TIDMRMG
RNS Number : 2297Z
Royal Mail PLC
20 May 2021
Royal Mail plc
(Incorporated in England and Wales)
Company Number: 8680755
LSE Share Code: RMG
ISIN: GB00BDVZYZ77
LEI: 213800TCZZU84G8Z2M70
20 May 2021
ROYAL MAIL PLC
RESULTS FOR THE FULL YEARED 28 MARCH 2021
52 weeks ended 52 weeks ended
Reported measures (GBPm) (1) March 2021 March 2020 Change(3)
--------------------------------- -------------- ============== =========
Revenue 12,638 10,840 16.6%
Operating profit 611 55 n.m.
Profit before tax 726 180 n.m
Basic earnings per share (pence) 62.0p 16.1p 45.9p
Adjusted measures (GBPm) (1,2)
--------------------------------- -------------- -------------- ---------
Operating profit 702 325 116.0%
Operating margin (%) 5.6% 3.0% 260 bps
Profit before tax 664 275 n.m
Basic earnings per share (pence) 52.1 19.6 32.5
In-year trading cashflow(4) 762 556
Net debt (457) (1,132)
Net cash / (debt) (ex. IFRS 16) 622 (46)
--------------------------------- -------------- -------------- ---------
Royal Mail and GLS summary(1,2)
Revenue Adjusted operating profit
----------- ======================================== ------------------------------------
52 weeks 52 weeks 52 weeks
52 weeks ended ended March ended ended
(GBPm) March 2021 2020 Change(3) March 2021 March 2020 Change(3)
=========== ============== ============ ========== =========== =========== ==========
Royal Mail 8,649 7,720 12.0% 344 117 194.0%
GLS 4,040 3,161 27.8% 358 208 72.1%
Intragroup (51) (41) 24.4% - - -
=========== ============== ============ ========== =========== =========== ==========
Group 12,638 10,840 16.6% 702 325 116.0%
----------- -------------- ------------ ---------- ----------- ----------- ----------
Highlights
-- Full year performance well above initial expectations driven
by strong parcel growth at both Royal Mail and GLS.
-- Group adjusted operating profit(2) up 116.0% with a broadly
equal contribution from Royal Mail and GLS.
-- Royal Mail parcels revenue up 38.7%, partly offset by letters
decline of 12.5%. Operating costs up 9.2%.
-- GLS adjusted operating margin increased 230 basis points to
8.9%. Improved performance in focus countries, Spain, France and
the US.
-- April 2021 trading: Royal Mail revenue up 24.1%, GLS up 22.3%
year on year. Royal Mail parcel volumes down 2% and addressed
letters (excluding elections) volume up 25%. Parcel volume growth
at GLS remained strong until mid-April, with a subsequent slowdown
given the high volumes observed last year.
-- Strong Group in-year trading cash flow of GBP762 million (2019-20: GBP556 million).
-- 10p one-off final dividend proposed in respect of 2020-21.
-- Progressive future dividend policy, with dividend for 2021-22
set at 20 pence per share. Subject to retaining a prudent capital
structure, the Board will not retain excess capital which is
unutilised under our capital allocation framework.
Keith Williams, Non-Executive Chair, commented:
"The Group has delivered a pleasing set of results in what has
been an unprecedented year. This is in no small part thanks to the
dedication of our colleagues across the Group who have played a key
role keeping people and businesses connected. The Group has
demonstrated that it can effectively harness market growth
opportunities even in difficult circumstances and revenues
previously forecast for three years' time have been delivered this
year. However there is still much to do. We need to accelerate the
transformation of Royal Mail and continue to build on GLS'
strengths."
"As the outlook for 2021-22 contains a number of uncertainties
that could significantly influence volumes and costs it is
difficult to provide specific guidance for 2021-22 for Royal Mail.
Instead we have provided information on costs and some
sensitivities to assist in quantifying potential outcomes for the
year ahead. GLS is expected to perform in line with the guidance
given in March 2021. Despite this uncertainty, there are grounds
for optimism. The opportunities are there. We must harness
them."
Simon Thompson, Chief Executive, Royal Mail said:
"Last year stood out as one of remarkable change at Royal Mail.
It has been challenging at times, but we have learnt that we can
deliver results and change at lightning pace when we are united by
a common purpose. From starting to deliver on Sundays through to
trialling drones - We're changing. And it's working.
"Looking ahead, we must remain laser focused on accelerating the
pace of change, being brilliant for our customers, and doing all
this in an increasingly efficient way."
Martin Seidenberg, Chief Executive, GLS added:
"GLS has delivered a strong performance including an exceptional
margin. Our 'Accelerate GLS' strategy, which builds on our
strengths, has already delivered benefits in 2020-21 and will
unlock further growth opportunities in the future."
1 Reported results are in accordance with International
Financial Reporting Standards (IFRS). Adjusted results exclude the
pension charge to cash difference adjustment and specific items,
consistent with the way financial performance is measured by
Management and reported to the Board.
2 For further details on Adjusted Group operating profit,
reported results and Alternative Performance Measures (APMs) used,
see section entitled 'Presentation of results and Alternative
Performance Measures'.
3 All percentage changes reflect the movement between figures as
presented, unless otherwise stated.
4 In-year trading cashflow is reported net cash inflow from
operating activities, adjusted to exclude other working capital
movements and the cash cost of operating specific items and to
include the cash cost of property, plant and equipment and
intangible asset acquisitions and net finance payments.
Results presentation
A results webcast presentation for analysts and institutional
investors will be held at 9:00am today, Thursday 20 May 2021 at
www.royalmailgroup.com/results .
Enquiries:
Investor Relations
John Crosse
Email: investorrelations@royalmail.com
Royal Mail investor relations line: 020 7449 8183
Media Relations
Jenny Hall
Phone: 07776 993 036
Email: jenny.hall@royalmail.com
Mark Street
Phone: 07515 924 344
Email: mark.street@royalmail.com
Royal Mail press office: press.office@royalmail.com
Company Secretary
Mark Amsden
Phone: 020 7449 8289
Email: cosec@royalmail.com
Financial Calendar
Q1 trading update 21 July 2021
Annual General Meeting 21 July 2021
Ex-dividend date* 29 July 2021
Dividend record date* 30 July 2021
Dividend payment date* 6 September 2021
* subject to approval at AGM.
GROUP REVIEW: NON-EXECUTIVE CHAIR, KEITH WILLIAMS
The past year has brought unprecedented challenge for the Group.
It has magnified our purpose and the unique contribution both Royal
Mail and GLS make to society by connecting customers, companies and
countries.
Our colleagues across the Group have responded magnificently to
this challenge, and have worked relentlessly to play a key
frontline role. On behalf of the Board I would like to thank each
and every one of them for their dedication, and extend our deepest
sympathies to the families and friends of our colleagues whose
lives were lost to COVID-19.
Financial performance
Parcels now represent 72% of Group revenue. The pandemic has
accelerated trends we have been seeing for years in our markets.
Parcels, rather than letters, provided Royal Mail with the majority
of its revenue for the first time in its five-century history.
Similarly, in GLS over half of our volume came from B2C, while only
five years ago two-thirds came from B2B. GLS has managed this shift
successfully, delivering its highest margin in thirteen years.
Royal Mail delivered a full-year performance well above our
initial expectations. Revenue grew by 12.0%, with adjusted
operating profit increasing year on year by GBP227 million to
GBP344 million. Similarly, in GLS our focus countries - Spain,
France and the US - have emerged stronger and GLS revenue was up
27.8% year on year with adjusted operating profit up 72.1%. Overall
Group revenue grew by 16.6%, and we delivered this year the GBP12
billion of Group revenue that we had previously forecast for
2023-24.
However, we incurred significant additional costs associated
with COVID-19 across Royal Mail and GLS. In the UK, we also
incurred additional costs associated with delivering more parcels
and fewer letters and our UK management restructure.
Notwithstanding these increased costs, Group operating profit
was GBP611 million on a reported basis (2019-20: GBP55 million)
and, on an adjusted basis, GBP702 million (2019-20: GBP325
million), an increase of 116.0% year on year, with adjusted basic
earnings per share of 52.1 pence (2019-20: 19.6 pence).
Strategy
While the Group faces many challenges it also has many
opportunities. The past year has demonstrated that we can
effectively harness market growth opportunities even in difficult
circumstances. It has also demonstrated the strategic value of the
Group's structure. While there is still much to do and the pace of
change needs to accelerate, the financial contribution Royal Mail
is capable of adding to the Group and the potential value two
successful businesses can create is now clearly evident. In
addition, market developments, including the growth in
international and B2C volumes will benefit both Royal Mail and GLS,
and create opportunities for future potential synergies through
leveraging the capabilities of both businesses.
Recognising that Royal Mail and GLS have different market
positions, strengths and opportunities, we have developed separate
strategies to drive sustainable growth and meet changing customer
needs. In Royal Mail we aim to grow our market share by creating a
more agile parcels business that is laser focused on the customer.
We have launched and are continuing to develop new services and are
expanding into new areas, such as our parcel collection service
'Parcel Collect', Sunday parcel deliveries and the expansion of our
pharmaceutical delivery services. We have also supported the
national response to the pandemic by delivering test kits, PPE and
vaccination letters.
I was delighted that the Communication Workers Union (CWU)
showed its understanding of our potential by reaching agreement
with management on operational change, pay and job security.
However, effective execution and delivery of benefits for all our
stakeholders will be the key measures of success of the
agreement.
Given the significant changes we continue to see in the market -
more parcels, fewer letters - we continue to believe the best way
to ensure that the Universal Service continues to meet customers'
needs is to rebalance our UK business model more towards parcels.
We remain absolutely committed to the universal affordable, 'one
price goes anywhere' nature of the Universal Service. But as
customers change, so must we. This year, Royal Mail will simplify
and improve its product offerings under a 'good', 'better', 'best'
approach. As we develop this further we will engage with Government
and Ofcom about the regulatory changes needed to allow us to adapt
quickly to offer what customers want, and to ensure the Universal
Service regains relevance and is sustainable.
In GLS we are building on the business's established strengths
and focusing on the growth opportunities that will deliver the best
return on our investment. Through implementation of our 'Accelerate
GLS' strategy, we expect adjusted operating profit of EUR500
million in 2024-25 and EUR1 billion cumulative free cash flow(1)
over the five years to 2024-25.
Responsible business
Our impact on society has always been central to our purpose,
discussions and decisions. We seek to be an integral, trusted and
valued part of every community, operating in a responsible and
sustainable way simply because it is the right thing to do. And as
customers demand more sustainable deliveries, effective management
of our environmental, social and governance (ESG) issues can create
significant benefits and competitive advantage. In response to this
demand, delivering a sustainable network is embedded in both Royal
Mail and GLS' strategies.
Capital allocation and dividend policy
Our balance sheet remains strong and we had good cash generation
with GBP762 million in-year trading cash flow.
Following the Group's stronger than anticipated financial
performance during the past year, the Board concluded that it was
appropriate to propose a one-off final dividend of 10 pence per
share in respect of 2020-21.
The Board has reviewed its approach to capital allocation and
dividend. We have a clear capital allocation framework:
-- invest in our business to support growth;
-- maintain our investment grade rating;
-- pay a sustainable dividend;
-- and retain flexibility for selective acquisitions.
Following management changes and our focus on running the
business through the pandemic, we will now start to evaluate
further accretive business opportunities that would complement our
existing business.
Given the uncertainty that still remains around the economic
recovery from the pandemic, how consumer behaviour might change
over the coming months and the ongoing investment needs of both
Royal Mail and GLS, the Board considers that it remains important
for the Group to retain a prudent capital structure. We will
prioritise maintaining our investment grade credit rating, and
given the high operational leverage in our business, we will
continue to keep low levels of financial leverage. In the current
risk environment, we believe running a Group net cash position on a
pre-IFRS 16 basis is appropriate.
We are now confident - notwithstanding the ongoing uncertainty -
that both our main businesses will independently generate cash
sufficient for their own organic investment purposes. So whilst
investment is expected to step up in the coming period, we do not
anticipate the need for any cross subsidy.
1. Free cash flow represents cash flow after working capital,
capital expenditure, tax, interest and IFRS 16 capital lease
payments but before acquisitions.
The Board has taken an appropriately cautious stance on the
future dividend policy. However, reflecting the progress that has
been achieved within the business and our confidence in the future
prospects of the Group, the Board will adopt a sustainable
progressive divided policy and expects to propose a full year
dividend for 2021-22 of 20 pence per share, to be paid one third
(6.7 pence per share) as an interim, two thirds (13.3 pence per
share) as a final dividend. From 2022-23 the interim dividend will
be one third of the prior year's full year dividend.
The Board will review the Group's capital structure on a regular
basis, taking into account the market environment, the cash flow
generation of the Group and its capital allocation framework and
will not retain excess capital which is unutilised under our
capital allocation framework.
Board changes
During the year, the executive leadership of the Group has been
reformed.
Martin Seidenberg, Chief Executive Officer of GLS, was appointed
to the Board on 1 April 2021, reflecting the growing contribution
and importance of GLS to the Group. Our Board discussions are
already benefiting from Martin's detailed knowledge of the parcels
sector and his Group role will become increasingly important as
Royal Mail and GLS work more closely together.
Simon Thompson, previously one of our Non-Executive Directors,
was appointed Chief Executive Officer of Royal Mail on 11 January
2021. Simon has a wealth of experience both in digital
transformation and customer experience and is ideally placed to
lead the business as it harnesses the opportunity to grow and
expand our UK parcels business and continues to meet our customers'
needs across both letters and parcels.
Mick Jeavons, Interim Chief Financial Officer for the Group
since May 2020, was confirmed in this role and joined the Board as
an Executive Director on 11 January 2021. Mick has been with the
Group for 27 years and has served in a variety of senior positions,
including as Deputy Group CFO and, before that, as Chief of Staff
to the then Group CEO.
Having acted as Group Interim Executive Chair since Rico Back's
departure as Group CEO in May 2020, I reverted to being
Non-Executive Chair on 1 February 2021. Stuart Simpson, who had
been acting as Interim Chief Executive of Royal Mail since May
2020, left Royal Mail at the end of January 2021. On behalf of the
Board I would like to thank him for the significant contribution he
made to the Group over the last 11 years and wish him well as he
develops his career in the future.
There were also a number of changes to the Board's Committees. I
re-joined the Remuneration Committee on 4 February 2021. With
effect from the same date, Baroness Hogg was appointed to the
Corporate Responsibility (CR) Committee and Maria da Cunha was
appointed as the Designated Non-Executive Director for engagement
with the workforce.
Outlook
Significant uncertainties with respect to public health and
economic growth cloud the outlook for the year ahead. Our challenge
is to build on the opportunities we now have in the markets in
which Royal Mail and GLS operate. Royal Mail must intensify its
customer focus, deliver its transformation programme and improve
productivity. The corresponding challenge for GLS is to build on
the achievements from this year and deliver the right balance of
growth and profitability.
While the future holds a great deal of uncertainty, there are
grounds for optimism. The opportunities are there. We must harness
them.
Royal Mail
Context
The revenue windfall we have experienced in 2020-21 has given
Royal Mail the breathing space to transform. Instead of the feared
trajectory into material losses, the changing customer behaviours
during the course of the pandemic have provided top line growth and
profitability in 2020-21. But there is still much to do if we are
to secure and improve on this position for the long term.
The margin trajectory in the short term is assisted by the cost
reduction programmes launched in June 2020, the benefits of which
flow into 2021-22, but we must now also make swift progress with
the business fundamentals that will deliver a sustainably
profitable and growing business in the UK.
Commercially we must adapt more quickly to the needs of
customers and consumers, and finally deliver the long-promised
changes on operational and cost transformation, including
successfully leveraging the new deal with CWU to allow us to
improve not only service and efficiency, but also to help us drive
growth. Without these changes, we cannot be competitive into the
future.
1. Revenue
2020-21 had quite different revenue outcomes between the two
halves of the year. Parcel revenue growth was circa. 10% higher in
the second half than it was in the first half of the year. And on
letters, revenue decline was only 5% in the second half of the
year, compared with a decline of over 20% in the first half.
April 2021 trading saw total revenue growth of 24.1%,
benefitting from a better mix. We experienced year on year parcel
revenue growth and letter revenue growth in the month. Parcel
revenue grew by 20.0%, and total letter revenue by 29.6%, whilst
parcel volumes declined 2% and letter volumes (excluding elections)
grew by 25%. April 2021 demonstrates that, as we look forward into
2021-22, we face an unusual set of volume and revenue comparatives,
which become increasingly difficult as the year unfolds. This could
well lead to Q1 and even H1 performance in 2021-22 being reasonably
strong. However, H2 is more difficult to call. The unwind from the
impacts of the pandemic is likely to be just as volatile as when we
entered it, is similarly difficult to forecast, and it may be some
time before we know the true impact of the pandemic on the
topline.
This significant short-term uncertainty means that we will not
be issuing revenue guidance for 2021-22 at this stage. Changes in
consumer behaviour as lockdown restrictions are progressively
eased, and economic factors such as GDP growth and unemployment
will impact on revenue development. The evolution of international
volumes and the success of our commercial initiatives will also
have an impact. In letters the underlying rate of e-substitution as
we emerge from lockdown restrictions will also be an important
driver.
That said, we expect that the COVID-19 crisis will have
accelerated the long-term structural shifts in both parcel volume
growth and letter volume decline. On parcels, the changes
experienced in 2020-21 were extreme. A proportion of the growth
will start to unwind as the lockdown restrictions are removed,
although it also seems certain that a significant proportion will
stick, as consumer behaviour and buying preferences switch online
permanently.
On letters, whilst it is unlikely that business mail customers
who have found an electronic alternative to mail during the
pandemic will switch back to mail, we believe that advertising mail
has an intrinsic value as a part of the marketing mix, so we could
see a more positive recovery in that stream over time.
We intend to publish our parcel and letter volume metrics on a
bi-monthly basis during 2021-22 in order to provide transparency as
to the emerging trends.
2. Costs
GBPm Tailwind / (Headwind) from 2020-21 2021-22
=========================================== =======
Management restructure (charge and saving) 208
=========================================== =======
Non-people cost programme flow through 35
=========================================== =======
Frontline pay award (110)
=========================================== =======
Total 133
=========================================== =======
We will benefit from the impacts of the cost reduction
activities that were announced in June 2020, including the
management restructure and the non-people cost programme.
The management restructure is now complete and will deliver
GBP130 million of annualised benefit, with around GBP115 million
realised in 2021-22 versus 2020-21. The GBP93 million voluntary
redundancy charge will not repeat in 2021-22, giving a total
tailwind of GBP208 million.
We will see a benefit of GBP35 million in non-people costs from
the actions taken in 2020-21.
Following our agreement with the CWU from 1 April 2021,
frontline staff received a pay award of 1% and a further hour of
the shorter working week, linked to unit revision activity.
Including the frontline pay deal there is around a net GBP130
million tailwind on costs into 2021-22.
In relation to other costs:
GBPm Tailwind / (Headwind) 2021-22
============================================ =======
CWU Pathway to Change agreement 100+
============================================ =======
COVID-19 and International conveyance cost c. 100
unwind
============================================ =======
Non-people cost programme remainder c. 75
============================================ =======
Transformation and investment related spend c. (60)
============================================ =======
Service and convenience investment c. (90)
============================================ =======
Other cost pressures including inflation c. (50)
============================================ =======
We very much hope to make progress on change following the deal
with CWU and we hope to be able to reduce the costs of dealing with
COVID-19 (protective equipment, the impact of social distancing,
and elevated absence rates) as restrictions are removed in our
operations, as absence rates reduce and as the frontline return -
where appropriate - to sharing delivery vehicles. However, it is
possible that some of these costs may remain for longer than we
estimate, for example where additional vehicles are required for
social distancing, or where it is established that certain
protective equipment should be maintained as standard.
The non-people cost reduction programme will complete. We will
deliver the commitment we made in June 2020 for savings in
non-people costs (circa GBP200 million) to keep flat compared to
2019-20, excluding volume related costs, which were higher than
anticipated given the strong growth in parcel volumes which were
above our initial expectations for 2020-21.
There are also cost pressures. As the transformation investment
peaks, the associated operating expenditure will increase. We will
also invest in improved service and convenience. Given the
volatility and significant growth in parcel volume due to the
pandemic, we fell short at times last year of our usual high
standards on quality. We are focused on delivering pre-COVID
quality in a COVID-19 world as soon as practical. We will also
improve convenience, by delivering on Sundays and accepting parcels
into our network later in the day.
Depending on performance in 2021-22, managers remuneration may
also increase by around GBP60 million year on year.
3. Sensitivities
The pivot we have seen towards parcels means that we expect to
grow the top line in the medium term, but the short term will no
doubt be volatile. Short term volume uncertainty may impact
significantly on profitability for 2021-22.
Below is an illustration of sensitivities showing the short term
(<12 months) marginal impacts of a 1% revenue movement in
letters and certain parcel revenue streams on profitability, on a
ceteris paribus basis i.e. assuming constant product and channel
mix. Material revenue mix changes within parcels or letters, or
price changes, could lead to changes in sensitivities. The
incremental cost impact range illustrates that costs will vary
depending on product, channel and weight mix. Illustrative
incremental costs use 2020-21 prices and ignore seasonal
differences and therefore should not be taken in isolation.
1% movement in 2020-21 Revenue impact Incremental cost In-year contribution
revenue impact(2) impact
GBPm
======================== ============== ================ ====================
Domestic Parcels
excl PFW and export(1) 39 (5-15) 24-34
======================== ============== ================ ====================
Total letters 35 (3-5) 30-32
======================== ============== ================ ====================
1. Domestic parcels excl. Parcelforce Worldwide (PFW) and export
includes parcels sent and delivered in the UK (both account and
consumer), and import parcels. PFW and export parcels are excluded
and are subject to separate gearing ratios, which are not
disclosed.
2. Domestic operational (people and network) costs associated
with marginal changes in revenue, assuming constant product size
and mix, excluding sales commissions and other cost of sales.
4. Investment in Royal Mail
The investment in transformation of the UK operation has been
delayed since the programme was first announced in May 2019.
2021-22 includes a material increase in capital expenditure as the
build programmes for both parcel hubs proceeds, plus investment in
automation and technology to support productivity, with currently
planned capital expenditure well above GBP400 million for
2021-22.
Work is ongoing in a number of areas that may lead to a
requirement to invest further in the core operational network.
Incremental investment would only be pursued if business
performance supported the investment outlay and the investment
generated sufficient shareholder return.
GLS
1. Revenue and adjusted operating margin
In line with the Accelerate GLS strategy presented in March
2021, from a 2020-21 revenue base of
GBP4,040 million, growth in 2021-22 is expected to be in the low
single digit percent as COVID-19 tailwinds unwind, and adjusted
operating margin is anticipated to be around 8%.
2. Investment in GLS
Capital expenditure in GLS is expected to increase in order to
underpin the ongoing growth expected, with around GBP160 million
(EUR180 million) expected in 2021-22, in line with its capital
expenditure corridor of 3-4% of revenue.
OPERATING AND STRATEGIC REVIEW
ROYAL MAIL CEO REVIEW - SIMON THOMPSON
We're changing. And it's working.
Change. It can be daunting. But constantly changing to meet the
needs of the customer is what all great companies do. Last year has
stood out as one of remarkable change at Royal Mail. It has been
challenging at times, but we are emerging stronger, leaner and have
learnt that we can change at lightning pace when we are united by a
common purpose. A worldwide pandemic. New ways of working.
Designated as key workers. Tens of millions of COVID-19 test kits
handled. Over 1.5 billion items of PPE delivered to schools, social
care and healthcare providers. 30 million vaccination letters
delivered. It has been quite a year.
Our people have been magnificent. On behalf of our customers and
Royal Mail I would like to thank them for their Herculean effort
and for everything they have done.
Our customers have been very supportive and at times very
tolerant. At the beginning of the pandemic, we communicated to
customers that service disruption was, despite our best efforts,
likely. High levels of COVID-related absences including shielding,
the introduction of social distancing in our operations, no shared
vans, and the increase in parcel volumes means that at times our
quality has not always been as we would have wished. We know the
world has changed and the team is now focused on delivering
pre-COVID-19 quality in a COVID-19 world as soon as we can.
Operating performance
This time last year we expected the UK business to be loss
making. A lot has changed in a year. In 2020-21 Royal Mail revenue
was GBP8,649 million, an increase of 12.0%, with parcel revenue
growth more than offsetting the decline in letter revenue. Adjusted
operating profit was GBP344 million (2019-20: GBP117 million) an
increase of 194.0% year on year, and adjusted operating margin was
4.0%, up 250 basis points year on year.
Parcels
Parcel volumes grew strongly, particularly as people stayed at
home and ordered online during the pandemic. Account parcel volumes
grew by 48% and Tracked 24(R) / 48(R) and Tracked Returns(R)
performed strongly with 79% growth. International parcel volumes
grew in the first half of the year, driven by imports, but declined
in the second half broadly as expected. This was due to reduced air
freight capacity and increased conveyance costs, along with the
transition to a new trade agreement with the European Union (EU) in
January 2021, and the requirement for customs forms and/or taxes
and duties to be paid for imports and exports to and from the EU.
Despite the decline in volume, international revenue grew, as
necessary price increases were required to cover higher conveyance
costs and terminal dues.
Parcel revenue grew 38.7% year on year, with a positive
price/mix as customers traded up to higher value tracked products.
Consumer and small and medium-sized enterprise (SME) channels also
strengthened throughout the year.
Letters
The impact of COVID-19 saw a significant reduction in letter
volumes, with addressed letter volumes (excluding elections) 20%
lower year on year. However, performance improved throughout the
year as more business activity resumed; in the first quarter
addressed letter volumes (excluding elections) fell by around a
third, but improved to a 13% decline in the fourth quarter.
Business Mail, whilst also negatively impacted, was more
resilient throughout the year. Advertising Mail saw volume
reductions of almost two thirds during the first quarter of the
year, recovering to a 23% decline in the fourth quarter. The
Consumer and SME channels also saw volumes improve over the course
of the year. Total letter revenue declined by 12.5% year on
year.
Costs
Whilst the changes we have seen this year have driven year on
year revenue growth, COVID-19 also introduced additional costs. The
net cost of sorting more parcels, combined with the impact of
reduced letter volumes was GBP327 million. Costs related to
elevated absence levels, social distancing and protective equipment
totalled GBP152 million. International conveyance costs were GBP69
million higher due to a reduction in airline cargo capacity.
As part of our agreement with CWU, we awarded CWU grade
colleagues a 2.7% pay increase effective from April 2020, which was
partially offset by a 2.1% productivity improvement in the
year.
There was also a voluntary redundancy charge of GBP109 million,
of which GBP93 million was related to the management restructure
announced in June 2020. We have already delivered circa GBP90
million as part of our two-year non-people cost savings plan.
Owning trust at the doorstep: our competitive advantage
We have seen a big change in what our customers want: more
things to and from people, 24/7, but still delivered by our postal
workers, a relationship they continue to cherish. This is an
exciting opportunity for Royal Mail and focusing on our customers
is one of our key strategic priorities. We have always owned trust
at the doorstep. It continues to be our competitive advantage, and
we will never surrender this position.
We will continue to offer a range of sending options so that
postage fits around our customers, not the other way around. We
were pleased to sign a new long-term agreement with Post Office
Limited in 2020. This means our customers will continue to benefit
from being able to purchase a wide range of Royal Mail and
Parcelforce Worldwide products through the Post Office's extensive
branch network.
We are also introducing new convenient ways for people to send
items. Over 1.6 million parcels have been collected from doorsteps
since we launched our new Parcel Collect service in October 2020.
As customers increasingly look for convenient and flexible
solutions we suspect the opportunity for this service will continue
to grow. Not everyone wants to travel to drop off their parcel. We
have also now started Sunday parcel deliveries, and are
experimenting with same day prescriptions deliveries, or 'instant
pain relief' as we call it, by leveraging our hyper-local delivery
capability combined with our trusted people. When you are not
feeling great, do you really want to leave your home?
