
CEO:
Threshold: 56%
Target: 70%
Maximum: 98%
FOO:
Threshold: 40%
Target: 50%
Maximum: 70%
Post Office Limited
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Non-Executive Directors
The fees for the Chairman are reviewed by the Committee and approved by BEIS. The fees of the
Non-Executive Directors are reviewed by the Executive Directors and submitted to BEIS.
Element and link to Operation Opportunity
strategy
Fees The Chairman is paid a single fee to cover all There is no prescribed maximum annual
duties. The Non-Executive Directors are paid increase. The Committee is guided by the
To attract and retain a high a basic fee together with additional fees for general increase for employees and the
calibre Chairman and Non- chairing Board Sub-Committees or the role of Executive Directors.
Executive Directors. Senior Independent Director.
Non-Executive Directors do not participate in
any variable remuneration or receive any
other benefits.
Clawback provisions
Executive Directors have clawback clauses in their contracts, as well as the STIP and LTIP rules,
which provide for the return of any over-payments in the event of misstatement of the accounts,
error or gross misconduct on the part of an Executive Director.
Consideration of shareholder's views
Each year the Committee takes into account the views of BEIS. The policy for pay at risk concentrates
on ensuring remuneration is performance led with targets aligned with those of BEIS.
Approach to Recruitment remuneration
The remuneration package for a new Executive Director would normally be set in accordance with
the terms of the remuneration policy of the Post Office in force at the time of appointment.
Ttem Policy
Salary, Benefits and _I Salary may be set below normal market rate, with phased increases over time as the Executive
Pension Director gains experience in their new role. Benefit and Pension in line with the policy for existing
Executive Directors.
STIP Maximum annual participation will be set in line with the Company’s Policy for existing Executive
Directors and will not exceed 80% of salary.
uP Maximum annual participation will be set in line with the Company's Policy for existing Executive
Directors and will not exceed 98% of salary.
Buyout of incentives I Where the Committee determines that the individual circumstances of recruitment justifies the
forfeited on cessation I provision of a buyout, the equivalent value of any incentives that will be forfeited on cessation
of employment of an Executive Director's previous employment will be calculated taking into account the nature,
performance conditions and time horizon attaching to award forgone and will be tailored to the
individual.
Any such award would require approval by BEIS.
Internal appointment. Any variable pay element awarded in respect of their previous role will be allowed to pay out
according to the terms on which it was originally granted. Adjustments may be made to the
award, as relevant, to take into account their new role.
The Company's Policy when setting fees for the appointment of new Non-Executive Directors is to
apply the policy which applies to current Non-Executive Directors.
Post Office Limited corporate. postoffice.co.uk I PAGE 23
Annual Remuneration Report
Single total figure of remuneration
Paula Vennells CEO (note 1)
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Alisdair Cameron CFOO (note 2)
2019 2018 2019 2018
£ £ £ £
Annualised Salary 255,000 255,000 244,800 244,800
Actual Salary 255,000 253,800 244,800 243,600
Benefits 9,900 9,900 9,900 16,400
STIP (note 3) 143,800 196,400 115,200 147,900
UTIP 245,000 194,400 168,000 133,300
Cash in lieu of pension 63,800 63,800 61,200 54,700
Total Remuneration 717,500 718,300 599,100 595,900
Note 1: Paula Vennells resigned as Group Chief Executive on 30 April 2019.
Note 2: The 2018 benefits figure for Alisdair Cameron includes £6,500 company contributions to a Defined Contribution pension.
Note 3: The Remuneration Committee has exercised its discretion and has applied a 20% reduction to the STIP payment for Group Executive Members for the
2018/19 financial year. This has been applied taking Into account the ongoing postmaster Group Litigation and its Impact on the business. This reduction was appiled
to all 2018/19 Group Executive members.
Salaries for individual Executive Directors are reviewed annually by the Committee and normally
take effect from July. The Committee considered the Executive Directors’ pay review in July 2018 in
light of pay review budgets across the Group.
Remuneration of the CEO over time
The table to below shows the total remuneration of the CEO over eight financial years (since the Post
Office became independent from the Royal Mail), together with their STIP and LTIP payments in
those years:
2012
2013 2014 2015 2016 2017 2018 2019
£ £ £ £ £ £ £ £
Fetal eration 456,300 696,400 543,900 522,000 619,600 671,600 718,300 717,500
Salary/fees 250,000 250,000 250,000 ~—250,000 ~—-250,000 ~—250,000 +~—255,000 ~——-255,000
Smita) 86% 79% 38% 48% 77% 99% 96% 71%
ira) - 89% 59% 45% 59% 62% 80% 100%
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Single Figure for Non-Executive Directors
The table below shows the remuneration of Non-Executive Directors for the year ended 31 March
2019 and the comparative figures for the year ended 25 March 2018.
Annualised Actual
salary/fees salary/fees Total Total
Name 2019 (note 1) 2019 2019 2018
£ £ £ £
Tom Cooper (note 2) . - - - -
Tim Franklin 40,000 39,800 39,800 40,000
Virginia Holmes (note 3) 35,700 300 300 35,500
Shirine Khoury-Haq (note 4) 35,000 30,000 30,000 -
Ken McCall 50,000 49,800 49,800 50,000
Tim Parker (note 5) 19,200 19,300 19,300 75,000
Carla Stent 45,000 44,800 44,800 45,000
Richard Cailard (note 6) - - - -
Note 1: The annualised fees are shown as at 31 March 2019 or at the date of leaving,
Note 2: Tom Cooper is an employee of UK Government Investments Limited ("UKGI")
Note 3: Virginia Holmes ceased her role as Non-Executive Director on 27 March 2018.
Note 4: Shirine Khoury-Hag ceased her role as Non-Executive Director on 18 July 2019.
Note 5: Tim Parker donates the after tax value of his Board fees to charity. From 1 April 2018, Tim’s time commitment has reduced and there has been a
corresponding reduction in his annual fee.
Note 6: Richard Callard was an employee of UKGI and ceased his role as Non-Executive Director on 27 March 208.
External appointments
Paula Vennells is a Non-Executive Director of Wm Morrison Supermarkets PLC, was appointed to the
Cabinet Office Board and resigned as a Director of Hymns Ancient and Modern Limited in January
2019. Alisdair Cameron is a Non-Executive Director of Dover Harbour Board.
Payments to past Directors
No payments were made to past directors in 2018/19.
Payments for loss of office
No payments were made for loss of office in 2018/19.
Membership of the Remuneration Committee
The Committee determines, on behalf of the Board, the Company’s policy on the remuneration of
Executive Directors, other members of the Group Executive and the Chairman of the Board. The
Committee determines the total remuneration packages and contractual terms and conditions for
these individuals. The Policy framework for remunerating all senior executive managers is consistent
with the approach taken for Executive Directors. The Committee also provides oversight of all
employee reward, for example the annual bonus scheme, and reviews cascade and alignment of
reward throughout the organisation. The Remuneration Committee Terms of Reference were updated
in October 2018. The members of the Committee are listed in the table below. All are independent
Non-Executive Directors, with the exception of the Company Chairman who was independent on his
appointment. During the year ended 31 March 2019, the Committee met six times to discuss key
remuneration issues arising, the review and operation of the Company’s Remuneration Policy and
market updates by its advisers.
Meetings attended in
2018/19
Ken McCall (Remuneration Committee Chairman) 6/6
Tim Parker 6/6
Tom Cooper 5/6
Shirine Khoury-Haq 5/6
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The CEO attends the meeting by invitation of the Chairman and assists the Committee in its
deliberations, except in matters relating to their own remuneration. No Directors are involved in
deciding their own remuneration. The Committee also receives advice from the Group Human
Resources Director, along with other members of the Human Resources team and external
consultants.
External advisors
In the year under review, advice on matters related to executive remuneration was primarily
obtained from PricewaterhouseCoopers LLP (“PwC”). PwC is a founding member of the Remuneration
Consultants Group and voluntarily operates under the Code of Conduct in relation to Executive
Remuneration consulting in the UK. The Committee has reviewed the operating processes in place
at PwC and whilst they are also our statutory auditors, they are satisfied that the advice that it
receives is objective and independent.
Fairness, diversity and wider workforce considerations
When making remuneration for the Executive Directors, we consider pay, policies and practices
elsewhere in the Group.
As part of our commitment to fairness, we have introduced this section which sets out more
information on our wider workforce pay conditions, our gender pay statistics, and our diversity policy.
Whilst we recognise there is much work still to do, we believe that transparency is an important first
step towards making improvements in relation to these important issues.
Engagement with the wider workforce
Employee engagement continues to be a focus for Post Office. Employee engagement rose by 13
percentage points to 51% in 2018 and a further 8 percentage point improvement has been reported
within the Retail division in March 2019. Over 90% of colleagues responded to the survey in 2018.
Going forward, our priority is improving management capability as a key driver of engagement. It is
important for each employee at the Post Office to understand the role they have to play in securing
a successful future for the business, and a line manager plays a key part in creating this
understanding.
We continue to encourage everyone to set goals which are aligned to business priorities. For 2019/20
we have a new leadership objective which every leader in the business will share and be measured
on, focused on performance delivery, and reinforcing the importance of offering coaching and
feedback that enables personal development for all colleagues.
The Chairman of the Remuneration Committee will be joining engagement champions at an event in
August 2019. This constitutes around 80 colleagues from across the business. One of the topics to
be addressed will be executive remuneration and how it aligns to the wider workforce.
Gender Pay gap reporting
Gender pay is not the same as equal pay. Equal pay is about ensuring men and women are paid the
same for work of equal value, as set out in the Equality Act 2010. At Post Office we support equal
pay through a robust job evaluation process that is free from gender bias.
The gender pay gap relates to the difference between the gross hourly pay of all men and the gross
hourly pay of all women across the organisation. The difference between gender pay and equal pay
is important to understand as you can have a gender pay gap without having equal pay issues. At
Post Office we recognise that more needs to be done to reduce the gender pay gap and we are
committed to doing so.
We continue to make progress. Our gender pay gap is 0.5% lower than last year, and smaller than
the UK average. We are closer to our goal of filling 50% of senior manager roles with women which
was 39% in our last report and is currently 42%. The number of women holding mid-level managerial
roles has risen by a third in the last year. We provide tailored coaching and mentoring for female
colleagues and run recruitment programmes to encourage more women to pursue careers in IT and
Finance. Our commitment has been recognised by The Times as we made their list of Top 50
Employers for Women for the third time.
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Both our mean and median hourly gap has reduced, Our median gender pay gap is 7.9%, (as
compared with the national figure of 18.4%) and our mean gender pay gap is 17%. The main reason
for the gap is the lower proportion of women in senior roles relative to men. Another reason is part-
time working - 45% of female colleagues work part-time, compared with only 12% male colleagues.
This especially impacts the bonus pay gap.
. However, we are not complacent. There is still work to do‘to ensure women at Post Office realise
their potential. We are taking actions to reduce the gender pay gap further, such as continuing to
offer tailored mentoring to female colleagues and making sure we have 50/50 gender balanced
shortlists for senior level vacancies and our next graduate intake. Above all else, we continue to
listen to our colleagues and understand what they need to help them to flourish. We will use these
conversations, alongside the data contained in our full gender pay report, to improve again next
year. Because it is the right thing to do - for the future of Post Office and our people. For our full
gender pay report please see: http://corporate.postoffice.co,uk.
Diversity Policy
Our diversity and inclusion agenda has been a significant focus for us over the past year, We aspire
to provide a positive work environment. Employment decisions - whether related to recruitment,
promotions, transfers or terminations — are based on merit and fairness.
We have improved our reporting of diversity data and now have a clearer picture of where we stand
with regards to the diversity of [i] our workforce as a whole, [ii] our leadership team and [iii] our
pipeline of talent and promotion appointments. We are continuing to work on increasing the
disclosure rate of other diversity data, including sexual orientation and disability.
We also have gender diversity and ethnic diversity targets on our business scorecard relating to
representation at senior management level. Both targets are stretching and aim to have a leadership
team that is reflective of the customers and communities we serve by 2020 (50% female
representation and 14% BAME (Black, Asian and Minority Ethnic colleagues) representation at
leadership level by the end of 2019/20), Introducing this target has sent a clear message to our
leaders and colleagues in the business that gender diversity is not just a HR issue, but a business
imperative and helps to keep this issue on the agenda.
Other actions we have taken include:
¢ Being more demanding of our executive search firms. We insist on being provided
with gender balanced shortlists for senior roles to ensure that we are looking within the
widest possible pool of talent when recruiting new leaders into the business. This has
contributed to the increase we have seen in the representation of senior women in the
business to 42%. We are now aiming to broaden this to include greater ethnic diversity on
shortlists for leadership roles also.
» Placing greater emphasis on diverse talent pipelines for senior and executive
roles. Our Head of Talent is working with each group executive member to identify their
top talent and challenge where this is not a diverse list. As a result we have seen an
increase in the number of women promoted internally with 60% of our upward transfers in
the last year being women, and 24% of our upwards transfers being BAME colleagues.
« Working to create an inclusive culture, Diversity and inclusion is recognised as a strategic
priority by the business from the very top level. We reinforce the importance of diversity and
inclusion to all our people through profiling diverse role models; celebrating the diversity of
our people and marking awareness days; growing the number and impact of our employee
led diversity networks; and educating our people on the business impact of having diverse
and inclusive teams.
Ken McCall SS
Chair of the Remuneration Committee
3 September 2019
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Management of Risk
Our Approach to Risk
The commercially competitive and highly regulated environment, together with operational
complexity, exposes the Post Office to a number of risks. We define risk as anything that can
adversely affect our ability to meet the Post Office’s objectives, maintain its reputation and comply
with regulatory standards. We seek to understand and harness risk in the pursuit of our objectives
and aim to operate within an acceptable level of risk taking. The Post Office has articulated its risk
appetite in relation to the most material risks with a view to managing better the key strategic risks
and assessing the risks in relation to new opportunities.
Risk Management Governance
The Board is accountable for risk management and internal controls in the Post Office, reviewing
their effectiveness and determining the nature and extent of principal risks. The Board has delegated
responsibilities to the Audit, Risk and Compliance Committee (“ARC”), which provides assurance to
the Board through review of reports from management, risk, internal audit external advisers and
external audit. Responsibility for day to day operations rests with the Group Executive. The Risk and
Compliance Committee (“RCC”) reviews the effectiveness of the risk management framework and
management of principal risks. The outputs are reported to the ARC as necessary.
Our Risk Management Framework
In order to deliver its objectives, the Post Office is required to identify, assess and manage a wide
range of risks. These are managed through an overarching framework in order to apply consistency
and transparency of risk management across the organisation. The framework identifies roles and
responsibilities of key parties in the risk management process, the policies for how risks are
managed, the tools and processes used and the reporting outputs that are generated.
The approach to risk management is based on the underlying principle of line management
accountability for effective implementation of internal controls to manage risk. The Group Executive
has identified and manages the principal risks in the organisation, focusing on the aims of the
strategic plan. These risks, with their response plans, are reviewed by the Central Risk team and at
the RCC and the ARC to assure the robustness of risk assessment and management. There is an
ongoing process of identifying, evaluating and managing the principal risks faced by Post Office.
During the year we have further improved our oversight over the level of risks being taken across
Post Office and effectiveness of our mitigating actions, including close monitoring of emerging risk
themes and incidents. Plans are also in place to fully refresh risk appetite to better inform decision
making. This is a component within our wider enhancement plan to continue maturing our Risk
Management framework.
Our Control Framework
We have an internal control framework in place for both our financial reporting and IT processes,
which fall under our self-assessment regime. In addition, we have implemented a suite of Post Office
policies which define the minimum control standards we expect to be performed within the applicable
business areas. Our risk management efforts are also underpinned by our Executives’ Declaration.
What has changed since last year?
Our principal risks evolve over time, as we progress with our strategy and drive to become a self-
sustaining company, new risks emerge and our mitigation activities adapt. Health and Safety has
become a new principal risk this year, reflecting the high importance we place on the safety of our
staff, colleagues and customers. Litigation is also new, due to the ongoing litigation involving the
Post Office. People is also a key focus, we recognise the need to attract, motivate, develop and retain
people with the right expertise to be successful. The level of risk has increased for Economic and
Political environment, in response to the ongoing political and economic uncertainty. Dependency on
strategic relationships remains a principal risk and is in an improving position. We have invested
considerably in Technology, Business Interruption and Cyber and residual risk is improving, although
the management and Board are not complacent to these risks. Both our Retail Proposition and
Regulatory Environment risks are stable. Our Retail Proposition remains fundamental to enabling us
to continue to successfully deliver our social purpose and the regulatory environment continues to
evolve and introducing new ways of doing business.
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Our Principal Risks and Mitigations
These are our principal risks, detailed with their potential consequences if they were to crystallise
and how the Post Office manages them. Any of these risks could have a material impact on our
results, condition and prospects. However, these risks should not be regarded as a complete and
comprehensive statement of all potential risks; some risks are not yet known and some that are not
considered material could later turn out to be material. Our principal risks are regularly re-evaluated
and discussed at both a Board and GE level.
Principal Risk / Movement
Potential
Consequences
Key Mitigations
STRATEGIC RISKS
Dependency on Strategic
Relationships
Post Office has a number of
strategic relationships which
are key to delivering its growth]
and strategic ambitions. The
number of such relationships is}
increasing.
