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Annual Report and
Financial Statements
2015/16
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SSE EE “GS. \
E I Annual Report and Financial Statements 2015/16
bed Nyetimber branch, chief executive Paula Vennellsande
stMaster Than Thevarajah,
eis opem@h extra 25 hours a
elauthapillaijahd his family
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contents
Strategic Report I 05
Chairman's foreword I 06
Chief Executive's statement I 08
Financial and Business Review I 1]
Governance I 19
Corporate governance I 20
Board of Directors I 21
Our principal risks and mitigations I 33
Directors' report I 38
Financial Statements I 39
Directors' responsibilities statement I 40
Independent Auditor's report I 41
Consolidated income statement I 43
Consolidated statement of comprehensive income I 44
Consolidated statement of cash flows I 45
Consolidated balance sheet I 46
Consolidated statement of changes in equity I 47
Notes to the Financial Statements I 48
Parent Company Financial Statements I 78
Corporate information I 99
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POST OFFICE I Anr
TraveI M oney
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belies on our Prepaid
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Alan Green-has come/d long Way-sincera BBC documentary crew visited
his branch, The-Cheshife postmasterfrom North Street branch in Crewe
was one ofthe-stats of Signed,ISeated; Delivered, the TV show charting
Or modernisation joUrney, whiclvaired last summer.
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Strategic Report
—
Strategic
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Chairman's foreword
live.
Tim Parker
Chairman
lam proud to be part of this long tradition
of service to the public. But we are also a
‘commercial business, and in this report we
have sought to provide a clear view of
how we are performing, and the challenges
that lie ahead. For many years the Post
Office has relied on a subsidy from the
Government and has also received a
considerable amount of investment from
public sources to modernise the network.
Asa result of this investment, and thanks
to the efforts of postmasters and our staff
to improve our business in many areas, the
public subsidy has declined steadily and
EBITDAS, our key measure of performance
before subsidy, has improved from a loss of
£57 million last year to a loss of £24 million
in 2015/16* Considering that the EBITDAS
three years ago was a loss of £116 million,
this demonstrates the substantial progress
made in recent years. During 2015/16 the
actual Network Subsidy Payment received
from the Government reduced from £160
million to £130 million and transformation
funds reduced by a further £20 million.
Ina time of straitened public finances, we
cannot expect to call on the taxpayer
PAGE 6 corporate postoffice.co.uk/annualreportl516
I was delighted to be appointed Chairman of the Post
Office in October 2015, and I have very much enjoyed
getting to know the business over the last few months. In
the first place the job of the Post Office is to provide some
essential services to our customers, and we are very
conscious of our obligation to ensure that 90% of the
population has a Post Office within a mile of where they
his amounts to operating the largest retail network in the United
Kingdom with over 11,600 branches dedicated to meeting the needs
of a myriad of different communities throughout the country.
indefinitely, and the time has come for the
Post Office to take on the challenge of
becoming a fully sustainable profitable
business, whilst at the same time
maintaining its public service obligations. If
we are to be successful over the medium.
term, we need to be capable of generating
sufficient resources internally so that we
can invest in business development and
growth in the future. The Post Office is a
national brand, trusted by consumers
across a range of activities: postal services,
cash transactions, financial services and
telecoms. Whilst we may need a small
element of Government funding over the
medium term to maintain community
branches and to support the cost of
change, there is no reason why we cannot
achieve positive financial results from the
rest of our business. In particular the Post
Office has significant potential in the
financial services market, but that will
require substantial investment behind our
brand in what is a competitive marketplace
Over the last few years there has been
significant investment in the Network
Transformation Programme, and this is now
ge 11 for the calculation of EBITL
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vit in terms of a business model that
eal
s more flexible and meets the needs of o
customers. I was very pleased to open the
000th b:
h to be modernised in
Nyetimber in West Sussex earlier this ye
Now operating from a bright refurbished
local convenience store, it is open an extra
25 hours a week, including Sunday. It seemed
to me that the postmaster, Than Thevarajah,
epitomises the energy, entrepreneurial spirit
focus that lies at the heart of
Post Office. Whilst
rensive service offer, the
and custom
the m
n intaining a
compre st Office
till fits well into a thriving retail business,
creating footfall, and an opportunity to
At the same time as we have invested in o
sub Post Offices, we have also made good
progress with our own operated Post Offices
self service kiosks have proved popular, and
have helped to reduce queues at peak times.
To operate Post Offices in expensive pri
retail town centre locations with limited
commerc! nancial
II add-on activity, can be
challenge, although considerable progress
has been made on
nming the losses in this
As the Chief Executive's statement explains,
several of the mark
's we operate in are
experiencing some turbulence, but it can be
done; the Post Office can still be a very
attractive business proposition in an
appropria
etail setting
This year has seen some changes to ou
Board. I would like to thank three of ou
members who stood down last year for their
talisation of the Post
essor, Neil
contribution to the re
Office: Alice Perkins, my pre
McCausland and Alasdair Marnoch. I am very
pleased to welcome two new members of
the B
Audit, Risk and Complianc
d ~ Carla Stent who is chairing ou!
mmittee, and
Ken McCall, who as Senior Independant
Director, is chairing our Remuneration
Committee. I would also like to acknowledge
the supportive role of our shareholder, the
Department of Business, Innovation and
Skills, in the c
Post O'
my appreciation of the work done
atinuing development of the
Similarly, I would like to record
Post Office Advisory Council, chaire:
Franklin.
have been struck
y the diversity of ou
branches around the country, and yet there is
2 common thread: they are places where all
people and businesses can, and do, usi
ange of services that are important to them
n their everyday lives. This combination of
commercial focus and community
volvement is exemplified by loca
postmasters such as Bryan Hewson at Amble
» Northumberland, Bryan has fully modified
his branch which contains a community hub
where people can come in and use
computers and get online. He is actively
expanding his business ands a key part c
the community that won the coastal town.
section of the Great British High Street
awards this y‘
Bryan and his team are great examples ~ b
they are not unique. So most of all, I would
ke to pay tri
te to everyone looking after
our customers in the front line or in support,
for their hard work and their dedication to
the highest service standards. Alll of these
the week to the lives of the many p
who depend on the Post Office: thank you
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Bryan Hewson
Amble Post Office
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Chief Executive's statement
Paula Vennells
Chief Executive
Subsidy Payment
EBITDAS (Emillion)
ee
The Post Office results for 2015/16 show continued progress
towards commercial sustainability and reduction in reliance
upon Government. In 2015/16 we have reduced our
operating loss before subsidy by £33 million and overall
financial support from Government by £50 million.
lam pleased we have maintained our commercial turnover, which
went from £976 million to £981 million, in the face of very
challenging market conditions. We have grown revenue in our
Financial Services and Telecoms markets and maintained our Mails
market position; our Government Services revenue has declined
We have also delivered a £28 million reduction in cost across the
business.
In 2015/16 we posted a loss of £24 million in our key EBITDAS measure maintaining a trend of
steady improvement (see graph below left)
The cash position of Post Office continues to be sound. It operates well within its facilities to
meet its own trading needs as well as enabling its network of Post Offices to pay and receive
money on behalf of the range of partners with whom we operate
Our strategy is to build profitability while reducing year on year funding from Government
and creating the potential to re-invest to secure the future of our nationwide network. This
enables around 60,000 of our Post Office colleagues in 11,600 communities to undertake
around a billion transactions a year on behalf of our customers. These are increasingly
essential services to local communities as banks and other businesses withdraw.
The implementation of this strategy is reflected in our performance:
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To continue this progress, the Post Office
needs to enhance its competitiveness and
customer service in the fast changing Mails,
Financial Services, Government Services and
Telecoms markets in which we operate. And
our central and support services need to.
become simpler - and cheaper - to run, thus
creating the conditions for postmasters to
trade profitably and sustainably.
This involves:
* continued investment in the
transformation of the branch network,
and in IT and digital capabilities to
promote convenience to customers and
flexibility in meeting their needs.
#agreater focus on simplifying our central
and support functions, enabling a more
ambitious reduction in costs
ongoing development of profitable own
brand products in Financial Services and
continued effective long term
relationships with both the Royal Mail
and others for whom we area trusted
distributor.
In 2015/16 we have made progress in each of
these areas. Working with postmasters across
the United Kingdom, we have passed the
milestone of modernising 6,000 branches,
adding 190,000 extra opening hours and
improving adjacent retail /convenience offers.
I'm delighted these postmasters and their
staff have achieved over 95% customer
satisfaction. We have started to restore the
financial position of our larger branches
where we faced particularly high operating
costs: my thanks to colleagues in the Crown
Post Offices who over a four year period
have moved from a £46 million annual loss to
a breakeven position. We have completed
the separation of our IT infrastructure from
that of Royal Mail Group.
We have made our first acquisition, buying
our joint insurance business from the Bank of
Ireland (UK) ple and incorporating the
business into the specialist insurance
subsidiary Post Office Management Services
Limited. We have made good progress with
the United Kingdom banks to establish a set
of simplified and consistent transactional
services that will be available in Post Offices
for their retail and commercial customers.
We have commenced the restructuring and
simplification of our central support functions
and service centres that support our branch
network and its service to customers. Also,
to achieve the best chance of protecting the
pension benefits of members of the Post
Office section of the Royal Mail Pension Plan,
we consulted on the closure of our defined
benefit pension scheme to future accrual and
are now considering the results of that
consultation.
Our improving financial results provide
confidence in our capabilities for the future. I
am grateful to all those who work in Post
Offices and those who support them in
various centres across the United Kingdom
for their huge commitment, their
professionalism and their delight in serving
customers.
Looking forward, I am in no doubt that the
Post Office has a bright future. But at present
our reality is that we still make a loss. Some
of our product markets are in structural
decline - particularly in Government
Services where the shift online has reduced
turnover by 9.2%. We recognise there is
greater uncertainty in the wider economy
following the result of the EU referendum in
June. And where we have identified
significant potential growth in areas such as
Financial Services and Telecoms, these
markets are intensely competitive with well
established incumbents. The mails market is
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Strategic Repo
evolving rapidly and success will demand
‘ongoing innovation and flexibility. Our
Government funding is only in place until
2018, with discussions commencing shortly
for the period thereafter, and this funding is
planned to reduce significantly.
Our overri
ing objective is to support a
sustainable and thriving network of Post
Offices, from a low cost support structure.
There remains further work to do before we
make enough money in competitive and
changing markets to reinvest sufficiently and
sustainably in our systems, branches and
customer propositions. That means
continuing to ask the hard questions of
ourselves and being resolute in implementing
the answers.
To that end we have launched a consultation
with our people on reducing the operating
cost of providing cash to Post Offices. Further
changes will follow but I am determined that,
as we implement change, we stay true to our
values. The trust in the Post Office brand is
built on its people; and especially as we go
through change we will take care to ensure
everyone is treated with respect.
The prospect of further and potentially
difficult change can be a hard message on the
back of the real progress that has been made
during 2015/16. But itis the right thing to do
and the only way we can ensure that Post
Offices remain open in communites and have
a bright future serving our customers and
delivering our public purpose, ensuring
services are available across the country for
another generation. This is the way that Post
Office, with its absolute and enduring
commitment to communities across the.
United Kingdom, will flourish into the future.
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I Annual Report and Financial Statements 2015/16
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nancial and Business Review
Financial and Business Review
Alisdair Cameron
Chief Financial Officer
Summary results
The Post Office has maintained its commercial turnover with growth in Financial Services and
Telecoms offsetting a planned decline in the Royal Mail fixed fee and decreases in Government
Services and lottery.
Our total revenue decreased by £25 million (2.2%) because of the planned reduction in the
Network Subsidy Payment (NSP) from Government. In spite of that, cost reduction and the
benefits accruing from continued high levels of investment enabled operating profit before
exceptional items to increase by 1.9%. Moreover, the critical measure of EBITDAS (operating
loss before interest, taxation, depreciation, amortisation, subsidy and exceptional items) which
strips out the Network Subsidy Payment showed significant improvement, reducing the loss
from £57 million to £24 million.
Key Financial Performance Profit and Loss Summary
Indicators
2015
2016 pen Change 2015
2016 = restated §Variance Variance
Turnover £981m £976m £5m £m im im %
Operating profit before Turnover 38 916 5 0s
exceptional items from £105m = —-£103m £2m Network Subsidy
continuing operations Daymont wo 0 (80) (18.8)
Operating loss before Revenue 1m 1136 (25) (2.2)
Ties eno People costs (233) (238) 5 21
depreciation, amortisation,
exceptional items (£24m) —(£57m) £33m Other operating (808) (631) 23 28
and Network Subsidy costs
Payment from continuing
9) .
oparations (EBITDAS) Total costs __ (0a) (1,068) 28 26
Share of profit 5 2 a 2)
from joint ventures
Operating
profit before
exceptional items 105 103 2 WwW
from continuing
operations
Add: Depreciation 1 : 1 -
Less: Network
Subsidy Payment (119) (160) ey (18.8)
EBITDAS (24) (57) 33 579
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Revenue
The Post Office's total revenue decreased by £25 million (2.2%) to
£1,111 million due to a planned decrease of £30 million in the Network
Subsidy Payment (government grant revenue put towards the costs of
maintaining the Post Office network). The Post Office segments
income into four pillars: Mails and Retail, Financial Services,
Government Services, and Telecoms. This commercial turnover
increased by £5 million to £981 million. The pillars and their
performance are detailed here:
2016 2015 Variance Variance
im fm £m %
Mails and Retail 380 388 (8) (21)
“Financial Services —«304.=S'=i«290's'ti‘<i‘i SS
Government 128 141 (13) (9.2)
Telecoms “1390 ~«1202~*«*CNtsts«D
: Other income 1 39 37 2 54
Turnover 1 (9% 5 05
ei Sabsiciy 130 160 (30) (188)
Revenue ym 1136 (25) (2.2)
Mails and Retail
Mails and Retail includes the sale of parcels and other mails products
provided by Royal Mail and Parcelforce. It also includes Lottery and
Retail services such as sales of collectibles as well as packaging and
stationery. Revenue decreased in the year by £8 million (2.19%) whilst
transactional volumes in mails increased slightly.
2016 2015 Variance
£m £m %
Mails services 334 340 (18)
Retail and Lottery I 46 48 (4.2)
Mails and Retail 380 388 (2.1)
Overall mails services revenue reduced by £6 million (1.8%) to £334
million. However, this was driven by a planned reduction of £7 million
in the fixed fee part of the contract with Royal Mail Group. Product
sales improved slightly by £1 million in the year. This position was
underpinned by a good sales and service performance over the
Christmas peak period (year on year trading income was 3.6% higher)
and by growth in areas related to online shopping (Home shopping
returns grew by 25%). The mails market remains competitive and fast
changing as it continues to shift towards package related activity and
premium tracked products like Special Delivery.
The £2 million reduction in turnover from Lottery services was partly
driven by a reduction in Lottery sales due to a decline in the effect of
rollovers
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Financial Services
The Financial Services pillar includes Post Office Money personal
financial services products such as mortgages, credit cards, insurance,
savings, ATMs and travel products as well as traditional services such
as bill payment and over-the-counter banking transactions.
On 30 September 2015, Post Office Limited acquired from Bank of
Ireland (UK) plc the business and assets of our joint insurance
business. Immediately following acquisition, Post Office Limited
transferred the business to its subsidiary Post Office Management
Services Limited, an FCA regulated entity, which operates the
business alongside its existing travel insurance activiti
2016 2015 Variance
im £m %
Personal Financial Services 152 127 197
Bill payment, banking and ee a 67)
other Financial Services
Financial Services 304 290 48
Across Financial Services in aggregate, turnover increased by £14
million to £304 million (2015: £290 million), a 4.8% rise. This
performance was the aggregate of strong growth in personal financial
services such as insurances and mortgages and a decline in more
traditional services such as bill payments.
Personal Financial Services turnover increased by £25 million (19.7%).
This was primarily driven by increased turnover from new insurance
intermediation activities undertaken by Post Office Management
Services Limited, and through growth in savings and international
money transfers.
‘Turnover from traditional Financial Services products declined by £11
million. Bill payment turnover fell by £4 million reflecting a continuing
shift from paper-based to electronically-delivered products and the
increasing use of alternative payment methods. NS6I premium bonds
ceased to be available from Post Offices from 1 August 2015 .
Offsetting this reduction within traditional products was an increase
in banking revenve of £3 million with a 10% growth in transactions.
Revised agreements with Barclays and HSBC to add business
customers were made during the year. 95% of all personal bank
accounts in the United Kingdom are now accessible via Post Offices as
work continues with the banks to secure an overall framework for
universal access. In an era of closures by the major banks, the Post
Office network maintains its position as the only provider of a national
network which meets community banking needs across the United
Kingdom.
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Government Services
The Government Services pillar covers services provided under
contract to Government departments. This includes services in
relation to the work of the Department for Work and Pensions
(DWP), the Driver and Vehicle Licensing Agency (DVLA) and the
Home Office including Her Majesty's Passport Office (HMPO) and
United Kingdom Visas and Immigration (UKVI).
2016 2015 Variance
im £m %
Dwe 87 (13.8)
Home Office 30 13.3
DVLA 10 20 (50.0)
Other Government ’ 4 md
Services
Government Services 128 ut (9.2)
Government Services turnover of £128 million decreased by £13
million (2015: £141 million). DVLA turnover decreased by £10 million
as customers increasingly use the online channel for motor vehicle
licence payments, a trend which has accelerated since the paper disc
was withdrawn in October 2014. DWP turnover also decreased, by
£12 million to £75 million due to a decline in the number of active Post
Office Card Accounts and new contractual terms. This, however,
remains a significant market and Post Office service remains important
toa substantial number of customers of Government services.
Counteracting the structural decline in the more traditional parts of
the market, identity related services posted strong growth. Home
Office revenue has increased by £4 million, driven by passport check
and send services and biometric enrolment services. Other
Government Services turnover has increased by £5 million largely
due to identity related services, including Cabinet Office’s new Verify
online identity service where Post Office has the highest market share
and best first time success rate.
Telecoms
The Telecoms pillar includes Post Office HomePhone and Broadband
services as well as € Top-up services and phonecards.
2016 2015 Variance
im im %
HomePhone and
Broadband “a ais =
E Top-ups and
phonecards ; . (20.0)
Telecoms 130 120 8.3
Telecoms turnover of £130 million (2015: £120 million) increased by
£10 million. This was driven by a strong performance in our
HomePhone and Broadband services with a £11 million (9.6%)
increase in annual revenue to £126 million. E Top-ups and phonecard
revenve fell by £1 million in a generally declining market.
In the competitive Telecoms market an increase of 36,000 to the
broadband customer base was achieved and pricing adjustments in
November 2015 improved revenue per customer whilst maintaining
‘our position as one of the best value providers in the market.
Our approach is characterised by tight management and effective
margin control enabling strong performance against market
incumbents. Development of this business, however, needs to be
managed carefully to maintain these characteristics and in March
2016 Post Office made the decision to withdraw from the
development and roll out of a proposed mobile offer.
Other income
Other income increased by £2 million to £39 million largely due toa
change in the amortisation of an historical agreement. Other income is
generated primarily from the Supply Chain business that manages and
distributes cash for Post Offices and for third parties. The revenue
generated by the Supply Chain business has fallen by £3 million as the
relatively high cost base made it difficult to attract and retain external
customers.
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Costs
Total costs decreased by £28 million to £1,041 million (2015: £1,069
million),
Costs - prior year to current year (Em)
23
Other "2016
operating
‘costs
2015 People costs *
People costs of £233 million (2015: £238 million) decreased by £5
million net of an increase to pension costs of £2 million, reflecting
efficiency savings. Other operating costs decreased by £23 million to
£808 million largely due to postmaster remuneration costs being
lowered by £22 million as a result of the Network Transformation
programme. The fixed element of postmaster remuneration cost has
fallen by £20 million in the year in addition to a reduction in indirect
tax of £2 million. Variable remuneration has remained flat year on
year.
Joint Venture
Post Office Limited has aJoint Venture with the Bank of Ireland (UK)
ple, First Rate Exchange Services Holdings Limited, whose principal
activity is the supply of foreign exchange in the United Kingdom to
the Post Office and others. Both Post Office Limited and Bank of
Ireland (UK) ple hold a 50% share. The share of operating profit from
the joint venture was £35 million (£1 million lower than in 2014/15),
the small decrease due to competitive pressures on the high street.
Acquisition of joint insurance
business
On 30 September 2015 Post Office Limited acquired from
Bank of Ireland (UK) ple the remaining 50% of the business
and assets of our joint insurance business. The consideration
of £43,900,000 was settled in cash. The full acquis
recognised as Goodwill on the balance sheet and was reviewed
for impairment on the date of acquisition and at the year end.
There are no indicators of impairment. Immediately following
acquisition, Post Office Limited sold the business to its subsidiary
Post Office Management Services Limited, which operates the
business alongside its existing travel insurance activities.
ion cost is
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From the date of acquisition the former joint insurance business
has contributed £15 million of financial services revenue and
£6 million of profit before tax to the Group's results.
Exceptional items
Exceptional items are shown below:
2015
1016
= restated
£m a
Operating exceptional items:
Restructuring costs including
postmasters’ compensation (8) (on)
Impairment of intangible assets,
property, plant and equipment 9)
Government grant 150 170
Net exceptional items (269) (271)
Operating exceptional items include the costs of delivery of major
change and the impairment of non-current assets. These are offset by
Government grant funding, received towards the transformation
programmes and recognised to match the associated costs. The
Government grant funding for 2015/16 of £150 million (2014: £170
million) was received on 1 April 2015 and was fully recognised in the
year.
As disclosed in our Interim Report for the six months ended
September 2015, an error was identified in the calculation for
postmasters’ compensation within the Network Transformation
programme on the balance sheet and exceptional items charged in the
2014/15 half year and full year results. The March 2015 exceptional
charge has been restated by £87 million. This was a timing error
related to recognition of the liability. It has not impacted payments to
postmasters or the overall cost of the programme.
Discontinued operations
The decision to withdraw from the development and roll out of a
mobile offer has been disclosed in the Financial Statements as a
discontinued operation, showing a loss for the financial year after tax
from discontinued operations on the consolidated income statement
of £10 million (2015: £4million).
