POL00362149
POL00362149
Registered number: 4074919
CONSIGNIA HOLDINGS PLC
ACCOUNTS
for the period ended 31 March 2002
‘ABLOSE7ON on
COMPANIES HOUSE 140902
Financial Review
Consignia Holdings ple and the Consignia Group
‘The Consignia Group (the Group) comprises Consignia
Holdings pie (the Company) ~ which is wholly-owned by HM
Government - and Consignia ple, which itself has a number
‘of subsidiary undertakings and associates. Both Consignia
‘plc and Consignia Holdings plc are incorporated under the
‘Companies Act and as a result, the accounts are no longer
produced in accordance with a direction from the Secretary
‘of State, The main implications of this change are that the
Prior year comparatives are those of The Post Office Group
and the accounting policy for fixed assets nas changed from
‘modified historic cost accounting to historic cost accounting —
the almost universal choice ot pics. This has resulted in an
upward restatement of last year’s profit by €32m and a net
‘eduction to tangible fixed assets of 521m,
‘The accounts are drawn up for the 53-week period ended
31 March 2002 (2001 52 weeks)
Going concern
There is significant uncertainty concerning the outcome of the
{funding discussions with Government and therefore as to
‘whether or not the Group can be considered to be a going
‘concem. A key issue is the viability and affordability of the
network of Post O'fices. Our plans require total funding of
some €2.4bn over the next three years and the Company
is in active discussions with Government about how these
future cash requirements are to be funded. Government
approval to fund the renewal plan and especially a decision
‘on the funding of the social Pest Otfice network is critical
to our continuing operations. The Directors believe that the
‘outcome of funding discussions with Government will be
favourable. On this basis, after consideration of the cash flow
projections, the Directors consider that it is appropriate to
prepare the financial statements on a going concem basis.
Group results
Consignia made a ful year loss from its operations of £318m
(2001 £206m)} before exceptional items ~ equivalent to £1.2m
‘every trading day. The loss analysed by business segment
‘was Maiis and parcels £138m (2001 £150m), Counter
services £164m (2001 £57m) and Other £15m (2001 profil
1m). This loss was before taking into account a net £1m loss
‘on associates and a £250m pensions benefit (2001 £228)
derived in accordance with SSAP 24, which resulted in a net
‘operating loss of £68m (2001 protit of €22m),
‘The loss before taxation was £1,124m (2001 profit £81m),
This loss reflects net interest receivable of 256m (2001
£106m) and exceptional items of £1,112m (2001 £47m)
‘The loss for the year after a net tax credit of £179 (2001,
‘charge £34m) and equity minority interest 5m (2001 £2m)
was £940m (2001 profit £49m),
External tumover grew by £289m (3.6%) to £8,408, mainly
reflecting growth in UK mails and parcels of £21.4m and
‘overseas activities of £83m.
‘Whilst we sold current asset investments of £363
to generate cash, mainly to fund the Post Otfice network,
‘our net cash inflow was only £172m. This principally
represents increased cash in the network to cover benefit
payments. All core trading businesses suffered nel cash
‘outflows totaling some £191m, The Group's cash position
was helped by the pension holiday windfall of €135m (2001
£136m). The windfall relates to the surplus built up in the
pension scheme over the past 20 years because of the high
‘equity bias of the fund during a sustained period of bull
‘market retums that exceeded actuarial forecasting
assumptions
The segmental analysis in note 1 to the Group accounts
analyses the operating loss in accordance with SSAP 25 ~
Segmental reporting. We have set out below an altemalive
analysis that recognises the pensions benefit does not arise
from current trading and the substantiat amount of trading
between operational and support units, including the impact
‘of internal interest charged to businesses for centrally
managed funding resources. Cash flows reflect both
movements in physical cash and working capital movements
funded through intercompany balances,
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Malls and parce!
Mais and parce's consist of our acitional businesses of UK
and intemational mails, UK parcels, and Logistics Solutions,
together with some more recently acquired international
businesses, our European parcels businesses ~ General
Logistics Systems (GL) and our overseas mails businesses.
Together, these businesses reported total reveriue of
£7.367m, an increase of £279m (3.8%) over 2001, and losses
from operations of £241m (2001 £407m),
UK mails revenue increased by £187m t0 £5,317 —
a growth rate of 1.1% after adjusting for the 63rd week.
1% growth in pillar box and collection postings and a 3.2%
growth in commercial and bulk-posted letters were achieved,
substantialy beiow planned ieve's. These disappointing
growths reflect a slow-down in the national economy and the
impact of electronic substitution. Specifically, September 11
and anthrax scares impacted commercial and bulk-posted
letters in the Auturna and Winter periods by an estimated
££50m. The siow-down has rolled over into 2002-03.
Total costs grew by £82m to £5,391m, representing no growth
after adjusting for the 53rd week.
Overall, the losses from operations for the malts business,
before exceptional items, were reduced by £75m to £74m,
This resuit includes profits from our Stamps and Collectibles
operations of £47m (2001 £53m), Losses after exceptional
items but before tax were £148m and the cash outfow
was £31m,
International mais total income increased by £8m to £746m,
{20 growth after adjusting for the extra week). Total costs
at £764m reduced by £36m ~ a 6% saving over the prior year
comparable period. These savings were largely due to lower
handling costs both in the UK and overseas, and gave rise
0 a reduction in iosses of £44m to £18m before exceptional
items and tax, and a loss of £20m ater exceptional tems but
before tax. The cash outflow from the international mails
operalions was 282m,
International mails wil benefit from the cross-border business
mail venture between Consignia (24 5%), TNT Post Group
(81%) and Singapore Post (24.5%), which was allowed by the
European Commission on 15 June 2001. The new company,
branded as ‘Spring’, began trading in July 2001 and will
deliver benefits to mailers worldwide, by combining the global
reach, networks, systems, products and expertise of the three
parent organisations. The Group contributed £38m in the form
of the assets and business of its European branches, one of
its USA subsidiary undertakings and the purchase of shares
for £21m in the new venture,
UK parcels total income grew by £37m to £719m, of which
£474m was external income and £245m for internal services.
Extemal income increased by £18, representing 2%
adjusted growth. Operating costs increased by £38 to
£813m (3% adjusting for the 53rd week), The losses from
‘operations remained broadly flat at 94m even after taking,
into account the £9m beneficial impact on depreciation
atising from impairment at the half year. The business cash
outflow was £115m,
(Our UK parcels business has fost money for more than
a decade. Clearly, mounting losses of this magnitude and the
drain on the Group's financial reserves are unsustainable,
andin March 2002, the Board announced the downsizing
ot its UK parcels operations, exiting from loss-making product
areas namely, non "time-guaranteed', non ‘next day’ or "wo
day’ express deliveries. This gave rise to exceptional charges
‘of £397m (€138m impairment of assets, £222n redundancy
‘costs and £37m restructuring and closure costs), such that
the losses from operations after exceptional items but before
tax were £491,
‘The Parcelforce hub with its associated computerised
track-and-trace system became fully operational early in the
financiat year, providing a key stepping stone in our capability
to compete in the express market
Financial Review
Logistics Solutions’ income at £601m, of which £228
is external revenues, grew by £45m mainly in response
{0 additional intemal activity to support UK parcel operations,
Costs al £616m were broadly in line with previous years,
‘The nel impact isa fallin the overall toss before exceptional
costs by £51m to £15m. Exceptional costs were £127m
bringing total losses before tax to £142m. Cash oustiow tor
the business was £25m.
General Logistics Systerns, our European parcels operation,
‘grew its income by 265m to £600m during the year, of which
£61m was attributable to the full-year impact of acquisitions
and the remaining €4m from underlying growth. Losses
before tax were £40m,
Consignia nas increased its shareho'ding in the General
Parcel network through the strategic acquisition of some.
small additional European operations principally in tay
and Denmark, amounting to a total investment of £m.
Counter services
On 1 October Fost Otice Limited assumed the functions
(f Post Office Counters Ltd, which brought together the
‘Network Banking, Post Ofice Network and Cash Handling
‘and Distribution business unt,
Counter services increased its total income by £93m (5.7%
allowing forthe aditionl week) to £1,289m. Overall, costs
increased by £195m to £1,452m (13% after adjusting for the
‘53rd week). The annual costs of running Horizon ~ the front
fice computer terminal system - amounted to £105,
an increase of £31m following the system's full national
deployment. Other key movernents in costs were £25
higher payments to some 14,900 agents/subpostmasters,
inflation impact of £7m and IT developments principalty on
the banking engine totaling £23m, The business also
received contributions trom Government for the investment in
Universal banking technology of £20m and "Your Guide’ plot
(of £20m, the later being an iniliaive to explore the feasibility
of providing electronic access to Government information
in the network branches
Losses from operations before exceptional items amounted
40 £163mn (102m worse than last year) and £241m after
exceptional items. The cash outflow for the year was 412m
exciuding the increase in network cash of £157m to support
Benefits Agency payments to customers over the Easter
Bank Holiday period. This weekend was also the accounting
year end.
Responsibily forthe abilities of he HorizorviOL Pathway
project was transferred from Government o The Post Otfice.
in 1999, This resulted in a one-off payment by the Group for
costs incurred by ICL of €550m, a write-off of £571m in the
1999-2000 accounts and the incurrence of substantial on-
going maintenance costs. By the time the contract terminates
in Aptil 2005, aggregate contract costs are expected to
amount to some £16n
‘The incremental costs of running the Hotizon system have
turned counter services into a fundamentally unprofitable
‘operation ~ a position that will be exacerbated by the move
of Benefits Agency transactions away ffom the counters
‘network from April 2003. This will reduce total revenue by
some £400m (30%). In addition, the absence of advance
Benefits Agency funding will have a substantial adverse
impact on the working capital of the business
‘The difficult financial position is being ackkessed in two ways,
First, rationalisation of the Post Ottice network. Secondly,
\we are conducting a fundamental strategic review, which
is examining the economic viability, social obligations and
the commercial opportunities of the network. This entails
discussions with Government on the funding of the social
element and the deployment of universal banking,
We are committed to submiting a revised strategic plan
to Government early this September. Flowing on fram this,
‘we expect the source and extent of funding for the network.
to be determined and agreed oy Government
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Universal banking services ~ comprising introductory
‘accounts olfered by the banks and tne card account ~ are
being developed to meet the complex challenges of the
stakeholders, which inolude Government, major high street
‘banks, our custorners and Consignia, Total investment to date
‘on these new banking services has been around £62m, of
which €49m was expended this year The Goverment has,
‘contributed £20m towards these costs, The new service is
‘expected to come on-stream from Spring of 2003. Universal
banking services will allow people receiving benefits ~
‘currently some 15m people - who do not have access to
‘a bank account to make cash withdrawals at Post Orfices.
‘Other Group activities
Other Group activities comprise the Group Centre and
Suppor services to the main trading businesses. Profit from
‘operations for the year, prior to the pensions benefit was
£86m, £176m lower than last year. The profit mainly consists
of internal interest charges made to operating and supporting
Units of £214m, offset by net losses on support services,
activities of £128m,
Exceptional items.
The Group results include net exceptional costs of £1,142
{2001 £47m), of which 53% related to the costs associated
withthe restructuring of our UK parce's business and UK
transportation systems. Both of these changes were
‘announced on 25 March of this year and represent the first
phase of a three-year programme to remove £1.4bn from
‘our gross cost base.
\enpairments totalled £453m of which €398m related to our
UK and European mails and parcels operations, £48rn was
for Post Cifice network and €7m for goodwill in associates.
‘We have written down the value of GLS in our balance sheet
to reflect our view of the valve of the business under current
market conditions. The impairment of the Post Office network
‘was made atter consideration of he expected future cash
flows of Post Ottice Limited bringing the cumuiative total
impairment of asses in this business to 8619:
Provisions for restructuring the UK parcels service amounted
10 £298m made up of £222m in redundancy and £76m for
other restructuring costs.
Restructuring the mails and parcels pipeline required
provisions amounting to £156m of which £62 was
redundancy and £94m restructuring charges.
Redundancy provisions amounting to £228m relating to
a number of minor UK mail. projects totalling 860m, the
review of the Post Office Limited structure of £28m and
£140m for staff working in support services. In addition,
£10m was raised for vacant leasehold properties.
‘The principal exceptional item in the previous year was 267m
‘as a consequence of the BBC's decision to terminate the
television licence administration and enforcement contract
with Envision Licensing Limited. A subsequent recovery
from another party has been inciuded as an exceptional,
Profit this year
The accounts also include net profits on disposal of fixed
assels of £14 (2001 restated £20m) in accordance with
accounting standard FRS 3.
Taxation
‘The Group has adopted the new accounting standard
FRS 19 ~ Deferred tax, and the accounts reflect deferred
tax on a full provisioning basis. The accounts include a £3rn
current tax charge and a deferred tax credit of £182m for
the year
The tax credit for 2002 represents an effective tax rate of 16%
‘on a loss before tax, compared to a restaled tax charge of
‘42% for 2001. The credit mainly arises from relief for
restructuring costs, which gives rise to tosses that have
been offset against deferred tax liabilities, and fixed asset
write-downs, which have also teduced deferred tax labiltie.
‘Treasury
‘The Group operates a centrat treasury function that manages
some 1.8bn of investments, in accordance with investment
restrictions set by Government, and acts as internal banker
for the Group, Group operations are primariy financed
through retained profts and borrowings.
‘The Government has indicated that t would expect the
investments represented by cash surpluses arising trom
previous years’ trading to be ring-fenced for speciio.
Purposes: to act as security for borrowing from the National
Loans Fund to finance the mails business, and to support
expenditure by Post Office Limited (POL) where such
expenditure has the approval of the Secretary of State and
the Treasury
Group Treasury derives its authorty from the Consignia
Board. The Treasury function oniy has the authority to
Undertake financia' transactions relating to the management
‘of underlying business risks. Al stralegies are risk averse.
Regular upward reporting isto the Consignia Executive
Board
‘The Group's main financial risks are interest rate risk and
foreign currency risk.
