WITNO0740103
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Exhibit WITN00740103
t
Financial Statements
10) 9
of our socie
Introduction
The Post Office is a commercial
business with a public purpose.
Our 11,780 branches sit at the heart of
communities across the UK. We employ
almost 8,000 people and work closely
with thousands more across our network.
The Post Office is focused on growing
as a business and modernising its
network, complemented by a
growing digital presence.
This was our story in 2012-13.
WITNO0740103
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Overview
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Overview
24
28
30
34
38
40
42
47
49
Who we are
Chairman's foreword
Chief Executive's review
Strategy
Businessin detail
Branch network
Supporting our network
Customer excellence
Our people
Corporate responsibility
Financialreview
Business risk
Governance
Board of Directors
Board biographies
Corporate governance
Directors’ report
Directors’ remuneration report
financial statements “66-110
Statement of Directors’ responsibilities
Independent auditor's report to the
members of Post Office Limited
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated statement of cash flows
Consolidated balance sheet
Consolidated statement of
changes in equity
Notesto the consolidated
financial statements
Independent auditor's report to the
members of the parent Company,
Post Office Limited
Balance sheet of the Company
Statement of total recognised
gains and losses
Reconciliation of movements
in Shareholder's funds
Notes to the Company
financialstatements
Corporate information
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2
Overview
Who we are
The Post Office
in numbers
Our aim is to provide customers with the
things that are important to them — from
mail to their broadband package, from car
insurance to their savings account. Whether
customers come into a branch, are on the
move or shop online, we work hard to
deliver a great experience. That's the
Post Office promise.
Exhibit WITN00740103
11780 "E74
customers visit a Post Office branch
each week, including a third of the
UK's small businesses
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I 3
Exhibit WITN00740103
© Number one Mails retailer
® Largest deployer of contactless
enabled terminals in Europe
@ Sixth largest telecoms
@) provider in the UK
e754 branches offer world-
leading identity technology
of all UK debit card holders
can access their cash through
our branches
of UK population is within
three miles of a branch
customer Satisfaction
across our branc
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4
Overview
Chairman's foreword
— Exhibit WITN00740103 ——________
This Report describes th
ed
Fit for the future
founded on
our history
Itis with great pleasure and pride that
I write the foreword to the first Annual
Report and Financial Statements for the
Post Office as an independent business.
ietails of the
mmittees can be fo
Highlights
,and
we are on the road to reducing our
reliance on subsidy
e We are modernising branches and
providing new services to our customers
e The transition to independence has been
smooth without any loss of servi
Annual Report and Financial Statemen
Performance
review
Operational
Overview review
Governance
Financial
statements
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5
66.
The Post Offic
and honourable 370-year
history. We need to retain the
essence of what has made it
great and made it loved,
while at the same time
making it fit for the future.
We achieved anumber of notable successes last
year. For the second year running, our revenues
are up on the previous year, despite the difficult
economic environment, and we are on the road to
reducing our reliance on the Network Subsidy
Payment received from the government.
Modernisation and growth
We have made great headway in our plan to
modernise the network of branches run by
our agents. 1,450 have signed up to be converted
into new operating models which give much
better service to customers, resulting in higher
footfall and turnover. And we have made real
improvements to the running of our Crown,
branches, where the operating loss has reduced
this year from £46 million to £37 million.
‘The Post Office has won a number of new
government contracts under which we are
providing some completely new servicesand
enabling central and local governmentto realise
significantadministrative savings. We are also
offering new financial services, maintainingour
appeal to customers who come to us for the
reliability and transparency of our financialoffers.
Our mails business, meanwhile, remains the
market leader and is increasingly innovative
We arealso on the path to creating the right
conditions for the mutualisation of the Post Office
‘These require both financial sustainability and
completely new ways of working with our key
stakeholdersacross the board. In the last year,
we have taken the first steps towards achieving
both of these goals, with our strong financial
performance on the one hand and the creation
and work of the Stakeholder Forum on the other.
Exhibit WITN00740103
Weare clear about the way forward for the Post
Office, and the changes that need to take place to
build on the successes set out in this Report. We
are equally clear that there are significant
additional challenges ahead; the going is not eas
‘This turnaround, like any other, requires people
throughout the organisation and their partners to
work in new ways. We need to win new business
on commercial terms and manage our fixed costs
more effectively, while at the same time finding
the resources to operate on our own two feet and
to modernise and innovate.
I would like to thank the Post Office Chief
Executive, Paula Vennells, her team and all the
people who work to support the Post Office
business and who have brought about the
remarkable changes we have already seen and
willsee in the coming months and years. I would
like also to thank all those stakeholdersand
partners with whom we work so closely.
‘The Post Office has a long and honourable
370-year history. We need to retain the essence
of what has made it great and made it loved, while
at the same time making it fit for the future. itis
in that context that this Annual Reportand
Financial Statements shouldbe seen. It reports
on the first steps of progress into the future
a future which blends the trust, integrity and
accessibility for which the Post Office is renowned
with the contemporary relevance, innovation
and professionalism of a financially sound
2ist-century business
Revenue up on»
previous year
Reduced Crown
losses hy
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— - — — Exhibit. WITNO0740403—
Overview
Chief Executive's review
Transformation
is the key
for growth
The Post Office is committed to a strategy
which will grow and modernise our
business and ensure customer excellence
remains at our core
Highlights
enue with growth in three
of our four product pillars
e A major transformation programme
delivering benefits to our customers
e Developing digital strategy to
complement unrivalled bran
h network
Annual Report and Financial Statements 2012-13
Operational
review
Performance
Overview review
Governance
Financial
statements
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7
Exhibit WITN00740103
We have no illusions about
the hard work ahead, but our
determination to deliver the
business transformation of the
decade remains undimmed
Breakdown of revenue
(%)
Network subsidy
payment12%
Other~4
3% Mails and
Telecoms 11% Retail 33%
Government—— “Financial
Services 13% Services23%
‘There is no more visible indicator of a Post Office
that is changing for the better than the changes
customerssee in their cities, towns and villages.
The evidence is that these changes are meeting
with approval: customer satisfaction with the new
‘main and ‘local branch models runs at 95%",
while queue times in the ‘local model have fallen
below a minute, and customersare benefiting
from new opening hours stretching from early
morning to late evening, Subpostmasters
switching to the new models have increased their
retail businesses. Moreover, the physical network
that is so central to our business is now being
complemented by a comprehensive digital
strategy aimed at further enhancing our service
to customers,
Challenges ahead
Naturally,a programme such as this involves
challenge. The Post Office has made significant
progress, for instance, in reducing the lossesin
the network of Crown branches directly managed
by the business. There remains a long way to go
to reach the point where this part of the network
becomes profitable, and that is why it is so
important that we complete the transformation
of the Crown network. There will be other
challenges ahead, but as our Chairman has noted
in her foreword, we are determined to complete
a transformation which underpins the future of
the Post Office and brings more benelitsto our
millions of customers.
In 2012 we set up a Stakeholder Forum to begin a
process which is a key step in our journey towards
potential future mutualisation: that of defining the
public purpose of the Post Office. In 2013-14 we
will engage the public on this work with a view to
embedding this public purpose in our business
planningand processes
Our ambitionis to be more proactive in delivering
our public purpose. The Post Office is a long:
standing part of UK high streetsand will work
hard to support their revival, joining with others
to lead and develop solutions which help high
streets and other communities to survive and
thrive. We will step up our work in supporting
small businessesby ensuring that we develop
more of the products and services they need,
‘The Post Office will also work more closely with
those seeking to close the digital skills gap. Asa
founder member of Go ON UK, the charity set up
to make the UK the most digitally skilled nation in
the world, the business will focus on building the
online skills of our people. And we will work with
our partners to develop solutions that will help
enable the 16 million people in the UK who do not
have basic digital skills to access and enjoy the
benefits of being online
Support of our people
I would like to say thank you to all of those who
have worked so hard for the Post Office over the
past year; especially to those colleagues working
in Post Office branchesacross the length and
breadth of the UK, and to the Post Office Executive
team for their outstanding commitmentto the
success of our strategy
Finally, 1am grateful to Alice Perkins and to the
Board for their guidance throughout the year.
‘They have strengthened our strategic oversight
and brought a level of focusand challenge to
decision making at the Post Office which has
helped both revitalise the company and energise
its commercial focus
‘The Post Office changed significantly over the
course of 2012-13, and for the better. We have
no illusions about the hard work ahead, but
our determination to deliver the business
transformation of the decade remains undimmed
Turnover
£1.02bn.
Customer
satisfaction
95%"
with converted
branches
Brass network
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8
Exhibit WiTN007404.03.
Overview
Strategy
Growing asa Growth
DUSINESS WHALE srcceaseintunover
serving the UK’s
communities
Key objectives
strategy is based on being To grow revenue by introducing
products ahd services across our
commercially succ ssful and growingasa portfolio to offsel deciinmere venue
business while maintaining the key role that from traditional product areas.
Post Office branches play in supporting
communities across the UK. We offer a range of
products in Mails and Retail, Financial Services, Progress in 2012-13
Government Services and Telecoms through we grew leven ve Gee ae
~ ~ 5 he financial year, while also introducing
our branch network, online and on the phone. new products such as Post Office
om in-branch mortgages and the Drop
Strategy model & Go' priority mails service for small
business customers.
HSBC and First Direct have linked up
with the Post Office, meaning 95% of all
UK debit card holders can now access
their cash at our branches
We attracted and retained clientsin bill
payments, rolled out additional Lottery
terminals and introduced a new online
shop - www.postofficeshop.co.uk
We won key contracts such as the
provision of counter services for
the Driver and Vehicle Li ng
i i Agency (DVLA) and won a place
Post Office BG on the government's Identity
people poi Assurance framework
Annual Report and Financial Statements2012-13
mance
iew
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9
Exhibit WtTN00740403
Modernisation
Branch conversions
To modernisethe Post Office and its
branchesthrough the network and Crown.
transformationprogrammes(to break even
by 2015).
Progress in 2012-1.
During 2012-13, a total of 1450 Post Office
agency branches either converted to new
models with longer opening hours or
subpostmasters signed contracts to do so,
With 507 of these converted during the
financial year, it means branches were open
for an additional 17500 hours per week by
the end of 201213.
Our programmeto transformthe Crown.
networkof branchesdirectlymanagedby the
Post Office made progress to reduce losses,
with financialperformanceimprovingby
£9 million,
The programme has also introduced new:
N of working, including increased
automation in pilot branches.
In-branch technology was also enhanced
with more automated Post & Go machines
and the completion of the rollout of new PIN:
Pad payment devices.
Customer satisfaction
87%
across our branche:
Objective
To put customersat the heart of
everything we do, and investin
technology to offer more responsive
and customer-focused systems.
Progress in 2012-13
On average, customer satisfaction stood at
87% in 2012-13 in our branches, while this
figure rose to 95%" in newly converted
branches in the agency network.
Customer wait times are down on the
previous year, while our Voice of the
Customer feedback scheme is now in
place in 2,000 branches.
We have improved our digital offering
with a full website redesign, The site now
receives four million customer views per
month, with unique visitors up 30% year
on year
We piloted a new online booking system
for financial services customers and hope
to build on this in 2013414.
August 2012-Marc
@
WITNOO74
WITNO0740103
Exhibit WITN00740103—
WITNO0740103
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Operational E 1
review
network
orting our network
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12
Operational review
Exhibit WtTN00740403.
Business in detail
Mails and Retail is the largest
product area in the Post Office,
generating around 40% of the
business’ total turnover through
four categories of the product
portfolio - Mails, Parc
and Lottery.
We offer an unparalle!
Group mails ani
from nex
me shop}
The Post Of
distributors in the UK, offering
s including scratch cards and
in mor
Mails and Retail
In 2012-13 the Mail
its most successful e
nillion, rep!
£17 million comp
s year.
Revenue (Emilion)
409m
dito the pr
driver
srmance across the
ating to
y strong comm
folio, activity
portunities from
and returns.
Growth in Mails and Parcels business
Phe launch of our new Drop & Go prior
e Launch of Drop &G Go, a new service for for small busi mers has h
small businesses to drop off parcels and fine ae a be ~
pay quickly without queueing f
ff their mail and ha’
¢ New online retail shop offers mailing processed in Tne apecnce de Post oles
solutions, collectibles and office supplies ap to the service
¢ 8% growth in parcels revenue We achie anes growth ing
g and sellingand conti
ntline training and sales cay
lies,
lot Lottery
y sales over the
on further facilital
iby
} ill continue to
lop small bus to increase
lue and al customer
Annual Report and Financial Statements 201213
rcuCntias Performance
Overview review review
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13
Exhibit WtTN00740403
Financial Services
Revenue (£million)
e Reaffirmed strong partnership with Bank
of Ireland (UK) plc to build the Post Office
as a financial services challenger
e Reached agreement with HSBC and
First Direct for their debit card customers
to have free access to their cash at all
Post Office branches from spring 2013
e What Mortgage Awards 2012: Best Online
Lender, Best Fixed Rated Mortgage
Provider
The Financial Services business
is a fast-growing part of the Post
Office, seeking to offer customers
simple, transparent and value-for-
money products, supported by
an unrivalled branch network,
Post Office provides a comprehensive range
vings, insurance (including car, home and
travel) and lending products (including mortgages
and credit cards), and is the leading provider of
retail foreign currency in the UK. We also offer
over-the-counter payment services, personaland
business partner banking and cash machines
‘The prod
partner
are offered through strong
s with third-party providers,in
and (UK) whom
essful partr since 2003.
1 ancial Services busi
delivered £281 million in revenue
of 6.4% on the previous year
Strong banking partnership
velopment in 201213 was the
renegotiation and reconfirmation of the
arrangements with the Bank of Ireland (UK) plc
This ship delivered significant growth
in 2012-13, particularly in Growth Bonds, Online
Saver and Reward Saver. Together we extended
our award-winning mortgage range, offering
competitive rates that featured regularly in
Best Buy tables and customers can now access
Post Office mortgages in branches.
We maintainedour positionas the market leader in
foreign exchange.and was voted by the publicas
st Travel
vel
eventh year respectively.
market were
at customers car
Office branches to pay bills.
Key contracts in the bill
won and retaine
continue to use Pos
atactless payment terminals were also installed
across 30,000 counter positions, making the Post
Office the largest deployer of contactless en:
tions of up to £20 using contactless ca
Field Communication (NFC)-enabled
jones,
We also signed agreements with HSB
Direct, ensuring that 95% of UK debit
can access their cash in a Post Office branch.
‘The Financial Services business is a key focus for
the Post Officeand in May
announced it would launcha cur he
next ste
of growing our Financial
s business,
@
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14
Exhibit WtTN00740403.
Operational review
Business in detail continued
The Post Office offers a range
of essential front office counter
services on behalf of government
department:
We partner with the Department for Work and
P ions for the Post Office card account, which
allows customers to collect their state pension or
benefits in cash, ei a Post Office branch or
from a Post Office cash machine, We also issue car
tax discs on behalf of the DVLA and capture
digital photographs for the renewal of driving
licence photo counterparts.
he Post Office uses ground-breaking Application,
Enrolmentand Identity technology to offer a
paperless process for our custor
Post Office branches nationwide
Government
Services
Nearly 90% of Government
is still generate
benefitsand
grew our p
increased our revenue from cap
biometrics on behalf of the Un ngdom
Border Agency (UKBA). This helr et the
m decline in benefits payments. Revenue from the
Post Office card account declined as customer
30112. £164m +0% ~ n ontinued to reduce. Revenue frot
g, primarily the issuing of tax discsin ¢
hes, was broadly flat compared to 201112
ervices revenue
Revenue (£million)
oe . Retained key contracts
Highlights ‘The retention in the face of strong competition
of the contract for Front Office Counter Services
e Won the DVLA framework contract provided on behalf of the Driver Vehicle Licensing
for the provision of Front Office Agency (DVLA) was a key development during
2012-13. This framework contract will allow other
Counter Services government departments to contract with the
Grew the Passport Check & Send service a ne
with an increased market share an option to renew fora further three years
e Awardeda place on the DWP. Identity In addition, the Post Office also wona place on the
Department for Work and isions (DWP) Identity
__Assurance Framework contract Assurance Framework contract now being
managed by the Cabinet Of vernment
Procurement Service.
As wellas these significant contract wins, the
Application, Enrolmentand Identity business
generated more than £12 million of revenue
and now accounts for more than 9% of total
Government Ser revenue. In 104 of the
754 Post Office branches with Application,
Enrolment and Identity technology, we c
digital fingerprints, photographs and elec
signatures for the UKBA, and in the full network
of 754 branches we capture photographs for
customers renewing their driving licences
In 201314 t
the rollout ervices with the DVLA and
continue to grow the passport business, while also
seeking to for the governmen
Digital by Default agenda
ts to comp
jal Statements 2012:
anual Report al
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Operational 2) nce *Inanci 15
Overview i ‘ t s
verview review Exhibit WMTN00740403
The Telecoms business
incorporates HomePhone and
Broadband, Mobile Top-ups and
International Phonecard
under 500,000 residential customers, makir
the sixth largest fixed line telec
the UK.
JomePhone and
rticularly well
Phone
nillion
0%. This
ousiness performed p
. cd by the Ho
is on and Broadband business rising from £
oN 22 million, an increase of just under 1C
by a stable cust
icemaking it
a Ln
achie
baseand cha
Mobile Te
mobile phon!
atany
-up allows customers to top-up pre-pay
mobile networks
areduct
actions
rate customers
2s and customers
However, we still achieved
sand maintain the largest
Isin the UK
million trai
state of top-ur
Improving our customer proposition
During the year, tk ost Offic
. be agreement with Fujitsu
e Increased revenue by £9 million JomePhor 1 Broadt
immer of 2013. This st
¢ Signed new contract with Fujitsu Services agreement providesa platform from whict
* Mobile launch planned for 2013-14 Jevelopé agile and cost-effective
business ur existir
platform
nedan
provide th
vices through branches and online,
customer experience will be enhanced with
nt tools and
er
wjitsu
ager
and services o
ational Phonec
for a number of yea
‘ed as customers mov
nternationalcalling 0}
ss in 2013-14, but it will bea transit
esto our ne
ost Office is also lookir
nter the mobile ma
1ing financial year.
te our serv
year as we 1
supplier. The
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16
Exhibit WtTN00740403.
Operational review
s e Network transformation programme
Office branches are able to convert to one of two
new models: a main branch or a local branch:
e
Main branches, of which there are now 178,
continue to offer a dedicated Post Office counter
often open plan, ina brighter, more modern
environment. In addition, the majority of services
will continue to be available outside traditional
hours ~ for as long as the host business is open
from the retail counter.
Local branches, of which there are now 329, fully
integrate the Post Office with the host business,
offering servi
than a dedicated Post Office counter.
vicesare available for much longer than
before, in many cases from early morning until
late at night, seven days a week
With 507 new-style main and local Post Office
Introduction ___ branchesalready established, subpostmasters
7 a ra and customers ac the UK are benefiting from
The Post Office has an unrivalled network, with a modern approach to offering Post Office
a branch within three miles of more than 99% of services, Customersare responding positively
the population. No other retailer can match the Independ clr shows that customer
. satisfaction res at both modernised main and
reach that puts the Post Office at the heart of local branches are consistently around 95%
communities across the UK. Subpostmastersare also benefiting from more
fi ase in
The business is committed to maintaining its revenue both from their Post Office activities and
their accompanying retail business,
branch network, ensuring services are readily
accessible to communities across the UK. This rn nae
network, increasingly enhanced by digital and signed up tobe the first to convert during 2013-14
telephone services, lies at the core of the business.
97% of Post Office branches in the network are run
in conjunction with retail partners on an agency
and franchise basis.
Subpostmasters
Underpinning our commitment to the network
is an unprecedented branch modernisation Subpostmasters and their colleagues
programme — the largest investment in the os Mee ie bi aS ae peal
contributing to their local communities
history of the Post Office _ which is creating with 2 tuisted and called rieaionaes
modern, commercially sustainable branches service. Effective communications across
that are improving customer experience. the network are key to ensuring their
energy and talent is harnessed in building
This modernisation programme involves a modernised and sustainable network.
transforming those branches that are pianaet d — 2 Grates
A channels has helped lin! e networ!
operated by other businesses or independent together. They inchide the Subspace
subpostmasters on behalf of the Post Office Online website, regular Subspace
and 370 Crown branches directly owned and magazine, network transformation
managed by the Post Office. updates, roadshows, meetings, and
workshops to help boost sales. There
has been ongoing liaison with the
National Federation of Subpostmasters
as well as links to the retail chains
Brass network
transformation whose employees run a number of Post
tatements 2012:
Annual Repor!
WITNO0740103
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Operational #i@seencte:
I Overview review review
17
Exhibit WITN0074040:
se study
i Sandeep and Damandeep Sandhu
Greenwich main Post Offic
L
‘The irbishment of bran tial
It means our branches are improving their
aesthetics, such as flooring and lighting, to
ally compete and look professional. The
Post Office h istained its trusted status and
now looks modern as well”
ranch,
——,
id
lo the
1 2013-14
ngwal.
T ne Highlands
Increase in
retail sales:
10%
The new ope
the ngs of my convenience store.
It hel ‘aff to have more comfortable
conversations with our customers.”
is being
acrossmain
anches
already brought in new customers. WeTe a
much more realistic option for everyone now,
and the Post Office is a far more venient
high street proposition
Medway local Post Office branch,
V London
I've been able to 5 extend ny rel ail counter,
and I've noticed new customers coming
through the door who are now able to take
advantage of Post Office services until 10.30pm
on Sunday nights.
18
WITNO0740103
WITNO0740103
Exhibit WTN0074040:
Operational review
Branch network continued
Crown transformation prog
The Post Office is im
amme
es. These are usua
larger branches in t rectly mana
Post Office.
c are fundamental to the future of the F and real
rds the target of turning a e currer
i March 2015. During 20)
th ork reduced from £46 million to £3 The ongoing
mation builds on this p!
improving custom:
transfc ed on increasing revenue
enefit from brigh
‘er, more modern branches with imr
mers th on to use self
ion areas for financial services, an
ope nters will be introduced
m members on the shop floor greeting and guidir
new approat
as been trialled succe act
both customer and financial measures, ata rang
In six locations v ave two branches ir toeach
akin portunity of merging hes, which will create
improved facilities for customers, There are two further
e combinir
will provi
Doki:
will ensure
ch ona stro!
1es on our behalf.
dard of service while putting the
r the future
Customer feedback
eally impre: has
brought the Post Office into
the 2ist century.”
What’s changed?
© Redesign of the branch
0 improve customer flow
« Extra Post & Go
machines with staff
on hand to offer help.
Extended opening hours
like the self-service machines
very much. It makes it so much
easier and quicker to come in
¢ Two internal ATM and do what you need to.
machines added “The changes are time-saving
and the staff are very helpful.
Qcase study
New Malden Post Office branch
What’s changed?
e Redesign of the branch to improve
customer flow
Retail area repositioned for customer
convenience
« New mails zone with one extra Post
30 and staff on hand to offer help
ate consultation room for
financial servic
Customer feedback
omer service at this Post Offic:
Custc
is fanta
The counter clerk was happy and
informative. 1 was very impressed”
It's very convenient, offers a lot of
vices, has pleasant staff and has
recently been refurbished”
There wasn't a long line to wait in. The
chap who served me was very helpful,
polite and friendly. You can't beat good
customer service with a smile.
eerCntiam Performance
N review review
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19
Exhibit WITN0074040:
Supporting our network
The Post Office continues to invest in
technology to ensure the development
of high-quality, reliable services that will
improve the customer experience.
There has been significant investment
in the key systems that underpin our
The Post Office customer base contains
some of the most financially dependent
members of the UK population. So a key
driver for the business is providing reliable
access to cash through its cash and
valuables in transit (CViT) operation.
In 201213, our Cash Supply Chain
business collected and delivered
nore than £42 billion of cas
foreign exchange, secure stock,
(stamps, postal orders, etc) and
transactional stock (government
forms and leaflets)
essed and banked on
. coin, the day after collection
Drop &Go
Small business cus
mail
y drop off their
Post & Go
Additional P:
hines: enable
vailand
This prov
positions.
around 1,000 transac
Extending helpdesk availability
We have e
to sur
bral
queries quickly.
New financial services customer
booking service
he Post Office undertook
customers to enable the
onlin in-branct
specialists. We are loc
to all customersin tk
xtend this facility
Market share:
est
Our CViT operationis the third —
largest 'in the UK
WITNO0740103
WITNO00740103
20
Exhibit WtTN00740403.
Operational review
Customer excellence
Putting customer
needs at heart
of our offer _
In line with the high street, the Post
Office has introduced automated
self-service kiosks that help customers
Fy . ; 3 save time. The Post & Go kiosks help
Measuring satisfaction customers post letters and parcels
For more than three centuries, the Post Office and buy stamps and packaging. One
has provided servi -entral to the everyday coleaeie MEHGnGe Se ing
lives of people in the UK. As we move forward when I came into the branch. He asked
as a growing business, our customers remain if Ineeded help with anything while
I was posting a parcel, if there was
at the heart of what we do and how we anything important inside Gee
measure OUr SUCCESS needed to get it there for the next day.
” a . Michael then helped me to process it
through the Post & Go machines near
the door. It was so eas,
mn 20121
better under
their needs,
tore-engage
Office brand in
hieve futureg therefore
anc campaign in October 2012
der the Post Office
ll Pos
Customers value the Post Office and ra
customer service highly, but they want
Office to
them a great
the business.
