TIDMRMG
RNS Number : 8543N
Royal Mail PLC
21 May 2015
Royal Mail plc
Financial report for the full year ended 29 March 2015
Thursday 21 May 2015
Highlights
Royal Mail plc (RMG.L) today announced its results for the full
year ended 29 March 2015.
"We have delivered operating profits in line with our
expectations. Our continued focus on efficiency resulted in a
better than expected UK cost performance, offsetting lower than
anticipated UK parcel revenue. At the same time we have delivered a
large number of innovations at pace as we transform our
business.
"Our trading environment remains challenging, but we are now
poised to step up the pace of change to drive efficiency, growth
and innovation, while maintaining a tight focus on costs.
"At this early stage of the financial year trading is in line
with our expectations, but as in previous years our performance
will be weighted to the second half and will be dependent on our
important Christmas period.
"We remain committed to delivering value for our shareholders
and the Board is recommending an increase in the full year dividend
of five per cent."
Moya Greene, Chief Executive Officer, Royal Mail plc
Group financial highlights
52 weeks 52 weeks Underlying
2015 2014 change(1)
=============================================== ========= ========= ===========
Adjusted results (including discontinued
operations)(2)
=============================================== ========= ========= ===========
Revenue (GBPm) 9,424 9,456 1%
Operating profit before transformation costs
(GBPm) 740 729 6%
Operating profit margin before transformation
costs (%) 7.9 7.7 40 bps
Operating profit after transformation costs
(GBPm) 595 488 5%
Operating profit margin after transformation
costs (%) 6.3 5.2 20 bps
Profit before taxation (GBPm) 569 421
Earnings per share (pence) 42.8 30.8
Reported results (continuing operations) Change
=============================================== ========= ========= ===========
Revenue (GBPm) 9,328 9,357
Operating profit before transformation costs
(GBPm) 611 669
Operating profit after transformation costs
(GBPm) 466 428
Profit before taxation (GBPm) 400 1,664
Earnings per share (pence) 32.5 127.5
Free cash flow (GBPm)(3) 453 398
Net debt (GBPm) (275) (555)
Full year proposed dividend per share (pence) 21.0 20.0(4) 5%
=============================================== ========= ========= ===========
Business units
Operating profit
before
Adjusted results (including transformation
discontinued operations)(2) Revenue costs
============================== ================================== =====================
52 weeks 52 weeks Underlying 52 weeks 52 weeks
(GBPm) 2015 2014 change(1) 2015 2014
============================== ========= ========== =========== ========= ==========
UKPIL 7,757 7,787 Flat 615 608
GLS 1,653 1,651 7% 115 108
Other businesses 14 18 n/m 10 13
============================== ========= ========== =========== ========= ==========
Group 9,424 9,456 1% 740 729
============================== ========= ========== =========== ========= ==========
Group financial performance
-- Revenue increased by one per cent. This was due to parcel
revenue growth in UKPIL and revenue growth in GLS which was ahead
of our expectations.
-- In UKPIL, operating costs before transformation costs were
down one per cent, better than expected. People costs increased by
one per cent and non-people costs reduced by four per cent.
-- Tight cost control drove operating profit margin before
transformation costs improvement of 40 basis points.
-- Free cash inflow increased to GBP453 million, benefiting from
GBP100 million of net cash flows from the London property
portfolio.
-- As expected, cumulative net investment for 2013-14 and
2014-15 was GBP1.2 billion. Total investment increased from GBP617
million to GBP658 million.
-- Net debt reduced from GBP555 million to GBP275 million,
mainly due to cash flow generated, offset by dividend payments of
GBP200 million.
-- Adjusted earnings per share was 42.8 pence.
-- The Board is recommending a final dividend of 14.3 pence per
ordinary share. Including the interim dividend of 6.7 pence per
ordinary share, this represents a total dividend of 21.0 pence per
share for 2014-15, up five per cent over the notional 2013-14 full
year dividend of 20.0 pence.
Operating performance
-- UKPIL revenue was flat at GBP7,757 million. A one per cent
decline in total letter revenue was offset by parcel revenue growth
of one per cent, reflecting the competitive market.
-- UKPIL parcel volumes increased by three per cent, with a
better performance in the second half. Addressed letter volumes
declined by four per cent, at the better end of our forecast
range.
-- GLS revenue grew to GBP1,653 million, up seven per cent, with
revenue growth in all its markets. Volumes were up eight per
cent.
-- Collections, processing and delivery productivity in UKPIL
improved by 2.5 per cent, within our target range of a 2-3 per cent
improvement per annum.
-- We have seen a net reduction in the number of employees of over 5,500 this year in UKPIL.
-- The management reorganisation programme delivered cost
benefits of GBP42 million. It is now expected to deliver cost
savings of around GBP80 million per annum from 2015-16.
-- We have introduced around 30 new projects, including new
services, products and promotions to improve our customer
offering.
-- We exceeded our regulatory Quality of Service target for
Second Class mail, with a performance of 98.9 per cent against a
target of 98.5 per cent. We met our regulatory target for the
delivery of First Class mail, with a performance of 93.0 per
cent.
Outlook
-- The parcels and letters markets in the UK remain highly competitive.
-- Trading is in line with our expectations at this early stage of the financial year.
-- Our performance will be weighted to the second half and will
be dependent on our important Christmas period.
-- We continue to target flat or better UKPIL underlying costs for 2015-16.
-- The combined impact of German minimum wage legislation and
the disposal of DPD SL could reduce GLS margins by around 50-100
basis points in 2015-16.
-- We remain committed to growing dividends.
(1) All movements are on an underlying basis unless otherwise
stated. Underlying change is calculated after adjusting for
movements in foreign exchange in GLS, working days in UKPIL and
other one-off items that distort the Group's underlying
performance. For volumes, underlying movements are adjusted for
working days in UKPIL and exclude elections in letter volumes
(2) Adjusted results exclude specific items, including the
difference between the income statement pension charge and the
total cash cost of pensions, including deficit payments. The
figures include the results of DPD Systemlogistik, a subsidiary of
GLS Germany, which was owned by the Group for the full reporting
period, and sold following the year end and has been reclassified
as discontinued operations
(3) For more information on free cash flow, see note 7
(4) Notional 2013-14 full year dividend
Chief Executive Officer's review
This has been a challenging year. Through a continued focus on
efficiency and tight cost control, we have offset the impact of
lower than anticipated UK parcel revenue this year, so that
operating profit before transformation costs is in line with our
expectations. It has also been a year of innovation, with a range
of new initiatives delivered at pace. We have introduced around 30
new projects, including services, products and promotions, to
improve our customer offering.
Group revenue increased by one per cent. UKPIL revenue of
GBP7,757 million was flat, as a one per cent decline in letter
revenue was offset by a one per cent increase in parcel revenue.
GLS delivered good revenue growth of seven per cent, with revenue
increases in all of its markets.
Adjusted Group operating profit before transformation costs
increased to GBP740 million, a 40 basis point expansion in the
margin on an underlying basis. Short term cost actions have
delivered a better than expected UK cost performance. Adjusted
UKPIL costs were down one per cent on an underlying basis.
This table is a snapshot of our transformation programme, which
began in 2007-08. It sets out some of the key metrics through which
we measure our progress.
2007-08 2014-15
============================= ======== ========
Mail Centres 69 39
============================= ======== ========
Delivery Offices
that have undergone
modernisation - 1,333
============================= ======== ========
Letters sequenced
to delivery point 1% 82%
============================= ======== ========
Headcount in Operations 158,900 130,100
============================= ======== ========
2008-09 2014-15
============================= ======== ========
Collections, processing
and delivery productivity
improvement (year-on-year)
(%) (1.1) 2.5
============================= ======== ========
2009-10 2014-15
============================= ======== ========
Lost Time Accidents
per 100,000 hours
in Operations 2.36 0.67
============================= ======== ========
Net cumulative investment for 2013-14 and 2014-15 was GBP1.2
billion, as we expected. This year, we saw a net reduction in the
number of our UKPIL employees of over 5,500. I am grateful to them
for their contribution. We have worked very closely with our unions
to make these very difficult changes.
Outlook
The parcels and letters markets in the UK remain highly
competitive. We continue to estimate that volume growth in the
addressable parcels market(1) will be reduced to around 1-2 per
cent per annum in the short term(2) . However, this will be
dependent on the speed and extent of rollout of Amazon's own
delivery network. We continue to expect that UK addressed letter
market volumes, excluding elections, will decline by 4-6 per cent
per annum in the medium term. We note the recent statement by
PostNL about its UK end-to-end delivery activities and await the
outcome of its review.
GLS has performed well in 2014-15 but the combined impact of
German minimum wage legislation and the disposal of its subsidiary,
DPD Systemlogistik, could reduce GLS margins by around 50-100 basis
points in 2015-16. However, we are at the early stages of
implementing mitigation strategies and need to see how the market
reacts.
The investments made over the past three years in our
technology, our network and our people position us well to address
the challenges we see. We are now poised to step up the pace of
change to drive efficiency, growth and innovation. We are
maintaining a tight focus on costs and continue to target flat or
better UKPIL underlying costs for 2015-16. We continue to expect
ongoing transformation costs of around GBP120-140 million per annum
depending on the level of voluntary redundancies announced in-year.
Reported profit numbers will be impacted by the difference between
the income statement pension charge and the cash cost of pensions
which is expected to increase to around GBP255 million in
2015-16.
Total cash investment, net of operating asset disposals, is
expected to be in the range GBP550-600 million going forward. We
continue to evaluate our options in relation to our larger London
properties. These larger sites will require further investment in
order to optimise value, which will be mainly met by the disposal
proceeds from the Paddington site.
At this early stage of the financial year trading is in line
with our expectations but as in previous years our performance will
be weighted to the second half and will be dependent on our
important Christmas period.
We remain committed to growing our dividend. The Board is
recommending a final dividend of 14.3 pence per ordinary share
giving a total dividend for the full year of 21.0 pence per share,
up five per cent over the notional 2013-14 full year dividend of
20.0 pence per share.
Our strategy
Our strategic priorities are:
i) Being a successful parcelsbusiness;
ii) Managing the decline in letters; and
iii) Being customerfocused.
These priorities are underpinned by a range of people, customer
and financial measures to ensure we are managing our business
successfully.
We are the pre-eminent delivery company in the UK. Through GLS,
we operate one of the largest, ground-based, deferred(3) delivery
networks in Europe. We are investing in change to drive further
efficiency improvements, generate growth in new areas and extend
the reach of our core offering.
Parcels
We continue to estimate that the total volume of parcel
deliveries in the UK - across business-to-consumer (B2C),
consumer-to-any-recipient (C2X) and business-to-business (B2B) -
will grow at approximately four per cent per annum in the medium
term(4) . However, we estimate that the impact of Amazon delivering
an increasing number of parcels using its own delivery network will
reduce the annual rate of growth in our addressable market to
around 1-2 per cent in the short term. Overcapacity has combined
with the reduced rate of growth in the addressable market to create
pricing pressure in all segments.
More than 90 per cent of the parcels we handle in the UK pass
through the Royal Mail core network, which delivers the Universal
Service. Heavier, bulkier items tend to be carried by Parcelforce
Worldwide. Primarily through these two nationwide networks, we
offer a range of services, including Universal Service Obligation
(USO) letter and parcel delivery, express and courier services.
We benefit from a broad customer base. Nearly three quarters of
our domestic parcel revenue is generated by consumers, micro-SMEs
and SMEs. This reduces our exposure to the actions of larger
customers.
Our parcels strategy: key points
- Maintaining our pre-eminent position, while seeking new areas
of growth. Pursuing faster growing parts of the UK market and
growing international markets
- Adding value by continually improving our products and
services. Ensuring customers of all sizes can connect with our
systems quickly and easily; significantly increasing the number of
parcels we barcode and scan; launching Parcelforce Select
- Expanding and automating our networks. We will begin rolling
out automated parcel sorting to around 20 of our busiest Mail
Centres; continuing to expand our European network through organic
growth and selective, strategic acquisitions
Maintaining our pre-eminent position
In the medium term, we expect the fastest areas of growth in UK
parcels will be clothing and footwear, and toys and sports
equipment. We are building our presence from a modest base. We have
won new contracts with a number of high street and e-retailers. We
will seek to secure further volumes by being more flexible about
the size and shape of parcels we will deliver.
We now offer large business customers later weekday, and
extended weekend, access to the Royal Mail core network. Twelve
months ago, it was open to these customers five and a half days a
week. Today, we are open seven days a week and later into the
evening. As a result, we have attracted more traffic.
Our performance at Christmas is key to our service proposition.
In December 2014, we delivered one of our highest ever quality of
service performances for parcel delivery. By Christmas 2015, we are
aiming to barcode significantly more parcels and scan them in the
Mail Centre and on the doorstep.
In March 2015, we launched a shop front on Alibaba's Tmall
Global e-marketplace. This platform will offer over 300 million
Chinese consumers the opportunity to buy distinctive British
products, using Parcelforce Worldwide to ship the products to
China.
Adding value by continually improving our products and
services
In November 2014, we announced that Amazon would offer its
online customers access to our Local Collect click-and-collect
network. Amazon customers can choose the most convenient of around
10,500 Post Offices for their parcel delivery. This is supported by
the extension of opening hours across 3,000 branches - an
additional 85,000 hours per week - and the opening of around 2,000
branches on Sundays. Local Collect traffic with Amazon is
growing.
In January 2015, Parcelforce Worldwide launched a new
interactive service, Parcelforce Select, to improve the
end-customer's control of their parcel delivery. Unlike other
carriers, the pre-delivery notification is triggered by the
delivery driver. This ensures that the actual delivery is based on
local driver experience, rather than a centrally-generated time
window. We have won new business as a result of this initiative.
Customer feedback has been very positive.
We are extending the support we offer to key customers. We offer
eBay buyers the opportunity to track returned items back to the
seller. Our new Click & Drop tool enables eBay sellers to
integrate their accounts and buy and print postage labels without
manually inputting the address of each individual buyer, providing
a simple, three-step journey from purchase to print. In February
2015, we announced the acquisition of StoreFeeder, an IT software
company. We plan to use its expertise to develop more tools to
enable customers of all sizes to connect and ship parcels
easily.
In March 2015, we launched a new portal to help online retailers
better manage returns. 72 per cent of online shoppers said they
would be unlikely to shop with a retailer if they had a difficult
returns experience(5) . The returns portal gives retailers full
visibility of returned items - exactly which items are being
returned, from which customer and for what reason, improving stock
management. A number of our retailer customers are already using
the service.
Our core proposition is to provide high quality, value-for-money
products for our core customer base, and to win new business in the
process. When we announced our consumer tariffs for 2015-16, the
average price rise across domestic parcels, USO letters and
international letters and parcels was the lowest for at least five
years. We have simplified our parcel specifications and cut the
price of our medium-sized Second Class parcels. We have embedded
our price promotion for small parcels into our 2014-15 price
changes.
To enable us to track significantly more parcels, we are working
with our customers to put information-rich, 2D barcodes on as many
of our parcels as possible. Our largest customers are already
beginning to make the switch. From summer 2015, we will begin a
process to deliver the technology we need to scan significantly
more parcels at the Mail Centre and on the doorstep. Over time,
this will give us greater visibility of traffic in our network,
which will allow us to tackle any quality of service issues in real
time. Tracking will drive the uptake of higher value services.
Expanding and automating our networks
We will begin rolling out automated parcel sortation at around
20 of our busiest Mail Centres across the UK. Parcels sortation
will help us to improve our efficiency.
Our European parcels carrier, GLS, delivered revenue growth in
all of its markets. It continues to perform well, despite a weak
economic backdrop in the Eurozone. We have delivered growth in
international and domestic parcels.
We have already seen some impact in Germany, GLS' biggest market
by revenue, from minimum wage legislation, introduced on 1 January
2015. We are introducing operational and commercial responses to
help mitigate the impact of this change. In France, our recovery
plan is ahead of schedule for the year. We are growing our business
with existing customers and continue to target new customers. GLS
Italy continues to deliver strong revenue growth.
Consumers in Luxembourg became the latest to benefit from GLS'
FlexDeliveryService, which launched in the country in April 2015.
Already available in 12 other European countries,
FlexDeliveryService notifies parcel recipients via email or text
when a package is on the way to them, and enables them to change
the delivery time to suit them. Saturday and evening delivery
options are now available in eight cities in Germany, meaning
consumers can choose to receive parcels between 5pm and 8pm on
weekdays or 8am and 1pm on Saturdays.
Letters
Our letters strategy: key points
- Managing the structural decline in addressed letter volumes by
promoting the value of mail
- Securing the promise of commercial freedom in a regulatory
model that effectively supports the future sustainability of the
Universal Service in the UK
- Optimising mail handling to accommodate a changing letters mix
and increase efficiency
Addressed letter volumes decreased by four per cent - at the
better end of our forecast range. Marketing mail revenue increased
by five per cent to GBP1,167 million. In January 2015, MarketReach
launched a campaign demonstrating the value of marketing mail as
part of an integrated advertising campaign. Using five of the UK's
top advertising executives and research conducted over an 18 month
period, the Mailmen campaign looks at the true value of mail. It
found that people value something they can see and touch 24 per
cent more than things they can only see. More than half (57 per
cent) say that receiving a communication by mail makes them feel
more valued.
The rollout of Mailmark(R), which provides barcode technology
and online-reporting for machine-readable business, advertising and
publishing mail, is progressing. Over 17 per cent of
machine-readable mail currently carries the Mailmark(R) barcode.
Existing customers, including home-shopping, energy providers and
high street retailers, benefit from price incentives and more
accurate mailing data.
In August 2014, we started the process of moving low-volume
postboxes to collection on delivery. Declining letter volumes have
been reflected in a fall in the number of items posted in
postboxes. Rather than decommission uneconomic postboxes, postmen
or women will empty the box on their round, instead of providing a
dedicated collection by van. Once our new collection on delivery
approach is fully rolled out, we expect it to reduce our mileage by
14.2 million miles per annum, with an associated saving of over 2.1
million litres of diesel. As part of this programme, we have sought
to improve the level of public access to postboxes in areas of
under-provision, with the addition of around 2,000 new postboxes by
March 2016.
In February 2015, we announced price increases of one penny for
First Class and Second Class consumer stamps. We thought very
carefully about the impact of these price increases on our
customers. A one penny increase is the smallest possible price rise
that we could implement. Across all letter products, average price
increases were broadly in line with RPI.
Regulation
We welcome the competition that is an integral part of operating
in a fully-liberalised postal market. The ongoing decline in letter
volumes means that the incentives on Royal Mail to reduce costs are
already strong. The intensely competitive parcels market adds to
these efficiency drivers. The sustainability of the Universal
Service depends on Royal Mail being able to use revenue from
easy-to-serve urban areas to cover the cost of a nationwide network
capable of serving all addresses at a uniform price. In June 2014,
Royal Mail made a detailed regulatory submission to Ofcom
highlighting the risk that direct delivery poses to the financial
sustainability of the USO.
Customers
Our customer strategy: key points
- Providing a consistently high quality service through the
consistent execution of standards such as Delivery to Neighbour
- Being as flexible as we can to provide the services our
customers want
- Driving down customer complaints through the rollout of best
practice, such as Nominate a Neighbour, which aims to improve rates
of first time delivery
Our brand is a key element of our customer proposition. In
February 2015, Royal Mail was ranked as one of the top 15 Business
Superbrands in the UK(6) . Our own research indicates that our mean
business customer satisfaction score - across large and medium
sized businesses, SMEs and micro-SMEs - is 76. This is an increase
on 75 last year, 74 in 2012-13 and 70 in 2011-12.