The Group mitigates interest rate risk through a portfolio
approach to investment. Short-term portfolios are driven
by liquidity requirements whilst medium-term portfolios are
driven by investment decisions. The duration of medium-term
investments is set at between 240 and 450 days,
‘The Group has both fixed and occasional floating rate
borrowings.
‘The Group is exposed to foreign currency translation tisk on
the net assets of all overseas subsidiaries with the exception
of the German Parcel subsidiary, where a floating rate euro
loan provides a partial hedge.
Foreign currency balances, neld to operate the Bureau de
Change service are hedged using a combination of forward
‘and spot deals. Where possible, the internal netting of
exposures takes place.
‘The Group is exposed to transaction isk rom its obligations
to pay overseas postal adrninistations for the delivery of
Ukoriginating mall. A maximurn of 80% of this exposure
is hedged in an intial 12-month programme, which is
‘subsequently reviewed on a monthly basis. This programme,
Utlises forward foreign currency contracts, options, and
foreign currency deposts.
Al other significant liabilities are hedged when they
become contractual
The Group's fuel risk management stlegy aims to reduce
uncertainty created by movements in the oll market. The
strategy operates within the parameters set by the Board,
‘Over the-counter financial derivative products are used
to manage both the commodity and foreign exchange.
‘elernents of the exposure
‘Treasury operates a rolling 18-month programme, which
is subsequently reviewed on a quarterly basis,
‘Counterparty risk is managed by limiting aggregate exposure
to an individual counterparty, taking account ofits
debl-to-income ratio and the counterparty size. These
‘exposures are reviewed regularly and adjusted as
appropriate.
Debt
Consolidated debt at 31 March 2002 was £705m, a
year-on-year reduction of £100m, reflecting reduced hire
purchase obligations.
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Interest receivable
The Group's net interest receivable was €56m. This
comprised £90m interest received on average investments.
of £1,900m, a rate of 4.7%, less £34m interest payable on
average borowings of £580m, a rate of 5.8%. Last year net
interest receivable was £106m, comprising £1 16m received
‘on average investments of £1,815m (a rate of 6.4%) less
£10m payable on average borrowings of £180m (a rate
0f 55%).
Pensions
‘The overatl Group result includes a £250m (2001 £228m)
benefit derived in accordance with SSAP 24 on the basis
‘set out below. The accounting charges are based on
assumptions on a ‘best estimate’ basis, which reflects the
difference between ‘experienced’ performance over the
prudent actuarial assumption assumed in the funding rate
This has resulted in a lower regular accounting cost
‘amounting to £53m of the benef. The surplus in the
Consignia Pension Pian allows a further reduction in cost ~
evaluated by the Scheme actuary using thelr ‘best estimate’
assumptions - providing £164m benefit, with the interest on
the long terrn pension deblor of £33m making up the final
‘element of the benefit
The new accounting standard FRS 17 - Retirement benefits,
introduces radical changes to accounting for pensions and
similar benefits. Consignia has adopted this standard and
is complying with the transitional arrangements. The balance
sheet aspects are disclosed in note 21 to the Group
accounts. The 2002-03 accounts wil make profit and loss
disciosures in accordance with tne new standard, whist the
2003-04 accounts will epor all pension costs and related
information in accordance with the new standard. Ikis
‘anticipated that the full adoption of FRS 17 will worsen the
reported profits for 2003-04 by some £150m, compared with
the position ifthe old standard were to apply.
Postcomm competition proposals
The Postal Services Commission (Postcomm) was set up as
an independent regulator for the industry. On 26 March 2001
‘Consignia was granted its firs icence, which required it to
provide a universal postal service at a uniform affordable
price. During the year, Postcomm issued interim licences
to other operators of business postal services - Deya, Hays,
TNT and UK Mail
‘On 29 May 2002, Postcomm announced their decisions on
the introduction of competition into the UK postal market. The
three phased approach adopted by Posteomm comprises:
From 1 January 2003 - the liberalisation of buk mail posted in
volumes above 4,000 items (from a single site and in identical
size format) will take place. This is expected to open up 30%
of the domestic mail market, as measured by revenue, to
competition. In addition, other operators wili be able to
consolidate and convey mali for Consighia to undertake fal
delivery. Postcomyn will continue to license niche services
From 1 Aptil 2005 — the bulk mail threshold wi be reduced
to open up 60% of the market, by reverie, to competition.
From 1 April 2007 ~ the whole of the UK postal market will be
beralised and open to competition.
Consignia estimates that ater the full effects of competition.
have worked through. over the next 3 to 5 years, it could lose
‘around 30% of its current market share in terms of both
revenue and volume.
‘Sourcing reviews
Consignia is examining the feasibility of using outsourcing
partners for some of its suppor services. This is designed
to create the maximum value from suppor services and
realise commercial potential, A new partnership venture
‘covering the Group's occupational health needs has been
concluded and others are in negotiations,
Financial Review
European Monetary Union (EMU)
‘The Board has estabiished a European Monetary Union
Committee, The UK has yet to decide on entry to the EMU
‘and Consignia has evaluated the implications of both entry
and norrentry
Consignia companies operating within the participating
countries successfully managed the introduction of euro
‘notes and coins on 1 January 2002. The introduction of the
euro eliminates exchange rale sks between the former
currencies of participating counties. Whilst the UK semains
‘Outside of EMU, and Consignia repos in Stering, the need
to move funds to and Irom our overseas businesses means
that we will remain exposed to foreign exchange fluctuations.
between the euro and Steting. The new currency wil aso
have implications on our Bureau de Change service.
Major project investment
‘As patt ofthe drive to modernise our infrastructure, the Group
invested some £320m on a number of key programmes,
including £94m to upgrade the mai's and parce's
infrastructure, £52m for counter services automation including
universal banking of £49mn, £98 to provide high ouality
1T infrastructure, £43m on the development of new products
and services and £24m relaling to acquistions of subsidiary
Undertakings, including £9m for European parcels businesses
within the GLS network,
National Lottery
On 5 August 1999, The Post Office entered into an agreement
‘with Cameiot (the National Lottery operator) to acquire a 20%
holding in the company at a cost of £21m. Camelot has
subsequently been awarded a second licence for seven
years, which came into effect on 27 January 2002. At the
‘same time, Camelot became an associate of the Group.
Dividends
The Government, as shareholder has indicated that it will not
bbe seeking a dividend in respect of 2002. £244m has been’
earmarked as a notional dividend covering 2000 and 2001
‘and this is currently held within our short-term investments.
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Future prospects
‘The financial prospects for 2002-03 will be heavily influenced
by the up tront costs of driving a lower operating cost base,
downsizing and introducing new business models and
service pattems. Additionally, the recent pay settlement with
the Communication Workers Union wit add in excess of £70m
to next year’s operating costs, whilst delay to postal tai
increases ~ which the Regulator wil be invited to consider —
will adversely affect profitability. Higher National Insurance
Contributions vil further increase our cost base, from April
2003, by some £40m per annum,
We plan to invest some £350m in capital expenditure next
year fo enhance further our infrastructure.
Our move to a single delivery at a cons'stent time six days
‘aweek with other etficinncy measures across the Group wil
resuit in a further 17,000 jobs becorning redundant over the
next three years. These plans are expected to cost some
££500m. Included within this are redundancy costs of £350m
associated with the move to a single delivery, which should
produce gross savings in excess of £350m per annum as part
of an overall cost reduction programme to produos gross
savings of £1 4on per annum by 2005.
Overall, we expect trading losses to continue into next year
ata similar level with further exceptional costs of around:
££800m inthe first half ofthe year, mainly as a result ofthe
announced changes to the UK mais delivery patterns
‘The Board are committed to meeting the substantial
challenges provided by a new competitive and regulatory
‘environment by both driving through changes and
substantially reducing our costs.
Marisa Cassoni
Group Finance Director
London
12 June 2002
Directors’ Report
‘The Directors present the frst Group accounts for Consignia
Holdings plc, These accounts retate to the 53 weeks ended
31 March 2002, but in respect of Consignia ple, addilionaly cover
the period between incorporation, on 10 January 2001, andl
£25 March 2001, during which time no trading activity took place.
Principal activities
‘The Group provides a nationwide and internationat distribution
service, The Group aiso provides access to a wide range of
financial and retal services through its network of Post Office
branches,
Review of the business and future developments
Under the terms of the Postal Services Act 2000 (the Act), the:
assets and labillies of The Post Office Corporation were
transferred to Consignia Holdings ple and its subsidiary,
CConsignia pic. The Act also conferred some commercial
freedoms that were not available to The Post Office. During the
year, some of Consignia ple's assets were taken on by Post Orfice
Counters Limited, which was renamed Post Otice Limited on
1 October 2001. This wholly-owned subsidiary wil be responsible
{or providing counter services on behalf of the Group.
Arreview of the Group's business and fulure developments
is presented in the annual Review,
Results and dividends
The 1oss on ordinary activities before taxation amounted
to £1, 124m (2001 a restaled profit of £81m). After taxation and
minority interests, the loss was £940m (2001 a restated profit of
49m). The restatement refiects the introduction
of FRS 19, which requires a change in accounting for deterred
taxation and the Board's decision to adopt the historic cost
accounting convention.
‘The Government indicated that when the Postal Services Act
2000 had received Royal Assent, t would seek a dvidend:
payment trom Consignia Holdings plc in respect of the final two
years’ trading of The Post Otfice Corporation, The Shareholder
is considering a request from the Board of Directors that no
dividend payment be made in respect of pre-incorporalion
trading. The Secretary of State for Trade and Industry
‘announced on 25 March 2002 that the Shareholder would
forego the dividend for this financial year.
Political and charitable contributions
‘During the year the Group made charitable contributions of
£444,623 (2001 £847,430). No poiltical contributions were made.
‘Supplier payment policy
‘The policy of the Company and its principal operating
‘subsidiaries is to use their purchasing power fay. Payment
terms are agreed in advance for ali major contracts. For lower
value transactions, standard payment terms (shown on the
‘urchase order) apply. The policy is to make payments within 45
‘days of receiving a valid invoice. The Company and its principal
‘operating subsidiaries in the UK have sought to comply with the
T's Better Payment Practice Code. Copies ofthis can be
obtained from the DT}. This code replaced the CBI prompt
payment cade. As the Company is a nor-operating company,
the creditor days are zero. The creditor days of the operating
‘subsidiaries can be found in their accounts,
Land and buildings
From 26 March 2001, the Group changed its accounting policy
relating to fixed assets from the modified historic cost to the
historic cost accounting convention. in the opinion of the
Directors, the aggregate markel value of the Group's land and
buildings exceeds the net book value of £1,244m by a
considerable margin
Post balance sheet events
Details of post balance sheet evenis are included in note 26 to
the accounts,
Directors and thelr interests
The Directors of the Company and details of changes during the
year are given on page 8. The Chairman is appointed by the
Secretary of State, all other Directors are appointed by the
Company with the Secretary of State's consent
HM Government is the Company's sole shareholder
and accordingly. the rectors have na interest in shares
of the Company.
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The Directors’ biographical detai's are included on pages 34
and 35 of the annual Review.
Employees
‘The Group employs more than 220,000 peonie and is one
of the UK's largest employers. The majority of staff are
employed in the UK.
‘The Group's policy is to encourage effective communication
and consultation between employees and management
pparticular'y on matters relating to strategy, financial and
economic factors that may influence the Group's pertormance.
This is achieved through the use of an extensive range of
communication channels, including magazines, briefings, open
forums and an intranet website. Employees have various bonus
‘schemes, significant elements of which are based on business-
related targels.
Regular Employee Opinion Surveys are conducted to alow
employees an opportunity to express their views and opinions
‘on important issues. This two-way communication encourages
all employees to contribute towards making business
improvements.
We actively encourage continuous training and skill
development forall empioyees to ensure achievement of
corporate and individual objectives. Management development
and training programmes have been designed to attract
and retain the best people. The Group has worked with the
Unions to introduce several innovative working practices to
improve efficiency.
Disabled employees
The Group's poticy isto give full consideration to appications
for employment from disabled persons. Employees wo
become disabled whilst employed receive full suppor through
the provision of tcaining and special equipment to faciitate
continued employment where practicable, The Group provides
training, career development and promotion to disabled
employees wherever appropriate.
‘An Equal Oppornities policy is maintained in al respects
including disabiity, age, religion, colour, sex, nationality, ethnic
origin, sexual orientation, race, creed and marital status.
Going concern
As outlined in note A of Accounting policies and generai notes,
there is a fundamental uncertainty concerning the outcome of
the funding discussions with Government as to whether or not
the Group can be considered to be a going concern. Our plans
‘equire total tunding of some £2. 4bn over the nex three years,
‘The Company is in active discussions with Government about
how future cash requirements are to be funded. Government
approval to fund the renewal plan and a decision on the funding
ofthe social Post Office network is critical to our continuing
‘operations. The Directors believe that the outcome of funding
discussions wih Government will be favourable. On this basis,
after consideration of cash flow projactions. the Directors
consider that itis appropriate to prepare the financial
statements on a going concern basis.
Auditors
During the year, Emst & Young acted as auditor fo the Company
Until 28 June 2001. On 28 June 2001, Emst & Young transferred
its business to a limited liability partnership,
Ernst 8 Young LLP incorporated under the Limited Liability
Parinerships Act 2000. The Directors consented to treating the
appointment of Ernst & Young as extending fo Emst & Young
LLP with effect from 28 June 2001. At the Annual General
Meeting, @ resolution will be proposed to eeappoint Ernst &
Young LLP as aucitors
By order of the Board
12 June 2002
Corporate Governance
‘Statement by the Directors on compliance with
the Combined Code
‘The Group is committed to high standards of corporate
‘governance. This statement describes how the principles of
Corporate govemance are applied by the Group and its
compliance with the Combined Cade (the Code).
‘The Group has been in full compliance with the provisions of,
the Combined Code throughout the year and! up to the date
of approval of these accounts, in so far as they are
appropriate to a public company with a single sharehoider.