We work with our partners to
align our direction and
interests to enable us to meet
evolving customer and market
requirements and any
misalignment.
t
Not achieving our
strategic ambitions,I
losing revenue and
market share.
* commercial objectives are aligned and
We have established close working
relationships with our strategic partners
underpinned by formal governance and
reporting mechanisms. These ensure
relationship deliver to expectation.
Regular interaction with strategic
partners to improve joint operating
efficiency, product offering and service
to drive growth and profitability for all
parties. This includes regular
engagement at Chief Executive Officer /
Managing Director level.
We review the relationships with our
strategic partners on a regular basis, to
ensure long term alignment, with our
customer and business outcomes.
Our key Banking Framework contract
has been comprehensively re-negotiated!
to place it on a strategic, commercially
sustainable and long term footing.
Linkages have been established at Bank
Board, POL Board and Government
levels to ensure strategic alignment.
With Royal Mail Group we maintain a
wide range of relationships, from our
front end colleagues in branch through
to Board lével. Discussions have
commenced about the long term future
of the partnership and the shape of any
future agreement.
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Principal Risk / Movement
Potential
Consequences
Key Mitigations
Retail Proposition cig
Post Office are committed to
maintaining a Retail network
of at least 11,500 branches.
Critical to this objective is
offering an attractive
proposition for our retail
partners and to continue to
operate Post Offices in
communities who need us.
We continue to review and
develop our proposition to
enable us to continue to
successfully deliver our social
purpose, which addresses the
impact of: .
e increased high street costs;I
* ongoing move to online;
and
e a decline in traditional
income streams.
Inability to meet
our network
commitment, and
consequent
adverse impact on
delivery of our
social purpose and
consequential
financial impacts.
We are continuing to open branch
locations where there is a customer
need, adding 440 ‘new network
locations’ in 2018/19. We are also
continuing to improve our support to
existing postmasters and have
strengthened our field support team this
year.
New technology will help our
postmasters manage costs and our
business to remain relevant to
customers and we are investing in the
next generation of automation for our
branches as well as further developing
the software that will allow retailers to
sell Post Office products on their own
tills.
STRATEGIC RISKS
Economic and Political
Environment
Current uncertainties in the
external political, economic
and social environment could
detrimentally impact our
strategy and operating model
significantly:
Brexit itself represents a
potential series of risks which
would be most pronounced in
the event of a no-deal
departure from the EU, but
has also taken a very serious
toll on all aspects of .
Government and politics more
broadly. There remains a
possibility that the current
impasse will increase the
pressure for a General
Election, with the attendant
risk that Government and our
Shareholder’s priorities may
change in favour of any new
Government's agenda, with
potentially significant
implications for the business.
Spending patterns
of our customers
during economic
uncertainty and
potential downturn
of the economy
e.g. decline in the
sale of banking
products,
particularly
mortgages.
Disruption to
Operations
(customs labels in
branch,
accessibility issues
for supply chain).
Financial resilience
of our postmasters
and suppliers.
Retention of skilled
labour and
recruitment.
New income
streams failing to
grow.
We regularly perform horizon scanning
to identify external events and assess
their potential impact on our business.
Our strategy considers customer
requirements, market trends and
competitor behaviour.
We continue to invest in the
development of our digital capability.
In terms of Brexit arrangements, PO
have communications, training and
contingency processes in place to deploy}
in the event of a ‘no deal’.
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Principal Risk / Movement
Potential
Consequences
Key Mitigations
IOPERATIONAL AND FINANCIAL RISKS
Health and Safety INEWI
Due to Post Office’s wide reach
through the size and operation
of its Network including fleet,
it is essential we invest in our
safety procedures and
controls.
A health and safety incident or
failure could result in serious
injury, ill health or loss of life.
Exposure to
significant costs for
reimbursement for
damages and
remediation,
operational
disruption,
prosecution and
reputational
damage.
We have regular Health & Safety trainingI
provided to all colleagues and managers
including Directly Managed Branches and}
Supply Chain Managers.
We regularly review, update and monitorI
Local Risk Assessments and safe
systems of work.
We have developed a Road Risk Policy.
We regularly review our Health & Safety
policy and Property Statutory
Compliance policies.
Our Health & Safety Management
System has been independently audited
and assessed as strong and
mature. Initiatives recommended to
further strengthen our safety culture
have been implemented,
An independent Risk Assessment of high
risk building fabric has been undertaken
and remediation actions completed.
We undertake a dynamic risk
assessment, work closely with industry
experts and bodies and have invested
heavily in security related interventions
to reduce the risk of attack and assault
across the Network and Supply Chain.
People NEW!
The Post Office is dependent
on a dedicated workforce to
meet the expectations of
customers and stakeholders.
Continuing to attract,
motivate, develop and retain
people with the right expertise
is key to its success.
Failure to deliver
our purpose,
achieving our
strategic objectives
and loss of
engagement
Development of Talent Acquisition and
Talent Development Programmes.
Review of Succession Planning on key
roles and skills required.
Updating the Employee Value
Proposition.
Engagement Champions in place to act
as an enabler of employee voice across
the business. Regional events led by
Post office leaders will be introduced to
increase senior leadership visibility and
trust.
Introduction of Digital Stars with
ongoing workshops to upskill staff on
the use of new platforms.
Recruitment is underway for the new
Digital and Innovation Board (c. 15 new
roles).
Work continues to help increase
colleague engagement led by
Engagement and Talent team.
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Principal Risk / Movement
Potential
Consequences
Key Mitigations
le
Continual review of our organisational
structure to ensure it evolves and
supports our requirements.
Key capabilities for our current and
future state needs identified with a
capability Heatmap. Key capabilities for
our current and future state needs
identified with a capability Heatmap.
Investment in developing our people.
[TECHNOLOGY AND INF
ORMATION SECURITY RISKS.
Technology, Business
Interruption and Cyber
Post Office is dependent on the,
continued effectiveness,
availability, integrity and
security of its information
systems and associated
infrastructure.
Post Office, in common with
other businesses, is continuing
to track the threat “universe”
and is aware of increasing risk
from cyber-attackers
(particularly nation states)
seeking to undermine
businesses, government and
utilities.
Direct impact on
our network
availability and
reliability resulting
-
in adverse le
customer service
and financial
performance le
and/or reputation.
A cyber-attack
could threaten the
confidentiality, le
integrity and
availability of our
systems.
We are continuing to mitigate this risk
by migrating some of our aging legacy
systems to new infrastructure and this
will continue through 2019/20.
We regularly evaluate the adequacy of
our IT infrastructure and related
controls.
We regularly meet with our key third
parties to ensure they fulfil their
obligations covering the security,
resilience and availability of our IT
systems and infrastructure.
We have introduced a Security
Improvement Plan enabling our third
party suppliers to use their security
experience to identify a gap or
improvement to a security process or
tool that Post Office has not identified,
improving our partnership and utilise
their experiences to improve our overall
security posture.
We have policies in place for cyber,
disaster recovery, information security
and acceptable use.
We monitor and provide assurance
against the minimum controls defined in
these policies.
A Security Operations Centre has been
built, enabling our IT Security Team to.
assess and manage vulnerabilities,
identify and mitigate the risk of cyber-
attacks,
We continue to further invest and
further mature our cyber defences
including:
> increasing capability within our
security operations;
cultural awareness around data
protection; and
continuous testing in house and with
experience 3” parties.
>
>
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Principal Risk / Movement
Potential
Consequences
Key Mitigations
LEGAL & REGULATORY RISKS
Group Litigation
Post Office Limited is the
defendant in Bates & Others v.
Post Office Limited, Claim Nos.
HQ16X01238, HQ17X02637 &
HQ17X04248 in the High Court!
of Justice, Queen’s Bench
Division (“The Post Office
Group Litigation”).
NEW
Legal findings and
court orders which
have an adverse
impact on financial
performance
and/or reputation.
Post Office has instructed specialist legal
advisors to advise on and conduct its
defence of the litigation, subject to
senior management oversight.
Regulatory Environment
Post Office operates under an
extensive and evolving
regulatory environment,
including areas such as
financial services, transactional
services, postal services,
telecoms, procurement,
competition law, and data
security. This environment
continues to evolve,
particularly in the financial
services (e.g. HMRC’s
requirements around Anti
Money Laundering controls,
location fees as well as Fit and
Proper) and telecoms space,
which increases the risk of
non-compliance, costs and
could impact our financial
performance.
Fines, penalties,
litigation anda
resulting adverse
impact on financial
performance
and/or reputation.
We have open dialogue with key
regulators to understand and clarify
expectations.
We regulatory perform horizon scanning
to anticipate future requirements and
planning with each business area to
undertake appropriate solutions.
On-going training is provided to staff
and retail partners on legal and
regulatory matters.
Regulatory obligations are supported by
policies which define minimum controls
that must be operated to mitigate risks.
Internal and external programmes are inI
place to provide assurance on regulatoryI
compliance.
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Directors’ Report
The Directors present the Group Annual Report and Financial Statements and Company Financial
Statements for the year ended 31 March 2019.
Expected future developments
Expected future developments are detailed in the Chief Executive's statement on pages 4 and 5.
Results and dividends
The profit after taxation for the year was £40 million (2018: £17 million). The Directors do not
recommend the payment of a dividend (2018: Enil).
Political contributions
No political contributions were made in the year (2018: Enil).
Research and development
We submitted our first research and development claim during 2018/19 in respect of 2017/18
and 2016/17. The claim relates to IT transformation projects.
Directors and their interests
The Directors of the Company who were in office during the year and up to the date of signing
the financial statements were:
T C Parker P A Vennells (resigned 30 April 2019)
ACJ Cameron T K G Cooper (appointed 27 March 2018)
TA Franklin S Khoury-Haq (appointed 24 May 2018)
(resigned 18 July 2019)
K S McCall CR Stent
V A Holmes (resigned 27 March 2018) RJ Callard (resigned 27 March 2018)
No Director has a beneficial interest in the share capital of Post Office Limited. The emoluments
of Directors are set out in the Remuneration Committee Chairman’s Statement on pages 24 and
25.
People
People are critical to our success, whether in branch or in our offices. To attract and retain the
right people we:
° Conduct regular employee surveys and use the feedback to make improvements.
. Provide information regularly on company performance, policies and organisational
developments through our intranet, briefing sessions and company-wide emails.
. Have a network of Engagement Champions representing the voices of colleagues from
each part of the business.
° Are committed to providing a safe working environment that promotes the health,
safety and wellbeing of employees. A range of services is provided to help all employees
stay mentally and physically healthy.
. Operate our Learning Academy to provide high quality learning for all employees and
postmasters, aiming to ensure that everyone is supported into reaching their full potential.
. Invest in developing the best talent to support our business, including graduate
recruitment and active participation in the apprenticeship programme, available
for new and existing colleagues.
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. Promote diversity and inclusion and celebrate the diversity of the workforce and
communities we serve. We have a number of active employee network groups such as:
Women in Leadership, to support and nurture female talent; Prism, which supports and
celebrates our LGBT+ community; BAME (supporting Black, Asian and Minority Ethnic
colleagues) and Return to Work (supporting colleagues returning to work after maternity,
other parental leave and long term absences).
° Proactively communicate that we are a Disability Confident Leader and actively try to
attract talented people to Post Office from diverse backgrounds. We do this through our
corporate careers page, recruitment agencies and other attraction channels such as
Vercida who are the world's leading diversity and inclusion employer brand platform.
. Ask all applicants to inform us of any reasonable adjustments we can make to ensure they
are not disadvantaged due to a particular disability during the selection process.
. Require all Hiring Managers to complete Effective Interviewing and Unconscious Bias
Training to ensure a consistent, fair and unbiased selection process takes place.
° Do not tolerate any form of bullying, harassment, victimisation or discrimination whether
written, verbal, visual or physical. We are committed to taking the necessary action to
ensure that they do not occur, or where they do occur that they are dealt with quickly and
eliminated, by following a consistent, fair and robust Bullying and Harassment Policy and
Procedure. All managers are required to complete Dignity at Work training to ensure they
understand their responsibilities and that they demonstrate the correct behaviours and
treat everyone with dignity and respect at all time.
Disabled employees
As noted above, the Post Office Limited has been recognised as a Disability Confident Leader. We
have a Disability Confidence networking group called ‘Be You’. This group provides support and
advice and helps the business to do the best it can for employees with disabilities. We also make
necessary adjustments for colleagues who are disabled or become disabled during the course of
their employment to allow them to carry out their role and fulfil their potential, including any
specific training needs.
Gender pay gap
Gender pay gap is detailed in the Remuneration Committee Chairman’s Statement on pages 26 to
27.
Post balance sheet events
In accordance with the funding agreement with Government, Post Office Limited received a
Network Subsidy Payment of £18 million on 2 April 2019. The Network Subsidy Payment is
received on a quarterly basis and a total of £50 million will be received from Government in
2019/20.
Going concern
After analysis of the financial resources available and cash flow projections for Post Office Limited,
the Directors have concluded that it is 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 on page 48.
Financial instrument risk
The exposure of the Group to market risk, credit risk and liquidity risk has been disclosed in note
16 to the financial statements on pages 69 to 71.
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Audit information
The Directors confirm that, so far as they are aware, there is no relevant audit information of
which the auditors are unaware, that each Director has taken all reasonable steps to make
themselves aware of any relevant audit information and to establish that the auditors are aware
of that information.
Independent Auditor
PricewaterhouseCoopers LLP were appointed as the Company's external auditors on 31 July 2018
following a tender process.
By order of the Board
Veronica Branton
Company Secretary, Post Office Limited (Company Number 2154540)
Finsbury Dials, 20 Finsbury Street, London EC2Y 9AQ
3 September 2019
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Financial Statements
Directors’ responsibilities statement
The Directors are responsible for preparing the Annual Report and the financial statements in
accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each financial 53 week
period. Under that law the Directors have prepared the Group financial statements in accordance
with International Financial Reporting Standards (IFRSs) as adopted by the European Union and
Company financial statements in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure
Framework”, and applicable law). In preparing the Group financial statements, the Directors have
also elected to comply with IFRSs, issued by the International Accounting Standards Board (IASB).
Under Company law the Directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of affairs of the Group and Company and of
the profit or loss of the Group and Company for that period. In preparing the financial statements,
the Directors are required to:
« select suitable accounting policies and then apply them consistently;
« state whether applicable IFRSs as adopted by the European Union and IFRSs issued by IASB
have been followed for the Group financial statements and United Kingdom Accounting
Standards, comprising FRS 101, have been followed for the Company financial statements,
subject to any material departures disclosed and explained in the financial statements;
« make judgements and accounting estimates that are reasonable and prudent; and
* prepare the financial statements on the going concern basis unless it is inappropriate to
presume that the Group and Company will continue in business.
The Directors 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 are responsible for keeping adequate accounting records that are sufficient to show
and explain the Group and Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Group and Company and enable them to ensure that the financial
statements comply with the Companies Act 2006.
The Directors are responsible for the maintenance and integrity of the Company’s website.
Legislation in the United Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Directors’ confirmations
In the case of each Director in office at the date the Directors’ Report is approved:
* so far as the Director is aware, there is no relevant audit information of which the Group. and
Company’s auditors are unaware; and
« they have taken all the steps that they ought to have taken as a Director in order to make
themselves aware of any relevant audit information and to establish that the Group and
Company’s auditors are aware of that information.
Post Office Limited corporate. postoffice.co.uk I PAGE 37
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Independent Auditor’s Report to the members of
Post Office Limited
In our opinion:
¢ Post Office Limited’s Group financial statements and Company financial statements (the
“financial statements”) give a true and fair view of the state of the Group’s and of the
Company’s affairs as at 31 March 2019 and of the Group’s profit and cash flows for the 53 week
period (the “period”) then ended;
* the Group financial statements have been properly prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European Union;
« the Company financial statements have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards,
comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); and
e the financial statements have been prepared in accordance with the requirements of the
Companies Act 2006.
We have audited the financial statements, included within the Annual Report & Consolidated
Financial Statements (the “Annual Report”), which comprise: the consolidated and Company
balance sheets as at 31 March 2019; the consolidated income statement and consolidated
statement of comprehensive income, the consolidated statement of cash flows, and the
consolidated and Company statements of changes in equity for the 53 week period then ended;
and the notes to the financial statements, which include a description of the significant accounting
policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”)
and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’
responsibilities for the audit of the financial statements section of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical
Standard, and we have fulfilled our other ethical responsibilities in accordance with these
requirements.
Conclusions relating to going concern
ISAs (UK) require us to report to you when:
e the Directors’ use of the going concern basis of accounting in the preparation of the financial
statements is not appropriate; or
e the Directors’ have not disclosed in the financial statements any identified material
uncertainties that may cast significant doubt about the Group’s and Company’s ability to
continue to adopt the going concern basis of accounting for a period of at least twelve months
from the date when the financial statements are authorised for issue.
We have nothing to report in respect of the above matters.
However, because not ail future events or conditions can be predicted, this statement is not a
guarantee as to the Group’s and Company’s ability to continue as a going concern. For example,
the terms on which the United Kingdom may withdraw from the European Union are not clear, and
it is difficult to evaluate all of the potential implications on the Group’s trade, customers, suppliers
and the wider economy.