An increased focus on sustainability
When we have been speaking to our account customers, they have
made it clear that the environmental impact of deliveries is a
growing concern for their customers. In a year when the world was
preoccupied with COVID-19, it would have been easy to take our foot
off the pedal when it came to our environmental ambitions. But I am
pleased to say the opposite has happened. Due to our 'feet on the
street' delivery model, powered by more than 85,000 postwomen and
men, Royal Mail already has the lowest reported(1) CO2e per parcel
amongst major UK delivery companies. But this is not enough. We are
continuing to trial and deploy new technology to reduce the
environmental impact of our fleet, including telemetry, electric
vans, dual fuel hydrogen vans and Bio-CNG trucks.
Network transformation and operational efficiency
Transforming our network to handle more parcels is a key part of
our plan. It was important before, but the growth in parcels we
have seen during the pandemic makes it even more so. We are making
good progress on the construction of our first two parcel hubs. The
new fully-automated parcel sorting system in the Midlands hub will
have the capacity to sort over one million parcels a day when it is
fully operational in 2023. Of equal importance, we are continuing
to increase the number of parcels that are sorted through
automation across our operation. The number of parcels successfully
sorted at least once grew significantly from 356 million in 2019-20
to 652 million in 2020-21 - an 83% increase. However, our
percentage of parcels sorted by machine was unchanged year on year
by 33%. The industry benchmark is 90%.
The findings of our network review, which we have been
conducting jointly with CWU, support the need for greater
automation in the existing Mail Centre estate, as well as the need
for additional hub capacity. We are now working with CWU to
undertake more detailed future modelling and planning over the
coming months. Dedicated van deliveries are becoming a reality in
our operations following successful trials. We are refining our
approach as part of our ongoing delivery revision activity.
Industrial relations
In December 2020 we agreed a ground-breaking agreement with the
CWU. I would like to take this opportunity to thank all parties who
were involved, it was an enormous effort and an excellent outcome
for all stakeholders.
The agreement with CWU gives us a platform for future growth,
and the means to achieve productivity benefits of 3% plus this
year. In 2021-22, more than GBP100 million in benefits are linked
to effective execution and delivery of benefits associated with the
agreement.
I am pleased to say that all parties are working very well
together, and deployment of the agreement is firmly on track.
Deployment of revisions in all delivery offices and processing
sites are due to take place by the end of October 2021, with more
than 300 already underway. We have also started rolling out
'scan-in, scan-out' technology in our processing sites. This is
replacing handwritten manual 'sign-in, sign-out' sheets and will
provide meaningful data to allow our leadership teams to make
better informed decisions.
And most importantly, we are changing our relationships and
mindset. This has allowed us to move faster to make changes that
will benefit our customers, including the provision of new services
such as Sunday deliveries, something we have probably all known for
some time needed to happen. We need to keep up this momentum.
1. Based on competitors' 2019 published reports
I would like to thank Terry Pullinger, the Deputy General
Secretary (Postal) of the CWU, who is collaborating closely with me
on a very regular basis to make sure we drive forward our joint
change agenda. The team at CMA/Unite are also very proactive in
supporting the change agenda.
Management restructure
We have had to take some really difficult decisions in the past
year. Around 2,000 managerial roles have been removed as part of
our management restructure. I would like to thank the colleagues
who have left for their service to Royal Mail over many years. We
have delivered on our commitment to make this change, which is on
track to deliver annualised benefits of GBP130 million, with
incremental benefits of GBP115 million in 2021-22.
This was an action that was not only about cost. It was also
about simplifying our business. By removing management layers and
committees we are already moving faster and starting to focus only
on what matters.
Rebuilding trust with our people
Our people have a key role to play in delivering our strategic
ambitions. Rebuilding their trust is our big unlock. As well as
being on the Board for the last three years I spent one year as the
Non-Executive Director for engagement with the workforce. I am
continuing to spend a lot of time listening to our workforce at the
front line of the business, and activating their insight. It is an
invaluable opportunity to listen, learn and act.
Within weeks of me becoming CEO, we conducted a trust survey. It
found that over 80% of our team feel proud to work for Royal Mail.
However only 36% of our team felt valued and only 34% felt involved
in decisions that impacted them. Based on a more recent survey,
these key metrics are starting to improve, but we have a lot more
to do.
We need to give our people the leadership they deserve,
including freeing up our managers to lead their teams in a much
more effective way. As part of a trial at our delivery office in
Sale, our local leader is now empowered to decide what she feels
she needs to do, rather than implement more than 200 policies we
think should be adhered to. She is now spending around half of her
time with her team and a third of her time with customers or
focusing on customer-related issues. The business results are very
encouraging. We can now see a way of reducing more than 200
policies to fewer than 20 whilst not increasing our risks. As the
year moves on, I expect all of our delivery offices to be operating
in a very new way.
April 2021 trading
Trading performance in the first month of 2021-22 remained
strong. Revenue was up 24.1% and benefitted from a positive mix,
with parcel volumes down 2% and addressed letter (excluding
elections) volumes up 25%. As lockdown restrictions are further
removed in the coming weeks we expect some volatility. With parcel
volume declines and letter volume growth, April is an example of
the unusual trends we can expect to see emerge during 2021-22.
The future
Looking ahead, we have much to do. We must remain laser focused
on accelerating the pace of change so that we can be brilliant for
our customers and put in place the building blocks to allow us to
grow our market share. And we must do all of this in an
increasingly efficient way. By doing so, we will ensure that we can
serve the needs of all of our stakeholders.
We will only achieve this by having trusted relationships
everywhere, trust is our big unlock.
We should deliver a 3% plus productivity benefit this year. In
2019 we said that Royal Mail would reach 5% adjusted operating
profit margin in 2023-24. That would be at the low end of my
expectation. And my early analysis suggests that we should get
there sooner than 2024.
STRATEGY REVIEW: FOCUS ON CUSTOMER, TRUST, GROWTH
Our mission is to own trust at the doorstep.
We believe the trust in our people, our brand, and our
nationwide hyper-local network is a platform for profitable
growth.
In recent years we have focused on pivoting quickly from being a
letters business, to a more parcels-focused one, reflecting the
changing needs of our customers.
This year has accelerated the need to change quickly. Total
letter volumes are down 25%. Parcel volumes are up 32%.
Transforming our network and working practices to adapt to parcels
was important before. It is vital now.
We are focused on transforming our network as quickly as
possible to ensure we are operating efficiently, and profitably, to
make the most of the opportunity we have right in front of us.
Increasing our parcels automation and delivering the benefits
associated with the agreement we reached with the CWU are key areas
of focus over the coming year.
At the same time as improving our efficiency, we are becoming a
more agile, customer-focused business. We are changing faster, and
delivering more of what our customers need and want - such as
Sunday deliveries, home collections of parcels through Parcel
Collect, and trialling new services such as same day prescriptions,
or as we call it 'instant pain relief'.
We will realise our mission and deliver sustainable growth by
focusing on three key pillars: Customer, Trust and Growth. The
three pillars are all underpinned by productivity improvements as
we continue investing to deliver the transformation programme and
the change we need.
Customer
All great companies put the customer first.
The first pillar of our strategy is therefore focused on
improving and simplifying our customer offering through great
quality of service every day and products that are easy to
understand and simple to use. We will deliver more things, to and
from people, 24/7. We will stay laser focused on delivering for our
customers by:
-- Delivering pre-COVID-19 quality in a COVID-19 world:
Restoring quality is the number one priority to keep our high
levels of customer trust. Throughout 2021-22 we will continue to
invest in additional resource to improve service levels in an
ever-changing and uncertain environment. We are also using data to
zero in on root causes faster and increasing the spread of best
practice at pace.
-- Removing all friction from our services and simplifying our
product range: We are simplifying our product range to an easy to
understand 'good', 'better', 'best' structure. This will make it
easier for customers to choose the products that perfectly meet
their needs.
-- Increasing the proportion of our products that can be
tracked: Customers increasingly expect richer services for their
deliveries including tracking visibility. We continue to accelerate
the migration to barcoded services to enable us to offer tracking
on more items. 2021-22 will be another positive step towards 100%
of parcels carrying a barcode.
-- Leverage our environmental advantage: Customers are
increasingly looking for less environmentally impacting delivery
options. Our 'feet on the street' delivery model, powered by more
than 85,000 postwomen and men, means that Royal Mail already has
the lowest reported CO2e per parcel amongst major UK delivery
companies. But this is not enough. We will continue to trial and
deploy new technology to reduce the environmental impact of our
fleet, including rolling out more electric and alternative fuel
vehicles across our fleet over the coming years.
-- Reimagining the stamp: Letters continue to be an important
part of our business, and a service that many customers rely on. We
will continue to innovate to make sure that letters deliver what
our customers need in an increasingly digital world. As part of our
modernisation drive, we are currently piloting unique barcodes on
stamps. The unique barcodes are poised to pave the way for
innovative customer services which we plan to share later in the
year.
Trust
Our people are pivotal to the delivery of our mission to own
trust at the doorstep. They are the people our customers see every
day. Rebuilding their trust to implement changes to meet the
ever-changing customer needs in an efficient way is our big unlock.
We will:
-- Deliver a positive step change in our relationship with our
people and unions: In our recent Big Trust Survey Royal Mail
achieved a trust score index of 62% against an external benchmark
of 74%. The score had increased from 59% in February, but there is
more to do. We have set ourselves an ambition to significantly
increase this score. This will require a step change in our mindset
and attitude towards each other. We are working with our trade
unions on a number of initiatives to positively change our culture
and rebuild trust across the company. We will change how we work to
allow managers to spend significant time with their teams by
freeing them up from less important tasks and reducing the number
of policies they need to adhere to from more than 200 to fewer than
20.
-- Deliver the CWU agreement on time, all benefits realised:
Deployment of the ground-breaking agreement with the CWU is on
track. This agreement gives us a platform for future growth, and
the means to achieve productivity benefits of 3% plus in 2021-22,
resulting in more than GBP100 million in benefits, linked to
effective execution of the agreement.
-- Put in place the next generation of Royal Mail: We will
shortly be launching a Postal Apprenticeship programme across the
UK. In light of growing volumes, we are converting more part-time
roles to full- time, and agency staff into employed roles. At
management level, talent and succession planning is a key focus for
us this year. We are strengthening our development and performance
management processes to develop our managers and ensure we have the
leadership we need to deliver our transformation.
-- Enable direct conversations between all our people: Building
a genuine two-way conversation with our people is a key part of
rebuilding trust. We have already put in place digital tools
including a People App and Workplace by Facebook to ensure our
people can access the information they need, share ideas and best
practice and problem solve issues between teams. We have given all
our people a voice; a voice we are already listening to and acting
upon.
Growth
Going forward our goal is to grow our business, grow our share
and grow the market. Our challenge is to win a greater share of
business from more of our customers particularly in high-growth
categories. We also need to transform our operations, at pace, to
deliver more parcels and letters, more efficiently. We will:
-- Deliver 2024 capacity in 2021 and a step change in parcels
automation: Delivering greater operational efficiency and
transforming our operation to handle more parcels is key to our
growth. The growth in parcels over the past year means we are now
handling the volumes we were predicting for 2023-24. We will
increase the number of parcel sorting machines in our operation
from 20 currently to around 30 by the end of 2021-22. We are
challenging ourselves to reach at least 50% of parcels sorted
automatically by the end of 2021-22 - up from 33% currently. We are
also making good progress on the construction of our first two
parcel hubs. Our overall ambition is to achieve the benchmark of
90% in 2023-24.
-- Deploying tools for the job to support growth: During
2021-22, we will deploy new PDAs working closely with our frontline
colleagues to ensure they provide the information and have the
capabilities they need, and have placed an initial order of around
60,000 devices. We will introduce more reliable, less
environmentally impacting larger vans in our fleet to accommodate
growing parcel volumes.
-- Grow our international business: We have developed and are
executing a robust plan to grow our international portfolio,
including; a simplified set of international services; greater
visibility of where items are for sender and recipient; and easy
and free returns.
-- Innovate, introducing new services that will grow the market:
Over the course of this year we will be expanding our Sunday
delivery service, reflecting this growing customer need. We are
also entering into same day prescriptions deliveries. We will
expand and further promote our doorstep collection service, Parcel
Collect, including estimated collection times and testing
label-free options for customers who do not have a printer at home.
We are also testing how drones can complement our core network for
offshore or remote locations and are increasingly confident that
this technology will make a positive contribution to service
quality and operational economics.
GLS CEO REVIEW - MARTIN SEIDENBERG
We are committed to maximising GLS' potential and we are already
executing our 'Accelerate GLS'
growth strategy.
I was delighted to be appointed CEO of GLS in June 2020. Having
joined the business in 2015 I have a deep understanding of our
markets, strengths and opportunities.
2020-21 has been an extremely difficult year for everyone around
the world. No one could have predicted the COVID-19 pandemic and
the global impact it would have. I would like to personally thank
all our people, whose commitment and hard work despite the
circumstances has allowed us to keep delivering throughout Europe
and North America.
Despite challenges throughout the year, our network remained
open and we have been able to keep customers, local communities and
countries connected. And while multiple extended lockdowns have
resulted in volatile volumes which have tested our network, our
flexible business model has once again proven its resilience. In
particular we were able to react quickly at the start of the
pandemic, scale up our network where needed and quickly and
effectively implement protective measures within GLS.
GLS is a scalable, asset-light business with an extensive
international physical footprint that allows us to serve our
customers with our own network. This network gives us full control
over the parcel journey at every stage ensuring that high-quality
levels are not compromised and we remain a reliable partner to our
customers. Our strong international footprint, together with our
differing positions in each market, adds balance and diversity to
our operations. Our entrepreneurial operating model, which includes
local management teams who have a high degree of commercial
independence, enables us to stay close to our customers and tailor
our strategy to local market needs.
The pandemic has had a significant, sustainable impact on the
parcel delivery market. E-commerce has surged and we expect this to
continue to grow strongly with B2C and international being the main
growth drivers. At the same time the market is changing and our
customers' expectations are changing as they put greater emphasis
on convenient and flexible digital services, including tracking and
re-routing of deliveries.
Accelerating GLS
Historically the majority of parcels across GLS have been B2B,
but more recently, and accelerated by the pandemic, we have seen a
marked shift, with B2C volumes growing from 37% of the total in
2016-17 to 57% in 2020-21. We now need to leverage our flexible
business model and extensive international network, and continue to
grow and develop the business.
Our 'Accelerate GLS' growth strategy, which builds on our
strengths and addresses the growth opportunities in our various
markets has three key objectives: strengthen GLS' top position in
the cross-border deferred parcel segment; strongly position GLS in
the 2C parcel market, whilst securing its leading position in the
2B segment; and inspire the market.
Operating performance
During the year trends in our markets accelerated as a result of
the pandemic and we saw significant growth in parcel volumes across
our footprint. Implementation of cost containment measures at the
start of the pandemic, together with increased volumes, pricing
opportunities in certain markets, and our ability to adapt quickly
with final mile optimisation and more efficiencies in line haul,
enabled us to deliver volume, revenue and profit margin growth.
Volumes were up 26% in 2020-21. Within that, domestic and export
volume growth was 25% and 36% respectively, significantly higher
than the historical organic growth rates over the three-year period
ended 2019-20 of 5% and 11% respectively.
Revenue increased by 27.8% to GBP4,040 million (2019 -- 20:
GBP3,161 million). Revenue increased significantly in countries
which already had a relatively high proportion of B2C volumes
before the pandemic, including in Spain and Denmark and those in
Eastern Europe.
Adjusted operating profit margin increased to 8.9% (2019-20:
6.6%) benefiting from scale effects, pricing initiatives in certain
markets, cost containment and efficiency measures.
We believe that approximately 60% of the volume and revenue
growth can be sustained post the pandemic, and around half of the
adjusted operating profit improvement.
During the year, the impact of foreign exchange movements
increased revenue by GBP81 million and operating costs by GBP74
million, resulting in an increase in operating profit of GBP7
million.
Market performance
We saw a material improvement in our focus countries of Spain,
France and the US. Spain continued its positive trajectory with
59.6% revenue growth and good profit performance compared with a
break-even result in the prior year. We effectively leveraged our
leading B2C position in the Spanish market and further benefitted
from yield management activities which resulted in margin
improvement.
In France we remained fully operational during the initial
lockdown period which enabled us to strengthen our market position
and grow our customer base. As a result revenues grew by 23.5% and
scale benefits resulted in a significant reduction in operating
losses compared with the prior year. In addition, despite the
challenging situation during the pandemic, we completed targeted
investments to improve our capacity and optimise our network. The
team in France is now focused on securing this positive momentum
into the future.
US performance also improved and we delivered 25.2% organic
revenue growth. Over the last two years to drive improvements we
have focused on yield management activities, acquisition of new
customers, streamlining back and head office functions, and
achieving productivity improvements. The benefits of these
initiatives are clearly evident in the US business's 2020-21
performance. We have also seen a strong increase in B2C volumes
driven by a range of initiatives. We will continue to focus on
enhancing the US business's product offering including freight
capabilities similar to the Dicom business in Canada. The
integration of Mountain Valley Express, a freight business we
acquired in September 2019, is already delivering positive
benefits.
In Canada, Dicom revenue was broadly flat with growth impacted
by lower freight and B2B volumes. Nevertheless, adjusted operating
margin improved as a result of initiatives focused on streamlining
the cost base.
We continue to invest in growth opportunities. In 2020-21
capital expenditure increased 13.3% to GBP136 million (2019-20:
GBP120 million).
April 2021 trading
April 2021 revenues grew 22.3% year on year. Volume growth until
mid-April remained strong, with a subsequent slowdown principally
due to the high volumes observed last year. During the course of
2021-22 we expect to see some volatility in volume growth rates as
lockdown restrictions are lifted.
The future
To optimally position ourselves for future growth we expect
capital expenditure will increase in 2021-22, including investment
in new hubs to support our growth ambitions.
I am excited about the opportunities ahead of us. We are
committed to maximising GLS' potential and we have already begun
executing on our 'Accelerate GLS' strategic framework which has
delivered benefits in 2020-21 and will unlock further growth
opportunities in the future.
STRATEGY REVIEW: ACCELERATE GLS
Unlocking future growth
At the end of March 2021 we announced our Accelerate GLS
strategy. Building on a proven business model, key strengths and a
solid track record of revenue and profit growth, Accelerate GLS is
designed to unlock GLS' potential and drive growth. Our key
strategic ambitions are:
-- Connect Europe: Strengthening GLS' top position in the
cross-border deferred parcel segment. By 2024-25 we plan to outgrow
the cross-border market growth rate of around 9%(1) and deliver 16%
CAGR in volume terms from 2019-20. As a result, in the future
around a quarter of GLS revenue will be generated in the
cross-border segment.
-- Strengthen 2C parcel market position and lead in 2B :
Strongly position ourselves in the 2C parcel market and secure our
leading position in the 2B segment. In recent years GLS has grown
from a predominantly B2B player to delivering 57% of parcel volume
in the B2C segment in 2020-21. As a result our operations are
already fully B2C and B2B enabled, providing a strong platform for
future growth. By 2024-25 we plan to outgrow the B2C market growth
rate of around 10%(2) and deliver a 17% CAGR in volume terms from
2019-20.
-- Inspire the market: Launch innovative digital and sustainable
solutions that are centred around customer needs and provide the
best 'delivery experience'. Innovation drives positive customer
experiences and is essential if we are to enhance our competitive
advantage, win in our growth markets and achieve our strategic
ambitions.
Creating sustainable growth
To achieve each of our strategic ambitions, create sustainable
growth and meet changing customer needs, we have developed and are
executing clear strategic plans.
Connect Europe: We will strengthen our international
capabilities by:
-- Upscaling our network: We have already started to
significantly upscale our network capacity and footprint. Three new
hubs are in development and further investment in additional
strategic hubs is being planned.
-- Strengthening our network: We will serve more European cities
with point-to-point direct lines which will further improve our
pace of delivery and help support margin growth.
-- Expanding our international offering: We will enhance our
international products and services to provide an international
shipping experience. We will also drive more international volume
from non-Europe based shippers by offering dedicated services
covering import, customs clearance and delivery.
Strengthen 2C parcel market position and lead in 2B: We will
position GLS as the customers parcel shipper of choice by:
-- Investing in capacity and capabilities . Across our
international footprint we will invest in domestic network capacity
and 2C capabilities.
-- Developing convenient 2C services and products. We will
expand our customer offering to include convenient services and
products that enhance our customers' experience, including
expanding our parcelshop network which provides a convenient
pick-up and drop-off option.
-- Continuing to deliver a high-quality service. Regardless of
peaks in demand and volume volatility we will remain focused on
customer satisfaction and providing a consistently high-quality
service.
Inspire the market: We will deliver great customer experience
by:
-- Developing digital solutions: We will focus on developing new
convenient, mainly app driven, solutions that make parcel delivery
a fun experience. We are increasingly providing more flexible and
convenient services including live-tracking and in-flight
re-routing of parcels and also dedicated B2C evening delivery
options. As the customer experience is key we are increasingly
asking for their immediate feedback.
-- Providing sustainable solutions: We are committed to
providing sustainable solutions and we have already made some good
progress. We have started our green flagship depot programme to
ensure that all countries progress on electric vehicles, charging
infrastructure, and city logistics concepts including inner-city
carbon free delivery. Today, we already serve more than 60 inner
cities with carbon free delivery methods, including e-bikes, e-vans
and e-scooters. We will steadily increase our fleet of electric
vehicles and city depots across Europe. Our EuropeanEcoHub in
Essen, which is largely independent from external energy and water
provision and features e-vans and electric bicycles for inner city
deliveries, will serve as a blueprint for our next generation of
facilities. In the Netherlands and Germany we have been very
successful with the GLS ClimateProtect programme in which all CO2
emissions across the whole logistics value chain are compensated
through certified projects.
As our customers continue to respond positively to these
developments we will further develop and expand our sustainable
business approach.
Given the benefits of being able to respond quickly to local
market needs, each country within our network will tailor
Accelerate GLS to ensure it serves local customer needs. Using the
Accelerate GLS framework local management teams have developed
clearly defined localised action plans. This 'bespoke strategic'
approach differentiates GLS from its competitors and enables the
business to respond quickly to evolving trends, capitalise on
growth opportunities and enhance customers' experience.
Ambition
Accelerate GLS will enable us to deliver ambitious yet realistic
financial results. The strategy has already delivered benefits
contributing in part to our strong 2020-21 performance.
From FY2019-20 to FY2024-25, GLS expects to grow revenue at
around 12% CAGR (from EUR3,614 million in FY2019-20), more than
double operating profit to EUR500 million and generate EUR1 billion
of free cash flow(3) . Capital expenditure over the period is
expected to remain in the range of 3-4% of revenue.
Footnotes for STRATEGY REVIEW: ACCELERATE GLS section
1. Source: Market growth CAGR 2020 -2025 according to Forrester,
Effigey (excl. UK).
2. Source: Market 2C growth CAGR 2020 -2025 according to
Forrester, Effigey (excl. UK).
3. FY2020-21 to FY2024-25, including capital lease payments.
FINANCIAL REVIEW
GROUP CFO INTRODUCTION
I became Group Chief Financial Officer in January 2021, having
held that role on an interim basis since May 2020. I have been with
the Group for 27 years, and without a doubt the past 14 months have
been unprecedented. The human cost of COVID-19 has been tragic,
with the impact of the pandemic being felt across every part of our
business. The response of our people has been tremendous, allowing
us to cope with unprecedented volumes of parcels. This has
ultimately resulted in a financial outcome far better than we
originally anticipated and I would like to add my sincere thanks to
everyone across the Group for all their efforts in very difficult
circumstances.
In Royal Mail we originally anticipated that the additional
costs from higher absence levels, social distancing and the rapid
change in mix with more parcels and fewer letters would lead to the
business making a material loss. However, the sustained growth in
parcels and a partial recovery in letters in the second half meant
the business delivered 12.0% top line growth, by far the strongest
performance since IPO in 2013. Unfortunately, we were unable to
make material progress with operational efficiency changes due to
the pandemic, but the flexibility shown by our teams in responding
positively to the very difficult circumstances was a major plus.
Despite the additional costs associated with the pandemic, and
restructuring charges, Royal Mail saw positive operating leverage
with adjusted operating profit growing by 194.0% year on year and
an adjusted operating profit margin of 4.0%.
In GLS, our challenge was to adapt a business that has
historically predominantly delivered B2B parcels, to one capable of
harnessing the strong growth in B2C, without diluting margin.
Originally, we anticipated that the additional costs associated
with B2C deliveries would put pressure on adjusted operating profit
margin. However, the scale effects of strong parcel growth over the
year, combined with pricing initiatives in certain markets, led to
adjusted operating profit margin growing by 230 basis points on top
line growth of 27.8%. We also saw an improved performance in our
focus countries of Spain, France and the US.
As a result, Group revenue grew by 16.6%, with adjusted Group
operating profit growing by GBP377 million to GBP702 million. On a
reported basis Group operating profit was GBP611 million, the
difference reflecting primarily the pension charge to cash
difference adjustment, and also specific items.
In-year trading cash flow was GBP762 million (2019-20: GBP556
million) due to higher adjusted EBITDA offset by higher corporation
tax paid and a smaller trading working capital inflow. Pre-IFRS 16,
in-year trading cash flow would have been GBP156 million lower. Net
debt was GBP457 million (2019-20: GBP1,132 million).
Reported results, Alternative Performance Measures (APMs) and
reporting periods
Reported results are prepared in accordance with International
Financial Reporting Standards (IFRS). In addition, the Group's
performance is also explained through the use of APMs that are not
defined under IFRS. Management is of the view that these measures
provide a more meaningful basis on which to analyse business
performance. They are also consistent with the way financial
performance is measured by Management and reported to the
Board.
The APMs used are explained at the end of this Financial Review
in the section Alternative Performance Measures (APMs) and
reconciliations to the closest measure prescribed under IFRS are
provided where appropriate.
Group and Royal Mail results are for the 52-week period to 28
March 2021. The GLS financial performance is for the 12 months to
31 March 2021.
Group results
Summary reported results (GBPm)
Reported Reported
52 weeks 52 weeks
March March
2021 2020
========== ===========
Revenue 12,638 10,840
Operating costs (12,020) (10,623)
---------------------------------------------- ---------- ===========
Operating profit before specific items 618 217
Operating specific items (7) (162)
---------------------------------------------- ---------- ===========
Operating profit 611 55
Non-operating specific items 36 89
Net finance costs (38) (50)
Net pension interest (non-operating specific
item) 117 86
---------------------------------------------- ========== ===========
Profit before tax 726 180
---------------------------------------------- ---------- ===========
Earnings per share (basic) 62.0p 16.1p
============================================== ========== ===========
The Group delivered results well above initial expectations due
to changing customer behaviour, the growth in online shopping
during the pandemic, and our increased focus on the customer.
Revenue increased by GBP1,798 million, largely due to higher parcel
revenue in Royal Mail and GLS, which more than offset the decline
in Royal Mail letters revenue. Operating costs increased by
GBP1,397 million, driven by COVID-19, the cost of mix change
towards more expensive to handle parcels, volume and the previously
announced management restructure in Royal Mail. This resulted in an
operating profit before specific items of GBP618 million, GBP401
million higher than the prior year. Operating specific items were a
cost of GBP7 million and non-operating specific items a credit of
GBP36 million. See Specific items and pension charge to cash
difference adjustment for further information.
A management restructuring cost of GBP93 million has not been
treated as a specific item, in line with market guidance issued on
22 May 2019, where we communicated that transformation costs (which
include project costs and voluntary redundancy costs) would be
included in operating profit. The aim of this change was to
simplify the measures reported externally.
Profit before tax of GBP726 million comprises a GBP398 million
profit in Royal Mail (2019-20: GBPnil million) and a GBP328 million
profit in GLS (2019-20: GBP180 million profit). Basic earnings per
share increased to 62.0 pence. A full reconciliation of reported to
adjusted results is set out at the end of this Financial Review in
Presentation of results and Alternative Performance Measures
(APMs).
