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Registered number: 4074919
CONSIGNIA HOLDINGS PLC
ACCOUNTS
for the period ended 31 March 2002
WABIGSE7O" 0687
COMPANIES HOUSE 140902
Financial Review
Consignia Holdings ple and the Consignia Group
‘The Consignia Group (the Group} comprises Consignia
Holdings pic (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
1 State. The main implications of this change are that tne.
Prior year comparalives are those of The Past Office Group
and the accounting policy for fixed assets nas changed from
‘modified historic cost accounting te nistoric cost accounting ~
the almost universal choice of ples, This has resuited in an
‘upward restatement of last year’s profit by £32m and a net
reduction to tangiole fxed assets of 8521m.
‘The accounts are drawn up for the 53-week period ended.
91 Maren 2002 (2001 52 weeks)
Going concern
There is signticant uncertainty conceming the outcome of the
uncing discussions with Government and therefore as to
‘whether or not the Group can be considered to be a going
concern. A key issue is the viability and affordabiity of the
network of Post Offices, Our plans require total funding of
some £2.4bn over the next three years and the Company
isin active discussions with Government about how these
future cash requirements are to be funded, Goverment
approval to fund the renewal plan and especially a decision
‘on the funding of the social Post Otfice networkis 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 he cash flow
projections, the Directors consider that itis appropriate to
prepare the financial statements on a going concem bass.
CConsignia made a full year foss from its operations of £318m
(2001 €206m} before exceptional items - equivalent to £1.2m
every trading day. The loss analysed by business segrent
‘was Mails and parcels £138m (2001 £150m), Counter
services £164m (2001 £57m) and Other £15m (2001 profil
£m), This 1oss was belore taking into account a net £1m loss
‘on associates and a £250m pensions benelit (2001 £228)
derived in accordance with SSAP 24, which resulted in a net
‘operating loss of 68m (2001 profit of £22m),
The loss before taxation was £1,124m (2001 profit £81m}.
Ths loss re‘lects 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 €179m (2001
‘charge £34m) and equity minority interest £5m (2001 £2m}
was £940m (2001 profit £49m}
Extemal tumaver grew by £289m (3.6%) to £8,408, mainly
reflecting growth in UK mails and parcels of €£214m and
‘overseas activites of £83m,
Whilst we sold current asset inwestments of £363m
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
oulfiows totaling some £191m. The Grouo's cash positon
‘was he'ped by the persion holiday windfall of £135m (2001
£126m). The windial relates to the surplus bul up in the
pension scheme over the past 20 years because of the high
‘equily bias of the fund during a sustained period of oul
market retums tat exceeded actuavial forecasting
assumptions.
‘The segmental analysis in note 1 10 the Group accounts
analyses the operating loss in accordartce with SSAP 25 ~
‘Segmental reporting. We have set out below an altemative
~anelysis that recognises the pensions benefit does not arise
from current trading and the substantial amount of trading
between operational and support unt, including the impact
‘of intornal interest charged lo businesses for centraly
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 parcels
Malls and parce's consist of our racitional businesses of UK
‘and intemational mails, UK parcels, and Logistics Solutions,
together with some more recently acquired international
businesses, our European parce's businesses — General
Logistics Systems (GLS) and cur overseas mails businesses.
‘Together, these businesses reported total revenue of
£7,367m, an increase of £279m (3.8%) over 2001, and losses
‘rom operations of £241m (2001 £407m),
UK mails revenue incressed by £157m to £5,317: —
a growth rate of 1.1% afte” adjusting for the 53rd week.
4.1% growth in pillar box and collection postings and a 3.2%
growth in commercial and bulk-posted letlers were achieved,
substantially below planned ievels. These disappointing,
growths reflect a siow-down in the national economy and the
impact of electronic substtution. Specifically, September 11
and anthrax scares impacted commercial and bulk posted
letters in the Autumn and Winter periods by an estimated
££50m. The slow-down has ralled aver 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 mails business,
before exceptional items, were reduced by £75m to £74m,
This result includes profits from our Stamps and Collectibles
‘operations of £47:n (2001 £53m). Losses after exceptional
items but before tax were £148m and the cash outfow
was £31m,
Intemational mails total income increased by £m to £746
(90 growth ater adjusting for the extra weeX). Total costs
at £764m reduced by £36m - a 6% saving aver the prior year
comparable period. These savings were largely de to lower
handing costs both in the UK ard overseas, and gave rise
to a reduction in tosses of £44m to £18m before exceptional
items and tax, and a loss of £20m after exceptional items but
before tax. The cash outflow from the international malls
operations was £82m,
Internationa! mais wi benefit from the cross-border business
‘mail venture Detween Consignia (24.5%), TNT Post Group
(51%) 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 Juy 2001 and will
deliver benelits to mailers worldwide, by combining the global
roach, networks, systems, products and expertise of the three
parent organisations. The Group contributed £38m in the form
of the assets and business ofits European branches, one of
its USA subsidiary underakings and the purchase of shares
for £21m in the new venture
UK parcels total Income grew by £377 to £719m, of which
‘£474m was extemal income ahd £245m for internal services.
Excemal income increased by £18, representing 2%
adjusted growth. Operating costs increased by £38m to
£819m (9% adjusting for the 53rc week). The losses from
‘operations remained broadly flat at 84m even after taxing,
into aocount the £9m beneficial impact on depreciation
arising from impairment atthe half year. Tha business cash
outliow was £115m,
(Our UK parcels business nas fost money for more than
‘a decade. Clearly, mounting losses of this magnitude and the
‘drain on the Group's financial reserves are unsustainable,
and in March 2002, the Board announced the downsizing
‘of ts UK parcels operations, exiting from loss-making product,
areas namely, non ‘time-guaranteed’, non ‘next day’ or ‘nwo.
day’ express deliveries. This gave rse to exceptional charges
‘of £397m (€138m impairment of assets, £222 redundancy
‘costs and £37m restructuring and closure costs), such that
the losses trom operations alter exceptional iterns but before
taxwere £491m,
‘The Parcelforce hub with its associated computerised
rack-and-trace system became fully operational early in the
financia' year, providing a key stepping store in our capability
to compete in the express market
Financial Review
Logistics Solutions’ income at £601m, af which £228m
is external revenues, grew by £45m mainly in response
{0 additional ternal activity to supoort UK parcel operations.
Costs al 2616m were broadly in ine with previous years
‘The net impact is a fallin the overall loss belore exceptional
costs by £51m to £15m. Exceptional costs were £127m
bringing tola’ losses before tax to £142m. Cash cuttiow tor
the business was £25m.
General Logistics Systems, our European parcels operation,
grew its income by £65m to £600m during the year, of which
£61m was attributable to the full-year impact of acquisitions,
and the remaining £m from underiying growth. Losses
before tax were £40m,
Consignia has increased its shareno'ding in the Generai
Parcel network through the strategic acauisition of some.
smal additional European operations principally in Naly
and Denmark, arnourting to a total investment of £9m.
Counter services
On 1 October Fost Office Limited assumed the functions
of Post Office Counters Lid, which brought together the
[Network Banking, Pos: Otice Network ard Cash Handling
‘and Distrbution business unis
Counter services increased its total income by £93 (5.7%
alloning forthe addition! week) to £4,289m. Overal, costs
incteased by £195m to £1,452m (13% after adjusting for the
53rd week). The annual costs of running Horizon ~ the front
fice computer terminal system - amaunted to £105,
an increase of £31m following the system's full national
deployment. Other key movernents in costs wore £25
higher payments to some 14,900 agents/subposimasters,
inflation impact of £7m ard IT developments principally on
the banking engine tolaiing £23m., The Dusiness also
received contributions trom Government forthe investment in
universal banking technology of £20m and "Your Guide’ pilat
of £20m, the later being an inilialve to explore the feasibility
of providing electronic access lo Government information
in the network branches,
Losses from operations before exceptional items amounted
to £163m (€102m worse than last year) and £241m after
‘exceptional items. The cash outflow forthe year was &412m
exC.uding the increase in network cash of £157m to suppor
Benefits Agency payments to custorrers over the Easter
Bank Holiday period. This weekend was also the accounting,
year end
Responstbilty for the latities of the Horizon/iCl Pathway
project was transferred from Government to The Post Ofice
in 1999. This resulted in a one-off payment by the Group for
costs incurred by ICL of £550m, a vrtite-off of £571m in the
1999-2000 accounts and the incurrence of substantial on-
going maintenance costs. By the time the contract terminates
‘in April 2005, aggregate contract costs are expected to
amount to some £1bn,
‘The incrermental costs of running the Hotizon systern have
tured counter services into a fundamentaly unprofitable
‘operation ~ a position that will be exacertaled by the move
of Benefits Agency transactions away ffom the counters
‘network trom April 2003. This will reduce total revenue by
some £4¢0m (30%). In addition, the absence of advance
Benefits Agency funding wit have a substantial adverse
impact on the werking capital of the business.
‘The dificut financial position is being addressed in two ways
Firstly rationaisation ofthe Post Office network, Secondy,
wwe are conducting a fundamental strategic review, whic’
is examining the economic viabilty, social cbligations 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 Gavernmert early this September Following on fromm this,
‘we expect the source and extent of funding for the network
tobe determined and agreed by Government.
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Universal banking services ~ comprising inlreductory
‘accounts offered by the banks and tne card account ~ are
being deveioged 1o meet the comolex challenges of the
stakeholders, which include Government, maior high steeet
‘banks, our customers and Consignia. Total investrrent to date
‘on these new banking services has been around 862m, of
which £497 was expended this year. The Government has,
‘contributed £20m towards these costs, The new service is
‘expacted to core on-stream from Spring of 2003. Universal
banking services will alow people receiving benefits ~
‘currently some 16m 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 £28m,
‘Exceptional items:
Tne Group results include net exceptional costs of £1,142
{2001 £471), of which 53% related to the costs associated
vith the restructuring of our UK parce's business end UK
transportation systerrs. Both of trese changes were
‘announced on 25 March ct this year and represent the first
hase of a three-year programme to remove £1.4bn from
‘our gross cost base.
Impairments totalled £453m ot which €398m related to our
‘UK and European mails and parcels operations, B48m was
for Post Ctfice network and €7m or goodwil in associates,
We have written down the value of GLS in our balance sheet
to reflect our viow ol the value ofthe business under current
market cone 18. The impairment of the Post Office network
was made after consideration ofthe expected future cash
flows of Post Ottice Limited bringing the cumulative total
impairment of assets in this business to £619m.
Provisions for restructuring the UK parcels service amounted
10 £298 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
Fedundancy and £94m restructuring charges.