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Restructuring costs
Restructuring costs are shown below:
2016 2015
fm restated
£m
Network Transformation programme
~“Postmasters compensation -—=s=«dQ~s—=<i«*‘~*‘*dS
“Programme costs 5 3
Crawn Transformation programme 23 10
TT Transformation programme 30 7
Business Transformation programme 9 2
Redundancy costs 25
Business Transformation payments 1
Other exceptional items pn I 9
Restructuring costs 283 301
Impairment
Due to ongoing operational losses (excluding the Network Subsidy
Payment) the carrying value of intangible assets and all property, plant
and equipment, other than freehold and long leasehold property, has
been impaired to nil.
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. Goodwill is tested for impairment annually as well
as when there are any indicators of impairment. As noted above
Goodwill relates to the business combination and there are no
indicators of Goodwill impairment at the balance sheet date.
Government grants
In addition to the Network Subsidy Payment, the Post Office receives
Government grant funding towards the transformation programme.
Government grant funding of £150 million was received in the year
(2018: £170 million). The additional government grant funding is
included within operating exceptional items to match the associated
costs.
The grant was allocated to cover £31 million capital expenditure
(2015: £59 million), £66 million network transformation related
postmasters’ compensation (2015: £43 million) and £53 million
network and IT transformation programme costs (2015: £68 million)
The level of grants will continue to reduce as set out in the current
funding agreement with the Government. State Aid approval for the
funding from 2015/16 to 2017/18 was received on 19 March 2016.
Cash flow and net debt
The Post Office Limited Treasury function derives its authority
from the Board and has the authority to undertake financial
transactions relating to the management of the underlying
business risks, however, it does not engage in speculative
transactions and does not operate as a profit centre. The principal
financial instruments utilised are deposits and borrowings.
The cash and cash equivalents amounted to £712 million
(2018: £821 million) at the year end. There was a net cash
outflow during the year of £109 million (2015: inflow £184
million). A summary cash flow is shown in the table below.
2016 2015
im im
Net cash outflow from (123) (1)
operating activities
Taxation recovered 9 i
Net cash outflow from
investing activities aes (a)
Net cash outflow before
financing activites ee) {i20)
Finance costs paid (6)
Proceeds of borrowing from BIS 310
Net (decrease)/increase in (109) id
cash and cash equivalents
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Net debt (excluding cash in the Post Office network) increased by
£209 million year on year as shown in the table below. As planned,
Government Grants, which are not expected to cover all of the costs
of Transformation, were received ahead of the associated spend. As a
result we are in a period of net expenditure.
2016 2015
£m £m
Net (decrease)/increase in
cash and cash equivalents (cy) 184
‘Add/(deduct) movement
in network cash Bs) (1)
Deduct nat proceads of
borrowing from BIS (U5) (310)
Net increase in net debt (209) (177)
Net debt brought forward at
the beginning of the year oD) (20)
Total net debt carried forward
at the end of the year (2) (197)
Net debt consists of:
BIS loan (465) (310)
Cash (excluding cash in the
Post Office network) id a
Total net debt carried forward (406) 197)
at the end of the year
Post Office Limited's Treasury policy is to minimise the amount drawn
down on the loan in order to reduce its interest cost. The facility is
limited to a maximum of £950 million, the unused but available facility
at the end of the year was £485 million. The maximum drawn down
under the facility during the year was £509 million on 6 January 2016.
The facility is available at two days’ notice and has an end date of 31
March 2018.
Post Office Limited's borrowing facility from the Government and the
associated Framework Agreement imposes constraints on the
availability of external borrowing and limits the purposes for which
the facility can be used.
On 1 April 2012 - after the granting of State Aid by the European
Commission on 21 March 2012 - almost all of the pension liabilities
and pension assets of the Royal Mail Pension Plan (RMPP), built up
until 31 March 2012, were transferred to HM Government.
On this date, the RMPP was also sectionalised, with Royal Mail Group
Limited and Post Office Limited each responsible for their own
sections from that point. This pensions transfer left the RMPP fully
funded on an actuarial basis in respect of historic liabilities at this date.
The balance sheet pension position moved from an asset of £205
million at March 2015 to an asset of £196 million at March 2016. The
movement in the surplus is primarily due to an increase in the long
term liability partly offset by an improvement in the asset values.
Valuations of both the RMPP and RMSEPP schemes are carried out
triennially. The RMSEPP valuation at 31 March 2015 has been
completed, with the next valuation expected to be performed at 31
March 2018. The next valuation for RMPP is being performed as at 31
March 2015; this valuation has not been completed pending the
outcome of the consultation to close the Post Office section of the
RMPP scheme to future accrual
Both defined benefit plans closed to new members in March 2008,
and RMSEPP closed to future accrual on 31 December 2012. New
employees were offered membership of the RMDCP following this
date. With effect from 1 April 2015 new employees were offered
membership of the Post Office Pension Plan, prior to this they were
offered membership of the RMDCP.
The future funding of ongoing pension contributions into RMPP and
deficit payments into RMSEPP was agreed with the respective
pension trustees during the year and payments were made in
accordance with the agreements. The net cash payments made are
detailed below:
2016 2015
£m £m
Regular pansion contributions (20) (22)
Payments relating to redundancy Q) (2)
Net cash payments (24) (25)
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, and until 31 March 2015 was a
participating employer within the Royal Mail Defined Contribution
Plan (RMDCP),
Royal Mail Group Limited is the principal employer of the Royal Mail
Senior Executives’ Pension Plan (RMSEPP) and Post Office Limited is a
participating employer within RMSEPP. RMPP and RMSEPP are both
defined benefit plans. The Post Office operates a defined contribution
scheme - the Post Office Pension Plan
6 corporate postoffice.co.uk/annualreportI516
The income statement charge for the year was £3 million (2015: £3,
million) in relation to the defined contribution scheme and £27 million
(2015: £25 million) in relation to the defined benefit scheme.
The regular future service contributions cash rate for RMPP expressed
as a percentage of pensionable pay remained at 17.1% (2015: 17.1%).
The regular rate of employee contributions for the RMPP remains
unchanged at 6%.
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Events after the reporting period
In accordance with the funding agreement with Government
announced on 27 November 2013, for which State Aid approval was
received on 19 March 2015, Post Office Limited received £220 million
of funding on 1 April 2016, £80 million of which was the Network
Subsidy Payment and £140 million other Government Grant funding
towards the transformation programme.
In the thriving/Herstordshire village of Knebworth,
postmaster Mohammad Mohsin Miah has been
driving revenue OsingtOOls and techniques he
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POST OFFICE I Annual Report and Financial Statement
toa destination for customers from
Anthony Johns has relished.
He looks after two village on, each offering a
Post Office, grocery er and café.
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Corporate governance
Good corporate governance
continues to support Post
Office's journey
Legal Ownership Structure
Post Office is a wholly owned subsidiary of Postal
Services Holding Company Limited. The Secretary
of State for Business, Innovation and Skills (BIS)
holds a special share in Post Office and the rights
attached to that special share are enshrined within
Post Office Articles of Association.
Neither Postal Services Holding Company nor BIS,
through its Shareholder Executive (ShEx)* , have
any day to day involvement in the operations of
Post Office or the management of its branch
network and staff. However, Richard Callard, the
ShEx representative, sits on the Post Office Board
as a Non-Executive Director.
On I April 2016 UK Government investments Limited (UKGI) began
operation asa government compary, wholly owned by HM Treasury,
bringing together the funetions ofthe Shareholder Executive (ShEx)
previously partof the Department for Busines, Innovation and Skil,
and UK Financial Investments (UKFI} under a single helding company.
Corporate Governance Overview 2015/16
At Post Office we maintain standards of corporate governance
appropriate for our ownership structure, our commitment to social
purpose and our strategy to achieve commercial sustainability. We
regularly review these standards to ensure they continue to deliver at
the appropriate level for our developing business needs and relevant
legal and regulatory advances. As a Government owned entity we
are committed to acting in accordance with the Nolan Principles of
Public Life, namely: selflessness; integrity: objectivity: accountabil
openness; honesty; and leadership. The Board is mindful of these
principles both in its decision making and in its responsibility for
organisational culture.
On 30 September 2015 Post Office Limited acquired from Bank of
Ireland (UK) plc the business and assets of our joint insurance
business. Immediately following acquisition, Post Office Limited
transferred the business to its subsidiary Post Office Management
Services Limited (POMS). Appropriate governance structures have
been established to manage any potential conflicts of interest and to
ensure proper reporting lines between the FCA regulated principal,
POMS, and Post Office as its parent and authorised representative for
sales across the Post Office network.
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Rationalisation of Committee Structure
During 2015/16 the Board reviewed its committee structure. The
proposals resulting from this review were to dissolve two
committees: Financial Services and Pensions.
Following dissolution, financial services and pensions risk is now
considered by the Au k and Compliance Committe (ARC) as
part of a consolidated risk approach. In considering the
implementation of these changes, the Board reviewed and revised the
ARC's terms of reference and membership to ensure that members
had sufficient expertise and experience, particularly in financial
services. A formal arrangement was also put in place for the POMS
ARC to report into the Post Office ARC.
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Gover
Board of Directors
The Board is responsible for setting the business’ strategic aims, putting in place the
leadership to deliver them, supervising the management of the business, reporting to the
Shareholder and determining the Post Office vision, values and organisational culture.
During 2015/16 there was a 50% change in non-executive Board membership but gender
diversity was maintained with 37.5% women. This figure is in excess of Lord Davies’
recommendation for FTSE Boards of 25% women and significantly ahead of the 19.6% on FTSE
250 boards, as stated in Lord Davies’ five year review published in October 2015.
Diversity in terms of time served is important for good succession planning and to maintain an
effective level of corporate knowledge and understanding. An appropriate spread of time served
ensures freshness of approach combines with knowledge and experience to deliver the most
effective strategic leadership for Post Office.
Time served on Post Office Board (in years)
Richard Callard —
Hl i
Alisdair Cameron
Ken McCall
Carla Stent
Tim Parker
i
I
tC)
The Board is comprised of an independent Non-Executive Chairman, the Chief Executive, the
Chief Financial Officer and five Non-Executive Directors (one of whom is designated the Senior
Independent Director). Further information on the Board roles and responsibilities can be found
on page 24. Non-Executive Directors are not employees of Post Office 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 Post Office Limited as a Company for the benefit of its
government shareholder and the wider stakeholder community.
Three new Non-Executive Directors were appointed to the Board in 2015/16 and the process
followed for their recruitment is set out in more detail in the Nominations Committee report on
page 28. Post Office seeks the most suitable candidates as directors and considers diversity in its
appointments, including diversity of skills and experience. This is in keeping with the belief of
Post Office that a varied balance of backgrounds, experience and insights and a culture of
inclusivity across the entire workforce is in the best long-term interests of Post Office and should
reflect the communities it serves. In April 2015, Post Office was included in The Times’ top 50
employers for women.
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Tim Parker I Independent Chairman
Joined the Board 1 October 2015
Chairman of the Nominations Committee and member of the Remuneration Committee
Tim has been CEO of several well-known companies: Kenwood, Clarks, Kwik-Fit, the AA and Samsonite. He
has served as a Non-Executive Director on a number of FTSE 100 companies: Legal and General, Alliance
Boots and Compass Group, and has been a Board member of the Audit Commission and the South West
Regional Development Agency. He has been an Industrial Partner at CVC Capital Partners.
Tim is the Executive Chairman of Samsonite Corporation and Non-Executive Chairman of National Trust.
Ken McCall I Senior Independent Director
Joined the Board 21 January 2016
Chairman of the Remuneration Committee and member of both the Audit, Risk and Compliance
and the Nominations Committees
Ken's position with Europcar is Group Chief Operating Officer and Head of Global Operations. Formerly, he
was Chief Executive of DHL Express UK and Ireland, instrumental in achieving a full business turnaround and
transformation. Previous positions include Chief Executive of TNT Asia, Middle East, African and Indian
sub-continents. Ken has extensive experience in mails, logistics and business transformation.
Ken is a Non-Executive Director of Supergroup ple.
Paula Vennells I Chief Executive
Joined the Board 18 October 2010
Paula has worked for Post Office Limited since 2007 in a number of senior roles, including Managing
Director, becoming Chief Executive on I April 2012, Prior to Post Office, Paula spent five years with
Whitbread ple, latterly as Group Commercial Director. She began her career with Unilever and L'Oreal and
has held directorships in sales and marketing with a number of major retailers, including Dixons Stores Group
and Argos.
Paula is a Non-Executive Director of Morrisons plc, a Trustee for the Hymns Ancient and Modern Group and
a member of the Future High Street Forum
Alisdair Cameron I Chief Financial Officer
Joined the Board 28 January 2015
Alisdair joined Post Office as Chief Financial Officer in January 2015. Prior to this appointment, from 2002 to
2014 he worked in a variety of roles for Centrica plc, a FTSE 100 company, including Director of Audit and
Risk, Group Fina
Enterprise. Previously he was a partner with Arthur Anderson and served as a trustee of the e-Learning
Controller, Finance Director of British Gas and Managing Director of British Gas
Foundation.
Alisdair is a Non-Executive Director of Oxford University Hospitals NHS Foundation Trust.
Richard Callard I Non-Executive Director
Joined the Board 26 March 2014
Member of the Audit, Risk and Compliance Committee
Richard is appointed to the Board as the representative of the Department for Business, Innovation and Skills
(BIS). He is an Executive Director at UK Government Investments (UKGI) and has a wealth of public sector
and government experience. A Chartered Accountant by background, he joined government from Deloitte
corporate finance in 2009, where he had advised the public and private sector on public private partnerships
and other infrastructure and project finance deals.
Richard leads the Post Office and Green Investment Bank shareholder teams at UKGI
PAGE 22 corporate postoffice.co.uk/annualreportI516
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Tim Franklin
Joined the Board 19 September 2012
Member of the Audit, Risk and Compliance Committee and Chairman of the Post Office Advisory Council
Non-Executive Director
Tim's executive career spans both building societies and banking, including roles with Barclays as Director of
Customer Programmes and Loyalty and Managing Director of Barclays Savings. In his executive and
non-executive roles, which include Link Cash Machines Network and Mutual Plus Limited, Tim has gained
considerable in-depth experience in financial services, IT and business transformation,
Tim is currently Interim Chairman and Senior Independent Director at HM Land Registry, where he chairs the
Audit Committee.
Virginia Holmes I Non-Executive Director
Joined the Board 4 April 2012
Member of both the Nominations and the Remuneration Committees
Virginia brings to the Board extensive knowledge of the financial services industry, including both
investment management and banking. Her experience in financial services and in business transformation
was gained while serving as Chief Executive of AXA Investment Managers UK and in more than a decade
with the Barclays Bank Group.
Virginia chairs USS Investment Management Limited and the British Airways pension plans, is on the Boards
of Alberta Investment Management Corporation, Standard Life Investment Holdings Limited, Investor Forum
CIC and sits on the Zurich UK Life Independent Governance Committee.
Carla Stent
Joined the Board 21 January 2016
Chairman of the Audit, Risk and Compliance Committee
Non-Executive Director
Carla, a qualified Chartered Accountant, has held a number of senior positions in banking, private equity and
in retail industries. She has had direct responsibility for corporate finance and post-merger integration,
strategy, business operations, brand development and management and business transformation. Carla has
worked at Board level for organisations including Barclays Bank plc and Virgin Group and was a Non-
Executive Director of Christian Aid.
Carla is a Non-Executive Director of JPM Morgan Elect ple, Marex Spectron Limited and Power to Change
Trust (which she also chairs)
Alwen LyonsI Company Secretary
Appointed as Company Secretay 4 July 2011
Alwen joined Royal Mail Group in 1984 as a graduate and has worked at senior levels in both Royal Mail
Group and Post Office Limited. She is a qualified accountant and in her career spanning more than 30 years
with the two organisations she has worked in several areas of the business, including network, finance and
marketing. Alwen was appointed Company Secretary in July 2011 after leading the project to separate Post
Office Limited from Royal Mail Group.
Post Office would like to thank the following previous members of the Board who served as Non-Executive Directors during the year 2015/16:
Alice Perkins who stood down as Chairman on 31 July 2015; Neil McCausland who stood down as Senior Independent Director on 30
September 2015; and Alasdair Marnoch who stood down as Chairman of the Audit, Risk and Compliance Committee on 31 July 2015.
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Role and responsibilities
The Board is accountable to the Secretary of State for BIS for the
performance of Post Office and is required to notify the Shareholder
of certain actions, as set out in the Articles of Association.
The Board is also responsible for ensuring compliance with all legal
and regulatory requirements, supervising the management of the
business, providing constructive challenge to the Group Executive
and communicating with the Shareholder. It has a schedule of matters
reserved for its decision and has approved terms of reference for
its committees which are provided on the Post Office website.
The Board approves the annual budget and business plan each year
and did so last in March 2016. The Board regularly reviews reports
‘on performance against that plan, together with receiving periodic
business reports from senior management. Directors are briefed on
matters to be discussed at Board and Committee meetings by papers
distributed in advance, as well as by management presentations.
In setting the risk appetite for Post Office and establishing a
framework to manage and mitigate risk, the Board takes guidance
from its Audit, Risk and Compliance Committee, to which
it delegates oversight of risk management. This committee
receives reports from the Group’s Head of Risk and from the
internal and external audit teams. Further detailed information
‘on the management of risk within Post Office, together with
dentification of principal risks, their impacts and mitigation can
be found in the management of risk section on pages 31 to 36.
Key focus and
achievements in 2015/16
During the year to 27 March 2016 the Board oversaw further
significant progress in network transformation, with another
1,904 branches modernised, bringing the total so far to 6,000 and
delivering a better service to customers. The Board also considered
the development of the financial services strategy including the
approval to acquire the business and assets of our joint insurance
business from Bank of Ireland (UK) ple. Owning 100% of the
insurance business, through the subsidiary Post Office Management
Services Limited, was a significant development contributing to the
19.7% growth in personal financial services to £152m in 2015/16.
In 2015/16 the Board went through a period of transition
with a change in 50% of its Non-Executive Directors. This
refreshed Board will focus in 2016/17 on driving the business
forward and ensuring that all support services are optimised
to deliver the ongoing transformation journey towards
a sustainable and thriving network of Post Offices.
Non-Executive Directors’ Terms of Office as at 27 March 2016
Non-Executive Date of Term of Unexpired term at Committee
Director appointment office 27 March 2016 memberships
Tim Parker 1 October 2015 3 years 2years6monthsSdays Nominations (Chairman) I Remuneration
Richard Callard 26 March 2014. Until removal N/A Audit, Risk and Compliance
TimFranklin! -19September 2012. years 5 months, 23 days Audit, Risk and Compliance
VirginiaHolmes 4 April 2012 3 years? 2 years, 8 days? Nominations I Remuneration
Remuneration (Chairman) I Audit, Risk
Ken McCall 21 January 2016 3 years 2 years, 9 months, 25 days and Compliance I Nominations
Carla Stent 2 January 2016 3 years 2years,9 months, 25 days Audit, Risk and Compliance (Chairman)
1. Tim Franklin is also Chairman of the Post Office Advisory Council
2. Virginia Holmes began a second three year term on 2 April 2015
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Governance
Board Meetings
During 2015/16 the Board met ten times (including extraordinary meetings in person or by telephone for time critic
Directors’ attendance (attended/eligible to attend) at the Board and its committees is set out in the table below:
issues). A record of
Audit, Risk and
7 Board Nominations Remuneration
Director Board . Compliance .
(extraordinary) : Committee Committee
Committee
Alice Perkins! 2/2 2/2 : 2/2 2/2
Tim Parker? 4/4 vl A 3/3 2/2
Richard Callard WT 3/3 2/2
Alisdair Cameron i 3/3 -
Tim Franklin i 3/3 5/5
Virginia Holmes a V3 - 5/5 4/4
Alasdair Marnoch> 2/2 v2 A - -
Ken McCall! 2/2 0/0 2/2 ul vA
NeilMcCausland> 3/3 2/2 2/2 2/2
Carla Stent® 2/2 0/0 2/2 - -
Paula Vennells v7 3/3
1. Alice Perkins resigned 31 July 2015
2. Tim Parker was appointed to the Board 1 October 2015
3. Alasdair Marnoch resigned 31 July 2015
4, Ken McCall was appointed to the Board 21 January 2016
5. Neil McCausland served as interim Chairman from 1 August
2015 until his resignation on 30 September 2015
6. Carla Stent was appointed to the Board 21 January 2016
Conflicts of Interest and Independence
The Board may, in the furtherance of its duties, seek independent At all times during the periods of their appointments in 2015/16, the
professional advice at the expense of Post Office. During the period, _ independent directors met the criteria for independence set by the
no director sought independent professional advice. The Articles Board.
give the directors power to authorise conflicts of interest. The Board
has adopted a procedure by which situations giving rise to potential
conflicts of interest are identified to the Board, considered for
Post Office has arranged appropriate insurance cover in respect of
legal action against directors of Post Office and its subsidiaries
authorisation and recorded.
During the period, none of the directors had a material interest in any
contract of significance with Post Office or any of its subsidiaries.
There was careful management of any potential conflicts of interest
for Alisdair Cameron during the period up to 30 October 2015 when
he served as a Non-Executive Director on the Board of Post Office
Management Services Limited.
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Committees
To assist in the execution of its corporate governance responsibilities, the Board has established a governance structure of three committees
which deal with specific topics requiring independent oversight, specifically: audit, risk and compliance: nominations; and remuneration. Each
committee is chaired by an independant Non-Executive Director and the Board delegates certain authorities to these committees which
operate within their own agreed, documented Terms of Reference.
Remuneration Committee
january 2016
Having joined the Post Office Board as Senior
Independent Director and Chairman of the
Remuneration Committee in January 2016,
this is my first statement on behalf of the
Remuneration Committee. I would like to
thank my predecessor, Neil McCausland, for
his chairmanship.
Two of the three Committee members have
changed during the year. I am grateful for the
consistency Virginia Holmes’ continued
membership brings and am confident that the
refreshed Committee will discharge its duties
effectively in the coming year and with
fairness and transparency.