The exceptions are that a senior non executive Director has
‘not been designated and that Directors are normally
appointed by the Company with the Secretary of State's
‘consent, Thus, there is no need for a Nominations
Committee. The Secretary of State also approves the
remuneration of both executive and non executive Directors.
The Board and its committees
Detals of the Board and committees are set out below.
The Board
‘The Board is responsible for seting the objectives and
strategy of the Group and for monitoring performance. The
Board usually meets monthly, and has defined those matters
Which are reserved exclusively for its consideration. The
Board currently comprises a non executive Chairman, four
executive Directors and three non executive Directors, There
are also two adsitional non executive Director vacancies,
which the Company is seeking to fil. Executive Directors have
roling 12-month contracts and non executive Directors are
generally appointed for a two-year term.
‘There is a clear division of responsibiities between the
Chait man and Chief Executive. Ail nan executive Directors are
considered independent.
Directors may take independent professional advice in the
furtherance of their duties, at the Group's expense. All
Directors have access to the advice and services of the
Company Secretary
The following committees deal with specific aspects of the
‘Group's management
Audit and Risk Committee
The Audit and Risk Committee consists of non executive
Directors: Rosemary Thome (Chait man), Allan Leighton and
Miles Templeman
The Audit and Risk Committee provides a forum for reporting
‘by both intemal and extemal auditors ands responsiole for a
‘wide range of matters including:
monitoring the effectiveness of internal controls;
reviewing the haif year and annual accounls before their
submission to the Board;
— advising the Board on the appointment of external auditors
and on their remuneration both for audit and non-aucit
work:
discussing the nature, scope and outcomes of the aut
with external auditors;
~ keeping under review the independence and objectivity of
the external and internat auditors.
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As pat of ts continuing role, the Committee has always
considered the independence of the external auditors and will
continue to do $0 taking into consideration the lessons
leamed trom Enron.
Executive Board
The Chief Executive, John Robes, chairs the Executive
Board, which comprises ail executive Directors and certain,
‘other senior executives of the Group. The Executive Board
‘develops and moritors deployment of the Group's strategy,
annual operating plans and budgets for Board approval. it
reviews operational activities and sets policies where these
are not reserved to the Board.
Investment Board
‘The Investment Board is chaired by Marisa Cassoni and is
responsible for reviewing major investment projects and
approving projects within the authorities devolved by the
Board.
Mergers and Acquisitions Board
The Mergers and Acduisitions Board is chaired by John
Roberts and comprises Marisa Cassoni, Jerry Cope and
Martin Gafsen, the Head of Mergers and Acquisitions, The
Board is responsible for reviewing prospective transactions
{or commercial and strategic effectiveness and giving
authorisation on behalf of the Group up to an agreed limit
Pensions Committee
‘The Pensions Committee is chaired by Marisa Cassoni. The
Committee is responsible for reviewing funding, benefits,
scheme structure and strategic developments impacting on
the Group's occupational pension schemes. The Committee
represents the Group in discussions with the Trustees of the
Group's occupational pension schemes.
Remuneration Committee
The Remuneration Committee develops the Company's
policy on executive Directors’ remuneration for approval by
the Board and the Secretary of State. The Remuneration
Committee consists of non executive Directors. The
membership is Miles Templeman (Chairman), Allan Leighton,
John Loyd and Rosemary Thorne.
Internal Control
The Board is responsible for the system of internal control and
risk management as well as the timely review of its
effectiveness, The system is designed to manage rather than
eliminate the risk of failure to achieve business objectives and
ccan only provide reasonable but not absolute assurance
against material misstatement of loss.
There is an ongoing process for identifying, evaluating and,
managing the significant risks faced by the Group in
‘aocordance with the guidance detailed by the Tubutt
Committee as part of the Combined Code. The Board
regularly reviews this process. The process has been in place
{or the ful year and up to the date of aporoval of these
accounts, The key processes of internal contro and risk
management include the folowing
Management structure
The business units have authority to manage within the limits
set by the Board and within the scope of reserved powers,
The Code of Business Standards sets the principies of
professionalism and integrity for employees of the Group.
Identification and evatuation of business risks
A process of internat control self-assessment encompasses
all areas of the Group. The process defines significant risks
‘and the controls in place to manage them and requires each.
business unit Managing Director to undertake formal
assessment of the effectiveness of the contol processes.
This information is communicated to the Board. The internal
audit and risk management function regularly reviews the
Group's risks for coverage, relevance and effective
‘management. The function aleo undertakes regular reviews of
the most significant areas of isk and ensures thal key
controls remain in place and reports its findings to the Audit
and Risk Committee
Report on Directors’ Remuneration
‘The Remuneration Committee is made up wholly of non
executive Directors as oulined on page 6. Throughout the
year, the Company has applied the principles in Section 1 of
the Combined Code on Corporate Governance (the Code)
and has complied with the Code.
‘The Board is ulimately responsibie for the framework and
costs of execulive remuneration and the material terme of the
service contracts offered to all Directors, which require the
consent of the Secretary of State. The Committee's role is to
‘develop the remuneration policy for executive Directors and,
specifically, to recommend the'r salaries, benefits, incuding
‘bonuses, and other terms and conditions of employment. The
‘Committee also recommends terms for theit cessation of
employment,
In the performance of is role, the Committee has access to
professional advisers, both wathin the Company and
externally
Policy of remuneration of Directors
Remuneration policy and arrangements are kept under review
to ensure that the Company can attract and retain executives:
of the necessary qualty in a complex business and a
competitive international marketplace
Remuneration packages for executive Directors comprise the
following elements:
Basic salary
Salaries are reviewed annually and appropriate increases are
recommended where ine Committee believes that its
necessary to reflec! performanos, increased responsibilities
‘and market pressures,
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Information and financial reporting system
The Group's planning, financial and reporting procedures
include anqual budgets, which are reviewed and aporoved by
the Board, Performance is monitored regulatly by reference to
key performance indicators, updated forecasts and
information on the Key risk areas.
Audit and Risk Committee
The Committee reports to the Board and meets as @
‘minimum on a quarterly basis to monitor and review the.
effectiveness of the control environrnent
Risk Management Committee
‘Thisis a sub-committee of the Audit and Risk Committee.
sels the framework for risk management within the Group and
ensures integration with strategic planning, It also faciitates
regular reporting of key risks, assesses the risks identified
‘and the actions to manage the risks to a desired level.
The Board has reviewed the effectiveness of the system of
intemal contrat. The key elements include a review of internal
audit reports, regular confirmations from local management
and communication trom the Chairman of the Audit and Risk
‘Committee on the outcome of Audit and Risk Committee.
meelings.
Performance-related bonus
Executive Directors may eam a performance related bonus
for achievement of measurable targets, This bonus is based
‘on targets set each year, internally and by the Shareholder
‘The maximum bonus for al executive Direciors, except the
Chief Executive, is 40% of basic pay; the Chief Executive can
achieve a maximum of 50%, Most targets relate to financial
performance and quailty of service, with the greater
proportion available for profit achievement
Allan Leighton was appointed as non executive Chairman on
25 March 2002, His performance-related onus
arrangements had not been finalised al the time these,
‘accounts were approved.
Bonofits
Benetits incorporate all benefits arising from their
‘employment. In the main, these refate to the provision of
‘company cars, ite insurance and health insurance plus the
castrequivalent of any benefits not taken,
Pensions
‘The Group has a liability to pay pensions in respect of
Directors’ services, with the consent of the Secretary of State
‘8nd, for some executive Directors, makes contributions 10
pension schemes for this purpose. The Company has set up
‘a Funded Unapproved Retiement Benefit Scheme (FURBS)
FURBS wall provide benefits to Directors and employees
‘whose contributions to the Company scheme are restricted
by the iniand Revenue earings cap,
Contracts of service
Executive Directors have rating 12-month contracts and non
executive Directors are generally appointed for a
two-year term,
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Report on Directors’ Remuneration
Directors’ remuneration, excluding pensions, was as fol
irectors' remuneration, excluding pen: as follows: roo extog pees
200
ease caixy —_Poslomance rales
Teoeen reateconue Belts = 2002 anctted
CHAIRMAN (NON EXECUTIVE) - .
Allan Leighton 21,083 - - 21,093 -
Neville Bain (retired 31 December 2001) 697 = 71,697
EXECUTE
John Roberts 211,560 = 14292 225,852 219,314
Jerry Cope 144,480 ~ 12874 156,854 151,809
Marisa Cassoni (appointed 1 February 2001) 295,000 - 13,532 308,532 49,594
Richard Close (died 6 April 2000) - - - = 2868
NON EXECUTIVE
John Lioyd 21,500 - - 24,500 16,657
Mites Templeman 23,054 - - 23084 17,700
Rosemary Thome 24,000 - - 28000 18,227
Mike Kinski (resigned 12 February 2002) 20,857 _ - = 20887 18,227
Total 2002 833,241 - 40,198 873,499 -
Total 2001 567,257 22,881 ~ 589,838
No fees (2001 nil) were paid to third parties in respect of
services provided by Directors.
Allan Leighton was appointed as a non executive Director on
2Aprl 2001 and was subsequently appointed interim
Chairman on 8 January 2002 and Chairman on 25 March
2002.
David Milis was appointed as an executive Director on
45 Apri 2002,
The figures in the tabie represent emoluments eared and
receivable as Directors during the financial year, whenever
paid. Such emoluments are normally paid in the sare
financial year withthe exception of the pertormance-related
bonus, which is paid in the year following that in which it is
eamed. This is a change from the previous year when only
those emoluments actualy paid in the financial year were
disclosed, Accordingly, the figures for 2001 have been
restated to inciude the effect of a salary increase for Neville
Bain, John Roberts and Jerry Cope that was effective trom
October 2000 but not seitied unt May 2001. In addition, the
restated figures include fees totalling £1,451 relating to 2001
that were not paid until 2002.
‘During the year, the Secretary of State as Special Shareholder,
approved an increase of 10% in the base salaries of John
Roberts and Jerry Cope. Both Directors have agreed to waive
the increase for the financial year ended 31 March 2002,
Pensions
‘The Group normally offers its most senior employees
membership of the Consignia Senior Executive Pension Pian
(CSEPP). Details of CSEPP are set out in note 21 to the
accounts. The pian is a funded, Inland Revenue-approved
final salary occupational pension scheme. The scheme
provides for a two-thirds final pensionable salary at normat
retirement age, subject to the necessary pensionable service
and infand Revenue earnings cap. Pengions in payment are
increased annually in ine with Retail Prices Index (RPI),
subject in some cases to 2 cap. Pensions are also payable to
dependants on the death of the member and a lump sum is
Senior Executive Pension Scheme (POSEPS), which was an
Inland Revenus-approved top-up scheme. From
24 Novernber, Jerry Cope became a member of CSEPP on a
1/90th basis and ceased membership of the other schemes.
Previous service was transterred on a one-year-or-one-year
basis,
From 1 April 2001, Marisa Cassoni became a member of
CSEPP on a 1/20th basis. Her pension is funded by a
combination of the company scheme and FURS, for which
provision is being mace in the accounts. The cost of FURBS
in 2002 was £100,000 (2001 £17,000). The Post Office
Corporation provided life assurance protection from
1 February 2001 to 26 March 2001. Lite cover was provided in
fine with normal death-in-service benefits of four times salary
(as restricted by the Inland Revenue earnings cap). Marisa
Cassoni's pension benelits have been augmented by the
employer to give her two months’ additional pensionable
service in respect of her service in the previous year
‘The pension contributions and entitlements for Neville Bain
were determined using the ruies of CPP Section C. Details of
this scheme are set out in note 21 to the accounts. Neville
Bain retired from the Company on 31 December 2001 and
receives a pension of £5,899 per annum.
The accumulated totat accrued pensions for John Roberts
and Jerry Cope have been adjusted to reflect the enhanced
annual pensions that are payable in lieu of the lump sum
entitlements, which were payable from their previous
schemes.
Pension scheme benefits
(CPP vormerly POPP) CPP foreesty POPP) CSEPP
Annual pensi
entitiement fraction of
final year salary (which
constitutes only basic
Salary) for each year's
payable if death occurs in service. service veoh" 1/601n* Varies
John Roberts was a member of the Consignia Pension Plan Lump sum 3 times nil nit
(CPP) Section B until 23 November 2001, when he transferred annual
‘ona 1/30th basis to CSEPR with a one-year-for-one-year pension
service ranster. Details of CPP are in note 21 to the accounts.
Jerry Cope was a member of CPP Section 8 unti!
23 November 2001. He was iso a member of the Post Ofice
*A fraction of 1/45th applied where a Director or employee
‘was also a member of POSEPS.
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‘The pension entitlements of the Directors at he year end were:
Increase in Teanserv Accurmsat total ecorucd pension
toe accred ‘he noroase a
pansion in tre period sccruee pansion a 25 March 2001
tater nfation} ‘nthe pened $1 March 2002 os resisted
£ © £ €
Neville Bain 989 14,100 5,839 4,850
John Roberts 35,824 564.835 149,869 442,139
Jerry Cope 15,588 219,416 75,931 59,334
Marisa Cassoni 3,710 99,222 3,710 -
‘The transter value has been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Nole GN11 and
excludes Directors’ contributions. The transfer value represents aliabilty of the Company rather than any remuneration due to the
individual and cannot be meaningfully aggregated with annuat remuneration, as it is not money the individual is entitled to receive.
Statement of Directors’ responsibilities in respect of the accounts
Company law requires the Directors to prepare accounts for
each financial year which give a true and fair view of the
state of affairs of the Company and of the Group and of the
profit or loss of the Group for that period.
in preparing those accounts Directors are required to:
— select suitable accounting poticies and apoly them
Directors are responsible for ensuring that proper
‘accounting records are kept which disclose with reasonable
accuracy, at any time, the financial position of the Company
and of the Group, and which enable them to ensure that the
accounts comply with the Companies Act 1985. Directors
are also responsible for ensuring that the assets of the
Group are safeguarded and hence for taking reasonable
consistently; 3 ;
~ make judgements and estimates that are reasonable and St6P for the prevention and detection of fraud and other
prudent; inregularities.