Summary segmental results (GBPm)
52 weeks 52 weeks
March March
Reported 2021 2020 Change
------------------------ ======== ======== -------
Royal Mail 8,649 7,720 12.0%
GLS 4,040 3,161 27.8%
Intragroup revenue (51) (41) 24.4%
------------------------- -------- -------- -------
Group revenue 12,638 10,840 16.6%
========================= ======== ======== =======
Adjusted (1)
Royal Mail (8,305) (7,603) 9.2%
GLS (3,682) (2,953) 24.7%
Intragroup costs 51 41 24.4%
------------------------- -------- -------- -------
Group operating costs (11,936) (10,515) 13.5%
------------------------- -------- -------- -------
Adjusted (1)
Royal Mail 344 117 194.0%
GLS 358 208 72.1%
------------------------- -------- -------- -------
Group operating profit 702 325 116.0%
========================= ======== ======== =======
Operating profit margin 5.6% 3.0% 260 bps
========================= ======== ======== =======
Group revenue grew by 16.6% in the year. Total parcel revenue
continued to grow as a percentage of Group revenue, accounting for
72.2% in the year (2019-20: 62.9%).
Group operating costs increased by 13.5%.
Intragroup revenue and costs represent trading between Royal
Mail and GLS, principally a result of Parcelforce Worldwide
operating as GLS' partner in the UK.
Group operating profit margin was up 260 basis points, driven by
improved profitability in both Royal Mail and GLS on the back of
stronger than anticipated revenue growth.
The main factors impacting revenue and operating costs are
described throughout this Financial review.
Specific items and pension charge to cash difference
adjustment
52 weeks 52 weeks
March March
(GBPm) 2021 2020
===================================================== ======== ========
Pension charge to cash difference adjustment
(within people costs) (84) (108)
Operating specific items
Regulatory fine (1) (51)
Legacy / other items 13 (92)
Amortisation of acquired intangible assets (19) (19)
===================================================== ======== ========
Total operating specific items (7) (162)
===================================================== ======== ========
Non-operating specific items
Profit on disposal of property, plant and equipment 36 89
Net pension interest 117 86
Total non-operating specific items 153 175
===================================================== ======== ========
Total specific items and pensions adjustment
before tax 62 (95)
===================================================== ======== ========
Total tax credit on specific items and pensions
adjustment 37 60
===================================================== ======== ========
The pension charge to cash difference adjustment comprises the
difference between the IAS 19 income statement pension charge rate
of 19.5% for the Defined Benefit Cash Balance Scheme (DBCBS) from
30 March 2020 and the actual cash payments agreed with the Trustee
of 15.6%. The charge was GBP84 million in the year (2019-20: GBP108
million), GBP24 million lower than in 2019-20. The decrease in the
adjustment is largely due to a reduction in the IAS 19 pension
charge rate for the DBCBS from 20.8% in 2019-20, to 19.5% in
2020-21.
The regulatory fine in the prior year relates to a provision for
a fine of GBP50 million and associated interest, following a
Competition Appeal Tribunal judgment on 12 November 2019.
The legacy items largely relate to a GBP16 million credit
(2019-20: GBP2 million charge) in respect of Industrial Diseases
Claims after the reassessment of provisions following updated
guidance published by the Institute and Faculty of Actuaries'
Asbestos Working Party. The prior year amount largely relates to
the impairment of the Parcelforce Worldwide business.
Amortisation of acquired intangible assets of GBP19 million
(2019-20: GBP19 million) relates to acquisitions in GLS.
The profit on disposal of property, plant and equipment of GBP36
million (2019-20: GBP89 million profit) primarily relates to the
sale of two London Development Portfolio plots (Plot A at the Nine
Elms development site and Calthorpe Street at the Mount Pleasant
development site). The prior year profit largely relates to the
land sale of plots B and D and C at Nine Elms. Further detail is
provided in the London Development Portfolio Section below.
Net pension interest credit of GBP117 million (2019-20: GBP86
million) is calculated by reference to the pension surplus at the
start of the financial year. The increase in the year of GBP31
million is as a result of a higher pension surplus position at 29
March 2020 compared with 31 March 2019.
Net finance costs
Reported net finance costs of GBP38 million (2019-20: GBP50
million) largely comprised interest on bonds (including
cross-currency swaps) of GBP24 million (2019-20: GBP17 million),
interest on the bank syndicate loan facility of GBP3 million
(2019-20: GBPnil), and interest on leases of GBP27 million
(2019-20: GBP30 million). This is offset by interest income of
GBP17 million (2019-20: GBP6 million). The bank syndicate loan
facility was extended by one year to September 2025 with the option
to extend for a further one year.
Facility Drawn Facility
Facility Rate (GBPm) (GBPm) end date
----------------------------- ------------ -------- ------- ---------
EUR500 million bond 2.5% 427 427 2024
EUR550 million bond 2.7% 468 468 2026
Bank syndicate loan facility LIBOR+0.475% 925 - 2025
----------------------------- ------------ -------- ------- ---------
Total 1,820 895
============================= ============ ======== ======= =========
The blended interest rate on gross debt, including leases for
2020-21, is approximately 3%. The impact of retranslating the
EUR500 million and EUR550 million bonds is accounted for in
equity.
Taxation
52 weeks 52 weeks
March 2021 March 2020
-------------------- ------------------------ ------------------------
(GBPm) Royal Mail GLS Group Royal Mail GLS Group
==================== ========== ===== ===== ========== ===== =====
Reported
Profit before tax 398 328 726 - 180 180
Tax (charge)/credit (30) (76) (106) 31 (50) (19)
Effective tax rate 7.5% 23.2% 14.6% N/A 27.8% 10.6%
Adjusted
Profit before tax 316 348 664 83 192 275
Tax charge (62) (81) (143) (26) (53) (79)
Effective tax rate 19.6% 23.3% 21.5% 31.3% 27.6% 28.7%
==================== ========== ===== ===== ========== ===== =====
The Royal Mail adjusted effective tax rate of 19.6% (2019-20:
31.3%) is lower than the prior year mainly because 2019-20 included
an increase in the uncertain tax provision in respect of patent box
claims, the effect of which was amplified by lower profits. The
effective tax rate for the current year is broadly in line with the
UK statutory rate of 19%.
The GLS adjusted effective tax rate of 23.3% (2019-20: 27.6%) is
lower than the prior year mainly due to the improved performance of
GLS US and GLS France and the resulting reduction in the
non-recognition of deferred tax assets on losses.
The Group reported effective tax rate is 14.6% (2019-20: 10.6%).
This effective tax rate is impacted by the net pension interest
credit, on which there is no tax charge, and profits made on
operational property disposals which are offset by reinvestment
relief.
Earnings per share (EPS)
Reported basic EPS was 62.0 pence (2019-20: 16.1 pence) and
adjusted basic EPS was 52.1 pence (2019-20: 19.6 pence), reflecting
the improved trading performance of the Group.
In-year trading cash flow
52 weeks 52 weeks
March March
(GBPm) 2021 2020
----------------------------------------------------- ======== ========
Adjusted operating profit 702 325
Depreciation and amortisation 554 516
----------------------------------------------------- -------- --------
Adjusted EBITDA 1,256 841
Trading working capital movements 13 155
Share-based awards (LTIP and DSBP) charge adjustment 4 4
Gross capital expenditure (346) (342)
Net finance costs paid (41) (47)
Research and development expenditure credit 1 14
Corporation tax paid (125) (69)
In-year trading cash flow 762 556
----------------------------------------------------- -------- --------
Capital element of operating lease repayments(2) (156) (141)
----------------------------------------------------- -------- --------
Pre-IFRS 16 in-year trading cash flow 606 415
----------------------------------------------------- -------- --------
Attributable to Royal Mail 334 319
----------------------------------------------------- -------- --------
Attributable to GLS 272 96
----------------------------------------------------- -------- --------
Royal Mail Group 606 415
===================================================== ======== ========
In-year trading cash inflow was GBP762 million, compared with
GBP556 million in the prior year. This was mainly due to higher
adjusted EBITDA offset by higher corporation tax paid and a smaller
trading working capital inflow.
GLS in-year trading cash flow (pre-IFRS 16) was GBP272 million
(2019-20: GBP96 million), or EUR301 million (2019-20: EUR112
million).
Trading working capital inflow of GBP13 million was GBP142
million lower than in the prior year which had benefitted from
having only 11 monthly salary and VAT payments and the prior year
saw an increase in the bonus accrual creditor compared to 2018-19.
In Royal Mail, the net outflow was GBP39 million as higher revenue
pushed up trade debtors which was partially offset by increased
trade creditors and other payables. In GLS, the net inflow was
GBP52 million as working capital inflows were driven by good
control over trade receivables, including some positive effect from
higher customer payments in the run up to Easter.
Corporation tax paid increased by GBP56 million, largely due to
an increase in profits versus prior year.
The capital element of operating lease repayments of GBP156
million reflects the net impact on in-year trading cash flow as a
result of adopting IFRS 16. Excluding the impact of this, in-year
trading cash flow was GBP606 million.
Gross capital expenditure
52 weeks 52 weeks
March March
(GBPm) 2021 2020
---------------------------------------------- ======== ========
GLS total capital expenditure (136) (120)
Royal Mail transformation capital expenditure (62) (29)
---------------------------------------------- -------- --------
Royal Mail maintenance capital expenditure (148) (193)
---------------------------------------------- -------- --------
Royal Mail Group (346) (342)
---------------------------------------------- -------- --------
Total gross capital expenditure was GBP346 million, of which GLS
spend was GBP136 million. Royal Mail capital expenditure was
GBP210m in total, of which GBP62m was transformational spend,
including investment in parcel hubs.
Net debt
A reconciliation of net debt is set out below .
52 weeks 52 weeks
March March
(GBPm) 2021 2020
---------------------------------------------------- ======== ========
Net (debt) brought forward at 30 March 2020 and
1 April 2019 (1,132) (300)
Capitalisation of leases under IFRS 16 - (1,062)
Free cash flow 800 653
---------------------------------------------------- -------- --------
In-year trading cash flow 762 556
Other working capital movements 28 7
Cash cost of operating specific items (4) (2)
Proceeds from disposal of property (excluding
London Development Portfolio), plant and equipment 5 12
Acquisition of business interests (4) (17)
Cash flows relating to London Development Portfolio 13 97
---------------------------------------------------- -------- --------
Purchase of own shares - (3)
New or increased lease obligations under IFRS
16 (non-cash) (173) (156)
Foreign currency exchange impact 48 (20)
Dividends paid to equity holders of the Parent
Company - (244)
---------------------------------------------------- -------- --------
Net debt carried forward (457) (1,132)
---------------------------------------------------- -------- --------
Operating leases 1,079 1,086
---------------------------------------------------- -------- --------
Pre IFRS 16 Net cash / (debt) 622 (46)
==================================================== ======== ========
Movements in GLS client cash are included within other working
capital movements. The amount held at 28 March 2021 was GBP41
million (2019-20: GBP21 million). The cash cost of operating
specific items was an outflow of GBP4 million consisting mainly of
industrial diseases claims and National Insurance related to
employee free share payments.
Acquisition of business interests of GBP4 million relates to
deferred consideration paid following the acquisition of Mountain
Valley Express (MVE) and Mountain Valley Freight Solutions
businesses in the prior year.
The net cash flows relating to the London Development Portfolio
were GBP13 million, consisting of receipts of GBP31 million for
Mount Pleasant and GBP10 million for Nine Elms, offset by the cost
of enabling works of GBP25 million at Mount Pleasant and GBP3
million at Nine Elms.
New or increased lease obligations under IFRS 16 of GBP173
million relates to additional lease commitments that were entered
into during the year.
Approach to capital management
The Group had four key objectives for capital management during
2020-21 listed below. The Board monitors the Group's capital
management policy to ensure that capital is allocated to support
the Group's strategies to deliver sustainable shareholder value.
Management proposes actions which reflect the Group's investment
plans and risk characteristics as well as the macro-economic
conditions in which we operate.
Objectives Enablers 2020-21 update
----------------------- -------------------------------------------------- -----------------------------------------
Meet the Group's Maintaining sufficient At 28 March 2021, the Group
obligations cash reserves had available resources of GBP2,457
as they fall due. and committed facilities million (2019-20: GBP1,874 million)
to: made up of cash and cash equivalents
of GBP1,532 million (2019-20:
* Meet all obligations, including pensions. GBP1,619 million), current asset
investments of GBPnil (2019-20:
GBP30 million) and an undrawn
* Manage future risks, including the princip committed bank syndicate loan
al risks. facility of GBP925 million (2019-20:
GBP225 million).
Existing banking covenants have
been waived until March 2022
and replaced with a basic liquidity
covenant.
At 28 March 2021, the Group
met the loan covenants and other
obligations for its bank syndicate
loan facility and EUR500 million
and EUR550 million bonds.
The Directors have a reasonable
expectation that the Group will
continue to meet its obligations
as they fall due.
----------------------- -------------------------------------------------- -----------------------------------------
Support a progressive Generate sufficient The Group reported GBP762 million
dividend policy. cash flow to cover of in-year trading cash flow
the ordinary dividend. (2019-20: GBP556 million), sufficient
Maintain sufficient to cover the one-off final dividend
distributable reserves of 10.0 pence per share (2019-20:
to sustain the Group's 7.5 pence).
dividend policy. Capital managed by the Group,
excluding the net assets of
the pension scheme, is GBP2,416
million at 28 March 2021 (2019-20:
GBP2,007 million).
The Group had retained earnings
of GBP4,802 million at 28 March
2021 (2019-20: GBP5,625 million).
The Group considers it has a
maximum level of distributable
reserves of around GBP2 billion,
which excludes the impact of
the pension surplus on retained
earnings, more than sufficient
to cover the dividend.
The Board has reviewed the performance
of the Group during the past
year and concluded that it is
appropriate to pay a one-off
final dividend of 10 pence per
share in respect of FY 2020-21,
subject to approval at the 2021
AGM.
----------------------- -------------------------------------------------- -----------------------------------------
Reduce the cost Target investment During the year, the Group maintained
of capital grade standard credit a credit rating of BBB with
for the Group. metrics i.e. no lower Standard & Poor's but the outlook
than BBB- under Standard was revised from stable to negative
& Poor's rating methodology. as a result of their assessment
of
COVID-19 related challenges.
----------------------- -------------------------------------------------- -----------------------------------------
Retain sufficient Funded by retained During the year, the Group made
flexibility cash flows and manageable total gross capital investments
to invest in the levels of debt consistent of GBP346 million (2019-20:
future of with our target credit GBP342 million) and acquisition
the business. rating. of business interests of GBP4
million (2019-20: GBP17 million)
while retaining sufficient capital
headroom.
======================= ================================================== =========================================
Future approach to capital management
The Board has reviewed its approach to capital allocation and
dividend. We have a clear capital allocation framework: invest in
our business to support growth, maintain our investment grade
rating, pay a sustainable dividend and retain flexibility for
selective acquisitions. Given the high operational leverage in our
business, we will continue to keep low levels of financial
leverage. In the current risk environment, we believe running a
Group net cash position on a pre-IFRS 16 basis is appropriate. We
are confident - notwithstanding the ongoing uncertainty - that both
our main businesses will independently generate cash sufficient for
their own organic investment purposes, so whilst investment is
expected to step up in the coming period, we do not anticipate the
need for any cross subsidy. The Board will adopt a sustainable
progressive divided policy and expects to propose a full year
dividend for 2021-22 of 20 pence per share, to be paid one third as
an interim, two thirds as a final dividend. The Board will review
the Group's capital structure on a regular basis, taking into
account the market environment, the cash flow generation of the
Group and its capital allocation framework and will not retain
excess capital which is unutilised under our capital allocation
framework.
Pensions
Details of each of the plans operated by Royal Mail are set out
below.
Defined Benefit Cash Balance Scheme (DBCBS)
An IAS 19 deficit of GBP394 million (2019-20: GBP177 million) is
shown on the balance sheet. The scheme is not in funding deficit
and it is not anticipated that deficit payments will be required.
The DBCBS will be subject to triennial valuations from 2021.
An IAS 19 pension service charge of 19.5% (2019-20: 20.8%),
equivalent to GBP360 million (2019-20: GBP388 million), has been
charged to the income statement for the DBCBS scheme. The pension
charge is greater than the cash contribution rate as the assumed
rate of future increases in benefits (4.8%) is greater than the
assumed discount rate (1.9%).
The Group has made contributions at 15.6% (2020-21: GBP285
million; 2019-20: GBP288 million) of DBCBS pensionable pay in
respect of the scheme. Members contribute at 6.0%.
The IAS 19 pension service charge to cash difference adjustment
for 2020-21 was GBP84 million (2019-20: GBP108 million). Pension
interest for 2021-22, calculated on the assets and liabilities as
at 28 March 2021, is estimated to be a charge of GBP9 million.
Royal Mail Defined Contribution Plan (RMDCP)
Under the RMDCP, current and future RMDCP members in the
standard section will contribute at the highest contribution tier
(employee: 6.0%; employer: 10.0%) unless they opt to contribute at
a lower level. The contribution rate for members not in the
standard section is employee: 5.0%; employer: 3.0%).
Royal Mail Pension Plan (RMPP)
The RMPP closed to future accrual in its previous form from 31
March 2018. The pre-withholding tax accounting surplus of the RMPP
at 28 March 2021 was GBP3,666 million (29 March 2020: GBP5,550
million), comprising assets of GBP11,441 million (29 March 2020:
GBP11,683 million) and liabilities of GBP7,775 million (29 March
2020: GBP6,133 million). The pre-withholding tax accounting surplus
has decreased by GBP1,884 million (29 March 2020: GBP1,854 million
increase) in the year, as gilt yields have increased in the year,
decreasing the value of scheme assets whilst the decrease in the
'real' discount rate since the prior year (the difference between
RPI and the discount rate based on corporate bond yields) has
resulted in an increase in the valuation of scheme liabilities.
After the withholding tax adjustment, the accounting surplus of the
RMPP was GBP2,383 million at 28 March 2021 (29 March 2020: GBP3,608
million). This is an accounting adjustment with no cash benefit to
the Group. For 2021-22, the pension interest will be a credit of
GBP73 million.
The triennial valuation of the RMPP at 31 March 2018 was agreed
on 19 July 2019. Based on this set of assumptions rolled forward,
the RMPP actuarial surplus at 31 March 2021 was estimated to be
around GBP163 million (31 March 2020: GBP575 million).
Royal Mail Senior Executives Pension Plan (RMSEPP)
The RMSEPP closed in December 2012 to future accrual and the
Group makes no regular service contributions.
Following the purchase of an additional insurance policy in
September 2018 in respect of all remaining pensioners and deferred
members, it was subsequently decided to proceed to buy out and wind
up the Plan. As a result the purchase of the insurance policy was
treated as a settlement in the 2018-19 Financial Statements. The
difference between the IAS 19 surplus before and after the
transaction resulted in GBP64 million being charged to the income
statement as an operating specific item. The process to buy out and
wind up the RMSEPP had previously been expected to complete in
2020-21; however, it was delayed by the need for further clarity
over the approach to Guaranteed Minimum Pensions (GMP)
equalisation. The Trustees currently expect this to complete in
2022. There is no charge in the current year.
All benefit payments due from the RMSEPP remain unchanged. The
insurance policies held by the RMSEPP exactly match the value and
timing of the benefits payable to individual members and the fair
value of those policies are deemed to be the present value of the
related obligations. Further details can be found in the paragraph
entitled 'Royal Mail Senior Executives Pension Plan (RMSEPP)' in
Note 6 to the Consolidated Financial Statements.
Based on the rolled forward assumptions used for the RMSEPP
triennial valuation as at 31 March 2018 completed in the prior
year, the RMSEPP actuarial surplus at 31 March 2021 was estimated
to be GBP9 million (31 March 2020: GBP9 million). The
pre-withholding tax accounting surplus at 28 March 2021 was GBP9
million (29 March 2020: GBP10 million).
In accordance with the Schedule of Contributions agreed as part
of the 2018 triennial valuation, around GBP500,000 a year is to be
paid for the period 1 April 2018 to 31 March 2025 in respect of
death-in-service lump sum benefits and administration expenses.
Guaranteed Minimum Pensions (GMP)
Pension schemes are now under an obligation to address the issue
of unequal GMP. The transfer of the RMPP's historic pension
liabilities to HM Government in 2012, in accordance with the Postal
Services Act 2011, included all of the plan's GMP liabilities. The
requirement to remove the inequality in former RMPP benefits
deriving from GMPs therefore rests with Government.
However, RMSEPP still holds its GMP liabilities and will be
required to take action to equalise benefits. The Trustees are
considering the approach to be taken to address the issue of
unequal GMPs in respect of the RMSEPP scheme but estimate that the
cost of this will not be material.
Collective Defined Contribution (CDC) scheme and Defined Benefit
Lump Sum Scheme (DBLSS)
We have, for some time, been working closely with the CWU and
other stakeholders to make CDC a reality for Royal Mail and its
people.
The Pension Schemes Act, which became law in February 2021,
legislates for the creation of CDC pension schemes for the first
time under UK law. Royal Mail aims to set up the first scheme of
this kind in the UK.
Based on current expectations, it is anticipated that the CDC
scheme will be accounted for as a defined contribution scheme. It
is anticipated the DBLSS will be accounted for as a defined benefit
scheme with the accounting treatment expected to be similar to the
transitional DBCBS. The new arrangements will have fixed employer
contributions of 13.6% and employee contributions of 6.0%.
During 2020-21, the Group contributed around GBP405 million,
excluding Pension Salary Exchange (PSE), in respect of all UK
pension schemes. In 2021-22 the Group expects to contribute around
GBP400 million in respect of all UK pension schemes.
Financial risks and related hedging
The Group is exposed to commodity price and currency risk. The
Group operates hedging policies which are stated in the Annual
Report and Accounts.
The forecast diesel and jet commodity exposures in Royal Mail
are set out below together with the sensitivity of 2021-22
operating profit to changes in commodity prices and fuel duty. As
GLS relies on the use of subcontractors, responsible for purchasing
their own fuel, GLS has no direct exposure to diesel costs.
Impact
Impact on
on 2021-22
Fuel Residual 2021-22 operating
duty/other Underlying unhedged operating profit
costs commodity underlying profit of a
(incl exposure commodity of a further
irrecoverable (incl Underlying exposure further 10% increase
Forecast VAT) - irrecoverable commodity (incl 10% increase in fuel
total not hedged VAT) volume irrecoverable in commodity duty/other
2021-22 cost 2021-22 2021-22 hedged VAT) price cost
exposure GBPm GBPm GBPm % GBPm GBPm GBPm
-------------- --------- -------------- -------------- ----------- -------------- -------------- --------------
Diesel 178 118 60 74 15 2 12
Jet fuel 9 2 7 86 1 - -
-------------- --------- -------------- -------------- ----------- -------------- -------------- --------------
Total 187 120 67 75 16 2 12
============== ========= ============== ============== =========== ============== ============== ==============
Without hedging, diesel and jet fuel costs for 2021-22 would be
around GBP7 million higher (based upon closing fuel prices at 28
March 2021).
The Group is exposed to foreign currency exchange risk in
relation to interest payments on the EUR500 million bond, certain
obligations under Euro denominated finance leases, trading with
overseas postal administrations and various purchase contracts
denominated in foreign currency. GLS' functional currency is the
Euro which results in translational foreign currency exchange risk
to revenue, costs and operating profit. The EUR550 million bond,
issued in October 2019, is fully hedged by a cross-currency
interest rate swap with no residual exposure to foreign currency or
interest rate risk.
The average exchange rate between Sterling and the Euro was
GBP1:EUR1.12 (2019-20: GBP1:EUR1.14). This resulted in a GBP7
million increase in GLS' reported operating profit before tax in
2020-21. The impact of foreign exchange transactions in the UK was
not material in 2020-21. The net impact on Group operating profit
before tax was GBP7 million.
The Group manages its interest rate risk through a combination
of fixed rate loans and leasing, floating rate loans/facilities and
floating rate financial investments. At 28 March 2021, all the
gross debt of GBP2,051 million was at fixed rates.
London Development Portfolio
1) Mount Pleasant
This development site includes the sale of 6.25 acres to develop
circa 680 residential units. In 2017 an agreement was reached with
Taylor Wimpey UK Ltd ('Taylor Wimpey') for the sale of the
Calthorpe Street development site, subject to specific separation
and enabling works for the site being completed. The sale was
completed and the site handed over to Taylor Wimpey in March 2021,
following the successful completion of the separation and enabling
works. The combined proceeds for the Calthorpe Street site, and the
adjacent Phoenix Place site (sold to Taylor Wimpey in 2017-18) was
GBP193.5 million (including GBP3.5 million non-cash consideration).
For accounting purposes, GBP39.5 million of the proceeds were
allocated to Phoenix Place and GBP154 million to Calthorpe Street.
GBP115 million of the total combined cash proceeds for both sites
have been received as at 28 March 2021 (with circa GBP31 million
received in 2020-21). The remainder of the cash is due to be
received through a stage payment in 2023-24 and a final payment in
2024-25.
The costs of the completed enabling works of circa GBP100
million were incurred over a three and a half year period (2017-18
to 2020-21). The costs incurred in 2020-21 were circa GBP25
million. All proceeds received up to 2020-21, in aggregate, cover
Royal Mail's outgoings on the separation and enabling works. The
profit on disposal of the Calthorpe Street site amounted to GBP29
million, recognised as a specific item in the income statement.
2) Nine Elms
This site covers the sale of 13.9 acres with planning consent to
develop 1,911 residential units, split into various plots:
-- Plots B/D sale completed June 2019 for GBP101 million to Greystar Real Estate Partners, LLC.
-- Plot C1 sale completed June 2019 for GBP22.2 million to Galliard Homes.
-- Plot A sale completed December 2020.
We remain engaged in a disposal process for Plots E, F and G.
Further investment will be required in relation to infrastructure
for the remaining plots, subject to future sales.
3) Investment
In total we have invested GBP28 million in the year on works to
separate the retained operational sites from the development plots
at Mount Pleasant and infrastructure works at Nine Elms.
Dividends
No interim dividend was paid for FY2020-21.
The Board has reviewed the performance of the Group during the
past year and concluded that it is appropriate to pay a one-off
final dividend of 10 pence per share in respect of FY2020-21,
payable on 6 September 2021 to shareholders on the register at 30
July 2021, subject to approval at the 2021 AGM on 21 July 2021.
Footnotes for Financial Review - Group section
1. The Group makes adjustments to reported results under IFRS to
exclude specific items and the IAS 19 pension charge to cash
difference adjustment as set out in the section entitled 'Specific
items and pension charge to cash difference adjustment'.
2. The capital element of lease payments of GBP188 million
(2019-20: GBP172 million) is made up of the capital element of
operating lease payments of GBP156 million (2019-20: GBP141
million) and the capital element of finance lease payments of GBP32
million (2019-20: GBP31 million).
Royal Mail
Reported summary results (GBPm)
Reported Reported
52 weeks 52 weeks
March March
2021 2020
======================================= ========= =========
Revenue 8,649 7,720
Operating costs (8,389) (7,711)
======================================= ========= =========
Operating profit before specific items 260 9
Operating specific items 11 (149)
======================================= ========= =========
Operating profit/(loss) 271 (140)
======================================= ========= =========
Operating profit/(loss) margin 3.1% (1.8%)
======================================= ========= =========
Revenue was GBP929 million higher than the prior year, driven by
strong parcels growth. The prior year benefitted from the European
Parliamentary and UK general election mailings. Royal Mail has seen
a substantial shift in revenue mix from letters to parcels, driven
largely by COVID-19. As parcels revenues have continued to grow at
a rate that has outpaced letter decline, the business has also
benefitted this year from positive operational gearing.
Operating costs increased by GBP678 million, driven by increased
people, distribution and conveyance costs. This is a result of the
mix change from letters to parcels, the impact of the COVID-19
pandemic and management restructuring costs. This resulted in an
operating profit before specific items of GBP260 million. Operating
specific items of GBP11 million largely related to a GBP16 million
release of the provision for industrial disease claims, offset by
the employee free shares charge of GBP2 million.