The Committee has effectively delivered
its objectives to provide oversight for
senior level remuneration across Post Office
Group and to use benchmarking as one
measure to ensure the appropriateness of this,
remuneration.
The executive remuneration strategy and
framework within Post Office Limited is
structured to support improvement in
profitability and reduction in reliance upon
Government funding and subsidy. This is to
create a sustainable business which can
deliver its public purpose.
During 2015/16 progress has been made in
these areas despite challenging market
conditions. Most of the targets for progress
in the year have been achieved but it remains
clear that the Post Office is still only part way
through its corporate transition. Targets will
continue to be stretching in recognition of
the challenges ahead.
The bonus performance outturn in 2015/16
reflects the progress made in reducing our
EBITDAS loss, pace and extent of
transformation of the network, high levels of
customer service and significant financial
improvement in the performance of our
Crown branches.
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Statement by the Chairman of the Remuneration Committee
For 2016/17 our long term incentive plan will
continue the focus on significant and
sustained EBITDAS improvement and the
maintenance of the unique access that
people across the United Kingdom have to
Post Office branches.
The short term incentive plan will continue to
focus on financial improvements ina
challenging commercial environment in line
with our business strategy and transformation
objectives.
The Remuneration Committee is confident
that the current policy maintains the strong.
link between reward and demonstrable
performance against the measures which
drive the financial and structural
transformation of the Post Office to become a
sustainable commercial business able to
deliver its public purpose.
The Remuneration Committee will continue
to monitor and benchmark external best
practice and apply the highest standards of
governance.
Details of directors’ remuneration can be
found in note 5 of the Group Financial
Statements.
Ken McCall
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Role and Membership
The Committee is chaired by Ken McCall,
Senior Independent Director and the other
members are Tim Parker, Chairman, and
Virginia Holmes. During 2015/16 Tim Parker
and Ken McCall joined the Committee,
replacing Alice Perkins and Neil McCausland
who stood down from the Board.
The Chief Executive may attend meetings, at
the invitation of the Committee Chairman, to
discuss matters relating to the remuneration
of the Chief Financial Officer and members of
the Group Executive. However, the
Committee is careful to recognise and
manage any potential conflicts of interest
Executive and upholds the principle that no
individual may be involved in discussions
concerning their own remuneration.
The Committee operates in accordance with
its Terms of Reference, which were last
approved by the Board in March 2015 and
reviewed in November 2015.
Any changes in remuneration for directors of
Post Office must be approved in advance by
the Shareholder, while the remuneration of
the Chairman and of the Non-Executive
Directors is set by the Shareholder. Also, no
material changes can be made to Directors’
base salaries, benefits or incentives without
Special Shareholder consent.
when receiving views from the Group
Work carried out by the Committee in 2015/16
During the year, the Committee reviewed and made
recommendations for the 2014/15 payments against the
short and long term incentive plans and the targets,
scorecard measures (including stretch targets) and
objectives for 2015/16.
The Committee also reviewed the rules of the long term
incentive plan, the remuneration for the Chief Executive
and the Chief Financial Officer and the fees paid to
Non-Executive Directors.
Prior to the acquisition on 30 September 2015 of the
business and assets of our joint insurance business from
Bank of Ireland (UK) ple (see page 75) the Committee
reviewed, and recommended for approval, the
Remuneration Policy for the subsidiary, Post Office
Management Services Limited.
The Committee is permitted to engage external
consultants and in the year under review, advice was
primarily obtained from New Bridge Street Consultants
‘on market practice and benchmark development. New
Bridge Street Consultants is part of the Aon Consulting
Group that, under its Aon Hewitt brand, acts as
investment adviser to the Post Office section on the Royal
Mail Pension Plan. Post Office is satisfied that these two.
provisions of advice, from different parts of the Aon
Consulting Group are managed separately and therefore
present no compromise of independence.
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Nominations Committee
Chairman of the Nomination:
Committee since 1 October 2015
Introduction from the Committee
Chairman
During 2015/16 the Committee has been key
in bringing new capability to the Board to
ensure the right talent is in place to support
the Post Office during its ongoing
transformation. To do so we have used a
combination of external search capability
coupled with internal resourcing to ensure
that we are able to access specialist expertise
relevant to each role. The Committee is
mindful of the value which diversity brings to
Committee will focus on ensuring that we
continue to build a strong internal talent
pipeline to create a sustainable organisation.
Tim Parker
Role and Membership
The Committee is chaired by Tim Parker,
Chairman and the other members are Virginia
Holmes and Ken McCall, the Senior
Independent Director. During 2015/16 Tim
Parker and Ken McCall joined the Committee,
replacing Alice Perkins and Neil McCausland
committees;
the Board and considers this when making
any proposals for appointments
While the focus in 2015/16 has been on
external appointments, going forward the
who stood down from the Board. The
Committee operates in accordance with its
Terms of Reference, which were last
approved by the Board in March 2015 and
reviewed in November 2015.
The Committee's key responsibilities are to:
* keep under review the structure, size and complexity of the Board, together with the
balance of skills, experience and diversity available within the Board and each of its
* make recommendations to the Board regarding any changes in Board membership;
manage the process for recruiting and replacing Board Directors (excluding the
non-executive director nominated by the Shareholder as their representative),
members of the Group Executive, the Company Secretary and Directors of Post
Office Management Services Limited;
# actively manage succession planning for the Board and the Group Executive;
¢ review the process for the engagement of external search agents for senior
appointments;
© ensure Directors’ appropriate disclosures of other business interests and any
potential conflicts of interest; and
# oversee the process for Board and Committee performance evalvation.
Work carried out by the Committee in 2015/16
During the period the Committee oversaw the recruitment and
appointment process for three new Non-Executive Directors. Using a
skills matrix the Committee ensured the Board was comprised of
Members with the requisite skills and experience, including: PLC
Board experience; non-executive experience; financial services
exposure; retail exposure; public sector and government exposure: IT
and digital knowledge; business transformation expertise; and
experience of mails and logistics. The use of this matrix was key in
ensuring that all skills were represented, securing a strong and
effective Board for the future. The Committee also oversaw the
process to appoint to the Board of Post Office Management Services
Limited an independent Non-Executive Director to chair its Audit,
Risk and Compliance Committee.
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The Committee used the services of Russell Reynolds Associates to
undertake market searches for executive and non-executive
appointments and to advise on succession planning. This firm did not
have any other connection with Post Office.
In 2015/16 the Committee also made recommendations to the Board
for membership of its committees and considered succession planning
(in particular for the Group Executive) and talent management. The
Committee noted the formation of the L300, a forum for the top 300
leaders of Post Office, to foster senior accountability and to develop
the internal talent pipeline.
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Audit, Risk and Compliance Committee
Chairman of the Audit,
and Compliance Committee
since 2] January 2016
Introduction from the Committee
Chairman
Having joined the Post Office Board as
Chairman of the Audit, Risk and Compliance
Committee near the end of the 2015/16
financial year, I would like to thank my
predecessors for their chairmanship of the
Committee.
In addition to its regular cycle of business,
during the year the Committee has also
supported the further development of the
Group-wide Risk Management and the
General Control Frameworks. Reviewing
Group-wide risk oversight has seen
important development, ensuring that risk is
appropriately managed as the organisation
undergoes transformation.
Looking forwards to 2016/17, the Committee
will continue to build on the good work of
2015/16 and will particularly ensure
appropriate oversight of financial services
risk and the consideration of any impact of
prospective regulatory changes on this
developing area for Post Office.
I am confident that the revised membership
of the Committee encompasses a strong set
of relevant skills and experience and will
enable the Committee to discharge its duties
robustly and with effective challenge in the
year to come.
Carla Stent
Role and Membership
The Committee is chaired by Carla Stent, and
the other members are Ken McCall, the
Senior Independent Director, Richard Callard
and Tim Franklin, both Non-Executive
Directors. During 2015/16 Richard Callard,
Ken McCall, Tim Parker (until 20 January
2016) and Carla Stent joined the Committee,
with Alasdair Marnoch and Neil McCausland
both leaving as they stood down from the
Board,
The Head of Internal Audit attended all
meetings of the Committee and also met the
Committee Chairman, as required, through
the year. The external auditor was also
invited to attend meetings of the Committee
as appropriate.
The Board considers that the Committee's
members have broad commercial knowledge
and extensive business leadership experience
and that this constitutes a broad and suitable
mix of business and financial experience and
expertise. The Committee operates in
accordance with its Terms of Reference,
which were last reviewed by the Committee
and approved by the Board in September
2015.
Further detailed information on the
management of risk within Post Office,
together with identification of principal risks,
their impacts and mitigation, can be found in
the management of risk section on pages 31
10 36.
The Committee's key responsibilities are to:
assist the Board fulfill its Fudiciary responsibilities by: contributing an indepedent view
‘on the accounting, financial control and financial reporting practices of Post Office:
ensuring accurate and informative corporate reporting and disclosures; and providing
‘oversight of the Post Office risk management systems;
provide governance of the auditing services and review and agree the annual audit
plans for both internal and external audit;
ensure the appropriateness of the Post Office relationship with the external auditor is
managed, including consideration of the external auditor's independence;
@ review the provision of any non-audit services provided by internal or external audit;
# devote specific time to the consideration and overview of risks relating to the financial
services businesses of the Group and to any risk relating to existing and new pension
schemes; and
* consider the impact of any new legislative, regulatory, market or other developments
which could materially or adversely affect Post Office and its subsidiaries.
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Governance
Work carried out by the Committee in 2015/16
During the year, the Committee reviewed and recommended that the
Board approve the annual report and Financial Statements for 2014/15,
and the interim report for 2015/16, including consideration of principal
and strategic risks. It also approved the annual audit plans for both the
internal audit function and the external auditors, Ernst & Young LLP.
The Committee reviewed the work carried out by internal audit and
by the external auditor, further details of which can be found below.
As part of an holistic review of risk management and internal controls,
the Committee supported and provided guidance on the further
improvement of the Risk Management Framework and clarification of
our general controls. This work included the development of a
framework of key policies, reviewing business continuity procedures
and increasing the clarity and robustness of accountabilities. The
Committee's review of cyber risk during the year will continue into
2016/17.
In addition, when management identified that its compensation
provision for postmasters under its Network Transformation
programme was materially understated in its Interim Report as at
September 2014 and in the March 2015 Annual Report, the Committee
investigated the matter further. The Committee sought evidence and
assurance at varied levels in the business, including from the recently
appointed Chief Financial Officer, that Post Office Limited was taking
action to resolve the error and address the underlying causes which
ledto it. The error has been disclosed and detailed on page 49.
Following the rationalisation of the committee structure to ensure
comprehensive oversight of Group-wide risk at the Committee, there
was a formalisation of the reporting procedures between the
Committee and the equivalent committee for Post Office Management
Services Limited. The Committee also scheduled regular deep dives
on financial services and pensions risk. In the year, financial conduct
risk was considered and a review was carried out on the Anti-Money
Laundering and Counter Terrorist Financing Framework on which the
Committee will receive regular follow up reports.
Internal Audit
The Committee received assurance from Internal Audit over Post
Office's key risk areas. To maintain independence, the Head of Internal
Audit reports functionally to the Chairman of the Committee and
operationally to the General Counsel. Assurance is achieved through
a mixture of in-house auditors, with skills and experience relevant to
Post Office operations, supplemented by a co-sourcing arrangement
currently with PwC for more specialist, one-off expertise and Deloitte
LLP for business transformation assurance.
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The annual plan is developed by Internal Audit across the risk
universe with input from management. It is approved by the
Committee and may be updated, with the Committee’s consent
Updates and findings are provided by the Head of Internal Audit at
each meeting of the Committee. Any significant findings or identified
risks are closely examined so that appropriate action can be taken.
During the year, Internal Audit conducted ten mainstream reviews,
two financial services reviews and facilitated a further six on Business
Transformation.
Business Area Audits conducted
Treasury Operational Risk, Social
Media, Contract Management, Financial
Crime, Common Digital Platform,
Data Protection, Mobile Proposition,
Drop and Go, Property Regulatory
Compliance, Travel Expenses.
Mainstream
conduct Risk, POMS
Financial Services S
latory Readi
Portfolio Design, End to End Financial
Management, Benefits Management
Framework, Cross Towers Governance
Structure, Programme Assurance
Authority, End User Computing.
Business
Transformation
At the end of the year, Internal Audit conducted a self assessment of
compliance with the Internal Audit Charter, which was reviewed by
the Committee. Next year, this process will be supplemented with
feedback from auditees and Committee members on Internal Audit’s
effectiveness.
External Audit
The external auditors are engaged to express an opinion on the
Financial Statements. They review and test the systems of internal
financial control and the data contained in the Financial Statements to
the extent necessary to express their audit opinion. They discuss
with management the reporting of operational results and the
financial condition of the Post Office and present their findings to the
Committee.
During the year the external auditors met once with the Committee in
the absence of the executive. The Committee agreed the external
audit fee and considered the external auditors to have an appropriate
level of independence. Prior to the year end a change in the external
audit partner provided enhanced levels of independence
During the year 19% of the total fees paid to Ernst & Young LLP were
for non-audit services, a decrease on the 29% paid in 2014/15.
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Annual Assessment
During the year, the Committee reviewed and recommended that the
Board approve the effectiveness of the:
# risk management framework, by reviewing evidence of risk
assessment activity and the summary of the material risks and
action plans, via the Group Risk Profile
# systems of internal control, primarily through agreeing the scope
of the internal audit plan and reviewing its findings, but also from
reports from Management and external advisors
© preparation of the annual and interim Financial Statements and a
review of the nature and scope of the external audit.
In consequence, the Board, through the Committee, confirmed that
there is a regularly reviewed ongoing process of identifying,
evaluating and managing the principal risks faced by Post Office and
their related controls. The process is continuing to evolve, but has
been in place for the year under review and up to the date of approval
of the Annual Report and Financial Statements. The Board has
reviewed its effectiveness.
Subject to acknowledgement of the restatement of postmasters’
compensation referred to on page 49, the Board considers the risk
management, internal control systems and processes are appropriate
for Post Office activities; acknowledging that they are designed to
manage rather than eliminate the risk of failure to achieve Post Office
strategic objectives, protect our reputation and comply with
regulatory standards. They provide reasonable, but not absolute
assurance, against material misstatement or loss.
Management of risk
Our approach to risk
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. Risk is an inherent part of how Post Office
seeks to grow and create value. We seek to understand and harness
risk in the pursuit of our aims and business plan objectives. As we
progress, our aim is to operate within an acceptable level of risk
taking, in accordance with risk appetite parameters set by the Board.
All staff are expected to be aware of risks in their areas of
responsibility and manage those risk intelligently in their day-to-day
activities.
Risk management governance
The Board is accountable for the risk management and internal control
systems in Post Office, for reviewing their effectiveness and for
determining the nature and extent of the principal risks. Responsibility
for day-to-day operations rests with members of the Group Executive
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The Risk and Compliance Committee, on behalf of the Group
Executive, reviews the operation of the risk management process and
management of the principal risks. The Committee is chaired by the
General Counsel, membership includes all of the Group Executive
and the output is reported to the Audit, Risk and Compliance
Committee.
Assurance for the Board over the effectiveness of our risk
management and internal controls is provided by the Audit, Risk and
Compliance Committee, through review of reports from
Management, the head of risk, Internal Audit, external advisers and
External Audit.
Our risk management framework
To improve our ability to consistently identify, manage and moi
risks, and take advantage of opportunities we might otherwise miss,
we have developed a structured framework for assessing, managing
and communicating risk. The framework identifies roles and
responsibilities, the policies for how risks are managed, the tools and
processes used, a risk appetite statement and the reporting outputs to
inform both Management and the Audit, Risk and Compliance
Committee.
Material risks are identified by business areas (bottom up analysis) for
their own risk management; Group Executive members review these
and add further strategic and external perspectives (top down
review). The scope of risks to consider is facilitated by a risk universe.
Impact and likelihood is assessed for evaluating each risk, after
consideration of the controls we have in place. Where the resultant
“net” risk profile is considered in excess of our risk appetite,
consideration will be given as to how the risk could be brought back
within an acceptable level of risk taking. For other risks we may want
to introduce monitoring procedures. Details of our principal risks are
included on pages 33 to 36.
Our control framework
Our risk management efforts are underpinned by our General Control
Framework. The Board has put in place an organisational structure
with formally defined lines of responsibility and delegation of
authority. Executive Management have established procedures for
setting the direction, planning and controlling the operation of our
business, and reviewing and monitoring our performance and
conduct. These include:
* communication of the Group's strategy, objectives and targets
¢ expectations of standards of conduct by our colleagues as set out
in our Code of Business Standards
¢ definition and review of our social purpose
¢ annual and three year operating and capital plans which are
reviewed by the Board. This includes the identification and
assessment of risks compared to our appetite
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Governance
monthly comparisons of actual financial performance with budget appointment of employees of the necessary calibre to fulfil their
by operating divisions, with consideration by the Board of year allocated responsibilities, with formal personal development and
end forecasts appraisal procedures
# an organisational structure with lines of responsibility and @ senior management remuneration designed to align personal and
appropriate segregation of duties business objectives, as well as to discourage dishonest, illegal or
# change management approach, resources and governance are unethical acts
used to manage significant projects © a framework of operating, financial and IT policies
* formally defined delegations of authority, including capital *¢ awhistleblowing procedure for colleagues to raise concerns in
investment limits and a treasury policy confidence and if required, anonymously; a complaints procedure
is available to customers and third parties.
Progress during the year and plans for next year
During the year, we have continued to develop our risk management capability. Highlights of what's been achieved and what is planned for
next year include:
Risk assessment: during 2015/16, there has been more regular use Risk assessment: for 2016/17, we plan to focus our incident
of the risk management framework in business areas and by the Risk —_ reporting process to provide information which allows us to embed
and Compliance Committee, with greater focus on defining further _our risk appetite further
actions required to manage risks and the introduction of longer term
horizon scanning
Control environment: during 2015/16, we have reviewed the Control environment: for 2016/17, we plan to formalise our
appropriateness of our General Control Framework and our key monitoring mechanisms for both our General Control Framework
policies and identified appropriate remediations and our key policies
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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
to be material.
's; some risks are not yet known and some that are not considered material could later turn out
Potential risks
Consequences
Key Mitigations
STRATEGIC RISKS
Competitive threat
Post Office faces both opportunities
for and threats to income from
‘our competitive market place.
The mails and parcels market
remains intensely competitive.
Government Services are impacted
by increased use of digital channels
and reduced public spending
Financial Services is a challenging
market where responding quickly to
different strategies, business models,
and products is essential to growth
Dependency on strategic relationships
Post Office has strategic relationships
which are key to its product offering
and growth, for instance with Royal
Mail Group and Bank of Ireland (UK) ple.
Misalignment of the strategic direction
or focus with the strategic partner
could result in products that do not
support our growth strategy or meet
our customer or market requirements.
Crystallisation of these
risks could result in not
achieving our growth
objectives, losing market
share and revenues.
This could result in
not achieving our
growth objectives,
losing revenue and
market share.
+ Customer perceptions and competitor
behaviour are key inputs to decision making.
+ Our strategy focuses on customer requirements,
market trends and competitor behaviour,
working with partners where appropriate,
to offer customer centric propositions,
supported by a clear distribution strategy.
+ Each product proposition developed
in the context of a customer strategy
which describes target market, channel of
distribution and competitive attributes.
+ Close working relationships established
with our strategic relationships.
+ Interactions scheduled with our strategic partners
to improve the product offering and service to
drive growth and profitability for both parties
+ Contractual arrangements monitored and
managed to ensure that they are aligned
with commercial objectives and that
relationships deliver to expectations.
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Potential risks Consequences Key Mitigations
TRANSFORMATION RISKS
Benefits from business This could result in + Programme management office established,
transformation not realised not achieving our with assurance oversight.
growth objectives,
loss of revenue and
cost savings, reduced
customer satisfaction and
damage to reputation
with stakeholders. + Flexible resource augmentation model
implemented to ensure supply of people with
the right capabilities, skills and experience.
Budgeted savings from our transformation
programme may be delayed or not
achieved, or overall service compromised,
due to pressures on capability,
capacity and the scale of change
+ Detailed plans in place to manage the
transformation, and identify risks to
ensure transformation activities are
delivered within budget and on time.
+ Benefits tracked from inception to delivery
and into business as usual operations through
formalised reviews during the lifecycle.
IT transformation not delivered in full This could result + Strategy and Integrated Service model
in systems and developed and monitored.
infrastructure that are
not fit for purpose, may
add costs and lead to
business interruption
Our programme of IT transformation
may not be delivered in full due to the
level of complexity of replacing legacy
IT and simultaneously implementing
new integrated service model.
+ Programme teams and operational business
teams work closely to ensure that the
objectives of the strategy are delivered,
+ Business and Technology Transformation
governance, assurance and oversight
plan in place and operational
Industrial action This could result in + Well defined agreements with relevant unions
business disruption
leading to loss of
revenue, reduced
customer satisfaction
and brand damage.
The withdrawal of support from
staff or postmasters to the ongoing
implementation of Post Office
transformation has the potential to
damage the business in terms of both
reputation and financial performance
particularly if industrial action takes place.
+ Comprehensive engagement programme in
place with staff, unions and postmasters to
ensure that there is alignment with our vision
and strategy around transformation
+ Contingency planning in place to minimise
the impact of potential industrial action.
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Governance
Potential risks
Consequences
Key Mitigations
OPERATIONAL RISKS
Lack of appropriate capability
The Post Office is dependent on
its dedicated work force to meet
the expectations of its customers
and stakeholders. Continuing to
attract, motivate, develop and retain
people is key to its success.
Decline in customer experience
If we are unable to deliver an attractive
customer experience, via our products,
service and channels, we risk losing
the support of our customers
Unattractive network proposition
As we transform, there is a risk that
the Post Office may not be able to
retain, or attract sufficient new, retail
partners because of the complexity of
‘our network proposition and relative
value to the retail partner particularly
compared to other categories.
Business interruption and cyber threat
Post Office is dependent on the continued
availability of its information systems and
associated infrastructure. These could
be threatened, either due to internal
issues, external events or cyber attack
Dependency on third parties
Post Office works in partnership.
with a number of third parties
to deliver high quality services.