Post Office Limited corporate.postoffice.co.uk I PAGE 38
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Independent Auditor’s Report to the members of Post Office Limited (continued)
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial
statements and our auditors’ report thereon. The Directors are responsible for the other
information. Our opinion on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated
in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with
the financial statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated. If we identify an apparent material inconsistency or material misstatement,
we are required to perform procedures to conclude whether there is a material misstatement of the
financial statements or a material misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the
disclosures required by the UK Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit,
ISAs (UK) require us also to report certain opinions and matters as described below.
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in
the Strategic Report and Directors’ Report for the period ended 31 March 2019 is consistent with
the financial statements and has been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the Group and Company and their environment
obtained in the course of the audit, we did not identify any material misstatements in the Strategic
Report and Directors’ Report.
Responsibilities of the Directors for the financial statements
As explained more fully in the Directors’ Responsibilities Statement set out on page 37, the
Directors are responsible for the preparation of the financial statements in accordance with the
applicable framework and for being satisfied that they give a true and fair view. The Directors are
also responsible for such internal control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and
the Company's ability to continue as a going concern, disclosing as applicable, matters related to
going concern and using the going concern basis of accounting unless the Directors either intend to
liquidate the Group or the Company or to cease operations, or have no realistic alternative but to
do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on
Post Office Limited corporate. postoffice.co.uk I PAGE 39
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Independent Auditor’s Report to the members of Post Office Limited (continued)
the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as
a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other
purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
e we have not received all the information and explanations we require for our audit; or
« adequate accounting records have not been kept by the Company, or returns adequate for our
audit have not been received from branches not visited by us; or
e certain disclosures of Directors’ remuneration specified by law are not made; or
e the Company financial statements are not in agreement with the accounting records and
returns.
Mile have.no.excentions to report arising from this responsibility.
‘GRO
Andrew Paynter (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Leeds
3 September 2019
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Consolidated Income Statement
for the 53 weeks ended 31 March 2019 and 52 weeks ended 25 March 2018
2019 2018
£m £m
Note Trading Investments Total Trading Investments Total
Revenue from contracts with 972 - 972, 956 - 956
‘osts 2,4, (959) (134) (1,093); (960) (102) (1,062)
(Costs - exceptional items 19 I (20) - . (20) (3) - (3)
Total costs (979) (134) (1,113) (963) (102) (1,065)
Other operating income I 14 - 14) 5 - 5
Investment funding 4 - 168 168 - 70 70
Network Subsidy Payment : 60 - 60) 70 - 70
Depreciation and amortisation 8,9 (94) - (94)) (55) - (55)
mare ontee profit from 10 33 . 33 34 . 34
Operating profit / (loss) 3 6 34 40 47 (32) 15
Finance costs 6 (8) (1) (9) (5) (2) (7)
(Loss) / profit before taxation 3 (2) 33 31 42 (34) 8
Taxation credit 7 I 9 - 9) 9 = 9
Profit / (loss) for the t 7 33 40) 51 (34) 17
financial year
For the year ended 31 March 2019 trading profit was £60 million (2018: £35 million).
Trading profit is one of the Group’s key financial measures and is calculated by taking operating
profit before depreciation, amortisation, exceptional items, investments and Network Subsidy
Payment. Further detail is given in note 23.
All amounts relate to continuing operations.
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Consolidated Statement of Comprehensive
Income
for the 53 weeks ended 31 March 2019 and 52 weeks ended 25 March 2018
2019 2018
Note £m £m
Profit for the financial year I 40I 17
Items that may be reclassified to profit or loss
Gain on cash flow hedge 16 3 -
Items that will not be reclassified to profit or loss
Re-measurements on defined benefit surpluses 17 (3) 2
Tax effect 17 1 (2)
Total other comprehensive income I 1I 2
I a1I 17
Total comprehensive income for the year
There are no additional other comprehensive income items that will be reclassified to the profit and
loss in future periods.
Post Office Limited corporate. postoffice.co.uk I PAGE 42
Consolidated Statement of Cash Flows
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for the 53 weeks ended 31 March 2019 and 52 weeks ended 25 March 2018
2019 2018
Note —£m £m
Cash flows from operating activities
Operating profit. 6 47
Total profit before investments I 6 I 47
Adjustment for:
Share of profit from joint venture 10 (33) (34)
Depreciation and amortisation 8,9 94 55
Pension operating costs 17 13 17
Other gains and losses 7 -
Working capital movements: 2 (2)
\(Increase)/Decrease in trade and other receivables (5) 4
Decrease in contract assets 5 -
Decrease in trade and other payables - (3)
IDecrease/(increase) in inventories (1)
Increase in trading provision 3 ;
[Decrease in provisions for discontinued operations (2) (2) }
Pension costs paid (21) (26)
Cash payments in respect of investments items: 47 (46)
investment funding 168 70
Restructuring costs (121) (116)
Surrender of tax losses to joint venture I 8 I 9
Net cash inflow from operating activities I 123 I 20
Cash flows from investing activities
Dividends received from joint ventures 10 33 34
Acquisition of businesses (net of cash acquired) 20 (17) (6)
Proceeds from the sale of property, plant and equipment 4 5
Purchase of tangible and intangible non-current assets (160) (435)
Net cash outflow from investing activities I (440) I (102)
Net cash outflow before financing activities I (17) I (82)
Cash flows from financing activities
Finance costs paid (8) (5)
Net (repayments)/proceeds of borrowings from BEIS 14 (58) 62
Net cash (outflow)/inflow from financing activities I (66) I 57
Net decrease in cash and cash equivalents (83) (25)
Cash and cash equivalents at the beginning of the year 12 655 680
Cash and cash equivalents at the end of the year 12 I 572 I 655
Post Office Limited
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Consolidated Balance Sheet
at 31 March 2019 and 25 March 2018
2019 2018
Note £m Em
Non-current assets
Intangible assets 8 291 264
Property, plant and equipment 9 176 148
Investments in joint venture 10 66 66
Retirement benefit surplus 17 1 3
Trade and other receivables Fe 6 12
Total nen-current assets 540 493
Current assets
Inventories 2 3
Trade and other receivables 11 345 330
Cash and cash equivalents 12, 16 572 655
Total current assets ‘ 919 988
Total assets 1,459 1,481
Current liabilities
Trade and other payables 13 (544) (571)
Financial liabilities - interest bearing loans and borrowings 14 (565) (623)
Provisions 15 (52) (36)
Total current liabilities (1,161) (1,230)
Non-current liabili
Other payables 13 (44) (18)
Provisions 15 (40) (30)
Total non-current liabilities (54) (48)
Net assets 244 203
Equity
Share capital 18 - -
Share premium 18 465 465
Accumulated losses (226) (264)
Other reserves 18 5 2
Total equity 244 203
The notes on pages 46 to 84 form an integral part of the consolidated financial statements,
The financial statements on pages 41 to 84 were approved by the Board of Directors on 3
September 2019 and signed on its behalf by:
GRO
ACJ Cameron
Interim Chief Executive
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Consolidated Statement of Changes in Equity
for the 53 weeks ended 31 March 2019 and 52 weeks ended 25 March 2018
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Share Share Accumulat Other Total
capital premium ed losses reserves equity
£m £m £m £m £m
At 26 March 2018 - 465 (264) 2 203
Profit for the year - - 40 - 40
Other comprehensive income - - (2) 3 1
At 31 March 2019 7 465 (226) 5 244
Share Share Accumulat Other Total
capital premium ed losses reserves equity
£m £m —m £m £m
At 27 March 2017 - 465 (281) 2 186
Profit for the year - - 17 - 17
At 25 March 2018 - 465 (264) 2 203
Post Office Limited
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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 for the 53 weeks ended 31 March 2019 (2018: 52 weeks ended 25 March 2018).
Basis of preparation
The Group financial statements on pages 41 to 84 have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by the European Union and with
those parts of the Companies Act 2006 applicable to companies reporting under IFRS. IFRS
interpretations are issued by the International Accounting Standards Board (IASB) and must be
adopted into European Law, referred to as endorsement, before they become mandatory under
the IAS regulation. Unless otherwise stated in the accounting policies below, the financial
statements have been prepared under the historic cost accounting convention.
The principal accounting policies applied in the preparation of these consolidated Financial
Statements are set out below. These policies have been consistently applied to all the years
presented, unless otherwise stated.
The Company is incorporated and domiciled in the United Kingdom. The Group consolidated financial
statements are presented in sterling and all values are rounded to the nearest £ million except
where otherwise indicated. The financial statements have been prepared in accordance with the
requirements of the Companies Act 2006.
Post Office Limited is a private Company limited by shares incorporated in England and Wales.
The income statement presents the results of the Group in a columnar format — in total and split
between trading and investments. The trading column represents the underlying performance of the
business. Investment funding from Government, restructuring and transformation costs are
separately disclosed in the investments column.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and its
subsidiary undertakings as at 31 March 2019. 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 such control ceases. A set of financial statements has been prepared for Post Office
Management Services Limited (subsidiary, registered address: Finsbury Dials, 20 Finsbury Street,
London, EC2Y 9AQ) for the 53 weeks ended 31 March 2019. A separate set of financial statements
has also been prepared for Payzone Bill Payments Limited (subsidiary, registered address: Finsbury
Dials, 20 Finsbury Street, London, EC2Y 9AQ), which was acquired on 24 October 2018, see note 20
for details.
The year-end dates of these subsidiaries are in line with the Company. The subsidiaries use
consistent accounting policies where appropriate and their results have been consolidated into the
Group financial statements. All intra-group balances, transactions, and unrealised gains and losses
resulting from intra-group transactions are eliminated in full.
New and amended standards adopted by the Group
The Group applied IFRS 15 and IFRS 9 for the first time. The nature and effect of the changes as
a result of adoption of these new accounting standards are described below.
Several other amendments and interpretations apply for the first time in 2018/19, but do not
have an impact on the financial statements of the Group. The Group has not early adopted any
standards, interpretations or amendments that have been issued but are not yet effective.
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Notes to the financial statements (continued)
IFRS 9 Financial Instruments
IFRS 9 replaces the provisions of IAS 39 Financial Instruments: Recognition and Measurement
that relate to the recognition, classification and measurement of financial assets and financial
liabilities, derecognition of financial instruments, impairment of financial assets and hedge
accounting. The adoption of IFRS 9 from 2018/19 has not had a material impact on our results,
with the key issues for Post Office being around documentation of policies and new hedge
documentation.
IFRS 9 operates an expected credit loss model rather than an incurred credit loss model.
Providing for loss allowances on our existing financial asset has not had a material impact.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations
and it applies, with limited exceptions, to all revenue arising from contracts with its customers.
IFRS 15 establishes a five-step model to account for revenue arising from contracts with
customers and requires that revenue be recognised at an amount that reflects the consideration
to which an entity expects to be entitled in exchange for transferring goods or services to a
customer.
The Group adopted IFRS 15 using the modified retrospective method of adoption. The standard
has not had a material impact on revenue recognition at Post: Office and therefore, on initial
application, no adjustment was required to the opening balance of retained earnings. Income
statement presentational reclassifications have been required in respect of the Network Subsidy
Payment and commission income relating to Government Services. These two items were
formerly recognised in revenue and have now been reclassified to other income as they did not
meet the recognition criteria from revenue under IFRS 15. Refer to page 9 for further details of
the reclassification. The accounting policies for revenue and for other income are on pages 49 to
51.
New standards and interpretations not yet adopted
IFRS 16 Leases
IFRS 16 was issued in January 2016. It will result in almost all leases being recognised on the
balance sheet by lessees, as the distinction between operating and finance leases is removed. Under
the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals
are recognised. The only exceptions are short-term and low-value leases.
The Group has set up a project team which has reviewed all of the Group’s leasing arrangements
over the last year in light of the new lease accounting rules in IFRS 16. The standard will affect
primarily the accounting for operating leases.
The Group will apply the standard from its mandatory adoption date - for Post Office this is from 1
April 2019. The Group intends to apply the simplified transition approach and will not restate
comparative amounts for the year prior to first adoption, Right-of-use assets will be measured at the
amount of the lease liability on adoption (adjusted for any existing onerous and vacant lease
provisions). The Group therefore expects to recognise right-of-use assets and lease liabilities of
approximately £75-85 million on 1 April 2019. This range is before any adjustment for impairment.
The net pre-tax impact on the consolidated income statement will be minimal - an increase in
trading profit of some £5-10 million as there will no longer be a charge for operating leases,
matched by increases in depreciation, to recognise the usage of the new right-of-use assets, and
finance costs, to recognise the unwinding of the discount on the lease liability. There will be no
impact on the cash flows of the business.
The Group’s activities as a lessor are not material and hence the group does not expect any
significant impact on the financial statements.
The Group’s current lease commitments are disclosed in note 19.
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Notes to the financial statements (continued)
There are no other standards and interpretations in issue but not yet adopted that the Directors
anticipate will have a material effect on the reported income or net assets of the Group. The Group
has not early adopted any standard, interpretation or amendment that has been issued but is not
yet effective.
Fundamental accounting concept — going concern
The Group has net assets of £244 million at 31 March 2019 (2018: £203 million), At 31 March 2019
£385 million of the Group’s working capital facility was undrawn (2018: £327 million). The Group has
also been profitable at a trading profit level with current year profit of £60 million (2018: £35 million)
and has shown a profit after tax of £40 million (2018: £17 million).
We have the following funding agreed with BEIS: a working capital facility of £950 million to 31
March 2021; a further £50 million facility available to provide same day liquidity to 4 April 2020;
Network Subsidiary Payment of £50 million for 2019/20 and 2020/21 respectively; and we also have
investment funding of up to £210 million available for the period from April 2018 to March 2020.
Investment funding of £168 million was received in 2018/19.
After careful consideration of the plans for the coming years, the Directors continue to believe that
Post Office will be able to meet its liabilities as they fall due for the next 12 months. Accordingly, on
that basis, the Directors consider that it is appropriate that these financial statements have been
prepared on a going concern basis.
Critical accounting estimates and judgements in applying accounting
policies
The Group makes certain estimates and assumptions regarding the future. Estimates and
assumptions are continually evaluated based on historical experience and other factors. In the
future, actual experience may differ from these estimates and assumptions.
In addition the Group has to make judgements in applying its accounting policies which affect the
amounts recognised in the financial statements. The most significant areas where judgements and
estimates are made are discussed below:
Critical accounting estimates:
Key assumptions used in impairment tests for non-current assets
The Group assesses whether there are any indicators of impairment for all non-current assets at
each reporting date as well as if events or changes in circumstances indicate that the carrying value
may be impaired. Factors considered important that could trigger an impairment review include the
following:
° Significant underperformance compared to historical or projected future operating results.
. Significant changes in the manner of use of the acquired assets or the strategy of the overall
Group.
° Significant negative micro- or macro-economic trends.
Where appropriate, an impairment loss is recognised in the income statement for the amount by
which the carrying value of the asset or cash generating unit (CGU) exceeds its recoverable amount.
The recoverable amount is determined based on value in use calculations which require the use of
assumptions. The calculations use cash flow projections based on financial budgets approved by
management covering a two year period. Cash flows beyond this period are extrapolated using
estimated growth rates. Refer to note 9 for the results of the latest impairment test, including
sensitivity analysis.
Actuarial assumptions
The costs, assets and liabilities of the pensions operated by the Group are determined using
methods relying on actuarial estimates and assumptions.
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Notes to the financial statements (continued)
The 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 and in accordance with published statistics and experience.
Refer to note 17 for details of the key assumptions and sensitivity analysis performed.
Pension liabilities are measured on an actuarial basis using the projected unit credit method and
discounted at a rate equivalent to the current rate of return on a high quality corporate bond of
equivalent currency and term. Judgement has been applied in determining that for these purposes a
high quality corporate bond constitutes AA rated or equivalent status bonds. .
Property provisions
The Group recognises provisions for property leases that are onerous. Assumptions are made to
determine whether the unavoidable costs of meeting the obligations of a lease agreement exceed
the economic benefits expected to be received under it. These include estimates around the future
trading performance of the site and cost allocations.
Critical accounting judgements:
The recognition of a contingent liability in respect of the Group Litigation Order is a key accounting
judgement as at the accounting reference date. The key judgement is the level to which a potential
liability is deemed possible versus probable and therefore whether a contingent liability is the correct
accounting treatment. Refer to note 19 for further detail.
Revenue
The following revenue accounting policy relates to the prior year only.
Revenue from Retail, Financial Services and Telecoms comprises the value of services provided from
the Group’s principal activities in providing a whole range of services through its physical and digital
channels. Revenue from Financial Services and some Retail services comprises the commission
received, Revenue relating to line rental for telecoms services is recognised evenly over the period to
which the charges relate and revenue from calls is recognised at the time the call is made. Revenue
from all other transactions is recognised when the transaction is completed. All revenue is derived
wholly from within the United Kingdom,
Post Office Management Services revenue comprises the value of services provided from the
principal activities in providing insurance intermediary services through its network of Post Office
branches across the UK, online and contact centre channels.’Revenue comprises commissions
received from provision of the intermediary services excluding taxes. Revenue from all transactions
is recognised when the transaction is completed.
Revenue from contracts with customers
In 2018/19, the Group adopted IFRS 15.