In September 2014, Royal Mail Group achieved the top ranking in
both the Dow Jones Sustainability World Index and Dow Jones
Sustainability Europe Index for the Transportation and
Transportation Infrastructure Industry.
Royal Mail is the only postal operator that is required to meet
regulatory Quality of Service targets for First Class and Second
Class mail, and to publish those targets. These regulatory targets
are amongst the highest of any major European country.
I am delighted to report that we have again exceeded our
regulatory Quality of Service targets for Second Class mail in
2014-15. 98.9 per cent of Second Class mail (target: 98.5 per cent)
arrived within three days of posting. We met our regulatory target
for First Class mail, delivering 93.0 per cent of First Class mail
on the following day(7) . This compares with First Class
performance of 93.2 per cent and a Second Class performance of 98.9
per cent in 2013-14.
Delivery to Neighbour is a Royal Mail standard. From March 2015,
customers visiting an Enquiry Office to pick up a parcel have been
able to 'Nominate a Neighbour' as their first delivery choice if
they are not at home.
We have maintained our internal performance against our
composite parcels measure, an internal measure for all retail
parcel products in the Royal Mail core network. This year, we
delivered a performance of 95.0 per cent, compared with 95.1 per
cent in 2013-14 (target: 95.3 per cent).
Innovation
Over the past year, we have launched or piloted a large range of
new services designed to provide a greater choice of parcel
delivery options. Local Collect - the largest single
click-and-collect network, available through Post Office - and
Sunday opening at our busiest Delivery Offices are two such
services to help online shoppers not at home during the day to
receive their parcels.
Investments in new technologies are an important part of our
strategy to offer an ever-improving quality of service. We aim to
transform our parcels offering by providing tracking as standard
for as many parcels as we can.
New or emerging technologies offer the potential to transform
the way we will work in the future. We continue to monitor and,
where appropriate, test and pilot how these can improve our
business and benefit customers. For example, through Parcelforce
Select, we are improving the control our customers have over their
parcel delivery. We also engage with partners to explore how
emerging areas, such as wearable technologies, may be deployed in
the future.
Transformation and cost control
Combined with the disciplines of being a public company, the
competitive nature of our core markets means that we face strong
efficiency incentives. We are driving a 'cost-conscious' culture
through a combination of cost actions, optimising our networks and
standardising our processes.
We have continued to deliver productivity improvements across
collections, processing and delivery. Productivity improved by 2.5
per cent in 2014-15, within our target of a 2-3 per cent
improvement per annum. This compares with an improvement of 1.7 per
cent in 2013-14 and 2012-13.
The management reorganisation programme, announced in March
2014, is now expected to deliver cost savings of around GBP80
million per annum from 2015-16 - more than the GBP50 million annual
savings we originally anticipated.
We have agreed a streamlined revisions process across some of
our Delivery Offices that have been impacted by direct delivery and
overcapacity in UK parcels. As part of a joint agreement with the
Communication Workers' Union (CWU), Delivery Offices that have seen
a significant change in their workload are also taking steps to
structure their units to manage this volatility.
There are significant non-people cost opportunities in our
Logistics division. Improved fleet management, including fuel
efficiency and reducing wear and tear, represents a cost-saving
opportunity. We have already rolled out our fleet management
programme for our large heavy goods vehicles. From May 2015, we
will be introducing telemetry and advanced driver training to our
7.5 tonne fleet.
Our people
Eligible full-time employees who received an allocation of 729
Free Shares will, subject to shareholder approval at our 2015 AGM,
have received around GBP250 in dividend payments by 31 July 2015.
In September 2014, we launched our first Save As You Earn scheme.
More than 36,000 employees - approximately one quarter of those who
were eligible to apply - applied to join.
Our Agenda for Growth agreement with the CWU includes terms
covering employee pay, legally-binding terms covering protections
and industrial stability as well as a programme of work to deliver
change at pace in operations. In the short time since the existence
of this agreement, we have seen a meaningful change in the way in
which differences and disputes are resolved. Our unions are more
committed than ever to mechanisms like mediation to resolve
disputes in ways that guarantee our continued operations and
uninterrupted customer services.
In March 2015, we confirmed a 2.8 per cent pay increase for our
frontline employees. The 2015-16 award represents the final year of
the three year pay deal agreed through the Agenda for Growth.
During the year, we have launched 60 joint projects with the CWU.
Our Together for Growth programme, which will train approximately
6,500 managers and union representatives by October 2015,
represents the UK's largest ever investment in this form of joint
training.
Thank you
Following our first AGM in July 2014, Mark Higson, Managing
Director, Operations, stepped down from the Board. During the year,
we have also announced the departure of John Allan and our
Chairman, Donald Brydon. While John stepped down at the end of
April 2015, Donald will remain with us until at least our 2015 AGM.
I have experienced first-hand the many ways in which our Company
has benefited from the counsel and dedication of these colleagues.
I wish them all the best in their future endeavours. I would also
like to extend special thanks to Donald Brydon, for sharing his
wisdom and experience as we have sought to transform our
Company.
I remain incredibly proud of the good work we do. Royal Mail is
nothing without its people. We must continue to deliver difficult
change. But, working together with our people and our unions, I am
confident that we can continue to deliver the services our
customers want and sustainable value for our shareholders.
Moya Greene
Chief Executive Officer
20 May 2015
(1) Defined as individually addressed parcels and packets
weighing up to 30kg, that do not require special handling and
comprise goods that have been ordered based on Triangle Management
Services/RMG Fulfilment Market Measure. Excluding International
(2) Internal estimate based on historic growth trends (Triangle
Management Services/RMG Fulfilment Market Measure, December 2014)
and forecast data (Verdict E-retail Survey 2015)
(3) The least time-sensitive type of delivery
(4) Internal estimate based on historic growth trends and market
insight
(5) Hall and Partners, Delivery Matters 2014
(6) Business Superbrands 2015
(7) We achieved 93.2 per cent against our First Class regulatory
target when adjusted for force majeure
UK Parcels, International & Letters (UKPIL)
Summary trading results
Adjusted(1) Adjusted
52 weeks 52 weeks Underlying
(GBPm) 2015 2014 change(2)
=============================================== ============ ========== ===========
Letters & other mail 3,400 3,514 (3%)
Marketing mail 1,167 1,111 5%
Total letters 4,567 4,625 (1%)
Parcels 3,190 3,162 1%
------------ ---------- -----------
Revenue(3) 7,757 7,787 Flat
Operating costs before transformation costs (7,142) (7,179) (1%)
----------------------------------------------- ------------ ---------- -----------
Operating profit before transformation costs 615 608
Operating profit margin before transformation
costs 7.9% 7.8% 40 bps
Transformation costs (145) (241)
----------------------------------------------- ------------ ---------- -----------
Operating profit after transformation costs 470 367
Operating profit margin after transformation
costs 6.1% 4.7% 20 bps
Volumes (m)
Letters
Addressed letters 13,009 13,342 (4%)
Unaddressed letters 3,157 3,143 1%
Parcels
=============================================== ============ ========== ===========
Royal Mail core network 1,015 991 3%
Parcelforce Worldwide 86 77 12%
=============================================== ============ ========== ===========
Total 1,101 1,068 3%
=============================================== ============ ========== ===========
Trading performance
The increasing challenges in the UK parcels market meant that
our parcel revenue for the year was lower than we had originally
anticipated. As a result, UKPIL revenue was flat at GBP7,757
million, as the one per cent decline in total letter revenue was
offset by a one per cent increase in parcel revenue.
Parcel volumes were up three per cent, with growth in low
average unit revenue (AUR) import parcels and the impact of our
initiatives in account parcels more than offsetting the decline in
higher AUR consumer/SME volumes. Parcel revenue grew by one per
cent to GBP3,190 million, reflecting this change in mix and the
impact of the competitive environment on pricing. Parcelforce
Worldwide had strong volume growth of 12 per cent, driven by growth
in the existing customer base and new business wins, including
customers from the former City Link business. However it has seen
downward pressure on pricing as a result of overcapacity in the
market such that its revenue growth has been impacted.
Addressed letter volumes declined by four per cent (excluding
the impact of election mailings), at the better end of our forecast
range of a 4-6 per cent decline per annum in the medium term. This
was mainly due to the improvement in UK economic conditions this
year as we had anticipated. Overall letter revenue (including
marketing mail) of GBP4,567 million decreased by one per cent. The
impact of elections more than offset the estimated impact of direct
delivery in the year of around GBP20 million. Marketing mail
revenue of GBP1,167 million, which includes addressed and
unaddressed marketing mail as well as revenue from our data
businesses of GBP82 million, was up five per cent as a result of
the improvement in UK economic conditions and the impact of
MarketReach.
On a reported basis revenue reduced by GBP30 million to GBP7,757
million.
Operating costs
Adjusted Adjusted
52 weeks 52 weeks Underlying
(GBPm) 2015 2014 change(2)
============================================= ========== ========== ===========
People costs (4,789) (4,760) 1%
============================================= ========== ========== ===========
Distribution and conveyance costs (821) (855) (5%)
Infrastructure costs (919) (946) (4%)
Other operating costs (613) (618) (1%)
========== ========== ===========
Total non-people costs (2,353) (2,419) (4%)
============================================= ========== ========== ===========
Total operating costs before transformation
costs (7,142) (7,179) (1%)
============================================= ========== ========== ===========
Total adjusted operating costs before transformation costs were
down one per cent, better than our expectation of a flat
performance.
People costs increased by one per cent as a result of increased
pay costs, due to the three per cent frontline pay award and
incentives, headcount expansion in Parcelforce Worldwide and IT,
and the additional cost of delivering election mail. These
increases were partially offset by a 2.5 per cent improvement in
collections, processing and delivery productivity in the core
network and savings achieved from the management reorganisation
programme, announced in March 2014, of GBP42 million. We now expect
this programme to deliver savings of around GBP80 million per annum
from 2015-16. In accordance with the 2013 pay agreement, the
frontline pay award for 2015-16 is 2.8 per cent. We continue to
target annual productivity improvements of 2-3 per cent per annum.
As a result of the new single-tier state pension scheme to be
introduced in April 2016, the Group expects to see an increase in
its employer National Insurance contributions for employees
participating in the Royal Mail Pension Plan (RMPP) of up to GBP75
million, which would impact the 2016-17 financial year.
Non-people costs declined by four per cent. Distribution and
conveyance costs reduced by five per cent partly due to a reduction
in terminal dues as a result of a change in the geographic mix of
export parcels in the period. Savings were also achieved on vehicle
costs through improved fleet management and on fuel costs. Diesel
and jet fuel costs were GBP186 million in the year, compared with
GBP195 million in the prior year. We buy forward a large part of
our fuel requirements, therefore we are not materially exposed to
short term fluctuations in oil prices. We expect fuel costs to be
around GBP171 million in 2015-16. Infrastructure costs were four
per cent lower mainly due to cost savings on property, with reduced
spend in relation to facilities management. Depreciation and
amortisation of GBP242 million was broadly in line with the prior
year. Other operating costs decreased by one per cent.
For 2015-16 we continue to target flat or better UKPIL costs on
an underlying basis.
Adjusted operating profit before transformation costs was GBP615
million, giving a margin of 7.9 per cent, up 40 basis points on an
underlying basis.
Reported total costs before transformation costs for UK
businesses (UKPIL and Other) were broadly flat at GBP7,275 million
(2013-14 GBP7,242 million), in line with our KPI measure.
On a reported basis, UKPIL operating costs before transformation
costs increased by GBP34 million to GBP7,271 million. Reported
pension costs increased by GBP73 million over the prior year,
mainly due to the increase in the IAS 19 non-cash pension service
charge, caused by a decrease in AA corporate bond yields.
Transformation costs
Adjusted Adjusted
52 weeks 52 weeks
(GBPm) 2015 2014
================================================== ========== ==========
Voluntary redundancy - ongoing (87) (14)
Voluntary redundancy - management reorganisation
programme 6 (102)
Project costs (55) (108)
Business transformation payments (9) (17)
================================================== ========== ==========
Total (145) (241)
================================================== ========== ==========
Total transformation costs of GBP145 million were marginally
above our expectations due to an increased number of people leaving
the business in the second half of the year. The prior year
included a GBP104 million provision for the management
reorganisation programme announced in March 2014 of which GBP6
million reversed in 2014-15. We continue to expect ongoing
transformation costs of around GBP120-140 million per annum,
depending on the level of voluntary redundancies announced
in-year.
Project costs, including costs relating to Delivery Office
revisions, have reduced from 2013-14.
The GBP9 million business transformation payments relate to the
Business Transformation Agreement 2010. These payments are now
largely complete and minimal payments are expected going
forward.
Transformation costs are the same on a reported or adjusted
basis.
Operating profit after transformation costs
Adjusted operating profit after transformation costs was GBP470
million, giving a margin of 6.1 per cent, up 20 basis points on an
underlying basis.
Reported operating profit after transformation costs was GBP341
million, giving a margin of 4.4 per cent.
(1) Adjusted results exclude specific items, including the
difference between the income statement pension charge and the
total cash cost of pensions, including deficit payments
(2) All movements are on an underlying basis unless otherwise
stated. Underlying change is calculated after adjusting for
movements in foreign exchange in GLS, working days in UKPIL and
other one-off items that distort the Group's underlying
performance. For volumes, underlying movements are adjusted for
working days in UKPIL and exclude elections in letter volumes
(3) Stamped, metered and other prepaid revenue channels are
subject to statistical sampling surveys to derive the revenue
relating to parcels, marketing mail and letters. These surveys are
subject to continuous refinement, which may over time reallocate
revenue between the products above, and which may occasionally lead
to a consequent change to this estimate
General Logistics Systems (GLS)
Summary trading results (including discontinued operations)
52 weeks 52 weeks
(EURm) 2015 2014 Change
========================= ========= ========= =======
Revenue 2,100 1,957 7%
Operating costs (1,954) (1,829) 7%
========= ========= =======
Operating profit 146 128
Operating profit margin 7.0% 6.5% 50 bps
========================= ========= ========= =======
(GBPm)
========================= ========= ========= =======
Revenue 1,653 1,651
Operating costs (1,538) (1,543)
========= ========= =======
Operating profit 115 108
========================= ========= ========= =======
Volumes (m)(1) 436 404 8%
========================= ========= ========= =======
Trading performance
GLS continues to perform well. The business delivered a better
than expected revenue performance this year, with seven per cent
growth driven by an eight per cent increase in parcel volumes.
Revenue growth has been achieved in all our markets, with
particularly strong growth in Italy, as well as growth in emerging
European markets. Germany, France and Italy, GLS' core markets, in
aggregate still account for around 70 per cent of GLS' revenue.
On a reported basis, revenue of GBP1,557 million was flat as the
improvement in underlying Euro revenue was offset by the impact of
foreign exchange movements.
Operating costs
52 weeks 52 weeks
(EURm) 2015 2014 Change
======================================== ========= ========= =======
People costs (470) (435) 8%
======================================== ========= ========= =======
Distribution and conveyance costs (1,290) (1,204) 7%
Infrastructure costs (135) (128) 6%
Other operating costs (59) (62) (6%)
========= ========= =======
Total non-people costs (1,484) (1,394) 6%
======================================== ========= ========= =======
Total operating costs (1,954) (1,829) 7%
======================================== ========= ========= =======
Total operating costs were up seven per cent, broadly in line
with volume growth.
People costs increased by eight per cent as a result of pay
inflation and incentives, the impact of acquisitions, and
semi-variable costs driven by volume. We have already seen some
impact of the introduction of minimum wage legislation in Germany,
which took effect from 1 January 2015. Non-people costs were up six
per cent. Distribution and conveyance costs were up seven per cent,
reflecting higher volumes. Infrastructure costs increased by six
per cent due to higher depreciation and amortisation charges from
IT investments. Other operating costs reduced by six per cent,
mainly due to a non-recurring indirect tax charge and higher France
restructuring costs in 2013-14.
On a reported basis, operating costs of GBP1,442 million were
flat, as the increase in underlying Euro costs was offset by the
impact of foreign exchange movements.
Operating profit
Reported operating profit increased to GBP115 million,
representing a margin of 7.0 per cent.
Germany
The competitive environment, coupled with a challenging labour
market, has had a continued impact on GLS Germany. It saw revenue
growth of three per cent and remains the largest market for GLS by
revenue. On 31 March 2015, GLS Germany sold its entire holding in
its subsidiary DPD Systemlogistik (DPD SL) which had revenue of
GBP96 million in the year, and has been reclassified as
discontinued operations.
France
The turnaround programme in GLS France was ahead of plan this
year. Operating losses reduced to EUR16 million (2013-14 EUR27
million) as the cost reduction element of the turnaround has
progressed well and increased revenue growth was achieved. Revenue
growth of seven per cent came from existing and new customers. We
are targeting GLS France to be break-even in 2016-17.
Italy
Despite an unfavourable economic environment, GLS Italy has
continued to deliver strong organic growth which, coupled with the
benefit of acquisitions last year, drove a 16 per cent increase in
revenue. GLS Italy continues to gain market share but this rate of
growth is not expected to continue in 2015-16.
Other developed European markets (includes Austria, Belgium,
Netherlands, Denmark, Ireland, Spain and Portugal)
Revenue increased across other developed European markets which
represent 21 per cent (2013-14 21 per cent) of total GLS revenue.
Whilst all countries saw revenue growth, the strongest was seen in
Spain and Ireland, from a low base.
Developing/emerging European markets (includes Hungary,
Slovenia, Slovakia, Czech Republic, Romania, Poland and
Croatia)
Performance throughout the rest of Europe has been strong, with
a good increase in revenue from developing/emerging European
markets. The largest growth was in Croatia and Romania, from a low
base.
(1) Includes volumes from DPD SL (2014-15 45 million; 2013-14 44
million)
Financial review
Reported results (continuing operations)
Group revenue was flat at GBP9,328 million (2013-14 GBP9,357
million). Operating costs before transformation costs of GBP8,717
million (2013-14 GBP8,688 million) were broadly flat. Group
operating profit before transformation costs reduced to GBP611
million (2013-14 GBP669 million) and operating profit after
transformation costs increased to GBP466 million (2013-14 GBP428
million). Profit before tax reduced from GBP1,664 million to GBP400
million. Earnings per share reduced from 127.5 pence to 32.5
pence.
Presentation of results
The remaining commentary in this financial review, unless
otherwise indicated, focuses on the adjusted(1) results (including
discontinued operations) and on movements in revenue, costs,
profits and margins on an underlying basis(2) . This is consistent
with the way that financial performance is measured by Management
and reported to the Board and assists in providing a meaningful
analysis of the trading results of the Group. As indicated in our
financial report for the half year ended 28 September 2014, and as
outlined in note 1 to the consolidated financial statements 'Basis
of preparation', we have moved to presenting operating costs,
operating profit and earnings with the difference between the
income statement pension charge and the actual cash cost of
pensions treated as a specific item.
Group revenue
Adjusted Adjusted
52 weeks 52 weeks Underlying
(GBPm) 2015 2014 change(2)
============== ========== ========== ===========
Letters 4,567 4,625 (1%)
Parcels 3,190 3,162 1%
========== ========== ===========
UKPIL 7,757 7,787 Flat
GLS 1,653 1,651 7%
Other 14 18
============== ========== ========== ===========
Group 9,424 9,456 1%
============== ========== ========== ===========
Group revenue increased by one per cent, due to parcel revenue
growth in UKPIL and in GLS.
Parcel revenue accounted for 51 per cent of Group revenue
(2013-14 51 per cent). The factors impacting revenue in the year
are described in the sections entitled 'UK Parcels, International
& Letters (UKPIL)' and 'General Logistics Systems (GLS)'.