We need to successfully select,
contract and monitor our key in-
source or out-source relationships
and avoid any unintentional
breaches of contractual terms.
This could result in not
achieving our strategic
objectives and loss of
staff engagement.
This could result in
reduced customer
satisfaction and
brand reputation,
with consequential
loss of market share
and revenues.
As well as loss of
revenue, this could
result in shrinkage
to our network and
breach our public
purpose commitment.
This could result in
disruption of service
leading to negative
customer experience,
breach of contractual
obligations and
brand damage.
This could lead to
business interruption
and additional costs
through failure to meet
contractual obligations
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.
Investment in developing our people.
Customer strategy continually monitored
to ensure that it meets changing customer
product and service expectations and reflects
current market and competitor trends.
Channel strategy ensures we meet the
changing customer requirements for access
and utilises available and emerging technology
to reflect changing customer needs.
Development of models to provide retailers with an.
attractive proposition relative to other categories.
New branch model also ensures that we use
modern technology to drive simplicity of
operations, efficiency and cost reduction for the
retailer, as well as a better customer experience.
Branch model continually reviewed and
updated to respond to ongoing competitive
threat and market conditions.
Business continuity plans updated through
review, testing and enhancements.
New contracts have pro
the security, resilience and availabi
our IT systems and infrastructure.
Information Security policies in place.
Penetration testing schedule to assess and
improve the security of our systems
Contract management framework to
monitor our contracts and suppliers.
Assessment of risks and monitoring
of mitigating actions.
Defined key policies that we require our suppliers
to comply with and attest compliance.
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Governance
Potential risks
Consequences
Key Mitigations
FINANCIAL RISKS
Stakeholder funding
The cost of delivering the public
purpose of the Post Office and meeting
the expectations of stakeholders
may exceed current forecasts.
Financial reporting and controls failure
Our financial controls are Fundamental to
delivering our fiduciary responsibilities,
management information, financial
reporting and compliance with
accounting and governance standards.
These may not operate effectively if
they are not documented, reviewed
and monitored regularly.
Pension cost increases
The cost of servicing the current
Defined Benefits scheme could
become unbearably onerous as a
result of the prolonged low interest
rate environment, resulting in
substantially increased contributions.
This could result in not
achieving our growth
objectives, failing to
meet our public purpose
commitment and
damaging our reputation
with stakeholders.
This could result in loss of
revenue, increased costs,
financial misstatement
and damage to reputation
with stakeholders.
This could result in
material increases in
required contributions,
adversely affecting
our ability to achieve
commercial sustainability.
Proactive engagement with stakeholders to
ensure there is full understanding of, and
alignment with, the strategic goals and the
investment case required to deliver them.
Annual and three-year operating and capital
plans developed and risk assessed.
Scheduled feedback to stakeholders and review.
Defined and structured delegation of authority
which is reviewed and approved by the Board.
A Financial and Accounting manual and a
framework of supporting general controls
Documented financial controls, with
additional assurance to be provided from
a Control Self-Assessment process.
Valuation assumptions and pension
funding strategy have regular external
and internal monitoring and review.
Options being developed to minimise
the impact of an adverse valuation, with
assistance from professional advisors.
Consultation process initiated on options
for the future of the Defined Benefit plan
LEGAL & REGULATORY RISKS
Financial regulatory breach
The Post Office operates under an
extensive regulatory environment,
covering areas such as financial and
postal services, telecoms, procurement,
competition law and data security.
This environment continues to
evolve, particularly in the financial
services arena, and we need to ensure
that the changing requirements
continue to be identified and met.
This could result in
regulatory censure,
fines, litigation or
curtailment of trading,
which could impact
income and/ or damage
our reputation with
customers and suppliers
New regulatory obligations monitored
by relevant business owners, with
support from Corporate Services.
On-going training to our staff on
legal and regulatory matters.
Regular compliance tests and
monitoring are conducted
Internal and external assurance programmes
are in place (including by our regulatory
principals) to ensure that we meet financial
services regulatory requirements, including sales
practices and conduct, customer experience
and product experience and delivery.
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The Group Executive
The Group Executive is the
most senior management
body and is comprised of
the Chief Executive, each
of her direct reports and
the Company Secretary.
Membership
The Group Executive is chaired by
Paula Vennells, Chief Executive
and the other members are
Alisdair Cameron
Chief Financial Officer
Martin George
Commercial Director
Kevin Gilliland
Network and Sales Director
Neil Hayward
Group People Director
David Hussey
Group Business Transformation Director
Nick Kennett
Financial Services Director
Alwen Lyons
Company Secretary
Jane MacLeod
General Counsel
Other members of the Group
Executive during 2015/16 were:
David Ryan
Group Business Transformation Director
(left the Post Office in May 2015)
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Governance
Role of the Group Executive
The Group Executive implements the
strategy agreed by the Board and monitors
business performance and development at a
day to day level. It meets regularly to discuss
latest developments, to discuss proposals
for new business development, to receive
financial and other performance reports
and to monitor business transformation,
and commercial development. It will also
address any urgent issues that have arisen
within the business and which require senior
level resolution. Twice yearly, it reviews the
results of personal performance assessments
undertaken throughout the organisation
The Chief Executive, Chief Financial Officer
and the Company Secretary also attend
meetings of the Board which facilitates
and strengthens the communication
channels between the senior leadership,
the Board and its Committees.
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Directors’ report
The Directors
present the Group
Annual Report and
Financial Statements
for the year ended
27 March 2016.
Expected future developments
Expected future developments are detailed
in the Chief Executive's statement.
Results and dividends
The loss after taxation for the year was £167
million (2015: loss £141 million}. The directors
do not recommend the payment of a
dividend (2016: £nil dividend)
Political contributions
No political contributions were made in the
year (2015: Enil).
Research and development
There was no research and development
expenditure during the year (2015: £nil
Directors and their interests
The following served as Directors during the
year:
RJCallard
AC JCameron
TA Franklin
VAHolmes
AMarnoch (resigned 31 July 2015)
KS McCall (appointed 21 January 2016)
NW McCausland (resigned 30 September
2015)
TC Parker (appointed I October 2015)
A Perkins CB (resigned 31 July 2015)
CR Stent (appointed 21 January 2016)
PA Vennells
No director has a beneficial interest in the
share capital of Post Office. The emoluments
of Directors are set out on pages 55 to 56.
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People
Our goal is to ensure that everyone
associated with our business ~ employees
and postmasters - are engaged and involved
in the business and are aligned and equipped
to meet our shared objectives.
We conduct regular employee surveys,
which provide employees and postmasters
the opportunity to express their views and
opinions on important issues. This two way
communication encourages all our people to
contribute towards improving the business
and delivering our strategic objectives.
To engender greater engagement, Post Office
has structured and systematic communication
channels in place, ensuring employees and
postmasters are informed on matters which
impact them.
As part of our commitment to drive better
service for customers we continue to focus
on improving the quality of our leadership,
ensuring we have the right skills for today
and tomorrow, and achieving greater
involvement from employees, postmasters
and their representative bodies.
We have launched a Learning Academy
which provides high quality learning for all
employees and postmasters. We will
continue to invest in developing the best
talent to support our vibrant, sustainable
business, including graduate recruitment and
active participation in the new apprenticeship
programme.
Underpinning all of this, is aneed for dignity
and respect in the workplace, where
everybody feels valued, is treated fairly and
equally, and all our people play a full part in
helping the business to achieve its goals.
Disabled employees
The Post Office policy is to give full
consideration to applications for employment
from disabled persons. Employees who
become disabled while employed receive full
support through the provision of training and
special equipment to facilitate continued
employment where practicable. Post Office
provides training, career development and
promotion to disabled employees wherever
appropriate.
Post balance sheet events
In accordance with the funding agreement
with government announced on 27
November 2013, for which State Aid
approval was received on 19 March 2015,
Post Office Limited received £220 million of
funding on 1 April 2016.
Going concern
After analysis of the financial resources
available and cash flow projections for Post
Office, 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.
Financial Instrument Risk
The exposure of the Group to market risk,
credit risk and liquidity risk has been
disclosed in note 16 of the annual report on
pages 64 to 66.
Audit information
The Directors confirm that, so far as they are
aware, there is no relevant audit information
of which the auditor is unaware, that each
Director has taken all reasonable steps to
make themselves aware of any relevant audit
information and to establish that the auditor
is aware of that information.
Auditor
The auditor, Ernst & Young LLP, is deemed to
be reappointed under section 487(2) of the
Companies Act 2006
By Order of the Board
Alwen Lyons
Secretary
Post Office Limited
(Company Number 2154540)
Finsbury Dials
20 Finsbury Street
London
EC2Y 9AQ
5 July 2016
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Finaneial
Statements
Vivian Clay is part of out team at our Darley Street branch who are:
Preparing to move to a new branch hosted in WHSmith as part of
the ongoing plans to build a sustainable Crown network.
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Directors’ responsibilities statement
The directors are responsible for preparing the Annual Report, which includes the
Directors’ Report, Remuneration Report and Corporate Governance Statement, and the
Group and Parent Company Financial Statements, in accordance with applicable law and
regulations.
Company law requires the directors to prepare Financial Statements
for each financial year. Under that law the directors have elected to
prepare the Group consolidated Financial Statements in accordance
with International Financial Reporting Standards (“IFRSs") as adopted
by the European Union ("EU"). The financial reporting framework that
has been applied in the preparation of the Parent Company Financial
Statements is applicable law and United Kingdom Accounting
Standards (United Kingdom Generally Accepted Accounting
Practice). Under company law the directors must not approve the
Financial Statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and Parent Company, and
of the profit or loss of the Group and Parent Company for that period.
In preparing these Financial Statements, the directors are required to:
@ select suitable accounting poll
consistently;
and then apply them
make judgments and accounting estimates that are reasonable and
prudent;
# state whether IFRS as adopted by the EU, and applicable United
Kingdom Accounting Standards have been followed, subject to
any material departures disclosed and explained in the Group and
Parent Company Financial Statements respectively;
# prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Group and Parent
Company will continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and the Group and to enable them
to ensure that the Financial Statements and the Directors’
remuneration report comply with the Companies Act 2006 and, as
PAGE 40
corporate postoffice.co.uk/annualreportI516
regards the Group's Financial Statements, Article 4 of the International
Accounting Standards Regulation. They are also responsible for
safeguarding the assets of the Company and the Group and hence for
taking reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's
website. Legislation in the United Kingdom governing the preparation
and dissemination of Financial Statements may differ from legislation
in other jurisdictions.
The Directors are responsible for preparing the Directors’ report and
the Corporate Governance report in accordance with the Companies
Act 2006 and applicable regulations.
The Directors confirm that to the best of their knowledge:
* The Group consolidated Financial Statements, prepared in
accordance with IFRS as adopted by the EU and in accordance
with the provisions of the Companies Act 2006 give a true and
fair view of the assets, liabilities, financial position and profit of
the Group;
The Parent Company Financial Statements prepared in
accordance with United Kingdom Generally Accepted
Accounting Practice including FRS 101 "Reduced Disclosure
Framework”,
ive a true and fair view of the assets, labilit
financial position and profit of the Company; and
The management report contained in this report includes a fair
view of the development and performance of the business and
the position of the Group as a whole and of the Company,
together with a description of the principal risks and uncertainties
they face.
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nancial Statements
Independent auditor's report to the
members of Post Office
We have audited the consolidated Financial Statements
of Post Office Limited for the 52-week period ended 27
March 2016 which comprise the Group Income
Statement, the Group Balance Sheet, the Group
Statement of Comprehensive Income, the Group
‘Statement of Cash Flows, the Group Statements of
Changes in Equity, the related notes 1 to 25, the Parent
Company Statement of Comprehensive Income, the
Parent Company Balance Sheet, the Parent Company
Statement of Changes in Equity and the related notes I to
21. The financial reporting framework that has been
applied in the preparation of the group Financial
Statements is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the European
Union (EU). The financial reporting framework that has
been applied in the preparation of the parent company
Financial Statements is applicable law and United
Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice), including FRS
101 “Reduced Disclosure Framework’.
This report is made solely to the company’s members, as.
a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been
undertaken so that we might state to the company’s
members those matters we are required to state to them
in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company
and the company's members as a body, for our audit
work, for this report, or for the opinions we have formed.
Respective responsibilities of
directors and auditor
As explained more fully in the Directors’ Responsibilities
Statement set out on page 40, the directors are
responsible for the preparation of the Financial
‘Statements and for being satisfied that they give a true
and fair view. Our responsibility is to audit and express
an opinion on the Financial Statements in accordance
with applicable law and International Standards on
Auditing (United Kingdom and Ireland). Those standards
require us to comply with the Auditing Practices Board's
Ethical Standards for Auditors.
Scope of the audit of the Financial
Statements
An audit involves obtai evidence about the amounts
and disclosures in the Financial Statements sufficient to
give reasonable assurance that the Financial Statements
are free from material misstatement, whether caused by
fraud or error. This includes an assessment of: whether
the accounting policies are appropriate to the Group's
and the Parent Company's circumstances and have been
consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made
by the directors; and the overall presentation of the
Financial Statements. In addition, we read all the financial
and non-financial information in the Annual Report and
Financial Statements to identify material inconsistencies
the audited Financial Statements and to identify any
information that is apparently materially incorrect based
on, or materially inconsistent with, the knowledge
acquired by us in the course of performing the audit. IF
we become aware of any apparent material
misstatements or inconsistencies we consider the
implications for our report.
Opinion on Financial Statements
In our opinion:
the Financial Statements give a true and fair view of
the state of the Group's and of the Parent Company's
affairs as at 27 March 2016 and of the Group's and
Parent Company's loss for the 52-week period then
ended;
* the Group's Financial Statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union; and
¢ the Parent Company Financial Statements have been
properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice,
including FRS 101 “Reduced Disclosure Framework”;
and
# the Group and Parent Company Financial Statements
have been prepared in accordance with the
requirements of the Companies Act 2006.
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PAGE 41
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Opinion on other matters prescribed by the
Companies Act 2006
In our opinion the information given in the Financial Report and the
Directors’ Report for the financial year for which the Financial
Statements are prepared is consistent with the Financial Statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where
the Companies Act 2006 requires us to report to you if, in our
opinion:
adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been
received from branches not visited by us; or
# the Parent Company Financial Statements are not in agreement
with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are
not made; or
* we have not received all the information and explanations we
require for our audit.
Other matters
The maintenance and integrity of the Post Office Limited web site
is the responsibility of the directors; the work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes
that may have occurred to the Financial Statements since they
jally presented on the web site.
were
Legislation in the United Kingdom governing the preparation and
dissemination of Financial Statements may differ from legislation
in other jurisdictions.
Peter Melver I Senior statutory auditor
for and on behalf of Ernst 6Young LLP,
Statutory Auditor
London
5 July 2016
PAGE 42 corporate.postoffice.co.uk/annualreporti516
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Fi Statements
Consolidated income statement
for the 52 weeks ended 27 March 2016 and 29 March 2015
Notes “im (Restate)
Continuing operations
Turnover
Network Subsidy Payment
Revenue 1m 1,136
People costs excluding restructuring costs 2 (233) (238)
Other operating costs (808) (e831)
Share of post tax profit from joint ventures 10 - 35 36 -
Operating profit before exceptional items for continuing operations 3 105 103
Operating exceptional items 4 (269) en)
- Government grant 170
Noun er SIE ERRATA ee 29 = cor
- Impairment (136) (uo)
Operating loss from continuing operations (164) (168)
Loss before financing and taxation from continuing oper:
ions (164) (168)
Finance costs 6 6) (3)
Finance income 6 - 1
Net financing Theat relating to pensions 7 8 7
Loss before taxation from continuing operations
Taxation credit 7
Loss for the financial year from continuing operations (157) (137)
Discontinued operations
Loss for the financial year after tax from discontinued operations 22 (10) (4)
Loss for the financial year (167) (141)
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Consolidated statement of comprehensive income
for the 52 weeks ended 27 March 2016 and 29 March 2015
Nome 2016 2015
£m (Restated) £m
Loss for the financial year from continuing operations (157) (137)
Loss for the financial year from discontinued operations — 22 (10) on
Loss for the financial year (167) (4)
Other comprehensive income not to be reclassified
to profit or loss in future periods
Remeasurements on defined benefit surpluses v7 (9) 54
Income tax effect 7 5 (%)
Total comprehensive income for the year (7) (96)
There are no other comprehensive income items that will be reclassified to the profit and loss in future periods.
44 corporate postoffice.co.uk/annualreportl516
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Financial Statements
Consolidated statement of cash flows
for the 52 weeks ended 27 March 2016 and 29 March 2015
2016 2015,
Notes fm fm
Cash flows from operating activities
” Operating profit before exceptional items from continuing operations 105 103
Operating loss from discontinued operations 22 (10) (4)
Total profit before exceptional items 9S 99
Adjustment for:
"Share of profit from [
Pension operating costs 2 30 28
Working capital movements: (61) (17)
Increase in trade and other receivables (16) (34)
"(Decrease)/increase in trade and other payables (59) 10 I
Increase in provisions for discontinued operations 22 3 5
(Decrease)/Increase in non-exceptional provisions
Cash payments in respect of operating exceptional items:
Government grant
Restructuring costs
Other
Net cash outflow from operating activities
Income tax recovered 7 9 1
Cash flows from investing activi
of insurance business 21 (44)
"Purchase of fixed and intangible assets (136) (147)
Net cash outflow from investing activities (145) (116)
Net cash outflow before financing activities (259) (120)
Cash flows from financing acti
Finance costs paid
Payments to finance lease creditors
Proceeds of borrowings from BIS
Net cash inflow from financing activities 304
Net (decrease) increase in cash and cash equivalents 184
Gash and cash equivalents at the beginning ofthe year "637
Cash and cash equivalents at the end of the year 821
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Consolidated balance sheet
at 27 March 2016 and 29 March 2015
2016 2015
Notes £m _—_ (Restated) £m
Non-current assets
Intangible assets 8 44 -
Retirement benefit surplus
Trade and other receivables
Total non-current assets
Current assets
Inventories © J
Trade and other receivables i an 397
Casi and eagh acpvalectse 2 n2 821
Total current assets 1129 1.224
Total assets 1.457 1516
Current liabilities
Trade and other payables 3 (655) (vis)
Financial liabilities ~ interest bearing loans and borrowings (465) (310)
~ obligations under finance leases
@) 3
“Provisions ee (5) (14a)
(1.279) (1172)
Total current liabiliti
Non-current liabilities
rovisions (16) (6)
Total non-current liabilities (41) (36)
Net assets 137 308
Share premium 18 465 465
Retained earnings (330) (159)
Other Reserves 18 2 2
Total equity 137 308
The Financial Statements on pages 43 to 76 were approved by the Board of Directors on 5 July 2016 and signed on its behalf by:
P A Vennells I Chief Executive A Cameron I Chief Financial Officer
PAGE 46 corporate.postoffice.co.uk/annualreporti516
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Fi Statements
Consolidated statement of changes in equity
for the 52 weeks ended 27 March 2016 and 29 March 2015
Share Retained Other Total
premium earnings reserves equity
Notes £m £m £m £m
Remeasurements on defined benefit surplus
Income tax effect 7
At 27 March 2016 465 (330) 2 137
Share Retained Other Total
premium earnings reserves equity
Notes £m £m £m £m
Atal March 2014 465 (63) 2 404
Loss far therpar (ratte : (141) : (a1)
"Pumnaurevente of defined beraditavrploge 1 : 54 : 54
At 29 March 2015 (restated) 465 (159) 2 308
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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 52 weeks
ended 27 March 2016 (2015: 52 weeks ended 29 March 2015).
Basis of preparation
The Group Financial Statements on pages 43 to 76 have been
prepared in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union and
with those parts of the Companies Act 2006 applicable to
companies reporting under IFRS. Unless otherwise stated in the
accounting policies below, the Financial Statements have been
prepared under the historic cost accounting convention.
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 Emillion except where otherwise indicated
Basis of consolidation
The consolidated Financial Statements comprise the Financial
Statements of the Company and its subsidiary undertaking as at
27 March 2016. 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 dormant set of Financial Statements for Post Office
Management Services Limited (subsidiary) were prepared to 30
November 2014. The subsidiary began trading in January 2015
and the first set of Financial Statements have been prepared
for the 16 month period to 27th March 2016. The year end date
is in line with the Company. The subsidiary uses consistent
accounting policies where appropriate and its results have
been consolidated into the group Financial Statements. All
intra-group balances, transactions, unrealised gains and losses
resulting from intra-group transactions are eliminated in full.
New standards, amendments and interpretations
issued not yet effective for the current year
The following standards and interpretations, which have
been issued by the IASB and are relevant for the Group,
subject to EU ratification, become effective after the current
year-end and have not been early adopted by the Group:
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments was first issued in November 2009
and had since been amended several times. A complete version
of the standard was issued in July 2014 and is a replacement of
IAS 39 Financial Instruments: Recognition and Measurement.
IFRS 9 covers the classification, measurement and derecognition
of financial assets and financial liabilities, together with a new
hedge accounting model and a new expected credit loss model
for calculating impairment. The new standard becomes effective
for annual periods beginning on or after I January 2018, subject
to EU adoption expected in first half of 2016. It is anticipated
that the application of this amendment will have no significant
impact on the Group's income statement or balance sheet.
48 corporate postoffice.co.uk/annualreportl516
IFRS 15 Revenue from Contracts with Customers,
The IASB issued IFRS 15 Revenue from contracts with customers
in May 2014. The new standard provides a single, five-step
revenue recognition model, applicable to all sales contracts,
which is based upon the principle that revenue is recognised
when control of goods or services is transferred to the
customer. It replaces all existing revenue recognition guidance
under current IFRS and becomes effective for annual periods
beginning on or after I January 2018, subject to EU adoption
expected in 2016. The Group is currently considering the impact
of IFRS 15 on its consolidated results and financial position.