~ state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the accounts
Independent auditor's report to the members of Consignia Hoidings pic
We have audited the Group's financial statements for the
year ended 31 March 2002 which comprise the Group profit
land loss account, the Group and Company balance sheets,
the Group cash flow statement and associated notes, the
Group statement of total recognised gains and losses,
accounting policies and generat notes and the related notes
‘to 29. These financial statements have been prepared on
the basis of the accounting policies sot out therein.
Respective responsibilities of Directors and
auditors
The Directors’ responsibilties for preparing the annual
Review and the financial statements in accordance with
applicable United Kingdom law and accounting standards:
are sat out in the Statement of Directors’ responsibilities.
Our responsibilty is to audit the financial statements in
accordance with relevant legal and regulatory requirements
‘and United Kingdom Auditing Standards.
We report to you our opinion as to whether the financial
statements g¥ve a true and fair view and are properly
prepared in accordance with the Companies Act 1985,
We also report to you if, in our opinion, the Directors’ Report
is nol consistent with the financial statements, if he
‘Company has not kepl proper accounting records, if we
hhave not received all the information and explanations
wwe require for our audi, or if information specified by iaw
regarding Directors’ remuneration and transactions with
the Group is nol disclosed
We read other information contained in the accounts and
Consider whether it is consistent with the audited financial
statements, This other information comprises the Directors
Report, Financial Review, Corporate Governance statement
‘and Directors’ Remuneration statement. We consider the
implications for our report if we become aware of any
apparent misstatements or material inconsistencies with the
financial statements. Our responsibilites do nt extend
to any other information
Basis of audit opinion
We conducted our audit in accordance with United Kingdom
Auditing Standards issued by the Auciting Practices Board.
‘An audit includes examination, on a test basis, of evidence
relevant to the amounts and cisclosures in the financial
statements. It also includes an assessment of the significant
estimates and judgements made by the Directors in the
preparation of the financial statements, and of whether the
accounting policies are appropriate to the Group's
circumstances, consistently appied and adequately
disclosed
We planned and performed our audit so as to obtain all
the information and explanations which we considered
necessary in order to provide us with sufficient evidence
to give reasonable assurance thatthe financial statements
are free from material misstatement, whether caused by
fraud or other irregutanty or error. In forrring our opinion we
also evaluated the overall adequacy of the presentation
of information in the financial statements,
Fundamental uncertainty - going concern
In forming our opinion, we have considered the adequacy
of the disclosures made in accounting policy note A
concerning the outcome of funding discussions with
Government and the consequent fundamental uncertainty
‘as to whether or not the Group can be considered to be a
going concern. The accounts do not include any adjustments
that would result from Government nat approving appropriate
funding or restricting access to current asset investments, as
described in accounting policy note A. It's not practical to
‘quantify the adjustments that might be required, but should
any adjustments be required they would be significant. In
view of the significance of this fundamental uncertainty we
‘consider that it should be drawn to your attention but our
opinion is not qualified in this respect.
Opinion
in our opinion the financial statements give a true and fair
view of the slate of affairs of the Company and of the Group
as at 31 March 2002 and of the loss of the Group for the
year then ended and have been properly prepared in
accordance with the Companies Act 1985,
o-
Emst & Young LLP j
Registered Audior
Loridon
12 June 2002
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Accounting policies and general notes
‘The folowing accounting policies and genera! notes apply
throughout the Group:
‘A) Fundamental accounting concept note
Current strategic plans indicate that funding totaling sorne
£2.4bn is required over the next three years to restructure and
reduce the cost base and to fund Post Office Limited.
Potentially available cash and other current asset investments
{otalled £1,850m at 31 March 2002. Whilst the Company's
Atticles aliow Consignia Holdings plc to Dorrow up 10
£5,000m, this is subject to prior approval by Government
‘The Company is in active discussions with Government as
to how future cash requirements are to be funded, including
certain conditions and constraints on how the current asset
investments can be used to arrange National Loans Fund,
(NLF) finance and to support Post Otfice Limited, The
Government has indicated that it will seek for the current
asset investments of £1.8bn to be distributed from
CConsignia pic to Consignia Holdings ple. Financial support
‘of Post Oifice Limited is conditional on the production of a
‘business plan by September 2002, which is acceptable to the
Company and the Secretary of State but funding has been
permitted from current assets investments up to Aoril 2003
and for existing commitments that go beyond that date.
Government approval to fund the renewal plan and a decision
‘on funding of the social Post Otfice network is critical to
Consignia’s continuing operations.
‘The Directors believe that the conditions and constraints
imposed by the Secretary of State will be met and that the
‘outcome of funding discussions with Government, described
above, wil be favourable. On this basis, alter consideration of
‘cash flow projections, the Directors consider it appropriate to
prepare the financial statements on a going concer basis,
which assumes that the Group will continue in operational
‘existence for the foreseeable future. However, the margin of
funds over requirements is not large and there can be no
certainty in relation to this matter.
‘Should Government fail to approve appropriate funding, the
going concern basis would be invalid and adjustments would
hhave to be made to reduce the value of the assets to their
realsabie amount, to provide for any further iablties that
might arise and to reclassity fixed assets and iong-term
‘ablities as current assets and current labiites,
B) Basis of preparation and change in
accounting policy
‘These are the frst accounts prepared for the Group under
a pic status. Previously the accounts were produced under a
direction from the Secretary of Stale. By way of a scheme
under Section 60 of the British Telecommunications Act 1981,
the assets and labiities of The Post Olice Corporation were,
‘on 25 March 2001, Iransterred to Consignia plc in
‘consideration of the issue of 50,000 ordinary shares in
Consignia pic lo The Post Otfice Corporation. On 26 March
2001. the shares in Consignia plc, owned by The Post Ofice
Corporation, were vested in Consignia Holdings plc under
Section 62 of the Postal Services Act 2000. Consignia
Holdings pic was incorporated on 20 September 2000, and
financial statements were completed for the period ended
25 March 2001. Consignia pic was incorporated on
10 January 2001 and did not trade prior to 26 March 2001.
This reorganisation does not technically meet the merger
rules of Schedule 4(A) to the Companies Act 1985 as there
‘was no share-for-share transaction, Nevertheless, in
accordance with the principles of FRS 6 for group
reconstructions, the financial statements are presented as
if The Post Otfice Group and its subsidiaries had been owned
and controlled by the Company throughout
‘The Directors consider that the application of acquisition
accounting would fail to give a true and fair view of the
Group's state of affairs and results because tne Shareholder
has had a continuing interest in The Post Office Group
businesses both before and after the transfers. Due to the
number and complexity of transactions involved, itis not
practicable to quantity the effect of this departure.
‘The comparative information shown relates to the previous.
accounting period of The Post Otfice Group rather than the
satutory accounting period of Consignia Holdings plc, which
‘commenced on 20 September 2000, its date of incorporation
The accounts on pages 10 10.35 have been prepared in
‘accordance with applicable accounting standards under
the historic cost accounting convention, except for the issue
described in accounting policy note I(i) and quantified
in note 12.
Consignia Holdings pic (the Company) has not presented its
‘own profit and loss account, as permitted by the Companies
Act 1985 52303). However, the results of the Company for the
year are in note 23.
‘The Board reviewed the accounting policies adopted by
‘The Post Oifice Corporation and decided that the historic cost
accounting convention would be more appropriate for a plc.
‘The prior year results have been restated to show the effect.
of this change.
Three new Financial Reporting Standards have been issued
by the Accounting Standards Board and where necessary,
‘changes have been made to comply with these. The effects
of the new standards are as follows:
FRS 17 — Retirement benefits. The transitional arrangements
willbe phased over the three years ending March 2002,
March 2003 and March 2004 respectively. Addtional
Information relating to the closing balance sheet is given
invnote 21. The pension oost figures in the accounts comply
with SSAP 24,
FRS 18 - Accounting policies. The accounts refiect adoption
of this standard, No material changes have arisen.
FRS 19 Deferred tax. This standard requires that in general,
deterred tax be provided on a full provision basis instead of
a pattial provision basis, as applied formerly. The revised
accounting policy is outlined in accounting policy note K.
C) Financial yea
‘The financial year ends on the last Sunday in March and
accordingly, these accounts cover the 53-week period ended
‘31 March 2002 (the year) (2001 52 weeks).
D) Basis of consolidation
‘The accounts consoiidate the accounts of Consignia
Holdings pic and its subsidiary undertakings. These accounts
Consolidate the results of Consignia pic from its date of
‘orporation, as outlined in accounting policy note B,
Entities, other than subsidiary undertakings in which the
Group has a participating interest and over whose operating
{and financial policies the Group exercises a significant
influence, are treated as associates. In the accounts,
associates are accounted for using the equity method
‘The Group operates through business units that make use
of each other's services in order to take advantage of Group
synergies, having regard to the mutual dependencies that
exist. The Board's view is that there is a signticant
terdependency between mais and counter services. The
interbusiness charges recognise this dependency, The
Board's policy is to maintain controis to ensure that
appropriate pricing principles are achered to.
E) Turnover
‘Tumover is the vaiue of all services provided excluding VAT.
Inthe case of mails and distribution, turnover comaxises
revenue receivable directly trom customers and a measured
share of stamp income,
tis not considered that there is a materia diference between
turnover by origin and destination.
F) Goodwill
Goodwill arising on acquisition, being the excess of the
consideration over the fai valve of the separately identifiable
et assets acquired. is capitalised and amortised on a
straightdine basis over its estimated useful economic life up
toa maximum of 20 years. Itis reviewed for impairment at the
end of the fist full nancial year following acquisition and
thereafter as appropriate.
G) Tangible fixed assets
() Tangible fixed assets are recognised at cost, including
directy attibutable costs in bringing the asset into working
condition for its intended use.
(i) Depreciation of tangible fixed assets is provided on a
straightiine basis by relerence to original cost, and to the
remaining useful economic ives of assets and ther estimated
residval values, The lives assigned to major categories of
tangible xed assets are:
Property:
Freehold buildings up to 60 years
Leasehold land and buildings the shortest of the
period of he lease,
‘60 years oF the
estimated remaining
useful ile
Piant and machinery 3-35 years
Motor vehicies 112 years
Fitures and equioment:
office machines 3-20 years
computers 2-7years
other 4-25 years
ii) impairment reviews of fixed assets are performed annually
for assets with an estimated remaining usetul life in excess of
50 years and additionally where there is an indication ot
impairment as defined by FRS 11.
H) Leasing and hire purchase
Assets acquited under finance leases or hire purchase
agreements are capitalised and treated as tangible fixed
assets. Depreciation is provided accordingly and the capital
element of future rentals is included within creditors. Interest
‘on such contracts is charged to the profit and loss account
‘over the period of the contract, and represents a charge that
relates to the proportion of the capital repayments
outstanding. All olher leases are regarded as operating
teases and rentals are charged on a straight-line basis over
the lease term.
1) Investments
() in the Company's accounts, the investments in subsidiary
undertakings and associates are stated at cost less provision
{or impairment for acquired undertakings and at net asset,
value for internaly formed companies.
(i) Other fixed asset investments are stated at cost, less
provision for impairment
(i) Government git-edged securties, held as current assets,
are stated at market value atthe balance sheet dale and the
ditference between cost and market value is taken to the
profit and loss account. This treatment is a departure trom UK,
accounting rules, which stipulate that unrealised profits be
recited to a revaluation reserva. In the opinion of the
Directors, the treatment adopted is necessary to present
a true and fair view. The accounting treatment adopted
represents a later refiection of the investment return. All other
asset investments are treated according to standard UK
accounting rules
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w) Stocks
‘Stocks comprise unissued stores and in the case of counter
services also include retail stocks. All stocks are carried at the
lower of cost and net realisable value.
K) Deferred tax
Deferred tax is generally provided in ful on timing ditferences
at the balance sheet date, at rates expected to apply when
the tax lability (or asset) crystallses based on substartialy
enacted tax rates ard law. Timing differences arise from the
inclusion of items of income and expenditure in taxation
‘computations in periods different from those in which they are
included in the accounts.
Deferred taxis not recognised in the following instances:
on gains on disposal of fixed assets where, on the basis of,
available evidence, itis more Ikely than not that the taxable
‘gain wil be rolled over into replacement assets and charged
to tax only when there is a commitment to dispose of thse
replacement assets.
~ on unremitted earnings of subsidiaries and associates
where there is no commitment to remit those earnings.
~ deferred tax assets are recognised only to the extent that
the Directors consider that itis more likely than not that
there will be suitable taxable profits from which the future
reversal of tne underlying timing diferences can be
deducted
Deferred tax assets and iabiities are not discounted.
L) Pensions and other post-retirement benefits
‘Memioership of occupational pension schemes (as delailed
in note 21) is open to most permanent UK employees of the
Group. Al members of defined benefit schemes are
Contracted out ofthe earnings-related part of the State
pension scheme. Overseas subsidiaries make separate
arrangements for the provision of pensions and other post-
‘eticement benefits
‘The defined benefit schernes are financed on the basis that
the combined curren! service contributions payable by the
employees and employer are suticient to cover the cost of
the benefits which are expected to accrue in the future to
‘members. The charge to the profit and loss account is
Calculated so as to spread variations from regular cost and
toamorise the surplus or deficit over the expected remaining
service ves of the employees. The assels of the schemes are
held in separate trustee administered funds.
Veluations of the defined benefit schemes are carried out by
independent protessionally qualified actuaries at intervals not
normally exceeding three years, as determined by the
Ttustees. In each year between actuarial valuations, the
actuaries perform a hightevel review ofthe funding position
ofthe schemes.
‘The accounting charge for pensions rellects best estimate
‘assumptions as required by SSAP 24, whereas the funding
arrangements use a more cautious assumption for
investment returns to assess the cash position of CPP This
results in the cash payments being higher than the accounts.
charge for CPP The ditference is dealt wth through tne long-
term pensions debtor in the balance sheet.