Redundancy provisions amounting to £228m relating to
a number of minor UK mail projects totaling 860m, tne
review of the Post Office Limited structure of £28m and
£140m for staff working in suppor services. In addition,
10m was raised for vacant leasenold 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 included as an exceptional,
profit this year
The accounts also include net profts on disposal of fixed
asse's of £14 (2001 restated £20) 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 £3
Current tax charge and a deferred lax credit of £182m for
the year
‘The tax credit for 2002 represents an effective tax rate of 16%
‘on alloss betore tax, compared to a restated tax charge of
42% for 2001. The credit main arises from rete for
restructuring costs, which gives rise to losses that have
been offset against deferred tax labiities, and fixed asset
write-downs, which have also reduced deferred tax Fabilties.
Treasury
‘The Group operates a certral treasury function that manages
some £1.8bn of vestments, in accordance with investment
restrictions set by Government, and acis as internal banker
forthe Group. Group operations are primaniy financed
through retained profits 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 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
Group Treasury derives its authorty rom the Consignia
Bosrd, The Treasury function ony has the authority 10
undertake financiat transactions relating to the management
of underlying business risks. Al strategies are risk averse.
Regular upward reporting is to 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 lo investment. Shortzerm pottfolios aze 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 foating rate
borrowings,
‘The Group is exposed to foreign currency translation risk on
the net assets ofall overseas subsidiaries with the exception
of the German Parcel subsidiary, where a floating rate euro
loan provides a partial hedge.
Foreign currency balances, held to operate the Bureau de
Change service are hedged using a combination of forward
and spol deals, Where possible, the intemal netting of
‘exposures takes place.
The Group is exposed to transaction risk rom its cbigations
to pay overseas postal adrrinistrations for the deivery of
UKoriginating mal. A maximum of 60% ofthis exposure
{is hedged in an intial 12-month programme, which is
‘subsequently reviewed on a monthly basis. This programe.
Utllses forward foreign currency cortrac’s, options, and
foreign currency deposits,
Al other significant lables are hedged when they
become contractual
The Group's fuel risk management strategy aims to reduce
uncertainty created by movements in the ol market. The
stralegy operates within the parameters set by he Board
Over-the-counter financial derivative products are used.
to manage bath the cornmodty and foreign exchange
‘elements of the exposure
Treasury operates a roling 18-month orogramme, which
is subsequently reviewed on a quartery basis,
‘Counterparty riskis managed by limiting aggregate exposure
to an indvvidual counterparty, taking account of ts
ebt-lorincome ratio and tre 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 vestments
of £1,900m, a rate of 4.7%, ‘ess £34m interest payable on
average borrowings of £590m, a rate of 5.8%. Last year net
interest receivable was £106m, comprising £116m rece’ved
‘on average investments of £1,815m (a rate of 6.4%) less.
‘£10m payable on average borrowings of £180m (a rate
0f 5.5%)
Pensions
The overall 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 rellects 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 beneft. The surplus in the
CConsignia Pension Pian allows a further reduction in cost ~
evaluated by the Scheme actuary using thei: ‘best estimate
assumptions ~ providing £164m benef, withthe interest on.
the long-terrn pension debior of £33m raking up the fina}
‘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 disclosad in note 21 to the Group
accounts. The 2002-03 accounts wil make profit and loss
cisciosures in accordance with the new standard, whist the
2003-04 accounts will repo all pension costs and related
information in accordance with the new standard. Ihis
‘anticipated that the full adoption of FRS 17 will worsen the
reported profits for 2003-04 by some £150m, compared with
the positon ifthe old standard were to aoply,
Postcomm competition proposal
The Postal Services Commission (Posicomm) was set up as
‘an independent regulator forthe industry. On 26 March 2001,
Consigria was granted its firs: cence, which required it to
provide a universal postal service at a uniform affordable
Price. During the year, Posicomm 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 Postcomm comprises:
From 1 January 2003 — the liberalisation of bulk mail posted in
volumes above 4,000 items (trom a single site and in identical
size format) will take place. This is expected to open up 30%
of the domestic mai. market, as measured by revenue, to
‘competition. In adition, other operators will be able to
‘consolidate and convey mai for Consigria 10 undertake tinal
delivery. Postcomm will continue to license niche services.
From 1 Apt! 2005 — the bulk mail eshold will be reduced
to open up 60% of the market, by revenue, lo competition.
From 1 Apr! 2007 — the whole of the UK postal market wll be
liberalised and open to competition.
Consignia estimates that after the full effects of competition
have worked through, over the nex! 3 to 5 years, it could lose
‘around 30% of ts curtent market share in torms of both
‘revenue and volume.
‘Sourcing reviews
Consignia is examining the feasioilty of using outsourcing
partners for some of its support services. This is designed
to create the maximum value from support services and:
‘ease 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 established a European Monetary Union
Committee. Tha UK has yet to decide on entry to the EMU
and Consignia has evaluated the imptications of both entry
and nomentry
Consignia compartes 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 rate risks between the former
courtencies of participating countries. Whist the UK remains
outside of EMU, and Consignia reports in Steting, the need
tomove funds to and frorn our overseaa businesses means
that we wil remain exposed lo foreign exchange fuctuations
between the euro ard Sterling. The new curency wil aso
have impications on our Bureau de Change service
Major project investment
As part of the drive to modemise our infrastucture, the Group
invested some £220m on a number of key programmes,
including £94m to upgrade the mais and parcels
infrastructure, £52m for counter services automation including
universal banking of £49m, £98 to provide high quality
TT infrastructure, £43m on the development of new products
and services and £24m relating 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 Camelot (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 tne Group.
Dividends
Tre Government, as shareholder has indicated that it will no:
be seeking a dividend in respect of 2002. €244m has been’
earmarked as a notional dvidend 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 criving a lower operating cost base,
downsizing and introducing new business models and
service patterns. 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 tat
increases ~ wrich the Regulator wil be invited to consider ~
wil adversely affect profitablty. Higher National Insuranos
Contributions yl further increase our cost base, from April
2003, by some £40m par annum.
We plan to invest some £350m in capital expenditure next
year lo enhance further our infrastructure.
‘Our move to a single deivery at a consistent time six days
‘aweek with other efficiency measures across the Group will
result in a further 17,000 jobs becoming redundant over the
next three years. These plans are expected to cost some
£500", Included within this are redundancy costs of £350m
associated with the move to a sing'e delivery, which should
produce gross savings in excess of £350m per annum 2s pat
of an overall cast reduction programme fo produce gross
savings of £1 4on per annum by 2008.
(Overall, we expect trading losses to continue into next year
ata similar level with further exceptional costs of around:
‘£500m in the frst half of the year, mainly as a resut of the
announced changes to the UK mais datvery patterns.
‘The Board are committed to meeting the substantia
challenges provided by a new compettve ard regulatory
environment by both driving through changes and
substantially reducing our costs.
Group Finance Director
London
12. June 2002
Directors’ Report
‘The Directors present the first Group accounts for Consignia
Holdings plc. These accounts relate to the 53 weeks ended
31 March 2002, but in respect of Consignia pic, adcitionaly cover
the period between incorporation, on 10 January 2001, anct
25 March 2001, during wrich time no trading activly took place.
Principal activities
The Group provides a nationwide and internationa! distribution
service. The Group also provides access to a wide range of
financial and seta! services through Its network of Post Office
branches
Review of the business and future developments
Under the terms ofthe Postal Services Act 2000 (tha Act), the.
assets and labilties of The Post Office Corporation were
transferred to Consigria Holdings ple and its subsidiary,
CConsignia plc. The Act also conferred some commercial
freedoms that were not availabe to The Post Office. During the
Year, some of Consignia plo’s assets were taken on by Post Office
Counters Limited, which was renamed Post Office Limited on
1 October 2001. This wholly-owned subsidiary will be responsible
{or providing counter services on denalf of the Group.
Areview of the Group's business and fulure developments
's presented in the annual Review,
Results and dividends
The ioss on ordinary actvilles before taxation amounted
to £1,124m (2001 a restated profit of £81m). Atter taxation and
minority interests, the loss was £940m (2001 a restated protit of
4977). The restatement reflects the introduction
of FRS 19, whicn requires a change in accounting for deferred
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 dividend
payment from Consignia Holdings ple in respect of the final wo
years’ trading of The Post Olfice Corporation, The Shareholder
is considering a request from the Board of Directors that no
dividend payment De made in respect of pre-incorporalion I
trading, The Secretary of State for Trade and Industry
announced on 25 March 2002 that the Sharetiolder would
forego the dividend for this financial yeat.
Political and charitable contributions
‘Ouring the year the Group made cheritabie contributions of
£444,623 (2001 £847 430). No poitical contributions were made.
‘Supplier payment policy
‘The policy ofthe Company and its principal operating
‘subsidiaries is to use their purchasing power fairly. Payment
toms are agroed in advance for al major contracts. For ower
value transactions, standard payment terms (shown on the
purchase order) apply The palcy is to make payments within 45
days of receiving a vaid invoice. The Company and its principal
‘operating subsidiaries in the UK have sought to comply with the
TT's Better Payment Practice Code. Copies ofthis can be
obtained trom the DT}. This code replaced the CBI aromat
payment cade, As the Compary is a non-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 potcy
relaling to fixed assets from the modifed historic cost to tne
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 £1,2¢4m by a
considerable margin
Post balance sheet events
Details of post balance sheet evenis are included in note 26 to
the accounts,
Directors and their interests
The Directors of tne 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 wih the Secretary of State’s consent,
HM Goverment is the Company's sole shareholder
and accordingly the Dectors have na interest in shares
of the Company.
TJonaifian Evans
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The Directors’ biographical details are inc'uded on pages 34
‘and 35 of the annual Review.
Employees
‘The Group employs more than 220,000 people and is one
of the UK's largest employers. The majority of staf are
employed in the UK.
‘The Group's policy is to encourage effective communication
and consultation between employees and management,
particularly on matters relating to strategy, firancial and
economic factors that may influence the Group's performance.
This is achieved through the use of an extensive range of
‘communication channels, including magazines, orielings, open
forums and an intranet website. Employees have various bonus
schemes, significant elements of which are based on business
related largels.
Regular Employee Opinion Surveys are conducted 10 allow
employees an opportunity to express thelr 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 skil
development forall employees lo 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 policy isto give full consideration to applications,
for emioloyment from disabled persons. Emplayees wno
become disabied whilst employed receive full suppor through
the provision of raising and special equipment to faciitale
Continued employment where practicable, The Group provides
trainieg, career develooment and promotion to disabled
employees wherever appropriate.
An Equa} Opponunities policy is maintained in all respects
including disability, age, religion, colour, sex, nationality ethnic
origin, sexual orientation, race, creed and marital status.
Going concem
As outlined in note A of Accounting policies and genera’ notes,
there is a fundamental uncertainty concerning the outcome of
the funding discussions with Government a8 to whether or not
the Graup can be considered to be a going concern, Our plans
require total funding of some €2.4bn over the next three years.