Amendments to IAS 16 and IAS 38: Clarification of
Acceptable Methods of Depreciation and Amortisation
The amendments clarify the principle in IAS 16 Property, Plant
and Equipment and IAS 38 Intangible Assets that revenue
reflects a pattern of economic benefits that are generated from
operating a business (of which the asset is a part) rather than
the economic benefits that are consumed through use of the
asset. As a result, a revenue-based method cannot be used
to depreciate property, plant and equipment and may only
be used in very limited circumstances to amortise intangible
assets. The amendments are effective prospectively for annual
periods beginning on or after I January 2016, with early adoption
permitted. The Group is currently considering the impact of these
amendments on its consolidated results and financial position.
Amendments to IAS 27: Equity Method in Separate Financial
Statements
The amendments will allow entities to use the equity method
to account for investments in subsidiaries, joint ventures and
associates in their separate Financial Statements. Entities already
applying IFRS and electing to change to the equity method
in their separate Financial Statements will have to apply that
change retrospectively. First-time adopters of IFRS electing to
use the equity method in their separate Financial Statements
will be required to apply this method from the date of transition
to IFRS. The amendments are effective for annual periods
beginning on or after 1 January 2016, with early adoption
permitted. The Group is currently considering the impact of these
amendments on its consolidated results and financial position.
Annual Improvements 2012-2014 Cycle
These improvements are effective for annual periods
beginning on or after I January 2016. They include:
IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations
Assets (or disposal groups) are generally disposed of either
through sale or distribution to owners. The amendment clarifies
that changing from one of these disposal methods to the
other would not be considered a new plan of disposal, rather
it is a continuation of the original plan. There is, therefore,
no interruption of the application of the requirements in
IFRS 5. This amendment must be applied prospectively.
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nancial Statements
IAS 19 Employee Benefits
The amendment clarifies that market depth of high quality
corporate bonds is assessed based on the currency in which the
‘obligation is denominated, rather than the country where the
obligation is located. When there is no deep market for high
quality corporate bonds in that currency, government bond rates
must be used. This amendment must be applied prospectively.
Amendments to IAS Disclosure Initiative
The amendments to IAS 1 clarify, rather than significantly
change, existing IAS I requirements. The amendments clarify:
The materiality requirements in IAS I;
That specific line items in the statement(s) of profit or loss and
OCI and the statement of financial position may be
disaggregated;
That entities have flexibility as to the order in which they
present the notes to Financial Statements;
@ That the share of OCI of associates and joint ventures
accounted for using the equity method must be presented in
aggregate as a single line item, and classified between those
items that will or will not be subsequently reclassified to profit
or loss.
Furthermore, the amendments clarify the requirements that
apply when additional subtotals are presented in the statement
of financial position and the statement(s) of profit or loss and
OCI. These amendments are effective for annual periods
beginning on or after 1 January 2016, with early adoption
permitted. The Group is currently considering the impact of these
amendments on its consolidated results and financial position.
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 £137 million at 27 March 2016 (2015:
£308 million). A funding agreement with Government was
announced on 27 November 2013 which provided for:
@ Funding of £280 million for 2015/16
@ Funding of £220 million for 2016/17
@ Funding of £140 million for 2017/18
® Extension of the existing working capital facility with the
Department for Business, Innovation & Skills (BIS) with a limit
of £950 million from 30 March 2015 up to 31 March 2018 (it
was previously £1.15 billion)
At 27 March 2016 £485 million of the working capital facility was
undrawn (2015: £840 million),
State Aid approval for the funding from 2015/16 to 2017/18 was
received on 19 March 2015.
This funding takes the form of a Government Grant, enabling the
Group to modernise the branch network, and the continuation of
the Network Subsidy Payment recognises the major social value
that Post Offices provide to communities which could not support a
commercial retail outlet. New main and local branches are
currently being rolled out across the United Kingdom. Customers
are benefitting from a much better retail experience including very
significantly extended opening hours. This programme is designed
to make the Post Office network more self-sustaining and, over
time, less dependent on direct subsidy. This is a modernisation
programme and not a branch closure programme.
The Directors are satisfied with the continued progress made
towards modernisation during 2015/16 and that the plans in place
and the substantial investment secured will enable the Group to
continue to modernise and to secure its future. However, they
note that the scale of change required remains significant and is not
without risk.
After careful consideration of the plans for the coming years, the
Directors continue to believe that Post Office Limited will be able
to meet its liabilities as they fall due 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.
Prior year restatements
In preparing the Financial Statements for the current year, the
comparative figures for the year ended 29 March 2015 have been
restated. The provision for postmasters’ compensation, included
in network transformation, had not been fully recognised in the
Financial Statements for the year ended 29 March 2015. The nature
of the provision is described in more detail in the accounting
policies on page 50. The restatement affects exceptional costs,
provisions and retained earnings due to the loss in the year
changing as a result of a restatement to the exceptional charge.
This represents an acceleration of an expected cost and there has
been no impact on the Group's funding position or on payments to
postmasters’. Within this report, the comparative income statement,
statement of comprehensive income, balance sheet and statement
of changes in equity for the year ended 29 March 2015 have been
restated, There has been no effect on the cash flow statement.
A 29
sale March
previously Restatement Sole
reported Restated
Total provisions (63) (87) (150)
"Shareholders
funds (retained (72) (87) (159)
earnings)
Operating
exceptional items - (214) (87) (301)
restructuring costs
Loss for the year (ii)
(54)
7)
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Notes to the Financial Statements
Critical accounting estimates and judgements
in applying accounting policies
The Group makes certain estimates and assumptions regarding
the future. Estimates and assumptions are continually evaluated
based on historical experience and other factors. In the
future, actual experience may differ from these estimates and
assumptions. In addition the Group has to make judgements
in applying its accounting policies which affect the amounts
recognised in the accounts. The most significant areas where
judgements and estimates are made are discussed below:
Pension assumptions
The costs, assets and liabilities of the pensions operated by
the Group are determined using methods relying on actuarial
estimates and assumptions. These pension figures are particularly
sensitive to changes in assumptions for discount rates, mortality
and inflation rates. The Group exercises its judgement in
determining the assumptions to be adopted, after discussion with
its Actuary. Details of the key assumptions are set out in note 17.
Pension liabilities are measured on an actuarial basis using the
projected unit credit method and discounted at a rate equivalent
to the current rate of return on a high quality corporate bond
of equivalent currency and term. Judgement has been applied
in determining that for these purposes a high quality corporate
bond constitutes AA rated or equivalent status bonds.
Provisions
The Group has recognised provisions where a present legal or
constructive obligation exists as a result of a past event, where it
is probable that an outflow of resources will be required to settle
the obligation and a reliable estimate of the amount can be made.
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. Postmasters’ compensation
provisions are recognised when either postmasters' agree to
terminate their existing contracts or sign the new format contracts
under Network Transformation. The total provision for postmasters’
compensation at the year end date represents management's best
estimate of the future obligation. Provisions are detailed in note
15. 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 discounted using a current pre-tax rate that reflects,
where appropriate the risks specific to that liability.
Impairment of non-current assets
The Group assesses whether there are any indicators of
impairment for all non-currents assets at each reporting date
as well as if events or changes in circumstances indicate that
the carrying value may be impaired. Where appropriate, an
impairment loss is recognised in the income statement for
the amount by which the carrying value of the asset (or cash
generating unit) exceeds its recoverable amount, which is the
higher of an asset's net realisable value and its value in use. Due
to on-going operational losses (excluding the Network Subsidy
Payment) the carrying value of some assets are impaired to
Zero on acquisition. Each asset category is described below:
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Property, plant and equipment excluding freehold
property, long leasehold 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 have a relatively short useful
life and due to on-going operational losses (excluding Network
Subsidy payment) they are impaired to zero on acquisition.
If they were not impaired they would be depreciated on
a straight-line basis over the following useful lives:
Range of asset lives
Plant and Machinery
3-18 years
Motor vehicles and trailers 2-12 years
Fixtures and equipment
2-18 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, therefore these assets are not impaired on
acquisition but would be considered for impairment if indicators
existed in line with Group policy noted above. They are instead
depreciated on a straight-line basis over the following useful lives:
Range of asset lives
Freehold bara Not depreciated
Fraohalel bulleling
Up to 50 years
The shorter of the
period of the lease, 50
years or the estimated
remaining useful life
Leasehold buildings
The remaining useful lives of freehold buildings are reviewed
periodically and adjusted where applicable on a prospective basis.
Intangible assets with a finite useful life:
Intangible assets acquired separately or generated internally
are initially recognised at cost. These assets are impaired to
zero for the reasons noted above. If they were not impaired
they would be amortised on a straight line bases via a
charge to income statement over the following period:
Software Tto 6 years
Intangible assets arising on acquisition or with an indefinite
useful life:
These assets are considered for impairment individually in line with
Group policy noted above but are not automatically impaired.
Goodwill is considered separately below.
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Financial Statements
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. Goodwill is tested for impairment
annually as well as when there are any indicators of impairment.
Non-current assets within subsidiaries
Subsidiaries are considered separate cash generating units and the
need for impairment of assets is considered within the subsidiary
and is dependent on whether indicators of impairment exist within
that subsidiary. At a Group level the impairment is adjusted on
consolidation to be in line with Group policy.
Revenue
Turnover from Government Services, Financial Services, Mails and
Retail 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. Turnover from
Financial Services and some Retail services comprises the
commission received. Turnover 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. Turnover from all other transactions is recognised when the
transaction is completed. All turnover is derived wholly from
within the United Kingdom.
Turnover within the subsidiary Post Office Management Services
Limited comprises the value of commissions received from
providing insurance intermediary services.
The Network Subsidy Payment is Government grant revenue
recognised to match the related costs of making available the
network of public Post Offices that the Secretary of State for
Business, Innovation and Skills considers appropriate.
Operating exceptional items
Operating exceptional items are items of income and expenditure
arising from the operations of the business which, due to the nature
of the events giving rise to them, require separate presentation on
the face of the income statement to allow a better understanding of
financial performance in the year and in comparison to prior years.
Items classified within here will be material either because of size
or nature and relate to the transformation of the business rather
than ordinary trading. This separate reporting of exceptional items
helps to provide a better picture of the Group's underlying
performance.
Leases
Finance leases, where substantially all the risks and rewards
incidental to ownership of the leased item have passed to the
Group are capitalised at the inception of the lease with a
corresponding liability recognised for the fair value of the leased
item or, if lower, at the present value of the minimum lease
payments. Lease payments are apportioned between the finance
charges and reduction of the lease liability so as to achieve a
constant rate of interest on the remaining balance of the liability.
Capitalised leased assets are depreciated over the shorter of the
estimated useful life of the asset and the lease term.
Leases where substantially all the risks and rewards of ownership of
the asset are retained by the lessor, are classified as operating leases
and rentals are charged to the income statement over the lease
term. The aggregate benefit of incentives are recognised as a
reduction of rental expenses over the lease term on a straight-line
basis.
Investments in joint ventures
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.
Inventories
Inventories include stationery, retail and lottery products and are
carried at the lower of cost and net realisable value after adjusting
for obsolete or slow-moving stock.
Taxation
The charge for current income tax is based on the results for the
year as adjusted for items which are not taxed or are disallowed. It
is calculated using tax rates in legislation that has been enacted or
substantively enacted by the balance sheet date.
Deferred income tax assets and liabilities are recognised for all
taxable and deductible temporary differences and unused tax
assets and losses except:
¢ initial recognition of goodwill
* the initial recognition of an asset or liability in a transaction
that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable
profit and loss
* taxable temporary differences associated with investments in
subsidiaries and interest in joint ventures, where the timing of
the reversal of the temporary difference can be controlled and
itis probable that the temporary difference will not reverse in
the foreseeable future and
«deferred tax assets are recognised only to the extent that it is
probable that taxable profit will be available against which
they can be utilised.
Deferred tax assets and liabilities are measured at the tax rates that
are expected to apply to the period when the tax asset is realised
or the liability is settled, based on tax rates that have been
substantively enacted at the balance sheet date. Deferred tax
balances are not discounted.
Current and deferred tax is recognised in the income 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.
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Notes to the Financial Statements
Pensions and other post-retirement benefits
Membership of occupational pension schemes is open to most
permanent United Kingdom employees of the Company. All
members of defined benefit schemes are contracted out of the
earnings-related part of the State pension scheme.
The pension assets of the defined benefit schemes are measured at
fair value. Liabilities are measured on an actuarial basis using the
projected unit credit method and discounted at a rate equivalent to
the current rate of return on a high quality corporate bond of
equivalent currency and term. The resulting defined benefit asset
or liability is presented separately on the face of the balance sheet.
Full actuarial funding valuations are carried out at intervals not
normally exceeding three years as determined by the Trustees and,
actuarial valuations are carried out at each balance sheet date and
form the basis of the surplus or deficit disclosed. 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).
For defined benefit schemes, the amounts charged to operating
profit, as part of staff costs, are the current service costs and any
gains and losses arising from settlements, curtailments and past
service costs. The net difference between the interest costs and the
expected return on plan assets is recognised as net pensions
interest in the income statement. Actuarial gains and losses are
recognised immediately in the statement of comprehensive income.
Any deferred tax movement associated with the actuarial gains and
losses is also recognised in the statement of comprehensive
income.
For defined contribution schemes, the Group's contributions are
charged to operating profit, as part of staff costs, in the period to
which the contributions relate.
Foreign currencies
The functional and presentational currency of the Group is
sterling(£}
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.
Trade receivables
Trade receivables are recognised and carried at original invoice
amount less an allowance for any non-collectible amounts. An
estimate for doubtful debts is made when collection of the full
amount is no longer probable, Bad debts are written off when
identified.
Borrowing costs
Borrowing costs in relation to the working capital loan facility are
recognised as an expense when incurred unless they are directly
attributable to the construction or development of a qualifying
asset, in which case they are capitalised using the weighted average
cost of borrowing for the period of construction/development.
PAGE 52
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Government grants
Government grants are shown separately in the income statement
to match the expenditure to which they relate.
Provisions
Provisions are recognised when the Group has a present obligation
{legal or constructive) as a result of a past event, it is probable that
an outflow of resources will be required to settle the obligation,
and a reliable estimate can be made of the amount of the
obligation. If the effect of the time value of money is material,
provisions are determined by discounting the expected future cash
flows at an appropriate pre-tax rate.
Financial instruments
The classification of financial instruments included on the balance
sheet is set out below:
Financial assets
Financial assets are measured at fair value at the balance sheet date.
They are classified into the following categories loans and
receivables or available for sale as appropriate based on the
purpose for which they were required. Financial liabilities are
measured at either fair value at the balance sheet date or as
financial liabilities measured at amortised cost.
Financial liabilities - interest-bearing loans and borrowings
Allloans and borrowings are classified as financial liabilities
measured at amortised cost.
Financial li 1s - obligations under finance leases
All obligations under finance lease and hire purchase contracts are
classified as financial liabilities measured at amortised cost.
Fair value measurement of financial instruments,
The fair value of quoted investments is determined by reference to
bid prices at the close of business on the balance sheet date.
Where there is no active market, fair value is determined using
valuation techniques. These include using recent arm’s length
market transactions; reference to the current market value of
another instrument which is substantially the same; and discounted
cash flow analysis and pricing models.
Derecognition of financial instruments.
A financial asset or liability is derecognised when the contract that
gives rise to itis settled, sold cancelled or expires.
All assets and liabilities for which fair value is measured or
disclosed in the Financial Statements are categorised within the fair
value hierarchy, described as follows, based on the lowest level
input that is significant to the fair value measurement as a whole:
* Level — Quoted (unadjusted) market prices in active markets
for identical assets or liabilities
¢ Level 2 — Valuation techniques for which the lowest level
input that is significant to the fair value measurement is.
directly or indirectly observable
@ Level 3 — Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable
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Financial Statements
For assets and liabilities that are recognised in the Financial
Statements on a recurring basis, the Group determines whether
transfers have occurred between levels in the hierarchy by re-
assessing categorisation (based on the lowest level input that is
significant to the fair value measurement as a whole) at the end of
each reporting period.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at
bank and in hand, including cash in the Post Office network and
short-term deposits (cash equivalents) with an original maturity
date of three months or less. In addition the Group uses Money
2. Staff costs and numbers
Employment and related costs were as follows
Market funds as a readily available source of cash and these funds
are also categorised as cash equivalents. 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 subsidiary Post Office Management Services Limited holds
some fiduciary cash balances, there are held on trust on behalf of
insurance third parties, see note 12 for details.
People costs excluding restructuring costs: 2016 2015
£m £m
184 191
Wages and salaries
Social security costs
Pension costs (note 17) 30 28
Total 233 238
Period end employees Average employees
2016 2015 2016 2015
Total employees 6,605 6,876 6,667 7,281
Total employee numbers can be categorised as follows:
2016 2015
‘Administration 1,261 1,324
Crown Offices
3,344 3,406
Supply Chain
Network and Crown transformation programmes
1,360 1524
640 622
Total
6,605 6,876
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Notes to the Financial Statements
3. Operating profit from continuing operations before exceptional items
Operating profit from continuing operations before exceptional items, is stated after charging:
2016 2015
fm £m
Postmasters’ fees 413 435
Bureau de Change foreign currency exchange losses/{gains) ca 1
Depreciation 1 5
Cost of inventories recognised as an expense 3 4
(Operating lease charges ~ Land and buildings 7 20
Fees payable to the Group's auditors for audit and other service: £000 £000
~ parent Company and Group audit 346 391
- audit of subsidiary 70 =
- audit related assurance services 40 40
- other non-audit services 106 173
4. Operating exceptional items
2016 2015 (Restated)
im £m
Government Grant 150 170
Restructuring:
Business transformation” — (13) 13)
Network transformation including postmasters' compensation (note 15)_ ~ (177) (227)
Casey teenborcation (23) (10)
IT transformation (30) (7)
Restructuring - severance. a . ~ : 1 29) 05)
Total restructuring (283) (301)
Impairment
Iimpetraverh wt Intargls wscnwta(ravta ° (93)
Impairment of property, plant and equipment (note 9) (43) (84)
Total impairment (136) (140)
Total operating exceptional items (269) (271)
Restructuring: Restructuring costs are those incurred in order to implement the major transformation programmes primarily the Crown,
Network and IT programmes which are discussed further in the Financial Review on page 15. Network transformation includes the costs of
postmasters’ compensation (2016: £102 million, 2015: £154 million) which are payments made to postmasters’ as a result of the ongoing
programme.
*Business transformation costs include £2 million of acquisition costs, see note 21 for further details on this acquisition.
Impairment: See the accounting policies on page 50 for details.
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nancial Statements
5. Directors’ emoluments
The Directors received the following emoluments:
2016 2015,
£000 £000
Emoluments, excluding pension contributions and LTIP* 1,194 1,234
uutions to pension schemes 4
Amounts receivable under Long-Term Incentive Plans 144 157
“Figures include any cash supplements received in lieu of pension and any payments in lieu of notice
Directors accruing pension entitlements during the period under:
2016 2015
Number Number
Defined benefit schemes =
Defined contribution schemes 1
The highest paid director received the following emoluments:
2016 2015
£000 £000
Emoluments and LTIP, excluding pension contributions but
amen Ln ° 620 522
including cash supplements received in lieu of pensions
Company contributions to pension schemes - -
Remuneration for each director for the financial year 2015/16
Annualised
N salary/fees fea Benefits cash fallew STIP LTP Total Total
lame salary/fees of pension
2015/16 rg 2018/16 FT «2015/18 2015/16— 2018/16 2014/15
(note 1)
Non-Executive Directors
Tim Franklin £40,000 £40,000 E P > = £40,000 £40,000
Virginia Holmes £40,000 £40,000 > : 2 - £40,000 £40,000
Alasdair Marnoch Pe £15,000 . . - - £15,000 —£45,000
{note 2)
Ken McCall (note 3) £50,000 £12,500 - - - - £12,500 -
Neil McCausland
£50,000 «£25,000 : - - - £25,000 —-£50,000
(note 4)
Tim Parker (note 5) £75,000 £37,500 = - £37,500 °
ti
Carla Stent (note 7) £45,000
Richard Callard (note 8) - - “ - - - = 2
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Notes to the Financial Statements
Annvalised
N. salary/fees et Benefits Cashin cw STIP LTP Total Total
lame salary/fees of pension
2015/16 tise 20/16 oe ng 2015/16 2015/16 2015/16 2014/15
{note 1)
Executive Directors
Paula Vennells £250,000 £250,000 £9900 £62,500 £153,852 £143,500 £619,752 £521,987
Medel Caueton £240,000 £240,000 £13,919 £56,189 £129,146 £510,254 £90,124
(note 9) +£75,000
Note 1: The annualised fees are shown as at 27th March 2016 or at the date of leaving.
Note 2: Alasdair Marnoch resigned from the Board and left on 31st July 2015.
Note 3: Ken McCall was appointed to the Board on 21st January 2016.
Note 4: Neil McCausland resigned from the Board and left on 30th September 2015.
Note 5: Tim Parker was appointed to the Board on Ist October 2015. Tim donates the after tax value of his Board fees to charity.
Note 6: Alice Perkins resigned from the Board and left on 3ist July 2015.
Note 7: Carla Stent was appointed to the Board on 2Ist January 2016.
Note 8: Richard Callard is an employee of the Shareholder Executive of the Department for Business, Innovation, and Skills.
Note 9: Alisdair Cameron received a bonus of £75,000 in October 2015; this is shown separately in the STIP column. This was
compensation for the variable pay which Alisdair gave up to join Post Office and was payable after six months’ service depending upon
performance conditions being met. The inclusion of this amount in Allisdair’s contract and its payment against the performance conditions
were agreed by the Remuneration Committee and the Special Shareholder. Alisdair’s benefits figure of £13,919 includes £4,019 company
contributions to a Defined Contribution pension.
Remuneration Policy Summary
The table describes the STIP and LTIP available for the Executive Directors. The remuneration framework for the Executive Directors
requires consent from the Special Shareholder each year.
Short-Term Incentive Plan (STIP) The STIP drives and rewards performance over the single financial year against a key financial
and operational targets taken from the business scorecard. Metrics and targets are determined
and set each year according to business priorities.
80% of the STIP plan is determined by business targets, with the remaining 20% linked to the
achievement of personal performance objectives.
The target opportunities for the Chief Executive and Chief Financial Officer are 48% and 40%,
Long-Term Incentive Plan (LTIP) The LTIP is designed 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.