Group operating costs
Adjusted Adjusted
52 weeks 52 weeks Underlying
(GBPm) 2015 2014 change(2)
============================================= ========== ========== ===========
People costs (5,246) (5,224) 1%
============================================= ========== ========== ===========
Distribution and conveyance costs (1,836) (1,869) 1%
Infrastructure costs (1,023) (1,051) (3%)
Other operating costs (579) (583) (1%)
========== ========== ===========
Total non-people costs (3,438) (3,503) Flat
============================================= ========== ========== ===========
Operating costs before transformation costs (8,684) (8,727) 1%
Transformation costs (145) (241)
Operating costs after transformation costs (8,829) (8,968) 1%
============================================= ========== ========== ===========
Group operating costs before transformation costs were up one
per cent as lower UKPIL costs as a result of cost actions were
offset by increases in GLS, mainly due to higher volumes. The
factors impacting operating costs in the year are described in the
sections entitled 'UK Parcels, International & Letters (UKPIL)'
and 'General Logistics Systems (GLS)'.
Group operating profit and margins
Adjusted Adjusted
52 weeks 52 weeks
(GBPm) 2015 2014
==================================================== ========== ==========
UKPIL 615 608
GLS 115 108
Other 10 13
Group operating profit before transformation costs 740 729
==================================================== ========== ==========
Adjusted operating profit before transformation costs was GBP740
million, giving an operating profit margin before transformation
costs of 7.9 per cent, an increase of 40 basis points on an
underlying basis.
Reported operating profit before transformation costs adjusted
for foreign exchange movements (in line with our KPI measure) was
GBP620 million.
Transformation costs are described in the section entitled 'UK
Parcels, International & Letters (UKPIL)'
Adjusted Adjusted
52 weeks 52 weeks
(GBPm) 2015 2014
============================================= ========== ==========
UKPIL 470 367
GLS 115 108
Other 10 13
Group operating profit after transformation
costs 595 488
============================================= ========== ==========
Adjusted operating profit after transformation costs was GBP595
million, with UKPIL contributing 79 per cent (2013-14 75 per cent)
to the Group total. The operating profit margin after
transformation costs increased by 20 basis points on an underlying
basis to 6.3 per cent.
Specific items
52 weeks 52 weeks
(GBPm) 2015 2014
====================================================== ========= =========
Operating specific items:
Pension charge to cash difference (129) (58)
Royal Mail Pension Plan amendment (non-cash) - 1,350
Transaction-related costs - (28)
Employee Free Shares charge(3) (non-cash) (169) (94)
Impairment and legacy costs (79) (15)
====================================================== ========= =========
Total operating specific items (377) 1,155
Non-operating specific items: - -
Profit on disposal of property, plant and equipment 133 19
Profit on disposal of associate undertaking - 2
Net pension interest (non-cash) 75 69
====================================================== ========= =========
Total specific items (169) 1,245
====================================================== ========= =========
The GBP129 million difference between the income statement
pension charge (GBP552 million) and the actual cash paid out in
respect of pensions, including the Royal Mail Senior Executives
Pension Plan (RMSEPP) GBP10 million deficit payment (GBP423
million), is treated as an operating specific item. The increase in
the difference of GBP71 million has been driven by a decrease in AA
corporate bond yields. For 2015-16, given the continued fall in AA
corporate bond yields, the difference between the income statement
charge and the cash cost is expected to be around GBP255 million,
an increase of around GBP125 million over 2014-15, mainly due to an
increase in the IAS 19 pension service charge rate from 23.6 per
cent to 29.8 per cent.
Other operating specific items in the period included the charge
associated with the Employee Free Shares Offer of GBP169 million,
which was lower than the GBP180 million we anticipated due to an
adjustment for leavers in the year. The charge for 2015-16 is
expected to be around GBP150 million, dependent on the level and
mix of leavers. Impairment and legacy costs of GBP79 million
included a GBP24 million one-off impairment charge in respect of
certain IT assets, a GBP19 million movement in the provision for
potential industrial diseases claims driven by a reduction in the
discount rate, and GBP5 million of other costs, partially offset by
a GBP15 million reversal of historical employment costs. It also
includes the charge in respect of the anticipated fine on GLS
France in the ongoing investigation by the French Competition
Authority and associated costs. This has been reassessed at the
full year to be GBP46 million (comprised of GBP40 million for the
anticipated fine and GBP6 million associated costs) in light of
further correspondence with the French Competition Authority and
their approach in other recent cases. The actual level of the fine
to be imposed on GLS France will not be known until the second half
of 2015-16.
Non-operating specific items included property and asset
disposal gains of GBP133 million, of which GBP106 million is in
respect of profit on the sale of the Paddington site.
Net pension interest of GBP75 million is non-cash and is
calculated by applying the schemes' discount rate at the beginning
of the year to the net pension surplus. The net pension interest
for 2015-16, based on the discount rate and net pension surplus at
29 March 2015, is expected to be a credit of GBP107 million.
Net finance costs (excluding specific items)
Net finance costs of GBP26 million (2013-14 GBP67 million)
comprise finance costs of GBP30 million (2013-14 GBP71 million),
offset by finance income of GBP4 million (2013-14 GBP4 million).
The decrease in finance costs was largely due to the new loans and
borrowings (including the EUR500 million bond) being at lower rates
than the previous HM Government facilities.
Following the amendments to the syndicated bank facility in
March 2015, and taking into account the full year impact of the
Euro bond, the blended interest rate on gross debt (loans, bonds
and finance leases of GBP638 million as at 29 March 2015) for
2015-16 is expected to be approximately three per cent.
Taxation
Effective rate
The effective tax rate on reported Group profit before tax is 18
per cent (2013-14 23 per cent). The UK effective tax rate on
reported profit is 11 per cent (2013-14 22 per cent). This rate is
significantly lower than the UK corporation tax rate as a result of
reinvestment relief available to offset profit on UK property
disposals. GLS' effective tax rate on reported profit is 51 per
cent (2013-14 37 per cent) reflecting a range of tax rates across
different territories, some of which are higher than in the UK, and
losses (primarily in France) for which no deferred tax credit has
been recognised. The increase over the prior year is mainly due to
the charge in respect of the anticipated fine on GLS France in the
ongoing investigation by the French Competition Authority, for
which we anticipate no tax relief.
The effective tax rate on adjusted Group profits before tax is
24 per cent (2013-14 26 per cent). The rate has reduced broadly in
line with the reduction in the UK corporation tax rate.
Current
The reported UK current tax charge of GBP7 million (2013-14 GBP1
million) represents a tax rate on profit before tax of two per cent
(2013-14 nil per cent). Taxable profits in the UK are, as
anticipated, largely covered by a combination of losses and capital
allowance claims as well as the tax impacts of Employee Share
Schemes. Reported GLS current tax charge of GBP32 million (2013-14
GBP36 million) represents a tax rate of 46 per cent (2013-14 34 per
cent).
Deferred
The reported Group deferred tax charge was GBP33 million
(2013-14 GBP349 million). This arose mainly as a result of capital
allowance claims and utilisation of brought forward losses. In the
prior period the charge was primarily in relation to the Group's
pension position.
Earnings per share (EPS)
Adjusted EPS was 42.8 pence (reported 32.5 pence) on a basic and
diluted basis.
Summary free cash flow
52 weeks 52 weeks
(GBPm) 2015 2014
============================================================ ========= =========
Reported EBITDA before transformation costs 889 942
Pension charge to cash difference (operating specific
item) 129 58
============================================================ ========= =========
Adjusted EBITDA before transformation costs 1,018 1,000
Trading working capital movements 1 (57)
Total investment (658) (617)
Tax (37) (38)
Net finance costs paid (18) (33)
Other - SAYE share option scheme charge difference,
dividends from associate 5 2
============================================================ ========= =========
In-year trading cash flow 311 257
Other working capital movements 11 140
Operating specific items (8) (35)
Proceeds from disposal of property (excluding London
property portfolio), plant and equipment and associate
undertaking (non-operating specific item) 39 36
============================================================ ========= =========
Free cash flow (before net cash flows from London property
portfolio) 353 398
London property portfolio net cash flows (non-operating
specific item) 100 -
Free cash flow 453 398
============================================================ ========= =========
Free cash flow of GBP453 million was up GBP55 million. It
included GBP100 million net cash flows from the London property
portfolio (which are not reflected in the KPI measure). In-year
trading cash flow increased by GBP54 million to GBP311 million,
despite an increase in total cash investment, explained below.
Adjusted EBITDA before transformation costs of GBP1,018 million
increased due to the trading performance explained above. Trading
working capital movements were broadly flat.
Investment
52 weeks 52 weeks
(GBPm) 2015 2014
================================================== ========= =========
Growth capital expenditure (178) (201)
Replacement capital expenditure (252) (215)
Transformation operating expenditure (228) (201)
Total investment (658) (617)
================================================== ========= =========
Proceeds from disposal of property (excluding
London property portfolio), plant and equipment
and associate undertaking 39 36
================================================== ========= =========
Net investment (619) (581)
================================================== ========= =========
Total investment increased from GBP617 million to GBP658
million. Growth capital expenditure was mainly in relation to
parcels projects, especially IT to support barcoding, scanning and
tracking, and GLS. The main replacement capital expenditure
investments were in relation to vehicles, property and IT projects.
Transformation operating expenditure was predominantly in relation
to voluntary redundancies. Proceeds from the disposal of property
(excluding London property portfolio), plant and equipment were
GBP39 million giving a net investment of GBP619 million. Over
2013-14 and 2014-15 cumulative net cash investment was GBP1.2
billion as expected. Going forward cash investment, net of
operating asset disposals, is expected to be in the range
GBP550-600 million per annum.
Tax payments of GBP37 million are broadly in line with the
current income taxation charge of GBP39 million. Net finance costs
paid of GBP18 million reduced due to lower net debt and a lower
cost of debt in the year.
Other working capital movements
52 weeks 52 weeks
(GBPm) 2015 2014
=============================================== ========= =========
March 2015 payroll paid after balance sheet
date of 29 March 2015 46 -
Stamps used but purchased in previous periods
and other deferred revenue (35) (10)
Unwinding of pension prepayment made in March
2012 - 150
Total other working capital movements 11 140
=============================================== ========= =========
Other working capital movements resulted in an GBP11 million
inflow. There was a benefit of GBP46 million due to the timing of
payroll payments in respect of monthly paid staff, with the payment
for the March 2015 payroll occurring after 29 March 2015. This
timing benefit will not reverse until 2018-19, with 12 monthly
payroll payments in all years until then. This was offset by GBP35
million of stamps used in the year which had been purchased in
previous periods and other deferred revenue movements. In 2013-14,
the movements largely related to a one-off benefit of GBP150
million in respect of the March 2012 pension prepayment.
Net cash flows relating to the London property portfolio were
GBP100 million and largely relate to the sale of the Paddington
site in the year.
Net debt
Net debt decreased by GBP280 million to GBP275 million, mainly
due to free cash flow generated, offset by dividend payments of
GBP200 million.
In July 2014, Royal Mail issued EUR500 million 2.375% Senior
Fixed Rate Notes due July 2024 with a fixed annual interest coupon
of 2.375%. The majority of the proceeds were used to repay GBP350
million of the existing syndicated bank loans. This increased the
average maturity of the Group's drawn down loans and loan
facilities.
In March 2015, the Group took advantage of favourable market
conditions to negotiate amendments to its syndicated bank facility
to convert the remaining term loan into a revolving credit facility
for greater flexibility. This had the effect of reducing the
interest rates charged and extending the maturity date to March
2020 with the option to extend for a further two years. This
enabled the remaining GBP250 million of the existing syndicated
bank loans to be repaid on 9 March 2015, whilst maintaining the
same level of facilities. The increased flexibility to pay down
debt when not being utilised reduces future net interest cost.
Dividends
The Board is recommending a final dividend of 14.3 pence per
ordinary share, payable on 31 July 2015 to shareholders whose names
appear on the register of members on 3 July 2015, subject to
shareholder approval at the AGM on 23 July 2015. This gives a total
dividend for the year of 21.0 pence, an increase of five per cent
over the notional 2013-14 full year dividend of 20.0 pence.
Property
On 14 October 2014, the Company announced that contracts had
been exchanged for the sale of the former Paddington Mail Centre
site to Great Western Developments Limited for GBP111 million in
cash. Total net cash proceeds of the sale of GBP108 million were
received on completion on 8 December 2014 and a profit on disposal
of GBP106 million has been recorded as a non-operating specific
item. We continue to market the site at Nine Elms and to evaluate
our options in relation to the site at Mount Pleasant. These larger
sites will require further investment in order to optimise value,
which will be mainly met by the proceeds from the sale of the
Paddington site.
Pensions
The IAS 19 pension position at 29 March 2015 was a surplus of
GBP3,179 million, compared with a surplus of GBP2,068 million at 28
September 2014 and GBP1,723 million at 30 March 2014. The IAS 19
accounting position and key assumptions for the valuation are
provided in note 8.
The process for the triennial valuation of RMPP at 31 March 2015
has commenced and the outcome will be announced in due course. If
the assumptions used for the 2012 triennial valuation of RMPP and
RMSEPP are rolled forward to 31 March 2015, the combined actuarial
surplus would be GBP1,793 million, compared with GBP1,585 million
at 30 September 2014 and GBP1,422 million at 31 March 2014. It is
this basis that the Pension Trustees and the Company use to assess
the ongoing funding needs of these schemes. The increase in the
surplus was largely driven by the return on assets, in particular
due to the increase in the market value of gilts and derivative
assets that are principally held to hedge inflation and interest
rate risk. To support the Company's commitment that, subject to
certain conditions, the RMPP will remain open to defined benefit
accrual until at least March 2018, the Trustee has hedged a large
proportion of the interest and inflation exposure on this expected
future service benefit accrual. On an actuarial basis the amount of
the surplus relating to the liabilities hedged in advance of those
accrued as at March 2015, was approximately GBP700 million. This
element will unwind over time.
Under the 2012 triennial valuation of RMPP the Company agreed to
pay ongoing cash contributions of 17.1 per cent of pensionable pay
until 2018. At that time, this amounted to around GBP400 million
per annum, and reflected the creation of an actuarial surplus of
GBP1.6 billion as a result of the Pensions Reform in 2013. Without
this surplus the Company contributions required would have been
around GBP700 million per annum. Accordingly the surplus was
expected to decline over time. Since then, market conditions for
defined benefit schemes have worsened. However, the position of
RMPP has been protected to date by the hedging strategy explained
above such that we continue to expect that the RMPP actuarial
surplus will reduce to neither a material surplus nor deficit by
March 2018.
Underlying change
The financial review, unless otherwise indicated, focuses on the
adjusted results (including discontinued operations) and on
movements in revenue, costs, profits and margins on an underlying
basis. Underlying movements take into account differences in
working days in UKPIL and movements in foreign exchange in GLS. In
addition, adjustments are made for non-recurring or distorting
items, which by their nature may be unpredictable. For the full
year, we have made adjustments for the GBP28 million one-off bonus
paid to staff in the second half of 2013-14 and the movement in
provisions in respect of the management reorganisation programme
(MRP) of GBP110 million (GBP104 million provision in 2013-14 and a
GBP6 milllion release in 2014-15). For volumes, underlying
movements are adjusted for working days in UKPIL (2013-14 304.8;
2014-15 304), and exclude elections in letters volumes. Due to the
expected flow of traffic over holiday periods in 2015-16, we
estimate that the impact of working days in UKPIL will be around
GBP25 million (2015-16 303 working days). See table below for a
reconciliation for underlying movements.
Reconciliation for underlying movements
Adjusted
52 VAT One-off MRP Working Foreign Year-on-year
weeks credit bonus provision days exchange Underlying underlying
(GBPm) 2014 (UKPIL) (UKPIL) (UKPIL) (UKPIL) (GLS) comparator change
=================== ========= ======== ======== ========== ======== ========= =========== =============
Revenue
Group 9,456 - - - (20) (111) 9,325 1%
UKPIL 7,787 - - - (20) - 7,767 Flat
GLS 1,651 - - - - (111) 1,540 7%
=================== ========= ======== ======== ========== ======== ========= =========== =============
Costs
Group
People (5,224) (2) 28 - - 25 (5,173) 1%
=================== ========= ======== ======== ========== ======== ========= =========== =============
Distribution and
conveyance
costs (1,869) (13) - - - 68 (1,814) 1%
Infrastructure
costs (1,051) (12) - - - 7 (1,056) (3%)
Other operating
costs (583) (3) - - - 4 (582) (1%)
========= ======== ======== ========== ======== ========= =========== =============
Non-people costs (3,503) (28) - - - 79 (3,452) Flat
=================== ========= ======== ======== ========== ======== ========= =========== =============
Operating costs
before
transformation
costs (8,727) (30) 28 - - 104 (8,625) 1%
=================== ========= ======== ======== ========== ======== ========= =========== =============
UKPIL
People (4,760) (2) 28 - - - (4,734) 1%
=================== ========= ======== ======== ========== ======== ========= =========== =============
Distribution and
conveyance
costs (855) (13) - - - - (868) (5%)
Infrastructure
costs (946) (12) - - - - (958) (4%)
Other operating
costs (618) (3) - - - - (621) (1%)
========= ======== ======== ========== ======== ========= =========== =============
Non-people costs (2,419) (28) - - - - (2,447) (4%)
=================== ========= ======== ======== ========== ======== ========= =========== =============
Operating costs
before
transformation
costs (7,179) (30) 28 - - - (7,181) (1%)
=================== ========= ======== ======== ========== ======== ========= =========== =============
GLS
Operating costs (1,543) - - - - 104 (1,439) 7%
=================== ========= ======== ======== ========== ======== ========= =========== =============
Profit, margins
and
EPS
Group
Operating profit
before
transformation
costs 729 (30) 28 - (20) (7) 700 6%
Margin 7.7% 7.5% 40 bps
Transformation
costs (241) - - 110 - - (131)
Operating profit
after
transformation
costs 488 (30) 28 110 (20) (7) 569 5%
Margin 5.2% 6.1% 20 bps
Profit before tax 421 (30) 28 110 (20) (7) 502
Tax (110) (131)
Profit for the
period 311 371
Profit
attributable
to the Group 308 368
Earnings per share 30.8p 36.8p
=================== ========= ======== ======== ========== ======== ========= =========== =============
UKPIL
Operating profit
before
transformation
costs 608 (30) 28 - (20) - 586 5%
Margin 7.8% 7.5% 40 bps
Transformation
costs (241) - - 110 - - (131)
Operating profit
after
transformation
costs 367 (30) 28 110 (20) - 455 3%
Margin 4.7% 5.9% 20 bps
=================== ========= ======== ======== ========== ======== ========= =========== =============
GLS
Operating profit 108 - - - - (7) 101 14%
Margin 6.5% 6.5% 50 bps
=================== ========= ======== ======== ========== ======== ========= =========== =============
Events after the reporting period
On 31 March 2015, after the financial year end, GLS Germany
disposed of its wholly-owned subsidiary, DPD Systemlogistik GmbH
& Co. KG (DPD SL) to DPD GeoPost (Deutschland) GmbH. The
disposal resulted in a post-tax profit of around EUR40 million
(GBP29 million), which will be reflected as a specific item in the
Group's 2015-16 financial statements.