The Compary is in active discussions with Government about
how future cash requirements are to be funded. Government
approval lo fund the renewal pian and a decision on the funding
ol the socal Post Orfice network is critical 10 our continuing
‘operations. The Directors believe that the outcome of funding
discussions wih Government wil be favourable. On this basis,
ater consideration of cash flow projections, the Directors
consider that itis appropriate to prepare the financial
statements on a going concern bass.
Auditors
During the year, Emst & Young acted as auditor o the Comoany
until 28 June 2001. On 28 June 2001, Emst & Young transferred
its business to a limited fizilty partnership,
Emst & Young LLP incorporated under the Limited Liability
Partnerships Act 2000. The Directors consented to treling the
appointment of Ernst & Young as extending to Ernet & Young
LLP with effect from 28 June 2001. At the Annuai Genera
Meeting, 2 resolution will be proposed to ceapooint Ernst &
Young LLP as auditors
By order of the Board
@
A
Oo
Secretary
London
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 governance are applied by the Group and its
compliance with the Combined Code {the Code)
Group has been in full compliance with the provisions of
the Combined Code throughout the year and up to the date
of approval ol these accounts, in so far as they are
appropriate to a publc company wih a single sharehoider
The exceptions are that a senior non executive Direclor has
‘not been designated and that Directors are normally
appointed by the Company wih the Secretary of Slate's
consent. Thus, there 's ro need for a Nominations
Committee. The Secretary of State also approves the
remuneration of both executive and non executive Directors.
‘The Board and its committ:
Detals of the Board and committees are set out below.
The Board
The Board is responsible for setting the objectives and
strategy of he Group and for monitoring performance. The
Board usualy meets monthly, and has defined those matters
which are reserved exciusively for its consideration. The
Board curently comprises a non executive Chairman, four
executive Directors and three non executive Directors. There
are also two adcitional non executive Director vacancies,
which the Company is seeking to fil. Executive Directors have
rolling 12-month contracts and non executive Directors are
generally appointed for a two-year term.
‘There is a clear dhision of responsibiltes between the
Chairman and Chef Executive. Al non executve Directors are
considered independent.
Directors may take independent professional advice in the
furtherance of their duties, at the Group's expense. Alt
Directors have aocess to the advice and services of the
Company Secretary
‘The following committees deal wih specific aspects of the
Group's management
Audit and Risk Committee
The Audit and Risk Comittee consists of non executive.
Directors: Rosemary Thorne (Craitman}. Allan Leighton and
Mies Temoleman
‘The Audit and Risk Committee provides a forum for reporting
by both interna’ and extemal auditors and is responsiole for a
wide range of matters including:
monitoring the effectiveness of internal controls
reviewing the hail year and annual accounls before their
submission to the Board;
advising the Board on the appointment of external auditors,
and on their zemuneration oth for audit and non-aucit
work:
= discussing the nature, scope and outcomes of the aucit
with exernal auditors;
Keeping under review the independence and objectivity of
the external and internal auditors.
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{As part ofits continuing role, the Commits has a
considered the independence of the external auditors andl will
Continue to do 80 taking into consideration the lessons
learned from Enron,
Executive Board
The Chief Executive, John Roberts, chairs the Executive
Board, which comprises all executive Directors and certain
other senior executives of the Group. The Executive Board
develops and monitors deployment of the Group's strategy,
annual operating plans and budgets for Board approval. t
reviews operational activties and sets policies where these
are rot reserved to the Board.
Investment Board
The Investment Board is chaired by Marisa Cassoni and is
responsiole for reviewing major investment projects and
approving projects within the authorities devolved by the
Board.
Mergers and Acquisitions Board
The Mergers and Acquisitions Board 's chaired by John
Roberts and comprises Marisa Cassoni, Jery Cope and
Marin Gatsen, the Head of Mergers and Accuisitions. The
Board is responsible fr reviewing prospective transactons
for commercial and strategic effectiveness and giving
authorisation on behalf of the Group up to an agreed lit
Pensions Committee
‘The Pensions Committee is chaired by Marisa Cassoni. The
Committee is responsible for reviewing funding, benef,
Scheme structure and strategic developments impacting on
the Group's occupational persion 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 aoproval by
the Board and the Secretary of State. The Remuneration
Committee consists of non executive Directors. The
membershig is Miles Templeman (Chairman), Allan Leighton,
ohn Lioyd and Rosemary Thome.
Internal Control
‘The Board is responsible for the system of Internal contro! and
risk management as well as the timely review of ts
effectiveness, The system is designed to manage rather than
eliminate the risk of failure to achieve business objectives and
can only provice ‘easonable but not absolute assurance
against material misstatement or joss.
‘There is an ongoing process for identifying, evaluating and.
managing the significsnt risxs faced by the Group in
accordarice with the guidance detailed by the Tumbull
Committee as part of the Combined Code. The Board
reguiarly reviews this process. The process has been in place
{or the full year and up to the date of approval of these
accounls. The ey processes of internal control and sk
management include the fotowing:
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
profess.onalism and integrity for employees of the Group.
Identification and evaluation of business risks
A process of interna control self-assessinenl 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 ofthe effectiveness of the contol processes.
This rformation is communicated to the Board. The intemal
audit and risk management furction regularly reviews the
Group's risks for coverage, relevance and effective
management. The funetion also undertakes regular reviews of
the mast significant areas of risk and ensures thal key
controls remain in piace and reports its findings lo the Audit
and Risk Convmittee
Report on Directors’ Remuneration
‘The Remuneration Committee is made up wholly of non
executive Ditectors as outined on page 6. Throughout the
year, the Company has applied the princigles in Section 1 of
the Combined Code on Corporate Governance (the Code)
‘and has complied with the Code.
‘The Board is ultimately responsible for the framework and
costs of execulive remuneration and the material terms of the
service contracts offered to all Drectors, which require the
consent of the Secretary of Stale. The Committee's roie is to
develop the remuneration poly for executive Directors and,
‘specifically, to recommend their salaries, benef's, including
bonuses, and other terms and conditions of employment. The.
Comittee also recommends terms for their cessation of
employment,
In the perlermance of is role, the Cormmittee has access to
professional advisers, both within the Company and
extermally
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 quality in a complex business and a
competitive inteational marketplace
Remuneration packages for executive Directors comprise the
follawing e'emnents:
Basle salary
Salaries are reviewed annually and appropriate increases are
recommended where the Committee beteves that itis
necessary 0 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 annual budgets, which are reviewed and aporoved by
the Board. Performance Is monitored regulary 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 cortrol environment
Risk Management Committe
This is a aud connie of the Audit and Risk Committee. It
sels the framework for risk managernent within the Group and
ensures integration with strategic planning, It also facilitates
regular teporiing of key risks, assesses the risks identified
and tne actions to manage the risks to a desired level
‘The Board has reviewed the effectiveness of the system ot
internal control. The key elements include a revew of internal
aud reports, regular confirmations from local ranagement
and communication trom the Chairman of the Audit anc Risk
Committee on the outcome of Audit ard Risk Committee
meetings.
Performance-related bonus
Executive Directors may eam a performance-related bonus
{or achievement of measurable targets. This bonus is based
‘on targets set each year, intemally and by the Shareholder.
‘The maximum bonus for all executive Directors, 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 quaity of service, wih the greator
proportion available for profit achievement
Allan Leighton was agpointed as non executive Cnairman on
25 March 2002. His pertormance-re‘ated onus
arrangements had not been fina ised al the time these
‘accounts were approved.
Bonofits
Benetts incorporate all benefits arising frorn their
employment. In the main, these relate to the provision of
company cars, life insurance and health insurance plus the
‘cash-equivalent of any benetits not taken.
Pensions
‘The Grouo has a liability 10 pay persions in respect of
Directors’ services, with the consent of the Secretary of State
and, for some executive Directors, makes contributions to
pension schemes for this purpose. The Company has set up
a Funded Unapproved Retirement Benefit Scheme (FURBS).
FURBS will provide benefits to Directors and employees
‘whose contributions to the Company scheme are resticted
by the Inland Revenue eamings cap.
Contracts of service
Executive Directors have roting 12-month contracts and non
‘executive Directors are generally appointed for a
two-year term.
Report on Directors’ Remuneration
Directors’ remuneration, excluding pensions, was as follows:
CHAIRMAN (NON EXECUTIVE)
Allan Leighton
Neville Bain (retired 31 December 2001)
EXECUTIVE
John Roberts
Jerry Cope
Marisa Cassoni (appointed 1 February 2001)
Richard Close (died 6 April 2000)
NON EXECUTIVE
John Lloyd
Mites Templeman
Rosemary Thome
Mike Kinski (resigned 12 February 2002)
Total 2002
Total 2001
No fees (2001 nil) were paid to third parties in respect of
servioes provided by Directors.
Allan Leighton was apoointed as a non executive Drector on
2Aprl 2001 and was subsequently apoointed interim
Chairman on 8 January 2002 and Chairman on 25 March
2002,
David Mils was anpointed as an executive Director on
15 April 2002.
‘The figures in the table represent emoluments earned and
receivable as Directors during the financ'a! year, whenever
paid. Such emoluments are normally paid in the sarne
financial year with the exception ofthe pertormance-related
bonus, which is paid in the year following that in which iis
earned, This is a change from the previous year when only
those emoluments actually paid in the financial year were
disclosed, Accordingly, the figures for 2001 have been
restated lo incivcle tne effect of a salary increase for Neville
Bain, John Roberts and Jerry Cope that was effective trom
‘October 2000 but not settied untii May 2001. In addition, the
restated figures include fees totaling £1,451 relating to 2001
that were net paid until 2002.
During the year, he Secretary of State as Special Shareholder,
approved an increase of 10% in the base salaries of John
Roberts and Jeny 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 Execut ve Pension Plan
{CSEPP). Details of CSEPP are sel out in note 21 10 the
accounts. The plan is a funded, Inland Revenue-approved
final salary occupational pension scheme. The scheme
provides for a two-thirds final pensionable salary at normal
retirement age, subject fo the necessary pensionable service
and inland Revenue earrings cap, Pensions in payment are
increased annually in line with Retail Prices Index (RPI),
subject in some cases to 2 ca. Pensions are also payable to
dependants on the death of the member ard a lump sum is,
payable if death occurs in service.
John Roberts was a member of the Consignia Pension Plan
(CPP) Section B until 23 November 2001, when he transferred
con a 1/30tn basis to CSEPP. with a one year-for-one-year
service transfer Detais of CPP are in note 21 to the accounts.