The specific performance targets are determined for each LTIP cycle with reference to the
three-year plan which is agreed with the Special Shareholder.
The target opportunities for the Chief Executive and Chief Financial Officer are 70% and 50%,
respectively, with stretch performance of 98% and 70% respectively.
Differences in remuneration policy for the Executive Directors and employees generally
The remuneration policy for the Executive Directors takes account of their level of responsibility and their influence over Post Office's
performance. Accordingly, a higher proportion of their total remuneration package is at risk and subject to performance (under the STIP
and LTIP). The incidence and potential amounts payable under such incentives across the workforce are determined by their role and
grade within the organisation.
Claw-back provision
Executive Directors have claw-back 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 relevant misstatement of the accounts, error or gross misconduct on the part of an Executive Director. These
provisions are structured in line with market best practice.
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Financial Statements
6. Net finance costs
2016 2015
im £m
Interest receivable : 1
Interest payable on loan 2 ()
Finance charges @) (2)
Total © (2)
7. Taxation
(a) Taxation gains recognised in the year
2016 2015
Tax under-provided in previous years
Effect of change in tax rate 3 -
Income tax credit reported in the consolidated income statement (4) (26)
Deferred income tax of £5 million (2015: £9 million) has been credited (2015: debited) to other comprehensive income relating to actuarial
movements in the retirement benefit surplus. This offsets the deferred tax debit of £5 million (2015 (credit): £9 million) that has been
reported in the consolidated income statement.
(b) Factors affecting current tax credit on profit on ordinary activities
The tax assessed for the year differs from the standard rate of corporation tax in the United Kingdom of 20% (2018: 21%). The differences
are explained below:
2016 2015 (restated)
£m
Loss on ordinary activities before tax from discontinued operations
Accounting loss before taxation
Loss on ordinary activities multiplied by the standard rate of (35)
corporation tax in the United Kingdom of 20% (2015: 21%). cues ecmapenemums rs
Net decrease in tax charge resulting from recognition of deferred tax assets 8 (16)
Expenditure disallowable for tax 1 a
‘Adjoottenin tn compes.at print paar : (7)
Effect of unutilised losses carried forward 36
"Joint ventura profit after taxincluded in Group pre-tax profit’ “oO.
Total current tax (see above) @ (26)
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Notes to the Financial Statements
(c) Deferred tax
Deferred tax assets relate to the following:
Balance sheet Income statement
2016 2015 2016 2015
£m £m £m
future taxable income 25 30 2 .
Total deferred tax asset 2 e (5) 9
Income statement (5) 9
(d) Factors that may affect future tax charges
The Group has unrecognised deferred tax assets of £166 million (2015: £141 million), comprising £78 million (2015: £74 million) relating
mainly to fixed asset timing differences, £1 million (2015: £1 million) relating to timing differences on provisions and £87 million (2015: £66
million) relating to tax losses that are available to offset against future taxable profits. The Group has rolled over capital gains of £2 million
(2015: £3 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 Finance Act 2013 reduced the main rate of corporation tax to 19% with effect from 1 April 2017 and 18% with effect from 1 April 2018.
Following these changes, deferred tax balances were reduced from 20% to 18%. The impact of this change on deferred tax balances is
included in these Financial Statements.
8. Intangible assets
Software Goodwill Total
2016 2015 2016 2015 2016 2015
£m £m £m £m £m £m
Cost
At 30 March 2015, 31 March 2014 297 243 - - 297 243
Reclassifications : (3) 5 : , (3)
Disposals i) : : : 0) ~~
‘At27 March 2016, 29 March 2015 389 297 44 ; 433 297
Amortisation and impairment
At 30 March 2015, 31 March 2014 297 243 = a 297 243
Reclassifications : (3) : : 2 (3)
‘Aniortisationand impatrmant (ea note 4) 93 87 5 : 93 57
Disposals () : . : fo) :
‘At27 March 2016, 29 March 2015 389 297 ; : 389 297
Net book value
At 27 March 2016, 29 March 2015 = : a4 2 44 ~
Goodwill relates to the acquisition from Bank of Ireland of the business and assets of the joint insurance business. The goodwill sits within
Post Office Management Services Limited. See note 21.
The impairment figure for intangible assets in 2015 includes £1 million for discontinued operations, see note 22 for details. Note 4 only
includes figures for continuing operations which explains the £1 million difference. These assets were disposed of in the current year as
shown above.
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Financial Statements
9. Property, plant and equipment
Land and Buildings
machinery equipment
£m £m £m £m £m £m £m
Cost
At 31 March 2014 100 7 113 44 1 739 1,014
Reclassification® (31) 26 6 : : 2 3.
Additions 16 2 < 1 : 55 34
Disposals (2) : (€) 6) : (13) (24)
‘At 29 March 2015 83 55 115 40 1 783 107
Reclassification® 6) 3 (22) : : 25 I
on xdditions 1 : : 4 : 38 3
Disposals () : 6) () : @) (6)
‘At27 March 2016 7 58 90 43 1 843 a2
Depreciation and
impairment
At 31 March 2014 a 16 13 44 1 739 1,004
Reclassification* (31) 26 6 - - 2 3
Depreciation and
‘ 16 12 “ 1 “ 55 84
Disposals (2) (4) - (13) (24)
At 29 March 2015 74 54 118 40 1 783 1,067
Reclassification* ) 3 (22) > = Ps =
impairment (see 2 > > 4 > 38 44
note Band 4).
Disposals
At 27 March 2016 69 57 90 43 1 843 1,103
Net book value
At 27 March 2016 8 1 ° : : E 9
At 29 March 2015 9 1 - - - - 10
Depreciation rates are disclosed within accounting policies (note 1). No depreciation is provided on freehold land, which represents £3
million (2015: £3 million) of the total cost of properties.
* Reclassifications have been done in the year between freehold, long leasehold, short leasehold and fixtures and equipment in relation to
postmasters' branches. Reclassification between freehold, long leasehold and short leasehold asset categories is due to the fact that all land
and building assets are classified as freehold whilst they are an asset under construction, then once works are complete and lease contracts
are confirmed, the asset is moved into the correct respective category
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Notes to the Financial Statements
10. Investments in joint ventures
The following entity has been included in the consolidated Financial Statements using the equity method:
Joint ventures
During 2015/16 and 2014/15, 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 Financial Statements of the joint venture are prepared for the same
reporting period as the Group.
2016 joint venture 2015 joint venture
£m £m
Share of net assets
Total net investment at 30 March 2015, 31 March 2014 67 él :
Share of post tax pre dividend profit 36
: Dividend . —" — — (35) oo— “(0) ;
Total net investment at 27 March 2016, 29 March 2015 67 67
2016 2015
Joint Joint
Share of assets and liabilities: venture venture
£m £m
Non-current assets
Share of gross assets 193 79
Current liabitties (126) (2) I
Share of net assets 67 67
Share of revenue and profi
Revenue 719 82
Profit after tax 35 36
11. Trade and other receivables
2016 2015
Client receivables 229 162
Other receivables “4 2B
Total an 397
Non-current:
Prepayments tC... I CC 10
PAGI
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Financial Statements
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).
As at 27 March 2016 trade receivables of £18 million (2015: £14 million) were impaired and fully provided for. During the year £4
million (2015: £6 million) of the provision has been utilised and an additional £8 million (2015: £3 million) has been provided for. Trade
receivables of £23 million (2015: £21 million) were past due but not impaired. The aging analysis of the trade receivables are as follows:
2016 2015
im £m
Not yet overdue 72 80
Past due not more than one month 12 8
Past due more than one month and not more than two months. 3 3
Past due more than two months 8 10
Total 95 101
The fair value of trade and other receivables is not materially different from the carrying value.
12. Cash and cash equivalents
2016 2015
£m £m
Cash in the Post Office Limited network 653 708
Short-term bank deposits 57 93
Fiduciary cash balances held on behalf of insurance third parties 2
Money market fund investments
Total cash and cash equivalents n2 821
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 and are held on behalf of
insurance third parties and are held in trust and cannot be called upon should the Company become insolvent.
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Notes to the Financial Statements
13. Trade and other payables
2016 2015
£m fim
Other payables
Total 655 718
Non-curret
25 30
Other payables
The fair value of trade and other payables is not materially different from the carrying value.
14. Financial liabilities - interest bearing loan and borrowings
2016 2015
£m fm
Department of Business, Innovation & Skills Xe a0
loan drawn down
The loan under the facility is short dated on a programme of liquidity management and matures on average I day after the year end (2015: 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 2018, The undrawn committed facility, in respect of which all
conditions precedent had been met at the balance sheet date, is £485 million (2015: £840 million). The average interest rate on the drawn
down loans is 1.0% (2015: 1.0%).
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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Financial Statements
15. Provisions
Network
Transformation Other Total
£m £m £m
At 29 March 2015 (restated) 127 23 150
Unused amounts in the year - operating costs - (2) (2)
At 27 March 2016 134 33 167
Disclosed as:
At 27 March 2016
~ Current ee 132 9 151
Non-current
At 29 March 2015
Current
Non-current
127 23 150
The Network Transformation provision relates to payments due to postmasters in relation to the major transformation programme, see the
accounting policies note on page 50 for further details of this provision.
Other provisions of £33 million (2015: £23 million) include £30 million for continuing operations, this includes £19 million onerous lease
obligations, £3 million severance and £8 million of smaller provisions including £1 million for personal injury claims and £1 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. It also includes £3 million in relation to the discontinued operation as disclosed in note 22.
*A provision was acquired as part of the acquisition from Bank of Ireland of the business and assets of the joint insurance business, see note
i.
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Notes to the Financial Statements
16. Financial assets and liabilities
a. Financial assets and liabilities by category
The breakdown of the Group's financial instruments at 27 March 2016 and 29 March 2015 is shown below:
2016 2015
Non Non
Current current Total = Current = Current Total
£m im im £m £m £m
Finance leases obligations (8) : (8) s
Total financial assets/
juatalisa’) 27 (4) 23 209 Q) 207
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 lial s 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.
The nature of the inputs used in determining the values of the financial assets and liabilities is quoted prices (unadjusted) in active markets
for identical assets and liabilities. All of the Group’s financial assets and liabilities are therefore considered as Level Iin the fair value
hierarchy.
The Group has no Level 2 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, 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 and money market fund investments. 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 a £5m favourable impact on the Group's equity and income statement. A 50 basis point decrease
would have resulted in a £5m adverse impact on the Group's equity and income statement.
Foreign currency risk
The Group is exposed to foreign currency risk resulting from balances held to operate Bureau de Change services.
The currencies which these transactions are primarily denominated are the 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.
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nancial Statements
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/(loss) 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
% im im % im im
Increase/ Increase/ Increase/ Increase/ Increase/ Increase/
(decrease) (decrease) _ (decrease) (decrease) (decrease) (decrease)
2016 10 a 2 10 4 4
2015 10 1 1 10 3 3
(10) fo 0) (10) 8) 8)
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 r ted to the carrying value of each class of asset summarised in note Il.
Business credit risk is monitored centrally. The level of bad debt provision is less than 2% (2015: less than 2%) of turnover.
Capital management
The Group's objectives when managing capital (defined as the net of borrowings and amounts due under finance leases and cash and cash
equivalents excluding cash in the Post Office Network) are to safeguard its ability to continue as a going concern and to maintain an
optimal capital structure in order to support the business and maximise stakeholder value. In managing the 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
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 reserve to meet operating requirements in the next 12 months.
At 27 March 2016 the Group has unused facility of £485 million (2015: £840 million). The facility expires in 2018.
The tables on the next page analyse the Group's financial assets and liabilities into relevant maturity groupings based on the remaining
periodat 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,
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Notes to the Financial Statements
12 1-2 2-5 > Total
Months Years Years 5 Years
At 27 March 2016 £m £m £m £m £m
Financial liabilities
Trade andl ether payables (608) 4) 5 (612)
Interest bearing loan (465) é , . (465)
Finance leateniobligations @) 4 . 5 (8)
Total financial assets/{liabilities) 27 @) ; ; 23
12 1-2 25 > Total
Months Years Years 5 Years
At29 March 2015 £m £m fm £m fm
Financial assets
Trade and other receivables 378 - - - 378
Cash and cash equivalents 821 - - - 821
Financial liabilities
Trade and other payables, 680)
Bank overdraft - - - . s
Interest bearing loan (310) - - - (310)
Finance leases obligations : - - - :
Total financial assets/(liabilities) 209 2) 3 © 207
17. Pensions
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 of the Royal Mail section of the RMPP and a 7% share of the Royal Mail Senior Executive Plan RMSEPP scheme. Royal Mail
Group Limited is the principal employer of RMSEPP and Post Office Limited became a participating employer with effect from 1 April 2012.
The disclosure also includes the Post Office Pension Plan, which is a defined contribution scheme.
The disclosures in this note show how the value of the assets and liabilities have been calculated at the balance sheet date.
The Group participates in pension schemes as detailed below.
Name Eligibility Type
Royal Mail Pension Plan (RMPP) Defined benefit
United Kingdom
t
Royal Mail Senior Executive Pension Plan (RMSEPP) Defined benefit
employees
*From 1 April 2015 the Post Office Pension plan replaced the Royal Mail Defined Contribution Plan.
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Defined Contribution
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The charge in the income statement for the defined contribution schemes and the Group contributions to this scheme was £3 million
(2015: £3 million) during the year. New recruits joining from 31 March 2008 are able to begin paying contributions to the Post Office
Pension Plan after they have worked for the Group for a year
Defined Benefit
Both RMPP and RMSEPP are funded by the payment of
contributions to separate trustee administered funds. 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 RMPP was carried out as at 1
April 2012 using the projected unit method. For RMPP, this valuation
was concluded at £135 million surplus. Valuations are carried out
triennially and the next one for RMPP is being performed as at 31
March 2015. The 2015 valuation has not yet been completed
pending the outcome of the consultation to close the Post Office
section of the RMPP to future accrual. The latest full actuarial
funding valuation of RMSEPP was carried out as at 31 March 2015
Using the projected unit method. For 100% of the RMSEPP plan, the
valuation was concluded at £17 million surplus. The next valuation
for RMSEPP is expected to be performed as at 31 March 2018. 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 I December 1971;
Section B is for members (or beneficiaries of members) who
joined after 1 December 1971 and before 1 April 1987 or to
members of Section A who chose to receive Section B
benefits;
Section C is for members (or beneficiaries of members) who
joined after 1 April 1987 and before 1 April 2008.
A series of changes to RMPP and RMSEPP have taken effect since 1
April 2008.
The changes encompassed:
the Plans closed to new members from 31 March 2008;
all pensions and benefits earned before 1 April 2008 are
linked to final pensionable salary, but defined benefits built up
from I April 2008 are earned on a “career average
pensionable salary” basis;
from 1 April 2014, pensionable salary was amended to the
amount in force at that date, increasing each I April thereafter
in line with RPI (up to 5% each year), with allowance for
certain promotional increases.
employees can continue to take their pension on reaching 60
but the normal retirement age increased to 65 for benefits
earned from 1 April 2010;
from 1 April 2010 it is possible to draw pension earned before
the change to normal retirement age at 55, and continue
working while still contributing to the Pension Plan until the
maximum level of benefits has been reached; and
RMSEPP was closed to future accruals on 31 December 2012.
Payment for the RMPP of £17 million (2015: £19 million) was made by
the Group during the year in respect of regular future service
contributions. The regular future service contributions for RMPP,
expressed as a percentage of pensionable pay, has remained at 17.1%
(2015: 17.1%), effective from April 2010. This rate is not expected to
change materially during 2016/17. In February 2016, Post Office went
‘out to formal consultation with active members (and their
representatives) of the Post Office section of the RMPP with a
proposal to close the plan to future accrual with effect from 1
September 2016. The consultation closed at the end of May 2016
and the Post Office is now reflecting on the consultation feedback.
No decision on the outcome of the consultation has yet been made.
The proposed closure will require consent of the Trustee of the
RMPP. If it is agreed to close the Post Office section of the RMPP,
this could affect the contributions to be paid in 2016/17.
Even though RMSEPP had a funding surplus at 31 March 2015 under
the schedule of contributions agreed for the valuation, payments of
£11 million per annum will be made. Post Office's share of these
payments will be 7% which is £1 million per year. A payment of £1
million was made by the Group during the year. The payments will
continue to the later of 30 September 2018 and the date the 31
March 2018 valuation is completed.A current liability of £nil (2015:
£1 million) has been recognised for payments to the pension
schemes relating to redundancy. During the year, payments of £3
million (2015: £2 million) relating to redundancy were made.
The weighted average duration of the Post Office section of the
RMPP is 26 years, and for the RMSEPP fund is 21 years. Over the
next financial reporting period to 26 March 2017, under the
assumption that the Post Office section of the RMPP remains open, it
is expected that employer contributions to the plans will be £17
million.
The following disclosures relate to the gains/losses and surplus/
deficit in respect of Post Office's obligations for RMPP and RMSEPP:
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Notes to the Financial Statements
a) Major long-term assumptions
The size of the RMPP pension surplus, which is large in the context of the Group and its finances, is materially sensitive to the assumptions
adopted. Small changes in these assumptions could have a significant impact on the surplus and overall income statement charge. The
major long-term assumptions in relation to both RMPP and RMSEPP were:
At27 March 2016 At 29 March 2015
%pa % pa
Rate of pension increases ~ RMSEPP all other members 28 28
Rate of increase for deferred pensions ~ RMSEPP
members transferred from Section A or B of RMPP
18 19
Rate of increase for deferred pensions
The ultimate cost of the RMPP and RMSEPP plans to the Group will depend upon future events rather than the assumptions made. The
assumptions made may not be borne out in practice and as such the cost of the plan may be higher (or lower) than disclosed.
In common with other defined benefit schemes, the main risk in relation to the arrangements is the value of the assets does not keep pace
with the increase in the value of the liabilities. This can arise for many reasons, but the most significant risks are as follows:
Investment risk: If the assets of the arrangements fall short of expectations, this will lead to a decrease in the funded status.
Asset volatility: The arrangements hold return seeking assets (including equities and property) which are expected to outperform
corporate bonds in the long term but give exposure to volatility and risk in the short term. RMPP does, however, invest in liability driven
investment (LDI) assets, for example Corporate Bonds, which mitigates the impact of interest rate and inflation volatility on the funded
status.
Inflation risk: Higher inflation rates than expected will act to increase the plan liabilities as benefits will increase to a higher level than
assumed. The arrangements have a maximum pension increase (generally 5% per annum) written into the rules which limits the increase
for many benefits, so limiting the impact of high inflation. This includes pensionable pay in RMPP, which was amended with effect from 1
April 2014. In addition, the arrangement holds assets that increase in value as price inflation expectations rise, so mitigating the impact of
rising inflation expectations. These assets include LDI assets in respect of RMPP.
Changes in bond yields: A decrease in corporate bond yields will increase the plan liabilities, although this will be partially offset by an
increase in the value of the bond holdings and, to some extent, the LDI assets.
Pensioner longevity: If members live longer than expected, the liabilities would increase because pensions would be paid for a longer
time.
Liabilities (net of the link to increases above RPI inflation in final pensionable salary) accrued in the Royal Mail Pension Plan to 31 March
2012 were transferred to the Royal Mail Statutory Pension Scheme. Therefore pre 31 March 2012 liabilities are substantially no longer an
obligation of the Group and consequently the transfer resulted in a significant removal of pension risk from the Group.
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Financial Statements
The following table shows the potential impact on the RMPP assets and pension surplus of changes in key assumptions:
2016 2015
£m £m
Changes in RPI and CPI inflation of +0.1% pa (5) (4)
Changes in discount rate of +0.1%pa 5 4
Changes in real salary growth of +0.1% pa (2) ())
Changes in CPI assumptions of +0.1% pa () ()
"Ao medical I year Ife esepantaney 6 6)
The sensitivity analysis has been prepared using projected benefit cashflows as at the date of 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 cashflows have changed since those valuations although any change is not expected to be material in the context of the above
sensitivity analysis.
Mortality: The mortality assumptions for the Post Office section of the RMPP are based on the self-administered pension scheme (SAPS)
‘series 12' mortality tables with appropriate scaling factors (106% for male pensioners and 101% for female pensioners). For future
improvements the assumptions allow for ‘medium cohort’ projections with a 1.25% floor. These are detailed below:
Average expected life expectancy from age 60: 2016 2015
27 27
For a current 40 year old female RMPP member 32 years 32 years
b) Plans’ assets
The assets in the plans for the Group were:
Sectionalised RMPP Market value 2016 = Market value 2015
im £m
Private Equity 10 12
Cash and cash equivalents 4) 6
Bond/fixed interest funds
Index-linked funds - 10
Other loan/debt funds 28 20
Alternative asset funds 43 1
Equity funds
Fair value of RMPP assets 407 379
Present valve ofRMPP liabilities —SSsS~*~<CS~<“~*~*~YSC*‘“‘*«SOY#CS
Surplus in plan before asset ceiling adjustment 223 229
Less effect of asset ceiling (29) (27)
Surplus in plan after asset ceiling adjustment 194 202
*£15 million relates to United Kingdom Government Bonds. £215 million to a LDI(liability driven investment) containing United Kingdom
Government Bonds, and £3 million to an infrastructure debt holding which is EUR denominated and fixed interest.
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Notes to the Financial Statements
Share of RMSEPP Market value 2016 Market value 2015
im fim
United Kingdom equities 1 1
Overseas equities
Government bonds
Alternative asset funds 2 =
Property 2 2
Other assets 2 1 :
Fair value of share in plan assets for RMSEPP 30 31
Present value of share in plan liabilities for RMSEPP (27) (26)
Surplus in plan for the share of RMSEPP before asset ceiling adjustment 3 5
Less effect of asset ceiling () (2)
Surplus in plan for share of RMSEPP after asset ceiling adjustment 2 3
A retirement benefit surplus of £196 million on the accounting assumptions is disclosed on the balance sheet, representing the surplus in
plans of £223 million and £3 million for RMPP and RMSEPP respectively, and net of tax of £30 million at a rate of 35% on the element of
the surplus which is not recoverable through a reduction in the future service requirement.