1 Choice of ways to interact with
o
easier
wide
Using this feedback will help sha
Jopment of a multi-channel strategy fo
ve that optimises conven ce and
nce for Post Office customers
We pute:
for our customers. This formed a business:
project during November and Dec
contribu
Wait times down
The Post Office made some signific
over the pasty
with our man
visit our bra
nt progress
at with the relationships we hi
18 millionc ers
eek,a third of small
businesses ( e UK use our services
each week, 417 million individual customers visit
ig nt and support staff working
in branches), longer opening hours, online help,
ost Office branches and discounted
highlighted to customers
tal advertising and PR
nas
with our core Mails product
ast year by 3.8%, with 86%
ey were satisfied with
customers talk to our
Ireland contact centres each year.
In 2012-13, the Post Office achieved impressive
customer satisf
he ser’
with 2011-12!
saying t ice they
vouoa mber, wit
m
an average w
three minutes
ker than t
esand 27 sec
Underlying these high ratings was a redt onds qui
wait times. The aver 2
three minutes, which was 12 seconds
in 2011-12 and one minute and eight s
1in 2010-11
tionin
revious year
quicker than 201)
quic
cial Statements 2012:
WITNO0740103
WITNO0740103
al
Exhibit WTN00740403.
QCase study
Small businesses
It is estimated that up to a third of
the UK’s small businesses visit a Post
Office branch at least once a week.
This is often for mail services, with Post
Office branches providing a convenient
access point to the onward postal
distribution system. In an increasingly
digital age, this means that these
businesses are able to transact
Ourn
us how
nme to ‘tel
1150 br
seipts, cards and
Quick
stomers to
3 custor
the Post Office ade
win place in more than 2,01
urgest branches, and will be rolled out
y transformed branches in 201
ayy
beyond their immediate geographical
environment, taking orders by post,
phone and internet and being able to
fulfil them throughout the country and
the world. The Post Office network acts
as a critical part of the infrastructure
supporting the growth of small
businesses throughout the UK.
mpathica Voice of th
iustomer Programm:
le Brand and O12
ppping
213
Empathi
Customer
WITNO0740103
Performance )
review
WITNO0740103
WITNO0740103
peration Performance ) Fir 23
ow review ace I ‘ s_I Exhibit WTN0074040: ~
WITNO0740103
WITNO00740103
24 bi
Exhibit WITN00740403
Performance review
Our people
Working with our
people to build
the business _
Our people vision
© The Post Office will attract and develop
great people who have pride in and
a passion for delivering value for
customers and reflect the diverse
communities we serve
e Everyone will have a strong sense of
ownership for their work, demonstrating
initiative and flexibility, working well
together to adapt to the rapidly changing
needs of our markets
© We will have an environment where our
people work in partnership with all those
who contribute to the success of our business
© The Post Office will be a place where
people are valued and respected,
and are encouraged and supported
to fulfil their potential and rise to the
ommercial challenge
Annual Report and Financial Statements201213
The Post Office
proud of the
thet
oud of its heritage and equally
leagues play at
st Office also
t role our support teams
y in delivering the business strategy. V
and committed to putting the customer first
We also continue to placea high emphasis on
the health, safety and wellbeing of our people.
This year saw the introduction of
Care, Challenge and Commit. The:
sit at the centre of everything w:
intrinsic to how the
cust and colle
1o,and are
Office interacts with
lues underpin
cour employee proposition and help to deliver the
best possible cu
same time gi
the chance
nile at the
business
ner experience,
Property Lead,
Network transformation programme
James joined the Post Office from
Royal Mail a year ago on the network
transformation programme as a Field
Change Adviser in South Wales.
James saw the role as a great opportunity
to develop and support the change
across the network. “The role was really
rewarding and I really enjoyed working
with the subpostmasters.
“I then saw the Property Lead role
advertised and went for it. It did mean
moving down to London, but I have
been made to feel really welcome.
I feel really proud that my managers
saw potential in me and have helped
me settle into a new role and a new city.
“] think I have achieved a lot this year
and feel Iam making a real difference.
Seeing converted branches opening,
and knowing you have helped to do
that, feels great. I am here for a career
and see my long-term future with
the Post Office.”
Overview
Performance
review
Financial
Governance I statements
WITNO0740103
WITNO0740103
25
Exhibit WITN00740103
feel more valued and ;
understand the contribution
I make to the wider business.
The Post Offic particularly proud of t!
ress made in relation to talent, diversity,
people development and engagement.
Engaging with our people
We value the opinio
Our employee engagemei
conducted in 2012, is mai
‘om Ipsos MORI.
the Post Office understand how cc
feeling about
where
nd ideas of our colleagues
irvey, which is
by independent
e survey helps
olleagues are
yhat is going well and
business
improve.
Learning and development
The Post Office continues to support the
development of people right across the organisation
je have undertaken a broad range of
8
+ introduction of Discovery Days for new
managers, ensuring they have the tools to
succeed in their new roles
+ supporting the development of a Post Office
procurement functi
externaltraining
+ introduction of the Cert
Business Practice in the Information Services
am in partnership with Sheffield Hallam
University, sharing skills, knowledge and best
practice across the organisation; and
ngthe capability and commercial skills of
r managers through the development of the
wn Leadership Excellence programme
&
IGROI
Ashley joined the Post Office 13 years
ago. In 2012, Ashley was an
administrator in the Information
Services team when he became one
of the successful applicants for the
Certificate in Professional Business
Practice introduced by the Post Office
with Sheffield Hallam University.
“The course was a great opportunity to
develop in my current role. I couldn't
have imagined the difference it has
made to me in just 12 months. I've been
actively encouraged by my managers to
improve my skills and make a positive
contribution to the business.”
Ashley has since moved to his new
role in the Finance team.
“T’ve now had the opportunity to work
in another part of the business and
continue with my qualification.
It’s really broadened my horizons.
Personally, I feel more valued and
understand the contribution I make
to the wider business.”
WITNO0740103
WITNO00740103
26
Exhibit WtTN00740403.
Performance review
Our people continued
66 “Paid Work Experience programme
"Over the last 12 months, the government and
I've started to really believe media have both highlighted the problem with
in myself and feel like I have high unemploymentin inner city areas, especially
a 1g people. The Paid Work Experience
a future here. programme aims to provide a period of paid
ps § “™Ployment during the Christmas pertod for
sieeeeeuinnieeeeennniiiesissnussunssn de young peopleand those furthest from the labour
et. The Post Office employed 61 individ.
in the lead up to Christmas in some of the bus
Becoming an organisation working independently Crown branches across London and Greater
of Royal Mail Group Limited has required an Manchester. The initiative led to 39 individuals
increase in capability and expertiseacrossa range _ being offered further employment. Due to the
of areas, New-found corporate responsibilities success of the scheme, in 2013-14 the Post Office
have been taken on across the breadth of the intends to extend the programme within the
professional functions. Coupled with the goalof _ branch network
ensuringa high-performing sustainable business,
Q
we have putin place a robust assessment a
e potential of our Shahidul Islam
Talent and diversity
developmentapproach, lookingat both
performance and the fut
senior leaders with the overall aim of raising Paid Work Experience programme
Raisingour leadership capability and performance
standards will continue to be an important focus.
which the Post Office will deliver through its
aclership Development programme.
At this stage of our development, building talent
and diversity merits specialattention. The
therefore deleg thority to
nationsCommitteeto monitor the
development of a talent management programme
for senior levels of the organisation.
We have also introduced a range of in!
promote an inclusive wor
establishinga diversity forum, recruiting young Shahidul joined the business in
people under 24 on the Paid Work Experienc November 2012 through the Paid Work
programme, and launching our Trainee Experience scheme. At 16, he was our
Manager scheme. youngest candidate. He currently works
‘The Post Officeis also proudofthe progressmade RUBS GINaCETs Ties tg Res ele Coy et
in gender equality. Our Chairman and CEO are
women, The Board has equal numbers of male
and female Directors,and women make up half of
the Executive Committee. To ensure we maintain
tives to
force. These include
“I left school in the summer and started
looking for work. [had tried a number
of companies but with no luck. I was
this focus, we have pledged our support to the really pleased when I got my role with
government's Think, Act, Report initiative the Post Office.
which is aimed at improving gender equality “Everyone has been really supportive.
in the workplace. My managers have helped mea lot and
Our general policy will be to recruit for talent, are always there for me. I learned a lot
using a range of tools including encouraging of new skills and met different people
open applications through our attraction from different walks of life. I think my
website, engaging specialistrecruitment
consultancies,and operating specific talent
attraction campaigns.
main achievement has been developing
my communication skills.
"I , “T've changed a lot in the time I have been
Challenges remain, but we are confident our . pea
. nt to building 5 of here. I’ve started to really believe in
commitment to building a culture of inclusion if and feel like Ih fu es
will continue to make the Post Office relevant myself and feel like I have a future here,
ustomer base.
to its increasingly divers
We view our approach to diversity as an integral
part of talent management. This year wi
developed two programmes, taking positive
action on both fronts.
Annual Report and Financial Statements20
Overview I
Performance
review
Financial
statements
I Operational
review Governance
WITNO0740103
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27
Exhibit WtTN00740403
Trainee Manager scheme
The scheme was designed to take positive action
to attract young people to consider a career with
the Post Office, working with our colleagues and
customers in our Crown branches. We employed
eight individuals under the age of 24 to work in
the Londonarea. The trainees have subsequently
undertaken a development programme including
a foundation degree, senior manager mentoring
and regular learning sessions. The scheme has
already seen positive results, with three
progressing to other managerialroles in the
business. The trainees continue to progress and
have provided a welcome injection of new ideas
and enthusiasm
Accelerated Development
scheme for senior leaders
We are currently piloting a high-potential
development programme for new entrants
at the senior leadership level. This focuses on
accelerated career progression across a range
of roles within the business, alongside targeted
personal development in which individuals
draw on a range of available activity including
coaching, mentoring and behavioural workshops.
Safety, health and wellbeing
The safety and wellbeing of our people is of
paramount importance to the Post Office. This
year, we have embarked onan extensive
programme of health checks that will enable all
our employees to understand how healthy they
are and learn about what they can do toreduce
the risk of illness and improve their wellbeing
‘The Post Office aims to fulfilitsbusinessmission
without compromising the safety of customer:
employees, suppliers, and all those affected by
our activities, We want to make healthy and safe
working a way of life.
To this end, the business ensures that:
+ we comply fully with the relevant legislation;
the health and safety responsibilities of
our employees are clearly defined, allocated
and understood,
we encourage and help all our people to
carry out their responsibilities under effective
ealth and safety management systems, with
safe premises, equipment and processes;
through instruction and training, we
improve our employees’ capability to
manage and work safely:
we support and encourage our people to get
involved in the health and safety performance
of our business and pursue a healthy and
safe lifestyle; and
we monitor and review how well we put our
health and safety policies into practice.
Q case study
Bushra Ali
Trainee Manager, Network
Bushra joined the Post Office a year ago
through the Trainee Manager scheme.
“I hadn't ever considered a career
with the Post Office, but after meeting
the people at the interview and seeing
their passion, I couldn't wait to join.”
In the last 12 months, Bushra has
worked in five different branches and
was part of the Post Office team in the
Olympic village during London 2012.
She is also undertaking a foundation
degree in Retail Management.
“It's challenging doing my degree
alongside work, but it’s given me so
many practical skills I can apply to
work. I've gained confidence and
learned so much about our products
and services, as well as developing my
leadership skills. I'm really grateful
for the support I’ve received from my
managers and mentor. I’m still really
enjoying myself and I’m keen to
become a Branch Manager.”
Looking ahead
The Post Office wants people who are capable of
delivering a turnaround strategy. Therefore, we
aim to continue building people capability; to
foster a culture of continuouslearning; to increase
our people's understanding of our business in.
acommercial context, along with our social
purpose; to develop a proactive talent and career
management process that recognises the value
in diversity;and to continue to nurture a culture
where people are actively encouraged and valued
as role models of Care, Challenge and Commit
28
WITNO0740103
WITNO00740103
Performance review
Corporate responsibility
Supporting
colleagues and
communities
As acommercial business with a public
purpose, the Post Office is strongly
conscious of the need to operate
responsibly, sustainably, and witha
commitment to furthering accessibility
and inclusion.
Annual Report and Financial Statement
Disability and accessibility
‘The Post Office strives to be one of the most
accessible organisations in the UK, ensuring that
colleagues with disability needs are provided with
all the support they need and disabled customers
receive an excellent experience.
In 2012-13, the Post Office
+ launched the Post Office Disability Helpline to
provide solutions and specialist equipment to
employees with disability or accessibility issues;
provided grants to agency branches to upgrade
their outlets to make them more accessible;and
created and met a panel of accessibility experts
from disability organisationsona regular basis,
whose role is to advise on the accessibility
issues facing disabled people and our people.
Environment
‘The Post Office recognises its environmental
Tesponsibilities,and is committed to minimising
itsadverse environmental impact by means of a
continuous improvement proc
201213
We set ourselves some challenging goals for 2012-13
+ 5% reduction in building energy use;
5% reduction in CO; from vehicle fuel;
5% reduction in water use; and
+ 55% of all waste generated to be recycled
Year-end performanceagainst these goals was
encouraging in that we achieved or exceeded
three out of four goals. Our performance in
reducing building energy use was significantly
affected by the unusually severe weather
conditions during the winter of 2012-13.
Change control
Allbbusiness projects and supplier contracts are
reviewed for environmental impacts.
Buildings
A large percentage of Post Office buildings now
have low energy lighting and low water usage
utilities, and all fixtures and fittings are obtained,
wherever possible, from sustainable sources
or from materials that can easily be reused
or recycled
Vehicles
Anew concept vehicle will go on trialin the
second financial quarter of 2013-14 which will also
utilise telemetry systems that will enableus to
improve overall fuel efficiency. Our aim is that this
will become our flagship vehicle for the future
Waste
Most of our buildings are now participatingin the
Dry Mixed Recycling scheme, where everything
that can be recycledis segregated into separate
bins or bags. In addition, 100% of all our
confidential waste is now shredded, pulped,
and sent to manufacture recycled paper
Sustainable operations
We actively look for opportunities to ensure that
all the paper we use is from sources accredited by
the Forest Stewardship Council (FSC), and include
the FSC logo on all of our point-of-sale literature.
Currently, some 90% of all the paper we buy is
from FSC-accredited mixed sources, This means
the pulp used has come from well-managed
forests, controlled sources, or recycled wood
ibres
Operational
Overview review
Financi
Performance
review
Charity giving
We have been major supporters of BBC Children
in Need for several years. In 2012, the branch
network played a leading role in Children in,
Need’s BearFaced initiative. Our activities helped
raise more than £1 million for Children in Need
arecord amount for the Post Office
Digitalinclusion
Asa founder partner of Go ON UK, the Post Office
is committed to helping the 16 million people in
the UK who lack the skills or confidence to benefit
from new digital servic
We plan to launch the Online Centre Locator inali
of our 11,780 branches in June 2013, which for the
first time will signpost customers across the UK
gital training location. We are
g with a number of partners to deliver this
which covers thousands of learning
s across the U.
By Apr
will be Digital by Default. T
12015, 23 of the government's key services
'o help people who
may not have access to, or know how to use,
the internet, the Post Office is working with the
government and community partners to ensure
people can go to a Post Office branch to get the
help they need to access these servicesin a safe
and trusted environment.
WITNO0740103
WITNO00740103
29
Exhibit WITNOO740103
‘The Post Office is also focuse
digital skills training a ort to all permanent
Post Office colleagues. We will be progressingthis
initiative during the next fmancial year
on providing basic
Business in the Community
In 201213, the Post Office became a standalone
member of the Businessin the Community (BITC)
scheme, workii elop both our support for
BITC and a wider community role in line with our
public purpose
high street task force is
n opportunity to partner
cked Town
Teams to help redefine and regenerate their high
streets. The Post Office is now working with the
denham, Stockton-on-Tees and Brighton teams
eir local communities to help regenerate
interest and activity and ultimately provide a
long-term future for these areas so that they can
survive and thrive.
The Post Office also supports the BITC Rural
Action Group in its work to help communities in
villages and rural areas across the UK, where often
the Post Office plays an important socialand
economic role in providing services to tho:
otherwise may feel isolated,
who
WITNO0740103
WITNO0740103
Exhibit WMTNOO7A010
Performance review
Profit and loss summary
Paving the Way sss
towardsfinancial:: “==
sustainability
32 31 1 32
Operating
profitbefore
exceptional
Chris Day
st Office’ dby £74 million
fo £1,234
Summary results
Phe ivereda sound fromt
pe in its first year operatingas an rever
independent business. Turnover has increased Services, C
in three of the pillars anc
has enabled
enue growth
fice branc
andRetail 409 392 17 43
cial
Serv 281 264 1 64
164 164
‘elecoms 129 120 9 75
Other 4 40 1 25
Turnover 1,024 980 14 E
210 18¢ 3C 167
1,234. 1.160 4 é
mance Indicators
Operating profit Operatinglossbefore Operating
before exceptional exceptionalitems cash flow (£
items (£m) andNetworkSubsidy 4 p40”
94 8 (116) I Bee
Key Financial Perf
Annual Report and Financial Stater
Operational JRZesuentes Financial
Overview review review Governance I statements
WITNO0740103
WITNO0740103,
31
Exhibit WtTN00740403
Revenue
Prior year to current year
202 -Mallsand Financial Goverment Telecoms Other
Revenue “Retail, _Services___Services “ Income
Mails and Retail
‘The Mails and Retail pillar includes all the services
provided for Royal Mail and Parcelforce. It also
includes Lottery and retail services suchas sales
of collectibles as well as packaging and stationery.
Mails and Retail revenue of £409 million increased
by £17 million (2012-£392 million). Of this,
turmover in relation to Royal Mail products
increased by £13 million, driven primarily by
strong parcel and premium product volumes and
the impact of the stamp price rise introduced on
30 April 2012. In addition, retail turnover increased
by £2 million due to the collectibles relating to the
Diamond Jubilee and Olympics memorabilia. The
rollout of 1,850 additional terminals contributed to
an increase of £2 million in revenue from sales of
Lottery tickets.
Financial Services
‘The Financial Services pillar includes Post Office
branded personal financial services products,
cash machines and travel servicesas well as
traditional services such as bill payment and
over-the-counter banking transactions.
Financial Services revenue in 2013 increased by
£17 million to £281 million (2012-£264 million),
During the year, the Post Office sold its 49.9%
share in its financial servicesassociate,
Midasgrange Ltd, to the majority Shareholder
and long-term banking partner, Bank of Ireland
(UK) ple. This was part of a wider agreement to
restructure this established relationship, aligning
the partners to builda significant longterm
financial services business. Through this
agreement, the Post Office will offer an increasing
range of transparent and value-formoney
financial productsand services, providing benefit
to customers, subpostmasters and the Post Office.
Personal FinancialServicesrevenue rose by
£24 million, driven by strong growth in savings
products (particularly Growth Bonds, Online Saver
and Reward Saver) and the introduction of new
mortgage products. Revenue from traditional
financialservices products, includingbill payment
servicesand Postal Order sales, declined
‘This was due to the increasing provision of
electronic alternatives to paper-based products
and the increasing use of alternative payment
methods. Revenue was impacted by the winding
down of the Department for Work and Pensions
contract for cash cheques and green giros, and the
decision by National Savings and Investments
(NS&D to provide most of their products through
their own direct channel.
Government Services
‘The Government Services pillar covers services
provided under contract to government
departments. This includes services in relation to
the work of the Department for Work and Pensions
(DWP), the Driver and Vehicle Licensing Agency
(DVLA) and the Identity and Passport Service (IPS).
Government Services revenue of £164 million
remained flat (2012-£164 million), though revenue
from the Passport Check & Send service increased
by £3 million due to higher volumes from growth in
both our market share and the overall market
Conversely, revenue from identity-related services
did not grow as expected. Revenue from the
payment of benefits through the Post Office Card
Account was £4 million lower than in the previous
year as customer numbers continued to decline.
Telecoms
‘The Telecoms pillar includes the Post Office's
HomePhoneand Broadband services, mobile
top-up services and international phonecards.
‘Telecoms revenue of £129 million represented
an increase of £9 million (2012-£120 million),
Revenue from HomePhone and Broadband
rose by £10 million, primarily due to increased
customer numbers following the introduction in
May 2012 of more competitive service packages.
Revenue from our Mobile top-up business was
£1 million below the previous year, as more
customers migrated away from pre-pay and
mobile networks reduced their transaction fees.
Despite this reduction in income, the Post Office
is still a significant provider in the top-up market.
and its share of the retail market has been
maintained at approximately 5%.
Other
Other revenue was generated primarily from the
Cash Supply Chain business, which manages and
distributes cash for Post Offices and for third
parties. It also offers warehousingservices, mainly
to Royal Mail. This revenue increased marginally
to £41 million (2012-£40 million), reflecting the
growth in cash in transit income from third parties.
Network Subsidy Payment
‘The Network Subsidy Payment is government
grant revenue towards the costs of maintaining
the Post Office network. This payment increased
by £30 million from the previous year to £210
million (2012-£180 million), a figure that will begin
to reduce with effect from 2013-14 as set out in the
current funding agreement with the government
@
WITNO0740103
WITN00740103
32
Exhibit WtTN00740403.
Performance review
Financial review continued
Costs
‘Total costs rose by £42 million to £1,172 million
(2012-£1,130 million).
Costs
Prior year to current year
£m.
People
‘Other
Costs Operating
Costs
People costs
People costs of £259 million (2012-£254 million)
have increased by £5 million, reflecting historical
pay agreements and the associated costs of
bringing a number of functions in-house following
our separation from Royal Mail
Other operating costs
Other operating costs have increased by
£37 million to £913 million (2012-£876 million),
driven largely by additional programmed
investment spend mainly related to future revenue
growth ambitions. This one-off investment spend
included an increase in media spend to raise
customer awareness of Post Office services;
focused campaigns on travel-related services and
mortgages; and the development of new and
improved services, There were also increases in
the cost of sales, reflecting greater sales volumes,
and in property-related costs.
Joint venture and associate
Share of operating profit from the joint venture
(First Rate Exchange Services Holdings Limited)
and associate (Midasgrange Ltd, until its sale on
1 September 2012) was £32 million (2012-£31 million).
First Rate Exchange Services Holdings Limited
Tesults improved, despite lower retail sales due to
market conditions, This was achieved mainly by
driving efficiencies in operating costs. Post Office
Limited's interest in the associate company,
Midasgrange Lid, was sold during the year
and made a loss on disposal of £30 million.
Annual Report and Financial Statements201213
Exceptional items
2013-2012
£m £m
Operating exceptional items:
Restructuring costs including
subpostmasters' compensation (79) (2)
Impairment of
non-current assets (66) = (36)
Government grant 98 -
Subtotal of operating
exceptional items 7) G8)
Non-operating exceptional items:
Profit on disposal of property,
plant and equipment oe 1
Loss on sale of associate (30)
Net exceptional items (75) (37)
Restructuring costs
Restructuring costs include the costs of delivery
of major change. Network transformation resulted
in costs of £12 million for subpostmasters’
compensation and £40 million of programme costs
Costs of £10 million relate to IT transformation
which will create the IT infrastructureappropriate
for a business with ambitious growth plans
Redundancy costs of £11 million were incurred
during the year, mainly relating to the Crown
network. Business transformation payments of
£4 million (2012-£3 million) are payments that
are periodically made to staffas an incentive
in order to secure agreement for significant
changes in working practices in order to
improve business efficiency.
Government grant
In addition to the Network Subsidy Payment
to support the network, the Post Office also
receives government grant funding towards its
transformation programme. Government grant
funding of £200 million was received in the year.
‘This is included within operating exceptional
items to match the associatedcosts. £98 million of
this government grant funding has been allocated
in accordance with the designation letter, dated
2 April 2012, from the Department of Business,
Innovation and Skills, to cover £66 million capital
expenditure, £12 million network transformation
related subpostmasters’ compensation and
£20 million network transformation
programme costs
Cash flow and net debt
Following the transfer of Post Office Limited from
the ownership of Royal Mail Group Limited to
Royal Mail Holdings ple on 1 April 2012, Post Office
Limited has operated an independent treasury
function and manages its own financial assets
(including network cash) and financial liabilities
(mainly government loans)
Overview
Operational
review
Performance
review
Financial
Governance I statements
WITNO0740103
WITNO0740103,
33
‘The treasury function derivesits authority from
the Board and provides regular reports for Board
review. It has the authority to undertake financial
transactions relating to the management of the
underlying business risks, but it does not engage
in speculative transactions and does not operate
as a profit centre. The principal financial
instrumentsutilised are depositsand borrowings.
‘The cash position of the business remains strong,
with cash and cash equivalents of £971 million
(2012-£820 million), mostly in the Post Office
branch network, and a net cash inflow during the
year of £151 million. Within working capital, both
client receivablesand client payablesincreased
significantly compared to the previous year,
largely due to the year-end date falling on the
Easter weekend, which increased cash flows
and delayed settlements
Net debt (excluding cash in the Post Office
network) decreased by £119 million year on year,
as shownin the table below:
2013
ém
Net debt brought forward at
25 March 2012 G25)
Net cash inflow before financing
activities (see page 62) 244
Deduct: increase in cash in the network
included in net cash inflow @2i)
Finance costs paid @
Total net debt carried forward at
31 March 2013
Post Office Limited's borrowing facility from
the governmentand the associated Framework
Agreementimposes constraints on the purposes
for which the facility can be used and the
availability of external borrowing Post Office
Limited's treasury policy is to minimise the
amount drawn down on the loan in order to
reduce the interest charge. The facility is limited
toamaximum of £115 billion or the amount
of security available (mainly network cash),
whichever is the lower. The maximum drawn
down under the facility during the year was
£499 million on 30 March 2012. The facility
is available at two days’ notice.