Adjusted(1) trading results (GBPm)
Adjusted Adjusted
52 weeks 52 weeks
March March
2021 2020 Change
-------------------------------------- --------- --------- -------
Parcels 5,131 3,699 38.7%
Letters 3,518 4,021 (12.5%)
Revenue 8,649 7,720 12.0%
Operating costs (8,305) (7,603) 9.2%
--------------------------------------- --------- --------- -------
Operating profit 344 117 194.0%
--------------------------------------- --------- --------- -------
Operating profit margin 4.0% 1.5% 250bps
--------------------------------------- --------- --------- -------
Parcels volumes (m units)
Domestic 1,496 1,054 42%
International 239 258 (7%)
--------------------------------------- --------- --------- -------
Total parcels 1,735 1,312 32%
--------------------------------------- --------- --------- -------
Letters volumes (m units)
Addressed letters 7,727 10,047 (23%)
Addressed letters (excluding election
mailings) (20%)
Unaddressed letters 1,784 2,603 (31%)
--------------------------------------- --------- --------- -------
Total letters 9,511 12,650 (25%)
--------------------------------------- --------- --------- -------
The pace of revenue growth in the second half of 2020-21
increased, with Royal Mail total revenues up 12.0% at the full year
versus 4.9% in H1.
Parcels
Total parcel revenue was up 38.7% at the full year versus 33.2%
in H1. This growth more than offset the letter revenue decline of
12.5% in the year.
Throughout the year there was a substantial shift in revenue
mix. Parcels revenue represented 59% of total Royal Mail revenue
(2019-20: 48%).
Parcel volumes grew 32% compared to 2% in the prior year.
Account parcel volumes were up 48%, driven by increased e-commerce
sales as retail spending moved online following a series of full
and phased lockdowns in the UK. Account parcel volumes also include
the COVID test kits delivered on behalf of the Government. Royal
Mail Tracked 24(R) /48(R) and Tracked Returns(R) volumes, our key
e-commerce products, grew by 79%. During the year, we also launched
our suite of In-flight Delivery Options, the number one ask from
account sending customers.
Parcelforce Worldwide total volumes increased by 16%, due to
increased volumes from B2C customers resulting from COVID-19,
together with some new business wins.
The international parcels business experienced revenue growth in
the year despite challenging trading conditions. Export revenues
were higher than the prior year despite a fall in volumes. This was
largely due to an increase in prices, driven by cost pressures in
overseas delivery and a shortage in airline conveyance capacity,
which increased the cost of exporting parcels. Import revenue was
also higher despite lower volume due to fewer items from lower
average unit revenue countries, in particular China, and
exceptional Terminal Dues price rises.
The total parcel revenue increase reflects the impact of the
COVID-19 pandemic on mix and volume growth. For account customers,
higher average unit revenue (AUR) tracked products grew faster than
their untracked equivalents as customers traded up to more premium
products. Volumes in Consumer and SME channels also strengthened
throughout the year.
Letters
Letter performance saw some recovery in H2 after the significant
declines we experienced in H1. Total letter volumes declined by 25%
over the year, an improvement compared with the 33% decline seen in
H1. Addressed letter volumes excluding election mailings were down
20% for the full year. In addition to ongoing structural decline,
letter volume decline has been accelerated by the impact of the
pandemic, which has negatively impacted economic activity and
ongoing business uncertainty.
The pandemic significantly impacted Advertising Mail and Meter
volumes. Advertising Mail revenue of GBP407 million was down 33.6%,
with a more robust performance in the second half as some business
activity resumed and price rises in January 2021. Business Mail was
also heavily impacted, although less so than Advertising Mail, and
similarly had a more robust performance in the second half. Volumes
in Consumer and SME channels also strengthened throughout the
year.
Total letter revenue decreased by 12.5%.
Revenue and volume profiles, split between first half and second
half, are provided below:
52 weeks March 2021 52 weeks March 2020 Change (%)
------------------ ----------------------- ----------------------- ---------------
Parcel volumes (m Full Full
units) H1 H2 Full Year H1 H2 Year H1 H2 Year
------------------ ----- ---- ---------- ------ ----- -------- --- --- -----
Total Parcels 806 929 1,735 613 699 1,312 31% 33% 32%
------------------ ----- ---- ---------- ------ ----- -------- --- --- -----
52 weeks March 2021 52 weeks March 2020 Change (%)
------------------------------ ----------------------- ----------------------- ---------------
Full Full
Parcel revenue (GBPm) H1 H2 Full year H1 H2 year H1 H2 year
------------------------------ ----- ----- --------- ------- ------ ------ --- --- -----
Domestic parcels
excl PFW and International
export 1,738 2,167 3,905 1,234 1,428 2,662 41% 52% 47%
PFW Domestic & Import 278 311 589 244 260 504 14% 20% 17%
Export Parcels (International
and PFW) 283 354 637 248 285 533 14% 24% 20%
Total Parcels 2,299 2,832 5,131 1,726 1,973 3,699 33% 44% 39%
------------------------------ ----- ----- --------- ------- ------ ------ --- --- -----
52 weeks March 2021 52 weeks March 2020 Change (%)
---------------------- ------------------------- ----------------------- -------------------
Letter volumes (m Full Full
units) H1 H2 Full year H1 H2 year H1 H2 year
---------------------- ------ ------ --------- ------ ------ ------- ----- ----- -----
Advertising 1,349 2,133 3,482 2,535 2,618 5,153 (47%) (19%) (32%)
Business Mail 2,010 2,232 4,242 2,498 2,556 5,054 (20%) (13%) (16%)
Consumer & Small
Business 618 874 1,492 788 974 1,762 (22%) (10%) (15%)
International Export
Letters 47 61 108 57 71 128 (18%) (14%) (16%)
International Import
Letters 84 93 177 92 107 199 (9%) (13%) (11%)
Other 1 9 10 186 168 354 (99%) (95%) (97%)
Total Letters 4,109 5,402 9,511 6,156 6,494 12,650 (33%) (17%) (25%)
---------------------- ------ ------ --------- ------ ------ ------- ----- ----- -----
52 weeks March 2021 52 weeks March 2020 Change (%)
---------------------- ------------------------- ----------------------- -------------------
Full Full
Letter revenue (GBPm) H1 H2 Full year H1 H2 year H1 H2 year
---------------------- ------ ------ --------- ------ ------ ------- ----- ----- -----
Advertising 160 247 407 306 307 613 (48%) (20%) (34%)
Business Mail 644 762 1,406 780 804 1,584 (17%) (5%) (11%)
Consumer & Small
Business 474 680 1,154 533 653 1,186 (11%) 4% (3%)
International Export
Letters 77 113 190 81 109 190 (5%) 4% -
International Import
Letters 38 45 83 43 50 93 (12%) (10%) (11%)
Other 136 142 278 180 175 355 (24%) (19%) (22%)
Total Letters 1,529 1,989 3,518 1,923 2,098 4,021 (20%) (5%) (13%)
---------------------- ------ ------ --------- ------ ------ ------- ----- ----- -----
Adjusted operating costs
Adjusted Adjusted
52 weeks 52 weeks
March March
(GBPm) 2021 2020 Change
================================== ========= ========= ======
People costs (5,619) (5,234) 7.4%
=================================== ========= ========= ======
People costs excluding voluntary
redundancy (5,510) (5,206) 5.8%
Voluntary redundancy costs (109) (28) 289.3%
----------------------------------- --------- --------- ------
Non-people costs (2,686) (2,369) 13.4%
----------------------------------- --------- --------- ------
Distribution and conveyance
costs (1,054) (867) 21.6%
Infrastructure costs (825) (793) 4.0%
Other operating costs (807) (709) 13.8%
----------------------------------- --------- --------- ------
Total ( 8,305) (7,603) 9.2%
=================================== ========= ========= ======
Total adjusted operating costs increased by 9.2%.
Royal Mail adjusted people costs were 7.4% higher, primarily due
to the growth in parcel volumes, higher sick absence and temporary
labour costs, the cost of social distancing as a result of the
COVID-19 pandemic, and the frontline pay award. Within people
costs, we estimate the cost of mix change to be GBP253 million and
costs as a result of the pandemic to be GBP87 million. Some of
these cost pressures were offset through savings initiatives
including the management restructure. Transformation costs of
GBP149 million are included in people costs, comprising GBP40
million of project costs and GBP109 million of redundancy costs.
This includes redundancy costs of GBP93 million for the management
restructure announced in June 2020.
Workload increased by 7.3% as growth in parcel volumes more than
offset letter volume decline. Core network hours increased by 5.1%
as we invested in our network to cope with increased workload,
higher sick absence and social distancing. Average absence levels
increased to circa 8.5%. Reported year-on-year productivity
improved by 2.1% but has been impacted by changes to the operation
to support social distancing as well as heightened absence levels.
It is not possible to quantify the impact of these on the
productivity measure.
Non-people costs increased by 13.4%, reflecting the impact of
higher volumes, the pandemic and inflationary cost pressures. We
delivered circa GBP90 million of non-people cost savings in the
year, as part of our two-year non-people cost savings plan. Also
within non-people costs, we estimate the cost of mix change to be
GBP74 million (mainly in distribution and conveyance) and the costs
associated with the COVID-19 pandemic to be GBP65 million (mainly
the purchase of protective equipment to safeguard our frontline
employees and the cost of social distancing in vehicles). We have
also faced cost pressures in international conveyance of GBP69
million, driven by the shortage in airline conveyance capacity as a
result of COVID-19.
Distribution and conveyance costs increased by 21.6%, largely
driven by higher domestic and international conveyance costs due to
volume growth and the impact of the pandemic. Terminal dues were
GBP17 million lower, driven by lower export volumes which were
partially offset by contracted rate rises. Total diesel and jet
fuel costs increased to GBP187 million (2019-20: GBP168 million),
mainly as a result of volume-related network growth and
inefficiencies driven by the impact of social distancing on our
operations. We expect diesel and jet fuel costs to be around GBP187
million in 2021-22 as these impacts continue.
Infrastructure costs increased by 4.0%. Depreciation and
amortisation costs were GBP19 million higher than the prior year,
driven mainly by accelerated depreciation and amortisation
following a review of our investment portfolio. Before these
adjustments, underlying depreciation was broadly flat. Property
costs were GBP7 million higher, driven largely by one-off costs
associated with exiting some of our sites. IT costs were GBP6
million higher in the year, driven by the growth in tracked parcels
volumes.
Other operating costs increased by 13.8%, driven by the purchase
of protective equipment to safeguard frontline employees in
response to the COVID-19 pandemic (circa GBP40 million). This year,
we have purchased 21.6 million face masks, 47.1 million pairs of
gloves, 3.7 million packets of wipes and 3.6 million bottles of
hand sanitiser. Post Office Limited costs have increased by GBP54
million, driven by parcel volume growth. Transformation project
costs of GBP45 million (2019-20: GBP56 million) are also included
in other operating costs.
Adjusted operating profit
Adjusted operating profit was GBP344 million (2019-20: GBP117
million). Adjusted operating profit margin of 4.0% was up 250 basis
points compared with 2019-20.
Footnotes for Financial Review - Royal Mail section
1. The Group makes adjustments to reported results under IFRS to
exclude specific items and the IAS 19 pension charge to cash
difference adjustment as set out in the section entitled 'Specific
items and pension charge to cash difference adjustment' .
GLS(1)
Reported summary results (GBPm)
Reported Reported
March March
Summary results (GBPm) 2021 2020
Revenue 4,040 3,161
Operating costs (3,682) (2,953)
--------------------------------------- -------- --------
Operating profit before specific items 358 208
Operating specific items (18) (13)
--------------------------------------- -------- --------
Operating profit 340 195
Operating profit margin 8.4% 6.2%
--------------------------------------- -------- --------
GLS revenue grew by GBP879 million. Operating profit before
specific items increased by GBP150 million. The operating specific
items charge of GBP18 million was largely due to the amortisation
of acquired intangible assets. The prior year charge largely
related to the amortisation of acquired intangible assets,
partially offset by a GBP5 million provision release. GLS operating
profit was GBP145 million higher than in the prior year.
Adjusted(2) summary trading results (GBPm)
Adjusted Adjusted
March March
2021 2020 Change
------------------------ ======== ======== -------
Revenue 4,040 3,161 27.8%
Operating costs (3,682) (2,953) 24.7%
------------------------ -------- -------- -------
Operating profit 358 208 72.1%
Operating profit margin 8.9% 6.6% 230bps
(EURm)
------------------------ -------- -------- -------
Revenue 4,525 3,614 25.2%
Operating costs (4,124) (3,376) 22.2%
------------------------ -------- -------- -------
Operating profit 401 238 68.5%
Volumes (m) 838 667 26%
======================== ======== ======== =======
Volumes were up 26% as GLS continued to benefit from increased
B2C parcel deliveries as customers ordered more products online
during the pandemic. B2C volume share increased by nine percentage
points to 57%. GLS domestic and international volumes grew in all
markets.
During the year, the impact of foreign exchange movements
increased revenue by GBP81 million and operating costs by GBP74
million, resulting in an increase in operating profit of GBP7
million.
Revenue increased by 27.8%. Excluding acquisitions, revenue was
up 27.0%, driven by growth in B2C and international volumes,
including increased volume as a result of lockdown restrictions
across GLS' geographic footprint. Revenue growth was achieved in
all markets, with significant growth in those markets with a high
pre-existing B2C exposure such as Spain, Eastern Europe and
Denmark. GLS' European markets represented 90.8% of total revenue
(2019-20: 90.0%), with the North American market contributing 9.2%
(2019-20: 10.0%).
Germany
In Germany, the largest GLS market by revenue, turnover grew by
26.4%, driven by a combination of strong domestic and export volume
growth and better pricing. Operating profit increased due to the
benefit from higher revenues and scale effects in costs which
resulted in improved margins.
Italy
GLS Italy revenue grew by 23.4%, driven by higher volumes, but
with some pressure on pricing due to a decline in average parcel
weights resulting from an increasing proportion of B2C volumes.
Operating margin declined slightly due to price pressure, which was
not fully compensated by lower unit costs.
Spain
GLS Spain performed well during the year, with revenue growth of
59.6%, driven by strong growth in B2C volumes and yield management
activities. Operating profit improved significantly compared with
breakeven in the prior year. The turnaround of the GLS Spain
business is considered secured.
France
GLS France revenue grew by 23.5%, benefiting from higher
volumes, including new customer acquisitions and better pricing.
Operating losses were reduced significantly compared with the prior
year. The results include some positive effects, particularly
during the first half of the year, when GLS France remained fully
operational during the initial lockdown period. Initiatives to try
and 'lock in' the improvements visible during the year are being
pursued.
North America
In the US, reported revenue grew by 36.8%. Excluding the impact
of acquisitions and on a constant currency basis revenue growth was
25.2%. Financial performance continued to improve, benefiting from
the contribution of the acquired MVE business and synergies from
integration. Optimisation of the operational set-up to secure
additional synergies and further develop the hybrid parcel/freight
offering in the US are planned.
GLS Canada revenue was broadly flat, or an increase of 2.3% on a
constant currency basis. GLS Canada, being a more heavily B2B and
freight-focused business, was more significantly impacted by the
COVID-19 pandemic than the pure parcel operations in most other GLS
markets. Nevertheless, operating profit and margin improved
compared with the prior year as a result of measures introduced to
streamline the cost base in response to the crisis.
Other developed European markets (including Austria, Belgium,
Denmark, Ireland, Netherlands and Portugal)
Revenue growth was achieved in all GLS' other developed European
markets. In particular, there was good volume and revenue growth in
Denmark and the Netherlands.
Other developing/emerging European markets (including Croatia,
Czech Republic, Hungary, Poland, Romania, Slovakia and
Slovenia)
Other developing markets, where GLS has a high exposure to B2C,
continued to grow strongly with overall revenue growth of 36.8% in
the year.
Adjusted operating costs (GBPm)
Adjusted Adjusted
March March
(GBPm) 2021 2020 Change
----------------------------------- ======== ======== -------
People costs (851) (722) 17.9%
Non-people costs (2,831) (2,231) 26.9%
----------------------------------- -------- -------- -------
Distribution and conveyance costs (2,480) (1,960) 26.5%
Infrastructure costs (249) (198) 25.8%
Other operating costs (102) (73) 39.7%
----------------------------------- -------- -------- -------
Total (3,682) (2,953) 24.7%
----------------------------------- -------- -------- -------
Total adjusted operating costs increased by 24.7%, or 24.0%
excluding acquisitions.
People costs increased by 17.9%, or 16.5% excluding
acquisitions.
Non-people costs increased by 26.9%, or 26.4% excluding
acquisitions. Distribution and conveyance costs grew broadly in
line with volume, increasing by 26.5%. Infrastructure and other
operating costs increased by 25.8% and 39.7% respectively, due to
higher depreciation, increased repairs and maintenance costs, and
costs for protective equipment.
Adjusted operating profit
Adjusted operating profit was GBP358 million, with favourable
foreign exchange movements contributing GBP7 million. Adjusted
operating profit margin of 8.9% was 230 basis points higher than
the prior year.
Footnotes for Financial Review - GLS section
1. Both the reported and the adjusted result for the full year
2020-21 include 12 months of contribution from the acquisition of
Mountain Valley Express (MVE) and Mountain Valley Freight Solutions
businesses on 30 September 2019. The prior year includes only six
months' contribution.
2. The Group makes adjustments to reported results under IFRS to
exclude specific items and the IAS 19 pension charge to cash
difference adjustment as set out in the section entitled 'Specific
items and pension charge to cash difference adjustment'.
Presentation of results and Alternative Performance Measures
(APMs)
The Group uses certain APMs in its financial reporting that are
not defined under IFRS, the Generally Accepted Accounting
Principles (GAAP) under which the Group produces its statutory
financial information. These APMs are not a substitute, or superior
to, any IFRS measures of performance. They are used by Management,
who considers them to be an important means of comparing
performance year-on-year and are key measures used within the
business for assessing performance.
APMs should not be considered in isolation from, or as a
substitute to, financial information presented in compliance with
GAAP. Where appropriate, reconciliations to the nearest GAAP
measure have been provided. The APMs used may not be directly
comparable with similarly titled APMs used by other companies.
A full list of APMs used are set out in the section entitled
'Alternative Performance Measures'.
Reported to adjusted results
The Group makes adjustments to results reported under IFRS to
exclude specific items and the IAS 19 pension charge to cash
difference adjustment (see definitions in the paragraph entitled
'Alternative Performance Measures'). Management believes this is a
more meaningful basis upon which to analyse the business
performance (in particular given the volatile nature of the IAS 19
charge) and is consistent with the way financial performance is
reported to the Board.
IFRS can have the impact of causing high levels of volatility in
reported earnings which do not relate to changes in the operational
performance of the Group. Management has reviewed the long-term
differences between reported and adjusted profit after tax.
Cumulative reported profit after tax for the five years ended 28
March 2021 was GBP1,487 million compared with cumulative adjusted
profit after tax of GBP1,914 million. Annual reported profit after
tax showed a range of GBP161 million to GBP620 million. The
principal cause of the difference and volatility is pension-related
accounting.
Further details on specific items excluded from adjusted
operating profit are included in the paragraph 'Specific items and
pension charge to cash difference adjustment' in the Group results
section. A reconciliation showing the adjustments made between
reported and adjusted Group results can be found in the paragraph
'Consolidated reported and adjusted results'.
Presentation of results
Consolidated reported and adjusted results
The following table reconciles the consolidated reported
results, prepared in accordance with IFRS, to the consolidated 52
week adjusted results:
52 weeks 52 weeks
March 2021 March 2020
================================== ==================================
Reported Specific Adjusted Reported Specific Adjusted
items and items and
pension pension
Group (GBPm) adjustment(1) adjustment(1)
============================ ======== ============== ======== ======== ============== ========
Revenue 12,638 - 12,638 10,840 - 10,840
Operating costs (12,020) (84) (11,936) (10,623) (108) (10,515)
People costs (6,554) (84) (6,470) (6,064) (108) (5,956)
---------------------------- -------- -------------- -------- -------- -------------- --------
People costs (6,445) (84) (6,361) (6,036) (108) (5,928)
Voluntary redundancy (109) - (109) (28) - (28)
---------------------------- -------- -------------- -------- -------- -------------- --------
Non-people costs (5,466) - (5,466) (4,559) - (4,559)
---------------------------- -------- -------------- -------- -------- -------------- --------
Distribution and conveyance
costs (3,483) - (3,483) (2,786) - (2,786)
Infrastructure costs (1,074) - (1,074) (991) - (991)
Other operating costs (909) - (909) (782) - (782)
---------------------------- -------- -------------- -------- -------- -------------- --------
Operating profit before
specific items 618 (84) 702 217 (108) 325
Operating specific
items:
Regulatory fine (1) (1) - (51) (51) -
Legacy / other items
and impairments 13 13 - (92) (92) -
Amortisation of intangible
assets in acquisitions (19) (19) - (19) (19) -
Operating profit 611 (91) 702 55 (270) 325
Non-operating specific
items:
Profit on disposal
of property, plant
and equipment 36 36 - 89 89 -
Profit before interest
and tax 647 (55) 702 144 (181) 325
Finance costs (55) - (55) (56) - (56)
Finance income 17 - 17 6 - 6
Net pension interest
(non-operating specific
item) 117 117 - 86 86 -
============================ ======== ============== ======== ======== ============== ========
Profit before tax 726 62 664 180 (95) 275
Tax charge (106) 37 (143) (19) 60 (79)
============================ ======== ============== ======== ======== ============== ========
Profit for the year 620 99 521 161 (35) 196
============================ ======== ============== ======== ======== ============== ========
Earnings per share
Basic 62.0p 9.9p 52.1p 16.1p (3.5p) 19.6p
Diluted 61.8p 9.9p 51.9p 16.1p (3.5p) 19.6p
============================ ======== ============== ======== ======== ============== ========
Segmental reported results
The following table presents the segmental reported results,
prepared in accordance with IFRS:
52 weeks 52 weeks
March 2021 March 2020
---------------------------------------- ------------------------------------------
Royal Intragroup Royal Intragroup
(GBPm) Mail GLS eliminations Group Mail GLS eliminations Group
------------------------- ------- ------- ------------- ------- ------- ------- ------------- -------
Revenue 8,649 4,040 (51) 12,638 7,720 3,161 (41) 10,840
People costs (5,703) (851) - (6,554) (5,342) (722) - (6,064)
Non-people costs (2,686) (2,831) 51 (5,466) (2,369) (2,231) 41 (4,559)
------- ------- ------------- ------- ------- ------- ------------- -------
Operating profit before
specific items 260 358 - 618 9 208 - 217
Operating specific
items(1) 11 (18) - (7) (149) (13) - (162)
Operating profit 271 340 - 611 (140) 195 - 55
Non-operating specific
items(1) 38 (2) - 36 88 1 - 89
Earnings / loss before
interest and tax 309 338 - 647 (52) 196 - 144
Net finance costs (28) (10) - (38) (34) (16) - (50)
Net pension interest
(non-operating specific
item) 117 - - 117 86 - - 86
------------------------- ------- ------- ------------- ------- ------- ------- ------------- -------
Profit before tax 398 328 - 726 - 180 - 180
------------------------- ------- ------- ------------- ------- ------- ------- ------------- -------
Tax (charge) / credit (30) (76) - (106) 31 (50) - (19)
------------------------- ------- ------- ------------- ------- ------- ------- ------------- -------
Profit for the year 368 252 - 620 31 130 - 161
========================= ======= ======= ============= ======= ======= ======= ============= =======
Footnotes for Financial Review - Presentation of Results and
Alternative Performance Measures section
1. Details of specific items and the pension adjustment can be
found under 'Specific items and pension charge to cash difference
adjustment' in the Group results section.
Alternative Performance Measures (APMs)
This section lists the definitions of the various APMs disclosed
throughout the Annual Report and Financial Statements. They are
used by Management, which considers them to be an important means
of comparing performance year-on-year and are key measures used
within the business for assessing performance.
Adjusted operating profit
This measure is based on reported operating profit (see above)
excluding the pension charge to cash difference adjustment and
operating specific items, which Management considers to be key
adjustments in understanding the underlying profit of the Group at
this level.
These adjusted measures are reconciled to the reported results
in the table in the paragraph 'Consolidated reported and adjusted
results'. Definitions of operating costs, the pension charge to
cash difference adjustment, and operating specific items are
provided below.
Adjusted operating profit margin
This is a measure of performance that Management uses to
understand the efficiency of the business in generating profit. It
calculates 'adjusted operating profit' as a proportion of revenue
in percentage terms.
Earnings before interest, tax, depreciation and amortisation
(EBITDA) before specific items
EBITDA is reported operating profit before specific items with
depreciation and amortisation and share of associate company
profits added back.
Adjusted EBITDA is EBITDA before specific items with the pension
charge to cash difference adjustment added back.
The following table reconciles adjusted EBITDA to reported
operating profit before specific items.
52 weeks 52 weeks
March March
(GBPm) 2021 2020
================================================ ======== ========
Reported operating profit before specific items 618 217
Depreciation and amortisation 554 516
EBITDA 1,172 733
Pension charge to cash difference adjustment 84 108
================================================ ======== ========
Adjusted EBITDA 1,256 841
================================================ ======== ========
Adjusted earnings per share
Adjusted earnings per share is reported basic earnings per
share, excluding operating and non-operating specific items and the
pension charge to cash difference adjustment. A reconciliation of
this number to reported basic earnings per share is included in the
adjusted results table in the section 'Presentation of
results'.
People costs
These are costs incurred in respect of the Group's employees and
comprise wages and salaries, temporary resource, pensions and
social security costs. People costs relating to projects and
voluntary redundancy costs are also included.
Pension charge to cash difference adjustment
This adjustment represents the difference between the IAS 19
income statement pension charge and the actual cash payments.
Management believes this adjustment is appropriate in order to
eliminate the volatility of the IAS 19 accounting charge and to
include only the true cash cost of the pension plans in the
adjusted operating profit of the Group.
For the DBCBS this represents the difference between the IAS 19
income statement pension charge rate of 19.5% (2019-20: 20.8%) and
the actual cash payments of 15.6%.
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. Management does not consider them to be reflective
of year-on-year operating performance. These include items that
have resulted from events that are non-recurring in nature, even
though related income/expense can be recognised in subsequent
periods.
Regulatory fine
In light of the Competition Appeal Tribunal judgment of 12
November 2019, a provision was made in 2019-20 for a fine of GBP50
million and associated interest. In January 2020, Royal Mail
requested permission to appeal the Competition Appeal Tribunal's
judgment to the Court of Appeal (CoA) in respect of the Ofcom fine.
On 30 March 2020, the CoA granted Royal Mail permission, and the
hearing took place on 20-21 April 2021 and on 7 May 2021, the CoA
dismissed the appeal. Royal Mail is considering its options,
including an appeal to the Supreme Court. Please see the Principal
Risks and Uncertainties section below for further details.
Employee Free Shares charge
These relate to accounting charges arising from the granting of
free shares to employees upon the Government's sales of its stake
in the business (SIP 2016), as well as partnership and matching
shares, with no direct cash impact on the Group.
Amortisation of intangible assets in acquisitions
These notional charges, which arise as a direct consequence of
IFRS business combination accounting requirements, are separately
identified as Management does not consider these costs to be
directly related to the trading performance of the Group.
Legacy/other items and impairments
These costs/credits relate either to unavoidable ongoing costs
arising from historic events (such as the industrial diseases
provision) or historic provisions not utilised. They also include
any adjustments arising from asset impairment.
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.
Profit/loss on disposal of property, plant and equipment
(PP&E)
Management separately identifies the profit/loss on disposal of
PP&E as these disposals are not part of the Group's trading
activity and are driven primarily by business strategy.