Retail
The Group provides Mails support services to Royal Mail and Parcelforce. Each Mails product and
service has an associated transaction price. The transaction price may vary due to the volume
transacted in the period. Revenue from providing Mails support services is recognised in the
accounting period in which the services are rendered.
The Group acts as a selling agent and earns commission on the sale of lottery tickets, scratch cards
and gift vouchers. The transaction price is a contractual commission rate, which is based on the
value of sales in the period. Revenue from the sale of lottery tickets, scratch cards and gift vouchers
is recognised in the accounting period in which these sales are made.
Payment services comprise bill payments (including the subsidiary Payzone Bill Payments Limited).
The transaction price is the fee that the Group earns for each bill paid in a branch. Revenue from bill
payments is recognised in the accounting period in which the service is rendered and is based on the
transaction price multiplied by the volume of bill payments in the period.
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Notes to the financial statements (continued)
Through the Banking Framework Agreement, the Group provides over-the-counter banking services,
such as withdrawals, deposits and balance enquiries, on behalf of banks. A transaction price is
associated with each banking service provided. Revenue is recognised in the accounting period in
which the services are rendered and is based on the transaction price multiplied by the volume of
each service provided in the period.
Identity Services
Identity services are provided under contract to Government departments, such as the DWP, DVLA
and the Home Office. Each Government service has an associated transaction price. Revenue is
recognised in the accounting period in which the services are rendered and is based on the
transaction price multiplied by the volume of each service provided in the period.
Financial Services & Telecoms
Our Financial Services products include mortgages, credit cards, savings, travel and banking. The
Group earns commission on the sale of these products. The transaction price is a contractual
commission rate. This commission rate varies by product and is based on volume or value of
products sold in the period as well as the channel of sale, for example online or through the branch
network. Revenue is recognised in the accounting period in which the new products are sold.
Telecoms includes Post Office HomePhone and Broadband services. The transaction price is the
subscription fee, consisting primarily of charges for access to broadband and other internet access or
voice services. Revenue is recognised as the service is provided because the customer receives and
uses the benefits simultaneously.
Insurance
Through its subsidiary, Post Office Management Services Limited, the Group provides general and
life insurance intermediation. The transaction price is a contractual commission rate. This
commission rate varies by product and is based on the volume or value of products sold in the
period as well as the channel of sale, for example online or through the branch network. Revenue is
recognised in the accounting period in which the new products are sold.
For all the revenue streams noted above, a receivable is recognised when the goods are delivered or
the services are provided, as this is the point in time that the consideration is unconditional, because
only the passage of time is required before the payment is due.
The Group does not expect to have any contracts where the period between the transfer of the
promised goods or services to the customer and the payment by the customer exceeds one year. As
a consequence, the Group does not adjust any of the transaction process for the time value of
money.
Accrued and deferred income
Income is accrued on the balance sheet for goods and services for which control has transferred to
the customer before consideration is due. Accrued income is reclassified as trade receivables when
the right to payment becomes unconditional and we have invoiced the customer.
Deferred income is recognised when we have received advance payment for goods and services that
we have not yet transferred to the customer.
Other income
The Network Subsidy Payment is received from Government and is recognised as other income to
match the related costs of making available the network of public Post Offices that the Secretary of
State for BEIS considers appropriate. The subsidy is recognised in the year in which it is received. If
the subsidy were to exceed the cost of making the network available, the excess would be repaid to
Government.
Other income also includes commission income relating to Government Services. This income, along
with the Network Subsidy Payment, was previously presented within revenue; however they do not
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Notes to the financial statements (continued)
fall within the scope of IFRS 15. As a result these two items have been reclassified to other income,
as previously referenced on page 47.
Investments column in the income statement
Income statement items are presented in the investments column when they are significant in
size or nature, and either they do not form part of the underlying trading of the business or their
separate presentation enhances understanding of the financial performance of the Group.
Investment funding from Government, restructuring and transformation costs are separately
disclosed in the investments column. Investment funding is recognised at the point of receipt and
is received for transformational activities. Investment spend is presented within the investment
column to correspond with the investment funding to which it relates. Refer to note 4 for further
detail.
Exceptional items
Exceptional items are significant, one off items which require disclosure on their own on the
Income Statement.
Leases
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. A provision for dilapidations is made where necessary.
Refer to the provisions policy on page 54 and note 15 for further detail.
Taxation
The amount charged or credited as current income tax is based on the results for the year as
adjusted for items which are not taxed or are disallowed. It is calculated using tax rates in legislation
that has been enacted or substantively enacted by the balance sheet date.
Deferred income tax assets and liabilities are recognised for all taxable and deductible temporary
differences and unused tax assets and losses except:
- On the initial recognition of goodwill.
- On the initial recognition of an asset or liability in a transaction that is not a business combination
and, at the time of the transaction, affects neither the accounting profit nor taxable profit and loss.
- On the taxable temporary differences associated with investments in subsidiaries and interest in
joint ventures, where the timing of the reversal of the temporary difference can be controlled and it
is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets are recognised only to the extent that it is probable that taxable profit will be
available against which they can be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the
period when the tax asset is realised or the liability is settled, based on tax rates that have been
substantively enacted at the balance sheet date. Deferred tax balances are not discounted.
Current and deferred tax is recognised in the income statement, except to the extent that it relates
to items recognised in other comprehensive income or directly to equity. In this case, the tax is also
recognised in other comprehensive income or directly in equity, respectively.
Investments in joint ventures
Investments in joint ventures within the Group’s financial statements are accounted for under the
equity method of accounting. Under this method the investment is carried in the balance sheet at
cost plus post-acquisition changes in the Group’s share of the net assets of the joint venture less any
impairment in value. The income statement reflects the Group’s share of post-tax profits from the
joint venture. The joint venture is an integral part of the Group’s operations.
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Notes to the financial statements (continued)
Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The
consideration transferred in a business combination is measured at fair value, which is calculated
as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities
incurred by the Group to the former owners of the acquiree and the equity interest issued by the
Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit
or loss as incurred, within the investments column.
Property, plant and equipment
Property, plant and equipment excluding freehold property, long leaseho/d property and land:
Property, plant and equipment is recognised at cost, including attributable costs in bringing the
asset into working condition for its intended use. These assets are depreciated on a straight-line
basis over the following useful lives:
Range of asset lives
Plant and machinery 3-15 years
Motor vehicles 3-12 years
Fixtures and equipment 3-15 years
Freehold property, long leasehold property and land:
As with other property, plant and equipment this is recognised at cost, including attributable costs in
bringing the asset into working condition for its intended use. These assets have a long useful life
and a fair market value. They are depreciated on a straight-line basis over the following useful lives:
Range of asset lives
Freehold land Not depreciated
Freehold buildings Up to 50 years
Long leasehold and short The shorter of the period of the lease, SO years or the estimated
leasehold buildings remaining useful life
The remaining useful lives of freehold buildings are reviewed periodically and adjusted where
applicable on a prospective basis. Where freehold property and long leasehold includes the fit-out of
those properties, then the fit-out is depreciated over its useful economic life in line with fixtures and
fittings.
Assets in the course of construction are carried at cost, with depreciation charged on the same basis
as all other assets once those assets are ready for their intended use.
Intangible assets
Goodwill:
Goodwill is initially recognised at cost, being the excess of the aggregate of the consideration
transferred and the amount recognised for non-controlling interests, and any previous interest held,
over the net identifiable assets acquired and liabilities assumed. After initial recognition, goodwill is
recognised at cost less any accumulated impairment losses. The Group’s management undertakes an
impairment review annually or more frequently if events or changes in circumstances indicate that
the carrying value may not be recoverable.
Software:
Costs associated with maintaining software programmes are recognised as an expense as incurred.
Development costs that are directly attributable to the design and testing of identifiable and unique
software products controlled by the Group are recognised as intangible assets when the following
criteria are met:
. it is technically feasible to complete the software so that it will be available for use
. management intends to complete the software and use or sell it
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Notes to the financial statements (continued)
° there is an ability to use or sell the software
° it can be demonstrated how the software will generate probable future economic benefits
. adequate technical, financial and other resources to complete the development and to use or
sell the software are available, and
° the expenditure attributable to the software during its development can be reliably measured.
Directly attributable costs that are capitalised as part of the software include employee costs and an
appropriate portion of relevant overheads.
Capitalised development costs are recorded as intangible assets and amortised from the point at
which the asset is ready for use.
Research and development:
Research expenditure and development expenditure that does not meet the criteria above are
recognised as an expense as incurred. Development costs previously recognised as an expense are
not recognised as an asset in subsequent periods.
Intangible assets with a finite useful life:
Intangible assets acquired separately or generated internally are initially recognised at cost. They
are amortised on a straight-line basis over the following useful lives:
Range of asset lives
Software 3 - 6 years
Customer relationships 5 years
Merchant relationships 5 - 10 years
Brands 15 years
Assets in the course of construction are carried at cost, with amortisation commencing once the
assets are ready for their intended use.
Inventories
Inventories include stationery and Royal mint coin products and are carried at the lower of cost and
net realisable value after adjusting for obsolete or slow-moving stock.
Trade receivables
Trade receivables are recognised and carried at original invoice amount. An allowance is made
when collection of the full amount is no longer probable. The Group applies IFRS 9 to measure
this allowance for expected credit loses, grouping trade receivables based on shared risk
characteristics and days past due. Bad debts are written off when identified.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and on hand, including cash
in the Post Office network and short-term deposits (cash equivalents) with an original maturity date
of three months or less. Cash equivalents are classified as loans and receivable financial
instruments.
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.
The subsidiaries Post Office Management Services Limited and Payzone Bill Payments Limited hold
some fiduciary cash balances, these are held on trust on behalf of third parties, see note 12 for
details.
Pensions and other post-retirement benefits
Membership of occupational pension schemes is open to most permanent UK employees of the
Group.
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Notes to the financial statements (continued)
The Group is the principal employer of the Post Office Section of the Royal Mail Pension Plan (RMPP),
and is a participating employer within the Royal Mail Senior Executives Pension Plan (RMSEPP).
RMPP and RMSEPP are both defined benefit plans closed to new members and closed to future
accrual. All members of these plans are contracted out of the earnings-related part of the State
pension scheme.
A Memorandum of Understanding was executed in 2016/17 which removed the unconditional right to
refund from the RMPP. As a result of these events the surplus relating to this Plan was derecognised.
The pension assets of the defined benefit schemes are measured at fair value. Liabilities are
measured on an actuarial basis using the projected unit credit method and discounted at a rate
equivalent to the current rate of return on a high quality corporate bond of equivalent currency and
term.
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. When the calculation at the balance sheet date
results in net assets to the Group, the recognised asset is limited to the present value of any future
refunds of the plan or reductions in future contributions to the plan (the asset ceiling). As noted
above, the RMPP Plan has been closed and no future refunds will be made to the Group.
Actuarial gains and losses are recognised immediately in the statement of comprehensive income.
Any deferred tax movement associated with the actuarial gains and losses is also recognised in the
statement of comprehensive income. As the Group has no right to a future surplus in the RMPP, an
equal and opposite adjustment to the asset ceiling is recognised in other comprehensive income.
There is no effect on the net assets position of the Group.
For defined contribution schemes, the Group’s contributions are charged to operating profit, as part
of staff costs, in the period to which the contributions relate.
Foreign currencies
The functional and presentational currency of the Group is sterling (£).
Foreign currency transactions are translated into the functional currency using the exchange
rates at the dates of the transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation of monetary assets and liabilities
denominated in foreign currencies at year-end exchange rates are recognised in profit or loss.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result
of a past event, it is probable that an outflow of resources will be required to settle the obligation,
and a reliable estimate can be made of the amount of the obligation. Due to the nature of provisions
the future amount settled may be different from the amount that has been provided. If the effect of
the time value of money is material, provisions are determined by discounting the expected future
cash flows at an appropriate pre-tax rate.
Financial instruments
Initial measurement of financial instruments
All financial instruments are initially measured at fair value plus or minus, in the case of a
financial asset or financial liability not at fair value through profit or loss, transaction costs.
Subsequent measurement of financial assets
IFRS 9 divides all financial assets into two classifications - those measured at amortised cost and
those measured at fair value.
Where assets are measured at fair value, gains and losses are either recognised entirely in profit
or loss (fair value through profit or loss, “FVTPL”), or recognised in other comprehensive income
(fair value through other comprehensive income, “FVTOCI)”.
The classification of a financial asset is made at the time it is initially recognised. If certain
conditions are met, the classification of an asset may subsequently need to be reclassified.
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Notes to the financial statements (continued)
Subsequent measurement of financial liabilities
IFRS 9 divides all financial liabilities into two measurement categories: FVTPL and amortised
cost. All of the Group’s financial liabilities are measured at amortised cost.
Derecognition of financial assets
A financial asset is derecognised when the Group determines that it has transferred substantially
all of the risks and rewards of ownership of the asset.
Derecognition of financial liabilities
A financial liability is removed from the balance sheet when it is extinguished; that is, when the
obligation specified in the contract is either discharged or cancelled or expires.
Derivatives and hedging activities
Derivatives are initially recognised at fair value on the date that a derivative contract is entered
into, and they are subsequently remeasured to their fair value at the end of each reporting
period. The accounting for subsequent changes in fair value depends on whether the derivative is
designated as a hedging instrument and, if so, the nature of the item being hedged. The Group
designates certain derivatives as either:
¢ Hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value
hedges).
e Hedges of a particular risk associated with the cash flows of recognised assets and liabilities
and highly probable forecast transactions (cash flow hedges).
e Hedges of a net investment in a foreign operation (net investment hedges).
At inception of the hedge relationship, the Group documents the economic relationship between
hedging instruments and hedged items, including whether changes in the cash flows of the
hedging instruments are expected to offset changes in the cash flows of hedged items. The
Group documents its risk management objective and strategy for undertaking its hedge
transactions.
The fair values of derivative financial instruments designated in hedge relationships are disclosed
in note 16. Movements in the hedging reserve are shown within other reserves in the statement
of changes in equity. The full fair value of a hedging derivative is classified as a non-current
asset or liability when the remaining maturity of the hedged item is more than 12 months; it is
classified as a current asset or liability when the remaining maturity of the hedged item is less
than 12 months.
Cash flow hedges that qualify for hedge accounting
The effective portion of changes in the fair value of derivatives that are designated and qualify as
cash flow hedges is recognised in other reserves within equity. The gain or loss relating to the
ineffective portion is recognised immediately in profit or loss.
When the forecast transaction subsequently results in the recognition of a non-financial asset or
non-financial liability, the associated cumulative gain or loss is removed from equity and included
in the initial cost or other carrying amount of the non-financial asset or liability. If a hedge of a
forecast transaction subsequently results in the recognition of a financial asset or financial
liability, the associated gains or losses that were previously recognised in the statement of
comprehensive income are reclassified into the income statement in the same period or periods
during which the asset acquired or liability assumed affects the income statement.
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Notes to the financial statements (continued)
2. Staff costs and numbers
Employment and related costs were as follows:
2019 2018
People costs within trading: £m £m.
Wages and salaries I 162 154
Social security costs 18 18
Other pension costs (note 17) 13 17
Total people costs within trading I 193 I . 189
Other operating costs within trading I 766 I 771
Total trading costs I 959 I 960
People costs within investments relate to severance costs as part of restructuring and are disclosed
within note 4.
Period end and average monthly employee numbers were as follows:
Period end employees Average monthly employees
I 2019 I 2018 I 2019 I 2018
Total employees I 4,391 I 5,020 I 4,700 I 5,066 ,
Total employee numbers can be categorised as follows:
2019 2018
Administration 1,202 1,205
Directly managed branches (DMB) 2,047 2,707
Supply Chain 853 848
Network programmes 164 213
Post Office Insurance 57 47
Payzone Bill Payments 68 -
Total 4,391 5,020
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Notes to the financial statements (continued)
3. Operating profit
The following items are included within operating profit:
2019 2018
£m £m
Postmasters’ fees 365 371
Depreciation and amortisation (notes 8 and 9) 94 55
Cost of inventories recognised as an expense . 1 4
Loss on disposal of fixed assets 5 1
Operating lease charges — Land and buildings 13 12
Operating lease charges - Motor vehicles 1 1
Fees payable to the Group’s auditor for audit and other services: £000 £000
- parent Company and Group audit 567 773
- audit of subsidiary 115 82
- audit related assurance services - 105
- other assurance services 110 110
4. Investments
2019 2018
£m £m
Investment funding I 168 70
Restructuring:
Business transformation (14) (16)
Network programmes (68) (63)
IT transformation (13) (6)
Severance (39) I (17)
Total restructuring costs I (134) I (102)
Unwinding of discounts on provisions I (a) I (2)
Total investments income / (charge) [ 33I . (34)
Investment funding: Investment funding is received from BEIS for transformation activities.
Restructuring: Restructuring costs are transformational spend incurred in order to implement the
major transformation programmes. Business transformation is an overarching programme that will
transform the business, driving Post Office toward commercial sustainability through technological
innovation and the fundamental re-envisaging of long-term contracts. Network programmes is a
multi-year initiative designed to simplify the retailer proposition, with key areas of focus being
simplification, automation and the extension of the franchising model to some of our directly
managed branches. IT transformation includes programmes to restructure our IT operating model
and overhaul legacy back office systems, transitioning to a cloud based architecture. As part of the
aforementioned transformational activities, severance costs have been incurred.