At 31 March 2013, the Company was financed
as follows:
PostOffice Interest Facility Joan
Limitea rate’ end Facility Utilised maturity
Purpose % date £m fm date
Network
cash 1.0 2016 1150 291 2013
* Average interest rate of loan drawn down.
Exhibit WiTNO0740403
Pensions
Post Office Limited is a participatingemployer
within the Post Office section of the Royal Mail
Pension Plan (RMPP) and is a participating employer
within the Royal Mail Defined Contribution
Plan (RMDCP).Royal Mail Group Limited is the
principal employer of the Royal Mail Senior
Executives’ Pension Plan (RMSEPP), and Post
Office Limited is a participating employer within
RMSEPP. RMPP and RMSEPP are both defined
benefit plans
On 1 April 2012 ~ after the granting of state aid
by the European Commission on 21 March 2012
~almostall of the pension liabilitiesand pension
assets of the Royal Mail Pension Plan (RMPP),
built up until 31 March 2012, were transferred
to HM Government. On this date, the RMPP was
also sectionalised, with Royal Mail Group Limited
and Post Office Limited each responsible for their
own sectionsin future. This pensions transfer
left the RMPP fully funded on an actuarial basis
in respect of historic liabilities at this date.
‘The balance sheet pension position under IAS 19
moved from a deficit of £206 million at March
2012 to an asset of £97 million at March 2013.
‘The improvementin positions primarily due
to the transfer to government noted above.
Both defined benefit plans closed to new members
in March 2008, and RMSEPP closed to future
accrual on 31 December 2012. New employees
are offered membership of RMDCP.
Pension cash payments for all plans
‘The future funding of ongoing pension
contributions into RMPP and deficit payments into
RMSEPP is being discussed with the respective
pension trustees. The payments for 2013 disclosed
in the table below were based on the arrangements
that were in place for the 2012 financial year
2012
2013
£m £m
Regular pension contributions (24) (24)
Funding of the pel
RMSEPP
Payment
relating to redundancy
Net cash payments
(28)
‘The regular future service contributions cash
rate for RMPP expressed as a percentage of
pensionable pay remained at 171% (2012-17.1%).
‘The regular rate of employee contributionsfor
the RMPP remains unchanged at 6%.
Events after the reporting period
In accordance with the funding agreement with
government announced on 27 October 2010,
for which state aid approval was received on
28 March 2012, Post Office Limited received
£415 million of funding on 2 April 2013.
@
34
WITNO0740103
WITNO00740103
Exhibit WtTN00740403.
Performance review
Business risk
The information below details the key business risks, their impact and how the Post Office manages these risks.
Key risk
Changes in customer ©
preferences
There is decline in the traditional
Post Office income streamsas customer
preferences change.
New income streams may fail to grow
sufficiently to exceed the losses from
traditional products in decline.
Funding
s set out in note 2, Post Office Limited
hasa funding agreement with
government until 31 March 2015, with
a working capital facility until 31 March —
2016, Thereis a risk that funding
beyond these dates cannot be
negotiated or that state aid approval
is not granted in time.
Business
transformation
programmes
We are managinga significant number
of change programmes to modernise
the Post Office and enable its processes
to operate independently of those
of Royal Mail Group. These includethe
network, Crown and IT transformation
programmes. The success of the Post
Office strategic plan depends on the
successful realisation of benefits from
these programmes.
Annual Report and Financial Statements201213
Impact
The Post Office might not be able to
reduce its reliance on government
subsidy.
‘unding is required beyond 2015
in order to complete the business
modernisationand sustain the non-
profitable elements of the network.
‘The working capital facility is required
to fund the cash in the network,
Failure to implement the modernisation
programme would leave the Post Office -
with an unsustainable cost base and a
continued reliance on significant
government subsidy.
Mitigation
We have introduced new services in-
growth areas and continue to refineand
develop these product offerings. There
are detailed plans in place to deliver the
growth tiajectory.and progress against
these plans is monitored rigorously.
janningis well underway for the
future period beyond 2018, and
discussions will commence shortly
with government. =
We have detailed plans in place to
manage the transformation and ensure
itis delivered within budget and on
time. Delivery is tracked monthly by
a Transformation Board made up of
Executive Committee members which
provides direction and oversight over
the programmes ' delivery.
I Operational
Overview review review
Key risk
Engagement risk
The support of our staffand
subpostmastersand engagement
with them during this significant
time of change is key to the successful
delivery of our strategy. Withdrawal
or lack of support from our staff or
subpostmastersin the network could
cause delays in the Post Office
transformation programmes and limit
our ability to meet business objectives
Regulatory
& compliance
Phere is a risk of non-compliance with
the changing regulatory environment
‘The Post Office operates under an
extensive regulatory environment,
including areas such as financial and
postal services, procurement,
competition law and data security.
Business continuity
‘The Post Office has particular
operationalrisks relating to disruption
of its services.
‘This includes adverse weather conditions.
Industrialaction, systems breakdown
and the failure of a critical supplier.
Performance
Financial
Governance I statements
WITNO0740103
WITNO0740103
35
Exhibit WtTN00740403
Lack of support from our staff and
subpostmasters would jeopardise our
ability to meet our strategic goals of
growth, profitability and reduced
reliance on government subsidy.
ailure to meet regulatory requirements
could resuiltin fines and negative
impacts on our reputation, as well as the
costs of investigation and resolution
Breakdownsin the network would
reduce quality of service, Increase
costs and/or damage our reputation.
Mitigation
We maintaina fluid and comprehensive
engagement programme with unions,
staff and subpostmasters. These include
regular meetings with the National
Federation of Subpostmasters (NFSP),
the Communication Workers Union
(CWU) and Unite; senior management
briefings to staffand subpostmasters;,
and events to engage our peoplein our
vision and strategy.
We havea people plan aimed at addressing
staff motivation and skill needs. This
inchides development of new leadership
and reward frameworks and increased
focus on recruitment and training
Our legal and compliance team works
closely with the relevant business
owners in identifying new requirements
and monitoring compliance against
existing ones.
The Risk and Compliance Committee
monitors key risks and our actions to
mitigate them.
Disaster recovery and business
continuity plans are under continuous
development and review in line with
business change. This includes
contingency planning and training
in the event of disruption such as
industrial action or IT fajlure.
Key suppliers’ ability to. continue to
meet the Post Office’srequirementsis
closely monitored.
WITNO0740103
WITNO0740103
Exhibit WITNO0740103___
Fequit
or pre
expre
Post Office
Z Birmingham
WITNO0740103
WITNO0740103
I 37
Governance Exhibit WITNOO74040:
ance
mn report
or courtey asain Abrams 200
WITNO0740103
WITNO0740103
22
38,
Exhibit WITNO07404103.
Governance
Board of Directors
09
WITNO0740103
WITNO0740103
39
3
Exhibit WITNO0740103.
From left to right:
Tim Fr
Alasda och
Paula Vennell
Alice Perkins
Chris E
isannah Storey
jeil McCausland
a Holmes
on:
WITNO0740103
WITNO00740103
40
~ Governance
Exhibit WITN00740403.
Board biographies
Board
(Chairman of Nominations
Post Office Limited's Board of Directors Sub-Committee and the Mutualisation
is chaired by Alice Perkins CB. As Non- Sub Committe).
E ti Chi . Hi sent. d d t Ali erkins had a wide-ranging career in the
ecutive Chairman, she is independen' civilservice which included policy and
; operational roles in health, social security and
both of the executive management of public spending in HM Treasury. She was the Civil
Post Office Limited and of its special Service's Group HR Director in the Cabinet Office
. between 2001 and 2005. Before joining the Post
Shareholder. The Board comprises the Office as Chairman in September 2011, Alice
Chairman, five other Non-Executive served as Non-Execut ive Direc toron the boards of
: . “ Littlewoods, BAA and TNS, where she also chaired
Directors and two Executive Directors. the Remuneration Committee. Alice is an external
member of the Oxford University Council, a
business coach at the JCA Group, and a member of
the faculty at Meyler Campbell, where she teaches
-- senior executives how to coach.
The responsibilities of the Board include Ne
setting the business’ strategic aims, putting
in place the leadership to deliver them, (Chairman of Remuneration
supervising the management of the business Si i
and reporting to the Shareholder. Neil McCausland has had a portfolio of Non
Executive roles over the last 10 years. He is
There are a number of Board committees currently Chairman of three companies:
which deal with specific topics requiring Snow+Rock,a retail chain selling skiing and
independent oversight, including audit, risk outdoor brands, bikes and running gear; sk:n, a
7 i ’ chain of skin treatment clinics specialisingin laser
and compliance, nominations of the Board, hair removal;and Create Health, a chain of
pensions and senior remuneration. IVF clinics. Until recently, he was Chairman of
. . footwear company Kurt Geiger and a Governor of
Each committee is chaired by a Nuffield Health, which operates hospitalsand
Non-Executive Director and operates eee ee eee i ee a aes
cs Spencer before becoming Managing Director
within its own agreed, documented of C&A and Chief Executive of NAAFI, an
Terms of Reference. MOD agency.
sovoronee oo Tim Franklin
‘Tim Franklin joined the Board as a Non
Director on 19 September 2012. Tim was
Chief Operating Officer of the Co-operative
Banking Group until the end of 2011, having
previously served as Managing Director of the
Britannia Building Society. Prior to that, he was
Director of Customer Programmes and Loyalty
and Managing Director of Savings at Barclays
Tim's experience extendsacross the private and
public sectors. He isalso a Non-Executive Director
of HM Land Registry and was previously on the
Boards of Reclaim Fund Limited, Mutual Plus
Limited and the Link Cash Machines Network.
xe
Annual Report and Financial Statements 2012-13
Overview
Operational
review
I Performance
I review
Financial
statements
Governance
WITNO0740103
WITNO0740103
4l
Exhibit WITN00740103
(Chairman of Pensions Sub-Committee)
Virginia Holmes brings to the Board extensive
knowledge of the financialservicesindustry,
including both investment managementand
banking. Her experience includes servingas Chief
Executive of AXA Investment Managers in the UK
and more than a decade with the Barclays Bank
Group, where she ultimately served as Managing
Director of the Barclays Bank Trust Company.
Virginia currently serves on the boards and chairs
the investment committees of both the Alberta
Investment Management Corporation in Canada
and the Universities SuperannuationScheme in
the UK. She also serves on the boards of Standard
Life Investments Limited and JPMorgan
Claverhouse Investment Trust ple
Alasdair Marnoch
Non-Executive Director
(Chairman of Audit, Risk and
Compliance Sub-Committee)
Alasdair Marnoch joined the Board of the Post
Office as a Non-Executive Director on 23 May 2012.
A chartered accountant, he chairs the Board's
Audit, Risk and Compliance Sub-Committee,
which reviews the statutory accounts and
financial controls. Alasdair has had wide
experience as Finance Director of a number of
FMCG and service businesses, including listed
companies. Most recently, he served as CFO of the
Equiniti Group, a leading provider of complex
administration and processing services to the
public and private sectors
E} h St
Susannah Storey is the representative of the
Department for Business, Innovation and skills on
the Post Office Board, She has recently been
appointed Director of Corporate Strategy and
Change at the Department of Energy and Climate
Change. Susannah has beena civil servant since
2006, working at the Shareholder Executive until
2013 in a number of roles, including Head of the
Royal Mail and Postal Services team and Chief
Operating Officer. Prior to the Shareholder
Executive, Susannah worked in investment
banking at Citigroup and Schroders, specialising
in UK corporate finance.
Paula Vennells has worked for the Post Office
since 2007 in a number of senior roles, including
Managing Director, She became Chief Executive
on 1 April 2012, Previously, Paula spent five years
with Whitbread ple, latterly as Group Commercial
Director. She began her career with Unilever and
LOréal and held Directorships in sales and
marketing with a number of major retailers,
including Dixons Stores Group and Argos. She is
currently a Non-Executive Director and Trustee
for the Hymns Ancient and Modern group.
from the BBC, where he had been Group Financial
Controller since 2005. Prior to that, Chris spent 14
years in FMCG with Grand Metropolitan/Diageoin
a succession of treasury and corporate finance
roles in the UK, andas Finance Director in the
Netherlandsand subsequently in Germany/
Austria. Earlier in his career, Chris worked
as a financial management consultant at KPMG,
having started his career with Beecham Group.
Alwen Lyons
Company Secretary
Alwen Lyons joined the Post Office in 1984 asa
graduate and has worked ata senior level in
several directorates including Network, Finance
and Marketing. She became Company Secretary
in July 2011, after leading the project to separate
Post Office Limited from Royal Mail Group
WITNO0740103
WITNO00740103
42
Exhibit WtTN00740403.
Governance
Corporate governance
Astrong link remainsbetween R
Limited and the Post Office:
strategicagreem continue to supply
Royal Mail Group Limited products and services
through its network. That link is currently reinforced
inthe corporate structure by a common group
holding company (Royal Mail Holdings plc) whict
holds shares in both Post Office Limited and Royal
Mail Group Limited.
The shares in Post Office Limited
(the Post Office) were transferred from
Royal Mail Group Limited to Royal Mail
Holdings plc on 1 April 2012, and the Post Office
has operated independently since that date.
Corporate governance principles
As the Post Office is not a company whose shares
are listed and traded on a public exchange, it is not
formally required to report on its compliance with
the UK Corporate Governance Code (the Code).
Nonetheless, the Board of the Post Office believes
this is an appropriate benchmark for reporting on
corporate governance.
During the year, the Post Office has further
established a full Board and Committee structure
and has set principles for good governance which
follow the provisions of the Code, so far as they can
Neither Royal Mail Holdings plc nor BIS, through
its Shareholder Executive (ShEx), have any
day-to-day involvementin the operationsof the
Post Office or the management of its branch
network and staff.
The Board
Alice Perkins was appointed as Chairman of the
Board in July 2011, marking the first step on the
road to building an independent Board for the
Post Office, Neil McCausland joined in September
2011 as the Senior Independent Director, and in the
year under review a further four Non-Executive
apply to a government-owned entity which has no
private or institutional external Shareholders Directors have been appointed, each bringing
particular skills and experience relevant to the
business targets of growth, modernisation,
customer focus and business efficiency.
Legal ownership structure
The Post Office isa wholly owned subsidiary of
Royal Mail Holdings plc. The Secretary of
for Business, Innovationand Skills (BIS) holds a
special share in Post Office Limited. The Special
Shareholder'srights are set out in the Post Office
Limited articles of association
The Board is unusual in havinga female Chairman
and Chief Executive and being equally balanced
between men and women. The Board comprises
ecutive Directors and six independent
Legal ownership structure
Shareholder
Executive (within the
Department for
Business, Innovation
and Skills)
Royal Mail
Holdings plc
Royal Mail Group
Limited Post Office Limited
First Rate
Exchange Services
Holdings Limited
Goint venture
with Bol)
Post Office
Management Services
Limited
First Rate Exchange
Services Limited
Annual Report and Financial Statements 20
WITNO0740103
WITNO00740103
Operational I Performance Financial 43
Overview review I __ review Governance [MBEnoumeng
Exhibit WiTNO0740403
Non:
ecutive Directors, includingthe Chairman. Board meetings
‘This provides a strong level of independent
challenge to decision-makingand enables the
Post Office to call on a wide range of experience
and opinion. Short biographies of all members
of the Board appear on pages 40-41
‘The Board meets at least eight times a year, with
an additional strategy away-day, and hasa formal
schedule of matters reserved to it
‘The Board's responsibilitiesinclude setting
: . the Post Office's strategic aims, putting in place the
She Nominations Commitee laises with Shhx leadership to put them into effect, supervising the
in BIS to obtain the Special Shareholder’s consent managementof the business and reporting to the
for all Directors’ appointments. The Remuneration gharenolder During the year to 31 March 2013
Committee agrees the terms under which they the Board has focused on financial performance,
serve, Including Non-Executive Directors'fees and network transformation and the people and
any changes in the total remuneration for each capability of the business. Over the last six
Executive Director, The Executive Directors months, the Board's primary focus was on
contracts provide for six months'notice of setting the strategic direction for the businessin
termination to be given by the Director and 12 preparation for completion, during 2013414, of the
months’ notice to be given by the organisation. Strategic Plan and Funding Agreement with the
Non-Executive Directors are not employees of government for the period after March 2015.
the Post Office, but provide services under the
terms of an individual Letter of Appointment,
signed at the commencement of their Directorship.
All Non-Executive Directors are entirely
independent of the Post Office, having no other
connection or financial interest other than as
customers and taxpayers.
During the year under review, the Board established
sub-committees which met regularly to undertake
more detailed reviews in specialist financial
reporting areas, as recommended by the Code
Such focus areas included accounting policy and
practices, risk and controls, pensions, executive
remuneration, the processes for evaluation of
performance, and the nomination and appointment
Non-Executive Directors’ terms of office of new Directors or the removal of Directors from
- - noses = the Board. The full terms of reference for the
Dateof Term termat Committee Board sub-committees can be found on the
Director appointment ofoffice 31 March 2013 memberships Post Office website.
Rolling Nominations ‘The table on the following page shows the
Alice 2i July 12-month (Chair), _attenclance of the Directors at meetings of the
Perkin: 2011 n/a__Remuneration —_ Board and its principal committees during
19 September 3 years, the year.
2012 172 days ARC
Pensions (Chain)
Virginia 4 April 2 years, Nominations,
Holmes 2012 3 years 4days Remuneration
Remuneration
Neil 22 September 2 years, (Chair), ARC,
McCausland 2011 4 years 175 days Nominations
Alasdair 23 May 2 years,
Marnoch 2012 3 years 53 days ARC (Chair)
Susannah 18 April 2 years, ARC,
Storey 2012 3 years 18 days Pensions
44
WITNO0740103
WITN00740103
Exhibit WITN00740403.
~ Governance
Corporate governance continued
5 5
§ 2 §
ge Ee 3 2s
£8 gf af gs
ge #3 Ee ge
z Be 2 ge
a g Be ge ge ge
Director 3 a 2s 28 es 26
Alice Perkins 8/8 - 4/4 3/3
Chris Day 8/8 - - - 3/3
2/2
213
373
3/3
2/3
313
‘Tim Franklin®
Virginia Holmes
Neil McCausland
8/8
8/8
Vika
3/8
Alasdair Marnoch™
3/3 - -
Susannah Storey*
8/8
Paula Vennelis
* From date of appointment.
Board sub-committees
Audit, Risk and Compliance Committee
‘The Audit, Risk and Compliance Committee (ARC)
is made up of four Non-Executive Directors and is
chaired by Alasdair Marnoch. The ARC considers
Post Office Limited's financial reporting, including
accounting policiesand internal financial
controls. It looks at the levels of risk which exist
within the Post Officeand the steps taken to
mitigate those risks.
One of the ARC's primary responsibilitiesduring
the period was to review both the half-year
trading statementand the full-year financial
statements to assess the validity of assumptions
made, the accounting policies used and consider
the ways in which the Post Office should present
its financial performance.
Asecond major responsibility has been to
promote the development of a risk management
framework suited to the complex nature of
the Post Office business. This will take some
time, and is a key focusarea for the coming year.
‘The development of risk managementand control
procedures and the establishmentof a full internal
audit programme are areas of high priority.
In this period, a new Head of Internal Audit was
appointed and the transition from using the Royal
Mail Group Limited's internal audit function to
building a new internal team began.
‘The ARC works with both the internal audit
team and Ernst & Young, the external auditor
‘The appointmentand terms of engagement
of the external auditor, including the proposed
fee structure, were considered and their
independence assessed. The Audit Committee
considered the scope and planning of the external
financial audit and assessed the effectiveness
of the audit process, There is no current intention
tochange the existing audit relationship, but the
ARC will continue to monitor the independence
of the auditor and will, in future years, consider
Annual Report and Financial Statements 2012-13
whether the audit should be put out to
competitive tender, in line with best practice
applying to listed companies.
Remuneration Committee
‘The Remuneration Committee is made up of
three Non-Executive Directorsand is chaired
by Neil McCausland, the Senior Independent
Director. The committee is responsible for making
recommendations to the Shareholder on the
remuneration of the Executive Directors in
accordance with the articles of association.In
doing so, it also reviews the remuneration policy
and packages of the most senior leadership team,
being the roles which report directly to the Chief
Executive, It also obtainsinformationon salary
levels across the businessand within external
organisations of comparable size in order to set
remuneration levels in an appropriate context
‘The Chief Executive may attend meetings, at the
invitation of the Chairman, to discuss matters
relating to the remuneration of the Chief Financial
Officer and members of the Executive Committee,
but the committee upholds the principle that no
individual may be involved in discussions
concerning their own remuneration,
‘The committee is able to consult on remuneration
matters with the Human Resources and Corporate
Services Director, with other members of the
Human Resources team and with external
consultants. In the year under review, advice
was primarily obtained from New Bridge Street
on market practice and benchmark development
New Bridge Street consultants have no other links
with the Post Office which could compromise
their independence.
No material changes can be made to Directors
base salaries, benefits or incentives without the
Special Shareholder'sconsent. Further details of
the schemes now in place, and a table setting out
the remuneration paid to all Directorsin the year
to 31 March 2013, are provided in the Directors’
remuneration report on page 49.
Nominations Committee
‘The Nominations Committee is made up of
three Non-Executive Directorsand is chaired
by Alice Perkins, the Chairman. It met for the first
time in December 2012, with Directorappointments
up to that time having been made according
to specific criteria, following discussions with
the Special Shareholder.
‘The primary role of this committee is to recommend
to the Board any changes in Board membership
and manage the process for recruiting and
replacing Directors. The Board is complete and no
immediate changes are expected. The committee
will keep under review the balance of skills,
experience and diversity available within the
Board and each of the Board sub-committees.
‘The Nominations Committee wiil also oversee the
process for Board and committee performance
evaluation, and monitor talent and diversity
Performance
Operational I
I review
Overview review
(ee page 26). The Chief Executive may attend
meetings, at the invitation of the Chairman, to
discuss matters relating to the talentand
diversity policies,
Pensions Committee
‘The Pensions Committee is made up of two
Non-Executive Directors and one Executive
Director and is chaired by Virginia Holmes
With the pensions transfer in April 2012,
(See page 33), government assumed the
obligations for past service liabilities of the Royal
Mail Pension Plan (RMPP) in return for a
substantial transfer of assets. The transfer was
made possible following European Union
approval for UK Government state aid,
As part of the transfer, the pension fund was
sectionalised, with the Post Office assuming
responsibility for that part of the pension fund
which relates to Post Office employees
and pensioners
‘The Board has delegated authority to the Pension
Sub-Committee to appoint professional advisers,
to enter into negotiations with the trusteesof the
RMPP on the forthcoming valuation of the funds,
to agree the investment strategy for the Post Office
section, and to monitor funding levels and
investment performance.'The committee reports
back to the full Board so that its work can dovetail
with executive recommendations and union
negotiations on pay and benefits
In August 2012, the committee recommended to
the Board the appointment of Aon Hewittas its
investment adviser. Working with Aon Hewitt and
with Towers Watson, its actuarial adviser, the
committee has satisfied itself as to the fair value
ofassets transferred into the Post Office section
at 1 April 2012. The committee has agreed a
revised investmentstrategy with the trustees
of the RMPP, with the aim of maintaining the
long-term sustainability of the schemeand
protecting against an unmanageable increase in
liabilities for the Post Office in the future
Mutualisation Sub-Committee
‘The MutualisationSub-Committeeis chaired by
Alice Perkins and its membershipis the same as
that of the full Board. It met for the first time on
4 July 2012, the week in which the government
published the response to its consultation
Building a Mutual Post Office. The committee is
responsible for ensuring that the work to develop
proposals for the mutualisation of Post Office
Limited is provided with strategic direction, has
the appropriate level of stakeholder involvement
and has adequate support.
‘The focus of the committeehas been toconsider
the financial,culturaland business implications
of mutualisation to ensure that progress on
mutualisation supports and enables the successful
delivery of the Post Office's transformation
programme, The committee looks at mutual ways of
working to improve the performance of the business
and the Post Office's progress towards mutualisation,
Governance
WITNO00740103
WITNO0740103
Financial I
statements II Exhibit WITN00740103.
45
Performance evaluation
‘The Board intends to carry out an annual evaluation
of the effectivenessof the Board and of the Board
sub-committees. The initial performance
evaluation will take the form of an assessment
by the Chairman. External evaluations will be
completed every three years
Executive Committee
Below main Board level, the Executive Committee
(ExCo) is the most senior management body and
is made up of the Chief Executive and each of her
direct reports, supported by some business unit
heads who report to members of the Executive
Committee. The committee works within the
delegated authorities established by the Board.
‘The ExCo implements the strategy agreed by
the Board and monitors business performance
and development at a day-to-day level. It meets
formally at least once a month to discuss
proposals for new business development, receive
financialand other performancereports, and
address urgent issuesthat have arisen within
the business and require senior-level resolution
‘Twice yearly, it reviews the results of personal
performance assessments undertaken throughout
the organisation.