Matthew Lester
Chief Finance Officer
20 May 2015
(1) Adjusted results exclude specific items, including the
difference between the income statement pension charge and the
total cash cost of pensions, including deficit payments. The
figures include DPD Systemlogistik, a subsidiary of GLS Germany,
which was owned by the Group for the full reporting period, and
sold following the year end, and has been reclassified as
discontinued operations
(2) All movements are on an underlying basis unless otherwise
stated. Underlying change is calculated after adjusting for
movements in foreign exchange in GLS, working days in UKPIL and
other one-off items that distort the Group's underlying
performance. See reconciliation for underlying movements
(3) Includes GBP6 million (2013-14 GBP3 million) provision for
National Insurance, which will be cash settled
Business risks
The table below details the principal business risks, their
current status and how the Group mitigates these risks. The status
includes our assessment of whether the risk is increasing ( ),
decreasing ( ) or stable ( ). The alignment to strategy indicates
those aspects of the business strategy that would be impacted by
the risk, were it to materialise.
Principal risk Status How we are mitigating Alignment
the risk to
strategy
Changes in market conditions and customer behaviour
The letters and parcels
markets are increasingly
competitive, customers
continue to demand
more and our competitors
are responding quickly
to these changing
demands:
Customer behaviour A number of Being a
and Royal Mail's carriers * We use continuous in-depth market monitoring and successful
responsiveness to are expanding research to track how well we match our customers' parcels
market changes relative their needs, including relative to our competitors. business
to that of competitors operations.
Additional Managing
Changes in customer market * We have implemented a range of products and service the
behaviour, and changes capacity enhancements at pace. decline
to the markets in increases in letters
which the Group sells downward price
its products and pressure. * Further initiatives will provide service enhancements, Being
services, could impact including additional tracking capability and delivery customer
our forecasts for At the same solutions, and enhancing customers' online focused
letter and parcel time, experience.
volumes. customers
increasingly
There is a risk that demand * Our Mailmen campaign is promoting the value of
our product offerings faster, more marketing mail.
and customer experience flexible
may not adequately and responsive
meet evolving customer services,
needs, or that we with high
are unable to innovate reliability.
or adapt our commercial
and operational activities There is a
quickly enough to continuing
respond to changes requirement to
in the market. invest
in growth and
innovation
to meet these
challenges
in the market
place.
Economic environment Economic Being a
conditions * We have a robust modelling and forecasting framework successful
Historically there in the UK that uses a range of quantitative and qualitative parcels
has been a correlation improved approaches to provide early warnings of changes to business
between economic over the year. overall volumes and the profile of letter and parcel
conditions and the The volumes, and to assess the effect of our pricing Managing
level of parcel and recovery in structures. We continually review and upgrade these the
letter volumes. Flat Europe models. decline
or adverse economic remains in letters
conditions could fragile. Low
impact our ability growth or * We have taken short term actions, and are developing
to maintain and grow recession longer term responses to control costs.
revenue, by either in Europe
reducing volumes could impact
or encouraging customers our
to adopt cheaper international
service options for parcel
sending letters and volumes,
parcels. including
those handled
by GLS.
Business transformation
Royal Mail must continuously
become more efficient
and flexible in order
to compete effectively
in the letters and
parcels markets:
Efficiency We continue to Being a
make * We have agreed with the CWU a programme to enable successful
The success of our efficiency better alignment of resourcing and workload. parcels
strategy relies on improvements. business
the effective control Our
of costs and the productivity * Our Together for Growth programme, supported by a Managing
delivery of efficiency improvement joint mediation process, facilitates a collaborative the
benefits. is within our approach to improving efficiency at a local level. decline
target in letters
range.
However, Ofcom * A task force will address attendance issues, with a
has announced particular focus on long term employee absence.
a review
of what is a
reasonable * A cost-conscious regime is in place to understand
rate of cost drivers better and further develop and embed
efficiency cost-consciousness, and impose rigorous control over
improvement discretionary spend.
for Royal
Mail. It may
make
unfavourable
changes to the
regulatory
framework to
incentivise
further
efficiency.
Attracting and retaining Turnover in Being a
senior management senior * The Group's remuneration policy sets out that the successful
and key personnel and key overall remuneration package should be sufficiently parcels
personnel has competitive to attract, retain and motivate business
Our performance, been at normal executives with the commercial experience to run a
operating results levels large, complex business in a highly challenging Managing
and future growth for the context. the
depend on our ability business decline
to attract and retain during in letters
talent with the appropriate the year, but * We operate a succession planning process and have in
level of expertise. this place a talent identification and development Being
remains an programme. customer
inherent focused
business risk.
IT transformation The Being a
transformation * The IT transformation programme has a stretching successful
The scale and complexity programme will target completion date that will minimise the risk of parcels
of the IT transformation continue operating outdated legacy systems. business
programme and the to run at its
ongoing requirement peak Managing
for effective management throughout the * We have strengthened standard programme management the
of the transition next and governance disciplines to provide intensive focus decline
are sources of risk financial on key aspects of the programme, such as managing in letters
to its successful year, moving interdependencies with other programmes and
delivery. from one implementing the transition. Being
service customer
Failure to improve provider focused
our IT systems or to a * Our Internal Audit department provides independent
successfully implement diversified assurance about the programme delivery.
the IT transformation supplier
programme would increase model. This
the risk of: security impacts
breaches and attacks; all of our
a material adverse core systems.
effect on the Group's At the same
operations, and IT time, we
systems being unable have projects
to support the business running
plan. in parallel to
give
customers a
higher
standard of
service
using more
sophisticated
technology.
Regulatory and legislative environment
The business operates
in a regulated environment.
Changes in legal
and regulatory requirements
could impact our
ability to meet our
targets and goals:
Sustainability of During 2014, Managing
the Universal Service we made * We are engaging with stakeholders, including the
Obligation (USO) a submission politicians, economists and academics, about the decline
to Ofcom, threats to the financial sustainability of the in letters
In our liberalised requesting Universal Service. The Commons Business Innovation
postal market, other that it and Skills Committee has published a report calling
operators are able brought for Ofcom to take steps to ensure the Universal
to offer direct delivery forward a full Service can be protected.
services by cherry-picking review of the
easy-to-serve urban impact
areas, without having of direct * We have also submitted a detailed response to Ofcom's
to adhere to the delivery proposals under the Access Pricing Review, setting
same high delivery on the out our view that the proposals are disproportionate.
requirements and Universal
quality standards Service.
as Royal Mail. However, in
December
The combination of 2014, Ofcom
mandated access(1) decided
, uncertainty about that there
access price proposals were no
and the rollout of grounds for
direct delivery, regulatory
and structural decline intervention
in letters, poses at this
a serious risk to time. This may
the Group's future lead
ability to earn revenue to further
necessary to ensure direct
the sustainable provision delivery
of the USO. expansion in
the future.
Whistl, a
subsidiary
of PostNL, has
expanded
its direct
delivery
operation into
several
urban areas
across
the UK. On 11
May 2015,
Whistl
announced that
it had
commenced an
extensive
review of
the viability
and potential
for the
rollout of
an end-to-end
postal
delivery
service in
the UK. Its
current
end-to-end
service
is suspended
during
the review
process.
Ofcom also
announced
in December
2014 that
it would be
carrying
out a review
of the
regulatory
rules that
apply to Royal
Mail's
access prices
(Access
Pricing
Review).
Ofcom's
proposals
represent
a more
restrictive
regime that
would prevent
Royal Mail
from
responding
to
competition,
putting
the financial
sustainability
of the
Universal
Service
at risk.
We proposed
certain
changes to our
access
contracts in
January
2014. Some of
these
proposals are
the subject
of a
Competition
Act
investigation
by Ofcom.
They were
suspended,
never
implemented
and
have now been
withdrawn.
VAT status The judicial Managing
review * We will continue to support HMRC, as required, in the
Royal Mail is currently found that defending its implementation of VAT legislation in decline
exempt from Value HMRC has respect of access services. in letters
Added Tax (VAT) in correctly
a number of areas, implemented
in which this status VAT * We have established a direct link with the European
is under threat: legislation Commission and continue to lobby more widely in
and relation to both the Vouchers Directive and the VAT
* HMRC's implementation of VAT legislation on mandated the services status of postal services.
access services has been subject to a judicial should
review; remain exempt
from * We liaise with HM Treasury to seek to minimise the
VAT. However, impact of the proposed Vouchers Directive.
* The European Commission is reviewing VAT exemptions the plaintiff
more generally, and postal services fall within the in the case
scope of that review; has been
granted leave
to appeal
* The EU has published a proposal for a 'Vouchers the decision,
Directive'; as currently drafted, this would alter and we
the VAT treatment of postage stamps. may not have a
definitive
resolution
until 2016.
Although Royal Mail The European
could benefit from Commission
greater recoverability has published
of VAT on costs if details
the VAT exemption of responses
for USO and access to its
services was removed, consultation
the cost to customers about
who cannot reclaim the future of
VAT would be increased, VAT
making us less competitive. exemptions,
but has not
progressed
the matter
further.
There has been
no indication
of the likely
outcome
or timescale
of the
exercise.
The proposed
Vouchers
Directive
remains under
discussion in
Brussels.
Employment legislation The Employment Being a
Appeals * We are closely monitoring developments in the case successful
Changes to laws and Tribunal has law in this area and are in discussions with our parcels
regulations relating ruled recognised unions as to how to deal with this issue. business
to employment (including that, in We hope to take a collaborative approach once the
the interpretation excluding case law becomes clearer. Managing
and enforcement of regular the
those laws and regulations) overtime from decline
could, directly or holiday pay * Based on our estimates of the potential financial in letters
indirectly, increase calculations, impact, we believe that we have made sufficient
the Group's labour the Government provision for any historic liabilities that may
costs, which, given has arise.
the size of the Group's misinterpreted
workforce, could the
have an adverse effect Working Time
on the Group. Directive
since 1998.
Whilst this
decision
appears to
have
crystallised
the risk of
having
to include
overtime
in the
calculation
of holiday
pay, the
position is
still unclear
as to how to
calculate
the
appropriate
payments
and exactly
who should
receive such
payments.
The case law
is still
evolving in
this area.
Pension risk
The Group continues
to operate a defined
benefit pension scheme,
the Royal Mail Pension
Plan, open to accrual
for existing members.
Affordability of The first Being a
the Royal Mail Pension review of * The RMPP Trustee is continuing to hedge future successful
Plan our interest rate and inflation rate exposure, to reduce parcels
commitment, the risk that the Group's commitment to March 2018 business
The actuarial cost which cannot be met.
of providing an additional will be Managing
year's benefit was carried out the
around GBP700 million in conjunction * We are engaging with CWU and Unite/ CMA on the decline
based on the Plan's with emerging issues and potential courses of action. in letters
March 2012 actuarial the unions,
valuation. will be
completed by
In recognition of March
the surplus that 2018.
was created by Pensions
Reform in September A large
2013, the Group was proportion
able to maintain of the Plan's
its cash contribution future
at around GBP400 interest rate
million a year. and inflation
rate exposure
As part of Pensions has been
Reform, the Group hedged and we
committed, subject expect
to conditions, to there to be
keep the Plan open neither
without further amendment a material
until at least March surplus
2018. nor deficit at
March
Changes in financial 2018.
market conditions,
or demographic or However, gilt
other factors may yields
impact our continued have continued
ability to fund this to fall,
commitment. creating a
risk to
the
affordability
of
the Plan after
that
date.
In addition,
under
the 2012
actuarial
valuation the
Company
is required to
pay
additional
contributions
of up to GBP50
million
a year from
April 2016
if the Trustee
considers
these
necessary to
maintain the
Plan's
projected
funding
position
in March 2019.
This
requirement
will
be reviewed as
part
of the Plan's
March
2015 actuarial
valuation.
The valuation
process
has commenced,
and
the outcome
will be
announced in
due course.
Industrial relations
There is extensive
trade union recognition
in respect of our
workforce in the
UK:
Industrial action The current Being a
pay deal * We have agreed and implemented with the CWU a Joint successful
There is a risk that runs until Statement on Growth, Efficiency and Incentives, parcels
one or more material 2015-16 enabling collaborative improvements in operational business
disagreements or and is rooted efficiency.
disputes between in the Managing
the Group and its Agenda for the
trade unions could Growth * The Joint Statement is supported by our Together for decline
result in widespread agreement Growth training programme, an industrial relations in letters
localised or national developed and business skills package for managers and CWU
industrial action. jointly with representatives. Being
the CWU. The customer
Widespread localised agreement focused
or national industrial represents a * We have established a process that uses trained
action would cause fundamental mediators nominated by and representing both CWU and
material disruption change in our the business, for resolution of local disputes.
to our business in relationship
the UK and would with CWU, and
be likely to result promotes
in an immediate and stability in
potentially ongoing industrial
significant loss relations.
of revenue for the
Group. It may also However, the
cause Royal Mail increasingly
to fail to meet the competitive
Quality of Service environment
targets prescribed and the need
by Ofcom, leading for change
to enforcement action will challenge
and fines. Royal
Mail and its
trade
unions to find
effective
solutions
without
recourse
to industrial
action.
(1) Royal Mail is obligated to provide access to its inward mail
centres by our Regulator, Ofcom. This means that competitors to
Royal Mail can collect and sort mail posted by businesses and hand
it to Royal Mail for final mile delivery
Consolidated financial statements
Statement of Directors' responsibilities in respect
of the Group financial statements
---------------------------------------------------
Consolidated income statement(1)
===================================================
Consolidated statement of comprehensive income(1)
===================================================
Consolidated statement of cash flows(1)
===================================================
Consolidated balance sheet(2)
===================================================
Consolidated statement of changes in equity(1)
===================================================
Notes to the consolidated financial statements
===================================================
1. Basis of preparation
===================================================
2. Segment information
===================================================
3. Transformation costs
===================================================
4. Specific items
===================================================
5. Net finance costs and net debt
===================================================
6. Taxation
===================================================
7. Free cash flow
===================================================
8. Employee benefits - pensions
===================================================
9. Earnings per share
===================================================
10. Share-based payment
===================================================
11. Dividends
===================================================
12. Assets and liabilities held for sale
===================================================
13. Related party information
===================================================
14. Events after the reporting period
===================================================
Shareholder information
===================================================
Forward-looking statements
===================================================
(1) For the 52 weeks ended 29 March 2015 and 52 weeks ended 30
March 2014
(2) At 29 March 2015 and 30 March 2014
Statement of Directors' responsibilities in respect of the Group
financial statements
The responsibility statements below have been prepared in
connection with the Company's full Annual Report and Financial
Statements 2014-15. Certain parts thereof are not included in this
announcement.
Statement of Directors' responsibilities in relation to the
consolidated financial statements
Each of the Directors, whose names and functions are listed in
the Annual Report and Financial Statements 2014-15, confirms that,
to the best of each person's knowledge and belief:
-- the Annual Report and Financial Statements, taken as a whole,
is fair, balanced and understandable and that it provides the
information necessary for shareholders to assess the Group's and
the Company's performance, business model and strategy;
-- the financial statements, prepared in accordance with IFRS as
adopted by the European Union, give a true and fair view of the
assets, liabilities, financial position and profit of the Group;
and
-- the Strategic Report and the Directors' Report contained in
the Annual Report include a fair review of the development and
performance of the business and the position of the Group, together
with a description of the principal risks and uncertainties that
they face.
Statement of Directors' responsibilities in relation to the
Company's financial statements
Each of the Directors, whose names and functions are listed in
the Annual Report and Financial Statements 2014-15, confirms that,
to the best of each person's knowledge and belief:
-- the 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 Strategic Report and the Directors' Report contained in
the Annual Report include a fair review of the development and
performance of the business and the position of the Company,
together with a description of the principal risks and
uncertainties that they face.