Free cash flow
Free cash flow (FCF) is calculated as statutory (reported) net
cash flow before financing activities, adjusted to include finance
costs paid and exclude net cash from the purchase/sale of financial
asset investments. FCF represents the cash that the Group generates
after spending the money required to maintain or expand its asset
base. Free cash flow is also shown on a pre-IFRS 16 basis as it is
used to support dividend cover analysis, taking into account all
cashflows related to the operating businesses.
The following table reconciles free cash flow to the nearest
IFRS measure 'net cash inflow before financing activities'.
Reported Reported
52 weeks 52 weeks
March March
(GBPm) 2021 2020
=============================================== ========= =========
Net cash inflow before financing activities 887 676
Adjustments for:
Finance costs paid (57) (53)
(Sale)/purchase of financial asset investments (30) 30
Free cash flow 800 653
=============================================== ========= =========
Capital element of operating lease repayments (156) (141)
=============================================== ========= =========
Pre-IFRS 16 free cash flow 644 512
=============================================== ========= =========
In-year trading cash flow
In-year trading cash flow reflects the cash generated from the
trading activities of the Group. It is based on reported net cash
inflow from operating activities, adjusted to exclude other working
capital movements and the cash cost of operating specific items and
to include the cash cost of property, plant and equipment and
intangible asset acquisitions and net finance payments. Other
working capital movements include movements in GLS client cash held
and in deferred revenue from stamps purchased in prior years.
In-year trading cash flow is used primarily by Management to show
cash being generated by operations less cash investment. In-year
trading cash flow is also shown on a pre-IFRS 16 basis as it is
used to support dividend cover analysis, taking into account all
cashflows related to the operating businesses.
The following table reconciles in-year trading cash flow to the
nearest IFRS measure 'net cash inflow from operating
activities'.
Reported Reported
52 weeks 52 weeks
March March
(GBPm) 2021 2020
============================================== ========= =========
Net cash inflow from operating activities 1,173 950
Adjustments for:
Other working capital movements (28) (7)
Cash cost of operating specific items 4 2
Purchase of property, plant and equipment (289) (265)
Purchase of intangible assets (57) (77)
Net finance costs paid (41) (47)
============================================== ========= =========
In-year trading cash flow 762 556
============================================== ========= =========
Capital element of operating lease repayments (156) (141)
============================================== ========= =========
Pre-IFRS 16 in-year trading cash flow 606 415
============================================== ========= =========
Net debt
Net debt is calculated by netting the value of financial
liabilities (excluding derivatives) against cash and other liquid
assets. It is a measure of the Group's net indebtedness that
provides an indicator of the overall balance sheet strength. It is
also a single measure that can be used to assess the combined
impact of the Group's indebtedness and its cash position. The use
of the term net debt does not necessarily mean that the cash
included in the net debt calculation is available to settle the
liabilities included in this measure. Details of the borrowing
facilities in place and the amounts drawn can be found in the
section titled 'Net finance costs'. Net debt is also shown on a
pre-IFRS 16 basis as the banking covenants are calculated on a
pre-IFRS 16 basis.
A reconciliation of net debt to reported balance sheet line
items is shown below.
At 28 March At 29 March
(GBPm) 2021 2020
============================== =========== ===========
Loans/bonds (895) (1,635)
Leases (1,156) (1,188)
Cash and cash equivalents 1,532 1,619
Investments - 30
Client cash 41 21
Pension escrow (RMSEPP) 21 21
============================== =========== ===========
Net debt (457) (1,132)
============================== =========== ===========
Operating leases 1,079 1,086
============================== =========== ===========
Pre-IFRS 16 net cash / (debt) 622 (46)
============================== =========== ===========
Loans and bonds decreased by GBP740 million largely as a result
of the repayment in June 2020 of GBP700 million drawn on the bank
syndicate loan facility in March 2020, and GBP40 million favourable
exchange rate movements on the value of bonds.
Cash and cash equivalents (including Investments) decreased by
GBP117 million largely as a result of the repayment of the bank
syndicate loan facility drawdown of GBP700 million offset by
increased free cash inflow of GBP800 million (2019-20: GBP653
million inflow). No dividends were paid in 2020-21 (2019-20: GBP244
million).
Net debt excludes GBP191 million (2019-20: GBP180 million)
related to the RMPP pension scheme of the total GBP212 million
(2019-20: GBP201 million) pension escrow investments on the balance
sheet which is not considered to fall within the definition of net
debt.
Adjusted effective tax rate
The adjusted effective tax rate is the adjusted tax charge or
credit for the year expressed as a proportion of adjusted profit
before tax. Adjusted effective tax rate is considered to be a
useful measure of tax impact for the year. It approximates the tax
rate on the underlying trading business through the exclusion of
specific items and the pension charge to cash difference
adjustment.
PRINCIPAL RISKS AND UNCERTAINTIES
Detailed below are the principal risks we consider could
threaten our business model, the execution of our strategy, and the
preservation and creation of sustainable value for shareholders and
other stakeholders. How we mitigate these risks is also explained
below. These risks are ordered on a net risk basis which takes into
account the magnitude of potential impact and the probability of
occurrence.
Risk Status Actions to mitigate
1. Efficiency We are working with We have a number of
Royal Mail must become CWU at a senior level initiatives in place
more efficient and on the implementation to drive efficiency
flexible to compete of the Pathway to benefits across our
effectively in the Change Agreement and business including:
parcel and letter the operational change
markets. programme to drive - Transforming our
productivity. business from a UK-focused
The success of our letters business that
strategy relies on While our network delivers parcels to
the effective control provides strong economics, a parcels-led more
of costs and delivery particularly in the balanced and diverse
of efficiency and combined delivery international business.
productivity benefits of letters and small Letters will remain
across all areas of parcels, it is not an important part
the business. currently optimised of the business.
for the increased
Failure to effectively demand for later acceptance - Embedding a range
control costs while times and larger parcels. of digitally enabled
at the same time delivering work tools to improve
high-quality services Our UK costs are increasing efficiency and productivity,
could result in a as we continue to including the deployment
loss of customers, make necessary investment of our route optimisation
market share and revenue. in quality measures tool which has improved
and protective equipment visibility of changes
for our people. This to delivery routes.
makes it even more
important that we - Building dedicated
increase our efficiency. parcel hubs in the
UK and the ongoing
The continuation of roll-out of our automated
tighter COVID-19 restrictions, parcel sorting machines
including changing into the rest of the
standard ways of working estate with additional
to allow social distancing, machines being installed.
has added costs and
has impacted our processing - Simplifying products
and delivery operations. and services.
These arrangements Our improved working
may continue for some relationship with
time. In turn, they the CWU will allow
may have an adverse us to move faster
impact on cost control and make changes that
and productivity. will deliver the benefits
associated with the
High severity, Stable, Pathway to Change
Fast speed Agreement.
--------------------------------- --------------------------------
2. Economic and political The Board continues We have a multitude
environment to monitor the economic, of mitigations across
Macro-economic conditions political and wider our business which
(including Brexit external environment include:
and COVID-19) and/or in the UK and our
the political environment other markets. Particular - Embedded macro-economic
across all our markets areas of focus include: risk assessments within
may adversely affect our letters forecasting
the Group's ability - Economic downturn processes.
to maintain and grow as a result of the
revenue by reducing pandemic and business - Regular review and
volumes or driving sentiment, including update of a set of
customers to adopt e-substitution, which economic scenarios
cheaper products or has negatively impacted that have been constructed
formats for sending letter volumes. to inform a range
letters and parcels. of medium and long-term
- Parcel volumes, economic outcomes.
which to some extent
are also impacted - Maintaining a strong
by economic conditions. liquidity position,
Whilst any negative with good levels of
impact has been more cash and limited financial
than offset by the debt.
substantial increase
in e-commerce across - Implementing a rigorous
our markets for this cost programme to
financial year, and effectively manage
the significant shift cash and spending,
towards B2C volumes including a management
in GLS, macro-economic restructure and a
and political issues detailed review of
continue to be challenging. all non-people expenditure.
During the year, there - Accelerating the
was a sharp economic pace of change in
downturn in our core the UK to deliver
markets. As in the the requisite efficiency
UK, economic growth benefits and address
in the Eurozone slowed changing needs due
down sharply in the to the significant
short term. rise in parcel volumes.
The extent to which - Introducing new
these trends will arrangements to ensure
be sustained depends the movement of cross-border
on underlying structural parcels.
changes in consumer
behaviour, and the - Ongoing monitoring
evolution of the response of political and policy
to the pandemic in changes and regular
each country. engagement with politicians
and policy makers.
The medium-term outlook,
including the impact
of COVID-19 and Brexit
is highly uncertain.
Governments are likely
to raise taxes to
pay for the economic
impact that COVID-19
has had, which could
increase our costs
or impact revenue
and volumes due to
reduced consumer spending.
High severity, Stable,
Fast speed
--------------------------------- --------------------------------
3. Major breach of Given the evolving We are:
information security, nature, sophistication - Continuing to invest
data protection regulation and prevalence of in ensuring cyber
and/or cyber-attack these threats, including resilience, enhancing
Due to the nature those presented by our capabilities to
of our business, we the current COVID-19 integrate cybercontrols
collect, process and pandemic and increasing into our operational
store confidential reliance on technology processes to protect
business and personal and data for operational our assets.
information (including and strategic purposes,
sensitive personal this continues to - Continuing to communicate
information). be a principal risk. to our workforce and
stress the importance
As a result, we are We also recognise of maintaining vigilance
subject to a range that in a business across the business,
of laws, regulations with more than 160,000 in relation to both
and contractual obligations people and large quantities cyber security and
around the governance of documentation, data privacy. We run
and protection of there is a prospect regular and active
various classes of of human error in campaigns reminding
data to protect our the protection of people of the correct
customers, employees, data. behaviours and how
shareholders and suppliers. to respond to threats
High severity, Stable, such as phishing and,
In common with all Fast speed given the increase
major organisations, in home working during
we are the potential the pandemic, we have
target of cyber-attacks also heightened training
that could threaten and awareness to help
the confidentiality, our people work more
integrity and availability securely from home.
of data and trigger
material service and/or - Encouraging an open
operational interruption. and prompt culture
of reporting so that
Also, a major breach if a mistake does
of information security, happen, it is reported
data protection laws, quickly, and the business
regulations and/or can take the appropriate
cyber-attack could remedial action.
adversely impact our
reputation, result
in financial loss,
regulatory action,
business disruption
and loss of stakeholder
confidence.
--------------------------------- --------------------------------
4. Customer expectations There has been a paradigm We have a number of
and our responsiveness shift in online retail programmes and initiatives
to market changes activity during the across the business
Changes in customer past year with a sharp focused on customer
needs, expectations increase in parcel expectations and our
and structural trends volumes, at the same responsiveness to
in our markets could time as an initial market changes, including:
impact the demand sharp decline in addressed
for our products and letter volumes (excluding - Implementing changes
services. elections). to the way we operate
both to protect the
The acceleration of Advertising mail has health and safety
structural changes recovered more rapidly of our employees and
to the markets in following the initial customers during the
which we operate over hit to volumes. COVID-19 pandemic
the last year (notably and in response to
the shift to e-commerce While business mail changes in customer
and e-substitution) volumes were more demand by delivering
makes it essential resilient to the initial customer-facing enhancements,
that we evolve our economic slump, they feature developments
business model and are taking longer and digital access.
strategy to meet customer to recover.
needs now and in the - Continuing to implement
future and adapt to Stamp traffic has productivity improvements
harness growth trends. performed well as and customer-focused
social distancing enhancements in order
Our success at growing boosted the use of to build on our trusted
new areas of business greeting cards, and position in the community,
is dependent on identifying e-retail growth has meet customer needs,
profitable and sustainable driven volumes of remain competitive
areas of growth and large letters in fulfilment and generate long-term
having in place appropriate mail. growth to consolidate
structures to support our position as the
transformation. Parcel volumes have UK's premier parcel
been comparable to carrier.
peak season continuously
since March 2020, - Deploying a range
with Christmas itself of appropriate incentives
being by far the biggest to encourage customers
ever in terms of online to reconnect with
shopping. International using mail.
parcel volumes grew
in the first half - Delivering our Accelerate
of the year but declined GLS strategy.
in the second half
broadly as expected. - Growing new areas
of business through
B2C will remain a innovation and expanding
major area of growth service offerings.
going forward for
GLS whilst continuing
to serve our B2B customer
base.
High severity, Stable,
Medium speed
--------------------------------- --------------------------------
5. Competition Act The Group robustly Whistl's High Court
investigation defended its conduct claim is on hold until
On 14 August 2018, in written and oral after the completion
Ofcom published its representations made of the appeal process.
decision following to Ofcom during the
its investigation investigation and We have in place policies,
into whether Royal lodged an appeal with training and guidance
Mail had breached the Competition Appeal around our obligations
competition law. The Tribunal (CAT) on in addition to a team
investigation was 12 October 2018 to of competition lawyers
launched in February have both Ofcom's advising on such matters.
2014, following a decision and fine
complaint brought overturned.
by TNT Post UK (now
Whistl). Ofcom found This appeal was heard
that Royal Mail had in June and July 2019
abused its dominant and in November 2019
position in the market the CAT upheld Ofcom's
for bulk mail delivery decision and the GBP50
services in the UK million fine. As a
by issuing Contract result, Royal Mail
Change Notices on has made a provision
10 January 2014 which for the fine plus
introduced discriminatory interest, which is
prices. It fined Royal now payable to Ofcom.
Mail GBP50 million.
In January 2020, Royal
In October 2018, Whistl Mail requested permission
filed a damages claim to appeal the CAT's
against Royal Mail judgment to the Court
at the High Court of Appeal (CoA). This
relating to Ofcom's permission was granted
decision. on 30 March 2020,
a hearing was held
in April 2021 and
on 7 May 2021 the
CoA dismissed our
appeal. We are disappointed
by the CoA's judgment
and are considering
our options, including
an appeal to the Supreme
Court.
High severity, Stable,
Slow speed
--------------------------------- --------------------------------
6. Industrial action On 3 February 2021 We are:
There is extensive the CWU voted in favour - Continuing to engage
trade union recognition of the 2020 Pathway with the CWU at a
across our UK workforce, to Change Agreement senior level, on the
with strong and active which established implementation of
trade unions. a basis for an improved the Pathway to Change
Royal Mail and CWU Agreement.
One or more material relationship and the
disagreements or disputes operational change - Continuing to engage
could result in widespread programme to drive with Unite/CMA to
localised or national productivity. rebuild relationships
industrial action. following the conclusion
Our 2020 management of the management
This would cause material restructuring programme restructuring programme.
disruption to our has put pressure on
UK business and likely the relationship with - Continuing to build
result in an immediate Unite/CMA whose core trust with our employees
and potentially ongoing membership are the and to support them
significant loss of frontline managers in the delivery of
Group revenue. tasked with delivering the business goals.
the business transformation
It may also cause goals that form part
Royal Mail to fail of the Pathway to
to meet the Quality Change Agreement.
of Service targets
prescribed by Ofcom, Medium severity, Decreasing
which may lead to risk, Fast speed
enforcement action
and fines and loss
of customers.
--------------------------------- --------------------------------
7. Capability - talent The transformation Talent and strategic
and strategic workforce of our UK business, workforce planning
planning together with the is a key part of our
Our performance, operating shift in mail mix/profile overall focus as a
results and future as a result of COVID-19, Company and is addressed
growth depend on our will change the nature in multiple ways,
ability to attract of some roles, requiring including:
and retain talent new and different
with the appropriate skills. - Undertaking regular
level of expertise. senior management
The capability, experience We need to be able talent reviews and
and cohesion of senior to upskill and develop succession planning
management are integral our existing workforce. processes.
to our transformation. We also need to attract
and retain people - Introducing leadership
Workforce planning with the right skills, development programmes
could be adversely capabilities and behaviours to support the transformation
impacted by an ageing for our organisation. agenda and specific
workforce, and a reduction initiatives and targets
in available workforce Trust and engagement to accelerate diversity
due to the impacts levels across the across our teams.
of demographic change, business are currently
Brexit and increasing not as high as we - Proper and effective
automation. would like, and this application of performance
is an urgent area management.
In addition, we believe of focus for us.
that good trust and - Recruiting external
engagement levels Medium severity, Stable, hires with key skills
between all employees Medium speed where required.
across the organisation
are key foundations - Maintaining and
to deliver the business implementing a workforce
strategy - if they plan that is aligned
are not in place then with the strategy
it risks the successful and emerging commercial
performance of the outlook.
business.
- Monitoring and benchmarking
the demographic profile
of our workforce.
- Undertaking regular
trust and engagement
surveys to identify
areas to be addressed
and take decisive
actions to resolve.
--------------------------------- --------------------------------
8. Our UK regulatory Ofcom is undertaking We have a number of
framework a review of postal activities focusing
The continuing structural regulation. on the future of the
decline in addressed Universal Service
letter volumes, and It published its User Obligation, including:
broader changes in Needs Review in November
the parcels market 2020 and then issued - Working with Ofcom,
poses significant a 'Call for Inputs' Government and the
risks to the financial in March 2021. unions more broadly
sustainability of to ensure that the
the Universal Service Ofcom plans to consult business is financially
Obligation. in Q3 2021-22 and underpinned in a sustainable
introduce a new regulatory way, and future-proofed
There is a further framework in 2022. to reflect changing
risk that Ofcom changes customer needs and
the current regulatory Ofcom believe the preferences.
framework in a way current approach has
which impacts our worked well to date - Engaging fully with
customer strategy but in this period Ofcom and other stakeholders
or is commercially of significant change during its review
disadvantageous to in postal markets, of postal regulation.
Royal Mail. it is considering We will submit a detailed,
whether the regulatory evidence-based submission
framework remains in response to Ofcom's
fit for purpose or 'Call for Inputs'.
whether any changes This will set out
are needed. It is clearly that we need
considering financial a flexible regulatory
sustainability and framework that provides
efficiency, letters commercial flexibility,
and the universal enabling Royal Mail
service, the parcels to innovate and grow.
market including consumer Further, there is
protections and its no need for Access
approach to Access regulation to be widened
and bulk mail, including to include parcels.
whether the current The parcels market
scope of Access regulation in the UK is highly
remains appropriate competitive and working
or should be changed. well.
Royal Mail's performance - Developing a plan
will be an important as part of our UK
factor in the regulatory transformation to
review. underpin the sustainability
of the Universal Service
Medium severity, Increasing Obligation. This will
risk, Medium speed help us become even
more efficient and
better placed to respond
to changing customer
demands.
- Executing a stretching
self-help programme
that involves significant
investment in the
Universal Service
when our finances
are under challenge.
--------------------------------- --------------------------------
9. Environmental and We recognise our responsibility We have clear market
sustainability to reduce our environmental strategies and business
As our customers and impacts and consume plans to address risks
stakeholders seek fewer non -- renewable and opportunities
to adapt to climate resources. relating to the environment
change, demand is and sustainability,
increasing for more We have a requirement including:
sustainable products to maintain a large
and services. fleet of vehicles - Executing our environmental
across Royal Mail strategy which is
The cost of operations and GLS. Growth in targeting net zero
could increase as parcels is also driving by 2050 for our UK
a result of actions up our energy demand. operations.
to mitigate and adapt
to climate change, Medium severity, Increasing - Continuing to invest
and/or regulatory risk, Slow speed and implement changes
changes, such as the to improve the efficiency
introduction of Clean of our operations
Air Zones, the future through zero and low-emission
ban of petrol and vehicles and the installation
diesel vehicles, and of efficient equipment
net zero emission across our property
and air quality targets estate to reduce missions
for towns and cities. and improve air quality.
An increase in the - Investing in innovative
frequency of extreme technologies, such
weather events may as telemetry, and
result in disruption driver training programmes,
to our operations to reduce the amount
and impact our ability of fuel we use and
to meet customer expectations, optimising our transport
the Universal Service network, to ensure
Obligation or other that it is as efficient
contractual requirements. as possible.
We may also see price
rises as a result - Strengthening the
of resource scarcity sustainability footprint
such as water shortages, in GLS with carbon-neutral
increased insurance delivery, roll-out
premiums and required of EcoHubs with renewable
investment to protect energy generation
the business from and implementation
extreme weather events of sustainable solutions.
and any associated
repairs. - Engaging our people
in our efforts to
We may also see price become more efficient
rises as a result and reduce our use
of resource scarcity, of natural resources.
such as water shortages,
increased insurance - Reducing our energy
premiums and required and water consumption
investment to protect and reducing the amount
the business from of waste we generate.
extreme weather events
and any associated
repairs.
In common with all
major organisations,
there could also be
a risk of reputational
damage and/or loss
in revenue if we do
not meet stakeholder
and customer expectations
for action on environmental
matters and climate
change.
--------------------------------- --------------------------------
10. Business continuity Since the onset of We have a number of
and crisis management the COVID-19 pandemic, mitigations across
We may fail to successfully Governments worldwide the Group, which include:
respond to, recover have imposed restrictions
from, or reduce the on the movement of - Maintaining a comprehensive
impact of a major people and imposed business continuity
threat or disruptive necessary measures and crisis management
incident that could which have had, and response across the
cause widespread operational continue to have, Group and at a functional
disruption and financial a significant effect level.
loss to the Group, on our UK and International
its customers and businesses. The pandemic - Established response
its supply chain. has been a robust teams comprising of
This could also impact test of our business Executive Director
on the ability of continuity arrangements. and senior management
Royal Mail to meet leadership, who report
its Universal Service Royal Mail has a responsibility regularly to the Board.
Obligations. to provide sustained
and continued postal In relation to COVID-19,
services under the we are:
Universal Service.
Ofcom has acknowledged - Continuing to engage
the impact of COVID-19 closely with the Government,
and recognised the public health authorities,
pandemic as an emergency Ofcom, and customers
situation since March to implement necessary
2020, which has allowed changes in response
some temporary relaxation to Government, Public
of Universal Service Health England (PHE)
requirements. and World Health Organisation
(WHO) advice.
Royal Mail staff are
recognised by Government - Cascading regular
as key workers, essential communications to
to keeping the country all employees to keep
connected during this them informed of current
time. Our priority developments.
continues to be the
protection of our - Continuing with
people, our society ongoing dialogue with
and our customers, key stakeholders and
whilst keeping mail suppliers.
and parcels moving.
- Continuing to respond
Medium severity, Stable, by adapting operational
Fast speed processes and procedures
to minimise disruption
whilst keeping our
people and customers
safe.
--------------------------------- --------------------------------
11. Health, safety The health, safety We have a number of
and wellbeing and wellbeing of our programmes and initiatives
A health and safety people, customers across the Group to
incident or global and members of the address this risk,
health crisis could public is of paramount which include:
result in the serious importance.
injury, ill health - Providing appropriate
or death of our people The business has a policies, procedures,
or members of the large number of employees systems and tools,
public. An incident including seasonal supported by training
may lead to criminal staff and agency workers. programmes, to engage
prosecution or fines It also operates a our people in safety
by the enforcing authority very large fleet, improvement.
or civil action by employs a large number
the injured party of contractors and - Implementing a programme
resulting in large interacts extensively to manage and monitor
financial losses and/or with members of the our risks and ensure
reputational damage. public. compliance with laws
and regulations.
With significant and A large proportion
increasing numbers of our people spend - Continuing to streamline
of subcontractors most of their time and simplify the various
utilised across the working outdoors, health and safety
business, there is on foot or driving, systems in place to
a heightened exposure where the environment enhance their effectiveness.
to health and safety is unpredictable and
incidents. more difficult to - Monitoring compliance
control. via an annual integrated
Similarly, failure audit programme. A
to manage the health Due to this wide reach professional and independent
and wellbeing of our and the number of team also provides
people could also people affected by advice, support and
lead to reputational the business' undertakings, guidance on the implementation
damage, loss of employee the risk of serious of standards.
goodwill and financial harm to people cannot
losses through increased be totally mitigated. - Providing a Group-wide
sickness absence, annual risk update
lower productivity, We acknowledge that to all employees which
and failure to deliver every health and safety is based on the outputs
the Universal Service incident has a human of a detailed risk
Obligation, civil impact. assessment highlighting
action or criminal areas for improvement.
prosecution. The COVID-19 pandemic
continues to pose - Operating extensive
an increased risk employee health and
to public health. wellbeing programmes.
The effectiveness
of the controls and We also enhanced our
processes we operate sick pay provision
to protect our workforce, and updated our operating
who are key workers, procedures in line
is critically important. with PHE and WHO instructions
and guidance to limit
Low severity, Stable, contact between colleagues
Fast speed and customers during
the pandemic.
These arrangements
have been communicated
to employees through
a dedicated, comprehensive
multi -- media communications
campaign.
--------------------------------- --------------------------------
12. Pension arrangements We recognise that We have a dedicated
We may be unable to pension benefits are team working to establish
obtain the necessary important. We will the CDC pension scheme.
legislative changes continue to provide We continue to work
to enable us to implement sustainable and affordable with the CWU and Government
the UK's first Collective pensions arrangements to introduce the necessary
Defined Contribution for our people. legislative and regulatory
(CDC) pension scheme, changes so that we
as agreed with the The Royal Mail Pension can introduce our
CWU. Plan closed to future proposed CDC pension
accrual in its Defined scheme as soon as
Benefit form on 31 possible.
March 2018. A new
Defined Benefit Cash
Balance Scheme was
put in place from
1 April 2018.
The Pension Schemes
Bill, of which CDC
is a part, received
Royal Assent in February
2021 and CDC schemes
are now allowed by
law. However, detailed
secondary legislation
and tax changes will
have to be introduced
by Government before
our scheme can be
established, and it
will also require
authorisation from
The Pensions Regulator
before it can begin
accepting contributions.
Low severity, Stable,
Medium speed
--------------------------------- --------------------------------
VIABILITY STATEMENT
The Directors have assessed the prospects of the Group and its
viability over the longer term as part of their ongoing risk
management and monitoring processes.
Assessment of viability
While the Directors have no reason to believe that the Group
will not be viable over the longer term, they consider the three
financial years to March 2024 (the Viability Period) to be an
appropriate planning time horizon to assess the Group's viability
and to determine the probability and impact of our principal risks.
This time period matches our business planning cycle.
Process, key factors and assumptions
The Group's viability is assessed as part of our regular
strategy and budget reviews, financial forecasting and ongoing risk
management.
The key factors affecting the Directors' viability assessment
included:
- Marketplace trends and dynamics.
- The Royal Mail and GLS strategies to deliver long-term
sustainable growth.
- The Group's principal risks and the robust measures in place
to mitigate those risks.
The key assumptions used in relation to the forecast that
supports the viability assessment are as follows:
- A rebound in GDP growth of 9% in 2021-22 following the gradual
lifting of lockdown restrictions and no further lockdowns announced
in 2021-22.
- Modest growth in letter revenues following the significant
decline in 2020-21 as advertising and business mail recovers.
- Our ability to strengthen GLS' top position in the
cross-border deferred parcel segment, strongly position the
business in the 2C parcel market while continuing to secure its
leading position in the 2B segment.
- People costs reflect an extensive set of operational
initiatives with a phased implementation.
- Flat parcel growth as lockdown restrictions are relaxed.
- COVID-19 related one-off charges of circa GBP120 million are
included within the plan.
Scenario modelling
The key assumptions within the projections were stress tested by
modelling the severe but plausible downside scenarios detailed
below and taking into account those of the Group's principal risks
that could have a financial impact over the Viability Period. The
scenarios were evaluated in aggregate and were tested to determine
whether the Group would be able to sustain its operations over the
Viability Period.
The scenarios took into account the levels of committed capital
and expenditure. Consideration was also given to the large fixed
cost base required to deliver the Universal Service Obligation in
its current form. The Group has a EUR500m bond that matures in July
2024, which is outside of the three-year viability assessment
period. It is assumed in the modelling for viability assessment
purposes that this would be refinanced. In the very unlikely event
that this is not possible, then other options could be considered
to ensure this obligation is met, including using capital generated
through the business plan period, reducing investment, or reviewing
dividend payments.
The scenarios also took into account the actions currently
undertaken by the Group to manage and mitigate its principal risks.