‘The Chief Executive, Chief Financial Officer and
Company Secretary attend both Board and ExCo
meetings. This facilitatesand strengthens the
communication channels between the senior
leadership team and the Board and its committees
‘The Terms of Reference of the ExCo have been set
out in writing, and are available to download from
the Post Office website.
Risk management
The Post Office has adopted the requirements
of the FRC Guide to Corporate Governance and
established an approach to the management
of risk, tailored to meet the demands of a new
business with ambitious plans for expansion
in its chosen markets.
The Board takes ownership of risk management
through its Audit, Risk and Compliance
Committee (ARC). The business’ Risk and
Compliance Committee reports into the ARC
and is responsible for:
review and challenge of risk management
approval and endorsement of policies
to mitigate risk; and
development of the risk management
framework.
This committee is chaired by the Director of
HR and Corporate Servicesand reports to the
Post Office ExCo. The committee comprises
members of the ExCo and other senior managers.
WITNO0740103
WITNO00740103
46
Exhibit WtTN00740403.
Governance
Corporate governance continued
During the year under review, the Post Officeset_ _ Progress
up its own Internal Audit departmentas part of a
three lines of defence’ model (see diagram below).
Internal Audit provides independentassurance
and advice on the risk management framework
and its future strategy and evolution, and reports
directly to the ARC
Over the past 12 months, each directorate has
gone through a process of identifying and
assessing the risks associated with achievement
of its respective objectives. in addition, the key
strategic programmes of the business capture
their own risks
Compliance with the business’ regulatory
responsibilities in Financial Services is managed
gh established joint regulatory risk
committees with the Post Office's partner, the
Bank of Ireland (UK) plc.
‘The top 12 risks from each of these sources, together
with the respectivemitigation plans, are reviewed
by the Risk and Compliance Committee to assess
the robustness of risk assessment and management.
The above assessment will be supplemented in
Risk framework the first quarter of the new financial year witha
top down assessment of the Company's risks by
the Post Office Executive Committee.
The Post Office has set out the components of risk
management in its risk framework. This framework
is described at high level in the diagram below
Programme
Strategic objectives eee
‘Running the business
Risk management
+ Identification
+ Assessment
Risk appetite
Over the next 12 months, the Post Office will be
fully developing its risk appetite statements for
each of the key risks, witha view to establishing
where additional risk may be taken to generate
ew opportunitiesand/or where further treatment
of existing risks is required
Business continuity
As part of the development of risk management.
the Post Office is bringing together a wide range
of business continuity arrangements throughout
the business under one central policy and
© governance framework to ensure that the Post
Office is capable of withstanding any significant
threat to its ongoing operations.
Internal
controls
framework
Management
+ Reporting
Business continuity
management
<+—__—_———1stline functions > I 2ndline I 3rdline
Assurance measures and monitoring
‘The framework utilisesa ‘three lines of defence’
model to establish accountability and responsibility
for the effective operation of this framework
athe oe +Day-to-dayrisk management I
inbusinessoperations
+ Risk management
Gnd Ling Oe oversight and challenge
3rd Line of Defence «Independent assurance
Ist line of defence is responsible for managing risk
in day-to-day business operations.
2nd line of defence comprises central functior
which oversee regulatory complianceand provide
advice on the operation of the framework
3rd line of defence provicies independent
assurance in respect of the Post Office's regulatory
risk managernent
‘The risk frameworkis supported by the Risk and
Compliance team, with dedicated resourcesin
place to administer the tools and committees
in use to manage risk
Annual Report and Fin
I I
Operational I Performance
I
I Overview review review
Directors’ report
‘The Directors present the Group Annual Report
and Financial Statements for Post Office Limited.
These financial statements relate to the 53 weeks
ended 31 March 2013
Principal activities
‘The Group's principal activities are the provision
of access to a wide range of mails, government,
financial, travel and retail services through its
network of Post Office branches and other
channels across the United Kingdom (UK).
Review of the business and expected
future developments
Information contained within the Chief Executive's
review (page 6) and the Financial review (page 30)
constitutes the business review required by the
Companies Act 2006 and is incorporated into this
Directors report by reference
Results and dividends
‘The profit after taxation for the year was
£49 million (2012-£30 million). The Directors
do not recommend the payment of a dividend
(2012-nil dividend),
Pensions
In note 19 of the financial statements,on 1 April
2012 almostall of the pension assets and liabilities
of the Royal Mail Pension Plan were transferred
to HM Government. On this date, the Royal Mail
Pension Plan was also sectionalised, with
Royal Mail Group Limited and Post Office Limited
responsible for their own sections. All employees
were transferred to be directly employed by
Post Office Limited on the same date
Royal Mail Group Limited is the principal
employer in the Royal Mail Senior Executive
Pension Plan and for the Royal Mail Defined
Contribution Plan. Post Office Limited became
a participating employer for both of these plans
with effect from 1 April 2012, Post Office Limited
continues to account for approximately 7% of the
Royal Mail Senior Executive Pension Plan scheme,
as it has done previously. Both defined benefit
schemes were closed to new members in 2008
and the Royal Mail Senior Executive Plan closed
on 31 December 2012. New employees are
offered membership of the Royal Mail Defined
Contribution Plan.
‘The consolidated balance sheet pension surplus
of £97 million (2012-£206 million deficit) has
arisen principally due to the transfer of pension
assets and liabilities to HM Government.
Prior to 1 April 2012, Royal Mail Group Limited had
the legal relationship with the trusteesof both
defined benefit plans and, as such, the trustees
held Royal Mail Group Limited liable for the
actuarial deficit in the scheme. All employees
were employed by Royal Mail Group Limited and
seconded to Post Office Limited under an
agreement between Post Office Limited and
Governance
WITNO0740103
WITN00740103
I
Financial
statements: 47
i Exhibit WiTNO0740403
Royal Mail Group Limited. Post Office Limited met
the full costs of employment and was responsible
for the funding of the pension deficit attributable
to these employees. Consequently, Post Office
Limited recognised a balance sheet deficit on full
adoption of IAS 19 by Royal Mail Holdings pic
based on employee numbers over 12 years, which
represented approximately 7% of the total balance
sheet deficitat that time. The net pension interest.
deficit recovery payments and actuarial gains or
losses were also allocated on this basis. The
current service cost, regular future service
contributions and curtailments were computed
separately for Royal Mail Group Limited and Post
Office Limited based on common factors/rates.
Political and charitable contributions
During the year, charitable contributions of
£989,702 (2012-£320,108) were made. No political
contributions were made in the year (2012-niD).
Research and development
Research and developmentexpenditure during
the year amounted to nil (2012-nib.
Policy on the payment of suppliers
‘The Post Office policy is to use its purchasing
power fairly. Payment termsare agreed in
advance. It is policy to abide by the agreed terms.
‘The business has sought to comply with the
Department for Business, Innovation and Skills
(BIS) Better Practice Code. The number of days’
purchases in creditors at the balance sheet date
was 24 days (2012-33 days).
Land and buildings
The net book value of land and buildings, based
ona historic cost accounting policy and excluding
fit-out, is £11 million (2012-£11 million). In the
opinion of the Directors, the aggregate value of the
Post Office's land and buildings at the year end
exceeded their net book value by £73 million
(2012-£45 million).
Directors and their interests
‘The following served as Directors of Post Office
Limited during the year ended 31 March 2013 and
remain in post as at the date of approval of these
financial statements.
A Perkins CB
NW McCausland
V A Holmes (appointed 4 April 2012)
SJ Storey (appointed 18 April 2012)
A Marnoch (appointed 23 May 2012)
T A Franklin (appointed 19 September 2012)
PA Vennells*
CMDay*
“Executive Directors
No Director has a beneficial interest in the
share capital of Post Office Limited. All the
48
WITNO0740103
WITN00740103
Exhibit WITN00740103.
_. Governance —
Directors’ report continued -
Non-Executive Directors are considered to be
independent, having no financialconnection
with Post Office Limited other than by virtue
of the fees paid for their services asa Director.
‘The emoluments of Directors are set out in the
Directors’ remuneration report opposite.
Insurance and qualifying third-party
indemnity provisions for Directors
Post Office Limited maintains Directors’ and
officers liability insurance for the benefit of all
Directors and officers of Post Office Limited.
A partial qualifying third-party indemnity
provision (as defined in section 234 of the
Companies Act 2006) was and remains in force
for the benefit of all the Directors of Post Office
Limited and former Directors who held office
during the year. The indemnity ts granted under
article 129 of the articles of association of Royal
Mail Holdings plc, the ultimate parent company.
‘The indemnity is partial in that it does not
allow Post Office Limited to cover the costs of
an unsuccessful defence of a third-party claim
People
Our goal is to ensure that all employees are
engaged and involved in the business and are
aligned and equipped to meet business objectives.
As part of our commitmentto drive better service
for customers, we continue to focus on improving
the quality of our leadership, professionalising key
roles, recognising the importance of diversity and
achieving greater employee involvement in
decision-making.
‘Training and development programmes have
been put in place to support our ambition to create
a high-performance customer oriented sales
culture, This ambition is further supported by
a range of bonus schemes which are based on
the achievement of business targets
Underpinning all of this is a need for dignity at
work, where everybody feels valued and is treated
fairly and equally, with everyone playinga full
part in helping the business to achieve its goals.
Regular employee engagement surveys are
conducted to allow employees an opportunity
to express their views and opinions on important
issues. This two-way communication encourages
all employees to contribute to making business
improvements.
Corporate responsibility
Post Office Limited is committed to carrying out
its activities in a socially responsible manner in
respect of the environment, employees,
customersand local communities. Further
information can be found on page 28.
Annual Report and Financial Statements 2012-13
Disabled employees
‘The Post Office's policy is to give full consideration
to applications for employment from disabled
people. Employees who become disabled while
employed receive full support through the
provision of training and special equipment
to facilitate continued employment where
practicable. The business provides training,
career developmentand promotionto disabled
employees wherever appropriate.
Post balance sheet events
In accordance with the funding agreement with
government announced on 27 October 2010,
for which state aid approval was received on
28 March 2012, Post Office Limited received
£415 million of funding on 2 April 2013
On 21 June 2013, Post Office Limited launched
consultation with members of the Royal Mail
Pension Plan, ona proposal to change the terms
of the plan, which will conclude on 25 August
2013. Post Office Limited will consider the
feedbackbefore making its final decisionand
communicating it to colleagues.
Going concern
After analysis of the financial resourcesavailable
and cash flow projections for Post Office Limited,
the Directors have concluded it is appropriate
to prepare the financial statementson a going
concern basis. Further details are provided in
accordance with the fundamental accounting
concept in note I of the financial statements,
Audit information
‘The Directors confirm that, so far as they are
aware, there is no relevant audit information
of which the auditor is unaware, and each
Director has taken all reasonable steps to.
make themselves aware of any relevant audit
information and to establish that the auditor
is aware of that information.
Auditor
The auditor, Ernst & Young LLP, is deemed to
be reappointed under section 487(2) of the
Companies Act 2006.
By order of the Board.
Alwen Lyons
(company number 2154540)
148 Old Street, London ECIV 9HQ
16 July 2013
Performance
review
Operatic
Overview review
Governance
WITNO0740103
WITNO00740103
Financ!
statements
Directors’ remuneration report
Neil McCausland
Chair, Remuneration Committe
I welcome this opportunity to outline our progre
on executive remuneration during the year.
Remuneration is a highly sensitive issue in the
challenging economic environment in which
we operate. Asa pt ned business, funded
by the taxpayer, with a commercial and public
pu recognise the n'
and accountability on Directors
and the need to establish a resr
to remuneration.
remuneration
Once the Post Office Board appointment process
s complete in September 2012, a Remune
Committee was set up to take responsibility for
executive remuneration. The members of the
committee are independent Non-Executive
Directors (NEDS), and no individual par
iscussions about their ownr emuneration.
We have used the recommended governance
principles and proposed legislative changes on the
disclosure of executive remu
this report and to aid the development of
remuneration strategy.
leration to prepare
the
‘The committee
policy f cutive Dire
to the Post Office Board for its
into account their potential in
sation. Prior written c
Special Share
variation or amer
of the Executive E
ion
holder is required in respect of any
ment to the remuneration
irectors. During this first year
Ihave held regular dialogues with officials
and ministers in the Department for Business
Innovation and Skills to build working
relationships and a common understanding
of the ues.
The Post Office has begun the journey to turn
around the business to become a sustainable
organisation characterised by a strong performance
culture and active stakeholder participation and
engagement. We are planning for the future of the
busi
ger-term remuneration policy
pecomes very important. We have deliberately
made no changes to the remuneration policy for
the Executive Directors during this fir
we build a track record of solid achievements
against challenging targets.
Phe framework for the Executive Directors’
remuneration was inherited from Royal Mail
Group.
An extensive remuneration benchmarking
exercise was undertaken during the year, and dai
from similar-sized organisations in three distinct
sectors was considered. The organisations used
‘or the benchmarki activity came from the
mutual, government-owned and PLC sector
The results of the benchmarking showed that
levels of Post Office executive reward for both
fixed and total remuneration are substantially
below the market median. The Remuneration
Committee, mindful of the govern:
constraints on executive pay, agreed that while it
ould not recommend any changes, the relative
the Executive Directors would
w. Any recommended future
ration n for Executive Directors
Special Shareholder approval
market positior
be kept under revi
change in remur
would be subject t
‘The Chief Executive, Paula Vennells, and the
nief Financial Officer, Chris Day, were appointed
to their roles prior to 1 April 2012, the date at wh
the Post Office began operating independently
from Royal Mail Group. While the responsibiliti
of the Chief Executive and Chief Financial Officer
have increased signific
framework remains unc
7
the committee was
ration
ranged
the financial year ended 31 March 2013
satisfied that there had been
aclear link between the performance of the
businessand payments under the two
plans, the Short Term Incentive Plan (STIP) and
the Long Term Incentive Plan (TIP), Detailsof
STIP and LTP targets and the results achieved
are shown on pages 53-54
centiv
The remuneration policy will remain largely
unaltered for 2013-14, and the Remuneration
Committeeis in discussion with the Special
Shareholder on the future remuneration
framework for executive Directors. The Post Office
is undergoing a fundamental transformation and
we anticipate that each year progressively more
demanding targets will be set for the STIP and
LTIP in order to achieve our goal of financial
sustainability.
1e Remuneration Committee is comfortable that
the cu providesa strong link bet
reward and performance and I commend this
report to our stakeholders.
ent polic en
50
WITNO0740103
WITN00740103
Exhibit WITN00740403.
~ Governance —
Directors’ remuneration report continued
The remuneration report
‘This report has been prepared in accordance
with the provisions of the Companies Act 2006
to the extent that they are applicable for an
unlisted company. The committee hasalso, where
practicable, adopted early the proposed legislative
requirements for disclosure of Directors’ pay being
put forward for UK listed companies.
Accordingly, the remuneration report has been
splitinto two sections:a policy report and an,
implementation report. The policy report sets
outthe policy for the remuneration of Directors
and its link to the businessstrategy. The
implementation report sets out how this policy
was applied during the year under review and the
remuneration received by Directors. Both sections
of the report (pages 49-55) have been approved by
the Remuneration Committee and the Board
Neil McCausland
Chair, Remuneration Committee,
Post Office Limited
16 July 2013
Annual Report and Financial Statements 2012-13
Policy report
‘The committee is responsible for setting the
remuneration packages for the Chief Executive and
Chief Financial Officer and determining the overall
remuneration policy for the Chief Executive's
direct reports and the Company Secretary.
‘The committee's intention is that the remuneration
policy should align with the businessstrategy
and risk profile so that individualsare motivated
to deliver the Post Office's objectivesand protect
itsbrand value. The Post Office remuneration
strategy is based on the following:
+ attracting and retaining the right people
within an agreed policy to lead and deliver
the strategic plan;
using incentives appropriately to reward
the achievement of the turnaround strategy
and promote the long-term viability of
the organisation;
reinforcing an emerging culture of co-ownership
and partnership;and
providing a transparent approach to the
disclosure of pay.
Remuneration policy summary
‘The table opposite describes the current
remuneration policy and the breakdown of the
packages for the Executive Directors, which
comprise fixed pay (base salary, benefitsand cash
in lieu of pension contributions)and pay at risk
(STIP and LTIP).
‘The remuneration framework for the Executive
Directors requires consent from the Special
Shareholder each year. The Board is recommending
that the framework remains the same for 2013-14
asit was in 2012-13, with the exception of the STIP
design for the Chief Financial Officer.
WITNO0740103
WITN00740103
Performance
review
Financial
statements
I
Operational I
review I
51
Overview
Governance
Exhibit WiTNO0740403
Remuneration policy table
Element Link to strategy ~ Operation “Performance
period
Base Determined by reference to Directors salaries are reviewe:
salary the skills and responsibilities annually in July of each year. the Executive Directors
of the individual are:
Consideration is given to pay Chief Executive
and employment conditions £250,000
elsewherein the Post Office Chief Financial Officer
when determining base salary £215,000
increases, and to market data
on comparable roles
Benefits Participation in life and The value of the benefits ‘The total value of the
health assurance schemes, package is monitored by the benefits package for
company car and private Remuneration Committee 2012:13 was £9,779
medical schemes are and benchmarkedagainst
part of Post Office-wide comparator organisations
benefit programmes
Pension Pension provisionis provided A salary contributionin lieu 25% of salary
by the Post Officeand is of pension is paid asa cash
available to all employees supplement to the Chief
to help them meet their Executiveand Chief
retirementneedsand provide Financial Officer.
a competitive remuneration
package. Executive Directors
receive a salary supplement
in lieu of pension
scheme membership
Short Term TheSTiPdrivesandrewards The metricsand targetranges One year The maximum STIP
Incentive —_performanceagainstasetof _areagreed annually with the opportunity for the Chief
Plan key financialand operational _ Board and the Special Executive is 80% of
(STIP) targets taken from the Shareholderas part of the salary (with 48% of salary
balanced scorecard,
year according to the c
priorities for the business.
STIP awards are also linked to
the achievement of personal
performance objectives.
Long Term
‘The LTIP is designed to reward
eteach
urrent
annual business and budget
planning cycle.
The STIP metrics are a mixture
of financial (45%), customer
(20%), modernisation (25%) and
employee engagement (10%)
measures which link directly
to the overall strategy.
80% of the STIP award is based
on the balanced scorecard and
20% is based on individual
performance objectives, which
are agreed with the Board and
will require approval by the
Special Shareholder.
Performance measuresfor the
‘Three financial
being payable for
on-target performance),
‘The STIP arrangements
for the Chief Financial
Officer are currently
under review with the
intention of aligning
them with the
Chief Executive's STIP
framework. The Special
Shareholder's consent
will be required for any
changes,
70% of salary for the
Incentive _ and retain key executives LTIP are drawn fromthe Post years Chief Executive and 35%
Plan and senior managers Office Strategic Plan agreed of salary for the Chief,
TIP) and to incentivise the with the Special Shareholder. Financial Officer is
achievement of longer-term
performance goals.
The payout of the award is
based on the achievement
of strategic targets linked
to the longer-term
development growth of
a sustainable business.
‘The intention is to award
an LTIP, subject to Special
Shareholder agreement.
‘The proposed awards follow
a three-year cycle. Awards
for 2013 will be based on
access criteria and a profit
measure target.
payableat target
performance
Up to 98% of salary for
the Chief Executive and
up to 49% of salary for the
Chief Financial Officer is
payable at maximum
performance
@
52
WITNO0740103
WITNO00740103
Exhibit WtTN00740403.
Governance
Directors’ remuneration report continued
Performance scenarios 2013-2014
‘The charts below show the quantum and
composition of the currentremuneration
policy for the Executive Directors under three
performance scenarios. These are scenarios
showing potential remuneration assuming there
is no STIP or LTIP payout (fixed pay only), on:
target performance (STIP and LTIP paying out
ata target level), and maximum performance
(full payout of STIP and LTIP)
Performance scenarios 2013-14
£800k
£700k
£600k
£500k
£400k "322,279
£300k
£200k
£100k
EO Minimum
@ Fixed pay alary. benefits & pension) @srip @LTp
‘OnTarget Maximum
Paula Vennells
Chief
Executive
For the Chief Financial Officer, the above values
are indicative, as the proposed changes to the
Chief Financial Officer'sSTIP are still subject to
the agreement of the Special Shareholder.
Statement of pay considerations elsewhere
in the Post Office
The committee takes into account the pay and
employment conditions of employeeselsewhere
in the Post Office when setting the remuneration
policy for the Executive Directors. For example,
when determining salary increases for the
Executive Directors, consideration is given
to the policy and budget applied elsewhere
to other employees.
‘The balanced scorecard used for the STIP
for Executive Directors is also used to assess
performance in the STIP for Post Office managers,
providing alignment between performance
reward for all employees at manager level
and above.
Annual Report and Financial Statements201213
Contracts and loss of office payment policy
Each of the Executive Directors has a signed
acontract with the Post Office
Key terms of the contract
Notice period 12 months to be given
by the Post Office
and six months by
the Director.
Remuneration-related
provisions
Salary and benefits
including health cover,
acompany car or car
allowance, life and
health insuranceand
cash allowancein lieu
of pension equivalent
to 25% of base salary,
Clawback provision
Executive Directors have clawback clauses in
their contracts, as well as the STIP and LTIP
rules, which provide for the return of any over
payments in the event of misstatement of the
accounts, error or gross misconduct on the part
of an executive. These provisions are in line
with market best practice
Non-Executive Directors
‘The fees paid to the Chairmanare approved
by the Special Shareholder. Fees for the Non-
Executive Directorsare determined by the
Executive Directorsand are submitted to the
Special Shareholder for approval, taking into
account time commitment and responsibilities
‘The fees paid to the Chairmanand Non-Executive
Directors are not pensionable and they receive
no other benefits
Non-Executive Directors letters of appointment
are described in the Corporate governance
statement on page 43
Statement of consideration of
Shareholder's views
‘The Chairman of the Committee communicates
regularly with the Shareholder Executive on
behalf of the Special Shareholder on all matters
concerning executive remuneration, and the
Special Shareholder approves all aspectsof the
framework for Executive Director remuneration
Operational I Performance
Overview review I review
Implementation report
Remuneration for each Director (audited)
Governance
WITNO0740103
WITNO0740103
Financial
statements
53
Exhibit WiTNO0740403
‘Actual Cashin
Annualised _salary/fees leuof
Name salary/fees 2012-2013 Benefits pension sTIP Lm Total
Non-Executive Directors
Tim Franklin £35,000 £18,667 - £18,667
Virginia Holme: £35,000 £34,708 £34,708
Alasdair Marnoch
Neil McCausland
Alice Perkins
£45,000 £3
£50000 £50,000.
£100,000
3.000”
£100000 £100,000
Susannah Storey
Executive Directors:
Paula Vennells
Chris Day
£250,000 £}
£215,000
£217508 £6977
£407582
£706,964 7508 £1,347.269
De}
nnah Storey wasan e1
partment of Energy and Climate Change. She rec
® The salaries for Paula Vennelis
Pay at risk paid to Executive Directors
in 201213 (audited)
a) Short Term Incentive Plan 2012
‘The STIP is based on the Post Office balanced
scorecard for 2012-13, Six measures from the
scorecard were identified for use in the STIP,
These relate to financial performance (50%), the
customer experience (25%) and achievement of
specific objectives related to the modemisation
programme (25%). Financial performance was
assessed through the use of stretching revenue
and operating profit targets. Strong growth in the
business during the year delivered revenue,
excluding Network Subsidy Payment, of
£1.02 billion, which was between target and
stretch performance. This growth in revenue,
coupled with cost control, meant that operating
profit of £94.2 million was in excessof the stretch
hurdle. Significantimprovements were made in
our interaction with customers, with reductions
in queue times and call centre targets being
achieved, Overall, performance exceeded the
on-target level acrossall the six measures,and
wasn excess of the stretch hurdle for two measures
ployee of the Shareholder Executive of the Department for Business, Innovation and Skills, In March 2013 she moved to the
ves no Dire
ctor’s fee
and Chris Day remain unchanged. There is no planned increase for the review in July 2013,
Chief Executive
‘The STIP payable to the Chief Executive is based
on the balanced scorecard (80%) and personal
performance (20%). The balanced scorecard
element paid out 55.5% of salary, out ofa maximum
of 64% of salary. For the personal element, following
areview of the achievements of the personal
objectivesby the Chairman, the Remuneration
Committee judged that the Chief Executive
had achieved 80% of her individual objectives,
leading to a bonus for this element of 7.7% of
salary. Taking account of both the financialand
personal elements, the total STIP awarded to the
Chief Executive for 2012.13 was 63% of salary.
Chief Financial Officer
‘The STIP payable to the Chief Financial Officer
for 2012-13 was based on the balanced scorecard,
with a multiplier applied based on personal
performance within the plan year. His bonus based
on the balanced scorecard was 40% of salary.
‘The multiplier that was applied resulted in an
increase by a factor of 1.5. Taking account of both
financial and personalelements, the total STIP
awarded to the Chief Financial Officer for 2012.13
was 60% of salary.