Jerry Cope was a member ot CPP Section B unti
23 November 2001, He was aiso a member of the Post Otfice
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“oa! exchoing pensions
2001
aoc eolary —_Pattortrance crofosma
‘aad tecs rolted bonus ——_—Benats 00a asvasiated
Senior Executive Pension Scheme (POSEPS), which was an
Inland Revenue-approved top-up scheme. From
24 Novernber, Jerry Cope became a member of CSEPP on a
1/30th basis and ceased membership of the other schemes.
Previous service was transferred on a one-year for-one-year
basis,
From 1 April2001, Marisa Cassoni became a member of
CSEPP on a 1/30th basis. Her pension is funded by a
combination of the company scheme and FURBS, 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 lite assurance protection from
1 February 2001 to 26 March 2001. Life cover was provided in
line with normal death-in-service benefits of four times salary
(as testricled by the Inland Revenue earnings cap). Marisa
Cassoni's pension benefits 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 Nevile Sain
were determined using the rules of CPP Section C. Details of
this schome are set out in note 21 to the accounts. Nevite
Bain retired from the Company on 31 December 2007 and
receives a pension of £5,839 per annum,
The accumulated totat accrued pensions for John Roberts
and Jerry Cope have been adjusted :o reflect the enhanced
annua: pensions that are payaole in lieu of the lamp sum
entitements, which were payable from their previous
schemes,
Pension scheme benefits
GPP vcxmovly BOPP) CPP (orvcsly POPP; CSEFP
‘Soatan & ‘Secton C
‘Annual pension
entitlement fraction of
final year salary (which
constitutes only basic
salary) for each year's
service ‘yearn 1/60tn* Varies
Lump sum 3 times il ont
annual
pension
*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 Ditectors at the year end were:
tnoxense 0 Tranter vakin of Accurate total crue pension
the azoued tbe rorease ‘a
pation nthe pend ———_—acoued penser a 25 Monch 2001
‘ter nision) mibe perc 31 March 2002 as restated
= £ G €
Nevile Bain ' “4
Jorn Roberts i i
Jerry Cope ! :
Marisa Cassoni i j
‘The trenster value has been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Nole GN11 and
excludes Direclors’ contributions. The transfer value represents a liabilty of the Company rather than any remuneration due to the
individual and cannot de meaningfully aggregated with annual remuneraton, as it is not money the individual is entitled to receive,
Statement of Directors’ responsibilities in respect of the accounts
Company law requires the Direclors to prepare accounts for
each fnancial year wrich give a true and fair view of the
state of atfairs 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 policies and apoly them
consistenty;
~ make judgements and estimates that are reasonable and
prudent;
= state whether applicable accounting standards have been
folowed, 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 profil
land loss aocounl, the Group and Company baiarce sheets,
the Group cash flow statement and associated notes, the
Group statement of tota! recognised gains and losses,
accounting policies and general notes and the related notes
11to 29, These financial staterents have been prepared on
the basis of the accounting policies set out therein.
Respective responsibilities of Directors and
auditors
The Directors’ responsibilities for preparing the annual
Reviow and the financial statements in accordance with
applicable United Kingdom law ard accounting standards.
‘are sat out in the Statement of Directors’ responsibilities.
Our responsibly 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
slatements g¥ve @ true and lair view and are property
prepared in accordance with the Companies Act 1986.
We also report to you if in our opinion, the Directors’ Report
isnot consistent with the financial statements, if the
‘Company has not kept proper accounting records, f we
have no: received al! the information and explanations
Wwe require for our aut, 0° if information specited by law
regarding Directors’ remuneration and tansactions wih
the Group 's not disclosed
We read other information contained in the accounts and
consider whether itis 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 responsiilites do not extend
to any other information.
Basis of audit opinion
We condlucted 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
‘elevant to the amounts and cisclosures in the financial
Directors are responsible for ensuring that proper
accounting records are kept which disclose with reasonable
accuracy, al ary time, the financial position of the Company
‘an of the Group, and which enable them to ensure thal 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
steps for the prevention and detection of fraud and other
inregularites.
stalements. It also includes an assessment of the significant
estimates and judgements mad by the Directors in the
preparation of the financia! statements, and of whether the
‘accounting policies are appropriate to the Group's
circumstances, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all
the information and explanations wiich we considered
necessary in order to provide us wih sufficient evidence
to give reasonable assurance thal the finarcial statements
are free from material misstatement, whether caused by
fraud or other imegulanty or error. In forrning our opinion we
also evaluated the overatI 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
cconcerring 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 concen. The accounts do not inciude any adjustments
that would result from Government rot approving appropriate
‘unding or restictng access to current asset investments, as.
described in accounting policy note A It is not practical 10
‘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
‘prion is not qualified in this respect.
Opinion
In our opinion the financial statements give a true and fair
View of the state of affaits of the Company and of the Grovo.
as at 31 March 2002 and of the loss of the Group fo the
year then ended and have oeen properly prepared in
accordance with the Companies Act 1985.
_
Emat & Young LLP
Registered Audtor
London
12 June 2002
Accounting policies and general notes
‘The following accounting policies and generat notes apply
trrougheut the Group:
‘A} Fundamental accounting concept note
Current strategic plans indicate tnat funding totaling sone
£2 4bn is required over the next three years to restructure and,
reduce the cost base and to fund Post Otfice Limited
Potentially available cash and other current asset investments
totalled £1,850m at 31 March 2002, Whilst the Company's
‘Adticles aliow Consignia Holdings pic to Sorrow up to
£5,000m, this is subject to ror appcoval by Government
‘The Company isin active discussions with Government as
to how future casn requirements are to be funded, inctuding
certain conditions and constraints on how the current asset
Investments can be used to arrange National Loans Fund,
(NLF) finance and to suppox Post Otice Limited. The
Government has indicated that it will seek forthe current
asset investments of £1.81 to be distriauted from
CConsignia ple to Consignia Holdings plo. Financial support
‘of Post Office Limited is conditional on the production of a
‘business lan 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 April 2008
and for existing commitments that go beyond that date.
Government approval 1 fund the renewal olan and a decision
(on funding of the soc'al Post Office network is critical to
Consignia's continuing operations.
‘The Directors believe that the conditions and constraints,
imposed by the Secretary of State wil be met and that the
‘outcome of funding discussions with Government, described
above, willbe favourable. On this basis, after consideration of
‘cash flow projections, the Directors consider it appropriate to
Prepare the financial statements on a going concem basis,
Iwhich 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 concer basis would be invalid and adjustments would
have to be made to reduce the value of the assets to teir
realsable amount, to provide for any further iabities that
might arise and to rectassity fixed assets and long-term
‘ables as current assels and current labilties.
B) Basis of preparation and change in
accounting policy
‘These are the frst accounts prepared for the Group under
a plc status, Previously the accounts were produced under a
direction from the Secretary of Slate. By way of @ scheme
under Section 60 of the British Telecommunications Act 1981,
the assets and labilties of The Post Offce Corooration were,
‘on 25 March 2001, Iransferred to Consignia plc in
‘consideration of the issue of 60,000 ordinary shares in
Consignia pic to The Post Ottice Corporation. On 26 March
2001. the shares in Consignia p’c, owned by The Post Office
Corporation, were vested in Consignia Holdings plo under
Section 62 of the Postal Services Act 2000. Consignia
Holdirgs plc 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 10 26 March 2001.
This reorganisation does not technically meet the merger
rules of Schedu'e 4(A) to the Companies Act 1985 as there
‘was no share-for-share transacton. Nevertheless, in
accordance with the principles of FRS 6 for group
reconstructions, the financial statements are oresented as
it The Post Office Group and its subsidiares had been owned
‘and controlled bby the Company throughout.
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‘The Directors consider that the application of acquisition
accounting would fail fo give a true and fair view of the
Group's state ot affaits 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
‘numbar and complexity of transactions involved, is not
practicable to quantiy the effect of this departure.
‘The cornparative information shown relates to the previous
accounting period of The Pos: Office Group rather than the
statutory accounting period of Cons-gnia Hokdings ple, which
‘commenced on 20 September 2000, its date of incorporation
The accounts on pages 10 to 35 have been prepared in
accordance with applicable accounting standards under
the historic cost accounting convention, except forthe issue
described in accounting policy note Ii) and quantified
mn note 12.
Consignia Holdings pic (the Company} has ot presented its
(own proft and toss account, as permitted by the Companies.
Act 1985 8230(3). However, the results of the Company for the
Year are in note 29.
‘The Board reviewed the accounting policies adopted by
‘The Post Otfice 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 wih these, The effects,
of the new standards are as follows:
FRS 17 -Reticemont benefits. The transitional arrangements
will be phased over the three years ending March 2002,
Merch 2003 and March 2004 respectively Additional
information relating to the closing balance sheet is given
in note 21, The persion cost figures in te accounts comply
with SSAP 24,
FRS 18 - Accounting oclicies. The accounts reflect adoption
ofthis standard. No material changes have arisen.
FRS 19 ~ Deterred tax. This standard requires that in general,
deferred tax be provided on a ful provision basis instead of
€ partial provision basis, as applied formerly. The revised
accounting policy is outlined in accounting policy note K
€) Financial year
‘The financial year ends on the last Sunday in Maron and
accordingly, these accounts cover the 53-week period ended
31 March 2002 (the year) (2001 52 weeks).
D) Basis of consolidation
‘The sccounts consolidate the accounts of Consignia
Holdings pic and its subsiciary undertakings, These accounts
consolidate the results of Consignia pic from its date of
incorporation, 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 potcies the Group exercises a significant
influence, are trealed as associates, In the accounts,
associates are accounted for using tne 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 mutus! dependencies that
exist. The Board's view is that there is @ significant
interdependency between mails and counter services. The
interbusiness charges recognise this dependency, The
Board's policy is to maintain contro’s to ensure that
appropriate pricing principles are adhered to.
E) Turnover
“Turnover is the value of all services provided excluding VAT
In the case of mails and distribution, turnover comprises
revenue receivable directly Irom customers and a measured
share of stamp income,
N's not considered that there is a mater'a ditterence between
turnover by origin and destination.
F) Goodwi
Goodwil arising on acquisition, being the excess of the
consideration over the fair valve of the separately identifiable
‘et assets acquired, 's capitalised and amoriised on a
straigh'ine basis over its estimated useful economic fe up
toa maximum of 20 years. Itis reviewed for impairment at the
end ofthe first full nancial year following acquisition and
thereafter as appropriate
Q) Tangible fixed assets
() Tangib'e fixed assets are recognised a! cost, including
drrecty attributable costs in bringing the asset into working
‘condition for its intended use
{Depreciation of tangible fixed assets is provided on a
straight-line basis by relerence to original cost, ard to the
remaining useful economic ives of assets and ther estmated
residual values. The lives assigned to major categories of
tangible fixed assets are:
Property
Freehold buildings
up to.60 years
Leaseroid land and buildings the shortest of the
period of tne lease,
‘sO years oF the
estimated remaining
useful ite
Plant and machinery 3-35 years
Motor vehicies 112 years
Fixtures and equioment:
office machines 3-20years
computers 2-Tyears
other 4-28 years
Gi) Impairment reviews of fixed assets are performed annually
for assets with an estimated remaining uselul Ife in excess of
50 years and addltionaly where there is an indication of
imparment as defined by FRS 11.