By order of the Board
Moya Greene Matthew Lester
Chief Executive Officer Chief Finance Officer
20 May 2015
Consolidated income statement
For the 52 weeks ended 29 March 2015 and 52 weeks ended 30 March
2014
52 weeks 2015 52 weeks 2014
=================================== ===================================
Specific Specific
Reported(1) items(2) Adjusted(2) Reported(1) items(2) Adjusted(2)
Notes GBPm GBPm GBPm GBPm GBPm GBPm
================================== ====== =========== ========= =========== =========== ========= ===========
Continuing operations
Revenue* 2 9,328 - 9,328 9,357 - 9,357
Operating costs (8,717) (129) (8,588) (8,688) (58) (8,630)
================================== ====== =========== ========= =========== =========== ========= ===========
People costs 4 (5,359) (129) (5,230) (5,267) (58) (5,209)
Distribution and conveyance
costs (1,764) - (1,764) (1,796) - (1,796)
Infrastructure costs (1,019) - (1,019) (1,047) - (1,047)
Other operating costs (575) - (575) (578) - (578)
================================== ====== =========== ========= =========== =========== ========= ===========
Operating profit before
transformation
costs 611 (129) 740 669 (58) 727
Transformation costs 3 (145) - (145) (241) - (241)
================================== ====== =========== ========= =========== =========== ========= ===========
Operating profit after
transformation
costs 466 (129) 595 428 (58) 486
Operating specific items:
Royal Mail Pension Plan
amendment 4 - - - 1,350 1,350 -
Transaction-related costs 4 - - - (28) (28) -
Employee Free Shares charge 4 (169) (169) - (94) (94) -
Impairment and legacy costs 4 (79) (79) - (15) (15) -
================================== ====== =========== ========= =========== =========== ========= ===========
Operating profit 218 (377) 595 1,641 1,155 486
Non-operating specific items:
Profit on disposal of property,
plant and equipment 4 133 133 - 19 19 -
Profit on disposal of associate
undertaking 4 - - - 2 2 -
================================== ====== =========== ========= =========== =========== ========= ===========
Earnings before interest and
tax 351 (244) 595 1,662 1,176 486
Finance costs 5 (30) - (30) (71) - (71)
Finance income 5 4 - 4 4 - 4
Net pension interest
(non-operating
specific item) 4/8(c) 75 75 - 69 69 -
================================== ====== =========== ========= =========== =========== ========= ===========
Profit before tax 400 (169) 569 1,664 1,245 419
Tax (charge)/credit 6 (72) 66 (138) (386) (276) (110)
================================== ====== =========== ========= =========== =========== ========= ===========
Profit for the period from
continuing
operations 328 (103) 431 1,278 969 309
Discontinued operations:
Profit after tax for the period
from discontinued operations 12 - - - 2 - 2
================================== ====== =========== ========= =========== =========== ========= ===========
Profit for the period 328 (103) 431 1,280 969 311
================================== ====== =========== ========= =========== =========== ========= ===========
Profit for the period attributable
to:
Equity holders of the parent
Company 325 (103) 428 1,277 969 308
Non-controlling interests 3 - 3 3 - 3
================================== ====== =========== ========= =========== =========== ========= ===========
Earnings per share:
Basic and diluted - continuing
operations 9 32.5p (10.3)p 42.8p 127.5p 96.9p 30.6p
Basic and diluted - total Group 9 32.5p (10.3)p 42.8p 127.7p 96.9p 30.8p
================================== ====== =========== ========= =========== =========== ========= ===========
Total Group revenue* 9,424 - 9,424 9,456 - 9,456
================================== ====== =========== ========= =========== =========== ========= ===========
Continuing operations 9,328 - 9,328 9,357 - 9,357
Discontinued operations 96 - 96 99 - 99
================================== ====== =========== ========= =========== =========== ========= ===========
(1) Reported - prepared in accordance with International
Financial Reporting Standards (IFRS)
(2) Specific items and Adjusted - non-GAAP measures explained in
the Financial review and in note 1 to these financial
statements
Consolidated statement of comprehensive income
For the 52 weeks ended 29 March 2015 and 52 weeks ended 30 March
2014
Reported Reported
52 weeks 52 weeks
2015 2014
Notes GBPm GBPm
============================================================ ===== ========= =========
Profit for the period 328 1,280
Other comprehensive income/(expense) for the period
from continuing operations:
Items that will not be subsequently reclassified to
profit or loss:
Amounts relating to pensions accounting 1,211 (344)
============================================================ ===== ========= =========
IFRIC 14 adjustment relating to pension surplus 8 (2) (8)
Actuarial gains/(losses) on defined benefit schemes 8(c) 1,512 (453)
Tax on above items(1) 6 (299) 117
============================================================ ===== ========= =========
Items that may be subsequently reclassified to profit
or loss:
Foreign exchange translation differences (47) (12)
============================================================ ===== ========= =========
Exchange differences on translation of foreign operations
(GLS)(2) (74) (12)
Net gain on hedge of a net investment (EUR500 million
bond - 2.375% Senior Fixed Rate Notes due July 2024) 27 -
============================================================ ===== ========= =========
Designated cash flow hedges (21) (19)
============================================================ ===== ========= =========
Losses on cash flow hedges deferred into equity (53) (24)
Losses on cash flow hedges released from equity to
income 27 4
Tax on above items 6 5 1
============================================================ ===== ========= =========
Total other comprehensive income for the period 1,143 (375)
============================================================ ===== ========= =========
Total comprehensive income for the period 1,471 905
============================================================ ===== ========= =========
Total comprehensive income for the period attributable
to:
Equity holders of the parent Company 1,468 902
Non-controlling interests 3 3
============================================================ ===== ========= =========
(1) Includes GBP4 million (2013-14 GBPnil million) in relation
to Royal Mail Senior Executives Pension Plan (RMSEPP) deficit
payments
(2) Includes GBP3 million (2013-14 GBPnil million) in relation
to net deferred tax liabilities (note 6)
Consolidated statement of cash flows
For the 52 weeks ended 29 March 2015 and 52 weeks ended 30 March
2014
Reported Reported
52 weeks 52 weeks
2015 2014
Notes GBPm GBPm
=============================================================== ===== ========= =========
Cash flow from operating activities:
Operating profit before transformation costs 611 669
Adjustment for:
Depreciation and amortisation 279 274
Share of post-tax profit from associate (1) (3)
=============================================================== ===== ========= =========
EBITDA before transformation costs 889 940
Working capital movements 12 83
=============================================================== ===== ========= =========
Decrease in inventories 1 2
(Increase)/decrease in receivables (52) 81
Increase in payables 72 19
Net increase in derivative assets (8) (2)
Decrease in provisions (non-specific items) (1) (17)
=============================================================== ===== ========= =========
Pension charge to cash difference (operating specific
item) 129 58
Share-based awards (SAYE and LTIP) charge to cash difference 5 -
Cash cost of transformation operating expenditure(1) (228) (201)
Cash cost of operating specific items (8) (35)
=============================================================== ===== ========= =========
Cash inflow from operations 799 845
Income tax paid (37) (38)
=============================================================== ===== ========= =========
Net cash inflow from operating activities 762 807
=============================================================== ===== ========= =========
Cash flows from investing activities:
Dividends received from associate undertaking - 2
Finance income received 4 4
Proceeds from disposal of property (excluding London
property portfolio), plant and equipment (non-operating
specific item) 39 33
London property portfolio disposals (non-operating
specific item) 100 -
=============================================================== ===== ========= =========
Disposal proceeds 111 -
Related cash costs (11) -
=============================================================== ===== ========= =========
Proceeds from disposal of associate undertaking (non-operating
specific item) - 3
Net cash inflow from discontinued operations - 2
Purchase of property, plant and equipment(1) (267) (341)
Acquisition of business(1) (7) (2)
Purchase of intangible assets (software)(1) (153) (69)
Payment of deferred consideration in respect of prior
years' acquisitions(1) (3) (4)
Net purchase of financial asset investments (current) (55) -
=============================================================== ===== ========= =========
Net cash outflow from investing activities (342) (372)
=============================================================== ===== ========= =========
Net cash inflow before financing activities 420 435
=============================================================== ===== ========= =========
Cash flows from financing activities:
Finance costs paid on refinancing of loan facilities - (45)
Other finance costs paid (22) (37)
Payment of capital element of obligations under finance
lease contracts (75) (73)
Cash received on sale and leasebacks 13 109
New loans 393 600
Repayment of loans and borrowings (600) (973)
Dividends paid to equity holders 11 (200) -
Dividend paid to non-controlling interests (1) -
=============================================================== ===== ========= =========
Net cash outflow from financing activities (492) (419)
=============================================================== ===== ========= =========
Net (decrease)/increase in cash and cash equivalents (72) 16
Effect of foreign currency exchange rates on cash and
cash equivalents (7) (1)
Cash and cash equivalents at the beginning of the period 366 351
=============================================================== ===== ========= =========
Cash and cash equivalents at the end of the period 287 366
=============================================================== ===== ========= =========
(1) Items included in total investment - note 7
Consolidated balance sheet
At 29 March 2015 and 30 March 2014
Reported Reported
at 29 at 30
March March
2015 2014
Notes GBPm GBPm
====================================================== ===== ======== ========
Non-current assets
Property, plant and equipment 1,933 1,989
Leasehold land payment 2 3
Goodwill (mainly investment in GLS) 182 197
Intangible assets (mainly software) 300 195
Investment in associate 5 4
Financial assets - pension escrow investments 5 20 20
- derivatives 2 3
Retirement benefit asset - net of IFRIC 14 adjustment 8 3,179 1,723
Other receivables 11 13
Deferred tax assets 6 8 9
====================================================== ===== ======== ========
5,642 4,156
Assets held for sale 12 32 3
====================================================== ===== ======== ========
Current assets
Inventories 20 22
Trade and other receivables 949 926
Financial assets - derivatives 5 2
- short-term deposits 5 56 1
Cash and cash equivalents 5 287 366
====================================================== ===== ======== ========
1,317 1,317
====================================================== ===== ======== ========
Total assets 6,991 5,476
====================================================== ===== ======== ========
Current liabilities
Trade and other payables (1,668) (1,652)
Financial liabilities - obligations under finance
leases 5 (93) (87)
- derivatives (34) (12)
Income tax payable (14) (14)
Provisions (149) (173)
====================================================== ===== ======== ========
(1,958) (1,938)
Non-current liabilities
Financial liabilities - interest bearing loans and
borrowings 5 (366) (600)
- obligations under finance leases 5 (179) (255)
- derivatives (14) (5)
Provisions (104) (95)
Other payables (40) (31)
Deferred tax liabilities 6 (474) (151)
====================================================== ===== ======== ========
(1,177) (1,137)
Liabilities associated with assets held for sale 12 (10) -
====================================================== ===== ======== ========
Total liabilities (3,145) (3,075)
====================================================== ===== ======== ========
Net assets 3,846 2,401
====================================================== ===== ======== ========
Equity
Share capital 10 10
Retained earnings 3,843 2,332
Other reserves (16) 52
====================================================== ===== ======== ========
Equity attributable to parent Company 3,837 2,394
Non-controlling interests 9 7
====================================================== ===== ======== ========
Total equity 3,846 2,401
====================================================== ===== ======== ========
The financial statements were approved and authorised for issue
by the Board of Directors on 20 May 2015 and were signed on its
behalf by:
Moya Greene Matthew Lester
Chief Executive Officer Chief Finance Officer
Consolidated statement of changes in equity
For the 52 weeks ended 29 March 2015 and 52 weeks ended 30 March
2014
Equity
Foreign holders
Share Retained currency Hedging of Non-controlling Total
capital earnings translationreserve reserve the parent interests Equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=========================== ======== ========= =================== ======== =========== =============== =======
Reported at 31 March 2013 - 1,318 73 10 1,401 4 1,405
=========================== ======== ========= =================== ======== =========== =============== =======
Profit for the period - 1,277 - - 1,277 3 1,280
Other comprehensive expense
for the period - (344) (12) (19) (375) - (375)
Share capital issue 10 (10) - - - - -
Employee Free Shares
issue(1)
(note 10) - 91 - - 91 - 91
=========================== ======== ========= =================== ======== =========== =============== =======
Reported at 30 March 2014 10 2,332 61 (9) 2,394 7 2,401
=========================== ======== ========= =================== ======== =========== =============== =======
Profit for the period - 325 - - 325 3 328
Other comprehensive
income/(expense)
for the period - 1,211 (47) (21) 1,143 - 1,143
Release of Post Office
Limited
separation provision - 7 - - 7 - 7
Dividend paid to equity
holders
of the parent (note 11) - (200) - - (200) - (200)
Dividend paid to
non-controlling
interests - - - - - (1) (1)
Share-based payments (note
10):
- Employee Free Shares
issue(1) - 163 - - 163 - 163
- Save As You Earn (SAYE)
scheme - 1 - - 1 - 1
- Long-Term Incentive Plan
(LTIP)(2) - 4 - - 4 - 4
=========================== ======== ========= =================== ======== =========== =============== =======
Reported at 29 March 2015 10 3,843 14 (30) 3,837 9 3,846
=========================== ======== ========= =================== ======== =========== =============== =======
(1) Excludes GBP6 million (2013-14 GBP3 million) National
Insurance, charged to the income statement, included in provisions
on the balance sheet
(2) Excludes GBP1 million (2013-14 GBPnil million) National
Insurance, charged to the income statement, included in provisions
on the balance sheet
Notes to the consolidated financial statements
1. Basis of preparation
General information
Royal Mail plc (the Company) is incorporated in the United
Kingdom (UK) and the consolidated financial statements are produced
in accordance with the Companies Act 2006 and applicable
International Financial Reporting Standards (IFRS) as adopted by
the European Union. The UK is the Company's country of
domicile.
The Company was listed on the London Stock Exchange on 15
October 2013.
The consolidated financial statements of the Company for the 52
weeks ended 29 March 2015 (2013-14 52 weeks ended 30 March 2014)
comprise the Company and its subsidiaries (together referred to as
the 'Group') and the Group's interest in its associate
undertaking.
The consolidated financial statements for the 52 weeks ended 29
March 2015 were authorised for issue by the Board on 20 May
2015.
Basis of preparation
(a) The Directors consider that the Group has adequate resources
to continue in operational existence for the foreseeable future and
that it is therefore appropriate to adopt the going concern basis
in preparing its financial statements.
(b) The consolidated financial statements of the Group have been
prepared in accordance with IFRS as adopted for use in the European
Union (EU). These consolidated financial statements have been
prepared in accordance with the accounting policies followed in the
preparation of the Group's annual consolidated financial statements
for the year ended 29 March 2015.
The financial information set out in this document does not
constitute the Group's statutory accounts for the year ended 29
March 2015 or 30 March 2014. The Financial report for the full year
ended 29 March 2015 was approved by the Board of Directors on 20
May 2015. Statutory accounts for the year ended 29 March 2015 have
not yet been delivered to the Registrar of Companies. The auditor's
report on the statutory accounts for the year ended 29 March 2015
was unqualified and did not contain a statement under section 498
(2) or (3) of the Companies Act 2006. Statutory accounts for the
year ended 30 March 2014 have been delivered to the Registrar of
Companies. The auditor's report on the statutory accounts for the
year ended 30 March 2014 was unqualified and did not contain a
statement under section 498 (2) or (3) of the Companies Act
2006.
The Annual Report and Financial Statements 2014-15, together
with details of the Annual General Meeting (AGM), will be
despatched to shareholders before the AGM. The AGM will take place
on 23 July 2015.
Reported performance
The consolidated financial statements have been prepared in
accordance with IFRS as adopted by the EU and as issued by the
International Accounting Standards Board (IASB) (i.e. on a
'reported' basis).
Non-GAAP measures of performance
In the reporting of financial information, the Group uses
certain measures that are not defined under IFRS, the Generally
Accepted Accounting Principles (GAAP), under which the Group
reports. The Directors believe that these non-GAAP measures assist
with the understanding of the performance of the business.
These non-GAAP measures are not a substitute, or superior to,
any IFRS measures of performance but they have been included as
Management considers them to be an important means of comparing
performance year-on-year and they include key measures used within
the business for assessing performance.
Transformation costs
These costs relate to the ongoing transformation of the
business, and include voluntary redundancy, project costs and other
transformation-related payments.
Reported operating profit before transformation costs
This is the operating profit including the 'pension charge to
cash difference' operating specific item (see below for definition)
and before transformation costs. This is a key performance
indicator in the Corporate Balanced Scorecard which is used to
determine employee incentives.
Reported operating profit after transformation costs
This is the operating profit including the 'pension charge to
cash difference' operating specific item and after transformation
costs.
Operating specific items
These are recurring or non-recurring items of income or expense
of a particular size and/or nature relating to the operations of
the business that in Management's opinion require separate
identification. These items are included within 'reported' results
but are excluded from 'adjusted' results.
These items include: the recurring 'pension charge to cash
difference' (resulting from the increasing difference between the
Group's income statement pension charge and the actual cash cost of
pensions, including deficit payments); and other items that have
resulted from events that are non-recurring in nature, even though
related income/expense can be recognised in subsequent periods.
These items currently include the cost of Employee Free Shares, and
impairment and legacy costs (for example, movements in the
industrial diseases provision).
Non-operating specific items
These are recurring or non-recurring items of income or expense
of a particular size and/or nature which do not form part of the
Group's trading activity and in Management's opinion require
separate identification. These items include profit on disposal of
property, plant and equipment and business and the IAS 19 non-cash
pension interest credit/charge.
Adjusted operating profit before transformation costs
This is operating profit excluding the 'pension charge to cash
difference' operating specific item and before transformation
costs.
Adjusted operating profit margin before transformation costs
This is operating profit excluding the 'pension charge to cash
difference' operating specific item and before transformation
costs, expressed as a percentage of revenue.
Adjusted operating profit after transformation costs
This is operating profit excluding the 'pension charge to cash
difference' operating specific item and after transformation
costs.
Adjusted operating profit margin after transformation costs
This is operating profit excluding the 'pension charge to cash
difference' operating specific item and after transformation costs,
expressed as a percentage of revenue.
Adjusted earnings per share
Basic earnings per share, excluding operating and non-operating
specific items.
Free cash flow
Free cash flow is based on statutory (reported) net cash flow
before financing activities, adjusted to include finance costs paid
and exclude net cash generated from the purchase/sale of financial
asset investments.
Net debt
Net debt is calculated by netting the value of financial
liabilities (excluding derivatives) against cash and other liquid
assets.
Underlying change
Management focuses on movements in volume, revenue, costs,
profits and margins on an 'underlying' basis. Underlying movements
take into account differences in working days in UKPIL and
movements in foreign exchange in GLS. In addition, adjustments are
made for non-recurring or distorting items, which by their nature
may be unpredictable. These adjustments are made to the prior year
'adjusted' figures to derive 'underlying change'. A schedule of the
adjustments to the 2013-14 'adjusted' results to derive 'underlying
change' is shown in the Financial review.
Key sources of estimation uncertainty and critical accounting
judgements
The preparation of consolidated financial statements necessarily
requires Management to make estimates and assumptions that can have
a significant impact on the financial statements. These estimates
and judgements are continually evaluated and are based on
historical experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances. The areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates are
significant to the consolidated financial statements are disclosed
below.
Pensions
The value of defined benefit pension plan liabilities and
assessment of pension plan costs are determined by long-term
actuarial assumptions. These assumptions include discount rates
(which are based on the long-term yield of high-quality corporate
bonds), inflation rates and mortality rates. Differences arising
from actual experience or future changes in assumptions will be
reflected in the Group's consolidated statement of comprehensive
income. The Group exercises its judgement in determining the
assumptions to be adopted, after discussion with a qualified
actuary. Details of the key actuarial assumptions used and of the
sensitivity of these assumptions are included within note 8.
Deferred revenue
The Group recognises advance customer payments on its balance
sheet, relating to stamps and meter credits purchased by customers
but not yet used at the balance sheet date. The valuation of this
deferred revenue is based on a number of different estimation and
sampling methods using external specialist resource as
appropriate.
The majority of this balance is made up of stamps sold to the
general public. For sales to the general public, estimates of stamp
volumes held are made on the basis of monthly surveys performed by
an independent third party. In order to avoid over-estimation of
the typical number of stamps held, Management apply a cap to the
results to exclude what are considered to be abnormal stamp
holdings from the estimate.
The level at which holdings are capped is judgemental and is
currently set at 99 of each stamp type per household. The impact of
applying alternative capping values on the year end public stamp
deferred revenue balance is shown in the table below.
Capped Uncapped
=====================
As reported
At 29 March 2015 30 99 300
=================================== === =========== === ========
Public stamp holdings value (GBPm) 165 198 223 227
=================================== === =========== === ========
The value of stamps and meter credits held by retail and
business customers are more directly estimated through the analysis
of sales volumes and monthly meter sampling. Further adjustments
are also made for each type of sale to take into account volume
purchasing of stamps when price changes are announced.
The results of the above procedures are reviewed by Management
in order to make a judgement of the carrying amount of the accrual.
The total accrual is held within current trade and other payables
but a portion (which cannot be measured) will relate to stamps and
meter credits used one year or more after the balance sheet
date.
Deferred tax
Assessment of the deferred tax asset requires an estimation of
future profitability. Such estimation is inherently uncertain in a
market subject to various competitive pressures. Should estimates
of future profitability change in future years, the amount of
deferred tax recognised will also change accordingly. Prior to
recording deferred tax assets for tax losses, relevant tax law is
considered to determine the availability of the losses to offset
against the future taxable profits. The carrying values of the
deferred tax assets and liabilities are included within note 6.
Provisions
Due to the nature of provisions, a significant part of their
determination is based upon estimates and/or judgements concerning
the future. Of the provisions in place the transformation and
industrial diseases claims provisions are considered to be the
areas where the application of judgement has the most significant
impact.
Transformation provisions, including for redundancy and property
costs, are derived based upon the most recent business plan for
direct expenditure where plans are sufficiently detailed and
appropriate communication to those affected has been undertaken.
These plans include the expected number of employees impacted,
expected rate of compensation per employee, expected period of
properties remaining vacant and their rental costs as well as
expected dilapidation costs.
The industrial diseases claims provision arose as a result of a
Court of Appeals judgement in 2010 and relates to individuals who
were employed in the General Post Office Telecommunications
division prior to October 1981. The provision requires estimates to
be made of the likely volume and cost of future claims and is based
on the best information available as at the year end, which
incorporates independent expert actuarial advice.
2. Segment information
Business unit Main statutory entities
=================================== =====================================
UK Parcels, International & Letters Royal Mail Group Limited
(UKPIL) Royal Mail Estates Limited
UK operations Royal Mail Investments Limited
=================================== =====================================
General Logistics Systems (GLS) GLS Germany GmbH & Co. OHG
Other European operations GLS Italy S.p.A.
GLS France S.A.S.
=================================== =====================================
Other Romec Limited (51 per cent owned
UK operations subsidiary) - facilities management
NDC 2000 Limited (51 per cent owned
subsidiary) - design services
Quadrant Catering Ltd (51 per cent
owned associate) - catering services
=================================== =====================================
The Group is structured on a geographic business unit basis and
these business units report into the Chief Executive's Committee
and the Royal Mail plc Board. Each of these units has discrete
revenue, costs, profit, cash flows, assets and people. Therefore,
full and complete financial information is prepared and reviewed on
a regular basis and compared with both historical and
budget/forecast information as part of the performance management
process.
The key measure of segment performance is operating profit
before transformation costs (used internally for the corporate
balanced scorecard). A reconciliation of the Group's earnings
before interest and tax (EBIT) by segment is also disclosed.
The majority of inter-segment revenue relates to the provision
of facilities management and catering services to UKPIL. Trading
between UKPIL and GLS is not material.
Transfer prices between the segments are set on a basis of
charges reached through commercial negotiation with the respective
business units that form each of the segments.