As shown in the policy section above, the intention
isto harmonise the STIP design for the Chief
Financial Officer with that of the Chief Executive
and remove the multiplier. These changes will
be subject to Special Shareholder approval
WITNO0740103
WITNO00740103
54
Governance
Directors’ remuneration report continued
b) Long Term Incentive Plan
awards 2010-2013
The LTIP award to pay out this year is based on the three-year performance pe
Chief Executive was 70% of salary, with a maximum stretch value of 14 times the target award (98% of salary). No aw s made
to the Chief Financial Officer because he had not commenced employment with the Post Office on the award date. The primary
performance condition for the 2010 award was operating profit (sliding scale of targets)
ended 31 March 2013. The award value for the
Operating profit for the year ended 31 March 2013 (£94.2 million) was between the target and stretch level. The resulting payout
under the 2010 LTIP was 87% of salary for the Chief Executive. Other Post Office employeesalso participated in this scheme,
receiving awards of between 25% and 43% of salary,
Outstanding Long Term Incentive awards
Under the remuneration policy, LTIP awards are granted annually.
following outstanding awards:
he Chief E.
‘utive Officer and Chief Financial Officer have the
‘Targetaward Stretchaward Performance period
Paula Vennells, Chief Executive Officer
Three years to
31 March 2014
2011 £245,000
2012 LTIP C 245,000 31 March 2015
Chris Day, Chief Financial Officer
Three years to
31 March 2014
Three years to
2012 LIP £75,250 £105,350 31 March 2015
* LTIP award pro rated because Chief Financial Officer commenced employmer
gust 2011.
Both the 2011 and 2012 LTIP awards are subject to challenging financial and strategic performance conditions based on bu
profitability and the maintenance of the network in line with the Shareholder's objectives.
Annual Report and Financial Statements 2012-13
WITNO0740103
WITNO00740103
Operational Performance Financial
Overview review I review acu statements
Total pension entitlements (audited)
% base pay in lieu of pension scheme membership.
Paula Vennelis and Chris Day each receive a cash supplement of 25
rued benefits under the Royal Mail Senior Executives Pension Plan (an HMRC-approved defined benefit
ion scheme) until S April 2012, when she left the sch’
Paula Vennells ac
occupational pen
ne
Accrued benefit at ‘Transfer valueof
25 March 2012 or date Accruedbenefitat _Increasein accrued increase before
ofappointmenttothe 31 March 2013 ordate _benefitsduringthe inflation less Director's
Board if later of leavingifearlier period (net of inflation) contributions
Ageat year end:54 pa pa pa pa
Paula Vennells £14721 £15,225 £180 3.340
‘Transfer valueat
25 March 2012 or at Movements in the
date of appointmentto Transfer valueat Transfersin,received Member'scontributions _ period less Director's
Board if later 31 March 2013 during the period in the period contributions
Paula Vennells £283,759 £314,926 £204 £3096
Relative importance of the spend on pay (audited)
je costs at Post Office Limited (excluding exceptional items) for the year ended 31 March 2013 were £259 million, of
which £1.35 million related to Directors’ pay. This compares to total revenue excluding Network Subsidary Payment of £1.02 billion.
Outside Directorships
Subject to Board approval, the Executive Directors are permitted to take on non-executive positions with other companies and are
allowed to retain the fees received in respect of such positions. Paula Vennells is a Director of Hymns Ancient and Modern and
received a fee of £6,000 in respect of the year ended 31 March 2013
WITNO0740103
WITNO0740103
Exhibit WITNO0740403.
WITNO0740103
WITNO0740103
Financial
statements
Financial statements 56-110
58 Statement of Directors’ responsibilities
59 Independent auditor's report to the
© _ members of Post Office Limited
60 Consolidatedincome statement
"== 61 Consolidated statement of
a ‘income
“Consolidated statement of cash flows
Consolidated balance sheet
Statemel
gains and I 2
Reconciliation of movements
in Shareholder's funds
Notes to the Company
financial Statements
Corporate information
58
WITNO0740103
WITN00740103
Financialstatements =
The Directors are responsible for preparing the Annual Report
and Financial Statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial
statements for each financial year that give a true and fair view
of the financial position of the Group and of the Company and
the financial performance and cash flows of the Group and of
the Company for that period. Under that law the Directorshave
elected to prepare the Group consolidated financial statements
in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union and have elected to
prepare the Company financial statementsin accordance with
United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standardsand applicable law).
In preparing those financial statements, the Directors are
required to:
select suitable accounting policies and apply them
consistently;
present information, including accounting policies, ina
manner that provides relevant, reliable, comparable and
understandable information;
provide additional disclosures when compliance with the
specific requirements in IFRS is insufficientto enable users to
understand the impact of particular transactions, ather events
and conditions on the Group's financial position and financial
performance;
state that applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;and
prepare the financial statements on the going concern basis
unless is inappropriate to presume that the Company will
continue in business.
Annual Report and Financial Statements 2012-13
Statement of Directors’ responsibilities
Exhibit WITNO0740103
‘The Directors are responsible for keeping adequate accounting
records, which clisclose, with reasonable accuracy at any time,
the financial position of the Group and of the Company to
enable them to ensure that the Group consolidated financial
statements comply with the Companies Act 2006 and Article 4
of the IAS Regulation and the Company financial statements
comply with the Companies Act 2006, They are also
responsible for safeguarding the assets of the Group and
Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities
‘The Directors confirm that to the best of their knowledge:
+ the Group consolidated financial statements, prepared
in accordance with IFRS as adopted by the EU and in
accordance with the provisions of the Companies Act 2006
give a true and fair view of the assets, liabilities, financial
position and profit of the Group;
the Company financial statements prepared in accordance
with United Kingdom Generally Accepted Accounting
Practice, give a true and fair view of the assets, liabilities,
financial position and profit of the Company; and
the management report contained in this report includesa fair
view of the development and performance of the business and
the position of the Groupas a whole and of the Company,
together with a description of the principal risks and
uncertainties they face.
I I
I
I Operational I
I Overview review I
Performance
review I Governance
Independent auditor's report
WITNO0740103
WITN00740103
Financial
statements
to the members of Post Office Limited _
We have audited the consolidated financial statements of
Post Office Limited for the 53-week period ended 31 March
2013 which comprise the Consolidatedincome statement,
the Consolidated statement of comprehensive income, the
Consolidated statement of cash flows, the Consolidated balance
sheet, the Consolidatedstatement of changes in equity and
the related notes] to 25. The financial reporting framework
that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs)as adopted
by the European Union.
‘This report is made solely to the Company's members, asa
body, in accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we might
state to the Company's members those matters we are required
to state to them in an auditor's report and for no other purpose.
‘To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and
the Company's members as a body, for our audit work, for this
Teport, or for the opinions we have formed
Respective responsibilities of Directors
and auditors
Asexplained more fully in the Directors’ Responsibilities
Statement set out on page 58, the Directors are responsible
for the preparation of the group financial statementsand
for being satisfied that they give a true and fair view. Our
responsibility is to audit and express an opinion on the group
financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland), Those
standardsrequire us to comply with the Auditing Practices
Board's Ethical Standards for Auditors
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosuresin the financial statements sufficientto give
reasonableassurance that the financial statementsare free
from material misstatement, whether caused by fraud or error.
This includes an assessmentof: whether the accounting
policies are appropriate to the group's circumstancesand
have been consistently applied and adequately disclosed
the reasonableness of significant accounting estimates made
by the Directors;and the overall presentation of the financial
statements. In addition, we read all the financialand non
financial information in the annual report to identify material
inconsistencies with the audited financial statements.if we
become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report
Opinion on financialstatements
In our opinion the group financial statements:
give a true and fair view of the state of the group's affairs
as at 31 March 2013 and of its profit for the 53-week period
then ended;
have been properly prepared in accordance with IFRSs as
adopted by the European Union; and
have been prepared in accordance with the requirements of
the Companies Act 2006.
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion the information given in the Directors’ Report for
the financial year for which the group financial statementsare
prepared is consistent with the group financial statements
Matters on which we are required to report
by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if,
in our opinion:
+ certain disclosures of Directors’ remuneration specified by
law are not made; or
+ we have not received all the informationand explanations
we require for our audit
Other matter
We have reported separately on the parent company financial
statements of Post Office Limited for the 53-week period ended
31 March 2013
Angus Grant (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
16 July 2013
Notes:
1, The maintenance and integrity of the Post Office Limited's website is the
responsibility ol the Directors; the work carried out by the auditors does
ters and, accordingly, the auditors
accept no responsibility for any changes that may have occurred to the
financial statements since they were initially presented on the website.
.egisiation in the United Kingdom governing the preparation and.
dissemination of financial statem nay differ from legislation in
other jurisdictions
WITNO0740103
WITNO00740103
Exhibit WITNO0740103_—
Financial statements
Consolidated income statement
for the 53 weeks ended 31 March 2013 and the
2 weeks ended 25 March 2012
2013 201 2,
210 180
1,234 1160
post tax profit from jot
tional items*
Loss on sale of associate Ti GO)
Profit before financing and taxation
Finance cost
Finance ince
Net pensions inter
Profit before taxation
Taxation credit
Profit for the financial year from continuing operations 49 30
Note that the Royal Mail Holdin
al items of £59 n
‘sts consistent with 2013
alstate
‘ost Office Limit
for the y
Inthe
Annual Report and Financial Stateme
WITNO0740103
WITNO00740103
Overview
nce Financial
Ir statements
Consolidated statement of comprehensive income
Exhibit WITN00740103—
2013 2
Notes £m £m
chemes
actly to equit E (21)
Total comprehensive income for the year 42 138
WITNO0740103
WITNO00740103
62
— Exhibit WITN00740403_
Financial statements
Consolidated statement of cash flows
2013 201 2,
Other a5)
Net cash inflow from operating activities 257 25
Income tax recovered pet 12
Cash flows from investing activities
Inves n assoc
Dividends receiv
2 of non-current asset
Net cash (outflow)/inflow from investing activities (24)
Net cash inflow before financing activities 244
Cash fl i i i
(Repayme
Net cash (outflow) from financing activities (92) 6)
Net increase in cash and cash equivalents 152 9.
hequi at the begin
Cash and cash equivalents at the end of the year 13 971 820
Annual Report and Financial Stateme
WITNO0740103
WITNO00740103
Financial
Overview v Ww Governance #MReemtatss
at 31 March 2013, 25 March 2012 and 28 March 2011
2013
ém em
Trade and other receivables 10
Total non-currentassets 178 100 108
Current assets
Total current assets 1,332 1,052
Total assets 1,510 115 1136
Current liabilities
Pre a9)
Total current liabilities 187) (964) (958)
Non-currentliabilities
Total non-currentliabilities 5) (228)
Net assets/(liabilities) 288 40) (178)
Ee
3
Retained e: 690)
Other Rese
Total equity/(deficit: 288 (0)
The financial statements on pages 60 to 90 were approved by the Board of Directors on 16 July 2013 and
ed on its behalf by:
CM Day
hief Financial Officer
WITNO0740103
WITNO00740103
Exhibit WITN00740103
Financial statements
Consolidated statement of changes in equity
for the 53 weeks ended 31 March 2013 and the 52 weeks ended 25 March 2012
Notes em em em em
At26 March 2012 465 52) 47 (0)
Profit fc
he year = 49 = 49
on comprised £2 million relating to First Rate Exch
venture entity, a illion that was recognised on the for
2012 the Group disposed of its interest in the associate and ther
Limited was transferred ings.
tion of Midasgrar
» retained €
Actuarial gain
ension schemes 19 108 108
At25 March 2012 465 (552) AT 40.
Annual Report and Financial Statements 2012-13
I Overview review
Performance I
I Governance
I
Operational I
_ Notes to the consolidated financial statements
1. Accounting policies
Financial year
‘The financial year ends on the last Sunday in March and for this
reason these financial statementsare made up to the 53 weeks
ended 31 March 2013 (2012 - 52 weeks ended 25 March 2012).
Basis of preparation
‘The financial statements on pages 60 to 90 have been prepared
in accordance with International Financial Reporting Standards
(IFRS), as adopted by the European Union and with those parts
of the Companies Act 2006 applicable to companies reporting
under IFRS. Unless otherwise stated in the accounting policies
below, the financial statements have been prepared under the
historic cost accounting convention,
For all periods up to and including the year ended 25 March
2012, Post Office Limited (the Company) prepared its financial
statements in accordance with United Kingdom Generally
Accepted Accounting Practice. These financial statements for
the year ended 31 March 2013 are the first the Group (comprising
the Company and its subsidiary undertaking) has prepared in
accordance with IFRS as adopted by the European Union.
Accordingly the Group has prepared financial statements
which comply with IFRS as adopted by the European Union
applicable for periods ending on or after 31 March 2013, together
with comparative period data ast and for the year ended
25 March 2012. In preparing these financial statements, the
Group's opening statementof financial position was prepared
as at 28 March 2011, the Group's date of transition to IFRS as
adopted by the European Union
‘The Company is incorporated and domiciled in the United
Kingdom. The Group consolidated financial statements are
presented in Sterling and all values are rounded to the nearest
£m except where otherwise indicated
Basis of consolidation
‘The consolidated financial statements comprise the financial
statements of the Company and its subsidiary undertaking.
Subsidiaries are consolidated from the date of acquisition,
being the date on which the Group obtains control,and
continue to be consolidated until the date when such control
ceases, The financial statements of the subsidiaries are prepared
for the same reporting periodas the parent company, using
consistent accounting policies. All intra-group balances.
transactions, unrealised gains and lossesresulting from
intra-group transactionsare eliminatedin full
Changes in accounting policy and disclosures
‘The changes to accounting policies and disclosures which have
been necessary as part of the transition to reporting under IFRS
as adopted by the European Union have had no effect on the
income statement or net asset position.
Accounting standards issued but not yet applied
‘The following new and revised accounting standardsare
relevant to the Group and are in issue but were not effective
(and in some instances have not yet been adopted by the
European Union) at the balance sheet date:
statements
WITNO0740103
WITN00740103
Financial
+ Annual improvements to IFRS 2009-2011 Cycle
IFRS 7 (amended) Offsetting Financial Assets and
Financial Liabilities
IFRS 9 Financial Instruments: Classification
and Measurement
IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements
IFRS 12 Disclosures of Interests in Other Entities
IFRS 13 Fair Value Measurement
IAS I (amended) Presentation of Items of Other
Comprehensive Income
IAS 19 (revised) Employee Benefits
IAS 27 Separate Financial Statements
+ IAS 28 Investments in Associatesand Joint Ventures
+ IAS 32 (amended) Offsetting Financial Assets and Liabilities
‘The Directors do not expect that the adoption of the standards
listed above will havea material impact on the financial
statements of the Groupin future periods,
Fundamental accounting concept - going concern
‘The Group has net assets at 31 March 2013 and has operated
at a profit before exceptional items during 2012-13 for the fifth
year running.
A funding agreement with government was announced on
27 October 2010 which provided for:
Funding of £410 million for 2012-13
Funding of £415 million for 2013-14
Funding of £330 million for 2014.15
Extension of the existing working capital facility with the
Department for Business, Innovation & Skills (BIS) of,
£1.15 billion up to 31 March 2016
State Aid approval for the funding for 2012-13 to 2014.15 was
received on 28 March 2012 and it was also recognised that the
working capital facility was no longer deemed State Aid, £410
million was received on 2 April 2012
‘This investment will take the form of a government grant and
enable the Group to modernise the branch network and the
continuation of the Network Subsidy Payment recognises the
major social value that Post Offices provide to communities,
New main and local branchesare currently being rolled out
across the United Kingdom. Customers are beginning to benefit
froma much better retail experience including extended
opening hours. This programme is designed to make the
Post Office network more self-sustainingand, over time, less
dependant on direct subsidy. This programme will not involve
branch closures,
‘The Directors are satisfied with the progress made towards
modernisation during 201213 and that the plans in place and
the substantial investment secured will enable the Group to
continue to moderniseand to secure its future. However, they
note that the scale of change required remains significant so
not without risk.
66
WITNO0740103
WITN00740103
Financial statements"
1. Accounting policies continued
After careful consideration of the plans for the coming years,
the Directors continue to believe that Post Office Limited will
be able to meet its liabilities as they fall due for the foreseeable
future. Accordingly, on that basis, the Directors consider that
it is appropriate that these financial statements have been
prepared on a going concern basis.
Critical accounting estimates and judgements
in applying accounting policies
‘The Group makes certain estimatesand assumptionsregarding
the future. Estimates and assumptionsare continually evaluated
based on historical experience and other factors. In the future,
actual experience may differ from these estimatesand
assumptions. In addition the Group has to make judgements
in applying its accounting policies which affect the amounts
recognised in the accounts. The most significantareas where
judgements and estimates are made are discussed below.
Pension assumptions
The costs, assets and liabilities of the pensions operated by
the Groupare determined using methods relying on actuarial
estimates and assumptions. These pension figures are
particularly sensitive to changes in assumptions for discount
rates, mortality and inflation rates. The Group exercisesits
judgement in determining the assumptions to be adopted,
after discussion with its Actuary. Details of the key assumptions
are set out in note 19.
Pension liabilities are measured on an actuarial basis using
the projected unit credit method and discounted at a rate
equivalent to the current rate of returnon a high-quality
corporate bond of equivalent currency and term. Judgement
has been applied in cletermining that for these purposes a
high-quality corporate bond constitutes AA rated or equivalent
status bonds.
The pension deficit transfer to HM Government on 1 April 2012
was taken directly through equity, as in management'sjudgement
this transaction was undertaken with HM Governmentin its
capacity as the owner of Royal Mail Holdings plc, the Company's
parent company, rather than in its capacity as government
Provisions
‘The Group has recognised provisions wherea present legal or
constructive obligation exists as a result of a past event, whereit
is probable that an outflow of resourceswill be required to settle
the obligationanda reliable estimate of the amount can be made.
Provisionsare detailed in note 16, Due to the nature of provisions
the futureamountsettled may be different from the amount
that has been provided
Impairment of non-current assets
The Group assesses whether there are any indicators of
impairment for all non-current assets at each reporting date.
Due to ongoing operational losses (excluding the Network
Subsidy Payment) the carrying value of intangible assets and
all property plant and equipment other than freehold and long
leasehold property has been impaired to the recoverable amount.
Revenue
Turnover from government, financial, mails and telecoms
services comprises the value of services provided. Turnover
from all other products comprises the commission received
excluding VAT, from the Group's principal activities in providing
access to a wide range of financial and retail services through
its network of Post Office branches across the UK and other
channels. Turnover relating to line rental for telecoms services
is recognised evenly over the period to which the charges relate
Annual Report and Financial Statements 2012-13
Notes to the consolidated financial statements continued
Exhibit WiTNO0740103
and revenue from calls is recognised at the time the calll is
made. Turnover from all other transactionsis recognised
when the transaction is completed. All turnover is derived
wholly from within the United Kingdom.
‘The Network Subsidy Payment is government grant revenue
recognised to match the related costs of making available the
network of public Post Offices that the Secretary of State for
Business, Innovation and Skills considers appropriate.
Net revenue
Net revenue is calculated using revenue less the directly
attributable costs of delivering the service or product.
Operating exceptional items
Operating exceptional items are items of income and
expenditure arising from the operations of the business which,
due to the nature of the events giving rise to them, require
separate presentation on the face of the income statement to
allow a better understanding of financial performance in the
year, in comparison to prior years.
Intangible assets
Intangible assets acquired separately or generated internally
are initially recognised at cost and are reviewed for impairment.
An impairmentlossis recognisedin the income statement for
the amount by which the carrying value of the asset exceeds
its recoverable amount, which is the higher of an asset's net
realisable value and its value in use.
Amortisation of intangible assets with finite lives is charged
annually to the income statement on a straight-line basis
as follows.
Software 1to 6 years
Where intangible assets are impaired to their recoverable amount
on acquisition the above range of asset lives is not applied.
Property, plant and equipment
Property, plant and equipment is recognised at cost, including
attributable costs in bringing the asset into working condition
for its intended use.
Depreciation of tangible fixed assets is provided ona straight-
line basis by reference to cost and to the remaining useful
economic lives of assets and their estimated residual values
‘The lives assigned to major categories of tangible fixed
assets are:
Range of asset lives
Leasehold buildings ‘The shorter of the period of the
lease, 50 years or the estimated
remaininguseful life
Plantand machinery 3-15 years
Motor vehiclesand trailers 2-12 years
Fixturesand equipment 2-15 years
Where property, plant and equipment is impaired to its
recoverable amount on acquisition the above ranges of
asset lives are not applied. This Is currently the case for plant
and machinery, motor vehiclesand trailers and fixtures
and equipment.
Performance
Operational I
Overview I__ review Governance
review
Impairment reviews
Unless otherwise disclosed in these accounting policies,
assetsare reviewed for impairment if events or changes
in circumstancesindicate that the carrying value may be
impaired. The Group assesses at each reporting date whether
such indications exist. Where appropriate,an impairment
lossis recognisedin the income statement for the amount by
which the carrying value of the asset (or cash generating unit)
exceeds its recoverable amount, which is the higher of an
asset's net realisable value and its value in use.
Leases
Finance leases, where substantially ali the risks and rewards
incidental to ownership of the leased item have passed to
the Groupare capitalised at the inception of the lease with
a corresponding liability recognised for the fair value of the
leased item or, if lower, at the present value of the minimum lease
payments. Lease payments are apportioned between the finance
charges and reduction of the lease liability so as to achieve a
constant rate of interest on the remaining balance of the liability.
Capitalised leased assets are depreciated over the shorter
of the estimated useful life of the asset and the lease term.
Leases where substantially all the risks and rewards of
ownership of the asset are retained by the lessor, are classified
as operating leasesand rentalsare charged to the income
statement over the lease term. The aggregate benefit of
incentives are recognised as a reduction of rental expenses
over the lease term on a straight-line basis.
Investments in joint ventures and associates
Investmentsin joint venturesand associateswithin the
Group’ financial statementsare accounted for under the
equity method of accounting, Under this method the investment
iscarriedin the balancesheet at cost plus post-acquisitionchanges
in the Group's share of the net assets of the joint venture/associates
lessany impairmentin value. The income statementreflects the
Group's share of post-tax profits from the joint venture/associates
Inventories
Inventories include printing and stationery, retail and Lottery
products, is carried at the lower of cost and net realisable value
after adjusting for obsolete or slow-moving stock.
Taxation
‘The charge for current income tax is based on the results for the
year as adjusted for items which are not taxed or are disallowed
Itis calculated using tax rates in legislation that has been
enacted or substantively enacted by the balance sheet date.
Deferred income tax assets and liabilities are recognised for all
taxable and deductible temporary differences and unused tax
assets and losses except:
initial recognition of goodwill;
the initial recognition of an asset or liability ina transaction that
isnota businesscombination and, at the time of the transaction,
affects neither the accounting profit nor taxable profit and loss;
taxable temporary differences associated with investments
in subsidiaries,associatesand interest in joint ventures,
where the timing of the reversal of the temporary difference
canbe controlled and it is probable that the temporary
difference will not reverse in the foreseeable future;and
deferred tax assets are recognised only to the extent that it
is probable that taxable profit will be available against which
they can be utilised
WITNO0740103
WITN00740103
Financial
statements
Deferred tax assets and liabilitiesare measuredat the tax rates
that are expected to apply to the period when the tax asset is
realised or the liability is settled, based on tax rates that have
been substantively enacted at the balance sheet date, Deferred
tax balances are not discounted
Current and deferred tax is recognised in the income statements,
exceptto the extent that it relates to items recognised in other
comprehensive income or directly to equity. In this case, the tax
is also recognised in other comprehensive income or directly in
equity, respectively. Further details on deferred tax can be
found in note 8 to the financial statements.
Pensions and other post-retirement benefits
People working for the Company were employed by Royal Mail
Group Limited and seconded to the Company until 31 March
2012. On 1 April 2012 they were transferred tobe directly
employed by the Company. Membership of occupational pension
schemes is open to most permanent UK employees of the
Company. All members of defined benefit schemes are contracted
out of the earnings-related part of the State pension scheme.
‘The pension assets of the defined benefit schemesare measured at
fair value. Liabilities are measured on an actuarial basis using the
projected unit credit method and discounted at a rate equivalent
to the current rate of return ona high-quality corporate bond of
equivalent currency and term. The resulting defined benefit asset
or liability is presented separately on the face of the balance sheet.
Fullactuarial funding valuations are carried out at intervals not,
normally exceeding three years as determined by the Trusteesand
actuarial valuations are carried out at each balance sheet date and
form the basis of the surplus or deficit disclosed.
For defined benefit schemes, the amounts charged to operating
profit, as part of staff costs, are the current service costs and any
gains and lossesarising from settlements, curtailmentsand past
service costs. The net difference between the interest costs and
the expected return on plan assetsis recognised as net pensions
interest in the income statement. Actuarial gains and losses are
recognised immediately in the statement of comprehensive
income. Any deferred tax movement associated with the
actuarial gains and lossesis also recognised in the statement
of comprehensive income
For defined contribution schemes, the Group's contributionsare
charged to operating profit, as part of staff costs, in the period to
which the contributions relate.
Foreign currencies
‘The functional and presentational currency of the Group
is sterling (©).
‘Transactionsin foreign currenciesare recordedat the spot
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currenciesare
retranslated at the functional rate of exchange ruling at the
balance sheet date. Currently hedge accountings not applied to
any monetary assetsand liabilities. All differencesare therefore
taken to the income statement.
Trade receivables
‘Trade receivables are recognised and carried at original
invoice amount less an allowance for any non-collectable
amounts, An estimate for doubtful debts is made when
collection of the full amount is no longer probable.