A number of short-term cost and cash saving actions available to
the Group were also considered including:
- Reducing variable hours and cost of sales in response to lower
revenue.
- Reducing discretionary pay.
- Reducing one-off projects.
We have made our assessment based on our best view of the severe
but plausible downside scenarios that we might face. If outcomes
are significantly worse, the Directors would need to consider what
additional mitigating actions were needed, for example reducing
capital expenditure, reviewing dividend payments, or assessing the
value of our asset base to support liquidity. Consequently, the
Directors have concluded that to stress test a level of increased
severity (beyond the downside scenario) which may cast doubt on the
Group's ability to continue to be viable over the three-year
assessment period is not currently reasonable.
Scenarios Principal risks
Deteriorating economic and market Economic and political environment
conditions which could result in Customer expectations and our responsiveness
letters volume decline greater than to market changes
the projected range. Business continuity and crisis management
----------------------------------------------
Potential impact of lower international Economic and political environment
and cross-border volume partly related
to Brexit.
----------------------------------------------
Increased competition in the UK Customer expectations and our responsiveness
parcels sector including changes to market changes
in consumer expectations and/or
market disruption.
----------------------------------------------
Potential impact of industrial action Industrial action
or incurring costs to avoid it. Efficiency
Customer expectations and our responsiveness
to market changes
----------------------------------------------
Delays in relation to the Royal Efficiency
Mail transformation plan.
----------------------------------------------
Review of the regulatory framework Our UK regulatory framework
is expected to be concluded in 2022.
There is a risk that changes may
impact our customer strategy or
are commercially disadvantageous
to Royal Mail.
----------------------------------------------
Going Concern Statement
The consolidated Financial Statements have been prepared on a
going concern basis. The financial performance and position of the
Group, its cash flows and its approach to capital management are
set out in the Financial Review. The Board reviewed the Group's
projections for the next 12 months and after due consideration,
considered it appropriate to continue to adopt the going concern
basis of accounting.
Viability Statement
Based on the results of their analysis, including a number of
severe but plausible scenarios assessed in aggregate, the Directors
have a reasonable expectation that the Group will be able to
continue in operation, meet its liabilities as they fall due,
retain sufficient available cash and not breach any covenants under
any drawn or undrawn facility over the three financial years to
March 2024.
Consolidated Income Statement
For the 52 weeks ended 28 March 2021 and 52 weeks ended 29 March
2020
Reported Reported
52 weeks 52 weeks
2021 2020
Notes GBPm GBPm
------------------------------------------------------------------------------------- ----- --------- ---------
Continuing operations
Revenue 12,638 10,840
Operating costs(1) (12,020) (10,623)
------------------------------------------------------------------------------------- ----- --------- ---------
People costs (6,554) (6,064)
Distribution and conveyance costs (3,483) (2,786)
Infrastructure costs (1,074) (991)
Other operating costs (909) (782)
------------------------------------------------------------------------------------- ----- --------- ---------
Operating profit before specific items(2) 618 217
Operating specific items
Regulatory fine 8 (1) (51)
Legacy/other items and impairments 13 (92)
Amortisation of intangible assets in acquisitions (19) (19)
------------------------------------------------------------------------------------- ----- --------- ---------
Operating profit 611 55
Profit on disposal of property, plant and equipment (non-operating specific item)(2) 36 89
------------------------------------------------------------------------------------- ----- --------- ---------
Profit before interest and tax 647 144
Finance costs (55) (56)
Finance income 17 6
Net pension interest (non-operating specific item)(2) 6 117 86
------------------------------------------------------------------------------------- ----- --------- ---------
Profit before tax 726 180
Tax charge 3 (106) (19)
------------------------------------------------------------------------------------- ----- --------- ---------
Profit for the year 620 161
------------------------------------------------------------------------------------- ----- --------- ---------
Earnings per share
Basic 4 62.0p 16.1p
Diluted 4 61.8p 16.1p
------------------------------------------------------------------------------------- ----- --------- ---------
1 Operating costs are stated before operating specific items
which Include: the regulatory fine, legacy/other Items, impairments
and amortisation of intangible assets in acquisitions.
2 For further details on Alternative Performance Measures (APMs) used, see the Financial Review.
Consolidated Statement of Comprehensive Income
For the 52 weeks ended 28 March 2021 and 52 weeks ended 29 March
2020
Reported Reported
52 weeks 52 weeks
2021 2020
Notes GBPm GBPm
----------------------------------------------------------------------------------------- ----- --------- ---------
Profit for the year 620 161
Other comprehensive (expense)/income for the year from continuing operations:
Items that will not be subsequently reclassified to profit or loss:
Amounts relating to pensions accounting (1,448) 1,122
----------------------------------------------------------------------------------------- ----- --------- ---------
Withholding tax receivable/(payable) on distribution of RMPP and RMSEPP surplus 6 660 (648)
Remeasurement (losses)/gains of the defined benefit surplus in RMPP and RMSEPP 6(c) (1,998) 1,773
Remeasurement losses of the defined benefit deficit in DBCBS 6(d) (136) (3)
Deferred tax associated with DBCBS 3 26 -
----------------------------------------------------------------------------------------- ----- --------- ---------
Items that may be subsequently reclassified to profit or loss:
Foreign exchange translation differences (23) 3
----------------------------------------------------------------------------------------- ----- --------- ---------
Exchange differences on translation of foreign operations (GLS) (45) 20
Net gain/(loss) on hedge of a net investment (EUR500 million bond) 20 (15)
Net gain/(loss) on hedge of a net investment (Euro-denominated lease payables) 2 (2)
----------------------------------------------------------------------------------------- ----- --------- ---------
Designated cash flow hedges 30 (49)
----------------------------------------------------------------------------------------- ----- --------- ---------
Gains/(losses) on cash flow hedges deferred into equity 11 (46)
Losses/(gains) on cash flow hedges released from equity to income 23 (1)
Loss on cross-currency swap cash flow hedge deferred into equity (2) (21)
Loss on cross-currency swap cash flow hedge released from equity to income - interest
payable 8 3
(Loss)/gain on cost of hedging deferred into equity (2) 6
Gain on cost of hedging released from equity to income - interest payable (1) (1)
Tax on above items 3 (7) 11
----------------------------------------------------------------------------------------- ----- --------- ---------
Total other comprehensive (expense)/income for the year (1,441) 1,076
----------------------------------------------------------------------------------------- ----- --------- ---------
Total comprehensive (expense)/income for the year (821) 1,237
----------------------------------------------------------------------------------------- ----- --------- ---------
Consolidated Balance Sheet
At 28 March 2021 and 29 March 2020
Reported Reported
at at
28 March 29 March
2021 2020
Notes GBPm GBPm
------------------------------------------------ ----- --------- ---------
Non-current assets
Property, plant and equipment 3,007 3,120
Goodwill 378 390
Intangible assets 468 558
Investments in associates 5 5
Financial assets
Pension escrow investments 212 201
Derivatives 5 -
RMPP/RMSEPP retirement benefit surplus - net of
withholding tax payable 6 2,389 3,614
Other receivables 100 12
Deferred tax assets 3 153 110
------------------------------------------------ ----- --------- ---------
6,717 8,010
------------------------------------------------ ----- --------- ---------
Assets held for sale 26 25
------------------------------------------------ ----- --------- ---------
Current assets
Inventories 18 19
Trade and other receivables 1,640 1,282
Income tax receivable 9 6
Financial assets
Investments - 30
Derivatives 2 5
Cash and cash equivalents 1,573 1,640
------------------------------------------------ ----- --------- ---------
3,242 2,982
------------------------------------------------ ----- --------- ---------
Total assets 9,985 11,017
------------------------------------------------ ----- --------- ---------
Current liabilities
Trade and other payables (2,377) (2,041)
Financial liabilities
Interest-bearing loans and borrowings - (700)
Lease liabilities 7 (197) (201)
Derivatives (12) (35)
Income tax payable (15) (5)
Provisions 8 (124) (113)
------------------------------------------------ ----- --------- ---------
(2,725) (3,095)
------------------------------------------------ ----- --------- ---------
Non-current liabilities
Financial liabilities
Interest-bearing loans and borrowings (895) (935)
Lease liabilities 7 (959) (987)
Derivatives (36) (32)
DBCBS retirement benefit deficit 6 (394) (177)
Provisions 8 (105) (112)
Other payables (18) (4)
Deferred tax liabilities 3 (48) (54)
------------------------------------------------ ----- --------- ---------
(2,455) (2,301)
------------------------------------------------ ----- --------- ---------
Total liabilities (5,180) (5,396)
------------------------------------------------ ----- --------- ---------
Net assets 4,805 5,621
------------------------------------------------ ----- --------- ---------
Equity
Share capital 10 10
Retained earnings 4,802 5,625
Other reserves (7) (14)
------------------------------------------------ ----- --------- ---------
Total equity 4,805 5,621
------------------------------------------------ ----- --------- ---------
The Financial Statements were approved and authorised for issue
by the Board of Directors on 19 May 2021 and were signed on its
behalf by:
Keith Williams Mick Jeavons
Non-Executive Chair Group Chief Financial Officer
Consolidated Statement of Changes in Equity
For the 52 weeks ended 28 March 2021 and 52 weeks ended 29 March
2020
Foreign
currency
Share Retained translation Hedging Total
capital earnings reserve reserve equity
GBPm GBPm GBPm GBPm GBPm
---------------------------------------------------------------- -------- --------- ------------ -------- -------
Reported at 31 March 2019 10 4,576 27 6 4,619
---------------------------------------------------------------- -------- --------- ------------ -------- -------
IFRS 16 transition adjustment - 1 - - 1
---------------------------------------------------------------- -------- --------- ------------ -------- -------
Reported at 1 April 2019 on transition to IFRS 16 10 4,577 27 6 4,620
---------------------------------------------------------------- -------- --------- ------------ -------- -------
Profit for the year - 161 - - 161
Other comprehensive income/(expense) for the year - 1,122 3 (49) 1,076
---------------------------------------------------------------- -------- --------- ------------ -------- -------
Total comprehensive income/(expense) for the year - 1,283 3 (49) 1,237
---------------------------------------------------------------- -------- --------- ------------ -------- -------
Transactions with owners of the Company, recognised directly in
equity
Gains on cash flow hedges released from equity to the
carrying amount of non-financial assets - - - (1) (1)
Dividend paid to equity holders of the Parent Company - (244) - - (244)
Share-based payments
Employee Free Shares issue - 7 - - 7
Long--Term Incentive Plan (LTIP) - 2 - - 2
Deferred Share Bonus Plan (DSBP) - 2 - - 2
Purchase of own shares(1) - (3) - - (3)
Deferred tax on share-based payments - 1 - - 1
---------------------------------------------------------------- -------- --------- ------------ -------- -------
Reported at 29 March 2020 10 5,625 30 (44) 5,621
---------------------------------------------------------------- -------- --------- ------------ -------- -------
Profit for the year - 620 - - 620
Other comprehensive (expense)/income for the year - (1,448) (23) 30 (1,441)
---------------------------------------------------------------- -------- --------- ------------ -------- -------
Total comprehensive (expense)/income for the year - (828) (23) 30 (821)
Transactions with owners of the Company, recognised directly in
equity
Share-based payments
Employee Free Shares issue - 1 - - 1
Long-Term Incentive Plan (LTIP) - 1 - - 1
Deferred Share Bonus Plan (DSBP) - 3 - - 3
Deferred tax on share-based payments - 1 - - 1
Settlement of DSBP - (1) - - (1)
---------------------------------------------------------------- -------- --------- ------------ -------- -------
Reported at 28 March 2021 10 4,802 7 (14) 4,805
---------------------------------------------------------------- -------- --------- ------------ -------- -------
1 Shares required for employee share schemes.
Consolidated Statement of Cash Flows
For the 52 weeks ended 28 March 2021 and 52 weeks ended 29 March
2020
Reported Reported
52 weeks 2021 52 weeks 2020
Notes GBPm GBPm
------------------------------------------------------------------------------- ----- -------------- --------------
Cash flow from operating activities
Profit before tax 726 180
Adjustment for:
Net pension interest 6 (117) (86)
Net finance costs 38 50
Profit on disposal of property, plant and equipment (36) (89)
Regulatory fine 1 51
Legacy/other items and impairments (13) 92
Amortisation of intangible assets in acquisitions 19 19
------------------------------------------------------------------------------- ----- -------------- --------------
Operating profit before specific items(1) 618 217
Adjustment for:
Depreciation and amortisation 554 516
------------------------------------------------------------------------------- ----- -------------- --------------
EBITDA before specific items(1) 1,172 733
Working capital movements 41 162
------------------------------------------------------------------------------- ----- -------------- --------------
Increase in inventories - (1)
(Increase)/decrease in receivables (376) 13
Increase in payables 375 126
Net decrease in derivative assets 16 19
Increase in provisions (non-specific items) 26 5
------------------------------------------------------------------------------- ----- -------------- --------------
Pension charge to cash difference adjustment 84 108
Share-based awards (LTIP and DSBP) charge 4 4
Cash cost of operating specific items (4) (2)
------------------------------------------------------------------------------- ----- -------------- --------------
Cash inflow from operations 1,297 1,005
Income tax paid (125) (69)
Research and development expenditure credit 1 14
------------------------------------------------------------------------------- ----- -------------- --------------
Net cash inflow from operating activities 1,173 950
------------------------------------------------------------------------------- ----- -------------- --------------
Cash flow from investing activities
Finance income received 16 6
Proceeds from disposal of property (excluding London Development Portfolio),
plant and equipment
(non-operating specific item) 5 12
London Development Portfolio net proceeds (non-operating specific item) 13 97
Purchase of property, plant and equipment(2) (289) (265)
Acquisition of business interests, net of cash acquired - (15)
Purchase of intangible assets (software)(2) (57) (77)
Payment of deferred consideration in respect of prior years' acquisitions (4) (2)
Sale/(purchase) of financial asset investments 30 (30)
------------------------------------------------------------------------------- ----- -------------- --------------
Net cash outflow from investing activities (286) (274)
------------------------------------------------------------------------------- ----- -------------- --------------
Net cash inflow before financing activities 887 676
------------------------------------------------------------------------------- ----- -------------- --------------
Cash flow from financing activities
Finance costs paid (57) (53)
Purchase of own shares - (3)
Payment of capital element of obligations under lease contracts (188) (172)
Cash received on sale and leasebacks 1 6
Proceeds from loans and borrowings - 1,189
Repayment of loans and borrowings (700) (1)
Dividends paid to equity holders of the Parent Company 5 - (244)
------------------------------------------------------------------------------- ----- -------------- --------------
Net cash (outflow)/inflow from financing activities (944) 722
------------------------------------------------------------------------------- ----- -------------- --------------
Net (decrease)/increase in cash and cash equivalents (57) 1,398
Effect of foreign currency exchange rates on cash and cash equivalents (10) 6
Cash and cash equivalents at the beginning of the year 1,640 236
------------------------------------------------------------------------------- ----- -------------- --------------
Cash and cash equivalents at the end of the year 1,573 1,640
------------------------------------------------------------------------------- ----- -------------- --------------
1 For further details on APMs used, see the Financial Review.
2 Items comprise total gross capital expenditure within 'in-year
trading cash flow' measure (see Financial Review).
Notes to the Consolidated Financial Statements
1. Basis of preparation
General information
Royal Mail plc (the Company) is incorporated in the United
Kingdom (UK). The Consolidated Financial Statements are produced in
accordance with applicable law and international accounting
standards in conformity with the requirements of the Companies Act
2006 (Adopted IFRSs) and prepared in accordance with international
financial reporting standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union.
Basis of preparation and accounting
The Consolidated Financial Statements of the Company for the 52
weeks ended 28 March 2021 (2019-20: 52 weeks ended 29 March 2020)
comprise the Company and its subsidiaries (together referred to as
'the Group') and the Group's interest in its associate
undertakings.
The Consolidated Financial Statements are presented in Sterling
(GBP) as that is the currency of the primary economic environment
in which the Group operates. All values are rounded to the nearest
whole GBPmillion except where otherwise indicated. The Consolidated
Financial Statements have been prepared on an historic cost basis,
except for pension assets and derivative financial instruments
which are measured at fair value.
The Group's financial reporting year ends on the last Sunday in
March and, accordingly, these Financial Statements are prepared for
the 52 weeks ended 28 March 2021 (2019-20: 52 weeks ended 29 March
2020). GLS' reporting year-end date is 31 March each year. No
adjustment is made in the financial statements in this regard on
the basis that, irrespective of the Group's reporting year-end date
of the last Sunday in March, a full year of GLS results is
consolidated into the Group.
The financial information set out in this document does not
constitute the Group's statutory Financial Statements for the
reporting years ended 28 March 2021 or 29 March 2020 but is derived
from those Financial Statements. Statutory Financial Statements for
the reporting year ended 29 March 2020 have been delivered to the
Registrar of Companies. The statutory Financial Statements for the
reporting year ended 28 March 2021 were approved by the Board of
Directors on 19 May 2021 along with this Financial Report but will
be delivered to the Registrar of Companies in due course. The
auditor has reported on those statutory Financial Statements; their
reports were (i) unqualified, (ii) did not include a reference to
any matters to which the auditor drew attention by way of emphasis
without qualifying their report and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act
2006.
Presentation of results and accounting policies
As stated above, the Consolidated Financial Statements and
associated Notes have been prepared in accordance with applicable
law and international accounting standards in conformity with the
requirements of the Companies Act 2006 (Adopted IFRSs) and prepared
in accordance with international financial reporting standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union, i.e. on a 'reported' basis. In some instances,
Alternative Performance Measures (APMs) are used by the Group to
provide 'adjusted' results. This is because Management is of the
view that these APMs provide a more meaningful basis on which to
analyse business performance and are consistent with the way that
financial performance is measured by Management and reported to the
Board. Details of the APMs used by the Group are provided In the
Financial Review.
Going concern
In assessing the going concern status of the Group, the
Directors are required to look forward a minimum of 12 months from
the date of approval of these Financial Statements to consider
whether it is appropriate to prepare the Financial Statements on a
going concern basis.
The Directors have reviewed both the current business
projections and a severe but plausible downside scenario and
assessed these against cash and cash equivalents of GBP1,532
million at 28 March 2021 and the undrawn bank syndicate loan
facility of GBP925 million. The downside scenario included a
consideration of deteriorating economic and market conditions,
increased competition in the UK parcels sector and a slower pace of
transformation in the UK business.
These risks were quantified to create a downside scenario that
took into account the levels of committed capital and expenditure,
as well as other short-term cost and cash actions which could
mitigate the impact of the risks. Mitigating actions included:
reducing variable hours and cost of sales; reducing discretionary
pay; reducing internal investment; and reducing one-off
projects.
The severe but plausible downside case indicates that the Group
would not need to draw on the bank syndicate loan facility in order
to maintain sufficient liquidity and would not breach any of its
covenants.
The Directors are of the view that there are sufficient cash and
committed undrawn facilities in place ('headroom') to meet
obligations over the period to May 2022. In the event of a severe
but plausible downside, prepared in line with the viability
scenarios included within this Report, cash/liquidity headroom is
expected to remain above GBP2 billion.
Consequently, the Directors are confident that the Group will
have sufficient funds to continue to meet its liabilities as they
fall due for at least 12 months from the date of approval of the
Financial Statements and therefore have prepared the Financial
Statements on a going concern basis.
The Group's Viability Statement can be found above, immediately
before the Consolidated Financial Statements.
Basis of consolidation
The Consolidated Financial Statements comprise the Financial
Statements of the Company and its subsidiary undertakings. The
Financial Statements of the major subsidiaries are prepared for the
same reporting year as the Company, using consistent accounting
policies.
All intragroup balances and transactions, including unrealised
profits arising from intragroup transactions, have been eliminated
in full. Transfer prices between business segments are set at arm's
length/fair value on the basis of charges reached through
negotiation with the respective businesses.
Subsidiaries are consolidated from the date on which control is
obtained by the Group and cease to be consolidated from the date on
which control is no longer held by the Group. Where the Group
ceases to hold control of a subsidiary, the Consolidated Financial
Statements include the results for the part of the reporting year
during which the Group held control.
Changes in accounting policy and disclosures
The accounting policies applied in the preparation of these
Financial Statements are consistent with those in the Annual Report
and Financial Statements for the year ended 29 March 2020, along
with the adoption of new and amended accounting standards with
effect from 30 March 2020 as detailed below:
New and amended accounting standards adopted in 2020-21
Interest Rate Benchmark Reform - Phase 1 (amendments to IFRS 9,
IAS 39 and IFRS 7)
The Group has adopted Phase 1 of the Interest Rate Benchmark
Reform with effect from 30 March 2020. This is a first reaction to
the potential effects the LIBOR reform could have on financial
reporting. The amendments do not have an effect on the Group as it
does not hold any hedges of interest rates, nor does it have any
financial assets or liabilities that reference LIBOR. The bank
syndicate loan facility is undrawn at year end and therefore is
unaffected by the amendment in the current year. In 2021-22 the
bank syndicate loan facility will be amended to calculate interest
payable on drawn loans using appropriate replacement interest
rates.
Amendments to References to Conceptual Framework in IFRS
The revised Framework is more comprehensive, with the aim to
provide the Board with the full set of tools for standard setting.
It covers all aspects of standard setting from the objective of
financial reporting, to presentation and disclosures. The Group has
applied the amendments from 30 March 2020. The amendments do not
have a material impact on the financial performance or position of
the Group.
Definition of Material (amendments to IAS 1 and IAS 8)
The new amendment clarifies the definition of material to align
the conceptual framework with the standards. The Group does not
consider the amendment to change the level of disclosures made in
the Financial Statements.
Definition of a Business (amendments to IFRS 3)
The new amendment aims to provide clarity as to whether an
entity acquires a business or a group of assets. The Group has
applied the amendment from 30 March 2020. As the Group has not made
any acquisitions since this date, the amendment has not had an
impact on the Group.
Accounting standards issued but not yet applied
The following new and amended accounting standards are relevant
to the Group and are in issue but were not effective at the balance
sheet date:
IFRS 16 (Amended) - COVID-19 - Related Rent Concessions
Interest Rate Benchmark Reform - Phase 2 (amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4 and IFRS 16)
IAS 37 (Amended) - Onerous Contracts - Cost of Fulfilling a
Contract
Annual improvements to IFRS Standards 2018-2020
IAS 16 (Amended) - Property, Plant and Equipment: Proceeds
Before Intended Use
IFRS 3 (Amended) - Reference to Conceptual Framework
IAS 1 (Amended) - Classification of Liabilities as Current or
Non-current
IFRS 17 - Insurance Contracts
The Directors do not expect that the adoption of the amendments,
interpretations and annual improvements listed above (which the
Group does not expect to early adopt) will have a material impact
on the financial performance or position of the Group in future
periods.
Sources of estimation uncertainty
The preparation of Consolidated Financial Statements necessarily
requires Management to make certain estimates and judgements 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 there is thought to be a significant
risk of a material adjustment to the Consolidated Financial
Statements within the next financial year as a result of the
estimation uncertainty are disclosed below.
Key sources of estimation uncertainty
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 for the RMPP and DBCBS are
included within Note 6.
Defined benefit pension plan assets are measured at fair value.
Where these assets cannot be valued directly from quoted market
prices, the Group applies judgement in selecting an appropriate
valuation method, after discussion with an expert fund manager. For
the main classes of assets:
-- Equities listed on recognised stock exchanges are valued at
the closing bid price, or the last traded price, depending on the
convention of the stock exchange on which they are quoted.
-- Bonds are measured using a combination of broker quotes and
pricing models making assumptions for credit risk, market risk and
market yield curves.
-- Pooled investment vehicles are valued using published prices
or the latest information from investment managers, which includes
any necessary fair value adjustments.
-- Properties are valued on the basis of open market value as at
the year-end date, in accordance with RICS Valuations Standards. As
a result of the current situation with regards the COVID-19
pandemic, property valuations have the potential to change rapidly
as market conditions fluctuate. The Group has been advised by its
valuers that enough market evidence exists on which to base
opinions of value however it is highlighted that these valuations
are only appropriate at the year-end date.
-- For exchange-traded derivatives that are assets, fair value
is based on bid prices. For exchange-traded derivatives that are
liabilities, fair value is based on offer prices.
Non-exchange traded derivatives are valued as follows:
-- Open forward foreign currency contracts at the balance sheet
date are over the counter contracts and are valued using forward
currency rates at that point. The unrealised appreciation or
depreciation of open foreign currency contracts is calculated by
the difference between the contracted rate and the rate to close
out the contract.
-- Open option contracts at the balance sheet date are over the
counter contracts and fair value is calculated taking into account
the strike price, maturity date and the underlying asset of the
option. The unrealised appreciation or depreciation of open option
contracts is calculated as the difference between the premiums paid
for the options and the price to close out the options.
-- Interest rate and credit default swaps are over the counter
contracts and fair value is the current value of the future
expected net cash flows, taking into account the time value of
money and market data at the year end.
The value of the RMSEPP insurance policies held by the Group is
equal to the accounting defined benefit obligation of the scheme as
at the year-end date.
The assumptions used in valuing unquoted investments are
affected by current market conditions and trends, which could
result in changes to the fair value after the measurement date.
Details of the carrying value of the unquoted pension plan asset
classes can be found in Note 6.
Deferred revenue
The Group recognises advance customer payments on its balance
sheet, predominantly relating to stamps and meter credits purchased
by customers but not yet used at the balance sheet date.
The majority of this balance is made up of stamps sold to the
general public. Management utilise a number of different data
sources to calculate the estimated deferred revenue liability given
that stamps can be held and used for varying time periods.
At 28 March 2021 the Group recognised GBP218 million (2019-20:
GBP185 million) deferred revenue in respect of stamps sold to the
general public but not used at the balance sheet date. In 2020-21
stamp sales increased as a consequence of COVID-19 which has led to
increased stamp holdings versus the previous year. The primary
sources of data used to derive this estimate are as follows:
-- Revenue data related to stamp sales through the Post Office
network.
-- Historic trends of deferred revenue balances.
-- Changes in the number of working days during the period.
-- Price rises.
-- Adjustments to reflect posting patterns around key events
close to the reporting year end, e.g. Mothering Sunday, Easter.
Average stamp holding days has remained broadly consistent
year-on-year at 40 days (2019-20: 43 days).
Other estimates
Provisions - industrial diseases
The Group has a potential liability for industrial diseases
claims relating to individuals who were employed in the General
Post Office Telecommunications division and whose employment ceased
prior to October 1981.
The provision requires estimates to be made of the likely volume
and cost of future claims, as well as the discount rate to be
applied to these, and is based on the best information available at
the year-end date, which incorporates independent expert actuarial
advice.
The Institute and Faculty of Actuaries (UK Asbestos Working
Party (AWP)), on whose modelling actuaries rely for their
calculations for asbestos-related ill-health claims, issued revised
guidance in February 2021, based on one of several different models
it maintains. This new guidance indicates a significant reduction
in future liabilities for such claims.
It has been widely acknowledged in business that this guidance
is the best information available and should be acted upon for
recognising asbestos-related claims reserves. The final publication
from the AWP is imminent and is expected to confirm the forecast
reduction in liabilities in line with their February 2021
guidance.
In view of the above factors, Management has applied a
consistent approach to that of previous years and recognised the
provision at 28 March 2021 between the medium and high estimates
provided by the actuarial consultant. This has resulted in a
release of GBP16 million of the provision balance, recognised in
the income statement as an operating specific item.
This full year 2020-21 position will be reassessed at the half
year ended 26 September 2021, by which time the full AWP report is
expected to have been published.
A 50 basis points decrease to the 1.24% discount rate used at 28
March 2021 would result in a GBP5 million increase in the overall
provision. Any income statement movements arising from a change in
accounting estimate are disclosed as an operating specific item.
The carrying value of this provision is included within Note 8.