H) Leasing and hire purchase
Assels acquied under finance leases oF hire purchase
agreements are capitalised and treated as tangitie fixed
assets, Depreciation is provided accordingly and the capita
element of tuture renta’s is included within credttors. Interest
‘on such contracts is charged to the profit and loss account
‘over the perod of the contract, and represents a charge that
relates to the proportion of the capital repayments
‘outstanding. All oher leases are regarded as operating
teases and rentals are charged on a straight ine basis over
the lease term.
1) Investments.
() Inthe Company's accounts, the investments in subsidiary
underakings and associates are stated al cost less provision
for impairment for acquired undertakings and at net asset
value for internally formed companies.
(i) Other fixed asset investments are stated at cost, lass
provision for impairment
{i Government git-edged secures, held as current assets,
are slated at market value atthe balance sheet date and the
diflerence between cost and market value 's taken to the
Profit and loss account. This treatment is a departure trom UK
2ccounting ‘les, viich stiplate that unrealised profits be
credited to a revaluation reserve. In the opinion of the
Directors, the treatment adopted is necessary to present
a true and fat view. The accounting treatment adopted
represents a faite reflection of the invest ent return, All ther
asset investments are treated according to standard UK
accounting rules
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uJ) 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.
10) Deferred tax
Deferred tax is generally provided in full on timing dliferences
at the balance sheet date, at rates expected to apoly when
the tax Iabilty (or asset) crystallises based on substartially
‘enacted tax rates and lav. Timing differences arise frorn the
inc\vsion of tems of income and expenciture in taxation
‘computations in periods different from those in which they are
inciuded in the accounts.
Deferred tax is not ecognised in the following instances:
on gains on disposal of fxed assets where, on the basis of
available evidence. itis more likely than not that the laxable
‘gain wil be roled over into replacement assets and charged
{o tax only when there is a commitment to dispose of those
replacement assets.
— on urremitted eamings of subsidiaries and associates
‘where there is no commitment to remit those earnings.
~ deterned tax assets are recognised only to the extent that,
the Directors consider that itis more Ikely than not that
there will be suitable laxable profits from wnich the future.
reversal ofthe underiying timing diferences can be
deducted
Deferred tax assets and liabilities are not discounted.
L) Pensions and other post-retirement benefits
‘Membershio of occupational pension schemes (as delailed
innote 21) Is oper: to most permanent UK employees of the
Group. All memes o! defined benefit schemes are
Contracted out ofthe earrings-related part ofthe State
pension scheme. Overseas subsidiaries make separate
arrangements for the provision of pensions and other post-
‘etirement benefits.
‘The defined benefit schemes are financed on the basis that
the combined current service contributions payable by the
employees and employer are sutficient to cover the cost of
the benefits which are expected to acorue in the future to
members. The charge to the profit and loss account's
calculated so as to spread variations from regular cost and
to amorise the surplus or deficit over the exoected remaining
service lives of the employees. The assels of the scnemes are
held in separate trustee administered funds.
\Vaiuations of the defined benefit schemes are carried out by
independent professionally qualified actuaries at intervals not
Normally exceeding three years, as determined by the
Trustees. In each year between actuarial valuations, the
actuaries perform a highleve! review of the funding position
of the schemes,
‘The accounting charge lor pensions retlects best estimate
‘assumptions as required by SSAP 24, whereas the funding
arrangements use @ more cautious assumption for
Investment returns to assess the cash position of CPP. This
results in the cash payments Deing higher than the accounts
charge for CPP The difference is dealt wih through the long-
term pensions debtor in the balance sheet
Accounting policies and general notes
M) Research and development
Experciture on research and developement is written off in the
year in which ts incurred,
N) Foreign currencies
Transactions in foreign currencies are recorded at the rate
ruling at the date of the Vansaction (ar at the contracted rate
{the transaction is covered by a forward foreign currency
contract}. Monetary assets and liabilities denominated in
foreign currencies are retranslated at the rate of exchange
tuling atthe balance sheet date {or the appropriate forward
contract rate), Al diferences are taken to the proft and loss,
account 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 reserves together with the exchange dfererce on the
carryirg amount of the related investments. Tax charges and,
Credis attributable to exchange differences on those
borrowings are also deat 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 poiicy is
that its derivative instrumerts quality for hedge accounting
when the following criteria are met:
~the instrument must be reiated to a foreign currency asset
‘or liability trat is prooable and whose characteristics have
been identified;
~itrmust involve the sare currency as the hedged iter; and
—itrmustredhoe the risk of foreign currency mavernents on
the Group's operations.
The contracted rates are used to record the hedged iter,
As aresuit, gains and losses are offset against the foreign
‘exchange gains or !osses on the related financial assets and
liabilities. Where the inetrument is used to hedge a committed
‘or probable future transaction, gains or losses are not
recognised until the transaction ocours.
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Group profit and loss account
2002 2001
Sa weoks ended sonece enced
3H waren 2002 Beare 201
fore Excoptional Sore Exeeienat
exceptional tems exertions: vem
ects’) Tout ts trated) wt
tm tm fm em an si
‘Turnover - continuing operations
Ongoing 8,377 - 3377 8.119 - atts
3 - at - -
Turnover 1 8,408 = 8408 atts - 8119
Staff costs 2 (4,865) (513) (6,378) (4,871) ~ (4.671)
Depreciation and other amounts written off
tangible and intangible fixed assets:
Depreciation and amortisation 3 en) - er) 77 - (e7)
Impairment 3 - (048) ) - @
Other operating charges 43,339) @ste) 3,155) 67) 222)
Other operating income 3 - 19 15 ~ 15
‘Total net operating costs (8.475) (1,119) (3,594) ——(@,097) (67) @,164)
Group operating (loss)/profit - continuing operations
‘Ongoing (67) (1,119) (1,186) 22 @) (48)
Acquisitions 3 = - - -
Group operating {loss)/profit (67) (1,119) (1,186) 22 67) 45)
Share of operating profit in associates 4 - 4 - - -
Impairment of goodwill in associates ® ” (12) - - =
Total operating (loss)/profit: Group and
share of associates. 3 (68) (1,126) (1,194) 22 67) (45)
Net profit on disposal of tangible fixed assets 4 - 24 24 - 20 20
‘Loss on disposal of subsidiary undertaking al (10) (40) - a
(Loss)/protit on ordinary activities before interest (68) (1,112) (1,180) 22 «7 @s)
Not interest receivable 5 58 - 56 106 - 106
{Loss)/profit on ordinary activities before taxation 12) (4,112) (1,124) 128 Ca) 81
Taxation 6 179 4)
(Loss)/profit on ordinary activities after taxation (045) 47
Equity minority interests 5 2
(Loss)/profit for the financial year (940) 49
‘Transfer to dividend reserve 7 - (63)
Loss transferred to reserves for
‘the financial year 19 (940) 4)
Group statement of total recognised gains and losses
2002
52 weeks ended
‘31 March 7002
(Loss)/profit for the financial year exchiding share
Of profit(loss) in associates (943)
‘Share of associates’ profi(oss) for the year 3
(Loss)/profit for the financial year (940)
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 (621)
Deferred tax 18 (230)
Total recognised losses since last accounts (1,689)
‘There is ne statement of historical cost profts and losses as the 2ocounts are produced under the nistoric cost
accounting convention.
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2001
vrobera
52 woens ended
35 tae
50
m0
49
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Balance sheets
Group Company
olor
ator ates star 25
March 2002 Maren 2001 Meren 2002 Marah 2001
ssresttes
Notes om em 'm em
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 -
2,023 2,507 2,725 -
Current assets
Stocks 42 “4 7 -
Debiors - receivable beyond one year 1 549 375 - -
Debtors - receivable within one year 4 882 1,022 - -
Investments 12 1,800 2,163 - -
Cash at bank and in hand 1,054 891 : :
4,327 4,495 - 3
Creditors ~ amounts falling due
within one year 13 (2,340) (2,487) - -
Net current assets
Total assets less current liabilities 4010 4,515 2,725 -
Creditors — amounts falling due atter
more than one year 4 - -
Provisions for ltabllities and charges 18 - -
2605 3,538 2,725 -
Capital and reserves
Called up share capital 28 - : -
Profit and loss account 2.348 © 3,299 2,481
Dividend reserve 244 244 -
Other reserves: 15
Total capital and reserves 19 3.543 2725 -
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
St weeks endad tawee ered
‘1 Mareh 2002 25 Maren 200!
notes fm tm
Net cash flow from operating activities @ w 330
Dividends from associates 1 1
Retums on investments and servicing of finance
Interest received 1 114
Interest paid a
Net cash inflow from returns on investments
and servicing of finance 103
Taxation
Corporation tax recovered/{(paid) _ 13 __ 7)
Cash inflowi(outflow) from taxation 13 cy
Capital expenditure and financial investment
Purchase of tangible fixed assets (216) (303)
Purchase of fixed asset investments 6) (21)
Sale of tangible fixed assets 61 54
Sale of fixed asset investments, _ a eB
Net cash outflow from capital expenditure
and financial investment _. 157) _ (264)
Acquisitions and disposals
Purchase of subsidiary undertakings ay (167)
Net cash acquired with subsidiary undertakings - (!)
Purchase of interest in associates (25) (24)
Payment of deterred consideration
in respect of prior years’ acquisitions ) (82)
Net cash outflow from acquisitions and disposals (48) (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) betore financing 263 71)
Financing
Repayment of hire purchase agreements ) (83) (179)
New long-term loans ©) 1 512
Repayment of loans ) @ )
Net cash (outtlow)/inflow from financing 328
Increase in cash
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———
Reconciliation of net cash flow to movement in net funds
2002 2001
protoens
53 weeks ended se woeks ence
at Maren 2002 ‘5 Waren 2001
Noe fm tn
increase in cash 172 57
Repayment of hire purchase agreements 0) 83 179
New fong-term loans () a) 12)
Repayment of loans ®) 9 5
Cash flow from management of quid resources (b) (363) 150
Change In net funds resulting from cash flows (100) ra)
Exchange differences {b) (8) @)
Movement In net funds: (108) (124)
Net funds at 26 March 2001 () 2,266 2,390
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 tnciona
an rectted
Group operating toss (1,186) @)
Depreciation and amortisation 271 277
impairment 446 9
(469) 241
Change In operating assets and labllities
Stocks 2 (1)
Debtors (69) (235)
Creditors (100) 208
Counter services cliont balances @ 108
Provisions 652 9
Net cash Inflow trom operating activities 2 330
Cash flows relating to operating exceptional items
‘There was a net cash outflow of £53m in 2002 in respect of redundancy payments (2001 a net cash outflow of £37m in respect of
television licence administration contract tosses).