Reported 52 weeks 2015
Other
European
UK operations operations
======================= ===========
UKPIL Other Total GLS Total
Continuing operations GBPm GBPm GBPm GBPm GBPm
======================================== ======== ====== ===== =========== =====
External revenue 7,757 14 7,771 1,557 9,328
Inter-segment revenue - 152 152 - 152
======================================== ======== ====== ===== =========== =====
Total segment revenue 7,757 166 7,923 1,557 9,480
======================================== ======== ====== ===== =========== =====
Operating profit before transformation
costs 486(1) 10 496 115 611
Transformation costs (145) - (145) - (145)
======================================== ======== ====== ===== =========== =====
Operating profit after transformation
costs 341 10 351 115 466
Operating specific items:
Employee Free Shares charge (169) - (169) - (169)
Impairment and legacy costs (33) - (33) (46) (79)
======================================== ======== ====== ===== =========== =====
Operating profit 139 10 149 69 218
Non-operating specific items:
Profit on disposal of property, plant
and equipment 133 - 133 - 133
======================================== ======== ====== ===== =========== =====
Earnings before interest and tax 272 10 282 69 351
not reported
Net finance costs at this level (27) 1 (26)
================
Net pension interest (non-operating
specific item) 75 - 75
======================================== ======== ====== ===== =========== =====
Profit before tax 330 70 400
Tax - specific items 66 - 66
- other (102) (36) (138)
========================================
Profit for the period from continuing
operations 294 34 328
======================================== ======== ====== ===== =========== =====
(1) Includes GBP129 million pension charge to cash difference -
operating specific item (note 4)
Reported 52 weeks 2014
Other
European
UK operations operations
======================== ===========
UKPIL Other Total GLS Total
Continuing operations GBPm GBPm GBPm GBPm GBPm
============================================== ======= ======= ====== =========== ======
External revenue 7,787 18 7,805 1,552 9,357
Inter-segment revenue - 176 176 - 176
============================================== ======= ======= ====== =========== ======
Total segment revenue 7,787 194 7,981 1,552 9,533
============================================== ======= ======= ====== =========== ======
Operating profit before transformation
costs 550(2) 13 563 106 669
Transformation costs (241) - (241) - (241)
============================================== ======= ======= ====== =========== ======
Operating profit after transformation
costs 309 13 322 106 428
Operating specific items:
Royal Mail Pension Plan amendment 1,350 - 1,350 - 1,350
Transaction-related costs (24) - (24) (4) (28)
Employee Free Shares charge (94) - (94) - (94)
Impairment and legacy costs (15) - (15) - (15)
============================================== ======= ======= ====== =========== ======
Operating profit 1,526 13 1,539 102 1,641
Non-operating specific items:
Profit on disposal of property, plant
and equipment 19 - 19 - 19
Profit on disposal of associate undertaking 2 - 2 - 2
============================================== ======= ======= ====== =========== ======
Earnings before interest and tax 1,547 13 1,560 102 1,662
not reported
Net finance costs at this level (70) 3 (67)
================
Net pension interest (non-operating
specific item) 69 - 69
============================================== ======= ======= ====== =========== ======
Profit before tax 1,559 105 1,664
Tax - specific items (276) - (276)
- other (69) (41) (110)
============================================== ====== =========== ======
Profit for the period from continuing
operations 1,214 64 1,278
============================================== ======= ======= ====== =========== ======
(2) Includes GBP58 million pension charge to cash difference -
operating specific item (note 4)
The following amounts are included within operating profit
before transformation costs:
Reported 52 weeks 2015
Other
European
UK operations operations
=================== ===========
UKPIL Other Total GLS Total
GBPm GBPm GBPm GBPm GBPm
========================================== ===== ===== ===== =========== =====
Depreciation (211) (1) (212) (30) (242)
Amortisation of intangible assets (mainly
software) (31) - (31) (6) (37)
Share of post-tax profit from associate - 1 1 - 1
========================================== ===== ===== ===== =========== =====
Reported 52 weeks 2014
Other
European
UK operations operations
==================== ===========
UKPIL Other Total GLS Total
GBPm GBPm GBPm GBPm GBPm
========================================== ====== ===== ===== =========== =====
Depreciation (212) - (212) (29) (241)
Amortisation of intangible assets (mainly
software) (29) - (29) (4) (33)
Share of post-tax profit from associate - 3 3 - 3
========================================== ====== ===== ===== =========== =====
3. Transformation costs
Reported Reported
52 weeks 52 week
2015 2014
GBPm GBPm
================================================================ =========
Voluntary redundancy - ongoing (87) (14)
Voluntary redundancy - management reorganisation programme 6 (102)
Project costs (including GBP2 million management reorganisation
programme costs in 2014) (55) (108)
Business transformation payments (9) (17)
================================================================ ========= ========
Total transformation costs (145) (241)
================================================================ ========= ========
Business transformation payments represent payments linked to
the achievement of key milestones in transforming the network, as
part of the Business Transformation Agreement 2010.
4. Specific items
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
====================================================== ========= =========
Operating specific items:
Pension charge to cash difference (129) (58)
Royal Mail Pension Plan amendment - 1,350
Transaction-related costs - (28)
Employee Free Shares charge (169) (94)
Impairment and legacy costs (79) (15)
====================================================== ========= =========
Potential industrial diseases claims (19) 7
Historical employment costs 15 (15)
Impairment (24) -
French Competition Authority investigation costs (46) -
Other (5) (7)
====================================================== ========= =========
Total operating specific items (377) 1,155
====================================================== ========= =========
Non-operating specific items:
Profit on disposal of property, plant and equipment 133 19
Profit on disposal of associate undertaking - 2
Net pension interest 75 69
====================================================== ========= =========
Total non-operating specific items 208 90
====================================================== ========= =========
Total specific items before tax (169) 1,245
====================================================== ========= =========
The impairment of GBP24 million relates to certain IT assets
which did not fully meet the requirements of the business.
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
========================================== ========= =========
Tax effect of above items(1) 55 (288)
Tax specific items 11 12
========================================== ========= =========
Adjustments in respect of prior periods 9 -
Impact of change in tax rate(2) 2 12
========================================== ========= =========
Total 66 (276)
========================================== ========= =========
(1) No tax charge has been recognised on property disposals
included in specific items, as no tax liability would be expected
to crystallise on the grounds that, were the assets (into which the
gains have been rolled) to be sold at their residual values, no
capital gain would arise
(2) A tax credit was recognised for the remeasurement of certain
deferred tax balances as a result of the change in UK statutory
corporation tax rates
The tax credit on specific items of GBP66 million (2013-14
GBP276 million charge) reflects the tax effect of specific items,
including the tax impact of property transactions and certain
tax-only adjustments such as the impact of changes in tax law and
amounts over or under provided in previous years in respect of
specific items.
5. Net finance costs and net debt
Reported Reported
52 weeks 52 weeks
2015 2014
Net finance costs GBPm GBPm
======================================================== ========= =========
Unwinding of discount relating to industrial diseases
claims provision (2) (3)
Interest payable on financial liabilities (28) (68)
======================================================== ========= =========
HM Government facilities:
Loans and borrowings - (47)
Unused facility fees - (2)
Other facility fees - (3)
Syndicated bank loan facility:
Loans and borrowings (7) (3)
Unused facility fees (2) (1)
Arrangement fees(1) (4) (2)
EUR500 million bond - 2.375% Senior Fixed Rate Notes
due July 2024 (6) -
Finance leases (7) (10)
Losses realised on interest rate swap contracts(2) (2) -
======================================================== ========= =========
Finance costs (30) (71)
======================================================== ========= =========
Interest receivable on financial assets 4 4
======================================================== ========= =========
Finance income 4 4
======================================================== ========= =========
Net finance costs (26) (67)
======================================================== ========= =========
(1) Arrangement fees include GBP2 million (2013-14 GBPnil
million) written-off upon repayment of GBP350 million of the term
loans following the bond issue
(2) The interest rate swap contracts were closed out early upon
repayment of the remaining term loan on 9 March 2015
Net debt
Reported Reported
at 29 at 30
March March
2015 2014
Balance sheet category GBPm GBPm
======================================= ======================== ======== ========
Obligations under finance leases Current liabilities (93) (87)
Interest-bearing loans and borrowings Non-current liabilities (366) (600)
Obligations under finance leases Non-current liabilities (179) (255)
======================================= ======================== ======== ========
(638) (942)
Cash and cash equivalents 287 366
================================================================= ======== ========
Cash at bank and in hand Current assets 127 37
Client cash(3) Current assets 20 14
Cash equivalent investments(4) Current assets 140 315
======================================= ======================== ======== ========
Financial assets - short term deposits
(bank and local authority deposits) Current assets 56 1
Pension escrow investments (RMSEPP) Non-current assets 20 20
======================================= ======================== ======== ========
Total net debt (275) (555)
================================================================= ======== ========
(3) Client cash is cash collected from consignees by GLS on
behalf of its posting customers
(4) Cash equivalent investments include short-term bank and
local authority deposits, money market fund investments and other
financial assets
Net debt decreased by GBP280 million during the year ended 29
March 2015 and by GBP351 million during the year ended 30 March
2014 as shown below.
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
============================================================== ========= =========
Net debt brought forward (555) (906)
Free cash flow 453 398
Dividends paid to equity holders of the parent Company (200) -
Dividend paid to non-controlling interests (1) -
Finance costs paid on refinancing of loan facilities - (45)
Decrease/(increase) in finance lease obligations (non-cash) 8 (1)
Foreign currency exchange impact on cash and cash equivalents (7) (1)
Foreign currency exchange rate impact on EUR500 million
bond 27 -
============================================================== ========= =========
Net debt carried forward at 29 March 2015 and 30 March
2014 (275) (555)
============================================================== ========= =========
Below is a summary of loans and borrowings at the year end, the
respective average interest rates, and facilities available.
Average
Average maturity Average
interest Basis of date maturity
rate interest of date
Further of loan rate chargeable loan of
Loans committed Total drawn at 29 March drawn loan
and facility facility down 2015 down facility
borrowingsGBPm GBPm GBPm % % Year Year
=========================== ===============
Syndicated bank loan LIBOR plus
facilities - 1,050 1,050 n/a 0.55% n/a 2020
EUR500 million bond -
2.375% Fixed at
Senior Fixed Rate Notes 366 - 366 2.5 2.5% 2024 2024
=========================== =============== ========== ========= ========= ================ ========= =========
Total 366 1,050 1,416 2.5 2024 2021
=========================== =============== ========== ========= ========= ================ ========= =========
The bond, issued in July 2014, is shown net of issue discount
and fees and at a closing spot rate of GBP0.737/EUR. The effective
interest rate on the bond (2.5 per cent) consists of the interest
coupon of 2.375 per cent plus the unwinding of the discount and
fees on issuing the bond (0.08 per cent). The GBP300 million Term
Loan B and GBP50 million of Term Loan A were repaid on 15 August
2014 through proceeds raised from the bond issue. The bond is
designated as a hedge of the net investment in GLS, which has the
Euro as its functional currency. During the year, a gain of GBP27
million on the retranslation of this borrowing was transferred to
other comprehensive income which offsets the losses on translation
of the net investment in GLS. There is no hedge ineffectiveness in
the period ended 29 March 2015.
In March 2015, the Group took advantage of favourable market
conditions to negotiate amendments to the syndicated bank loan
facility to allow: conversion of the remaining term loan into a
revolving credit facility; a reduction to the interest rates
charged; and to extend the maturity date (to March 2020 with the
option to extend for a further two years). This increased
flexibility allowed the remaining GBP250 million of the existing
syndicated bank loans to be repaid on 9 March 2015 whilst
maintaining the same level of facilities.
The syndicated bank loan facility can be cancelled and any loans
drawn under the facility can become repayable immediately on the
occurrence of an event of default under the loan agreements. These
events of default include non-payment, insolvency and breach of
covenant relating to interest (excluding arrangement fees),
adjusted net debt and EBITDA. It is not anticipated that the Group
is at risk of breaching any of these obligations.
The covenants require the Group to maintain the (leverage) ratio
of adjusted net debt to EBITDA below 3:1 and EBITDA to interest
(excluding arrangement fees) above 3.5:1. Adjusted net debt
consists of net debt plus Letters of Credit (contingent liabilities
in respect of the UKPIL insurance programme, where the possibility
of an outflow of economic benefits is considered remote(5) ) and
adjusted for exchange rate movements during the year. The Group's
leverage ratio at 29 March 2015 is 0.4:1 (2013-14 0.7:1). The
Group's ratio of EBITDA to interest (excluding arrangement fees) at
29 March 2015 is 40.4:1 (2013-14 31.4:1). As a result, the Group is
well within its covenant agreement at 29 March 2015.
The interest rate chargeable on the syndicated bank loan
facility would increase if more than one third of the facility was
drawn and would increase if the Group's leverage ratio exceeded
1:1. Under the loan agreement, the maximum interest rate chargeable
would be LIBOR plus 1.45 per cent. The EUR500 million bond becomes
repayable immediately on the occurrence of an event of default
under the bond agreement. These events of default include
non-payment and insolvency. The blended interest rate on gross debt
for the period to 27 March 2016 is forecast to be approximately
three per cent.
(5) The lease arrangement for automation equipment, which
required Royal Mail to arrange for the provision of Letters of
Credit (2013-14 GBP37 million), was terminated during the year and
the Letters of Credit were cancelled, undrawn
6. Taxation
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
============================================================== ========= =========
Tax (charged)/credited in the income statement
Current income tax:
Current UK income tax charge (13) (1)
Foreign tax (32) (34)
============================================================== ========= =========
Current income tax charge (45) (35)
Amounts over/(under) provided in earlier years 6 (2)
============================================================== ========= =========
Total current income tax charge (39) (37)
Deferred income tax:
Effect of change in tax rates 2 12
Relating to origination and reversal of temporary differences (36) (368)
Amounts over provided in previous years 1 7
============================================================== ========= =========
Total deferred income tax charge (33) (349)
============================================================== ========= =========
Tax charge in the consolidated income statement (72) (386)
============================================================== ========= =========
Tax on non-GAAP, specific items:
Tax credit/(charge) relating to specific items 66 (276)
============================================================== ========= =========
Tax (charged)/credited to other comprehensive income
Deferred tax:
Actuarial (gains)/losses on defined benefit pension schemes (303) 117
Tax relief on pension payments 4 -
Net gains on revaluation of cash flow hedges 5 1
============================================================== ========= =========
Total (charge)/credit in the consolidated statement of
other comprehensive income (294) 118
============================================================== ========= =========
Reconciliation of the total tax charge
A reconciliation of the tax charge in the income statement and
the UK rate of corporation tax applied to accounting profit for the
52 weeks ended 29 March 2015 and 52 weeks ended 30 March 2014 is
shown below.
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
========================================================== ========= =========
Profit before tax 400 1,664
========================================================== ========= =========
At UK standard rate of corporation tax of 21% (2013-14
23%) (84) (383)
Effect of higher taxes on overseas earnings (6) (2)
Tax over provided in prior years 7 5
Non-deductible expenses (19) (10)
Associate's profit after tax charge included in Group
pre-tax profit 1 1
Tax effect of property disposals 29 -
Net increase in tax charge resulting from non-recognition
of deferred tax assets and liabilities (2) (9)
Effect of change in tax rates 2 12
========================================================== ========= =========
Tax charge in the income statement (72) (386)
========================================================== ========= =========
Current tax
Substantially all of the current tax charge for the Group is in
respect of GLS. UK taxable profits in 2014-15 are almost fully
covered by a combination of brought forward losses, capital
allowance claims and a further statutory deduction in respect of
shares awarded to employees under the 2014 Employee Free Shares
scheme. Accordingly, the current tax rate for the Group is 10 per
cent.
Effective tax rate
The effective tax rate on reported profit is 18 per cent,
comprising current tax due on reported profits and deferred tax in
relation to temporary differences. This rate is below the UK
statutory rate, principally because no tax charge has been
recognised in relation to property disposals, as no tax liability
would be expected to crystallise on the grounds that were the
assets (into which gains have been rolled) to be sold at their
residual values, no capital gain would arise.
GLS pays tax in a number of territories, with the majority of
its profits in the period to 29 March 2015 earned in territories
where the tax rate is above the UK statutory tax rate. Certain
subsidiaries, notably GLS France, remain unable to recognise tax
credits on losses made during the reporting period. These factors
contribute to GLS having a higher effective tax rate for the period
than the UK statutory rate.
Deferred tax
(Debited)/ (Debited)/
(Debited)/ credited (Debited)/ credited
credited to Reported credited to Reported
At 31 to other at 29 At 1 to other at 30
March income comprehensive March April income comprehensive March
Deferred tax by balance 2014 statement income 2015 2013 statement income 2014
sheet category GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======================== ====== ========== ============== ======== ====== ========== ============== ==========
Liabilities
Accelerated capital
allowances (1) - - (1) - (1) - (1)
Pensions temporary
differences (339) 13 (303) (629) (222) (234) 117 (339)
Employee share schemes (65) 17 - (48) - (65) - (65)
Goodwill qualifying
for tax allowances (28) (4) 3(1) (29) (23) (5) - (28)
======================== ====== ========== ============== ======== ====== ========== ============== ==========
Deferred tax liabilities (433) 26 (300) (707) (245) (305) 117 (433)
======================== ====== ========== ============== ======== ====== ========== ============== ==========
Assets
Deferred capital
allowances 169 (42) - 127 245 (76) - 169
Provisions and other 30 (5) - 25 37 (7) - 30
Losses available for
offset against future
taxable income 90 (12) 4 82 51 39 - 90
Hedging derivatives
temporary differences 2 - 5 7 1 - 1 2
======================== ====== ========== ============== ======== ====== ========== ============== ==========
Deferred tax assets 291 (59) 9 241 334 (44) 1 291
======================== ====== ========== ============== ======== ====== ========== ============== ==========
Net deferred tax
(liability)/asset (142) (33) (291) (466) 89 (349) 118 (142)
======================== ====== ========== ============== ======== ====== ========== ============== ==========
(1) GBP3m (2013-14 GBPnil million) credited to the foreign
currency translation reserve
Reported Reported
at 29 at 30
March March
2015 2014
Deferred tax - balance sheet presentation GBPm GBPm
========================================== ======== ========
Liabilities
GLS group (31) (30)
Net UK position (443) (121)
========================================== ======== ========
Deferred tax liabilities (474) (151)
========================================== ======== ========
Assets
GLS group 8 9
Net UK position - -
========================================== ======== ========
Deferred tax assets 8 9
========================================== ======== ========
Net deferred tax liability (466) (142)
========================================== ======== ========
The reported deferred tax position shows an increased overall
liability in the reporting period to 29 March 2015.
This increase in the reported liability is primarily as a result
of the deferred tax impact of the increase in UK pension assets as
described in note 8, which has been reflected in other
comprehensive income.
GLS has deferred tax assets and liabilities in various
jurisdictions which cannot be offset against one another. The main
balance relates to goodwill and intangibles liabilities in GLS
Germany, for which the Group has already taken tax deductions.
At 29 March 2015, the Group had unrecognised deferred tax assets
of GBP68 million (2013-14 GBP68 million) comprising GBP61 million
(2013-14 GBP63 million) relating to tax losses of GBP227 million
(2013-14 GBP238 million), mainly in GLS, that are available for
offset against future profits if generated in the relevant
companies and GBP7 million (2013-14 GBP5 million) in relation to
GBP33 million (2013-14 GBP23 million) of UK capital losses carried
forward. The Group has not recognised these deferred tax assets on
the basis that it is not sufficiently certain of its capacity to
utilise them in the future.
The Group also has temporary differences in respect of GBP295
million (2013-14 GBP307 million) of capital losses, the tax effect
of which is GBP59 million (2013-14 GBP61 million) in respect of
assets previously qualifying for industrial buildings allowances.