Bad debts are written off when identified
68
WITNO0740103
WITN00740103
Financial statements
Notes to the consolidated financial statements continued
1. Accounting policies continued
Borrowing costs
Borrowing costs in relation to the working capital loan facility
are recognised as an expense when incurred unless they are
directly attributable to the construction or development of
a qualifying asset, in which case they are capitalised using
the weighted average cost of borrowing for the period of
construction/development
Government grants
Government grants are shown separately in the income
statement to match the expenditure to which they relate.
Provisions
Provisions are recognised when the Group has a present
obligation (egal or constructive) asa result of a past event,
it is probable that an outflow of resources will be required to
settle the obligation, and a reliable estimate can be made of
the amount of the obligation. If the effect of the time value of
money is material, provisions are determined by discounting
the expected future cash flows at an appropriate pre-tax rate
Financial instruments
The classification of financial instruments included on the
balance sheet is set out below:
Financialassets
Financial assets are classified into the following categories:at
fair value through the income statement, loans and receivables,
and available for sale as appropriate based on the purpose for
which they were required. Financial liabilities are classified as
either fair value through the income statementor as financial
liabilities measured at amortised cost.
Financial liabilities - interest-bearing loans
and borrowings
Allloans and borrowingsare classifiedas financial liabilities
measured at amortised cost.
Financial liabilities - obligations under finance leases
Allobligations under finance lease and hire purchase contracts
are classifieds financial liabilities measured at amortised cost.
Derivative financial instruments
‘The Group uses derivative financial instruments to manage
its exposure to fluctuations in foreign exchange rates. Such
derivative financial instrumentsare stated at fair value
Hedge accounting has not been claimed for foreign exchange
derivative instruments,
Fair value measurement of financial instruments
‘The fair value of quoted investments is determined by reference
to bid prices at the close of business on the balance sheet date.
Where there is no active market, fair value is determined using
valuation techniques. These include using recent arm's length
market transactions; referenceto the current market value of
another instrument which is substantially the same;and
discounted cash flow analysis and pricing models. Specifically.
in the absence of quoted market prices, derivatives are valued
by using quoted forward prices for the underlying currency and
discounted using quoted interest rates, Hence derivative assets
and liabilities are within Level 2 of the fair value hierarchy as
defined within IFRS 7.
Annual Report and Financial Statements 2012-13
Exhibit WITNO0740103.
For the purposes of disclosing the fair value of investments
held at amortised cost in the balance sheet, in the absence of
quoted market prices, fair values are calculated by discounting
the future cash flows of the financial instrument using quoted
equivalent interest rates as at close of business on the balance
sheet date
Derecognition of financial instruments
A financial asset or liability is derecognised when the contract
that gives rise to it is settled, sold, cancelled or expires.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash
at bank and in hand and short-term deposits (cash equivalents)
with an original maturity date of three months or less. In
addition, the Group uses Money Market funds asa readily
available source of cash, and these funds are also categorised
as cash equivalents.
For the purpose of the statement of cash flows, cash and cash
equivalents consist of cash and cash equivalents as defined
above, net of bank overdrafts. Cash equivalents are classified
as loans and receivables financial instruments.
2. Segmental reporting
In accordance with IFRS 8 ‘Operating segments, an operating
segment is defined as a business activity whose operating
results are reviewed by the chief operating decision maker
(CODM) and for which discrete information is available
The Group's CODM is the Executive Committee as defined
in the Corporate Governance section on page 45.
‘The CODM has determined the operating segments based
on the information reviewed by them for the purposes of
allocating resourcesand assessing performance. Operating
segments have not been aggregated in order to present
reportablesegments, All segmental activities are located
wholly within the United Kingdom.
‘The CODM assesses the performance of the operating segments
based on net revenue. This is calculated using segmental
revenue less the directly attributable costs of delivering the
service or product. The net revenue measure excludes the
effect of indirect costs and the effects of non-recurring
expenditure such as redundancy costs and asset impairment.
Interest income and expenditure is not allocated to segments as
this type of activity is driven by the central treasury function.
Assetsand liabilitiesas recognisedon the Group balancesheet
are not considered to be segmental assets or liabilitiesbut rather
are managed by the Group's central functions. The information
reviewed by the CODM does not include assets or liabilities
split by segment. A description of the activities of the business
segments is included from page 12 of the Operational review.
Revenue from a major customer represents approximately 27%
of the Group’s total revenue in 2013. This revenue was reported
within the Mails & Retail segment.
WITNO0740103
WITNO00740103
Financial
Overview [mm statements
2013
Directly
attributable Net
Revenue costs revenue
£m em &m
Mails & Retail 409 (5) 404
work Subsidy
Total 1,234 G21). 1,113
nciliation between underlying segment ni and profit be
gment net revenue
equipment
Net pensions interest
Profit before taxation 18 20
WITNO0740103
WITNO00740103
70
— —Exhibit WITN00740103_
Financial statements
Notes to the consolidated financial statements continued
3. Staff costs and numbers
Employment and
259
Period endemployees _Averageemployees I
2013 2012 2013 2012
Total employees 7.886 7798 7,842
prised a:
Total employee numbers can be lows:
ministration 1,345 1,290
nd Crow
transformation progré
4. Operating profit from continuing operations before exceptional items
Operating pr
fit from continuing operations before exceptional items is stated afte
masters’ compensa
tand equipment (note 10)
Total operating exceptional items @ 8)
Due to ongoing operational
plant and equipment other than
ly Payment) the
10ld property has be
alue of intangible assets and all property
n impaired to the recoverable amount
Annual Report and Financial Stateme
WITNO0740103
WITNO00740103
Operational I Performance Financial
Overview review review Governance [RR erentntg
6. Directors’emoluments
‘The Directors receiv:
1 the following emoluments:
Emoluments,exclt
‘TIP but incl
1g pension contributions a g cash supplements received
Contributior
Amounts receivable under Long Term Incentive
Directors accruing pension entitlements during the period under
2013 2012
Number Number
oO
contribution schemes
hest paid Director received tk g emoluments:
Emoluments and LTIP, excluding p
in lieu of pension 698 463
Transfer value of accrued pension benefi 315
7. Net finance costs
Interest receivable 1 1
Interest payable on loans @)
Total @)
8. Taxation
(a) Taxation gains recognised in the year
2013
ao)
(21)
Income tax credit reported in the consolidated income statement G1) ao)
rand reversal of temporary differences
Deferred tax of £21 million has
This
n charged to equity relating to actuarial movementsin the retirement benefit surplus.
{fsets the deferred tax credit of £21 million that has been reported in the consolidated income statement
WITNO0740103
WITNO00740103
72
Exhibit WiTNO0740103
Financial statements
Notes to the consolidated financial statements continued
8. Taxation continued
(b) Factors affecting current tax credit on profit on ordinary activities
The tax assessed for the year differs from the standard rate of corporation tax in the UK of 24% (2012 26%). The differences are
explained below
2013 2012"
fm em
Profiton ordinary activities before tax 18 20
Profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 24% (201 2-26%) 4
Net de
Effect of group relief surre
Associates/joint venture profit after tax included in Group pre-tax profit 8) (8)
Total current tax (see above) Gi) ao)
(©) Deferred tax
Deferred tax assets relate to the following
Balance sheet Income statement
2013 2012 2013 2012,
£m em £m £m
Pensions temporary dif: (21) =
Losses available for offset against future taxable income 21 21
Total deferred tax asset = -
Income statement 21
(d) Factors that may affect future tax charges
The Group has unrecognised deferred tax assets of £190 million (2012-£337 million), comprising £133 million (2012-£157 million)
relating mainly to fixed asset timing differences, £57 million (2012-£128 million) relating to tax losses that are available to offset
against future taxable profits and £0 million (2012-£52 million) relating to the retirement benefit obligation. The Group has rolled
over capital gains of £3 million (2012-£3 million);no tax liability would be expectedto crystallise should the assets into which the
gains have been rolled be soldat their residual value, as it is anticipated that a capital loss would arise.
Finance Act 2012 reduced the main rate of corporation tax to 23% with effect from 1 April 2013. The effect of this change on deferred
tax balancesis included in these financial statementsand is detailed above. In the 2012 Autumn Statement, the Chancellor of the
Exchequer announced that the main rate of corporation tax will be 21% for the year commencing 1 April 2014 and in the March 2013
Budget he announced that the rate will be further reduced to 20% with effect from I April 2015. In accordance with accounting
standards the effect of these rate reductionson deferred tax balances has not been reflected in these accounts due to the relevant
legislation not having been substantively enacted at the balance sheet date. A reduction to 20% would, based on losses and
temporary differencesat 31 March 2013, reduce the Group’s unrecognised deferred tax assets by £25 million
Under the Postal Services Act 2011, trading losses which arose due to pension cont
will be extinguished. The estimated gross value of the losses extinguished is
forward disclosed above are stated net of this amount.
ributions and which are unused at 31 March 2013
175 million. The unrecognised losses carried
(e) Tax effect of exceptional items
‘There isa tax credit on exceptional items of £nil (2012-Enil). This is calculated on a ‘with and without basis assuming that losses
are surrendered firstly to joint ventures and secondarily to companies in the Royal Mail Holdings Group.
Annual Report and Financial Statements 2012-13
WITNO0740103
WITNO00740103
mance Financial
Overview iew Governance [RR erentntg
2013
Cost £m
1,29 Marc
Disposal: a a)
At31 March 2013, 25 March 201 2,27 March 2011 208 183 166
Amortisation and impairment
jarcl
e intangible assets relate to softw
10. Property, plant and equipment
Plant ‘Fixtures
Long Short Motor and and
Freehold leasehold leasehold —vehicles_ machinery equipment Total
£m £m em em em £m £m
Limited
At31 March 2013 87 18 114 42 1 19 981
Depreciation
At2
rch 2011
ciation
Impairment
Dispe
At25 March 2012 69 16 114 34 1 709 943
Depreciation - - - = < S =
Disposals a) = = qa) = a2) a4)
At31 March 2013 77 17 114 42 1 ng 970
r
Net book
At31 Marci 10 1 - - - = 11
At 25 March 2012 10 1 fa
8 March 2011 ul 1 12
sed within acco!
f the total cost c
nting policies (note 1).
‘operties.
3 million)
During the year the legal
for no consideration.
ynership of a number of properties were transferred from Royal Mai
@
WITNO0740103
WITNO00740103
74
— Exhibit \TNO0740103_____
Financial statements
Notes to the consolidated financial statements continued
11. Investments in joint ventures and associates
The following entities have been included in the consolidated financial statements using the equity method
Joint ventures
Durir 13 and 201112, the Group's only joint venture investment was a 50% inte!
Exchange Services Holdings Limited, whose principal activity is the provision of Bure
Holdings Limited is a company registered in the United Kingdom.
@,000 £
Associates
O1L12, the Group's only ass
jate investment was nterest (4,9
sion of personal financ ucts. This inv
up's investment w
the
9.01 ordinary A shares) in Midas,
was di: od of duri
million. Pro
olidatedincom
5 £3:
venture Associate Total
em £m €m
Divic
Total net investment at 25
2013 2012 2
Joint Toint Joint
venture
427) a16) 3
96
Share of revenue and profi
Revenue
Profit/(loss)after
Annual Report and Financial Statements 2012-13
WITNO0740103
WITNO00740103
Operational I Performance Financial 75
Overview eview review Governance
vervi review iew overnan statements Exhibit WitNo0740103.
12. Trade and other receivables
Trade receivables
Prepaymentsand accrued income
Client receivables
Other receivables
Total
Non-curren'
Prepayments and accrued income 10
‘The Group receives and disburses cash on behalf of government agencies and other clients to customers through its branch
network, Amounts owed from/to government agencies and other clients are disclosed separately as client receivables(as above)
and client payables (see note 14).
Asat 31 March 2013 trade and other receivables of £7 million (2012-£5 million) were impaired and fully provided for. During
the year £2 million (2012-£4 million) of the provision has been utilised and an additional £4 million £2 million) has been
provided for. Trade and other receivables of £8 million (2012-£7 million) were past due but not impaired. The ageing analysis of
the past due amounts are as follow
2013
Provided for or not yet ov
Past due not more than one mon
Past du
one month and not more than two months
Past due more than t
vo months - 1
Total 32 39
The fair value of trade and other receivables is not materially different from the carrying value.
13. Cash and cash equivalents.
2013 2012
£m £m £m
sh in the Post Office Limite
network 879 58 704
hort-term bank deposit
Money market fund investments 86 43 4
Total cash and cash equivalents 971 820 782
Cash and cash equivalents comprise amounts held physically ir
or less. Where interest is earned it is ata floating or short-term
materially different from the carrying value,
‘ash, cash deposits available on d
d rate, The fair v
2mand or within three months
Jue of cash and cash equivalents is not
WITNO0740103
WITNO00740103
76
Exhibit WiTNO0740103
Financial statements
Notes to the consolidated financial statements continued
‘rade and other payables
Trade payables
cruals and deferred income
Advance cus
cial security
omer payments
Client pa’
Amounts due to pensic
overnment grant deferre
Total 874 583 579
Non-current
Other payables 24 2
Of the £200 million government grant received £98 million h:
accordance with t
disclosed above.
s been allocated against income st
e terms and conditions of the grant. The remaining £102 million he
air value of trade and other payables ts
tatement expenditure in
been deferred into the balance sheet as
not materially different from the carrying value.
15. Financial liabilities - interest bearing loans and borrowings
£m 6r
Department of Business, Innovation & Skills loans drawn down 291 377 375
The loans under the facility are short dated on a programme of liquidity management and mature on average I day after the year
end (20121 day). The fair value of borrowingsis not materially diffe he carrying value. On maturity it is expected that
further loans will be drawn down under this facility, which expiresin 2016. The undrawn committed facility, in respect of which
all conditions precedent had been met at the balance sheet date is £859 million (2012-£773 million). The average interest rate on
the drawn down loans is 1.0% (2012 0.8%)
‘The facility is currently restricted to funding the cash and near cash items held within the Post Office Limited network
‘The facility (including drawn down loans) is secured by a floating charge over all assets of Post Office Limited and a negative
pledge over cash and near cash items. The negative pledge is an agreement not to grant security over the assets or to set up
a vehicle that has the same effect
Annual Report and Financial Statements 2012-13
WITNO0740103
WITNO00740103
Operational I Performance Financial 77
Overview eview review I Governance
vervi review eview overnan statements Exhibit WitNoo740103.
16. Provisions
Crown
Conversions Network
project transformation Other Total
£m em £m em
At 26 March 2012
»ptional items
Charged in operating ex
gedin operating costs
rgedin financingcosts-
Utilisation
At31 March 2013
Disclosed as:
Current
Non-current
Other provisions of £9 million (2012-£5 million) include property contracts, amounts from onerous lease obligations and personal
injury claims
Amounts charged in financing costs relate to the unwinding of discounted long-term provisions.
The Crown Conversions project relates to past franchising of Crown offices and onerous property lease provisions are expected
to be utilised within 5 years
17. Financial assets and liabilities
TheG
ancial assets an
liabilities are
shown in the table below
up's fi
Non- Non i
Current current Total current Total Current —_current otal
sh equivalents 971 - 971
BIS loa.
Finance leases obligations o a3)
Total financial assets/
(liabilities) 678 @) 674 43 (6) 433 403 9) 394
‘The Group's principal financial assets and liabilities comprise cash, money market liquidity investment
The Group has various other financial instruments such as trade receivables and trade payables,
operations and are disclosed further in notes 12 and 14.
s, loansand finance leases
which arise directly from
‘The Group enters into derivative transactions, which create derivative assets and liabilities, principally forward currency
contracts. The purposes to manage the currency risks arising from the Group's operations.
‘The main risks arising from the Gro
and credit risk. The Board reviews al
p's financial assets and liabilities are interest rate risk, liquidity risk, foreign currency risk
1 agrees policies for managing each of these risks and they are summarised below
Interest rate risk
‘The Group’sexposure to market risk for changes in interestrates relates to the Group's debt obligationsai
financialassets. The BIS loans to Post Office Limited of £291 million (2012-£377 million) are at short-d
average maturity 1 day (2012 average I day). On maturity it is expected that further loans will be draw
which expires in 2016. The total interest bearing financialassets of the Group of £92 million (2012-£62
fixed or variable interest rates
d interest bearing
d fixed interestrates
down under this facility
million) are at short-dated
WITNO0740103
WITNO00740103
78
Financial statements
Exhibit WiTNO0740103
Notes to the consolidated financial statements continued
17 Financialassets and liabilitiescontinued
The table below sets out the carrying amount by maturity of the Group's financial instruments that are exposed to interest r
Financial year ended 31 March 2013
Average
effective
interest Within 12 25 Morethan
rate 1 year years years S years Total
% em £m em £m &m
Fixed rate
Short-term bank deposits O05 6 = = =
BIS loar
10 @o1) = S =" @s1)
Obligations ur T financ
leases 10.0 G) @ = = @)
Floating rate
Money market fund investments O05 86 = - = 86
Non-interestbearing
‘ost Office network
erivative assets
Net total financial assets/(liabilities)
Financial year ended 31 March 2012
effective within 2 More than
Interest rate 1 year years years 5 years Total
% em em em em em
Fixed rate
BIS loan
Obligations under finance leases EYs) @) ao
Floating rate
Money market fund investrr
Non-interestbearing
h in Post Office network
Net total financialassets/(iabilities) 439 (3) 3) 432
Foreign currency risk
The Group is exposed to foreign currency risk resulting from balances held to operate Bureau de Change services. The Group's
foreign currency risk management objective is to minimise the impact on the income statement of fluctuations in the exchange
rates. The Group aims to hedge 90% of significant forecast future currency balances (principally, but not restricted to, US dollar
and Euro) to match the anticipated holding period of the currency. The Group hedges its foreign currency risk principally through
external forward foreign currency contracts with First Rate Exchange Services Holdings Limited.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financialloss to the Group.
Financial credit risk arises from c ances (including bank deposits and cash and cash equivalents) held by the Group and
business credit risk arises from exposures to customers. Business risk includes commissions receivable and client-relate:
settlements for amounts paid out of the Post Office network on their behalf.
The Group aims to minimise its financial credit risk through the application of risk management policies approved by the Board.
Counterpartiesare limited to major banks and financial institutions. The policy restricts the exposureto any one counterparty
by setting appropriate credit limits
Business credit risk is monitored centrally. The individual relationshipsand the contracts attached to them are gedby
dedicated teams and procedures are in place to monitor any concentrations of credit risk. The level of bad debt incurred for the
Groupis less than 1% (2012 less than 1%) of turnover
Annual Report and Financial Statements 2012-13
WITNO0740103
WITNO00740103
Operational I Performance Financial 79
Overview eview review I Governance
vervi review eview overnan statements Exhibit WitNoo740103.
Capital management
‘The Group's objectives when managing capital (defined as the net of borrowingsand amounts due under finance leasesand cash
and cash equivalents excluding cash in the Post Office network) are to safeguard its ability to continue as a going concern and to
maintain an optimal capital structure in order to support the business and maximise stakeholder value. In managing the Group's
capital levels the Board and the Executive Committee regularly monitor the level of debt in the Group, the working capital
requirementsand the forecast cash flows. The Board and Executive Committee plan accordingly following this review process
in order to meet the Group's capital management objectives.
Liquidity risk
‘The Group's primary objectiveis to ensure that the Group ha
fall due. This is achieved by aligning short-term investments a
ufficient funds available to meet its financial obligationsas they
1 borrowing facilities with forecast cash flows. Typical short-term
investments include money market funds and short-term bank deposits with approved counterparties, Borrowing facilities are
regularly reviewed to ensure continuity of funding. The unused facility for the Group of £859 million (2012-£773 million) expires
in 2016.
Sensitivity
Asa result of the mix of fixed and variable rate financial instrumentsand the currency hedge programmes in place, the Group
has no material exposure to risk from interest rate or exchang
2 rate prices.
‘The tables below set out the gross (undiscounted) contractual ca
leas ‘ash flows represent the undiscounted total amour
th flows of the Group’s financial liabilities, For loans and finance
able including interest
Amounts falling due in: £m £m £m
One year or less
More than1 year but not more than 2 years
More than 2
years but not more than yeai
More than5 years = = s
Total 291 8 299
BIS loan
Amounts falling due in: em
One y
ear or less
More than 2 years but not more than5 years
More than years
Total 377 12 389
Amountsfalling due in: =m
Ine year or less 375 4
More than 2 years but not more than5 years
More than5 years
‘Total
WITNO0740103
WITN00740103
80
Exhibit WiTNO0740103
Financial statements
Notes to the consolidated financial statements continued
18. Hedging programmes
Details of the Group's derivative financial instruments, used to manage the risks identified above areas follows
Assets Assets
Fair value of derivative financial instruments: £m £m
Currency hedges ESS s
Total 1
Currency hedges
‘The Group mitigates its foreign currency risk exposure principally through external foreign currency forward contracts with
First Rate Exchange Services Holdings Limited. At the year end the gain on unmatured currency hedges was £1 million and taken
to the income statement as hedge accounting is not claimed. The hedges mature in April 2013.
Derivative values
Atany point in time, the derivatives above are either ‘in the money’ which means the hedged rates are better than the current
market rates or ‘out of the money’ which means that the hedged rates are worse than the current market rates. The resulting gains
and losses as at the balance sheet date are recognisedin the income statement. An associated financial asset or liability is created
in the balance sheet (as detailed above.) The financial asset or liability reduces to zero as the derivative approaches maturity.
The Group's hedging transactions are settled net.
19, Pensions
On 1 April 2012, almostall of the pension assets and liabilities of the Royal Mail Pension Plan (RMPP) were transferred to
HM Government. On this date the RMPP was also sectionalised with Royal Mail Group Limited and Post Office Limited responsible
for their own sections. All Post Office Limited employees were transferred to be directly employed by Post Office Limited on the
same date.
Royal Mail Group Limited is the principalemployer in the Royal Mail Senior Executive Pension Plan (RMSEPP) and Post Office
Limited became a participating employer with effect from1 April 2012, Post Office Limited continues to account for approximately
7% of the RMSEPP scheme as it has done previously,
Prior to 1 April 2012, Royal Mail Group Limited had the legal relationship with the Trustees of both RMPP and RMSEPP and, as
such, the Trustees held Royal Mail Group Limited liable for the actuarial deficit in the scheme. All employees were employed by
Royal Mail Group Limited and seconded to Post Office Limited under an agreement between Post Office Limited and Royal Mail
Group Limited. Post Office Limited met the full costs of employment and was responsible for the funding of the pension deficit
attributable to these employees. Consequently, Post Office Limited recognised a balance sheet deficit on full adoption of IAS 19 by
Royal Mail Holdings plc, based on employee numbers over 12 years which represented approximately 7% of the total balance sheet
deficit at that time. The net pensions interest, deficit recovery payments and actuarial gains or losses were also allocated on this
basis. The current service cost, regular future service contributions and curtailments were computed separately for Royal Mail
Group Limited and Post Office Limited based on common factors/rates.
‘The disclosuresin this note relating to the year ended 31 March 2013 reflect the Post Office Limited sectionalised RMPP scheme
which is independently operated by the Group and the approximate 7% share of the RMSEPP scheme. The comparative figures
for the year ended 25 March 2012 and the opening position at 28 March 2011 represent approximately 7% of the previous combined
RMPP and RMSEPP plans
‘The disclosuresin this note show how the value of the assets and liabilities have been calculated at the balance sheet date.
‘The Group participates in pension schemes as detailed below.
Name Eligibility
Royal Mail Pension Plan (RMPP) UK employees Defined benefit
Royal Mail Senior Executive Pension Plan (RMSEPP) senior executives Defined benefit
Royal Mail Defined Contribution Plan (RMDCP) UK employees Defined contribution
Defined contribution
The charge in the income statementtfor the defined contribution schemesand the Group contributions to these schemes was
£1 million (2012-£1 million) during the year. A new defined contribution plan (RMDCP) was launchedin April 2009, New recruits
joining from 31 March 2008 are able to begin paying contributions to the new plan after they have worked for the Group for a year.
Annual Report and Financial Statements 2012-13
WITNO0740103
WITNO00740103
I
Performance I Financial
review I Governance Eee 81
Operational
Overview review I
Exhibit WITN00740403
Defined benefit
Both RMPP and RMSEPP are funded by the payment of contributions to separate trustee administered funds. The latest full
actuarial funding valuation of both schemes was carried out as at 31 March 2009 using the projected unit method. For RMPP, this
valuation was concluded at £10.3 billion deficit. For RMSEPP, the valuation was concluded at £100 million deficit. RMPP includes
Sections A, Band C each with different terms and conditions:
+ Section A is for members (or beneficiaries of members) who joined before 1 December 1971,
+ Section B is for members (or beneficiaries of members) who joined after 1 December 1971 and before 1 April 1987 or to members:
of Section A who chose to receive Section B benefits;
+ Section C is for members (or beneficiaries of members) who joined after I April 1987 and before 1 April 2008.
A series of changes to RMPP and RMSEPP began to take effect on 1 April 2008.