(b) Analysis of net funds:
Exchange 31 March
cashows — sterences ‘2002
rs mn Sm
Cash at bank and in hand 172
Debt due beyond one year (1)
Debt due within one year ‘9
Hire purchase agreements due beyond one year (108) 36
Hire purchase agreements due within one year (63) 47
Current asset investments 2,163, (383)
Notes to the accounts
1
‘Segmental Information
2002
‘Sa weeks ended
‘31 March 2002
Seloa
‘Tous between External
Analysis of turnover silos segments fsinavar
By class of business om im tn
Mails and parcels 7,367 (7) 7,350
Counter services 1200 (337) 953
Other businesses 212 (107) 105
Total 8969 (481) 8,408
By geographic area of origin
United Kingdom 7,752
Rest of the World _ 656
Total 8,408
Analysis of (loss)/profit before taxation 2002
Betore
Operations! Pensions exceptions Exceptional
selvty —‘benett ems items ‘wal
By class of business tm em om tn en
Mails and parcels (138) 205 67 (1,022) (55)
Counter services (164) 20 (144) (4) (238)
Other businesses (15) 25 10 @) 7
Pensions benefit 250 (250) = - =
Group operating
loss)/profit _) = (67) (1,119) (1,186)
Share of operating profit in associates 4 - 4
Impairment of goodwill in associates 6 @ (12)
Profit on disposal of fixed assets - 24 24
Loss on disposal of subsidiary undertaking - (19) (10)
Net interest receivable - 36
{Loss)/protit on ordinary activitie:
before taxation (2) 12)
By geographic area of origin
United Kingdom. (17) (@68) (885)
Rest of the World (0) 251) Go)
Group operating (loss)/proftt (67) (1,119) (1,186)
Share of operating profit in associates 4 - 4
Impairment of goodwill in associates 6) ” (12)
Profit on disposal of fixed assets - 24 24
Loss on disposal of subsidiary undertaking
Net interest receivable
(Loss)/profit on ordinary activities
bofore taxation (2) 112) 4,124)
Analysis of net assets/(labrities)
By class of business
Mails and parcels 1,225
Counter services (288)
‘Other businesses (35)
904
Share of net assets of associates 80
Unallocated net assets 1,621
Total net assets 2,605
ne
sm
7,079
1,196
248
8,523
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2001
prolema
Se wotks ended
25 Maven 2001
nsvealted
Soles
saymems mover
on fm
@1) 7,058
(289) 907
(4) 154
(404) 8.ti9
7.612
607
8119
2001
ee'ae protons
Ceeatonst Penson etcaptoral caps) as vexed
sctwty beret ‘ome tee “ea
om tm m fed oa
(150) 185 35 = 35
67) 19 8) - (38)
1 24 25 ca) (42)
(228) = 2 -
22 - 2 67) co)
= 20 20
106 106
128 (47) at
59 a) ®
- gn - @
22 (67) (45)
: 20 20
8 ‘08
128 a7 at
2257
(181)
_ 8)
2,103
27
1,408
‘Unalloceted net assets principaly inclice cunent asset vestments, tax anc borrowings. All net aseete othes than 143m (200% £426m)
‘were located in the Unitec Kingdom. In orcer to reflect the segmental analysis more appropvistely, a ruber of changes have been madie
tonames, presentation and structure ofthe segments, The mails and distnbution segment hes been renamed ‘mails anc percels\. In addition,
Consigra’s philatelic business has been moved ‘rom ‘cther to ‘mais end parcels. resuting in a prior year transfer of £51m profi between
these segments. As a resut of @ reorganisation within the Group, Consignia's cash distribution business has been moved fram ‘mails ard
Percels't0 ‘counter services’, resuting na prior yoar anser of £8m prot between these segments. Last year's gures have been restated to
reflect hese changes,
2 Staff costs
3 Operating loss
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2002 2001
pict
em om
Wages and salaries 4778 4,285
Social security costs 323 321
Ponsion costs (note 21) a7 65
5,378 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
protons
Malls and parcels 190,107 188,297
Counter services 14,564 11,815
Other 17,139 17,852
Group total 221,810 217,964
2002 2001
protorna
esresiateg
‘Subpostmasters at year end 14,901 15,217
Details of Directors’ remuneration and pension entitlements are included on pages 7 to 9
2002 2001
seve
om m
Group operating ((oss)/proft is stated atter 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
7 286
Subpostmasters’ costs 965 551
Research and development expenditure Ey "
Operating lease charges:
Land and buildings 136 107
Vehicles and equipment 80 29
Counter services net interest receivable (note 5) a) 1)
Expenditure reimbursed to:
Posteommin 5 4
Postwatch 7 2
Other operating income:
Participation fee in respect of a sale and hire purchase
back transaction - (15)
Auditors’ remuneration: 2002
000
Audit services 1,269
Non-audit services:
Due ciligence and taxation services in respect
of acquisition and disposal activity ~ UK 1,927 2,109
Regulatory, taxation, accounting and other
assurance services ~ UK 9,292 5.076
Other advisory services ~ UK 1,007 -
Total non-audit services - UK 6,226 7.185
Overseas 1,673 548
‘Total non-audit services 7,905 7.783
Notes to the accounts
4 Exceptional Items
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5 Net interest receivable
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2002 2001
eterna
se resiated
tm ‘in
Recognised in arriving at operating loss:
Television licence administration contract losses, - 7)
Recovery of losses arising from the supply
of services for tetevision licensing 19 =
‘Impairment write-downs (448)
Provision for restructuring of parcel services (298) _
ipeline restructuring (156) -
Other redundancy provisions (228) =
Vacant leasehold property provisions (10) a
(1,119) (67)
Recognised below operating toss:
Impairment of goodwill in associate ” -
Net pratit on disposal of tangible fixed assets (no
tax oF minority interest etfect) 24 20
Loss on disposal of subsidiary undertaking (19) =
(1,112) a)
Impairment reviews were carried out using a weighted average cost of capital of 8% and by reference to future projections
in accordance with tong-term average growth rates.
‘The impairment relates to tangible fixed assets in Post Otfice 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 will 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.
2002 2001
om rete
Interest payable:
= On bank loans and overdrafts CO) ©
= On other loans rn) ic)
co) (10)
Interest receivable 90 116
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.
{a) Tax on (loss)/profit on ordinary activities
The tax charge/(credit) is made up as follows:
2002 2001
attecited
sm im
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 ay
‘Share of associates’ current tax 1 1
Total current tax (note 6 (b)) a (19)
Group deferred tax - origination and reversal
of timing differences (note 6 (d)) (182) 44
Tax on (loss)/profit on ordinary a
179) 34
(b) Factors affecting current tax charge/(credit)
The tax assossed for the year ditfers from the standard rate of corporation tax in the UK of 30% (2001 30%). The differences are
‘explained below:
2002 2001
preterm
ae asites
£m cm
(Loss)/profit on ordinary activities before tax (1,124) 81
(Loss}/profit on ordinary activities muttiplied by the standard F
‘ate of corporation tax in the UK of 20% (2001 30%) (37) 24
Deterred/(acceterated) relief for asset depreciation and impairment 112 )
‘Accelerated relief for pension contributions @t) 43)
Provisions not deductible until incurred 101 5
Impairment 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 (a)) 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 260m). It is expected
that gains an 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)
(@) Deferred tax,
‘The deferred tax included in the balance sheet is as follows:
Included in provision for liabilies and charges (note 18)
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Accelerated capitat allowances
Pension contributions timing differences
Provisions
‘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
8
Intangible fixed assets
Transfer to dividend reserve
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2002 2001
torn
cm asec
68) (240)
Oy 4121)
(158) (127)
109 . 8
(58) (240)
(a0)
__t82
(68)
2002 2001
prtorma
om tn
= 9%
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 Telecommunicetions 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 200 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(i))
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
ter
pan
tn
441 7
24 =
) -
13) 2
® a
42 7
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.
Tota!
6)
iu
313
146
421
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9 Tangible tixed assets
Group Land and puting Piantand Motor Fone a
Frechos —Longlesee Shotlease —machiney ——vencles_—aqument Tal
fm en tm en tn fn fn
cost
‘At26 March 2001 proforma 1,755 244 481 610 464 992 4,486
Prior period adjustment (note 9 (i)) (265) 21) (102) 21) @1) @ 449)
As restated 1,490 223 379 589 493 923 4,087
Reclassification 8 1 @ - - - -
Additions m1 - 40 32 ES 228
On acquisition of subsidiaries - 2 - - - - 2
Disposals (20) ® O) © (123) (108) 59)
At 31 March 2002 1,589 225 366 624 2 862 4,008
ACCUMULATED DEPRECIATION
‘At 26 March 2001 proforma 436 54 188 241 260 760 4,999
Prior period adjustment (note 9 {i)) 168 Ea (1) (22) (25) ® 7
As restated 604 75 127 219 235 751 2,011
Charge for the year 49 5 24 61 64 248
Impairment 5 35 26 = 75 187
Disposals (19) ) ® (9) (104) at)
‘At 31 March 2002 a8 114 174 306 197 7a6 2,228
NET BOOK AMOUNT
Att March 2002 9a 114 192 38 145 76 ‘1,783
‘At26 March 2001 proforma as restated 886 148 252 370 198 172 2,026
() The net book amounts held under tire purchase contracts amount to £118m (2001 a restated £185m),
(i) The prior period adjustment relates 10 the change of accounting policy trom modiiied historic cost to the historic cost
accounting convention,
10 Fixed asset investments
Group 26 Maren Shoe of
2001 esscestes Att Ma
aroloma Auaers ———DspoetlaRechescaton inpatmern Prit
tm fm fm on mn fn em
Share of net assets
in associates 5 3 - a - 4 33
‘Goodwill 22 Ed - - (12) = 47
Net investment
in associates 27 40 - 21 (12) 4 80
Financial investments 18 2 o) - - - 14
Other Investments 18 4 wo @) : : :
60 46 @) - (12) 4 4
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 N.V. (trading as
“Spring’). The Group contributed the business of its European branches, the shares and business of a subsiiaty 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 inftuence 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 ended 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,
Thoretore been treated as an associate in these accounts.
During the year, the Group inoreased 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
Test Toa
fm tm
‘At 26 March 2001 = =
Transfer from The Post Otfice 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(i).
in internally formed subsidiary undertakings are stated at net asset value.
is states that the value of investments
() 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 beon 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 tablo below. No further fait value adjustments have baen made.