Unwinding of discounts on provisions: finance costs incurred in order to unwind the discount on
onerous lease provisions.
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Notes to the financial statements (continued)
5. Directors’ emoluments
Directors accruing pension entitlements during the period under: 2019 2018
Number Number
Defined contribution schemes I 1I 1
Disclosures required by the Companies Act 2006 in relation to Directors’ emoluments are provided
on pages 24 and 25. .
6. Finance costs
2019 2018
£m £m
Trading:
Interest payable on loans (6) (5)
Finance charges I (2) =
Total - trading I (8) (5)
Investments:
Unwinding of discounts on provisions. q@) (2)
Total ~ investments I q@) (2)
Total - net finance costs I _ (9) Q)
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Notes to the financial statements (continued)
7. Taxation credit
(a) Taxation recognised in the year
Current and deferred income tax is credited to the income statement as follows:
2019 2018
£m £m
Current income tax:
Corporation tax credit for year (8) (8)
Deferred income tax:
Deferred tax income relating to the utilisation of losses brought forward (1) (1)
Taxation credit (9) I (9)
The current income tax credit recognised in the income statement is £8 million (2018: £8 million)
and relates to the surrender of tax losses to the joint venture. The deferred income tax credit
recognised in the income statement is £1 million (2018: £1 million) and arises as a consequence of
the acquisition of intangible assets as part of a business combination. It corresponds to the deferred
tax liability recognised in the business combination.
In the current year no deferred income tax has been recognised in other comprehensive income.
No current or deferred tax income tax was recognised directly in equity in the current or prior year.
(b) Factors affecting current tax credit on profit
As in 2018, the tax assessed for the year differs from the standard rate of corporation tax in the UK
of 19% (2018: 19%). The differences are explained below:
2019 2018
£m £m
Profit before taxation I 31 8
Profit before taxation multiplied by the standard rate of corporation 6 1
tax in the UK of 19% (2018: 19%)
Effect of unutilised losses carried forward 20 29
Decrease in tax charge as a result of change in unrecognised deferred (21) (24)
tax assets
Surrender of tax losses to joint venture (8) (8)
Tax effect of share of results of joint venture (6) (7)
Taxation credit . (9) (9)
(c) Deferred tax
Deferred tax relates to the following:
Consolidated balance sheet Consolidated income statement
2019 2018 2019 2018
£m £m £m £m
Acquired intangible assets (2) (1) 1 1
Tax losses 2 1 I - -
Deferred tax (liability) / asset I -I -I -I -
Deferred tax income I -I -I 1I 1
In the current year a deferred tax liability of £2 million (2018: £1 million) has been recognised on
the acquisition of intangible assets as part of a business combination, with a corresponding deferred
tax asset of £2 million (2018: £1 million) recognised for the value losses up to the same liability.
The Group has significant tax losses that are available indefinitely for offsetting against future
taxable profits. As at the balance sheet date no deferred tax asset has been recognised in relation to
these tax losses (2018: £nil).
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Notes to the financial statements (continued)
(d) Factors that may affect future tax charges
The Group has unrecognised deferred tax assets of £183 million (2018: £190 million), comprising
£150 million (2018: £143 million) relating to tax losses that are available to offset against future
taxable profits, £32 million (2018: £46 million) relating to fixed asset timing differences and £1
million (2018: £1 million) relating to temporary differences on provisions. The Group has rolled over
capital gains of £2 million (2018: £2 million); no tax liability would be expected to crystallise should
the assets into which the gains have been rolled be sold at their residual value, as it is anticipated
that a capital loss would arise.
The main rate of corporation tax in the UK will remain at 19% for the year starting 1 April 2019 and
reduce to 17% with effect from 1 April 2020.
The Finance (No.2) Act 2017 was substantively enacted on 16 November 2017. This includes a
restriction on the utilisation of brought forward tax losses and corporate interest in certain
circumstances effective from 1 April 2017.
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Notes to the financial statements (continued)
8. Intangible assets
Other
Software Goodwill intangibles Total
£m £m £m £m
Cost
At 27 March 2017 323 44 - 367
Reclassification (2) - - (2)
Additions 125 1 6 132
At 25 March 2018 446 45 6 497
Reclassification (29) - - (29)
Additions 101 - - 101
Added on acquisition 1 8 7 16
Disposals (17) - - (17)
At 31 March 2019 502 53 13° 568
Accumulated amortisation
At 27 March 2017 200 - - 200
Reclassification 6 - - 6
Amortisation 27 - - 27
At 25 March 2018 233 - - 233
Added on acquisition 1 - - 1
Amortisation 55 - 3 58
Disposals (15) - - (15)
At 31 March 2019 : I 274 - 3 277 I
Net book value
At 31 March 2019 I 228 53 10 291 I
At 25 March 2018 213 45 6 264
Included within the above table are assets under construction of £59 million (2018: £137 million).
Other intangibles includes customer relationships, merchant relationships and brands.
During the current and priof year, a review of property, plant and equipment and intangible assets
took place and resulted in reclassifications between categories.
Additions to software relate to IT transformation projects undertaken during the current year.
Additions to goodwill and other intangibles relate to the Payzone Bill Payments Limited (“Payzone”)
business combination disclosed within note 20. Goodwill is tested for impairment annually or more
frequently if events or changes in circumstances indicate that the carrying value may not be
recoverable. Management determined that no impairment was necessary for the current year (2018:
Enil).
Goodwill was not considered to be impaired at the date of the last review. Refer to note 9 for details
of the impairment review performed during the year.
Amortisation rates are disclosed on page 53 within the accounting policies note.
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Notes to the financial statements (continued)
9. Property, plant and equipment
Land and Buildings
Plant Fixtures
Long Short Motor and and
Freehold leasehold leasehold vehicles machinery equipment Total
£m £m Em £m £m £m £m
Cost
At 27 March 2017 45 41 23 26 1 795 931
Reclassification 1 1 1 - (1) - 2
Additions - - - 1 - 18 19
Disposals (6) (3) (2) (2) - (7) (20)
At 25 March 2018 40 39 22 25 1 805 932
Reclassification 2 : - - - 27 29
Additions 1 1 1 - - 35 38
Added on acquisition - - - - + 4 4
Disposals (4) (1) (2) - - (22) (29)
At 31 March 2019 39 39 21 25 1 849 974
Accumulated depreciation
At 27 March 2017 32 14 23 26 1 677 773
Reclassification - - - - - (6) (6)
Depreciation 1 2 - - - 25 28
Disposals (4) - (2) (2) - (3) (11)
At 25 March 2018 29 16 21 24 1 693 784
Depreciation 1 2 - - - 33 36
Disposals (2) (4) (2) - - (17) (22)
At 31 March 2019 I 28 17 19 24 1 709 798 I
Net book value
At 31 March 2019 I 11 22 2 1 7 140 176 I
At 25 March 2018 ii 23 1 1 - 112 148
Included within the above table are assets under construction of £9 million (2018: £11 million).
Depreciation rates are disclosed on page 52 within the accounting policies note. No depreciation is
provided on freehold land, which represents £2 million (2018: £2 million) of the total cost of
properties.
During the current and prior year, reviews of property, plant and equipment and intangible assets
took place and resulted in reclassifications between categories to give a more appropriate
representation of the nature of the assets.
An impairment test was performed during the year. Intangible assets and property, plant and
equipment were tested for impairment by comparing the carrying amount of each Cash
Generating Unit (CGU) with the recoverable amount determined from value in use calculations.
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Notes to the financial statements (continued)
Post Office has determined that it has two CGUs: Post Office Limited and Post Office Management
Services Limited. Post Office Management Services Limited is a standalone entity with an
identifiable asset base and therefore is deemed one CGU. Post Office Limited runs a national
network of branches which provide a distinct retail offering resulting in a fluid customer base
across the network. As such the network as a whole is deemed to be one CGU.
The discounted net cash flows from the value in use calculations were used to determine the
recoverable amount of the CGU’s identified, being Post Office Limited and Post Office
Management Services Limited. Value in use is determined using the Group’s net cash inflows
from the continued use of the assets within each CGU over a two year period (and then
continued into perpetuity), with no nominal growth rate assumed outside of this period. Pre-tax
discount rates for Post Office Limited of 9.5% (2018: 9%) and for Post Office Management
Services Limited of 12% (2018: 12%) have been used to discount the forecasted cash flows.
A sensitivity analysis has been performed in assessing the value in use of property, plant and
equipment and intangible assets. This has been based on changes in key assumptions considered
to be possible by management. This included an increase in the discount rate of up to 12%, zero
growth rate and a decrease in forecasted EBITDA by 5%. The sensitivity analysis showed that no
impairment would arise under each or a combined scenario.
Management therefore believes that any reasonably possible change in the key assumptions
would not cause the carrying amount of any CGU’s to exceed their carrying value.
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Notes to the financial statements (continued)
10. Investments in joint venture
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The following entity has been included in the consolidated financial statements using the equity
method:
Joint venture
During the current and prior year, the Group’s only joint venture investment was a 50% interest
(1,000 £1 ordinary A shares) in First Rate Exchange Services Holdings Limited, whose principal
activity is the provision of Bureau de Change. First Rate Exchange Services Holdings Limited is a
company registered in the United Kingdom. The registered address of First Rate Exchange Services
Holdings Limited is Great West House, Great West Road, Brentford, Middlesex, TW8 9DF.
The principal activity of First Rate Exchange Services Holdings Limited is the supply of foreign
currency in the UK, which is seen as complementing the Group’s operations and contributing to
achieving the Group’s overall strategy. The principal risks of the Group are disclosed on pages 29 to
33.
The financial year-end date of First Rate Exchange Services Holdings Limited is 31 March. For the
purposes of applying the equity method of accounting, the financial statements of First Rate
Exchange Services Holdings Limited for the year ended 31 March 2019 have been used.
2018
2019
‘Joint venture Joint venture
£m £m
Share of net assets
Total net investment at 26 March 2018, 27 March 2017 66 66
Share of post-tax pre dividend profit 33 34
Dividend (33) (34)
Total net investment at 31 March 2019, 25 March 2018 I 66 I 66
2019 2018
Joint venture Joint venture
Share of assets and liabilities: £m Em
Receivables 193 220
Cash and cash equivalents 22 14
Non-current assets 7 8
Share of gross assets 222 242
Current liabilities (156) (176)
Share of net assets I 66 I 66
Share of revenue and profit:
Revenue ‘82 84
Profit after tax 33 34
Post Office Limited
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Notes to the financial statements (continued)
11. Trade and other receivables
2019 2018
£m £m
Current:
Trade receivables 92 81
Accrued income 71 78
Prepayments 25 23
Client receivables 133 132
Other receivables 24 16
Total { 345 I 330
Non-current:
Accrued income 2 2
Prepayments 4 10
Total I 6 I 12
The Group receives and disburses cash on behalf of Government agencies and other clients to
customers through its branch network. Amounts owed from/to Government agencies and other
clients are disclosed separately as client receivables (as above) and client payables (see note 13).
£5m (2018: £4m) has been recognised within current prepayments for costs incurred to fulfil
contracts, Non-current prepayments constitute costs incurred to fulfil contracts, in both the current
and prior year.
The Group applies IFRS 9 when measuring expected credit losses. Trade receivables have been
grouped based on shared credit risk characteristics and the days past due to measure the expected
credit losses. The loss allowance for the current and prior year has been determined as follows:
>30days >60 days
and <60 and <120
days past days past >120 days
31 March 2019 Current due due past due Total
Expected loss rate - % - - 21%. 65%
Gross carrying amount - £m - - 1 18 19 ]
Loss allowance - £m i - - 1 18 19 I
>30 days >60 days
and <60 and <120
days past days past >120 days
25 March 2018 Current due due past due Total
Expected loss rate - % - - - 95%
Gross carrying amount - £m - - - 19 19
Loss allowance - £m - - - 19 19
There is a loss allowance in the current, more than 30 days and more than 60 days ageing
categories, however it is immaterial for disclosure.
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Notes to the financial statements (continued)
The closing loss allowance for trade receivables as at 31 March 2019 reconciles to the opening loss
allowance as follows:
2019 2018
£m £m
Opening loss allowance 19 14
Increase in loss allowance 9 14
Receivables written off as uncollectible (7) (5)
Unused amounts reversed (2) (4)
Closing loss allowance -19 19
The fair value of trade and other receivables is not materially different from the carrying value.
12. Cash and cash equivalents
2019 2018
£m —m
Cash in the Post Office Limited network 549 643
Short-term bank deposits 14 9
Fiduciary cash balances held on behalf of third parties 9 3
Total cash and cash equivalents I 572 655
Cash in the Post Office Limited network represents the note and coin in circulation in branches and
cash centres. Refer to note 22 for further detail.
Where interest is earned it is at a floating or short-term fixed rate. The fair value of cash and cash
equivalents is not materially different from the carrying value.
The fiduciary cash balances are held within Post Office Management Services Limited or Payzone Bill
Payments Limited and are held on trust on behalf of third parties and cannot be called upon should
either company become insolvent.
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Notes to the financial statements (continued)
13. Trade and other payables
2019 2018
£m £m
Current:
Trade payables 62 45
Accruals 122 160
Deferred income 20 32
Social security 8 8
Client payables 316 306
Capital accruals 11 20
Other payables 5 -
Total I 54a I 571
Non-current:
Other payables 14 18
Total I 14 I 18
The fair value of trade and other payables is not materially different from the carrying value.
14. Financial liabilities - interest bearing loan and borrowings
2019 2018
£m £m
Department for Business, Energy and Industrial Strategy I 565 I 623
The loan under the facility is short dated on a programme of liquidity management and matures 1
day after the year-end (2018: 1 day). The fair value of borrowings approximate their carrying value
due to the short term maturities of the loan. On maturity it is expected that further loans will be
drawn down under this facility, which expires in 2021. The undrawn committed facility, in respect of
which all conditions precedent had been met at the balance sheet date, is £385 million (2018: £327
million). The average interest rate on the drawn down loans is 1.1% (2018: 0.8%).
The facility is currently restricted to funding the cash and near cash items held within the Post Office
Limited network.
The facility (including drawn down loans) is secured by a floating charge over all assets of Post Office
Limited and a negative pledge over cash and near cash items. The negative pledge is an agreement
not to grant security over the assets or to set up a vehicle that has the same effect.
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Notes to the financial statements (continued)
15. Provisions
Network
Programmes Property Severance Other Total
£m —m £m £m £m
At 26 March 2018 18 32 7 9 66
Charged to investments 33 20 43 - 96
Charged to trading - - - 10 10
Transfers - - - 3 3
Utilisation (36) - (24) (6) (66)
Provisions released in the year - . (7) (4) (1) (12)
tauee”® released in the year . . . (5) (5)
At 31 March 2019 15 45 22 10 92 I
Network
Programmes Property Severance Other Total
Em —m £m —m —Em
Disclosed as:
At 31 March 2019
Current 12 22 9 52
Non-current 33 - 1 40
15 45 22 10 92
At 25 March 2018
Current 11 aL 7 36
Non-current 7 21 - 30
18 32 7 66
The Group has recognised provisions where a present legal or constructive obligation exists as a
result of a past event, where it is probable that an outflow of resources will be required to settle the
obligation and a reliable estimate of the amount can be made.
The Network Programmes provision relates to payments due to postmasters in relation to the major
transformation programme. Provisions are recognised when either postmasters agree to terminate
their existing contracts or sign the new format contracts under Network Transformation.
Property provisions relate to vacant and onerous leases and dilapidations. Vacant and onerous lease
provisions are recognised on leasehold properties when the unavoidable costs of meeting the
obligations of the lease agreement exceed the benefits expected to be received under it.
Severance provisions are recognised for business reorganisation where the plans are sufficiently
detailed and well advanced and where appropriate communication to those affected has been
undertaken at the balance sheet date.
Other provisions of £10 million includes £1 million for personal injury claims and £2 million which sits
within the subsidiary Post Office Management Services Limited and relates to the repayment of
commission received in the event of the cancellation of insurance policies.
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Notes to the financial statements (continued)
16. Financial assets and liabilities
a. Financial assets and liabilities by category
The breakdown of the Group’s financial instruments at 31 March 2019 and 25 March 2018 is shown
below:
2019 2018
Non - Non -
Current current Total Current current Total
é£m —£m £m £m £m £m
Financial assets
Trade and other receivables 320 2 322 307 2 309
Cash and cash equivalents 572 - 572 655 - 655
Financial liabilities
Trade and other payables (516) (3) (519) (531) (4) (535)
BEIS loan (565) - (565) (623) - (623)
Total financial liabilities (189) qa (190) (192) (2) (194)
Except for prepayments, social security and deferred income, which have been excluded from the
table above, all of the Group’s financial assets and liabilities by nature and classification for
measurement purposes are considered loans and receivables.
The fair value of the Group’s financial assets and liabilities approximate their carrying value due to
the short-term maturities of these instruments. The fair value of financial assets and liabilities is
defined as the amount at which the Group would expect to receive upon selling an asset or pay to
transfer a liability in a transaction between market participants at the measurement date.