The changes encompass:
the plans closed to new members from 31 March 2008
all pensionsand benefits earned before I April 2008 are still linked to final salary at the time of retirement;
from 1 April 2008, defined benefits building up for employee members of the plan are earned on a career salary basis;
employees can continue to take their pensionon reaching 60 but the normal retirement age increased to 65 for benefits earned
from 1 April 2010,
from April 2010 itis possible to draw pension earned before the change to normal retirement age at $5, and continue working while still
contributing to the Pension Plan until the maximum level of benefits has been reached;and
+ RMSEPP was closed to future accrual on 31 December 2012
Payment of £23 million (2012-£23 million) was made by the Group during the year in respect of regular future service
contributions, nearly all relating to RMPP. The regular future service contributions for RMPP, expressed as a percentage of
pensionable pay, has remained at 17.1% (2012 171%), effective from April 2010. This rate is not expected to change materially during
2013-14. For RMSEPP, these contributions have remained at 35.9% (2012 35.9%) until its closure
‘The Group pays 7% of the total deficit payment required to fund the deficit in RMSEPP and a payment of £2 million (2012 less than
£1 million) was made by the Group during the year. Following the State Aid clearance granted on 21 March 2012 and the subsequent
fer of the historical pension deficit to HM Governmenton I April 2012, no RMPP deficit payment was made during 201112 or
For RMSEPP. deficit recovery payments will be £1 million per annum, from 1 April 2010 to 31 January 2024
A current liability of £nil (2012-Enil) has been recognised for payments to the pension schemesrelating to redundancy. During the
year, payments of £2 million (2012-£3 million) relating to redundancy were made
‘The following disclosuresrelate to the gains/lossesand surplus/deficitin the scheme recognised for RMPP and RMSEPP defined
benefit plans in the financial statements of the Group:
a) Major long-term assumptions
‘The size of the RMPP pension surplus, whichis large in the context of the Group and its finances, is materially sensitive to the
assumptions adopted. Small changes in these assumptions could have a significant impact on the surplus and overall income
statement charge. The major long-term assumptions we
Rate of increase in salaries
Rate of pension increases - RMPP Sections A/B
Rate of pension increas
Rate of pension increases - RMS
Rate of increase for deferred pension:
Section A or Bof RMPP
Rate of increase for deferred pensions
Discount rate
Inflation assumption (RPD
Inflation assumption (CPD)
pected average rate of returnon assets nia 59 6.
In June 2010, the government announced that it was intending to change the inflation measure used to determine statutory
minimum indexation in deferment and in payment from RPI to CPI from April 2011, Where relevant, the inflationassumption
has changed from RPI to CPI
@
WITNO0740103
WITNO00740103
82
Exhibit WiTNO0740103
Financial statements
Notes to the consolidated financial statements continued
19. Pensions continued
The above assumptions relate to both defined benefit plans with the exception of the expected average rate of return on assets
which was computed for the combined assets of the plans. The expected average rate of return on assets was a weighted average
of the longterm expected rate of return of each principal asset (see Section b). The expected average rate of return was
computedat each balance sheet date based on the market values and long-term rate of return of each principal asset class as at
that date. The change in IAS 19 that will be implemented with effect from 1 April 2013 means that the expected average rate of
return or sisno longer required
The fol
lowing table shows the potential impact on the RMPP assets and pension surplus of changes in key ass
umptions
Changes in RPland CPI inflation of 01% pa @
Changes in discount rate of +01% pa 4
ary growth of +01% pa
nges in CPI assumptions of +0.
% pa
Anadditionall year
xpectancy
mparative information in relation to the potential impact of changes in key assumptions has not been included as this w
represent Post Office Limited's share of the combined RMPP scheme and the above 31 March 2013 informations in relation to the
sectionalised RMPP scheme and therefore comparison would not be meaningful.
Mortality
The mortality assumptions for the RMPP sectionalised scheme are based on the latest self administered pension scheme (SAPS)
mortality tables with appropriate scaling factors (106% for male pensioners and 101% for female pensioners). For
improvements the assumptions allow for ‘medium cohort’ projections with a 1.25% floor. These are detailed below:
Average expected life expectancy from age 6
2013 2012 oni
26 years 26 ye
‘or a current 60 year old male RMPP member 26 years
29 years
For a current 60 year old female RMPP member
For a current 40 year old male RMPP memb
29 years
PP member
‘or a current 40 year old female RIV 32 years
b) Plans’ assets and expected rates of return
e plansa
the expected rates of return for the Grout
Sectionalised RMPP
Equities
Ine of RMPP liabilities 44)
Surplusin plan before IFRIC 14 adjustment 99
Less IFRIC 14 adjustment @)
Surplus in plan after IFRIC 14 adjustment 96
Annual Report and Financial Statements 2012-13
WITNO0740103
WITNO00740103
Dperational I Performance Financial
Overview review review Governance [MRetemeatg
Long-term
expected
Market rate of
value return
2013 2013
Share of RMSEPP £m % pa
Equities 146 n/a
Bond
Property
Other assets
Fair value of plan assets for RMSEPP
Present value of plan liabilities for RMSE (347)
Surplus in plan for RMSEPP 14
Surplus in plan for the POL share (at approximately 7%) of RMSEPP 1
A retirement benefit surplus of £97 million is disclosed on the balance sheet, representing the surplusin plans of £99 million and
£1 million for RMPP and RMSEPP respectively, net of tax of £3 million at a rate of 35% on the element of the surplus which is
recoverable through a refund from the plans.
2012 2011 201 2
Combined plans em em % pa
Other as:
Fair value of p
1s'assets for the combined plans
Present value of plans liabilities for the combined plans
Deficit in schemes for the combined plans (2,922)
Deficit in schemes for share (at approximately 7%) of combined plans (206)
There is no element of the above present value of liabilities that arises from plans that are wholly unfunded
c) Movement in plans’ assets and liabilities
Changesin the fair value of the plans’ assets
» analysed as follows
Sectionalised
RMPP 2083
Assets £m
ed RMPP
tributions p
Employee c
Benefits paid to members @)
Assets in sectionalised RMPP at end of period 243
WITNO0740103
WITNO00740103
84
Exhibit WITNO0740103__
Financial statements _
Notes to the consolidated financial statements continued
19. Pensions continued
Share of
RMSEPP 2013
em
21
paid tc nbers
Share of assets in RMSEPP at end of period 25
ssets combined plans em em
Benefits paid to members
Share of assets in combined plans at end of period 2129 1,923
Changes in the present value of the defined benefit pension obligationsare analysed as follov
Sectionalised
RMPP 2013
Liabilities em
Liabilities ins t 1 (2,313)
Share of
RMSEPP 2013
em
(22)
Share of liabilities in RMSEPP at end of period (24)
Annual Report and Financial Stateme
WITNO0740103
WITNO00740103
Dperational I Performance Financial
Overview review review Governance [MRetemeatg
Liabilities combined plan
of liabilities in combined plans at beginning of period
.ctuarial (loss)
Benefits paid
Share of liabilities in combined plans at end of period
The curtaitment cost 4 on a consistent basis jaled compensation costs. Estimates of both are
included, for example, in any redundancy provisions raised. The curtailment costs present the costs associated with those people paid
compensation in respect of redundancy during the accounting period. Such payments may occur in an accounting period subsequentto the recognition
d) History of experience gains and losses
‘The cumulative amount of actuarial gains and losses recognised since transition to IFRS as adopted by the European Union on
28 March 2011 i ion as recognised in the consolidated statement of comprehensive inco
2011 2010 2009
em em £m
2168 1.944 1811 1407
(1.882)
air value of assets
Present value of liabilities (144) (24) (2,374)
Surplus/(eficit) in schemes 99 1 (206) (316) (475)
(384)
Experience adjustment
stment
Experienc
Experienc assets asa % of scheme <
Experience adju
9 of scheme liabili
Deficit in the s
WITNO0740103
WITNO00740103
86
— —Exhibit WITN00740103_
Financial statements _
Notes to the consolidated financial statements continued
19. Pensions continued
e) Recognised charges
Ananalysis of the separate components of the amounts
gnised in the performance statements of the Group is as follows:
2013
sectionalised
RMPP
£m
Analysis of amounts recognised in the income statement
Analysis of amounts charged to operating profit before exceptional item:
Total charge to operating profit 26
Analysis of amounts charged/(credited) to net pensions interest:
Ir
Expe
ed return on plan assets a1)
Net pensions credit to financing (2)
Net charge to the income statement before deduction for tax 24
Analysis of amounts recognised in the statement of changes in equity
Trans:
Transfer 6 1,953)
Gain on transfer to government 286
Total gains recognised in the statement of changes in equity 286
Analysis of amounts recognised in the statement of comprehensive income
Actuarial gains on assets (all experience adjustments) 43
@0)
viliti
erience act
Effects of chang tuariala s on liabiliti @
Actuarial losses on liabilities @9)
Total actuarial gains recognised in the statement of comprehensiveincome 14
Annual Report and Financial Statements 2012-13
WITNO0740103
WITNO00740103
Dperational I Performance Financial
Overview review review Governance [MRetemeatg
2013 share
of RMSEPP
Current service co:
Analysis of amounts charged to operating exceptional item:
Loss due to curtailments (within provision for organisational review - note 1 -
Total charge to operating profit 1
Analysis of amounts charged/(credited) to net pensions interes
Interest on plan liabilities
Expected return on planasse
Net pensions interest
Share of net pensions interest (at approximately 7%) =
Net charge to the income statement before deduction for tax -
Analysis of amounts recognised in the statement of comprehensive income in the Royal Mail Holdings Group
financial statements
Actualreturn on plan assets
Less: expected return on plan assets as)
Actuarial gains on assets (all experience adjustments) 20
Experience adjustments on liabilitie
Effects of changes in actuarial assumptions on liabilities (23)
rial losses on liabilities aa)
Total actuarial gains recognised in the statement of comprehensive income in the Royal Mail Holdings Group
financial statements 2
Share of actuarial gains/(osses) recognised in the statement of comprehensive income (at approximately 7%) =
WITNO0740103
WITNO00740103
88
— —Exhibit WITN00740103_
Financial statements _
Notes to the consolidated financial statements continued
19. Pensions continued
Total charge to operating profit 23 27
Analysis of amounts charged/(credited) to net pensions interest:
Net pensions interest for the combined plans ) 167
Share of net pensions interest (at approximately 7%) @) 12
Net charge to the income statement before deduction for tax 2 39
Analysis of amounts recognised in the statement of comprehensive income in the Royal Mail Holdings
Group financial statement:
nbined plans
Actuarial gains on assets for the combined plans (all experience adjustments) 1,869 470
erience adju: pilities for the combined plan
jor the combined plans
of changes in actuarial assumptionson li
Actuarial (losses)/gainson liabilities for the combined plans 25)
Total actuarial gains recognised in the statement of comprehensive income in the Royal Mail Holdings
Group financial statements 1
Share of actuarial gains recognised in the statement of comprehensive income (at approximately 7%) 108
20. Called up share capital
Authorised
Total
Total
Annual Report and Financial Stateme
WITNO0740103
WITNO00740103
Operational I Performance Financial 89
Overview eview review Governance
vervi revit jew overnan statements Exhibit WiTN00740403.
21.Commitments
‘apital commitments contracted fe
but not provided in the financial stateme:
amount to £48 million (2012-£15 million),
The Group is committed to the follow
ing minimum lease payments under non-cancellable operating leases
—_ ~ ~— ~ “"Landand buildings “Trequipment
2013 2012, 2011 2013 2012 2011
fm sm sm fm sm sm
16 16 15 16 16
Beyond 5
Total
se liabilities
22. Finance le
2013 2012 2011
Present
value
of
minimum
Minimum lease
Payments payments
ém £m
minimum
imum lease
payments payments payments
em, em £m
Within! year 4 3 4 4 4 4
Between 1 and
Beyond 5 years - -
Total minimum lease payments
Less amounts representing finance charges
Present value of minimum lease payments
Of which
Current
Non-current 4 4 6 6 9 9
The aggregate finance charges allocated for the pe
finance lease liabilitiesis not materially different from
t. The leases have no terms for rene
borrowingsor additional leases. Th
‘The Grour
and there areno re
nance lease contracts
strictions concerning dividends,
options or escalation clauses
5 or equipme , purch:
leases have an average term of six years.
23. Related party disclosures
Joint venture
The follc
ng Company isa joint venture of the Group
Company Country of incorporation % Holding Principal activities
First Rate Exchange Services Holdings Limited United Kingdom 50 Bureau de Change
Associates
The following Company was an associate of Post Office Limited during the year. The Group's interest was disposed of in
September 2012
Company Country of incorporation % Holding Principal activities
Limited United Kingdom 50 Financialse’
ingsare equity shares.
WITNO0740103
WITNO00740103
90
Financial statements
Exhibit WiTNO0740103
Notes to the consolidated financial statements continued
23. Related party disclosures continued
Related party transactions
During the year the Group entered into transactions with the following related parties. The transactions were in the ordinary
course of business. The transactionsentered into and the balances outstandingat the financial year end were as follows:
Amounts owed from Amounts owed to
Sales/recharges Purchases/recharges related party including related party including
to related party from related party outstanding loans outstanding loans
203 2012, Ct LBL ACLS AOLA-—sPOM—sa2N3-—22—D
ém em m £m em m £m em em ém £m em
Royal Mail Group Limited 371 346 37 35 = 4 8 11
Camelot Group
Midasgrange Limited
First Rate Exchange
Services Holdings Limited 27 31 30.125 128132 2 3 9 11 8 1
The sales to, and purchases from, related parties are made at normal market prices. Balances outstandingat the year end are
unsecured, interest free and settlement is made by cash. Royal Mail Group Limited is a subsidiary company of the Group's parent
company, Royal Mail Holdings pic. Camelot Group ple was an associate within the Royal Mail Holdings Group but was disposed
of in 2010-11, Romec Limited is a subsidiary of Royal Mail Group Limited. Midasgrange Limited was an associate of the Group until
September 2012 and First Rate Exchange Services Holdings Limited is a joint venture of the Group.
‘The Group trades with numerous government bodies on an arm’s length basis. Transactions with these entities are not disclosed
owing to the significant volume of transactions that are conducted
Separately:
+ the Group has certain loan facilities with government (note 15).
+ almostall of the pension assets and liabilities of the Royal Mail Pension Plan were transferred to government (note 19):
+ the Group has receiveda government grant of £200 million, £98 million of which was recognised through the income statement
(note 5) and £102 million of which is deferred income within trade and other payables (note 14), and
+ the Group has received the Network Subsidy Payment from government (note 1).
Key management comprises Executive and Non-Executive Directorsof the Post Office Limited Board and the members of the
Executive Committee at 31 March 2013, The aggregate remuneration of the key management personnel of the Post Office Group
is set out below:
Short-term employee benefits
Other long-term
Termination benef
Total 4338 3,309
enefits
24. Post balance sheet events
In accordance with the funding agreement with government announced on 27 October 2010, for which State Aid approval was
received on 28 March 2012, Post Office Limited received £415 million of funding on 2 April 2013.
On 21 June 2013, Post Office Limited launched a consultation with members of the Royal Mail Pension Plan, ona proposal to
change the terms of the plan, which will conclude on 25 August 2013. Post Office Limited will consider the feedback before making
its final decision and communicatingit to colleagues
25. Immediate and ultimate parent company
At31 March 2013, the Directors regarded Royal Mail Holdings plc as the immediate and ultimate parent company. The largest
group to consolidate the results of the Company is Royal Mail Holdings plc, a company registered in the United Kingdom
Royal Mail Holdings plc financial statements can be obtained from the company website, www.royalmailgroup.com
Annual Report and Financial Statements 2012-13
WITNO0740103
WITNO0740103
91
iew review eview overnance [iReteutnta)
1 eis eee Exhibit witNoo740103___—___
Financial statements
Post Office Limited
Parent Company
Financial Statements
2012-13
92
WITNO0740103
WITN00740103
Exhibit WITN00740103.
ee statements _
We have audited the parent company financial statementsof
Post Office Limited for the 53-week period ended 31 March 2013
which comprise the Company balance sheet, the Company
statement of total recognised gains and losses, the Company
reconciliation of movements in Shareholder's fundsand the
related notes] to 18. The financial reporting framework that has
been applied in their preparation is applicable law and United
Kingdom Accounting Standards (United Kingdom Generally
Accepted Accounting Practice)
This report is made solely to the Company's members, as a
body, in accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we might
state to the Company’s members those matters we are required
tostate to them in an auditor's report and for no other purpose.
To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and
the Company's members as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective responsibilities of Directors and auditors
As explained more fully in the Directors’ Responsibilities
Statement set out on page 58, the Directors are responsible for
the preparation of the parent company financial statements
and for being satisfied that they give a true and fair view. Our
responsibility is to audit and express an opinion on the parent
company financial statementsin accordance with applicable
law and International Standards on Auditing (UK and Ireland).
‘Those standardsrequire us to comply with the Auditing
Practices Board's Ethical Standards for Auditors
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosuresin the financial statementssufficient to give
reasonableassurance that the financial statementsare free
from material misstatement, whether caused by fraud or error.
‘This includesan assessmentof: whether the accounting
policies are appropriate to the parent company’s circumstances
and have been consistently applied and adequately disclosed;
the reasonableness of significant accounting estimates made by
the Directors; and the overall presentation of the financial
statements. In addition, we readall the financialand non-
financial information in the annual report to identify material
inconsistencies with the audited financial statements. If we
become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion the parent company financial statements:
+ give a true and fair view of the state of the Company’saffairs
as at 31 March 2013;
+ have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice; and
+ have been prepared in accordance with the requirements of
the Companies Act 2006.
Annual Report and Financial Statements 2012-13
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion the information given in the Directors’ Report
for the financial period for which the financial statements
are preparedis consistent with the parent company
financial statements,
Matters on which we are required to report
by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requiresus to report to you
if in our opinion:
+ adequate accounting records have not been kept by the
parent company, or returns adequate for our audithave not
been received from branches not visited by us; or
« the parent company financial statementsare not in
agreement with the accounting records and returns; or
+ certain disclosures of Directors’ remuneration specified
by law are not made; or
+ we have not received all the information and explanations
we require for our audit
Other matter
We have reported separately on the consolidated financial
statements of Post Office Limited for the 53-week period ended
31 March 2013.
Angus Grant (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
16 July 2013
Notes:
1. The maintenance and integrity of the Post Office Limited's websiteis the
responsibility of the Directors; the work carried out by the auditors does
not involve consideration of these mattersand, accordingly, the auditors
accept no responsibility for any changes that may have occurred to the
financial statements since they were initially presented on the website,
Legislation in the United Kingcom governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions
WITNO0740103
WITNO00740103
mance Financial
eview Governance #iRetentnts
Overy
Balance sheet of the Company
at 31 March 2013 and 25 March 2012
Debtors - receivable after more than one year 6 10
Total non-currentassets 122 16
Current assets
one year
loans and
Net assets/(liabilities) 232 24)
Capital and reserves
(233) 5
Shareholder’s surplus/(deficit) 232 (24)
The financial statements on pages 93 to 110 were approved by the Board of Directors on 16 July 2013
1its behalf by
CMDay
Chief Financial Officer
PA Vennells
WITNO0740103
WITNO00740103
94
Financial statements
Exhibit WITNO0740103
Statement of total recognised gains and losses
2013 2012,
1 on iterr z (23)
Total recognised gains for the financial year 70 145
ternent of historical cost profits and losses as the financial statements are produced under the historic
n.
There is no s\
accounting
tand Financial Statements 2012-13
WITNO0740103
WITNO00740103
inanc
——Exhibit_wiTNoo740403__—_
Reconciliation of movements in Shareholder's funds
Overview
Closing Shareholder’s surplus/(deficit) 232 a
96
WITNO0740103
WITN00740103
Financial statements
Notes to the Company fhancil ae
1. Accounting policies
‘The following accounting policies apply throughout Post Office
Limited (the Company)
Financial year
The financial year ends on the last Sunday in March and
accordingly, these financial statements are made up to
the 53 weeks ended 31 March 2013 (2012 52 weeks ended
25 March 2012),
Basis of preparation
‘The financial statements on pages 93 to 110 have been prepared
in accordance with applicable UK Accounting Standards and
law, including the requirements of the Companies Act 2006.
Unless otherwise stated in the accounting policies below, the
financial statements have been prepared under the historic
cost accounting convention.
As permitted by Section 408 of the Companies Act 2006, Post
Office Limited has not presented its own profit and loss account.
‘The result dealt with in the accounts of the Company amounted
to £76 million profit (2012-£37 million profit)
No cash flow statementhas been presented as the Company
is part of the Post Office Limited Group which has presented
a consolidated cash flow statement within its Group
financialstatements.
The Company has taken advantage of the exemption conferred
by FRS 29 not to disclose financial instrument information as
the Company is part of the Post Office Limited Group which has
presented such disclosures in its Group financial statements.
In making an assessmentof the Company’sability to continue
asa going concern, the Directors have considered the going
concern assessments made in relation to the Group (see note1
on page 65) and are of the view that it is appropriate that
these financial statements have been prepared on a going
concern basis.
Changes in accounting policy
The accounting policies are consistent with those of the
previous year.
Intangible fixed assets
Intangible assets acquired separately or generated internally
are initially recognised at cost and are reviewed for impairment.
An impairment loss is recognised in the profit and loss account
for the amount by which the carrying value of the asset
exceeds its recoverable amount, whichis the higher of an
asset's net realisable value and its value in use.
Amortisation of intangible assets with finite lives is charged
annually to the income statement on a straight-line basis
as follows.
Software 1to 6 years
Where intangible fixed assets are impaired to their recoverable
amount on acquisition the above range of asset lives is
not applied.
Tangible fixed assets
‘Tangible fixed assets are recognised at cost, including
attributable costs in bringing the asset into working condition
for its intended use.
Annual Report and Financial Statements 2012-13
Exhibit WITN00740103
Depreciation of tangible fixed assets is provided ona straightline
basis by reference to cost and to the remaining useful economic
lives of assets and their estimated residual values. The lives
assigned to major categories of tangible fixed assets are
Range of asset lives
Land and buildings:
The shorter of the period of the
lease,50 years or the estimated
remaining usefullife
Leasehold buildings
Plantand machinery 3-15 years
Motor vehicles and trailers 2-12 years
Fixturesand equipment 2-15 years
Where tangible fixed assets are impaired to their recoverable
amounts on acquisition the above ranges of asset lives are not
applied. This is currently the case for plant and machinery,
motor vehicles and trailers and fixtures and equipment
Impairment reviews
Unless otherwise disclosed in these accounting policies, fixed
assetsare reviewed for impairment if events or changes in
circumstances indicate that the carrying value may be impaired,
‘The Company assesses at each reporting date whether such
indications exist. Where appropriate, an impairment loss is
recognised in the profit and loss account for the amount by
which the carrying value of the asset (or cash generating unit)
exceedsits recoverable amount, which is the higher of an
asset's net realisable value and its value in use.
Leases
Finance leases, where substantially all the risks and rewards
incidental to ownership of the leased item have passed to the
Company are capitalised at the inception of the lease with a
corresponding liability recognised for the fair value of the
leased item or, if lower,at the present value of the minimum
lease payments. Lease payments are apportioned between the
finance chargesand reduction of the lease liability so as to
achieve a constant rate of interest on the remaining balance
of the liability,
Capitalised leased assets are depreciated over the shorter of the
estimated useful life of the asset and the lease term.
Leases where substantiallyall the risks and rewards of
ownership of the asset are retained by the lessor, are classified
as operating leases and rentalsare charged to the profit and loss
account over the lease term. The aggregate benefit of incentives
are recognised as a reduction of rental expenses over the lease
term ona straight-line basis.
Investments in joint ventures and associates
Investments in joint ventures and associates within the
Company’s financial statements are stated at cost less any
accumulated impairment losses
Investments in subsidiaries
Investmentsin subsidiaries within the Company's financial
statements are stated at cost less any accumulated impairment
losses. The carrying value relates solely to the Company's
investment in Post Office Management Services Limited, a 100%
subsidiary of the Company and is less than £1 million.
Performance
review
I I
I Operational I
review I
Overview Governance
Stocks
Stocks, which include printing and stationery, retail and Lottery
products, are carried at the lower of cost and net realisable
value after adjusting for obsolete or slow-moving stock
Deferred tax
Deferred tax is generally provided in full on timing differences
at the balance sheet date, at rates expected to apply when
the tax liability (or asset) crystallises based on substantively
enacted tax rates and law. Timing differencesarise from the
inclusion of items of income and expenditure in taxation
computations in periods different from those in which they
are included in the financial statements.
Deferred tax is not recognised in the following instances:
+ on gains on disposal of fixed assets where, on the basis of
available evidence, it is more likely than not that the taxable
gain willbe rolled over into replacementassets and charged
to tax only when there is a commitment to dispose of those
replacementassets;
on unremitted earnings of subsidiaries and associates where
there is no commitment to remit those earnings; and
deferred tax assetsare recognised only to the extent that the
Directors consider that it is more likely than not that there will
be suitable taxable profits from which the future reversal of
the underlying timing differencescan be deducted.
Deferred tax assets and liabilities are not discounted. Deferred
tax is charged or credited directly to reserves if it relates to
items that are credited or charged directly to reserves
Otherwiseit is recognised in the profit and loss account
Pensions and other post-retirement benefits
People working for the Company were employed by Royal Mail
Group Limited and seconded to the Company until 31 March 2012
On 1 April 2012 they were transferred to be directly employed
by the Company. Membership of occupational pension schemes
is open to most permanent UK employees of the Company.