Prevstenal
Far-vatieto
Adsense Glew
en on
Tangible fixed assets 30 @ 22
Current assets
Debtors 49 i) 46
Total assets 79 ro) 68
Liabilities
Bank overdraft - @
Trade creditors 7 (49)
Other creditors and accruals 16 @
Net assets acquired 12 13
Goodwill arising on acquisition - 174 161
175 174
Discharged by:
Fair value of consideration 172 o) 71
Costs of acquisition en) - 3
175 0) 174
(i) Acquisitions during the year
Tho 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
ity & Financial International Ltd (CF) 17 November 2001
Stafetten Kolding A/S 1 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 material 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 liablties acquired at their provisional far value to the Group.
tn
Tonglbte fixed assets 2
Current assets
Debtors 1
Total assets 3
Liabilities
Trade creditors @
Net assets acquired :
Goodwill arising on acquisition
Discharged by:
Falr-value of consideration 2
Costs of acquisition uJ
‘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
Recelvable beyond one year:
Pension prepayment sat
Other debtors 18
549
2002
tm
Receivable within one year:
Trade debtors 700 789
Prepayments and accrued income 182 218
Corporation tax recoverable - 15
892 1,022
‘The pension prepayment relates to the cumulative excess of the amounts funded in the Group's detined 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
tm em
Government gik-edged securities 358 197
‘Government short-term deposits (National Loans Fund) 4,172 4,583
UK Government Treasury bills - 272
Local Authority deposits 1
2.163,
In accordance with accounting policy note I(fi), current asset investments aro stated at market value. The difference between cost
‘and market value taken to the profit and lass account for these investments was £m (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
proton,
on tm
Loans (note 15) 9 19
Obligations under hire purchase agroements (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
2,940
‘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
tora
em ® ‘om
Loans (note 18) 58 581
Obligations under hire purchase agreements (note 16) 70 106
Deferred consideration (note 17) 3 5
Other 1 5
655 637
45 Loans 2002 2001
sectors
eo or
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 4 59
More than five years 504 505
590 600
‘Analysis of loans
wt vert
Seovity ——_prncpat range
im %
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 Various fixes
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16 Obligations under hire purchase agreements 2002
‘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 as 7
More than five years . 1 . - =
106 189
17 Deferred consideration 2002 2001
prema
tm fm
‘Amounts falling due in:
‘One year or less 6
‘More than one year but not more than two years. 3
3
Purchase consideration includes an estimate of £nil (2001 £6m) which is contingent upon the future performance of the acquired
entitles. The deferred consideration Is payable in instalments.
18 Provisions for liabilities and charges Ey
28 Merch 2001 Charged “oleae Uitnd ”
As Pree period —_petoura ntho inte inte at Mareh
recored —agusmert sa restled yew ven Year 2002
om on 4 on em ‘on tm
Surplus properties " - 1" 10 - - a
Television licence administration contract 22 - 22 - (0) 21) =
Pipeline restructuring - - - 156 - - 156
Restructuring of parcel services - - - 298 - {) 297
‘Other redundancy 2 - 2 228 206
‘Other 5 - 5 iz 2
Deferred tax (note 6) 10 200240 = 58
50 230 280 (583) (48) 750
‘The prior period adjustment reflects the impact of the implementation of FRS 19— Deferred tax, during the financial year and the
deferred tax effect of the change in accounting policy from modified historic cost to the historic cost accounting convention.
() Surplus properties
Where the Group holds 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 dato 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.
(ti) 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 resulting from the terminated contract with Envision Licensing Limited.
Gi!) Pipeline restructuring
The provision comprises redundancy and other operating charges. £42m is expected to be utilised in 2002-09 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 malority of the balance in 2003-04,
(v) Other redundancy
[tis expected that £183m will be incurred in 2002-03 and the remainder in the following two years.
(vi) Other provisions
Other provisions retate to reimbursements to nominee subpostmasters, legal claims against the Group and the costs anticipated
cn the closure of a subsidiary. Itis expected that the costs will be incurred In 2002-03,
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Notes to the accounts
19 Reserves
Group
2002 2001
Prot srelonea
nd toss as ovttes
‘account evaluation Dwvidend Other Tal “ata
‘tm en m om fm fm
‘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) - - at) (ay
Deferred tax (230) - - = 30) (181)
~ As restated 3,299 - 244 - 3563 9,484
Profil (loss) for the financial year (940) - = (940) 49
Unrealised gain on associate transaction (note 10) - - - 18 15 -
Exchange difference on retranstation of net
assets of subsidiaries (15) - - (15) 13
Exchange difference on foans 2 - - - 2 ®
‘At 31 March 2002 2946 - 244 152,605 3,543
The profit(doss) impact of changes in accounting poticios on the current and prior year results is summarised below:
2002 2001
em
Deferred tax 62
Historic cost accounting convention 27
Profiy(loss) impact on reported results 89 17)
Company
2002 2001
Prot
0 fo38
Revaluation “account. vided Tot Tea
fm om tm on mn
‘At 26 March 2001 “ - = Z
‘AS reported in the Corporation's 2001 accounts 297 3,907 244 4,488 -
Impact of prior period adjustments in Consignia ple:
Historic cost accounting convention er (137) - (aay -
Deferred tax E (230) es _{230) i
‘Transfer from The Post Office Corporation - 3540 244 3,784 -
Loss for the financial year = (1,089) = (1,059) -
‘Ati March 2002 = 241 244 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
result of accounting policy note I{), This states that the investments in intornally 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 9. The role of financial
instruments in creating or changing the risks the Group faces in its activities ig 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 tlabitities — interest rate profile
The currency protile ofthe financial abilities of the Group was as follows:
2002 2001
Fixed Floating Nonsntoroat Fired Flosting Nowintrest —proiorna
rete ‘aie bearing ros ‘ato " eae Taal
tm C ‘em ‘om sm ca fm em
Euro 20 70 4 94 40 ia] - 111
Sterling 500 - 1,086 1,598 500 - 1188 1,688
US Dollar 2 - - 2 7 -
Total 522 701,100 4,692 540 ial
‘The interest rate and maturity profiles of the financial liabilities were as follows:
200:
Fie rate Floating ata Nomsinterest Bearing
Average ‘vero er
time time to time
Value Interest rate maturity Volue Interest rate atu Value matoray
Em * Vea fm * Yeats fm Days
Euro 2002«S.74 8.14 70 Euro 2.00 4 183
LIBOR
+ 0.25
Sterling 500 586 21.25 - - - 987 ‘On
demand
- - - - 108 728
7 = = - = - 3a 183
US Dollar 4.00 1.00 - - - -
Total 70 4,100
2001
Fane rte Fat rat Nor-ntees aear
drerage Average average
trai net te to
Velie tnsrest rate matisy Value tntarestrate ata Vakso—— munty
tm * tr * vers m
Euro 23 Various 9.10 tal Euro 3.00 - -
fixed rates years uBOR
+025
" 5.00 182 days - - -
Sterling 500 S84 2225 - - - 999 On
years demand
- - - - - 189 1,091
US Dollar = 7 : - - - 5 732
Total 540 ial 1,198
(i!) Finenclal assets - interest rate profile
‘The currency profile of the financial assets of the Group was:
2002 2001
Fied Floating Nondntecest Fred Fleatng Nercntewst —pretorna
re ‘aio bearing Tota! “ vate etrng “aia
ta tm fm tn tm &m on om
Euro 1 19 8 28 - 1 - 1
Sterling 1,818 3 1016 «23,833 2,178 2 902 3,082
‘Swedish Kroner - - - 7 = 2 3 1
US Dollar 4 - 2 6 - 2 1 3
Other - = 1 1 . s “ =
Total 1,819 221,027 2,868 2,178. 5 904 3,087
gt 2009
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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:
Fixed cate Floating rate Monsrterest bearing
Weighted Averane Average ‘verage
vera time 0 Interest time to time 10
Value imterestrato maturity Valo rate matty Yolve maturity
em % owys em % bays cm Dove
Euro 1 3.08 8 19 Euro On 8 ‘On
overnight demand demand
Sterling 4,791 4.02 143 3 Bank On 1,016 On
10 5.06 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 1,027
2001
reforms
Fave rte Pate rte en rest beeen
Weigntod Average average esage
wvergo time intestine tune
vous tres matory ‘tus vie raunly value
sm * Bays tm * Days fm
Euro - - - t Euro On - -
‘overnight demand
Sterling 2,178 5.90 196 2 Bank On 902 On
base demand demand
minus 1
‘Swedish Kroner - = - - - - 1 On
demand
US Dollar - - 2 os On 1 On
demand demand
Total 2478 5 904
“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 belore tax by £9m.
(lil) Maturity profile of the Group's financial Itabilities
‘The maturity profile of the Group's financial liabilities at 31 March 2002 is set out below:
2002 2001
prtorna
tm fm
One year or less or on demand 1,036 4,404
More than one year but not more than two years 38 58
More than two years but not more than five years 11 137
More than five years, 507 505
1,892 1,804
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20 Derivatives and other financial Instruments (continued)
(v) Fair value of financial assets/(labilities)
2002 2001
Book valve Fale vatve Book vas Fa alae
tm tm fm om
Primary financial instruments held or issued
to finance the Group's operations
Gash 1,054 1,054 891 aot
Current asset investments 1,800 1,800 2163 2,163
Fixed asset investments 14 14 29 29
Investments - CityMall - - 4 1
‘Long-term borrowings (590) (690) {600) (600)
‘Deferred consideration @) @) 416) (16)
Hire purchase creditor (108) (106) (189) (189)
Client services balances (987) (987) (e901) (981)
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 gits is £358m (2001 £197m) which is included in the current asset investment figures. The Group portiolio
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. Thess liabilities arise from the net payments due to overseas postal administrations for delivery of mall,
and are denominated in Special Drawing Rights (SDRs). This is a basket currency comprising US Dollar, euro, Japanese Yen and
Sterling. Such exposures comprise the monetary labiltes 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 milion SDRs unhedged
this year.
2002 2001
proforma
Net foreign currency liabilities (SDRm) 32 26
Sterling equivatent vatue (¢m) 28 22
At81 March 2002, the Group also held various open forward contracts that were taken out to hedge expected future foreign
currency payments (as shown in note (v) above).
(v)) Gains and losses on hedges
Foreign exchange exposures are hedged using currency deposits, currency borrowings, forward currency contracts and currency
options,
Gains and losses on these instruments are not recognised until the hedged exposure itself is recognised. Unrecognised gains and
losses on these instruments used for hedging are not material.