Accounting policies and general notes
M) Research and development
Expenciture on research and development is written off in the
year in which it is incurred,
N) Foreign currencies
Transactions in foreign currencies are recorded at the rate
ruling at the date of the transaction (or at the contracted rate
ifthe transaction is covered by a forward foreign currency
contract). Monetary assets and liabiities Genominaled in
foreign currencies are retranslated at the rate of exchange
ruling atthe balance sheet date (or the appropriate forward
contract rate). All differences are taken to the profit and loss
‘aceount with the exception of differences on foreign currency
borrowings which are used to finance or provide a hedge
against foreign equity investments. These are taken directly
to eserves together with the exchange difference on the
carrying amount of the related investrnents, Tax charges and
credits attributable to exchange differences on those
borrowings are also dealt with in reserves. The accounts of
‘overseas subsidiary undertakings are translated at the rate of
exchange ruling at the balance sheet date and the differences
arising from the translation of opening net investments are
taken to reserves.
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©) Derivative instruments
The Group uses forward foreign currency contracts to reduce
‘exposure to foreign exchange rates. The Group's policy is
that ils derivative instruments quality for hedge accounting
when the following citeria are met
~the instrument must be related to a foreign currency asset
‘or lability that is probable and whose characteristics have
been identified:
= it must involve the sae currency as the hedged item; and
—it must reduce the risk of foreign currency movements on
the Group's operations,
The contracted rates are used to record the hedged iter,
As a result, gains and losses are offset against the foreign
‘exchange gains or losses on the related financial assets and
fabilties. Where the instrument is used to hedge a committed
‘or probable future transaction, gains or losses are not
recognised until the transaction occurs.
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Group profit and loss account
2002 2001
protora
59 weeks ended 2 mooks enced
31 March 2002 25 March 2001
ss rested
Before Exceptions! Bore Exceptional
exceptions! tems excelent
tome (note 4) Tota! iors (oot) Tou!
Notes tm sm fm 0 im Sen
‘Turnover ~ continuing operations.
Ongoing 8,377 - 8377 8119 - atts
Acquisitions 34 - 31 - -
Turnover 1 8,408 8,408 atts - ante
Staff costs 2 (4,965) (513) (6,378) (4,671) - 6.671)
Depreciation and other amounts written off
tangible and intangible fixed assets:
‘Depreciation and amortisation 3 71) - em en - (e77)
impairment 3 = (486) (448) ® - @)
(ther aperating charges (3330) (179) @Sta) 185) 67) 222)
Other operating income 3 = 19 19 15 - 15
Total net operating costs (8475) (1,119) (8594) (8.097) 67) @,164)
Group operating (loss)/profit ~ continuing operations
Ongoing (67) (1,119) (1,186) 22 67) (45)
Acquisitions, - - - - -
Group operating (loss)/protit (67) (1,119) (1,186) 22 67) (48)
Share of operating profit in associates 4 - 4 - - -
Impairment of goodwill in associates _ ® @ (12) a ~ =
Total operating (loss)/profit: Group and
share of associates, 3 (1.128) (1,194) 22 Co) (45)
Net profit on disposal of tangible fixed assets 4 24 24 - 20 20
‘Loss on disposal of subsidiary undertaking - (10) (10) - - -
(Loss)/profit on ordinary activities before interest (68) (1,112) (1,180) 22 «a7 5)
Not interest receivable 5 56 - 56 106 = 06
{Loss)/profit on ordinary activities before taxation (12) (4,112) (1,124) 128 a7
Taxation 6 179
{Loss)/profit on ordinary activities after taxation (945)
Equity minority interests
(Loss)/profit for the financial year (940)
Transfer to dividend reserve 7 -
Loss transferred to reserves for
‘the financial year 19 (940) (4)
Group statement of total recognised gains and losses
Notes
(Loss)/proft for the financial year excluding share
‘of proft(loss) in associates
Share of associates’ profit/(loss) for the year
(Loss)/profit for the financial year
Exchange differences on translation of net assets
Exchange differences on translation of loans
Unrealised gain on associate transaction 10
Total recognised (losses)/gains for the financial year
Prior period adjustments:
Historic cost accounting convention 9
Deferred tax 8
‘Total recognised losses since last accounts
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2002
53 wooks ended
‘St March 2002
(821)
‘There is no stalerent ot historical cost profits and losses as the accounts are produced under the historic cost
accounting convention
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Balance sheets
Company
tay 25
Meren 2002 Waren 2001
sm om
Fixed assets
Intangible assets 8 146 421 - -
Tangible assets 9 1,783 2,026 - -
investments in associates 10 80 27 -
Other investments 10 14 33 2,725 -
2,725 -
Current assets
Stocks 42 44 - -
Debiors - receivable beyond one year 1 549 375 - -
Debtors - receivable within one year 1" 821,022 - -
Investments 12 1,800 - -
Cash at bank and in hand 1,054 - -
4,27 4,495 -
Creditors - amounts falling due
within one year 13 (2,340) (2,487) =
Net current assets 1,987 2,008 - -
Total assets less current liabilities 40104515 2,725 -
Creditors - amounts falling due atter
more than one year 14 (655) (697) - -
Provisions for liabilities and charges. 18 (750) (280) - -
2,605 3,538 2,725 -
Capital and reserves
Called up share capital 28 - - -
Profit and loss account 2,348 -
Dividend reserve 204 -
Other reserves 18 -
Total capital and reserves 19 2,605 3,543 2,725 -
Equity minority interests - © - -
2,605 3,538 2,725 -
Allan Leighton John Roberts Marisa Cassoni
Approved by the Board on 12 June 2002
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Group cash flow statement
2002 2001
Sd weeks ended sweets erded
‘31 Maceh 2002 25 Maren 2001,
Notes fm im
Net cash flow from operating activities @ 12 330
Dividends from associates 1 1
Retums on investments and servicing of finance
Interest received 1 114
Interest paid (32) ay
Net cash inflow from returns on investments
and servicing of finance 78 103
Taxation
Corporation tax recovered/(paid) _ 3 _)
Cash intlow/(outflow) from taxation 13 7)
Capital expenditure and financial investment
Purchase of tangible fixed assets (216) (903)
Purchase of fixed asset investments ) 21)
Sale of tangible fixed assets 61 54
Sale of fixed asset investments, 4 6
Net cash outflow from capital expenditure
and financial investment (157) (264)
‘Acquisitions and disposals
Purchase of subsidiary undertakings vay (167)
Net cash acquired with subsidiary undertakings - (t)
Purchase of interest in associates (25) (24)
Payment of deferred consideration
in respect of prior years’ acquisitions (O) (62)
Net cash outflow from acquisitions and disposals ek) (224)
Cash outflow before use of liquid resources and financing (100) (21)
Management of liquid resources
Net movement in current asset investments _(b) 363 (150)
Net cash inflow/(outflow) before financing 263 ee 71)
Financing
Repayment of hire purchase agreements o) (83) (179)
New long-term loans ) 1 812
Repayment of loans ) a] — ®
Net cash (outflow)/inflow from financing __ @ 7 328
Increase In cash 172 57
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EE
Reconciliation of net cash flow to movement in net funds
2002 2001
protons
53 weeks ended ‘52 wooke encod
‘31 Mareh 2002 ‘5 Waren 2001
Nee fm fre
increase in cash 172 57
Repayment of hire purchase agreements ) 83 179
New fong-term loans ©) a 12)
Repayment of loans (b) 9 5
Cash flow from management of liquid resources (b} (363) 150
Change In net funds resulting from cash flows (100) (121)
Exchange differences ©) ) 2)
Movement In net funds (108) (124)
Net funds at 26 March 2001 ) 2,990
Net funds at 31 March 2002 ) 2,158 2,268
Notes to the cash flow statement
(a) Reconciliation of operating loss to 2002 2001
net cash (low from operating activities sotora
aa restates
tm om
Group operating toss (1,186) (35)
Depreciation and amortisation 27
Impairment 446, 9
(469) eat
‘Change In operating assets and labitities
‘Stocks: a)
Debtors (235)
Creditors 208
Counter services client balances. 108
Provisions 9
Net cash Inflow from operating activities 320
Cash tlows relating to operating exceptional items.
‘There was a net cash outflow of £53m in 2002 in respect of redundancy payments (2001 a net cash outllow of £37m in respect of
television licence administration contract losses).
(b) Analysis of net funds,
Exchange 31 March
cashtiows —ateronces 2002
on ee
Cash at bank and in hand
172
Debt due beyond one year 0)
Debt due within one year 9
Hire purchase agreements due beyond one year 36
Hire purchase agreements due within one year 47
Current asset investments (383)
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Notes to the accounts
1 Segmental information 2002 2001
s2 veers ended
so weeks ended ‘2 Maven 2001
‘31 March 2002 a esate
Solos Sat
‘ia! between Externe Tota ewe Serre!
Analysis of turnover sales segments tunower ssloe sagrens—tanover
By class of business tm tm tn sm on fm
Mails and parcels 7,367 (77,380 7.079 1) 7,058
Counter services 1,290 337) 953 1,196 (289) 907
Other businesses 212 (107) 105
Total 3,69 (461) 8,408
By geographic area of origin
United Kingdom 7,752 7812
Rest of the World 656 607
Total 8,408 8.119
Analysis of (loss)/profit before taxation 2002 2001
Betore Belo preter
Operations! Pensions exceptions! Exzepuonal Cperatons! Pensions excentonal Exceptions as resatnd
‘etty Benet item items Total va ent "ore ters Teal
By class of business en m tm tm om fm fm om fm om
Mails and parcels (138) 205 67 (1,022) (955) (150) 185 35 - 35
Counter services (164) 20 (aay 04) (238) 67) 19 8) - 8)
Other businesses 15) 25 10 @) 7 1 24 25 or) (42)
Pensions benefit 250 (250) - - - 228 (228) - - -
Group operating
(loss)/profit (67) = (67) (1,119) (1,188) 22 : 2 67) 45)
Share of operating profit in associates 4 - 4 - - -
Impairment of goodwill in associates 6 (a) (12) - - -
Profit on disposal of fixed assets - 24 26 - 20 20
Loss on disposal of subsidiary undertaking - {10) (10) - - -
Net interest receivable 56 - 56 406 - 106
(Loss)/profit on ordinary activiie
before taxation (12) (1,112) 128 7) Bt
By geographic area of origin
United Kingdom (17) (868) (88) 59 a) ®
Rest of the World (60) 251) Bo) 67 - @7)
Group operating (loss)/proftt (67) (1,419) (1,186) 2 6” (45)
Share of operating profit in associates 4 - 4 - -
Impairment of goodwill in associates 6 ” (12) - - -
Profit on disposal of fixed assets - 24 24 - 20 20
Loss on disposal of subsidiary undertaking - (10) (10) - - -
Net interest receivable
(Loss)/profit on ordinary activities
bofore taxation 128 47) at
Analysis of net assets/(Wabiiities)
By class of business
Mails and parcels, 1,225 2.287
Counter services (286) (1st)
Other businesses 35) 8)
904 2,103
Share of net assets of associates 80 27
Unallocated net assets 1,621 1,408
Total net assets 2,605 9,598
Unallocated net assets principally include current asset investments, tax and borrowings. All net assets other than £143in (2003 £426er)
‘were located in the United Kingdom, In order to retlect the segmental analysis more appropriately, a number of changes have been made
tonames, presentation and structure of the segments. The mails and distnibution segment nas been renamed ‘mails and parcels’. In adcition,
Consignia’s philatelic business has been moved from ‘other’ to ‘rails and parcels’, resulting ia a prior year transfer of £51m prof between
these segments. As a result of a reorganisation within the Group, Consignia's cash distribution business has been moved trom ‘mails and
parcels’ to ‘counter services’, resulting ina price year transfer of £8 profil between these segments. Lasl year's figures have been restated to
‘elect these changes.
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2 Staff costs 2001
Wages and salaries 4.285
Social security costs 32t
Pension costs (note 21) 65
4671
A loan to one officer totalling £5,516 (2001 as restated - one officer £7,212) was outstanding at the end of the year.
Staff costs include £513m (£313m wages and salaries and £200m pension costs) which is included in exceptional items.
Average staff numbers, calculated on a full-time equivalent basis, including part-time employees were:
2002 2001
prota
Mails and parcels 190,107 188,297
Counter services 14,564 11,815
Other 17,139 17,862
Group total 221,810 217,964
2002 2001
proms
«5 resatod
Subpostmasters at year end 14,901 15,217
Details of Directors’ remuneration and pension entitlements are included on pages 7 to 9.
3° Operating loss 2002 2001
om in
Group operating (loss)/profit is stated after charging/(crediting):
Depreciation:
Owned assets 220 250
Assets held under hire purchase agreements 28 9
Impairment write-down:
Owned assets 148 4
Assets held under hire purchase agreements 39 -
Intangible assets:
‘Amortisation 23 18
Impairment 259 5
nz 286
‘Subpostmasters’ costs 965 551
Research and development expenditure Ey "
Operating lease charges:
Land and buildings 136 107
Vehicles and equipment 50 29
Counter services net interest receivable (note 5) i) (1)
Expenditure reimbursed to:
Postcommn 5 4
Postwatch 7 2
Other operating income:
Participation fee in respect of a sale and hire purchase
back transaction - (15)
Auditors’ remuneration: 2002 2001
000 oe
Audit services 1,269 1,078
Non-audit services:
Due digence and taxation services in respect
‘of acquisition and disposal activity ~ UK 2,109
Regulatory, taxation, accounting and other
assurance services ~ UK 5.076
Other advisory semvices - UK -
Total non-audit services - UK 7.185
Overseas 548
Total non-audit services 7.733,
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Notes to the accounts
4 Exceptional Items 2002 2001
fm fm
Recognised in arriving at operating loss:
Television licence administration contract losses. - 67)
Recovery of losses arising from the supply
of services for television licensing 19
Impairment write-downs, (448) -
Provision for restructuring of parcel services (298) -
Pipeline restructuring (156) -
Other redundancy provisions (228) -
Vacant leasehold property provisions (10) -
(1,119) 7)
Recognised below operating loss:
Impairment of goodwill in associate ” -
Net profit on disposal of tangible fixed assets (no
tax of minority interest effect) 24 20
Loss on disposal of subsidiary undertaking (10) -
(1,112)
Impairment reviews were carried out using a weighted average cost of capital of 8% and by reference to future projections
in accordance with long-term average growth rates.