There is no element of the above present value of liabilities that arises from plans that are wholly unfunded. All RMPP and RMSEPP assets
are securities with a quoted price in an active market.
c) Movement in plans’ assets and liabilities
Changes in the fair value of the plans’ assets are analysed as follows:
Sectionalised Sectionalised
Assets RMPP 2016 RMPP 2015
im £m
Assets in sectionalised RMPP at beginning of period 379 260
Contributions paid
Benefits paid to members @) 2)
Assets in sectionalised RMPP at end of period 407 379
Share of Share of
Assets RMSEPP 2016 RMSEPP 2015
£m £m
Benefits paid to members Q) (l)
Share of assets in RMSEPP at end of period 30 3
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Financial Statements
Changes in the present value of the defined benefit pension obligations are analysed as follows:
Sectionalised Sectionalised
Liabilities RMPP 2016 RMPP 2015
£m £m
Liabilities in sectionalised RMPP at beginning of period (150) (90)
Current service cost (27) (25)
)
Curtailment costs*
Employee contributions
Actuarial loss
Experience adjustments on liabilities
Benefits paid
Liabilities in sectionalised RMPP at end of period (184) (150)
Share of Share of
Liabilities RMSEPP 2016 RMSEPP 2015
£m £m
Share of liabilities in RMSEPP plans at beginning of period (26) (24)
0) 0
1 1
24)
Actuarial loss
Benefits paid
Share of liabilities in RMSEPP at end of period (27)
*The curtailment costs in the income statement are recognised on a consistent basis with the associated compensation costs. Estimates
of both are included, for example, in any redundancy provisions raised. The curtailment costs above represent the costs associated with
those people paid compensation in respect of redundancy during the accounting period. Such payments may occur in an accounting
period subsequent to the recognition of costs in the income statement.
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Notes to the Financial Statements
d) Recognised charges
An analysis of the separate components of the amounts recognised in the performance statements of the Group is as follows:
Sectionalised Sectionalised
RMPP 2016 RMPP 2015
im £m
Loss due to curtailments 1 1
Total charge to operating profit 28 26
Interest on plan liabilities 6 5
Inerestincame an plan acest (14) (12).
Net pensions credit to financing (8) (7)
Net charge to the income statement before deduction for tax 20 9
Analysis of amounts recognised in the statement of comprehensive incom:
Actual return on plan assets 6 93
Less: expected interest income on plan assets (14) (12)
Less: taxation on surplus recoverable through plan refunds 2) (4)
Actuarial (losses)/gains on assets (all experience adjustments) (10) 7
Experience adjustments on
bilities 3 oO
Effects of changes in actuarial assumptions on liabilit E (23)
Actuarial gains/{losses) on liabilities 3 (24)
Total actuarial (losses)/gains recognised in the
statement of comprehensive income iu) BS
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Financial Statements
Share of Share of
RMSEPP 2016 RMSEPP 2015
im £m
Analysis of amounts recognised in the income statement
Analysis of amounts charged/(credited) to net pensions interes!
Interest on plan liabilities 1 1
Interest income on plan assets () ()
Net pensions credit to financing -
Net charge to the income statement before deduction for tax °
yensive income:
Analysis of amounts recognised in the statement of compr:
Actual return on plan assets () 5
expected interest income on plan assets () ()
Less: taxation on surplus recoverable through plan refunds 1 ()
Actuarial (losses)/gains on assets (all experience adjustments) () 3
Experience adjustments on lia
Effects of changes in actuarial assumptions on liabilities O) (2)
Actuarial losses on liabilities oO (2)
Total actuarial (losses) /gains recognised in the state! Q) 1
comprehensive income
18. Equity
Called up share capital
2016 2015
£ £
Authorised
Ordinary shares of £1 each 51,000 51,000
Total 51,000 51,000
Allotted and issued and fully paid
Ordinary shares of £1 each 50,003 50,003
Total 50,003 50,003
Other reserves
Other reserves of £2 million relate to First Rate Exchange Services Holdings Limited, the joint venture entity.
Share premium
On 7 August 2007 1,000 ordinary shares of £1 each were issued in return for £313 million cash paid by the the Secretary of State for
Business, Enterprise and Regulatory Reform. A share premium of £312,999,999 resulted from this subscription. In April 2008 two ordinary
£] shares were issued in return for £152 million cash paid by the Secretary of State for Business, Innovations and Skills Reform. A share
premium of £151,999,998 resulted from this subscription.
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Notes to the Financial Statements
19. Commitments
Capital commitments contracted for but not provided in the Financial Statements amount to £51 million (2015: £96 million).
The Group is also committed to the following minimum lease payments under non-cancellable operating leases:
Land and buildings
2016 2015
£m £m
Within one year 4 7
"Between one andfive years 5 ~.B
Total 78 87
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 agent misconduct, including non-compliance with policies and improper use or disclosure of our assets or
confidential information.
A High Court claim has been issued on behalf of a number of postmasters against Post Office in relation to various legal, technical and
operational matters. Full particulars of the claim (including as to quantum) have not yet been received by Post Office.
The Directors do not consider the outcome of any current claim or action will have a material adverse impact on the consolidated position
of the Group.
20. Finance lease liabilities
2016 2015
Present value Present value
of minimum of minimum
Minimum lease Minimum lease
payments payments payments payments
£m £m £m £m
Within one year 8 8 ; :
Between one and five years >
Total minimum lease payments 8 8
Less amounts representing finance charges 2 ;
Present value of minimum lease payments
Current 8 8 > =
Non-current 2
The aggregate finance charges allocated for the period in respect of finance leases was Enil (2015: £211,078). The fair value of finance lease
liabilities is not materially different from the carrying value. The Group has finance lease contracts for equipment.
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Financial Statements
21. Business combinations
On 30 September 2015, the Group acquired the remaining 50% of its former insurance joint undertaking from the Bank of Ireland. The
consideration of £43,900,000 was settled in cash.
The fair values of the identifiable assets and liabilities of the business as at the date of acquisition were:
Fair value
£m
Cash 1
Provision : (0)
Net Assets 5
Goodwill arising on acquisition 44
Consideration 44
The full acquisition cost is recognised as Goodwill due to there being no separately identifiable assets and liabilities other than the cash
and provision noted above. The acquisition cost and therefore the Goodwill were based on an independent extrenal valuation provided to
both parties. Goodwill has been reviewed for impairment at acquisition and at year end and at both times the amounts considered to
represent fair value. There are no indicators of impairment. The Goodwill sits within Post Office Management Services Limited.
From the date of the acquisition to 27 March 2016, the addtional 50% of the former joint insurance undertaking of Post Office Limited and
Bank of Ireland has contributed £15 million of revenue and £6 million to profit before tax.
22. Discontinued Operation
In March 2016 the Group decided to discontinue its mobile operation. The results of this operation are disclosed below:
2016 2015
£m £m
Revenue = :
Expenses (10) (a).
Loss before taxation (10) (4)
Taxation : ~
Loss for the year from discontinued operation (10) (4)
Balances on the balance sheet at year end for project closure costs and termination charges are as follows:
2016 2015
£m £m
Provisions 3
Total Liabilities (note 15) 3
Write down of intangible assets and prepayments
Intangible assets for mobile amounted to £2 million in the year (£1 million in prior year) and these were impaired at acquisition in line with
Group policy so no further write down was required on closure of the operation. The impairment is included in the £10 million above (£4
million above prior year). There were prepayments on the balance sheet of £2 million prior to the decision to discontinue this operation
and these have been written down to fnil, the costs are included in the £10 million expenses noted above.
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Notes to the Financial Statements
23, Related party disclosures
Joint venture
The following company is a joint venture of the Group:
Company Country of incorporation % Holding Principal activities
First Rate Exchange
Services Holdings Limited Wien Wager 50 Bureau de Change
All shareholdings are equity shares.
Related party transactions
During the year the Group entered into transactions with the following related parties, The transactions were in the ordinary
course of business. The transactions entered into and the balances outstanding at the financial year end were as follows:
Sales /recharges to Purchases/recharges Amounts owed from Amounts owed to
related from related party including _ related party including
party related party outstanding loans outstanding loans
2016 2015 2016 2015 2016 2015 2016 2015
£m £m £m £m £m £m £m £m
First Rate Exchange
Services Holdings 26 26 122 129 10 7 7 7
Limited
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. Transactions with these entities are not disclosed owing to
the significant volume of transactions that are conducted.
Separately:
the Group has certain loan facilities with Government (note 14);
the Group has received a Government Grant of £150 million, all of which was recognised through the income statement; and
the Group has received the Network Subsidy Payment from Government (note 1).
Key management comprises Executive and Non-Executive Directors of the Post Office Limited Board and the members of the Group
Executive at 27 March 2016. The aggregate remuneration of the key management personnel of the Post Office Group is set out below;
2016 2015
£000 £000
Short-term employee benefits 3,453 3,380
Post-employment benefits 20 68 .
Other long-term benefits a 307 :
Total 3,784 3,755
24. Post balance sheet events
In accordance with the funding agreement with government announced on 27 November 2013, for which State Aid approval was
received on 19 March 2015, Post Office Limited received £220 million of funding on 1 April 2016.
25. Immediate and ultimate parent company
At 27 March 2016, the Directors regarded Postal Services Holding Company Limited as the immediate and ultimate parent company. The
largest group to consolidate the results of the company is Postal Services Holding Company Limited, a company registered in the United
Kingdom. Postal Services Holding Company Limited Financial Statements can be obtained from Finsbury Dials, 20 Finsbury Street, EC2Y
9AQ.
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The number of MoneyGram transactions completed in Post Office
branches has more than doubled in the last three years.
We recently completed our 20 millionth Moneygram transaction at
our Stratford branch in east London managed by Sazzadur Rahman.
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ee
I Annual Report and Financial Statements 2015/16
Parent Company
Financial Statements
2015/16
Kirsty Groves, the branch manager at The Parade branch in
Chelmsford is one of the thousands of colleagues who have
received positive customer service comments via our Voice of
Customer feedback
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I Statements
Company statement of comprehensive income
At 27 March 2016
2016 2015 (Restated)
Notes fm fin
ais far than yeas frarnicinn ela peraiiaTS (57) (143)
"Less for the financial year from discontinued operations (10) (a)
Loss for the financial year (167) (147)
Other comprehensive income not to be reclassified to profit
or loss in future periods
Remeasurements on defined benefit surplus 54
Income tax effect 5 0)
Total comprehensive income for the year (171) (102)
There are no other comprehensive income items that will be reclassified to the profit and loss in subsequent periods.
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Company balance sheet
At 27 March 2016
2015
2016 (Restated)
Notes £m £m
Non-current asset
Intangible assets
Investment in subsidiaries
Investments in joint ventures
Retirement benefit surplus 1 196 205
Trade and other receivables 6 12 10
ts. 268 226
Total non-current
Current assets
Inventories
Trade and other receivables 6 413 399
Cash and cash equivalents 7 698 87
Total current assets 117 1,222
Total assets 1.385 1448
Current liabilities
Trade and other payables 8 (650) (716)
Financial liabilities-interest bearing loans and borrowings 9 (465) (310)
~ obligations under finance leases 1“ 6)
Provisions 10 (50) ~*~)
Total current liabilities (1273) (1170)
Non-current liabilities
Other payables 8 (30).
Provisions SSS™~™SSSS 6)
Total non-current liabilities (a1) (36)
Net assets 7 242
Equity
Share premium ae 45 0~C~C~C~C~C«S
Retained earnings (394) (223)
Total equity n 242
The Financial Statements on pages 79 to 98 were approved by the Board of Directors on 5 July 2016 and signed on its behalf by:
P A Vennells A Cameron
Chief Executive Chief Financial Officer
PAGI
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Statements
Company statement of changes in equity
At 27 March 2016
Share Retained Total
premium earnings equity
Notes £m £m £m
At 30 March 2015 (restated) 465 (223) 242
Income tax effect 2 5 5
At 27 March 2016 465 (394) 7
Share Retained Total
premium earnings equity
Notes £m £m £m
At 31 March 2014 465 (121) 344
”" Leas for the year frastated) (47)
Remeasurements on defined benefit surplus
Income tax effect
At 29 March 2015 (restated) 465 (223)
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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 Financial Statements for the year ended 27 March
2016.
Financial year
The financial year ends on the last Sunday in March and
accordingly, these Financial Statements are made up to the 52
weeks ended 27 March 2016 (2015: 52 weeks ended 29 March
2015).
Authorisation of Financial Statements
The parent company Financial Statements of Post Office Limited
(the ‘Company’) for the year ended 27 March 2016 were authorised
for issue by the Board of Directors on 5 July 2016 and the balance
sheet was signed on the Board's behalf by P A Vennells and A
Cameron. Post Office Limited is a limited company incorporated
and domiciled in England and Wales.
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.
As permitted by Section 408 of the Companies Act 2006 Post
Office Limited has not presented its own income statement. The
result dealt with in the accounts of the company amounted to £167
million loss (2015 (restated): £147 million loss).
The results of Post Office Limited are included in the consolidated
Financial Statements of Post Office Group 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) and 134-
136 of IAS 1 ‘Presentation of Financial Statements’
d. the requirements of IAS 7 Statement of Cash Flows
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’
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.
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Fundamental accounting concept - going concern
In making an assessment of the Company's ability to continue as a
going concern, the Directors have considered the going concern
assessments made in relation to the Group (see note 1 on page 49)
and are of the view that it is appropriate that these Financial
Statements have been prepared on a going concern basis.
Prior year restatements
In preparing the Financial Statements for the current year, the
comparative figures for the year ended 29 March 2015 have been
restated. The provision for postmasters’ compensation, included
within network transformation had not been fully recognised in the
Financial Statements for the year ended 29 March 2015. The nature
of the provision is described in more detail in the accounting
policies. The restatement affects exceptional costs, provisions and
retained earnings due to the loss in the year changing as a result of
a restatement to the exceptional charge. This represents an
acceleration of an expected cost and there has been no impact on
the Group’s funding position or on payments to postmasters’.
Within this report, the comparative statement of comprehensive
income, balance sheet and statement of changes in equity for the
year ended 29 March 2015 have been restated. There has been no
effect on the cash flow statement.
As previously 29 March
reported 2015
Restatement Restated
Total provisions (63) (87) (150)
Operating
exceptional items -
restructuring costs
(214) (87) (301)
Shareholders’ funds
(retained earnings)
(136) (87) (223)
Loss for the year (60) (87) (147)
Critical accounting estimates and judgements in
applying accounting policies
The Company makes certain estimates and assumptions regarding
the future. Estimates and assumptions are continually evaluated
based on historical experience and other factors. In the future,
actual experience may differ from these estimates and assumptions.
In addition the Company has to make judgements in applying its
accounting policies which affect the amounts recognised in the
accounts. The most significant areas where judgements and
estimates are made are discussed below:
Pension assumptions
The costs, assets and liabilities of the pensions operated by the
Company are determined using methods relying on actuarial
estimates and assumptions. These pension figures are particularly
sensitive to changes in assumptions for discount rates, mortality and
inflation rates. The Company exercises its judgement in determining
the assumptions to be adopted, after discussion with its Actuary.
Details of the key assumptions are set out in note Tl.
POL-BSFF-0080983_0081
Pension liabilities are measured on an actuarial basis using the
projected unit credit method and discounted at a rate equivalent to
the current rate of return on a high quality corporate bond of
equivalent currency and term. Judgement has been applied in
determining that for these purposes a high quality corporate bond
constitutes AA rated or equivalent status bonds.
Provisions
The Company 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.
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. Postmasters’ compensation
provisions are recognised when either postmasters agree to
terminate their existing contracts or sign the new format contracts
under Network Transformation. The total provision for postmasters’
compensation at the year end date represents management's best
estimate of the future 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
discounted using a current pre-tax rate that reflects, where
appropriate the risks specific to that liability.
Impairment of non-current assets
The Company assesses whether there are any indicators of
impairment for all non-currents assets at each reporting date
as well as if events or changes in circumstances indicate that
the carrying value may be impaired. Where appropriate, an
impairment loss is recognised in the income statement for
the amount by which the carrying value of the asset (or cash
generating unit) exceeds its recoverable amount, which is the
higher of an asset's net realisable value and its value in use. Due
to on-going operational losses (excluding the Network Subsidy
Payment) the carrying value of some assets are impaired to
zero on acquisition. Each asset category is described below:
Property, plant and equipment excluding freehold property,
long leasehold 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 have a relatively short useful life and
due to on-going operational losses (excluding Network Subsidy
payment) they are impaired to zero on acquisition. If they were not
impaired they would be depreciated on a straight-line basis over
the following useful lives:
Range of asset lives
Plant and Machinery
3415 years
Motor vehicles and trailers
Fixtures and equipment 2.15 years
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nancial Statements
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, therefore these assets are not impaired on
acquisition but would be considered for impairment if indicators
existed in line with Group policy noted above. They are instead
depreciated on a straight-line basis over the following useful lives:
Range of asset lives
Land and buildings:
Freehold land
Not depreciated
Freehold buildings
Up to 50 years
The shorter of the period
of the lease, 50 years or the
estimated remaining useful life
Leasehold buildings
The remaining useful lives of freehold buildings are reviewed
periodically and adjusted where applicable on a prospective basis.
Intangible assets with a finite useful life
Intangible assets acquired separately or generated internally are
initially recognised at cost. These assets are impaired to zero for the
reasons noted above. If they were not impaired they would be
amortised on a straight line bases via a charge to income statement
over the following period:
Software Ito 6 years
Intangible assets arising on acquisition or with an indefinite
useful life
These assets are considered for impairment individually in line with
Group policy noted above but are not automatically impaired.
Goodwill is considered separately below.
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. Goodwill is tested for impairment
annually as well as when there are any indicators of impairment.
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Notes to the Financial Statements
Leases
Finance leases, where substantially all the risks and rewards
incidental to ownership of the leased item have passed to the
Company are capitalised at the inception of the lease with a
corresponding liability recognised for the fair value of the leased
item or, if lower, at the present value of the minimum lease
payments. Lease payments are apportioned between the finance
charges and reduction of the lease liability so as to achieve a
constant rate of interest on the remaining balance of the liability.
Capitalised leased assets are depreciated over the shorter of the
estimated useful life of the asset and the lease term.
Leases where substantially all the risks and rewards of ownership of
the asset are retained by the lessor are classified as operating leases
and rentals are charged to the income statement over the lease
term. The aggregate benefits of incentives are recognised as a
reduction of rental expenses over the lease term on a straight-line
basis.
Investments in joint ventures
Investments in joint ventures within the Company's Financial
Statements are stated at cost less any accumulated impairment
losses.
Investments in subsidiaries
Investments in subsidiaries within the Company's Financial
Statements are stated at cost less any accumulated impairment
losses. The carrying value relates solely to the Company's
investment in Post Office Management Services Limited, a 100%
subsidiary of the Company.
Inventories
Stocks, which include printing and stationery, retail and lottery
products, are carried at the lower of cost and net realisable value
after adjusting for obsolete or slow-moving stock.
Taxation
The charge for current income tax is based on the results for the
year as adjusted for items which are not taxed or are disallowed. It
is calculated using tax rates in legislation that has been enacted or
substantively enacted by the balance sheet date.
Deferred income tax assets and liabilities are recognised for all
taxable and deductible temporary differences and unused tax
assets and losses except:
initial recognition of goodwill
the initial recognition of an asset or liability ina
transaction that is not a business combination and, at the
time of the transaction, affects neither the accounting
profit nor taxable profit and loss.
taxable temporary differences associated with
investments in subsidiaries interest in joint ventures,
where the timing of the reversal of the temporary
difference can be controlled and it is probable that the
temporary difference will not reverse in the foreseeable
future and
deferred tax assets are recognised only to the extent that
it is probable that taxable profit will be available against
which they can be utilised.
Deferred tax assets and liabilities are measured at the tax rates that
are expected to apply to the period when the tax asset is realised
or the liability is settled, based on tax rates that have been
substantively enacted at the balance sheet date. Deferred tax
balances are not discounted.
Current and deferred tax is recognised in the income 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.
Pensions and other post-retirement benefits
Membership of occupational pension schemes is open to most
permanent United Kingdom employees of the Company. All
members of defined benefit schemes are contracted out of the
earnings-related part of the State pension scheme.
The pension assets of the defined benefit schemes are measured at
fair value. Liabilities are measured on an actuarial basis using the
projected unit credit method and discounted at a rate equivalent to.
the current rate of return on a high quality corporate bond of
equivalent currency and term. The resulting defined benefit asset
or liability is presented separately on the face of the balance sheet.
Full actuarial funding valuations are carried out at intervals not
normally exceeding three years as determined by the Trustees and,
actuarial valuations are carried out at each balance sheet date and
form the basis of the surplus or deficit disclosed. When the
calculation at the balance sheet date results in net assets to the
Company, 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).
For defined benefit schemes, the amounts charged to operating
profit, as part of staff costs, are the current service costs and any
gains and losses arising from settlements, curtailments and past
service costs. The net difference between the interest costs and the
expected return on plan assets is recognised as net pensions
interest in the income statement. Actuarial gains and losses are
recognised immediately in the statement of comprehensive income.
Any deferred tax movement associated with the actuarial gains and
losses is also recognised in the statement of comprehensive
income.
For defined contribution schemes, the Company's contributions are
charged to operating profit, as part of staff costs, in the period to
which the contributions relate.
Foreign currencies
The functional and presentational currency of the Company is
sterling (E).
Transactions in foreign currencies are recorded at the rate ruling at
the date of the transaction (or at the contracted rate if the
transaction is covered by a forward foreign currency contract).
Monetary assets and liabilities denominated in foreign currencies
are retranslated at the rate of exchange ruling at the balance sheet
date (or the appropriate forward contract rate). All differences are
taken to the income statement.
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nancial Statements
Trade receivables
Trade receivables are recognised and carried at original invoice
amount less an allowance for any non-collectable amounts, An
estimate for doubtful debts is made when collection of the full
amount is no longer probable, Bad debts are written off when
identified
Borrowing costs
Borrowing costs are recognised as an expense when incurred
unless they are directly attributable to the construction or
development of a qualifying asset, in which case they are
capitalised using the weighted average cost of borrowing for the
period of construction/development.