All of the Group’s financial assets and liabilities are considered to be Level 2 in the fair value
hierarchy. The nature of the inputs used in determining the values of the financial assets and
liabilities are those other than quoted prices included within Level 1 that are observable for the asset
or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
The Group has no Level 1 and Level 3 financial instruments and there have been no transfers
between the levels of fair value hierarchy during the period.
b. Financial risk management objectives and policies
The Group is exposed to a variety of financial risks: market risk (including foreign currency risk and
interest rate risk), credit risk and liquidity risk. The Group’s overall risk management programme
focuses on the unpredictability of financial markets and aims to minimise potential adverse effects
on the Group’s financial performance.
Interest rate risk
The Group is exposed to changes in interest rate on floating rate debt, cash deposits, current
account balances, and commission income. Interest rate risk on borrowings is managed through
determining the right balance of fixed and floating debt within the financing structure. Market
conditions are considered when determining the desired balance of fixed and floating rate debt. Had
there been a 50 basis point increase in interest rates, there would have been an £7 million
favourable impact on the Group’s equity and income statement. A 50 basis point decrease would
have resulted in a £7 million adverse impact on the Group's equity and income statement.
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Notes to the financial statements (continued)
In 2018/19, to hedge its exposure to the variability of commission income linked to 1-month Libor,
the Group entered into a three year amortising interest rate swap which has the effect of fixing a
proportion of the interest commission income. The qualifying criteria for hedge accounting were met
and in accordancé with IFRS 9 the swap was designated as the hedging instrument in a cash flow
hedge. At year end, the hedging instrument had a fair value of £3 million and has been included
within trade and other receivables on the balance sheet.
Foreign currency risk
The Group is exposed to foreign currency risk resulting from balances held to operate Bureau de
Change services.
The currencies in which these transactions are primarily denominated are US dollar and Euro. The
Group’s foreign currency risk management objective is to minimise the impact on the Income
Statement of fluctuations in the exchange rates. The Group hedges its foreign currency risk
principally through external forward foreign currency contracts to cover near-term future revenues
with a number of providers including First Rate Exchange Services Holdings Limited.
The following table demonstrates the sensitivity of financial instruments to a reasonably possible
change in the US dollar and Euro exchange rates, assuming they are unhedged and with all other
variables held constant, on profit before tax and equity.
Strengthening Effect on Strengthening Effect on
/ (weakening) profit Effect / (weakening) profit Effect
in US dollar rate before tax on equity in euro rate before tax on equity
% £m £m % £m £m
Increase / Increase / Increase / Increase / Increase / Increase /
(decrease) (decrease) (decrease) (decrease) (decrease) (decrease)
2019 : 10 1 1 10 2 2
(10) @) q@) (20) (2) @)
2018 10 1 1 10 3 3
(10) (1) Q) (10) (3) (3)
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 commission receivable and client related settlements for amounts
paid out of the Post Office network on their behalf.
The Group aims to minimise its financial credit risk through the application of risk management
policies approved by the Board. Counterparties are limited to major banks and financial institutions.
The policy restricts the exposure to any one counterparty by setting appropriate credit limits. The
maximum exposure to credit risk is limited to the carrying value of each class of asset summarised
in note 11.
Business credit risk is monitored centrally. The level of bad debt provision is 2% (2018: less than
2%) of revenue.
Capital management
The Group's objectives when managing capital (defined as the net of borrowings and cash and cash
equivalents excluding cash in the Post Office Network) are to safeguard its ability to continue as a
going concern and to maintain an optimal capital structure in order to support the business and
maximise stakeholder value. In managing the Group’s capital levels the Board and the Group
Executive regularly monitor the level of debt in the Group, the working capital requirements and the
forecast cash flows. The Board and Group Executive plan accordingly following this review process in
order to meet the Group’s capital management objectives.
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Notes to the financial statements (continued)
Liquidity risk
The Group's primary objective is to ensure that the Group has sufficient funds available to meet its
financial obligations as they fall due. This is achieved by aligning short-term investments and
borrowing facilities with forecast cash flows. Typical short-term investments include short term bank
deposits with approved counterparties. Borrowing facilities are regularly reviewed to ensure
continuity of funding.
The Group has adequate cash reserves to meet operating requirements in the next 12 months.
At 31 March 2019 the Group has unused facility of £385 million (2018: £327 million). The working
capital facility expires in 2021.
In addition to the security interest provided to BEIS in connection with the £950 million Working
Capital Facility (note 14), Post Office Limited has also created a first floating charge over its
assets as security for the payment and discharge of certain liabilities arising in the normal course
of its client-related activity. The charge under these arrangements is restricted in its ability to
take an acceleration action in relation to its debt. As at the balance sheet date the outstanding
liabilities amounted to £95 million (2018: £100 million).
The tables below analyse the Group’s financial assets and liabilities into relevant maturity groupings
based on the remaining period at the balance sheet date to the contractual maturity date. The
amounts disclosed in the table are the contractual undiscounted cash flows and include interest,
where applicable.
12 1-2
Months Years Total
At 31 March 2019 £m £m £m
Financial assets
Trade and other receivables 320 2 322
Cash and cash equivalents 572 - 572
Financial liabilities
Trade and other payables (516) (3) (519)
Interest bearing loan (565) - (565)
Total financial (liabilities) ; (189) (1) (190) I
12 1-2
Months Years Total
At 25 March 2018 £m £m £m
Financial Assets
Trade and other receivables 307 2 309
Cash and cash equivalents 655 - 655
Financial Liabilities
Trade and other payables (531) (4) (535)
Interest bearing loan (623) - (623)
Total financial (liabilities) (192) (2). (194)
Prepayments, social security and deferred income have been excluded from the table above. There
were no financial assets or liabilities in the current or prior year that were due to mature after two
years.
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Notes to the financial statements (continued)
17. Retirement benefit surplus
The disclosures in this note reflect the two defined benefit schemes: the Post Office section of the
Royal Mail Pension Plan (RMPP) which is independent from the Royal Mail section of the RMPP,
and a 7% share of the Royal Mail Senior Executives Pension Plan (RMSEPP). Royal Mail Group Ltd
is the principal employer of RMSEPP and Post Office Limited became a participating employer
with effect from 1 April 2012. This disclosure also includes the Post Office Pension Plan (POPP),
which is a defined contribution scheme.
The disclosures in this note show the value of the assets and liabilities that have been calculated
at the balance sheet date.
Post Office participates in pension schemes as detailed below.
Name Eligibility Type
Royal Mail Pension Plan (RMPP)* UK employees Defined benefit
Royal Mail Senior Executives Pension Plan (RMSEPP) UK senior executives Defined benefit
Post Office Pension Plan (POPP) UK employees Defined contribution
*The RMPP closed to future accrual on 31 March 2017.
Defined Contribution
The charge in the income statement for the defined contribution scheme was £13 million (2018:
£17 million) and the Group contributions to this scheme were £20 million (2018: £20 million)
during the year.
Defined Benefit
Both RMPP and RMSEPP are funded by the payment of contributions to separate Trust
administered funds. It should be noted that the assumptions used for these pension disclosures
are not the same as the assumptions used for funding the plans. The latest full actuarial funding
valuation of the RMPP is currently being finalised and will be carried out as at 31 March 2018
using the projected unit method. The previous RMPP valuation, as at 31 March 2015, concluded
at a £63 million surplus on a Technical Provisions basis. Valuations are carried out triennially.
RMPP includes sections A, B and C each with different terms and conditions:
« Section A is for members (or beneficiaries of members) who joined before 1 December
1971.
e Section B is for members (or beneficiaries of members) who joined after 1 December
1971 and before 1 April 1987 or to Section A members who chose to receive Section B
benefits.
e Section C is for members (or beneficiaries of members) who joined after 1 April 1987 and
before 1 April 2008.
The latest full actuarial funding valuation for RMSEPP was carried out as at 31 March 2018 using
the projected unit method. For 100% of RMSEPP, the valuation concluded at £49 million surplus
(31 March 2015 valuation: £17 million surplus) on a Technical Provisions basis.
A series of changes to RMPP and RMSEPP have taken effect since 1 April 2008.
The changes encompassed are:
¢ The Plans closed to new members from 31 March 2008.
« All pensions and benefits earned before 1 April 2008 retained a link to final pensionable
salary, benefits accrued from 1 April 2008 were earned on a “career average pensionable
salary” basis.
« RMPP employees can continue to take their pension on reaching age 60 but the normal
retirement age increased to age 65 for benefits earned from 1 April 2010.
« From 1 April 2010 it was possible to draw pension earned before the change to normal
retirement age at age 55 (subject to an actuarial reduction in the pension benefit), and
continue working while still contributing to the RMPP until the maximum level of benefits
was reached.
« RMSEPP was closed to future accrual on 31 December 2012.
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Notes to the financial statements (continued)
* Liabilities accrued in the RMPP to 31 March 2012 were largely transferred to the Royal
Mail Statutory Pension Scheme. The pre-31 March 2012 liabilities are substantially no
longer an obligation of Post Office and the transfer therefore resulted in a significant
removal of pension risk for Post Office.
e Inrelation to RMPP only, from 1 April 2014 pensionable salary was amended to the
amount in force as at 31 March 2014, increasing each 1 April thereafter in line with RPI
(up to 5% each year), with allowance for certain promotional increases.
¢ The Post Office section of the RMPP closed to future accrual on 31 March 2017 and so no
further defined benefits have accrued in respect of Post Office employment after that
date; however for as long as a member remains in employment with the Group or has not
taken pension, pre-1 April 2012 pension benefits are linked to pensionable salary and
post-31 March 2012 benefits receive in-deferment increases (linked to CPI). Closure to
future accrual means that no contributions in respect of normal service accrual are
required after 31 March 2017. However there were redundancy payments of £1 million
(2018: £5 million) made to the RMPP during 2018/19, which were paid in order to fund
enhanced benefits for the members concerned.
e On 21 March 2017 Post Office executed a Memorandum of Understanding with the Trustee
of the RMPP. This clarified the Trustee’s powers to distribute surplus without Post Office’s
agreement and Post Office concluded that it no longer had an unconditional right to
refund from the Plan. In light of this, in accordance with IFRIC 14, the RMPP pension
surplus was derecognised as at 26 March 2017.
Even though RMSEPP had a funding surplus on a Technical Provisions basis at the date of the
latest full actuarial funding valuation, under the associated Schedule of Contributions, payments
of £1 million per annum has been made. Post Office’s share of these payments is 7% of the total.
The payments will continue to 31 March 2025.
The weighted average duration of the Post Office section of the RMPP is around 25 years, and for
RMSEPP is around 20 years.
In July 2017 the Trustee of the RMPP invested in two bulk annuity policies with Rothesay Life.
Those policies provide an income to the Post Office section of the RMPP that matches the vast
majority of the required benefit payments; as shown in the following disclosures, the estimated
value of those policies (on the IAS 19 assumptions as at 31 March 2019) is £292 million (2018:
£272 million), compared to the RMPP defined benefit obligation of £320 million (2018: £298
million). The £28 million difference in these figures is due to a £20 million reserve for future
administration expenses (which are not matched by the annuity policies), plus £8 million in
respect of small differences between the insured benefits and the actual benefit obligation.
A bulk annuity policy (with Scottish Widows) is also held by the Trustee of the RMSEPP. As shown
in the following disclosures, the estimated value of that policy, on the IAS 19 assumptions as at
31 March 2019, is £28 million (2018: £12 million), compared to the RMSEPP defined benefit
obligation of £29 million (2018: £27 million).
Therefore, as at 31 March 2019, 92% of the aggregate defined benefit obligation (i.e. £320
million out of the £349 million) is matched by bulk annuities that provide income matching the
required benefit payments. As such, the majority of the investment and longevity risk associated
with Post Office’s obligations in respect of the defined benefit plans has been removed (noting
that the bulk annuity policies are subject to protection from insurance regulations, including
access to the Financial Services Compensation Scheme, in the event of insurer insolvency).
Nevertheless, to the extent that 8% of the defined benefit obligation is not matched by bulk
annuities, some risk remains in respect of that 8%, in particular the risk that members with
uninsured benefits live for longer than expected, the risk that inflation is higher than expected,
leading to higher than expected increases to the uninsured benefits, the risk that the assets in
excess of the bulk annuity polices generate poor investment returns, and the risk that
administration expenses are higher than anticipated. However, these risks are expected to be
mitigated by the surplus assets shown in the disclosures (before allowing for the fact that the
RMPP surplus is not recognised on Post Office’s balance sheet due to the Memorandum of
Understanding described above).
The following disclosures relate to the gains/losses and surplus/deficit in respect of Post Office's
obligations to RMPP and RMSEPP: .
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Notes to the financial statements (continued)
a) Major long-term assumptions
The size of the defined benefit obligation shown in the financial statements is materially sensitive
to the assumptions adopted. Small changes in these assumptions could have a significant impact
on this value. The overall! income statement charge and past service adjustment in the income
statement are also sensitive to the assumptions adopted. However, the majority of any change in
the defined benefit obligation due to changes in assumptions, will be matched by a corresponding
change in the value in the bulk annuity policies (described above).
The major long-term assumptions in relation to both RMPP and RMSEPP were:
At 31 March 2019 At 26 March 2018
% pa % pa
Increases to benefits that retain a link to pensionable pay 3.4 3.3
Rate of pension increases ~ RMPP sections A/B 2.4 2.2
Rate of pension increases - RMPP section C 3.4 3.3
Rate of pensions increases - RMSEPP members transferred 2.4 2.2
from Section A or B of RMPP
Rate of pension increases - RMSEPP all other members 3.4 3.3
Rate of increase for deferred pensions 2.4 2.2
Discount rate 2.4 2.5
Inflation assumption (RPI) - RMPP & RMSEPP_ 3.4 3.3
Inflation assumption (CPI) - RMPP_& RMSEPP. 2.4 2.2
The following table shows the potential impact on the value of Post Office’s defined benefit
obligation in respect of RMPP and RMSEPP of changes in key assumptions. As noted above, the
bulk annuities held by the arrangements provide an income that matches the vast majority of the
RMPP benefit payments, and a significant proportion of the RMSEPP benefit payments. Therefore
the following changes in the defined benefit obligation would be largely offset by a corresponding
change in the asset values.
2019 2018
ém £m
Changes in RPI and CPI inflation of +0.1% pa (8) (8)
Changes in discount rate of +0.1% pa 8 8
Changes in CPI assumptions of +0.1% pa 3 (3)
An additional one year life expectancy 11 (9)
The sensitivity 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 is 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 used to calculate the value of Post Office’s defined benefit
obligation in respect of RMPP and RMSEPP are based on the latest self-administered pension
scheme (SAPS “S2” series) mortality tables as shown in the following table:
Base mortality tables 2019 2018
Male members 100% x S2PMA 100% x S2PMA
Male dependants 100% x S2PMA 100% x S2PMA
Female members 100% x S2PFA 100% x S2PFA
Female dependants 100% x S2PFA 100% x S2DFA
CMI 2018 Core Projections with CMI 2016 Core Projections
Future improvements a 1.5% pa long-term trend! _ with a 1.5% pa long-term trend
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Notes to the financial statements (continued)
Average expected life expectancy from age 60: 2019 2018
For a current 60 year old male RMPP member 27 years 27 years
For a current 60 year old female RMPP member 29 years 29 years
For a current 40 year old male RMPP member 28 years 29 years
For a current 40 year old female RMPP member 31 years 31 years
b) Plans’ assets
The assets in the plans for the Group were:
Market value 2019 Market value 2018
Sectionalised RMPP Em £m
Corporate bonds 7 16
Private Equity 4 6
Cash and cash equivalents 43 28
Bond/fixed interest funds 9 1
Other loan/debt funds . 10 10
Alternative asset funds 4 5
Bulk annuity policies* 292 272
Fair value of RMPP assets 362: 338
Present value of RMPP liabilities (320) (298)
Surplus in plan before asset ceiling adjustment. I 42I 40
Less effect of asset ceiling I (42) I (40)
Surplus in plan after asset ceiling adjustment _I -I :
* As described above, the Post Office section of the RMPP holds two bulk annuity policies with Rothesay Life
PLC. The value ascribed to the policies has been calculated using the same assumptions as used to calculate
the present value of the defined benefit obligation.
Market value 2019 Market value 2018
Share of RMSEPP £m —£m
Overseas equities - 8
Government bonds - 17
Cash and cash equivalents - 1
Alternative asset funds - (8)
Property ; 1 2
Bulk annuity policy* 28 12
Fair value of share in plan assets for RMSEPP. 29 32
Present value of share in plan liabilities for RMSEPP (29) (27)
Surplus in plan for the share of RMSEPP before tax __I -I 5
Tax effect I 1I (2)
Surplus in plan for share of RMSEPP after tax _I 1I 3
*As described above, RMSEPP holds a bulk annuity policy with Scottish Widows. The value ascribed to this
policy has been calculated using the same assumptions as used to calculate the present value of the defined
benefit obligation.
As described above, no surplus is recognised for RMPP because the Group no longer has an
unconditional right to refund from the Plan. A retirement benefit surplus of £1 million is disclosed
on the balance sheet, representing the surplus in the RMSEPP only.
There is no element of the above present value of liabilities that arises from plans that are wholly
unfunded. With the exception of the bulk annuity policy described above, all RMPP and RMSEPP
assets are securities with a quoted price in an active market.