The impairment relates to tangible fixed assets in Post Office Limited and the goodwill and other assets in the parcels businesses
amounting to £446m.
Parcel services restructuring relates to the decision that Parcelforce Worldwide should concentrate solely on the growing market
for ‘time-guaranteed’ and ‘next day’ and ‘two day’ express deliveries, both in the UK and overseas. Consignia wil transfer its universal
parcels service to Royal Mail who will use its existing network.
The provision for the pipeline restructuring relates to the initiative to streamline the transport network. A more integrated road-based
regional hub and spoke system will reduce the total number of road journeys.
Other redundancy provisions relate to improvements in efficiency throughout Gonsignia to support the initiative to reduce gross costs,
by £1.4bn per annum by April 2005.
5S Net interest receivable 2002 2001
pratorne
Interest payable: :
~ On bank loans and overdratts CO) ©
- On other loans _ 0) _
64) (10)
Interest receivable _ - 6
106
In addition, counter services (Post Office Limited) net interest receivable of £1m (2001 £1 1m) is included within other
operating charges.
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6 Taxation
‘The 2001 figures have been restated to show the effect of the implementation of FRS 19 — Deferred tax.
{2) Tax on (loss)/profit on ordinary activities
The tax charge/{credit) is made up as follows:
2002 2001
oretoena
em om
Current tax
UK corporation tax on income for the period - 1
‘Tax overprovided in previous years: - (13)
- (12)
Foreign tax 2 1
Group current tax 2 a)
‘Share of associates’ current tax 1 1
Total current tax (note 6 (b)) a (19)
Group deterred tax - origination and reversal
of timing differences (note 6 (d)) _ (182) _ 4
Tax on (loss)/profit on ordinary activities 179) 34
{b) Factors affecting current tax charge/(credit)
The tax assessed for the year differs from the standard rate of corporation tax in the UK of 30% (2001 30%). The differences are
explained below:
2002 2001
proforma
a5 restated
sm tm
(Loss)/profit on ordinary activities before tax (1,124) ai
(Loss}/profit on ordinary activities multiplied by the standard .
rate of corporation tax in the UK of 30% (2001 30%) (837) 28
Deferred/(acceterated) relief for asset depreciation and impairment 112 )
Accelerated refief for pension contributions (31) (43)
Provisions not deductible until incurred 101 5
Impaitment and amortisation of goodwill 8s 1
Deterred tax, including losses, not recognised s7 ()
Other tax assets, including losses 16 10
Total current tax (note 6 (@)) 3 (10)
(¢) Factors that may affect future tax charges
The Group has unrecognised deterred tax assets of £57m (2001 £18m) relating to tax losses in subsidiaries that are available
to offset against future taxable profits of those companies. Deferred tax assets have not been recognised in respect of these losses
as they may not be used to offset taxable profits elsewhere in the Group and have arisen in companies which have been loss-making
for some time,
The Group has capital losses carried forward, the tax effect of which is approximately £11m (2001 £11m). These may be set-off in
future against capital gains. The Group has rolled over capital gains, the tax effect of which totals £67m (2001 £60m). It is expected
that gains on assets sold in the year will be fully rolled over into assets acquired in the same year or the next three years.
Post Office Limited has £126m of deferred tax assets relating to timing differences which have not been recognised due to the
uncertain outlook for trading, making future taxable profits uncertain, This deferred tax asset may be recognised in future if, and
to the extent that, suitable taxable profits become available,
22
Notes to the accounts
‘Taxation (continued)
(d) Deterred tax
‘The deferred tax included in the balance sheet is as follows:
Included in provision for liabilities and charges (note 18)
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2001
prelorna
as restates
cn
(240)
Accelerated capital allowances
Pension contributions timing differences
Provisions
(121)
(127)
(240)
‘At 26 March 2001 proforma as restated
Deferred tax credit in Group profit and loss account (note 6 (a))
‘At 31 March 2002
7 Transfer to dividend reserve
Intangible fixed assets
Transter to dividend reserve
(ean)
182
(68)
2002
om
2001
prorma
em
In its White Paper (Cmd 4340), HM Government indicated that it would seek a dividend in respect of the trading results of The Post
Office Group in 2000 and 2001. Under the terms of the British Telecommunications Act 1981, The Post Otfice Corporation was unable
to declare and pay a dividend. However, the Board Members of the Corporation designated £244m of reserves in respect of a
prospective request for payment of dividends. The Secretary of State for Trade and Industry announced on 25 March 2002 that the
Shareholder would forego the dividend for this financial year.
cost
‘At 26 March 2001 proforma
Additions in the year (note 10(i))
Disposals in the year
Adjustments in respect of prior year’s acquisitions (note 10()))
Exchange movement
‘At 31 March 2002
AMORTISATION
‘At26 March 2001 proforma
Charge for the year
Impairment
Disposals in the year
Exchange movement
‘At 31 March 2002
NET BOOK AMOUNT
‘At 31 March 2002
At 26 March 2001 proforma
Soot
37 -
22 1
259 -
6) -
a)
312 1
Goodwill arising on acquisitions is being amortised evenly over its estimated useful economic life of 20 years.
146
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9 Tangible fixed assets
Group Land ang buldings Prantand Motor Fonures ane
Frechols Long) Shor lease machinery vehicles equipment Total
tm fm fn en fm &m
cost
‘At 26 March 2001 proforma 1,755 244 481 610 464 932 4,486
Prior period adjustment (note 9 (i) (265) 21) (102) @) 1) @ (449)
As restated 4,490 223 379 589 493 923 4.037
Reclassification 8 1 o) - - - -
Additions 1 - - 40 32 4s 228
‘On acquisition of subsidiaries - - - - - 2
Disposals (20) a) 4 ©) (123) (108) (259)
At 31 March 2002 1,589 225 366 624 342 862 4,008
ACCUMULATED DEPRECIATION
‘At 26 March 2001 proforma 436 54 188 244 260 760 4,939
Prior period adjustment (note 9 {i)) 168 Ea) 61) (22) (25) ® 2
As restated 604 75 127 219 235 751 2.011
Charge for the year 49 5 24 45 Gi 64 248
Impairment 5 35 26 46 - 75 187
Disposals (10) 0) ®) (104) (221)
‘At 31 March 2002 648 114 174 306 197 7a6 2,228
NET BOOK AMOUNT
Att March 2002 at 1 192 318 145 761,783
‘At26 March 2001 proforma as restated 886 148 252 370 198 172 2,026
10 Fixed asset investments
() The net book amounts held under hire purchase contracts amount to £118m (2001 a restated £185m).
{i The prior period adjustment relates fo the change of accounting policy from modified historic cost to the historic cost
accounting convention.
Group 26 Maren sna
pee sssooates! ALO March
proforma Aaationt —OrsposdisReciasstoaton _Impatorart rete 2002
fm om ‘m em tm tm im
‘Share of net assets
‘in associates 5 3 - at - 4 33
Goodwal 22 7 - - (12) = a7
Net investment
in associates 27 40 - 4 80
Financial investments 18 2 ° - 14
Other investments, 18 4 ) - -
60 46 c) 4 94
Financial investments are Local Authority deposits which have a maturity date in excess of 12 months at the date of purchase.
Further details of principal associates are given in note 27.
During the year, the Group entered into a transaction with TNT Post Group (TPG) and Singapore Post whereby each party contributed
assets and/or bought shares to form an Intemational cross-border mail distribution company, G3 Worldwide Mail NXV. (trading as
“Spring’). The Group contributed the business of its European branches, the shares and business of a subsidiary and purchased
further shares for £21m. This transaction resulted in an unrealised gain of £15m caused by the excess of the fair value of the part
of the business given up as consideration over the previous book value.
In 2001, the Group acquired a 20% stake in Camelot, the UK National Lottery operator. However, the Group neither exercised
significant influence nor shared in the profits of Camelot during the currency of the first lottery licence. Accordingly, the shareholding
‘was reported as a fixed asset investment in the accounts for the year erided 25 March 2001. During the period of the second licence,
commencing 27 January 2002, the Group will participate fully in the business of Camelot. Since that date, the 20% investment has
therelore been treated as an associate in these accounts.
During the year, the Group increased its stake in Direzione Gruppo Executive S.p.A. from 49% to 100%. Accordingly, this has been
treated as a subsidiary of the Group.
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Notes to the accounts
10 Fixed asset investments (continued)
‘Company
2002 2001
Total Total
fm tm
‘AL 26 March 2001 = :
‘Transfer from The Post Office Corporation 3,784 -
Net asset value adjustment (1,059) >
‘At 31 March 2002 2,725 -
The net asset value adjustment arises as a result of the accounting policy note I(). This states that the value of investments.
in imernally formed subsidiary undertakings are stated at net asset vatue.
() Acquisitions In the prior year
The Group acquired a number of letter and parcel delivery businesses in the year ended 25 March 2001 for which completion
accounts had not been finalised. The consideration and net assets acquired were included at their provisional fair values, which
equated to their estimated book values. Adjustments have been made to the consideration based on the final completion accounts
and the book values of the net assets acquired as shown in the table below. No further fair value adjustments have been made.
Provstonsl
“tude Ajuttrens “tw Oeup
tn on en
Tangible fixed assets 30 @ 22
Current assets.
Debtors _ 49 ® 46
Total assets 79 any 68
abilities
Bank overdraft 2) - (2)
Trade creditors (56) 7 (49)
‘Other creditors and accruals (20) 16 @
Net assets acquired 1 12 13
Goodwill arising on acquisition 17% 0) t81
175 0) 174
Discharged by:
Fair value of consideration 172 O) 171
Costs of acquisition 3 - 3
175 0) 174
(i) Acquisitions during the year
The principal entities acquired were:
Date of acquistion
Direzione Gruppo Executive S.p.A. (formerly an associate) 13 December 2001
Financial Distribution Services Ltd 1 August 2001
Gity & Financial international Ltd (CF) 17 November 2001
Stafetten Kolding A/S 4 June 2001
Further details of principal subsidiary undertakings can be found in note 27.
‘The acquisition method of accounting has been used. No acquisitions are materia) to the Group and the following disclosures have
been made on an aggregated basis.
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10 Fixed asset Investments (continued)
The following table sets out the identifiable assets and labilties acquired at thelc provisional fair value to the Group.
fn
Tangible fixed assets 2
Current assets
Debtors 1
Total assets 3
abilities
Trade creditors _ @
Net assets acquired 1
Goodwill arising on acquisition 24
25
Discharged by:
Fair value of consideration Ey
Costs of acquisition 1
25
‘The provisional fair value to the Group of the acquisitions was consistent with their book values.
The acquisitions were made by share and asset purchases for a cash consideration, subject to adjustment on agreement of
completion accounts.
No material adjustments were required in respect of accounting policy alignment. The completion accounts may result in adjustments,
(lil) Disposals during the year
‘On 30 November 2001, the Group disposed of its 67% interest in CityMail Sweden. The Group's share of the net assets of CityMail
‘Sweden at the date of disposal were £10m,
11 Debtors 2002 2001
om
Recelvable beyond one year:
Pension prepayment sot 965
Other debtors 18 10
549 378
2002 2001
proforma,
fm em
Recelvable within one yet
Trade debtors 700 789
Prepayments and accrued income 162 218
Corporation tax recoverable - 15
882 4,022
‘The pension prepayment relates to the cumulative excess of the amounts funded in the Group's defined benefit schemes over the
amounts charged to the consolidated profit and loss account.
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Notes to the accounts
12 Current asset investments 2002 2001
rotors
em mn
Government git-edged securities 358 197
Government short-term deposits (National Loans Fund) 4,172 4,583
UK Government Treasury bills - 272
Local Authority deposits 270 1
1,800 2.163
In accordance with accounting policy note I(ii), current asset investments aro stated at market value. The difference between cost
‘and market value taken to the profit and loss account for these investments was £9m (2001 Enil).
‘The Government has indicated that it would expect the investments represented by cash surpluses arising from previous years’
trading to be ring fenced for specific purposes: to act as security for borrowing from the National Loans Fund to finance the mails
business, and to support expenditure by Post Office Limited (POL) where such expenditure has the approval of the Secretary of State
‘and the Treasury.
13 Creditors - amounts falling due within one year 2002 2001
en as
Loans (note 15) 9 19
‘Obligations under hire purchase agreements (note 16), 36 83
Counter services client services balances 987 931
Trade creditors 596 626
‘Advance customer payments for mail services 220 214
Deferred consideration (note 17) 6 1
Corporation tax 1 -
‘Other taxation and social security 104
Other creditors 7
Accruals and deferred income 374
2,340
‘The Group receives and disburses cash on behalf of Government agencies to customers (client services balances) through its
counters network. The level of such funds held can vary significantly at each balance sheet date,
14 Creditors - amounts falling due after more than one year 2002 2001
tm ats
Loans (note 15) set 581
Obligations under hire purchase agreements (note 16) 70 106
Deterred consideration (note 17) 3 5
Other 1 5
697
45 Loans 2002 2001
protonea
sm m
‘Amounts falling due in:
One year or less 9 19
More than one year but not more than two years: 3 7
More than two years but not more than five years 74 59
More than five years _ 804 505
590 600
Analysis of loans
‘eta eters
Secwity ——orncipa range
fm %
National Loans Fund:
Loans repayable between March 2021
‘and September 2025 None 500 5.2610 6.12
Floating rate bank loans None 70 0.25 above LIBOR
Miscellaneous long-term bank loans taken out
by overseas subsidiaries Land and buildings 20 __Vatious fixed rates,
590
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16 Obligations under hire purchase agreements 2002 2001
em ats
‘Amounts falling due in:
‘One year or less 36 83
More than one year but not more than two years 34 35
More than two years but not more than five years 35 nm
More than five years -
189
17 Deferred consideration 2002 2001
om sector
‘Amounts falling due in:
One year or less 1"
More than one year but not more than two years. . 5
16
Purchase consideration includes an estimate of nil (200% £6m) which is contingent upon the future performance of the acquired
entities. The deferred consideration is payable in instalments.