(vi) Borrowing factities
In view of the large lovels 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 igibity ee
‘The Consignia Pension Plan (CPP) ‘The Post Office Pension Plan (POPP) Ukemployees 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
a1
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Notes to the accounts
21 Pensions (continued)
PP consists of two sections, Section A&B and Section G 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 stil 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
Sim for defined contibution schemes (2001 £64m, Enil and ftm respectively). The overall 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
ona ‘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 accaunting cost amounting to £53m {2001 £43m) of the benef.
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% respectively. Pay increases real were assumed to be 1.5% and 3% respectively and pensions, both in payment
and deferred, were assumed to increase at 3% 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 allowing for future increases in earnings was 115% for CPP
Section A&B (as at 31 March 2000}, 109% for GPP Section C (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.
‘Tho results are set out below.
Net pension assets/(liabilites) and expected rates of return
Pal csere
‘hs a9) Moen 2002 fw 36 Maen 2002
Longer Longa
sat ren, sag ott
ona wpa
= en * en
Equities 82 12,607 82 @
Bonds 5.3 1,706 53 7
Property 67 1,194 - -
Other assets 45 106 45 7
‘Total market value of assets 15,613 7
Present value of scheme liabltios (15,331) 67)
Surplus/(deficit) in scheme. 282 (10)
‘Surplus restriction = -
Pension asset/(iabilly) bofore deferred tax 282 (10)
Related deferred tax (liability)/asset (85) 3
Net pension asseV(liability) 197 fal
‘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 liabilities (see note 2).
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21 Pensions (continued)
Reconciliations of net assets and reserves under FRS 17
Net assets 2002
Net assets as stated in balance sheet 2,605
‘SSAP 24 balance (631)
Related deferred tax 158
Net assets excluding pension asset/liability 2,232
FRS 17 pension asset 197
FRS 17 pension kablity a
Net assets including pension asset/liability 2,422
Reserves 2002
mn
Prafit and loss reserve as stated in balance sheet 2.346
SSAP 24 balance (631)
Related deferred tax 158
Profit and loss reserve excluding amounts relating to pension assevliabilty 1,973
FAS 17 pension asset 197
FRS 17 pension liability . a)
Profit and loss reserve including amounts relating to pension assetliabllty 2,168
The long-term rates of future contributions expressed as a percentage of pay are 12.19% for CPP Section A&B, 11.1% for
CPP Section © and 24.9% for CSEPP.
22 Commitments
() 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 and tulléngs ——Yatveles and equpnent
A 20)
2002 exotora zoo preforms
fm bs ‘sm
For leases which expire:
‘Within one year 7 6 7
Between one and five years 21 18 62 48
Beyond five years 90 7% - -
118 95 69 48
23. Contingent llabilities and guarantees
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 lessors. in the opinion of the Directors, no loss.
will result to the Group as a result of these guarantees.
‘As required by the Notes Sorting Facility 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 default, the estimated maximum liability
‘would be £178.
24 Borrowing limit
At 1 March 2002, the Group borrowing limit under Section 115(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).
Notes to the accounts
25 Related party transactions
During the year the Group entered into transactions with ather retated parties. The transactions were in the ordinary course
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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:
Consignia Pension Pian
2002
2001
Quadrant Catering Limited
2002
2001
Cashtec Limited
2002
2001
Bull Information Systems Limited
2002
2001
Postal Preference Services Limited
2002
2001
Optecon
2002
2001
Cametot ple
2002
2001
‘Szybka Paczka Spolka z.0.0,
2002
2001
G3 Worldwide Mail NV.
2002
2001
sales to
rebotoe
en
444
29.0
110
Purchase irom
voles
tr
42.0
410
17.0
Ameunts
owed torn
tela ety
07
15.0
Amounte
‘one 10
elated
1.0
1.0
Companies listed above are associates of the Group with the exception of Bull Information Systems Limited, which was @ co-
shareholder of Envision Licensing Limited until 2001, and the Gonsignia Pension Plan.
Jerry Cope, a Director, is a shareholder-nominated Director of Camelot pte, 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 aver 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 per annum.
(On 29 May 2002, Postcomm announced their decisions on the intraduction 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 Gonsignia to undertake final delivery. Postcomm will
continue to license niche services.
From 1 April 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 through, over the next three to five years, it will lose around
30% of its current market shar
in terms of both revenue and traffic volume,
27 Principal subsidiary undertakings and associates
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28 Share capital
county otircergoraion —_Percantage molting Priel actives
Subsigiary undertakings
Gonsignia pic* uk 100 Distribution services
Post Office Limited (formerly Post Office Counters Ltd) 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 Betelligungs GmbH Germany 100 Parcel services
Extand SA France 100 Parcel services
Pakke Trans A/S Denmark 100 Parcel services
Nedertandse Pakket Dienst B.V. Nethertands 100 Parcel services
Direzione Gruppo Executive S.p.A, Italy 100 Parcel services
associates
Camelot ple UK 20 Lottery operations
‘Quadrant Catering Limited * UK 31 Catering services
G3 Worldwide Mall N.V. (trade name ‘Spring’) Netherlands 245 Mail services
1. This investment is he'd by the Company. All other investments are held by sudsidiares.
2, The Group holds 51% of the snare capital of Quadrant Catering Limited. However, the voting rights altacned to the various
Classes of shares give the other investor operational control. Quackant is therefore treated as an associate in the Grovo
accounts,
3. The results for the year ended 31 March 2002 have been consolidated for all subsidiaries except Citipast Europe Lid and,
Citioost Corporation, whose results for their year ended 31 December 2001 have been used. There were no material
variations from the't normal trading actives between 1 January 2002 and 31 March 2002
Details of subsidiaries acquired during the year are given in note 10. Atul 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 2002 2001
© ©
Ordinary shares of £1 each 150,000
‘Special Rights Redeemable Preference Sharo 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 entitied 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 i 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 loss for the
financial year represents the net asset value adjustment arising as a result of accounting policy note I(). This states that the
investments in intemally 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 results.
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Five-year summary
796 36.90 see ot onan
as rested
Profit and loss account fm on on m tm
‘Turover: all continuing operations 6753 7,010 7522 84198 408
‘Total operating costs before exceptional items (6231) 6616) 7.141) (8,097) (8,475)
Exceptional items - - (656) (87) _ (1,119)
Group operating profit(loss): continuing 528 394 (75) (45) (1,186)
Share of operating profit of associates - 3 4 - 4
Impairment of goodwill in associates . ee
‘Total operating profit/(loss) 528 397 (271) (45) (1,194)
Profit on sale of tangible fixed assets 4 41 " 20 24
Profit on disposal of support service - 22 - - S
Loss on disposal of subsidiary undertaking a ee)
Profit(loss) before interest 532 480 (260) (25) (1,180)
Net interest receivable 132148 89106 56
Profit(loss) before tax 664 608 a7) a1 (1,124)
Taxation _ _ 27,2) _ 8) a) 179
Profit(loss) after tax 496
Equity minority interests ~ =—
Profit(lass) tor the financial year 4a7 496
‘Transter to dividend reserve =
Profit(loss) retained 447 496
Balance sheet e798 898 00 coor 102
ssreaated
on fw fm tm tm
Intangible assets 220 270 421 146
Tangible fixed assets 2327 2510 ago 2.026 4,788
Fixed asset investments 31 22 26 60 94
Net current assets 1479 1,708 1723 2,008 1,987
Creditors beyond one year and provisions, _ . 63) (180 (842) (977) _¢1,405)
Total assets less liabilities 3.774 4,300 4096 3,598 __ 2,605
Revaluation reserve 259 225 289 - -
Other reserves = - = = 15
Profit and loss account 3515 4,075 3659 3,299 -2,348,
Dividend reserve - - 151 244 244
Equity minority interests - a - ee ee” eee
Capital and reserves 3,774 __ 4,900 4096 3,538 2,605
Note
‘The restatod figures for 2000-01 reflect the impact of the implomentation of FAS 19 Deferrod tax, and the change to the historic
cost accounting convention,
36 I Anon
Glossary of terms
Accounting convention
‘The basis cn which accounts are prepared,
Accounting Standards Board {ASB)
The Accounting Standards Board is responsible or producing
accounting standards which are known as Financial
Reporting Standards. The Compary is required to comaly
with Financial Reporting Standards when preparing accounts
1 expenditure
Expenditure on new, 0° axlcitions lo existing, fixed assets.
Cash
Cash in hand and deposits repayable on demand (within 24
hours or one working day) with any financial institution
¢
Confederation of Brit'sh Industry.
Client services balances
Balances owed to or due trom clients in respect of counter
transactions carried aut oy Post Oitice Limited,
Counter services
The services provided to customers by the network of Post
Office branches.
Creditor
The amount owed to others for pay, goods and services:
Currency options
An option to buy or sell foreign currency.
Current assets
‘Cash, oF other assets realy convertibie into cash,
Debtors
Mainyy amounts awed by customers for services provided.
and pension repayment
Deferred taxation
‘The estimated future tax consequences of transactions and
events recognised in the finaricial statements of the current
and previous periods.
FRS
‘Financial Reporting Standard issued by the Accounting
Standards Board,
A lease thal tranctere 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 iabiities to manage
fisk.
Historle cost basis
‘The syetem of accounting where all current and capital
expenditure is recorded at its cast at the time of purchase.
Interbusiness balances
Amounts owing between corstivert businesses and
subsidiary undertakings of the Group.
ICAEW
The institute of Chartered Accountants in England
and Wales,
Liquld funds (cash flow)
Current asset investments that are held a8 readiy disposable
stores of valuo. These investments are readily convertion into
known amounts of cash at. or close, to their carrying amount
and can be disposed ol without curtailing business
operations,
NLF
Nations! Loans Fund,
Operating lease
A lease other than a finance lease
Operating profit
Represents the profit (belore interest and non-operating
exceptiona’ iterns) on ordinary activilies with the exception
of counter services where interest falls to be treated within
operating activities.
POL
Post Office Limited,
Provisions
Arrounis set aside to mest known jabrities likely to be
incurred oF 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 HM Government
Tangible fixed assets
Buildings, plant and vehicles purchased (or use over a
number of years:
Total recognised gains and losses
Total of al gains and losses ~ realised end unrealised ~ that
are recognised in a period and are altrbutabe to the
shareholder
Universal Service Obligation (USO)
The requirement to provide a universal postal service
inthe UK.
38
Contacts
Consignia
148 Old Street
LONDON
ECIV9HQ
020 7250 2888
Royal Mail
Business Sales Centre
08457 950950
Royal Mail
Customer Services
08457 740740
Parcelforce Worldwide
Customer Services
0g00 224466
Post Office Helpline
08457 223344
Further copies of the annual review
and accounts:
Review and accounts distribution
es
5th Floor
190 Old Street
LONDON
ECIV 9PQ
020 7320 7313
Further information is available from
the Company's websites
{www.consignia-online.com
and www.consignia.cor)
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