Post Office Limited corporate.postoffice.co.uk I PAGE 75
Notes to the financial statements (continued)
c) Movement in plans’ assets and liabilities
Changes in the fair value of the plans’ assets are analysed as follows:
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Assets Sectionalised Sectionalised
RMPP RMPP
2019 2018
£m Em
Assets in sectionalised RMPP at beginning of period 338 532
Contributions paid 1 5
Finance income 7 7
Actuarial gains/(losses) 21 (201)
Benefits paid to members (5) (5)
Assets in sectionalised RMPP at end of period 362 338
Share of Share of
Assets RMSEPP RMSEPP
2019 2018
£m £m
Share of assets in RMSEPP at beginning of period 32 32
Contributions paid - 1
Finance income 1 1
Actuarial losses Q@) (1)
Benefits paid to members (2) (1)
29 32
Share of assets in RMSEPP at end of period
Changes in the present value of the defined benefit pension obligations are analysed as follows:
Liabilities Sectionalised Sectionalised
RMPP RMPP
2019 2018
£m £m
Liabilities in sectionalised RMPP at beginning of period (298) (322)
Past service cost (4) (4)
Finance cost Q) (7)
Experience adjustments on liabilities (6) (2)
Financial assumption changes (17) 23
Demographic assumption changes 4 9
Benefits paid 5 5
Liabilities in sectionalised RMPP at end of period (320) (298)
Liabilities Share of Share of
RMSEPP RMSEPP.
2019 2018
£m £m
Share of liabilities in RMSEPP plans at beginning of period (27) (31)
Finance cost q@) (1)
Experience adjustments on liabilities (2) -
Financial assumption changes (2) 3
Demographic assumption changes 1 1
Benefits paid 2 1
(29) (27)
Share of liabilities in RMSEPP at end of period
Post Office Limited
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Notes to the financial statements (continued)
d) Recognised charges
An analysis of the separate components of the amounts recognised in the performance
statements of the Group is as follows:
Sectionalised
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Sectionalised
RMPP RMPP
2019 2018
—£m £m
Analysis of amounts recognised in the income statement
Analysis of amounts charged to investments:
Loss due to curtailments i 4
Total charge to operating profit Il 1 I 4
Analysis of amounts charged/(credited) to net pensions interest:
Interest on plan liabilities 7 7
Interest income on plan assets (7) (7)
Net pensions credit to financing I -I :
Net charge to the income statement I 14 4
Analysis of amounts recognised in the statement of
comprehensive income
Actual return on plan assets 28 (194)
Less: expected interest income on plan assets (7) (7)
Actuarial gains/(losses) on assets (all experience adjustments) I 21I (201)
Actuarial gains arising from changes in demographic assumptions ' 4 9
Actuarial (losses)/gains arising from changes in financial assumptions (17) 23
Actuarial losses arising from experience adjustment (6) (2)
Actuarial (losses)/gains on liabilities I qs) I 30
Effect of the asset ceiling I (2) I 170
Total actuarial losses recognised in the statement of . (1)
comprehensive income
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Notes to the financial statements (continued)
Share of Share of
RMSEPP RMSEPP.
2019 2018
£m £m
Analysis of amounts recognised in the income statement
Analysis of amounts charged/(credited) to net pensions interest:
Interest on plan liabilities 1 1
Interest income on plan assets (1) (1)
Net pensions credit to financing I -I :
Net charge to the income statement before deduction for tax _I -1 :
Analysis of amounts recognised in the statement of
comprehensive income
Actual return on plan assets (1) -
Less: expected interest income on plan assets (4) (1)
Actuarial losses on assets (all experience adjustments) I (2) I Q@)
Actuarial gains arising from changes in demographic assumptions 1 1
Actuarial (losses)/gains arising from changes in financial assumptions (2) 3
Actuarial (losses)/gains on liabilities I @)I 4
Total actuarial (losses)/gains recognised in the statement of
jl (3) 3
comprehensive income before tax effect
Tax effect U it (2)
Total actuarial (gains)/losses recognised in the statement of
comprehensive income after tax effect Q) 1
18. Equity
Share capital
2019 2018
£ £
Authorised
Ordinary shares of £1 each 51,000 51,000
Total l 51,000 I 51,000
Allotted and issued and fully paid
Ordinary shares of £1 each 50,003 50,003
Total I 50,003 I 50,003
Other reserves
Other reserves of £2 million (2018: £2 million) relate to First Rate Exchange Services Holdings
Limited, the joint venture entity, and £3 million (2018: Enil) relates to a cash flow hedge.
Share premium
On 7 August 2007 one ordinary share of £1 was issued in return for £313 million cash paid by the
Secretary of State for Business, Enterprise and Regulatory Reform. A share premium of £313 million
resulted from this subscription. In April 2008 two ordinary £1 shares were issued in return for £152
million cash paid by the Secretary of State for Business, Energy and Industrial Strategy. A share
premium of £152 million resulted from this subscription.
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Notes to the financial statements (continued)
19. Commitments and contingent liabilities
Capital commitments contracted for but not yet provided in the financial statements amount to £9
million (2018: £20 million).
The Group is also committed to the following future aggregate minimum lease payments under non-
cancellable operating leases:
Land and buildings Motor vehicles
2019 2018 2019 2018
£m £m £m £m
Within one year 11 13 1 1
Between one and five years 24 34 1 -
Beyond five years 18 33 - -
Total 53 80 2 1
Contingent liabilities: As a large, nationwide retailer operating in dynamic and competitive markets,
we may be subject to regulatory investigations and may face damage to our reputation and legal
claims.
From time to time, we may be named as a defendant in legal claims or be required to respond to
regulatory actions in connection with our activities. This may include claims for substantial or
indeterminate amounts of damages from customers, employees, consultants and contractors, or
may result in penalties, fines, or other results adverse to us. Like any large company, we may also
be subject to the risk of potential employee or postmaster misconduct, including non-compliance
with policies and improper use or disclosure of our assets or confidential information.
On 11 April 2016, a High Court claim was issued on behalf of a number of postmasters against Post
Office in relation to various legal, technical and operational matters, many of which have been the
subject of significant external focus for a number of years.
The litigation is very complex and the Judge ordered that it will be heard as a series of trials.
The first trial, which finished on 5 December 2018, was about determining the legal construction of
the contract between Post Office and postmasters. The Judgment from this trial was made public on
15 March 2019.
On 23 May 2019, the Court awarded the Claimants their costs in respect of the first trial. As a result,
Post Office was instructed to make a payment on account of £6 million. These costs have been
recognised in 2018/19 as they reflect conditions that existed at the end of this reporting period.
The second trial, about technical matters concerning Post Office’s Horizon computer system started
on 11 March 2019 and concluded on 2 July 2019 when the Judge retired to consider his judgment.
The judgment is not expected to be handed down before mid-September 2019.
Neither the first nor second trial have or will determine liability or the individual claimants’ cases. A
further third trial has been scheduled for March 2020, but the fourth trial has not yet been set down.
Further, a number of the Claimants assert that they have been convicted of criminal offences
arising from their roles at Post Office, with 31 of those cases being considered by the Criminal
Cases Review Commission (“CCRC”). The CCRC has the power to refer cases to the Court of
Appeal who, in turn, have the power to overturn a conviction. This could then lead to claims for
compensation.
To date, the Claimants have not asserted the aggregate value of their claims in any of the Particulars
of Claim filed in the litigation.
While the Directors recognise that an adverse outcome would be material, they are currently unable
to determine whether the outcome of these proceedings would have a material adverse impact on
the consolidated position of the Group, and are unlikely to be able to do so until the Court has made
further determinations and the Claimants have provided the necessary information about the value
of their claims. The Directors continue to keep this under close review.
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Notes to the financial statements (continued)
The Post Office Group Litigation represents a possible obligation arising from past events, whose
existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future
events not wholly within the control of the Group.
The costs of £20 million included in exceptional items relate to Post Office defending the Post Office
Group Litigation (2018: £3 million) during the financial year.
On 14 June 2018, an Employment Tribunal claim was issued on behalf of a number of postmasters
against Post Office in which they seek to establish that they are "workers" of Post Office and therefore
have rights to holiday pay.
Post Office's position is that postmasters are independent contractors in business on their own
account, not workers, and this is supported by previous case law. However, if postmasters were to
establish they are workers they would gain a number of additional rights such as to take and be paid
for annual leave and a right to receive the National Minimum Wage/National Living Wage. This would
likely result in future increased business costs and retrospective claims for compensation.
The litigation is at a relatively early stage. Post Office and the Claimants are currently going through
a process of agreeing ‘test cases’. It is anticipated that this process will be complete by 11 October
2019.
On 11 October 2019 there will be a hearing, which will set a date for a future preliminary hearing to
decide whether or not the Claimants have worker status. No date has been set for that hearing but
Post Office does not expect it to take place prior to April 2020.
That first hearing will only determine the legal principle of whether postmasters (or some categories
of postmaster) are workers. Should the Claimants succeed on this point, a further trial will be
required to decide the value of their quantum of their claims. No date has been set for this at present.
To date, the Claimants have not asserted the value of their claims.
This litigation represents a possible obligation arising from past events, whose existence will be
confirmed only by the occurrence or non-occurrence of one or more uncertain future events not
wholly within the control of the Group.
While the Directors recognise that an adverse outcome could be material, they are currently unable
to determine whether the outcome of these proceedings would have a material adverse impact on
the consolidated position of the Group, and are unlikely to be able to do so until the Employment
Tribunal has determined the worker status question and the Claimants have provided the necessary
information about the value of their claims. The Directors continue to keep this under close review.
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Notes to the financial statements (continued)
20. Business combinations
On 24 October 2018, the Group acquired Payzone Bill Payments Limited (“Payzone”) for cash
consideration of £16 million. Further consideration of £3 million is contingent on the future
performance of certain Payzone revenue streams. £1 million has been paid as at 31 March 2019. The
acquisition developed the bill payments business and has been accounted for under IFRS 3 Business
Combinations.
The fair values of the identifiable assets and liabilities of the business as at the date of acquisition
were:
2018
£m
Property, plant and equipment.
Trade and other receivables
Cash and cash equivalents
Trade and other payables (6)
Net assets acquired I 5 {
Intangible assets - merchant relationships 6
Intangible assets - brand 1
Deferred tax liability on acquired intangible assets (1)
Goodwill 8
Total consideration I 19 I
Consideration is represented by:
Cash . 16
Contingent consideration 3
Total consideration I 19 I
The goodwill arising from the acquisition represents the opportunity to integrate technology and
combine the Group’s existing bill payments business with Payzone in order to compete for new and
bigger bill payment contracts from a stronger position. The goodwill arising on acquisition is not
deductible for income tax purposes. Goodwill has been reviewed for impairment at acquisition and
during the year and on both occasions the amount is considered to represent fair value. There are no
indicators of impairment.
Associated acquisition expenses were immaterial and have been charged to the income statement,
within the investments column.
From the date of acquisition to 31 March 2019, the Payzone business has contributed £4 million of
revenue and £1 million to trading profit.
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Notes to the financial statements (continued)
21. Related party disclosures
Joint venture
The following Company is a joint venture of the Group:
Company Country of incorporation % Holding Principal activities
First Rate Exchange United Kingdom 50 Bureau de Change
Services Holdings Limited
All shareholdings are equity shares. Summarised financial information for the joint venture is
included in note 10.
Related party transactions
During the year the Group entered into transactions with the following related parties. The
transactions were in the ordinary course of business. The transactions entered into and the balances
outstanding at the financial year-end were as follows:
Amounts owed from Amounts owed to
Sales / recharges Purchases / related party related party
to related recharges from including including
party related party outstanding loans outstanding loans
2019 2018 2019 2018 2019 2018 2019 2018
£m Em —£m £m =m £m £m £m
First Rate .
Exchange Services I
Holdings Limited 36. 34 112 118 2 8 6 4
The sales to and purchases from related parties are made at normal market prices. Balances
outstanding at the year-end are unsecured, interest free and settlement is made by cash. First Rate
Exchange Services Holdings Limited is a joint venture of the Group.
The Group trades with numerous Government bodies on an arm’s length basis, such as the DWP, the
DVLA and the Home Office. Transactions with these entities are not disclosed owing to the significant
volume of transactions that are conducted. :
Separately:
. The Group has certain loan facilities of £950 million (2018: £950 million) with Government
(page 48). '
. The Group has received investment funding from Government of £168 million (2018: £70
million), all of which was recognised through the income statement.
. The Group has received the Network Subsidy Payment of £60 million (2018: £70 million) from
Government (page 41).
Key management personnel comprises the Executive and Non-Executive Directors of the Post
Office Limited Board at 31 March 2019. The remuneration of the key management personnel of
the Post Office Group is disclosed in the Remuneration Committee Chairman’s Statement on
pages 24 and 25.
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Notes to the financial statements (continued)
22. Membership of the Bank of England's Note Circulation
Scheme
Post Office Limited is a member of the Bank of England (the ‘Bank’) Note Circulation Scheme (the
‘NCS’) which governs the custody of Bank of England notes that are not in issue. The NCS promotes
efficiency in the distribution and processing of notes by allowing approved commercial organisations,
engaged in the wholesale distribution and processing of cash, such as the Post Office, to hold notes
owned by the Bank.
The continued participation in the NCS ensures that Post Office Limited has an adequate supply of
notes to meet customer demand across its network.
The NCS mechanisms that enable Post Office Limited to hold Bank of England owned notes comprise
of two elements:
Bond Facility Cash (the ‘Bond’) - this is cash that is permanently owned by the Bank and is stored in
secure vaults at our cash centres, physically separate from other cash. Post Office Limited buys cash
from and sells cash to the Bond.
Note Recirculation Facility Cash (the ‘NRF’) - this is cash that is held securely, either in our NCS cash
centres or in the branch network and that is sold to the Bank at the end of each day with a
commitment from Post Office Limited to buy it back the next morning. In order to sell notes in this
way to the Bank, Post Office Limited must ensure that Gilts are lodged each night as collateral. Our
ability to sell notes to the Bank under the NRF is constrained by:
a) The amount of eligible notes available for sale.
b) The collateral available.
c) An annual limit imposed by the Bank dependent upon the volume of notes sorted and issued
from our cash centres.
In order to support its participation in the NCS, Post Office Limited has bank facilities of up to £400
million in place (the ‘Facilities’), comprising:
a) An overnight collateral facility.
b) An intra-day overdraft facility.
The Facilities may be cancelled by the lender with 60 days’ notice.
At the end of the year £227 million (2018: £238 million) of NRF was held in this way.
Post Office also has an arrangement in Scotland with a commercial banking partner whereby
surplus Scottish notes are sold to the partner overnight for repurchase the next day. At the end
of the year a total of £3 million (2018: £17 million) was outstanding under this arrangement.
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Notes to the financial statements (continued)
23. Alternative performance measures
An alternative performance measure is a financial measure of historical or future financial
performance, position or cash flows of the Group which is not a measure defined or specified in
IFRS.
Trading profit
Trading profit is one of the Group’s key financial measures as it shows the underlying performance of
the Group. It is calculated by taking operating profit from continuing operations before depreciation,
amortisation, exceptional items, investments and Network Subsidy Payment. The table below
summarises the calculation of operating profit before exceptional items, trading profit before
Network Subsidy Payment and trading profit.
2019 2018
£m £m
Operating profit 40 15
Adjusted for:
Exceptional items 20 3
Operating profit before exceptional items I 60 I 18
Depreciation and amortisation 94 55
Investments I (34) 32
Trading profit before Network Subsidy Payment I 120 I 105
Network Subsidy Payment I (60) I (70)
Trading profit I 60 I 35
- 24. Post balance sheet events
In accordance with the Funding Agreement with Government signed on 30 March 2017, Post
Office Limited received a Network Subsidy Payment of £18 million on 2 April 2019. The Network
Subsidy Payment is received on a quarterly basis and a total of £50 million will be received from
Government in 2019/20.
25. Ultimate controlling party
The Post Office Limited was a wholly owned subsidiary of Postal Services Holding Company
Limited until it entered voluntary liquidation in June 2017 and the shares in Post Office Limited
were transferred to the Secretary of State for BEIS.
The Secretary of State for BEIS holds a special share in Post Office Limited and the rights
attached to that special share are enshrined within Post Office Limited Articles of
Association. BEIS, through UK Government Investments Limited (“UKGI”), has no day to day
involvement in the operations of Post Office Limited or in the management of its branch network
and staff. As such, at 31 March 2019, the Directors regarded Post Office Limited as the
immediate and ultimate parent Company.
The largest Group to consolidate the results of the Company is Post Office Limited, a company
registered in the United Kingdom. Post Office Limited financial statements can be obtained from
Finsbury Dials, 20 Finsbury Street, EC2Y 9AQ.
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Post Office Limited
Company
Financial Statements
2018/19
Post Office Limited corporate. postoffice.co.uk I PAGE 85
Company balance sheet
at 31 March 2019 and 25 March 2018
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2019 2018
Note £m £m
Non-current assets
Intangible assets 3 215 211
Property, plant and equipment 4 173 148
Investment in subsidiaries 5 74 50
‘Investments in joint venture 6 66 66
Retirement benefit surplus 12 1 3
Trade and other receivables 7 6 12
Total non-current assets 535 490
Current assets
Inventories 2 3
Trade and other receivables 7 345 329
Cash and cash equivalents 8 553 644
Total current assets 900 976
Total assets 1,435 1,466
Current liabilities
Trade and other payables 9 (531) (565)
Financial liabilities - interest bearing loans and borrowings 10 (565) (623)
Provisions 14 (52) (35)
Total current liabilities (1,148) . (1,223)
Non-current liabilities
Other payables 9 (14) (18)
Provisions 14 (39) (30)
Total non-current liabilities (53) (48)
Net assets 234 195
Equity
Share capital 13 - -
Share premium 13 465 465
Accumulated losses (236) (272)
Other reserves 5 2
Total equity 234 195
The notes on pages 88 to 98 form an integral part of the financial statements.