18 Provisions for liabilities and charges
26 Maren 2001 Charged —“Raleaned Used Es
‘as Pret period nthe inte into 31 Maren
‘eponed — agguert ve vee veo" 2002
en on on on om tm
Surplus properties "1 - 10 - 2
Television licence administration contract 22 - - (a) -
Pipeline restructuring - - 156 - 156
Restructuring of parcel services - - - 298 - 297
Other redundancy 2 - 2 228 - 206
Other 5 - 5 7 - 12
Deferred tax (note 6) 10 200240 a) 58
50 290 280 699 (183) 750
The prior period adjustment reflects the impact of the implementation of FRS 19 ~ Deferred tax, during the financial year and the
deterred tax effect of the change in accounting policy from modified historic cost to the historic cost accounting convention,
() Surplus properties
Where the Group halds surplus leasehold properties, provision is made for future rentals and other unavoidable property costs
up to the earlier of the lease termination date and the Directors’ best estimate of the likely date of disposal. £3m of the provision
is expected to be utilised in 2002-03 and the majority of the balance over the following six years.
(i) Television licence administration contract
Provisions were made in 2001 to reflect foreseeable losses arising on a new contract between the BBC and Consignia (Customer
Management) Limited plus costs resuting from the terminated contract with Envision Licensing Limited.
(if) Pipeline restructuring
The provision comprises redundancy and other operating charges. £42m is expected to be utilised in 2002-03 and the majority
of the balance in 2003-04.
{Wv) Restructuring of parcel services
The provision comprises redundancy costs and other operating charges. £198m is expected to be utilised in 2002-03 and
the majority of the balance in 2003-04.
(¥) Other redundancy
[tis expected that £183m will be incurred in 2002-03 and the remainder in the following two years.
(vi) Other provistons
Other provisions retate to reimbursements to nominee subpostmasters, legal claims against the Group and the costs anticipated
on the closure of a subsidiary. It is expected that the costs will be incurred in 2002-03,
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Notes to the accounts
19 Reserves
Group
2002 2001
Prott prolonna
nd tsa as rostates
account Revaluation Dividend ther Tota “otal
‘tm mn &m tm tm
‘At 26 March 2001 proforma:
~ As reported 3,686 384 244 - 4294 4,099
~ Prior period adjustments (accounting policy
note B):
Historic cost accounting convention (137) (884) - - 21) (434)
Doterred tax (230) - - - 30) (181)
~ As restated 3,299 - 244 - 3543 3,484
Profit/(loss) for the financial year (940) - - (940) 49
Unrealised gain on associate transaction (note 10) - - - 18 18 -
Exchange difference on retranstation of net
assets of subsidiaries (15) - - - (15) 13
Exchange diference on foans 2 - - - 2 ®
‘At 31 March 2002 2346 - 244 152605 3,543
The profit(loss) impact of changes in accounting poticies on the current and prior year results is summarised below:
2002 2001
proorna
em fn
Deferred tax 62 (49)
Historic cost accounting convention 27 32
Profil(loss) impact on reported results 89 417)
Company
2002 2001
Prot
0d toss
evaluation account Dividend Toot Teta
m om fm em Sm
‘At 26 March 2001 - - - - -
‘As reported in the Corporation's 2001 accounts 297 3,907 2440 4,448
Impact of prior period adjustments in Consignia ple:
Historic cost accounting convention 7) (137) - (43a) -
Deferred tax ~ (230) = (230) -
Transter from The Post Office Corporation - 3540 244 8,788 -
Loss for the financial year = (1,059) = (1,059) -
‘At 31 March 2002 ~ 2481 244 2,725 =
‘The Company is a non-trading company and the loss for the financial year represents the net asset value adjustment arising as a
sesult of accounting policy note I{i). This states that the investments in internally formed subsidiary undertakings are stated at net
asset value. Accordingly, the Company's loss for the financial year is eliminated in the Group accounts and does not therefore form
part of the Group results,
20 Derivatives and other financial instruments
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‘An explanation of the Group's treasury policy and controls is included in the financial review on page 3. The role of financial
instruments in creating or changing the risks the Group faces in its activities is also explained in this section.
As permitted by FRS 13, short-term debtors, trade creditors, prepayments and accruals have been excluded from the disclosures,
(i) Financial liabilities — interest rate profile
The currency profile ofthe financial labiltios of the Group was as follows:
2002 2001
Fixed Floating Nonvienarost Fixed Fosting Nowintsrest proforma
rate ‘ale beating Tosat rate ‘aie earng a
‘sm om om om om tm om fm
Euro 20 70 4 94 40 n - 111
Sterling 500 - 1,096 1,596 500 - 4188 1,688
US Dollar 2 - - 2 - - 5 5
Total 522 70 1,100 1,692 540 714193 1,804
‘The interest rate and maturity profiles of the financial liabilities were as follows:
Ficed rate Floating rte Norsiterest Bearing
‘Average ‘averese ‘average
time to time (0 tine to
Value Inerest rate maturty Volvo Interest matuety Vaiue —— maturty
en * eas ‘om * i fm Days
Euro 20 5.74 8.14 70 Euro 2,00 4 183
UBOR
+025
Sterling 500 584 21.25 - - - 987 ‘on
demand
- - - - 106 728
- - - - - - 3 183
US Dollar 2 4.00 1.00 - - - -
Total 522 70 4,100
2001
Avcrage ‘verge erage
vrs wets time
valuoiotestiate——matrgy Valve Imorestrate aunty ave matunty
tm tr % Years ca Days
Euro 29 Various 9.10 n Euro 3.00 - -
fixed rates. years uBOR
+025
" 5.00 182 days - - -
Sterling 500 584 2225 - - - 999 On
years demand
- - - - - 189 1,091
US Dollar - - - - - - 5 732
Total 540. ta) 1,193,
{il) Financial assets - interest rate profile
‘The currency profile of the financial assets of the Group was:
2002 2001
Fed Nominterest Fad Floating Nercmterest_ —protorna
rete bearing Tota! ‘ate aie bearing “otal
fm tm Ea om &m om fm
Euro 1 8 28 - 1 - 1
Sterling 1,814 1016 2,833,178 2 902 3,082
‘Swedish Kroner - - - - - - 1 1
US Dotlar 4 - 6 - 2 1 3
Other - - 1 - - - -
Total 1,819 22 2,068 2,178 3,087
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Notes to the accounts
20 Derivatives and other financial instruments (continued)
‘The interest rate and maturity profile of the financial assets were as follows:
201
Fee cate Flomting rte Nonseterest bearing
Weighed Average vorage
average time to Imereat time to
Value imerestrate maturity Yatve vate matty
mn % oye tm % ays
Euro 1 3.08 8 19 Euro On
‘overnight demand
Sterling 4,791 4.02 143 3 Bank On 1,016 On
105.06 60 base demand ‘demand
13 8.33 382 minus 1
US Dollar 4 0.50 On - - - 2 On
demand demand
Other - - - - - - 1 On
demand
Total 1,819 22
2001
proforma
Fed rate Poatng rate Non intrest eang
Wlg average Average eape
average © ‘terest “mete tune
Valve iverestrate——eatarty vats ‘mio ratutty vise itnky
sm * Days tm m Days sm aye
Euro - - - 1 Euro on - -
‘overnight demand
Sterling 2,178 5.90 196 2 Bank On 902 On
base demand demand
minus 1
‘Swedish Kroner - - - -
US Dotlar - - 2
Total 2178 5
‘The Sterling assets of the Group comprise of gilts, deposits and cash.
‘Aone percentage point increase in interest rates throughout the period would increase profit before tax by £9m.
(iil) Maturity profile of the Group's financial tlabilities:
‘The maturity profile of the Group's financial liabilities at 31 March 2002 is set out below:
2002 2001
proforma
eo om
‘One year or less or on demand 1,036 4,104
‘More than one year but not more than two years 38 58
More than two years but not more than five years 1 137
More than five years 507 505
1,692 1,804
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20 Derivatives and other financial instruments (continued)
Fair value of financial assets/(Ilabilities)
™ M ) 2001
Book vate sock wae Farwae
tm fm m
Primary financial instruments held or issued
to finance the Group's operations
Cash 1,054 1,058 891 891
Gurrent asset investments 1,800 1,800 2.163 2,163
Fixed asset investments 14 14 29 29
Investments — CityMail - - 4 1
Long-term borrowings (690) (690) (600) (600)
Deferred consideration @) @) (16) (16)
Hire purchase creditor (106) (106) (189) (189)
Client services balances (987) (987) (991) (991)
Other - - ®@ 8)
Derivative financial instruments held to manage currency exposure
At the balance sheet date, the Group held contracts to purchase foreign currency for £188m (2001 £144m). There was no difference
between the contracted rate and the actual rate at that date.
‘The carrying value of gilts is £358m (2001 £197m) which is included in the current asset investment figures. The Group portfolio
of gilt holdings showed a loss of £9m (2001 Enil) during the financial year when revalued.
(¥) Gains and losses on transactional exposures
‘The table below shows the Group's currency transactional exposures that give rise to net currency gains and losses recognised in
the profit and loss account. These liabilities arise from the net payments due to overseas postal administrations for delivery of mall,
and are denominated in Special Drawing Rights (SDR). This is a basket currency comprising US Dollar, euro, Japanese Yen and
Sterling. Such exposures comprise the monetary liabilities of the Group that are not denominated in the functional currency of the
operating unit involved.
A maximum of 80% of the exposure to pay overseas administrations is hedged using SDRs, leaving 32 million SDRs unhedged
this year.
2002 2001
pr'oma
Not foreign currency liabilties (SOR) 32 26
Sterling equivatent value (£m) 28 22
‘At31 March 2002, the Group also held various open forward contracts that were taken out to hedge expected future foreign
currency payments (as shown in nate (iv) above).
(vl) Gains and losses on hedges
Foreign exchange exposures are hedged using currency deposits, currency borrawings, forward currency contracts and currency
options.
Gains and losses on these instruments are not recognised untiI the hedged exposure itself is recognised. Unrecognised gains and
losses on these instruments used for hedging are not material.
(vii) Borrowing tachities
In view of the large levels of cash and cash equivalents, the Group has no committed borrowing facilities.
21 Pensions
‘The Group operates pension schemes as detailed below:
Name Former name Egy Te
‘The Consignia Pension Plan (CPP) ‘The Post Office Pension Plan (POPP) UK employees Defined benefit
‘The Consignia Senior Executive The Post Office Senior Executive Pension UK senior executives Defined benefit
Pension Plan (CSEPP) Scheme (POSEPS) and Directors
‘The Consignia Retirement ‘The Post Office Retirement UK employees Defined contribution
Savings Plan (CRSP) Savings Plan (PORSP)
Various other small-scale schemes Employees of the Defined contribution
operated by overseas subsidiaries ‘overseas subsidiaries
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Notes to the accounts
21 Pensions (continued)
GPP consists of two sections, Section A&B and Section C that were created by the merger of two former schemes with effect from
1 April 2000. The terms of the merger require separate consideration of the financial position of each section for up to six years after
the date of the merger. The main requirement is that a funding surplus in one section cannot be used to offset a funding deficiency
in the other. Thus, funding might still be needed for Section C even if Section A&B was experiencing a contribution holiday.
“The pension charge was £276m for the defined benefit schemes, which includes £200m in respect of redundancy provisions, and
1m for defined contribution schemes (2001 £64m, £nil and {1m respectively). The overall Group result includes a £260m (2001
£228m) benefit derived in accordance with SSAP 24 on the basis set out below. The accounting charges are based on assumptions
ona ‘best estimate’ basis, which reflects the difference between ‘experienced’ performance over the prudent actuarial assumption
assumed in the funding rate. This has resutted in a lower regular accounting cost amounting to £53m (2001 £43m) of the benefit.
‘The surplus in the Consignia Pension Plan allows a further reduction in cost - evaluated by the Scheme actuary using their ‘best
estimate’ assumptions — providing £164m benefit (2001 £165m). This surplus is being amortised over 12 years, the average
remaining service lives of employees. The interest on the long term pension debtor of £33m (2001 £20m) makes up the final element
of the benefit.
Valuations of the defined benefit schemes are carried out at intervals not normally exceeding three years as determined by the
trustees. The latest actuarial assessments of CPP and CSEPP were carried out as at 31 March 2000 and 1 April 2001 respectively.
‘These were performed using an assumed rate of inflation of 3% for both schemes. Investment returns real were assumed to be
4.75% and 4.25% tespectively. Pay increases real were assumed to be 1.5% and 3% respectively and pensions, both in payment
and deferred, were assumed to increase at 9% for both schemes. The market value of assets at the latest actuarial assessments was
£15,983 for CPP Section A&B (as at 31 March 2000), £2,434m for CPP Section C (as at 31 March 2000) and £60m for CSEPP (as
at 1 April 2001), The asset cover of the benefits accrued to members after alfowing for future increases in earnings was 115% for CPP
Section A&B (as at 31 March 2000), 109% for GPP Section G (as at 31 March 2000) and 77% for CSEPP (as at 1 April 2001).
CSEPP commenced on 1 April 2001.
‘These accounts comply with the current accounting standard SSAP 24. A new accounting standard, FRS 17 has been adopted by
the Group, Disclosures will be phased-in over the three years ending March 2002, March 2003 and March 2004 as permitted by the
transitional rules,
FRS 17 disclosures
‘The net assets/(liabilties) of the schemes were calculated using an assumed rate of inflation of 2.5%. Pensions, both in payment and
deferred, are assumed to increase at this rate, with pay increases some 1.3% higher. The discount rate used is 3.5% before inflation.
The results are set out below.