2. Segment information
The Group's operating segments are based on geographic business
units whose primary services and products relate to the delivery of
parcels and letters. These segments are evaluated regularly by the
Royal Mail plc Board - the Chief Operating Decision Maker (CODM) as
defined by IFRS 8 'Operating Segments' - in deciding how to
allocate resources and assess performance.
A key measure of segment performance is operating profit before
specific items. This measure of performance is disclosed on an
'adjusted' basis, a non-IFRS measure, excluding specific items and
the pension charge to cash difference adjustment (see the APMs
section in the Financial Review). This is consistent with how
financial performance is measured internally and reported to the
CODM.
Segment revenues have been attributed to the respective
countries based on the primary location of the service performed.
Transfer prices between segments are set at an arm's length/fair
value on the basis of charges reached through negotiation between
the relevant business units that form part of the segments.
Specific items,
and pension adjustment
52 weeks 2021 Adjusted in people costs Reported
------------------ -------------------------------------------------------- ------------------------------ --------
Royal GLS Royal GLS
Mail (Non-UK Mail (Non-UK
Continuing (UK operations) operations) Eliminations(1) Group (UK operations) operations) Group
operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ---------------- ------------ --------------- ------- ---------------- ------------ --------
Revenue 8,649 4,040 (51) 12,638 - - 12,638
People costs (5,619) (851) - (6,470) (84) - (6,554)
Non-people costs (2,686) (2,831) 51 (5,466) - - (5,466)
------------------ ---------------- ------------ --------------- ------- ---------------- ------------ --------
Operating profit
before specific
items 344 358 - 702 (84) - 618
Operating specific
items
Regulatory fine - - - - (1) - (1)
Legacy/other items - - - - 13 - 13
Amortisation of
intangible assets
in acquisitions - - - - (1) (18) (19)
------------------ ---------------- ------------ --------------- ------- ---------------- ------------ --------
Operating profit 344 358 - 702 (73) (18) 611
Profit on disposal
of property,
plant and
equipment
(non-operating
specific item) - - - - 38 (2) 36
------------------ ---------------- ------------ --------------- ------- ---------------- ------------ --------
Profit before
interest and tax 344 358 - 702 (35) (20) 647
Finance costs (49) (13) 7 (55) - - (55)
Finance income 21 3 (7) 17 - - 17
Net pension
interest
(non-operating
specific item) - - - - 117 - 117
------------------ ---------------- ------------ --------------- ------- ---------------- ------------ --------
Profit before tax 316 348 - 664 82 (20) 726
------------------ ---------------- ------------ --------------- ------- ---------------- ------------ --------
1 Revenue and non-people costs eliminations relate to intragroup
trading between Royal Mail and GLS, due to Parcelforce Worldwide
being GLS' partner in the UK. Finance costs/income eliminations
relate to intragroup loans between Royal Mail and GLS.
Specific items,
and pension adjustment
52 weeks 2020 Adjusted in people costs Reported
------------------ -------------------------------------------------------- ------------------------------ --------
Royal GLS Royal GLS
Mail (Non-UK Mail (Non-UK
Continuing (UK operations) operations) Eliminations(1) Group (UK operations) operations) Group
operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ---------------- ------------ --------------- ------- ---------------- ------------ --------
Revenue 7,720 3,161 (41) 10,840 - - 10,840
People costs (5,234) (722) - (5,956) (108) - (6,064)
Non-people costs (2,369) (2,231) 41 (4,559) - - (4,559)
------------------ ---------------- ------------ --------------- ------- ---------------- ------------ --------
Operating profit
before
specific items 117 208 - 325 (108) - 217
Operating specific
items
Regulatory fine - - - - (51) - (51)
Legacy/other items
and
impairments - - - - (97) 5 (92)
Amortisation of
intangible
assets
in acquisitions - - - - (1) (18) (19)
------------------ ---------------- ------------ --------------- ------- ---------------- ------------ --------
Operating profit 117 208 - 325 (257) (13) 55
Profit on disposal
of
property, plant
and
equipment
(non-operating
specific item) - - - - 88 1 89
------------------ ---------------- ------------ --------------- ------- ---------------- ------------ --------
Profit before
interest
and tax 117 208 - 325 (169) (12) 144
Finance costs (49) (18) 11 (56) - - (56)
Finance income 15 2 (11) 6 - - 6
Net pension
interest
(non-operating
specific
item) - - - - 86 - 86
------------------ ---------------- ------------ --------------- ------- ---------------- ------------ --------
Profit before tax 83 192 - 275 (83) (12) 180
------------------ ---------------- ------------ --------------- ------- ---------------- ------------ --------
1 Revenue and non-people costs eliminations relate to intragroup
trading between Royal Mail and GLS, due to Parcelforce Worldwide
being GLS' partner in the UK. Finance costs/income eliminations
relate to intragroup loans between Royal Mail and GLS.
The depreciation and amortisation below are included within
'operating profit before specific items' in the income
statement.
The non-current assets below exclude financial assets,
retirement benefit surplus and deferred tax, and are included
within non-current assets on the balance sheet.
Royal GLS
Mail (Non-UK
(UK operations) operations) Total
52 weeks 2021 GBPm GBPm GBPm
---------------------------------------------------- ---------------- ------------ -----
Depreciation (308) (124) (432)
---------------------------------------------------- ---------------- ------------ -----
Amortisation of intangible assets (mainly software) (107) (15) (122)
---------------------------------------------------- ---------------- ------------ -----
Non-current assets 2,596 1,362 3,958
---------------------------------------------------- ---------------- ------------ -----
Royal GLS
Mail (Non-UK
(UK operations) operations) Total
52 weeks 2020 GBPm GBPm GBPm
---------------------------------------------------- ---------------- ------------ -----
Depreciation (306) (106) (412)
---------------------------------------------------- ---------------- ------------ -----
Amortisation of intangible assets (mainly software) (90) (14) (104)
---------------------------------------------------- ---------------- ------------ -----
Non-current assets 2,695 1,390 4,085
---------------------------------------------------- ---------------- ------------ -----
3. Taxation
52 weeks 52 weeks
2021 2020
GBPm GBPm
-------------------------------------------------------------- -------- --------
Tax charged in the income statement
Current income tax:
Current UK income tax charge (48) (5)
Foreign tax (82) (55)
-------------------------------------------------------------- -------- --------
Current income tax charge (130) (60)
Amounts (under)/over-provided in previous years (4) 5
-------------------------------------------------------------- -------- --------
Total current income tax charge (134) (55)
Deferred income tax:
Effect of change in tax rates - 6
Relating to origination and reversal of temporary differences 25 35
Amounts over/(under)-provided in previous years 3 (5)
-------------------------------------------------------------- -------- --------
Total deferred income tax credit 28 36
-------------------------------------------------------------- -------- --------
Tax charge in the consolidated income statement (106) (19)
-------------------------------------------------------------- -------- --------
Tax credited/(charged) to other comprehensive income
Deferred tax:
Tax credit in relation to remeasurement gains of the defined
benefit pension schemes 26 -
Tax (charge)/credit on revaluation of cash flow hedges (7) 11
-------------------------------------------------------------- -------- --------
Total deferred income tax credit 19 11
-------------------------------------------------------------- -------- --------
Total tax credit in the consolidated statement of other
comprehensive income 19 11
-------------------------------------------------------------- -------- --------
In addition to the amount charged to the income statement and
other comprehensive income, the following amount relating to tax
has been recognised directly in equity:
52 weeks 52 weeks
2021 2020
GBPm GBPm
----------------------------------------------------------------- -------- --------
Deferred tax:
Change in estimated excess tax deductions related to share-based
payments 1 1
----------------------------------------------------------------- -------- --------
Total deferred income tax credit recognised directly in
equity 1 1
----------------------------------------------------------------- -------- --------
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 28 March 2021 and 52 weeks ended 29 March 2020 is
shown below.
52 weeks 52 weeks
2021 2020
GBPm GBPm
----------------------------------------------------------- -------- --------
Profit before tax 726 180
----------------------------------------------------------- -------- --------
At UK statutory rate of corporation tax of 19% (2019-20:
19%) (138) (34)
Effect of different tax rates on non-UK profits and losses (12) (5)
Tax under-provided in previous years (1) -
Non-deductible expenses (6) (4)
Tax reliefs and incentives 4 3
Uncertain tax positions (2) (16)
Tax effect of property disposals 26 21
Tax effect of closure of RMPP to future accrual (2) (2)
Net pension interest credit 23 17
Regulatory fine - (10)
Net decrease in tax charge resulting from non-recognition
of certain deferred tax assets and liabilities 1 6
Share-based payments - deferred tax-only adjustments 1 (1)
Effect of change in tax rates - 6
----------------------------------------------------------- -------- --------
Tax charge in the consolidated income statement (106) (19)
----------------------------------------------------------- -------- --------
Deferred tax
Credited/ Credited/
Credited/ (charged) to (charged) to
Deferred tax by At (charged) to other Credited foreign Jurisdictional At
balance sheet 30 March income comprehensive directly in exchange right of 28 March
category 2020 statement income equity reserve offset 2021
52 weeks 2021 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- --------- -------------- -------------- --------------- -------------- -------------- ---------
Liabilities
Accelerated
capital
allowances (8) 1 - - - - (7)
Intangible
assets (54) 2 - - 2 - (50)
--------------- --------- -------------- -------------- --------------- -------------- -------------- ---------
(62) 3 - - 2 - (57)
Jurisdictional
right of
offset 8 - - - - 1 9
--------------- --------- -------------- -------------- --------------- -------------- -------------- ---------
Deferred tax
liabilities (54) 3 - - 2 1 (48)
--------------- --------- -------------- -------------- --------------- -------------- -------------- ---------
Assets
Deferred
capital
allowances 14 19 - - - - 33
Pensions
temporary
differences 33 16 26 - - - 75
Provisions and
other 25 8 - - (1) - 32
Employee share
schemes - 2 - 1 - - 3
Losses
available for
offset against
future taxable
income 34 (19) - - - - 15
R&D expenditure
credit 2 (1) - - - - 1
Hedging
derivative
temporary
differences 10 - (7) - - - 3
--------------- --------- -------------- -------------- --------------- -------------- -------------- ---------
118 25 19 1 (1) - 162
Jurisdictional
right of
offset (8) - - - - (1) (9)
--------------- --------- -------------- -------------- --------------- -------------- -------------- ---------
Deferred tax
assets 110 25 19 1 (1) (1) 153
--------------- --------- -------------- -------------- --------------- -------------- -------------- ---------
Net deferred
tax asset 56 28 19 1 1 - 105
--------------- --------- -------------- -------------- --------------- -------------- -------------- ---------
(Charged)/ Credited
credited to Charged Jurisdictional
At to other Credited to foreign right At
Deferred tax by balance 1 April income comprehensive directly exchange of 29 March
sheet category 2019 statement income in equity reserve offset 2020
52 weeks 2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- -------- ---------- -------------- ---------- ----------- -------------- ---------
Liabilities
Accelerated capital
allowances (6) (2) - - - - (8)
Employee share schemes (1) - - 1 - - -
Intangible assets (57) 4 - - (1) - (54)
Hedging derivatives
temporary
differences (1) - 1 - - - -
---------------------------- -------- ---------- -------------- ---------- ----------- -------------- ---------
(65) 2 1 1 (1) - (62)
Jurisdictional right of
offset 10 - - - - (2) 8
---------------------------- -------- ---------- -------------- ---------- ----------- -------------- ---------
Deferred tax liabilities (55) 2 1 1 (1) (2) (54)
---------------------------- -------- ---------- -------------- ---------- ----------- -------------- ---------
Assets
Deferred capital allowances 6 8 - - - - 14
Pensions temporary
differences 13 20 - - - - 33
Provisions and other 18 7 - - - - 25
Losses available for offset
against
future taxable income 35 (1) - - - - 34
R&D expenditure credit 2 - - - - - 2
Hedging derivative temporary
differences - - 10 - - - 10
---------------------------- -------- ---------- -------------- ---------- ----------- -------------- ---------
74 34 10 - - - 118
Jurisdictional right of
offset (10) - - - - 2 (8)
---------------------------- -------- ---------- -------------- ---------- ----------- -------------- ---------
Deferred tax assets 64 34 10 - - 2 110
---------------------------- -------- ---------- -------------- ---------- ----------- -------------- ---------
Net deferred tax asset 9 36 11 1 (1) - 56
---------------------------- -------- ---------- -------------- ---------- ----------- -------------- ---------
Deferred tax assets and liabilities are offset within the same
jurisdiction where the Group has a legally enforceable right to do
so. The following is the analysis of the deferred tax balances
(after offset) for balance sheet presentation purposes.
At 28 At 29
March March
2021 2020
Deferred tax - balance sheet presentation GBPm GBPm
------------------------------------------ ------ ------
Liabilities
GLS group (48) (54)
------------------------------------------ ------ ------
Deferred tax liabilities (48) (54)
------------------------------------------ ------ ------
Assets
GLS group 10 8
Net UK position 143 102
------------------------------------------ ------ ------
Deferred tax assets 153 110
------------------------------------------ ------ ------
Net deferred tax asset 105 56
------------------------------------------ ------ ------
The deferred tax position shows an increased overall asset in
the reporting year to 28 March 2021. This is primarily due to the
increase in accounting deficit of the DBCBS pension scheme.
GLS has deferred tax assets and liabilities in various
jurisdictions which cannot be offset against one another. The main
elements of the liability relate to goodwill and intangible assets
in GLS Germany, for which the Group has already taken tax
deductions, and intangible assets in relation to acquisitions in
Canada and Spain.
At 28 March 2021, the Group had unrecognised tax losses and
temporary differences of GBP263 million (2019-20: GBP278 million)
with a tax value of GBP73 million (2019-20: GBP80 million).
Unrecognised deferred tax in relation to tax losses comprises GBP70
million (2019-20: GBP73 million) relating to losses of GBP236
million (2019-20: GBP249 million) in GLS that are available for
offset against future profits if generated in the relevant GLS
companies, and GBP1 million (2019-20: GBP1 million) in relation to
GBP6 million (2019-20: GBP7 million) of historical UK non-trading
and capital losses carried forward. Other unrecognised amounts
comprise GBP2 million (2019-20: GBP6 million) relating to GLS other
temporary differences of GBP21 million (2019-20: GBP22 million).
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 GBP186
million (2019-20: GBP187 million) of capital losses, the tax effect
of which is GBP35 million (2019-20: GBP35 million) in respect of
assets previously qualifying for industrial buildings allowances.
Further temporary differences exist in relation to GBP383 million
(2019-20: GBP388 million) of gains for which rollover relief has
been claimed, the tax effect of which is GBP73 million (2019-20:
GBP74 million). No tax liability would be expected to crystallise
on the basis that, were the assets (into which the gains have been
rolled over) to be sold at their residual values, no capital gain
would arise.
Changes to UK corporation tax rate
The UK Government has announced that the corporation tax rate
will rise to 25% from April 2023. This announcement had not been
substantively enacted at the balance sheet date and therefore the
effect of this planned change has not been reflected in the
deferred tax balances. The impact of this change in rate, based on
the current balance sheet position, would have led to an increase
in the net deferred tax asset of GBP45 million, with a GBP10
million deferred tax credit recognised through other comprehensive
income and GBP35 million recognised through the income
statement.
4. Earnings per share
52 weeks 2021 52 weeks 2020
---------------------------------- ----------------------------------
Specific Specific
items items
and pension and pension
Reported adjustment(1) Adjusted Reported adjustment(1) Adjusted
--------------------------------- -------- -------------- -------- -------- -------------- --------
Profit for the year (GBPmillion) 620 99 521 161 (35) 196
Weighted average number of
shares issued (million) 999 n/a 999 999 n/a 999
Basic earnings per share (pence) 62.0 n/a 52.1 16.1 n/a 19.6
Diluted earnings per share
(pence) 61.8 n/a 51.9 16.1 n/a 19.6
--------------------------------- -------- -------------- -------- -------- -------------- --------
1 Further details of the specific items and pension adjustment
total can be found in the Financial Review.
The diluted earnings per share for the year ended 28 March 2021
is based on a weighted average number of shares of 1,003,489,831
(2019-20: 1,001,079,845) to take account of the potential issue of
2,020,587 (2019-20: 658,250) ordinary shares resulting from the
Deferred Share Bonus Plans and 2,042,060 (2019-20: 1,451,301)
ordinary shares resulting from the Long Term Incentive Plans.
The 572,816 (2019-20: 1,029,706) shares held in an Employee
Benefit Trust for the settlement of options and awards to current
and former employees are treated as treasury shares for accounting
purposes. The Company, however, does not hold any shares in
treasury.
5. Dividends
52 weeks 52 weeks
2021 2020 52 weeks 52 weeks
Pence Pence 2021 2020
Dividends on ordinary shares per share per share GBPm GBPm
----------------------------- ---------- ---------- -------- --------
Final dividends paid - 17.0 - 169
Interim dividends paid - 7.5 - 75
----------------------------- ---------- ---------- -------- --------
Total dividends paid - 24.5 - 244
----------------------------- ---------- ---------- -------- --------
The Board has reviewed the performance of the Group during the
2020--21 reporting year and concluded that it is appropriate to pay
a one--off final dividend of 10p per share, payable on 6 September
2021 to shareholders on the register at 30 July 2021, subject to
approval at the 2021 AGM (2019-20: no final dividend).
6. Retirement benefit plans
Summary pension information
52 weeks 52 weeks
2021 2020
GBPm GBPm
------------------------------------------------------------- -------- --------
Ongoing UK pension service costs
UK defined benefit plans (including administration costs)(1) (369) (397)
UK defined contribution plan (111) (97)
UK defined benefit and defined contribution plans' Pension
Salary Exchange (PSE) employer contributions(2) (194) (178)
------------------------------------------------------------- -------- --------
Total UK ongoing pension service costs (674) (672)
GLS pension costs accounted for on a defined contribution
basis (9) (7)
------------------------------------------------------------- -------- --------
Total Group ongoing pension service costs (683) (679)
------------------------------------------------------------- -------- --------
Cash flows relating to ongoing pension service costs
UK defined benefit plans' employer contributions(3) (285) (288)
Defined contribution plans' employer contributions (120) (104)
UK defined benefit and defined contribution plans' PSE
employer contributions (194) (178)
------------------------------------------------------------- -------- --------
Total Group cash flows relating to ongoing pension service
costs (599) (570)
------------------------------------------------------------- -------- --------
Royal Mail Senior Executives Pension Plan (RMSEPP) death
in service and administration expenses - (1)
------------------------------------------------------------- -------- --------
Pension charge to cash difference adjustment (84) (108)
------------------------------------------------------------- -------- --------
At 28 At 29
March March
2021 2020
'000 '000
---------------------------------- ------ ------
UK pension plans - active members
UK defined benefit plan 75 79
UK defined contribution plan 53 54
---------------------------------- ------ ------
Total 128 133
---------------------------------- ------ ------
1 These pension service costs are charged to the income
statement. They represent the cost (as a percentage of pensionable
payroll - 19.5% (2019-20: 20.8%) of the increase in the defined
benefit obligation due to members earning one more years' worth of
pension benefits. They are calculated in accordance with IAS 19 and
are based on market yields (high-quality corporate bonds and
inflation) at the beginning of the reporting year. Pensions
administration costs for the Royal Mail Pension Plan (RMPP) of GBP9
million (2019-20: GBP9 million) and the Defined Benefit Cash
Balance Scheme (DBCBS) of GBP5 million (2019-20: GBP4 million)
continue to be included within the Group's ongoing UK pension
service costs.
2 Eligible employees who are enrolled into PSE opt out of making
employee contributions to their pension and the Group makes
additional contributions in return for a reduction in basic
pay.
3 The employer contribution cash flow rate of 15.6% forms part
of the payroll expense and is paid in respect of the DBCBS (2019-20
15.6%). These contribution rates are 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, and will be required in
respect of the DBCBS, the first full valuation for this will be
performed as at 31 March 2021.
In the period, the Group operated the following plans:
UK Defined Contribution plan
Royal Mail Group Limited, the Group's main operating subsidiary,
operates the Royal Mail Defined Contribution Plan (RMDCP). This
plan was launched in April 2009 and is open to employees who joined
the Group from 31 March 2008, following closure of the RMPP to new
members.
Ongoing UK defined contribution plan costs have increased from
GBP169 million in 2019-20 (including GBP72 million PSE costs) to
GBP199 million (including GBP88 million PSE costs). This is due to
an increase in the average employer's contribution rate from 8.6%
in 2019-20 to 9.3% in 2020-21.
UK defined benefit plans
Royal Mail Pension Plan (RMPP)(4)
The RMPP is funded by the payment of contributions to separate
Trustee administered funds. The RMPP includes sections A, B and C,
each with different terms and conditions.
Section A Section B Section C
Joining date Before 1 December On or after 1 December On or after 1 April 1987
for members 1971 1971 and before 1 and before 1 April 2008
(or beneficiaries April 1987
of members) or
for members of Section
A who chose to receive
Section B benefits.
----------------- ----------------------- ----------------------------------
Terms Pension of 1/80th of pensionable Pension of 1/60th of pensionable
salary plus a tax-free lump sum salary
of 3/80ths of pensionable salary for each year of pensionable
for each year of pensionable service, service,
until 31 March 2018. until 31 March 2018.
Members wishing to take
a tax free lump sum on retirement
do so in exchange for a
reduced pension.
------------------------------------------ ----------------------------------
4 Any references to the RMPP relate to the scheme's defined
pension liabilities built up to 31 March 2018. From 1 April 2018
members began building up DBCBS benefits.
Governance and management
Royal Mail Pensions Trustees Limited acts as the corporate
Trustee to the RMPP. There are currently eight Trustee Directors
that sit on the Trustee Board. There is a vacancy for an
employer-nominated Trustee Director. The Trustee Board is supported
by an executive team of pension management professionals. They
provide day-to-day Plan management, advise the Trustee Board on its
responsibilities and ensure that decisions are fully
implemented.
The Trustee Board is responsible for:
Monitoring the covenant To help protect benefits, the Trustee Board monitors the
of the participating financial strength of the participating employers
employers
------------------------ ---------------------------------------------------------------
Investing contributions The Trustee Board invests the member and employer contributions
in a mix of equities, bonds, property and other investments
including derivatives. It holds the contributions and
investments on behalf of the members.
------------------------ ---------------------------------------------------------------
Keeping members informed The Trustee Board sends active members an annual benefit
illustration together with a summary of the RMPP's annual
report and accounts.
------------------------ ---------------------------------------------------------------
Acting in the best The Trustee Board must pay all benefits as they fall due
interests of all RMPP under the Trust Deed and Rules
beneficiaries
------------------------ ---------------------------------------------------------------
An agreement has been made with the Pension Trustee to ringfence
certain employer contributions in an escrow arrangement. These
contributions are not considered to be Plan assets as the Trustee
does not have control over the assets. This balance is included
within non-current financial assets.
Defined Benefit Cash Balance Scheme (DBCBS)
The DBCBS has been in place since 1 April 2018. This is a
transitional arrangement until the proposed Collective Defined
Contribution (CDC) scheme can be established.
DBCBS members build up a guaranteed lump sum benefit of 19.5% of
their pensionable pay each year. Although there are no guaranteed
increases to this lump sum the aim is to provide above inflation
increases, and the Trustee invests the scheme assets accordingly.
If the value of the DBCBS assets were to fall below the value of
the members' guaranteed lump sum benefits, then no increases would
be awarded until asset values had recovered as the Group has a
legal obligation to prevent a decrease in the lump sum amount. From
an assessment of announcements and internal communications made to
members of the scheme to date and taking into account the first
increase granted in March 2020, Management is of the view that
there is a constructive obligation to provide an increase to the
lump sum. The increase awarded for the current year was CPI plus
1.2%. Future liabilities of the scheme have been calculated
assuming increases of CPI plus 2%, although the nature of the
scheme means that actual increases could be lower or higher than
this amount.
The Group signed a Schedule of Contributions on 19 July 2019.
This covers a period of five years from the date of certification
of the schedule i.e. until July 2024. In accordance with this
schedule, the Group is required to make payments totalling 15.6%
per annum of pensionable payroll in respect of DBCBS.
Royal Mail Senior Executives Pension Plan (RMSEPP)
This scheme for executives closed in December 2012 to future
accrual, therefore the Group makes no regular future service
contributions. The last triennial valuation was performed in 2018.
In accordance with the Schedule of Contributions signed on 25 March
2019, around GBP500,000 has been paid in 2020-21 and is due to be
paid per annum until 31 March 2025.
In September 2018 an insurance policy was purchased in respect
of all remaining pensioners and deferred members, following which
it was decided to proceed to buy out and wind up the Plan. The
wind-up of RMSEPP had previously been expected to complete in
2020-21, however it was delayed by the need for further clarity
over the approach to GMP equalisation. The Trustees now expect this
to complete in 2022.
All benefit payments due from the RMSEPP remain unchanged. The
insurance policies held by the RMSEPP exactly match the value and
timing of the benefits payable to individual members and the fair
value is deemed to be the present value of the related obligations.
The total value of the buy-in annuity policies in place is GBP364
million (29 March 2020: GBP296 million) and is included as a
pension asset and a pension liability at 28 March 2021(5) .
Unfunded pension
A liability of GBP2 million (2019-20: GBP2 million) has been
recognised for future payment of pension benefits to a past
Director.
Accounting and actuarial funding surplus position (RMPP, RMSEPP
and DBCBS)
In addition to the accounting valuations calculated in
accordance with IAS 19, actuarial funding valuations are carried
out every three years by actuaries commissioned by the Trustees for
the purposes of calculating contributions and funding requirements.
The main difference between the accounting and actuarial funding
valuations is that different rates are used to discount the
projected scheme liabilities. The accounting valuation uses yields
on high quality corporate bonds and the actuarial funding valuation
uses gilt yields. As the accounting discount rate is higher than
the actuarial funding discount rate, this leads to a lower computed
liability.
The results of the most recent triennial valuations are shown
below.
RMPP DBCBS
----------------- -------------------------------- ----------------------------------------------
Date of valuation 31 March 2018 (agreed on 19 The first full valuation will be performed
July 2019) as at 31 March 2021 (the valuation will
be completed in 2021-22).
----------------- ---------------------------------- --------------------------------------------
Valuation Based on this set of assumptions A draft funding position has been calculated
rolled forward, the actuarial based on the assumption that the funding
surplus at 31 March 2021 was surplus is equal to the amount held
estimated to in respect of the risk reserve. Under
be around GBP163 million (31 this method, the DBCBS actuarial surplus
March 2020: GBP575 million). was estimated to be around GBP29 million
at 31 March 2021 (31 March 2020: GBP18
million).
----------------- ---------------------------------- --------------------------------------------
5 In accordance with IAS 19.
Below is a summary of the combined plans' assets and liabilities
on an accounting (IAS 19) and actuarial funding basis.
DBCBS RMPP and RMSEPP
Accounting (IAS DBCBS Accounting (IAS RMPP and RMSEPP
19) Actuarial funding 19) Actuarial funding
------------------ -------------------- ------------------ --------------------
At 28 At 29 At 31 At 31 At 28 At 29 At 31 At 31
March March March March March March March March
2021 2020 2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- --------- ------- ---------- -------- -------- -------- --------- ---------
Fair value of
plans' assets
(6(b) below)(6) 1,192 730 1,182 735 11,814 11,989 11,566 11,700
----------------------- --------- ------- ---------- -------- -------- -------- --------- ---------
Present value
of plans' liabilities (1,586) (907) (1,153) (717) (8,139) (6,429) (11,394) (11,116)
----------------------- --------- ------- ---------- -------- -------- -------- --------- ---------
(Deficit)/surplus
in plans (pre
withholding tax
payable)(7) (394) (177) 29 18 3,675 5,560 172 584
----------------------- --------- ------- ---------- -------- -------- -------- --------- ---------
Withholding tax
payable n/a n/a n/a n/a (1,286) (1,946) n/a n/a
----------------------- --------- ------- ---------- -------- -------- -------- --------- ---------
(Deficit)/surplus
in plans (8) (394) (177) 29 18 2,389 3,614 172 584
----------------------- --------- ------- ---------- -------- -------- -------- --------- ---------
6 The difference between accounting and actuarial funding asset
fair values on 28 and 31 March 2021 arises from the different
year-end dates used for the valuation of the assets, and in both
years due to the valuation of the RMSEPP buy-in assets under both
methods.