The result dealt with in the financial statements of the Company amounted to a profit after tax of
£38 million (2018: £15 million).
The financial statements on pages 86 to 98 were approved by the Board of Directors on 3
September 2019 and signed on its behalf by:
ACJ Cameron
Interim Chief Executive
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Company statement of changes in equity
for the 53 weeks ended 31 March 2019 and 52 weeks ended 25 March 2018
Share Share Accumulated Other Total
capital Premium losses reserves equity
Notes £m £m £m £m £m
At 26 March 2018 - 465 (272) 2 195°
Profit for the year be - 38 - 38 :
Gains on cash flow hedges - - - 3 3
Re-measurements on defined 12 - - (3) - (3)
benefit surplus .
Tax effect 12 - - 1 - 1.
At 31 March 2019" - 465 (236) 5 234
Share Share Accumulated Other Total
capital Premium losses reserves equity
Notes £m £m £m £m £m
At 27 March 2017 > 465 (287) 2 180
Profit for the year - - 15 - 15
Re-measurements on defined 12 - - 2 - 2
benefit surplus
Tax effect 12 - - (2) - (2)
At 25 March 2018 - 465 (272) 2 195
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Notes to the financial statements
1. Accounting Policies
The accounting policies which follow, set out those which apply in preparing the Company financial
statements for the 53 week period ended 31 March 2019.
Financial year
The financial year ends on the last Sunday in March and accordingly, these financial statements are
made up to the 53 weeks ended 31 March 2019 (2018: 52 weeks ended 25 March 2018).
Authorisation of financial statements
The parent Company financial statements of Post Office Limited (the ‘Company’) for the year ended
31 March 2019 were authorised for issue by the Board of Directors on 2019 and the
balance sheet was signed on the Board’s behalf by A C J Cameron. Post Office Limited is a company
limited by share capital, incorporated and domiciled in England and Wales. The address of the
registered office is given on page 99.
Basis of preparation
These financial statements were prepared in accordance with Financial Reporting Standard 101
Reduced Disclosure Framework (“FRS” 101). These financial statements are prepared under the
historical cost convention. The financial statements have been prepared in accordance with the
requirements of the Companies Act 2006.
As permitted by Section 408 of the Companies Act 2006 Post Office Limited has not presented its
own income statement.
The results of Post Office Limited are included in the consolidated financial statements of Post Office
Limited which are available from Companies House.
The Company has taken advantage of the following disclosure exemptions under FRS 101:
(a) the requirements of IFRS 7 ‘Financial Instruments: Disclosures’;
(b) the requirements of paragraphs 91-99 of IFRS 13 Fair Value Measurement;
(c) the requirements of paragraphs 10(d), 10(f), 39(c), 40.A and 134-136 of IAS 1 ‘Presentation
of Financial Statements’;
(d) the requirements of IAS 7 ‘Statement of Cash Flow’s;
(e) the requirements of paragraphs 30 and 31 of IAS 8 ‘Accounting Policies, Changes in
Accounting Estimates and Errors’;
(f) the requirements of paragraph 17 of IAS 24 ‘Related Party Disclosures’; and
(g) 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 is
a party to the transaction is wholly owned by such a member.
Fundamental accounting concept - going concern
The Company had net assets of £234 million at 31 March 2019 (2018: £195 million). At 31 March
2019 £385 million of the Company's working capital facility was undrawn (2018: £327 million). The
Company has also shown a profit for the year of £38 million (2018: £15 million).
We have the following funding agreed with BEIS: a working capital facility of £950 million to 31
March 2021; a further £50 million facility available to provide same day liquidity to 4 April 2020;
NSP of £50 million for 2019/20 and 2020/21 respectively; and we also have investment funding of
up to £210 million as required for the period from April 2018 to March 2020. Investment funding of
£168 million was received in 2018/19.
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Notes to the financial statements (continued)
After careful consideration of the plans for the coming years, the Directors continue to believe that
Post Office Limited will be able to meet its liabilities as they fall due for the next 12 months.
Accordingly, on that basis, the Directors consider that it is appropriate that these financial
statements have been prepared on a going concern basis.
Accounting policies
The following accounting policies are consistent with those of the Group as detailed in note 1 of the
Group financial statements:
.
IFRS 9 Financial Instruments.
IFRS 15 Revenue from Contracts with Customers.
IFRS 16 Leases.
Critical accounting estimates and judgements in applying accounting policies.
Revenue.
Other income.
Investments column in the income statement.
Leases.
Taxation.
Investments in joint venture.
Business combinations.
Property, plant and equipment.
Intangible assets.
Inventories.
Trade receivables.
Cash and cash equivalents.
Pensions and other post-retirement benefits.
Foreign currencies.
Provisions.
Financial instruments.
Derivatives and hedging activities.
Auditors’ remuneration
The remuneration paid to auditors is disclosed in the Group financial statements (note 3).
Directors’ emoluments
The emoluments paid to Directors are disclosed in the Group financial statements (note 5).
Directors for the Company are the same as Group.
Investment in subsidiaries
Investment in subsidiaries are carried at cost less accumulated impairment losses.
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Notes to the financial statements (continued) :
2. Staff costs and numbers
Employment and related costs were as follows:
2019 2018
People costs within trading: —£m £m
Wages and salaries 157 151
Social security costs 17 18
Other pension costs (note 12) I 13 16
Total people costs within trading I 187 I 185
Other operating costs within trading I 734 { 751
Total trading costs I 921 I 936
Period end and average employee numbers were as follows:
Period end employees Average employees
I 2019 I 2018 I 2019 I 2018
Total employees I 4,266 I 4,973 I 4,619 I 5,022
Total employee numbers can be categorised as follows:
2019 2018
Administration 1,202 1,205
Directly managed branches (DMB) 2,047 2,707
Supply Chain 853 848
Network programmes 164 213
Total 4,266 4,973
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Notes to the financial statements (continued)
3. Intangible assets
Other
Software Goodwiil Intangibles Total
£m £m —m £m
Cost
At 27 March 2017 314 - - 314
Reclassification (2) - - (2)
Additions 122 1 6 129
At 25 March 2018 434 1 6 441 I
Reclassification (29) . - (29)
Additions 90 - - 90 I
Disposals (17) - - (17)
At 31 March 2019 I 478 1 6 485 I
Accumulated amortisation and impairment
At 27 March 2017 199 - - 199
Reclassification 6 - - 6
Amortisation 25 - - 25
At 25 March 2018 230 - - 230
Amortisation 52 - 3 55
Disposals (15) - - (15)
At 31 March 2019 I 267 oa 3 270 I
Net book value
At 31 March 2019 I 211 1 3 215 I
At 25 March 2018 204 1 6 211
Included within the above table are assets under construction of £46 million (2018: £134 million).
Amortisation rates are disclosed on page 53 within the Group accounting policies note.
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Notes to the financial statements (continued)
4. Property, plant and equipment
Land and Buildings
Plant Fixtures
Long Short Motor and and
Freehold leasehold leasehold vehicles machinery equipment Total
£m. £m £m £m £m £m £m
Cost
At 27 March 2017 45 41 23 26 1 795 931
Reclassification 1 1 1 - - (1) 2
Additions - - - 1 - 18 19
Disposals (6) (3) (2) (2) - (7) (20)
At 25 March 2018 40 39 22 25 1 805 932 I
Reclassification 2 - - - - 27 29 I
Additions 1 1 1 - - 35 38
Disposals (4) (1) (2) - - (22) (29) I
At 31 March 2019 39 39 21 25 1 845 970 I
Accumulated depreciation and impairment
At 27 March 2017 32 14 23 26 1 677 773
Reclassification - - - . - (6) (6)
Depreciation 1 2 - - - 25 28
Disposals (4) - (2) (2) - (3) (11)
At 25 March 2018 29 16 21 24 1 693 784 '
Depreciation 1 2 - - - 32 35 I
Disposals (2) (1) (2) - - (17) (22) I
At 31 March 2019 I 28 17 19 24 1 708 797 I
Net book value
At 31 March 2019 I 11 22 2 1 - 137 173 I
At 25 March 2018 11 23 1 1 - 112 148
Included within the above table are assets under construction of £9 million (2018: £11 million).
Depreciation rates are disclosed on page 52 within the Group accounting policies note. No
depreciation is provided on freehold land, which represents £2 million (2018: £2 million) of the total
cost of properties.
During the current and prior year, a review of property, plant and equipment and intangible assets
took place and resulted in reclassifications between categories to give a more appropriate
representation of the nature of the assets.
An impairment test was performed during the year. Intangible assets and property, plant and
equipment were tested for impairment by comparing the carrying amount of each Cash Generating
Unit (CGU) with the recoverable amount determined from the value in use calculations.
The discounted net cash flows from the value in use calculations were used to determine the
recoverable amount of the CGU’s identified, being Post Office Limited. Value in use is determined
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Notes to the financial statements (continued)
using the Group’s net cash inflows from the continued use of the assets within each CGU over a
two year period (and then continued into perpetuity), with no nominal growth rate assumed
outside of this period. Pre-tax discount rates for Post Office Limited of 9.5% (2018: 9%) have
been used to discount the forecasted cash flows.
A sensitivity analysis has been performed in assessing the value in use of property, plant and
equipment and intangible assets. This has been based on changes in key assumptions considered
to be possible by management. This included an increase in the discount rate of up to 12%, zero
growth rate and a decrease in forecasted EBITDA by 5%. The sensitivity analysis showed that no
impairment would arise under each or a combined scenario.
Management therefore believes that any reasonably possible change in the key assumptions
would not cause the carrying amount of any CGU’s to exceed their carrying value.
5. Investment in subsidiaries
The carrying value of £74 million relates £55 million to the Company's investment in Post Office
Management Services Limited, a 100% subsidiary of the Company with 55,000,000 shares at a
nominal value of £1 and 1 share with a nominal value of £100; and £19 million, in Payzone Bill
Payments Limited, a 100% subsidiary of the Company with 1 share at a nominal value of £1. The
registered address of both Post Office Management Services Limited and Payzone Bill Payments
Limited is Finsbury Dials, 20 Finsbury Street, EC2Y 9AQ.
6. Investments in joint ventures
2019 2018
£m £m
Investment in joint ventures 66 I 66
During the current and prior year, the Company’s only joint venture investment was a 50% interest
(1,000 £1 ordinary A shares) in First Rate Exchange Services Holdings Limited with a carrying value
of £66 million (2018: £66 million), whose principal activity is the provision of Bureau de Change.
First Rate Exchange Services Holdings Limited is a company registered in the United Kingdom. The
’ registered address of First Rate Exchange Services Holdings Limited is Great West House, Great
West Road, Brentford, Middlesex, TW8 9DF.
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Notes to the financial statements (continued)
7. Trade and other receivables
2019 2018
£m Em
Current: * ' I
Trade receivables I 92) 78
Amounts owed by group undertakings I 8I 6
Accrued income I 71) 74
Prepayments I 25 23
Client receivables I 125 132
Other receivables i 24) 16
Total I 345 I 329
Non-current: I
Accrued income I 2 2
Prepayments 4) 10
Total I 6 I 12
8. Cash and cash equivalents
2019 2018
£m —m
Cash in the Post Office Limited network 549 643
Short-term bank deposits 4 I 1
Total I 553 I 644
9. Trade and other payables
2019 2018
£m Em
Current:
Trade payables 50 40
Amounts owed to group undertakings 4 1 4
Accruals 118 I 155
Deferred income 20 i 32
Social security I 8 j 8
Client payables 316 I 306
Capital payables I 10 i 20
Other Payables I 5 I -
Total 531 565
Non-current: I Hl
Other payables I 14: 18
Total I 14/ 18
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Notes to the financial statements (continued)
10. Financial liabilities - interest bearing loans and
borrowings
2019 2018
£m £m
Department for Business, Energy and Industrial 565 623
Strategy I H
The loan under the facility is short dated on a programme of liquidity management and matures 1
day after the year-end (2018: 1 day). The fair value of borrowings approximate their carrying value
due to the short term maturities of the loan. On maturity it is expected that further loans will be
drawn down under this facility, which expires in 2021. The undrawn committed facility, in respect of
which all conditions precedent had been met at the balance sheet date, is £385 million (2018: £327
million). The average interest rate on the drawn down loans is 1.1% (2018: 0.8%).
The facility is currently restricted to funding the cash and near cash items held within the Post Office
Limited network.
The facility (including drawn down loans) is secured by a floating charge over all assets of Post Office
Limited and a negative pledge over cash and near cash items. The negative pledge is an agreement
not to grant security over the assets or to set up a vehicle that has the same effect.
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Notes to the financial statements (continued) ,
11. Provisions
Network
Programmes Property Severance Other Total
£m £m £m =m —£m
At 26 March 2018 18 32 7 8 65
Charged to investments 33 20 43 - 96
Charged to trading - - - 6 6
Transfers - - - 3
Utilisation (36) - (24) (2) (62)
Provisions released in the year ~
investments . i) o @ (12)
Provisions released in the year -
trading : : : () (5)
At 31 March 2019 15 45 22 9 91 I
Network
Programmes Property Severance Other Total
£m £m —m Em £m
Disclosed as:
At 31 March 2019
Current 9 12 22 9 52
Non-current 6 33 - - 39
15 45 22 9 91
At 25 March 2018
Current 11 it 7 35
Non-current 7 21 - 30
18 32 7 8 65
Details of the provisions are included in note 15 in the Group financial statements.
12. Retirement benefit surplus
The Company pension’s disclosure is consistent with the Group disclosure included in note 17 on
Pages 72 to 78.
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Notes to the financial statements (continued)
13. Equity
Called up share capital
2019 2018
£ £
Authorised
Ordinary shares of £1 each 51,000 51,000
Total I 51,000 I 51,000
Allotted and issued
Ordinary shares of £1 each 50,003 50,003
Total 50,003 I 50,003
Share premium
On 7 August 2007 one ordinary share of £1 was issued in return for £313 million cash paid by the
Secretary of State for Business, Energy and Industrial Strategy. A share premium of £313 million
resulted from this subscription. In April 2008 two ordinary £1 shares were issued in return for £152
million cash paid by the Secretary of State for Business, Energy and Industrial Strategy. A share
premium of £152 million resulted from this subscription.
14. Commitments and contingent liabilities
Details of the Company commitments under non-cancellable operating leases and Company
contingent liabilities are disclosed in note 19 of the Group financial statements.
15. Related party disclosures
Related parties for Post Office Limited are as per the Group; details of which are disclosed in note 21
of the Group financial statements.
16. Investments expenditure
Details of operating investments expenditure is disclosed in note 4 of the Group financial statements.
17. Taxation
Details of the taxation credit recognised in the year are disclosed in note 7 of the Group financial
statements.
18. Business combination
Details of the business combination are included in note 20 of the Group financial statements.
19. Post balance sheet events
Details of post balance sheet events are included in note 24 of the Group financial statements.
On 1 April 2019 Post Office Management Services Limited issued 5,000,000 ordinary shares with a
value of £1 each to Post Office Limited. These were issued and paid at par value.
20. Ultimate controlling party
The Post Office Limited was a wholly owned subsidiary of Postal Services Holding Company Limited
until it entered voluntary liquidation in June 2017 and the shares in Post Office Limited were
transferred to the Secretary of State for BEIS.
The Secretary of State for BEIS holds a special share in Post Office Limited and the rights attached
to that special share are enshrined within Post Office Limited Articles of Association. BEIS, through
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Notes to the financial statements (continued)
UK Government Investments Limited (“UKGI”), has no day to day involvement in the operations of
Post Office Limited or in the management of its branch network and staff. As such, at 31 March
2019, the Directors regarded Post Office Limited as the immediate and ultimate parent Company.
The largest Group to consolidate the results of the Company is Post Office Limited, a company
registered in the United Kingdom. Post Office Limited financial statements can be obtained from
Finsbury Dials, 20 Finsbury Street, EC2Y 9AQ.
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Corporate information
Registered Office Actuary
Post Office Limited Towers Watson Limited
Finsbury Dials Watson House
20 Finsbury Street London Road
London Reigate
EC2Y 9AQ Surrey
RH2 9PQ
Independent Auditor Consumer Body
PricewaterhouseCoopers LLP Consumer Focus
29 Wellington St 4th Floor
Leeds Artillery House
LS1 4DL Artillery Row
London
SW1P 1RT
Solicitor
Linklaters LLP
One Silk Street
London
EC2Y 8HQ
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Post Office Limited is registered in England and Wales. Registered number
2154540.
Registered Office is Finsbury Dials, 20 Finsbury Street, London, EC2Y 9AQ.
Post Office and the Post Office logo are registered trademarks of Post Office
Limited.
Copyright 2019 The Post Office.