Further temporary differences exist in relation to GBP308 million
(2013-14 GBP214 million) of gains for which rollover relief has
been claimed, the tax effect of which is GBP62 million (2013-14
GBP43 million). No tax liability would be expected to crystallise
on the basis that, were the assets (into which the gains have been
rolled) to be sold at their residual values, no capital gain would
arise.
7. Free cash flow
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
=============================================================== ========= =========
EBITDA before transformation costs (see consolidated statement
of cash flows) 889 940
Pension charge to cash difference (operating specific item) 129 58
=============================================================== ========= =========
Total Group ongoing pension costs in the income statement 552 479
Total Group cash flows relating to ongoing pension costs:
RMPP defined benefit scheme employer contributions (note
8(d)) (369) (380)
Defined contribution scheme employer contributions (44) (31)
RMSEPP deficit correction payments (note 8(d)) (10) (10)
=============================================================== ========= =========
Trading working capital movements 1 (57)
Share-based awards (SAYE and LTIP) charge to cash difference 5 -
Dividend received from associate undertaking - 2
Net cash inflow from discontinued operations - 2
Total investment(1) (658) (617)
=============================================================== ========= =========
Growth capital expenditure (178) (201)
Replacement capital expenditure (252) (215)
Transformation operating expenditure (228) (201)
=============================================================== ========= =========
Income tax paid (37) (38)
Net finance costs paid (18) (33)
In-year trading cash inflow 311 257
Other working capital movements 11 140
Cash cost of operating specific items (8) (35)
Proceeds from disposal of property (excluding London property
portfolio), plant and equipment (non-operating specific
item) 39 33
Proceeds from disposal of associate undertaking (non-operating
specific item) - 3
London property portfolio disposals (non-operating specific
item) 100 -
=============================================================== ========= =========
Disposal proceeds 111 -
Related cash costs (11) -
=============================================================== ========= =========
Free cash inflow 453 398
=============================================================== ========= =========
(1) Total investment is represented by several different line
items in the consolidated statement of cash flows
Working capital movements
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
======================================================= ========= =========
Other working capital movements:
March 2015 payroll paid after balance sheet date of 29
March 2015 46 -
Stamps used but purchased in previous periods/deferred
revenue (35) (10)
Unwinding of pension prepayment made in March 2012 - 150
======================================================= ========= =========
Total other working capital movements 11 140
Trading working capital movements 1 (57)
======================================================= ========= =========
Total working capital movements 12 83
======================================================= ========= =========
Free cash flow reconciliation
The following analysis provides a reconciliation of 'net cash
inflow before financing activities' in the consolidated statement
of cash flows and free cash inflow.
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
========================================================== ========= =========
Net cash inflow before financing activities 420 435
Net purchase of financial asset investments (non-current) 55 -
Other finance costs paid (22) (37)
========================================================== ========= =========
Free cash inflow 453 398
========================================================== ========= =========
8. Employee benefits - pensions
Summary pension information
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
============================================================== ========= =========
Ongoing pension costs:
UK defined benefit scheme (income statement rates(1) 23.6%,
20.3%) (508) (448)
UK defined contribution scheme (38) (25)
============================================================== ========= =========
Total UK ongoing pension costs (546) (473)
Total GLS defined contribution type scheme costs (6) (6)
============================================================== ========= =========
Total Group ongoing pension costs (552) (479)
============================================================== ========= =========
Difference between ongoing income statement charge and
cash flows (cash flow rates 17.1% for both years) (2) 139 68
============================================================== ========= =========
Total Group pension cash flows relating to ongoing pension
costs (413) (411)
============================================================== ========= =========
Reported Reported
at 29 at 30
March March
2015 2014
'000 '000
======================================== ======== ========
UK pension schemes - active membership:
UK defined benefit scheme 100 106
UK defined contribution scheme 39 36
======================================== ======== ========
Total 139 142
======================================== ======== ========
(1) This service cost is charged to the income statement. It
represents the cost (as a percentage of pensionable payroll) of the
increase over the year in the defined benefit obligation due to
members earning one more year of pension benefits. It is calculated
in accordance with IAS 19 and is based on market yields (high
quality corporate bonds and inflation) at the beginning of the
Company's reporting year
(2) This difference excludes the Royal Mail Senior Executives
Pension Plan (RMSEPP) deficit correction payments of GBP10 million
(2013-14 GBP10 million). The employer contribution cash flow rate
forms part of the payroll expense and is paid into the Royal Mail
Pension Plan (RMPP) (RM section). The contribution rate is set
following each actuarial funding valuation, usually every three
years. These actuarial valuations are required to be carried out on
assumptions determined by the Trustee and agreed by Royal Mail
UK Defined Contribution Scheme
The Group operates the Royal Mail Defined Contribution Plan,
which was launched in April 2009 and is open to employees who
joined the Company from 31 March 2008 following closure of the
Royal Mail Pension Plan (RMPP) to new members.
Ongoing UK defined contribution scheme costs have increased from
GBP25 million in 2013-14 to GBP38 million mainly due to an increase
in the average employer's contribution rate from 3.8 per cent in
2013-14 to 5.4 per cent.
UK Defined Benefit Schemes
Royal Mail Group Limited had one of the largest defined benefit
pension schemes in the UK (based on membership and assets), called
the RMPP. On 1 April 2012 (one week into the 2012-13 reporting
year) - after the granting of State Aid approval by the European
Commission to HM Government on 21 March 2012 - almost all of the
historic pension liabilities and pension assets of RMPP, built up
until 31 March 2012, were transferred to a new HM Government
pension scheme, the Royal Mail Statutory Pension Scheme
(RMSPS).
On this date, RMPP was also sectionalised, with Royal Mail Group
Limited and Post Office Limited each responsible for their own
sections from 1 April 2012 onwards.
The transfer left the Royal Mail section (RM section) of the
RMPP fully funded on an actuarial basis. This means that, using
long-term actuarial assumptions agreed at that date, it was
predicted the Company would have to make no further cash deficit
correction payments relating to the historic liabilities. All
further references in this note to the RMPP, relate to its RM
section.
Royal Mail Pension Plan (RMPP)
The RMPP is funded by the payment of contributions to separate
trustee administered funds. 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 on or after 1 December 1971 and before 1 April 1987 or for
members of Section A who chose to receive Section B benefits;
and
Section C is for members (or beneficiaries of members) who
joined on or after 1 April 1987 and before 1 April 2008. Benefits
provided are based on career salary blocks for years' service,
revalued annually.
Following conclusion of the March 2012 actuarial valuation, the
regular future service contribution rate for RMPP, expressed as a
percentage of pensionable pay, remained at 17.1 per cent. As the
valuation showed the Plan to be in surplus no deficit correction
payments are currently being made by the Company. The Group expects
to contribute around GBP369 million to the RMPP in respect of
normal cash service costs in 2015-16.
Royal Mail Senior Executives Pension Plan (RMSEPP)
The Group also contributes to a smaller defined benefit scheme
for executives, RMSEPP - which closed in December 2012 to future
accrual. The Company therefore makes no regular future service
contributions. As agreed in the March 2012 actuarial valuation the
Company makes deficit correction payments of GBP10 million per
annum until at least the date on which the 2018 valuation is
completed (no later than 30 September 2018). Deficit correction
payments in 2014-15 were GBP10 million (2013-14 GBP10 million).
A liability of GBP2 million (2013-14 GBP1 million) has been
recognised for future payment of pension benefits to a past
Director.
Pensions Reform
In June 2013, the Company began a consultation with RMPP members
on a proposal to ensure the RMPP could remain open to future
accrual, subject to certain conditions, at least until the
conclusion of the next periodic review in March 2018. Subsequently,
on 26 September 2013, the Company agreed with the RMPP Trustee to
implement a Pensions Reform with effect from 1 April 2014.
The agreed changes due to the Pensions Reform were considered to
be a 'Plan amendment' which met the IAS 19 definition of a past
service cost, and as such GBP1,350 million was recognised in the
income statement of the Group for the comparative year ended 30
March 2014.
Accounting and actuarial surplus position (RMPP and RMSEPP)
Accounting (IAS Actuarial/cash
19) funding
============================================= ================== ==================
Reported Reported Reported Reported
at 29 at 30 at 31 at 31
March March March March
2015 2014 2015 2014
GBPm GBPm GBPm GBPm
============================================= ======== ======== ======== ========
Fair value of schemes' assets (8(b) below) 6,619 3,833 6,462 3,873
Present value of schemes' liabilities (3,425) (2,097) (4,669) (2,451)
============================================= ======== ======== ======== ========
Surplus in schemes (pre IFRIC 14 adjustment) 3,194 1,736 1,793 1,422
IFRIC 14 adjustment (15) (13) n/a n/a
============================================= ======== ======== ======== ========
Surplus in schemes 3,179 1,723 1,793 1,422
============================================= ======== ======== ======== ========
There is no element of the present value of the schemes'
liabilities above that arises from schemes that are wholly
unfunded. The actuarial liabilities calculated for the Annual
Report and Financial Statements are required within shorter
timescales, which can lead to differences in approximations and
assumptions compared to the scheme actuary's funding updates.
The surplus in RMSEPP is assumed to be available as a refund as
per IFRIC 14 and, as such, is shown net of taxation withheld.
The surplus in RMPP is assumed to be recoverable as a reduction
to future employer contributions. Therefore, no IFRIC 14 adjustment
is required. The Directors do not believe that the current excess
of pension scheme assets over the liabilities on an accounting
basis will result in an excess of pension assets on a funding
basis. However, the Directors are required to account for the
pension scheme based on their legal right to benefit from a
surplus, using long-term actuarial assumptions current at the
reporting date, as required by IFRS.
The actuarial/cash funding surplus of GBP1,793 million at 31
March 2015 (31 March 2014 surplus of GBP1,422 million) allows the
RMPP to remain open for the benefit of the members at least until
March 2018, subject to certain conditions (as part of the Pensions
Reform agreement), without requiring either the Company or
individuals to make unaffordable increases to their cash
contributions.
The funding liabilities have increased more than the accounting
liabilities since they are calculated by reference to gilt yields
which have fallen to a greater extent than corporate bond yields on
which the accounting liabilities are calculated. As a result, the
funding surplus has increased less than the accounting surplus.
The following disclosures relate to the major assumptions,
sensitivities, surplus and gains/losses in the RMPP and RMSEPP
defined benefit schemes.
a) Major long-term assumptions used for accounting (IAS 19)
purposes - RMPP and RMSEPP
The major assumptions used to calculate the accounting position
of the pension schemes were as follows:
Reported Reported
at 29 March at 30 March
2015 2014
======================================================== ============ ============
Retail Price Index (RPI) 3.1% 3.4%
Consumer Price Index (CPI) 2.1% 2.4%
Discount rate
- nominal 3.5% 4.5%
- real (nominal less RPI)(3) 0.4% 1.1%
Rate of increase in pensionable salaries(4) RPI-0.1% RPI-0.1%
Rate of increase for deferred pensions CPI CPI
Rate of pension increases - RMPP Sections A/B CPI CPI
Rate of pension increases - RMPP Section C(4) RPI-0.1% RPI-0.1%
Rate of pension increases - RMSEPP members transferred
from Section A or B of RMPP CPI CPI
Rate of pension increases - RMSEPP all other members(4) RPI-0.1% RPI-0.1%
Life expectancy from age 60 - for a current 40/60 year
old male RMPP member 29/27 years 29/27 years
Life expectancy from age 60 - for a current 40/60 year
old female RMPP member 32/30 years 32/30 years
======================================================== ============ ============
(3) The real discount rate used reflects the long average
duration of the RMPP scheme of around 30 years
(4) The rate of increase in salaries, and the rate of pension
increase for Section C members (who joined RMPP on or after April
1987) and RMSEPP 'all other members', is capped at five per cent
which results in the average long-term pension increase assumption
being 10 basis points lower than the RPI long-term assumption
Mortality
The mortality assumptions for RMPP are based on the latest Self
Administered Pension Scheme (SAPS) S1 mortality tables with
appropriate scaling factors (106 per cent for male pensioners and
101 per cent for female pensioners). Future improvements are based
on the CMI 2012 core projections with a long-term trend of 1.25 per
cent per annum.
Sensitivity analysis for RMPP liabilities
The RMPP liabilities are sensitive to changes in key
assumptions. The potential impact of the largest sensitivities on
the RMPP liabilities is as follows:
Potential
Increase
in
liabilities
Key assumption change GBPm
============================================================= ============
Additional one year of life expectancy 95
Increase in inflation rate (both RPI and CPI simultaneously)
of 0.1% p.a. 90
Decrease in discount rate of 0.1% p.a. 90
Increase in CPI assumption (assuming RPI remains constant)
of 0.1% p.a. 25
============================================================= ============
This sensitivity analysis has been determined based on a method
that assesses the impact on the defined benefit obligation,
resulting from reasonable changes in key assumptions occurring at
the end of the reporting year. Changes opposite to those in the
table (e.g. an increase in discount rate) would have the opposite
effect on liabilities.
The average duration of the RMPP obligation is 30 years (2013-14
28 years).
b) Schemes' assets - RMPP and RMSEPP
Reported at 29 March Reported at 30
2015 March 2014
======================== =========================
Quoted Unquoted Total Quoted Unquoted Total
GBPm GBPm GBPm GBPm GBPm GBPm
========================== ======= ======== ===== ======= ======== ======
Equities
UK 22 165 187 28 82 110
Overseas 411 - 411 321 - 321
Bonds
Fixed interest - UK 60 8 68 101 8 109
- Overseas 525 - 525 371 - 371
Index linked - UK 195 - 195 156 - 156
- Overseas - - - - - -
Pooled investments
Managed funds 576 - 576 303 - 303
Unit Trusts 4,166 - 4,166 1,864 - 1,864
Property (UK) 23 295 318 20 230 250
Cash and cash equivalents 175 - 175 345 - 345
Other 25 - 25 5 - 5
Derivatives (27) - (27) (1) - (1)
========================== ======= ======== ===== ======= ======== ======
Total schemes' assets 6,151 468 6,619 3,513 320 3,833
========================== ======= ======== ===== ======= ======== ======
There were no open equity derivatives within this portfolio at
29 March 2015 (at 30 March 2014 GBPnil million). Included within
the pension assets are GBP3.7 billion (2013-14 GBP2.0 billion) of
HM Government Bonds. The schemes' assets do not include property
occupied by the Group, the Group's own shares, or assets used by
the Group.
Risk exposure and investment strategy
The investment strategy of the RMPP Trustee aims to safeguard
the assets of the Plan and to provide, together with contributions,
the financial resource from which benefits are paid. Investment is
inevitably exposed to risks. The investment risks inherent in the
investment markets are partially mitigated by pursuing a widely
diversified approach across asset classes and investment managers.
The RMPP uses derivatives (such as swaps and futures) to reduce
risks whilst maintaining expected investment returns. The RMPP
Trustee recognises that there is a natural conflict between
improving the potential for positive return and limiting the
potential for poor return. The RMPP Trustee has specified
objectives for the investment policy that balance these
requirements.
The largest risks faced by the Plan are movements in interest
rates and inflation rates. To reduce the risk of movements in these
rates driving the Plan into a funding deficit, and the Company not
being able to maintain its March 2018 commitment, the Trustee aims
to hedge in advance the funding liabilities which will build up by
March 2018. The liabilities projected to accrue to March 2017 have
already been hedged - predominantly through investment in gilts and
derivatives (interest rate and inflation rate swaps) held in Unit
Trust pooled investments providing economic exposure to gilts. The
impact of the Plan's advance hedging of projected funding
liabilities is to increase volatility in the pension surplus due to
the return on the liability hedging assets not being matched by an
increase in the accrued liabilities. As the accrued liabilities get
closer to the projected liabilities that have been hedged, this
volatility will reduce. The increase in the liability hedged assets
is predominantly reflected in the Unit Trust values above which
have increased from GBP1,864 million at 30 March 2014 to GBP4,166
million at 29 March 2015.
The notional value covered by the interest rate swaps (full
exposure to the relevant asset class incurred by entering into a
derivative contract) held in a specific managed portfolio for this
purpose at 29 March 2015 is GBP2.5 billion (at 30 March 2014 GBP2.3
billion) and the notional value covered by the inflation rate swaps
at 29 March 2015 is GBP1.8 billion (at 30 March 2014 GBP1.5
billion).
The spread of investments continues to balance security and
growth in order to pay the RMPP benefits when they become due.
c) Movement in schemes' assets, liabilities and net position -
RMPP and RMSEPP
Changes in the value of the defined benefit pension liabilities,
fair value of the schemes' assets and the net defined benefit
asset/(liability) are analysed as follows:
Defined benefit Defined benefit Net defined
asset liability benefit asset/(liability)
========================================== ================== ================== ============================
Reported Reported Reported Reported Reported Reported
2015 2014 2015 2014 2015 2014
GBPm GBPm GBPm GBPm GBPm GBPm
========================================== ======== ======== ======== ======== ============= =============
Retirement benefit surplus (pre IFRIC
14 adjustment) at 31 March 2014 and
1 April 2013 3,833 3,343 (2,097) (2,513) 1,736 830
========================================== ======== ======== ======== ======== ============= =============
Amounts included in the income statement:
Ongoing UK defined benefit pension
scheme costs - - (508) (448) (508) (448)
Royal Mail Pension Plan amendment - - - 1,350 - 1,350
Pension interest income/(cost)(5) 183 172 (108) (103) 75 69
========================================== ======== ======== ======== ======== ============= =============
Total included in profit before tax 183 172 (616) 799 (433) 971
========================================== ======== ======== ======== ======== ============= =============
Amounts included in other comprehensive
income - remeasurement gains/(losses):
Actuarial gain/(loss) arising from:
Demographic assumptions - - - 4 - 4
Financial assumptions - - (590) (256) (590) (256)
Experience adjustment - - 5 2 5 2
Return on schemes' assets (excluding
interest income) 2,097 (203) - - 2,097 (203)
========================================== ======== ======== ======== ======== ============= =============
Total actuarial gains/(losses) on defined
benefit schemes 2,097 (203) (585) (250) 1,512 (453)
========================================== ======== ======== ======== ======== ============= =============
Other:
Employer contributions 409 407 - - 409 407
Employee contributions 129 136 (129) (136) - -
Benefits paid (33) (25) 33 25 - -
Curtailment costs - - (31) (20) (31) (20)
Movement in pension-related accruals 1 3 - (2) 1 1
========================================== ======== ======== ======== ======== ============= =============
Total other movements 506 521 (127) (133) 379 388
========================================== ======== ======== ======== ======== ============= =============
Retirement benefit surplus (pre IFRIC
14 adjustment) at 29 March 2015 and
30 March 2014 6,619 3,833 (3,425) (2,097) 3,194 1,736
========================================== ======== ======== ======== ======== ============= =============
(5) Pension interest income results from applying the schemes'
discount rate at 30 March 2014 to the schemes' assets at that date.
Similarly, the pension interest cost results from applying the
schemes' discount rate as at 30 March 2014 to the schemes'
liabilities at that date
The return on assets has been driven by the increase in market
value of gilts, which the RMPP Trustee holds as part of its
liability hedging strategy. This strategy has been agreed with the
Company to support the commitment Royal Mail has made to its
employees, which is that, subject to certain conditions, RMPP will
remain open until at least March 2018.
In addition to the above items which affect the defined benefit
asset, additional curtailment costs of GBP10 million (2013-14 GBP34
million) were recognised in the income statement on a consistent
basis with the associated redundancy costs. Estimates of both are
included in any redundancy provision raised.
d) Pension cash flows
The analysis below shows how the defined benefit scheme employer
contributions in note 8(c) reconcile with the defined benefit
scheme pension cash flows in note 7.