All members of defined benefit schemes are contracted out
of the earnings-relatedpart of the State pension scheme
‘The pension plans’ assets of the defined benefit schemes are
measured at fair value. Liabilitiesare measured on an actuarial
basis using the projected unit credit method and discounted at
arate equivalent to the current rate of return ona high-quality
corporate bond of equivalent currency and term. The resulting
defined benefit asset or liability is presented separately on the
face of the balance sheet, net of any associated deferred tax
balance. Full actuarial valuations are carried out at intervals not
normally exceeding three years as determined by the Trustees
and, with appropriate updates and accounting adjustments
at each balance sheet date, form the basis of the surplus or
deficit disclosed
For defined benefit schemes, the amounts charged to operating
profit, as part of staff costs, are the current service costs and
any gains and lossesarising from settlements, curtailments and
past service costs.
The net difference between the interest costs and the expected
return on plan assets is recognised as net pensions interest
in the profit and loss account. Actuarial gains and losses are
recognised immediately in the statementof total recognised
gains and losses (STRGL). Any deferred tax movement associated
with the actuarial gains and lossesis also recognised in the STRGL.
WITNO0740103
WITN00740103
Financial
statements
For defined contribution schemes, the Company's contributions
are charged to operating profit, as part of staff costs, in the
period to which the contributions relate.
Foreign currencies
‘The functional and presentationalcurrency of the Company
is sterling (£),
‘Transactions in foreign currenciesare recorded at the rate
ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are retranslated
at the rate of exchange ruling at the balance sheet date.
All differences are taken to the profitand loss account
Debtors
Debtors are recognised and carried at original invoice amount
less an allowance for any non-collectable amounts. An estimate
for doubtful debts is made when collection of the full amount
is no longer probable. Bad debts are written off when identified
Financial assets - investments (current assets)
Financial assets - investments in the balance sheet comprise
short-term deposits and money market funds. All financial
assets - investments are classifieds loans and receivablesand
are measuredat amortised cost using the effective interest rate
method. Gains and losses are recognised in the profit and loss
account when the investmentsare derecognised or impaired,
as wellas through the amortisation process
Financial liabilities - interest-bearing loans
and borrowings
Allloans and borrowingsare classifiedas financial liabilities
measuredat amortised cost.
Financial liabilities - obligations under
finance leases
Allobligationsunder finance leases are Classified as financial
liabilities measured at amortised cost.
Borrowing costs
Borrowing costs in relation to the working capital loan facility
are recognised as an expense when incurred unless they are
directly attributable to the construction or development of
a qualifying asset, in which case they are capitalised using
the weighted average cost of borrowing for the period of
construction/development
Fair value measurement of financial instruments
‘The fair value of quoted investments is determined by
reference to bid prices at the close of business on the balance
sheet date. Where there is no active market, fair value is
determined using valuation techniques. These include using
recent arms length market transactions; referenceto the
current market value of another instrument which is
substantially the same; and discounted cash flow analysis
and pricing models.
For the purposes of disclosing the fair value of investments
heldat amortised cost in the balance sheet, in the absence of
quoted market prices, fair values are calculated by discounting
the future cash flows of the financial instrument using quoted
equivalent interest rates as at close of business on the balance
sheet date.
WITNO0740103
WITNO00740103
98
Exhibit WITNO0740103—____.
Financial statements
Notes to the Company financial statements continued
1. Accounting policies continued
Derecognition of financial instruments
A financial asset or liability is derecognised when the contract that gives rise to it is settled, sold, cancelled or expires.
Government grants
Government grants
avenue nature are recognised to match costs in relation to the perf
f certain specified activities.
Auditor's remuneration
Ther
muneration paid to auditors is disclosed in the Group financial statements (note 4),
Directors’ emoluments
The emoluments paid to Directorsare disclosed in the Group financial statements (note 6).
2. Intangible assets
Cost
At 26 March
Ol 2 and 28 M
Addition’
Disposals
At31 March 2013 and 25 March 2012 208 183
Plant Fixtures
Long Short Motor and and
Freehold leasehold leasehold —_—vehicles_ machinery equipment Total
£m £m &m £m £m £m £m
Cost
At 26 March 2012
Disposals @ : Sd : a2) a4)
At3i March 2013, 87 18 114 42 1 719 98
Depreciation
At31 March 2013 77 17 114 42 1 n9 970
Net book value
At31 March 2013 10 1 . S . : Ii
At 26 March 2012 10 1 - - - - 1
Depreciation rat!
£3 million (2012
D the year the legal c
Limited for no consideration
sare disclosed within accounting poli
3 million) of the total cost of propert
(note 1), No depreciation is provided on freehold land, which represents
ership of a number of properties were transferred from Royal Mail Group Limited to Post Office
Annual Report and Financial Statements 2012-13
WITNO0740103
WITNO00740103
Financial
Overview vernance MBean
4 Investment in subsidiaries
‘The carrying value of £1 relates solely to the Company's investment in Post Office Management Services Limited, a 100%
subsidiary of the Company.
5. Investments in joint ventures and associates
Investmentin joint ventures and associates 1 5
Joint ventures
During 2012-13 and 20114
Exch
provision of Burs
ry A she
ipalactivity is the
e United Kingdom
ge Se
Associates
201112, the Company's on
Limited with a carrying value of £
This investment was
ssociate investment wd
ares) in Midasgrange
ial products
6 million, who:
during t
rincipalactiv
ed 31 March 2013,
sposed¢ yea’
6. Debtors
Receivable within one year: em em
Trade debtor 32 39
Total 352
Receivableafter more than one year:
Prepayments ani led income
7, Current financial assets - investments
hort-term dep
Total
8. Cash at bank and in hand
Cash in the Post Office Limited network 879 758
9. Creditors - amounts falling due within one year
thin the F
WITNO0740103
WITNO00740103
100
Exhibit WITN00740103
Financial statements
Notes to the Company financial statements continued
10. Financial liabilities - interest bearing loans and borrowings
2013 2012
£m em
Department of Business, Innovation & Skills loans drawn down 291 377
‘Total facility 1,150 1,150
The loans under the facility are short dated on a programme of liquidity management and mature on e I day after the
year end (20121 day). On maturity it is expected that further loans will be drawn down under this facility, which expires in 2016
The undrawn committed facility, in respect of which all conditions precedent had been met at the balance sheet date is
£859 million (2012-£773 million). The average interest rate on the drawn down loans is 1.0% (2012 0.8%).
‘The facility i
rrently restricted to funding the cash and near cash items held within the Post Office Limited network.
‘The facility (including drawn down loans) is secured by a floating charge over all assets of Post Office Limited and a negative pledge
over cash and near cash items. The negative pledge is an agreement not to grant security over the assets or to set up a vehicle that
has the same effect.
11 Creditors - amounts falling due after more than one year
Obligations under finance leases
Other payables
Total 28 8
12. Provisions for liabilities
Crown’
Conversions Network
project transformation Other Total
£m £m £m ém
At 26 March 2012
arged in operating exceptionalitems
Charged in operating costs
Charged in financing costs
Utilisation g) = a4) a7)
At31 March 2013 7 10 9 26
Other provisions of £9 million (2012-£5 million) include property contracts, amounts from onerous lease obligationsand personal
injury claims.
Amounts charged in financing costs relate to the unwinding of discounted long-term provisions.
The Crown Conversio!
tobe utilised within
project relates to past franchis
ears.
ig of Crown offices and onerous property lease provisions are
pected
13. Pensions
On 1 April 2012, almost all of the pension assets and liabilities of the Royal Mail Pension Plan (RMPP) were transferred to
HM Government. On this date the RMPP was also sectionalised with Royal Mail Group Limited and Post Office Limited responsible
for their own sections. All Post Office Limited employees were transferred to be directly employed by Post Office Limited on the
same
Royal Mail Group Limited is the principalemployer in the Royal Mail Senior Executive Pension Plan (RMSEPP)and Post Office
Limited became a participating employer with effect from1 April 2012. Post Office Limited continues to account for approximately
7% of the RMSEPP scheme as it has done previously.
Prior to 1 April 2012, Royal Mail Group Limited had the legal relationship with the Trustees of both RMPP
the Trustees held Royal Mail Group Limited liable for the actuarial deficit in the scheme. All employe
Mail Group Limited and seconded to Post Office Limited under an agreement between Post Office Limited and Royal Mail Group
Limited. Post Office Limited met the full costs of employment and was responsible for the funding of the pension deficit
attributable to these employees. Consequently, Post Office Limited recognised a balance sheet deficit on full adoption of FRS 17
based on employee numbers over 12 years which represented approximately 7% of the total balance sheet deficit at that time
‘The net pensions interest, deficit recovery payments and actuarial gains or losses were also allocated on this basis. The current
service cost, regular future service contributions and curtailments were computed separately for Royal Mail Group Limited and
Post Office Limited based on common factors/rates.
nd RMSEPP and, as such,
re employed by Royal
Annual Report and Financial Statements 2012-13
WITNO0740103
WITN00740103
Financial
I
Operational _I Performance
i statements
I Overview review review I Governance
The disclosuresin this note relating to the year ended 31 March 2013 reflect the Post Office Limited sectionalised RMPP scheme
which is independently operated by Post Office Limited and the approximate 7% share of the RMSEPP scheme. The comparative
figures for the year ended 25 March 2012 and the opening position at 28 March 201] represent approximately 7% of the previous
combined RMPP and RMSEPP plans.
‘The disclosuresin this note show how the value of the assets and liabilities have been calculated at the balance sheet date.
‘The Company participatesin pension schemesas detailed below.
Defined contribution
‘The charge in the profit and loss account for the defined contribution schemes and the Company contributions to these schemes
was £1 million (2012-£1 million) during the year. A new defined contribution plan (RMDCP) was launched in April 2009. New
recruits joining from 31 March 2008 are able to begin paying contributions to the new plan after they have worked for the
Company fora year.
Defined benefit
Both RMPP and RMSEPP are funded by the payment of contributions to separate trustee administered funds. The latest full actuarial
funding valuation of both schemes was carried out as at 31 March 2009 using the projected unit method. For RMPP, this valuation
was concluded at £10.3 billion deficit. For RMSEPP, the valuation was concludedat £100 million deficit. RMPP includes Sections A, B
and C each with different terms and conditions:
+ Section A is for members (or beneficiaries of members) who joined before 1 December 1971,
+ Section B is for members (or beneficiaries of members) who joined after 1 December 1971 and before 1 April 1987 or to members of
Section A who chose to receive Section B benefits; and
+ Section C is for members (or beneficiaries of members) who joined after 1 April 1987 and before 1 April 2008.
Aseries of changes to RMPP and RMSEPP began to take effect on 1 April 2008.
‘The changes encompass
+ the plans closed to new members from 31 March 2008
+ all pensionsand benefits earned before 1 April 2008 are still linked to final salary at the time of retirement
from 1 April 2008, defined benefits building up for employee members of the plan are earned on a career salary basis;
employees can continue to take their pension on reaching 60 but the normal retirement age increased to 65 for benefitsearned
from 1 April 2010;
from 1 April 2010 it is possible to draw pension earned before the change to normal retirement age at 55, and continue working
while still contributing to the Pension Plan until the maximum level of benefitshas been reached; and
+ RMSEPP was closed to future accrual on 31 December 2012.
Payment of £23 million (2012-£23 million) was made by the Company during the year in respect of regular future service
contributions, nearly all relating to RMPP. The regular future service contributions for RMPP, expressed as a percentage of
pensionable pay, has remained at 171% (2012 171%), effective from April 2010. This rate is not expected to change materially
during 2013-14, For RMSEPP, these contributions have remained at 35.9% (2012 35.9%) until its closure
‘The Company pays 7% of the total deficit payment required to fund the deficit in RMSEPP and a payment of £2 million (2012 less
than £1 million) was made by the Company during the year. Following the State Aid clearance granted on 21 March 2012 and the
subsequenttransfer of the historical pension deficit to HM Governmenton I April 2012, no RMPP deficit payment was made during
201112 or 2012:13, For RMSEPP. deficit recovery payments will be £1 million per annum, from 1 April 2010 to 31 January 2024
Accurrent liability of £nil (2012-Enil) has been recognised for payments to the pension schemes relating to redundancy. During the
year, payments of £2 million (2012-£3 million) relating to redundancy were made
The following disclosuresrelate to the gains/lossesand surplus/deficitin the scheme recognised for RMPP and RMSEPP defined
benefit plans in the financial statements of the Company.
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WITNO00740103
102
Financial statements
Exhibit WITN00740103
Notes to the Company financial statements continued
13, Pensions continued
a) Major long-term assumptions
The size of the RMPP pension surplus, which is large in the context of the Company and its finances, is materially sensitive to the
assumptions adopted. Small changes in these assumptions could have a significant impact on the surplusand overall profitand
‘The major long-term assumptions were
‘At3I March Ai 25 March At28March
2013 201 2011
% pa
laries 43 43
Rate of increase in s
Rate of p
Rate of pension increases - RMSE
Sect Aor Bof RMPP.
Rate of increase for deferred pensions - RMSEPP members transferred from
on A or B of RMPP
for deferred pensions
Inflation assumption (RPD.
Expected average rate of return on assets
In June 2010, the government announced that it was intending to change the inflation measure used to determine statutory
minimum indexation in deferment and in payment from RPI to CPI from April 2011. Where relevant, the inflation assumption has
changed from RPI to CPI
‘The above assumptions relate to both defined benefit plans with the exception of the expected average rate of return on assets
which was computed for the combined assets of the plans. The expected average rate of return on assets wasa weighted average
of the long-term expected rate of return of each principal asset class (see Section B). The expected average rate of return was
computedat each balance sheet date based on the market values and long-term rate of return of each principal asset class as
at that date
‘The following table shows the potentialimpact on the RMPP assetsand pension surplus of changes in key assumptions
Changes in RPland CPI inflation of 01% pa @
Anadditional! year lifeexpectancy @
Comparative information in relation to the potential impact of changes in key assumptions has not been included as this would
Tepresent Post Office Limited's share of the combined RMPP scheme and the above 31 March 2013 informations in relation to the
sectionalised RMPP scheme and therefore comparison would not be meaningful
Mortality
The mortality assumptions for the RMPP sectionalised scheme are based on the latest self administered pension scheme (SAPS)
mortality tables with appropriate scaling factors (106% for male pensioners and 101% for female pensioners). For future improvements
the assumptionsallow for ‘medium cohort projections with a 1.25% floor. These are detailed below:
2013 2012,
Average expected life expectancy from age 6
For a current 60 year old male RMPP member 26 years
29 years
For a current 40 year old male RMPP member 29 years
or a Current 60 year old female RMPP member
Fora current 40 year old female R
32 years 32 years
Annual Report and Financial Statements 2012-13
WITNO0740103
WITNO00740103
Dperational I Performance Financial
Overview review review Governance [MRetemeatg
b) Plans’ assets and expected rates of return
The assets in the plans and the expected rates of return for the Company were:
Long-term
expected
Market rate of
value return
2013 2013
Sectionalised RMPP £m % pa
Equities 29 72
Bonc 205, 43
Other assets 9 72
air value of RMPP assets 243
Present value of RMPP liabilitie @4a)
Surplusin plan 99
ong-term
expected
Market rate of
value return
2013 2013
Share of RMSEPP £m % pa
value of plana’
Present value of plan liabilities for RMSEPP
Surplus in plan for RMSEPP 14
Surplus in plan for the POL share (at approximately 7%) of RMSEPP 1
The expected return on assets makes allowances for the agreed investment strategies of the arrangements.
Under United Kingdom Generally Accepted Accounting Practice the Company has recognised a deferred tax liability through
the statement of total re’ d gains and losse 3 million as the entire asset recorded on the balance sheet has been
deemed recoverable through reductionsin future contributions. This is offset by the recognition through the profit and loss
account of a deferred tax asset of £23 million in respect of tax losses.
rate of
return
2011
Combined plans pa
Equities 77 82
Bonds
Property
Other assets
Fair value of plans’ a for the combined plans
it value of plans’ liabilities for the combined plans
Deficitin schemes for the combined plans (4501)
Deficit in schemes for share (at approximately 7%) of combined plans G16)
‘There is no element of the above present value of liabilities that arises from plans that are wholly unfunded
WITNO0740103
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104
— - Exhibit WTNO0740103_
Financial statements
Notes to the Company financial statements continued
13. Pensions continued
c) Movement in plans’ assets and liabilities
Cha
ssets are
Sectionalised
RMPP 2013
em
Benefits paid to members @)
Assets in sectionalised RMPP at end of period. 243
Share of
RMSEPP 2013
Assets sm
Benefits paid to members =
Share of assets in RMSEPP at end of period 25
Share of assets in combined pl
at end of period
Annual Report a jancial Stateme
WITNO0740103
WITNO00740103
Operational I Performance Financial
Overview review review Governance [RR erentntg
es in th
present value of the defined benefit
1on obligations are analysed as follow
Sectionalised
RMPP 2013
Liabilities £m
Liabilities in sectionalised RMPP at beginning of period 2,313)
Transfer of pe iabilities to nment 2,239
Current
vice cost
Bene
Liabilities in sectionalised RMPP at end of period (44)
Share of
RMSEPP 2013
Liabilities £m
are of liabilities in RMSEPP plans at beginning of period (2)
Finance cost
Employee contributio
Actuarial loss a)
Benefits paic =
Share of liabilities in RMSEPP at end of period (24)
are of liabilities in combined
Jans at beginning of period (
are of liabilities in combined plans at end of period
The curtailment costs in the profit and loss account are rec
ny re
gnisi
4 consistent basis with the associated compensation costs. Estimates
curtailment costs
>a. Such paym
jan
dundancy during
y provisions raise
ent the costs associated with those peor
nan accounting perio:
equentto the recognitior
WITNO0740103
WITNO00740103
106
Financial statements
Exhibit WITNO0740103—____.
Notes to the Company financial statements continued
13, Pensions continued
d) History of experience gains and losses
The cumulative amount of actuarialgains and losses recognised since transition to FRS 17 at 29 March 2004 in the statement
of total recognised gains and lossesis £49 million gain (2012a gain of £32 million). The Directors are unableto determine how
much of the pension scheme deficit recognised in transition to FRS 17 is attributable to actuarial gains and losses since inception of
the pension schemes. Consequently, the Directors are unable to determine the cumulative amount of actuarial gains and losses
that would have been recognised in the statement of total recognised gains and losses between inception of the pension schemes
and transition to FRS1?.
Sectionalised Share of
RMPP _RMSEPP 79% share of combined plans
2013 2013 2012 200 2009)
£m em £m em em
Fair value of assets 243 25 2168 1,944 1.811 1,407
Present value of liabilities 44) (24)
Surplus/(eficit) in schemes 99 1
of scheme liabilitie
Deficit in the scheme as a % of scheme liabilities
Annual Report and Financial Statements 2012-13
WITNO0740103
WITNO00740103
Dperational I Performance Financial
Overview review review Governance [MRetemeatg
e) Recognised charges
Ananalysis of the sep
components of the am
ints recog! in the performance statements of the Company is as follows:
2013
sectionalised
RMPP
€m
Analysis of amounts recognised in the profit and loss account
Analysis of amounts charged to operating profit before exceptional items:
c
rent service co
Analysis ‘of amounts charged to operating exceptional item
Loss due to curtailments (within provision - note 12) 2
Total charge to operating profit 26
non plana
Net pensions credit to financing @)
Net charge to the profit and loss account before deduction for tax 24
Analysis of amounts recognised in the reconciliation of movements in Shareholder'sfunds
‘Transfer of pension liabilities to government
Transfer of pension assets to government
Gain on transfer to government
Total gains recognised in the reconciliationof movements in Shareholder’s funds 286
Analysis of amounts recognised in the statement of total recognised gains and losses
Actual return on plan assets 37
Less: expected return on pl i)
tuarial gains on assets (all experience adjustments) 46
Experience adjustments on liabilit @0)
E fects 's of changes in actuarial assumption: Son liabilities neeeeneaeeneamaaanranaae < @)
Actuarial losses on liabilities (29)
Total actuarial gains recognised in the statement of total recognised gains and losses 17
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108
— - Exhibit WITN00740403______
Financial statements
Notes to the Company financial statements continued
13. Pensions continued
2013 share
of RMSEPP
£m
Analysis of amounts recognised in the profit and loss account
Analysis of amounts charged to operating profit before exceptional item:
Expected return on plan assets as)
Net pensions interest (2)
Share of net pensions interest (at approximately 7%) x
Net charge to the profit and loss account before deduction for tax =
Analysis of amounts recognised in the statement of comprehensive income in the Royal Mail Holdings Group
financial
‘ffects of ct
Actuarial losses on liabilities ag)
Total actuarial gains recognised in the statement of comprehensive income in the Royal Mail Holdings Group
financial statements 2
Share of actuarial gains/(losses) recognised in the statement of total recognised gains and losses
(at approximately 7%) :
Annual Report and Financial Statements 2012-13
WITNO0740103
WITNO00740103
mance Financial
iew Governance [RR erentntg
Overview
n plans’ assets for the combined plans
Net pensions interest for the combined plans
Share of net pensions interest (at approximately 7%) (2) 12
Net charge to the profit and loss account before deduction for tax 21 39
Analysis of amounts recognised in the statement of comprehensive income in the Royal Mail Holdings
G nancial
Less-exp
ed returm on plans assets ombined plans
Actuarial gains or
ssets for the combined plans (all experience adjustments) 1,869
ments on li
sfor the combined
itiesfor the combined
Actuarial (losses)/gainson liabilities for the combined plans
Total actuarial gains recognised in the statement of comprehensive income in the Royal Mail Holdings
Group financial statements 1544
Share of actuarial gains recognised in the statement of total recognised gains and losses
(at approximately 7%) 108 240
14. Called up share capital
Authorised
Ordinary sI
Total 50,003
15. Reserves
premium —_ earnings Total
£m £m £m
(689)
‘Transfer of pen:
At31 March 2013 465 (233) 232
sion deficit to go
WITNO0740103
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110
Exhibit WiTNO0740403.
Notes to the Company financial statements continued _
16. Related party disclosures
Details of transactions with related parties are disclosedin the Group financial statements (note 23).
17. Post balance sheet events
In accordance with the funding agreement with government announced on 27 October 2010, for which State Aid approval was
received on 28 March 2012, Post Office Limited received £415 million of funding on 2 April 2013
On 21 June 2013, Post Office Limited launched a consultation with members of the Royal Mail Pension Plan, ona proposal to
change the terms of the plan, which will conclude on 25 August 2013. Post Office Limited will consider the feedback beforemaking
its final decision and communicating it to colleagues.
18. Immediate and ultimate parent company
At31 March 2013, the Directors regarcled Royal Mail Holdings plc as the immediate and ultimate parent company. The largest
group to consolidate the results of the Company is Royal Mail Holdings pic, a company registeredin the United Kingdom.
Royal Mail Holdings plc financialstatementscan be obtained from the company website, ww w.royalmailgroup.com.
Annual Report and Financial Statements 2012-13
WITNO0740103
WITN00740103
li
Exhibit WTN00740403
‘Corporate information
Registered Office
Post Office Limited
148 Old Street
LONDON
ECIV 9HQ
Auditor
Ernst & Young LLP
1 More London Place
LONDON
Thank you
‘The Post Office is a unique part of our society and is grateful to
all those stakeholders who work so hard to support our work as
a commercial business with a public purpose. In particular, we
would like to thank
the three government ministers with whom we worked
with during 2012-13 - Edward Davey, Norman Lamb and
Jo Swinson - and all those at the Shareholder Executive
at the Department for Business, Industry and Skills;
the National Federation of Subpostmasters, in particular
George Thomson (General Secretary)and Mervyn Jones
(Commercial Director), and its Executive Committee;
Communication and Managers’ Association (CMA) sector of
Unite, in particular Brian Scott (Assistant National Secretary)
Communication Workers Union (CWU).in particular
Andy Furey (AssistantSecretary)and Dave Ward
(Deputy General Secretary)
Actuary
‘Towers Watson Limited
Watson House
London Road
REIGATE
Surrey
RH29PQ
Solicitor
Linklaters LLP
One Silk Street
LONDON
EC2Y 8HQ
+ Our colleagues at Royal Mail Group Limited, in particular
Chairman Donald Brydon and Chief Executive Moya Greene
+ Allthe members of the Stakeholder Forum who are working
to help us define the public purpose of the Post Office,
The consumer, business organisationsand public interest
groups with whom we work, including Consumer Futures,
Age UK and Citizens Advice; and
All the business partners and suppliers with whom we work,
including Bank of ireland (UK) ple, Fujitsu, government
departments and agencies and many others.
But most of all, we'd like to thank our subpostmasters, their
teams and all our colleagues who work for the Post Office -
those directly serving communities across the UK and those
who support this great busine:
WITNO0740103
WITNO0740103
_ __ — _ Exhibit WTNO0740403-———_———
Designed and producedby MerchantCantos, ww w.merchantcantos.com.
Printed by Linney Group
‘The Post Office Annual Report has been printed on Regency Satin paper which contains material
sourced from responsibly managed forests, certified in accordance with the FSC (Forest Stewardship
Council). Regency Satin is made from 10% recovered fibre, using an ECF (Elemental Chiorine
bleaching process and is manufactured under strict environmental management systems, in
adherence to the international ISO 14001 standard, EMAS (Eco Management & Audit Scheme) and the
IPPC (Integrated Pollution Prevention and Control) regulation.
imited
WITNO0740103
WITN00740103
Exhibit WITNO0740103
Mix
From responelble
008198 I
WITNO0740103
WITNO0740103
Exhibit WITNO0740103
®
id Street, London ECIV 9HC