Government grants
Government grants of a revenue nature are recognised to match
costs in relation to the performance of certain specified acti
Provisions
Provisions are recognised when the Company has a present
obligation (legal or constructive) as a result of a past event, it is
probable that an outflow of resources will be required to settle the
obligation, and a reliable estimate can be made of the amount of
the obligation. If the effect of the time value of money is material,
provisions are determined by discounting the expected future cash
flows at an appropriate pre-tax rate.
Financial instruments
Financial assets
Financial assets are measured at fair value at the balance sheet date.
They are classified into the following categories as appropriate
loans and receivables or available for sale as appropriate based on
the purpose for which they were required. Financial liabilities are
measured at either fair value at the balance sheet date or as
financial liabilities measured at amortised cost.
Financial liabilities - interest-bearing loans and borrowings
All loans and borrowings are classified as financial liabilities
measured at amortised cost.
Financial liabilities - obligations under finance leases
All obligations under finance lease and hire purchase contracts are
classified as financial liabilities measured at amortised cost.
Fair valve measurement of financial instruments
The fair value of quoted investments is determined by reference to
bid prices at the close of business on the balance sheet date.
‘Where there is no active market, fair value is determined using
valuation techniques. These include using recent arm's length
market transactions; reference to the current market value of
another instrument which is substantially the same; and discounted
cash flow analysis and pricing models.
Derecognition of financial instruments
A financial asset or liability is derecognised when the contract that
gives rise to it is settled, sold, cancelled or expires
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at
bank and in hand and short-term deposits (cash equivalents) with
an original maturity date of three months or less. In addition the
Company uses Money Market funds as a readily available source of
cash, and these funds are also categorised as cash equivalents.
Auditor's 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).
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Notes to the Financial Statements
2. Intangible assets
e 2016 2015
ee £m £m
At 30 March 2015, 31 March 2014 297 243
Disposals (0) -
At 27 March 2016, 29 March 2015. 387 297
Amortisation and impairment
At 30 March 2015, 31 March 2014
Disposals (0)
At 27 March 2016, 29 March 2015 387 297
Net book value
“At 27 March 2016, 29 March 2015 3 =
The above intangible assets relate to software.
corporate post
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Financial Statements
3. 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
Disposals ( - 8) ( . (3) (8)
‘At27 March 2016 77 58 90 43 1 843 12
Depreciation and
impairment
At 31 March 2014 a % m3 44 1 739 1,004
Reclassification* (31) 26 6 - - 2 3
Depreciation and
impairment
Disposals
Depreciation and 2 - - 4 . 38 44
impairment
Disposals () = (3) () = (3) 8)
At 27 March 2016 69 57 90 43 1 843 1,103
Net book value
At 27 March 2016 8 1 = = 2 > 9
At 29 March 2015 9 1 * = > - 10
Depreciation rates are disclosed within accounting policies (note 1). No depreciation is provided on freehold land, which represents £3
million (2015: £3 million) of the total cost of properties.
* Some Reclassifications have been done in the year between freehold, long leasehold, short leasehold and fixtures and equipment in
relation to postmasters’ branches. Reclassification between freehold, long leasehold and short leasehold asset categories is due to the fact
that all land and building assets are classified as freehold whilst they are an asset under construction, then once works are complete and
lease contracts are confirmed, the asset is moved into the correct respective category.
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Notes to the Financial Statements
4. Investment in subsidiaries
The carrying value of £50,000,100 relates solely to the Company's investment in Post Office Management Services Limited, a 100%
subsidiary of the Company. It relates to 50,000,000 shares with a nominal value of £1 and I share with a nominal value of £100. The
registered address of Post Office Management Services Limited is Finsbury Dials, 20 Finsbury Street, EC2Y 9AQ.
5. Investments in joint ventures
2016 2015
im £m
Investment in joint ventures 1 1
Joint ventures
During 2015/16 and 2014/15, the Company's only joint venture investment was a 50% interest (1,000 £1 ordinary A shares) in First Rate
Exchange Services Holdings Limited with a carrying value of £0.6 million (2015: £06 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.
6. Trade and other receivables
2016 2015
Trade receivables 95 101
Amounts owed by group undertakings 6 2
Prepayments and accrued income 68 106
Client receivables 229 162
Other receivables 15 23
Non-current:
Prepayments and accrued income 12 10
7. Cash and cash equivalents
2016 2015
Money market fund investments - 20
Total 698 817
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8. Trade and other payables
2016 2015
£m £m
Current
Trade payables
Accruals
Deferred income 39 29
Social security
Client payables
ay tennant fs st
Other payables 2 1
Total 650 716
Nenscanen
Other payables 25 30
9. Financial liabilities - interest bearing loans and borrowings
2016 2015
im fm
Department of Business, Innovation & Skills 465 310
loan drawn down
The loan under the facility is short dated on a programme of liquidity management and matures on average I day after the year end (2015: 1
day). The fair value of borrowings approximate their carrying value due to the short term maturities of the loan. On maturity itis expected
that further loans will be drawn down under this facility, which expires in 2018. The undrawn committed facility, in respect of which all
conditions precedent had been met at the balance sheet date, is £485 million (2015: £840 million). The average interest rate on the drawn
down loans is 1.0% (2015: 1.0%).
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
10. Provisions
Network
Transformation Other Total
im im im
127
Unused amounts in the year ~ operating exceptionals (21) (5) (26).
Unused amounts in the year - operating costs : (2) (2)
At 27 March 2016 134 32 166
Non - current 2 4 16
134 32 166
The Network Transformation provision relates to payments due to postmasters in relation to the major transformation programme, see the
accounting policies note on page 83 for further details of this provision.
Other provisions of £32 million (2015: £23 million) include £29 million for continuing operations, this includes £19 million onerous lease
obligations, £3 million severance and £7 million of smaller provisions including £1 million for personal injury claims. It also includes £3
million in relation to the discontinued operation as disclosed in note 19.
Tl. Pensions
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 of the Royal Mail section of the RMPP and a 7% share of the Royal Mail Senior Executive Plan RMSEPP scheme. Royal Mail
Group Limited is the principal employer of RMSEPP and Post Office Limited became a participating employer with effect from 1 April 2012.
The disclosure also includes the Post Office Pension Plan, which is a defined contribution scheme.
The disclosures in this note show how the value of the assets and liabilities have been calculated at the balance sheet date.
The Company participates in pension schemes as detailed below
Name Eligibility Type
Royal Mail Pension Plan (RMPP) Lito Neregiioen Defined benefit
simployeas
Royal Mail Senior Executive Pension Plan (RMSEPP) United Kingdom Defined benefit
senior executives
United Kingdom
Defined contribution
employees
Post Office Pension Plan
*From 1 April 2015 the Post Office Pension plan replaced the Royal Mail Defined Contribution Plan
Defined Contribution
The charge in the income statement for the defined contribution schemes and the Company contributions to these schemes was £3
million (2015: £3 million) during the year. New recruits joining from 31 March 2008 are able to begin paying contributions to the new plan
after they have worked for the Company for a year.
PAGI
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nancial Statements
Defined Benefit
Both RMPP and RMSEPP are funded by the payment of
contributions to separate trustee 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 RMPP was carried out as at
1 April 2012 using the projected unit method. For RMPP, this
valuation was concluded at £135 million surplus. Valuations are
carried out triennially and the next one for RMPP is being
performed as at 31 March 2015. The 2015 valuation has not yet
been completed pending the outcome of the consultation to close
the Post Office section of the RMPP to future accrual. The latest
full actuarial funding valuation of RMSEPP was carried out as at 31
March 2015 using the projected unit method. For 100% of the
RMSEPP plan, the valuation was concluded at £17 million surplus.
The next valuation for RMSEPP is expected to be performed as at
31 March 2018. 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 I December 1971;
Section B is for members (or beneficiaries of members) who
joined after 1 December 1971 and before 1 April 1987 or to
members of Section A who chose to receive Section B
benefits;
Section C is for members (or beneficiaries of members) who
joined after 1 April 1987 and before 1 April 2008.
A series of changes to RMPP and RMSEPP have taken effect
since I April 2008.
The changes encompassed:
the Plans closed to new members from 31 March 2008;
all pensions and benefits earned before I April 2008 are linked
to final pensionable salary, but defined benefits built up from 1
April 2008 are earned on a “career average pensionable
salary” basis;
from 1 April 2014, pensionable salary was amended to the
amount in force at that date, increasing each I April thereafter
in line with RPI (up to 5% each year), with allowance for
certain promotional increases.
employees can continue to take their pension on reaching 60
but the normal retirement age increased to 65 for benefits
earned from 1 April 2010;
from 1 April 2010 itis possible to draw pension earned before
the change to normal retirement age at 55, and continue
working while still contributing to the Pension Plan until the
maximum level of benefits has been reached; and
RMSEPP was closed to future accruals on 31 December 2012.
Payment for the RMPP of £17 million (2015: £19 million) was made
by the Company during the year in respect of regular future
service contributions. The regular future service contributions for
RMPP, expressed as a percentage of pensionable pay, has remained
at 17.1% (2015: 17.1%), effective from April 2010. This rate is not
expected to change materially during 2016/17. In February 2016,
Post Office went out to formal consultation with active members
{and their representatives) of the Post Office section of the RMPP
with a proposal to close the plan to future accrual with effect from
1 September 2016. The consultation closed at the end of May 2016
and the Post Office is now reflecting on the consultation feedback.
No decision on the outcome of the consultation has yet been
made. The proposed closure will require consent of the Trustee of
the RMPP. If it is agreed to close the Post Office section of the
RMPP, this could affect the contributions to be paid in 2016/17.
Even though RMSEPP had a funding surplus at 31 March 2015 under
the schedule of contributions agreed for the valuation, payments of
£I1 million per annum will be made. Post Office's share of these
payments will be 7% which is £1 million per year. A payment of £1
million was made by the Company during the year. The payments
will continue to the later of 30 September 2018 and the date the 31
March 2018 valuation is completed.
A ccurrent liability of £nil (2015: £1 million) has been recognised for
payments to the pension schemes relating to redundancy. During
the year, payments of £3 million (2015: £2 million) relating to
redundancy were made.
The weighted average duration of the Post Office section of the
RMPP is 26 years, and for the RMSEPP fund is 21 years. Over the
next financial reporting period to 26 March 2017, under the
assumption that the Post Office section of the RMPP remains open,
it is expected that employer contributions to the plans will be £17
million.
The following disclosures relate to the gains/losses and surplus/
deficit in respect of Post Office's obligations for RMPP and RMSEPP:
a) Major long-term assumptions
The size of the RMPP pension surplus, which is large in the context
of the Company and its finances, is materially sensitive to the
assumptions adopted. Small changes in these assumptions could
have a significant impact on the surplus and overall income
statement charge. The major long-term assumptions in relation to
both RMPP and RMSEPP were:
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Notes to the Financial Statements
At 27 March 2016 At 29 March 2015,
%pa % pa
Rate of increase in salaries 2.8 28
Rate of pension increases - RMPP sections A/B
Rate of pension increases - RMPP section C
rease for deferred pensions - RMSEPP members
transferred from Section A or B of RMPP
Rate of increase for deferred pensions
Discount rate
Inflation assumption (RPI) - RMPP and RMSEPP
Inflation assumption (CPI) - RMPP and RMSEPP
18 Ww
The ultimate cost of the RMPP and RMSEPP plans to the Company
will depend upon future events rather than the assumptions made.
The assumptions made may not be borne out in practice and as
such the cost of the plan may be higher (or lower) than disclosed.
In common with other defined benefit schemes, the main risk in
relation to the arrangements is the value of the assets does not
keep pace with the increase in the value of the liabilities. This can
arise for many reasons, but the most significant risks are as follows:
Investment risk: If the assets of the arrangements fall short of
expectations, this will lead to a decrease in the funded status.
Asset volatility: The arrangements hold return seeking assets
(including equities and property) which are expected to
outperform corporate bonds in the long term but give exposure to
volatility and risk in the short term. RMPP does, however, invest in
liability driven investment (LDI) assets, for example Corporate
Bonds, which mitigates the impact of interest rate and inflation
volatility on the funded status.
Inflation risk: Higher inflation rates than expected will act to
increase the plan liabilities as benefits will increase to a higher level
than assumed. The arrangements have a maximum pension
increase (generally 5% per annum) written into the rules which
limits the increase for many benefits, so limiting the impact of high
inflation. This includes pensionable pay in RMPP, which was
amended with effect from 1 April 2014. In addition, the
arrangement holds assets that increase in value as price inflation
expectations rise, so mitigating the impact of rising inflation
expectations. These assets include LDI assets in respect of RMPP.
Changes in bond yields: A decrease in corporate bond yields will
increase the plan liabilities, although this will be partially offset by
an increase in the value of the bond holdings and, to some extent,
the LDI assets.
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Pensioner longevity: If members live longer than expected, the
liabilities would increase because pensions would be paid for a
longer time.
Liabilities (net of the link to increases above RPI inflation in final
pensionable salary) accrued in the Royal Mail Pension Plan to 31
March 2012 were transferred to the Royal Mail Statutory Pension
Scheme. Therefore pre 31 March 2012 liabilities are no longer an
obligation of the Company and consequently the transfer resulted
in a significant removal of pension risk from the Company.
The following table shows the potential impact on the RMPP assets
and pension surplus of changes in key assumptions:
2016 2015
£m £m
Changes in RPI and CPI
inflation of +0.1% pa 6) (4) .
Changes in discount rate of +0.1%pa 5 4
Changes in real salary
rowth of +0.1% pa 2 tu)
Changes in CPI assumptions of +0.1% pa 0) ()
An additional I year life expectancy (6) 6)
The sensitivity analysis has been prepared using projected benefit,
cashflows 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 cashflows have changed since those valuations
although any change is not expected to be material in the context
of the above sensitivity analysis.
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Financial Statements
Mortality: The mortality assumptions for the Post Office section of the RMPP are based on the self-administered pension scheme (SAPS)
‘Series 12' mortality tables with appropriate scaling factors (106% for male pensioners and 101% for female pensioners). For future
improvements the assumptions allow for ‘medium cohort’ projections with a 1.25% floor. These are detailed below:
Average expected life expectancy from age 60: 2016 2015
For a current 60 year old male RMPP member 2Tyears 27 years
For a current 60 year old female RMPP member 30 years 30 years
For a current 40 year old male RMPP member 29 years 29 years
For a current 40 year old female RMPP member 32 years 32 years
b) Plans’ assets
The assets in the plans for the Company were:
Sectionalised RMPP Market value 2016 Market value 2015
£m £m
UK equities - 1
Overseas equities - 10
Corporate bonds*
Property
Equity funds - 34
Fair value of RMPP assets 407 379
Present value of RMPP liabilities
“(184) “(1S0)
Surplus in plan before asset ceiling adjustment 223 229
Lats affact of asset calling 9) (7)
Surplus in plan after asset calling adjustment 194 202
*£15 million relates to United Kingdom Government Bonds. £215 million to an LDI (liability driven investment) containing United Kingdom
Government Bonds and £3 million to an infrastructure debt holding which is EUR denominated and fixed interest.
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Notes to the Financial Statements
Share of RMSEPP Market value 2016 Market value 2015
£m £m
UK equities 1 1
Overseas equities
Government bonds 15 16
Alternative asset funds 2 2
Property 2 2
Other assets % 1 ;
Fair value of share in plan assets for RMSEPP 30 31
Present value of share in plan liabilities for RMSEPP (27) (26)
Surplus in plan for the share of RMSEPP before asset ceiling adjustment 3 5
Less effect of asset ceiling () (2)
Surplus in plan for share of RMSEPP after asset ceiling adjustment 2 3
A retirement benefit surplus of £196 million on the accounting assumptions is disclosed on the balance sheet, representing the surplus in
plans of £223 million and £3 million for RMPP and RMSEPP respectively, and net of tax of £30 million at a rate of 35% on the element of
the surplus which is not recoverable through a reduction in the future service requirement.
There is no element of the above present value of liabilities that arises from plans that are wholly unfunded. All RMPP and RMSEPP assets.
are securities with a quoted price in an active market.
c) Movement in plans’ assets and liabilities
Changes in the fair value of the plans’ assets are analysed as follows:
Sectionalised Sectionalised
Assets RMPP 2016 RMPP 2015
£m £m
Assets in sectionalised RMPP at b
Contributions paid
Employee contributions paid
Finance income
Actuarial (losses)/gains
Benefits paid to members Q)
Assets in sectionalised RMPP at end of period 407 379
Share of Share of
Assets RMSEPP 2016 RMSEPP 2015
£m im
Share of assets in RMSEPP at beginning of period 31 26
Contributions paid 1 1
Finance income 1 1
Actuarial (losses)/gains (2) 4
Benefits paid to members O) ()
Share of assets in RMSEPP at end of period 30 31
"AGED corporate postoffice.co.uk/annualreportI516
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Financial Statements
Changes in the present value of the defined benefit pension obligations are analysed as follows:
Sectionalised Sectionalised
Liabilities RMPP 2016 RMPP 2015
£m £m
Liabilities in sectionalised RMPP at beginning of period (150) (90)
Current service cost (27) (25)
Curtailment costs* Q) )
Employee contributions
Actuarial loss
Experience adjustments on liabilities
Benefits paid ee ; ; 3. CSS
Liabilities in sectionalised RMPP at end of period 184 (150)
Share of Share of
Liabilities RMSEPP 2016 RMSEPP 2015
£m £m
Share of lial RMSEPP plans at beginning of period (26) (24)
Finance cost
Actuarial loss
Benefits paid 1 1
Share of liabilities in RMSEPP at end of period 27 (26)
*The curtailment costs in the income statement are recognised on a consistent basis with the associated compensation costs. Estimates of
both are included, for example, in any redundancy provisions raised. The curtailment costs above represent the costs associated with
those people paid compensation in respect of redundancy during the accounting period. Such payments may occur in an accounting
period subsequent to the recognition of costs in the income statement.
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Notes to the Financial Statements
d) Recognised charges
An analysis of the separate components of the amounts recognised in the performance statements of the Company is as follows:
Sectionalised Sectionalised
RMPP 2016 RMPP 2015
£m £m
Analysis of amounts recognised in the income statement
Analysis of amounts charged to operating profit before exceptional ite!
Current service cost 27 25
Total charge to operating profit before exceptional items 27 25
Analysis of amounts charged to operating exceptional items:
Loss due to curtailments 1 1
Total charge to operating profit 28 26
Analysis of amounts charged/(credited) to net pensions interest
Interest on plan liabilities
Interest income on plan assets (4) (12)
Net pensions credit to financing (8) (7)
Net charge to the income statement before deduction for tax 20 9
Analysis of amounts recognised in the statement of comprehensive incom
Actual return on plan assets
Less: expected interest income on plan assets
Less: taxation on surplus recoverable through plan refunds
Actuarial (losses)/gains on assets (all experience adjustments) (10)
Experience adjustments on liabilities 3 (I)
Effects of changes in actuarial assumptions on liabilities : (23)
Actuarial gains/{losses) on liabilities 3 (24)
Total actuarial (losses)/gains recognised in the statement of
(7) 53
comprehensive income
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Financial Statements
Share of RMSEPP Share of RMSEPP
2016 2015
£m £m
Analysis of amounts recognised in the income statement
Analysis of amounts charged /(credited) to net pensions interest:
Interest on plan liabilities
Interest income on plan assets Q (1)
Net pensions credit to financing
Net charge to the income statement before deduction for tax :
Less: expected interest income on plan assets Q (1)
Less: taxation on surplus recoverable through plan refunds 1 ()
Actuarial (losses)/gains on assets (all experience adjustments) 0) 3
Experience adjustments on liabili
S
Effects of changes in actuarial assumptions on liabilities (0) Q)
‘Actuarial losses on liabilities « 2)
Total actuarial (losses)/gains recognised in the state: 2) 1
comprehensive income
12. Equity
Called up share capital
2016 2015
£ £
Authorised
: Ordinary shares of £1 each 51,000 51,000
Total 51,000 51,000
Allotted and issued
Ordinary shares of El each 50,003 50,003
Total 50,003 50,003
Share premium
On 7 August 2007 1,000 ordinary shares of £1 each were issue in return for £313 million cash paid by the the Secretary of State for
Business, Enterprise and Regulatory Reform. A share premium of £312,999,999 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, Innovations and Skills Reform. A share
premium of £151,999,998 resulted from this subscription.
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13. Commitments
Capital commitments contracted for but not provided in the Financial Statements amount to £51 million (2015: £96 million).
Details of the Company commitments under non-cancellable operating leases are disclosed in the Group Financial Statements (note 19).
14. Finance lease liabilities
Details of the Company's finance lease liabilities are disclosed in the Group Financial Statements (note 20).
15. Related party disclosures
Details of transactions with related parties are disclosed in the Group Financial Statements (note 23).
16. Operating exceptional items
Details of operating exceptional items are disclosed in the Group Financial Statements (note 4).
17. Taxation
Details of the taxation gains recognised in the year are disclosed in the Group Financial Statements (note 7a).
18. Business combinations
Details of the business combination which arose in the year is included in note 21 in the Group Financial Statements.
19. Discontinued operations
Details of the discontinued operation are included in note 22 in the Group Financial Statements.
20. Post balance sheet events
In accordance with the funding agreement with government announced on 27 November 2013, for which State Aid approval was
received on 19 March 2015, Post Office Limited received £220 million of funding on 1 April 2016.
21. Immediate and ultimate parent company
At 27 March 2016, the Directors regarded Postal Services Holding Company Limited as the immediate and ultimate parent company. The
largest group to consolidate the results of the Company is Postal Services Holding Company Limited, a company registered in the United
Kingdom, Postal Services Holding Company Limited Financial Statements can be obtained from Finsbury Dials, 20 Finsbury Street, EC2Y
9AQ.
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Statements
Corporate information
Registered Office
Post Office Limited
Finsbury Dials
20 Finsbury Street
London
EC2Y 9AQ
Auditor
Ernst Young LLP
1More London Place
London
SEI 2AF
Solicitor
Linklaters LLP
One Silk Street
London
EC2Y 8HQ
Actuary
Towers Watson Limited
Watson House
London Road
Reigate
Surrey
RH2 9PQ
corporate.postoffice.co.uk /annualreport!
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PAGE 100 corporate.postoffice.co.uk/annualreporti516
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