Net pension assets/(liabilites) and expected rates of return
os
‘sa. Maren 2002 fe a Moe 2002
Longe Longer
rato otretn poten
onesies expected
= gm > em
Equities 82 12,607 82
Bonds 53 4,706 53 7
Property 67 1.194 - -
Other assets 45 106 45 7
‘Total market value of assets 15,613 7
Present value of scheme liabilities (15,931) 67)
Surplus/(deficit) in scheme 282 (10)
Surplus restriction - -
Pension asset (labiliy) botore deferred tax 282 (10)
Related deferred tax (iability)/asset 5) 3
Net pension asset/(iabilty) 197 a)
‘The present value of the scheme liabilities does not include the additional liabilities arising from the redundancy programmes.
‘An amount of £200m has been provided in the accounts during the year for pension costs for these liabilties (see note 2).
21 Pensions (continued)
22 Commitments
Reconciliations of net assets and reserves under FRS 17
Net assets
Net assets as stated in balance sheet
SSAP 24 balance
Related deferred tax
Not assets excluding pension assetiliabitity
FRS 17 pension asset
FRS 17 pension liability
Net assets including pension asset/lability
Reserves
Profit and loss reserve as stated in balance sheet
SSAP 24 balance
Related deferred tax
Profit and loss reserve excluding amounts relating to pension assetfiabilty
FRS 17 pension asset
FRS 17 pension liability
Profit and loss reserve including amounts relating to pension asset/liability
‘The long-term rates of future contributions expressed as a percentage of pay are 12.1% for CPP Section A&B,
CPP Section C and 24.9% for CSEPR.
() Capital commitments
Capital commitments contracted for but not provided in the accounts amount to £45m (2001 £205m).
(i) Operating lease commitments
‘The Group is committed to the following payments on operating leases during the next twelve months:
Land a balling
2001
rotor
2002
fm
For leases which expire:
Within one year 7 6
Between one and five years 21 18
Beyond five years, 900
118 95
23. Contingent liabilities and guarantees
24 Borrowing tnt
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11.1% for
Verve ane eqteprnent
20)
2002 proforma
fm fm
7 -
@2 48
69 48
‘A subsidiary has guaranteed the performance of a third party in retation to lease payments payable over the 15-year term of a lease
entered into on 21 December 2000, and has given certain tax indemrities to the US fessors. In the opinion of the Directors, no toss
will result to the Group as a result of these guarantees.
AAs required by the Notes Sorting Facilty rules, notes in transit to cash handling centres and those processed overnight, for which
Consignia has received credit, are secured by gilts deposited with the Bank of England. On detau, the estimated maximum liability
would be £178m.
‘At31 March 2002, the Group borrowing limit under Section 118(6)(b) of the Postal Services Act 2000 was £5,000m (2001 £5,000m),
subject to Government agreement, The amount of outstanding borrowings at that date was £705m (2001 £805m).
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Notes to the accounts
25. Related party transactions
During the year the Group entered into transactions with other related parties. The transactions were in tha ordinary course
of business and included administration and investment services recharged to the Group's pension scheme by Consignia Pensions
‘Trustees Limited. The transactions entered into and the balances outstanding at 31 March 2002 are as follows:
Amounts
related party Amounts
Sales to Purchases tom (reluding owed ta
‘bled Teited outstanang related
any uly ans) ony
on en em om
Consignia Pension Plan
444 - 19.7 -
2001 29.0 - 60 -
Quadrant Catering Limited
2002 - 420 - 10
2001 - 410 - 10
Cashtec Limited
2002 - - 24 -
2001 - - 07 -
Bull Information Systems Limited
2002 - - - -
2001 20 140 20 40
Postal Preference Services Limited
2002 18 - 04 -
2001 09 - 03 -
Optecon
2002 06 08 06 02
2001 - - - -
Cametot ple
2002 38 - - -
2001 - - - -
‘Szybka Paczka Spolka 2.0.0,
2002 - - 46 -
2001 - - - -
G3 Worldwide Mail N.V.
2002 110 170 15.0 -
2001 - - - -
Companies listed above are associates of the Group with the exception of Bull Information Systems Limited, which was a co-
shareholder of Envision Licensing Limited until 2001, and the Consignia Pension Plan.
Jerry Cope, a Director, is a shareholder-nominated Director of Camelot plc, with whom the Group has a commercial relationship for
the sale of £810m (2001 £805m) of lottery products per annum. Camelot became an associate of the Group on 27 January 2002.
26 Post batance sheet events
‘The Consignia Group announced its intention to restructure its letter delivery service. The Tailored Delivery Services programme will
introduce new delivery schedules, which will extend current delivery timeframes, whilst offering value-added delivery services.
‘The structure and new services are scheduled for a phased implementation over the next three years at an estimated redundancy
cost of approximately £350m. Long-term gross cost savings are provisionally estimated to be in excess of £350m por annum.
‘On 29 May 2002, Postcomm announced their decisions on the introduction of competition into the UK postal market. The three-
phased approach adopted by Postcomm comprises:
From 1 January 2003 - the liberalisation of bulk mail posted in volumes above 4,000 items (from a single sito and in identical size
format) will take place. This is expected to open up 30% of the domestic mail market, as measured by revenue, to competition.
In addition, other operators will be able to consolidate and convey mail for Consignia to undertake final delivery. Postcomm will
Continue to license niche services.
From 1 Aprit 2005 - the bulk mail threshold will be reduced to open up 60% of the market, by revenue, to competition.
From 1 April 2007 - the whole of the UK postal market will be liberalised and open to competition.
‘Consignia estimates that after the full effects of competition have worked thraugh, over the next three to five years, it will lose around
90% of its current market share in terms of both revenue and traffic volume.
27 Principal subsidiary undertakings and associates
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28 Share capital
country of incorporation Peroantage holding “ Principal ctor
‘Supsioiary undertakings
Consignia pic * uk 100 Distribution services
Post Office Limited (formerly Post Office Counters Lid) UK 100 Counter services
Consignia (Customer Management) Limited UK 100 Customer management
Citipost Europe Ltd * UK 100 Mail services
Gitipost Corporation * usA 100 Mail services
German Parcels Beteiligungs GmbH Germany 100 Parcel services
Extand SA France 100 Parcel services
Pakke Trans A/S Denmark 100 Parcel services
Nederlandse Pakket Dienst B.V. Netherlands 100 Parcel services
Direzione Gruppo Executive S.p.A, Italy 100 Parcel services
Associates
Camelot ple UK 20 Lottery operations
‘Quadrant Catering Limited * UK 51 Catering services
G3 Worldwide Malt N.V. (trade name Spring’) Netherlands 245 Mail services
1. This investment is held by the Company, All other investments are held by subsidiaries.
2, The Group holds 51% of the share capital of Quadrant Catering Limited. However, the voting rights attached to the various
Classes of shares give the other investor operational control. Quadrant is therefore treated as an associate in the Group
‘accounts.
3. The results for the year ended 31 March 2002 have been consolidated for all subsidiaries except Cilipost Europe Ltd and
Citipost Corporation, whose results for their year ended 31 December 2001 have been used, There were no material
variations from thelr normal trading activities between 1 January 2002 and 31 March 2002.
Detalls of subsidiaries acquired during the year are given in note 10. A full list of subsidiary undertakings and associates is available
from the Company's registered office. All shareholdings are equity shares.
Authorised 2002 2001
© £
‘Ordinary shares of £1 each 100,000 100,000
‘Special Rights Redeemable Preference Share
(Special Share) of £1 each 1 1
100,001 100,001
Allotted and called up 2001
©
Ordinary shares of £1 each 50,000
‘Special Rights Redeemable Preference Share of £1 each 1
50,001 50,001
‘The Special Share can be redeemed at any time by its holder (the Special Shareholder), The Company cannot redeem the Special
‘Share without the prior consent of the Special Shareholder. No premium is payable on redemption.
Subject to, and in accordance with, the provisions of the Postal Services Act 2000, the Special Shareholder can at any time require
the Directors to declare and pay a dividend to the Special Shareholder or its nominee.
On distribution in a winding up of the Company, the Special Shareholder is entitled to repayment of the capital paid up on the Special
Share in priority to any repayment of capital to any other member.
‘The Special Share does not carry any rights to vote.
In accordance with 363(7) of the Postal Services Act 2000, which provides that for the purposes of the Companies Act 1985, the
shares Issued to the Secretary of State shall be treated as if their nominal value had been fully paid up.
29 Loss attributable to the members of the parent company
‘The loss dealt with in the accounts of the parent company was £1,059m. The Company is a non-trading company and the foss for the
financial year represents the net asset value adjustment arising as a result of accounting policy note If). This states that the
investments in internally formed subsidiary undertakings are stated at net asset value (see note 19). Accordingly, the Company's loss
for the financial year is eliminated in the Group accounts and does not therefore form part of the Group result.
Five-year summary
Profit and loss account
‘Tumover: all continuing operations
‘Total operating costs before exceptional items
Exceptional items,
Group operating profiy(loss): continuing
Share of operating profit of associates
Impairment of goodwill in associates
Total operating profit(loss)
Profit on sale of tangible fixed assets
Profit on disposal of support service
Loss on disposal of subsidiary undertaking
Profit/(loss) before interest
Net interest receivable
Profiv(loss) before tax
Taxation
Profit(loss) atter tax
Equity minority interests
Profit/(loss) tor the financial year
‘Transfer to dividend reserve
Profit/(loss) retained
Balance sheet
Intangible assets
Tangible fixed assets.
Fixed asset investments
Net current assets
Creditors beyond one year and provisions
Total assets less liabilities
Revaluation reserve
ther reserves
Profit and loss account
Dividend reserve
Equity minority interests
Capital and reserves
Note
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9798 99.99 $600 wot ore
as restated
fm tm or tm em
6759 7,010 7522 8,119 8,408
(6231) 616) 7.141) (B.097) (8,475)
- - (656) (67) __ (1,199)
528 394 275) (48)
— 3 4 -
628 397 71) (45)
4 at "1 20
- 22 - - -
a es (10)
932 460 (260) (25) (1,180)
. 132448 e106 86
664 608 (71) at (1,124)
- 217) (2) (96) 4) 87
aT 496 (267) 47 (945)
_ es 3 2 8
447 496 64) 49 (940)
= (151) @) =
447 496 (415) (44) (940)
e798 899 0 tor ov
ss restates
on fa fm om em
- 220 270 421 146
2927 2,510 2ai9 2,028 4,788
31 22 26 60 94
1479 1,708 1723 © -2.0081,987
we (63) (160) _ (342) (977) __(1,405)
3774 4,300 4096 3.598 __ 2,605
259 225 289 - -
- - - - 15
3515 4,075 3659 © 3,209,348,
- - 151 244 244
Ho = 9). ©) =
3,774 4,300 40963538 2,605
‘The restated figures for 2000-01 reflect the impact of the Implomentation of FRS 19 ~ Deferred tax, and the change to the historic
cost accounting convention,
Glossary of terms
Accounting convention
‘The basis on which accounts are prepared,
Accounting Standards Board {ASB)
The Accounting Standards Board is responsible for producing
‘accounting standards which are known as Financial
Reporting Standards. The Company is required to comply
with Financial Reporting Standards when preparing accounts.
Capital expenditure
Expenditure on new, or adkitions to existing, fixed assets.
Cash
Cash in hand and deposits repayable on demand (within 24
hours or one working day) with any financial institution,
cBI
Confederation of British Industry.
Client services balances
Balances owed to or due from clients in respect of counter
transactions caried aut by Post Oftice Limited,
Counter services
‘The services provided to customers by the network of Post
Office branches.
Creditors
‘The amount owed to others for pay, goods and services.
‘Currency options
An option to buy or sel! foreign currency.
Current assets
‘Cash, oF other assets realy convertibie into cash,
Debtors
Mainly arnounts owed by customers for services provided
and pension prepayment.
Deferred taxation
‘The estimated future tax consequences of transactions and
events recognised in the financial statements of the current
and previous periods.
FRS
‘AFinancial Reporting Standard issued by the Accounting
Standards Bosrd
Alease that trancfere substantially all the risks and rewards ot
‘ownership of an asset to the lessee.
Goodwill
The excess of consideration over net assets acauired.
Group
Comprises Consignia Holdings pic and its subsidiary
undertakings.
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Hedge
‘The use of financial assets and financial liabilities to manage
tisk,
Historic cost basis
“Tne system of accounting where all current and capital
expenditure is recorded at its cast at the time of purchase
Interbusiness balances
‘Amounts owing between constituent businesses and
subsidiary undertakings of the Group,
ICAEW
The institute of Chartered Accountants in England
and Wales,
Liquid funds (cash flow)
Current asset investments that are held a8 readiy disposable
stores of value. These investments are readily convertible into
known amounts of cash at. or close, to their carrying amount
and can be disposed of without curtailing business
operations,
NLF
National Loans Fund.
Operating lease
Alease other than a finance lease.
Operating profit
Represents the profit (belore interest and non-operating
exceplional terns) on ordinary activities with the exception
of counter services where interest fas to be treated within,
‘operating activities,
POL
Post Office Limited,
Amounts set aside to meet known liabilities likely to be
incurred or certain to be incurred but where the amount is
uncertain.
Reserves
‘The profit and loss account represents accumulated profits.
Shareholder
‘The Company's shareholder is 1M Government
Tangible fixed assets
Buildings, plant and vehicles purchased for use over a.
number of years
Total recognised gains and losses
‘otal ofall gains and losses ~ realised and unrealised ~ that
are recognised in a period and are attributable to the
shareholder
Universal Service Obligation (USO)
‘The requirement fo provide a universal postal service
inthe UK.
38
Contacts
Consignia
148 Old Street
LONDON
EC1V 9HQ
020 7250 2888
Royal Mail
Business Sales Centre
08457 950950
Royal Mail
Customer Services
08457 740740
Parcelforce Worldwide
Customer Services
0800 224466
Post Office Helpline
08457 223344
Further copies of the annual review
and accounts:
Review and accounts distribution
cs
5th Floor
130 Old Street
LONDON
ECV 9PQ
020 7320 7313
Further information is available from
the Company's websites
{www.consignia-oniine.com
and www.consignia.com)
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