Reported Reported
at 29 at 30
March March
2015 2014
GBPm GBPm
============================================================= ======== ========
Ongoing defined benefit (RMPP) scheme employer contributions 369 380
Deficit correction payments (RMSEPP) 10 10
Pension (RMPP) top-up payments relating to voluntary
redundancy - within transformation operating expenditure 30 17
Employer defined benefit scheme contributions (note 8(c)) 409 407
============================================================= ======== ========
9. Earnings per share
52 weeks 2015 52 weeks 2014
=================== ==================
Reported Adjusted Reported Adjusted
=================================================== ======== ========= ======== ========
Profit from continuing operations attributable
to equity holders of the parent (GBPm) 325 428 1,275 306
Weighted average number of shares issued (million) 1,000 1,000 1,000 1,000
Basic earnings per share (pence) 32.5 42.8 127.5 30.6
Diluted earnings per share (pence) 32.5 42.8 127.5 30.6
=================================================== ======== ========= ======== ========
The diluted earnings per share for the year ended 29 March 2015
is based on a weighted average number of shares of 1,001,485,583 to
take account of the issue of potential ordinary shares resulting
from the Long-Term Incentive Plan (LTIP) for certain senior
management and the Save As You Earn (SAYE) scheme that was launched
during the reporting year (note 10).
The basic and diluted earnings per share for the comparative
year ended 30 March 2014 assumed that one billion shares in issue
at the date of the Company's listing on the London Stock Exchange
(15 October 2013) existed for the whole of that reporting year.
10. Share-based payment
Employee Free Shares
Ordinary shares representing in total 10 per cent of the value
of the Company were granted free of charge to eligible employees on
15 October 2013, the date of the Initial Public Offering. These
Free Shares are held on behalf of employees in an HM Revenue and
Customs (HMRC)-approved Share Incentive Plan (SIP) administered by
Equiniti Share Plan Trustees Limited (Equiniti).
613 shares were awarded to each eligible full-time employee as
their 2013 SIP allocation. The Company allocated a further 116
shares (729 in total - see below) to eligible full-time employees
on 9 April 2014 as a 2014 SIP allocation, subject to them remaining
employees of Royal Mail Group Limited.
The 729 total shares awarded to eligible full-time employees
comprises the 725 initial, expected allocation of shares and an
additional four shares resulting from the reallocation of shares
forfeited by certain employees who left the Group during the
2013-14 reporting period.
Part-time eligible employees have been allocated a pro-rata
number of shares. All allocated shares will be equity-settled.
The fair value of the award of Free Shares is GBP510 million
(including GBP20 million National Insurance) which is being charged
to the income statement on a straight line basis, adjusted for
'good leavers' and forfeitures, over the period of vesting (three
years for the 2013 SIP and four years for the 2014 SIP, in each
case from the award date).
A charge to the income statement of GBP169 million (including
GBP6 million National Insurance) has been made for the year ended
29 March 2015 for both SIP allocations, as they were granted as one
award.
The Free Shares are held in a Trust funded by Royal Mail and may
only be distributed to, or for the benefit of, eligible employees.
The Trust is under the control of the Company and is operating for
its benefit. At 29 March 2015 the Trust has been included in these
consolidated financial statements.
A reconciliation of the ordinary shares held in the SIP at 29
March 2015 is shown below.
Number
of
shares
================================================================= ===========
Initial shares award on 15 October 2013 84,415,327
Shares transferred out of SIP - 'good leavers' (809,247)
Remaining shares to be allocated 15,744,673
================================================================= ===========
Total shares remaining in SIP at 30 March 2014 99,350,753
================================================================= ===========
Shares transferred out of SIP during the reporting period ('good
leavers') (4,494,836)
================================================================= ===========
Total shares remaining in SIP at 29 March 2015 94,855,917
================================================================= ===========
Of the total shares remaining in the scheme 92,983,863 are
allocated to current employees. The remaining 1,872,054 shares are
unallocated, of which 1,763,804 arose as a result of forfeitures,
with a further 108,250 not subject to allocation under either
SIP.
Award of shares under the Long-Term Incentive Plan (LTIP)
The 2013 LTIP is a three-year scheme that vests in March 2016.
This scheme is being treated as a cash-settled scheme on the
assumption that the award will result in cash payment. The fair
value of the award reflects the share price at the reporting year
end date of 29 March 2015 at which point the value was GBP5 million
(2013-14 GBP5 million).
A further LTIP award was granted to senior management on 31
March 2014 (2014 LTIP). This award is equity-settled with the fair
value of the shares awarded being set at the grant date market
value of 450.4 pence. A total of 3.5 million shares have the
potential to vest under the 2014 LTIP.
The total income statement charge arising from both LTIP schemes
is summarised in the table below.
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
========== ========= =========
2013 LTIP - 5
2014 LTIP 5 -
========== ========= =========
Total 5 5
========== ========= =========
The LTIP shares are not part of the SIP explained above. The
2013 LTIP and 2014 LTIP schemes will vest three years after the
grant date and settlement will take into account a range of
performance conditions determined by the Remuneration
Committee.
Save As You Earn Share (SAYE) share option scheme
On 24 July 2014 a SAYE share option scheme was introduced for
eligible employees. Under the terms of the scheme the Board permits
the grant of options in respect of ordinary shares in the Company
to those employees who enter into an HMRC-approved SAYE savings
contract. These contracts are for a term of three years with
contributions from employees of an amount between GBP5 and GBP59
each month. The options purchased may be exercised during the six
month period following the end of the contract at a subscription
price of not less than 80 per cent of the average of the mid-market
quotations of an Ordinary Share over the three dealing days
immediately preceding the offer date.
A charge to the Group income statement of GBP1 million has been
made for the year ended 29 March 2015 in relation to the SAYE
scheme.
The table below shows the movements in share options during the
reporting period.
Number
of
options
=================================================
Balance at the beginning of the reporting period -
Options granted 14,956,040
Options exercised (65)
Options forfeited (174,435)
================================================= ==========
Balance at the end of the reporting period 14,781,540
================================================= ==========
For SAYE options exercised during the period, the weighted
average share price at the date of exercise was 429 pence. The
weighted average exercise price for each of the above categories of
share options is 360 pence.
As a result of the scheme rules for good leavers, 43,850
(2013-14 nil) share options were exercisable at 29 March 2015 at a
weighted average exercise price of 360 pence.
The fair values of the options granted during the year have been
calculated using the Black-Scholes model assuming the inputs shown
below. Expected volatility has been estimated by reference to
historical trends of share price movements of similarly regulated
FTSE 100 companies. The fair value of the options granted is
expensed over the service period of three years on the assumption
that 11 per cent of options will lapse over the service period as
employees leave the Group.
3-year plan
==================================
1 October
Grant Date 2014
Share price at grant date (pence) 450
Exercise price (pence) 360
Option life (years) 3.35
Risk-free rate (%) 1.4
Expected volatility (%) 17.3
Expected dividend yield (%) 4.6
Estimated share price growth (%) 9.2
Fair value of option (pence) 65
================================== ===========
11. Dividends
Reported Reported Reported Reported
52 weeks 52 weeks 52 weeks 52 weeks
2015 2014 2015 2014
============================= ========== ========== ========= =========
Pence Pence
Dividends on ordinary shares per share per share GBPm GBPm
============================= ========== ========== ========= =========
Paid final dividend 13.3 - 133 -
Paid interim dividend 6.7 - 67 -
============================= ========== ========== ========= =========
Total dividend 20.0 - 200 -
============================= ========== ========== ========= =========
In addition to the above dividends paid the Directors are
proposing a final dividend for the year ending 29 March 2015 of
14.3 pence per share with a total value of GBP143 million. This
dividend will be paid to shareholders on 31 July 2015 subject to
approval at the AGM to be held on 23 July 2015.
12. Assets and liabilities held for sale
The balance sheet values of the assets and liabilities held for
sale are shown below. The disposal group in this note, as defined
in IFRS 5 'Non-current assets held for sale and discontinued
operations', relates to GLS Germany's subsidiary, DPD
Systemlogistik GmbH & Co. KG (DPD SL).
Reported
Reported at 30
at 29 March March
2015 2014
GBPm GBPm
Assets of disposal group (DPD SL) held for sale 17 -
Other non-current (property) assets held for sale 15 3
===================================================== ============ ========
Total non-current assets held for sale 32 3
===================================================== ============ ========
Total liabilities associated with non-current assets
(DPD SL) held for sale (10) -
===================================================== ============ ========
Disposal group (DPD SL) - discontinued operations
On 6 March 2015 an agreement was reached for the sale of GLS
Germany's subsidiary, DPD SL, with the sale subsequently completed
on 31 March 2015. At the reporting date of 29 March 2015, this
entity has been presented as discontinued operations in the
consolidated income statement and its assets and liabilities
reclassified as held for sale in the consolidated balance sheet, in
line with IFRS 5.
The table below provides a summary of the main categories of
assets and liabilities that were reclassified as held for sale at
the reporting date. No impairment was required in reclassifying
these assets and liabilities as held for sale.
Reported
Reported at 30
at 29 March March
2015 2014
GBPm GBPm
==================================================== ============ ========
Property, plant and equipment 7 -
Trade and other receivables 9 -
Cash and cash equivalents 1 -
==================================================== ============ ========
Assets of disposal group (DPD SL) held for sale 17 -
==================================================== ============ ========
Trade and other payables (10) -
Liabilities associated with disposal group (DPD SL)
held for sale (10) -
==================================================== ============ ========
In addition to the above assets and liabilities, an amount of
GBP2 million within the foreign currency translation reserve also
relates to DPD SL.
Details of DPD SL's trading results for the reporting period are
shown below.
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
======================================================== ========= =========
Revenue 96 99
Operating costs (96) (97)
======================================================== ========= =========
People costs (16) (15)
Distribution and conveyance costs (72) (73)
Infrastructure costs (4) (4)
Other operating costs (4) (5)
======================================================== ========= =========
Profit before tax from discontinued operations - 2
Tax charge - -
Profit from discontinued operations - 2
======================================================== ========= =========
Basic earnings per share from discontinued operations 0.0p 0.2p
======================================================== ========= =========
Diluted earnings per share from discontinued operations 0.0p 0.2p
======================================================== ========= =========
The net cash flows relating to DPD SL can be summarised as
follows:
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
=========================== ========= =========
Operating cash flow 1 3
Investing cash flow (1) (1)
Financing cash flow - -
Impact of foreign exchange - -
=========================== ========= =========
Net cash flow impact - 2
=========================== ========= =========
Property assets held for sale
Other non-current assets held for sale of GBP15 million at 29
March 2015 (at 30 March 2014 GBP3 million) relate to land and
buildings which are being actively marketed with a view to a sale
within 12 months. An assessment of the fair value of these
properties was made at the time of their reclassification to 'held
for sale' and no adjustment to the carrying amount of these
properties was necessary.
13. Related party information
Related party transactions
During the reporting year the Group entered into transactions
with related parties:
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
===================================================== ========= =========
Sales/recharges to:
- RMPP 5 6
===================================================== ========= =========
Purchases/recharges from:
- Associate undertaking (Quadrant Catering Limited) 14 22
Amounts owed to:
- Associate undertaking (Quadrant Catering Limited) 1 2
===================================================== ========= =========
In view of HM Government's retained stake in Royal Mail plc, the
Group has taken advantage of the exemption conferred by IAS 24
Related Party Disclosures, not to disclose transactions between the
Group and HM Government-related entities, including Post Office
Limited, and with HM Government itself.
UKPIL provides collection and delivery services to a significant
number of HM Government-related entities. An arrangement is also in
place whereby Post Office Limited charges the Group for the sale of
Royal Mail products e.g. stamps and philatelic items, through its
network of Post Office branches.
The sales to and purchases from related parties are made at
normal market prices. Balances outstanding at the year end are
unsecured, interest free and settlement is made by cash.
Key management compensation
Reported Reported
52 weeks 52 weeks
2015 2014
GBP000 GBP000
============================================ ========= =========
Short-term employee benefits (10,202) (9,587)
Post-employment benefits - -
Other long-term benefits (2,846) (5,072)
============================================ ========= =========
Total compensation earned by key management (13,048) (14,659)
============================================ ========= =========
In addition to the inclusion of the Executive and Non-Executive
Directors of Royal Mail plc, from the beginning of the 2014-15
reporting year, the 'key management personnel' population has been
extended to include all other members of the Chief Executive's
Committee and the remainder of the Persons Discharging Managerial
Responsibilities.
In view of the above, the 2013-14 comparative numbers have been
restated to include the remuneration received by this extended
population.
The ultimate parent and principal subsidiaries
Royal Mail plc is the ultimate parent company of the Group. The
consolidated financial statements include the financial results of
Royal Mail Group Limited and the other principal subsidiaries
listed below:
% equity % equity
interest interest
Company Principal activities Country of incorporation 2015 2014
=========================== ======================== ========================= ========= =========
General Logistics Systems Parcel services holding
B.V. company Netherlands 100 100
Royal Mail Estates Limited Property holdings United Kingdom 100 100
Royal Mail Investments
Limited Holding company United Kingdom 100 100
Romec Limited Facilities management United Kingdom 51 51
=========================== ======================== ========================= ========= =========
Associate
% %
ownership ownership
Company Principal activities Country of incorporation 2015 2014
========================== ===================== ========================= ========== ==========
Quadrant Catering Limited Catering services United Kingdom 51 51
========================== ===================== ========================= ========== ==========
The majority of Board membership and voting power in Quadrant
Catering Limited is held by the other investor company, and it is
therefore not a subsidiary of the Group. The investment in Quadrant
Catering Limited is held by Royal Mail Group Limited.
The Company has taken advantage of the exemption under section
410 of the Companies Act 2006 allowing a schedule of interests in
all undertakings to be filed with the Annual Return.
14. Events after the reporting period
On 31 March 2015, after the financial year end, GLS Germany
disposed of its wholly-owned subsidiary, DPD Systemlogistik GmbH
& Co. KG (DPD SL) to DPD GeoPost (Deutschland) GmbH. The
disposal resulted in a post-tax profit of around EUR40 million
(GBP29 million) which will be reflected as a specific item in the
Group's 2015-16 financial statements.
Shareholder information
Financial calendar
Trading update - 21 July 2015
Annual General Meeting - 23 July 2015
Dividend dates
Ex-dividend date - 2 July 2015
Record date - 3 July 2015
Payment date - 31 July 2015
Shareholder information online
The Company's registrars, Equiniti, are able to notify
shareholders by email of the availability of an electronic version
of shareholder information.
Whenever new shareholder information becomes available, such as
the Company's half year and full year results, Equiniti will notify
you by email and you will be able to access, read and print
documents at your own convenience.
To take advantage of this service for future communications,
please go to www.shareview.co.uk and select 'Shareholder Services',
where full details of the shareholder portfolio service are
provided. When registering for this service, you will need to have
your 11-digit shareholder reference number to hand, which is shown
on your dividend tax voucher, share certificate or form of
proxy.
Should you change your mind at a later date, you may amend your
request to receive electronic communication by entering your
shareview portfolio online and amending your preferred method of
communication from 'email' to 'post'.
Shareholder fraud
Fraudsters use persuasive and high-pressure tactics to lure
investors into scams. They may offer to sell shares that turn out
to be worthless or non-existent, or to buy shares at an inflated
price in return for an upfront payment. While high profits are
promised, if you buy or sell shares in this way you will probably
lose your money.
5,000 people contact the Financial Conduct Authority (FCA) about
share fraud each year, with victims losing an average of GBP20,000.
If you are approached by fraudsters please tell the FCA using the
share fraud reporting form at www.fca.org.uk/scams, where you can
find out more about investment scams. You can also call the FCA
Consumer Helpline on 0800 111 6768. If you have already paid money
to share fraudsters you should contact Action Fraud on 0300 123
2040.
Advisers
Corporate Brokers
Barclays Bank plc, The North Colonnade, London, E14 4BB
Bank of America Merrill Lynch, 2 King Edward Street, London,
EC1A 1HQ
Independent Auditor*
Ernst & Young LLP (EY), 1 More London Place, London, SE1
2AF
Trustee of The Royal Mail Share Incentive Plan
Equiniti Share Plan Trustees Limited, Aspect House, Spencer
Road, Lancing, West Sussex, BN99 6DA
www.royalmailemployeeshares.co.uk
Tel: 0800 012 1213
Information for investors
Information for investors is provided on the internet as part of
the Group's website which can be found at:
www.royalmailgroup.com/investor-centre.
Investor enquiries
Enquiries can be directed via our website or by contacting:
Registrars
Equiniti
Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA
www.shareview.co.uk
Tel: 0871 384 2656 (from outside the UK: +44 (0)121 415
7086)
Fax: 0871 384 2100 (from outside the UK: +44 (0)1903 698403)
Calls to this number cost 8 pence per minute from a BT landline,
other providers' costs may vary. Lines are open 8.30am to 5.30pm UK
time, Monday to Friday.
Registered office
Royal Mail plc
100 Victoria Embankment
London EC4Y 0HQ
Registered in England and Wales
Company number 08680755
Corporate websites
Information made available on the Group's websites does not, and
is not intended to, form part of these Results.
* EY will hold office until the conclusion of the 2015 AGM. At
the 2015 AGM a resolution is tabled to appoint KPMG as Auditors of
the Company.
Forward-looking statements
Disclaimer
This document contains certain forward-looking statements
concerning the Group's business, financial condition, results of
operations and certain of the Group's plans, objectives,
assumptions, projections, expectations or beliefs with respect to
these items. Forward-looking statements are sometimes, but not
always, identified by their use of a date in the future or such
words as 'anticipates', 'aims', 'due', 'could', 'may', 'will',
'should', 'expects', 'believes', 'intends', 'plans', 'potential',
'targets', 'goal' or 'estimates'.
Forward-looking statements involve known and unknown risks,
uncertainties and other factors, which may cause the Group's actual
financial condition, performance and results to differ materially
from the plans, goals, objectives and expectations set out in the
forward-looking statements included in this document. Accordingly,
readers are cautioned not to place undue reliance on
forward-looking statements.
By their nature, forward-looking statements relate to events and
depend on circumstances that will occur in the future and are
inherently unpredictable. Such forward-looking statements should,
therefore, be considered in light of various important factors that
could cause actual results and developments to differ materially
from those expressed or implied by these forward-looking
statements. These factors include, among other things: changes in
the economies and markets in which the Group operates; changes in
the regulatory regime within which the Group operates; changes in
interest and exchange rates; the impact of competitive products and
pricing; the occurrence of major operational problems; the loss of
major customers; undertakings and guarantees relating to pension
funds; contingent liabilities; the impact of legal or other
proceedings against, or which otherwise affect, the Group; and
risks associated with the Group's overseas operations.
All written or verbal forward-looking statements, made in this
document or made subsequently, which are attributable to the Group
or any persons acting on their behalf are expressly qualified in
their entirety by the factors referred to above. No assurance can
be given that the forward-looking statements in this document will
be realised; actual events or results may differ materially as a
result of risks and uncertainties facing the Group. Subject to
compliance with applicable law and regulation, the Company does not
intend to update the forward-looking statements in this document to
reflect events or circumstances after the date of this document,
and does not undertake any obligation to do so.
Royal Mail, the cruciform, Parcelforce Worldwide and the
Parcelforce Worldwide logo are trade marks of Royal Mail Group
Limited. The GLS arrow logo is a trade mark of General Logistics
Systems Germany GmbH & Co. OHG. (c) Royal Mail Group Limited
2005. All rights reserved.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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