7 Any reference to a withholding tax adjustment relates to
withholding tax payable on distribution of a pension surplus.
8 On an actuarial funding basis, the excess of DBCBS assets over
liabilities is as a result of the risk reserve.
There is no element of the present value of the plans'
liabilities above that arises from plans that are wholly
unfunded.
Having taken legal advice with regard to the rights of the Group
under the Trust deeds and rules, the Directors believe there is an
obligation to recognise a pension surplus on an accounting basis.
The Directors do not believe that the surplus in the RMPP on an
accounting basis is a useful measure of the scheme's funding
position. However, the Directors are required to account for the
plans based on the Group's legal right to benefit from a surplus,
using long-term accounting assumptions current at the reporting
date, as required by IFRS. As the Group has a legal right to
benefit from a surplus in the RMPP and RMSEPP, under IAS 19 and
IFRIC 14, it must recognise the economic benefit it considers to
arise from either a reduction to its future contributions or a
refund of the surplus. This is a technical adjustment made on an
accounting basis. There is no cash benefit from the surplus. Under
the terms of the DBCBS scheme, any surplus would be repaid into the
Trust and therefore under IAS 19 the Directors believe that they
would not be able to recognise an accounting surplus even if one
arose.
This surplus is presented on the balance sheet net of a
withholding tax adjustment of GBP1,283 million (at 29 March 2020:
GBP1,942 million), which represents the tax that would be withheld
on the surplus amount. Any actuarial surplus will remain in the
RMPP for the benefit of members until the point at which all
benefits have been paid out or secured.
Included in the IAS 19 figures in the table above is a RMSEPP
surplus at 28 March 2021 of GBP9 million (at 29 March 2020: GBP10
million surplus) (pre-withholding tax payable). As the RMSEPP is
also closed to future accrual, the surplus is considered to be
available as a refund as per IFRIC 14 and, as such, is shown on the
balance sheet net of a withholding tax adjustment of GBP3 million
(at 29 March 2020: GBP4 million), which represents the tax that
would be withheld on the surplus amount.
In 2021-22 the Group expects to contribute around GBP400 million
in respect of all UK pension schemes (2019-20: around GBP400
million).
Guaranteed Minimum Pensions (GMP)
Pension schemes are now under an obligation to address the issue
of unequal GMP. The transfer of RMPP's historical pension
liabilities to HM Government in 2012, in accordance with the Postal
Services Act 2011, included all of the plan's GMP liabilities. The
requirement to remove the inequality in former RMPP benefits
deriving from GMPs therefore rests with Government.
The RMSEPP, however, does still have its GMP liabilities and
will be required to take action to equalise benefits. The Trustees'
actuaries estimate that the cost of GMP equalisation will not be
material.
The following disclosures relate to the major assumptions,
sensitivities, assets and liabilities in the RMPP, RMSEPP and
DBCBS.
a) Major long-term assumptions used for accounting (IAS 19)
purposes - RMPP, RMSEPP and DBCBS
IAS 19 assumptions will be derived separately for the legacy
RMPP and DBCBS, in particular taking into account the different
weighted durations of the future benefit payments. The RMSEPP will
continue in line with legacy RMPP benefits.
The major assumptions used to calculate the accounting position
of the pension plans are as follows:
At 28 March At 29 March
2021 2020
--------------------------------------------------------- ----------- -------------
Retail Price Index (RPI) - RMPP/RMSEPP 3.2% 2.5%
Retail Price Index (RPI) - DBCBS 3.3% 2.6%
Consumer Price Index (CPI) - RMPP/RMSEPP 2.9% 1.7%
Consumer Price Index (CPI) - DBCBS 2.8% 1.8%
Discount rate - RMPP/RMSEPP(9)
- nominal 2.0% 2.2%
- real (nominal less RPI) (1.2%) (0.3%)
Discount rate - DBCBS(10)
- nominal 1.9% 2.2%
- real (nominal less RPI) (1.4%) (0.4%)
Rate of increase in pensionable salaries(11) RPI - 0.1% RPI-0.1%
Rate of increase for deferred pensions - RMPP CPI CPI
Rate of pension increases - RMPP Sections A/B CPI CPI
Rate of pension increases - RMPP Section C(11) 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(11) RPI - 0.1% RPI-0.1%
Rate of pension increases - DBCBS benefits CPI+2.0% CPI+2.0%
Life expectancy from age 60 - for a current 40/60 year
old male RMPP member 28/26 years 28/26 years
Life expectancy from age 60 - for a current 40/60 year
old female RMPP member 30/28 years 30/28 years
--------------------------------------------------------- ----------- -------------
9 The discount rate reflects the average duration of the RMPP
benefits of around 25 years (2019-20: 27 years).
10 The discount rate reflects the average duration of the DBCBS
benefits of 14.5 years (2019-20: 15 years). The pension service
cost applicable from 30 March 2020 is based on 29 March 2020
assumptions.
11 The rate of increase in salaries, and the rate of pension
increase for Section C members (who joined the RMPP on or after
April 1987) and RMSEPP 'all other members', is capped at 5.0%,
which results in the average long-term pension increase assumption
being 10 basis points lower than the RPI long-term assumption.
Mortality
The RMPP assumptions are based on the latest Self-Administered
Pension Scheme (SAPS) S2 mortality tables with appropriate scaling
factors (118% for male pensioners (2019-20: 118%) and 116% for
female pensioners (2019-20: 116%)). Future improvements are based
on the CMI 2017 core projections (smoothing factor 8.0 (2019-20:
8.0)) with a long-term trend of 1.5% per annum (2019-20: 1.5%).
These assumptions were adopted following a mortality study
undertaken as part of the March 18 actuarial valuation. No
adjustments have been made to mortality assumptions at year end to
reflect the potential effects of COVID-19 as the actual Plan
experience is not yet available and it is too soon to make a
judgement on the impact of the pandemic on future mortality
improvements. For RMPP and RMSEPP, the mortality experience
analysis will be carried out later in the year as part of the 31
March 2021 formal valuation.
Sensitivity analysis for RMPP and DBCBS liabilities
The RMPP and DBCBS liabilities are sensitive to changes in key
assumptions. The potential impact of the largest sensitivities on
the RMPP and DBCBS liabilities is as follows:
At 28 March
2021 At 29 March 2020
-------------------------- --------------------------
Potential Potential Potential Potential
increase increase increase increase
in in in in
DBCBS RMPP DBCBS RMPP
liabilities liabilities liabilities liabilities
Key assumption change GBPm GBPm GBPm GBPm
------------------------------------------------------------- ------------ ------------ ------------ ------------
Additional one year of life expectancy - 320 - 230
Increase in inflation rate (both RPI and CPI simultaneously)
of 0.1% per annum 25 190 13 155
Decrease in discount rate of 0.1% per annum 25 190 13 155
Increase in CPI assumption (assuming RPI remains
constant) of 0.1% per annum 25 45 13 30
Increase in constructive obligation of 0.1% per annum 25 - 13 -
------------------------------------------------------------- ------------ ------------ ------------ ------------
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. The discount rate and RPI
sensitivities are calculated using the mean term of the relevant
section to derive the impact of a 0.1% change in assumption. For
the RPI/CPI gap, the approach is the same for DBCBS, but for legacy
RMPP, the liabilities as at 29 March 2020 are considered to derive
an accurate impact in percentage terms. This percentage is then
applied to the liabilities at March 2021. This approach is
unchanged from the prior year, although any change in mean terms
will impact the sensitivities. Changes inverse to those in the
table (e.g. an increase in discount rate) would have the opposite
effect on liabilities.
b) RMPP, RMSEPP and DBCBS assets
At 28 March 2021 At 29 March 2020
------------------------ ---------------------------
Quoted Unquoted Total Quoted Unquoted Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------ -------- ------ ------- -------- ------
Equities
UK 2 21 23 - 21 21
Overseas 43 31 74 21 33 54
Bonds
Fixed interest - UK 303 20 323 292 18 310
- Overseas 231 113 344 137 82 219
Pooled investments
Absolute return - 412 412 - 496 496
Equity 121 - 121 - 86 86
Private equity - 208 208 - 163 163
Fixed interest 347 146 493 - 402 402
Private debt - 463 463 - 455 455
Property - 54 54 - 59 59
Liability-driven investments(12) 9,247 (16) 9,231 9,104 234 9,338
Property (UK) - 459 459 - 343 343
Cash and cash equivalents 444 - 444 468 - 468
Other (3) - (3) 3 - 3
Derivatives (1) (3) (4) - 6 6
RMSEPP buy-in annuity policies - 364 364 - 296 296
--------------------------------- ------ -------- ------ ------- -------- ------
Total plans' assets 10,734 2,272 13,006 10,025 2,694 12,719
--------------------------------- ------ -------- ------ ------- -------- ------
12 This portfolio comprises gilt and swap contracts that is
designed to hedge the majority of the interest rate and inflation
risk associated with the Plans' obligations. At 28 March 2021 it
included GBP9,068 million (29 March 2020: GBP9,332 million) of
index-linked gilts, GBP454 million (29 March 2020: GBP201 million)
of bonds, GBP157 million (29 March 2020: GBP353 million) in
short-term money market funds and GBP27 million (29 March 2020:
GBP95 million negative investment) of cash and similar instruments,
offset by negative fair value investments of GBP457 million (29
March 2020: GBP587 million) of repurchase agreements and GBP18
million (29 March 2020: GBP134 million positive investment) of
swaps.
There were no open equity futures or options derivatives within
this portfolio at 28 March 2021 (29 March 2020: GBPnil). GBP9.1
billion (29 March 2020: GBP8.8 billion) of HM Government bonds are
primarily included in the liability-driven investments balance
above. The plans' assets do not include property or other assets
used by the Group or shares of Royal Mail plc at 28 March 2021 (29
March 2020: GBPnil).
Risk exposure and investment strategy
The Group's defined benefit schemes face similar risks to other
UK defined benefit schemes. Some of the key financial risks and
mitigating actions are set out in the table below.
Investment market movements The 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, forwards and options), from time to time to reduce
risks whilst maintaining
expected investment returns.
In addition to property and cash, the RMSEPP holds two buy-in annuity
policies totalling GBP364
million at 28 March 2021 (29 March 2020: GBP296 million) to match its
liabilities.
----------------------------------------------- ---------------------------------------------------------------------
Interest rates and inflation changes The RMPP's liabilities and assets are impacted by movements in
interest rates and inflation.
In order to reduce the risk of movements in these rates driving the
RMPP into a funding deficit,
the RMPP Trustee has hedged the funding liabilities. It has done this
predominantly through
investment in index-linked gilts and derivatives.
The nature of the risks and their mitigation are similar for the
DBCBS, although the level
of hedging is less than the RMPP.
In the pension schemes, many of the inflation linked increases that
apply are restricted to
a maximum increase of 5% in any year. The pension schemes' rules
therefore give some protection
from the risk of significantly high levels of inflation.
----------------------------------------------- ---------------------------------------------------------------------
Equity exposure The equity exposure of the RMPP has been reduced by means of a short
Total Return Swap (TRS).
This is a derivative that can be used to reduce exposure to a
particular asset class without
selling the physical assets held.
The TRS has a negative market value as at 28 March 2021 of GBP2
million (29 March 2020: positive
GBP9 million) included in the derivative values above. The TRS
economically offsets GBP60
million of the Plan's global equity market exposure at 28 March 2021
(29 March 2020: GBP62
million).
----------------------------------------------- ---------------------------------------------------------------------
Changes in life expectancy The RMPP's liabilities are impacted by longer than expected life
expectancy, resulting in
higher than expected payout levels.
Although this risk is not hedged, mortality studies are undertaken as
part of actuarial funding
valuations and where appropriate updated assumptions are adopted for
accounting valuations.
----------------------------------------------- ---------------------------------------------------------------------
Changes in corporate and Government bond yields A fall in yields on AA rated corporate bonds, used to set the IAS 19
discount rates, will
lead to an increase in the IAS 19 liabilities.
The RMPP's assets included corporate bonds, HM Government bonds and
interest rate derivatives
that are expected to partly offset the impact of movements in the
discount rate. The scheme
is hedged against gilt movements to limit the impact on funding (and
therefore cash) but,
to the extent that gilts move differently to corporate bonds, the
accounting liability is
more exposed.
----------------------------------------------- ---------------------------------------------------------------------
Change in estimates (IAS 8) On 25 November 2020, the UK Government and UK Statistics Authority
published a formal response
on the future of RPI, confirming that RPI will be aligned with CPIH
from February 2030. CPIH
is calculated as CPI plus owner occupiers' housing costs.
As a result, the Group has adjusted the RPI/CPI gap assumption for
the RMPP/RMSEPP and DBCBS
schemes. The single equivalent RPI/CPI gap assumption as at the end
of March 2021 now reflects
an RPI/CPI gap of 1% per annum to 2030 and 0% per annum thereafter.
For RMPP/RMSEPP this results
in a single equivalent RPI/CPI gap of 0.3% per annum (29 March 2020:
0.8% per annum). This
leads to an approximate GBP200 million increase in the defined
benefit obligation for the
RMPP and an approximate GBP25 million increase in the defined benefit
obligation for RMSEPP
at 28 March 2021.
For the DBCBS, the RPI/CPI gap has been set at 0.5% per annum (29
March 2020: 0.8%). The DBCBS
gap is higher than that of the RMPP/RMSEPP to reflect the shorter
duration or this scheme,
meaning more of the liability relates to pre-2030 increases. The
impact of the reduction in
the gap from the prior year is approximately a GBP70 million increase
in the defined benefit
obligation at 28 March 2021.
The discount rate setting methodology, used by the Group's actuary,
has been revised in the
current year, in particular, the method used to decide which
individual bonds are included
in the model that is used to set the assumption. The impact as at 28
March 2021 is an increase
in the discount rate of 10 basis points for all schemes. This results
in a GBP190 million
decrease in the defined benefit obligation for the RMPP, a GBP7
million decrease in the defined
benefit obligation for the RMSEPP and a GBP25 million decrease in the
defined benefit obligation
at 28 March 2021.
----------------------------------------------- ---------------------------------------------------------------------
Further details on key sources of estimation uncertainty
relating to pension assets can be found in Note 1, including
details on how the assets have been valued.
c) Movement in RMPP and RMSEPP assets, liabilities and net
position
Changes in the value of the defined benefit pension liabilities,
fair value of the plans' assets and the net defined benefit surplus
are analysed as follows:
Defined benefit Defined benefit Net defined benefit
asset liability surplus
----------------- ----------------- ---------------------
2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------- -------- ------- -------- ------- ---------- ---------
Retirement benefit surplus
(before withholding tax payable)
at 30 March 2020 and 1 April
2019 11,989 10,803 (6,429) (7,097) 5,560 3,706
Amounts included in the income
statement:
Ongoing UK defined benefit
pension plan and administration
costs (included in people costs) (9) (9) - - (9) (9)
Pension interest income/(cost)(13) 262 258 (140) (169) 122 89
---------------------------------------- -------- ------- -------- ------- ---------- ---------
Total included in profit before
tax 253 249 (140) (169) 113 80
---------------------------------------- -------- ------- -------- ------- ---------- ---------
Amounts included in other comprehensive
income - remeasurement gains/(losses)
Actuarial (loss)/gain arising
from:
Financial assumptions - - (1,748) 751 (1,748) 751
Demographic assumptions - - - (17) - (17)
Experience assumptions - - 97 19 97 19
Return on plans' assets (excluding
interest income) (347) 1,020 - - (347) 1,020
---------------------------------------- -------- ------- -------- ------- ---------- ---------
Total remeasurement (losses)/gains
of the defined benefit surplus (347) 1,020 (1,651) 753 (1,998) 1,773
---------------------------------------- -------- ------- -------- ------- ---------- ---------
Other
Employer contributions - 1 - - - 1
Benefits paid (81) (84) 81 84 - -
---------------------------------------- -------- ------- -------- ------- ---------- ---------
Total other movements (81) (83) 81 84 - 1
---------------------------------------- -------- ------- -------- ------- ---------- ---------
Retirement benefit surplus
(before withholding tax payable)
at 28 March 2021 and 29 March
2020 11,814 11,989 (8,139) (6,429) 3,675 5,560
---------------------------------------- -------- ------- -------- ------- ---------- ---------
Withholding tax payable n/a n/a n/a n/a (1,286) (1,946)
---------------------------------------- -------- ------- -------- ------- ---------- ---------
Retirement benefit surplus
(net of withholding tax payable)
at 28 March 2021 and 29 March
2020 n/a n/a n/a n/a 2,389 3,614
---------------------------------------- -------- ------- -------- ------- ---------- ---------
13 Pension interest income results from applying the plans'
discount rate at 29 March 2020 to the plans' assets at that date.
Similarly, the pension interest cost results from applying the
plans' discount rate as at 29 March 2020 to the plans' liabilities
at that date.
d) Movement in DBCBS assets, liabilities and net position
Changes in the value of the defined benefit pension liabilities,
fair value of the plans' assets and the net defined benefit deficit
during the reporting year are analysed as follows:
Defined benefit Defined benefit Net defined benefit
asset liability deficit
----------------- ----------------- ---------------------
2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------- -------- ------- --------- ------ ---------- ---------
Retirement benefit at 30 March
2020 and
1 April 2019 730 402 (907) (474) (177) (72)
Amounts included in the income
statement
Ongoing UK defined benefit
pension plan and administration
costs (included in People costs) (5) (4) (455) (485) (460) (489)
Pension interest income/(cost)(14) 20 13 (25) (16) (5) (3)
---------------------------------------- -------- ------- --------- ------ ---------- ---------
Total included in profit before
tax 15 9 (480) (501) (465) (492)
---------------------------------------- -------- ------- --------- ------ ---------- ---------
Amounts included in other comprehensive
income - remeasurement losses
Actuarial (loss)/gain arising
from:
Financial assumptions - - (271) 49 (271) 49
Experience assumptions - - 32 (1) 32 (1)
Return on plan assets 103 (51) - - 103 (51)
---------------------------------------- -------- ------- --------- ------ ---------- ---------
Total remeasurement gains/(losses)
of the defined benefit deficit 103 (51) (239) 48 (136) (3)
---------------------------------------- -------- ------- --------- ------ ---------- ---------
Other
Employer contributions(15) 384 390 - - 384 390
Employee contributions 4 4 (4) (4) - -
Benefits paid (44) (24) 44 24 - -
---------------------------------------- -------- ------- --------- ------ ---------- ---------
Total other movements 344 370 40 20 384 390
---------------------------------------- -------- ------- --------- ------ ---------- ---------
Retirement benefit deficit
at 28 March 2021 and 29 March
2020 1,192 730 (1,586) (907) (394) (177)
---------------------------------------- -------- ------- --------- ------ ---------- ---------
14 Pension interest income results from applying the plans'
discount rate at 29 March 2020 to the plans' assets at that date.
Similarly, the pension interest cost results from applying the
plans' discount rate as at 29 March 2020 to the plans' liabilities
at that date.
15 Includes PSE contributions of GBP106 million (2019-20: GBP106
million).
7. Leases
The Group primarily leases office buildings and letter and
parcel processing facilities. At 28 March 2021 the Group held
approximately 1,039 land and building leases (2019-20: 1,110). The
Group also has leases for some of its vehicle fleet and plant and
equipment used in operations. Leases are negotiated on an
individual basis and may include extension or termination
options.
The lease liabilities are reported as follows in the balance
sheet:
At 28 At 29
March March
2021 2020
--------- ---------
Present Present
value value
of of
lease lease
payments payments
Lease liabilities GBPm GBPm
------------------------------------------------- --------- ---------
Current liabilities
Lease liabilities due within one year (197) (201)
Non-current liabilities
Lease liabilities due between one and five years (560) (575)
Lease liabilities due beyond five years (399) (412)
------------------------------------------------- --------- ---------
The right of use assets resulting from lease agreements are
detailed below:
Plant
Land and and Motor Fixtures
buildings machinery vehicles and equipment Total
Right of use assets GBPm GBPm GBPm GBPm GBPm
------------------------- ---------- ---------- --------- -------------- -----
At 28 March 2021
Cost 1,193 188 519 5 1,905
of which additions 73 3 31 1 108
Accumulated depreciation (258) (137) (296) (3) (694)
Deprecation charge (136) (22) (52) (2) (212)
------------------------- ---------- ---------- --------- -------------- -----
Total 935 51 223 2 1,211
------------------------- ---------- ---------- --------- -------------- -----
Plant
Land and and Motor Fixtures
buildings machinery vehicles and equipment Total
Right of use assets GBPm GBPm GBPm GBPm GBPm
------------------------- ---------- ---------- --------- -------------- -----
At 29 March 2020
Cost 1,096 195 504 4 1,799
of which additions 109 3 29 - 141
Accumulated depreciation (133) (125) (275) (1) (534)
Deprecation charge (128) (25) (55) (1) (209)
------------------------- ---------- ---------- --------- -------------- -----
Total 963 70 229 3 1,265
------------------------- ---------- ---------- --------- -------------- -----
Leases in the income statement
Leases are recognised in the income statement as detailed
below:
52 weeks 52 weeks
2021 2020
GBPm GBPm
------------------------------------------ -------- --------
Other operating income
Sublease income 5 3
Material expenses
Expenses from short-term/low-value leases (42) (44)
Depreciation
Depreciation of right of use assets (212) (209)
Net finance costs
Interest expense on lease liabilities (27) (30)
------------------------------------------ -------- --------
The Group enters into sale and leaseback transactions for plant
and machinery and vehicles. Cash received from these transactions
in the year was GBP1 million (2019-20: GBP6 million).
8. Provisions
Charged as specific items Charged in operating costs
----------------------------------- ---------------------------------------------------
Industrial Regulatory Voluntary Property Litigation
diseases fine Other redundancy decommissioning claims Other Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ------------- ------------- ----- ------------ --------------- ------------- ----- -----
At 30 March 2020 (85) (51) (8) (12) (14) (40) (15) (225)
Released/(charged) 16 (1) (1) (109) (8) (41) (6) (150)
Reclassifications - - - - (3) 7 - 4
Utilised 1 - 2 107 2 27 2 141
Forex adjustment - - - - - - 2 2
Unwinding of
discount (1) - - - - - - (1)
------------------- ------------- ------------- ----- ------------ --------------- ------------- ----- -----
At 28 March 2021 (69) (52) (7) (14) (23) (47) (17) (229)
------------------- ------------- ------------- ----- ------------ --------------- ------------- ----- -----
Disclosed as:
Current (6) (52) (1) (14) (3) (44) (4) (124)
Non-current (63) - (6) - (20) (3) (13) (105)
------------------- ------------- ------------- ----- ------------ --------------- ------------- ----- -----
At 28 March 2021 (69) (52) (7) (14) (23) (47) (17) (229)
------------------- ------------- ------------- ----- ------------ --------------- ------------- ----- -----
Disclosed as:
Current (5) (51) (1) (12) (3) (38) (3) (113)
Non-current (80) - (7) - (11) (2) (12) (112)
------------------- ------------- ------------- ----- ------------ --------------- ------------- ----- -----
At 29 March 2020 (85) (51) (8) (12) (14) (40) (15) (225)
------------------- ------------- ------------- ----- ------------ --------------- ------------- ----- -----
Specific items provisions
The Group has a potential liability for industrial diseases
claims relating to individuals who were employed in the General
Post Office Telecommunications division and whose employment ceased
prior to October 1981. The provision is derived using estimates and
ranges calculated by its actuarial adviser, based on current
experience of claims, and an assessment of potential future claims,
the majority of which are expected to be received over the next 25
to 30 years. The Group has a rigorous process for ensuring that
only valid claims are accepted.
The Institute and Faculty of Actuaries (UK Asbestos Working
Party), on whose modelling actuaries rely for their calculations
for asbestos-related ill-health claims, issued revised guidance in
February 2021, based on one of several different models it
maintains. This new guidance indicates a significant reduction in
future liabilities for such claims. Management has considered this
guidance and, based on the view by business that this is the best
information available, released GBP16 million of the provision
balance, recognised as an operating specific item in the income
statement.
In January 2020, Royal Mail requested permission to appeal the
Competition Appeal Tribunal's judgment to the Court of Appeal (CoA)
in respect of the Ofcom fine. On 30 March 2020, the CoA granted
Royal Mail permission and the hearing took place on 20 and 21 April
2021. On 7 May 2021 the CoA dismissed the appeal. Royal Mail is
considering its options, including an appeal to the Supreme Court.
A further GBP1 million interest has been provided in the year in
respect of the original fine, recognised as an operating specific
item in the income statement.
Operating costs provisions
On 25 June 2020 Royal Mail announced a management restructure,
subject to consultation with Unite/CMA, with the expectation of a
reduction of circa 2,000 roles out of a total population of circa
9,700 roles in 2020-21. Following that announcement, a provision
was recognised for GBP140 million at the half year ended 27
September 2020, representing voluntary redundancy compensation and
associated costs. Subsequent extensive work to shape the new
organisational design resulted in a revised provision of GBP93
million. This project, along with other ad-hoc projects, resulted
in an overall charge of GBP109 million for voluntary redundancy
costs for the full year.
Property decommissioning obligations represent an estimate of
the costs of removing fixtures and fittings and restoring the
leased property to its original condition.
Provisions for litigation claims, based on best estimates as
advised by external legal experts, mainly comprise outstanding
liabilities in relation to road traffic accident and personal
injury claims.
Below is a summary of the ageing profile of specific items and
provisions.
At 28 March 2021 At 29 March 2020
-------------------------------------------- -------------------------------------
Expected period of settlement Expected period of settlement
-------------------------------------------- -------------------------------------
Two to After Within One to Two to After
Within One to five five one two five five
one year two years years years Total year years years years Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- --------- ---------- ------ ------ ----- ------ ------ ------ ------ -----
Specific items
Industrial disease
claims (6) (3) (9) (51) (69) (5) (3) (9) (68) (85)
Employee Free
Shares -
NI (1) - - - (1) - - - - -
Legacy property
costs - - - (6) (6) - - (1) (6) (7)
Regulatory fine (52) - - - (52) (51) - - - (51)
Other - - - - - (1) - - - (1)
--------------------- --------- ---------- ------ ------ ----- ------ ------ ------ ------ -----
Total (59) (3) (9) (57) (128) (57) (3) (10) (74) (144)
--------------------- --------- ---------- ------ ------ ----- ------ ------ ------ ------ -----
Operating costs
Voluntary redundancy (14) - - - (14) (12) - - - (12)
Property
decommissioning
obligations (3) (6) (8) (6) (23) (3) (2) (5) (4) (14)
Litigation claims (44) (2) (1) - (47) (38) (2) - - (40)
LTIP - NI - (2) - - (2) - (1) - - (1)
Employee benefits (2) (2) (1) (5) (10) (2) (1) (7) - (10)
Other (2) (2) (1) - (5) (1) - (3) - (4)
--------------------- --------- ---------- ------ ------ ----- ------ ------ ------ ------ -----
Total (65) (14) (11) (11) (101) (56) (6) (15) (4) (81)
--------------------- --------- ---------- ------ ------ ----- ------ ------ ------ ------ -----
9. Contingent liabilities
In October 2018, Whistl filed a damages claim against Royal Mail
at the High Court relating to Ofcom's decision of 14 August 2018,
which found that Royal Mail had abused its dominant position (see
regulatory fine in Note 8). Whistl's High Court claim is on hold
until after the completion of any further appeal process. Royal
Mail believes Whistl's claim is without merit and will defend it
robustly if Whistl decides to pursue it.
FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking statements
concerning the Group's business, financial condition, results of
operations and certain 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', 'would',
'should', 'expects', 'believes', 'intends', 'plans', 'potential',
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END
FR EAESEASDFEEA
(END) Dow Jones Newswires
May 20, 2021 02:00 ET (06:00 GMT)
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